Social Islami Bank ltd

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Social Islami Bank Limited (Sib) & its Principles ORGANIZATION Definition of a Bank:  A bank is a business that deals in money and credit.  Banks are different to other business as they do not sell goods to the customer but they sell financial services. INTRODUCTION

Since the establishment Social Islami Bank Limited has come forward as a private commercial bank and very encourage has come forward as the stimulator of economic activities in the country. The bank has been entrusted with the responsibility of undertaking various steps related to the development of the country’s commercial, industrial and agricultural sectors. The banking sector of a country is called the economic barometer of the country. As a pioneer commercial bank in the private sector in Bangladesh Social Investment Bank provides considerable financial helps in the business sector that imports industrial goods and/or exports excess production outside the country for profit. Thus for imports the Social Investment Bank provides LIM (Loan against Import Merchandise) and LTR (Loan against Trust Receipt) facility and for exports provides both pre shipment and post shipment finances. Thus with these bank helps the prospects in the business sector has increased more than ever before. Competition has also increased in the commercial arena and obviously it is a symbol economic uplift of our country. HISTORICAL BACKGROUND OF SIBL Social Islami Bank Limited (SIBL) is a banking company registered under the companies Act 1994 with its head office 15 Dilkusha C/A, Dhaka-1000. The bank operates as a scheduled bank under a banking license issued by the Bangladesh Bank, Central Bank of the country. Bank started its operation from 22, November 1995. SIBL is a capitalized new generating Bank with an authorized capital and paid up capital of Taka 585 million in 2005 and also. 585 million respectively as of December 2004.Currently the bank has 24 branches of which 12 in Dhaka, 4 in Chittagong, 1 in Sylhet, 2 in Narayanganj, 1 in Bogra, 1 in Khulna, 1 in Rajsahi, 1 in Sirajgonj. More branches are planning to be opened soon. The bank undertakes all types


of banking transaction to support the development of trade and commerce in the country. SIBL services are also available for the entrepreneurs to set up new ventured and BMRE of industrial units. To provide clientele services in respect of international trade it has established wide corresponded banking relationship with local and foreign banks covering major trade and financial interest home and abroad. SIBL understands all types of banking transactions to support the development of trade and commerce of the country. SIBL’s services are also available for the entrepreneurs to set up new ventures and BMRE of industrial units. Since the very inception Social Investment Bank Ltd. is working with the philosophy of serving the nationals as an ideal and unique financial house. Every organization has some objectives of its own. The prime objective of Social Investment Bank Ltd. is to earn profit throw undertaking the responsibility of providing financial help for the development of the country’s commercial and industrial sector. Formation of Social Investment Bank Formation: The Bank was incorporated in Bangladesh in the year 1995 as a banking company under the companies Act, 1994 all types of commercial banking services as provided by the Bank from time to time besides as a matter of policy the Bank conducts its Business on the principles of Mushataka, Murabaha, Bai-Muazzal and Hire Purchase transaction approved by Bangladesh Bank. The Bank is one of the interest-free Shariah Banks in the country and its modus operandi is substantially different from those of other commercial Banks. Register office: 15, Dilkusha C/A, Dhaka, Bangladesh. Fax: 880-2-9559013 Telex: 632285 SIBL BJ e-mail: sibl@bdonline.com Telephone: 9557499, 9568098 Branches: At present, 24 (twenty four) branches are in operation all over the country. A list of branches is appended below: • • • • • • • •

Principal Branch : 15, Dilkusha C/A, Dhaka. Gulshan Branch: 125, Gulshan Avenue, Dhaka. Babu Bazar Branch Branch: 18/4, Armanin Street, Dhaka. Moulvi Bazar Branch: 77/7 Wahid Center, Moulvi Bazar, Dhaka. Panthapath Branch: Bashundhara City Shopping Mall, Panthapath. IDB Bhaban Branch: Sher-E-Bangla Nagar, Dhaka. Sonargaon Branch: Mograpara, Sonargaon, Narayangonj. Foreign Exchange Branch: BIWTA Bhaban, 141-143, Gulshan C/A, Dhaka.


• • • • • • • • • • • • • • • •

Dhanmondi Branch: House # 84, Dhanmondi R/A, Dhaka. Uttara Branch: Plot # 27, Road # 7, Sector # 3, Uttara Mirpur Branch: Block – Kha, Commercial Plot # 29 & 30, Sec – 6, Main Road - 1 Fatullah Branch: Fatullah Bazar, Narayanganj. Hasnabad Branch: Hasnabad Super Market,1st Floor, Keranigonj, Dhaka. Agrabad Branch: 103, Agrabad C/A, Chittagong. Khatunganj Branch: 96, Khatungonj, Chittagong. Halishahar Branch: VIP Plaza, Plot # 15/A, Road # 2, Block-G, Halishahar Housing Chittagong. Jubilee Road Branch: Khulna Branch: 2 Sir Iqbal Road, Khulna. Rajshahi Branch: 219 Shaheb Bazar Main Road, Rajhahi. Bogra Branch: Tin Potty, Borogola, Bogra. Sirajgonj Branch: Bania Potty, Sirajgonj. Chandaikona Branch: Chandai Kona, Sirajgonj. Sylhet Branch: Central Plaza, Amberkhana, Sylhet. Nawabpur Road Branch: 82 Nawabpur Road.

Capital Structure: Capital structure of social investment bank Ltd. is as under: 1. Authorized capital (10000000 ordinary shares of Tk 1000 each) 2. Paid up capital (260000 ordinary shares of Tk 1000 each) The directors may revise the capital structure from time to time according to need. OBJECTIVES & GOALS OF SIBL i)

Sectoral objectives The key sectoral objectives are:

a. To humanize corporate finance in the formal sector through participatory market mechanism with collateral. b. To socialize non-corporate finance in the non-formal sector through non-market and participatory custom-tailored micro-level credit package without collateral. c. To monetize voluntary sector through participatory financing mainly on joint ownership basis. d. To integrate these three sectoral operational activities of the Bank to various willconceived and well-planned “Social Assignment and Investment Schemes” or “Social Fund” for making them economically and ethically “transparent” and “revealed” ii) Overall Operational goals The key thrusts of the operational goals are as follows: a. Empowering the family of the poor by creating their income opportunities as well as strengthening the family of the rich for a better future generation.


b. Re-empowering Islamic Socio-economic Institutions and tools of redistribution of income. c. Achieving sustainable participatory economy, Social Security, and peace for a society. MISSION OF SIBL Social Investment Bank Limiter’s business mission is to assist the business development of private sector institutions, industry, and household. It provides products and services that encourage savings. Then it directs the fund in deposit to invest in other endeavors by extending advances to suit the need of commercial and industrial enterprises. It also emphasizes. It also emphasizes on a reasonable return from its investment to satisfy the shareholders. SIBL’s main business mission is to obtain a sustainable position in the banking sector of Bangladesh as well as internationally. SOCIAL INVESTMENT BANKS CORPORATE SLOGAN: “Working Together For a Carrying Society” VISSION OF SIBL Social Investment Bank Ltd started its journey with the concept of 21 st Century Islamic participatory three sector banking model: i) Formal Sector- Commercial Banking with latest technology; ii) Non-Formal Sector - Family Empowerment Micro-Credit & Micro-enterprise program and iii) Voluntary Sector - Social Capital mobilization through CASH WAQF and others. Finally, "Reduction of Poverty Level" is our Vision, which is a prime object as stated in Memorandum of Association of the Bank with the commitment "Working Together for a Caring Society". FUCNTIONS OF SIBL 1. Mobilization of idle resources of the country by accepting Deposits from the general public. 2. Granting of Loans and Advances to the individual firms and companies for activating and developing trade, commerce and industries and other productive activities in the country. 3. To give facilities to the client and shareholders in a systematic way. 4. To give opportunity of the people to do job in SIBL. 5. To give encourage to the people for savings. 6. To increase investment. 7. To make easy to transfer foreign currency. 8. To identify consumers demand and fulfill their demand by supplying money. 9. To improve economy by borrowing financial facility.


10. To assist capital market. 11. To assist social activities is another function of SIBL.

BOARD OF DIRECTORS Major (Retd.) Dr. Md. Rezaul : Chairman Haque Mr. Md. Humayun Kabir Khan : Vice Chairman Alhaj Nasiruddin,

: Vice Chairman

Mr. Md. Shah Alam

: Director

Alhaj Sultan Chowdhury

Mahmood

: Director

Mr. Kamal Uddin Ahmed

: Director

Mr. Abdul Awal Patwary

: Director

Mr. Munshi Akhtaruzzaman

: Director

Mr. Ahmed Akbar Sobhan

: Director

Mr. Shamsuzzaman

: Director

Mohammed

Mr. Anisul Haque

: Director

Mr. Mohammad Azam

: Director

Alhaj Mohd. Afzal Hossain

: Director

Mr. Md. Sayedur Rahman

: Director

Mr. K. M. Ashaduzzaman

: Managing Director

MANAGEMENT HIERARCHY: CHAIRMAN


MANAGING DIRECTOR DEPUTY MANAGING DIRECTOR EXECUTIVE VICE PRESIDENT SENIOR VICE PRESIDENT VICE PRESIDENT SENIOR ASSISTANT VICE PRESIDENT

ASSISTANT VICE PRESIDENT

FIRST ASSISTANT VICE PRESIDENT

SENIOR EXECUTIVE OFFICER

EXECUTIVE OFFICER

SENIOR OFFICER

OFFICER

JUNIOR OFFICER

ASSISTANT OFFICER


TRAINEE ASSISTANT OFFICER

THE OWNERSHIP PATTERN This is a private sector commercial Bank providing comprehensive range of banking services. The bank is owned as follows: Promoters

50%

Government

5%

Public

45%

At present the Bank has an amount of Tk. 1,128,033,017 million of Authorized Capital and Tk. 585,000,000 million of Paid-up Capital. HUMAN RESOURCE There is no alternative to skilled and trained manpower in service Industry. Bearing this in mind the well educated, promising and honest workers are being appointed and trained. Bank has given top priority for developing skilled manpower and introducing them with modern technologies with the purpose to develop quality customer services. The Bank has undertaken program to train up its employees of all strata at its own Training Institute. A highly experienced person was appointed as Director (Training) of the Institute in the year 2001 with the task of formulating various training modules. Steps are being taken to shift the Institute to separate premises for facilitating training activities. Side by side, both inland and foreign training also imparted during the year as usual. A highly experienced, well educated and motivated workforce is playing vital role towards growth of the Bank deserve appreciation. The number of Executives and Officers as on 31 st December 2006 was 512 as against 455 as on 31st December 2005. TRAINNING INSTITUTE Well educated peoples are needed to achieve the objectives of a firm. With a view to build enthusiastic and skilled working force Social Investment Bank Training Institute was established in 24th October, 1996 at Shyamoli, Dhaka. Every year the Institute trains sufficient number of employees. Twenty five trainers can trained for each batch in this institution. By the side of the new employee/officer, it is possible to trained SIBL’s existing employee/officer. There is a library in SIBL. There is about 2 thousand books remain in this library. Account, Management, Marketing, and Computer related books are in this library. In 2006, 1383 officer and no-officer was trained. Not only are those, the executives also trained up here. FOREIGN CORRESPONDENTS OF SIBL In order to gain maximum advantage from Foreign Exchange related business, the Bank has entered into correspondent relationship with almost all major 122 Banks of 109 countries of the world like Standard Chartered Bank, American Express Bank Limited, HSBC, HBZ


Finance, Mashreq Bank PSC, Dresdner Bank AG and with local banks in Pakistan, India, Nepal and Bhutan etc with whom we have advising, reimbursing and add confirming arrangement. OVERSEAS OPERATIONS OF SIBL Social Investment Bank has set up joint venture Exchange Company named Gulf Overseas Exchange Co. LLc, in Oman contributing 25% of its paid up capital. The present paid up capital of the company is Riyal Omani 1, 82,000.00. The Chairman of the company is the exminister of the government of Oman. The exchange company, established in 1985, now has three branches in Oman and is being managed fully by officials of SIBL. The company is running in profit. SIBL is also exploring possibilities of opening branches in the Middle East, Switzerland and USA. SIBL has entered into the Management contract with a Kuwati Exchange company to provide management and technical services. SIBL has acquired equity and management of Nepal Arab Bank Ltd. which is the largest and highly profitable Private Commercial Bank in Nepal. SOME PRODUCTS & SERVICES  Mudaraba Term Deposit Receipts  Mudaraba Savings Deposit  Mudaraba Notice Deposit A/C  Mudaraba Scheme Deposit  Cash Waqf  Mudaraba Hajj Savings Deposit  Mudaraba Monthly Savings Scheme  Mudaraba Bashsthan Savings Scheme  Mudaraba Special Deposit Pension Scheme (5 Years)  Mudaraba Monthly Profit Deposit Scheme  Mudaraba Education Deposit Scheme  ATM Service Non-Formal and Voluntary Sector Banking Programs: Since the opening of the Bank 22nd November 1995, Non-Formal sector has started implementing its programs in various areas. Those are as follows: A. Environment-friendly program: Tokai Project: The project has a special strategic value. Till December 1995 only one group consisting of six members was formed at Hossain Marker, Utter Badda, Gulshan Thana. Group savings from the members is under process. Formation of more groups of ‘Tokai Pannaya Bavshee’ (Tokai goods Traders) are under process at different areas including Hossain Market. B. Real Life Non-formal School of Management:


As a part of environmentally friendly program, the bank is committed to educate the Tokai and this has a worldwide strategic value. Till December 1995 one Tokai Non-formal School has been started at Hossain Market, Uttar Badda, Gulshan, Dhaka with 30 students with a view to giving them real-life education with Islamic orientation. In the process of learning, the Tokai developed propensity of savings. As a result they are regularly depositing a small portion of their income as savings. C. Mosque Property Development Program: Construction of Mini Market at Kazi Bari Mosque, Uttar Khan, Uttara, Dhaka, consisting of 4 shops has been completed where Bank has invested Tk.1.28 lacs. Recovery rate in this sector is 100 percent. D. Capital Market Instruments-Securitization of voluntary sector: In the voluntary sector, the bank is in the process of organizing Voluntary Capital Market Operation for mobilization of necessary fund and in the process of developing the following financial instruments with different sets of rules in con formality with Shariah: a) b) c) d) e) f) g) h) i)

Waqf Properties Development Bond (specific and general). Cash Waqf Deposit Certificate (specific and general). Family Waqf Certificate. Mosque Properties Development Bond (specific and general). Mosque Community Share. Quarn-e-Hasana Certificate (specific and general). Zakat/Ushar payment Certificate. Non-Muslim Trust Properties Development. Municipal Properties Development Bond (specific and general).

The value of all the bonds and Qurd-e-Hasana Certificate are guaranteed by the Bank against surrender of the instruments on maturity. RURAL CREDIT PROGRAM Agriculture is the main driving force of economy in Bangladesh. And the whole economic growth of the country depends on the development, modernization and investment of money in this connection. As a non-Government financial institution SIBL has been actively participation in rural credit program in the economic activities for large population of the country since 1992. SIBL has been working intensively in collaboration with Barindra Multipurpose Development Authority by conducting the Rural Credit program particularly in Rajshahi, Naoga, Chapainowabgong, and the northern part of the country in general. In the last 10 years bank has distributed the credit for Tk.69.85 million. The recovery of loan in this project is 94%. In 2001 bank has distributed the loan for Tk.7.00million. This is the first program for any private bank. Moreover, SIBL has been participating in Agro Based Industries and Technology Development project Loan financed by USAID since 1996.

BALANCE SHEET AS ON 31 TH DECEMBER, 2006




OPERATING PERFORMANCE Total Operating Income of the Bank as on 31st December 2006 stood at Tk. 632,241,136 million against Tk. 522,144,931million of the preceding year. The Bank made an operating profit of Tk. 295,891,481million in 2006 against Tk. 213,568,303million of 2005. A summery of operating result of the Bank as on 31st December 2006 vis-a-vis the position as on 31.12.2005 is shown below: (Taka in million)

Particulars

31.12.2006

31.12.2005

Growth Rate

Income on Investment

1,898,663,277

1,677,511,184

13.18%

Profit paid to the Depositors

1,596,612,146

1,400,115,021

14.03%

Net Investment Income

302,051,131

277,396,163

8.84%

Commission, Exchange & Other Income

268,731,415

218,535,164

22.97%

Total Operating Income

632,241,136

522,144,931

24.91%

Operating Expenses

336,349,655

308,576,628

9.00%

Profit Before Provision

295,891,481

213,568,303

38.59%

Provision against Investment & Others

175,665,808

159,365,800

10.23%

Profit Before Tax

120,225,637

54,202,503

121.81%

4 BRANCH OPERATION: GENERAL BANKING AREA Financial institution/ intermediary that mediates or stands between ultimate borrowers and ultimate lenders is knows as banking financial institution. Banks perform this function in two ways- taking deposits from various areas in different forms and lending that accumulated amount of money to the potential investors in other different forms. General banking department aids in taking deposits and simultaneously provides some ancillaries services.


General banking is the front-side banking service department. It provides those customers who come frequently and those customers who come one time in banking for enjoying ancillary services. In some general banking activities, there is no relation between banker and customers who will take only one service form bank. On the other hand, there are some customers with who bank are doing its business frequently. SIBL General banking is divided into five sections. 1) Account opening section. 2) Bills and clearing section. 3) Remittance section. 4) FDR section. 5) Cash section. 4.1.1 ACCOUNT OPENING SECTION: Under this section, SIBL officer opens different types of accounts on the request of clients. The procedure of opening account is given is given below. PROCEDURE FOR OPENING OF ACCOUNTS: Before opening of a current or savings account, the following formalities must be completed by the customer: 1. 2. 3. 4. 5.

Application on the prescribed form Furnishing photographs Introduction by an account holder Putting specimen signatures in the specimen card Mandate if necessary

After fulfilling the above formalities, SIBL provides the customer a pay-in- slip book and a checkbook. APPLICATION FORM FOR CURRENT/ SAVINGS ACCOUNT: Followings are the contents of the application form for opening Savings or Current account in SIBL,1) Type of the Account: Individual/ Joint/ Proprietorship/ Partnership/ Limited Company/ Club/ Society/ Co-operatives 2) Name of the Applicant(s) 3) Father’s/ husband’s Name 4) Present Address 5) Permanent Address 6) Number, Date of issue, Date of Expiry & Place of Issue of Passport (if any) 7) Date of Birth 8) Nationality 9) Occupation 10) Nominee (s) 11) Special Instruction of Operation of the Account (if any) 12) Initial Deposit 13) Specimen Signature (s) of the Applicant (s) 14) Introducer’s Information (Name, Account Number, Specimen Signature)


In case of Join Account a) Operation instruction of the account b) Signature (s) In case of Partnership Account a) Partner’s Signature b) Partner’s Name ------The following formality along with the documents is to be completed before opening an account: a) Two copies of photograph of the Account Holder (s) duly attested by the Introducer. b) Account to be introduced properly. c) Introducer’s signature on Account Opening Form to be verified by an officer under full signature. d) Letter of thanks to Account Holder(s) and Introducer to be sent under registered post. e) In case of joint account, operational instructions are to be signed by the Join Account Holders. In case of Club/ Society,a) b) c) d)

Up to date list of office bearers. Certified copy of Resolution for opening and operation of account. Certified copy of Bye-laws & Regulations/ Constitution. Copy of Government approval (if registered.)

In case of Co-operative Society/ societies Limited,a) b) c) d)

Copy of Bye-law duly certified by the Co-operative officer. Up to date list of office bearers. Resolution of the Executive Committee as regards of the account. Certified copy of Certificate of Registration issued by Registrar, Co-operative Societies.

In case of Non- Government College/School/ Madrasha/ Muktab,a) Up to date list of the Governing Body/ Managing committee. b) Copy of resolution of the Governing Body/ Managing Committee. In case of Trustee Board,a) Prior approval of Head Office of the Bank. b) Certified copy of Deed of Trust, up to date list of members of the Trustee Board and Certified copy of the Resolution of Trustee Board to open & operate the account.


In case of Minor’s Account,a) Putting the word “MINOR” after the title of the account. b) Recording special instruction of operation of the account. c) The account opening form is to be filled in and signed by either of the parents or the legal guardian appointed by the Court of Law & not by the Minor. In case of Limited Company,a) Certified true copy of the Memorandum & Articles of Association of the company. b) Certificate of Incorporation of the company for inspection and return with a duly certified photocopy for bank’s records. c) Certificate from the Registrar of the Joint Stock Companies that the company is entitled to commence business (in case of Public limited Co. for inspection and return) along with a duly certified photocopy for Bank’s records. d) Latest copy of Balance Sheet. e) Extract of Resolution of the Board. General Meeting of the company for opening the account and authorization for its operation duly certified by the Chairman/ Managing Director of the company. a) List of Directors with address (a latest photocopy of the form-xii). b) Authorized signature. c) Name. General conditions of governing Current / Savings Account,(a) Minimum Balance to be maintained in current account Tk. 10,000 /- and in Savings account Tk. 5.000/- . (b) A suitable instruction by an introducer acceptable to the Bank is required prior to opening an account. (c) Recent photographs of the Account openers duly attested by the Introducer must be produced. (d) When cheques deposited are payable by other banks or outstation they are available after clearing or collection only, Service charge will be charged @ Tk, 100 /- in Current account and Tk 50 /- in Savings account yearly or as charged by the Bank from time to time as and when required. Provisional profit rate for Savings Account (SB) @ 6.85% (Half years compounding). DEPOSITS ACCEPTED BY SIBL (LOCAL OFFICE) Deposits that are taken by SIBL are: (a) (b) (c) (d) (e) (f) (g)

Current Deposit Saving Deposit. Fixed deposit Receipts. Short Term Deposit (STD) Bearer Certificate Deposit (Bcd). Gift cheque. Marriage pension Scheme.


(h) Deposit pension scheme. Theoretically, total deposits are divided into categories on the basis of withdrawal procedure. Time deposit & demand deposit. In case of demand deposit money is withdrawn on demand. It includes current deposit & saving deposit. on the other hand, A deposit whish is payable at a fixed date or after a period of notice is a time deposit; SIBL accepts time deposit, For example, FDR. Short Term Deposit (STD) is hybrid A/C in which the features of current and saving account exist. In short Term Deposit account the deposit should be kept for at least seven days to get interest. The interest offered for STD is less than that of saving deposit. In SIBL, various big companies, Organizations, government departments keep money in STD accounts. Frequent withdrawal is discouraged and requires prior notice. Provisional profit rate for STD Account – 5.60% (Half years compounding). In SIBL, usually customers give an instruction the Bank that their current account will be debited whenever its deposited amount crosses a certain limit and this amount will be transferred to the STD account. So bank follows this instruction by giving following entries. Customer’s Current A/C Debit. Customer’s STD A/C Credit. Bearer Certificate of Deposit (BCD): The objective of BCD is to convert black money into white and to reduce Hundi business. Bearer Certificate of Deposit account is almost same as Fixed Deposit account. But in case of BCD account no name and address are mentioned, The customer opens this type of account as a bearer, Any person who bears the BCD receipt can encash it. Another difference of BCD with FDR is that the customer deposits the money deducting the interest. AT the maturity he withdraws the total money for whish he opened the BCD account. Interest rate on BCD account is same as Fixed deposit account,For 1 months @ 10.50% For 3 months @ 11.75% For 6 months @ 12.00% For 1 Year or above @ 12.25% Accounting treatment in case of issuing of BCD,Cash A/c Debit. BCD A/c Credit. Accounting treatment in case of encashment of BCD,BCD A/c ......................Dr. Excise Duty on Deposit ........Cr. Tax on Interest ...................Cr. Cash A/C .....................Cr.


BILLS AND CLEARING SECTION: SIBL Local Office branch performs the bill clearing function through Local office. SIBL Local office acts as the agent of all SIBL branches for the clearing house of the Bangladesh Bank. There are two types of cheque which are1. Inward clearing cheque Inward Cheques: Inward cheques are those ones drawn the respective branch which have been presented on other banks and will be cleared / honored through the clearing house of Bangladesh Bank. For example the cheque drawn on SIBL Local Office Br. Then the cheque is called inward cheque of SIBL Local Office Br, Accounting treatment: Customer’s A/C Debit. SIBL General A/c credit. Outward cheques : Outward cheques are those ones drawn on other bank branches which are presented on the concerned branch for collection through clearing house of Bangladesh Bank. These cheques are called outward cheques. For example, the cheque drawn on Mercantile Bank LTD, Kawran Bazar Br has been presented on SIBL Local Office Br. This cheque is called the outward cheque of SIBL Local Office. Hence it is said that the cheque which is the inward cheque of one bank is the outward cheque of another bank. Whenever a cheque is brought to the collection officer does two functions:i. Giving the special crossing with “Dhaka Bank. Local Office Branch, Dhaka” ii. Endorsed by the collecting bank. The following table is showing endorsement of instrument in SIBL. ENDORSEMENT Payee’s A/C credited pay to Mr. X Received payment Payee’s A/C credited

Pay to SIBL. Mr., X

Payee’s A/C credited pay Mr. SIBL Payee’s A/C will be credited on realization

Bills for Collection

Outward Bills for Collection (OBC). By OBC, we mean that those cheques drawn on other banks which are not within the same clearing house. Officer gives OBC seal on this type of cheques and later sends a letter to the manager of the branch of the some bank located in the branch on which cheque has been


drawn. After collection of that bill branch advises the concerned branch in which cheques has been presented to credit the customer account through Inter Branch Credit Advice (IBCA). In absence of the branch of the same bank, officer sends letter to manager of the bank on which the cheques is drawn. That bank will send pay order in the name of the branch. This is the procedure of OBC mechanism. CLEARING: The scheduled banks clear the cheques drawn upon one another through the clearinghouse. SIBL is a scheduled Bank. According to the Article 37 (2) of Bangladesh Bank Order, 1972, the banks which are the member of the clearinghouse are called as Scheduled Banks. This is an arrangement by the central bank where everyday the representative of the member banks gathers to clear the cheques. The place where the banks meet and settle their dues is called the clearinghouse. The clearinghouse sits for two times a working day. The SIBL Local Office Br sends the instruments through Inter Branch Debit Advice (I.B.D.A). SIBL Local Office acts as an agent in this case. For this, Local Office branch gives the following entries, SIBL General A/C (Local Office Br) ---------------Dr. Customer’s A/C---------------------------------Cr. If the instrument is dishonored, the instrument is returned to the Local Office branch through I.B.D.A. along with the following entries, Customer’s A/C---------------Dr. SIBL General A/C------------------Cr.

RECEIVING CHEQUES FOR COLLECTION: In SIBL, cheques of its customers are received for collection from other banks. In case of receiving cheques, following points should be checked very carefullya) The cheques should not carry a date older than the receiving date for more than 6 months. In that case it will be a ‘stale cheque’ and it will not be allowed for collection. Again the date of the cheque should not be more than 1 day’s forward than the receiving date. b) The amount in figures and words in both sides of the pay-in-slip should be same and it should also be same with the amount mentioned in figures and words in the cheque. c) The name mentioned in the cheque should be some in both sides of the pay-in-slip and it should be the same with the name mentioned in the cheque. d) The cheque must be crossed. CHEQUE AND CROSSING: A “Cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable other wise than on demand. [According to section-6, negotiable Instrument Act, 1881.]


A cheque may be classified into: a) An open cheque which can be presented for payment by the holder at the counter of the drawer’s bank. b) A crossed cheque which can be paid only through a collecting banker. Crossing cheque: A cheque is said to be crossed when two transverse parallel lines with or without any words are drawn across the face. Crossing may be general, special or restrictive. Issuing cheque book: Following procedures are maintained by SIBL, Local Office for issuing checkbook. (a) Firstly the customer will fill up the check requisition form. (b) The leaves of the checkbook under issue are counted to ensure that all the leaves and the blank requisition slip are in tact. (c) The officer writes A/C number and branch name on all the leaves of the checkbook. (d) The name and the A/C number of the customer are than entered in the checkbook register against the particular checkbook series. (e) Then the officer sightseer, checkbook, and requisition slip (f) Lastly the checkbook is handed over to the customer after taking acknowledgement on requisition slip. A cover file containing the requisition slip is effectively preserved as vouchers. If any defect is noticed by the ledger keeper, he makes a remark to that effect on the requisition slip and forward it to the cancellation officer to decide whether a new checkbook to be issued to the customer or not. Remittance of Funds: Remittance of funds is ancillary services of SIBL. It aids to remit fund from one place to another place on behalf of its customers as well as non- customers of bank. SIBL has its branches in the major cities of the country and therefore, it serves as one of the best mediums for remittance of funds from one place to another. The main instruments used by SIBL, Local Office Br for remittance of funds. -Pay Order/ Banker’s check. -Demand Draft. -Telegraphic Transfer Bank’s cheque/ Pay order. The pay order is an instrument issued by bank, instructing itself a certain amount of money mentioned in the instrument taking amount of money and commission when it is presented in bank. Only the branch of the bank that has issued it will make the payment of pay order. The banker’s cheque must come the branch for payment wherever it is presented. Issuing of Pay Order:


The procedures for issuing a Pay Order are as follows: 1. 2. 3. 4.

Deposit money by the customer along with application form. Give necessary entry in the bills payable (Pay Order) register where payee’s name, date, PO no, etc is mentioned. Prepared the instrument. After scrutinizing and approval of the instrument by the authority, it is delivered to customer. Signature of customer is taken on the counterpart.

A customer can purchase PO in different modes: By cash: Cash A/C

Debit

Bills payable (PO) A/C

Credit.

Income on commission A/C

Credit.

By account: Customer’s A/C

Debit

Bills payable (PO) A/C

Credit.

Income on commission A/C

Credit.

By transfer: SIBL General/ other Dept Clients A/C

Debit

Bills payable (PO) A/C

Credit.

Income on commission A/C

Credit.

PO A/C is the current liabilities of bank, which is acquired to be discharged by beneficiaries against cash or through an account. Settlement of a PO: When PO submitted by collecting bank through clearing house, the issuing bank gives payment. Bills payable (PO) A/C

Debit

SIBL General A/C

Credit.

But before giving payment it is duty for issuing to observe whether endorsement was given by the collecting bank or not, then the instrument is dishonored and marking ‘Endorsement required’. Cancellation of a Pay Order: If a buyer wants to cancel it, he should submit a letter of instrument in this regard and also return the instrument.


Accounting treatment: Adjustment entry wills beBills payable (PO) ---------------Dr. Customer A/C------------------Cr. When PO is lost: If the instrument is lost, the holder will inform to the issuing bank immediately. Bank will mark ‘stop payment’ on the Bills payable (PO) Register. Buyer will then ask for a new instrument by submitting a GD copy, and indemnity bond. A new instrument will be delivered. Bank Draft: The person intending to remit the money through a pay order has to deposit the money to be remitted with the commission which the banker charges for its services. The amount of commission depends on the amount to be remitted. On issue of the pay order, the remitter does not remain a party to the instrument i) Drawer branch ii) Drawee branch iii) Payee. This is treated as the current liability of the bank as the banker on the presentation of the instrument should pay the money. The banker event on receiving instructions from the remitter cannot stop the payment of the instrument. Stop payment can be done in the following cases: i) ii)

Loss of draft before endorsement: in this case, “Draft reported to be lost, payee’s endorsement requires verification” is marked. Loss of draft after endorsement: In this case, the branch first satisfies itself about the claimant and the endorsement in his favor.

Accounting treatment: In case of issuing of the instrument: Cash/ customer’s A/C---------------------Dr. SIBL General A/C (Drawn on branch)--------------Cr. Income A/C commission---------------------------Cr. After giving these entries an Inter Bank Credit Advice is prepared which contains the controlling number, depicting that the branch is credited to whom it is issued. An I.B.C.A. implies the following entries, SIBL General A/C Issuing Branch ---------------Dr. Drawn on branch-------------------------Cr. Role of the Drawn Branch: After receiving the I.B.C.A. lodgment is done by the branch. The following entries are given “DD In-Issuing branch” register


Issuing branch A/C-------------------------Dr. Bills Payable -------------------------------------Cr. (After receiving an I.B.C.A.) Bills Payable (DD) A/C--------------------------Dr. Client’s A/C------------------------Dr. Entries are given in “DD In-Issuing branch” register,Issuing branch A/C---------------Dr. Bills Payable-------------------------------Cr. (After receiving an I.B.C.A.) Bills Payable (DD) A/C--------------------------Dr. Client’s A/C------------------------Dr. Charges: A commission of 0.15% is taken on the draft value & Tk.50/= is taken as postal charge. Cancellation: To cancel an issued DD, the client has to submit an application. Issuing branch then sends an Inter Branch Debit Advice (I.B.D.A) to the drawn branch against previously issued I.B.C.A. After that the following entries are given,General A/C drawn on branch------------------------------Dr. Client’s A/C --------------------------------------------------Cr. Issuing of Duplicate DD: If the customer wants to issue a duplicate DD, than customer is asked to do the following formalities,i) ii)

Making a general diary (G.D.) in the nearest Police Station. Furnishing an Indemnity Bond in Tk.50/= stamp

The banker immediately marks “stop payment” in the register after receiving the application from the customer and a duplicate DD is issued. Mail or Telex Transfer (TT): Telex transfer is another widely used mode for remittances of funds. In case of telex transfer the message for transfer of funds is communicated through tested telex. SIBL generally recovers from the telex charges in addition to the usual service charges. Issuing of TT:


SIBL follows the following procedures: i) ii)

The customer deposits money with SIBL to be sent. The customer obtains a cash memo containing TT serial number. TT serial number, notifying part name is mentioned in the telex message. The Telex Department confirms transmission of the telex.

iii) iv) Accounting entries for TT:

Cash A/C/ Client’s A/C -----------------------Dr. SIBL General A/C (Local Office branch)---------------Cr. Procedures for the incoming TT: After receiving the telex, it is authenticated by test. TT Serial number is verified by the “TT in-Concern branch” register. The following entries are given in the vouchers,SIBL General A/C (Local Office branch)-----------------------Dr. Client’s A/C------------------------------------------Cr. Tk. 50/= is taken as postal charge. The minimum commission is Tk. 50/= or o.15% of the amount whichever is higher. Fixed deposit: Fixed deposit is one, which is repayable after the expiry of a predetermined period fixed by him. The period varies form 3 months to 1 year. These deposits are not repayable on demand but they are withdraw able subject to a period of notice. Hence, it is a popularly known as ‘Time Deposit’ or ‘Time Liabilities”. Normally the money on a fixed deposit is not repayable before the expiry of a fixed period. Before opening a Fixed Deposit Account a customer has to fill up an application form which contains the followings: a) b) c) d) e) f) g)

Amount in figures Beneficiary’s name and address Period Rate of interest Date of issue Date of maturity Instructions: - To be renewed automatically with interest for the next period. - Not to be renewed for next period. - Pay interest to account no. (-------) on maturity

h) Special instruction i) How the account will be operated (singly or jointly)


j) Signature (s) k) F.D.R. no. Then a FDR account is opened and it is recorded in the FDR Register which contains the following information,a) b) c) d) e) f)

FDR A/C no. FDR (Fixed Deposit Receipt) no. Name of the FDR Holder with address Maturity period Maturity date Interest rate

In case of Fixed Deposit Account the Bank needs to maintain a cash reserve. So SIBL offers a high interest rate in Fixed Deposit accounts. The Insterest rates followed by SIBL in Fixed Deposit accounts are,For 1 month

@10.50

For 3 months

@11.75

For 6 months

@12.00

For 1 year or above

@12.25

The FDR becomes renewed automatically in SIBL if the customer does not encash it within 7 days of maturity. In case of encashment of F.D.R in maturity, following accounting treatments are given: Excise Duty on FDR--------------------Dr. Income Tax on interest ----------------Dr. FDR A/C----------------------------------Dr. Cash A/C---------------------------------Cr. Interest on FDR A/C--------------------Cr. If the customer wants to draw the interest only, then following entries are givenInterest on FDR A/C-----------------Dr. Cash A/C-----------------------------Cr. In case of ‘before maturity enactment’ interest is calculated for the days from the date of opening the FDR account. Cash Section: The cash section of any branch plays very significant role in general banking department. Because, it deals with most liquid assets The SIBL Local Office Br has a equipped cash section. This section receives cash from depositors and pay cash against cheque, draft, PO, and pay in slip over the counter.


Receiving Cash: Any people who want to deposit money will fill up the deposit slip and give the form along with the money to the cash officer over the counter. The cash officer counts the cash and compares with the figure written in the deposit slip. Then he put his signature on the slip along with the ‘cash received’ seal and records in the cash receive register book against A/C number. At the end of the procedure, the cash officer passes the deposit slip to the counter section for posting purpose and delivers duplicate slip to the clients. Account treatment: Particulars

Dr./Cr.

Cash A/C

Dr.

Customer’s A/C

Cr.

Disbursing Cash: The drawn who wants to receive money against cheque comes to the payment counter and presents his cheque to the officer. He verifies the following informationa) b) c) d) e) f)

Date of the cheque Signature of the A/C hold Material alteration Whether the cheque is crossed or not Whether the cheque is endorsed or not Whether the amount in figure and in word correspondent or not

Then he checks the cheque from computer for further verification. Here the following information is checked: 1) Whether there is sufficient balance or not 2) Whether there is stop payment instruction or not 3) Whether there is any legal obstruction (Garnishee Order) or not After checking everything, if all are in order the cash officer gives amount to the hold and records in the paid register. Account treatment: Particulars

Dr./Cr.

Customer’s A/C

Dr.

Cash A/C

Cr.


The cash section of SIBL deals with all types of negotiable instruments, cash and other instruments and treated as a sensitive section of the bank. It includes the vault which is used as the store of cash instruments. The vault is insured up to Tk. 60 lacs. If the cash stock goes beyond this limit, the excess cash is then transferred to Head Office. When the excess cash is transferred to SIBL Head Office. The cash officer issues IBDA. Account treatment: SIBL General A/C

Dr.

Cash A/C

Cr.

When cash is brought from SIBL Head Office then,

Account treatment: Cash A/C

Dr.

SIBL General A/C

Cr.

Locker Service: SIBL Local Office Br is providing facility of locker service for the purpose of safeguarding the valuable property of customers. The person or organization that has any account in bank branch can enjoy this service. They keep their valuable assets in banker’s custody. Customers have right to look after with a key of their individual locker provided by bank. SIBL maintains the following types of lockers: ------ Large locker. ------ Medium locker. ------ Small locker. For enjoying this service, clients have to give charge yearly Tk. 1500, Tk. 1250 and Tk. 700 for large, medium and small locker respectively. Closing of an Account: For two reasons, one can be closed. One is by banker and other is by the customer. By banker: If any customer doesn’t maintain any transaction within six years and the A/C balance becomes lower than the minimum balance, banker has the right to close an A/C. By customer: If the customer wants to close his A/C, he writes an application to the manager urging him to close his A/C. Different procedures are followed in cash of different types of A/C to close. Fixed deposit A/C is closed after the termination of the period. BCD A/C is closed when the certificate is surrendered.


Closing process for current & savings A/C: i. ii. iii. iv.

After receiving customer’s application the officer verifies the balance of the A/C. He then calculates interest and other charges accumulated on the A/C. If it bears a credit balance, the officer writes advice voucher. He gives necessary accounting entries post to accounts section. The balance is returned to the customer. And lastly the A/C is closed.

But in practice, normally the customers don’t close A/C willingly. At times, customers don’t maintain any transaction for long time. Is this situation at first, the A/C becomes dormant and ultimately it is closed by the bank.

Observations & Recommendations: 1) Theoretically any person can purchase pay order, demand draft and telex transfer by depositing money and commission. But then person who want to purchase these should have account in the bank branch. These will discourage customers to transact with bank. 2) In opening A/C some additional documents are needed as compared with theoretical record. Like trade license, member of Dhaka chamber of commerce and industry (DCCL) in Dhaka city. Again some documents are not essential practically as referred in theory. For example, the photo of the person who will open A/C, and sometime introducer. 3) There is a rule to deposit at least an amount of money in case of opening an account. But it is not strictly followed. Sometimes more money is asked from a new customer who discourages him to open an account in the bank. I think the amount should be fixed at a level that is not altered from customer to customer. 4) Theoretically any person can purchase pay order, demand draft and telex transfer by depositing money and commission. But the person who wants to purchase these should have account in the bank branch. These will discourage customers to transact with bank. 5) In opening A/C some additional documents are needed as compared with theoretical record. Like trade license, member of Dhaka chamber of commerce and industry (DCCI) in Dhaka city. Again some documents are not essential practically as referred in theory. for example, the photo of the person who will open A/C, and sometime introducer. 6) There is a rule to deposit at least an amount of money in case of opening an account. But it is not strictly followed. Sometimes more money is asked from a new customer who discourages him to open an account in the bank. I think the amount should be fixed at a level that is not altered from customer to customer. 7) In case of crossing cheque I did not observe any crossing with “Not negotiable” as much as I stayed in bank orientation. Though theory have been given emphasis on the effect of “A/C pay only” and “not negotiable”. The role of “Not negotiable” is not so much. There is no provision in law regarding “A/C payee crossing”. But it has been developed in


practice. If the words, “A/C payee” are added to a crossing, it becomes an A/C pay crossing. 8) The degree of relationship between banker and customer determines how much theory is deviated from practical work. FOREIGN EXCHANGE BANKING AREA Foreign Exchange Foreign Trade: Foreign trade constitutes a sizable portion of international transactions of a country. Payment received for exports and made for imports form a substantial part of its remittances from and to other countries. In our country a major share of the current balance of payments is made up of exports and imports of merchandise on private and government account. Thus, trade is the most important factor giving rise to payments between countries. Foreign trade is a type of specialization, which like other forms of specialization increases productive efficiency and standard of living of the people of the country concerned. Need for Foreign Trade: Foreign trade enables a country to have a much larger flow and much more diversified form of wealth than what is possible without it. The residents of a country are able to enjoy the use of commodities which otherwise may not be available to them at all. There is a wide difference in respect of the material and human resources, stage of technical and scientific progress, and possession of capital equipment in different countries. No country is in a position to produce everything in quantities large enough to provide its people a reasonably high standard of living. A country, therefore, enters into trade relations with other countries on account of certain basic differences due to topographical reasons in its economy from theirs. Commodities are imported because either they cannot be produced in the country at all or can be produced at a very high cost. Import of such commodities is a convenient and cheaper way of getting them. In exchange for imports, a country has to export certain articles because normally imports can be paid for only by exports. A country’s exports usually comprise commodities the cost of production of which is less than the cost of importing them. Thus the need of the people of a country for its scarce resources and in exchange the surplus of some of their resources constitute the import and export stimulate the foreign trade which is intern mobilized by foreign exchange proceedings. TYPES OF FOREIGN TRADES DEALT IN BANKS Foreign trades are mainly of two types. These two are: Import Trade & Export Trade. The import and export trade of Bangladeshis is controlled under the Import and Export Control Act, 1950. In normal sense the imports involve outward remittances and the export involves inward remittances. The terms and conditions of contracts between the importers and the exporters and the eventual remittances in foreign countries are subject to such restrictions and formalities as are laid down from time to time by the Import and Export Control and Exchange control in their respective jurisdiction which the importers and exporters must comply with.


Import Trade: When a particular country wishes and does bring in some goods and services from another country, trade occurring between these two countries is called import trade. Import trade means procurement and purchase of goods and services from another country or countries. Therefore, purchasing function of international trade is called import trade. Export Trade: Selling of goods and services or other sales related function for the transfer of surplus goods or services for a value or just to merchandise them abroad trade occur between countries. Thus export or sale of additional goods and services or surplus goods and services is called export trade. There is an another peculiar type of export trade named Re-Export Trade.

IMPORT The bank defines import as to bring in, from abroad, something in kind of goods or services (to behave lawfully). It includes the following services: 1. Letter of Credit (L/C) opening. 2. Presentation/Retirement of import documents. The import mechanism first involves the issuing of a L/C as an instrument by a bank on behalf of one of its customers, authorizing an individual or a firm to draw draft on the bank or on one of its correspondents for its account under certain conditions stipulated in the credit. Secondly the bank import mechanism involves the retirement of import mechanism on receiving the payment or under certain conditions against the security of payments made by the importer in documents stipulating an advance payment date. IMPORT OPERATION Actually the import procedure is a result of a two-party negotiation or contract. Once the importer has accepted the supplier’s offer, he agrees to open a Letter of Credit in favor of the latter. Thus the import procedure of the bank starts with the opening of the credit. The entire import mechanism of this branch is enumerated below. Terms of Credit: First of all the concerned banker asks the importer to present and show the terms of the credit that the importer wishes to issue. The terms of the letter of credit are based on the contract between the importer and the exporter and the import license or the authorization permits for import under free list as the case may be, issued in the named of the concerned importer. The terms of the credit specify importantly, amount of the credit, name and address of the beneficiary and the opener, particulars of the goods, their make, quantity and price basis, tenor of bill of exchange, period and mode of shipment, whether part shipment allowed, port of shipment and of destination, nature of credit, expiry date, names and number of sets of shipping and other documents. Letter of Credit Application: For the purpose of the opening the credit the importer is required to fill up and sign a stamped Letter of Credit application, which, in addition to


recording the full details of the credit including instruction for booking exchange, serves as an agreement between the banker and the opener. Presentation of the application for Opening of the Letter of Credit: When the importer requests the bank for the opening of a L/C, by agreeing to the request, the bank makes a promise of payment to the supplier by issuing it. But the importer must make out an application for this purpose. The application must be written in a plain paper or Letter Head pad and it should be submitted being attached with the following certificates and papers: If the importer is an individual: 1. Current Deposit A/C No., 2. Partnership Deed and Solvency Certificate (If partnership firm), 3. Article of Association (If Private Limited Company ), 4. Memorandum of Association (If Private Limited Company), 5. Certificate of Commencement of Business (If Public Limited Company), 6. Photocopy of Trade License (valid), 7. Photocopy of VAT Registration Number, 8. Photocopy of Tax Identification Number (TIN certificate), 9. Import Registration Certificate from CCI&E, (Renewed and valid). 10. Required amount of Registration Fee. IRC issue fee: IRC Issuing

Import Limit

Fee Tk. 500

Highest annual imports limit 5 Lac.

Tk. 1500

Highest annual imports limit 15 Lac.

Tk. 3000

Highest annual imports limit 50 Lac.

Tk. 5000

Unlimited annual import capacity.

Table No.1: Fees for issuing Import Registration Certificate Besides, these documents stated above the bank may ask for certain other documents submitted by the importer prior to issuance of the credit. Like, Photocopy of Membership Certificate of Chamber of Commerce & Industry, photograph of the applicant, Minimum three copies of Proforma Invoice/Indent/Sale Contract (dully accepting the rate of goods offered) etc. Bank Scrutiny of the Documents Before Opening of the Credit: On receipt of the application form with other required documents submitted by the opener they are thoroughly scrutinized. The points, which are carefully scrutinized, are followings: 1. Indenting the registration number. 2. That the IRC is updated or renewed and valid.


3. That the goods are marketable and legally importable and that it is not difficult for the beneficiary to comply with all terms and conditions to be incorporated in the L/C. 4. That the L/C is not going to be opened in favor of the importer. 5. That the importer signs it, agreeing terms and conditions. 6. That the Insurance Cover Note specifies the date of shipment. 7. That it encloses Radioactivity Report in case of food item. 8. That the Import Permission (IMP) form is dully filled in and signed. 9. That the liability, as being applied, is under appropriate limit. 10. That the amount does not exceed the L/C value and is identical with invoice amount and that the amount in figure and in word is same. 11. That it encloses credit report of the beneficiary in cases when the L/C value is more than US $ 20,000. 12. That the tenor, if, the draft is strictly in conformity with the terms stipulated in the L/C i.e., at sight or usance and that the transcription or partial shipment is allowed. The terms and conditions of L/C application are consisted with exchange control and import trade regulation, UCPDC – 500. If all the documents are along with application are in order, the concerned banker will advance with these documents for opening. Preparation of Proposal for the Opening of the Letter of Credit: On careful examination and scrutiny of the documents if the issuing banker assumes that everything is consistent and the application is considerable, then he begins preparing a proposal stipulating the applicant’s financial position, creditworthiness showing the CIB (Credit Information Bureau) report, previous relationship with the bank, total L/C amount, amount of margin proposed by the importer etc. After preparing the proposal of opening the credit the banker will sent it to the import depart department in-charge for approval. In Foreign Exchange Branch the import department is controlled and directed by a Vice President (VP). The VP is given the power to approve and sanction a ‘Limited’ amount of L/C. In other cases, when the L/C amount exceeds the ‘Limit’ or capacity of the branch, approval of ‘Head Office’ will be required for its opening. After the issuance of L/C the banker asks the importer to sign on some ‘charge documents’. Charge documents are bank-printed documents and these documents get validity as soon as the buyer or the credit seeker signs own it by giving the bank the power to charge the buyer with the rights as given on the documents. Usually these documents are guards against the bank’s guarantee of issuing the credit. When the importer fails to pay or make any other type of default with the credit, the bank use these documents and goes to the court to charge him. The Foreign Exchange branch normally takes the following documents signed by the importer just before mailing of the credit to the advising bank: 1. Promissory Note, 2. Letter of Disbursement, 3. Letter of Continuity, etc. Release of Import Documents to the importer: After the lodgment vouching the PAD section of the import division ask the importer to make payment due and take delivery of the import documents and bills in order of getting the imported merchandise released from the port. In this stage of documentary import mechanism again two questions come forward: the response and non-response of the importer to take


delivery of the documents and bills. If the buyer agrees to take delivery of the import documents and bills and makes the total payment due (L/C amount – margin amount + interest charged on this deducted amount), the bank retires the import bills on his authorization. EXPORT Exports, for obvious reasons, are listed in the priority sector in all developing economies. There is no doubt in this fact that export trade constitutes the most substantial base for sustaining the long term development and prospect of a country’s economy. Bangladesh is also now a developing country. So this fact is equally relevant to the concerned economic soundness of Bangladesh. We all know about the ‘Balance of Payment’. If a countries total import outweighs its total export, the country is called to be facing drastic negative (unfavorable) balance of payment. A continuous negative balance of payment of country makes it totally dependent on others. And thus the economic standing and structure of that country gradually collapse. On the other hand a positive (favorable) balance of payment shows the greater amount of export by a country against its total import and shows a sound economic motion. Thus export is a most import mechanism that helps a country to be dependent and to produce goods or merchandise either through its internal resource or through procuring resource from external sources. Whatever the source is the export helps a country to build its capital reserve more promisingly. Bangladesh is also now very much keen to boost up its export. But the most stumbles’ blocking the process is the non-availability of required finance. There is neither adequate capital in the hands of the exporter to meet up their foreign trade requirements nor their exists an organized capital market to extend fair hand as help for the finance. In view of this, commercial banks of this country are the only real friendly base, which recently have started playing a challenging and pivot role in the business sector through extending both pre and post trade finance to the exporters and importers. Export Policy 1997-2006: Target: 1. To attain highest national growth by increasing export to regional and international markets; 2. To reduce gradually the gap between export and import expenditure; 3. To produce export commodity at a competitive price aimed at market retention and promotion; 4. To avail the opportunity to enter in liberalized and globalize ‘Post-Uruguay Round International Market’; 5. To make goods exportable and more suitable for foreign markets by diversification and quality improvement; 6. To establish backward linkage industry and services and identify higher value added goods; 7. To develop infrastructure for exports; 8. To create skilled manpower in export sector; 9. To upgrade the quality and grading of commodity to an internationally recognized level. The normal export mechanism is much like the procedure maintained in a typical import mechanism. Whereas in case of import the party is the importer and the bank acts as the opener of his credit, in case of export the party is the exporter and the bank acts as the


negotiator of his documents. In our country the most promising exporters are the garments industries. About 76% of the total exports of our country is made by the garments sector. The underlying reason of success of this sector in exports is the availability of the huge amount of cheap labor. But because of inadequate supply of locally produced quality fabrics and accessories, we have to import about 60% of the fabrics and accessories from abroad for use in the garments industry. This is actually a time consuming and costly process for the garments sector. So considering the significant contribution of the garments sector in the export trade the private commercial banks have undertaken an especial arrangement to provide them with export finance, which is called the foreign Back to Back Letter of credit (BTB). BANK MECHANISM IN EXPORT As stated earlier, the foreign trade plays a vital role in the economic advancement process of nation. So the trend or parameters of foreign trade i.e., import and export is of great concern to the government of a country. By the term ‘Export’ we mean carrying of anything from the country of origin to another country in return for a value. The bankers define ‘Export’ as the sending of visible things outside the country for sale. The export is important because with the export earnings we met our import bills. Normally a bank provides the following services as with the party in case of export needs. Obtaining of Export Registration Certificate (ERC): When the party or the exporter receives any export order after negotiation with the importer, he comes to the bank and asks negotiate his transaction with the importer’s correspondent. In such a case the bank first advise him to obtain Export Registration Certificate from CCI&E (Chief Controller of Import and Export). Procedure for obtaining ERC: For obtaining Export Registration Certificate (ERC), intending Bangladeshi Exporters are required to apply to the Controllers/Joint Controller/Deputy Controller/assistant Controller of Imports and exports in the prescribed form along with the following documents: 1. Nationality and Assets Certificate of the Proprietor/Partners/Directors; 2. Registered Partnership Deed in case of Partnership Concerns; 3. Memorandum and Article of Association and Incorporation Certificate in case of Limited Company; 4. Bank Certificate; and Income Tax Certificate; 5. Copy of valid Trade License and 6. Copy of Rent Receipt or the Business Premises. On receipt of necessary advise from the Offices of the concerned Controller of Imports and Exports, applicants of Export Registration Certificate are required to deposit Registration Fee of Tk. 1000 (subject to change) in to the Government head of account “24- Trade and Commerce-Fees Realized under Import and Export Control Act, 1950” through Bangladesh Bank or Government Treasury Sonali Bank. Copies of Treasury Challans showing payment of fees should be sent to the concerned offices of the CCI&E for enabling them to issue Export registration Certificate. Once it has been registered, the exporters are to make annual payments of Tk. 1000 (subject to change) only for having the ERC renewed.


Receiving Advising of Letter of Credit: Normally the exporter receives Letter of credit in two forms: 1. Cable 2. Original The imported terms and conditions of the L/C are communicated by the L/C opening bank to the exporter’s bank through cable, which is followed by the original L/C. The L/C received through cable generally covers the following points: 1. The name of the importer; 2. The name of the exporter; 3. Description of goods (in short detail); 4. Expiry date of the Letter of Credit; 5. Shipment date, etc. Usually, a few days after the receipt of the L/C (cable or original), the exporter’s bank ascertains the correctness of the test number (incase of cable) and the authorized signature. If found in order, the bank brands its stamp on the L/C and put the L/C No. Then the bank makes entry of the particulars of the L/C into the Register of Letters of Credit Established by the Foreign Banks. After that the exporter’s bank sends the original copy of the L/C to the beneficiary (the exporter) without engaging any responsibility on its part. The particulars of any subsequent amendment of the Letter of Credit are written down in the Register and the amendment is advised to the beneficiary. Issuing of EXP (Export) Form: After the receipt of the advising bank’s letter, the exporter is required to issue an Export Form by the Authorized Dealers. The ‘EXP’ Forms are numbered serially and issued in quadruplicate. Before the export forms are lodged by the exporters with the Customs/Postal Authorities, they should get all the copies endorsed by the Authorized dealers. For delay in repatriation of export proceeds or non-realization of export proceeds, the exporters render themselves for action under Foreign Exchange Regulation Act, 1947. Authorized Dealers and their officials who certify the export forms also render themselves on such action by the Bangladesh Bank. Disposal of ‘EXP’ Forms: Original

: From Custom Authority to Bangladesh Bank;

Duplicate

: From Negotiating Bank to Bangladesh Bank after negotiation;

Triplicate

: From Negotiating Bank to Bangladesh Bank after realization of the proceeds of the export bill; and

Quadruplicate : Office Copy of Negotiating Bank. Examination of the Documents: After the issuing of the ‘EXP’ form the exporter proceeds for the shipment of the goods to the buyer’s destiny. As soon as the shipment of goods is made, the exporter prepares the Bill of Exchange and submits it with other export documents to Authorized Dealer for negotiation of the same. As the banker deals only with documents not with the commodity, they should be


very much careful about the genuineness and correctness of the documents evidencing shipment of the respective commodities. The banker is to ascertain that the documents are strictly as per the terms of L/C. before negotiation of the export bill, the banker is to scrutinize and examine each and every document with great care. Negligence in the part of the banker may put the importer abroad into unnecessary troubles. As regard to examination of other documents, it is to be thoroughly checked and ensured that the documents are prepared strictly in conformity with the terms and conditions of the relative L/C. 4.2.1.6 Export Finance In The Form Of Btb L/C With Special Emphasis On Grment Industries Today the garment products of our country have captured much of the foreign markets successfully. The rise of ‘Garments Industry’ in Bangladesh has been described as the “Rise of phoenix from the ashes”. Starting in late 70’s as a small non-traditional sector of export, Ready-made garments (RMG) emerged as a promising export earning sector of the country by the year 1983. In 1978 the country had less than a dozen small manufacturers of garments industry. But within a span of two decades, the country now has 2963 registered RMG factories. The sector is now the leading Foreign Exchange earner of the country and a strong driving force of the economy. The RMG sector of Bangladesh now contributes 76% of the country’s total Foreign Exchange earnings through export. For the last 20 years, the sector consistently flourished, sometime @20%. The statistics given in the next page testifies the status and the amazing growth of RMG sector. It is estimated that garments sector now employ over 1.7 million workers of whom about 85% are women. Starting with an export earning of Tk. 1.00 crore in 1979-80, the phenomenal growth of the industry has created a history by earning of about Tk. 20,500.00 crore in the 1998-99 fiscal year out of Tk. 27,100.00 crore of total export earning of the country which is 75.66% of the total export. Bangladesh now exports about 100 categories of garment products. The European Union is the topmost buyer of the Bangladeshi garment products. About 52.38% of the total RMG exports were made to the European Union during 1998-99 totaling US$ 2105.64 million. Bangladesh is the fifth largest garments exporter in the European Union Market. The second largest buyer of our RMG products is the United States of America, which import 42.24 of our exported RMG products totaling US$ 1738.33 million. In US market Bangladesh has occupied the sixth position through exporting of the RMG products. This impressive performance has been possible because of the cheap labor cost of production as well as for the high product quality. Export Finance: “Export or perish” is the slogan of all the countries in the world to have a favorable Balance of payment position in their International Trade and to accumulate national wealth in increasing the GNP of the country. As such, all the countries endeavor to formulate an export policy conducive in fostering the export of the country and thereby increasing export earning. Government therefore always provides some sort of incentives or subsidies in the export trade of the country. The garments in our country are the most vital export parties. About 76% of the total export is made by the garments industries. So considering the significant contribution of this sector the ‘Private Commercial Banks’ have undertaken to provide various soft arrangements and financial incentives and facilities in order boost up the export of RMG sector. Bangladesh Bank issues guidelines to all schedule banks from time to time streamlining the procedures for providing export credit to the RMG sector which are enumerated below:


Working Capital: Against irrevocable Letter of Credit received by the Ready Made Garment Industries, the bank may provide pre-shipment credit including the Back to Back Letter of Credit up to 90% of the value of the export order. For instance, if the amount of a Back to back Letter of Credit opened by the bank is equivalent to 75% of the value of export order, the bank may provide credit facilities in local currency equivalent to 10% to 15% of the value of export order for meeting other local expenses e.g., salary, wages, electricity bill etc. Back to Back L/C: Banks may extend Back to Back credit facilities to the extent to cover all genuine export orders to garments units enjoying high reputation and standing without asking for any margin or collateral. Back to Back L/C (BTB L/C) facilities may be allowed against irrevocable Letter of Credit issued by the International Banks of repute. Local Procurement of Fabrics: Banks should also provide credit facility towards working capital to the local fabric manufacturing units on the strength of local Back to Back Letter of Credit opened by the Ready Made Garment Industries against export orders. BTB L/C for Import of Raw materials to the Supplier/Manufacturer of Fabrics /Accessories: Banks may also open Back to Back Letter of Credit for import of yarn, dues, chemicals, sizing materials for the supplier or manufacturer of fabrics/accessories of garments without margin on deferred payment basis. Concessional Interest Rate: Concessional rate of interest is being provided to the garment industries for a period of 180 days as pre-shipment credit. Category Of Back To Back Letter Of Credit: The back to back letter of credit are of two categories: a) Foreign Back to Back of Letter of Credit b) Locals Back to Back Letter of Credit. Foreign Back to Back Letter of Credit : Because of inadequate supply of locally produced quality fabrics and accessories, we have to import about 60% of the fabrics and accessories for use in the garments industry. So the question of opening foreign back to back letter of credit arises. Local Back to Back Letter of Credit: On account of readymade garment units under bonded warehouse system banks may open local BTB L/C against any export order and master L/C in favor of local manufacturer-cum-supplier of fabrics and accessories. DOCUMENTS USED IN FOREIGN TRADE RELATING TO BILLS Every import and export involves documentary transaction of goods and services between or among the parties involved (or between or among their supporting banks). Most of the foreign trade and their exchanges are now held in the form of documentary Letter of Credit (LC). Documentary letters of credit issued to finance the shipment of goods involve the drawing of bills of exchange, which have to be accompanied by what is known as “full set of shipping and non-shipping documents�. The attachment of these documents to the bill is an essential obligation of the seller and the buyer so as to serve the purpose. These typical documents can be divided into two main parts. These documents are Shipping documents and Non-shipping documents. These documents are the followings: Shipping Documents: Shipping documents are those documents, which are mainly given by the exporter to the importer after the shipment of the goods or services as been negotiated. It


is impossible to release the goods or commodity from ship/port without these documents. These documents are described below: Bills of lading: The bill of lading is one of the most important shipping documents, which accompany bills of exchange drawn under letters of credit. It is an evidence of the fact that the exporter has dispatched the goods and gives the exporter title to the goods and enables him to collect them on arrival at the destination. The bill of lading is more like a transferable debenture. It is a document signed and issued by the shipping company or it’s agent acknowledging the receipt of specified goods for carriage and embodying an undertaking that the goods will be delivered to a consignee named in the bill, or to his order or assigns, or merely to order. The document specifies the port of shipment, the destination, and the conditions under which the goods are received for carriage. “Clean” and “Claused” Bill of Lading: A bill of lading that indicates that the goods are in apparent good condition without any without any qualification is known as a “clean” bill of lading. If, on the other hand, it bears some remark relating to a defect in packing, such as ‘three bags torn’, ‘some cases broken’, ‘received in dampened condition’, ‘goods not sufficiently packed’, etc., it is known as a “foul” or “dirty” bill of lading. It is also known as a “claused” bill of lading. A “claused” bill of lading is not an acceptable document, unless specifically provided for in the sale and purchase contract. Such remarks protect the carrier against any claim for losses attributable to bad packing. They also protect every one else who comes in possession of the bill of lading for value. “On Board ” and “Received for Shipment” Bill of Lading: When shipping space is ample and sailings are regular this type of certificate is easy to get. An “on board ” bill of lading is satisfactory from the viewpoint of the all the parties concerned. The consignor is assured that the goods have been loaded and will reach the destination. The consignee has equal assurance when he receives the documents that the goods will arrive in time and will be available to him on surrender of the documents. “Received for shipments” bills of lading have, therefore, vital lacunae and are not acceptable to buyers and bankers. The buyer receives the documents but may not be sure that he will get the goods in time. The merchandise may consist of perishable goods, which, if delayed in transit, may not remain saleable. Buyers and banks, therefore, ask for “on board” bills of lading. “Through” Bills of Lading: Sometimes, when goods are carried overland and overseas, or during the sea voyage have to be transshipped at an intermediate port, the carrier that takes the goods first issued a “through” bill of lading. A railway company may issue a “through” bill of lading that serves both as a railway receipt and some kind of bill of lading for the sea voyage. Such a document, however, lacks authority to bind the ship owner who undertakes the sea portion of the carriage. This kind of the bill does not provide any assurance that actual shipment on the named vessel took place. The banker has a right to reject such a bill in connection with a credit, which calls for delivery of a bill of lading, unless there is a specific authorization for its acceptance. “Straight” and “Order” Bill of Lading: A “straight” bill of lading is one, which is made out in the name of a consignee. At the port of destination it is not necessary to present a straight bill of lading to take the delivery of goods, except where it is necessary for the purpose of identification. An “order” bill of lading is one, which is made out to the order of


the consignor or supplier. It can be transferred by endorsement to other parties. Such a bill of lading usually contains a condition directing the shipping company to notify the consignee when the goods arrive. Charter Party Bills of Lading: This is a contract for the hire of whole ship or part of a ship setting forth in detail the rights and obligations of the owners and liners or charterers. Charters are usually arranged by “ship brokers”. They are for their services charging a small commission on the total amount agreed upon for hire. Charters are divided into “time” charters and “voyage” charters. The former is for specified period of time, while the latter is for particular voyage. A charter party specifies, among other details, the particular ports to which the ship is to go, the cargo to be carried, and the freight to be paid for the hire of the ship. Stale Bill of Lading: A bill of lading is said to be “stale” if it bears a date subsequent to the expiry date of the credit under which the goods are shipped. It shows that the goods were put on board the vessel on a date later than that authorized under the credit. A bill of lading may also be considered stale if it is presented so long after the sailing of the carrying vessel that the goods will be reaching the port of destination long before the buyer will get possession of the goods when they arrive at destination. Airway Bill: Airway bills or air consignment notes are issued by airlines or their agents as a receipt of consignment received as carrier. It is normally issued in triplicate and by the airline. The first copy is for the carrier, the second for the consignee and the third for the consignor. An airway bill does not constitute a title to the goods and is, therefore, not a negotiable instrument. Insurance Policy: There are many risks involved in the import and export business as the goods are shipped and travel thousands of miles and often more than that to the buyer’s destiny. There are obvious risks of damage, loss, or destruction of goods during transit by sea, air or by road. For this reason, the buyer asks insurance of goods to be shipped to him from the exporter or seller of them. Insurance policy is a kind of agreement between exporter and Insurance Company to reduce the risk. Exporter sends this document with shipments to the importer. Marine Insurance Policy: A marine insurance policy is a contract between the insurer and the insured whereby the former, in consideration of the payment of a premium by the latter, agrees to indemnify the latter against loss incurred by him in respect of goods exposed to “perils of the sea” or to the particular perils insured against. The marine insurance is the responsibility of the buyers (consignee) under F.A.S., F.O.B. and C&F contracts and of the seller (consignor) under C.I.F. contract. The sum insured should be the C.I.F. value of the goods. Where the C.I.F. value cannot be ascertained the amount should not be less than the amount of the drawing under the credit or invoice value of the goods. Like a bill of lading it must be negotiated and endorsed where it is payable to order. Bill of exchange: The Payment for the goods exported under a letter of credit is received by the seller or exporter through the medium of a bill of exchange (commonly called bill or draft) drawn on the buyer for the amount depending on the credit. It is known as a documentary bill when it is drawn under a documentary credit and hence is accompanied by other shipping documents. Through this bill of exchange the exporter orders the importer to pay the value of the goods shipped through this document. Importer or the respective bank acting on behalf of the importer must sign on this document. The bill is usually drawn in


duplicate of sets of two with the original copy being known as the First of Exchange and the duplicate the Second of Exchange. Invoice: The invoice is the important document of the letter of credit. It is the seller’s bill for the merchandise. In other words, the invoice is a document containing the description of the goods shipped, their marks, make, quantity, and prices, charges for packing, freight, insurance etc. as are applicable as per terms of the contract as well as the name of the carrying vessel and the date of sailing. There are different types of invoices in use. Such as: The Commercial Invoice: The commercial invoice is a statement of accounts drawn by the seller address to the buyer giving the details of the amount stated therein which is based on the terms of the contract entered into between the buyer and the seller. The exporter must dully sign a commercial invoice. Details found in a typical commercial invoice are name and address of the buyer and the seller, the vessel of shipment, port of discharge etc. Also the shipment import and export permit numbers, the number of contract and invoice and other essential details of the transaction are recorded on the invoice. The financial terms of the sale, such as whether under letter of credit, sight drafts etc., are given. The number of packages and the identifying mark and numbers of them are clearly indicated. The goods contained in the packages are detailed and prices are given item by item. The commercial invoice is neither a document of title, nor it is negotiable. Its main utility is that it acts as a book-device for both seller and buyer. The Consular Invoice: Another special type of invoice named consular invoices are required depending upon the trade regulations in importing country. It is made out in a prescribed format, certified and signed by an individual of the importer’s country national working as a consulate in the exporter country. In some cases it is also seen that exporter’s own invoice is authenticated by the embassy or consulate instead of issuing consular invoice. This type of invoice is called legalized invoice. The Proforma Invoice: Another type of invoice is proforma invoice, which is a form of quotation to a potential buyer. The Certified Invoice: Certified invoice is an invoice, which bears a signed statement, by someone in the importer’s country who have inspected the goods and found them in accordance with those specified in the contract. The Certificate of Origin: The regulations in force in some countries require a certificate of origin of imported goods to be produced before clearance of by customs and assessment of duty. The certificate is usually required where goods from certain countries receive preferential treatment, or the import of goods from some countries is partially or wholly prohibited. This is generally issued by the Chambers of Commerce of the exporting country and is arranged by the exporter. Sometimes, the certificate of origin is endorsed on the back of the relative invoice, in which case the whole document is known as a “certified invoice”. The Packing List: A packing list serves to indicate the exact nature, quantity, and quality of the contents of each package in a shipment. The list helps the importer to identify the goods and check them against his order. Banks may require such a list when they have financial interest in the merchandise. Clearance of goods through customs is also facilitated by packing list.


The Other Certificates: Some other certificates are also required with of particular commodities. A “weight certificate”, signed by a public agency, is often necessary with goods sold in bulk, such grains, oils and similar products. The importing country may insist on a “food inspection certificate” from an official inspecting service of the exporting country when certain foodstuffs of perishable nature such as meat, edible fats etc., are imported. A “non- dumping certificate” showing the comparative difference in the domestic and export selling prices, is sometimes required with imports in some countries to ensure that goods are not being sold at very much lower prices in the importing countries than the domestic markets of the exporting country. Inspection Certificate: This is normally issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contract and/or the L/C. Quality Control Certificate: Sometimes the sale contract may demand a certificate issued by a standards institute or quality control agency in the exporting country indicating the quality of the merchandise shipped. This is known as a quality control certificate. GSP Certificate: When tariff concession is sought from those developing countries providing preferential treatment to exporters of the developing countries, a GSP certificate should be obtained from the Export Promotion Bureau (EPB). Besides the usual shipping documents required under the Letter of Credit or a contract entered into, the shipping documents in our country are incomplete without being supported by Exchange Control Forms. These Exchange Control Forms are known as GRPP Forms, which are completed and submitted by the exporter to the customs authorities at the time of shipment. Non-shipping Documents: There are a number of other documents, which have importance in dispatch of goods in foreign trade. A brief discussion on these documents is given below: The Documentary Letter of Credit: A Letter of Credit is issued by a bank (Issuing Bank) at the request of an importer (applicant) in favor of an exporter (beneficiary) from whom the importer has contracted to purchase some commodity or commodities. The importer, the exporter, and the issuing bank are, thus, obviously parties to a Letter of Credit. There are, however, one or more than one bank that are involved in various capacities and at various stages to play an important role in the total operation of the credit. The Charter Party: In the international trade most of the goods are transferred by ships. Before exporting of the goods the exporting company or the individual exporter has to hire a full ship or the part of a ship for the transportation purpose of the contracted merchandise. A written agreement between the shipping company and the exporting company delineating the hire of the ship or some portion of it is called charter party. If the full or the portion of the ship is hired for a particular time period this is called a “time charter party”. If the full or the portion of the ship is hired for a particular route, without mentioning the time period then this is called a “voyage charter party”. The Ships Reports: In the ship’s report the following information is found: (a). The name of the ship. (b). The name of the registered port and the registration number.


(c). Nationality of the ship owner or the name of the state belonging to the ship. (d). The name of the loading port. (e). The name of the captain of the ship or the principal of the ship. (f). Number of the employees and the officers of the ships. (g). Reports of things used by the employees, captain and officers of the ship. (h). Detail reports of the transported merchandise. (i). The name and address of the exporter. The Trust Receipt: The letter through which the importer recognizes the ownership of the export or the exported goods and services to pay the value of the goods by the sales value of his imported goods. On the requirement of the money the importer submits all the documents of import with the bank and takes loan. Banks keeps the trust letters with it and returns all other documents to the importer for the delivery of the imported goods. The Bill of Entry: Bill of entry is the details report of the imported goods submitted to the port authority or customs authority after the imported goods had reached to the importer’s port. By using the bill of entry, the port authority or customs authority can easily identify the importer’s goods from the other goods. The port authority begins to delivery the goods after they have received the bill of entry. The Bill at Sight: Sometimes, the importer cannot know the details report before making import. So, he is not able to fill up the bill of sight. In this circumstance, the importer expresses an individual announcement to the customs authority by expressing his failure about the bill of sight that he is unable to fill up the bill of sight without opening the package of the imported goods. This bill of sight is called uniformed bill of sight. After this declaration the custom authority allows the importer to fill up the bill of sight after opening the package of the imported goods. The Letter of Indemnity: If any time, due to some sudden reasons the export documents don’t reach to the importer duly but goods loaded ship reaches accordingly then importer gets the ownership of the imported goods by a letter issued by the bank and signed by both the bank and the importer, such letter is called the letter of indemnity. Through this letter the bank promises the importer to make indemnity if there is any demurrage in the delivery of goods. The Dock Receipt: Dock receipt is that receipt, which is issued by the dock authority to the exporter after the exportable goods reach to the dock and the authority, gives clear opinion about the goods to be all right for export. The Mate’s Receipt: If the exporter does not present the exportable goods to the dock but presents to the ship captain or mate’s then the ship’s captain gives the exporter a receipt, which is called mate’s receipts. This is actually a raw receipt. The Advice Note: The exporter sends a letter to the importer before the necessary documents like probable sending date, route and other documents reaches the importer. Through the advice note the exporter informs the importer about exportable goods before the sending of actual necessary documents. FINANCIAL ASSISTANCE PROVIDED BY THE BANKS


In international trade the most two important terms are the export and the import. As the mostly dependable financial institution banks are in a position to provide sufficient financial assistance to the importer and more commonly the exporter so as to conform smooth flow of a large bulk of foreign trade. Now a day, both the importers and the exporters of our country receive and/or enjoy a considerable amount of financial assistance from commercial banks and other financial institutions. Pre-Shipment Finance: Pre-shipment finance in taka, more popularly known as ‘Packing Credit Advance’, is short-term working capital finance specially provided to an exporter against the documentary evidence of having entered into export commitments. The packing credit is granted at a pre-shipment stage, i.e., at the stage prior to the goods being shipped and the credit is given for procuring raw material, for paying manufacturing and packing charges and payment of insurance premium and freight. As and when the goods are shipped and shipping documents are obtained, the pre-shipment finance is to be liquidated against the proceeds of export documents tendered. Post-Shipment Finance: The post-shipment finance is the financial facility extended by the banks after the goods have been shipped and against the submission of export documents evidencing the dispatch of goods. Post-shipment finance portfolio is in existence since the day international trade has been known, but more precisely after the First World War. After that the international trade is ever increasing, and the shipping documents against which the exporters are getting financial facilities are well accepted. Foreign Bills Purchased: This facility is granted when the financing banker is financing against the shipping documents presented by the exporter but the set of documents presented is not drawn under a Letter of Credit (LC). Foreign Remittance According to Foreign Exchange Regulation Act 1947, the commercial banks or the authorized dealer who has the Bangladesh Bank authorization can do Foreign Exchange. According to this Act, TC (Traveler Cheque), Drafts are included in Foreign Exchange. SIBL, Foreign Exchange Branch provides its customer with the foreign remittance facilities by issuing Foreign Demand Drafts, Traveler Cheque, Endorsing passport for cash etc. 4.2.2.1 Traveler’s Cheque: It is the safest way to carry money from one country to another. It can be change in any country of the world. Even if the Traveler Cheque (TC) is lost then the holder of the T.C can inform it to the bank and the bank will inform it to the agencies so that no one can en-cash the T.C while issuing a Traveler Cheque (T.C) a signature is needed, so that no one can en-cash it except the holder and also another signature is needed in encashment in front of the banker. So Traveler Cheque (T.C) is the safest way to carry out side the home country. A customer is permitted to endorse maximum US$ 3000 per year for travel in countries other than SAARC countries and US$ 1000 for travel in SAARC countries. If SAARC countries are to be visited by road then maximum US$ 500 can be endorsed per passport per year. At a time cash cannot be endorsed over US$ 500. Issue of Travelers Cheque: There are some requirements, which are to be fulfilled by the TC publisher:


1. 2. 3. 4. 5.

Passport holder himself to be present to issue TC purchasing. The passport has to be a valid one. Air ticket has to be confirmed. Steps involved in issue of TC: After verifying all these documents, the customer as asked to fill up prescribed application form. 6. In the application the customer states the amount he is willing to endorse and it is to be verified that his required amount is within the stipulated amount. 7. Then the customer pays cash or by debiting hid account the Travelers Cheque is issued. 8. Endorsement is given on the passport and on the ticket. Customer fills up the Travel and miscellaneous form. 9. Purchase application form is prepared and handed over to the purchaser along with the Traveler Cheque. 10. Entry is given in three registers: Foreign Currency Issue Register, Travelers Cheque “On Hand” Register and Foreign Currency “In Hand” Register. Payment of Travelers Cheque: When a customer wants to encash his TC, he has to show his passport and it is to be verified from the passport that he has traveled outside the country. Then 1. The TC will have to be scrutinized very strictly; 2. If everything in the TC is in order then the customer will be asked to give signature on the place of “Counter Signature”; 3. If the signature agrees with the one in place of “the signature of the holder” then the payment will be made through giving cash to the customer or crediting his A/c; 4. Travelers Cheque will be crossed and endorsement given on the back of the received TC. Endorsement of cash Cash Foreign Currency can also be remitted through endorsement in the passport. In case of endorsing cash on passport, the requirements are same as in case of travelers cheque. But the only exception is that the passport holder is not required to be present by himself. Credit Card Through its Credit Card. Social Islami Bank Limited has not only initiated a new scheme but also brought a new life style concept in Bangladesh. Now the dangers and the worries of carrying cash money are memories of the past. Credit Card comes in both local and international forms, giving the client power to buy all over the World. Now enjoy the conveniences and advantages of Credit Card as you step into the new millennium. Need to maintain FDR(Fixed Deposit Receipt) in SIBL in any branch. Issue FDD If any draft is send to the name of any organization from abroad then the draft is fill-up from “C” where the draft holder is to fill-up who has send this draft, from where this draft has been sent etc. whether family purpose or not, if the draft has been family purpose then no


VAT is required against the draft. For payment of draft concerned officer maintains a register, which is called Register for foreign Currency paid. FOREIGN CURRENCY ACCOUNT The accounts maintained in foreign currencies are known as foreign currency account. The Authorized Dealers may open foreign currency accounts in the names of followings without prior approval from Bangladesh Bank. a) Bangladesh nationals residing abroad. b) Foreign nationals residing in Bangladesh and also the foreign firms registered abroad and operating in Bangladesh or abroad. c) Foreign Missions and their expatriate employees. Branches are mainly deals with two types of foreign currency accounts, namely: a) Non-Resident Foreign Currency Deposit Account (NFCD). b) Resident Foreign Currency Deposit Account (RFCD). Non-Resident Foreign Currency Deposit Account (NFCD) All nonresident Bangladesh nationals and persons of Bangladesh origin including those having dual nationality and ordinarily residing abroad, may maintain interest bearing time deposit accounts named “Not-Resident Foreign Currency deposit (NFCD)�Accounts with the Ads. Eligible persons: a) Bangladesh nationals working and earning abroad. Bangladesh nationals serving with Embassies /High Commission of Bangladesh in foreign countries including officers/Staff of Govt./Semi Govt./Autonomous/nationalized sector posted/Deputed abroad. b) Shore staff posted abroad (Crew of BSC not entitled). c) Foreign nationals and companies registered and /or incorporated abroad, institutional investors and 100% (Hundred Percent) Foreign owned industrial unit of EPZ (Minimum Amount USD 25000/- or equivalent). Resident Foreign Currency Deposit (RFCD): Ordinary resident of Bangladesh may open and maintain Resident Foreign Currency Deposit (RFCD) accounts with foreign exchange brought-in at the time of their return from travel abroad. Any amount brought in with declaration to Custom Authorities in form FMJ and up to US$ 5000/- brought in without any declaration can be credited to such accounts. Deposit: The depositors must submit a declaration mentioning the date of return from abroad and the amount of Foreign exchange brought in at the time of crediting to RFCD account to the effect that Foreign exchange (i) is not a receipt against export of goods or services from Bangladesh (ii) is not a commission due from abroad arising from business in Bangladesh.

Telegraphic Transfer (TT)


TT is one of the important tools of foreign currency from one country to another. The person who wants to send TT to the abroad at first he /she has to deposit amount mentioned in voucher to the cash department. The bank branch through their respective NOSTRO account that is maintaining any foreign bank account outside the country generally performs it. The originating bank sends a message to the paying foreign bank for making payment against the mentioned TT account number. The foreign make payments to the party and also make debit ‘account’ against respective bank. At the same time foreign bank send advice to Head Office ID division for acknowledgement the payment.

CREDIT BANKING AREA One of the core functions of commercial banks is to create the claim against individual borrower or real the purpose of sanctioning credit. Bank grants loan in the form of different securities. By the primary security, we mean the financial claim of holder against the real sector of economy. In banking the sector, the financial claim of bank against issuer, (called investors, borrowers and deficit units). This core function of a bank is performed by the credit department of the bank. In this case, the relationship of bank and customer is that of the creditor and debtor. 4.3.1. TYPES OF LOANS AND ADVANCES OFFERED BY SIBL: SIBL offers following types of loans and advances,1. Secured Overdraft (SOD) 2. Loan (General) 3. House Building Loan (Staff) 4. Demand Loan 5. Transport Loan 6. Industrial Credit 7. House Building Loan (General) 8. transport Loan (Staff) 9. Cash credit (Hypothecation) 10. Past Due Bills 11. Loan against Trust Receipt (LTR) Different types of Advances offered by SIBL Types of advances

Code

Interest rate

Features

Secured Overdraft 14 (SOD)

11.25%-16%

Continuous advance facility given for one year but can be renewed after the expiry of the time. Given against I.C.B. unit, FDB, Sanchaypatras and Work Orders.

Loan (General)

12%-16%

Given against Personal guarantee, Hypothecation of goods and land and building.

House Building 12 Loan (Staff)

7%

Given against Personal guarantee, land and building.

House

12.75%-16%

Given against Personal guarantee, land and

13

Building 24


Loan (General)

building.

Transport (Staff)

Loan 32

7%

Given against Personal Hypothecation of vehicles.

guarantee

and

Transport (General)

Loan 17

15%

Given against Personal Hypothecation of vehicles.

guarantee

and

Demand Loan

16

7%-14.5%

Given against Personal guarantee, and cash collateral securities.

Industrial Credit

22

12.5%-16%

Given against land and building along with machinery, Personal guarantee of Directors and Hypothecation of raw materials.

Cash credit 18 (Hypothecation)

11%-16%

A short term arrangement by which a customer is allowed to borrow money up to a certain limit is sanctioned by the bank for a certain time. Given against Registered mortagage of land and building, hypothecation of goods and personal guarantee of Directors.

Past Due Bills

15%

Given against Bills Receivables.

11%-15%

Advance allowed for retirement of shipping documents and release of goods imported through L/C. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the advances within a given period. Given against Bills Receivables, hypothecation of imported goods, Trust receipt, personal guarantee, and registered mortgage of land and building.

31

Loan against Trust 15 Receipt (LTR)

PROCEDURE FOR GIVING ADVANCE: 1) The potential borrower will submit application to SIBL for loan by filling up of a specific Application form. The Application form (request for Credit Limit) contains following particulars: a) Name of the Borrower----b) A/C No.------------c) Bunnies address (with telephone no.) [Residential address and Permanent address]-------d) Introducer’s name, A/C no. & address----e) Date of establishment/ incorporation-----f) Trade license number, date and expiry date (Photocopy of trade license enclosed)--------


g) GIR/TR no. & amount of income tax paid last year-----h) Constitution/ Status (Mention whether sole proprietorship/ partnership/ Public Ltd. company/ Private Ltd. company)-------i) Particulars of individual/ Proprietor/ Partners/ Directors (Name & Designation, father’s/ Husband’s name, present & permanent address with Telephone no., % of shares held)------j) Experience and background of Individual/Proprietors/ Partners/ Directors-------k) Full particulars of assets in the personal name of Individual/ Proprietor/ Partners/ Directors with valuation----------l) Names of Subsidiaries/ Affiliates, percentage of share holding and nature of business--------m) Nature and details of business/ products (for which credit facility is applied for), Markets (Present market price per unite, Factory price), Estimated sales for next one year............ n) Credit facilities required (type, amount, period, purpose, and mode of adjustment).......... o) Details of securities offered with estimated value (Primary security, Collateral security, market value of the security).......... p) Details of liabilities in the name of the client or in the name of any other partners/Directors or Subsidiaries/Affiliates Nature of advance, amount, security and validity of limit)..... q) Balance Sheet/ Income Statement of Statement of Accounts of the following years attached (Preferably last 3 years)........ r) Other relevant information......... s) Proposed debt/equity ratio......... t) Signature of the Applicant.............. 2) After receiving the loan application form, SIBL sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit information Bureau) report. This report is usually collects this report if the loan amount exceeds Tk. 50 Lac. But SIBL usually collects this report if the loan amount exceeds Tk.10 Lac. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank; if ‘yes’ then whether these loans are classified or not. 3) After receiving CIB report if the Bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the Bank will look whether the documents are properly filled up and signed. 4) Then comes processing stage. In this stage, the Bank will prepare a Proposal A proposal contains following relevant information....... a) b) c) d) e) f) g) h) i)

Name of the Borrower--Nature of Limit----Purpose of Limit-----Extent of Limit--Security--Margin--Rate of Interest------Repayment------Validity-------


Branch incumbent (Local Office Br.) has the discretionary power to sanction loan (SOD) up to Tk. 25 Lac against financial obligations by informing Head Office. But in that case, the Branch Manager has to give attention to the following matters: - The interest rate of the loan must not be less than 4.5% and - The borrower must maintain 10% margin. Except this case, the branch has to send the proposal to the Head Office. Head Office will prepare a minute and submit it before the Executive Committee (EC). The minute has to be passed by EC. After passing the minute, it will be sent to Bangladesh Bank for approval in case of following: ........If the proposed limit exceeds 15% of Bank’s equity; .........If the proposed limit against cash collateral securities exceeds 25% of Bank’s equity. 5) After the sanction advice, Bank will collect necessary documents (charge documents). These documents are-------a) b) c) d) a) b) c) d) e) f) g) h) i) j) k) l) m) n)

Joint Promissory Note Single Promissory Note Letter of Undertaking Loan Disbursement Letter Debit Figure Confirmation Sheet Letter of Continuity Letter of Authority Letter of Revival Right of Recall the Loan. Letter of Guarantee Letter of Indemnity Trust Receipt Hypothecation of Goods Hypothecation of Vehicles Counter Guarantee Letter of Lien Letter of Lien in case of advance against FDR Letter of Lien And Authority for advances to third parties against Fixed Deposit/Call Deposit/Special Deposit or Margin or margin deposits. o) Letter of Authority to encase FDR p) Letter of Agreement for Packing Credit q) Letter of Guarantee for opening L/C r) Charges over Bonds or Certificates or shares etc. by third person, firm or company to secure specific and general liability. s) Memorandum of Deposit of Title Deeds t) Hypothecation of goods to secure a Demand Cash Credit Or Overdraft/Loan amount u) Guarantee by Third party. For withdrawing the loan amount, the customer creates a CD account and the loan is transferred to the CD A/C. Afterwards the customer can withdraw the money. Feasibility Report: This report is from borrower’s point of view. He prepares this report and submitted to the bank.


Credit Line Proposal: In this step of the term loan the branch sends a credit line proposal to the head office for approval of the term loan. The credit line proposal contains the following particulars:        

Fresh/Renewal/Revision of the term loan Borrower name Types of business Capital structure Particulars of previous transaction Existing vis-a-vis proposed credit limits Movement of the accounts Liabilities of sister concerns

Project Appraisal: It is the reinvestment analysis done by the banker before a project he approved. Project appraisal in the banking sector needed for the following reasons:    

To justify the soundness of an investment To ensure repayment of bank finance To achieve organizational goals To recommend if the project is not designed properly

Techniques of project appraisal: An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. The appraising officer checks the various details submitted by the promoter in first information sheet, credit application form, feasibility report. SIBL considers the following aspects in apprising: 1. Entrepreneur 2. Viability of the project: A. Technical viability (location and site of the project). B. Commercial viability (This study indicates evaluation of a project’s feasibility in terms of market). C. Financial viability. D. Economic Viability. E. Management and organization viability: LENDING RISK ANALYSIS (LRA): Lending Risk Analysis (LRA) is a technique by which the risk of the loan is calculated. Banker must analyze LRA when loan application is above 1 crore. This analysis is done by experienced people of Credit department in SIBL. It is a ranking whose total score is 140. Among this score, 120 is for Total Business Risk and 20 for Total Security Risk. In case of business risk, if the score falls--------Between 13-19,then------- Poor risk Between 20-26, then --------Acceptable risk


Between 27-34,then-----Marginal risk Over 34, then ------ Good risk. In case of security risk, if the score fall-------Between – 20 to – 15 then -------------Between – 14 to 0, then ------------ Acceptable risk Between 0 to 10, then -------------Marginal risk Over 10, then -----------------Good risk. In LRA , following aspects are analyzed-----------1) Supplies risk 2) Sales risk 3) Performance risk 4) Resilience risk 5) Management ability. 6) Level of Managerial teamwork 7) Management competent risk 8) Management integrity risk 9) Security control risk 10) Security cover risk. SECURITIES: SIBL charges the following two types of security, 1. Primary security 2. Collateral security. MODES OF CHARGING SECURITY: Common methods of charging security:      

Lien Assignment Set off Pledge Hypothecation Mortgage

Nature of security and Way of charging: Nature of security

Way of charging

Cash, Cash collateral and Documents of Lien, Assignment title to goods Moveable stock of raw materials, finished Pledge, Hypothecation goods, merchandise. Immovable property

Simple/legal/registered mortgage

and

equitable


Intangible assets (Goodwill)

Execution of personal guarantee and Letter of Trust Receipt.

DOCUMENT AND DOCUMENTATION: A document is a written statement of facts of proof or evidence arising out of particular transaction which placement may bind the parties there to answerable and liable to the court of law for satisfaction of the change in question. The execution of documents in proper form and according to the law is known as documentation. Steps in documentation: • • • • •

Obtaining the documents. Stamping (Stamp Act-1899) Witnessing. Execution of Documents. Registration of Documents (assignment on the body of an insurance Policy, Mortgage deed, Advance to a limited company etc.) Common Compulsory Documents: • Letter of Acceptance about the terms and conditions laid down in Sanction Advice. • D.P. Note (Depending on the types of borrowers) • Letter of Arrangement. Besides, there are other documents that are to be obtained depending on the types of Advance. Such asIn case of loan: 1. 2. 3. 4. 5.

Letter of Disbursement. Letter of Authority (if required) Letter of Hypothecation (when goods are hypothecated as security) Insurance Policy (if required). Any other document as stated in Sanction Advice.

In case of overdraft: 1. 2. 3. 4. 5.

Letter of Continuity. Letter of Authority (if required) Letter of Hypothecation (when goods are hypothecated as security) Insurance Policy (if required) Any other document as stated in Sanction Advice.

In case of cash credit: 1. 2. 3. 4. 5. 6.

Letter of Continuity. Letter of Authority (if required) Letter of Pledge/Hypothecation. Insurance Policy under Bank’s Mortgage clause. Letter of disbursement incase of renewed godown. Any other document as stated in Sanction Advice.


Advance against lien of FDR/ Insurance Policy etc: 1. Letter of Lien (1st party/ 3rd party) 2. Letter of Authority (if required) 3. Any other document as stated in Vehicles (in a separate form) Transport Loan: 1. Letter of hypothecation of vehicles (in separate form) 2. Photocopy of blue book 3. Photocopy of rote permit 4. Insurance policy under Bank’s mortgage clause 5. Any other documents stated in Sanction Advice Legal Mortgage: 1. Mortgage deed (certified copy) 2. Registration receipt in 3. Chain of documents for title (original if available) 4. C.S,S.A and R.S parcha 5. Up to date Rent Receipt 6. Non-encumbrance certificate 7. Power of Attorney (if asked for) 8. Legal opinion 9. Valuation Certificate 10. Location plan etc./Site plan etc Equitable mortgage: 1. Chain of documents for title 2. original title deed 3. C.S, S.A A and R.S parcha 4. Up to date Rent Receipt 5. Memorandum of deposit of title deed 6. Registered power of Attorney 7. Legal opinion 8. Valuation Certificate 9. Location plan etc 10. Non-encumbrance Certificate CREDIT MONITORING, FOLLOW-UP AND SUPERVISION: SIBL Officer checks on the following points: 1. The borrower’s behavior of turnover 2. The information regarding the profitability, liquidity, cash flow situation and trend in sales in maintaining various ratios.


The review and classification of credit facilities starts at Credit Department of the Branch with the Branch Manager and finally with Head office credit division. 4.3.13. LOAN CLASSIFICATION: Like other banks, all types of loans of SIBL fall into following four scales: 1. Unclassified: Repayment is regular. 2. Substandard: Repayment is stopped or irregular but has reasonable prospect of improvement. 3. Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial recovery. 4. Bad/Loss: very little chance of recovery. PROVISION: Type of classification

rate of provision

Unclassified

1%

Substandard

20%

Doubtful

50%

Bad debt

100%

4.3.15. CLASSIFICATION CRITERIA: 1. 2. 3. 4. 5.

Overdue (OV) Required Payment (RP) Limit Overdrawn (LD) Legal Action (LA) Qualitative Judgment (QJ)

GUARANTEE: SIBL offers three types of Guarantee, which are as follows, 1. Tender or Bid Bond Guarantee: The tender guarantee assures the tenders that tenders shall uphold the conditions of his tender during the period of the officer as binding and that he /she will also sign the contract in the event of the order being granted. 2. Performance Guarantee: A Performance guarantee expires on completion of the delivery or performance. Beneficiary finds that as a guarantee, the contract will be fulfilled in every respect and can retain the guarantee as per provision for long time. This can be counteracted by including a clause stating that the supplier can claim under the guarantee, by presenting an acceptance certificate signed by the buyer. 3. Advanced payment guarantee (APG): This type of guarantee is given against work order. This idea can be made clear with the help of an example. Before the beginning of Jamuna Bridge construction, the Government collected money from different sources to pay the contractors in advance. But there was a risk for the Government that the contractors might not do there


Construction work even they were paid in advance. So the Government asked Bank Guarantee from them. Then the contractors submitted Bank Guarantee to the Government. This type of Guarantee is called Advanced Payment Guarantee. ISSUANCE PROCEDURE OF GUARANTEE: Bank guarantee is a contractual relationship between the account (client) and the beneficiary. For issuing Bank Guarantee, a customer has to apply to SIBL in their own pad. Normally the bank prepares the format of the guarantee. The proposal for Bank Guarantee contains the following particulars: [Name of the Borrower with address I. II. III. IV. V. VI. VII. VIII. IX.

Nature of Facility Extent of Facility Purpose Security Margin Commission Validity Beneficiary Liability position of the Borrower---a) Nature of Facility b) Extent of Facility c) Drawing Power d) Margin Amount (Tk.) e) Outstanding/ Net Exposure (Tk.) f) Validity. The Bank issues Bank Guarantee on Judicial Stamp. The conditions for issuing Bank Guarantee are: 1) The customer must maintain a Current Deposit (CD) account. 2) The must keep certain percentage of guaranteed money (usually 2%) as margin. 3) Bank charges 0.50% commission on the guaranteed money per quarter (i.e., 3 months). After realizing all the above charges, Bank then issues the Guarantee. For this issuance, Banker’s Liability is created and the following entries are given: Customer’s Liability-------------Dr. Banker’s Liability---------------Cr. When the guarantee is expired, the guarantee is marked is marked as “cancelled” and the following entries are given--------Banker’s Liability---------------Dr. Customer’s Liability-------------Cr. SIBL also issue Revolving Guarantee. A Guarantee issues Register is maintained to record following information about Guarantee


1) Name of Customer 2) Account No. 3) Guarantee No. 4) Issuing Date 5) Date of Approval/Reference No. 6) Beneficiary of the Guarantee 7) Amount of Guarantee 8) Margin (percent and amount) 9) Commission 10) Date of Expiry ICB UNIT CERTIFICATE: SIBL sells and purchases ICB Unite Certificate as a dealer of ICB. ICB Unite is an open-end mutual fund. Units are sold as registered certificates. These are available in 1,5,10,50,100,150,250,1000,5000 denomination. In SIBL, there are separate forms for sale, purchase and transfer of these certificates. the treatment for the sale of unite,Cash or Customer’s A/C---------------------Dr. ICB Unit Fund A/C ---------------------Cr. For 100 Tk. ICB unit, buying and selling rates of SIBL are,For buying

@Tk. 104.

For selling

@ Tk. 109.

4.3.19 STAEMENTS PREPARED BY THE CREDIT DEPARTMENT: Monthly Statements prepared by Credit Department for Bangladesh Bank. Quarterly Statements prepared by Credit Department for Bangladesh Bank. Monthly Statements prepared by Credit Department for Head Office. 4.3.20 DEVIATIONS BETWEEN THEORIES AND PRACTICES: Following dissimilarities have been observed in the credit department: 1. In case of method of granting security against loan, hypothecation is much risky as compared with other charging security. But it is being used massively in SIBL Local Office Br. It is risky because neither the ownership nor possession is passed on it, only a right or interest in the goods is created in favor of the bank. Theoretically, bank provides two types of credit facilities--- direct facilities (funded) and indirect facilities (non-funded). But bank is being covered indirect facilities fully but not direct facilities. For example, Demand Loan is not available in bank practically. 2. In case of mortgage, only equitable and legal mortgage are commonly used as the charging security in immovable property but theoretically there are another types of mortgage like mortgage by the condition of sales, English mortgage, usufructuary and anomalous mortgage are not applied in practice.


3. In case of cash credit (pledge), from the theoretical point of view, no collateral security is normally asked for the grant of such credit, but practically security is taken against CC (pledge). 4. Interest rates for different types of loan and advances vary to different customers. A prospective customer is allowed to take credit facilities at a lower interest rate. Again, the interest is charged at a higher rate to a customer who is not so prospective. But I think that there should be a transparent interest policy that will be prospective for the bank, the borrower and the country. 5. It is amusing matter that additional security has to be provided by borrower for loan against trust receipt in order to protect the trust of the customers. Of course trust receipt is one of the securities; it is valueless in the context of Bangladesh. By and large, it can be said that amount of security and charging security are determined by the degree of relationship between the banker and customer. Online Banking Online Banking I.T. is a well known word, meaning Information Technology. The developed countries of the world reached to the peak of information technology. SIBL have not alternative to expand of information technology. Tight now, SIBL are facing uneven competition with many foreign banks in the country. For this, SIBL will have to take necessary preparation form this moment. Information Technology and Flow of Information is become very important in the present world. Social Investment Bank need to develop all their banking transaction with the help of this technology and need to introduce online banking. What is Online Banking? Most people heard a lot about online banking but probably haven't tried it themselves. People still pay their bills and deposit checks at bank’s branch, much the way their parents did. They might shop online for a loan, life insurance or a home mortgage, but when it comes time to commit, people can feel more comfortable working with his banker or an agent they know and trust. Online banking isn't out to change one’s money habits. Instead, it uses today's computer technology to give people the option of bypassing the time-consuming, paper-based aspects of traditional banking in order to manage finances more quickly and efficiently. Origin of online banking The advent of the Internet and the popularity of personal computers presented both an opportunity and a challenge for the banking industry. For years, financial institutions have used powerful computer networks to automate millions of daily transactions; today, often the only paper record is the customer's receipt at the point of sale. Now that its customers are connected to the Internet via personal computers, banks


envision similar economic advantages by adapting those same internal electronic processes to home use. Brick-to-click banks Today, most large national banks, many regional banks and even smaller banks and credit unions offer some form of online banking, variously known as PC banking, home banking, electronic banking or Internet banking. Those that do are sometimes referred to as "brick-toclick" banks, both to distinguish them from brick-and-mortar banks that have yet to offer online banking, as well as from online or "virtual" banks that have no physical branches or tellers whatsoever. The challenge for the banking industry has been to design this new service channel in such a way that its customers will readily learn to use and trust it. After all, banks have spent generations earning our trust; they aren't about to risk that on a Web site that is frustrating, confusing or less than secure. Most of the large banks now offer fully secure, fully functional online banking for free or for a small fee. Some smaller banks offer limited access or functionality; for instance, you may be able to view your account balance and history but not initiate transactions online. As more banks succeed online and more customers use their sites, fully functional online banking likely will become as commonplace as automated teller machines. Virtual banks If anybody don't mind foregoing the teller window, lobby cookie and kindly bank president, a "virtual" or e-bank may save very real money. Virtual banks are banks without bricks; from the customer's perspective, they exist entirely on the Internet, where they offer pretty much the same range of services and adhere to the same federal regulations as corner bank. Virtual banks pass the money they save on overhead like buildings and tellers along to you in the form of higher yields, lower fees and more generous account thresholds. SIBL will get advantage from online banking • Convenience: Unlike a corner bank, online banking sites never close; they're available 24 hours a day, seven days a week, and they're only a mouse click away. • Ubiquity: If anybody out of state or even out of the country when a money problem arises, he can log on instantly to his online bank and take care of business, 24/7. •

Transaction speed: Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds.

Efficiency: One can access and manage all of his bank accounts, including IRAs, CDs, even securities, from one secure site.

Effectiveness: Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs helps to manage all of assets more effectively. Most are also compatible with money managing programs such as Quicken.

Feature that can be give in SIBL’s Online Banking


o o o o o o o o

o o o o o o

Making payments Tracking payments Stop payments by block cheque Review personal account details, including balances and transactions Schedule single and recurring transfers between eligible personal accounts Pay bills online with the optional Online Bill Payment service View images (front and back) of cleared checks and deposit slips Receive e-mail notifications to alert to selected account activity Schedule single one-time transfers or multiple transfers Set up email notifications to be sent for balance amounts, specific checks cleared or maturity dates Transfer money Open Accounts Apply for loans Make loan payments

Chapter: 6 PERFORMANCE ANALYSIS Performance Of The Bank (SIBL): A brief review of the activities: I take this opportunity to place before you the present overall operational of the Bank as follows: a) Alhamdulillah during 2006Bank has made a net pre-tax profit of Tk.120, 225,637million after providing provision as per requirements of Bangladesh Bank. Business performance of 2007 shall be much better, inshallah. b) The growth rate in formal sector-Deposit in 2006 was significant, based on actual expected growth rate of deposit in 2007would be much better. c) Banking with the poor (that is mainly with street children and poor family) under micro credit and micro enterprise under family empowerment credit program is increase very rapidly. Deposit: Deposit of the Bank was increased to Tk.16,170,514,627 million during 2006 against total deposit of Tk.16,862,577,742 million in 2005, compared to growth rate of 10 % in the Banking Sector of the country. In view of the fact that the main target group of SIBL is lower and middle class people, this model of Banking is capable of absorbing abnormal fluctuation of stock market due to this target group of depositors. Investment: Bangladesh experienced worst flood in the century and volatile economic situation during the year under report, our investment stood Tk.15,312901,478 million in various sector as at the end of 31st December, 2006.as against Tk.15,096,826,012 million in 2005 Alhamdulillah, there was no as such overdue or classified investment as at 31st December, 2006. Liquidity:


Liquidity maintained in the form of cash in hand and balance with Bangladesh Bank including foreign currency notes stood at Tk.1,384,245,001 million as at 31st December, 2006 against Tk.1,079,252,570 million last year. Total increased was Tk.304, 992,431 million. Balance held with other banks stood at Tk.1, 572,218,612 million as on 31 st December, 2006 as against Tk.3, 091,512,380 million last year. Foreign Exchange Business: Foreign Exchange Business stood at Tk.13280 million in 2006 as against Tk.17438.07million in 2005. The breaks up of foreign exchange business are as under: Taka in million Particulars

2006

2005

Growth Rate

Import

11790.7

11576.71

1.85%

Export

10713.8

5528.40

93.79%

Remittance

775.5

332.96

132.91%

DEPOSIT: The deposit of Dhaka Bank Limited has rapidly increased from 2005 to 2006. The deposit of SIBL in 2005 was Tk. 16,862,577,742 million where it was Tk. 16,170,514,627 million in 2006. Table-1 Year

Deposit in million taka

2002

15141.332

2003

19709.31

2004

19704.20

2005

16,862.58

2006

16,170.51

Source: Annul report of SIBL (2002, 2003, 2004, 2005, &2006)


ADVANCES: The amount of advance of SIBL is increasing rapidly. In the year 2006 the amount of advance was Tk. 15314.5 million which was Tk. 15096.83 million in 2005. Table-2 Year

Advance in million taka

2002

7504.03

2003

10059.11

2004

12887.27

2005

15096.83

2006

15314.5

Source: Annul report of SIBL (2002, 2003, 2004, 2005, &2006)


COMPARATIVE GROWTH IN DEPOSITS AND ADVANCES: The growth rate in deposit in 2006 was -4.10% where the growth rate in advances was 1.44% in 2006. The growth rate in Deposit was lower than the growth rate deposits in 2005. IMPORT BUSINESS: The import business of SIBL Tk. 11790.7 million in the year 2006 that was Tk. 11576.71 million in the year 2005. The growth rate in import business in 2006 was 1.85%. Table-3 Year

Amount in million Taka

2002

11124.85

2003

14908.90

2004

13363.07

2005

11576.71

2006

11790.7

Source: Annul report of SIBL (2002, 2003, 2004, 2005, &2006)


EXPORT BUSINESS: The export business of SIBL is in increasing trend. The growth rate in export business in the year 2006 was 10713.8. Table-4 Year

Amount in million taka

2002

2287.64

2003

4035.90

2004

4500.23

2005

5528.40

2006

10713.8

Source: Annul report of SIBL (2002, 2003, 2004, 2005, & 2006)


GROWTH IN NET PROFIT: SIBL is earning net profit increasingly. In the year 2001, the net profit after tax of the Bank was Tk. 240.65 million and the growth rate in net profit was 309% in 2000. Table-5 Year

Amount in taka

2004

53,363,995

2005

13,936,185

2006

14,032,458

Source: Annul report of SIBL (2002, 2003, 2004, 2005, &2006)


COMMENTS: Though Social Islami Bank Limited is a new bank, which started its operation in the last half of the year 1995; it has now become a reputed Bank. Its deposits and advances are increasing rapidly. Its number of branches has increased up to 24. Its foreign exchange business is also very credible. In a few days, it is well known in the banking sector that SIBL gives a higher standard of banking services. During my precaution orientation program in Local Office branch, I went through many experiences that made me to think SIBL-a bank of a very high standard. Chapter: 7 SWOT Analysis OF SIBL Strength:  Wide image  Quality of service  High Commitment of Customer  Financial strength  Efficient management  State of art technology- SWIFT  Human resource expertise  First rate working environment  Diversification of product Weakness:  Lack Motivation of Workers  No marketing promotion  Number of branches are high, so less supervision of head office  Nor equipped by modern technology  No online banking facility  Lack of communication technology Opportunity:  Increasing demand of customer finance  Liberalization in create industry  Great optimism in macro industry  Investment in infrastructure development  The Globalization of Business  Foreign investment  Evolution of computer technology Threats:      

Merger & acquisition of bank Competitor Similar type of retail banking products Certain Bangladesh bank’s rules & regulation Political instability Crime in country


FINDINGS Whatever I found during my internship activities is really a practical work environment that I didn’t find earlier. This practical knowledge will sure encourage me and give me backing when I will work in such a financial organization. While working I always tried to keep my eyes and ears in knowing as best as is possible about the dealings of the officials with the clients. My novice observation found the findings: The first finding really made me dishearten there. There is no client service officer in the branch. For the lacking of such a service hand the clients often suffer the losing of their vital moments standing before the busy officials for information about their business.  Like most of the private banks, SIBL also imposes a target deposit for collection upon its employees. Every employee has to go out for the purpose of deposit collection, which they call “development purpose”. It is an effective method no question about it, since many banks of our country rely on this method. But sometime affect negatively and cause job dissatisfaction. Officers of the desk, where workload is very high, hardly get the chance to go out for development. Chapter: 8 RECOMMENDATION The banks are actually service organizations. The main objectives of the world famous and successful banking organizations are to making of profit through addressing the clients time to time with new pieces of service instruments. However my little experience earned through this internship program took me to customers varying demands. We had several frank discussions with the clients and officials, which has helped me to know about the aforesaid findings and draw the following recommendation  Need to introduce online banking immediately. If it is not possible to introduce among all branches then introduce in Dhaka, Chittagong initially.  Social Investment Bank may also indulge in Tele Marketing. This will facilitate them to expand their sale.  SIBL should pursue an aggressive marketing to come up into limelight. Campaign in order to build up a strong image reputation among the potential customers. Campaign such as ad in the newspaper & magazine, billboard, neon signs, publicity message. SIBL can pursue promotion campaign with its customers particularly the corporate clients to build up a strong rapport. TV ad is also a major method for attracting the potential customers. As it is a old bank, a strategy of exposing the bank to the public must be taken so that general people will aware about the emergence and growth of the bank. Sponsor in organization’s picnic and arrange or sponsor in cricket match can be method of advertise.  SIBL provides car facility to its high officials. Give ad of banks in those cars can be method of marketing. Then people will see the ad in road and remember there is a bank name “Social Islami Bank Limited”.  All the foreign banks and other private commercial bank has Customer relation/support/service officer in all branches. They sit in front of branches they solve customers problem, answer inquiry of customers etc. SIBL should appoint customer service officer in all branches.


 SIBL should improve its service quality, otherwise it will fall back of other private commercial bank.  Enhance of remuneration package- The present compensation package at SIBL is very unimpressive and not capable to attract quality personnel to fill up its position. Many skilled and devoted officers of the bank are depressed with their compensation package. The foreign banks and other private banks are pay more than the SIBL. This is the time that the management should consider revise the remuneration package in order to attract quality human resource.  SIBL can introduce health facility for their employees. It will motivate them more.  People need identification. All of private banks has ID for their employee even in government offices, they also use ID. It is another kind of marketing also. So SIBL should print ID for their officer.  In foreign banks, they use printed Pay Order, Pay Slip, DD. It looks good and gentle. So it will be good if print them.  SIBL should differentiate its services adopting the modern facilities and diversify product.  Bank should provide advances towards the true entrepreneur with reconsidering conventional system of security and collateral, moreover, the whole process should be completed within an acceptable time.  The synergy of dedicated manpower, technology, market opportunity can lead the organization to achieve the goal, a bank must establish and adhere to adequate policies, practices and procedures for evaluating the quality of asset and the adequacy of loan provision and reserve.  Social Investment Bank should always monitor the performance of its competitors.  Evaluate customer’s needs from their perspective and explain logically the shortcomings.  Use of effective management information systems.  To deliver quality service top management should try to mitigate the gap between customer’s expectation and employee’s perception.  Use appropriate techniques in evaluating customer need and convenience professionally. Chapter: 9 Conclusion Through Social Investment Bank ltd. is a new stated Bank but this bank running successfully and for its good deposit performance the bank occupies 2 nd position in the Islamic Banking Sector. Taken all in all, it can be safely said that SIBL’s action program is directed towards development of an authentic participatory Economy beyond Market Economy. The family empowerment credit program of Social Investment Bank is gaining ground at the grass root field level in Bangladesh. Family Empowerment micro credit and micro enterprises program must be designed in a manner so as to make a) finance, b) production, c) marketing, d) trading, e) local specific survey and research as well as moral suasion in one package. In SIBL approach, credit conveys the totality in life and clearly linked to social context and cultural setting in conformity with Shariah. There is a built in provision for social subsidy. De-secularizing credit may lead to re-writing new economics. It is thus felt that the linking


credit to social goals and assignments will have far-reaching theoretical implications for development of an alternative concept of new theories of income, output and employment. This bank expresses its sincere thanks to the government of the people’s republic of Bangladesh and Bangladesh bank for their co-operation and valuable guidance to the bank. SIBL also takes this opportunity to their valued clients, patrons well wishers, correspondents and the shareholders for their support and patronization extended during the year under review. SIBL also record its appreciation for the services rendered by the executives and the members of the staff for the stability and growth of the bank. SIBL needs further active support and continued cooperation of Bangladesh Bank, ministry of finance and other government agencies, executives and employees of the bank, valued partners, clients and the community at large in accomplishing difficult tasks ahead of it. Let us pray, may almighty Allah, allow the bank to work together for turning Bangladesh into a model caring society. References Tareq, Kazi, (2006) “Senior Lecture note of FIN-442: Bank Management School of Business Studies, Southeast University.” Rose,Petter (2005) Bank Management & Financial ServicesMcgraw-Hill,Avenue of the Americas, New York. Social Islami Bank Limited, Annual Report 2006, Achievement of Social Investment Bank Ltd,, available at http:\\www.siblbd.com\achivement.htm Background of Social Investment Bank Ltd,, available at http:\\www. siblbd.com\backgroundt.htm Branch Information of Social Investment Bank Ltd,, available at http:\\www.siblbd.com\branches.htm Social Commitment of Social Investment Bank Ltd,, available at http:\\www.siblbd.com\ Social Commitment.htm SWIFT Service Social Investment Bank Ltd,, available at http:\\www.siblbd.com\ swift.htm