Foreign Exchange Business of Islami Bank Bangladesh Limited

CHAPTER ONE

Introduction

1: Prelude

The banks are the mainstay of the financial system of a country and those are different from other financial institutions. They accept deposits from the public and in turn advance by creating credit. It has become one of the most important economic inventions of the world. The banking systems of different countries vary substantially from one another. Evolution of banking functions is as old as authentic history. But the establishment of bank as an institution is not so ancient. The modern regime of bank was initiated in the 15^th century A.D. It is an intermediary profit making instution. Banks are of many kinds: Commercial bank, Savings bank, Investment bank, Industrial bank, Co-operative bank, Central bank etc. But when we use the term ‘bank’ without any prefix, qualifier, it refers to the ‘Commercial’.

The real breakthrough for modern banking was in 1453 after the fall of Constantinople. The rich Jews fled being suspicious of the new conquerors, first to Italy and then to London carrying with them their vast wealth. According to one perspective, the word "Bank" originated from the Italian word for "Bench", as these Jews carried on their business of money lending and money changing on benches. They were called Lombards as they carried on their business in Lombardy. The Lombard Street in present day London, England is named after them. The most famous of these Italian bankers were the Medici Family (Meyer, Duesenberry, Aliber 36)

An alternative perspective as to the origin of banking is a German one. In 1401 formal banking started in Germany as partnership institutions. According to this theory, the word "Bank" originated from the German word "Bach" which means a partnership firm with a number of partners.

Modern, present day banking operates mainly by giving interest to people from whom it has borrowed money, and after keeping a small percentage of it [people's wealth or money] as reserves and vault cash, lending or investing the same money [people's wealth] at a higher rate of interest or return and keeping the difference as profit [The major source of revenue for banks]. This is in addition to the profit made by banks on the various bank services provided.

Economic development is a crafty concept. Commercial Banks are playing a vital role in the economic development of our country and are being considered as integral parts of our financial system. The main functions of Commercial Banks are to receive deposits from the public, making loans and advances, creation of money, providing agency services and general utility services etc. All of the above services may be spread crossing the boundary of a country with the help of Foreign Exchange Business.

1.1: Back ground of the report

After completing one hundred and fifty six (156) credit hours from the Department of Accounting and Information Systems, University of Rajshahi, I was placed at IBBL as part of the Internship Program requirement. This report is prepared for the internship program consisting of a major in depth study of the Foreign Exchange Business of Islami Bank Bangladesh Limited.

Practical knowledge is fundamental for the application of theoretical intelligence. Bearing this in mind, an internship program was being included in the MBA curriculum. The goal of this analysis is to expose the student in the organizational work situation and also to provide an opportunity for applying classroom learning in practice. There are some differences between theories and practices. Internship program is a system by which we can accustom ourselves to the practical situation through the application of theoretical knowledge into real life; the gap between these two can be bridged up through this internship procedure. As an indispensable part of MBA I was placed in Head Office of IBBL.

1.2: Rationality of the study

Bank is the heart of the economics and banking is the blood circulation of country’s economic growth. Banks perform a significant role to serve the needs of the society in different sectors, such as: capital formation, large scale of production, industrialization, growth of trade and commerce etc. and banks are contributing a lot of aspect. Economic development of a country is very much dependent on the Banking System. Its role to the economic reconstruction of a developing country like Bangladesh can never be ignored. In Bangladesh we have inherited  the British Branch banking prevailing at the preliberation period. The phenomenal growth of bank branches and we expansion of bank business in both volume and dimension posed some serious management problems. Banking sector in Bangladesh thus comprises of Central bank, and nationalised banks for both specialized financial and commercial sector, joint venture private banks including Islami bank, Bangladeshi private banks and foreign banks. This multi-disciplinary banking system plays a dynamic role in shaping the country’s economy to its desired objective.

Islami Bank Bangladesh Limited has already emerged as one of the world wide recognized banks. Islamic banking is a new dimension of interest free banking where ‘Riba’ or interest is strictly prohibited. So I have tried to represent their performance and problems and prospects on the ground of general banking, investment & foreign exchange operation.

1.3: Objectives and Philosophy of the Study

The first objective of writing the report is fulfilling the requirements of the MBA program. In this report, I have attempted to give on overview of Islami Bank Bangladesh Limited in general. Following are the main objectives:

Ø  Islami Banking System

Ø  To familiar the history and operations of Islami Banking in Bangladesh.

Ø  To show Foreign Exchange operation systems of IBBL.

Ø  To identify strength and weakness of IBBL.

Ø  To gather practical experience about overall operations of IBBL

1.4: Scope of the Report

The scope of this paper is limited to the organizational structure, background, and objectives, functions, and investment performance of IBBL as a whole. The scope is also limited to different investment schemes, modes, mechanism, investment proposal appraisal procedures, monitoring and documentation of IBBL, general banking aspects and foreign exchange operations.

1.5: Sources and Methodology of the Study

I have collected data mainly from secondary sources and getting little scope to collect data from primary sources which are given below:

1.      Secondary sources

·        Annual report of Islamic Bank Bangladesh Limited.

·        Desk report of the related department i.e. IDFD

·        Other manual information.

·        Different reference books of the library.

2.      Primary sources

·        Direct observation

·        Expert opinion

     

1.6: Limitations of the Study

There are some limitations in my study. I faced some problems during the study, which are given below:

·        Lack of time: The time period for this study was very short, which was not enough. So, I could not go in depth analysis. Sometimes the officials were busy & were not able to give much time.

·        Insufficient data: Some essentials information could not be collected due to confidentiality of business.

·        Lack of Supervision: Few officials sometimes felt disturbed, when they were busy with their tasks. Sometimes, they didn’t want to supervise due to pressure of work load.

Chapter Two

Introducing

Islamic Economy& Banking

2.1: Islamic Economy

The Qur’an, over 1400 years back condemned today's modern banking concepts before they were put into wide scale practice: "And what you give in interest [riba in Arabic] that it may increase on (other) people's wealth, increases not with Allah (God)...(Qur’an 30:39)."

The Qur’an states explicitly that trade is not the same as interest:

Those who consume interest shall not rise, except as he rises whom Satan by his touch prostrates [i.e one who is misled]; that is because they say:"Trade is like interest"; whereas, Allah [God] has permitted trading but forbidden [Haraam in Arabic] interest. Whosoever receives a warning from his/her Lord, he shall have his past gains and his affair is committed to Allah (God); but whosoever reverts (to devouring interest) those, they are the inhabitants of the fire, therein dwelling forever. (Qur’an 2:275)

According to the above Qur’anic verse, trade is not the same as interest. Interest that banks give to us on our money lent is not trade. Trade involves the profit/loss made by the exchange of goods and services mostly involving some medium of exchange (eg. money) while Interest is the cost of borrowing money (the medium of exchange) and does not involve goods and services primarily.

Buying shares in companies is trading [for example] as you become a co-owner of the company to the extent of the face value of your share and as such share in its trading profits. If a person is a Muslim, he/she should have no part of their interest profit. Likewise, debentures issued by companies, pay interest and as such are forbidden to Muslims.

A bank is not just another business like a furniture store or a lumberyard. The decisions made by bankers quite literally permeate the entire economy, affecting the decisions made by other business people, housewives, and government officials. In fact, reduced to its simplest terms, the whole idea behind central banking and monetary policy is that if we can somehow influence the decisions made by bankers, then these decisions, in turn, will influence the decisions made by everyone else and in this indirect fashion we can control the overall functioning of the economy.(Luckett 142)

The Qur’an talks about inflation [over 1400 years back!] and adjusting the money you lent for inflation [but not charging interest]: "...but if you repent (from devouring interest), you will have your principal, un wronging and un wronged (Qur’an 2:279)."

If I do not adjust my principal for inflation while receiving the money that I lent someone earlier, I will be "wronged" as that amount, which I receive now [unadjusted] will buy fewer goods than it would have when I lent it. The Qur’an says that you will have your principal, "un wronging (i.e you wont charge interest) and un wronged (i.e you will adjust for inflation)." Such a conclusion is implicitly suggested by the above verse.

The functions of modern day commercial banks, primarily built upon borrowing and lending for interest, has wide scale effects on the economy [as is suggested by Luckett's quote above].

2.2:  INTEREST & INVESTMENT

Interest plays a big role in reducing capital investment and hence development:

Investment is spending on addition to capital stock [machinery, structures, inventories etc]. Such investment is undertaken with the aim of making profits in the future by operating machines and factories. Suppose firms borrow to buy capital that they use. Then the higher the rate of interest, the more firms have to pay out in interest each year from their investment. Thus the higher the rate of interest, the less they will want to invest. Conversely, a low rate of interest makes investment spending more profitable, therefore reflected in a higher level of planned investment. (Dornbusch, Fischer 115)

If a person borrows to invest, then the higher the rate of interest, the less profitable his investment would be, so he would invest less. Investment would be the most profitable [and hence the highest] if there was no interest in the economy and lent money was only adjusted for inflation at payback time.

Even if a person does not borrow but finances the purchase of capital with the money that he/she possesses, even then a higher rate of interest would reduce investment and if interest did not exist in the economy, investment would be the most profitable and the highest [because of opportunity cost, the cost of the next best alternative that is foregone]: "A decision to increase the amount of capital available usually entails a present sacrifice and a future gain (Lipsey 392)."

When there is no interest in the economy, theoretically speaking, it would always pay to purchase a further unit of capital and investment and development would occur till the marginal efficiency of capital got equal to zero: "It always pays to purchase a further unit of capital whenever its marginal efficiency- the monetary return on $1 more spent on purchasing capital- exceeds the rate of interest (Lipsey 399)." Imagine a society like that!
 
2.3: INTEREST & SAVINGS

Raising the rate of interest does not increase savings:

But should we really expect an increase in the interest rate to increase savings? It is true that when the interest rate rises, saving is made more attractive. But it is also made less necessary. Consider someone who has decided to save an amount that will ensure that $10,000 per year is available for retirement. Suppose that the interest rate now is 5% and the person is saving $1,000 per year. Now let the interest rate rise to 10%. With such a high interest rate, the individual needs to save less now to provide the given 10,000 per year during retirement. It may be possible to provide the same retirement income by saving only about $650 a year. Thus an increase in the interest rate might reduce saving. (Dornbusch, Fischer 278)

The Qur’an condemns interest [simple & compound]:

"O you who believe! Devour not interest, doubled and redoubled, and be careful of Allah (God); haply so you will prosper." (Qur’an 3:130)

Devouring interest, according to common sense would be charging interest on the money you lend out whether it be lent out to a bank or another person. The Qur’an (30:39-quoted earlier) also condemns giving in interest so that further interest can be consumed ("so that it increases on people's wealth").

The Qur’an condemns consuming interest in strong words:

"O you who believe be careful of Allah (God) and give up the interest that is outstanding. And if you do not then be warned of war from Allah (God) and His messenger.." (Qur’an 2:278-279)

Note: The above verse refers to believers: "O you who believe.."

According to Qur’an 2:275 that was quoted earlier, a person when he receives God's warning i.e words of the Qur’an, can keep the past gains but give up, according to this verse the present and the future claims to interest.

The Qur’an does allow for a stewardship concept of banking in which you get all of the banks services excluding consuming interest. The banks can make a profit by charging you a fee. If you borrow from a bank or anyone else and if the bank or the person from whom money is borrowed, charges interest from you, it is not your fault. The Qur’an only condemns charging or consuming interest], or giving interest so that that interest is further increased (on people's wealth).
 
  2.4: CHARITY, THE Qur’an & ECONOMICS

The Arabic word "Zakah",translated into English means 'purity'. As used in the Qur’an (believed by Muslims to be God's word) it signifies the "purity" a person achieves through giving in charity in God's way. It's principle is discussed in Qur’an 9:103 & 92:18. It is enjoined on believers according to Qur’an 9:60 (this verse also narrates the categories of people to whom charity is applicable). The amount due according to the Qur’an (though Muslim tradition states a different percentage) is 50 % of savings beyond a persons legitimate needs ( see Qur’an 17:29 & 25:67).

Is Zakah (obligatory charity) good for the economy ?

Zakah is due out of savings according to the Qur’an (whether the savings (those that are beyond a persons legitimate needs) be small or large,it does not matter). Out of the amount saved 50 % has to be given (spent) in God's way, according to the Qur’an by those who claim to be Muslims.

" The alms are only for the poor and the needy, and those who collect them (for distribution), and those whose hearts are to be reconciled (resettlement of families, refugees etc), to free captives (slaves etc) and the debtors in need, and for the cause of Allah (God) and the needy travellers; a duty imposed by God. God is Knower, Wise" (Qur’an 9:60).

What are savings ?

" Saving is income that households receive but do not spend on buying goods and services. " (See any introductory Economics text)

The Qur’an asks men (women) who are believers to spend on fulfilling their legitimate needs as they wish, keeping within the boundaries set by God, in the Qur’an and says at the same time, "..but waste not by excesses" (Qur’an 7:31)

Therefore, what is not spent out of a person's income on fulfilling his (her) legitimate needs should 'Islamically' be saved. And out of what is saved (and what is beyond a person's legitimate needs) 50 % should be given in charity in God's way.

The categories of people mentioned in Qur’an 9:60 to whom Zakah (charity) is due are all "needy" in some way or the other. By giving your savings to such people, all or at least a major part of it will be spent immediately on consumption. Note that savings are a "withdrawal" from the circular flow of income while consumption is an "injection" into the circular flow of income in the economy. This injection results in an increase in the Real National Income (i.e National Income adjusted for changes in the price level). The economy is given a positive boost, under- consumption is reduced, a more equitable distribution of income is achieved and an economy in depression can well be on its way to recovery.

God's wisdom or the words of a man living in the Arabian desert 1400 years back ?

"Whatever spoils of war God has given to His messenger from the people of the cities belongs to God, His messenger, your near kinsmen (who are needy), orphans, the needy and the travellers, SO THAT IT DOES NOT MAKE A CIRCUIT AMONG THE RICH OF YOU." (Qur’an 59:7)

The paragraph that follows shows the wisdom of this 'ancient' book (the Qur’an), which skeptics claim was written by a man who had absolutely no schooling and lived in the Arabian wilderness:

The onset and severity of the great depression (1929-1941) can also be attributed to under consumption; production had outstripped consumption .

Under consumption also resulted from the unequal distribution of income. Between 1920 and 1929 per capita income rose about 9% but the income of the wealthiest 1% rose about 75%, accounting for most of the increase. Much of this increase was put into luxuries , savings, stock market investments, instead of being spent on consumer goods. (Chapter 23 page 426. A People & a Nation: U.S History since 1865).

An opposite redistribution to the one above, would be caused by Zakat (charity), increasing AD and diminishing the effects of a recession.
  What does the Qur’an  say ?

"That which you give in interest that it may increase on people's wealth increases not with God but that which you give in charity ,seeking God's will (and not selfish interest), has increase manifold" (Qur’an 30:39).

Injections into the circular flow of income in the economy,like the ones caused by charity to the needy, which is immediately spent on consumption, do cause "manifold increase" in GNP via the multiplier. The Charity, however, is not to be coerced out of the person concerned as according to Islam (based on the Qur’an): "There is no compulsion in religion.." (Qur’an 2:256). & " You are in no way a compeller over them.." (Qur’an 50:45)

 

2.5: Riba in The Qur’an:
In its general linguistic sense the term "Riba" denotes an "Addition" to or an "Increase" of a thing over or above its original size and amount. Inspite of all the deliberate confusion raised in order to keep the correct understanding of "Riba" in ambiguity, the Qur’an has very clearly and unambiguously defined "Riba". While warning Believers concerning it, the Qur’an defines what "Riba" is when it states:

"wa in tubtum fa lakum ru'u_su amwa_likum"

"..And if ye repent, then ye have your principal…" (2:279)

In the above verse it is clarified that "Riba" is that amount or remuneration which is in excess to that of the original Capital or Principal, what is called "Ras ul Maal" in Arabic.  The verse ends with the phrase:

"la_ tazlimu_na wa la_ tuzlamu_n(a)"

"..Wrong not, and ye shall not be wronged." (2:279)

Thus it is evident that not demanding remuneration in excess of the original Principal is not "Zulm" or oppression, and demanding remuneration in excess to the Principal (Ras-ul Maal) comprises "Zulm" or oppression and wrongdoing on the part of the lender, and hence this clarifies that "Riba" is that amount or remuneration that is demanded in excess to the principal or original capital sum.

The Qur’an says that we have the right to demand remuneration for our labor and efforts only, and not for the Capital as the ownership of the entire resources of the World belongs to Allah. While we on the other hand, are entitled to the compensation for our labor only:

"Wa al laisa lil insa_ni il la_ ma_ saa_"

"That man can have nothing but what he strives for." (53:39)

In Trade, which the Qur’an calls as "Bai" and makes permissible, we put in Capital along with Labor and in turn are entitled to remuneration for our Labor only, but in "Riba", no labor is put in and the remuneration is demanded restricted only for Capital. Allah has brought "Riba" and "Bai" side by side as opposites in the Qur’an and this further clarifies the concept of  "Riba". People allege that "Riba" is the same as Trade, as in both Capital is invested and remuneration is sought, but Qur’an refutes such, by stating that "Riba" is different from "Bai", such that in it, one also puts in his labor and effort along with the capital, and the increase is sought not for the Capital but for one’s efforts in selling the goods or services. Those who consume "Riba" are identified as people who are in a craze for increasing their wealth:

"Those who consume ‘Riba’ cannot rise up save as he ariseth whom the devil hath struck mad by (his) touch…" (2:275)

Their argument is that "Riba", i.e. increase and remuneration against Capital, is the same as Trade:

 "..That is because they say: Trade is just like ‘Riba’.." (2:275)

But Allah refutes such individuals and says that "Riba" is ‘Haraam’ (Prohibited) , while Trade, in which a person invests his Capital as well as Labor, is ‘Halaal’ (Permissible):

"..Whereas Allah permitteth trading and forbiddeth ‘Riba’. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to Riba)--Such are rightful owners of the Fire. They will abide therein." (2:275)

Generally we acquire resources by the following means:

(1)  GIFTS: Some one gives us something out of his free will and consent.

(2)  WAGES: The remuneration we get for our  Labor and efforts.

(3)  RIBA: Remuneration against Capital, without putting in any Labor or efforts. Riba is prohibited by Qur’an.

(4)  PROFITS: Remuneration against Capital as well as Labor.

(5)  GAMBLING: Remuneration acquired without putting in any Labor, but Capital only in games of chance. Gambling is prohibited by Qur’an.

It should be observed that apart from (1), the means by which remuneration is acquired without putting in Labor and efforts are Prohibited by Qur’an. (Riba and gambling)
  Acquiring "Riba" has been identified as "War from Allah and His Messenger":

"And if ye do not (give up income acquired from ‘Riba’), then be warned of war (against you) from Allah and His messenger. And if ye repent, then ye have your principal. Wrong not, and ye shall not be wronged." (2:279)

 

This is so because "Riba" is the antithesis if the Qur’anic Economic order. An Economy based on ‘Riba’ results in individuals or organizations growing  as parasites on the Labor and efforts of other people instead of their own, and cause massive economic exploitation and the emergence of Class conflicts. In a ‘Riba’ based Economy, the wealth is restricted in the hands of a minority only while in the Qur’anic Economic order the wealth circulates evenly in the whole of society and there are no class conflicts in the form of  Rulers, and  Capitalists against  workers or laborers. (See 59:7)

In the Qur’anic social order, the Believers work to the best of their ability, and keep only the necessities of life with them, and give the rest to those who are more deserving, as the following verse indicates:

"And they ask thee what they ought to spend. Say: That which is superfluous. Thus Allah maketh plain to you (His) revelations, that haply ye may reflect—" (2:219)

In a ‘Riba’ based society, the prime interest to the Capitalist is to his property and his own self, while in the Qur’anic Economic order the prime interest is not to one’s own Assets, but the well being of our fellow human beings on a wider level.

" They (the believers) give preference to others over themselves even though they may themselves face hardships.." (59:9)

The Believers in the Qur’anic message form a society whose outlook is completely different from that of a society where people amass wealth, on the labor and efforts of others and live luxuriously as parasites while their fellow human beings cannot even have the basic necessities of life. This should clarify why acquisition of 'Riba' has been resented to the extent of making an announcement of War by Allah and His Messenger.

2.6: What is Islami Bank?

Islamic bank is a financial Institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking area. The organization of Islamic Conference (OIC) defines an Islamic bank as “a financial institution whose statutes, rules and procedures expressly state its commitment to the principals of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation.”

According to ‘Islamic Banking Act 1983 of Malaysia’- “Islamic bank is a company, which carries on Islamic banking business. Islamic banking business means banking business whose aims and operations do not involve any element which is not approved by the religion of Islam.”

It appears from the above definitions that Islamic banking is a system of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which Profit and Loss Sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS-banks.

2.7 History of Islamic Banking

2.7.1 The first attempt

Interestingly, the concept of Islamic Banking is several decades old. The first attempt to establish an Islamic financial institution took place in Pakistan in the late 1950s with the establishment of a local Islamic bank in a rural area (Wilson 1983). Some pious landlords who deposited funds at no interest, and then loaned to small landowners for agricul­tural development initiated the experiment. The borrower did not pay interest on the credit advanced, but a small charge was levied to cover the bank's operational expenses. The charge was far lower than the rate of interest. Although the experience was encouraging, two main factors were responsible for its failure:

Firstly, the depositors' landlords regarded the deposits as a one-time event. With the increasing number of borrow­ers the gap between available capital and credit demanded was huge.

 Secondly, the bank staff did not have complete autonomy over its operation; depositors showed considerable inter­est in the way their money was lent out.

2.7.2 The second attempt

The second pioneering experiment of putting the principles of Islamic banking and finance into practice was conducted in Egypt from 1963 to 1967 through the establishment of the Mit Ghamr Savings Bank in a rural area of the Nile Delta. The experiment com­bined the idea of German savings banks with the principles of rural banking within the general framework of Islamic values (Ahmed 1992). The bank's operation was based on the same Islamic principle i.e. no-interest to the depositors or from the borrowers. Unlike the Pakistani bank, the borrower had to have deposits in the bank in order to request a loan. The experiment soon became success­ful; more branches were opened in different parts of the country, and the amount of deposits increased. Nevertheless, the project was re­vived in 1971 under the name of Nasser Social Bank. This was the first Islamic bank in an urban setting based in Cairo. The bank is a public authority with an autonomous status. Its purpose was mainly to promote social concerns such as granting of interest-free loans for small projects on a profit-loss-sharing basis, and assist­ance to the poor and needy students for university and higher education. Because of these social functions, Nasser Social Bank was granted an exemption from the Banking and Credit Law of 1957 in its initial stages. The bank was originated under the Ministry of Treasury but it is now functioning under the Ministry of Social Welfare and Insurance. Its capital comes from the funds allocat­ed by the President from extra budgetary resources, appropriation from the state budget, and contribution from the Ministry of Awqaf (Ahmed 1992). The principles of operation of the Naser Social Bank are very similar to those of the Mit Ghamr Savings Bank.. Islamic Development Bank  (IDB) was established in 1975 and during the following three years seven Islami Banks & financial institutions namely (a) Dubai Islami Bank (b) Kuwait Finance House (c) Faisal Islami Bank, Sudan (d) Jordan Islami Bank for Finance and Investment (e) Islamic Banking System International Holding S. A. Luxembourg (f) Faisal Islami Bank of Egypt and (g) Islamic Investment  Co. Ltd., Sharjah , were established. In 1978, Islamic Foreign Ministers conference in Dakar (Senegal) recommended to the members of OIC to make systematic efforts to establish Islamic Banks gradually and during the next three years of their recommendaion, 20 Islamic Banks and financial institutions came to being. Till now about 300 Islamic banks and financial institutions in about 40 countries of Asia, Africa, Europe, America and countries like UK, USA, Germany, Argentina, Denmark, Luxembourg, Switzerland and India have been established.. The banking system of Iran and Sudan hase been totally remodeled on the basis of Islamic Shari’ah.

2.8 Objectives of Islamic Banking

The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following:

ü  To offer contemporary financial services in conformity with Islamic Shariah:

ü  To contribute towards economic development and prosperity within the principles of Islamic justice;

ü  Optimum allocation of scarce financial resources; and

ü  To help ensure equitable distribution of income.

These objectives are discussed below:

Offer Financial Services: Interest-based banking, which is considered a   practice of Riba in financial transactions, is unanimously identified as anti-Islamic. That means all transactions made under conventional banking are unlawful according to Islamic Shariah. Thus, the emergence of Islamic banking is clearly intended to provide for Shariah approved financial transactions.

Islamic Banking for Development: Islamic banking is claimed to be more development- oriented than its conventional counterpart. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the bank’s return on investment and the successful operation of the business by the entrepreneurs.

Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy.

Islamic Banking for Equitable Distribution of Resources: Perhaps the most important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties; the bank, the depositors and the entrepreneurs.

2.9 Conventional and Islamic Banking

Conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on the hand and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money.

Islam on the other hand, considers a loan to be given or taken, free or charges, to meet any contingency. Thus in Islamic banking, the creditors should not take advantage of the borrower.

The distinguishing features of the conventional banking and Islamic banking are shown in terms of a box diagram as shown below:  

Conventional Banks	Islamic Banks
1. The functions and operating modes of conventional banks are based on manmade principles.	1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah.
2. The investor is assured of a predetermined rate of interest.	2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur).
3. It aims at maximizing profit without any restriction.	3. It also aims at maximizing profit but subject to Shariah restrictions.
4. It does not deal with Zakat.	4. In the modern Islamic banking system, it has become one of the service-oriented functions of the Islamic banks to collect and distribute Zakat.
5. Leading money and getting it back with interest is the fundamental function of the conventional banks.	5. Participation in partnership business is the fundamental function of the Islamic banks.
6. Its scope of activities is narrower when compared with an Islamic bank.	6. Its scope of activities is wider when compared with a conventional bank. It is, in effect, a multi-purpose institution.
7. It can charge additional money (compound rate of interest) in case of defaulters.	7. The Islamic banks have no provision to charge any extra money from the defaulters.
8. In it very often, bank’s own interest becomes prominent. It makes no effort to ensure growth with equity.	8. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity.
9. For interest-based commercial banks, borrowing from the money market is relatively easier.	9. For the Islamic banks, it is comparatively difficult to borrow money from the money market.
10. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations.	10. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations
11. The conventional banks give greater emphasis on credit-worthiness of the clients.	11. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects.
12. The status of a conventional bank, in relation to its clients, is that of creditor and debtors.	12. The status of Islamic bank in relation to its clients is that of partners, investors and trader.
13. A conventional bank has to guarantee all its deposits.	13. Strictly speaking, and Islamic bank cannot do that.

Chapter Three

Islami Bank Bangladesh Limited

3.1 An overview

Bangladesh is one of the largest Muslim countries in the world. The people of this country are deeply committed to Islamic way of life as enshrined in the Holy Qur'an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of its people, which started functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast Asia. It is committed to conducting all banking and investment activities on the basis of interest-free profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver lining of hope towards materializing a long cherished dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks, financial institutions, government bodies and eminent personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned the unique position of a leading private commercial bank in Bangladesh.

3.2 History of IBBL

Islami Bank Bangladesh Limited was incorporated as the first Shari‘ah based interest-free Bank in South-East Asia on the 13^th March 1983 as a Public Company with limited liability under the Companies Act, 1913.

The first branch of the Bank i.e. Local Office, Dhaka started functioning on 30^th March, 1983. The Bank was formally inaugurated on 12^th August, 1983. The Authorized Capital of the Bank is Tk.5,000 million and Paid-Up Capital is Tk.3,802 million. The shareholdings of Foreign and Local Shareholders in the Paid-Up Capital are 57.36% and 42.64% respectively.

After its establishment in 1983 the bank raised its share capital through the initial Public Offering (IPO) of shares in 1985. Subsequently, the first Rights Share was issued in 1989, 2^nd Rights Share was issued in 1996, 3^rd Rights Share was issued in 2000 and 4^th Rights Share was issued in 2003 to enhance its capital base.

The Bank’s Corporate Headquarter is situated in its own 18-storied modern building at 40, Dilkusha Commercial Area, Dhaka.

The total Equity of the bank stood at Tk.14,622 million as on 31^st December 2007 which was 10.34% of its Risk-Weighted Assets as against requirement of minimum 9.00%. Bank had 10 Zonal Offices and 186 Branches in the country as on 31.12.2007. Among the branches 81 Branches are in rural (44%) and 105 Branches are in urban (56%) areas. Total Shareholders of the bank was 26,488 and total officials of the bank were 8,426 as on 31^st December, 2007.

3.3: Aims and objectives

ü  To conduct interest-free banking

ü  To establish participatory banking instead of banking on debtor-creditor relationship

ü  To invest on profit and risk sharing basis

ü  To accept deposits on Mudaraba & Al-Wadeah basis

ü  To establish a welfare-oriented banking system

ü  To extend co-operation to the poor, the helpless and the low-income group for their economic upliftment

ü  To play a vital role in human development and employment generation

ü  To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas.

ü  To contribute in achieving the ultimate goal of Islamic economic system

3.4: Mission of Islamic Bank Bangladesh Limited (IBBL)

To establish Islamic banking through the introduction of welfare oriented banking and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country. To encourage social-economic upliftment and financial services to the low -income community particularly in the rural areas.

3.5: Vision of the Islamic Bank Bangladesh Limited (IBBL)

Islamic bank vision to always strive to achieve superior financial performance is considered a leading Islamic bank by reputation and performance.

ü  To establish and maintain the modern banking technology, to ensure the soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure the stability of finical systems.

ü  Try to encourage savings in the form of direct investment.

ü  Try to encourage investment particularly in project, which are more likely to lead to higher employment.

3.6: Local Sponsors of the Bank

3.7: Foreign Sponsors of the Bank

Mohammed Abdul Razzaque lashkar (Late) Mafizur Rahaman (Late) Mohammad Younus (Late) Barrister Tamizul Hoque Md. Shafiuddin Dewan Md. Bashir Uddin Md. Hossain(Late) Nasirrudin Ahmed(Late) Md. Mosharraf Hossain; MP Md. Malek Minar Zakiuddin Ahmed M.A. Rasheed Chowdhury Engr. Mustafa Anwar Md. Abdullah Serajuddowla IBN Sina Trust (Shah Abdul Hannan) Bangladesh Islamic Center (A.K.M Nazir Ahmed) Bangladesh Islamic Economic Research Bureau (Prof. Md. Sharif Hossain) Md. Nuruzzaman Abdul Quasem A.K Fazlul Huque Engr. Md. Dawood Khan Baitush Saraf Foundation (Moulana Md. Abdul Jabber)

Kuwait Finance House Jordan Islamic Bank Islamic Investment & Exchange Corporation Bahrain Islamic Bank Islamic Banking System International Holding S.A; Luxemburg Al-Raji Company for Currency Exchange & Commerce; K.S.A Sheik Ahmed Salah Jamjoom; K.S.A Fuad Abdul Hmid Al-Kahtib (Late); K.S.A Dubai Islami Bank The People Institution For Social Security Kuwait Ministry of Awqaf and Islamic Affairs, Kuwait Islamic Development Bank (IDB); Jeddah, K.S.A Ministry of Justice, Dept of Minors Affairs, Kuwait

3.8: Corporate Information (31.12.2007)

Date of Incorporation                                              :           13 March 1983

Inauguration of 1^st Branch                                      :           30 March 1983

(Local Office, Dhaka)

Formal Inauguration                                                            :           12 August 1983

Authorized Capital                                                  :           5000 Million

Paid up Capital                                                         :           3802 Million

Share of Capital

A. Local Shareholders                                 :           42.63%

B. Foreign Shareholders                              :           57.37%

Equity                                                                                    :           14622 Million

Zones                                                                         :           10

Branches                                                                    :           186

Deposit                                                                      :           166777 Million

Investment                                                                :           174058 Million

Foreign Exchange Business                                    :           287919 Million

Manpower                                                                 :           8426

No. of Shareholders                                                 :           26488

3.9: Banking Functions

1. To mobilize deposits
2. To disburse investments
3. To handle foreign exchange and foreign business
4. Remittance: To remit money to home and abroad through T.T, D.D, Pay-Order, Travelers Cheque, etc.
5. Other services: Locker service, to receive different types of bills of clients, to issue Guarantees and counseling etc.

Besides, Islami Bank Bangladesh Limited (IBBL) conducts social welfare activities through Islami Bank Foundation.

3.10: Activities of the Bank

The activities of the Banks include the following areas of the economy other than normal commercial banking operations.

Industrial Financing:  Like BSB & BSRS Development Financial Institutions.

House Building Financing:  Like HBFC Housing Finance & Company and Delta Brac Housing Company.

Rural Development Financing:  Like Grameen Bank, BRAC, ASA, etc.

Humanitarian Assistance:   Trough its Foundation for the down trodden people of the society.

3.11: Role and Contribution of IBBL to Bangladesh Economy

1. Pioneer in Islamic Banking running its entire operation based on Islamic Shariah.
2. Shariah Council comprising of leading Ulama, renowned economists, lawyers and bankers of the country for constant supervision and guidance of the Banking operation.
3. Never participate in the interest based money market operations.
4. Never borrowed from any source either inside or outside the country.
5. A transparent and corruption free operation for the last 25 years in a row.
6. Regular and timely holding of AGM declaring good dividend since 1989 without break till 2007, except in the year 1992.
7. Largest contributor of tax to the Government exchequer from the private sector banks receiving CIP status from the Government almost every year.
8. Received the best bank in Bangladesh Awards from Global Finance, UK in 1999, 2000 & 2004.
9. It is connected to 830 offices of 230 foreign banks in 74 countries.
10.  IBBL received A+ rating in CRISL (Credit Rating Information & Services Ltd.)

3.12: World Ranking of IBBL amongst Top 3000 International Banks

Serial No                                            Year                                                    Rank

1                                                          1994                                                    2447

2                                                          1995                                                    2314

3                                                          1996                                                    2304   

4                                                          1997                                                    2262

5                                                          1998                                                    2119

6                                                          1999                                                    2100

7                                                          2000                                                    1999

8                                                          2001                                                    1902

9                                                          2002                                                    1771

10                                                        2003                                                    1755

11                                                        2004                                                    1581

12                                                        2005                                                    1658

13                                                        2006                                                    1620

14                                                        2007                                                    1490

Source: The Bankers Almanac: World Ranking Read Business Information, U.K.

3.13: Ranking of IBBL amongst Top 500 Banks of Asia

Serial No                                            Year                                                    Rank

1                                                          1998                                                    465

2                                                          1999                                                    443

3                                                          2000                                                    437

4                                                          2001                                                    414

Source: The Asia Financial 500; Asia Week Ltd., Hong Kong

3.14: CAPITAL STRUCTURE

It is well known to all that Islami Bank is one of the fastest growing bank in Bangladesh. The management introduces this new Islami Shariah based banking over the conventional banking. A scenario is presented here on the view of Capital structure during the last 20 years:

	1983 (Million)	1985 (Million)	1990 (Million)	1995 (Million)	2000 (Million)	2005 (Million)	2006 (Million)
Authorized Capital	500.00	500.00	500.00	500.00	1,000.00	5,000.00	5000.00
Paid Up Capital	67.50	67.50	80.00	160.00	320.00	2764.80	3456.00
Reserves	Nil	13.20	200.00	653.10	1,759.65	5450.94	6979.96
Total Equity	67.50	92.70	280.00	813.10	2,671.06	8331.14	10435.96

n  Today, IBBL is the largest Private sector Joint-Venture Bank amongst the contemporary private Banks in Bangladesh with the following parameters of performances as on 30.09.2006.

3.14.1: DEPOSIT

Islami Bank is one of the fastest growing banks in Bangladesh. In every aspect Islami banking concept and as 1^st introducer of this banking system in Bangladesh Islami bank plays a superior position in the whole banking sector in Bangladesh. In that stream of flows total deposits achieved by IBBL at Tk. 107,779 Million as on 31.12.05 as against Tk. 87,841 Million as on 31.12.04 of the preceding year registering an increase of Tk. 19,938 Million i.e. (35 percent as compared to the growth rate of 12 percent of the Banking Sector during 2005.) Total number of depositors of IBBL increased to 2,604,266 as on 31 December 2005 from 2,111,122 of the preceding year, registering an increase of 24 percent.

Generally Islami bank has its own product line such as Mudaraba Savings Account (MSA), Mudaraba Special Scheme (MSS), Mudaraba term Deposit (MTDR), Mudaraba Short Notice A/C (MSNA), Mudaraba monthly profit distribution Scheme (MMPDS) etc. This entire product makes a tremendous response over the client. More over the client are become very much interested to accept the new methodology introduce by IBBL instead of conventional Banking methodology where there is no use of terms call INTEREST. Then recently IBBL introduce a New Product Call Mudaraba Savings Bond (MSB) already augment resources matching with its asset structure; it has received tremendous response. In 1998, 10 year and 5 year’s term Mudaraba Special Savings (Pension) Scheme has been introduced to meet the expectation of the existing/potential depositors of the Bank that has also received tremendous response.

Particulars	Percentage
Mudaraba Savings	40.26%
Mudaraba Term Deposit	20.47%
Mudaraba SND	14.15%
Mudaraba Special Savings	11.52%
Currency & Contingency	8.07%
Bills Payable	3.39%
Mudaraba Saving Bond	1.01%
Mudaraba Monthly Profit Deposit Scheme	0.35%
Mudaraba Muhor Savings	0.64%
Mudaraba Foreign Currency Deposits	0.08%
Mudaraba Muhor Savings	0.05%
Mudaraba Wakf (Cash Deposit)	0.01%

3.14.2: INVESTMENTS

Investment of Islami Bank increased to Tk 93,644 million as on 31.12.2005 from Tk 75,859 million as on 31.12.2004 showing an increase of Tk. 17,785 million, i.e. 18.99% growth as against 11.75% growth of investment of the banking sector. This increased investment growth of the Bank in 2005 may be attributed to the thrust given to promote investment in order to deploy the surplus liquidity.

Pursuant to the investment policy adopted by the bank, currently a 5 year Perspective Investment Plan has be drawn up for the year 2005 to 2009 and put into implementation. The plan has been formulated keeping in view the national economic priorities and aiming at diversification of the investment portfolios by size, sector, geographical area, economic purpose & securities to bring in phases all sectors of the economy & all types of economic activities and different economic strata of the society within the fold of Bank’s investment operation.

3.15: Achievement of 25 Years (30.3.1983 to 30.03.2008)

3.15.1: Mudaraba Perpetual Bond

Islami Bank Bangladesh Limited issued Mudaraba Perpetual Bond (a new product) of Tk. 300 crore according to the suggestion of Bangladesh Bank and Securities & Exchange Commission under Tier-II. Among these, Tk.150 crore is distributed under the basis of private placement and the rest under Repeat Public Officer (RPO). We have distributed Tk.150 crore among the applicants against the number of 5,24,196 applications through lottery as RPO. This is a new product in capital market and in banking sector as well so is an outstanding phenomenon.

3.15.2 Membership of Dhaka Stock Exchange Limited

IBBL has become member of the Dhaka Stock Exchange in the year 2006. Securities and Exchange Commission (SEC) has been approached for permission to operate the brokerage house. By this time, license for Custodian Depository Partnership (DP) from SEC and Central Depository Bangladesh Ltd. (CDBL) has been obtained. Now interested persons can open account with IBBL for custodian purpose. Brokerage House function will be started on getting permission from SEC. Any body will then be able to buy and sell shares by opening B.O. Account with IBBL.

3.15.3 Membership in other National organizations

The Bank is also member of the under noted Local Organizations:

a.                   Bangladesh Institute of Bank Management (BIBM)

b.                  The Institute of Bankers, Bangladesh (IBB)

c.                   Bangladesh Association of Banks (BAB)

d.                  Bangladesh Foreign Exchange Dealers’ Association (BAFEDA)

e.                   Central Shari‘ah Board for Islamic Banks in Bangladesh

f.                   Islamic Banks Consultative Forum (IBCF), and

g.                  Dhaka Chamber of Commerce & Industry

3.15.4 Share Holding in National Bodies

The Bank participated in the share capital of Central Depository Bangladesh Limited (CDBL), which has been established for electronic book entry system to record and transfer the securities and change the ownership of securities without any physical movement of certificates.

The Bank also participated in the share capital of Karmasangsthan Bank (Employment Bank), a Bank established with Govt. initiative for creating employment opportunities for the unemployed youths.

3.15.5 International Affiliations

This Bank is a member of the under noted Foreign Organizations:

a.                   Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain and has also become member of its Board of Trustees.

b.                  General Council for Islamic Banks and Financial Institutions (GCIBFI), Manama, Bahrain and has also become member of the Executive Committee of GCIBFI,

c.                   International Chamber of Commerce-Bangladesh,

d.                  Islamic Financial Services Board,

e.                   International Islamic Financial Market, and

f.                   International Islamic Center for Arbitration and Commercial Settlements (IICACS).

3.15.6 Shari’ah Council

The Shari’ah Council of the Bank plays a very important role in framing and exerting policy for strict adherence of Shari’ah Principles in the bank. The Council is represented by 13 members consisting of prominent Ulama having adequate knowledge in Fiqhul Moamalat, renowned lawyers and eminent economists to advice and guide on the implementation and compliance of Shari’ah principles in all activities of the Bank particularly on the modes of investment. The Council of the Bank is governed by its bye-laws and enjoys a special status in the Bank.

3.15.7 Management of IBBL

A Board of Directors consists of Directors, now, 13 in number elected from and amongst the foreigners and local shareholders provides the policy guidelines to Islami Bank Bangladesh Limited. The Board of Directors for smooth and efficient operations of the Bank forms an Executive Committee consisting the members of the Board. Besides, a Management Committee consisting of the Senior Executives headed by the Chief Executive looks after the actual operations of the Bank.

3.15.8 Performance Highlights

n  The largest network of Branches among Private Commercial Banks

n  On-line Banking facilities in 95 Branches

n  3.8 million Deposit Customers

n  Over 5 hundred thousand Investment clients

n  55% of total investment in Industrial sector

n  Employment generation for more than 1 million people

n  Poverty alleviation through investment to more than 5 (five) lac people

n  Highest Taxpayer in Banking sector of Bangladesh

3.15.9 Products

IBBL has so far introduced the following deposit products:

i.                    Al Wadeeah Current Account     

ii.                  Mudaraba Hajj Savings Account (1 Year to 25 Years)

iii.                Mudaraba Waqf Cash Deposit

iv.                Mudaraba Special Savings (Pension) (5 Years and 10 Years)

v.                  Mudaraba Muhor Savings Account

vi.                Mudaraba Savings Bond (5 Years and 8 Years)

vii.              Mudaraba Monthly Profit Deposits Scheme (3 Years and 5 Years)

viii.            Mudaraba Term Deposits(3 Months, 6 Months, 12 Months, 24 months and 36 Months)

ix.                Mudaraba Savings Deposits

x.                  Mudaraba Special Notice Deposits

xi.                Mudaraba Foreign Currency Deposits

3.15.10 Mobilization

The year 2007 was another successful year of mobilization of deposit. Total deposit stood at Tk.1,66,777 million as on 31^st December 2007 as against Tk. 132,419 million of the preceding year registering an increase of Tk.34,358 million, i.e. 25.57% growth as compared to the growth rate of 16.70 % of the Banking Sector during 2007. The percentage of growth of Deposit in 2006 was 26.67%.

The share of deposit of IBBL in banking sector as on 31.12.2007 was as 7.48% from 7.74% as on 31.12.2006.

Total number of depositors of IBBL increased to 38,02,709 as on 31^st December 2007 from 3,207,131 of the preceding year, registering an increase of 18.57% as against increase of 18.56% as on 31.12.2006.

3.15.11 Investments

Investment of the Bank increased to Tk.1,74,058 million as on 31.12.2007 from Tk. 1,13,575 million as on 31.12.2006 showing an increase of Tk.60,483 million, i.e. 40.42% growth as against 17.24% growth of investment of the Banking Sector. This increased investment growth of the Bank in 2007 is due to the thrust given to promote investment for effective utilization of depositors’ fund. The percentage of increase of Investment of IBBL in 2006 was 25.26%.

The share of Investment of IBBL in Banking sector as on 31.12.2007 increased to 8.27%, from 7.67% as on 31.12.2006.

3.15.12 Sector-Wise Investments

Sector-wise distribution of investment as on 31^st December 2007 vis-à-vis the corresponding period of last year is given below:

(Amount in Million Taka)

Sl. No. Sector 2007 2006            Amount % to Total Investment            Amount % to Total Investment 1 Industrial 78,788.15 51.43% 62,642.10 55.15% 2 Commercial 46,345.60 31.98% 28,983.80 25.52% 3 Real Estate 8,869.14 6.12% 8,357.80 7.36% 4 Agriculture (including investment in Fertilizer and Agriculture Implements) 4,492.53 3.10% 5,890.00 5.19% 5 Transport 2,565.09 1.77% 2,722.40 2.40% 6 Special Schemes 4,492.53 3.10% 7 Others 4,043.28 2.79% 4,978.97             4.38% Total 149596.32 100% 113,575.07 100.00%

3.15.13 Welfare Oriented Investment (Special Scheme)

In addition to the normal Commercial and Industrial Investment operations, many special Investment Schemes like:

i) Rural Development Scheme, ii) House-hold Durables Scheme, iii) Investment Scheme for Doctors, iv) Transport Investment Scheme, v) Car Investment Scheme, vi) Small Business Investment Scheme, vii) Micro-Industries Investment Scheme viii) Agricultural Implements Investment Scheme, ix) Housing Investment Scheme, x) Real Estate Investment Program, xi) Mirpur Silk-weavers’ Investment Scheme, xii) Poultry Investment Scheme and xiii) Small Transport Investment Scheme, targeting different economic groups, have been introduced by the Bank over the years. The schemes have been implemented and being expanded to meet the specific and welfare oriented needs of the different segments of people of the country.

The Bank, since its inception, has been working for the upliftment and emancipation of the under-privileged downtrodden and neglected sections of the population and has taken up various financing schemes for their well-being. The objectives of these schemes are to raise the standard of living of low-income group.

Outstanding amount of Investment as at the year end under different welfare Schemes are as under:                                                                                                              

(Amount in Million Taka)

Sl. No.	Name of Scheme	2003	2004	2005	2006	2007
i.	Rural Development Scheme	570.88	789.97	1,106.47	2,242.22	4665.89
ii.	House-hold Durables Scheme	910.91	878.76	782.09	699.95	1371.32
iii.	Investment Scheme for Doctors	101.01	85.54	64.42	33.38	57.18
iv.	Transport Investment Scheme	2,311.60	2,442.16	2,947.38	2,698.88	4286.50
v.	Car Investment Scheme	33.58	30.30	27.75	23.54	44.48
vi.	Small Business Investment Scheme	395.75	501.26	629.81	768.45	1129.15
vii.	Micro-Industries Investment Scheme	10.10	17.18	10.21	6.24	38.82
viii.	Agricultural Implements Investment Scheme	12.76	14.69	12.53	11.94	21.56
ix.	Housing Investment Scheme	661.56	672.10	609.78	506.75	646.81
x.	Real Estate Investment Program	3,418.85	4,713.70	5,859.75	6,582.85	7361.41
Sub-total (Investment under Schemes)		8,427.00	10,145.66	12,050.19	13574.20	19623.12

3.15.14 Rural Development Scheme (RDS)

Islami Bank Bangladesh Limited launched its Rural Development Scheme in 1995, to cater to the investment needs of the agriculture and rural sector of the country to create opportunity for employment and raising income of the rural people with a view to alleviating poverty. The Scheme has been aimed at achieving an integrated growth in rural areas and gradually developing model villages within 16 kilometer radius of the selected Branches.

By this time, the Scheme expanded its operations through 129 Branches of the Bank in 10,023 villages of the country under 220 Thanas of 61 Districts. The rural poor are provided investment facilities in agriculture and 343 selected off-farm economic activities in the rural areas starting from Tk.10,000/- to a maximum limit of Tk.2,00,000/-. The amount of cumulative disbursement through this Scheme stood at Tk.13,969.01 million up to December, 2007. Rate of recovery against the running investment is 99%. At present the number of member under the Scheme is 5,16,725 out of which 4,59,885 are women i.e. 89% of the members are female. Beside the investment activities, successful members, so far, have been provided with 6,242 Tube-wells amounting Tk.12.12 million and 3,551 sanitary latrines amounting Tk.3.51 million on Quard-e-Hasana (profit-free investment) as a part of health and sanitation program of the Scheme. Moreover the Scheme is working in the area of consciousness rising of its members in order to establish moral and social standards. Year-wise data for the last 5(five) years on performances of the Scheme are given below:

Tk. fig. in million

Particulars	Dec. 03	Dec. 04	Grow  th	Dec. 05	Growth	Dec. 06	Grow th	Dec. 07	Grow th
Village	3,700	4,230	14%	4,560	8%	8,057	77%	10,023	24%
Center	5,514	6,384	16%	8,526	34%	15,321	80%	18,897	23%
Member (Male)	7,828	9,808	25%	13,047	33%	32,766	151%	56,830	73%
Member (Female)	1,22,637	1,53,657	25%	2,04,398	33%	3,76,809	84%	4,59,885	22%
Total Member	1,30,465	1,63,465	25%	2,17,445	33%	4,09,575	88%	5,16,725	26%
Cumulative disbursement	2,92,3.59	4216.80	44%	6033.30	43%	9,303.12	54%	13,969.01	50%
Outstanding Investment	570.88	790.00	38%	1106.50	40%	2,242.21	102%	2,884.66	29%
Rate of Recovery	98%	99%	---	99%	---	99%	---	99%	---
Member’s Savings	228.74	322.50	41%	459.10	42%	727.67	58%	1,053.56	45%
Tube-well (Nos.)	2,519	3,400	35%	4,421	30%	5,525	25%	6,242	13%
Sanitary Latrine (Nos.)	968	1,509	56%	2,204	46%	3,147	43%	3,551	13%
Field Officer (Nos.)	639	731	14%	868	19%	1,436	65%	1,819	27%

3.15.15 Household Durables Scheme

Among the above schemes, the objective of Household Durables Scheme is to increase standard of living and quality of life of fixed income group by providing them investment facilities to purchase different household durable items.

As on 31 December, 2007, investment under Household Durable Scheme was Tk.1371.31 million among the 27,010 investment clients as against Tk. 699.95 million among the 27,349 investment clients in 2006. 

3.15.16 Investment in Industrial Sector

As per Investment Policy of the Bank top priority has been given towards the Industrial development of the country. The Bank’s Investment portfolio is gradually being increased towards industrial finance along side commercial investment.

Bank's investment in industrial sector is substantially higher compared with those of other commercial Banks. Total Investment for projects finance and Working Capital stood at Tk.78,788.5 million as on 31st December, 2007 as against Tk. 62,642.10 million as on 31.12.2006 resulting in 25.77% growth.

3.15.17 Role of IBBL in Development of SMEs

Small and Medium Enterprises (SMEs) play an important role in the economic and social life and can generate a large number of employments in the traditional and non traditional sectors. Keeping this in view, IBBL has set up a separate Division named Small Enterprise & Consumer Investment Division (SECID) with effect from January 01, 2006 for Small Enterprises financing in compliance with the Bangladesh Bank guidelines. Moreover, IBBL is financing Medium Enterprises through two other divisions named Project Investment Division (PID) and General Investment Division (GID).

3.15.18 Investment in SMEs

                                                

The investment of IBBL in the SMEs was Tk.17163.20 million as on 31 December, 2007, which was about 9.86% of total investment of the bank. The quantum of investment signifies the commitment of the Bank towards rapid growth of the economy and contribution to increase the per capita income of the people by creating employment opportunities.

3.15.19 Foreign Exchange Business

IBBL is playing a very important role in the Foreign Exchange Business of the Country. Total Foreign Exchange Business handled during the year 2007 was Taka 287,919.00 million. The comparative figures are given below:

 (Amount in Million Taka)

Particulars	2007		2006		% of growth in 2007 over 2006
	Amount	% of Total	Amount	% of total
Import	1,37,086.00	47.61%	96,870.00	48.00%	41.52%
Export	66,690.00	23.16%	51,133.00	25.34%	30.42%
Remittance	84,143.00	29.22	53,819.00	26.67%	56.34%
Total	2,87,919.00	100.00%	201,822.00	100.00%	42.66%

 Total Foreign Exchange business handled by the Bank demonstrated a growth of 42.66% in 2007 compared to 36.70% growth of 2006.

3.15.20 Import

During the year 2007 bank opened 32991 import Letters of Credit as against 29,952 Letters of Credit in 2006. Major items of import consist of the following:

(Amount in Million Taka)

Sl. No.	Name of Commodity	IBBL	% of IBBL Import	National	% of National Import	Contribution of IBBL in National Import
1	Capital Machinery & others Machinery	28,031	20.45%	1,24,400	9.83%	22.53%
2	Textile Fabrics & Accessories for Garments	15,746	11.49%	1,47,600	11.67%	10.67%
3	Cotton	18,202	13.28%	69,400	5.49%	26.23%
4	Fertilizer	6,316	4.61%	36,000	2.85%	17.54%
5	Wheat	6,306	4.60%	43,000	3.40%	14.67%
6	Other Iron & Steel Products	7,353	5.36%	56000	4.43%	13.13%
7	Chemical & Chemical Products	5,113	3.73%	60,000	4.74%	8.52%
8	Edible Oil	3,759	2.74%	55,500	4.39%	6.77%
9	Sugar	1,851	1.35%	18,500	1.46%	10.01%
10	Yarn	6,959	5.08%	36,500	2.89%	19.07%
11	Rice	6,537	4.77%	36,600	2.89%	17.86%
12	Clinker	1,562	1.14%	16,000	1.26%	9.76%
13	Pulses (all sorts)	2,009	1.47%	16,500	1.30%	12.18%
14	Petroleum & Petroleum Products	38	0.03%	1,40,530	11.11%	0.03%
15	Plastic	102	0.07%	26,500	2.09%	0.38%
16	Milk & Dairy Products	492	0.36%	9,800	0.77%	5.02%
17	Oil Seeds	5	0.00%	4,300	0.34%	0.12%
18	Spices & Fruits	1,141	0.83%	7,800	0.62%	14.63%
19	Tanning Materials	189	0.14%	6,100	0.48%	3.10%
20	Others	25,375	18.51%	3,54,100	27.99%	7.17%
Total		1,37,086	100%	12,65,130	100%	10.83%

3.15.21 Export

During the year 2007 bank handled 29087 Export Bills as against 26,063 Export Bills in 2006 Major export financed items are the following:

(Amount in Million Taka)

SL No.	Name of Commodity	IBBL	% of IBBL Export	National	% of  National Export	Contribution of IBBL in National Export
1	RMG	53,009	79.55%	5,68,800	66.77%	9.32%
2	Fish & Shrimp	1,827	2.70%	36,310	4.26%	5.03%
3	Jute Goods	2,556	3.81%	26,830	3.15%	9.53%
4	Raw Jute	26	0.04%	10,900	1.28%	0.24%
5	Leather	31	0.05%	25,470	2.99%	0.12%
6	Tea	2	0.00%	510	0.06%	0.39%
7	Others	9,239	13.85%	1,83,070	21.49%	5.05%
Total		66,690	100%	8,51,890	100%	7.82%

3.15.22 Foreign Remittance and International Correspondents

The Bank started mobilization of Foreign Remittance from its very inception and playing significant role in facilitating expatriates working abroad with remittance services. Over the last few years IBBL is holding the 1^st position among all 52 Banks of the country in respect of remittance business.

Foreign Remittance of the Bank witnessed phenomenal growth of 56.34% in 2007. The total remittance business of the bank during the year stood at Tk. 84,143 million which is Tk.30,324 million higher than the total yearly remittance of Tk. 53,819 million received in 2006.

Customer Service Department has been strengthened for meeting complaints of expatriates and Exchange Houses. We update the exchange rate with the changes in the market while the Exchange Houses are funding through contacting dealing room directly.

A new popular product called ‘Instant Cash Payment’ has been introduced this year which facilitated the urgent need of the expatriate beneficiaries. Moreover, various steps have been taken to update the automation of remittance operations for which the services for foreign remittances could be made tailored to the needs of the expatriates and their beneficiaries.

More new countries as potential remittance source have been brought under the coverage of drawing arrangements. Those are Singapore, Canada, Italy, Greece and Malaysia. To mobilize significant amount of foreign exchanges for the country, the bank established Taka drawing arrangements with more than 84 Banks / Exchange Houses. In addition, IBBL has got 884 correspondent networks in 90 countries. This correspondent relationship accrued substantial benefits to the Bank by way of expansion in its service areas related to foreign trade and foreign exchange business. The Bank endeavors to increase its banking relationship with international financial institutions to offer smooth and efficient services to the customers. It has also become member of SWIFT (Society for Worldwide Inter-Bank Financial Tele-communication) to facilitate foreign trade businesses and foreign remittances. For mobilization of remittance businesses, bank has deputed two representatives to the Kingdom of Saudi Arabia, three in U.A.E. and contemplating to depute more representatives in some other remitting source countries.     

Display Boards bearing “Probashi Grahok Seba Desk” were set in all the Branches to facilitate quick and personalized service to the expatriate clients to give due importance to them.

3.15.23 Information and Communication Technology for Automation of IBBL

The Information & Communication Technology Division (ICTD) of IBBL is responsible for developing, maintaining, deploying new computerized applications and subsequent technology & business supports along with related infrastructure development & maintenance. IBBL recognizes that it has extra load at its branch counters due to mass banking. To cope with this  extra load, IBBL is in the process of introducing alternative delivery channels like internet banking, ATM (Automated Teller Machine), POS (Point of Sale), credit cards, telephone banking with the help of advanced technology and improve overall performance by integrated banking applications and office automation software. ICTD has been playing a vital role in equipping all the branches, zones and different departments in Head Office with required number of computers, peripherals & appropriate software. IBBL is the only bank in Bangladesh that has in-house developed large-scale online banking software by its own computer programmers. IBBL also possesses the highest number of online banking branches in Bangladesh covering whole Dhaka city & almost all major districts.

1) eIBS (electronic Integrated Banking System)

Before 2005, IBBL used to maintain a branch based banking software named IBBS, which has become obsolete to meet today’s banking needs. With a view to developing a Wide Area Network (WAN) enabled & Shari’ah compliant banking system, IBBL in 2001 undertook an in-house Intranet based banking project named eIBS having 3 major modules: General Banking (GB), Investment & Foreign Exchange. Alhamdulillah we successfully developed eIBS software module-wise and integrated all the modules and deployed the systems.

2) Online Banking

Since March 20, ’06 we have gradually brought 95 branches under on-line banking using Fiber Optics, DDN and Radio Link. Currently we are providing all branch banking facilities to our clients which will be extended to internet banking in near future. Our existing online banking activities includes: balance inquiry & printing of mini-statement, cash deposit and withdrawal, fund transfer and inward clearing. 

3) Online ATM

Online ATM service has been introduced from July, ’06. Out of 53 Off-line ATM branches, 45 branches have been converted to online ATM branches and ATM Card holders of these branches are drawing money round the clock from their accounts directly from 21 ATM booths all over the country. We are exploring possibilities of utilizing ATM and POS services of other networks and accruing IBBL’s own ATMs and introduce credit cards to improve customer service.

4) Online Data Center

In order to preserve real-time backup data of the connected branches, prepare a strong MIS (Management Information System) and enable ATM online transactions, an Online Data Center has been set up at IBBL Head Office.

5) SMS Banking

We have successfully introduced SMS banking using mobile phone from our branches for our clients. Expatriates and beneficiary could be informed about their sent money by this SMS, if they required. By SMS service a client can know his balance, statements and even transfer fund from one account to another.

6) SWIFT

IBBL is a member of SWIFT since 1999. All 38 AD branches are connected with main SWIFT server at Head Office for rendering better services to the importers, exporters & remittance business. Steps have been taken to replace the existing dial up connectivity of SWIFT by Service Bureau Lease line to meet the obligatory requirement of the SWIFT Authority.  This will speed up downloading time and reduce expenditure.

7) REUTERS

IBBL is a member of REUTERS. This allows IBBL to receive regular updated information regarding exchange rates, metal markets & other commodity prices, which helps IBBL to make correct & prompt business decision.

8) Foreign Remittance Automation

In order to handle foreign remittance transactions efficiently, we have fully automated the system. 

9) Faster Remittance Processing

Previously IBBL used to send remittance messages to remote branches through courier services. It took almost 2/3 days for the messages to delivery & payment at clients’ end. Now we are using email and internet facilities in all the branches to transmit foreign remittances 03/04 times in a day. We developed auto-generated SMS for remittance beneficiaries and started providing instant cash / express cash / Xpress money / instant money services.

10) Web portal/Internet Banking

We developed an in-house web portal containing internet banking facilities and are operating it from this year for our foreign remittance and extranet clients. Corporate clients may use this service to know their account information by internet.

3.15.24 Human Resources Management

Total number of employees of the Bank increased to 8426 including 61 female officers as on 31st December 2007 from 7459 including 38 female officers as on 31st December 2006. In 2006, total 1,139 officials were recruited to meet the additional requirement of human resources to handle the increased volume of business, new branches and also bring all the officials within the training program of the Bank. In order to keep pace with the additional human resources requirement and to enhance the employment opportunity of the country, periodic recruitment is done as per need of the Bank.

3.15.25 Training and Development

The norms and principles of Islami bank is innovative and distinctive. Hence, the importance of training & mentoring of the officials and staffs is inevitable. With a view to implementing a new system and creating skilled manpower for conducting the banking activities with expertise the training academy was formed in 1984. An Academic Council has been constituted consisting of Directors, Executives, Shariah Scholars, renowned academicians and representatives of reputed Institutions.

The academy consists of two parts:

1) Training 

2) Research.

Training: IBTRA conducted training courses and workshops. The courses include Islamic Banking Law and Practice, Investment Operation & Management, Foreign Exchange, Shariah Based Audit & Inspection. Besides, orientation, induction, foundation and motivation courses are conducted round the year. Apart from this, an Executive Development Programme’ has been introduced since 1988 for enriching knowledge and thought of Executives of the Bank.

The Bank introduced annual award for best three students of the Department of Banking and Finance of Dhaka University with ‘Islamic Banking’ as special subject since 1994.

A rich library is constituted in the academy. More than 5 thousand books on different subjects including Economics and Banking are available here.

There is an opportunity to provide with Internships facility to the students of different Universities. The academy has commenced Islami Banking Diploma in 1998.

3.15.26 CORPORATE SOCIAL RESPONSIBILITIES

Environmental awareness

At present we are resuming 950 projects under 22 industrial sectors. In connection with this we have collected environmental fitness certificate from concerned authority in every running projects.

Social services through Islami Bank Foundation

Sadakah Tahbil was formed in 1983 and is performing social corporate responsibilities from its inception. Islami Bank Foundation is the modified form of Sadakh Tahbil. IBF is involved in many welfare-oriented activities like health care, relief and rehabilitations, educational program, income oriented activities, eradication of poverty for supporting our distressed people.

Income Generating Programs:

§  Rickshaw project

§  Sewing Training project

§  Poultry project

§  Rural Health Worker Training project

§  Milk Cow rearing project

§  Self -employment project

§  Small Business project

§  Small Industry project etc

3.15.27 Health service

§  Islami Bank Hospital

Islami Bank Hospitals served the poor and common people through providing medicine facilities, surgical & gynecological service, child care, consultation on eye and nose, ear & throat, urology, neurosurgery, skin care, cardiology etc in a very cheap rate. The hospitals are situated 2 (two) in Dhaka, 2 (two) in Rajshahi, 1 (one) in Khulna and 1 (one) in Barisal district. They are serving well with confidence from their very foundation.

§  Islami Bank Community Hospital

There are 6 (six) Community hospitals situated in Satkhira, Manikgonj, Rangpur, Jhenaidah, Dinajpur and Faridpur. Another 3 (three) are going to establish in Naogaon, Mymensingh and Feni with in a short time.

§  Mobile Eye Treatment Program

We have scarcity of sufficient eye specialists for proper treatment of our poor people in the country. So Islami Bank has introduced a program of mobile eye treatment countrywide among poor people. About 300 people have been taken the service of eye treatment in 2007.   

§  Charity Hospital  

Islami Bank Foundation (IBF) directs some charitable activities of medicare in different parts of the country. Both Allopathic & Homeopathic treatment are served there.

 Islami Bank Medical College

Islami Bank Medical College, Rajshahi runs its activities satisfactorily. The college introduces its studies-session from 1st year to 5th year. The construction of the hospital building is about to finish.

§  Nursing Institute

We have scarcity of competent nurse in our country. And this is why standard treatment is always hampered. Considering this, IBF has established a nurse training institute in Rajshahi.

§  Islami Bank Health Technology Institute

We suffer from insufficiency of competent manpower in pathological sides in our hospitals, clinics, & diagnostic centers. IBF initiated a institute to over come the shortage. Presently all sorts of pharmaceuticals, dentistry, imaging and pathological training are running well in the institute. Government has given permission for opening 4^th year diploma course here.

§  Training Program on Midwifery

Many of our progenitors and new born babe die for our wrong treatment of midwives. Islami Bank Foundation took a vast program for training of midwives in hospitals and community hospitals.

Educational programs:

§  Technical Education:

To solve the unemployment problem in the country Islami Bank Foundation has established 5 (five) technical institutions in the country including Dhaka City.  Technical Education Board has already permitted 2(two) other institutes in Dhaka city and 1(one) in Bogra district.

§  Islami Bank International School & College and Islami Bank Model School & College:

There are many English & Bengali medium Schools in Dhaka city who have not fulfilled the requirements of prescribed syllabus by the board. To build up a prosperous generation in future IBBL has founded Islami Bank International School & College at Green Road and Islami Bank Model School & College at Mirpur in Dhaka.

§  Financial support for educational institutions.

§  Lump-sum grant for poor students etc.

3.15.28 Humanitarian Help Programs

§  Establishment and operation of orphanages

§  Provided fund for the marriage of poor girls

§  Assist indebted people

§  Help distressed wayfarers and such other activities

Relief & rehabilitation Program for Flood affected people

§  IBBL distributed relief goods of 1 Crore 50 Lac taka.

§  IBBL staff and officers donated their one day`s salary.

§  Islami Bank Foundation distributed 36 Lac taka.

§  Islamic Development Bank (IDB) extended their help for the flood affected people by donating 2 lac and 80 thousand dollar which distributed by IBBL.

§  Different Branches of the Bank carried out the relief distribution in different affected areas.

Relief & rehabilitation Program for the affected people of Cyclone "Sidr'

§  IBBL distributed relief goods of Taka 3 crore.

§  IBBL donated Taka 50 lac to the Chief Adviser`s relief fund.

§  IBBL donated Taka 30 lac to the Chief of Army Staff relief fund.

§  Islami Bank Foundation donated Taka 20 lac.

§  IBBL staff and officers donated their one day`s salary.

§  Islami Development Bank extended their help for the affected people by donating Taka 2 lac dollar which distributed by IBBL.

§  Different Branches of the Bank carried out the relief distribution in different affected areas.

3.15.29 Other Activities:

§  Scholarship Program

§  Ideal Forkania Madrasha

§  Distressed  Woman Rehabilitation Center

§  Service Center      

§  Monoram: Islami Bank Crafts & Fashion

3.15.30 Distinguishing Success & recognition of IBBL

o   Countries like Uganda & Nigeria wanted technical assistance to start Islami Banking. Besides, Bank of Sylon, a leading bank in Srilanka has taken training on islami banking from IBBL.

o   The institute of Cost & Management Accounts of Bangladesh awarded Islami Bank Bangladesh Limited as the first corporate bank in Bangladesh for the year 2007.

o   Global Finance’ a economy based magazine in New York awarded IBBL as the best banks in Bangladesh for the year of 1999, 2000, 2004 & 2005.

o   International Credit Rating Institution ‘Bank Watch’ acknowledged Islami Bank Bangladesh Limited as the market leader in Bangladesh.

o   Islami Bank Bangladesh Limited has been sustaining the first position in Bangladesh for an era.

o   Credit Rating Information and Services Limited, (CRISL) a leading rating company in the country rated IBBL as grade AA for long term & ST-I for short term.

o   Islami Bank Bangladesh Limited is recognized as the best bank home & aboard.

o   Islamic Development Bank (IDB) recommends any bank of any country to IBBL if they ask for any counseling on Islami Banking.

o   Islami Bank Bangladesh Limited is one of the directors of General Council for Islamic Banks & Financial Institutes, the international forum of Islami Banks & Financial Institutions.

o   Islami Bank Bangladesh Limited is one of the members of Trusty Board of Accounting & Auditing Organization for the Islamic Financial Institutions.

o   Islami Bank Bangladesh Limited paid more than Tk.  661 crore to the National Board of Revenue for 25 years.

o   Islami Bank Bangladesh Limited has emerged as the market leader in Import & Remittance business in 2007. IBBL dealt with import business of Tk 13709 crore & Tk.. 8414 crore in remittance business. Besides it dealt with export business of Tk.6669 crore for the year 2007.

o   IBBL plays an important role for socio-economical development of the country for 25 years since its inception.

o   IBBL continues its endeavor to serve the downtrodden people of rural areas through its scattered network of 186 branches.

o   It has already commenced on-line banking service among 95 branches by self-developing software.

o   Islami Bank Bangladesh Limited serve the nation through its distinguished institution ‘IBF’ contributing in social development projects like Medicare, Vocational Training, Daoah & Rehabilitation programs.

3.15.31 Future Plan

o   Manpower of the country is our asset, we want to develop our human-resources.

o   We like to strengthen the program of eradication of poverty.

o   We like to enrich our self-estimation through solving unemployment problem.

o   We like to reduce the gap between urban & rural life style.

o   We want to open branches in undeveloped areas.

o   We like to stretch industrial sector by expending our industrial investment.

o   We like to invest in medium & small industrial sectors through which investment & asset may not be coiled in some of listed people or selected areas.

o   We have a plan for developing a ‘Rural Development Organization’ for reaching the remote area of the country.

o   We have a plan to initiate a ‘Khidmah card’ contesting against conventional ‘Credit Card’ considering Islamic Shariah.

o   Expatriate Bangladeshis contribute a lot in the national economy. We are going initiate new products for them by which they can invest their money after coming back to the country. We think they could apply their capacity in the project financing in home as they depicted in aboard. Thus they may be rehabilitated properly. More over, they could assist for building up new industrial zone through remitting continuously.

We dream for roaming all over the world with the assistance of Islami Bank Bangladesh Limited. And as a part of the dream we are planning for opening branches & booths in different parts of the world especially in London & Dubai.

We wish to settle ourselves in the hearts of the people of the country and their cordial utterance should be “Islami Bank, My Bank, Ours Bank.”        

Chapter Four

Foreign Exchange Business

4.1: Foreign Exchange

Foreign Exchange Department is a very important department of IBBL, which deals with import, export and foreign remittances.  Foreign Exchange department is an international department of the bank.  It facilitates international trade through its various modes of services.  It bridges between importers and exporters.  If the branch is an authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign country.  This department mainly deals in foreign currency, that’s why it is called foreign exchange department.

Bank branch should be authorized dealer, with due approval from Bangladesh Bank to run foreign exchange transactions.  According to the Bangladesh Law, the payment must be received within 120 days.

This department is playing an important role in enhancing export earning, which aids economic growth and in turn it helps for the economic development.  On the other hand, it also helps to meet those goods and service which are more demandable and not adequate in our country.

Foreign Exchange Department is dividend in to 3 sections:

               Import                                Export                          Remittance

4.1.1: Mode of Foreign Exchange Business:

                                1. Import

                        2. Export

                        3. Remittance:

                                    A. Inward Remittance

                                    B.Outward Remittance

4.2: IMPORT

4.2.1: Meaning of Import:

Import means lawfully carrying out of anything from one country to county for Buying. It will be occurred according to the Government law.

4.2.2: Import Policy Order:

Based on the needs of commodity and availability of finance, Government declares policy. For import of goods for a particular period having approval from the National Assembly is defined as Import policy order. Import policy is a guideline of a set of rules envisaged by Government Authority i.e. the Ministry of Trade and commerce for the registered importer for import of goods inside the country.

4.2.3: Duration:

Earlier import policy has been formulated the five years. But present import policy order has been formulated for 3 (three) years, Effect from the 14^th June 2003 to 30^th June 2006 and valid till announce of new import policy order. If require Government can revise the policy in each every years.

4.2.4: General Rules in connection with import:

4.2.4. A: Restriction of Import:

a)      Negative list of Merchandises.

b)      Restricted list.

c)      Footnote under Restricted List

d)     Freely importable items.

ITC number is compulsory (H.S code 6 digit) to be mentioned in the L/C and LCAF to identification the item to be imported.

1.      Requirement Right of Refusal (ROR) for public sector agency from Ministry of Industry or respective Ministry/department of both to Import item under Restricted List.

2.      Import cannot be Israel.

3.      Pre-shipment inspection (PSI) for private sector normally PSI is not mandatory.

4.      Shipment to be made through Bangladeshi ship some exemption

                   a) Single importer maximum 20 MT grow importer highest 100 MT

                   b) General waiver from department of shipping otherwise certificate of      

Waive is to be obtained to ship through Foreign Cargo

                   c) Import of Raw materials export oriented Industries to be made on

Competitive rate.

4.2.5: Regulations of Import:

 Import of goods under this policy shall be regulated as under:

1. Control list:

Unless otherwise specified items which have been indicated as banned in this list shall no be permissible for import. An items included in this list with specific conditions for import shall be importable only on fulfillment of the conditions specified.

2. Freely Importable Items:

Unless otherwise specified an items the name of which does not appear in the control list shall be freely importable.

3.  Notwithstanding anything mentioned else where, all imports into Bangladesh shall be subject to such general or specific conditions as many have been prescribed in this order.

4. In addition to the conditions mentioned in the control list the conditions. Restrictions and procedures for import of various items mentioned in the test portion of this order, shall as usual, apply in case of import of those items.

5.If, while determining the import status of an items mentioned in the control list the description of goods does not conform to the H.S Code mentioned against item, or any discrepancy arises between the H.S Code and the description of goods, in that case the description of goods shall prevail, In other words, if the import of a particular item is shown as banned in the control list, or is shown as importable as subject to fulfillment of conditions in the list, the said ban or restriction as the case may be, shall equally apply to the import of that item , even if such ban or restriction is mentioned else where and not against the appropriate H.S Code,  if any importer, taking , advantage of such discrepancy, import any banned items or restricted items or restricted item without fulfilling the respective conditions, such import shall be treated to have been made as in contravention of the provisions of this order.

4.2.6: Modes Used in Foreign Exchange

             Investments:

      

·         Murabaha/ Bai Muazzal ----  Import/Export

·         Bai- Salam -------------------- Reshipment

·         Hire purchase----------------- For important Machinery under project

                                                          Investment

4.2.7: The Documentary Letter of Credit:

4.2.7. A: Import L/C (Letter of Credit):

               

Letter of Credit is a credit contract where the Opening/Issuing Bank is committed to place an agreed amount of money at the beneficiary’s disposal under some agreed conditions. In other words letters of credit is a letter form the importer Bankers to the exporter that the bills if drawn as per terms & conditions complied with will be honored on presentation.

4.2.7. A.1: Definition of L/C:

A letter of Credit is a conditional bank undertaking of payment. In other words letters of credit is a letter form the importer bankers to the exporter that the bills if drawn as per terms and conditions are compiled with will be honored on presentation

As per UCPDC 500 a credit may be either:

            i)          Revocable.

            ii)         Irrevocable.

The Credit, therefore, should clearly indicate whether it is revocable or irrevocable. In the absence or such indication the credit shall be deemed to be irrevocable.

4.2.7. A.2: Types of L/C:

1. Revocable Credit:

As per Article no. 8 (a) A revocable credit is a credit which can be amended or canceled by the issuing bank at any time without prior notification to the seller since to offers little security to the seller.

2. Irrevocable Credit:

As per Article no 9 an irrevocable credit constitutes a definite undertaking of the issuing Bank. A credit cannot be amended or cancelled without the agreement of all parties. It gives the seller grater assurance of payment. An irrevocable credit can be either confirms or unconfirmed dependant on the desire of the seller.

4.2.7. A.3: Classification of Importer:     

Importers are those who ate authorized by the import Trade authority i.e. & CCI & E for import of goods essential for consumption or for production purposes.

There are mainly three types of importers.

1.         Commercial Importer

2.         Industrial Importer

3.         Importers under Wage Earner Scheme

1.      Commercial Importer:

It means an importer registered under the importers, exporters and indention registration order 1981 who import goods from sale, when issued to commercial importers, given the category held by him with ITC classification and public notice against which they are admitted into import trade.

2.      Industrial importers:

When issued to an industrial consumer, gives the items of import as raw materials and packing materials and spare parts, the value of entitlement and ITC classification.

3.      Importers under WES:

It means registration importers who import only under the WES. In this scheme, the foreign exchange required for import of goods is met out of the remittance made. By Bangladeshi citizen earning wage abroad. WES importers can be importing all permissible items a declared by the importer also can import under WES.

4.2.7. B: Registration of Importer:

As per import & Export control Act. 1950 no person can indent, import or export any goods into Bangladesh except kin case of exemption issued by the Government of the peoples Republic of Bangladesh. Violation of this order is punishable with fine under the provisions of Sea Customs Act 1878 as applied by sub section (3) of Section 3 of this Act.

4.2.7. B.1: Procedure for obtaining, IRC (Import Registration Certificate):

Through public notice or import policy the chief controller of imports & Exports invites applications usually for registration of importers. The following papers/ documents are required for submission to CCI&E or area office of CCI & for import registration certificate:

            1. Application form.

            2. Nationality Certificate.

            3. Income Tax registration Certificate with GIR.

            4. Trade License from the municipal or local Authority.

            5. Membership Certificate.

            6. Partnership deed (for partnership firm)

7. Certificate of Registration with the register of joint Stock Co. & Articles and     Memorandum of Association in case of Limited Co.

8. Bank Certificate.

9. Documentary evidence for business existence.

10. Original copy of Treasury Chalan being payment of registration fees.

11. Original copy Chaplin for passbook.

12. Other documents if any required by the CCI & E.

13. Ownership’s documents or Rent receipts of the place of Business.

14. Survey clearance from the relevant Authority.

The nominated bank of the application will examine the papers/documents s& verity the signature of the applicant and forward the same to the concerned office of the CCI & E with forwarding schedule in duplicate through bank’s representative. The duplicate copy of the same bearing the acknowledgement of CCI & E office of the receipt of the documents is back by the bank and is preserved.

           

If the documents are found in order and the CCI & E is satisfied the IRC is issued to the applicant and sent direct to the nominated bank. The passbook is also issued by the CCI & E simultaneously to the importer and sent direct to the nominated bank.

4.2.7. C: Parties to Letter of Credit:

1.      Importer (Buyer)/Applicant

2.      The Issuing Bank (Opening Bank)

3.      The Advising Bank (Notifying Bank)

4.      Exporter/Seller (Beneficiary)

5.      Confirming Bank

6.      Negotiating Bank

7.      The Paying/Reimbursing/Accepting/Remitting Bank

4.2.7. D: Documents submitted by the importer before opening of the            L/C:

a.       Trade License (Valid).

b.      Import Registration certificate (Must be kept in the bank custody).

c.       Passbook import.

d.      Income Tax declaration.

e.       Membership certificate.

f.       Memorandum of Articles (In case of Ltd. Co.)

g.      Registrar deed (In case of partnership firm)

h.      Resolution.

i.        Photo one copy.

Bank will supply the following papers/documents before opening of the L/C

a)      L/C application form.

b)      LCAF Form.

c)      IMP Form

d)     Murabaha agreement.

e)      Charge documents paper.

The above paper must be completed duly filled and signed by the party and verified the signature.

4.2.7. E: Import Procedure under IBBL:

1. Selection of Clients On the basis of

a. Credit Report.

                                    b. Credibility.

                                    c. CIB Report.

            (To association of liability if any with other bank.)

            2. Induction of client as Importer.

            3. L/C:

                                    a. Conditional Undertakings of bank payments.

                                    b. .Processing to open

                                    C. Permissibility and marketability of the item.

                                    d. Price competitiveness.

                                    e. Credit report of the supplier.

                                    f. Fixation of the cash security.

                                    g. Documentation.

                                    h. Preparation of vouchers.

                                    i. Realizations of the cash security, commission and other charge.

            4. Thronging of L/C

a. SWIFT is a worldwide community. It has over 7500 financial institution over 199 Countries as its member.

                                   

                                    b. Air mail/Telex through advising Bank.

            5. Lodgment

a. Checking of import documents upon receipt from negotiating or collecting banks.

                                    b. Entry the bills register.

                                    c. Passing the voucher.

                                    d. Purchase of FC. Fund for payment of the bills.

            6. Retirement

                                    a. Preparation of cost memo.

                                    b. Intimation to importer regarding arrival of shipping document.

                                    c. Asking the bill paying bank’s dues showing in the cost memo.

d. Delivery of the documents against receipt of payment endorsement.

            7. Post Import Finance

a. At the request of importer bank undertakes clearing of the imported goods paying duty. VAT and other relevant charges stores the same under control

                                    b. Delivers to importer against payment as per prior arrangement.

            8. Enlistment of C&F agent

a. For C&F purpose. C&F agents are enlisted under different categories.

            9. Reporting

                                    a. To Bangladesh Bank

                                    b. Monthly returns statement to the Head office.

4.2.7.F The Plan of Payments by means of Letter of Credit:

The process is given below:

(1) The contract is concluded between the importer (buyer) and exporter (seller);

(2) The buyer (importer) addresses in Serving Bank with the request to let out irrevocable the letter of credit (to open the letter of credit) according to conditions to the contract and transfers the sum of a covering under the letter of credit;

(3) The bank of the buyer (importer) opens the required letter of credit and the Bank-Correspondent asks to notify the supplier (exporter) on opening of the letter of credit;

(4) Straight Bank (the Bank-correspondent of the Bank-Emitter) informs the supplier (exporter) on opening of the letter of credit;

(5) The supplier (exporter) organizes transportation of the goods by means of the    conclusion of the agreement with the transport or insurance company and receives the transport invoice or insurance policy.

The supplier (exporter) gives, according to the contract, the following documents:
- Invoice,
- Air or railway invoice,
- Insurance policy,
- Packing sheet,
- Certificate of quality

- Others

And other documents straitening to bank for payment under the documents.
It is supposed, that all documents correspond to conditions of the letter of credit.
In this case we proceed from the assumption, that straitening and executing bank is the same.

(6) The Executing Bank checks all documents on conformity to the letter of credit and, if not it is found out of any divergences, the Bank pays the requirements of the Exporter.
If the divergences are found out, executing the bank can work with one of the following ways:
- To send the documents for collection to Bank-Emitter,
- To pay the documents after reception from the Exporter of the letter of guarantee,
- To pay the documents after reception of the consent with divergences from the Bank-Emitter.

(7) Executing the Bank sends the documents to the Bank-Emitter according to the conditions, stipulated by the letter of credit;

(8) Executing the Bank sends the requirement about a covering (with the invoice of the addressee under the letter of credit) to Confirming Bank;

(9) The Bank-Emitter notifies the Buyer (Importer) on arrival of the documents;
(10) The Buyer (Importer) receives from the Bank-Emitter the documents;

(11) The Buyer (Importer) gives the invoice of the transport company for reception of the goods;

(12) After reception of the goods from the transport

4.2.7.G. Modes of sales of Goods:

1.      Cash in advance: Risk is low. The Proforma invoice is used.

2.      Open Account:  Goods are sent first and payment is made afterwards. There are no intermediaries. Proforma invoice is used here as well.

3.      Documentary Collection:  Same as an open account but the use of bank as an intermediary.  Here the risk is zero.  Here the bank acts like an agent.

4.      Documentary Credit: L/C Here modes 1, 2 and 3 are built on good faith and relationship, but mode 4 comes with a third party guarantor.

4.3: EXPORT

4.3.1: Meaning of Export:

Export means lawful carrying out of anything from one country to another country for sale.

4.3.2: Definition of Exporter:

The importers and exports trade of the country is regulated by the Imports Exports Control Act 1950. No person /firm is allowed to export any thing from Bangladesh unless he is registered with CCI and E under the registration order (Importer and Exporter) 1952. To become an exporter an ERC (export Registration Certificate) must be obtained from the office of CCI & E.

4.3.3: Procedure for obtaining Export Registration Certificate (ERC):

For obtaining Export Registration Certificate (ERC), intending Bangladesh Exporters are required to apply to the CCI & E authority in the prescribed from along with the following documents:

           

           a) Nationality Certificate.

            b) Copy of valid Trade License.

            c) Income Tax Certificate.

            d) Bank Certificate.

            e) Copy of rent receipt of the business firm.

            f) Registered Partnership Deed in case of partnership concerns.

            g) Memorandum of Articles & Association and Incorporation certificate in

    Case of Limited Company.

On satisfaction of the CCI & E the potential exporter is advised to deposit export registration fee of Tk. 1,000/- through Treasury Chelan to Bangladesh Bank/ Sonali Bank for enabling them to issue ERC. The ERC may be renewed every year on payment of renewal fee of Tk. 1,000/- through Treasury Chelan as started.

4.3.4: Different types of Export:

A. Export under L/C

Exporters are allowed to export the commodity under irrevocable letter of credit. Under this type of export, exporter will ship the goods as pr terms of the credit and will get payment as per arrangement of the credit

b. Consignment basis export:

Exports are allowed against firm contract. As per contract, importer will ship the goods and the buyer will make payment after selling the consignment.

c. Export against advancement payment:

Sometimes exporter receives payment in advance. In that case Authorized Dealer should obtain a declaration from the exporter on the “Advance receipt voucher” certifying the purpose of the remittance. Then the exporter will export the goods against the advance payment.

4.3.5: General Rules for Export:

There are some rules, which are mandatory for export of any goods form Bangladesh. The rules are as under:

(1) No Person can export any goods from Bangladesh, unless he is duly registered as an exporter with the CCI & E.

(2) All export must be declared on the EXP form, which is consisting of 4 copies.

(3) Export mush is against any of the following:

                        a) Export L/C.

                        b) Firm Contract.

                        c) Advance Payment.

           

(4) Transport documents related to land route or sea and any other Author8ized Dealer. The Airway Bill and any other documents of title to car4go may be drawn to the order of a Bank in the country of import. However in case of advance payment, transport document may be drawn to the order of Foreign Importer Bank endorsement of transport documents is prohibited. Directions under Sl. No. shall not apply in the following cases:

           

            a) Export of Trade sample.

            b) Personal Effects.

            c) Goods shipped under the order of Govt.

            d) Export of fresh fish, vegetable and fruits.

            e) Gift package for less than Tk. 50/-.

(5) ‘EXP’ must be submitted to the Bank by the exported and Bank will submit the Duplicate Copy to the Bangladesh Bank within 14 days from the date of shipment.

(6) Payment for goods exported should be received through an authorized dealer in freely convertible currency.

(7) Export proceeds must be received by the exporters within 4 months.

(8) Overdue export bills statement to Bangladesh Bank should be submitted by the 15^th of the month, following quarter to which it relates.

           

(9) In case of short shipment, exporter should give a notice of short shipment of\n the prescribed from in duplicate, the prescribed from in duplicate, the customs, who will forward a Certified copy of the notice, to the Bangladesh Bank.

4.3.6: Issuance of EXP Forms and Number:        

Bank will certify EXP Form only after confirming the following:

            a) Arrangements have been made for realization of Export proceeds.

            b) Bona-fides of the importer/ consignees abroad.

c) Arrangements have been made for receipt by Authorized dealer of documents of title to goods.

d) The EXP has been signed by the exporter

4.3.7: Stages & Mechanism of Export:

               

1) Exporter will make the goods ready for shipment.

2) Arrangements have to be taken for inspection of the goods by the     competent authority as per credit terms.

3) Exporter will declare on EXP form against export L/C/Firm Contract/ Advance payment.

4) Exporter have to arrange approval for export from custom authority on EXP from by submitting Export L/C, Export permission from CCI & E, Quota clearance from EPB, U.D. in case of garments, invoice, packing list along with shipping bill prepared by C&F agent.

5) After completion of custom formalities, shipping company will receive the goods and will issue B.L.

6) Exporter will collect visa/ license and certificate of origin for final documentation.

7) Exporter will submit the full set of documents to the negotiating bank for negotiation.

8) Negotiation bank will dispatch the documents to the issuing bank for clearance of the goods from destination against payment as per credit terms.

4.3.8: Export Documents Checking:

After submissions of export documents by the exporter, Bank must check, whether the entire required document submitted or not. Bank must examine all documents stipulated in the credit with reasonable care to ascertain whether or not they appear, on their face to be in compliance with the terms and conditions of the credit. The Banks will not examine documents not stipulated in the credit. To examine documents Bank must follow the L.C terms and international standard banking practice. Automated or computerized carbon copies to be treated as original documents if it is marked ‘original’ Copy documents need not be signed. Multiple documents means one original and remaining copies, Signature, Mark, Stamp or label is sufficient for authentication of document. Bank will accept a prohibited in the L/C.

4.3.9: Export Financing:

s

To meet up the cost of the goods to be exported, the exporter, the exporter may require Bank finance. Besides, he may require finance for go down rent, freight etc. Event after shipment of the goods, exporter may require Bank finance to meet-up his current expenditure up to repatriation of the export proceeds.

There are two types of export finance:

            (I) Pre-shipment finance.

            (ii) Post shipment finance.

4.3.9. A: Pre-shipment finance:

Pre-shipment investment is finance, allowed by a Bank to an exporter, to meet the cost up to the shipment of the goods t overseas buyer. The purpose of the investment is to purchase raw materials or finished goods or manufacturing processing, packing and transporting the goods.

4.3.9. B: Post shipment finance:

There is a time gap between export of the goods and realization of the proceeds. So exporter may require finance in that period to continue his business. So Bank may finance against export documents ensuring the following:

           

           1) Export documents comply the credit terms.

            2) Buyer is bona-fide.

            3) Party’s past performance is satisfactory.

            4) Any other security in case of export under contract.

4.3.9. Aa: Security of Pre-shipment Investment:

1) Bank will mark loin on the related export L/C.

2) Bank will finance against a L/C having sufficient time to procure the goods for export.

3) Finance to be done after arrival of the imported raw materials under back-to-back L/C.

4) Bank will supervise the production from time to time to ensure export of the goods in time.

5) If finance is applied for a particular purpose Bank will ensure the proper use of the money for the purpose only.

6) Change documents to be signed by the exporter before disbursement of the PSI.

7) In case of Quota finance, Quota allocation letters to be kept lien with the Bank.

8) Bank will adjust the liability proportionately from related export documents.

4.3.9. Ab: Types of Pre-shipment Finance:

               

1) Cash finance for purchase of raw materials/finish goods.

2) Cash finance for factory rent, wages & salaries and all other factory expenses.

3) Finance for payment of freight.

4) Purchase of Quota to export the goods to Quota countries.

4.3.9. Ac: Limit of Pre-shipment finance:

1.      As. per existing rule Banks can extend pre-shipment facility up to 90% of Export L/C value (FOB value)

2.      Bank will finance with in the Head Office sanction limit for the concerned client.

3.      Other liabilities of the client with the Bank also to be considered for extending pre-shipment facility.

4.3.10: Issuance PRC:

Sometimes exporters are required to submit to the Govt. Agency evidence of goods and realization of their proceeds. In such cases proceeds realization certificate (PRC) may be issued.

Negotiation/ Purchase of Bill without L/C:

In our country exports are also made on the basis of contract between the buyer and the seller with out the cover of L/C. In such case document are delivered to the buyer through the intermediary of foreign correspondent of the A.D against payment. Limit (post shipment finance) is usually sanctioned from Head Office to such exporters to boost up export of the Country.

Document sent on Collection Basis:

               

When the bank refuses to negotiate the document due to major discrepancies, the bill is sent by bank on collection basis under written instruction from the beneficiary. To handle such transaction as per ICC Publication No. 322 named “Uniform Rules for Collection”

EXP Requirement:

All export from Bangladesh must be declared by the shipper on EXP form to the Bank enabling them to submit the duplicate within 14 days from the date of shipment.

The shipper is required to repatriate the export proceeds within 4 months from the date of shipment otherwise penalty is imposed upon them. A careful watch is to be dept to ensure that the sale proceeds are received on due date. A due date diary must be maintained to pursue the individual case.

4.3.11: Shipping & Customs Formalities:

International transfer of goods are made through the Letter of Credit which issued by the foreign bank at he request of Importers in favor of exporter. Such Export L/Cs is enrooted through the Bangladeshi Banks by the foreign banks who have correspondent relationship.

The foreign issuing banks may advise a credit in the following manner:

1.      By short cable/ Telex followed by Airmail.

2.      By full telex (No airmail confirmation).

3.      Airmail L/C.

4.      Advising of L/C after adding confirmation.

Keep the goods ready for dispatch (shipment):

On receipt of the order from the importer, the exporter is to take immediate steps to manufacture the goods if they are not already in stock according to the specifications desired and keep them ready for dispatch.

Inspection of Goods:

The goods should be kept ready for inspection of the competent authorities and issue a certificate of quality control required under regulation: for example:

            1. Export promotion Bureau.

            2. Custom Authorities who will inspect the goods under Sea Customs Act.

            3. Chamber of Commerce and Industry.

            4. Other agencies authorized to inspect the goods before shipment.

Getting shipping space:

In order to export the goods, the shipping companies or their agent must be approached by the exporter for booking space, to know the freight etc. So that shipment may be made conveniently. In this regard, the services of clearing and forwarding agents may be taken conveniently for actual shipment of goods; commission etc. is also to be paid to the agents for this works.

Get in touch with port Authorities:

Who will have to allow the goods to move into the port and make arrangements for loading and unloading and keeping the goods in godown.

Shipment of Goods and other documents to C & F Agents:

To handle the goods for export in the port of shipment banks nominate clearing agents to handle the goods to pass on custom formalities. Clearing agents are appointer by the bank from amongst the C & F agents of custom authority. The clearing agent on behalf of the bank arrange shipping space in the overseas vessel as per shippers instructions and also pays all the relevant dudes payable to the custom authority shipping company as freight. Bank or the shipper is to reimburse these to the C & F agent to the debit of party account.

4.3.12:  Papers are requirement in regard to export of goods subject to L/C stipulation:

      

           1. Commercial Invoice.

            2. Certificate of origin.

            3. Negotiable bill of lading.

            4. Pre-shipment inspection certificate.

            5. Quantity & quality certificate.       

            6. Fumigation certificate depending o the nature of cargo.

            7. Phytosanitary certificate depending on the nature of cargo.

           8. Gross revenue proceeds (GRP), export price check (EPC)/ Incase of jute shipment etc.

 

4.3.13:  Export procedure under IBBL at a glance:

1. Selection of Clients; On the basis of;

                        a. Export Registration Certificate. (ERC)

                        b. Membership of an authorized trade association.

                        c. Credit report.

                        d. Export L/C.

                        e. Checking and Advising.

                        f. EXP certification.

                        g. Pre shipment facility.

                        h. Processing for Export

                        i. Execution

                        j. Submission of Export documents.

                        k. Checking: Preparation of offering sheets for negotiation or Collection.

            2. Negotiation and Collection:

                                    a. Purchasing documents.

b. Sending documents to L/C opening banks or correspondent for    collection of proceeds .After collection adjustment of negotiation value.

            3. Reporting:

                                    a. Duplicate EXP to Bangladesh Bank.

                                    b. Triplicate EXP after relation of proceeds to Bangladesh Bank.

                                    c. Monthly statement to Head office.

            4. Export Under Back to Back System:

                                    a. Export L/C advising.

                                    B .Proposal for BB L/C

                                    c. Checking.

                                    d. Process to open BB L/C

                                    e. Formalities time gap between Import and Export credit.

                                    f. Report Buyer and Supplier.

            5. Throughing of BB L/C

                                    a. Advising bank or Foreign correspondent add confirmation.

            6. Lodgments of BB Bills:

                                    a. Shipping documents.

                                    b. Evidencing dispatch.

                                    c. Goods acceptance of import bills.

                                    d. Conveying of due date to negotiating bank.

                                    e. Clearance of Raw materials.

                                    f. Storing in Bonded Warehouse.

                                    g. Manufacturing of the product.

                                    h. Pre shipment Extension.

            7. Negotiation of Export Bill:

                                    a. Execution of Export

                                    b. Submission of Export Documents.

                                    c. Checking.

                                    d. Negotiation.

                                    e. Disbursement of funds to different heads of A/C including F/C                                                       held account for payment of BB Bill.

8. Relation of Proceeds and Reporting:

                                    a. Crediting NOSTRO A/C.

                                    b. Adjustment of negotiation value.

                                    c. Payments of BB Bills.

                                    d. Export Incentives

                                    e. Reporting of Export.

                                    f. Settlement of any other claims

4.3.14: Back- to- Back L/C

Back -to -back L/C means one credit backs another.  It is new credit in favor of another beneficiary.  Sometimes beneficiary seller of a credit himself is unable to supply goods specified in the L/C and required to purchase from another supplier by opening second credit.  Besides, the formalities and requirements for (L/C opening) the following formalities and documents are also required for opening back-to-back L/C

1.      Master L/C

2.      Valid bonded ware house license

3.      Quota allocation for quota items

4.      ERC in addition to IRC

5.      Indemnity/Undertaking

6.      NO objection form previous banker

7.      Factory inspection certificate

8.      BGMEA Membership

4.3.14.1: Problems of Back to back L/C:

1.         Shipment time gap: Sometime time is shorted for exporting against import L/C, kit may be caused.

2.         Terms and rules violations: IBBL cannot violate the rules & term of Shariah council.

3.         Selling violation: Out of agreement IBBL cannot receive excess wanted.

4.         Payment of back to back L/C bill: No stock bills are supported against Shariah.

5.         Gaps of International rules & regulations.

4.3.14.2: Prospects of back to back L/C:

            1.         It is Garment oriented readily.

            2.         Backward lender (must have)

            3.         to continuous quality improvement.

            4.         To exchange customer facilities.

5.         To be continuous of our authorized.

 

4.4: REMITTANCE

4.4.1: Meaning of Remittance:

The word “Remittance” originates from the word “remit” which means to transmit money/ fund. In banking terminology the word “remittance means transfer of fund one place to another. When money transferred from one country to another is called “Foreign Remittance”

4.4.2: Types of Remittance:

Foreign remittance may be classified into.

Ø  Inward Foreign Remittance.

Ø  Outward Foreign Remittance.

4.4.2. A: Inward Foreign Remittance:

Inward Foreign Remittance means Remittance received from foreign countries from abroad. In other words remittance coming into our country from other countries by the remitter by way of permissible banking channel through freely convertible Foreign Currencies is called ‘Inward Foreign Remittance’ i.e. payless point of view it is inward foreign remittance. On the other hand remitter’s point of view it is called outward Foreign Remittance. During The year 1995-1996 Bangladesh received and amount of US$ 1217.062 Mil as Foreign remittance. The above process of Remittance may be presented diagrammatically as under:

4.4.2. B: Outward Remittance:

Outward remittance of funds be made by means of T.T., D.D.T.T. etc. the remitter has to deposit money along with the application contains name and address of the payee name of the currency etc. All outward remittances must cover the transactions approved by the Bangladesh Bank. Which are usually for importers travel & educational expenses.

4.4.3: Direct/ Indirect Remitter:

Wage Earners: Bangladeshi citizens are working abroad both in private sector & in Govt. Sector.

Indenture: Indenting commission & Agency commission received from suppliers from abroad. Bangladeshi citizens are working in Bangladesh Embassy abroad.

            Foreign Govt./ Govt. organization (UNO & others) who have their own activities in Bangladesh say business, Embassy etc. can also remit to Bangladesh for meting       their expenses, salary etc.

Donors: Foreign Donors can only remit to Bangladesh through the Govt. Register Organization & institution etc.

Exporters: Export proceeds also remitted to Bangladesh against exporting of goods.

4.4.4: Mechanism of Remittance:

• FCAD- Foreign currency A/C Dollar.
• FCAP- Foreign currency A/C Dollar.
• MFCD- Mudaraba foreign currency deposits.
• PFC- Private foreign currency.
• FCAD- Exp. - Foreign currency A/C dollar export.
• NRO- Non residence dollar.
• NRT- No residence Taka.
• PDAP- properly development A/C dollar.
• PDAP- properly development A/C pound.

4.4.5: Instruments of Foreign Remittances:

• Cash for          : Dollar, Pound, France Fr. Riyal or any other currency.
• T.C                  : Travelers Cheque.
• F.D.D              : Foreign Demand Draft.
• T.T                   : Telegraphic Transfer, Cable transfer or swift transfer.
• M.T                 : Mail Transfer.
• I.M.O              : International Money Order.
• Cheque            : By any person & institution..
• P.O                  : Payment Order.

4.4.6: Different types of F.C A/C:

• Foreign Currency A/c. Under wage Earners Scheme FCAD, FCAP & other.
• P.F.C A/c Private Foreign Currency A/c.
• N.F.C.D: Non resident foreign currency Deposit A/c.
• Exporters Retention Quota A/c.
• Education Foreign Currency A/c.
• C.T A/c. Convertible Taka A/c. & Non- Convertible Taka .

4.5: PERFORMANCE EVALUATION

4.5.1: Foreign Exchange Performance of IBBL

Islami Bank Bangladesh Limited has glorious history in mobilizing Foreign Exchange Business. Over the years the bank’s Foreign Exchange Business was a record high amount among all banks in Bangladesh.

The Bank has a wide Network of   Authorized Dealers throughout the year. Well- equipped and international network with skilled manpower, the bank is confident of running Foreign Exchange business efficiently to the satisfactory of importers, exporters and Bangladeshi Expatriates working abroad.

IBBL has a good network of correspondent banks around the world for its Foreign Exchange Business. The performances are given in the following pages.

4.5.1. A:  YEARLY IMPORT

                                                                   Amount in Tk.million

YEAR	IMPORT AMOUNT
2003	46237
2004	59804
2005	74525
2006	96870

   Source: International Wing, IBBL

As above table show that, the Import amount in Tk. million from 2003-2006.The import business witnessed a much better performance in 2005; the amount was Tk.74, 525 million. Before that year amount was Tk.59, 804.And the year 2003 the amount was Tk.46, 237.So through out the year 2003-2006, the Import business is increasing.

As above graph show that, the Import amount in Tk. Million from 2003-2005.The volume of export increase substantially by the Tk.46,237- 74,525 million

4.5.1. B:  YEARLY EXPORT

                                                                        Amount in Tk.million

YEAR	EXPORT AMOUNT
2003	21,738
2004	29,151
2005	36,169
2006	51133

Source: International Wing, IBBL

The above table show that the yearly export amount from 2003-2005 by the Bangladeshi exporter. In 2003 the Export amount was Tk. Million 21,738. After the year 2004 this amount increased by almost 38%, amount in Tk. Million 29,151.The last year it also increased but the growth was 24% due to inflation, political unrest and rescission in world economy.

As above graph show that, the Export amount in Tk. Million from 2003-2005.The volume of export increase substantially by the Tk.21,738- 36,169 million.

4.5.1. C: YEARLY REMITTANCE

Amount in Tk.million

YEAR	REMITTACE AMOUNT
2003	16,668
2004	23,669
2005	36,948
2006	53819

Source: International Wing, IBBL

As above the Table shows that, the remitted amount of IBBL in the million of Tk. From 2003-2005.As in the year 2003 the remitted amount from abroad amount was Tk. Million 16,668.In the 2004 the amount was increased figured Tk.23, 669 million, which also

grater than the previous year. IN the 2005 the growth rate was too high than the previous two years, volume Tk.36, 948 million.

The Graph shows that there is an increase in the Remitted amount from abroad from2003-2006.The growth of the business is to stable and satisfactory.

4.5.2: Foreign Exchange Business of ibbl

Amount in Tk.million

YEAR	IMPORT	EXPORT	REMITTANCE	TOTAL
2003	46,237	21,738	16,668	84,643
2004	59,804	29,151	23,669	112,624
2005	74,525	36,169	36,948	147,642
2006	96,870	51,133	53,819	201,822

Source: International Wing, IBBL

As the above table shows that, the overall Import, Export and Remittance business of IBBL .From this table we can compare ,which business perform more ,also gather  the idea about the turnover of the foreign exchange business. For better look, the following graph show the foreign exchange business for the past three years.

The Graph snows that the foreign exchange business by IBBL is stable and the growth rate is nearly sustain. From above we saw that import is always high and the growth also high rather than the two type of business.

4.5.3: YEARLY NUMBER OF IMPORT L/C ISSUED

YEAR	No of L/C Issued
2003	21,177
2004	24,047
2005	26,736

Source: International Wing, IBBL

As the Above table shows that the total import L/C opened by the bank from 2003-2005.

In the year 2003 the opened L/C was21, 117 and the next year it reached 24,047.In the year 2005 the amount was 26,736.

During the year 2005 the bank opened 26,736 imports L/C for Tk.74, 525 million as against 24,047 L/C for Tk.59, 804 million in 2004 showing 24.62% growth. In the year

2003 the bank opened 21,117 L/C .Every day the amount of L/C opened ratio is increased and the growth rate focused that its stable and positive

4.5.4: YEARLY NUMBER OF EXPORT BILLS HANDLE

YEAR	No of L/C Issued
2003	17,878
2004	20,401
2005	20,511

Source: International Wing, IBBL

As the above table graph shows that the yearly handled Export bills by the IBBL from the year 2003-2005. As per graph we see that the incremental growth of the export bill not only in the number of bills but also in the monetary volume. In the year 2003 this amount was 17,878 but the last year handled export bills was 20,401 so we conclude that their position is to steady and well. 

Chapter Five

Conclusion

RECOMMENDATIONS

It goes without saying that IBBL has turned over a new leaf of general people through the invention of new products, which are easily introduced and accepted by the general people on account of its reliability and flexibility.

Overall my observation I can say that customer service quality IBBL is good and continuously meets the challenges of developing new product and service.

IBBL is a well-known private and largest bank in Bangladesh. It is high time to improve the performance to provide the international flavored service by a Local bank. A set of recommendation is set forth below to improve the banking service:  

Ø  IBBL can diffuse its scope of investment through focusing Shariah concept regarding investments among the Bank officers; employer and the Clients by strong training, workshops and Clients get - together.

Ø  The authority of IBBL should exert pressure on Government bodies to run proper and sufficient application of Islamic banking laws in Bangladesh.

Ø  Practice amount of doubtful income declined substantially during the year as compared to the past few years, indicating more carefulness of the Management in complying with Shariah. As a result, idle money will be invested to increase potential profit of this Bank.

Ø  Inclusion of more subjects based on the Quran and Sunnah in the Training courses of the Islami Bank Training & Research Academy in order to develop human resources having morally.

Ø  This Bank should arrange a wide varieties of regular programs like "ISLAMIC JALSA" "OAAZ MAHFIL"   "SEMINAR"  "MOSQUE -BASED DISCUSSION" etc. about Islamic Banking Function countrywide to remove the negative impression about IBBL.

Ø  Arrangement of monthly /quarterly training courses /workshops for the clients selected by the Branches in order to promote Investment clients of the desired level.

Ø  IBBL should appoint a sufficient number of women employees to deal women entrepreneurs and professionals and understand their needs and thus create demand for investment.

Ø  To fulfill the vision of "mass banking" this Bank should grants investment portfolio to new entrepreneurs /new businessmen new companies etc.

Ø  IBBL should utilize "Internship Program" as one kind of promotion policy to encourage its present and potential investment clients. Because, young generation is the vital post of our economy. To do so this Bank should provides facilities to the internees through proper placement and practical operations as well as job certainty to those who bring introduce themselves the best performers in doing their particulars.

Ø  To gain success in the programs like "Poverty Alleviation and "Self Reliant" especially in rural areas, this bank should provides investment facilities on the basis of individual.

Ø  The Bank should disburse total invested money at once to the clients to achieve full benefits of invested money.

Ø  IBBL should give more emphasize on their marketing effort and try to increase their sales force.

Ø  IBBL should appoint a Customer Relation Officer at branch level.

Ø  IBBL should make their credit approval and monitoring system more customers friendly.

Ø  IBBL should try to reduce their loan issuing and disbursement timing.

Ø  IBBL should increase their profit rate on different deposit scheme.

Ø  IBBL should try to attend different type of target customer.

Ø  IBBL should introduce long-term credit scheme like different types of 5 years or ten years credit scheme.

Ø  IBBL should Introduce Islami Credit Card.  

Ø  To avoid bad debts IBBL should give more emphasize on Lending Risk Analysis (LRA) and try to conduct sensitivity analysis.

Ø  IBBL should give highest attention on recovery of Bad Debts. This concerns the Image of The Bank, to the clients

Ø  The Shariah council should give emphasis on introduction of Mudaraba and Musharaka modes of investment under various investment schemes including Rural Development Scheme.

CONCLUSION

Most of the people in our country have a bad impression about IBBL’s operations regarding indirect generation of interest, which means no difference between investments of IBBL loan/credit/advance of conventional banks for this reason. They are not much interested to investment with IBBL because majority of our people have no proper knowledge about the activities of Islami banking as well as its investment mechanisms. IBBL through its steady progress and continuous success has, by how, earned the reputation of being one of the leading private sector banks of the country. The bank has shown steady progress in this important sector. Main items of import are machinery, garments, fabrics and accessories, ships for scrapping, rice, pharmaceuticals etc. where as main items of exports are jute products, readymade garments, leather, frozen fish, fertilizer etc. IBBL’s capital adequacy, deposits, reserves, earning per share, export, import and remittances are increasing day by day. So, no doubt IBBL is a growing profitable financial institution.

The future of Islamic banks hinges, by and large, on their ability to find a viable alternative to interest for financing all types of loans. They should recognize that their success in abolishing interest has been only partial and they have yet to go a long way in their search for a satisfactory alternative to interest. Simultaneously, Islamic banks need to improve their managerial capabilities by training their personnel in project appraisal, monitoring, evaluation and performance auditing. Moreover, the future of Islamic banks also depends on developing and putting into practice such accounting standards which provide timely and reliable information of the type that the Islamic banks would require for profit-sharing, rent-sharing or for cost-plus financing. These standards are yet to be developed. The Islamic banks would have to work hard to pursue their clients to accept these standards so that a reliable information base is established.