Chapter One :Orientation of the Report

 

Origin of the Study

 
This report originated as an academic requirement of MBA Program of Dhaka University. After completion of the program period a student must submit the report on the assigned topic to the Supervisor and to the department. The program is three months duration. I was assigned to Shahjalal Islamic Bank Limited, Motijheel, and Foreign Exchange Branch to complete the program.
 

Objective of the Study

 
The main objectives of the study are:

• To find out the reality in the practical life.
• To fulfill the requirement for the completion of postgraduate (BBA) program.

 
The secondary objectives of this report are:

• To develop the practical knowledge by the practical orientation of work.
• To build up the pillar of the career for near future.
• To know about Shahjalal Islami Bank Limited (SJIBL) operational activities which is based on Islami Shariah.
• To know about Foreign Exchange operation of SJIBL.
• To know about distinguishing fractures between Islamic & Non-Islamic Bank.
• To identify the customer service of SJIBL.

 

Methodology of the Study

Different data and information are required to meet the goal of this report. Those data and information were collected from various sources, such as, primary and secondary which is showed below:
 
Primary Sources of Data:

• Personal observation.
• Face to face conversation of the officers.
• Face to face conversation of the client.
• Working at different desks of the bank.

 
Secondary Sources of Data:

• File study.
• Annual report of Shahjalal Islami Bank Ltd.
• Statement of affairs.
• Bank Rate sheet.
• Internet.
• Progress report of the Bank.
• Bangladesh Bureau of statistics report.
• Several kinds of Academic test-book and training sheet.
• Different publications regarding banking functions and foreign exchange operation.

 

Scope of the study

 

Shahjalal Islami Bank Limited (SJIBL) is now well growing and it’s containing twelve Branches in Dhaka and outside of the Dhaka. The scope of the study will be limited to the organizational setup, function and operation of the SJIBL in the Bangladesh specially concentrating on SJIBL operations in Foreign Exchange Branch but not the entire realm of the SJIBL. This report mainly encompasses the performance of Shahjalal Islami Bank Limited in comparison the General Banking and Foreign Exchange. For the purpose of my internship program, I was assigned in the Foreign Exchange Branch at SJIBL and this paved me the way to get myself familiarized with banking environment for the first time indeed. I have an opportunity to gather experience by working in different departments of the Branch.

 

Limitations of the Study

 
During the study, I have faced the following limitations:

• Three months time is not enough for such an extensive study. It is very difficult to collect all the required information in such a short period.
• Due to some legal obligation and business secrecy banks are reluctant to provide data. For this reason, the study limits only on the available published data and certain degree of formal and informal interview.
• The bankers are very busy with their jobs, which lead a little time to consult with.
• Category wise export, import, and guarantee business, amount and percentage of classified loan originated from the international trade is missing in the report for their restriction.

 

Chapter Two: Theoretical aspect of Islamic Banking

Islamic Banking Concepts

The General Secretariat of the Organization of Islamic Conference (OIC) in its Foreign Ministers Conference held in Senegal in 1978 approved the definition of Islamic Bank as “a financial institution whose statutes rules and procedures expressly state its commitment to the principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations”.
 
According to Islamic Banking Act of Malaysia, an 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 Islam.”
 
Dr. Ziauddin Ahmed Says, “Islamic banking is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system 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 is major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as profit and loss sharing banks.
 

Objectives of Islamic Banking

 
An 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 arena.
The main objectives of Islamic Banking are:

• To conduct interest – free banking.
• To establish participatory banking instead of banking on debtor – creditor – creditor relationship.
• To invest through different modes permitted under Islamic Shariah.
• To accept deposits on profit – loss sharing basis.
• To establish welfare oriented banking system.
• To extend co-operation to the poor, the helpless and the low – income group for their economic upliftment.
• To play a vital role in human development and employment generation.
• To contribute towards balanced growth and development of the country though investment operations particularly in the less developed areas.
• To contribute in achieving the ultimate goal of Islamic economic system.

 

Islamic Banking Movement Throughout the world

The expansion and unfolding of Islamic banking along with traditional interest based banking is a recent phenomenon. Islamic banking is an inseparable part of Islamic economy. During fifties it was only a subject matter of research and was limited to the writings of scholars and philosophers. During the sixties actual experiments were made and in the seventies Islamic banking institutions started gaining strength. The eighties and nineties are and the period of consolidation and now Islamic banking is coming up as the only welfare banking system of the modern world.
 
Ahmad al Najjar played the pioneering role in establishing the first Islamic bank in the modern world in 1963 at Mitgamar, Egypt.
 
Consequently, Islamic banking movement achieved steady progress and assumed significant dimension and role with the establishment of the Nasser Social Bank (1972). Dubai Islamic Bank (1975), Islamic Development Bank (1975) Faysal Islamic Bank in Egypt and Sudan (1977), Jordan Islamic Bank for Finance and Investment was established in Jordan in (1978), Turkey in (1983). Pakistan declared all banks as Islamic in 1978 and Iran declared in 1984. Emergence of development Bank as an International Financial Institution with a view to institutions was considered as a milestone in the history of Islamic banking.
As on today, more than 300 Islamic financial institutions in about 50 countries operation throughout the world covering both Muslim and non- Muslim countries of various socio economic environment.

Islamic Banking Movement in Bangladesh

In August 1974, Bangladesh signed the charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah.
 
Bangladesh government subscribed recommendation of Islamic Foreign Minister’s conference held in Senegal in 1978 regarding systematic efforts to establish Islamic banks in the member countries gradually.
 
In January 1981, the then president of the people’s Republic of Bangladesh while addressing the 3^rd Islamic Summit Conference held at Makkah and Taif suggested, “The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce.”
 
Earlier in November 1980, Bangladesh Bank, the country’s Central Bank, sent a representative to study the working of several Islamic banks of different countries.
 

In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic Bank in the private sector. They found a lot

of work had already been done and Islamic banking was in a ready form for immediate introduction.

Two professional bodies Islamic Economies Research Bureau (IERB) established in 1976 and Bangladesh Islami Bankers Association (BIBA) established in 1980 made significant contributions towards introduction of Islamic banking in the country. They came forward to provide training on Islamic banking to top bankers and economists to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposia and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking.

At last, the long drawn struggle to establish an Islamic bank in Bangladesh became a reality and Islami Bank Bangladesh Limited was founded on 30^th March, 1983 in which 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe including IDB and two eminent personalities of the kingdom of Saudi Arabia joined hands to make the dream a reality.

• Al Baraka Bank Ltd. (now recognized as The Oriental Bank) was established in 1987.
• Al Arafah Islami Bank and Social Investment Bank Ltd. were established in 1995.
• Shamil Bank of Bahrain (Islamic Bankers) has started its operation in 1997
• Shahjala Islami Bank Ltd. was established in 2001
• Exim Bank Ltd. converted its entire banking operation into Islamic Banking from July 2004

Nine conventional banks namely Prime Bank Ltd. Dhaka Bank Ltd. South East Bank ltd., Premier Bank Ltd., The City Bank Ltd., Jamuna Bank Ltd., Arab Bangladesh Bank Ltd., Standard Chartered Bank and the HSBC have so far established Islamic Banking branches in some major cities. More connectional Bank such as Bank Asia Ltd. and Brac Bank Ltd. are contemplating to establish Islamic banking branches in the near future. The first Security Bank Ltd. is going to switch over their entire banking to Islamic Banking.

Chapter Three: Shahjalal Islami Bank Limited & Its Profile

 

Historical Background of Shahjalal Inlami Bank Limited.

 
Shahjalal Islami Bank Limited is based on Inslamic Shariah. SJIBL is named after the name of a saint Hajrat Shahjalal Ò who dedicated his life for the cause of peace in this world and hereafter and served the humanity. It was incorporated as a Public limited company on 1^st April, 2001 under companies Act 1994. It started its Banking operation on May 10, 2005 with the 1^st branch (main branch) opened at 58, Dilkusha C/A, Dhaka, obtaining the license of Bangladesh Bank, for upliftment of economic condition of its customers as well as to contribute sustainable economic growth and development in trade and industry of the country. Its corporate head quarter is situated at 10, Dilkusha Commercial Area, Jiban Bima Bhaban, Dhaka – 1000, Bangladesh. Now it has 12 branches 9 branches are in Dhaka and rest 4 branches are in Chittagong, Sylhet and Gajipur. The sponsors of SJIBL are leading business personalities and   renowned industrialist of the country. Now this bank has paid up capital  – 46.83 million and No. of Directors – 13 (source – Internet).
 

An Introduction about SJIBL Foreign Exchange Branch

This branch was established in March 11, 2003. It is situated at the Ground and 6^th floor of Karim Camber, 99, Motijheel C/A, Dhaka.  This bank is design in two floors. General banking operation in Ground floor and Foreign Exchange and Investment operation in 6^th floor. It has been provide well banking services for the customer of Motijheel C/A.
 
Objectives:

• To provide banking service to the people within the commanding area.
• To expand business based on Islami Sharia.
• To keep position in the competitive market.
• To contribute in profitability of SJIBL.

 
Department of the Branch:

• Account opening Department.
• Cash Department.
• Remittance Department.
• Accounts Department.
• Investment Department.
• Foreign Exchange Department.
• Administration Department.

 
Employees of SJIBL Foreign Exchange Branch
 

SL.	Name	Designation	SL.	Name	Designation
1	M. Shamsul Arefin	AVP & Manager	13.	Md. Ashaquazzaman	MTO
2	Taskina Ahmed	SAVP	14	Md, Jashim Uddin	AO
3	Md. Wahidur Rahman	SEO	15	Ms. Shaila Jahan	AO
4	Md. Aslamul Hoq	SEO	16	Nazirul Islam	TAO
5	Mustafa Zaved Bin Shaheed	AEO	17	Md. Arif Hossain Khan	TAO
6	Md. Jaynal Abedin	AEO	18	Sajeda Khatun	TAO
7	A.B.M.Helaluddin Ahmed	AEO	19	Md. Mominul Hoque	TAO
8	Kamruzzaman	SO	20	Sultana Ayesha Ijtiba	TAO
9	Shahta Masud	Officer	21	Md. Anisuzzaman	Secu.Guard
10	Moshiur Rahman	TAO	22	Md. Kabul Gazi	Tea boy
11	Abdulla Al-Mamun	MTO	23	Mostaq Ahmed	Tea boy
12	Mannatul Mowla	MTO

 

Objectives of Shahjalal Islami Bank Limited

The prime objective of Shahjalal Islami Bank Limited is to promote, foster and develop the application of Islamic principles, law and tradition to the transaction of financial, banking and related business affairs. It has also been looking forward to promote Investments Companies, Enterprise and other related concerns engaged in such business that is acceptable and consistent with Islamic principles, law and tradition. The objectives of Shahjalal Islami Bank Limited in the context of its role in the economy may be enumerated as follows:

• To offer contemporary financial services in conformity with Islami Shariah.
• To contribute towards economic development and prosperity within the principles of Islamic Justice.
• To facilitate efficient allocation of resources.
• To help achieving stability in the economy.

 

Visions and Mission

Vision:

• To provide quality services to customers.
• Te set high standards of integrity.
• Te extend customers innovation services acquiring state-of-the-art technology  blended with Islamic Principles, and being total satisfaction to our clients and employees.

 
Mission:

• To expand Islamic banking through welfare oriented banking system.
• Ensure equity and justice in economic activities.
• Extend financial assistance to poorer section of the people.
• Achieve balance growth and equitable development.

 

Organizational Structure

 
There are five different wings to consists the organizational structure of SJIBL.They are

• Board of Directors
• Board Committees
• Executive Committee
• Policy Committee
• Management Team

 

Board of Directors

 

The Board of Directors of 13 members. The Board of Directors is the apex body of the bank.

 

Board of Committees

 

The Board of Directors also decided the composition of each committee and determines the responsibilities of each committee.

Executive Committee

All routine matters beyond delegated powers of management are decide upon by or routed through Executive Committee, subject to ratification by the Board of Directors.

Policy Committee

All matters relating to the principles, rules and regulations, ethics etc. for operation and management of the Bank are recommended by the Committee to the Board of Directors.

IT Position of SJIBL

 
Operation of On-line Banking
 
Shahjalal Islami Bank Limited has the vision to automate its all operation and functionalities. The Bank is committed to achieve the goal to be a lead Bank in the Country both in service and in technical aspects and to fulfill the requirements of mass people. Shahjalal Islami Bank Limited is patterned of Islamic norms & ethics with modern technology to achieve the goal in the new century. SJIBL has started its operation with full automation with on-line facilities. The bank only started with a module or a part of On-line Banking like ‘Any Branch banking’. For the setup and installation of the same they had to consider two major elements:

• WAN connectivity
• Software for the above

 
To setup WAN communications with head office and branches, these were some different options to be installed/accepted.
 
1. T & T based solutions

• DDN (Digital data network) Lease Line.
• 2/4 wire data circuit Line (Normal Lease Line)
• X.25 point-to-point communication line

 
2. Private channel based solutions

• VSAT + Radio Link Line
• Fiber Optic + Radio Link Line
• Microwave + Radio Link Line

They had to consider the followings to had any of the above options for WAN communications:

• Data security
• Data transfer speed
• Error and disturbed less communication
• Service & Maintenance
• Open standard / Future expandability
• Cost of installation and maintenance

 
Considering the all above the made an agreement with Link3 Technologies for Radio Link line for the WAN solution at all the branches with Head Office
For the software LEADS Corporation, the vendor of the banking software had the module for ‘Any branch banking’ module and subsequently they installed the same at all the branches.
 
Online Service available at all of its 13 (thirteen) branches:

• Dhaka Main Branch, Dhaka
• Dhanmondi Branch, Dhaka
• Mitford Branch, Dhaka
• Gulshan Branch, Dhaka
• Foreign Exchange Branch, Dhaka
• Kawaran Bazar Branch, Dhaka
• Joydevpur Chowrasta Branch, Gazipur
• Agrabad Branch, Chittagong
• Khatunganj Branch, Chittagong
• Sylhet Branch, Sylhet
• Beani Bazar Branch, Beanibazar, Sylhet
• Dargah Gate Branch, Sylhet
• Uttara branch,Uttara,Dhaka

 
They are passing hard time in globalization of financial markets and banking. To compete with the local and foreign banks they should consider the on – line banking facilities as an add-on service to the clients. Now a day’s technological service is the key factor for the service providers in the financial institutions. To introduce & explore their products & services world wide, to get and handle with their prospective local & expatriate customers, to make correspondence with foreign organizations & institutions, they should introduce real on-line banking facilities immediately.
 

The Performance of SJIBL

 
Equity of the Bank:
The Authorized Capital of the Bank is Tk. 800 million and paid-up capital of the Bank is Tk. 205 million as on 31.12.2002. Total equity of the Bank as on 31.12.2002 was Tk. 274 million. The Bank is going to further increase its Authori9zed and Paid-up capital soon.
Comparative position on Equity for the year 2002 & 2001 is given below:
(Amount Taka in million)

 
Capital Adequacy:
The Equity of the Bank as on 31.12.2001 was Tk. 209 million and the same stood to Tk. 274 million on 31.12.2002, which was 12.45% of the Risk weight Assets as against the requirement of 8%. The Bank maintained the Capital Adequacy Requirement (CAR) for the year 2002. The core capital was 11.46% of Risk weighted Assets an on 31^st December 2002 as against requirement of 4%.
 
Deposit: Total deposit of Shahjalal Islami Bank stood at Tk. 3.302 million as on 31.12.2002 as against Tk. 1.398 million of 31.12.2001 registering an increase of Tk. 1,904 million, i.e. 136% growth. Deposit is the ‘life – blood’ of a Bank. Bank has given utmost importance in mobilization of deposits introducing a few popular and innovative schemes. The mobilized deposits were plough back in economic activities through profitable and safe investments.
a)      Millionaire Scheme.
b)      Double Benefit Scheme.
c)      Monthly Income Scheme.
d)     Monthly Savings Scheme.
e)      Hajj Scheme.
 
The Deposit – mix of the Bank on 21.12.2003 was below:
 

Sl. No.	Items	Taka in million	Percentage of Total Deposit
1	Al-Wadia Current Account	139.17	4.21%
2	Mudaraba Savings Deposit	1,110.35	33.63%
3	Mudaraba Short Notice Deposit	190.41	5.77%
4	Mudaraba Term Deposit	1.462.59	44.29%
5	Deposit in Scheme	262.88	7.96%
	Total	3,302.15	100.00%

 
Investment:
Total investment of the Bank stood at Tk. 2,000 million as on 31.12.2002 as against Tk. 217 million of 31.12.2002 is given below:

The Bank entertains investment – clients having credit – worthiness and good track record. The Bank has got a few Investment Schemes to provide financial assistance to comparatively less advantaged group of people; which are:

a)      Household Durable Scheme.
b)      Woman Entrepreneur Scheme.
c)      Self – Employment Scheme.
d)   Financial Assistance to shop man Scheme.
Foreign Exchange Business:
 
Total Foreign Exchange Business handle during the year 2002 stood at Tk. 3.671 million.
The particulars of Foreign Exchange Business are given below:

During the year 2002 Bank branches opened 1,265 Import Letter of Credit as 160 of 2001 and handle a good number of Export bills.

One of the major businesses of the Bank is foreign exchange dealing. The Bank earned a substantial amount from the foreign exchange business operations. Treasury operations are deals in the money market of Islamic Banks and maintain the Statutory Liquidity Ratio (SLR) and Cash Reserve Requirement (CRR) with Bangladesh Bank as requirement.

 
Operating Result:
a)      Income:

1. 1.      Investment Income:

Total Investment Income of the Bank as at 31^st December 2002 was Tk. 109 million as against Tk. 27 million of the preceding year registering 259% growth over last year, which was 66% of the total income compare to 68% of 2001.
 
2. Non – Investment Income:
Total Non – Investment Income of the Bank as at 31^st December 2002 was
Tk. 109 million as against Tk. 27 million of the preceding year registering
304% growth over last year, which was 34% of the total income compared to
32% of 2001.
 
b) Expenditure:

1. Profit Paid on Deposits:

Bank distributed profit of Tk. 141 million against Tk. 47 million of 2001 among the Mudaraba Deposits in the year 2002 being 68% of the investment income earned from deployment of Mudaraba fund.

    
     2. Operating Expense:

Total operating expense as on 31.12.2002 was Tk. 80 million as against Tk. 222 million, resulting a total Operating Profit of Tk. 95 million up to 31.12.2002 as against 7 million in 2001.

 
(Amount in Million Taka)

 
 
Human Resource Development:
Total number of manpower of the Bank stood at 195 as on 31^st December 2002 as against 84 of 31^st December 2001. The Bank has introduced a good number of staff welfare schemes to be at par with the banking communities and improve the collection of its employees.
 

Chapter Four: General Banking

 

Introduction:

Shahjalal Islami Bank Limited is a commercial bank and its play a very important role in our economy, in fact it is difficult imaging how our economic system would function efficiently without the help of commercial bank. They are heart of our financial structure since they have the ability, n co-operation with the Bangladesh Bank to add to the money supply of the ‘nation’ and thus create additional purchasing power. These characteristics set commercial banks apart from other financial institution. In addition to issuing deposits payable on demand they accept time deposit. By lending and investing these resources and by transferring funds throughout the nation and even between countries, they make possible a more complete utilization of resources of the nation. Although banks create no new wealth, their lending. Investing and related activities facilitate the economic process of production, distribution and consumption. There are mainly three sections in SJIBL viz General Banking Division, Investment Division and Foreign Exchange Division. These Divisions have small departments or units under them.

 

General Banking Division

There are four sections working together to fulfill the target of the organization.

• Account opening Department
• Remittance Department
• Cash Department
• Account Department

 

Deposit Mobilization of SJIBL

Bank account is a contractual relationship between a bank and the customers. It is the best way for a customer to built relationship with the bank. Like interest-based conventional banks, the main function of Shahjalal Islami Bank Limited (SJIBL) is to mobilize saving and provide financial support to the entrepreneurs. Depositors receive interest in a predetermined rate for their deposits make with an interest based banks, where SJIBL neither pay not receive interest and mobilizes saving of the common people in line with Islamic Shariah.
Deposit account can take on a various forms such as:
 

• Al – Wadiah Current Deposit (AC)
• Mudarabah Saving Deposit (MSD)
• Short – Notice Deposit (SND)

 

Al – Wadiah Current Deposit (ACD)

Shahjalal Islami Bank Limited received deposits in its Al – Wadiah Current Account. It has some similarity with the current account of conventional bank. The term Al – Wadiah Current Deposit means deposit of money allowing somebody to sue it. Banks being a trustee preserves and keeps or in safe custody of what is deposited. Depositors feel safe in keeping their money with the bank and take transaction facilities. Bank provides assurance of returning money to the depositors on demand. In the process of opening Al-Wadiah Deposit, the bank gets approval of the depositors regarding the use of the deposited money and earns profit out of their development. Any losses incurred by way of such investment are totally borne by the Bank. Thus, the depositors don’t take the risk of losses with Al-Wadiah Current Deposit, they also don’t expect any profit form it. Depositors are provided with chequebook. They can withdraw or deposit any amount as and when they like. Bank may charge a fee in the account. Al-Wadiah Deposits are short terms and very uncertain, thus banks have to be very useful in the investment of money from this account.
 

General Documentation requires for opening a (ACD):

a) For a Individual Customer:

• Copy of the Passport, if available or Employer’s Certificate of Commissioner’s Certificate or Letter of Introduction by a person acceptable to the Bank.
• TIN Certificate, if applicable.
• Two recent passport size photographs duly attested by the Introducer.

 
b) For Sole Proprietorship:

• Copy of Trade License.
• Two recent passport size photographs of the Proprietor/Signatory duly attested by the Introducer.
• Copy of the passport of the Proprietor/Signatory, if available or Commissioner’s/Chairman’s Certificate or Letter of Introduction by a person acceptable to the Bank.
• TIN Certificate.

 
c) For Partnership:

• Copy of the Partnership Deed of the Firm.
• List of Partners with their address and phone number.
• Copy of Trade license.
• Extract of Resolution of the Partners of the Firm for opening the account and authorization for its operation duly certified by the managing Partner of the Firm.
• For Registered Partnership, Certificate of Registration of the Firm along with duly certified copy of the Partnership Deed.
• Two recent passport size photographs of each Partner/Signatory duly attested by the Introducer.
• Copy of the Passport of each Partner/Signatory, if available or Commissioner’s/Chairman Certificate or Letter of Introduction by a person acceptable to the Bank.
• TIN Certificate.

 
d) Private & Public Limited Company:
 

• Certified true copy of the Memorandum and Article of Association of the Company.
• Certified true copy of Certificate of Incorporation of the Company.
• Certified true copy of Certificate of Commencement of Business of the Company, in case of Public Limited Company.
• Latest list of Directors with address and phone number along with Form XII.
• Extracts of the duly adopted Resolution of the Board of Directors of the Company for opening the Account and authorization for its operation duly certified by the Chairman/Managing Director of the Company.
• Copy of Trade License.
• Two recent passport size photographs of each signatory duly attested by the Introducer.
• Copy of the passport of each Signatory, if available or Commissioner’s/Chairman’s Certificate or Letter of Introduction by a person acceptable to the Bank.
• TIN Certificate.

 

Opening a Mudaraba Saving Deposit (MSD):

 

Mudaraba Saving Deposit (MSD) is open by the lower and middle classer people who wish to save a part of their incomes to meet their future need intend to earn an income from their savings. It aims at encouraging savings of non-trading person(s), institution(s), society, etc. by depositing small amount of money in the bank.

 
Restriction on withdrawals and deposit:

• The number of withdrawals over a period of time is limited. Two withdrawals per week are permitted. But more than that no interest will be paid on rest amount for that month.
• The total amount of one or more withdrawal on any date should not exceed 25% of the balance in the account unless 7 (seven) days advance notice is given.
• The customer may deposit any amount in the savings bank account subject to a minimum of Taka. 2000/- in the account.

 
Payment of Profit:

Shahjalal Islami Bank Limited is providing 6.25% profit on Mudaraba Saving Deposit.

 
Opening a saving account:
 
For Opening a Mudaraba Saving Deposit following documentation are required:

• Two copies of passport size photographs.
• Introductory reference.
• Commissioner’s/Chairman Certificate.

 
General Precautions of opening an MSD Account:
After opening an account and before issuing a Chequebook the authorized officer should check the account opening form for the complete information, which is given by the customers:

• Name of the account holder.
• Photos of the account holder.
• Date of opening.
• Types of account
• Present & permanent address.
• Name of nominee and their address.
• Initial deposit.
• Specimen signature in the form and in the “Specimen signature card”.
• Name, address, and the account number of the introducer.

Mudaraba Short Notice Deposit (MSND):

 
Shahjalal Islami Bank Limited also receives term deposit from the clients. The SND account is different from the interest – based banks. It is also a Time Deposit account.
The formalities for opening of this account are similar to those required for Al-Wadiah Current Account. The only difference is that seven (7) days notice is required for withdrawal of any sum and profit is paid. The rate of profit for this account is 5.50%. If the withdrawal on demand is desired, it may be paid subject to the for – feature of profit for the period of notice or the expired of notice.
 

Different Types of Scheme

 
The Shahjalal Islami Bank Limited (SJIBL) is containing some Deposit Scheme, which are the really profitable for bank and customer. The Bank maintains shariah – based transaction with their customer by the different Scheme this are:

1. Monthly Deposit Scheme (MDS)
2. Mudarah Term Deposit Receipt (MTDR)
3. Monthly Income Scheme (MIS)
4. Double Profit Mudaraba Saving Scheme (DPMSS)
5. Millionaire Scheme
6. Hajj Palon Scheme

 

Monthly Deposit Scheme (MDS)

 

This account open very easy and there are no fixed day to open. Account holders do not need any savings account if he/she directly pays their monthly installment. Account holders carefully complete the MDS form and attests two copies passport size photograph one nominee and other own with form. Account holders can pay advance to continue their installment or can give permanent instruction from his/her savings account.  In this term, the account holders are bound to pay Tk. 50 for transferred and Tk. 5 for service charge. If the account is close before the maturity then profit will be calculate according to savings rate. If a depositor fails to pay consecutive four installments then the account will be closed automatically and profit will be calculate as Savings rate. But for first six-month no profit will be calculate. Nominee will enjoy the profit will in absence of the accountholder. Depositor will get the profit after the matured according to following table:

 

Install. period	Tk.100	Tk.250	Tk. 500	Tk. 1,000	Tk. 2,000	Tk. 5,000	Tk. 10,000	Tk. 25,000	Tk.50,000
5 Years	7930	19815	39630	79260	158520	396300	792600	1981500	3963000
8 Years	15275	38180	76360	152720	305440	763600	1527200	3818000	7636000
10 Years	21900	54750	109500	219000	438000	1095000	2190000	5475000	10950000

Mudaraba Term Deposit Receipt (MTDR):

It is like a fixed deposit in the conventional baking system but it does not receive or accept interest father, this account give profit and collect deposits. In this mode less that Tk. 1 crore or Tk. 1 crore and above can be deposited against client will get non-transferable instrument of equal amount. If a customer withdraw his/her money before one month than he/she will not get any kind of profit. On the other hand, after the matured if client don’t withdraw his/her money than it will be auto renewed with imposed profit for the next days. If a depositor would like to withdraw his profit after six months he/she will get the profit accordance with previous years profit rate. After the announced yearly profit or loss, if bank felt in loss positing then the depositor bound to incur the loss. In absence of account holder the selected nominee will get the money. Account holder bound to bear any kind of tax or excise duty according to government circular.
 

Monthly Income Scheme (MIS):

 

This scheme is very popular in our country; job retreat people are generally opens this scheme. And which people are not able to do business than they are want to safe from risk and they open it. It is the scheme for profit earning. In this account depositor can deposit minimum of Tk. 50,000/- and above. Depositor will get Tk. 450/- against Tk. 50,000/-. And it is the fixed deposit for 5 (five) years. If the accountholder to want to close his/her account before maturity date than he/she will get profit accordance with savings rate. In the absence of accountholder, the specified nominee will get the whole benefit. The profit rates of this account are:

 

Double Profit Mudaraba Savings Scheme (DPMSS):

The Shahjalal Islami Bank Limited gives the facility to the client by the Islamic Shariah Mudaraba rules and regulations. In this scheme depositors can deposit more than Tk. 10,000/- for 6.5 years and after the maturity date accountholder will receive double than his/her deposited amount. Depositor will get 80% investment facility by deposit the deposit receipt. Bank can invest this amount any sector by the Islamic Shariah rules and regulations. Accountholder are bound to pay any government tax. For opening this account applicant need recent one copy photograph and one copy photograph of nominee. The profit rates of this account are:

 

Period of Scheme	Provisional Rate
6.5 Years	10.75

 

Millionaire Scheme:

It maturity date is long than other scheme. Generally this account is designed for children. Here, applicants are the selected people for operating the account on behalf of the accountholder.
The depositor should to deposit the account within first 15 days of the month, neither he/she will be designated as debtor to the bank. If 15^th date is the off day then the next working day will be schedule date. Accountholder can open more than one account this Branch. Depositor will get 80% loan facility against of deposit money. No chequebook will be issued for this account, but the bank will provide deposit book.
The profit rate based on different amount and time are given below:
 

Total Account and Deposit

 
Shahjalal Islami Bank Limited
As on 30-10-2005
Foreign Exchange Branch

 
Core Deposit                         : 1,287,171,457.47
Bank Deposit                       : 1,007,312,501.77
Demand Deposit  :               :  61,032,255.28
Time Deposit                        : 2,233,451,703.96
 

Cheque Book Issue

 
Chequebook is a material to withdraw money from the bank. It is a very convenient way to transact money from one place to another without any accident. If any one opens an account then she/he will apply for a chequebook on requisition slip. After verifying the signature of the account holder by the officer bank issues cheque. Then we will assign numbers to the leaves of the chequebook and account number in the register book. The account number and branch seal will also be written on every leaf of the chequebook. Two officers initialize the account number and leaf numbers the issuing officer will also check the register book and initializes it also. Then the chequebook is delivered to party after taking the signature on the register book from the party.
Duplicate Cheque Book issue:
 
When a party looses his/her chequebook, then he/she applies for duplicate chequebook. Bank stop payment order for that lost chequebook series in the respective ledger. Then client needs guarantor’s certificate and guarantor must be an account holder of that branch with sufficient balance. In this case, the party will apply to the branch manager for duplicate chequebook. The party must give indemnity bondage referring that he/she will be liable for any fraud-forgery by the lost cheque. After the formalities Bank issue of new chequebook for client.
 
Return of the Cheque:
 
A cheque may be returned by the following reason:

• Account Closed.
• Insufficient Funds.
• Payment stopped.
• Refer to drawer.
• Drawn against uncollected funds.
• Amount in words and figure differ.
• Drawer’s signature differs.
• Alternation requires draw’s full signature.
• Cheque postdated
• Date incomplete/missing.
• Clearing house stamp missing.

 
Examined of the Cheque:
 
The Passing official must examine the followings:

• Whether the instrument presented is related to the branch.
• The instrument is not undated/anti-dated/post-dated.
• The instrument is not crossed since crossed instruments are not payable over the counter.
• The amount is words and figures are written and do not differ.
• There is no alteration anywhere on the instrument.
• Incase of order cheque the proper identification of the payee ensured to the satisfaction of the Bank.
• The instrument bears the signature of the drawer.
• The number of the instrument along with preceding series, if any, conform to the number/series issued and recorded in the relative account particulars.
• The instrument bearing similar number was not been paid earlier.

 

Local Remittance

 
Local Remittance means sending money from one place to another for the customers and it its very important service system in our country. For this service, our country business sectors are get facility by transfer funds from one place to another. Some of the instrument that Shahjalal Islami Bank Limited, Foreign Exchange Branch provides are immense beneficial to the clients. These are:

1. Demand Draft (DD)
2. Pay Order (PO)
3. Telegraphic Transfer (TT)

 
Demand Draft (DD):

Demand Draft is an order of issuing bank in another branch of the same bank to pay specified sum of money to the payee on demand. It is generally issued when customer wants to remit money in any place which is out side of the clearinghouse area of issuing branch payee can be purchaser himself or another. Bearing money may be risky. It is a negotiable instrument and it can be crossed or not. For payment of DD, paying branch first has to be confirmed that the DD is not forged one.

First bank Cheques the “Test Code” mentioned on the draft. If “Taste Code” agrees then believe that DD is not forged and makes payments. For further confirmation, the issuing bank sends an advice about the DD to the paying branch. For DD, commission is taken in the following way:
 

 
Pay Order (PO):
 

This is very important instrument of the Bank. Pay Order gives the payee the right to claim payment from the issuing bank. It can be en-cashed from issuing bank only. Unlike Cheque, there is no possibility of dishonoring pay order because before issuing pay order bank takes out the money of the pay order in advance. Pay order cannot be endorsed or crossed and so it is not negotiable instrument. Pay Order commission is like this:

 
 

 
Telegraphic Transfer (TT):
 

Telegraphic Transfer is the quick service system than others. By this method money is transfer to another place by telegraphic message. The sender branch will request another branch to pay required money to the required payee on demand. Generally for such kind of transaction payees should have account with the paying bank. Otherwise it is very difficult for the paying bank to recognize the exact payee. Test code is also furnished on the TT message for the protection of it. When sending money is urgent then the bank use telephone for remittance. This service is only provided for valued customers. Who is very reliable and have long-standing relationship with bank, TT commissions are:

 

 

Activities of Clearing Department

 
On behalf of the customer bank receives their proceeds of instruments such as Drafts, Cheques, Pay Order and sends for collection through these methods:
Outward Bills for Collection (OBC) and Inward Bills for Collection (IBC) (within the clearinghouses area)
 
Clearing

Clearing Department works are classify in two way:

• Outward Clearing
• Inward Clearing

4.7.1 Outward Clearing:

The instruments drawn on other banks, within the clearinghouse area, are deposited through our clients are sent for collection is called outward clearing.

 
Procedure for Outward Clearing:
 

• Instrument received
• Check these items in the instrument: a) date b) branch c) amount in words and figure d) signature
• Special crossing seal, clearing seal, endorsement seal as “ Payees A/C credited”
• Entry in the Outward Clearing Register
• Preparation for Clearing House: a) schedule making b) send to principal office

 

The amount in party A/C in the clearing part is not in the available balance part of the computer program. If the instrument is honored then the amount merges are available balance. This is done by customized software prepared by SJIBL IT Department.

 

Inward Clearing:

 

When we receive cheque drawn on our branches within the clearinghouse area presented by other banks is known as inward clearing:

Procedure for Inward Clearing:

• Instrument (DD/Cheque/PO) comes from principal office
• Entry in “Inward Register”
• Cheque – in computer
• DD – DD payable
• Pay Order respective register
• Sign in the register by authorized officer
• Cancellation of instrument
• Send IBCA to Local Office for honored instrument
• Send Return memo, showing cause, to Local Office for dishonored instrument

 

Transfer Delivery:

 
Transfer Delivery is of two types:

• Outward
• Inward

 
Outward Transfer Delivery:
 
Instrument send for collection to other branches is outward transfer delivery. Its procedure is like this:

• Receive instrument
• Special crossing seal, transfer delivery seal, endorsement as “payees A/C will be credited”
• Entry in “Outward transfer delivery” register
• Schedule enclosed
• Receive IBCA and credit the party A/C

 
Inward Transfer Delivery:
 
When instrument come to our branch for collection then it is called inward transfer delivery. Its procedure is as follows:

• Receive instruments
• Verification of following items is taken.
• Branch
• Date
• Amount in words and figure
• Signature
• Serial number
• Entry in “Inward transfer Delivery” register
• Voucher
• IBCA issue

 

Activities of Cash Department

 
Cash department is the most vital department of a bank and it is call blood of a bank. It is a platform to communicate with customers. Cash department receives & pays cash directly.
In the cash department there are following register:

• Vault register
• Cash received register
• Cash payment register
• Cash balance register
• Rough cash Balance book
• Cash remittance register
• Key register
• Cash position memo

 
There is a procedure of cash-in & cash-out from the vault. Also a systematic procedure is maintained for receiving cash through different vouchers and payment against different cheques & vouchers.
 
Vault Opening:
 
The Vault opened with two different keys of two respective authorized officers. The officers are:
 

• Manager of the Branch
• Cash – in – charge Officer

 
Strong room has two keyholes opened by two officers respectively by two keys of cash. Generally sub-manager of the Branch bears authority absence of manager. Grill door one keyhole opened by – two keys of two officers and bring out following thing: Cash, Vault register, Receive register, Payment register, Balance Book, Security stationary. Enter the amount of cash withdrawal from the vault register.
 
Cash Receiving Procedure:
 
Cash is the life of a bank. Different types of form are used for cash deposits for different types of accounts. Cash may be received by the following ways:

• Current of Savings account pay-in-slip
• Credit voucher
• Different types of instrument remittances (TT, DD, PO etc.) are received by respective forms.
• Bills like National Life Insurance co. ltd
• Share collection
• Different types of scheme

 
Cash Payment:
 
Cash is paid in payment counter against the following instrument:

• Cheques
• Cash debit voucher
• Pay-in-slip
• Pay Order, DD etc.
• Bank’s expense also paid to outsider through cash debit voucher.

Procedure:
 
Receive of the cheques with a signature behind it.

1. Scrutinize it by an authorized officer.
2. Submit to computer section for checking the available balance.
3. Cancelled & seal up “Pay in Cash” and cancellation through sign up.
4. Again submitted to computer section for debiting the partly A/C and seal up “Posted”
5. Send to cash counter – payment officer.

6.    Cash officer checks the cancellation, seal and seal up “Cash Payment”
7.    Entry the payments register.
8.    Take another signature of payee behind the cheque and pay cash.
 
Cash Remittance:
 
Requisition letter, which must be authorized by the Manager, is sent to Principal Officer for Cash Remittance.
 
Inward Cash:

• Counting the cash.
• Prepare simple credit voucher
• Prepare IBCA
• Entry in the cash receipt register

 
Outward Cash:

• Car requisition (Call through phone)
• Taking counter part of forwarding (Including name & specimen) signature of authorized officer and Guard.
• Remit the cash Prepare simple debit voucher

 
Cash Balance:
 
At the end of the transaction:
 

• Sum of total received
• Sum up total payment
• Total receiving + Opening balance – Total payment = Closing balance for that day & opening balance for the next day.
• Check it with computer sheet.
• Counting cash.
• Entry the cash balance register.
• Write cash position memo with denomination.

 
Position of the Cash Department:
 
The position of the cash department is very important. The cash department should be at a safe place. It should be at the middle position of the branch. The cash position of the Foreign Exchange Branch is in the front side of the branch and its safe and vault is at the behind.
 
Counter Limit:
 
Everything has its limitation. Cash counter of a branch also has limitation. The casher should take cash within the limit of his counter. If the cash exceeds its counter limit, the cashier should take the excess cash to safe. Counter limit of the Foreign Exchange branch is Tk. 50 (fifty) lac.
 
Vault Limit:
 
Vault is the very secret place to keep money is the bank. Usually vault is made of very hard material like iron or steel, generally it is fireproof, damp-proof. The vault has a fixed limit too. The limitation depends on the regular transaction of the branch. If the amount exceeds its limit, the extra money should be sent to the Bangladesh Bank. The vault limit of the Foreign Exchange Branch is Tk. 1.5 (one and half) crore. If the amount exceeds its limitation and accident occur, then the branch will be liable and the insurance company will not compensate for that.
 
Sorting and Stitching:

 
Sorting:
 
At the end of the day, the amount of cash has to be sorted out in order to identify the different types of notes, say-500, 100, 50, 20, 10, 5 and so on. Hundred pieces of any type note create a packet and ten packets make a bundle. In this way, the cash is actually sorted out.
 
Stitching:
 
After sorting out the cash, packets are stitched along with a slip bearing the name of the bank, total number of notes and the signature of the cash-in-charge. Two round seals are given at both sides of packet
 
Vault Closing:
 
Before vault closing concern officer will –

• Check receive, Payment, Cash balance, Vault register signature.
• Signature of computer sheet.
• Count physical cash.
• Keep cash in the safe.
• Bundle in safe.
• Loose peak of the tray.
• Loose cash notes & coins on the tray.
• Keep different registers.
• Keep security stationeries.
• Close Safe.
• Check the rifle & cartage.
• Count cartage & entry in register.
• Close Grill door & Vault room’s door.

 

Chapter Five: Investment Management

 

SWOT ANALYSIS

STRENGHTS

Distinct operating

ProceduresSJIBL is known for its distinct operating procedure. The company’s Managing for Value strategy better satisfy customers needs and also keeps the company profitable.Distinct scheduleEveryone in SJIBL from the appraiser to the top management has to work to the same schedule toward a different aspect of the same goal, interfacing simultaneously at all level over quite a long period of time.Strong employee bonding and belongingnessSJIBL employees are one of the major assets of the company. The employees of SJIBL have a strong sense of commitment towards organization and also feel proud and a sense of belonging towards SJIBL. The strong culture of SJIBL is the main reason behind this strength.
Efficient Performance
SJIBL provides hassle free customer service to its client base comparing to the other financial institutions of Bangladesh. Personalized approach to the needs of customers is its motto.Young Enthusiastic workforceThe selection & recruitment of SJIBL emphasizes on having the skilled graduates & postgraduates who have little or no previous work experience. The logic behind is that SJIBL wants to avoid the problem of ‘garbage in & garbage out’. & This type young & fresh workforce stimulates the whole working environment of SJIBL.Empowered Work forceThe human resource of SJIBL is extremely well thought & perfectly managed. As from the very first, the top management believed in empowered employees, where they refused to put their finger in every part of the pie. This empowered environment makes SJIBL a better place for the employees. The employees are not suffocated with authority but are able to grow as the organization matures.Companionable EnvironmentAll office walls in SJIBL are only shoulder high partitions & there is no executive dining room. Any of the executives is likely to plop down at a table in its cafeteria & join in a lunch chat with whoever is there. One of the employees has said, “Its exciting to know you may see & talk to the top management at any time. You feel a part of things”.No communication barriersSJIBL has tried hard to avoid communication barriers & structural bureaucracies. The little existence of authoritative barriers among the different level of management stimulates a feeling of importance as their work get priority over the position.

Equalization	At SJIBL workshops are conducted periodically. On the workshops, all people participate as equals, with new members free to openly challenge top managers.
Free exchange of communication	At SJIBL the main objective is to setting up workshops are to remove authority from an artificial spot at the top, & place it where the most knowledgeable people are, the people closest to the operations. The free exchange of ideas is reinforced by a policy of “constructive confrontation”. Each employee is expected to challenge ideas openly & aggressively, but never attack an individual’s motives for presenting an idea.
MBO	SJIBL also has Management by Objectives (MBO) everywhere. Each person has multiple objectives. All the employees must have to get the approval of their bosses on what they are going to do. Later they review as how well they have performed their job with their management as well as the peer group.
“One-to-one” meeting	The MBO makes the review a communication device among various groups. The key to the system is a “one-to-one” meeting between a supervisor & a subordinate. In the meeting, the problems in dealing with customers are put forward first & every one dug it to solve them.
Visually Appealing Facilities	SJIBL has some of the best visually appealing branches and office premises in Dhaka & Chittagong that highly attracts customers’ attentions and customers also feel the international environment while banking with SJIBL.

 

WEAKNESSES

Absence of strong Marketing Activities	SJIBL currently don’t have any strong marketing activities through mass media e.g. Television. TV ads play a vital role in awareness building. SJIBL has no such TV ad campaign.
No investment products	Currently the personal banking divisions of SJIBL do not have investment products for its customers. The banning of investment loan by central bank posses a strong pressure to design new products.
Lack of customer confidence	As SJIBL is fairly new to the banking industry of Bangladesh average customers lack the confidence in SJIBL and judge the bank as an average new bank.

 

Too many contract workers	SJIBL has contract workers who lack the commitment with superior quality service and also are pretty dissatisfied as being a contract worker. This hampers the bank’s service quality as a whole.
Low remuneration Package	The remuneration package for the entry-level officers is considerable low. Since other foreign and local banks offer a more lucrative salary package, it will be difficult for SJIBL to attract MBA’s in future with its current salary package.
Diversification	SJIBL can peruse a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking or diversify in to leasing and insurance institution.
Credit Cards	This is one of the most popular and emerging products in Bangladesh, which offers customers total financial mobility. Various other banks and institutions are currently offering this product. SJIBL can also take advantage of this product and grab the market share. So they need alliance with all institutions operating in Bangladesh.
Acquisition	SJIBL is one of the experts in acquiring various firms and organizations. In Bangladesh it can also diversify quickly by acquiring various local established banks and increase it’s total operation within Bangladesh rapidly.

 

OPPORTUNITIES

High demand of Housing loans	Since housing is one of the basic needs of people, there is a high demand of housing loans. SJIBLS’s personal banking division can focus on this category of products and grab these segments of customers.
Distinct operating procedures	SJIBL is noted for its distinct operating procedures. Repayment capacity as assessed by HSBC of individual client helps to decide how much one can borrow. As the whole lending process is based on a client’s repayment capacity, the recovery rate of SJIBL is close to 100%. This provides SJIBL financial stability & gears up SJIBL to be remaining in the business for the long run.
Countrywide network	The ultimate goal of SJIBL is to expand its operations to the rural Bangladesh. Nurturing this type of vision & mission & to act as required, will not only increase SJIBL’s profitability but also will secure its existence in the log run.

 

More experienced & managerial know-how

The top management team of SJIBL is expert in banking activities. The operating policies established by them are unique & unified. All the members of the team carry out their management roles exhaustively. They equally contributed to SJIBL’s superior leadership, by carrying out their unique roles. They worked well together, respecting each other’s abilities, & arguing openly & without any rancor when they disagree.

 

THREATS

 

Upcoming Banks	The upcoming private local & multinational banks posses a serious threat to the existing banking networks of SJIBL. It is expected that in the next few years more commercial banks will emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against and win the battle of banks.
Lose of Customers	Absence of various products such as credit card, housing loans are causing various customers to detract from SJIBL. This is a serious threat for SJIBL Bangladesh.
Moderate levels of Customer Satisfaction	SJIBL should continuously improve its customer service strategies and the overall service quality needs to win the customer satisfaction undoubtedly.

 
3. FUNDAMENTALS OF CREDIT
DEFINITION OF CREDIT
The word is “credit” is derived from the Latin word “credo” meaning “I believe”. The term credit may be defined broadly or narrowly. Speaking broadly, credit is finance made available by on party (lender, seller, or shareholder/owner) to another (borrower, buyer, corporate or non-corporate firm). More generally the term credit is used narrowly for debt finance. Credit is simply opposite of debt. Debt is obligation to make future payment. Credit is the claim to receive the payments. Both are created in the same act of borrowing and lending.
 
MODES OF CREDIT
Loan and advances primarily have been divided into two major groups. Continuous credit and fixed term loans. Continuing credits are the advances having no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance. Fixed term loans are the advances made by the bank with fixed repayment schedules. The term of loan are defined as follows:
 
Short term: Up to 12 months.
Medium term: More than 12 up to 36 months.
Long term: More than 36 months.
 
As initiated by Bangladesh Bank BCD Circular No. 8 dated 25.04.94 different kinds of lending were subdivided into 7 categories for fixation of rates of interest by the individual banks on competitive basis depending on the cost of funds, prevailing market condition and monetary policy of the country.
 
A.  Agriculture:
Loans to primary producers engaged in farming, fishing, forestry or livestock and loans to input dealers/distributors fall under this category. Loans to processors or traders of agricultural products are not to be categorized as agricultural loans.
 
Agricultural loans may include short, medium and long-term loans as well as continuing credits. As such it may fall under the head Loan (Gen.)/Hire-purchase/Lease Financing.
 
B. Term Loan for Large & Medium Scale Industry:
This category of advances accommodate the medium and long term financing for capital structure formation of new Industries or for BMRE of the existing units who are engaged in manufacturing goods and services. Term financing to tea gardens may also be included in this category depending on the nature and size.
 
As the financing under this category have fixed repayment schedule it falls under the head Loan (Gen.)/Hire-Purchase/Lease Financing.
 
C. Term Loans to Small & Cottage Industries:
Small industries is presently defined as those establishment whose total investment in fixed capital such as land, building, machinery and equipment (excluding taxes and duties) does not exceed 30 million Taka and investment in machinery and equipment (excluding taxes and duties) does not exceed 10 million Taka. Cottage industries also fall within this definition. Medium and long-term weaver credits are also included under this category.
 
Bangladesh Bank gives interest subsidy @ 3% to the Banks on loans extended under this category. No short term or continuing credits is to be included in this category. Like the Large & Medium Scale Industry it is also allowed in the form of Loan (Gen.)/Hire-Purchase/Lease Financing.
 
D. Working Capital:
Loans allowed to the manufacturing units to meet their working capital requirements, irrespective or their size big, medium or small fall under this category. These are usually continuing credits and as such fall under the head Cash Credit.
 
E. Export Credit:
Credit facilities allowed facilitating export of all items against Letter of credit and/or confirmed export orders fall under this category. It is accommodated under the head Export Cash Credit (ECC)/Packing Credits (PC)/Foreign Documentary Bill Purchased (FDBP)/Local Export Bill Purchased etc.
 
F. Commercial Lending:
Short-term loans and continuing credits allowed for commercial purposes other than export fall under this category. It includes import financing, financing for internal trade, service establishment etc. no medium and long-term loans are accommodated here. These categories of advances are allowed in the form of:

• Loan against imported merchandise (LIM)
• Payment against import documents (PAD)
• Secured Overdrafts (SOD)
• Cash Credit (CC)
• Loan (Gen.)

 
G. Others:
Any loan that does not fall in any of the above categories is considered under the category “Others”. It includes:

• Transport equipment
• Construction works including housing (commercial/residential)
• Work order finance
• Personal Loans etc.

4. Investment MANAGEMENT OF PRIME BANK LTD.
 
Investment PLANNING
Credit planning implies efficient utilization of scarce (loanable fund) to generate earning for the bank. Constituents of credit planning are: forecasting of loanable fund likely to be available in a particular period of time and allocation of the same amongst alternative avenues in a prudent way.
 
Credit planning has got a serious importance because –
Loanable fund comes out of deposit mobilized from the people. So safety of people’s money should be ensured carefully. Unplanned lending may create harm in two ways; firstly, excess lending may create liquidity crisis for the bank. Secondly, too much conservative lending may make the loanable fund idle. Idle but cost bearing fund again incurs operating cost for the bank.
 
Excess liquidity led by unplanned inadequate lending push the profitability to decline. Planned credit helps to maintain conformity with the national priority.
 
Unplanned credit may upset the total economic stability from macro point of view either by making inflation or deflation.
 
PORTFOLIO MANAGEMENT OF CREDIT
Portfolio Management of Credit implies the deployment of loanable fund among alternative opportunities through proper allocation. The objective of portfolio management of credit is the best and efficient management of loan to ensure profitability. Designing the size and pattern of loan portfolio with accuracy is a tough job. Even then, a prudent loan portfolio management can be done by careful consideration of the factors mentioned in the following:

• Bank’s Capital position
• Deposit mix (Tenure of deposit)
• Credit environment
• Influence for monetary and fiscal policies
• Credit needs of the respective commanding area
• Ability & experience of the bank personnel to handle the loan portfolio

 
In designing a loan portfolio, three things should be decided – first, the type of customers the bank wants to serve. Second, involvement of risks with various kinds of loans. And finally, the relative profitability of various kinds of loans.
 
With each and every coin of loan, there is an involvement of risk. So the quantum of risk should be spread over the various types loan through diversification. Diversification of credit can be made by extending credit to different sectors, to different geographical area, to different line of product or business and allocating the loanable fund into different type of credit.
 
Again the concentration of credit into a particular sector or area, product or business should also be observed carefully. If credit is already been concentrated to a particular streamline mentioned earlier, that should be avoided.
 
Finally, the type & tenure of deposit should be analyzed carefully in determining the loan portfolio of a bank. How much quantum of fund will be earmarked for long term lending and how much for short term, depends to a large extent on the deposit structure.
 
PRELIMINARY SCREENING OF A CREDIT PROPOSAL:
Screening means critical diagnosis of a credit proposal at the very initial stage. It should be made carefully just after the proposal comes to the bank.
At the time of screening of a credit proposal the preliminary screening should be done on the following premises:

• Quality of management and the entrepreneurial background of the sponsors
• Equity strength i.e., the own capital positions
• Position of assets & properties
• Line of business, it’s future prospects and the existing position of the respective  industry
• Required technology, machinery, equipment and their availability
• Location, whether the infrastructural facilities are available
• Potential contribution to the overall economic development of the country
• Security proposed to be given and the genuinity of the title of documents

 
Analyzing the above matters, it is to be convinced that the credit proposal satisfies all the key elements of a sound lending policy such as:
i)   Safety of fund
ii)  Security (easy marketability of the property given as security)
iii) Liquidity (the tenure of the loan)
iv) Profitability
v) Diversity
vi) National interest
 
SELECTION OF BORROWER
Selection of borrower is a very significant part of a credit decision. The borrower should be diagnosed prudently. Degree of risk has an inverse relationship with the selection of borrower. Selection of right borrower reduces the risk of non-repayment of the loan. To the contrary, degree of risk of non-repayment increases with the selection of wrong borrower. In our country, the huge volume of non-performing loan is mainly the result of failure in selecting right borrower. So, if it is found that, line of business is prospective and profitable but the potential borrower is not right one, the proposal should not be entertained. There are some parameters for selection of a borrower. Some ‘C’s commonly expresses the parameters. And thus the criteria for selection of a borrower are popularly known as 5 C’s such as:
 

Character

The outcome of analyzing the character is to have overall idea about the integrity, experience, and business sense of the borrower. Two variables; Interaction/interview, and Market Research are used to analyze the character of the borrower.

1. Interaction/interview: the indicators are

a)      Prompt and consistent information supply, information given has not been found false (Willingness to give information).

b)      CIB also reveals business character.

c)      Willingness to give owns stake/equity & collateral to cover.

d)     Tax payer.

1.  Market Research:

a)      Information on business is verified.

b)      Dealing with supplier and or customer as supplier is also a kind of lender; the payment character can also be verified.

Capital

For identifying the capital invested in the business can be disclosed using the following indicators:

a)      Financial Statements

b)      Receivable, Payable, statements to practically assess the business positions. Net worth through financial statements or from declaration of Assets & Liabilities.

Capacity (Competence)

Capability of the borrower in running the business is highly emphasized in the time of selecting a good borrower. As the management of the business is the sole authority to run the business that is use the fund efficiently, effectively and profitably.  The indicators help to identify the capacity of the borrower:

a)      Entrepreneurship skills i.e. risk taking attitude shown by equity mobilization.

b)      Management competencies both marketing and products detail, ability to take decision.

c)      Resilience or shock absorption: Connection, Back up (if first time falls second lines come to help.)

Collateral

The assets offered as collateral are the second source of repayment and it is offered to the bank is to cover the additional risk that arise due to the default culture.

Cash Flow:

Cash flow is the vital factor that is used to identify whether the borrower will have enough cash to repay the loan or advance. Cash keeps the liquidity to ensure repayment. The credit officers try to identify the annual cash flow from the submitted statements.
If the borrower’s found satisfactory in terms of all C’s only then it is suggested to entertain the borrower.
 
PRICING OF LOAN
Pricing of loan is a great important element in banking business. Because through pricing, bank usually create margin/profit. So it is to be determined carefully. In pricing, four components are to be calculated prudently otherwise pricing of that loan will create a definite loss for the bank. The components are:
i.   Interest Expense or Cost of Fund: The interest to be given to the depositor and to central banks for borrowing
ii.   Administrative Cost
iii.  Cost of Capital: Return expected by the investors for their capital invested in the bank
iv.  Risk Premium
 
Addition of the first three elements will provide the “Prime rate” beyond which a bank can never go for lending.
 
Magnitude of the risk premium creates margin for the bank. And this rate of risk premium may vary from person to person and even from sector to sector depending upon the value or importance of the client and the prospective priority of the sector. Once upon a time, it was dictated by the Central bank but now a day, in compliance with the open market operation this power has been delegated to the enlisted commercial banks.
 
CONCEPTS OF ACCOUNTING-FINANCIAL STATEMENTS
1. Concepts of Accounting
The basic concepts of Accounting are:
i)    Money measurement concept     ii)   Dual aspect concept
iii)  Entity concept                                              iv)  Going concern concept
v)     Cost concept                                                vi)    Time period concept
vii)   Conservatism concept                               viii)  Matching concept
ix)   Consistency concept                   x)    Materiality concept
 
2. Financial Statements and its Analysis
 
Financial statement is the end use of financial accounting. Financial statements are prepared by collecting formulating & compiling the accounting data in a consistent & logical accounting procedure. Very popularly we used to understand the financial statements simply by the Balance sheet & Income statement. But financial statement is in fact a purpose oriented financial picture; there can be of various types of financial statements such as:
 
i)   Retained Earning Statement
ii)  Fund flow Statement
iii) Cash flow Statement
iv) Profit & Loss account
v) Manufacturing account (in case of Manufacturing Co.) etc.
 
Analysis of financial statement is the process of evaluating significant relationship between the components of the financial statement. The purpose of analysis is to obtain a better understanding of the firm’s position & performance.
3. Assessment of Working Capital
 
The Capital, which is needed to meet current obligation and to finance day to day operational expenditure of a firm, is working capital. Assessment of working capital bears great importance because, excess working capital incurs cost for the firm and in reverse, shortage of working capital may totally upset the smooth operation of the firm.
 
Practically, working capital becomes obvious for the following reasons:
 

• For purchase of raw materials, stores & spares
• For making advance payment to the raw material suppliers
• Blocking of fund in work-in-process and finished goods
• Blocking of fund with sundry debtors
• For meeting day to day cash expenditures

Assessment:
Required components of working capital are to be computed prudently, for example : for a manufacturing concern, need for working capital can be assessed by calculating the major components:
 
i)    Projected annual sales                                ii)    Yearly consumption of raw materials
iii) Annual labor charges                                  iv)   Overhead costs
v)    Stock of raw materials                                vi)   Stock in process
vii) Stock of finished goods                               viii) Credit allowed to customer in days
ix)   Credit received from suppliers in day
x)   Annual selling & administrative expenses
xi)    Annual depreciation                  xii) Closing inventory
 
The days or tied up period for stock of raw material (Local/ Imported), stock in process, stock of finished goods, credit allowed to customers, credit received from suppliers should be considered very prudently.
 
A sample format can be shown for easy understanding of working capital assessment:


Components:

Tk.1.Stock of R.M.=Annual consumption of RM x Tied up period
360=   ***2.Stock in process=Cost of Production x Tied up period
360=   ***3.Stock in finished goods=Cost of Sales x Tied up period
360=   ***4.Credit allowed to customer=Cost of Sales x Tied up period
360=   ***Less5.Credit received from suppliers=Annual R.M. consumption x Tied up period
360=   ***Gross requirement of working capital  =   ***Less6.Margin (Negotiable with the client)  =   ***Net requirement of Working Capital=   ***
 
Note:
Cost of Production = RM+DL+O/H+ Depreciation
Cost of Sales = Cost of Production + Selling & Admin. Exp. – Closing inventory
 
Working Capital requirement may vary case to case depending upon the nature of industry, length of operating cycle, seasonal nature of industry, credit practice in purchase & sales, company policy relating to depreciation, dividends and expansion, Govt. policy relating to taxation, nature of raw materials – local or imported, perishable or non-perishable etc.
 
CREDIT SCORING SYSTEM
 
Credit scoring system is a modern approach for assessing the credit worthiness of a potential borrower. Credit scoring system helps to produce a rating which provides an indication of a company’s management ability and financial strength. LRA & FSS are used as the tool for scoring a credit.
 
By preparing LRA, the degree of risk associated with the credit proposal is determined. By preparing FSS, two scores termed as ‘Y’ score and ‘Z’ score are derived using financial ratios to make an inference about the firm.


LRA & FSS – an evaluation:
 
Since we have been experiencing an undisciplined situation in the financial sector of our country for a long two decades, attributing itself by a system of poor operational efficiency, a system of non-transparency, the question of entire reformation of the financial sector has come up to the consideration of our Govt. With this end in view, Financial Sector Reform Project (FSRP) has worked for about 6 years long in our country. FSRP has been launched by Bangladesh Govt. in 1990. During the period of its job, FSRP introduced various tools & Techniques for improving the operational efficiency of the commercial banks. Lending Risk Analysis (LRA) & Financial Spread Sheet (FSS) are the two of those products which are being used as a tool for assessing the nature and extent of risk lying with a credit proposal which is in turn, most significant matter for a credit decision.
 
FSS helps to see the financial strength of the borrowers firm. The asset, liability & equity position is being analyzed by using FSS. At the same time, the critical synchronization of flow of fund is verified to gather information about the sources & utilization of fund.
 
In spite of some limitations, LRA is really appreciable tool in assessing the risk lying with the credit proposal.  But it should be modified for the sake of simplicity and consistency in the context of our country to get rid of the draw backs illustrated.
 
DOCUMENTATION OF LOANS & ADVANCES
 
Immediate after sanctioning of loan, documentation is to be made properly before disbursement of loan. Documentation formalities are commonly known as completion of ‘Charge document’ in the banking world. Type of documents to be signed by the client varies depending upon the nature of loan and advances given. Some common documents are listed below:
 

1.                                     I.      Demand Promissory (DP) Note
2.                                   II.      Letter Arrangement
3.                                 III.      Letter of Agreement
4.                                 IV.      Letter of continuity (in case of continuous loan)
5.                                   V.      Letter of pledge (in case of Pledge)
6.                                 VI.      Letter of Hypothecation (in case of Hypothecation)
7.                               VII.      Letter of Undertaking
8.                             VIII.      Letter of Debit Authority
9.                                 IX.      Letter of Installment (in case of term loan to be paid in installment)
10.                                X.    Letter of Guarantee (Personal Guarantee)

 
CREATION OF CHARGES OVER SECURITIES
 
As a safety measure, bank has to create charges over the securities against the risk of non-repayment of loan. Here in this chapter, the most common modes of charge creation are defined below in a very brief from:
 
1. Pledge
 
According to the section 172 of the Contract Act, when a borrower surrenders his business goods to the banker’s custody as the security of loan given by the bank then it is called pledge. The pledged goods remain with the possession and control of the bank and the client draw the goods in case of need with the permission of the bank by repaying adequate amount of loan. Bank usually permits drawing power (DP) to the borrower to draw the goods from its custody after checking the stock report. In case of default, bank deserves the right to realize the loan by selling the pledged goods. Bank create this charge based upon the letter of pledge which has been taken form the borrower before disbursement.
2. Hypothecation
 
When loan is given to the borrower against hypothecated possession of goods then it is called Hypothecation, The physical possession & control remain with the borrower’s custody. Bank creates charge over the hypothecated goods in case of default. For creation of this charge bank takes the letter of hypothecation from the borrower.
 
3. Lien
 
Lien is the right of the creditor to retain the goods or properties given by the borrower to the creditor as the security against the loan. The creditor deserves the right of lien until the debt is paid. Lien can be of two types.
 
Particular lien:In particular lien, the creditor can retain goods only introspect of a particular debt.
General Lien:As per the declaration under section 171 of the Contract Act 1872 the creditor, in absence of any contract on any contract to the contrary exercise lien and retain the security of any goods bailed to them for a general balance of account.
 
In the event of default by a customer the banker can sell the goods/securities retained after giving a reasonable notice.
 
4. Assignment
 
Assignment is the transfer of a right, property or debt, existing or future by one person to another person. In banking the usual subject of assignment is “auction able claims”. Common types of assignments are:
 

1.                                                       I.               Book debts
2.                                                     II.               Contract money due from Govt. or semi Govt. bodies
3.                                                   III.               Supply bills
4.                                                   IV.               Life Insurance Policies

5. Set-off
 
Right of set-off is the right of a banker to combine all the accounts of a customer to realize the debt. Set off accrues to the banker as a result of banker-customer relationship. If a customer maintains more than one account with the bank, usually bank obtains a prior letter of set-off so that bank can combine them at its discretion without giving any notice to the customer. The judgments in different cases reveal that bank can combine more than one account of a customer maintains with different branches of the same bank.
 
6. Mortgage
 
As per the declaration of the Transfer of Property Act 1882 under section 58 (a) mortgage is the transfer of an interest in specific immovable property for the purpose of securing the repayment of money advance or to be advanced by way of loan, existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability. The transferor is called the mortgagor and the transferee is called the mortgagee. The mortgagor gets back all his rights to the mortgaged property on repayment of loan due three on. Mortgage may be of different types, such as:
 

1. a.       Registered or Simple Mortgage
2. b.       Equitable Mortgage
3. c.        English Mortgage
4. d.       Anomalous Mortgage etc.

Among these, first two are used more frequently.


a. Registered or Simple Mortgage
Where without delivering possession of the mortgaged property, the mortgagor binds himself personally to repay the debt. The mortgage (Bank) can sell the property by obtaining decree from the court.
b. Equitable Mortgage:
Where mortgagor delivers the documents of title of immovable property with intention to create a security thereon, the transaction is called mortgage by deposit of the deeds or equitable mortgage.
 
LOAN CLASSIFICATION- PROVISIONING
 
Classification:
 
Classification of loan is mandatory for all scheduled commercial banks. It has become obvious due to the bad culture of fabricating the income by window dressing of the financial statement of the commercial banks. It has been observed that sometimes bank income is being calculated by showing the unrealistic expected income. To protect this ill practice, classification of loan has come to the effect basing upon a standard criterion.
 
Loans are classified into three categories or the basis of the length of overdue. These are:
 
i)    Substandard:    If the loan regains overdue for 9 (nine) month & above
ii)   Doubtful:            If the loan remains overdue for 24 months and above
iii)  Bad or loss:        If the loans remain overdue for 36 months and above
 
The criteria of loan classification are:
 
i)     Overdue
ii)   Required payment
iii)  Limit overdrawn
iv) Legal action
v)  Qualitative judgment
 
Provisioning:
 
Specific Provision:
After getting list of the classified accounts where no loss is anticipated, partial or total loss is anticipated, audit report by Audit division and Bangladesh bank, previous and current portfolio by external auditors and branch managers comments on the classified accounts, Head office credit division prepares a list of credit accounts which are considered to be totally or partially be unrecoverable.
Rate of Provisioning
Prime Bank Limited in the time of loan provisioning to get the real picture of the income mainly follow the Bangladesh Bank guide line. The rate of provisioning used in SJIBL is summarized in the following table:
 
 
Table 1: Rate of provisioning

Class	Short Term Agriculture credit.	All other credit
	Rate of Provisions
Unclassified (UC)	5%	1%
Substandard (SS)	5%	20%
Doubtful	5%	50%
Bad or Loss	100%	100%

 
Accounting Procedure of Interest of Classified Loan
The accounting procedure in dealing the interest earned on the classified loan is very important because the treatment may overestimate the earning of the bank. In SJIBL the accounting procedure that are followed in dealing with the interest fee earned are pointed out below:
a)       If any credit or advance is classified as substandard or doubtful, the interest will be charged on the credit account but such interest is not transferred to the income account rather it is kept on the interest suspense account.
b)       If any loan or advance is classified as Bad and Loss, the interests of that account are suspended instantly. If any suit is required to be filed for recovery of such credit, then it is filed on the total amount of the principal including the interest calculated upto the period before the suit is filed. Such interest is kept on the interest suspense account.
c)       If any classified loan or part of that loan is recovered, the interest will be adjusted first then the original loan will be adjusted.
 
SUPERVISION-MONITORING-RECOVERY OF CREDIT
 
Recovery of loan ensures the recycling of fund. Non recycling of fund leads a bank or financial institution to become stagnant. So, recovery of loans and advances is a must. But the scenario of Joan recovery is undoubtedly poor and inefficient in our financial system. Willful non-repayment of loan has become a culture in our country. This is mainly because of inadequate, inefficient and even absence of supervision & monitoring system.
 
Recovery can be ensured or at least making close supervision and monitoring can increase rate of recovery. Supervision should be started from the starting point of a credit proposal. Supervision can be done in two stages:


1. Pre-finance Stage Supervision:
 
In this stage, supervision should be made –
 
ü to select the right borrower i.e., credit worthiness of the borrower
ü to be sure about the business prospect
ü to see whether any misstatement made by the borrower etc.
 
2. Post finance stage Supervision:
Post finance stage supervision is sometimes synonymous to the monitoring. Monitoring is a continuous process of overseeing the borrower, his business, his trend in repaying the loan. In this stage, supervision and monitoring should be made-
 
ü  to see whether the borrower draws the sanctioned credit regularly
ü   to see whether the loans are being properly & fully utilized
ü   to see whether the borrower repays the loan regularly
ü   to see whether the any significant change happens in the management of the borrower
ü   to see whether the borrower maintains close contact with bank regularly
ü   to see whether the any significant change happens in the borrower’s business plan
ü   to make the borrower aware about the timely repayment of loan
ü   to take necessary step in case of need
 
Supervision & monitoring help to develop a cooperative attitude between the borrower and the Bank. Moreover, close supervision & monitoring make the borrower loyal to the Bank and thus, supervision & monitoring ensure the recovery of loan.

MANAGEMENT OF DELINQUENT CLIENT

When a problem loan is detected the responsible loan officer takes the corrective action and tries to minimize the loan losses allowing different facilities to the client. The steps practice in Prime Bank Limited to manage the delinquent loan are:
 
PERSUASION

This is the first step practiced in the SJIBL to mange the problem loan. This steps involves-

• Open discussion with the borrower about the problem he is facing,
• Discussion with third party to find out the underlying reasons.
• Issuing “1^st Reminder” letter to inform the due date and ever due installments.
• If the party doesn’t response issuing “2^nd Reminder” and then “3^rd Reminder” letter.

 
NEGOTIATION:

If the persuasion failed, the loan officer negotiates a plan of action with the borrower to try to extract both the bank and the borrower from possible loss. This calls for certain sacrifices on the part of the bank and borrower in their mutual interest. The plan of action in SJIBL consist of –

• Revise loan agreement
• Concession of interest (if the client was difficult to manage)
• Rescheduling of the loan and giving installment facility to repay the overdue amount beside the regular installment.

 
LITIGATION

If after rescheduling the loan and or failed to negotiate with the delinquent client, SJIBL go for taking legal action against the delinquent client to recover the loan. The branch managers send a letter to the head office credit department informing the borrower’s reluctance to repay and negotiate the loan.

• Filing case against the client
• Assigning the loan officer for assisting the lawyer.

As soon as an account is classified delinquent a detailed report will be sent to the Head Office Credit Division by the branch manager. After that, a monthly report on all delinquent facilities is to be sent to the head office credit division jointly signed by the Branch manager with the second officer/credit officer. Beside this the branch manager should include the action plan taken against the delinquent account and status report.
 
5. CREDIT APPRAISAL SYSTEM OF PRIME BANK LTD.
 
There is no hard and fast procedure of managing credit, yet is should follow the instructions of the Bangladesh Bank, Central Bank of Bangladesh and the Circular of Head Office from time to tome. The first step of credit proceedings is the request for credit from the clients. Then scrutinizing and collection of information from primary and secondary sources take place. Credit appraisal and evaluation is the most important part of credit management. On the basis of evaluation approval is given by the higher-authority with certain conditions to be fulfilled. Sanction of credit is done by the sanctioning officer, who has the authority to sanction the Credits. After fulfilling the conditions the credit is disbursed. Credit monitoring and reviewing start at the time of disbursement. Necessary steps should be taken to minimize the risk and increase the return of the Bank. Delegation of Business Power is important in credit sanctioning. Four-tire level is maintained in case of large amount of credit sanctioning. Lending risk analysis is also done in case of credit above Tk. 50 lac.
1              Request for Credit from the Client
Bank provides credit facilities to the people who are credit worthy to the bank. Credit worthiness depends on the credibility, financial capability, and feasibility of the project and management ability of the credits to earn profits. When bank is satisfied with all these then the client is provided with the requested credit. At this point it should be mentioned that the client has to go through an interview where his credit potentiality is justified through critical observation. When credit officer is satisfied with the customer he is asked to submit an application and to fill up a form with specific details.

In general the client having an account approached the bank official for financial help in the form of credit. The client may directly go to the credit department or talk with the manger of the branch. While talking with the client the officer try to find out the following cues:

è Borrower’s identity, Family background, Character, Capacity and integrity.
è Reputation in business circles, friends, and competitors and employees.
è Educational qualifications, Business Experiences.
è Physical Fitness and Eagerness.
è Purpose of the Loan, Popularity and marketability of the product.
è Availability of the raw materials, transport and communication.
è Owen Stake in business and security offered.
è Expected terms of repayment
è Other sources of income.
è Lifestyle of the Borrower
è Declaration of the assets and liabilities.
è Whether reason for credit facility seeking is justifiable.
è Tendency to disclose the information.
Here this discussion is like preliminary screening of the client. So the credit officers need to be cautious about the facility the client is seeking and the available fund in the bank. Moreover most of the businesses in our country don’t have any standard form of accounting department and don’t have any audited statements. So the main task of the credit officers is to make a relationship with the client to find out the hidden income sources.
 
Credit Application:
Completeness of information can best be obtained by requesting the applicant to fill out a comprehensive application. Psychological attitudes toward the seriousness of credit obligations are improved when the application is rather formal and complete.
 
When the customer fills in the application, it is well for the interviewer to look over the form and to provide supplemental information, which will assure completion of the blanks not filled in, or which probes more deeply into the questionable areas. It is well to provide space on the form for the recording of more information after the customer has left. Points in favor of having the applicant fill out the form is that fewer skilled credit personnel are necessary and that more customers can be accommodated in the same space.
 

The client has to provide the following information in the credit application form:

• Mode of financing and amount of credit sought.
• Primary information of the business
• Directors name along with their shareholding percentage and networth and the filled up networth statement.
• Sister concern’s information and working capital related basic information.

 
Signature and Contract:
 
It is regarded as good credit practice to have the applicant sign the application. Some credit departments add words above the signature, which make the application a rather formal written contract. The clause may be a testimony that the information is given for the purpose of obtaining credit and that the facts are complete and correct. The clause may also be recite the terms and be drawn as contract between creditor and debtor.
 
2    Scrutinizing and Collection of Information
 
In case of clients who have previous record of taking credit facilities, their in-file records are examined to see whether the client has a good record of payments in time.
 
Information gathered through direct inquiry:
Direct inquiry one of the common methods of obtaining information to verify facts presented on the application of during the interview of an applicant for an initial credit transaction. A careful distinction is made between obtaining credit information directly form sources having such facts and between buying somewhat similar credit data in the form of prepared reports from the credit reporting bureaus and agencies.
Information gathered through in-file ledger fact:
In-file ledger facts are one of the most important sources of information available to credit committee whether to accept or reject a larger amount of credit from an established credit customer. From the in-file records, credit analysts have at their disposal the experience of the concern with the customer. They know the customer’s payment habits, the complaints registered, the collection efforts, if needed to keep the customer in line with the established terms.
 
SJIBL request the client to provide the following documents when the complete credit application form is submitted. These documents are used to collect information for processing the loan proposal. These also help the credit analyst to appraise the client and to prepare proposal. The information or documents that must be given by the clients are as follows.
 

Broad Resolution for availing credit facility from Prime Bank	Property Document
Certified copy or photo copy of the Memorandum of Articles of Association/certificate of incorporation Copy of the original title deed of the landed property offered for mortgages Photocopy of the directors duly attested. Bia Deed of the previous owner of the same property Personal Networth of the directors CERTIFIED copy of the Mutation Khatian Copy of the TIN and Trade License duly attested Duplicate Carbon Copy (DCR) Last three years audited balance sheet Up-to-date rent receipt and Municipal Tax Receipt Group brochure/Machinery list/stock report/list of buyers Certified copy of CS, S.A, and RS Khatian. Short description of the products of the company Up-to-date Non-Encumbrance Certificate. Project Profile (if new project) Valuation certificate by an engineer. Name and address of the present bankers RAJUK approved plan of the building with the approved letter. Name address of the sister concern Photograph of the land from the three different sides. Quotation Photograph of the owner of the land Marketing Distribution System/Export Target Board resolution of mortgaging the property if the same belongs to any limited company Short Profile of the Directors mentioning their business experiences
Brief Description of the management of the company mentioning their educational and professional experiences.
A latest liability position of all the business concerns of the group with other bank or financial Institutions.

 
3   Credit Appraising & Presentation of Credit Proposal for Approval
 
When credit officer is satisfied with his credit worthiness, financial capability, management ability and feasibility of the project through credit appraisal of clients in a prescribed form, he can hope for credit from the bank. Credit appraisal is done through ‘credit appraisal form’. Ratio analysis is give importance in case of project finance. But most of the medium quality loans are given on the basis of financial capability of repaying and credit worthiness of the client. Lending risk analysis is done in a prescribed form in case of large amount of loan, above 50 Lac.

Appraising the client or Credibility Appraisal

The credit officer has to check the integrity and the honesty of the client that is the management and the other allied company as well. The integrity is checked through different ways. They are as follows

Personal interview:

When the client approached for credit, the credit officer talked with him to identify whether the client has any need of seeking credit facility. The credit officer has to have deep analyzing power to find out the clue.
 

Report form SIBL

If the customer hold an account or is enjoying credit facility from the SJIBL, the statements of the accounts are collected for analyzing the performance of the existing facility, transaction summery of the accounts along with the integrity of the client.

Report from other bank:

The client has to mention whether he has other liability in other bank in the name of the project and or in the name of the sister concern in the time applying for credit. From the given information the credit officer contact, communicate with the respective authority of those banks with which the credit seeker has the transaction to collect the information about few things:

• Whether the client has taken any loan in the name of the proposed project or any other sister concern.
• The amount outstanding and whether classified or not.
• The payment habit of the client

All the collected information is kept confidential.

Report from society:

Some times the credit officer collects information from other businessman having relationship with SJIBL. Informally the credit officers discuss about the project and the initiator and the potentiality with the businessman. Moreover the information about the sponsor are also collected from the socially important person like community representative, chamber representative.

CIB Report:

There is possibility of hiding information about the current liability and transaction with other bank. So to get the appropriate information about the creditability of the customer. The branch office collects CIB report through the head office. It is known that all the banks have to send liability position of the client. The CIB authority provides the related information for which he is asked for.

 

FINANCIAL STRENGTH ANALYSIS

 
Analyzing the financial position is one of the main factors to be identified before financing any business. In the application form the client has to furnish the total investment made by him in the said project he is seeking loan facility. The Net-worth of the client must be found out by the credit officer.

• Look for the net-worth of all the directors
• Paid–up capital
• Investment in business
• Leverage (Equity Multiplier)
• Cash flow
• Allied deposit in SJIBL.
• Tangible net-worth of the business for the lasts three years and projected two years.
• Total Asset-Total Debt
• Overall group strength (if applicable )
• The strength also appraised by the business performance.

 
 

LIABILITY POSITION ANALYSIS

 
Facility from SJIBL & other banks taken by the client must be provided while applying for credit facility. The credit officer looks for

• Existing facility enjoying by the Client Company from the SJIBL and other banks.
• Existing facilities for the sister concerns if applicable.
• Debt to Asset ratio.

 

Table Typical Liability information collection Sheet

Company /

Trade NameExisting Facilities  Security Value Nature

Limit

OutstandingExpiryOver duesCL statusFDRPropertyOthersTotal                      Total Cash         Total Contg         Total
 
(Group)Cash         Contg         Grand Total
 

• Here the credit officers need to look for the Nature, limit, outstanding, overdue, CL status, security value of the credit facilities
• Whether the amount outstanding are classified or not
• Monthly installment payment or fixed charge coverage performance of the client.

 

Management Competence’s or Capability Appraisal

 
The ability of the management to run the business smoothly and business background of the promoter and the sponsor director and the management are important. As most of the established businessman are traditional and has not business education it is very difficult to find out. To identify and judge SJIBL collect the following information from the client:

• Brief description of the directors educational background & business back ground
• Brief profile of the management
• Business performance for the last three years as performance of the business implies the capability of the management’s running the business.
• Equity mobilization of the directors as it implies their risk-taking attitude.

If it is revealed that the directors are in the business for a long time and have operated the business well is said to have the capability to run the business.
 

Appraising the Business

 
The main task of the credit officer is to analyze the vehicle’s (for which the credit is sought) market potentiality, competitors, distinctive competitiveness and the strategy taken.

Business Appraisal

 
In appraising the business, the main concern is whether there is any prospect of the business. SJIBL look for

§  Industry outlook

1. Number of competitors
2. Prospect of the business
3. Influence technology changes

 

• Client’s business Appraisal

 
Initialization of the business

1. Customer base (increasing trend)
2. Relationship with the customer
3. Work done so far and the value
4. Annual income at least stable
5. Overall growth of the business
6. Basis of competition (guessed)
7. Quality of services (guessed)

 
Technical Aspect
In this part, the factors those are more or less technical in nature are examined. Examination of the technical factors enables us to know whether the project is technically feasible. The Points of observation in this area are:


i.     Location or site of the project
ii.    Availability of infrastructural facilities such as: roads & transport, school, college etc.
iii.   Availability of raw materials.
iv.   Availability of utilities such as: electricity, gas water etc.
v.    Availability of required machinery
vi.   Climatic position in the project area.
vii.   Availability of required labor.
viii.  Nearness of market for the product
ix.   Political factors such as Govt. Patronage, industrial policy of the Govt.
x.    Proximity to complementary projects,
 
Marketing Aspect
 
Marketing aspect is the most significant aspect. Whether a project will be able to generate profit depends largely upon the market position. The market demand for the product of the project is analyzed in this part of appraisal. The following assessments are made under marketing feasibility test:
i.     Past & present demand for the product.
ii.    Past & present supply of the product.
iii.   Expected future demand for the product.
iv.   Demand and supply gap
 
Existence and impact of complementary goods and the distribution channel or marketing mechanism is critically analyzed in this part of project appraisal.
 
 
Financial Aspect
It is another significant part of appraisal. Financial viability of a project is examined in this part. Various financial tools & Techniques are used in testing the financial viability such as:
 

1. Capital Budgeting
2. Break Even Analysis
3. Sensitivity Analysis
4. Ratio Analysis

 
a)       Capital Budgeting Technique:
A process of analyzing or evaluating an investment decision. The Capital budgeting tools used for evaluating an investment opportunity are:
i. Non-discounted Method (time value of money not adjusted):
 
Accounting Rate of Return (ARR):
Arithmetic expression of expected return from the investment. The higher the rate, the more is the financial viability of the project.
Payback Period:
The period within which the volume of investment is expect to be returned from the project. The “period” should be < the maximum acceptable pay back period.
 
ii. Discounted Method (Time value of money adjusted):


Net Present Value (NPV):
It is the difference between present value (Time adjusted value) of expected inflow or benefit and that of outflow or investment.
 
Under this method expected future benefits are being converted into present value using reasonable rate of discount. In case of a single project, the project can be accepted present value of inflow is higher than the present value of outflow. But incase of a mutually exclusive decision, the project having higher NPV should be accepted.


Internal Rate of Return (IRR):
It is a rate at which the present value of inflow equates the present value of outflow. IRR tells the minimum required rate of return from an investment. Acceptable IRR is being determined by considering the opportunity cost, cost of capital, the prevailing maximum return in the economy etc. IRR is a trial and error method. Under trial & error process two discounting rate-one, at which NPV is negative and another one, at which NPV is positive are used in calculating IRR.


Profitability Index:
PI is calculated by dividing present value of inflow with the present value of outflow. A project can be accepted if PI ≥ 1.
b)            Break Even Analysis:
Break-Even Analysis is commonly known as the Cost-Volume-Profit (CVP) analysis. Break-even analysis shows the relationship between cost and revenue with respect to profit. By showing the break-even point, this analysis says the minimum level of output or sales that is required to equate the cost. More over, break-even analysis provides a clear idea about the required volume of sales to earn a target profit. Thus break-even analysis helps the decision criteria.
c)         Sensitivity Analysis:
Sensitivity analysis provides the picture of relative changes in overall profitability due to change in any variable. Usually changes (increase) in material and other variable cost or changes (decrease) in selling price are being taken into consideration for making sensitivity analysis.
 
d)            Ratio Analysis:
Ratio analysis is the analysis and interpretation of data given in the financial statement such as: Balance Sheet, Income statement etc. Ratio is the quantitative expression of relationship between two accounting figures. Ratio analysis gives a clear picture about the strength and weakness of a firm, its historical performance and current financial condition. The common ratios that are being used in the analysis are:

Chapter Five:For eign Exchange Operations

 

Meaning of Foreign Exchange

 
Foreign Exchange means Foreign Currency. It is process, which is converted one national currency into another and transferred money form one country to another. If we consider ‘Foreign Exchange’ as a subject, then it means all kind of transaction related to Foreign Currency, as well as currency instruments, such as Draft, MT, TT, TC, and Payment Order & Foreign Trade.
 

Necessity of Foreign Exchange:

 
No country is self-sufficient in this world. Every one is more or less dependent on another, for goods or services. Say, Bangladesh has cheap manpower whereas Saudi Arabia has cheap petroleum. So Bangladesh is dependent on Saudi Arabia for petroleum and Saudi Arabia is dependent on Bangladesh for cheap manpower. People of one country are going to another country for Education, Medical Service etc. One-country export Agricultural commodities, another country exports Industrial products, all these transactions needs Foreign Currency & are related to Foreign Exchange.
 

Functions of Foreign Exchange:

 
The Bank actions as a media for the system of foreign exchange policy. For this reason, the employee who is related of the bank to foreign exchange, especially foreign business should have knowledge of these following functions:

• Rate of exchange works.
• How the rate of exchange works.
• Forward and spot rate.
• Methods of quoting exchange rate.
• Premium and discount.
• Risk of exchange rate.
• Causes of exchange rate.
• Exchange control.
• Convertibility.
• Exchange position.
• Intervention money.
• Foreign exchange transaction.
• Foreign exchange trading.
• Export and import letter of credit.
• Non-commercial letter of credit.
• Financing of foreign trade.
• Exchange Arithmetic.

 

Activities of Foreign Exchange

 
There are three kinds of Foreign Exchange transaction

• Import
• Export
• Remittance

 

Definition of L/C

 
A Letter of Credit is a definite undertaking of the Issuing Banks, to make the payment for the import, on behalf on the importer; in other words, it is a letter of the issuing Bank to the beneficiary, undertaking to effect payment under some agreed conditions. It is an undertaking of the Issuing Bank to the Beneficiary to make payment or to accept bill of exchange. It is also an authorization of the Issuing Bank to effect payment or to negotiate bill of exchange, against stipulated documents, complying credit terms. L/C is called documentary Letter of Credit. Because the undertaking of the Issuing Bank is subject to presentation of some specified documents. The Uniform Customs and Practice of Documentary Credit (UCPDC), 500, govern International Letter of Credit.
 

Classification of L/C:

 
In different considerations there are many kinds of L/Cs. Few of them are:

• Irrevocable L/C
• Revocable L/C
• Add-Confirmed L/C
• Back to Back L/C
• Revolving L/C
• Transferable L/C
• Restricted L/C
• Red Clause L/C
• Green Clause L/C
• Clean Letter of Credit
• Documentary Letter of Credit
• Straight Documentary Credit
• Irrevocable Negotiation Documentary Credit
• With recourse & Without recourse to drawers

 
Shahjalal Islami Bank Limited, Foreign Exchange Branch deals with the following L/C:

• Sight L/C
• Sight Local L/C
• Usance L/C
• Back to Back L/C

 

Party involved with L/C operation:

A letter of credit is issued by a bank at the request of an importer in favor of an exporter from whom he has contracted to purchases some commodity or commodities. The importer, the exporter and issuing bank are parties to the letter of credit. There are however, one or more than one banks that are involved in various capacities and t various stages to play an importer role in the total operation of the credit.

The following parties are involved with L/C operation procedures:

i)                    The Opening Bank.

ii)                  The Advising Bank.

iii)                The Buyer and the Beneficiary.

iv)                The Paying Bank.

v)                  The Negotiating Bank.

vi)                The Confirming Bank.

i) The Opening Bank: The opening Bank is one that issues the letter of credit at the request of the buyer. By issuing a letter of credit it takes upon itself the liability to pay the bills drawn under the credit. If the drafts are negotiated by another bank, the opening bank reimburses that bank. As soon as the opening bank, issuing a letter of credit (L/C), it express its undertaking to pay the bill or bills as and when they are drawn by the beneficiary under the credit.

ii) The Advising Bank: The letter of credit is often transmitted to the beneficiary through a bank in the letters country. The bank may be a branch or a correspondent of the opening bank. The credit is some times advised to this bank by cable and is then transmitted by it to the beneficiary on its own special form. On the other occasions, the letter is sent to the bank by mail or telex and forwarded by it to the exporter. The bank providing this services is known as the advising bank. The advising bank undertakes the responsibility of prompt advice of credit to the beneficiary and has to be careful in communicating all its details.

iii) The Buyer and the Beneficiary: The importer at whose request a letter of credit is issued is known as the buyer. On the strength of the contract he makes with the exporter for the purchase of some goods that the opening bank opens the letter of credit. The exporter in whose favor the credit is opened and to whom the letter of credit is addressed is known as the beneficiary. As the seller of goods he is entitled to receive payment, which he does by drawing bills under the letter of credit.

iv) The Paying Bank: The paying bank only pays the draft drawn under the credit but under takes no opening bank, by debating the letters accounts with it there is such an account or by any other measured up, between the two bankers. As soon as the beneficiary has received payment for the draft, he is out of the picture and the rest of the operation concerns only the paying bank and the opening bank.

v) The Negotiation Bank: The negotiating ban has to be careful in scrutinize that the drafts and the documents attached there to be in conformity with the condition laid down in the L/C. Any discrepancy may result in reused on the part of the opening bank to honor the instruments is such an eventuality the negotiating bank has to look back to the beneficiary for refund of the amounts paid to him.

 

vi) The Confirming Bank: Sometimes an exporter stipulates that a L/C issued in his favor be confirm by a bank in his own country. The opening this country to add its confirming to the credit the bank confirming the credit is known as the confirming bank and the credit is known as confirmed credit.

Documents required for open a L/C:

The importer after receiving the preformed invoice from the exporter, by applying for the issue of a documentary credit, the importer request his bank to make a promise of payment to the supplier. Obviously, the bank will only agree to this request if it can rely on reimbursement by the applicant. The applicant must therefore have adequate funds in the bank account or a credit line sufficient to cover the required amount. Banks deal in documents and not in goods. Once the bank has issued the credits its obligation to pay is conditional on the presentation of the stipulated documents with in the prescribed time limit. The importer should submit the following documents for opening L/C:

• Valid Import Registration Certificate (commercial/industrial).
• Tax Identification Number Certificate (TIN)
• VAT Registration Certificate.
• Membership Certificate of a recognized Trade Association as per IPO.
• A declaration, in triplicate, that the importer has paid income-tax or submitted income tax returns for the year preceding year.
• Proforma Invoice or Indent duly accepted by the importer.
• Insurance Cover Notice with money paid receipt covering value goods to the imported.
• L/C Application form duly signed by the importer.
• Letter of Credit authorization Form (LCAF) commercial or industrial as the case may be duly signed by the importer and incorporation new ITC number of at least 6 digits under the Harmonized system as given in the import Trade Control schedule 1998.
• IMP (SJIBL – 170) Form duly signed by the importer.

Proposal of L/C:

Preparing a L/C proposal is fundamental function of a letter of credit operation. Preparing a L/C proposal a lot of information is needed. For this purpose the client should co-operate the bank. Otherwise the bank will not able to complete the proposal successfully. However, the following papers/documents are required to process L/C proposal.

Completion of A/C opening as per Bank’s form under terms and condition stipulated thereon.

• Completion of L/C agreement form as per bank’s format.
• Valid trade license.
• VAT Registration Certificate.
• TIN Certificate.
• Valid/Renewed IRC – IRC to be properly Transferred/N.O.C from previous bank.
• Membership Certificate form Chamber of Commerce.
• Undertaking bearing Exchange Fluctuation.
• Undertaking having no overdue liability with bank’s / financial institute.
• Indent/P.I having address, Tel, Fax, E-mail address of Exporter/Indenter & Importer duly to be signed by both with acceptance and mentioning actual date of delivery, shipment date, ports with terms and condition.

L/C Operation of SJIBL:

Today Shahjala Islami Bank Limited (SJIBL) is one of the leading and most successful Banking enterprises in the country. It plays great role in the economy of the country. By export-import business the bank play a great role to the economy of Bangladesh. SJIBL is one of the greatest bank in export – import business.

Foreign trade plays a vital role in the economic advancement process of a nation. So the trend of country’s foreign trade, i.e. import & export is of a great concern to the government of a country. Fluctuation in the parameters of foreign trade immediately brings about some impact on the total economy. As such the nature, trend and the volume of foreign trade are required to keep peace with the national economic needs and objective. There may be some areas where emphasis is to be given while there may be others which deserve restrictions or discouragement. Moreover the items of import & export value and volume of the same, the corresponding time period, sources of fund far payment and receipt, all these factors are to be considered very carefully for making necessary adjustment to match with the national economic policies as well as achieve balanced economic growth through the inter policy and inter policy co-ordination.

International trade policy relates to commercial policy, which has two main components of Import policy relates to commercial policy, which has two main components of Import policy and Export policy. With a view to achieving favorable balance of payment position as well as to encouraging or well to encouraging or well regulated and need based foreign trade of the country, the government formulated the national commercial policy i.e. import and export policy for a certain period considering all the favorable & unfavorable aspects of the nation’s previous trade performance as well as the future requirement and prospects.

The main purpose of the policy is to conserve scare foreign exchange & to ensure its utilization for the import of goods and services, which have national priority. The selected persons on institutions those who have got valid Import Registration Certificate (IRC) form the Chief Controller of Import and Export (CCI & E) can import and they are known as importers.

These importers can import goods as entitled in each year as per import policy by opening letter of credit (L/C) through bank i.e. Authorized Dealer (AD). Authorized Dealer means the branches of commercial banks, those who are authorized by the Bangladesh Bank to deal in foreign exchange. Letter of Credit may be defined as the letter of undertaking or letter of guarantee issued by the L/C opening bank on behalf of the importer submits all the documents as mentioned in the L/C submits all the documents as mentioned in the L/C within the time schedule to his bank i.e. exporters bank.

Before opening L/C in favor of the exporter the entitlement of the importer to be registered with Bangladesh Bank. For this purpose the importer is to apply through L/C Authorization form. After filled up and signed up the appropriate column of the LCA form, the importer will submit it to Authorized Dealer who in turn forward the same to Bangladesh Bank for registration where fund is purchased from Bangladesh Bank. After registration Bangladesh Bank forward the 1^st and 2^nd copy of LCA form to the Authorized Dealer, 3^rd and 4^th copy to CCI & E and keep the 5^th copy as their office copy.

Now the importer will come to his bank with a request to open an L/C along with the following documents:

• L/C application and agreement form with adhesive stamp of Tk. 150.
• Indent / Proforma Invoice/ Contract- 3 copies.
• Insurance cover note with premium paid receipt.
• IMP form one set duly signed by the importer.
• Any other documents if necessary.

Authorized Dealer will scrutinize the documents and open the L/C in favor of the exporter by converting the Bangladesh Taka into foreign currency at the existing B.C selling rate of exchange. Care must be taken so that the limit of Bangladesh Taka is not exceeded in any way. The foreign currency value of the L/C must correspond the equivalent amount of Bangladesh Taka if LCA registered with Bangladesh Bank.

The Authorized Official of the Authorized Dealer will check the L/C very carefully and signed the same jointly and forward the 1^st and 2^nd copy to their foreign correspondent situated at the nearest place of the exporter. Thus Bank is known as Advising Bank. On receipt of the L/C the Advising Bank after verification of the duplicate copy at their end.

On getting the L/C the exporter prepares the goods and ship the same as per instruction of the L/C and obtain a Bill or Lading from the shipping Authority. The exporter will prepare bill of exchange, invoice and other documents as specified in the L/C and submits the same along with the original copy L/C to his bank within the time mentioned in the L/C. The Bank with whom the exporter submits the documents is known a Negotiating Bank as this negotiates the documents i.e. makes payment to the exporters.

The negotiating bank will scrutinize the documents with terms and conditions of the L/C very carefully. If every thing is in order the bank will make payment of the amount of L/C to exporter in their local currency by debiting to their own account. Subsequently the negotiating bank will claim the L/C with whom the Head Office of L/C opening bank maintained foreign currency.

This is known as Reimbursing Bank. Reimbursing Bank will make payment to the negotiating bank by debit to L/C opening bank’s head office A/C. Simultaneously the negotiating bank will forward all the documents submitted by the exporter to the L/C opening bank as per instruction of the L/C. The date of forwarding letter of negotiating bank should be date of negotiating of documents.

After taking delivery of documents from the L/C opening bank, the importer will clear the goods which has already been arrived or due to arrive from the customs authority on submission of these documents along with the custom purpose copy of LCA from.

Import

Import Trade of Bangladesh is controlled under the Import & Export control Act 1950. Authorized Dealer Banks will import the goods into Bangladesh following import policy, public notice, F.E circular & other instructions from competent authorities from time to time. Goods are being imported for personal use, commercial purpose or industrial use.

Import Procedures:

Registration of importer: In terms of the importers, Exporters and Indenters order, 1981 no person can import goods into Bangladesh unless he is registered with the Chief Controller of Import & Export from the provisions of the said order. Only commercial & industrial importer must have registration from CCI & E.

To obtain import Registration certificate (IRC), the applicant will submit the following paper/documents to the CCI & E through this nominated Bank.

• Questionnaire duly filled in & signed by applicant.
• Trade license.
• Membership certificate from chamber of commerce or any other trade Association.
• Nationality certificate.
• Income tax registration certificate.
• Partnership deed/Certificate of registration with the register of joint stock companies where applicable.

On being satisfied, the CCI & E issues IRC obtaining original copy of treasury Challan for payment of registration fee.

Import Policy: At the beginning of each financial year, the Chief Controller of Imports and Exports announces the Import policy covering various aspects of imports in the coming year. The main points covered by the Import Policy are the following:

• Items eligible for imports during the shipping period.
• Items importable against – Cash foreign Exchange, Foreign aid and barter, Wages Earners Scheme.
• The Procedure for induction of new comers into the import trade.
• The procedure for imports by industrial consumers and commercial importers and for import under Wages Earners scheme.
• Procedure for formation of groups.
• The procedure for submission of application for Repeat License.
• The dates for opening Letter of Credit, and shipment and the rules for revalidation of the License/LCA and the L/C.

Licensing for Imports: Most imports into Bangladesh require a license from the licensing authority. In recent years, however, the task of licensing has increasingly been delegated to the commercial banks. Beginning from the shipping period 1983-84, the commercial banks have been entrusted with the responsibility of licensing imports in both industrial and commercial sectors. Licensing is done by the commercial banks by means of a specially designed form known as Letter of Credit Authorization or simply LCA. The following documents are required to be submitted by the importer to his banker:

• LCA form properly filled in and signed.
• LC application.
• Purchase contract in the shape of an indent or proforma invoice.
• Insurance cover note.
• Membership certificate from a Chamber of Commerce and Industry or registered Trade Association.
• Proof of renewal of Import Registration Certificate for the current year.

 
Making the purchase contract: After being licensed, the next task for the importer is to make a contract with an overseas supplier or the letter’s local agent. The contract usually consists of a proforma invoice issued by the supplier or his local agent and signed by the importer in token of having accepted the contractual terms.
 
Amendment of Letter of Credit: Not infrequently, the letter of credit opened by a bank needs amendment either because the terms and conditions incorporated in the L/C conflict with those of the underlying contract between the buyer and the seller or the buyer and seller agree, at a later date, to vary terms keeping in view the emerging circumstances.
 
Scrutiny and Lodgment of Documents: On shipping the contracted goods the beneficiary sets about the task of collecting and preparing the documents stipulated in the L/C. He collects Bill of Lading etc. from the carrier company, prepares the invoice, certificate of origin, packing list, bill of exchange and so on and present these to his banker. Unless the L/C restricts negotiation through any particular bank, the bank receiving the documents from his customer would negotiate these keeping in view the terms of the L/C. After that, the negotiating bank forwards the shipping Documents to the opening bank, simultaneously realizing payment by debiting the opening bank’s account.
 
Verification and Lodgment of Document by the opening Bank:
On receipt of the shipping documents from the negotiating bank, the L/C opening bank should carefully examine these to ensure that they confirm to the terms of the credit; in particular, the following are the main points that should be looked into:

• The documents have been negotiated within the stipulated dates.
• The amount drawn dose not exceeds the amount authorized in the credit.
• The Bill of Exchange is drawn in the manner stipulated in the credit; the amount is written in figures and words and corresponds to that of the invoice, and properly endorsed.
• The merchandise in properly invoiced in the name of the opener of the credit i.e. the buyer or the importer with full description of the merchandise indicating, where applicable, the unit price. The invoice is signed and bears Bangladesh Bank’s Registration number.
• The Bill of Lading is clean, shipped ‘on board’ showing freight prepaid and endorsed to the order of the issuing bank.
• The certificate of origin given by the supplier is in conformity with that mentioned in the credit.
• Other documents like weight list, packing list, pre-shipment inspection certificate etc. have been received and are in accordance with the terms of the credit.

 

Preparatory Steps for opening L/C:

Before opening the L/C SJIBL will takes the following steps:

Applicant to be Bank’s A/C Holder: Bank will open the L/C on behalf of a person who has an account with the Bank. Unknown person will not be allowed to open L/C.
Registered Importer: Before opening the L/C Bank must confirm that the L/C applicant is a registered importer or personal user and the IRC of the importer has been renewed for the current year.
Permissible Item: The item to be imported must be permissible and not banned item. If the item is from conditional list the condition must fulfill to import the same.
Market Report: Bank will verify the marketability of the item & market price of the goods. Some times the importer may misappropriate the Bank’s money through over invoicing.
Sufficient Security or Margin: Price is some items fluctuate frequently. In case of those item Bank will be more careful to take sufficient cash margin or other security.
Business Establishment: Bank should not open an L/C on behalf of a floating businessman. The importer must have business establishment, particularly he must have business network for marketing the item to be imported.
Restricted Country: Goods not to be imported from Israel. Credit report of the beneficiary. In the amount of L/C in one item exceeds Tk. 500 Lac. Suppliers credit report is mandatory. Bank will collect credit report of the beneficiary through its correspondent in abroad.
Applicant of the client to open the L/C: The client will approach to open the L/C in Bank’s prescribed form duly stamped & signed along with the following paper & documents.

• Indent/Proforma invoice.
• Insurance cover note with money receipt.
• LCAF duly felled in & signed.
• Membership certificate from chamber of commerce/Trade Association.
• Tax payment certificate/declaration.
• IMP & TM form signed by the importer.
• Charge documents.
• IRC pass book, Trade license, Membership certificate & VAT registration certificate in case of new client.
• Export L/C in case of Back-to-Back L/C.

 
Permission from ministry of Commerce: If the goods to be imported under CIF (cost insurance & finance), then permission from ministry of commerce to be obtained.
Creditability of the Client: In consideration of all the above points, if Bank become satisfied regarding the client then L/C may be opened on behalf of the client. Before opening the L/C Bank will issue & authenticate a set of LCAF in the name of the importer.
 

Importer points to prepare an L/C:

To prepare an L/C the Ads should take care on the following points:
L/C Number, Place & Date of issue, Date & Place of expiry, Shipment date, Presentation period, Applicant, Beneficiary, Advising Bank Account, Part-shipment & Transshipment, Availability, Port of Shipment, & Port of destination, Tenure of the Draft, Documents required, Payment, UCP, Bill of lading, Bill of Exchange, Pre-shipment Inspection, Data content, Special Conditions, Authenticity of the credit.
 

Scrutiny of Import Documents:

After shipment of the goods, the exporter will submit the export documents to the negotiating Bank. Negotiating Bank will check & will send the documents to the Issuing Bank after negotiation. Upon receipt of the import documents Issuing Bank will examine the documents. Bank will decide within 7 banking days, following the day of receipt of the documents. Whether it will accept the documents or will reuse. If the Issuing Bank fail to communicate the refusal to the negotiating Bank writhing 7 days, the documents deems to be accepted.
At the time of scrutiny the following points to be checked specially:
 
Scrutiny of Draft

• Whether the Draft is drawn on the Issuing Bank or not?
• Whether the amount of draft with the invoice & credit value and not over drawn.

 
Scrutiny of Invoice

• Whether the description of the goods as per credit terms.
• Whether the data contain such as, HS code number, unit price, quality & quantity of the goods, LCA number, Importer & Indentor’s Registration Number, country of origin and any other information are as per credit terms.
• Custom Invoice and /or consular invoice to be presented as per credit terms.

 
Scrutiny of Transport Documents
Transport documents must ensure that:

• It is presented in full set as called for the L/C. In how many number of documents are issued for mentioned.
• The date of shipment on the transport documents must not later than the date stipulated in the L/C.
• ‘Shipped on Board’ ‘Freight Prepaid’ notations must be appeared on the B/L as called for in the L/C.
• B/L must be ‘clean’ not ‘claused’.
• Transshipped B/L not to be acceptable unless allowed by the L/C.
• Stale B/L is not acceptable, if not permitted in the L/C.
• The port of shipment & destination must be as per credit terms.
• B/L must bear the name of carrying vessel and the flag.
• Carrier must sign L/C.

 
Scrutiny of pre-shipment inspection report
Bank will examine and scrutinize the following:

• Whether the entire document required by the credit is submitted.
• Documents to be consistent with one another.
• Documents to be presented with in the stipulated time.
• Documents to be issued by the authorized person as stipulated in the credit.
• Documents to be examined as per credit terms & international standard Banking practice.

 
After examination, if the documents become discrepant. Issuing Bank will serve refusal notice to the negotiation/presenting Bank with seven banking days. The notice must stale all discrepancies and must also state whether it is holding the documents at the disposal of or is returning them to the presenter.
 

Lodgment of Import Documents:

If import documents found in order, it to be made entry in the bill register and necessary voucher to be passed, putting Bill number on the documents, this process is called Lodgment of the bill. The word ‘Lodgment’ means temporary stay. Since the documents, stay at this stage for a temporary period i.e. up to retirement of the documents, the process is called Lodgment, Bank must lodge the documents immediate after receipt of the same, not exceeding 7 banking days, following the day of receipt of the documents.

Procedures of Lodgment:

Bill register: Bank will entry the documents in the bill register. Bill register must include date of Lodgment, Bill No., Bill of Exchange No, Amount, and Name of the Negotiation Bank, B/L no & date, merchandise, retirement date & other particulars.

Application of rate: Foreign Currency would be converted at B.C selling rate ruling on the date of Lodgment.

Exchange Control Form: IMP & Tm form must be filed in and signed by the importer at the time of Lodgment.

Endorsement of LCAF: LCA form must be endorsed showing utilization of shipment.

Noting on the File: Utilized amount showing bill no to be noted on the printed format of L/C file.

Retirement of Documents:

Importer is to be advise on the date of lodgment of documents with full particulars of shipment to entire the documents against payment or to dispose the import documents as per pre-arrangement, if any. Subsequent reminders are also to be issued very week till retirement of the bill. Such bills will be considered and be reported as overdue if the importer fails to retire the documents with 21 days of arrival of the relative import-consignments at the port of destination.

When the importer intends to retire the documents, the branch will prepare following retirement vouchers for adjustment of PAD liabilities there against:

            Dr. Party’s A/C

            Cr. PAD A/C

            Cr. Telex charges

            Cr. Income A/C: Interest on PAD

Thereafter the documents may be handed over to the importer against proper acknowledgement after certification endorsement.

Issuance & Disposal of LCAF:

All imports transacted through the bank shall require LCA form. The LCAs are issued in sets of six (6) copies each. Of these, the one marked, “For Exchange Control Purchase” should be used for opening L/C and for effecting remittance.

• The branch should not issue blank LCAFs to their clients. The importer should himself sign the LCAF in the presence of an officer of the branch. An authorized official of the branch should put his signature with date and seal on the LCAF, evidencing verification of the importer’s signature and import entitlement as per current IPO.
• If foreign exchange is intended be bought from the Bangladesh Bank against an LCAF it has to be registered with Bangladesh Bank’s Registration Unit.
• Where no F.C fund is required from Bangladesh, LCAFs are need not to be the registered with Bangladesh Bank, the branch will send the third & fourth copies LCAF along with the copy of the L/C and amendments thereto to the area office of the CCI & E within 15 days retaining other copies with the branch.
• LCAFs issued for import of capital machinery and spares will remain valid for remittance for 18 months subsequent to the month of issuance.
• When L/Cs are opened, full particulars thereof must be endorsed on the bank of the Exchange Control copy of the LCAF under the stamp and signature of the branch.
• LCAFs can normally be utilized on CRF basis. Full LCAF value is therefore not remittable as F.O.B value goods. The branch should also give a certificate to the importers to the effect that the amounts of freight, handling charges. etc. has been endorsed on the relative LCFA.

Back-to-Back L/Cs:

The branch may open back to back import L/Cs against export L/Cs received by export oriented industrial units opening advise the beneficiary under the bonded warehouse systems, subject to observance of domestic value addition requirement prescribed by the NBR/Ministry of Commerce from time to time. The following instructions should be complied with while opening Back-to-Back Import L/Cs:

• The unit requesting for this facility should process valid IRC, ERC and valid bonded warehouse license.
• The branch shall hold the Master Export L/C affixing bank lien stamp thereon and be kept in safe for security purpose.
• The master export L/C should have validity period adequate to the time needed for importation of inputs, manufacture of merchandise, and shipment to consigned.
• The Back-to-Back L/C value shall not exceed the admissible percentage of net FOB value of the relative mater export L/C.
• The Back to Back import L/C shall be opened on up to 180 days usance (DA) basis except in case of those opened against Export Development Fund administered by Bangladesh Bank in which case the back to back L/C will be opened on sight (DP) basis.
• Interest for the usance period shall not exceed LIBOR or the equivalent interest rate in the currency of settlement.
• All amendments of the master export L/C should be noted down carefully to rule out chances of excess obligation under the back-to-back import L/C.

• Back-to-Back L/C can either be local or foreign. Inland BTB L/Cs denominated in foreign exchange may be opened in favor of local suppliers or manufacturer under bonded warehouse system up to value limits applicable as per prescribed value additional requirement.

 
Accounting Procedure-
1. Creation of L/C liability:
Dr. Customer’s liability on BTB L/C
Cr. Banker’s liability on BTB L/C
 
2. Commission and other charges:
Dr. Customers A/C: Commission for 180 days + FCC+ Postal/telex + Misc.
Cr. Income A/C: Commission on L/C foreign
Cr. Income A/C: Postal/telex Recoveries
Cr. Income A/C: Miscellaneous earning (handling charges, stationary etc.)
Cr. Sundry deposits A/C: F.C.C.
Cr. Stamp in hand.
 
3. Amendment Charges:
a) If the L/C value is increased:
Dr. Customer’s liability on BTB (for increased amount)
Cr. Banker’s liability on BTB L/C; then,
Dr. Customer’s A/C: commission for increased amount + other charges
Cr. Income A/C: Postal/telex Recoveries
Cr. Income A/C: Miscellaneous earning (handling charges if any)
Cr. Sundry deposits A/C: F.C.C.
b) If L/C expiry time is extended beyond 180 days:
Dr. Customer’s A/C: Commission for further one quarter
Cr. Income A/C: Commission on L/C (Foreign)
 

Export

Export means law fully carrying out any thing from one country to another country for sale. No person can export anything from Bangladesh, unless he is registered with the CCI & E, under the registration order 1952.

 

Legal Requirements:

Although payment aspects of export are Bangladesh Bank’s concern, the Export policy Order announced by the Ministry of Commerce controls physical aspects. Bangladesh has set out elaborate procedure and laid down detailed rules and regulations concerning Export and Export payments. All exports, to which the requirement of declaration applies, must be declared on the EXP form. The branch should before certifying any export form, consider and take notice of the following:
 

• The intended exporter shall have valid Export registration Certificate.
• Payment for goods exporter from Bangladesh should be received through the branch in freely convertible foreign currency or in Taka form a non-resident Taka account of a bank branch or correspondent abroad.
• Commission, brokerage and other trade charge are admissible only up to a maximum of 5% the value of goods. The charges beyond 5% may be admissible subject to prior approval of the Bangladesh Bank.
• In respect of export of goods by land route or by sea, the Bill of Lading, Railway Receipts, and other documents of title to cargo should be drawn only to the order of Shahjalal Islami Bank Limited.
• In respect of export goods by air, the Airway Bill and any other documents of title to cargo should be drawn the order of a bank in the country of import nominated by the bank.

 

Procedure for obtaining Export Registration Certificate (ERC):

For obtaining Export Registration Certificate from CCI & E the following documents are requited:

• Application for ERC.
• Nationality Certificate.
• Trade License.
• Income Tax Certificate.
• Memorandum & Articles of Association and Incorporation Certificate, in case of company.
• Bank Certificate.
• Copy of rent receipt of the Business Firm.
• Treasury Challan for payment of fees.

 

Export L/C Advising:

Advising Bank shall take reasonable care to check the apparent authenticity of the credit, which it advises. If the Bank elects not to advice or can not establish apparent authenticity, it must inform to the issuing Bank without delay. The Bank also may advise unauthenticated credit, informing the beneficiary that it has not been able to establish the authenticity of the credit, (UCP Article-7).
Bank will make entry of the L/C, in the L/C advising register, with its full particulars, putting separate serial number under different Issuing Bank. Subsequent amendment also to be recorded under correspondent L/C.
Bank will advise the photocopy of the L/C, keeping the original in the records, in case of L/C in telex L/C advising commission to be realized accordingly.
 

Verification of L/C:

Upon receipt of an export L/C, Exporter will verify the L/C carefully, particularly the following points:

• Bill of Lading must not allow blank endorsement. B/L to be endorsed favoring a Bank, other than the Issuing Bank, is also risky & should avoid accepting such kinds of B/L clause. B/L must not be to the importer in abroad.
• Name & Description of the goods to be cleared 7 the item to be available and not banned by the export policy.
• Unite price to be consistent to total value of the L/C considering the quantity of the goods.
• Payment clause must be unconditional & specific.
• Required documents to be easily prepared able.
• L/C must be subject to UCPDC publication No: 500, 1993 revision or amendment there of from time to time.
• L/C to be freely negotiable.
• Place of Expiry of the credit must be in Bangladesh.

 

General Rules for Export:

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

• No person can export any goods from Bangladesh, unless he is duly registered as an exporter with the CCI & E.
• All export must be declared on the EXP form, which is consisting of 4 copies.
• Export must be against any of the following:

* Export L/C
* Firm Contract
* Advance Payment

• Transport documents related to land route or sea and any other documents of title to cargo, should be drawn only to the order of an Authorized Dealer. The Airway bill and any other documents of title to cargo may be drawn to the order of a bank in the country of import.
• The exporter must submit ‘EXP’ to the Bank & Bank will submit the Duplicate Copy to the Bangladesh Bank with in 14 days from the date of shipment.
• Payment for goods exported should be received through an authorized dealer in freely convertible currency.
• The exporters must receive export proceeds within 4 Months.
• Overdue export bill statement to Bangladesh Bank should be submitted by the 15^th of the month, following the quarter to which it relates.
• In case of short shipment, exporter should give a notice of short shipment on the prescribed form in duplicate to the customer, who will forward a Certified Copy of the notice, to the Bangladesh Bank.

 

Issuance of EXP forms:

 
Banks will certify EXP form only after confirming the following:

• Arrangements have been made for realization of Export proceeds.
• Bonafides of the importer/consignees abroad.
• Authorized dealer of documents of title to goods has made arrangements for receipt.
• The EXP has been signed by the exporter.

 

Stages & Mechanisms of Export:

 
There are some stages and mechanisms are mention below:

• Exporter will make the goods ready for shipment.
• Arrangement has to be taken for inspection of the goods by the competent authority as per credit terms.
• Exporter will declare export on EXP form against export L/C firm contract/advance payment.
• Exporter have to arrange approval for export from custom authority on EXP form 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.
• After completion of custom formalities, shipping company will receive the goods and will issue B/L.
• Exporter will collect visa/license and certificate of origin for final documentation.
• Negotiating Bank will dispatch the documents to the issuing Bank for clearance of the goods from port of destination against payment as per credit terms.

 

Export Financing:

 
To meet up the cost of the goods to be exported, the exporter may require Bank finance. Besides, he may require finance for go down rent, freight etc. Even 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:

• Pre-shipment finance.
• Post shipment finance.

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

• As per existing rule Banks can extend pre-shipment facility up to 90% of export L/C value (FOB value)
• Bank will finance within the Head office sanction limit for the concerned Client.
• Other liabilities of the client with the Bank also to be considered for extending Pre-shipment facility.

 
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.

• Export documents comply the credit terms.
• Buyer is bonafide.
• Party’s past performance is satisfactory.
• Any other security in case of export under contract.

 

Scrutinization, Negotiation & Collection of Export Bill:

 
Upon receipt of the documents, the branch shall examine the documents with the L/Cs. If the documents appear in their face not to be in compliance with the terms and conditions of the credit the beneficiary may be advised to rectify the discrepancies are not possible to be rectified the following ways are open for disposal of the documents:

• The best way is to refer the matter to the issuing bank by telex detailing the discrepancies for acceptance. On having tested message of acceptance, the documents may be negotiated.
• The branch may negotiate the discrepant documents under reserve or against submission of indemnity by the exporter when the beneficiary of a L/C is not a customer of the branch, in that case the indemnity of the beneficiary’s bank may be obtained.
• The branch may send the documents on collection basis with the permission of the exporter.

 

a) Export Bill Security Checklist:

    General:

• Late shipment
• Late presentation
• Early shipment
• L/C Expired
• L/C over-drawn
• Partial shipment or transshipment beyond L/C terms.

    Bill of Exchange:

• Amount of B/E differ with Invoice
• Not drawn on L/C issuing Bank
• Not signed
• Tenor of B/E not identical with L/C
• Full set not submitted

   Invoice:

• Not issued by the beneficiary
• Not signed by the beneficiary
• Not made out in the name of the applicant
• Description, Price, Quantity, sales terms of the goods not correspond to the credit
• Not marked one fold as original
• Shipping marks differ with B/L & Packing List.

   Packing List:

• Gross Wt. Net Wt. & Measurement, Number of cartons/packages differ with B/L
• No marked on as original
• No signed by the beneficiary
• Shipping marks differ with B/L

   Bill of Lading/Airway Bill etc.:

• Full set of B/L not submitted
• B/L is not drawn or endorsed to the order of Shahjala Islami Bank Limited.
• “Shipped on Board”, “Freight Prepaid” or “Freight Collect” etc. Nations are not marked on the B/L.
• Name & Address of the Notify Parties are not mentioned or differ with L/C.
• B/L not indicate the name and the capacity of the party i, e carrier or master, on whose behalf the agent is signing B/L
• Shipped on Board nation not showing name of pre-carrier vessel/intended vessel.
• Shipped on Board nation not showing port of loading and vessel name.
• Short From B/L
• Charter party B/L.
• Description of goods in B/L both agrees with that invoice, B/L & P/L
• Alteration in B/L not authenticate
• Loaded on Deck.

 
b) Negotiation:

If the documents are found in order or if the discrepancies are covered by the indemnity of the exporter or by negotiation authorization of the issuing bank, a proposal sheet for negotiation would be prepared as per bank’s format indicating the full particulars of shipment/export and discrepancies, if any. Under the signature of authorize person and should be placed to the manager for disposal instruction/sanction.

Particulars of export bills and negotiation are to be recorded in the foreign bill purchase register assigning a number to each export bill. The branch then, may make payment to the party by passing the vouchers as per calculation as shown in the negotiation proposal at O.D sight buying rate or at usance buying rate as per respective of the usance bills. The branch will realize overdue interest @ 16% per annum from all export bills after 21 days from the date of negotiation of proceeds.

 
On realization of proceeds following voucher to be passed:
 

• Dr. SBL General A/C on Nostro A/C: For Negotiated value F.C value @ ready buying for USD or ACUD or CHF or TT Clean buying for other currencies.

Cr. FDBP A/C: For negotiated amount B.D Taka.
Cr. Income A/C: Exchange Gain on FDBP.

• Dr. SJIBL General A/C on Nostro A/C: Realized F.C value less F.C value @ O.D sight export.

Cr. Exporter F.C held A/C: F.C amount @ O.D sight (export)
 
For realization of overdue interest (where export bills are realized after days of negotiation):

• Dr. Customer A/C: For actual overdue interest @ 16%

Cr. Income A/C: Interest on FDBP.
 
c) Mailing of Export Bill:

The branch shall mail export bills under a Forwarding schedule enclosing all documents as per export L/C by DHL or any other internationally reputed courier service to the issuing bank. The branch also incorporates appropriate payment instruction in the forwarding schedule mentioning number of bank’s Nostro account with bank name and address. Acknowledgement receipt of the courier service and the office copy of the export bill to be field and are dept in safe for reporting and inspection purpose.

 

Transfer of L/Cs:

The branch at the request of the original beneficiary (first beneficiary) may execute transfer of L/Cs to the subsequent beneficiary (second beneficiary), for doing so, the first beneficiary must maintain an accounting relationship with the branch and the branch will verify his signature on the request letter.

   A letter of credit can be transferred once only if it is expressly stated, as “transferred” only on the terms and conditions specified in the original L/C with the exception of L/C amount, unit price, expiry date, presentation time of documents and shipment validity, any or all of which may be reduced or curtailed. In addition, the same of first beneficiary can be submitted for that of the applicant, but if the name of the applicant is specially required by the original L/C to appear in any documents other that the invoice, such requirement must be fulfilled.

 

A transferable credit can be transferred once only i.e., second beneficiary cannot transfer the L/C to any subsequent third beneficiary. However, a credit can be transferred to more that one-second beneficiary and when transfers are made in part it should be verified that the original L/C permits part shipment and the aggregate of such transfer must not exceed the original L/C.

 

The branch shall verify the signature of the transferor and authenticate the transfer under seal and signature of an authorized officer expressly stating that the bank does not assume any responsibility/obligation in this behalf. The branch shall check the apparent authenticity of the L/Cs with the L/C at their custody. Each and every transfer must be enclosed on the bank of this original L/C so as to avoid transfers of amount beyond the credit value.

 

Export Bill Performance

From 01-01-2002 to 30-12-2002
 
(Amount in Lac)

 

Foreign Remittance

SJIBL Foreign Exchange Branch has no authority to open FCA. This Branch is depended on Dhaka Main Branch. Convertibility of Taka in current account transactions symbolized a turning point in the country’s exchange management and exchange rate system. Now the operations of foreign currency accounts have been more liberalized. Funds from these A/Cs are freely remittable to any county according to the needs of A/C holder. Foreign Remittance is classified into two way-Outward Remittance and Inward Remittance.

 

Outward Remittance:

On March 24,1994 Bangladesh Taka was declared convertible for current account international transaction. As a result remittance become more liberalized. Outward remittance include sale of Foreign Currency by T.T, M.T, Draft, T.C or in cash for private, official and commercial purpose.

Present Limit for outward Remittance:
A) Private Remittance
1. Family Maintenance:

• Foreign nationals working in Bangladesh may remit 50% of salary and 100% of leave salary as also actual saving and admissible pension benefits for their family maintenance.
• Moderate amount of Foreign Currency for maintenance abroad of family members (spouse, children, parents) of Bangladesh nationals are allowed.

2. Member ship/Registration fees etc.: ADS are allowed to remit membership fees of foreign professional and scientific institutions and fees for application, registration, admission, examinations in connection with admission into foreign education institute, supported by demand notice letter of the concerned institution.
3. Education:  ADS may release foreign exchange favoring Bangladeshi students studying abroad or willing to proceed abroad for study according to the following drill:

• Application by the student as per prescribed formant.
• Admission letter issued by the concerned institution.
• Estimate relating to Tuition Fee, Lodging and Incidental Expenses issued by the concerned institution.
• Attested copies of Education Certificates.
• Valid passport.

4. Travel: Private travel quota entitlement of Bangladesh national is set at USD 3000 per year for visit to countries other than SARC member countries and Myanmar. Quota for SARC member countries and Myanmar is USD 1000 for travel by Air and USD 500 for travel by Overland route.

5. Health & Medical: The ADS may release up-to USD 10,000 for Medical Treatment abroad on the basis of the recommendation of the Medical Board.

6. Foreign Nationals: The ADS may issue T.C to foreign nationals without any limit & currency notes up-to USD 300 against surrender of equivalent Foreign Currency.
7. Remittance for Hajj: ADS may release F.C to the intending pilgrims as per instructions circular to be issued by the Bangladesh bank each year.
 

B) Official and Business Travel

1. Official Visit: For official or semi-official visits abroad by the officials of Govt. autonomous/semi-autonomous institutions etc. ADS may release foreign exchange as per entitlements fixed by the ministry of Finance from time to time. In such cases, the applicant for foreign exchange shall be required to submit the sanction letter and the component authority’s order/notification/circular authorizing the travel.

2. Travel Quota for New Exporter: ADS may release up-to USD 6000 to a new exporter for Business Travel abroad against recommendation EPB.
3. Travel Quota for Importer: Subject to annual upper limit of US$ 5000 importers are entitled to a Business Travel quota @ 1% of their imports settled during the previous financial year. Local producers are also entitled to Business travel quota as above.
4. Exporters Retention Quota: Merchandise exporters may retain up-to 40% realized FOB value of their export. It is 7.5% for export of goods having high import content.

 

Travelers Cheque (TC):

Travelers Cheque (TC) is an instrument for a specific amount of widely accepted foreign currencies, issued in favor of Travelers/Visitors to carry foreign exchange for meeting their expenses in abroad. Travelers cheque may be in different currencies, such as US$, Pound Starling, Japanese Yen, Saudi Real, Canadian Dollar, French Frances, German Marks, Swiss Frances, etc.

 
Procedure of T.C Issue:
a)      Insure that the intending traveler is a client of the Authorized Dealer (AD) Bank or is sufficiently well known to the AD Bank.
b)      The intending travelers must come to the Bank with the following documents to have the T.C.

• Valid Passport.
• Confirmed Valid Air Ticket.

c)      Verification of the Passport & Air Ticket regarding validity, Illegibility, status etc. of the same.
d)     Filling up the T/M form by the purchaser and signing on that T/M.
e)      Realization of required fund.
f) Fill up the purchase Agreement Form (PAF) regarding the name, address etc.of the purchaser, T.C series no. Date of issue, amount etc, and give endorsement on the passport.
g) Be sure that purchaser signed all cheques in the upper left side of the cheque, only one person may sign any cheque.
h) Use original P.A.F. for settlement and retain duplicate for records.
i) Two sets of Photographs of Passport and Air Ticket to be obtained.
 
Procedure of Encashment:
Travelers Cheques (T.C) to be Encashment Observing the following Formalities,

• Compare the counter signature with the original signature. Cheque will not be honored if signatures differ.
• Additional signature may be obtained if the signature differs.
• Blank cheque-should not be Encashed.
• Previously counter signed cheques not be Encashed.
• Be aware of large Encashment & take caution against hurry.
• Check the passport endorsement, purchase contract of the purchaser if available.

 
If the dealing Officer is satisfied regarding the genuineness of the purchaser and the T.C. then he can pay equivalent Local Currency to the customer. And record the T.C. in inward Remittance Register.
 

Inward Remittance:

The term inward remittance includes not only purchase of Foreign Currency by TT.MT. Draft etc. but also purchase of Bills, purchase of Traveler’s Cheque. Utmost care should be taken while purchasing currency, Notes, T.C, DD, & similar instrument for protecting the Bank from probable loss as well as safety of the Bank officials concerned.
Purchase of Foreign Currency Notes T.C & DD:
Following General observations are required to purchase the above:

• Currency notes to be checked very carefully so as to avoid risk of purchasing counterfeit notes.
• While purchasing T.C signature of the holder to be obtained on the Travelers and should be verified with the signature of the holder given at the time of issuance of T.C passport of the seller as well as purchase contract of the T.C to be asked for to ensure genuineness.
• Draft should not be purchased unless the holder is a regular customer of the Bank. Indemnity bond to be obtained for recovering the amount paid to the holder in case of dishonor.
• Private cheque should not be purchased without prior approval of head office.

Inward and Outward performance of Shahjalal Islami Bank Limited from 01-01-2002 to 30-12-2002 are given below:

 
Foreign Remittance
 
(Amount in Lac)

 
Total Foreign Exchange Business
 
(Amount in million Tk.)

 

Opening of FC Account:

The Authorized Dealership may without prior approval of Bangladesh Bank open Foreign Currency Account in the name of:

• Bangladeshi nationals residing abroad.
• Foreign nationals or firms residing/operating in Bangladesh or abroad.
• Foreign missions and their expatriate employees.
• Exporters.
• Diplomatic Bonded Ware House (Duty free shops) licensed by custom Authorities.
• Local and joint venture contraction firms employed to execute projects by foreign donors/international donor agencies.
• Bangladeshi nationals working with the Foreign/International organization operation in Bangladesh if salary is paid in Foreign Currency.
• Bangladeshi nationals who are ordinarily resident in Bangladesh may open FC account will Foreign Exchange brought in at the time of their return to in Bangladesh from visit abroad.

 

Documents Required for opening FC A/C

 
a) For Bangladeshi Nationals:

• Opening Form i.e.: Application, Signature Card, Nomination Form If Any, to be duly filled in and signed by the applicant and the nominee.
• Original passport to be submitted for the verification and photocopy of first seven pages to be submitted for preservation.

 

• Two copies Passport size photographs of both the account holder and the nominee are to be submitted, photograph of nominee to be attested by the A/C holder and account holder photo to be attested by the authorized officer of the Bank.

• Service contract in English or Bengali version to be submitted with the account opening form.
• If the intending person desire to open A/C forms abroad the necessary papers are to be sent duly attested by authorized officials of Bangladesh EBBAssy working there. All signatures are to be same that of passport.

 
b) For Foreign Nationals/Company/Firms:
 

• Two copies of photographs of account holder.
• Copies of relevant pages of Passport.
• Copy of service contract/appointment letter/work permit etc.
• Copies of Registration in Bangladesh with Board of Investment for Foreign/Joint venture firm.
• Copies of memorandum and Articles of Association/Laws/Bye Laws etc. or joint venture Agreement.

 

Chapter Six: Finding and Recommendations

At the time of my internship program, I have worked with three departments of SJIBL Foreign Exchange Branch. But this report is prepared focusing on Foreign Exchange Department and General Banking Department. The main task of Foreign Exchange department is to appraise from different aspects, like management & organizational, economic, technical, financial and marketing. Each of the aspects has been described in this report. I have found some problems regarding ‘Foreign Exchange Operation of SJIBL’.
 

Problems Regarding Foreign Exchange Operation Of SJIBL

• As a new bank SJIBL wants to follow the rules and regulations of Bangladesh Bank very strictly, but other banks does not doing the same as such they are facing serious challenges in the market as well as to attaining their target also.
• There is no training institution for the newly recruited officers; accordingly, they fail to provide necessary service to their clients, as they are not well acquainted with foreign exchange operations and the related regulations.
• There is no Customer Complain Desk, for this reason sometimes it creates cumbersome situations.
• This branch fails to provide spacious place for the customer service as well as for the employees.
• The bank has no quick online service as other banks do.
• There is no established ATM Credit Card system, which could reduce the pressure.
• Though SJIBL is an interest free Bank so, very few customers intent to open account here.
• Lack of proper infrastructure facilities like, non-availability of electricity, gas, transportations etc.
• Most of the personnel are not as much experienced and skilled in the related field to operate banks activities in proper way.
• There is no provision of fixed L/C margin, so those customers are deprived from equal service.
• The branch has no authority to open L/C for the lack of dealership that’s why they have to take higher margin, which creates dissatisfaction to the customer.

 

Recommendations

 
I have the practical experience in SJIBL for only three months, with my little experience in the bank with vast and complex banking system, it is very difficult for me to recommend. I have observed some shortcomings regarding operational activities of the bank. On the basis of my observation I would like to recommend the following suggestions:
 

• Though the performance of general customer services is good, but their employees are not well trained. The department needs to recruit expert human resources to provide good customer service, which will bring effectiveness of the bank’s operation.
• The employees are given deposit target, which creates extra pressure to them for that reason they cannot freely provide customer service. They had to spend most of their time to marketing to fill up their target. If the bank can reduce the pressure then they could be able to provide good service.
• Margin and commission on L/Cs varies from customer to customer. A customer is allowed to open a L/C at a very low margin depends on Banker’s relationship.
• In case of Export, the Government encourages the exporters by giving different facilities like tax-cuts. I think the bank should also consider about such types of facilities to be given to the Exporters.
• In many cases, the foreign banks choose for a confirmation from another foreign banks, which is dishonor for the local bank. It proves the poor financial condition of our country. Bank should try to improve this situation.
• To communication with the Negotiation bank, Advising bank, Reimbursing bank the branch uses Telex and SWIFT. As well as these media the Bank could use the E-mail, which is cheaper and faster than those media.
• SJIBL should update its brochure and to be made advertisement on TV so that every initiative of the bank can go at the door of the customers.
• Complain of the customer should be decrease on zero level.
• Credit card facility should be made within short period.
• The bank should permit as an Authority Dealer on the Foreign Exchange Branch.
• SJIBL should establish security camera in its each branch.
• SJIBL should improve its image in the society as an Islamic Bank.
• The decoration of Foreign Exchange Branch should be standard.
• To establish welfare-oriented Banking system.

 

Conclusion

 

It is great pleasure for me to have practical experience in Shahjalal Islami Bank Limited. Foreign Exchange Branch. This Internship program is an integral part of a BBA student. During the time of my practical orientation. I have observed the function of General Banking. Investment and Foreign Exchange Department. The General Banking, which is customer oriented fully. It performs specially based on prompt and swift services, which is busier than that of other department of Shahjalal Islami Bank Limited. But Investment and Foreign Exchange Department is very sensitive. Its transaction wholly depends on Documentary basis, and each document is very essential to scrutinize. For the concept of Islamic system most valuable, affluent, wise and religious client are step forwarding to the corridor of the Shahjalal Islami Bank Limited. As a result, the Account holder & liability of the bank is growing simultaneously. The bank is offering various attractive schemes for their customer, which is very popular in the market. That is why the number of account opening is growing day-by-day compare to previous year. Which signifies the positive sign of our developing economy. In a word, the performance of Shahjalal Islami Bank Limited, Foreign Exchange Branch is growing rapidly and the volume of remittance is increasing effectively.

 

Bibliography

 

1. Annual Report, “Shahjalal Islami Bank Ltd.” 2001-2002

 

1. “Brochure”, Shahjalal Islami Bank Limited.

 

1. Sayed Ashraf Ali, “Foreign Exchange and International finance”.

 

1. Md. Abul Bashar, “Document” Islami Bank Bangladesh Ltd.

 

1. Statement of Affairs 30-04-2005. SJIBL, Foreign Exchange Branch. Motijheel.

 

1. V.V. Keshkamat “Foreign Exchange & Exchange Control”.

 

1. A.A.M. Habibur Rahman k “Islami Banking”

 

1. Md. Haider Ali Miah, “Hand Book” Islami banking & Foreign Exchange Operation.

 

1. Website: www.shahjalalbank.com.bd

 

1. Training sheet, Shahjalal Islami Bank Ltd.