General Banking, Foreign Exchange & Different Modes of Investment System of IBBL

Chapter-1: INTRODUCTION

 

Origin of report

This report is based on an internship program. IBTRA arranges internship program to gather practical knowledge about baking activities followed by IBBL for University students as Universities conducted with different organization after the completion of theoretical courses of program of Bachelor of Business Administration (BBA). A group of interns must carry out a specific project, which is assigned by the IBTRA. In this particular report, I am a internee of the previously mentioned program and the concerned organization is Islamic Bank Bangladesh Limited (IBBL) which is a prominent private and the first Bank of Bangladesh that based on Islamic Shariah. Hence I am placed in Shyamoly Branch of Islami Bank Bangladesh Limited from February 19 to April 10, 2006. In way of delegation, responsibility of carrying out the study has conferred upon the concerned interns.

REPORT BACKGROUND

The practical orientation in different organization is the final term requirement of MBA program. Hence I am selected for the Islamic Bank Bangladesh Limited (IBBL). As instructed by Janab Md. Habibur Rahman I am assigned to work in Islamic Bank Bangladesh Limited, Shyamoly Branch. And since then I had started our practical orientation program in General Banking, Investment & Foreign Exchange department of that particular branch of IBBL and successfully complete with lots of solid work experience. And based on that I prepared this report where I tried to mention every single point that I gather from there.

 

REPORT OBJECTIVE

The first objective of writing the report is fulfilling the partial requirement of the MBA program. In this report, we have attempted to give an overview of Islamic Bank Bangladesh Limited in general banking, investment, and foreign exchange operation. The study aims at some objectives, which are as follows:

v  Understanding the differences between Islamic banking system   and Commercial banking systems.

v  Understanding how an Islami Bank runs its business without interest.

v  How an Islami Bank earns its profits through investment.

v  What is its general banking system?

v  What are its investment objectives?

v  Finding out whether the investment mode of the Islami Bank helps economy

v  Assessing the ratio of mode wise investment.

v  Understanding the impact of the Islamic investment on society

v  Finding out the risk and profitability of different modes theoretically.

v  What is its foreign exchange operation?

v  Understanding the knowledge of Islam.

v  Identifying the problem of Islami Bank.

v  Recommending the problem.

v  Understanding the overall picture of IBBL.

Methodology

 

IBBL is one of the largest and successful banks in Bangladesh. The report is based on both primary and secondary research.

Primary Source:

Primary data was collected form the employees and staffs.

Secondary Source:

The secondary data has been collected from the Annual Report, Magazines and Journals.

Population:

 All the Branches of IBBL located in everywhere in Bangladesh has been taken into consideration as population.

Sample:

 Islami Bank Bangladesh Ltd, Darous Salam Road Branch is the vivacious sample.

Data Collection Method

For the organization, part information has been collected through different published articles, journal.

Formal questionnaire for data collection is not used. Information is collected through informal discussions with Relationship managers & respective Unit heads.

Data analysis

In the organization part information is provided in a descriptive manner. The second part 

SCOPE OF STUDY

The scope of the organization part covers the organizational structure, background, and objectives, functional departmentalization and business performance of IBBL as a whole and the main part covers operational set-up of IBBL. 

LIMITATION

Objective of the practical orientation program is to have practical exposure for the students. My permanent status was for only two months, which was somehow not sufficient enough to gather adequate experience of such vast banking business. After working whole day in the office it was very much difficult and also impossible to study again the theoretical aspects of banking. Finally as the banks renovation activities was going on so the physical working condition was not healthy enough that we thought it would be.

Other limitation-

v  Eight weeks of time is not enough for the study.

v  The staffs of the branch was some time so busy that they could not help us all time

v  Preparing internship report is really troublesome

v  This type of report preparation is expensive

v  Collection of data was not smooth

v  Analyzing with financial data is much more confusing and complicated than any other data.

 

Chapter Two: Concept as Well as Profile of IBBL

Definition of Islamic Bank

OIC:

“An Islamic Bank is a Financial Institution whose statutes, rules, and regulations expressly state its commitments to the Principles of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation”

Bangladesh Bank License for IBBL operation:

“The Bank will operate within the framework of the existing Banking Laws, rules and regulations subject to such minor adjustment that may be considered for an Islamic Bank to function. In addition to the above all requirements of Banking Companies ordinance 1962 (as adapted in Bangladesh) as also relevant provisions of Bangladesh Bank order, 1972(P.O No.127 of 1972) and instructions issued from time to time there under by Bangladesh Bank will also apply to the bank.”

According to Islamic Banking Act 1983 of Malaysia:

“An Islamic Bank is a company which carrying on Islamic Banking Business. …Islamic Banking Business means banking business whose aims and operations do not involve any element which is not approved by the Religion of Islam.”

Historical Background of Islami Bank Bangladesh Limited:

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. For the favorable attitude of the government of the people’s republic of Bangladesh, at present six Islamic Banks operate in Bangladesh Financial   market. These are:

 

i)                    Islamic Bank Bangladesh Ltd.

ii)                  The Oriental Bank Ltd. (Al-Baraka Bank Bangladesh Ltd.)

iii)                Al – Arafah Islami Bank Ltd.

iii)                Social Investment Bank Ltd.

iv)                Shahjalal Islami Bank Ltd.

v)                  Exim Bank Ltd.

Besides Prime Bank, Dhaka Bank, South East Bank, the premier Bank, the Jamuna Bank, HSBC Bank, And Standard Chartered Bank also has opened Islamic banking branches.

Islami Bank Bangladesh Ltd.  Was incorporated as the first shariah based interest free bank in south East Asia on the 13 march, 1983 as a Public Company with limited liability under the Companies Act, 1913, started limited operation on 30 March, 1983 and introduced a full package of banking services in August, 1983. Its board objective is banking business under shariah. Its registered office is located in Dhaka with prior permission from the Bangladesh Bank, it open branches anywhere within and outside the country.

By April, 2006 IBBL opened 169 branches – all within Bangladesh. It is a joint venture of Bangladeshi and overseas capital in the ratio of thirty six to sixty four. Its overseas capital is owned by Islamic Development Bank (IDB), nine other institutions and three individuals of Arab nationality, while the local capital is owned by Government of Bangladesh (GOB), Investment Corporation of Bangladesh (ICB), four non – profit private institutions and a good number of private individuals. Its shares are quoted in the local stock markets. Being in high demand the shares are presently sold at 4.50 times higher than the face value, Authorized capital of the Bank is Tk. 3000 million and paid up capital of Tk.2304.00 million as year 2004.

Features of Islami Bank Bangladesh Limited:

The distinguishing features of Islamic Bank are:

1.         All activities are conducted on interest-free system according to Islamic Shariah principles.

2.         Investment is made through different modes as per Islamic Shariah.

3.         Investment-income of the Bank is shared with Mudaraba depositors according to an agreed upon ratio, ensuring a reasonably fair of return on their deposits.

4.         Aims to introduce a welfare-oriented banking system and also establish equity and justice in the field of all economic operations.

5.         Extend socio-economic and financial services to individuals of all economic backgrounds with strong commitment in rural up liftman.

6.         Plays a vital role in human resources development and employment–generation, particularly among the unemployed youths.

7.         Portfolio of investment and investment policy have been specially tailored to achieve balanced growth & equitable development through diversified investment operations particularly in the priority sectors and in the less developed areas of the national and international economy.

8.         Regular and effective guidance of powerful and highly     esteemed Shariah Council consisting of appropriate number of members representing Shariah Scholars. 

Functions of Islami Bank Bangladesh Limited:

The most important objective of Islamic banking system to establish equity and justice in arena of business and ensure equitable distribution of wealth and income. The sources of fund of the Islamic Bank include paid up capital and deposits. Deposits mobilized by the Islamic Bank may be categorized into three: Current deposits, ordinary savings deposits and investment term deposits (Chakma, Islami and Karmker, 1995). Like conventional banking no return is payable on current deposits while ordinary savings deposit holders are entitled to profit earned according to the return realized by the Bank on investment / use of proceeds of such deposits (chakma, Islami and Karmker, 1995). Investment on term deposit holders are entitled to proceeds from investment on the basis of signed agreement.

 

Islamic Bank’s modes of financing can be broadly classified into equity and debt instruments. While equity instruments are Mudarabah and Musharakah, debt-instruments arise from sale transactions. These fixed income instruments include Murabahah (cost-plus or mark-up sale), Bai-muajjal (price-deffered sale), Istisna / Salam (object deffered sale or prepaid sale) and Ijarah (leasing) (khan, 1991, Khalf and      Khan, 1992, Ahmed, 2004 and Usmani, 1999). I outline the basic concepts and properties of this mode of investment below:

 

a)     Musharakah: Sharikah is a partnership between parties in which financial capital and / or labor act as shared inputs and profit is distributed according to the capital share of the partners or in some agreed upon ratio. The loss, however, is distributed according to the share of the capital. Though there can be different kinds of partnerships based on money, labor, and reputation, one case of Sharikah is participation financing or Musharakah in which partners share both in capital and management of the business enterprise. Thus partners in Musharakah have both control right and claims to the profit.

 

b)    Mudarabah (or qirad or muqadarah) : Mudarabah is similar to the concept of silent partnership in which financial capital is provided by one or more partner(s) (Rab ul mal) and the work is carried out by the other partner(s) Mudarib. The funds are used in some activity for a fixed period of time (Siddiqi, 1987). The financiers and the managers of the project share the profits in an agreed upon ratio. The loss, however, is borne by the financiers according to their share in the capital. The manager’s loss is not getting any reward for his services, as the ‘Rab ul mal’ is sleeping partner; he/she has a claim on profit without any say in the management of the firm.

 

c)   Murabahah / Bai Muajjal : Murabahah is a sale contract at a mark-up. The seller adds a profit component (mark-up) to the cost of the item being sold. When the purchase is on credit and the payment for a good / asset is delayed, the contract is called Bai-muajjal. A variant would be a sale where the payments are made in installments. These contracts create debt that can have both short and long –term tenors. In these debt contracts, the supplier of the good has claims on a fixed amount that must be paid before arriving at profits.

d) Salam / Istisna: ‘Salam sale’ is an advance purchase or product-deferred                                                                              sale of generic goods. In a Salam contract, the buyer of a product pays in advance for goods that is produced and delivered later. The contract applies mainly for agricultural goods.

           Istisna contract is similar to the Salam contract with the difference that in Istisna the goods are produced according to the specifications           given by the buyer. This applies mainly to manufactured goods and             real estate. Furthermore, in Istisna the payments can be made in installments over time with the progression of the production.

 

 Note that in case of a firm Istisna can be used in a couple of ways. First, the firm can get funds to finance its working capital needs. This Istisna contract is a debt contract that can be used only if the financier is willing to purchase the goods at the stipulated time of delivery. The second approach would be for the firm to ask the financier to provide asset (like real estate) and the payments are made over a period of time in future. In this case the financier may need to have a parallel Istisna and sub-contract the project to a third party for its completion.

 

e) Ijarah: Ijarah is a lease contract in which the lessee pays rent to the lesser for use of asset (usufruct). In Ijarah the ownership and the right to use an asset (usufruct) are separated. It falls under a sale-based contract as it involves the sale of asset (usufructs). A lease contract that results in the transfer of an asset to the lessee at the end of the contract is called ‘Ijarah  wa iqtina’ or ‘Ijarah muntahia bittamleek’.

‘Ijarah wa iqtina’ combine sale and leasing contracts and use the hire-purchase or rent-sharing principles. The ownership of the asset is transferred to the lessee as payments for the asset are also made along with the rent. After the contract period is over, the lessee assumes the ownership of the asset

Profile of the Organization:

Bangladesh is one of the Largest Muslim countries in the world. The People of this country are deeply committed to Islamic way of life as enshrined in the Holy Quran and the Sunnah. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of its people, which stared functioning with effect from March 30, 1983. It is committed to conduct all banking and investment activities on the basis of interest –free profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a new silver linig of hope towards materializing a long cherished dream of the people of Bangladesh for doing their banking transactions in line with what is prescribed by Islam. With the active co-operation and participation of Islamic Development Bank (IDB) and some other Islamic banks, financial institutions, government bodies, Islami Bank Bangladesh Limited has now earned the unique position of a leading private commercial bank in Bangladesh. 

Aims and objectives: 

v  To conduct interest-free banking.

v  To Establish participatory banking instead of banking on debtor-creditor relationship.

v  To invest on profit and risk sharing basis.

v  To accept deposits on Mudaraba & Al-Wadeah basis.

v  To establish a welfare-oriented banking system.

v  To Extend co-operation to the poor, the helpless and the low-income group for their economic enlistment.

v  To ply a vital role in human development and employment generation.

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

v  To contribute in achieving the ultimate goal of Islamic economic system.

Corporate information’s:                                                                                

As on 31st December 2004

Date of Incorporation: 13th Marc 1983

Inauguration of 1st Branch 30th March 1983 (Local office, Dhaka).

Formal Inauguration: 12th August 1983. 

Share of Capital:

Local Shareholders:                 42.12%

Foreign Shareholders:             57.88%

 

Authorized Capital                 Tk. 3000.00 million

Paid-up Capital                       Tk.2, 304.00 million

Deposit                                    Tk. 96198.68 million (As on 30-                                 June-2005)

Investment                              Tk. 67,234.10 million (As on 31-                                                                    Mar-2004)

Foreign Exchange Business    Tk.68, 503.00 million (As on                                                              June-2005)

Number of Branches               169(As on 31-Dec-2005)

Number of Share holder         2,304,000(As on 31-Dec-2004)

Manpower                               5,713 (As on 30-June-2005) 

Paid-up Capital and Reserve:

The Authorized Capital of the Bank is Taka 3,000.00 million and Paid-up

Capital is Taka 192,000.00 the Paid-up Capital was Taka 67.50 million in 1983.The Reserve Fund of the Bank has been increasing steadily. On 31st December, 1983, it was Taka 0.36 million and stood at

Taka 303.57    million as on 31st December 1994

Taka 535.08    million as on 31st December 1995

Taka 759.39    million as on 31st December 1996

Taka 930.17    million as on 31st December 1997

Taka 1011.84 million as on 31st December 1998

Taka 1115.61  million as on 31st December 1999

Taka 2074.88  million as on 31st December 2000

Taka 1998.04  million as on 31st December 2001

Taka 2852.04  million as on 31st December 2002

Taka 3287.80  million as on 31st December 2003

Taka 4329.92  million as on 31st December 2004

Taka 5144.19  million as on 30th June          2005

                        Taka 9076.60  million as on 30th June          2006

 

Equity:

As per Capital Adequacy Policy prescribed by Bangladesh Bank, the Central Bank of the country, banks are to maintain 9.47(p) % capital on its Risk Weighted Assets against which present total equity of the Bank as TK. 7,613 on June 2005, December 31st, 2003 stood at Taka 4807.42 million, which was 8.6% of its Risk-Weighted Assets as against Taka 3540.51 million as on 31st December 2002. This was Taka 2993.24 million in 2001. Taka 2,671.06 million in 2000 Taka 1,659.26 million in 1999, Taka 1517.55 in 1998, Taka 1,429.86 million in 1997, Taka 1241.05 in 1996, Taka 813.09 million in 1995, Taka 420.06 million in 1993, Taka 537.35 million in 1994 and Taka 420.06 million in 1993.

 

National and international ratings of IBBL:

 

Bangladesh Bank, several credit rating agencies, has evaluated IBBL’s past performances home & abroad and by the local press.

 

International Press:

“In the midst of a difficult Banking system known to be plagued by high non performing loans (NPLs), one could easily conclude that it would be difficult to find a bank that is different from norm. However, IBBL provides a refreshing change.

‘BANK ATCH’ a New York based international Credit Rating Agency in its January 30, 1998 issue. “As a market leader offering banking services based on the Islamic rule of Shariah, IBBL’s profitability trend has been quite impressive. The Bank’s ability to keep its return on asset (ROA) well above the industry’s average reflected its resilience to possible shocks in the banking system. Concerns over massive NPLs and under provisioning are common amongst local banks. But this seems well resolved in IBBL. IBBL’s good performance and solid capital base have indeed provided refreshing change found within a banking system saddled and held back by huge NPLs” the above agency continued to comment to comment in the same issue.


National press:

 

It is one of a few local banks according to CAMEL (Capital, Assets, Management, and Earnings & Liquidity) rating made by the Bangladesh Bank. It holds the highest amount of liquidity among all banks and its ability to keep return on assets at 1.07 percent is will above the banking sector’s average of 0.33 percent – the financial Express, Dhaka commented in its issue of May 28, 1998.

“The Holiday “in its 29th August, 1997 issue carried out report under the heading “Setting a precedence of sound banking” and commented “While the country’s banking system is burdened with bad debt portfolios and also suffers form a liquidity shortage, the Islami Bank Bangladesh Ltd. (IBBL) has created a unique precedence by improving its reserve and deposit positions substantially, making handsome profits, and offering attractive dividends to its share holders and depositors”.

 

IBBL’s World rating:

 

As per Bankers Almanacs ( January 2001 edition) published by the Reed Business Information, Windsor Court, England, IBBL’s world Rank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition.

IBBL’s country Rank is 5 among 39 banks as per ratings made by the above Almanac on the basis of IBBL’s Financial Statements of the year 2001.

Perspective: Award and Prizes: International & National

IBBL was awarded for several times by international & national organizations.

The Global Finance, a reputed London based quarterly magazine, awarded IBBL as the best bank of the country for year 1999 and 2000. IBBL has got the 2nd prize of National Export Fare for its pavilion of service Organization in 1985.

 

Membership of Different Organization/ Chamber

Local:

  1. Bangladesh Institution of Bank Management (BIBM)
  2. The Institution of Bankers Bangladesh (IBB)
  3. Bangladesh Association of Banks (BAB)
  4. Bangladesh Foreign Exchange Dealers’ Association (BAFEDA)
  5. Central Shariah Board for Islamic Banks of Bangladesh
  6. 6.      International Chamber of Commerce – Bangladesh 

Foreign:

    1. International Association of Islamic Banks (IAIB), Jeddah, K. S. A.
    2. According and Auditing Organization for Islamic Financial Institutions (AAOIFI), Manama. Bahrain.
    3. General Council of Islamic Banks & Financial Institutions (GCIBFI)

4. Manama, Bahrain (IBBL is a member of its Executive Council.

Organizational Chart:

 

Chairman

 

 

Vice Chairman

 

 

Directors

 

 

 

Executive

President

 

 

Secretary

 


Organization Chart of Shyamoli Branch:

 

 Assistant

Vice President

Senior Vice

President

 

 

 

 

 

 

 

Principal Officer

Principal Officer

Senior Officer

Officer

 

Senior Officer

Sr. Principal Officer

Principal Officer

Senior Officer

Officer

 

Officer

Senior Officer

Probationary

Officer

Probationary

Officer

Probationary

Officer

Officer

 

Officer

 

Probationary

Officer

Probationary

Officer

Asst. Officer

Grade I

Asst. Officer

Grade II

Asst. Officer

Grade I

Asst. Officer

Grade II

Asst. Officer

Grade I

Asst. Officer

Grade I

Asst. Officer

Grade II

Asst. Officer

Grade II

Asst. Officer

Grade I

 

Asst. Officer

Grade III

Asst. Officer

Grade III

Asst. Officer

Grade III

Asst. Officer

Grade III

 

 

 

Functional Department:

The Islami Bank Bangladesh Limited (IBBL), Darous Salam Road Branch is headed by one Senior Vice President (SVP). There are several section headed by some most skilled and experienced person under the SVP. These are:

  • Account Opening Section
  • P.O, T.D.R, M.S.B, M.S.S, Haji Section
  • D.D, T.T Section
  • Cash Section
  • Foreign Exchange Section
  • Investment Section
  • Clean Cash Section
  • Clearing House Section
  • Transaction Entry Section
  • Transfer & Locker Service Section

 

Chapter Three: General Banking System, Investment & Foreign Exchange

General Banking 

 Introduction

 

There is different type of product of IBBL-

v  Al- wahdia Current A/C (Individual)

v  Al wahdia Current A/C (Firm)

v  MSA (Mudarabah special A/C)

v  MSS (Mudarabah special Savings)

v  MMPDS (Mudarabah Monthly profit deposit Scheme)

v  Mudarabah Hajj A/C

 

IBBL perform deposit mobilization under two principal- they are-

  1. Mudarabah principal
  2. Al-wadiah principal

 

KYC (Know your Customer) – This type of form is mandatory for opening Account.

For opening A/C the following things are mandatory-

v  Commissioner Certificate

v  Two copy passport size photo of client.

v  One copy nominee’s photo.

v  Sign of introducer is verified

 

Debit Advice: Suppose the shyamoly Branch of IBBL has gotten the Cheque of some clearing house. Then Shyamoly Branch will send debit advice to local office for collection. That means Shyamoly Branch do debit the local office branch and local office branch will debit Shyamoly Branch.

 

Credit Advice: When local office make a payment in favor of Shyamoly Branch (assume), then Shyamoly Branch, will send credit advice to local office because local office is accounts payable to Shyamoly Branch.

 

OBC– Outward bill collection when Cheque is required to collect the bill outside the clearing zone, the OBC is used.

When bill is collected, then-

 

Instrument A/C                       –           Dr.

Client A/C                               –           Cr.

Pay order: When client place the Cheque at branch for pay order, the treatment is –

Client A/C                               –           Dr.

Pay order                                 –           Cr.

Income (Service + Comm.)       –           Cr.

S/D (Vat on pay order)           –           Cr.

For T.T, D.D & pay order, clients account is necessary at branch.

 

FAD: Financial administration division: The transaction is occurred within same clearing house that is calculated at the end of the year finally to find out the r3eceivable and payable at FAD in favor of branch.

 

Cheque dishonor: When any branch send the Cheque of Darous Salam Road Branch to clearing house (may be internal clearing house or Bd. Bank clearing house) for collection, then clearing house will provide debit advice (with Cheque) to Darous Salam Road Branch. If Darous Salam Road Branch response this advice, automatically local office is credited to Darous Salam Road Branch. Then, if Cheque is honored, there is no problem. But it Cheque is dishonored for any reason, then Darous Salam Road Branch, will provide debit advice to local office. If local office response this advice, then Kawaran Bazar Branch is credited to local office. So, ultimate effect is zero.

 

Cheque may be dishonored

  1. If the Cheque leaf is toned.
  2. If there is no date.
  3. If there is no similarity between the amount and word.

TO OPEN A NEW ACCOUNT

This is a period of keen competition among banks. Most of the commercial banks compete with one another in tapping the savings of the public by means of purchasing of different types of financial product. These products are known as secondary securities, which shows claim against the financial institutions. Popularly these products are known as deposit; of different kinds and of various maturities. The most popular products are current-deposit (CD), savings bank deposit (SD), fixed deposit, short-term deposit etc.

GENERAL PRACTICE AT REGARDING ACCOUNTS  

Ac-count Opening Register

 

After fulfilling all the requirements for opening account necessary entries are given in the account opening register. There are several registers for several accounts as MSA, AWCA and MTDR etc. Date of opening, name of the account holder, nature of the business, address, initial deposit and introducer’s information are recorded in that register. New accounts number is given from the list of new numbers provided by the computer department.

 

Cheque Book

Cheque book is issued to the new customer after seven days of opening account. Two separate Cheque books are given for current and saving accounts. AWCA accounts Cheque book consists 25 and 50 leafs, while MSA account Cheque book has 10 leafs. There has a Cheque book issue register in this regard; where Cheque book number, leaf number, date issue etc. information are kept on the register. All the necessary numbers are the sent to the computer department to give entry in the program.

Incidental Charge

Taka 10 or 50 = each for twice a year is debited from customers AWCA account for rendering service to him. Taka 50 = each is debited from customers account for providing him solvency certificate.

Profit

Profit is the price of product, which is determined by the market forces. Every bank offers a competitive price to attract depositors.

GENERAL CHARACTERISTICS OF DEPOSIT ACCOUNT 

Al-Wayadia Current A/C (AWCA)

AWCA accounts are unproductive in nature as far as banks loan able investment fund is concerned sufficient fund has to be kept in liquid form, as current deposits are demand liabilities. Thus huge portion of this fund becomes nonperforming. For this reason banks do not pay any of AWCA account holder. Business and companies are the main customers of this product.

Mudaraba Savings Account (MSA)

As per Bangladesh Bank instruction 90% of SA deposits are treated as time liability and 10% of it as demand liability. In EBL there is a restriction about drawing money from SB account but anytime holder may draw money of any amount with prior notice, generally householder and individuals are the clients of this account.

Mudaraba Short Notice A/C (MSN)

MSNA accounts can be treated as semi term deposit. Deposit should be kept in these accounts for at least seven days to get interest of MSNA accounts is less then SB accounts. 5.5% generally profit, but may increase to 6% or more depending on the fund. Cheque book is issued them but frequent use of Cheque book is discouraged. Government organization, big corporate house and banks are generally the clients of this account. The volume of this account is generally large and notice has to be given to draw money.

Mudaraba Term Deposit Receipt (MTDR)

Fixed deposit is of two kind midterm deposit (MTD) and term deposit (TD) instrument whose maturity period is within one year are know as midterm deposit MTD and those above one year are considered as term deposit (TD). Calculation of profit TDR and provisioning regarding this is quite complicated issue. Profit is calculation at each maturity date and provision is made on that. Also at the month and provision of profit is mode.

LOCAL REMITTANCE

IBBL sells and purchase P.O., D.D. and T.T. to its customers only. IT does not offer remittance service frequently to those other than its customer. 

Pay Order (P.O.)

Pay order is and instrument that is used to remit money within a city through banking channel the instruments are generally safe as most of them are crossed.

Issuing Of a Pay Order (P.O.):

A customer can purchase pay order in different ways:

By

Bills Payable (P.O.) A/C. ………….. .Cr.

Income A/C commission on Remittance…Cr.

By Account Client A/C… …………….. ……Dr.

By Transfer Head Office/ Other department’s client A/C.—Dr.

 

Charges For issuing P.O.:

 

Service Charge:

Tk. 1 to Tk. 10,000                             Þ   Tk. 10/-

Tk, 10,001 to Tk, 1, 00,000                Þ   Tk, 20/-

Tk. 1, 00,001 to Tk. 5, 00,000            Þ   Tk. 30/-

Tk, 5, 00,001 to Tk, 10, 00,000          Þ   Tk, 40/-

Tk. 10, 00,001 and above                   Þ   Tk. 50/-

 

Vat:

15% of principle amount

 

 

‘Demand Draft (D.D.)

 

Demand Draft is very much popular instrument for remitting money from one corner of a country another. The instrument is basically used for transfer and payment. Difference between pay order and demand draft is in terms of place only P.O. is used for remitting money within the city whereas D.D. is used for within the country. D.D. too constitutes current liability on the part of a bank. At IBBL D.D. is not sold to people other than its customer.

 

  • Charges For Issuing D.D.:

 

Service Charge:

Tk. 1 to Tk. 10,000                 Þ Tk. 107-

Above Tk. 10,000                   Þ 1 Tk. for every 1,000

 

Vat:

15% of principle amount.

 

 Telegraphic Transfer (T.T.)

 

Telegraphic transfer is one of the fastest means of transferring money from one branch to another or from one to another. The T.T. issuing bank instructs its counterpart by tested telex message regarding remittance of money. No instrument is given for T.T. unless both parties have account, as money is transferred.

Charges for Issuing T.T.

Telephone Charge:

 

Tk. 307-

Service Charge:

Tk. 1 to Tk. 10,000                 Þ Tk. 107-

Above Tk. 10,000                   Þ 1 Tk. for every 1,000

 

Vat:

15% of principle amount

 

COLLECTING:

 

Clearing

 

As far safety is concerned customers get crossed Cheque for the transaction. As we known crossed Cheque cannot be enchased for counter, rather it has through been collected through banking channel i.e. clearing. A client of IBBL received a Cheque of another bank, which is located within the clearing rage; deposit the Cheque in the account at IBBL. Now IBBL will he will not the money until the Cheque is honored.

 

Outward Bill for Collection (OBC)

 

Customers deposit Cheque, drafts etc. for collection, attaching with their deposit sleep. Instrument within the range of clearing are collected through local clearing house, but the other which are outside the clearing range are collected through OBC mechanism. A customer of IBBL principal branch Local Office Dhaka is depositing a Cheque, of Sonali Bank, Coxs Bazar. Now as a collecting bank IBBL principal branch will perform the following task;

 

1.   Received seal on deposit slip.

2.   IBBL Local Office Principal Branch crossing indicating them as collecting banks,

3.   Endorsement given “Payees A/C will be credited on realization.

4.   Entry on register, from where a controlling number is given.

Collecting bank can collect it either by its branch of by the drawer’s bank. They will forward the bill then to that particular branch. OBC number will be given on the following letter. Now following procedures will take place in case of the following two cases.

 

Bills (Toileted Through Branch):

 

If the bill is forwarded to a branch they will collect it through IBC procedure. Collecting branch will receive and I.B.C.A from that particular agent branch according treatment from the angle of collecting branch will be.

 

Ho> A/C concerned branch…………………..Dr.

Customer A/C ……………………………………Cr.

Income A/C commission; postage………………..Cr

In this case commission will be charged by the collecting branch, not the agent branch.

 

Bills Collected Through Drawer’s Bank:

 

Accounting treatment for the collecting branch will be

 

a.      Clearing ………………………………………..Dr.

b.     Customer A/C………………………………….Cr.

 

Inward Bills for Collection (IBC)

 

In this case bank will work as an agent of the collection bank. The branch receives a forwarding letter and the bill. Next steps are

1. Entry in the I.B.C. registers number given

2. Endorsement given -“Our branch endorsement confirmed”

3. The instrument is sent to clearing for collection……………………Dr.

4. Miscellaneous Creditor A/C OBC………………………………….Cr.

 

CASH

 

Cash section demonstrates liquidity strength of a bank. It also sensitive as it deals with liquid money. Maximum concentration is given while wording on this section. As far as safety is concerned special precaution is also taken. Tense situation prevails if there is any imbalance in the case account.

 

Vault

 

AH cash, instruments (P.O., D.D. and Cheque) and other valuables are kept in the vault is insured up to Tk. 4 core with local insurance company. If cash stock goes beyond its limit of Tk. 4 corer, the excess money is transferred to Bangladesh Bank if there is shortage of cash during transaction period money is transferred to drawn from the central bank. There are three keys of the vault, which are given to three seniors most officers. Daily, as estimated amount of cash brought out from the vault, for transaction purpose. No more than Tk. 4 corer brought at once from the vault, on a single day.

Teller Customer Relationship

 

In a bank a person who delivers and receives cash from the cash counter is known as teller, a customer meets most of the time in a bank with a teller on the counter. So, teller should hold certain quality

  • Should be friendly.
  • Provide prompt service.
  • Be accurate in his task.

In short a teller should be efficient, otherwise he has to pay.

 

Cash Packing and Handling

Cash packing and handling needs a lot of care as any mistake may lead to disaster. Packing after banking hour when the counter is closed, cash are packed according to denomination. Notes are counted several times and packed in bundle, stetted and stumped with initial.

 

Evening Banking

After the banking hour the cash counter is closed. But sometimes customers come to draw or deposit money after the service hour. However, their money is received or aid recorded in the next daybook. This is known as evening banking.

 

LEADERSHIP MANAGEMENT APPROACH AND STYLE

 

IBBL and Eastern Bank Ltd. follow participation leadership approach. Work accomplishment is from committed people with interdependence through a common stake in organization purposed with trust and respect. They are the managers who display in their actions the highest possible dedication both to people and to dork. They are the real term manager’s who are able to mesh the service needs of the enterprise with the needs of the individuals.


TECHNOLOGY AT ISLAMI BANK BANGLADESH LIMITED

 

With rapid change in communication banking worldwide has experienced a tremendous transformation and it continually being shaped to shit changes of industrialization of the society. Unfortunately, Bangladesh has missed much of the excitement and we are virtually unaware of the improvements in banking services hi other developed countries.

IBBL has now brought a part of that development made through improved computer and communication technology. Clients of IBBL will now enjoy service quality service quality that is quite upgraded and to some extent unique.

 

PERSONAL POLICIES

 

Personal policies at IBBL are not clearly defined in Dhaka. However the broad outlines of the policy ate

  • To establish contingency plants for local staff protection
  • To develop programs to cross train personal for added flexibility

 

CORPORATE CULTURE (Ideology, Values, Beliefs, Philosophy, etc.)

 

They have standard set of rules for ethical guidelines. The core idea of it is to “Do the right thing”. The right thing may not obvious at all the time. They are to look after community and serve them, avoid conflict of interest whenever possible. The idea at the Citicorp is to build a congenial atmosphere and encourage teamwork and progress collectively.

IBBL has a good corporate citizen abided by a set of core values. Some can be classified as traditional values such as security, trust worthiness, integrity and confidentiality. Others are perhaps more temporary. They reflect IBBL to it’s customers to be

  • Responsible to their needs.
  • Flexible in approach
  • Professional in manner
  • Always striving excellence

The major corporate philosophy of IBBL is to efficiently manage the risk involved and maintain the stability of the bank to the greatest extent possible.

 

ORGANIZATIONAL PRACTICES

 

IBBL is quite conservation in their organization polices. These policies are followed by Citicorp and are intended to protect the interest of stakeholders. They go through extensive market research before launching any new product. They try to minimize risk by acquiring as much information as possible.

 

MANAGING PUBLIC AFFAIRS

 

They have a very definite view about public affairs management. The bank wants the name franchise to be a symbol of status. Retail bank is still not in operations and individual account is discouraged with high minimum balance requirements.

 

PRESS RELATIONS

 

They also have a clear view of press relations. They are not going for an advertisement in the national dailies. Their motto is to be focused to a target group. First they identify their target customers and they approach him/ her directly. So, they do not need any promotion to attract the customers.

 

Investment


Introduction

 

When IBBL provides any investment to any client, bank is required to maintain the charge documents. The charge document include-

  1. Demand promissory note delivery letter
  2. Balance confirmation letter.
  3. Demand promissory note.
  4. Letter of guarantee.
  5. Trust receipt.
  6. Application of Client.

 

Here, Demand promissory note is an instrument. It client becomes default to payment the demand money, and then bank can sue at court by demand promissory note.

And letter of guarantee means that client has agreed all terms & condition.

Before sanction the investment, particular branch sent the proposal to head office of IBBL in favor of client. If H.O. accepts this proposal then particular Branch can give the investment. Branch manager of IBBL has right to sanction the investment up to Tk. 5 lac only.

 

In case of investment, bank keeps mortgage such that

  1. Deed of property
  2. Personal Guarantee
  3. MSS a/c or any five deposit.

 

New circular is that among the investment capital, 9% will be core capital or supplementary capital.

In case of investment, supervisor charge is 4.5%.

And profit 13% or 13.5%, or 14%, It may be varied it profit is 13%, 9% is for depositor and 4% is for bank.

At the time of performing the investment bank collected no of Cheque leaf equal to no of installment.

 

Bank provides different type of investment such that

HDS                = Household durable scheme.

SBID               = Small business investment scheme.

MC                  = Murabaha Commercial

MPI                 = Murabaha post import

QTDR             = Quard against term deposit receipt.

 

Here, HDS & SBI is sectional by mujjal principal.

In case of TDR, it any one purchase bond of IBBL, this client can take loan before maturing this bond. Bank will provide this investment against time deposit, profit will be charged on the amount equal to (fixed deposit- loan amount). This type band has 3 month maturity period.

 

Accounting treatment:

When investment is sanctioned-

Investment A/C                      –           Dr.

Client A/C (MSA, C/A)          –           Or.

P/R A/C                                  –           Cr.

Commission A/C                     –           Cr.

 

When liability is refrained or investment (MC) is closed-

i)          Client A/C                   –           Dr.

Investment      A/C     –           Cr.

ii)         Profit revisable            –           Dr.

Income                        –           Cr.

Rebate (Inv. A/C)       –           Cr.

 

Bank can sanction 80% of lien   amount.

 

CIB= Credit information Bureau- Client who have investment amount equal to or above Tk. 1 Core, BD. Bank record their statement. When any bank wants to know about the client credit worthiness, then he can easily know that information from BD. Bank. 

OBJECTIVE AND PRINCIPLES:

The objectives and principles of investment operations of the banks are:

  • The investment fund strictly in accordance with the principles of Islamic Shariah.
  • To diversifies its portfolio by size of investment, by sectors (public and private), by economic purpose, by securities and by geographical area including industrial, commercial and agricultural.
  • To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment and monitoring therefore.
  • To make investment keeping the socio-economic requirement of the country in view.
  • To increase the number of potential investors by making participatory and productive investment.
  • To finance various developments schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and uplifting of the society.
  • To invest in the form of goods and commodities rather than give out cash money to the investment clients.
  • To invest in the form of gods and commodities rather than give out cash money to the investment clients.
  • To encourage social uplifting enterprises.
  • To shun even highly profitable investment in fields forbidden under Islamic Shariah and is harmful for the society.
  • The Bank extends investments under the principles of Bai-Marabaha, Bai- Muazzal, Hire Purchase under Shirkatul Melk and Musharaka. The bank making sincere efforts to go for investment under Mudaraba principle in near future.

Investment Policy of IBBL

 

Investment operation of the bank is of vital importance as the greatest share of total revenue is generated from it. Maximum risk is centered in it and the very existence of a bank mostly depends on prudent mgt.

A sound well defined, well planned and appropriate investment policy frame work is a pre-requisite for achieving the goal of the bank i.e. implementation and materialization of the economic and financial principle of Islam in the banking area and justice in trade, commerce and industry and to build socio-economic infrastructure, create opportunity for income and sustained economic growth of the country.

Investment Perspective Plan Up To 2003:

 

In accordance with the policy guidelines contained in banks investment policy and to ensure fullest utilization of banks projected investable fund/ deposit to be mobilized in future in planned way to maximize banks profit gradually consolidating the financial strength of the bank and to achieve overall objective/ goal of the bank and taking in view the long term perspective and investment perspective plan up to 2003 as under:

 


  
As per plan (%)  Actual (%)  Actual as on 30/09/2000 (%) 
Agriculture fishing and forestry 3 3.16 0
Industry (Other than working capital financing) 18 19.50 18
Working capital financing 15 24.49 13
Construction and Real Estate 10 7.82 8
Electricity^ Gas,, Water and Sanitary 0.5 0 0
Transport and Communication 5 3.77 3
Trade 40 34.77 2
Special Schemes 7.5 3.30 44
Others 1 3.19 12
Total 100 100 100

 

MODES OF INVESTMENT:

 

Bai-Murabaha Mode:

 

The term “Bai-Murabaha” has been derived from Arabic words Bai and Ribhun. The work Bai Means purchase and sale and the word Ribhun means an agreed upon profit. “Bai-Murabaha” means sales on agree upon profit. Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods permissible under Islamic Shariah and the law of the loan to be buyer to a cost plus agreed profit payable in cash or on any fixed future date in lump sum or by installments. The profit marked up may be fixed in lump sum or in percentage of the cost price of the goods.

 

Types of Murabaha:

 

In respect dealing parties Bai-Murabaha may be of two types.

a.   Ordinary Bai-Murabaha.

b.   Bai-Murabaha on order and promise.

 

Important Features:

 

  1. It is permissible for the client to offer an order to purchase by the Bank particular goods deciding its specification and committing him to buy the same from the bank on Murabaha i.e. cost plus agreed upon profit.

 

  1. It is permissible to make the promise binding upon the client to purchase from the bank that is he is to either satisfy promise to indemnify the damages cause by breaking the promise without excuse.

 

  1. The bank must delver the specified goods to the client on specified date and at specified place of delivery as per contract.

 

  1. The price once fixed as per agreement and deferred cannot be further increased.

 

  1. It is permissible for the bank to authorize any third party to buy and receive the goods on banks behalf. The authorization must be in a separate contact.

 

Categories the Proposal As Under:

 

a.      Bai-Murabaha Commercial:

Investment for purchase and sale of goods to individual or firm or company for trading purpose shall be termed as Bai-Murabaha commercial.

 

b.      Bai-Murabaha Industry:

Investment to industrial undertaking in the form of supply of machineries equipment’s, raw materials etc. will be termed as Bai-Murabaha industry.

 

c.      Bai-Murabaha Agriculture:

Investment to agriculture sector for supply of seeds, fertilizer etc. shall be termed as Bai-Murabaha Agriculture.

 

d.      Bai-Murabaha Import:

Investment for import termed as Bai-Murabaha import.


Documentation:

1.         before purchasing the goods by the bank, obtain sufficient collateral’s/ securities as mentioned in the sanction advice along with the following charge documents properly executed, i.e. duly filled, stamped, verified and witnessed, where necessary;

 

i.          Murabaha sanctions advice deal wise duly accepted by the client.

 

ii.         Bai-Murabaha agreement after purchase of the foods by the Bank.

 

iii.        Agreements for pledge of goods.

 

iv.        Single party D.P. note, if there is no guarantor.

 

v.         Double parties D.P. note if there is guarantor, to be made by the client in favour of the guarantor and endorsed by the latter in favour of the bank.

 

vi.        Joint and several D.P. notes signed by all the directors in case of limited company.

 

Vii.      D.P. note delivery letter duly signed by the maker and the endorser.

viii.      Letter of hypothecation for client’s stock in trade/work in process, if the investment allowed in additionally secured by hypothecation of stock/stock-in-trade.

 

Ix.        Letter of disclaimer, if stored I parties own/hired go down.

 

x.         Insurance policy.

 

xi.        Trust receipt, duly executed by the client if goods delivered under TR.

 

xii.       Balance confirmation letter.

 

xiii.      Letter of Guarantee signed by the guarantor as per terms of sanction.

 

xiv.      Letter of installments, if sale price is payable on installments.

 

2.         If the investment is made collaterally secured by mortgage of property, obtain the following documents:

 

i.          In case of equitable mortgage, memorandum of deposit of title deed (MDTD) signed by the owner of the property.

 

ii.         In case of legal mortgage, registered mortgage deed should be obtained.

 

iii.        Personal guarantee of the owner(s) of the property.

 

iv.        Original title deed(s) with ES. RS. SA. Mutation parched, DCR of the property and Mutation record.

v.         Up to date rent receipts.

 

vi.        Nor encumbrance certificate along with search fee paid receipt.

 

vii.       Site plan of the proposed mortgage property.

 

viii.      Valuation certificate counter signed by the manager certifying the market value and the forced sale value.

 

ix.        Lawyer’s certificate about verification of the title deed, legal opinion should be self-contained without any ambiguity and clean in all respects.

 

x.         An affidavit shown in before a 1st class magistrate by the owner of the property to the effect that the property offered for mortgage as security is fee from encumbrances and the owner(s) in possession and he/she/they will not encumber/transfer/sale and/or charge the property in any manner whatsoever to others during the continuance of banks investment without prior written clearance of the bank.

 

3.         Where   the   investment   is   secured by   hypothecation of stock-in-trade, machinery’s etc. also obtains the following documents.

 

4.         In case investment is collaterally/ additionally secured by pledge of shares of reputed public remitted company on banks approved list and quoted documents are to be obtained:

 

i.          Agreement for pledge of share along with original share certificates.

 

ii.         Share transfer deed in duplicate — one – copy signed, dated and another copy signed undated.

 

iii.        Share delivery letter addressed to the banks favor.

 

iv.        Letter to the concerned company to register lien in banks favor.

 

v.         Latter of authority in Banks favor duly signed by the shareholder to collect dividend and bonus on his behalf of the share pledge to the bank.

 

3.10.2   Higher Purchase under ShirkatuI Melk:

 

Hire-purchase under Shirked Milk is special type of contract which has been developed through practice. Actually it is a synthesis of three contracts:

 

1.      Shirkat:

 

Shirkat means partnership. ShirkatuI Melk means share in ownership, when two or more partner supply, purchase an asset, own the same jointly and share the benefit as per agreement and bear the loss in proportion to their respective bear the loss in proportion to their respective equity, the contract in call ShirkatuI Melk contract.

 

2.      Ijarah:

 

Ijarah has been defined as a contract between two parties the hirer and hirer where the hirer enjoy specific service or benefit against a specified consideration or rent from the asset owned by the hire. It is a hire agreement under which certain asset is hired out by the hire to a hirer against fixed rent or rentals for a specific period.

 

3.      Sales

 

This is sale contact between buyer and a seller under which the ownership of certain goods or assets is transferred by seller to a buyer against agreed upon price to be paid by the buyers.

In hire purchase under ShirkatuI Melk mode both the bank and the client supply equity in equal or unequal proportion for purchase for of an asset like land building, machinery transports etc.

Purchase the asset with that equity money, one the some jointly, share the benefit as per agreement and bear the loss in proportion to their prospective equity.

 

The share, part or proportion of the asset owned by the Bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of its share/ part/ proportion to the client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement.

 

Investment under Special Schemes:

 

Islami Bank Bangladesh Limited being welfare oriented banking institution has by now introduced and implemented 15 special investment sectors and various sections of people for their socio-economic uplifting and to improve their standard of life. All the schemes so far introduced have gained popularity and received wide response of the general masses and is also being appreciated by the conscious people of the society. Performance of the scheme as on 31/12/2005 is as under.

 

 

SB Particulars Household Doctors Transport Small Agriculture
      DurableScheme InvestmentScheme InvestmentScheme BusinessinvestmentScheme implementationsinvestmentScheme
1 Total number of Clients 86.294 69 13.53 19,144 670
2 Amount disbursed 244.42 9.22 131.98 68.80 3.09
3 Amount due for 195.20 3.23 68.88 51.19 2.60
  recovery
4 Amount so far 186.56 2.96 56.13 47.84 1.85
  recovery
5 Amount overdue 8.80 0.35 15.89 3.51 0.82
6 Advance recovery .40 0.12 3.14 0.16 0.05
7 % of recovery 95% 89% 77% 93% 68%
8 % of recovery 96% 92% 81% 93% 71%
  including advance
  recovery
9 Total outstanding 72.38 7.84 94.89 21.22 1.65

 

Stages of Hire Purchase under Shirkatul Melk:

 

Thus hire purchase under Shirkatul Melk agreement has got 3 stages.

i.          Purchase under joint ownership

ii.         Hire and

iii.        Sale and/ or transfer ownership to the partner hire.

Simplification of Documentation:

Master Documents for the entire revolving limit covering the period of investment should be obtained by execration of the following documents:

 

a.         DP note

b.         DP note delivery letter

c.         Letter of arrangement

d.         Letter of Pledge/ Hypothecation

e.         Letter of continuity

f.          Usual mortgage formalities to be completed

g.         Letter of guarantee (Where necessary)

 

Documentation For The Subsequent Deals Under The Umbrella Of The Master Documents Should Be The Following:

 

a.         Party’s request letter

b.         Letter agreement (deal wise.) unstamped which will be continuation of the master agreement

c.         Balance confirmation receipt

 

Categories the Proposal As Under: 

1.      Hire Purchase under ShirkatuI Melk Commercial:

Investment on Hire Purchase under ShirkatuI Melk mode to individual/ firm/ company/ society for commercial purpose (s) shall be termed as Hire Purchase under ShirkatuI Melk commercial.

 

2.      Hire Purchase under ShirkatuI Melk Industrial:

Hire Purchase under ShirkatuI Melk Investment to industrial undertaking in the form of Land, Buildings, Machinery’s equipment’s, Transport etc. shall be termed as Hire Purchase under ShirkatuI Melk Industrial.

 

3.      Hire Purchase under ShirkatuI Melk Agriculture:

Hire Purchase under ShirkatuI Melk investment to agriculture sector in the form of Agriculture equipment, Machinery’s, Shallow Tube-Well, Deep Tube, Deep Tube-Well, Tractor, Trailers, etc. shall be termed as Hire Purchase under ShirkatuI Melk Agriculture.

 

4.      Hire Purchase under Shirkatul Melk Transport:

Hire Purchase under Shirkatul Melk investment in the form of transport Bas, Track, Car, Taxi, Launce, Steamer Cargo Vessel, Air Transport etc. shall be termed as Hire Purchase under Shirkatul Melk Transport.

 

5.      Hire Purchase under Shirkatul Melk Real Estate:

Hire Purchase under Shirkatul Melk investment in the form of land building, market, Apartments for use/ rental shall be termed as Hire Purchase under Shirkatul Melk Real Estate.

 

Cost of Price of the Assets:

 

a.         Purchase price of the asset plus other expenditure concerning the purchase i.e. transportation, stage cost of construction, cost of installation, making etc. before hire of the asset to the Hire Purchase.

b.         Conveyance- TD/ DA of Bank official or agent, if any.

c.         Commission paid to the agent, if any.

d.         Cost of remittance of fund.

e.         Transportation cost up to bank’s god won/ Clients project site (if any)

f.          Transit insurance and out of pocket expenses

g.         God won rent and staffs salary.

h.         Income loss sustained during the gestation period.

 

MUDARABAH:

It is a form of partnership where one party provides the funds while the other provides Are expertise and management. The first party is called the Sahib-Al-Mall and Mudarib. Any profits accrued are shared between the two parties one a pre-agreed basis. While actual capital loss is acquired are bared only by the Sahib-Al-Mall alone.

 

 MUSHARAKAH:

Musharakah is an Islamic financing technique that adopts “Equity Sharing” as a means or financing projects. Thus, it embraces different types of profit and loss sharing partnership. The partners (entrepreneurs, banker’s etc.) share both capital and management of project so that profits will be distributed among them as per ratios, where loss is shared according to ratios of their equity participation.

 

BAI-SALAM:

Under his mode Bank will execute purchase contract with client and make payment against purchase of product, which is under process of production. Bai-Salam contract will be executed bore making any investment showing price, quality, time, place and mode of delivery. The profit is to be negotiated.

 

BAI-MUAJJAL:

Bai Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (Permissible under Islamic Shariah and the law of the country), to the buyer at an fixed price payable at a certain fixed date in lump-sum or within a fixed period by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the buyer.

 

WELFARE ORIENTED INVESTMENT: SPECIAL SCHEMES

 

The volume of investment of IBBL has been increasing substantially day by day. Besides, the network of our branches has been widened and the investment portfolio of the bank has also been diversified.

This has necessitated proper handling and management of the investment port-folio of the bank at both branches and head office level by way of implementation of systems, procedure, norms, principles and practices of the investment, enforcement of business discipline and establishing accountability at all tiers.

The bank, since its inception, has bee working for the uplifting and emancipation of the under privilege, downtrodden and neglected sections of the populace and has taken up various schemes for their well being the objectives of these schemes are to raise the standard of living of low-income group, development of human resources and creation of avenues for self-employment.

IBBL operates 14 schemes under project investment department – 11 (PID – 11). These are as follows:

1.         Household durable scheme.

2.         Car Investment Scheme.

3.         Transport Investment Scheme.

4.         Housing Investment Scheme.

5.         Real Estate Investment Program.

6.         Doctors Investment Scheme.

7.         Small Business Investment Scheme.

8.         Agriculture Implements Investment Scheme.

9.         Poultry Investment Scheme.

10.       Small Transport Investment Scheme.

11.       Staff House Building Investment Scheme.

12.       Household Durable Scheme for the employees of the Bank.

13.       Micro Industries Investment Scheme.

14.       Rural Development Scheme.

 

 

Household Durable Scheme:

Islami Bank Bangladesh limited has, therefore introduced House Hold Durable Investment Scheme which has already created great enthusiasm amongst the people and received tremendous response from them.

 

Objective:

  • To assist the service-holders with limited income in purchasing household durable.
  • To assist the fixed income group in raising the standard of living.
  • To create opportunity for the service holders to enjoy the benefit of modern and sophisticated living and at the same time to lead a decent and honest life.

 

Items:

a.         Refrigerator/ Deep Freeze

b.         Television

c.         Radio/ Two-in-one/ Three-in-one

d.         Motor Cycle/ Bi-Cycle

e.         Air Cooler/ Air Conditioner

f.          Personal Computer

g.         Washing Machine

h.         Furniture, Viz, Cot, Almirah, Sofa Set, Wardrobe, Carpet etc.

i.          Sewing Machine.

j.          Kitchen Appliance like Oven, Toaster, Blender, Pressure Cooker etc.

k.         Electronic Generator: IPS, UPS etc.

l.          Power Generator, Motor Pump/ Power Pump etc.

m.    Any other items considered suitable by the bank.

 

Eligibility:

Interested permanent officials of the following organization may apply for investment.

 

a.         Government organizations.

b.         Semi-Government organizations and autonomous Bodies.

c.         Banks and Financial Institutions,

d.         Armed Forces, BDR, Police and Answers

e.         International financial and Relief organizations

f.          Multinational Companies

g.         Locally established and renewed public limited companies

h.         Teachers of Universities, Government Schools & Colleges  and Senior Madrashas.

i.          Permanent teachers and officers of established and prominent private universities, Medical colleges and University colleges.

 

In addition, application of the interested officials of established and reputed private organizations may be considered by the head office of the bank upon approach for investment under this scheme by the head of the concern organization.

  • Any client may avoid the facility for more than one item. Holdover, total investment of the bank to a client shall not exceed Tk. 75,0007-
  • A client who repays 50% of banks existing investment in due time may avail investment for procurement of new items within the limit of Tk. 75,000/-
  • The amount of banks investment shall be determined in a manner that the monthly installment does not exceeds 50 % of the client’s monthly emoluments. However, the bank may relax this condition in especial eases on being satisfied about the repayment capacity of the applications.
  • Period of investment: maximum 2 (two) years.
  • Mode of investment: Bai-Muajjal.

 

Down Payment:

Down Payment is minimum 25% of the total value which is in the article. The clients shall have to deposit the amount of down payment in his Mudara saving/ investment account with the concerned branch before the disbursement of investment.

 

Security:

The investment client shall execute/ provide the following documents in order to secure the investment.

  • All required charge documents as per rules of the bank.
  • A written under taking to the effect that the monthly installments shall be paid regularly.
  • Personal guarantee of an official of the same rank or of higher rank. The guarantee shall have to be duly authenticated by the competent authority of the concerned organization.
  • Personal guarantee of another person, preferably family member.
  • Letter of authority to deduct installments from the monthly salary.

 

Car Investment Scheme:

Car is considered as an essential mode of transport in the modern society, particularly by a section of the officials, business house and business executives and established professionals movement in discharging their duties and responsibilities punctually and efficiently. To meet this need Islami Bank has introduced the “Car Investment Scheme” for the mid and high ranking officials of government and semi government organizations.

 

Nature Of Car And Garment Procedure:

  • New reconditioned car of reputed brands imported within the provision of import policy in force shall be allowed to be procured under the scheme.
  • Interested clients should submit at least 3 (three) quotations from 3 different bonafide and genuine car dealers/ importers/ sellers along with the prescribed application from duly filled in no supervisory agent of the bank, appointed under the scheme, shall involve in this business, directly or indirectly.

 

Selling Of Banks Investment:

Banks investment is maximum Tk. 3.50 Lac per client against purchase cost of the while. Registration and comprehensive insurance cover shall be in the name of the bank. The clients shall have to bear all subsequent expenses relating to blue book, registration first party insurance, tax token, fitness certificate etc.

 

Client’s Equity:

Minimum 30% of the purchase cost of the vehicle. The amount of equity shall have to be deposited with the bank before disbursement of banks investment,

 

Period of Investment:

Period of investment is maximum 4 (four) years from the date of disbursement or delivery of the vehicle to the client, which over is earlier.

 

Mode Of investment:

a.      Hire Purchases

b.     Hire Purchases under Shirkatul Melk.

 

Housing Investment Schemes:

The bank has introduced this scheme recently to case the serious housing problem in the urban areas and to make arrangement for comfortable accommodation of the fixed income group. Officials of the defense forces; permanent officials of government, semi-government and autonomous organization; teachers of established universities, university colleges and medical colleges; graduate engineers, doctors and established professionals; Bangladesh, officials and reputed multinational companies, international financial organizations, donor agencies, foreign embassies etc., officials of local established and reputed public limited companies; wage earner professionals like doctors, engineers, accountants, teachers and any other profession doing good job abroad with hand some pay package shall be eligible to apply for availing investment facilities under the scheme.

 

Transports Investment Scheme:

To case the existing transportation problem and ensure speedy economic growth and development of the country particularly the expansion of trade, commerce and industry, the bank has taken up this scheme, under this scheme investment is being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport like bus, mini-bus, track, launch, cargo-vessel, transport for rent-a-car service; and baby-taxi, tempo, pick-up van for self employment; and ambulance for clinic and hospital. The bank is also extending investment facilities to multinational companies, established business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps.

 

Investment Scheme for Doctors:

The bank has been taken up this scheme to help unemployed qualified doctors to go for self-employment and to provide latest medical equipment’s to specialist doctors to extend modern medical facilities throughout the country.

 

Small Business Investment Scheme:

This scheme has been taken up for self-employment of educated unemployed youths of rural and urban areas and to provide investment to small businessmen and entrepreneurs. Investment is extended for about 200 economic activities in sectors as live stock fishing, agro-farming processing and business, manufacturing, trading/ shop-keeping, transportation, agricultural implements, forestry and services viz., laundry, signboard painting etc. under this scheme small businessmen and entrepreneurs are given investment up to take one lac on easy terms and conditions.

 

Agricultural Investment Scheme:

In keeping with the view of the people oriented and welfare objective of the bank this scheme has bee introduce to provide power tillers, power pump, shallow tube-welte, thresher machines etc. on easy terms to unemployed rural youths for self-employment and to the farmer to help augment production in agriculture sector.

 

Rural Development Scheme:

Bangladesh is predominantly an agriculture country with vast majority living in rural areas. More then 60% of the people live below the poverty line. Seasonal unemployment and under employment is so acute that may people remain idle and without job in most of the time of the year. As a result people in large number are migrating to urban areas, particularly in metropolis in branch of employment thereby creating social and environmental hazards. Islami Bank has, therefore, taken up a scheme to reactive the rural economy and develops model villages through integrated approach. The objective of the scheme is to care income generating and productive self-employment opportunities through extension of investment for the development of rural areas and thereby contribute in alleviating rural poverty. Initially the scheme was introduced in 18 districts through 21 branches of the bank, which was extended to 712 villages in 38 districts through 52 branches of the bank on 30-6-99. This will gradually be extended throughout the country.

Investment will be allowed for the purpose of, amongst, others, production of 21 types of main crops viz Food, Creates and Cash crops, off-farm activities like doing, but fattening goat rearing poultry, shop keeping, padding etc, rural transport like Rickshaw, Rickshaw-Van, Cart etc., irrigation equipment, hand tube-well, housing materials, in all covering about 343 types of economic activities. Islami Bank foundation, a subsidiary of the bank, engaged in social welfare activities shall side by side, take care of the requirement of sanitation, and medicate and education of the villages through integrated area development approach under Islamic Model.

Foreign Exchange

 

SOME L/C RELATED TERMS AND THEIR BRIEF   DESCRIPTION

 

Letter Of Credit:

Letter of credit is an arrangement whereby bank (issuing bank) acting on the instruction of the customer (importer), undertakes to make payment, or to accept drafts, or authorizes of another bank to pay, accept or to negotiate draft drawn by the beneficiary (exporter) against stipulated documents, provided that the terms and condition of the credit are compile.

 

LETTER OF CREDIT ISSUE PROCESS:

The issuing process of letter of credit is one of the vital point for a bank engaged in foreign exchange operation. In one side it has to satisfy the client on the other hand it needs to care the order of the Bangladesh Bank rules and regulations very care fully. After all the steps are as like

 

1.         When importer wants to import goods, he request issue bank (his bank) to issue a L/C.

2.         To do that the importer gives an application to the bank for the L/C.

3.         Chequeing out the permissibility of that item that is going to import by the importer and the required rules and regulation of both by the Islami Sharia and by the Bangladesh Bank

4.         So the issuing bank issues a L/C and sends it to the advising nominated bank.

5.         If the beneficiary wants confirmation of the L/C the L/C may be confirmed usage-confirming bank to confirm payment.

 

The advising bank authenticates the L/C and advises the same to the beneficiary. The exporter submits the necessary documents to the advising bank after execution of export.

 

ADVANTAGES OF LETTER OF CREDIT:

There are lots of advantages that are basically derived by opening of an LC while Export and Import activities are taking place. In the report it is mentioned from different perspective such as

 

To The Exporter

  • A letter of credit is generally a very safe method of obtaining payment provided the exporter complies with the terms of credit.
  • An irrevocable credit cannot be amended without his knowledge agreement.
  • An irrevocable credit carries a definite undertaking on the part of the issuing bank to pay.
  • A confirmed irrevocable undertaking of a bank generally in the exporter’s country.
  • A credit open in his favor can often lead to a credit being opened on his behalf in favor of his supplier (to-back credit); alternatively the credit may be transferable.
  • Finance may be available b means of: – negotiating of his bills.
  • The exporter has indirect control of the document of title.
  • Better than collection as a means of securing payment.

 

To The Importer

  • Protect own position by stating the precise documentation required.
  • He should consider making a status report on the supplier and in the case of a large order call for a performance bond.
  • Credit can be obtained from the exporter by insisting on the use of a term bill or exchange.
  • He could also consider the use of a revocable credit, which would be particularly appropriate where the goods are dispatched in part shipment as soon as the first lot of goods arrives. The importer can inspect them and if they are not up to quality, can cancel the credit,, hopefully before other shipments are made.
  • The advising bank will only make payment when the exact document specified has been received.
  • Once the specified documents which will usually be the documents of title are in the hands of the advising bank then it will only a matter of time before they sent to the issuing bank allowing him to collect the goods to their safe arrival.
  • Finance may be available by means of:-

a.   Ordinary bank loan/ overdraft.

b.   Loan against imported merchandise,

c.   Acceptable credit.

 

TYPES OF LETTER OF CREDIT

i.          Document credit

ii.         Stand-by letter of credit

iii.        Revocable credit

iv.        Irrevocable credit

v.         Counter credit

vi.        Letter of credit

vii.       Back-to-back credit

  1. Transferable credit

 

  • Government by ICC 500 (ART 48)
  • Transferable if indicted ‘transferable”
  • Transferable with or without substitution of documents (ART 481)
  • Can be transferred once only (ART 48G)
  • Can be transferred to one or more second beneficiaries. (ART 48E)
  • Transfer is affected at the request of the first beneficiary by the bank where the credit is available.
  • Transfer must be effected in accordance with the terms of the original credit subject to certain exceptions (ART 48H)

 

Some vital things that should be mentioned while talking about the LC are as follows

 

1.         Middlemen who buys and sells on a letter of credit basis

2.         Usually the export letter of credit is not transferable

3.         The Master L/C is a source of repayment

4.         The baby L/C is a separate undertaking from that of the issuing bank

5.         Matching of the terms and conditions of both credits in order to produce the required documents within time limits stipulated in the master L/C, with the following exception:-

  • Applicant’s name
  • Amount
  • Unit price
  • Dates
  • Insurance
  • Documents can be substituted

            PARTIES OF LETTER OF CREDIT:

 

  • Issuing bank
  • Advising bank
  • Credit applicant
  • Beneficiary
  • Nominated bank
  • Negotiating bank
  • Reimbursement bank

 

DIFFERENT PARTIES ROLES:

 

Role Of Issuing Bank

 

  • The credit and amendments must be complete and precise
  • Indicating credits irrevocable or revocable
  • Definite undertaking of the issuing bank
  • Such undertaking cannot be amended or cancelled without consent of all parties.
  • State how the credit will be available and nominate the bank where it will be available
  • Advice the credit and subsequent amendments through the same bank
  • Reimburse nominate bank
  • Determined to take documents or not on the basis of documents alone
  • Reasonable time to examine documents
  • If refusing documents issuing banks should without delay telex advice the presenter stating discrepancies and hold documents at its disposal return them
  • Despite presenter pointing out the discrepancies, the issuing bank still have to follow the procedures as per art (14B), (14C) and (14F)
  • No need for certificate of compliance
  • If incomplete or unclear instructions are received to issue or amend the credit bank may give preliminary notification to beneficiary and seek clarification from the applicant

 

Role of Advising Bank

  • Without engagement and responsibility
  • Exercise reasonable care in Chequeing the apparent authenticity of the credit.
  • If incomplete or unclear instruction received to advice the credit bank may give preliminary notification to beneficiary and seek clarification from thinning bank
  • Services to the corresponding banker
  • Services to existing/ potential customer

 

Role of Negotiating Bank:

 

  • Offering temporary finance fro the exporter awaiting reimbursement from the issuing bank
  • Cheque documents with reasonable care and within reasonable time
  • Ensuring that documents are presented as per L/C terms and conditions and ICC-40Q requirements
  • Ensuring it as being the nominated bank
  • Source of repayment
  • Issuing bank
  • Beneficiary

Role of Confirming Bank:

 

  • Definite undertaking of the confirming bank in addition to that of the issuing bank
  • Advise the credit without adding confirmation and inform issuing bank if not willing to confirm the credit
  • Such undertaking can be amended nor cancelled without the consent of all parties.
  • If incomplete or unclear instructions are received to confirm the credit bank may give preliminary notification to beneficiary and seek clarification from the issuing bank

 

TRANSPORT DOCUMENT

Transport document is a document issued by the transport company or the fright forwarder stating the goods will be delivered to the intended destination as per agreed perms and conditions. Depending on the mode of movement of the cargo on appropriate transport document will be called for. 

DEFINITION OF BILL OF LADING:

Bill of lading means a document, which evidences a contract of carriage by sea and taking over or loading of the goods by the carrier, and by which the carrier undertakes to deliver the goods against surrender of the document. A provision in the document that the goods are to be delivered to the order of named person, or to order, or to bearer, constitutes such an undertaking.

 

Transport Document Services Three Purchases;

1.         Receipt for goods

2.         Contract for transport and storage

3.         Title document that proves ownership of goods

Various Types of Bill of Leading:

  • Marine bill of lading
  • Short form bill of lading
  • Through bill of lading
  • Combined transport bill o f lading
  • Line bill of lading
  • Charter party bill of lading
  • Container bill

 

IMPORT MECHANISM OF L/C:

As per import and export control Act, 1950, the person engaged in foreign trading should obtain registration from the office of chief controller of import and export. Thus and importer needs to collect Import Registration Certificate (IRC) from the aforesaid office. On the next step importer needs to obtain Letter of credit Authorization (LCA) from Bangladesh Bank. Having both IRC and LCA, the importer steps into a bank. Regular steps or procedures for import mechanism are as follows. 

Importer’s Application for L/C Limit or Margin:

An importer desirous to have an import L/C limit must apply to the import department with following:

 

  • Full particulars of bank account
  • Types of business-historical background
  • Amount of limit required
  • Terms of payment
  • Goods to be imported
  • Security to be offered

The L/C Application:

For opening L/C the client must submit to the bank an application in the printed format of IBBL and this L/C application is also agreement between ANZ (Bank) and the importer. Along with L/C application importer must submit:

  • Performa invoice
  • Insurance cover note importer should provide following information in the  application form
  • Full name and address of the beneficiary
  • Brief description of the goods keeping conformity of the L/C
  • Unit price quality of goods
  • Origin of the goods
  • Mode of transport and last date of shipment
  • Port of shipment and destination
  • Insurance cover note, number and name of the issuing company
  • Tenor of draft (site/ insurance/ deferred)
  • Sale terms
  • Negotiation period
  • Mode of advising
  • Weather shipment/ transshipment allowed
  • Instruction to add confirmation
  • Full name and address of importer
  • LCA no
  • Opening of L/C under UCPDC publication no. 500
  • Any other relevant information

 

Application Must Be Chequed In The Following Manner:

 

  • That the terms and conditions of L/C application are consistent with the exchange control
  • That the goods are eligible to import
  • That it is not difficult for the beneficiary to comply with all the terms and conditions to be incorporated in the L/C
  • That the L/C must by the importer, agreeing terms and condition
  • Goods are not of Israel and vessels to be used are not of Israel.
  • Indenting registration no
  • Insurance cover note with date of shipment
  • Radioactivity report in cases of food item
  • Whether IMP from dully filled in and signed
  • That the goods are marketable
  • Whether liability is under appropriate limit
  • In case of car the life is not more than of 5 year
  • In case of old machinery survey or certificate whether asked
  • After scrutinizing all these legal aspects and taking clearance from ANZ correspondent banking department, necessary entry is give to the margin register and charges commissions and margin is realized.

 

 Transmitting the L/C

The L/C is transmitted to the advising bank for advising the L/C to the beneficiary. L/C is generally transmitted through tested telex of fax. Before transmission a final examination of the L/C contents is necessary for the issuing bank.

 

Add Confirmation:

Very often advising banks receive request from the issuing bank to add their confirmation while advising credit to the beneficiary. The advising bank can do it, if there is prior arrangement between advising and issuing bank or if it feels that the issuing bank is a reputed and reliable institution, good enough to discharge its obligation. By being involved as a confirming agent, the advising bank undertakes to negotiate beneficiary a bill without recourse to him. In IBBL, if the L/C value is more that or equal to USD 20, 0007- then the bank asks for the credit information report of the beneficiary. The purpose of which is whether beneficiary has the capacity or capital to produce or supply the goods. Credit report can be sought from the buyer, from the seller’s bank or from any other place.

 

 Amendment of L/C:

L/C is based on an agreement between buyer and seller. Any amendment they want to bring in L/C should be informed to this issuing bank, which will transmit the amendment to the advising bank with test. Service and telex charge is debited from the party account.

In case of revocable L/C amendment can be brought without prior notice of the beneficiary or issuing bank. But in case of irrevocable L/C, which is very much popular, cannot be amended without informing beneficiary or the issuing bank. However, any instruction regarding amendment should be complete and precise.

Presentation of Documents:

Having been advising bank, the seller then proceeds to dispatch the goods to the buyer. The seller then presents the document evidencing shipment of gods, to the negotiating bank. Negotiating bank then forwards all the documents with a schedule to the issuing bank. Most common documents are:

  • Invoice
  • Bill of lading on the receipt
  • Certificate of origin
  • Packing list
  • Weight list
  • Shipping advice
  • Non of negotiable copy of B/L
  • Bill of exchange, Phytosanitary, inspections certificate.
  • Letter of insurance cover note
  • Pre-shipment inspection certificate
  • Shipment certificate.
  • On the receipt of the documents, the bank will enter the some in the inward receive register branded with rubberstamp. Showing the date of receipt


EXAMINATION OF DOCUMENTS BY BANK

As already pointed out earlier the issuing bank’s undertaking a letter of credit to pay, accept or negotiate is conditional to the presentation of documents which are strictly as per the terms and conditions the credit. A careful examination of documents is, therefore, the major bank on which the whole edifice of documentary credit reset. Banks therefore must examine all documents stipulated in the credit with reasonable care. The Cheque paints points for the banks are given in the box.

 

Cheque List for Document Examination By Banks:

  • Documents should appear on their face to be compliant with the stipulation in the documentary.
  • Documents are not being inconsistent with each other.
  • Non-stipulated documents should not be presented. Banks should either return such papers to the presenter or pass them on without responsibility.
  • Examination of documents is completed within seven banking days following the day of receipt of documents.
  • “Conditions” in the documentary credit which do not sates the documents to be presented in compliance are ignored.
  • Documents dated prior to the date of credit are accepted, unless specifically prohibited by the credit.
  • If documents other that transport documents, insurance documents and commercial invoice are called for the name of the issuer and content (wording or data) are to the clearly specified. If not, banks will accept documents as presented. Even the beneficiary will be accepted.
  • Original credit accompanies the presentation.
  • Documents musts be presented within banking hours.
  • Endorsement, whenever required, must be Chequed especially on issuance certificate, transport documents and bill exchange.
  • If credit says “original documents”. Documents produced by reprographic, automated or computerized systems. Carbon copies are acceptable if marked as original and appear to have been signed if required.
  • Signature can be by handwriting, perforation, stamp, facsimile symbol, or any mechanical or electronic method of authentication.
  • If credit requires copy (s) documents marked as copy ace acceptable. Copy need not be signed unless specifically stipulated otherwise.
  • If multiple documents required like “Duplicate”, “Two Copies”, only one original and rest copy (s) is acceptable.
  • If credit requires documents to be authenticated, validated, legalized, vases, certified etc, any signature, stamps or label which appears to satisfy it is acceptable.

 

Protection to Banks finder UCP:

Banks have been given several protections under UCP provision. While it may seem that they are overprotected, there is one alternative as the banks, liability under the credit would become very risky and very costly if these protections were not available. This also focuses on the fact that the credits are not foolproof and the best protection in trade is to have good knowledge of standing and status of the other party to the contract.

 

Banks Assume No Liability Or Responsibility:

 

a.         Form sufficiency, accuracy, genuineness, falsification or legal effect of any document.

b          General and/ or particular conditions stipulated in the document.

c.         Description, quantity, weight, quality, condition, packing, delivery, value or existence of goods represented by documents.

d.         Goods, faith acts omission, solvency, performance or standing of consignor, courier, forwarder, consignee insurer, or any other person,

e.         Consequences of delay, loss in transit, mutilation, error of any message, letter, document.

f.          Errors in translation,

g.         Interpretation of technical terms.

h.         Interruption of technical terms.

i.          Strikes or lockout.

j.          Acts of an instructed party.

 

Examination of Specific Document:

 

Procedure for the examination of following documents is given below:

a.         Commercial invoice

b.         Partial shipments

c.         Expiry date

d.         Insurance documents

e.         Bill of lading

f.          Non negotiable sea way bill

g.         Multi model transport document

h.         Charter party bill of lading

i.          Air transport document

j.          Surface transport document

k.         Courier charges

1.         Recourse for discrepant documents.

 

A.        COMMERCIAL INVOICE:

  • Need not be signed. Must be issued by beneficiary (Except in transferable credit if first beneficiary does not provide his invoice).
  • Should be in the name of applicant (except in transferable credits if first beneficiary does not provide his invoice).
  • Need no be signed.
  • Description of goods in invoice must correspond with description in the credit.
  • If amount of invoice is in excess of the excess of the credit, banks may refuse to accept the invoice.
  • If credit requires a “certification of weight”, superimposition on transport documents is acceptable, unless credit stipulates a separate document.
  • Include exact license and/ or certificate number in invoice if required by the credit.
  • Should show terms of shipment mentioned in the credit.
  • If “about”, “approximately” or “circa” is used with amount credit, quantity or unit price, allow 10% plus or minus is allowed.

B.        PARTIAL OR INSTALMENT SHIPMENTS:

 

  • If partial shipment is prohibited 5% less (or more) in the amount of drawing acceptable provided, quantity and unit price stipulated are in full.
  • Partial shipments are acceptable unless prohibited.
  • Similarly post or courier receipts acceptable in same date and place of dispatch.

 

C.        EXPIRY DATE:

 

  • All credits must stipulate an expiry date and the place where it expires. The banks must, therefore, make sure that the documents are presented on or before expiry.
  • Documents must be presented on or before expiry.
  • If credits are available for “one month”, “six month”, first day is the date of issuance of credit.
  • If last day falls on a holiday expiry extended to next working date (not period after shipment).
  • Disregard “Prompt”, immediately as soon possible, etc. to be disregarded.
  • On or about means plus or minus 5 days.
  • To”, “until”, “till”, “from” includes date mentioned.

 

  1. D. INSURANCE DOCUMENTS:

 

  • Issued and signed by insurance companies or underwriters or their agents.
  • Broker’s cover note is not acceptable but insurance certificate or declaration under open cover is acceptable.
  • All originals must be included.
  • Insurance should be in the same currency as credit.

 

  1. E.    BILL OF LADING:

 

Of Lading (B/L) To Acceptable If It-

  • Indicates the name of carrier
  • Indicates goods loaded on board or shipped on named vessel
  • Full set of originals is included.
  • Indicates port of shipment and port of discharge stipulated in the credit.
  • No indication that vessel is propelled by sail only.

 

F. NOT NEGOTIABLE SEA WAYBILL

 

Accept If Sea Waybill:

  • Indicates the name of carrier.
  •  Indicates goods loaded on board or shipped on named vessel.
  • Full set of originals is included.
  • Indicates port of shipment and port of discharge stipulated in the credit.
  • Contains all terms and conditions or reference to another document.
  • There is no indication of charter party.
  • No indication that vessel is propelled by said only.

 

  1. F.   MULTIMEDIA TRANSPORT DOCUMENT:

 

Accepted If Document

  • Indicate the name of carrier or multimedia transport operator.
  • Indicates goods have been dispatched, taken in charge or loaded on board.
  • Consists of fall set.
  • No indication of charter party.
  • No indication of propagation by only sails.

 

H.   CHARTER PARTY BILL OF LADING:

 

Accepts If Document

  • Contains any indication that it is subject to charter party.
  • Authenticated by owner/ master or agent
  • To avoid misunderstanding, it is advised that the credit clearly indicate which expenses are on account of the applicant and which expenses on account of the beneficiary.

 

I.   RECOURSE FOR DISCREPANT DOCUMENT:

  • In case of discrepant document, all bank keeps recourse if the credit has compliant document presented the confirming bank to have no recourse but the negotiating bank has recourse unless negotiating bank has confirmed the credit.

 

Lodgment and Requirement of Import Document:

  • Usually payment is give within seven days of documents received. Otherwise in case of document, purchased by negotiating bank if may claim for interest.

Intimation Letter:

  • Before payment an intimation letter is given to the buyer instructing to release the document and make payment.

 

Requisition:

  • Requisition for foreign currency is given to the international department (ID) for arranging necessary find before final payment.

 

Payment Procedure:

  • A   telex   copy   forwarded;    addressed   to   the   nearest   correspondent (reimbursement section) that payment is being made.
  • Confirmation letter to the negotiating bank confirming remittance.
  • Sale memo prepared given exchange rate:

………. TT and OD rate paid to head office.

………. B.C. rate taken from customer.

  • The difference is exchange-trading project.
  • Operating a payment against document (PAD) account. Entry given to PAD register.
  • 15.5 % rate of interest charged from the negotiating date up to retirement. In case of discrepant document profit is charged from the lodgment date till the retirement date.
  • Inter Branch Exchange Trading Credit Advice (IBETCA) sent to ID.

 

Accounting Treatment:

Sundry Deposit L/C Margin A/C…………………………..Dr.

Pad A/C …………………………………………………………….C.

(Margin Amount transferred to PAD A/C)

Customer A/C………………………………………………………Dr.

PAD A/C …………………………………………………………..Cr

(Customer A/C debited for rest of the amount)

PAD A/C …………………………………………………………..Dr.

H.O.I.D. A/C + Ex. Trading A/C ………………………………..Cr.

Income A/C Profit on PAD ………………………………………..Cr.

(Amount given to head office ID and Profit credited).

 

Reversing Entry:

Banker’s Liability ………………………………………………Dr.

Customer’s liability …………………………………………….Cr.

 

Guidelines On Back To Back Letter Of Credit: Transaction (Back To Back L/C);

 

A Back to Back mechanism involves two separate L/C. One is master export L/C another is Back to Back L/C. On the strength of Master Export L/C bank issues Back to Back L/C. Back to Back L/C is commonly known as buying L/C. On the contrary Master Export L/C is known as selling L/C.

Features of Back To Back L/C:

  • It is an import L/C to procure goods/ raw materials for further import.
  • It is operand based on export L/C.
  • It is a kind of export Finance.
  • Export L/C is at sight, but Back to Back L/C is at unasked scrutiny.
  • No margin is required to open back to Back L/C.

 

 

Cheque List to Open Back To Back L/C

  • Application is registered with CCI & E and has bounded warehouse license,
  • The Master L/C has adequate validity period and has a defective clause.
  • L/C value shall not exceed the admissible percentage of net FOB value of relative master L/C.
  • Unasked period wills up 180 days.

 

Cash Benefit Analysis of L/C.

 

Islamic Bank Limited is one of the leading local’s banks in Bangladesh. This instrument of financing is very handy tool for generation of earning. Every year IBBL earn quite large amount of commission from L/C from its total volume of L/C issued. From the table below we can see the L/C volume each year and commission earned from it.

 

 


Year
1999 2000 2001 2002 2003
Total L/C Volume 12,798 11,821 11,977 12,678 12,666
Commission From L/C 19.87 17.87 21.12 22.08 22.03

 

 

Amounts Are C’r. Tk.

From table we can see that L/C volume is increasing which indicates that business in IBBL is managed quite efficiently and from the trend analysis we observe that growing trends also indicates efficiency if IBBL and give a clue to increasing economic transaction.

 

Year 1999 2000 2001 2002 2003
Operation income/ 70.87 76.95 90.62 95.95 100.85
Commission income
Commission From L/C 19.87 17.87 21.12 22.08 22.03

 

From the table above we observe one important thing i.e., over the period of time earning from L/C operation is almost constant proportionate to operating income. Even though the bank is highly efficient but proportion of L/C commission earned and operating profit is almost same.

 

 

Chapter Four:Three Departments of IBBL

(General Banking, Investment & Foreign Exchange)

 ANALYSIS OF DEPOSIT (DEPARTMENT OF GENERAL BANKING OF IBBL)

     

 

 

On the date of 30.06.2004, among the total deposit of the banking sector, 51.08% comes from nationalized commercial bank and specialized bank. 41.99% comes from private commercial bank (including also 10.02% of IBBL). And 6.93% comes from foreign commercial bank, whereas it was respectively 54.29%, 38.72%, and 6.99% on 30.06.2003.

 

Here we see that, in the year 2004, contribution of private commercial bank to the deposit of the banking sector has been increased. Among all private commercial bank, contribution of IBBL is very high, which is

10.02      *100

41.99

= 23.86%.

 At that time, there was 30 private commercial bank.

 

 

GROWYH OF DEPOSIT: 2000-2005

 

s

FIG -1: This graph shows the growth of deposit from the year 2000 to 2005.

           

 ANALYSIS OF INVESTMENT (DEPARTMENT OF INVESTMENT OF IBBL) 

 

On the date of 30.06.2004, among the total investment of the banking sector, 50.67% comes from nationalized commercial bank and specialized bank. 42.36% comes from private commercial bank (including also 11.09% of IBBL). And 6.97% comes from foreign commercial bank, whereas it was respectively 54.22%, 39.36%, and 6.42% on 30.06.2003.

 

Here we see that, in the year 2004, contribution of private commercial bank to the total investment of the banking sector has been increased. Among all private commercial bank, contribution of IBBL is very high, which is

11.09      *100

42.36

= 26.18%.

 At that time, there was 30 private commercial bank.

 

                                       

s

FIG -2: This graph shows the growth of investment from the year 2000 to 2005.

 

s

FIG -3: This graph shows the sector-wise investment at 31-12-2004.

 

 

ANALYSIS OF FOREIGN EXCHANGE BUSINESS (DEPARTMENT OF FOREIGN EXCHANGE OF IBBL)

 

In million (Tk.)

Year Import Export Remittance Total foreign exchange business Growth rate
2000 25327 16889 7644 49860 14%
2001 25907 16082 9879 51868 4%
2002 33788 16673 14670 65131 26%
2003 46237 21738 16668 84643 30%
2004 59804 29151 23669 112624 33%

 

 

s

FIG -4: This graph shows the foreign exchange business from year 2000-2004.

 

 

Here we see that, except the year of 2001, total foreign exchange business has been increased. IBBL is contributing to the total economy. At the year end 2005, total foreign exchange business was Tk. 147640 million. The growth rate is 31%.

 

 

IBBL is the second highest private commercial bank in the case of remittance. 16% remittance comes from foreign wage earner through IBBL.

 

 

s

FIG -5: This graph shows the total foreign exchange business from year 2003-2005.

               

 

 

COMPARATIVE ANALYSIS OF THREE DEPARTMEN (GENERAL BANKING, INVESTMENT, & FOREIGN EXCHANGE)

 

 

I have mentioned above that the total deposit of IBBL was Tk. 9101 crore and Tk. 11152 corer respectively in the year 31-03-2005 and 31-03-2006. Amount of increase of deposit is Tk. 2051 corer.

 

Total investment of IBBL was Tk. 8758 corer and Tk. 10931 corer respectively in the year 31-03-2005 and 31-03-2006. Amount of increase of deposit is Tk. 2173 corer.

 

Total foreign exchange business of IBBL was Tk. 2936 corer and Tk. 4359 corer respectively in the year 31-03-2005 and 31-03-2006. Amount of increase of deposit is Tk. 1423 corer.

COMMENT:

 

Here we see that, in case of increasing amount investment has secured first position. IBBL should emphasize on the foreign business. At the same time IBBL should increase deposit. Because if the bank is able to increase more deposit, then the bank can sanction more investment. Income is the blood of the bank. That comes from investment. Also bank can give more investment after importing goods to the client, in case of foreign exchange department.

 

                                                (In corer Tk.)

Particular 31-03-2006
Deposit 11152
Investment 10931
Foreign exchange 4359

 

s

 

Fig 6: This Figure shows the percentage of IBBL performance in terms of deposit, investment & foreign exchange on 31-03-2006.

 

SWOT ANLYSIS:

 

a) Strength:

 

1. Strong fund sources.

2. Largest network among private commercial banks.

3. Strong liquidity.

4. Less expense of fund.

 

b) Weakness:

 

1. Lack of Islami Security market.

2. IT & e banking is not enough strong.

 

 

c) Opportunities:

 

1. Increase consciousness about Islami Banking.

2. Increase islami instrument of investment.

 

 

d) Threats:

 

1. Increase competition to collect government deposit.

2. Pressure to decrease rate of profit.

 

4.7 RATIO ANALYSIS:

 

Current Asset               

1. Current ratio                                =         Current Liabilities

 

Fixed Asset                 

2. Fixed asset to total asset ratio     =            Total Asset

 

 

Equity + Capital + Revenue                         

3. Net worth per share                     =                      No. of Share

 

 

Net income after tax                                       

4. Earning per share (EPS)              =          No. of Share

 

 

Revenue

5. Asset turn Over                          =              Total asset

 

Table of ratio analysis (IBBL):

 

Name of Ratio 2005 2004
Current Ratio 2:1 1.90:1
Fixed asset to total asset ratio .025 .025
Net worth per share 2635.28 2844.42
Earning per share (EPS) 195.52 518.59
Asset turn Over 3.84% 4.16%

 

Comment:

Current Ratio indicates the current solvency position of the firm. Generally the minimum range of the current ratio is 1. So the current ratio of IBBL is good. The EPS of IBBL is more satisfactory. The EPS and Asset turnover are increasing mode.

 

Chapter-Five :CAMEL RATING (Comparison of IBBL with some other Islami Bank of Bangladesh)

 

CAMEL RATING (Inter Bank Comparison):

Capital Adequacy Ratio :( In TK)

 

BANK  IBBL  AL-ARAFAH  EXIM
YEAR 2005 2004 2005 2004 2005 2004
Capital Adequacy Ratio(Shareholders Equity & Reserve/ Risk Weighted Assets) 8331132206/122880348 6691114318/102149282158 1220165039/15336888197 957263069/12874613338 1912421914/33716699328 1400004740/24355751451
0.067 0.065 0.079 0.074 0.056 0.057
CAMEL 4 4 3 3 5 5

                                           

BANK IBBL  AL-ARAFAH  EXIM
YEAR 2005 2004 2005 2004 2005 2004
12  6885/114664 7674/95515 2473/14116 1809/11917 348/31804 3877/22955
  0.06 0.08 0.175 0.15 0.010 0.169
CAMEL 4 2 1 1 5 1

 


Asset Quality :( In lake)


 

Return on Assets (In Lake)

 

BANK  IBBL  AL-ARAFAH  EXIM
YEAR 2005 2004 2005 2004 2005 2004
Return on Asset(Net Profit/ Total Asset) 1122/122880 1013/102149 262/15336 154/12874 555/33716 381/24355
  0.009 0.010 0.017 0.012 0.016 0.015
CAMEL 1 1 1 1 1 1

 

Investment Deposit Ratio: (In Lake)

 

BANK  IBBL  AL-ARAFAH  EXIM
YEAR 2005 2004 2005 2004 2005 2004
Investment Deposit Ratio( Deposit /Liquid Asset) 107082/117374 872205/97858 116403/114704 10108/8150 28319/1633 19078/1542
  0.91 0.89 1.01 1.31 17.034 12.37
CAMEL 1 1 1 1 1 1

 

Ability to meet Current Liability: (In Lake)
BANK  IBBL  AL-ARAFAH  EXIM
YEAR 2005 2004 2005 2004 2005 2004
Ability to meet Current Liability( Deposit/ Loans & Advance ) 107082/6885 87225/7674 11643/2473 10108/1809 28319/3485 19078/3877
  15.55 11.37 4.7 5.58 8.1 4.92
CAMEL 5 5 5 5 5 5

 

 

CAMEL RATING PERFORMANCE INDICATOR:

BANK  IBBL  AL-ARAFAH  EXIM  
YEAR 2005 2004 2005 2004 2005 2004
CAMEL RATING 4+4+1+1+5=15/5=3 4+2+1+1+5=13/5=2.6 3+1+1+1+5=11/5=2.2 3+1+1+1+5=11/5=2.2 5+5+1+1+5=17/5=3.4 5+1+1+1+5=13/5=2.6

 

 

 

OVERAL CAMEL RATING:

 

Average Value  Bank’s Position
1- 1.4 Strong
1.5-2.4 Satisfactory
2.5-3.4 Exact
3.5-4.4 Marginal
4.5-5 Unsatisfactory

 

 

 

 

COMENT ON CAMEL RATING:

 

  1. From Camel calculation we can observe that IBBL and EXIM bank are performing in the scale of “Exact” level.
  2. From inter-bank comparison it is also observable that Al-Arafah bank is the top performing bank among the three banks, performing in the scale of “Satisfactory” level.
  3. From time comparison it is also observable that performance of Al-Arafah remains the stable over the period of 2004 and 2005.

 

The performance of IBBL and EXIM bank deteriorated from 2004 to 2005 though both remained in the same scale “Exact

 

Chapter-Six: PROBLEM AND PROSPECTS OF IBBL

PROBLEMS OF ISLAMI BANK:

 

 

The Islami Bank have and continue to take considerable problems in their operations and other matters related to their relations with other banks and institutions ranging from managerial, financial and regulatory to legal extent, such as:

 

1)      Shortage of professionals conversant with Islami Banking.

 

2)      Total lack of familiarity by international financial and non-financial sector with Islami Products.

 

3)     Severe competition in the financial sector.

 

3)      Inadequate track record of Islami banking itself in particular and Islami Banks in general.

4)      Lack of professional image in the market.

 

5)      Absence of infrastructure for Islami trade financing on international basis.

 

 

6)      An offshore banking unit status of some of the major Islami Institutions without prospects of doing business in the home market.

 

7)      Economic slow down and political situation in some of the countries.

 

 

8)      Non-acceptance by national laws of many countries of the provisions of Shariah, and

 

9)      Relatively under-developed corporate sector and capital market in Islami countries.

 

PROSPECTS OF ISLAMI BANKING IN BANGLADESH:

 

 

In spite of the present limitations, Islami banking system has tremendous potential and prospect in Bangladesh.

 

1)   The successful lunching and operations of Islamic banks has established the fact that banking without interest is feasible

2)   The lunching of Islami bank has shown the Islami money market in the country.

3)   Islami banks have brought together many depositor sand entrepreneurs under their fold and coverage, these depositors and entrepreneurs so long avoided interest- based banking on grounds of religious injunctions.

 

 

We see that the IBBL is growing very rapidly in our country. But our rules and regulation for banking systems is not Shariah based. So, when the govt. makes a rules &regulation

For Islamic banking it will be growing more rapidly than present time.

 

 

The gradual and successful  globalization of Islamic banking coupled with growing awareness ness of the people about its financial and social benefits makes its

Clear that the next century is going to be the century of Islamic banking.

 

Chapter-Seven: CONCLUSION AND RECOMMENDATION


Conclusion

Islami Bank Bangladesh Limited (IBBL) was incorporated on 13, March, 1983 as a public company with limited liability under the companies act, 1913. The bank started functioning with effect from 30, March, 1983. IBBL is the first interest (riba) free banking in South Asia. The establishment of this bank conducted new age in Bangladesh, the 3rd largest Muslim country in the world.

 

The bank is committed to run all its activities as per Islamic Shariah. IBBL through its steady process and continued success has, by now, earned the reputation of being one of the leading private sector banks of the country. The bank has shown steady process in this important sector. Main items of import (by the help of IBBL) are machinery, garments, fabrics and accessories, ships for scarping, rice pharmaceuticals etc. Whereas main items of exports are jute goods, readymade garments, leather, frozen fish, fertilizer, etc. Still now hear about 301 Islamic banking and financial institutions in about 49 countries of Asia, Africa, Europe, America and countries like Pakistan, U.K., U.S.A., Germany, Argentina, Denmark, Luxembourg, Switzerland and India have been established. The banking system of Pakistan and Iran was totally remodeled on the basis of Islamic Shariah services.

 

IBBL will be more effective in our economy by lunching new financial products to attract deposit as Consumer Credit Scheme, Pension Scheme, Child Education Scheme,  Plastic Money ATM and Online service etc .

 

Recommendation

After observing the operation procedure of IBBL, I recommend the following:

 

IBBL should launch more online service.

 

IBBL should launch new financial products to attract deposit, as Consumer Credit Scheme, Child Education Scheme, and Plastic Money etc. IBBL can also lunch ATM as diversification.

 

Marketing Division:

To increase the faith of former mentioned depositors and people, IBBL should convince them in the best manner, so that market share can be captured. A separate marketing division should be set up for this matter.

 

Diversify Assets Portfolio:

Leading portfolio of IBBL should be diversified. Not to concentrate or give weight only in working capital financing.

 

IT’S Facilities:

IT facilities of IBBL are not satisfactory good. Computer system which owned by branch are not up to date, not sufficient and moreover some of computer system not work properly when they are needed. There is no sufficient and high bandwidth Internet connection available in the bank. So, IBBL should develop Information Technology to ensure better service for the customer and support communication with outside.

 

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Annual Report of Exim Bank Ltd. – 2004.

 

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Notes and Guidelines of Workshops

Handout provided by IBTRA

http://www.google.com

http://.www.idb.com

http://www. Islamibankbd.com

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