Chapter-2 A brief Overview of SJIBL

Bangladesh is one of the largest Muslim countries in the world. The people of the Muslim community wishes to design their economic activities in accordance with the percepts of Islam so the establishment of some numbers of Islami Bank in Bangladesh is the true reflection of long days deep cry in their heart. The Objective of Islami Banking is not only to earn profit, but also to do good and welfare to the people. Islam upholds that, money, income and property belong to Allah and this wealth is to be used for the good of the society. Islami Banks operate their banking activates based on the Islami principles of profit and loss sharing and strictly avoiding interest.

Shahjalal Islami Bank Limited (SJIBL) commenced its commercial operation in accordance with principle of Islami Shariah on the 10th May 2001 under the Bank Companies Act, 1991. During last nine years SJIBL has diversified its service coverage by opening new branches at different strategically important locations across the country offering various service products both investment & deposit. Islami Banking, in essence, is not only INTEREST-FREE banking business, it carries deal wise business product thereby generating real income and thus boosting GDP of the economy. Board of Directors enjoys high credential in the business arena of the country, Management Team is strong and supportive equipped with excellent professional knowledge under leadership of a veteran Banker Mr. Md. Abdur Rahman Sarker

This report is prepared on the Service analysis of General Banking Division & Accounts Department. A study on Dhaka Main Branch of Shahjalal Islami Bank limited. Shahjalal Islami Bank Limited, a Shariah Based Commercial Bank in Bangladesh was incorporated as a Public Limited Company on 1st April, 2001 under Companies Act 1994. The Bank commenced commercial operation on 10th May 2001 by opening its 1st branch, i.e. Dhaka Main Branch at 58 Dilkusha, Dhaka, obtaining the license from Bangladesh Bank, the Central bank of Bangladesh.

Its corporate head office is situated at Uday Sanz, Plot No. SE (A),2/B Gulshan South Avenue, Gulshan 1, Dhaka-1212.The Bank opened 2 branches in 2001, 6 branches in 2004, 4 branches in 2005, 5 branches in 2006, 5 branches in 2007, 7 branches in 2008,18 branches in 2009 and12 branches in 2010. Total number of branches stood at 73 in 2012 and the Bank opened 2 SME Centers and 3 branches of brokerage House in 2012 at important locations of the country. Total deposit of Shahjalal Islami Bank Limited stood Tk. 54,447.07 million on 31.12.2012 as against Tk.47, 459.23 million of 31.121.2009 registering an increase of Tk. 6987.84 million i.e. 14.72% growth. This was possible due to superior customer service delivery at the branch level, expansion of branch network to rural areas where foreign remittance flow is significant. Expansion of branch network in rural areas has provided the lower income group an access to modern banking system and prompt receipt of remittance. Deposit is the life blood of the bank. Bank has also given utmost importance in mobilization of deposits introducing a few popular and innovative schemes. The bank always tried to give the highest return on the deposits of the customers. The mobilized deposits were ploughed back in economic activities through profitable and safe investment. How bank customize these services to the general customers and the general banking product and service features are described very carefully in this report. This report also described the internal activities of the General Banking Division, Foreign Exchange Division and Investment Division. SJIBL has devised many creative financial products based on the risk sharing and profit sharing principles of Islamic banking. For day to day banking activities a number of financial instruments have been developed that satisfy the Islamic doctrine and provide acceptable financial returns for investors. 1. Al-Mudaraba (Profit sharing) 2. Murabaha 3. Musharaka (Profit and loss sharing) 4. Ijarah (Lease financing) 5. Ijarah WaI-iqtina (Hire Purchase) 6. Muqarada 7. Bai-Salam 8. Istisna (Purchase order) 9. Bai-Muajjal 10. Hire Purchase under Shirkatul Melk 11. Quard-Al-Hasan 12. Direct Investment

SERVICES PROVIDED BY SHAHJALAL ISLAMI BANK LTD. DHAKA MAIN BRANCH The operation of SJIBL can be divided into 3(three) major categories: i) General Banking

ii) iii)

Foreign Exchange Business Investment and other activities

i. General Banking: General banking deals with the cash transactions of bank. Like deposit collections, cash payment to the account holder or to the creditors. It also deals with the financial performance of the bank. It is the most ancient banking activities. Remittance and Electronic Fund Transfer, Payment Order, Demand draft, Clearing, Public service are also included in general banking. General Banking Division is the most important division of Shahjalal Islami Bank Limited. Basically bank provides the main services to the customer through this division. Every day it receives deposits from the customers, provides various services and meets their demand by honoring Cheque. It opens new accounts, issues bank draft and pay order etc. and every day provides day to day services to the customer.

THE SERVICES OF GENERAL BANKING: a) Al Wadiah Current Deposit Accounts. b) Mudaraba Savings Deposit Accounts (MSD). c) Mudaraba Term Deposit Receipt. i) Monthly Deposit Scheme a) One Month Basis b) Two Month Basis c) Three Month Basis d) Six Month Bsis e) Twelve Month Basis

ii)

Mudaraba Double Benefit Deposit Scheme

iii) iv)

Mudaraba Triple Benefit Deposit Scheme Mudaraba Monthly Income Scheme

d) Mudaraba Short Notice Deposit Accounts (MSND)

Features o Sense of satisfaction of having an International brand o Anywhere anytime banking o 24 hours and 7 days a week banking o Directly linked to Cardholders Account at SJIBL (AWCD/MSD/MSND) o Convenient Cash Withdrawal at ATMs o Accepted at all VISA terminals locally & globally o Local & International transactions with the same card (for Dual Cards) o Balance Inquiry o PIN Change o Avoid pressure at counters of bank o Minimizing risk of carrying cash o More to come Special Feature o No Cash Advance Fee at SJIBL ATMs o Account is not required for Prepaid cards o SMS Notification Service Remittance Service: The remittance, a driver of growth of the economy of Bangladesh, has become a cause of concern, particularly against the backdrop of dwindling current account balance and volatility in the exchange rates, having implications over the macroeconomic stability and prospects of growth. The gap between actual flow of remittance and the governments target articulated in the medium term macroeconomic framework (MTMF) is on the rise and might grow sharply in the upcoming years. In FY 2010-11 the actual receipt of remittance totals USD 11,650.30 million than that of the MTMF projection of USD 14,000 million, a shortfall of USD 2,349.70 million. If the current trend prevails, the gap might increase further in FY 2014- 15 and under the business as usual scenario, the flow of remittance might

stand at USD 15,309.996 million against the MTMF projection of USD 31,400 million. Remittance as percentage of GDP has been increasing over the years till FY 2009-10 when it was 10.95. However in FY 2010- 11, the amount of remittance flow in the country totals Tk. 82,992.89 crore while the amount of remittance as a percentage of GDP drops down to 10.54. In FY 2011-12, if the current rate of decline continues, the remittance as a percentage of GDP might drop down to 9.98 while the percentage change in remittance might be 8.27. Under the business as usual scenario, the per cent change might slide down to 7.09 but remittance as a percentage of GDP might increase to 11.12 in FY 2014-15. The positive relation between growth of remittance and GDP is observed till FY 2003-04 when growth rate of GDP was 6.27 per cent. But after FY 2003-04, the growth rate of GDP decreased with the increase of remittance due to the higher rate of inflation, which remained higher than the growth rate of GDP. In FY 2010-11, the growth rate of remittance is 9.04 per cent while the growth rate of GDP remains at 6.66 per cent and rate of inflation increases to 8.8 per cent. The continuation of current trend might witness the declining growth rate of remittance and GDP at 6.62 and 5.46 per cent because of mounting pressure of inflation.

Remittance as a percentage of export earning was on the rise since FY 2007-08 when it was 56.09 per cent. In FY 2010-11, the growth from export earnings is 41.74 per cent higher than that of previous fiscal year and remittance as percentage of export earnings has dropped down to 50.82 per cent. Under the business as usual scenario, export earning in FY 2014-15 might increase to USD 29,699.696 million while remittance as per cent of export earnings might stand at 51.55 per cent. In FY 2010-11, flow of remittance has increased by 6.03 per cent than that of previous fiscal year and reaches at USD 11.65 billion while foreign currency reserve increases by only 1.50 per cent reaches at USD 10.91 billion. If the current trend continues, remittance and foreign exchange reserve in FY 2011-12 might reach at USD 12.56 and 11.84 billion respectively, which might be 7.85 and 8.55 per cent than that of FY 2010-11. In FY 2014- 15, remittance might reach at USD 15.31 billion and foreign currency reserve at 14.64 billion. Remittance plays a significant role for a positive current account balance in any economy. In FY 2010-11, there is a large share of remittance that is USD 11,650 million while the trade deficit is USD 7,328 million, service deficit USD 2,398 million and income deficit USD 1,354 million. Current account surplus in FY 2010-11 is only USD 995 million, which is 73.28 per cent less than that of FY 2009-10 while current account surplus was USD 3,724 million. In fiscal year 2010-11, the growth rate of merchandise export and import is 41.74 and 41.84 respectively and at the same time trade deficit has increased at the rate of 42.20 per cent. As the rule of the thumb states that at least three months import bill equivalent reserve is required for any economy. In FY 2010- 11, gross official reserve totals USD 10.7 billion while gross official reserve (in month of import) is 3.6 months. In FY 2014- 15, receipt of remittance might increase at USD 20 billion,

Gross official reserve at USD 17.6 billion but gross official reserve (in month of import) might fall down further to 3.2 months only. This may further fall down, if the national currency continues to devalue against the major currencies and the rate of growth in import increases at a higher pace than that of export. In fiscal year 2010-11, the average exchange rate of taka against USD is 70.48 than that of 69.19 in FY2009-10 and the percentage change of depreciation of BDT against USD is 1.63. Taka has been further devalued. Considering eight currency baskets, the real exchange rate has been depreciated from 97.78 in FY 2009-10 to 94.18 in FY 2010-11. For the price hike of food product as well as fuel oil, import of machineries for establishing new electricity plant and import of fuel for producing electricity, the demand of foreign reserve has increased. As a result the value of taka against USD has depreciated. The relative share of foreign aid is very low compared to the percentage share of remittance in GDP. In 2010-11, receipt of net foreign aid totals USD 1,049.63 million against total foreign aid of USD 1,777.33 million, the net foreign direct investment amounts USD 768 million while the total amount of remittance is USD 11,650.32 million. Under the business as usual scenario, net foreign aid and flow of remittance in FY 2014-15 might reach at USD 1,066.69 million and USD 15,309.996 million respectively. The growth rate of remittance induces that rate of inflation, if the currency received is not used for purchasing capital goods rather used in buying of consumption goods. In poorer households, remittance may finance the purchase of basic consumption goods, housing, and childrens education and health care. A total of 43 per cent of remittance receipt is spent on food consumption nationally while only 19.2 per cent is spent on cash savings, 6.4 per cent on investment in business. With the amount of USD 11.65 billion, Bangladesh is the seventh largest economy of remittance receiver in FY 2010-11 according to the World Bank. However, the percentage of labor migration has dropped down in the recent years due to the recent economic recession, Middle Eastern political unrest and squeeze in the demand of labor markets. In FY 2010-11, a total of 0.45 million people have migrated from the country which was 6.04 per cent more than that of FY 2009-10. Under the optimistic scenario, labor migration in FY 2014-15 may increase to 0.55 million with an average growth rate of around only 4 per cent which might drop down further, if new markets of labor are not found immediately. The labor migration scenario of Bangladesh is highly country specific. Recent political unrest in these Middle Eastern countries might cause an adverse effect on migration and remittance balance for Bangladesh. The receipts of remittances from Bangladeshi migrants during FY 2010-11 has stood at around USD 11,650.30 million or Tk. 82,992.89 crore that is 11.12 percent of GDP. In FY 2010-11, the amount of remittance from Middle Eastern country totals USD 7,215.53 million which is 0.10 per cent less than that of FY 2009-10. However, remittance from non-Middle Eastern countries in FY 2010-11 totals USD 4,434.79 million, which is 17.80 per cent more than that of the previous fiscal year.

Electronic Fund Transfer: The Bangladesh Electronic Funds Transfer Network (BEFTN) will operate as a processing and delivery centre providing for the distribution and settlement of electronic credit and debit instruments among all participating banks. This Network will operate in a real time batch processing mode. Transaction files received from the banks during the day will be processed as they are received to ensure that if there are conditions that would result in a file or batch reject the banking company will have sufficient time to fix the errors and resubmit the file. All payment transactions will be calculated into a single multilateral netting figure for each individual bank. Final settlement will take place using accounts that are maintained with Bangladesh Bank. Participating banks in the EFT Network and the EFT Operator (BEFTN) will be inter connected via communication links. The use of a communication network facilitates the transmission of payments information that provides faster, safer and a more efficient means of inter bank clearing than would be possible using the existing paper based system. BEFTN will provide the capability to offer a wide range of electronic products that will improve payment services for the participating banks customers. BEFTN will dramaticall y lower the operational cost, reduce risk and will also increase the efficiency of the overall payment process.

Have you heard About BEFTN ? ans : You must have heard that Bangladesh Bank has gone live with BEFTN ( Bangladesh Electronic Fund Transfer Network ) to facilitate you interbank payment. This paperless payment system has brought in significant changes in the interbank fund transfer mechanism of the country which will translates into increased efficiency to manage your payables. Shahjalal bank is one of the first few banks and the only foreign bank to go live successfully during the 1st test run. After settlement of the teething problems in the settlement system, BEFTN is now well poised to route your transactions through it.

What Benefit does it brings for you? ANs: 1. highly secured since no chance of alteration unlike in the case of existing paper based instruments. 2. Efficient since its paperless and automated thus it will optimize your cash flow management process and working capital cycle. 3. Smooth payment to beneficiaries in 7000+ bank branches across the country.

PARTICIPANTS IN BEFTN of SJIBL

The EFT Network is a multilateral electronic clearing system in which electronic payment instructions will be exchanged among Scheduled Banks. The system involves transmitting, reconciling and calculating the net position of each individual participant at the end of each processing cycle. The participants involved are:

(a) Originator. (b) Originating Bank (OB) (c) Bangladesh Electronic Funds Transfer Network (EFT Operator) (d) Receiving Bank (RB) (e) Receiver (f) Correspondent Bank

a) Originator The Originator is the entity that agrees to initiate EFT entries into the network according to an arrangement with a receiver. The originator is usually a company, government agency or an individual directing a transfer of funds to or from a consumers or a companys account. The originator executes an EFT fund transfer entry through an Originating Bank (OB).

b) Originating Bank (OB) The originating bank is the bank which receives payment instructions from its client (the originator) and forwards the entry to the BEFTN. A bank may participate in the EFT system as a receiving bank without acting as an originating bank; however, if a Bank chooses to originate EFT entries, it must also agree to act as a receiving bank.

c) Bangladesh Electronic Funds Transfer Network (BEFTN) BEFTN is the central clearing facility, operated by Bangladesh Bank that receives entries from OBs,distributes the entries to appropriate RBs, and facilitates the settlement functions for the participating banking institutions

d) Receiving Bank (RB) The receiving bank is the bank that will receive EFT entries from BEFTN and post the entries to the account of its depositors (Receivers). e) Receiver A receiver is a person/organization who has authorized an Originator to transmit an EFT entry to the account of the receiver maintained with the Receiving Bank (RB).

ii.

Foreign Exchange Business:

Foreign Exchange Business plays a vital role in providing substantial revenue in the bank income pool. Like all modern banks SJIBL operates in the area of the foreign exchange business. There are two types of foreign exchange business viz. a) Export Department b) Import Department iii. Investment and other activities:

Investment is one of the most important activities in banking .Like other banks SJIBL is investing its funds in different sectors. Its some important schemes are Small Business Investment Scheme, Household Durable Investment Scheme, Cur Purchase Investment Scheme, Overseas Employment Investment Scheme, Investment Scheme for Executive, Investment Scheme for CNG Conversion, Marriage investment Scheme etc. Besides these activities, SJIBL performs different activities for the welfare of the society.