Investment and Foreign Exchange operation of

Islami Bank Bangladesh Limited (IBBL)

Table of Contents:
LIST OF ILUSTRATION
ILUSTRATION.......................................................................................................
.......................................................................................................33
EXECUTIVE SUMMARY.............................................................................................................
.............................................................................................................44
ACKNOWLEDGEMENT
ACKNOWLEDGEMENT......................................................................................................
......................................................................................................55
CHAPTER ONE: INTRODUCTION:
INTRODUCTION:..................................................................................
..................................................................................66
1.1 PURPOSE........................................................................................................................6
1.2 SCOPE:............................................................................................................................6
1.4 METHODS OF DATA COLLECTION..........................................................................8
The study is performed based on the information extracted from different sources collected
by using a specific methodology. This report is analytical in nature. The methodology is...8
1.5 LIMITATION OF THE STUDY:....................................................................................9
..................................................................................................................................................
..................................................................................................................................................99
CHAPTER TWO: PROFILE OF IBBL
IBBL..............................................................................
..............................................................................10
10
2.1 INTRODUCTION:
INTRODUCTION:..........................................................................................................
..........................................................................................................10
10
Analysis:..........................................................................................................................47
Investment in Different Mode: ........................................................................................47
Table:
(Amount in million Tk.). .47
................................................................................................................................................
................................................................................................................................................48
48
CHAPTERFOUR: FOREIGN EXCHANGE OPERATION
OPERATION............................................
............................................48
48
OF IBBL ................................................................................................................................
................................................................................................................................48
48
4.2 FOREIGN EXCHANGE:..............................................................................................48
4.3 Functions of Foreign Exchange Department:................................................................49
Exports:................................................................................................................................49

LIST OF ILUSTRATION

EXECUTIVE SUMMARY
Islamic banking is relatively a new concept in the world. Before the inception of Islamic
banking phenomenon, banks were institutes to be avoided by the millions of Muslims.
Keeping aloof themselves from banking, Muslims began to loss their market in the world
economy. As the competition the business world became more and more severe,
businesspersons had no alternative banking premises and many of them were getting
involved in the traditional banking. However, the traditional banking is based on interest,
which is fully prohibited in Islam. To overcome this problem, Muslim scholars, philosophers,
economists etc. were thinking to establish a new interest-free banking structure right from the
1940s. At last, they succeeded to formulate an appropriate Islamic banking structure. Many
previous studies have been done in this regard. Islam is a complete code of life. It does not
allow anything to be done in unislamic. So Islamic banks do not give more importance only
on earning profit but also try to ensure social welfare in terms of its activities. Collecting
foreign remittance is one of the important functions of the Islamic Bank. It is one type of a
social activity and other side important source of banks income. Foreign remittance account
is conducted based on profitability and safety of funds. One of the main objectives of
collection of foreign remittances is to build up strong economic position of the country and
other is increase profitability of the bank. Bank has several scheme for non-residents
Bangladeshi and it always try to collect remittance of those people by easier way that is
helpful for those people and benefit for Bangladesh government. IBBL has representatives in
different countries to motivate non-residents Bangladeshi to open account and send their
income as they save. Therefore, IBBL plays an important role to improve foreign remittance
of the country. It will also participate for different development programmed and build up of
social infrastructure, which is a part of states planning. Bank also uses their collecting
money with the participation of govt. for creating more employment opportunities.
Foreign remittance increase banks reserve and ultimate result is increase of Bangladesh
Bank reserve and supporting to strong economic position of the country. All of the
investment activities of the banks are conducted based on Islamic shariah. I tried to show the

role of IBBL to improve foreign remittance and improve the economic condition of the
country.

ACKNOWLEDGEMENT
It is a great honor for me to submit this report to my respected internee supervisor and
madam associate professor Ms.Samina M.Saifuddin. At first I want to convey my thanks and
gratitude to her for assigning me to prepare internship report entitled, Investment and
Foreign Exchange operation of IBBL, that help me to gather practical knowledge about the
Investment and Foreign Exchange operation of IBBL.
It would not be possible for me to complete this report, but for her help. Her continuous and
enthusiastic monitoring has motivated me to reach my goal on time and with efficiency. My
debt to her can only be gratefully acknowledged but can never be compensated.
Last but not least thanks to Md. Kawsar Ul Alam, Vice President, Mohammead Akhter
Hossen, Senior principal Officer, Md. Omar Faruk, principal Officer, Roizul Islam, Assistant
Officer, Arifur Rahman, Officer, and other officials of IBBL for their comments &
assistance. I express my deepest sense of regards and gratitude to them.

CHAPTER ONE: INTRODUCTION:

1.1 PURPOSE
Every activity is directed to achieve some specific purpose. This Internship Report also
serves some specific purposes. The main purposes of this study are mentioned below:

To understand and analyze the Islamic Banking system of Bangladesh and its policies
& regulations.

To understand and analyze foreign exchange mechanism of Islami bank.

To understand and analyze foreign remittance role of IBBL and also contribution to
the economy.

To make possible suggestions and recommendations for increasing foreign

remittances through Islami bank Bangladesh Ltd.

To know how to make investment by IBBL under different modes

1.2 SCOPE:
The scope of this report is analytical. This report mainly focuses on the investment and
foreign exchange operation of IBBL This report covers the details discussion of investment
operation of IBBL. Import & Export business procedures of IBBL are also discussed in this
report. Foreign remittance policies of IBBL are discussed herewith. Various statistical data
are shown in this report.
This report does not cover the General Banking activities of IBBL, Social activities of IBBL
etc.

1.3 BACKGROUND

For an expanding economy, a developed and efficient banking system is indispensable.

Among others, it helps transfer of financial resources from surplus units to deficit units and,
hence, helps accelerate the pace of development by securing uninterrupted supply of
financial resources to people engaged in numerous economic activities. The tremendous
development that the world economy has experienced in the last few decades was contributed
by several factors among which, growing institutional supply of loan able funds must have
played the pivotal role. The role of banking is comparable to what an artery system does in
the human body. Both commercial banks and other development financial institutions
provide short-term, medium-term, and long-term credits to businessmen and entrepreneurs
who usually take the lead in ventures of economic development. Institutional supply of credit
has been made possible by a system of financial intermediation organized in a way where
conventional banks collect small savings from the public by offering them a fixed rate of
interest and advancing the loan able funds out of the deposited money to enterprising clients
charging relatively higher rates of interest.
The margin between these two rates is the bank's income. In addition, banks also provide
many other services to the public for which it receives service charges. For millions of
Muslims, traditional banks are institutions to be avoided. Islam is a religion, which keeps
believers from the teller's window. Their Islamic beliefs prevent them from dealings that
involve usury or interest (Riba). Yet Muslims need banking services as much as anyone and
for many purposes: to finance new business ventures, to buy a house, to buy a car, to
facilitate capital investment, to undertake trading activities, and to offer a safe place for
savings. For Muslims are not averse to legitimate profit as Islam encourages people to use
money in Islamic legitimate ventures, not just to keep their funds idle.
However, in this fast moving world, more than 1400 years after the Prophet (Sm), can
Muslims find room for the principles of their religion? The answer comes with the fact that a
global network of Islamic banks, investment houses and other financial institutions has
started to take shape based on the principles of Islamic finance laid down in the Quran and
the Prophet's traditions 14 centuries ago.

Islamic Banking beyond the traditional banking system will serve the purpose of Islamic
ideology of complete code of life. One could conclude that Islam has many universal values
in common with the west. As Islam believes the earlier scriptures in its original form were
from the same God (Allah), this is not surprising. However, the specific prohibition of
interest and establishment of the zakat tax, and the status of law on gambling, uncertain
contracts etc. which are prohibitions and not moral exhortations, implies that the objectives
of banking in Islam is different from conventional and even to a certain extent social and
environmental investment. Thus, there is a need for an Islamic investment system and foreign
exchange operation in the Banking arena.

1.4 METHODS OF DATA COLLECTION

The study is performed based on the information extracted from different sources
collected by using a specific methodology. This report is analytical in nature. The
methodology is
Population: All the Branches of IBBL located in everywhere in Bangladesh has been taken
into consideration as population.
Sample: Islami Bank Bangladesh Ltd, Corporate office & Islami Bank Training centre
Data collection: The data are collected from both primary and secondary sources:

Primary Sources:

Face to Face conversation with the respective officers and staffs.

Interviewing officers and staffs.

Sharing practical knowledge of officials.

Relevant file study provided by the officers concerned.

In-depth study of selected cases.

Secondary Sources:

Annual Report of IBBL

Audit Reports

Website

Relevant books, Research papers, Newspapers and Journals.

Internet and various study selected reports.

1.5 LIMITATION OF THE STUDY:

High degree of involvement regarding collection of information, review of literature and
analysis of information requires for any kind of research work. This study has suffered from
certain constraints noted below:

Unpublished data have not considered for the study.

The depth of the analysis has been limited to the extent of information collected
from different sources.

Last of all, this study has been conducted within a limited time. So, time
constraint has played a key role for the whole study.

Lack of co-operation of the respondents.

CHAPTER TWO: PROFILE OF IBBL

2.1 INTRODUCTION:
Islami bank Bangladesh Limited (IBBL) was established in 1983 with a view to conducting
its banking activities based on the principle of Islamic Shariah. In 1987 Oriental Bank (AlBaraka Bank) Bangladesh Limited the second Islamic Bank was established. There are seven
Islamic Banks in Bangladesh. These are:

Islamic Bank Bangladesh Limited (1983)

Social Invested Bank Limited (1995)

Al Faisal Bank Limited (1995),

Al-Arafah Islamic Bank Limited (1995)

Shahajalal Bank Ltd.

Exim Bank Ltd (two branches).

Also Prime Bank Ltd. Dhaka Ltd., Southeast Bank Ltd., Premier Bank Ltd. And some other
Banks are thinking about the opening of Islamic Branches
2.2 DEFINITION OF ISLSMIIC BANK:
According to Organization of Islamic Conference (OIC), Islamic bank is a financial
institution whose statutes, rules and procedures expressly state its commitment to the
principles of Islamic Shariah and to the banning of the receipt and payment of interest on any
of its operations.
According to Dr. Ziauddin Ahmed Islamic Bank is essentially a normative concept and
could be defined as conduct of banking in consonance with the ethos of the value system of
Islam.

2.3 Historical Background of IBBL:

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. In January
1981, the President of Peoples Republic of Bangladesh While addressing the third Islamic
conference held at Mecca and Taif suggested The Islamic countries should develop a

10

separate banking system of their own in order to facilitate their trade and commerce". This
statement of the president indicated favorable attitude of the government of the Peoples
Republic of Bangladesh towards establishing Islamic banks and financial institution in the
country.
In early November 1980, Bangladesh bank, the countrys Central Bank, sent a representative
to study the working of several Islamic Banks abroad.
In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to
participate in establishing a joint venture Islamic bank in the private sector. They found a lot
of work had already been done and Islamic banking was in a ready from for immediate
introduction. Two professional bodies of Islami Economics Research Bureau (IERB) and
Bangladesh Islami Bankers Association (BIBA) made significant contribution towards
introduction of Islami banking in the country.
They came forward to provide training of Islamic banking to top bankers and economists to
fill up the vacuum of leadership for the future Islami bank in Bangladesh. They also had
seminars, symposiums and workshops on Islami economic and banking throughout the
country to mobilize public opinion in favor of Islami banking. Their professional activities
were reinforced by a number of Muslim entrepreneurs working under the support of the then
Muslim Businessmen society (now reorganized as Industrialist & Businessmen Association).
The body concentrated mainly in mobilizing equity capital for the emerging Islami bank.
At last, the long drawn struggle to establish an Islami bank in Bangladesh become a reality
and Islami bank Bangladesh limited was established in march 1983 in which 19 Bangladeshi
national, 4 Bangladeshi institutions and 11 banks, financial institutions and government
bodies of the middle East and Europe including IDB and two eminent personalities of the
kingdom of Saudi Arabia joined hands to made the dream a reality.
Later, other Islami Banks, Islami Insurance Companies and Financial Institution were
established in the country. Some traditional banks opened Islamic banking branches in some
major cities.

2.4 Management of IBBL:

A Board of Directors consists of 13 directors those are elected from the foreigners and local
shareholders. They provide policy guide lines to Islami Bank Bangladesh limited. The Board
of Directors forms an Executive Committee for smooth and efficient operations of the Bank

11

Executive Committee consists the members of the Board. Besides, a Management committee
consisting of the senior executives headed by the chief executive looks after the actual
operations of the Bank.

2.5 ORGANIZATIONAL STRUCTURE OF IBBL:

Executive President (EP)

Deputy Executive President (DEP)
Executive Vice President ( EVP)
Senior Vice President (SVP)
Vice President (VP)
Assistant Vice President (AVP)
Senior Principal Officer (SPO)
Principal Officer (PO)
Senior Officer (SO)
Officer
Probationary Officer
Assistant Officer Grade - I
Assistant Officer Grade - II
Assistant Officer Grade - III

12

2.6 Mission of IBBL:

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

2.7 Vision of IBBL:

Vision of IBBL is to always strive to achieve superior financial performance, be considered a
leading Islami Bank by reputation and performance.

Goal of IBBL is to establish and maintain the modern banking techniques, to ensure
the soundness and development if the financial system based on Islami principles and
to become the strong and efficient organization with highly motivated professionals,
working for the benefit of people, based upon accountability, transparency and
integrity in order to ensure the stability of financial systems.

IBBL will try to encourage saving in the form of direct investment.

IBBL will also try to encourage investment particularly in projects which are more
likely to higher employment.

2.8 FEATURES OF IBBL

The bank is committed to run all its activities as per Islami Shariah. IBBL through its steady
progress and continuous

success has earned the reputation of being one of the leading

private sector banks of the country. The distinguishing feature s of IBBL is as follow:

All its activities are conducted on interest-free banking system according to

Islamic Shariah.

Establishment of participatory banking instead of banking on debtor-creditor

relationship.

Investment is made through different modes permitted under Islami Shariah

13

Investment income of the Bank is shared with the Mudaraba depositors according
to a ratio to ensure a reasonable fair rate of return on their depositors.

Its aims are to introduce a welfare-oriented banking system and also to establish
equity and justice in the field of all economic activities.

It extends Socio-economic and financial services to the poor, helpless and lowincome group of the people for their economic up liftmen particularly in the rural
areas.

It plays a vital role in human resource development and employment generation

particularly for the unemployed youths.

Its aim is to achieve balanced growth and equitable development of the country
through diversified investment operations particularly in the priority sectors and
in the less developed areas.

It extends co-operation to the poor, the helpless and the low-income group for
their economic development.

2.9 Functions of IBBL:

Islami Bank Bangladesh limited is performing the following functions:

To maintain all types of deposit accounts.

To make investment.

To handle foreign exchange business.

To extend other banking services.

To conduct social welfare activities through Islami Bank Foundation.

2.10 Capital of the IBBL:

The authorized capital of the bank is Tk. 5000.00 million and paid up capital is Tk. 3456.00
million as on 31st December, 2006.

2.11 Equity:
Total equity of the bank as on 31st December, 2006 was Tk 10,261.50 million.

14

CHAPTER THREE:
INVESTMENT ACTIVITIES OF IBBL
Conventional and Islamic bank operate to earn profit but they differ in the way of operation.
Islami Bank emphasises on the legitimate (Halal) business. On the other hand traditional
bank is not operated by the following rules and regulations approved by Islam that is the
most powerful contradiction between them. Islamic Bank does not invest in loans and fixed
interest securities. It can invest in ordinary share only while interest based bank can invest in
loans and different kinds of securities. Islami Bank establishes and participate projects with
its client as a partner and bears the risk along with the client on a proportionate basis. The
bank takes deposits and invests the same based on the profit-loss sharing. Bank go for the
investment mainly which are long term and profitable in nature. IBBL also give high
concentration on the investment that will generate more employment. As investment is one of
the most priority areas for the IBBL, so it needs to cautious in investment decision. To ensure
proper investment IBBL always go with in-depth study before making the investment.
The special feature of the investment policy of Islamic Banks is to invest based on profit-loss
sharing system in accordance with the tenets and principles of Islamic Shariah. Earning of
the profit is not the only motives and objectives of the Islamic Banks investment policy
rather emphasis is given in attaining social good and in creating employment opportunities.

3.1 Objectives and principles:

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

To invest fund strictly in accordance with the principles of Islamic Shariah.

15

To diversify its investment portfolio by size of investment portfolio by sectors (Public

&Private), by economic purpose, by securities and by geographical area including

industrial, commercial & agricultural.
To ensure mutual benefit both for the bank and the investment client by professional

appraisal of investment proposals, judicious sanction of investment, close and

constant supervision and monitoring thereof.

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 development schemes for poverty alleviation, income and

employment generation with a view to accelerate sustainable socio-economic growth

and uplift of the society.
To invest in the form of goods and commodities rather than give out cash money to

the investment clients.

To encourage social uplift enterprises.

To ensure avoid all the investment forbidden by the Islami shariah.

The bank extends investment under the principles of Bai-murabaha, Bai-Muajjal, Hire
Purchase under Shirkatul Melk and Musharaka.

3.2 Investment policy of IBBL:

Investment policy of Islamic Bank and non-Islamic bank are fully different. The investment
policies of Islamic bank are:

Strict observance of Islamic Shariah principles.

Investment to national priority sectors.

16

Diversified investment portfolio: Diversification by size, sector, geographical area,

economic purpose, securities and mode of investment.

Preference to short-term Investments.

Preference to investment of small size.

To ensure safety & security of investments

To look profitability of investments.

To give support to government denationalization industrial program.

Investment to trade and commerce sector.

Investment to industrial sectors.

Investment to Foreign Trade (import & export).

Exploration of the possibility of investment in the existing Money & capital Market
and help organization of Islamic Money & Capital Market

3.3 Investment Strategy of IBBL:

Investment strategy of Islamic Bank and interest-based bank are contradictory. The
investment strategies of Islamic Bank are:

To check exodus of investment clients.

To induct new investment clients.

To induct good investment clients of other Banks.

To enhance existing limits of good investment clients.

Extension of investment transport sector.

17

Extension of investment to backward as well as forward linkage industries.

Extension of investment to real Estate Sector.

Extension of investment to Jute sector; particularly for trading and export purpose.

Strengthening supervision, control and monitoring mechanism.

Training and motivation of manpower to handle increased and diverse volume of

investment s.

To give due consideration to high risk, high return and low risk, low return
investment proposals.

Adaptation of modern technology

3.4 Steps in Investment Operations:

Induction of client:

Preliminary discussion with the prospective client regarding his investment needs,
business experience, viability of the project and Shariah permissibility of the assets
the business and the uses of the assets.

Brief him on the salient features of Hire Purchase under Shirkatul Milk mode of
Investment. Apprise, in particular, the usual terms and conditions under which the
Bank made such investment. Discuss about Clients equity participation and its
immediate availability.

Look to the past performance of the Client, Check-up Head Office Current
Investment Policy and Branchs track record of Hire purchase under Shirkatul Melk
Investment of the item(s).

If the Proposal is found permissible under Islamic principles and suitable, advise the
Client to submit formal Application. If not found suitable, regret politely.

Request potential Client to open an Al-Wadeeah Current account. Let him maintain
the Current account. Let him maintain the current Account satisfactorily for a
reasonable period. (This will generally mean six month).

18

Application:

Obtain application in triplicate from the client of F-167A and record the same in the
Investment Proposal Received and Disposal Register (B-53).

Obtain and affix attested photograph(s) of the Proprietor /Partner/Directors/ Trustee/

Administrator on the top right hand corner of the application.

Processing and Appraisal:

Checkup credit Restriction schedule of Bangladesh Bank and Head office current
investment policy guideline. Reject the proposal, if it conflicts with the existing credit
restrictions of Bangladesh Bank and Head Office Policy Guidelines.

Visit the Business Establishment of the Client. Tally/briefly the securities, particulars,
information and figures given in the Application form with the original
Documents/Papers and are sanguine about its genuineness and correctness. Obtain
additional information, particulars, and facts and figures, if required.

Talk to his business and important personalities of the locality to ascertain the honesty,
integrity and business dealings of the Client.

Request for Confidential Report of the Client from local bank branches is received.
Confidential Reports should also be obtained from local Financial, Credit and Leasing
Institutions, if felt necessary.

Obtain Report from Credit information Bureau (CIB) of Bangladesh Bank through Head
Office Investment division as per Circular issued by H.O from time to time in this regard.

Obtain declaration of the client about his liability (both contingent and real) with other
Banks/financial Institutions/Leasing Companies etc. including any other branches of
IBBL.

Obtain financial statement /Balance Sheet of the concerned application for last three
consecutive. Accounting years for investment proposals of Tk. 50 lac and above or as per
Head office instruction. This is to be furnished by all clients irrespective of their status.

Forward the documents, title deeds and other relevant papers to the approved lawyer of
the Bank for examination and furnishing his opinion.

Obtain lawyer opinion as per clause no.7.18.2 (i)

Please study the following carefully and note down the actual finding in the appraisal
from against each item.

Whether the assets, which the client intends to, hire and purchase, are readily useable and
has constant and effective demand in the market.

19

Whether the price of the asset is subject to frequent and violent changes.

Whether the asset is non-fungible or has flow of services.

Whether the quality and other specifications of the asset as desired by the Client can be
ensured.

Whether

the

assets

are

available

in

the

market

and

it

is

possible

to

purchase/construct/manufacture/make the asset in time and the negotiable price/cost.

Whether rental and sale price of the assets are payable by the Client at the agreed
specified future date is lump sum or by instilments as per proposal.

Whether Client & Banks equity ration is fixed to cover the price of the asset.

Whether the project/deal is profitable to generate sufficient fund to pay the rent/sale price
by the Client within the deal period.

Market price and cost price should be carefully studied by the Investment Committee of
the branch and properly recorded, verified and signed.

For Hire Purchase under Shirkatul Melk Investment. (Other than the Schemes), prepare
Appraisal Report on F-167B.

Documentation:
Before purchasing the asset/property by the Bank, obtain sufficient collateral securities as
mentioned in the sanction advice along with the following charge documents properly
executed i.e. duly filled in, signed, stamped, verified and witnessed where necessary:

Hire Purchase under Shirkatul Melk Sanction Advice deal-wise duly accepted by the
client.

Hire Purchase under Shirkatul Melk Agreement (Deal-wise).

Letter of Pledge (Deal-wise)/Mortgage Deed.

Single party D.P. Not, if there is no guarantor.

Double party D.P. Not, if there is guarantor (s) to be made by the Client in favor of
the guarantor and endorsed by the later to the Bank.

D.P. Not Delivery letter.

Letter of Hypothecation for the asset(s) and Clients stock in Trade/work-in-process.

Letter of Disclaimer, (if stored in Clients/Partys own/hired Godown.

Insurance policy (If stored in Clients/Partys Godown/yard under Banks effective

control) duly recorded in insurance register.

Letter of guarantee.

Balance confirmation letter.

20

Letter of installments.

Letter of Disbursement.

If the investment is made collaterally secured by Mortgage of property, obtain the following
documents:

In case equitable mortgage, Memorandum of Deposit of Title Deep (MDTD) signed

by the owner of the property.

In case of Legal Mortgage, Registered Mortgage Deed should be obtained.

Personal Guarantee of the owners of the property on.

Original Title Deeds with CS, RS, SA, Mutation Parcha, DCR of the property and
Mutation record.

Up-to-date Rent Receipt.

Non-encumbrance Certificate along with Search Fee Paid Receipt of the concerned
Registry/Sub-Registry office.

Site plan (Map/Naksha) of the Mortgaged property.

Valuation Certificate countersigned by the Manager certifying the Market value and
the Forced sale value.

Legal opinion should be self-contained, without any ambiguity and clean in all
respects.
Where the Investment is secured by pledge/Hypothecation of Stock-in-Trade, Machineries
etc., also obtain the following Document:

Letter of Pledge asset & goods security, for Clients stocks in Trade/work-in-Process
etc. if any.

Letter of Hypothecation for Clients stocks, stores, Work-in-Process etc.

Legal Mortgage of Machineries with full details of each machinery

In case the investment Collaterally/ Additionally secured by Pledge of Shares of reputed

Public Limited Company on Banks approved list and quoted in the Stock Exchange, the
following additional documents are to be obtained:

Agreement for Pledge of share along with original share certificates (No share in the
name of minor shall be accepted as security).

Blank Share Transfer Deed in Duplicate on copy signed, dated and another copy
signed and undated.

Share Delivery letter addressed to the Bank.

21

Letter to the concerned Company to register Line in Banks favor. This notice shall
be sent be registered acknowledgement due post (registered A/D post) and
confirmation of recording the Line shall be obtained from the concerned company.

Letter of authority in Banks favor duly signed by the shareholder.

In case of investment to Private or public Limited Company, obtain the following additional
document:

Obtain certified copy of the Memorandum and Articles of Association of the

company to ensure that the company has necessary power to borrow/avail investment
from any Bank.

Resolution of the board Directors

of the Company to avail
Investment/Facility/Borrow, do Business with IBBL and authorizing the office
bearers to execute necessary Documents.

Personal Guarantee of the Directors of the Company.

If the investment is allowed on Hypothecation of assets.

Certificate issued by the registrar of Joint Stock Companies under section 114 of The
Companies Act-1994 in respect of creation of charges.

Copies of Memorandum and Articles of Association with the latest amendments

A copy of the Certificate of Incorporation duly attested by the Incumbent-In-Charge

of the Branch.

A copy of the certificate of commencement of Business duly attested by the

Incumbent-In-Charge of the Branch.

In case of investment to a trust organization obtain the following Document in addition to

other charges Documents:

Copy of trust deed duly attested by a 1st class Gazette officer and verified by the
incumbent-in-charge of the branch with the original copy. The Trust Deed must
contain a clause authorizing the Trustees to do Business with banks and to avail
investment facilities /borrow from banks.

Resolution of the Board of Trustees to do business with IBBL and avail

investment/borrow from IBBL.

The charge documents and all other agreements shall be signed /executed by persons
authorized by all the members of the board of Trustees, in Trustees are authorized to
delegate their powers by the trust Deed; otherwise all the Trustees must sign/execute
the charge documents and all other agreements.

22

Personal guarantee of all the members of the board of trustees must be obtained.

In case of investment to co-operative security, obtain the following documents also:

Clearance from the register of co-operative societies for doing business and avail
faculties / investment from IBBL within the annual borrowing limit of the society.

Litter to be issued to; the concerned registrar of co-operative societies under

registered A/D Mail informing about allowing investment /facility to the concerned
society by the bank as per clearance accorded by him.

Personal guarantee of the office Bearers of the society if their personal capacity.

A copy of the byelaws of the society duly certified by the registrar of the co-operative
societies.

3.4 Growth of investment:

The investment of the Bank demonstrated steady growth over the years. The total investment
of the Bank stood at TK.1, 23,950.4 million as on 31st in 2006 registering a growth rate of
21% against the same period of the previous year.

Table: Growth of investment

(Taka in million)
Year

Investment

Rate of Increase

1997

16,392.40

-1%

1998

17,366.27

6%

1999

22,198.26

28%

2000

29,563.20

33%

2001

37,648.56

27%

2002

49,185.92

31%

2003

62,755.90

28%

2004

83,893.63

34%

2005

1,02,144.51

22%

2006

123,950.40

21%

23

80000
70000
60000
50000
40000

Investment

30000
20000
10000
0

2001

2002

2003

2004

2005

2006

3.5 Investment Instrument of IBBL:

IBBL invests money in various sectors of the economy through different modes permitted by
Shariah and approved by the Bangladesh Bank. The modes of investment are discussed
bellow:
A. Profit & Loss Sharing Mode
Mudaraba: It is a form of partnership where one party provides the fund while the other
provide the expertise, labor and the letter referred to at the Mudaraba any profits accrued are
shared between the two parties on a pre agreed basis, while capital loss in exclusively born
by the partner providing the capital.
Musharakah: The term Shirkat and Musharaka have been derived from Arabic words
Shairkah and Sharika. The word shirkah means a partnership between more than one
partner. Thus the ward Musharaka and Shirkat means a partnership established between
two or more partners for purpose of a commercial venture participate both in the capital and
management where the profit may be shared between the partners as per agreed upon ratio
and the loss. If any incurred, is to be borne by the partners at per capital Lequity ratio.
B. Bai Mode
Bai-Murabaha: Bai-murabaha may be defined as a contract between a buyer and a seller
under which the sells certain specific goods (permissible under Islamic Shariah and the law
of the land) to the buyer at a cost plus agreed profit payable in cash or on any fixed future

24

data in lump sum or by installments. The marked up profit may be fixed in lump sum or in
percentage of the cost price of the goods.
Bai-Muajjal: Bai-Muajjal may be defined as a contract between a buyer and seller under
which the seller sells certain specific goods permissible under Islamic Shariah and law of
the country to the buyer at an agreed fixed price payable at a certain fixed future date in
lump sum or within a fixed period by him as per order and specification of the buyer.
Bai-Salam: Bai-Salam may be defined as a contract between a buyer and a seller under
which the seller in advance in the certain commodity/products permissible under Islamic
Shariah and the law of the land to the Buyer at an agreed price payable on execution of the
said contract and the commodity products to the buyer at a future time in exchange of an
advance price fully paid on the spot
Istishnaa: Istishnaa is a contract between a manufacturer/seller and a buyer under which the
Manufacturer/seller sells specific product(s) after having manufactured, permissible under
Islamic Shariah and Law of the Country after having manufactured at an agreed price
payable in advance or by installments within a fixed period or on/within a fixed future date
on the basis of the order placed by the buyer.
C. Rent Sharing Mode:
Ijarah (Lease): The term Ijarah has been derived from the Arabic words Ajr and Ujrat, which
means consideration, return, wages or rent. This is really the exchange value or
consideration; return wages font of service of an asset. Ijarah has been defined as a contract
between two parties, the Hiree andHirer where the Hirer enjoys or reaps a specific service or
benefit againsta specified consideration or rent from the asset owned by the Hiree .to a Hirer
against fixed rent or rentals hires out a certain asset for a specified period.
Ijarah wa Iqtina (Hire Purchase): This term refers to a mode of financing adopted by Islami
banks. It is a contract under which the Islami Bank Finance equipment, building, or other
facility for the client against an agreed rental together with an undertaking from the client to
purchase the equipment or the facility. The rental as well as the purchase price is fixed in

25

such a manner that the bank gets back its principal sum along with some profit which is
usually determined in advance.
Hire Purchase under Shirkatul Melk: Hire Purchase under Shirkatul Melk is a Special type of
contract that has been developed through practice. Actually, it is a synthesis of three contacts:
i) Shirkatul Melk: Shirkat means partnership. Shirkatul Melk means share in ownership.
When two or more persons supply equity, purchase an asset, own the same jointly, and share
the benefit as per agreement and bear the loss in proportion to their respective equity, the
contract is calledShirkatul Melk contract.
ii) Ijarah: The term Ijarah has been derived from the Arabic words (Air) and (Ujrat) which
means consideration, return, wages or rent. This is really the exchange value or
consideration, return, wages, rent of service f an asset. Ijarah has been defined as a contract
between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service or
benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire
agreement under which the Hiree to a Hirer against fixed rent or rentals hires out a certain
asset for a specified period.
iii) Sale: This is a sale contract between a buyer and a seller under which the ownership of
certain goods or asset is transferred by seller to the buyer against agreed upon price paid / to
be paid by the buyer.
Thus, in Hire purchase under Shirkatul Melk mode both the Bank and the
Client supply equity in equal or unequal proportion for purchase of an asset like land,
building, and machinery, transport etc.

Mode wise investment:

26

0.13%

Modewise Investment of IBBL

1.06%
Bai-Murabaha

2.23%
3.18%

HPSM

0.04%

Bai-Muajjal

0%

7.56%

Purchase & Negotiation

Quard-E-Hasana
55.01%

30.77%

Bai-Salam
Mudaraba
Musharaka
Others

Investment Sectors:
Sector wise Investment
Sector
Industrial
Commercial
Real Estate
Agriculture
Transport
Others
Total

31-12-2006
Amount (million Tk.) % of total Investment
62,642.10
55.15%
28,983.80
25.52%
8,357.80
7.36%
5,890.00
5.19%
2,722.40
2.40%
4,978.97
4.38%
100.00%

Sector wise Investment of IBBL

50.00%
40.00%

Trade
Commerce
Real Estate
Transport
Agriculture
Others

30.00%
20.00%
10.00%
0.00%

Trade

Agriculture
Commerce Real Transport
Estate

27

Others

3.6 SPECIAL INVESTMENT SCHEMES OF IBBL:

3.6.1 Household Durable Investment Scheme:
In a developing country like Bangladesh people of middle and lower class especially service
holders with limited income find it difficult to purchase articles like refrigerator, television,
cot, Almirah, wadrobe, sofa-set, pressure cooker, sewing machine etc. which are part of
modern and decent living. They cannot enhance the standard and quality of life to the desired
level due to constrain of their limited income. Islami Bank Bangladesh Limited has,
therefore, introduced Household Durables Investment Scheme that has already created great
enthusiasm among the people and received tremendous response from them.
Eligibility:
Interested permanent officials of the following organizations may apply for investment:

Government Organizations.

Semi-Government Organizations and Autonomous Bodies.

Banks and Financial Institutions.

Armed Forces, BDR, Police and Ansars.

Teachers of Universities, Government Colleges, School and Senior Madrashas.

Officers of International Financial & Relief Organization.

Officers of the multinational companies.

Officers of the local established and renowned public limited companies.

House Owners.

28

Investment clients of IBBL.

Deposit client of IBBL.

Mode of Recovery:

The Banks investments and profit thereon shall be recovered in 24 monthly

installments within a period of 2 (two) years.

The monthly installment shall be payable by the first week of every month. The first
installment shall be due for payment in the first week of the subsequent month of the
disbursement/ delivery of goods/articles.
(Taka in million)
Particulars

Household Durable Scheme

2001
865.9

2002
886.79

2003
910.91

2004 2005 2006

878.76 782.0 878.76
9

Trend of Household Durable Scheme

1000
T
k.
(i
n
m
ill
.)

800
600
400
200
0
2001 2002 2003 2004 2005 2006
Year

4.6.2 Housing Investment Scheme

One of the basic human needs is to have a house to live in. A house is an abode of peace and
happiness. Housing has now become an acute problem in the country, especially in the
towns, cities and metropolis. With their limited income, it has become almost impossible on
the part of the lower middle class, middle class and sometimes, even for upper middle class
to solve their housing problem. To meet this basic human need, Isalmi Bank Bangladesh
Limited is committed to contribute to this end to provide a peaceful and happy living. The

29

Bank has introduced Housing Investment Scheme with the objective to ease and minimize
the housing problem and assist service holders and professionals with limited income in
materializing their dream of becoming owner of housing.
Eligibility:
Initially the following categories of people shall be eligible to apply for availing investment
facilities under this Scheme: Officials of the Defense Forces, Permanent Officials of
Government, Semi-Government and Autonomous Organizations, Teachers of the established
Universities, University Colleges & Medical Colleges etc.
Target Area:
At the initial stage, the Scheme is being implemented in all divisional area

Period of investment:

The maximum period of investment shall be generally 15 years.

Reasonable gestation period for construction be allowed considering the size of

construction and Banks investment.

Disbursement Procedure of Investment:

Bank will pay the sanctioned money through Pay-Order directly or through investment client
to the supplier of construction materials/owner of the built house. However, the following
points shall be taken into consideration in disbursing the investment:

In case of purchase of apartment/flat/built house, the client shall have to deposit the
equity money in the Branch of produce documentary evidence in support of his
investment up to the satisfaction of the concerned Branch.

In case of construction of house on the clients own land or for extension of the
existing house, the valuation of the Bank as regards clients investment shall be
consideration final.

The client shall have to submit to the Bank, the construction plan approved by the
competent authority and also the required permission to mortgage the property, where
necessary.

The client must execute all necessary documents including mortgage deed and
complete all necessary documentation formalities to avail the investment. Related

30

documents of mortgage, agreement of sale and other documents must be vetted by the
penal lawyer of the Bank.
Recovery of Banks Investment:

The client shall have to pay the Banks dues by monthly installment immediately after the
expiry of the period of construction.

The Bank shall realize the amount of monthly installment by depositing the cheque of a
particular month on the first week of every month.

The client shall have to execute irrevocable power of attorney in favor of the Bank
authorizing the Bank to collect monthly rent from the tenants incase of failure of the
client to pay the monthly installment.
(Taka in million)
Particulars

2001

Housing Investment Scheme

2002

2003

2004

2005

2006

499.5 597.64 661.56 672.10 609.78 506.75

TK(in million)

Trend of Housing Investment Scheme

700
600
500
400
300
200
100
0
1999

2000

2001

2002

2003

Ye ar

3.6.3 Real Estate investment Program:

Professionals, Service-holders, Businessmen, Real Estate developer and other categories of
people who are not entitled for availing investment facilities under Housing Investment
Scheme, shall be eligible under this program. Investment is to be extended to build new
houses and for extension / completion of the house already constructed, commercial building,
shopping complex, flat/apartment etc
(Taka in million)
Particulars
Real Estate Investment

2001
2002
2003
2004
2005
1641.70 2264.35 3418.85 4713.70 5859.75

31

2006
6582.85

Trend of Real Estate Investment

TK(in million)

4000
3000
2000
1000
0
1999 2000 2001 2002 2003
Year

3.6.4 Transport investment Program

The role modern communication is most vital for the socio-economic growth and uplift of a
developing country like Bangladesh. A sound and efficient communication network is the
pre-requisite for sustained development through the expansion of trade, commerce and
industry. In this backdrop the demand for road and water transport has increased manifold
throughout the country. Moreover, the use of modern transports has increased keeping pace
with the rise of standard of living of professionals. Considering all these facts, Islami Bank
Bangladesh Limited has introduced Transport Investment Scheme Under this scheme
investment on easy terms is being extended to the existing successful businessmen in road
and water transports and potential entrepreneurs in this sector for different types of road and
water transport. Besides, Multinational companies, established business house and well to do
officials and professionals can become owner of various kinds of transports through Hire
Purchase under scheme.
Mode of Transports: Road Transports, Water Transport..
Target Group

Bus/Truck/Minibus

Private car/Microbus/ Jeep

Auto Rickshaw/ Tempo/ Pick-up van

32

Ambulance.

Water transport

.Period of Investment: Maximum 3 years from the date of delivery of the vehicle.
Mode of disbursement:

Banks sanctioned amount shall be disbursed directly to the supplier of the vehicles.

The client shall have to complete all documentation formalities including mortgage of
property before disbursement of the Banks investment.

The cost of chassis and bodybuilding shall be taken into consideration in ascertaining
the price.
Recovery of Banks Investment

The client shall have to repay the dues to the Bank in monthly installment stating
immediately after the expiry of the gestation period fixed by the Bank.

The Bank shall collect the monthly installment of a particular month through
encashment of the cheque in the first week of the concerned month.

If a client fails to pay 3 consecutive installments, the Bank can take back the
possession of the vehicle from the client and sell or transfer it to another client.
(Taka in million)
Particulars

Transport Investment

2001
1,47.50

2002
1,822.38

Scheme

33

2003
2004
2005
2006
2,311.60 2,442.16 2,947.38 2,698.88

Trend of Transport Investment

Scheme

Tk.(in mill.)

2500
2000
1500
1000
500
0
1999

2000

2001

2002

2003

Year

3.6.5 Car Investment Scheme

Islami Bank, being and welfare oriented banking institution, has now deigned and
implemented a good number of investment schemes keeping in view the needs of different
sectors and various sections of the people for their socio-economic uplift and to improve their
quality of life. The investment schemes including the Transport Investment scheme and the
Household Durables Investment scheme so far introduced have gained popularity and
received wide response from the people.
Car is considered as on essential mode of transport in the modern society, particularly by a
section of the officials, business houses and business executives and established professionals
for movement in discharging their duties and responsibilities punctually and efficiently.
Many of these categories of people cannot purchase a car on payment of entire purchase
value at a time out of their own sources. To meet this need Islami Bank has introduced the
Car Investment Scheme for the mid and high ranking officials of government and semigovernment organizations, corporations, executive and directors of big business houses and
companies and also for persons of different professional group on easy payment terms and
conditions.

Eligibility

34

Permanent senior officers/executives of the following organizations: Government

Organizations, Semi-Government Organizations/Autonomous Bodies/Corporations, Banks,
Commissioned Officer of Armed forces, BDR, Police and Ansars, Teachers of the
Universities, Government Colleges, Executives/ Directors of big companies and business
houses of repute, Members of all other professional groups having good income.
Clients 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, whichever is earlier.
Mode of Recovery
Dues to the Bank shall recover in the following manner:

In equal monthly installment along with monthly rent,

The monthly installment shall be payable by the first week of every month.

Post-dated cheques for the whole period of investment mentioning the amount of
monthly installment shall have to be deposit by the client.

The amount of monthly installment shall not exceeded 50% of the total income of the
client

The Branch shall have the right to take possession of the vehicle in case of failure of
the client to pay 3 (three) consecutive monthly installments.

(Taka in million)
Particu 2001
lars
Car Investment Scheme 27.40

2002

2003

2004

2005

2006

28.25

33.58

30.30

27.75

23.54

35

Trend of Car Investment Scheme

Tk.(in mill.)

40
35
30
25
20
15
10
5
0
1999

2000

2001

2002

2003

Year

3.6.6 Investment Scheme for doctors

Islami Bank Bangladesh Limited has taken the initiative an introduced the Doctors
Investment Scheme to ensure modern treatment and medical facilities available to the
people through extension of Banks investment facilities for self-employment of newly
graduated doctors and the same time extending investment facilities to the established
medical practitioners to procure modern and sophisticated medical equipment.
Eligibility Criteria

Newly passed medical graduates who are willing to establish chambers, pharmacies
and small clinics in district and Thana level towns.

Experienced and established doctors who are settled in district and other towns but
cannot procure modern medical equipment to improve their techniques of treatment.

Specialized and consulted physicians who are willing to procure latest and specialized
type of medical equipment.

Newly passed medical graduates who are willing to from groups in order to establish
clinic.

Priority is given to specialist and consultant physicians like dentists, child specialists,
and ophthalmologists etc.

36

Equity: Newly graduated doctors under self-employment scheme 10%, Established doctors
20%, Established Clinics 30%

Mode of repayment

Investment of the Bank is to be repaid on monthly installment basis.

Re-payment of the 1st installment will start after three months from the date of
investment.

If the client fails to pay back three consecutive installments without any satisfactory
reasons, the bank may take possession and control of the machinery and equipment
etc. supplied by the Bank.
(Taka in million)

Particulars
Investment Scheme for Doctors

2001
95.10

2002
97.21

2003
101.01

2004
85.54

Trend of Investment Scheme for Doctors

120

Tk.(in mill.)

100
80
60
40
20
0
1999

2000

2001
Year

37

2002

2003

2005
64.42

2006
33.38

3.6.7 Small Business Investment Scheme

The Bank, to make effective contribution in this respect, has taken-up a special program and
introduced Small Business Investment Scheme to make the small traders, entrepreneurs and
neglected unemployment youth of urban and rural areas self-reliant by providing them
required financial support
Eligibility of the Clients

Investment clients must be permanent residents of the command area of the branch

They must have valid trade license and shops or selling centers.

Small business man and entrepreneurs, who has the shortage of fund/capital, will also
be eligible to avail investment facilities under the Scheme.

Investment shall also be extended to those poor and asset-less unemployed youths,
especially those who have ability to run business.

Besides the above categories, investment facilities under this Scheme shall also be
extended to small and cottage industries and service sector.

Sectors of Investment: Livestock, Fishery, Agro-processing, Manufacturing, Trading/shop

keeping, Transport, Services, Agriculture Implements and Forestry.
Mode of Investment

Hire purchases Shirkatul Meelk: For all kinds of machineries i.e. equipments &
transport sector.

Bai-Muajjal-TR: For trading shop keeping, agro-processing and raw materials for
manufacturing purposes.
Period of Investment: In case of HPSM: Maximum 24 months, In case of Bai-Muajjal-TR:
Maximum 12 months.
Clients Equity: For HPSM Investment: Maximum 20% on cost price of the
machineries/vehicles, For Baimuajjal-TR: Nil.
Recovery Procedure:

For HPSM investment: Monthly installment basis

For Bai-Muajjal-TR: Monthly/Quarterly/Half-yearly installment/ lump-sum/ at a

time-within the date of expiry.

38

(Taka in million)
Particulars
Small Business Investment
Scheme

2001
244.10

2002
325.06

2003
395.75

2004
2005
501.26 629.81

2006
768.45

Tk.(in mill.)

Trend of Small Business Investment

Scheme
450
400
350
300
250
200
150
100
50
0
1999

2000

2001

2002

2003

Year

3.6.8 Agriculture Implements Investment Scheme

Islami Bank Bangladesh Limited is a welfare oriented Bank. It can play positive and
important role in the economic development, progress and uplift of the country by investing
in the agriculture sector. The Bank has, therefore, introduced Agriculture Implements
Investment Scheme to provide power tillers, power pumps shallow tube wells, thrasher
machine etc. on easy terms to the unemployed youths for self-employment and to the farms
to help augment production in agricultural sector.
Type of Agriculture Implements: Power tillers, Thrasher Machine, Any other agricultural
implements proposed by the branch and which has local demand.
Investment Area:
Investments are allowed under this Scheme through all branches of the Bank expected the
branches located in the metropolitan areas. The command area of the concerned branch is
within 15 miles radius from its location.

39

Eligibility of Investment Clients:

Educated or half-educated rural youths, educated or illiterate farmers and any person
may apply for investment facilities under this scheme.

The applicant must be physically and mentally fit and willing to operate the machine
himself.

Applicant must be a permanent resident of the concerned area and be willing to stay
and work there.
Period of Investment: Two years
Mode of Investment: Hire Purchase under Shirkatul Melk.
Clients Equity:
Client shall have to pay 20% of the cost of agriculture implements/equipment as equity.
Equity shall be 10% if the Bank undertakes any special project under the supervision of any
registered NGO approved by the Bank.
Repayment Producer:
The investment shall have to be repaid in 4 installments within a year. The installment shall
be fixed on the basis of the sowing/transplantation and harvesting seasons of the crop. The
branch Manager shall decide both the amount and time of the repayment of installment.
(Taka in million)

Particulars
Small Business Investment
Scheme

2001
244.10

2002
325.06

2003
395.75

2004
501.26

Tk.(in mill.)

Trend of Small Business Investment

Scheme
450
400
350
300
250
200
150
100
50
0
1999

2000

2001
Year

40

2002

2003

2005
629.81

2006
768.45

4.3.9 Micro Industries Investment Scheme

Islami Bank Bangladesh Ltd. has been appreciably participating in this direction by financing
industrial sector. With a view to creating wider base for industries, the Bank has decided to
launch Micro Industries Investment Scheme through its Branches. This scheme has been
devised to cater to the investment needs of those persons who intend to set-up new micro
industrial ventures or to restructure their old units by way of BMRE involving a total cost of
Tk. 5.00 lac.
This is intended mainly to create new jobs for the educated, skilled & semi skilled
unemployed and also to encourage those who remain outside the purview of investment due
to shortage of funds and insufficient collaterals. The scheme has been prepared with easy
terms and conditions to encourage the small entrepreneurs, educated unemployed youths and
skilled/semi skilled persons to come forward for establishment of micro industries
commensurate with the local demand.

Eligibility
The eligibility criteria for the selection of the entrepreneurs under the scheme will be as
under:

Engineering diploma or degree holders, or persons having diploma or certificate from

any Technical/Vocational Training Institutes and willing to set up micro industries.

Educated unemployed youths having initiative and knowledge regarding the proposed
industry.

Skilled and semi-skilled persons having practical knowledge and experience in

industrial operations.

Persons already engaged in micro-industries as owners and willing for BMRE of their
enterprises.

Wage earners who want to establish micro industries having work experience/training
in the particular field of industry.

The proposed enterprise must be exclusively owned by Bangladeshi Nationals that

use indigenous raw materials or imported raw materials not exceeding 25% of the
total requirement of raw materials.

Defaulters and persons/enterprises having outstanding liabilities with other Banks and
Financial Institutions will not be eligible for availing investment under the scheme.

41

Sectors of Investment
Different sectors including food and agriculture based industries, plastic & rubber industries,
forestry and furniture industries, engineering industries, lather industries, chemical industries,
textile industries, recycling industries, service industries, electrical accessories industries,
computer technology industries, paper products industries, handicraft industries, fishery &
livestock farming, hollow bricks, roof tiles and any other viable micro-industries have been
identified for financing under the Scheme.
Period of Investment
Capital Machinery: 5(five) years including reasonable gestation period.
Raw materials: One year from the date of 1st disbursement.
Mode of Investment
Capital Machinery: Hire-Purchase Shirkatul Melk (HPSM)
Raw Materials: Bai-Muajjal.
Recovery of Banks dues:

Hire Purchase: In monthly/fortnightly/weekly installment basis.

Bai-Muajjal: In Lump sum at the end of the tenure of investment.

Command Area
Investment under the Scheme shall be made within the 20 Km. radiuses from the branch.
(Taka in million)
Particulars
Micro Industry Investment
Scheme

2001
6.30

2002
6.63

42

2003
10.10

2004
17.18

2005
10.21

2006
6.24

Tk.(in mill.)

Trend of Micro Industry Investment

Scheme
12
10
8
6
4
2
0
2000

2001

2002

2003

Year

3.6.10 Rural development Scheme

. Islami Bank Bangladesh Limited has been founded with the major objective of establishing
Islamic economy for balanced economic growth by ensuring reduction of rural-urban
disparity and equitable distribution of income. In view of the above, Branches of the Bank
have been encouraged to invest their deposits in their respective areas and in particular for
the economic uplift of the rural people.
Accordingly, a Scheme in the name and style of Rural Development Scheme has been
introduced to cater tot eh investment needs of the agricultural and rural sector to create
opportunity for generation of employment and raising income of the rural people with a view
to alleviate poverty.
Command Area:
Each designated Branches will select villages initially within a radius of 10 kilometers of the
Branch.
Target Group:

Farmers having land of maximum 0.50 acres.

Sharecroppers with consent from the landowners.

Persons engaged in off-farm activities having no land or land up-to maximum 0.50
acres.

Persons/farmers permanently residing in the selected villagers.

Persons having derelict pond will be eligible for investment for re-excavation and fish
cultivation.

43

Destitute women and distressed people will be provided investment for mills
cows/poultry birds/ducks/goats etc. and other suitable off-farm activities for raising
their supplementary income.

Persons having liabilities with other banks/institutions including defaulters will not be
eligible for the investment under the Scheme.
Rate of Return, Supervision Charge and Risk Fund
Banks rate of return will be @ 11% per annum (approximate).
Risk Fund contribution of the client will be @ 1% per annum, on the net disbursement.

Sanction and Disbursement

On the basis of the list submitted by the field officer, the Investment Committee of the
Branch will carefully scrutinize the applications and sanction the investment at the Branch
level. The members of the Committee will consist of Manager, Project Officer and the field
officer. After sanction of the investment the Branch will complete documentation formalities
and then disburse the amount with the help of the Investment Officer and field officers. In the
entire case Branch must ensure strict adherence tot eh banking and Shariah norms.
Modes of Investment
The Branch will select any of the following modes depending upon the sector and purpose of
investment:

Bai-Muajjal TR

Hire-Purchase under Shirkatul Melk (HPSM) or Leasing

Mudaraba

Musharaka

Bai-Salam

Murabaha TR

Recovery of Investment
To ensure recovery of investment in time, the Branch will determine the investments
judiciously. Installments should be fixed in the following manner, keeping in view the
income generation capacity of the investment and time thereof:

44

In case of off-farm activities installments should be fixed on weekly basis.

In case of agricultural/crop production, installment should be fixed on quarterly basis

or on the basis of harvesting period of the crop in each of the investment area. A
token installment may however be realized on weekly basis.
(Taka in million)

Particulars
Rural Development Scheme

2001
371.10

2002
432.04

2003
570.88

2004
2005
2006
789.97 1,106.47 2,242.22

Trend of Rural Development Scheme

Tk.(in mill.)

600
500
400
300
200
100
0
1999

2000

2001

2002

2003

Year

Table:
(Tk.in million)
Investment in different schemes
Particulars
2002
2003
2004
2005
2006
Rural Development Scheme
432.04 570.88 789.97 1,106.47 2,242.22
House Durable Scheme
886.79 910.91 878.76 782.09 699.95
Investment Scheme for Doctors
97.21
101.01
85.54
64.42
33.38
Transport Investment Scheme
1,822.38 2311.6 2,442.16 2,947.38 2,698.88
Car Investment Scheme
28.25
33.58
30.30
27.75
23.54
Small Business Investment Scheme
325.06 395.75 501.26 629.81 786.45
Micro-Industries Investment Scheme 6.63
10.1
17.18
10.21
6.24
Agricultural Implements Investment 13.66
12.76
14.69
12.53
11.94
Scheme
Housing Investment Scheme
597.64 661.56 672.10 609.78 506.75

45

Real Estate Investment program

2264.35 3418.85 4,713.70 5,859.75 6,582.85
Fig: Outstanding amount of investment as at the year end under different welfare
Schemes are as under:

Trend of all Investment Schemes

Rural Development
Scheme
House Durable
Scheme
Investment Scheme for
Doctors
Transport Investment
Scheme
Car Investment
Scheme
Small Business
Investment Scheme
Small Industry
Investment Scheme
Agricultural Tools
Investment Scheme
House Building
Investment Scheme
Real Estate Investment

4000
3500

Tk.(in mill.)

3000
2500
2000
1500
1000
500
0
1999

2000

2001

2002

2003

Year

Sector wise distribution of investment as on December 31, 2006 vis--vis corresponding

period of last year are given below:
Investment in Different Sector:
Table:

(Tk in million)

Sector

2006

Industrial
Commercial
Real Estate
Agriculture
Transport
Others
Total

62,642.10
28,983.80
8,357.80
5,890.00
2,722.40
4,978.97
113,575.07

% to total
Investment
55.15%
25.52%
7.36%
5.19%
2.40%
4.38%
100.00%

46

2005
46,063.51
29,284.21
6,813.70
6,445.67
2,975.12
2,061.94
93,644.15

% to total
Investment
49.19%
31.27%
7.28%
6.88%
3.18%
2.20%
100.00%

Analysis:
From the above table, it is observed that investment in the Industry sector is the highest of all
the sectors. In Industry sector, in 2006 investments are increased by 5.96% then 2005.
Second highest sector is others sector that is increased by 2.18% in 2006 then 2005. In case
of commercial sector investment is decreased by 5.75% then 2005. In Transport sector
investment is the lowest of all the five sectors.

Investment in Different Mode:

Table:
Mode
Bai-Murabaha
Hire Purchase Under
Shirkatul Meelk
Bai-Muajjal
Purchase and Negotiation
Quard a hasana
Bai-salam
Mudaraba
Musharaka
Total

2006

(Amount in million Tk.)

59,465.09
39,399.19

% to total
Investment
52.36%
34.69%

6,921.40
4,846.62
1,974.20
905.62
50.00
12.95
113,575.07

6.09%
4.27%
1.74%
0.80%
0.04%
0.01%
100.00%

2005
51,822.28
30,046.89

%to total
Investment
55.34%
32.09%

5,917.18
3,179.81
1,966.13
641.44
50.00
20.42
75,858.56

6.32%
3.40%
2.10%
0.68%
0.05%
0.02%
100.00%

Analysis: The above table shows that in 2006 Investment increased 2.60%
than 2005 under Hire purchase mode. 0.87% under Purchase & Negotiation mode,
remaining does not positively increased rather most of them are decreased.

47

CHAPTERFOUR: FOREIGN EXCHANGE OPERATION

OF IBBL
4.1 Introduction:
Foreign trade is a business activity, which transcends national boundaries. These may be
occurred between two parties or governments. Trades among nations are a common
occurrence and normally benefits both the exporter and importer in many countries
international trade accounts for more than 20 % of their national incomes.
Foreign trade can usually be justified on the principle of comparative advantage according to
this economic principle. It is economically profitable for a country to specialize in the
production of that commodity in which the producer country has the greater comparative
advantage and to allow the other country to produce that commodity in which it has the lesser
comparative advantage. It includes the spectrum of goods services, investment, technology
transfer etc. this trade among various countries pauses for close linkage between the parties
dealing with trade. The bank, which provides such transactional trade, demands a few of
goods from seller to buyer and of payment form buyer to seller. And this flow of goods and
payment are done through letter of credit (L/C).

4.2 FOREIGN EXCHANGE:

As more than one currency is involved in foreign trade, it gives rise to exchange of
currencies which is known as foreign exchange. The term Foreign Exchange has three
principal meanings. Firstly, it is a term used referring to the currencies of the other countries
in terms of any single one currency. To a Bangladeshi, Dhaka, pound sterling etc. are foreign

48

currencies and as such foreign exchange. Secondly, the term also commonly refers to some
instruments used in international trade, such as bill of exchange. Drafts, Traveler cheek and
other means of international remittance. Thirdly, the term foreign exchange is also quite
often referred to the balance in foreign currencies held by a country. In terms of section 2(d)
of the foreign exchange regulations 1947, is adopted in Bangladesh. Foreign exchange means
foreign currency and includes any instrument drawn accepted made or issued under clause
(13) of article 16 of the Bangladesh Bank order 1972, all the deposits, credits and balances
payable in any foreign currency and draft check, letter of credit and bill of exchange
expressed or drawn in Bangladesh currency but payable in any foreign countries.
In exercise of the power conferred by section 3 of the foreign exchange regulation, 1947
Bangladesh Bank issues license to schedule Bank to deal with exchange. These banks are
known as Authorized Dealers. Licenses are also issued by Bangladesh Bank to person or
firms to exchange foreign currency instruments such as T.C. Currency notes and coins. They
are known as Authorized Money changers.

4.3 Functions of Foreign Exchange Department:

Exports:

Pre shipment advanced

Purchase of foreign bills

Negotiating of foreign bill.

Export guarantees

Advising / confirming letters letters of credit

Advance for deferred payments exports

Advance against bills for collection

Imports:
1. Opening of letter of credit.
2. Advance bills.
3. Bills for collection.
4. Import loans and guarantees.

49

Remittances:

Issue of DD, MT, TT etc.

Payment of DD, MT, TT etc.

Issue and enhancement of travelers check.

Sale and enhancement of foreign currency notes

4.4 THE MOST COMMONLY USED DOCUMENTS IN FOREIGN

EXCHANGE:

Documentary Letter of Credit.

Bill of exchange.

Bill of Lading.

Commercial invoice.

Certificate of Origin of Goods.

Insurance Certificate.

Packing List.

Insurance Policy.

Pro- forma Invoice / Indent.

Master Receipt.

G.S.P Certificate.

DOCUMENTARY LETTER OF CREDIT:

In simple terms a documentary credit is a conditional bank undertaking of payment.

Expressed more fully, it is a written undertaking by a bank (issuing bank) given to seller
(beneficiary). At the request, and in accordance with the instructions of the buyer
(applicant) to effect payment (that is, by making a payment, or accepting or negotiating
bill of exchange) up to a stated sum of money, with in a prescribe time limit and against
stipulated documents.
The Customary Clauses Contain in an L/C is as followings:

50

A clause authorizing the beneficiary to draw bills of exchange up to a certain limit.

List of shipping documents, which are to accompany the bills.

Description of the goods to be shipped. An undertaking by the opening bank that bills
drawn in accordance with the conditions will be dully honored.

Instructions to the negotiating bank for obtaining reimbursement of payments under

the credit.

Parties involved in letter of Credit:

The parties to L/C are:

Importer/ buyer

Opening Bank / Issuing Bank

Exporter /seller / Beneficiary

Advising Bank /Notifying Bank

Negotiating bank

Confirming Bank

Paying /reimbursing bank

BILL OF LAFING:
A bill of lading is a document that is usually stipulated in a credit when the goods are
dispatched by sea. It is evidence of a contract of carriage, is a receipt for the goods, and is a
document of tile to the goods. It also constituted a document that is, or may be, needed to
support insurance.
The details on the bill of lading should include:

Description of the goods in general terms not inconsistent with in the credit.

Identify marks and numbers, if any

The name of the carrying vessel

Evidence that the goods have been loaded on board

The ports of ships of shipment and discharge

The names of shipper, consignee and name and address of the notifying party.

Whether freight has been paid or is payable at destination

51

The number of original bill of lading issued

The date of issuance

A bill of lading specifically stating that goods are loaded for ultimate destination specifically
mentioned in the credit.

COMMERCIAL INVOICE:
A Commercial invoice is the accounting document by which the seller charges the goods to
the buyer a commercial invoice normally includes the following information:

Date

Name and address of the buyer and seller

Order of contract number, quantity and description of the goods. Unit price and the
total price

Weight of the goods, number of the package, shipping marks and numbers.

Terms of delivery and payment

Shipment details

CERTIFICATE OF ORIGIN:
A certificate of origin is a signed statement providing evidence of the origin of the goods.
INSPECTION CERTIFICATE:
This is usually issued by an independent inspection company located in the exporting country
certifying or describing the quality, specification or other aspects of the goods, as called for
in the contract and the L/C. The inspection company is usually nominated by the buyer who
indicates the types of inspection what he/she wishes to undertake by the inspection company.
INSURANCE CERTIFICATE:
The insurance certificate document must:

Be specified in the credit;

Be covered the risk specified in the credit;

52

Be consistent with the other documents in its identification of the voyage and
description of the goods.

Unless otherwise specified in the credit it would:

Be a document issued and / or signed by an insurance company or its agent, or by
underwriters;

Be dated on or before the date of shipment as evidenced by the shipping documents;

Be for an amount at least equal to the CIF value of the goods and in the currency of
credit.

4.3 IMPORT:
Import is foreign goods and services purchased by consumers, Firms and government in
Bangladesh.
An importer must have Import Registration Certificate (IRC) given by Chief controller of
Import and Exports (CCI & L) to import any thing from other country.
To obtain IRC the following certificates are required:
Trade license

Income tax certificate

Nationally certificate

Banks solvency certificate

Asset certificate

Registration partnership deed (if any)

Memorandum and article of association

Certificate of incorporation (if any)

Rent receipt of the business premises

IMPORT PROCEDURE:
To import through Islami Bank Bangladesh Ltd a customer requires the following:

Bank Account

Import registration certificate

Tax paying identification number

Pro forma invoice/indent

53

Membership certificate

L/C application form duly attested

Insurance cover note with money receipt

Others

Importers application for L/C limit/margin:

To have an import L/C limit, an application must submit to the department of RBL furnishing
the following information.

Full particulars of bank account.

Natural of business

Required amount of limit

Payment terms and condition

Goods to be imported

Offered security

Repayment schedule

A credit officer scrutinizes this application and accordingly prepares a proposal CLP and
forwards it to the Head Office Credit Committee (HOCC). The committee, if satisfied,
sanctions the limit and returns band to the branch. Thus, the importer is entitled or the limit.
OPENING OF LETTER OF CREDIT BY BANKS:
Opening of the letter of credit means, at the request of the applicant (importer), issuance of a
L/C in favor of the beneficiary (exporter) by a bank. The band, which open or issue L/C is
called L/C opening bank or issuing bank.
On receipt of the importers L/C application supported by the firms contract (indent/proforma invoice) and insurance cover note, the bank scrutinize the same thoroughly and fix up
a margin on the basis of banker-customer relationship
Before opening L/C, the issuing bank must check the followings:
L/C application properly stamped, signature verified and margin approved and
properly retained.

Indent/pro-forma invoice signed by the importer and indenter/supplier.

54

Ensure that the relevant particulars of L/C application correspond with those
stipulated in indenter/pro-forma invoice.

Validity of LCA entitlement of goods, amount etc. conforms to the L/C application.

Conversion and rate of exchange correctly applied.

Charges like commission, Foreign Currency Charges (F.C.C), postage, telex charges
if any recovered.

Insurance cover note in the name of issuing bank covering required risks and voyage
route.

Incorporation of instruction for negotiating bank as per banks existing arrangement.

Reimbursement instructions for reimbursing bank.

If foreign banks confirmation is required, necessary permission should be obtained

and accordingly advising bank is advised as per banks existing arrangement.

If add confirmation is required on behalf of the applicant charges will be recovered

form the applicant.

Liability of issuing bank:

As per article 9(a) of universal customs and practice for documentary credit (UCPDC) 500,
an irrevocable credit constitute a definite undertaking of the issuing bank, provided that the
stipulated documents comply with the terms and conditions of the credit.
Advising of letter of credit:
Advising means forwarding of a documentary letter of credit received from the issuing bank
to the beneficiary.
Before advising L/C, the advising bank must see the followings:
Signatures of issuing bank officials on the L/C verified with the specimen signature
book of the said bank when L/C received by airmail.

If the export L/C is intended to be an operative cable L/C test code on the L/C
invariable with be agreed and authenticated by two authorized officers.

L/C scrutinized thoroughly complying with the requisites of concerned UCPDC

provisions.

Entry made in the L/C advising register.

Adding confirmation:

55

The confirming bank does the confirmation. Confirming bank is a bank, which adds its
confirmation to the credit and it is done at the request of the issuing bank. The confirming
bank, may or may not advising usually, does not do it if there is not a prior arrangement with
the issuing bank. By being involved as a confirming agent, the advising bank undertakes to
negotiate beneficiarys bill without recourse to him.

Before confirming, it has to observe followings:

L/C is issued and there is a request to add confirmation

Review the L/C terms

Provide reimbursement
Drafts to be drawn on L/C opening bank
Availability of credit facilities
Line allocation from the business and ownership units in the importers country
Confirm and advise L/C
Amendments of letter of credit:
After issuance and advising of a L/C, it may be felt necessary to delete, add or alter some of
the clauses of the clauses of the credit. All these modification are communicated to the
beneficiary through the same advising bank of the credit. All these modifications are
communicated to the beneficiary through the same advising bank of the credit. Such
modifications to a credit are termed as amendment to a letter of credit.
There may be some of the conditions in a credit are not acceptable by the beneficiary. In that
case, beneficiary contact applicant and request for amendment of the clauses.
What is to be done by issuing bank before advising amendments?
The issuing bank has to be done the followings:
Obtain written application from the applicant of the credit duly singed and verified by
bank.

56

 Confirm that, in case of increase of value, application for amendment is to be

supported by revised indent/pro-forma invoice evidencing consent of the beneficiary;

Ensure, in case of extension of shipment period, that relative LCA is valid/ invalid
increased up to the period of proposed extension.

Confirm that amendment of insurance cover note also be submitted in case of both
credit amount and shipment period extension amendment.

Maintain proper recoding and filing of amendments;

Recover charges for amendment (if on account of applicant) and pass necessary
voucher.
The following clause of L/C and increase/decrease of quality of goods:
Increase/ decrease value of L/C and Increase/decrease of quality of goods.

Extension of shipment/negotiated period.

Terms of delivery, i.e. FOB, CFR, CIF etc.
Mode of shipment
Inspection clause
Name and address of the supplier
Name of the reimbursing
Name of shipping etc
Settlement of letter of credit:
Settlement means fulfillment of issuing bank in regard to affecting payment subject to
satisfying the credit terms. Settlement may be done under three separate arrangements as
stipulated I the credit.
Settlement by payment:
Here the seller presents the documents to the nominated bank and the bank scrutinizes the
documents. If satisfied, the nominated bank makes payment to the beneficiary and in case,
this bank is other than the issuing bank, it sends the documents to the issuing bank and claim
reimbursement as par arrangement.

57

Settlement by Acceptance:
Settlement in this arrangement, the seller submits the documents evidencing the shipment to
the accepting bank (nominated by the issuing bank for acceptance) accompanied by draft
down on the bank at the specified tenor.
Settlement by negotiation:
This settlement procedure stars with the submission of documents by the seller to the
negotiation restricted by the issuing bank, only nominated bank can negotiate the documents.
A factor scrutinizing that the documents meet the credit requirement, the bank may negotiate
the documents and give value to the beneficiary. The negotiating bank then sends the
documents to the issuing bank. As usual, reimbursement will be obtained in the pre agreed
manner.

Accounting treatment:

Sundry deposit L/C margin A/C Dr.

To

PAD A/C

(Margin amount transferred to pad A/C)

Customer

A/C

To

PAD

Dr.

A/C

(Customer account debited for the remaining amount)

PAD

A/C

Dr.

To

Head office A/C + Exchange Trading A/C

To

Income A/C interest on PAD

(Amount given to head office ID and interest credit)

Reversal entries:
Bankers liability (when lodgment is given)
After realization the telex charge, service charge, interest (if any), the shipping documents is
then stamped with PAD number and entered in the PAD register. Intimation is given to the
customer calling on the banks counter requesting retirement of the shipping documents.

58

After passing the necessary vouchers, endorsements is made on the back of the bill of
exchange, as receipt payment and the bill of lading is endorsed to the effect (please deliver
to the order of M/S--------------) under two authorized signatures banks officers (P.A
holder). Then the documents are delivered to the importer.
PAYMENT PROCEDURE OF THE IMPORT DOCUMENTS:
This is the most sensitive task of the import department. The officials have to be very much
careful while making payment.

The task constitutes the following:

a) Date of payment: Usually payment is made within 7 days after the documents have
been received. If the payment is become deferred, the negotiating bank may claim
interest for making delay.

b) Preparing sale memo: A sale memo is made at BC rate to the customer. As the T.T
and OD rate is paid to the ID, the difference between these two rates is exchange
trading. Finally, an inter branch exchange trading advice is sent to ID.

c) Requisition for the foreign currency: For arranging necessary fund for payment, a
requisition is sent to the international department.

d) Transmission of telex: A telex is transmission to the correspondent to corresponding

bank ensuring that payment is being made.
4.3

EXPORT:

Practically by the term exports we mean carrying of anything form one country to another.
Being banker, we defined export as sending of visible things outside the country for sale.
Export trade plays a vital role in the development process of an economy.
All though export trade is always encouraged any body cannot export anything to any place.
Exporter trade is required to get him registered before entering export business. Export
Registration Certificate (ERC) given by CCI & E is required for this purpose. The required
documents to obtain ERC are almost same as IRC.

59

When a bank (authorized dealer) receives a L/C (enable or original) it ascertains the
correctness of the test number and the authorized signature. Then the bank sends the original
copy of the L/C to the beneficiary.
The exporter presents the relative documents to the negotiation bank after the shipment of the
goods. The L/C issuing bank undertakes to honor obligation only if the beneficiary fulfills
the conditions stipulated in the L/C, may namely, the submission of stipulated documents
within the stipulated time.

The following types of discrepancies may be noted while the negotiating bank examines
the documents:
1. L/C expired
2. Date of shipment
3. Amount drown in excess of the L/C
4. Bill of exchange not properly drawn
5. Descriptions of goods deviate
6. Bill of lading or airway bills anomaly
7. Bill of lading classed
8. Insurance cover notes as per terms of L/C
9. Insurance obtained after the bill of lading or airway bill date
10. Enough number of copies not submitted as required by L/C.
11. Negotiation under L/C restrained
12. Packing list and certificate of analysis not as per terms of L/C.
13. Documents not properly endorsed in favor of the bank
14. Full shipment not effective and part shipment prohibited
15. Gross weight and net weight shown in deferent documents differ
16. Documents required by L/C are not submitted
17. Documents inadequately stamped.

60

Documents with major discrepancies, which could not be negotiated, should be sent on
collection basis with the permission of the exporter.
EXPORT PROCEDURE:
The import and export trade in our country are regulated by imports and exports (Control)
Act, 1950. Under the export policy of Bangladesh the exporter has to get the valid export
registration certificate (ERC) from chief controller of import and export (CCI and E). The
ERC is required to renew every year. The ERC number is to be incorporated on EXP forms
and other papers commented with export.
REGISTRATION OF EXPORTERS:
For obtaining ERC Bangladesh exporters are required to apply to the controller, joint
controller/ deputy controller / Assistant controller of imports and export at Dhaka/
Chittagong / Khulna / Mymensing / Barisal / Rangpur / Dinajpur in the prescribed form along
with the following documents:
1. Nationality and asserts certificate
2. Memorandum and Articles of Association and certificate of incorporation in case of
limited company
3. Bank certificate
4. Income tax certificate
5. Trade license etc.

SECURING OF ORDER:
After getting the ERC the exporter may proceed to secure the export order. He can do this by
contacting the buyers directly or through agent.
In this purpose exporter can get help from:

Liaison office

Buyers local agent

Export promotion

Organization

61

Bangladesh mission abroad

Chamber of commerce (local and foreign)

Trade fair etc.

SIGNING THE CONTRACT:

After communicating with buyer, has to get contracted (writing) for exporting exportable
items form Bangladesh detailing commodity, quantity, price, shipment, insurance and marks,
inspection arbitration etc.
RECEIVING LETTER OF CREDIT:
After contract for sale, exporter should ask his buyer for letter of credit clearly stating terms
and conditions of export and payment.
The following are the main points to be looked into for receiving/collecting export
proceeds by means of documentary credit: The

terms of the L/C are in conformity with those of the contract

The

L/C is an irrevocable one, preferably confirmed by the advising bank.

The

L/C allows sufficient time for shipment and negotiation.

Terms and conditions should be stated in contract clearly in case of other modes of
payment.
Cash

in advance

Open

account

Collection

basis (documentary /clean)

PROCURING THE MATERIALS:

Then the exporter should take the preparation for making arrangement for delivery of goods
as per L/C and INCO- terms, prepare and submit shipping documents for payment/
acceptance/negotiation in due time:

EXP form

ERC (valid)

L/C copy

62

Customers duty certificate

Shipping instruction

Transport documents

Insurance document

Invoice

Bills of exchange (if required)

Certificate of origin

Inspection of certificate

Quality control certificate

Quality control certificate

G.S.P certificate

Photo sanitary certificate

FINAL STEPS:
After those exporter submits all these documents along with a letter of indemnity to RBL for
negotiation. An officer scrutinizes all the documents. If the documents are a clear one RBI
will purchase the documents on the basis of banker customer relationship. This is knows as
foreign document bill purchase (FDBP).

EXPORT BILL SECURITY SHEET:

Scrutinizes the export bill on the following points:
A. General:

Late shipment

Late presentation

L/C expired

L/C overdrawn

Partial shipment or trans shipment

B. Bill of exchange:

Amount of bill differs with invoice

63

Not draw on L/C issuing bank

Not signed

Tenor of B/E not submitted

Full set not submitted

Invoice

Not issue by the beneficiary

Not made out the name of the applicant

Description, price, quality, sales terms of the goods not correspond to the
original.

Not market one fold as original

Shipping marks differs with B/L and packing first

C. Packing list:

Gross weight, net weight and measurement, number of cartoons/ packages

differs with B/L

Not marked one fold as original

Not signed by the beneficiary

Shipping marks differs with B/L

D. Bill of lading / Airway bill:

Full set of bill not submitted

B/L is not drawn or endorsed

Shipment board, fright prepaid, freight collect, etc notations are not
marked on the B/L

B/L not indicated the name and capacity of the party, i.e. carrier or master,
on whose behalf the agent is signing the B/L

Shipped on board notion not showing port of loading and vessel name

Shipping on board notation not showing port of loading and vessel name

Short form B/L

Chapter party B/L

Description of goods in B/L not agree with that of invoice, B/L and P/L

Alternative in B/L not authenticated

64

Loaded on deck

B/L bearing clauses or notations expressly declaring defective condition of

the goods and packages.

E. Others

Non negotiable documents not forwarded to buying or forwarded beyond

L/C terms

Inadequate number of invoice, packing list and others submitted

Short shipment certificate not submitted.

SETTLEMENT OF LOCAL BILL:

The settlement of local bills is done in the following ways:

The customer submits the L/C to Islami Bank Bangladesh Ltd. Along
with the documents to negotiate.

Islami Bank Bangladesh Ltd. Official scrutinizes the documents to ensure

the conformity with the terms and conditions.

The documents are then forwarded to the L/C opening bank.

The L/C issuing bank gives the acceptance and forward an acceptance
letter

Payment is given to the customer on either by collection basis on by

purchasing the document.

ACCOUNTING TREATMENT OF PURCHASE LOCAL BILL:

Local bill purchase documentary

Dr.

To Party account
To commission account
To interest account
A LBPD register is maintained to record the acceptance of the issue bank, limit the
acceptance is obtained, and the record is kept in a collection register.

65

Mode of payment of exports bills under L/C:

The most common methods of payment under a L/C are as follows:
1. Sight payment credit: In a sight payment credit, the pays the stipulated sum
immediately against the exporters presentation of the documents.
2. Negotiation credit : In negotiation credit, the exporter has to present a bill of
exchange payable to him in addition to other documents, i.e. the bank negotiation
3. Deferred payment credit: In deferred payment, the parties agree to pay on a
specified future date or event, after presentation of the export documents. No bill of
exchange is involved. In MBI, payment is given to party at the rate of D.A. But the
head office is paid at T.T clear rate. The difference between the two rates is the
exchange trading for the branch.
4. Acceptance credit: In acceptance credit, the exporter presents hall of exchange
payable to him and drawn at the agreed tenor (that is on a specified future date event)
on the bank that is to accept it. Bank signs its accepted on the bill returns to the
exporter.
4.7

BACK TO BACK LETTER OF CREDIT:

A back-to-back letter of credit is a new credit. It is different form the original credit based on
which the bank undertakes the risk under back to back credit, in this case, the banks main
security is original credit.
The original credit and the back-to-back credit are separate instruments independent of each
of the same business operation. The supplier ships goods to the importer or supplies goods to
the exporter and presents documents to the banks as is specified in the credit.
In RBI papers / documents required for submission for opening of back to back L/C:

Master L/C

Valid import registration and export registration

L/C application and LCA firm duly signed it

Pro forma invoice or indent

Insurance cover note with money receipt

66

IMP duly signed

In addition to the above the following papers documents are also required for export
oriented garment industries while requesting for opening of back-to-back letter of
credit-

Textile permission

Valid bonded warehouse license

Quota allocation letter issued by export promotion bureau (EPB) in favor of the
applicant in case of quota items.

In case the factory premises is a rented one, letter of disclaimer duly executed by
owner of the house / premises to be submitted.

Defective points or clause appears in the L/C:

Issuing back is not reputed

Advising credit by the advising bank without authentication

Port of destination absent

Inspection clause

Nomination of specific of specified vessel by subsequent amendment

B/L to blank endorse, to buyer or third party

No specific reimbursing clause

UCP clause not mentioned

Shipment / presentation period is not sufficient

Original document to be sent to buyer or nominated agent

FCR or HAWB consigned to applicant or buyer

Shippers load and count is acceptable

L/C shall expire in the country of the issuing bank

Negotiation is restricted

Payment of back to back as 60-90-102-180 days of maturity period, deferred payment, are
made, payment is given after realizing export proceeds from the L/C issuing bank.

67

ACCOUNTING TREATMENT FOR BACK-TO-BACK L/C:

When the document is arrived, the following vouchers are passed:
Customer A/C

Dr.

To commission on acceptance

While payment, if the fund is at hand, the accounting entry is

Sundry deposit margin on acceptance . Dr.
To customers A/C
If the party is paid in foreign currency, B.C is applied in this regard, international department
takes the T.T.I.O rate if the payment is made to ID in local currency in notional rate, and T.T.
clean rate is followed by ID. When the party paid O.D sight rate is followed:
If the fund is not available to made the payment, the following vouchers are to be
passedOutstanding against payment . Dr.
To

customers A/C

It may happen that the credit in favors of the seller is not transferable, or although
transferable, cannot meet commercial requirement by transfer in accordance with article 46
(UCP) conditions. The sillier himself however is unable to supply the goods and needs to
purchase them from, and make payable to supply the goods and needs and needs to purchase
them from and make payable to another supplier.
In this case it may some times be possible to use either a back-to-back credit or a counter
credit. Both these concepts involved the issue if a second credit offers by the seller in favor
of his supplier.

68

Under the back-to-back concept, the seller, as beneficiary of the credit, offers it as security to
the advising bank for the issuance of the second credit. As application for this second credit
the seller is responsible for reimbursing the bank for payment made under it, regardless of
whether or not he himself I paid under the first credit. There is , however, no compulsion for
the bank to issue the second credit, and in fact, many banks will not do.
CHAPTERSIX: FOREIGN REMITTANCES
(A COMPARATIVE ANALYSIS OF IBBL)
DEFINITION: FOREIGN REMITTANCE:
Remittance means sending of funds from the abroad. The word remittance indicates sending
or transferring of funds through a bank from one place to another that occurs between the
countries. When it is occurred between the countries is called foreign remittances.
PURPOSE OF REMITTANCES:

Family maintenance

Donation

Gift

Export proceeds

Foreign Direct Investment (FDI)

Others.

TYPES OF REMITTANCES:

Inward Remittances

Outward Remittances.

Inward remittances:

The remittance when we received from abroad is called inward remittance.

Outward remittances:

The remittance when we sent to abroad is called outward remittance.

MODE OF OUTWARD REMITTANCES:

69

D.D

T.T

M.T

T.C.

Import bills etc.

Only the authorized institution can exchange foreign currency. IBBL is one largest private
bank, which conduct foreign exchange business. For the purpose of getting and maintaining
authorization institution must be followed Bangladesh Bank guidelines.
Islami Bank Bangladesh Limited conducted foreign exchange business and it also received
huge foreign remittances from abroad compare with other private and public bank and
contributes in our economy.

NATIONAL REMITTANCE POSITION AND SHARE OF IBBL:

Figure: (Taka
in million)
Year
1999
2000
2001
2002
2003
2004
2005
2006

National
55573.00
56352.00
66173.00
75662.00
90024.00
99885.20
114382.20
164844.30

IBBL
2447.00
3328.00
4806.00
6361.00
8415.00
7644.00
9879.00
14670.00

70

Share of IBBL in %
4.40
5.91
7.26
8.41
9.35
7.65
8.64
8.90

IBBL

Remittance Share of IBBL

Amount in milion

National
200000
150000
100000
50000
0
1999

2000

2001

2002

2003

2004

2005

2006

Fig: Remittance share of IBBL compare with national.

Amount in million

IBBL Rem itance Grow th

20000
15000
10000
5000
0
1999 2000 2001 2002 2003 2004 2005 2006

Fig: Remittance growth of IBBL

Remittance collection position of IBBL compare with other commercial Banks:
At present about 40 banks, (private, nationalized, and foreign banks) are receiving foreign
remittance from abroad in various mode. Among them 8 banks received 98% in the year
2002 and IBBLs share is 9%. The detailed position is given below:
NAME OF BANKS

AMOUNT
YEAR

SONALI BANK

RECEIVED DURING

2006

SHARE

AGAINST

REMITTANCE IN

965.52

33.90

71

TOTAL

AGRANI BANK

534.48

18.77

JANATA BANK

362.07

12.71

RUPALI BANK

120.69

4.24

PUBALI BANK

310.34

10.90

UTTARA BANK

146.55

5.15

NATIONAL BANK

103.45

3.63

IBBL

253.45

8.90

OTHERS

51.24

1.80

TOTAL

2847.79

100.00

Amount received during year 2006

IBBL
9%
4%
5%
11%
4%
13%

2%

33%

19%

Sonali Bank
Agrani Bank
Janata Bank
Rupali Bank
Pubali Bank
Uttara Bank
National Bank
IBBL
Others

FIG: SHARE OF REMITTANCE RECEIVED BY DIFERENT BANK

IBBLs share within the private commercial banks: Among the private bank, IBBLs
position is second but it will be first if we dont consider denationalized bank in case of
receiving foreign remittance. Details are given below:

72

NAME OF BANKS

AMOUNT
YEAR

RECEIVED DURING

2006

SHARE

AGAINST

REMITTANCE IN

RUPALI BANK

120.69

12.24

PUBALI BANK

310.34

31.48

UTTARA BANK

146.55

14.87

NATIONAL BANK

103.45

10.49

IBBL

253.45

25.71

OTHERS

51.24

5.2

985.72

100

TOTAL

Amount received during year 2006

12%

5%

IBBL
26%

10%

Pubali Bank
Uttara Bank
National Bank

15%

Rupali Bank

32%

Others

Fig: IBBL,s share within the private commercial banks.

Foreign Exchange Business:
Islami bank Bangladesh limited has obtained a solid foundation in respect of foreign trade
within a long period of time. Its total import, export and remittances for the year 2006 was
Tk.201822.00 million Islami Bank Bangladesh Limited has 176 branches all over the

73

country, some of them to deal with foreign transaction including many representing branch in
the world.

40,000.00
30,000.00
20,000.00
10,000.00
0.00

Import
Business
Export
Business
Remittance

20
01
20
02
20
03
20
04
20
05
20
06

Earning

Export, Import and Foreign

remittances

Year

Fig: 1.1: Performance of Foreign exchange business up to 2006

IMPORT BUSINESS:
From the very beginning the bank has embanked on foreign exchange business with a view
to facilitating international trade of the country and copes with the race of globalization. The
bank has established in 1983 and performed well year to year. Letter of credit amounting Tk.
33788.00 million from import business by the IBBL. Items of Import financed by the IBBL
according to the import policy only except haram goods.
The year wise import as follows:
Year

2001

2002

2003

2004

2005

2006

25,907.00

33,788.30

46,237.00

59,804.00

74,25.00

96,870.00

Import
Business

74

Import Business

Amount in
million

40,000.00
30,000.00
20,000.00
10,000.00
0.00

2001 2002 2003 2004 2005 2006

Year

Fig: 1.2 Performance of Import Business.

EXPORT BUSINESS:
The total export business handled by the business amounted taka. 51,133.00 million as at
December 2006. Export goods handled by the bank as per rules of export policy without
haram goods.
The year wise export as follows:
Year

2001

2002

2003

2004

16,082.00

16,673.00

21,738.00

29,151.00

Export Business

2005

2006

36,169.00 51,133.00

Amount in million

Export Business
18,000.00
17,000.00
16,000.00
15,000.00
14,000.00
13,000.00
2001

2002

2003

2004

2005

2006

Year

Growth of Foreign Exchange business:

The total foreign exchange business handled by the Bank stood at taka 2,01,822.00 million
as on 31.12.2006 showing a growth rate 37% from the preceding year the table below shows
the picture of foreign exchange business of the IBBL in the last 10 years with growth trend:
(Taka in Million)

75

Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006

Import
17,370.00
20,238.30
20,396.00
25,327.00
25,907.00
33,788.00
46,237.00
59,804.00
74,525.00
96,870.00

Export
14,469.40
14,894.30
14,798.00
16,889.00
16,082.00
16,673.00
21,738.00
29,151.00
36,169.00
51,133.00

Remittance
4,806.00
6,360.00
8,415.00
7,644.00
9,879.00
14,670.00
16,668.00
23,669.00
36,948.00
53,819.00

Total Foreign

Growth rate

Exchange Business

(%)

36,645.40
41,493.20
43,609.00
49,860.00
51,868.00
65,131.00
84,643.00
112,624.00
147,642.00
201,822.00

11
13
5
14
4
26
30
33
31
37

Table: Foreign Exchange Business of IBBL

76

Million in Taka

Growth of Foreign Exchange Business

30000
25000
20000

Import

15000

Export

10000

Remittance

5000
0
2001

2002

2003

2004

2005

Year

To handle foreign exchange business effectively and efficiently, the bank has, over the years,
developed a wide network of correspondents throughout the world. The bank has
correspondent relationship with 775 branches of 215 foreign banks and exchange houses in
72 countries as on 30.6.2001.
It is one of the top three thousand international banks of the world and its world-rank is 1902
in 2001.

77

CHAPTERSEVEN: FINDINGS, RECOMMENDATIONS &

CONCLUSION
7.1 FINDINGS:

Most of the branches of the IBBL located in the urban area and few of them are
involved with foreign exchange transaction, so most people do not know about the
foreign remittance service of IBBL.

People think that Private bank is less confidential than nationalized bank to send and
collect remittance.

Islamic Banking is a new phenomenon in our country during last two decades. So
majority of our people have no proper knowledge about the activities of Islamic
Banking as well as its foreign exchange mechanism and foreign remittance collection
and sending procedures

Foreign exchange procedures of IBBL are more or less similar with traditional Bank.

Most of the people in our country have a bad impression of IBBLs operations
regarding indirect generation of interest which meaning no difference between
investment of IBBL foreign remittance account, they are not too much interested to
open foreign remittance account IBBL.

IBBL has contract with other bank transaction by without interest thus, it generate
low profit for foreign remittance account.

Because of complexities of opening foreign remittance account and procedural

problem many people prefer hondi to collect and send remittance.

Because of insufficient application of Islamic Banking rules in our country the

foreign exchange operations of IBBL can't run smoothly.

This Bank can't invest in all economic sectors, which are prohibited by the law of
Islam.

Profitable investment portfolio of IBBL requires foresightment and clear investment

knowledge according to Islamic shariah. But sometimes IBBL can't invest its assets in
proper portfolio due to insufficient and unskilled manpower in these regards .As a

78

result, there is a large amount of money being idle and thus potential profits is not
increasing and generate low profit of foreign remittance account.

Sometimes foreign remittance operations of IBBL are hampered due to increase,

dishonest, indiscreet, hypocritical nature of people.

IBBL has no strong promotional activities to increase foreign remittances by motivate

present and potential non-residents Bangladeshi.

The Islamic banking products which are offered by IBBL through its 180 branches
located of important centers all over the country and spontaneous acceptance of those
products by the people proves the superiority of Islamic banking

IBBLs market share of deposit investment and ancillary business is steadily increasing.

IBBL, through steel a tiny bank, handles more than 10% of countrys export and import
trade.

Among the contemporary commercial banks IBBLs position is the first in respect of
mobilization, deployment of funds and earning profits.

More than 115000 workers are employed in the industrial projects financed by IBBL.
IBBL has thus made significant contribution to solving unemployment problem of the
country.

Dhaka is the capital of Bangladesh being a mega city has acute transport problem.
IBBL has join hands with an enterprising group to introduce a fleet of premier bus
service, which has attracted the attention of all section of the people and mitigated
transportation problem of the city to some extent.

IBBL has introduced several other welfare oriented investment schemes, such as small
transport investment scheme, small business investment scheme, agriculture implement
investment scheme, poultry investment scheme, household durable investment scheme,
and housing investment scheme.

IBBL has contributed a remarkable amount income tax to the government exchequer
every year.

At the initiative and drive of IBBL, several universities in Bangladesh have introduced
courses on Islamic Banking and Finance.

79

Islami Bank Bangladesh Limited has many representative branches in many countries
in the world to deal with foreign exchange business.

IBBL conduct many seminars to avoid hundi and ultimate result is increasing foreign
remittances.

Sending foreign remittances through IBBL is very easier than other banks.

Opening foreign remittances account in IBBL also easier.

80

7.2 RECOMMENDATIONS:

This bank should arrange a wide varieties of regular programs like "Islamic Jalsa",
"Oaaz Mahfil", "Seminar" , "Mosque -based discussion" etc. about Islamic banking
function countrywide to remove the negative impression about IBBL.

IBBL should be located their branches in the important places of the rural area so that
most people will know about the foreign remittance service of IBBL.

Remittance service of IBBL should be easy and flexible.

Bank should be creating such situation so that people put confidence on private bank
for huge money transaction.

IBBL should sponsored seminar and symposium for the purpose increase awareness
about the foreign remittance service of IBBL.

IBBL should conduct strong promotional activities to increase foreign remittances by

motivate present and potential non-residents Bangladeshi.

IBBL management body should be caution about foreign remittance operations of

IBBL that are hampered due to increase, dishonest, indiscreet, hypocritical nature of
people.

IBBL should conduct seminar about the bad effect of the Hundi that will hamper
economic development of the country.

IBBL should invest the remittance in the profitable sector that will produce more
profit for the owner of the account so that people will attract for foreign remittance
account of Islami Bank Bangladesh Limited.

IBBL should recruits fresh MBA graduates from any reputed university.

IBBL should set up information desk in every branch.

81

CONCLUSION

82

BIBLIOGRAPHY

A text book of Banking

M. Radashawmi

S.V. Vasudevan

Website of Islami Bank ( www.islamibankbd.com )

Islam and Economics Challenges

Chapra Dr.Umar

Foreign Exchange Mechanism

Rahaman Habibur

Brochure of Different Accounts of IBBL

Bangladesh Bank guideline

Ali, M and Sarkar, A.A. (1995). Islamic Banking: Principles and Operational
Methodology.

Abdallah, A.1987. Islamic Banking, Journal of Islamic Banking and

Finance, January-March, 4(1): 31-56.

Abdeen, A.M. and Shook, D.N... 1984. The Saudi Financial System, J. Wiley
and Sons, Chichester.

Islami Bank Bangladesh Ltd., 2005, Annual Report 2004-2005

Islami Bank Bangladesh Ltd., 2006, Annual Report 2005-2006

Jakat or Islami Bank Foundation, IBF

A hand book of 24 years progress of IBBL

83

LIST OF ABBREVIATIONS USED IN THIS REPORT:

ACU-Asian Clearing Union
ATM-Automated Teller Machine
CAMEL-Capital, Assets, Management, Earnings and Liquidity
CCI&E-Chief Controller of Export& Import
CIB -Credit Information Bureau.
CRR-Cash Reserve Ratio,
DD- Demand Draft
EPB-Export Promotion Bureau
EPZ-Export Processing Zone
ERC-export Registration Certificate
FSRP- Financial Sector Reform Programme
IBIB-International Association of Islamic Bank
ICC- International Chamber of Commerce
LCAF-Letter of Credit Authorization Form
RDS-Rural Development Scheme
SLR- Statutory Liquidity Reserve
SWIFT- Society for world Wide inter Bank Fund Transfer
TT- Telegraphic Transfer
UCPDC- Uniform Customs & Practice for Documentary Credit
WTO-World Trade Organization

84