Islami Bank

Internship Report on IBBL 2004
INTERNSHIP
REPORT
ON
PROBLEM FACED BY BRANCH

MANAGEMENT
Of
ISLAMI BANK BANGLADESH LIMITED
January 4, 2005
INTERNSHIP REPORT
ON
PROBLEM FACED BY BRANCH

MANAGEMENT
Of
ISLAMI BANK BANGLADESH LIMITED
SUBMITTED TO:
Prof. Dr. Mohammed Ather FCMA

Dean Faculty of Administrative Science
International Islamic University Chittagong
SUBMITTED BY:
Rashidul Hasan
B.B.A
Finance & Banking
Matric No: B003023
ACKNOWLEDGEMENT
I honour my Supervisor Sir Sirajul Islam for his hole-

hearted support to prepare report and to get best
practical knowledge. I also thank the Officer and
Senior Vice President (SVP) of Agrabad branch also
IBTRA to inform me about the operation system of
Islami Bank Bangladesh Limited.
Rashidul Hasan
Contents
Tropics Page
1.0 Introduction
1.1 Origin of report
1.2 Background of the report
1.3 Objective of the report
1.4 Scope of study
1.5 Methodology
1.6 Importance of the study
1.7 Limitation
2.0 Biography of Islami Bank Bangladesh Ltd.
2.1 Historical Background of IBBL
2.2. Business Philosophy of IBBL
2.3 Mission and objective
2.4 Role and contribution of IBBL to Bangladesh Economy
2.5 Social-welfare activities of Islam bank foundation
2.6 Development of manpower, research, training and motivation
2.7 Publicity and public relations
2.8 Management and Internal Organization Management of IBBL
2.8.1 SHARIAH COUNCIL: SHARIAH SUPERVISION
2.9 Opportunity & threats of IBBL
3.0 Performance Evaluation of Islami Bank Bangladesh Ltd.
3.1 CORPORATE INFORMATION
3.2 Present Status 2003
3.4 High lights of this Bank
3.5. High lights of this Bank (Contd.)
3.6 World Ranking of IBBL Amongst Top 3000 International Banks
3.7 Equity Participation
3.7.1 Capital Composition & changes during the last 20 years in brief
3.7.2 Composition of Equity:
3.7.3 Equity Movement
3.8 Deposit:
3.8.1 Deposits mix-31/12/2004
3.8.2 GROWTH OF DEPOSIT
3.9 Investments
3.9.1 Composition of Investment
3.9.2 Sector wise Investment
3.9.3. TREND OF INVESTMENT
3.9.3 Trend of Industrial Investment
3.9.4 Trend of Industrial Investment
Tropics Page
3.10 Foreign Exchange Business
3.10.1 Trend of Import Business
3.10.2 Trend of Export Business
3.10.3 Trend of Foreign Remittance Business
3.11 Operating Result
3.12 Trend of dividend
3.13 Growth of assets, Liabilities & Share Holder Equities
3.14 IBBL’s 5 years performance at a glance
4.0 General Banking of Islami Bank Bangladesh Ltd.
4.1 General Banking Portfolio
4.2 To Open A New Account
4.3 General Practice At Regarding Accounts Account Opening Register
4.4 (a) Principles of Distribution of Profit to Mudaraba Depositors
4.4.1 Summary Of Mode wise Deposits at Chittagong Branch
4.5 General Characteristics Of Deposit Account
4.5.1 Al-Wayadia Current A/C (AWCA)
4.5.2 Mudaraba Savings Account (MSA)
4.5.3 Mudaraba Savings Notice (MSNA) A/C
4.5.4 Mudaraba Term Deposit A/C (MTD)
4.6 Local Remittance
4.6.1 Pay Order (PO)
4.6.2 Demand Draft (DD)
4.6.3 Telegraphic Transfer (TT)
4.7 Collection
4.7.1 Clearing
4.7.2 Outward Bills For Collection (Obc)
4.7.2 Inward Bills For Collection (IBC)
4.7.3 Endorsement - Various Types
4.8 Cash
4.8.1 Vault
4.8.2 Teller Customer Relationship
4.8.3 Cash Packing And Handling
4.8.4 Evening Banking
5.0 Investment of Islami Bank Bangladesh Ltd.
5.1 Investment
5.2.1 Objective and Principles
5.2.2 Investment Policy of IBBL
5.2.3 Investment perspective plan of IBBL.
5.3 Investment port-folio of Islamic Bank Bangladesh ltd
5.4 Summary Of Mode wise Investment at Agrabad Branch, Chittagong.
Tropics Page
5.5 Different Mode of Investment
5.5.1 (i) Bai-mode (Trading Mechanism)
5.5.2 (ii).Leasing Mode (Ijara Mechanism)
5.5.3 (iii) Share Mode (Mechanism)
5.5.4 Types of Shirkat & Quard-E-Hasana
5.6 Investment under special schemes 2004
5.6.1 Composition of the Investment scheme (year 2004)
5.6.2 Investment under Special Schemes
5.6.3 Household Durable Scheme
5.6.4 Car Investment Scheme
5.6.5 House Investment Scheme
5.6.6 Transports Investment Scheme
5.6.7 Investment Scheme for Doctors
5.6.8 Small Business Investment Scheme
5.6.9 Agriculture investment scheme
5.6.10 Rural development scheme
5.6.11 Mirpur Silk Weavers Investment Scheme
5.6.12 Micro Industries Investment Scheme.
5.7 Welfare Oriented Investment Schemes
6.0 Foreign exchange operation of Islami Bank Bangladesh Ltd.
6.1 AN OVERVIEW ON FOREIGN EXCHANGE OPERATIONS OF
IBBL
6.2 FOREIGN EXCHANGE MECHANISM: EXPORT (AN OVER
VIEW)
6.3 FOREIGN EXCHANGE MECHANISM: IMPORT (AN
OVERVIEW)
6.4 Some L/C related terms and their brief description
6.5 Letter of Credit Issue Process
6.6 Advantages of Letter of Credit
6.7 Types of Letter of Credit
6.7.1 Parties of Letter of Credit
6.8 Different Parties Roles
6.8.1 Role of Issuing Bank
6.8.2 Role of Advising Bank
6.8.3 Role of Negotiating Bank
6.8.4 Role Of Confirming Bank
6.9 Transport Document
6.10 Definition Of Bill Of Lading
6.10 Import mechanism of L/C
6.11.1 Importer's Application For L/C Limit/Margin
6.11.2 The L/C Application
6.11.3 Transmitting The L/C
Tropics Page
6.11.5 Add Confirmation
6.11.6 Amendment Of L/C
6.11.6 Presentation Of Documents
6.11.8 Lodgement and requirement of import document:
6.11.9 Guidelines On Back To Back Letter Of Credit Transaction:
6.11.10 Cash benefit analysis of L/C.
7.0 Problem face by Branch Management of Islami Bank Bangladesh
Ltd.
7.1 Branch Problem
7.2. An overview of problems:
7.3 ISSUES AND PROBLEMS
7.4 ISSUES RELATED TO MACRO OPERATION
7.5 ISSUES RELATED TO MICRO OPERATION
7.6 Failure of Islamic Banks to Establish Co-operation among
Themselves
7.7 Problems faced by IBBL’s OPERATING UNDER
CONVENTIONAL BANKING SYSTEM
7.8 CONSTRAINTS FACED BY IBBL IN BANGLADESH
8.0 Conclusion
9.0 Recommendation
10.0 Bibliography
11.0 Reference
Chapter - 1
1.1 Origin of report

This report is based on an internship program. School of business, IIUC, arranges
internship program in attachment with its students after the completion of theoretical
courses (i.e., after final semester) of program of Bachelor of Business Administration
(BBA). Each intern must carry out a specific project, which is assigned by the concerned
organization and approved by the Internship and placement committee of School of
business, IIUC. Consequently a report based on the project is to be submitted to the
committee.
In this particular report, the author is an intern of the previously mentioned program and
the concerned organization is IBBL, which are a prominent private, and the first
Bank of Bangladesh that based on Islamic law.
Hence I was placed in the Agrabad Branch of Islami Bank Bangladesh Limited from
October 12, 2004 to December 30, 2004.
In way of delegation, responsibility of carrying out the study has conferred upon the
concerned intern.
1.2 Background of the report

Practical orientation in different organizations is the final term requirement of BBA
program. Hence I was selected for the IBBL. I was given on introducing letter through
DBA of IIUC to meet JB Abdul Majid Khondaker Programme Director IBTRA of IBBL.
As instructed by Janab Md. Habibur Rahman SPO, IBTRA assigned to work at Agrabad
Branch of IBBL. And since then I had started my practical orientation program in
General Banking, Investment & Foreign Exchange department. I was selected for
completing internship programme at IBBL.
1.3 Objective of the report

The first objective of writing the report is fulfilling the partial requirements of the BBA
program. In this report, I have attempted to give on overview of Islami Bank Bangladesh
Limited in general. Also in the major part, I have shown the practical approach of
General Banking, Investment & Foreign Exchange. Some following objectives of the
report are as shown.
 To gain or achieve the practical Idea of banking System of IBBL.

 To observe the economic condition of IBBL
 To explain the general banking activities of IBBL.
 To explain the investment policy of IBBL.
 To explain the activities of foreign exchange of IBBL
 To identify the problems of IBBL prevailing in its banking system
 To suggest some possible recommendations to overcome the problems.
1.4 Scope of study

The scope of the organizational part covers the organizational structure, background, and
objectives, functional, departmental and Business performance of IBBI, as a whole and
the main part covers operational scenario of 1BBL.
1.5 Methodology
For carrying out this report I had observed the actual banking operation in this
organization. Some following methodology that was applied in my internship report is
given below.
Some interviewing officers, staffs and concerned authority of general banking,

investment and foreign exchanges sectors of IBBL at Agrabad Branch and some
practical deskwork by me are the primary sources of this report material.
Moreover, annual report IBBL, Various journal and books are the secondary sources of
my report.
1.6 Importance of the study

 To identify the problem of IBBL at Agrabad branch.
 To achieve practical knowledge of banking side of IBBL.
 To observe interrelated activities of general banking of IBBL.
 To gain practical knowledge about over all banking system & specially general
banking investment and foreign exchange.
1.7 Limitation
Objective of the practical orientation program is to have practical exposure for the
students. My tenure was for eleven weeks only, which was somehow not sufficient. After
working whole day in the office it way very much difficult, it not impossible to study
again the theoretical aspects of banking. On the other hand to prepare my internship
report I have faced some limitations as follows.
 To collect data and information, It is a common tendency of any departments to

keep back their departmental data and information.
 Unavailability to required published documents.
 Lack of my experience and efficiency to prepare the standard report.
 I observed that unskilled persons are available in IBBL; They are not able to
teach us various aspects.
Chapter - 2
Biography of Islami Bank Bangladesh Ltd.

2.1 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, Late President Ziaur Rahman while addressing the 3 rd Islamic Summit
Conference held at Macca and Taif suggested, "The Islamic countries should develop a
separate banking system of their own in order to facilitate their trade and commerce."
This statement of Late President Ziaur Rahman indicated favourable attitude of the
Government of the People's Republic of Bangladesh towards establishing Islamic banks
and financial institutions in the country. Earlier in November 1982, Bangladesh Bank,
the country's 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 form for
immediate introduction. Two professional bodies Islamic Economics Research Bureau
(IERB) and Bangladesh Islamic Banker's Association (BIBA) mode significant
contributions towards introduction of Islamic banking in the country.
The came forward to provide training on Islamic banking to top bankers and economists
to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. They also
held seminars, symposia and workshops on Islamic economics and banking throughout
the country to mobilize public opinion in favour of Islamic banking.
Their professional activities were reinforced by a number of Muslim entrepreneurs

working under the aegis of the then Muslim Businessmen society (now reorganized as
industrialist & Businessmen Association). The body concentrated mainly in mobilizing
equity capital for the emerging Islamic Bank.
At last, the long drawn struggle, to establish an Islamic bank in Bangladesh becomes a
reality. Islamic Bank Bangladesh Limited was established in March 1983. In which 19
Bangladeshi nationals, 4 Bangladeshi institutions and 11 banks, financial institutions and
government bodies of the Middle East and Europe Including IDB and two eminent
personalities of the kingdom of Saudi Arabia joined hands to make the dream a reality.
2.2. Business Philosophy of IBBL
The philosophy of IBBL is to the principles of Islamic Shariah. The organization of
Islamic conference (OIC) defines an Islamic bank as "a financial institution whose
status, rules and procedures expressly state its commitment to the principles of Islamic
Shariah and to the banking of the receipt and payment of interest on any of its
operations. The sponsor, perception is that IBBL should be quite different from other
privately owned and managed commercial bank operating in Bangladesh, IBBL to grow
as a leader in the industry rather than a follower. The leadership will be in the area of
service, constant effort being made to add new dimensions so that clients can get
"Additional" in the matter of services commensurate with the needs and requirements of
the country' growing society and developing economy.
2.3 Mission and objective

 To conduct interest free banking.
 To establish participatory banking instead of banking on debtor creditor

relationship.
 To invest through different modes permitted under Islamic Shariah.
 To accept deposits on profit-loss sharing basis.
 To establish a welfare-oriented banking system.
 To extend co-operation to the poor, the helpless and the low-income group for
their economic uplift.
 To pay a vital role in human development and employment generation.
 To contribute towards balanced growth and development of the country through

investment operations particularly in the less developed area.
 To contribute in achieving the ultimate goal of Islamic economic system.
2.4 Role and contribution of IBBL

to Bangladesh Economy
Islami Bank Bangladesh Limited has many success stories of achievements.
These are summarised below:
 IBBL is the pioneer institution for introduction of Islamic Banking in
Bangladesh.
 The success of IBBL has imbibed other sponsors at home and abroad to establish
Islamic Banking in Bangladesh. Four national, one international Islamic banks
have since been established in the country. A private sector traditional bank has
also established two full-fledged Islamic Banking branches. Several other
existing and proposed traditional banks hove also expressed their intention to
introduce Islamic Banking.
 IBBL has successfully mobilised deposits from a section of people who hither-
to-before did not make any deposit with interest-based banks.
 The Islamic Banking products, which are offered by IBBL through its 118
branches, located at important centres all over the country and spontaneous
acceptance of those products by the people proves the superiority of Islamic
banking.
 IBBL's market share of deposit investment and ancillary business is steadily
increasing.
 IBBL, though still a tiny bank, handles more than 10% of country's export and
import trade.
 Among the contemporary commercial Banks IBBL's position is first in respect of
mobilisation of deposit, deployment of fund and earning profit.
 Investment in industrial sector occupies nearly 33% of IBBL's investment

portfolio. This is a unique example of industrial Finance by a commercial Bank.
 More than 1.15,000 workers are employed in the industrial projects financed by
IBBL. IBBL has thus made significant contribution to solving unemployment
problem of the country.
 Dhaka- the capital of Bangladesh being a Mega city- has acute transport problem.
IBBL has joined hands with an enterprising group to introduce a fleet of Premium
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 Implements Investment Scheme, Poultry Investment Scheme,
Household Durable Investment Scheme, Housing Investment Scheme etc.
 IBBL launched a Rural Development Scheme for providing finance to drown-
trodden section of the populace- an area where no other Commercial Bank has
extended any finance. IBBL's mission is to reach to all 68,000 villages of the
country as early as possible.
 a IBBL has contributed a remarkable amount million Taka as income tax to the
Government Exchequer on its net profit over the last 18 years, a At the initiative
and drive of IBBL, several Universities in Bangladesh, have introduced Courses
on Islamic Banking and finance.
 IBBL has organised a good number of national and international Seminars on
Islamic Banking and Economics. Importantly, IBBL sponsored a Seminar at
Dhaka with a view to forming an Islamic Common Market.
 Due to constant persuasion of IBBL the Government has granted licence for
establishment of an Islamic Insurance Company. By now two (2) Islamic
Insurance Companies have started business.
 IBBL has earned reputation in the country as a corruption free institution.
 IBBL is held in high esteem in the banking circle as a good managed bank.
 Under the leadership of IBBL, Bangladesh Association of Banks (BAB) has been
formed. This is a platform to ventilate the standpoints on banking issues of the
private sector banks. a IBBL has taken initiative to form an Association of
Islamic Banks in Bangladesh for furtherance of the causes of Islamic banking.
 IBBL has established a foundation called Islami Bank Foundation1 for carrying
out social welfare activities. The foundation has taken up a number of schemes
covering the whole of Bangladesh.

2.5 Social-welfare activities of
Islam bank foundation
One of the distinguishing features of Islami Bank is that its overall activities are directed
towards the welfare of the society. The Bank, since its inception, has dedicated itself for
the emancipation of the helpless and downtrodden people of the society. With this end in
view, the Bank has created a separate fund, which was earlier known as Sadaqua Tahbil.
In 1991, the Sadaqua Tahbil was reorganised and enlarged-under the new name of 'Islami
Bank Foundation' with a fund of Taka 38.00 million in order to conduct social-welfare
activities on a wider scale. As one of the leading non-government voluntary

organisations of the country, the Foundation has been working with unique and special
programmes for the welfare of distressed humanity and to make poor, downtrodden, and
landless and asset less people self-reliant.
The aims and objectives of the Foundation are to serve distressed humanity, promote
people oriented mass education, extend health and Medicare facilities to the poverty-
stricken people in urban and rural areas, create facilities for productive self-employment
and develop human resources for improving economic condition and quality of life,
assist healthy growth of art, culture
and literature, science and technology, sports, research and propagation of Islamic
teachings. The Foundation has taken up a number of schemes covering the whole of
Bangladesh.
Income Generating Programmes

Access to required finance and other related inputs may help many to become self-
employed. In absence of such opportunity the unemployed youths entangle themselves in
various anti-social activities. Islami Bank Foundation has, therefore, taken up the
following Self-employment projects:
1. Rickshaw
2. Sewing
3. Poultry Keeping
4. Rural Health Work
5. Milk Cow/Goat rearing
6. Small Trade
Educational Programmes:
Education is the backbone of a nation. Awareness building, skill training, access to
^information-all depends on education. But it is regrettable that the rate of literacy is still
very low in Bangladesh. Most of the children are deprived of the light of education due
to poverty, lack of sufficient educational institutions, non-availability of textbooks and
equipments etc. In a ward, the unfavourable socio-economic conditions are responsible
for this chaotic situation.
The Foundation has, therefore, taken up the following programmes to improve the
country's educational scenario:
a) Support to Model Forqania Maktab
b) Scholarship/lump grant for poor and Meritorious Students
c) Financial support to Educational Institutions
Health and Medicare Programmes
Health and Medicare facilities are the basic and fundamental rights of each individual but
most of the people of our country are still deprived of it. The Foundation has, therefore,
taken up the following:
programmes to extend health, Medicare and sanitation facilities to the urban and rural
areas:-
a) Establishment of Medical Centres
b) Supporting Charitable dispensaries
c) Lump-sum help for medical treatment
d) Tube well Installation
e) Sanitary Latrine construction etc.
Such Assistance is also extended to the members of Rural Development Scheme (RDS)
of IBBL. Under Health and Medicare programmes preventive measures have also been
taken. Special steps have been taken for construction of sanitary latrines and installation
of tube wells in the villages covered under to which Islami Bank Bangladesh Ltd. is
providing finance for income generation activities.
Humanitarian Help Programmes

These programme aims at providing help to distressed people who are unable to meet
their basic needs like food, clothing, shelter and medicine. The old widow and children
without guardians get preference. Besides, the programme extends assistance to
orphanages, provide fund for the marriage of poor girls, assist indebted people, help
distressed wayfarers etc.
Relief and Rehabilitation Programmes

Participation in relief and rehabilitation activities in natural disasters and in emergency
forms an important programme of Islami Bank Foundation. During calamities like flood,
tornado, tidal surge etc. the Foundation mobilises its own people as well as donates to the
relief fund opened at the government level. The Foundation also tries its best to extend
hands of assistance and co-operation to the Muslim brethren elsewhere in the world.
Dawah Programmes
One important objective of Islami Bank Foundation is to disseminate the true knowledge
and teachings of Islam. The Foundation has, therefore, taken up various schemes to
enlighten the common people as well as the elite and make them familiar with the
concept of Islam. Islamic research magazines and other Islamic Literatures are being
distributed among the Academicians, Journalists, Justices, Lawyers, High Officials,
Bankers, Literatures and important Libraries and Institutions of the country. The
Foundation is also working among the prisoners for their moral reforms.
2.6 Development of manpower, research, training and
motivation
The principles and working procedures of Islamic banks are completely new and
different from the conventional banks. There is an inevitable need for training of the
employees of the banks to orient and attune them to the new system of Islami banking.
To cater to this need, Islami Bank training and Research Academy (IBTRA) was
established in 1984, soon after the inception of the Bank.
The activities of IBTRA cover both training and research on various aspects of Islamic
banking. The Academy developed a rich library of its own with a treasure of valuable
books on different subjects including Islamic economics, banking, comparative
philosophies and journals of home and abroad and research articles and documents.
Employees of the Bank, learners and researchers have been taking full advantage of the
library.
The Academy edited books on "Readings in Islamic Banking" and "Investment

Operations". It also edited and published a brochure on "Investment and Trade
Opportunities in Bangladesh."
Keeping in view the existing and future training requirement of the Bank and also to
generally cater such needs of different Islamic banking & financial institutions of the
region, the management of Islami Bank Training and Research Academy has been placed
at the disposal of an Academic Council consisting of 3 Directors of the Board,
Management Executives of the Bank, Shariah scholar, renowned academicians and
representatives of reputed institutions engaged in the training of bank officials of the
country.
The Academy conducts training courses, and workshops. The courses include Islamic
Banking, Banking Law and Practice, Investment Operations and Management, Foreign
Trade and Foreign Exchange, Shariah Based Audit and Inspection.
Besides, orientation, induction, foundation and motivation courses on different subjects

are also conducted round the year. In addition to conducting regular training courses, it
arranges seminar on Islamic economics and banking and such other related topics of
current interest.
Apart from this, an "Executive Development Programme" has been introduced at the
Head Office of the Bank in Dhaka since 1988 for enriching knowledge and thought
process and developing professional skill of the Executives. This programme has proved
to be effective and now being extended outside Dhaka. The Academy conducts
internship courses for the students of different Departments of various Universities of the
country.
The Bank introduced annual award for the best three students of the Department of
Banking and Finance of Dhaka University who secure 1st class 1st, 2nd and 3rd with
'Islam! Banking' as special subject from the year!994.
he Bank is also providing financial assistance for publication of a textbook on 'Islamic

economics and banking' for the university students.
Besides, a motivational programme has been introduced since 1987 for the clients of the
Bank. Client-orientation programme are arranged at different branches for disseminating
the concept of Islamic economics and banking and to acquaint the clients with the
operations of Islamic banking system, 'he Bank, in 1993, co-sponsored a 3-day
international Seminar on 'Islamic Common Market' n which scholars, economists,
bankers, industrialists' 2nd representatives of trade bodies of 15 countries participated.
The Bank, with the collaboration of International Association of Islamic Banks (IAIB),
organised an International Seminar on Islamic Banking in!985 and another international
Seminar on Islamic Banking and insurance in 1989.
Islami Bank Training and Research Academy has introduced Diploma in Islamic
Banking since 1998.
Library and Reading Room of IBTRA
2.7 Publicity and public relations

The Bank, since its birth, has been relentlessly working to project and promote the lofty
ideals of Islam in the fields of economics and banking and to reach the people of all
walks of life and bring home to them the concept of Islamic banking.
Thus, it has been able to create a favourable image about Islamic banking among the
people. The Bank releases advertisements through radio, television, magazines and
newspapers to make urban and rural masses aware of the ever growing concept, modes
of operation, schemes and services of the Bank and to focus on its progress and motivate
traders, businessmen and industrialists to establish and broaden their business links with
the Bank. To promote healthy growth of art and literature in the country, literary
magazines are patronised.
The Bank has so far published a number of books, booklets, souvenirs and folders on
different aspects of Islamic banking and Islamic economics. Attractive multi-coloured
posters were also published depicting the aims and objectives, people-oriented special
investment schemes of the Bank.
National and international newspapers and magazines published features and in-depth
reports on the progress of the Bank and made editorial comments praising the welfare
activities of the Bank.
Bank's quarterly research journal Islami Banking' highlighting the concept of Islamic,
economists, bankers, journalists, judges, intellectuals etc. A periodical house magazine
named 'Islami Bank Parikrama' is being published regularly as the mouthpiece of the
Bank. Discussion meetings, semi-economy, banking, insurance, prospect of economic
collaboration among the Muslim countries etc. started its publication in 1992 which has
been widely acclaimed by all section economy, banking, insurance, prospect of economic
collaboration among the Muslim countries etc. started its publication in 1992 which has
been widely acclaimed by all sections of people including academicians of people
including academician, symposia, workshops are also being arranged to apprise the
people of the Islamic banking system. Stalls and booths were opened in different national
and international fairs for projecting the activities of the Bank.
2.8 Management and Internal Organization

Management of IBBL
A 24-member Board manages Islami Bank Bangladesh Limited. Of the Directors, 8 are
foreigners and 16 are local. The Board of Directors forms a 9 member Executive
Committee for efficient operation of the Bank. Besides, a Management Committee looks
after the affairs of the Bank.
Management Approach and leadership style
IBBL Eastern Bank Ltd. Follows participate leadership approach. Work accomplishment
is from committed people with interdependence through a common stake in organization
purposed with trust and respect. They are the managers who display in their actions the
highest possible dedication both to people and to work. They are the real term managers'
who are able to mesh the service needs of the enterprise with the needs of the
individuals.
Technology at Islam Bank Bangladesh (ltd.)
With rapid change in communication banking worldwide has experienced a tremendous

transformation and it is continually being shaped to suit the changes of industrialization
of the society. Unfortunately, Bangladesh has missed much of the excitement and we are
virtually unaware of the improvements in banking services in other developed countries.
IBBL has now brought a part of that development made through improved computer and
communication technology. Clients of IBBL Bank will now enjoy service quality that is
quite upgraded and to some extent unique.
Personal policies
Personnel policy at IBBL Bank Ltd. Is not clearly defined in Dhaka. However the broad
outlines of the policy are:
> To establish contingency plants for local staff protection
> To develop programs to cross train personnel for added flexibility
Corporate culture
Ideology, Values, Beliefs, Philosophy, etc.
They have a standard set of rules for ethical guidelines. The core idea of it is to "Do the
right thing". The right thing may not be obvious at all the time. They are to took after the
community and serve them, avoid conflict of interest whenever possible. The idea at the
Citicorp is to build a congenial atmosphere and encourage teamwork and progress
collectively.
IBBL as a good corporate citizen abides by a set of core values. Some can be classified
as traditional values such as security, trustworthiness, integrity and confidentiality.
Others are perhaps more temporary. They reflect IBBL Bank Ltd's commitment to its
customers to be.
> Responsive to their needs
> Flexible in approach
> Professional in manner
> Always striving excellence.
The major corporate philosophy of IBBL Bank Ltd. Is to efficiently manage the risk
involved and maintain the stability of the bank to the greatest extent possible.
Organizational practices
IBBL Bank Ltd. Is quite conservative in their organization polices. These policies are
followed by Citicorp and are intended to protect the interest of stakeholders. They go
through extensive market research before launching any new product. They try to
minimize risk by acquiring as much information as possible.
Managing public affairs
They have a very definite view about public affairs management. The bank wants the
name franchise to be a symbol of status. Retail bank is still not in operations and
individual account is discouraged with high minimum balance requirements.
Press relations
They also have a clear view of press relations. They are not going for an advertisement
in the national dailies. Their motto is to be focused to a target group. First they identify
their target customers and they approach him / her directly. So they do not need any
promotion to attract the customers.
2.8.1 SHARIAH COUNCIL: SHARIAH

SUPERVISION
Shariah Council of the Bank is playing a vital role in guiding and supervising the
implementation and compliance of Islamic Shariah principles in all activities of the Bank
since its very inception. The Council, which enjoys a high status in the structure of the
Bank, consists of prominent ulema, reputed banker, renowned lawyer and eminent
economist.
Members of the Shariah Council meet frequently and deliberate on different issues
confronting the Bank on Shariah matters. They also conduct Shariah inspection of
branches regularly so as to-ensure that the Shariah principles are implemented and
complied with meticulously by the branches of the Bank.
2.9 Opportunity & threats of IBBL

Problems and prospects of Islamic banking in Bangladesh
Despite tremendous popular support spectacular success in terms of mobilization of

deposit and distribution of profit Islamic banking in Bangladeshi yet to achieve the
desired level of success due to the absence of appropriate legal framework for carrying
out Islamic Banking operations in the country. All the government-approved securities in
Bangladesh are interest bearing. Besides, Islamic Money Market in Bangladesh is yet to
develop. As a result the Islamic banks, which are committed to avoid interest, cannot
invest the permissible part of their Statutory Liquidity Reserve and Short Term Liquidity
in those securities.
Inspire of the present limitations, Islamic-banking system has tremendous potentiality

and prospect in Bangladesh. Firstly, the successful launching and needs to an Islamic
Money Market in the country. Thirdly Islamic banks have brought together many
depositors and entrepreneurs Under their fold and coverage. These depositors and
entrepreneurs so long avoided interest-based banking on grounds of religious
injunctions.
The gradual and successful globalisation of Islamic banking coupled with growing
awareness of the people about its financial and social benefits makes it clear that the next
century is going to be the century of Islamic banking.
Chapter - 3
3.1 : 2004
Secretary  Date of Incorporation 13th March, 1983

Md. Shouquat Ali  Inauguration of First 30th March, 1983
Branch
Local Office, Dhaka
(then the Main Branch)
 Formal Inauguration 12th August, 1983
Auditors  Authorised Capital Tk.3000.00 million
M/S. Howladar Yunus &  Paid—up Capital Tk.1920.00 million
Co.
Chartered Accountants  Share of Capital
67, Dilkusha C/A. (a) Local Shareholders : 42.12%
Dhaka (b) Foreign Shareholders : 57.88%
 Equity : Tk. 5,266.47
million
M/S. S.F. Ahmed & Co.  Zones : 6
Chartered Accountants  Branches : 141
House No. 25, Road No.  Deposits : Tk.69,941.79
13A million
Bock-D, Banani, Dhaka.  Investments (Gross) : Tk.59,007.49
million
 Foreign Exchange Business : Tk.84,643.00
million
 Manpower : 3,752
 Number of Shareholders : 14,196
Registered office
Islami Bank Tower
40, Dilkusha Commercial Area
Dhaka-1000, Bangladesh, GPO Box No. : 233

Phone : PABX-9563040 (Hunting 8 Lines), 9560099, 9567161,
9567162,9559417
Telex : 671620 IBANK BJ
Fax : 9564532, 9568634, Cable : ISLAMIBANK
S.W.I.F.T : IBBLBDDH
E-mail : info@islamibankbd.com
web. site : www.islamibankbd.com

• Today, IBBL is the largest Private sector Joint-Venture Bank amongst the contemporary
private Banks In Bangladesh with the following parameters of performances as on
31.12.2003.
Percentage to
Total Country
1. Branches - 141 Branches 2.26%

2. Deposit - 70553.00 million 6.03%
3. Investment - 62756.00 million 5.87%
4. Gross Profit - 2150.00 million
5. Import - 46237.00 million 7.43%
6. Export - 16572.00 million 5.86%
7. Remittance - 14670.00 million 9.00%

• Today, IBBL is the largest Private sector Joint-Venture Bank amongst the contemporary
private Banks In Bangladesh with the following parameters of performances as on
30.06.2004.
As on 30.06.04 As on 31.12.03
1. Branches - 142 Branches 141 Branches
2. Deposit - 77872.00 million 70553.00 million
3. Investment - 70676.00 million 62756.00 million
4. Grass Profit - 1455.00 million 2150.00 million
5. Import - 26482.00 million 46237.00 million
6. Export - 13678.00 million 21738.00 million
7. Remittance - 10710.00 million 16668.00 million
8. Total F.Ex - 50870.00 million 84643.00 million
3.4 High lights of this Bank

- Pioneer In Islamic Banking running its entire operation based Islamic Shariah.
- Shariah Commercial Comprising of leading Ulama, Renowned Economist lawyers

and Bankers of the country for constant supervision and guidance of the Banking
operation.
• - Never participated in the interest based money market operation.
• - Never borrowed from any source either inside or outside the country.
• - Trying to be present In respect of banking activities in all sphere of the Economy,
- A transparent and corruption free operation for the last 21years in a row.
3.5. High lights of this Bank(Contd.)

• - Regular and timely holding of holding of AGM declaring good dividend since 1989
without break till 2003 except In the year 1992.
• - Largest contributor of Tax to the Government exchequer from the Private sector
Banks receiving the CIP status from the Government almost every year. Received the
Best Bank in Bangladesh Awards from Global Finance, U.K. In 1999 & 2000.
• - We are connected to 830 offices of 230 Foreign Banks in 74 countries.
. - IBBL received A+ Rating in CRISL (Credit Rating Information &
Services Limited)
3.6 World Ranking of IBBL Amongst Top 3000

International Banks
Sl. No. Year
1. 1994 1447
2 1995 2314
3 1996 2304
4 1997 2262
5 1998 2119
6 1999 2100
7 2000 1999
8 2001 1902
9 2002 1771
10 2003 1755
11 2004 1581
Source : The Bankers Almanac : World Ranking Road Business Information, U.K.
3.7 Equity Participation

• In 1983-75% of the paid up capital of the Bank was provided by Foreign Individuals
and Organization.
10% of the paid up capital was provided by Local Sponsors

Only 5% of the paid up capital was contributed by the Government of the Peoples'
Republic of Bangladesh
10% of the paid up capital was raised from Public shareholders in 1984
Today i.e. as on 31.12.2003

• 40.62% of the shares is owned by Local shareholders
• and 59.38% by the Foreign shareholders
3.7.1 Capital Composition & changes during the

last 20 years in brief: Tk. in million
1983 1985 1990 1995 2000 2003

Authorized Capital 500.00 500.00 500.00 500.00 1000.00 3000.00
Paid up Capital 67.50 67.50 80.00 160.00 320.00 1920.00
Reserves Nil 13.20 200.00 653.10 2351.10 2887.90 --
Total equity 67.50 92.70 280.00 813.10 2610.10 4807.90
3.7.2 Composition of Equity
Particulars 31-12-2003
Amount (Million) Total %
Paid up Capital 1920.00 36.46%
Statutory Reserve 887.51 16.85%
General Reserve 278.37 5.29%
Share Premium 1.99 0.04%
Right Share Collection 32.00 0.61%
Investment Loss Off-Setting Reserve 644.43 12.23%
Reserve Available for Distribution 384.00 7.29%
Provision on Unclassified Investment 572.93 10.88%
Exchange Equalisation 38.41 0.73%
Asset Revaluation Reserve 506.83 9.62%
Total 5764.3 100%
3.7.3 Equity Movement

Year Amount (Million)
1999 1659.26
2000 2671.06
2001 2993.24
2002 3540.52
2003 5266.47
3.8 Deposit:
The Year 2003 was another of mobilization of deposits. Total deposits stood at
69942 million as on 31st twelve 2003 as against Taka. 55462 million of the
preceding year registering an increase of Taka 14480 million.
3.8.1 Deposits mix-31/12/2004

Elements of deposits percentage
MSA 42.71%
MTDR 22.01%
C&C 10.61%
MSB 10.47%
MSND 8.58%
MHSA 2.87%
MSS 1.35%
MMPDS 0.93%
MFCD 0.40%
PB 0.7%
3.8.2 GROWTH OF DEPOSIT: 1999 TO 2003

Year Deposit (Tk in Million)
1999 25,191
2000 32,113
2001 41,547
2002 55,462
2003 69,942
3.9 Investments
Investment of the Bank stood at Tk-59007 Mil lion as on 31.12.03 as against TK. 46281
Million as on 31.12.00 showing an increase of Tk. 12726 million i.e. 28 percent against
percent growth of investment of the Banking sector. This increased growth of investment
of the Bank in 2003 may be attributed to the trust given to foster investment and to
reduce the Surplus Liquidity of the Bank.
3.9.1 Composition of Investment
Mode of Investment 31-12-2003

Amount Total %
Bai-Murabaha 31138.88 52.77%
H.P. Under Shirkatul Melk 18065.10 30.62%
Bai-Majjal 5512.13 9.34%
Purchase and Negotiation 1801.33 3.05%
Quard-E-Hasana 1765.65 2.99%
Bai-Salam 610.27 1.04%
Mudaraba 102.00 0.17%
Musharakah 12.13 0.02%
Total 59007.49 100%
3.9.2 Sector wise Investment

Sector 31-12-2003
Amount Total %
Industry 24480.21 41.49%
Commerce 20467.76 34.69%
Real state 5204.18 8.82%
Transportation 2475.11 4.19%
Agriculture 2235.29 3.79%
Others 4144.94 7.02%
Total 59007.49 100%
Sector wise Investment
3.9.3. Trend of INVESTMENT: 1999 – 2003

Year Growth of Investment (Tk in Million)
1999 18,283
2000 27,471.48
2001 35,272
2002 46,315
2003 59,042
3.9.4 Trend of Industrial Investment 1999-2003

1999- 4153
2000- 9850
2001- 15722
2002- 19693
2003- 24480
3.10 Foreign Exchange Business

Total Foreign Exchange Business during the year 2003 stood at Tk. 84643 Million.
Trend of Foreign Exchange Business : 1999-2003
Year Tk. (Million)
1999 43,609.00
2000 49,860.00
2001 51,868.00
2002 65,131.00
2003 84,463.00
3.10.1Trend of Import Business
1999 20396
2000 25327
2001 25907
2002 33788
2003 46237
3.10.2Trend of Export Business
1999 14798
2000 16889
2001 16082
2002 16673
2003 21738
3.10.3Trend of Foreign Remittance Business
1999 8415
2000 7644
2001 9879
2002 14670
2003 16668
3.11 Operating Result

1998-2003 (In million Tk.)
Year Total Income Total Expenditure Gross Profit

1998 1629 1481 148
1999 1966 1788 178
2000 3208 2878 330
2001 4260 3683 576
2002 5234 4240 994
2003 6841 6039 802
3.12 Trend of dividend

RATIO OF DIVIDEND
Year Rate of Dividend
1999 21%
2000 25%
2001 25%
2002 25%
3.13 Growth of assets, Liabilities & Share Holder

Equities
A) Growth of assets
Property and Assets:
Particulars Notes 31.12.2003 31.12.2002

Cash 15,860,838,846 13,089,501,667
(Including Foreign Currency)

In hand and with Bangladesh
Bank and Sonali Bank
(Including foreign currency)
Balance with other Bank : In 3,353,145,502 1,792,870,979
Bangladesh Outside Bangladesh
Investment In Shares 34157000 34157000
Investment 59007490255 46280613393
Total 81704745989 65080700199
B)Liability :
Particulars Notes 31.12.2003 31.12.2002

Deposit and others A/C 69941790927 55461421964
Others Liability 6562582969 6127011675

Total Liability 76504373896 61588636639
C) Shareholder Equity:
Particulars 2003 2002

Total Share Holder Equity 5200372093 3492066560
3.14 IBBL’s 5 years performance at

glance
Particulars 1999 2000 2001 2002 2003
Authorised Capital 500.00 1,000.00 1,000.00 1,000.00 3000.00
Paid-up Capital 320.00 320.00 640.00 640.00 1920.00
Reserved Fund 1,115.61 1,759.65 1,998.04 2,852.07 3,280.37
Total Equity 1,659.26 2,671.06 2,993.24 3,540.52 5,266.47
Deposits (including Bills 25,190.65 32,112.81 41547.29 55,461.62 69,941.79
Payable)
Investments (including Inv. 22,198.26 29,563.20 37,648.75 49,185.92 59,041.65
in Shares) (Gross)
Import Business 20,396.00 25,327.00 25,907.00 33,788.00 46,237.00
Export Business 14,798.00 16,889.00 16,082.00 16,673.00 21,738.00
Remittance 8,415.00 7,644.00 9,879.00 14,670.00 16,668.00
Total Foreign Exchange 43,609.00 49,860.00 51,868.00 65,131.00 84,643.00
Business
Total Income 1,966.24 3,207.81 4,259.55 5,234.07 6,841.29
Total Expenditure 1,787.93 2,877.57 3,683.43 4,240.02 6,039.28
Net Profit before Tax 178.31 330.24 576.12 994.05 802.01
Payment to Govt. (Income 62.41 104.03 181.48 397.62 426.61
Tax)
Dividend 21% 25% 25% 25% 20%
Total Assets (including 39,133.40 49,250.36 58,550.81 78,360.74 98,046.85
Contra)
Total Assets (excluding 31,314.82 39,362.27 49,458.22 65,080.70 81,704.74
Contra)
Fixed Assets 498.90 1,121.15 1,276.89 1,723.43 2,036.66
Number of Foreign 675 775 815 830 840
Correspondents
Number of Shareholders 7,185 7,549 9,917 10,757 14,196
Number of Employees 2,302 2,685 3,060 3,297 3,752
Number of Branches 110 116 121 128 141
Book Value per Share (Taka) 5,185 4,174 4,677 5,532 2,743.00
Earning per Share (Taka) 362 353 617 932 196
Market Value per Share 2,300 3,305 3,205 3,956 4,548.00

(Taka) Highest)
Capital Adequacy Ratio 8.90% 10.59% 9.24% 8.64% 9.43%
Chapter - 4
4.1 General Banking Portfolio :

(1) Introduction:
(2) Bank accept deposit:- Bank receive deposit by different accounts.

Those are of 2 (two) types of deposits
(i) Al Wadia :- Current A/C is conducted under Al Wadia system
,
(ii)Mudaraba mode :- Client - Saheb Al Mall Bank- Mudarib.
Under this arrangement- profit distribution under agreement ratio and loss (if any) will
be borne by Saheb-Al-Maal.
Under Mudaraba mode :- there are many accounts as under:
a) M S A - Mudaraba Savings Account
b) M H S A - Mudaraba Hajj Savings Account
c) MSB- Mudaraba Savings Bond
d) MSS - Mudaraba Special Scheme
e) MTDR- Mudaraba Term Deposit Receipt
f) MMPDS- Mudaraba monthly profit distribution scheme.
g) MMS - Mudaraba Manor Savings A/C.
h) MSNA- Mudaraba short notice A/C.
(3) Who can open A/C-
(a) persons over 18 ( eighteen) years ( except some restricted person) (b) Account of
Club, (c) Association, (d) Agent, (e) Govt. (f) Semi-Govt., (g) Organization, (h)
Liquidators, (i) Minor, (i) Married Women, (j) Pordanshin Ladies, (k) Illiterate
persons, etc.
(4) Deposits are received through cash or by instruments:
(5) Payment is done by instrument/ document:
(6) General Banking operations done by various departments/ section :
(i) Cash section, (ii) Bills and Remittance section, (iii) Clearing house section, (iv)
Accounts section is ennoblement is various activities, (v) etc.
(7) Function of Cash Section :-
(a) Cash Receipt
(b) Cash Payment
(c) Issuance of Cheque Book
(d) Passing, Cancellation and Payment of Cheque
(8) Functions of Bills and Remittance section :- Issuance.
Payment and Cancellation of DD. IT and P.O. OBC, IBC.
(9) Clearing and Collection Department :- Clearing and collection of instruments
of different banks through central bank or its representative.
(10) Accounts section :- Book keeping, maintenance of vouchers preparation of

General ledger & clean cashbook. Maintenance of sundry, suspense etc. A/C’s for
internal purpose.
(11) Reconciliation of IBG A/Cs : - IBDA- Inter Branch Debit Advice IBCA -
Inter Branch Credit Advice
(12) Custody and maintenance:- Custody and maintenance of AOF, SS Cards,
Cheque Books. Ledgers. Statement of A/Cs voucher and secrecy of Accounts.
(13) Locker Service :-
(14) Volt &. Maintenance of Strong Room :- Cash & vouchers kept under lock and
key under joint custody. Cash covered by insurance.
(15) Transaction hour is guarded by armed security guard.
(16) Proper House Keeping: Maintenance of Books and Records and Computer
(IBBS Software).
(17) Conclusion.
4.2 To Open A New Account:

This is an era of keen competition among banks. Most of the commercial banks vie with
one another in tapping the savings of the public by means of purchasing of different
types of financial product. These products are known as secondary securities, which
shows claim against the financial institutions. Popularly these products are known as
deposit; of different kinds and of various maturates. The most popular products are
current-deposit (CD), savings bank deposit (SB), fixed deposit, short-term deposit etc.
4.3 General Practice At Regarding Accounts Account

Opening Register
After fulfilling all the requirements for opening account necessary entries are given in
the account opening register. There are several registers for several accounts as MSA,
AWCA, and TDR etc. Date of opening name of the account holder, nature of business,
address, initial deposit, and introduction various information are recorded in that register.
New accounts number is given from the list of new numbers provided by the computer
department.
Check Book
Checkbook is issued to the new customer after opening account. Two separate
checkbooks are given for current and saving accounts. AWCA accounts Checkbook
consists 25 and 50 leafs, while MCA account Checkbook has 10 leafs. There is a
checkbook issue register in this regard; where Checkbook number, leaf number, date of
issue etc. information are kept. All the necessary numbers are the sent to the computer
department to give entry in the program.
Incidental Charges:
Service charge:
Taka 10 or 50 = each for twice a year is debited from customers AWCA account for
rendering service to him. Tk. 50 = each is debited from customers account for providing
him solvency certificate.
Profit:
Profit is the price of product, which is determined by the market forces. Every bank
offers a competitive price to attract deposit.
3MT,12MTH, 36MTH, AND HAJJ 5YRS, 8YRS, 5 YRS, 10 YRS, 200, 6.50, 6.80, 7.10,
7.30, 7.50, 5.50, 3.50, 8.20, 8.20, 9.40, 8.20, 9.80, # Provisional.
4.4 (a) Principles of Distribution of Profit to

Mudaraba Depositors
The principles of calculation and distribution of profit to Mudaraba Depositors generally
followed by different Islami Banks are as under:
1. Mudaraba Depositors share income derived from investment activities i.e. from
the use of fund.
2. Mudaraba Depositors do not share any income derived from miscellaneous

banking services where the use of fund is not involved, such as commission,
exchange, service charges and other fees realised by the Bank in connection
with sale and purchase of Demand Drafts, Telegraphic Transfers and Mail
Transfers etc.
3. Profit and loss resulting from the use of funds are separately maintained in the
accounts from other income and expenditure relating to other activities and
services offered by the Bank.
4. Mudaraba Deposits get priority in the matters of investment over Bank's equity
and other cost free funds.
5. Mudaraba Depositors do not share any income derived from investing Bank's
equity and other cost free fund.
6. The amount of the statutory cash reserve and the liquidity reserve, which are
required to be maintained with Bangladesh Bank, is deducted from the
aggregate balance of Mudaraba Deposits to arrive at the net balance of profit
sharing deposit.
7. The gross income derived from investments during the accounting year is, at
first, allocated to Mudaraba Deposits and cost-free-funds according to their
proportion in the total investment.
8. The share of gross investment income of Mudaraba Deposits as worked out in

terms of principle shown against serial No 7 above is distributed as under:
a) Minimum sixty-five (65) percent is distributed to Mudaraba Depositors

applying the rates of weightage shown below. Mudaraba Depositors' share of
sixty-five (65) percent of gross investment income might further be raised by
the Bank's Management at its discretion to rationalise the Rates of profit to

Mudaraba Depositors but it would not be reduced during any accounting year
without giving prior declaration.
b) The rest amount of gross investment income is retained by the Bank as

management fee for managing the investment & for making reserve for Bad &
doubtful investments.
9. Islami Bank Bangladesh Ltd, at present, applies the following weightages to Mudaraba
Deposits.
SI. No. Particulars of Deposits Weightage
1 2 3
a) Mudaraba Hajj Savings
i) 10 Years Term 130%
ii) 5 Years Term 110%
b) Mudaraba Waqf Cash Deposit Account 135%
c) Mudaraba Special Savings (Pension)
i) Above 10 Years Term 135%
ii) Upto 10 Years Term 130%
d) Mudaraba Muhor Savings Account
Ii) 5 Years Term 110%
e) Mudaraba Savings Bond (MSB)
ii) 5 Years Term 110%
f) Mudaraba Monthly Profit Deposit (MMPDS) 120%
g) Mudaraba Term Deposits
i) 36 Months 100%
ii) 24 Months 98%
iii) 12 Months 96%

iv) 06 Months 92%
v) 03 Months 88%
h) Mudaraba Savings 75%
i) Mudaraba Special Notice Deposit 55%
10. Differential rates of weightages have been assigned to Mudaraba Depositors on

account of the following factors:
a) Period of Deposits
The longer the period of deposit, the greater the risk they bear with regard to fluctuation
of the rates of profit and erosion of the value of deposit due to inflation. The Term
Depositors have also to forgo profit in case of premature encashment.
b) Banking Facilities
The Term Depositors do not enjoy any banking facility such as, operating
accounts by cheques, transfer of account from one branch to another, collection
of cheques and other instruments, executing standing instructions through their
accounts and so on and so forth. On the other hand, the PLS Savings Depositors
have freedom to get the above services through their accounts. PLS Short Notice
Depositors enjoy still greater facilities in regard to making deposits in and
withdrawal from their accounts.
c) The pattern of Rates of Return on various types of cost bearing deposits of the
traditional Banks in our Money Market have also an important bearing on
allocation of weightage at different rates.
d) In consideration of the above factors, full weightage has been assigned to our
Mudaraba Deposits of 36 months and relatively lower Weightages have been
given to Mudaraba Deposits of lower periods, Mudaraba Savings and Mudaraba
Short Notice Deposits.
11. On the basis of the above principles, let us work out the rates of profit using the
information and figures given below:
a) Total Investment Tk. 2000/-
.b) Total Investment Income Tk. 300/-
c) Total fund employed

i) Banks equity and Al-Wadeeah Deposits Tk. 300/-
ii) Mudaraba Deposits
Tk. 1700/-
Tk. 2000/-
Therefore the share of investment income of Mudaraba Deposit will be
(300/2000x1700) Tk. 255.00
Less:
a) 20% Management fee Tk. 51.00
b) 15% loss off-setting reserve Tk. 38.25
Distributable Income
Tk. 89.25
Tk. 165.75
4.4.1 Summary Of Mode wise Deposits at Chittagong Branch

28-07-2004
SI No. Mode Amount (in Lac)
1 Al-Wadeeah Current Deposits 621
2 Mudaraba Savings Deposits 5403
3 Mudaraba Special Notice Deposits 500
4 Mudarab Term Deposits 4727
5 Profit Payable 234
6 Sundry Deposits 36
7 Mudaraba Hajj Savings Deposits 55
8 Mudaraba Savings Bond 2251
9 Mudaraba Special Savings Deposits 1340
10 Mudaraba Monthly Profit Deposits 749
11 Mudaraba Muhar Savings 2
12 D. D. Payable 8
13 P. O. Payable 33
Total 15959
4.5 General Characteristics Of Deposit Account

4.5.1 Al-Wayadia Current A/C (AWCA)
AWCA accounts are unproductive in nature as far as banks loanable investment fund is
concerned sufficient fund has to be kept in liquid form, as current deposits are demand
liabilities. Thus huge portion of his fund becomes no performing. For this reason banks
do not pay any of AWCA CD account holder. Businessmen and companies are the main
customers of this product.
4.5.2 Mudaraba Savings Account (MSA)

As per Bangladesh Bank instruction 90% of SB deposits are treated as time liablitity and
10% of it as demand liability. In EBL there is a restriction about drawing money from
SB account but anytime holder may draw money of any amount with prior notice,
Generally householder and individuals are the clients of this account.
4.5.3 Mudaraba Savings Notice (MSNA) A/C

MSA accounts can be treated as semi term deposit. Deposit should be kept in these
accounts for at least seven days to get interest of MSA accounts is less then SB accounts.
(5.50%) generally profit, but may increase to 6% or more depending on the fund. Check
book is issued them but frequent use of checkbook is discouraged. Government
organization, big corporate house and banks are generally the clients of this account. The
volume of this account is generally large and notice has to be given to draw money.
4.5.4 Mudaraba Term Deposit A/C (MTD)

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

IBBL sells and purchases P.O. DD and T.T. to its customers only. IT does not offer
remittance service frequently to those other than its customer.
4.6.1 Pay Order (PO)

Pay order an instrument which is used to remit money within a city through banking
channel the instruments are generally safe as most of them are crossed.
Issuing of a pay order (PO)
A customer can purchase pay order in different ways:
By Cash A/C .............................................................................Dr

Bills Payable (PO) A/C ...............................................................CR
Income A/C commission on Remittance .................................... CR
By account Client A/C ................................................................ DR
By transfer head office/other departments client A/C ................ DR
4.6.2 Demand Draft (DD)

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

Telegraph transfer is one of the fastest means of transferring money from one branch to
another or from one to another. The TT issuing bank instructs its counterpart by tested
telex message regarding remittance of money. No instrument is given for T.T. both
parties should have account, as money is transferred.
4.7 Collection
4.7.1 Clearing
As far safety is concerned customers get crossed check for the transaction. As we known
crossed check cannot be enchased from the counter, rather it has though been collected
through banking channel i.e. Clearing. A client of IBBL received a check of another
bank, which is located within the clearing rage; deposit the check in the account at
IBBL. Now IBBL will he will not the money until the check is honoured.
4.7.2 Outward Bills For Collection (Obc)

Customers deposit check, drafts etc. for collection, attaching with their deposit sleep.
Instrument within the range of clearing are collected through local clearinghouse, but the
other which are outside the clearing range are collected through OBC mechanism. A
customer of IBBL principal branch Local Office Dhaka is depositing a check, of Sonali
Bank, Coxs Bazar. Now as a collecting bank IBBL principal branch will perform the
following task;
1. Received seal on deposit slip.
2. IBBL Local Office Principal Branch crossing indicating them as collecting
banks.
3. Endorsement given "Payees A/C will be credited on realization.
4. Entry on register, from where a controlling number is given.

Collecting bank can collect it either by its branch of by the drawer's bank. They will
forward the bill then to that particular branch. OBC number will be given on the
forwarding letter.
Now following procedures will take place in case of the following two case.
BILLS COLLECTED THROUGH BRANCH
If the bill is forwarded to a branch they will collect it through IBC procedure. Collecting
branch will receive and l.B.C.A from that particular agent branch according treatment
from the angle of collecting branch will be.
H.O. A/C concerned branch ..................................................... Dr
Customer A/C ........................................................................... Cr
Income A/C commission; postage ............................................ Cr
In this case commission will be charged by the collecting branch, not the agent branch.
Bills collected through drawer's bank:
Accounting treatment for the collecting branch will be
a. Clearing ............................................................................... Dr
b. Customers A/C ................................................................. Cr
4.7.3 Inward Bills For Collection (IBC)

In this case bank will work as an agent of the collection bank. The branch receives a
forwarding letter and the bill. Next steps are.
1. Entry in the I.B.C register, I.B.C number given.
2. Endorsement given - "Our branch endorsement confirmed"
3. The instrument is sent to clearing for collection ................... Dr
4. Miscellaneous Creditor A/C OBC ......................................... Cr

Endorsements In case of
Payees A/C Created Pay to Mr. X
Received payment payees A/C Credited Pay to lBBL Mr. X
Payees A/C Credited Pay to Mr. X. EBL
Payees A/C will be credited on realization Bills for collection

Our banks endorsement confirmed
Received Payment EBL or Cash
First Payees endorsement confirmed second payees
Our collecting agents endorsement
4.8 Cash
Cash section demonstrates liquidity strength of a bank. It also sensitive as it deals with
liquid money. Maximum concentration is given while working on this section. As far as
safety is concerned special precaution is also taken. Tense situation prevails if there is
any imbalance in the case account.
4.8.1 Vault
All cash, instruments (P.O.D.D. check) and other valuables are kept in the vault is
insured up to Tk. 4 crore with a local insurance company. If cash stock goes beyond its
limit of Tk. 4 crore, the excess money is transferred to Bangladesh Bank if there is
shortage of cash during transaction period money is transferred to drawn from the central
bank. There are three keys of the vault, which are given to three seniors most officers.
Daily, an estimated amount of cash is brought out from the vault, for transaction
purpose. No more than Tk. 4 Crore brought at once from the vault, on a single day.
4.8.2 Teller Customer Relationship

In a bank a person who delivers and receives cash from the cash counter is known as
teller, a customer meets most of the time in a bank with a teller on the counter. So teller
should hold certain quality.
> Should be friendly.
> Provide prompt service.
> Be accurate in his task.
In short a teller should be efficient, otherwise he has to pay.
4.8.3 Cash Packing And Handling

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

After the banking hour the cash counter is closed. But sometimes customers come to
draw or deposit money after the service hour. However, their money is received or aid
recorded in the next daybook. This is known as evening.
Chapter - 5
5.1 Investment
The special feature of the investment policy of the bank is to invest on the basis of profit
loss sharing system in accordance with the tents and principles of Islamic Shariah.
Earning profit is not the only motive and objective of the Banks investment policy rather
emphasis is given is attaining social good and in crating employment opportunities.
Pursuant to the investment policy adopted by the bank a 7 years perspective investment
plan has been drawn up and put into implementation. The plan aims at diversification of
the investment portfolio by size, sector, geographical area, economic purpose and
securities to bring in phases all sectors of the economy and all types of economic groups
of the society within the fold of banks investment operations.
Accordingly the plan envisages composition of the investment profit-folio with for
agriculture and rural investment, 16% for industrial term investment, 14% for industrial
working capital, 6% for housing and real estate, 6% for transport arid communication,
2% for electricity, gas, water and sanitation services, 2% for storage's 40% for import,
export and local trade and trade related activities and % for other productive purposes by
the end of the plan period, i.e. the year 2002.
Further, in order to diversify investment profit-folio, the bank engaged itself in

investment operations through special schemes introduced during the years. The Hank is
planning to introduce yet other new investment schemes in addition to welfare oriented
investment schemes viz-Rural Development scheme. Transport investment schemes, car
investment scheme, small business investment schemes, Doctors investment scheme,
Household Durables investment scheme, Housing investment scheme and agricultural
implements investment scheme etc. Besides the bank is financing various economic
groups in different sectors in both urban and rural areas for upliftment of their economic
condition.
5.2.1 Objective and Principles:

The objectives and principles of investment operations of the Banks are :
The investment fund strictly in accordance with the principles of Islamic Shariah. To
diversifies its portfolio by size of investment, by sectors (public and private), by
economic purpose, by securities and by geographical area including industrial,
commercial and agricultural.
To ensure mutual benefit both for the Bank and the investment client by professional
appraisal of investment proposals, judicious sanction of investment, close and constant
supervision and monitoring therefore.
To make investment keeping the socio-economic requirement of the country in view.
To increase the number of potential investors by making participatory and productive

investment.
To finance various developments schemes for poverty alleviation, income and

employment generation with a view to accelerating sustainable socio-economic growth
and upliftment 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 upliftment enterprises.
To shun even highly profitable investment in fields forbidden under Islamic Shariah and
is harmful for the society.
The Bank extends investments under the principles of Bai-Marabaha,'Bai-Muazzal Hire

purchase under Shairkatul Mcilk and Musharaka. The Bank is making sincere efforts to
go for investment under Mudaraba principle in near future.
5.2.2 Investment Policy of IBBL

Investment operation of the Bank is of vital importance as the greatest share of total
revenue is generated from it. Maximum risk is centred in it and the very existence of a
Bank mostly depends on prudent mgt. Of its investment policy.
A sound well defined, well planned and appropriate investment policy frame work is a
pre-requisite for achieving the goal of the Bank i.e. implementation and materialization
of the economic and financial principles of Islam in the Banking area and justice in
trade, commerce and industry and to build socio-economic infrastructure, create
opportunity for income and sustained economic growth of the country.
5.2.3 Investment perspective plan of IBBL.

a) 7 - years perspective plan (1996-2002).
b) 5 - years perspective plan (2003-2007).
5 -years perspective Investment Finn (2003-2007).
a) By size of Accounts, (3000-250 crore)
b) By Sector (Public & Private) 5% (Rural) & 95% (Urban)
c) By Areas (Urban & Rural) (6to 10%- 94 to 90%)
d) By Economic purpose (2% to 40%).
c) By Securities (2%-70%)
d) By mode (7.5% to 65.50%).
5.3 Investment portfolio of
Islamic Bank Bangladesh ltd.
1. Port-folio Management
a) Port-folio Management of a Bank

i) Linear Programming (Maturity of Liability with the Asset).
ii) Pull of fund approach.
iii) Liability Management.
b) Importance of Portfolio Management, particularly for an Islamic Bank.
Importance of Money market.
2. Salient Features of Investment policy of IBBL.
Identity
a) If is an ideological Banking organisation.
b) Firmly committed to implement & materialise the economic and financial principles
of Islam in the Banking arena.
Objectives
a) To do away with disparity and establish justice in the trade, commerce and
Industry.
b) To build socio-economic infrastructure, create opportunities for employment and
income generation & poverty alleviation.
c) Contribute to the Socio-economic upliftment and sustained Economic growth of
the country.
d) Strict observance of the Islamic Shariah Principles.
e) Investment to National Priority Sectors.
e) Investment to Trade, Commerce, Industry, Foreign Trade, IT, Small Scale
Industries, Transportation, Service sector.
3. Other Features
a) Observance of the legal Investment Limit of the Bank (90% of total deposit).
b) Observance of Legal Investment Limit per client-50% of equity (50%

funded,50% non-funded).
c) Optimum utilisation of investable fund.
d) Profitability of the Investment.
c) Safety & Security of the investment.
4. Composition of Portfolio.
a) Money market portfolio (upto one year).
b) Capital Market portfolio (above one year).
d) General Investment Port-folio.
5. Strategies :
a) Fort-folio having high return shall be preferred.
b) Lower risk shall get preference.
c) Flexibility in determine R.R. case-to-case basis depending on the Risk, amount of
investment, Nature of investment, etc.
d) Emphasis be given to collage & small industries, rural industries.
c) Export oriented, Import substitute industries.
c) Labour intensive industries.
1) Micro investment/small investment schemes.
6. Delegation of Authority : Manager, Zone, Management, EC, Board.

7. Review : Quarterly.
8. (A) Investment port-folio (As on December, 04)
i) Total Deposit : Tk.7297.34 crore.
ii) Total Investment : Tk.6723.41 crore.
in) Total overdue(OD) : Tk.369.92crore.
iv) OD % of total Investment : Tk.5.50%.
v) Total No. of Deposit clients : About - 20.00 lac.
vi) total No. of Investment clients : About -2.50 lac.(Micro credit 57,000)
(B) Project Investment Prot-folio (As on December, 04)

No. of Projects
Bank Finance Self finance Total
Garments related 73 95 168
Textile related 88 11 99
Others 343 25 368
(C) Total Investment Amount (Taka in crore)

Industry (Term) – 1218.13.00 (18.18%)
Industry (W/C) – 1634. 10 (24.30%)
Special Schemes – 394. 74 (5.17%)
Real Estate – 523.26 (7.78%)
Trade & Commerce/others – 2953.18 (43.92%)
6723.41 crore
5.4 Summary Of Mode wise Investment at Agrabad

Branch, Chittagong.
30 07-2004
SI No. Mode No Of Clients Amount (in Lac)
1 Bai-Murabaha 20 703
2 Bai-Murabaha Post Import 2 48
3 Bai-Muajjal (Commercial) 32 79
4 HPSM (Commercial) 3 20
5 HPSM (Real Estate & housing) 174 2753
6 Industry Investment Scheme 1 214
7 Poultry Investment Scheme 1 870
8 Doctors Investment Scheme 10 396
9 Transport Investment Scheme 9 67
10 Car Investment Scheme 6 10
12 Staff House Investment Scheme 3 61
13 Small Business Investment Scheme 8 2
14 House Hold Durable Scheme 329 101
15 Staff House Hold Durable Scheme 11 2
16 Quard against TDR 36 173
17 QPF & QBF 13 2
Total 755 5501
5.5 Different Mode of Investment

(i) Bai-mode (Trading Mechanism)
(ii) Leasing mode (Ijara Mechanism)
(iii) Share-mode (Share Mechanism)
5.5.1 (i) Bai-mode (Trading Mechanism)

A) Bai-Murabaha:
The terms 'Bai- Murabaha" have been derived from Arabic words Bai and Ribhun. The
word 'Bai' means purchase and sale and the word 'Ribhun' means an agreed upon profit.
Bai-Murabaha" means sale for an agreed upon profit.
Bai-Murabaha may be defined as a contract between a buyer and a seller under which the
seller sells certain specific goods (permissible under Islamic Shariah and the Law of the
land) to the buyer at a cost plus agreed profit payable in cash or on any fixed future date
in lump sum or by instalments. The profit marked up may be fixed in lump sum or in
percentage of the cost price of the goods.
Important feature:
i. It is permissible for the Client to offer an order to purchase by the Bank particular
goods deciding its specification and committing himself to buy the same from the
Bank on Murabaha, i.e. cost plus agreed upon profit.
ii. It is permissible to make the promise binding upon the Client to purchase from
the Bank, that is, he is to either satisfy the promise or to indemnify the damages
caused by breaking the promise without excuse.
iii. It is permissible to take cash/collateral security to guarantee the implementation

of the promise or to indemnify the damages.
iv. It is also permissible to document the debt resulting from Bai-Murabaha by a
Guarantor, or a mortgage, or both like any other debt. Mortgage/Guarantee/Cash
Security may be obtained prior to the signing of the Agreement or at the time of
signing the Agreement
v. Stock and availability of goods is a basic condition for signing a Bai-Murabaha
Agreement. Therefore, the Bank must purchase the goods as per specification of
the Client to acquire ownership of the same before signing the Bai-Murabaha
agreement with the Client.
vi. After purchase of goods the Bank must bear the risk of goods until those are
actually sold and delivered to the Client, i.e., after purchase of the goods by the
Bank and before selling of those on Bai-Murabaha to the Client buyer, the Bank
shall bear the consequences of any damages or defects, unless there is an
agreement with the Client releasing the Bank of the defects, that means, if the
goods are damaged, Bank is liable, if the goods are defective, (a defect that is not
included in the release) the Bank bears the responsibility.
vii. The Bank must deliver the specified Goods to the Client on specified date and at
specified place of delivery as per Contract.
viii. The Bank shall sell the goods at a higher price (Cost+Profit) to earn profit. The
cost of goods sold and profit mark-up therewith shall separately and clearly be
mentioned in the Bai-Murabaha Agreement.
The profit mark-up may be mentioned in lump sum or in percentage of the

purchase/cost price of the goods. But, under no circumstances, the percentage of
the profit shall have any relation with time or expressed in relation with time,
such as per month, per annum etc.
ix. The price once fixed as per agreement and deferred cannot be further increased.
x. It is permissible for the Bank to authorise any third party to buy and receive the
goods on Bank's behalf. The authorisation must be in a separate contract.
Categories the Proposal as under:

a) Bai-Murabaha commercial:
Investment for purchase and sale of goods to individual or firm or company for trading
purpose shall be termed as Bai-Murabaha commercial.
b) Bai-Murabaha Industry:
Investment to industrial Undertaking in the form of supply of Machineries equipment's,

Raw Materials etc. will be termed as Bai-Murabaha Industrial.
c) Bai-Murabaha Agriculture:
Investment to agriculture sector for supply of seeds, fertilizer etc, shall be termed as Bal
Murabaha Agriculture.
d) Bai-Murabaha Import:
Investment for Import termed as Bai-Murabaha Import.
Documentation:
1. Before purchasing the goods by the Bank, obtain sufficient collateral's / securities
as mentioned in the sanction advice along with the following charge documents properly
executed, i.e. duly filled in, signed, stamped, verified and witnessed, where necessary:
Murabaha sanction advice deal wise duly accepted by the client,
Bai Murabaha agreement after purchase of the goods by the Bank
Agreements for pledge of goods. ;
Single party D.P. note, if there is no guarantor.
Double parties D.P. note, if there is guarantor, to be made by the client in favour of the
guarantor and endorsed by the latter in favour of the Bank,
Joint and several D.P. note signed by all the directors in case of limited company;
D.P. note delivery letter duly signed by the maker and the endorsee
Letter of hypothecation for clients stock in trade/work in process, if the investment

allowed in additionally secured by Hypothecation of stock/ stock-in-trade,
Letter of disclaimer, if stored I party's own/hired warehouse;
Insurance policy.
Trust receipt, duly executed by the client if goods delivered under TR.
Balance confirmation letter.
Letter of Guarantee signed by the Guarantor as per terms of sanction,
Letter of instalments, if sale price is payable on instalments.
2. If the investment is made collaterally secured by mortgage of property, obtain the

following documents:
In case of equitable mortgage, Memorandum of deposit of title deed (MDTD) signed by

the owner of the property.
In case of legal Mortgage, registered mortgage deed should be obtained.
Personal guarantee of the owner(s) of the property.
Original title deed(s) with ES. RS. SA. Mutation parcha, OCR of the property and
Mutation record.
Up to date rent receipts.
Nor encumbrance certificate along with search fee paid receipt.
Site plan of the proposed mortgage property.
Valuation certificate counter signed by the manager certifying the market value and the
forced sale value.
Lawyer's certificate about verification of the title deed, legal opinion should be self-
contained without any ambiguity and clean in all respects.
An affidavit sworn in before a 1 st class magistrate by the owner of the property to the
effect that the property offered for mortgage as security is fee from encumbrances and
the owner (s) in possession and he/she/they will not encumber/ transfer/sale and/or
charge the property in any manner whatsoever to others during the continuance of Banks
investment without prior written clearance of the Bank.
Where the investment is secured by hypothecation of stock-in-trade machinery's etc. also

obtain the following documents.
In case investment is collaterally / additionally secured by pledge of shares of reputed

public limited company on banks approved list and quoted documents are to be obtained:
(i) Agreements for pledge of shares along with original share certificates,
ii) Share transfer deed in duplicate - one - copy signed, dated and another copy signed
undated.
iii) Share delivery letter addressed to the Bank,

iv) Letter to the concerned company to register lien in Banks favour,
v) Letter of authority in Banks favour duly signed by the shareholder to collect
dividend and bonus on his behalf of the share pledged to the bank.
(B) Bai-Muajjal:
The terms "Bai" and "Muajjal" are derived from the Arabic words 'Bai' and 'Ajal'. The
word 'Bai1 means purchase and sale and the word 'Ajal' means a fixed time or a fixed
period. "Bai-Muajjal" is a sale for which payment is made at a future fixed date or within
a fixed period. In short, it is a sale on Credit.
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 the 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 fixed instalments. The seller may also sell the
goods purchased by him as per order and specification of the buyer.
Important features:
i) Bank is not bound to declare cost of goods and profit mark-up separately to the
client.
ii) Spot delivery of the item and payment is deferred.
vi) Ownership and possession of the goods is transferred by the Bank to the client
before receipt of sale price,
vii) Client may offer an order to purchase by the Bank any specified goods and
committing himself to buy the same from the Bank on Bai-Muajjal Mode,
viii) It is permissible to make the promise binding upon the client to purchase from the
Bank. That is, he is to either satisfy the promise or to indemnify the damages
caused by breaking the promise,
ix) Cash/Collateral Security should be obtained to guarantee the implementation of
the promise or to indemnify the damages.
x) vii) Mortgage/Guarantee/Cash Security may be obtained before / at the time of
signing the agreement, viii) Stock and availability of goods is a pre-condition for
Bai-Muajjal agreement The responsibility of the bank is to purchase the desired
goods at the disposal of the client to acquire ownership of the same before
signing the Bai-Muajjal Agreement with the client,
xi) The Bank after purchase of goods must bear the risk of goods until those are
actually delivered to the client,
xii) The Bank must deliver the specified goods to the client on specified date and at
specified place of delivery as per contract,
xiii) The Bank may sell the goods at one agreed price which will Include both the cost
price and the profit,
xiv) The price once fixed as per agreement and deferred cannot be further increased.
C) Bai-Salam: Bai Salam may be defined as a contract between a Buyer and a Seller
under which the Seller sells in advance in the certain commodity (ies)/
products(s) 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 (ies)/ product(s) to the buyer at a future time in exchange of an
advanced price fully paid on the spot.
Rules of Bai-Salam:
i) It is a condition that the commodity known by both parties to the agreement.
Misunderstandings about the commodity may lead to disputes, which could void
the contract.
11) It is a condition that the quality of the commodity be monitored closely, as very
little variation from specifications in the contract are allowable. If the commodity
cannot be monitored for quality standards, a salam transaction is impermissible.
iii) It is a condition that the commodity be deliverable on the due date. If there is
uncertainty about the ability to deliver the commodity at the due date, a salam
transaction is impermissible,
iv) It is permissible to draw a salam sale contract for a total to be delivered
increments on different specified future dates,
V) It is a condition that the commodity is a liability debt The seller is obliged to
deliver the commodity when it is due, according to the specifications stipulated in
the contract, whether or not his firm produces the commodity or obtained from
other firms.
vi) Salam sales are impermissible on existing commodities because damage and
deterioration cannot be assured before, delivery on the due date,
vii) Salam is impermissible on Land lots and real estates.
viii) Salam is permissible on a commodity of a specific locality if it is assured that it is
almost always available in that locality and it rarely becomes unavailable,
viii) It is a condition that the purchase price in salam is specified and advanced to the
seller at the time of signing of contract.
ix) It is a condition in a salam sale that the due date is known to avoid confusion,
which may lead to a dispute.
x) It is a condition that the place of delivery be stated in the contract if the

commodity requires special handling and delivery arrangements,
xi) It is permissible to take a mortgage on salam debt to guarantee that the seller
satisfies his obligation by delivering the commodity on the due date,
xii) It is impermissible for the buyer of a salam commodity to sell the commodity
before receiving it. It is known that the salam commodity is a liability debt to the
seller and not a commodity that exists. However, it is permissible for the buyer to
draw a parallel salam contract without connecting it to the first salam contract.
Important feature:
There are some important features of Bai-Salam as given below :
i. Bai-Salam is a mode of investment allowed by Islamic Shariah in which
commodity(ies)/ product(s) can be sold without having the said
commodity(ies)/product(s) either in existence or physical/ constructive
possession of the seller. If the commodity(ies)/product(s) are ready for sale, Bai-
Salam is not allowed in Shariah. Then the sale may be done either in Bai-
Murabaha or Bai-Muajjal mode of investment.
iii. Generally, Industrial and Agricultural products are purchased/sold in advance

under Bai-Salam mode of investment to infuse finance so that product is not
hindered due to shortage of fund/cash.
iv. It is permissible to obtain collateral security from the seller client to secure the
investment ~ from any hazards viz. non-supply/partial supply of
commodity(ies)/product(s), supply of low quality commodity(ies)/product(s) etc.
iv) It is also permissible to obtain Mortgage and /or Personal Guarantee from a third
party as security before the signing of the Agreement or at the time of signing the
Agreement.
v) Bai-Salam on a particular commodity(ies)/product(s) or on a product of a

particular field or farm cannot be effected [for Agricultural Product(s) only].
vi) The seller (manufacturer) client may be made agent of the Bank to sell the goods
delivered to the Bank by him provided a separate agency agreement is executed
between the Bank and the Client (Agent).
D) Istishna'a
The Istisna'a sale is a contract in which the price is paid in advance at the time of the
contract and the object of sale is manufactured and delivered later. The majority of the
jurists consider Istisna'a as one -of the divisions of Salam, Therefore, it is subsumed
under the definition of Salam. But the Hanafie school of Jurisprudence classifies Istisna'a
as an independent and distinct contract. The jurists of the Hanafio school have given
various definitions to Istisna'a some of which are : 'That it is a contract with a
manufacturer to make the something " and "It is a contract an a commodity on liability
with the provision of work". The purchaser is a called 'Mustasnia' contractor and the
seller is called 'sania' maker or manufacturer and the thing is called 'masnooa'
manufactured, built, made.
Important feature:
i. Istisna'a is an exceptional mode of investment allowed by Islamic Shariah in which
produces) can be sold without having the same in existence. If the produces) are ready
for sale. Istisna'a is not allowed in Shariah. Then the sale may be done either in Bai-
Murabaha or Bai-Muajjal mode of investment. In this mode, deliveries of goods are
deferred and payment of price may also be deferred.
ii. It facilitates the manufacturer sometimes to get the price of the goods in advance,
which he may use as capital for producing the goods.
iii. It gives the buyer opportunity to pay the price in some future dates or by
instalments,
iv. It is a binding contract and no party is allowed to cancel the Istisna'a contract
after the price is paid and received in full or in part or the manufacturer starts the
work, v. Istisna'a is specially practised in Manufacturing and Industrial sectors.
However, it can be practised in agricultural and constructions sectors also.
5.5.2 (ii). Leasing Mode (Ijara Mechanism)

(a) Hire purchase/ljarah: The term Ijarah has been derived from the Arabic works Ajr
and Ujrat If, which means consideration, return, wages or rent. This is really the
exchange value or consideration, return, wages, rent of service of 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 a
certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a
specified period.
(b) Hire Purchase Under Shirkatul Melk: Hire purchase under Shirkatul Melk is a
special type of contract, which has been developed through practice. Actually, it is a
synthesis of three contracts; Shirkat. Izara and sale. Shirkat means partnership.
Sharikatul Melk means share an 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
called Shirkatul contract.
Important Features
i. In case of Hire Purchase under Shirkatul Melk transaction the asset/property
involved is jointly purchase by the Hiree (Bank) and the Hirer (Client) with
specified equity participation under a Shirkatul Melk Contract In, which the
amount of equity and share In ownership of the asset of each partner (Hiree Bank
& Hirer Client) are clearly mentioned. Under this agreement the Hiree and the
Hirer become co-owner of the asset under transaction in proportion to their
respective equity participation.
ii. In Hiree Purchase under Shirkatul Melk Agreement, the exact ownership of both
the Hire (Bank) and Hirer (Client must be recognised. However, if the partners
agree and wish that the asset purchased may be registered in the name of the any
one of them or in the name of any third party, clearly mentioning the same in the
Hire Purchase Shirkatul Melk Agreement. However, in IBBL, no third party
registration shall be allowed.
iii. The share/part of the purchased asset owned by the Hiree (Bank) is put at the
disposal /possession of the Hirer(Client) keeping the ownership with him (Bank)
for a fixed period under a hire agreement in which the amount of rent per unit of
time and the benefit for which rent to be paid along with all other agreed upon
stipulations are also to be clearly stated. Under this agreement, the Hirer (Client)
becomes the owner of the benefit of the asset but not of the asset itself, in
accordance with the specific provisions of the contract which, entitles the Hiree
(Bank) is entitled for the rentals.
iv. As the ownership of hired portion of the asset lies with the Hiree (Bank) and rent
is paid by the Hirer (Client) against the specific benefit, the rent is not considered
as price or part of price of the asset.
v. In the Purchase under Shirkatul Melk Agreement the Hire (Bank) does not sell or
the Hirere (Client) does not purchase the asset but the Hiree (Bank) promise to
sell the asset to the Hirer (Client) part by part only, if the Hirer (Client) pays the
cost price /equity/agreed price as fixed for the asset as per stipulations within
stipulations within agreed upon period on which the Hirer also gives
undertakings.
vi. The promises to transfer legal title by the Hiree and undertakings given by the
Hirer to purchase ownership of the hired asset upon payment part by part as
stipulations are effected only when it is actually done by a separate sale contract.
Higher purchase under Shirkatul Melk:

Hire-purchase under Shirkatul Melk is special type of contract, which has been
developed through practice. Actually it is a synthesis of three contracts:
1. Shikat
2. Ijarah and
3. Sale
Shirkat:
Shirkat means partnership. Shirkatul Melk means share in ownership, when two or more
partners 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 bear the loss in
proportion to their respective equity, the contract is call Shirkatul Melk contract.
Ijarah:
Ijarah has been defined as a contract between two parties the Hirer and hirer where the
hirer enjoy specific service or benefit against a specified consideration or sent from the
asset owned by the hire. It is a hire agreement under which a certain asset is; hired out by
the hire to a hirer against fixed rent or rentals for a specified period.
Sale:
This is sale contract between buyer and a seller under which. The ownership of certain
goods or asset in transferred by seller to a buyer against agreed upon price to be paid by
the buyers.
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, machinery
transports etc.
Purchase the asset with that equity money, one the some jointly, share the benefit as per
agreement and bear the loss in proportion to their prospective equity.
The share, part or proportion of the asset owned by the Bank is hired out to the client
partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and
transfers the ownership of its share / part / proportion to the client against payment of
price fixed for that part either gradually part by part or in lump sum within the hire
period or after the expiry of the hire agreement.
Stages of hire purchase under ShirkatuI Melk:

Thus hire purchase under ShirkatuI Melk agreement has got 3 stages.
i. Purchase under joint ownership
ii. Hire and
iii. Sale and / or transfer ownership to the partner hire.

Documentation:
Master documents for the entire revolving limit covering the period 'of investment
should be obtained by execration of the of the following documents:
a) DP note
b) DP note delivery letter
c) Letter of arrangement
d) Letter of pledge / hypothecation
e) Letter of continuity ,
f) Usual mortgage formalities to be completed
g) Letter of guarantee (where necessary)
i) Documentation for the subsequent deals under the umbrella of the master
documents should be the following:
a) Party's request letter

b) Letter agreement (dealwise.) unstamped which will be the continuation of the
mater agreement
c) Balance confirmation receipt.

Categories the proposal as under:
1. Mire purchase under ShirkatuI Melk commercial:
Investment on hire purchase under ShirkatuI Melk mode to individual / firm / company /
society for commercial purpose(s) shall be termed as hire purchase under Shirkatul Melk
commercial.
2. Hire purchase under Shirkatul Melk Industrial:
Hire purchase under Shirkatul Melk Investment to industrial undertaking in the form of
Land, Buildings, and Machinery’s equipment's, Transport etc. shall be termed as hire
purchase under Shirkatul Melk Industrial.
3. Hire purchase under Shirkatul Melk Agriculture:
Hire purchase under Shirkatul Melk investment to Agriculture sector in the form of
Agricultural equipment. Machinery's, Shallow Tube-Well, Deep Tube-Well, Tractor,
Trailers, Transport etc. shall be termed as hire purchase under Shirkotul Melk
Agriculture.
4. Hire purchase under Shirkatul Melk Transport:
Hire purchase under Shirkatul Melk investment in the form of transport Bas, Track, Car,
Taxi, Launch, Steamer Cargo Vessel, Air Transport etc. shall be termed as hire purchase
under Shirkatul Melk Transport.
5. Purchase under Shirkatul Melk Real Estate:
Hire purchase under Shirkatul Melk investment in the form of land building, Market,
Apartments for use/ rental shall be termed as Hire purchase under Shirkatul Melk Real
Estate.
Cost Price of the Assets:

a) Purchase price of the asset plus other expenditure concerning the purchase i.e.
transportation, storage costs of construction, cost of installation, making etc. Before hire
of the asset to the hire purchase.
b) Conveyance - TA/DA of Bank official or Agent, if any.

c) Commission paid to the Agent, if any.
d) Cost of remittance of fund.
e) Transportation cost up to Bank's Godown / Clients project site (if any)
f) Transit insurance and out of pocket expenses
g) Godwon rent and staffs salary.

h) Income loss sustained during the gestation period.
5.5.3 (iii) Share Mode (Mechanism) :

A. Mudaraba: Mudaraba may be defined as a contract between two parties under which
one party (Bank) supply capital and another party (client) invest his efficiency, labour
and necessary business activities. In such a business Bank is called Sahib-Al-Mall and
the client is called Mudarib.
important feature:
i) Bank supplies capital as Sahib-Al-Mall and the client invest if in the business with his
experience.
ii) Administration and Management is maintained by the client,
iii) Profit is divided as per agreement,
iv) Bank bears the actual loss alone.
v) Client can not take another investment for that specific business
without the permission of the Bank.
Compensation:
Mudaraba agreement may include a clause to the effect that if any partner violates any
rules Mudaraba or any terms & conditions of Mudaraba agreement, the business or other
partners will have the right to impose compensation on him as determined by the
arbitration Committee of the Bank.
B. Musharakah:
The terms "Shirkat" and Musharaka" have been derived from Arabic worlds "Shairkah"
and "Sharika". The world shirkah means a partnership between more than one partner.
Thus the word "Musharaka" and "Shirkat" mean a partnership established between two
or more partners for purpose of a commercial venture participated 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 ad per capital/equity
ratio.
In this case of Investment, "Musharaka" meaning a partnership between the Bank and the
Client for a particular business in which both the Bank and the client provide capital at
an agreed upon ratio and manage the business jointly. Share the rent as per agreed upon
ratio and bear the loss, if any, in proportion to their respective equity.
Bank may move itself with the selected Client for conducting any Shariah permissible
business under Musharaka mode.
Main feature:
i. Bank and client both supply capital unequally / equally,
ii. Profit is divided as per agreement and actual loss is divided as per equity,
iii. Client will maintain all accounts properly bank or its agent may verify or audit it.
iv. Banks can advice the client in such a business in respect of the business.
5.5.4 Types of Shirkat & Quard-E-Hasana :

Shirkat, in the terminology of Islamic Fiqh, is mainly of two types :
i. Shirkat -al-Meelk ( Non-contractual) and
ii. Shirkat-al-'Uqud (Contractual)
(i) Shirkat-al-Meelk (Non-Contractual)

Shirkat-al-Meelk ( Non-contractual) is created by means of inheritance or will or other
circumstances resulting joint ownership of two or more persons in a particular asset /
property in common. The owners or partners share the asset / property and the returns
arising there from as per their ownership ratio. For example, it two persons receive an
inheritance or gift of property which may or may not be divisible, the persons have to
share the property and its income, if any, accordance with their share in it until they
divide it (if divisible) or sell it (if indivisible).
Shitkat-ni-Meelk ( Non-contractual) Is further divided into two types:

i. Shirkat-al-Meelk bil Ikhtiyariayyah (Voluntary) and
ii. Shirkat-al-Meelk bil Jabriyya (Involuntary)
Shirkat-al-Meelk bil Ikhtiyar iyyah (Voluntary)

If the partners do not take their shares dividing the asset / property under joint ownership
though it is divisible and agreed to keep it under joint ownership, then this type of
Shirkat is called
Shirkat-al-Meelk bil Ikhtiyar iyyah (Voluntary).
Shirkat-al-Meek bil Jabriyyah (Involuntary)
If the asset / property under joint ownership is not divisible and the partners are bound to
keep it under joint ownership, then it is called Shirkat-al-Meelk bil Jabriyyah
(Involuntary)
Shirkat-ai-'Uqud (Contractual)
This is the second type of Shirkat which means "a partnership effected by a mutual
contract" where two or more persons agree to contribute in the capita! ( capita! may be in
the form of cash, commodities, machineries, properties, expertise, goodwill etc.) ,
participate in the management and share its profit and bear the loss, if any.
Shirkat-al-'Uqud (Contractual) is further divided into four kinds :

i. Shirkat-al-Mufawadah (full authority and obligation)
ii. Shirkat-al-lnan (restricted authority and obligation)
iii. Shikat-ai-Addan ( Labour, skill and management) and
iv. Shikat-al-wujuh (goodwill, credit-worthiness and contacts)
Shirkat-al-Mufawadah
Shirkat-al-Mufawadah is a partnership is a partnership in which all the partners are
adults, all of them are equal in their capital contribution, ability to undertake
responsibility in the management and thus share the profits/ losses, have full authority to
act on behalf of the others and are jointly and severally responsible for the liabilities of
their Musharaka business incurred in the ordinary course of business. Thus each partner
can be an Agent for the business and stands for surety or guarantor for the other partners.
The partners act as agents but not as sureties for other parties. Thus their liability towards
third party is several and not joint.
Shikat-ai-lnan
In Shikat -al-lnan it is not necessary that all partners be adult. Moreover, it is not a
precondition either to supply equal capital or to share the profit/loss equally by each
partner. They are not equally responsible for the management of the business also.
Thus shirkat-al-lnan means a partnership contract between two or more individuals or
institutions in which all the partners may invest capital in unequal proportion, may
undertake the responsibility for the management of the business unequally, may share the
profit in proportion to their respective capital contribution or as per terms of contract and
bear the loss in proportion with their respective capital contribution.
Shirkat-al-Abdan
This is a partnership contract in which two or more persons contribute their skills and
efforts for management of the business without contributing the capital and income
earned from the business is distributed among the partners according to pre-agreed ratio.
For example, if two persons agree to undertake tailoring services for their customers on
the condition that the wages so earned will go to a joint pool which shall be distributed
between them irrespective of the size of the work each partner has actually done. This
type of partnership is shirkat-al-Abdan which is also called shirkat-al-Taqabbul or
shirkat-us-Sana.
Shirkat-al-Wujuh
It is a contract between two or more persons who have goodwill, creditworthiness and
prestige and who are expert In trading. Here the partners have no capital investment at
all. Ail they do is that they purchase the commodities on credit and sell the same for
cash. The profit so earned is distributed between them at a pre-agreed ratio.
Compensation:
Musharaka agreement may include a clause to the effect that if any partner violates any
rules Musharaka or any terms & conditions of Musharaka agreement, the business or
other partners will have the right to impose compensation on him as determined by the
arbitration Committee of the Bank.
QUARD-E- HASANA:
Quard means loan without interest and Hasana means beautiful. Quard-e-Hasana implies
beautiful loan on good faith or beneficial loan. Islamic Banks do not recover any charge,
even service, from Quard-e-Hasana account. Loanee has to repay the principal amount.
This loan facility in extended only to deserving cases on compassionate grounds and
special welfare consideration The principal amount is refundable within a reasonable
time. Islamic Banks grant this loan not only for consumption purpose but also for owning
factor(s) of production. The ultimate objects of both the consumption and production
Quard-e-Hasana are to enable the loanees to support economic problems.
In Islamic Banks an investment is created against pledge of Mudaraba Term Deposit

Receipt (MTDR). Generally 80% of the MTDR is allowed to the holder for Halal
activities without any profit. Only a minimum service charge ( in ffiBL Tk. 200/-) per
deal. It is called Quard against Term Deposit Receipt (QTDR).
Quard against TDR:

While allowing Quard against TDRs the following points be kept in mind :
1. A written application is to be obtained from the holder of TDR requesting the
Bank to allow him Quard against TDR.
2. If acceptable, a sanction letter to be issued mentioning the terms of sanction.

The limit will be maximum one year.
3. TDR will not be eligible for Quard till it is aged minimum one month.
4. Quard amount should be maintained in Investment Ledger with all the
necessary particulars.
5. Profit is to be charged/allowed neither on the Quard amount nor on the
relative TDR.
6. A service charge of Tk. 2007- (in B3BL) per year may be realised for each
sanction.
7. A margin on TDR as per practice/instruction of HO/Bangladesh Bank may be
kept on TDR.
8. Proper lien should be marked on the TDR ledger to safeguard any fraudulent
encashment of the TDR.
9. Concerned TDR duly discharged on revenue stamp will have to be taken as
security.
10. Letter of lien & letter of authority to appropriate the proceeds of the TDR on
stamped form be taken duly signed by its holder.
11. D.P. Note and D.P. Note delivery letter should be taken duly signed from the
client and preserved duly entered in the Document Execution Register.
Besides the above there are some other modes which have not been practiced in Islamic
Banks of our country as yet. But in other Islamic Banks of the world . These are
Hawaiah, Wakalah, Kafalah, Jo'alah, Muzara'a, Musa'qaat, Musawama, Muzaidah,
Istijrar etc.
5.6 Investment under special schemes 2004 :

Islam! Bank Bangladesh Limited being welfare oriented banking institution has by now
introduced and implemented 15 special investment sectors and various sections of
people for their socio-economic upliftment and to improve their standard of life. AH the
schemes so far introduced have gained popularity and received wide response of the
general masses and is also being appreciated by the conscious people of the society.
Performance of the scheme as on 30/12/2003 is as under.
5.6.1 Composition of the Investment scheme
(year 2004)
Sectors Proportion in %
Agriculture and Rural Investment 2%
Industrial Term Investment 18%
Industrial Working Capital 15%
Housing and Real Estate 10%
Electricity, Gas, Water & Sanitation 0.5%
Transaction & Communication Storage 5%
Import, Export & Local Trade & Trade Selected Activities 40%
Household Durable Schemes 1.50%
About Storage 1%
Investment Schemes for Small Business 1.50%
Investment Schemes for Doctors 0.50%
Poultry & Dairy 0.50%
Rural Development Schemes 2%
Micro Industry Schemes 0.50%
Others Special Schemes 1%
Other productive Purpose 1%
Total 100%
5.6.2 Investment under Special Schemes

The volume of investment of IBBL, has been increasing substantially day by day.
Besides, the network of our branches has been widened and the investment portfolio of
the Bank has also been diversified.
This has necessitated proper handling and management of the investment port-folio of
the Bank at both branches and head office level by way of implementation of systems,
procedures, norms, Principles and practices of the investment, enforcement of business
discipline and establishing accountability at all tiers.
The Bank, since its inception, has been working for the uplillmunt and emancipation of
the under privilege, downtrodden and neglected sections of the populace and has taken
up various schemes for their well being. The objectives of these schemes are to raise the
standard of living of low-income group, development of human resources and creation
of avenues for self-employment.
IBBL operates 14 schemes under project investment department - 11 (PID - 11). These
are as follows:
1. Household Durable Scheme.
2. Car Investment Scheme.
3. Transport Investment Scheme.
4. Housing Investment Scheme.
5. Real Estate Investment Program.
6. Doctors Investment Scheme
7. Small Business Investment Scheme
8. Agriculture Implements Investment Scheme.
9. Poultry Investment Scheme.
10. Small Transport Investment Scheme.
11. Mirpur Silk Weavers Investment Scheme.
12. Staff House Building Investment Scheme
13. Household Durable Scheme for the employees of the Bank.
14. Micro Industries Investment Scheme.
15. Rural Development Scheme.
5.6.3 Household Durable Scheme:

Islami Bank Bangladesh Limited has, therefore introduced Household Durable
Investment Scheme which has already created great enthusiasm amongst the people and
received tremendous response form them.
Objective:
To assist the service-holders with limited income in purchasing household durable.
To assist the fixed income group in raising the standard of living.
To create opportunity for, the service holders to enjoy the benefit of modern and
sophisticated living and at the same time to lead a decent and honest life.
Items:
a) Refrigerator / Deep freeze
b) Television
c) Radio / Two-in-one / Three-in-one
d) Motor Cycle / Bi-Cycle
e) Air Cooler/Air-Conditioner
f) Personal Computer
g) Washing Machine
h) Furniture, Viz., Cot, Almirah, Sofa Set, Wardrobe, Carpet etc
i) Sewing Machine.
j) Kitchen Appliance like Oven, Toaster, Blender, Pressure Cooker etc;
k) Electronic Generator: IPS, UPS etc.
1) Power Generator, Motor Pump / Power Pump etc.
m) Any other items considered suitable by the Bank.
Eligibility:
Interested permanent officials of the following organizations may apply for investment.
a) Government organizations.
b) Semi-Government organizations and autonomous Bodies

c) Banks and Financial Institutions
d) Armed Forces, BDR, Police and Ansers
e) International financial and Relief organizations
f) Multinational Companies
g) Locally established and renewed public limited companies
h) Teachers of Universities, Government Colleges schools and senior Madrashas.
i) Permanent teachers and officers of established and prominent private

universities. Medical colleges and University colleges.
In addition, application of the interested officials of established and reputed private

organizations may be considered by the head office of the bank upon approach for
investment under this scheme by the head of the concern organization.
Any client may avail the facility for more than one item. Holdover, total investment of
the Bank to a client shall not exceed Tk. 75,0007.
A client who repays 50% of Banks existing investment in due time may avail investment
for procurement of new items within the limit of Tk. 75,0007-
The amount of Banks investment shall be determined in a manner that the monthly
instalment does not exceeds 50% of the client's monthly emoluments. However, the
Bank may relax this condition in especial eases on being satisfied ; about the repayment
capacity of the applications.
Period of investment: maximum 2 (two) years
Mode of investment: Bai - Muajjal
Down Payment:
Minimum 25% of the total value of the articles. The clients shall have to deposit the
amount of down payment in his Mudara saving 7 investment account with the concerned
branch before the disbursement of investment.
Security:
The investment client shall execute provide the following documents in order to secure
the investment.
All required charge documents as per rules of the Bank.
A written under taking to the effect that the monthly instalments shall be paid regularly.
Personal guarantee of an official of the same rank or of higher rank. The guarantee shall
have to be duly authenticated by the competent authority of the concerned organization.
Personal guarantee of another person, preferably family member.
Letter of authority to deduct instalments from the monthly salary.
5.6.4 Car Investment Scheme:

Car is considered as an essential mode of transport in the modern society, particularly by
a section of the officials, business house and business executives and established
professionals movement in discharging their duties and responsibilities punctually an
efficiently. To meet this need Islami bank has introduced the "Car investment Scheme"
for the mid and high ranking officials of government and semi government
organizations. Corporations, executions and directors of big business house and
companies and also for person of different professional groups on easy payment terms
and conditions.
Nature of Car and Garments Procedure:
New reconditioned cars of reputed brands imported within the provision of import policy
in force shall be allowed to be procured under the scheme.
Interested clients should submit at least 3 (three) quotations from 3 different bonafide
and genuine car dealers / importers / sellers along with the prescribed application form
duly filled in no supervisory agent of the Bank, appointed under the scheme, shall
involve in this business, directly or indirectly.
Selling of Banks Investment:
Banks investment is maximum Tk. 3.50 Lac per client against purchase cost of the
vehicle. Registration and comprehensive insurance cover shall be in the name of the
Bank. The clients shall have to bear all subsequent expenses relating to blue book,
registration first party insurance, tax token, fitness certificate etc.
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, which over is earlier.
Mode of investment:
a. Hire Purchases
b. Hire Purchases Shirkatul Melk.
5.6.5 House Investment Scheme:

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

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

The Bank has been taken up this scheme to help unemployed qualified doctors to go for
self-employment and to provide latest medical equipment's to specialist doctors to
extend modern medical facilities throughout the country.
5.6.8 Small Business Investment Scheme:

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

In keeping with the view of the people oriented and welfare objective of the bank, this
scheme has been introduce to provide power tillers, power pumps, shallow tube-wells,
thresher machines etc. on easy terms to unemployed rural youths for self-employment
and to the farmers to help augment production in agriculture sector.
5.6.10 Rural development scheme:

Bangladesh is predominately an agriculture country with vast majority living in rural
areas. More then 60% of the people live below the poverty line. Seasonal unemployment
and under employment is so acute that may people remain idle and without job in most
of the time of the year. As a result people in large number are migrating to urban areas,
particularly in metropolis in branch of employment thereby creating social and
environmental hazards. Islam! Bank has, therefore, taken up a scheme to reactive the
rural economy and develops model villages through integrated approach. The objective
of the scheme is to crate income generating and productive self-employment
opportunities through extension of investment for the development of rural areas and
thereby contribute in alleviating rural poverty. Initially the scheme was introduced in 18
districts through 21 branches of the Bank, which was extended to 712 villages in 38
districts through 52 branches of the Bank on 30-6-99. This will gradually be extended
throughout the country.
Investment will be allowed for the purpose of, amongst, others, production of 21 types of
main crops viz. Food, Creals and cash crops, off-farm activities like doing, but fattening
goat rearing, poultry, shop keeping, padding etc, rural transport like Rickshaw,
Rickshaw-Van, Cart etc., irrigation equipment, hand tube-well, housing materials, in all
covering about 343 types of economic activities. Islam! Bank foundation, a subsidiary of
the Bank, engaged in social welfare activities shall side by side, take care of the
requirement of sanitation, Medicare and Education of the villages through integrated
area development approach under Islamic Model.
5.6.11 Mirpur Silk Weavers Investment Scheme:

The scheme has been taken up to assist the silk weaves of Mirpur area particularly in
respect of requirement of working capital BMRE of existing unit by adding further
machinery's, to develop new entrepreneurs and assist the workers for getting further,
training for producing products of various modern design and for modernization of the
silk sector.
5.6.12 Micro Industries Investment Scheme.
5.7 Welfare Oriented Investment Schemes

A. Islami Bank Hospital
With the objective of providing low-cost curative services to the less affluent segment of
the society, the Foundation has so far set up Hospitals at three Divisional Headquarters in
Dhaka, Rajshahi and Khulna. Services of eminent general practitioners and specialists in
various fields of treatment like Medicine, Surgery, Gynae, Paediatric, E.N.T. Urology,
Neuro-surgery, Skin, Orthopaedic etc. are harnessed in these hospitals. Standard
diagnostic, medical and surgical equipments are in used in these hospitals. The
Foundation plans to establish Hospitals at each Divisional Headquarters of the country.
B. Community Hospital
Besides establishing Hospitals at the Divisional Headquarters, IBF has a plan to assist
local initiatives in setting up Hospitals at District level. Establishment of Four such
Hospitals is planned during 1999,
C. Monoram: Islami Bank Crafts & Fashion

The project has been taken up as a sales outlet of home-made garments, handicrafts and
other items produced by the distressed women. The main objective of the project is to
create conducive and healthy atmosphere in which women can contribute to the family
income by working within the limits of Shariah.
The other objective of this project is to develop designs of women-wear, which will
conform, to the principles of decency and modesty as laid down by Islam and at same
time compare well with the modern-day-fashions.
D. Service Centre
To save the people of coastal and river belt from natural disaster, erosion etc. a special
project has been taken in the name and style of Service Centre” Under this programme
pucca structure constructed in coastal areas, river belts and off shore islands would be
used for integrated social development of the people as well as provide safe.
shelters during natural calamities. Two such Service centres (in Noakhali and
Manikgonj) have already been established.
E. Islami Bank Institute of Technology

The large number of unemployed youth of, the country may be turned as assets through
taking up Human Resource Development (HRD) Programme.
The youths with skills in various sectors of technology may become self-employed in the
land and can also get employment opportunities abroad. Islami Bank Foundation has,
therefore, established 3 Technical Institutes, two in Dhaka and another in Bogra, which
are rendering training facilities in Computer, Secretarial Science, Driving, Electrical,
Refrigeration and Air Conditioning, Radio & T.V, Tailoring and Garments etc.
F. Islami Bank Model School and College

As Dhaka, the capital of Bangladesh, is turning to be a Mega City, a large number of
English Medium Schools are creeping up which follows curriculum not conforming fully
to the need of the country. As an attempt to combine modern education (which are
secular) with religious education for a total development of the children, Islami Bank
Foundation has established an English medium Model School and College in Dhaka.
Establishment of a Bangla medium school affordable by lower and middle class

economic strata of the society is also being envisaged.
G. Islami Bank Physiotherapy and Disabled Rehabilitation Centre

In Bangladesh there ore a great number of unfortunate disabled persons who have no
other means to maintain themselves Without resorting to beggary. The burden of the
society might be lessened and these people can be helped to become self-reliant through
imparting special skills. Keeping this in view, Islami Bank Foundation has decided to
rehabilitate these unfortunate disabled persons through establishing a centre named
"Islami Bank Physiotherapy and Disabled Rehabilitation Centre" This Centre while
making temporary arrangement for food and shelter for the disabled, will arrange for
health check up, physiotherapy and occupational therapy and look for job placement
through internship in various organisation.
H. Centre For Development Dialogue

Alongside with the governmental efforts at National level and multilateral and bi-lateral
institutions at the international level, Non Govt. Organisations (NGOs) in different parts
of the world especially in the developing countries are playing increasing role in
experimentation with Development models.
Most of the organisations unfortunately, fry with development techniques from a
standpoint, which often turn antagonistic to the belief and social norms of the people.
The renowned foreign and national NGOs have their established training centre(s) where
they train their own people and also rent out the facilities to others. Islami Bank
Foundation has decided to establish a training centre of its own named Centre for
Development Dialogue" which will create opportunity for imparting training facilities for
its own staff members as well as the staff members of other development organisations.
Besides the above-mentioned project, the Foundation runs projects like: (i) Legal Aid
Project for the welfare and Legal support to victims and their family members, holding
of seminars and symposium on the rights of the vulnerable (women, children, disabled
etc.), opinion mobilisation against various forms of social ills etc. (ii) Talimul Quran
Project for propagating the teaching of the Holy Qur'an. (iii) Bangladesh Sangskritic
Kendro projects for upholding and promoting the culture of the land.
Chapter - 6
6.1 AN OVERVIEW ON
FOREIGN EXCHANGE OPERATIONS OF IBBL
1. Foreign Exchange : a) Foreign Currency
b) Exchange/ conversion of one currency with /into
another
2. Two situations for exchange / conversion :
a) Currency dealings : Buying & Selling of currency.

b) Trade transactions : Settlement of Import & Export obligations. For buying &
selling of currencies.
3. (a) Foreign Exchange Market :
(No specific place/Building, operated through electronic media using Dealing Room of
Bank / Financial Institution)
b) Spot Market :There exchange of one currency with another takes place on the
spot.
c) Forward Market : Where actual delivery of the currency will happen at a future
date as per agreement of present date (settlement of rate & place)
d) Option Market : Wherein a contract is made specifying the right to buy or sell a
standard amount of Foreign Currency within a specific date at a certain price.
4. Inter Bank Foreign Currency / Exchange Market:

Operated in our country for buying & selling of Foreign Currency among the Banks at
floating rate based on market demand / supply.
5. Terms used in Foreign Exchange Market Operations :

(a) Arbitrage - Spot purchase of FC where the price
is low and to sell where the price is high i.e. Buy
Low & Sell high - Currency Arbitrage due to price
difference in two financial centre.
(b) SWAP - Purchasing FC on the spot for selling
Forward or selling spot for purchasing forward.
Due to difference in interest rate of the concerned
currencies.
(c) Hedging — To avoid exchange risk, agreement
is made to day to buy or sell FC to be delivered at
some future date at a rate agreed upon to day.
6. Trade Transactions : Relate to Foreign Trade / Cross border Trade /

International Trade — For settlement of its
payment obligations, conversion / exchange of one
currency with / into another is needed.
So, Foreign Exchange may also be termed as a
mechanism by which international payments are
settled.
7. Foreign Trade : a) Import - Payment is made

b) Export-Payment is
received
8. Foreign Correspondents a) Correspondent Relation
b) Accounting Relation
i) Nostro A/C.
ii) Vostro A/C.
9. Authorised Dealer Branches : Bangladesh Bank issues Licence to the

Branches of a Schedule Bank allowing them to deal in Foreign Exchange
Transactions directly.
10. Foreign Exchange Business : a) Import
b) Export
c) Remittance
i) Inward
ii) Outward
Import :
i) Selection of Clients - Credit Report-Credibility - CIB Report ( to ascertain
liabilities if any with other Banks).
ii) Induction of client as Importer- Industrial / Commercial - IRC/
Membership Chamber / Trade Association.
iii) L/C - conditional undertaking of Bank payment - processing to open -
permissibility & Marketability of the item - Price competitiveness - Credit Report
of the Supplier / Beneficiary - Fixation of cash security - Documentation -
preparation of Vouchers -realisation of cash security, commission & other
charges.
iv) Through L/C : SWIFT/Airmail /Telex- Advising Bank-
Add confirmation, if required.
v) Lodgement : Checking of import documents upon

receipt from Negotiating / collecting Banks - Entry
in Bills Register-Passing of Vouchers - Purchase of
F.C. Fund for Payment of the Bills.
vi) Retirement : Preparation of Cost Memo - Intimation to

Importer regarding arrival of Shipping Documents -
Asking to retire the Bill paying Bank's dues
showing in the Cost Memo -Delivery of documents
against receipt of payment -endorsement.
vii) Post Import Finance : At the request of Importer Bank undertakes

clearing of the imported goods paying Duty, Vat & other relevant charges, stores the
same under control - delivers to importer against payment as per prior arrangement.
viii) Enlistment of C&F Agent : For clearing & forwarding purpose, C&F Agents are
enlisted under different categories.
ix) Reporting : To Bangladesh Bank - Monthly

Returns, Statement to Head Office.
b. Export : Selection of clients - ERC-Membership of an

Authorized Trade Association - Credit Report -
Export L/C. Checking & Advising - EXP
Certification – Pre-shipment Facility -Processing
for Export - Execution- Submission of Export
Documents - Checking. Preparation of Offering
Sheets for negotiation /collection .
i) Negotiation & Collection : Purchasing Documents - Sending
Documents to L/C . Opening Bank /
Correspondent for collection of proceeds, after
collection adjustment of negotiation value.
ii) Reporting : Duplicate EXP to Bangladesh Bank - Triplicate
EXP after realisation of proceeds to Bangladesh
Bank - Monthly statement to Head Office.
ii) Export under back
To Back System : Export L/C Advising - proposal for BB-LC
LC -Checking -process to open BB-LC-
Formalities Time gap between Import & Export
Credit-Report Buyer Supplier.
iv) Thronging of BB-LC : Advising Bank / Foreign correspondent
Add Confirmation.
v) Lodgement of BB-Bills : Shipping documents - evidencing despatch —goods
Acceptance of Import Bill — conveying of due
date to Negotiating Bank - Clearance of raw
materials - storing in Bonded Warehouse-
Manufacturing of the product –Pre-shipment
extension.
vi) Negotiation : Execution of Export-Submission of Export
Documents — Checking — Negotiation
-Disbursement of Funds to different heads of A/c
including F.C. held A/c for payment of BB- Bill.
vii) Realization
proceeds & Reporting : Crediting Nostro A/c - Adjustment of negotiation value -
payment of BB-Bills – Export Incentive -
Reporting of Export -Settlement of any other
claims.
c. Remittance : Inward - NRD / NRT A/cs - DD/TT - Encashment

of TCs.
Outward - Issuing of DD/TT & TCs Settlement
providing cover.
Express Remittance Scheme from K.S.A
d. Dealing Room : (A room where online buying & selling
of Foreign Currency takes place). Only spot buying
& selling undertaken by 1BBL.Concept - buy low-
sell high. No forward/ Swap ( advance Buying/
Selling)due to Shariah obligation).
Dealing Room activities Shared by 3 (three) offices.

a) Front Office : (Gives Instruction / directives to purchase / sell foreign
currencies).
b) Back Office : (Buying / Selling transactions are initiated & completed by this office)
c) Middle office : (This office supervises & monitors such truncations)
Each of the above office is independent to discharge its function and will not be
influenced by one another.
Over all activities of dealing room would be supervised / monitored / followed up by
Senior Executives of the Bank.
Modes used in foreign exchange investment.
i) Murabaha / Bai -Muazzal - Import / Export
ii) Bai- Salam - Pre-shipment
iii) Hire purchase - For important of Machinery under
project Investment.
a) No. of A/D Branches : 31
b) No. of Forwarding Branches : 54
c) No. of Correspondents: Countries Bank Branches Nostro A/cs
73 231 850 36
d) Taka Drawing Arrangement - Banks/Exchange House : 33 (Bank-9, Ex. house-24)
e) No. of C&F Agents - Categories ( A to G) - 220
Foreign exchange performance for the year : 2003

Import - Tk. 46,237 m. Foreign Exchange Income Earned: Tk.2386 m.
Export - Tk. 21,738m.
Remittance - Tk. 16,668 m.
Total : Tk. 84,643 m.
TARGET FOR THE YEAR: 2004
Import - Tk. 68,282 m.
Export - Tk. 31,609m.
Remittance - Tk. 25,100 m.
Total: Tk. 1,24,991 m.
Guide Books / Publications / Circulars :

1. Foreign Exchange Regulation Act. 1947.
2. Guidelines for Foreign Exchange Transactions ( Vol I&2) Published by Bangladesh
Bank.
3. Export Policy, Import Policy Order Published by Ministry of Commerce
4. Public Notice issued Chief controller of Import & Export ( CCI & E)
5. Foreign Exchange Circular ( FE Circular) Circular letter Issued by Bangladesh Bank
from time to lime.
6.2 FOREIGN EXCHANGE MECHANISM:
EXPORT (AN OVER VIEW)
Introduction :
Export means sale of goods and services produced within the country to the economic
agent (individual, firms, company, government, etc.) of foreign countries.
The current export policy 2003-2006 formulated/published by the Ministry of
Commerce, Government of Bangladesh under SRO No-68-Law/2004-Imports and
Exports control Act.-1950 with a view to maximizing export growth and narrowing down
the gap between import payment and export earning. As per existing Export Policy an
Exporter can export any goods or services except the items listed as Band and Restricted
in the said policy. Duration of the present EPO-3 years effected from 13 th March 2004
unto 30.06.2006, but valid until announcement of new policy. Export target of the current
EPO 2003-2006 is 9600 million US Dollar.
Objectives of Export / Export Policy:

Growth of national wealth, increase of production in export sectors, generation of
employment, flow of capital and to achieve the growth of GDP target (a> 7% from the
present 6%.
1. Registration of Exporter:
No person/Firm/Company is allowed to export any goods form Bangladesh to any other
country without obtaining export registration certificate from the - Government. An
exporter must obtain Import & Export Registration Certificate from the office of the
Chief Controller of Imports & Exports (CCl & E). The required procedure for obtaining
Export Registration Certificate (ERC) from the CCI & E, are as follows:
1) Application as per format prescribed by CCI & E.
2) Bank Solvency Certificate.
3) Membership Certificate from a Chamber of Commerce.
4) Nationality certificate.
5) Partnership deed (Registered / Un-Registered) for partnership firm/business concern.
6) Memorandum & Articles of Association, certificate of incorporation. Board's
Resolution for Public & Private limited Company.
7) TIN- Tax payer's Identification Number (Income Tax)
8) Recent photographs of the applicant (passport size)
9) Treasury challan showing payment of fees for ERC.
2. Searching of Prospective foreign Buyer for Export Order:

On receipt of the Export Registration Certificate, (ERC) the exporter will proceed to
contact the probable/prospective buyers directly through correspondences or through a
business trip to different foreign countries at a settled price which must be competitive
and reasonable.
3 Contract with Foreign Buyer: When sale is agreed, a contract between buyer and
seller is executed specifying the detail terms about the sale, such as, full descriptions and
quantity of merchandise, value of commodity quoting its FOB, CRF, CIF etc., price with
provision for payment at sight, DP, CAD or Terms.
4. Export L/C or Firm Contract:

Exporter then must obtain an Export L/C or Firm Contract for further processing of the
export. The export is normally executed against Letters of Credit opened by
Importers/buyers' bank abroad. Sometimes, shipments are made on CAD. DP, DA or
consignment basis without cover of Letter of Credit. When export is made against L/C,
the exporter should examine the following terms of L/C to avoid any future complicity to
execute the order:
i. That the terms and conditions of L/C are definite, clear and explicit and also are
in conformity with those of the contract,
ii That the L/C' should be an irrevocable one and be confirmed by the local
advising bank.
iii. That the L/C should provide sufficient time for shipment and a reasonable time
for negotiation. If nothing is mentioned, the shipper would be allowed 21 days to
negotiate the documents.
5. Firm Contract:
Export of goods and services can be made against a contract- document duly offered and
accepted by the seller/ exporter and Buyer/Importer with good reputation and sound
standings.
6. EXP Form (Export Form):
Foreign Exchange Regulation (FER) Act-1947 prohibit export of any goods directly or
indirectly to any place outside Bangladesh unless the exporter furnish a declaration to the
effect that the export value of goods will be repatriated into the country within a period
of time specified by Bangladesh Bank. So, repatriation of export proceeds is mandatory
for all exported goods or services. Accordingly, before shipment of goods an exporter
must declare on Export Form issued & certified by the Authorized Dealer (Exporters'
Bank). The EXP Forms are numbered serially and issued in quadruplicate. Original copy
of EXP form is for custom, duplicate and triplicate copies for Bangladesh Bank and
quadruplicate for banks'(A.D) record. For delay in repatriation of export proceeds or
non-realization of export proceeds, the exporters render themselves for action under
Foreign Exchange Regulation Act 1947.
7. Shipment & Preparation of Export Documents:

After due passing of EXP from by the Authorised Dealer the exporter then execute
shipment. As evidence of export and as per terms of the export L/C, Contract, the
exporter must prepare document in order to get their payment and to facilitate release of
goods by the buyer abroad. Every year the country and the exporting community incur
losses running into millions of Taka due to negligence in the documenting of exports and
documenting must therefore playing a very important role in execution of our export
order. There are a number of documents involved in the execution of an export
transaction and these may be broadly grouped into two categories as under:
a. Substantive documents
b. Auxiliary documents
Substantive documents are those which are normally required to be furnished under
almost all of the contracts for sale of goods to oversees buyers and they indeed:
a. Draft or Bill of Exchange
b. Commercial Invoice
c. Bill of leading or Airway bill
d. Marine Insurance policy
In addition to substantive documents, the exporters may be required to prepare other
documents called auxiliary documents. The number and type of these documents
depends on the terms of the contract and/or the L/C, but they mainly include,
a. Packing List
b. Consular Invoice
c. Certificate of Origin
d. Inspection Certificate
e. Quality Control Certificate
f. Photo-Sanitary Certificate
g. GSP Certificate issued by EPB etc.
8. Negotiation of Export Document:
Soon after the shipment the Exporter should make arrangement for early submission of
export documents to the bank correctly prepared in conformity with the terms of L/C. If
the documents are found strictly as per the terms of L/C i.e. if (he documents are free
from discrepancy or if the discrepancies are covered by indemnity of the party, bank may
negotiate the export bill. As per Article 10-b(ii) of I KPIK -500 Negotiation means the
giving of value for Draft(s) and /or documents by the Bank authorized to negotiate. Mere
examination of documents without giving of value does not constitute a negotiation. For
negotiation of export bills, the O.D sight export bills buying rate prevailing on the date of
negotiation is applicable.
After negotiation of export bills, the documents are sent to the L/C opening bank aboard
as per instructions of L/C. Negotiating Bank claim reimbursement of the proceeds from
the bank as mentioned in the letter of credit. Bank also advice the reimbursing bank to
credit their Mead Office's "NOSTRO Account" maintained with the correspondents in
abroad. Accordingly, after credit of the proceeds, the Branch adjust the amount which
was paid at the lime of negotiation by debiting their Head Office.
If documents are found discrepant these are sent on collection basis with the instruction
to credit the proceeds as above. After collection of the proceeds exporter's account is
credited by debiting I lead Office A/C by the branch duly adjusting the negotiation
amount.
9). Reimbursement of Export Proceeds:

The simple meaning of the word Reimbursement is repayment or to payback. -In
international trade it is used in L/C operation for settlement of payment. It means
arrangement of repayment by the opening bank of an L/C against which negotiating bank
already made payment to the beneficiary. Opening bank make such repayment through
another bank in the beneficiary's country or any third country with which opening bank
maintained A/C, this bank is called Reimbursing Bank. Article - 19 of UCPDC. ICC
publication 500 of 1993 describes details of Reimbursement arrangement.
Reimbursement is also guided by "ICC Uniform Rules for Bank-to-Bank
Reimbursements under Documentary Credits (URR-525).
10. Export Incentive/Facilities:

To achieve the objectives of the Export Policy 2003-2006 several incentives and facilities
have been made available to the exporters. Some of the incentives as offered are
described below:
a. Convertibility of Taka:
Taka has been made convertible in the current account from March 26,1994 in line
with the policy of export-led growth in the liberalized world market. Under this
arrangement, exporters are getting following facilities.
b. Business Travel Quota for New Exporters:
Upto US$6000 or equivalent may be issued by an AD without prior approval of
Bangladesh Bank to a new exporter for business travel abroad against
recommendation letter from Export Promotion Bureau. Bonafide requirement beyond
US$6000 is accommodated by Bangladesh bank upon written request through an AD
with supporting documents.
c. Exporter's Retention Quota:
Merchandise exporters may retain upto 50% of realized FOB value of their exports in
foreign currency accounts. However, for export of goods having high import contents
(such as Readymade Garments, Naphtha, Furnace or Bitumen and other petroleum
products, Electronic Goods etc.) the retention quota is 10% of the repatriated FOB
value. In the case of export of services like legal advice, consultancy and similar
professional services (excluding indenting commission or agency commission of
indenting house or buying house respectively) may retain 5% of their repatriated
income in their foreign currency accounts but in case of computer Software export it
is 50%.
d. International Credit Card:
To cover the risks involved in carrying cash foreign currency/travellers cheque
during the time of business trip abroad, international credit cards are issued to
exporters against the foreign currency of their retention quota Account.
11. Fiscal Incentives:
The Government has taken lot of fiscal measures to boost upto export earnings of
Bangladesh. Some of the important fiscal incentives provided by the Government are
enumerated below:
a. Duty Draw Back.
b. Duty-free Import of Capital machinery
c. Bonded Warehouse Facility.
d. Sale of Goods Rejected for Exportation
e. Duty free Import of Raw Material for Export Oriented Leather Industries
12. Cash Incentives:
Government used to give cash benefit in lieu of bonded warehouse facility or duty
drawback for export oriented domestic textile sector and readymade garment industries,
at present 5%-20% compensatory assistance in cash is admissible, in case of imported
inputs if the duty drawback facility has not been utilized, or if local inputs are used by a
garments cum manufacturer of fabrics i.e. composite textile mills, for this purpose
domestic handloom sector is admissible to get 10% cash incentives, if the exporter is an
intermediary buyer the facility will go the original producer of the input, for quick
disbursement of cash incentive to the exporter placement of fund in advance made by the
Bangladesh bank to the Head Office Authorized Dealer Banks. Cash incentive is also
admissible against export as under:
a. Frozen fish & other fish 10%
b. Agriculture & Agricultural goods (Vegetable/Fruits/Agro processing
i) Agro-Processing 15%
ii) Fresh fruits 20%
c. Bone Powder 15%
d. By-Cycle (eligible for 40% local VAT included) 15%
e. Hogla, Khar, Akher Chobra 15%
i.(If used local raw materials above 80%) 15%
ii. (If used local raw materials above 50%) 10%
f. Jute goods 5%
13 Extension of Export Credit Period:

Presently export credit is allowed at confessional rate of interest (10%) for a maximum
period of 180 days. The time limit of repayment of export credit has been extended from
180 days to 270 days for credit to frozen foods, tea and leather sectors by way of
relaxing the condition of submission of firm contract/LC and treating working capital as
export credit. In our Bank it is 1 (one) year.
14 Limit of Export Credit.
Exporters may obtain export credit from the commercial banks upto 90% of the value of
their irrevocable letter of credit/firm contract. No overdue interest will be charged by the
commercial banks in case of export against irrevocable letter of credit on sight payment,
basis. In such a cases, however, exporters will be required to submit necessary export
documents within a specified time.
15 Export Credit Guarantee Scheme (EGGS)

The Export Credit Guarantee Department of Sadaran Bima Corporation provides
Guarantee to bankers and an exporter against possible loses resulting from the advances
given and against the overseas commercial and political risks respectively. Currently
three types of guarantee e.g. the Export Finance guarantee (Pre-shipment), Export
Finance Guarantee (Post -shipment) and export Payment Risk Policy (Comprehensive
Guarantee) are available to the banks, the third one is extended directly to exporter.
Export business mechanism

Exporter- Consult Export Policy order get ERC
2. Searching of Prospective foreign Buyer for Export Order
3. Contract Buyer-Settle sales terms
4. Issue Performa Invoice - to exporter abroad
5. Export L/C' or firm contract-Check carefully by exporter & exporter's Bank
6. EXP Passing Issued by AD signed by exporter and AD
7. Shipment Submit document of goods or the item exported
8. Preparation and Submit of document by the exporter to their Bank.
9. Negotiation / - Payment made by the exporter bank to the exporter
10. Collection If documents are discrepant/unaccepted
I 1. Reimbursement - Getting payment by the negotiating Bank

12. Export Incentives/Facilities
a. Convertibility of Taka
b. Business Travel Quota for New Exporters
c. Exporter's Retention Quota
d. International Credit Card
e. Fiscal Incentives
f. Cash Incentives
g. Extension of Export Credit Period
h. Limit of Export Credit Export Credit Guarantee Scheme (ECGS)
Composition of Export
Elements of Export 2004
Amount Total %
Readymade Garments 1,87,37.00 86%`
Cold storage foods and vegetables 463.00 2%
Jute and Jute products 241.00 1%
Others 2297.00 11%
Total 21738.00 100%
6.3 FOREIGN EXCHANGE MECHANISM:

IMPORT (AN OVERVIEW)
01. Import Trade Control:
Import of goods into Bangladesh is regulated by the Ministry of Commerce in
terms of the Import and Export (control) Act 1950 with Import Policy Order and
Public notices issued from time to time by the Office of the Chief Controller of
Imports & Exports (CCI&E)
02. Registration of Importers:

According to the Imports & Exports Control Act 1950 as adopted in Bangladesh
no person can indent, import or export any goods into Bangladesh except in case
of exemption issued by the Government of the peoples Republic of Bangladesh.
03. Procedure for obtaining IRC:
The persons or firms who intend to get registration from CCI&E shall have to
apply to CCI&E along with required papers/documents.
Normally following to be submitted to the office of the CCI&E:

* Questionnaire from
* Nationality certificate
* TIN
* Trade License.
* Bank solvency certificate.

* Partnership deed when applicable
 Certificate of Registration with the register of Joint Stock Company and Articles of
Memorandum of Association in case of Private Ltd and Public Ltd Company
04. Registration of L/C Authorisation form:

(i) Submission of LCA From.
(ii) Registration of EGA form with Bangladesh Bank
(iii) LCA from distribution.
(iv) Validity of EGA. For Import, Letter of Credit shall be opened by all import within
150 days form the date of issuance of ECAF
(v) Validity of ECA for shipment.
Shipment of goods shall take place with 17(seventeen) months in case machinery and
Spare parts & 9 months in case of all other items from the date of issuance of ECA from
by Bank or registration of L/C Authorisation form with Bangladesh Bank Registration
unit as the case may be
05. Import formalities and procedures:
If an importer desires to have an import or opening L/C must have apply to the
designated bank in prescribed forms for sanction of L/C limit, parentage of C/S etc
For L/C limit the following information’s are to be furnished by the client.
* The full particulars of bank account.
* Types of business (proprietorship, partnership, limited Co.) in case of Ltd Co.
balance sheet of last 3 years and the names of Directors to be obtained furnished)
* Historical background.
* Amount of limit required.
* Terms of payment: Whether the import documents would be retired against cash
payment or against acceptance or whether post import finance is required in the form of
MPI/LTR etc.
 Commodity to be imported.
 Security to be offered
 Re-payment schedule and source of fund
 Liabilities of the client with other bank.
 Statement of Assets and liabilities
 Account position (Balance)
 Trade Licence and import registration certificate with upto date renewal
On receipt of above particulars the import section of the bank will prepare credit report
of the concerned importer. The report should be collect from the previous banker of the
client also
06. Preparation of credit report:
Bank will prepare credit report in the prescribed form, Character, capacity and capital
which are known as the three C's of credit. Instead of the three C's some mentioned the
three R's i.e. reliability, responsibility and resources. To these three C's we may add two
more C's i.e. collateral and conditions.
07. Position of the A/C:

Import section will examine whether there is sufficient fund available in the account to
cover the margin to be sanctioned, commission, postage cable or Telex charge etc If it is
found OK L/C will be sanctioned.
In all cases in the sanction must be informed to the importer for acceptance On receiving
confirmation from the client that the terms and conditions of the sanction are acceptable,
the subsequent documentation/charge documents are to be obtained
Following papers/documents submitted by the importer before opening of the L/C:

a Trade license (valid)
b Import Registration certificate Must be kept in the bank custody.
c Pass book import
d. Income tax declaration / TIN.

e. Membership certificate
f. Memorandum of Articles (In case of Ltd. Co.)
g. Registries dead (In case of partnership firm)
h. Resolution from the company.
i. Photograph.
Bank will supply the following paper/documents before opening of the L/C.
a. L/C application form F-27.
b. LCA Form.
c. IMP Form.
d. Murabaha Agreement
e. Charge documents.
The above paper must be completed and filled and signed by the client and verify the
signature.
08. Maintenance of Register:

The sanction must be recorded in the following register:
* Document execution register. All the charge documents must be recorded in this
register.
* Limit register
* Liability ledger.
09. L/C Application:

For opening L/C the client is to submit to the bank an application in the printed format of
the designated bank. This is called L/C application form which is also an agreement
between the importer and the bank, the form is to be stamped under stamp Act In force in
Bangladesh The importer must submit the LCA & IMP and Indent or contract/purchase
order / proforma invoice (duly accepted by the Importer) along with L/C application.
The L/C application must be completed/filled in and signed by the authorized person of
the importer giving the following particulars:
1. Full name and address of the supplier or beneficiary and importer.

2. Brief description of the goods.
3. L/C value for US$, GBP etc. (CRF Value) which must not exceed the LCAF value
4. The unit price, quantity, quality of the goods
5. Origin of the goods, port of loading and port of destination must be mentioned.
6. Mode of shipment (Sea, Air, Truck or Rail etc.)
7. Last date of shipment and negotiation time (must not be beyond 30 days from the
shipment date.)
8. Insurance cover note number and name of the company.
9. Tenor of draft (i.e. sight /issuance/deferred etc.)

10. Mode of advising L/C (i.e. airmail/full telex/short cable / SWIFT etc
11. Opening of L/C number UCPDC publication No. 500-ICC effecting from 1993
12. Whether shipment/transhipment is allowed.
13 Instruction to add confirmation if required.
14 LCAF number.
15 Any other relevant information and instruction if any, must be mentioned in the
L/C application
10. Examination of L/C application:

On receipt of L/C application it must be checked by an officer of L/C section very
carefully in the following manner:
1 That the terms and conditions as stipulated in the L/C application are consistent with
the exchange control and import trade regulation and UCPDC
2. That all the information mentioned in above column have been furnished
3 That the terms to be imported is eligible according to import policy order.
4 That the goods are not being imported or originated from Israil
5. That all the cutting / erasing / alternation if any are authenticated by the
authorized person.
6 LCA/License/permit etc. are endorsed
7 That the validity of the L/C must not exceed the validity of LCA.
8 L/C is opened within the validity period permitted in the License.
11. Confidential Report of beneficiary of L/C:

According to exchange control regulations bankers are required to obtain confidential
report of the beneficiary of L/C before opening the same, if the amount of L/C exceeds
Tk.5.00 lac. Bank may open L/C below Tk. 5 00 lac without obtaining C.R
Bankers may write to their foreign correspondents of different country but they are not
supplying timely.
To over come the above situation bankers may consult reference books i.e. DLIN &
BRADSTREET/Trade directory of various chamber of commerce of different countries
On receipt of C.R. from any source the banker can accumulate the same in one master
file
12. L/C Numbering in the L/C register:

If the L/C application and other all formalities are found in order then the serial number
in the L/C opening register. This L/C number put the L/C application form on the
appropriate blank space, Enter in the L/C opening register the following particulars:
Date, SI. No. (L/C No.), Name of the Importer with address, Beneficiary's name and
address, L/C value (F. Currency) and Bd. Tk., rate of conversion, LCAF No CCI &
Registration No. shipment date, expiry of the L/C commission, postage recovered etc.
13. L/C Advising:

L/C must be typed in the printed format of a bank. After typing, L/C should against be
checked up by two authorised signatories and would be despatched under their full
signature, bearing their signature number

14. Telex / SWIFT L/C:
If any importer desires L/C to transmitted by Telex/SWIFT In that case the full of the
L/C is to be transmitted by Telex / SWIFT to the advising bank any the opening bank
In the last Para of the above telex L/C must be mentioned that the telex message is an
operative and no airmail confirmation will follow. In that case reimbursement authority
is to be sent to the reimbursing bank separately in case of direct reimbursement clause
In the importer desires that the L/C is to be advised by a short cable, short cable be sent
incorporating the principal terms of the L/C as under:
a. Advise our irrevocable No..... date.... ....favouring............ .(Beneficiary's name &
address
b Amount (Foreign Currency)
c. Merchandise to be imported,
d Last date of shipment,
e. Negotiation period
f Name of the importer with address
g Test number,
h Air mailing details.
The Airmail L/C must state as under "This is in confirmation of our Cable dated" This is
necessary to eliminate the possibility of issuing two advises of dispatching the same L/C
to the beneficiary by the foreign correspondent.
15. Add Confirmation:

Sometimes the beneficiary of the L/C my ask for add confirmation to a L/C by an
internationally, reputed bank in the beneficiary's country The importer is to request his
bank, i, e opening bank to do so in writing.
The opening bank advises the L/C through their correspondent with whose they have
prior arrangement of credit line. Instruction are issued in the following language " Please
adding your confirmation of the credit at beneficiary's cost" Adding Confirmation L/C is
the negotiation restricted to the bank who has added their confirmation to the credit
Such undertaking can neither be amended nor cancelled without the agreement of the
issuing bank the confirming bank and the beneficiary.
16. Disposal of L/C copies and filling:
L/Cs are normal typed in respective banks printed format in manifolds (8 copies) The
original L/C is sent to the advising bank for beneficiary and 2nd copy sent to the above
bank at the same time for their own purposes 3rd copy for importer, 4th copy for
reimbursing bank 5lh & 6"1 copy office copy of the bank, 7th copy for I.B.W 8th copy for
CC1 & E and 9th copy for Bangladesh Bank.
One copy for importer be sent to them along with the memo of charges incurred by the
opening bank for the L/C stating the their account has been so debited for the amount of
Memo including that amount of margin.
17. L/C Amendment:

Sometimes amendments are required of the Letter of Credit / Documentary Credit But to
amend an irrevocable letter of credit. It is essential to obtain consent of the concerned

parties involved in documentary credit operation.
18. Cancellation of the L/C:

An irrevocable letter of credit can not cancel within the validity of the same But after
expiry of letter of credit opening Bank at the request of the opener send telex / SWIFT /
Air mail letter to the beneficiary through advising Bank for cancellation. After getting
confirmation from the advising Bank / beneficiary the L/C may treat the same as
cancelled and the contingent liability will be revised accordingly.
19. Accounting procedure:

At the time of realization the C/S & charges
1) Dr. Client current account/Sundry Deposit (Margin ).
Cr. Sundry Deposit A/C (Security L/C WES.)
Cr. P & T recovery/Telex Recovery A/C.
Cr. Stationery A/C
2) Liability Voucher
Dr. Assets us per contra ( Cash L/C/BB L/C).
Cr. Liability as per contra ( Cash L/C/BB L/C).
20. Examination of Import documents:

The beneficiary of an Import L/C who exports goods on the strength of L/C must comply
all the terms and conditions of the credit meticulously The bank negotiating the shipping
documents under the L/C must do so only when the documents strictly confirm to the
terms and conditions of the L/C, any discrepancies in the documents must be referred to
the applicant who has the right to give decision whether the discrepancies should
accepted or not.
21. Receiving of documents:

On receipt of the documents the authorized dealer will enter the same in the Inward
Foreign Bill register with rubber stamp showing the date of receipt, serial number.
Examination of draft:
Examination of invoice.
Examination of B/L, AWB, T/R, R/R., P/R.
Examination of other documents.
22. Lodgement and retirement of Import documents:

i) Application of Rate,
ii) Exchange Control form (IMP/TM)
iii) Endorsement of LCAF.
iv) Intimation to the Importer.
v) Accounting procedure with lodgement
Dr: MIB
Cr: F.C Fund purchase a/c.
Cr: Profit receivable a/c.
Dr. F.C. Fund held a/c.
Cr: F.C. Cover a/c.
Dr: F.C. cover a/c.
Cr: IBG A/C Head Office IBW

Authority to be provided for reimbursement.
Dr: Liability as per contra.
Cr: Asset as per contra.
 Reporting of Transaction to Bangladesh Bank.
 Disposal of LCAF.
 Retirement of Bills.
 Accounting of procedure for retirement.
Dr CA
Dr: security deposit a/c.
Cr: MIB
 Endorsement of the documents:
i) Draft
ii) Invoice
iii) Transport documents
* Submission of the Exchange Control copies of the Customs bill of Entry and certified
Invoice.
 Report of Non-submission of contains bill of entry / certified Invoice etc
Composition of Import
Elements of Import 2004

Amount Total %
Row Cotton, Fabrics, Accessories 15,385.00 33%
Fertilizer 3,573.00 8%
Machineries 3,165.00 7%
Wheat 2,506.00 5%
Agriculture Machinery 2,294.00 5%
Rice 2,107.00 5%
Transport 1,831.00 4%
Others 1,53,76.00 33%
Total 46237.00 100%
6.4 Some L/C related terms and their brief description

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

When importer wants to import goods he request issue bank (his bank) to issue a L/C.
2. To do that the importer gives an application to the bank for the L/C.
3. So the issuing bank issues a L/C and sends it to the advising nominated bank.
4. If the beneficiary wants confirmation of the L/C the L/C may be confirmed
usage-confirming bank to confirm payment.
The advising banks authorized the L/C and advises the same to the beneficiary. The
exporter submits the necessary documents to the advising bank after execution; of
export.
6.6 Advantages of Letter of Credit:

To the exporter:
A letter of credit is generally a very safe method of obtaining payment provided the
exporter complies with the terms of credit.
An irrevocable credit cannot, be amended without his knowledge agreement.
An irrevocable credit carries a definite undertaking on the part of the issuing bank to
pay.
A confirmed irrevocable undertaking of a bank generally in the exporter's country.
A credit open in his favour can often lead to a credit being opened on his behalf in
favour of his supplier (to-back credit); alternatively the credit may be transferable.
Finance may be available by means of:-negotiating of his bills.
The exporter has indirect control of the document of title.
Better than collection as a means of securing payment.
To the importer:
Protect own position by stating the precise documentation required.
He should consider making a status report on the supplier and in the case of a large order
call for a performance bond.
Credit can be obtained from the exporter by insisting on the use of a term bill or
exchange.
He could also consider the use of a revocable credit, which would be particularly
appropriate where the goods are dispatched in part shipments as soon as the first lot of
goods arrives. The importer can inspect them and if they are not up to quality, can cancel
the credit, hopefully before other shipments are mode.
The advising bank will only make payment when the exact document specified has been
received.
Once the specified documents which will usually be the documents of title are in the
hands of the advising bank then it will only be a matter of time before they are sent to
the issuing bank allowing him to collect the goods subject to their safe arrival.
Finance may be available by means of:-
a. Ordinary bank loan / overdraft
b. Loan against imported merchandise.
c. Acceptable credit.
6.7 Types of Letter of Credit

 Document credit
 Stand-by letter of credit
 Revocable credit
 Irrevocable credit
 Counter credit
 Letter of credit
 Transferable credit
 Governed by ICC 500 (ART 48)
 Transferable if indicated 'transferable".
 Transferable with or without substitution of documents (ART 481)
 Can be transferred once only (ART 48G).
 Can be transferred to one or more second beneficiaries. (ART 48E).
 Transfer is affected at the request of the first beneficiary by the bank where the
credit is available.
 Transfer must be effected in accordance with the terms of the original credit
subject to certain exceptions (ART 48H).
 Back-to-back credit
1. Middleman who buys and sells on a letter of credit basis.
2. Usually the export letter of credit is not transferable.
3. The master L/C is a source of repayment.
4. The baby L/C is a separate undertaking from that of the issuing bank.
5. Matching of the terms and conditions of both credits in order to produce the required
documents within time limits stipulated in the master L/C, with the following exception:-
Applicant's name
Amount
Unit price
Dates
Insurance
Documents can be substituted
6.7.1 Parties of Letter of Credit:

Issuing bank
Advising bank
Credit Applicant
Beneficiary
Nominated bank
Negotiating bank
Reimbursement bank
6.8 Different Parties Roles

6.8.1 Role of Issuing Bank
The credit and amendments must be complete and precise.
Indicating credits irrevocable or revocable
Definite undertaking of the issuing bank
Such undertaking cannot be amended or cancelled without consent of all parties.
State how the credit will be available and nominate the Bank where it will be available.
Advice the credit and subsequent amendments through the same bank. f- Reimburse
nominated bank.
Determined to take documents or not on the basis of documents alone.
Reasonable time to examine documents.
If refusing documents issuing banks should without delay telex advice the presenter
stating discrepancies and hold documents at its disposal return them.
Despite presenter pointing out the discrepancies, the issuing bank still have to follow the
procedures as per Art (I4B), (14C) and (14F).
No need for certificate of compliance.
If incomplete or unclear instructions are received to issue or amend the credit bank may
give preliminary notification to beneficiary and seek clarification from the applicant.
6.8.2 Role of Advising Bank:

Without engagement and responsibility.
Exercise reasonable care in checking the apparent authenticity of the credit.
If incomplete or unclear instruction received to advise the credit bank may give
preliminary notification to beneficiary and seek clarification from thinning bank.
Services to the corresponding banker.
Services to existing/potential customer.
6.8.3 Role of Negotiating Bank:

Offering temporary finance for the exporter awaiting reimbursement from the issuing
bank.
Check documents with reasonable care and within reasonable time
Ensuring that documents are presented as per L/C terms and conditions and ICC-400
requirements.
Ensuring it as being the nominated bank.
Source or repayment.
Issuing Bank
Beneficiary.
6.8.4 Role Of Confirming Bank:

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

Transport document is a document issued by the transport company or the freight
forwarder stating the goods will be delivered to the intended destination as per agreed
terms and conditions. Depending on the mode of movement of the cargo on appropriate
transport document will be called for.
6.10 Definition Of Bill Of Lading

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

:
1. Receipt for goods.
2. Contract for transport and storage.
3. Title document that proves ownership of goods.
Various types of bill of lading:

Mariner bill of lading.
Short form bill of lading
Through bill of lading
Combined transport bill of lading
Line bill of lading
Charter party bill of lading
Container bill
6.11 Import mechanism of L/C:

As per import and export control Act, 1950, the person engaged in foreign trading should
obtain registration from the office of chief controller of import and. export. Thus an
importer needs to collect import registration certificate (IRC) from the aforesaid office.
On the next step importer needs to obtain letter of credit authorization (L'CA) from
Bangladesh Bank. Having both IRC and L/C A, the importer steps into a bank. Regular
steps or procedures for import mechanisms are as follows.
6.11.1 Importer's Application For L/C Limit/Margin:

An importer desirous to have an import L/C limit must apply to the import department
with following:
Full particulars of bank account
Types of business-Historical background
Amount of limit required
Terms of payment
Goods to be imported
Security to be offered
6.11.2 The L/C Application:

For opening L/C the client must submit to the bank an application in the printed format
of IBBL and this L/C application is also agreement between ANZ (Bank) and the
importer. Along with L/C application importer must submit:
Performa invoice
Insurance cover note importer should provide following information in the application
form:
Full name and address of the beneficiary.
Brief description of the goods keeping conformity of the L/C.
Unit price quality of goods.
Origin of the goods.
Mode of transport and last date of shipment.
Port of shipment and destination.
Insurance cover note, number and name of the issuing company.

Tenor of draft (site/insurance/deferred)
Sale terms
Negotiation period
Mode of advising
Weather shipment/Transhipment is allowed
Instruction to add confirmation.
Full name and address of importer.
L/C A no.
Opening of L/C under UCPDC publication no. 500
Any other relevant information.
Application must be checked in the following manner:
That the terms and conditions of L/C application are consistent with the exchange
control.
That the goods are eligible to import.
That it is not difficult for the beneficiary to comply with all the terms and
conditions to be incorporated in the L/C.
That the L/C must by the importer, agreeing terms and condition.
Goods are not of Israel and vessels to be used is not of Israel.
Indenting registration no.
Insurance cover note with date of shipment.
Radioactivity report in cases of food item.
Whether IMP from dully filled in and signed.
That the goods are marketable.

Whether liability is under appropriate limit.
In case of car the life, is not more than of 5 years.
In case of old machinery survey or certificate whether asked.
After scrutinizing all these legal aspects and taking clearance from AN/, correspondent
Banking department, necessary entry is give to the margin register and charges
commissions and margin is realized.

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

Is customary to advise a credit the beneficiary through on advising Banks. Advising
though a Bank is a proof of apparent authenticity of the credit to the seller. Banks have
corresponding relationship or arrangement throughout the world by which the L/C is
advised to the beneficiary while advising Bank does not undertake any liability. Before
advising, the advising Bank verifies the signature or test of the officers of the issuing
Bank. Advising Bank is generally the nearest Bank of beneficiary's country or of that
country.
6.11.5 Add Confirmation:

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

L/C is based on an agreement between buyer and seller. Any amendment they want to
bring in L/C should be informed to this issuing Bank, which will transmit the
amendment to the advising Bank with test. Service and telex charge is debited from the
party account.
In case of revocable L/C amendment can be brought without prior notice of the
beneficiary or issuing Bank. But in case of irrevocable L/C, which is very much popular,
cannot be amended without informing beneficiary or the issuing Bank. However, any
instruction regarding amendment should be complete and precise.
6.11.7 Presentation Of Documents

Having been advising Bank, the seller then proceeds to dispatch the goods to the buyer.
The seller then presents the document evidencing shipment of goods, to 'the negotiating
Bank. Negotiating Bank then forwards all the documents with a schedule to the issuing
Bank. Most common documents are:
Invoice.
Bill of landing on the receipt.
Certificate of origin.
Packing list.
Weight list.
Shipping advice.
Non negotiable copy of B/L.
Bill of exchange, Phytosanitary, Inspections certificate.
Letter of insurance cover note.
Pre-shipment inspection certificate.
Shipment certificate.
On the receipt of the documents, the Bank will enter the same in the inward receive
register branded with rubberstamp. Showing the date of receipt.
Examination of documents by bank
As already pointed out earlier the issuing Bank's undertaking under a letter of credit to
pay, accept or negotiate is conditional to the presentation of documents which are strictly
as per the terms and conditions of the credit. A careful examination of documents is,
therefore, the major plank on which the whole edifice of documentary credits rests.
Banks, therefore, must examine all documents stipulated in the credit with reasonable
care. The checkpoints for the Banks are given in the box.
Check list for documents examination by banks:
Documents should appear on their face to be compliant with the stipulation in the
documentary.
Documents are not be inconsistent with each other.
Non-stipulated documents should not be presented. Banks should either return such
papers to the presenter or pass them on without responsibility.
Examination of documents is completed within seven banking days following the day of
receipt of documents.
"Conditions" in the documentary credit which do cot states the documents to be

presented in compliance are ignored, (see section 111 covering UCP 500 text and related
material).
Documents dated prior to the date of credit are accepted, unless specifically prohibited
by the credit.
If documents other that transport documents, insurance documents and

commercial invoice are called for the name of the issuer and content (wording or data)
are to the clearly specified. If not, banks will accept documents as presented. Even the
beneficiary will be accepted.
Original credit accompanies the presentation.
Documents must be presented within banking hours.
Endorsement, wherever required, must be checked especially on insurance certificate,

transport documents and bill of exchange.
If credit says "original documents". Documents produced by reprographic, automated

or computerized systems. Carbon copies are acceptable if marked as original and appear
to have been signed if required.
Signature can be by handwriting, perforation, stamp, facsimile symbol, or any

mechanical or electronic method of authentication.
If credit requires copy(s) documents marked as copy ace acceptable. Copy need not be
signed unless specifically stipulated otherwise.
If multiple documents required like "Duplicate", "Two Copies", only one original and
rest copy(s) is acceptable.
If credit requires documents to be authenticated, validated, legalized, vases, certified etc,

any signature, stamps or label which appears to satisfy it is acceptable.
Protection to banks under upto:
Banks have been given several protections under UCP provisions. While; it may seem
that they are overprotected, there is one alternative as the banks, liability under the credit
would become very risky and very costly if these protections were not available. This
also focuses on the fact that the credits are not foolproof and the best protection in trade
is to have good knowledge of standing and status of the other party to the contract.
Banks assume no liability or responsibility:
Form sufficiency, accuracy, genuineness, falsification or legal effect of any document.
General and /or particular conditions stipulated in the document.
Description, quantity, weight, quality, condition, packing, delivery, value or existence of

goods represented by documents.
Goods, faith acts omission, solvency, performance or standing of consignor, courier,

forwarder, consignee insurer, or any other person.
Consequences of delay, loss in transit, mutilation, error of any message, letter, document.
Errors in translation. G. Interpretation of technical terms. H. Interruption of technical

terms.
Strikes or lockout. :
Acts of an instructed party.
Examination of specific document
Procedure for the examination of following documents is given below:
A. Commercial invoice
B. Partial shipments
C. Expiry date
D. Insurance documents
E. Bill of Lading
F. Non negotiable Sea Way bill
G. Multi model transport document
H. Charter party bill of lading
I. Air transport document
J. Surface transport document
K. Courier Charges
L. Recourse for discrepant documents.
A. Commercial invoice:
Need not be signed. Must be issued by beneficiary (except in transferable credit if first
beneficiary does not provide his invoice).
Should be in the name of applicant (except in transferable credits if first beneficiary
does not provide his invoice).
Need not be signed
Description of goods in invoice must correspond with description in the credit.
If amount of invoice is in excess of the credit, banks may refuse to accept the invoice.
If credit requires & "certification of weight", superimposition on transport documents is

acceptable, unless credit stipulates a separate document.
Include exact license and / or certificate number in invoice if required by the credit.
Should show terms of shipment mentioned in the credit.
If "about" approximately" or "circa" is used with amount of credit, quantity or unit price,
allow 10% plus or minus is allowed.
B. Partial or instalment shipments:
If partial shipment is prohibited 5% less (not more) in the amount of drawing acceptable
provided, quantity and unit price stipulated are in full.
Partial shipments are acceptable unless prohibited.
Similarly post or courier receipts acceptable in same date and place of dispatch.
C. Expiry date:
All credits must stipulate an expiry date and the place where it expires. The Banks must,
therefore, make sure that the documents are presented on or before expiry.
Documents must be presented on or before expiry.
If credits are available for "one month", "six month", first day is the date of issuance of
credit.
If last day falls on a holiday expiry extended to next working date (not period after
shipment).
Disregard "Prompt", Immediately as soon possible, etc. To he disregarded.
On or about means plus or minus 5 days.
"To, "until" "till" "from" includes date mentioned.
D. Insurance documents:
Issued and signed by insurance companies or underwriters or their agents.
Brokers cover note is not acceptable but insurance certificate or declaration under open
cover is acceptable.
All originals must be included.

Insurance should be in the same currency as credit.
E. Bill of lading:
Bill of lading (B/L) to be acceptable if it-
Indicates the name of carrier (see section 1 11 in Texts for detail)

Indicates goods loaded 6n board or shipped on named vessel).
Full set of originals is included.
Indicates port of shipment and port of discharge stipulated in the credit.
No indication that vessel is propelled by sail only.
F. Non negotiable sea waybill accept if sea waybill:
Indicates the name of carrier.
Indicates goods loaded on board or shipped on named vessel.
Full set of originals is included.
Indicates port of shipment and port of discharge stipulated in the credit.
Contains all terms and conditions or reference to another document.
There is no indication of charter party.
No indication that vessel is propelled by said only.
G. Multimedia transport document:
Accepted if document
Indicate the name of carrier or multimedia transport operator.
Indicates goods have been dispatched, taken in charge or loaded on board.
Consists of full set.
No indication of charter party.
No indication of propagation by only sails.
H. Charter party bill of lading:
Accepts if document
Contains any indication that it is subject to charter party.
Authenticated by owner/master or agent.
To avoid misunderstanding, it is advised that the credit clearly indicate which expenses
are on account of the applicant and which expenses on account of the beneficiary.
I. Recourse for discrepant document:
In case of discrepant documents, all bank keeps recourse if the credit has compliant
document presented the confirming bank to have no recourse but the Negotiating Bank
has recourse unless negotiating bank has confirmed the credit.
6.11.8 lodgement and requirement of import document:
Usually payment is given within seven days of documents received. Otherwise in case of
document, purchased by negotiating bank it may claim for interest.
Intimation letter
Before payment an intimation letter is given to the buyer instructing to release the
document and make payment.
Requisition
Requisition for foreign currency is given to the international department (ID) for
arranging necessary find before final payment.
Payment procedure
A telex copy forwarded; addressed to the nearest correspondent (reimbursement section)

that payment is being made.
Confirmation letter to the negotiating bank confirming remittance.
Sale memo prepared given exchange rate:
........ TT and OD rate paid to head office.
...... B.C rate taken from customer.
The difference is exchange-trading project.
Operating a payment against document (PAD) account. Entry given to PAD register.
15.5% rate of interest charged from the negotiating date up to retirement. In case of
discrepant document profit is charged form the lodgement date till the
retirement date.
Inter Branch Exchange Trading Credit Advice (IBETCA) sent to ID.
Account Treatment
Sundry Deposit L/C Margin A/C ....................................... Dr.
PAD A/C .......................................................................... Cr.
(Margin Amount transferred to PAD A/C)
Customer A/C .................................................................. Dr.
PAD A/C .......................................................................... Cr

(Customer A/C debited for rest of the amount)
PAD A/C ......................................................................... Dr.
H.O.I.D. A/C +Ex. Trading A/C ...................................... Cr.
Income A/C Profit on PAD ............................................. Cr.
(Amount given to head office ID and Profit credited).
Reversal entry:
Banker's liability ............................................................ Dr.
Customer's liability ........................................................ Cr.
(When lodgement given)
6.11.9 Guidelines On Back To Back Letter Of Credit

Transaction:
Back to Back L/C
A Back to Back mechanism involves two separate L/C. One is Master; Export L/C
another is Back to Back L/C. On the strength of Master Export L/C Bank issues Back to
Back L/C. Back to Back L/C is commonly known as Buying L/C. On the contrary.
Master Export L/C is known as selling L/C.
Features of back to back L/C:
Is an import L/C to procure goods /raw materials for further.
Is operand based on Export L/C.
Is a kind of Export Finance.
Export L/C is at sight, but Back to Back L/C is at unasked scrutiny.
No margin is required to open Back to Back L/C
Check list to open back to back L/C :
Application is registered with CCI & e and has bonded warehouse license.
The Master L/C has adequate validity period and has a defective clause.
L/C value shall not exceed the admissible percentage of net FOB value of relative
Master L/C.
Unasked period wills e up 180 days.

Scrutinization of master L/C :
Presence (P) absence (A) of following clauses in Master L/C may require amendment.
Usage clause is not mentioned. (A)
Negotiation restricted to other bank (P).
6.11.10 Cash benefit analysis of L/C.

Islamic bank limited is one of the leading locals leading banks in Bangladesh, this
instrument of financing is a very handy tool for generation of earning. Every year IBBL
earn quite large amount of commission from L/C from its total volume of L/C issued.
From the table below we can seen the L/C volume each year and commission earned
from it.
Amounts are cr. Tk.
From table we can see that L/C volume is increasing which indicates that business in
IBBL is managed quite efficiently and from the trend analysis we observe that the trends
also indicates efficiency of IBBL and give a clue to increasing economic transaction.
From the table above we observe one important thing i.e., over the period of time
earning from L/C operation is almost constant proportionate to operating income. Even
though the bank is highly efficient but proportion of L/C commission earned and
operating profit is almost same.
Chapter - 7
Problems Faced by Branch Management of

Islami Bank Bangladesh Limited
Problems Faced by Branch Management of Islami Bank

Bangladesh Limited:
7.1 Branch Problem
The Problems can be classified in the following way:
1. Infrastructures:
Interiors decoration: There is no guideline from head office for interior decoration.
Cash counter and computer section should be in line with the customer access area
to know their quarries. In the branches it lacks proper co-ordination. So customers
go through the inside of the branch sensitive area to the computer section, which is
beside volt of the bank.
1. Sitting arrangement: Sitting arrangement is so bad it

consume space. As there is no proper planning to best utilize
space.
2. Queue handling: To maintain queue in discipline there is no

chain.
2. Human Resources:
1. Human Resource Planning: In needed time human

resources supply is few i.e. in seasonal demand human
resources requirement is high. Proper human resources
planning are needed but in branches its lack.
2. Qualified people: Proper qualified people are needed in

bank management. Which lower the error in banks
operation and save time money and able to give better
and quick customer services.
3. Limited Power of Branch:
1. Investment: Branch investment limit is maximum Tk

45 lac, which is far lower than required by the client.
Quick investment needed client are missed due to
to long time to sanction from head office.

2. Expenses for branches: Branch incumbent power is

limited to expenses. The limit is Tk 15000 per year.
Which hamper the client services.
4. Communication:
1. High Risk: As it is not a on-line bank its Inter bank Debit &
Credit advice, proposal letter, office letter, etc. are sent
through post which bear high risk of loss of documents.
2. Time requirement: Requirement of time to communicate with

head office and branches is high. So it hampers work of
offices.
5. Quick Service for Corporate Client: As IBBL doing mass banking though they
should have a separate desk for corporate client & large amount customer.
6. Modern Equipment: They lack modern banking equipment i.e. automated

banking instrument and highly equipped banking software.
7. Insurance Limit: Insurance limit is lower than they hold cash in the following
way according to insurance system:
1.Transit limit: Transit limit should be increase as other branches

Taka is kept at the branch after day end and send
to them at next day as other branches insurance
limit is low. Current limit is 1.5 crore.
2.Counter limit: Counter handles more cash than their insurance

limit. Current limit is Tk. 50 lac. Which is 4/5
times lower than the prevailing insurance limit.
3. Volt limit : Volt hold more amount of cash money than their
limit due to other branches cash management.
Current limit is 2 crore.
8. On-Line/ phone Banking: As they have no online or phone banking they face
lots of problems in fund transfer. Especially in T.T,
DD, P.O, Head office accounts adjustment, IBDA,
IBCA.
And face lots of client’s unsatisfied queries and

delay in fund transfer and also problem in double
sending, double posting, paying without advice etc.
9. Proper Customer Guideline: There is no guide/ reception or mark of indication in

branch to identify the section like General Banking, Foreign Exchange &
Investment. So customer look for their desire section by asking to officer and
staff destroying their valuable time and also client’s time.
This also happen in phone reception where clients and bank’s time & money is
also waste in vain.
10. Proper LAN and Server: All computers are not connected with the server. So lots
of works double & triple. So there is little benefit by using computer.
11. Maintenance of Equipment: IBBL have no engineer for repair and maintenance
of LAN, PBX, and computers in branches even also in Zone. All are send to head
office for repair by courier that is time consuming and hamper customer
services.
12. Banking Software: IBBL use Integrated Branch Banking Software, which is not
complete on-line banking software. Even this software is not used properly by
the staff. The head office does not supervise the use of software.
13. Training of manpower: Lack of proper training for senior management about
technology, which discourages and delay staff in using technology in work.
Problems of Islami banking
7.2 . An overview of problems:
The Islamic banks face a number of challenges. First, they have not yet been successful in
devising an interest-free mechanism to place their funds on a short-term basis. They face the
same problem in financing consumer loans and government deficits. Second, the risk involved in
profit-sharing seems to be so high that most of the banks have resorted to those techniques of
financing which bring them a fixed assured return. As a result, there is a lot of genuine criticism
that these banks have not abolished interest but have in fact only changed the nomenclature of
their transactions Khan (1989). Third, the Islamic banks do not have the legal support of central
banks of their respective countries (except in Pakistan and Iran), which exposes them to great
risks. Fourth, the Islamic banks do not have the necessary expertise and trained manpower to
appraise, monitor, evaluate and audit the projects they are required to finance. As a result, they
cannot expand despite having financial liquidity.
The future of Islamic banks hinges, by and large, on their ability to find a viable alternative to
interest for financing all types of loans. They should recognize that their success in abolishing
interest has been only partial and they have yet to go a long way in their search for a
satisfactory alternative to interest. Simultaneously, Islamic banks need to improve their
managerial capabilities by training their personnel in project appraisal, monitoring, evaluation
and performance auditing. Moreover, the future of Islamic banks also depends on developing
and putting into practice such accounting standards which provide timely and reliable
information of the type that the Islamic banks would require for profit-sharing, rent-sharing or
for cost-plus financing. These standards are yet to be developed. The Islamic banks would have
to work hard to pursue their clients to accept these standards so that a reliable information base
is established (Khan 1994, pp.80-81).
7.3 ISSUES AND PROBLEMS
The implementation of an interest-free banking raises a number of questions and potential

problems if seen from the macro and micro operational point of view. A partial list of the issues
confronting Islamic banks includes:
Issues related to Macro Operation

 Liquidity and Capital
 Valuation of Bank Assets
 Credit Creation and Monetary Policy
 Financial Stability
 The Ownership of Banks
 Lack Capital Market and Financial Instruments
 Insufficient Legal Protection
Issues Related to Micro Operation of Islamic Banks

 Increased Cost of Information
 Control over Cost of Funds
 Mark-up Financing
 Excessive Resort to the Murabaha Mode
 Utilization of Interest Rate for Fixing the Profit Margin in Murabaha Sales
 Financing Social Concerns
 Lack of Positive Response to the Requirement of Government Financing
These are some of the immediate problems confronting policy makers and regulators. Of course,
it has to be kept in mind that these issues are at their elementary level of discussion. Much work
has to be undertaken in terms of procedures, infrastructure and allowing a new framework to
develop and mature. The ensuing analysis should make some these issues clearer, but the
progress so far has been less than substantial.
7.4 ISSUES RELATED TO MACRO OPERATION

Liquidity
Islamic banking stands for the use of money as a medium of exchange. Conventional banking,
on the other hand, emphasizes the need for maintaining liquidity and hence requires an
adequate amount of reserves. Basic principle of Islamic banking being PLS-based financing and
thereby having been exposed to increased risk, it would conceivably require higher liquidity and
reserves. This is because of its nature of investment in assets having lesser divisibility and
reversibility. That means, reserve ratios for interest-free banking are to be calculated on the
basis of risk calculation in various forms of investment.
The complex problem in measuring liquidity is that liability management in the conventional
banking system has been gradually replacing asset management to fund liquidity needs. At
present, no such facilities exist under the Islamic banking system. As a result, these banks have
to depend on their central bank to supply cash. The liquidity ratios required by the banking laws
on demand and time deposits differ from country to country. In some countries, the supervisory
authorities reserve the right to impose different ratios on different banks according to their
location. At present, the liquidity ratio is 35% of demand and time liabilities in Pakistan (Mangla
& Uppal 1990, pp.194-95).
The existing operations of conventional bank’s lending activities for definite maturity are based
on the doctrine of ‘anticipated income theory,’ where bank loans are not self-liquidating in the
sense of ‘commercial loan theory.’ These loans are paid off out of the future earnings of the
borrower, and are liquid according to their nature, guarantee, and marketability. Since Islamic
banks are not based on the same principle, but are investing in assets represented by
commodities, shares in companies or working capital of companies, the theoretical probability of
these assets becoming liquid is more difficult to ascertain than in conventional banks. Also,
greater fluctuations in the liquidity ratio due to the still largely agrarian nature of these
economies will significantly affect the ability of Islamic banks to provide credit to private sector.
This requires special attention when fixing liquidity ratios for each type of deposit and each kind
of investment in order to allow a degree of liquidity higher than conventional banks (Ibid).
With regard to the elements comprising the liquid assets of Islamic banks, it would be necessary
to allow these reserves to be held in the form of financial instruments. Similarly, the bank capital
requirements under Islamic banking would be higher to protect the depositors against
unexpected losses, if any, on the investment portfolios. Increasing the requirement of legal and
loss reserves could provide additional safety cushion.
Valuation of Bank’s Assets
It is argued that Islamic banks may suffer a loss of value of its assets in the absence of a fixed
positive rate of return. Further, without the provision of insurance Islamic banks may face
trouble in making their system stable and avoiding liquidity crises. So far, under Islamic banking,
no such insurance system exists.
Theoretically, Islamic banks are likely to face a dual risk: (a) the ‘moral’ risk due to lack of
honesty and integrity on the part of the borrower of funds in declaring a loss, (b) the ‘business’
risk arising from unexpected market behaviour. The deposits under a profit and loss sharing
system are conceptually more akin to a mutual fund’s share certificate. These deposits would
share in both the realised as well as unrealised gains and losses on the investment of Islamic
banks. Typically under current Generally Accepted Accounting Principles, the investment
portfolio is adjusted to market values in investment companies. An upward adjustment of the
assets account requires an offsetting credit to either revenue or unrealised capital increment.
Unrealised capital decrement requires recording of an unrealised loss on long-term equity
securities as a contra item in stockholder’s equity.
The problem associated with proper valuation of Islamic banks’ assets has important implications
from the point of view of bank safety and bank regulation. Any specification of reserve or
provision requirements laid down by the regulatory agencies will have to consider how far the
gains (losses) on banks’ investments are passed on to the depositors. If in the extreme case,
these gains and losses are fully reflected in the value of the deposits, the banks probably would
be passing on all the risks to their depositors.
Another problem in determining the profit or loss to be distributed to the depositors of the
Islamic banks relates to the periodic evaluation of their assets, especially in case of long term
investments, such as Mudaraba, or Musharaka. In the case of participation term certificates
(PTCs), market values could be observable if an active market in these instruments exists. Such
a market for the PTCs is not fully developed in countries experimenting with the interest free
banking system. The value of long-term investments would fluctuate with the changes in the
expected cash flows as well as the opportunity cost of capital. In the absence of an active
market in these investments, the valuation process could be very imprecise and costly.
Credit Creation and Monetary Policy
It is of the general perception that most of the traditional policy instruments of the central bank
are said to remain largely unaffected under Islamic banking. These include: minimum cash
reserve requirement, liquidity requirement, overall credit ceilings on lending activities of these
banks, mandatory targets for providing finance to specific sectors, and moral suasion. Of course,
equating the goals of monetary policy in Islamic banking to those of the free market economies
would not be fair since there is a significant difference in emphasis of the two systems to
economic values and socio-economic justice.
Monetary policy under Islamic banking assigns a somewhat passive role to money. Chapra
opines that the central bank should adjust the money stock to keep pace with the secular
growth of output. In his view the control of money supply can be accomplished by regulating the
high powered money at the source. He suggested two alternatives. The first is to impose a
100% reserve requirement on the commercial banks, thus permitting the central bank to create
credit, which will be channeled through commercial banks on a Mudaraba basis. The second
alternative is to allow banks to create deposits. Given the Islamic emphasis on re-distributive
justice, this may result in either nationalizing the commercial banks or forcing the banks to pass
on to the state the net income arising from ‘derivative’ deposits after allowing for the share of
the commercial banks. Under this alternative, he suggests a 15-20% statutory reserve
requirement on only demand deposits without extending it to cover deposits, which constitute a
part of equity in an Islamic economy. This alternative has its own conceptual problems of
dividing ‘net income’ among the shareholders, depositors, and the state. Also, since the deposits
will be invested in the long-run projects, which are likely to be more profitable, this scenario will
pose greater liquidity constraints (Ibid, p.197).
M. S. Khan (1986, pp.1-27) divides the sources of funds into demand deposits and investment
deposits and places a 100% reserve requirement for the first category of deposits. Such a
restriction would reduce the power of banks to create credit. As investment deposits are used
for risk-bearing activities, no reserve requirements are needed.
Al-Jarhi (1980, pp.85-118) proposed a model which he calls a “Productivity-Based Financial and
Monetary Structure” in which the central bank creates a fiat money through “sale and purchase
of central deposit certificates” instead of issuing interest-bearing government securities.
According to Jarhi the expansion in money must be justified by a possible contribution to real
balances. The growth of money must go with the real growth of the economy. There are no
fractional reserves in the model. The central bank issues certificate as liabilities and holds loan
accounts and deposits in member banks. The banks hold assets in the form of cash, equity
shares, PLS accounts, and leasing accounts; while their liabilities consist of non-interest bearing
demand deposits, investment deposits and certificates issued to their customers. Thus, in Jarhi’s
model, the indirect link between financial and goods market established by the financial
intermediaries is replaced by direct participation of banks in productive investment projects. The
growth and the past behaviour of inflation provide the central bank with necessary information
on the expansion or contraction of money supply.
The consequences of Jarhi’s model are as follows: (a) there is no discount rate as a policy tool in
such an economy. An economy-wide elimination of discount rate will entail profound structural
changes, focusing on social justice in the light of existing economic conditions. In the absence of
interest rate, and for the purpose of discounting future income streams for project evaluation,
some mechanism in an Islamic economy must serve as a discount factor. (b) Monetary policy
becomes closely intertwined with the development policy of the economy. Therefore, his
suggested policy questions the emphasis on the stabilization policy followed by conventional
central banks in post-war period. (c) The above emphasis tends to encourage lending of funds
on the basis of profitability of investment projects rather than solvency and credit worthiness of
the borrower in the debt finance case. This would require trained banking personnel and
expertise in project feasibility, evaluation and appraisal by the commercial banks, which may
lead to increase monitoring costs for Islamic banks.
There is a recurring emphasis in Islamic banking literature on 100 percent reserve requirements.
Though this permits the central bank a direct control of money stock, the emphasis is more
pointed in favour of Islamic equity and against the notion of ‘hidden subsidy’ involved in the
generation of ‘derivative’ deposits in the interest based banking system. Accordingly, credit
creation is confined to the central bank, which extends credit to commercial banks on a basis.
The fractional reserve system versus 100% reserves would have different policy implications.
Under the former system, banks would have the ability to draw profits on funds that they have
exerted no productive effort. Such earning is against the original spirit of Islamic banking. One
solution may lie in the nationalization of commercial banks, which has already occurred in most
of these countries. As regards the latter, we have a fair amount of theoretical insight from the
western literature but do not have any valuable empirical observations on the operations of
100% reserves even in countries that have adopted Islamic banking. These Islamic banks are
still operating under fractional reserve system. Hence, the operation of monetary policy under
100% reserves system needs further research.
In summary, according to the principle of Islamic banking private banks should not have the
power to create money, that money creation should be a power reserved for the government or
its central bank.
Financial Stability
Conventional banking system based on the fractional reserve system has built-in instability as
illustrated by western economists such as Hayek (1933), Mintz (1950), Fisher (1930) and
Freedman (1957). The instability arises, as argued by them, from the lack of synchronization
between the decisions of commercial banks and the central bank thereby resulting in
destabilizing forces. Modern banking based on interest issues fixed value liabilities to its
depositors. In the absence of deposit insurance the value of assets can fall below its fixed
liabilities, resulting in bankruptcies. In the worst scenario, the welfare of each depositor
depends on the action of other depositors (Kaufman 1986, pp.69-77). For example, if one of the
bank’s major borrowers defaults and a financial panic is triggered, each depositor will try to
withdraw funds as soon as possible. This negative externality generated by the depositors can
cause instability in the banking system. The provision of deposit insurance has reduced the
problem of financial panics, but it has at the same time led to inefficiency in the intermediation
process.
By that reasoning, lack of insurance coverage is considered to be a problem for Islamic banks. It
is presumed that depositors in Islamic bank, due to fair of capital and or profit losses in the
event of having no insurance coverage, would not remain with the Islamic banks. Muslim
economists argue that under Islamic banking, because there are no fixed liabilities, depositors
feel encouraged to remain in the bank when it suffers a decline in the value of its assets. Hence,
there is no externality created, it does not require the provision of deposit insurance. However, it
would need some provision of insurance against fraud and theft in Islamic banking.
The Ownership of Banks
The ownership issue of Islamic banks relates principally to distributional impact on the society.
Particularly, credit creation power of commercial banks with fractional reserve ratio has been the
point of debate, which has raised the question as to whether the ownership should be with
public or private hand. The issue is still seems to be unresolved. Commercial banks in Pakistan
are required to maintain fractional reserves and they are in private sector. On the other hand, all
commercial banks in Iran are nationalized. Further research is required in this regard to come
into conclusion.
Lack of Capital Market and Financial Instruments
Islamic banks working under conventional banking framework in different countries lack capital
market and instruments for investment of their surplus liquidity. Availability of Islamic capital
market and instruments help growth of these banks otherwise they are constrained. Growth of
Islamic capital market and financial instruments also helps creating environment for government
financing.
Insufficient Legal Protection
A comprehensive system of Islamic banking requires legal protection. That means a thorough
review of all relevant laws having a bearing on banking business is needed. Laws relating to
companies, commerce, investment and the courts and legal procedures need to be reviewed and
reformulated to suit the requirement of the efficient functioning of Islamic banks. It is not
acceptable that company law continues to talk about bonds and interest while ignoring
participation deeds and profits. Investment promotion laws should accommodate rules
regulations which permits Islamic banks to apply their profit/loss sharing modes so that they can
participate in partnership businesses either in the form of or Musharaka or direct investment.
7.5 ISSUES RELATED TO MICRO OPERATION
Increased Cost of Information
Muslim scholars generally agree that monitoring cost as well as cost of writing and enforcing
contracts would be higher in Islamic banking than in the interest based system. This is because,
with Musharaka, the bank finances the working capital of a business venture taking a quasi-
equity position in the economy. In financing, a management company is formed which floats a
negotiable security, or the bank may completely finance a project within the scope of its charter.
Moreover, since the economies of countries implementing Islamic banking are generally
characterized by market and informational imperfections, further persistence of these problems
will increase the cost of information. This higher cost of information could be major setback in
effective implementation of the PLS system.
Control over Cost of Funds
Interest based banks maximize their profit subject to cost of funds as it is in a position to know
in advance, with a reasonable degree of certainty, the amount of profit it may earn in the short
term. Through the use of hedging it can also determine the level of profits in the long run.
Under the PLS system, on the other hand, there is no such scope to know the cost of funds
beforehand. The depositors are paid a portion of bank’s profits the volume of which is extremely
uncertain. In this situation if profit rate expected by the depositors is not realized, the Islamic
banks could face greater uncertainty in their profit base.
Ideally, Islamic banks are expected to calculate their rate of return on PLS deposits periodically.
The usual practice is that the deposits are weighted to reflect differences in their maturity.
Banks prepare a six monthly summary account of its operations and send it to the central bank,
which determines the individual PLS rate to be paid by each bank. In spite of that individual
banks are allowed to marginally deviate from the proposed rate of return. In sum, it can be
argued that Islamic banks have no control over the cost funds.
Mark-up Financing
There is wide apprehension that little difference can be found between mark-up practiced by
Islamic banks and conventional banks. However, though not considered strictly interest-free by
many Muslim scholars, mark up was seen by the banks as a tool to facilitate the transition to
Islamic banking without disrupting the system. Because the ultimate objective of Islamic banking
is toward investment-oriented long-term financing, the transition from mark-up to equity finance
would also require a larger spread between rates of return to the banks and to their depositors.
It has been argued by a number of writers that real substitute of interest in an Islamic financial
system is the mode of profit/loss sharing along with Qard Hasana. While the other techniques
like Murabaha, Bai-Muajjal, Ijara and Ijara wa Iqtina can not be of equal significance in
achieving Islamic socio-economic objectives (Ahmad 1994). The reasoning employed is as
follows. Islam disallows the interest system because intrinsically it is a highly inequitable system.
The feature that makes the interest based system inequitable is that the provider of capital
funds is assured a fixed return while all the risk is borne by the user of these capital funds.
Justice demands that the provider of capital funds should share the risk with the entrepreneurs
if he wishes to earn profit. Financing techniques like Murabaha, Bai-Muajjal, Ijara and Ijara wa
Iqtina, which involve a pre-determined return on capital, can not be regarded as commendable
substitutes for interest, and should only be used when absolutely needed.
Excessive Resort to the Murabaha Mode
The repeated criticism against Islamic banks, which is valid in many counts, is that it takes
recourse to excessive use of Murabaha mode in financing investment. Yet it is not a violation of
Shariah as long as the Murabaha contract is correct from Shariah viewpoint and is free from
intentional or nominal deception.
The objection is from two groups of people. The first group considers Murabaha to be the same
as pre-determined rate of return i.e., rate of interest. But this is not true. Murabaha is different
from interest-based mark up as the former has to satisfy the following requirements. First, it is
necessary that profit margin (or the mark up) the bank is charging must be determined by
mutual agreement between the parties concerned. Secondly, the goods in question should be in
physical possession of the bank before it is sold to the client. Thirdly, transaction between the
bank and the seller should be separate from the transaction between bank and the purchaser.
There should be two distinct transactions. That is why Islamic banks effect a Murabaha
transaction in two stages using two separate contract forms. The first form is a request to the
bank through which the client informs the bank of his intention to carry out the transaction. In
this contract, the client promises to buy goods from the bank. It should also be noted that a
promise is not legally enforceable. Hence the client has a right to change his mind and the bank
runs the risk of losing the money it has invested in this particular transaction. The second
contract deals with the sale of goods by the bank to the client on deferred payment basis, the
terms and conditions of which are clearly spelled out in the contract form. Unfortunately, the
bank violates the condition that the goods should be in physical possession of the bank.
Utilisation of Interest Rate for Fixing the Profit Margin in Murabaha Sales
It is also criticized that Islamic banks utilize the interest rate as a criterion for fixing the profit
margin in the Mudaraba sales. To be fare there is no known way of avoiding the alleged link up
as long as Islamic banks coexist with traditional banks. Still Islamic banks must avoid exceeding
the prevailing interest rate or exploiting the clients through accounting methods as employed by
some banks (Homoud 1994, pp.74-75).
Financing Social Concerns
Islamic banks are accused of following the same course of line as pursued by conventional
banks as regards financing of social aspects. These banks are usually found to be interested in
extending credit facilities to well-established commercial establishments, which often obtain
credit facilities from both conventional as well as Islamic banks without real commitment or
attempt to free themselves from the prohibited means of finance. In this way, Islamic banks
have in general become a figure that is added to the number of traditional banks, which do
business in the country concerned. No clear prescription has so far emerged on the role of
Islamic banks in the promotion of new projects needed by the society as follows:
 Enabling those who have no property, providing employment

opportunities to all categories of people;
 Demonstrating the impact of Islamic investment on the solution of the

unemployment problem; and,
 Assisting the state in confronting these ever-increasing problems.

Moreover, Islamic banks did not pay much attention to the development of banking services in
some socially desirable directions, except in very rare cases. The entire realm of the
management of estates, trusts and orphanages, etc., has remained outside the area of interest
of Islamic banks, in spite of the fact that a number of western banks have, since the sixties,
begun establishing specialized departments foe Estates and Trusts.
Lack of Positive Response to the Requirement of Government Financing
It is a well-known fact that the modern state is always in need of funds and resources to
implement useful projects, such as the provision of schools, roads, electricity and water and
telecommunication services. Generally, governments resort to issuance of treasury bills with
interest in accordance with the form used by conventional banks. Islamic banks are required to
enter into this field so as to prove their ability to play their role in the financing of projects in a
manner that conforms to the Islamic system through the issuance of deeds of Musharaka,
advance-sale, Salam and such other forms that satisfy the need s of the state for financing and,
at the same time, benefit from investment of their idle liquid surpluses.
7.6 Failure of Islamic Banks to Establish Co-operation among

Themselves
In spite of good intentions, Islamic banks are blamed for their lack of open-mindedness to one
another, a state of affairs that obstructs the achievement of mutual co-operation among them.
This is in spite of the persistent endeavours of the Islamic Development Bank to bring them
closer to one another and unify their stands. Following examples are enough to prove the point:
 Not all-Islamic banks are members of the International Association of

Islamic Banks. The Association has neither been able to unify their regulations,
nor build bridges of confidence and promote understanding among them.
 The idea of establishing a “Bank of Islamic Banks” is still a mere idea,

although there is an urgent need for its establishment. As a result of its
absence, Islamic banks have lost hundreds of millions with the collapse of the
BCCI.
 Islamic funds continue to sneak out by hundreds of millions into investment

houses doing business in the West while the Muslim world remains thirsty for
investment resources.
 Funds of expatriates from Islamic countries do not find their way back to
their own countries to contribute to the development of their original
homelands.
 Trade among countries of the Muslim world is completely paralysed as the

Islamic financing system goes along with the traditional trend in financing
imports from foreign countries without giving any preference to products of the
Muslim world. Only the Islamic Development Bank has been paying due
attention and care to the need for preferential treatment for the products of
Muslim countries.
7.7 Problems faced by IBBL’s OPERATING UNDER CONVENTIONAL

BANKING SYSTEM
Problems faced by Islamic banks operating under conventional banking framework
have been identified in a recent study are as follows (Ibid).
Failure of Islamic banks to finance high-return projects
Islamic bank fails to appropriate high profit from high-return projects since the owners of these
projects prefer borrowing from conventional banks where cost of borrowing turns out to be
lower. That means, only the projects with rates of return equal to or below the market rate of
interest are left with the Islamic banks. At this situation, Islamic banks are not able to invest on
the projects having rates of return below the prevailing rate of interest thereby limiting their
capacity to utilize investment opportunity to the level of their conventional counterpart. This
leads to limiting the application of profit-loss-sharing modes such as Mudaraba and Musharaka.
In other words, Islamic banks, at that situation, switch over to other modes of financing such as
Murabaha, hire purchase, leasing, etc.
Sacrifice of allocative efficiency
Allocative efficiency of Islamic bank, if it is truly a profit-loss-sharing bank, is built-in to its

financing mechanism. But failing to finance high return projects in a situation when
entrepreneurs switch over from Islamic banks to conventional banks to avoid high cost
borrowing allocative efficiency of an Islamic bank is not likely to be in the desired level.
Profitability of projects being the ideal device of efficient resource allocation, at this situation,
does not apply to Islamic banking system as it, considering the rational behaviour of the
borrower, takes recourse to modes other than profit-loss-sharing. This situation continues as
long as Islamic banks operate side by side with the conventional banks. Experts are very much
worried about this situation of Islamic banking. Up till now no effective policy prescription is
available to the Islamic banks to ameliorate the situation.
Loss of distributive efficiency
It has also been found that distributive efficiency of Islamic banking is lost when an Islamic bank
starts operation under conventional banking framework. Any shift from profit-loss-sharing modes
leads the system break the direct relationship between the incomes of the entrepreneurs, the
bank and the depositors. The inefficiency of conventional banking about distribution is neither
influenced nor modified by the introduction of Islamic banking in the economy.
7.8 CONSTRAINTS FACED BY IBBL IN BANGLADESH
Constraints faced by Islamic banks in Bangladesh are analysed as below.
Problem with legal reserve requirement

Islamic banks in Bangladesh have to keep 10% of its total deposits as liquidity. Of this, 5% is
required to be kept in cash with Bangladesh Bank and the rest 5% is to be kept either in
approved securities or in cash (in case of problem with securities) with Bangladesh Bank. Legal
reserve requirement for conventional banks is 20%. They have to keep 5% in cash with
Bangladesh Bank and the rest 15% is invested in Bangladesh Bank approved securities.
Traditional banks can earn interest on their deposits with Bangladesh Bank but Islamic banks
can not since they cannot receive interest as earning. Compared to interest-based traditional
banking, Islamic banks, in this case, are in disadvantageous position. However, Islami Bank
Bangladesh Limited has been receiving interest against its deposit with Bangladesh Bank and
crediting it to its Sadaqa fund since 1993. It should be noted that the interest earning are not
considered as bank income and added to profit. The proceeds are spent on welfare activities.
Lack of opportunities for profitable use of surplus funds

Conventional banks can invest their excess liquid amount in approved securities and or
in other bank in crisis. Islamic banks cannot take this opportunity due to the existence of interest
element in the transaction process.
Apprehension of liquidity crisis and possibility of liquidity surplus

Islamic banks have to be more cautious and vigilant in managing their funds since it can not
resort to call money provision at times of fund shortages or crisis. As a result Islamic banks may
have always left with a sizeable amount of cash as liquidity surplus. Conventional banks can
borrow in the form of call money among themselves even at an exorbitant rate of interest.
Problems in capital market investment
Conventional banks can invest 30% of their total deposits in shares and securities. Islamic banks
have their problem in this case as they avoid any transaction based on interest. Following
examples may be cited for illustration. (a) Islamic banks do not purchase shares of companies
undertaking interest-based business; (b) Shares of companies taking loan from commercial
banks on interest are not also purchased by Islamic banks; and, (c) Islamic banks can not
purchase shares of companies involved in businesses not approved by Shariah.
The above restrictive environment in the capital market of Bangladesh has limited substantially
the investment opportunities for Islamic banks and hence the avenues of lawful earning. In the
absence of Islamic money and capital market these banks cannot obtain funds from capital
market at times of need.
Absence of inter-bank money market

In spite of five Islamic banks have been functioning in Bangladesh, inter-bank money market
within Islamic banks has not yet taken place. Of course, except Islami Bank Bangladesh Limited
and Al-Baraka Bank Bangladesh Ltd., rest of the Islamic banks have launched their operations
very recently not exceeding even two years with hardly more than two branches. Still these
banks can take initiative to form a money market among themselves. This may help minimising
particularly the call money problem they are suffering from beginnings.
Predominance of Murabaha financing
Predominance of Murabaha financing in the portfolio management of investment funds by the
present day Islamic banks of Bangladesh has been a hot agenda of debate. One study shows
that Islami Bank Bangladesh Limited, Al Arafah Bank and Social Investment Bank Limited have
used 54%, 76% and 65% respectively of their investment funds by resorting to Murabaha mode
(Hoque 1996, p.9). Murabaha though considered as a Shariah approved mode, the Islamic
economists have traditionally prescribed for its limited application. Due to legacy of traditional
banking, lack of appropriate legal protection and standard accounting practice in business,
Islamic banks in Bangladesh find Murabaha financing as suitable and Mudaraba and Musharaka
as extremely difficult to apply.
Depression of Profit
Traditional banks can meet up loss arising from delay in repayment by the clients through
charging compound interest. Islamic banks cannot do that. What it does it realises
comprehension at the rate of profit. But the compensation so realised is not added to the profit
income rather credited to Sadaqa account i.e., amount meant for social welfare activities. This
depresses profits of Islamic banks. This may place Islamic banks relatively in weaker position in
terms of profitability compared to conventional banks.
Moreover, Islamic banks are to make a compulsory levy equivalent to 2.5% of its profit earned
each year and credited to Sadaqa account, which also depresses banks’ profitability. This is
unlikely the case with conventional banks.
Absence of legal framework
Amendment of old laws and promulgation of new laws conducive to efficient operation of Islamic
banks are sin qua non for its healthy growth. Countries introducing Islamic banking should
create an enabling environment for Islamic banks by modifying existing laws and regulations.
Islamic banks in Iran and Pakistan have their legal supports. Pakistan has provided legal support
to float Participation Term Certificate and conduct Mudaraba transaction by replacing “The legal
Framework of Pakistan’s Financial and Co-operative System” on June 26, 1980. The Banking
Tribunal Ordinance and The Banking and Financial Services (Amendment of Laws) Ordinance
were passed in 1985 by amending seven Acts such as the Partnership Act, The Banking
Companies Ordinance, the Wealth Tax Act, the Federal Bank Co-operation Act, the Income Tax
Ordinance, The Registration Act and Capital Issues, 1974.
Absence of Islamic insurance company
Banking and insurance have to go hand-by-hand in matters of trade and business in order to
protect investments of banks against unforeseen hazards and catastrophes. Unfortunately,
Islamic banks have to depend on interest-based insurance companies in the absence of Islamic
insurance companies.
Conclusion
Islamic banks can satisfy most of the efficiency conditions if they can operate as a sole
system in an economy. Conventional banking, on the other hand, does not satisfy any
of the efficiency conditions analysed in the present study. However, when Islamic banks
start operation within the conventional banking framework, their efficiency goes on
decreasing in a number of dimensions. The deterioration is not because of Islamic
bank's own mechanical deficiencies; rather it is the efficiency-blunt operation of the
conventional banking system that puts a negative impact on the efficient operation of
Islamic banks. This does not mean that the survival of Islamic banks operating within
the conventional banking framework is altogether threatened. Evidence from
Bangladesh indicates that Islamic banks can survive within the conventional banking
framework by switching over from PLS to trade related modes of financing.
Even under the conventional banking framework Islamic banks can operate with certain
level of efficiency by applying in a reasonable percentage the PLS-modes - the
distinguishing features of Islamic banking. This has been possible in some countries of
the Muslim world where the management of Islamic banks was cautious about possible
impacts of every policy measure. Particularly, the management of these banks was
judicious in selecting sectors or areas as major of their operations. Sudan Islamic Bank
is a typical example in this respect. Islamic banks in Bangladesh have much to learn
from experience of this successful bank.
Having been considered the pro-efficiency character of Islamic banking and its
beneficial impacts on the economy, government policy in Muslim countries should be in
favour of transforming conventional banking system into Islamic banking .
Recommendation
After observing the operation procedure of IBBL I recommend that By following the
bellow steps Islami Bank Bangladesh limited can minimize problem in branch
management:
1. Increasing the insurance limit of volt, counter and transit twice the
existing limit.
2. Increasing the investment limit of branch to Tk. 80 lac only.
3. Qualified business graduate should be recruited , like BBAs and MBAs.
4. Proper human resource planning should be taken at branches to meet
seasonal and needed moment and also to train the staff in all section.
5. Arranging proper training for the staff and senior management new
rules, procedure and technology.
6. Modern banking technology and equipment should be used to ease the
work of bank and error free quick customer services.
7. Chain in queue should be introduced.
8. Corporate & large amount customer counter should be introduced.
9. Section identification mark should be introduced.
10. Setting cash & computer section in line with the customer service area.
11. On-line banking should be introduced for better customer services and to
eliminate risk of sending document via post and risk of loss. It also
increases quick fund transfer and better satisfaction from customer.
12. High power server should be use for large data preservation.
13. All computers should be connected with LAN.
14. Proper Banking software should be used to its optimal to get best
benefit from it.
15. To regain the faith of former depositors and people, IBBL should
convince them in the- best manner, so that market share can be captured.
A separate marketing division should be set up for this matter.
16. Lending portfolio of IBBL should be diversified. Not to concentrate or
give weight only in working capital financing.
Bibliography
 Annual reports, Islami Bank Bangladesh Limited 2003
 Daily Data Collection from Banks
 Islami Bank 5 years of progress Islami bank Bangladesh limited Based on Islami
Shariah,.
 Islami Bank 18 years of progress

 Islamic Economics research bureau, Thoughts on Islamic Banking, Dhaka, Feb
1992.
 Nassief Nabil, Faysal MD. Islamic Bank of Bahrain, “Islamic Banking around
the world” (Mimeo)
 Various types of publications of IBBL.

 Notes & guidelines of workshops.
 Chapra M. Umar Review of Islamic Economics
 Accounting, Auditing and Governance Standards for Islamic Financial
Institutions (H 1243 / 2001-2)
 Islamic Banks Central Shariah Board Journal : 1st Edition, March 2004.
 Khan. A.R. “Towards identification of the problems of Shariah Based
Commercial Banking” Dhaka University Journal of Business Studies , Vol 12 (2),
1991
 Hossain Mr. Kabir “The Banking Sector Crisis and Govenrment in Bangladesh”,
Thoughts on Economics, Vol. 7 No. 3 & 4 January-June 1998
 Alam Muhammad Badiul And Misir Mohammad Abu, “analysis of comparative

Financial Performance in Banking Sector of Bangladesh”, Thoughts on
Economics, Vol. 7, No 3 & 4 January-June 1994
 C : / Habib / Objecitveleco.doc
 C: / My Documents Hasan Mosnal / FOREIGN EXCHANGE MECHANISM
Export.doc
 C: / Jebal / G.B.P. Folio.doc

 C: / WINDOWS / Desktop / Abul Hossain / Different mods.doc
 C: / Mazid / FOREIGN EXCHANGE OPERATION O IBBL.doc
References
1. Ahmad, Ziauddin (1994). “Islamic Banking: State of the Art”. In Islamic Economic
Studies, Vol. 2 No. 1. Islamic Research and Training Institute, Islamic Development
Bank.
2. Akkas, S. M. Ali (1996). “Relative Efficiency of Conventional and Islamic Banking System
in Financing Investment”. Ph..D. Thesis. Mimeo.
3. Homoud, Sami Hasan (1994). “Progress of Islamic Banking: The Aspirations and the
Realities.” In Islamic Economic Studies. Vol. 2 No. 1. Islamic Research and Training
Institute, Islamic Development Bank.
4. Ahmad, Ziauddin (1994). “Islamic Banking: State of the Art”. In Islamic Economic
Studies, Vol. 2 No. 1. Islamic Research and Training Institute, Islamic Development
Bank.
5. Akkas, S. M. Ali (1996). “Relative Efficiency of Conventional and Islamic Banking System
in Financing Investment”. Ph..D. Thesis. Mimeo.
6. Homoud, Sami Hasan (1994). “Progress of Islamic Banking: The Aspirations and the
Realities.” In Islamic Economic Studies. Vol. 2 No. 1. Islamic Research and Training
Institute, Islamic Development Bank.
7. Hoque, M. Azizul (1996). “Islamic Banking in Bangladesh with a brief overview of

operational problems,” paper presented in the seminar held at BIBM on June 24.
(unpublished).
8. Jarhi, A. (1980) “The Relative Efficiency of Interest-Free Monetary Economies: The Fiat
Money Case.” in Studies in Islamic Economics , edited by K. Ahmed (Islamic Foundation,
Leicester).
9. Kaufman, G.G. (1986). “Federal Bank Regulatory Policy: Comment on Kareken.” Journal
of Business, 59.
10. Khan, M. Akram (1989). “A Survey of Critical Literature on Interest-free Banking”.

Journal of Islamic Banking and Finance (6:1). Karachi.
11. Khan, M. Akram. (1994). An Introduction to Islamic Economics. International Institute

of Islamic Thought and Institute of Policy Studies.
12. Khan, M. S. (1986). “Islamic Interest-Free Banking.” Staff Papers, 33 (International

Monetary Fund, March.
13. Mangla, I. U. and Uppal, J. Y. (1990). Islamic Banking: A Survey and Some Operational
Issues. The International Institute of Islamic Thought.

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Internship Report on IBBL 2004

PROBLEM FACED BY BRANCH

ISLAMI BANK BANGLADESH LIMITED

PROBLEM FACED BY BRANCH

ISLAMI BANK BANGLADESH LIMITED

Prof. Dr. Mohammed Ather FCMA

I honour my Supervisor Sir Sirajul Islam for his hole-

1.1 Origin of report

1.2 Background of the report

1.3 Objective of the report

 To gain or achieve the practical Idea of banking System of IBBL.

1.4 Scope of study

Some interviewing officers, staffs and concerned authority of general banking,

1.6 Importance of the study

 To achieve practical knowledge of banking side of IBBL.

 To observe interrelated activities of general banking of IBBL.

 To collect data and information, It is a common tendency of any departments to

 Unavailability to required published documents.

 Lack of my experience and efficiency to prepare the standard report.

Biography of Islami Bank Bangladesh Ltd.

2.1 Historical Background of IBBL

Their professional activities were reinforced by a number of Muslim entrepreneurs

2.3 Mission and objective

 To establish participatory banking instead of banking on debtor creditor

 To invest through different modes permitted under Islamic Shariah.

 To accept deposits on profit-loss sharing basis.

 To establish a welfare-oriented banking system.

 To pay a vital role in human development and employment generation.

 To contribute towards balanced growth and development of the country through

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

2.4 Role and contribution of IBBL

 Investment in industrial sector occupies nearly 33% of IBBL's investment

activities on a wider scale. As one of the leading non-government voluntary

Income Generating Programmes

Humanitarian Help Programmes

Relief and Rehabilitation Programmes

The Academy edited books on "Readings in Islamic Banking" and "Investment

Besides, orientation, induction, foundation and motivation courses on different subjects

he Bank is also providing financial assistance for publication of a textbook on 'Islamic

Library and Reading Room of IBTRA

2.7 Publicity and public relations

2.8 Management and Internal Organization

Management Approach and leadership style

Technology at Islam Bank Bangladesh (ltd.)

With rapid change in communication banking worldwide has experienced a tremendous

> To establish contingency plants for local staff protection

> To develop programs to cross train personnel for added flexibility

Ideology, Values, Beliefs, Philosophy, etc.

> Responsive to their needs

> Flexible in approach

> Professional in manner

> Always striving excellence.

Managing public affairs

2.8.1 SHARIAH COUNCIL: SHARIAH

2.9 Opportunity & threats of IBBL

Despite tremendous popular support spectacular success in terms of mobilization of

Inspire of the present limitations, Islamic-banking system has tremendous potentiality

Secretary  Date of Incorporation 13th March, 1983

Dhaka-1000, Bangladesh, GPO Box No. : 233

3.2 Present Status 2003

1. Branches - 141 Branches 2.26%

3.3 Present Status 2004

3.4 High lights of this Bank