Chapter: 1

Introduction

1
1.1 Introduction
This internship program was on our job exposure and provided us with learning experience
and knowledge in several areas. During the first few weeks of my internship period, I was
able to get accustomed to the working environment of Islami Bank Bangladesh Limited. As
the internship continued, I was not only learned about the activities and operations of
correspondent Bank, but also gathered some knowledge about the basic business of banking.

Islami Bank Bangladesh Limited pursues decentralized management policies and gives
adequate work freedom to the employees. This result in less pressure for the workers and acts
as a motivational tool for them, also gives them encouragement and inspiration to move the
ladder of success. Overall, a very friendly and supporting environment are experienced at
Islami Bank Bangladesh Limited, which give the pleasure and satisfaction to be a part of
them for a while.

While working in different departments of this branch it is found each and every employee is
friendly to cooperate. They have discussed in details about their respective tasks. So the
Banking operations of three departments of IBBL are learnt: (1) General Banking (2)
Investment (3) Foreign Exchange etc. While making this report, it is tried to discuss all the
activities of the bank is now performing and the activities focused on their nature.

1.2 Rational of the Study

A bank is a financial institution and a financial intermediary that accepts deposits and
channels those deposits into lending activities, either directly or through capital markets. A
bank connects depositors that have capital deficits to depositors with capital surpluses. Banks
act as payment agents by conducting checking or current accounts for depositors, paying
checks drawn by depositors on the bank, and collecting checks deposited to depositors'
current accounts. Banks also enable depositor payments via other payment methods such as
Automated Clearing House (ACH), Wire transfers or telegraphic transfer, EFTPOS, and
automated teller machine (ATM).

2
Bank is the heart of the economics and banking is the blood circulation of country’s
economic growth. Banks perform a significant role to serve the needs of the society in
different sectors, such as: capital formation, large scale of production, industrialization,
growth of trade and commerce etc. and banks are contributing a lot of aspect.

Islami Bank Bangladesh Limited has already emerged as one of the world wide recognized
banks due to its foreign exchange and foreign trade trend according to the principles of
Islamic shariah. Islami banking is a new diminution of interest free banking where ‘Riba’ or
interest is strictly prohibited. So I have tried to represent their performance and problems and
prospects on the ground of foreign exchange.

1.3 Objectives of the study

The main objective of the study is to review the foreign exchange operations of Islami Bank
Bangladesh Ltd. However, the study aims to achieve the following objectives:

1. To get an insight into foreign exchange operations of IBBL

2. To measure the performance of foreign exchange operations during the period of
2010 to 2014.
3. To identify the problems of foreign exchange operations of IBBL.
4. To provide some recommendations to overcome the problem of foreign exchange.

1.4 Scope of the study

Though a lot of commercial banks are operated in Bangladesh, the present is limited to Islami
Bank Bangladesh Ltd. only. The foreign exchange operations of the bank will be evaluated
and the data will be covered from 2010 to 2014. So the study may not be representative to
any other banks in Bangladesh.

3
1.5 Methodology and Sources of data collection:
The study is mainly based on secondary data; however, the data are collected from
the following sources:

 Annual report of IBBL

 Printed forms and documentation supplied by IBBL
 Booklets of international division of IBBL.
 Central accounts department.
 Relevant books, journals, booklets etc.




1.6 Limitations of the study

From the beginning to end, the study has been conducted with the intention of making it’s a
complete and truthful one. However, many problems appeared in the way of conducting the
study. During the study it was not possible to visit the whole area covered by the banks
although the financial statements and other information regarding the study have been
considered. The study considers following limitations:

 Preparing internship report is really troublesome.

 Lack of experience to prepare such kind of report.
 This type of report preparation is expensive.
 Collection of data was not smooth.
 In some cases, actual data cannot be gathered for non-availability of sources.
 Analyzing with financial data is much more confusing and complicated
 than any other data.

4
 Chapter: 2
An Overview of
Islami Bank Bangladesh
Limited (IBBL)

5
2.1 Definition of Islamic Bank
According to Organization of Islamic Conference (OIC), “Islamic bank is a financial
institution whose statutes, rules and procedures expressly state its commitment to the
principles of Islamic Shariah and to the banning of the receipt and payment of interest on any
of its operations.”

According to Dr. Ziauddin Ahmed “Islamic Bank is essentially a normative concept and
could be defined as conduct of banking in consonance with the ethos of the value system of
Islam.

Bangladesh Bank License for IBBL operation:

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

According to Islamic Banking Act 1983 of Malaysia:

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

2.2 An Overview of Islami Bank Bangladesh Limited (IBBL)

Bangladesh is one of the largest Muslim countries in the world. The people of this country
are deeply committed to Islamic way of life as enshrined in the Holy Qur’an and the Sunnah.
Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in
accordance with the precepts of Islam. The establishment of Islami Bank Bangladesh Limited
on March 13, 1983, is the true reflection of this inner urge of its people, which started
6
functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast
Asia. It is committed to conduct all banking and investment activities on the basis of interest-
free profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a
new silver lining of hope towards materializing a long cherished dream of the people of
Bangladesh for doing their banking transactions in line with what is prescribed by Islam.
With the active co-operation and participation of Islamic Development Bank (IDB) and some
other Islamic banks, financial institutions, government bodies and eminent personalities of
the Middle East and the Gulf countries, Islami Bank Bangladesh Limited has by now earned
the unique position of a leading private commercial bank in Bangladesh.

2.3 Necessity of Islami bank:

The objective of Islamic banking is not only to earn profit, but also to do good and welfare to
the people. Islam upholds the concept that money, income and property belong to Allah and
this wealth is to be used for the good of the society. Islamic banks operate on Islamic
principles of profit and loss sharing, strictly avoiding interest, which is the root of all
exploitation and is responsible for large scale inflation and unemployment.

Islamic banks are committed to so away with disparity and establish justice in the economy,
trade, commerce and industry- build socio-economy infrastructure and create employment
opportunities.

2.4 Mission of the Bank:

We know mission means what the IBBL wants to be. The goal of IBBL is to always strive to
achieve superior financial performance, be considered a leading Islamic bank by reputation
and performance. The goal of IBBL is to establish and maintain the modern banking
techniques, to ensure soundness and development of the financial system based on Islamic
principles and to become the strong and efficient organization with highly motivated
professionals, working for the benefit of people, based upon accountability, transparency and
integrity in order to ensure stability of financial systems. So the other goals of Islami Bank
Bangladesh are given below:

7
  To maximize employment as well as to ensure maximum distribution of wealth in
society.

 To achieve universal education and to encourage co-operation in society.

 To establish Ihsan (gracious conduct or kindness) in economic affairs.

 Establishment of Maroof (proper and good acts, institutions) in economic life.

 Elimination of Munker (Evil, wrong of injurious practices) from economic life.

 To achieve maximum economic growth in the rural areas.

 To achieve balanced growth and equitable development through diversified

investment operations.

 To introduce welfare oriented banking system.


2.5 Vision of the Bank:
The vision of IBBL is to always strive to achieve superior financial performance, be
considered a leading Islamic Bank by reputation and performance. To establish and maintain
the modern banking techniques, to ensure the soundness and development of the financial
system based on Islamic principles and to become the strong and efficient organization with
highly motivated professionals, working for the benefit of people, based upon accountability,
transparency and integrity in order to ensure stability of financial system.

2.6 Objective of the bank:

 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 low-income group for their
economic development.
8
  To play 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 development areas.
 To contribute in achieving the ultimate goal of Islamic economic system.

2.7 An Overview before the Establishment of IBBL

In 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself
to reorganize its economic and financial system as per Islamic Shariah (legal framework of
Islamic Ideology). In 1978, Bangladesh recommended in Islamic Foreign Minister
Conference in Senegal towards systematic efforts to Islamic Banking. In 1980, Foreign
Minister Conference in Pakistan where Bangladesh Foreign Minister Prof. Shamsul Hoq,
proposed for taking steps for Islamic Banking. Further, Bangladesh Bank sent representation
abroad to study Islamic Banking System. Also, International Seminar held in Dhaka
inaugurated by Bangladesh Bank Governor for early introduction of Islamic Banking.

In 1981, President of the People’s Republic of Bangladesh addressed the 3rd Islamic Summit
Conference held at Makkah and Taif suggested, ''The Islamic countries should develop a
separate banking system of their own in order to facilitate their trade and commerce.''
In 1982, IDB visited Bangladesh for study. They found contributions done by Islamic
Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BIBA);
they mobilized the seminars, public opinion through symposia & workshop.

Professional activities reinforced by Muslim Business Society (now reorganized as

Industrialists and Businessman Association). The body mobilized mainly equity capital for
emerging Islamic Bank. Finally, in 1983 Islami Bank Bangladesh Limited (IBBL) came out
to take the challenge of doing banking business. Islami Bank Bangladesh Limited (IBBL) is
considered to be the first interest free bank in Southeast Asia. It was incorporated on 13-03-
1983 as a Public Company with limited liability under the companies Act 1913. The bank
began operations on March 30, 1983, with major share by the foreign entrepreneurs.
It is listed with Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. Authorized
Capital of the Bank is Tk. 20,000.00 Million and Paid-up Capital is Tk. 16,099.90 Million
having 33,686 shareholders as on 31st December 2015

9
Islami Bank Bangladesh Limited at a glance: (As on 31st Dec, 2015)
Date of incorporation 13/03/1983
Date of receiving banding license 28/03/1983
Date of incorporation of first branch 30/03/1983
(Local Office Dhaka)

Formal inauguration 12/08/83

Zone 15
Authorized capital Tk.20,000.00 Million
Paid-up capital Tk.16,099.90 Million
Equity Tk.48,569.86 Million
Reserve Fund Tk.27,879.72 Million
Branches 304
Number of ATM Booth 410
Number of Shareholders 33,686
Deposit Tk. 615,359.21 Million
Total equity Tk.33.716 Billion
Employees 11,381
Investment Tk.629,631.27 Million
Foreign Exchange Business
Import Tk.343,668 Million
Export Tk.223,236 Million
Remittance Tk.321,066 Million
Legal Status Public Limited Company
Tax Advisor M/S. K.M. Hasan & Co
Bangladesh Bank License No. BL/DA/4290/83
Key People
Name of Chairman Engr. Mustafa Anwar
Name of Managing Director Mohammad Abdul Mannan
Company Secretary Abu Reza Md. Yeahia
Name of CFO Mohammed Shahid Ullah, ACA, CDCS
Website https://www.islamibankbd.com
Registered Office 40, Dilkusha C/A, Dhaka-1000

10
 Phone (88-02) 9563040, 9567161, 9567162
email info@islamibankbd.com
SWIFT IBBL BD DH
*Source: Annual Report-2015, IBBL

2.8 Special Features of Islamic Bank Bangladesh Limited

Prohibition of interest

The traditional capitalist banking system depends on interest. It receives interest for
providing loans and pays interest for taking loans. The spread between these two interests is
the source of its profit. But according to Islamic Shariah all types of interest is banned. So,
Islamic bank does not carry on business of interest and it completely avoids the transaction of
interest.

Investment Based on Profit

After departing from interest, the alternate ways of income for Islamic bank is investment and
profit. Thus IBBL gives up any transaction of interest and makes investments based on profit.
Bank distributes its profit to its depositors and shareholders.

Investment in Halal Business

Islamic Shariah has banned the business of haram goods. For example, Islam not only forbids
the drinking of alcohol but also banned any business of alcohol. Therefore, Islamic bank does
not get any haram business and only do halal business.

Halal Paths and Procedures

Islamic Shariah also rejects any haram path or process in case of a halal business. Therefore,
Islamic bank system only allows the halal path procedures of halal business.

11
Strategic Objectives

To ensure depositors' satisfaction.

To ensure welfare oriented banking.
To establish a set of managerial succession and adopting technological changes to
ensure successful development of an Islamic Bank as a stable financial institution.
To emerge as a healthier & stronger bank at the top of the banking sector and
continue stable positions in ratings, based on the volume of quality assets.
To ensure diversification by Sector, Size, Economic purpose & geographical location
wise Investment and expansion need based Retail and SME/Women entrepreneur
financing.
To invest in the thrust and priority sectors of the economy.
To strive hard to become an employer of choice and nurturing & developing talent in
a performance-driven culture.
To be excellent in serving the cause of least developed community and area. To
ensure development of devoted and satisfied human resources.
To encourage sound and pro-active future generation. To
achieve global standard.
To ensure Corporate Social Responsibilities (CSR) through all activities.
To promote using solar energy and green banking culture and ecological balancing.

Core Values of IBBL

The core values of Islami bank Bangladesh Limited are given below

 Trust in Almighty Allah

 Strict observance of Islamic Shari’ah
 Highest standard of Honesty, Integrity & Morale
 Welfare Banking
 Personalized Service
 Adoption of Changed Technology
 Proper Delegation, Transparency & Accountability

12
Commitments of IBBL

The commitments of Islami Bank Bangladesh (IBBL) are given below:

 To Shariah
 To the Regulators
 To the Shareholders
 To the Community
 To the Depositors
 To the Employees
 To other stakeholders
 To Environment

2.9 Products of IBBL & Services

Islami Bank Bangladesh Limited (IBBl) is committed to conduct all banking activities in line
with the shariah principles prescribed in Islam. The Bank has materialized the long cherished
dream of the people of Bangladesh doing their banking under Islamic shariah. IBBL accepts
deposits under three major modes through different types of accounts as per Shariah
principles. The three modes & different accounts are given below:

Modes:
Demand deposit is mobilized under Al-Wadiah principles.
Saving deposit is mobilized under Mudaraba principles.
Term & other deposits are also mobilized under the Mudaraba
principles.

Account Products:
Al-Wadiah Current Account

Mudaraba Savings Account

Mudaraba Special Notice Account

Mudaraba Term Deposit

13
 Mudaraba Hajj Savings Account

Mudaraba Special Savings (Pension) Account

Mudaraba Savings Bond

Mudaraba NRB Savings Bond

Mudaraba Foreign Currency Deposit (savings) Accounts

Mudaraba Monthly Profit Deposit Account

Mudaraba Muhor Savings Account

Mudaraba Waqf Cash deposit Account

Student’s Mudaraba Savings Account

Mudaraba Farmers Savings Account

Services:
Online Banking

M-cash (Mobile Banking)

Account Information through Short Message Service (SMS)

ATM facilities

Others

2.10 Shariah Council (SC)

Shariah Council of the bank is playing a vital role in guiding and supervising the implantation
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 economists. 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.

14
Objectives of Shariah Council:

The functions of the council are to offer views and opinions on matters related to
the bank from time to time. The council may require any paper document from the
bank and examine the same to see whether it is according to see whether it is
according to Islamic principles. The shariah council assists the Board of Directors
by advising them on matters related to shariah.

The opining of the majority of members is taken as the opinion of the council
provided that the said opinion is supported by at least three Muftis of the council.

The council maintains its secretariat and a well-equipped library as the Head
Office of the bank where it keeps proper records of all of its proceeding and
decisions.

The council elects a chairman and a secretary from amongst them. The chairman
will normally preside over the meetings. In his absence the members present elect
one of them to preside over the meetings.

The council may whenever it thinks necessary, constitutes a subcommittee to help

the council.
The council issues Shariah Certificate in the Annual Report of the bank.

2.11 Profit and Riba:

Profit:
Profit no loss comes from investment in business activities. Profit is the result of ownership
transaction and risk following the four stages:
Transformation through Bai/Buying Selling of goods.
Risk of Transformation and Ownership.
Other condition of Shariah.
Result-Profit on loss

Profit is the difference between the value of production and the cost production which is
Halal according to Islami Shariah

15
Riba/Interest:
Interest come from loan, credit, advance of money. The word used by the Quran concerning
“Interest” is Raba. The literal meanings of Riba are money increase, increase of anything to
increment of anything from its original amount. From the Islamic Shariah
point of view, Riba is strictly prohibited (Haram).

Comparison between Riba and Profit:

Riba Profit
1. One goods-fungible 1. Two goods
2. Loan-Ownership retained 2. Ownership Exchanged
3. Excess-without exchange value 3. Equity of Value
4. No transformation 4. Transformation
5. No Risk of Transformation an
5. Risk home
ownership
6. No relation with result imposed 6. Is the result
7. Certain 7. Uncertain

2.12 Conventional banking Vs. Islamic banking

Conventional banking is essentially based on the debtor creditor relationship between the
depositors and the bank on the hand and between the borrowers and the bank on the other.
Interest in considered to be the price of credit, reflecting the opportunity cost of money.

Islam on the other hand, considers a loan to be given or taken, free of charge, to meet any
contingency. Thus in Islamic banking, the creditor should not take advantage of the borrower.

For the interest of the readers, the distinguishing feature of the conventional banking and
Islamic banking are shown in terms of a box diagram as shown below:
Conventional Banks Islamic Banks

1. The functions and operating modes of 1. The functions and operating modes of
conventional banks are based on manmade Islamic banks are based on the principles of

16
principles.
2. The investor is assured of a
predetermined rate of interest.
3. It aims at maximizing profit without any
restrictions.
4. It does not deal with zakat.
5. Lending money and getting it back with
interest is the fundamental function of the
conventional banks.
6. Its scope of activities is narrower when
compared with an Islamic bank.
7. It can charge additional money
(compound rate of interest) in case of
defaulters.
8. In it very often banks own interest
becomes prominent. It makes on effort to
ensure growth with equity.
9. For interest based commercial banks,
borrowing from the money market is
relatively easier.
10. Since income from the advance is fixed,
it gives little importance to developing
17
Islamic Shariah.
2. In contrast, it promotes risk sharing
between provider of the capital (investor)
and the user of the funds (entrepreneur).
3. It also aims at maximizing profit but
subject to shariah restrictions.
4. In the modern Islamic Banking system, it
has become one of the service oriented
functions of the Islamic banks to collect and
distribute zakat.
5. Participation in partnership business is the
fundamental of the Islamic banks.
6. Its scope of activities is wider when
compared with a conventional bank. It is in
effect a multipurpose institution.
7. The Islamic banks have no provision to
charge any extra money from the defaulters.
8. It gives due importance to the public
interest. Its ultimate aim is to ensure growth
with equity.
9. For the Islamic banks it is comparatively
difficult to borrow money from the money
market.
10 Since it shares profit and loss, the Islamic
banks pay greater attention to developing
 expertise in project appraisal and project appraisal and evaluations.
evaluations.

11. The conventional banks give greater 11. The Islamic banks, on the other hand give

emphasis on credit worthiness of the greater emphasis on the viability of the

projects.
depositors.

18
2.13 Corporate Structure:

19
 Chapter: 3
An Overview
Of
Foreign Exchange Operations of IBBL

20
3.1 Foreign Exchange
Foreign trade can be easily defined as a business activity, which transcends national
boundaries. These may be between parties or Government ones. Trades among nations are a
common occurrence and normally benefit both the exporter and importer. In many countries,
international trade accounts for more than 20% of their national incomes. Foreign trade can
usually be justified on the principle of comparative advantage. Accounting to this economic
principle, it is economical profitable for a company to specialize in the production of that
commodity in which the producer country has the greater comparative advantage and to
allow the other country to produce that commodity in which it has the lesser comparative
advantage. It includes the spectrum of goods, services, investment, technology transfer etc.

This trade among various countries causes for close linkage between the parties dealing in
trade. The bank, which provides such transactions, is referred to as rendering international
banking operations. International trade demands a flow of goods from seller to buyer and of
payment from buyer to seller. And this flow of goods and payment are done through letter of
credit (L/C).

Foreign Exchange Department:

Foreign Exchange Department is international department of Bank. It deals globally. It

facilitates international trade through its various modes of services. It bridges between
importers and exporters. If the branch is authorized dealer in foreign exchange market, it can
remit foreign exchange from local country to foreign country. This department mainly deals
in foreign currency. This is why this department is called foreign exchange department.

Some national and international laws regulate functions of this department. Among these,
Foreign Exchange Act, 1947 is for dealing in foreign exchange business, and Import and
Export Control Act, 1950 is for Documentary Credits (UCPDC – 1993 revision &
International Chamber of Commerce Publication no – 500) is also an important law for
settlement of terms and conditions between exporter and importer in international trade.
Governments ‘Import & Export policy is another important factor for import and export
operation for banks.

21
3.2 Import, Export & Remittance of IBBL at a glance:
IBBL plays a very important role in the Country’s Foreign Exchange Business of the
country. Total Foreign Exchange Business handled during the year 2014 was Tk.
782,598 million.

350,000
300,000
250,000
Export
200,000
Emport
150,000
100,000 Remittance
50,000
0
2010 2011 2012 2013 2014

Major Sectors of Foreign Exchange Division:

There are 4 major division of Foreign Exchange Division of IBBL according to its
regular activity-

1. Remittance Division
2. Import Division
3. Export Division
4. Trading Currency

Foreign Exchange Portfolio:

In 2014, total Foreign Exchange stood at Tk.782,598 million with 9% growth over
2013. Import stood at Tk.284,588 million last year with market share at 10%. Export
stood at Tk.197,095 million with market share 11%. Foreign remittance business was
Tk.300,915 million with 28% market share.

22
Functions of Foreign Exchange Department:

Instruments of Foreign Remittances:

Cash for : Dollar, Pound, France Fr. Riyal or any other currency.
T.C. : Travelers Cheque.
F.D.D : Foreign Demand Draft.
T.T : Telegraphic Transfer, Cable transfer or swift transfer.
M.T : Mail Transfer.
I.M.O : International Money Order.
Cheque : By any person & institution..
P.O : Payment Order.

3.3 Import:
During 2014 the Bank opened 54,412 import Letters of Credit for Tk.284,588 million as
against 47,191 Letters of Credit for Tk. 301,207 million in 2013 showing 15.30% growth in
number of LCs. Major items of import consist of the following:

23
Import Position of IBBL

Sector-wise Import Position (In million USD)

*Source: Annual report- 2015, IBBL

24
3.4 Export:

During 2014 the Bank handled 54,188 Export Bills for Tk.197,095 million as against
45,433 Export Bills for Tk.178,244 million in 2013 showing 10.57% growth in amount.
Major export financed items were the following:

Sector-wise Import Position: (In million USD)

*Source Annual Report of IBBL – 2015

3.5 The most commonly used document in foreign exchange

Documentary letter of credit.

Bill of exchange
Bill of lading

25
 Commercial invoice
Certificate of origin of goods
Inspection certificate
Packing list
Insurance policy
Pro-forma invoice / indent
Master receipt
GSP certificate

Some L/C Related Terms and Their Brief

Description:

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

Types of Letter of Credit:

1. Document credit
2. Stand-by letter of credit
3. Revocable credit
4. Irrevocable credit
5. Counter credit
6. Letter of credit
7. Back-to-back credit

Parties of Letter of Credit:

1. Issuing bank
2. Advising bank
3. Credit applicant
4. Beneficiary

26
 5. Nominated bank
6. Negotiating bank
7. Reimbursement bank

Islami Bank Bangladesh Ltd. Deals with two types of L/C. These are:

1. Sight L/C
2. Deferred L/C.

Parties to letter of credits

The following parties are involved to a letter of credit, namely –

Obligatory Parties are

Importer/ Buyer/ Applicant

Opening Bank/ issuing bank
Advising Bank/ Notifying Bank
Exporter/ Seller/ Beneficiary

Optional Parties (In case of need) are

Negotiating Bank
Confirming Bank
Paying/ Reimbursing bank
A. Applicant
The person or body (depositor of the bank) who requests the bank (opening bank) to issue
letter of credit.

B. Opening Bank / Issuing Bank

The bank that opens/issues letter of credit on behalf of the applicant/importer.

C. Advising Bank/ Notifying Bank

The bank through which the L/C IS advised to the beneficiary (exporter).

D. Exporter/ Seller/ Beneficiary

Beneficiary of the L/C is the party in whose favor the letter of credit is issued. Usually they
are the seller or exporter.
27
E. Confirming Bank
The bank, which under instruction in the letter of credit, adds their irrevocable undertaking to
that of the issuing bank. It is done at the request of the issuing bank having arrangement with
them. The confirmation constitutes a definite undertaking on the part of confirming bank in
addition to that of issuing bank.

F. Negotiating Bank
The bank that negotiates document and pays the amount to the beneficiary when presented
complying credit terms. If the negotiation of the documents is not restricted to a particular
bank in the L/C, normally negotiating bank is the banker of the beneficiary.

G. Reimbursing / Paying Bank

The bank nominated in the credit by the issuing bank to make payment against stipulated
documents, complying with the credit terms. Normally issuing bank maintains account with
the reimbursing bank.

Export section deals with two types of L/C that are as follows-
 Back to Back L/C
 Export L/C

3.6 Export Finance

Export through Janata Bank Ltd. for the year 2008 and 2009 is Tk.85418.00 million and Tk.
87500.00 million respectively. In spite of Global Financial Crisis the growth chart in export
through Janata Bank Ltd. remains upwards due to our timely steps regarding credit facilities
and services packages. We have already re-fixed our schedule of exchange at a reduced rate
the loan pricing is more competitive. With the credit lines our experts have introduce the
following new products:

 Cash Credit: Working capital facility to dyeing unit and packaging unit.
 Midterm Loan: For procurement of machinery, space parts, boiler, generator,
vehicles etc. to export oriented industrial unit.
 Packing Credit: Working capital facility to pay wages salary utility bills etc.
 LTR, FC: Short term credit for procurement of capital machinery from abroad.
 Term Loan: For (Export oriented) Ship Building.

28
  Export Project BMRE: Loan for factory building construction. Expansion,
development and Maintenance, construction of factory go down, purchase of
machineries from local and foreign markets, covered van, generator and establish
ETP.

Letter of Credit Issue Process:

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

2. When importer wants to import goods, he request issue bank (his bank) to issue a L/C.
3. To do that the importer gives an application to the bank for the L/C.
4. Checking out the permissibility of that item that is going to import by the importer
and the required rules and regulation of both by the Islami Sharia and by the
Bangladesh Bank
5. So the issuing bank issues a L/C and sends it to the advising nominated bank.
6. If the beneficiary wants confirmation of the L/C the L/C may be confirmed usage-
confirming bank to confirm payment.
The advising bank authenticates the L/C and advises the same to the beneficiary. The
exporter submits the necessary documents to the advising bank after execution of export.
Finance may be available by means of:-

a. Ordinary bank loan/ overdraft.

b. Loan against imported merchandise,
c. Acceptable credit.

Presentation of the Documents

The seller being satisfied with the terms and the conditions of the credit proceeds to dispatch
the required goods to the buyer. Then he has to present the documents evidencing dispatching
of goods to the negotiating bank on or before the stipulated expiry date of the credit. The
usual documents are-

Invoice
Bill of lading
29
 Certificate of origin
Packing list
Shipping advice
Non-negotiable copy of bill of lading
Bill of exchange
Pre-shipment inspection report
Shipment certificate.

Scrutiny of Documents
First of all it must be ensured that full set of documents as mentioned in the L/C has been
received. Following documents are included, namely-
Letter of Credit
Commercial Invoice
Bill of Exchange
Bill of lading
Insurance cover note
Certificate of origin.

Lodgment of Shipping Documents

During scrutiny, if the documents are in order, the branch then lodges the documents in PAD.
The following steps are involved in lodgment –

First all the particulars of the documents are entered in the PAD (Payment against
Document) register and PAD No. Seal
Convert the foreign currency into Bangladeshi currency.

Reverse the contingent liability and entry made in the liability register.

Prepare lodgment voucher.

Prepare lodgment voucher.

30
Payment Procedure of Import Documents

This is the most sensitive task of the Import Department. The officials have to be very much
careful while making payment. This task constitutes the following-

Date of Payment: Usually payment is made within seven days after the
documents have been received. If the payment is become deferred, the
negotiating bank may claim Profit for making delay.
Preparing Sale Memo: A sale memo is made at B.C rate to the depositor. As
the T.T & O.D rate is paid to the ID, the difference between these two rates is
exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is
sent to ID.
Requisition for the Foreign Currency

For arranging necessary fund for payment, a requisition is sent to the

International Department.

Transmission of Message: Message is transmitted to the correspondent bank

ensuring that payment is being made.

Back-to-back L/C

To purchase/procure goods for export processing bank may provide facility in the way of
Back-to-Back L/C opened under Bai-Muajjal mode. If the back-to-back L/Cs
are opened deferred payment basis no finance by the bank is required except if they fail

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.

Description 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
31
be delivered to the order of named person, or to order, or to bearer, constitutes such an
undertaking.
Transport Document Services Three Purchases;
1. Receipt for goods
2. Contract for transport and storage
3. Title document that proves ownership of goods

Various Types of Bill of Leading:

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

3.7 Import Mechanism of L/C:

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

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

An importer desirous to have an import L/C limit must apply to the import department with
following:
Full particulars of bank account
Types of business-historical background
Amount of limit required
Terms of payment

32
 Goods to be imported
Security to be offered

The L/C Application:

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

Performa invoice

Insurance cover note importer should provide following information in the

application form
Full name and address of the beneficiary
Brief description of the goods keeping conformity of the L/C
Unit price quality of goods
Origin of the goods
Mode of transport and last date of shipment

Port of shipment and destination

Insurance cover note, number and name of the issuing company Tenor of draft
(site/ insurance/ deferred)
Sale terms Negotiation period
Mode of advising
Weather shipment/ transshipment allowed
Instruction to add confirmation
Full name and address of importer LCA no
Opening of L/C under UCPDC publication no. 500 Any
other relevant information

Presentation of Documents:

Having been advising bank, the seller then proceeds to dispatch the goods to the buyer. The
seller then presents the document evidencing shipment of gods, to the negotiating bank.

33
Negotiating bank then forwards all the documents with a schedule to the issuing bank. Most
common documents are:

Invoice
Bill of lading on the receipt
Certificate of origin
Packing list
Weight list
Shipping advice
None of negotiable copy of B/L
Bill of exchange, Phytosanitary, inspections certificate.
Letter of insurance cover note
Pre-shipment inspection certificate
Shipment certificate.

On the receipt of the documents, the bank will enter the some in the inward receive register
branded with rubberstamp. Showing the date of receipt

Examination of Specific Document:

Procedure for the examination of following documents is given below:

Commercial invoice
Partial shipments
Expiry date
Insurance documents
Bill of lading

Non-negotiable sea way bill

Multi model transport document
Charter party bill of lading
Air transport document
Surface transport document
Courier charges
Recourse for discrepant documents.

34
A. Commercial Invoice:

Need not to 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).
Description of goods in invoice must correspond with description in the credit.
If amount of invoice is in excess of the excess of the credit, banks may refuse to
accept the invoice.

Include exact license and/ or certificate number in invoice if required by the

credit. Should show terms of shipment mentioned in the credit.

If ―about‖, ―approximately‖ or ―circa‖ is used with amount credit, quantity or

unit price, allow 10% plus or minus is allowed.

B. Partial or Installment Shipments:

If partial shipment is prohibited 5% less (or more) in the amount of drawing

acceptable provided, quantity and unit price stipulated are in full.
Partial shipments are acceptable unless prohibited.

Similarly post or courier receipts acceptable in same date and place of dispatch.

C. Expiry Date:

All credits must stipulate an expiry date and the place where it expires. The banks
must, therefore, make sure that the documents are presented on or before expiry.
Documents must be presented on or before expiry.

If credits are available for ―one month‖, ―six month‖, first day is the date of
issuance of credit.

If last day falls on a holiday expiry extended to next working date (not period
after shipment).
On or about means plus or minus 5 days.
To‖, ―until‖, ―till‖, ―from‖ includes date mentioned.

35
D. Insurance Documents:

Issued and signed by insurance companies or underwriters or their agents.

Broker‘s cover note is not acceptable but insurance certificate or declaration

under open cover is acceptable.
All originals must be included.

E. Bill of Lading:

Bill of Lading (B/L) To Acceptable If It-

Indicates the name of carrier

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

F. Not Negotiable Sea Waybill:

Accepted If Document

Indicate the name of carrier or multimedia transport operator.

Indicates goods have been dispatched, taken in charge or loaded on board.
Consists of fall set.
No indication of charter party.
No indication of propagation by only sails.

H. Charter Party Bill of Lading:

Accepts If Document

Contains any indication that it is subject to charter party.

Authenticated by owner/ master or agent
To avoid misunderstanding, it is advised that the credit clearly indicate which
expenses are on account of the applicant and which expenses on account of the
beneficiary.

36
I. Recourse for Discrepant Document:

In case of discrepant document, all bank keeps recourse if the credit has compliant
document presented the confirming bank to have no recourse but the negotiating bank
has recourse unless negotiating bank has confirmed the credit.
Lodgment and Requirement of Import Document:

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

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

Requisition:

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

Payment Procedure:

A telex copy forwarded; addressed to the nearest correspondent (reimbursement

section) that payment is being made.

Confirmation letter to the negotiating bank confirming remittance. Sale

memo prepared given exchange rate:
TT and OD rate paid to head office.
B.C. rate taken from depositor.
The difference is exchange-trading project.

Operating a payment against document (PAD) account. Entry given to PAD

register.

15.5 % rate of interest charged from the negotiating date up to retirement. In case
of discrepant document profit is charged from the lodgment date till the
retirement date.
Inter Branch Exchange Trading Credit Advice (IBETCA) sent to ID.

37
Accounting Treatment:

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

A/C ……………………………………………………………Cr.
(Margin Amount transferred to PAD A/C)
Depositor A/C………………………………………………………Dr.

PAD A/C …………………………………………………………...Cr

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

PAD A/C …………………………………………………………..Dr.

H.O.I.D. A/C + Ex. Trading A/C …………………………………..Cr.
Income A/C Profit on PAD ………………………………………..Cr.
(Amount given to head office ID and Profit credited).

Reversing Entry:
Banker‘s Liability …………………………………………………Dr.
Depositor‘s liability ……………………………………………….Cr.

Guidelines on Back to Back Letter of Credit:

Transaction (Back to Back L/C):

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

Features of Back to Back L/C:

It is an import L/C to procure goods/ raw materials for further import. It is

operand based on export L/C.
It is a kind of export Finance.

Export L/C is at sight, but Back to Back L/C is at unasked scrutiny.

No margin is required to open back to Back L/C.
38
Cheque List to Open Back To Back L/C

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

3.8 Remittances

This bank is authorized dealer to deal in foreign exchange business. As an authorized

dealer, a bank must provide some services to the depositors regarding foreign exchange
and this department provides these services. The basic function of this department are
outward and inward remittance of foreign exchange from one country to another country.
In the process of providing this remittance service, it sells and buys foreign currency. The
conversion of one currency into another takes place an agreed rate of exchange, which the
banker quotes, one for buying and another for selling. In such transactions the foreign
currencies are like am other commodities offered for sales and purchase, the cost
(convention value) being paid by the buyer in home currency, the legal tender.

Comparative Position of Remittance:

Comparative Position of Remittance

400,000
Volume
200,000
Growth(%)
Share(%)
0
2010 2011 2012 2013 2014

39
3.9 Types of Remittance:

There are two types of remittance:

1. Inward remittance

2. Outward remittance.

Inward and Outward Remittances

Remittance means a payment of money sent to a person in another place or a remittance is a
transfer of money by a foreign worker to his home country.

Inward Remittances:
Inward remittance is a term used when we purchase foreign currency in any form. Inward
remittance not only include purchase of foreign currency but also it includes purchase of
M.T.1, T.T.2, draft3, traveler cheques4, drafts under traveler letters of credit, bill of
exchange, currency notes and coins etc. for inward remittance, we debit the account of bank‘s
nonresident rupee account.

Inward Remittance-No Restriction

No restriction has been imposed on receipt of remittance from abroad either in form of
foreign currency or by debit to non-resident rupee accounts of bank‘s overseas branches or

40
other correspondents (electronic transfer). Authorized dealers can also easily purchase T.Ts,
M.Ts, drafts, bills etc. which are to be payable or debited from banks' non-resident Rupee
accounts. There is also no objection on obtaining reimbursement in foreign currency from
their overseas branches and

Correspondents in respect of Rupee bills and drafts which are purchased by them under
letters of credit opened by non-resident banks or under other arrangements.

Outward Remittance:

Outward remittance is a word used for the sale we purchase foreign currency in any form.
Inward remittance not only include sale of foreign currency but also it includes purchase of
M.T., T.T. draft, traveler cheques, drafts under traveler letters of credit, bill of exchange,
currency notes and coins etc. for inward remittance, we credit the account of bank‘s
nonresident rupee. Authorized dealers may also sell foreign currency but only in accordance
with the above procedure.

Mode of Remittance
Authorized dealers should avoid issuing drafts under umbrella of outward remittances when
remittance can be made by T.Ts, or M.Ts, etc. the normal means of remittance can result in
unnecessary inconvenience to the remitter. Drafts are issued in the name of beneficiary of the
remittance which are crossed by the issuing bank as
―Account Payee Only.

Local Remittance:
IBBL sells and purchases P.O. DD and T.T. to its depositors only. IT does not offer
remittance service frequently to those other than its depositor. 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.

Demand Draft (DD):

Demands Draft is a very much popular instrument for remitting money from one corners 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.
41
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 accounted, as money is transferred.

Payment order (PO):

Payment Order is meant for making payment of the bankers own or of the depositor‘s dues
locally and not for affecting any remittance to an out station. In a sense, the payment order is
used for making a remittance to the local creditors. PO is balance daily as the register has
been designed on self-balancing method.

Working of this department

1. Issuance of TC, Cash Dollar /Pound

2. Issuance of FDD, FTT & purchasing, Payment of the same.
3. Passport endorsement.
4. Encashment certificate-
5. F/C Account opening &filing.
6. Opening of Export FC retention Quota A/C& maintain.
7. Maintenance of ledger of Cash Dollar, FC Deposit A/C & TC.
8. Maintain FBC register &follow up FBC.
9. Opening of Student file &Maintain.
10. Preparation of all related statement, Voucher & posting.
11. Preparation of Weekly, Monthly. Yearly Statement for Bangladesh Bank return
timely.
12. Attending all related correspondence to other Bank or Institutions

42
Formalities for opening foreign currency (FC) Account:

AD may without prior approval of the Bangladesh Bank Open Foreign Currency (FC)

account in the name of:

1. Bangladesh national residing abroad.
2. Foreign nationals residing abroad/ in Bangladesh and also foreign firms

3. Registered abroad and operating in Bangladesh and abstract foreign missions and
their expatriate employees.
4. Resident of Bangladesh nationals working with the foreign / international
organization operating in Bangladesh provided their salary in paid in foreign
currency.

Recent Remittance Scenario:

Bangladesh increased by 12.59 per cent to Tk. 14.46 billion in the FY 2013-14 compared
with that of the previous fiscal year when the Bangladeshis had remitted $12.84 billion. The
figure was $11.65 billion in the FY 2010-11.

The BB data, however, showed that the remittance inflow in June was the lowest on monthly
basis in the FY 2013-14. Besides, the remittance inflow in May also posted a poor amount
than the previous months of the FY 2013-14. The remittance inflow in June and May was
$1.05 billion and $1.08 billion respectively. Another BB official said the value of dollar had
declined significantly against the taka in the second half of the FY 2013-14 which
discouraged the expatriate in sending foreign exchange to the country. The BB data showed
that the value of dollar had decreased by 2.50 per cent between June 30, 2013 and December
31, 2012. The greenback was quoted at Tk 77.75 in the inter-bank forex market on June 30
against Tk 79.75 on December 31. Under the circumstances, the central bank purchased a
record amount of greenback worth $5.11 billion from the local bank in the last fiscal year to
stop the devaluation of the dollar. For this reason, the country‘s foreign exchange reserve
stood at $15.32 billion on July 3, 2013.

The private commercial banks received $659.15 million in remittances in June, state-owned
commercial banks $371.66 million, foreign commercial banks $14.70 million and specialized

43
banks $12.11 million. In June, Islami Bank Bangladesh received the highest remittance,
$259.80 million, among the PCBs, while Agrani Bank received the highest remittance,
$128.71 million, among the SCBs, showed the BB data.

3.10 Trading Currency

Trading of foreign currency means Purchase & sale of different currencies or exchange of
one currency into other. It includes mainly dealing room operation (Dealing room: A room
where online buying & selling of foreign currency takes places) excluding the money market
operation. This is purchase or sale of one currency in term of another, either Local Currency
to Foreign Currency, or Foreign Currency to Local Currency, or Foreign Currency to Foreign
Currency (Cross Currency). The Dealing Room of IBBL established at IBW (International
Banking Wing) in July 2005 and is functioning with two officials who have taken Foreign
Exchange Bourse Training in Mumbai under the auspices of Reserve Bank of India.

The Dealing Room of IBBL earned BDT 210.00 million from July 2005 to December 2005.
From January to August 2006, Dealing Room has earned BDT 255.00 million.

44
 Chapter: 4
Performances of Foreign Exchange
Operations of Islami Bank Bangladesh
Ltd.: Analysis & Findings

45
4.1 Overall Exports:
Merchandise exports in June 2014 stand higher by USD157.55 million or 6.21 percent at
USD2696.36 million as compared to USD2538.81 million in May 2014. June 2014 earning
is also higher by 16.31 percent than the export value of June 2013.

Overall Annual Exports: (In million USD)

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014
15536.64 16204.65 22928.22 24301.90 27018.26
*Source: Export Promotion Bureau.

Overall Monthly Export: (In million USD)

2012-
Month 2013-2014 2013

July 2439.08 2339.52

August 1951.48 2376.74
September 1900.89 1449.98
October 2077.03 1954.78
November 1765.09 1591.24
December 2466.16 2064.85
January 2554.28 2149.87
February 2246.51 1984.04
March 2303.42 1982.26
April 2079.15 1890.98
May 2538.81 2199.42
June 2696.36 2318.22
July-June 27018.26 24302.90
[Source: Export Promotion Bureau.]

Total export receipts during July-June 2013-14 increased by USD2716.36 million to

USD27018.26million making 11.18 percent growth over that of the corresponding period
of the preceding fiscal (over USD24301.90 million).

46
Category-wise export: (In million USD)

Particulars Jul-May,2013-2014 Jul-May,2012-2013 Changes during July-May, 2013-14

over July-May , 2013-14

In absolute amount In Percentage

Volume Value Volume Value Volume Value Volume Value
1. Raw Jute 401.41 218.39 495.10 243.71 -57.69 -25.32 -12.57 -10.39
2. Jute Goods 749.89 729.52 639.51 645.74 +110.38 +83.78 +17.26 +12.97
3. Tea .81 2.24 1.60 3.17 -0.79 -0.93 -49.38 -29.34

4. Frozen food 71.55 498.40 76.20 553.37 -4.65 -63.97 -6.10 -11.56
5. Leather 27.16 362.97 21.16 302.90 +6.00 +60.07 +28.36 +19.83
6. Woven 637.98 9923.07 541.90 8696.94 +96.08 +1226.13 +17.73 +14.10
Garments
7. Knitwear 696.99 9390.25 609.65 8570.96 +87.34 +819.29 +14.33 +9.56
8. Chemical ------ 86.40 97.96 ------- -11.56 ------ -11.80
Products -----
Of which

(fertilizer) 0.00 0.00 38.75 17.69 -38.75 17.69 ------

9. Agricultural 178.99 483.12 149.74 357.09 +29.25 +126.03 +19.53 +35.29

Products
10. Engines & ------- 343.00 ------ 323.52 ------ +19.48 ----- +6.02
Electric
goods
11. Others ------- 2293.54 ------- 2181.10 ------ +112.44 ----- +5.16
Totals 24321.90 ------- 21976.46 ------ +2345.44 ----- +10.67
Source: Export Promotion Bureau

Category-wise breakdown of exports shows that, during July-May, 2013-14 exports of woven
garments, knitwear, agricultural products, jute goods (excl. carpet), leather and engine. &
electric goods experienced some increase compared to the same period of the previous year.
On the other hand, there is some decrease in the exports of frozen food, raw jute, chemical
products, and tea during July-May, 2013-14 compared to the same period of the previous
year.

47
 Category-wise share of total Category-wise share of total
exports, Jul.-May, 2013-14 exports, Jul.-May, 2012-13

Raw Jute
6% 7% Raw Jute 0% 6%

18% Jute goods

23% 25% Jute Goods 24% (excl.carpet)
26%
21% 17% 22% Tea
0% Tea

1% 1% 0% Frozen food
3%

4.2 Overall Imports

Import payments in May 2014 stand lower by USD25.30 million or 0.89 percent to
USD2815.80 million, against USD2841.10 million in April 2014. This is also lower by
8.98 percent compared to May 2013 position.

Import payments during July-May 2013-14 stand lower by 5.95 percent to USD30987.30
million against the amount of the same period of the previous fiscal. Of the total import
payments during the period under review, imports under Cash and for EPZ stand at
USD28887.90 million, imports under Loans/Grants USD53.60 million, imports under
direct investment USD135.90 million and short term loan by BPC USD1909.90 million.
Settlement of import LCs during July-May 2013-14 decreased by 9.09 percent to
USD29480.58 million against USD32428.36 million during July-May, 2013-14. Fresh
opening of import LCs during July-May 2013-14 decreased by 1.53 percent to
USD33116.77 million compared to the same period of the previous fiscal position.

Overall Annual Imports: (In million USD)

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

22981.5 23738.40 31953.15 32948.10 33116.77

(In million USD)

48
Overall Monthly Imports:

Month 2013-2014 2012-2013

July 2835.20 2937.80

August 2520.20 2555.00

September 2976.90 3297.90

October 2615.50 2977.20

November 2924.50 3141.30

December 2569.70 2889.90

January 3367.50 3346.00

February 2608.10 2955.10

March 2912.80 2846.50

April 2841.10 2907.80

May 2815.80 3093.60

July-May 30987.30 32948.10

Source: Statistics Department, Foreign Exchange Policy Department

Sector-wise fresh opening, settlement and outstanding of import LCs: (In

million USD)

49
 *Source: Foreign Exchange Policy Department.
The developments of each sector's share in total L/C opening during July-May, 2013-
14 and July-May, 2012-13 are showing the following pie-diagrams

4.3 Overall Remittances

Total remittances receipts during July-June 2013-14 increased by 12.60 percent to
USD14461.14 million against USD12843.43 million during July-June, 2012-13. The month
50
of June 2014 saw non-resident Bangladeshis send USD1058.24 million in remittances, lower
by 2.66 percent from the month of May receipts. This figure also 1.18 percent lower than the
USD1070.86 million recorded for June 2013.

Overall Annual Remittances: (In million USD)

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

9927.64 10987.40 11650.31 12843.43 14461.14
Source: Foreign Exchange Policy Department, Bangladesh Bank.

Overall Monthly Remittances: (In million USD)

Month 2013-2014 2012-2013
July 1201.15 1015.58
August 1178.65 1101.79
September 1178.83 855.44
October 1453.69 1039.48
November 1102.15 908.79
December 1287.31 1147.22
January 1326.99 1221.40
February 1163.18 1133.01
March 1229.36 1109.14
April 1194.40 1083.89
May 1087.19 1156.82
June 1058.24 1070.86
July-June 14461.14 12843.42
Source: Foreign Exchange Policy Department, Bangladesh Bank.

51
4.4 SWOT Analysis

Strength:
 High Morality of the employees and customers.
 Management System.
 Unique System: 100% supervise credit Related with shariah.
 Religious Feelings of the people.
Weakness:
 Absence of Competitors. Existing are quite weak.
 Deficiency of experienced manpower.
 Absence of Islamic money market.
 Few employees’ attitude towards customers is not satisfactory.
 IBBL still remain under lower position in the world ranking.
 IBBL does not use the share mode of investment.

Opportunity:

 IBBL has a verse opportunity to hold the most of the customers of Bangladesh as
its banking operation is based upon Islamic Shariah.
 Providing service by Visa Card or Master Card types of cards to customers.
 Rural Development Scheme of IBBL is a great chance to save the county’s poor
people from being taking loan from different NGOs or few banks with higher
interest rate.
Threat:
 State law defers with the Islamic Shariah.
 In the money market of Bangladesh there is no call money system of Islamic
Shariah.
 Few other conventional banks have open their Islamic banking branch.

52
4.5 Findings

 Studies show that IBBL cannot operate with its full efficiency level if it operates
under a conventional banking framework, their efficiency goes down in a number of
dimensions. The deterioration is not because of IBBL‘s own mechanical deficiencies.
Rather it is the efficiency-blunt operations of the conventional banking system that
puts obstructions to efficient operation of IBBL.
 Having been considered the pro-efficiency character of IBBL and its beneficial
impacts on the economy, government policy in Bangladesh should be in favor of
transforming conventional banking system into IBBL. It is reasonable to assume that
risks involved in Mushraka or Mudaraba financing are different from those involved
in trade-type financing. It follows, there for, that prudential regulations of these
transactions should be different.
 No Islami money market is available. Easily money transaction is no possible
for the interest free banking system. Call rate money is not responded according to
Islami Shariah.

 Islamic Banking is a new phenomenon in our country during last two decades. So
majority of our people have no proper knowledge about the activities of Islamic
Banking as well as its investment mechanism hamper large scope of investment of
IBBL.
 Numbers of employees are fewer than the volume of works which creates problem for
prompt service.
 There is no Shariah Board in Bangladesh for foreign exchange business which can
guide them in their activities
 In rural areas for low income community, this Bank grants investment group not
individual. As a result, the mission, using invested money in income generating
activities so is failed. Moreover, it the poor needy population can become self-reliant
enhances group dependence.

53
 Chapter: 5
PROSPECTS,
RECOMMENDATION &
CONCLUSION

54
5.1 Prospects
In spite of the present limitations Islamic Banking System has tremendous
Potentiality and prospects in Bangladesh.

The successfully launching and operation of Islami Banks in Bangladesh has

established the fact that banking without interest is feasible.
Islami banks have brought together money deposits and entrepreneurs
under their fold and coverage. These depositors and entrepreneurs so long
avoided interest based banking on grounds of religious injunctions.

5.2 Recommendation
Some Special measures to be taken for improving Foreign Exchange Operations which are
Capacity building in respect of professional knowledge & skill at Branch and Head Office
level through training & practice.

Develop quality service in respect of speedy disposal both at branch & H.O.
Develop automated service for foreign trade.
Ensure complete compliance of Bangladesh Bank’s Guideline.
F. Ex business marketing in respect of depositor hunting.
F. Ex. product development like Factoring etc.
Shariah research on new F. Ex operations products.
Market study/survey for potential import /export operations.

Meet all types of unique needs of the depositor’s in the changing pattern of world trade.
Integrated treasury management at H.O
Forwarding branches to put more efforts for F. Ex business.
Import/Export operation policy formulation.
Strong monitoring squad for RMG sector.
Supervision & Technical support for Bulk import from Head Office.
Competitive Exchange/ commission rate.
Relax provisions for purchase of Inland Bills.

55
Rapport with Bangladesh Bank for AD license.

Training/ workshop for AD Branch Managers & officials, Non-AD/ Forwarding Branch
Managers & officials.
Commercial import under cash retirement may be encouraged.
Discretionary power / limit to be given in F. C
Limit may be considered in F. C.

Opening of L/Cs of Govt. & Semi Govt. Organizations may be given attention to.
Emergency limit may be allowed to meet emergency need. L/Cs for
import of machinery may be made easier.
All AD branches should try to perform at optimum level.
Discretionary power for L/C and MPI should be same. Export of
non-traditional items should be encouraged. MIS should be
developed for Import and export business. Data Bank of credit
reports may be maintained centrally. Get together of the
import/export depositors.
Decoration of F. Ex Departments of the branches identically.
Increasing of import under cash retirement.
Formation of marketing team for procurement of import-export business. Hunting best of the
best depositors for meeting their non-funded working capital needs.
Allowing LCs with deferred payment clause. Strengthening
Dealing Room to increase forex trading. Enhancing FC trading
to increase ancillary income.
Securing low cost fund from abroad specially IDB for financing our projects. Issuance of
foreign bank guarantee against counter guarantee.
Foreign investment like IDB Syndicated Murabaha financing. Planning
on proper utilization of F. Ex. Fund.
Strengthening of ICTD for implementation of eIBS and prompt service.

56
 Increasing Foreign Exchange Market Share to be a pioneer in Inter-Bank Fx market.
Integration of Money market & foreign exchange Dealing Room in the same Roof.
Marketing by Managers for induction of corporate depositors of other banks for selling
of FC
Hunting non funded depositors (facilities in working capital i.e. BB LC, Bills, MDB,
Bai as Sarf, FBC, BG etc.) both our bank’s depositors banking with other banks and
depositors of other banks also.

5.3 Conclusion
As a Muslim we know Islam is a complete way of life and Allah’s guidance extents into all
areas of our lives. Islam has given detail regulations for our economic life. Therefore, Islami
Bank Bangladesh Limited (IBBL) is trying to establish the maximum welfare of the society
by maintaining the principles of Islamic Shariah which is based on “Quran” and “Sunnah”.
Since 1983, IBBL is the pioneer in welfare banking in this subcontinent and it is trying to do
all its activities for the betterment of its depositors. For the greater interest of the depositors
the investment policy of IBBL is to invest on the basis of profit and loss sharing in
accordance with the tents and principles of Islamic Shariah. Profit earning is not the only
motive and objective of the bank’s investment policy rather emphasis is given in attaining
social good and in creation employment opportunities.

IBBL is not secular in its orientation. IBBL does not finance any project which conflicts
with the moral value system of Islam. IBBL does not strictly consider the credit worthiness
of the entrepreneur. IBBL receives a return only if the project succeeds and produces profit.
IBBL considers the soundness of the project and business acumen and managerial
competency of the entrepreneur. Therefore, the rate of return of investment of IBBL is
greater comparing to that of conventional banks.

Finally it can be said that, Islami Bank Bangladesh Limited (IBBL) has been established
with a view to conduct interest free banking to establish participatory banking instead of
debtor-creditor relationship. And we believe Islami Bank Bangladesh Limited (IBBL) will
continue their operations successfully.

57
5.4 Acronyms:
AD Authorized Dealer
ATM Automated Teller Machine
AWB Air Way Bill
BB Bangladesh Bank
BBL/C Back to Back Letter of Credit
BIBA Bangladesh Institution of Bankers Association
BL Bill of Lading
CRR Cash Reserve Requirement
EIBS Electronic Integrated Banking System
ERC Export Registration Certificate
FBP Foreign Bill Purchase
FCA Foreign Currency Account
FDB Foreign Documentary Bills
FDI Foreign Direct investment
H.B.I.S House Building Investment Scheme
HO Head Office
IBBL Islami Bank Bangladesh Limited
IBC Inward Bills For Collection
IBTRA Islami Bank Training & Research Academy
ICTD Information Communication and Technology Division(IBBL)
IDB Islamic Development bank
IEC Act. Import & Export Act.
IRC Import Registration Certificate
MPI Murabaha Post Import
NFCD Non Residence Foreign Currency Deposit
OBC Outward Bill For Collection
PAD Payment Against Document
SWIFT Society For Worldwide Inter Bank Financial
TIN Tax Identification Number

58
References:
Books:
 Foreign Exchange and Financing for Foreign Trade, Sayed Afsar Ali
 Banking Theory and Practice, K.C.Shekar
 Islami Bank Theory and Practice, Morshed Alam

 Islami Banking, AAM Habibur Rahman(SVP IBBL)

 Difference between Islamic and Conventional Banking, EVP & Director of Training.

Articles and Publications:

 Annual Report of IBBL 2007-2014
 Foreign Exchange Manual, Islami Bank Bangladesh Limited.
 Bangladesh Bank’s Monthly major Economic Trends, Statistics table.
 Foreign Exchange Regulation Act, 1947; Act No. VII of 1947.
 GB Department & Banking Operations Division, circular REF:IC#BOD/21/07.

Web sites:
 www.islamibankbd.com
 www.bangladesh–bank.org
 www.wikipedia.com
 http://data.worldbank.org/indicator/NY.GDP.DEFL.KD.ZG

59
Appendix

60
Islami Bank Limited (balance Sheet as at Dec 2015)

61
Islami Bank Bangladesh Limited (profit and loss account)

62