Tuesday, July 17, 2018

ECONOMY & BANKING PART -1


 CHAPTER ONE

Introduction



1: Prelude
The banks are the mainstay of the financial system of a country and those are different from other financial institutions. They accept deposits from the public and in turn advance by creating credit. It has become one of the most important economic inventions of the world. The banking systems of different countries vary substantially from one another. Evolution of banking functions is as old as authentic history. But the establishment of bank as an institution is not so ancient. The modern regime of bank was initiated in the 15th century A.D. It is an intermediary profit making instution. Banks are of many kinds: Commercial bank, Savings bank, Investment bank, Industrial bank, Co-operative bank, Central bank etc. But when we use the term ‘bank’ without any prefix, qualifier, it refers to the ‘Commercial’.




ECONOMY & BANKING

The real breakthrough for modern banking was in 1453 after the fall of Constantinople. The rich Jews fled being suspicious of the new conquerors, first to Italy and then to London carrying with them their vast wealth. According to one perspective, the word "Bank" originated from the Italian word for "Bench", as these Jews carried on their business of money lending and money changing on benches. They were called Lombards as they carried on their business in Lombardy. The Lombard Street in present day London, England is named after them. The most famous of these Italian bankers were the Medici Family (Meyer, Duesenberry, Aliber 36)
An alternative perspective as to the origin of banking is a German one. In 1401 formal banking started in Germany as partnership institutions. According to this theory, the word "Bank" originated from the German word "Bach" which means a partnership firm with a number of partners.
Modern, present day banking operates mainly by giving interest to people from whom it has borrowed money, and after keeping a small percentage of it [people's wealth or money] as reserves and vault cash, lending or investing the same money [people's wealth] at a higher rate of interest or return and keeping the difference as profit [The major source of revenue for banks]. This is in addition to the profit made by banks on the various bank services provided.
Economic development is a crafty concept. Commercial Banks are playing a vital role in the economic development of our country and are being considered as integral parts of our financial system. The main functions of Commercial Banks are to receive deposits from the public, making loans and advances, creation of money, providing agency services and general utility services etc. All of the above services may be spread crossing the boundary of a country with the help of Foreign Exchange Business.


ECONOMY & BANKING

1.1: Back ground of the report

After completing one hundred and fifty six (156) credit hours from the Department of Accounting and Information Systems, University of Rajshahi, I was placed at IBBL as part of the Internship Program requirement. This report is prepared for the internship program consisting of a major in depth study of the Foreign Exchange Business of Islami Bank Bangladesh Limited.

Practical knowledge is fundamental for the application of theoretical intelligence. Bearing this in mind, an internship program was being included in the MBA curriculum. The goal of this analysis is to expose the student in the organizational work situation and also to provide an opportunity for applying classroom learning in practice. There are some differences between theories and practices. Internship program is a system by which we can accustom ourselves to the practical situation through the application of theoretical knowledge into real life; the gap between these two can be bridged up through this internship procedure. As an indispensable part of MBA I was placed in Head Office of IBBL.

1.2: Rationality of the study

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. Economic development of a country is very much dependent on the Banking System. Its role to the economic reconstruction of a developing country like Bangladesh can never be ignored. In Bangladesh we have inherited  the British Branch banking prevailing at the preliberation period. The phenomenal growth of bank branches and we expansion of bank business in both volume and dimension posed some serious management problems. Banking sector in Bangladesh thus comprises of Central bank, and nationalised banks for both specialized financial and commercial sector, joint venture private banks including Islami bank, Bangladeshi private banks and foreign banks. This multi-disciplinary banking system plays a dynamic role in shaping the country’s economy to its desired objective.



ECONOMY & BANKING

Islami Bank Bangladesh Limited has already emerged as one of the world wide recognized banks. Islamic banking is a new dimension 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 general banking, investment & foreign exchange operation.


1.3: Objectives and Philosophy of the Study
The first objective of writing the report is fulfilling the requirements of the MBA program. In this report, I have attempted to give on overview of Islami Bank Bangladesh Limited in general. Following are the main objectives:
Ø  Islami Banking System
Ø  To familiar the history and operations of Islami Banking in Bangladesh.
Ø  To show Foreign Exchange operation systems of IBBL.
Ø  To identify strength and weakness of IBBL.
Ø  To gather practical experience about overall operations of IBBL
1.4: Scope of the Report
The scope of this paper is limited to the organizational structure, background, and objectives, functions, and investment performance of IBBL as a whole. The scope is also limited to different investment schemes, modes, mechanism, investment proposal appraisal procedures, monitoring and documentation of IBBL, general banking aspects and foreign exchange operations.
1.5: Sources and Methodology of the Study

I have collected data mainly from secondary sources and getting little scope to collect data from primary sources which are given below:

1.      Secondary sources

·        Annual report of Islamic Bank Bangladesh Limited.
·        Desk report of the related department i.e. IDFD
·        Other manual information.
·        Different reference books of the library.

2.      Primary sources

·        Direct observation
·        Expert opinion
     



1.6: Limitations of the Study

There are some limitations in my study. I faced some problems during the study, which are given below:

·        Lack of time: The time period for this study was very short, which was not enough. So, I could not go in depth analysis. Sometimes the officials were busy & were not able to give much time.

·        Insufficient data: Some essentials information could not be collected due to confidentiality of business.

·        Lack of Supervision: Few officials sometimes felt disturbed, when they were busy with their tasks. Sometimes, they didn’t want to supervise due to pressure of work load.

Chapter Two
Introducing
Islamic Economy& Banking



2.1: Islamic Economy
The Qur’an, over 1400 years back condemned today's modern banking concepts before they were put into wide scale practice: "And what you give in interest [riba in Arabic] that it may increase on (other) people's wealth, increases not with Allah (God)...(Qur’an 30:39)."
The Qur’an states explicitly that trade is not the same as interest:
Those who consume interest shall not rise, except as he rises whom Satan by his touch prostrates [i.e one who is misled]; that is because they say:"Trade is like interest"; whereas, Allah [God] has permitted trading but forbidden [Haraam in Arabic] interest. Whosoever receives a warning from his/her Lord, he shall have his past gains and his affair is committed to Allah (God); but whosoever reverts (to devouring interest) those, they are the inhabitants of the fire, therein dwelling forever. (Qur’an 2:275)
According to the above Qur’anic verse, trade is not the same as interest. Interest that banks give to us on our money lent is not trade. Trade involves the profit/loss made by the exchange of goods and services mostly involving some medium of exchange (eg. money) while Interest is the cost of borrowing money (the medium of exchange) and does not involve goods and services primarily.


ECONOMY & BANKING

Buying shares in companies is trading [for example] as you become a co-owner of the company to the extent of the face value of your share and as such share in its trading profits. If a person is a Muslim, he/she should have no part of their interest profit. Likewise, debentures issued by companies, pay interest and as such are forbidden to Muslims.
A bank is not just another business like a furniture store or a lumberyard. The decisions made by bankers quite literally permeate the entire economy, affecting the decisions made by other business people, housewives, and government officials. In fact, reduced to its simplest terms, the whole idea behind central banking and monetary policy is that if we can somehow influence the decisions made by bankers, then these decisions, in turn, will influence the decisions made by everyone else and in this indirect fashion we can control the overall functioning of the economy.(Luckett 142)
The Qur’an talks about inflation [over 1400 years back!] and adjusting the money you lent for inflation [but not charging interest]: "...but if you repent (from devouring interest), you will have your principal, un wronging and un wronged (Qur’an 2:279)."
If I do not adjust my principal for inflation while receiving the money that I lent someone earlier, I will be "wronged" as that amount, which I receive now [unadjusted] will buy fewer goods than it would have when I lent it. The Qur’an says that you will have your principal, "un wronging (i.e you wont charge interest) and un wronged (i.e you will adjust for inflation)." Such a conclusion is implicitly suggested by the above verse.
The functions of modern day commercial banks, primarily built upon borrowing and lending for interest, has wide scale effects on the economy [as is suggested by Luckett's quote above].

ECONOMY & BANKING


2.2:  INTEREST & INVESTMENT
Interest plays a big role in reducing capital investment and hence development:
Investment is spending on addition to capital stock [machinery, structures, inventories etc]. Such investment is undertaken with the aim of making profits in the future by operating machines and factories. Suppose firms borrow to buy capital that they use. Then the higher the rate of interest, the more firms have to pay out in interest each year from their investment. Thus the higher the rate of interest, the less they will want to invest. Conversely, a low rate of interest makes investment spending more profitable, therefore reflected in a higher level of planned investment. (Dornbusch, Fischer 115)
If a person borrows to invest, then the higher the rate of interest, the less profitable his investment would be, so he would invest less. Investment would be the most profitable [and hence the highest] if there was no interest in the economy and lent money was only adjusted for inflation at payback time.
Even if a person does not borrow but finances the purchase of capital with the money that he/she possesses, even then a higher rate of interest would reduce investment and if interest did not exist in the economy, investment would be the most profitable and the highest [because of opportunity cost, the cost of the next best alternative that is foregone]: "A decision to increase the amount of capital available usually entails a present sacrifice and a future gain (Lipsey 392)."
When there is no interest in the economy, theoretically speaking, it would always pay to purchase a further unit of capital and investment and development would occur till the marginal efficiency of capital got equal to zero: "It always pays to purchase a further unit of capital whenever its marginal efficiency- the monetary return on $1 more spent on purchasing capital- exceeds the rate of interest (Lipsey 399)." Imagine a society like that! 

ECONOMY & BANKING

 
2.3: INTEREST & SAVINGS
Raising the rate of interest does not increase savings:
But should we really expect an increase in the interest rate to increase savings? It is true that when the interest rate rises, saving is made more attractive. But it is also made less necessary. Consider someone who has decided to save an amount that will ensure that $10,000 per year is available for retirement. Suppose that the interest rate now is 5% and the person is saving $1,000 per year. Now let the interest rate rise to 10%. With such a high interest rate, the individual needs to save less now to provide the given 10,000 per year during retirement. It may be possible to provide the same retirement income by saving only about $650 a year. Thus an increase in the interest rate might reduce saving. (Dornbusch, Fischer 278)
The Qur’an condemns interest [simple & compound]:
"O you who believe! Devour not interest, doubled and redoubled, and be careful of Allah (God); haply so you will prosper." (Qur’an 3:130)
Devouring interest, according to common sense would be charging interest on the money you lend out whether it be lent out to a bank or another person. The Qur’an (30:39-quoted earlier) also condemns giving in interest so that further interest can be consumed ("so that it increases on people's wealth").
The Qur’an condemns consuming interest in strong words:
"O you who believe be careful of Allah (God) and give up the interest that is outstanding. And if you do not then be warned of war from Allah (God) and His messenger.." (Qur’an 2:278-279)
Note: The above verse refers to believers: "O you who believe.."
According to Qur’an 2:275 that was quoted earlier, a person when he receives God's warning i.e words of the Qur’an, can keep the past gains but give up, according to this verse the present and the future claims to interest.
The Qur’an does allow for a stewardship concept of banking in which you get all of the banks services excluding consuming interest. The banks can make a profit by charging you a fee. If you borrow from a bank or anyone else and if the bank or the person from whom money is borrowed, charges interest from you, it is not your fault. The Qur’an only condemns charging or consuming interest], or giving interest so that that interest is further increased (on people's wealth).
 
  2.4: CHARITY, THE Qur’an & ECONOMICS
The Arabic word "Zakah",translated into English means 'purity'. As used in the Qur’an (believed by Muslims to be God's word) it signifies the "purity" a person achieves through giving in charity in God's way. It's principle is discussed in Qur’an 9:103 & 92:18. It is enjoined on believers according to Qur’an 9:60 (this verse also narrates the categories of people to whom charity is applicable). The amount due according to the Qur’an (though Muslim tradition states a different percentage) is 50 % of savings beyond a persons legitimate needs ( see Qur’an 17:29 & 25:67).
Is Zakah (obligatory charity) good for the economy ?
Zakah is due out of savings according to the Qur’an (whether the savings (those that are beyond a persons legitimate needs) be small or large,it does not matter). Out of the amount saved 50 % has to be given (spent) in God's way, according to the Qur’an by those who claim to be Muslims.
" The alms are only for the poor and the needy, and those who collect them (for distribution), and those whose hearts are to be reconciled (resettlement of families, refugees etc), to free captives (slaves etc) and the debtors in need, and for the cause of Allah (God) and the needy travellers; a duty imposed by God. God is Knower, Wise" (Qur’an 9:60).
What are savings ?
" Saving is income that households receive but do not spend on buying goods and services. " (See any introductory Economics text)
The Qur’an asks men (women) who are believers to spend on fulfilling their legitimate needs as they wish, keeping within the boundaries set by God, in the Qur’an and says at the same time, "..but waste not by excesses" (Qur’an 7:31)
Therefore, what is not spent out of a person's income on fulfilling his (her) legitimate needs should 'Islamically' be saved. And out of what is saved (and what is beyond a person's legitimate needs) 50 % should be given in charity in God's way.
The categories of people mentioned in Qur’an 9:60 to whom Zakah (charity) is due are all "needy" in some way or the other. By giving your savings to such people, all or at least a major part of it will be spent immediately on consumption. Note that savings are a "withdrawal" from the circular flow of income while consumption is an "injection" into the circular flow of income in the economy. This injection results in an increase in the Real National Income (i.e National Income adjusted for changes in the price level). The economy is given a positive boost, under- consumption is reduced, a more equitable distribution of income is achieved and an economy in depression can well be on its way to recovery.
God's wisdom or the words of a man living in the Arabian desert 1400 years back ?
"Whatever spoils of war God has given to His messenger from the people of the cities belongs to God, His messenger, your near kinsmen (who are needy), orphans, the needy and the travellers, SO THAT IT DOES NOT MAKE A CIRCUIT AMONG THE RICH OF YOU." (Qur’an 59:7)
The paragraph that follows shows the wisdom of this 'ancient' book (the Qur’an), which skeptics claim was written by a man who had absolutely no schooling and lived in the Arabian wilderness:
The onset and severity of the great depression (1929-1941) can also be attributed to under consumption; production had outstripped consumption .
Under consumption also resulted from the unequal distribution of income. Between 1920 and 1929 per capita income rose about 9% but the income of the wealthiest 1% rose about 75%, accounting for most of the increase. Much of this increase was put into luxuries , savings, stock market investments, instead of being spent on consumer goods. (Chapter 23 page 426. A People & a Nation: U.S History since 1865).
An opposite redistribution to the one above, would be caused by Zakat (charity), increasing AD and diminishing the effects of a recession.
  What does the Qur’an  say ?
"That which you give in interest that it may increase on people's wealth increases not with God but that which you give in charity ,seeking God's will (and not selfish interest), has increase manifold" (Qur’an 30:39).
Injections into the circular flow of income in the economy,like the ones caused by charity to the needy, which is immediately spent on consumption, do cause "manifold increase" in GNP via the multiplier. The Charity, however, is not to be coerced out of the person concerned as according to Islam (based on the Qur’an): "There is no compulsion in religion.." (Qur’an 2:256). & " You are in no way a compeller over them.." (Qur’an 50:45)
 
2.5: Riba in The Qur’an:
In its general linguistic sense the term "Riba" denotes an "Addition" to or an "Increase" of a thing over or above its original size and amount. Inspite of all the deliberate confusion raised in order to keep the correct understanding of "Riba" in ambiguity, the Qur’an has very clearly and unambiguously defined "Riba". While warning Believers concerning it, the Qur’an defines what "Riba" is when it states:
"wa in tubtum fa lakum ru'u_su amwa_likum"
"..And if ye repent, then ye have your principal…" (2:279)
In the above verse it is clarified that "Riba" is that amount or remuneration which is in excess to that of the original Capital or Principal, what is called "Ras ul Maal" in Arabic.  The verse ends with the phrase:
"la_ tazlimu_na wa la_ tuzlamu_n(a)"
"..Wrong not, and ye shall not be wronged." (2:279)
Thus it is evident that not demanding remuneration in excess of the original Principal is not "Zulm" or oppression, and demanding remuneration in excess to the Principal (Ras-ul Maal) comprises "Zulm" or oppression and wrongdoing on the part of the lender, and hence this clarifies that "Riba" is that amount or remuneration that is demanded in excess to the principal or original capital sum.
The Qur’an says that we have the right to demand remuneration for our labor and efforts only, and not for the Capital as the ownership of the entire resources of the World belongs to Allah. While we on the other hand, are entitled to the compensation for our labor only:
"Wa al laisa lil insa_ni il la_ ma_ saa_"
"That man can have nothing but what he strives for." (53:39)
In Trade, which the Qur’an calls as "Bai" and makes permissible, we put in Capital along with Labor and in turn are entitled to remuneration for our Labor only, but in "Riba", no labor is put in and the remuneration is demanded restricted only for Capital. Allah has brought "Riba" and "Bai" side by side as opposites in the Qur’an and this further clarifies the concept of  "Riba". People allege that "Riba" is the same as Trade, as in both Capital is invested and remuneration is sought, but Qur’an refutes such, by stating that "Riba" is different from "Bai", such that in it, one also puts in his labor and effort along with the capital, and the increase is sought not for the Capital but for one’s efforts in selling the goods or services. Those who consume "Riba" are identified as people who are in a craze for increasing their wealth:
"Those who consume ‘Riba’ cannot rise up save as he ariseth whom the devil hath struck mad by (his) touch…" (2:275)
Their argument is that "Riba", i.e. increase and remuneration against Capital, is the same as Trade:
 "..That is because they say: Trade is just like ‘Riba’.." (2:275)
But Allah refutes such individuals and says that "Riba" is ‘Haraam’ (Prohibited) , while Trade, in which a person invests his Capital as well as Labor, is ‘Halaal’ (Permissible):
"..Whereas Allah permitteth trading and forbiddeth ‘Riba’. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to Riba)--Such are rightful owners of the Fire. They will abide therein." (2:275)
Generally we acquire resources by the following means:
(1)  GIFTS: Some one gives us something out of his free will and consent.
(2)  WAGES: The remuneration we get for our  Labor and efforts.
(3)  RIBA: Remuneration against Capital, without putting in any Labor or efforts. Riba is prohibited by Qur’an.
(4)  PROFITS: Remuneration against Capital as well as Labor.
(5)  GAMBLING: Remuneration acquired without putting in any Labor, but Capital only in games of chance. Gambling is prohibited by Qur’an.
It should be observed that apart from (1), the means by which remuneration is acquired without putting in Labor and efforts are Prohibited by Qur’an. (Riba and gambling)
  Acquiring "Riba" has been identified as "War from Allah and His Messenger":
"And if ye do not (give up income acquired from ‘Riba’), then be warned of war (against you) from Allah and His messenger. And if ye repent, then ye have your principal. Wrong not, and ye shall not be wronged." (2:279)
 
This is so because "Riba" is the antithesis if the Qur’anic Economic order. An Economy based on ‘Riba’ results in individuals or organizations growing  as parasites on the Labor and efforts of other people instead of their own, and cause massive economic exploitation and the emergence of Class conflicts. In a ‘Riba’ based Economy, the wealth is restricted in the hands of a minority only while in the Qur’anic Economic order the wealth circulates evenly in the whole of society and there are no class conflicts in the form of  Rulers, and  Capitalists against  workers or laborers. (See 59:7)
In the Qur’anic social order, the Believers work to the best of their ability, and keep only the necessities of life with them, and give the rest to those who are more deserving, as the following verse indicates:
"And they ask thee what they ought to spend. Say: That which is superfluous. Thus Allah maketh plain to you (His) revelations, that haply ye may reflect—" (2:219)
In a ‘Riba’ based society, the prime interest to the Capitalist is to his property and his own self, while in the Qur’anic Economic order the prime interest is not to one’s own Assets, but the well being of our fellow human beings on a wider level.
" They (the believers) give preference to others over themselves even though they may themselves face hardships.." (59:9)
The Believers in the Qur’anic message form a society whose outlook is completely different from that of a society where people amass wealth, on the labor and efforts of others and live luxuriously as parasites while their fellow human beings cannot even have the basic necessities of life. This should clarify why acquisition of 'Riba' has been resented to the extent of making an announcement of War by Allah and His Messenger.
2.6: What is Islami Bank?

Islamic bank is a financial Institution that operates with the objective to implement and materialize the economic and financial principles of Islam in the banking area. The organization of Islamic Conference (OIC) defines an Islamic bank as “a financial institution whose statutes, rules and procedures expressly state its commitment to the principals of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operation.”

According to ‘Islamic Banking Act 1983 of Malaysia’- “Islamic bank is a company, which carries 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.”

It appears from the above definitions that Islamic banking is a system of financial intermediation that avoids receipt and payment of interest in its transactions and conducts its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which Profit and Loss Sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS-banks.

2.7 History of Islamic Banking
2.7.1 The first attempt
Interestingly, the concept of Islamic Banking is several decades old. The first attempt to establish an Islamic financial institution took place in Pakistan in the late 1950s with the establishment of a local Islamic bank in a rural area (Wilson 1983). Some pious landlords who deposited funds at no interest, and then loaned to small landowners for agricul­tural development initiated the experiment. The borrower did not pay interest on the credit advanced, but a small charge was levied to cover the bank's operational expenses. The charge was far lower than the rate of interest. Although the experience was encouraging, two main factors were responsible for its failure:
Firstly, the depositors' landlords regarded the deposits as a one-time event. With the increasing number of borrow­ers the gap between available capital and credit demanded was huge.
 Secondly, the bank staff did not have complete autonomy over its operation; depositors showed considerable inter­est in the way their money was lent out.
2.7.2 The second attempt
The second pioneering experiment of putting the principles of Islamic banking and finance into practice was conducted in Egypt from 1963 to 1967 through the establishment of the Mit Ghamr Savings Bank in a rural area of the Nile Delta. The experiment com­bined the idea of German savings banks with the principles of rural banking within the general framework of Islamic values (Ahmed 1992). The bank's operation was based on the same Islamic principle i.e. no-interest to the depositors or from the borrowers. Unlike the Pakistani bank, the borrower had to have deposits in the bank in order to request a loan. The experiment soon became success­ful; more branches were opened in different parts of the country, and the amount of deposits increased. Nevertheless, the project was re­vived in 1971 under the name of Nasser Social Bank. This was the first Islamic bank in an urban setting based in Cairo. The bank is a public authority with an autonomous status. Its purpose was mainly to promote social concerns such as granting of interest-free loans for small projects on a profit-loss-sharing basis, and assist­ance to the poor and needy students for university and higher education. Because of these social functions, Nasser Social Bank was granted an exemption from the Banking and Credit Law of 1957 in its initial stages. The bank was originated under the Ministry of Treasury but it is now functioning under the Ministry of Social Welfare and Insurance. Its capital comes from the funds allocat­ed by the President from extra budgetary resources, appropriation from the state budget, and contribution from the Ministry of Awqaf (Ahmed 1992). The principles of operation of the Naser Social Bank are very similar to those of the Mit Ghamr Savings Bank.. Islamic Development Bank  (IDB) was established in 1975 and during the following three years seven Islami Banks & financial institutions namely (a) Dubai Islami Bank (b) Kuwait Finance House (c) Faisal Islami Bank, Sudan (d) Jordan Islami Bank for Finance and Investment (e) Islamic Banking System International Holding S. A. Luxembourg (f) Faisal Islami Bank of Egypt and (g) Islamic Investment  Co. Ltd., Sharjah , were established. In 1978, Islamic Foreign Ministers conference in Dakar (Senegal) recommended to the members of OIC to make systematic efforts to establish Islamic Banks gradually and during the next three years of their recommendaion, 20 Islamic Banks and financial institutions came to being. Till now about 300 Islamic banks and financial institutions in about 40 countries of Asia, Africa, Europe, America and countries like UK, USA, Germany, Argentina, Denmark, Luxembourg, Switzerland and India have been established.. The banking system of Iran and Sudan hase been totally remodeled on the basis of Islamic Shari’ah.
 2.8 Objectives of Islamic Banking

The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following:

ü  To offer contemporary financial services in conformity with Islamic Shariah:
ü  To contribute towards economic development and prosperity within the principles of Islamic justice;
ü  Optimum allocation of scarce financial resources; and
ü  To help ensure equitable distribution of income.


These objectives are discussed below:

Offer Financial Services: Interest-based banking, which is considered a   practice of Riba in financial transactions, is unanimously identified as anti-Islamic. That means all transactions made under conventional banking are unlawful according to Islamic Shariah. Thus, the emergence of Islamic banking is clearly intended to provide for Shariah approved financial transactions.

Islamic Banking for Development: Islamic banking is claimed to be more development- oriented than its conventional counterpart. The concept of profit sharing is a built-in development promoter since it establishes a direct relationship between the bank’s return on investment and the successful operation of the business by the entrepreneurs.

Optimum Allocation of Resources: Another important objective of Islamic banking is the optimum allocation of scarce resources. The foundation of the Islamic banking system is that it promotes the investment of financial resources into those projects that are considered to be the most profitable and beneficial to the economy.

Islamic Banking for Equitable Distribution of Resources: Perhaps the most important objective of Islamic banking is to ensure equitable distribution of income and resources among the participating parties; the bank, the depositors and the entrepreneurs.
2.9 Conventional and 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 is 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 or charges, to meet any contingency. Thus in Islamic banking, the creditors should not take advantage of the borrower.
The distinguishing features 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 conventional banks are based on manmade principles.
1. The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah.
2. The investor is assured of a predetermined rate of interest.
2. In contrast, it promotes risk sharing between provider of capital (investor) and the user of funds (entrepreneur).
3. It aims at maximizing profit without any restriction.
3. It also aims at maximizing profit but subject to Shariah restrictions.
4. It does not deal with Zakat.
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. Leading money and getting it back with interest is the fundamental function of the conventional banks.
5. Participation in partnership business is the fundamental function of the Islamic banks.
6. Its scope of activities is narrower when compared with an Islamic bank.
6. Its scope of activities is wider when compared with a conventional bank. It is, in effect, a multi-purpose institution.
7. It can charge additional money (compound rate of interest) in case of defaulters.
7. The Islamic banks have no provision to charge any extra money from the defaulters.
8. In it very often, bank’s own interest becomes prominent. It makes no effort to ensure growth with equity.
8. It gives due importance to the public interest. Its ultimate aim is to ensure growth with equity.
9. For interest-based commercial banks, borrowing from the money market is relatively easier.
9. For the Islamic banks, it is comparatively difficult to borrow money from the money market.
10. Since income from the advances is fixed, it gives little importance to developing expertise in project appraisal and evaluations.
10. Since it shares profit and loss, the Islamic banks pay greater attention to developing project appraisal and evaluations
11. The conventional banks give greater emphasis on credit-worthiness of the clients.
11. The Islamic banks, on the other hand, give greater emphasis on the viability of the projects.
12. The status of a conventional bank, in relation to its clients, is that of creditor and debtors.
12. The status of Islamic bank in relation to its clients is that of partners, investors and trader.
13. A conventional bank has to guarantee all its deposits.
13. Strictly speaking, and Islamic bank cannot do that.


Chapter Three

Islami Bank Bangladesh Limited



3.1 An overview

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 functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast Asia. It is committed to conducting 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.
3.2 History of IBBL
Islami Bank Bangladesh Limited was incorporated as the first Shari‘ah based interest-free Bank in South-East Asia on the 13th March 1983 as a Public Company with limited liability under the Companies Act, 1913.

The first branch of the Bank i.e. Local Office, Dhaka started functioning on 30th March, 1983. The Bank was formally inaugurated on 12th August, 1983. The Authorized Capital of the Bank is Tk.5,000 million and Paid-Up Capital is Tk.3,802 million. The shareholdings of Foreign and Local Shareholders in the Paid-Up Capital are 57.36% and 42.64% respectively.

After its establishment in 1983 the bank raised its share capital through the initial Public Offering (IPO) of shares in 1985. Subsequently, the first Rights Share was issued in 1989, 2nd Rights Share was issued in 1996, 3rd Rights Share was issued in 2000 and 4th Rights Share was issued in 2003 to enhance its capital base.

The Bank’s Corporate Headquarter is situated in its own 18-storied modern building at 40, Dilkusha Commercial Area, Dhaka.
The total Equity of the bank stood at Tk.14,622 million as on 31st December 2007 which was 10.34% of its Risk-Weighted Assets as against requirement of minimum 9.00%. Bank had 10 Zonal Offices and 186 Branches in the country as on 31.12.2007. Among the branches 81 Branches are in rural (44%) and 105 Branches are in urban (56%) areas. Total Shareholders of the bank was 26,488 and total officials of the bank were 8,426 as on 31st December, 2007.
3.3: Aims and objectives

ü  To conduct interest-free banking
ü  To establish participatory banking instead of banking on debtor-creditor relationship
ü  To invest on profit and risk sharing basis
ü  To accept deposits on Mudaraba & Al-Wadeah basis
ü  To establish a welfare-oriented banking system
ü  To extend co-operation to the poor, the helpless and the low-income group for their economic upliftment
ü  To play a vital role in human development and employment generation
ü  To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas.
ü  To contribute in achieving the ultimate goal of Islamic economic system

3.4: Mission of Islamic Bank Bangladesh Limited (IBBL)

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

3.5: Vision of the Islamic Bank Bangladesh Limited (IBBL)
Islamic bank vision to always strive to achieve superior financial performance is considered a leading Islamic bank by reputation and performance.
ü  To establish and maintain the modern banking technology, 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 the stability of finical systems.
ü  Try to encourage savings in the form of direct investment.
ü  Try to encourage investment particularly in project, which are more likely to lead to higher employment.

3.6: Local Sponsors of the Bank              
3.7: Foreign Sponsors of the Bank
Mohammed Abdul Razzaque lashkar (Late)
Mafizur Rahaman (Late)
Mohammad Younus (Late)
Barrister Tamizul Hoque
Md. Shafiuddin Dewan
Md. Bashir Uddin
Md. Hossain(Late)
Nasirrudin Ahmed(Late)
Md. Mosharraf Hossain; MP
Md. Malek Minar
Zakiuddin Ahmed
M.A. Rasheed Chowdhury
Engr. Mustafa Anwar
Md. Abdullah
Serajuddowla
IBN Sina Trust (Shah Abdul Hannan)
Bangladesh Islamic Center (A.K.M Nazir Ahmed)
Bangladesh Islamic Economic Research Bureau (Prof. Md. Sharif Hossain)
Md. Nuruzzaman
Abdul Quasem
A.K Fazlul Huque
Engr. Md. Dawood Khan
Baitush Saraf Foundation (Moulana Md. Abdul Jabber)
Kuwait Finance House
Jordan Islamic Bank
Islamic Investment & Exchange Corporation
Bahrain Islamic Bank
Islamic Banking System International Holding S.A; Luxemburg
Al-Raji Company for Currency Exchange & Commerce; K.S.A
Sheik Ahmed Salah Jamjoom; K.S.A
Fuad Abdul Hmid Al-Kahtib (Late); K.S.A
Dubai Islami Bank
The People Institution For Social Security Kuwait
Ministry of Awqaf and Islamic Affairs, Kuwait
Islamic Development Bank (IDB); Jeddah, K.S.A
Ministry of Justice, Dept of Minors Affairs, Kuwait


3.8: Corporate Information (31.12.2007)
Date of Incorporation                                              :           13 March 1983
Inauguration of 1st Branch                                      :           30 March 1983
(Local Office, Dhaka)
Formal Inauguration                                                            :           12 August 1983
Authorized Capital                                                  :           5000 Million
Paid up Capital                                                         :           3802 Million
Share of Capital
A. Local Shareholders                                 :           42.63%
B. Foreign Shareholders                              :           57.37%
Equity                                                                                    :           14622 Million
Zones                                                                         :           10
Branches                                                                    :           186
Deposit                                                                      :           166777 Million
Investment                                                                 :           174058 Million
Foreign Exchange Business                                    :           287919 Million
Manpower                                                                 :           8426
No. of Shareholders                                                 :           26488

3.9: Banking Functions
  1. To mobilize deposits
  2. To disburse investments
  3. To handle foreign exchange and foreign business
  4. Remittance: To remit money to home and abroad through T.T, D.D, Pay-Order, Travelers Cheque, etc.
  5. Other services: Locker service, to receive different types of bills of clients, to issue Guarantees and counseling etc.
Besides, Islami Bank Bangladesh Limited (IBBL) conducts social welfare activities through Islami Bank Foundation.
3.10: Activities of the Bank
The activities of the Banks include the following areas of the economy other than normal commercial banking operations.

Industrial Financing:  Like BSB & BSRS Development Financial Institutions.

House Building Financing:  Like HBFC Housing Finance & Company and Delta Brac Housing Company.

Rural Development Financing:  Like Grameen Bank, BRAC, ASA, etc.

Humanitarian Assistance:   Trough its Foundation for the down trodden people of the society.
3.11: Role and Contribution of IBBL to Bangladesh Economy

  1. Pioneer in Islamic Banking running its entire operation based on Islamic Shariah.
  2. Shariah Council comprising of leading Ulama, renowned economists, lawyers and bankers of the country for constant supervision and guidance of the Banking operation.
  3. Never participate in the interest based money market operations.
  4. Never borrowed from any source either inside or outside the country.
  5. A transparent and corruption free operation for the last 25 years in a row.
  6. Regular and timely holding of AGM declaring good dividend since 1989 without break till 2007, except in the year 1992.
  7. Largest contributor of tax to the Government exchequer from the private sector banks receiving CIP status from the Government almost every year.
  8. Received the best bank in Bangladesh Awards from Global Finance, UK in 1999, 2000 & 2004.
  9. It is connected to 830 offices of 230 foreign banks in 74 countries.
  10.  IBBL received A+ rating in CRISL (Credit Rating Information & Services Ltd.)

3.12: World Ranking of IBBL amongst Top 3000 International Banks

Serial No                                            Year                                                    Rank
1                                                          1994                                                    2447
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
12                                                        2005                                                    1658
13                                                        2006                                                    1620
14                                                        2007                                                    1490
Source: The Bankers Almanac: World Ranking Read Business Information, U.K.

3.13: Ranking of IBBL amongst Top 500 Banks of Asia

Serial No                                            Year                                                    Rank
1                                                          1998                                                    465
2                                                          1999                                                    443
3                                                          2000                                                    437
4                                                          2001                                                    414

Source: The Asia Financial 500; Asia Week Ltd., Hong Kong
3.14: CAPITAL STRUCTURE
It is well known to all that Islami Bank is one of the fastest growing bank in Bangladesh. The management introduces this new Islami Shariah based banking over the conventional banking. A scenario is presented here on the view of Capital structure during the last 20 years:
1983
(Million)
1985
(Million)
1990
(Million)
1995
(Million)
2000
(Million)
2005
(Million)
    2006
(Million)
Authorized Capital
500.00
500.00
500.00
500.00
1,000.00
5,000.00
5000.00
Paid Up Capital
67.50
67.50
80.00
160.00
320.00
2764.80
3456.00
Reserves
Nil
13.20
200.00
653.10
1,759.65
5450.94
6979.96
Total Equity
67.50
92.70
280.00
813.10
2,671.06
8331.14
10435.96
n  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 30.09.2006.
3.14.1: DEPOSIT

Islami Bank is one of the fastest growing banks in Bangladesh. In every aspect Islami banking concept and as 1st introducer of this banking system in Bangladesh Islami bank plays a superior position in the whole banking sector in Bangladesh. In that stream of flows total deposits achieved by IBBL at Tk. 107,779 Million as on 31.12.05 as against Tk. 87,841 Million as on 31.12.04 of the preceding year registering an increase of Tk. 19,938 Million i.e. (35 percent as compared to the growth rate of 12 percent of the Banking Sector during 2005.) Total number of depositors of IBBL increased to 2,604,266 as on 31 December 2005 from 2,111,122 of the preceding year, registering an increase of 24 percent.
Generally Islami bank has its own product line such as Mudaraba Savings Account (MSA), Mudaraba Special Scheme (MSS), Mudaraba term Deposit (MTDR), Mudaraba Short Notice A/C (MSNA), Mudaraba monthly profit distribution Scheme (MMPDS) etc. This entire product makes a tremendous response over the client. More over the client are become very much interested to accept the new methodology introduce by IBBL instead of conventional Banking methodology where there is no use of terms call INTEREST. Then recently IBBL introduce a New Product Call Mudaraba Savings Bond (MSB) already augment resources matching with its asset structure; it has received tremendous response. In 1998, 10 year and 5 year’s term Mudaraba Special Savings (Pension) Scheme has been introduced to meet the expectation of the existing/potential depositors of the Bank that has also received tremendous response.
Particulars
Percentage
Mudaraba Savings
40.26%
Mudaraba Term Deposit
20.47%
Mudaraba SND
14.15%
Mudaraba Special Savings
11.52%
Currency & Contingency
8.07%
Bills Payable
3.39%
Mudaraba Saving Bond
1.01%
Mudaraba Monthly Profit Deposit Scheme
0.35%
Mudaraba Muhor Savings
0.64%
Mudaraba Foreign Currency Deposits
0.08%
Mudaraba Muhor Savings
0.05%
Mudaraba Wakf (Cash Deposit)
0.01%

3.14.2: INVESTMENTS

Investment of Islami Bank increased to Tk 93,644 million as on 31.12.2005 from Tk 75,859 million as on 31.12.2004 showing an increase of Tk. 17,785 million, i.e. 18.99% growth as against 11.75% growth of investment of the banking sector. This increased investment growth of the Bank in 2005 may be attributed to the thrust given to promote investment in order to deploy the surplus liquidity.
Pursuant to the investment policy adopted by the bank, currently a 5 year Perspective Investment Plan has be drawn up for the year 2005 to 2009 and put into implementation. The plan has been formulated keeping in view the national economic priorities and aiming at diversification of the investment portfolios by size, sector, geographical area, economic purpose & securities to bring in phases all sectors of the economy & all types of economic activities and different economic strata of the society within the fold of Bank’s investment operation.
3.15: Achievement of 25 Years (30.3.1983 to 30.03.2008)


3.15.1: Mudaraba Perpetual Bond
Islami Bank Bangladesh Limited issued Mudaraba Perpetual Bond (a new product) of Tk. 300 crore according to the suggestion of Bangladesh Bank and Securities & Exchange Commission under Tier-II. Among these, Tk.150 crore is distributed under the basis of private placement and the rest under Repeat Public Officer (RPO). We have distributed Tk.150 crore among the applicants against the number of 5,24,196 applications through lottery as RPO. This is a new product in capital market and in banking sector as well so is an outstanding phenomenon.

3.15.2 Membership of Dhaka Stock Exchange Limited
IBBL has become member of the Dhaka Stock Exchange in the year 2006. Securities and Exchange Commission (SEC) has been approached for permission to operate the brokerage house. By this time, license for Custodian Depository Partnership (DP) from SEC and Central Depository Bangladesh Ltd. (CDBL) has been obtained. Now interested persons can open account with IBBL for custodian purpose. Brokerage House function will be started on getting permission from SEC. Any body will then be able to buy and sell shares by opening B.O. Account with IBBL.

3.15.3 Membership in other National organizations
The Bank is also member of the under noted Local Organizations:
a.                   Bangladesh Institute of Bank Management (BIBM)
b.                  The Institute of Bankers, Bangladesh (IBB)
c.                   Bangladesh Association of Banks (BAB)
d.                  Bangladesh Foreign Exchange Dealers’ Association (BAFEDA)
e.                   Central Shari‘ah Board for Islamic Banks in Bangladesh
f.                   Islamic Banks Consultative Forum (IBCF), and
g.                  Dhaka Chamber of Commerce & Industry

3.15.4 Share Holding in National Bodies
The Bank participated in the share capital of Central Depository Bangladesh Limited (CDBL), which has been established for electronic book entry system to record and transfer the securities and change the ownership of securities without any physical movement of certificates.
The Bank also participated in the share capital of Karmasangsthan Bank (Employment Bank), a Bank established with Govt. initiative for creating employment opportunities for the unemployed youths.
3.15.5 International Affiliations

This Bank is a member of the under noted Foreign Organizations:
a.                   Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain and has also become member of its Board of Trustees.
b.                  General Council for Islamic Banks and Financial Institutions (GCIBFI), Manama, Bahrain and has also become member of the Executive Committee of GCIBFI,
c.                   International Chamber of Commerce-Bangladesh,
d.                  Islamic Financial Services Board,
e.                   International Islamic Financial Market, and
f.                   International Islamic Center for Arbitration and Commercial Settlements (IICACS).
3.15.6 Shari’ah Council
The Shari’ah Council of the Bank plays a very important role in framing and exerting policy for strict adherence of Shari’ah Principles in the bank. The Council is represented by 13 members consisting of prominent Ulama having adequate knowledge in Fiqhul Moamalat, renowned lawyers and eminent economists to advice and guide on the implementation and compliance of Shari’ah principles in all activities of the Bank particularly on the modes of investment. The Council of the Bank is governed by its bye-laws and enjoys a special status in the Bank.
3.15.7 Management of IBBL
A Board of Directors consists of Directors, now, 13 in number elected from and amongst the foreigners and local shareholders provides the policy guidelines to Islami Bank Bangladesh Limited. The Board of Directors for smooth and efficient operations of the Bank forms an Executive Committee consisting the members of the Board. Besides, a Management Committee consisting of the Senior Executives headed by the Chief Executive looks after the actual operations of the Bank.
3.15.8 Performance Highlights
n  The largest network of Branches among Private Commercial Banks
n  On-line Banking facilities in 95 Branches
n  3.8 million Deposit Customers
n  Over 5 hundred thousand Investment clients
n  55% of total investment in Industrial sector
n  Employment generation for more than 1 million people
n  Poverty alleviation through investment to more than 5 (five) lac people
n  Highest Taxpayer in Banking sector of Bangladesh
3.15.9 Products
IBBL has so far introduced the following deposit products:
i.                    Al Wadeeah Current Account     
ii.                  Mudaraba Hajj Savings Account (1 Year to 25 Years)
iii.                Mudaraba Waqf Cash Deposit
iv.                Mudaraba Special Savings (Pension) (5 Years and 10 Years)
v.                  Mudaraba Muhor Savings Account
vi.                Mudaraba Savings Bond (5 Years and 8 Years)
vii.              Mudaraba Monthly Profit Deposits Scheme (3 Years and 5 Years)
viii.            Mudaraba Term Deposits(3 Months, 6 Months, 12 Months, 24 months and 36 Months)
ix.                Mudaraba Savings Deposits
x.                  Mudaraba Special Notice Deposits
xi.                Mudaraba Foreign Currency Deposits
3.15.10 Mobilization
The year 2007 was another successful year of mobilization of deposit. Total deposit stood at Tk.1,66,777 million as on 31st December 2007 as against Tk. 132,419 million of the preceding year registering an increase of Tk.34,358 million, i.e. 25.57% growth as compared to the growth rate of 16.70 % of the Banking Sector during 2007. The percentage of growth of Deposit in 2006 was 26.67%.
The share of deposit of IBBL in banking sector as on 31.12.2007 was as 7.48% from 7.74% as on 31.12.2006.
Total number of depositors of IBBL increased to 38,02,709 as on 31st December 2007 from 3,207,131 of the preceding year, registering an increase of 18.57% as against increase of 18.56% as on 31.12.2006.
3.15.11 Investments
Investment of the Bank increased to Tk.1,74,058 million as on 31.12.2007 from Tk. 1,13,575 million as on 31.12.2006 showing an increase of Tk.60,483 million, i.e. 40.42% growth as against 17.24% growth of investment of the Banking Sector. This increased investment growth of the Bank in 2007 is due to the thrust given to promote investment for effective utilization of depositors’ fund. The percentage of increase of Investment of IBBL in 2006 was 25.26%.
The share of Investment of IBBL in Banking sector as on 31.12.2007 increased to 8.27%, from 7.67% as on 31.12.2006.


            4.         To exchange customer facilities.
5.         To be continuous of our authorized.

4.4: REMITTANCE

4.4.1: Meaning of Remittance:


The word “Remittance” originates from the word “remit” which means to transmit money/ fund. In banking terminology the word “remittance means transfer of fund one place to another. When money transferred from one country to another is called “Foreign Remittance”


4.4.2: Types of Remittance:

Foreign remittance may be classified into.

Ø  Inward Foreign Remittance.
Ø  Outward Foreign Remittance.

4.4.2. A: Inward Foreign Remittance:

Inward Foreign Remittance means Remittance received from foreign countries from abroad. In other words remittance coming into our country from other countries by the remitter by way of permissible banking channel through freely convertible Foreign Currencies is called ‘Inward Foreign Remittance’ i.e. payless point of view it is inward foreign remittance. On the other hand remitter’s point of view it is called outward Foreign Remittance. During The year 1995-1996 Bangladesh received and amount of US$ 1217.062 Mil as Foreign remittance. The above process of Remittance may be presented diagrammatically as under:

4.4.2. B: Outward Remittance:

Outward remittance of funds be made by means of T.T., D.D.T.T. etc. the remitter has to deposit money along with the application contains name and address of the payee name of the currency etc. All outward remittances must cover the transactions approved by the Bangladesh Bank. Which are usually for importers travel & educational expenses.

4.4.3: Direct/ Indirect Remitter:

Wage Earners: Bangladeshi citizens are working abroad both in private sector & in Govt. Sector.

Indenture: Indenting commission & Agency commission received from suppliers from abroad. Bangladeshi citizens are working in Bangladesh Embassy abroad.
            Foreign Govt./ Govt. organization (UNO & others) who have their own activities in Bangladesh say business, Embassy etc. can also remit to Bangladesh for meting       their expenses, salary etc.
Donors: Foreign Donors can only remit to Bangladesh through the Govt. Register Organization & institution etc.
Exporters: Export proceeds also remitted to Bangladesh against exporting of goods.

4.4.4: Mechanism of Remittance:


  • FCAD- Foreign currency A/C Dollar.
  • FCAP- Foreign currency A/C Dollar.
  • MFCD- Mudaraba foreign currency deposits.
  • PFC- Private foreign currency.
  • FCAD- Exp. - Foreign currency A/C dollar export.
  • NRO- Non residence dollar.
  • NRT- No residence Taka.
  • PDAP- properly development A/C dollar.
  • PDAP- properly development A/C pound.

4.4.5: 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.

4.4.6: Different types of F.C A/C:


  • Foreign Currency A/c. Under wage Earners Scheme FCAD, FCAP & other.
  • P.F.C A/c Private Foreign Currency A/c.
  • N.F.C.D: Non resident foreign currency Deposit A/c.
  • Exporters Retention Quota A/c.
  • Education Foreign Currency A/c.
  • C.T A/c. Convertible Taka A/c. & Non- Convertible Taka .
4.5: PERFORMANCE EVALUATION
4.5.1: Foreign Exchange Performance of IBBL

Islami Bank Bangladesh Limited has glorious history in mobilizing Foreign Exchange Business. Over the years the bank’s Foreign Exchange Business was a record high amount among all banks in Bangladesh.

The Bank has a wide Network of   Authorized Dealers throughout the year. Well- equipped and international network with skilled manpower, the bank is confident of running Foreign Exchange business efficiently to the satisfactory of importers, exporters and Bangladeshi Expatriates working abroad.

IBBL has a good network of correspondent banks around the world for its Foreign Exchange Business. The performances are given in the following pages.
4.5.1. A:  YEARLY IMPORT
                                                                   Amount in Tk.million

YEAR
IMPORT AMOUNT
2003
46237
2004
59804
2005
74525
                2006
                          96870
   Source: International Wing, IBBL

As above table show that, the Import amount in Tk. million from 2003-2006.The import business witnessed a much better performance in 2005; the amount was Tk.74, 525 million. Before that year amount was Tk.59, 804.And the year 2003 the amount was Tk.46, 237.So through out the year 2003-2006, the Import business is increasing.

Figure: Import from 2003-2006

As above graph show that, the Import amount in Tk. Million from 2003-2005.The volume of export increase substantially by the Tk.46,237- 74,525 million

4.5.1. B:  YEARLY EXPORT
                                                                        Amount in Tk.million

YEAR
EXPORT AMOUNT
2003
21,738
2004
29,151
2005
36,169
2006
51133
                                 
Source: International Wing, IBBL

The above table show that the yearly export amount from 2003-2005 by the Bangladeshi exporter. In 2003 the Export amount was Tk. Million 21,738. After the year 2004 this amount increased by almost 38%, amount in Tk. Million 29,151.The last year it also increased but the growth was 24% due to inflation, political unrest and rescission in world economy.

        Figure: Export from 2003-2006
As above graph show that, the Export amount in Tk. Million from 2003-2005.The volume of export increase substantially by the Tk.21,738- 36,169 million.
4.5.1. C: YEARLY REMITTANCE
Amount in Tk.million

YEAR
REMITTACE AMOUNT
2003
16,668
2004
23,669
2005
36,948
2006
53819
Source: International Wing, IBBL

As above the Table shows that, the remitted amount of IBBL in the million of Tk. From 2003-2005.As in the year 2003 the remitted amount from abroad amount was Tk. Million 16,668.In the 2004 the amount was increased figured Tk.23, 669 million, which also
grater than the previous year. IN the 2005 the growth rate was too high than the previous two years, volume Tk.36, 948 million.

Figure: Remittance from 2003-2006
The Graph shows that there is an increase in the Remitted amount from abroad from2003-2006.The growth of the business is to stable and satisfactory.
4.5.2: Foreign Exchange Business of ibbl
Amount in Tk.million
YEAR
IMPORT
EXPORT
REMITTANCE
TOTAL
2003
46,237
21,738
16,668
84,643
2004
59,804
29,151
23,669
112,624
2005
74,525
36,169
36,948
147,642
       2006
         96,870
      51,133
          53,819
     201,822
Source: International Wing, IBBL
As the above table shows that, the overall Import, Export and Remittance business of IBBL .From this table we can compare ,which business perform more ,also gather  the idea about the turnover of the foreign exchange business. For better look, the following graph show the foreign exchange business for the past three years.

           Figure: Total F.EX business from 2003-2006

The Graph snows that the foreign exchange business by IBBL is stable and the growth rate is nearly sustain. From above we saw that import is always high and the growth also high rather than the two type of business.


4.5.3: YEARLY NUMBER OF IMPORT L/C ISSUED

YEAR
No of L/C Issued
2003
21,177
2004
24,047
2005
26,736
Source: International Wing, IBBL

As the Above table shows that the total import L/C opened by the bank from 2003-2005.
In the year 2003 the opened L/C was21, 117 and the next year it reached 24,047.In the year 2005 the amount was 26,736.

Figure: no. of L/C opened from 2003-2005

During the year 2005 the bank opened 26,736 imports L/C for Tk.74, 525 million as against 24,047 L/C for Tk.59, 804 million in 2004 showing 24.62% growth. In the year
2003 the bank opened 21,117 L/C .Every day the amount of L/C opened ratio is increased and the growth rate focused that its stable and positive


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