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Foreign Exchange and Foreign Trade: Problem & Prospect-A Study On Islami Bank Bangladesh Ltd. Agrabad Branch, Chittagong.
(THIS INTERNSHIP REPORT IS SUBMITTED FOR THE PARTIAL FULFILMENT OF THE DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION WITH A MAJOR FINANCE)
Name: Md Niaz Morshed Matric No: B073103 Program: BBA Semester:
Name: Dr. Sk Sirajul Islam Designation: Associate Professor, DBA Internship Duration: 11-07-2011 to 08-09-2011 Submission Date:
Signature of Supervisor
Department of Business Administration Faculty of Business Studies
Pioneer in Welfare Oriented Banking
International Islamic University Chittagong
Letter of Submission
8th December 2011, The Dean Department of Business Administration Subject: Submission of internship report – reference to Agrabad Branch. Dear Sir, Assalamualaikum, With due respect I submit the report on “Foreign Exchange and foreign Trade: Problem & Prospect ” which has been prepared for fulfilling the internship program of the degree Bachelors of Business Administration. This is the first time I prepared a report based on my practical experience and I have tried my best to complete the study in a proper way despite some limitations. This report is based on my observations during the 7 week long practical training in the Agrabad Branch, the cordial cooperation of bank officials, books and websites. I hope you will find this report meaningful. I also expect that proper assessment will be given on my report considering the limitations of this study. Within the time limit, I had to prepare this report as comprehensive as possible. But there may be some unwanted mistakes for which, I beg your kind consideration. Your benign and authoritative advice will encourage me to conduct further flawless research in future. Ma’assalam Your’s sincerely, Md. Niaz Morshed Bachelor of Business Administration (BBA) Major in Finance and Banking Department of Business Administration,
Pioneer in Welfare Oriented Banking
International Islamic University Chittagong.
First of all, it is the Almighty, the Merciful and the Benevolent Allah (SWT) who give me the sense to understand what I do and finish the study properly. I am most grateful to the management of Islami Bank Bangladesh Limited for giving me the opportunity to complete my internship in their organization. My extreme gratitude goes to Mostafizur Rahman Siddiquee, Senior Vice President of IBBL for his cordial support and guidance. I would like to express my gratitude to esteemed supervisor Dr. Sk Sirajul Islam, for providing me detailed feedback and technical advice on this report. Without his guidance and support it would not been possible for me to complete this report nicely. I am grateful to Md Jamal Uddin (Assistant Vice President & Incharge Foreign Exchange Department), Md Jahangir Alam (Officer) & for their kind assistance, without which the report would have been incomplete in many aspects. I would also like to render my sincere thanks to A.S.M. Waqer Uddin (Senior Principal Officer), Mohammed Eyahya (Senior Principal Officer) & Md Ahsan Habib (Assistant Officer) of Foreign Exchange Department, for providing me guidance & inspiration to work. My appreciation also goes to Md. Muhitul Alam (Assistant Officer), K M Humaun Kabir (Officer), & Md. Jubaer Chydhury (Officer) of General Banking department of IBBL, Agrabad Branch for their day to day monitoring, supervision and assistance. Finally, I would like to thank all the respondents and interviewees whose thoughts, ideas and information made this report richer.
Since independence. Agrabad. By discussing specifically the foreign exchange and foreign trade operations of IBBL. proved its worth in the country’s money market and many new banks have been established to 4 . The aim of the study was to observe the way IBBL is performing Banking business in interest free and Shari’ah complied methods. Agrabad Branch. The innovation of interest-free banking systems. This report undertakes a study on the pioneer Interest-Free Financial Institution in Bangladesh. I tried to discover how the bank provides international banking services in interest-free and shari’ah approved method and holds the first position in terms of Import. Islamic banking as a new paradigm started in Bangladesh in 1983 with the establishment of the first Islamic bank "Islami Bank Bangladesh Limited". and Inward foreign remittance business. But Islamic banking system was developed here up to 1983 was centered to interest. Banking plays an important role in the economy of any country. Export. Chittagong. which strongly prohibited repeatedly in Islam. During the period 1947-1971 when country was a part of Pakistan but the rulers did not take any practical attempt to establish economic system based on Islamic Principles. These people possess strong faith on Allah and they want to lead their lives as per the construction given in the holy Quran and the way shown by the prophet Hazrat Mohammad (Sm). Bangladesh is the third largest Muslim country in the world with around 150 million populations of which about 90 percent are Muslim. “Islami Bank Bangladesh Limited” (IBBL). This interest based banking system had been in action right from the British colonial period and employment of the Muslims in banks was more or less restricted. Bangladesh saw a new trend in banking both at home and abroad. In this attempt I tried to know how Islamic banking activities differ from that of a conventional bank and also to see how Islami bank contribute to render financial services towards to the mass people efficiently.Pioneer in Welfare Oriented Banking Executive Summary The report is based on fifty days practical experience in Islami Bank Bangladesh Limited (IBBL).
export. At chapter 8 there is Findings. For the continued expansion of the Islamic Banking system. especially by constituting consortium or syndication by the Islamic banks. Recommendation & Conclusion. a number of issues pose serious threats to the Islamic banks and these are needed to be carefully addressed. and extension of investment in line with PLS framework. opportunities. The introduction chapter consists of objectives. In the chapter sixth problems and prospects of Islamic Banking in Bangladesh are given. there is SOWT analysis describing the strengths. In the fifth chapter analysis of the branch performance in case of import. remittance & operating profit. This paper discusses and makes recommendations on the more pertinent of these issues particularly the development of an Inter-Bank Islamic Money Market. methodology. scope. In the second chapter import financing services of the bank is covered. vision of the company. weakness. Import performance in many aspects is given there. development of New Financial Products in line with the Islamic Shari’ah. enactment of a full-fledged Islamic Banking Act.Pioneer in Welfare Oriented Banking operate in compliance with Shari’ah and many traditional banks have opened their Islamic banking braches. The third chapter deals with export and export performance as well as other related aspects. company overview such as objectives. The paper suggests that diversification of investment should be emphasized. 5 . and threats of IBBL are described. activation of Shari’ah Supervisory Boards. In the seven chapter. goals. In chapter 4 inward foreign remittances is covered with discussion on performance from many aspects and related discussions. mission. limitations. The report mainly consists of eight sections.
188.8.131.52.Pioneer in Welfare Oriented Banking Table of Content Chapter Topic 1 Introduction 1. Introduction Objectives Scope Methodology Limitations IBBL: An overview Page 1-8 2 3 3 4 5 5 6 . 1.3. 1. 1.1. 1.6.
Pioneer in Welfare Oriented Banking
Import Services: 2.1. 2.2. 2.3. 2.4. 2.5. Import services and financing products Year to year import Share of IBBL in country’s total import Import vision Commodity wise import performance
9-17 10 13 14 15 15 18-24 19 21 22 23 24
Export Services: 3.1. 3.2. 3.3. 3.4. 3.5. Export services and financing products Year to year export Share of IBBL in country’s total export Export vision Commodity wise export performance
Remittance: 4.1. 4.2. 4.3. 4.4. 4.5. Classification of remittance Instruments of foreign remittance Year to year export remittance Share of IBBL in country’s total remittance Country wise remittance performance
25-29 26 26 26 28 29
Performance Analysis Of Agrabad Branch 5.1. 5.2. 5.3. 5.4. Import performance Export performance Remittance performance Operating profit performance
30-34 31 32 33 34
Problems and Prospects of Islamic Banking 6.1. 6.2. Overview of Problems Challenges faced by Islamic Banks
35-41 36 39
SOWT analysis Ending Remarks: Findings Recommendations Conclusion
42-47 48-54 49 50 54
Pioneer in Welfare Oriented Banking
CH APTER-ONE INTR ODUCTION
Pioneer in Welfare Oriented Banking
Banks are the most important financial institutions in a modern economy. They are an indispensable part of all modern economic activities. They help accelerate the pace of development process by securing uninterrupted supply of financial resources to people engaged in value generating activities. Nowadays all financial activities centers on the banking system. So the role of banking system is considered to be the hart of any financial system. Main role of banks is financial intermediation that means accumulating funds from numerous small depositors and channeling those funds to entrepreneurs for investment purposes. The banking system of Bangladesh is composed of verity of banks like Nationalized Commercial Banks, Private Banks, Foreign Banks, Specialized Banks and Development Banks etc. At present among other banks Islami Bank Bangladesh Limited (IBBL) holds the position of being the leading bank in terms of deposit collection, investment, and foreign exchange business. Since establishment in 1983, IBBL has been operating to provide efficient banking service with a view to accelerate socioeconomic development of the country in Shari’ah complied manner. Over the last few years the banking world has been undergoing a lot of changes due to deregulation, technological innovations, better transportation and communication systems, globalization etc. These changes also brought revolutionary changes in many countries economy. All of these changes as well as new and supportive laws and regulations have created a favorable
Pioneer in Welfare Oriented Banking environment for international business.2. 1. In this regard this report contemplates the knowledge and experience accumulated from the practical exposure to the foreign exchange department. Objectives The objective of the internship program was to gather practical knowledge and experience about the corporate working environment with the close approximation to the business firm and the experts who are leading and making strategic decisions.1. less investment involvement and more profitability. strength. Scope 10 . the function of Foreign Exchange To identify the problem and prospect of Foreign Exchange business. The specific objective of the study are: • • • • • To know about department. In addition to supporting clients to perform their international business activities in a secured and legal way. Foreign exchange business is getting more and more importance to the banks due to the relatively shorter investment tenor. and threats through SOWT analysis. weaknesses. To give some suggestions for improving performance of Foreign Exchange operation of the bank. As a result the scope for international banking and foreign exchange business has increased. banks are also ensuring their income though providing financing and related services to these clients. opportunities. To evaluate performance of Foreign Exchange of the bank. 1. To identify profit analysis.
Pioneer in Welfare Oriented Banking The report covers the organization’s background.3. objectives. but this study will show how it succeed to perform these activities in Shari’ah complied methods. Methodology Both the primary as well as the secondary form of information is used to prepare the report. But as my topic specifically emphasizes the foreign exchange business of IBBL. functions. Foreign exchange and foreign trade section. The details of these sources are highlighted below. I spend about one month in the foreign exchange department. and international banking system & the services it provides to the customers. Investment section. The scope of the study is limited to the operational mechanisms of IBBL. business philosophy. These are: • • • General banking section. Within the stipulated time. 1. Collection of departments relevant information from various Interviewing clients and beneficiaries of different products or services. structure. Secondary Sources I have collected secondary data through the following means: • Internal Sources 11 . I have covered three functional areas of IBBL. IBBL offer the common & usual services like the other commercial banks. performance and specifically the foreign exchange business performance of IBBL. Practical work exposures on different desks of the branch. Primary Sources I have collected primary data through the following means: • • • • Face to Face conversation with the respective officials of the bank.
Limitations Being required to complete the internship program and prepare the report timely. Relevant websites. In spite of such effort. These limitations were: • The findings and evaluations are derived from a short term work experience in the Foreign Exchange Brunch only and may or may not apply to other brunches of the bank.Pioneer in Welfare Oriented Banking • • • • • • • • Bank's Annual Reports. These limitations appeared as barriers for preparing the report. Particularly when IBBL holds the highest position in collecting deposits. Bangladesh Bank Reports and regulations for foreign exchange and others. Desk reports of the related departments Training sheets provided by (IBTRA) Website of IBBL External Sources • • • • Relevant books. Secondary sources of data relating to the banking industry particularly on Islamic banking in Bangladesh are very • • • 12 . In the highly competitive market release of material information to competitors have negative impact on business. in some cases management was reluctant to give some specific data. Another crucial limitation was the sensitivity of the data. 1. As a result. Publications regarding banking functions. I applied my wholehearted effort. Brochures of Islami Bank Bangladesh Limited. Different circulars sent by Head Office. Newspapers and Newsletters. foreign exchange operations and credit policies. Journals. Government and Bangladesh Bank. there exited some limitations.4. Some questions were avoided or not exactly answered by the respondents may be because of lack of clear idea or my failure to convey them my requirement. and foreign exchange business in Bangladesh. Internal Records. investments.
2. • 13 .(At present the Companies Act.5.Pioneer in Welfare Oriented Banking limited as sufficient books. Dhaka. Business Philosophy The philosophy of IBBL is to comply with the principles of Islamic Shari’ah.36% and 42. The first branch of the Bank was Local Office in Motijheel.000 million and Paid-up capital is Taka 6. Foreign and Local shareholders holdings are of 57. Dilkusha.64% of the Paid-up capital respectively. • It wants to be “a financial institution whose status. publications and journals were not available. IBBL: AN OVERVIEW 1. The sponsors perceive that IBBL should be quite different from other privately owned and managed commercial Bank operating in Bangladesh and should grow as a leader in the industry rather than a follower. Authorized Capital of the Bank is Taka 10.5. Dhaka started functioning on 30th March 1983. 1. 1994). The Bank was formally inaugurated on 12th August 1983.1. 1913 . The Bank’s corporate Headquarter is situated in its own 18-storied modern building at 40. 178 million.5. Establishment Islami Bank Bangladesh Limited (IBBL) 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. • Such type of report needs much study and analysis. and procedures expressly state its commitment to the principles of Islamic Shari’ah and to the Banning of the receipt and payment of interest on any of its operations” as was defined by OIC. At the same time I also felt lack of deep knowledge and analytical ability for writing such report. which was most possible due to shortage of time. rules. 1.
5. transparency and integrity in order to ensure stability of financial systems.5. • • 1. 14 . To make Investment.5. To encourage socio-economic uplift and financial services to the low-income community particularly in the rural areas. Functions • • • To maintain all types of deposit accounts. working for the benefit of people. continuous effort should be made to add new dimensions so that clients can get “Additional” in the matter of services commensurate with their needs and requirements.5.4.Pioneer in Welfare Oriented Banking • The leadership will be in the area of service. 1. To encourage savings in the form of direct investment. To encourage investment particularly in projects which are more likely to lead to higher employment. Vision IBBL’s vision is to always strive to achieve superior financial performance. 1. To handle foreign exchange business.3. Mission • To establish Islami Banking through the introduction of a welfare oriented banking system and also Ensure equality and justice in the field of all economic activities To achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country. Goals • • • To establish and maintain the modern Banking techniques.6. be considered a leading Islamic Bank by reputation and performance.5. To ensure soundness and development of the financial system based on Islamic principles. • • 1. To become a strong and efficient organization with highly motivated professionals. based upon accountability.
To conduct social welfare activities. 1.5. IBBL: At a Glance 15 .Pioneer in Welfare Oriented Banking • • To extend other banking services.7.
00 Million Taka 10.71 Million 1985 1985 1996 1989 1996 2000 2003 42.00 million* 32830. March 1983 12. 2011) 13.00 crore* 11033* 63001 16 .Pioneer in Welfare Oriented Banking Date of Incorporation Inauguration of 1st Branch Formal Inauguration Authorized Capital Paid-Up Capital IPO Listing with DSE Listing with CSE 1st Right Share Issue 2nd Right Share Issue 3rd Right Share Issue 4th Right Share Issue Local Share holders Foreign Share holders Number of Zones Number of Branches SME Service Centers Equity Deposit Investment Foreign Exchange Business Manpower Number of share holders *(As on August 31.36% 11* 254* 32* 32104.64% 57. March 1983 30.007. August 1983 Taka 20.000.00 crore* 32349.00 crore* 47769.
Pioneer in Welfare Oriented Banking CHAPTER-TWO IMPORT SERVICES 17 .
1.Pioneer in Welfare Oriented Banking 2.1. Importers release the goods when 18 . IMPORT PROMOTION 2. When the Importers open cash L/C the bank acts as a guarantor for the payment of the product being imported. Cash L/C Cash L/C is an import servicing product.1. Import Services and Financing Products There are two major principles used by IBBL • • Import Servicing Principle Import Financing Principle Different products offered under both principles as well as types of income involved therein are as under: Service Principles Wakalah Scope of Applications Letter of Credit Safe keeping Remittance Other Import Related Products Letter of Credit Performance Bond Advance Payment Guarantee Shipping Guarantee Add Confirmation Scope of Applications Murabaha Import L/C Murabaha Import Bills Murabaha Post Import Mudaraba against Import Musharaka against Import Import under Hire Purchase under Shirkatul Melk (HPSM) Type of Income Commission Kifalah Commission Financing Principles Bai Sirkat Ijarah Type of Income Mark up Share in Profit/Loss Rent Most widely practiced products are 2.
The total cost of importing the goods is declared and the capital contribution of each party is specified. After the goods arrive at the port the importer can request the bank to clear the goods from the port. In case of cash L/C IBBL does not have any investment to the importer. Trust Receipt on Bai-Muajjal Trust Receipt on Bai-Muajjal is another import financing product. The importer is required to offer sufficient tangible securities acceptable to the bank equivalent to investment amount. The period of deal should be six months to one year. 2. The period of deal should be six months to one year A rebate should be allowed if the deal is closed before the due date.1. The cost of the whole transaction is designated in the appropriate foreign 19 . This implies that IBBL is purchasing the imported product from the exporter which will be sold at a specified profit to the importer later.Pioneer in Welfare Oriented Banking arrive at the port through collecting all the documents received by the bank by making payment for the imported goods. A Bai-Muajjal agreement should be executed at the time of the signing of the L/C. The sale price should include the cost as per the indent / proforma invoice. 2. A Bai-Murabaha agreement should be executed at the time of the signing of the L/C. Musharaka Documentary Bill (MDB) MDB is a partnership arrangement between the importer and the bank. The raw materials may be collected from foreign or local sources.2. This implies that IBBL is purchasing the imported product from the exporter which will be sold to the importer later. rather provides service and earns a service charge here. If the importers fail to bear the cost of raw materials to produce the goods to be exported then they seek finance from bank.1. plus a profit for the bank as mutually agreed upon.1. The bank charges a fee to cover the duty and sales tax. The sale price calculation is the same as MPI but profit is not specified in the Bai-Muajjal agreement. A rebate should be allowed if the deal is closed before the due date. Murabaha Post Import Investment (MPI) MPI is an import financing product.4.3. After the goods arrive at the port the importer can request the bank to clear the goods from the port. 2. all other anticipated costs and expenses. The bank charges a fee to cover the duty and sales tax.
The importer is responsible for the import. IBBL sells its portion to the client gradually. Import under Musharaka Import under Musharaka requires equity participation of both the bank and client.7. bank’s portion reduces and client’s portion increases. clearance and final sale of the goods.1. On maturity. Import under HPSM usually takes place for project / industrial finance. and loss will be beard by the bank. The net profits are distributed among the partners in the agreed proportion and any loss is shared as per equity participation. Import under HPSM This is a mechanism specially for importing capital machinery . The Client submits an application accompanied by Seller’s offer / Proforma Invoice.6. The profit earned is shared at agreed ratio. Any loss is shared as per equity participation. If the application is acceptable. Upon payment of installments. Client is under obligation to maintain all documents and record of purchase and sale of goods. Bank charges rent on its residual portion. IBBL agrees to enter into Musharaka arrangement. Here the capital user / entrepreneur have no capital and bank has got no direct participation in the business. Import under Murabaha In import under Mudaraba bank provide fund for procurement and installation of machinery. its return and operation process involved. Letters of Credit are issued against approved limit. Profit will be shared as per agreed ratio. HPSM involves purchase of equipment/plant/building/vehicle with client jointly. 2. Then both parties sign a contract and put up capital in agreed upon proportions.Pioneer in Welfare Oriented Banking currency. IBBL issues a letter of credit on behalf of the partnership and goods are imported in a partnership basis.1. 20 . 2. upon full and final settlement client becomes the owner of the entire plant. Client pays principal amount and rent on equal installment basis up to maturity.1. 2.5. In such case bank needs to supervise the utilization of capital. At maturity each party receives back the capital contributed and its share of profit in accordance with the partnership’s agreement.
(-4%) 21 .2. edible oil.22% 53% The 1st half of 2008 witnessed unprecedented growth in import business due to the high growth of import in the 1 st half as a result of price hike of import commodities like cotton. 53% which is also the highest growth so far achieved in the last 10(ten) years. wheat scrap steel etc. This could not be matched in the 1st half of 2009 due to the contrast situation of drastic price fall due to the financial crisis and recession and stock pilling of commodities imported earlier. Year to Year Import Year Wise Import Growth of IBBL Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Import (Mil. it could not reach the level of 2008 and closed the year with a negative growth of From the import trend of IBBL it is observed that there is a lot of ups and downs in import growth and 2010 has been a good year for IBBL in terms of import growth i. fertilizer.e. Taka) 25907 33788 46237 59804 74525 96870 137086 168329 161230 246281 Growth 2.62% 29.29% 30.98% 41.52% 22. It is worth mentioning that in 2009 the growth was negative i.Pioneer in Welfare Oriented Banking 2.79% -4. Although there appeared some momentum in the 2nd half of 2009 in import business.e.34% 24.42% 36.84% 29.
22 .91 10.62 It is observed from the above table that growth of country import is 41% up to novemver’10 over the figure of the corresponding period of 2009 whereas IBBL growth in the same period is 51% over the corresponding period of 2009. It is also observed that share of IBBL’s import was 9.91% in 2009 which become 10.3. 2.Pioneer in Welfare Oriented Banking which has become (53%) in 2010 showing a tremendous development.62% in 2010. Share of IBBL in Country’s Total Import Growth of Import Business (Country vs IBBL) In million Taka Up to Novemver’1 0 Country IBBL (1) 2079022 220693 Up to November’0 9 (2) 1473616 145978 Growt h (%) (3) 41 51 Share of IBBL (%) 2009 2010 (4) (5) 9.
capital machinery (7.1%).230 million in 2009 showing 53% growth in amount.2%). Import Vision Import Vision: 2007-2011 350000 Amount (Mil.4. Tk) 300000 250000 200000 150000 100000 50000 0 2006 2007 2008 2009 Year 2010 2011 2012 2. B.1%).5.6%). Commodity wise import performance During the year 2010 bank opened 46736 import letters of credit for Tk. Fabrics(7. Capital Machinery (7.246281 million as against 38717 letter of credit for Tk.1%).0%).8%). Yarn (6. Highest contribution in import of IBBL comes from Raw cotton (12. Highest share of IBBL in the import of country is soyabean (27.161.Pioneer in Welfare Oriented Banking 2.6%). P.8%) and while highest contribution in import of country comes from Raw Cotton(7. The commodity wise import business of IBBL and contribution of IBBL to the country’s import in January to November 2010 is shown in the table below: In million Taka SL. ITEMS IBBL Country Share of 23 .8%) and Textile Fabrics (19. sheet (26. Onion (19.
6 10832.2 2.8 0.04 2347.1 7.1 0.3 0.1 9. Sheet 1046.3 3.905 3352.185 16099 3894.71 0.Pioneer in Welfare Oriented Banking January to November 2010 1 2 3 4 5 Rice Wheat Sugar Milk Food Edible Oil (Refined) a) Soyabean b) Others 6 Edible Oil(crude) a) Soyabean B) Palm olein 7 Dry Fruits A) Dates b) Others 8 Pulses a) Masur dal b) Chola dal c) Others 9 10 11 12 13 14 15 16 Onoin Ginger Drugs & Medicine Poultry Feeds Coal Cement Clinker B.95 2.2 10.05 7930.5 IBBL 3.8 601.29 Contribution (%) 1.1 3.8 26.2 4.3 0.5 0.96 569.29 0.4 3.3 1314.5 2.7 15.49 0.32 266.3 9.5 19.1 1108.2 0.29 1089.42 52883.0 2.67 2649.2 January to November 2010 35316.9 0.915 6168.16 1.72 3902.1 9.2 27.8 11.985 18402.96 163.6 0.71 49.2 23156.3 3810.281 205.3 3.635 10153.3 0.24 364.0 0.1 0.51 1.0 9.5 0.1 0.2 11.411 315.1 0.1 2347.1 0.36 66810.7 24 .0 2.0 0.8 40586.1 2.99 11127.11 0.42 4990.175 5526.0 0.3 0.705 0.5 0.41 2013.1 0.9 1.2 0.8407 141.7 2.88 37.04 27118.18 104.6 17 18 Scrape Vessel Paper a) Newsprint 1731.4 11.87 0.64 0.5 0.1 0.02 5881.5 0.5 0.99 49443.5 234. P.1 2055.0 0.1 339.3 1.8 9.66 6529.7 3.9 3.31 Contribution (%) 0.0 0.8 2882.
88 7.5 2079022 24.9 13217.9 15.44 6913.2 0.7 100.4 0.1 3.72 23071.52 2.Pioneer in Welfare Oriented Banking b) Others 19 20 21 22 23 24 25 Zinc Ingot Raw Cotton Yarn Cotton Yarn Textile Fabrics Textile Accessories Back to Back a) Fabrics b) Accessories c) Yarn 26 27 Pharma raw materials Chemical product a) Fertilizer b) Others 28 Petroleum product a) Crude b) Refined 29 30 31 32 33 Capital Machinery Others Machinery Motor Vehicles Computer & Accessories Medical & Other equipment Others 978.9 9.8 0.4 0.38 4.9 2.0 7.1 5.5 6.9 7.86 144722.3 0.3 7.6 12.59 3546.3 16169.8 0.2 16694.367 1230.23 212.98 6106.1 0.213 15675.6 8469.00 513025.9 8321.1 3.3 8.9 10.8 34 Total 55453.6 25 .7 885.8 0.9 6.2 100.0 4.2 5.2 0.5 1138.9 58082.3 7.9 10.893 474.8 0.3 1.8 1.8 3.7 1578.7 4.7 101184.3 65041.245 1976.6 1.3 220633 25.6 0.8 0.8 0.893 0.205 3741.5 148968.2 3.2 84483.0 7.8 8.4 1.00 9.8 16.55 28196.22 70998.26 3.22 80066.27 6.5 12341.2 7.7 2.85 724.205 0.1 6.1 0.2 80218.4 6.32 23589.1 47918.26 158840.37 17353.0 5.8 14.8 3.4 0.1 18.1 3.89 3741.6 0.71 0.44 7118.54 474.5 12059 14990.
Pioneer in Welfare Oriented Banking CHAPTER-THREE EXPORT SERVICES 26 .
Pioneer in Welfare Oriented Banking 3.1. Cash finance for factory rent. wages & salaries and all other working capital requirements.1. Pre shipment Finance / Service Purposes for Providing Pre-shipment finance • • • Cash finance for purchase of raw materials/finished goods. Export Services and Financing Products There are two major principles used by IBBL • • Export Servicing Principle Export Financing Principle Different products offered under both principles as well as types of income involved therein are as under: Service Principles Wakalah Kifalah Finance Principles Pre Shipment Wakalah Bai Scope of Applications Advising Letter of Credit Transferring Letter of Credit Remittance Adding Confirmation Scope of Applications Back to Back Letter of Credit Bai Murabaha & Bai Muajjal Bai Salam Shirkat Post Shipment Shirkat Bai Wakalah Musharaka PSI Musharaka Documentary Bill Type of Income Fee Commission Type of Income Commission Mark up Profit Share in Profit Share in Profit Bai as Sarf Export Bill Collection Profit Fee 3. Insurance Premium.1. Payment of Utility bills. EXPORT PROMOTION 3. 27 . Payment of freight.
bill of exchange and certificate of origin) by the client may be deemed equivalent to the satisfactory delivery. 3. 3.Pioneer in Welfare Oriented Banking • Packing & transportation of goods.1. 28 .2. The difference is bank’s profit.1. if any. So they desire to get finance to cover operational expenses.1. Bank agrees to buy the goods from client and makes payment to him. invoice.order shipping documents (viz. Bai as Sarf Bai as Sarf is a trading mechanism where the bank buys foreign currency from the client at an agreed rate. Submission of in.1. Client keeps the letter of credit under bank’s lien and allows the bank to assume the role of seller to the foreign buyer . Bank realizes commission and fees for opening Back to Back L/C. The client will get net amount after adjustment of their respective liabilities. Export L/C is kept lien as security. This LC is usually of deferred nature since payment depends on execution of Export.2.1. 3. Back to Back L/C This is a special nature of credit allowed for importing raw materials and accessories for executing Export .1. Payment of import under Back to Back LC is made upon receipt of Export proceed. Bai Salam contract includes specific delivery date and place of delivery.1. The actual period for realization depends on the terms of payment stipulated in the respective Export L/C. 3.1.2. This L/C is opened against a mother export L/C. The agreed payment (pre-shipment finance) made by the bank to its client is lower than the amount of the export L/C. Post Shipment Finance / Service Exporters may require post-shipment financing because they have to wait a long time to receive payment from abroad for the exported goods. IBBL purchases the value of the export documents expressed in Foreign Currency and pays equivalent taka in favor of the client. After realization from the issuing bank / importers bank the liability will be adjusted and bank will earn exchange income from it. Bai Salam For providing finance under Bai Salam mode IBBL requires export letter of credit for exporting certain goods.
31% 39. Musharaka Documentary Bill (MDB) MDB is a partnership arrangement between the importer and the bank. Year to Year Export Year wise export growth of IBBL Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Export (Mil. Purchase of Document on acceptance (DA) Bills. 3. clearance and final sale of the goods. If the importers fail to bear the cost of raw materials to produce the goods to be exported then they seek finance from bank. The raw materials may be collected from foreign or local sources.37% 30.10% 24. 3.38% 34. Taka) 16082 16673 21738 29151 36169 51133 66690 93920 106424 148421 Growth 3. The net profits are distributed among the partners in the agreed proportion and any loss is shared as per equity participation.83% 184.108.40.206.42% 40. The importer is responsible for the import.Pioneer in Welfare Oriented Banking 3. Purchase of Document on Payment (DP) Bills.2.00% 29 .2. The total cost of importing the goods is declared and the capital contribution of each party is specified.07% 41. Post Shipment Investment under Musharaka Islamic banks also utilize the Musharaka agreement to provide for these types of financing: • • • Negotiation of documents under L/C.1.45% 3.3. The cost of the whole transaction is designated in the appropriate foreign currency.67% 30.
Pioneer in Welfare Oriented Banking From the 10(ten) years trend of export business it is observed that IBBL achieved 30% & more growth in almost every year except year 2002 & 2009 and the year 2010 has been a good year for recovery i. 39% from 13% in 2009.3. Share of IBBL in Country’s Total Export Growth Of Export Business (Country Vs IBBL) In million Taka Up to November’1 0 Country IBBL (1) 1108824.e.15 37.21 11.00 Share of IBBL(%) 2009 2010 (4) (5) 10.38 132492.94 30 .88 96674.00 Up to November’0 9 (2) 946517.00 Growth(% ) (3) 17. 3.
Pioneer in Welfare Oriented Banking It is observed from the above table that growth of country export is 17.94% in 2010. It is also observed that share of IBBL’s export was 10.00% over the corresponding period of 2009. Tk) 2006 2007 2008 2009 Year 2010 2011 2012 31 . Export Vision Export Vision : 2007-2011 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 Amount (Mil.21% in 2009 which become 11.4.15% up to November’ 10 over the figure of the corresponding period of 2009 whereas IBBL growth in the same period is 37. 3.
47 0.02 14.31 14. Jute goods (13.15 0.5.57 3.89 Tea 1.95%) while highest contribution in export of country comes from RMG (66.37 100.47).00% 100. RMG (14.95%) and Fish and shrimp (0.18% 74.04 8 9 10 Total 32 .85 Napha Furnacae oil & Bitumin 767.18 78500.20%).07 22.60).47 Leather 12.31%). Jute goods (3.00 9470 600 590 184390 824190 1.00 0.01% 0 2010 Country Contribu -tion(%) 0.37 0. ITEMS 2010 IBBL Contribution (%) 0.00 11.95% 0.13 Fish & Shirmp 996. Highest share of IBBL in the export of country comes from Chemicals (21.00% 19.07 0.10 77.00 8.73% 0.02%). Commodity wise Export performance Highest contribution in export of IBBL comes from RMG (74.84 Jute Goods 4161.02 2.57 3.60% 3.57%) and Fish & Shirmp (3.59 6330 548660 29460 24930 19540 220 3.77 66.07 0.03 Share of IBBL 1 2 3 4 5 6 7 Raw Jute RMG 191. Jute goods (3.Pioneer in Welfare Oriented Banking 3.12% 0.79 0 20478 105238 0. The commodity wise export business of IBBL and contribution of IBBL to the country’s export in 2010 is shown in the table below: In million Taka SL.57%).12 4.89 Chemicals Fertilizer Others 128.95% 0.11 21.
Pioneer in Welfare Oriented Banking CHAPTER-FOUR REMITTANCE 33 .
O : Travelers Cheque. M. Remittance product of IBBL Includes A/C Payee. FDD (Foreign Demand Draft). Remittance remitted from one country to other countries through permissible banking channel in legally convertible foreign currencies is called ‘Outward Foreign Remittance’ from the remitter country’s point of view. Outward Remittance Outward Foreign Remittance means remittance sent to abroad.Pioneer in Welfare Oriented Banking 4. Outward Foreign Remittance.1. 4. Spot cash (without account).1. 4.T transfer. Inward Foreign Remittance Inward Foreign Remittance is remittance received from abroad.T I. : Foreign Demand Draft. Cable transfer or swift : Mail Transfer. : International Money Order. From the beneficiary country’s point of view it is called inward Foreign Remittance.2. : Payment Order.C F. : Telegraphic Transfer. A/C maintained with third bank (other then IBBL). From the remitter country’s point of view it is called outward Foreign Remittance. 4. REMITTANCE 4.1.3. Year to Year Inward Foreign Remittance IBBL now agreement with 85(Eighty Five) Exchange Houses of different countries of the world.O P.2. Instruments of Foreign Remittance T. Remittance coming into one country from other countries through permissible banking channel in legally convertible foreign currencies is called ‘Inward Foreign Remittance’ from the beneficiary country’s point of view.M. Classification of Remittance Foreign remittance may be classified into two types: • • Inward Foreign Remittance.1. 34 . 4.D T.D.
and E-mail from its correspondent Banks/Exchange Houses which is automatically converted into IBBL software eIBS (Electronic Integrated Banking System). Remittance Business achieved a performance of Tk.62% 42. 2009.214.629. Then the proceeds are transferred to our respective branches within 30 minutes from the time of receiving the remittance into our system. Year Wise Remittance Growth of IBBL Year Foreign Remittance (Mil.00% 56.34% 66. 2010 as against Tk.716.00 million up to December.00% From the 10(ten) years trends of remittance business it is observed that IBBL achieved healthy growth in almost every year except year 2003 & 2010. 35 .10% 45.00 million at the end of December.194. Taka) 9879 14670 16668 23669 36948 53819 84143 140420 194716 214629 Growth 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 29.24% 48.50% 13.67% 10. Web Site.Pioneer in Welfare Oriented Banking IBBL receive Remittance through SWIFT.88% 38.66% 56.
66 Country IBBL (1) 10891.38% in 2010 over the figure of the corresponding period of 2009 whereas IBBL growth in the same period is 9.41 It is observed from the above table that growth of country remittance is 1. 36 .66% in 2010. IBBL) Figure in million USD 2010 2009 Growth (%) (3) 1.09 (2) 10743.03 2749.55 Share of IBBL (%) 2009 (4) 25. Share of IBBL in Country’s Foreign Remittance Growth of Remittance Business (Country Vs.Pioneer in Welfare Oriented Banking Growth in amount is Tk.59 2010 (5) 27. It is also observed that share of IBBL’s remittance was 25.19.59% in 2009 which become 27.55%.4.913.00 million and growth in percentage is 10% over the corresponding period. 4.03 3012.38 9.
90 207.61 41.69 14.96 1153.97 45.28 28.12 100 Country Wise Remittance Position KSA UAE Kuwai t Mal aysi a UK USA Oman Bahrai n Si ngapore Qatar Others It is observed that lion’s share of the remittance of IBBL has been coming from K.69 80.14 51.03 13.41 2007 650.11 4.96 12.A over the years.52 353.27 13.07 5.12 1.01 78.21 116.11 2008 1054.49 2010 1394. 12.66 21.08 11.82 62. 37 .92 72.10 8.75 46.65 5.77 1984.74 272.93 89.50 26.40 2009 1344.15 218. Other major remittance source countries are UAE.80 168.5.53 60.53 71.34 718.14 76.46 428.37 305.50 2863. Country Wise Remittance Performance In million Taka Country KSA UAE Kuwait Malaysia UK USA Oman Bahrain Singapore Qatar Others Total 2006 491.97 18.95 2.80 31.39 84.96%.44 197.53 35.94 3.54 97.08% and 5.07 197.48 30.75 71.72 146.39 346.28 2779. Kuwait and USA with contribution of 14.18 31.09 26.76 115.Pioneer in Welfare Oriented Banking 4.11% respectively.S.20 28.11 2.10 0.15 318.58 (%) of Total 48.
Pioneer in Welfare Oriented Banking 38 .
Pioneer in Welfare Oriented Banking CHAPTER-FIVE PERFORMANCE ANALYSIS 39 .
Pioneer in Welfare Oriented Banking 5.10 9654.60 Oc.28 Analysis: From the above graph it is observed that the import is increased steadily 43.11 9627.10 9654.34 Oc.80 % of growth -0.34% in year 2010 as compared with year 2009.09 6716.1.28% in year 2011 as compared with year 2010. PERFORMANCE ANALYSIS 5.60 Oc.60 % of growth 43. 40 . Comparative position on overall import performance for the last 3(three) years of Agrabad Branch of Islami Bank Bangladesh Limited: In million Taka Item Import Oc. On the other hand import is decreased -0.
19 Oc.09 1699. 41 .19% as compared with 2009. Comparative position on overall export performance for the last 3(three) years of Agrabad Branch of Islami Bank Bangladesh Limited: Item Export Oct.90 8.94% as compared with 2010.10 2092.2.Pioneer in Welfare Oriented Banking 5. In the year 2010 is increased 34.75 % of growth 34.75 In million Taka Oc.94 Analysis: From the above graph it is observed that the export is increased steadily.11 % of growth 2279.10 2092. And in the year 2011 it is increased 8.00 Oct.
80 Oc. On the other hand in the year 2011 it is little increased 2.80% as compared with 2009.10 1237. Comparative position on remittance performance for the last 3(three) years of Agrabad Branch of Islami Bank Bangladesh Limited: In million Taka Item Oct.Pioneer in Welfare Oriented Banking 5.48 Analysis: Through the analysis it is shown that the flow of Remittance is ups and down situation. In the year 2010 is decreased -6.3.37 Remittance 1359.09 Oct.66 % of growth -6.66 Oc.97 % of growth 2.37% as compared with 2010.11 1266. 42 .10 1237.
09 %of g rowth Oc.69% Figure in million Tk. Comparative position on operating profit performance for the last 3(three) years of Agrabad Branch of Islami Bank Bangladesh Limited: In million Taka Item Profit Oc.01 % of growth -22.73 % of growth -22.26% Oc.Pioneer in Welfare Oriented Banking 5.73 Oc.10 452.4.10 452.11 350.69% as compared with 2010.09 450. In the year 2011 it is decreased -22. 500 400 300 200 100 0 -100 Oc.26 Oc.11 Profit Analysis: Through the analysis of the graph we can say that the operating profit is bad position of this current year 2011. Besides the 43 .
26% as compared with 2009. CHAPTER-SIX PROBLEM & PROSPECT 44 .Pioneer in Welfare Oriented Banking operating profit in 2010 is also decreased -22.
mandatory targets for providing finance to specific sectors. Of course. the banks probably would be passing on all the risks to their depositors.1. In the absence of deposit insurance the value of assets can fall below its fixed liabilities.Pioneer in Welfare Oriented Banking 6. equating the goals of monetary policy in Islamic banking to those of the free market economies would not be fair since there is a significant difference in emphasis of the two systems. liquidity requirement. overall credit ceilings on lending activities of these banks. Unrealized capital decrement requires recording of an unrealized loss on long-term equity securities as a contra item in stockholder’s equity. resulting in bankruptcies. Like minimum cash reserve requirement. these gains and losses are fully reflected in the value of the deposits. PROBLEMS & PROSPECTS OF ISLAMIC BANKING 6. Problems for Islamic Banking • Valuation of Bank’s Asset: Under current GAAP. • • 45 . An upward adjustment of the assets account requires an offsetting credit to either revenue or unrealized capital increment. Credit Creation and Monetary Policy: Traditional policy instruments of the central bank are said to remain largely unaffected under Islamic banking. investment portfolio is adjusted to market values in investment companies. Financial Stability: Modern banking based on interest issues fixed value liabilities to its depositors. would not remain with the Islamic banks. It is presumed that depositors in Islamic bank. and moral suasion. If in the extreme case. Any specification of reserve or provision requirements influences the gains (losses) of the depositors. due to fair of capital and or profit losses in the event of having no insurance coverage.
Yet it is not a violation of Shariah as long as the Murabaha contract is correct from Shariah viewpoint and is free from intentional or nominal deception. commerce. Secondly. People think Murabaha to be the same as pre-determined rate of return. This higher cost of information could be major setback in effective implementation of the PLS system. Excessive Resort to the Murabaha Mode: The repeated criticism against Islamic banks. This is because. Thirdly. • Increased Cost of Information: Monitoring cost as well as cost of writing and enforcing contracts is higher in Islamic banks.Pioneer in Welfare Oriented Banking • Absence of Islamic Capital Market and Financial Instruments: Availability of Islamic capital market and instruments help growth of Islamic banks otherwise they are constrained. it is necessary that profit margin (or the mark up) the bank is charging must be determined by mutual agreement between the parties concerned. the bank finances the working capital of a business venture taking a quasi-equity position in the economy. Murabaha is different from interest-based mark up as the former has to satisfy the following requirements. In financing. transaction between the bank and the seller should be separate from the transaction between bank and the purchaser. is that it takes recourse to excessive use of Murabaha mode in financing investment. a management company is formed which floats a negotiable security. or the bank may completely finance a project within the scope of its charter. Laws relating to companies. with Musharaka. 46 . Insufficient Legal Protection: A comprehensive system of Islamic banking requires legal protection. which is valid in many counts. Growth of Islamic capital market and financial instruments also helps creating environment for government financing. First. the goods in question should be in physical possession of the bank before it is sold to the client. investment and the courts and legal procedures need to be reviewed and reformulated to suit the requirement of the efficient functioning of Islamic banks.
Assisting the state in confronting these ever-increasing problems. Still Islamic banks must avoid exceeding the prevailing interest rate or exploiting the clients through accounting methods as employed by some banks.Pioneer in Welfare Oriented Banking Utilization of Interest Rate for Fixing the Profit Margin in Murabaha Sales: It is also criticized that Islamic banks utilize the interest rate as a criterion for fixing the profit margin in the Mudaraba sales. Demonstrating the impact of Islamic investment on the solution of the unemployment problem. 47 . To be fare there is no known way of avoiding the alleged link up as long as Islamic banks coexist with traditional banks. and. Financing Social Concerns: No clear prescription has so far emerged on the role of Islamic banks in the promotion of new projects needed by the society as follows: • • • Enabling those who have no property. providing employment opportunities to all categories of people.
Islamic banks are required to enter into this field so as to prove their ability to play their role in the financing of projects in a manner that conforms to the Islamic system through the issuance of deeds of Musharaka. Islamic funds continue to sneak out by hundreds of millions into investment houses doing business in the West while the Muslim world remains thirsty for investment resources. The idea of establishing a “Bank of Islamic Banks” is still a mere idea. advance-sale. Generally. As a result of its absence. roads. This is in spite of the persistent endeavors of the Islamic Development Bank to bring them closer to one another and unify their stands.Pioneer in Welfare Oriented Banking Lack of Positive Response to the Requirement of Government Financing: It is a well-known fact that the modern state is always in need of funds and resources to implement useful projects. Islamic banks have lost hundreds of millions with the collapse of the BCCI. The Association has neither been able to unify their regulations. governments resort to issuance of treasury bills with interest in accordance with the form used by conventional banks. nor build bridges of confidence and promote understanding among them. Following examples are enough to prove the point: • Not all-Islamic banks are members of the International Association of Islamic Banks. such as the provision of schools. Failure of Islamic Banks to Establish Co-operation among Themselves: In spite of good intentions. • • • • 48 . Islamic banks are blamed for their lack of co-operation among them. Funds of expatriates from Islamic countries do not find their way back to their own countries to contribute to the development of their original homelands. electricity and water and telecommunication services. Trade among countries of the Muslim world is completely paralyzed as the Islamic financing system goes along with the traditional trend in financing imports from foreign countries without giving any preference to products of the Muslim world. Salam and such other forms that satisfy the needs of the state for financing and at the same time benefit from investment of their idle liquid surpluses. although there is an urgent need for its establishment.
Traditional banks can earn interest on their deposits with Bangladesh Bank but Islamic banks can not since they cannot receive interest as earning. Apprehension of liquidity crisis and possibility of liquidity surplus: Islamic banks have to be more cautious and vigilant in managing their funds since it can not resort to call money provision at times of fund shortages or crisis. Constraints Faced by Islamic Banks Constraints faced by Islamic banks in Bangladesh are analyzed as below: Problem with legal reserve requirement : Islamic banks in Bangladesh have to keep 10% of its total deposits as liquidity. Conventional banks can borrow in the form of call money among themselves even at an exorbitant rate of interest. As a result Islamic banks may have always left with a sizeable amount of cash as liquidity surplus. Islamic banks.Pioneer in Welfare Oriented Banking 6. Islamic banks cannot take this opportunity due to the existence of interest element in the transaction process.2. Compared to interest-based traditional banking. 49 . However. 5% is required to be kept in cash with Bangladesh Bank and the rest 5% is to be kept either in approved securities or in cash (in case of problem with securities) with Bangladesh Bank. The proceeds are spent on welfare activities. Legal reserve requirement for conventional banks is 20%. Of this. They have to keep 5% in cash with Bangladesh Bank and the rest 15% is invested in Bangladesh Bank approved securities. It should be noted that the interest earning are not considered as bank income and added to profit. in this case. Lack of opportunities for profitable use of surplus funds: Conventional banks can invest their excess liquid amount in approved securities and or in other bank in crisis. IBBL has been receiving interest against its deposit with Bangladesh Bank and crediting it to its Sadaqa fund since 1993. are in disadvantageous position.
(a) Islamic banks do not purchase shares of companies undertaking interest-based business. The above restrictive environment in the capital market of Bangladesh has limited substantially the investment opportunities for Islamic banks and hence the avenues of lawful earning. 50 . (b) Shares of companies taking loan from commercial banks on interest are not also purchased by Islamic banks. and.Pioneer in Welfare Oriented Banking Problems in capital market investment: Conventional banks can invest 30% of their total deposits in shares and securities. (c) Islamic banks can not purchase shares of companies involved in businesses not approved by Shariah. Following examples may be cited for illustration. In the absence of Islamic money and capital market these banks cannot obtain funds from capital market at times of need. Islamic banks have their problem in this case as they avoid any transaction based on interest.
This may help minimizing particularly the call money problem they are suffering from beginnings. the Islamic economists have traditionally prescribed for its limited application. 76% and 65% respectively of their investment funds by resorting to Murabaha mode (Hoque 1996.. Islamic banks cannot do that. Murabaha though considered as a Shariah approved mode. One study shows that Islami Bank Bangladesh Limited. What it does it realises comprehension at the rate of profit. rest of the Islamic banks have launched their operations very recently not exceeding even two years with hardly more than two branches. p. Due to legacy of traditional banking. Al Arafah Bank and Social Investment Bank Limited have used 54%. 51 .9). Still these banks can take initiative to form a money market among them. lack of appropriate legal protection and standard accounting practice in business. amount meant for social welfare activities. This depresses profits of Islamic banks.e. Of course.. Depression of Profit: Traditional banks can meet up loss arising from delay in repayment by the clients through charging compound interest. Islamic banks in Bangladesh find Murabaha financing as suitable and Mudaraba and Musharaka as extremely difficult to apply. inter-bank money market within Islamic banks has not yet taken place. This may place Islamic banks relatively in weaker position in terms of profitability compared to conventional banks. But the compensation so realized is not added to the profit income rather credited to Sadaqa account i.Pioneer in Welfare Oriented Banking Absence of inter-bank money market: In spite of seven Islamic banks have been functioning in Bangladesh. except Islami Bank Bangladesh Limited and Al-Baraka Bank Bangladesh Ltd. Predominance of Murabaha financing: Predominance of Murabaha financing in the portfolio management of investment funds by the present day Islamic banks of Bangladesh has been a hot agenda of debate.
Islamic banks have to depend on interest-based insurance companies in the absence of Islamic insurance companies.Pioneer in Welfare Oriented Banking Absence of legal framework: Amendment of old laws and promulgation of new laws conducive to efficient operation of Islamic banks are sin qua non for its healthy growth. Unfortunately. 52 . Absence of Islamic insurance company: Banking and insurance have to go hand-by-hand in matters of trade and business in order to protect investments of banks against unforeseen hazards and catastrophes. Islamic banks in Iran and Pakistan have their legal supports. Countries introducing Islamic banking should create an enabling environment for Islamic banks by modifying existing laws and regulations.
Pioneer in Welfare Oriented Banking CHAPTER-SEVEN SOWT ANALYSIS 53 .
SWOT ANALYSIS SWOT Analysis is an important tool for evaluating the company’s Strengths. reward and punishment systems. more paid up capital. So it does not need to borrow money from Bangladesh Bank or any other banks. Opportunity and threat are external attributes. More funds for Investment: For adequate financial ability. competitive situation and position in the industry life cycle. working environment. External environment consists of the legal and regulatory requirements. and business revolution. The salient strengths of IBBL are: • Adequate internal fund: IBBL maintains adequate retained earnings and general reserve. The SOWT analysis of IBBL is presented below: 7. It helps the organization to identify how to evaluate its performance and understand the macro environment.Pioneer in Welfare Oriented Banking 7. and financial solvency. IBBL 54 • .1. change. These arise from the environment in which the organization operates. operational procedures. the mix is exciting. Strengths Strengths are the internal resources and capabilities that allow an organization to achieve better performance than its competitors. growth of the industry. quality and experience of management. norms. strength and weaknesses of the competitors and other macroeconomic factors. reputation and loyalty of customers and so on. quality and experience of employees. which in turn would help the organization to navigate in the turbulent ocean of competition. The globalization offers us opportunities and threats. Strength and weakness are internal attributes. We live in an age of growth. to minimize our weakness. Weaknesses. Opportunities and Threats. Overall. We need to make our dealing with it one of our biggest strength. financial soundness. Which can addressed by analyzing the organization’s values.
IBBL maintains Strong network with 254 branches and 23 SME service centers. Research division: To keep pace with the competitors and introduce innovative and developed products IBBL has a research division. The salient Weaknesses of IBBL are: 55 . Top management is very much transparent about their banking activities & has strong backgrounds that are capable to handle the whole work process in the bank. where every branch reports to the head office in daily basis using eIBS software. Weaknesses Weaknesses are the internal problems and lacking that restricts an organization to achieve performance as its competitors do.2. Strong banking network: IBBL has the largest network among private commercial Banks. Training programs: To ensure better service and efficient operation IBBL arranges mandatory training programs for its employees. which is very effective of the report generation. Accounting recording and reporting system is good. • • • • • • • • 7.Pioneer in Welfare Oriented Banking can provide more investments to clients relative to competitors. • Honest and Reliable Employees: The employees of IBBL are reputed for their honesty and reliability. Banking software: eIBS (electronic integrated banking system) helps employees with most of the difficult computing processes. Experience management team: the management team is skilled and experienced and it always followed its vast (29 years) experience since its establishment. The organization introduced highly skilled technical service and On-line banking which in term ensures more efficiency better services. They always devote themselves to be efficient and provide better customer service.
Pioneer in Welfare Oriented Banking • • Centralized decision making: In the organization. This may cause inefficiency and lack of innovation. Lack of specialized employees: The recruitment procedure does not emphasize experts having banking knowledge. Sometimes absence of central server results in poor performance and piling of routine works. This trend is common to almost all banks which make managers reluctant to change and innovation. A group of senior managers make all significant operating decisions and then communicates to the managers at lower level. Lack of coordination among the branches and Head Office. As a result employees do not have tendency to provide highest effort and thinks to switch to competitor banks. Lack of diversification: the investment condition of IBBL is not diversified in terms of sector as well as customer. Poor salary structure: IBBL poor salary structure relative to its competitors. Lengthy investment procedure: The investment procedure is very lengthy and requires much more documentation relative to other banks. Absence of structured marketing and advertisement policy may harm the deposit collection procedure in the long run. Lack of skilled manpower: Islamic Banking is a new subject to general people and adequate knowledge and skill about Islamic Banking is not easily available. decision-making is more or less centralized at the top of the organization. • • • • • • • 56 . in some instances employees also do not possess proper knowledge in many aspects. Sometimes proper procedures like collateral and documentation are not complied so there is high exposure to risk. Poor logistic support: the IT and technical support system is not adequate.
For this reason. It can further increase its brand loyalty through increasing awareness of Islamic Banking. they want to deposit their fund in interest free organization. IBBL can recruit experienced. Threats Threats are the external possibilities that may restrict an organization to achieve better performance as its competitors may do in the future. • • • • • 7.4. Develop Islamic Investment Instruments: IBBL have the opportunities to develop Islamic Investment Instruments as it deed before through issuing Mudaraba perpetual bond and create an Islamic money market. IBBL have enough opportunity for deposit mobilization and also for strong base of equity IBBL can disburse large scale of Investment.Pioneer in Welfare Oriented Banking 7. Strong customer loyalty: IBBL enjoys strong customer loyalty. efficient and knowledgeable work force as it offers good working environment. Increase distributional network: It has financial capabilities to increase its distributional network in uncovered area or network. Increasing interest for Islamic banking: Most of our people are pious. It will help the customers know their account information from their home personal Computer.3. which can help to achieve more profit and poverty elevation. Opportunities Opportunities are the external possibilities that may allow an organization to achieve better performance than its competitors in the future. The salient Threats of IBBL are: 57 . The salient Opportunities of IBBL are: • Emergence of E-banking: Emergence of E-banking has opened more scope for IBBL.
there is increased competition in the market for public deposits. • • • • • • 58 . Absence of Islamic call money market: IBBL does not take call money facility from the interest based banks and there is no Islamic call money market too. Many Islamic Banks are coming forward to operate their business and some conventional Banks are opening their Islamic Banking Branches. This may have significant impact on its operations. for which idle fund is required to be held as reserve. for that idle funds cannot be utilized in the market. Increasing competitors: Many new banks are coming in the scenario with new services. they have to face various problems to operate their activities according to Islamic Shari’ah. IT and E-Banking status does not match with Bank's other strengths. Therefore. Exchange rate risk: Frequent taka devaluation and foreign exchange rate fluctuation is causing excessive Exchange rate risk. Inappropriate Islamic banking by competitors: Inappropriate Islamic banking by competitors causes people to have misconceptions about IBBL. Therefore.Pioneer in Welfare Oriented Banking • Regulatory environment: The rules and regulations about financial system in Bangladesh are not favorable for IBBL. Absence of Islamic money market: There is no Islamic money market in the country with Islamic money market instruments.
Pioneer in Welfare Oriented Banking CHAPTER-EIGHT ENDING REMARKS 59 .
the IBBL is trying to operate their activities which conform to Islamic Shari’ah as much as possible. Findings Bangladesh is not a full-fledged Islamic country not all activities. they are not too much interested to make investment with IBBL. From the long and rigorous study and with closed observation. ENDING REMARKS 8. I got some findings about IBBL that are presented below: • Islamic Banking is a new phenomenon in our country during last two decades. Therefore. Because of improper & insufficient application of Islamic Banking in our country. Most of the people in our country have a bad misconception about IBBL’s operations. However. For this reason.1. All activities are not being operated according to the Shari’ah of Islam. by the insolvent banks to avoid bankruptcy or the conventional banks to earn more profit through introducing total Islamic banking or Islamic banking branch. And so there is no difference between investment of IBBL and loan / Credit /advance of conventional banks. According to them IBBL generates interest calling it profit which is nothing different from interest. which hamper large scope of investment of IBBL. • • 60 .Pioneer in Welfare Oriented Banking 8. the operations of IBBL cannot be run smoothly and the misconceptions are strengthened. majority of our people do not have proper knowledge about the harmful impact of interest and the activities of IBBL as well as its investment mechanisms.
IBBL do not participate in the call money market. As a result. Profitable investment portfolio of IBBL requires clear investment knowledge according to Islamic Shari’ah. As a result IBBL needs to maintain more liquidity to facilitate the withdrawal needs of the depositors. • • • • • • • • • • 61 . To ensure automated internal Audit to prevent leakage or laps of income. As a result profitability is affected. goods. But sometimes IBBL can't invest its capital in proper portfolio due to insufficient and unskilled manpower in these regards. As a result. This Bank cannot invest in all economic sectors. needy people for their up-liftmen is failed. large amount of money is being idle and thus the potential profitability is losing. which in term reduces profitability. IBBL has no strong promotional activities to eradicate the misconceptions about it and increase its present & potential clients. To increase Import & Export Business in terms of volume & number of transactions. the prime objective of investing capital in income generating activities or providing capital to the poor. and services which are prohibited by the law of Islam so are deceived of many profitable investment opportunities. To ensure internal consumption of inflow of foreign currency to the maximum amount to gain more exchange income. This ignorance may have impact on the deposit collection in the long run.Pioneer in Welfare Oriented Banking • IBBL is committed to avoid interest so cannot invest the permissible part of its statutory liquidity Reserve and short Term liquidity surplus in those securities. As the call money market involves interest. To allow competitive rate in different areas of business to increase volume of business. Rural areas for low-income community. Islamic money market instruments are required to be introduced to improve profitability. this Bank grants fund to a group rather than individual. To ensure rendering all types of Foreign Exchange Business services in all AD branches.
To continue this dynamic expansion. The IBBL. and then on different income groups of the society. IBBL have to promote its distributional efficiency from all dimensions together with profitability. bank has to give payment to these customers for different reasons. as a new paradigm of banking.Pioneer in Welfare Oriented Banking • • To reduce cost of transactions/ business through system development optimization of Manpower. Automation etc. IBBL should clearly demonstrate its action that its banking practices are not guided merely by profitability criterion. can be selective in choosing clients for financing under PLS modes. These presuppose the establishment of a fully equipped research academy in IBBL. Simplification of Foreign Exchange accounting. In some cases. to do that. IBBL should continuously monitor and disseminate through various means the impact of its operations on the distribution of income primarily between the bank and the other two parties: the depositors and the entrepreneurs. The bank should be as striker as possible about giving payments against discrepant documents without hurting the customer. the first action that deserves immediate attention is the promotion of the image of Islami Bank Bangladesh Limited (IBBL) as PLS bank. IBBL should immediately take measures to revert the trends of • • • 62 . It must also establish that its practices ensure efficient allocation of resources and provide true market signal through PLS modes. The following policy actions are suggested for immediate application: • In case of export L/Cs. 8. sometimes customers insist to give their payments through their documents are found discrepant.2. IBBL gradually have to be converted into profit-loss-sharing bank by increasing its percentage share of investment financing though PLS modes. centralization of Foreign Trade. Recommendation Islamic banking system of Bangladesh. has been able to establish its own presence with a continued expansion geared by increasing acceptance by the people.
To fulfill the vision of "mass banking" this bank should grant investment portfolio to new entrepreneurs. The Bank should formulate aggressive advertising and take promotional activities to get a broad geographic coverage. The authority of IBBL should introduce more innovative and modern customer service through outstanding marketing policy. Decision making process should be free of ambiguity and be time conscious. Effective human resources should be placed at every department of IBBL for more speedy and smooth banking operation. Has to ensure reasonable spread and return on assets. Expenditure ceiling may be revised considering the grade of the Branch. selected by the branches in order to promote Investment clients of the desired level.Pioneer in Welfare Oriented Banking resource transfer from both low-income groups to highincome groups and from rural to urban areas. Monthly /quarterly training courses /workshops should be arranged for the clients. • Determination of profit and loss in profit-loss sharing arrangements and treatment of costs and reserves in such accounting is a pertinent issue to be addressed with utmost importance and priority. The amount of investment in RDS program should be increased so that more people could get the facility under the scheme & will able to increase their standard of livings. To ensure better customer service additional space should be allocated immediately for the branches. • • • • • • • • • • 63 . Women employee should be increased in order to deal with women customer /entrepreneurs for create demand for investment. Automation of Foreign Exchange portfolio should be introduced.
It can play a vital role in bringing revolutionary changes in our life with both material and moral world from in individual and collective level. ATM and E-Banking facilities should be emphasized. To conclude we must say that. a dynamic system. As the largest Islamic commercial bank. Bringing a new concept in such business sector. Formulation of Recruitment / remuneration policy should be outstanding. Interest free banking system is no more a concept. embodying a set of superior banking mechanism.Pioneer in Welfare Oriented Banking • • • • Should build good value for sponsors and shareholders. With a marked success from this inception in our country in 1983. It is now a reality. Remuneration policy should be competitive and attractive. 64 . Islami bank Bangladesh Limited (IBBL) has immense potential to work in Bangladesh. Islamic bank took various steps to create employment opportunities and socio-economic development for the poor through Islamic Shari’ah and an overall climate for the introduction of large scale Islamic banking in Bangladesh. More than 300 Islamic bank and financial institutions are operating in different countries throughout the world. which is growing so rapidly in the world. is really a bold step. IBBL has been operating with real confidence in cooperation with other conventional banks.
Its profit is gradually increasing. Science inception IBBL has been rendering its banking services with necks of the nation to cope with the demand of people in the country. citizens of our country. I hope IBBL do more work for development besides there banking business. Conclusion Islami Bank Bangladesh Limited has introduced a new dimension in the field of innovative. It plays a great role in collecting scattered Deposit. The bank has successfully made a positive contribution to the economy of Bangladesh. and International Trade etc. needy. This branch conduct services to the customers through large number of efficient employees with its owned well furnished building. To keep pace with 65 . Islami Bank Bangladesh Limited plays a vital role to develop the economic aspect of the country by the mass banking system.3.Pioneer in Welfare Oriented Banking 8. benevolent. Investment Settlement. For better growth and healthy economic position. The bank conduct lots of welfare oriented activities to help the poor. Shariah based banking in our country. Agrabad branch is one of the among branch in Chittagong which earns highest competitive profit comparatively others bank. it should introduce new and lucrative long term investment scheme especially for new investors and RDS (Rural Development Scheme) for poverty alleviation. This branch earns targeted profit each year which is determined by the head office branch. The bank ensures quality services to the customers.
Paper on the Mobilization of Foreign Remittance. In other words many customers were dissatisfied due to some areas of incompetent services. Chowdhury L.16. 66 . different issues on Foreign Exchange and Foreign Remittance. Dhaka. Dhaka. the bank should be more pro-active and responsive to introduce new marketing strategy to hold the strong position in home and abroad. (2000). 7-35. Half-Yearly Review of Bangladesh Economy (July-December 2005-First Half of FY06). Guideline for Foreign Exchange Transaction Reporting Vol. Thoughts on Islamic banking. pp. Thoughts on Economics. Vol. References & Bibliography Annual Reports of Islami Bank Bangladesh Limited. Fair Corporation. Ayubur Rahman (2006). 1 Bhuyan. 1992 Mohammad Abdul Mannan (2002). IBW. HO Islamic Economic Research Bureau. Islami Bank Bangladesh Limited.1. Feb. Bangladesh Bank.R. I wish that said branch would continue its face of growth and retain its present leading position as well as image in the market. No. Islami Bank Bangladesh Limited. Dhaka.Pioneer in Welfare Oriented Banking ever changing uncertain domestic business environment and face the challenges of revised global economic scenario. Foreign Remittance Policy. A Text Book on Foreign Exchange.
Dhaka. (1979).islamibank. Sud and Adhunic Banking. different issues The Daily Ittefaq. Dhaka. Adhunik Prokashani. www.Pioneer in Welfare Oriented Banking Syed Abul Ala Maududi. Bangladesh. Dhaka. different issues Web site of IBBL. Bangladesh. The Daily Star.com 67 .
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