SHANTO-MARIAM UNIVERSITY OF CREATIVE

TECHNOLOGY

Module Name:
Shipping & Banking

Module Code:
AMM 4323

Assignment Topic:

Role of Bank for economic development of a country

Submitted To:
Suhal Ahmed
Lecturer
Department of Apparel Manufacturing Management & Technology

Submitted by:
Nargis Sultana Parvin
ID- 162051048
Group- A
Semester: 12th
Batch: 27th
Department: Apparel Manufacturing Management & Technology
Bank Definition:

A bank being a financial institution creates wealth by deposits. Deposits are

created by lending funds either directly or indirectly into market and reclaiming
with interests or profits. A role of bank is importance in financial system for any
country, they are exceedingly regulated by the central government or national
bank.

Mainly commercial banks are into managing withdrawals, deposits, lending

short-term loans, home loans, mortgage loans, etc where consumer is mostly
focus toward checking and savings accounts where as Investment banks
primarily focus into services like underwriting, assisting to governments,
corporations in investments and raising large amount of funds, etc.

Define Banking Services:

Standard bank services for customers include checking accounts, current

accounts, paying cheques, collecting cheques deposits, cash deposits, payments
via telegraphic transfer, Real Time Gross Settlement, Automated Clearing House,
Wire transfers, automated teller machine, National Electronic Funds Transfer,
issuing bonds, securities, money lending, insurance, mortgage loans, etc.

Other bank services for the customers include equities, futures, options,
commodity, foreign exchange trading, personal, corporate, private,
insurance, investment banking, etc.

How do Banks price their services?

The pricing method for banking services is dependent on client relationship and
category of the transaction. The pricing is derived after outlining customers into
different segments. Segments like corporate segment involves in bulk
transactions, brokers, small and medium enterprises (SME) involves in low value
and high volumes transactions. Therefore pricing for segment differs from
segment to segment. Likewise bank pricing differ in retail banking, corporate
banking, commercial banking and investment banking. Bank circulates its tariff
plan on time to time basis.

Role of Banks in Economic Development and Growth of Countries

Customers trust is the important goodwill for a role of bank to sustain in the
market. People will deposit money when and only customer trusts a bank which
means they will get back money on whenever demanded or else on the date
specified in case of fixed deposits. Other factors are also considered important
element for a survival or reputation for the bank.

Banking is a business activity of accepting and protecting customer’s money and

then lending to the required customer’s with an intension to make profit after
calculating various types of risks. Now a days, role of bank comprise of various
diversified services like debit cards / credit cards, insurance, safety lockers,
Automated Teller Machine, online fund transfer across countries, etc. It is worth
said that banking services plays a silent and crucial role in everyone lives. The
banks perform financial by pool of deposits and underway into investments
through risk conversion; thereby maintain the economy engine of the nations /
countries.

Banking business has given new ways for the growth of world’s economy, at a
same time role of banks in economic development and growth has gradually
increased. Role of bank looks straight forward of accepting money from
customers and then lending the same funds to the borrowers, banking activities
have encouraged lot of people toward investments which in turn is a part of
countries economy growth. If banking business was not available then savings
would sit idle in your lockers and new business or new ideas would not be in
position to raise the funds and common people wouldn’t have big dreams.
Bank capital consist of earnings, debts, equities, etc and difficult task in banking
business is how well bank can manage the risk and drive business into profitable
atmosphere. Risks like:

Credit risk: When borrower fail to make payments as agreed.

Liquidity risk: Risk when securities or investment rather turned to grow slowly
and cannot prevent to adjust loss rather quickly.

Market risk: Risk when investment portfolio turns to decrease with the change
in market factors.

Operational risk: Risk from business law penalty or capital penalty toward loan
borrowed companies.

Reputation risk: Risk towards trustworthiness of banking business toward

customers.

Macroeconomic risk: Risks related with change in regulation now and then
towards bank operations. There are sets of framework defined by regulators
within which a bank institution must have to manage funds due to which this is
considered as high weighed risk.

Role of Banks In Economic Growth:

Commercial banks have been playing an important role in the economic

development of Bangladesh. They provide investible funds to both the
public sector, and specially the private sector. Further, banks have
played a significant role in respect of the four major drivers of economic
growth in Bangladesh as discussed above.

The banking sector, however, is faced with various challenges, which

include among others, weak management, poor governance, lack of
strong leadership, and non-compliance with ethical standards leading to
various types of banking scams such as money laundering and Non-
Performing Loans (NPLs).

Bangladesh is an import-dependent country. It needs to import raw

materials, accessories and machineries to foster development of the
industrial sector, including the RMG sector. Banks have been
facilitating payment, finance and risk management services to the
sector.

In 2017 the private commercial banks' (PCBs) share in export finance

was the highest (60 per cent) followed by state owned commercial banks
(SoCBs). Within the apparel sector, the RMG sector received the highest
proportion of financing from banks, and the volumes and proportions
have increased between 2014 and 2017. Import payments have been
increasing over the years. The total import payments (c & f), including
imports of EPZ, increased more than two times from US$21,629 million
during 2007-08 to US$43,663.0 million during 2016-17.

Banks play a major role in facilitating remittances by migrant workers.

During 2010-11 and 2016-17, the country received lower remittances
than in the past; and the amounts remitted through banking channels
likewise declined. However, Bangladesh received higher remittances
during the last fiscal year resulting from a strong pick-up in global
economic activities, especially in the Middle East countries. The major
factors contributing to higher remittances through the banking channels
during the last fiscal year are: (a) depreciation of the BDT against US$;
(b) higher rate offered by local banks; (c) many banks, facing shortage
of US$ for the last few months due to increase in import payments
against decline in export earnings, have intensified their efforts to
increase remittance inflows through their respective channels; and (d)
Bangladesh Bank's (BB) strengthened surveillance on hundi -- the
illegal outlet that many migrant workers use to send money home.

Given the importance of the agriculture sector, the government has

given highest priority to agriculture and its allied sectors for adequate
credit with low cost. Between 2013 and 2017, banks' loan disbursement
exceeded the target; and the crop sub-sector received about one-half of
total agricultural credit, followed by livestock and other agriculture
activities.

Private Commercial Banks (PCBs) accounted for the largest share of

agricultural credit followed by Specialised Banks (SBs), State-owned
Commercial Banks (SoCBs) and Foreign Commercial Banks (FCBs)
(Bangladesh Bank Annual Reports). Between 2001-02 and 2017-18, the
Bangladesh Krishi Bank's total disbursement to the agriculture sector
increased more than five times from BDT 15.63 billion to BDT 82.15
billion; and its total disbursement to the crop production sub-sector
increased by about 3.6 times from BDT 8.59 billion to BDT 30.62
billion. During FY17, the SoCBs, PCBs, FCBs and SBs provided credit
of BDT 210 billion, exceeding the target of BDT 175.50 billion. The
FCBs and the PCBs exceeded their targets by about 44 per cent and 36
per cent respectively.

Between 2007 and 2017, the share of short-term loans was greater than
that of long-term loans, and the gap has been widening during the past
five years (Siddique et.al. 2018). In FY17, about 82 per cent of
disbursement was in the form of short-term lending, and the rest was in
the form of long-term loans for purchase of agricultural machineries,
irrigation equipment and livestock. Credits for crop production and
poverty alleviation programmes accounted for about 59 per cent and 11
per cent respectively of total short-term loans. Around 3.86 million
farmers received agricultural and rural credit. Around 3 million small
and marginal farmers received about BDT 150 billion agricultural loans
from different banks. Over 8700 farmers in the less-developed areas
(haor, char, etc.) received about BDT 0.4 billion of agricultural and
rural credit. More than 19,000 farmers in the three hill districts received
around BDT 0.5 billion at only 5.0 per cent interest rate. About BDT
4.0 billion was disbursed among about 0.12 million farmers through
over 15,000 open credit disbursement programs arranged by different
banks. The BB undertook a special refinance scheme under which it
provided BDT 5.62 billion credit through BRAC to 0.15 million share-
croppers with limited access to banks. Also, the BB undertook special
refinance schemes for the jute and dairy farming sectors (Bangladesh
Bank Annual Report 2018).

To ensure adequate funding for SMEs, the Bangladesh Bank in 2010

formulated the "SME Credit Policies and Programmes" aimed at helping
SMEs in achieving sustainable inclusive growth. Under this programme,
the BB does not impose targets on commercial banks and non-financial
institutions (NBFIs); rather the targets are independently decided by
them. Since 2012, both the targets and actual disbursements have been
increasing. During FY17, while the target was BDT 1338.6 billion, BDT
1439.7 billion was disbursed by all banks and NBFIs among 697,000
cottage, micro, small and medium sized enterprises. Women-led
entrepreneurs received special emphasis, with 49,000 of them receiving
BDT 45.1 billion.

The BB has been encouraging all banks and NBFIs to grant loans to
women entrepreneurs at reduced interest rate (9 per cent). Also, it set
up a dedicated women entrepreneur desk and instructed all banks and
NBFIs to do the same, reserve 15 per cent of the SME funds exclusively
for women entrepreneurs, provide credit to new women entrepreneurs
in this sector, and sanction loans of at least BDT 2.5 million to women
entrepreneurs with only personal guarantee but no collateral under its
refinance facilities. At the end of June 2017, BDT 20.3 billion was
refinanced to 19,098 women-led enterprises.

Role of Commercial banks in economic development of a country

Capital Formation

Banks play an important role in capital formation, which is essential for the
economic development of a country. They mobilize the small savings of the
people scattered over a wide area through their network of branches all over the
country and make it available for productive purposes.

Now-a-days, banks offer very attractive schemes to attract the people to save their
money with them and bring the savings mobilized to the organized money market.
If the banks do not perform this function, savings either remains idle or used in
creating assets, which are low in scale of plan priorities.

Creation of Credit

Banks create credit for the purpose of providing more funds for development
projects. Credit creation leads to increased production, employment, sales and
prices and thereby they cause faster economic development.

Channelizing the Funds to Productive Investment

Banks invest the savings mobilized by them for productive purposes. Capital
formation is not the only function of commercial banks. Pooled savings should
be distributed to various sectors of the economy with a view to increase the
productivity of the nation. Then only it can be said to have performed an
important role in the economic development of the nation.

Commercial Banks aid the economic development of the nation through the
capital formed by them. In India, loan lending operation of commercial banks
subject to the control of the RBI. So our banks cannot lend loan, as they like.

Fuller Utilization of Resources

Savings pooled by banks are utilized to a greater extent for development purposes
of various regions in the country. It ensures fuller utilization of resources.

Encouraging Right Type of Industries

The banks help in the development of the right type of industries by extending
loan to right type of persons. In this way, they help not only for industrialization
of the country but also for the economic development of the country. They grant
loans and advances to manufacturers whose products are in great demand. The
manufacturers in turn increase their products by introducing new methods of
production and assist in raising the national income of the country.

Bank Rate Policy

Economists are of the view that by changing the bank rates, changes can be made
in the money supply of a country. In our country, the RBI regulates the rate of
interest to be paid by banks for the deposits accepted by them and also the rate of
interest to be charged by them on the loans granted by them.

Bank Monetize Debt

Commercial banks transform the loan to be repaid after a certain period into cash,
which can be immediately used for business activities. Manufacturers and
wholesale traders cannot increase their sales without selling goods on credit basis.
But credit sales may lead to locking up of capital. As a result, production may
also be reduced. As banks are lending money by discounting bills of exchange,
business concerns are able to carryout the economic activities without any
interruption.

Finance to Government

Government is acting as the promoter of industries in underdeveloped countries

for which finance is needed for it. Banks provide long-term credit to Government
by investing their funds in Government securities and short-term finance by
purchasing Treasury Bills.

Bankers as Employers

After the nationalization of big banks, banking industry has grown to a great
extent. Bank’s branches are opened in almost all the villages, which leads to the
creation of new employment opportunities. Banks are also improving people for
occupying various posts in their office.

Banks are Entrepreneurs

In recent days, banks have assumed the role of developing entrepreneurship

particularly in developing countries like India. Developing of entrepreneurship is
a complex process. It includes the formation of project ideas, identification of
specific projects suitable to local conditions, inducing new entrepreneurs to take
up these well-formulated projects and provision of counseling services like
technical and managerial guidance.

Credit provision

Credit fuels economic activity by allowing businesses to invest beyond their cash
on hand, households to purchase homes without saving the entire cost in advance,
and governments to smooth out their spending by mitigating the cyclical pattern
of tax revenues and to invest in infrastructure projects.

Liquidity provision

Businesses and households need to have protection against unexpected needs for
cash. Banks are the main direct providers of liquidity, both through offering
demand deposits that can be withdrawn any time and by offering lines of credit.
Further, banks and their affiliates are at the core of the financial markets, offering
to buy and sell securities and related products at need, in large volumes, with
relatively modest transaction costs.

Risk management services

Banks allow businesses and households to pool their risks from exposures to
financial and commodity markets. Much of this is provided by banks through
derivatives instruments transactions. Banks also enable individuals and
businesses to take part in the global foreign exchange and commodity markets
indirectly. It would be very difficult for example for a small company needing
only a few million Japanese yen to import a vehicle from Japan to get onto the
global currency markets without the aid of a bank.

Remittance of Money

Cash can be transferred easily from one place to another and from one country to
another by the help of a bank. It has facilitated transactions in distant places. This,
in turn, has expanded the internal and external trade and market. The men have
become free of the risks of carrying cash, gold, silver etc. The credit instruments
issued by banks such as cheque, draft, Real time gross settlement, credit cards
have facilitated the transfer of money.

Rapid Economic Development

The banks make available loans of different periods to agriculture, industry and
trade. They make direct investments in industrial sectors. They provide industrial,
agricultural and commercial consultancy hence facilitating the process of
economic development.

Promotion of Entrepreneurship

The role of private sector is crucial in accelerating the pace of economic growth.
The banks increase the participation of the private sector in economic
development by making available the loans easily on reasonable rate of interest.
The expansion of financial sector encourages entrepreneurs to make investments
by promoting entrepreneurship.

Conclusion:

There are special types of banks which provide facilities to different kinds of
economic activities. Now-a-days in every country there is a central bank which
controls the activities of all other banks, endeavours to keep the price level steady,
and controls the rates of foreign exchange.

References:

1. https://thefinancialexpress.com.bd/views/views/economic-growth-in-

bangladesh-and-the-role-of-banking-sector-1547220114

2. https://wikifinancepedia.com/finance/what-is-bank-and-role-of-bank-

financial-systems-in-economic-development-banking-basics

3. https://www.assignmentpoint.com/business/banking/role-banking-

economy-bangladesh.html
 Part – B
Activities of Clearing And Forwarding Agency

Essential Services:
(a) Transportation of goods to docks and arrangement of warehousing at port.

(b) Warehousing facilities before the goods are transported to docks.

(c) Booking of shipping space or air freighting and advice on relative cost of
sending goods by sea and air.

(d) Arrangement for loading of goods on board.

(e) Equipped with information on shipping lines and freight to different

destinations, and various charges payable by exporters.

(f) Obtaining marine insurance policies.

(g) Preparation and processing of shipping documents, Bills of Lading, Dock

Receipt, Export Declarations, Consular Invoice, Certificate of Origin, etc.

(h) Forwarding of banking collection papers.

Desirable Services:
(a) Storage facilities abroad, at least in major international markets, to warehouse
the goods in case importer refuses to take delivery on any account.

(b) Can trace the goods, if shipment goes astray, through his international
connections.

(c) Arrangement for assessing the damage to shipment enroute.

 Use of technologies in the banking sector of Bangladesh
Internet Banking: It provides a secure medium for transferring funds
electronically between bank accounts

Mobile Banking: It involves the access to, and provision of, banking and
financial services through mobile devices.

SMS Banking: It allows customers to make simple transactions to their bank

accounts by sending and receiving text messages.
Electronic Funds Transfer: It is a system of transferring money from one bank
account to another without any direct paper money transaction.

Online Banking: It is the service where an account is accessible from any branch
of a particular bank.

Automated Teller Machine (ATM): ATM means computerized machine that

permits bank customers to gain access to their accounts and permit them to
conduct some limited scale banking transactions with a magnetically encoded
plastic card and a code number.
Home Banking: It frees customers of physical branches and most transactions will
be automated sitting at home. For example: HSBC is giving Hexagon facilities to
their individual and corporate customer.

Point of Sale (POS): It is an innovative electronic money transferring system that

allows the customers of banks to pay for their purchases through their ATM and
credit card at any POS enabled retailer.

Debit Cards: Debit cards are linked directly to the bank account of its holder. The
holder of debit card can use it to buy goods or withdraw cash and the amount is taken
from the bank account right away.
Credit Cards: A credit card is a form of borrowing. Credit cards allow its holder
to 'buy goods now and pay later' - called 'buying on credit'. They aren't linked to
the bank account of the customers.

MICR: MICR (Magnetic Ink Character Recognition) is a character recognition

technology adopted mainly by the banking industry to facilitate the processing of
cheque.

Open online Letter of Credit: It means that for opening letter of credit the
customers need not to go to the bank physically. They can open the letter of credit
with the help of online banking.

Types of bank in Bangladesh

Central Bank

 Bangladesh Bank

Pursuant to Bangladesh Bank Order, 1972 the Government of Bangladesh

reorganized the Dhaka branch of the State Bank of Pakistan as the central bank
of the country, and named it Bangladesh Bank with retrospective effect from 16
December 1971.

State-owned Commercial Banks

The banking system of Bangladesh is dominated by the 3 Nationalized

Commercial Banks , which together controlled more than 54% of deposits and
operated 3388 branches (54% of the total) as of December 31, 2004. The
nationalized commercial banks are:

Specialised Bank of Bangladesh:

  Karmosangesthan Bank
 Bangladesh Krishi Bank
 Sonali Bank
 Janata Bank
 Rupali Bank

Private Commercial Banks

Private banks are the highest growth sector due to the dismal performances of
government banks (above). They tend to offer better service and products.

 BRAC Bank Limited

 Eastern Bank Limited
 Dutch Bangla Bank Limited
 Dhaka Bank Limited
 Islami Bank Bangladesh Ltd
 Pubali Bank Limited
 Uttara Bank Limited
 IFIC Bank Limited
 National Bank Limited
 The City Bank Limited
 United Commercial Bank Limited
 NCC Bank Limited
 Prime Bank Limited
 SouthEast Bank Limited
 Al-Arafah Islami Bank Limited
 Social Islami Bank Limited
 Standard Bank Limited
  One Bank Limited
 Exim Bank Limited
 Mercantile Bank Limited
 Bangladesh Commerce Bank Limited
 Mutual Trust Bank Limited
 First Security Islami Bank Limited
 The Premier Bank Limited
 Bank Asia Limited
 Trust Bank Limited
 Shahjalal Islami Bank Limited
 Jamuna Bank Limited
 ICB Islami Bank
 AB Bank Limited

Foreign Commercial Banks

 Citibank
 HSBC
 Standard Chartered Bank
 Commercial Bank of Ceylon
 State Bank of India
 Habib Bank
 National Bank of Pakistan
 Woori Bank
 Bank Alfalah
Specialized Development Banks

Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi
Unnayan Bank) were created to meet the credit needs of the agricultural sector
while the other two ( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin
Sangtha (BSRS) are for extending term loans to the industrial sector.[1] The
Specialized banks are:

 Grameen Bank
 The Dhaka Mercantile Co-operative Bank ltd
 Bangladesh Krishi Bank
 Bangladesh Development Bank Ltd
 Rajshahi Krishi Unnayan Bank
 BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank
Limited)
 Bangladesh Somobay Bank Limited(Cooperative Bank)
 Ansar VDP Unnyan Bank

KYC
KYC means Know Your Customer and sometimes Know Your Client. KYC
or KYC check is the mandatory process of identifying and verifying the identity of
the client when opening an account and periodically over time. In other words, banks
must make sure that their clients are genuinely who they claim to be. Banks may
refuse to open an account or halt business relationship if the client fails to meet
minimum KYC requirements. KYC procedures defined by banks involve all the
necessary actions to make sure their customers are real, assess, and monitor risks.
These processes help prevent and identify money laundering, terrorism financing,
and other illegal corruption schemes.
KYC process includes ID card verification, face verification, document verification
such as utility bills as proof of address, and biometric verification.

Banks must comply with KYC regulations and anti-money laundering regulations
to limit fraud. KYC compliance responsibility rests with the banks. In case of failure
to comply, heavy penalties can be applied. KYC checks are done through an
independent and reliable source of documents, data, or information. Each client is
required to provide credentials to prove identity and address.
In May 2018, the U.S. Financial Crimes Enforcement Network (FinCEN) - added a
new requirement for banks to verify the identity of natural persons of legal entity
customers who own, control and profit from companies when those organizations
open accounts. Bottom line: when a corporate company opens a new account, it will
have to provide Social Security numbers and copies of a photo ID and passports for
their employees, board members, and shareholders.