Origin of the report

The internship program is an integral part of the MBA program that all the students have to
undergo of University of Chittagong. The students are sent to various organizations where they
are assigned to one or more projects. At the end of the program, the internships are required to
place the accomplishments and findings of the project through the writing of the internship
report covering the relevant topics. During this program, supervisor guides each student one
from the university and the other from the organization.
This report is the result of a 3 months (February 10 to May 10, 2004) internship program in
Social Islami Bank Limited (SIBL).

This report contains Introduction about the report-
In Chapter 1: Background of Islamic economy and Islamic banking.
In Chapter 2: To present an overview of SIBL.
In chapter 3: To appraise the principal activities of SIBL.
In chapter 4: To appraise performance evaluation of SIBL.
In chapter 5: Online Banking Operation of Social Investment Bank Limited.
In chapter 6: To Identify problems of SIBL.
In chapter 7: To suggest suggestion for the development of SIBL.
In chapter 8: The topic of the report has been consulted & directed by the internship supervisor
from University of Chittagong.
Objectives of the Study
This study is aimed at providing me invaluable practical knowledge about banking operation
system especially Islamic banking in Bangladesh. It will also help me to develop my concept of
banking and it operations. The objectives are:
To relate theoretical knowledge with practical experience in several functions of the bank
To be acquainted with how bank perform its operation
To know about the modes of investment of Islamic Banks
To study strengths & weakness of SIBL compares to competitors
To present my observation and suggestions to the bank
To make myself more confident and active in future to handle my job

Purpose
Knowledge and learning become perfect when it is associated with theory and practice.
Theoretical knowledge gets its perfection with practical application. As our educational system
predominantly text based, inclusion practical orientation program, as an academic component is
as exception to the norm. As the parties; educational institution and the organization
substantially benefit from such a program, it seems a win-win situation. It establishes contracts
and networking contracts. Contracts may help to get a job. That is, students can train and
prepare themselves for the job market. A poor country like Bangladesh has an overwhelming
number of unemployed education graduates and Postgraduates. As they have no internship
experience they have not been able to gain normal professional experience or establish
networking system, which is important in getting a job. Thats why practical orientation is a
positive development in professional area. Recognizing the importance of practical experience,
School of Management and Business Administration has introduced a three months practical
exposure as a part of the curriculum of Bachelor of Business Administration program. In such
state of affairs the present aiming at analyzing the experience of practical orientation related to
an appraisal of Social Islami Bank Limited, Alanker Moor Branch, Chittagong.

Scope
This report will be dealing with an appraisal of Islamic banking system, its history and
mechanism, policies, and appraisal of Social Investment Bank Limited.

Methodology
For collaborating the data and information collected through primary and secondary sources I
have used both qualitative and quantitative method which contains the past, present and future
situation of Islamic bank system in Bangladesh specially Social Islami Bank Ltd. During my
study I followed some methodology to find out the fact and feature of the bank which are given
as follows:

a) Area of study:
My project was limited in overall banking function of SOCIAL ISLAMI BANK LTD. I studied all
the main three functional areas of the bank. They are:
i) General Banking.
ii) Investment Area.
iii) Foreign Exchange Area.

b) Sources of Data/Information:
I have collected my information/data from the following sources, which helped me to make this
report. The source has divided by two parts. Such as
Primary source and
Secondary source
I used both the sources.
Primary Sources:
Primary sources include interviews and conversation with officers and executives of the bank of
different divisions and department.

Secondary Sources:
Secondary sources of information include annual report, general report, investment manual,
general banking manual, foreign exchange manual, selected books journals and other
publication etc.

Analysis of data
Two approaches have been mainly used in this report.
Conceptual Approach
Empirical Approach.
These two approaches are discussed below:

Conceptual Approach:
A theoretical section is given in this report (i.e. the organization part) to give an insight various
information concerning the financial function. It is given in relevance with the organization in
context i.e. Social Islami Bank Limited (SIBL). A background of SIBL is given to facilitate the
understanding of this report. Every single portion is discussed in order to understand the
empirical section.

Empirical Approach:
This refers to the information that has been directly collected and interpreted from the survey on
Social Islami Bank Limited (SIBL). The report is prepared by interviewing the officials of SIBL.
The reports of SIBL and documents are also been studied to do the report.


Time Allocation
The time, which was given me to prepare the project report, was not enough to make as a big
report. Nevertheless I have tried my level best to utilize the time. The time, which I spent to
make the report, are given below.

General Sections One month
Investment Sections One month
Foreign Exchange One month

Limitations of the study
Banking sector is very sensitive and competitive by its nature. So, data of this report is not
available and the interviewees might not disclose accurate facts and figures about foreign
exchange and other activities. However I faced the following problems during the study.
Insufficiency of valuable data and information
Lack of proper books, journals etc.
Lack of experience
Lack of time and resources.
Lack of perfect co-operation.

Report Preview
This paper is a short one providing only the facts and figures of current situation of Islamic Bank
and overall activities of Social Investment Bank Ltd.

Background of Islamic Economy & Islamic Banking:

Islamic Economy:
An Islamic economy is a market economy guided by moral values. Economic activities are based
on principles of cooperation and responsibility. Cooperation means that an economic exchange
will be beneficial to both parties involved in. Transactions in which one party wins at the expense
of the other are not permissible in Islam. Thus, monopolistic dealings, usury, and exploitation are
prohibited. Transactions that allow both parties to win are permissible, and these include most
types of activities needed for economic prosperity. Permissible and these include most types of
activities needed for economic prosperity. Performance-based arrangements, like profit sharing
or partnership, represent the most cooperative form of beneficial agreements, and thus are highly
encouraged in Islam. Responsibility means that each individual is entitled for reward or return
based on his effort and contribution. Thus gambling and lotteries are not permissible. Gambling
lows an individual to gain based on pure luck, not on merit or effort. It shifts wealth blindly among
participants leading to improper distribution of wealth. Gambling is a clear form of zero-sum game
where one party wins only if the other loses, and causes hatred and enmity among participants. A
society where lotteries or gambling-like activities prevail is a zero-sum society, where the winner
takes all, and the rest is doomed to fail.
Islamic Economics:
Islamic economics is a framework for studying economic activities that allow mutual benefit of
exchange to be realized. It provides proper tools and techniques for evaluating economic
decisions, showing when and how to achieve win/win outcomes and avoid win/lose or lose/lose
ones. Islamic economics is based on the principle that Allah, the Almighty created this world with
plenty of resources that satisfy the needs of everyone. Thus one persons success is not
necessarily achieved at the expense or excluding of the success of others. This win/win
framework leads to better economic behavior and performance, and thus promises better future
for mankind.
Islamic Banking:
Islamic banking is an inseparable part of Islamic economy. During the fiftys it was only a subject
matter of research and was limited to the writing of scholars and philosophers. During the sixtys
actual experiment were made and in the seventys Islamic Banking Institutions started gaining
strength. The eightys and ninetys are the period of consolidation and now Islamic Banking is
coming up as the only welfare banking system of the modern world.
There has always been a desire to establish financial institution to operate as per the tenets of
Islamic Shariah. A successful Islamic banking venture in My Gamer, Egypt was launched in 1963.
Subsequently, Islamic banking movement achieved steady progress and assumed significant
dimension and role with the establishment of the Nasser Social Bank (1972), Dubai Islamic Bank
(1975), Islamic Development Bank (IDB) (1975), Faisal IslamicBank in Egypt and Sudan (1977).
Emergence of the Islamic Development Bank as and International Islamic Financial Institution
with a view to involving all the Islamic Countries in the establishment of Islamic Banks and
Financial Institutions was considered as a milestone in the history of Islamic Banking. In August
1974, Bangladesh signed the charter of Islamic Development Bank and committed itself to
reorganize its economic and financial system as per Islamic Shariah.
Earlier in November 1980, Bangladesh Bank, the countrys central Bank sent a representative to
study the working of several Islamic Banks abroad. In January 1981, at the 3rd Islamic summit
conference held at Mecca and Taif, a great emphasize were given on that the Islamic countries
should develop a separate banking system of their own in order to facilitate their trade and
commerce.
In November 1982, a delegation of IDB visited Bangladesh and showed keen interest to
participate in establishing a joint venture Islamic Bank in the private sector. They found a lot of
work had already been done and Islamic banking was in ready for immediate introduction. Islamic
Economic Research Bureau (IERB) and Bangladesh Islamic Banker Association (BIBA) made
contributions towards introduction of Islamic Banking in the country.
Definition of Islamic Bank:
Islamic banking is a part and parcel of Islamic Economy. It is an interest free financial institute,
which is based on Islamic Shariah. OIC (Organization of Islamic Conference-1978) defined
Islamic Bank as a financial Institution whose statutes, rules and procedures expressly state its
commitment to the principles of Islamic Shariah and to the principles of Islamic Shariah and to the
banking of the receipt and payment of riba (interest) on any of its operations.
Islamic Banking in Bangladesh
Growth and Present Status:
Background of Islamic Banking in Bangladesh:
Bangladesh is the third largest Muslim country in the world with around 130 million population
and 90 percent of them are Muslim. The hope and aspiration of the people to run Banking system
on the basis of Islamic Principles came into reality after the OIC recommendation of its Foreign
Ministers meeting in 1978 at Senegal to develop separate Banking system of their own. After 4
years of that declaration in 1983, Bangladesh established 1st Islamic Bank. At present, in
Bangladesh, out of 51 banks, 6 full-fledged Islamic Banks and 2 Islamic Banking Branches of two
conventional Banks have been working in the private sector on the basis of Islamic Shariah.
Islamic Banking system has been designed and developed to prevent exploitation, ensure justice
and growth in the society. However, Islamic Banks in Bangladesh since their inception have been
facing multifarious problems in their operation, which needs to be carefully addressed.

Development of Islamic Banking in Bangladesh:
At present six full fledged Islamic Banks viz.
Islami Bank Bangladesh Limited (IBBL).
Al-Baraka Bank Bangladesh Limited (ABBL).
Al-Arafah Islami Bank Limited (AIBL).
First Security Islami Bank Ltd.
ICB Islamic Bank Limited
Social Islami Bank Limited (SIBL).
Shahjalal Islamic Bank Limited (SBL).
Shamil Bank of Bahrain EC (Islamic Bankers)

And two Islamic Banking Branches of prime Bank Limited and two Islamic banking branch of
EXIM Bank Ltd. are operating in Bangladesh as per Islamic Shariah.
The first Islamic Bank, Islami Bank Bangladesh Limited was established in March, 1983 to
conduct banking activities on the basis of the basic tenets of Islamic Shariah.
Later, Al Baraka Bank Bangladesh Limited was established as the second interest free Islamic
Bank in March 1987.
The third and fourth Islamic Banks of Bangladesh namely, Al-Arafah Islami Bank Limited & Social
Islami Bank Limited has started functioning in Bangladesh from September 27, 1995 & November
25, 1995 respectively.
At last, fifth private sector Islamic Bank Shahjalal Bank Limited has been started banking
operation very recently from Mid-May 2001.
The only Foreign Islamic Bank Shamil Bank of Bahrain e.g (Islamic Bankers) which is the
largest Islamic Bank of the world opened a Branch in Dhaka, Bangladesh, in August 1997.
Besides, two Islamic Banking branches of Prime Bank Limited also started operation on Islamic
Shariah basis from 18th December, 1995 & 17th December, 1997 respectively and two Islamic
banking branch EXIM Bank started operation from on mid-2002.


An overview of Social Investment Bank Limited:
3.1 Corporate information:
Social Islami Bank Limited (SIBL) was established in the year 1995 as a public limited company
which is engaged in Shariah based commercial banking in the country and its modus-operandi
are substantially different from other conventional banks. This is the second generation pioneer
Islamic Bank in this country to introduce online banking facilities to its customers.

Name of the Company Social Islami Bank Limited
Legal Form Public Limited Company
Company Registration No C-28763(44)/95
Authorized Capital Taka 10,000,000,000
Paid up Capital Taka 703,14,15,640
Registered Office City Center, Level 19, 20, 21 & 22, 90/1 Motijheel C/A, Dhaka-1000
Phone: PABX 88 02 09612001122
FAX: 88 02 9568098
Email: info@sibl-bd.com
Web: www.siblbd.com
SWIFT: SOIVBDDH

Tax Payer Identification
No
035-200-4971
VAT Registration No 9011046380 Area Code: 90101
Credit Rating Agency Emerging Credit Rating Ltd.
Auditors M/S Kazi Zahir Khan & Co.
Chartered Accountants, 67/4, Pioneer Road, Kakrail, Dhaka-1000

Chairman Major (Retd) Dr. Md. Rezaul Hoque
Managing Director Md. Shafiqur Rahman
Company Secretary Md. Humayun Kabir
Chief Risk Officer Md. Yunus Ali
Chief Financial Officer Walid Mahmud Sobhani, FCMA
Number of Employees 1802
Number of Branches 94 (Ninety Four)
Number of Shareholders 82,614
Investors Enquiry Share Division
City Center, Level-19, 90/1 Motijheel C/A, Dhaka-1000 Phone:
PABX 88 02 09612001122

For SIBL Securities
Limited
(a subsidiary of SIBL)
Managing Director
3rd floor, 15 Dilkusha C/A, Dhaka-1000
For SIBL Investment
Limited
(a subsidiary of SIBL)
Managing Director
3rd floor, 15 Dilkusha C/A, Dhaka-1000
For Offshore Banking Off Shore Banking Department
48 Kamal Attaturk Avenues, Banani, Dhaka-1213
Phone: PABX 88 02 09612001122

Listing Status (Shares) DSE (Dhaka Stock Exchange):
Symbol: SIBL, Listing Date: 18.11.2000

CSE (Chittagong Stock Exchange):
Symbol: SIBL, Listing Date: 04.10.2005

Market Price as on 31.12.2013
DSE: Taka 13.30 Category: A, CSE: Taka 13.20, Category: A


Background of Social Islami Bank Ltd.
Introduction:
Social Islami Bank Ltd. (SIBL) became operational on 22nd November, 1995 with a clear
manifesto to demonstrate the operational meanings of participatory economy, banking and
financial activities as an integrated part of an Islamic code of life. It is an alternative concept of
Islamic Banking with a unique human face approach to credit and Banking based on interest
free economics and financial transactions and income generating program for the millions of the
urban and rural poor and a profitable investment option for the rich to invest, earn and live in a
better society with greater security and peace at the operational level, SIBL is operating three-
sector Banking, such as, Formal, Non-Formal and Voluntary sector, SIBL is beginning a new
era of Islamic Banking having social, ethical and moral dimension in each of its activities ranging
from credit to construction, trading to transport, farming to fishing, manufacturing to mining and
so on. Some renowned personalities and institutions are sponsors and directors of this bank,
specially, the Founder Chairman Prof. Dr. M. A. Mannan, who is an internationally reputed
Islamic thinker and Professional Economist. He served in different important capacities in
different International Organizations including Asian Development Bank and Islamic
Development Bank. With his heartiest efforts and inspiration Ex-Secretary General of O.I.C Dr.
Hamid AI-Gabid and Deputy Speaker of Saudi Arabia and former Secretary General of Rabeta,
Dr. Abdullah Omar Nasseef, and Ex-Commerce Minister of Saudi Arabia Salah Jamjoom took
part in the establishment of the Bank. Besides, International Solidarity Fund (IFS) and
International Islamic Relief Organization (IIRO) also took part as Sponsors.

Vision
Working together for a caring society
Mission
Establishing Three Sector Banking Model
Transformation to a service oriented technology driven profit earning Bank
Fast, accurate and satisfactory customer service
Balanced & sustainable growth strategy
Optimum return on shareholders equity
Introducing innovative Islamic Banking Products
Attract and retain high quality human resources
Empowering real poor families and creating local income opportunities
Providing support for social benefit organizations by way of mobilizing funds and social services
Strategic Objectives
Transformation into a service-oriented technology-driven profit earning bank
Ensure fast, accurate and best-in class customer services with customers satisfaction
Balanced and sustainable growth strategy
Optimum return on shareholders equity
Introducing innovative Islamic Banking Products
Attract, motivate and retain high quality human resources
Empowering real poor families and creating local income opportunities
Providing support for social benefit organizations-by way of mobilizing Funds and social
services
To achieve global standards in Islamic Banking
To invest in the priority sector for the overall economic development
Ensure best CSR (Corporate Social Responsibilities) practices
Ensure Green Banking
Commitments
To the Shariah
To the Regulators
To the Shareholders
To the Nation
To the Customers
To the Employees
To the other Stakeholders
To the Environment
Code of Conduct for the Employees
Adhere to the Shariah Principles
Adhere to the disciplinary measures of the bank
Adhere to applicable laws and regulations during performance of duties
To inform the customers about the benefits and risks of the products and services
offered to them
To offer unbiased and fair service to the customers receiving the same services
Not to disclose the secrets of their customers and the banks which they come to learn by
virtue of their positions and titles to anyone other than those persons and authorities who
are explicitly authorized under laws
Not to cause any loss of reputation of the bank during works and attitudes
Not to be engaged in any activity that can be classified as personal business
Not to behave in contradiction with the principles of justice, integrity, honesty, reliability
and social responsibility
To cooperate with other employees for common purposes through building a courteous
and diligent communication during their fulfillment of duties
Not to use the banks assets and resources unproductively and outside the designated
purpose
Not to derive any personal benefits both from their own job potentials and from potentials
of their customers by using their positions and titles
To refuse all such benefit offers immediately and to inform such offers to the competent
authorities and to their superiors
Not to be involved in relations with the customers such as borrowing-lending, being
guarantor and opening common accounts with the customers which do not correspond
with ethical principles
Not to accept presents from the current or potential customers, other than those
presents accepted by the bank personnel under the established practices in the bank
To be aware of his accountability regarding the duties assumed during the performance
of the services
Not to assume any position in any private and public organization other than
associations, foundations, cooperatives, and similar organizations without the approval
of his bank
Ethical Principles of SIBL
Objectivity
Just and equitable
Reliability
Transparency
Observing Social Benefit and Respect to Environment
Fighting with money laundering
Insider Trading
Relations with public organizations, regulators and other institutions
Personnel behaviors
Competition
Honesty
Impartiality
Advertisements and Announcements
Customer complaints
Security
General employee qualities
Employment and career development
Working environment
Job Descriptions
------------------------------------------------------------------------------------------------------------------
ISLAMI SHARIAH BASHEL BANKING ACTIVITIES OF THIS BANK AREAS FOLLOWS
Formal Sector:
A. Deposit
AI-Wadiah Current Deposit Account
Mudaraba Savings Deposit Account
Mudaraba Term Deposit Account
Mudaraba Notice Deposit Account
Foreign Currency Account
Mudaraba Monthly Profit Deposit Account
Mudaraba Hajj/ Umrah Savings Account
Mudaraba education Savings Scheme Account
Mudaraba Special Savings (Pension) Scheme Account
Mudaraba Millionaire Scheme Account
Basasthan Savings Account
Social Fund Deposit Account
Shelter Finance Deposit Account
Cash-Waqf Deposit Account
Voluntary Sector Development Deposit Account
B. Investment
Mudaraba-Trust Finance Partnership
Musharaka-Participation Financing /Equity Financing
Murabaha- Cost Plus Sale
Bai- Muajjal Sale under deferred payment
Bai- Salam Forward Purchase
Leasing -The Bank leases out Machineries, Transport, Houses, Ship etc. for an agreed period of
time, the company being the legal owner and the lessee having the right to use the property for
the duration of the contract.
Direct Investment- This Bank directly invests capital on medium and long term basis in
Industry, Agriculture, Trade, Transport, Immovable property and for construction of houses etc.
Hire Purchase- In this system of business the bank invests for purchasing durable assets like
machineries, equipment, transport, land and building etc. along with the client with the stipulation
that the client shall pay off the principal amount with rent (at the agreed rate) in installment.
C. Foreign Exchange
To purchase and sell foreign currencies and carry on business of import through opening of L.C.
D. Remittance
This bank remits clients money both at home and aboard, completes all formalities of
remittance in respect of Bangladeshi living abroad and other customers.
E. Special Banking Services:
In addition to sale and purchase of foreign currencies the Bank issue Guarantees, accept
certificate and shares, accept articles & valuable documents, for safe custody locker service,
discharge responsibility as investment trustee, act as clients agents for recovery of clients
demand and carry on transactions on their behalf within the stipulated period, work as
correspondent of local and Foreign Banks and other Financial institutions, act as; Banker to the
issue on behalf of the companies, provide consultancy service to the customers and all other
Banking Services.
F. Special services for Bangladesh living abroad :
Provide financial assistance to the Bangladeshis for the travel to the place of employment
outside the country, prepare projects for investment of wage earners,accept housing projects and
provide other necessary services to them.
G. Social Fund
The Social investment Bank considers man not with money but with a human face approach.
So, this Bank is firmly committed to provide a human face approach in all its activities. This Bank
builds a Social fund with the part of the profit earned by the bank and collects all kinds of gifts,
Zakat and Sadakah from clients. This fund is invested in projects for betterment of the less
fortunate and poor people of the society.
Non-Formal Sector :
The Banks special program is directed mainly to up-lift the socio-economic conditions of rural
and urban poor. In order to achieve this objective, Social Investment Bank Ltd. is involved in the
mobilization and utilization of local resources and the surplus labor mainly from within and
provide employment opportunities to the unemployed and the landless besides investing in
N.G.O. activities, educational, health expansion activities etc. Social Fellowship Program for
Students has already been introduced; Family health service cheque is being introduced.
Non-Formal Banking Sector:
i) Family Empowerment Micro Credit Program

ii) Family Empowerment Micro Enterprise Program

iii) Student Social Fellowship Program

iv) Social Fund Investment and its utilization

v) Rotating Family Savings and Credit Net (RFSCN)

vi) Non-formalRealLifeSchool of Management

vii) Displaced Garments Child Worker Student Stipend Disbursement Program

Islamic Voluntary Sector :
This Bank has a special program of development of various religious and social service oriented
institutions. Within this program, Mosque, Maktab, Waqf, Charitable organizations etc. will be
modernized and activated. All properties under this program will be utilized in productive activities
on participation basis. Besides, Hajj (pilgrimage) and Kurbani (sacrifice of animals according to
dictates of Islam) schemes are included in the program of Social Investment Bank Ltd Cash Waqf
Certificate has already been introduced for the first time in history. Various methods of
compulsory and voluntary Islamic distribution of finance, such as, Zakat, Sadakah, Waqf etc. will
be institutionalized
Voluntary Banking Sector:
i) Social Capital Market Operation Program:
a) Cash Waqf Certificate
b) Mosque / waqf Property Development Bond
c) Mosque / waqf Property Development Quard-e-Hasanah Certificate
d) Non-Muslim Trust Property Development Bond
ii) Mosque / waqf Property Development Scheme
iii) Sabuj Haat Project
iv) Non-Muslim Trust Property Development Scheme
Model of Social Investment Bank Limited
Natures and Scope:
Social Investment Bank Ltd. (SIBL) intends to demonstrate the operational meanings of
participatory economy, banking and financial activities as an integrated part of code of life. It is an
alternative concept of Islamic Banking with a unique human face approach to credit and banking
based on interest-free economic transaction, mutual participation and sharing of profit and loss
through various modes of finance and humanism as reflected in its general name.
In the context of labor-surplus economy of Bangladesh, it represents a comprehensive alternative
concept and an operational model meant to combine together: (a) real material benefits, (b)
visible social advantages and (c) clear spiritual vision-all three in one package to the benefit of
not merely its clients and shareholders but also to the advantages of vast poor masses at the
grass-root level. Because Islam knows no distinction between a spiritual and temporal realm nor
between religious or secular activities in a society. Thus, there will be clear manifestation of
human and moral dimension in each of its interest-free banking, financial and economic Activities
ranging from credit to construction, trading to transport, farming to fishing, manufacturing to
mining and so on. This Bank is expected to offer an alternative income-generating program for
the millions of urban and rural poor and a profitable investment option for the rich to invest, earn
and live in a better society with greater security and peace.
At the operational level, this Bank will provide a clear linkage among three sector of the real
economy :(a) monetized formal sector, (b) non-monetized informal sector and (c) Islamic
voluntary third sector. It will offer the modern banking services and undertake projects in the
formal, non-formal. Voluntary third sector as well as provide special services for the Bangladeshi
living abroad. The concept of depositor in this model of social banking Is different. Here
depositors participate in a variety of participatory modes of financial, commercial and project
specific investment activities such as profit- loss-sharing, rent-sharing, cost-plus trading,
dividend- sharing hire-purchase arrangements, installment sale, forward of Salam sale as well as
various financial instruments (i.e., Mudarabah Bond), Co-operative Insurance (Takaful) and so
on.
It offers a socio- economic action program that conveys life in its totality so that it will not only
generate economic and social opportunities for work but also to foster the spirit of voluntary
sharing and participation, collective social responsibility, mutual concern and reliance rather than
self-reliance likely to promote acquisitive behavior and individualism. This involved participation is
expected to create an environment of economic security and viable social peace through a sense
of belongingness that, in turn, breeds loyalty and encourages people to do their best sense.
Each project is to be designed in a manner so that income earning, spending and non-spending
activities become economic, social and moral necessities all at one, Work is viewed as an
extension of prayer through the diverse programs of this Bank. This comprehensive economic
and social banking program goes much beyond the mere replacement of interest rate by profit-
sharing ratio. It is expected to introduce inter-dependency and mutual concern into the life-style,
effecting the behavior of savers, investors, consumers, producers, labors, farmers, poor and rich
members of the society. The bank is expected to provide and institutional frame work for
implementing these, ideas, Ideas die without institution.
Operational Strategies:
This Banks program will be directed mainly to uplift the socio- economic conditions of rural and
urban poor with a view to eventual elimination of poverty. In the process, this Band intends to
empower the family as a basic unit of the society. Thus investment program of this Band will be
geared to generate profits, a percentage of which will be set aside to support social projects on a
non-profit basis. Thus all activities of the Bank will be subject to social Assignments, thereby
making social and moral preferences transparent and revealed in all its financial and economic
operations. The concept of social welfare will then have a different meaning. Here right will be
linked to duties. The operational strategies of the Band would, therefore, involve mobilization and
utilization of:
1. Local resources at the grass-root level mainly from within;
2. Surplus labor wherever possible;
3. Human and money capital of beneficiaries of earlier programs;
4. Unemployed and underemployed in the informal sector;
5. Islamic voluntary sector and voluntary labor for social capital accumulation and welfare;
6. Adoption of class-harmony extended family approach to industrial relations through employment
buy participation; and
7. Participation of women, minorities, and people or other religions to operationally the concept of
brotherhood of man and humanism.
The management of such a Bank would mainly be participatory in nature so that employees feel
that the enterprise belongs to them.
The program of this Bank would include commercial, agricultural, small industrial, educational,
health and grass-root level social banking activities. The will be designed in a manner so as to
make finance, production, marketing, training and moral suasion in one package. While basic
human endowments and God-loving or God-fearing criteria will be used as fundamental
collateral, in all operations of this Bank, it will give particular emphasis on programs dealing with
the problem of absolute rural and urban poor, the various mechanics of partnership, equity-based
and profit-sharing operations (i.e., Mudarabah, Musharaka, Murabaha) and other tools will be
operational zed in manner so that economic, human and moral dimensions are clearly manifested
in order to hive them a distinctive character of Islamic finance.
Seven Distinctive conceptual features:
At the conceptual level, seven distinctive features of this Bank are as follows:
1. To develop an alternative human face approach to credit and finance based on participation and
sharing of profit and loss.
2. To implement projects, targeting absolute poor on a priority basis;
3. To involve the poor and all beneficiaries of the program in the recycling process for mitigating the
poverty of relatively less fortunate people around him though contribution into a social Fund.
4. To foster the notion of sharing and participatory management designed to raise the level of self-
respect and mutual reliance rather than self-reliance likely to promote individualism;
5. To raise the level of human qualities and potentialities of the participants of the program through
required de-education, re-education, new education and programs for non-formal training on the
job;
6. To provide a clear sense of economic, social and moral purpose to each of the participants of the
Banks programs; and
7. To design and implement programs that conveys life in its totality with a view to developing a
sense of humanism and a caring society.
Ten unique operational features:
At the operational level, ten unique features of this Bank are as follows:
1. To develop a built-in provision for a contribution to a Social Fund in all financial contracts and
transactions with the Banks clients either on individual or group or family basis as well as to
operational zed the notion of integration between secular economic and non-secular activities.
2. To involve local public and workers in the decision-making process in the management of cottage,
small or medium scale industries. The poor will be placed at the focal point of an integrated
package.
3. To develop training program for generation and updating the required skill of the employs.
4. To enable selected target groups of people to have an access to non-formal banking facilities on a
continuous basis.
5. To identify and execute finance and business programs / deals involving absolute poor and
destitute people having no physical asset as collateral.
6. To organize door-to door mobile banking.
7. To develop income-generating programs specially suited for women and disadvantages groups of
minority too.
8. To design programs for utilizing surplus labor as well as voluntary labor services in rural and urban
areas.
9. To organize programs intended to institutionalize the various obligatory and voluntary tools of
Islamic distributive measures such as Zakat, Sadaqa, Waqf Fund, etc.
10. To establish links between the formal, informal and voluntary sectors of the real people in area
economy.
AT A GLANCE OF SOCIAL INVESTMENT BANK LIMITED
Followings are the important historical events of this unique model Bank:
February 02, 1989: The concept and three-sector model of Social Investment Bank Limited was
formally presented and discussed with his Excellency Late. Prof. Dr. Ahmed Al- Nagger of Egypt,
who is considered to be the father of modern Islamic Banking as well as Prof. Dr. A. Wadoed
Shalaby of AL- Azhar University, Cairo.
April 21, 1989: The concept of this Bank was presented and then a series of discussions took
place with His Excellency Dr. Abdullah Omar Nasseef of Saudi Arabia, Vice Chairman, Majlish e-
Shura, the Kingdom of Saudi Arabia, former President of the King Abdul Aziz University and
Secretary General of the World Muslim League.
July 04, 1989: This model of Banking was presented and then a serious of discussions took
place with His Excellency Dr. Hamid AL- Gabid, Secretary General of the Organization of Islamic
Conference (OIC) of 53 Muslim Countries.
July 27, 1989: Memorandum (85) on this Bank was formally submitted to the Prime Minister of
the Government of the Peoples Republic of Bangladesh.
August 01, 1989: Formal memorandum on this Bank was formally submitted to the Honble
President of the Peoples Republic of Bangladesh.
September 24, 1989: Formal presentation of this model was made before the full council of
ministers at President House fro about two hours with the President in the Chair.
September 30, 1989: The proposal of this Bank was submitted to Governor, Bangladesh Bank.
December 6, 1994: The Letter of intent for establishing this Bank was issued by Bangladesh
Bank.
July 05, 1995: The Memorandum and Articles of Association were duly incorporated under the
Companies Act of 1994 to implement this Model of this Bank as conceivedand developed by Prof.
Dr. M.A. Mannan.
August 21, 1995: Permission to open First Branch of the Social Investment Bank Limited at
Dhaka was given by Bangladesh Bank.
November 22, 1995: After a long journey, SIBL was formally opened at 15, Dilkusha C/A, Dhaka
by the Honble President of the Peoples Republic of Bangladesh in a grand ceremony.
Authorized capital of the company is taken 1,000 million.
General Banking of SIBL
Opening of different types of Mudaraba Saving Deposit
Mudaraba Saving Deposit (MSD)
These are profit bearing deposit accounts. The drawings are restricted in respect of both the
amount of withdrawal and the frequency thereof so that the payment of interest does not become
any compensating for the banker. Some time the restrictions are ignored against the depositors
written confirmation to forgo his claim for interest on the total balance for the whole month of
withdrawal.
When a client wants to open a MSD accounts, s/he fill up a form. Any account holder introduces
him. He signed form & signature card where needed his signature and give his own 3 copy pp
photo & 1 copy pp nominees photo. Nominees also fill up nominee form & put his/her signature
nominee form. Then the officer gives him a accounts number against money.
** Enclosed original Mudaraba Saving Deposit (MSD) form.
Special Savings Scheme
1. Mudaraba Hajj Savings Scheme
Hajj is one of the basic pillars of Islamthe complete code of life. Social Investment Bank Limited
has introduced a scheme in the name & style Mudaraba Hajj Savings Scheme to facilitate the
intending Muslims to perform Hajj properly at appropriate age. This is purely a savings Scheme
for Hajj. Any Muslim intending in perform Hajj by building-up deposit required for meeting Hajj
expenses will select one of the 20 (Twenty) alternative choices based on duration of period from
1 year to 20 years for building-up savings by monthly installments under this Scheme.
** Enclosed original Mudaraba Hajj Savings Scheme form.
2001 & next 19 years savings and Hajj / Umrahs approximate expenditure (Tk.) chart:

2001 2002 2003 2004
Period Monthly
Savings
Hajj/
Umrahs
estimated
cost
Monthly
Savings
Hajj/
Umrahs
estimated
cost
Monthly
Savings
Hajj/
Umrahs
estimated
cost
Monthly
Savings
Hajj/
Umrahs
estimated
cost
20 Yrs 350/- 2,22,700/- 370/- 2,33,800/- 385/- 2,45,500/- 405/- 2,57,800/-
19 Yrs 370/- 2,12,100/- 390/- 2,22,700/- 410/- 2,33,800/- 430/- 2,45,500/-
18 Yrs 395/- 2,02,000/- 415/- 2,12,100/- 435/- 2,22,700/- 455/- 2,33,800/-
17 Yrs 420/- 1,92,400/- 440/- 2,02,000/- 460/- 2,12,100/- 485/- 2,22,700/-
16 Yrs 445/- 1,83,200/- 470/- 1,92,400/- 495/- 2,02,000/- 515/- 2,12,100/-
15 Yrs 480/- 1,74,500/- 500/- 1,83,200/- 525/- 1,92,400/- 555/- 2,02,000/-
14 Yrs 515/- 1,66,200/- 540/- 1,74,500/- 565/- 1,83,200/- 595/- 1,92,400/-
13 Yrs 555/- 1,58,300/- 580/- 1,66,200/- 610/- 1,74,500/- 640/- 1,83,200/-
12 Yrs 600/- 1,50,800/- 630/- 1,58,300/- 665/- 1,66,200/- 695/- 1,74,500/-
11 Yrs 655/- 1,43,600/- 690/- 1,50,800/- 725/- 1,58,300/- 760/- 1,66,200/-
10 Yrs 725/- 1,36,800/- 760/- 1,43,600/- 795/- 1,50,800/- 835/- 1,58,300/-
9 Yrs 805/- 1,30,300/- 845/- 1,36,800/- 885/- 1,43,600/- 965/- 1,50,800/-
8 Yrs 905/- 1,24,100/- 950/- 1,30,300/- 995/- 1,36,800/- 1,050/- 1,43,600/-
7 Yrs 1,030/- 1,18,200/- 1085/- 1,24,100/- 1,135/- 1,30,300/- 1,190/- 1,36,800/-
6 Yrs 1,200/- 1,12,600/- 1,260/- 1,18,200/- 1,325/- 1,24,100/- 1,390/- 1,30,300/-
5 Yrs 1,435/- 1,07,200/- 1,510/- 1,12,600/- 1,585/- 1,18,200/- 1,660/- 1,24,100/-
4 Yrs 1,790/- 1,02,100/- 1,880/- 1,07,200/- 1,975/- 1,12,600/- 2,070/- 1,18,200/-
3 Yrs 2,375/- 97,200/- 2,495/- 1,02,100/- 2,620/- 1,07,200/- 2,755/- 1,12,600/-
2 Yrs 3,550/- 92,600/- 3,725/- 97,200/- 3,915/- 1,02,100/- 4,110/- 1,07,200/-
1 Yrs 7,065/- 88,200/- 7,415/- 92,600/- 7,785/- 97,200/- 8,180/- 1,02,100/-
2. Mudaraba Education Savings Scheme
Social Investment Bank Limited, being encouraged by the success of the Mudaraba deposit
accounts, has introduced another savings scheme namely Mudaraba Education Savings
Scheme . Savings money Tk.25,000/= aged 7 year, 10 year, 15 year, 20 year. After Maturity
Bank will pay 55,000/=, 77,000/=, 1,36,000/=, 2,40,000/=. If any client deny to received the
amount at a time, bank will monthly pay Tk. 1,000/=, 1,500/=, 2,500/=, 4,500.
Mudaraba Education Savings Scheme :
Term Initial
Deposit
End of the
Terms
Monthly Educational
Allowance
7
Years
Tk. 25,000/- Tk. 55,000/- Tk. 1,000/-
10
Years
Tk. 25,000/- Tk. 77,000/- Tk. 1,500/-
15
Years
Tk. 25,000/- Tk. 1,36,000/- Tk. 2,500/-
20
Years
Tk. 25,000/- Tk. 2,40,000/- Tk. 4,500/-
** Enclosed original Mudaraba Education Savings Scheme form.
3. Mudaraba Special Savings (Pension) Scheme
Considering increasing demands from the clients of the bank as from the people of the all walks
of the country for special and attractive savings scheme on the basic of the Islamic Shariah so as
to enable and encourage them to save as per their capacity in Islamic way for their old age when
they will normally retire from their active economic life, Social Investment Bank Limited has
introduced Mudaraba Special Savings (Person) Scheme in which a person gets the opportunity
to build-up savings by contribution small monthly installments for getting an attractive amount at
the end of a specified term or a monthly amount for a specific period after the expiry of the term.
Mudaraba Special Savings (Pension) Scheme:
Monthly
Savings
Term Lump sum
amount
payable at
Maturity
Monthly
Savings
Term Lump sum
amount
payable at
maturity
Tk. 100/- 5
Yrs
Tk. 8,000/- Tk.
100/-
10
Yrs
Tk. 22,500/-
Tk. 200/- 5
Yrs
Tk. 16,000/- Tk.
200/-
10
Yrs
Tk. 45,000/-
Tk. 300/- 5
Yrs
Tk. 24,000/- Tk.
300/-
10
Yrs
Tk. 67,000/-
Tk. 400/- 5
Yrs
Tk. 32,000/- Tk.
400/-
10
Yrs
Tk. 90,000/-
Tk. 500/- 5
Yrs
Tk.40,000/- Tk.500/- 10
Yrs
Tk.1,12,500/-
Tk.1,000/- 5
Yrs
Tk. 80,000/- Tk.
1,000/-
10
Yrs
Tk.2,25,000/-
Tk.1,500/- 5
Yrs
Tk.
1,20,000/-
Tk.
1,500/-
10
Yrs
Tk. 3,37,500/-
Tk.
2,500/-
5
Yrs
Tk.
2,00,000/-
Tk.
2,500/-
10
Yrs
Tk. 5,62,500/-
Tk. 5 Tk. Tk. 10 Tk.
5,000/- Yrs 4,00,000/- 5,000/- Yrs 11,25,000/-
** Enclosed original Mudaraba Special Savings (Pension) Scheme form.
4. Mudaraba Monthly Profit Deposit Scheme
Social Investment Bank Limited 1.mined has launched a new, deposit product under the name
and style Mudaraba Monthly Profit Deposit Scheme in accordance with the principle of Islamic
Shariah Any individual may open account under the- Scheme by depositing a minimum amount
of Taka 50,000/=, 1,00,000/=, 1,50,000/=, 2,00,000/=, 2,50,000/=, 3,00,000/= and multiple
thereof at a time for 3 years. Monthly provisional profit shall be given to the account just after
completion of 30 days from the dale of opening the account. The profit amount will be adjusted on
completion of each accounting year after declaration of final rate of profit.
** Enclosed original Mudaraba Monthly Profit Deposit Scheme form.
5. Mudaraba Millinery Deposit Scheme
Social Investment Bank Limited 1.mined has launched a new, deposit product under the name
and style Mudaraba Millinery Deposit Scheme in accordance with the principle of Islamic
Shariah Any individual may open account under the- Scheme by monthly depositing amount of
Taka 550/= @ 25 years, 1,50/= @ 20 years, 2,050/= @ 15 years, the profit amount will be Tk.
10,00,000/= after maturity.
Mudaraba Millionaire Scheme :
Term Monthly Deposit Lump Sum Amount Payable at Maturity
15 Years Tk. 2,050/- Tk. 10,00,000/-
20 Years Tk. 1,050/- Tk. 10,00,000/-
25 Years Tk. 550/- Tk. 10,00,000/-
** Enclosed original Mudaraba Millinery Deposit Scheme form.
6. Mudaraba Home Savings Scheme
Considering increasing demands from the clients of the bank as from the people of the all walks
of the country for special and attractive savings scheme on the basic of the Islamic Shariah so as
to enable and encourage them to save as per their capacity in Islamic way for their old age when
they will normally retire from their active economic life, Social Investment Bank Limited has
introduced Mudaraba Home Savings Scheme in which this scheme gets the opportunity to
build-up shelter by contribution small monthly installments for getting an attractive amount at the
end of a specified term or a monthly amount for a specific period after the expiry of the term.
Under this Scheme account may be open for monthly deposit of, Tk. 500/-, Tk. 1000/. Tk 1500/-.
Tk. 2000/-. After 15 years he will get total amount of Tk. 260000/-, 520000/-, 780000/-
&1040000/-.
** Enclosed original Mudaraba Home Savings Scheme form.
Mudaraba Term Deposit
Mudaraba Term Deposit are accepted by the bank with a sum of Tk. 5000 or above from
individual (single and joint), firms (proprietorship/partnership), limited companies, autonomous
bodies, charitable institution, association, educational institution, local bodies, trust etc. against
issuance of nontransferable receipts in acknowledgement of MTD received. MTD Account may
be opened in the name of minors jointly with their guardians.
The Mudaraba Term Deposits are accepted for period of 3, 6, 12, 24, & 36 months. Weightage on
the rate of return is given to deposits of longer maturity. Mudaraba Term Deposit Accounts
holders will share the profit of investment with Social Investment Bank Limited, at the rate
declared by the bank from time to time.
** Enclosed original Mudaraba Term Deposits form
Mudaraba Term Savings Scheme Based on Monthly Deposit:
Monthly Savings Tk. 200/- Tk. 300/-
Term Net
Savings
Lump Sum
Profit
Lump Sum Amount
Payable at Maturity
Net
Savings
Lump Sum Profit Lump
Sum
Amount
Payable
at
Maturity
5 Years Tk.12,000 Tk. 4,000 Tk. 16,000 Tk.18,000 Tk. 6,000 Tk.
24,000
8 Years Tk.19,200 Tk.10,800 Tk. 30,000 Tk.28,800 Tk.16,200 Tk.
45,000
10
Years
Tk.24,000 Tk.18,000 Tk.42,000 Tk.36,000 Tk.27,000 Tk.63,000
12
Years
Tk.28,800 Tk.25,200 Tk. 54,000 Tk.43,200 Tk.37,800 Tk.
81,000
Monthly
Savings
Tk. 500/- Tk. 2000/-
Term Net
Savings
Lump
Sum
Profit
Lump Sum
Amount Payable
at Maturity
Net
Savings
Lump Sum
Profit
Lump Sum
Amount
Payable at
Maturity
5 Years Tk.30,000 Tk.10,000 Tk.40,000 Tk.1,20,000 Tk. 40,000 Tk.
1,60,000
8 Years Tk.48,000 Tk.27,000 Tk.75,000 Tk.1,92,000 Tk.
1,08,000
Tk.
3,00,000
10
Years
Tk.63,000 Tk.45,000 Tk.1,05,000 Tk.2,24,000 Tk.1,80,000 Tk.4,20,000
12
Years
Tk.72,000 Tk.63,000 Tk. 1,35,000 Tk.2,88,000 Tk.
2,52,000
Tk.5,40,000
Mode of Deposits and Profit Rate
1. Mudaraba Term Deposits: Profit
Rate (%) a. 36 Months@ 10.55% b. 24 Months@ 10.35% c. 12 Months@ 10.15% d. 6
Months@ 9.70% e. 3 Months@ 9.25% 2. Mudaraba Savings Deposits@ 7.45% 3.
Mudaraba Notice Deposits@ 6.15%4. Deposit under Special Schemes a. Hajj Deposit
Schemes@ 10.55% b. Monthly Profit Deposit
Scheme
(Minimum Tk.50,000/- &
Maximum Tk.10,00,000/-)@ 12.00% c. Cash Waqf@ 10.70%
Opening of different types of Al-Wadia Current Accounts
Drawings are allowed from such an account without any restriction within the funds available in its
credit. Ordinarily, no interest is paid on this deposit.
If some one open AWCD, he fill up form and enclosed this type of paper shown as bellow:
1. For Sole Proprietorship
Trade License
Trade License
Partnership Deed
A Certificate Copy Of The Memorandum And Articles Of Association Duly Attested By The
Signatory Of The Amount
Certificate Of Incorporation
Certificate Of Commencement Of Business
Copy Of The Last Balance Sheet
List With Name Designation And Specimen Signature Of Person Authorized To Operate The
Account Duly Certified By The Chairman
Minutes Of Board Of Directors Meeting Authorizing The Opening Of Accounts With Us Duly
Certified By The Chairman/ Managing Director
List Of Directors With Address
2. For Partnership
3. For joint Stock Company
** Enclosed original Al-Wadia Current Accounts form.
Cheque Book
Negotiable Instrument Act, 1881, says that Cheques, Bills of Exchange and Promissory notes
are negotiable instruments (Section 13). The term cheque is defined under section 6 of
Negotiable Instrument Act 1881 which states that A cheque is a bill of exchange drawn on a
specified banker and not expressed to be payable otherwise than on demand. It we analyze this
section; a cheque has the following characteristics:
i) A cheque is a bill of exchange.
ii) A cheque is always drawn upon a banker.
iii) A cheque is always payable on demand.
As cheque is a bill of exchange, it is necessary to understand what is understood by bill of
exchange. As per section 5 of Negotiable Instrument Act, 1881, a bill of exchange in an
instrument in writing containing an unconditional order, signed by the maker, directing a certain
person to pay a certain sum of money to a certain person or to the order of that certain person or
to the hearer of the instrument. If we apply this definition of a bill of exchange to understand the
meaning of a cheque, a cheque is an instrument in writing containing an unconditional order
signed by the maker directing a certain banker to pay a sum certain money, on demand to or to
the order of a certain person or to the bearer of the instrument. From above, we can summarize
the characteristics of a cheque as under;
1) A cheque is a negotiable instrument
2) A cheque is a bill of exchange, hut every bill of exchange is not a cheque.
3) A cheque is always drawn upon a specified banker.
4) A cheque is always payable on demand.
5) There are three parties to a cheque:
a) Drawer i.e. a person who draws the cheque on a bank, such a person is usually a customer of
the bank.
b) Drawee of a cheque i.e. a bank on which a cheque is drawn by the drawer (Customer).
c) Payee i.e. a person to whom the payment is to be made by the bank on whom the cheque is
drawn.
6) A cheque is always drawn in the form of an order and that order is unconditional in nature.
That means the drawer of a cheque can not direct a banker to make payment to the payee of the
cheque subject to a certain condition to be fulfilled by the payee to receive payment.
7) A cheque is an unconditional order from the drawer of a cheque to the drawee bank to make
payment of money only.
8) The amount to be paid as indicated in the cheque must be certain & specific, the amount
should not be left to be determined by the drawee bank for payment. For example, the drawer
can not ask the bank to pay as much as is demanded by the payee but he must specifically
indicate the exact amount say Tk. 50,000/- (Taka fifty thousand only).
9) The cheque must contain the name of the person to whom the payment is to be made. The
name of the person must be certain and it should not be ambiguous. The payment can be made
to an individual or to a partnership firm, to a limited company, to a club or association or to any
person who may be indicated by the official designation. The payment may be made to such
person or to the order of such persons as indicated above.
10) The cheque can also be payable to the bearer.
Payment of cheque
A cheque is payable on due presentation for payment if it is drawn in proper form duly signed by
the drawer or his authorized agent, subject to the crossing, if any, and the sufficient credit
balance in the concerned account or the arrangement made for an advance and the drawee
banker is discharged from liability by payment thereof in due course.
Bearer cheque
A bearer cheque is payable to the bearer and the banker is discharged from liability by payment
m due course to the bearer thereof. Unless the form of drawing bearer is changed to order, a
bearer cheque is always a bearer one and no endorsement can make it payable otherwise than
to the bearer thereof.
Order cheque
In case of ail order cheque it should purport to be endorsed by or on behalf of die payee. Where
an order cheque has been endorsed by the payee in favor of another, the endorsee must also
sign it to receive the payment and the drawee banker is discharged from liability by payment in
due course. In practice, the banker insists on identification of the payee while making payment of
such a cheque in cash. This is done to avoid any chance of being charged with payment out of
due course.
Stale or outdated cheque
As per banking custom a cheque becomes stale when it remains in circulation for more that six
months, though there is no legal sanction in this respect. Such an instrument is not honored by
the drawee banker unless invalidated by the drawer.
Post dated cheque
A post-dated cheque is one, which bears a future date as its date of issue. Such a cheque is valid
and its negotiability is not inspired simply because it is post dated. But the banker can not pay it
earlier than its date because the drawers mandate is not to pay it earlier. It the banker pays it
before its ostensible date, the payment is not a payment in due course and as such, he loses
legal protection and is liable to his customer for any loss that may arise out of his action. A post
dated cheque is not invalid by reason of only being post dated unless it involves any illegal or
fraudulent purpose or transaction.
Antedated cheque
Where a cheque bears a date before the date of its issue it is known as an antedated cheque and
is not invalid because of only antedating provided this does not involve any illegal or fraudulent
purpose or transaction. A cheque antedated for more than six months becomes stale or out of
date as per banking practice.
Stop payment
The drawer of a cheque has the right to countermand the payment thereof. To be effective Hire
notice of slop payment should be given in writing under his proper signature giving frill description
of the cheque to reach the banker before its actual payment. If the drawer sends notice which is
duly received, then the banker will have to bear any loss that may ensue should he pay the
cheque thereafter until the stop payment instruction is cancelled. A stop payment by telephone
requires written confirmation. Immediately on receipt of a telephone in this regard, the banker
should communicate with the customer asking for confirmation in writing and meanwhile, if the
cheque is presented, payment thereof should be tactfully avoided taking care that this
nonpayment may not be construed as causing damage to tile customers credit. The holder of a
cheque can not atop payment but on receipt of such a request, the holder should be advised to
obtain the drawers written instruction. If the cheque in question requires endorsement and the
holder reports to have lost it without any endorsement, the banker should take precaution so that
he is not charged for payment thereof out of due course and not In good faith.
Date
The mandate of the drawer as conveyed through the cheque requires being dated. It appeals
probable that any holder of a cheque may insert the date where it was issued undated but in
practice, the banker dishonors an undated cheque. The date as appears on a cheque is
presumed to be the date on which it was made or drawn.
Crossing of cheque
A cheque can be crossed generally or specially to a banker by the drawer, or the holder thereof.
The crossing must be on the face of the cheque, there must be two lines drawn transverse and
parallel. There can not be any general crossing without His two transverse lines, with or without
the words and company or abbreviation thereof though the name of a banker without the lines is
sufficient to constitute a special crossing. The crossing of cheque is a material part of the cheque.
Cancellation of crossing
The drawer of a cheque (not any body else) sometimes cancels the crossing for making it
payable over the counter. This must be done by writing crossing cancelled under his signature
as recorded with the banker and by an indication of having cancelled it. The cancellation is done
in practice and not under sanction of law. This is being an immaterial alteration, the paying
banker must be very cautious lest he pays a crossed cheque over the counter.
Payment in due course
Payment in due course means payment in accordance with the apparent tenor of the instrument
in good faith and without negligence. Apparent tenor means what appears on the face of the
instrument and comprises date, payee, form of drawing (order or bearer), amount, signature of
drawer and crossing.
Payee of cheque
There must be a person entitled to receive the payment of the cheque either as a payee or his
endorsee or bearer. The drawer himself may also be the payee by writing his name self or pay
cash. In the absence of the payees name, the cheque can not be treated as a bearer one nor it
can be looked upon as a cheque at all and the better course would be to return it for completion
under authentication of the drawer.
Amount of cheque
The law does not specify whether the amount of a cheque is required to be expressed both in
words and figures. But as per banking practice the amount is stated both in words and figure.
Where the amount in words and figure differs, the amount stated in words shall prevail if the
banker pays the amount of cheque expressed in words even though it is higher than that
expressed in figure, the banker may be protected under law but in practice, he does not pay a
cheque with discrepancy. To pay the smaller amount is also not the general custom.
Sufficient balance
The payment of a cheque is subjected to the drawers having sufficient credit balance in his
account unless an arrangement has been made by the drawer for an overdraft. When the
balance is not sufficient to meet the whole amount of the cheque, the payee can not demand a
part payment nor His banker is bound to make such a payment the cheque can not be
considered as an assignment of funds in order to enable the payee have an equitable claim on
the drawers balance.
Drawers signature
The banker can not debit his customers account with the amount of cheque if the customers
signature thereon is forged, as this is not the order of the customer. It is the duty of the banker to
acquaint himself with the customers specimen signature and before payment of a cheque, he
must compare the signature with the specimen one on his record. Where a forgery is detected
subsequent to the debit of the account and the forgery is found to be directly due to or is
mundanely cumulated with negligence of the customer in the safe keeping of the cheque book,
the banker is entitled to debit his account.
Material alteration
A material alteration to negotiable instrument is one, which in any way alters the operation of the
instrument materially i.e., which causes it to speak differently than originally. The most common
material alterations include all those of the date, crossing, and place of payment, amount, and
name of payee. The Negotiable Instrument s Act in s.3 (f) provides material alteration in relation
to a promissory note, bill of exchange or cheque includes any alteration of date, the sum payable,
the time of payment, the place of payment, and where any such instrument has been accepted
generally, the addition of a place of payment without the acceptors assent. Any material
alteration renders the instrument void against all those who were already parties to it but not
against those who were parties subsequent to the alteration. Where a material alteration is not
apparent, the payment in due course and according to the apparent tenor of the instrument at the
time of payment, would discharge the payer from all liability on the instrument.
Alteration by drawer
All material alterations in a cheque must he made with the drawers assent, evidenced by his
signature and not initials as an initial is easier lo forge than the full signature for which reason the
banker does not maintain record of the initials of the account holders. If there are two or more
signatories to the cheque all must join in authentication of the alteration. Amy material alteration
made without drawers assent renders the cheque void. An order cheque may be turned into a
bearer one by the drawer substituting the word order with bearer under signature. No other
person has authority to make the alteration. But any holder may alter a bearer cheque to an order
cheque without drawers verification by simply scoring the word bearer. Similarly, crossing of
and uncrossed cheque by the holder does not require die drawers authentication.
Bankers Liability on altered cheque
If the banker pays a cheque with a material alteration without drawers consent, he does so at his
own risk, for he can not generally debit his customer with the amount of such a cheque.
Mutilation
Sometimes, a cheque may be torn accidentally or otherwise in such a way as its condition may
not afford sufficient evidence that the drawer or a holder did not intend to cancel it. As such, in
such a case the paying banker would be justified in dishonoring the cheque for the reason of
mutilation and should not pay such a cheque without drawers confirmation w collection bankers
guarantee. A slight slit on a cheque should not. However, be taken as a mutilation unless there is
reasonable doubt whether the drawer or a subsequent holder intended to cancel it.
Account payee cheque
A cheque marked account payee or payees account only between the two parallel lines of
general crossing is said to be crossed account payee and ceases to be negotiable. These words
by themselves without the general crossing do not form a crossing but the instrument which
contains such a marking, may better be treated as such as the intention or the mandate of the
drawer could not be other than that conveyed by these words. The significance of the marking is
not minimized even if the cheque is a bearer one. The duty of the paying banker is fulfilled by
payment of such an instrument in good faith and without negligence, as he can not be expected
to follow the money after it has reached the collecting banker to ensure credit to the proper
account. But the paying banker should refuse to make payment of such a cheque if there appears
an indication of the amount being credited to other than the named payees account.
Cheque can not he paid
A cheque does not become payable even if it is otherwise in order, where its payment has been
slopped by the drawer in writing, there is notice of customers death, bankruptcy, insanity, there is
knowledge of defective title of the holder, court injunction or any other court order restraining the
customer form operation the account.
Customers death
Upon receipt of the news of a customers death all operations on the account should be
suspended by the banker as with the death of the customer the title of his property passes to his
legal heirs unless otherwise provided for in a trust deed or a will left by the deceased or in letters
of administration. Cheque marked at the request of die deceased or paid before receipt of the
news of the death can however be debited to the account.
Inland Remittance
Bank is a service oriented industry and deals with public money. They provide services to their
clients through different ways. Transfer of money/fund of one person /customer to another
person/ firm/ organization through the bank is called remittance. Any Person can remit funds to
any one within the country through any of the branches of the some bank by the following means
with nominal charges:
i) Pay order
ii) Demand draft.
iii) Telegraphic Transfers
iv) Mail Transfers.
Payment order
This is an instrument issued by the branch of a bank for enabling the Customer/ purchaser to pay
certain amount of money to the order of a certain person/ firm/ organization/ deptt./ office within
the same clearing house area of the pay order issuing branch.
The payment order is used for making a remittance to the local creditor. As prevalent, the
payment orders are in the form of receipts, which are required to be discharged by the
beneficiaries, where applicable on revenue stamps of appropriate value, against payment in cash
or through an account. The payment order is not a negotiable instrument and can not be
endorsed or crossed like a bankers draft.
Characteristics
a) The issuing branch and the paying branch is same. (self drawing)
b) Applicable for payment with the clearing house area of the issuing branch.
c) This is may be open or can be crossed.
Procedure for issuing
a) Obtain P.O. application form (F-44) duly failed in and signed by the purchaser/applicant.
b) Receive the amount in cash/transfer with commission amount.
c) Issue P.O.
d) Enter in P.O. Register
Procedure for Payment
a) Examine genuinely of the Pay Order
b) Enter in P.O. Register, give contra entry.
c) Debit if found ok for payment.
** Enclosed The Copy of Pay Order instrument
Demand Draft
The demand draft is a written order by one branch of a bank upon another branch of the same
bank to pay a certain sum of money to or to the order of a specified person. This is an order
instrument in which the issuing branch gives instruction to the payee/drawee branch to pay
certain amount of money to the order of certain person /firm/organization.
A draft is always an order and never a bearer instrument.
- It is a negotiable instrument like a cheque i.e. it can be endorsed, collected, and delivered to the
endorsee.
- D. D. may be issued to any person and it can also be issued in favor of a firm, company or local
authority on written request duly signed by the purchaser.
Issue of a Demand Draft:
The purchaser is asked to complete the press ribbed form which is treated as an application as
well as credit voucher for Gen. Account (Branch Concerned) - Amount and commission. The
amount of D.D. commission is .15%.
If against cash- the application is given to the customer to deposit the cash with the cashier.
If against cheque (with commission/ without commission) Dr. Partys Account (Amount +
Commission) Cr. AIB General A/C (Drawee br) Cr. Income A/C Commission on D.D.
Voucher (Application form) passed duly signed & sealed is delivered to remittance department for
preparation of DD. Transfer cheque for issuance of remittance by in the name of the Bank or
Yourselves. The application for remittance is to be signed by the drawer of cheque.
Care in Writing a Demand Draft
sssss(a) DD leaves are consumed serially (b) written correctly in a neat hand writing (c) Payees
name (d) Issuing branch name (e) Date, Serial number (branch wise, beside the printing number
putting an oblique (7) Amount in words and figures (f) Name of drawee branch (g) Protectograph
(h) Test for Tk. 25,000/- & above (i) Signed by two PA holders & handover with cost memo to the
purchaser d) Preparation of IBCA and despatch.
Letter of Introduction
To be handed over to a client under sealed cover to enable payment of cash to the payee of the
draft who is usually not known to drawee branch.
Payment of Demand Draft:
After Receipt of IBCA: The IBCA received from issuing branch is responded by the drawee
branch and then this becomes voucher.
Dr. General A/ C- Drawer Br.
Cr. Bills Payable A/c-D.D. Payable.
Particulars of DD is entered in D.D. Payable Register under initial of an officer.
Payment of D.D. Through Suspense A/C: Sometimes it happens that a D.D. is presented to a
branch for payment before the IBCA for the same is received. The draft is then paid with extreme
care by giving the following entries
Dr : Suspense A/C D.D. paid without advice (instead of D.D. Payable A/C.)
Cr : Partys A/C/ Clearing banks A/C/ Cash (Stamp is affixed on the draft and in the register)
Then after receipt of IBCA.
Dr. H.O Gen. A/C (Drawer Branch)
Cr. Bills payable A/C-DD. Payable.
Dr. Bills payable A/C-D.D. payable.
Cr. Suspense A/c-D.D. paid without advice
Date of entry reversed is noted by in the register and initialed by the incharge.
Cash payment:
Satisfy as to the identity and respectability of the presenter and particularly the genuineness of
signatures of the drawing officials. Signature of Letter of introduction issued by Drawer Branch
Identification by a constituent/ respectable gentleman known to the branch would normally be
acceptable.
Cancellation of a D.D:
Steps / Care to be taken:
(i) Written application from the purchaser
(ii) Signature verification of the purchaser. The D.D. which bears any endorsement should
not be accepted for cancellation until No objection from the payee / endorsee is given.
(iii) Commission not refunded.
(iv) Debit the Drawee branch and pay proceeds on identification of purchaser.
(v) Torn Signature but not to be destroyed.
(vi) Mark the D.D. across the face Cancelled by red ink.
Duplicate D.D: Steps:
(1) Written application by the purchaser.
(2) Signature verification (of the purchaser as per form).
(3) Indemnity bond.
(4) If payee is a company/semi govt./Govt. authority letter should also be obtained from the
payee.
(5) Confirmation from drawee branch that D.D. is still unpaid and have marked caution (message
by quickest means duly tested and charges from the party.) If by letter to be signed by two P.A.
holders from both ends. Head Office approval for issuance if duplicate D.D to be obtained.
(6) Duplicate D.D. remain identical to the original except printed number and affix stamp
Duplicate D.D. issued in lieu of original D.D. No. Dated - reported lost, and noted on
D.D. issue register, D.D. application, counter foil of both D.D. at issuing Br. and in D.D. payable
register of drawee Br.
(7) Intimate issuance of Duplicate D.D. to the drawee branch.
(8) In case original is presented, the same should not be paid under intimation to Head Office.
** Enclosed Demand Draft. Application form
Telegraphic Transfer (T.T.)
It is an instruction duly tested sent by telex/fax/telegram/ telephone/ express mail etc. to the
drawee branch for paying a certain sum of money to a specified person. This mode of transfer of
fund may be effected at the written request an account holder of the branch and against value
received from him. It is preferable to obtain a confirmatory cheque from the customer.
Characteristic :
a) Issued by one branch to another branch and massage is tele-communicated
b) Remittance / transfer of money is done through tested tele messages.
c) Remittance is effected on the basis of tested message.
d) Test key apparatus is required.
Issue of T. T:
Obtain T.T. application form (form No. F17) duty failed in and signed by the purchaser/applicant
with full account particulars of the beneficiary. Receive the amount in cash/transfer with
prescribed commission, postage, and telephone/telex charge. Prepare T.T. message inserting
test number (code number). Enter in T.T. issue register (B-30). Issue advice to the payee branch.
Dr. : Cash or Cheque
Cr. : Gen. A/C Paying Branch
Cr. : Income A/C Commission on T. T.
Cr.: Telegram charges. Cost Memo given to the purchaser.
T. T. message prepared in duplicate, checked and signed by the in charge and Manager, tested
and transmitted. IBCA prepared in duplicate. The original sent to paying branch as confirmation
of message.
T.T. commission is .15%
Vat is 15% of T.T. Commission.
Telex / Postage charge is 50 tk.
T. T. Receiving and payment:
Go through text of the T. T. carefully and Decode the text and tally the test. If the test agrees
Pass the Following Vouchers:

(A) T.T. Advise and Credit
Dr. Gen. A/c Issuing Br. (Responding)
Cr. Bills Payable T.T. Payable
Dr. Bills Payable T.T. Payable
Cr. Party A/c.
(B) T.T. Advise & PAY :
Dr. Gen. A/c Issuing Branch (Respond)
Cr. Bills payable A/c T.T. payable (T.T. PO is issued and delivered to the Payee)
Dr. Bills Payable A/c T.T. Payable (T.T. PO)
Cr. B/P Cash /Clearing (Duly signed by the payee on revenue stamp and identification)
** Enclosed T.T. application form
M.T. :
In the prescribed format the purchaser / the drawer branch instruct the drawer branch to pay a
specified sum of money to the payee named in the IBCA preferably by crediting his account.
Issuance Procedure;
- Application in writing in prescribed form
- Deposit of money including commission
- Issue of cost memo
- Entry in M.T. issue register serially
- M.T. advice in IBCA (in block letters) with Test.
Vouchers:
Dr. Cash / Party A/c
Cr. General A/c (Drawee Br)
Cr. income A/c. Commission
Cr. Postage Charge.
Receiving / paying Branch:
Test decode / Signature verified

Vouchers;
Dr. Gen. A/c Issuing Branch
Cr. Bills Payable A/c M.T. Payable
Dr. Bills Payable A/c M.T. Payable
Cr. Partys A/c Advice and Credit.
Clearing Hose
Functions, procedures and accounting entries
Clearing stands for mutual settlement of claims made in among member banks at an agreed time
and place in respect of instruments drawn on each other.
Clearing house is an arrangement under which member banks agree to meet, through their
representative, at the appointed time and place to deliver instruments drawn on themselves.
The net amount payable or receivable as the case may be, is settled through an account kept
with the controlling bank (Bangladesh Bank/Sonali Bank)
Types of clearing :
Outward clearing
Inward clearing
Types of returns :
Outward return
Inward return
Clearing (outward) process: tier
First tire : Collecting Branch
Second tire : Principal Branch/local office
Third tire: clearing house (Bangladesh bank/Sonali bank)
Procedures of outward Clearing : Flow sequence
First tire: Collecting Branch
Instrument received
Instrument checked
Instrument deposited in second payees account : guarantee.
stamping
Special Crossing
Clearing Stamp
Endorsement
Return of counterfoil to the customer
Particulars entered in the out. Clearing register/computer
Register Balanced, Vouchers separated from the instruments
Prepare voucher :
Dr. Sundry Assets A/C : Clearing house
Cr. All pay-in-slips / Vouchers
Sorting of instruments, prepares sub & main Schedules
Prepare House page according to main schedules
Tallied house page with outward clearing register
Instrument sent to Pr. Br/local office/main branch (2nd tire)
Voucher passed.
For return and unpaid instrument
Dr. Party A/C
Cr. Sundry assets A/C : Clearing house
Advice received from Principal/Local office
Dr. Head Office A/C
Cr. Sundry Assets A/C : Clearing house
Second tire : Pr. Branch/LO/main branch
Instrument received by this office :
Lodgment by this branch :
Received house pages with instruments.
Recorded the amount in a register from house page.
Prepare bank-branch wise main schedule.
Prepare house page.
The instrument with house page & house book sent to the clearing house.
Third tire : Clearing house (B bank/ Sonali bank)
The instrument are delivered to the respective banks
* everyday 5 to 10 cror tk are in outward
Clearing (inward) process : tire
First tire : Clearing house (B bank/ Sonalibank)
Second tire : Principal branch/LO/Main branch
Third tire : Paying branch
Procedures of inward Clearing : Flow sequence
First tire : Clearing house (B bank/ Sonali bank)
Instrument received from other banks in the clearing house.
The amount and number of instruments received are entered in the house book from the main
schedule of respective banks.
Instruments delivered, received and the difference are written on a figure slip provided in the
clearing house.
Second tire : Pr. Br/LO/Main br.
Instruments with schedules arranged branch wise.
The amount of each schedule received entered in the house pages of the respective branches.
The respective house pages are totaled and check the amount with total amounts of instrument
received from all banks.
The instruments are sent to respective branches with the slip showing total amount and number of
instruments.
The instrument sent to the branches concerned for clearance and advice are collected from them
for honored cheques.
Third tire : Paying branch.
Particulars of the instruments are compared with the schedule.
Instruments sent to the respective dept for honoring them.
From honored cheques pass the following vouchers :
Dr. Party A/C (already debited by instruments)
Cr. Head Office A/C
Dishonored cheques (if any) with reason memo and credit advice sent to principal branch.
Every day 3 to 7 cror tk in inward.
** Enclosed objection memo for cheque return
Crossing on cheque:
It is a direction to the paying banker by the drawer that payment should not be made across the
counter. The payment on a crossed cheque can be collected only through a banker.
Significance of crossing :
Serves as a measure of safety against theft, loss of cheque in transit.
A person, who is not entitled to receive its payment, is prevented from getting the cheque
enchased at the counter of the paying banker.
Types of crossing:
1. General
2. Special
General crossing:
Where a cheque bears across its face an addition of the words and company or any other
abbreviation thereof, between two parallel transverse lines, or two parallel transverse lines
simply, either with or without the words not negotiable, that addition shall be deemed a crossing
and the cheque shall be deemed to be crossed generally.
Specimens of General crossing :
Special crossing:
Where a cheque bears across its face an addition of the name of a banker, either with or without
the words not negotiable, that addition shall be deemed a crossing, and the cheque shall be
deemed to be crossed specially, and to be crossed to that banker.
Specimens of Special crossing :
Drawing two parallel lines is not necessary in case of specially crossed cheque.
Endorsement :
The chief characteristic of negotiable instrument is its negotiability i.e. it can be negotiated from
one person to another. The essence of negotiation this lies not in the transfer of the instrument
from one person to another, but in the fact that the transferee must get the right as the holder of
the instrument. An instrument may be negotiated in any of the following two ways.
a) By delivery : A promissory note, Bill of exchange or cheque payable to bearer is
negotiable by delivery thereof. Thus in case of bearer instrument merely delivery thereof
constitutes its negotiation.
b) By endorsement and delivery: A promissory note, Bill of exchange or cheque payable to
order, is negotiable by the holder by endorsement and delivery thereof. Thus negotiation of an
order instrument requires endorsement and delivery thereon by its holder.
Vault :
All cash, instruments (PO, DD, check) and other valuable documents are kept in the vault, which
is insured by a local insurance company. If there is shortage of cash during transaction period
money is transferred to drawn from the central bank. There are three keys of vault, which are
given to three most senior officers. Daily an estimated amount (25 lacs, which is insured by a
local insurance company) of cash is brought out from the vault for transaction purpose. No more
than Tk. 25 lacs brought at once from the vault on a single day.
Deposit mobilization
A strong deposit base is a critical for success of a bank. During the last years the bank has
mobilized a substantial amount in deposits in transactional and savings accounts. The highest
deposit is seen to be in the year 2002 & the lowest in 1998.
Deposit mobilization :
Year Deposit (figure in million) Growth %
1999 3899.72 88.49
2000 4863.21 24.70
2001 10569.67 117.33
2002 15141.34 43.25
2003 19709.31 30.16
Sources : Annual Reports of Social Investment Bank Limited.
Deposit for the year 1998 was Tk. 2068.85 million.
Investment
Appraisal of Investment Proposal, Sanction and Disbursement of Investment
Loans and advances of a banking/financial institution. In other words, investment of Islamic
Banking Institution account for its vital portfolio activity. This is the activity, which the bank /
financial institution must carry with care and prudence so that it can earn on the investments and
get back the money as per planning. Without such earning, it is not possible for a bank to sustain
by meeting the profit payable on deposits and the overall cost of fund including administrative
cost. Since the bank has to plan to invest the owners capital and depositors time fund in short or
mid or long term financing and get back the same as per schedule, a banker has to be very much
careful in selecting the client and the line of trade and while industry while committing for the
investment.
A banker must have its strategy of investment operation and sectoral credit budget and the
features of selecting sponsors/prospective client and the system of appraisal of any investment
proposal. A branch manager wile choosing a credit commitment need to consider the following
major points:
1. Character, Capacity and credit worthiness of the applicant to be critically ascertained.
2. Past business records and trend to be examined with reference to the different books of
accounts/financial statements bank accounts turnover.
3. Applicants previous banking exposure and tax paying (TIN) capacity to be examined to assess the
financial solvency.
4. self declaration of applicants moveable and immovable assets and any liability has to be obtained
and checked up with reference to valid documents and ownership/ possession and liability if any
either in the name of the applicant or business.
5. Applicants business license whether obtained from recognized competent authority and whether
the same is valid to be seen.
6. proposed investment if has the compatibility to the credit norms and criteria.
7. collaterals, if any the applicant has offered to additionally secure the facility prayed for, the status
and value thereof to be assessed with reference to valid ownership and possession document and
the adequacy thereof to be determined.
8. Primary security under the facility if has the ready marketability to be examined. The go down or
storing house should have the location of easy access.
9. Whether the concerned business is being operated at applicants own shop or at rented business.
If rented rental agreement and the up to date rent paid receipt to be examined.
1. The business shop and the items of goods and merchandise of primary security can be easily
inspected by bank official.
2. In case of applicant, where partnership firm, is has to be seen whether the same is registered and
the partnership deed to be examined to ascertain whether any detrimental clause is contained
therein.
3. If proposed client is Private Limited Company, M/A, A/A and certificate of incorporation to be
studied including companys Board resolution to obtain credit facility.
4. There must be not any classified loan either in the name of the applicant or in the name of his
business establishment or any concern of his interest.
5. Credit needs of the applicant/ business firm/company with reference to production/service strength
and sale to be assessed in the line of circulated credit norms.
6. In case of higher investment limit, lending risk analysis to be made to determine the extent of risk
in management or financial commitments/security aspect.
7. In case of long term investment proposal, detailed feasibility to be examined with reference to
technical, financial and commercial viability and economic justification before going for the
commitment.
8. where there is any credit norms fixed up by the central bank for assessing the working capital
needs of industrial enterprise those to be followed for the fixing up of investment limit favoring of
the applicant.
9. In cases where there is guarantors their worth and creditability and the relationship of the
guarantors with the client to be ascertained and kept on record.
10. In case of HPSM investment for House Building (Commercial or residential), in addition to legal
security of the land, the prospect of recovering the periodic installment of loan out of the monthly
rental income of the house or market to be specially verified from reliable source and physical
assessment.
11. After satisfying the requirements as highlighted above, investments to be sanctioned by competent
authority/authorized officer.
Investment of SIBL
Year Investment
(Figure in million Tk)
Growth (%)
1999 2846.17 15.90
2000 3711.39 32.51
2001 5499.25 48.17
2002 7504.03 36.46
2003 11274.46 50.24
Investment for the year 1998 was tk 2455.56 million.
Modes of Investment of SIBL
Bai- Muajjal.
Bai-Muajjal word are came from Arabic word Baiun and Ajalun, Baiun means purchase and sale
and Ajalun means fixed time or fixed period. Therefore, Bai-Muajjal means sale for which
payment is made at a future fixed date or within a fixed period, i.e. sale on credit.
SIBL treated Bai-Muajjal as a contract between the bank and the client under which the bank
sells to the client certain specified goods purchased as per order and specification of the client at
an agreed price payable within a fixed future date in lump sum or by fixed installments. So it is a
credit sale of goods by which ownership of the goods in transferred by the bank to the client but
the payment of sale price by the client is deferred for a fixed period.
Features:
1. It is an offer from the client to bank for purchase particular goods by the bank deciding clients
specification and client committing himself to buy the same from the bank on cost plus agreed
upon profit.
2. Bank generally charge 14% profit for this investment, but it can be less for good client.
3. Bank may sell the goods at one agreed price, which will include both the cost price and the profit.
4. Bank takes cash or collateral security to guarantee the implementation of the promise or to identify
the damages.
5. Client make the promise biding that he is either satisfy the promise or to identify the damages
caused by breaking the promise without excuse.
6. Mortgage/Guarantee/Cash Security or all may be obtained prior to the signing of the agreement at
the time of signing the agreement.
7. Stock and availability of goods is a basic condition for signing agreement, therefore, the bank must
purchase the goods as per specification of the client to acquire ownership of the same before
signing the agreement with the client.
8. After purchase of goods the bank must bear the risk of goods until those are actually delivered to
the client.
9. The bank must deliver the goods to client on a specified date and a specified place as per contract.
10. The bank sells the goods at a higher price then the purchase price to earn profit.
11. The price one fixed as per agreement and deferred cannot be further increased.
Categories of Bai-Muajjal:
Bai-Muajjal investments have five categories in SIBL:
1. Bai-Muajjal Commercial : Investment for purchase and sale goods to individual or firm or company
for trading purpose.
2. Bai-Muajjal Industrial : Investment in industrial sector for purchase and sale Machineries,
Equipments, Raw-Materials etc.
3. Bai-Muajjal Agriculture : Investment in Agriculture area for purchase and sale seeds, fertilizers etc.
4. Bai-Muajjal Post import : Investment for import of goods from abroad.
5. Bai-Muajjal Scheme. : Investment under any specific scheme such as Doctors scheme etc.
But currently SIBL Principal Branch mainly allowed and investing in Bai-Muajjal Commercial and
Bai-Muajjal Trust Receipt area.
Processing procedure / Induction of client:
1. Client need to open an Al-Wadia Current A/C, generally maintaining it six months.
2. Client need to apply with description and their objective clearly.
3. Company goal, budget, performance, experience and other matters are attached.
4. Client need to filled up application form are fully by:
1. I. Full personal information
2. II. Mortgage / Security
3. III. Signature
4. IV. Attached all necessary documents.
5. Bank will inspect the land, building or other assets.
6. Obtain Financial Statement or Balance Sheet of last three consecutive years.
7. Bank will collect confidential report from local, financial, credit & leasing institutions.
8. Lawyers opinion about the deed or other papers.
9. Goods are legal, valid, quality and other are specified and also availability in the market
will check up.
10. After all necessary steps bank will offer a certain amount against clients application.
11. If client agreed bank will proceed and call for necessary documents.
Documentation:
Before disbursement of loan bank will finally chechk the following document :
1. Bai-Muajjal sanction accepts by the client.
2. Bai-Muajjal agreement.
3. Letter of pledge.
4. Single party D. P. Note, if there is no guarantor.
5. Double party D. P. Note, if there is guarantor(s) to be made by the client in the favour of the bank.
6. D. P. Note Delivery paper.
7. Letter of Hypothecation for clients Stock-in-Trade / Work-in-Progress.
8. Letter of Disclaimer, if stored in partys own / hired godown.
9. Insurance policy (If stored in partys godown under banks effective control).
10. Trust Receipt dully executed by the client.
11. Letter of guarantee.
12. Balance confirmation letter
13. Letter of installments.
After all necessary steps and collection of documents bank will disburse the loan and then client
can use the investment amount for his desire purpose. For security of the investment bank
sometimes investigate the borrower company for checking how company using the loan fund and
their activities.
Bai-Murabaha:
Bai-Murabaha word are came from Arabic word Baiun and Ribhun, Baiun means purchase and
sale and Ribhn means an agreed upon profit. Therefore, Bai-Murabaha means sale on agreed
upon profit
SIBL treated Bai-Murabaha as a contract between the bank and the client under which the bank
sells to the client certain specified goods purchased as per order and specification of the client at
an agreed price payable within a fixed future date in lump sum or by fixed installments. So it is a
credit sale of goods by which ownership of the goods in transferred by the bank to the client but
the payment of sale price by the client is deferred for a fixed period.
Features:
1. It is an offer from the client to bank for purchase particular goods by the bank deciding clients
specification and client committing himself to buy the same from the bank on cost plus agreed
upon profit.
2. Client make the promise biding that he is either satisfy the promise or to identify the damages
caused by breaking the promise without excuse.
3. Bank takes cash or collateral security to guarantee the implementation of the promise or to identify
the damages.
4. Mortgage/Guarantee/Cash Security or all may be obtained prior to the signing of the agreement at
the time of signing the agreement.
5. Bank generally charge 14% profit for this investment, but it can be less for good client.
6. Bank may sell the goods at one agreed price, which will include both the cost price and the profit.
7. Stock and availability of goods is a basic condition for signing agreement, therefore, the bank must
purchase the goods as per specification of the client to acquire ownership of the same before
signing the agreement with the client.
8. After purchase of goods the bank must bear the risk of goods until those are actually delivered to
the client.
9. The bank must deliver the goods to client on a specified date and a specified place as per contract.
1. The bank sells the goods at a higher price then the purchase price to earn profit.
2. The price one fixed as per agreement and deferred cannot be further increased.
3. Bank can authorize any third party to buy and receive the goods on bank behalf. The authorization
must be in a separate contract.
Categories of Bai-Murabaha:
Bai-Murabaha: investments have five categories in SIBL:
1. Bai- Murabaha Commercial : Investment for purchase and sale goods to individual or firm or
company for trading purpose.
2. Bai- Murabaha Industrial : Investment in industrial sector for purchase and sale
Machineries, Equipments, Raw-Materials etc.
3. Bai- Murabaha Agriculture : Investment in Agriculture area for purchase and sale seeds,
fertilizers etc.
4. Bai- Murabaha Post import : Investment for import of goods from abroad.
Processing procedure / Induction client:
Client need to open an Al-Wadia Current A/C, generally maintaining it six months.
Client need to apply with description and their objective
clearly.
Company goal, budget, performance, experience and other matters are attached.
Client need to filled up application form are fully by:
1. Full personal information
1. Mortgage / Security
2. Signature
3. Attached all necessary documents.
Bank will inspect the land, building or other assets.
Obtain Financial Statement or Balance Sheet of last three consecutive years.
Bank will collect confidential report from local, financial, credit & leasing institutions.
Lawyers opinion about the deed or other papers.
Goods are legal, valid, quality and other are specified and also availability in the market will
check up.
Goods are perishable on short or long term durations.
Goods quality and specialization.
Goods are available in the market.
After all necessary steps bank will offer a certain amount against clients application.
If client agreed bank will proceed and call for necessary documents.
Documentation:
Before disbursement of loan bank will finally check the following document :
1. Bai-Muajjal sanction accepts by the client.
2. Bai-Muajjal agreement.
3. Letter of pledge.
4. Single party D. P. Note, if there is no guarantor.
1. Double party D. P. Note, if there is guarantor(s) to be made by the client in the favour of the
bank.
5. D. P. Note Delivery paper.
1. Letter of Hypothecation for clients Stock-in-Trade / Work-in-Progress.
2. Letter of Disclaimer, if stored in partys own / hired go down.
3. Insurance policy (If stored in partys go down under banks effective control).
6. Trust Receipt dully executed by the client.
7. Letter of guarantee.
8. Balance confirmation letter
9. Letter of installments.
Purchase of goods:
After agreement and acceptance of deed by the client then bank will purchase goods for client as
per clients requirements. The following steps are followed by the bank in this steps:
1. Purchase goods.
2. Open a new investment a/c in investment area.
3. Maintain a register to describe the transaction with money and quantity of goods in credit and
fraction purchase.
4. Incase of cash purchase another register can be maintain.
After all necessary steps and collection of documents bank will disburse the loan and then client
can use the investment amount for his desire purpose. For security of the investment bank
sometimes investigate the borrower company for checking how company using the loan fund and
their activities.
Hire Purchase & Sirkatul Milk (HP & SM)
Joint participation
Categories of HP & SM:
HP & SM investments have five categories in SIBL:
1. HP & SM Commercial : Investment for purchase and sale goods to individual or firm or company
for trading purpose.
2. HP & SM Industrial : Investment in industrial sector for purchase and sale Machineries,
Equipments, Raw-Materials etc.
3. HP & SM Agriculture : Investment in Agriculture area for purchase and sale seeds, fertilizers etc.
4. HP & SM Post import : Investment for import of goods from abroad.
5. HP & SM Scheme. : Investment under any specific scheme such as Doctors scheme etc.
Documentation:
Before disbursement of loan bank will finally check the following document :
1. HP & SM sanction accepts by the client.
2. HP & SM agreement.
3. Letter of pledge.
4. Single party D. P. Note, if there is no guarantor.
5. Double party D. P. Note, if there is guarantor(s) to be made by the client in the favour of the bank.
6. D. P. Note Delivery paper.
7. Letter of Hypothecation for clients Stock-in-Trade / Work-in-Progress.
8. Letter of Disclaimer, if stored in partys own / hired go down.
9. Insurance policy (If stored in partys go down under banks effective control).
10. Letter of guarantee.
11. Balance confirmation letter
12. Letter of installments.
13. Letter of disbursement.
Murabaha:
1. Murabaha Post Import (MPI): Under this method SIBL import goods for client. After importing
goods client will buy full lot or he can buy certain portion with a certain amount with calculated
price. Price will calculated with predetermine method. In MPI bank takes 14% profit. Here price
determine by following method:
Investment amount + Profit (14%) + Other Charge (Import Tax, Processing fee, Custom Duty,
Warehouse rent etc.).
Profit will be calculate by time i.e. difference between after sanctioning loan and return of the
loan. In MPI generally bank share 70% of total cost of import goods but for reliable and good
client bank may share more than 70% or fully. Good customer are defined:
a) Good Mortgage/ Collateral.
b) Good previous transaction record.
1. Murabaha General: This method is same as MPI but only used in purchasing goods locally.
For Murabaha investment the following documents are needed:
1. Apply to bank ( filling the SIBL application form) for a certain amount
2. Include documents of mortgage assets with application
3. After justification bank can agree and determine the loan amount with a certain profit rate.
4. After acceptance banks offer, client can start his Mudaraba loan.
5. Then client need to open an L/C for MPI investment.
6. Bank takes charge of purchasing goods and store goods.
7. Client can deliver goods by clearing payment or he can buy certain portion by paying certain
amount.
Age Limit:
According to the Instruction circular No. INV/PID- 11/613 dated 08/06/2000,
1. Age limit of the persons other than service holders will be 27-60 years.
2. Age of the students shall be minimum 18 years but not exceeding 25 years.
Application and Selection:
1. The interested person shall apply in the prescribed Form enclosed herewith (category wise) to the
branch concerned, duly filled in along with required papers/documents/quotation/catalogue.
1. After getting the application from the client the Branch Officials / Supervisors (where applicable)
shall physically inspect the residence/business office/institution of the client & his guarantor for
proper verification and to authenticate the genuinely of the client.
1. If the proposal seems to be reasonable, viable and the genuinty of the client is acceptable to the
Branch, they may allow investment as per norms of the scheme with the approval of the
Investment Committee constituted for the scheme.
Security:
According to the Instruction circular No. INV/511 dated 11-08-98, to make the investment of the
Bank safe and risk-free besides the guarantee of the colleague of same status or above of the
client the guarantee of any of the following persons has to be taken:
1. from the spouse of the client.
2. If the client is a married woman, then guarantee from her husband.
3. If the client is unmarried, then guarantee from the parents.
Procedure for Investment under different modes
Shortly the following are the list for investment procedure:
1. Introduction of Client.
2. Application.
3. Required papers to be obtained along with application.
4. Processing and appraisal.
5. Sanction.
6. Fixation of terms and conditions.
a) Security.
b) Repayment Period
c) Rate of return
d) Others.
1. Documentation.
2. Purchasing of goods by the bank.
3. Taking Delivery of goods by the bank.
4. Sale and delivery of goods by the bank.
5. Maintenance and storage of Murabaha / MPI goods.
6. Taking stock report for Bai-Muajjal goods.
7. Insurance.
8. Engaging Buying Agent.
9. Compensation of Investment Account.
10. Rebate for Early Payment/Adjustment of Murabaha / Bai-Muajjal Investment.
11. Follow-up, Supervision and Recovery of Investment.
12. Book-keeping and Accounting.
Procedures and Guidelines followed by SIBL for evaluation of requests for financial
assistance
Papers/Documents to be submitted with investment proposal:
The following papers/documents are required to be submitted to a branch while submitting any
investment proposal:
1. An application form or printed application form in banks standard
form IF-48 and IF-49 along with Photographs of the applicants,
proprietor partners/directors and guarantors, if any.
2. Filled in letter of undertaking as per Bangladesh Bank Format.
3. Brief educational, professional and business background.
4. Photocopy of valid Trade License and TIN Certificate.
5. Stock report duly signed (to be verified by the branch official).
6. Statement of Sundry Debtors and Creditors signed by the client, if
any
7. Last 3 (three) years business performance (i.e. item-wise sales
(both quantity & value) cost and net profit.
8. Valuation certificate, site map/ Mouza map of the proposed
collateral securities.
9. Photocopy of all deeds papers/documents related to property offered
for mortgage.
10. Statement of accounts with SIBL (both for C/A & Investment A/C).
11. Statement of Accounts with previous bank(s).
12 Copy of the sanction letter(s) issued by the existing banker(s).
13. A declaration to be obtained from the client regarding their bank
liabilities (with detail breakup) with any bank financial institution
in Bangladesh in the name of the client or in the name of
allied/sisters concerns. If they do not have bank liabilities the
same shall have to be stated in the declaration.
14. A declaration to be obtained from the party to the effect that there
no overdue/stuck-up liability in the name of the of the client or
any of its sisters/allied concerns with any banks/financial
institutions in Bangladesh.
15. A declaration whether the party have any sister/allied concerns or not ( name, owners name
and brief business description of the
sister/allied concerns shall have to be incorporated in the declaration.
16. In case of partnership firm the following papers shall have to be
obtained :
a) Copy of partnership deed.
b) Authority of partners regarding investment sought from SIBL.
17. In case of limited company the following papers shall have to be
obtained:
a) Last 3 years audited Balance sheet and P/L A/C.
b) Certified copy of Memorandum & Articles of Association.
c) Latest shareholding certificate is sued by Register of Joint
Stock Companies.
d) Resolution of the Board regarding investment sought from
SIBL.
e) Statement of personal assets and liabilities of all the directors.
18. In case of project investment proposal following additional papers
shall have to be obtained:
a) Copy of the Feasibility Report.
b) Three sets of quotation for machinery/ equipments to be procure.
c) Building/Machinery layout plan if required.
d) Approval/Permission of the respective Gov. Authorities.
e) In case of BMRE proposal, detail particulars of existing machineries with value and
production capacity.
19. In case of Real Estate proposal following additional papers shall
have to be obtained:
a) Approved Layout Plan.
b) Approved Site Plan.
c) Approved of the respective Gov. Authority.
d) Details cost estimation of the construction.
20. In case of proposal for working capital Finance following
additional papers shall
have to be obtained:
a) List of Machinery with present resale value.
b) Item-wise production capacity and last year actual production.
c) Item-wise Raw Materials price requirement of Raw Materials at 100% capacity utilization.
21. CIB inquiry form alongwith clients undertaking.
22. Filled in L.R.A form in case of investment proposal for Tk. 100.00
lac and above.
23. Any other information/paper supporting the proposal.
Selection of the client and assessment of the amount of investing/ financing:
The following points are scrutinized /assessed while evaluating financing proposals:
1. Examine Shariah permissibility of the items/project.
2. Value of stock/investment in business and net-worth of the party and its sister concerns / group.
3. Immovable personal property of the owners/partners/directors of the concern.
4. Volume of business handled during last three yeas and experience in the relative trade.
5. Existing business condition of the party and future prospect.
6. Existing financing facilities/limit with SIBL/other banks.
7. Repayment performance of the party with SIBL as well as with other/previous banks.
8. Current Account transaction of the party with SIBL/previous banks.
9. Banking track record of the party as a borrower and whether the party is a defaulter with any
bank/financial institutions.
10. Market reputation of the party as a borrower.
1. Honesty & integrity of the party.
11. Current demand and supply position, price competitiveness and future marketability of the goods
to be purchased/procured.
12. Assessment of working capital requirement in case of working capital finance against existing
industrial project.
1. Detailed feasibility study in case of project financing.
To assess the above points the respective branch usually collects the following papers/data in
addition to papers received from the client:
1. Pay visit to the business establishment/site of the client and prepared visit report.
2. collect market report on the respective items/business.
3. collect confidential report on the client from banks/ financial institutions and local brances including
the previous banker of the client.
4. Collect report from Credit Information Bureau(CIB) of Bangladesh Bank through Head Office.
5. Inspect land, buildings, other assets and properties proposed to be mortgaged or hypothecated
and prepared inspection report.
6. Obtain site plan of the land/building to be offered as security.
7. Obtain Lawyers opinion regarding acceptability of the proposed collateral securities.
4.2.9 Non-Performing Investment as % of total Investment :
Year Non-Performing Investment as % of
Total Investment
1999 0.25
2000 3.02
2001 3.81
2002 2.52
2003 1.69
Graphical Presentation of Non-Performing Investment as % of Total Investment
Non-Performing loans as percentage of total investment have been decreasing for the year 2002
and 2003 although there was an increase in the year 2001, which was the highest in five years.
Bank Guarantee:
A bank can make loan guarantee whereby it guarantees the repayment of a loan made from party
A to party B. that is, a guarantee is an undertaking by a bank to stand behind the current
obligations of a third party, and to carry out that obligation if the third party fails to do so.
Social Investment Bank also involved in such activities.
Guarantee from the year 1999 2003
Year Guarantee
(Figure in million Taka)
1999 246.63
2000 389.29
2001 530.09
2002 1465.05
2003 2023.15
TYPE OF INVEST TO BE REPORTED IN CLSFORM:
For application of classification criteria, loans are divided into the following types:
Sl.
No
Type of
loans
Definition To be
Reported
in
A Continuous These are those advances, which do not have any set
schedule for drawing or disbursement but usually have a
terminal date of full adjustment or repayment. Example- OD,
CC, BM, MUSG, etc.
CL-2
B Demand The Loans which become payable after serving demand notice by the bank
concerned are termed as Demand Loan, For example- Forced LIM, PAD,
FBP, etc.

BASIS FOR LOAN CLASSIFICATION:
According to BRPD Circular No. 16, 1998 all loans & advances are classified on the basis of two
criteria via:
Objective Criteria &
Qualitative Judgment (QJ) criteria.
The above criteria along with definitions are described in the following table:
SL Status Type of Loans Definition
1 Unclassified(UC) All Current loans with required/adequate eligible
securities
2 Unclassified (SS} Continuous Overdue is more than 6 months but less
than 9month.
Demand Overdue is more than 6 month but less than
9 months form the date of serving
notice/creation of forced loan
Term (Less than 5
years)
If the defaulted amount of installment is
equal to installment/ installments payable in
6 months
Term (More than 5
years)
If the defaulted amount of installment is
equal to installment/ installments payable in
12 months.
Short term
Agricultural Micro
Overdue is more than 12 months but less
than 36 months.
3 Doubtful Continuous Overdue is more than 9 month but less than
12 months.
Demand Overdue is more than 9 month but less than
12 months.
Term (up to 5 year) If the defaulted amount of installment is
equal to installment/ installments payable in
12 months.
Doubtful Term (More than 5
years)
If the defaulted amount of installment is
equal to installment/ installment payable in
18 months.
Short Term/
Agricultural/ Micro
Overdue is more than 60 months.
Short Term/Micro Overdue is more than 36 months but less
than 60 months.
Bad/Loss Continuous Overdue is more than 12 months.
Demand Overdue is more that 12 months from the
date of serving notice/ creation of forced
loan.
Term (up to 5 years) If the defaulted amount of installment is
equal to installment/ installments payable in
18 months.
Term (more than 5
years)
If the defaulted amount of installment
payable in 24 months.
Short term
Agricultural/ Micro
Overdue is more than 60 months.
According to qualitative Judgment, a bank can classify any lone if it forecasts the uncertainty of
recovery of the loans due to the following reasons:
Credit extended without approval of competence authority or without any logical basis (under
pressure)
Incomplete documentation.
Insufficient security or drastic fall in the value of security
Borrower sustains heavy loss in capital due to natural calamity or business condition.
Frequent overdrawn of limit.
Rescheduling terms are not maintained.
Borrower cannot be traced out or death of the borrower.
Filing of suit against the borrower & against recovery of credit.
May classify under qualitative criteria:
SL Status Type of
Loans
Definition
1 Sub- standard (SS) AII A loan is considered Substandard when the degree of risk
of non-payable is so high & there is reasonable prospect
that the loans condition can be improved.
Doubtful (DF) AII Chance of recovery is uncertain.
Bad / Loss (BL) AII No security held Borrower not Traceable. Time bared loan
cases. No hope recovery.
List of eligible securities with their percentage of value:
Eligible securities % To be considered
Market value of gold/ ornaments kept in banks custody 100%
Duly discharged financial instruments like FDR, PSP, Government bonds etc. 100%
Guarantee made by the government / Bangladesh Bank 100%
Easily marketable goods pledged under banks custody 50%
Duly discharged share certificates considering the face value or last six months average
market value whichever is lower.
50%
Rate of Provisioning and the basis for calculation:
Classification STAG/MC All other loan Basis for calculation
UC 5% 1% On outstanding amount
SS 5% 20% On amount base for provision
DF 5% 50% Do
BL 100% 100% Do
Amount of Provision against Classified & Unclassified Investment :
Year Classified Investments
(Series 1)
Unclassified Investments
(Series 2)
1999 5.84 13.14
2000 17.55 28.24
2001 31.85 38.22
2002 49.58 53.85
2003 62.69 99.97
From the above table it is observed that both types of investment have been increasing through
out the years 2001 to 2003. but the increase is seen in more in unclassified especially in the year
2003, representing a growth rate of 90.37%. But if unclassified loans increase at this rate the risk
of bad debts also increase too. But on the other hand the increase in both classified and
unclassified may be also due to the fact that Social Investment Bank has also increased its
volume of investments.
Foreign Exchange

Letter of Credit Concepts and Types
Amongst early communities and prohibitive thrives the only way in which a man could satisfy a
want, which he could not himself supply, was by exchanging the products of his own personal
effects for those of his neighbors. In international trade the seller wants to make sure that the
buyer is able to pay in time once the goods have been shipped and that risk of non-payment is
minimized. He therefore, wants to find out how a third party, i.e. the bank can help him in the
practical arrangements for these transactions. Similarly, the buyer is interested that he gets
possession of goods before he pays for them and he is able to make sure that the goods are
exactly those he ordered.
It is important to decide in advance how seller is going to get payment before handing over
possession of goods and how the buyer is going to get constructive possession of the goods
before making payment. This is more so because the parties are located in two different countries
separated by distance, with different political, legal, monetary and trading system and possibly
without knowing each other well. The two trading partners wish to reconcile the conflicting
interests and converging them into one acceptable solution. This object led to research for a
system, which is mutually convenient, reliable and safe, taking into, accounts their own individual
problems, apprehensions and requirements.
The solution resulted in the evolution of Documentary Credit method where a bank acts as a
fiduciary agent to safeguard the interest of both the parties, namely, ensuring constructive
delivery of goods by the seller to the buyer and payment being made by the buyer on
presentation of documents complying with the terms and conditions of the Credit.
MEANING OF Foreign EXCHANGE
Money as earlier stated is a common denominator in which the relative values of goods and
services can be expressed. When a person makes a payment to another person living in the
same country, he uses any of the different forms of money currency in the country.
Foreign Exchange refers to the process or mechanism by which the currency of one country is
converted into the currency of another country. Foreign Exchange is the means and methods by
which rights to wealth in a countrys currency are converted into rights to wealth in another
countrys currency. In banks when we talk of foreign exchange. We refer to the general
mechanism by which a bank converts currency of one country into that of another. Foreign trade
gives rise to foreign exchange. Foreign trade is transacted either in the currency of the exporters
country or that of the importers country. Or that of a third country acceptable to both the exporter
and the importer.
Dr. Paul Eingiz defines Foreign Exchange as the system or process of converting one national
currency into another and of transferring the ownership of money from one country to another.
In the words of Mr. H. E. Evitt. Foreign Exchange is that section of Economic Science which
deals with the means and methods by which rights to wealth in one countrys currency are
converted into rights to wealth in terms of another countrys currency. It involves the investigation
s of the method by which the currency of one country is exchanged for that of another, the
causes, which render such exchange, may take, and the ratios or equivalent values at which
such exchange are effected.
The expressions Foreign Exchange are also popularly used to denote a foreign currency. A
bank is said to buy or sell foreign exchange, which deals in claims on foreign currency or the
actual legal tender money of other countries. But this is not the only meaning of the expressions.
In the study of foreign exchange as a branch of foreign trade, it has been given a much wider
interpretation. It covers all method by which the claims expressed in terms of one currency are
converted into another currency and the rate at which exchange take place.
The term currency as earlier stated includes not only such notes and coins as are legal tenders,
but also bank balances and deposits in foreign currency and all instruments credit instruments
which are capable of being used as currency. Such as bill of exchange, cheques, drafts, airmail
transfers, telegraphic (cable) transfer and all other instruments, which convey to holder a right to
wealth.
Thus foreign exchange means foreign currency and includes All deposits, credits and balances
payable in any foreign currency and any drafts, traveler cheques, letters of credit and bills of
exchange, expressed or drawn in local currency but payable in any foreign currency; and Any
instruments payable, at the option of the drawee or holder thereof or any other party thereto,
either in local currency or in foreign currency or partly in one and partly in the other.
Foreign exchange is concerned with the settlement of international indebtedness, the methods of
effecting the settlements and the instruments used in this connection, and the variation in the
rates of exchange at which settlements of international indebtedness is made.
Foreign Exchange is concerned with the settlement of international indebtedness. the methods of
effecting the settlements and the instruments used in this connection, and the variation in the
rates of exchange at which settlement of international indebt ness is made.
The Central Bank of country, being the controller of currency and credit and head of the money
market is vested with the responsibly to ensure internal as well as external stability of its
currency. The internal stability is controlled by its monetary and credit policy while the external
stability by bringing and maintaining equilibrium in countrys balance of payment with rest of the
world, which includes control of gold, dollar and sterling reserves of the country.
In terms of Foreign Exchange Regulation Act. 1947, as adapted in Bangladesh, Foreign
Exchange means foreign currency and includes all deposits, credits and balances payable and
foreign currency instruments, such as, Drafts, Travelers, Cheques , Bills of Exchange , Hundi and
Promissory Notes payable in any foreign country.
FUNDAMENTALS OF FOREIGN EXCHANGE
There are 3 fundamental aspects of the general mechanism of Foreign Exchange:
Every country has its own currency legal tender/ distinctive unit of account.
Banks by book- keeping entry carried out into two centers concerned effect the conversion of
one currency into another.
These exchanges are affected by means of credit instruments visa, Draft, Mail Transfer,
Telegraphic Transfer etc.
Each country has its own currency distinct from the others and useful possession of any such
distinctive unit of account can be had only within that country in which it is in circulation; that is
so, because it discharges the functions of money in the country of which it is legal tender. Foreign
currency for us is like any other commodity. This commodity character of foreign currency is
very significant and should be borne in mind at all times. The only peculiarity which distinguishes
foreign currency from other commodities is that in the country where it is legal tender. It is money.
ADMISTRATION OF FOREIGN EXCHANGE IN BANGLADESH
The statute for administration o foreign currency in Bangladesh is the Foreign Exchange
Regulation Act, 1947 as adapted in Bangladesh. Under the Act, 1947 as adapted in Bangladesh.
Under the Act, the responsibility and authority of administration of foreign exchange invested by
the government with the Bangladesh Bank. Central Bank the country. Any who deals with foreign
exchange has to abide by the directions given by Bangladesh Bank in that behalf. Foreign
exchange is a highly specialized business and is, therefore, concentrated in selected branches of
the schedule banks situated in metropolitan cities and other places where either import or export
predominates or inflow of foreign remittances is expected to be high. Such branches can,
however, function within the guidelines prescribed by HEAD office of the Banks from time to time.
A senior executive of the bank having deep knowledge of the rules and regulations of foreign
exchange business and particulars and banking in the international economic and political fields
heads Foreign Exchange Department, which is also called International Division.
AUTHORISED DEALERS
In exercise of the powers conferred by of the Foreign Exchange Regulation Act, 1947 on certain
schedule banks, which are authorized to deal in foreign exchange by Bangladesh Bank, the
selected branches of the bank can transact such businesses. They are known, as Authorized
Dealers Bangladesh Bank does not directly wit the members of the public; the transactions are
done by Authorized Dealers in accordance with the guidelines given by Bangladesh Bank.
Authorized Dealership License:
License to deal in foreign exchange are normally granted only to schedule banks that have
offices in Bangladesh, after being satisfied that they have adequate number of staff/officers
properly trained in handling foreign exchange transactions and will be able to comply with the
requirements of the administration of exchange control. Authorized Dealership License can at any
time be withdrawn by Bangladesh Bank if the bank in whose favor it is issued fails to conduct its
business to the satisfaction of the Bangladesh Bank. License to deal in foreign exchange is given
in respect of individual branch of Authorized Dealers. The licenses are of two types:
Universal Limited:
A universal license authorizes the bank to conduct all types of permitted foreign exchange
transactions in all permitted currencies. A limited license, on the other hand, authorizes Handling
of only those transactions, which are specially mentioned in the license by the Bangladesh Bank.
Responsibility of Authorized Dealers:
Authorized Dealers act as agent of Bangladesh Bank. It is, therefore, very important for the
authorized dealers to familiarize themselves with the underlying objectives of exchange control
and various instructions issued from time to time with regard to operations of exchange control.
They should carefully follow the instructions contained in the Exchanged Control Manual /
Guidelines for Foreign Exchange Transactions issued by Bangladesh Bank through Foreign
Exchange Circulars, Circular Letters, and Local Circulars etc.
Authorized Dealers should be careful in scrutinizing applications received from the customers for
the purpose of, say. Import payments, issue of export performance benefit, release of foreign
exchange for invisible payments etc., to ensure correctness of the information given in the
applications.
Authorized Dealers should also bring to the notice of the Bangladesh Bank any attempt, direct or
indirect, of evasion of any provision of Foreign Exchange Regulations Act, 1947 or any orders,
directions or instructions issued there under.
FOREIGN TRADE
The Foreign trade of a country refers to its imports and exports of merchandise from and to other
countries under contract of sale. No country in the world produces all the commodities it requires.
On the contrary, a country may produce more of those commodities in the production of which it
has a greater or comparative advantage, and may or may not produce smaller quantities o those
in the production of which it has a greater or comparative disadvantage.
NEED FOR FOREIGN TRADE:
A country may decide to be- sufficient but that would force its people to forgo the use of many
commodities, which they cannot produce either because they have no capacity and the resources
to produce them or the production of which is possible only at a tremendous cost. Foreign trade
enables a country to have much larger flow and much more diversified form of wealth than are
possible without it. There is a wide difference in respect of the material and human resources,
stage of technical and scientific progress, and possession of capital equipment in difference
countries.
The first of these differences is that of natural resources. A country, which lacks in mineral
products, has to import them from other countries. Climate and soil conditions may not suit the
production of some essential raw materials and foodstuffs.
Secondly, differences in size and density of population also give rise to trade between
countries. A country with a population which is too large and dense in relation to its recourses has
to import food, clothing, and other consumer goods.
Thirdly, the stage of industrialization and technical and scientific development generates
foreign trade. A highly industrialized country exports capital goods but may have to import raw
materials and semi- processed goods.
Fourthly, the high and rising standards of living of a country necessitate large imports or
various commodities. A country with mass consumption maintains a high level of foreign trade.
BALANCE OF TRADE:
Balance of trade refers to the net difference between the values of export import of commodities
from/into a country. The movement of goods or commodities between countries is known as the
visible trade Therefore balances trade refers to the net value of the visible trade of the country.
When the country exports commodities it gains foreign exchange. When it imports it has to pay in
foreign exchange, or it loses foreign exchange.
COMPOSITION OF IMPORTS AND EXPORTS
The composition of imports and exports is an important aspect of a countrys foreign trade. The
gain from trade depends on both its total value and commodity structure. The types of goods
imported and exported indicate stage of development of the economy, the standard of the living
of the people, and nature of economic activity in the country.
Imports of Bangladesh may be classified into three categories:
1. Capital goods
2. Industrial raw materials
3. Consumer goods
The capital goods comprise of machinery, plant and spares, transport equipment etc. The raw
materials imported are raw cotton, cotton ware, mineral oil, dyes, chemicals etc. The consumer
goods are electronic goods, drugs and medicines, milk power etc.
4.3.8 TERMS OF TRADE
Terms of trade are the rate at which a country obtains its imports in exchange for its exports. It is
the quantity of import the country gets for a unit of its exports, or the quantity of export it has to
pay fro a unit of import. A simple and convenient definition of terms of trade is the volume of
imports that can be bought with a given volume of exports, the ratio of export prices to import
prices.
Movements in the terms of trade, therefore, are expressed by index numbers. The value of the
index method is, of course, historical rather than prophetic. The ratio between two index numbers
of average prices is instructive when trend of international trade are interpreted and it explains
the degree of physical efforts required to improve a countrys external trade.
BALANCE OF PAYMENT
Foreign trade, in its broad sense, includes not only visible trade involving import and export of
commodities but invisible items also. These invisible items include shipping, banking, insurance,
tourist traffic, gifts, investment, interest on investments, technical know how, consultancy etc. The
balance arrived at taking into account both the visible and invisible items in foreign trade is known
as the balance payments. Thus balance of payments is more comprehensive than balance of
trade and other invisible items of foreign trade.
Import Restrictions
When imports are restricted the balance of payments position no doubt improves and the
reductions in imports is easier but when imports consists of raw materials for the manufacture of
export goods at may not be wise to restrict such imports. Imports restrictions is effected trough
such measure as imposition of tariffs or import duties, fixing of quotas, allowing imports only
against license. Tariffs are import duties levied on goods entering the country. Tariffs thus make
imports dearer and are intended to discourage imports.
Import Business of SIBL From 1999 to 2003
Year Import Business
(Figure in million Tk)
Growth
1999 4,512.20 83.74
2000 7,886.00 74.77
2001 10,075.65 27.76
2002 14,825.50 47.14
2003 18,446.10 24.42
Import business for the year 1998 was tk. 2455.70
Graphical Presentation Of Import Business
It can be seen from the table and the graphical presentation that the import business of SIBL is
increasing every year at a very high rate. In the year 2002 and 2003 the increase is more
compared to the other three years. The increasing trend reflects that the import business will also
keep increasing in the coming years. But alternatively we can also observe that the percentage of
growth in import business has decreased. Eeven though the growth rate is lower but the volume
of import is highest in 2003 being the amount of Tk. 18446.10 million.
Export Promotion
Concerted efforts may be made towards promotion of exports. Various concessions and
incentives may be given by the government to encourage exports from the country. Measures
adopted towards this end may include reducti9on of export duties, export incentives, facilities of
commercial, technical and financial nature being made available at cheaper rates and an
adequate measure to export- oriented projects, allowing duty drawbacks or cash incentives to
exporters etc.
Export Business of SIBL From 1999 to 2003
Year Export Business
(Figure in million Tk)
Growth %
1999 967.90 71.30
2000 1533.00 58.38
2001 2279.30 48.68
2002 5494.00 141.04
2003 6385.50 16.22
Export Business for the year 1998 was tk. 565.00 million
Graphical Presentation of Export Business
As the above graph shows that the export business of SIBL has an increasing trend. In the year
2003 the business is seen to be the highest compared to other years. On the other hand the
following graph shows its decreasing trend in growth of export business. Although the growth rate
in the year 1999 was more that 71.30% but in the year 2002 it has resulted to a increasing growth
rate of 141.04%. But in 2003 it is decreasing 16.22%. The main reason being that the export
sector of the country experienced a downtown caused by the worldwide recessing during the year
2003. The bank handle an export volume of Tk. 6385.50 million during the year 2003 as
compared to Tk. 5494.00 million in the previous year (2002), which is the highest volume of
export in five years.
SALE AND FOREIGN TERMS IN FOREIGN TRADE
Every foreign trade transaction is the result of foreign sale contract between the seller and buyer.
Ina sale contract, the seller agrees to sell and the buyer agrees to buy a specified quantity of
goods on terms mutually agreed upon. However, the exact form of the sale contract varies from
transaction to transaction. A sale contract need not necessarily be a formal and legally executed
document as is often believed. It can be an exchange of correspondences between the seller and
buyer. In some trades legally drafted contracts may be used.
PAYMENTS TERMS
The payment terms, on the other hand, stipulate when, where and how the payment will be
effected. The terms relating to payments for the goods constitute the most important part of a
sales contract. Great is taken in a sale contract to clearly specify when payment will be made,
where it will be made and how it will be made.
Terms involving payment within a period of 6 months from the date of shipment are deemed as
short- term payment terms, while those involving a period beyond 6 months but within five years
are medium terms payment terms. If goods sold on credit terms extending beyond five years the
y are considered as long-term payment terms.
Short- term payment terms
Documentary Letter of Credit:
In simple terms, a documentary credit is a conditional bank undertaking of payment. Expressed
more fully, it is a conditional Undertaking given by a bank (Issuing Bank) at the request of a
customer (Applicant) or on its own behalf to pay a seller (Beneficiary) against stipulated
documents provided all the terms and conditions of the Credit is complied with.
These stipulated documents are likely to include those required for commercial, regulatory,
insurance or transport purposes, such as commercial invoice, certificate of origin, insurance
policy or certificate and a transport document of a type appropriate to the mode (s) of transport
used.
Documentary credits offer both parties to transactions a degree of security, combined with
possibility, for creditworthy party, of securing financial assistance more easily.
Documentary credits therefore:
Are an arrangement by banks for settling international commercial transactions
Provide a form of security for the parties involved.
Ensure payment provided that the terms and conditions of the credit have been fulfilled.
Mean that payment by such means is based on documents only, and not on merchandise or
services involved. (Article 4, UCPDC 500).
Types of Documentary Letter of Credit:
Documentary Credits are basically two types. It may be either
Revocable
Irrevocable.
Confirmed Irrevocable Credit.
1. Revocable Credit:
This type of credit can be revoked or cancel at any time without consent of, or notice of the
beneficiary. As per Article 8 (a) of UCPDC 5000 A revocable Credit may be amended or
cancelled by the issuing Bank at any moment and without prior notice to the Beneficiary. In case
of seller (Beneficiary), Revocable Credit involves risk, as the Credit may be amended or
cancelled while the goods are in transit and before the documents are presented, or although
presented, before payment has been made. The seller would then face the problem of obtaining
payment. On the other hand, Revocable Credit gives the buyer maximum flexibility, as it can be
amended or cancelled without prior notice to the seller up to the moment of payment by the
issuing bank at which the issuing bank has made the Credit available. In modern banking, the
use of revocable credit is not widely spread.
2. Irrevocable Credit:
The Irrevocable Credit is a commonly used type of documentary credit. The Credit which cannot
be revoked varied or changed/amended without the consent of all parties-buyer (Applicant), seller
(Beneficiary), Issuing Bank and Confirming Bank (in case of confirmed LC). As per Article 9 (a) of
UPCDC 500, an irrevocable Credit constitutes a definite undertaking of the issuing Bank,
provided that the stipulated documents are presented to the Nominated Bank or to the issuing
Bank and that the terms and conditions of the Credit are complied with. Irrevocable Credit gives
the seller greater assurance of payments, but he remains dependent on an undertaking of a
foreign bank. Irrevocable Credit may be unconfirmed.
3. Confirmed Irrevocable Credit:
It is a Credit of issuing bank, which is opened at the request of buyer/importer upon an
exporter/seller abroad through an advising bank with a request to add confirmation. Advising
bank, the agent/correspondent of issuing bank add their confirmation under credit line
arrangement already existing between issuing bank and advising bank, i.e. in addition to the
commitment of the issuing bank the advising bank makes its own, independent payment
commitment when it add its confirmation. (Article 9 (b), UCPDC (500)
Confirmed Credit gives the setter a double assurance of payment. Under confirmed credit, the
seller has not only get the undertaking of issuing bank; but also enjoy the protection/assurance
from a bank in his own country with definite undertaking for payment and acceptance. Confirmed
irrevocable credit represents additional requirements, hence it is more costly. However, the
confirmation charges is payable either by buyer or seller as per agreed arrangement between
them.
Special Types of Documentary Credit
Revolving Credit:
A revolving Credit is one where, under the terms and conditions thereof, the amount of the Credit
is renewed or reinstated without specific amendment to the credit being needed. Revolving credit
may be revocable or irrevocable. It can revolve in relation to time or value. But Credit that
revolves in relation to value is not in common use.
In case of a Credit that revolves in relation to time, e.g. which is available for up to $15,000 per
month during a fixed period of time, say, six months, the Credit is automatically available for
$15000 each month irrespective of whether any sum was drawn during the previous month. A
credit of this nature can be cumulative or non cumulative. If the credit is stated to be cumulative,
any sum not utilized during the first period carries over and may be utilized during a subsequent
period. If the credit is non cumulative, any sum not utilized in a period ceases to be available,
i.e. it is not carried over to a subsequent period.
Back to Back Credit:
One credit backs another. It may so happen that the beneficiary/seller of an L/C is unable to
supply the goods direct as specified in the Credit as a result of which he needs to purchase the
same and make payment to another supplier by opening a second letter of credit. In this case,
the second credit called a Back to Back Credit. This concept involve opening of second credit
on the strength of first credit, i.e. mother L/C opened by foreign importers.
Under Back-to-Back concept, the mother L/C stands as security for opening of second credit, i.e.
Back to Back Credit. The beneficiary/seller of the first credit as applicant of the second credit
remains responsible to the bank for payment whether payment against first credit is made or not.
Back-to-Back Credit is opened in conformity to the terms and conditions as stipulated in mother
credit except the price of the goods, shipment period and validity of L/C. In Back to Back Credit
the negotiated price is quoted. The shipment period and validity of Back to Back Credit are given
earlier the original validity as stipulated in the mother L/C which helps the seller of the first credit
to substitute his drafts, commercial invoices and other documents, if any, with that drawn by the
seller of Back to Back Credit.
Transferable Credit:
A Transferable Credit is one, which can be transferred by the original beneficiary to one or more
parties. In transferable credit, the original beneficiary becomes the middleman and transferee
becomes the actual supplier of the goods. It is normally used when the first beneficiary does not
supply the merchandise himself, but is a middleman and thus wishes to transfer part, or all, of his
rights and obligations to the actual supplier (s) as second beneficiary (s). This type of credit can
only be transferred once, i.e. the second beneficiary (s) can not transfer to a third beneficiary.
(Article 48, UCPDC 500).
Red Clause Credit:
A Red Clause Credit is credit with a special clause incorporated into it that authorizes the
advising bank or confirming bank to make advances to the beneficiary before presentation of
documents. The clause is incorporated at the specific request of the applicant, and the wording is
dependent upon his requirements. It is so called because the clause was originally written in red
ink to draw attention to the unique nature of this credit. It specifies the amount of the advance that
is authorized, in some instances it may be for the full amount of the credit.
A Red clause Credit is used for example b a wool importer in England to enable an wool shipper
in Australia to obtain funds to pay the actual suppliers by direct purchase by obtaining a loan from
the proceeds due to the Australian Beneficiary when the wool was shipped and documents
presented in accordance with the terms of the credit. If, however, the beneficiary failed to ship the
wool and so repay the loan by presenting documents called for the credit, the Australian bank
would have the right to demand repayment, with interest, from the issuing bank and that bank
would have a similar right of recourse against the applicant for the credit.
Green Clause Credit:
A Green Clause Credit is a credit with a special clause incorporated into it that which not only
authorizes the advising bank to grant pre-shipment advances but also storage cost for storing the
goods prior to shipment. It is useful in situations where shipping space is nodaily available, i.e.
some African countries. It is so called because the clause was originally written in green ink to
draw attention to the unique nature of this Credit. At present this type of Credit is not in use.
Standby Letter of Credit:
The Standby Letter of Credit is very similar in nature to a guarantee. The beneficiary can claim
payment in the event that the principal does not comply with its obligations to the beneficiary,
payment can usually be realized against presentation of sight draft and written statement that the
principal has failed to fulfill his obligations.
With this instrument the following payments and performances, among others, can be supported:
-Repay funds borrowed or advanced.
-Fulfill subcontracts.
-Undertake payment of invoices made on open account.
Standby Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500. This types of credits
are issued by the banks where the issuance of bank guarantees are prohibited by the law, e.g.
some North American countries mainly in USA.
Letter of CreditOperational Mechanism
Documentary Letter of Credit:
Letter of credit is an undertaking by the importers bank that if the exporter exports the goods and
produce documents as a stipulated in the letter, the bank would make payment to the exporter.
An importer in a country requests his bank to open a credit in foreign currency in favor of the
exporter at a bank in the latter country. The Letter of Credit is issued against payment of the
amount by the importer or against satisfactory security.
The Letter of Credit is a superior method devised for settlement of debts which could assure the
exporter that if he exports the goods as per the contract entered into with importer and produces
drafts, shipping documents and such other papers, he would receive payment without default.
This arrangement gives security to both the exporter and the importer. The exporter is assured of
his payment because of the credit while the importer is protected because documents in respect
of export of goods have to be delivered by the exporter to the paying bank before the payment is
made. Letter of Credit has, therefore, been acknowledged to be the best form of settlement of
international debts.
A letter of credit may be a commercial or non- commercial one. When it relates to a mercantile
transaction, i.e. buying and selling of goods, it is called commercial letter of credit. In simple
terms, a documentary credit is a conditional bank undertaking of payment.
Expressed more fully, it is a conditional Undertaking given by a bank (Issuing Bank) at the
request of a customer (Applicant) or on its own behalf to pay a seller (Beneficiary) against
stipulated documents provided all the terms and conditions of the Credit is complied with.
These stipulated documents are likely to include those required for commercial, regulatory,
insurance or transport purposes, such as commercial invoice, certificate of origin, insurance
policy or certificate and transport document of a type appropriate to the mode (s) of transport
used.
Opening of Letter of Credit:
Opening of Letter of Credit means, at the request of the Applicant (importer) issuance of a L/C in
favor of the Beneficiary (exporter) by a bank. The bank, which open or issue L/C is called L/C
opening bank or Issuing Bank.
On receipt of the Importers L/C Application supported by the firm contract (Indent/Proforma
Invoice) and Insurance Cover Note, the bank scrutinizes the same thoroughly and fix up a margin
on the basis of banker-customer relationship.
Before opening a L/C, the Issuing Bank must check the following:
1. L/C Application properly stamped, signature verified and margin approved and properly retained.
2. Indent/Proforma Invoice signed by the Importer and Indenter/Supplier.
3. Ensure that the relevant particulars of L/C application correspond with those stipulated in Indent/
Proforma Invoice.
4. Validity of LCA entitlement of goods, amount etc. conforms to the L/C application.
5. Conversion and rate of exchange correctly applied.
6. Charges like commission, F.C.C., postage, telex charge, if any, recovered.
7. Insurance Cover Note In the name of Issuing Bank A/C Importer covering required risks and
voyage route.
8. Incorporation of instructions for Negotiating Bank as per banks existing arrangement.
9. Reimbursement instructions for Reimbursing Bank.
10. If foreign banks confirmation is required, necessary permission should be obtained and
accordingly advising bank is advised as per banks existing arrangement.
11. If add confirmation is required on account of the applicant- charges should be recovered from the
applicant.
12. In case of issuance L/C, mention rate of interest clearly in the Letter of Credit.
Liability of Issuing Bank :
As per Article 9 a of UCPDC 500, An Irrevocable Credit constitute a definite undertaking of the
Issuing Bank, provided that the stipulated documents. comply with the terms and conditions of
the Credit.
Advising, of Letter of Credit :
Advising means forwarding of a Documentary Letter of Credit received from the Issuing Bank to
the Issuing Bank to the Beneficiary (exporter).
Before advising a L/C the Advising Bank must see the following:
Natures of Issuing Bank officials on the L/C, verified with the Specimen Signatures Book of the
said bank when L/C received by airmail.
The Export L/C is intended to be an operative cable L/C, Test Code on the L/C invariably be
agreed and authenticated by two authorized officers.
L/C scrutinized thoroughly complying with the requisites of concerned UCPDC provisions.
Entry made in the L/C Advising Register.
L/C advised to the Beneficiary (exporter) promptly and advising charges recovered.
Advising Banks Liability:
Advising Banks liability is fix up in Uniform customs and practice for Documentary Credits,
publication 500.
Article 7 (a) : A Credit may be advised to a Beneficiary through another bank (the Advising
Bank) without engagement on the part of the Advising Bank, but that bank, if it elects to advise
the Credit, shall take reasonable care to check the apparent authenticity of the Credit which it
advises. If the bank elects not to advise the Credit, it must so inform the Issuing Bank without
delay.
Article 7 (b) : If the Advising Bank cannot establish such apparent authenticity it must inform,
without delay, the bank from which the instructions appear to have been received that it has been
unable to establish the authenticity of the Credit and if it elects nonetheless to advise the Credit it
must inform the Beneficiary that it has not been able to establish the authenticity of the credit.
Amendments to Letter of Credit:
After issuance and advising of a Letter of Credit, it may be felt necessary to delete, add or alter
some of the clauses of the Credit. All these modifications are communicated to the Beneficiary
through the same Advising Bank of the Credit. Such modifications to a Credit are termed as
amendment to a letter of credit.
There may be some of the conditions in a Credit are not acceptable by the Beneficiary. In that
cases beneficiary contact applicant and request for amendment of the clauses. On receipt of
such request applicant approaches his banker i.e., issuing bank with a written request for
amendment to the Credit. The issuing bank scrutinize the proposal for amendments and if the
same are not in contravention with the Exchange Control Regulation and banks interest, the
bank may then process for amendment. There can be more than one amendment to a Credit. All
the amendments form an integral part of the original Credit.
L/C amendments are to be communicated by telex, SWIFT or mail. If there are more than one
amendment to a Credit, all the amendment must bear the consecutive serial number so that the
missing f any amendment can be identified by the advising bank of by the beneficiary.
What is to be done by the Issuing Bank before advising amendments?
The Issuing Bank has to
a) Obtain written application from the applicant of the credit duly signed and verified by the
bank.
b) In case of increase of value, application for amendment is to be supported by revised
Indent/Proforma Invoice evidencing consent of the beneficiary.
c) In case of extension of shipment period, it should be ensured that relative LCA is
valid/revalidated/increased up to the period of proposed extension.
d) Amendment on increases of Credit amount and extension of shipment period-both the cases
amendment of Insurance Cover Note also to be submitted.
e) Proper recording and filing of amendment is to be maintained.
f) Amendment charges (if on account of applicant) will be recovered and necessary voucher
is to be passed.
The following clauses of L/C are generally amended:
Increase/ decrease value of L/C and Increase/decrease of quantity of goods.
Extension of shipment/negotiation period.
Terms of delivery i.e., FOB, CFR, CIF, etc.
Mode of shipment.
Inspection clause.
Name and address of the supplier.
Name of the reimbursing bank.
Name of the shipping
FOB=Free on Board
CFR=Cost and Freight.
CIF=Cost, Insurance & Freight.
UCPDC 500 regarding amendment to a Credit:
Article 9 (d) i: Except as otherwise provided by Article 48, an irrevocable Credit can neither be
amended nor cancelled without the agreement of the Issuing Bank, the confirming Bank, if any,
and the Beneficiary.
Article 9 (d) ii: The Issuing Bank shall be irrevocable bound by an amendments(s) issued by it
from time to time of the issuance of such amendment(s). A Confirming Bank may extend its
confirmation to an amendment and shall be irrevocable bound as of the time of its advice of the
amendment. A Confirming Bank may, however, choose to advise an amendment to the
Beneficiary without extending its confirmation and if so, must inform the Issuing Bank and the
Beneficiary without delay.
Article 9 (d) iii: The terms of the original Credit (or a Credit incorporating previously accepted
amendments(s) will remain in force for the Beneficiary until the Beneficiary communicates his
acceptance of the amendment to the bank that advised such amendment. The Beneficiary should
give notification of acceptance or rejection of amendments(s). If the Beneficiary fails to give such
notification, the tender of documents to the Nominated Bank or Issuing Bank, that conform to the
Credit and to not yet accept amendment(s), will be deemed to be notification of acceptance by
the Beneficiary of such amendment(s) and as of that moment the Credit will be amended.
Article 9 (d) iv: Partial acceptance of amendments contained in one and the same advice of
amendment is not allowed and consequently will not be given any effect.
Article 11 (b): If a bank uses the services of an advising Bank to have the Credit advised to the
Beneficiary, it must also use the services of the same bank for advising and amendments(s).
Letter of Credit Settlement:
Settlement means fulfilling the commitment of issuing bank in regard to effecting payment subject
to satisfying the credit terms.
Settlement may be done under 3 (three) separate arrangements as stipulated in the credit.
Settlement by Payment:
Here the seller presents the documents to the nominated bank and the bank scrutinizes the
documents. If satisfied, the nominated bank makes payments to the beneficiary and in case this
bank is other than the issuing bank, then sends the documents to the issuing bank and claim
reimbursement as per arrangement.
Settlement by Acceptance:
Under this arrangement, the seller submits the documents evidencing the shipment to the
accepting bank (nominated by the issuing bank for acceptance) accompanied by a draft drawn on
the bank at the specified tenor.
After being satisfied with the documents, the bank accepts the documents and the draft and if it is
a bank other than issuing bank, then sends the documents to the issuing bank stating that it has
accepted the draft and at maturity the reimbursement will be obtained in the pre-agreed manner.
Settlement by Negotiation:
This settlement procedure starts with the submission of documents by the seller to the
negotiating bank. In a freely negotiable credit any bank can negotiate documents and if
negotiation restricted by the issuing bank, only nominated bank can negotiate documents. After
scrutinizing that the documents meet the credit requirements, the negotiating bank then sends
the documents to the issuing bank. As usual, reimbursement will be obtained in the pre-agreed
manner.
Parties to a Letter of Credit:
The parties are:
The Issuing Bank,
The Confirming Bank, if any, and
The Beneficiary.
Other parties, which facilitate the Documentary Credit Operations, are:
The Applicant,
The Advising Bank,
The Nominated Paying/Negotiation/Accepting Bank, and
The Transferring Bank, if any.
Opening/Issuing Bank is the bank which opens/issues a LC on behalf of the importer. It is also
called the importers/buyers bank.
Confirming Bank is bank, which adds its confirmation to the credit and it is done at the request
of the issuing bank. The confirming bank may not be advising bank.
Exporter/seller/Beneficiary is the party in whose favor the LC is established.
Applicant is the person who request/ instruction the opening bank to open a LC. He is also
known as importer/buyer.
Advising Bank is the bank through which the LC is advised to the exporter. It is a bank situated
usually in the exporting country and it may be a branch of the opening bank or a correspondent
bank. It may also assume the role of confirming and/or negotiating bank depending upon the
conditions of the credit.
Negotiating Bank is the bank, which negotiates the bill and pays the amount to the beneficiary. It
has to carefully scrutinize the documentary credit before negotiation in order to see whether the
documents apparently are in order or not. The advising bank and the negotiating bank may or not
be one and the same. Sometimes it can also be the confirming bank.
Bank Paying/Accepting is the bank on whom the bill will be drawn (as per conditions of the
credit), it is nominated in the credit to make payments against stipulated documents complying
with the terms of the credit. It may or may not be the issuing bank.
Reimbursing Bank is the bank, which would reimburse the negotiating bank. It is to be nominated
by the issuing bank.
Transferring Bank is the bank, which will transfer the LC, being instructed by the original
beneficiary.
Lodgment of import Documents
Responsible officer should open all foreign mails containing documents. Bill negotiated by foreign
correspondents and received under credits established by opening branch should be examined
thoroughly with reasonable time to ensure that they comply with the terms and conditions given in
the L/C.
It must be ensured by reference to the relative letter of credit that:
Full set of documents as stipulated in the credit has been received.
Documents have been negotiated within the country of the beneficiary on or before the expiry of
the credit; the B/L Post Parcel Receipt/Airway Bill RR is not dated later than the date of
shipment/dispatch/raiment mentioned in the credit;
The amount does not exceed amount available under the credit.
The credit has been amended or subjected to special instructions which might alter the value or
character of the credit;
Generally the import bills consist of the following documents and the order of their scrutiny should
be as under;
1. Bill of Exchange/ Commercial Documents
2. Invoice.
3. Bill of Lading/Transport Documents
4. Insurance.
5. Certificate of origin.
6. Any other documents.
Scrutiny of Documents:
On receiving the documents from the Negotiating Bank, the L/C opening branch will scrutinize the
documents with the terms and conditions of L/C:
Forwarding Schedule of NEGO. BANK:
Whether there is any instruction
Whether there is any instructions can be complied with
Whether the negotiation commission realized.
Bill of Exchange (Draft):
Whether it is in order.
Whether the amount of draft corresponds with L/C amount. Draft
Amount should be equal or less than the L/C amount.
Whether the date is within the date as stipulated in the L/C.
Whether the amount in figures corresponds exactly with the amount in words.
Whether the draft is in good order, without erasures and properly endorsed.
Whether the draft is enfaced with profit clause if indicated in the credit.
Commercial Invoice:
Whether the merchandise is invoiced by the beneficiary or by the assignee if the credit is
assigned.
Whether the merchandise is invoiced to the party on whose account the credit is opened.
Whether the description and the unit price of the goods correspond with that given in the credit
that all calculations in the invoice are correct.
Whether the invoice does not include extraordinary expenses such as cable, storage
commission etc, unless specifically authorized in the terms of the letter of credit.
Whether the Import License number mentioned in the letter of credit advice appears on the
invoice and that the invoice is strictly in accordance with the proforma invoice if furnished with
Letter of Credit advice.
Whether as many copies of the invoices (s) as the credit stipulates, are presented.
Bill of Leading:
Whether the Bill is Clean and On Board.
Whether signature of the shipping authority is there.
Whether the date of B/L is within the date of shipment as per L/C.
Whether the freight is pre-paid.
Whether the port of shipment and that of destination are similar as per L/C.
Whether title of B/L belongs to L/C opening Bank.
Whether the bills of lading cover the merchandise described in the invoice, by description,
quantity, marks and number;
Whether the dates on the bills of lading (or other documents) are not Stale i.e. not dated in
unreasonably long time prior to negotiation;
Charter party Bills of Lading are not acceptable unless so stipulated in the latter of credit;
Whether full set of B/L dispatched by Nero Bank.
Goods are sometimes dispatched by means other than- steamer-such as post, air or rail and
examination of the documents resultant there from such as Post Parcel Receipts/Air
Consignments Notes/Railway Receipts should also be complied with the above requirements as
applicable;
Insurance:
Under the existing Exchange Control Regulations, insurance on the imports is to be covered in
Bangladesh. The risks to be insured are mentioned in our Letter of Credit Application form. The
branch opening the Letter of Credit obtains insurance cover, covering all risks mentioned in the
Letter of Credit Application from before advising the Letter of Credit. Such cover stipulates the
address to which advice of shipment is to send. In the Letter of Credit Advice full address to
which the advice of shipment is to be sending and the latest date for such intimation should be
given. The beneficiary should further be required as mentioned in the letter of Letter of Credit
Advice to endorse a copy of such intimation to the opining branch and to forward a copy with a
certificate that the intimation was duly dispatched to the given address along with other
documents. On receipt of documents under a credit, the opening branch should check to see that
the certificate and the intimation given by the beneficiary correspond exactly with the stipulations
laid down in the Letter of Credit Advice.
Certificate of Origin:
Whether the merchandise covered therein is the merchandise covered by the invoice;
Whether it has been issued by our Consul unless it is definitely known that this is not required;
Whether the weight and description shown in the Consular documents are identical with those
shown.
Other Documents:
Whether al other documents prepared as per L/C. After scrutiny, the official concerned may find
the following:
Documents in order i.e. no discrepancy;
Minor discrepancy-Acceptable to the importer;
Major discrepancy-may be acceptable to importer but not permissible as per Exchange Control
Regulations.
Documents having no discrepancy and those having minor discrepancy (if accepted by the
importer) to be lodged.
In case of major discrepancy, the L/C opening Bank to send Cable/Telex to Negotiation Bank with
instruction to reverse the entry. Also to seek instruction regarding disposal of the documents.
Procedure of Lodgment :
If found in order, documents to be branded with Cheeked and found correct and initiated by
authorized officer;
The amount in foreign currency to be converted into Bangladesh Taka at B.C. Selling rate
prevailing on the date of lodgment;
Intimation should be given to the party in time;
Entry into PAD register and PAD number to be inserted on all shipping documents;
Entry into L/C opening register by rounding the L/C number. With date
Passing of Vouchers:
Liability reversal vouchers i.e. Debit Bankers Liability for L/C Credit Customers Liability for L/C:
Debit PAD Credit IBD Head Office, Dhaka;
Appropriation of L/C margin in PAD Account;
Steps for Retiriment :
Calculation of profit;
Determination of other charges;
Certifying Invoices; endorsement in the B/E and Transport document i.e. B/L, AWB, TR etc;
Entry into the register;
Passing the vouchers :
Debit- Party A/C
Credit PAD A/C
Credit 1/A Profit, other charges.
Steps for Shipping Guarantee:
Checking of the Non-Negotiable copy documents with the L/C.
Realizing of 100% margin and other charges.
Certifying Invoices; endorsement in the Transport document i.e. B/L, AWB, TR etc;
Entry into the shipping guarantee registers.
Number of foreign Correspondent / Bank
Year No. of Foreign Correspondent / Bank
1999 136
2000 221
2001 355
2002 423
2003 456
Graphical Presentation of No. of Foreign Correspondent / Bank.
As the table and graph reflects the number of foreign correspondent / bank is gradually
increasing every year.
Non-Formal Banking
Micro Credit
The Banks special program is directed mainly to up-lift the socio-economic conditions of rural and
urban poor. In order to achieve this objective, Social Investment Bank Ltd. is involved in the
mobilization and utilization of local resources and the surplus labour mainly from within and
provide employment opportunities to the unemployed and the land less besides investing in
N.G.O. activities, educational, health expansion activities, Social Fellowship Program for students
etc.
Family Empowerment Social Financial Programs of Social Investment Bank Ltd.:
To the best of our knowledge, Social Investment Bank Ltd. (SIBL) is the only Bank in
Bangladesh, perhaps in the world which starts with the very phrase, Targeting Poverty, while
starting its objects in memorandum and articles of association for achieving a goal of participatory
economy for a caring society. Clearly, this Bank intends to implement Micro Credit and Micro
Enterprise program much beyond the scope of market economics.
Linking Micro-Credit and Micro-Enterprises to Family Empowerment:
Credit can transfer power to powerless and help alleviation of poverty. It can reinforce power of
the powerful and help in concentration and inequitable distribution of income and thus
aggravating the poverty. Seen from this prospective, it can empower a family or disintegrate it.
The family is basic foundation of human society. The foundation of a family is laid through
marriage and the relationship between husband and wife is viewed in Islam as that of garment
and its weaver, it is a civil contract, imparting mutual rights and duties. This is true Christianity
also. In Hinduism it is a sacrament. The fact is that the family remains a bedrock of a society. So
the management of Micro-credit and Micro-enterprise financing have profound impact on Micro
economic sociology of the family involving the individual in the family, organization and activity
within the family and the relationship among family members consisting mainly of husband, wife
and children as well a macro economic sociology of the family involving interchange and
transactions between the family and society in which it operates. Because families are linked
together with other social structure in extended family, neighborhood, villages, communities,
kinship groups, the family performs a vital part of the function essential to the individual and
group life.
The following table will show that on-going micro-credit and micro-enterprises program of Social
Investment Bank is indeed fundamentally different and deeply rooted in Shariah compared to Non
Banking Financial Institutions and other NGO approaches, operating in Bangladesh.
TABLE:
SIBL Approach Non- Banking Financial Institutions
& NGO Approach
1 Micro-credit for empowering family: ensuring
joint liability of wife and husband in case of
1 Micro-credit for decomposing and eventual
disintegration of the family. For example; Grameen
lending of family, or groups of families without
collateral.
Banks credit empowers women as opposed to men (
i.e. over 95% of its clients are women).

2Non ceiling and floor: Micro-credit covers hard core poor also (i.e. street children in the urban
slum and is tailor made)2Main criterion for membership in many NGOs disbursing loans is a
ceiling on land holding of no more than half an acre and no less real in practice and a floor on the
level of income.3Credit linked to culture as rooted in Islamic values provisioning for perpetual
social capital accumulation.3Credit is interest based, not in conformity with Shariah.4Credit
provisioning on a nominal profit or non-profit basis (i.e. flat rate 09% and public health credit @
6% per annum. At present formal banking expected profit/ return rate varies from 16% to
18%4Interest rate 25% to 35% for the poor. In many cases defaulters are forced to sell their
meager assets or to go to local money lenders who could charge up to 120 percent interest.5In
the event of loss ( due to factors beyond control) there is a provision for shearing the loss and
Social subsidy out of Social Fund5There is no such provision of sharing of loss rather there are
reports of ruthless force to defaulters.6Providing Deposit saving and Investment services and
schemes to up scale their operations
6This facility in limited in scope and coverage.7Assisting Micro-credit/ enterprise with provision
for credit access to the Formal Banking of SIBL thereby allowing the poor to cross the frontiers of
Non-formal Banking.7Working on the threshold and does not provide credit access to formal
Banking.8Credit based on Deposits fund and no external grant /loan.875-100% based on external
grant.9Recovery of loan about 97% (confirmed by external Auditor)9Recovery reported to be 95-
97%10Financial Accountability subject to security by statutory External Auditors and Central
Bank.10They are not subject to such control.
The above comparative analysis shows that here is a built in provision for vertical social mobility
with provisioning for social subsidy.
Micro-Credit Line of Social Investment Bank Ltd
Currently Social Investment Bank Ltd. (SIBL) is investing a maximum amount of Tk. 25,000/-
equivalent to US $ 500 per family without collateral security under Micro-Credit program as
permissible by the Central Bank of the country. This amount is considered insufficient for the
purpose of crossing the border of poverty line. The credit ceiling should be raised to at least Tk.
50,000/- equivalent to US $ 1,000 per family. The maximum amount of Tk. 2.5 lac equivalent to
US $ 5,000 is allowed for investment per micro enterprise borrower under existing Banking law.
This ceiling of investment for Islamic Bank in other countries will of course vary depending on the
stage of the development of the country, its per capita income and offer related socio economic
indicators.
Besides , Bank has already introduced Rotating Family Savings and Credit Net and Group
installment credit Scheme (**) for any group of individual. In the light of this experience, SIBL is
also in the process of developing program to assist Agriculture co-operatives in providing tailor-
made credit package to achieve their objectives in rural settings.
In the case of non-formal banking operation, it is the bank which goes to the clients, organize and
motivate them into viable income generating household, family or groups. In an effort to achieve
the corporate objectives of SIBL, it has under its Non-Formal Banking Sector, started
implementing (a) Environmental Friendly Business Program with small traders of Tokai ( mainly
street children of distressed parents ) with recovery rate of 100% (b) Real Life Tokai Non-formal
School of Management, (c) Empowerment and Humanizing family credit program.
Ongoing SIBLs Special Credit lines for Small Entrepreneurs and Businessmen, Educated
unemployed and senior citizens
The programs of Social Investment Bank Ltd. cover all sections of society. At the grass root
village and local level, the Banks program is directed towards landless laborers, marginal
farmers, fisherman, small artisans (e.g., blacksmith, carpenter, potter and handicraft-producer),
urban unemployed small traders, small and rural industries. This Banks participatory finance tend
to be different both in their form and substance as their motivational properties are fundamentally
different. In an important sense, it is also an investment option for the relatively richer section of
Bangladesh society. There is a built-in provision is Islam for obligatory transfer of funds from rich
to poor.
Proposed Rural Branch Model for Micro Enterprises (Sabuj Haat) of Social Investment
Bank Ltd.
The proposal Rural Branch for micro enterprises (Sabuj Haat i.e. Village mini mall) of Social
Investment Bank Ltd. consisting of a cluster of micro enterprise shops, community center, health
care unit attached with a Rural bank branch subject to approval of Bangladesh Bank for instant
credit, marketing and non-formal education and training support in one package will provide a
powerful Push and Pull effect. It will also generate and humanize local economic activities,
reduce internal migration and diffuse the benefits of development. It would be a rural struggle of
the invisible poor, not covered by the market, for regaining their lost social power. It will provide a
local challenge at the same time offer global opportunities.
Financing SMEs (Small and Medium Enterprise) under SIBL Family Enpowerment Micro-
Enterprise program.
Social Investment Bank (SIBL), a joint venture three sector private commercial Bank integrating
Formal, Non-formal, Voluntary Sector Banking, is successfully operating Family Enpowerment
Micro Credit and Micre Enterprise Programs under SMEs financing through its 21 (twenty one)
branches aound the country since its inspection in 1995. Besides formal (commercial) banking, it
aims at Enpowering Family through these programs, which is one of the corporate objectives of
the bank. Micro-credit is provided without collateral and minimum/ no collateral is required in the
Micro Enterprise Program.
Family Empowerment Micro-Enterprise Program:
Family Empowerment Micro-enterprise program is introduced to enhance the Socio-economic
condition of the potential entrepreneur, small and medium businessmen, successful Micro-Credit
graduates into Micro enterprise program through income generating activities.
Objectives:
To promote and develop Micro and small enterprises to generate employment on a self
sustainable basis.
To create savings habit and to provide resources to invest the potential entrepreneur to increase
their business who have no access to the formal banking.
To provide necessary investment to the new entrepreneurs who want to be self-employment.
To enroll the successful Micro-Credit graduates into Micro-Enterprise Program.
Target Group:
New entrepreneurs or existing and small business having no collateral and who cannot expand
their business due to shortage of capital.
On going small business having ownership/possession of firm/firms/ shop or any other holding.
Micro-credit graduates who are interested to expend their business.
Modes of Investment:
The following mode may be selected depending upon the expand upon the sector and purpose of
investment.
1. Bai-Muajjal
2. Murabaha
3. Mudaraba
4. Musharaka
5. HPSM
6. Bai-Salam
Ceiling of Investment:
- Collateral security is not required for investment ceiling upto Tk. 50,000. However
guarantees of two solvent persons are required.
- Collateral security to be ontained for investment ceiling above Tk. 50,000 up to TK.
2,50,000.
Period Investment:
Generally one year and maximum three years depend the nature and amount of investment.
Eligibility for Investment:
Each entrepreneur client/Businessman should obtain trade license from the concerned
authority.
Each entrepreneur /Businessman havig experience of at least one year will be given preference
to the investment facilities.
The equity ratio of all the entrepreneurs is usually 80:20. the entrepreneurs having equity ratio
60:40 will be given preference.
The client who have performed their Micro-Credit investment satisfactorily, will be given
preference to promote their business in Micro Enterprise program provided they are in a position
to fulfill to criteria of this program.
Profit and other charge:
Rate of profit : 8% per annum (approximate)
Risk fund : 2% per annum on the net investment.
Purpose of investment:
Client will have the liberty to choose the purpose relating to small and medium enterprises either
from the following projects or any other suitable projects under family empowerment Micro
Enterprise Program objectives:
1. Agriculture projects
2. Poultry and live stock projects
3. Fishery project
4. Processing & manufacturing projects
5. Transport & communication projects
6. Trading Projects
7. Different types of small trading projects
8. Shop keeping projects
9. Readymade garments project
10. Medicine shop keepers projects
11. Sewing machine projects.
Security:
Under this program, collateral securities in the form of mortgage against properties and of
3
rd
party personal guarantee is needed:
1. In case of investment up to Tk.50000.00 goods (raw materials/ finished goods, machinerys)
will be treated as security.
2. In case of investment exceeding Tk.500000.00 collateral security in the form of equitable
mortgage shall be obtained as per banks rule.
3. In all case clients must sign bank charge documents i.e. promissory note etc.
Recovery of Investment:
Generally the repayment of the investment shall be made on monthly installment basis. However,
in special cases, repayment shall start depending on the nature of investment subject to
recommendation of the branch giving specific reasons.
Conclusion:
To us, SMEs is an energetic sector, which can play a vital role towards economic emancipation of
a large section of underprivileged people including existing and potential entrepreneurs. There is
a provision for upgrading Micro-credit graduate into Micro-Credit Enterprise program and
subsequently successful Micro-Enterprise (SMEs) graduates have opportunity to enroll them in
the formal banking where sky is the limit.
Voluntary Banking
Voluntary Sector
It is the right time for globalization of Islamic voluntary sectors activities. In this process Islamic
Bank in the 21st Century can play a very vital role in reactivating and institutionalizing the role of
Islamic Socio- Economic institutions and various voluntary and obligatory tools of redistribution of
income through innovative financial instruments and management of fund.
This Bank has a special program of development of various religious and social service oriented
institutions. Within this program, Mosque, Maktab, Waqf, Charitable organizations etc will be
modernized and activated. All properties under this program will be utilized in productive activities
on participation basis. Besides, Hajj (pilgrimage) and Kurbani (sacrifice of animals according to
dictates of Islam) schemes are included in the program of Social Investment Bank Ltd. Cash
Waqf certificate has already been introduced for the first time in history. Various methods of
compulsory and voluntary Islamic distribution of finance, such as Zakat, Sadakah, Waqf etc. will
be institutionalized.
Social Investment Bank Ltd. is in the process of organizing Voluntary Capital Market Operation
for mobilization of necessary fund and in the process of developing the following financial
instruments with different sets of rules in conformity with Shariah:
1. Waqf Properties Development Bond (Special and General)
2. Cash Waqf Deposit Certificate (special and general)
3. Family Waqf Certificate
4. Mosque Properties Development Bond (special and
general)
5. Mosque Community Share
6. Qard-e-Hasana Certificate (special and general)
7. Zakat / Ushar Payment Certificate
8. Haji Savings Certificate
9. Non-Muslim Trust Property Development Bond (special
and general)
10. Municipal Property Development Bond (Special and
general)
The value of all the Bonds and Qurd-e-Hasana Certificate are guaranteed by the Bank against
surrender of the instrument on maturity.
Cash Waqf Certificate Scheme:
Mans work ends upon his death except for three things: (a) contribution to knowledge , (b) on
going charity and (c) faithful child (Al-Hadith)
The introduction of Cash Waqf Certificate Scheme is intended to monetize Islamic Voluntary
Sector for the first time in history for mobilization and capitalization of social savings. It would
perhaps, be the most effective and perpetual mode of deposit mobilization and use of its profit for
perpetual social investment and benefits.
Its introduction is highly suggestive in the context of present fiscal system of Bangladesh which is
heavily dependent on indirect tax ( i.e. 85% of the total tax revenue in 1995-1996). A great part of
direct tax can be privatized and converted to social assignments and Cash-Waqf Certificate can
partially substitute a substantial part of the income tax for financing social projects in education,
health, social welfare activities. A new beginning can be made for a participatory economy and a
caring society.
The guidelines governing the operation of the Cash Waqf Certificate are as follows:
1. Cash waqfs shall be accepted as endowment in conformity with Shariah. Bank will manage
the waqf on behalf of the waquif.
2. Waqfs are done in perpetuity and the Account shall be opened in the Title given by the
waquif.
3. Waquif will have the liberty to choose the purpose(s) to be served either from the list of 32
purposes identified by SIBL as given below or any other purpose(s) permitted by shariah.
Family Rehabilitation:
1. Improving the conditions of absolutely poor living below the poverty line.
2. Rehabilitating physically handicapped, and disadvantaged
3. Rehabilitating beggars.
4. Rehabilitation of destitute women
5. Upliftment of urban slum dwellers
Education & culture:
1. Education of orphans i.e. supplying books free of cost
2. Expansion and development of appropriate education for skill development
3. Informal education facilities of children at home (i.e. mothers education program, children
literature)
4. Physical education and sports facilities
5. Supporting local culture and heritage and art promotion
6. Conducting Dawah activities
7. Supporting education of deserving students in the form of scholarship
8. Supporting vocational education in general
9. Supporting education of a specific area
10. Financing specific Madrasha /school / colleges of a particular area.
11. Educating deserving descendants
12. Supporting any projects in the area of education , research, religious and Social services in the
memory of father, mother and any descendants.
13. Establishing educational chair.
Health & Sanitation:
1. Village health care and sanitation
2. Supplying pure drinking water (to households, schools, mosques, slums, etc.)
3. Establishing hospitals, clinics, health care programs specially for the poor.
4. Health research grant, Research in particular disease.
Social utility service:
1. Settling disputes (e.g. Village litigration)
2. Providing legal aid to deserving women to establish their lawful rights.
3. Assist in arranging dowryless marriages to poor girls.
4. Maintenance of public roads and tree plantation in the village
5. Providing assistance to peace loving non-Muslims and solving their problems
6. Creating social awareness to prohibit gambling and other social activities
7. Construction, installation and development of public utility services
8. Maintenance of a specific mosque(s) with an income generating projects(s)
9. Maintenance of a specific Eidga(s) with an incom generating project(s).
1. Maintenance of a specific Eidga(s) with an income generating project(s).
4. Cash waqf amount will earn profit at the highest present profit rate (10.70%) offered by the
Bank from time to time.
5. The waqf amount will remain intact and only the profit amount will be spent for the
purpose(s) specified by the waquif. Unspent profit amount will automatically be added to waqf
amount and earn profit to grow over the time.
6. Waquif may also instruct the Bank to spend the entire profit amount for the purpose
specified by him/ her.
7. Waquif will have the opportunity to create cash waqf at a time. Otherwise he /she will
declare the amount he/ she intends to build up and will start with a minimum deposit of Tk.
1000/=(Taka one thousand) only. The subsequent deposits shall also be made in thousand or in
multiple of thousand.
8. Waquif shall also have the right to give standing instruction to the bank for regular
realization of cash waqf at a rate specified by him /her from any other a/c maintained with SIBL.
9. Cash waqf shall be accepted in specified endowment Receipt voucher and a certificate for
the entire amount shall be issued as and when the declared amount is built.
10. The principles and rules of Cash Waqf Account are subject to amendment and to be
reviewed from time to time.
Social Fund
The Social Investment Bank considers man not with money but with a human face approach. So,
this Bank is firmly committed to provide a human face approach in all its activities. This bank
builds a Social Fund with the part of the profit earned by the bank and collect all kinds of gifts,
Zakat and Sadakah from clients. This fund is invested in projects for betterment of the less
fortunate and poor people of the society.
Social Investment Bank Ltd. (SIBL), a concept of 21st Century Banking for all by all intends to
cover all sections of Bangladesh Society.
At the operational level, all three sectors activities would be mutually interdependent and
collectively reinforcing, through contribution to Social Fund and Social Assignment Schemes
linked with Social Entitlements, thereby making all these activities economically, socially and
ethically transparent and revealed, once they are operationalized.
SIBL has already established its Social Fund by mobilizing Voluntary social savings, linked to its
all Formal, Non-formal and Voluntary sector Banking operations. It is limited but exciting
experience, contrary to popular belief SIBL within a very short time has been able to mobilize a
surplus Social Fund for social investment purposes in family empowerment action program,
Social education fellowship program, health as well as social services sector. A modest beginning
has already been made. A step ahead is the beginning of thousand miles journey.
Social Fund has, among others, twin objectives to achieve: (a) Capitalization of social savings
and (b) Socialization of capital, through different price of capital to different target group of
people. This social subsidy or social loan will generate further savings for investment purposes.
Because, one of the objectives of the Social Fund is to pool together individual voluntary
contribution for planned social investment as well as to bring social meanings and transparency
in financial and banking transactions, thereby linking social entailments to social assignments.
Online Banking
Online Banking Operation of Social Investment Bank Limited
By the grace of almighty Allah and with the heartiest cooperation SIBL management, executives,
and officers SIBL is ready to start Online Banking System. Meanwhile, for the Smooth operation
and efficient functioning of the system they have completed the proper training to the related
personnel, testing online transactions in both test data and live data by using staff accounts at all
SIBL designated branches.
Branches Under On-line Banking Service
It is planned that the following Branches and head office will come under the umbrella of on-line
any branch-banking network in the 1
st
phase, which will be online from January 07, 2004. other
branches will come under the umbrella as per decision of the bank management.
Dhaka City:
1. Head Office
2. Principal Branch
3. Gulshan Branch
4. Dhanmondi Branch
5. Babubazar Branch
6. Moulovi Bazar Branch
7. IDB Bhaban Branch
8. Panthapath Branch
9. Foreign Exchange Branch
10. Nawabpur Road Branch
11. Uttara Branch
12. Mirpur Branch
Khulna City :
1. Khulna Branch
Rajshahi City :
1. Rajshahi Branch
Chittagong City:
1. Agrabad Branch
2. Khatungang Branch
3. Halishahar Branch
4. Jublee Road Branch
Sylhet City :
1. Sulhet Branch
Bogra City :
1. Bogra Branch
Sirajgang City :
1. Sirajgang Branch
Facilities of Online Banking System
Customers of one Branch of SIBL will be able to make transaction like cash withdrawals and
deposits, electronic fund transfer, balance inquiry, account statements etc. from any of the SIBL
Branches Under the Umbrella of Online Banking across the country.
Categories of the Account Holder under Online Banking System
a) All kind of account holder except scheme account and MTDR.
b) Customers of AWCD, MND and MSD account will be able to make deposit and withdrawal
transactions either in cash or transfer. Cheque leaf will be only the instrument for withdrawal
purpose either cash or transfer.
c) Customers of all kinds of investment account will be able to make deposit transaction either
in cash or transfer.
Accounting Entries for ON-Line Banking
Cash Withdrawal:
If account holder of Branch A withdraws money from Branch B through cheque (Operator of
Branch B will login into Branch A, Debit the account by cash, Exit from branch A, Pay cash
taka from counter) the following transaction will place
a. Dr. Customer Account (at Branch A) Transfer By operator
b. Cr. SIBG Account Transfer Automatic (at Branch A)
c. Dr. SIBG Account Cash Automatic (at Branch B)
d. Cr. Reserve cash (at Branch B)

by Which cash is payable to bearer of the cheque.CashWithin the accumulated cash
voucher at the end of the day.
Cash Deposit:
If account holder of Branch A deposits money at Branch B for crediting his/her account at
Branch A (receive the cash with deposit slip, Operator of Branch B wiil login into Branch A,
Credit the customer / Payee A/C by cash, Exit from Branch A)
The following transaction will take place:
a. Dr. Reserve Cash (at Branch b) Cash Within the accumulated Cash
Voucher at the end of the day.
b. Cr. Customer account (at Branch A) Transfer By Operator
c. Dr. SIBG Account Transfer Automatic (at Branch A)
d. Cr. SIBG Account Cash Automatic (at Branch B)
Fund transfer:
1. I. If Account holder of Branch A transfer money from his/her account to an account with
Branch B through cheque, the cheque is placed at Branch A (Operator will debit Customer
account by Transfer of Branch A, Login to Branch B, Credit Payee A/C of Deposit Slop by
transfer) the following transaction will take place:
a. Dr. Customer Account Transfer By Operator (at Branch A)
b. Cr. Payee Account Transfer By Operator ( at BranchB)
c. Dr. SIBG Account Transfer Automatic (at Branch B)
d. Cr. SIBG Account Transfer Automatic (at Branch A)
II. If account holder of Branch A gives an Account Payee Cheque to an Account holder of
Branch B, the cheque placed at Branch B (Operator will login to Branch A, Debit customer
account by transfer, Exit From Branch A, Credit Payee A/c of Branch B as per Deposit Slip By
Transfer) the Following Transaction will take Place:
a. Dr. Customer Account Transfer By Operator (at Branch A)
b. Cr. Payee Account Transfer By Operator ( at BranchB)
c. Dr. SIBG Account Transfer Automatic (at Branch B)
d. Cr. SIBG Account Transfer Automatic (at Branch A)
Note : Online transaction performs 3 (three) transaction at a time, 2 in remote and 1 in local.
During theRemote cash transaction, though the operators select cash as reference, remote
Branch transaction (2 transaction) automatically will be Converted to transfer transaction and the
rest (1 transaction) local SIBG transaction will be converted to cash transaction for the contra
equilibrium.
Management hierarchy:
Number of Employees
Social Investment Bank believes that the driving force behind them has always been their
employee. They are proud to have a dedicated band of people to whom the commitment to
provide Excellence in Banking is imbued in the way of their life.
SIBL has also recognized that the professional development of the staff is essential in
establishing as a provider quality Service. And therefore they have set up Training Institute. In
2003, the institute has conducted 24 courses attended by 488 participants.
No. of Employee From 1999 to 2003
Year No. of Employee
1999 250
2000 272
2001 349
2002 473
2003 597
Total Income of Social Investment Bank Limited
SIBL generally generates its income in the form of profit from Bai-Muajjal Commercial, Bai-
Muajjal Industrial, Bai-Muajjal Agriculture, Bai-Muajjal Post import , Bai-Muajjal Scheme, Bai-
Murabaha Commercial, Bai- Murabaha Industrial , Bai- Murabaha Agriculture , Bai- Murabaha
Post import , HP & SM Commercial, HP & SM Industrial, HP & SM Agriculture, HP & SM Post
import, HP & SM Scheme Investment. It also generates income from its investment made in
Treasury Bills/Bonds, Debentures, Dividend on Share.
Income of SIBL
Year Income
(Figure in million)
Growth %
1999 301.35 93.02
2000 491.48 62.99
2001 759.56 54.54
2002 985.30 29.71
2003 1,425.55 44.68
Income for the year 1998 was Tk. 156.12 million.
Graphical Presentation of Growth of Total Income
As the table presents and the Graph Shows that the total income of SIBL does not have an
increasing trend. Rather, the total income is increasing trend. Rather, the total income is
increasing or Decreasing every year.
6.6 Total Expenditure of Social Investment Bank Limited
Year Total Expenditure
(Figure in million)
Growth %
1999 274.72 47.47
2000 342.56 24.69
2001 591.23 72.59
2002 845.64 44.55
2003 1172.31 38.22
Total Expenditure for the year 1998 was tk. 186.28
Total Income Vs Total Expenditure
Year Income (Series 1)
(Figure in million taka)
Expenditure (Series 2)
(Figure in million taka)
1999 301.35 274.72
2000 491.48 342.56
2001 759.56 591.23
2002 985.30 845.64
2003 1,425.55 1172.31
Graphical Presentation of Income Vs Expenditure
Both the Income and Expenditure of Social Investment Bank has increased every year. But the
total expenditure has never exceeded total income. We can see from the above table that the
highest income and highest expenditure is the year 2003.
Net Profit After Tax
Net profit after tax of SIBL
Year Net Profit After Tax
(Figure in million)
Growth %
1999 83.52 39.57
2000 101.28 21.26
2001 252.64 149.44
2002 451.18 78.58
2003 510.39 13.12
Net profit after tax for the year 1998 was tk. 59.84 million.
The growth rate of net profit of is seen to fluctuate in the five years. The maximum growth was in
the year 2001 but then in the year 2002 and 2003 the growth rate of profit has fallen. On the other
hand it is also observed from the table that the volume of net profit has not decreased rather it is
increase year after year.
Fixed Assets
Fixed assets of SIBL from 1999to 2003
Year Fixed Assets
(Figure in million)
Growth %
1999 44.51 32.90
2000 51.15 14.91
2001 58.01 13.41
2002 62.56 7.84
2003 77.31 23.57
Fixed Asset for the year 1998 was tk. 33.49
The volume of fixed Assets of SIBL seems to be having a decreasing trend from the year 2000.
The above graph shows how the rates have been fluctuating in the year 1999 to 2003. So, its
very hard to predict that whether there will be an increase or Decrease of fixed assets in the
following years. The highest volume of fixed assets is in the year 2003 of tk. 77.31 million.
Earning per Share (EPS)
An earning per share is the net income divided by the number of shares of common stock
outstanding. So, the EPS of SIBL for the year 2003 can be calculated as follows:
Earnings per share = Tk. 290.39 million
Tk. 303.47 million
Social Investment Limited calculates Earnings per share in accordance with BAS 33.
Earnings Per Share.
Earning per share from the Year 1999 to 2003
Year Earning Per Share
1999 25.48
2000 32.56
2001 34.30
2002 56.77
2003 75.69
From the above table it can be seen that earning for each Share (Face value tk. 100 each) of
Social investment Bank for year 2003 is tk.75.69. that is, if a shareholder has 100 shares of SIBL,
his/her share of total profit would be Tk. 7569.00 for the year 2003.
The highest EPS was 75.69% in 2003 and the lowest was 25.48% in 1999.
Earning per share are very important for shareholders. A shareholder will always try to invest in
those shares having the high EPS. Therefore, as the graph shows the EPS of SIBL is increasing
trend. One can predict that the EPS will increase in the following years and may be interest to
invest.
Dividend
Year Dividend
Cash %
Dividend
Bonus
1999 10 10:1
2000 20 10:1
2001 20 -
2002 25 -
2003 50 -
The above table Suggests that although SIBL does not have a fixed dividend policy. Dividend is
paid to shareholders the reason being that shareholders usually desire the payment of some
portions of bank earnings in the form of cash dividends. This is because they entire wish to
consume part of their investment income to because they want to diversify their investment
holdings.
Bonus shares are those given to existing shareholders free of cost. For the year the ratio of
bonus share was 10:1, this means that for every 10 shares 1 shares is given free. Therefore a
share holder having 100 shares would receive 10 shares free.
Bonus share are often issued when a company does not want to pay cash dividend. But most
shareholders prefer cash dividend rather than bonus share.
Return on Equity (ROE)
Return on equity measures the rate of return on the stockholders investment. It is calculated by
dividing net income by total Stockholders Equity.
Year ROE Growth (%)
Per Ratio
1999 24.32 31.03
2000 28.02 15.21
2001 32.98 17.70
2002 37.56 13.88
2003 47.22 25.71
ROE for the year 1998 was 18.56%
Both the table and graph shows that the growth rate of return on equity had been fluctuating
every year. And it is very difficult to predict for investors to predict what will be the return in the
year next. As because, we see that there had been a decline in growth rate in the year 2000 and
2002, therefore, one can predict that the growth rate will also decrease in the following year. But
what actually happened is that, there had been a huge increase in growth rate in 2003.
Return on Assets (ROA)
The rate of return on assets measures the ability of management to utilize the real and financial
resources of the bank to generate returns. ROA is commonly used to evaluate bank
management. It is calculated by dividing net income by total assets.
Year ROA Growth %
1999 0.72 16.13
2000 0.69 -4.17
2001 0.99 43.48
2002 1.49 50.51
2003 1.51 1.34
ROA for the year 1998 was 0.62 %
Graphical Presentation of ROA
ROA of SIBL has an Increasing trend. But it decreased in the year 2000, but now it is increasing
every year. But the growth rate of ROA is not very impressive every year. But the growth rate of
ROA is not very impressive. In 2000 it had a negative rate and in 2002 the growth rate is only
1.34 %. It can be said that the bank management is not filly utilizing the banks real and financial
resources
6.14 Investment / Deposit Ratio
Year Investment
(Figure in Million)
Deposits
(Figure in million)
Ratio
1999 2846.17 3899.72 72.98
2000 3711.39 4863.21 76.31
2001 5499.25 10569.67 52.03
2002 7504.03 15141.34 49.56
2003 11274.46 19709.31 57.20
From the above graph and the graph below it is observed that for continuous four years SIBL is
having nearly a 50:50 ratio in advance and deposits. This ratio enables Social Investment Bank to
be in the safe side in case of any future loss.
The following problems are mainly on my observations at Principal Branch of Social Investment
Bank Limited.
1. Number of officers are few in General Banking Division therefore sometimes customer have to wait
for their turn in very busy hours.
2. The customer has to submit various types of documents for a loan proposal. So, sometimes they
find it very troublesome to gather all the papers in time.
3. For opening an account to the branch, they want introducer who have account in the same branch.
This is very difficult for the customer to find an account holder.
4. Sometime online banking is out of service.
5. The Bank lacks a division for customer service, cause there are customers who have no banking
knowledge. So need to be properly guided. Sometimes the officers are so busy they do not have
enough time to spare.
6. The Bank does not continue its schemes.
Suggestion for SIBL
It has been only nearly 08(eight) years that Social Investment Bank is in Service. So one cannot
expect that the bank would perform like any other banks that are in service decades or so. The
following suggestion are my own ideas put into words.
1. The bank should open up more branches in coming years to meet customer demands.
2. Open up customer service department to attract new customers.
3. Engage in more promotional activities.
4. Continue new schemes to avoid customer confusion
5. ATM service needs.
6. Online Banking system needs to be upgraded.
7. A little more service quality up gradation may help the bank to hold on to old customers and avail
more new customers.
8. Expand their export business for more export financing to minimize the difference between export
& import financing.
9. Number of officers may be increased in branches to allow them to work in a stress free
environment so that the officers can give out their best in their performance.
I believe these steps will be helpful to improve the performance of Social Investment Bank
Limited and the financial sector of Bangladesh as well.
Conclusion
Lot of new commercial bank has been established in last few years and these banks have made
this banking sector very competitive. So, now banks have to organize their operation and do their
operations according to the need of the market. Banking sectors no more depends on a
traditional method of banking. In this competitive world this sector has trenched its wings wide
enough to cover any kind of financial services anywhere in this world. The major task for banks,
to survive in this competitive environment is by managing its assets and liabilities in an efficient
way.
Through this report I have tried to present the overall performance of Social Investment Bank Ltd
(SIBL) in comparison with its closest competitor whish were established lot of private bank.. From
my analysis I have found that the performance of SIBL is not a very satisfactory one. The bank
should try to overcome the consequences to improve its performance.
The training institute of Social Investment Bank is one of the main aspect because every worker
in the bank is being trained. Therefore everyone knows their job very well and can perform
efficiently to produce the best output.
One of the major problems for SIBL is not possessed with good marginal efficiency in ROA. And
their return on equity (ROE) ratio is not so high compare to other banks. But for foreign trade
section they are doing good business. Especially SIBL has more import business than its rivals. If
SIBL can concentrate on import business, it will give the opportunity to circulate the profit more
rapidly than other sources. Besides these SIBL should also increase the export business.
Because if SIBL can reduce the difference between import financing to export financing, bank can
use its own foreign exchange for import financing.
For the client point of view, they think, they are more satisfied with import business at SIBL rather
than export business. But at the same time they found some lacking in this department that can
be over come at no time.
For the pricing policies I found that Social Investment Bank Limited is providing on of the best
pricing rate in compare to other banks. And the clients response is very much positive in it.
References
1. Balance sheet and Income statement for the Year 1999 to 2003 of Social Investment Bank Limited.
2. Website of Social Investment Bank Limited www.siblbd.com
3. Commercial Banking by D R Fraser
4. What Banker does(Second Edition) by Abul Hashem
5. General Banking Nitimala & its operation by Mhd Mubarak Hussain
6. Foreign Exchange By L.R. Chowdhury