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Pioneer in Welfare Oriented Banking

Foreign Exchange and Foreign Trade: Problem & Prospect-A Study On Islami Bank Bangladesh Ltd. Agrabad Branch, Chittagong.

(THIS INTERNSHIP REPORT IS SUBMITTED FOR THE PARTIAL FULFILMENT OF THE DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION WITH A MAJOR FINANCE)

Name: Md Niaz Morshed Matric No: B073103 Program: BBA Semester:

Prepared By:

Name: Dr. Sk Sirajul Islam Designation: Associate Professor, DBA Internship Duration: 11-07-2011 to 08-09-2011 Submission Date:

Supervised By:

Signature of Supervisor

Department of Business Administration Faculty of Business Studies
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International Islamic University Chittagong
Letter of Submission
8th December 2011, The Dean Department of Business Administration Subject: Submission of internship report – reference to Agrabad Branch. Dear Sir, Assalamualaikum, With due respect I submit the report on “Foreign Exchange and foreign Trade: Problem & Prospect ” which has been prepared for fulfilling the internship program of the degree Bachelors of Business Administration. This is the first time I prepared a report based on my practical experience and I have tried my best to complete the study in a proper way despite some limitations. This report is based on my observations during the 7 week long practical training in the Agrabad Branch, the cordial cooperation of bank officials, books and websites. I hope you will find this report meaningful. I also expect that proper assessment will be given on my report considering the limitations of this study. Within the time limit, I had to prepare this report as comprehensive as possible. But there may be some unwanted mistakes for which, I beg your kind consideration. Your benign and authoritative advice will encourage me to conduct further flawless research in future. Ma’assalam Your’s sincerely, Md. Niaz Morshed Bachelor of Business Administration (BBA) Major in Finance and Banking Department of Business Administration,

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International Islamic University Chittagong.

Acknowledgement
First of all, it is the Almighty, the Merciful and the Benevolent Allah (SWT) who give me the sense to understand what I do and finish the study properly. I am most grateful to the management of Islami Bank Bangladesh Limited for giving me the opportunity to complete my internship in their organization. My extreme gratitude goes to Mostafizur Rahman Siddiquee, Senior Vice President of IBBL for his cordial support and guidance. I would like to express my gratitude to esteemed supervisor Dr. Sk Sirajul Islam, for providing me detailed feedback and technical advice on this report. Without his guidance and support it would not been possible for me to complete this report nicely. I am grateful to Md Jamal Uddin (Assistant Vice President & Incharge Foreign Exchange Department), Md Jahangir Alam (Officer) & for their kind assistance, without which the report would have been incomplete in many aspects. I would also like to render my sincere thanks to A.S.M. Waqer Uddin (Senior Principal Officer), Mohammed Eyahya (Senior Principal Officer) & Md Ahsan Habib (Assistant Officer) of Foreign Exchange Department, for providing me guidance & inspiration to work. My appreciation also goes to Md. Muhitul Alam (Assistant Officer), K M Humaun Kabir (Officer), & Md. Jubaer Chydhury (Officer) of General Banking department of IBBL, Agrabad Branch for their day to day monitoring, supervision and assistance. Finally, I would like to thank all the respondents and interviewees whose thoughts, ideas and information made this report richer.

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Executive Summary
The report is based on fifty days practical experience in Islami Bank Bangladesh Limited (IBBL), Agrabad Branch, Agrabad, Chittagong. This report undertakes a study on the pioneer Interest-Free Financial Institution in Bangladesh, “Islami Bank Bangladesh Limited” (IBBL). The aim of the study was to observe the way IBBL is performing Banking business in interest free and Shari’ah complied methods. In this attempt I tried to know how Islamic banking activities differ from that of a conventional bank and also to see how Islami bank contribute to render financial services towards to the mass people efficiently. By discussing specifically the foreign exchange and foreign trade operations of IBBL, I tried to discover how the bank provides international banking services in interest-free and shari’ah approved method and holds the first position in terms of Import, Export, and Inward foreign remittance business. Banking plays an important role in the economy of any country. Bangladesh is the third largest Muslim country in the world with around 150 million populations of which about 90 percent are Muslim. These people possess strong faith on Allah and they want to lead their lives as per the construction given in the holy Quran and the way shown by the prophet Hazrat Mohammad (Sm). But Islamic banking system was developed here up to 1983 was centered to interest, which strongly prohibited repeatedly in Islam. This interest based banking system had been in action right from the British colonial period and employment of the Muslims in banks was more or less restricted. During the period 1947-1971 when country was a part of Pakistan but the rulers did not take any practical attempt to establish economic system based on Islamic Principles. Since independence, Bangladesh saw a new trend in banking both at home and abroad. Islamic banking as a new paradigm started in Bangladesh in 1983 with the establishment of the first Islamic bank "Islami Bank Bangladesh Limited". The innovation of interest-free banking systems, proved its worth in the country’s money market and many new banks have been established to
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operate in compliance with Shari’ah and many traditional banks have opened their Islamic banking braches. The report mainly consists of eight sections. The introduction chapter consists of objectives, scope, methodology, limitations, company overview such as objectives, goals, mission, vision of the company. In the second chapter import financing services of the bank is covered. Import performance in many aspects is given there. The third chapter deals with export and export performance as well as other related aspects. In chapter 4 inward foreign remittances is covered with discussion on performance from many aspects and related discussions. In the fifth chapter analysis of the branch performance in case of import, export, remittance & operating profit. In the chapter sixth problems and prospects of Islamic Banking in Bangladesh are given. In the seven chapter, there is SOWT analysis describing the strengths, opportunities, weakness, and threats of IBBL are described. At chapter 8 there is Findings, Recommendation & Conclusion. For the continued expansion of the Islamic Banking system, a number of issues pose serious threats to the Islamic banks and these are needed to be carefully addressed. This paper discusses and makes recommendations on the more pertinent of these issues particularly the development of an Inter-Bank Islamic Money Market, activation of Shari’ah Supervisory Boards, enactment of a full-fledged Islamic Banking Act, development of New Financial Products in line with the Islamic Shari’ah, and extension of investment in line with PLS framework, especially by constituting consortium or syndication by the Islamic banks. The paper suggests that diversification of investment should be emphasized.

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Table of Content
Chapter Topic 1 Introduction 1.1. 1.2. 1.3. 1.4. 1.5. 1.6. Introduction Objectives Scope Methodology Limitations IBBL: An overview Page
1-8 2 3 3 4 5 5

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2

Import Services: 2.1. 2.2. 2.3. 2.4. 2.5. Import services and financing products Year to year import Share of IBBL in country’s total import Import vision Commodity wise import performance

9-17 10 13 14 15 15 18-24 19 21 22 23 24

3

Export Services: 3.1. 3.2. 3.3. 3.4. 3.5. Export services and financing products Year to year export Share of IBBL in country’s total export Export vision Commodity wise export performance

4

Remittance: 4.1. 4.2. 4.3. 4.4. 4.5. Classification of remittance Instruments of foreign remittance Year to year export remittance Share of IBBL in country’s total remittance Country wise remittance performance

25-29 26 26 26 28 29

5

Performance Analysis Of Agrabad Branch 5.1. 5.2. 5.3. 5.4. Import performance Export performance Remittance performance Operating profit performance

30-34 31 32 33 34

6

Problems and Prospects of Islamic Banking 6.1. 6.2. Overview of Problems Challenges faced by Islamic Banks

35-41 36 39

7 8

SOWT analysis Ending Remarks: Findings Recommendations Conclusion

42-47 48-54 49 50 54

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CH APTER-ONE INTR ODUCTION

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1.1. INTRODUCTION
Banks are the most important financial institutions in a modern economy. They are an indispensable part of all modern economic activities. They help accelerate the pace of development process by securing uninterrupted supply of financial resources to people engaged in value generating activities. Nowadays all financial activities centers on the banking system. So the role of banking system is considered to be the hart of any financial system. Main role of banks is financial intermediation that means accumulating funds from numerous small depositors and channeling those funds to entrepreneurs for investment purposes. The banking system of Bangladesh is composed of verity of banks like Nationalized Commercial Banks, Private Banks, Foreign Banks, Specialized Banks and Development Banks etc. At present among other banks Islami Bank Bangladesh Limited (IBBL) holds the position of being the leading bank in terms of deposit collection, investment, and foreign exchange business. Since establishment in 1983, IBBL has been operating to provide efficient banking service with a view to accelerate socioeconomic development of the country in Shari’ah complied manner. Over the last few years the banking world has been undergoing a lot of changes due to deregulation, technological innovations, better transportation and communication systems, globalization etc. These changes also brought revolutionary changes in many countries economy. All of these changes as well as new and supportive laws and regulations have created a favorable

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environment for international business. As a result the scope for international banking and foreign exchange business has increased. In addition to supporting clients to perform their international business activities in a secured and legal way, banks are also ensuring their income though providing financing and related services to these clients. Foreign exchange business is getting more and more importance to the banks due to the relatively shorter investment tenor, less investment involvement and more profitability.

1.1. Objectives
The objective of the internship program was to gather practical knowledge and experience about the corporate working environment with the close approximation to the business firm and the experts who are leading and making strategic decisions. In this regard this report contemplates the knowledge and experience accumulated from the practical exposure to the foreign exchange department. The specific objective of the study are: • • • • • To know about department. the function of Foreign Exchange

To identify the problem and prospect of Foreign Exchange business. To evaluate performance of Foreign Exchange of the bank. To identify profit analysis, strength, weaknesses, opportunities, and threats through SOWT analysis. To give some suggestions for improving performance of Foreign Exchange operation of the bank.

1.2. Scope
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The report covers the organization’s background, structure, objectives, business philosophy, functions, performance and specifically the foreign exchange business performance of IBBL. The scope of the study is limited to the operational mechanisms of IBBL, and international banking system & the services it provides to the customers. IBBL offer the common & usual services like the other commercial banks, but this study will show how it succeed to perform these activities in Shari’ah complied methods. Within the stipulated time, I have covered three functional areas of IBBL. These are: • • • General banking section. Investment section. Foreign exchange and foreign trade section.

But as my topic specifically emphasizes the foreign exchange business of IBBL, I spend about one month in the foreign exchange department.

1.3. Methodology
Both the primary as well as the secondary form of information is used to prepare the report. The details of these sources are highlighted below.

Primary Sources
I have collected primary data through the following means:

• • • •

Face to Face conversation with the respective officials of the bank. Practical work exposures on different desks of the branch. Collection of departments relevant information from various

Interviewing clients and beneficiaries of different products or services.

Secondary Sources
I have collected secondary data through the following means: • Internal Sources
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• • • • • • • •

Bank's Annual Reports. Brochures of Islami Bank Bangladesh Limited. Internal Records. Different circulars sent by Head Office, Government and Bangladesh Bank. Desk reports of the related departments Training sheets provided by (IBTRA) Website of IBBL

External Sources • • • • Relevant books, Journals, Newspapers and Newsletters. Publications regarding banking functions, foreign exchange operations and credit policies. Bangladesh Bank Reports and regulations for foreign exchange and others. Relevant websites.

1.4. Limitations
Being required to complete the internship program and prepare the report timely, I applied my wholehearted effort. In spite of such effort, there exited some limitations. These limitations appeared as barriers for preparing the report. These limitations were: • The findings and evaluations are derived from a short term work experience in the Foreign Exchange Brunch only and may or may not apply to other brunches of the bank. Another crucial limitation was the sensitivity of the data. In the highly competitive market release of material information to competitors have negative impact on business. Particularly when IBBL holds the highest position in collecting deposits, investments, and foreign exchange business in Bangladesh. As a result, in some cases management was reluctant to give some specific data. Some questions were avoided or not exactly answered by the respondents may be because of lack of clear idea or my failure to convey them my requirement. Secondary sources of data relating to the banking industry particularly on Islamic banking in Bangladesh are very







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limited as sufficient books, publications and journals were not available. • Such type of report needs much study and analysis, which was most possible due to shortage of time. At the same time I also felt lack of deep knowledge and analytical ability for writing such report.

1.5. IBBL: AN OVERVIEW 1.5.1. Establishment
Islami Bank Bangladesh Limited (IBBL) was incorporated as the first Shari’ah based interest free Bank in South East Asia on the 13th March 1983 as a Public Company with limited liability under the Companies Act, 1913 .(At present the Companies Act, 1994). The first branch of the Bank was Local Office in Motijheel, Dhaka started functioning on 30th March 1983. The Bank was formally inaugurated on 12th August 1983. Authorized Capital of the Bank is Taka 10,000 million and Paid-up capital is Taka 6, 178 million. Foreign and Local shareholders holdings are of 57.36% and 42.64% of the Paid-up capital respectively. The Bank’s corporate Headquarter is situated in its own 18-storied modern building at 40, Dilkusha, Dhaka.

1.5.2. Business Philosophy
The philosophy of IBBL is to comply with the principles of Islamic Shari’ah. • It wants to be “a financial institution whose status, rules, and procedures expressly state its commitment to the principles of Islamic Shari’ah and to the Banning of the receipt and payment of interest on any of its operations” as was defined by OIC. The sponsors perceive that IBBL should be quite different from other privately owned and managed commercial Bank operating in Bangladesh and should grow as a leader in the industry rather than a follower.



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The leadership will be in the area of service, continuous effort should be made to add new dimensions so that clients can get “Additional” in the matter of services commensurate with their needs and requirements.

1.5.3. Mission
• To establish Islami Banking through the introduction of a welfare oriented banking system and also Ensure equality and justice in the field of all economic activities To achieve balanced growth and equitable development through diversified investment operations particularly in the priority sectors and less development areas of the country. To encourage socio-economic uplift and financial services to the low-income community particularly in the rural areas.





1.5.4. Vision
IBBL’s vision is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance.

1.5.5. Goals
• • • To establish and maintain the modern Banking techniques. To ensure soundness and development of the financial system based on Islamic principles. To become a strong and efficient organization with highly motivated professionals, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems. To encourage savings in the form of direct investment. To encourage investment particularly in projects which are more likely to lead to higher employment.

• •

1.5.6. Functions
• • • To maintain all types of deposit accounts. To make Investment. To handle foreign exchange business.

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• •

To extend other banking services. To conduct social welfare activities.

1.5.7. IBBL: At a Glance

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Date of Incorporation Inauguration of 1st Branch Formal Inauguration Authorized Capital Paid-Up Capital IPO Listing with DSE Listing with CSE 1st Right Share Issue 2nd Right Share Issue 3rd Right Share Issue 4th Right Share Issue Local Share holders Foreign Share holders Number of Zones Number of Branches SME Service Centers Equity Deposit Investment Foreign Exchange Business Manpower Number of share holders *(As on August 31, 2011)

13, March 1983 30, March 1983 12, August 1983 Taka 20,000.00 Million Taka 10,007.71 Million 1985 1985 1996 1989 1996 2000 2003 42.64% 57.36% 11* 254* 32* 32104.00 million* 32830.00 crore* 32349.00 crore* 47769.00 crore* 11033* 63001

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CHAPTER-TWO IMPORT SERVICES

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2. IMPORT PROMOTION 2.1. Import Services and Financing Products
There are two major principles used by IBBL
• •

Import Servicing Principle Import Financing Principle

Different products offered under both principles as well as types of income involved therein are as under:
Service Principles Wakalah Scope of Applications Letter of Credit Safe keeping Remittance Other Import Related Products Letter of Credit Performance Bond Advance Payment Guarantee Shipping Guarantee Add Confirmation Scope of Applications Murabaha Import L/C Murabaha Import Bills Murabaha Post Import Mudaraba against Import Musharaka against Import Import under Hire Purchase under Shirkatul Melk (HPSM) Type of Income Commission

Kifalah

Commission

Financing Principles Bai Sirkat Ijarah

Type of Income Mark up

Share in Profit/Loss Rent

Most widely practiced products are

2.1.1. Cash L/C
Cash L/C is an import servicing product. When the Importers open cash L/C the bank acts as a guarantor for the payment of the product being imported. Importers release the goods when
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arrive at the port through collecting all the documents received by the bank by making payment for the imported goods. In case of cash L/C IBBL does not have any investment to the importer; rather provides service and earns a service charge here.

2.1.2. Murabaha Post Import Investment (MPI)
MPI is an import financing product. A Bai-Murabaha agreement should be executed at the time of the signing of the L/C. This implies that IBBL is purchasing the imported product from the exporter which will be sold at a specified profit to the importer later. The period of deal should be six months to one year. A rebate should be allowed if the deal is closed before the due date. The sale price should include the cost as per the indent / proforma invoice, all other anticipated costs and expenses, plus a profit for the bank as mutually agreed upon. After the goods arrive at the port the importer can request the bank to clear the goods from the port. The bank charges a fee to cover the duty and sales tax.

2.1.3. Trust Receipt on Bai-Muajjal
Trust Receipt on Bai-Muajjal is another import financing product. A Bai-Muajjal agreement should be executed at the time of the signing of the L/C. This implies that IBBL is purchasing the imported product from the exporter which will be sold to the importer later. The period of deal should be six months to one year A rebate should be allowed if the deal is closed before the due date. The sale price calculation is the same as MPI but profit is not specified in the Bai-Muajjal agreement. After the goods arrive at the port the importer can request the bank to clear the goods from the port. The bank charges a fee to cover the duty and sales tax. The importer is required to offer sufficient tangible securities acceptable to the bank equivalent to investment amount.

2.1.4. Musharaka Documentary Bill (MDB)
MDB is a partnership arrangement between the importer and the bank. If the importers fail to bear the cost of raw materials to produce the goods to be exported then they seek finance from bank. The raw materials may be collected from foreign or local sources. The total cost of importing the goods is declared and the capital contribution of each party is specified. The cost of the whole transaction is designated in the appropriate foreign
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currency. The importer is responsible for the import, clearance and final sale of the goods. The net profits are distributed among the partners in the agreed proportion and any loss is shared as per equity participation.

2.1.5. Import under HPSM
This is a mechanism specially for importing capital machinery . Import under HPSM usually takes place for project / industrial finance. Letters of Credit are issued against approved limit. HPSM involves purchase of equipment/plant/building/vehicle with client jointly. IBBL sells its portion to the client gradually. Client pays principal amount and rent on equal installment basis up to maturity. Upon payment of installments, bank’s portion reduces and client’s portion increases. Bank charges rent on its residual portion. On maturity, upon full and final settlement client becomes the owner of the entire plant.

2.1.6. Import under Musharaka

Import under Musharaka requires equity participation of both the bank and client. The Client submits an application accompanied by Seller’s offer / Proforma Invoice. If the application is acceptable, IBBL agrees to enter into Musharaka arrangement. Then both parties sign a contract and put up capital in agreed upon proportions. IBBL issues a letter of credit on behalf of the partnership and goods are imported in a partnership basis. The profit earned is shared at agreed ratio. Any loss is shared as per equity participation. At maturity each party receives back the capital contributed and its share of profit in accordance with the partnership’s agreement.

2.1.7. Import under Murabaha
In import under Mudaraba bank provide fund for procurement and installation of machinery. Here the capital user / entrepreneur have no capital and bank has got no direct participation in the business. In such case bank needs to supervise the utilization of capital, its return and operation process involved. Client is under obligation to maintain all documents and record of purchase and sale of goods. Profit will be shared as per agreed ratio, and loss will be beard by the bank.

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2.2. Year to Year Import
Year Wise Import Growth of IBBL

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Import (Mil. Taka) 25907 33788 46237 59804 74525 96870 137086 168329 161230 246281

Growth 2.29% 30.42% 36.84% 29.34% 24.62% 29.98% 41.52% 22.79% -4.22% 53%

The 1st half of 2008 witnessed unprecedented growth in import business due to the high growth of import in the 1 st half as a result of price hike of import commodities like cotton, fertilizer, edible oil, wheat scrap steel etc. This could not be matched in the 1st half of 2009 due to the contrast situation of drastic price fall due to the financial crisis and recession and stock pilling of commodities imported earlier. Although there appeared some momentum in the 2nd half of 2009 in import business, it could not reach the level of 2008 and closed the year with a negative growth of

From the import trend of IBBL it is observed that there is a lot of ups and downs in import growth and 2010 has been a good year for IBBL in terms of import growth i.e. 53% which is also the highest growth so far achieved in the last 10(ten) years. It is worth mentioning that in 2009 the growth was negative i.e. (-4%)
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which has become (53%) in 2010 showing a tremendous development.

2.3. Share of IBBL in Country’s Total Import
Growth of Import Business (Country vs IBBL)
In million Taka

Up to Novemver’1 0 Country IBBL (1) 2079022 220693

Up to November’0 9 (2) 1473616 145978

Growt h (%) (3) 41 51

Share of IBBL (%) 2009 2010 (4) (5) 9.91 10.62

It is observed from the above table that growth of country import is 41% up to novemver’10 over the figure of the corresponding period of 2009 whereas IBBL growth in the same period is 51% over the corresponding period of 2009. It is also observed that share of IBBL’s import was 9.91% in 2009 which become 10.62% in 2010.

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2.4. Import Vision
Import Vision: 2007-2011
350000 Amount (Mil. Tk) 300000 250000 200000 150000 100000 50000 0 2006 2007 2008 2009 Year 2010 2011 2012

2.5. Commodity wise import performance
During the year 2010 bank opened 46736 import letters of credit for Tk.246281 million as against 38717 letter of credit for Tk.161,230 million in 2009 showing 53% growth in amount. Highest contribution in import of IBBL comes from Raw cotton (12.8%), Capital Machinery (7.1%), Yarn (6.8%) and while highest contribution in import of country comes from Raw Cotton(7.6%), Fabrics(7.2%), capital machinery (7.0%). Highest share of IBBL in the import of country is soyabean (27.1%), B. P. sheet (26.6%), Onion (19.8%) and Textile Fabrics (19.1%). The commodity wise import business of IBBL and contribution of IBBL to the country’s import in January to November 2010 is shown in the table below:
In million Taka
SL. ITEMS IBBL Country Share of

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January to November 2010 1 2 3 4 5 Rice Wheat Sugar Milk Food Edible Oil (Refined) a) Soyabean b) Others 6 Edible Oil(crude) a) Soyabean B) Palm olein 7 Dry Fruits A) Dates b) Others 8 Pulses a) Masur dal b) Chola dal c) Others 9 10 11 12 13 14 15 16 Onoin Ginger Drugs & Medicine Poultry Feeds Coal Cement Clinker B. P. Sheet 1046.71 49.8 601.1 2055.32 266.281 205.411 315.18 104.96 163.41 2013.05 7930.88 37.8407 141.1 1108.42 4990.66 6529.24 364.31

Contribution (%) 0.5 2.3 3.0 0.2

January to November 2010 35316.36 66810.42 52883.99 11127.29

Contribution (%) 1.7 3.2 2.5 0.5

IBBL

3.1 7.2 10.4 3.3

1314.96 569.64

0.6 0.3

3810.905 3352.705

0.2 0.2

27.1 9.8

2882.67 2649.51

1.3 1.2

23156.99 49443.16

1.1 2.4

11.2 4.1

0.0 0.1

339.72 3902.49

0.0 0.2

11.1 3.5

0.5 0.0 0.3 0.9 0.1 0.1 0.1 0.0 0.1 0.9 3.6

10832.02 5881.915 6168.635 10153.04 2347.175 5526.185 16099 3894.29 1089.985 18402.04 27118.87

0.5 0.3 0.3 0.5 0.1 0.3 0.8 0.2 0.1 0.9 1.3

9.5 0.8 9.5 19.8 11.3 3.7 2.0 2.7 15.0 9.8 26.6

17 18

Scrape Vessel Paper a) Newsprint

1731.71

0.8

40586.95

2.0

2.5

234.29

0.1

2347.11

0.1

9.7

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b) Others 19 20 21 22 23 24 25 Zinc Ingot Raw Cotton Yarn Cotton Yarn Textile Fabrics Textile Accessories Back to Back a) Fabrics b) Accessories c) Yarn 26 27 Pharma raw materials Chemical product a) Fertilizer b) Others 28 Petroleum product a) Crude b) Refined 29 30 31 32 33 Capital Machinery Others Machinery Motor Vehicles Computer & Accessories Medical & Other equipment Others

978.367 1230.55 28196.7 1578.98 6106.54 474.893 474.893

0.4 0.6 12.8 0.7 2.8 0.2 0.2

16694.44 6913.26 158840.3 16169.37 17353.89 3741.205 3741.205

0.8 0.3 7.6 0.8 0.8 0.2 0.2

5.8 14.8 16.9 9.1 18.1 6.9 6.9

13217.5 12059 14990.5 1138.27

6.0 5.5 6.8 0.5

148968.3 65041.22 70998.32 23589.88

7.2 3.1 3.4 1.1

5.0 7.4 6.7 4.6

8469.44 7118.26

3.8 3.2

84483.22 80066.38

4.1 3.9

10.0 7.7

885.85 724.213 15675.9 8321.59 3546.23 212.245 1976.71

0.4 0.3 7.1 3.8 1.6 0.1 0.9

58082.2 80218.86 144722.7 101184.1 47918.72 23071.5 12341.52

2.8 3.9 7.0 4.9 2.3 1.1 0.6

1.4 0.9 10.8 8.2 7.3 0.9 15.8

34 Total

55453.3 220633

25.2 100.00

513025.5 2079022

24.7 100.00

9.3 8.6

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CHAPTER-THREE EXPORT SERVICES

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3. EXPORT PROMOTION 3.1. Export Services and Financing Products
There are two major principles used by IBBL
• •

Export Servicing Principle Export Financing Principle

Different products offered under both principles as well as types of income involved therein are as under:
Service Principles Wakalah Kifalah Finance Principles Pre Shipment Wakalah Bai Scope of Applications Advising Letter of Credit Transferring Letter of Credit Remittance Adding Confirmation Scope of Applications Back to Back Letter of Credit Bai Murabaha & Bai Muajjal Bai Salam Shirkat Post Shipment Shirkat Bai Wakalah Musharaka PSI Musharaka Documentary Bill Type of Income Fee

Commission Type of Income Commission Mark up Profit Share in Profit Share in Profit

Bai as Sarf Export Bill Collection

Profit Fee

3.1.1. Pre shipment Finance / Service
Purposes for Providing Pre-shipment finance • • • Cash finance for purchase of raw materials/finished goods. Cash finance for factory rent, wages & salaries and all other working capital requirements. Payment of freight, Insurance Premium, Payment of Utility bills.

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Packing & transportation of goods.

3.1.1.1. Back to Back L/C
This is a special nature of credit allowed for importing raw materials and accessories for executing Export . This L/C is opened against a mother export L/C. Export L/C is kept lien as security. This LC is usually of deferred nature since payment depends on execution of Export. Payment of import under Back to Back LC is made upon receipt of Export proceed. Bank realizes commission and fees for opening Back to Back L/C.

3.1.1.2. Bai Salam
For providing finance under Bai Salam mode IBBL requires export letter of credit for exporting certain goods. Client keeps the letter of credit under bank’s lien and allows the bank to assume the role of seller to the foreign buyer . Bank agrees to buy the goods from client and makes payment to him. Bai Salam contract includes specific delivery date and place of delivery. Submission of in- order shipping documents (viz. invoice, bill of exchange and certificate of origin) by the client may be deemed equivalent to the satisfactory delivery. The agreed payment (pre-shipment finance) made by the bank to its client is lower than the amount of the export L/C. The difference is bank’s profit.

3.1.2. Post Shipment Finance / Service
Exporters may require post-shipment financing because they have to wait a long time to receive payment from abroad for the exported goods. The actual period for realization depends on the terms of payment stipulated in the respective Export L/C. So they desire to get finance to cover operational expenses.

3.1.2.1. Bai as Sarf
Bai as Sarf is a trading mechanism where the bank buys foreign currency from the client at an agreed rate. IBBL purchases the value of the export documents expressed in Foreign Currency and pays equivalent taka in favor of the client. After realization from the issuing bank / importers bank the liability will be adjusted and bank will earn exchange income from it. The client will get net amount after adjustment of their respective liabilities, if any.
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3.1.2.2. Musharaka Documentary Bill (MDB)
MDB is a partnership arrangement between the importer and the bank. If the importers fail to bear the cost of raw materials to produce the goods to be exported then they seek finance from bank. The raw materials may be collected from foreign or local sources. The total cost of importing the goods is declared and the capital contribution of each party is specified. The cost of the whole transaction is designated in the appropriate foreign currency. The importer is responsible for the import, clearance and final sale of the goods. The net profits are distributed among the partners in the agreed proportion and any loss is shared as per equity participation.

3.1.2.3. Post Shipment Investment under Musharaka
Islamic banks also utilize the Musharaka agreement to provide for these types of financing: • • • Negotiation of documents under L/C. Purchase of Document on Payment (DP) Bills. Purchase of Document on acceptance (DA) Bills.

3.2. Year to Year Export
Year wise export growth of IBBL
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Export (Mil. Taka) 16082 16673 21738 29151 36169 51133 66690 93920 106424 148421 Growth 3.45% 3.67% 30.38% 34.10% 24.07% 41.37% 30.42% 40.83% 13.31% 39.00%

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From the 10(ten) years trend of export business it is observed that IBBL achieved 30% & more growth in almost every year except year 2002 & 2009 and the year 2010 has been a good year for recovery i.e. 39% from 13% in 2009.

3.3. Share of IBBL in Country’s Total Export
Growth Of Export Business (Country Vs IBBL)
In million Taka

Up to November’1 0 Country IBBL (1) 1108824.38 132492.00

Up to November’0 9 (2) 946517.88 96674.00

Growth(% ) (3) 17.15 37.00

Share of IBBL(%) 2009 2010 (4) (5) 10.21 11.94

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It is observed from the above table that growth of country export is 17.15% up to November’ 10 over the figure of the corresponding period of 2009 whereas IBBL growth in the same period is 37.00% over the corresponding period of 2009. It is also observed that share of IBBL’s export was 10.21% in 2009 which become 11.94% in 2010.

3.4. Export Vision

Export Vision : 2007-2011
180000 160000 140000 120000 100000 80000 60000 40000 20000 0

Amount (Mil. Tk)

2006

2007

2008

2009
Year

2010

2011

2012

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3.5. Commodity wise Export performance
Highest contribution in export of IBBL comes from RMG (74.60), Jute goods (3.95%) and Fish and shrimp (0.95%) while highest contribution in export of country comes from RMG (66.57%), Jute goods (3.57%) and Fish & Shirmp (3.02%), Highest share of IBBL in the export of country comes from Chemicals (21.47), RMG (14.31%), Jute goods (13.20%). The commodity wise export business of IBBL and contribution of IBBL to the country’s export in 2010 is shown in the table below:
In million Taka SL. ITEMS
2010

IBBL
Contribution (%) 0.18% 74.60% 3.95% 0.95% 0.01% 0 2010

Country
Contribu -tion(%) 0.77 66.57 3.57 3.02 2.37 0.03

Share of IBBL

1 2 3 4 5 6 7

Raw Jute RMG

191.18 78500.59

6330 548660 29460 24930 19540 220

3.02 14.31 14.12 4.00 0.07 0.84

Jute Goods 4161.13 Fish & Shirmp 996.47 Leather
12.89

Tea 1.85 Napha Furnacae oil & Bitumin 767.89 Chemicals Fertilizer Others
128.79 0 20478 105238

0.73% 0.12% 0.00% 19.00% 100.00

9470 600 590 184390 824190

1.15 0.07 0.07 22.37 100.00

8.11 21.47 0.00 11.10 77.04

8 9 10 Total

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CHAPTER-FOUR REMITTANCE

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4. REMITTANCE 4.1. Classification of Remittance
Foreign remittance may be classified into two types:
• •

Inward Foreign Remittance. Outward Foreign Remittance.

4.1.1. Inward Foreign Remittance
Inward Foreign Remittance is remittance received from abroad. Remittance coming into one country from other countries through permissible banking channel in legally convertible foreign currencies is called ‘Inward Foreign Remittance’ from the beneficiary country’s point of view. From the remitter country’s point of view it is called outward Foreign Remittance.

4.1.2. Outward Remittance
Outward Foreign Remittance means remittance sent to abroad. Remittance remitted from one country to other countries through permissible banking channel in legally convertible foreign currencies is called ‘Outward Foreign Remittance’ from the remitter country’s point of view. From the beneficiary country’s point of view it is called inward Foreign Remittance.

4.2. Instruments of Foreign Remittance
T.C F.D.D T.T transfer. M.T I.M.O P.O : Travelers Cheque. : Foreign Demand Draft. : Telegraphic Transfer,

Cable

transfer

or

swift

: Mail Transfer. : International Money Order. : Payment Order.

4.3. Year to Year Inward Foreign Remittance
IBBL now agreement with 85(Eighty Five) Exchange Houses of different countries of the world. Remittance product of IBBL Includes A/C Payee, Spot cash (without account), FDD (Foreign Demand Draft), A/C maintained with third bank (other then IBBL).

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IBBL receive Remittance through SWIFT, Web Site, and E-mail from its correspondent Banks/Exchange Houses which is automatically converted into IBBL software eIBS (Electronic Integrated Banking System). Then the proceeds are transferred to our respective branches within 30 minutes from the time of receiving the remittance into our system. Year Wise Remittance Growth of IBBL

Year

Foreign Remittance (Mil. Taka) 9879 14670 16668 23669 36948 53819 84143 140420 194716 214629

Growth

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

29.24% 48.50% 13.62% 42.00% 56.10% 45.66% 56.34% 66.88% 38.67% 10.00%

From the 10(ten) years trends of remittance business it is observed that IBBL achieved healthy growth in almost every year except year 2003 & 2010. Remittance Business achieved a performance of Tk.214,629.00 million at the end of December, 2010 as against Tk.194,716.00 million up to December, 2009.

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Growth in amount is Tk.19,913.00 million and growth in percentage is 10% over the corresponding period.

4.4. Share of IBBL in Country’s Foreign Remittance
Growth of Remittance Business (Country Vs. IBBL)
Figure in million USD

2010

2009

Growth (%) (3) 1.38 9.55

Share of IBBL (%) 2009 (4) 25.59 2010 (5) 27.66

Country IBBL

(1) 10891.03 3012.09

(2) 10743.03 2749.41

It is observed from the above table that growth of country remittance is 1.38% in 2010 over the figure of the corresponding period of 2009 whereas IBBL growth in the same period is 9.55%. It is also observed that share of IBBL’s remittance was 25.59% in 2009 which become 27.66% in 2010.

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4.5. Country Wise Remittance Performance
In million Taka Country KSA UAE Kuwait Malaysia UK USA Oman Bahrain Singapore Qatar Others Total 2006 491.75 46.75 71.82 62.03 13.10 8.65 5.97 18.34 718.41 2007 650.54 97.76 115.44 197.28 28.66 21.27 13.20 28.96 1153.11 2008 1054.07 197.15 218.69 80.90 207.53 35.61 41.97 45.18 31.53 71.77 1984.40 2009 1344.52 353.37 305.74 272.80 168.01 78.92 72.14 51.48 30.09 26.14 76.28 2779.49 2010 1394.46 428.39 346.15 318.21 116.72 146.39 84.53 60.80 31.50 26.93 89.50 2863.58 (%) of Total 48.69 14.96 12.08 11.11 4.07 5.11 2.95 2.12 1.10 0.94 3.12 100

Country Wise Remittance Position

KSA UAE Kuwai t Mal aysi a UK USA Oman Bahrai n Si ngapore Qatar Others

It is observed that lion’s share of the remittance of IBBL has been coming from K.S.A over the years. Other major remittance source countries are UAE, Kuwait and USA with contribution of 14.96%, 12.08% and 5.11% respectively.
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CHAPTER-FIVE PERFORMANCE ANALYSIS

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5. PERFORMANCE ANALYSIS 5.1. Comparative position on overall import performance for the last 3(three) years of Agrabad Branch of Islami Bank Bangladesh Limited:
In million Taka

Item Import

Oc.09 6716.60

Oc.10 9654.60

% of growth 43.34

Oc.10 9654.60

Oc.11 9627.80

% of growth -0.28

Analysis:
From the above graph it is observed that the import is increased steadily 43.34% in year 2010 as compared with year 2009. On the other hand import is decreased -0.28% in year 2011 as compared with year 2010.
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5.2. Comparative position on overall export performance for the last 3(three) years of Agrabad Branch of Islami Bank Bangladesh Limited:

Item Export

Oct.09 1699.00

Oct.10 2092.75

% of growth 34.19

Oc.10 2092.75

In million Taka Oc.11 % of growth 2279.90 8.94

Analysis:
From the above graph it is observed that the export is increased steadily. In the year 2010 is increased 34.19% as compared with 2009. And in the year 2011 it is increased 8.94% as compared with 2010.

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5.3. Comparative position on remittance performance for the last 3(three) years of Agrabad Branch of Islami Bank Bangladesh Limited:
In million Taka

Item

Oct.09

Oct.10 1237.66

% of growth -6.80

Oc.10 1237.66

Oc.11 1266.97

% of growth 2.37

Remittance 1359.48

Analysis:
Through the analysis it is shown that the flow of Remittance is ups and down situation. In the year 2010 is decreased -6.80% as compared with 2009. On the other hand in the year 2011 it is little increased 2.37% as compared with 2010.

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5.4. Comparative position on operating profit performance for the last 3(three) years of Agrabad Branch of Islami Bank Bangladesh Limited:
In million Taka

Item Profit

Oc.09 450.26

Oc.10 452.73

% of growth -22.26%

Oc.10 452.73

Oc.11 350.01

% of growth -22.69%

Figure in million Tk.

500 400 300 200 100 0 -100 Oc.09 %of g rowth Oc.11 Profit

Analysis:
Through the analysis of the graph we can say that the operating profit is bad position of this current year 2011. In the year 2011 it is decreased -22.69% as compared with 2010. Besides the

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operating profit in 2010 is also decreased -22.26% as compared with 2009.

CHAPTER-SIX PROBLEM & PROSPECT

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6. PROBLEMS & PROSPECTS OF ISLAMIC BANKING 6.1. Problems for Islamic Banking


Valuation of Bank’s Asset: Under current GAAP, investment portfolio is adjusted to market values in investment companies. An upward adjustment of the assets account requires an offsetting credit to either revenue or unrealized capital increment. Unrealized capital decrement requires recording of an unrealized loss on long-term equity securities as a contra item in stockholder’s equity. Any specification of reserve or provision requirements influences the gains (losses) of the depositors. If in the extreme case, these gains and losses are fully reflected in the value of the deposits, the banks probably would be passing on all the risks to their depositors. Credit Creation and Monetary Policy: Traditional policy instruments of the central bank are said to remain largely unaffected under Islamic banking. Like minimum cash reserve requirement, liquidity requirement, overall credit ceilings on lending activities of these banks, mandatory targets for providing finance to specific sectors, and moral suasion. Of course, equating the goals of monetary policy in Islamic banking to those of the free market economies would not be fair since there is a significant difference in emphasis of the two systems. Financial Stability: Modern banking based on interest issues fixed value liabilities to its depositors. In the absence of deposit insurance the value of assets can fall below its fixed liabilities, resulting in bankruptcies. It is presumed that depositors in Islamic bank, due to fair of capital and or profit losses in the event of having no insurance coverage, would not remain with the Islamic banks.





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Absence of Islamic Capital Market and Financial Instruments: Availability of Islamic capital market and instruments help growth of Islamic banks otherwise they are constrained. Growth of Islamic capital market and financial instruments also helps creating environment for government financing. Insufficient Legal Protection: A comprehensive system of Islamic banking requires legal protection. Laws relating to companies, commerce, investment and the courts and legal procedures need to be reviewed and reformulated to suit the requirement of the efficient functioning of Islamic banks.



Increased Cost of Information: Monitoring cost as well as cost of writing and enforcing contracts is higher in Islamic banks. This is because, with Musharaka, the bank finances the working capital of a business venture taking a quasi-equity position in the economy. In financing, a management company is formed which floats a negotiable security, or the bank may completely finance a project within the scope of its charter. This higher cost of information could be major setback in effective implementation of the PLS system. Excessive Resort to the Murabaha Mode: The repeated criticism against Islamic banks, which is valid in many counts, is that it takes recourse to excessive use of Murabaha mode in financing investment. Yet it is not a violation of Shariah as long as the Murabaha contract is correct from Shariah viewpoint and is free from intentional or nominal deception. People think Murabaha to be the same as pre-determined rate of return. Murabaha is different from interest-based mark up as the former has to satisfy the following requirements. First, it is necessary that profit margin (or the mark up) the bank is charging must be determined by mutual agreement between the parties concerned. Secondly, the goods in question should be in physical possession of the bank before it is sold to the client. Thirdly, transaction between the bank and the seller should be separate from the transaction between bank and the purchaser.

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Utilization of Interest Rate for Fixing the Profit Margin in Murabaha Sales: It is also criticized that Islamic banks utilize the interest rate as a criterion for fixing the profit margin in the Mudaraba sales. To be fare there is no known way of avoiding the alleged link up as long as Islamic banks coexist with traditional banks. Still Islamic banks must avoid exceeding the prevailing interest rate or exploiting the clients through accounting methods as employed by some banks. Financing Social Concerns: No clear prescription has so far emerged on the role of Islamic banks in the promotion of new projects needed by the society as follows: • • • Enabling those who have no property, providing employment opportunities to all categories of people; Demonstrating the impact of Islamic investment on the solution of the unemployment problem; and, Assisting the state in confronting these ever-increasing problems.

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Lack of Positive Response to the Requirement of Government Financing: It is a well-known fact that the modern state is always in need of funds and resources to implement useful projects, such as the provision of schools, roads, electricity and water and telecommunication services. Generally, governments resort to issuance of treasury bills with interest in accordance with the form used by conventional banks. Islamic banks are required to enter into this field so as to prove their ability to play their role in the financing of projects in a manner that conforms to the Islamic system through the issuance of deeds of Musharaka, advance-sale, Salam and such other forms that satisfy the needs of the state for financing and at the same time benefit from investment of their idle liquid surpluses. Failure of Islamic Banks to Establish Co-operation among Themselves: In spite of good intentions, Islamic banks are blamed for their lack of co-operation among them. This is in spite of the persistent endeavors of the Islamic Development Bank to bring them closer to one another and unify their stands. Following examples are enough to prove the point: • Not all-Islamic banks are members of the International Association of Islamic Banks. The Association has neither been able to unify their regulations, nor build bridges of confidence and promote understanding among them. The idea of establishing a “Bank of Islamic Banks” is still a mere idea, although there is an urgent need for its establishment. As a result of its absence, Islamic banks have lost hundreds of millions with the collapse of the BCCI. Islamic funds continue to sneak out by hundreds of millions into investment houses doing business in the West while the Muslim world remains thirsty for investment resources. Funds of expatriates from Islamic countries do not find their way back to their own countries to contribute to the development of their original homelands. Trade among countries of the Muslim world is completely paralyzed as the Islamic financing system goes along with the traditional trend in financing imports from foreign countries without giving any preference to products of the Muslim world.



• • •

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6.2. Constraints Faced by Islamic Banks
Constraints faced by Islamic banks in Bangladesh are analyzed as below: Problem with legal reserve requirement : Islamic banks in Bangladesh have to keep 10% of its total deposits as liquidity. Of this, 5% is required to be kept in cash with Bangladesh Bank and the rest 5% is to be kept either in approved securities or in cash (in case of problem with securities) with Bangladesh Bank. Legal reserve requirement for conventional banks is 20%. They have to keep 5% in cash with Bangladesh Bank and the rest 15% is invested in Bangladesh Bank approved securities. Traditional banks can earn interest on their deposits with Bangladesh Bank but Islamic banks can not since they cannot receive interest as earning. Compared to interest-based traditional banking, Islamic banks, in this case, are in disadvantageous position. However, IBBL has been receiving interest against its deposit with Bangladesh Bank and crediting it to its Sadaqa fund since 1993. It should be noted that the interest earning are not considered as bank income and added to profit. The proceeds are spent on welfare activities. Lack of opportunities for profitable use of surplus funds: Conventional banks can invest their excess liquid amount in approved securities and or in other bank in crisis. Islamic banks cannot take this opportunity due to the existence of interest element in the transaction process.

Apprehension of liquidity crisis and possibility of liquidity surplus: Islamic banks have to be more cautious and vigilant in managing their funds since it can not resort to call money provision at times of fund shortages or crisis. As a result Islamic banks may have always left with a sizeable amount of cash as liquidity surplus. Conventional banks can borrow in the form of call money among themselves even at an exorbitant rate of interest.

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Problems in capital market investment: Conventional banks can invest 30% of their total deposits in shares and securities. Islamic banks have their problem in this case as they avoid any transaction based on interest. Following examples may be cited for illustration. (a) Islamic banks do not purchase shares of companies undertaking interest-based business; (b) Shares of companies taking loan from commercial banks on interest are not also purchased by Islamic banks; and, (c) Islamic banks can not purchase shares of companies involved in businesses not approved by Shariah. The above restrictive environment in the capital market of Bangladesh has limited substantially the investment opportunities for Islamic banks and hence the avenues of lawful earning. In the absence of Islamic money and capital market these banks cannot obtain funds from capital market at times of need.

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Absence of inter-bank money market: In spite of seven Islamic banks have been functioning in Bangladesh, inter-bank money market within Islamic banks has not yet taken place. Of course, except Islami Bank Bangladesh Limited and Al-Baraka Bank Bangladesh Ltd., rest of the Islamic banks have launched their operations very recently not exceeding even two years with hardly more than two branches. Still these banks can take initiative to form a money market among them. This may help minimizing particularly the call money problem they are suffering from beginnings. Predominance of Murabaha financing: Predominance of Murabaha financing in the portfolio management of investment funds by the present day Islamic banks of Bangladesh has been a hot agenda of debate. One study shows that Islami Bank Bangladesh Limited, Al Arafah Bank and Social Investment Bank Limited have used 54%, 76% and 65% respectively of their investment funds by resorting to Murabaha mode (Hoque 1996, p.9). Murabaha though considered as a Shariah approved mode, the Islamic economists have traditionally prescribed for its limited application. Due to legacy of traditional banking, lack of appropriate legal protection and standard accounting practice in business, Islamic banks in Bangladesh find Murabaha financing as suitable and Mudaraba and Musharaka as extremely difficult to apply. Depression of Profit: Traditional banks can meet up loss arising from delay in repayment by the clients through charging compound interest. Islamic banks cannot do that. What it does it realises comprehension at the rate of profit. But the compensation so realized is not added to the profit income rather credited to Sadaqa account i.e., amount meant for social welfare activities. This depresses profits of Islamic banks. This may place Islamic banks relatively in weaker position in terms of profitability compared to conventional banks.

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Absence of legal framework: Amendment of old laws and promulgation of new laws conducive to efficient operation of Islamic banks are sin qua non for its healthy growth. Countries introducing Islamic banking should create an enabling environment for Islamic banks by modifying existing laws and regulations. Islamic banks in Iran and Pakistan have their legal supports. Absence of Islamic insurance company: Banking and insurance have to go hand-by-hand in matters of trade and business in order to protect investments of banks against unforeseen hazards and catastrophes. Unfortunately, Islamic banks have to depend on interest-based insurance companies in the absence of Islamic insurance companies.

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CHAPTER-SEVEN SOWT ANALYSIS

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7. SWOT ANALYSIS
SWOT Analysis is an important tool for evaluating the company’s Strengths, Weaknesses, Opportunities and Threats. It helps the organization to identify how to evaluate its performance and understand the macro environment, which in turn would help the organization to navigate in the turbulent ocean of competition. Strength and weakness are internal attributes. Which can addressed by analyzing the organization’s values, norms, operational procedures, working environment, reward and punishment systems, quality and experience of employees, financial soundness, quality and experience of management, reputation and loyalty of customers and so on. Opportunity and threat are external attributes. These arise from the environment in which the organization operates. External environment consists of the legal and regulatory requirements, competitive situation and position in the industry life cycle, growth of the industry, strength and weaknesses of the competitors and other macroeconomic factors. Overall, the mix is exciting. We live in an age of growth, change, and business revolution. The globalization offers us opportunities and threats. We need to make our dealing with it one of our biggest strength, to minimize our weakness. The SOWT analysis of IBBL is presented below:

7.1. Strengths
Strengths are the internal resources and capabilities that allow an organization to achieve better performance than its competitors. The salient strengths of IBBL are: • Adequate internal fund: IBBL maintains adequate retained earnings and general reserve. So it does not need to borrow money from Bangladesh Bank or any other banks. More funds for Investment: For adequate financial ability, more paid up capital, and financial solvency, IBBL
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can provide more investments to clients relative to competitors. • Honest and Reliable Employees: The employees of IBBL are reputed for their honesty and reliability. They always devote themselves to be efficient and provide better customer service. Experience management team: the management team is skilled and experienced and it always followed its vast (29 years) experience since its establishment. Research division: To keep pace with the competitors and introduce innovative and developed products IBBL has a research division. Training programs: To ensure better service and efficient operation IBBL arranges mandatory training programs for its employees. Strong banking network: IBBL has the largest network among private commercial Banks. IBBL maintains Strong network with 254 branches and 23 SME service centers. Banking software: eIBS (electronic integrated banking system) helps employees with most of the difficult computing processes. The organization introduced highly skilled technical service and On-line banking which in term ensures more efficiency better services. Accounting recording and reporting system is good, where every branch reports to the head office in daily basis using eIBS software, which is very effective of the report generation. Top management is very much transparent about their banking activities & has strong backgrounds that are capable to handle the whole work process in the bank.

















7.2. Weaknesses
Weaknesses are the internal problems and lacking that restricts an organization to achieve performance as its competitors do. The salient Weaknesses of IBBL are:
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Centralized decision making: In the organization, decision-making is more or less centralized at the top of the organization. A group of senior managers make all significant operating decisions and then communicates to the managers at lower level. This trend is common to almost all banks which make managers reluctant to change and innovation. Lack of diversification: the investment condition of IBBL is not diversified in terms of sector as well as customer. Sometimes proper procedures like collateral and documentation are not complied so there is high exposure to risk. Lack of skilled manpower: Islamic Banking is a new subject to general people and adequate knowledge and skill about Islamic Banking is not easily available. in some instances employees also do not possess proper knowledge in many aspects. Lack of specialized employees: The recruitment procedure does not emphasize experts having banking knowledge. This may cause inefficiency and lack of innovation. Poor salary structure: IBBL poor salary structure relative to its competitors. As a result employees do not have tendency to provide highest effort and thinks to switch to competitor banks. Lengthy investment procedure: The investment procedure is very lengthy and requires much more documentation relative to other banks. Poor logistic support: the IT and technical support system is not adequate. Sometimes absence of central server results in poor performance and piling of routine works. Absence of structured marketing and advertisement policy may harm the deposit collection procedure in the long run. Lack of coordination among the branches and Head Office.











• •

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7.3. Opportunities
Opportunities are the external possibilities that may allow an organization to achieve better performance than its competitors in the future. The salient Opportunities of IBBL are: • Emergence of E-banking: Emergence of E-banking has opened more scope for IBBL. It will help the customers know their account information from their home personal Computer. Increase distributional network: It has financial capabilities to increase its distributional network in uncovered area or network. Increasing interest for Islamic banking: Most of our people are pious; they want to deposit their fund in interest free organization. For this reason, IBBL have enough opportunity for deposit mobilization and also for strong base of equity IBBL can disburse large scale of Investment, which can help to achieve more profit and poverty elevation. Strong customer loyalty: IBBL enjoys strong customer loyalty. It can further increase its brand loyalty through increasing awareness of Islamic Banking. Develop Islamic Investment Instruments: IBBL have the opportunities to develop Islamic Investment Instruments as it deed before through issuing Mudaraba perpetual bond and create an Islamic money market. IBBL can recruit experienced, efficient and knowledgeable work force as it offers good working environment.











7.4. Threats
Threats are the external possibilities that may restrict an organization to achieve better performance as its competitors may do in the future. The salient Threats of IBBL are:

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Regulatory environment: The rules and regulations about financial system in Bangladesh are not favorable for IBBL. Therefore, they have to face various problems to operate their activities according to Islamic Shari’ah. Inappropriate Islamic banking by competitors: Inappropriate Islamic banking by competitors causes people to have misconceptions about IBBL. This may have significant impact on its operations. Exchange rate risk: Frequent taka devaluation and foreign exchange rate fluctuation is causing excessive Exchange rate risk. Increasing competitors: Many new banks are coming in the scenario with new services. Many Islamic Banks are coming forward to operate their business and some conventional Banks are opening their Islamic Banking Branches. Therefore, there is increased competition in the market for public deposits. Absence of Islamic money market: There is no Islamic money market in the country with Islamic money market instruments, for that idle funds cannot be utilized in the market. Absence of Islamic call money market: IBBL does not take call money facility from the interest based banks and there is no Islamic call money market too, for which idle fund is required to be held as reserve. IT and E-Banking status does not match with Bank's other strengths.













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CHAPTER-EIGHT ENDING REMARKS

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8. ENDING REMARKS 8.1. Findings
Bangladesh is not a full-fledged Islamic country not all activities. All activities are not being operated according to the Shari’ah of Islam. However, the IBBL is trying to operate their activities which conform to Islamic Shari’ah as much as possible. From the long and rigorous study and with closed observation, I got some findings about IBBL that are presented below: • Islamic Banking is a new phenomenon in our country during last two decades. Therefore, majority of our people do not have proper knowledge about the harmful impact of interest and the activities of IBBL as well as its investment mechanisms, which hamper large scope of investment of IBBL. Most of the people in our country have a bad misconception about IBBL’s operations. According to them IBBL generates interest calling it profit which is nothing different from interest. And so there is no difference between investment of IBBL and loan / Credit /advance of conventional banks. For this reason, they are not too much interested to make investment with IBBL. Because of improper & insufficient application of Islamic Banking in our country, by the insolvent banks to avoid bankruptcy or the conventional banks to earn more profit through introducing total Islamic banking or Islamic banking branch, the operations of IBBL cannot be run smoothly and the misconceptions are strengthened.





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IBBL is committed to avoid interest so cannot invest the permissible part of its statutory liquidity Reserve and short Term liquidity surplus in those securities. As a result profitability is affected. Islamic money market instruments are required to be introduced to improve profitability. This Bank cannot invest in all economic sectors, goods, and services which are prohibited by the law of Islam so are deceived of many profitable investment opportunities. IBBL has no strong promotional activities to eradicate the misconceptions about it and increase its present & potential clients. This ignorance may have impact on the deposit collection in the long run. As the call money market involves interest, IBBL do not participate in the call money market. As a result IBBL needs to maintain more liquidity to facilitate the withdrawal needs of the depositors, which in term reduces profitability. Profitable investment portfolio of IBBL requires clear investment knowledge according to Islamic Shari’ah. But sometimes IBBL can't invest its capital in proper portfolio due to insufficient and unskilled manpower in these regards. As a result, large amount of money is being idle and thus the potential profitability is losing. Rural areas for low-income community, this Bank grants fund to a group rather than individual. As a result, the prime objective of investing capital in income generating activities or providing capital to the poor, needy people for their up-liftmen is failed. To ensure internal consumption of inflow of foreign currency to the maximum amount to gain more exchange income. To increase Import & Export Business in terms of volume & number of transactions. To ensure rendering all types of Foreign Exchange Business services in all AD branches. To allow competitive rate in different areas of business to increase volume of business. To ensure automated internal Audit to prevent leakage or laps of income.











• • • • •

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• •

To reduce cost of transactions/ business through system development optimization of Manpower, Automation etc. Simplification of Foreign Exchange accounting, centralization of Foreign Trade.

8.2. Recommendation
Islamic banking system of Bangladesh, as a new paradigm of banking, has been able to establish its own presence with a continued expansion geared by increasing acceptance by the people. To continue this dynamic expansion, the first action that deserves immediate attention is the promotion of the image of Islami Bank Bangladesh Limited (IBBL) as PLS bank. The following policy actions are suggested for immediate application: • In case of export L/Cs, sometimes customers insist to give their payments through their documents are found discrepant. In some cases, bank has to give payment to these customers for different reasons. The bank should be as striker as possible about giving payments against discrepant documents without hurting the customer. IBBL should clearly demonstrate its action that its banking practices are not guided merely by profitability criterion. It must also establish that its practices ensure efficient allocation of resources and provide true market signal through PLS modes. IBBL should continuously monitor and disseminate through various means the impact of its operations on the distribution of income primarily between the bank and the other two parties: the depositors and the entrepreneurs, and then on different income groups of the society. These presuppose the establishment of a fully equipped research academy in IBBL. IBBL have to promote its distributional efficiency from all dimensions together with profitability, IBBL gradually have to be converted into profit-loss-sharing bank by increasing its percentage share of investment financing though PLS modes. The IBBL, to do that, can be selective in choosing clients for financing under PLS modes. IBBL should immediately take measures to revert the trends of







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resource transfer from both low-income groups to highincome groups and from rural to urban areas. • Determination of profit and loss in profit-loss sharing arrangements and treatment of costs and reserves in such accounting is a pertinent issue to be addressed with utmost importance and priority. The Bank should formulate aggressive advertising and take promotional activities to get a broad geographic coverage. The authority of IBBL should introduce more innovative and modern customer service through outstanding marketing policy. To ensure better customer service additional space should be allocated immediately for the branches. Expenditure ceiling may be revised considering the grade of the Branch. Automation of Foreign Exchange portfolio should be introduced. Monthly /quarterly training courses /workshops should be arranged for the clients, selected by the branches in order to promote Investment clients of the desired level. Effective human resources should be placed at every department of IBBL for more speedy and smooth banking operation. Women employee should be increased in order to deal with women customer /entrepreneurs for create demand for investment. To fulfill the vision of "mass banking" this bank should grant investment portfolio to new entrepreneurs. The amount of investment in RDS program should be increased so that more people could get the facility under the scheme & will able to increase their standard of livings. Decision making process should be free of ambiguity and be time conscious. Has to ensure reasonable spread and return on assets.

• •

• • •



• •

• •

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• • • •

Should build good value for sponsors and shareholders. Formulation of Recruitment / remuneration policy should be outstanding. Remuneration policy should be competitive and attractive. ATM and E-Banking facilities should be emphasized.

Interest free banking system is no more a concept. It is now a reality, a dynamic system, embodying a set of superior banking mechanism. More than 300 Islamic bank and financial institutions are operating in different countries throughout the world. With a marked success from this inception in our country in 1983, IBBL has been operating with real confidence in cooperation with other conventional banks. Bringing a new concept in such business sector, which is growing so rapidly in the world, is really a bold step. As the largest Islamic commercial bank, Islamic bank took various steps to create employment opportunities and socio-economic development for the poor through Islamic Shari’ah and an overall climate for the introduction of large scale Islamic banking in Bangladesh. To conclude we must say that, Islami bank Bangladesh Limited (IBBL) has immense potential to work in Bangladesh. It can play a vital role in bringing revolutionary changes in our life with both material and moral world from in individual and collective level.

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8.3. Conclusion
Islami Bank Bangladesh Limited has introduced a new dimension in the field of innovative, benevolent, Shariah based banking in our country. Agrabad branch is one of the among branch in Chittagong which earns highest competitive profit comparatively others bank. This branch earns targeted profit each year which is determined by the head office branch. This branch conduct services to the customers through large number of efficient employees with its owned well furnished building. Islami Bank Bangladesh Limited plays a vital role to develop the economic aspect of the country by the mass banking system. The bank conduct lots of welfare oriented activities to help the poor, needy, citizens of our country. The bank has successfully made a positive contribution to the economy of Bangladesh. Its profit is gradually increasing. It plays a great role in collecting scattered Deposit, Investment Settlement, and International Trade etc. The bank ensures quality services to the customers. For better growth and healthy economic position, it should introduce new and lucrative long term investment scheme especially for new investors and RDS (Rural Development Scheme) for poverty alleviation. I hope IBBL do more work for development besides there banking business. Science inception IBBL has been rendering its banking services with necks of the nation to cope with the demand of people in the country. To keep pace with

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ever changing uncertain domestic business environment and face the challenges of revised global economic scenario, the bank should be more pro-active and responsive to introduce new marketing strategy to hold the strong position in home and abroad. In other words many customers were dissatisfied due to some areas of incompetent services. I wish that said branch would continue its face of growth and retain its present leading position as well as image in the market.

References & Bibliography
Annual Reports of Islami Bank Bangladesh Limited, different issues on Foreign Exchange and Foreign Remittance. Bangladesh Bank, Guideline for Foreign Exchange Transaction Reporting Vol. 1 Bhuyan, Ayubur Rahman (2006). Half-Yearly Review of Bangladesh Economy (July-December 2005-First Half of FY06), Thoughts on Economics, Vol.16, No.1, pp. 7-35. Chowdhury L.R. (2000), A Text Book on Foreign Exchange, Fair Corporation, Dhaka. Foreign Remittance Policy, Islami Bank Bangladesh Limited, IBW, HO Islamic Economic Research Bureau, Thoughts on Islamic banking, Dhaka, Feb. 1992 Mohammad Abdul Mannan (2002), Paper on the Mobilization of Foreign Remittance, Islami Bank Bangladesh Limited, Dhaka.

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Syed Abul Ala Maududi, (1979). Sud and Adhunic Banking. Adhunik Prokashani, Dhaka. The Daily Star, Dhaka, Bangladesh, different issues The Daily Ittefaq, Dhaka, Bangladesh, different issues Web site of IBBL, www.islamibank.com

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