“A case Study of Export Import Bank of Bangladesh Ltd.”
1.1 Statement of the Problem
Islamic Banking System is not a new phenomenon in our country. Islami Bank Bangladesh Ltd. has been performing their activities in Bangladesh since 1983. Apart from Islami Bank Ltd. other private commercial banks also started Islamic banking system along with their conventional system. Some banks also involved in full operations complying Islamic Shariah, and Export Import Bank Ltd. is one of the leading Islami Bank in Bangladesh. This paper will mainly focus on Investment Banking System under Islamic Shariah Principles. The case study of Exim Bank Ltd. will simply reflect the applications of different modes of Islamic Investments Systems that are being practiced in parallel with conventional business events. It is a real challenge for implementing Islamic concept in traditional Banking System. In an business environment like Bangladesh, it is much more complicated to performs Islamic Banking over coming all those drawbacks present in Socio-Economic culture. As such this case study will try to figure out the actual picture of Investment Banking under Islamic Shariah Principles.
The topic of the project report is “Investment Banking Under Islamic Shariah Principles- A case Study of Export Import Bank of Bangladesh Ltd.”
1.3 Objective of the Study
The objective of the study is to gain the practical experience of Islamic Investment System and to observe how the conventional business operations can practically comply with Islamic Shariah Principles. In broadly, it was also the objective of the study to gain practical knowledge about the applications of different business concepts studied in the academic classes.
In nut-shell this study intend to meet the followings objectives—
- To know about the System of Investment banking under Islamic Shariah Principles.
- To compare Islamic Investment and conventional Investment System.
- To analyze the practical application of rules under Islamic Shariah in investment banking & the causes of default or stuck up investments.
- To make a study of the facts in order to arrive a certain conclusion about overall Islamic Investment Banking operation.
1.4 Limitation of the Study
Although maximum effort was given to make the study a successful one, but it suffers from some limitations those are apparently unavoidable. The major ones are;
- Without direct involvement with Investments activities, It was not always possible to realize the facts and features of whole investment procedure under Shariah, as in some cases it was required to ensure actual buy and sale of goods according to Shariah.
- Three months is not enough time to understand the whole banking activities thoroughly and find out the customer’s views with the Islamic Banking System. While discussion with them some were seems to be confused about Islamic Investment System.
- It was not possible for me to arrange direct discussion or interview with any member of Shariah board of Exim Bank which would help me to reflect the present and future investment policies of the Bank and to clear some confusion about Shariah Principals.
- Data could not be collected extensively for some featured islamic investment modes as they were not operated by the Bank.
2.1 Variables Covered
Islamic banking system is not common phenomenon in the money market of Bangladesh. In order to go deep into this particular area of study and also to realize the objectives of my study, the methodological approach used in this study is of a qualitative nature. Qualitative research method is used here to describe Islamic modes of investment. Qualitative research is an umbrella concept covering several forms of inquiry that help us understand and explain the meaning of social phenomena with as little disruption of the natural setting as possible.
The main objective of using case study method is to find how an Islamic bank functions among other established conventional banks in the country. Hence, to realize the said objectives, apart from depth interview, participants observation is also used in the study. Practical case study is analyzed to perform the task. So the report paper is based on practical experiences that were observed during the internship period.
2.2 Methods of collecting Data
Collection of data and other informative guideline was collected from the different manuals and guidelines and websites of Exim Bank. The report reflects the true observation in different modes of Islamic investments that are practiced in our country and also in Export Import Bank Of Bangladesh Limited.
Data have been collected from both primary and secondary sources.
· Discussion with bank officers.
· Personal observation.
· Desk work in respective sections/departments.
· Annual report of the bank.
· Consultation of related book and publications.
· Different papers of Exim bank Ltd
· Web Site of Exim Bank Ltd.
· Other Websites relating Islamic Banking.
2.3 Analytical Tools Used
To understand Investment banking under Islamic shariah principals, a case study method is used in the lessons about which we may argue that a case is an empirical inquiry that investigate a contemporary phenomenon within its real-life content, especially when boundaries between phenomenon and content are not clearly evident. Further to the above, in interpretation a qualitative research following analytical tools were used
· Naturalistic inquiry
· Interpretative research
· Field study
· Participant observation
· Inductive study.
2.4 Software used.
In preparing the report Office XP is mainly used. In banking operations PC Bank software is used. Among others the following computer software was used to make the report more attractive and understandable
1. MS Word, MS Excel (for preparing the report, data processing and preparing comparative diagram)
2. Internet Explorer.
3. Opera. (to browse and download information from internet)
Introduction of Islamic Banking
3.1 Historical Background of Islamic Banking System
The first modern experiment with Islamic banking was undertaken in Egypt under cover, without projecting an Islamic image, for fear of being seen as a manifestation of Islamic fundamentalism which was anathema to the political regime. The pioneering effort, led by Ahmad El Najjar, took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready 198l), by which time there were nine such banks in the country. These banks, which neither charged nor paid interest, invested mostly by engaging in trade and industry, directly or in partnership with others, and shared the profits with their depositors (Siddiqi 1988). Thus, they functioned essentially as saving investment institutions rather than as commercial banks. The Nasir Social Bank, established in Egypt in 197l, was declared an interest-free commercial bank, although its charter made no reference to Islam or Shariah (Islamic law).
The IDB was established in 1974 by the Organization of Islamic Countries (OIC), but it was primarily an intergovernmental bank aimed at providing funds for development projects in member countries. The IDB provides fee based financial services and profit-sharing financial assistance to member countries. The IDB operations are free of interest and are explicitly based on Shariah principles.
In the seventies, changes took place in the political climate of many Muslim countries so that there was no longer any strong need to establish Islamic financial institutions under cover. A number of Islamic banks, both in letter and spirit, came into existence in the Middle East, e.g., the Dubai Islamic Bank (1975), the Faisal Islamic Bank of Sudan (1977), the Faisal Islamic Bank of Egypt (1977), and the Bahrain Islamic Bank (1979), to mention a few.
The Asia-Pacific region was not oblivious to the winds of change. The Philippine Amanah Bank (PAB) was established in 1973 by Presidential Decree as a specialized banking institution without reference to its Islamic character in the bank’s charter. The establishment of the PAB was a response by the
Philippines Government to the Muslim rebellion in the south, designed to serve the special banking needs of the Muslim community. However, the primary task of the PAB was to assist rehabilitation and reconstruction in Mindanao, Sulu and Palawan in the south (Mastura 1988). The PAB has eight branches located in the major cities of the southern Muslim provinces, including one in Makati (Metro Manila), in addition to the head office located at Zamboanga City in Mindanao. The PAB, however, is not strictly an Islamic bank, since interest-based operations continue to coexist with the Islamic modes of financing. It is indeed fascinating to observe that the PAB operates two ‘windows’ for deposit transactions, i.e., conventional and Islamic. Nevertheless, efforts are underway to convert the PAB into a full-fledged Islamic bank (Mastura 1988).
Islamic banking made its debut in Malaysia in 1983, but not without antecedents. The first Islamic financial institution in Malaysia was the Muslim Pilgrims Savings Corporation set up in 1963 to help people save for performing hajj (pilgrimage to Mecca and Medina). In 1969, this body evolved into the Pilgrims Management and Fund Board or the Tabung Haji as it is now popularly known. The Tabung Haji has been acting as a finance company that invests the savings of would-be pilgrims in accordance with Shariah, but its role is rather limited, as it is a non-bank financial institution. The success of the Tabung Haji, however, provided the main impetus for establishing Bank Islam Malaysia Berhad (BIMB) which represents a full fledged Islamic commercial bank in Malaysia. The Tabung Haji also con tribute l2.5 per cent of BIMB’s initial capital of M$80 million. BIMB has a complement of fourteen branches in several parts of the country. Plans are afoot to open six new branches a year so that by 1990 the branch network of BIMB will total thirty-three (Man 1988).
Reference should also be made to some Islamic financial institutions established in countries where Muslims are a minority. There was a proliferation of interest-free savings and loan societies in India during the seventies (Siddiqi 1988). The Islamic Banking System (now called Islamic Finance House), established in Luxembourg in 1978, represents the first attempt at Islamic banking in the Western world. There is also an Islamic Bank International of Denmark, in Copenhagen, and the Islamic Investment Company has been set up in Melbourne, Australia.
3.2 Investment Banking Based on Islamic Shariah Principles
Investment means ‘to lay out of money’ or fund provided for a legal purpose for a certain period. In Islamic Banking ‘Investment’ means utilization of fund or deployment of fund for a special legal purpose on profit/loss sharing basis for a certain period. Islam does not deny that capital, as a factor of production, deserves to be rewarded. Islam allows the owners of capital a share in a surplus which is uncertain. To put it differently, investors in the Islamic order have no right to demand a fixed rate of return. No one is entitled to any addition to the principal sum if he does not share in the risks involved. According to shariah principals Islami Banks always deals with good & service not with money in their investment procedures. The owner of the capital is called ‘Rabbul-mal’ & the entrepreneur borrower is called ‘mudarib’.
At the deposit end of the scale, Islamic banks normally operate three broad categories of account, mainly current, savings, and investment accounts. The current account, as in the case of conventional banks, gives no return to the depositors. It is essentially a safekeeping (Al-Wadiah) arrangement between the depositors and the bank, which allows the depositors to withdraw their money at any time and permits the bank to use the depositors’ money. The savings account is also operated on an Al-wadiah basis, but the bank may at its absolute discretion pay the depositors a positive return periodically, depending on its own profitability. Such payment is considered lawful in Islam since it is not a condition for lending by the depositors to the bank, nor is it predetermined. The investment account is based on the Mudaraba principle, and the deposits are term deposits which cannot be withdrawn before maturity. The profit-sharing ratio varies from bank to bank and from time to time depending on supply and demand conditions. In theory, the rate of return could be positive or negative, but in practice the returns have always been positive and quite comparable to rates conventional banks offer on their term deposits.
At the investment portfolio end of the scale, Islamic banks employ a variety of instruments. The Mudaraba and Musharaka modes, referred to earlier, are supposedly the main conduits for the outflow of funds from the banks. In practice, however, Islamic banks have shown a strong preference for other modes which are less risky. The most commonly used mode of financing seems to be the ‘mark-up’ device which is termed Murabaha. In a Murabaha transaction, the bank finances the purchase of a good or asset by buying it on behalf of its client and adding a mark-up before reselling it to the client on a ‘cost-plus’ basis. It may appear at first glance that the mark-up is just another term for interest as charged by conventional banks, interest thus being admitted through the back door. What makes the Murabaha transaction Islamically legitimate is that the bank first acquires the asset and in the process it assumes certain risks between purchase and resale. The bank takes responsibility for the good before it is safely delivered to the client. The services rendered by the Islamic bank are therefore regarded as quite different from those of a conventional bank which simply lends money to the client to buy the good.
There are mainly three modes of Investment in Islami Banking, These are
Bai (Purchase & Sell) Mode
Izara (Rental) Mode
· Hire Purchase
· Izara Bil Baia
It is the partnership Business between Investor & businessman. The main feature of this type of business of a shariah based bank is:
i) There should be two parties: Bank & The businessman. Bank is called the Shaheb-E-Mal the business man is Mudarib (Manager).
ii) There should be written agreement/contract between the Bank & the Businessman which includes the nature of business, period/time, sharing of profit etc.
iii) Bank will finance & the businessman will run the business.
iv) The bank will not interfere the business.
v) The businessman will appoint the employees & Run the business independently.
vi) The business man will not take any salary or wages for his labor and he will maintain proper record in income-expenditure/sale-purchase etc.
vii) The Shaheb-E-Mal will reserve the right to check/verify the accounts at the end of the business the profit will be distributed as terms of the contract. If the business incurred any loss, the entire loss will be bared by the Bank/Shaheb-E-Mal/Investor.
Mudaraba mode is of following two types:
- Mudaraba Mutlak: In which type of Mudaraba agreement the place of business, time, nature of business, number of business partners etc. are not specific – is called the Mudaraba Mutlak. Here the mudarab get full liberty about the business.
- Mudaraba Mukkayada: In this type, as pert contract the mudarib has not full liberty to run the business. The nature of business, time, place etc. are specific in Mudaraba Mukkayada.
Musharaka Shirkat is a type of business is a type of partnership business- where capital of partners may be equal or more/less. All the partners have every right to participate on the business, but not compulsory as per agreement signed
It is a system where labor will be given as per terms of the contract. Profit will also be distributed as per terms of contract. But loss will be shared as per size of investment.
Musharaka/Shirkat is of following four types:
– Capital of the partners can be more or less
– Profit may be more or less as per contract considering the labor, expenditure, qualification etc. of the partners
– Profit or loss are compulsorily equal to all
– The social status, expenditure, education etc. of all the partners should be equal.
– The asset & liability of all the partners should be equal
– All partners should be from a same trade/profession.
– Experience of all the partners should be equal.
– Profit or loss may be more or less as per contract.
– It is a business of history & dignity of the partners.
– The partners will purchase goods on credit and sale in cash.
– Profit or loss will be shared in more or less as per contract.
– In this type, partners have the right to withdraw himself from the partnership business.
– If any partner died he will be removed from the partnership.
The owner of capital (rabbul-mal) may ‘invest’ by allowing an entrepreneur with ideas and expertise to use the capital for productive purposes and he may share the profits, if any, with the entrepreneur borrower (mudarib); losses, if any, however, will be borne wholly by the rabbulmal. This mode of financing, termed mudaraba in the Islamic literature was in practice even in the pre Qur’anic days and, according to jurists, it was approved by the Prophet.
Mudaraba and musharaka constitute, at least in principle if not in practice, the twin pillars of Islamic banking. The musharaka principle is invoked in the equity structure of Islamic banks and is similar to the modern concepts of partnership and joint stock ownership. In so far as the depositors are concerned, an Islamic bank acts as a mudarib which manages the funds of the depositors to generate profits subject to the rules of mudaraba as outlined above. The bank may in turn use the depositors’ funds on a mudaraba basis in addition to other lawful modes of financing. In other words, the bank operates a two-tier mudaraba system in which it acts both as the mudarib on the saving side of the equation and as the rabbulmal on the investment portfolio side. The bank may also enter into musharaka contracts with the users of the funds, sharing profits and losses, as mentioned above.
Bai (Purchase & Sell) Mode
Islamic banks have also been resorting to purchase and resale of properties on a deferred payment basis, which is termed Bai-Muajjal. It is considered lawful in fiqh (jurisprudence) to charge a higher price for a good if payments are to be made at a later date. According to fiqh, this does not amount to charging interest, since it is not a lending transaction but a trading one.
Reference must also be made to pre-paid purchase of goods, which is termed Bai-Salam, as a means used by Islamic banks to finance production. Here the price is paid at the time of the contract but the delivery would take place at a future date. This mode enables an entrepreneur to sell his output to the bank at a price determined in advance. Islamic banks, in keeping with modern times, have extended this facility to manufactures as well.
Izara (Rental) Mode
Leasing or Ijara is also frequently practiced by Islamic banks. Under this mode, the banks would buy the equipment or machinery and lease it out to their clients who may opt to buy the items eventually, in which case the monthly payments will consist of two components, i.e., rental for the use of the equipment and installment towards the purchase price.
It is clear from the above sketch that Islamic banking goes beyond the pure financing activities of conventional banks. Islamic banks engage in equity financing and trade financing. By its very nature, Islamic banking is a risky business compared with conventional banking, for risk-sharing forms the very basis of all Islamic financial transactions. To minimize risks, however, Islamic banks have taken pains to distribute the eggs over many baskets and have established reserve funds out of past profits which they can fall back on in the event of any major loss.
3.3 Comparison of Conventional Banking & Shariah Based Islamic Banking System
From our previous discussion we got a clear picture of islami Banking System. Before we go for comparison of modern Banking & Shariah Based Islami Banking System, it is better to give a short description of conventional banking. Conventional banking does not follow one pattern. Commercial banking is based on a pure financial intermediation model, whereby banks mainly borrow from savers and then lend to enterprises or individuals. They make their profit from the margin between the borrowing and lending rates of interest. They also provide banking services, like letters of credit and guarantees. A proportion of their profit comes from the low-cost funds that they obtain through demand deposits. Commercial banks are prohibited from trading and their shareholding is severely restricted to a small proportion of their net worth.
Because of the fractional reserve system, they produce derivative deposits, which allow them to multiply their low-cost resources. The process of bank lending is, however, subject to some problems that can make it inefficient. Borrowers usually know more about their own operations than lenders. Acting as lenders, banks face this information asymmetry. Because borrowers are in a position to hold back information from banks, they can use the loans they obtain for purposes other than those specified in the loan agreement exposing banks to unknown risks. They can also misreport their cash flows or declare bankruptcy fraudulently. Such problems are known as moral hazard. The ability of banks to secure repayment depends a great deal on whether the loan is effectively used for its purpose to produce enough returns for debt servicing. Even at government level, several countries have borrowed billions of dollars, used them unproductively for other purposes and ended up with serious debt problems. It is not always possible to close monitor their all investment clients. It is the credit rating of the borrower that plays a more important role for efficient use of Bank’s funding.
On the other hand, an Islamic bank is a deposit-taking banking institution whose scope of activities includes all currently known banking activities, excluding borrowing and lending on the basis of interest. On the liabilities side, it mobilizes funds on the basis of a Mudarabah or Wakalah (agent) contract. It can also accept demand deposits which are treated as interest-free loans from the clients to the bank and which are guaranteed. On the assets side, it advances funds on a profit-and–loss sharing or a debt-creating basis, in accordance with the principles of the Shar?ah.
Islami banks are allowed to hold equity and also carry out operations like trading and insurance, which usually lie beyond the sphere of conventional banking. Islami banks are better equipped to deal with information asymmetry than their commercial counterparts. They finance their business customers through a combination of shareholding and lending. Shareholding allows Islami banks to sit on the boards of directors of their business customers, which enables them to monitor the use of their funds at a low cost. The reduction of the monitoring costs reduces business failures and adds efficiency to the banking system. An Islamic bank shares its net earnings with its depositors in a way that depends on the size and date-to-maturity of each deposit. Depositors must be informed beforehand of the formula used for sharing the net earnings with the bank.
We may, therefore, say that Islamic banks are closer to the universal banking model. They are allowed to provide finance through a multitude of modes including the taking of equity. Islamic banks would benefit from this by using a combination of shareholding and other Islamic modes of finance. Even when they use trade-based, debt creating modes, the financing is closely linked to real sector activities. Credit worthiness remains relevant but the crucial role is played by the productivity/profitability of the project financed.
So the basic differences between Conventional Banking and Islami banking are their working principles. The foundation of Islamic bank is based on the Islamic faith and must stay within the limits of Islamic Law or the Shariah in all of its actions and deeds. The original meaning of the Arabic word Shariah is ‘the way to the source of life’ and is now used to refer to legal system in keeping with the code of behaviour called for by the Holly Qur’an (Koran). Amongst the governing principles of an Islamic bank are:
- The absence of interest-based (riba) transactions;
- The avoidance of economic activities involving oppression (zulm)
- The avoidance of economic activities involving speculation (gharar);
- The introduction of an Islamic tax, zakat;
- The discouragement of the production of goods and services which contradict the Islamic value (haram)
On the other hand, conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank on one hand, and between the borrowers and the bank on the other. Interest is considered to be the price of credit, reflecting the opportunity cost of money.
The other principle pertaining to financial transactions in Islam is that there should not be any reward without taking a risk. This principle is applicable to both labor and capital. As no payment is allowed for labor, unless it is applied to work, there is no reward for capital unless it is exposed to business risk.
Thus, financial intermediation in an Islamic framework has been developed on the basis of the above-mentioned principles. Consequently financial relationships in Islam have been participatory in nature.
Profile of Exim Bank Ltd. & Islamic Banking
4.1 Historical Background of EXIM Bank Ltd:
EXIM Bank Ltd. was incorporated under the companies Act 1994, on the 2nd June 1999 with the leadership of Late Mr. Shahjahan Kabir, founder chairman who had a long dream of floating a commercial bank which would contribute to the social-economic development of our country. He had a long experience as a good banker. A group of highly qualified and successful entrepreneurs joined their hands with the founder chairman to materialize his dream. In deed, all of them proved themselves in their respective business as most successful star with their endeavor, intelligence, hard working and talent entrepreneurship. Among them, Mr. Nazrul Islam Mazumder became the honorable chairman after the demise of the honorable founder chairman.
EXIM Bank Ltd. believes in togetherness with service. As a commercial bank we will do all traditional business including introduction of a wide rang of savings and credit products, retail banking and ancillary services with the support of modern technology and professional skills. The Export Import Bank of Bangladesh Ltd. commenced formal commercial banking operation from 3rd August 1999 with the permission of Bangladesh Bank. The sponsors of the bank are leading business personalities and reputed industrialists.
The bank has a sound capital base; its authorized capital is Tk.1000.00 million. While it’s initial paid up capital is Tk.22.50 million subscribed by sponsors. The authorized capital was further raised up to Tk.3500.00 million on the year 2006. To solidify its capital base further the paid up capital to be raised within a reasonable period. Since starting from the year 1999 the paid up capital has raised unto Tk.3373.95 million at the ending of third quarter 2009.
The bank will be immensely benefited furthermore from the able leadership of the chairman and the valuable advice and guidance of the advisor. 0rginally the name of the bank was BEXIM Bank of Bangladesh Ltd. later the management of BEXIM Bank of Bangladesh Ltd. changed the name as Export Import Bank of Bangladesh Ltd. (Exim Bank Ltd) because of the case lodged by Beximco group of industries.
The Board of directors wants to carry out the all services of the management of administration and credit portfolio independent without any undue influence from outside. The bank will operate with integrity, competence and farsightedness abiding by all principals and provisions laid down in the bank company act 1991.
4.2 Launching of Islami Banking:
Considering the inherent desire of the religious Muslims, EXIM Bank has launched Islami Banking system and inaugurates two Islami Banking Branches in the year 2002. The Islami Banking branches perform their activities under the guidance and supervision of a body called “SHARIAH COUNCIL”. After a certain period Exim Bank fully migrated its conventional banking system to Islami Banking System on 1st July 2004.
It was the first time in Bangladesh to be migrated at a time all the branches from conventional banking operation into Shariah based Islami banking operation without any trouble. Lot of uncertainties and adversities were there into this migration process. The officers and executives of the Bank motivated their valued customers by counseling and persuasion in light with the spirit of Islam especially for the non-Muslim customers. It has been made possible by following a systematic procedure of migration under the leadership of honorable then Managing Director.
Since the inception of Islami Banking System, Exim Bank Ltd. is running their all activities according to Islamic Shariah under the guideline and monitoring of Shariah Council consisting of eleven member committee lead by the council Chairman Professor Maulana Mohammad Salahuddin.
4.3 Vision of EXIM Bank Ltd :
The vision of the bank is ‘Together, Towards, Tomorrow’, as the name of implies, is not a type of bank in some countries on the globe, but is the first of its kind in Bangladesh. It believes in togetherness with its customers, in its march on the road of growth and progress with services. To achieve the desired goal, there will be pursuit of excellence at all stages with a climate of continuous improvement, because. In EXIM bank, all are believe, the line of excellence is never ending. Bank’s strategic plans and networking will strength its competitive edge over others in rapidly changing competitive environments. Its personalized quality services to the customers with the trend of constant improvement will be the cornerstone to achieve operational success.
4.4 Objectives of EXIM Bank Ltd :
Bangladesh is one of the largest economic nation in South Asian region and also an integral part of global economy. It also maintains significant presence in the forum of LDC (Least Developed Countries). Being such there is a vital requirement for Bangladesh to place the customary banking practice in harness with the global trades of a free market economy by following international banking customs, practices and standards. Today clients of a bank in Bangladesh are well exposed to international markets and business. They required to be updated with their practice and standards to meet the demands of achieving harmony in the high standards of world’s free economy. EXIM bank Ltd. fully appreciates the importance and implication of the rapidly emerging competition in the banking and finance sector of Bangladesh as well as their foreign counterparts. It intends financing its customer suited to his/her place in the market. In this regards the EXIM bank emphasizes on its employment along with the technical aspects by continuous up gradation of their skills.
This is the age of E-Commerce. The global economy runs with immense support of information technology. All over the world, financial transactions are based on the online facility which enables the faster correspondence between the countries to enhance the business dealings. Bangladesh also is not beyond this grace of science. The financial sector of our country is also in quick response to grab the flair of E-commerce. Exim bank, along with other financial intermediary organizations of our country, started automated banking facility to their clients.
With the intention to pursue the commitment to its clients, Exim Bank recently introduced core online banking system through implementing World renowned software Swiss based Temnos T-24 software, which enables the Bank to stay updated with faster global business.
The Bank has chalked out the following corporate objectives in order to ensure smooth achievement to its goals:
- To be the most caring and customer friendly and service oriented bank.
- To create a technology based most efficient banking environment for its customers
- To ensure ethics and transparency in all levels
- To ensure sustainable growth and establish full value to the honorable stakeholders and
- Above all, to add effective contribution to the national economy.
Eventually the bank also emphasizes on:
- Providing high quality financial services in export and import trade
- Providing efficient customer service
- Maintaining corporate and business ethics
- Being trusted repository customers’ money and their financial adviser
- Making its products superior and rewarding to the customers
- Display team spirit and professionalism
- Sound capital base.
- Enhancement of share holders’ wealth
- Fulfilling its social commitments by expanding its charitable and humanitarian activities.
4.5 Financial Overview of EXIM Bank Ltd.
The performance and activities of Exim Bank Ltd., during the period under review, is more significant simultaneously in development and achievements of continuous growth rate in all the areas of banking operations. Celebrating its 10 years of banking operation at the end of year 2009, it reflected continuous growth in Service and Financial sectors as well. A precise picture of its continuous growth in different areas has given below,
Capital & Reserve Fund:
The bank started its journey with an authorized capital of Tk.1,000.00 million while its initial paid up capital was Tk.225.00 million subscribed by the sponsors in the year 1999. The authorized capital was enhanced up to Tk.3500.00 million on the year 2006. In its voyage the paid up capital was significantly increased. The reserve of the bank as on 31st December 2008 stood at Tk.6844.65 million including paid up capital of Tk.2677.75 million. The bank also made provision on classified / unclassified investment which is augmented to Tk.925.75 million. Up to third quarter of year 2009 total paid up capital of Exim Bank stood up to Tk.3373.95 million.
Analysis of capital structure :
Capital structure of EXIM Bank has changed from year to year. The components of the capital structure are paid-up capital; proposed issue of dividend, share premium, statutory reserve, proposed cash dividend, retained earnings and other reserve.
Capital Position of EXIM Bank Ltd:
|Year||Authorized Capital (TK) In Million||Paid Up Capital (Tk) In Million|
|2009 (up to 3rd Quarter)||3500||3373.95|
Chart of Authorized & Paid up Capital of Exim Bank Ltd.
Investment and Advance:
Investment is the core asset of a Bank. The Bank gives emphasis to acquire quality assets and does appropriate lending risk analysis while approving commercial and trade investment of client. During the last five years, investment experienced vibrant activities with significant growth, the total loans and advances at the end of the year 2008 increased by Tk. 34305.24 million, 177.45% growth over last five years. This is due to increased commercial and trade financing term with different modes of Islamic Investments and working capital support. The classified loan position is also nominal. This was achieved by rendering due attention and monitoring high-risk advance. In the year 2002 classified advance is amounted to Tk.7.63 million, which was only 0.09% of total loans and advances. With the potential increase investment classified figure also increased shortly. At the end of year 2008 total Investment reached unto Tk.53637.68 million and classified investment stood up to 1.88%.
Loan and Advance Position of EXIM Bank:
|Year||Amount (TK in Million)|
Source of Data: Exim Bank annual report 2008
Advance position of Exim Bank Ltd. (Source of Data: Exim Bank annual report 2008)
(** Detailed investment positions & analysis shown at Annexure I & II)
4.6 Automation of EXIM Bank limited:
In today’s global business scenario, particularly in banking sector, technology play a vital role in executing all sorts of customer friendly banking operation with cost efficient services. Technology has become an abide of necessity rather than option in financial institutions.
Keeping in this in view, the bank has already computerized all of its branches from day one its opening. However under a comprehensive strategy of 3 phase state of the art automation program, the Bank, in it’s first phase, has connected all the branches in a wide area network VSAT and optical fiber connections for providing any branch banking services to its valued customers and the customers are enjoying any branch banking facility.
In second phase, procurement of a centralized shariah based soft ware is going on which is expected to be completed by this year and tenure of the 2nd phase is scheduled to be completed within the year2007. Presently Total number of Branches is 53and so far 18 branches have been implemented under new T-24 online software.
4.7 Organizational structure of EXIM Bank
The Sponsors of the Bank are leading business personalities and industrialists of Bangladesh. The chairman of the Bored of Directors, Mr. Md. Nazrul Islam Majumdar is a leading business personality and a social worker. Alamgir Kabir, the Advisor of the Bank is a reputed senior Chartered Accountant having thirty years vast experience in A/Cs, Audit, Finance and Banking at home and abroad. Mr. Kazi Masihur Rahman, the Managing Director of the Bank, is widely trained at home and abroad, having three decades of long experience in banking profession within the country and abroad.
Management Structure of EXIM Bank Ltd:
Board of Directors consists of ten Directors, one Chairman, and one Company Secretary
and one Managing Director.
Md. Nazrul Islam Majumder
- Mr Mohammad Abdullah
- Mr. Abdullah Al-Zahir Shapan
- Mrs. Nasreen Islam
- Mrs. Nasima Akhter
- Mr. A.K.M. Nurul Fazal Bulbul
- Mr. Md. Zubayer Kabir
- Mr. Md. Habibullah
- Mr. Md. Abdul Mannan
- Al-haj Md. Nurul Amin
- Mr. Mohammad Shahidullah
- Mr. Mohammad Sekander khan (Independent Director)
- Bay Leasing & Investment
(Represented by Mr. Mahbubur Rashid
Mr. Kazi Masihur Rahman
Mr. Md. Golam Mahbub
Executive Committee forming by following them.
Md. Nazrul Islam Majumder
- Mr.Mohammad Abdullah
- Mrs. Nasreen Islam
- Mrs. Nasima Akhter
- Mr. A.K.M. Nurul Fazal Bulbul
- Al-haj Md. Nurul Amin
- Mr.Md. Zubayer Kabir
- Mr.Md. Habibullah
- Mr. Md. Abdul Mannan
- Mr. Abdullah Al-Zahir Shapan
- Mr. Mohammad Shahidullah
- Bay Leasing & Investment
(Represented by Mr. Mahbubur Rashid
· Mr. Kazi Masihur Rahman
EXIM bank maintains the top to bottom level management, which hierarchy is the simplest vertical shape. Top level management, mid level management, and bottom line there is logistic support. Communication is possible in all level of managements. There is no management bottleneck and the management is not autocratic. Function is defined at each level of management. The maintaining management level of EXIM bank ltd. as like following diagram ;
|Board of Director|
|Additional Managing Director|
Executive Vice President / Senior Vice President
|Vice Precedent / Senior Assistant Vice President/ Asst. Vice President|
|Senior Principal Officer|
|Officer & Asst.
For any financial and non-financial organization, Management is the most valuable and important resources of any kind of organization. And, a well-organize management provides the organization to reach its ultimate goal. Management means planning, organizing, staffing, directing and controlling of all financial and non-financial resources of an organization. Different aspects of management practice in EXIM Bank are discussed below.
4.8 Human Resources Practices in EXIM Bank:
Employees are the core resources of any organization. Without them, one cannot run their organization. And, human resources approach is concerned with the growth and development of people toward higher level of competency, creativity and fulfillment. It helps employees become better, more responsible persons, and then it tries to create a climate in which they may contribute to the limits of their improved abilities. It assumes that expanded capabilities and opportunities for people will lead directly to improvements in operating effectiveness. Essentially, the human resources approach means that better people achieve better results.
The recruitment in EXIM Bank is done in two ways. One as a “Management Trainee Officer” for the management program and it has a probation period of one year. Another one is non- management level as “Trainee Assistant Officers”. Management Trainee Officer is recruited in officer category and their career path is headed towards different managerial jobs.
The set-vice rule of EXIM Bank states the recruitment policy of the bank. In, general the board of directors determines the recruitment policy of the bank from time to time. The minimum entry-level qualification for any official position other than supportive management is a Bachelors degree. However, informally the management prefers a minimum master’s degree for the appointed of probationary officers in the Executive Officer position. The recruitment for entry level positions begins with a formal written test which is conducted and supervised by the Institute of Business Administration, University of Dhaka. After successful completion of the written test, a personal interview is conducted for the successful candidates by a panel of experts comprising of renowned bureaucrats and prominent bankers of the country.
4.9 EXIM Bank at a Glance:
Name: Export Import Bank of Bangladesh Limited
Essence: – Local Bank Global Network
– Shariah Based Islami Banking
Nature of Business: Banking service and Profit oriented
Registered office: ‘SYMPHONY’,
Plot # SE (F)-9, Road # 142
Gulshan Avenue, Dhaka-1212
Phone : 880-2-9889363 Fax : 880-29889358
SWIFT: EXBKBDDH, E-mail: email@example.com
Website : www.eximbankbd.com
Date of Incorporate : June 02, 1999
Inauguration of first branch : August 03, 1999.
Chairman : Mr. Md. Nazrul Islam Mazumder
Secretary : Md. Golam Mahbub
Advisor : Alamgir Kabir, FCA
Managing Director : Mr. Kazi Masihur Rahman
Number of Branch : 52
Total Manpower : 1312
Authorized Capital : Taka 3500 million
Paid up Capital : Taka 2677.75 million (Up to Dec 2008)
Reserve Fund : Taka 1532.55 million (Up to June 2008)
Investment Banking in Exim Bank Ltd.
Export Import Bank of Bangladesh Limited is a new generation Bank. It is committed to provide high quality financial services / products to contribute to the G.D.P. of the country through stimulating trade & commerce, accelerating the place of industrialization, Boosting up export, creating employment opportunity for the educated youth, poverty elevation, raising standard of living of limited income group and over all sustainable socio-economic development of the country.
In achieving the aforesaid objective of the Bank, Investment operation of the Bank is of paramount importance as the greatest share of the total revenue of the bank is generated from it, maximum risk is centered in it and even the very existence of bank depends on prudent management of the investment portfolio. The failure of a commercial Bank is associated with the problem in investment portfolio and is less often the result of shrinkage in the value of other assets. As such investment portfolio not only features dominant in the assets structure of the Bank, it is critically important to the success of the Bank also.
Being an financial intermediary Exim Bank also performs two types of functions mainly; deposit customer’s surplus unit and invest to others who have deficit unit. From the margin of deposit & investment Bank usually earns their profit along with their service income. The Bank follows an Investment Policy and Control Guideline which strictly comply with Islamic Shariah Principles. Following the regulations of Bangladesh Bank, Exim Bank provides suitable investment services & products for the prioritize sectors which must meet the other requisites as by the bank from time to time. The defined Sectors are as follows.
· Steel & Engineering
· Food & Allied.
· Textile & Garments.
· Pharmaceuticals & Chemicals
· Paper & Paper Products
· Service Industries.
· Housing & Real Estate
· Edible Oil
· Assembling Industries
· Cottage Industries
· Electronics & Electrical Commodities
· Construction Company
· Trading (Retail & Wholesale)
Every year at the time of investment budgeting a clear indication of Bank’s appetite for growth to be reflected. Approved investment budget are strictly followed for the development of the bank.
5.2 Investment categories
Exim Bank primarily divided investment s into two major groups which are as follows.
1) Term Based Investment
2) Continuous Investment
1) Term Based Investment :
These are the investments made by the Bank with fixed repayment schedules. The term of investment are defined as follows,
— Short Term : Upto 12 months
— Medium Term : More than 12 and upto 36 months.
— Long term : More than 36 months.
2) Continuous Investment :
These are the investments having no fixed repayment schedule, but have an expiry date which is renewable on satisfactory performance. Most of the cases the expiry date is within one year period.
Further all the categories of investments have been accommodated under the 7 prime categories as under :
Investments facilities to the agricultural sector falls under this category. It is subdivided into two major heads.
a) Investment to primary producers : Financing under this categories refer to the investment facilities allowed to production units engaged in farming, fishing, forestry or livestock. Investment to tea gardens for production are treated as agricultural investments, but investment to tea gardens for exports are to be treated as ‘Investment on Exports’. Similarly medium & long term investments to tea garden are categorized as industrial term lending.
b) Investment to dealers/ distributors : It refers to the financing allowed to input dealers and (or0 distributors in the agricultural sectors
Agricultural investments may include, short medium and long investments as well as continuing investments, as it may fall under the head Izara Bill Baia/ Izara Bill Baia (Higher purchase) / Izara Bill Baia (Lease Finance)
II. Large & Medium Scale Industry :
This category of investments accommodate the medium & long term financing for capital structure formation of new industries or for BMRE of the existing units who are engaged in manufacturing goods and services. This type of investments are mainly of Izara Bill Baia mode.
III. Small & Cottage Industry :
These are the medium and long term investments allowed to small & cottage manufacturing industries (Small industry is presently defined as those establishments whose total investments in fixed capital such as land, building and machinery and equipments (excluding taxes and duties)does not exceed 30 million taka.
Like the large & Medium Scale industry it is also allowed in the form of Izara Bill Baia (HP) / Izara Bill Baia (LF)
IV. Working Capital :
Investments allowed to the manufacturing units to meet their working capital requirements, irrespective of their size-big, medium & small, fall under the category.
These are usually continuous investments and as such fall under the head Bai-Muazzal.
V. Investments on Exports :
Investment facilities facilities allowed to facilitate exports of all items against Letter of Credit and/ or confirmed export orders fall under this category it is accommodated under the heads Musharaka Pre-Shipment (ECC), Musharaka Pre-Shipment (PC, Foreign documentary Bill Purchased (FDBP), Local documentary Bill Purchased (LDBP) etc.
VI. Commercial Lending :
Short Term Investments and continuing Investments allowed for commercial purposes other than export fall under this category. It included Import financing, financing for internal trade, Service establishments etc. No Medium and long term investments are accommodated here. This category of investments are allowed in the form of ( i) Murabaha Post Import (MPI, (ii) Investments against Trust Receipt (TR),(ii)i Murabaha Import Bills (MIB), (iv) Bai-Muazzal (v) Iizara Bill Baia etc. for commercial Purposes.
VII. Others :
Any investment that does not fall under the above categories is considered under the category ‘Others’. It includes Investment to (i) Transport equipments, (ii) Construction work including housing (commercial/ residential), (iii) Work order finance, (iv) Personal Investments etc.
5.3 Lending Principles:
The Principle of lending is a collection of certain accepted time tested standards, which ensure the proper use of Investment fund in a profitable way and its timely recovery. Different authors describe different principles for sound lending. Exim Bank follows below mentioned principles complying Islamic Shariah
4. Adequate yield
Safety should get the prior importance in the time of sanctioning the Investm