The Concept of Islamic Banking with Special Emphasis On Investment Appraisal Process Of First Security Islami Bank Limited
Islami Banking a new type of banking that operates on principles adhering to the Quranic norms forbidding usury and transactions, including granting of loans or credits for interest. The economic rationale for eliminating riba (interest) and establishing the Islamic banking system is based on values of justice, efficiency, stability and growth. It is assumed that under the system of Islamic banking, the industrial and/or commercial risk is shared more equitably between the entrepreneur and the capital owner and the returns on investment are shared among the investors on the basis of their proportionate capital. The conventional banks tend to serve the most creditworthy borrowers, while the Islamic banking system presumably looks for the most productive and profitable projects. The Islamic banking approach theoretically opposes the idea of discrimination in offering banking services to people of different social standings and provides for social cohesion between different classes.
Islamic banking is an area that has mushroomed to become an increasingly substantial segment within the global financial market. It has been recognized as a viable and competitive form of financial intermediation not only in Muslim countries but also outside the Muslim world and offering a wide range of financial products and services. The industry that started on a modest scale since its inception in the mid-1970s has shown a rapid expansion and evolution over the past three decades. It is in fact one of the fastest growing industries, having posted double-digit annual growth rates for almost 30 years (Iqbal and Molyneux, 2005). According to information released by Council for Islamic Banks and Financial Institutions (CIBAFI), there are over 284 financial institutions operating in 38 countries and managing US$250 billion. This does not include conventional banks offering Islamic financial products and services through window operations, which CIBAFI estimates to manage about US$200 billion.
(Understanding the Objectives of Islamic Banking: A Survey of Stakeholders’ Perspectives By: Dr. Asyraf Wajdi Dusuki, Paper published in International Journal of Islamic and Middle Eastern Finance and Management; Vol.1, Issue 2. 2008 (Published by Emerald Group Publishing,)
Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment or acceptance of interest fees for the lending and accepting of money respectively.
The fundamental differences between Islamic banking and conventional banking, not only in the ways they practice their businesses, but above all the values which guide Islamic banking whole operation and outlook. These values prevailed within the ambit of Shariah (Islamic law) are expressed not only in the minutiae of its transactions, but in the breadth of its role in society. This demands the internalization of principles on Islamic financial transactions, in its form, spirit and substance. By so doing, it epitomizes the objectives of Shariah in promoting both economic and social welfare.
(Understanding the Objectives of Islamic Banking: A Survey of Stakeholders’ Perspectives By: Dr. Asyraf Wajdi Dusuki, Paper published in International Journal of Islamic and Middle Eastern Finance and Management; Vol.1, Issue 2. 2008 (Published by Emerald Group Publishing)
In other words, as a Shariah-based firm, Islamic banks need to fulfil social obligations that go beyond the conventional capitalist worldview aiming at only maximizing profits.
Objectives of Islamic Banking:To understand Islamic banking in its entirety requires full comprehension of its objectives and philosophy. As a Shariah-oriented business entity, Islamic bank is vigorously expected to be guided by the philosophy of Islamic business. Haron (1996) gives two reasons for establishing the right philosophies for any Islamic bank. First, the philosophies will be used by the management or policy makers of the banks in the process of formulating corporate objectives and policies. Secondly, these philosophies serve as an indicator as to whether the particular Islamic bank is upholding true Islamic principles.
Essentially, the philosophy of Islamic banking can be fully understood in the context of the overall objectives of Islamic economic system. Many prominent Islamic economists, like Chapra (1985, 2000a, 2000b), Ahmad (2000), Siddiqui (2001) and Naqvi (2003) assert that Islamic banking is a subset of the overall Islamic economic system that strives for a just, fair and balanced society as envisioned and deeply inscribed in the objectives of Shariah (also popularly known as maqasid a-shariah). Accordingly, the many prohibitions (e.g. interest, gambling, excessive risks, etc.) are to provide a level playing field to protect the interests and benefits of all parties involved in market transactions and to promote social harmony (Chapra, 1985, 1992; Ahmad, 2000; Chapra, 2000, 2000a; Siddiqui, 2001; Naqvi, 2003). Furthermore as a system grounded on ethical and moral framework of the Islamic law of Shariah, Islamic banking is also characterised by ethical norms and social commitments (Ahmad, 2000; Mirakhor, 2000; Warde, 2000). Therefore, Islamic banking is much more than just refraining from charging interest and conforming to the legal technicalities and requirements on offering Islamic financial products. It is a system which aims at contributing to the fulfilment of the socio-economic objectives and the creation of a just society (Siddiqui, 2001; Haron and Hisham, 2003; Hassan and Musa, 2003). In the process of conducting business, Islamic banks seek to bring about a lasting balance between earning and spending in order to achieve a betterment for the whole community (Haron, 1995; Al-Omar and Abdel-Haq, 1996). Al-Omar and Abdel-Haq (1996) indicate the duty of Islamic banks towards the society in which they operate by providing a clear expression outlined in the public statement of the International Association of Islamic Banks (IAIB):
The Islamic Banking system involves a social implication which is necessarily connected with the Islamic order itself, and represents a special characteristic that distinguishes Islamic banks from other banks based on other philosophies. In exercising all its banking or development activities, the Islamic bank takes into prime consideration the social implications that may be brought about any decision or action taken by the bank. Profitability – despite its importance and priority – is not therefore the sole criterion or the prime element in evaluating the performance of Islamic banks, since they have to match both between the material and the social objectives that would serve the interests of the community as a whole and help achieve their role in the sphere of social mutual guarantee. Social goals are understood to form an inseparable element of the Islamic banking system that cannot be dispensed with or neglected.”
This statement represents the core of what the advocates of Islamic banking expect Islamic banks to do in terms of social obligations. Clearly, Islamic banks operating on the Shariah-based philosophy and principles must depart significantly from conventional banks that are deeply rooted to the capitalistic profit-maximization philosophy. As for Islamic banks, the intense commitment of Islam to brotherhood and justice makes the well-being of all human beings the principal goal of Islam. This well-being includes both physical and spiritual satisfaction of the human personality encompassing the happiness in the present world and the hereafter. Therefore, maximization of outputs cannot be a sufficient goal of a Muslim society, rather it has to be accompanied by efforts directed to ensure spiritual health at the inner core of human consciousness, and justice and fair play at all levels of human interaction (Al-Omar and Abdel-Haq, 1996). Thus, while ordinary business institutions are likely to place profit as their primary epitome and objectives, Islamic banks have to incorporate both profit and social obligation into their objectives (Ahmad, 2000). Only endeavors of this kind would be in conformity with the objectives of Shariah.
However it is ill-conceived for anyone to believe that Islamic banks are charitable or welfare organizations which only have concern for the unprivileged or to provide monetary assistance as requested (Rosly and Bakar, 2003). Similarly, it is inappropriate for the management of Islamic banks to emphasise on the profit maximization policies alone, while neglecting other social obligations (Haron, 1995). Instead, Islam strives for a balance between profit and social objectives. It is considered unjust for Islamic banks if they are unable to provide sufficient returns to depositors and shareholders who have entrusted them with their money. At the same time, Islamic banks are not supposed to make excessive profits at the expense of their customers or undermining and neglecting their social responsibility and commitments to their various stakeholders (Chapra, 1985; Ahmad, 2000).
Table I summarizes the fundamental differences between Islamic banks and their conventional counterparts.
Table 1(A): Fundamental Distinctions between Islamic Banks and Conventional Banks
|Islamic Banks||Conventional Banks|
|Functions and operations are guided by sources of Shariah (Islamic Divine Law) namely the Quran and the Sunnah (traditions of the Prophet Muhammad p.b.u.h.).||Functions and operations are guided by secular principles and not based on any religious doctrines and values.|
|Institutions that aim at balancing between profit-maximisation doctrine and social responsibility.||Institutions that emphasise on profits maximisation.|
|Financing instruments are based on either asset-backed trading contract or equity financing with risk sharing.||Financing instruments are based on interest-bearing mechanism.|
|Deposits are not interest-oriented but profit-loss sharing oriented whereby investors’ principal repayment is not guaranteed but entitled to a predetermined share of actual profit realised by the business.||Deposits are interest oriented and the investor is assured of a predetermined rate of interest with a guaranteed principal repayment.|
|No penalty on defaulters. However some Muslim countries allow charging a small percentage of late payment penalty as a deterrent but the amount need to be channelled to charity and not treated as part of business income.||Normally charge compounded rate of interest in case of default.|
|Islamic banks are restricted to participate in economic activities which are unethical and prohibited by Shariah such as businesses involving alcohol, prostitution, pork, environmental pollution etc.||There are no such restrictions for conventional banks.|
|Islamic banks need to do charity by paying zakah (compulsory religious levy) out of their income.||There are no such requirements to do charity.|
(Understanding the Objectives of Islamic Banking: A Survey of Stakeholders’ Perspectives By: Dr. Asyraf Wajdi Dusuki, Paper published in International Journal of Islamic and Middle Eastern Finance and Management; Vol.1, Issue 2. 2008 (Published by Emerald Group Publishing).
There is no standard way of defining what an Islamic bank is, but broadly speaking an “Islamic bank is an institution that mobilises financial resources and invests them in an attempt to achieve predetermined islamically -acceptable social and financial objectives. Both mobilisation and investment of funds should be conducted in accordance with the principles of Islamic Shari’a”.
(Source: http://www.albaraka.com/default.asp?action=article&id=46 )
The Origin of Islamic Banking
The origins of Islamic banking can be traced back to the practice of mudaraba by the Prophet Muhammad (Sm) himself. The Prophet (Sm) was mudarib (agent) for his wife, who entrusted her capital or merchandise to him for trading and got back the principal plus an agreed share of the profit. As a reward for his labour (and entrepreneurship), the Prophet (mudarib) received his share of the same. The mudarib, however, was not liable for losses resulting from the exigencies of travel or from an unsuccessful business venture. This form of partnership is called mudaraba. There is another form of partnership called musharaka, in which the musharik (agent) has a contribution to the capital and can therefore, claim a higher percentage of profit. As early as in the seventh century, the tax revenue from Iraq was sent across the desert to Medina in the form of a mudaraba. Caliph Umar is known to have invested orphans’ money in merchant trading between Medina and Iraq. Musharaka partnerships were practised in the north-south trade between Egypt and Jeddah during the eleventh century. As many as 32 mudaraba contracts were practised in the 17th century in the Turkish city of Busra. Mudaraba was in practice in Tunisia, Indonesia, Arabian Peninsula and India.
The concept of Modern Islamic Banking:
Modern Islamic banking concepts came from the historical practice of the concept of a ‘three-tier mudaraba’.
The first tier, there is the individual, rab-al-mal, who wishes to invest capital.
The second tier is the mudarib (agent), to whom the rab al-mal entrusts his capital by contract and finally,
The third tier, there is the entrepreneur, with whom the mudarib signs a contract, and to whom the mudarib passes the capital originally entrusted to him by the rab-al-mal.
The first attempt to establish an Islamic financial institution:
The first attempt to establish an Islamic financial institution took place in Pakistan in late 1950s with the establishment of a local Islamic bank in a rural area. Borrowers of the bank did not pay interest on the credit advanced, but a small charge was levied to cover the bank’s operational expenses. Although the experience was encouraging, two main factors were responsible for its failure.
First, the deposits made in the bank were to be held for long and the depositors, who were mostly the landlords found that with increasing number of borrowers the gap between the amount of capital available and that of the credit demanded had become very large.
Secondly, the depositors showed considerable interest in the way their money was lent out but the bank staff did not have complete autonomy over the bank’s operations and therefore, could not always satisfy the customers in this regard.
The second experiment with Islamic banking:
The second experiment with Islamic banking was conducted in Egypt between 1963 and 1967 through the establishment of the Mit Ghamr Savings Bank in a rural area of the Nile Delta. The bank’s operations were based on the same Islamic principles of no-interest to depositors or from the borrowers. Unlike the Pakistani case, the borrowers made deposits in the bank for credit facilities. On the basis of success in the experiment more branches were soon opened in different parts of Egypt to develop a network of local savings banks. The project suffered a setback due to political unrests in the country but was revived in 1971 under the name of Nasser Social Bank, which became the first Islamic bank in the urban setting based in Cairo.
Starting of Islamic banking in Bangladesh:
First, Islamic banking started in Bangladesh through establishment of the islami bank bangladesh Ltd. (IBBL), which is considered to be the first interest-free bank in Southeast Asia. It was incorporated on 13 March 1983 as a public limited company under the companies act 1913. In December 2001, IBBL had 121 branches, its authorised capital was Tk 1000 million and paid up capital Tk 640 million.
Second, al baraka bank Ltd, often called the second Islamic bank of Bangladesh, commenced banking business on 20 May 1997. It is a joint-venture enterprise of Al-Baraka Investment and Development Company, a renowned financial and business house of Saudi Arabia, Islamic Development Bank, a group of eminent industrialists of Bangladesh, and the government of Bangladesh. The authorised capital of the bank is Tk 600 million and its paid up capital is Tk 259.55 million. The bank has now 35 branches in different parts of the country.
(SOURCE : Banglapedia).
Dr. Seyed Nezamuddin Makiyanhas mentioned about the operational risk of Islamic banking in the article on “Risk Management and Challenges in Islamic Banks” which was published in the Journal of Islamic Economics, Banking and Finance.These are given below-
Operational risk may arise from various sources:
a) The unique activities that Islamic banks must perform.
b) The non-standardized nature of some Islamic products.
c) The lack of an efficient and reliable Shari’ah legislation system to enforce financial contracts.
From the viewpoint of Islamic Shariah, in order to be justified islamically the banking system has to avoid interest. Consequently, financial intermediation in Islamic banking between the bank and the client takes place as a partner rather than a debtor-creditor. The financial activities of modern conventional banks are based on a creditor-debtor relationship between depositors and bank on the one hand and between the borrower and the bank on the other Interest is regarded by conventional banks as the price of credit reflecting the opportunity cost of money. As interest is prohibited in Islam, commercial banking in an Islamic framework could not be based on the creditor-debtor relationship. The other aspect of the theoretical basis of Islamic banking is that the interest free bank is not risk free. This principle is applicable to two main factors of production, i.e. labor and capital. According to this principle, as no payment is allowed to labor, unless it is applied to work, no reward for capital should be allowed unless it is exposed to business risk. From these two principles of the theoretical basis of Islamic banking, it may be said that Islamic financial relationships are of a participatory nature (Ahmad, 1993).
(ISLAMIC BANKING IN BANGLADESH: A CASE STUDY OF IBBLMohammed Nurul Alam, International Journal of Islamic Financial Services Vol. 1 No.4).
Objectives of the Report:
1. To know the objectives of Islamic banking which stakeholders consider important in a dual-banking environment like Bangladesh.
2. To get familiar with the Islamic banking rules and regulations.
3. To know the overall banking system of the Islamic bank.
4. To study the over all management function of a branch banking.
5. To measure and evaluate the performance of First Security Islami Bank Limited based on loan appraisal.
6. To represent an overview of banking activities specially investment appraisal process.
7. To find out the difference of academic and real life practice of accounts those are practiced in the bank
8. To know the task of different department of the bank
9. To identify how the bank is careful to segregate the duties and responsibilities of all employees.
10. To find out where the bank was and where the bank is standing at present time.
Methodology of the Study:
This report is prepared based on the information extracted from different sources.
Sources of data: All the information in the study has been incorporated and collected from the primary sources as well as secondary sources.
1. Interviewing officers and staffs.
2. Sharing practical knowledge of officials.
3. Relevant file study provided by the officers concerned.
4. Face to face conversation with the respective officers and staffs.
1. Annual report of First Security Islami Bank Ltd.
2. Manuals for investment published by the bank.
3. Website of the bank.
5. Relevant books, Research papers, Newspapers, Articles and Journals.
Overview of the Organization
Overview of FIRST SECURITY ISLAMI BANK LIMITED
First Security Islami Bank Limited (FSIBL) was incorporated in Bangladesh on 29 August 1999 as a banking company under Companies Act 1994 to carry on banking business. It obtained permission from Bangladesh Bank on 22 September 1999 to commence its business as a name of First Security Bank Limited which conducted their banking operation as conventional Banking. After Nine year conventional banking operation 1st January, 2009 it converted into a full fledged islamic Bank rename as “First Security Islami Bank Limited. The Bank carries banking activities through its FIFTY THREE (53) branches through out the country. The commercial banking activities of the bank encompass a wide range of services including accepting deposits, making investment, discounting bills, conducting money transfer and foreign exchange transactions, and performing other related services such as safe keeping, collections and issuing guarantees, acceptances and letter of credit.
To be the unique modern islami bank in Bangladesh and to make significance contribution to the national economy and enhance customer’s trust and wealth, quality investment, employee’s value and rapid growth in shareholder’s equity.
“To be able to provide banking products & services of high quality to large part of the population of the country both at home & abroad at reasonable and affordable price with cutting edge technology & transparency of our books”
The bank has chalked out the following corporate objective in order to ensure smooth achievement of its goals:
- To be most caring , 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 of the honorable shareholders and above all , to add effective contribution to the national economy
Eventually Bank also emphasizes on the following matters-
- Provide high quality financial services in export and import trade
- Providing efficient customer services.
- Managing Corporate and Business ethics
- Bring trusted depository of customer’s money
- Making its product superior and rewarding to the customers
- Display team spirit & professionalism
- Sound Capital base
- Enhancement of shareholders wealth
- Fulfilling its social commitments by expanding its charitable and humanitarian activities
FSIBL at a Glance
Board of Directors:
First Security Islami Bank Ltd. has a Board of Directors consisting with 13 members headed by Alhaj Md Saiful Alam, Chairman of the Board. Mr S Alam is a well known & successful business personality of the country. Mr. Abdul Malek a sponsor Shareholder is the Vice- Chairman of the Board. Following personality consist the Board.
|Chairman||Alhaj Md. Saiful Alam|
|Vice -Chairman||Alhaj Md. Abdul Maleque|
|Director||Mr. Md Didarul Alam
Ms Farzana Perveen
Ms Rahima Khatun
Mr Hamidul Haque
Ms Atiqun Nessa
Mr Sharif Hossain
A.K. M. ali Johar
Md Wahidul Alam Seth
Mr Shahidul Islam
Mohammad Oheidul Alam
Dr. Mohammad Loqman
MS. Shamsad Jahan
Mrs Shahella Rashid Chowdhury
Mohammed Kutub Uddowllah
|Managing Director||Mr. A. A. M. Zakaria|
|Company Secretary||Mr. Abdul Hannan Khan|
For accomplishing real islami banking service to its customer FSIBL consist a high powered Shariah Board which comprises of islamic Scholars who ensure the shariah based service to the community. Shariah Board comprises with the following
FSIB is functioning with professional management team headed by the Managing Director Mr. A. A. M. Zakaria. Among other senior executives currently two DMD, One Principle(Training Center), two SEVP, eleven SVP, ten VP, five FVP, twelve SAVP, five AVP and eight FAVP are discharging their services in progression of the banks business.
Mr. A. A. M. Zakaria, Managing Director of the bank is an eminent banking personality having long 30 years of experience in banking industry. After successful completion of his B.A. (Hons) M.A. in Economics from Dhaka University, Mr. A. A. M. Zakaria has started his banking career in 1977 as Senior Officer of Rupali Bank. Before the current responsibility, Mr. A. A. M. Zakaria was the Deputy Managing Director of Dutch-Bangla Bank Limited. In his multi-greeted banking service, Mr. A. A. M. Zakaria participated in many courses, training program and workshops on banking at home and abroad. Mr. A. A. M. Zakaria joined in FSIB in 7 August 2005 as Managing Director in a crucial moment when the bank had fallen into Problem Bank with lots of great complex situations. Within a short span of time FSIB under his proper guidance recovered from the “Problem Bank”.
Top management of the bank is supported by human resource strength of 900 executives and officers. For smooth functioning of the Bank, following committees have been formed:
1. Management committee (MANCO) comprises of senior members of the management headed by Managing Director of the bank. All divisional heads are the member of the committee. MANCO meets on regular basis to discuss relevant agenda.
2. Asset Liability Management Committee (ALCO) headed by the Managing Director, is responsible for balance sheet risk management. The committee participate is the monthly ALCO meeting and review the liquidity position, review rate of interest on deposit and lending, and review the ALCO papers on presentation by treasury back office on the position of profit, deposit, advance, cost analysis, maturity bucket of deposit & advance, balance sheet, profit and loss account and many other issues relating to banks business and assets-liability management. Five relevant divisional heads including DMD are the members and FVP & Head of Treasury of the Bank is the member secretary of the committee
Human Resources Development
FSIB has a separate Human Resources Division (HRD) to manage the employee policies and practices. As on FYE 2009, Total 900 executives & officers of the bank have been working for smooth banking operations. Bank follows a standardized human resources policy. HRD of the Bank follow a transparent and free & fair system to ensure the standard recruitment, training & development of human resources of the bank. The bank has defined HR policies including recruitment, training & development, promotion, leave, transfer and disciplinary action policy. Usually internal recruitment procedures are considered to fill up the mid and top management positions, while entry-level positions are filled with regularly through competitive recruitment exams. They follow transparent, well-defined and strict rules for appointment of officers and staff in the Bank.
The tasks of Human Resource Management are given below:
i. Preparing human resource plan and maintaining data card for the employees of the bank.
ii. Preparing training and human resource development plan, programmer and formulating, reviewing and ensuring implementation of policies for promotion, job rotation, and disciplinary action.
iii. Formulating and ensuring implementation of policies for employee’s appraisal and performance rating. Maintenance of centralized service record and confidential reports up to grade level as may be determined form time to time. Periodical staff appraisal and formulating policies for skill development.
iv. Providing all support services for effective and meaningful training of bank’s employees. Preparation of retirement list, collecting of date from of all employees and officers and updating data cards. Maintenance and updating the human resource register officers and employees.
Corporate governance is about how corporation is running its operations to achieve its corporate objectives. Bangladesh Bank (BB) gives emphasis on implementing corporate governance among the financial institutions and to do that, BB emphasizes implementation of the guidelines issued by them for improving corporate governance in banking. Good Corporate Governance practices enhance an entity’s corporate image and market credibility, which attract capital and increase its borrowing power. These can be reflected in the quality of financial reporting and disclosures; strength of internal control system and internal audit function induction of professionally competent, independent non-executive Directors on corporate Board; formation of Audit Committee; delegation of authority to executives and staff; protection of corporate governance for strengthening organizational strength.
With a view to ensure effective participation and deep interest in the affairs of the company and as per Articles of Association of the Company and as per Bangladesh Bank Circular No. 16 dated March 24, 2003 the bank has set up the following 2 committees:
- Executive committee
- Audit Committee
1. Executive Committee:
FSIB has constituted 09 members executive committee of the board as per Bangladesh Bank guidelines to ensure corporate governance in the business of which managing director of the Bank is Ex-officio Member. The executive committee of the board is responsible for developing policy and strategy for smooth operations of business and business development of the bank to ensure maximization of shareholders wealth’s protecting other stakeholder’s interest in the company Mr. Alhaj Md. Saiful Alam, Chairman of the board of Directors is the Chairman of the present Executive Committee of the bank. He is very dynamic person and leading the executive committee of the bank in a very manner.
2. Audit Committee:
FSIB has formulated an audit committee can play an effective role in formulating an efficient and secured banking system. The Audit Committee has been formed comprising three members of the Board of Directors. As per corporate governance guidelines the Chairman of the Audit Committee should have sound knowledge and expertise in finance & accounting or auditing. Mr. Hamidul Haq, who is also a Director of the Bank, is Convener of the committee. He is associated in banking field over long years.
PRODUCTS & SERVICES OF FSIBL
The bank serves all types of modern, progressive and dynamic business as well as banking services to the customers of all strata of society. During the short span of time , Bank has been highly recognized and praised by business community, from small entrepreneur to enlarge traders and industrial conglomerates and emerged as the fastest growing among the third generation banks in respect of business and profitability. It has already 53 branches in different commercially important places throughout the country to make its services available to the people.
First security Islami Bank Ltd. successfully marked its products designed to fulfill the needs of various socio-economic strata. Attractive feature of the products have given a distinctive image among the private banks. They has been continuous endeavor to offer new products and services. However, the Product & Services of the bank as following:
|Al-Wadiah Current Deposit|
|Mudarabah Savings Deposit|
|Mudarabah Short Term Deposit|
|Non-resident Foreign Currency Deposit|
|Resident Foreign Currency Deposit|
|Mudarabah Monthly Savings Schemes|
|Mudarabah Monthly Benefit Deposit Schemes|
|Mudarabah Double Benefit Deposit Schemes|
C . Investment / Deployment of Funds:
a. Bai-Murabaha (Deferred Lump Sum/ Installment Sale)
b. Bai-Muajjal (Deferred Installment / Lump Sum Sale)
c. Ijara (Leasing)
d. Musharaka (Joint-Venture Profit-Sharing)
e. Mudaraba (Trustee Profit-Sharing)
f. Bai-Salam (Advance Sale and Purchase)
h. Direct Investments
i. Post Import Investment
j. Purchase and Negotiation of Export Bills
k. Inland Bills Purchased
l. Murabaha Import Bills
m. Bai-Muajjal Import Bills
n. Pre Shipment Investment
o. Quard-ul-Hasan (Benevolent Investment)
i. Letter of Guarantee:
a. Tender Guarantee
b. Performance Guarantee
c. Guarantee for Sub-Contracts
d. Shipping guarantee
e. Advance Payment guarantee
f. Guarantee in lieu of Security Deposits
g. Guarantee for exemption of Customs Duties
d. Specialized Schemes
§ Consumer Investment Scheme,
§ SME Investment Scheme,
§ Lease Investment Scheme,
§ Hire Purchase,
§ Earnest Money Investment Scheme,
§ Mortgage Investment,
§ Employees House Building Scheme,
· Full Fledged Online Banking
· ATM Services
· SMS Banking
· Utility Bills
· Ready Cash Card
· Western Union Money Transfer
FSIBL started its Banking operations with strong Information Technology(IT) based Software “PcBank2000”from the very beginning of Banking operation of its all the branches. Recently they have plan to upgrade their software into “BANK ULTIMUS” which will cover the all current issues of banking solutions to the customer with a single server
Branch Networks and Inter Division and Branch Coordination
At present, the bank has 53 branches of which 21 branches are in Dhaka Division, 19 branches are in Chittagong Division, 06 branches are in Sylhet Division, 03 branches are in Rajshahi Division, 03 branches are in Khulna Division and 01 branch is in Barishal Division. All the 53 branches are computerized under distributed server environment. FSIB has already started their on-line, SMS and ATM banking facilities for their clients
Bangladesh Bank BB has defined (05) Five core risk areas in Banking for the management and has provided necessary guidelines for implementation of the risk management. The Five core risk areas are –
- Investment Risk Management
- Asset Liability Management
- Foreign Exchange Risk Management
- Internal control & compliance
- Prevention of Money Laundering
1. Investment risk management
The board of directors of the bank has formulated a Investment policy keeping in view the business strategy, nature of its operation, segment and management sophistication for use at every level of processing and decision making. On the other hand Bangladesh Bank issued guidelines on investment Risk Management function emphasis on Policy Guideline organization Structure & responsibilities & Procedural Guideline.
The banks existing investment policy guideline & procedure are being continuously reviewed & upgraded within the framework of above stated focus which had been given to shape of comprehensive document for the purpose of reference, day to day predation and reflect changes in the economic scenario. Relationship Managers are given the overall responsibility of managing the respective investment portfolio commencing with the business solution, investment assessment, Risk grading, investment approval and management thereof.
FSIBL adopted the Investment Risk Management (IRM) guidelines issued by Bangladesh Bank for improving the risk management culture, establishing minimum standards for segregation of duties and responsibilities, promoting the ongoing process for improvement of the banking sector in Bangladesh in the context of Globalization. This puts apace a robust process for proactive management of investment portfolio in order to minimize loss and enhance return to shareholders. The Bank has introduced investment policy guideline for IRM
The bank has segregated their investment operation at the Head Office under the divisions which as follows-
1. Investment Division
2. Corporate Banking Division
3. Investment Administration Division
4. Investment Monitoring & Recovery Division
2. Asset Liability Management
Asset Liability Management (ALM) refers to the co ordination and integration say for organization should ensure that they do not clash each (Asset Liability) other. Now we see the asset and liability management individually
A) Asset Management Strategy
The Asset Management view held that the amount & kinds of deposits a depository institution held the volume of other borrowed funds it was to attract largely determined by its customers. Under this view the public determine the relative amounts of checkable deposits, savings accounts and other sources of fund available to depository institution. The key decision area for management was not deposits and other borrowing but assets
B) Liability Management Strategy
The main things of this management it to control over funds sources comparable to the control financial mangers had long exercised over their asset. The key control level was the price, profit rate and other terms offered on deposits and other borrowings to achieve the volume, mix and cost desire.
The Bank has an Asset Liability Committee (ALCO) which is responsible for maintaining short term &long term liquidity and ensure that the bank has adequate liquidity at all times at optimal funding cost. The other task of the committee includes Balance Sheet Structure & management, Capital adequacy, keeping available cushion to meet the risk and determination of lending and deposit pricing strategy. The assessment and control of liquidity are done through liquidity reports & financial statement.
Asset Liability Committee (ALCO) headed by Managing Director, is responsible for balance sheet risk management. The committee participate is the monthly ALCO meeting and review the liquidity position, review the profit rate on deposits & investment and review the Alco papers on presentation by treasury back office on the position of profit, deposit advance cost analysis maturity bucket of deposit & advance, balance sheet, profit & loss Account and many other issues relating to bank’s business and asset liability management. Five relevant divisional head including DMD are the members and FVP & Head of Treasury of the Bank is the member secretary of the committee.
3. Foreign Exchange Risk Management
Market based floating exchange rate has been introduced both trading opportunities and foreign exchange volatility. There has thus risen a need for controlled management, through a single department of risk and at the same time to exploit the business potentials. The task of reconciliation fo all transaction initiated by Treasury Department, rest with a separate blocks office independent of treasury.
4. Internal Control & Compliance (IC&C)
“The system of internal controls the plan of organization and all the methods and procedures adopted by management of an entity to assist in achieving management’s objective of ensuring, as far as practicable, the orderly bad efficient conduct of its business “From this definition, it can be seen that the objective of a system of internal control is to assist the management of an enterprise in the orderly and efficient conduct of its business. Objectives of Internal Control is following –
a. Adherence to policies and procedures laid down by management
b. Safeguarding of assets
c. Prevention and detection of fraud and error
d. Accuracy & Completeness of records and timely preparation
The component of effective internal control I e effective information system is already in place from FSIBL’s perspective. The bank has further established the following internal control measures
a. Established authority limits for transactions & expenses
b. Strengthen the audit department to ensure comprehensive audit of the branches & Head Office (HO) at regular intervals
c. Review of the Bank’s performance on monthly and quarterly basis at the highest level
d. Review of Bangladesh Bank’s report and management’s compliance thereof at regular basis
e. Taking measures for strict compliance of other regulatory requirement
First Security Islami Bank Ltd has separate Internal Control & Compliance Division (IC &CD) Headed by a VP. This division consists of 03 (Three) units namely-
i. Audit & Inspection Unit
ii. Compliance Unit
iii. Monitoring Unit
5. Prevention of Money Laundering
Money laundering in its simplest form most often being described as “ Turning Dirty or Black money into Clean or White money” till recently money laundering is not viewed as a criminal offence in many countries. Due to growing regulatory hassle in combating crimes, associated with money laundering, many countries had recognized money laundering as criminal offence. Bangladesh is one of those countries. In Bangladesh Money Laundering Prevention Law was promulgated April 1, 2002.
A Definition of what constitute the offence of money laundering under Bangladesh Law is set out section 2 of Prevention of Money Laundering Act 2002(act No. 7 2002) which is as follows:
“Money Laundering means (Au) Properties acquired or earned directly or indirectly through illegal means (Aa) Illegal transfer, conversion, concealment of location or assistance in the above act of the properties acquired or earned directly or indirectly through legal or illegal means”
There are 3(Three) basic stages of money laundering which is drawn bellow
Figure: Money Laundering Process
Corporate Social Responsibility (CSR)
First Security Islami Bank Ltd keeps on discharging its corporate social responsibility’s per part of social entity for the greater interest of the entire society. It has extended its support to the development of the community through promotions of sports, culture, educational program, disaster and treatment aids of the distressed people. First Security Islami Bank Ltd actively participates for promotion of the sports, religious events and culture.
Credit Rating of FSIBL
First Security Islami Bank Ltd. was rated by Credit Rating Agency of Bangladesh (CRAB) during 2008. The summary of the rating is given bellow:
CRAB assigned “BBB1” (Pronounced Triple B one) rating the Long Term and “ST-3” in the short term of First Security Islami Bank Ltd. Commercial Banks rated in the Long Term” BBB1” category, are adjudged to be solid banks, characterized by above average financials valuable and defendable business franchises , and an attractive and stable operating environment. The Short termST-3 category, is consider having satisfactory capacity for timely repayment of obligations, although such capacity may impair by adverse changes in business, economics or financial conditions. CRAB performed the rating assignment based on the audited financial statement
|Validity||1 (one) Year|
CRAB reviews the fundamentals of managing credit including qualitative and quantitative analysis as a part of credit risk evaluation includes credit policy, credit approval process and credit monitoring. CRAB also addresses intrinsic risk, concentration risk as well as large loan exposures.
Auditors Report of FSIBL
First Security Islami Bank Ltd has been audited by auditing firm Syful Shamsul Alam & Co. for financial year 2008. Auditor’s opinion is
“We report that,
Through our test checking it is found that additional provision for TK.2.01 crore is required to be provided in the financial statements against non- performing Loans & Advances under BRPD Circular Ref 05 dated June 05,2006.
In our opinion , except for the effects on the financial statements of the matter stated in the preceding paragraph & note , the financial statement prepared in accordance with Bangladesh Accounting Standard (BAS), give a true and fair view of the state of company’s affairs as on December31,2008 and of the result of its operation and its cash flow for the year ended and comply with Banking Companies Act 1991, the Securities and Exchange Rules1987, the rules & regulation issued by the Bangladesh Bank and other applicable laws and regulations” Unquote
Capital Structure :
Auditor certify that paid –up capital of First Security Islami Bank Ltd. as on April,2009 is Tk 2,300,000,000 divided into 23,000,000 of ordinary shares of TK. 100 each based on evidence
|Description||Number of Share||Face Value of Shares|
|Subscribed Capital as per Memorandum & Articles of Association at the time of incorporation
Issue of Shares in Cash 2003
Issue of Shares in Cash 2005
Issue of Shares in Cash 2006
Issue of Shares in Cash2007
Issue of Shares in Cash 2008
Public Issue in 2008