Foreign Exchange Operation of Social Islami Bank Limited

“Foreign Exchange Operation of Social Islami Bank Limited”

1. Introduction

Social Islami Bank Limited (SIBL) is a banking company registered under the companies Act 1994 with its head office in 15 Dilkusha C/A, Dhaka-1000.The bank operates as a scheduled bank under a banking license issued by the Bangladesh Bank. The Bank started its operation from 22 November, 1995. SIBL is a capitalized new generating Bank with an authorized capital of Taka 4000 Million and paid up capital of Taka 585 million as of December 2007.

In the formal corporate sector, this Bank would, among others, offer the most up-to date banking services through opening of various types of deposit and investment accounts, financing trade, providing letters of guarantee, opening letters of credit, collection of bills effecting domestic and international transfer, leasing of equipment and consumer durables, hire purchase and installment sale for capital goods, investment in low-cost housing and management of real estates, participatory investment in various industrial, agricultural , transportation, educational and health projects and so on.

In the non-formal and non-corporate sector, it would, among others, involve in cash WAQF Certificate and development and management of WAQF and MOSQUE properties and Trust funds. For coordinating my internship I have been placed in Social Islami Bank Limited, IDB Bhaban Branch, Dhaka. There are 3 sections in IDB Bhaban Branch. They are: (i) General Banking, (ii) Investment Department and (iii) Foreign Exchange Department. Accordingly I shall work in all of the sections,  shall devote my utmost effort and attention to learn the banker’s functions. After completion of the internship, I will render all knowledge to present the report on overall banking system of Social Islami Bank Limited: ‘A Special Focus on Fund Management’. The report is divided into seven chapters:

(i) Introduction

(ii) Organization

(iii) Branch Operation

(iv) Online Banking

(v) Performance, Ratio and SWOT Analysis

(vi) Project Analysis of Fund Management

(vii) Concluding Remarks.

In the organizational part, will briefly describe overview of the organization’s historical background, functions, business philosophy, ownership pattern, foreign correspondents and overseas operations and benefits provided to customers by the organization. Branch operation part will describe the product and service provided to the customers by a branch.

This report is originated as the requirement of Social Investment Bank Ltd.

1.1 Objectives of the Study:

(a) Primary Objectives:

Primary objective of this report is to comply with the requirements of the Social Islami Bank Ltd. on the Foreign Exchange Department and the activities of this department. However, the objective behind this study is something broader.

(b) Secondary Objectives:

The secondary objectives of the study are summarized in the following manner:

• To apply theoretical knowledge in the practical field.
• To make a bridge between the theories and practical procedures of banking day-to-day operations.
• To gain practical knowledge by working in different desks of Foreign Exchange branch of Social Islami Bank Limited.
• To observe the working environment in commercial banks.
• To study existing banker-customer relationship.
• To know the overall functioning of Social Islami Bank Limited.
• To have some practical exposures that will be helpful for my future career.

1.2 Methodology:

This report has been prepared on the basis of experience gathered during the period of internship from April 13, 2011 to May 20, 2011. For preparing this report, I have undergone group discussion, collected data, sent some questionnaires to the selected officers, and interviewed with some of them. I also studied different circulars and files of the bank.

1.3 Sources of the Data:

In order to make the report more meaningful and presentable, two sources of data and information have been used widely.

(i) Primary Sources:

The primary sources are as follows:

• Face-to-face conversation with the respective officers and staffs of the Branch.
• Informal conversation with the clients.
• Practical work exposures from the different desks of the departments of the Branch covered.
• Relevant file study as provided by the officers concerned.

(ii) Secondary Sources: 

The secondary sources of the data and information are as follows

• Annual Report of Social Islami Bank Ltd.
• Various books, articles, compilations etc. regarding general banking functions, foreign exchange operations and credit policies.
• Different ‘Procedure Manual’ published by Social Islami Bank Ltd.
• Different circulars sent by Head Office of Social Islami Bank Ltd. and Bangladesh Bank.

1.4 Limitations:

The limitations of the study are given below:

• The time, 68 working days, is insufficient to know all activities of the branch and prepare the report.
• It was very difficult to collect the information from various personnel for their job constraints.
• As some of the fields of banking are still not covered by our courses, there was difficulty in understanding some activities.
• Another limitation of this report is Bank’s policy of not disclosing some data and information for obvious reason, which could be very much useful.
• Because of the limitation of information, some assumptions were made. So there may be some personal mistakes in the report.
• Carried out such a study for the first time, so inexperience is one of the main constraints of the study.

Chapter 02

2.Introduction:

Generally, by the word “Bank” we can easily understand that the financial institution which deals with money. But there are different types of banks like: Central Banks, Commercial Banks, Savings Banks, Investment Banks, Industrial Banks, Co-operative Banks etc. However, when we use the term “Bank” without any prefix, or qualification, it refers to the ‘Commercial Banks’. Commercial Banks are the primary contributors to the economy of a country. So we can say Commercial Banks are profit-making institutions that hold the deposits of individuals & business in checking & savings accounts and then use these funds to make loans. For these people, the government is very much dependent on these banks as the financial intermediary.

As Banks are profit-earning institutions, they collect deposit at the lowest possible cost and provide loans and advances at a higher cost. The difference between these two is the profit for the bank.

Banking sector is expanding its hand in different financial events every day. At the same time the banking process is becoming faster, easier and the banking arena is becoming wider. As the demand for better service increases day by day, they are coming with different innovative ideas & products. In order to survive in the competitive field of the banking sector, all banking organizations are looking for better service opportunities to provide their fellow clients. As a result, it has become essential for every person to have some idea on the bank and banking procedures.

Internship program is essential for every student, especially for the students of Business Administration, which helps them to know the real life situation. For this reason, a student takes the internship program at the last stage of the bachelor’s degree, to launch a career with some practical experiences.

2.1 Genesis of Islamic Banking in Bangladesh:

In August 1974, Bangladesh signed the Charter of Islamic Development Bank and committed itself to reorganize its economic and financial system as per Islamic Shariah.

In January 1981,the then President of People’s Republic of Bangladesh while addressing the 3rd Islamic Summit Conference held at Makkah and Taif suggested, ‘’The Islamic countries should develop a separate banking system of their own in order to facilitate their trade and commerce.’’

This statement of the President indicated favorable attitude of the Government of the People’s Republic of Bangladesh towards establishing Islamic bank and financial institution in the country.

Earlier in November 1982, a delegation of IDB visited Bangladesh and showed keen interest to participate in establishing a joint venture Islamic Bank in the private sector. They found a lot of work had already been done and Islamic banking was in a ready form for immediate introduction. Two professional bodies of Islamic Economics Research Bureau (IERB) and Bangladesh Islamic Bankers Association (BINBA) made significant contributions towards introduction of Islamic banking in the country.

They came forward to provide training on Islamic banking to top bankers and economists to fill-up the vaccum of leadership for the future Islamic banks in Bangladesh. They also held seminars, symposium and workshops on Islamic economics and banking throughout the country to mobilize public opinion in favor of Islamic banking.

Their professional activities were reinforced by a number of Muslim entrepreneurs working under the aegis of then Muslim Businessmen Society (now reorganized as Industrialist & Businessmen Association). The body concentrated mainly in mobilizing equity capital for the emerging Islamic bank.

At last, the long-drawn struggle to establish an Islamic bank in Bangladesh became a reality and Islami bank Bangladesh Ltd. was established on 30th March, 1983 in which 19 Bangladeshi national, 4 Bangladeshi institutions and 11 banks, financial institutions and government bodies of the Middle East and Europe including IDB and two eminent personalities of the Kingdom of Saudi Arabia joined hands to make the dream a reality.

Chapter 03

3. Organizational Overview

3.1 Historical Background of Social Islami Bank Limited:

Social Islami Bank Limited was established under the rules & regulations of Bangladesh Bank & the Bank Companies’ Act 1991, on  22nd November, 1995 with the leadership of Mr. Dr. M. A. Mannan, 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. Indeed, all of them proved themselves in their respective businesses as most successful star with their endeavor, intelligence, hard working and talent entrepreneurship.

3.2 Vision:

Social Islami Bank Limited started its journey with the concept of 21st century Islamic participatory in three sector banking model:

• Formal Sector: Commercial banking with latest technology;
• Non-formal Sector: Family empowerment Micro-credit & Micro enterprise program and
• Voluntary Sector: Social Capital mobilization through Cash Waqf and others.

Finally, ‘’Reduction of Poverty Level’’ is our vision, which is a prime object as stated in Memorandum of Association of the Bank with the commitment ’Working Together for a Caring Society’’.

3.3 Mission:

• High quality financial services with the latest technology.
• Fast, accurate and satisfactory customer service.
• Balanced & sustainable growth strategy.
• Optimum return on shareholders’ equity.
• Introducing innovative Islamic banking products.
• Attract and retain high quality human resource.
• Empowering real poor families and create local income opportunities.
• Providing support for social benefit organizations- by mobilizing of funds and social services.

3.4 Functions OF SIBL:

• Mobilization of idle resources of the country by accepting Deposits from the General public.
• Granting Loans and Advances to the individual firms and companies for activating and developing trade, commerce and industries and other productive activities in the country.
• To give facilities to the clients and shareholders in a systematic way.
• Give encouragement to the people for savings.
• To increase investment.
• To make easy transfer of foreign currency.
• To identify consumer’s demand and fulfill their demand by supplying money.
• To improve economy by borrowing financial facility.
• To assist capital market

3.5 Organization Structure of SIBL:

3.6 The Ownership Pattern:

This is a private sector commercial Bank providing comprehensive range of banking services. The bank is owned as follows:

• Promoters 50%
• Government 5%
• Public 45%

3.7 Human Resource:

There is no alternative to skilled and trained manpower in service industry. Bearing this in mind the well educated, promising and honest workers are being appointed and trained. Bank has given top priority to develop skilled manpower and introduce them with modern technologies with the purpose of developing quality customer services. The Bank has undertaken program to train up its employees of all scetion at its own Training Institute. A highly experienced person was appointed as Director (Training) of the Institute in the year 2001 with the task of formulating various training modules. Steps are being taken to shift the Institute to separate premises for facilitating training activities. Side by side, both inland and foreign training  imparted during the year as usual. A highly experienced, well educated and motivated workforce is playing a vital role towards the growth of the Bank deserves appreciation. The number of Executives and Officers as on 31st December, 2008 was 512 against 455 as on 31st December, 2007.

3.8 Training Institute:

Well educated people are needed to achieve the objectives of a firm. With a view to building enthusiastic and skilled work force, Social Islami Bank Training Institute was established on 24th October, 1996 at Shyamoli, Dhaka. Every year the Institute trains sufficient number of employees. Besides the new employee/officer, it is possible to train SIBL’s existing employee/officer. There is a library in SIBL. There is about 2 thousand books remain in this library. Accounting, Management, Marketing, and Computer related books are in this library. In 2007, 1383 officers and no-officers were trained.

3.9 Foreign Correspondents of SIBL:

In order to gain maximum advantage from Foreign Exchange related businesses, the Bank has entered into correspondent relationship with almost all major 122 Banks of 109 countries of the world like Standard Chartered Bank, American Express Bank Limited, HSBC, HBZ Finance, Mashreq Bank PSC, Dresdner Bank AG and with local banks in Pakistan, India, Nepal, Bhutan etc. with whom we have advising, reimbursing and confirming arrangement.

3.10 Overseas Operations of SIBL:

Social Islami Bank has set up joint venture Exchange Company named Gulf Overseas Exchange Co. Ltd, in Oman contributing 25% of its paid up capital. The present paid up capital of the company is Riyal Omani 1, 82,000.00. The Chairman of the company is the ex-minister of the government of Oman. The exchange company, established in 1985, now has three branches in Oman and is being managed fully by officials of SIBL. The company is running in profit. SIBL is also exploring possibilities of opening branches in the Middle East, Switzerland and USA. SIBL has entered into a Management contract with a Kuwati Exchange company to provide management and technical services. SIBL has acquired equity and management of Nepal Arab Bank Ltd. which is the largest and highly profitable Private Commercial Bank in Nepal.

3.11 Products & Services:

• Mudaraba Term Deposit.
• Mudaraba Savings Deposit.
• Al-Wadia Current Account.
• Mudaraba Notice Deposit.
• Mudaraba Scheme Deposit.
• Mudaraba Monthly Savings Scheme.
• Mudaraba Special Deposit Pension Scheme (5 Years).
• Mudaraba Monthly Profit Deposit Scheme.
• Mudaraba Education Deposit Scheme.
• Mudaraba Home Saving Scheme.
• Mudaraba Millinery Deposit Scheme.
• ATM Service.
• Locker Service.
• One Line Banking

3.12 Non-Formal and Voluntary Sector Banking Programs:

Since the opening of the Bank on 22nd November 1995, Non-Formal sector has started implementing its programs in various areas. Those are as follows:

(i) Environment-friendly Program: Tokai Project:

The project has a special strategic value. Till December 1995 only one group consisting of six members was formed at Hossain Market, Utter Badda, Gulshan Thana. Group savings from the members is under process. Formation of more groups of ‘Tokai Pannaya Bavshee’ (Tokai goods Traders) is under process at different areas including Hossain Market.

(ii) Real Life Non-Formal School of Management:

As a part of environment- friendly program, the bank is committed to educate the Tokai and this has a worldwide strategic value. Till December 1995, one Tokai Non-Formal School has been started at Hossain Market, Uttar Badda, Gulshan, Dhaka with 30 students with a view to giving them real-life education with Islamic orientation. In the process of learning, the Tokai developed propensity for savings. As a result they are regularly depositing a small portion of their income as savings.

(iii) Mosque Property Development Program:

Construction of Mini Market at Kazi Bari Mosque, Uttar Khan, Uttara, Dhaka, consisting of 4 shops has been completed where Bank has invested Tk.1.28 laces. Recovery rate in this sector is 100 percent.

(iv) Capital Market Instruments-Securitization of Voluntary Sector:

In the voluntary sector, the bank is in the process of organizing Voluntary Capital Market Operation for mobilization of necessary fund and in the process of developing the following financial instruments with different sets of rules in conformity with Shariah:

• Waqf Properties Development Bond (specific and general).
• Cash Waqf Deposit Certificate (specific and general).
• Family Waqf Certificate.
• Mosque Properties Development Bond (specific and general).
• Mosque Community Share.
• Qarz-e-Hasna Certificate (specific and general).
• Zakat/Ushar payment Certificate.
• Non-Muslim Trust Properties Development.
• Municipal Properties Development Bond (specific and general).

The value of all the bonds and Qarz-e-Hasna Certificate are guaranteed by the Bank against surrender of the instruments on maturity.

3.13 Rural Credit Program:

Agriculture is the main driving force of economy in Bangladesh. And the whole economic growth of the country depends on the development, modernization and investment of money in this connection. As a non-government financial institution SIBL has been actively participating in rural credit program in the economic activities for large population of the country since 1992. SIBL has been working intensively in collaboration with Barindra Multipurpose Development Authority by conducting the Rural Credit program particularly in Rajshahi, Naoga, Chapainawabgonj and the northern part of the country in general. In the last 10 years bank has distributed the credit for Tk.69.85 million. The recovery of loan in this project is 94%. In 2001 bank has distributed the loan for Tk.7.00 million. This is the first program for any private bank. Moreover, SIBL has been participating in Agro-Based Industries and Technology Development project loan financed by USAID since 1996.

3.14 SIBL Branches

3.15 Branch Business Volume on 31.10.09:

No	Particular	Taka
1	Deposit	887460029.41
2	Investment	244643349.75
3	Foreign Exchange	154601378.13
4	Income	88607050.95
5	Expenditure	76736410.31
6	Profit	11870640.64
7	Cash Position	5509867.51

Source: SIBL, Annual Report 2009

Chapter 04

4. Foreign Exchange

Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. In banks when we talk of foreign exchange, we refer to the general mechanism by which a bank converts currency of one country into that of another. Foreign Exchange Department (FED) is the international department of Bangladesh Bank which issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized Dealers. If the branch is an authorized dealer in foreign exchange market, it can remitt foreign exchange from local country to foreign countries. Therefore, Social Islami Bank, Principal branch is an authorized dealer.

There are three kinds of foreign exchange transaction:

• Import
• Export and
• Remittance.

4.1 Import:

To import, a person should be competent to be an importer. According to Import and Export Control Act, 1950, the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. In an international business environment, buyers and sellers are generally unknown to each other. So seller of goods always seeks security for the payment of his exported goods. Bank gives export guarantee that it will pay for the goods on behalf of the buyer if the buyer does not pay. This guarantee is called Letter of Credit. Thus, the contract between importer and exporter is given a legal shape by the banker’s Letter of Credit.

4.1.1 Letter of Credit:

A letter of credit is a letter issued by a bank (know as the opening or the issuing bank) at the instance of its customer (known as the opener) addressed to a person (beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored by it (opening bank), provided certain conditions mentioned in the letter have been complied with.

4.1.2 Parties to the L/C:

Importer	Who applies for L/C.
Issuing Bank	It is the bank which opens or issues a L/C on behalf of the importer.
Confirming Bank	It is the bank which adds its confirmation to the credit and it is done at the request of issuing bank. Confirming bank may or may not be advising bank.
Advising or Notifying Bank	It is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporter’s country. It may also assume the role of confirming or negotiating bank depending upon the condition of the credit.
Negotiating Bank	It is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank.
Accepting Bank	It is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank.
Reimbursing Bank	It is the bank, which would reimburse the negotiating bank after getting payment and instructions from issuing bank.

4.1.3 Steps for Import L/C Operation:

This is an 8 steps operation.

(i) Step 1 :

Registration with CCI&E:

• For engaging in international trade, every trader must be first registered with the Chief Controller of Import and Export.
• By paying specified registration fees to the CCI&E. the trader will get IRC/ERC (Import/Export Registration Certificate) to open L/C with bank, this IRC is a must.

(ii) Step 2 :

Determination Terms of Credit:

• The terms of the Letter of Credit are depending upon the contract between the importer and exporter. The terms of the credit specify the amount of credit, name and address of the beneficiary and opener, tenor of the bill of exchange, period and mode of shipment and destination, nature of credit, expiry date, name and number of sets of shipping documents etc.

(iii) Step 3 :

Proposal for Opening of L/C:

To have an import L/C limit, an importer submits an application to the department of Social Islami Bank Ltd. The proposal contains the following particulars:

• Full particulars of the bank account
• Nature of business
• Required amount of limit
• Payment terms and conditions
• Goods to be imported
• Offered security
• Repayment schedule

(iv) Step 4:

Application by Importer to the Banker to open Letter of Credit:

 For opening L/C, the importer is required to fill up a prescribed application form provided by the banker along with the following documents

(v) Step 5:

Opening of L/C by the Bank for the Opener:

• Taking filled up application form from the importer.
• Collects credit report of exporter from exporter’s country through his foreign correspondence there.
• Opening bank then issues credit by air mail/TELEX/SWIFT followed by L/C advice as asked by the opener through his foreign correspondent or branch as the case may be, at the place of beneficiary. The advising bank advises the L/C to the beneficiary on his own form where it is addressed to him or merely hand over the original L/C to the beneficiary if it is so addressed.

Step 6:

Shipment of Goods and Lodgment of Documents by Exporter:

• Exporter ships the goods to the destination of the importer country.
• Sends the documents to the L/C opening bank through his negotiating bank.

Generally the following documents are sent to the Opening Banker with L/C:

Step 7:

Lodgment of Documents by the Opening Bank from the Negotiating Bank:

After receiving the documents, the opening banker scrutinizes the documents. If any discrepancy found, it informs the importer. If importer accepts the fault, then opening banker calls importer retiring the documents. At this time many things can happen. These are indicated in the following:

(a) Discrepancy found and the importer accepts:

No problem occurs in lodgment.

(b)Discrepancy found but the importer not agreed to accept:

In this case, importer protests and sends back all the documents to the exporter and request him to make in the specified manner. Here banker is not bound to pay because the documents send by exporter are not in accordance with the terms of L/C.

(c) Documents are OK but importer is willing to retire the documents:

In this case, bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as PAD.

(d) Everything is OK but importer fails to clear goods from the port and requests bank to clear: 

In this case bank clears the goods and takes delivery of the same by paying customs duty and sales tax etc. So, this expenditure is debited to the importer’s account and in banking it is called LIM.

Step 8:

Retirement:

The importer receives the intimation and gives necessary instruction to the bank for retirement of the import bills or for the disposal of the shipping documents to clear the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank or may ask for LTR (Loan against Trust Receipt).

4.1.4 Accounting Procedure in case of L/C Opening:

When the officer thinks fit  the application to open a L/C, giving the following entries creates the following charges:

Particulars	Debit/ Credit	Charges in Taka
Customer’s A/C	Debit
L/C Margin A/C	Credit
Commission A/C on L/C	Credit	50%
VAT	Credit	15% on commission
SWIFT Charge	Credit	3000/=
Datamax	Credit	1000/=
Stamp	Credit	150/=
Postage	Credit	300/=
DHL/Courier	Credit	1500/=

4.1.5 Amendment of L/C:

After opening of L/C, sometimes alteration to the original terms and conditions become necessary. These amendments involve changes in-

• Unit price
• Extension of validity o the L/C
• Documentary requirements etc.

Such amendments can be affected only if all the concerned parties agree- the beneficiary, the importer, the issuing bank and the advising bank.For any amendment the importer must request the issuing bank in writing duly supported by revised indent/ pro-forma invoice. The issuing bank then advises the required amendment to the advising bank. L/C amendment commission including postage is charged to the client’s A/C.

4.1.6 Loan against Trust Receipts (LTR):

• Advance against  Trust Receipts obtained from the customers are allowed to only first class tested parties when the documents covering an import shipment or other goods pledged to the Bank as security are given without payment. However, for such advances prior permission/sanction from Head Office must be obtained.
• The customers hold the goods or their sale proceed in trust for the Bank, till such time, the loan allowed against the Trust Receipts is fully paid off.
• The Trust Receipt is a document that creates the Banker’s lien on the goods and practically amounts to hypothecation of the proceeds of sale in discharge of the lien.

4.1.7 Loan Against Imported Merchandise (LIM):

Advance (Loan) against the security of merchandise imported through the Bank may be allowed either on pledge or hypothecation of goods, retaining margin prescribed on their Landed Cost, depending on their categories and Credit Restriction imposed by the Bangladesh Bank. Bank shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM Account.

4.1.8 Payment Procedure of Import Documents:

This is the most sensitive task of the Import Department. The officials have to be very much careful while making payment. This task constitutes the following:

(i) Date of Payment:

Usually payment is made within seven days after the documents have been received. If the payment has become deferred, the negotiating bank may claim interest for making delay.

(ii) Preparing Sale Memo:

A Sale Memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.

(iii) Requisition for the Foreign Currency:

For arranging necessary fund for payment, a requisition is sent to the International Department.

(iv) Transmission of Message:

Message is transmitted to the correspondent bank ensuring that payment is being made.

4.2 Export:

The goods and services sold by Bangladesh to foreign households, businessmen and governments are called export. The export trade of the country is regulated by the Imports and Exports (Control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exports from Bangladesh are subjected to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CCI&E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP form and other documents connected with exports.

The formalities and procedures are enumerated as follows: 

(i) Obtaining export L/C:

To get export LC form exporter issued by the importer.

(ii) Submission of export documents:

Exporter has to submit all necessary documents to the collecting bank after shipping of goods .

(iii) Checking of export documents:

After getting the documents banker checks the documents as per L/C terms.

(iv) Negotiation of export documents:

If the bank accepts the document and pays the value draft to the exporter and forwards the document to issuing bank that is called a negotiating bank. If the bank does buy the L/C then the bank normally acts as a collecting bank.

(v) Realization of proceeds:

This is the period when the issuing bank has realized the payment.

(vi) Reporting to the Bangladesh bank:

As per instruction by Bangladesh Bank the bank has to report to respective department of Bangladesh Bank by mentioning latest payment.

(vii) Issue Proceed Realization Certificate (PRC):

Bank has to issue Proceed Realization Certificate of export L/C to the supplier / exporter for getting cash assistance.

4.2.1 Export Operation:

Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters export to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through Social Islami Bank Ltd. are readymade garments exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

Export L/C operation is just reverse of the import L/C operation. For exporting goods by the local exporter, bank may act as  an advising bank and collecting bank (negotiable bank) for the exporter.

(i) As an Advising Bank:

It receives documents from the foreign importer and hands it over to the exporter. Sometimes it adds confirmation on the L/C on request from the Opening Bank. By adding confirmation, it assumes the responsibility to make payment to the exporter.

(ii) As Negotiating Bank:

It negotiates the bills and other shipping documents in favor of the exporter. That is, it collects the proceed of the export-bill from the drawee and credits the exporter’s account for the same. Collection proceed from the export bill is deposited in the bank’s NOSTRO account in the importer’s country. Sometimes the bank purchases the bills at discount and waits till maturity of the bill. When the bill matures, bank presents it to the drawee to encash it.

In our country, Export and Import operation of bank is very much related with one another because of use of Back-to-Back L/C and maturity of payment for Back-to-Back L/C is set in such that it can be paid out of export proceed.

4.2.2 Back-To-Back L/C:

It is simply issued to the clients against an import L/C. Back-to-Back mechanism involves two separate L/Cs. One is master Export L/C and another is Back-to-Back L/C. On the strength of Master Export L/C, bank issues Back to Back L/C. Back-to-Back L/C is commonly known as Buying L/C. On the contrary, Master Export L/C is known as Selling L/C

(i) Features of Back-to-Back L/C:

• An Import L/C to procure goods or raw materials for further processing.
• It is opened based on Export L/C.
• It is a kind of Export Finance.
• Export L/C is at Sight but Back to Back L/C is at Usance.
• No margin is required to open Back to Back L/C
• Application is registered with CCI&E
• Applicant has bonded warehouse license.
• L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C.
• Usance period will be up to 180 days.
• The import L/C is opened for 75% of the value of Export L/C.
• Here L/C issued against the lien of export L/C.
• Arrangements are such that export L/C matures first then out of this export profit, import L/C is paid out.

(ii) Documents Required for Opening a Back-to-Back L/C:

In Social Islami Bank Ltd. Principal Branch, following papers/documents are required for opening a Back-to-Back L/C-

• Master L/C
• Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)
• L/C Application and LCAF duly filled in and signed
• Proforma Invoice or Indent
• Insurance Cover Note with money receipt
• IMP Form duly signed

In addition to the above documents, the followings are also required to export oriented garments industries while requesting for opening a Back-to-Back L/C:

• Textile Permission
• Valid Bonded Warehouse License
• Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the applicant for quota items.

(iii) Checklist of Export L/C:

Following defective points are usually found in the Master L/C. Therefore, the bank officials so much carefully check these points. These are:

• Name of the Advising Bank
• Name of Transferring Bank
• Form of Doc. Credit
• Name of Issuing Bank
• Documentary Credit No. and Issuing Date
• Date of Shipment
• Expiry Date and Place
• Applicant/ for order of/ On Account.
• Beneficiary/ Favoring
• Amount
• Availability of Credit
• Partial Shipment/ Transshipment
• Payment Condition /Draft Sight
• Category.
• Description of Goods:
• Item
• Total Quantity
• Unit Price
• B/L Clause
• Reimbursement Clause.
• UCPDC Clause
• Net FOB Value.

(iv) Payment of Back-to-Back L/C:

In case of Back-to-Back L/C as 60-90-120-180 days of maturity period, deferred payment is made.