General Banking Practices of Islami Bank Bangladesh Limited
Generally by the word “Bank” we can easily understand that the financial institutions deal with money. But there are different types of banks like; Central Banks, Commercial Banks, Savings Banks, Investment Banks, industrial Banks, Cooperative Banks etc. But when use the term “Bank” without any prefix, or qualification it refers to the ‘commercial banks’. Commercial banks are the primary contributor to the economy of a country. So we can say commercial banks are a profit making institution that holds the deposit of the individuals & business in checking & savings account and than uses these funds to make loans. For these, people and government are very much dependent on these banks. As banks are profit earning concern; they collect deposit at the lowest possible cost and provide loans and advances at higher cost. The differences between two are the profit for the bank.
Banking sector is expanding its hand in different events every day. At the same time the banking process is becoming faster, easier and the banking area becoming wider. As the demand for better services increases day by day, they are coming with different innovative ideas and products. In order to survive in the competitive field of the banking sector, all banking organization 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 procedure.
First Security Islami Bank Ltd is one among the best and most important bank for the Banking system of Bangladesh. Like other Banks & Financial Intermediaries, they perform a critical function of facilitating the flow of funds from surplus units to deficit units. Commercial banks basically focused on commercial lending. From the end of 19th century they are providing diversified services.
Like other Commercial banks FSIBL also have different sections such as section focusing on lending; a section helps in foreign trade, a section that collects deposits.
1.4 Objectives of the Study
· To evaluate the performance of General Banking of FSIBL
· To Examine the credit management system of FSIBL
· To find out the foreign exchange activities of FSIBL
· To observe the working environment of FSIBL banks.
· To explore the relationships between performance appraisal & employee commitment.
· To find out the existing limitation & provide some recommendation to overcome these barriers.
Secondary data was collected from the annual report, journal, FSIBL report, FSIBL employee training, lecture sheet & the website of First Security Islami bank limited.
Relevant data for this report will be collected primarily by direct investigations of different records, papers, documents, operational process and different personnel. The interviews were administered by formal and informal discussion. Structured questionnaire has been used. Information regarding office activities of the bank has been collected through consulting bank records and discussion with bank personnel.
- Data sources:
The information and data for this report have been collected from both the primary and secondary sources.
The “Primary sources” are as follows:
· Face-to-face conversation with the respective officers and stuffs of the branch and head office.
· Face-to-face conversation with clients visited the branch.
· Practical work experience in the different desk of the department of the branch covered.
The “Secondary Sources” of data and the information are:
- Annual Report of FSIBL
- Website of the FSIBL.
- Various book articles regarding general banking functions, Foreign exchange operations and credit policies.
- Different procedure manual published by FSIBL
- Different circular sent by head office or FSIBL.
1.6 Sampling Deign
All of the branches of First Security Islami Bank Limited in Bangladesh are the population & FSIBL College gate branch unit of analysis.
Sample unit is Personnel, Client/Customer of the First Security Islami Bank Limited.
Actually sample frame is very confidently for organization. So it is totally invisible to introduce. For the purpose of this study purposively selected 56 respondents in which 30 personnel & 26 clients customers for collecting appropriate data relevant with study objectives.
1.7 Data Analysis and Reporting
Both quantities & qualitative techniques used to data processing, presentations (percentile, control, dispersion, graphical prostrations, etc) & discussed in different times with concerned authority are used to preparing the report and finally submitted to evaluate my report.
2. Background of First Security Islami Bank Limited
The First security Islami Bank Limited is the third generation private sector Bank in Bangladesh. FSIBL is fully owned by Bangladeshi entrepreneurs. The bank was opened on August 29, 1999 but the first branch at 23, Dilkusha Commercial Area, Dhaka started commercial operation on August 29, 1999. The 2nd Branch was opened on 11 November 1999 at Khatungonj, Chittagong.
At present, FSIBL has been carrying on business through its 52 branches and twenty (20) branch are to be launched immediately spread all over the country. FSIBL was the first domestic bank to establish agency arrangement with the world famous Western Union in order to facilitate quick and safe remittance of the valuable foreign exchanges earned by the expatriate Bangladeshi nationals. FSIBL was also the first among domestic banks to introduce international Master Card in Bangladesh. In the meantime, FSIBL has also introduced the Visa Card and Power Card. The Bank has in its use the latest information technology services of SWIFT and REUTERS. FSIBL has been continuing its small credit program for disbursement of collateral free agricultural loans among the poor farmers of Agrabad area in Chittagong district for improving their lot. Alongside banking activities, FSIBL is actively involved in sports and games as well as in various Socio-Cultural activities. Up to September 2006, the total number of workforce of FSIBL stood at 2449, which include 1689 officers and executives and 550 staff.
2.1 Philosophy of FSIBL
At present the bank has as many as 52 branches across the country and it is committed to become equal service providers compatible with the norms of commercial schedule bank. It renders all types of personal, commercial and corporate banking services to its customers within the purview of the Bank Companies Act, 1991 and in line with the directives and policy guidelines laid down by Bangladesh bank.
2.2 Vision of FSIBL
Ensuring highest standard of clientele services through best application of latest information technology, making due contribution to the national economy & establishing ourselves firmly at home& abroad as a front ranking bank of the country are our cherished vision.
2.3 Mission of the FSIBL
Efforts for expansion of our activities at home & abroad by adding new dimensions to our banking services are being continued unabated. Alongside, we are also putting highest priority in ensuring transparency ,accountability improved clientele service as well as to our commitment to serve the society ,which we want to get closer & closer to the people of all strata. Winning an everlasting seat in the hearts of the people a caring companion in uplifting the national economic standard through continuous up gradation & diversification of our clientele services in line with national & international requirements is the desired goal we want to reach.
2.4 Goal of FSIBL:
Goal of FSIBL to establish & maintain the modern banking techniques to ensure the soundness & development if the financial system based on Islami principles &to become the strong efficient.
- To be most caring & Customer friendly & service oriented bank.
- To create a technology based most efficient banking environment.
- To ensure sustainable growth.
- To add effective contribution of the national economy.
2.5 Performances of FSIBL
First Security Islami Bank Limited closed the year 2007 recording significant growth in every sector despite volatile economic atmosphere of the country. During the year 2007 Deposit Mobilization, enhancement of loans and effective risk management has placed the bank in sound footings. Besides, Bank has maintained a strong market position by adding value to the shares. It may be said without hesitating that overall performance of the bank
2.6 Reserved Capital
The Reserve fund increased to 96.10 million during the year by registering 13.73 percent increase over last year Tk.84.50 million .
2.7 Profit and operating result
First Security Islami Bank Ltd generated an operating profit of TK. 421.90 million in 2006 and net profit after tax increased by 126.13 percent to TK. 30.60 million in 2007 after making provision for loans loses and income tax
2.8. Foreign Exchange
Bank gives paramount importance in its foreign exchange business to ensure profitability. Bank has been continuing to extend special importance on foreign business from the beginning of its establishment which is still prevailing during the year. To look after the business and also to ensure prompt service to the import and export officers having exposure and expertise in foreign exchange, posted both Head Office and Authorized Dealer branches.
2.9. Information Technology (IT) and Automation
All the branches of the FSIBL are fully computerized. New software is now in use to provide faster, accurate and efficient service to the clients. The bank is continuously striving for better services through extensive automation of its branches. They have already launched “One Branch Banking” through on-line connectivity. The bank has set up a full-fledged IT division to keep abreast of the latest development of IT for better service in the days to come.
2.10. Organizational structure of FSIBL
Functional oriented structure Organization structure plays an important role on the profitability of any organization. First Security Islami Bank Limited is a centralized organization. Its activities are designed on the basis of traditional banking business, such as credit, international division, investment, administration, and operation etc. FSIBL has a formal organizational structure that is highly specialized and centralized.
Organizational setup of the First Security Islami bank Limited is consisting of three organizational domains. Firstly the central top management, which contains Board of Directors, Managing Director, Additional Managing Director and Deputy Managing director, Major responsibilities of this are to take central decision and transmit it to the second step. Secondly, Central executive level management, which contains executive vice president, senior vice president, vice president and Assistant vice president. Major responsibilities of this part are to supervise and control division/ department. Thirdly, branch operation management, which contains branch manager and other mid/ lower level management. Major responsibilities of this part are to the 52 branches of this bank and report to the Head office from time to time.
Organizational structure of Head office
Fig 1: Organizational structure of Head office
A Brief Profile of FSIBL College gate Branch:
The branch has efficient human resources that can meet up customer’s needs. Otherwise workload is distributed properly. Most noted strength is customer service. Prompt, cordial & enthusiastic service satisfies most of the customers. Flexible banking service attracts more clients doing banking transactions with the branch. In some cases, customers coming outside the banking hour can honor the cherub & others without delay. Everybody performing own works very well. Under all of their efficient handling, the branch has already been able to introduce itself as one of the best performers among all other branches of FSIBL. FSIBL gives interns a good value. They assign some specific jobs that are to be done which a fixed period of time. With the initiation of good job in FSIBL of College gate branch, they reposed confidence on me and therefore assigned various other jobs such as general banking, foreign exchange. In fact overall banking practices were entrusted to me within this short period of three months
Fig 2: Organism of College gate Branch
2.11. Hierarchy of Position Structure of FSIBL
Additional Managing Director
Deputy Managing Director
Senior Executive Vice President
Executive Vice President
Senior Vice President
Senior Assistant Vice President
Assistant Vice President
Senior Principal Officer
2.12. Board of Directors of the FSIBL
Alhaj Md. Saiful Alam First Security Islami Bank Ltd. Managing Director
S. Alam group and Industries Ltd. Chittagong
Ms. Sarwar Jahan Maleque First Security Islami Bank Ltd. Director
M/S Jisco Bangladesh Ltd.
M/S Jahan Enterprise
|Mrs. Sharmin Fatema||Alhaj Mortoza Siddique Chowdhury|
|Mr. Hamidul Haq||Mrs. Atiqun Nesa|
|Mr. Md. Sharif Hussain||Mr. A. K. M. Ali Johar|
|Mr. Md. Wahidul Alam Seth||Mr. Shahidul Islam|
|Mr. Mohammed Oheidul Alam||Dr. Muhammad Loqman|
|Mrs. Shamshad Jahan|
Mr. A. A. M. Zakaria
Board & Company Secretary
Mr. Abdul Hannan Khan
2.13. Branch network of FSIBL
FSIBL Bank has fifty two branches around whole over the Bangladesh. The names of the branches are following according division wise:
In Dhaka division they have twenty two branches
|9.||Topkhana Road Branch|
|10.||Bisharoad Branch ,Bashabo|
|11.||First Security Islami Branch(Dokhin Khan)|
|15.||College Gate Branch|
In Chittagong division they have nine branches:
|3.||Jublee Road Branch|
|5.||Protrok Mor Branch|
|6.||Nozumia Hat Branch|
|7.||Karanir Hat Branch|
|9.||Dobashi Bazar Branch|
In Sylhet division they have four branches:
In Khulna division they have two branches:
In Rajshahi division they have three branches:
2.14. Management Structure of FSIBL
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 FSIBL are discussed below.
FSIBL has done its planning within the purview of the corporate plan. The overall planning approach of FSIBL is Top-down. Each branch can plan according to the goal imposed by the corporate level. It doesn’t plan independently. And, FSIBL has a planning division. This department is mainly responsible for the overall planning.
Organizing of the First Security Islami Bank Limited is based on Departmentalization. The organization is divided into twelve departments headed by Executive vice President or Senior Vice President. In the First Security Islami Bank Limited the whole operation is centralized and authority is delegated by written guidelines. These guidelines are:
Operational manual approved by Head Office, where each aspect or banking operation is elaborately defined.
- Advance manual including advances limit for different management level.
- Bad and doubtful recovery manual.
- Code of conduct.
- Foreign banking guidelines.
- Central bank directives.
- Different management position holders in departments and branches practice their authorized power in different cases with administrative loophole.
The recruitment of FSIBL is done in three ways. One as a “probationary officer” for the management program and it has probation period of one year. Second way of recruitment is to recruit non-probationary officer who joins as an assistant officer. The career path of an assistant officer is lengthier than probationary officer. The third way of recruitment is recruitment of staff and sub-staff such as typist, messenger, driver, guard, attendant, cleaner and other lower level positions. Promotion policy of FSIBL is basically based on seniority basis. Sometimes, employees are promoted to the higher position for their outstanding performance. However, it is found that the average length of a position held by an employee is around five years.
2.14.4. Directing and controlling
The management approach in FSIBL is top-down or authoritative. Information just seeks through lower management layer. Works are designed in such a way that can not leave without clearing the tasks as he is assigned for a day. Sitting Management in all office is done in way that the superior can monitor the subordinate can all time. Budgeting, rewarding, punishing etc. are also practiced as control mechanism.
2.14.5. Human resource Practices in FSIBL
Employees are the core resources of any organization. Without them, one cannot run their organization. And, human resource is concerned with the growth and development of people toward higher level of competency, creativity and fulfillment. It help employees become better more responsible person and then it tries to create a climate in which they 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 resource approach means that people achieve better result.
The set-vice rule of FSIBL states the recruitment policy of the bank. In general the board of directors determines the recruitment policy of 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 or BBA degree for the appointed of probationary officers in the Executive officer position. The recruitment for entry level positions begins with a formal written test. After successful completion of the written test, a personal interview is conducted for the successful candidates by a panel of experts comprising of renowned and prominent bankers of the country.
2.15 Core values
FSIBL score values consist of 6 key elements. These values bind our people together with an emphasis that our people are essential to everything being done in the bank.
· FSIBL protects & safeguards all customer information.
· FSIBL treats everyone in an equitable & consistent manner
· FSIBL creates an environment which earns & maintains customer trust.
2.15.2. Open communication
- FSIBL builds customer relationships on integrity &respect.
- FSIBL offers a full line of products &excellent service.
- FSIBL is committed to the prosperity of the customers & shareholders.
2.15.3. Performance driven
In FSIBL customers & employees are judged in terms of their performance.
2.15.4. Continuous self Improvement
Continuous learning self –challenge &strive make ways for self improvement of work force at FSIBL.
FSIBL offers hassle free better service timely.
FSIBL builds-up quality assets in the portfolio.
Interaction, open communication, and maintaining a positive attitude reflect FSIBL s commitment to supportive environment based on teamwork.
2.16 Division of FSIBL
- Audit & Inspection Division.
- ATM Card Division
- Board Secretariat
- Budget & Monitoring Division.
- Credit Division-1.
- Credit Division. -2.
- Credit Card Division.
- Classified Loan Recovery Division.
- Financial Administration Division.
- General Banking Division.
- Human Resources Division.
- International Division.
- Information System & Technology Division.
- Law & Recovery Division.
- Marketing Division.
- Merchant Banking Division.
- Public Relations Division.
- Protocol Division.
- Reconciliation Division.
- System & Operations
General Banking System
3.1 Product & Service of FSIBL:
First Security Islami Bank Limited is providing modern banking facilities to the customer. It is committed to fulfill every possible customer need with high efficiency and satisfaction. Its team of dedicated professionals is committed to provide an unparalleled service and to bring maximum benefits for the customers, the shareholders and the society at large. It’s a great pleasure of First Security Islami Bank limited to introduce following services:
Deposit Product of FSIBL:
Al-Wadeah Saving Account
Mudaraba Saving Account
Mudaraba Short Term Deposit
Mudaraba Term Deposit-
11.Mudaraba Monthly Income Scheme
12.Mudaraba Monthly Savings Scheme
13.Mudaraba Super Savings Scheme
14.Mudaraba Multi plus Savings Scheme
15.Mudaraba Haji Scheme
16.Mudaraba Education Saving Scheme.
17.Mudaraba Waqf Cash Deposit
18.Mudaraba Special Savings (Pension)
19.Mudaraba Muhar Savings
Deposit mix of FSIBL
Fig 4: Deposit mix of FSIBL
Investment Product of FSIBL
1. Izara Bill Baia (General)
2. Izara Bill Baia (HB)
3. Izara Bill Baia (Staff HB)
4. Bai-Muajjal (BAIM)
5. Izara (LF)
6. House Hold Durable Scheme (HDS)
7. Baia-Muazzal (General/FO)
8. Baia-Muazzal (WO)
9. Baia-Muazzal (Export)
10. Murabaha Import Bills (MIB)
11. Murabaha Post Import (MPI)
12. Trust Receipt (TR)
14. Musharaka Pre-Shipment (ECC)
15. Musharaka Pre-Shipment (PC)
16. Local Documentary Bill Purchase (LDBP).
3.2 Deposits service of FSIBL
Mudaraba Monthly Income Scheme
Bangladesh is a developing country. But in our country opportunity of is very low. People of our country always try to save their excess money and they are looking for where they can deposit the money. According to their demand FSIBL started this monthly income scheme.
Highlights of the Scheme:
- Minimum deposit Tk. 25000/
- Higher monthly income for higher deposits.
- The scheme is for a 5 years period.
- Monthly income will be credited to the depositor’s account on 5th of each month.
|Tk. 25,000||Tk. 250|
|Tk. 50, 000||Tk. 500|
|Tk. 1,00,000||Tk. 1000|
|Tk. 2,00,000||Tk. 2000|
|Tk. 5,00,000||Tk. 5000|
|Tk. 10,00,000||Tk. 10,000|
Fig: Monthly income to deposit amount
Objective of the scheme:
- An account is to be opened by filling up a form.
- The bank will provide to the customer a deposit receipt after opening the account. This receipt is non-transferable.
- If the deposit is withdrawn before a 5 years term, the saving interest rate will be applicable and paid to the depositor, however, no interest will be paid if the deposit withdrawn within 1 years of paid to the customer will be adjusted from the principal amount.
- A depositor can avail loan up to 80% of the deposit amount under this scheme. In this case, interest will be charge against the loan as per bank’s prevailing rate. During the tenure of the loan, the monthly account until liquidation of the loan amount inclusive of profit.
- The Government taxes will be paid, if necessary taxes will be paid, if necessary, by the client.
Mudaraba Super Savings Scheme
Saving helps to build up capital and is the prime source of business investment in a country. Investment takes the country towards industrialization, which eventually creates wealth. That is why savings is treated as the very foundation of development. To save, FSIBL offers Super Saving Scheme.
Terms and Conditions of the scheme:
v Any individual, company, educational institution, government organization, NGO, trust, society etc may invest their savings under this scheme.
v The deposit can be made in multiples of Tk. 10,000/=
v The period of deposit is for six years.
v Any customer can open more than one account in a branch in his name or in joint names. A deposit receipt will be issued at the name of opening the account.
v If the deposit is withdrawn before six years terms, then savings interest rate +10% will be applied before payment is made. However, no interest will be paid if the deposit is withdrawn within 1st year.
v A depositor can avail loan up to 80% of the deposited amount under this scheme.
v Incase of death of the depositor, before the term, the deposit (with saving rate +1%) will be given to the nominee. In the absence of nominee, the legal heirs/successors will be paid on production of succession certificate.
v Incase of issuing a duplicate deposit receipt the rules of issuing duplicate receipt of term deposit will be applicable.
v The client will pay the Government taxes if necessary, in future.
Some examples are given in the table below. Any amount can be deposited in multiples of Tk. 10,000/=
|Deposit||Terms||Payable at maturity||Payable Amount|
Mudaraba Multiplus Savings Scheme
Saving helps to built up capital and capital is the prime source of business investment in a country. Investment takes the country towards industrialization that eventually crates wealth. That is why savings is treated as the very foundation of development. To create, more awareness and motivate people to save, FSIBL offers Multi Plus Savings Scheme.
Terms and Conditions of the Scheme
- Any individual, company, educational institution, government organization, NGO, trust, society etc may invest their savings under this scheme.
- The deposit can be made in multiples of Tk. 10,000/=
- The period of deposit is for 10 years. But he deposit can be withdrawn at any year with profit. As an example of 1 year but before 2 years then deposit with interest with paid for 1 year only. The same rule will apply for other years. If deposit is withdrawn before 1st year then no interest will be paid.
- Any customer can open more than one account in a branch in his name or in joint names. A deposit receipt will be issued at the name of opening the account.
- The depositor can avail loan up to 80% of the deposit under this scheme.
- Incase of issuing a duplicate receipt the rules of issuing a duplicate receipt of terms deposit will be applicable.
- Incase of death of the depositor, before the term, the depositor (with saving rate) will given to the nominee. In the absence of nominee, the legal heirs/successors will be paid on production of succession certificate.
- The government taxes will be paid, if necessary, by the client, in future.
Some examples are given in the table below. Any amount can be deposited in multiples of Tk. 10,000/=
|Year||Year wise payable to customer|
Mudaraba Monthly Savings Scheme
The savings amount is to be deposited within the 10th of every month. Incase of holidays the deposit amount is to be on the following day. The deposit may also be made in advance.
The depositor can have a separate account in the bank from which a standing instruction can be given to transfer the deposit in the scheme’s account.
Incase the depositor fail to make the monthly installment in time, then 5% on overdue installment amount will be charged. The charge will be added with the following month(s) installment and the lowest charge will be Tk. 10/=.
A form has to be filled at the time of opening the account. No introduction is attested photographs are advised.
- The depositor can select any of the installment amounts, which cannot be subsequently changed.
- Incase of minors the guardians may open and supervise the account in this favor.
- A single person can open more than one account for saving under several interest rates.
- The depositor should notify the bank immediately on any change of address.
- The government tax will be deducted from the interest accumulated in this scheme.
- If necessary, at the request of the depositor, the scheme can be transferred to a different branch of the same bank.
- The bank reserves the right to change the rules and regulations of the scheme as and when deemed necessary.
|Term||Monthly Installment (Tk.)||Monthly Installment (Tk.)||Monthly Installment (Tk.)||Monthly Installment (Tk.)|
Mudaraba Hajj Scheme
Ninety percent of people in our country are Muslim. Hajj is mandatory of every rich and physically fit Muslim people. As a Islami Bank FSIBL offer Hajj Scheme to the customer to fulfill the desire of religious minded people.
One can open this type of scheme in different maturity by paying monthly installment.
Education Saving Scheme
The most gratifying experience for parents are proper education of their children. Educational expense is rapidly increasing and therefore appropriate planning needs to be done by all parents. FSIBL offers you “Education Saving Scheme” to assist in financial planning well ahead in for there children’s higher education.
Terms and Conditions of the Scheme:
- Deposit of Tk. 2, 50,000/= and multiples thereof at a time will be accepted under the scheme.
- The instrument shall be issued for 7 years, 10 years, 15 years or 20 years term.
- The deposit payable at maturity with benefit either in lump sum or on monthly basis as education allowance for 6 years starting after the completion of respective term.
- To avail the education allowance, the depositor is required to deposit the receipt to pay the amount to his/her nominated person on monthly installment basis as or instrument with the bank duly discharged by him with the written instruction stipulated in the scheme.
- Normally no withdrawn will be allowed before maturity. But, if any depositor intends to withdrawn his deposit before maturity, the following rules will be applicable:
(a)If withdrawn is made before seven years, interest will be calculated and paid as per prevailing saving rate.
(b)If withdrawn is made at any time after seven years, the total amount payable at maturity of the immediate preceding terms will be paid along with interest for the fractional period at prevailing saving rate.
- The depositor can avail loan up to 80% loan under the scheme.
- Incase of issuing duplicate receipt the rules of issuing duplicate receipt of terms deposit will be applicable.
|Term||Initial Deposit (Tk)||Amount payable at maturity||Education Allowance P/M|
The Bank has launched Master card among its customers in joint collaboration with DBBL Bank Ltd.
FSIBL’s card is accepted at more than 5000 outlets spread around the country; this card can be used in purchase of everyday necessities to luxurious goods and services. This wide range of merchants include hotels, restaurants, airlines, travel agents, departmental stores, hospitals, clinics & diagnostic centers, jewelry shops, electronic shops, health clubs any many more. Numbers of outlets are increasing day by day to cater to growing needs.
FSIBL card provides cash withdrawal facility up to 50% of your credit limit; this may be availed from ATM or from any branches of FSIBL Ltd. With a nominal cash withdrawal charge.
3.3 Investment service of FSIBL Ltd.
Izara Bill Baia (General)
Short term, medium term & long term investments allowed to individual/ firm/industries for a specific purpose but for a definite period and generally repayable by installments fall under this head. These types of lending are mainly allowed to accommodate financing under the categories.
I. Large & Medium Scale Industry and
II. Small & Cottage Industry.
Very Often Terms Financing for
I. Agriculture &
II. Others are also included here.
- The Islamic Shariah principle of investment under Izara Bill Bia is Musharaka Mutanakasha, which means the rent, shall be devisable as per equity involved, unpaid rent if any shall not be treated as equity and the asset shall be acquired on participation ownership.
- Possession of the asset shall be passed on to the client for use as per practicability.
- Bank shall retain the ownership till payment of equity portion of the bank along with rental.
- The ownership of the asset shall gradually pass on to the client upon payment of bank’s equity involved and on the reverse upon increase of client’s equity.
- Rent shall not be compounded in any case i.e. no rent shall be charged on unpaid/outstanding rent. The client shall reduce incidence of rent proportionately with the reduction of equity of the bank of payment of installment.
- Since it is a kind of Musharaka, cash can be paid to the credit of clients account. However, the purpose for which cash is disbursed must be ensured from the point of banking.
Incase of need the equity portion may be increased or decreased by making lump sum payment by either side. Very often the client may require funds to run the equipments/machineries for short period as working capital which may be paid to the debt of respective Izara Bill Bia Account if found feasible and covered by the value of assets.
Izara Bill Baia (HB)
Investment allowed to individual/enterprises for construction of house commercial fall under this type of investment. The amount is repayable by monthly installment with a specified period. Such investment is known as Izara Bill Bia (HIB). No investment for construction of residential house building shall be accommodated to the banks customer where is no other business consideration.
Izara Bill Baia (Staff HB)
Investment allowed to our bank employees for purchase/construction of house shall be known as investment (Staff HB).
It is a mode of investment under which the bank at the instance of the client procures certain goods permissible under Islamic Shariah and the law of the country and sells those to the client at a price payable at a fixed future date in lump sum or in fixed installments and the goods are delivered in advance and the fixed price is paid later or as agreed by the parties.
- Goods are to be purchased from a third party excluding sister concern(s) of the client.
- Ownership of bank on the goods be established at least for a single moment before selling the same to client.
- Like Murabaha, bank is not bound to declare cost of goods and profit mark up separately.
- It is a credit sale by which ownership of the goods is transferred by the bank to the client before receipt of sale price. That is payment is deferred for a fixed period. Bank may ore may not retain possession of the goods considering the security the security aspects. (However, in our bank, generally goods are delivered to the investment client but sufficient collateral is kept).
Financial accommodation to individual/firm for trading as well as for wholesale or to industries as working capital against pledge of goods as primary security fall under this head of investment. It is also a continuous investment and like the above allowed under the categories.
I. Commercial Lending
II. Working Capital
Bai-Murabaha may be defined as a contract between a buyer and seller under which the seller certain specific goods permissible under Islamic Shariah and the law of the land to the buyer at a cost plus agreed profit payable in cash or an any fixed future date in lump sum or by installments. The profit marked-up may be fixed in lump sum or any percentage of the cost price of the goods.
a. Ordinary Bai Murabaha
If there are only two parties, the seller and the buyer, where the seller as an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to a buyer for cost plus profit, then the sale is called ordinary Bai-Murabaha.
b. Bai-Murabaha on order and promise
If there are three parties, the buyer, the seller and the bank as an intermediary trader between the buyer and the seller, where the bank upon receipt of order from the buyer with specification and a prior outstanding promise to buy the goods from the bank, purchases the ordered goods and sell those to the ordering buyer at a cost plus agreed profit, the sale is called “Bai-Murabaha on or promise”, generally known as Murabaha.
Bank shall purchase the goods so that ownership of bank on the good is established at least for a moment. The bank may also engage the investment client as buying agent as per previous agreement to purchase the goods from third party on behalf of the bank who after purchase shall handover possession of the same to the bank at least for a second and there after the same shall immediately taken into pledge of the bank. (Please refer to engaging investment client as buying agent for detailed procedure).
- There must be three parties in order to perform buying a selling under Murabaha (a) Bank (b) Seller of Goods (c) Purchaser of Goods. Goods however must not be purchased from client of from any of its sister concern. Goods must also be halal as per Shariah.
- A commodity in the true sense of the term must be involved in buying and selling.
- There must be an agreement between the bank and the client. Cost of the goods sold and the amount of profit added there with should be separately and clearly mentioned in the Murabaha Agreement.
- After procurement of the goods the client shall take delivery of the same signing on the reverse of the purchase schedule and immediately there after the bank shall take the goods in to pledge as security of bank’s investment.
Izara Bill Baia (HP)
Izara Bill Baia (HP) is a type of installment investment under which the purchaser agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of principal as well as profit for adjustment of the investment within a specified period.
Izara (LF) is one of the most convenient sources of acquiring capital machinery and equipment whereby a client is given the opportunity to have an exclusive right to use an asset usually for an agreed period of time against payment of rent. It is a term financing repayable by installment.
House Hold Durable Scheme (HDS)
It is a special investment scheme of the bank to finance purchase pf consumer durable to the fixed income group to raise their standard to living. The customers allow the investments on soft terms against personal guarantee and deposit of specified percentage of equity. The investment is repayable by month installment within a fixed period.
Investment allowed to individual/firms against financial obligation (i.e lien of MTDR/PSP/BSP/Insurance Policy/Share etc.) This may not be a continuous investment.
Investment allowed against assignment of work order for execution of contractual work falls under this head. This investment is generally allowed for a definite period and specific purpose i.e. it is not a continuous investment.
Investment allowed for purchasing foreign currency for payment against L/Cs (Back to Back) where the exports do not materialize before the date of import payment. This is also investment for temporary period, which is known as export finance and falls under the category “Commercial Lending”.
Murabaha Import Bills (MIB)
Payment made by the bank against lodgment of shipping documents of goods imported through L/C falls under this head. It is an interim investment connected with import and is generally liquidated against payment usually made by the party for retirement of the documents for release of imported goods from the customs authority. It falls under the category “Commercial Lending”.
Murabaha Post Import (MPI)
Investment allowed for retirement of shipping documents and release of goods imported through L/C taking effective control over the goods by pledge in godown under bank’s lock & key fall under this type of investment. This is also a temporary investment connected with import is know as post import finance and falls under the category “Commercial Lending”.
3.4Financial scenario of FSIBL
Reserved & Capital
Stock Dividend of 55% was declared for then year 2007 which increased paid-up capital of the bank from tk 1296.21million to tk 1921.21million in 2008 while authorized capital was 345 million.
The Reserve fund increased to 569.10 million in 2008 after maintaining 25% pretax profit. the total equity of shareholders of the bank stood at tk 3626.30 million at the end of the year 2008.
Fig 5:Capital & Reserve per year
Import & Export Business
During the year, the bank opened 28,872 import letters of credit and the import volume stood at Tk. 61399.40 million with a growth of 23.80% in comparison with previous year of Tk. 49596.73 million.
The growth of the export business has been increased by 20.67%. It stood at Tk. 55790.42 million as of December31, 2007 against Tk. 46234.59 million of the previous year.
The deposits of FSIBL registered an increase of 33.36 percent during the year under review, at the close of 2008 total deposits stood at Tk. 23,504 million against 17,592 million expanded branch network innovative deposit products, a huge number of customers, which contributed to the growth of deposit. The main customers include individuals, corporation, financial institutions, governments and autonomous bodies etc.
Fig 6: Deposits
Loans and Advances
First Security Islami Bank Ltd has been able to increase its loans and advances despite adverse conditions in the domestic as well as in the global economy. The Bank recorded a. growth of 36.42 percent with a total loans and advances portfolio of Tk. 18,616.23 million at the end of December 2008 compared to Tk. 13,646.00 million at the en