An Over view of Shahjalal Islami Bank Ltd:
Organization overview
1. Corporate Information:
Name of the Company : Shahjalal Islami Bank Limited
Legal Form : A public limited company incorporated in
Bangladesh on 1st April 2001 under the companies Act 1994 and listed in Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.
Commencement of Business : 10th May 2001.
Registered office : Jiban Bima Bhaban
Front Block (4th Floor)
10, Dilkusha Commercial Area
Dhaka-1000
Telephone No. : 88-02-9570812, 7160591
Fax No. : 88-02-9570809
Website : www.shahjalalbank.com.bd
SWIFT : SJBL BD DH
E-mail : sblho@shahjalalbank.com.bd
Chairman : Alhaj Sajjatuz Jumman
Managing Director : Alhaj M.Kamaluddin Chowdhury
Company Secretary : Md. Emran Hossain
Auditor : M/S Hoda Vasi Chowdhury & Co.
Chartered Accountants
Ispahani Building (3rd Floor)
14-15 Motijheel C/A, Dhaka,
Tel: 9567587, 9551028
No. of Branches : 26
No. of Employees : 466
Authorized Capital : Tk. 2000 million
Paid up Capital : Tk. 935.83 million (Before IPO)
Tk. 1871.65 million (After IPO)
Face Value per Share : Tk. 100
2.1 A Brief Profile of Shahjalal Islami Bank Ltd:
Shahjalal Islami Bank Ltd is based on Islamic Shariah. SJIBL is named after the name of a saint Hajrat Shahjalal (R) who dedicated his life for the cause of peace in this world and hereafter and served the humanity. It was incorporated as a Public limited company on 1st April 2001 under companies Act 1994. It started its Banking operation on May 10, 2001 with the 1st branch (main branch) opened at 58, dilkusha C/A, Dhaka obtaining the license of Bangladesh Bank, for enlistment of economic condition of its customers as well as to contribute sustainable economic growth and development in trade and industry of the country. Its corporate head quarter is situated at 10 Dilkusha C/A, Jiban Bima Bhaban, Dhaka-1000, Bangladesh
At present, the bank has a network of 26 branches with around 466 employees stationed in both rural and urban areas of the country. Since inception, the Bank has been making significant profit every year and positioning itself as second highest profit-making bank in the country for last five consecutive years. This has been possible due to significant growth of the bank. This has also been possible due to minimize the risks of the bank successfully.
2.2 Organization Structure:
2.1 Figure: Organization Structure
2.3 Objectives of SJIBL:
The objective of Shahjalal Islami Bank Limited is not only to earn profit but also to keep the social commitment and to ensure its co-operation to the person of all level, to the businessmen, industrialist specially who are engaged in establishing large scale industry by consortium and the agro-based export oriented medium and small scale industries by self inspiration.
2.4 Mission:
High quality financial service with the latest technology.
First, accurate and satisfactory customer service.
Balance & sustainable growth strategy.
Optimum return on shareholder’s equity.
Introduction 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 organization- by way of mobilizing fund and social services.
2.5 Vision:
Shahjalal Islami Bank Limitedstared its journey with the concept of 21st century Islamic participatory three sector banking model:
a) Formal Sector-Commercial banking with latest technology
b) Non Formal Sector-Family empowerment Micro-credit & Micro-enterprise program
c) Voluntary Sector – Social capital mobilization through CASH WAQF and other.
Finally, “Reduction of Poverty Level” is there Vision, which is a prime object as stated in Memorandum of Association of the Bank with the commitment “Working Together for a Caring Society”
2.6 Core Values:
For the customers
To become most helpful Bank-by providing the most well-mannered and efficient service in every neighborhood of business.
For the Shareholders
By ensuring flaxen return on their investment through generating established profit.
For the Community
By presumptuous the role as a socially conscientious corporate entity in a physical manner through close obedience to national policies and objectives.
2.7 Philosophy of the SJIBL:
At present the bank has as many as 26 branches, 13 branches are in Dhaka and rest 13 branches are in Chittagong, Sylhet and Gazipur. The sponsors of SJIBL are leading business personalities and renowned industrialist of the country. Now this bank has paid up capital – 46.83 million and No. Of Directors – 13 (source Internet).
2.2: Figure: Branch Network
2.8 Performance of the SJIBL:
SJIBL a blend of expertise and technological excellence is in place to meet varied needs of modern customers. The bank aims at mobilizing untapped money of the country and prudent deployment for productive activities in the form of lending at a competitive profit rates/investment pricing. Towards attainment of its goals and objectives, the bank pursues diversified credit policies and strategic planning in credit management. To name a few, the bank has extended micro credit, consumers durable scheme investments, house building investments etc. to cater to the needs of the individuals, which in turn has helped thousands of families. The bank also extends investment in the form of trade finance, industrial finance, project finance, export & import finance etc. The bank’s credit polices aimed at balanced growth and harmonious development of all the sectors of the country’s economy with top most priority to ensure quality of lending by averting growth of non-performing assets.
2.9 Products and Services:
The SJIBL serves its massive clientele with a variety of services apart from the conventional ones. Its frequent improvement and introduction of new products and services has given it a margin over the competitors.
a) Different Types of Scheme:
Monthly Deposit Scheme (MDS)
Mudarah Term Deposit Receipt (MTDR)
Monthly Income Scheme (MIS)
Double Profit Deposit Scheme (DPDS)
Millionaire Scheme.
Hajj Palon Scheme etc
b) Different Types of Investment (Lone) Facilities:
Trade.
Working Capital Financing.
Industry.
Agriculture, Fishing and Forestry.
Transport and communication.
Water works and sanitary service.
Construction.
Storage.
Miscellaneous etc.
2.10 Reserves of SJIBL:
In accordance with the provision of Bank Companies Act, 20% of operating profit before tax is required to be transferred to statutory reserve. As such an amount of Tk.267.13 million has been transferred to statutory reserve during the year.
2.11 Deposits:
Total deposit of Shahjalal Islami Bank stood Tk.18090.65 million as on 31.12.2007 as against Tk. 12204.63 million of 31.12.2006 registering an increase of Tk.5886.02 million, 48.23% growth. Deposit is the ‘life-blood’ of a Bank. Bank has given utmost importance in mobilization of deposits introducing some popular and innovative schemes.
2.3 Figure: Deposit of SLIBL
2.12 Profit and Operating Results:
2.12.1 Income:
- Investment income: Total investment of the bank as at 31st December 2007 was Tk. 2158 million as against Tk. 1357 million of the preceding year registering 59% growth over last year which was 84% of the total income as also equal to 84% of 2005.
- Non-investment income: Total non-investment income of the bank as at 31st December 2007 was Tk. 405 million as against Tk. 263 million of preceding year registering 54% growth over last year which was 16% of the total income compared to 16% of 2006.
2.12.2 Expenditure:
1. Profit Paid on Deposits: Bank distributed profit of Tk. 1491 million the Mudaraba Depositors in the year 2007 against Tk. 944 million in the year 2006 which being 70% of the investment income earned from deployment of Mudaraba fund and 87% of the total expenditure of 2007 against 84% of 2006.
2. Operating Expenses: Total operating expenses as on 31.12.2007 was Tk. 227 million as against Tk. 174 million of 2006, which was 13% of the total expenditure of the year 2007 against 16% of 2006.
3. Operating Profit: During the year 2007, the Bank earned an amount of Tk. 2563 million and spent an amount of Tk. 1718 million, resulting a total Operating Profit of Tk. 845 million which increased by Tk. 343 million over last year i.e. 2006. After deduction investment provision and income taxes net profit stood at Tk. 463 million as against Tk. 256 million of 2006. As appropriation of net profit, Tk. 158 million transfers to statutory reserve as per Bank Company Act 1991 and remaining Tk. 306 million transfers to retained earning to adjust previous negative balance.
A summery of operating result of the bank as on December 2007 vis-à-vis the position of December, 2006 is shown below
(Amount in million) Taka Taka
| particulars | 2007 | 2006 |
| Total Income | 2563.64 | 1621.28 |
| Less: Total Expenditure | 1718.57 | 1119.44 |
| Net Profit before Provision & Taxation | 845.07 | 501.84 |
| Less: Provision for Investment | 57.50 | 36.00 |
| Net Profit before Taxation | 787.57 | 465.84 |
| Less: Provision for Taxation | 324.35 | 210.25 |
| Net Profit | 463.22 | 255.59 |
| Appropriation | ||
| Statutory reserve | 157.52 | 93.17 |
| Retained Earnings | 305.70 | 162.42 |
2.1 Table: Operating Result of SJIBL on December 2007-2006.
2.4 Figure: Operating Result on SJIBL
2.13 Equity of the Bank:
The authorized capital of the bank is Taka 2000 million, and paid-up capital of the bank is Tk. 936 million as on 31.12.2007. Total equity was Tk. 1,363 million as on 31.12.2007. The bank has already raised its paid up capital of Tk. 936 million through Initial Public Offering (IPO) in January-February 2007. After IPO Bank’s paid up Capital stands at Tk. 1872 million in February 2007. Comparative position of Equity for the year 2007 & 2005 is given below:-
(Amount in million Taka)
| SL. No | Particular | 2007 | 2006 |
| a)
b) c) d) e) |
Paid-up capital
Statutory Reserve Retained Earnings General Provision Exchange Equalization |
935.83
267.13 1.96 157.48 0.17 |
935.38
109.62 (303.75) 106.48 0.17 |
| Total | 1362.57 | 848.35 |
2.2 Table: Comparative position of Equity for the year 2007 & 2005
2.14 Capital Adequacy: Total equity of the bank as on 31.12.2006 was Tk. 848.35 million and the total equity stood to Tk. 1362.57 million on 31.12.2006m, which was 10.36% of the Risk Weighted Assets as against the requirement of 9.00%. The core capital was 9.19% of Risk Weighted Assets as on 31st December 2007 as against requirement of 4.50%. After IPO, as on 30.062007 total equity stands at Tk. 2545.30 million which was 17.73% of Risk Weighted Assets as against total requirement of 9%.
2.15 Investments (Lone): Total investment of the bank stood at Tk.15515.79 million as on 31.12.2007 as against Tk. 10590.27 million of 31.12.2006 registering as increase of Tk. 4925.52 million, i.e. 46.51% growth. The bank is careful in deployment of the fund. Mode wish investment portfolio as on 31.12.2007 is given below:
| SL
No |
Mode of investments | Taka in
million |
Percentage of
total investment |
| 1 | Murabaha | 4687.36 | 30.21% |
| 2 | Bi-muajjal | 5774.57 | 37.22% |
| 3 | Hire-purchase & Ijara | 3009.46 | 19.40% |
| 4 | Investment against L/C | 219.72 | 1.42% |
| 5 | Bill purchased/discounted | 1308.55 | 8.43% |
| 6 | Investment against scheme deposits | 428.78 | 2.76% |
| 7 | Quard | 59.27 | 0.38% |
| 8 | Other | 28.08 | 0.18% |
| Total | 15515.79 | 100.00% |
2.3 Table: Mode wish investment portfolio as on December 2007
2.4
2.5 Figure: Investment Portfolio of SJIBL
2.6.Figure: Deposit & investment position of SJIBL
The bank entertains good investment clients having credit-worthiness and good record. The bank has got a few investment schemes to provide financial assistance to comparatively less advantaged group of people which are.
Household Durable Scheme.
Small Business Investment Program
Small Entrepreneur Investment Program
Medium Entrepreneur Investment Program
Housing Investment program
The following two investment schemes are going to be introduced shortly.
Car Investment scheme.
Women Entrepreneur Investment Scheme.
2.16 Liquidity of SJIBL:
Liquidity in the form of balance with Bangladesh Bank, Sonali Bank (as the agent of Bangladesh Bank) and in hand including foreign currency stood at Tk. 1670.12 as at 31st December 2007 as against Tk. 1702.27 million in last year to maintain cash & statutory liquidity. The Bank is committed to maintain the cash and statutory liquidity requirement to effectively manage the asset & liability portfolios of the bank in order to maximize the profit. As per guideline of the Bangladesh Bank ALCO (assets liability committee) was formed in 2005, which is highly concerned with proper liability management under the close supervision of senior management. The bank has a policy guideline on liquidity management as approved by its board of directors. We have able to maintain required CRR and SLR throughout the year without fail as per Bangladesh Bank’s norm.
2.17 Information Technology (IT) & Automation:
All the branches of the SJIBL 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. We are soon going to launch “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.
2.18 Corporate Governance:
In recent times, corporate governance has been considered most essential aspect for efficient management of a business house. SJIBL gives much emphasis on the corporate governance in promoting a sound management. The object of the bank is to comply with all regulatory requirements, ensure equitable treatment of all stakeholders. It confirms full & fair disclosure of financial and other material information and show respect for norms of business ethics and social responsibility. The Board of director, Executive committee, Audit committee and other committee of the management perform their respective tasks with accountability and transparency.
2.19 Foreign Correspondents:
Foreign correspondent relationship facilities foreign trade operation of the bank, mainly in respect of export, import and foreign remittance. The number of foreign correspondents and agents of the bank in the year 2007 stood at 244, which covers important business and trade centers of the world. The bank maintains excellent relationship with the leading international banks, for handling all foreign correspondent and maintaining all foreign business there is an International Division, which is called ID.
2.20 Investment (Credit) Rating Report:
| Long Term | Short Term | |
| Entity Rating | A | ST-2 |
| Date of Rating | 27 June, 2007 | |
2.4 Table: Credit Rating Report
Credit rating information and service limited (CRISL) has assigned “A” (pronounced as single A) rating in the Long Term and ST-2 rating in the Short Term to the Shahjalal Islami Bang Limited.
The above rating has been done in consideration of its significant improvement in asset quality, capital adequacy, financial performance. Financial institution rated “A” in the long term are adjudged t offer adequate safety for timely repayment of financial obligations. This level of rating indicates a corporate entity with an adequate credit profile. Risk factors are move variable and greater in periods of economic stress then those rated in the higher categories. Bank rated ST-2 in the short term is characterized by high certainty of timely payment, liquidity factor are strong and supported by good fundamental protection factors. Risk factors are very small.
2.7 Figure: Credit Rating Long Term
2.8 Figure: Credit Rating Short Term
Analysis and Discussion
3.0 Topic Introduction:
Investment comprises a very large portion of a bank’s total activities. Investment operation of a Bank is, as such, of vital importance as the greatest share of total revenue is generated from it. The very existence of a bank mostly depends on prudent management of its investments port-folio. Sound investment practice, therefore, is very important for profitability and success of a bank.
For efficient deployment of mobilized resources in profitable, safe and liquid investments, a sound, well-defined, well-planed and appropriate investment policy framework is a prerequisite for achieving the goal of the bank. It is, therefore, essential to have a clearly defined and balanced investment policy prescribing the procedures for implementation thereof on the basis of which the bank’s investment port-folio shall be planned and budget shall he prepared for promotion of investments.
For the sake of sound investment it is necessary to develop a sound policy. Modern investment techniques have be to adopted to ensure that investments are safe and the money will come back within the time set for repayment. For this purpose, proper and prior analysis of investment proposals is required to assess the risk. Investment itself is risky and the very purpose of analyzing the risk is to locate/identify the risk for obtaining possible cover/precaution. While deciding an investment proposal we are to judge the degree of risk a given situation. Investment is judgments, which depend upon our ability to assess the shortcomings in the proposal and to indentify the risk. Therefore, the ability in taking proper/prior measures to minimize the risk is very important.
Investment risk is an essential factor that needs to be managed. Investment risk is the possibility that the client will fail to meet its obligations in accordance with agreed terms. Investment risk, therefore, arises from the bank’s dealings with the investment clients, the corporate, individuals, and other banks or financial institution.
Investment risk management, therefore, needs to be a robust process that enables banks to proactively manage investment portfolios in order to minimize losses and earn an acceptable level of return for shareholders. Central to this is a comprehensive IT system, which should have the ability to capture all key customers data, risk management and transaction information including trade & foreign exchange transaction. Given the fast changing dynamic global economy and the increasing pressure of globalization, liberalization. Consolidation and dis-intermediation, Shahjalal Islami Bank Ltd has formulated a robust investment risk management policy and procedures that are sensitive and responsive to these changes.
The manual sets out the basic procedures to be followed throughout SJIBL for sanctioning and controlling investment facilities. These procedures are intended to provide bank management with an accurate and detailed information base for investment decision. This manual deals with systems and will from time to time be supplemented by circulars, which would then form a part of the manual. These circulars should be maintained in a separate file after being appropriately cross-referred to the manual and would remain valid until such time as the manual is revised and reprinted.
3.1 Credit Defined:
The word “Credit”is derived from the Latin word “credo” meaning, “I believe”. The term credit may be defined either broadly or narrowly. Speaking broadly, credit is finance made available by one party (lender, seller, or shareholder/owner) to another (borrower, buyer, 7 corporate or non-corporate firm). More generally the term credit is used narrowly for debt finance. Credit is simply the opposite of debt. Debt is the obligation to make future payments. Credit is the claim to receive these payments. Both are created in the same act of borrowing and lending.
Credit is the means of investment made by the bank to the entrepreneurs and business community. Alternatively this is the way of channeling fund to the deficit units where various risks and uncertainties are involved. Therefore every decision on credit matter should be taken with utmost care that can be ascertained through in-depth analysis, meticulous calculation and prudent judgment. A detailed and very comprehensive credit policy can guide the dealing credit officer to successfully maneuver the credit portfolio.
3.2 Credit Management:
One of the two primary functions of a commercial bank is to extend credit to the deficit economic unit that comprises borrowers of all types. Bank credit is a catalyst of economic development. Without adequate finance, there can be no growth in the economy. Bank lending is important for the economy in the sense that it can simultaneously finance all of the sub-sectors of financial arena, which comprises agricultural, commercial and industrial activities of a nation. Therefore, a bank is supposed to distribute its investment fund among economic agent-in-deficit in a manner that it will generate sufficient income for it and at the same time benefit the borrower to overcome his / her deficit.
3.3 Islamic Banking Concepts:
According to Islamic Banking Act of Malaysia, an Islamic Bank is “company, which carries on Islamic Banking business. Islamic Banking business means banking business whose aims and operations do not involve any element which is not approved by the religion Islam.”
Dr. Ziauddin Ahmed says, “Islamic banking is essentially a normative concept and could be defined as conduct”
3.4 Literature Review:
(Stulz, 1984), (Smith, Smithson and Wolford, 1990), and (Froot, Sharfstein and Stein,1993) Credit management dominates the theoretical literature on Islamic finance. Broadly, CM is a contractual arrangement between two or more transacting parties, which allows them to pool their resources to invest in a project to share in profit and loss. Most Islamic economists contend that CM based on two major modes of financing, namely Mudaraba and Musharaka, is desirable in an Islamic context wherein reward-sharing is related to risk-sharing between transacting parties. Almost all theoretical models of Islamic banking are either based on Mudaraba or Musharaka or both, but to-date actual practice of Islamic banking is far from these models. Nearly all Islamic banks, investment companies, and investment funds offer trade and project finance on mark-up, commissioned manufacturing, or on leasing bases. CM features marginally in the practice of Islamic banking and finance. However, there is now a growing literature on the reasons for active credit management including the work of name but a few of the more notable contributions.
Dr Ho (24 may, 2004, 08:48a.m) Credit management, to make it simple, refers to fund and working capital management. However, most people have some misconnects. They only consider credit management is a short-term process. In fact, if it relates to working capital, it may be right. However, if it relates to fund management, it can be a long-term basis. You may imagine asset valuation for credit evaluation, i.e. a credit management step, refer to fixed assets usually. Value of fixed assets will change over its life. In other words, your credit evaluation will adjust all the time.
(Fama and Jensen, 1983) Credit management is defined as initiation of projects (demand and feasibility studies, project proposals etc.) and implementation of these proposals by active involvement in the production process.
(Tah and Carr, 2000). Traditionally the focus has been on inductive methods with quantitative credit management based on estimating probabilities and probability distribution for time and cost analysis. A rational profit-maximizing banker would not lend the maximum acceptable amount of loans even if the borrower was willing to pay higher profit rates. Since credit monitoring, though reducing the problem of asymmetric information, is costly to the bank. On the other hand, the bank can rely on some objective criteria to judge the credit-worthiness of borrowers; credit rationing cannot be monitored without cost.
(Deakins and Hussain, 1991) English bank managers placed emphasis on financial information, gearing and security. Further, the bankers adopted a non-specialist approach, relying on information such as balance sheet ratios and income forecast, which could be generally interpreted across different types of industries. Lack of experience with similar propositions or knowledge of the industry.
Marcel de Koning, Manager Credit & Collections Telfort(2009) Telfort regards credit management as a vital instrument that enables the company to compete successfully in an almost saturated Dutch telecoms market.
3.5 Types of investment (Lone) Facilities in SJIBL:
Shahjalal Islami Bank Ltd shall extend all types of investment facilities in compliance with Islamic Shariah. Priority basis investment types as well as applicable modes are furnished below. Investment and advances have primarily been divided into three major groups:
3.1 Table: Types of term Investment (lone)
| SL No. | Types of Investment | Modes of Investment |
| 1. | Trade | 1. Bai Muazza
2. Murabaha 3. Letter of Credit 4. Istisna (PSF) 5. Bai-Salam 6. Bill Purchase 7. Any other applicable mode. |
| 2. | Working Capital Financing. | 1. Bai Muazzal
2. Murabaha 3. Quard 4. Bai-Salam 5. Any other applicable mode. |
| 3. | Industry (term finance: Factory Building, Machinery & other) | 1. HPSM
2. Lease 3. Bai Muazzal 4. Musharaka 5. Any other applicable mode. |
| 4. | Agriculture, Fishing and forestry | 1. HPSM
2. Lease 3. Bai Muazzal 4. Bai Salam 5. Any other applicable mode. |
| 5. | Transport and communication | 1. HPSM
2. Laase 3. Any other applicable mode. |
| 6. | Water works and sanitary service | 1. HPSM
2. Laase 3. Any other applicable mode |
| 7. | Construction (other than industry: Real Estate, Staff-House Building) | 1. HPSM
2. Bai Muazzal 3. Laase 4. Any other applicable mode |
| 8. | Storage | 1. HPSM
2. Murabaha 3. Laase 4. Any other applicable mode |
| 9. | Miscellaneous | 1. Any other applicable mode |
3.2 Table: Types of Investment (lone)
Investment for Trading:
In Shahjalal Islami Bank Limited investment in trading is one of the most vital sectors. Applicable modes are furnished below.
| Maximum tenor | One year on revolving basis. |
| Maximum size | Depending on the requirements of concern business but not more then 15% of banks capital. |
| Security Requirements | 1.25 times of investment amount or as per decision of the approving authority But may be relaxed in case of good customers. |
| Charge/Rate | 15.50% |
| Repayment Method | Monthly equal installment. |
Working Capital:
It allows to individuals or firm for trading as well as whole-sale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending.
| Maximum tenor | One year on revolving basis. |
| Maximum size | Depending on the requirements of concern business but not more then 15% of banks capital. |
| Security Requirements | Land/Building/Factory |
| Charge/Rate | Jute (11.00%), Industrial/Commercial (15.50%) |
| Repayment Method | Monthly equal installment. |
HPSM (Transport):
For purchasing of non-commercial, new and reconditioned vehicles, this investment is given for personal use of the individual.
| Maximum tenor | 8 year (without grace period). |
| Maximum size | 70% of value of the transport, but 100% may be allowed in case of good customers. |
| Security Requirements | 1.25 times of investment amount or as per decision of the approving authority But may be relaxed in case of good customers. |
| Charge/Rate | 15.50% |
| Repayment Method | Monthly equal installment. |
HPSM (Machinery):
For providing support to installation or purchase of machinery equipment to the borrower if it is individual or firms this sort of investment is very common in SJIBL.
| Maximum tenor | 8 year (without grace period). |
| Maximum size | 70% of value of the machinery, but 100% may be allowed in case of good customers. |
| Security Requirements | Personal Guaranty + Goods |
| Charge/Rate | 15.50% |
| Repayment Method | Monthly equal installment. |
Hire purchase/Lease:
Parties enter into contracts that come into effect serially, to form a complete lease/ buyback transaction. A Bai that triggers a sale or purchase once the term of the Ijarah is complete. For example, in a car financing facility, a customer enters into the first contract and leases the car from the owner (bank) at an agreed amount over a specific period. When the lease period expires, the second contract comes into effect, which enables the customer to purchase the car at an agreed to price.
| Maximum tenor | 8 year (without grace period). |
| Maximum size | 70% of value of the leased asset, but 100% may be allowed in case of good customers. |
| Security Requirements | 1.25 times of investment amount or as per decision of the approving authority But may be relaxed in case of good customers. |
| Charge/Rate | 15.50% |
| Repayment Method | Monthly equal installment. |
Commercial Lending:
Advances allowed for purchasing foreign currency for opening L/C for imports of goods fall under this type of leading. This is also an advance for a temporary period, which is known as preemptor finance and falls under the category Commercial Lending.
| Maximum tenor | 8 year (without grace period). |
| Maximum size | 70% of value of goods, but 100% may be allowed in case of good customers. |
| Security Requirements | 1.25 times of investment amount or as per decision of the approving authority But may be relaxed in case of good customers. |
| Charge/Rate | 15.50% |
| Repayment Method | Monthly equal installment. |
Bai-Muajjal commercial/HPSM;
Literally bai muajjal means a credit sale. Technically, a financing technique adopted by Islami banks takes the form of murabaha muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments.
| Maximum tenor | 8 year (Without grace period). |
| Maximum size | 70% of construction cost, but 100% may be allowed in case of good customers. |
| Security Requirements | 1.25 times of investment amount or as per decision of the approving authority But may be relaxed in case of good customers. |
| Charge/Rate | 16.00% |
| Repayment Method | Monthly equal installment. |
Murabaha L/C:
This investment is most popular to the both banks and clients. Murabaha is paid against different types of imports of goods i,e. Show-piece, Household goods, watch, lamp different gift items etc. from inside or outside the country. The margin of investment is 10% in cash.
| Maximum tenor | 5 year (Without grace period). |
| Maximum size | 80% of purchase cost, but 100% may be allowed in case of good customers. |
| Security Requirements | 1.25 times of investment amount or as per decision of the approving authority But may be relaxed in case of good customers. |
| Charge/Rate | 16.00% |
| Repayment Method | Quarterly equal installment. |
HPSM industrial project:
These types of investment’s maximum tenor, maximum size is given below.
| Maximum tenor | 8 year (Without grace period). |
| Maximum size | As per decided debt equity ratio subject to regulatory. |
| Security Requirements | 1.25 times of investment amount or as per decision of the approving authority But may be relaxed in case of good customers. |
| Charge/Rate | 15.50% |
| Repayment Method | Monthly equal installment. |
Quard:
This is a invest extended on a goodwill basis, and the debtor is only required to repay the amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the investment (without promising it) as a token of appreciation to the investor.
| Maximum tenor | Up to the maturity of the related deposit account. |
| Maximum size | 90% of the deposit account. |
| Security Requirements | Lien of the deposit account |
| Charge/Rate | 16.00% |
| Repayment Method | Monthly equal installment. |
Bai salam:
Bai salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute.
| Maximum tenor | Up to the maturity of the related deposit account. |
| Maximum size | 90% of the deposit account. |
| Security Requirements | Lien of the deposit account |
| Charge/Rate | 16.00% |
| Repayment Method | Monthly equal installment. |
L/C Bank Guarantee:
The exporters pay of the imported goods on behalf of the importer through bank guarantee. If the exporter fails to make the fulfill payment at the moment the bank will take the liability and pay to the exporter. This type of guarantee is also needed to attend in any tender.
3.6 Credit Analysis:
The division of the bank responsible for analyzing and recommendations on the fate of most investment applications is the investment department. Experience has shown that this department must satisfactorily answer three major questions regarding each investment application:
Is the borrower creditworthy? How do you know?
Can the investment agreement are adequately protected and the customer has a high probability of being able to service the investment without excessive strain?
Can the bank perfect its claim against the assets or earnings of the customer so that, in the event of default, bank funds can be recovered rapidly at low cost and with low risk?
Let’s look in turn at each of these three key issues in the “yes” or “no” decision a bank must make on every investment request.
Thus question that must be dealt with before any other is whether or not the customer can service the investment-that is, pay out the credit when due, with a comfortable margin for error. This usually involves a detailed study of six Cs aspects of the investment application- character, capacity, cash, collateral, conditions, and control. All must be satisfactory for the investment to be a good one fromthe lender’s point of view.
Character:
The investment officer must be convinced that the customer has a well-defined purpose for requesting bank credit and a serious intention to repay. If the officer is not sure exactly why the customer is requesting a investment, this purpose must be clarified to the bank’s satisfaction. Responsibility, truthfulness, serious purpose, and serious intention to repay all monies owed make up what a investment officer calls character.
Capacity:
The investment officer must be sure that the customer requesting credit has the authority to request a investment and the legal standing to sign a binding investment agreement. This customer characteristic is known as the capacity to borrow money. For example, in most states a minor (e.g., under age 18 or 21) cannot legally be held responsible for a credit agreement; thus, the bank would have great difficulty collectors on such a investment.
Cash:
This key feature of any investment application centers on the question: Does the borrower have the ability to generate enough cash, in the form of cash flow, to repay the investment? In general, borrowing customers have only three sources to draw upon to repay their investment: or
(a) Cash flows generated from sales or income,
(b) The sale or liquidation of assets, or
(c) Funds raised by issuing debt or equity securities.
Any of these sources may provide sufficient cash to repay a bank Investment.
Collateral:
In assessing the collateral aspect of an investment request, the investment officer must ask, does the borrower possess adequate net worth or own enough quality assets to provide adequate support for the investment? The investment officer is particularly sensitive to such features as the age, condition, and degree of specialization of the borrower’s assets.
Conditions:
The investment officer and credit analyst must be aware of recent trends in the borrower’s line of work or industry and how changing economic conditions might affect the investment
Control:
Last factor in assessing a borrower’s creditworthy status is control which centers on such questions as whether changes in law and regulation could adversely affect the borrower and whether the investment request meets the bank’s and the regulatory authorities’ standards for investment quality.
3.7 Investment Policy Guidelines:
This section details fundamental investment management policy that has been formulated for adoption in Shahjalal Islami Bank Ltd as per recommendation made by the focus group of Bangladesh bank. The guidelines contained herein outline general principal that are designed to govern the implementation of more detailed investment procedures grading systems within the bank.
3.7.1 Lending guidelines:
Shahjalal Islami Bank Ltdhas formulated a detailed invested guidelines wish clearly identifies the business/industry sector that should constitute the majority of the bank’s investment portfolio. Indication the type of investment that are permitted such as working capital, trade finance, team investment etc. Details the bank’s single customer/group limits as per Bangladesh banks guidelines specifies industry sector exposure cap to avoid over concentration in anyone industry sector, outline industries or investment activities that are discouraged, states the facility parameters (e.g. maximum size, maximum tenor, and covenant and security requirements) & policy regarding management of Cross Boarder Risk.
Any departure or deviation from the investment guidelines should be explicitly identified in the Investment Application/ Investment Memo and justification for Approval (if required) to be given.
Investment proposal to be forwarded placed as per enclosed Investment Application/ Memo format.
Required documentation/paper as per to be accompanied with each investment application form and shall be kept in the investment files.
Appraising and evaluation the investment proposal by the branch, the concerned officials of the branch should comply the KYC procedures positively in case of all customers. One of them must be authorized signatory the head of investment.
Top 25 clients obligor to be rated preferable by outside i.e. credit rating agency.
Bank will follow asset liability matching policies as per Bank’s asset liability matching policy.
Bank will participate with other banks in syndicated facility & may act as lead bank also on best effort /club deal basis.
The management of the bank may deviate relax any of the clause of the guidelines/manual as per permission of the Ec/Board of directors of the banks.
Bangladesh bank circulars, policies, guidelines shall supersede this manual/guidelines at any point of time.
3.7.2 Internal Audit:
Shahjalal Islami Bank Ltd has a segregated internal audit/control department charge with conduction audit of all departments. An audit is usually carried out annually, and ensures compliance with regulatory guidelines, internal procedures, investment risk grading guidelines and Bangladesh bank requirements. In this regard Bangladesh bank core risk guidelines to be followed.
3.8 Investment Proposal of SHIBL:
Following Papers /Documents are required to process the investment proposal.
1. Request for investment limit of customer.
2. Account opening form along with copies of clients photograph.
3. CIB reports.
4. Project profile/profile of business.
5. Copy of trade license duly attested (up to date)
6. Copy of TIN certificate.
7. Certified copy of Memorandum & Articles of Association.
8. Certificates of incorporation.
9. Partnership deed (where applicable)
10. Resolution of Board of Directors for taking investment facilities from shahjalal Bank Ltd.
11. Personal net worth statement of the Owner/Proprietor/Partner/Director in banks format
12. 3(three) years Balance Sheet, Income statements and Cash Flow statement/Projected.
13. Bio-Data of Directors/Partner/proprietor
14. Photograph of the Directors/Partner/proprietor duly attested.
15. Photograph of the site.
16. Indent/Pro-forma Invoice/Quotation.
17. Statement of Account (C/D, S/B, CC) for the last 12 months.
18. In case of renewed/enhanced of the investment facilities total income earned, detail position of the existing liabilities of the customer i.e. Date of expense, Date of expiry, present outstanding, remarks, if any.
19. Declaration of the customers of the name of sister/allied concern and liability with other banks, if any and an undertaking of the effect that they have no liability beyond those declared.
20. CIB inquiry form.
21. Valuation certificate in the Bank’s format along with photograph of collateral.
22. Inspection/visit report of the factory/establishment/business/landed property of the customers.
23. Lending risk analysis (for investment facilities of TK. 1.00 core and above).
24. Credit report from the bank.
25. Price verification report.
26. Background of the customers.
27. Total financing plan & source of finance of the project.
28. History of relationship with SJIBL.
29. Status of factory land & building (including title holder & areas)
30. Trade checking (from major buyers & sellers)
31. Major competitors and competitive position for the customer.
32. Working capital assessment.
33. All sister concern information.
34. List of equipment/machineries.
35. Total employment strength with back up.
36. Security with detail particulars.
37. TIN certificate of the director.
38. LC performance for the last 3(three) years.
39. Sanction advice for existing investment facilities of different banks.
40. Details of business of sister/allied concern.
3.9 Sources of Information about Investment Customers:
The bank relies principally on outside information to assess the character, financial position, and collateral of a investment customer. Such an analysis begins with a review of information supplied by the borrower in the investment application. The bank may contact other lenders to determine their experiences with this customer. Were all scheduled payments in previous investment agreements made on time? Were deposit balances kept at high enough levels? How much was borrowed previously and how well were those earlier investment handled? Is there any evidence of slow or delinquent payments? Has the customer ever declared bankruptcy?
Physical Investigations
Customer financial statements
Experience of other lenders with this customer
Customer Annual Report
Local or regional credit bureaus
Local Newspapers
Local chamber of commerce
3.10 Investment approval process:
The approval process must reinforce the segregation of Relationship Management/Marketing from the approving authority. The responsibility for preparing the Investment Memorandum should rest with the RM within the retail/corporate unit at branch. Investment memorandum should be recommended for approval by the RM team based on branches and forwarded to the Investment Approval at head office and approved by individual executives.
The recommending or approving executives should take responsibility for and be held accountable for their recommendation or approval. There is limited delegation of approval limits in favor of the managing director and some executives of the bank. The following diagram illustrates the approval process at Shahjalal Islami Bank Ltd.
3.1 Figure: Approval process at SJIBL
Memorandum forwarded to Head Office for approval/decline.
HOI advises the decision as per delegated authority to branches
Managing director advises the decision as per delegated authority to HOI
1. Managing director presents the proposal to EC/Board
2. EC/Board advises the decision to HOL
3.10.1 Investment administration:
The investment administration and monitoring function is critical in ensuring that proper documentation and approvals are in place prior to the disbursement of investment facilities. For this reason, it is essential that the function of investment administration and monitoring is strictly segregated from relationship management/marketing in order to avoid the possibility of controls being compromised or issues not being highlighted at the appropriate level. Investment administration procedures are in place to en