1.

1 Introduction
Banks are financial institutions engaged in boosting national savings and capital formation as well as constitutes infrastructure through financing of various development projects. In performing multidimensional activities like borrowing and lending of money, drawing, collecting and discounting bills, transferring fund, safe deposit, vault/locker service, foreign exchange transactions etc. The world of banking is undergoing a transformation. Banking today has evolved into a highly competitive and sophisticated business in which technology increasingly provides the edge. Todays customers want service and information to be provided at all times and places. As Bangladesh is one of the largest Muslim countries in the world, the people of this country are deeply committed to Islamic way of life as enshrined in the Holy Qur'an and the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in accordance with the precepts of Islam. The establishment of Islami Bank Bangladesh Limited on March 13, 1983, is the true reflection of this inner urge of its people, which started functioning with effect from March 30, 1983. This Bank is the first of its kind in Southeast Asia. It is committed to conduct all banking and investment activities on the basis of interest-free & profit-loss sharing system.

1.2 Origin of the Study:

The BBA program in Manarat International University (MIU) also has an internship program so that the students can apply their theoretical knowledge into real lifes practical situation. This internship report has been prepared towards the execution of the partial requirement of the BBA program as authorized by the Department of Business Administration, Manarat International University. In addition, the report would be submitted to Muhammad Jamal Hossain, Lecturer and BBA Internship Supervisor of Manarat International University (MIU). In this report, I have tried to see the things what are being done in the foreign exchange department of IBBL & the assigned branch. As I am an internship student of IBBL, I had an opportunity to be acquainted with the practical banking prevailing in Mohakhali branch of Islami Bank Bangladesh Limited.

1.3 Background of the Study:

Banking is one of the most important sectors for a countrys wealth building activities. At present the modern business industrialization, foreign trade, investment almost all dependent on banks. Now a day the banking sector of Bangladesh is suffering the disease of liquidity crisis and default culture, which is consequence of bad performance of most of the banks in Bangladesh. IBBL plays an important role towards the growth, economic development and especially RDS of Bangladesh. An Analysis of Foreign Exchange Operations of IBBL Page | 12

1.3 Rationale of the Study:

Islami bank has discovered a new horizon in the field of banking areas, which offers different General banking, Investment and foreign exchange banking system. So I have decided to study on the topic Foreign Exchange Operation on IBBL: A Study on Mohakhali Branch. Because the Internship program of the university is an integral part of the BBA program. So it is mandatory to undertake such task by the students whom desirous to complete and successfully end-up their BBA degree. That is why I have prepared this report.

1.4 Objectives of the Study:

The general objective of the report is to complete the internship, as per requirement of BBA program of Manarat International University. The major objectives are To analyze the Foreign Exchange Operation of IBBL. To evaluate the area of Import finance. To appraise the area of Export finance. To find the area of Remittance. To assess the position of the bank.

1.5 Methodology of the Study:

For smooth and accurate study everyone has to follow some rules & regulations to collect for developing the methodology of the report. In my report, I have gathered information by working as an employee and with the Officials of Islami Bank Bangladesh Limited (IBBL). I have also managed to gather information through Internet & modern technologies.

1.6 Scope of the Study:

My Supervisor assigned me to do my internship program in Islami Bank Bangladesh in the Office of IBBL at

Limited. I participated and discussed with all the personnel

Mohakhali Branch, Dhaka. The main aim of IBBL is to serve their Customers Therefore, they operate three divisions and Foreign Exchange division is one of them. I observed and concentrated on the Foreign Exchange Department and I have done my Report on this department.

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1.7 Limitations of the Study:

Although I have obtained whole hearted co-operation from employee of IBBL, Mohakhali Branch and Head Office in Dhaka but on the way of my study, I have faced the following problems, which may be termed as the limitations of the study. These are: Since it is a service oriented organization, the probability of the accurate data is always low. Lack of my experience is also the limitation of the report.

The report has encountered these limitations that may hinder the progress of the study but with constant effort, I try to minimize the negative effects of these limitations.

2. Dealing in Foreign Currency Notes & Coins: Only Authorized Dealers and Authorized Money Changer are permitted to deal in foreign currency notes & coins Authorized Dealers and Money Changers may freely buy foreign currency from incoming passengers regardless of nationality and regardless of whether or not a declaration on form FMJ is produced at the time of encashment. If this form is produced, the amount enchased should be endorsed on it.

2.1 Islami Bank Bangladesh Limited:

Islami Bank Bangladesh Limited was incorporated as the first Shariah based interest-free Bank in South-East Asia on the 13th March in 1983 as a Public Limited Company with limited liability under the Companies Act, 1913.

The first branch of the Bank i.e. Local Office, Motijheel, Dhaka started functioning on the 30th March, 1983. The Bank was formally inaugurated on 12th August, 1983. The Authorized Capital of the Bank is Tk.5,000 million and Paid-Up Capital is Tk.3,802 million. The shareholdings of Foreign and Local Shareholders in the Paid-Up Capital are 57.36% and 42.64% respectively. After its establishment in 1983 the bank raised its share capital through the initial Public Offering (IPO) of shares in 1985. Subsequently, the first Rights Share was issued in 1989, 2nd Rights Share was issued in 1996, 3rd Rights Share was issued in 2000 and 4th Rights Share was issued in 2003 to enhance its

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capital base. The Banks Corporate Headquarter is situated in its own 18-storied modern building at 40, Dilkusha Commercial Area, Dhaka.

2.2 Mission and Vision 2.2.1 Mission To establish Islamic Banking through the introduction of a welfare oriented banking system and also ensure equity and justice in the field of all economic activities, achieve balanced growth and equitable development in through diversified investment operations particularly in the priority sectors and less developed areas of the country. To encourage socio-economic upliftment and financial services to the loss-income community particularly in the rural areas.

2.2.2 Vision Our vision is to always strive to achieve superior financial performance, be considered a leading Islamic Bank by reputation and performance. Our goal is to establish and maintain the modern banking techniques, to ensure soundness and development of the financial system based on Islamic principles and to become the strong and efficient organization with highly motivated professional, working for the benefit of people, based upon accountability, transparency and integrity in order to ensure stability of financial systems. We will try to encourage savings in the form of direct investment. We will also try to encourage investment particularly in projects which are more likely to lead to higher employment.

2.3 Strategic Objectives To ensure customers' satisfaction. To ensure welfare oriented banking. To establish a set of managerial succession and adopting technological changes to ensure successful development of an Islamic Bank as a stable financial institution.

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To prioritize the clients welfare. To emerge as a healthier & stronger bank at the top of the banking sector and continue stable positions in ratings, based on the volume of quality assets.

To ensure diversification by Sector, Size, Economic purpose & geographical location wise Investment and expansion need based Retail and SME/Women entrepreneur financing.

To invest in the thrust and priority sectors of the economy. To strive hard to become a employer of choice and nurturing & developing talent in a performance-driven culture.

To pay more importance in human resources as well as financial capital. To ensure lucrative career path, attractive facilities and excellent working environment. To ensure zero tolerance on negligence in compliance issues both shariah and regulatory issues.

To train & develop human resources continuously & provide adequate logistics to satisfy customers need.

To be excellent in serving the cause of least developed community and area. To motivate team members to take the ownership of every job. To ensure developemnt of devoted and satisfied human resources. To encourage sound and pro-active future generation. To achieve global standard. To strengthen corporate culture. To ensure Corporate Social Responsibilities (CSR) through all activities. To promote using solar energy and green banking culture and echological balancing.

2.4 Core Values and Commitments 2.4.1 Core Value Trust in Almighty Allah Strict observance of Islamic Shariah Highest standard of Honesty, Integrity & Morale Welfare Banking Equity and Justice Environmental Consciousness Personalized Service Adoption of Changed Technology Page | 16

An Analysis of Foreign Exchange Operations of IBBL

Proper Delegation, Transparency & Accountability

2.4.2 Commitments To Shariah. To the Regulators. To the Shareholders. To the Community. To the Customers. To the Employees. To other stakeholders. To Environment.

2.5 Corporate Information: Based on 31 December, 2012 Date of incorporation Inauguration of 1st Branch Formal Inauguration Authorized Capital Paid up capital Share of Capital: a. Local Shareholders b. Foreign Shareholders Equity SME Centre Branch Deposit Investment Foreign Exchange Business 36.91% 63.09% Tk. 39,755.51 million 30 276 Tk. 417,844 million Tk. 399,931.00 million Tk. 782,598.00 million March 13, 1983 March 30, 1983 (Local Office, Dhaka) August 12, 1983 Tk. 20,000.00 million Tk. 12,509.64 million

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Manpower Shareholder

12,188 60,302
Source: Annual Report 2012

2.6 International Affiliations: This Bank is an active Member of the under noted Foreign Organizations: i. ii. iii. iv. v. vi. Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain and has also become member of its Board of Trustees, General Council for Islamic Banks and Financial Institutions (GCIBFI), Manama, Bahrain and has also become member of the Executive Committee of GCIBFI, International Chamber of Commerce-Bangladesh (ICC-Bangladesh), Islamic Financial Services Board (IFSB), Kualalampur, Malaysia.

2.7 Shariah Council: The Shariah Council of the Bank plays a very important role in framing and exerting policy for strict adherence of Shariah Principles in the bank. The Council is represented by 14 members consisting of prominent Ulama having adequate knowledge in Fiqhul Moamalat, renowned lawyers and eminent economists to advice and guide on the implementation and compliance of Shariah principles in all activities of the Bank particularly on the modes of investment. The Council of the Bank is governed by its bye-laws and enjoys a special status in the Bank.

2.8 Management of IBBL: A Board of Directors consists of Directors, now 13 in number, elected from and amongst the foreigners and local shareholders provides the policy guidelines to Islami Bank Bangladesh Limited. Besides, a Management Committee consisting of the Senior Executives headed by the Chief Executive looks after the actual operations 0f the Bank.

2.9 Ratings: An Analysis of Foreign Exchange Operations of IBBL Page | 18

Rating Agency Long-term Short-term

: Credit Rating Information and Services Limited (CRISL) : AA+ : ST-1

2.10 Structure of the Bank:

Common Organogram of a Branch of IBBL

EVP/SVP/VP/AVP/Manager

General Banking Department

Investment Department

Foreign Exchange Department

Cash Section

General

Import

Clearing Section

Project

Export

Help Desk

Others

Foreign Remmitance

Online and Others

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Source: Internal Report of Mohakhali Branch of IBBL

2.11 Banking Functions: To mobilize deposits, To make investments, To handle foreign exchange and foreign business, Remittance: To remit money to home and abroad through T.T, D.D, Pay-Order, Travelers Cheque, etc., Other services: E.g. Locker service, to receive different types of bills of clients, to issue Guarantees and counseling etc.

2.12 Achievements of IBBL:

National and International Ratings of IBBL: IBBL's past performances have been evaluated by Bangladesh Bank, several credit rating agencies home & abroad and by the local press. International Press: In the midst of a difficult Banking system known to be plagued by high non-performing loans (NPLs), one could easily conclude that it would be difficult to find a bank that is different from norm. However, IBBL provides a refreshing change and is, thus, a pleasant surprise. It is one of a few local banks according to CAMEL (Capital, Assets,

National Press:

Management, and Earnings & Liquidity) rating made by the Bangladesh Bank. It holds the highest amount of liquidity among all banks and its ability to keep return on assets at 1.07 percent is well above the banking sector's average of 0.33 percent- The Financial Express, Dhaka commented in its issue of May 28, 1998.

IBBL's World rating: As per Bankers' Almanac (January 2001 edition) published by the Reed Business Information, Windsor Court, England, IBBL's world Rank is 1771 among 3000 banks selected by them. This position was 1902 among 4500 selected banks as on January 1999 edition.

Membership of Different Organizations / Chambers: Page | 20

An Analysis of Foreign Exchange Operations of IBBL

Local:

Bangladesh Institution of Bank Management (BIBM), The Institution of Bankers Bangladesh (IBB), Bangladesh Association of Banks (BAB), Bangladesh Foreign Exchange Dealers' Association (BAFEDA).
Foreign: International Association of Islamic Banks (IAIB), Jeddah, K.S.A, Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), Manama, Bahrain, General Council of Islamic Banks & Financial Institutions (GCIBFI), Manama, Bahrain (IBBL is a member of its Executive Council).

3.1 Definition of Foreign Exchange:

Foreign Exchange means exchange foreign currency between two countries. If we consider Foreign Exchange as a subject, then it means all kind of transactions related to foreign currency. In other wards foreign exchange deals with foreign financial transaction.

3.2 Description of Foreign Exchange: Foreign Exchange Department is international department of the bank. It deals

with globally and facilitates international trade through its various modes of services. It bridges between importers and exporters. Bangladesh Bank issues license to scheduled banks to deal with foreign exchange.

3.3 Regulations of Foreign Exchange:

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Foreign Exchange Regulation (FER) Act, 1947 (Act No. VII of 1947) enacted on 11th March, 1947 in the then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion.

This Act was first adapted in Pakistan and then, in Bangladesh. The Act is reproduced at Appendix 1. Bangladesh Bank is responsible for administration of regulations under the Act. Appendix 4 provides a list of Bangladesh Bank's offices and their jurisdiction.

Authorized Dealers (ADs) in foreign exchange are required to bring the foreign exchange regulations to the notice of their customers in their day today dealings and to ensure compliance with the regulations by such customers. The ADs should report to the Bangladesh Bank any attempt, direct or indirect, of evasion of the provisions of the Act, or any rules, orders or directions issued there under.

3.4 Sub-section of Foreign Exchange in IBBL: IBBL, Mohakhali branch foreign exchange department has three sub-sections. These are as follows: i. ii. iii. Import section, Export section, Remittance section.

Figure 2: Foreign Trade & Remittance: Performance of year 2011 & 2012 compared.

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350000 300000 Amount (in million Taka) 250000 200000 150000 100000 50000 0 Import Export Remittance 197095 178244 2011 2012 301207 284588 300915

236607

Source: Annual Report 2012

3.5 Foreign Trade:

Foreign trade can be easily defined as a business activity, which crosses national boundaries. These may be between parties or government ones. Trade among nations is a common occurrence and normally benefits both the exporter and importer. In many countries, international trade accounts for more than 20% of their national incomes.

Table 1: Total foreign exchange business from year 2010 to 2011. Figure in million Tk. Business Import Export Remittance Total Achievement in 2012 2,84,588 1,97,095 3,00,915 7,82,598 Achievement in 2011 3,01,207 1,78,244 2,36,607 7,16,058
Source: Annual Report 2012

Growth in 2012 over 2011 (%) -5.52% 10.58% 27.18% 9.29%

3.6 Letter of Credit:

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Letter of credit (L/C) can be defined as a Credit Contract whereby the buyers bank is committed (on behalf of the buyer) to place an agreed amount of money at the sellers disposal under some agreed conditions. Since the agreed conditions include, amongst other things, the presentation of some specified documents, the letter of credit is called Documentary Letter of Credit. The Uniform Customs & Practices for Documentary Credit (UCPDC) published by International Chamber of Commerce (1993) Revision Publication No. 600 defines Documentary Credit:

Any arrangement however named or described whereby a bank (the issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf, 1. Is to make a payment to or to the order of a third party(the beneficiary) or is to accept and pay bills of exchange(Drafts)drawn by the beneficiary, or 2. Authorizes another bank to effect such payment or to accept and pay such bills of exchange (Drafts), 3. Authorizes another bank to negotiate against stipulated documents provide that terms and conditions are complied with.

3.7 Types of Documentary Credit: Documentary Credits may be of two types such as: a) Revocable credit. b) Irrevocable credit.

a) Revocable Credit: A revocable credit is a credit that can be amended or cancelled by the issuing bank at any time without prior notice to the seller.

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In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although presented before payments has been made.

b) Irrevocable Credit: An irrevocable credit constitutes a definite undertaking of the issuing bank (since it cannot be amended or cancelled without the agreement of all parties thereto), provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller.

3.8 Parties to a letter of Credit: The parties are: The Issuing Bank, The Confirming Bank, if any, and The Beneficiary, The Applicant, The Advising Bank, The Nominated Paying/ Accepting Bank, and The Transferring Bank, if any.

Terms those are related to the letter of credit transactions are as follows: Importer Seller who applies for opening the L/C. Issuing Bank It is the bank which opens/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 / Notifying Bank is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporters country. It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit. Negotiating Bank 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.

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Paying / Accepting Bank is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank.

Reimbursing bank is the bank, which would reimburse the negotiating bank after getting payment instructions from issuing bank.

Diagram 1: How the parties are involved in a letter of credit process:

3.9 Some Important Documents of L/C:

a. Forwarding, b. Bill of Exchange, c. Invoice, d. Packing List, e. Bill of Lading, f. Certificate of Origin,

g. Shipment Advice.

3.10 Import: Imports of goods into Bangladesh is regulated by the ministry of commerce and industry in terms of the Import and Export (Control) Act, 1950, with import policy orders issued by annually, and Public Notices issued from time to time by the office of the Chief Controller of Import and Export (CCI & E). Through the process of import some vital but which are inadequate in our country products are imported to meet the local needs of the people. 3.10.1 Import Mechanism:

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To import, a person should be competent to be an importer. According to Import and Export (Control) Act, 1950, the officer of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He requests or instructs the opening bank to open an L/C.

3.10.2. Import Procedures: An importer is required to have the following to import through IBBL-i. ii. Applicant has to apply for opening L/C by a prescribed form. Applicant has to submit the Letter of Indent or Letter of Pro forma Invoice.

Letter of Indent: Many sellers have their agent in sellers country. If the contract of buying is made between the buyers and the agent of the sellers then Letter of Indent is required.

Letter of Pro-forma Invoice: i. If the contract is made directly between the buyers and the sellers then Letter of Proforma Invoice is needed. ii. Applicant has to submit IRC (Indenters Registration Certificate). It is a certificate being renewed every year. This certificate is necessary if the contract is made between the buyers and the agents of the sellers. IRC is of two types COM and IND. COM is given for commerce purpose and IND is given for industrial purpose. iii. Applicant has to submit LCAF (Letter of Credit Authorization Form). iv. Applicant has to submit insurance document. v. Applicant has to prepare FORM-IMP. vi. Recently, there has been made a provision to give a certificate named TIN (Tax Payers Identification Number). Taxation department issues this certificate. vii. Then after proper scrutiny bank will open an L/C. While opening L/C, importer must keep certain percentage of the document value in the bank as margin.

3.10.3 Procedures of Opening L/C to Import: To open an L/C, the requirements of an importer are: i. He must have an account in bank like IBBL.

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ii. He must have Importers Registration Certificate (IRC). iii. Report on past performance with other bank. IBBL collects this report from Bangladesh Bank. iv. CIB (Credit Information Bureau) report from Bangladesh Bank. v. A proposal approved by the meeting of executive committee of the bank. It is necessary only when the L/C amount is small or there is no limit. vi. If the L/C amount is large or there is a limit, then an approval from Bangladesh Bank is needed. Usually this approval is needed for amount more than one corer

Accounting Treatment for Opening L/C: For opening L/C, importer will apply to the issuing bank. In that case, importer is called applicant or opener. After opening an L/C bank will create a contingent liability. In that case, the accounting posting will be the following: Customers Liability Contingent Liability Dr. Cr.

Generally L/C is opened against some margin. While paying the money by the issuing bank, issuing bank will reverse the above entry and the entry will be Contingent Liability Customers Liability Dr. Cr.

Then the issuing bank will give another entry, Payment against Document (PAD) IBBL General Account Exchange Gain Dr. Cr. Cr.

PAD will debit because the bank will pay the money against some documents. IBBL General Account is a miscellaneous account. It will be credited because by this entry IBBL creates a liability. He has to pay the money to the advising bank. And the gain made by the transaction is shown at Exchange Gain Account. All these entries are made after receiving some documents from the exporters. The above procedure is called Lodging.

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After giving the above entry, IBBL will inform the clients for collecting the documents from the bank. Importers will pay the due to the bank and collects the documents. In that case, the entry will be, Party Account PAD Account Dr. Cr.

After opening the L/C, IBBL (issuing bank) must receive the documents for any other proceedings. These documents are, i. ii. iii. iv. Bill of Lading, Invoice, Packing List, Country of Origin.

3.10.4. Lodgment of the Documents: After receiving the documents from the exporters, at first IBBL write it in the PAD Registrar. PAD Register contains date, PAD number, L/C number, name of the drawer, name of the drawee, amount, number of copies of various documents, name of the imported items. This written procedure is called Lodgement. Accounting Application: While doing lodgment, IBBL makes the following entries, PAD Account IBBL General Account Exchange Gain Account Dr. Cr. Cr.

IBBL makes the payment to the reimbursing bank against the documents. Thats why, it debts the PAD Account.

3.10.5. Import Business Performance of IBBL:

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Figure 4: Import Growth from the year 2004-2012.

Growth in Import Business

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% 2004 2005 2006 2007 2008 -4.22% 2009 2010 2011 -5.52% 2012 23.34% 24.62% 29.98% 22.79% 22.30% 41.52% 52.75%

Sources: Annual Reports 2004-2012

3.11 Export: Creation of wealth in any country depends on the expansion of production and increasing participation in international trade. By increasing production in the export sector we can improve the employment level of such a highly populated country like Bangladesh. 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.

3.11.1 Export Policy: Export policies formulated by the Ministry of Commerce, Government provide the overall guideline and incentives for promotion of exports in Bangladesh. Export policies also set out commodity-wise annual target. It has been decided to formulate these policies to cover a five-year period to make them contemporaneous with the five-year plans and to provide the policy regime. The export-oriented private sector, through their representative bodies and chambers are consulted in the formulation of export policies and are also represented in the various export promotion bodies set up by the government.

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3.11.2 Export Procedures: The import and export trade in our country are regulated by the Import and Export (Control) Act, 1950.Under the export policy of Bangladesh the exporter has to get valid Export registration Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to renew every year. (a) Registration of Exporters: For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barishal/ Bogra/ Rangpur/ Dinajpur in the prescribed form along with the following documents: Nationality and Assets Certificate; Memorandum and Article of Association and Certificate of Incorporation in case of Limited Company; Bank Certificate; Income Tax Certificate; Trade License etc.

(b) Securing the Order: After getting ERC Certificate the exporter may proceed to secure the export order. He can do this by contacting the buyers directly or through agent. In this purpose the exporter may get help from: License Officer; Buyers Local Agent; Export Promoting Organization; Bangladesh Mission Abroad; Chamber of Commerce (local & foreign)

(c) Signing the Contract: After communicating buyer, exporter has to get contracted (writing or oral) for exporting exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance and marks, inspection and arbitration etc. (d) Receiving Letter of Credit:

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After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and conditions of export and payment. The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit: The terms of the L/C are in conformity with those of the contract; The L/C is an irrevocable one, preferably confirmed by the advising bank; The L/C allows sufficient time for shipment and negotiation. (Here the regulatory framework is UCPDC-500, ICC publication) Terms and conditions should be stated in the contract clearly in case of other mode of payment: Cash in advance; Open account; Collection basis (Documentary/ Clean).

(e) Procuring the Materials: After making the deal and on having the L/C opened in his favour, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise. (f) Shipment of Goods: Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C and then prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due time.

Documents for Shipment: EXP form, ERC (valid), L/C copy, Customer Duty Certificate Shipping Instruction, Transport Documents, Insurance Documents, Invoice, Other Documents, Bills of Exchange (if required) Certificate of Origin, An Analysis of Foreign Exchange Operations of IBBL Page | 32

 Inspection Certificate,

(g) Final Step: Submission of the documents to the Bank for negotiation to complete the L/C.

3.11.3 Export Financing: Financing exports constitutes an important part of a banks activities. Exporters require financial services at four different stages of their export operation. During each of these phases exporters need different types of financial assistance depending on the nature of the export contract. A. Pre-shipment credit: Pre- shipment credit is also called the by salam in Islamic bank Bangladesh ltd. Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. Before allowing such credit to the exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes: Cash for local procurement and meeting related expenses. Procuring and processing of goods for export. Packing and transporting of goods for export. Payment of insurance premium. Inspection fees. Freight charges etc.

B. Post Shipment Credit: This type of credit refers to the credit facilities extended to the exporters by the banks after shipment of the goods against export documents. Before extending such credit, it is necessary on the part of banks to look into carefully the financial soundness of exporters and buyers as well as other relevant documents connected with the export in accordance with the rules and regulations in force. Banks in our country extend post shipment credit to the exporters through: a) Negotiation of documents under L/C, b) Foreign Documentary Bill Purchase (FDBP), c) Advances against Export Bills surrendered for collection.

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(a) Negotiation of Documents under L/C: The exporter presents the relative documents to the negotiating bank after the shipment of the goods. A slight deviation of the documents from those specified in the L/C may raise an excuse to the issuing bank to refuse the reimbursement of the payment already made by the negotiating bank. So the negotiating bank must be careful, prompt, systematic and indifferent while scrutinizing the documents relating to the export. (b) Foreign Documentary Bill Purchase (FDBP): Sometimes the client submits the bill of export to bank for collection and payment of the BTB L/C. In that case, bank purchases the bill and collects the money from the exporter. IBBL subtracts the amount of bill from BTB and gives the rest amount to the client in cash or by crediting his account or by the pay order.

(c) Advances against Export Bills Surrendered for Collection: Banks generally accept bills for collection of proceeds when they are not drawn under an L/C or when the documents, even though drawn against an L/C contain some discrepancies. Bills drawn under L/C, without any discrepancy in the documents, are generally negotiated by the bank and the exporter gets the money from the bank immediately. However, if the bill is not eligible for negotiation, the exporter may obtain advance from the bank against the security of export bill.

3.11.4 Export Documents Checking: General Verification: L/C restricted or not. Exporter submitted documents before expiry date of the credit. Shortage of documents etc.

Particular Verification: Each and every document should be verified with the L/C.

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After proper examination or checking of a described Export document banker may find following discrepancies:

General: Late shipment, Late presentation, L/C expired , L/C over-drawn.

Bill of Exchange (B/E): Amount of B/E differ with Invoice, Not drawn on L/C issuing Bank, Not signed, Tenor of B/E not identical with L/C, Full set not submitted.

Commercial Invoice (C/I): Not issued by the Beneficiary. Not signed by the Beneficiary. Not made out in the name of the Applicant Description, Price, quantity, sales terms of the goods not corresponds to the Credit. Not marked one fold as Original. Shipping Mark differs with B/L & Packing List. Packing List: Gross Wt., Net Wt. & Measurement, Number of Cartoons/Packages differs with B/L. Not market one fold as Original. Not signed by the Beneficiary. Shipping marks differ with B/L.

Bill of Lading / Airway Bill etc (Transportation Documents):

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 Full set of B/L not submitted. B/L is not drawn or endorsed to the Order of IBBL. Shipped on Board, Freight Prepaid or Freight Collect etc. notations are not marked on the B/L. B/L not indicate the name and the capacity of the party i.e. carrier or master, on whose behalf the agent is signing the B/L. Shipped on Board Notation not showing name of Pre-carriage vessel/intended vessel. Shipped on Board Notation not showing port of loading and vessel name (In case B/L indicates a place of receipt or taking in charge different from the port of loading). Short Form B/L. Charter party B/L. Description of goods in B/L not agree with that of Invoice, B/E & P/L. Alterations in B/L not authenticated.. Others: Inadequate number of Invoice, Packing List, B/L & Others submitted. Short shipment Certificate not submitted. Draft/Bill of Exchange: Draft is examined as under: Draft must be dated It must be made out in the name of the beneficiarys bank or to be endorsed to the bank. The signature of the drawer must be verified by the negotiating bank. Amount must be tallied with the Invoice amount. It must be marked as drawn under L/C NoDated..Issued by..Bank. Invoice: It is to be scrutinized to ensure the following: The Invoice is addressed to the Importer The full description of merchandise must be given in the invoice strictly as per L/C. The price, quality, quantity, etc. must be as per L/C. No other charges are permissible in the Invoice beyond the stipulation on the L/C. The amount of draft and Invoice must be same and within the L/C value. If L/C calls for consular invoice, then the beneficiarys invoice is not sufficient.

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 Number of Invoice will be submitted as per L/C. The shipping mark and number of packing list shown in the B/L must be identical with those given in the Invoice and other documents. The Invoice value must not be less than the value declared in EXP Forms. Invoice amount must be correct on the basis of price, quantity as per L/C. Other Documents: Beneficiary statement, VISA/Export License issued by IBBL, Certificate of Origin, Weight Certificate, Packing List, Inspection Certificate. Certificate of analysis, quality certificate and any other documents required by L/C each of these certificates/documents conform to the goods invoice and are relevant to L/C.

3.11.5 Export Business Performance of IBBL in the context of Bangladesh: Figure 5: Export Growth of IBBL 2001-2012.

Growth in Export Business

50.00% 40.00% 30.00% 20.00% 10.00% 3.67% 41.37% 34.10% 30.37% 24.07% 40.89% 39.46%

30.42% 20.09% 13.26% 10.58%

0.00% -4.78% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -10.00%
Source: Annual Reports 2001-2012

Export Position among Banks: 2005: 3rd 2010: 3rd 2011: 4th 2012: 2nd An Analysis of Foreign Exchange Operations of IBBL Page | 37

3.12 Foreign remittance: On March 24, 1994 Bangladesh Taka was declared convertible for Current account International Transaction. As a prelude to this wide-ranging reforms were made in the countrys foreign exchange regime to lay the ground for a market friendly environment to induce investment, growth and productivity. Following liberalization under convertibility, most remittances are now approved by the Authorized Dealers themselves on behalf of the Central Bank. Only a few remittances of special nature require Bangladesh Banks prior approval.

3.12.1 Outward Remittance: The term Outward remittances include not only remittance i.e. sale of foreign currency by TT. MT, Drafts, Travelers cheque but also includes payment against imports into Bangladesh & Local currency credited to Non-resident Taka Accounts of Foreign Banks or Convertible Taka Account. A. Private Remittance: 1. Family Remittance Facility: a) Foreign Nationals working in Bangladesh with approval of the Government may remit through an Authorized Dealer 50% of Salary and 100% of leave salary as also actual savings and admissible person benefits. No prior approval of Bank is necessary for such remittance. b) Remittance of moderate amounts of foreign exchange for maintenance abroad of family members (spouse, children, parents) of Bangladesh Nationals are allowed by Bangladesh Bank on written request supported by certificate from the Bangladesh Mission in the concerned country.

2. Remittance of Membership Fees/Registration Fees etc. Authorized Dealer may remit without prior approval of Bangladesh Bank, membership fees of foreign professional and scientific institutions and fees for application registration, admission, examination (TOEFL, SAT etc.) in connection with admission into foreign educational institutions on the basis of written application supported by demand notice/letter of the concerned institution.

3. Education:

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Prior permission of Bangladesh Bank is not required for releasing foreign exchange in favor/on behalf of Bangladesh students studying abroad or willing to proceeds abroad for studies. Authorized Dealers shall allow exchange facilities for this purpose according to the following drill: Application duly filled in by the student as per prescribed format of Bangladesh Bank. Original and photocopy of admission letter issued by the concerned institution in favor of the student. Original and photocopy of estimate relating to annual tuition fee, board and lodging incidental expenses etc. issued by the concerned institutions. Attested copies of educational certificates of the applicant and Valid passport.

4. Remittance of Consular Fee: Consular fees collected by foreign embassies in Bangladesh Taka and deposited in a Taka Account maintained with an AD solely for this purpose may be remitted abroad without prior approval of Bangladesh Bank.

5. Remittance of Evaluation Fee: Authorized Dealers without prior approval of Bangladesh Bank may remit evaluation fee on behalf of Bangladeshis desiring immigration to foreign countries for getting educational certificates of the person concerned evaluated by a foreign institution. A demand note of the foreign immigration authority is required for this purpose.

6. Travel: Private travel quota entitlement of Bangladesh Nationals is set at US$3000/- per year for visit to countries other than SAARC member countries and Myanmar, Quota for SAARC member countries and Myanmar is US$1000/- for travel by air and US$500/-for travel by overland route.

7. Health & Medical: Authorized Dealers without prior approval of Bangladesh Bank may release foreign exchange up to US$10,000/- for medical treatment abroad on the basis of the recommendation of the medical Board set up the Head Directorate and the cost estimate of the foreign medical institution. An Analysis of Foreign Exchange Operations of IBBL Page | 39

8. Seminars & workshops: Without prior approval of Bangladesh Bank AD may release US$200/- per diem and US$250/- per diem to the private sector participants for attending seminars, conferences and workshops organized by recognized International bodies in SAARC member countries or Myanmar and in other countries respectively for the actual period of the seminar/workshop/conference to be held on this basis of invitation letters received in the names of the application or their employer institutional.

9. Foreign Nationals: i) The Authorized Dealers may issue foreign currency TCs to foreign nationals without any limit and foreign currency notes up to US$300/- or equivalent per person against surrender of equivalents amounts in foreign currencies.

ii) Authorized Dealers may allow recon version of unspent Taka funds of foreign tourists into foreign exchange on production of the encashment certificate of foreign currency. Recon version shall be allowed by the same AD with which the foreign currency was encased earlier. AD should retain the original encashment certificate and relative FMJ forms where recon version exceeds US$5000/-.

10. Remittance for Hajji: Authorized Dealers may release foreign exchange to the intending pilgrims for performing Hajj as per instructions/circulars to be issued by the Bangladesh Bank each year.

11. Other Private remittance: Applications for remittances by private individuals for purposes other than those mentioned above should be forwarded to Bangladesh Bank for consideration & approval after assessing the

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bonafides of the purpose of remittance on the basis of documentary evidence submitted by the applicant.

B. Commercial Remittances: i. ii. iii. iv. v. vi. vii. viii. Opening of branches or subsidiary companies abroad. Remittance by shipping companies airlines & courier service. Remittance of Royalty and technical fees. Remittance on account of training & consultancy. Remittance of profits of foreign firms/branches. Costs/ for Reuter monitors. Advertisement of Bangladeshi Products in mass media abroad. Bank Charges.

3.12.2. Inward remittance: The term Inward Remittance includes not only purchase of Foreign Currency by TT, MT, Drafts etc. but also purchases of bills, purchases of Travelers cheque.

Types of Inward Form: Two forms as prescribed by Bangladesh Bank are used for purchase of Foreign Currencies such as.

a. EXP Form: Remittances received against exports of goods from Bangladesh are done by form EXP.

b. Form C: Inward remittances equivalent to US$2000/- and above are done by Form C. However, declaration in Form C is not required in case of remittances by Bangladesh Nationals working abroad.

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Utmost care should be taken while purchasing Currency Notes, Travelers cheque, Demand Draft & similar Instrument for protecting the bank from probable loss as well as safety of the Bank officials concerned.

3.12.3. Types of Inward Foreign Currency: 1. Purchase of Currency Notes, Travelers check, Drafts etc. Following General observations are required in addition to common judgment/intelligent /vigilance of the dealing officers: i. Currency notes to be checked very carefully so as to avoid risk of purchasing counter fiet Notes, ii. While purchasing Travelers cheque signature of the holder to be obtained on the TC/s in front of the Bank officials and should be verified with the signature of the holder already given at the time of issuance of T.Cs, iii. Drafts should not be purchased under any circumstances unless the holder is a regular/valued customer of the bank. Indemnity Bond to be obtained for revering the amount paid in advance to the holder in case of dishonor of the instrument, iv. Private cheque should not be purchased under any circumstance without prior approval of Head Office. 3. Disposal of Foreign Currency notes. /Coins & others by Incoming passengers: Incoming passengers may bring in any amount of foreign exchange with declaration FMC at the time of arrival. No declaration is necessary for amounts upto US$5000/- for non residents, the entire amount brought in with declaration or upto US$5000/- brought in without declaration may be freely taken out at the time of departure or may deposit the amount in F.C Account subject to submission of form FMJ for excess of US$5000.- or equivalent. An incoming person, who is ordinarily resident in Bangladesh: i. May retain foreign exchange upto US$5000/- or equivalent brought in without declaration or ii. Take-out the same freely at the time of departure form Bangladesh without endorsement in passport and air ticket iii. Deposit the amount in RFCD account of the person concerned.

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3.12.4. Remittance Business Performance of IBBL: Figure7: Remittance Growth of IBBL for the period of year 2001-2012.

Growth in Remittance Business

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Sources: Annual Reports 2001-2012

66.86% 56.10% 48.50% 42.00% 26.65% 13.62% 56.34% 38.68% 27.18% 10.23% 10.24% 45.66%

3.13 Total Foreign Exchange Business Growth of IBBL

Foreign Exchange Business Growth

45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2008 2009 2010 2011 2012 17.52% 14.82% 9.29% 31.78% 39.86%

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4.1 Prospects The Prospects of foreign exchange & foreign trade are as follows: 1. Restrictions imposed by Chambers and commerce make the dealing fair and thus authenticate and guarantee the dealing and in this way reduce risk. 2. Foreign currency of IBBL is very strong which lets the Bank to invest without the help of other banks. 3. IBBL is trying to get more licenses for AD branches though creating more pleasing report with Bangladesh Bank. 4. Specially driving for increasing import and export business initiated through Zones and AD/Forwarding branches. 5. Introducing of web based global remittance. 6. Enhancement of Internet and E-mail connectivity that is gearing the speed of income gain. 7. Placement of new Representative. 8. Open position limit enhancement that will let the bank invest more largely. 9. Utilization of FC fund in overseas investment. 10. Automated reconciliation of all NOSTRO A/C. 11. Centralization of Foreign Trade process that will decrease the loss of time. 12. Major steps have been taken to make solution of the technical and managerial problems. 13. Preparation of client profile which will help to take decision if any problem arises and other things concerning investment in export and import. 14. Steps are through to be taken to survey the market for potential import/export business and constitute strong monitoring squad for RMG sector. 15. Steps are going to be taken to supervise & give technical support for Bulk import from Head office.

4.2 Problems: Export and Import: 1. Chambers of commerce may not permit the sub-section or an of the conditions of the L.C issuing bank. So the Exporter may not export the goods to the Importer. 2. Some Profitable goods are prohibited.

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3. Some rules and regulations of Government work as a barrier for the free flow of remittance, export and import of profitable goods. 4. Rate is very competitive. 5. Untimely shipment due to lack of backward linkage. 6. Labor problem causes huge problem for the bank. 7. WTO imposes unjust rules on the transaction system. 8. Delay payment in export. 9. Technical problems reduce the performance of the branch and extend the span of time resulting in loss (Financial) and providing less service to both the bank and customers.

Remittance: 1. PC Connect at Branch sometimes become in operative due to inept handling by the Operator. 2. Some Branch do not send their message in their standard formats. 3. Because of Volatility of the Foreign Exchange Market the remittance inflow has been affected substantially & encourages remitters to send money through illegal channel. 4. Introduction of new Islami Bank s is another cause of loss. 5. Due to non-automation of all remittance services and logistics supports in some Branches customer services have not yet fulfilled the requirement of Exchange House. 6. Shortage of Skilled manpower is another problem to achieve higher income in remittance.

5.0 Overall Findings: During my internship, I have found some problems and prospects in the banking system and service delivering procedures in IBBL. These problems need to be focused and resolved for improving the performance of the bank and customer satisfaction. And the prospects should be explored for making the policy to maintain the growth and leading the banking industry of Bangladesh. 1. Margin on LC is taken on the basis of banker Customer relationship as per directives of Bangladesh Bank. Usually margin on LC ranges from 5 to 20%. But in some cases higher amount of margin is taken i.e. 50 to 100% of the LC value are kept in case of new customers. 2. One major discrepancy in the LC process I have seen is in the proforma Invoice about the price of the goods. The prices of the goods are sometimes terribly low, which signifies that, the customers are trying to avoid government tax, bank commissions and other charges.

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Despite knowing these things, bank officials have to open LC since there is no standard price index for opening LC by the government of central bank. Since bankers are not the regulators they cannot stop importers doing these things. 3. IBBL has very small operational network about remittance. So it cannot do remittance business extensively. The bank has recently taken steps to increase remittance business through extended network in worldwide. Although Central Bank encourage forward contracts, the under study Bank does not do any forward deal with its client. 4. The branch frequently face network problem but there are no network operator in the branch. Every time the branch has to call network operator from Head office, which cause loss of many valuable time. 5. The communication network used for online banking by the bank often goes down, which cause many problems to the clients to make or get payments or balance transfer and hamper their business. 6. In case of Export L/Cs, sometimes customers insist to give their payments though their documents are found discrepant. In some cases, Bank has to give payment to these customers for different reasons such as some powerful person try to influence on the bank officials and threaten themselves.

6.1 Recommendations: For the improvement of the service, customer satisfaction, performance of IBBL some steps should be taken. Here are some of the step which can be effective for the bank to improve its image in customers mind: these are discussed below; The bank should give more concentrates on import business as it is in a lower position comparative to other businesses in the foreign exchange business. The growth of foreign exchange performance of the bank is not stable the bank should be more careful to maintain a consistent growth rate. The import business of the bank decreased with large amount last year the bank should work on it to overcome the negative growth of import business. The export business of the bank is on a growing trend, the bank should try to keep the velocity of growth. Excellent performance by foreign remittance should be kept by the bank.

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Overall the foreign exchange business of the bank is following a rising manner, the bank should be alert all the time to keep it stay for a long time.

Others include,

Ensure Proper Division of Manpower In The Desk: There is lack of division of manpower in the branch. Therefore everybody has to handle every type of banking services. This decreases the level of performance of the personnel, though it reduces monotonousness. But lack of division of manpower hampers the discipline of working environment. So customers are to wait for some time for the desired service, which is contrary to the Bakings objective.

Ensure Proper Maintenance of Files: IBBL gives personalized services. All the officers have to give concentration to the customers, while doing this they cannot properly maintain the customer files. In many cases, application forms are not properly filled up and documents are not properly filed. Every staff should try to reduce these irregularities.

Ensure Proper Sitting Arrangement: The sitting arrangement is very insufficient comparing with the number of customers. So Mohakhali Branch of IBBL must pay attention to this issue.

Ensure Proper Communication System and Maintenance of Machineries: Most of the time the branchs computers remain out of order and it is also true for the photocopiers. Attention should be given on proper maintenance of phone, computer, fax machine and photocopier. Exporters of the Bank Should be Given Some Extra Benefits: In case of Export L/Cs, the Government encourages the exporters by giving different facilities like tax-cuts. I think the bank should also think about such type of facilities to be given to the Exporters because Bangladeshi exporters like readymade garments exporters are going to face a tough situation in coming years from the exporters of other countries.

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6.2 Conclusion Interest free banking is not a mere concept now, it is in reality. More than 300 Islami banks and financial institutions are operating in different countries throughout the world with a noteworthy success. In our country, from 1983 IBBL has been operating with great confidence. As a large Islamic commercial bank, it took various steps to create employment and socio-economic development for the downtrodden people through Islamic rules and regulations. This economy and Banking is not possible to establish without Tauhid, Reshalat and trust of Akhirat. But in our Government system, there is hardly scope to establish such system. Besides, in case of post import finance, Islamic bank provides noteworthy facilities to the clients than that of the conventional banks. Yet IBBL has emerged facing the many obstacles. This bank is trying to operate their activities according to Islamic Shariah. We have to take necessary steps to remove all problems that stand as a great obstacle before Islamic banks as early as possible for the development of Islamic banks.

Having been considered the pro-efficiency character of Islamic banking and its beneficial impacts on the economy, government policy in Muslim countries should be in favor of transforming conventional banking system into Islamic banking. From the practical implementation of customer dealing procedure during the whole period of our practical operation in IBBL we have reached a firm and concrete conclusion in a very confident way. We believe that our realization will be in harmony with most of the banking scholar. Performance of IBBL during the last five years has proved that with strong desire and will power one achieve whatever target he may have. Almost all the leading banks in our country have various extra facilities in offer for the customers in comparison with IBBL.

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