Comparative Study between Conventional and Islamic Banking (Part-2)

3.1 General banking

General banking department is the “heart” of all banking activities. The general Banking section is what keeps the overall banking going. All sorts of day- to-

day transactions are performed in here as it plays a vital role in banking. The general  banking department that consists mainly of the following are given below:

¨      Account opening section

¨      Clearing & Remittance

¨      Cash section

¨      Financial Control Department

3.2 Account opening section

Account is the systematic record of transaction. Bank Account is a contract between the Bank and the client, allowing the customer to use Bank Service against a cost of fees.

This is the best way a Client can build relationship with the Bank.

Deposit of different kinds and schemes are accepted on the Mudaraba principle of islamic shari’ah. Under the above principle the client is the shaheb-al-mal and the bank is mudareb. As per contract the bank is authorized to Mudaraba funds at joint risk of the client and the bank. The client can not interfere/ participate in the management of the fund. Any profit resulting from the investment of Mudaraba fund is distributed between the client and the bank as per principle of distribution of profit announced by the bank as at the beginning of the year or as per contract. Loss is to be born by shaheb-Al-Mal after adjustment of the same from equity and the bank does not get any remuneration for the management of fund.

The main purpose of opening account is to deposit money. Deposit account can take on a various forms.

They consist of two forms-

1)      Demand or Al-Wahdia current deposit.

2)      Time or Mudaraba Savings deposit.

The basic things that any accounts require are:

• A valued client’s Introduction.
• Two photographs of the concerned party.
• Taka 1000 cash deposit for Mudaraba Savings deposit and Taka 5000 cash deposit for Al-Wahdia current deposit.

3.3 Classification of Account

In Islami Banking Branch of AB Bank Ltd. the following accounts are under operation:

Deposit Scheme

3.3.1 Deposit

Al-Wahdia Current Account

Most businessmen maintain current in order to make their daily business activities. This account’s funds change most frequently than any other accounts because customer used to withdraw and deposit funds in regular basis.

Types of AWD Account:

1. Individual Account
2. Proprietorship A/C
3. Partnership A/C
4. limited company A/C
5. Cooperative  A/C
6. Special A/C

The summery of the rules and regulations to open a current account as follows :-

• A minimum deposit of TK. 5000.00 is needed to open a current account.
• Deposit is accepted on Al wadiah principles which mean Al amanah with permission to use. According to this principle, bank can use the fund of the account along with other funds as per Islamic Shari’ah at bank own risk. Account holder will not share any profit/loss.
• The bank charges an incidental charge of TK.50.00 for every 6 months for the maintenance of the account.
• In case of the closure, the bank charges TK. 100.00 as closing charge of the account.
• Withdrawal of money is allowed only through the leaves of the cheque  book issued by the bank

Mudaraba Savings Account

This account is a popular account maintained in Banks. The different matters relating SB account are described in the following discussion. The summary of the Rules and regulations to open a savings account is as follows:-

• A minimum deposit of TK. 1000.00 is needed to open Mudaraba Savings account.
• This type of Deposit account will be conducted on Mudaraba Principles of Islamic Shari’ah. Account holders shall share income derived from investment made out of the Mudaraba funds in economic activities permitted by Islamic Shari’ah.
• The Mudaraba Saving Deposit Account holders along with other Mudaraba depositors shall get premium 65% of the income derived from the deployment of Mudaraba fund in the investment according to their proportion in the total investment during an accounting year applying the weightage rate of 0.75.
• Provisional profit will be credited twice a year i/e. on 30the june and 31^st December. Final profit is determined and adjusted at the end of the year i.e. after finalization of account.
• Any person of more than 18 Years having sound mind can open and operate this account singly or jointly.
• In case of a minor (a person below 18 years), a guardian can open and operate this account on his or her behalf.
• Clubs, societies, sole proprietorship firms, partnership firms, Limited Companies either public or private and other similar organization are eligible to open such account.
• More than one account can not be opened in the same name.
• Money would be withdrawn through cheques. Withdrawal cannot be more than twice a week and generally the amount will not be more than 25% of the balance available, subject to maximum TK.15000.00.
• The closing charge is TK.50.00.

Mudaraba Short Notice Deposit

This special types of account is just in between CD and MSD which gives profit at the rate of 6%(simple rate of profit calculated annually on daily balance) but requires 7 days-30 days prior notice of cash withdrawal. It is notice, the amount of money is withdrawn without notice, and then profit won’t be given on the said money. If any financial organization or autonomous bodies open this A/C hen no excise duty will be deducted but source tax will be deducted.

Mudaraba Short Notice Deposit is conducted on Mudaraba Principle of Islamic Shari’ah. Account holders shall share income derived from investment made out of the Mudaraba funds in economic activities permitted by Islamic Shari’ah.

Mudaraba Term Deposit Receipt:

In this types of deposit, a large amount of money is deposited in the bank for comparatively higher rate of interest (simple, not communed but calculated annually) is offered to the depositor for the period of 3 months, 6 month, 1year with the condition that s/he can not withdraw the amount before maturity but can draw the profit on a monthly basis.

Maturity & Profit

If the client not applies for renewal after maturity then the interest will be imposed after every three month.

The summary of the Rules and regulations to open a MTDR account is as follows:-

1)      Terms Deposit Account will be conducted on Mudaraba Principles of Islamic Sariah Account holders shall share income derived from investment made out of the Mudaraba funds in economic activities permitted by Islamic Sariah.

2)      Term of deposit are Three months, six months, twelve months Twenty four months, Thirty six months and above.

3)      Benefits of full weightage with yearly cumulation of profit shall become payable if withdrawn on maturity.

4)      The deposit receipt is not transferable except to this bank and the MTD receipt must be preserved with due care by holder of the MTDR. The bank will not be responsible if the lost receipt is paid by way of cheating/ deception.

5)      Funds covered by the Deposit Receipt are payable in accordance with the laws and regulations current at the time of withdrawal or repayment. The depositor will be bound to receive the profit at the provisional rate if the account is closed before finalization of yearly profit.

6)      The bank can deduct any Govt. tax & levies to be imposed by the Govt of Bangladesh any time from time to time.

3.3.2 Deposit Scheme

Mudaraba Pension Deposit Scheme

This is an attractive deposit scheme of Islamic banks. It is governed by Mudaraba principles also. All categories of particularly the small income group can be able to make savings on monthly installment basis at a very higher rate. Generally the term is for 5 to 10 years and size of installment is minimum Taka 500 to maximum Taka 20000.00.

Mudaraba Hajj Deposit Scheme

Hajj is one of the basic pillars of Islam.Islamic banks are accepted deposit on installment basis or in peacemeal from the intending pilgrims under Mudaraba principles. Considering the religious aspects of this account and to inspire the individual to perform hajj, a better rate of profit camparing to other Mudaraba Accounts is given to this Hajj Account. The aim of this deposit is only to perform hajj. The intending pilgrim may choice different terms from 1 to 25 years as per his capacity and age.

Mudaraba Monthly Profit Deposit

For the benefit of the retired service holders and wage earners residing abroad who want to help their departments/ relatives by contributing a certain amount of money on monthly basis from the of their one time deposit, this bank has introduced this Mudaraba Monthly profit Deposit Scheme in accordance with the Mudaraba principles of Islamic Shari’ah. Any individual may open account under this scheme by depositing a minimum amount of taka 100000.00 and multiples thereof at a time for a specified term. Monthly provisional profit, is given to the account just after completion of thirty days from the date of opening of the account.

Mudaraba Probable Millionaire Scheme

It is a Mudarba term deposit account where the depositor deposits on a monthly basis and including profit they can get more or less 1000000.00(Ten Lac). The period for this account would be minimum three years and maximum six years. Here the rate of monthly deposit, provisional profit rate in the following-

Mudaraba Third-Terminal Profit Scheme

This is an attractive deposit scheme of Islamic banks. It is governed by Mudaraba principles also. The depositor can open this account by depositing minimum taka 25000.00 or any multiples of this amount.  Generally the term is minimum three years and the depositor can get 70%investment opportunity against this account.

3.4 Remittance and Clearing

3.4.1 Remittance Section

Remittance means transmission of money from one place to another. There are different modules of remittance. They are as follow:

• TT-Telegraphic Transfer
• DD-Demand Draft
• PO-Pay Order

TT-Telegraphic Transfer

TT is the quickest method of transferring funds from one place to another. The remitting branch sends a telegraphic/ telephonic/ Fax message to the branch at the other end, to pay a certain sum of money to a named payee.

DD-Demand Draft

It is an instrument containing an unconditional order of one bank office to pay certain amount of money to the named person or order the amount therein on demand. DD is very much popular instrument for remitting money from one corner to another.

Charges of DD & TT

Commission @10% but minimum taka 25.00

Postage Charge: taka 25 for DD

Mail/ Phone Charge: Taka 50.00for TT

PO-Pay Order

It is process of money transfer from payer to payee within a certain clearing area through banking channel. A person can purchase payment order in different models such as Pay Order by cash, Pay Order by cheque

Pay Order can be issued in favor of the payee with commissions paid. The Pay Order can be made either from the account of the issuer or by giving the account to the Bank if the issuer has no account with Bank. The rate of commission charged for Pay Order is as follows:

The pay order is presented to the bank either through clearance or for credit to the clients accounts. When payment, relative entry is given in the pay order register with the date of payment.

• In case of collecting DD, PO following things are to be carefully checked: –
• Instrument of ABBL, IBB.
• Crossing seal
• Clearing seal
• Branch name
• Amount same in the word and figure.
• Signature verification
• Avoid the stop order P.O, D.D
• Test key verification. Every T.T must have test key. D.D over tk.25000 must have test key.
• Maintenance of T.T / P.O /D.D issue and payable books.
• Balancing at the end of the month.

3.4.2 Clearing section

Clearing stand for mutual settlement of claims made in among member banks at an agreed time place in respect of instruments drawn of each other:

Clearing House is an arrangement under which member banks agree to meet, through their representatives, an appointed time and place to deliver instruments drawn on the other and in exchange to receive instruments drawn of them.

The nit amount payable or receivable as the case may be, is settled through an account kept with the controlling bank (Bangladesh Bank).

3.4.3 Types of clearing

1. Outward Clearing
2. Inward  Clearing

Out ward Clearing

When a particular branch receives instruments drawn on other bank within the clearing zone and sends those instruments for collection through the clearing arrangement is considerate as Outward Clearing for that particular branch.

This branch knows as collecting branch.

Inward Clearing

Clearing returns (inward) consists of those instruments which were presented by us to other banks for payment but have been returned and unpaid by them due to specified reason through the clearing house.

3.4.4 Procedures of Outward clearing:

First: Collecting Branch

1. The instrument is deposited duly entered in the pay-in-slip or voucher.
2. The instrument is checked for any apparent discrepancy and is compared with the particular noted in the pay-in-slip.
3. In case an order instrument is being deposited in second payee’s account guarantee is obtain from the second payee and is attached to the pay-in-slip.
4. In case the payee’s name on the specially crossed instruments differs slightly that of the depositor, the instrument may be accepted but only from customers well know to the bank and after obtaining an indemnity which is attached to the pay-in-slip.

3. Stamping:

Special Crossing: On the instrument

Clearing Stamp: Both on instrument & pay-in-slip.

Endorsement: Back of the instrument.

4. Duly signed and return of counterfoil to the customer.
5. The particulars of the instrument and voucher are entered in the Outward Clearing Register/Computer.
6. Prepare voucher:   Dr. ABBL General Account

Cr. Party Account

7. The Register is balanced; the vouchers are separated from the instruments.
8. Sorting of instruments bank-branch wise and accordingly prepares sub main schedules.
9. Prepare House page according to main schedules.
10. Tallied house page Outward Clearing Register.
11. The house page with instrument sent to Head Office
12. In the following working day prepared voucher is to be passed. If any return and unpaid instrument is received from principal branch, in addition to above voucher the following voucher will be passed.

Dr. Party A/C

Cr. ABBL General Account.

Second: Principal Branch/Local Office/ Main Branch.

Instrument received by this office: Same as previous section (SL. 1 to 9).

Lodgment by this branch:

1. Received house pages with instruments from the branches.
2. Recorded the amount in a Register from house page.
3. The instruments with schedules are rearranged bank-branched wise and prepare main schedules are for each bank.
4. Prepare house page.
5. The instruments with schedules, house page and the house book are sent to the clearing house through bank representative.

Third: Clearing House (Bangladesh Bank)

The instruments are delivered to the respective banks.

3.4.5 Proceeding of Inward Clearing

Clearing House (Bangladesh Bank / Sonali Bank)

1. The instruments are drawn on our bank are received from other banks in the clearing house.
2. The amount and number of instruments received are entered in the house book from the main schedule of respective banks.
3. The amount of instruments delivered, received and the differences are written on a figure slip provided in the clearing house.

Head Office

1. The instruments with schedules are arranged branch wise.
2. The amount of each schedule received is entered in the house pages of the respective branches.
3. The respective house pages are totaled and check the amount with total amounts of instrument received from all banks.
4. The instruments are sent to respective branches with the slip showing total amount and number of instruments.
5. The instrument sent to the branches concerned for clearance and Advice are collected from them for honored cheque.

Paying Branch

1. Particulars of the instrument are compared with the schedule.
2. The instruments are sent to the respective departments for honoring them.
3. For the total value of honored cheque pass following vouchers:

Dr. Party A/C (already debited by instruments)

Cr. ABBL General A/C

1. Dishonored cheques (if any) with reason memo and Credit Advice are to                           sent Head Office.

3.4.6 OBC (Outward bills for Collection)

OBC/IBC is required when both the banks are not in the same clearing zone. Outward Bills for collection (OBC) and Inward Bills for collection (IBC) is required when both the bank (collection bank and paying bank) are not in the same clearing zone. For example-when the cheque of Dinajpur Branch of Sonali Bank is received and sends for collection by ABBL Islami Banking Branch then it is OBC. On the other hand it is IBC for Sonali Bank Dinajpur Branch.

OBC (Outward Bills for collection)

Procedure

OBC can be collection in the two ways—

1. Directly
2. Through Collecting Branch

Form the Collection Ban king’s side (OBC):

Direct collection

Receive and verify the cheque and deposit slip (customer’s portion and bank’s portion).

Special crossing is marked over the cheque.

Entry the details into OBC Register.

OBC seal is marked over the cheque and deposit slip, mentioning the OBC number.

The endorsement is given on the back side of the cheque, mentioning ‘Payees A/C will be credited after realization’.

Authorized Signature of a P.A holder must be taken over the Deposit slip, OBC Register and forwarding letter.

Two copies of schedule are prepared. First copy is sent to the drawee branch with forwarding letter and instrument. Second copy is reserved as office copy.

Send to the respective branch.

Lodgment Voucher for the collecting Bank.

Debit- Outward bills Lodged

Credit- Outward Bills for Collection

Collection of Bills

Receive the IBCA from the drawee branch

Verify the signature of the officer, executed over the IBCA.

After the response the IBCA, the voucher will be as follow:

Debit-CGA, Drawee Branch

Credit-Party Account

Debit- Party Account

Credit-Income Account, Commission

Credit-Income Account, Postage Charge

Entry reverses the Lodgment Voucher. E.g.

Debit-Outward bills Lodge

Credit-Outward Bills Collection

Entry the date of payment over the OBC Register. Received Seal is marked over the Office copy of the Schedule and deposit slip.

Generally, the procedure is almost the same. In this case we get a draft from the drawee branch and commission is charged twice. Firstly by the drawee branch and secondly by the drawer branch. The drawee branch sends a draft and we collect this through clearing house.

Voucher

Debit- Outward Bills Lodged

Credit- Outward Bills for collection.

After receiving the bills through draft, we have to send collection and after collection the voucher will be as following:

Lodgment voucher will be reversed for E.g.

Debit-Outward Bills for collection

Credit-Outward Bills Lodged

The party voucher will be prepared accordingly.

3.4.7 IBC (Inward bills for Collection)

Procedure of payment of IBC

Receive the schedule with instrument.

Instrument is checked with apparent tenor and matched with schedule.

Received the cheque and scrutinizing all the basic part of the cheque.

The following SEAL is marked over the instrument.

Special crossing seal (If the instrument is not collection) and IBC seal.

Entry into the Register with an IBC Number over instrument and schedule

Signature of the drawer of the cheque is verified by the authorized officer.

The cheque is posted on Computer.

If theme is sufficient balance of the account of the account, the authorized officers cancel the cheque.

Issue IBCA favoring the collection branch.

In case of collection:

1. If the instrument is other branch of CBL, the voucher is prepared as following page

Debit   _ Instrument

Credit – Sundry Deposit Account sundry Creditors (In case of

collection)

After collection of the cheque issue an IBCA favoring the respective branch.

First copy of the IBCA is sent to drawer branch

Second copy of IBCA is sent to Central Account Division.

Third copy of IBCA is reserved as office copy

1. If  the instrument is others bank’s the voucher is prepared as follows

Debit – Party Account

Credit – DD issue Account

Debit – Party Account

Credit – Income Account on commission

Credit – Income Account on Postage Charge.

Issue and send a DD to drawer branch.

• Entry of collection into the IBCA Register.
• Received seal is marked over the copy of schedule
• Commission: 15% but minimum of TK.25 and maximum of TK.1000.
• Postage Charge: at actual but minimum of TK.10.
• Telex/Telephone: minimum of K.40

Same –Day Clearing

The Bangladesh Bank starts clearance of cheque amounting to TK.5000000 and above to help the country’s business community speed up its activities. The system allows bank clients to encash cheque and other instruments for TK.5 lac and above within the day of submission. Presently, such withdrawal takes at least two days, as it requires clearance from the central bank. Initiall.202 branches of 50 nationalized, private and foreign banks in Dhaka, who are the members of the BB clearing house, introduced the system.

From Saturday through Wednesdays. The same-day clearing will start at 11 am and close at 12 noon while return clearing will start 2.p.m. on Thursdays, it will start at 10 .a.m. their respective branches situated within four km. of the central bank head office for introducing same- day clearance.

3.5 Cash Department

Cash Department is the most important part of General Banking. Cash department should be placed in a branch from where manager can watch everything from his table either clients or the vault. It is the most important department of the bank since from desk cash department has direct interaction with customers. Usually cash department receives and pays cash directly which work as a media to communicate with the clients. In the Islami Banking Branch I have got acquainted with cash receiving and cash payment procedures. Some register books uses in the cash department are mentioned bellow:

• Receiving Cashier’s Book
• Payment Cashier’s Book
• Cash Balance Book
• Vault Register or safe–in  and safe-out Register
• Key Register
• Remittance Registers.

In addition, I have also learnt the procedure of cash-in and cash-out from the vault. I have also got acquainted with systematic procedure of cash receiving through different vouchers as well as payment procedure by different cheque and vouchers.

3.5.1 Cash Receive:

Cash is the blood of a branch. It is the life of a bank. Cash may be received by-

• Cash Receiving by Pay Slip
• Cash Receiving by TT, DD, Pay-Order, MTDR.

Cash Receiving by Paying-Slip:

By paying slip we receive cash of AWD or MSD account. When we receive cash by paying slip, officers check the paying slip if there is any discrepancy, if everything is found to be in order, then they make entry of the amount in the scroll register and put receiving seal on paying slip.

Cash Receiving by TT, DD, Pay-Order, MTDR:

At first the form filled up by the party should be checked to verify whether is any discrepancy, if everything is found to be in order, then officers make entry of the amount in the scroll register and put receiving seal on the respective form.

3.5.2 Cash payment

Usually cash is paid against cheque, pay-slip, pay-order, DD and debit voucher. While paying cash against any instrument, officers first verity whether there is any material alteration on the instrument. He also check the instrument if it is in holder in due course and holder in due time. Then he verifies the signature of payee. If everything is in order, he pays the amount to the respective payee.

Position of the Cash Department

The position of the cash department is very important. The cash department should be at a safe place. If should be at the middle position of the branch. The cash counter and vault should be a close to cash department. The cash position of the Islamic Banking Branch AB Bank Limited is in the front side of the branch and its safe and vault is at the back side of cash department.

3.5.3 Duties and Responsibilities of Cash in Charge

•  Holds the key of cash safe.
•  Receive cash from other bank/Branch and acknowledge, where necessary. Opens the cash safe before commencement of business along with other personal holding the key.
•  Supervise receipt and payment of cash.
•  Supervise the carrying of the cash to the cash Department.
•  Delivers cash to the paying cashier against receipt on a memo.
•  Countersigns the credit vouchers if he is an attorney.
•  Arranges sending cash to other Branch.
•  Check the receiving cashier’s and paying cashier’s receipt/payment sheet and collect cash from them.
•  Writes the cash balance book and cash position memo and signs them
•  Maintains record of stamped forms.
•  Investigate and inform the manager about excess or shortage of cash.
•  Gets books and cash checked by manager or authorized officer.
•  Supervise the custody o f cash in the safe and books in the strong room.
•  Checks the drawers of the cashiers before leaving the office

3.6 Financial Control Department

This is the most confidential department of a bank. Recording all kind of transaction of the branch, confirming their accuracy and preparing statements are the main job of this dept. Now a day, under computerized banking system, the jobs of account dept. become very easy. Now the computer directly prepares the clean cash statement and the supplementary statements on party ledger vouchers. The account also manually doses other works as for extra security.

The function of the accounts dept. can be divided into two parts:

1. Daily Function,
2. Periodical Function.

3.6.1 Daily Functions

• Posting the a/c to a/c transfer transaction in transfer register,
• Preparation of supplementary statement,
• Computer posting of different transactions that occur in a day the account officer examines whether cashbook has agreed or not.

3.6.2 Periodical Functions

The routine periodical tasks performed by the Financial Control Department are as are given in the following:

• The periodical function of this dept. is to prepare different types of statement for its own branch, Head Office, Bangladesh Bank.
• Prepare the monthly salary statements for the employees
• Publish the basic data for the branch, which is sent to the Head Office to maintain Cash reserve requirement
• Prepare the monthly position for the branch, which is sent to Head Office to maintain liquidity requirement
• Prepare the weekly position for the branch comprising of the break of sector wise deposit, credit etc.

3.7 Other Services Provided by General Banking

Account Transfer

Account can transferred from one branch of a bank. This is applicable to all sorts of account except MTDR. In transferring account, the following formalities are to be maintained:

F An application containing the following matters is to be submitted:

1. Reason
2. Name of he branch where the account is to be Transferred
3. Date of Effect (from when account holder wants the account to be effected)

Signature in the application should be same as that in the SS Card.

•  Permission of the manager is needed.
•  The account holder has to surrender the Bank will give the account statement before transferring it. Profit will also be applicable here. This profit will be calculated, but is not written in the IBCA, it may be mentioned separately as the interest amount.

With some exception, it is almost same as the transferring of an account. The exceptions are:

• Here a commission is charged. In case of MSD and AWD it is Tk. 100 and in case of three-stage account it is Tk.200.
• The account holder has to pay an excise duty to the government regarding this purpose of closing the account.
• Profit is directly to the account.

Stop Payment

Stop payment is only done when party applies mentioning specific cause. For stop payment the signature is verified with the SS card signature by the officer. Then in the computer the stop payment is done and in the instruction the name and the time date cheque (in case of specific Cheque) number is noticed.

Cheque-Book Issue

Cheque-book is a material to withdraw money from the bank. It is a very convenient way to transact money from one place to another without any accident. If anyone opens an account, s/he will apply for a cheque-book of requisition slip. After verifying the signature of the account holder by the officer we shall issue the cheque-book my maintaining the procedures. Then the cheque-book is delivered to the party after taking the signature on the register book.

Duplicate cheque-Book

When a party looses his/her cheque-book, then h/she is provided a duplicate cheque-book. In this case, the party will apply to the manager for a duplicate cheque-book. In this case the party will also give indemnity bondage referring that s/he will be liable for any fraud-forgery by the lost cheque.

Some more parts of this post-

Comparative Study Between Conventional And Islamic Banking (Part-1)

Comparative Study Between Conventional And Islamic Banking (Part-2)

Comparative Study Between Conventional And Islamic Banking (Part-3)