Internal Clearing Process and Investment Activities of SIBL

Main discussion of this report is to analysis Internal Clearing Process and Investment Activities of Social Islami Bank Limited (SIBL). Other objectives are discuss on Internal Clearing Process (Inward and Outward) and Loan process of a bank. Also focus on Islamic Sharia base loan or investment process that is not overall applicable in our country and Some rules and regulation that is assigned by Bangladesh Bank. Finally draw SWOT analysis and find out problems related on internal clearing process and investment activities of SIBL.

Objective of the Study

The main objective is that to prepare report on Clearing & Investment (credit) department of Social Islami Bank Limited (SIBL), I can generate more practical knowledge that is related to our course book, that I completed through my MBA program. Moreover we can generate a liaison between our theoretical knowledge and practical knowledge.

Another objectives for preparing this report are given below:

• Internal Clearing Process (Inward & Outward)
• Loan process of a bank
• Real Estate Finance that is discouraged by Bangladesh bank
• Ratio analysis through Credit Risk Grading (CRG), which is very important for any investment proposal.
• CIB process of Bangladesh Bank
• Artha Rin Adalat Ain process of Credit
• Islamic Sharia base loan or investment process that is not overall applicable in our country
• Different types of bank charge
• Some rules & regulation that is assigned by Bangladesh Bank
• Preparation of Classified Loan
• Rescheduling and waiver process
• General Banking activities
• Different Investment Policies of SIBL
• Many more

Methodology

The study is of exploratory nature. The finding of this study is based on analyzing both the primary and secondary data. Moreover, this is a combination of both fieldwork and desk research.

Primary Data:

• Notes that taken from the day to day-working activity
• Consulting with the officers of the Branch.

Secondary Data:

• siblbd.com
• Annual Report of SIBL
• Different Book

Personal interview was used to collect information. Before interview the questioner was tested and modified. The collected data are then edited and transferred to a master sheet. For secondary data web sites containing information regarding these banks and fliers were helpful.

Historical Background

Social Islami Bank Limited an interest-free Shariah bank in Bangladesh incorporated as a banking company on 5 July 1995 under the companies act 1994. It commenced banking operations on 22 November 1995 with an authorized capital of Tk 1,000 million divided into 1 million ordinary shares of Tk 1,000 each. The initial paid up capital was Tk 118.36 million fully subscribed by its 38 sponsors including 3 Arab nationals. The paid up capital was enhanced several times and stood at Tk 260 million on 31 December 2000. The bank is listed with the Dhaka Stock Exchange. In 2000, total liabilities and shareholders equity of the bank stood at Tk 5,671.99 million.

The bank provides all types of commercial banking services and it conducts business on the Islamic principles of musharaka, Murabaha, bai-muazzal and hire purchase transactions. The broad-spectrum operational aspects of the bank have been set out to encompass three sectors – formal, non-formal and voluntary – in a comprehensive programmed. In the formal corporate sector, the bank offers banking services through deposit and investment accounts, trade financing, collection of bills, money transfers, lease of equipment and consumers’ durable, hire purchase and installment sale of capital goods, investment in low-cost housing and real estate management, and financing projects in agriculture, transport, education and health sectors. In the non-formal non-corporate sector, it is involved in opening and introducing various savings and investment schemes for the unemployed poor and the educated. In the voluntary sector, it is involved in the development and management of waqf and mosque properties, management of inheritance properties, and joint venture projects relating to religious affairs and charitable activities. Total deposits of the bank amounted to Tk 4,863.21 million in 2000 compared to Tk 124.73 million in 1995 and included currency and other deposits, bills payable, term deposits and savings deposits. On 31 December 2000, the loans and advances in various sectors stood at Tk 3,522.24 million as against Tk 0.22 million in 1995. On 31 December 2000, the classified investments (loans and investment) of the bank amounted to Tk 173.1 million (4.91% of the total). Foreign exchange business handled by the bank in 2000 accounted for Tk 4,250 million, which comprised export servicing, import financing and remittance facilities. That year the assets of the bank were valued at Tk 5,672 million and the off-balance-sheet-items Tk 1,060.04 million. The bank started having net profits since 1998 and the net profit after adjusting all provisions for taxation and classified loans amounted to Tk 38.1 million. The profitability of the bank is severely affected by the fact that it has to maintain a substantial amount of provision for its classified loans each year.

The management of the bank is vested in a 27-member board of directors headed by a chairman. There is a 5-member Shariah Council of the bank to ensure the compliance of Islamic rules in its activities. The bank has also a 13-member honorary foreign members’ international advisory council to advice it on international business affairs, particularly in Islamic countries. In December 2000, the bank had 13 branches and in all, 310 employees including executives of different cadre.

Mission & Vision

Mission:

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

Vision:

Social Islami Bank Ltd started its journey with the concept of 21^st Century Islamic participatory three sector banking model: (I) Formal Sector- Commercial Banking with latest technology;(ii) Non-Formal Sector – Family Empowerment Micro-Credit & Micro-enterprise program and (iii) Voluntary Sector – Social Capital mobilization through CASH WAQF and others. Finally, “Reduction of Poverty Level” is our Vision, which is a prime object as stated in Memorendum of Association of the Bank with the commitment “Working Together for a Caring Society”.

Different Investment Scheme

The bank extends Investments under the principals of

01.Mudaraba

02.Musharaka

03.Bai- Murabaha (Contract Sale)

04.Hire Purchase under Shirkatul Meelk (HPSM)

05.Bai-Muajjal (Sales under deferred payment)

06.Bai- Salam (Advanced Purchase)

07.Bai- Istisna

Mudaraba (The Hiring of Capital):

Mudaraba is one of the most well known investments permissible under Islamic Shariah and widely used by all countries where Islamic systems of banking are functioning. Mudaraba finance combines financial experience with business experience. Mudaraba is a contract in profit sharing where one party provides capital/ funds and the other labor/ work. Under this system, banks provide the capital and clients provide expertise and profit is shared according to agreed ratio. In case of loss, the bank bears the financial risk and the client loses only his labor/ effort and his expected share of profit.

Important Features

• Mudaraba is generally limited to self-liquidating transactions.
• The assets of Mudaraba should be easily recognizable and must be realized and liquidate so that the proceeds can be easily distributed between the partners at the termination of operations, completion of deal, or the achievement of Mudaraba objectives.
• If the partners want to renew the Mudaraba, a new contract must be negotiated, but only after the old one has been terminated and the rights and liabilities of the parties concerned have been recognized and settled.
• Mudaraba is generally limited to trading activities.

• The entrepreneur has no right to mix the Mudaraba funds with his own funds, unless he was permitted to do so by the bank.
• Before liquidation of distribution of profits, the Mudareb possesses an uncontested right not only to his share in profits but also to any gains or appreciation in the value of output or assets of the joint venture that might occur during the life of the Mudaraba contract.
• The Mudaraba accounts must be recorded properly and the books of accounts should be audited.

Musharaka (Partnership Profit Sharing):

Musharaka is another type of financing mechanism used by Islamic Banks. This mode of finance is represented by two or more financiers in contributions of equal or unequal ratios of capital to establish a new project or to participate in an established one and all partners are entitled to share the total profits of the venture according to ratio as mutually agreed upon allowing for managerial skills to be remunerated; but the losses are shared exactly in proportion to capital proportion. Participation parties have the right to participate in the management of the project and at the same they may also waive this right in favor of any specific partner.

There are two types of Musharaka contracts:

• Constant (permanent)
• Decreasing (diminishing) Participation.

In the first case, the bank participates in the equity and receives share of profit on pro-rata basis annually and period of termination of the contract is not mentioned/ specified. So, the contract may continue as long as the parties concerned agree it to continue.

The diminishing partnership of Musharaka is getting more popular in
Islamic Banks because of its potentialities than permanent Muskaraka. In constant/ permanent Musharaka funds are committed for a long period; but this is not so in the case of diminishing Musharaka. Decreasing Musharaka allows equity participation in the first place and share profit on pro-rata basis. This system also provides/ extends for future payments of money over and above the bank’s share in the profit as a repayment of the part of equity held by the bank. In this manner, the equity held by the bank is reduced progressively with the passage of time. After lapse of certain period of time, the bank will have zero equity and will cease to be a partner.

Important Features:

• The bank is not guaranteed a fixed return on its participation.
• Banks benefits in financing fixed assets or working capital or both lie in the profit sharing scheme between the banks and venture.
• Profits are shared pro-rata with equity and are calculated for this purpose, after allowing for management fees and before depreciation and provisions, as non-cash-items.

Murabaha (Contract Sale):

Murabaha is one of the most widely used modes of finance undertaken by the Islamic Banks. About 70 to 80 percent of financial operations of the most Islamic Bank belong to this segment. It is suitable for investment for financing industry, agriculture, trade or any other sectors. It enables the client/ investor to obtain finished goods, raw materials, machinery or equipment from the local market or through import by opening letter of credit under Murabaha commercial.

Murabaha is one kid of sale transaction. Under this system of investment, a sale transaction is taken place between client and bank. The client requests the bank to purchase certain goods as prescribed by him/them with a price confirmed by the client from a supplier/ seller in the country or abroad. The bank, itself or through an agent (may be the client himself) collects all the information about the nature and specification of the goods, its price, terms of delivery etc.

Murabaha is also a double sale and bye. Under this technique, bank buys the goods upon the request of the client and then sells the goods to him/ them. The goods are purchased by the customer from the bank within a fixed period of time or by installment with a cost include cost of goods plus mark up profit. The profit mark up as fixed before the deal cannot be increased even if the client does not take the delivery within the scheduled time.

When Murabaha sale is made of deferred payment basis, this is called Murabaha –Bai- Muajjal. Under this sale. Bank sells the commodity to the client on the basis of deferred payment against an agreed price, which includes the price and mark up profit. Murabaha sale is also one kind of absolute sale, which is divided into four kinds in respect of price. These are given below:

1. Bargain Sale: Selling of commodity at a price already agreed upon irrespective of its purchased price.
2. Tawlia Sale (respective Sale): Selling the commodity at purchased price without any additional or discount.
3. Discount Sale: Selling the commodity at a purchased price allowing certain discount.
4. Murabaha Sale: Selling a commodity at a purchased price plus certain profit as agreed upon. This profit margin may be determined on a percentage of the purchased price or a lump sum as agrees to. The last three sales are called: Amana (honesty) Sales”

Hire Purchase Under Shirkatul Meelk:

Hire purchase under Shirkatul Meelk is a special type of contract that has been developed through practice. Actually, it is a composition of three contracts:

• Shirkat: Shirkat means partnership. Shirkatul Meelk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Meelk contract.
• Ijarah (Leasing): The Ijarah financing under Islamic Shariah is akin to the western concept of leasing. In Ijarah financing, Islamic banks finance capital goods to industrial project against payment of a rent by installment.

In Arabic the Leasing is defined as contract between a leasing company (called as the lessor) of one part and the user of the equipment asset (called the lessee) of other party whereby the lessee/ loanee agrees to pay the lessor an agreed amount of money as rentals over a specified/ obligatory period of time in consideration for the use of capital equipment owned by the lessor. The lessor retains ownership of the equipment and seeks to receive the capital cost of the equipment plus a profit margin out of the lease rentals payable during the period of the lease.

There are two types of leases recognized under this system of investment. These are-

1. Operational Lease: Under this system of finance, Islamic Banks hold a number of various assets to respond to the needs of different customers. These assets have usually high degree of marketability. The bank rents these assets to its client who is desirous to utilize the same for a team to be agreed upon on payment of rental. After expiry of the lease period, the assets are returned to the bank. The bank then looks for new lessee.
2. Lease Purchase: The lease purchase or lease out that ends with possession is a new technique of investment innovated By the Islamic Banks. Under this system, bank does not hold the assets; but purchases the assets in response to an emphatic request from one of the customers to own the assets through lease that ends with possession. Therefore, the assets will not remain as the property of the bank at the end of the lease period as is the case in the operation lease. As soon as the purchase amount of household goods along with rental is paid off with in the lease period, the ownership of the leasehold item transfers to the lessee automatically as per contract.

• Sale: This is a sale contract between the buyer and a seller under which seller transfers the ownership of certain goods or assets to buyer against agreed upon price paid/ to be paid by the buyer.

Thus, in Hire Purchase under shirkatul Meelk both the bank and the client supply equity in equal or unequal proportion for purpose of an asset like land, building, machinery, transport etc, purchase the asset with that equity money, own the same jointly, share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or proportion of asset owned by the bank, is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly, the bank sells and transfer the ownership of its share/ part/ portion to the client against payment of price fixed for that part either gradually part by part or in lump sum within the hire period or after the expiry of the hire agreement.

Hire Purchase under shirkatul Meelk Agreement has got three stages:

• Purchase under joint ownership
• Hire
• Sale and /or Transfer of ownership to the other partner Hirer.

Bai- Muajjal:

Bai- Muajjal means sale for which payment is made at a future fixed date or within a fixed period. Bai-Muajjal may be defined as contract between a buyer and a seller under which the seller sells certain specific goods to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installments.

In bank, Bai- Muajjal is treated as a contract between the bank and the client under which the bank sells to the client certain specific goods, purchased as per order and specification of the client at an agreed price payable within a fixed future date lump sum or by installment.

Bai-Salam (Advance Sale And Purchase):

Bai-Salam may be defined as a contract between a Buyer and a Seller under which the seller sells in advance the certain commodities/ products permissible under Islamic Shariah to the Buyer at an agreed price payable on execution of the said contract and the commodities/products are delivered as per specification, size, quality, quantity at a future time in a particular place. Under this transaction the cost of commodity is advanced in cash to the seller who agrees to believer the commodity on a definite due date. The delivery of the commodity sold is deferred but the payment of the price is immediate.

Important Features

• Bai-Salam is a mode of investment allows by Islamic Shariah in which commodities/ products can be sold without having the said commodities/ products either in existence or physical/ constructive possession of the seller.
• Generally, industrial and agricultural products are purchased/ sold in advance under Bai-Salam mode of investment to infuse finance so that production is not hindered due to shortage of fund/ cash.
• Bai-Salam investment may also be allowed in export-oriented industries. This can be allowed after opening of the L/C, arrival of raw materials, shipment of raw materials etc. the bank may sell/ export its goods through the seller/ exporter under a separate agreement or this may be done duly incorporating in the Bai-Salam agreement unless otherwise settled and prescribed.
• It is permissible to obtain collateral security from the seller client to secured the investment from any hazards viz., non-supply/ partial supply of commodities/ products, supply of low quality commodities/ products etc.
• It is permissible to obtain mortgage and / or personal guarantee from a third party as security before signing of the agreement or at the time of signing the agreement.
• The seller client may be made agent of the bank to sell the goods delivered to the bank by him provided a separate agency agreement is executed between the bank and the client.

 Bai Istisna:

The majority of the juries consider as one of the division of Bai- Salam. Therefore, it should be treated under the definition of Bai- Salam. But the Hanafi School Fiqh declares Istisna an independent and separate contract. The jurists of the Hanafi School have given various definitions to Istisna, some of which are:

“ It is a contract with a manufacturer to make something and it is a contract on a commodity on liability with the stipulation of worki.”

Under this contract the first party agrees to contract/ manufacturer a particular products and deliver it to second party against a predetermined price. The price may not be required to pay in advance. It may be paid in installments, or can even be deferred until the desired product is delivered.

 Welfare Oriented Investment Special Scheme

The bank has been working for the upliftment and emancipation of the underprivileged, downtrodden and neglected sections of the society and has taken up various schemes for their well- being these are.

1. Household Durable Scheme: For purchase of household articles like furniture, electrical equipments etc.
2. Housing Investment Scheme: For making arrangement for comfortable accommodation of the fixed income group.
3. Transport Investment Scheme: Investment is made to existing successful businessman and potential entrepreneurs, companies and established business house to buy road and water transport like bus, minibus, and truck. Launch, cargo- vessel, baby taxi, tempo etc. in order to ease the existing transportation problem.
4. Car Investment Scheme: This investment is made on easy terms and conditions to officials, business executives and established professionals in order to enable them to discharge their duties and responsibilities punctually and efficiently.
5. Investment Scheme for Doctors: This scheme has been taken up to help unemployed qualified doctors to go for self- employment and to provide latest medical equipment to specialist doctors.
6. Small Business Investment Scheme: This scheme has been taken for self- employment of educated unemployed youths of rural and urban areas and to provide investment to small businessmen and entrepreneurs.
7. Agricultural Implement Investment Scheme: This scheme has been introduced to provide power tillers, power pumps, shallow tube wells etc. on easy terms to unemployed youths for self- employment and to the farmers.
8. Rural Development Scheme: This scheme has been taken up to re-activities se the rural economy and develop model villages the rural economy and develop model villages through integrated approach and thereby to create income generating and productive self-employment opportunities through extension of investment.
9. Silk weavers Investment Scheme: This scheme has been taken up to assist the silk weavers of Mirpur area particularly in respect of requirement of working capital.
10. Micro- Industries Investment Scheme: To create wider base for industries as well as to encourage establishment of micro-industries in different areas of the country by the potential entrepreneurs and for diversification of the Banks investment portfolio, the bank introduced Micro Industries Investment Scheme.

Quard-e- Hasana (Benevolent Loan):

Funds advanced by Islamic Bank under Quard Hasana are for humanitarian and welfare.  However, parties differ in this respect. Some Islamic Banks provide Quard Hasana (interest free loan) to the holder of investment accounts o the bank on compassionate ground. Other banks also extend these loans to needy students and other economically weaker sections of the society. These interest free loans are also given to small producers, marginal group of farmers and entrepreneurs who are not qualified to get loan from other sources. The purpose of these loans is to help the needy society to become independent as to raise their income and standard of living with the passage of time. However these loans are repayable as and when borrower is able to pay without any profit.

Pursuant to the investment policy adopted by the Islamic Bank, a ‘7-year Perspective Investment Plan’ has been drawn up and put into implementation. The plan aims at diversification of the investment portfolio by size, sector, geographical area, economic purpose and securities to bring in phases all sectors of the economy and all types of economic groups of the society within the fold of Banks investment operations.

Investment Process:

Required Papers/ Documents

• Application
• CIB Declaration Form
• Trade License.
• TIN certificate
• Break Down of Repayment Schedule.
• Mortgage permission from competent authority.
• Expected rate f profit.
• Project profile.
• Certificate of Environment Ministry (In case of project finance).
• Declaration of Liabilities of the proprietor.
• List of immovable assets of the properitor.
• List of movable assets of the business.
• List of machineries.
• Profit and Loss A/C of last year.
• Stock report.
• Monthly Sales.
• Monthly Purchase.
• List of Sundry Debtors.
• List of Sundry Creditors.
• Photograph of the proprietor (two copy of each)
• How long in the business.
• Of official staff.
• Area of office.
• Legal opinion on collateral security.
• Valuation certificate on collateral security.
• Approval from Rajuk.
• Soil test certificate.
• Letter of consent along with photograph.
• Bio-data of the proprietor.

Charging Security:

Third party collateral should not be encouraged. As per existing law no equitable mortgage is permitted. So the collateral security, if it is land and building, should be registered mortgaged with the Bank.

In case of limited company 1^st charge should be created on all the fixed and floating assets of the company with Registrar of Joint Stock Companies and Firms (RJSC). In case of syndicated financing pari-passu charge should be created with RJSC.

In case of taking FDR/TDR of other Bank as security optimum care should be taken. Lien Marketing of FDR must be ensured from the issuing Branch. Lien marketing must be confirmed from Area Office/ Regional Office/ Zonal Office/ Head Office of the issuing Branch of the concerned FDR/TDR. In this case Bangladesh Bank letter No. Ma Lo Pro Bi-267/2004-3937 dated 19.10.2004 should be followed.

The common methods of charging securities are:

• Lien: Lien is the right of one person to certain goods and securities in his possession belonging to another until certain legal debts due to the person retaining the goods are satisfied. In other words, it is the right of the creditor to retain the goods and securities in his possession, belonging to a debtor, until the debt due is paid. Lien dose not give the power of sale but only to retain property.
• Hypothecation: The mortgage of movable property is called hypothecation. But hypothecation differs from mortgage in two aspects. Firstly, mortgage relates to immovable property whereas hypothecation relates to movables. Secondly, in a mortgage, there is transfer of interest in the property to the creditor but in hypothecation there is only obligation to repay money and no transfer of interest.
• Pledge: The usual method of obligation a title to goods offered as security is by way of pledge. In pledge the ownership remains with the pledger. It is only a qualified property that passes to the pledgee who acquires a special priority and lien that is not of ordinary nature and, so long as his loan is not repaid, no other creditor or authority can take away the goods or its price. In case of default the pledgee has the power to sell the goods after giving due notice.
• Assignment: An Assignment means transfer of an existing or future right, property or debt by one person to another person. The person who assigns the right, property or debt is called the assignor. The person to whom the right etc is transferred is called the assignee. It is same as mortgage with the only difference that in a mortgage there is always a right of redemption but in an assignment it is provided by a separate agreement.
• Mortgage: Mortgage is another method of charging. This type of charging is done in case of immovable property. Immovable property includes land and things attached to the earth like trees, building and fixed machinery. In SIBL, they mainly consider two types mortgage. These are given below
  • Simple Mortgage
  • Register Mortgage

Guidelines to Prepare Investment Proposal:

To prepare and sending the proposal at IRM at Head Office, RM should follow following instructions:

• Application of the client (in A4 size white paper in case of individual and in letter Head pad in case of business concern) with original photograph(s) duly attested by the Branch Incumbent. An authorized Official of the Branch also must verify applicant’s signature.
• IF-48& IF-49 form (duly filled in) along with supporting papers.
• Copy of valid Trade License of the business concern and TIN certificate duly authenticated by an authorization Officer of the Branch.
• Copy of registered Partnership deed is required in case of partnership concern.
• Visit report of the business concern stating the overall conditions of the business of the applicant. This report should contain, among others, following information (at least for one year): a. Sales b. Purchase c. Stock Position d. Godown Position e. Profitability and f. Staff Position.
• Up to date stock statement showing items wise quality and value duly signed with date. Old and obsolete stock to be discarded. A declaration to be furnished in this respect that the stocks are free from any encumbrances and not charged anywhere. If charged, the name and address of financial institution/ Bank, extend of charge to be mentioned.
• CIB inquiry form (duly filled in) for onward submission to Bangladesh Bank. Branches are advised to send the CIB inquiry form at least 15 (fifteen) days before sending the proposal to Head Office.
• Current Account statement of the client preferably for one year but at least for six months.
• In case of private Limited Company, copy of company’s memorandum and articles of association, certificate of incorporation duly attested by an authorized officer (RO) of the Branch and a resolution of the company’s Board of Directors regarding obtaining investment facilities from SIBL to be furnished. For a public limited company, certificate of commencement of business is to be furnished in addition to the requirement as in case of private limited company. Latest shareholding certificate issued by Registrar of Joint Stock Companies and Firms and any changes thereafter to be submitted.
• Copy of audited income statement and balance sheet preferably for last 3 years duly attested by an authorized officer of the branch is to be submitted. In case of new company projected balance sheet for next three years is to be submitted
• LRA in full format for investment facilities for tk.50.00 lac and above is a must.
• A declaration of assets (immovable and movable) giving detail description of the property/ partner/ directors to be furnished. If there is any charge on any of the property by any bank/ DFI, that is to be clearly mention. Similarly declaration of liability to be submitted mentioning therein the name o the bank, nature of investment/ credit limit being enjoyed, and extent of outstanding, overdue or classified amount, if any. In case of no liability ‘NIL’ liability statement to be given.
• For mortgage able property, copy of Title Deed, BIA Deed, mutation parcha, up to date rent receipt, DCR etc. of the property to be submitted along with clear-cut Mouza map.
• Legal opinion and Non-Encumbrance Certificate (NEC) of the proposal collateral security. Legal opinion must be based on original documents.
• In case of 3^rd party collateral letter of consent along with photograph of the owner of the property offered for mortgage to be submitted. Letter of consent must incorporate the schedule of the property.
• Valuation certificate is to be submitted in the Banks format. Where a survyor firm makes valuation, separate valuation is also to be made by the Branch on the basis of their own findings and judgment.
• Where survey firm makes valuation, the surveyor must put comment in their report about the possession and ownership of the land on the basis of their discussion with the owners of the property offered for mortgage and discussion with local people. If feasible, they may take photograph of the owner of the property and submit the same with the report.
• A declaration to be given if the applicant/ client have any sister concern or business firm having interest therein. If so, the client of interest or shareholding and liabilities of the concern with name of Bank/ DFI to be mentioned.
• In case of applicant for investment facility relates to working capital for industries, the following to be submitted:

1. Assessment of working capital requirement based on installment present working capacity of production, requirement in quantity and value of imported and local raw materials at 100% capacity and the volume of cash/ credit purchase and sale.
2. List of machinery and equipments with year of purchase, cost price, written down value and present working efficiency.

In case of application for real estate financing, the followings are to be submitted:

1. Copy of approval layout plan along with approval letter of concerned authority,
2. Approved site plan.
3. Detailed cost estimation of construction.
4. Sources of fund to cover the construction cost.
5. Sources of repayment of Investment Amount with rent/Profit.
6. Present monthly income and expenditure statement of the individual/ business concern and expected monthly income from the project.

In case of project investment, the following additional papers/ documents to be submitted:

1. Project profile/ feasibility report.
2. Copy of appraisal containing marketing, management, commercial, technical and financial aspect of the investment project.
3. Approval/ permission of relevant authority as may be required.
4. Clearance from the Department of Environment is required.
5. No objection certificate from the local authority as to setting up of the proposed industry.
6. Building and machinery layout.
7. 3 sets of competitive price quotation from 3 different suppliers for the selected machinery and equipments monitoring which one is accepted.
8. For BMRE proposal, detailed particulars of existing machinery and equipments, year of purchase and value, present written down value and present working capacity along with audited Balance Sheet.

In case of large loan, the following papers to be submitted:

1. Latest Audited Balance Sheet and Profit & Loss Account
2. Cash Flow Statement
3. Fund Flow Statement
4. LRA in complete form
5. Declaration of Repayment Ability
6. For new cases projection of Profit & Loss for next 3 years.

Sending Proposal to Head Office

Branch than send the investment proposal to the Head Office for approval. The Manager, Managing Director, and Board of Director analyze of all the positive and negative part of the investment proposal. If the project is favorable than the Bank approve the proposal and send it to the Branch.

Investment Approval

The approval process must reinforce the segregation of Relationship management / Marketing from the approving authority. The responsibility for preparing the investment Proposal is rest with the RM of the Branch as well as the Corporate Banking Department (for project/ syndicated financing or large investment) at head office. Investment proposals should be recommended for approval by the RM team in the Branch and Corporate Banking (for project/ syndicated financing or large investment) department and to be forwarded to the approval team within the IRM at Head Office and to be approved by authority as delegated by the Board of Directors. IRM approval team will take necessary steps to get approval of the proposal from the competent authority.

Follow up & Communication With the Client

Supervision and follow-up of advances are the direct responsibilities of the branch.  Branch is the unit wherefrom the proposal is made for any advance, disbursements are made. The borrower maintains his account with the branch, operations are submitted through the account, and the borrower to the branch submits reports and returns.

In conducting follow-up branches have to follow the under noted common methods:

• Keep a watch over the ledgers and accounts to ensure that operations are regular and as per procedure. Particular care should be taken when the balance in the account remains very near or goes beyond the drawing limit or there is no good turnover.
• Keep watch over the inflow and outflow of fund.
• Collect periodical reports, returns and information about the borrower and examine the activities of the project/ enterprise financed.
• Ensure that security / collaterals have been obtained as per terms of sanction and valuation has been assessed correctly and the security is maintained properly.
• Ensure that the security has been properly insured where required as per policy, procedure and practices,
• Ensure that the documents have been obtained as per terms of sanction and as per procedure for such type of advance. If not, get the documents regularized.
• Keep regular contact with the borrower both formally and informally and pay regular visits to the project/ enterprise financed.
• Ensure that appropriate actions are taken in time to regularize the irregularities and recover the loan as per schedule.
• Obtain periodical balance confirmation from the borrower and where necessary fresh documents are obtained as per procedure/ practice.
• Keep watch over the repayment trend and see that the advance does not turn up as irregular or stuck up and becomes time-barred.

 Task Related to CIB

The credit information that has so far been collected by Bangladesh Bank from scheduled banks and other financial institutions are not broad- based and systematized to be used by Bangladesh Bank, scheduled banks, and financial institutions. Government of Bangladesh and other agencies for credit policy and other purposes.

The Credit Information Bureau (CIB) of Bangladesh Bank has undertaken the task of collating and storing detailed credit information from scheduled banks and other financial institution in its proper prospective so that these can be exchanged among the scheduled banks, financial institutions and Bangladesh Bank for quick processing of new loan proposals and re-scheduling of existing loans.

The CIB has also been supplying credit information to be Government and other national and international organizations that are engaged in the formulation of monetary, economic and credit policy. The information so far collected by CIB are:

1. Debtor’s / Borrower’s Information (Segment-1)
2. Owner’s Information (Segment-2)
3. Group/ Affiliations Information (Segment-3)
4. Credit/ Exposure Matrix or Financial Information (Segment-4)
5. Third Party Guarantors Information (Segment-5)

Inspection of Security

In order to ensure an effective supervision, it is necessary for the banker to take care of the following factors:

• End-use of Fund: The banker has to see that the funds lent to the funds lent to borrower are used for the purpose for which they have been given. Any diversion of funds and deviation by the borrowers from the terms and deviation by the borrowers from the terms and conditions stipulated by banks has to be noticed and timely action has to be taken.
• Monitoring of Borrowers Accounts: Careful monitoring often result in heading off trouble before it arises. For effective credit management, it would be adequate if borrower’s accounts are kept under a close watch. Bank should obtain in advance a list of usual suppliers of goods to the borrower. This will help in ensuring that all payment to parties from cash credit or overdue account are made directly to the supplier for approved purpose.
• Security: Through the banks are now expected to lay greater emphasis on the purpose for which the borrower needs money rather than security he can afford to give, security continues to be one of the most important factors which determines to a significant extent the banks willingness to lend money. So the bank has to see that the security offered is safe and continues to remain available for repayment of loan.

Investment Monitoring / Recovery Cell:

Monitoring and recovery cell at Branch will be responsible for monitoring and recovery of past due accounts of the Branch. The functions of monitoring/ Recovery Cell will be as under:

• Conditions and Covenant Breach Monitoring
• Monitoring of past due, Limit, Expiry and Documents Efficiency.
• Determine Action Plan/ Recovery Strategy.
• Taking appropriate steps for recovery the overdue
• Ensure Adequate and timely investment loss provision, as per CL statement is made based on actual and expected losses.
• Regular review of grade 6 or worse accounts.
• Compliance of internal Audit/ Bangladesh Bank Inspection Report.

Taking Action if Default

For recovery purpose investment monitoring and recovery cell of the branch should take following steps:

In case of continuous investment, at least 30 days before of due date, the IMRC of the branch will issue a letter to the client informing the due date and will respect the client to adjust his liabilities within the due date. In case of term investment or installment basis investment IMRC of the branch will make a phone cell to the client before at least 10 days of the due date informing the client that the cheque which is already bank’s custody, will be placed on that date and requesting him to keep fund available in his concerned account so that the cheque will be honored. In case of past due accounts the IMRC of the branch will take the following steps:

Artha Rin Adalat Ain:

According to Artha Rin Adalat Ain2003 Section 12 (1): Sell of certain mortgage property by financial institution-

“If a financial institution wants to sell any property of the defendant which have been mortgage or kept lien or pledge when taking loan and the plaintiff has legal rights to sell the same or the same has been placed under the disposal of the plaintiff, the plaintiff shall not file any suit in the Artha Rin Adalat until the same has not been sold or adjusted with loan so granted to the defendant.”

“ Deposit the provision of subsection (1), if any financial institution file any suit in the Artha Rin Adalat without selling any mortgaged property through it was not under his possession and control, and the same shall be sold according to system mentioned earlier and the amount so received by selling should be adjusted against the debt and the same shall be sold according to system mentioned earlier and the amount so received by selling should be adjusted against the debt and the same should immediately be brought to the notice of the court”.

“When any financial institution granted loan to a defendant under mortgage of immovable or hypothecated movable property and has been empowered to sell the aforesaid property by power of attorney at the time mortgage, shall not file any suit in the Artha Rin Adalat until such property has been sold and has not been adjusted the sold amount so received against any debt or has failed to sell the property.”

Conclusion

In short, Social Islami Bank Ltd. is such a Commercial Bank which is rendering all commercial banking services to the customers in addition to make available Micro-Credit & SME finance to the millions of needy people of the country. As part of a Corporate Social Responsibility, it is playing a remarkable role to help the distressed people of the society in different welfare related activities.

They focus on dignified, prompt and personalized services being rendered to their customers. They believe in developing strong interpersonal relationship with each other. As such, they are morally bound to provide high quality banking services with the latest technology to obtain optimum return on shareholder’s equity ensuring safety of depositor’s money and making all out efforts to introduce their innovative Islamic Banking products to their existing and prospective customers. They are really happy that they have given enough emphasis to empower poor families to create income opportunity by providing financial support to make them self-reliant. They consider their services no less important towards improvement of the fate of deserving people in the society.

Recommendation

People have no way but to come to the Banks for higher financing, so the operations and way of getting loans need to be very sharpened.  If the private banks provide a huge banking facilities and offers in less expensive condition for lower class people, they can be more advanced and independent which with help our country to go for more progress. The ways can be recommended as:

• They should follow accurate Shariah based investment policy. In our country it is quite difficult, but they should overcome it.
• Smoothing service and reducing time consumption.
• Improve customer service and consequently satisfactory operational result.
• SIBL should improve the branch facilities.
• They should invest at minimum possible risk because of the current economic condition of the whole world.
• They should maintain Bangladesh Bank circular & ensure compliance.
• Before investment they should analysis these: Market analysis, Technical Analysis, Financial analysis, Management Analysis, and Economic Analysis.
• According to current Economic condition they should invest more safely, otherwise they should not overcome this problem.

SIBL should invest in agricultural sector because it is more profitable project than others.

SIBL now act as market follower but they should be market leader like other bank.

SIBL should enlarge their operation over the whole country.

They can build a strong security system against any terrorism activities that will give safety to people’s life and wealth in the present crime prone world. Because bombing as terrorism is spreading all over the country and has made a big phobia among the people.