Promotion of Foreign Exchange Services in Bangladesh on Islami Bank Bangladesh Limited

Origin of the Report:

As a part of my BBA program, I did my internship at the International Banking Wing, Islami Bank Bangladesh Limited, Head Office, Dhaka. My internship topic was “Promotion of Foreign Exchange Services in Bangladesh, A study on Islami Bank Bangladesh Limited”. This internship gave me the opportunity to explore one of the most efficient, effective handling of Foreign Exchange business operations in respect of International Standard and Banking Practice.

Internship program is designed for BBA students of Shaikh Burhanuddin Post Graduate College Dhaka on completion of the course to acquire experience on the practical application of the theoretical knowledge set through the course curriculum. This project was done during my internship period to fulfill the requirement of the course under the supervision of Mrs. Monmun Hossain, lecturer.

This report is an integral part of the internship program of the BBA program of DhakaCityCollege which pushes the students into real life situations, outside of classroom, to test all the theories and exercises discussed in the classrooms. This report is the culmination and a slice of the pie of the students’ cumulative experience in the job place.

 Rational of the Report:

This report will help to guide the reader to have an understanding of various matters.

• To get an understanding on the brief procedures of import & export of IBBL.
• To get the scenario of Foreign exchange business portfolio of IBBL.
• To understand the compliance of international practice in foreign trade business.
• To assist a person to know about the comparative position and contribution of IBBL in foreign trade of the country.

 Scope of the Study:

The study would focus on the following areas:

• Foreign Trade Operations in Islami Bank Bangladesh Limited.
• Foreign Exchange Business portfolio & its operations.

Each of the above areas would be critically analyzed in order to determine the efficiency of IBBL’s foreign trade operations and management system.

Objectives of the Report:

Broad Objective:

The broad objective is to prepare & submit a report on the topic “Promotion of Foreign Exchange Services in Bangladesh, A study on Islami Bank Bangladesh Limited”

  Specific Objectives:

• Exploring various features of Islami Bank Bangladesh Limited.
• Foreign Exchange business scenario of Islami Bank Bangladesh Limited.
• Analyses of different modes under Foreign exchange portfolio of IBBL.
• Evaluation of the law governance & regulatory policies.

• Finding out the Foreign Trade operations practiced by IBBL
• Analyzing and comparing foreign trade operations of IBBL with that of the standard.

 Methodology:

Both the primary as well as the secondary form of information is used to prepare the report. The details of these sources are highlighted below.

Primary Sources:

Primary are collected by survey or study for specIBBL purpose. We have collected primary data through the following ways:

• Practical work exposures on different desks of the branch.
• Practical experiences of the officials.
• Collection of relevant information from various departments

  Secondary Sources

• Documents and materials of foreign exchange of IBBL Bank Ltd.
• Annual report of IBBL Bank Ltd.

• Website of IBBL Bank Ltd

The study requires a systematic procedure from selection of the topic to final report preparation. The overall process of methodology is given in the following page in the form of flowchart that has been followed in the study:

1. Identifying data sources: Essential data sources both primary and secondary are identified which will be needed to complete and workout the study. To meet up the need of data primary data are used and the study also requires interviewing the officials and staffs where necessary.
2. Collection of data: Primary data are collected through physical inspection as there is no provision.

3. Findings of the study: After scrutinizing the data problems of the study are pointed out and they are shown under concerned heads. Recommendations are suggested thereafter to overcome the problems.

Different data and information are required to meet the goal of this report. Those data and information were collected from various sources. The study followed a certain method to collect data and analyze the foreign exchange portfolio of the Bank.

Limitations of the Report:

Though I tried my level best to produce a comprehensive and well-organized report on the Foreign Trade Operations in IBBL, some limitations were yet present there:

i.                    A period of twelve week was not sufficient to collect and understand for such an extensive study. It is very difficult to collect all the required information in such a short period.
ii.                  Banks policy did not permit to disclose various data and information related to Foreign Trade Operations and its portfolio.
iii.                Since the specific data is more or less confidential for the bank, it was difficult to extract the expected information and data as per requirement.
iv.                Due to absence of current/updated data in printed books/papers different data have been collected from printed book/papers for the period of previous year.

 History of Banking:

After the liberation war and the eventual independence of Bangladesh, the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country and named it Bangladesh Bank. This reorganization was done pursuant to Bangladesh Bank Order, 1972, and the Bangladesh Bank came into existence with retrospective effect from 16 December 1971.

 In 1982, the first reform program was initiated, where the government denationalized two of the six nationalized commercial banks and permitted local private banks to create competition in the banking sector. In 1986, a National Commission on Money, Banking and Credit was appointed to recover the problems of the banking sector and a number of steps were taken for the recovery targets for the nationalized commercial banks and development financial institutions and prohibiting defaulters from getting new loans, yet, the efficiency of the banking sectors could not be improved. The Financial Sector Adjustment Credit (FSAC) and Financial Sector Reform Programme (FSRP) were formed in 1990, upon contracts with the World Bank with the objective to remove government distortions and lessen the financial repression. The policies made use of the McKinnon-Shaw hypothesis which stated that removing distortions will augment efficiency in the credit market and increase competition. The policies therefore involved banks to provide loans on commercial basis, enhance banks’ efficiency and to limit government control to the monetary policy only. FSRP forced banks to have a minimum capital adequacy, to systematically classify loans and to implement modern accounting systems and computerized systems. It forced the central bank to free up interest rates, revise financial laws, and to increase supervision in the credit market. The government also developed the capital market, which too was performing poorly.

Types of Bank:

Central Bank:

A bank that provides financial and banking service to the government of a country and its commercial banking system as well as implements the government’s monitory policy.

• Bangladesh Bank

Pursuant to Bangladesh Bank Order, 1972 the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country and named it Bangladesh Bank with retrospective effect from 16 December 1971.

 State-owned Commercial Banks:

The banking system of Bangladesh is dominated by the 4 Nationalized Commercial Banks In which 3 is totally controlled by government and 1 (Rupali Bank) bank is controlled by both government and private sector. Which together controlled more than 54% of deposits and operated 3388 branches (54% of the total) as of December 31, 2004. The Nationalized Commercial banks are:

• Sonali Bank
• Agrani Bank
• Rupali Bank
• Janata Bank

Private Commercial Banks:

Private Banks are the highest growth sector due to the dismal performances of government banks (above). They tend to offer better service and products.

• United Commercial Bank Limited
• Mutual Trust Bank Limited
• BRAC Bank Limited
• Eastern Bank Limited
• Dutch Bangla Bank Limited
• Dhaka Bank Limited
• Islami Bank Bangladesh Ltd
• Uttara Bank Limited
• Pubali Bank Limited
• IBBL Bank Limited
• National Bank Limited
• The City Bank Limited
• NCC Bank Limited
• Prime Bank Limited
• Southeast Bank Limited
• Al-Arafah Islami Bank Limited
• Social Islami Bank Limited
• Standard Bank Limited
• One Bank Limited
• Export-Import Bank Limited
• Bangladesh Commerce Bank Limited
• First Security Islami Bank Limited
• The Premier Bank Limited
• Bank Asia Limited
• Trust Bank Limited
• Shahjalal Islami Bank Limited
• Jamuna Bank Limited
• ICB Islami Bank
• AB Bank
• Marcantile Bank Limited
• Citibank
• HSBC
• Standard Chartered Bank
• Commercial Bank of Ceylon
• State Bank of India
• Habib Bank Limited
• National Bank of Pakistan
• Woori Bank
• Bank Alfalah

Foreign Commercial Banks

Specialized Development Banks

Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit needs of the agricultural sector while the other two ( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) are for extending term loans to the industrial sector. The Specialized banks are:

• Bangladesh Krishi Bank
• Rajshahi Krishi Unnayan Bank
• Progoti Co-operative Landmortgage Bank Limited (Progoti BanK)
• Grameen Bank
• The Dhaka Mercantile Co-operative Bank Limited (DMCBL)
• Bangladesh Development Bank Ltd
• Bangladesh Somobay Bank Limited(Cooperative Bank)
• Ansar VDP Unnyan Bank
• BASIC Bank Limited (Bangladesh Small Industries and Commerce Bank Limited)

Contributes of IBBL to Bangladesh Economy:

IBBL has many success stories of achievements. These are summarized below:

• IBBL is the pioneer institution for introduction of Islamic Banking in Bangladesh.
• The success of IBBL has imbibed other sponsors at home and abroad to establish Islamic Banking in Bangladesh.
• IBBL has successfully mobilized deposits from a section of people who hither-to-before did not make any deposit with interest-based banks.
• The Islamic Banking products which are offered by IBBL through its 231 branches located at important centers all over the country and spontaneous acceptance of those products by the people proves the superiority of Islamic banking.
• IBBL, though still a tiny bank, handles more than 10% of country’s foreign trade.
• Among the contemporary commercial Banks IBBL’s position is first in respect of mobilization of deposit, deployment of fund and earning profit.
• Investment in industrial sector occupies nearly 33% of IBBL’s investment portfolio
• More than 115000 workers are employed in the industrial projects financed by IBBL. IBBL has made significant contribution to solve unemployment problem of the country.
• IBBL has introduced several other welfare oriented investment schemes.
• IBBL has contributed a remarkable amount as income tax to the Government Exchequer on its net profit over the last 27 years.
• At the initiative and drive of IBBL, several Universities in Bangladesh have introduced Courses on Islamic Banking and finance.
• Due to constant persuasion of IBBL the Government has granted license for establishment of several Islamic Insurance Company.

 Background of Banking:

After the liberation war in 1971, Bangladesh has taken its place as a new country in the globe. The banking system in Bangladesh started functions with 12 banks inherited from Pakistan. Now in Bangladesh there are 48 scheduled banks doing there banking business in full sewing. Of which, 4 are Nationalized Commercial Banks(NCBs) 5 Specialized Banks (SBs), 30 Local Private Commercial Bank (PCBs) including 7 Islami Banks and 9 Foreign Commercial Banks(FCBs) including 1 Islami Bank. So, among these 48 Banks, I have taken one bank named IBBL in my study.

IBBL is a first generation private sector commercial bank in Bangladesh and first Islamic Shariah-based Bank in South-East Asia. IBBL has been carrying out business through its 231 branches all over the country. This renewed Bank has maintained a strong market position by providing quality services to its customers and adding value to the shares. The bank made significant progress in all areas of business in the last 27 years.

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.

Vision of IBBL:

Vision of IBBL is to always strive to achieve to achieve superior financial performance, be considered a leading Islamic bank by reputation and performance

 Mission of IBBL:

To establish Islami Banking through the introduction of welfare oriented banking system and also ensures equity and justice in the field of all economic activities, achieve balance growth and equitable development through diversified investment operations particularly in the priority sections and less development areas of the country. To encourage socio-economic financial services to the low-income community particularly in the rural area.

• Try to encourage savings in the form of direct investment.
• Try to encourage investment particularly in projects which are more likely to lead to higher employment.

Objectives of Islamic Bank Bangladesh Limited:

• To conduct interest-free banking.
• To establish participatory banking instead of banking on debtor-creditor relationship.
• To invest on profit and risk sharing basis.
• To accept deposits on Mudaraba and Al-Wadeah basis.
• To establish a welfare-oriented banking system.
• To extend co-operation to the poor, the helpless and the low-income group for their economic.
• To play a vital role in human development and employment generation.
• To contribute towards balanced growth and development of the country through investment operations particularly in the less developed areas.
• To contribute in achieving the ultimate goal of Islamic economic system.

 Corporate Information of IBBL as on 31^st December, 2011:

Corporate Information

(As on December 31, 2011)

 IBBL through its steady progress and continued success has, by now, earned the reputation of being one of the leading private sector Banks of the country.

Management Structure:

A 24 member Board of Directors manages IBBL, of which 8 are foreigners and 16 are local. The Board of Directors consists of 13 (thirteen) non-executive members. The number of Board members is within the maximum limit set by the Central Bank.

The Board is composed of experienced members with diverse professional experiences such as business, administration, banking & finance, accounting, general management, diplomat, government service, engineers, fund managers which made the Board very efficient and balanced in deciding and directing on the various issues of the Bank.

The Board members are independent who express their views and opinions free from any influence. The directors are also independent from management, business or other relationship of the Bank.

There is also a clear delineation of duties and responsibilities between the Board and management. While the Board is responsible for creating the broad policy framework within which the Bank is operating, the management is accountable for the execution of the policies and attainment of Bank’s objectives. The Board exercises independent oversight on the affairs of management.

 Branches:

Top 20 Branches in 2010 in terms of volume                     (Figure in million Taka)

Product and Services:

As a consumer bank Islami Bank Bangladesh Limited provide consumer loans, Islami deposit schemes, Accounts, ATM Card services, Locker & Other Banking Services. Islami Banks offer different trade products and services complying Shariah and law of the land. The Foreign exchange and Foreign Trade Operations can be categorized in the following areas:

• Import Services and Import Finance
• Export Services and Export Finance
• Foreign Remittance Services
• Forex Treasury Operation
• Deposit collection and Investment
• Other Foreign Exchange Services

 Import related products:

A) Wakalah : Agency Service

• Wakalah means entrusting someone to act as agent on behalf of principal.
• Agency is one of the most important elements of Islamic partnership.
• The relationship between the partners is described as  principal-agent relationship.
• Agent gets fees/charges/commission for extending desired services from the principal.

Service: Issuance of Letter of credit on behalf of  the Importer.

 B) Kifalah : Suretyship

• Kifalah means an obligation that someone wants to assume in addition   to its existing obligation in respect of a demand for something.
• Kifalah may relate to a person, finance or an act.
• Finance kifalah means an obligation to be met in the event of the principal debtor’s inability to honor his obligation.

Services:      a)  Issuance of Guarantee.

b) Obligation of payment against a compliant presentation

C) Bai : Buy and Sale

 Bai is defined to mean simultenously ‘purchase and sale.’ i.e. the exchange of a   thing of value by another thing of value.

The general rules for sale:

1. a.       The subject of sale must be existing at the time of sale
2. b.      The subject of sale must me in the ownership of the seller at the time of sale.
3. c.       The subject of sale must be in the physicall or constructuve possession of the seller  exceptions only in case of Bai Salam and Istisna.

Product: Murabaha Import & Bai-Mujjal Import

D) Shirkat : Partnership

Shirkat means partnership for undertaking any lawful business.

There are two broad categories of partnership include:

1. a.                   Mudaraba (Capital Trusts/Silent or Indirect partnership)
2. b.                  Musharaka (Equity participation)

Product: Musharaka Import& Mudaraba Import

E) Ijarah : Leaseing

It is an arrangment to lease equipments, buildings or other facilities to a client against     an agreed rental. There are two broad categories of Ijarah:

1. a.       Ijarah Muntahia bit Tamlik (Hirepurchase)
2. b.      Ijarah wa Iqtina (Leasing)

Product: Hire Purchase under Sherkatul Melk (HPSM).

 Import Services under Islamic framework:

A.        Letter of Credit:

1.       Commercial parties negotiate a transaction. The client wishes to buy goods.
2.  The “Client” submits LC application and a written promise to purchase the subject goods (not in the case of already signed Master Agency Arrangements made between the Bank and client), accompanied by a   “Seller’s” offer (proforma Invoice/Indent). The majority of Shariah scholars agree that the promise must NOT be binding on the “Client” but hence it depends on the law of the land.
3. The Bank studies the deal. If it is acceptable, it will issue its letter of credit as both “Issuing Bank” and “Applicant” (unless this is issued under the Master Agency Agreement in which case LC can be issued in the name of the Client itself).
4. The Bank advised this LC through Correspondent “Advising Bank” who advises the LC to the Beneficiary.
5. Beneficiary ships the goods and presents documents to the Issuing Bank through the Nominated Bank.
6. Upon scrutiny of documents, assuming that documents are compliant presentation, Issuing Bank will take up the documents.
7. The “Issuing Bank”, upon taking up documents and paying their value at sight or sending Acceptance for Payment at Maturity, inform  the “Client” to receive the documents representing goods bought by the Issuing Bank for him and asking him to buy the goods from the Issuing Bank in line with/fulfillment of his promise to purchase the goods.
8. Murabaha Sale Contract is signed between the bank (as a seller of goods) and the Client (as the buyer of the goods) upon which documents representing goods are released to him in completion of sale.
9. Murabaha Sale Contract will envisage complete details of sale price (i.e. cost + profit) and will also show repayment schedule as per the agreed arrangements in addition to other terms and conditions.

B.        Documentary Collection:

1. Commercial parties negotiate a transaction. The Client wishes to buy goods.
2. Beneficiary ships goods and presents documents to the Remitting Bank(client’s bank) through his banker (collecting bank).
3. Documents are drawn in the name of the Remitting Bank (under Master Agency Agreement it can be drawn in the name of the Customer)
4. Bank informs Customer receipt of documents on Collection basis and Customer confirms that goods are under Murabaha Facility.
5. Murabaha Sale Contract is signed between Customer and Bank and documents are released to Customer with payment effected to Supplier at Sight (if DP) or at maturity (if DA).
6. Customer makes on payment  to the bank as per Contract   which  may include  Cost+Profit.

 C.                Arranging Confirmation of LC:

LC issuing Bank at the request of beneficiary arranges 3^rd bank confirmation through its correspondent to be added to the outbound Letter of Credit at the cost of Applicant or Beneficiary.    

 Import Financing under Islamic Framework:

Under Islamic Financing concept, there is trade financing whenever goods are acquired against a promise of a future payment, or price paid against the participation in future profits that may be earned from putting it into productive use.

The need for import finance arises when the buyer of the goods wishes to defer the payment of the price or although less frequent, when the seller requires the advance payment of price.

Financing may be at different stages under the following modes:

• Murabaha Import Bills
• Murabaha Post Import
• Import under HPSM
• Impot under Musharka
• Import under Mudaraba

 Murabaha Import Bills:

• This is an interim investment under Bai Murabaha mode.
• This investment is created while client’s fail to place fund in time.
• MIB is an interim investment or sometimes forced investment.
• This is allowed for a very short span of time
• The governing rules and proceudures of MIB are as same as MPI
• The invested amount is realized with profit from the customer as per agreement/ norms

 Murabaha Post Import:

• o   This is an import mechanism under Bai Murabaha mode.
• o   It involves purchase of a commodity by   the  bank on behalf of it’s client and sale the same to the customer on Cost-plus-profit basis.
• o   Trading items and working capital for raw materials are dealt under Murabaha
• o   The profit in Murabaha can be determined by mutual consent, either in lump sum or through an agreed ratio of profit to be charged over the cost
• o   Being a sale not a loan, the Murabaha must fullfil all the necessary conditions of valid sale
• The price once fixed as per agreement cannot be further increased i.e. goods once sold cannot be resold.
• o   Sale of Murabah goods may be of cash or defered basis
• o   Rebate may be allowed for early adjustment
• o   If client fails to payback on maturity, it is allowed to charge compensation subject to use of such compensation amount to be  on benevolent projects  i.e. bank cannot account for compensation as revenue

Import under HPSM:

• o   This is a mechanism specially for importing capital machinery .
• o   HPSM consists of three principles: Bai, Shirkat and Ijarah  .
• o   It involves purchase of equipment/plant/building/vehicale with client under shirkat  principle to own jointly.
• o   Bank sells it’s portion to the client under bai mechanism.
• o   Client pays principal amount and rent on equal installment basis up to maturity.
• Upon payment of installments , bank’s portion reduces and client’s portion increases.
• o   Bank charges rent on its residual portion under Ijarah principle.
• o   Bank allows gestation period for being ready for production of the respective project and does not charge rent on machinery during that period.
• o   The rent due in gestation period is maintained as unearned income .
• o   On maturity, upon full and final settlement client becomes the owner of the entire equipment/ plant/ building/vehicale.

 Import under Musharaka Mode:

 Musharaka is the mode of investment where the equity participation of both the bank and client is essential. In this case unlike Bai-mechanism no sale price is fixed. The profit earned is shared between the bank and the clients at agreed ratio. In case of any genuine loss arises then it will also be shared between the bank and the client as per equity ratio.

Export financing products:

 Shariah Aspects of Export Operation:

a) Wakalah: Agency Service

            Example:

1. Issuance of Back to Back Letter of Credit.
2. Advising Letter of Credit
3. Transferring Letter of Credit
4. Collection of Export bills

b) Kifalah : Suretyship

Example: Adding confirmation to inward LC at the request of issuing bank

 c) Bai : Buy and Sale

Example:

1. 1.      Bai Murabaha pre shipment
2. 2.      Bai Muajjal pre shipment
3. 3.      Bai Salam pre shipment
4. 4.      Bai as Sarf post shipment

Meaning of Foreign Exchange:

Foreign exchange can be defined as a process of conversion of one currency into another currency.

Dr. Paul Einzig, a well-known British author has defined foreign exchange as “a system or process of conversion of one national currency into another and of transferring money from one country to another”

Which forms the basis for the administration of the present exchange control in Bangladesh, anything that conveys a right to wealth in another country is foreign exchange. These include foreign currencies (bank notes), deposits, credits and balances payable in foreign currency, drafts, traveler’s checks, letters of credit and bills of exchange payable in foreign currency.

Foreign Exchange Regulation Act, 1947

In short, foreign exchange is the means and methods by which rights to wealth in one country’s currency are converted into those of another country. And Foreign Trade means the cross border transactions of goods and services with release its payment.

 Rules & Regulation under Foreign Exchange:

Foreign Exchange transactions as well as business are controlled by the both local and international rules & regulations.

 Local Rules & Regulations:

Our foreign exchange transactions are being controlled by the following local regulations:

• Foreign exchange regulations Act: Foreign exchange regulations (FER) Act 1947 enacted on 11^th March 1947 in the British India, provides the local basis for regulating the foreign exchange. This Act was adapted in Pakistan and lastly in Bangladesh.

• Guideline for Foreign Exchange Transactions: This publication issued by Bangladesh Bank in lastly 2009. This is compilations of the instructions to be followed by the Authorized Dealers in transactions relating to Foreign Exchange.
• E. Circular: Bangladesh Bank issues F.E. circular from time to time to control the export import business & remittance to control the foreign exchange. It has one kind of supplementary and complementary action to the Guideline for Foreign Exchange Transactions.
• Import Policy Order and Export Policy: Ministry of Commerce issues Export Policy and Import Policy Order giving basic formalities and instructions for Import and Export business.
• Public Notice: Sometimes Chief Controller of Import & Export issues public notice for any kind of change in foreign exchange transactions.
• Instructions from Different Ministry: Different Ministry of the Govt. sometimes instructs the Authorized Dealer directly or through Bangladesh Bank to follow something required for the Government.
• Shariah Principle: Along with the above and international rules and regulation islami bank bound to follow the principle of Islamic Shariah in foreign exchange

 International Regulation for Foreign Exchange:

There are some international organizations influencing the foreign exchange transactions. Few of them are discussed bellow:

International Chamber of Commerce (ICC):

ICC is a world wide non-governmental organization of thousand of companies. It was founded in 1919. Its headquarters is in Paris. For managing and controlling the international trade ICC issues some publications which are being followed by the all member countries. It has also an International Court of Arbitration to solve the international business dispute. The major publications of ICC are:

a)      Uniform Customs and Practice for Documentary Credit (UCPDC)

b)      Uniform Rules for Collection (URC)

c)      Uniform Rules for Bank to Bank Reimbursement (URR)

d)     International Standard for Banking Practice (ISBP)

World Trade Organization (WTO):

WTO is another international trade organization established in 1995. This organization has vital role in international trade through its member countries.

 Problem of Foreign Exchange in IBBL:      

 Problems Related to Macro Operation of the Islamic Banks:

• Financial stability.
•  Lack of Capital Market and Interest-free Financial Instruments.
• Insufficient Legal protections.
• Controlling and Supervision by the Central bank on the Basis of Islamic Shariah.
• Lacks of Unified Shariah Rulings.
• Absence of Islamic Inter-Bank Money Market.
• New Banking Regulations.
• Accounting principles and Procedures.
• Shortage of Supportive and Link Institutions.
• Shortage of Skilled and Trained Manpower in Islamic Shariah banking.
• Lack of Co-operation among the Islamic Banks.
• Severe Competitions in the Financial Sector.
• Political Situation of the Country.
• Inadequate Track Record of Islamic Banking.
• Absence of Infrastructure for International Islamic Trade Financing.
• Defaulting Culture of the Borrowers.
• Short-term Asset Concentrations in the Islamic Banks.
• Lack of Course or paper on Islamic Economics, Banking and Finance at the Educational Institutions.

Problem Related to Micro Operation of the Islamic Banks:

• Increased Cost of Information.
• Controls over Cost of Funds.
• Mark-up Financing and Corrupted Mark-up.
• Excess Resorts to the Murabaha Mode of Financing.
• Utilization of Interest Rate of fixing the Profit Margin in Bai-Modes.
• Lack of Positive Response to the Requirement of government Financing.
• Failures of Islamic Banks to Finance High Return Projects.
• Loss of Distributive Efficiency.
• Depression of Profit.
• Lack of Full-fledged Shariah Audit.
• Minimum Budgets for Research and Development.
• Working Environments.
• Issuance of Letter of Guarantee (L/G)
• Non-exemption of Stamp Duty for Purchasing Property by Banks.
• Lack of Co-operation between Islamic Banks and Islamic NGOs for extending Microcredit.
• Lack of Intention of the Management to be strict with Shariah Guidelines.

The above problems are some of the burning problems confronting the Islamic banks in Bangladesh. However it is felt that much operational work and in-depth research work has to be undertaken to allow the Islamic banks to flourish with highest quality and strength.

Promotion Analysis:

Banks are constantly battling with one another to win new customers and steal customers from one another who are leery of moving their money. In the banking industry, corporations must build trust and be able to provide financial services that help customers accomplish their financial goals. When you’re championing a promotional strategy, choose strategies that will help your prospects see the value in your services and help develop ongoing client relationships.

Competitive Analysis:

Before launch a promotions strategy, research market. Find out what other banks are seeking the same customers are doing to attract those customers. Look for their advertising, billboards, signs and commercials.

Product Focus:

Focus promotional campaign around a flagship product. From IBBL will uncover the services that customers care about most, such as savings, checking accounts without fees and investment tools. When promoting it, borrow from old ideas that have universal connotations. For example, if IBBL is able to offer the best rates on savings in town, focus on that benefit. Sell or give away piggy banks with others banks name on it at street festivals and on street corners. These tell prospects that savings is easy with IBBL bank.

 BrandBuilding:

Useful information is one of the most valuable promotional items that can give to prospects. Every time the person references this information, they think of our bank. The more useful to the consumer, the better. Find creative ways to give away free information and make sure our logo is highly visible when that information is delivered. Clock signs are the simplest way to deliver information to large number of prospects at once. Plus, they are extremely useful to people.

Real World Viral Marketing:

Promotional products that transform prospects and customers into walking billboards for work in our favor in so many ways. For example, T-shirts with your logo on them are an endorsement by the person wearing it and it advertises IBBL bank to others. Billboards that are passed around from one person to the next also serve as a viral marketing tool.

Exceptional Promise:

Promise the customers that IBBL won’t do the one thing they find most annoying about other competitors. For example, offer completely free banking. “No fees ever.” To pay for this service, people can eliminate some of our fees and bill them to another service offer. Survey IBBL customers and prospects to discover what they think other banks aren’t delivering what consumers want the most. Be the only bank around to offer that service to new customers.

Corporate Social Responsibility of IBBL:

Islami Bank Bangladesh Limited is dedicated itself towards the welfare of the society. It has formed a separated foundation named Islami Bank Foundation with a fund of Taka 38.00 million in order to conduct social-welfare activities on a broad scale. Since then, Islami Bank Foundation is carrying the social welfare, education, health and Medicare activities on behalf of Islami Bank Bangladesh Limited (IBBL).

The aims and objectives of the foundation are to serve distressed humanity, promote people oriented mass education, extend health and Medicare facilities to the poverty-stricken people in urban and rural areas, create facilities for productive self-employment and develop human resources for improving economic condition and quality of life, assist healthy growth of art, culture and literature, science and technology, sports, research and propagation of Islamic teachings. The Foundation has taken up a number of schemes covering the whole of Bangladesh.

Islami Bank Foundation has some special projects for CSR activity, these are:

• IslamiBankHospital
• IslamiBankMedicalCollege, Rajshahi
• CommunityHospital
• Monoram: Islami Bank Crafts and Fashion
• Service Centre
• Islami Bank Institute of Technology
• IslamiBankInternationalSchool and College
• Islami Bank Physiotherapy and Disabled Rehabilitation Centre
• Centre for Development Dialogue
• Bangladesh Sangskritic Kendra (Cultural Centre)

 Major Findings of this Report:

Bangladesh is not a full-fledged Islamic country; not all activities are operating according to the Shari’ah of Islam. However, the IBBL is trying to operate their activities conform to Islamic Shari’ah as much as possible. From the long and rigorous study and close observation, we got some findings about IBBL that are presented below:

• Islamic Banking is a new phenomenon in our country during last two decades. Therefore, majority of our people do not have proper knowledge about the harmful impact of interest and the activities of IBBL as well as its investment mechanisms, which hamper large scope of investment of IBBL.
• Most of the people in our country have a bad misconception about IBBL’s operations. According to them IBBL generates interest calling it profit which is nothing different from interest. And so there is no difference between investment of IBBL and loan / Credit / advance of conventional banks.
• Because of improper and insufficient application of Islamic Banking in our country, by the insolvent banks to avoid bankruptcy or the conventional banks to earn more profit through introducing total Islamic banking or Islamic banking branch, the operations of IBBL cannot be run smoothly and the misconceptions are strengthened.
• IBBL is committed to avoid interest so cannot invest the permissible part of its statutory liquidity Reserve and short Term liquidity surplus in those securities. As a result profitability is affected. Islamic money market instruments are required to be introduced to improve profitability.
• This Bank cannot invest in all economic sectors, goods, and services which are prohibited by the law of Islam so are deceived of many profitable investment opportunities.
• IBBL has no strong promotional activities to eradicate the misconceptions about it and increase its present & potential clients. This ignorance may have impact on the deposit collection in the long run.
• The marketing strategy and customer care department is not up to the mark as required. Often misunderstandings arises between bank and IBBL regarding the rate of return as the depositors are not well communicated about the profit providing regulations followed by IBBL.
• As the call money market involves interest, IBBL do not participate in the call money market. As a result IBBL needs to maintain more liquidity to facilitate the withdrawal needs of the depositors, which in term reduces profitability.
• Profitable investment portfolio of IBBL requires clear investment knowledge according to Islamic Shari’ah. But sometimes IBBL can’t invest its capital in proper portfolio due to insufficient and unskilled manpower in these regards .As a result, large amount of money is being idle and thus the potential profitability is losing.
• This Bank revalues its investment operations within limited number of investment modes and does not initiate investment modes according to the changing diverse needs of people.
• Sometimes investment operations of IBBL are hampered due to dishonest, indiscreet, hypocritical nature of people.
• IBBL does not grant investment portfolio for new entrepreneurs, which ultimately create “Class Banking”.
• In rural areas for low-income community, this Bank grants fund to a group rather than individual. As a result, the prime objective of investing capital in income generating activities or providing capital to the poor, needy people for their up-liftmen is failed.

SWOT analysis:

SWOT analysis is planning exercise in which managers identify organizational

(S) Strengths, (W) Weakness, (O) Opportunities and (T) Threats

Strengths:

• Strong base in reserve.
• Strong base in equity.
• Strong base in deposit.
• Skilled manpower.
• Goodwill in the market.
• Stable source of fund.
• Largest network among private commercial banks.
• Strong Network.

 So, the strength of the Bank is enough.

Weakness:

 Resources that an organization lacks or activities that it does not do well:

• Decision making is more or less centralized at the top of the organization.
• Lack of skilled manpower as new subject for people.
• There is no Islamic money market in the country for optimum utilization of fund.
• Lack of proper rules & regulations govern in Islamic bank.
• Lack of Islamic Banking Law in the Market.
• Lacks of Islamic Money Market instrument
• IT and e-Banking status does not match with Bank’s other strength.

Opportunities:

 It is positive external environmental factors as:

• Internet banking for which customers are looking for better services from IBBL.
• On-line banking system, customers will be attracted to the Bank.
• Most of the people are pious; they want to deposit their fund in interest free organization.
• Disburse large scale of investment which can help to achieve more profit and poverty elevation.
• Increasing awareness of Islamic banking
• Opportunities to develop Islamic Investment Instruments
• Being large bank it can provide large investment.

Threats:

It is negative external factors as:

• In the Banking sector, the main threats for an organization is the rise of global organizations that operate and compete in more than one country, has put severe pressure on many organizations to improve their performance and to identify better ways to use their resources.

• There are more new Islamic Banks are come forward to operate their business and some conventional Banks also opening their Islamic Banking Branches. So, increased competition in the market for public deposits.

• Market pressure for lowering the profit/interest rate.
• Dissatisfaction-pay-package of IBBL employees is less enough in comparison to other private commercial Banks. As a result efficient manpower may switchover from the Bank which is also a threat for the Bank.

 Conclusion:

Islami Bank Bangladesh Limited is a first generation Bank in the private sector and the first Bank to register as an Islamic Bank. This Bank remains profitable since inception and established itself as one of the top performing Banks of the country.

Foreign exchange business has now become one of the most important portfolio of the bank in respect of volume of fund deployed, generation of return for the bank as well as maintaining the high image of the bank at home and abroad.

In spite of above, IBBL faces various challenges from its competitor bank and other managerial aspects which are Negative Propagation against IBBL, Higher Exchange Rate, Volatile Foreign Exchange Market, Introduction of New Islamic Banks/Branches, Entering third generation Bank to remittance business, Aggressive Marketing by Some Banks, Delay in Full Automation and some Shariah Issues relating to Foreign Exchange and Foreign Trade.

To meet these challenge IBBL in the early this year initiates some products namely Musharaka Documentary Bills, Bai-as-Sarf and Restricted Mudaraba Investment under EDF facility of Bangladesh Bank with the share of the client against checking of volatility of currency market.  IBBL also should take other measures to face competitor and to be more compliant with shariah aspects and capacity building in respect of professional knowledge & skill at Branch and Head Office level through training and practice.

In the above backdrop, I think IBBL will perform more aptly in spite of some challenges by its own initiatives may remain market leader in foreign exchange business and may be topped by securing 1^st position in all aspects of Foreign Trade Business including Profit Earnings.

Islamic banking is not only a commercial activity for profit earning; it is a part of a movement for the establishment of an economic system based on equity and justice. May Allah bless us with his divine guidance to achieve the goal of a world economic system free of interest, exploitation and based on equity & justice.

 Recommendation:

General Recommendation:

The following general recommendations may be provided to the renowned Islami Bank Bangladesh Limited to boost up its overall banking business as well as contributing the nation as a whole:

1.   IBBL not yet introduce all modern Technologies, which should introduce      immediately.
2. A huge amount of remittance income earned by the organization by local & foreign remittance, but there are no enough logistic support to transmit those funds rapidly by the modern electronic media. So, modern technology like e-mail, fax, internet etc. should be introduced immediately for better services to the customers as well as to retain good customers.
3. Foreign Exchange Treasury Products should be developed and introduced.
4. Cash Counter and Cash Counting Machine are not sufficient in all Branches for smooth operation, which should be provided in all Branches of IBBL.
5. Pay-package of IBBL should be revised immediately.
6. IBBL should appoint a sufficient number of women employees to deal women entrepreneurs and professionals and understand their needs and thus create demand for investment.
7. IBBL should adopt the following changes:

• To emphasize on their marketing effort and try to increase their sales force.
• To appoint a Customer Relation Officer at Branch level.
• To make investment appraisal & monitoring system customers friendly.
• To reduce their investment appraisal and disbursement timing.
• To increase their profit rate on different deposit schemes.
• To attend different type of target customers.
• To offer more investment schemes like:
  • Marriage finance facility
  • Multi purpose investment
  • Education finance facility
  • Islamic Credit Card

In brief, IBBL should take the following strategies for optimizing Foreign Trade Operations:

• Enhancement of Professional Knowledge and Skill
• Quality Customer Service
• System Development
• Automation/Computerization
• Collecting Market Information
• Planned Marketing Drive
• Offer Competitive Terms (Charges/Commissions/Margin/Security)
• Entrepreneurship Development
• RelationshipBuilding with Clients/Introducing Awards
• Product Development
• Useful MIS
• Diversification of Business

Recommendation for Government:

The rules and regulations of the Bangladesh Bank as well as financial and business laws / rules as made as per need of the interest based banking. Separate rules, regulations and laws should be enacted to safeguard Islami Banking sectors. Islami Bank cannot operate in the call money market.

As a result surplus fund of Islamic Banks cannot utilize. So, Islamic Money Market, Islamic Bond should be introduced as early as possible. As Islamic Banks are not taking interest against Statutory Liquidity Reserve so government should reduce this fund for Islamic Banks.

Bibliography

• Manual for General Banking Operations. IBTRA Library, (Page no. 1-5, 68-144)
• Manual for Investment under Bai-Murabaha Mode. (Page no. 1-8, 34-50)
• Manual for Investment under Bai-Muajjal Mode. (Page no. 1-7) – IBTRA Library
• Manual HPSM Investment. (Page no. 1-3, 4-8) – IBTRA Library
• Islami Bank 18 years of progress. (Page no. 4-11, 56) – IBTRA Library
• Investment Manuals (on different modes) published by Islami Bank Bangladesh Ltd.
• Annual Reports (five years) of Five Islamic banks

• Ali, M and Sarkar, A. A. (1995). “Islamic Banking: Principles and Operational Methodology”. Thoughts on Economics, Vol. 5 No. 3 & 4. July-December 1995. Dhaka: Islamic Economics Research Bureau.
• Hamid, M.A. and S.M.H. Rahman (2001). “The Role of Islamic Banks in the Development of Small Entrepreneurs: An Empirical Investigation”. IBTRA / IBBL, Dhaka.
•  “Foreign Investment in Bangladesh: A Distant Reality”. (Vol.1, No.2, Dec-1991, page 77-82). Dr. M. Shamsul Haque.
• “A Critique of Murabaha Mode of Financing by Islamic Banks”. (Vol.1, No.2, Dec-1991, page 90-98). Muhammad Muzadihul Islam.
• Finance and Banking. (Vol.4, No.1&2, Jan- 1995, page 128-130).
• www.islamibankbd.com