Foreign Exchange Activities of Islami Bank Bangladesh:A study on Elephant road branch

Islami Bank Bangladesh Ltd.
Foreign Exchange Activities of Islami Bank Bangladesh
Ltd. : A Study on Elephant Road Branch
Prepared by
Zahidul Islam
ID No: BBA110103997
Department of Business Administration
Northern University Bangladesh
Submitted to
22 September 2014
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Foreign Exchange Activities of Islami Bank Bangladesh
Ltd.: A Study on Elephant Road Branch
22 September 2014
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DECLARATION
I do hereby declare this report entitled “Foreign Exchange Activities of Islami
Bank Bangladesh Ltd:A Study on Elephant Road Branch” Submitted by me
to Northern University Bangladesh, for the degree of Bachelor of Business
Administration is an original work.
I also declare that the report has not been submitted earlier either partly or
wholly to any other university or Institution for any Degree, Diploma,
Associate-ship, Studentship, Fellowship and other similar title or prizes.
…………………..
Zahidul Islam
ID: BBA110103997
Northern University of Bangladesh
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CERTIFICATE
This is to certify that this report entitled “Foreign Exchange Activities of
Islami Bank Bangladesh Ltd: A Study on Elephant Road Branch”
submitted to Northern University Bangladesh, in connection with the
institution’s internship program is a bona-fide record of work done by “Zahidul
Islam” under my supervision at the “Islami Bank Bangladesh Limited,
Elephant Road Branch” from 01 April 2014 to 02 June 2014.
…………………….. ………………………
Supervisor Committee Chairperson
Ms. Nurun Nahar Md. Lutfor Rahman
Assistant Professor of Statistics Associate Professor and Head
Department of Business Administration Department of Business Administration
Northern University Bangladesh Northern University Bangladesh
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ACKNOWLEDGEMENT
At the very beginning, I would like to express my deepest gratitude to the Almighty
Allah for giving me the ability and the strength to finish the task successfully within
the scheduled time.
This report “Foreign Exchange Activities of IBBL:A Study on Elephant Road
Branch” has been prepared to fulfil the requirement of BBA degree. I am very much
fortunate that I have received sincere guidance, supervision and co-operation from
various persons.
I would like to express my heartiest gratitude to my supervisor, Ms.Nurun Nahar,
Assistant Professor of Statistics, Department of Business Administration, Northern
University Bangladesh (NUB), for her continuous guidance, encouragement, and
patience, and for giving me the opportunity to do this work. Her valuable suggestions
and strict guidance made it possible to prepare a well-organized report.
I am also indebted to Mr. Kawsarul Alam , Mr.Md. Mubinul Islam, Mr. Md.
Mostafizur Rahman,. Ms. Aysha. Ms. Israt Jahan and all officers of Islami Bank
Bangladesh Limited Elephant Road Branch who kindly spared for me much of their
precious time in giving me support and information. During the internship I was
treated so cordially by the Islami Bank Bangladesh Limited Elephant Road Branch
officials and staffs that I feel the office like my second home.
Finally, my deepest gratitude and love to my parents for their support, encouragement,
and endless love.
Zahidul Islam
ID : BBA110103997
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LIST OF ABBREVIATIONS
Short forms Abbreviations
ATM Automated Tailor Machine
AD Authorized Dealers.
BB L/C Back to Back letter of credit.
BEFTN Bangladesh Electronic Fund Transfer Network
BOE Bill of Exchange.
CCI&E Chief Controller of Import and Export.
EFD Export Development Fund.
ERC Export registration Certificate
FER Foreign Exchange Regulation.
FC Foreign Currency.
FDD Foreign Demand Draft.
FBN Foreign Bill Negotiation.
HPSM Hire, Purchase under Shirkatul Meelk.
IDB Islamic Development Bank.
IBP Inland Bill Purchase.
IRC Import Registration Certificate.
L/C letter of credit.
LIM Loan against imported merchandise.
LCAF Letter of Credit Authorization Form.
MIB Murabaha Import Bills.
MPI Murabaha Post Import.
MDB Musharaka Documentary Bill.
NRB Non residence Bangladeshi’s.
OIC Organization of Islamic Countries.
OD Over draft.
PC Packing Credit.
SWIFT Society for Worldwide Interbank Financial
Telecommunication.
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Overview of the Organization
Definition of Islami Banking
According to OIC,“An Islamic bank is a financial institution whose status, rules and
procedures expressly state its commitment to the principle of Islamic Shariah and to the
banning of the receipt and payment of interest on any of its operations”(Ali & Sarkar 1995,
pp.20-25).It appears from the above definition that Islamic banking is systems of financial
intermediation that avoids receipt and payment of interest in its transactions and conducts its
operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively,
this is a banking system whose operation is based on Islamic principles.
History of Islami Banking
 1930-1940 Philosophical foundation.
 1940-1960 many Muslim countries achieved independence and a movement started to
establish Islamic system within in the self-ruled countries.
 First Islamic Bank-1963 Mitghamar Bank (Egypt) established by Dr. Ahmed Al
Nazzar.
 Banned by Govt. 1947. Restarted in 1971 in the name of Naser Social Bank.
 1975 Islamic Development Bank (IDB) established by the OIC.
Objectives of Islami Banking
The primary objective of establishing Islamic banks all over the world is to promote, foster
and develop the application of Islamic principles in the business sector. More specifically, the
objectives of Islamic banking when viewed in the context of its role in the economy are listed
as following:
 To offer contemporary financial services in conformity with Islamic Shariah;
 To contribute towards economic development and prosperity within the principles of
Islamic justice.
 Optimum allocation of scarce financial resources; and
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 To help ensure equitable distribution of income.
History of IBBL
The history of Islami Banking can be shown in different years.
1974 - As a founder member of Islamic Development Bank, Bangladesh Government
subscribed to its charter which stipulates to undertake research for enabling
the economic, financial and banking activities in the Muslim countries
(obviously including Bangladesh) to conform to Shariah.
1978 - The Islamic Foreign Ministers’ Conference held in Dakar, Senegal in April
1978, recommended to the members of the OIC to make systematic efforts to
establish Islamic banks gradually. Bangladesh participated in the above
Conference and responded to the above recommendation.
1982 - Seminars, symposia and workshop on Islamic banking system were arranged
by different socio-economic organizations.
1980 - Bangladesh Bank made study on the operations of Islamic banks abroad.
1981 - In the 3rd
OIC summit held in Makkah and Taef, the then president of
Bangladesh made suggestions to the Islamic countries to develop a separate
banking system of their own in order to facilitate their trade and commerce.
1982 - Islamic development bank came forward to participate to join venture Islamic
bank in Bangladesh.
1983 – Islami Bank Bangladesh Limited came into reality and the first Islamic bank in
the Southeast Asia.
Sponsors of IBBL
• Kuwait Finance House.
• Jordan Islami Bank.
• Bahrian Islami Bank.
• Al Raji co.
• Islami Banking System, International Holding, Luxemburg.
• Dubai Islami Bank.
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Corporate Information of IBBL
Islami Bank Bangladesh Limited (IBBL) was incorporated on 13.3.1983 as a Public
Company with limited liability under the Companies Act. 1913. The bank started functioning
with effect from 30.03.1983. IBBL is the first private sector Islamic bank in South-east Asia.
Corporate Information of IBBL (as on December 31, 2013).
Date of Incorporation 13th March 1983
Inauguration of 1st Branch
(Local office, Dhaka)
30th March 1983
Formal Inauguration 12th August 1983
Local Shareholders 33.62%
Foreign Shareholders 66.38%
Authorized Capital 20,000.00 Million Taka
Paid-up Capital 14,636.28 Million Taka
Deposits 473,141 Million Taka
Equity 45,512 Million Taka
Investment 474, 106 Million Taka
Import 286,356 Million Taka
Export 205,269 Million Taka
Remittance 285,890 Million Taka
Foreign Exchange Business 777,515Million Taka
Manpower 12,980
Zones 14
Total number of Branches 286
Number of Shareholders 60,173
No. of share ATM Booths 1,400
No of own ATM Booths 300
SWIFT CODE IBBLBDDHA215(Elephant Road
Branch
E-mail elphantroad@islamibankbd.com
Web www.islamibankbd.com
Mission of IBBL
To establish Islamic Banking through introduction of welfare oriented banking system
and also ensure equity and justice in the field of economic activities, achieve balance
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growth and equitable development through diversified investment operation
particularly in the priority sector and less developed areas of the country.
To encourage the socio-economic development and financial services to the low-
income community particularly in the rural areas.
Vision of IBBL
The vision of Islami Bank Bangladesh Ltd is to always strive to achieve superior financial
performance, be considered a leading Islamic Bank by reputation and performance.
• The IBBL will establish and maintain the modern banking techniques, to ensure the
soundness and development of the financial system based on Islamic principles and to
become the strong and efficient organization with highly motivated professionals,
working for the benefit of the people, based upon accountability, transparency and
integrity in order to ensure stability of financial systems.
• The IBBL will try to encourage savings in the form of direct investment.
• The IBBL will also try to encourage investment particularly in projects which are
more likely to lead to higher employment.
Objectives of IBBL
 To conduct interest-free banking.
 To establish participatory banking instead of banking on debtor-creditor relationship.
 To invest through different modes permitted under Islamic Shariah.
 To collect deposits on profit-loss sharing 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 development.
 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.
Management of IBBL
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 Islami Bank Bangladesh Limited is being governed by a 13 member Board of
Directors comprising of foreign and local Directors in which 3 are foreigners and 10
are locals.
 An 8 member Executive Committee is formed by the Board of Directors for efficient
operation of the Bank in which 2 are foreigners. They are responsible for policy
making and taking important and strategic decision.
 An Audit Committee is formed by the Board entrusted with the task of exercising the
duties and responsibilities with regard to internal control, disclosure of financial
report, internal audit and compliance of the existing Laws and regulations.
 Management Committee, with financial, administrative and business discretionary
power delegated by the Board, looks after the affairs of the Bank. Mainly they are
responsible for implementation of the policies and guidelines by the Board.
Functions of IBBL
The functions of Islami Bank Bangladesh Limited are:
• To maintain all types of deposit accounts.
• To make investment.
• To handle foreign exchange business.
• To extend other banking services.
• To conduct social welfare activities through Islami Bank Foundation.
Shariah Council: Shariah Supervision.
Shariah Council of the Bank is playing a vital role in guiding and supervising the
implementation and compliance of Islamic Shariah principles in all activities of the Bank
since its very inception. The Council consists of prominent Ulema, reputed banker, renowned
lawyer and eminent economist.
Members of the Shariah Council meet frequently and deliberate on different issues
confronting the Bank on Shariah matters. They also conduct Shariah inspection of branches
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regularly so as to-ensure that the Shariah principles are implemented and complied with
meticulously by the branches of the Bank.
Career Path Diagram of IBBL
Executive Summary
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AOG-3AOG-3
AOG-2AOG-2
AOG-1AOG-1 PROBATIONATIONARY
OFFICER
PROBATIONATIONARY
OFFICER

This Report, a partial requirement of BBA program, is done on “Foreign
Exchange Activities of Islami Bank Bangladesh Ltd:A Study on Elephant
Road Branch” is approved by my supervisor Ms.Nurun Nahar,Asst.professor
of statistics Northern University Bangladesh.This report contains my practical
observations and experience of different desk in Islami Bank Bangladesh Ltd
(IBBL) Elephant Road Branch,Dhaka.I have obtained firsthand knowledge
about Foreign Exchange operations ,General banking, and Investment operation
as well.All though the duration of the program was not long enough, though I
tried to visit and observe all the desks. The entire operation of the bank has been
progressing to rules and regulations.
Foreign Exchange banking system occupies an important place in a nation’s
economy because of its intermediary role; it ensures allocation of resources and
keeps up the momentum of economic activities. This report aims toward
providing an overview on the foreign exchange banking system of IBBL. This
report is prepared within the broader framework of internship program of
Department of Business Administration, Northern University Bangladesh.
While preparing this report it has been tried to reveal the insights of the foreign
exchange banking system of the bank. The main objective of the report is to get
practical experience about official activities and observe the foreign exchange
activities of IBBL. Specific objectives of the report are to know the functions of
foreign exchange like import, Export, Remittance L/C opening procedure. For
preparing this report primary data have been collected by face to face
conversation with officials and others. Secondary data have been collected from
Annual report of IBBL web site, different books and journals related with
foreign exchange operation of Bangladesh. At the time of preparing the report
there were some findings and these are based on my practical experience.
Findings include lack of manpower, L/C margin and government regulation etc.
Foreign Exchange department is the international department of a bank which
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deals with globally and facilities international trade through its various modes
of services. So IBBL have to perform the foreign exchange transaction in a
more innovative way and the bank has to reengineer its plan and reform the
service improvement strategy to retain the higher performance level, customer
satisfaction and to compete with challenge.
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Chapter :1
Introduction
1.0 Introduction
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Banking plays an important role in the economy of any country. In Bangladesh Muslim
constitutes more than 80% of its population. These people possess strong faith on Allah and
they want to lead their lives as per the constructions given in the holy Quran and the way
shown by the prophet Hazrat Muhammad (Sm). But no Islamic banking system was
developed here up to 1983 The Traditional banking is fully based on interest & it is
commonly meant as commercial banks. But interest is absolutely prohibited by Islam. As a
result the people of Bangladesh have been experiencing such a non-Islamic and prohibited
banking system against their normal values and faith. Among all other activities performed
by the bank, “Foreign exchange operations” are seemed to have lot more attention into the
economy of Bangladesh, due to the growing business versatility & opportunities around the
world. Bangladesh has experienced a major growth in foreign exchange operation in the past
few years. Though the political unrest, infrastructural problem, etc hampered the commercial
activities, still the economy of Bangladesh has earned a major advancement. This happened
mainly due to the global commercial expansion, the remittances sent by the emigrant
Bangladeshis & the increase in foreign trade. I was more interested in analyzing the process
of this foreign exchange & how a bank manages the transactions. Thankfully, at the final
semester I got this wonderful opportunity to be a part of the internship program offered by
Islami Bank Bangladesh ltd & make my vision clear about the foreign exchange operations
performed by the bank.
1.1 Background of the Study
Any academic course of the study has a great value when it has practical application in the
real life. Only a lot of theoretical knowledge will be little important unless it is applicable in
the practical life. So we need proper application of our knowledge to get some benefit from
our theoretical knowledge to make it more fruitful when we engage ourselves in such field to
make proper use of our theoretical knowledge in our practical life. Only then we come to
know about the benefit of the theoretical knowledge. Such an application is made possible
through internship. When theoretical knowledge is obtained from a course of study it is only
the half way of the subject matter. Internship implies the full application of the methods and
procedures through rich acquired knowledge of subject matter can be fruitfully applied in our
daily life. This study is titled “Foreign Exchange Operations of Islami Bank Bangladesh
Limited”. As a student of BBA this study is to be more significant in my practical life. I have
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worked for two months at Elephant Road Branch of Islami Bank Bangladesh Limited to
complete the internship program as an academic requirement.
1.2 Objectives of the Study
Without Objective nothing can be counted as a successful one. My internship program was also
directed to serve some particular objectives. The main objective of the study is to evaluate the
performance of Foreign Exchange operations of IBBL, Elephant Road Branch.
Specific objectives of the Study:
• To analysis the basic principles and framework regarding foreign exchange operation
of IBBL;
• To find out the major areas of foreign exchange operations;
• To evaluate performance of foreign exchange operations of IBBL Elephant Road
Branch.
1.3 Significance of the Study
Theoretical knowledge gets its perfection with practical application. By this study both
parties, myself and the organization has benefitted. It was a great opportunity for me to get an
exposure of practical as well as the organization can better understand their strength
weakness opportunity and threats in foreign exchange operations of IBBL from the study.
1.4 Methodology of the Study
The proposed study has been focused on the Foreign exchange principles under Islamic
Framework of the Islami Bank Bangladesh Limited. In relation with the general & specific
objectives, the Foreign Exchange operation of Elephant Road Branch of the Islami Bank
Bangladesh Limited has been selected to perform my internship program.
1.4.1 Research Design:
In order to carry out the study, I used descriptive research. Descriptive research design is a
scientific method which involves observing and describing the behavior of a subject without
influencing it in any way.
1.4.2 Data Sources:
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 I have used only secondary source of data for this study.
1.4.3 Data collection Method:
Secondary data are collected through:
• Manuals of Islami Bank Bangladesh Limited.
• Website of Islami Bank Bangladeshi Limited.
• The journal published by Islami Bank Bangladesh Limited.
• Files and documents of the branch.
• The training instruments of the Bank.
1.4.4 Data Processing & Analysis:
Data has been computerized & processed by using MS Word, MS Excel. For the purpose of
analyzing the data, I have presented in tabular form, percentage form with necessary chart
and graphs. Time series data have been used to analyze trend.
1.5 Limitation of the Report
Like every study I also faced some limitations or obstacles in the way of completing my
internship program.
The limitations of the study are:
 Lack of opportunity to visit more than one branch.
 Time constraint.
 Large scale research was not possible due to time constraints.
 Although bankers have tried their best to help me, their nature of job is such that gives
them little time to discuss.
 The officials had sometimes been unable to provide huge information because of their
daily routine work. That’s why I did not gather vast knowledge about the critical
issues.
 As a student I faced information unavailability.
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Chapter: 2
Analysis and findings
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2.0 Introduction
The exchange of one currency for another, or the conversion of one currency into another
currency. Foreign exchange also refers to the global market where currencies are traded
virtually around-the-clock. The term foreign exchange is usually abbreviated as "forex" and
occasionally as "FX."
Foreign exchange transactions encompass everything from the conversion of currencies by a
traveller at an airport kiosk to billion-dollar payments made by corporate giants and
governments for goods and services purchased overseas. Increasing globalization has led to a
massive increase in the number of foreign exchange transactions in recent decades. The
global foreign exchange market is by far the largest financial market, with average daily
volumes in the trillions of dollars.
In exercise of the powers conferred by sec. 3 of the Foreign Exchange Regulations-1947,
Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These
banks are known as Authorized Dealers (AD). Licenses are also issued by Bangladesh Bank
to persons or firms to exchange foreign currency instruments such as T.C., Currency notes
and coins. They are known as Authorized Money Changers.
2.1 Foreign Exchange operations
Instruments, such as paper currency, notes, and checks, used to make payments between
countries. If we consider Foreign Exchange as a subject then it means all kinds of activities
related to Foreign Currency, as well as currency instruments, such as Draft, TT, TC, payment
Order & Foreign Trade. In other words Foreign Exchange deals with Foreign Financial
Transactions.
Foreign exchange refers to the process or mechanism by which the currency of one country is
converted into the currency of another country. Foreign exchange is the means and methods
by which rights to wealth in a country’s currency are converted into rights to wealth in
another country’s currency. Foreign exchange covers all business activities relating to import,
inward and outward remittance and buying and selling of currency. Mainly transactions with
overseas countries in respect of import; export and foreign remittance come under the
preview of foreign exchange operations.
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(According to section 2(d) of the Foreign Exchange Regulations-1947)
“Foreign Exchange means foreign currency and includes any instrument drawn, accepted,
made or issued under clause 13 of article 16 of the Bangladesh Bank Order, 1972, all
deposits, credits and balances payable in any foreign currency and draft, travelers Cheque,
letter of credit and bill of exchange are expressed or drawn in Bangladesh currency but
payable to any other foreign country.”
2. 2 Activities related to Foreign Exchange operations
There are three kinds of foreign exchange transactions:
1. Import
2. Export
3. Foreign Remittance
2.3 Necessities of Foreign Exchange Operations
 International trade gives opportunity to exchange goods & set business relationship
globally.
 Consumers get privilege through international trade.
 International trade helps to produce domestic production with lower cost.
 Natural assets of a country are utilized properly.
2. 4 Key Information’s about Foreign Exchange Operations (IBBL)
ISSUE
No. of branches 286
Number of Foreign Correspondents 690
No. of Nostro accounts 40
No. of LCs handled in 2013 62,845
Import volume in 2013(million Taka) 286,806 Million
Export volume in 2013(million Taka) 205,920 Million
Remittance volume in 2013(million Taka) 287,820 Million
Import growth in 2013 6.29%
Export growth in 2013 8.73%
Remittance growth in 2013 -5.63%
Foreign Exchange Business growth in 2013 2.13%
Market share in import 10.43%
Market share in export 10.21%.
Market share in Remittance 26.66%
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2.5 Regulations for Foreign Exchange operations:
Our Foreign Exchange transactions are being controlled by the following local regulations.
a. Foreign Exchange Regulation Act: Foreign Exchange Regulation (FER) Act.
1947 enacted on 11th
March 1947 in the British India, provides the legal basis for
Regulating the Foreign Exchange. This act was adapted in Pakistan and lastly in
Bangladesh.
b. Guidelines for Foreign Exchange Transaction: this publication issued by
Bangladesh Bank in the year 1996 in two volumes. This is compilation of the
instructions relating to Foreign Exchange.
c. F.E Circular: Bangladesh Bank issues F.E circular from time to time, to control the
Export Import Business & Remittance, to control the Foreign Exchange.
d. Export-Import Policy: Ministry of commerce issues Export Policy & Import Policy
giving basic formalities for Import & Export Business.
e. Public Notice: sometimes CCI & E issues public notice for any kind of change in
Foreign Exchange Transaction.
f. 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.
g. Shariah Principle: Along with all the above regulations Islami Bank also bound to
follow the principle of Islamic Shariah in Foreign Exchange.
2.6 Authorized Dealers & Money Changers
As per section 2 of Foreign Exchange Regulation Authorized Dealer means a Bank,
authorized by Bangladesh Bank to deal in Foreign Exchange under the FER Act 1947.
There are some persons or firms, authorized by Bangladesh Bank to deal in Foreign
Exchange with limited scope, are called Authorized Money Changers.
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2.7 License for Authorized Dealers
To get a license for Authorized dealer, a Bank will apply the General Manager, Foreign
Exchange Policy Department, Bangladesh Bank, Head Office, Dhaka. The applicant
organization has to fulfill the following conditions.
1. The Bank must have adequate manpower trained in Foreign Exchange.
2. Prospect to attract reasonable volume of Foreign Exchange business in the desired
location.
3. The Bank meticulously complies with the instruction of Bangladesh Bank.
4. The bank will to deal in Foreign Exchange with in the limit & will submit periodical
returns as instructed by Bangladesh Bank.
2.8 Functions of Authorized Dealers
Authorized Dealer can handle all kinds of Foreign Exchange transaction as per FER Act 1947
under the instruction of Bangladesh Bank. Following are the main function of an Authorized
Dealer.
1. Exchange of Foreign Currencies.
2. To make arrangement with Foreign Correspondent.
3. Buying & Selling Foreign Currencies.
4. Handling of Inward and Outward Remittance.
5. Opening of L/C and settlement of payment.
6. Investment in Foreign Trade.
7. Opening & Maintenance of Accounts with Foreign Banks under intimation to
Bangladesh Bank.
8. Export Documents handling.
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2.9 Import
Import means flow of goods/services purchased by a party of one location from a party of
another location. Normally import is done through letter of credit (L/C).Wide-ranging
changes and expansion in the world trade due to the evolution of globalization and free
market economy have facilitated free flow of goods, which resulted in worldwide trade
competition. That means Import means purchase of goods or services from abroad and there
must be lawfully carrying out of anything from one country to another county for buying.
Normally consumers, firms and Government organizations import foreign goods or services
to meet their various necessities. So, in brief, we can say that import is the flow of goods and
services purchased by economic agent staying in the country from economic agent staying
abroad.
2.9 .1 Regulations of Import
Import of goods into Bangladesh is regulated by the Ministry of Commerce in terms of the
Import and Export (Control) Act, 1950 with Import Policy Order issued periodically and
public notices issued from time to time by the office of the Chief Controller of Import and
Export (CCI&E). At present, it is regulated by the Import Policy (1997-2002), which has
come into effect on June14, 1998. And Import Policy directs certain Import Procedure, which
administers the whole activity.
2.9.2 Classification of Importer
Goods are being imported for personal use, commercial purpose or industrial use. So, there
are three kinds of importers such as:
1. Personal importer.
2. Commercial importer.
3. Industrial importer.
So, mainly 3 types of items are imported. These are:
 Machinery for projects.
 Commercial items.
 Raw materials for the industries.
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The import services of IBBL Elephant Road Brach ,Dhaka:
• Cash L/C Foreign (sight/usance).
• Cash L/c Inland (sight/usance).
• Cash L/C EPZ (sight/usance).
• Back to Back L/C Foreign (sight/usance).
• Back to Back L/C Inland (sight/usance).
• BB L/C EPZ (sight/usance).
• Cash Bills Foreign (sight/usance).
• Cash Bills Inland (sight/usance).
• Cash Bills EPZ (sight/usance).
• Back t o Back Bills (Foreign).
• Back to Back Bills (Inland).
• Back to Back Bill s (EPZ).
2.9.3 Import Procedure for Importer
As an Authorized Dealer, Islami Bank, Elephant Road Branch is always committed to
facilitate import of different goods into Bangladesh from the foreign countries. Import
Section, which is under Foreign Exchange Department of the branch, is assigned to perform
this job. And to serve its client’s demand to import goods, it always maintains required
formalities that are collectively termed as The Import Procedure.
1st
Step:
Registration of importer:
According to Registration order 1947 no person can import goods into Bangladesh unless he
is registered with the CCI & E or exempted from the provisions of the said order. So if
someone wants to import goods for his personal use he needs no registration to import the
goods but commercial & industrial importer must have registration from CCI & E.
Procedure for registration:
To obtain Import Registration Certificate (IRC), the applicant will submit the following
paper/documents to the CCI & E through his negotiating bank.
1. Questionnaire duly filled in & signed by the applicant.
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2. Trade license.
3. Membership certificate from chamber of commerce or any other trade Association.
4. Nationality Certificate.
5. Income tax registration certificate.
6. Partnership deed/ certificate of registration with the register of join stock companies
where applicable.
On being satisfied, the CCI & E issues IRC obtaining original copy of treasury challan for
payment of registration fee.
Pass book:
CCI & E also issues pass books to the registered importers.
 When it is issued to an industrial consumer, it gives the items of import, as raw and
packing materials and spare parts, the value of entitled and HS code classification.
 When issued to a commercial importer, gives the category held by him with HS code
classification or open to any item, as per import policy.
2nd
Step:
Then the importer has to contact with the seller outside the country to obtain the Proforma
Invoice. Usually local agent of the seller or foreign agent of the buyer makes this
communication.
3rd
Step:
When the importer accepts the Proforma Invoice, he/she makes a purchase contract with the
exporter detailing the terms and conditions of the import.
4th
Step:
After making the purchase contract, importer settles the means of payment with the seller.
Letter of credit is the well-accepted and most commonly used means of payment. It is an
undertaking for payment by the issuing bank to the beneficiary, upon submission of some
stipulated documents and fulfilling the terms and conditions mentioned in the letter of credit.
Importer requests the concerned bank (importer’s bank /issuing bank) to open a L/C
(irrevocable) on behalf of importer favoring the exporter/seller.
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2.9.4 Letter of Credit
Letter of credit means any arrangement, however named or described, that is irrevocable and
there by the constitution of a definite undertaking of the issuing Bank to honor a complying
presentation. Here complying presentation means a presentation that is in accordance with the
terms and conditions of the credit, the applicable provisions of these rules and international
standard banking practice.
2.9.5 Classification of Letter of Credit
Letter of Credit can be classified in two types. These are:
• On the basis of nature.
• On the basis of payment.
Based on Nature:
1. Irrevocable L/C: L/C is always Irrevocable which can not be amended or cancelled
without the consent of the beneficiary or any other interested parties.
2. Add-Confirmed L/C: when a third bank provides undertaking to the beneficiary to
make payment, if issuing bank fails to make payment, the L/C is called confirmed
L/C. In case of a confirmed L/C a third bank adds their confirmation to the
beneficiary, to make payment, in addition to that of Issuing Bank. Confirmed L/C
gives the beneficiary a double assurance of payment.
3. Clean clause L/C: It is an L/C with normal clause without third Bank’s
confirmation.
4. Transferable L/C: If the world “Transferable” incorporated in an L/C, then the L/C
is transferable. Transferable L/C can be transferred by the 1st
beneficiary to the 2nd
beneficiary. But 2nd
beneficiary cannot transfer it further to another beneficiary.
Transfer may be done to more than one beneficiary, particularly, if not prohibited in
the L/C.
5. Restricted L/C: If advising and/or negotiation of a L/C are restricted to a particular
Bank, the L/C is called the restricted L/C.
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6. Red clause L/C: A red clause L/C is an L/C, where a special clause is incorporated
into it, authorizes the confirming or any other nominating Bank to make advances to
the beneficiary, before presentation of the documents. The L/C is called red-clause
because, the special clause was originally written in red-ink, to draw special attention
to the unique nature of this documentary credit. Red clause L/C is not allowed in our
present import policy.
7. Green clause L/C: it is an L/C where the Issuing Bank authorizes the Negotiating
Bank to grant storage facilities to the beneficiary. The special clause was originally
written in Green-ink so the L/C is called Green Clause.
8. Clean L/C: This is a commercial L/C, wherein the Issuing Bank does not ask any
document as evidence of execution of the deal under L/C. Under the said L/C, only
bill of Exchange may be negotiated. Clean L/C is not permitted in our import policy.
9. Documentary L/C: All the commercial letter of credits, where export related
documents such as invoice, Bill of Lading etc are required to present with the Bill of
Exchange, is called Documentary credit. Under this L/C Bill of Exchange will not be
honored without other required documents.
10. Irrevocable Negotiable Documentary Credit: This L/C is available for
negotiation by a nominated Bank / any Bank and expiring for presentation of
document at the offices of Negotiating Bank. The Issuing Bank is bound to reimburse
the negotiating Bank, if it negotiates the documents complying the credit terms.
Based on Source of Payment:
1. Back to Back L/C: Back to Back import L/C is backed by another Export L/C.
Where import of the goods to be made to execute the export L/C & payment of Back
to Back Bills to be made normally from related export proceeds, the Import L/C is
called Back to Back L/C.
2. Cash L/C: Where the payment of import Bill under L/C is being made from Foreign
Currency Reserve in Bangladesh Bank or F.C account with Authorized Dealer the
L/C is called Cash L/C.
3. Barter L/C: Where final settlement is being made through commodity exchange
between the nations, the L/C is called Barter L/C.
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4. L/C under Commodity Aid, Loan, Credit or Grant: Where the final
settlement of Import payment are being made through Commodity Aid, Loan, Credit
or Grant.
2.9.6 Parties Involved in a Letter of Credit
A letter of credit is issued by a bank at the request of an importer in favor of an exporter from
whom the importer has contracted to purchases some commodity/commodities. The importer,
the exporter and the issuing bank are the parties to the letter of credit. There are however one
or more than one banks involved in various capacities and at various stages to play an
important operation of the credit.
• Applicant
• Beneficiary
• Issuing Bank
• Advising Bank
• Confirming Bank
• Negotiating Bank
• Reimbursing Bank
• Transferring Bank and Notify part.
1. Applicant (Importer or Buyer): Applicant means the party on whose request the
credit is issued. Importer or the buyer is the Applicant of a Letter of Credit. Applicant
must be the client of the Issuing Bank.
2. Beneficiary (Exporter or Seller): Beneficiary means the party in whose favor
L/C is issued and to whom the letter of credit is addressed. Exporter or seller of the
goods is the Beneficiary of a Letter of Credit.
3. Issuing Bank (Opening Bank): This is the Bank, who issues Documentary Credit
at the request of an applicant. That means the opening bank is one that issues the letter
of credit at the request of the buyer. By issuing a letter of credit it takes upon itself the
liability to pay the bills drawn under the credit.
4. Advising Bank: This is a Bank, acting as agent of the Issuing Bank, to advice the
L/C, to the beneficiary. The advising bank undertakes the responsibility of prompt
advice of credit to the beneficiary and has to be careful in communicating all its
details.
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5. Confirming Bank: This Bank, gives the beneficiary, a double assurance to honor
or negotiate a complying presentation. This is a third Bank undertaking to honor or
negotiate, if the Issuing Bank fail to do so.
6. Negotiating Bank: This Bank purchase drafts or documents under a complying
presentation. Usually this is the exporter’s Bank who purchases the export documents
by advancing or agreeing to advance funds to the beneficiary. Any discrepancy may
result in refused on the part of the opening bank to honor the instruments is such an
eventually the negotiating bank has to look back to the beneficiary for refund of the
amount paid to the beneficiary.
7. Reimbursing Bank: This is a Bank, acting as agent of the Issuing Bank, authorized
to make payment or to honor Reimbursing claim of the Negotiating Bank. It is the
bank in which the Issuing Bank maintains a nostro account and this bank will make
the payment to the beneficiary.
8. Transferring Bank: If the L/C is transferable, then the 1st
beneficiary of the L/C
may transfer the L/C to the 2nd
beneficiary, through a Bank nominated by the Issuing
Bank, this Bank is called the Transferring Bank.
9. Notify Party: The party or the Bank to whom the arrival of shipment has to be
notified or to be informed, is called notify party.
2.9.7 Documents used in the operations of L/C
Normally two types of Documents are used. These are:
1. Shipping Documents
2. Non-Shipping Documents
Shipping Documents: After shipping the goods these types of documents are sent to the
Issuing Bank by the exporter. These documents are:
1. Bill of exchange: It is a Negotiable instrument. It is an unconditional order, signed
by the maker, to pay a certain sum of money, to a certain person, at the given date.
According to UCPDC, bill of Exchange to be drawn on the Issuing Bank. Bill of
exchange is commonly called Draft or Bill. Particulars of a bill of exchange:
 Drawer.
 Drawee.
 Payee.
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 Particular amount.
 Issuing date.
 Certain payment date.
2. Bill of Lading: It is the list of goods being shipped which the captain gives to the
person sending the goods to show that the goods have been loaded. As per Bill of
Lading Act 1856 it is the transport document of the Bills which is applicable to a
carriage of goods solely by sea.
Particulars of a Bill of Lading:
 Name of the shipper, consignee & notify party with address.
 The name of the carrying ship.
 Evidence that the goods have been loaded on Board.
 The port of shipment & discharge.
 The shipment date.
 Amount of freight paid or unpaid.
 Shipping marks etc.
3. Commercial Invoice: when the beneficiary shipped the goods, he prepares a final
invoice, which is called commercial invoice. Commercial invoices includes:
 Description of goods
 The price per unit
 Total value of the goods
 Packing specification
 Name of the applicant
 And other specification as per credit terms.
4. Certificate of origin: This is a certificate indicating the country, in which the goods
were produced or manufactured, may be required by the importer to meet the trade
control requirements or custom duty of his country.
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5. Insurance Policy: In the international trade insurance policy is a must to cover the
risk of loss on consignments.
6. Detailed Packing List: The exporter prepares an accurate packing list showing
item by item. The content of the consignment to enable the receiver of the shipment to
check the contents of the goods and marks of the packages, quantity, weight etc of the
goods exported.
Non-shipping Documents: Besides the shipping Documents others documents are known
as non- shipping Documents. These may be:
1. Indent or Proforma Invoice: Indent or Proforma Invoice is the sale contract
between seller and buyer in import- export business. The sales contract, which is
direct correspondence between importer and exporter, is called Proforma invoice.
There is no intermediary between them. On the other hand, there may be an agent of
exporter in importer’s country. In this regard, if the sale contract is occurred between
the agent of exporter and importer then it is called indent.
2. Import Registration Certificate (IRC): The importer collects from the CCI& E
office by submitting required documents and payment of requests fees.
3. Bill of Entry: It is a document, which contains the particulars of the imported goods
as well as the amount of customer duty payable.
2.9.8 Preparatory steps in the opening Of L/C IBBL Elephant Road Branch
Before opening the L/C Banks will take the following steps:
1. Applicant to be Bank’s Account Holder: Bank will open the L/C on behalf of a
person who has a account with the Bank unknown person will not be allowed to open
L/C.
2. Registered importer: Before opening the L/C Bank must confirm that the applicant
is a registered importer or personal importer and the IRC of the importer has been
renewed for the current year.
3. Permissible item: The item to be imported must be permissible and not banned
item.
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4. Market Report: Bank will verify the marketability of the item & market price of
the goods. Sometimes the importer may misappropriate the Bank’s money through
over invoicing.
5. Sufficient Security in margin: price of some items fluctuate frequently. In case of
those items Bank will be more careful to take sufficient cash margin or other security.
Bank will also follow Bangladesh Bank’s instructions from time to time.
6. Business Establishment: Bank should not open an L/C on behalf of a floating
businessman. The must have a business establishment, particularly he must have
business network for marketing the item to be imported.
7. Restricted Country: Goods not to be imported from Israil.
8. Application of the client to open the L/C: L/C Application Form is a sort of an
agreement between customer and bank on the basis of which letter of credit is opened
The client will approach to open in L/C in Bank’s prescribed form, dully stamped &
signed, along with the following paper’s seven documents.
I. Intent/ proforma invoice
II. Insurance cover note with money receipt.
III. LCAF dully filled in & signed.
IV. Membership certificate from chamber of commerce/Trade Association.
V. Tax payment certificate or declaration.
VI. IMP forms signed by the importer.
VII. Charge Documents.
VIII. IRC, Pass Book, Trade License, Membership certificate & VAT registration
certificate in case of new client.
IX. Export L/C in case of Back to Back L/C.
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9. Creditability of the client: In consideration of the above points, if Bank becomes
satisfied regarding the client then L/C may be opened on behalf of the client. Before
opening the L/C Bank will issue a set of LCAF in the name of the importer.
Authentication of LCAF
The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization
of opening letter of credit/payment against import and used in lieu of import license. When
the importer submit LCAF with other paper to the Bank and approach to open an L/C, Bank
will authenticate the LCAF, Confirming the following:
I. IRC renewal fees paid by the importer.
II. Item to be imported is eligible as per import policy/ pass book of the importer.
III. LCAF is duly filled in and signed by the importer.
Distribution of LCAF:
Original: This is a Exchange control copy, to be sent to Bangladesh Bank, while reporting
payment of the importer or to be preserved at the branch for Bangladesh Bank auditing.
Duplicate: This is the custom purpose copy, to be used for clearance of the consignment.
Triplicate & Quadruplicate: These two copies to be sent to CCI &E’s office.
Quintuplicate: Registration unit of Bangladesh Bank will obtain this copy; other copies will
remain with the branch.
Forwarding Documentary Credit by Advising or Confirming Bank:
There are usually two banks involved in a documentary credit operation. The issuing bank
and the advising bank are usually the banks in the seller’s country. The issuing bank asks
another bank to advise or confirm the credit. If the 2nd
bank is simply “advising the credit”, it
will mention that when it forwards the credit to seller, such a bank is under no commitment or
obligation to pay the seller.
Submission of Necessary Documents by Exporter to the Negotiating Bank:
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As soon as the seller/exporter receives the credit and is satisfied that he can meet its terms
and conditions, he is in a position to load the goods and dispatch them. The seller then sends
the documents evidencing the shipment to the bank.
Exporter will submit those documents in accordance with the terms and conditions as
mentioned in L/C. Generally the documents observed by me in the foreign exchange
department are:
 Bill of exchange
 Commercial invoice
 Bill of lading / Air way bill / Truck receipt
 Certificate of origin
 Packing list
 Insurance cover note
The negotiation process of import L/C:
After shipment process
Documents
Forward documents
The Documents Send to The Issuing Bank Through The Negotiating Bank:
The negotiating bank carefully checks the documents provided by the exporter against the
credit, and if the documents meet all the requirement of the credit, the bank will pay, accept,
or negotiate in accordance with the terms and conditions of the credit. Then the bank sends
the documents to the L/C opening bank.
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Advising BankAdvising Bank
Issuing BankIssuing Bank
Negotiating BankNegotiating Bank
Negotiating
Bank
Negotiating
Bank
Issuing BankIssuing Bank
Sending the
Documents
Sending the
Documents

Making the Payment of Foreign Bill through the Reimbursing Bank:
The L/C issuing bank getting the documents checks immediately and if they are in order and
meet the credit requirements; it will arrange to make payment against L/C through
reimbursement bank and will send the importer the document arrival notice.
Lodgment & Retirement of shipping documents:
If import document found in order, it is to be made entry in the Bill register & necessary
voucher to be passed putting number in the document, this process is called Lodgment. Bank
must lodge the document immediate after receipt of the same, not exceeding 5 banking days
following the day of receipt of the document.
Bill of entry matching
At last, the importer must submit within 4 months from the date of Remittances the relevant
authenticated copy of the custom bill of entry. After matching it with other documents the
transaction is closed.
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 Flow chart of L/C Process
ImporterImporter Ships goodsSales contract
contaaacontra
ct
Applies for
opening L/C
Present
document
Forward L/C
to the
beneficiary
ExporterExporter
Issuing
Bank
Issuing
Bank
Advising
Bank/Co
nforming
bank
Advising
Bank/Co
nforming
bank
Forwarding
L/C
Payment

2.9.9 Import Financing
Under Islamic Financial 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.
Import Financing may be at different stages under the following modes:
 Murabaha Import Bills (MIB).
 Murabaha Post Import (MPI).
 Import under HPSM.
 Import under Bai Muajjal Mode.
Murabaha Import Bill (MIB):
 This is an interim investment under Bai Murabaha mode.
 This investment is created while client's fail to place funding time.
 MIB is not an intended investment rather this is a situational or forced investment.
 This allowed for a short span of time.
 Usually, MIB is created while clients do not intend to avail finance from Banks.
 The governing rules & procedures of MIB are as same as MPI.
Murabaha Post Import (MPI):
 For import commercial or trading items Murabaha Post Import mode is used
 Murabaha means sale on agreed profit.
 This is known as Cost plus Sale.
 Here the profit amount must be disclosed.
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Negotiating
Bank or
Reimbursement
Bank
Negotiating
Bank or
Reimbursement
Bank
Payment
Forward
document
Payment

 It involves purchase of a commodity by an Islamic Bank on behalf of it’s client, resale
the same to the latter on Cost-plus-Profit basis.
 The subject commodity must be lawful.
 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.
 Being a sale not a loan, the Murabaha must fulfill 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.
 Sale of Murabaha goods may be of cash or credit basis.
 If clients fail to payback on maturity, it is allowed to charge compensation amount to
be on benevolent projects i.e. bank cannot account for compensation as revenue.
Import under HPSM:
 This is a mechanism specially for importing capital machinery.
 HPSM consists of three principles: Bai, Shirkat, Ijara.
 HPSM involves purchase of equipment/plant/building/vehicle with client under
shirkat principle to own jointly.
 Bank sells its portion to the Bank under Bai mechanism.
 Client pays principle amount and rent on equal installment basis up to maturity.
 Upon payment of installment, bank’s portion reduces and client’s portion increases.
 Bank charges rent on its residual portion under Ijara principle.
 Bank allows gestation period for being ready for production of the respective project
and does not charge rent on machinery during that period.
 The rent due in gestation period is maintained as unearned income.
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 On maturity, upon full and final settlement client becomes the owner of the entire
plant.
Import under Bai Muajjal Mode:
 This is a mode specially for importing industrial raw materials.
 It is a sale contract in which provision is made for an immediate delivery of goods
while the payment of the price is postponed to a later date.
 The client approaches the required goods and resells them to the customer at an
agreed price to be paid later.
 The agreed price includes the cost of goods to the bank plus the bank’s margin of
profit with other incident costs.
 Profit amount may not be disclosed. The customer is required to pay the agreed price
on due date.
Import Performance of Elephant Road (Last 5 Years):
YEAR AMOUNT (Figure in Million)
2009 1211
2010 1773
2011 1698
2012 2623
2013 3313
(Source IBBL Elephant Road Branch)
2.9.10 Name Of Some Importers Related With IBBL, Elephant Road Branch
ORGANIZATION NAME ORGANIZATION NAME
Al Haj Karim Textiles ltd. Fujita Corporation
Dynasty furnishing Centre Imperial Dye Cam Company Ltd.
Namira Enterprise Saka International
Soha Enterprise M/S The Ibn Sina Trust
China Bajar Ltd. Samin Enterprise
M/S Fortune Shoes Ltd M.H. Enterprise
M/S M.J.R Trading Tausif International
Versatile App M/S. Asif Enterprise
M/S. Ornima Fashion Oma International(Private Ltd)
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M/S Gold Bell International The Evergreen Company
M/S.Universal Imports M/S Saff Enterprise
M/S. Oishi Enterprise M/S. Cummunication Tech
2.9.11 Commission & Charges on Major Import Services:
SL TYPES OF
SERVICES/COMMISSION
NATURE OF
COMMISSION
RATE OF
CHARGE
1. L/C opening commission for
cash L/C (at sight) including
inland cash L/C.
N.B.
If in a calendar year a client
reaches a certain slab, special
rate/rebate may be allowed on
total performance. For each
year rate to be applied on the
basis of previous year’s
performance.
1.1 General Rate
For clients having yearly
import performances below
TK. 200 Million.
0.40% for each
quarter.
1.2 Special Rate
1.2.1 For clients having yearly
import performance of TK.
200 Million & above.
For 1st
quarter 0.40%
For each subsequent
qtr or part thereof
0.20%.
import performance of TK
For 1st quarter
0.35%
For each subsequent
qtr or part thereof
0.20%.
For 1st quarter
0.35%
For each subsequent
qtr or part thereof
0.20%.
For 1st quarter.
0.35%
For each subsequent
qtr or part thereof
0.20%.
2. L/C opening commission
under Loan/Aid/Barter/STA
etc. (where designated by BB
to handle transaction under
For 1st quarter. 0.60%
For each subsequent qtr or
part thereof 0.30%.
Min. TK 500/-
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such sources)
3. Back to Back L/C opening
commission.
(Foreign/Inland/EPZ)
0.40 For each quarter.
under deferred
payment/usance L/C
including I.L/C. (Other than
Back to Back)
Applicable for all clients no
special rate is allowed.
0.50 For each quarter.
when 100% cash security
realized prior to opening L/C.
All types of L/C 0.25% per quarter or part
thereof.
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2.10 Export
Export means lawfully carrying out of anything from one country to another country. It is the
process of selling goods and services to the other countries. That means, Export means flow of
goods and services produced within Bangladesh but purchased by economic agent
(individuals, firms & government) of other countries. Creation of wealth in any country
depends on the expansion of production and increasing participation in international trade..
Bangladesh exports a large quantity of goods and services to foreign households. Readymade
textile garments, Jute, Jute-made products, frozen shrimps, tea are the main goods that
Bangladeshi exporters export to foreign countries. Garments sector is the largest sector that
exports the lion share of the country's export. No person can export anything from Bangladesh,
unless he is registered with the CCI & E, under the Registration order (importer & Exporter)
1952. To become an Exporter an ERC (Exchange Registration Certificate) have to be obtained
from CCI & E.The export services provided by IBBL Elephant Road Branch are:
 Advising Letter of credit.
 Transferring letter of credit.
 Collection export bills (Inland & foreign).
 Advance receipt against export.
 Add Confirmation.
 Other services related to export.
2.10.1 Export Procedure
The import and export trade in our country are regulated by the Import and Export (Control)
Act, 1950. Under the export policy of Bangladesh no person can export anything from
Bangladesh unless he gets valid Export registration Certificate (ERC) from Chief Controller
of Import & Export (CCI&E). The ERC is required to renew every year. The ERC number is
to incorporate on EXP forms and other papers connected with exports. So to serve its client’s
demand to export goods, IBBL always maintains required formalities that are collectively
termed as the export Procedure.
1st
Step: Obtaining ERC
For obtaining Export Registration Certificate from CCI & E the following documents are
required:
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 Application for ERC.
 Nationality Certificate.
 Trade License.
 Income Tax Certificate (TIN).
 Memorandum & Articles of Association and Incorporation Certificate, in case of
company.
 Bank Certificate.
 Copy of Rent receipt of the Business Firm.
2st
Step: Contracting with Buyer
After getting ERC Certificate the exporter has to communicate with buyer. After
communicating with buyer, exporter has to get contracted (writing or oral) for exporting
exportable items from Bangladesh detailing commodity, quantity, price, shipment, insurance
and marks, inspection and arbitration etc.
3rd
Step: Receiving Letter of Credit
After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly
stating terms and conditions of export and payment.
The following are the main points to be looked into for receiving/ collecting export proceeds
by means of Documentary Credit:
(1) The terms of the L/C are in conformity with those of the contract;
(2) The L/C is an irrevocable one, preferably confirmed by the advising bank;
(3) The L/C allows sufficient time for shipment and negotiation.
4th
Step: Procuring the Materials
After making the deal and on having the L/C opened in his favor, the next step for the
exporter is to set about the task of procuring or manufacturing the contracted merchandise.
And also has to full fill the EXP form.
5th
Step: Shipment of Goods
Then the exporter should take the preparation for export arrangement for delivery of goods as
per L/C, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in
due time.
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Documents for shipment:
 EXP form,
 ERC (valid),
 L/C copy,
 Customer Duty Certificate,
 Shipping Instruction,
 Transport Documents,
 Insurance Documents,
 Invoice,
 Bills of Exchange (if required)
 Certificate of Origin,
 Inspection Certificate,
 Quality Control Certificate
That means here processes are:
 Goods ready for shipment:
 Inspection of the goods from the competent authority as per L/C
 Prepared invoice and packing list.
 Papers to be sent to C&F agent for shipment
 C&F agent will do the custom formalities i.e. noting /entry.
 Checking the goods as per invoice & packing list inspection report etc.
 C&F agent will take permission for shipment/hand over the goods to shipping co.
 Shipping company or agent after receipt of goods issue a receipt which is called
Mate’s Receipt.
 When goods are actually loaded on Board, the ship Master of the ship or his agent
issue Bill of Lading in exchange of the Mate’s Receipt.
 Exporter may dispatch the shipment advice to the importer directly as per L/C terms.
 Exporter submits the all original and duplicate sets of document to the bank for
negotiation.
6th
Step: Sending Documents and Receive Payments
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Exporter will submit the shipping documents to the negotiating Bank for negotiation.
Negotiating Bank will dispatch the documents to the issuing Bank for clearance of the goods
from the port of the destination against payment as per credit term. That means
1. After negotiation bank should dispatch the documents to the opening bank for
delivery of the goods from the port.
2. Opening bank lodged the documents and make payment to the negotiation bank A/C
as per L/C terms.
2.10.2 Export Financing
To meet up the cost of the goods to be exported, the exporter may require Bank finance.
Besides he may requires finance for go down rent, freight etc. even after shipment of the
goods, exporter may requires Bank finance to meet-up his current expenditure up to
repatriation of the of the export proceeds.
So, there are two types of export finance:
• Pre-shipment Finance &
• Post–shipment Finance.
Pre-shipment Finance:
Pre-shipment investment is a type of finance, allowed by a Bank to an exporter, to meet the
cost up to the shipment of the goods to overseas buyer.
So, the purposes of the pre-shipment finance are:
 Finance for purchase of raw materials/ finish goods.
 Finance for factory rent, wages & salaries and all other factory expenses.
 Finance for payment of freight.
 Payment of Insurance Premium.
 Payment of Utility Bills.
 Packing & transportation of goods.
Modes of Pre-shipment Finance:
There are three modes of pre-shipment finance. Those are:
 Bai Murabaha (BB L/C: for procurement of raw materials)
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 Bai Muajjal (In case of failure in timely export)
 Bai Salam (Packing Credit )
 Bai Murabaha:
 The import against export is governed by Murabaha principles if it is opened
on sight basis.
 It is called Back to Back LC.
 Bank keeps the lien the concerned export LC or asked for additional cash
security.
 Bank realizes usual fees, commission and other applicable charges while
issuing LC.
 Usually raw materials and accessories are imported on Murabaha basis.
Back to Back LC:
 This is a special nature of credit opened for improving raw materials and
accessories or executing Export.
 This is opened against Export L/C Contract
 Payment of import under Back to Back LC is made upon export proceed
 This LC is usually of deferred nature since payment depends on execution of
Export
 Bank realizes and applicable fees for opening Back to Back LC.
 Export LC/Contract is kept lien as security.
 Bai Muajjal:
Bai Muajjalis a contract between bank & client for import of raw materials, finished
goods, commodities, spares or other permissible goods for execution of export wherein
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bank purchases the commodities at the request of the client at a price payable on credit
basis or installment basis.
 Bai Muajjal means credit sale.
 Profit disclosure is not mandatory in case of Bai muajjal contract.
 It involves purchasing of a commodity by an Islamic Bank on behalf of it’s client
resale the same to the latter on Credit basis.
 Usually trading items and working capital for raw materials are dealt under Muajjal
 The subject commodity must be lawful.
 Being a sale not a loan, the Muajjal must fulfill 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.
 If clients fail to payback on maturity, it is allowed to charge compensation amount to
be on benevolent projects i.e. bank cannot account for compensation as revenue.
 Rebate may be allowed for early adjustment.
 Bai Salam
Bai-Salam is defined as a contract between a Buyer & a Seller under which a seller sells
in advance the certain commodity to the buyer at an agreed price payable on execution of
the said contract and the commodity is delivered as per specification, size, quality,
quantity at a future time in a particular place. Here procedures are:
 Bank receives an export LC in favor of its client, covering certain goods; Client gives
the LC under bank’s lien. Thus allowing the bank to assume the role of seller to the
foreign buyer.
 Bank agrees to buy the goods from its client under a Salam contract and makes
upfront payment to him. Salam contract devise for this purpose should include
specific delivery date and place.
47 | P a g e

 As for the place of delivery, it should be the port of destination mentioned in the LC.
Submission of the in order shipping documents by the clients may be deemed
equivalent to the satisfactory delivery.
 The agreed payment made by the Bank to it’s client is lower than the amount of the
export LC being the spot price, difference being bank’s profit.
Post-shipment Finance:
There is a time gap between export of the goods and realization of the proceeds. So
exporter may require finance in that period to continue his Business.
Modes of Post-shipment Finance:
There are two modes of Post-shipment finance
 Bai-As-Sarf
 Musharaka Documentary Bill (MDB).
1. Bai-As-Sarf
Bai-As-Sarf is a trading mechanism where the bank buys foreign currency from the client
at an agreed rate. In case of Bai-As-Sarf, Bank purchases the value of the export
documents expressed in Foreign Currency and paid equivalent taka in favour the client.
The client will get net amount after adjustment of their respective liabilities, if any. After
realization of documents value from the issuing bank/importers bank abroad the liability
will be adjusted and bank will earn exchange profit from it.
Precondition for Bi-As-Sarf (for cash transaction)
• Must be hand to hand i.e. on spot basis.
• Must be of equal amount in case of same currency.
• Contract must not be conditional.
• Should not be speculative.
• Should not involve riba, mysir.
2. Musharaka Documentary Bill (MDB)
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After shipment of goods, the client submits proposal for Musharaka Finance in the
prescribed format declaring his /her equity portion and profit of the deal and the ratio
at which profit to be shared with the Bank accompanying the required documents as
per L/C Contract. Bank will appraise the proposal to see the profitability. If the
proposal is found profitable & satisfactory Bank will enter into a Musharaka
agreement with the client and then send the documents to the L/C opening Bank for
acceptance. Upon receipt of the acceptance, Bank will issue sanction advice and then
disburse the investment taking into consideration the equity of the client and
anticipated profit of the deal.
2.10.3 Name of some Exporting organizations Related with IBBL, Elephant Road
Branch. ,
EXPORTING ORGANIZATION NAME
Al Haj Karim Textiles Ltd.
AB Mart Fashion Wear Ltd.
Overseas Fashions Ltd.
Baj Creation.
Shishir Knit & Dying.
Export Performance of Elephant Road Branch (Last 5 Years):
Year Amount(in million TK)
2009 1266
2010 2087
2011 1953
2012 2608
2013 3201
2.10.4Commission & Charges on Major Export Services:
SL Types of services
/commission
Nature of
charge/commission
Rate of charge/ commission
49 | P a g e

1. Advising of L/Cs Advising of all types of
L/Cs including re-advising
& advising of pre-advice
L/C.
TK. 750/- per L/C.
2. Advising of Amendment. Advising of Amendments of
all types of L/Cs.
TK. 750/- per amendment.
3. Authentication of transfer
of L/Cs Amendment.
For transfer/ authentication
of all types of L/C &
amendments.
TK. 750/- per transfer/
Authentication.
4. Adding confirmation to
Foreign Bank L/Cs
Locally.
For all types of L/C. For each quarter 0.20%
5. Issuance/ Certifying of
Export Form.
TK. 200/- per set.
6. Charges for encashment
of TT against Export.
For Advance Payment
Receipt.
TK. 500/- per Case.
7. Bai-as-Sarf
(Negotiation/purchase)
against Export Bills under
export L/C Contract
(Inland & Foreign)
Commission 0.15%
8. Commission for
Collection of local Export
Bills under Inland Bills
for collection (IBC)
including IBC against
which MDB allowed.
0.15%
9. Documentary Collection
under Export L/C per
contract (FBC)
Commission 0.15%
10. Mailing of export
documents
(Local/Foreign)
10.1 By Post/Mail
AT ACTUAL.
10.2 By Courier
10.3 By Local Mailing
11. Issuance of PRC Cash Assistance & for any
other purpose.
TK 500/- per instance.
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2.11 Foreign Remittance
The word “Remittance” originates from the word “remit” which means to transmit fund. In
banking terminology, the word remittance means “transfer of fund one place to another”.
When money transferred from one country to another is called “Foreign Remittance”. That
means foreign remittance is the transfer of foreign currency from one country to another
country.
2.11.1 Types of Account for Foreign Remittance
 NOSTRO A/C:
When a bank maintains a Foreign Currency account with a foreign Bank abroad the
account is called NOSTRO account. NOSTRO account means “our Bank with you”.
Example: If Islami Bank Bangladesh Limited maintains a US Dollar account with
American Express Bank, New York, and then it is a NOSTRO account of Islami Bank
Bangladesh Limited.
 VOSTRO A/C
When Foreign Bank maintains a convertible Taka account with a Bangladeshi Bank
or with its Branch in Bangladesh, the Taka account to is called VOSTRO account.
VOSTRO account means “your account with us”. Example: AL-Raji commercial
Bank K.S.A maintains a Taka account with Islami Bank Bangladesh Limited. The
account is a VOSTRO account for Islami Bank Bangladesh Limited.
 LORO A/C
When two Banks maintain two NOSTRO accounts with a same foreign Bank in
abroad, then one Bank’s NOSTRO account is Loro account for another Bank. Loro
account means “their account with you”. Account maintained by third party is known
as Loro account. Example: Islami Bank Bangladesh Limited & Agrani Bank both
maintains a NOSTRO account No 1 & 2 respectively with American Express Bank
New York. Then NOSTRO account 1 & 2 are LORO account for each other. That
51 | P a g e

means account no 2 is LORO account of Islami Bank Bangladesh Limited & account
no 1 is LORO account of Agrani Bank.
2.11.2 Foreign Remittance operations in IBBL
Fund transfer from one country to another country goes through a process which is known as
remitting process. Islami Bank Bangladesh Limited has 276 domestic branches. The bank has
“Nostro Account” with a foreign bank Standard Charted Bank, New York. Bangladeshi
expatriates are sending foreign remittances to their local beneficiary, through that account.
 Now, the Bangladeshi expatriates will contact with Standard Charted Bank to
remit fund to Bangladesh.
 Then Standard Charted Bank will credit the “NOSTRO A/C” of IBBL and send
the message through SWIFT.
 Next the local bank’s Head Office international division will receive telex
message and the TFMD will record the advice and generate the advice letter to the
respective branch of the bank.
 The branch will first decode the test, verify signature and check the account
number and name of the beneficiary.
 After full satisfaction, the branch transfers the amount to the account of the
beneficiary and intimates the beneficiary accordingly.
 But sometimes the complexity arises, if the foreign Bank has no “NOSTRO A/C”
in which country where the expatriates want to remit fund. Then the Foreign
Bank has to take help of a third bank who has “NOSTRO A/C” with intended
Bank.
52 | P a g e
Islami Bank
Bangladesh
Limited
Islami Bank
Bangladesh
Limited
Standard
Chartered
Bank, NY
Standard
Chartered
Bank, NY
RemitterRemitter
Beneficiar
y
Beneficiar
y

2.11.3 Banks with Nostro Account
In order to meet the customer needs for International Trade, the Bank has developed a wide
network with more than 580 Banks all over the world. Some Banks with NOSTRO A/C are:
 Standard Chartered Bank, New York, USA.
 Mashreq Bank PSC, New York, USA.
 ICICI Bank Limited, Hongkong.
 Commerz Bank, AG
 Habib Bank, AG Zurich.
 Korea Exchange Bank Limited.
 Sonali Bank UK(USD).
 UBAF, Singapur.
2.11.4 Exchange House
The Bank has made special drawing arrangements with the many Exchange Houses for
faciliting remittance of expatriates:
 K.S.A. :
• Al Rajhi Bank (ARBIC)
• Al moudi Exchange co.
 KUWAIT :
• Kuwait Finance House
• National Money Exchange Company.
 U.A.E. :
53 | P a g e

• Dubai Islami Bank
• Al Mona Exchange Co.
• Al Ansari Exchange.
 QATAR :
• Qatar Islami Bank.
• Union Exchange.
• Eastern Exchange.
 OMAN :
• Modern exchange co.
• Oman international Exchange.
• Asia Express Exchange.
 BAHRAIN :
• Dail Exchange.
• Zenj Exchange Co.
• National Finance & Exchange Co.
 SINGAPUR :
• Ameer Tech Remittance & Exchange Services.
• Mustafa Foreign Exchange.
 ITALY :
• Unocredito Italiano.
• National Express Co.
54 | P a g e

 U.K. :
• Kushiara Finance Service Limited.
• Zamzam Exchange International Limited.
 U.S.A. :
• Wall Street Finance.
• Moneygram Payment System.
 CANADA :
• United Exchange.
 MALAYSIA :
• Bank Islam Malaysia Berhad.
• Malaysian Banking Berhad..
 GREECE :
• Advanced Chrono Cash Service.
2.11.5 Types of Foreign Remittance
Inward Foreign Remittance:
Inward Foreign Remittance means Remittance received from foreign countries from abroad.
To the bankers or ADs inward remittance means purchase of foreign currency by authorized
dealers. In other words remittance coming into our country from other countries by the
remitter by way of permissible banking channel is called ‘Inward Foreign Remittance’ i.e.
beneficiary’s point of view it is inward foreign remittance. On the other hand remitter’s point
of view it is called outward Foreign Remittance.
55 | P a g e
FOREIGN
REMITTANCE
FOREIGN
REMITTANCE
OUTWARD
FOREIGN
REMITTANCE
OUTWARD
FOREIGN
REMITTANCE
INWARD
FOREIGN
REMITTANCE
EEE
INWARD
FOREIGN
REMITTANCE
EEE

Ways of Inward Foreign Remittance:
 Spot Cash.
 FTT
 FDD
 TC
Spot cash:
 Only from Foreign Exchange House Spot Cash can be send to Bank.
 No need to have account receiver.
 Photocopy of NID or student ID and PIN code are must for receiving money.
 Service charge is gained by Bank.
FTT:
 From Bank remitter can send fund to beneficiary.
 Here account is must for beneficiary.
 Then beneficiary can withdraw money as his/her necessity.
 Here the Foreign Bank credit the NOSTRO account of IBBL.
 In case of outward remittance it is vice versa.
FDD:
 Here instrument is given to the concern Bank from which it is taken.
 Here purpose may be many such as, payment to anybody, for Business issue, may be
travelling etc.
 It is collection basis that means Banks normally takes 3 to 4 days for payment.
 After giving payment NOSTRO account is debited.
 In case of IBBL there must have two officers signature in this instrument.
56 | P a g e

TC:
 Here the format of intermediary Bank is used.
 Normally American Express Traveler’s cheque or Standard chartered TC is used.
 That means here standard format is used.
 It is on cash basis. That means after taking the TC the fund is readily available.
Outward Remittance:
Remittance from our country to foreign countries is called outward foreign remittance. In
other words, sales of foreign currency by the authorized dealer or formal channels may be
addressed as outward remittance. The remitter has to deposit money along with the
application contains name and address of the payee name of the currency etc. All outward
remittances must cover the transactions approved by the Bangladesh Bank.
Purposes of Outward Remittance:
1. Travel.
2. Medical treatment.
3. Educational purpose.
4. Attending seminar etc.
Ways of outward Foreign Remittance:
 FDD
 FTT
 TC
2.11.6 Remittance Performance of Elephant Road Branch (Last 5 Years):
Year Amount(in million TK)
2009 808
2010 1077
2011 1364
2012 1705
2013 1612
57 | P a g e

2.12 Findings
The analysis shows that most activities in Foreign Exchange Business in IBBL are
satisfactory except some problems. The presentation of observation/evaluation can be
summarized as the following ways:
• Conservative approach in sanctioning limit is the main barrier to expand import
export business in the Bank.
• Rate fluctuation has negative impact in foreign exchange business
• Improper handling of importers & exporters is negative indicative in foreign exchange
business.
• Customer’s excessiveness and demand of illegal facility has a negative impact in
foreign exchange business.
• In case of import and export financing it takes long time to sanction the fund.
• Number of Manpower is insufficient according to business volume.
• Shariah Awareness among the employees as well as the importers, exporters and
depositors is badly absent.
• Import financing & Export financing are restricted so the Importers & Exporters can
not run their business smoothly.
• Satisfactory customer service is interrupted due to lack of logistic supports and
changing office order for the officials very now and then.
• Due to shariah bindings Bank can not import or export all types of goods, so the
import or export business is interrupted.
• Huge opportunity prevails here to expand foreign exchange business since it is the
hub of importers and exporters.
58 | P a g e

• Relationship between Bankers and Customers is friendly and reciprocal which
indicates sustainable growth of business.
• Foreign Exchange officials are well equipped with highest level local and
international degrees which will help to handle foreign Exchange business
maintaining international standard.
• Although IBBL has occupied the leading position in foreign exchange business
among the whole banking arena, Elephant Road branch cannot coup with such
position.
Chapter: 3
Conclusions
59 | P a g e

3. Conclusions:
In today’s world of business without bank's co-operation it is almost impossible to run any
business or production unit of business. Export and import need finance in various stages of
their activities. Islami Bank Bangladesh Limited is playing a vital role in financing import
and exports of the country and helping the businesses by providing funds to run the business
effectively.
There are lots of local and foreign banks competing in banking industry in Bangladesh and
the Islami Bank Bangladesh Limited is keeping it’s promises for about thirty years among
them very successfully. It is a leading private Islamic bank in Bangladesh with superior
customer bases. And ultimately for its good performance for gaining profit it has taken 1st
position in 2012 among all the banks in Bangladesh with 1830 crore TK.
Although it is facing some problem, also it has a bright future. Day -by-day it is enhancing
it′s financial activities over the country. Many organizations are following to IBBL and they
are starting their business based on Islamic shariah in the economy in Bangladesh. Now
IBBL is the number one bank in Bangladesh considering all perspectives and an example for
all banks to follow.
Before this internship program I had idea about banking but that was only bookish. After
completing my internship period and preparing this report I got practical aspect of banking. It
will definitely help me to see the things from banking perspective also.
The foreign exchange business of IBBL is satisfactory except of some problem if the bank
can solve the problem then the bank will perform better by providing excellent service to the
customer.
60 | P a g e

2013 was a milestone for IBBL since it has achieved 1st
position in the banking sector in
terms of collecting highest remittance. Inspire of having strong corporate image and
organizational strength following steps may be suggested to make IBBL as icon in the
banking sector.IBBL should recruit skilled and Foreign Exchange knowing officials for
disposal of assignment accurately and timely. Stable rate for foreign currency should be
maintained by proper authority. The bank should arrange more quality training programs to
enrich the officials with more recent knowledge of International Trade Financing. And office
order of the employees should not be changed frequently.
References
Hudgins, Sylvia C., and Rose, Peter S., 2010, Bank Management and Financial
Services, Fifth Edition, McGraw-Hill/Irwin, New York, USA.
Islami Bank Bangladesh Ltd.,2014, Annual report 20013,Islami Bank Bangladesh
Ltd. Dhaka, Bangladesh.
Islami Bank Bangladesh Limited, Background of Islami Bank Bangladesh
Limited,viewed on September 10, 2014 < http://www.
islamibankbd.com.bd/background-of-ibbl.html >
Islami Bank Bangladesh Limited, Foreign Exchange Business of Islami Bank
Bangladesh Limited,viewed on September10, 2014 < http://www.
islamibankbd.com.bd/fxbusiness.html >
IBTRA,2014,Foundation Training Course For Probationary Officers(Phase 1),
Dhaka.
61 | P a g e

Islami Bank Bangladesh Ltd.,2014, Diary of Islami Bank Bangladesh ltd..Islami Bank
Bangladesh Ltd. Dhaka, Bangladesh.
L.R Chowdury, 2011, Foreign Exchange, Dhaka, Bangldesh.
Rose, Peter S.,2011, Commercial Bank Management, Fifth Edition, McGrawHill,
Boston Burr Ridge,USA.
62 | P a g e

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