FOREIGN CURRENCY ACCOUNTS · East Asia, started on 30 March, 1983.The bank formally inaugurated on August 12, 1983.The outstanding success of Islamic Bank has inspired others to join

“ForeignForeign Exchange & Foreign Trade Practice Under Islamic Banking System in Bangladesh”:Exchange & Foreign Trade Practice Under Islamic Banking System in Bangladesh”: A Case A Case Study on Social Investment Bank Limited Study on Social Investment Bank Limited

Foreign Exchange & Foreign Trade Practice Foreign Exchange & Foreign Trade Practice Under Islamic Banking System in Bangladesh:Under Islamic Banking System in Bangladesh:(A Case (A Case Study on Social Investment Bank Limited)Study on Social Investment Bank Limited)

Submitted ToMr. Nilanjan Kumar Saha, Assistant professor, Santo Marium University of Creative Technology, Dhaka.

Submitted ByMd. Makhluk Hasan

MBA #042-20-01-0 23MBA 2nd Batch

Submission Date: 23 December 2007

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TABLE OF CONTENTS

Topic Name Page No.1.0 Introduction 1.1 Banking System of Bangladesh 5 1.2 Back ground of the Report 7 1.3 Limitation of the Report 8 1.4 Objective of the Report 9 1.6 Methodology of the Report 10

2.0 An Overview of Social Investment Bank LimitedSocial Investment Bank Limited

2.1 Historical Background of SIBL 12 2.2 Mission of the Bank 13 2.3 Vision of the Bank 13 2.4 Current Strategies of the Bank 14 2.5 Corporation Information 15 2.6 Branches of SIBL 16 2.7 Board of Directors of SIBL 18 2.8 Shariah Board of SIBL 19 2.9 Organization Structure 20 2.10 Six Year Performance of SIBL at a glance 21 2.11 Foreign Exchange 22

3.0 General Concept About Foreign Exchange Operation 3.1 Concept of Foreign Exchange 24 3.2:Local Regulation for Foreign Exchange 24 3.2.1: Foreign Exchange Regulation Act 24 3.2.2: Guideline for Foreign Exchange Transaction 25 3.2.3: Foreign Exchange Circular 25 3.2.4: Export Import Policy 25

3.2.5: Public Notice 25 3.2.6: Instruction from different Ministry 25 3.2.7: Shariah Principles 25

3.3:International Regulations for Foreign Exchange 26 3.3.1: World Trade Organization (WTO) 26

3.3.2: International Chamber of Commerce(ICC) 26 3.3.3: UCPDC 600 26 3.3.4: URR ICC Publication 525 26 3.3.5: UR for collection ICC Publication 522 27 3.3.6: INCO Terms 2000 27 3.3.7: International Standard Banking Practice (ISBP) 28 3.3.8: Authorized Dealer 29

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3.3.9: License of Authorized Dealer 29 3.3.10: Function of Authorized Dealer 29 3.3.11: Foreign Exchange Market 30 3.3.12: Types of Foreign Exchange Market 30 3.3.13: Term used in Foreign Exchange Market operation 30 3.3.14: Trade Transaction 31 3.3.15: Method of Foreign Trade Payment 31 3.3.16: Bank’s Involvement in Foreign Trade 33 3.3.17: L/C Operation 34 3.3.18: Type of L/C 34 3.3.19: Parties are involved in L/C Operation 35 3.3.20: Flow Chart of L/C Operational Mechanism 36 3.3.21: Documents involved in L/C 37 3.3.22: Foreign Correspondent 40 3.3.23: Foreign Correspondent Relationship 40 3.3.24: Accounting Relationship 41 3.3.25: Exchange Rate and Their Application 42

4.0 Foreign Exchange Business of SIBL A. Import Section: 47 4.1 An overview of Import Business 47 4.1.1: Import Policy Order 47 4.1.2: Classification of Importer 47 4.1.3: Registration of Importer 48 4.1.4: Problem to Obtain IRC 50 4.1.5: Import Flowchart 51 4.1.6: Operational Mechanism of Import Section 52 4.1.7: Procedure of Opening Letter of Credit 52 1.Required docs. Submit by Importer 52 2.Collection information from Importer 53 3.Preperation of Credit Report 54 4.Required docs. provided by Bank 54 5.Cover Note with money receipt 55 6.Examination of L/C Application 55 7.Preperation of L/C Proposal 57 8.Numbering of L/C 57 9.Diposal of L/C 57 10.Pre-shpment Inspection 58 11.Charges 58 12.Amendment 59 4.1.8 : Examination & Scrutiny of Import Documents 60 4.1.9: Lodgement of Import Documents 63 4.1.10: Payment Settlement of Import L/C 64 4.1.11: Retirement of Import Documents 65

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4.1.12: Reporting to Bangladesh Bank 69 B: Export Section 4.1.13: Export Business 71 4.1.14: Flow Char of Export (manufacturing) 75 4.1.15: Operational Mechanism of Export 76 4.1.16: Export L/C Checking & Advising 76 4.1.17: Obtaining Export Facilities from Bank 78 4.1.18: Lien of Master L/C 78 4.1.19: Procedure of Opening Back to Back L/C 80 4.1.20: Mechanism of Acceptance 82 4.1.21: Pre-shipment Financing 83 4.1.22: Negotiation of Export Documents 85 4.1.23: Post-Shipment Financing 87 4.1.24: Proceed Realization Procedure 88 4.1.25: Formalities of BTB L/C Payment 91 4.1.26: Formalities of BTB L/C Payment when export fails 93 4.1.27: Formalities of Buying House Commission Payment 94 4.1.28: EXP Form Reporting to Bangladesh Bank 95 4.1.29: Local Export Bill Purchasing & Discounting 96

C: Remittance Section 4.1.30: An overview of Foreign Currency Account 98 1.Private Foreign Currency Account 98 2. Required documents for Foreign Currency Account 98 3. Salient feature of Foreign Currency Account 99 4. Eligible person for Foreign Currency Account 99 5. Terms and conditions for Foreign Currency Account 99 6. Resident Foreign Currency Deposit Account 100 7. Convertible and non-Convertible Taka Account 100 8. Others A/C’s 101

4.1.31: Remittance 102 1. Procedure of inward remittance 102 a. Encashment of Traveler’s Cheque(T.C.) 102 b. Encashment of cash 103 c. Encashment of Draft and T.T. 103 d. Ways and methods of inward remittance 103

2. Procedure of outward remittance 104 a. Ways and methods of outward remittance 104 b. Ground of outward remittance 104 c. Issuance of Foreign Currency 105

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5.0 Performance Analysis of FEX Business 5.1: Comparison of Foreign Exchange performances of SIBL with other Bank

111

5.2: SWOT analysis of SIBL 112 5.3: Over all FEX performance of SIBL 114

6.0 Conclusion 6.1: Summary of Findings 115 6.2 Problems regarding FEX Business of SIBL 116 6.3 Recommendation 117 6.4: Conclusion 119

References & Bibliography 121

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1.1: BACKGROUND OF THE REPORT

Mr. Nilanjan Kumar Saha, Assistant professor, Santo Marium University of Design and Technology, has assigned to guide by report on Foreign Exchange &Foreign Exchange & Foreign Trade Practice Under Islamic Banking System in Bangladesh: AForeign Trade Practice Under Islamic Banking System in Bangladesh: A Case Study On Social Investment Bank LimitedCase Study On Social Investment Bank Limited. As per his instruction and under his kind supervision I have done this report. This report has been designed to provide my practical aspects of Foreign Exchange and Foreign Trade Practice in Islamic Banking in the context of Bangladesh.

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PART-One

IntroductionIntroduction

1.2: BANKING SYSTEM OF BANGLADESH

Before liberation in 1971, the banking system of this part of the country that now constitutes

Bangladesh consisted of the State bank of Pakistan, the central Bank of the country and 17

scheduled banks. These banks had a total of 1169 branches. Among these 17 banks, 12 were

Commercial Banks, one Industrial Development Bank, one agricultural development Bank and

three Foreign Commercial Banks. Beside these, a lot of co-operative banks were in operation.

At the time of liberation only two banks had their head offices in Bangladesh and were managed

by Bangladeshis. These two banks were the Eastern Mercantile Bank Ltd. and the Eastern

Banking Cooperation Ltd. West Pakistani capitalists owned and managed all the other 10

commercial banks that had their head offices in West Pakistan. The 2 development banks had

very limited number of branches operating in the then Bangladesh.

The banking system of Bangladesh was virtually in a state of disarray immediately after the

liberation in 1971. On the eve of our independence, only one bank in this country was fully

owned by Bangladeshis. All the others were owned and operated by Pakistanis who had just left

and abandoned these enterprises. Partly because of the manifesto of the then ruling party and

partly because of the need of the hour, the government nationalized the entire banking system.

The Dhaka branch of the State Bank of Pakistan was declared the central bank of Bangladesh

in December 16, 1971. All the domestic banks were reorganized into six separate entities.

Leaving aside the three foreign banks, the two other specialized banks were also restructured

as Bangladesh Krishi Bank and Bangladesh Shilpa Bank.

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After 1987, private banks came more strongly into the Banking sector scenario. Their number

rapidly increased from 6 to 17 as of July 1999 and 21 as of today. The expansion of private

banks has helped to increase the service quality of the total banking sector of our country.

Although they primarily invest in short term ventures, their introduction has created a valuable

source of capital for businessmen of Bangladesh.

1.3: D1.3: DEFINITIONEFINITION OFOF I ISLAMICSLAMIC B BANKANK::

In the conference of Foreign Ministers of OIC at Dakar in Senegal in 1978 approved

the definition of Islamic Bank as :

“Islamic bank is a financial Institution, whose status, roles and procedures expressly

states its commitment to the Islamic Shariah and to banning of the receipt and

payment of interest on any of its operation.”

From the above definition, o5 (five) objectives of Islamic Bank identified.

1. Legal and honest object which want to form a economic society based on Insaf.

2. To avoid interest which is prohibited by the Holy Quran.

3. Investment in legal business.4. Business in Halal way.5. Investment on basis of profit.

1.4: I1.4: ISLAMICSLAMIC B BANKANK ININ BANGLADESHBANGLADESH::

In our country Bangladesh, Islamic Bank Bangladesh Limited, the first Islamic Bank in South East Asia, started on 30 March, 1983.The bank formally inaugurated on August 12, 1983.The outstanding success of Islamic Bank has inspired others to join the emerging system. To-day in addition to Islamic bank Bangladesh Ltd., six more full-fledged Islamic Bank s are operating in the country. Besides, eight conventional banks are doing dual banking i.e. interest based banking as well as Islamic banking. For Islamic banking these banks have opened separate dedicated branches.

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1.5 : 1.5 : LISTLIST OFOF BANKBANK PARACTICINGPARACTICING I ISLAMICSLAMIC B BANKANK ININ BANGLADESHBANGLADESH::

Sl. No.

Name of Banks Year of establishment

No. of Branches

01 Islami Bank of Bangladesh limited 1983 176

02 Oriental Bank Limited 1987 30

03 Al-Arafah Islami Bank Ltd 1995 41

04 Social Investment Bank Ltd 1995 24

05 Shahjalal Islami Bank Ltd. 2001 16

06 Export Import Bank Ltd. 2002 28

07 Bank Al- Falah 2005 03

1.6 : 1.6 : LIMITATIONLIMITATION OFOF THETHE REPORTREPORT::

Foreign Exchange and Foreign trade refers to trade between home country to

another country. Each country does their foreign exchange and foreign trade business

according to their home country’s own set of foreign trade roles and

regulations.

The difference in the nationality of the exporter and importer presents certain

particular problems in the conducts of foreign exchange and foreign trade and

settlement of the transaction arising there from. Some of them are given below:

1) Different countries have different monetary policy.2) Restriction imposed by the countries on import and export of goods.3) Differences in legal practices in different countries.4) Political condition is different in both countries5) Transport problems of the exporting and importing country.6) Lack of knowledge of foreign language.

The existences of national monetary units create a problem in the settlement of international transactions. The exporter would like to take payment in the currency of his own country. Whereas the importer can pay only in currency of the importer’s country. Therefore, conversion of importers’ country into that of the exporter’s country arises.

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Banks that deal in foreign exchange and foreign trade do the conversion of the currencies. This bank maintains stocks of foreign currencies in the form of balances with banks abroad. For instance a Bangladesh Bank may maintain an account with AMEX Bank, New York, in which dollar balances are held. In case of import of goods in Bangladesh the importers pays the value of goods in Bangladeshi taka to the Bangladesh bank and it would arrange to pay the exporter through AMEX Bank New York in form of US Dollar held by it with AMEX Bank New York.

In spite of the limitations of different dimensions of the study some honest efforts have been made to focus on the present status, scope, condition, demands and bindings of foreign exchange and foreign trade in Social Investment Bank Limited with a fair view to recognize Bank’s effective contribution to the foreign exchange business.

1.7 : 1.7 : OBJECTIVEOBJECTIVE OFOF THETHE REPORTREPORT::The main objectives of this report are as follows:

General Objective:

The general objective of this assignment is to have a clear knowledge and understanding

about the Foreign Exchange and Foreign Trade of Islamic banks and Conventional bank

in context of Bangladesh.

To fulfill the requirement of MBA program,

Specific Objective:

From this study report people will know the comparison of foreign exchange and foreign

trade investment mode, procedure of disbursement of Islamic bank and conventional

bank.

1.8 : 1.8 : METHODOLOGYMETHODOLOGY OFOF THETHE REPORTREPORT::

Primary data: To interview with Islamic bankers and customers and others. The primary

information were collected through information interview and observation and face-to-face

conversion with related people.

Secondary data: Secondary data that are used for this report from the annual report 2005-2006

of various banks.

To contact with ID in-charges of various banks’ head office and foreign exchange banker.

PART-TWO

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An Overview of An Overview of Social Investment Bank LimitedSocial Investment Bank Limited

Based on Islamic ShariahBased on Islamic Shariah

Bangladesh is one of the largest Muslim countries in the world. The people of this country are

deeply committed to Islamic way of life as enshrined in the Holy Qur'an and the Sunnah.

Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in

accordance with the precepts of Islam. It is committed to conduct all banking and investment

activities on the basis of interest-free profit-loss sharing system. This part covers some

important issues about SIBL that are as follows-

Historical Back ground

Mission and Vision of SIBL

Corporation Information

Organizational Structure

Six Years Financial Performance

Targeting poverty, Social Investment Bank Limited is indeed a concept of 21st Century participatory

three sector banking model in one: in the formal sector, it works as an Islamic Participatory Commercial

Bank with human face approach to credit and banking on the basis of profit and loss sharing; it is a Non-

Formal Banking with the poor in non-corporate sector dealing with informal finance and credit package

that empowers and humanizes real poor family and creates local income opportunities and discourage

internal migration; it is a Development Bank intended to monetize the voluntary sector, committed

basically to financing development and management of over 1,55,000 Waqf, Mosque properties in

Bangladesh as well as Non-Muslim Trust properties.SIBL is indeed committed to implement the principle

of participatory economy with human face approach to credit and banking on interest free basis with a

view to empowering the family as the basic unit.

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2.1: HISTORICAL BACKGROUND OF SIBL

Social Investment Bank Ltd. (SIBL) was incorporated on 5th July 1995 as a result of dedicated

efforts of a group of established Bangladeshi entrepreneurs and internationally important

personalities. Social Investment Bank Ltd. (SIBL) become operational on 22 November, 1995

with a clear manifesto to demonstrate the operational meanings of participatory economy,

banking and financial activities as an integrated part of an Islamic code of life. It is an attractive

concept of Islamic Banking with a unique human face approach to credit and banking based on

interest free economic and financial transactions and income generating program for the millions

of the urban and rural poor and a profitable investment option for the rich to invest, earn and live

in a better society with greater security and peace at the operational level, SIBL is operating

three-sector banking, such as, formal, Non-formal and Voluntary sector. SIBL is beginning a

new era of Islamic Banking having social, ethical and moral dimension in each of its activities

ranging from credit to construction, trading to transport, framing to fishing, and manufacturing to

mining and so on. Some renowned personalities and institutions are sponsors and directors of

this bank, specially the founder Chairman Prof. Dr. M. A. Mannan who is an internationally

reputed, Islamic thinker and professional Economist. He served in different important capacities

in different International Organizations including Asian Development Bank and Islamic

Development Bank. With his heartiest effort and inspiration Ex-Secretary General of O. I. C Dr.

Hamid Al-Gabid and Deputy Speaker of Saudi Arabia and former Secretary General of Rabeta,

Dr Abdullah Omar Nasseef, Ex-Commerce Minister of Saudi Arabia Salah Jamjoom took part in

the establishment of the bank. Besides, International Solidarity Fund (IFS) and International

Islamic Relief Organization (IIRO) also took part as Sponsors.

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2.2: MISSION OF THE BANK

Social Investment Bank Ltd. (SIBL) started its journey with a concept of 21st century

Islamic Participatory three sector banking model;

Formal sector-commercial banking with latest technology,

Non-formal sector-Family Empowerment Micro-Credit & Micro-Enterprise program and

Voluntary sector-Social Capital mobilization through CASH WAQF and others.

Finally, ’Reduction of poverty level’ is our vision, which is a prime object as started in

Memorandum of Association of the bank with the commitment ‘Working Together for a

Caring Society’.

2.3: VISION OF THE BANK

The visions of Social Investment Bank Ltd. (SIBL) are as follows:

High quality financial services with the latest technology.

Fast, accurate and satisfactory customer services.

Balance and sustainable growth strategy.

Optimum return on shareholders equity.

Introducing innovative Islamic Banking products.

Attract and retain high quality Human Resources.

Empowering real poor families and create local income opportunities.

Providing support for social benefit organizations-by way of mobilizing funds and social

services.

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2.4: CURRENT STRATEGIES OF THE BANK

Corporate level

Currently Social Investment Bank Ltd. (SIBL) does not have any corporate level strategy.

Business level

Social Investment Bank Ltd. (SIBL) follows Islamic Banking Business strategy. We have

identified some of their strategies that can be considered as business level strategy. They are

described below:

Differentiation:

Social Investment Bank Ltd. (SIBL) has a highly professional set of employees. So the service,

they provide to the customer is of higher quality than its competitor. For example, the customers

have to wait for a shorter period of time to deposit money or to get other services. Thus they are

differentiating their services through providing higher quality.

Quick response:

In Social Investment Bank Ltd. (SIBL), the management can respond quickly to environmental

changes. This is because the owners and management are considered as separate entities in

Social Investment Bank Ltd. (SIBL) and so they can make decisions independently. Moreover,

the management is very much experienced and has good relations with other concerned

parties. So they can quickly reach decisions and respond to any environmental changes. By

applying this strategy, Social Investment Bank Ltd. (SIBL) has become able to attain competitive

advantage over others.

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Financial strategy:

The financial strategy of Social Investment Bank Ltd. (SIBL) is to “buy liabilities” i.e. the bank

wants to increase their deposit base as much as possible. For banks, deposits are the liabilities,

which is their source of funds. The deposit base also helps to increase customer confidence.

Another financial strategy is that non-interest expenses (salaries, office overhead etc.) should

be earned by non-interest earnings (e.g. service charges of opening L/Cs, commissions and

fees) by employees. So the earnings from interest on Advances are not used to cover non-

interest expenses. The difference in interest rates of deposits and advances can be treated as

pure profit for the bank and thus this strategy increases the profitability of the bank.

2.5: CORPORATE INFORMATION

As on 31st December 2006

Date of Incorporation 5th July 1995Date of receiving Banking license 22nd November, 1995Listing with Dhaka Stock Exchange November,2000Listing with Chittagong Stock Exchange October,2005Share holders’ equity Tk.980.70 millionOperating Profit Tk.295.90 millionTotal Assets Tk.19,691.53 millionAuthorized Capital Tk. 4,000.00 millionPaid Up Capital Tk. 585.00 millionNo. of Share holders 1432No. of Branches 24Manpower 674

Source: Right Share Offer Documents (Corporate Information: December, 2006, Page # 08)

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2.6:SIX YEARS PERFORMANCE OF SIBL(AT A GLANCE)

Amount in Million Taka

Particulars 2000 2001 2002 2003 20042005

Authorized Capital

1,000.001,000.00 1000.00 1000.00 1000.00 4000.00

Paid-up Capital

260.00260.00 260.00 260.00 585.00 585.00

Total Share holders Equity 291.91

487.05 696.42 891.01915.50

923.07

Capital Base(Tier I & II) 331.01

531.78 756.03 971.06 1023.87

1065.42

Total Deposits

4863.2110569.67 15141.34 19709.31 19704.20 16862.58

Total Investments

3522.255499.25 7504.03 10059.11 12887.27 15096.83

Import Business

2983.204723.40 11124.85 14908.90 13363.07 11576.71

Export Business

530.801440.20 2287.64 4035.90 4500.23 5528.40

Remittance

33.4031.70 107.57 120.30 224.82 332.96

Total Foreign Exchange Business 3547.40

6195.30 13520.07 19065.10 18088.12 17438.07

Total Income

105.71302.00 420.02 500.54 414.99 213.57

Net Profit before Tax

58.71 256.96368.52

388.04 152.4754.20

DividendCash

Stock

-

-

20%

5:B1

-

4:B1

-

2.B1

-

-

-

-

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Total Assets

5672.0011300.22 16223.56 21193.68 21546.96 20358.81

Fixed Assets

65.3572.97 92.34 119.68 138.80 153.37

Number of Employees 273

356 472597

651 686

Number of Branches

1415 19 24 24 24

Book value per Share 1000 1000 1000 1000 1000 1000

Earning per Share 147 555 783 331 143 24

Source: Annual Report 2005

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2.7: FOREIGN EXCHANGE

No. of AD Branches 09No. of Forwarding Branches 15

No. Of Corresponding

Countries 108Bank 122

Branches 3575NostroA/Cs 23

Taka Drawing ArrangementBank -

Ex. House -Credit Line 05No. of C & F Agents 13

Source: Annual Report 2005

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PART-Three

General Concept AboutGeneral Concept AboutForeign Exchange Operation Foreign Exchange Operation

This part describes some conceptual issues regarding foreign

exchange market and transaction in our country on the theoretical

basis covering the following points-

Concept of Foreign Exchange

Local Regulation for Foreign Exchange

International Regulation for Foreign Exchange

INCO Terms 2000

Foreign Exchange Market

Method of Foreign Trade payment

Bank’s involvement in Foreign Trade Payment

Letter of Credit Operation

Foreign Correspondent

Exchange Rate & Their application

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3.1: CONCEPT OF FOREIGN EXCHANGE

In simple word, foreign exchange means foreign currency. In other word, it means exchange or

conversion of one currency with/ into another currency. Basically Foreign Exchange deals with

foreign currency as well as currency instrument such as Draft, Traveler cheque, Bill of

exchange, MT, TT and PO etc accepted, drawn, made or issued under clause 13, Article 16 of

the Bangladesh Bank Order, 1972 and foreign trade- import and Export.

No country is self sufficient in this world. Every one is more or less depend on anorther, for

goods or services, Bangladesh is over populated country in the world. We always deficit in food

grains and other essential commodities which have to import from abroad and pay foreign

currency to supplier in foreign country. On the other hand, our country export jute,Tea,Shrimp,

RMG etc to other country and a huge number of manpower is working abroad and earn foreign

currency, which they remit to our country. From those earnings use to settle import claims.

Bangladesh always deficit in trade balance which effect on Balance of payment. For this reason

foreign currency is called the life blood of a country. At the time of foreign currency transaction

we face various problems which involves high financial risk. To over come the problems and

smooth operation in foreign exchange, we should know about foreign exchange transaction

why, when and how it happen and what are risk related area to Foreign Exchange Transaction.

There are mainly two situations in the foreign exchange operation. One is Currency Dealing, which is related with buying, and selling of foreign currency and another is Trade Transaction which is required for settlement of import and export obligation.

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3.2: LOCAL REGULATION FOR FOREIGN EXCHANGE

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

3.2.1. Foreign Exchange Regulation Act :

Foreign Exchange Regulation (FER) ACT 1947 enacted on 11th May 1947 in the British

India, provides the legal bars for regulating the Foreign Exchange this ACT was accepted in

Pakistan and lastly in Bangladesh. It extends to the whole Bangladesh and also applies to

all citizen of Bangladesh whom are lives in or doing of any where outside of Bangladesh.

3.2.2. Guidelines for Foreign Exchange Transactions:

This publication issued by Bangladesh Bank in the year 1996 in two volumes. This is

compilation of the instructions to be followed by Authorized Dealers in Transaction

regulating to Foreign Exchange.

3.2.3. Foreign Exchange Circular :

Bangladesh Bank issues F.E. Circular from time to time to control the Export Import business and remittance to control the Foreign Exchange.

3.2.4. Export Import Policy :

Ministry of Commerce issues Export Policy and Import policy providing formalities for Import

and Export business. Now Import and Export Policy 2006-2009 in face.

3.2.5. Public Notice:

Some times Chief Controller of Import and Export (CCI&E) issues public notice for any kind

of change in Foreign Exchange transaction.

3.2.6. Instruction from different Ministry:

Different Ministry of the Government sometimes instructed the Authorized dealer directly or

through Bangladesh Bank to follow something required for the Government.

3.2.7. Shariah Principles:

Along with all the above guidelines and regulations of Islamic Bank also bound to follow the

principle of Islamic Shariah in Foreign Exchange transaction.

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3.3: INTERNATIONAL REGULATION FOR FOREIGN EXCHANGE

There are also some international Organizations influencing our Foreign Exchange

tansaction, Few of them are discuss below:

3.3.1. World Trade Organization (WTO):

World Trade Organization established on January 1995. GATT( General

Agreement on Tariff and Trade) was established on 01.01.1948. After completion

of its 8th round, the GATT was abolish and replace by WTO.The organization has

vital role in International Trade.

3.3.2. International Chamber of Commerce(ICC):

International Chamber of Commerce is a world wide non Government organization

of thousands of companies.It was founded in 1919. ICC National Committees

through out the world present. ICCviews to their Governments and alert Paris

Head Querters to National Business concerns. ICC issued some publications like

UCPDC, URR,URC,ISBP etc, which are being followed by all the member

countries. There also a international Court of Arbitration to solve the International

Business disputes. Some publications discussed below:

3.3.3. UCPDC 600:

To avoid problems and misunderstanding amongst International Traders in handling their Imoprt/Export business through Letter of Credit(L/C). International Chambers of Commerce (ICC) to keep uniformity in the international Trade introduces UCPDC law in 1933,susequently with the changed circumstances, ICC rules revised and published in the year 1951,1962,1974,1983, 1993 and

2007 respectively. UCPDC 2007 revision ICC publicationNo.600 is effective from 1st

July 2007 more than 180 countries in the World are member of ICC. Since its inception,the UCP has remained a vital component of international Trade.

3.3.4. Uniform Rules for Reimbursement ICC Publications No.525:

Uniforms Rules for Bank to Bank Reimbursement under Documentary Credit, ICC URR enforced as on July 01,1996. The matter relating to URR is issuing bank, Reimbursing Bank, Claiming Bank, Reimbursement Undertaking, Reimbursement Authorization etc. It consist of four Chapter comprising 17 Articles.

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3.3.5. Uniform Rules for Collection ICC Publications No.522:

Collection means the handling of documents by the Bank in order to obtain payment acceptance/payment. URC the ICC Publication No.522 revised 1995 was first published in 1956, the rules which is now in force almost through out the world. There are 26 Articles in URC-522 classified in 5 chapters. We find several parties relating to collection as Principal, Reimbursing Bank, Collecting bank, Presenting Bank, Drawee etc. Collection may be clean or documentary which is related to L/C.

3.3.6: INCO terms - 2000

INCO terms simply mean International Commercial Terms. These are also known as Contract

Terms or Trade Terms or Delivery Terms or Sales Terms or Purchase Terms. These terms are

used in the field of international trade or foreign trade. These terms have been prepared and

named by the International Chamber of Commerce(ICC) Paris, France and published in 1936.

The purpose of INCO terms is to provide a set of International rules for the interpretation of the

important terms used in Foreign Trade contracts i.e. import & export. The INCO terms 2000

publication came up to effect on January 2000. These terms are accepted and used throughout

the world as simple and reliable terminology for avoiding misunderstanding between buyer &

seller. There are thirteen INCO terms divided in to four categories and four groups. But in our

country, FOB (free on board) for export purpose and CFR (Cost & Freight) & CIF (Cost,

Insurance and Freight) for import purpose are mostly used. There are thirteen INCO TERMS

divided into four Categories and four groups. These are as follows:

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Categories Group Terms InctermsDeparture E 1. The seller makes the goods available to the buyer at

the seller’s own premise.

2. The seller should handover the goods to the buyer at

the sellers premises.

EXW

EX Works

Main Carriage

unpaid

F 1. The seller is called upon to deliver the goods to

a carrier appointed by the buyer.

2. The seller should hand over the goods for

carriage as instructed by the buyer, Since the

buyer would make the contract of carriage and

name the carrier..

FCA- Free Carrier

FAS- Free Alongside Ship

FOB- Free On Board

Main Carriage

unpaid

C 1. The seller has to contract for carriage but

without assuming the risk of loss of or damage

to the goods or additional costs due to events

occurring after shipment and dispatch.

2. The seller should contract for carriage and put

the goods on Board the carriage.

CFR- Cost and Freight

CIF- Cost Insurance and

Freight

CPT- Carriage Paid To

CIP- Carriage and

Insurance Paid ToArrival D 1. The seller has to bear all cost and risk needed

to bring the goods to the country or destination.

2. The seller should handover the goods to the

buyer’s country.

DAF_ Deliver at Frontier

DES-Deliver Ex-Ship

DEQ- Deliver Ex Quay

DDU- Deliver Duty Unpaid

DDP- Deliver Duty Paid

3.3.7: International Standard Banking Practice(ISBP)

International Standard Banking Practice (ISBP) for examination of documents under

documentary Letter of Credit approved by the ICC Banking Commission published in January

2003, ICC Publication No.645.The International Standard Banking practices are consistent with

the UCP and the opinion and decisions of the ICC Banking Commission. The document does

not amend UCP. It explains how the practices articulated in the UCP are to be applied by

documentary practitioners. This publication reflects international standard banking practice for

all parties to a documentary credit.

3.3.8: Authorized Dealer:

24


As per section of foreign Exchange Regulation ACT.1947 means a person for the time being

authorised under section 3 to deal in foreign exchange. In other words Authorized Dealer

means a Bank authorized by Bangladesh Bank to deal in Foreign Exchange under the

FERAct.1947.

3.3.9: License of Authorized Dealer:

To get the authorized dealership, a Bank will apply to the General Manager, Foreign Exchange

Policy Department, Bangladesh Bank, Head Office, Dhaka complying 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 Bangladesh Bank.

4. The Bank will commit to deal with Foreign Exchange with in the limit and will submit

periodical returns as instructed by Bangladesh Bank.

3.3.10: Function of Authorized Dealer:

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 Authorized Dealer:

1. Exchange of foreign currencies.

2. to make arrangement with Foreign Correspondent.

3. Handling of Inward and Outward Remittance

4. Import and Export

5. Investment in Foreign Trade

6. Opening & maintenance with Foreign Bank under intimation to Bangladesh Bank.

At present Social Investment Bank Limited has 25 Branches. Among those Branches,07*** are Authorized

Dealer Branch. As a Authorized dealer, bank can operate all kind of Exchange Business. The main transaction

can be divided under three categories:

1. Import

2. Export &

3. Remittance.

25


3.3.11: Foreign Exchange Market:

The foreign exchange market is a market where conversions take place. In our country Inter

Bank Foreign Currency/Exchange Market operated through electronic media using Dealing

Room of Bank/Financial Institution for buying and selling of foreign currency among banks and

other financial institutions at floating rate based on market demand and supply. Only authorized

dealers deal directly with each other in foreign exchange markets that are licensed to operate in

the foreign market by the Bangladesh Bank. Authorized dealers who are generally commercial

bank on behalf of their customer handles all the foreign transactions.

3.3.12 :Types of Foreign Exchange Market:

There are three types of foreign exchange market existed in our country-

Spot Market – Where exchange of one currency with another takes place on the

spot.

Forward Market – Where actual delivery of the currency will happen at a future date

as per agreement of present date.

Option Market – Where in a contract is made specifying the right to buy or sell a

standard amount of foreign currency within a specific date at a certain price.

3.3.13 :Term Used in Foreign Exchange Market Operation:

Usually three terms used in our foreign exchange market operation. These are-

Arbitrage – Spot purchase of FC where the price is low and to sell where the price is

high i.e. Buy low and Sell high. Currency Arbitrage due to price difference in two

financial centers.

SWAP – Purchasing FC on the spot for selling Forward or selling spot for purchasing

forward. Due to difference in interest rate of the concerned currencies.

Hedging – to avoid exchange risk, agreement is made to day to buy or sell FC to be

delivered at some future date at a rate agreed upon to day.

3.3.14:TRADE TRANSACTION

26


Mainly trade transaction is of two types. One is local trade transaction, which made with in a

country and another is foreign or International trade transaction, which happened between two

countries.

International Trade again can be classified into two categories. One is export and anther is

import that will be discussed in next part in details.

3.3.15 :METHOD OF FOREIGN TRADE PAYMENT

In International trade, a number of modes of payment being used for receiving trade proceed.

These are: cash in advance, open account, documentary collection and documentary credit.

Among these, documentary credit has been observed to be mostly in our country. The

procedures and pros and cons o f cash of the payment methods have been discussed in the

sections that follow.

Cash in Advance:

In this method of payment, the buyer places the funds at the disposal of seller or to shipment of

goods in accordance with the sales/purchase contract. This may be acceptable to a first time

buyer who trusts seller to deliver the goods. Since this method of payment is expensive and

contains a lot of risks on the part of buyer; they may not be willing to accept such terms of

payment. Thus it is rarely used in Bangladesh.

OOPENPEN A ACCOUNTCCOUNT S SYSTEMYSTEM ::

27

Trade

Local Trade

Foreign Trade

Export

Import


This is an arrangement between the buyer and seller whereby the goods are manufactured and

delivered before payment is required. Under this arrangement seller can avoid a lot of banking

charges and other costs. But he has no security that he will be receiving payment in due course.

For this reason, the exporter may not be willing to accept this sort of mode of payment. This

system is also uncommon in Bangladesh.

DOCUMENTARY COLLECTION :

This is an arrangement where by the goods are shipped and the seller draws a draft or bill of

exchange on the buyer and documents are sent through the seller’s bank with clear instructions

for collection through one of its correspondent banks. In this method, the exporter will hand over

the shipping documents to his bank and ask it to forward the documents to the buyer’s bank.

This is called cash against documents. The exporter can also give the buyer trade credit by

drawing a bill of exchange on him and requiring him to accept the bill when he collects the

documents. This is called documentary collection against acceptance.

Though documentary collection is inexpensive and simple to arrange, exporter is required to

ship the goods without an unconditional guarantee or promise of payment by the buyer.

However as compare to cash in advance and open account, documentary collection is much

more common means of payment.

28


DOCUMENTARY CREDITS

This is the mostly frequently use method of payment in International trade. Under this

arrangement the buyer’s bank issues letter of credit (L/C), this will be discussed in the next

section in details. Though this is the most costly but it is often considered the most secure buyer

is assured that the seller will be paid only when the documents representing goods have been

delivered. On the other hand, the seller is assured that the buyer will receive the documents for

ultimate of goods only when payment has been made.

3.3.16: BANK’S INVOLVEMENT IN FOREIGN TRADE

Banks play a vital role by minimizing the risk of two parties, namely buyer and seller. In fact,

without the help of banks we cannot think about a congenial international trade environment.

Now the question comes how banks help international trade. We know that in a local trade there

is a chance to know about each other. But in international trade, the involved parties stay two

distant places.

For a buyer the following risks are involved-

Risk of non-delivery of goods

Risk of receiving sub standard goods

Risk of fraud in goods

For the seller the following risk is involved-

Risk of non-payment

To reduce the aforesaid risks an independent system is introduced which is letter of credit (L/C)

that provides a safeguard to the buyers as well as to the seller in an international trade. Actually,

banks play a key role in L/C operation to getting into two parties and bind them.

29


3.3.17: LETTER OF CREDIT OPERATION

In simple word, a letter of credit is a conditional undertaking given by a bank. In board sense, A

letter of credit is a written assurance of Bank, issued on the instruction of the applicant to the

beneficiary, to pay specific amount on agreed currency, provided beneficiary submits the

documents in conformity with the terms and conditions of the credit within the prescribe

deadlines.

However, Uniform Customs and Practice for Documentary Credit (UCPDC) Revision,

Publication No. 500 defines in its Article No.2 that documentary credit mean any arrangement

whereby a bank (issuing bank) acting at the request and on the instructions of a customer (the

applicant) or on its own behalf

Is to make payment to or the order of a third party (the beneficiary) or is to accept

and pay bills of exchange (drafts) drawn by the beneficiary or

Authorizes another bank to effect such payment, or to accept and pay such bills of

exchange (Drafts)

Authorizes another bank to negotiate, against stipulated documents provided that the

terms and conditions are complied with.

3.3.18 : Type of LETTER OF CREDIT

As per rules of UCPDC-600 (Article-6) a documentary credit may be either

Revocable L/C

Irrevocable L/C

Revocable L/C which can be amended or cancelled by the issuing bank at any

time without prior notification to the seller.

Irrevocable L/C, which cannot be amended or cancelled without the agreement of

both parties.

30


Besides these there are several special types of L/Cs as under-

Confirmed L/C which confirmed by another bank in addition to that of issuing

bank.

Transferable L/C which can be transferable by the original beneficiary to one or

more subsequent beneficiaries.

Back-to-Back L/C which is opened against lien on valid exports L/C to import only

raw materials.

Restricted L/C which cannot be negotiated in any bank rather than a specified

bank mentioned in the L/C

Red Clause L/C, which authorizes the negotiating bank to provide pre-shipment

advance to the beneficiary, typed in red ink.

Green Clause L/C, which authorizes negotiating bank to grant advance to the

beneficiary for storage facility at the part is addition to pre-shipment advance.

Revolving L/C, which provides for restoring the credit to the original amount after

it has been utilized.

3.3.19 : PARTIES INVOLVED IN LETTER OF CREDIT

There are number of parties involved in a L/C. The involved parties to a L/C are as under:

Importer/Applicant-Buyer who applies for opening an L/C

Exporter/Beneficiary-Seller in whose favor L/C is issued

Issuing Bank-It is the bank which opens/issues a L/C on behalf of the importer.

Confirming Bank- It is the bank which adds its confirmation to the credit at the

request of issuing bank.

Advising Bank/Notifying Bank-It is the bank through which L/c is advised to the

beneficiary.

Negotiating Bank-It is the bank, which negotiates bill and purchase bill from

exporter.

Paying/Accepting Bank-It is the bank on which bill is drawn as per condition of

L/C and who confirm the maturity period.

31


Reimbursing Bank- It is the bank which reimburses the negotiating bank after

getting payment instructions from issuing bank

3.3.20 : Flow Chart of L/C Operational Mechanism

Diagram- 1.1: Flow Chart of L/C Mechanism

3.3.21 : DOCUMENTS INVOLVED IN LETTER OF CREDIT

Commonly known L/C is actually “Documentary Letter of Credit”. From the very name of the

credit, it is implied that the credit is extended against documents. The issuing bank stipulated a

list of documents, which are to be submitted to the negotiating bank for negotiation (or to the

issuing/accepting bank for acceptance)

As per UCPDC 500, there are four types of documents involved in documentary letter of credit,

which are as follows:

Transport Documents

Insurance Documents

Commercial Invoice

Other documents

All the above-mentioned documents are collectively known as Shipping Documents

32

Port

Exporter/Beneficiary

Importer/Applicant

1. Purchase contract/ Indent ./ proforma invoice

5. Goods are shipped

Advising/

Correspondi

ng Bank

4. Advise about L/C3. Forward L/C to advise

6. S

ubm

it

doc

um

ents

2. A

ppl

y fo

r L

/C

10. R

elea

se

docu

men

t

L/C Issuing

Bank

Negotiating

Bank

7. Forward Shipment Document

Reimbursin

g Bank

8. Instruction to payment 9. Make Payment

11. Release goods from port


TRANSPORT DOCUMENTS

Transport documents are the documents of title of goods that means it acts as the evidence of

contract for the carriage or transportation of the goods between the shipper and the carrier

such as Marine/Ocean Bill of Lading, Air way Bill, Truck receipt and so on.

BILL OF LADING / TRANSPORT DOCUMENTS

Kinds of Bill of Landing :

01 Clean B/L Goods have been loaded on board/ shipped on a named vessel Transhipment is no allowed in this case.

02 Combined Transport B/L

Carriage of goods more than one mode of transport. Transhipment is normally allowed in this case.

03 Stale B/L It has been held too long before it is passed on a bank or to consignee

04 Short Form B/L In which the detailed conditions of transportation are not listed in full.05 Through B/L Covering goods being transhipped inter route. This covers several

mode of transport.06 Straight B/L It is issued to the name of certain party that cannot be transferred

through endorsement.07 Charter party

B/LIt is not liner vessel & covers the whole voyages in his own direction & own risk.

08 Port / Custody B/L

It is issued by port officer / warehouse supervisor stating that goods have been received for shipment.

09 Clause B /L Which expressly declares a defective condition10 On-Deck B/L It states that goods are/will be loaded & carried on deck.

Insurance Documents:

International trade is very much risk hidden. So it is necessary to insure the goods against the

risk of loss or damage. The documents in which insurance is embodied is called insurance

cover note.

Commercial Invoice:

Another important document of documentary credit operation is the invoice or commercial

invoice. It is also called the seller’s bill for merchandise. Usually a commercial invoice is signed

by the exporter/seller and submitted in a number of sets as desired by the importer/buyer.

INVOICE ( SELLER`S BILL )

33


The invoice is the list of articles containing their particulars and prices. It is also bookkeeping instruments for the importer.

i. The description of the good / Merchandise in invoice should corresponds with to that given in the L/C.

ii. The invoice should be signed by the beneficiary or by the assignee and it should be prepared strictly as per credit terms and condition of L/C be incorporated in the LC.

iii. The amount of invoice should be expressed in the currency of the L/C.

iv. The invoice should specify quantity clearly and the word like approximately, about, nearly be avoided.

v. The invoice should contain brief reference to transport documents and disclose basis of pricing (FOB, CFR, CIF etc.).

vi. The invoice docs not include extra ordinary expense such as cable, storage, commission etc. unless specified in the credit.

vii. The relevant LCAF number, Bangladesh Bank registration number, etc. are correctly incorporated in the invoice.

Type of Invoice :

01 Commer-cial Invoice

There is no standard form of invoice. Each exporter designs commercial invoice form in his own way. A commercial invoice is required to be duly signed by the exporter.

02 ConsularInvoice

It is made out on a prescribed format certified by consular office of the importing country stationed in the exporting country. It is also called legalized invoice.

03 CustomInvoice

These are specific form supplied by the customs office of the respective importer duly filled & signed by the shipper & serve the purpose of making easy entry of the merchandise into the importing country.

04 CertifiedInvoice

It is an invoice bearing a signed statement by some one in the importers country who have inspected the goods & found them in accordance with those specified in the contract.

05 Pro formaInvoice

It is a form of quotation to a potential buyer.

34


OTHER DOCUMENTS:

Other documents indicate the documents required in documentary credit operation other than

the transport documents, insurance documents and invoice. These are may be of different types

and natures depending on the objectives conditions of the credit. As per UCPDC, the other

documents, which are to be accompanied with the credit, must be stipulated in the credit and

they must be consistent with each other. Some common other documents are mentioned below-

o Packing list

o Weight list

o Certificate of origin

o Inspection certification

o Beneficiary’s certificate

o Certificate of analysis

o Shipping agent’s certificate

L/C- SHARIAH ISSUES:

SIBL opens L/C / back to Back L/C against the letter of authority obtained from the

importer/exporter to utilize his/their license/authority for the import ad undertake to

purchase the goods so imported/purchased by the bank for ultimate manufacturing

export of the products by the buyer (exporter) immediately.

After the bank shall sell opening the L/C the consignment to the client under Bai-

Murabaha/Bai-Muazzal mode of investment for a period on execution of necessary

charge, documents including Bai-Murabaha/Bai-Muazzal import agreement and Trust

Receipt (T/R), mortgage documents and others.

It may further be mentioned that since above the client shall be the owner of the

consignment by way of execution of Bai-Murabaha agreement/Bai-Muazzal (import)

agreement may sell the goods/products procured/manufactured with the imported

goods as owned by him/them to the bank.

The seller sells certain specific goods permissible under Islamic Shariah and the law of

the land.

The price once fixed as per agreement and deferred can’t be further increased

Therefore it will not be buy back and shall not impede Shariah Principles in any way.

35


3.3.22 : FOREIGN CORRESPONDENT

The term “Foreign correspondent” in banking sector can be defined in two of ways-

Foreign Correspondent Relationship

Accounting Relationship

3.3.23 : FOREIGN CORRESPONDENT RELATIONSHIP:

No bank has its own branch network all over the world. To operate International banking

business, it must depend on other foreign banks in different countries. Without establishing

correspondent relationship, a bank can not advise its import L/Cs to the foreign beneficiaries,

getting export L/Cs or run remittance business (inward/outward). Correspondent Relationship is

a relationship established between two banks under which each bank act as agent bank of their

counterpart bank to facilitate all sorts of foreign exchange business.

Before establishing correspondent relationship with a new bank generally following factors to be

considered:

Selection of a bank before establishment of Correspondent Relationship

Rank and Status of Banks

Financial Statement Analysis

Obtaining Credit Report

Country Risk Analysis

After selection of a bank as foreign correspondent, it is necessary to send formal proposal for

establishment of correspondent relationship with the following documents

Draft Schedule of Agency Arrangement

Last three years Annual Report

Terms and Conditions

Other Publications (if any)

3.3.24 : ACCOUNTING RELATIONSHIP:

It is not mandatory to maintain an account with each correspondent bank. It depends on the

requirement of the bank. Since foreign exchange transaction involve movement of fund from

36


one place to another, one bank to another and one account to another so each bank specially

AD bank has to open and maintain foreign currency account with their correspondent/branches

aboard for settlement of their international transactions. These account are called foreign

exchange accounts.

Foreign currency accounts are frequently termed as ‘Nostro’, ‘Vostro’ and ‘Loro’.

Nostro Account:

Notro account means “our account with you”. A Nostro account is a foreign currency account of

a bank maintained with its foreign correspondents abroad. For example- IBBL, Dhaka’s US

dollar account maintained with Citibank, N.A. New York, USA. From the point of view of IBBL it

is their Nostro account.

Vostro Account:

Vostro account means “Your account with us”. The account maintained by a foreign

correspondent in a bank of particular country is known as Vostro account. For example- State

Bank of India’s Taka account maintained with IBBL. From the view point of IBBL, it is a Vostro

account held for State Bank of India.

Loro Account:

Loro account means “their account with you”. Account maintained by third party is known as

Loro account. Suppose SIBL maintained a Nostro account with AMEX Bank N.A. New York and

simultaneously SIBL have also maintained a Nostro account with AMEX Bank ,N.A. from the

point of view of SIBL’s Nostro account with AMEX Bank regarded as Loro account.

All authorized dealer banks in Bangladesh, may open and maintain accounts with their

correspondent aboard without prior approval from Bangladesh Bank. The following points are to

be considered by any bank in Bangladesh before opening of a Nostro Account:

Whether the proposed Nostro account will be interest bearing

Whether any minimum balance would be required

Whether overnight investment of surplus fund will be made

How statement of accounts will be sent

Whether there will be transactions/account maintenance charges etc.

Whether overdrawn facility will be given

37


Considering the above, once two banks have reached an agreement the next steps is to open

said account. After opening of the accounts intimation is to be sent to Bangladesh Bank within

15 days from the date of opening of such account.

3.03.25: EXCHANGE RATE AND THEIR APPLICATION

Every country has its own currency and in international transaction it requires conversion of one

currency into another. The rate of exchange needs to be settled before conversion of one

currency with another currency and thus the rate at which the conversion is took place is called

exchange rate. The bank quotes two rates, one for selling of foreign currency and other for

buying of foreign currency. The selling rate is the rate at which bank sells foreign currency to

customer and buying rate is the rate at which bank purchases foreign currency from the

customer. The difference between bank’s buying rate and selling rate constitute its dealing

spread or the exchange profit.

Exchange Rate Quotation

The rate of exchange between two currencies is quoted in two ways:

Direct Quotation Indirect Quotation

Direct Quotation

Direct exchange rate is expressed as the price per unit of foreign currency in terms of home

currency. For example- USD 1 = TK.69.45. In this arrangement the unit of foreign currency is

kept constant and home/local currency is varied.

Indirect Quotation

When the unit home currency is kept constant and the exchange rate is expressed as many unit

of foreign currency this is called indirect quotation. For example- TK. 1 = USD.013. Under this

arrangement, home currency is kept constant and foreign currency is varied.

[Usually Direct Quotation being followed by SIBL.]

TYPE OF SELLING RATE OF AUTHORIZED DEALER (SIBL) TO PUBLIC:

38


T.T & O.D (TELEGRAPHIC TRANSFER AND ON DEMAND) RATE:

The T.T & O.D selling rate is used for issuance of Foreign Demand Draft, Travelers Cheques,

Mail Transfer and Telegraphic Transfer. This rate is used for outward foreign remittance from

our country to other country.

B.C (BILL FOR COLLECTION) SELLING RATE:

B.C selling rate is applied for transactions, which involves handling of documents by the bank

against payment of import bills. We determine this rate by adding cushion with T.T & O.D Rate.

TYPE OF BUYING RATE OF AUTHORIZED DEALER (SIBL) TO PUBLIC:

T.T CLEAN RATE:

This rate is applicable for purchase of TTs or any other clean instrument where cover fund

already received by beneficiary’s bank. TT Clean rate will also apply for buying of foreign

currency bank draft, mail transfer or any other instrument against which the issuing bank has

already paid the value to beneficiary’s bank.

T.T (DOC) RATE:

This rate is applicable for execution of instruction to pay a sum of money to a certain person on

presentation of some documents (invoice, bill of lading, bill of exchange etc.), which makes a

documentary transaction. Due to handling of some documents, bank recovers handling charges

on transaction.

OD SIGHT EXPORT BILLS RATE:This rate is quoted for the transaction of purchase of export bills drawn at sight. In purchasing

the export bill bank makes payment in local currency to exporter immediately but foreign

currency to be received at foreign center few days later. So the OD Sight buying rate is arrived

by loading the TT Clean buying rate with interest at current rate for transit period.

O.D Transfer/Cash & T.C. Rate:

This rate is quoted by bank for purchase of instruments other than export bills and TT’s such as

cash currency, personal cheques, drafts, T.C.s etc.

OTHERS TYPE OF FOREIGN RATE:

39


Cross Rate: A cross rate is an exchange rate which is calculated from two other

rates. For instance Taka/PDS rate can be calculated on the basis of cross rate

between USD/Taka and USD/PDS.

Spot Rate: The normal rate quoted in the foreign exchange market is the spot

rate. This is the basic rate of exchange.

Cash Rate: This rate quoted for the transaction to be settled today

Forward Rate: The forward rate for a currency is the price at which the currency

can be bought or sold for delivery on a future date.

Here it may be noted that only spot buying and selling undertaken by SIBL. No forward

or SWAP (advance buying /selling) undertaken by SIBL due to Shariah obligation.

Telquel Rate : Long bills presenting for discounting of which a part of usance have already run and in this case premium / discount is taken into account only for the remaining period of maturity of the bill i.e. the quoted for the bill with broken period of usance are called Telquel rate. For example a 90 days bill is presented for discounting 50 days after acceptance. If bank quotes a rate based on TT buying rate after loading a margin equivalent to amount of interest / profit for the broken period (90-50)=40 days plus grace period if any.

Long Rate: Long rate is used for purchase of usance bill / long bills. In our country, the transactions usually involved, purchase of Export Bills payable 30, 60, 120 and 180 days after sight i.e. incase of discounting the bills.

Telquel Rate : Long bills presenting for discounting of which a part of usance have already run and in this case premium / discount is taken into account only for the remaining period of maturity of the bill i.e. the rate quoted for the bill with broken period of usance are called Telquel rate. For example a 90 days bill is presented for discounting 50 days after acceptance. If bank quotes a rate based on TT buying rate after loading a margin equivalent to amount of interest / profit for the broken period (90-50)=40 days plus grace period if any.

Basis of Quoting Rate by Authorized Dealers :

The basic rate is the TT rate and this rate does not involve any loss of interest/ profit. All other rates ate quoted based on TT rate, depending on the nature of transaction and its ancillary costs associated with the transaction, for the purpose of conducting its business of buying and selling of foreign currency.

Selling Rate : TT selling rates are used for remittance from one country to another by telegraphic transfer and payment involves no loss of interest/ profit . BC selling rate is applied against import, which require some extra work. Therefore the rate represents the bank’s basic TT selling rate plus the costs involved in the handling of documents.

40


Buying Rate : For buying foreign currency from the customer bank will make payment to the customer at the TT ( buying ) rate, TT rate will also apply for buying a foreign currency bank draft, mail transfer or any other instrument against which the issuing bank has already paid the value to the drawer bank’s account with itself or another bank even though the money is not transferred through TT or Telex.For buying an export bill, a bank draft or a personal cheque drawn on an account abroad, the bank pays the money immediately to the customers, but needs to wait for a few days before being able to collect the proceeds to recoup the money. Purchase of these instruments in effect, involves provision of short term credit to customer. These are known as OD ( On Demand ) buying rates. A still inferior rate is quoted for buying an usance bill. The rate here will depend on the interest / profit element for waiting period plus additional costs on account of handling and postage / telex cost.

41


PART-FOUR

FOREIGN EXCHANGE FOREIGN EXCHANGE BUSINESS BUSINESS OF SIBLOF SIBL

xvii.Foreign exchange business consists of three categories of business that are import, export and remittance. So in foreign exchange department of Social Investment Bank Limited there are three separate sections to handle foreign exchange business. This part focuses on overall operational activities, procedures, accounting system of these three sections in three separate sections.

Section-A describes import business procedure. How a import L/C opened,

what the procedure followed and document maintained by bank, how bank

make payment settlement, how shipping documents are handed over –all

necessary activities including accounting procedure are presented in this

section.

Section-B focus on export business procedure covering overall procedures

of export especially for RMG products and export financing offered by SIBL,

their accounting procedure of all transactions related export business.

Section-C describes remittance business, FC account of SIBL. In this

section type of remittance, fund transferring procedure & Channel, payment

system for inward remittance and also issuing procedure for outward

remittance are clearly defined.

42


xviii.

Import Section

4.1: AN OVERVIEW OF IMPORT BUSINESS

Imports are foreign goods and services purchased by consumers, firms & governments in

Bangladesh. In other words Import means lawfully carrying out of anything from one country to

county for Buying. It will be occurred according to the Government law.

To import, a person should be competent to be an “importer”. According to Import & Export

Control Act, 1950, the Office of Chief Controller of Import and Export provides the import

registration certificate (IRC) to the importer.

4.1.1: IMPORT POLICY ORDER

Based on the needs of commodity and availability of finance, Government declares policy. For

import of goods for a particular period having approval from the National Assembly is defined as

Import policy order. Import policy is a guideline of a set of rules envisaged by Government

Authority i.e. the Ministry of Trade and commerce for the registered importer for import of goods

inside the country. Earlier import policy has been formulated for two years. But present import

policy order has been formulated for 5 (five) years, Effect from the 14 th June 1999 to 30th June

2003 and valid till announce of new import policy order. If require Government can revise the

policy in each every years.

43

A


4.1.1: CLASSIFICAIONTION OF IMPORTER

Importers are those who ate authorized by the import Trade authority i.e. & CCI & E for import of

goods essential for consumption or for production purposes. There are mainly three types of

importers.

Commercial Importer

Industrial Importer

Importers under Wage Earner Scheme

Commercial Importer

It means an importer registered under the importers, exporters and indention registration order

1981 who import goods from sale, when issued to commercial importers, given the category

held by him with ITC classification and public notice against which they are admitted into import

trade.

Industrial importers :

When issued to an industrial consumer, gives the items of import as raw materials and packing

materials and spare parts, the value of entitlement and ITC classification.

Importers under WES :

It means registration importers who import only under the WES. In this scheme, the foreign

exchange required for import of goods is met out of the remittance made. By Bangladesh

national earning wage abroad. WES importers can be importing all permissible items a declared

by the importer also can import under WES.

4.1.3: REGISTRATION OF IMPORTER

As per import & Export control Act. 1950 no person can indent, import or export any goods into

Bangladesh except kin case of exemption issued by the Government of the peoples Republic of

Bangladesh. Violation of this order is punishable with fine under the provisions of Sea Customs

Act 1878 as applied by sub section (3) of Section 3 of this Act.

44


PROCEDURE OFOR OBTAINING IRC(IMPORT REGISTRATION CERTIFICATE)

Through public notice or import policy the chief controller of imports & Exports invites

applications usually for registration of importers. The following papers/ documents are required

for submission to CCI&E or area office of CCI & for import registration certificate:

Application form.

Nationality Certificate.

Income Tax registration Certificate with GIR.

Trade License from the municipal or local Authority.

Membership Certificate.

Partnership deed (for partnership firm)

Certificate of Registration with the register of joint Stock Co. & Articles

and Memorandum of Association in case of Limited Co.

Bank Certificate.

Documentary evidence for business existence.

Original copy of Treasury Challan being payment of registration fees.

Original copy Challan for passbook.

Other documents if any required by the CCI & E.

Ownership’s documents or Rent receipts of the place of Business.

Survey clearance from the relevant Authority.

The nominated bank of the application will examine the papers/documents s& verity the

signature of the applicant and forward the same to the concerned office of the CCI & E with

forwarding schedule in duplicate through bank’s representative. The duplicate copy of the same

bearing the acknowledgement of CCI & E office of the receipt of the documents is back by the

bank and is preserved.

If the documents are found in order and the CCI & E is satisfied the IRC is issued to the

applicant and sent direct to the nominated bank. The passbook is also issued by the CCI & E

simultaneously to the importer and sent direct to the nominated bank.

45


IMPORT RELATED FEES:

1. Six categories of importer registration renewal fees are as under

CategoriesYearly import upto

(Tk.)

Registration

Fees (Taka)Renewal

A 1.00 lac 1,000/- 1,000/-B 5.00 lac 2,000/- 2,000/-C 15.00 lac 3,000/- 3,000/-D 50.00 lac 5,000/- 5,000/-E 100.00 lac 10,000/- 10,000/-F Above 100.00 lac 15,000/- 15,000/-

2. Surcharges for different years are as under

1 year late TK 50/-

2 year late TK 100/-

3 year late Tk 200/-

4.1.4: PROBLEM TO OBTAIN IRC

We know every importer must have Import Registration Certificate (IRC) from Chief Controller of Import and Export (CCI &E). After fulfill their requirement i.e. which documents required for issuance of IRC they issue the same in favour of Importer. But submitting required paper properly the importer not get IRC not fulfilling the illegal demand of the officials of the CCI&E office.I know this information to talk with some Importer of my Branch. At present government authority issued a circular that every IRC must renewed in a pass book which should be taken through depositing Tk.200.00 by challan from CCI&E Office. But each importer claim that more than Tk.100.00 they have to pay to the CCI&E official as their office expenses.

46


4.1.5: O IMPORT FLOW CHART

xix.xix. xix.

xx.xx. xx. xx.

47

Exporter obtains IRC from CCI & E and arrange others important documents to import

Proforma invoice received from exporter & accepted & signed by importer

Apply to the bank for opening L/C along with submission of necessary documents

Bank opens L/C and transmits to the exporter through advising bank

Issuing bank received documents from negotiating bank after shipment

Documents scrutinized by issuing bank & go for lodegement and make payment settlement

Document retired by importer and submitted to the custom through C& F agent to clear goods


4.1.6: OPERATIONAL MECHANISM OF IMPORT SECTION

Here this section focused only on the activities what the authorized dealer branch of IBBL in the

import section does. These activities can be divided in to five major stages.

Opening of Letter of Credit (L/C)

Examination & Scrutiny of Import Documents

Lodgment

Payment Settlement

Retirement of Shipping Documents of Import L/C

Reporting

4.1.7: PROCEDURE FOR OPENING LETTER OF CREDIT

After obtaining IRC from CCI&E by paying specified registration fees and submitting necessary

papers, importer will go for purchase contract with supplier. On receive of proforma invoice or

indent contract importer will sign in the proforma invoice and mark as “received & accepted”.

After then importer will have to collect letter of credit authorization (LCA) form from the

authorized dealer bank.

1. Required Documents submitted with the preliminary request by Importer

An importer first has to open a current a/c in the bank wherein he is interested to open import

L/C. After opening an a/c, he must place a preliminary written request in his firm’s Letter Head to

open L/C enclosing the following required papers:

Copy of valid IRC (Import Registration Certificate)

Copy of valid Trade License

Vat Registration Certificate

Income Tax Paid Certificate mentioning T.I.N (Tax Identification Number)

Proforma Invoice/ Indent contract/purchase order duly accepted & signed by importer.

Trade Association Membership Certificate

Full Particulars of his previous bank liabilities if any

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Declaration of assets and liabilities of the importer

Registered Deed (in case of Partnership)

Balance sheet of last 3 years with the copy of Memorandum and Articles of

Association (in case of limited company)

Resolution

Photographs of Proprietor/Partner/Directors

Pass Book

Any other permit/documents if required as per instruction/order issued by

CCI & E

2. Collection of Information

In case of new importer, L/C opening bank should collect necessary information about that

importer based on the following criteria after receiving preliminary written request along with

documents from other customers, people and other Banks. Bank can also depute marketing

officer or credit officer for this purpose.

Liability position of client with the other bank if any

Character

Credit worthiness

Reliability

Integrity

Market reputation

Business establishment

In addition to these above information, banker must ensure what type of items to be imported (a)

whether the item is easily marketable or not, (b) whether perishable or not, (c) whether C&F

price is considerable and competitive, (d) there has been or there is any likely hood of violent

fluctuations in the market and (e) nature of goods as well as must observe the need of market

scarcity.

3.Preparation of Credit Report

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After collecting required information, a credit proposal is to be prepared. Being satisfied by the

Bank management by scrutiny of the above-mentioned documents and visit of the factory/Office,

collaterals offered and other business establishment, some specific documents to be supplied to

the client.

In Bangladesh Bank Guideline Volume -1 Instructed all Authorized Dealer Branches to collect

credit report from the new supplier in case of import of merchandise above TK. 5.00 lac against

Indent and above Tk. 2.00 lac against suppliers proforma invoice. SIBL collects Credit Report

through Dun and Bradstreet Information Service, India Pvt. Ltd.

4.Documents /papers provided by the bank

The following papers/ documents are to be supplied by the bank to the importer:

L/C Application Form printed in prescribed format of the designed bank &

Agreement form

LCA form (Letter of Credit Authorization)

IMP form

Letter of authority

Letter of undertaking

Murabaha/ Bai-Muazzal/ HPSM Agreement form

Charge Documents (in case of need collateral security may be obtained from

importer)

The above papers must be completed duly filled in and signed by the importer and submitted

again to the bank giving the following particulars in L/C application form along with insurance

5.Cover Note with money recipt

Full name and address of the supplier or beneficiary and importer

Brief description of goods

L/C value in USD, GBP etc (C&F value) which must not exceed the LCAF value.

The unit price, quantity, quality of the goods

Origin of the goods, port of loading and port of destination

Mode of shipment (Sea, Air, Truck, or Rail etc)

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Last date of shipment and negotiation time (must not be beyond 21 days from the

shipment date)

Insurance cover note number and name of the company

Tenor of draft (sight/ usance/ deffered etc.)

Mode of transmission of L/C (Air mail/ SWIFT etc.)

Whether partial shipment/ transshipment is allowed

Instruction to add confirmation if required

LCAF Number

Foreign bank charges on whose account applicant or beneficiary should be

clearly mentioned

Any other relevant information and instruction if any, must be mentioned in the

L/C application

6.Examination of L/C application

On the receipt of L/C application, it must be checked by the authorized officer of L/C section

very carefully and if all information represented in that application form found in order,

1. L/C Application and Agreement Form

On receipt of L/C application it must be checked by an officer very carefully in the following

manner-

That the terms and conditions as stipulated in the L/C application are consistent

with the exchange control and import trade regulation and UCPDC Pub-500

That all the information as mentioned above have been furnished

That the item to be imported is eligible according to importers entitlement

That the goods are not being imported or originated from Israel

That all cutting/erasing/alternation if any are authenticated by the applicant or

authorized person

That the validity of the L/C must not exceed the validity of LCAF

L/C is opened within the validity period permitted in the License

2. Indent/ Proforma Invoice

Name of the indentor/ proforma invoice issuing authority

51


Bangladesh Bank permission No. in case of indent

Description of goods/commodity. Whether it is allowed by import policy

Unit price whether it is competitive (Over invoicing or under invoicing)

Terms of delivery FOB, CFR, CIF, in case of FOB terms, Bangladesh Banks

instruction to be followed and in case of CIF permission from ministry of

commerce required

Whether it is signed by the seller and accepted by the buyer/importer

Whether credit report of the supplier is available or not. As per guidelines for F.Ex.

Transaction it is essential to obtain CR where indent value is Tk. 5 lac or above

and where proforma invoice is Tk. 2 lac or above.

3. LCA Form

Whether it is filled in properly and signed by the authorized person

H.S. Code is mentioned

Validity of LCAF

4. Insurance Documents

Insurance cover note with money receipt, with adequate warranties of risk to cover 10% adds

value of imported items. Port of shipment & destination should be checked in the marine cover

note. Marine cover note should be in the name of L/C opening bank A/C with the following

particulars-

Whether the insurance company is enlisted with our Bank.

Whether sufficient risk covered or not

Money Receipt submitted or not

Whether the Money Receipt is conditional

Copy of Payment order showing payment of premium, VAT etc.

Form C

7. Preparation of L/C Proposal

After checking & verification of the above papers/documents and other relative facts, if the desk

official gets satisfaction in all respects, he will prepare the L/C proposal in pre-audit memo and

52


place the same to the higher authority for approval. In some special case, the normal pattern

followed is to allocate or sanction limits to the importers for opening L/C.

8.Numbering of L/C in the L/C register

If the proposal is approved by the competent authority L/C to be opened giving L/C number in

the L/C opening register after realization of commission and other charges as per circular of

bank. Then put the serial number in the L/C opening register and give entry the following

particulars- Date, SI No. (L/C No.), Name of the importer with address, Beneficiaries name and

address, L/C value in FC and B TK, LCAF No., CCI&E registration No. Shipment date of the

L/C, Commission, Vat, Postage, recovered etc. This L/C number put in the L/C application form

on the appropriate blank space. After making all other formalities, L/C application is to be

stamped under stamp Act and signed by two authorized officers.

9.Disposal of L/C

Normally, L/Cs are typed in eight copies. Two copies for advising bank (one for Beneficiary and

another for advising bank’s record), one copy for pre shipment inspection authority, one copy for

CCI &E one copy for Bangladesh Bank, one copy for importer, one for ID and last one copy for

bank for its record. After typing, L/C should be checked up and signed by dealing officer, In-

charge of F. Ex. Dept. & authorized signatories who have P.A number.

Generally, L/C is transmitted to the advising bank through SWIFT or Telex or courier or mail.

Today SWIFT is widely used for transmitting L/C. If any importer desires L/C to be transmitted

by SWIFT, in such case the whole L/C should be typed in the prescribed format of SWIFT and

transmitted to the advising bank through issuing bank’s head office.

10.Pre-shipment Inspection

As per PSI order 1999 L/C opening/issuing bank must incorporate a clause in the L/C to inspect

some specific goods at loading point and issue CRF Certificate by any of the three

internationally reputed Inspection Agencies approved by NBR. They are-

Intertek Testing Service (ITS)

Bivac International (Bureau Veritas Group)

Societe General De Survillance (SGS)

53


For PSI issuing bank will issue an order to any of the above three as per rule by sending a

prescribed PSI form along with following papers-

L/C Copy

A copy of Proforma Invoice

A copy of TIN certificate

A copy of VAT certificate

A copy of insurance cover note

11.Charges

Cash margin, commission, vat on commission foreign corresponding charge, charge for

postage, stamp and miscellaneous to be realized from party’s a/c for opening an import L/C.

In SIBL, commission rate is .50% of the L/C opening value (in TK) for the first quarter and .30%

for each subsequent quarter. Cash margin rate is between 10% and 15% of the L/C opening

value. It varies from party to party. In case of doubtful cases, 100% of cash security to be

obtained otherwise suitable percentage of cash security to be realized considering the nature of

the merchandise, the commitment and the stability of the importer.

12.Accounting Procedure for Opening L/C:

For realization of L/C opening commission and other charges

Dr. Party’s A/C

Cr. Income A/C (Cash L/C Commission)

Cr. Sundry Deposit A/C (15%Vat on Commission)* *[Note- vat amount to be transferred to FAD, H.O through IBCA along with relative statement at the end of each month for depositing to Govt. account]

Cr. Income A/C (FCC Charge)Cr. Stamp in handCr. Income A/C (Courier/Postage/Swift Charge)Cr. Income A/C (Miscellaneous)Cr. Income A/C (Commission for L/C confirmation)*

*[Note-incase of L/C opened with add confirmation] For realization of cash security

Dr. Party’s A/CCR. Sundry Deposit A/C (for margin)

Liability Voucher

54


Dr. Asset as per contra A/C (Cash L/C)Cr. Liability as per contra A/C (Cash L/C)

In case of L/C Amendment

The term and clause of L/C can be amended with the joint consent of all the parties involved in

documentary credit operation. A written application first to be submitted by the importer for

amending any clause. Amendment is to be typed in the Bank’s printed format. The copies of the

amendment must be dispatched to the concerned as done in dispatching the L/C. Every and

each amendment of L/C must be noted in the L/C file. Bank charges TK. 1,000.00 for each

amendment.

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4.1.8: EXAMINATION AND SCRUTINY OF IMPORT DOCUMENTS

On the receipt of documents from negotiating bank, the issuing bank will enter the

documents in the inward receiving register and then sent to the import section. Authorized

officer to ascertain the correctness must check documents with its respective L/C file.

Import means the inflow of goods and services purchased by the customers, firms, Institutions, government or non-governments organization of one country from economic agents located in another country. Import is essential for a country. Because, every country is not self sufficient in all resources. Every country lacks some vital resources that it can get only through imports from other country. In Bangladesh plenty of different goods are imported from abroad every year. To import procedure a good number of officials of the banks are engaged in various steps. It is not required to mention that people of different government and private sectors are also closely involved with the import activities in the country.

Receiving the L/C from the advising bank, the exporters comply with the terms & conditions of the L/C. If the supplier / Exporters Seller agreed with terms & conditions which is laid down on L/C, the seller proceeds to dispatch the goods to the buyer. The presentation of documents takes place after the shipment of goods has been made.

The seller / Exporter/ Supplier submit documents to his Bank to comply with the L/C terms & conditions in time. The Exporter’s Bank checks the submitted documents, If the exporters Bank is seen the documents are OK, they negotiate the documents. The negotiating bank then send the documents to the opening bank. Sending the documents to the opening bank, the negotiating bank passes a telex message to claim payment as per L/C terms. If arrangement is available, the negotiating bank either debit the account of the opening bank or request reimbursement for the payment made from a third bank [Reimbursement Bank] as per L/C terms.

56

IMPORTS

IMPORT DOCUMENTS

BILLS


Generally the import bill consists of the following documents:

a) Bill of Exchangeb) Invoicec) Bill of Ladingd) Other documents: Certificate of origin, Packing list, Inspection certificate etc.

COMMON DISCREPANCIES IN THE IMPORT DOCUMENTS :

1. Claused/unclean/foul/dirty Bill of Lading.2. Charter –party/stale/third party Bill of Lading (Unless stipulated in the letter of credit )3. ON BOARD notation in B/L undated/unauthenticated.4. Shipment effected from port other than that stipulated in the credit.5. Goods shipped on deck (Unless stipulated in L/C)6. Full set of Bill of Lading not presented.7. Certificate of country of origin not provided.8. Certificate notifying insurance company of shipment not presented.9. Weightment certificate not presented.10.Cuttings/alterations in documents not authenticated.11.Documents inconsistent with each other.12.Description of goods on invoice differs from that in the credit..13.Weights differ between documents14.The amounts shown in invoice and Bill of Exchange differ.15.Shipping marks and numbers differ between documents.16.Credit amount exceeded.17.Letter of Credit expired.18.Documents not presented in time/stale Bill of Lading.19.Late shipment.20.Short shipment.21.Absence of documents called for in the credit.22.Bill of Exchange drawn on a wrong party.23.Bill of Exchange payable on an indeterminable date.24.Bill of Lading, Insurance documents or Bill of Exchange are not endorsed correctly.25.Absence of signatures, where required, on documents presented.26.Bill of Lading does not evidence whether freight is paid or not .27.Packing list not submitted.28.Partshipments / transhipment effected not being covered by the L/C terms.29.Notify party differs / not as per L/C stipulation.30.Third party Bill of Lading / short form bill of lading submitted.31. Inspection certificate not submitted.32.Unit price not mentioned in invoice.33.Description of documents on collection schedule differs with documents presented.34.Fumigation/Health certificate (fit for human consumption) not submitted.35.Forwarder’s cargo receipt not acceptable (unless provided in the L/C).36.House Airway Bill not acceptable (unless stipulated in the L/C).

57


37.Shipment details not sent.38. Inspection certificate not duly authenticated by the negotiating Bank.39.Beneficiary’s Credit Report Not submitted.40.Clause No ……….. of the page No…….. of the L/C not complied with.41.HS Code not mentioned in all documents.42.Postal receipt submitted instead of DHL Courier receipt.43. Draft drawn on ………… Bank only and “ A/C Applicant” not mentioned.44. Courier Receipt not evidencing dispatch on one set non-negotiation docs. under L/C and signed

by sender on proper place / and certificate of beneficiary absent.45. Courier Receipt not signed / chopped by the Courier Company and description of documents not

also evidencing non-negotiable documents under above-mentioned L/C.

46. Separate shipment advice sent to Insurance Company and ( importer Bank) us not made/only one copy of C.C. sent out of 3 (three) copies.

47. Certificate of origin not dully authenticated by the negotiating Bank.48. Country of origin not mentioned in the packing list as per L/C clause No. ………49. B/L sign by ……………… in violating Art. No. 23 of UCPDC 500.50. Beneficiary’s certificate of conformity not submitted. Etc.

4.1.9: LODGEMENT OF IMPORT DOCUMENTS

After checking documents if it is found in order, full particulars of documents are recorded in bill

register and pass the necessary vouchers. This process is known as lodgement. Document

must be lodged within working three (3) days i.e. 72 hours.

Lodgment means the holding of the documents converting the foreign currency of the bill amount into local currency @ B.C. selling rate

1. Discrepancy not found within time stipulated as per UCPDC – 500 Article – 13 & 14 shall be made lodgments within (7 days)

2. Lodgment of clean documents not made within 72 hours of receipt.3. Documents not entered in lodgment register.4. Lodgment register not property filled in.5. Retired seal not made after retirement of document by the importer.6. Intimation Telex not sent against receipt of document to client.7. Initial of responsible officer in lodgment register absent.

Maintenance of Register:

Put a serial number to the documents according to the entry in the PAD register.

58

Lapses at the time of Lodgment :


Full particulars of documents are to be recorded including date, bill no., L/C number,

Party’s name, description and quantity of goods, L/C value (in F.C & TK), Negotiating

bank, Reimbursing bank, IMP number etc.

Application of Rate:

To debit Mura Bill of Exchange (MBE)A/C, foreign currency of L/C value is to be converted into

equivalent TK at BC Selling rate prevailing on the date of lodgement & to credit H.O/general A/C

the foreign currency is to be converted at ruling TT/OD rate on the same date. It indicates that

authorized dealer purchases dollars for payment document value from Bangladesh Bank

through its head office at TT/OD rate and sells dollars to the party at BC selling rate. The

difference between selling & purchasing is considered as exchange gain of dealing branch.

Accounting Procedures for Lodgement:

Dr. Mura Bill of Exchange (MBE)A/C (L/C value @ BC selling rate)

Cr. SIBL General A/C (L/C value @ TT/OD rate)

Cr. Exchange Gain on FC

To adjust margin which has been taken from the party at the time of L/C opening, the following

vouchers to be passed:

Dr. Sundry Deposit A/C

Cr. Mura Bill of Exchange (MBE)A/C

To reverse liability which has been created at the time of L/C opening, the following vouchers to

be passed:

Dr. Banker’s Liability of L/C Foreign

Cr. Customer’s Liability of L/C Foreign

Intimation to the Importer

Importer is to be advised on the date of lodgement with full particulars of shipment to retire the

documents against payment or to dispose the import documents as per pre-arrangement, if any.

Documents must not be handed over to the importer without payment or without making any

arrangement for disposal.

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4.1.10: PAYMENT SETTLEMENT OF IMPORT L/C

If documents are in order, payment should be made with in three days from the date of

documents receipt. For making payment, the following procedures to be followed:

Procedures:

Read payment instruction of negotiating bank carefully and identify account number

maintained with specified bank in which negotiating bank requested to remit the

proceeds.

Send a letter for purchasing fund to the international division of its head office by which

dealing branch instructs its I.D to credit their nostro a/c maintained with specified

reimbursing bank within the expected value date.

After receiving letter, Head Office purchase dollar from Bangladesh Bank and then

deposit in Nostro a/c as per instruction.

Send a payment instruction to that specified reimbursing bank by which dealing branch

requests reimbursing bank to execute fund transfer instruction by debiting their Nostro a/c

no. & remit the proceeds at the negotiating bank’s Nostro a/c.

4.1.11: RETIREMENT OF IMPORT DOCUMENTS

The importer receives the intimation letter from bank and gives necessary instruction to the bank or for retirement of the bills or disposal of the shipping documents to release the consignments from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank or may ask for investment. Investment is of two types, namely Murabaha Post Import (MPI) in interest based bank is called Loan Against Import (LIM) and Ba-Muajjal Trust receipt (Baim TR) or Loan against Trust Receipt (LTR). Following steps are involvment for retirement of documents:

60


Calculation of profitCalculation of other chargesPassing vouchersEntry in the registerEndorsement made on the back of the 1) bill of exchange as “Received Payment” 2) Certify the commercial Invoice value as -------3) Bill of lading as “ Please deliver to the order of M/S………….under two authorized signatures of the bank Officers (P.A. Holders.) Finally, documents are delivered to the importer.(In case of cash retirement)

Arrangement for Disposal:

After creating PAD a/c, PAD a/c must be adjusted within 15 days or one month under the

following arrangement:

Cash: when importer retires documents by making payment in cash, then PAD a/c will be

adjusted by cash.

TR (Trust Receipt): To retire documents under TR arrangement rather than direct cash

payment, a limit for TR must be approved by Head Office. This approval made usually

based on the value of mortgaged property, party reputation and performance. Under TR

arrangement, party can retire documents and release goods from the port. After then,

party has to pay due amount in cash with the pre determined profit.

MPI (Murabaha Post Import): To retire documents under MPI arrangement, first a limit

for MPI must be approved by head office like TR arrangement. Under MPI arrangement

party cannot release goods from the port like TR. In MPI arrangement, bank’s C releases

goods & F agents and kept in bank’s go down. Party release goods by paying equivalent

value of released goods.

Forced MPI: When party fails to come forward to retire the documents under any

arrangement mentioned above within a reasonable time then goods to be stored in

bank’s go down and sold by auction.

Endorsement:

At time of retirement of documents, draft, invoice and bill of lading to be endorsed in the

following manner-

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The draft is to be endorsed stating “Received Payment” under seal and signature of the

Bank’s authorized officer

“We certify invoice value for USD. ...............@ .........eqv. Tk.........” seal to be affixed on

the face of Invoice under signature of authorized officer.

The seal “ Please deliver to the order of .................“ to be put on the back of Bill of lading

in favor of party.

After making endorsement & all other formalities for retirement, the shipping documents are

delivered to the importer along with the duplicate copy of LCA for custom purpose.

Endorsement of Non-Negotiable Copy Documents

For clearance of cargo:

When goods arrived before original documents, in this case to release goods from the port,

bank issues NOC at the request of the importer and endorses the non-negotiable documents.

NOC is given on the basis of a written undertaking from the client stating that he will in due

course accept the original documents in spite of discrepancies, if any and bear the exchange

loss on account of fluctuation of exchange rates between the issuing date of NOC to actual date

of lodegement of original documents when received. For issuing NOC, a charge is realized from

the party’s account.

For Custom Assessment Purpose:

On the event of non receipt of import documents relating to goods which have already reached

the port, the bank issues a letter for assessment at the request of the client and certify the value

of FC on the copy of commercial invoice, packing list and insurance cover note with money

receipt to enable him only to assess the imported goods but not to clear from the port.

Accounting Procedures for retirement:

Documents are delivered to Bank’s enlisted C&F Agents.( In case of retirement by taking LIM/MPI/LTR/Baim TR).

Accounting Procedure: In case of cash retirement:

62


Dr. Party’s accountCr. PAD Account/Mura Bill ExchangeCr. Profit/ Interest of PAD/MBE account

In case of retirement by taking LIM/MPI/LTR/Baim TR:

Dr. Party’s LIM/MPI/LTR/Baim TR accountCr. PAD Account/Mura Bill ExchangeCr. Profit/ Interest of PAD/MBE account

4.1.12 : REPORTING

TO BANGLADESH BANK

Disposal of LCA:

Letter of Credit Authorization, which may be termed as license for import of goods. It consists of

six copies.

• Original Copy: For exchange control purpose• Duplicate Copy: For custom purpose• Triplicate Copy: For licensing purpose• Quadruplicate Copy: For licensing purpose• Quintuplicate Copy: For registration unit • Sextuplicate Copy: For office copy of issuing bank

After filling up and signed by importer, all copies of LCAF will be forwarded to the registration

unit of Bangladesh Bank for registration. After putting number on all copies of LCAF, 1 st, 2nd &

6th copies delivered to the issuing bank and 3 rd & 4th copies to the concerned licensing office and

5th copy will be retained in the record of the registration unit of Bangladesh Bank,

At the time retirement, duplicate copy endorsed and handed over to the importer for clearance

of goods from port along with the shipment documents and at the time of reporting original copy

for exchange control department will be sent along with IMP/TM form in the monthly statement.

Disposal of IMP

63


IMP form is an application for repatriation of fund against visible imports by the importers under

the foreign exchange regulation act-1947. It consists of four copies.

Original Copy : For Bangladesh Bank

Duplicate Copy : For exchange control department

Triplicate Copy : For authorized dealer

Quadruplicate Copy: For Bangladesh Bank

At the time of lodgment IMP form must be filled up and duly signed by the importer and original

and duplicate copies must be submitted to Bangladesh Bank as per schedule along with the

monthly summary statement. Triplicate copy will be retained in the issuing bank for office record.

Quadruplicate copy will be reported to Bangladesh Bank in case of import where documents are

not retired.

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xxi.

Export Section

4.1.13 : EXPORT BUSINESS

Export is one of the most important parts, which can develop economic and social structure

through transaction of goods or services from our country to another country. This transaction is

being made on the basis of contract executed between two economic agents (Domestic &

Foreign). Thus domestic economic agent receives payment in form of valuable foreign currency.

The importers & Exporters Control Act 1950 regulate the importers and exporters trade of the

country. no person/firm is allowed to export any thing from Bangladesh unless he is registered

with CCI and E under the registration order. To become an exporter an ERC must be obtained

from the office of CCI&E.

Particulars 2000 2001 2002 2003 20042005

Export Business

530.801440.20 2287.64 4035.90 4500.23 5528.40

65

B


Registration of Exporter:

For having ERC (Export Registration Certificate) intending Bangladeshi exporters are needed to

apply to the controller of Imports & Exports in the prescribed form along with the following

papers.

Trade license Income Tax Certificate Bank Certificate Nationality & Assets certificate Memorandum and Articles of Association, Certification of Incorporation (in case

of Limited Company) Necessary Charges

On satisfaction of the CCI &E the potential exporter is advised to deposit export registration fee

of TK. 1000/- through Treasury Challan to Bangladesh Bank/ Sonali Bank for enabling them

them to issue ERC. The ERC may be renewed every year on payment of renewal fee of TK.

1000/- through the same process.

EXP Form:

Authorization Dealer’s Code Number

Register Serial Year

Exporter have to receive a L/C or contract from the Importer against which the whole transaction

to be completed. Then the exporter will apply for blank EXP forms from the A.D. it is a

declaration made by the exporter regarding all sorts of information of the particular Export

according to the L/C or contract (to be kept under Lien in the bank). The exporter or their

authorized person will sign this form.

The authorized dealer (AD) should ensure that the exporter is registered with the CCI &E and all

the columns are filled (including code numbers) before certifying the full set of EXP form. The

AD will record full particulars of the forms in the EXP Register and to be inserted in the space

provided at the top of each form.

General Rule for Export

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There are some rules, which are mandatory for export of any goods form Bangladesh. The rules

are as under-

No person can export any goods from Bangladesh unless he is duly registered as an

exporter with the CCI&E.

All export must be declared on the EXP Form which is consisting of 4 copies.

Export must be against any of followings:

a) Export L/C

b) Firm Contract

c) Advance Payment

Transportation documents of title may be drawn to the order of a Bank in the country

of import.

The exporter must submit EXP to the bank and bank will submit the Duplicate Copy to

Bangladesh Bank within 14 days from the date of shipment.

Payment for goods exported should be received through an authorized dealer in freely

convertible currency.

Export proceeds must be received by the exporters within 4 months

Overdue export bills statement to Bangladesh Bank should be submitted by the 15 th of

the month, following quarter to which it relates.

Export Financing

To meet up the cost of the goods to be exported, the exporter may require bank finance.

Besides he may require finance for go down rent, freight, etc. even after shipment of the goods

exporter may require finance to meet up his current expenditure up to repatriation of the export

proceeds.

There are two types of export finances:• Musharaka Pre-Shipment Finance• Musharaka Post-Shipment Finance

Musharaka Pre-Shipment Finance:

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Pre-shipment finance is given to finance the activities of an exporter prior to the actual shipment

of goods for export. The purpose of such credit is to meet working capital needs starting from

the point of purchasing of raw materials to transportation of goods for export to foreign country.

This type of finance takes the following forms-

• Export Cash Credit against Hypothecation/Pledge

• Packing Credit (Bai Salam)

• Advance under Red Clause Letter of Credit

• Back to Back Letter of Credit

Musharaka Post-Shipment Finance:

There is a time gap between export of goods and realization of the proceeds. So exporter may

require finance in that period to continue his business. In that case, bank may finance against

export documents in the following forms-

• Negotiating of Documents

• Purchase of Foreign Bill under document payment (D.P.) or

document acceptance (D.A.) bills

• Advance of Foreign bills under collection

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4.1.14 : Flow Chart for Export (Manufacturing)

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Exporter obtain ERC from CCI&E to get permission for export

Purchase contract made between exporter & importer

Master L/C received by exporter from issuing Bank through advising bank

BTB L/C issued against lien on master L/C to provide raw material

Packing credit and export incentive provided to meet working capital

Goods shipped and documents are submitted to the negotiating bank for negotiation

Negotiating forward documents to the issuing bank after endorsement

Issuing Bank makes payment & proceeds realized by negotiating bank


4.1.15 : OPERATIONAL MECHANISM OF EXPORT SECTION

This section focused only on the activities that are usually performed by the authorized dealer

branch of SIBL in the export L/C operation of RMG.

Export L/C Checking and Advising

Procedure for Opening Back-To-Back L/C

Mechanism of Acceptance

Pre-Shipment Financing

Export Document Checking and Negotiation

Mechanism for Proceeds Realization

Formalities of Back-To-Back Payment System

Payment of Local Buying House Commission

Back-To-Back Payment and other Liabilities

EXP Form Reporting to Bangladesh Bank

Local Export Bill Purchasing and Discounting

4.1.16: EXPORT L/C CHECKING AND ADVISING

Export L/C issued by the foreign bank at the request of importer in favor of exporter. Generally,

the opening bank sends such export L/C to the beneficiary through its own branch in the

beneficiary’s country or its correspondent banker in that country through telex or SWIPT or

courier/mail. After receiving L/C, advising bank/corresponding bank will authenticate this L/C

and then send a message to the beneficiary or beneficiary’s bank (if mentioned in L/C) as to the

received L/C.

Therefore, on received of a master L/C, following formalities to be followed by the bank:

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First L/C must be recorded in the bank’s inward register.

Then L/C must be authenticated through letter or over telephone.

After authentication, L/C must be sent to the beneficiary/beneficiary’s bank.

Authentication System:

Bank authenticates a L/C on the basis by which it receives that L/C. If L/c received by

courier/mail, then signature will be verified by checking Signature Book-lets or by sending L/C to

the nearer branch of L/C issuing bank with a request to verify the signature.

If L/C received by Telex, then its test number must be authenticated. When a L/C received

through SWIFT then its code number must be authenticated.

In case of Amendment

If any amendment message received against a particular master L/C then it must be

authenticated as per authentication rule followed by bank. The bank is required to authenticate

as many as amendment message received against master L/C & inform the beneficiary about

such amendment.

Commission Charged for Advising and Amendment:

As per charges schedule, Tk. 500 is realized as Commission for advising any master L/C and

TK. 200 for per amendment from Beneficiary’s A/C by SIBL.

Accounting Procedure for Charging Advising fee and Amendment fee:

Dr. Party’s A/C

Cr. Income Miscellaneous A/C

4.1.17: OBTAINING EXPORT FACILITIES FROM BANK

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To obtain EXP form and forward shipment documents through the bank, at first exporter has to

open an account in an authorized dealer bank from which he wants to get export facilities and

then submit valid ERC (Export Registration Certificate) and master L/C. To provide export

facility to any exporter, bank authority is required to monitor exporter’s current account position

which opened in their own bank and collect information about exporter and also justify whether

ERC is valid or not. After justification, if every thing found O.K., then bank authority can issue

EXP form to the exporter as well as forward shipment documents.

Moreover, to provide export credit facilities like packing credit, back-to-back L/c facility, or FDBP

facility, dealing branch has to send a credit report to its head office for limit sanction against a

particular facility. A limit is to be sanctioned based on the value of the mortgaged property,

reputation of the exporter and so on.

4.1.18: LIEN OF MASTER L/C

To take BTB L/C facility or other export credit (i.e. packing credit) or negotiating shipping

documents, master L/C must be lien with the credit-offering/negotiating bank. Incase of open

L/C, exporter can lien master L/C at any bank but if L/C is restricted then exporter has to lien

that L/C in that bank which has been mentioned in the L/C clause.

For lien, any master L/C bank should check the terms and conditions of that master L/C. The

important points are-

Commodity that to be export is not banded by our export policy

Applicant name and address

Issuing Bank and address

L/C value

Shipment date and Expiry date

Documents and copy of each paper submitted to the issuing bank

All terms and conditions of L/C are subject to UCPDC.

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After checking all terms and conditions of L/C, if bank authority want to lien such export L/C then

dealing officer will endorse on each page of original master L/C “Lien with IBBL.


Full particulars of L/C have to be recorded in the Export L/C Register i.e. Serial number, master

L/C number and date, issuing bank, applicant’s name & address, beneficiary’s name & address,

advising bank, value of master L/C etc.

4.1.19 : PROCESSING AND OPENING OF BACK-TO-BACK L/C

To open BTB L/C against any master L/C, applicant must submit following papers-

Application for L/C opening

Proforma Invoice

Insurance Cover Note (if required)

On the receipt of the above papers an officer must examine -

Merchandise to be imported that are mandatory raw materials for processing export

goods

Lead Time: In case of Local BTB L/C lead time must be one month and in case of

foreign BTB L/C lead time must be three month

Value of BTB L/C that must not be exceed the total outstanding BTB limit up to which

party can open L/C for a year approved by Head Office for that party.

Adequate balance in party a/c to realize commission and other charges

After examination, if every thing found O.K. then BTB limit should be calculated against the

respective master L/C. Generally, BTB L/C can be opened against any respective master L/C up

to 70-75% of that master L/C value as per export policy.

Calculation of BTB L/C limit against any respective master L/c:

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Master L/C Value xxxxx

Less: Bill discount (25%) (xxxx)

Less: CFR (5%) (xxxx)

Less: Buying House Commission (5%) (xxxx)

Less: Packing Credit (10%) (xxxx)

Limit amount for opening BTB L/C xxxxxx

If BTB value is within limit then bank will supply two forms to the client for opening L/C.

L/C Application Form

LCA Form

L/C application form must be completed filled in and signed by the importer and two authorized

officer of the bank. This form is to be stamped which act as an agreement between importer and

bank.

Maintenance of Register

After making all formalities, banker will put a serial number on the L/C application form and

records all particulars in the BTB L/C opening register.

Disposal of L/C

Local L/C typically typed in respective bank printed format in two folds. The original L/C is sent

to the advising bank for beneficiary or beneficiary’s bank. Another copy is kept in respective

BTB L/C file. Before sending L/C should be checked up and signed by two authorized

signatories who have P.A number. Then telex, SWIFT, or courier to the advising bank transmits

L/C. Normally, foreign L/C is transmitted through SWIFT and local L/C through courier.

L/C Amendment

Any clause of the L/C can be amended with the joint consent of parties (beneficiary & opener)

involved in documentary credit operation. Every amendment must be noted in the register and

copies of each amendment letter to be kept in respective L/C file.

Accounting Procedure for BTB L/C Opening:

To realize commission and other charges for opening BTB L/C, the following vouchers to be

passed:

Dr. party’s A/C

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Cr. Commission for BTB L/C

Cr. Sundry Creditor (for stamp charge)

Cr. Recovery Postage (for courier service)

Cr. Income Miscellaneous (for other charges)

For creating liability for opening BTB L/C, the following vouchers to be passed:

Dr. Customer Liability (BTB) L/C

Cr. Banker Liability (BTB) L/C

4.1.20: PROCEDURE OF ACCEPTANCE

When bank receives full set documents, first it must check all documents /papers with the terms

and conditions of L/C. In case of local documents banker must examine signature of applicant

on the back of documents, which ensure that goods have already been received, by applicant.

If documents are in order, it will be obligated for issuing bank to issue acceptance letter within

seven days to the negotiating bank. Before making acceptance bank also intimates the

applicant through a letter to confirm the acceptance within three days. On the receipt of

applicant’s acceptance, bank send an acceptance letter to the negotiating bank through

courier/telex/SWIFT wherein opening bank confirm maturity date within which payment would be

paid on the basis of tenor.

If documents are not in order, in that case bank has no obligation to make acceptance with in

seven days. Bank can hold the documents as discrepancy. If applicant agrees to accept the

discrepancy documents, bank then can confirm maturity date at the risk and responsibility of the

applicant.

In case of foreign documents/EPZ BTB L/C, goods may reach the port before original

documents received by the bank. In such case, to discharge goods from the port, bank issues

NOC and attaches the non-negotiable documents. After receiving original documents bank

confirm acceptance as per credit terms.

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All particulars along with LBP No. to be put in Acceptance Register.

Mark in BTB L/C opening register as acceptance/To put Bill Number

Charges:

Commission for acceptance and postage charge must be realized from party a/c as per bank’s

charges schedule.

Accounting Procedure for Acceptance:

To realize commission and postage charge from party’s a/c, the following vouchers to be

passed:

Dr. Party’s A/C

Cr. Commission for acceptance A/c

Cr. Recovery Postage A/C

To reverse liability for BTB, the following vouchers to be passed:

Dr. Banker liability (BTB) L/C

Cr. Customer liability (BTB) L/C

To create liability for acceptance, the following vouchers to be passed:

Dr. Customer Liability (Acceptance) for BTB Bills

Cr. Banker Liability (Acceptance) for BTB Bills

4.1.21: PRE-SHIPMENT FINANCING

Pre-shipment finance is an advance granted by the bank to an exporter to meet the cost up to

the packing of goods for export to overseas buyer. This is done in pre-shipment stage for wage

payment, bill payment, processing, transporting, and shipment of goods.

Packing credit normally granted against any respective master L/C up to 10%-15% of that

master L/C value. This credit is to be adjusted from the export proceeds.

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Accounting Procedure for pre-shipment financing:

Dr Mushara Pre-shipment A/C

Cr. Pay Order A/c

Cr. Commission for Pay order A/C

Cr. Sundry vat A/c

Cr. Recovery postage A/c

4.1.22: NEGOTIATION OF EXPORT DOCUMENTS

On the receipt of documents, it must be checked properly and if documents are in order, then it

to be dispatched by courier service with a forwarding letter.

Negotiation stand for payment of value to the exporter against the documents stipulated in the

L/C. If documents are in order,bank purchases the same on the basis of bank-customer

arrangement. This is known as Foreign Documentary Bill purchase or FDBP.

If documents are not in order or there is no arrangement between bank and customer as to the

purchasing bill,in that case bank sends documents on collection basis. This is known as

Foreign Documentary Bill for Collection or FDBC.

Documents Checking

While checking documents the following points must be taken into consideration;

Applicant name

Issuing Bank

Beneficiary name

Negotiating Bank

Notify Party Name

Master L/C Number and Date

Shipment Date that goods shipped on board within last shipment date

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Negotiation Period that documents is negotiated with in L/C validity.

Expiry Date

Part Shipment that are allowed or not

Value of draft that must be complied with L/C terms

Shipping Company that issued Bill of lading must be as per L/C instruction

All required papers and number of copies are enclosed properly as per L/C terms

The dealing officers may use a checklist for their convenience.

Recording in the Register:

After checking documents, if documents are in order and all terms and conditions are fulfilled

strictly then following particulars are to be noted in the Export Register-

Export Bill Number

Dispatch Date

Name of Shipper

Name of Drawee

Master L/C Number and Date

Amount in FC

Amount in TK

Shipping Company

Bill of Lading Number and date

Port of Loading and Discharging

Reimbursing Bank

EXP No. and date of report,

Disposal of Document:

Before dispatch, bill of exchange and original Bill of Lading must be endorsed by negotiating

bank to the order of the issuing bank and each paper to be marked with round seal and signed

by authorized officers. After endorsement, a forwarding letter will be prepared in two copies in

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the printed format and signed by authorized officer where negotiating bank instructed the issuing

bank to remit proceeds to its Nostro A/C maintained with a specified bank.

After making all necessary formalities, documents are to be dispatched along with a forwarding

letter by courier service.

4.1.23: POST-SHIPMENT FINANCING

Any loan or advance granted or any other credit by negotiating bank to an exporter after

shipment of the goods from the date of extending credit to the date of realization of the export

proceeds is called post-shipment financing. Foreign Documentary Bill Purchase (FDBP) is one

type of post shipment financing. Under FDBP, at the time of negotiation, bank can grant

advance through purchasing shipping foreign documents.

Formalities for Foreign Documentary Bill Purchase (FDBP)

If documents are seen to be in order then bank can purchase documents at the request of the

beneficiary. Before purchasing, liabilities against this particular documents should be considered

and then amount up to which documents to be purchased must be determined. Finally, a

proposal for purchasing documents to be sent to head office and with the approval of head

office a loan a/c for FDBP opened in the name of beneficiary and purchasing amount transferred

through that FDBP a/c to beneficiary’s current a/c.

FDBP (amount in TK) = 90% of Net Bill Value @ OD sight export

Determination of FDBP (in amount TK):

Bill Value xxxxx

Deduct Liabilities:

BTB L/C opened agt. this bill xxxx

Packing Credit agt this bill xxxx

Freight (CFR) xxxx

Foreign Buying Commission xxxx

Local Buying Commission xxxx

Total Liabilities xxxxx

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Net Bill Value xxxxx

FDBP (amount in TK) = 90% of Net Bill Value @ OD sight export

4.1.24: PROCEEDS REALIZATION PROCEDURE

When issuing bank remits proceeds to negotiating bank’s Nostro A/C as per payment

instruction, the bank with which nostro a/c maintained sends a SWIFT message to negotiating

bank mentioning that the proceeds have been deposited in the specified nostro a/c. After

receiving message international division of head office of negotiating bank credited dollars in

Head Office/ General A/C. After receiving credit message from head office, dealing officer is

required to determine all related liabilities against the export proceeds for realization purpose.

Liabilities Adjustment:

The liabilities may be created against any export bill that are-

BTB L/C: BTB L/C value should be assessed which opened against the master L/C

and determine proportionate value of BTB L/C against export bill proceeds which

must be kept in FC Held for BTB L/C Payment.

Local Buying Commission: Buying house commission to be determined as per

transferable L/C clause, which must be kept in Sundry Creditor A/C.

FDBP: Amount of FDBP along with predetermined profit to be determined which

sanctioned against this proceed bill

PC: Amount of Musharaka Pre-shipment Finance/Packing credit with predetermined

profit to be assessed, which has been sanctioned against Master L/C

Outstanding balance: outstanding balance that could not be adjusted from previous

proceeds realization.

Other Charges: Handling Charges for proceeds realization, & other related charges

are to be realized from export proceeds.

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After determining all related liabilities, total proceeds are to be divided in to two portions. One

portion is for BTB L/C payment and another residual portion is for other liability adjustment. The

portion, which reserved for BTB payment must be converted into equivalent TK at the notional

rate and kept in FC held A/C. Another portion, which kept for liability adjustment (except BTB

L/c), must be sold to head office at TT Clean rate and converted into OD Sight Export rate. Here

it may be noted that rate prevailing on the date of realization to be used. The difference between

TT Clean rate and OD Sight Export rate is to be considered as Exchange Gain for the designed

branch.

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After adjusting all possible liabilities, the residual amount (if any remains) will be credited to the

party’s a/c.

Diagram: Flow chart for Proceeds Realization

Accounting Procedures for Proceeds Realization:

In SIBL, the following vouchers to be passed for proceeds realization

Dr. SIBL/ General A/C

Cr. FC held for BTB Payment

Cr. Exchange gain on FC

Cr. Sundry Creditors A/c (for buying house commission)

Cr. Party A/c

To adjust liabilities against export bill precedes, the following vouchers to be passed:

Dr. Party A/C

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Export

precedes

dollar

converted at

two ratesOne portion converted at notional rate for BTB

payment

Another portion converted at TT clean and again

credited to client a/c at OD sight export rate

Liabilities Adjustment

Back To Back Payment

Liabilities AdjustmentBuying House paymentPacking creditFDBPCFROther charges


Cr. FDBP A/C

Cr. Mushara Pre-shipment A/C

Cr. Income Miscellaneous A/C (for handling charge)

4.1.25: FORMALITIES OF BACK-TO-BACK L/C PAYMENT

On the maturity date or before maturity period, payment for BTB L/C has to be made. It is ruled

that after proceeds realization the outstanding BTB L/C for whose payment dollars kept in FC

held a/c must be paid with in three(03) days .

BTB Payment at local currency:

If BTB payment is made at the local currency that means P.O or DD is issued for BTB payment

then following formalities to be followed-

Assess document’s value which to be actually paid off

Read payment instruction carefully, and justify the negotiating bank to which PO/DD

to be issued.

Dollars amount for BTB L/C payment to be transferred from FC held a/c to SIBL General a/c @

notional rate and then same dollars to be sold to the head office @ TT Clean rate and converted

into OD sight rate. Branch earns some exchange gains from difference between TT clean and

OD sight export rate.

After adjusting PO commission and vat and postage charge from payable amount, a PO/DD is

issued for the remaining balance in favor of negotiating bank at the account of Beneficiary with a

forwarding letter printed in bank’s prescribed form.

Accounting Procedure for BTB payment at local currency

Dr. FC held for BTB Payment

Cr. SIBL/General A/C

Dr. SIBL/General A/C

Cr. Exchange gain on FC A/C

Cr. Commission for P.O

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Cr. Sundry Vat

Cr. Recovery postage

Cr. Pay Order

BTB Payment at foreign Currency:

If BTB payment is to be made at foreign currency (i.e. dollars) then following formalities should

be followed:

Assess documents value which to be actually paid off

Read payment instructions carefully and justify the account number of designed bank

to which payment to be paid

A payment instruction to be sent to the reimbursing bank through Bangladeshi branch

of reimbursing bank.

Accounting Procedures for BTB Payment at Foreign Currency:

Dr. FC held for BTB Payment

Cr. H.O/ID A/C

]


Mark “paid as on” in Acceptance Register

Mark “Payment as on” in respective BTB L/C file

A copy of forwarding letter/payment instruction to be kept in respective BTB L/C file and also in

BTB payment file.

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4.1.26: FORMALITIES OF BACK-TO-BACK PAYMENT WHEN EXPORT FAILS

Issuing bank is liable to make deferred payment under BTB L/C arrangement on or before

maturity period. Generally, bank makes payment of BTB L/C from the proceeds of respective

export bill. If exporter fails to ship goods on just time for any reason then proceeds will not be

incurred. In such situation, exporter will have to make arrangement for BTB payment opened

against corresponding export shipment. If exporter fails to make payment, bank has to make

payment of accepted bill by creating force loan in the name of that exporter to keep its

commitment.

To make arrangement for payment of non payment bill under forced loan, branch will have to

send a proposal including detailed all necessary information & inspection report of

corresponding stock position for approval. On receipt of approval with specific terms and

conditions, the authorized officers of the branch must complete all necessary security &

documentation formalities in this respect and the client must duly sign a confirmation certificate.

After making all formalities related loan sanction, BTB L/C payment will be made as per

instruction.

The branch will need monitoring & follow-up for recovery of the bank’s dues with in due date of

the agreement positively. In case of the party’s failure to repay the bank dues, the branch will

arrange for disposal of the mortgaged property & stock as per agreement.

Documents to be executed:

Charge Documents

An undertaking to be taken for settlement of loan liabilities

Agreement of Bai-Muajjal (WES Bill)

After creating Bai- Muajjal (WES Bill) account then payment will be made as per rule against

that account. Here it may be noted that only BC Selling rate will be applied rather than notional

rate & no exchange gain will be incurred.

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4.1.27: FORMALITIES OF BUYING HOUSE COMMISSION PAYMENT

There may be a clause for buying house commission on the back of transferable L/C. At the

time of proceeds realization, the required commission for local buying house should be kept in

Sundry Creditor A/C as per L/C instruction. While making payment of buying house commission

the following items to be deducted from total payable amount –

2.5% of total payable amount to be reserved as vat for Bangladesh Bank

Commission for pay order/DD

Vat on commission of pay order/DD

Postage charge

After deducting the above items, a pay order to be issued for the residual amount in favor of the

bank of buying house, which has been mentioned in the L/C clause. A forwarding letter is to be

sent with the pay order to the designed bank. A copy of this forwarding letter and pay order to

be kept in Buying House Commission file for recording.

Accounting Procedures for Buying House Commission Payment

Dr. Sundry Deposit (S/D Creditor)

Cr. P.O. for Buying house commission

Cr. P.O. for Bangladesh Bank

Cr. Commission on pay order

Cr. Sundry vat

Cr. Recovery postage

4.1.28: EXP FORM REPORTING TO BANGLADESH BANK

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EXP. form will be in four (4) copies that must be completed and signed by the exporter. After

completing the EXP form, the exporter should submit to the custom along with the shipping bill

at the time of shipment. After affixing their seal and signature thereon, custom authority will

return the duplicate, triplicate and quadruplicate copies to the exporter and submit the original

copy to the Bangladesh Bank. The exporter must submit all the remaining copies of EXP. form

to the negotiating bank at the time of negotiation. The EXP form is reported to the Bangladesh

Bank as under:

The original copy is to be forwarded by the custom authority to the Bangladesh Bank

Duplicate EXP duly certified by the negotiating bank must be submitted to

Bangladesh Bank with in 14 days from the date of shipment along with one copy of

invoice.

The triplicate copy will be reported to the Bangladesh Bank along with monthly

return after realization of proceeds

Quadruplicate copy is to be retained by the bank for record.

4.1.29: LOCAL EXPORT BILL PURCHASING & DISCOUNTING

Usually local exporter supply local fabrics and other accessories to export oriented Garments

and Textile Industry against a Local BB L/C known as ILC (Inland letter of Credit). These Inland

Back to Back L/Cs are usually drawn on usance basis of 30/60/90/120 days. After shipment, in

other words delivery of the goods as per terms of the credit the customer submits the shipping

documents with delivery challan to his bank for discounting. Purchasing these local documents

is known as IDBP. IDBP stands for Inland Documentary Bill Purchase. Generally, Bank

purchases local bills, which are drawn against irrevocable letter of credit and accepted and

confirmed by the L/C opening bank.

Formalities of purchasing of local document:

When a party come to SIBL with a request to negotiate local documents, SIBL first check

documents with its respective L/C, and forwards these document to the L/C opening bank with a

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forwarding letter where in SIBL instructs the opening bank to remit the proceeds by pay order or

DD quoting the specified their reference number.

Since most of the local L/Cs issued on acceptance basis, so the documents must be accepted

by L/c opening bank as per L/C terms. After receiving acceptance letter from opening bank,

SIBL will verify the signature of acceptance and send a letter to the opening bank to confirm

genuineness of acceptance.

If acceptance is found O.K. SIBL sends a proposal for purchasing local documents to the higher

authority. After approval, bank purchases 80% of total bill value and credit purchase value after

deducting some additional charges and the residual 20% of bill value kept in sundry account as

a margin.

Accounting Procedures for purchasing local document:

Dr. IBP A/CCr. Party’s A/CCr. Sundry Deposit A/CCr. Commission on IBP A/CCr. Income Miscellaneous A/C

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xxii.

F.C. Accounts & Remittances

4.1.30: AN OVERVIEW OF F.C.Account

Private Foreign Currency Account:

i. Authorized dealer may open F.C. A/C in the name of followings without prior approval from Bangladesh Bank.

(a) Bangladeshis residing / working / earning abroad including self-employed. Account may be in US Dollar, Pound Sterling, Euro, Detached Mark or Japanese Yen.

(b) Foreign Nationals residing abroad / in Bangladesh, foreign firms registered abroad & operating in Bangladesh / abroad.

(c) Foreign Missions & their expatriate employees.ii. Foreign Exchange earned through business done or services rendered in Bangladesh

cannot be put into the account.iii. Credits to a foreign currency account may be made against inward remittance of foreign

exchange in any form or transfer from another F.C. account or non-resident Taka accounts in banks abroad.

i. Payment may be made freely abroad / local disbursement also be made freely in Taka from the balance of F.C. account.

ii. AD branch can pay profit on such accounts provided the accounts are maintained in the form of term deposits for a minimum period of 90 days.

Papers /Documants Required for opening FCD A/C:

i. Accounts opening form duly filled inii. Specimen signature cards (Both A/C holder and Nominee)iii. Declaration (as per specification)iv. Photocopy of First 7 pages of Passport (Original for Verification)v. Letter of Authority (For nominee)vi. Photo copy employment contract / self employed document.vii. 3 passport size photograph of nominee attested by A/C Holder.

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C


Any person intending to open FC A/C from abroad, must send all the aforesaid papers (except original passport) duly attested by authorized officers of nearest Bangladesh Mission or Foreign correspondent of Authorized Dealer.

Salient Features of F.C.Account

i. May be opened without initial deposit.ii. Remains operative even if not operated for a long time.iii. Bears no interest.i. Operation generally transfers in nature.ii. Both account holder and nominee can operate.iii. Cheque books or withdrawal form can be used.

Non-Resident Foreign Currency Deposit (NFCD) A/C : (NFCD A/C At a glance)

Authorized dealer may open F.C A/C in the name of followings persons without prior approval from Bangladesh Bank. All Bangladeshi Nationals / persons including those having duel nationals / ordinarily residing abroad may open in term bearing NFCD A/Cs.

Eligible persons:(a) All non-resident Bangladesh nationals and persons including duel nationality &

ordinarily residing abroad / working / earn abroad including self-employed, may open the account.

(b) Bangladesh nationals, serving with Embassies / High Commissions / Staff of Govt. / Semi Govt. / autonomous / nationalized sectors posted / deputed abroad can open A/C.

(c) Foreign Nationals residing abroad / in Bangladesh, foreign registered abroad & operating in Bangladesh / abroad.

(d) Shore staff of Bangladesh shipping companies posted abroad may open the account but the crewmembers are not entitled to open such accounts.

(e) Account may be opened with funds transferred from existing F.C. accounts maintained by the wage earners with the AD branch in Bangladesh.

(f) Eligible persons are allowed to open such accounts with in six months of their return to Bangladesh.

(g) In case of pre-matured repayment the profit amount will be forfeited.

Terms & Conditions :

i. Account may be opened by the remittances from abroad or transfer from any F.C. A/C with any AD branch.

ii. Initially with the minimum deposits is an amount of US$ 1000/- & STG.Pound 500/- for Bangladeshis who residing / serving abroad. Also minimum deposits should be USD 25,000/- or equivalent for foreign national / companies.

iii. The accounts may be maintained in US Dollar, STG. Pound, Deutsche Mark, Japanese Yen & EURO accounts are matured after one, three, six, twelve months.

iv. Profit will be paid at Euro Currency deposit rates. Profit amount is exempt from the tax payable under income tax act.

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v. If applicant is in abroad, specimen signatures of the opener duly verify by Bangladesh Mission abroad, reputed bank or any other persons known to the AD branch.

vi. A/C holder can freely repatriate the balance & profit accrued thereon, in foreign exchange to the country of residing to anywhere he chooses.

Resident Foreign Currency Deposit (RFCD) A/C:

i. Person ordinarily resident in Bangladesh may open & maintain RFCD A/Cs with Foreign exchange brought in at the time of their return from travel abroad duly declared to custom authority in FMJ form having amount of more than US$5000/-

ii. The account may be opened UD Dollar STG, Pound, Deutsche Mark, Japanese Yen & Euro & may be maintain as long as the account holders desire.

iii. Proceeds of export goods or services from Bangladesh or commission arising from business deals in Bangladesh shall not be credited to such accounts.

iv. Balance of these accounts shall be freely transferred abroad or may be endorsed in passport of the account holder for foreign travel purpose.

v. Profit ( interest) in foreign exchange shall be payable on balances, if the deposits are for a term of not less than one month & balance is not less than US$ 1000/- or Stg. Pound 500/- or its equivalent .

vi. The rate of profit / interest shall be ¼% less than the rate at which profit / interest is paid on a balance of bank in F.C clearing A/Cs maintained with Bangladesh bank.

vii. While depositing the foreign exchange the depositor shall furnish written declaration,

a) Mentioning the date of return from abroad

b) The amount of foreign exchange is not receipt against export of goods or services from Bangladesh c) The amount of foreign exchange is not receipt against commission due from abroad arising form business deal in Bangladesh.

Convertible & Non-Convertible Taka A/C:

(i) AD branch may open convertible Taka accounts in the names of foreign organizations/ nationals viz. diplomatic missions, UN organizations, non-profit /interest international bodies, foreign contractors & consultants engaged for specific projects under the Govt. semi. Govt. agencies & the expatriate employees of such missions / organizations who are resident in Bangladesh.

(ii) These accounts may be credited with foreign currency brought in or remitted from abroad or transferred from a foreign currency account or another convertible taka account. No money emanating from a business originating in Bangladesh & otherwise repatriable to Bangladesh can be credit to these accounts.

(iii) Account may be debited for payments in foreign currency abroad, for local expenses, for transfers to foreign currency accounts or other convertible Taka accounts or for credits to a non-convertible taka account.

(iv) Foreign organizations / their expatriate personnel may maintain non-convertible Taka accounts with AD branch without prior approval of Bangladesh bank.

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Other Accounts:

AD may maintain FC A/C of the following under certain conditions :

i. Diplomatic Bonded Ware House licensed by the custom authority.ii. Local & Joint Venture contracting Firms employed to execute projects by foreign / International Donor agencies.iii. Foreign national residing in Bangladeshiv. Bangladesh nationals working with Foreign / International organization operating in Bangladesh.

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4.1.31 REMITTANCE:

To send money from one place to anther place is known as remittance. Transfer of founds on account of customers are affected by means of instruments called drafts. Transfer and Telegraphic / Telephonic Transfers, with development in transmission technology these may be different variants of a TTs. If such transfers are made within the country, these are called inland Remittance.

There are mainly two type of remittance:1) Inward Remittances &2) Outward Remittances.

1. Inward Remittances :

ii) Full particulars of remittances are recorded in the respective register properlyiii) The remittances are promptly handled and paid to the beneficiary without any delay.iv) The exchange rates are correctly applied.v) All remittances payable are properly controlled through the T.Ts, D.Ds and payable registers according to the nature of remittances.vi) Remittances are promptly dealt with and charges, if any , are recovered as

prescribed.vii) Signature on Demand Drafts and Mail Transferred are properly verified before

effecting the payment.viii) T.T Receipts & Demand Drafts when presented for cash payments are paid

only upon proper identification.ix) Reimbursement in respect of all inward remittances given by correspondent

bank direct is closely followed up so that bank’s Nostro Accounts are credited in time.x) T.T payments are effected only if the messages are tested and that the test

numbers are found to correct.xi) All transactions are properly reported to the control under correct forms and

schedule.

(a) Encashment of T.C ( F. C )Comparing the counter signature taken by the branch with the earlier signature on the face of T.C voucher is prepared converting Foreign Currency at O.D transfer buying rate of the day. Verify the passport & endorse the amount on the passport. Necessary payment is made to the party in Taka retaining the commission. The instrument / T.C is sent for collection through Head Office.

Dr. WES Fund Purchase A/C (O.D transfer rate)

Cr. Party’s A/C / CashCr. I / A Commission ( Tk .0.25 per US$ )

Cr. I / A P & T A/C.(b) Encashment of Cash ( F.C )

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Examine the currency Note carefully to be satisfied about their genuineness. Vouchers are prepared converting F.C at O.D transfer buying rate of the day. Verify the passport & endorse the amount on the passport. Necessary payment is made to the party in Taka retaining the commission.

Dr. Cash ( Foreign Currency )Cr. WES Fund Held ( F.C in hand), Notional rateCr. WES Fund Purchase A/C ( T.T. Buying rate )Cr. Party’s A/C / Cash.

(c) Encashment of Draft & T.T

Verify the authenticity of the instruments with reference with the Test Key / authorized specimen signature & prepare the relative vouchers.

FDD payment Dr. SIB General A/C ( Head Office )

Cr. Party’s A/C / CashCr. I / A Commission ( Tk .0.25 per US$ )Cr. I /A P & T

TT payment Dr. SIB General A/C ( Head Office )

Cr. Party’s A/C / CashCr. I / A Commission ( Tk .0.25 per US$ )Cr. I /A P & T

(d) WAYS AND METHODS OF INWARD REMITTANCES :

a) Cash foreign currency without declaration up to US$ 5000/=b) Foreign T.Tc) Foreign DDd) Mail Transfer.

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(2) OUTWARD REMITTANCE :

Outward remittance means sale of foreign currency which constitutes from Bangladesh by T.T., M.T., F.D.D. etc, to a foreign country or local currency credited to non-resident Taka account of foreign banks or convertible Taka account and also endorsement (issue) of Foreign currency including T.C. on foreign travel purpose. Transactions of out ward remittances must be reported in T.M. Form.Proper records of remittance transactions must be kept by the ADs for inspection by Bangladesh Bank from time to time.

WAYS AND METHODS OF OUTWARD REMITTENCE :a) By Issuance of Drafts.b) By Issuance of Mail Transfer.c) By issuance of T.T.d) By T.C. ( Traveler Chaque ) e) In foreign currency notes and coins. Cash dollar maximum upto

US$500/- per Annum.f) Credit Card. ( The exporters can only enjoy credit card facilities for retention of their foreign

currency in their FCAD ( Export ) A/C. )

WHAT ARE THE GROUNDS UPON WHICH THE OUTWARD REMITTANCES MAY BE ALLOWED ?

b) For settlement of payment against Import letter of Credit.c) For travel purposes.d) For higher studies purposes.e) For medical treatment purposes.f) For Tofel examination purpose.g) For pilgrim purpose.h) Participation in Int’l Conference.i) Training purpose.j) Miscellaneous.

Outward Remittances :

i. Exchange Control approval for outward remittance is held where necessary and requisite exchange Control formalities are properly compiled with. Such applications should be forwarded by the AD branch by their own messengers / by post but not by their clients directly.

ii. AD branch should see whether the approval was duly signed by the authorized officer & bears the

Bangladesh bank embossing seal. Applications pending with Bangladesh Bank are followed up to avoid delay.iii. Permit issued must be utilized with in the period of its validity indicated in the permits.

The amount released must not be exceeding the authorized limit.iv. Approved by TM form is remain valid for a period of three calendar months from the

date of approval, other wise stated by Bangladesh Bank.

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Approvals excepting TM Forms remain valid for a period not exceeding 30 days from the date of approval unless stated as valid for a specified period.

v. For payments against imports into Bangladesh, the prescribed application form is IMP Form & for other types of remittances is TM Form.Original copies of all IMP Forms, TM Forms covering remittance affected by AD branch must be submitted to Bangladesh Bank along with appropriate returns.

vi. Remittance is express in foreign currency, the correct rate of exchange has been applied.

vii. The remitter’s instruction is correctly carried out and there is no delay in attending to this instruction.

viii. All standing instruction for periodical remittances is properly recorded, diaries and carried out followed.

ix. The telegrams are properly worded and coded where necessary.x. All transaction are to be reported to the control under forms and schedules.

i. Foreign Exchange is to be issued against valid passport & confirm air ticket it must be endorsed on it.

ii. AD branch may release of foreign currency up to US$ 1000/- & up to 500/- or equivalent per person to adult Bangladesh national during a calendar year for SAARC member countries & Myanmar by air & road respectively.

iii. AD branch may release of foreign currency up to US$ 3000/- or equivalent per person to adult Bangladesh national during a calendar year for the countries other than SAARC member.

iv. Unused Draft Foreign Currency Notes and Travelers Cheque are held under proper custody.

v. In the matter of drawings on accounts with foreign correspondents the terms of the agency arrangements are strictly adhered to and reimbursement instruction etc are carefully done.

vi. For minor (below 12 years) the applicable quota will be half of adult quota.vii. Entitlement of the passport is to be checked up & branch is satisfied that foreign

currency released earlier travel was utilized with the journey being actually undertaken / was duly encashed unutilized.

viii. Travel entitlement may be utilized also by way of international credit cards issued in the name of the persons concerned.

ix. While releasing foreign exchange for travel purposes branch officials should ensure that (a) The intending traveler is a client of the branch / sufficiently well known to the branch officials / to be a bonafide applicant.(b) The intending traveler is in possession of a confirmed air ticket (where applicable) for journey to be undertaken.(c) The amount released is endorsed on the passport & air ticket with ineible ink, with signature &

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Issued of F.C for Travel Abroad :


name of the branch embossed in the passport & air ticket.(d) Photocopy of first six pages of passport & the page recording endorsement if foreign exchange & Photocopy of Air Ticket showing name, route date of journey, endorsement of

foreign exchange along with TM Form should be sent to Bangladesh Bank along with the report of transaction in the monthly return.

x. Date of departure must not be later than 15 days of exchange is issued & ticket must specify the date of departure.

xi. The purchaser must sign on the Travelers Cheques in presence of the dealing officers in case of VIP, Branch will arrange to send an officer to get the TCs signed by the purchaser in the presence.

xii. F.C. issued to govt. / Semi govt. officialsGovernment order is to be obtained for Govt. / Semi Govt. officials & will release foreign exchange as per entitlement given by Ministry of finance from time to time. In such case the applicant shall be required to submit the sanction letter & competent authority order / notification / circular authorizing the travel.

xiii. F. C. issued to Private sector participantsAD branch may release for actual period of seminars conferences & work shops organized by international bodies up to US$ 250/- per diem in SAARC member countries or Myanmar & up to US$ 200/- in the other countries. Photo copy of the invitation letters received by the applicants & all other documents should be kept in record in the branch for post facto inspection by Bangladesh Bank.

xiv. F. C. Issued for Medical TreatmentUp to US$ 10,000/- or equivalent may be released for travel abroad on health grounds on the basis of recommendation of the medical board set up by the Health Directorate & cost estimate of foreign medical institutions, on prior approval from Bangladesh Bank.

xv. F. C. Issued Debiting Convertible Taka accountF. C. may be issued to private individuals Govt. / Semi Govt. autonomous body officials for undertaking educational tour, attending seminars, workshops, etc abroad by debiting convertible taka account of foreign NGOs / International Bodies at their request in this case Govt. / Semi Govt. autonomous body officials should be accompanied by the permission letter of competent authority, authorizing proposed travel abroad.

xvi. Business Travel of Export & Import(b) Exporter – Up to US$ 6000/- or equivalent may be issued to new export, against

recommendation letter from Export Promotion Bureau. For higher requirement Bangladesh Bank permission is required, applications are submitted through AD branch.

(c) Importer – Entitled business travel quota @ 1% of their imports settled during the previous financial year having upper ceiling of US$ 5000/-

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(d) Non – Exporting producer – Non exporting producers for the local market are entitled business travel quota @ 1% of their turn over of the previous financial year as declared in their task return, having upper ceiling of US$ 5000/-

xvii. F. C. Issued to Foreign Nationals

F. C. in TC may be issued without any limit & in cash notes up to US$ 300/- or equivalent per person against surrender of equivalent amounts in foreign currency. F. C. should be issued on production of air ticket for a destination out side Bangladesh / export cum import permits in case of travel by car & endorsed on the relative passport.

xviii. Reconversion of unspent Taka by foreign tourist

AD branch may allow reconversion of unspent Taka fund to foreign tourist’s o9n production of the original certificate evidencing the encashment of foreign currency bought in by the tourist. The branch while allowing reconversion will retain the original encashment certificate.

Accounting procedure

(a) CASH Dr. Parties A/C / Cash ( At B. C. Selling Rate )

Cr. WES Fund Purchased A/CCr. I / A Commission

Dr. WES Fund Held @ Notional RateCr. CASH ( Foreign Currency )

(b) T. C. Dr. Parties A/C / Cash ( At B. C. Selling Rate )

Cr. WES Fund Purchased A/CCr. I / A Commission ( US$ 1.00 per US$ 100.00 )

Dr. WES Fund Held @ Notional RateCr. ABC Gen. A/C Head Office ( ID )

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Issuance of FDD & FTT :

FDD Issuance Dr.Party's A/C / Cash ( At B. C. Selling Rate )

Cr. WES Fund Purchased A/CCr I / A Commission on DDCr. Postage

Dr. WES Fund Held @ Notional RateCr. ABC Gen. A/C Head Office ( I. D. )

FTT Issuance Dr. Parties A/C / Cash ( At B. C. Selling Rate )

Cr. WES Fund Purchased A/CCr I / A Commission on TT

Dr. WES Fund Held @ National RateCr. ABC Gen. A/C Head Office ( I. D. )

4.1.32:COMPARISON OF FOREIGN EXCHANGE PERFORMANCE OF SIBL WITH OTHER BANKS

Amount in Million Taka

Particulars 2001 2002 2003 20042005

SIBL

Import Business 4723.40 11124.85 14908.90 13363.07 11576.71

Export Business 1440.20 2287.64 4035.90 4500.23 5528.40

Southeast Bank Ltd.

Import 12187.37 12817.01 16270.80 20229.62 29079.30

Export 2675.05 2263.45 3033.79 6761.93 13511.10

Mutual Trust Bank Ltd.

Import 1130.04 2142.67 3513.92 5855.00 8810.00

Export 3411.90 6393.53 11284.41 17046.00 17660.00

NCC Bank Ltd.

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Import 13754.00 13579.50 13089.94 13274.08 16296.30

Export 4504.00 4559.00 4967.33 5771.65 7776.30

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5.SWOT Analysis of Social Investment Bank Limited

Every organization is composed of some internal streangths and weakness and also has some external opportunities and threats in its whole life cycle. The following will briefly introduce about Social investment Bank Limited. Social investment Bank Limited and its internal streangths and weakness and external opportunities and threats as I have explored in the last couple of time.

Streangths

Social Investment Bank Ltd. (SIBL) started its journey with a concept of 21st century

Islamic Participatory three sector banking model;

Formal sector-commercial banking with latest technology,

Non-formal sector-Family Empowerment Micro-Credit & Micro-Enterprise program and

Voluntary sector-Social Capital mobilization through CASH WAQF and others.

Finally, ’Reduction of poverty level’ is our vision, which is a prime object as started in

Memorandum of Association of the bank with the commitment ‘Working Together for a

Caring Society’.

High quality financial services with the latest technology.

Fast, accurate and satisfactory customer services.

Balance and sustainable growth strategy.

Optimum return on shareholders equity.

Introducing innovative Islamic Banking products.

Attract and retain high quality Human Resources.

Empowering real poor families and create local income opportunities.

Providing support for social benefit organizations-by way of mobilizing funds and social

services.

Social Investment Bank Ltd. (SIBL) is the member of SWIFT.

Super Quality: SIBL provides its customers excellent consistent quality in every

services. It provides highest priority for customer satisfaction.

Dynamic: SIBL provides draws its streangths from the adaptability and dynamism in

activities. It has quickly adapted to modern banking techniques in terms of Banking

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services. SIBL has also concern with SWIFT with the world for better communication to

integrate facilities.

Financial Streangths: SIBL is a financially sound company backed by the enormous

resources and deposit based of the mother concern Bashundhara Group.As a result

customers feel comfortable in dealing with the bank.

Efficient management: All the levels of the management are solely directed to maintain

a culture for the betterment of the quality of the service and development a corporate

band image in the market.

Expertise: One of the key-contributing factors behind the success of SIBL is its

employees who are highly trained and most competent in their own field. SIBL provides

their employees training both in house and outside job.

Excellent working environment: SIBL provides its workforce an excellent place to work

in. Most of the branches of the bank are well decorated with modern facilities in a befitting

manner. Besides, employees are also working with an excellent team spirit and

maintaining congenial atmosphere.

WEAKNESS

Social Investment Bank Ltd. (SIBL) has very limited human resources compared to its

financial activities. These are not sufficient to perform most of the tasks. As a results

many of the employees are burdened extra work loads and works late hours without any

overtime facilities. This might cause high employee turnover that will prove to be too

costly to avoid.

Social Investment Bank Ltd. (SIBL) has very limited human resources compared to its

financial activities. Most of the employees are weak in English. Our foreign Exchange

officials in AD branches are not expert. Some times various critical problems arises due

to lack of knowledge and experiences. A huge amount of export proceeds we loss due to

presentation of discrepant documents and discount of export bill.

Social Investment Bank Ltd. (SIBL) has no Dealing room.

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Opportunities

Government Support: Government of Bangladesh has rendered its full support to the banking sector for a sound financial status of the country, as it is becoming one of the vital sources of employment in the country now. Such government concern will facilitate and support the long term vision for Social Investment Bank Limited.

Evolution of e-Banking:Emergence of e-Banking will open more scope for Social Investment Bank Limited to reach the clients not only in Bangladesh but also in globally. It also facilitates wide area of net work in between the buyer and seller of Social Investment Bank Limited to smooth operation to meet the desired need with least deviation.

L/C Charges:Social Investment Bank Limited can buy and sell individually. Due to exchange rate fluctuations of Foreign currency Social Investment Bank Limited has opportunity to purchase or sell. SIBL has sufficient fund to purchase the foreign currency at the time of lower cost. Simultaneously L/C charges comparatively lower than others competitive Banks.

Opportunity in Investment:Social Investment Bank Limited has sufficient fund to invest to the client.Social Investment Bank Limited has scope to earn profit by investing the sufficient fund.

Threats:

Shortage of IT Expert: Social Investment Bank Limited has not sufficient IT expert manpower. Some time many Branches have to face various problems. One IT expert is available in a Branch. So branch has to depend on that Key person which undesirable. So IT expert should increase in the Bank.

Frequent Currency devaluation: Frequent Taka devaluation and foreign currency fluctuations and particularly South-East Asian currency crisis adversely affected the international business globally.

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5.1.Comparison of Import ,Export and Remittances in last six years of SIBL: Amount in Million Taka

Particulars 2000 2001 2002 2003 20042005

Import Business

2983.204723.40 11124.85 14908.90 13363.07 11576.71

Export Business

530.801440.20 2287.64 4035.90 4500.23 5528.40

Remittance

33.4031.70 107.57 120.30 224.82 332.96

Total Foreign Exchange Business 3547.40

6195.30 13520.07 19065.10 18088.12 17438.07

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6.1. Summary of Findings

Operational Mechanism of Foreign Exchange Business of SIBL In summing up the above analysis it is revealed that-

At the time of opening L/C, Islami bank obtains letter of authority from the L/C

applicant to utilize all documents (IRC, TIN etc) of importer required for importing

goods.

After opening L/C, the consignment shall be sold by the bank to the client under Bai-

Murabaha/Bai-Muazzal mode of investment for a period.

Bank opens L/C for importing those goods which are permissible under Islamic

Shariah and the law of land

Only Spot buying & selling undertaken by SIBL

Forward & Swap are not undertaken by SIBL due to Shariah Obligation

Direct Quotation is followed by SIBL

Performance Analysis of Foreign Exchange Business of SIBL

To sum up the above analysis it is found that- An upward trend followed by SIBL in overall foreign exchange business (i.e. import,

export & remittance)

In terms of volume, Export business grew at a greater pace than Import and

remittance but in terms of growth rate, remittance business performed better than last

year.

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6.2: PROBLEMS REGARDING FOREIGN EXCHANGE OPERATION OF SIBL

I have worked in foreign exchange department of SIBL, Panthapath branch last two years.

During this period, I have observed some problems existing in the foreign operation of SIBL.

These problems are stated below briefly-

The major problem is foreign exchange department of SIBL is yet not be computerized.

SIBL maintains a lot of register under tradition system, which decreases operational

efficiency of the bank. Due to lack of proper MIS, most of the time, officials had to engage

in preparing statement or report that hamper other operational activities and customer

service as well as they fail to submit statements to Bangladesh Bank in due time.

There is no Islamic foreign exchange market and money market in our country that create

many problems in selling & buying of foreign currency for SIBL. Since SIBL does not

undertake SWAP and Forward transaction due to interest so it has to participate in spot

market. So sometimes SIBL faces problem due to the foreign currency crisis.

There is inadequate number of Islamic Insurance Institution in our country. Banking and

insurance have to go hand-by-hand in matters of trade and business in order to protect

investments of banks against unforeseen hazards and catastrophes. Unfortunately, Islamic

bank has to depend on interest-based insurance companies in the absence of Islamic

insurance companies in case of L/C opening & other purposes.

Most of the clients are not well acquainted with foreign exchange operation, Islami Shariah

& related rule and regulations. Sometimes it becomes difficult for the bankers to understand

and enable them as well as to deal with them.

As a complicate and sensitive, foreign exchange department requires highly experienced

and skilled employees. But, most of the personnel are not as much experienced and

efficient as required in the related field to operate foreign trade operation in proper &

effective way.

There is a lack of proper infrastructure facilities like non-availability of electricity, generator,

computer that sometimes delay banking operations.

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The process of opening L/C, sanctioning FDBP, Musharaka Pre-shipment Finance

(Packing credit) etc. is very lengthy due to maintaining unnecessary statement.

Hidden cost charged by SIBL that does not ensure welfare-oriented system.

There is no provision of fixed L/C margin so the customers are deprived from equal service.

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6.3: RECOMMENDATIONS

It is imperative for SIBL to take necessary steps to overcome the above-mentioned problems in

order to holding foreign exchange business. Here I have mentioned some suggestions that I

think it would be rational for the bank.

First of all Foreign exchange department should be fully computerized so that inter bank

and inter branch transaction can be conducted smoothly and quickly.

For applying computerization system management should installed upgraded software,

network as well as computer for recording all necessary data in foreign exchange

department and providing better customer service.

Islamic Foreign exchange market may be introduced to over come related problems.

The process of opening L/C and sanctioning FDBP, PC other export credit should be

flexible & convenient for the client.

Since bank is a service-oriented organization, its business profit depends on its service

quality. That’s why the authority always should be aware of about their service quality.

Management should focus not only customer satisfaction but also employees’ satisfaction

so that they can retain and provide better service to their clients. For this bank need to

update their salary package together with offering commission and incentives for the well-

performed employee. In other words, performance-based pay system and establishing

measurable criteria for promotion is utmost necessary for such banks to enhance the level

of job satisfaction motivation and commitment of their employees.

The management team should assign right person in right working place in order to

increase better service.

Arrangement of monthly/quarterly training courses or workshops for the clients selected by

clients to provide knowledge regarding rules and regulation of foreign exchange business.

One of the business strategies is promotion. Successful business depends how they can

promote their products or service to the customer. In this connection to improve the

business status bank should introduce more promotional activities.

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6.4: CONCLUSION

This report titled as “ForeignForeign Exchange & Foreign Trade Practice Under IslamicExchange & Foreign Trade Practice Under Islamic Banking System in Bangladesh:Banking System in Bangladesh: A case study on Social Investment Bank LimitedA case study on Social Investment Bank Limited” has prepared based on the experience that I have gather at the time of working in foreign exchange department of SIBL,Panthapath Branch, Dhaka. I have discussed in this report about foreign exchange business how deal with, related parties,process,procedure, problems and prospects that followed by the bank for conducting foreign trade business. Accounting procedures regarding foreign exchange business also represent in this report. Though foreign trade is more complicate and risky relative to other two department-general banking and investment in the banking sector, Because we have already known all claims to foreign currency payable abroad, whether in the form of balances held with bank’s abroad or bill of exchange, drafts, securities and similar instruments abroad in foreign currency are treated as foreign exchange. Every transaction of foreign exchange involves various risk. Lack of knowledge and experiences, if not comply in international business rules may arise huge amount of financial demurrage. So every Foreign exchange official of the bank become aware and conscious about the problems area, the risk and problems may caught at minimum level and ultimately prospects of foreign exchange must be come up. By operating foreign exchange and foreign trade, commercial bank plays a key role in speed up overall economic growth. Like this, SIBL Private bank try to provide attractive facilities to its client especially exporter with a view to grow up export volume. In last five year, performance of FEX Business of SIBL is showing an appreciable growth. Though in foreign exchange business SIBL is facing some problems/barriers regarding foreign trade. If take necessary action to remove these problems or barriers, bank can perform better in future.

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REFERENCES AND BIBLIOGRAPHY

1. Annual Report, 2001, 2002, 2003,2004,2005,2006 of Social Investment Bank Limited. Investment Bank Limited.2. Bangladesh Bank: Guide Lines for Foreign Exchange Transaction

Volume I & II-1996

3. Bangladesh Bank: Various Foreign Exchange Circulars4. Bangladesh Government: Import- Export Policy 2006-20095. Bangladesh Government: Public notice6. Foreign Exchange Regulation (FER) ACT 1947 enacted on 11th May 19477. Instruction from different Ministry

8. International Regulations for Foreign Exchange:

9. World Trade Organization (WTO)

10. International Chamber of Commerce (ICC):

11. UCPDC 600:

12.Uniform Rules for Reimbursement ICC Publications No.525: 13. Uniform Rules for Collection ICC Publications No.522:

14. INCO Terms-200015. International Standard Banking Practice (ISBP)

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