1.

1 Introduction
Internship program is the practical aspect of our theoretical learning. It makes a bridge
between the gap of classroom learning and practical learning. In this view, Internship
plays a pivotal role for each professional degree like MBA. The study will help
formulate suitable policies taking into consideration different ideas, suggestions and
feelings of the customers and bankers. Further more, it may note that City Bank
executives who are really executing the policies undertaken by the top management
will have a chance to communicate their interaction and provide necessary feedback.
Financial institutions are very much essential for the overall development of a
country. Especially banks play an important role in the field of promotion of capital,
encouragement of entrepreneurship, generation of employment opportunities etc.
Market economy or free economy is widely used-concept about the present economy
of Bangladesh. The country adopted the concept in the late seventies with the
privatization of significant number of enterprises. The practices of free market
economy started from the eighties with the changing of the world economy. A number
of initiatives were taken from the nineties to increase the competition and efficiency
in money market, relaxation of unwanted rules and regulations, improvement of loan
related law and other situations and improve the financial base of the banks of the
country.

1.2 Origin of the Work:

The report was originated to make a study on the fulfillment of thesis report required
for the completion of the MBA program of major in Accounting in the Faculty of
Business Administration, Stamford University Bangladesh.
The topic of the internship report is - Overall activities of City Manarah and
Financial Statement analysis One of the unique features of City Manarah lies in its
philosophy that it must be completely based on the principles of Islamic law (also
known as Shariah). Two basic principles behind Islamic Banking are the sharing of
profit and loss and significantly the prohibition of the collection and payment of
interest. Interest in any form is not permitted under the Islamic law.

1.3 Rationale of the Study

Bangladesh is one of the underdeveloped countries in the world. The economy of the
country has a lot left to be desired and there are lots of scopes for massive
improvement. In an economy like this, banking sector can play a vital role to improve
the overall social-economic condition of the country. The banks by playing the role of
an intermediary can mobilize the excess fund of surplus sectors to provide necessary
finance, to those sectors, which are needed to promote for the sound development of
the economy.
The concept from the perspective of an Islamic economy and the prospective role to
be played by an Islamic bank therein opines: "It is, therefore, natural and, indeed,
imperative for an Islamic bank to incorporate in its functions and practices
commercial investment and social activities, as an institution designed to promote the
civilized mission of an Islamic economy".

1.4 Objective of the report:

The report is prepared on the Overall Activities of City Manarah and Financial
Statement analysis of City Bank Ltd. with the thought of getting in depth of the
ratio analysis and credit risk management process and understands its importance.

1.4.1 Main Objective:

The main objective is analysis the City Manarah (Islamic Banking) product,
various ratio analysis and to focus on Conversional and Islamic Banking
systems.

1.4.2 Specific Objective:

To find out overall Activities of City Manarah.

To evaluate various ratio analysis and SWOT analysis.

Evaluation the Islamic Banking Systems.

Finding out the feature of City Manarah and Traditional banking product.

Distinguish between Traditional and Islamic Banking product.

1.5 Scope of the Study:

City Bank is one of the largest commercial Banks in Bangladesh. City Bank operates
through 102 branches, includes 14 SME center. It is linked with 686 foreign
correspondents all over the word. I am assigned to learn practical knowledge from
City Bank, Principal Branch, Motijheel, Dhaka. In this study I would try to
concentrate on the theoretical aspect of City manarah and financial statement analysis.
That is, overall activities City Manarah of City Bank Limited. I would analysis the
Financial Statement on the banks performance evaluation with Ratio analysis.
So, this report covers only Overall Activities of City Manarah and Financial
Statement analysis. It considers only one The City Bank Limited.

1.6 Methodology:
For the organization part, much information will be collected from different published
articles, journals, brochures and web sites. All the information incorporated in this
report will be collected both from the primary sources and as well as from the
secondary sources

1.6.1 Primary Source of Data:

Collecting data directly from the practical field is called primary source of data. The
method that will be used to collect the primary data is as follows:

Discussion with officials of customers service of City Bank, Principal

Branch, Motijheel, Dhaka.

1.6.2 Secondary Sources of Date

The secondary data will be collected from The City Bank, to clarify different
conceptual matters, internet and different articles published in the journals &
magazines will be use

Annual Reports of City Bank

Other published documents of Bangladesh Bank.

Office files and documents

Study related books and journals

Bank related Web sites

1.6.3 Data Processing & Analysis

Collected information have then processed & compiled with the aid of MS Word,
Excel & other related computer software. Necessary tables have been prepared on the
basis of collected data and various statistical techniques have been applied to analyses
on the basis of classified information.

1.7 Limitations of the Study:

Though I have given utmost effort to prepare this paper but there are some limitations
of the study. They are as follows

Due to time limitation, many of the aspects could not be discussed in the
present report.

Legal action related information was not available

Lack of opportunity to access to internal data.

Since the bank personnel were very busy, they could not pay enough time.

City Manarah is new department of City Bank, so that information is not

available.

2.1 History of The City Bank Limited

The City Bank Limited is the first private sector bank in Bangladesh. This bank has
been operating since 1983 with an authorized capital of TK 1.75 billion. The noble
intention behind starting this bank was to bring about qualitative changes in the
sphere of Banking and Financial Management. Today the City Bank serves its
customers at home and abroad with 102 branches, including 14 SME center, spread
over the country and about three hundred oversea correspondences covering the entire
major cities and business center of the world.
The CBL was incorporated as a public limited company with limited liability on the
14th March, 1983 and its formal inauguration was on March 27, 1983 under Company
Act, 1993 of Bangladesh with the primary objective to carry on all kinds of banking
business. Functioning as a Traditional Bank in the country since 1983, it has been
able to consolidate its position in the banking sector.
For significant performance, The Bank has earned national & international
recognition. The City Bank Limited was one of the 12 Banks Of Bangladesh among
the 500 Banks in Asia for it's asset, deposit & profit as evaluated by "ASIA WEEK"
In The Year 2010. Other than that, City Bank received the "Top Ten Company" award
from the Prime Minister of the People's Republic Of Bangladesh.
City Bank is among the very few local banks which do not follow the traditional,
decentralized, geographically managed, branch based business or profit model.
Instead the bank manages its business and operation vertically from the head office
through 4 distinct business divisions namely:

Corporate & Investment Banking

Retail Banking (including Debit & Credit Cards)
SME Banking &
Treasury & Market Risks.

The bank is also very active in the alternative delivery area. It currently has 85 ATMs
of its own; and ATM sharing arrangement with a partner bank that has 725 ATMs in
place; SMS Banking; Interest Banking and so on. The bank has a plan to end the
current year with 100 own ATMs. City Bank is the first bank in Bangladesh to have
issued Dual Currency Credit Card. City Bank has just completed 6 years of its Islamic
Banking Branch operation with high focus on service excellence. The bank is listed

with Dhaka Stock Exchange & Chittagong Stock Exchange. Recently this Bank has
brought a massive change in their service system and changed its Logo. Now in short
this bank is known as City Bank.

2.2 Company Outline

Name

The City Bank Limited (CBL)

Legal Status

Public Limited Company

Date of
Incorporation

March 14, 1983

Formal
Inauguration

March 27, 1983

Chairman

Aziz Al Kaiser

Vice Chairman

Hossain Mehmood

Managing
Director & CEO

K Mahmood Sattar

Chief Finalcial
Officer

Faruk Ahmed

Company
Secretary

Md. Kafi Khan

Authorized
Capital

Tk. 10,000,000,000

Paid Up Capital

Tk3,888,547,200

Reserves

Tk. 7,630,378,590

Total Asset

Tk. 90,898,051,972

Total Manpower

2,685

Number of
Branches

102 (including Islamic Banking Br& SME

Centers)

ATM Booths

85

Auditors

Howlader Yunus & Co.

Tax Consultants

ACNABIN & K. M Hasan & Co.

Web site

www.thecitybank.com

2.3 Vision of The City Bank Ltd

To be the leading bank in the country with best practices and highest social
commitments

2.4 Mission of The City Bank Ltd

To contribute to the socio economic development of the country.

To attain highest level of customer satisfaction through extension of services

by dedicated and motivated team of professionals.

To maintain continuous growth of market share ensuring its steady growth.

To maximize banks profits by ensuring its steady growth.

To maintain the high moral and ethical standards.

To ensure participative management system and empowerment of human

resources.

To nurture an enabling environment where innovativeness and performance is

rewarded.

2.5 Values of CBL

Values pillar of City Bank that are central to their core ideologies & that must always
be reflected in everything they do,
1.
2.
3.
4.

They are aggressive in business & self-driven

They empower people, create leaders & drive change
They treat people with respect & dignity
They are personally accountable for delivering on commitments to build

high trust relationship with customers & to ensure customer delight

5. They focus on managing risks & costs in order to be doubly profitable
6. They act in ways that reflect the highest standards of integrity.

2.6 Objectives of CBL

Despite extreme competition among banks operating in Bangladesh, both local and
international the City bank limited has made a remarkable progress practically in
every sphere of its functions. The activities of The City Bank Ltd are very implicit
and vast comparing to that of other bank in the country today. The theme of the bank
is Making Sense of Money.

The prime objective of The City Bank Ltd is to create a strong capital base
To earn good profit and pay satisfactory dividend to honorable Shareholders
To give maximum level of satisfactory customer service.

To achieve the objectives, the bank works for improving the quality of banks assets
by identifying potential good borrowers. To achieve this desired goal it has intention
to pursuit of excellence in the climate of continuous improvement. Because it believes
The line of excellence is never ending.

2.7 Logo:
Its beauty is in its simplicity of arrangement which is also bold. Since it is simple, it
connects with people easily.
The red and silver shape may mean a chess board. Chessboard stands for
wisdom & vision. Since it is 25 year old, expert, wise & experienced. Chess is
the game of the smart people who knows all the moves.
The red and silver shape may also mean something dynamic. It may mean the
checkered flag of Formula One Racing. Then it signifies speed and agility &
fast pace.
The red and silver shape may also mean a kite. It's a beautiful colorful kite,
nose up, going to reach for the sky. In that case, it means the bank is soaring
high into the skies of many possibilities in order to make customers' financial
dreams come true.
The red and silver shape may also mean it's a flying chessboard. It's a chessboard that has taken wings and is flying. In that case it indicates to what extent
this bank can go to serve customers better.
The logo has a dynamic shape. Such dynamism stands for modernity, the 21st century.
That signifies, this is going to be a techno-savvy bank, a state-of-the-art tech-powered
modern bank.
The color 'red' stands for emotion, passion, strength, vitality, action, confidence &
courage.
The color silver symbolizes riches, just as gold does. Silver is glamorous &
distinguished. Silver is the traditional 25th anniversary color or Silver Jubilee color.
Another thing is: "Pieces of silver" means money or coin. And our pay-off line is
"Making Sense of Money".

2.8 Strategies of CBL

CBL believes in the practice of Market-Oriented Strategic Planning, developing

and maintaining a viable fit between the organizations objectives, skills and
resources. The aim of such approach is to shape and reshape the banks businesses and
services so that they yield target profits and growth. The strategic planning of CBL
consists of two organizational levels, which are:

Location Based Strategy

Business Level Strategy

2.8.1 Location Based Strategy: Since the growth and profits of banking business
largely depend upon the locations of branches where large concentration of other
businesses and industries are involved, CBL Main Strength is its location based
strategy. The 84 branches of CBL are divided into six different regions, which are
Division

Branches

Dhaka

39

Chittagong

15

Comilla

Sylhet

Bogra

10

Khulna

The concentration of businesses and lifestyles of the people are not the same in these
five areas. So, the strategies of the five areas differ from one another; but they are
designed with distinctive local touch. Head office constantly monitors the progresses
of all the six areas. The bank is not interested in launching more branches. Currently
CBL is focusing in strengthening the existing branches.
2.8.2 Business Level Strategy: The business strategy of the Bank is to strengthen its
retail business, following a conservative lending approach. But the Banks major
portion of the profit generates from its Retail banking and SME Banking.
Retail Banking Strategy
SME Banking Strategy:
Corporate & Investment Banking

2.9 ORGANOGRAM OF CITY BANK LIMITED

Managing Director
Board & Share
Division

DMD
Business

DMD
Operation

DMD
Legal & Recovery

Treasury &
Market Risk
Division

Operation
Division

Legal Division

Retail Banking
Division

Corporate &
Investment
Banking

IT Division

Special Asset
Management
Division

Internal Control
& Compliance

HRD

Training
Institution
Finance
Division
Logistic &
Support
Division
Credit Risk
Management

SME Banking
Credit
Administration
Board
Communica
tion &
marketing

Figure: Organgram of City Bank Limited

2.10 Services Offered By CBL

The following services are available for the individuals & valued clients of the City
Bank Limited.
2.10.1 Retail Banking
One of the most remarkable success stories of last 50 years Banking Industry globally
has been the conceptualization and innovative execution of banking with individual
customers, their friends and families. The industry has termed it as Retail Banking or
Personal Banking or Consumer Banking. The City Bank Ltd. recently has started its
journey in Retail Banking. More than 750 staffs have been trained so far on the vital
concepts of service excellence and sales. Three new deposit products have been
introduced, manifold in the endeavor to build a Retail Banking brand namely City
Retail Happiness Counts.
2.10.2 SME Banking
Considering the potential growth and demand situation the City Bank Limited has
extended credit facilities to small and medium enterprises through SME Banking in
the year 2006 and 2007.A separate division has established in the Head Office with
collaboration of all branches to process and handle loans under SME for attaining a
respectable market share and successful operation of the scheme. The bank has
organized several training program for development of adequate human resources.
2.10.3 Corporate & Investment Banking
As part of its commitment to provide global quality service, the City Bank Ltd, one of
the largest local Banks, has launched its Corporate & Investment Banking Division
recently. This shift, from branch banking model to business driven matrix, is the first
step of the banks plan to revitalize its way of doing business in 2008. The C&I
Division will comprise of a number of relationship teams centered in Dhaka and
Chittagong to provide who will act as one stop contact point for the customers of the
bank. This model has been successfully globally to provide better service and create
increased customer satisfaction. The relationship teams have been staffed mainly
through internal quality resources. The C&I relationship teams have already taken
over the existing large accounts and servicing the customers to their satisfaction. The
C&I have also booked blue-chip customers like Grameen Phone, Epylion group,
Banglalink, Ericsson, Meghna Group, Esquire Group, Nandan etc. recently. Total new

booking in last few months is more than BDT 3,000 million. The C&I Division will
also have product teams i.e. structured finance, Islamic finance, leasing, cash
management who will meet the specialized product needs of the corporate customers.
The time ahead is going to be very challenging for C&I. The major challenges shall
be to increase the quality of the portfolio keeping in mind the business targets with
timely formation and support from other departments i.e. centralized credit
administration, operations.
2.10.4 Dual Currency Credit Card
Todays customer wants services and information to be provided at all times and
places. This has become possible by ATMs and POS terminals and helped banks in
achieving Anytime, Anywhere banking. Therefore there is a need for an
automated system that will connect the branches through online to provide better
services to the customers.
The most modern technology based bank product for making hassle free financial
transactions and drawing of cash money all over the world is given by Credit Card.
The City Bank Ltd is the first among domestic banks to introduce a unique dual
currency CITYCARD under the logo of VISA International in Bangladesh. After
obtaining principal membership of VISA on 19 th February, 2003 the bank is pleasing
its commitment to be a leader as card issuer in the arena. Tremendous responses are
there from the market for this plastic money.
2.10.5 American Express Credit Cards
DHAKA, November 07, 2009 -- City Bank and American Express today announced
the formation of a strategic alliance and unveiled two new American Express credit
cards for Bangladeshi consumers. This move is expected to significantly reinforce the
leadership position of City Bank and largely expand the reach of the American
Express brand in Bangladesh. The alliance will also provide opportunities for both
City Bank and American Express to combine their respective strengths and offer
world-class products and services to customers in Bangladesh.
City Bank will be responsible for all operations supporting the issuing of the new
credit cards, including billing and accounting, customer service, credit management,
charge authorizations and marketing. City Bank will also be the exclusive merchant

acquirer for American Express and plans to significantly grow the number of locations
that will accept American Express Cards across the country.
2.10.6 Online Service
With computerization the bank had gone another step ahead towards providing
pragmatic, safe and prompt banking services. All 95 branches including Islamic
Banking Branch& SME cente are brought under computerization net. Bank has
implemented online real time banking through an agreement with Info sys
Technologies Limited for supply of world reputed banking software FINACLE.
Within March, 2008 real time banking facilities have been introduced in 37 branches
of the CBL. Under this system, client will be able to do the following type of
transactions:

Easy to withdraw or deposit from any online branch

Fund transfer with one click, no need TT/DD.
Customer can easily tell which payments have cleared

2.10.7 International Trade & Foreign Exchange

1. Export
2. Import
3. Remittances
2.10.8 Islamic Banking
The City Bank Limited started its Islamic Banking operation by opening its first
Islamic Banking Branch at 9/H, Motijheel, Dhaka. The salient features of Islamic
Banking are as follows:

To conduct all its activities as per Islamic Shariah.

To conduct its monetary matters free of interest.

To establish banker-customer relationship on the basis of partnership.

To follow Islamic principle in all its investment port-folio.

To develop living standard of the poor incoming group.

To render excellent services to the clients cordially.

To conduct welfare related activities to the people.

2.10.9 SWIFT Banking

The City Bank Limited is one of the first few Bangladeshi Banks who has become
member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication)
in 1983. SWIFT is members owned co-operative, which provides a fast and accurate
communication network for financial transactions such as Letters of Credit, Fund
transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities
for uninterrupted connectivity with over 5,700 user institutions in 150 countries
around the world.

2.11 Functional Divisions of CBL

The Bank accomplishes its functions through different functional divisions/
departments. The divisions/departments along with their major functions are listed
below,
2.11.1 Financial Division
1.
2.
3.
4.
5.
6.
7.
8.

Financial planning, budget prepartion and monitoring

Payment of salary
Controlling inter-branch transaction
Disbursement of bills
Preparation of financial reports and annual reports
Preparation/Review of returns and statements
Maintenance of Provident Fund, Gratuity, Superannuation Fund
Reconcilliation

2.11.2 Credit & Risk Management

o Loan administration
o

Loan disbursement

o Project evaluation
o Processing and approving credit proposals of the branches
o Documentation, CIB (Credit InformationBureau) report etc
o Arranging different credit facilities
o Providing related statements to the Bangladesh Bank and other
departments
2.11.3 Human Resource Division
o Recruiting
o Training and development

o Compensation, employee benefit, leave and service rules program .

o Placement and performance appraisal of employees
o Preparing related reports
o Reporting to the Executive Committee/ Board on related matters
o Promotional campaign and press release
2.11.4 Information Technology (IT) Department
o Software development
o Network management and expansion
o Software and Hardware management
o Member banks reconcilliation
o Data entry and processing
o Procurement of hardware and maintenance
2.11.5 Branch Control & Inspection Division
o Controlling different functions of the branches and serch for location for
expansion
o Conducting internal audit and inspection both regularly and suddenly
o Ensuring compliance with Bangladesh Bank (BB), monitoring BBs
inspection and external audit reports
2.11.6 Retail Division
o ATM card, Credit and system operation and maintenance
o SWIFT operation
o AMEX Credit Card Operation
o Customer and vendor relationship
2.11.7 Brand Management Division
CBL is in the banking business for quite sometime its brand image has not grown
straong and in order to succeed in the comptitive it needs to enrich its brand equity. So
far CBL has shunned any sort of promotional tools except for a few inconspicuous
billboard advertisements, singborads and newspaper recruitment adverisement.

2.12 Administrative Stairs

Managing Director
Deputy Managing Director
Senior Executive Vice
President

Executive Vice President

Senior Vice President
First Vice President
Vice President
Senior Assistant Vice
President

Assistant Vice President

Senior Executive Officer
Executive Officer
Senior Officer
Officer
Assistant Officer
Junior Officer

Figure: Administrative Stairs

3.1 General banking

All business concerns earn a profit through selling either a product or service. A bank
does not produce any tangible product to sell but does offer a variety of financial
services to customers. General banking is the starting point of all the banking
operations. It is the department, which provides day-to-day services to the customers.
Every day it receives deposits from the customers and meets their demand for cash by
honoring cheque. It opens new accounts, remit funds, issue bank draft and pay orders
etc. Since bank is confined to provide the service every day, general banking is also
known as retail banking.

3.2 Account Opening Procedure

It is said that, there is no banker customer relationship if there is no account of a
person in that bank. By opening an accpunt banker and customer create a contractual
relationship. However, selection of customer for opening an account is very crucial
for a Bank.
Before opening of a current or savings account, the following formalities must be
completed by the customer:
1. Application on the prescribed form
2. Introduction

The following persons can introduce an a/c opener

An existing current/savings account holder of that branch

A respectable person of the society or locality who is well

known to the Manager / CS of the branch concerned

3. Furnishing photographs
4. Banker will supply a set of printed forms required for opening the account,
which will normally include:

Specimen Signature Cards (SSC), if necessary

Deposit Slip

Check Book Requisition slip

5. Customer should carefully read and full-fill the application form

6. Putting specimen signatures in the specimen card

7. Any special instructions with regard to operation of the account should be

noted on the relevant signature card boldly duly authenticated by the a/c
holder should be obtained
8. The required Account Number for the new Account from the Account
Opening Register should be obtained
9. Obtain the signature and a/c number of the Introducer on the advice of new
accountant the place meant for the purpose and gets the signature properly
verified by an Authorized official of the Bank
10. The Deposit slip properly filled in and signed by the customer
11. Place the signature cards, Advice of new account, a copy of Deposit slip,
photographs and other necessary papers/documents etc. in a file
12. Obtain approval of the Authorized officer for opening the new account on
all relevant papers. While giving approval for opening an account the
Authorized official should be satisfied about the of the Introducer
13. After approval of the opening of the a/c, get the Checkbook requisition slip
signed by the customer
14. On completion of account opening open a file for the new a/c holder and
file all relevant papers forms etc. Signature cards, copies of Advice,
Deposit slip Debit ticket etc. is distributed to concerned departments
15. To fill up the (Know Your Customer) KYC form dully.
Account Opening Procedure in a flow chartApplicant is required to

Applicant fills up the

relevant application form in
the prescribed manner.

fill up the specimen

signature card if
needed.

For individual
introduction is needed
by an account holder.

The authorized officers

ACCOUNT IS OPENED.

scrutinize the introduction

and examine the
documents submitted.

After depositing the cash one

cheque book is issued.

Issuance of deposit slip

and the deposit must be
made in cash.

Figure: Account Opening Procedure

Additional documents are to be obtained for opening some other type of accounts.

Sole Proprietorship
After depositing the
cash one cheque book
is issued.

Partnership Concern.

Limited Company (Incorporated in Bangladesh)

Association/Club/Charity/Trust/Society/School/College:

NGO/Unincorporated Association:

Limited Company (Incorporated Outside Bangladesh)

3.3 Closing of an Account

Upon the request of a customer, an account can be closed. After receiving an
application from the customer to close an account, some procedures are followed by a
banker. The customer should be asked to draw the final cheque for the amount
standing to the credit of his account less the amount of closing and other incidental
charges and submit the unused cheque leaves. The A/C should be debited for the
account closing charges etc. and an authorized officer of the Bank should destroy
unused cheque leaves.
In case of joint A/C, the application for closing the A/C should be signed by all the
joint holders
A banker can also close the account of his customer or stop the operation of the
account under following considerable circumstances:

Death of customer.
Customers insanity and insolvency.
Order of court.
Specific charge for fraud forgery.

3.4 Issuing Cheque Book to The Customer

Fresh checkbook is issued to the account holder only against requisition on the
prescribed requisition slip attached with the checkbook issued earlier, after proper
verification of the signature of the account holder personally or to his duly authorized
representative against proper acknowledgment.
In present days the bank is providing MICR (Magnetic Ink Character Recognition)
cheque books to its clients according to Bangladesh Bank circular. MICR is a process
where cheques are printed & encoded using magnetic ink.
3.4.1 Features of MICR:

Personalized cheque book with name & account number printed

Account number & bank information encoded in a machine readable format.

3.4.2 Advantages of MICR:

Cheque clearing time will be reduce, funds will be available faster

The risk of cheque related fraud & forgery will minimize

3.5 Cash Counter

3.5.1 Opening of Cash Counter:
Cash Counter is opened at just 9am & beginning balance is used to start daily
transaction. Maintenance of Receipt and Payment Registers should be kept while
receiving & paying different amount of cash. Previously issued cheque will be paid if
issued 6 months before. Advance issued cheque cannot be made payment even one
day before. 10am to 4pm is the scheduled banking hour.
3.5.2 Evening Banking:
In the evening banking, the clients can only deposit cash. No payment can be made
except some special cases. 4pm to 6pm is the scheduled evening banking hour.

3.6 Clearing House

The Clearing House is a medium of exchange, presentation and settlement of noncash payment instruments like cheques, drafts, credit clearance and similar payment
orders and their electronic records. The net inter-bank claims are settled in central
bank money out of balances on members clearing accounts. Clearing house is an
arrangement under which member banks agree to meet, through their representative,
at the appointed time and place to deliver instruments drawn on them. The net amount
payable or receivable as the case may be, is settled through an account kept with the
controlling bank (Bangladesh Bank).There are mainly two types of clearing,

3.6.1 Outward Clearing Process:

When any client present any cheque of other banks for deposit in his or her account in
the cash counter of CBL, then at first the cash counter officer receive the cheque &
send that to the head office for clearing. Everyday head office collects all the cheques
from all of its branch within the clearing zone & send those to the clearing house by
an agent. Clearing house officer then communicate with the agents of the respective
banks for clearing the cheques. The respective banks officer scrutinize that cheques
for made any payment & if finds everything acceptable then he/she clears the cheques
& debited the amount from the clients account & return the cheques to the clearing
house. The clearing house then returned those cheques to CBL head office & then by
an agent CBL, Jonshon Road Branch gets that clearing cheque & credited the amount
to the clients account. The whole process took about three days.

Receive cheques for

Send all the collected

Clearing House contact

deposit, of other banks by

cheques by CBL to

with the respective

CBL, Dhanmondi Br.

Clearing House.

banks for clearing.

The respective banks scrutinize

& clear the cheques.

Then credit the amount to

Dhanmondi Br. of CBL

Then clearing house

the clients account within

gets the cheque from

returned the cheques to

three days.

the Head Office.

CBL, Head Office.

Figure: Outward Clearing Process

3.6.2 Inward Clearing Process:
Now CBL, Head Office gets the cheques from the clearing house for clearing as it
operates Centralized Banking, which cheques are presented by the CBLs clients to
other banks. The assigned officer scrutinizes the cheques & if finds everything
acceptable & there is enough money for payment then he clears the cheques & debited
the clients account.Below the process of Outward & Inward clearing of cheques is
shown,
If everything acceptable &
there is enough amount in
the accounts he/she clears
the cheques.

CBL, receive

The assigned officer of

cheques from

CBL scrutinizes the

Clearing House.

cheques for clearing.

The amount is debited from the clients

account before returning the cheque to
clearing house. to clearing

Figure: Inward Clearing Process

3.7 Dishonors Cheques

There are several reasons for what sometimes the outward & inward clearing cheques
are being dishonored. The basic reasons are mentioned below,

Insufficient fund
Amount in figure & word differs
Cheque out of date or post dated
Drawers signature differs
Payment stopped by drawer
Crossed cheque to be presented through a bank
Payees endorsement required
Instrument not drawn on the bank
Cheque alteration or mutilation requires drawers full signature
Account closed

3.8 Loans & advances

Bank collects deposit for lending & investment, this function is performed by Loans
& Advance Department, sanctioning of loan proposal starting from customers request
for a loan. Collection of necessary papers, information & financial statement,
analyzing of those information, preparation of loan proposal, security analysis &
valuation, inspection, lending risk analysis are the prerequisites for sanctioning a loan
or any kind of advance payment.

3.9 Procedure for getting approval of a loan

Credit Management Policy for any commercial bank must have been prepared in
accordance with the Policy Guidelines of Bangladesh Banks Focus Group on Credit
and Risk Management with some changes to meet particular banks internal needs.

The guidelines for credit management may be organized into the following sections:

3.9.1 Policy guidelines

Lending guidelines: The lending guidelines include the following:
Industry and Business Segment Focus
Types of loan facilities
Single borrowers/ group limits/ syndication
Lending caps

Discouraged business types, the followings are discouraged:

1. Military equipment/ weapons finance
2. Highly leveraged transactions
3. Finance of speculative investments
4. Logging, mineral extraction/ mining, or other activity that is
ethically or environmentally sensitive
5. Lending to companies listed on CIB black list or known
6. Counter parties in countries subject to UN sanctions
7. Lending to holding companies.

3.9.2 Credit Assessment and Risk Grading

A thorough credit and risk assessment should be conducted prior to the granting of
loans, and at least annually thereafter for all facilities.
Credit Applications should summaries the results of the risk assessment and
include, as a minimum, the following details:
Environment or social risk inputs
Amount and type of loan (s) proposed
Purpose of loans
Loan structure ( tenor, covenants, repayment schedule, interest)
Security arrangement
Any other risk or issue
Risk triggers and action plan-condition prudent, etc.
Risk is graded as per Lending Risk Analysis (LRA), Bangladesh Banks
Guidelines of classification of loans and advances.

3.9.3 Approval Authority: Approval authority may be as the following:

Credit approval authority has been delegated to Branch Manager,

Credit Committee by the MD/ Board

Delegated approval authorities shall be reviewed annually by MD/

Board.

MD/ Board:
Approvals must be evidenced in writing. Approval records must be kept
on file with credit application
The aggregate exposure to any borrower or borrowing group must be
used to determine the approval authority required.
Any credit proposal that does not comply with Lending Guidelines,
regardless of amount, should be referred to Head Office for approval.
Segregation of Duties
Banks should aim at segregating the following lending function:
Credit approval/ risk management
Relationship management/ marketing
Credit administration
Internal Control and Compliance
Banks must have a segregated internal audit/ control department charged with
conducting audits of all branches

3.10 Retail Products & Services of CBL

City Bank offers a wide variety of deposit products to meet financial needs. From
current and savings accounts to Fixed Deposits and Pension Schemes each account is
designed to give the best value for their clients money.

3.10.1 Current Account

Current account meets the needs of individual and commercial customers through our
schedule benefit.

Minimum opening balance : Tk. 10,000/Interest Rate : Nil

Customer Benefit:

Cheque-book facility
Opportunity to apply for - safe deposit locker facility
Collect foreign remittance in both T.C. & Taka draft.
Transfer of fund from one branch to another branch.
Transfer of fund on Standing Instruction Arrangement
Collection of cheques through Clearing House.
Online banking service.

3.10.2 Savings Account

It is a sound savings for retail customer. CBL gives the major facilities and services to
their customer through 84 branches allover in Bangladesh with their skilled
manpower.

Minimum opening balance : Tk. 10,000/Interest Rate : 4%

Customer Benefit:

Cheque-book facility
Opportunity to apply for - safe deposit locker facility
Collect foreign remittance in both T.C. & Taka draft.
Transfer of fund from one branch to another by- Demand Draft
Transfer of fund on Standing Instruction Arrangement
On-line Banking

3.10.3 City Onayash

City Onayash is a unique kind of savings account which calculates interest on daily
balance and pays interest every month.

Eligibility:
Age: At least 18 years
Nationality: Bangladeshi
Availability:
All 84 of City Bank branches spread across the country.
Interest rate : 4%

3.10.4 City Shomridhdhi

City Shomridhdhi is an exceptional DPS product that is distinctly more attractive than
the prevalent DPS products in the market. It enables Customers to receive a hefty sum

at the end of the term against his/her monthly deposit of small installments. It's a
perfect way to secure your financial future!
Eligibility

Features

Age: At least 18 Years

Nationality: Bangladeshi
No initial deposit required
Monthly installment deposit ranges from Tk. 500 to Tk. 20,000
Flexible tenor of 3, 5, 7 and 10 years
On premature encashment, you get the maturity value of nearest term - not

the routine savings rate.

Profitability Matrix:

Website

3.10.5

Term
3 (Three) Years
5 (Five) Years
7 (Seven) Years
10 (ten) Years

Interest Rate
8.50%
8.50%
8.50%
8.50%

Source: Bank

City Projonmo

City Projonmo is a unique monthly deposit scheme that clients can open for their kids
to safeguard their future against all uncertainties and risks. As a guardian of the child
one can open this account which builds great & unmatchable savings for them over
the years. By the time their child is past his or her school age, there is this sufficient
cash in customers hand to take care of his / her higher education, marriage or other
such large expenses.
However, the most interesting part of this scheme is the full insurance protection that
one automatically enjoys. This simply means, in case of death or total physical
collapse of the parent or guardian, the bank will pay the full value of the scheme for
the full term no matter in reality how many months or years have been actually
completed by the client.
Eligibility:
Age: At least 18 years & Nationality: Bangladeshi
Procedure to Open:
Have to have a savings or current account in order to operate City
Projonmo account.
Availability:

All 84 branches of City Bank spread across the country

Profitability Matrix:

Term

Interest Rate

3 (Three) Years

8.50%

5 (Five) Years

8.75%

10 (ten) Years

8.75%

15 (fifteen) Years

8.75%

20 (Twenty) Years

8.75%
Source: Bank Website

3.10.6 City Ichchapurun

This product allows the customer to earn interest and enjoy interest every month that
accrues in his fixed deposit account, no matter what the term of the deposit is. It helps
to make their financial planning more disciplined, and life more organized. While
ones fixed deposit remains untouched and well-kept for future, he/she keep on
getting the profit on a monthly basis.

Eligibility:
Age: At least 18 years.
Nationality: Bangladeshi
Availability:
All 84 branches of City Bank spread across the country.

Procedure to Open:
Fill up the City Ichchapuron account opening form.
Deposit money
Interest Rate: 8.5%

3.10.7 Fixed Deposit

If you believe in long-term investments and wish to earn higher interests on your
savings, NOW is the time to invest your money in CBLs Fixed Deposit.
Fixed deposit rate:
Term
1 month
3 months

Interest Rate
10%
12%

6 months

12%

1 year

12%

Source: Bank Website

3.10.8 City Visa Electron Debit Card

Visa Debit Card from City Bank always customers surface round the clock. Peoples
life, therefore, becomes hassle-free and safe; and it is Visa Electron branded, which
makes you the proud owner of a meaningful plastic.
Features :
Cash withdrawal from 500+ Visa ATMs 24/7/365 all over the country
Shop and dine at hundreds of merchant Visa outlets all over the

country
Balance enquiry
Fund transfer from your account to credit card 24/7/365
PIN Change
Mini statement
Cash withdrawal @ Taka 12 per transaction at DBBL ATMs

3.10.9 City Foreign Remittance (NRB)

The city Bank's Foreign Remittance unit meets growing customer needs for fast,
secure & easy money transfers to an extensive range of destinations. Being a
committed bank to its customers, it goes all the lengths to remit customers hard
earned money safely to their loved ones. With it, apart from a range of high-class
modem remittance solutions, one will get peace of mind which all believes counts to
most

3.10.10 I-Banking
I-Banking is the internet banking service of the City Bank Limited which is totally
free of cost for its clients, who are interested to use the service.
For activation the service the client has to apply with an assigned application form &
he/she should have a mail address. With a single click the clients can get the following
services

View Account Summary

View Account Details
Print Statement
Cheque Book Inquiry

View Standing Instruction

3.10.11 City Wallet

The City Bank Ltd has recently launched its new product 'City Wallet'-mobile banking
installed in customers' phone sets menu option- for the first time in Bangladesh.
Customers having a JAVA enabled cell phone with Internet access are no longer
required to type in the keywords in order to get SMS banking services. Customers,
who do not have JAVA enabled cell phone, however, have the option to avail
themselves of traditional SMS banking by typing in keywords and sending that
through a short code number (16243).
Following a simple registration process, the account holders of City Bank will now be
able to avail themselves of all basic banking services through City Wallet like account
balance enquiring, mini statement, transaction inquiring up to last 20 transactions,
branch and ATM information, forex rate enquiring and also real-time customer
service, according to a press release.

4.1 Introduction to Islamic Banking

Islamic Banking has experienced a phenomenal growth and expansion in Bangladesh
in the backdrop of strong public demand and support for the system along with its
gradually increasing popularity across the world. As a result, a number of full-fledged
Islamic Banks has been established, while a good number of Traditional banks have
come forward to offer services compliant with Islamic Shariah through opening of
Islamic branches along with Traditional ones. There is also a trend of conversion of
Traditional banks into Islamic bank.
It has, therefore, become necessary to ensure that activities of the fast growing Islamic
Banks are carried out properly and uniformly according to the principles of Islamic
Shariah. With this end in view, Bangladesh Bank constituted a Focus group
comprising representatives of the central Bank, a number of Islamic Banks and the
Central Shariah Board for Islamic Banks of Bangladesh to formulate an integrated
guideline for conducting banking business of the Islamic Bank/Islamic bank branches
of Traditional

banks. Based on the recommendations of the Focus group this

guideline embodying different terminologies used in Islamic Banking operations,

definitions of the terminologies, the principles and modes of deposits and investments
has been prepared. It also dwelt upon the issues of liquidity, maintenance of books of

accounts and preparation of financial statements and other related issues. This
guideline has been prepared mainly on the basis of Banking Companies Act 1991,
Companies Act 1994 and Prudential Regulations of Bangladesh Bank. However, this
guideline should be treated as supplementary, not a substitute, to the existing banking
laws, rules and regulations. Incase of any point not covered under this Guideline as
also in case of any contradiction, the instructions issued under the Banking
Companies Act and Companies Act will prevail.

4.2 Definitions of Terms used in Islamic Banking Operations

The following terms as used in this guideline, if not repugnant to the subject or
affairs, shall have the following meaning:
a) "Shariah" means such rules and regulations as have their origin in the holy

Qur'an and Sunnah to govern all aspects of human life.

b) "Islamic bank" means such a banking company or an Islamic banking

branch(es) of a banking company licensed by Bangladesh Bank, which

follows the Islamic Shariah in all its principles and modes of operations and
avoids receiving and paying of interest at all levels.
c) "Islamic Banking Business" means such banking business, the goals,

objectives and activities of which is to conduct banking business/activities

according to the principles of Islamic Shariah and no part of the business
either in form and substance has any elements not approved by Islamic
Shariah.
d) "Branch or Branch Office" means any branch or Branch Office of Islamic

Bank Company or office or Branch of such interest based Traditional Banks

which run Islamic banking business.
e) "Depositor" means some one who holds with any Islamic Banking Company

any account namely Current account based on Al-Wadiah principles, Savings

or long and short term deposit accounts under Mudaraba principles.
f) "Investment" means any such modes of financing which Islamic Bank

Company does in accordance with principles of Shariah or as per the Shariah

approved modes like Mudaraba, Musharaka, Bai-Murabaha, Bai-Muajjal,
Istisna, Lease, Hire-purchase under Shirkatul Melk, etc.

g) "Client" means such a person or institution who/which has any business

relationship with Islamic Banking Company.

h) "Compensation" means such financial penalty as is imposed by a Islamic

Banking Company over and above the amount of installment when a client
fails to repay Bank's investment on due dates as per the agreement executed by
him.

4.3 License
4.3.1 Criteria for setting up full-fledged Islamic Bank.
The following will be the broad criteria for consideration of setting up of the
scheduled Islamic Commercial Bank:
1. The proposed bank company will be a public limited company and a minimum
of 50% share shall be offered to the public.
2. All the financial transactions of the banking company shall be conducted
based on the principles of Islamic Shariah.
3. The ways and means of resource mobilization, expansion and nature of
business transactions have to be stated in the application form.
4. The applicant(s) shall indicate expertise and other facilities available with
them for ensuring operation of their Islamic Banking business as per Islamic
Shariah.
5. The banking company, to commence business, shall raise a minimum paid-up
capital of Tk.2.00 billion and shall at all times maintain the required capital
adequacy ratio, as prescribed by the Bangladesh Bank.
6. The minimum shareholding stake of each sponsor shall be Tk.2.5 million and
the maximum shall be 10% of the proposed bank's total share capital. This
ceiling of 10% applies to an individual, company or family member, either
severally and jointly or both. Family includes spouse, father, mother, and son,
daughter brother of the individual or anyone dependent on that individual.
7. The Sponsors' share shall not be transferred before expiry of 3(three) years
from commencement of the business without permission from Bangladesh
Bank.

8. The ceiling of 10% may be relaxed in case of a bank set up as a joint venture
with a foreign financial institution or banking company.
9. Application shall stand disqualified if any of the sponsors and/or Directors,
their spouses or firms:a. Has been convicted by a court of Law for commission of any criminal
offence inside or outside Bangladesh;
b. Has been involved in any illegal activities, particularly illegal banking
business, receipt of deposits, financial dealings and other business;
c. Has failed to settle liability/meet obligation to banks and other
financial institutions. They shall furnish names of the banks/ financial
institutions along with the names of the branches with which they have
had dealings. Bank reports are also required to be submitted;
d. Has failed to pay tax/duties. They shall indicate their Tax identification
numbers (TIN);
e. Is in the opinion of the sanctioning authority enjoys adverse reputation
regarding integrity and performance.
10. The Chief Executive (CE) would be a professional combined with at least 3
years Islamic banking experience, and having complied with all the terms &
conditions of the "Fit & proper Test" issued by Bangladesh Bank and have no
adverse information regarding his integrity and performance. The appointment
of the CE shall require prior approval of the Central Bank.
11. The applicant shall submit the following documents along with the
application:
a. Feasibility report with organizational structure for formation of the
Bank Company and proposed name of the Chief Executive Officer.
b. Short term & long term business plan.
c. Plans for Internal control management, Risks management guidelines
and details of the approval authority.
d. Working system and procedure for business activities/ operations.
e. List of other Companies/Firms and their bankers in which sponsor
director(s) and their family as defined in The Bank Company Act, 1991
are interested as director(s), Chief Executive, Partner, proprietor or
major share holders holding 5% or more shares.

12. The bank which may be permitted to be established shall be subject to the
prevalent banking and other laws, rules, regulations and directives issued by
the Bangladesh Bank from time to time.
13. The sponsors shall give an undertaking to the effect that the bank, if permitted,
shall comply with all instructions to be issued by Bangladesh Bank and the
Govt. of the People's Republic of Bangladesh from time to time.
14. All other terms and conditions as set by Bangladesh Bank for establishing a
bank company shall be applicable.

4.3.2 Terms & conditions for the Traditional Banks to obtain License for
opening Islamic Banking Branch (es).
Traditional

banks intending to open Islamic banking branch(es) shall fulfill the

following conditions:

1. Eligibility criteria:
The eligibility of a bank to open Islamic banking branch(es) shall be considered by
the Bangladesh Bank keeping in view, among others, the financial strength of the
bank as evident from its capital base(net capital free of actual and potential losses),
adequacy of its capital structure, record of earning capabilities, liquidity position,
track record of bank's adherence to prudential regulations, credit discipline, quality of
customer services and the convenience and the needs of the population of the area to
be served by the proposed branch. In addition, (1) banks must have CAMEL rating of
1/2 in the last On-Site inspection of Bangladesh Bank and (2) there should not be
major adverse inspection findings against the bank.
2. Required working papers:
The applying bank is required to submit a proposal for opening Islamic branch(es) to
the concerned department of Bangladesh Bank with the following details:a) Specify the number of branches to operate in line with Islamic Shariah and the
names of the proposed towns / districts.

b) A statement of services and products to be offered (regarding deposits,

investments, financing etc.) by the Islamic banking branch(es).
c) Commitment to keep funds and accounts of Islamic banking branches
completely separate from those of the Traditional ones.
d) Methods of segregating the funds of the Islamic branches from the funds of
commercial branches of the bank.
e) A Statement showing infrastructural and logistic facilities including manpower
and training.
f) Accounting aspects, such as accounting policies to be followed, the principles
and mechanism of profit / loss sharing / distribution.
g) Undertaking for preparing separate financial statement for the Islamic
branches.
3. Formation of an Islamic Banking Division:
a) An Islamic Banking Division has to be set-up in the Head Office of the local
Bank(s) and in the Country Office (in Bangladesh) in case of foreign Bank(s).
b) An organizational structure of the division indicating qualifications and
Islamic Banking experiences of the top Executives is to be submitted to the
concerned division of Bangladesh Bank.
c) The responsibilities & duties of the Islamic Banking Division of the concerned
Banks would be as under:

Framing of Islamic Banking rules and regulations and ensuring their

implementations.

Maintaining co-ordination with the Shariah Supervisory Committee, if

any, and the other divisions/offices of the Bank.

Ensuring investment of Funds received for Islamic Banking business

under modes approved by Islamic Shariah.

Arrangement is to be made to train up the manpower deployed in the

Islamic banking branch.

Submission of required statements to the Central Bank is to be ensured.

Ensuring of implementation of the guide-lines/rules and regulations

concerning Islamic banking framed/issued/instructed by the Central
Bank.

Maintaining of SLR/CRR according to the instructions of the Central

Bank.

Complying of any other responsibility(ies), the Central Bank may

assign from time to time.

d) A senior Executive would be the chief of Islamic Banking Division who shall
remain accountable to the CEO. This Division is to be provided with sufficient
manpower.
4. Control and segregation of Islamic Banking Fund:
Separation of Funds of Islamic banking branches and control and pursuance of
appropriate procedures are to be ensured for safeguarding the interest of the
depositors. The following steps are to be taken to address the above issues:
a) An operational Manual for running Islamic banking business is to be prepared
and got duly approved by the Board of Directors of respective banks. In case
of foreign bank(s), it is to be approved by their Head Office.
b) A full set of documents pertaining to deposits, investments & financing
products of Islamic banking is to be prepared and followed.
c) Required documents, Forms, Books, and Deposit Receipts, cheque Books etc.

of Islamic branch (es) are to be designed in such a way as to make them

distinct from those used in Traditional banking branches.
5. Maintenance of Accounts and Financial Statements:
a) The Banks have to maintain separate accounting system for their Islamic
banking branches. For this purpose, separate ledger books, software etc. are to
be maintained for keeping records of deposits, investments, profit & loss A/Cs,
etc.
b) Separate trial Balance for daily transactions of Islamic banking branch (es) is
to be prepared and maintained.
c) The bank has to prepare and submit quarterly, half yearly and yearly Financial
Statements to Bangladesh Bank relating to the Islamic bank branch (es).
All other terms and conditions as set by Bangladesh Bank for opening of a bank
branch shall be applicable.

4.3.3 Conversion of a Traditional Bank to an Islamic Bank:

4.3.3.1 The necessary measures for conversion
1. The bank will set up all necessary procedures, create the required tools,
explore alternatives to non-permissible financial practices, and train and
promote the personnel required for proper implementation of the procedures of
conversion.
2. The appropriate administrative arrangements must be in place, including
changing the bank's operating license by Bangladesh Bank, and amending the
bank's memorandum and articles of association through the required
procedures so that they include objectives and operational measures that are
appropriate to Islamic banking. The memorandum and articles of association
must be cleansed from anything that contradicts the nature of Islamic banking.
3. Restructuring the organizational structure of the bank and its employment
procedures, conditions and employee statutes to fit the situation of conversion.
4. Written consent/no objection through an acceptable legal process should be
obtained from the existing depositors and clients for transforming their
accounts into Islamic mode.
5. The transactions that are concluded before the decision to convert must be
ceased or disposed of immediately.
6. Reformatting or designing standard contracts or specimens or exemplars of
documents, forms, books, register etc. that comply with Shariah rules and
principles.
7. Preparing a special program for preparing personnel and impart them training
to deal with the application of Islamic banking practices.
8. Exerting all possible efforts to adapt the ways of dealing with Central banks
regarding deposits, liquidity needs or otherwise in a way that does not conflict
with the rules of Shariah, especially rules that govern riba transactions.
9. Any dealings with Traditional banks must be limited to the magnitude of the
need to do so.
10. Revamping the transactions with Traditional banks on the basis of riba-free
transactions and the application of instruments acceptable by Shariah.

11. Before commencement of business of the converted Islamic bank, the books of
accounts and statement of affairs of the Traditional

bank must be

reconstructed as per Shariah principles.

4.3.3.2 The effect of conversion on the interest based receivables, impermissible
earnings, obligation and their Shariah alternatives
1. All traces of Traditional

transactions whereby the bank originated any

monetary assets and is liable to pay interest for them must be liquidated prior
to date of conversion. This is the rule whether such transaction involve
individuals, banks or Central bank.
2. The bank must confine itself to permissible operations for acquiring the
necessary funds to operate or to meet its liabilities.
3. If the capital of the bank has increased due to non-permissible transactions or
the accumulation of reserves based on non-permissible transactions, then its
treatment must be in accordance with the treatment of non-permissible
receivables or other non-permissible assets in the possession of the bank.
4. All interest-based investment instruments must cease to be used and must be
replaced by permissible investment instruments prior to date of conversion.
5. All interest-based loans that the bank has made prior to date of conversion
must be terminated or converted to Shariah based transaction.
6. All liabilities in the form of obligation to provide non-permissible service
must be terminated by refunding the consideration, even if it has to pay
compensation for non-fulfillment of such obligations.
4.3.3.3 Starting from the financial period in which the bank decides to convert,
the following must be done
1. If a Traditional bank is acquired with the intention to convert it to an Islamic
bank, the new owners are not obliged to dispose of interest and impermissible
earnings that have been earned before such acquisition.
2. If a Traditional bank is converted by its existing shareholders into a bank,
then the process of disposing of interest and impermissible earnings should be
considered as commencing at the beginning of the financial period in which
the conversion starts to take effect. However, for any impermissible earnings
that have been distributed prior to conversion, it is necessary, on ethical

grounds, for the shareholders and depositors to whom these earnings have
been distributed to dispose them of personally. The bank is not bound to do so.
3. Revenues not yet received that are of doubtful permissibility are not subject to
compulsory disposal, whether they were earned before or during the financial
period in which the bank decides to convert. The same rule applies to revenues
of doubtful permissibility that have been already received because of a belief
that they are permissible on the basis of (a) an interpretation of a person who
is qualified to perform ijtihad on issues that are subject to personal Juristic
interpretation, (b) Juristic position of an authoritative school of Shariah or (c)
the opinion of some eminent and knowledgeable scholars.
4. If the bank has rights to prohibited non-monetary assets, it may receive them
with the intent to destroy them. If the bank is entitled to receive consideration
for supplying non-permissible assets or services, the bank may receive the
consideration with the intent to donate it to charity. The same rule applies to
any income that has been acquired from non-permissible assets during the
period in which the bank decides to convert. All impermissible and doubtful
earnings must be spent for charity.
5. If the bank is converted and it has, among its tangible assets, impermissible
commodities, the bank is obliged to destroy them. If the bank has sold some of
these commodities and is yet to receive the price thereof, the price must be
received and be spent for charity.
6. If the liabilities are in the form of payment of interest, the bank should employ
all lawful means to avoid paying such interest. This rule does not apply to the
principal amounts of debts or loans. The bank should not pay interest except
on the basis of dire need.
7. If the liabilities are in the form of obligations to provide non permissible
services, then the bank is obliged to make every effort to terminate such
liabilities, by refunding the consideration, even if it has to pay compensation
for non-fulfillment of such obligations.
4.3.3.4 External conversion through acquisition of the bank by parties interested
in converting it
If the purchaser is capable of negotiating a deal that could exclude all non
permissible receivables (e.g. interest and non-permissible assets) from the

acquisition deal in a way that will make the seller solely liable for nonpermissible liabilities, then the Shariah requires the purchaser to do so.
However, if the acquisition cannot be concluded unless all assets of the bank
including the non-permissible assets and receivables are acquired, then there is
no objection to the acquisition on this basis on condition that the purchaser
acts as quickly as possible to dispose of non-permissible liabilities even if the
purchaser has to suggest to the creditors of the bank an earlier repayment for a
discount.
4.3.3.5 The Zakah Obligation
When the conversion is initiated by outsiders who acquired the Traditional
bank for the purpose of converting it, then they are not obliged to make zakah
payment for the past financial periods because the zakah for previous periods
is the liability of the previous owners. The zakah liability will start to exist for
the new owners from the date of the decision to convert. However, if the
decision to convert was made by the shareholders and the zakah was not paid
for the previous financial periods, the shareholders are obliged to pay zakah
for these periods. They must take into account that they are obliged to pay
zakah even if the revenues and the money earned are impermissible because
the shareholders are obliged in the first place to dispose of all accrued interest
and impermissible earnings, so, the payment of zakah is part of the obligation
to dispose of impermissible earnings and interest.

4.4 Responsibility for Shariah Compliance:

It will be the responsibility of the board of directors of the respective banks to ensure
that the activities of the banks and their products are Shariah compliant. The Board of
the Islamic banks/ Subsidiary company/Traditional commercial banks having Islamic
branches, therefore, be constituted with directors having requisite knowledge and
expertise in Islamic Jurisprudence. The Board may form an independent Shariah
Supervisory Committee with experienced and knowledgeable persons in Islamic
Jurisprudence. However, the Board shall be responsible for any lapses/irregularities
on the part of the Shariah Supervisory Committee.

4.5 Principles of Deposit

1.5.1 Shariah principles for receiving deposits
Islamic banks receive deposits under two principles:

Al-Wadeeah principle.

Mudaraba principle.

4.5.1.1 Al-Wadeeah:
Fund which is deposited with Banks by the depositors with clear permission to
utilize / invest the same is called Al-Wadeeah. Islamic banks receive deposits in
Current Accounts on the basis of this Al-Wadeeah Principle. Islamic banks obtain
permission from the Al- Wadeeah depositors to utilise the Funds at its own
responsibility and the depositors would not share any profit or loss earned/incurred
out of using of this funds by the bank. The banks have to pay back the deposits
received on the principle of Al-Wadeeah on demand of the holders. The depositors
have to pay goverment taxes and other charges, if any.
4.5.1.2 Mudaraba:
Mudaraba is a partnership of labour and capital, where one partner provides full
capital and the other one manages the business. The capital provider is called SahibAl-Maal and the user of the capital is called Mudarib. As per Shariah principles, the
Mudarib will conduct the business independently following Shariah principles. The
Sahib-Al-Maal may provide advices, if he deems fit but he can not impose any
decision over the Mudarib. Profit, if any, is divisible between the Sahib-Al-Maal and
the Mudarib at a predetermined ratio, while loss, if any, is borne by the Sahib-AlMaal. Mudarib can not avail of any salary or remuneration against his labour as a
manager or conductor of the enterprise/business. The deposits, received by Islamic
banks under this principle are called Mudaraba Deposits. Here, the depositors are
called Sahib-Al-Maal and the bank is called Mudarib. The Mudaraba deposits include:
i) Mudaraba Savings Deposits (MSD)
ii) Mudaraba Short Notice Deposits (MSND)
iii) Mudaraba Term Deposits (MTD).

Different Islamic banks have developed various deposit schemes on the basis of this
Mudaraba principle such as monthly deposit-based Hajj Scheme, Monthly/One time
deposit-based Term Deposit Scheme, Monthly Mudaraba Profit Deposit Scheme,
Monthly Mudaraba Marriage Savings Scheme, Mudaraba Savings Bond etc.

4.6 Investment Principles & Investment Products

Islamic banks do not directly deal in money. They run business with money. The
funds of Islamic banks are mainly invested in the following modes:
1. Mudaraba;
2. Musharaka;
3. Bai-Murabaha (Murabaha to the purchase orders);
4. Bai-Muajjal;
5. Salam and parallel Salam;
6. Istisna and parallel Istisna;
7. Ijara;
8. Ijarah Muntahia Bittamleek (Hire Purchase);
9. Hire Purchase Musharaka Mutanaqisa (HPMM);
10. Direct Investment;
11. Investment Auctioning etc.
12. Quard
13. Quard Hassan etc.
4.6.1

Mudaraba:

Mudaraba is a shared venture between labour and capital. Here Bank provides with
entire capital and the investment client conducts the business. The Bank, provider of
capital, is called Sahib-Al-Maal and the client is called Mudarib. The profit is to be
distributed between the Bank and the investment client at a predetermined ratio while
the bank has to bear the entire loss, if any.
4.6.2

Musharaka:

Musharaka means partnership business. Every partner has to provide more or less
equity funds in this partnership business. Both the Bank and the investment client
reserve the right to share in the management of the business. But the Bank may opt to

permit the investment client to operate the whole business. In practice, the investment
client normally conducts the business. The profit is divided between the bank and the
investment client at a predetermined ratio. Loss, if any, is to be borne by the bank and
the investment client according to capital ratio.
4.6.3

Bai-Murabaha:

Contractual buying and selling at a mark-up profit is called Murabaha. In this case,
the client requests the Bank to purchase certain goods for him. The Bank purchases
the goods as per specification and requirement of the client. The client receives the
goods on payment of the price which includes mark-up profit as per contract. Under
this mode of investment the purchase/ cost price and profit are to be disclosed
separately.

4.6.4 Bai-Muajjal:
Meaning: "Bai-Muajjal" means sale for which payment is made at a future fixed date
or within a fixed period. In short, it is a sale on Credit. It is a contract between a buyer
and a seller under which the seller sells certain specific goods (permissible under
Shariah and Law of the Country), to the buyer at an agreed fixed price payable at a
certain fixed future date in lump sum or within a fixed period by fixed installments.
The seller may also sell the goods purchased by him as per order and specification of
the buyer.
In Bank's perspective, Bai-Muajjal is treated as a contract between the Bank and the
Client under which the bank sells to the Client certain specified goods, purchased as
per order and specification of the Client at an agreed price payable within a fixed
future date in lump sum or by fixed installments.

4.6.5 Salam and Parallel Salam:

Salam means advance purchase. It is a mode of business under which the buyer pays
the price of the goods in advance on the condition that the goods would be supplied /
delivered at a particular future time. The seller supplies the goods within the fixed
time.

Parallel Salam is a Salam contract whereby the seller depends, for executing his
obligation, on receiving what is due to him - in his capacity as purchaser from a sale
in a previous Salam contract, without making the execution of the second Salam
contract dependent on the execution of the first one. The following conditions are
essential in the contracts of Murabaha, Bai-Muajjal and Salam. The respective
contracts must include the following aspects regarding the goods:

Number/Quantity

Quality

Sample

Price and amount of profit

Date of supply/time limit

Place of supply

Who will bear the cost of supply?

Timeframe for payment in case of Bai-Murabaha and Bai-Muajjal.

4.6.6 Istisna and parallel Istisna:

A contract executed between a buyer and a seller under which the seller pledges to
manufacture and supply certain goods according to specification of the buyer is called
Istisna. An Istisna agreement is executed when a manufacturer or a factory owner
accepts a proposal placed to him by a person or an Institution to produce/manufacture
certain goods for the latter at a certain negotiated price.
Here, the person giving the order is called Mustasni, the receiver of the order is called
Sani and the goods manufactured as per order is called Masnu. An order placed for
manufacturing or producing those goods which under prevailing customs and practice
are produced or manufactured will be treated as Istisna contract.
Conditions & characteristics of Istisna are enumerated below:

The concerned Agreement must contain the details, such as, the type, class,
quantity and features of the goods to be produced, so that no
misunderstanding is created later on.

The price has to be settled; payment time/schedule and modes thereof is to

be predetermined.

When, where and on whose cost the goods to be supplied has to be clearly
mentioned.

If agreed by both parties, payment may be made in advance to the seller in

part or in full or may be deferred to be paid in due course/ agreed time.

Generally timeframe is not mandatory for supplying the goods under

Istisna agreement. It may be executed without determining timeframe. But
in case of bank, timeframe for supplying goods must be determined to
avoid any dispute in future.

Condition for imposing stipulated compensation/penalty may be included

in the Istisna agreement against the party who breaches the terms of the
agreement causing the other party to suffer. But no compensation/penalty
would be imposed on any party if it happens for any valid reason or
unavoidable circumstances.

As per opinion of the contemporary jurists, the compensation in case of

Istisna may be treated as legal income.

Parallel Istisna:
If it is not stipulated in the contract that the seller himself would produce/provide the
goods or services, then the seller can enter into another contract with third party for
getting the goods or services produced/ provided by the third party. Such a contract is
called Parallel Istisna. This may be treated as a sub-contract. The main features of this
contract are:

The original Istisna contract remains valid even if the Parallel Istisna contract
fails and the seller will be legally liable to produce/ provide the goods or
services mentioned in the Istisna contract.

Istisna and Parallel Istisna contracts are treated as two separate contracts.

The seller under the Istisna contract will remain liable for failure of the subcontract.

4.6.7

Ijara :

The mode under which any asset owned by the bank, by creation, acquirement or
building-up is rented out is called Ijara or leasing. In this mode, the leasee pays the
Bank rents at a determined rate for using the assets/properties and returns the same to
the Bank at the expiry of the agreement. The Bank retains absolute ownership of the
assets/properties in such a case. However, at the end of the leased period, the asset
may be sold to the client at an agreed price.
4.6.8 Ijarah Muntahia Bittamleak (Hire-Purchase):
Under this mode, the bank purchases vehicles, machineries and instruments, building,
apartment etc. and allowed clients to use those on payment of fixed rents in
installments with the ultimate objective to sell the asset to the client at the end of the
rental period . The client acquires the ownership/ title of the assets/ properties subject
to full payment/ adjustment of all the installments.
4.6.9

Hire-purchase Musharaka Mutanaqasa (HPMM):

Hire-purchase Musharaka Mutanaqasa means purchasing and acquiring ownership by

one party by sharing in equity and paying rents for the rest of the equity held by the
Bank/or other party. Under this mode, the Bank and the client on contract basis jointly
purchase vehicles, machineries, building, apartment etc. The client uses the portion of
the assets owned by the bank on rental basis and acquires the ownership of the same
assets by way of paying banks portion of the equity on the assets in installments
together with its rents as agreed upon.
The features of this mode are elaborated below:

The client applies to the Bank expressing his/her wishes to purchase the
assets/properties and the bank accords its approval after proper evaluation/
scrutiny.

The client deposits his/her share of equity with the bank after obtaining
approval and the bank pays total price of the assets/properties together with its
equity.

Before purchase of the assets/properties an agreement is executed stipulating

the actual prices, monthly rents, price of the bank's portion of the

assets/properties, payment schedule and installment amount and the nature of

the security etc.

The bank shall rent out its own portion of the assets/properties to the client as
per terms & conditions of the agreement.

The client (Hirer) pays off in installments bank's portion of equity on the
assets together with its fixed rent as per the terms and conditions of the
agreement.

With the payment of installments by the client, the ownership of the bank in
the assets/properties gradually diminishes, while that of the client increases.

The amount of the rent receivable by the bank, reduces gradually

proportionate to the increase in the ownership of the client on the
assets/properties.

The client acquires full ownership of the goods/assets after payment of the
entire dues of the bank.

The client may acquire the full ownership of the assets/properties before
expiry of the deal by paying off the entire dues to the bank.

The rent remains payable in proportion to Bank's ownership, if the client fails
to pay the due installment(s).

The bank can take of the assets / properties under its control, if the client fails
to pay the installment(s) as per the terms and conditions of the agreement.

The ownership of the assets/properties remains with the bank until the entire
equity provided by the bank together with the fixed rent is fully paid off. On
full payment/ adjustment of Bank's dues, it transfers the ownership to the
client.

The amount which the bank receives as rent is its income. The rent should not
treat as a part of the equity in any way.

4.6.10 rect Investment:

Under this mode, the bank can under its full proprietorship conduct business by
directly investing in the industries, trading, transports etc. In these cases, the
profit/loss fully goes to the bank.
4.6.11 nvestment Auctioning:

Selling by auction of those assets/goods acquired by the bank through direct

investment is called Investment auctioning. Generally, the bank establishes industrial
units by direct investment, makes the same operationally profitable and then sells out
on auction. This mode of investment is very helpful for industrialization of the
country.
4.6.12 Quard:
It is a mode to provide financial assistance/ loan with the stipulation to return the
principal amount in the future without any increase thereon.
4.6.13 Quard Hassan:
This is a benevolent loan that obliges a borrower to repay the lender the principal
amount borrowed on maturity. The borrower, however, has the discretion to reward
the lender for his loan by paying any amount over and above the amount of the
principal provided there will be no reference (explicit or implicit) in this regard. If a
bank provides its client any loan, it can receive actual expenditure relating to the loan
as service charge only once. It can not charge annually at a percentage rate. If a loan is
provided against the money deposited by a client in the bank, it has the right not to
pay any profit against the amount of money given as loan. But profit should be paid
on the rest of the amount deposited as per previous agreement.

4.7 Investment System for import/export business as per Islamic

Shariah Import Business:
The import business is broadly divided into the following three categories:i.

Import of Commercial goods.

ii.

Import of raw materials for production purpose.

iii.

Import of capital / machineries.

The importers avail of investment facilities against all kinds of imports. But in case of
imports under category (i) and (ii), investments are made under the Shariah approved
Bai-Murabaha and Bai-Muajjal modes and in case of import under category (iii),

investment is made under the Shariah compliant mode of Hire Purchase under
Shirkatul Melk (HPSM). Investment facilities are also provided for import business
through Bai-Salam, Musharaka and Mudaraba modes. Besides, the Islamic banks will
fully abide by the national and international norms and guidelines relating to
export/import business.

4.7.1. Import under the Bai-Murabaha system

4.7.1.1 Definition of the Bai-Murabaha: Bai-Murabaha is a contract between a buyer
and a seller under which the seller sells certain specific goods permissible under
Islamic Shariah and law of the land to the buyer at a price determined by charging
agreed profit, margin or mark-up over the cost price. In this case, the buyer either
makes cash payment to receive the goods or is allowed to make payment by
instalments or on a fixed future date. The profit mark-up may be fixed in lump sum or
in percentage over the cost price of the goods.
4.7.1.2 Some important features of the Bai-Murabaha mode of investment
a) The client (buyer) requests the bank to purchase particular goods and promises
to purchase the same from the bank at a price fixed by charging profit over the
cost price.
b) Under the Bai-Murabaha mode of investment there is no scope to increase the
price once it is fixed.
c) After buying the goods, the Bank has to bear all the risk until goods are
actually delivered to the client.
Import of goods under Bai-Murabaha mode of investment
In the import business, the importer provides an irrevocable letter of authority to the
Bank to import specific goods on behalf of him (the client) from the foreign seller and
promises to buy the same from the Bank. In this case, the Bank is designated as a
consignee in the Bill of lading and later on the Bank hands over the same to the
importer through endorsement i.e. the ownership of the goods is transferred to the
importer. As per uniform customs and practices, the seller lodges his claim or places
claim for dues to the buyer's Bank through the bill of exchange and the buyers bank

discharges the claim on behalf of the buyer. The above import system is fully
approved/ supported by the Islamic Shariah.

4.7.1.3 Investment in imports by Islamic Banks

In the import business, Bai-Murabaha investment is accomplished through a single
deal at the time of opening L/C, Bills and Shipment. For example:
a) Murabaha Import L/C
b) Murabaha Import Bills
c) Murabaha Post Import.

4.7.1.4 Murabaha Post Import (MPI)

The importers apply for investment facility against imported goods after shipment for
payment of the invoice values of the goods to the seller/supplier including custom
duty, VAT and other expenses. In such a case, Islamic banks allow a Bai-Murabaha
investment facility under single deal concept. It is so called as the Letter of Credit.
Bills and the handling of Post-shipment are settled under one agreement while
opening the letter of credit for importing the goods.

4.7.1.5 Accounting procedure for purchase price, profit and sale price
a) Price payable to the supplier
b) Other expenses related with purchase
i) Conveyance - TA/DA
ii) Commission payable to the agents.
iii) The expenditures in connection with suppliers payment.
iv) Transportation cost up to the Banks godown.
v) Transit Insurance and other expenses.
vi) Godown rent and salary of officials etc. incurred before sale of goods.

Additional expenses

1) Duty
2) VAT
3) License fee
4) Commission for C&F agent etc.
c) Cost price or total value = a + b
d) Estimated profit/Mark-up profit (profit percentage on purchase/cost price)
e) Sale price = c + d
f) The net Investment amount is determined after deduction of the down
payment (if any) from figure at "e" above.

4.7.2. Import under the Bai-Muajjal mode of investment

4.7.2.1. The term Bai-Muajjal means "deferred payment sale" or "Sale on
Credit"
Under this mode of investment a contract is made between the buyer and seller for
buying and selling of goods approved by Islamic Shariah and law of the land on the
stipulation to pay the agreed price at a specific future date or by fixed installments.

4.7.2.2 Some important features of the Bai-Muajjal mode of investment

Most of the features of Bai-Murabaha and Bai-Muajjal are alike excepting the
following:
1) Bai-Muajjal sale is executed completely on deferred payment system
2) The sale price is determined adding the profit with cost price. It is not
necessary to disclose the cost price and the profit mark-up separately to the
client. But in Bai- Murabaha, the cost price and the profit mark-up ratios are to
be disclosed separately to the client.
3) The accounting procedure for imported goods under both the Bai-Muajjal and
Bai- Murabaha mode are alike. But so far as contract is concerned they are
different. Bai- Murabaha contract and Bai-Muajjal contract are executed for
imports under Bai- Murabaha and Bai-Muajjal modes respectively.

4.7.3. Import under diminishing proprietorship method (Hire Purchase

under Shirkatul Melk-HPSM)
Capital machineries and other re-usable goods are imported under this mode. It
combines three modes: rent (Ijara), partnership (Shirkat) and buying and selling.

The Bank and the client invest their capital jointly through a contract called
partnership (Shirkat).

The bank leases its portion at a certain rent.

The Bank sells its portion to the client on receipt of the price under this
system.

4.7.4. Import under Musharaka mode of investment:

4.7.4.1. Definition of Musharaka:
Musharaka is a Shariah compliant mode of investment wherein the bank and the client
jointly provide the capital. Here no prefixed profit is earmarked like in Bai-Murabaha
or Bai-Muajjal. Profit, if any, is distributed as per agreement between the client and
the bank while the loss, if any, is shared according to capital ratio.
4.7.4.2. Some general features of Musharaka mode of investment :

The Musharaka agreement shall clearly laid down the amount of capital
investment to be provided by the bank and the client and the profit/ loss
sharing ratio as agreed between them.

The actual profit of the business is to be distributed between the bank and the
client as per the agreed ratio. But loss, if any, is to be borne by them as per
ratio of the capital.

The client shall properly maintain ledger, register, books of accounts etc. and
have to show those to any authorized person of the bank on demand.

For the success of client's business the bank shall have the right to give any
decision and supervise the business activities.

4.7.4.3. Before establishing Letter of Credit, the bank shall receive an application
from the client in prescribed form which shall include the following aspects:

The price of goods to be imported, C&F price as per quotation/indent.

Wholesale/retail price of every unit/ton/bag/carton.

Import cost including estimated import expenditures.

Expected sale price of imported goods.

Per unit/ton/bag/cartoon expected sale price of the imported goods.

Particulars of any other expenditure in addition to the import cost.

Estimated net profit.

Capital and profit /loss sharing ratios.

The Bank shall, thereafter, receive the equity portion of the client and after
completion of documentation shall make payment against the import liability and all
expenses related to it as per the Musharaka agreement. If there is profit, bank shall
receive its share of profit as per agreement and in case of loss, shall bear the same
according to capital ratio.

4.7.4.4. Fixation of liability in case of loss:

If loss is incurred after performing all duties and responsibilities as per agreement,
then the loss would be borne by the bank and the client according to capital ratio. But
if the loss is incurred due to carelessness, negligence or breach of any condition by the
client, then the client would be liable to bear the loss.

4.7.5. Import under Mudaraba mode of investment:

4.7.5.1. Definition of Mudaraba: Under the Mudaraba mode of investment, the
client or businessman or capital user does not invest any capital. In this case, the bank
alone invests all the required capital and the entrepreneur (the client) directly manages
and looks after the business.
4.7.5.2. Under this mode, the bank bears all the expenditures related to imports. In this
case, the Bank supervises the use of capital, system of business operation and income
of the business etc. The client maintains all the registers, documents and accounts
concerning buying & selling of the goods.

4.7.5.3. In this case, profit, if any, is distributed between the bank and the client as per
the agreed ratio and loss is fully borne by the Bank.

4.8 Investment in exports:

To accomplish export process/ order as per the terms and conditions of the letter of
credit (L/C) and the agreement executed between the seller and buyer, an exporter
needs financial and other banking facilities on urgent basis. So, it is one of the
important functions of a bank to provide investment and banking facilities to the
exporter at different stages of export business. An exporter needs financial facilities at
two stages of export process. Such as:

At pre-shipment stage, and

At post-shipment stage.

Hence, financial facilities to export sector may be classified as:

Pre-shipment Finance.

Post-shipment Finance.

Financial assistance/ facilities complying Shariah principles are provided at both the
stages of export process.

4.9 Investment at Pre-Shipment stage as per Islamic Shariah:

An exporter needs various financial facilities till shipment of goods. Finance is
needed for procurement of raw materials and to meet transportation and other related
cost upto shipment. Pre-shipment facilities are generally provided for the following
purposes:
i) To procure raw-materials.
ii) To process the exportable goods.
iii) For transportation and packaging.
iv) For payment of insurance premium.
v) For payment of water, electricity and gas bills etc.

vi) For payment of wages and salary/bonus to employees.

vii) For payment of freight of the ship.

4.10 Shariah compliant modes for Pre-shipment Finance:

4.10.1. Back to Back Letter of Credit (Back to Back L/C)
Bank extends Back to Back letter of credit (L/C) facility to exporters to
procure/import raw-materials for producing/manufacturing exportable goods at preshipment stage under the mode of Bai-Muajjal. Initially, no financial facility from the
Bank is required when the back to back L/C is opened. But if the exporter fails to pay
the L/C value at maturity or on due date, the bank provides financial facilities to the
client under Bai- Muajjal mode.

4.10.2. Bai-Murabaha TR (Trust Receipt) :

To procure/purchase raw-materials for executing export order the bank provides
investment facilities to the client under the mode of Murabaha TR. In this case, the
bank obtains Trust Receipt signed by the client and handover the imported goods to
the exporter.

4.10.3. Bai-Salam :
Under the Bai-Salam mode of investment, payment is made in advance to purchase
the goods and the supplier makes promise to deliver the goods at a future date.
Investment under Bai-Salam mode is made to meet other expenses of the exporter
excepting the manufacturing cost of exportable goods. The Bank purchases a portion
of the exportable goods under the Bai-Salam mode and makes advance payment for
the same on the condition that arrangements will be made by the exporter to export
the goods purchased by the bank along with other goods of the exporter.
Fixing purchase price of the goods and recovery of bank's investment:

The purchase price is determined by deducting estimated profit of Bank's purchased

portion of the exportable goods. The bank recovers its dues after realization of export
proceeds.

4.10.4. Musharaka:
Pre-shipment investment may be made under Musharaka mode of investment if there
is any pre-determined investment arrangement.

4.10.5. Post-Shipment Investment:

Bank provides post-shipment investment facilities through Negotiation (FBN) and
purchase of export bills. It normally negotiates or purchases the export documents if
the documents/bills prepared by the exporter are found in order/correct in all respect.
The bank adjusts the liabilities against FBN/FBP after receiving the export proceeds
and earns exchange income from this. This mode of investment is in compliance with
the Islamic Shariah.

4.10.6 Other functions:

a) Remittance or Money Transfer:
Islamic banks can transfer money through D.D, T.T, T.C etc. and collect the
bills (cheque, Draft, Payment order etc.) and realise commission or service
charges within the norms of Shariah.
b) Miscellaneous Banking Services:
Islamic banks can render miscellaneous banking services like locker services,
receipt And payment of clients' bills, issuance of Guarantee and working as
agents of clients against commission or service charges. Collection of service
charges or commissions for rendering those services are permissible under
Shariah.

4.11 Maintenance of CRR/SLR

All Islamic Banking Companies shall maintain Cash Reserve Ratio (CRR) and
Statutory Liquidity Ratio (SLR) as per rates prescribed by Bangladesh Bank from
time to time. Every commercial Bank having Islamic bank branches shall maintain

SLR/CRR for its Islamic branches at the same rate as prescribed for the Islamic banks
and shall, for the purpose, maintain a separate Current Account for the Islamic
branches with Bangladesh Bank.
Addressing of liquidity crisis and utilization of surplus fund of the Islamic
Banks:
In case of liquidity surplus and crisis the banks can take recourse to the following:
1. The excess liquidity of the Islamic banks/ Islamic branches of Traditional
Scheduled banks may be invested in the Bangladesh Government Islamic
Investment Bond (Islamic Bond introduced by the Government). In the same
way, Islamic banks/branches facing liquidity crisis can tide over the crisis by
availing of investment from Islamic Bond fund as per the prescribed rules.
2. In case Islamic banks/branches have surplus/ enough investment in the Islamic
Investment Bond and subsequently faces liquidity crisis then the bank / branch
may overcome the crisis by availing of investment facilities from Islamic
Bond Fund against lien of their over purchased Islamic Bonds. To meet the
crisis, REPO system may also be introduced for the Islamic Bonds.
3. The Islamic banks/branches having no surplus investment in 'Bangladesh
Govt. Islamic Investment Bond at the time of their liquidity crisis, if arises,
may availed funds from Bangladesh Bank at a provisional rate on profit on its
respective Mudaraba Short Notice Deposit Accounts which will be adjusted
after finalization of Accounts and rate of profit of the concerned Islamic
banks/branches. But till funds generated from sell of Islamic Investment
Bonds remain available for investment such financial support may not be
available from Bangladesh Bank.
4. The Islamic banks/branches may open/ maintain Mudaraba SND accounts
with each other and can meet liquidity crisis by receiving deposits in the
Mudaraba SND account at MSND rate from those having surplus liquidity.
5. To meet the liquidity crisis, if any, of the Islamic branches of the Traditional
commercial bank fund may be collected from sources which follow Islamic
Shariah.

5.1 What is Islamic Banking?

Islamic banking is not a negligible or merely temporary phenomenon. Islamic banks
are here to stay and there are signs that they will continue to grow and expand. Even if
one does not subscribe to the Islamic injunction against the institution of interest, one
may find in Islamic banking some innovative ideas which could add more variety to
the existing financial network.
Islamic banking has been defined in a number of ways.
The definition of Islamic bank, as approved by the General Secretariat of the OIC, is
stated in the following manner. "An Islamic bank is a financial institution whose

status, rules and procedures expressly state its commitment to the principle of Islamic
Shariah and to the banning of the receipt and payment of interest on any of its
operations.
The concept from the perspective of an Islamic economy and the prospective role to
be played by an Islamic bank therein opines: "It is, therefore, natural and, indeed,
imperative for an Islamic bank to incorporate in its functions and practices
commercial investment and social activities, as an institution designed to promote the
civilized mission of an Islamic economy" (Ibid). ziauddin Ahmed says. "Islamic
banking is essentially a normative concept and could be defined as conduct of
banking in consonance with the ethos of the value system of Islam".
It appears from the above definitions that Islamic banking is a system of financial
intermediation that avoids receipt and payment of interest in its transactions and
conducts its operations in a way that it helps achieve the objectives of an Islamic
economy Alternatively, this is a banking system whose operation is based on Islamic
principles of transactions of which profit and loss sharing (PLS) is a major feature,
ensuring justice and equity in the economy. That is why Islamic banks are often
known as PLS-banks.
Islamic bankers do not expect to advance money and receive a predetermined sum on
a fixed date in the future. Under the Shariah, the bedrock of the Islamic faith, they are
instead responsible for ensuring that money is invested in viable projects, with
reliable borrowers. If the project succeeds the banker shares in the profit. If it fails he
suffers the losses.
Just as an "Islamic Bank" is defined with reference to its mandate requiring that it
Complies with two sets of law: (1) the "law of the land" and (2) Islamic Sharia law.
Islamic bank was "owned by its shareholders, established to conduct banking and
investment activities in accordance with the Islamic Shariah and its (own) articles of
association.
The guiding principles for an Islamic financial system is a set of rules and laws,
collectively referred to as shariah, guiding economic, social, political, and cultural
aspects of Islamic societies. Shariah originates from the rules dictated by the Quran
and its practices, and explanations rendered (mare commonly known as Sunnah) by

the Prophet Muhammad. Further elaboration of the rules is provided by scholars in

Islamic jurisprudence within the framework of the Q"uran and Sunnah. In a sense, the
combination of law and finance in Islam is inevitable.

5.2 History of Islamic banking

It is difficult to say with accuracy which was the first such company or bank, that
pioneered this concept in practice. Some analysts and experts in the field are of the
opinion that, Islamic banking and finance, in the modern context, first emerged in
1963, when Mit-Ghamr Saving Bank began an experimental project offering interest
free banking in Egypt. The project was a success and lead to the bank opening four
new branches by 1967. In the same year, eight new banks mushroomed offering
interest free banking. Due to the political climate prevailing in Egypt during that
period, the success of these Islamic banks was seen as a threat, and they were forced
to close down in 1971. Some observers are of the opinion that the concept of an
"Islamic bank" was born at the Islamic Summit of Lahore, Pakistan in 1974 which
recommended the creation of an Islamic Development Bank. Since then Islamic
banking and financial institutions have grown rapidly.
American Muslim individuals and groups have been running many Islamic financial
institutions from over a decade now. The Amana Fund, the LARIBA bank, and a host
of smaller organizations dot the North American landscape. The launching of the
multi-million dollar Halal investment company in London is another indicator of the
growing salience of Islamic banking institutions not just in Muslim countries, but in
the West as well. Countries where vibrant Islamic financial institutions are
functioning include: Albania, Algeria, Australia, Bahamas, Bahrain, Bangladesh,
British Virgin Islands, Brunei, Canada, Cayman Islands, North Cyprus, Djibouti,
Egypt, France, Gambia, Germany, Guinea, India, Indonesia, Iran, Iraq, Italy, Ivory
Coast, Jordan.
The first modern Islamic bank, established in Egypt in 1970, was called Nasser's
Social Bank. Islamic accounting, an essential tool for the success of Islamic banks, is
said to have been developed contemporaneously at the University of Cairo.
The desirability of abolishing fixed interest rates and the Islamization of financial
systems were discussed at the first meeting of the Islamic Organization Conference

(IOC) in Jeddah in 1973. Subsequently, many Islamic banks were founded under the
profit-and-loss sharing system (PLS), which all transactions are based on this
principle.
Returns are variable, dependent on bank performance and not guaranteed. But the
risks are managed to ensure better returns than deposit accounts. Consumers can
participate in the profit upside i.e. in a more equitable way than receiving a
predetermined return. Several Muslim countries, Indonesia, Iran, Malaysia, Pakistan,
Sudan and Turkey, in recent years have been taking systematic steps to establish an
Islamic banking and financial sector.
Malaysia and Pakistan first to Institutionalize Islamic Banking For example, Malaysia
in 1983 passed an Islamic Banking Act to facilitate the growth of indigenous Islamic
banks and finance companies. In conjunction with this Act, it became the first Muslim
economy to issue bonds on an Islamic basis. Since then, some 50-60 institutions have
been established, and are now in the process of forming an Islamic inter-bank market
(i.e. in which banks borrow or lend to each other). Within 10 years of introducing the
Islamic Banking Act, the Malaysian government has taken further steps to popularize
Islamic banking and finance, by allowing Traditional banks to offer Shariahcompliant
instruments, Western Banks embrace Islamic Banking Instruments These trends in
Malaysia and elsewhere are having a profound effect on the banking and financial
world as a whole. For example, America's Citibank was the first major Traditional
bank to establish an Islamic bank in Bahrain, with an operating capital of $20 million
(The Economist, August, 24, 96). It may be a puny sum, but, it does suggest to some
degree that Traditional banks have begun to embrace Islamic banking on a moderate
scale.
A number of other Western financial institutions have followed suit by offering
Islamic mutual funds and other investment products in an attempt to attract liquidity
from this growing market. Far example, non- Islamic banks such as Goldman Sachs,
Kleinwort Benson and ANZ Grindlays are now offering financial products that meet
Islamic criteria. Germany's fourth largest bank, Commerzbank, started offering
Islamic mutual funds from December 1999.

5.3 History of City Manarah

City Bank introduces City Manarah - Islamic Banking. City Manarah is here to guide
you and manage your finances in a fully Islamic Shariah Compliant way. In Arabic,
Manarah means Lighthouse. A lighthouse guides a ship towards safety from the
hostile sea, and similarly, the objective of City Manarah is to guide customers into the
world of a fully Islamic Shariah compliant banking. Islamic Banking has experienced
exceptional growth in Bangladesh due to strong market demand. At City Bank, we
understand and care for our customers values and needs. The journey of Islamic
Banking in City Bank dates back to 2003, when they opened an Islamic branch at
Motijheel, Dhaka.
The year 2010 is the eighth full year of Islamic Banking operation of the Bank.
During these years, the Bank has taken a number of significant steps to provide full
length of Shariah compliant products and services to the customers. From that point of
view, City Manarah is a re-launch of our Islamic Banking. We did it in December,
2010 with the introduction of four new retail liability and two new loan products. The
bank has been making consistent efforts in providing products with better features that
fulfill the objectives (Maqasid) of Islamic Banking.
One of the unique features of City Manarah lies in its philosophy that it must be
completely based on the principles of Islamic law (also known as Shariah). Two basic
principles behind Islamic Banking are the sharing of profit and loss and significantly
the prohibition of the collection and payment of interest. Interest in any form is not
permitted under the Islamic law.
Another distinctive feature is that with regard to City Manarah, we are using a new
version of Ababil software from Millennium Information Solution Ltd. (MISL).
Ababil is a certified Shariah software, which is specialized and well equipped with
capabilities to maintain Islamic Banking principles. Apart from City Bank, banks like
AB Bank, Al-Arafah, SIBL etc. also use the same software for their Islamic Banking
operation.
Currently, we are providing Islamic Banking services from 30 branches of the bank.
This includes all Dhaka branches and 5 branches outside Dhaka serving almost 3,000
Manarah clients in the retail category. City Manarah offers a wide variety of deposit

and investment products such as Manarah Savings, Manarah Current, Manarah Term
Deposit, Manarah Monthly Deposit Scheme, Manarah Personal Finance and Manarah
Auto Finance. Each is designed to meet customers financial needs in accordance with
the Shariah rule.

5.4 Vision of City Manarah

The vision of City Manarah, progressively, is to provide a full range of Islamic
Banking service to all our Retail, SME and Corporate customers alike. Keeping this in
mind, City Manarah wants to utilize the Banks vast network of 98 offices to provide
online Islamic
Banking services to our customers. We are also planning to introduce newer products
i.e. Islamic Home Finance, Islamic Credit Card and Hajj/Umrah schemes in near
future. We believe City Manarah will be seen as a trend-setter in Islamic Banking in
Bangladesh.

5.5 City Manarah Branch & Service Centers

Sl Address

Phone

01.

City Manarah Center and Islamic banking branch

207 Shahid Syed Nazrul Islam Sharani, Paltan, Dhaka

01199 806275

02.

B.B. Avenue
12 B.B. Avenue, Dhaka-1000 PO Box 3756

01971-404174

03.

Dhaka Chamber
Ismail Mansion, 9/H Motijheel C/A, Dhaka - 1000

Dhanmondi
04. Rd#27(old), 32(new), H#312, Subastu Zenim Plaza, 2nd
floor, Dhanmondi R/A, Dhaka 1205
05.

Foreign Exchange Branch

27, Dilkhusha C/A, Dhaka

7171884,
7176827

01974011077

01971 404159

Gulshan
06. United House, 10, Gulshan Avenue (1st Floor), Gulshan
R/A,Dhaka 1212

01199 806831

Gulshan Avenue
07. City Bank Center, 136, Gulshan Avenue, Gulshan 2,
Ground Floor

01745 638481

08.

Kawran Bazar
8, Panthapath (UTC), Kawaran Bazar, Dhaka 1215

01971 404152

09.

Islampur
108, Islampur Road Dhaka

01971404148

Mirpur
10. 1, Dar- us- Salam road (1st Floor), Section -1, Mirpur,
Dhaka - 1216

01971404160

11.

Mouchak
80/A Siddeswari Circular Road, Malibagh, Dhaka-1217

01971 404158

12.

Nawabpur
219-220 Nawabpur Road, Dhaka-1100

01971 404161

13.

New Market
H#5, Rd# 2, Novera Square, Dhanmondi R/A

01971404150

Nikunja
14. Lotus Kamal Tower One, 57, Zoar Shahara C/A, Nikunja 2,
New Airport Road
15.

Posta
35, Shaista Khan Road, Dhaka 1211

01970 031857

01971 404154

5.6 Product of City Manarah

It offers a wide variety of deposit and investment products such as Manarah Savings,
Manarah Current, Manarah Term Deposit and Manarah Monthly Deposit Schemes.
Each account is designed to meet your financial needs with best value for your
money.

5.6.1 Manarah Current Account

Manarah Current Account is operated under the Al-Wadiah principles, where Bank
becomes the guarantor of the fund and returns the whole amount or any part when
demanded by the depositor. It is a transactional account that a customer uses for its
normal personal and/or business activities.
Product Features

Opening balance is BDT 10,000

Minimum balance to maintain account is BDT 2,000

No profit is applicable

Can be availed by any Bangladeshi national aged 18 years and above

Customer Benefit

Cheque book facility

Safe deposit locker facility

Pay Order issuance facility

Online transfer of fund from one Islamic Banking Branch to another

Transfer of fund on Standing Instruction Arrangement

Debit card facility

5.6.2 Manarah Savings Account

Manarah Savings Account is operated under the Mudarabah principles. It is an Islamic
financial partnership contract where one partner provides capital (Depositor) and the
other partner provides labor (Bank) and income generated from the venture is shared
between the partners.

Product Features

Opening balance is BDT 5,000

Minimum balance to earn profit is BDT 5,000

Profit payable half yearly

Can be availed by any Bangladeshi national aged 18 years and above

Customer Benefit

Cheque book facility

Opportunity to apply for safe deposit locker facility

Pay Order issuance facility

Online transfer of fund from one Islamic Banking Branch to another

Transfer of fund on Standing Instruction Arrangement

Collection of cheque through Clearing House

Debit card facility

Profit on daily average balance

5.6.3 Manarah Term deposit

Manarah Term deposit is for long term deposit product under Mudarabah principles
with higher rate of return.
Product Features

Deposit amount minimum BDT 50,000

Deposit tenor 1 month, 3 months, 6 months, 1 year, 2 years and 3 years

Premature encasement allowed subject to banks prevailing policy

Can be availed by any Bangladeshi national aged 18 years.

5.6.4 Manarah Monthly Deposit Scheme

Manarah Monthly Deposit Scheme is an exceptional deposit product that is distinctly
more attractive than the prevalent monthly deposit products in the market. You receive
a hefty sum at the end of the term against your monthly deposit of small installments.
It's a perfect way to secure your financial future.
Product Features

Can be availed by any Bangladeshi national aged 18 years

Deposit amount minimum BDT 500 and any of its multiplier upto BDT 20,000

Deposit tenor is for 3,5,7 and 10 years

Premature encasement allowed subject to banks prevailing policy.

Maturity value (provisional)
Deposit amount per month
(BDT)

3 years

5 years

7 years

10 years

500

20,565

37,484

57,526

94,735

1,000

41,131

74,969

1,15,053

1,89,471

2,000

82,263

1,49,939

2,30,107

3,78,942

5,000

2,05,659 3,74,848

5,75,268

9,47,355

10,000

4,11,319

11,50,537 18,94,710

20,000

8,22,639 14,99,394 23,01,075 37,89,421

7,49,697

5.6.5 Manarah Personal Finance

Manarah Personal Finance is an unsecured and terminating financing facility under
Murabaha principle for any Shariah compliant purposes. Under this facility a
commodity is sold for a deferred price which includes an agreed profit added to the
cost.
Manarah Personal finance is designed for salaried executives, business persons
& self employed individuals
Product Features

Investment up to Tk. 10 Lacs

Repayment within 1-5 years

Fully Unsecured facility

Customer Benefit

Competitive profit rate

Lower processing fee

No hidden charge

5.6.6 Manarah Auto Finance

City Manarah Auto Finance is a terminating financing facility (EMI based) based on
Hire purchase under Sirkatul Mielk (HPSM) of Ijarah mode. HPSM is a combination
of three contracts i.e Ijarah, Sirkat & Buy. HPSM is a special type of contract where
both the bank and the customer supply equity in equal or unequal proportion for
purchasing an asset, own the same jointly. The share in the asset owned by the bank is
hired out to the customer and eventually the bank sells and transfers his ownership to
the customer against full payment of price as per agreement. As the customer pays
monthly installment ownership of the bank decreases and that of the customer
increases. Monthly installment includes both rental and principal to buy back bank's
ownership gradually over the financing period.
Manarah Auto Finance is designed to help the customers to purchase brand new
and reconditioned but unregistered automobiles for personal use only.
Product Features

Investment up to Tk. 20 Lacs

Repayment within 1-5 years

Unsecured facility

Customer Benefit

Competitive profit rate

Lower processing fee

No hidden charge

5.7 Manarah Deposit Rates

The City Bank Limited
Head Office : Dhaka
Treasury & Market Risk Division

Revised Provisional Deposit rates for Islamic Banking Products (%)

W.E.F: 29.05.2011

Islamic Banking Products

Profit rate
(provision Remarks
al)

Mudaraba Savings Deposit

5.00

Manarah Savings Deposit

5.00

Mudaraba Short Notice Deposit

3.50

Manarah Monthly Deposit Scheme

03 Years

8.50

05 Years

8.50

07 Years

8.50

10 Years

8.50

Mudaraba Term Deposit

1 Month

9.00

3 Months

11.50

6 Months

11.50

12 Months

12.00

24 Months

8.00

36 Months

8.00

Mudaraba Savings Deposit (From Other

Bank)

5.00%

6.1 Overview of Traditional and Islamic Banking

Like Traditional bank, Islamic bank is an intermediary and trustee of money of other
people but the difference is that it shares profit and loss with its depositors. This
difference that introduces the element of mutuality in Islamic banking makes its
depositors as customers with some ownership of right in it.
Islamic banking and Traditional banking differs in that while the Traditional banking
follows Conventional interest-based principle, the Islamic banking is based on interest
free principle and principle of Profit-and-Loss (PLS) sharing in performing their
businesses as intermediaries. Rationale behind prohibition of interest and the
importance of PLS in Islamic banking has been discussed in many Islamic economics
studies. Moreover, Islamic PLS principle creates the relationship of financial trust and
partnership between borrower, lender, and intermediary.
Islamic finance is a financial system with the aim to fulfill the teaching of Holy
Quran as opposed to reaping maximum return on financial assets. Conformity to

norms of Islamic ethics is the main concern of Islamic financial system. These norms
of Islamic ethics as enunciated by the Shari'ah govern all transactions in an Islamic
financial system.
An Islamic bank is essentially a partner with its depositors, on the one side, and also a
partner with entrepreneurs, on the other side, when employing depositors' funds in
productive direct investment as compared to a Traditional bank which is basically a
borrower and lender of funds. Difference between the two banking systems also lies
in terms of governance structure. Islamic banks must obey a different set of rules
those of the Holy Quran and meet the expectations of Muslim community by
providing Islamically-acceptable financing modes (Suleiman 2001). Islamic banks are
similar to those of non-Islamic banks in that both offer similar (financial) services and
play a pivotal role in the economic development of their societies. But they are
different in that Islamic banks, unlike non-Islamic banks, are bound to follow Islamic
Shari'ah in their operations. For instance, according to Islamic Shariah exploitative
contracts based on Riba (usury or interest) or unfair contracts that involve risk or
speculation are unforeseeable.

6.2 The Characteristics between Islamic & Traditional banking

Different characteristics of Islamic and Traditional banks imply for their relative
business orientation, efficiency, asset quality, and stability.
Characteristics Islamic Banking System

Traditional Banking System

(interest based system)

Business

Based on Sharia laws Sharia

Not based on religious laws or

Framework

scholars ensure adherence to

guidelines-only secular banking

Islamic laws and provide

laws

guidance.
Balance

The requirement to finance

Excessive use of credit and debt

between moral

physical assets which banks

financing can lead to financial

and material

usually take ownership of before problems.

requirement

reseale reduced over extension

of credit.

Equity

Available. Enables several

Not generally through

financing with

parties, including the Islamic

commercial banks , but through

risk to capital

bank to provide equity capital to

venture capital companies and

a project or venture. Losses are

investment banks which typically

shared venture. Losses are

take equity stakes and take

shared on the basis of equity

equity stakes and management

participation while profits are

control of an enterprise for

shared on a pre-agreed ratio.

providing start-up finance.

Management of the enterprise

can be in one of several forms
depending on whether the
financing is through Mudarabah,
Musharaks , etc.
Prohibition of

Transactions deemed Gharar are

Trading and dealing in

Gharar

prohibited. Gharar demotes

derivatives of various forms is

varying degrees of deception

allowed.

pertaining to the price and

quality of goods received by a
party at the expense of the other.
Derivatives trading e.g. options
are considered as having
elements of Gharar.
Profit and Loss

All transactions are based on

This principle is not applied.

Sharing

this principle. Returns are

Returns to depositors are

variable, dependent on bank

irrespective of bank performance

performance and not guaranteed. and profitability. The customer

But the risks are managed to

as depositor is like a lender and

ensure better returns than

does not share in the success of

deposit accounts. Consumers

the enterprise beyond receiving a

can participate in the profit

fixed rate of predetermined

upside i.e. in a more equitable

interest. Unlike the Islamic

way than receiving a

system the depositor can not

predetermined return.

theoretically gain subject to

improved bank performance.

6.3 Difference between Islamic Banks and Traditional Banks

The Traditional financial system focuses primarily on the economic and financial
aspects of transactions, the Islamic system places equal emphasis on the ethical,
moral, social, and religious dimensions, to enhance equality and fairness for the good
of society as a whole. The system can be fully appreciated only in the context of
Islam's teachings on the work ethic, wealth distribution, social and economic justice,
and the role of the state.
Some of the differences between the Islamic Banks and the Traditional Banks The
following are a brief discussion in which we list the fundamental differences in the
nature of work between the Islamic and Traditional or commercial banks:
First, traditional or commercial banks are intermediate financial institutions which
stand between the savers and the investors. On the other hand, Islamic banks are a
mixture of internationally known traditional financial institutions for they not only
operate like saving banks but are also similar to finance companies in so far as they
can offer financial support to high risk projects.
Second, the form of the Islamic bank and the form of the Traditional bank: The
Islamic bank is more than the Traditional bank for it works like any other specialized
bank, (such as industrial banks, agricultural banks or building societies). It finances
projects in all the above mentioned fields in addition to the fact that it can work like
any investment bank because it is interested in the establishment of long-term
projects.
Third, Traditional banks do not get involved in the buying and selling or even the
keeping of commodities, only within certain conditions. Also these banks, in
accordance with their charters, can not buy capital assets or fixed assets unless they
are used by the bank itself13. As for Islamic banks, they can trade with all types of
commodities and can keep capital assets and establish limited companies or other
types of companies.
Fourth, the Traditional bank promises to pay fixed rates on its deposits, regardless of
whether it makes profits or losses. The Islamic bank however, does not promise

profits; if it made any profits during the financial year it would give the depositors the
agreed rates; conversely, if the bank made losses, the depositors would share the
burden together with the bank.
Fifth, any Traditional or commercial bank can issue excellence share, which has fixed
rate from the profits, but the Islamic bank can not do that because they are of limited
interests.
Sixth, all reserves in the commercial or Traditional banks are deducted from the net
profit, but in the Islamic bank they are deducted only from the net profit ear-marked
for the share-holders.
Seventh, a considerable part of the Traditional or commercial banks funds are
directed towards commercial (business) loans , but the majority of the funds in the
Islamic bank are directed toward Al Musharaka finance (shared finance or partnership
companies), Mudarabah finance (speculative finance) or resale with specification of
gain or other .
Eighth, regardless of their rate of profits, the Islamic banks prohibit the production of
trading with certain prohibited goods and services in Islam such as:
- The finance of breweries or meat processing companies dealing with pigs.
- The finance of gambling casinos.
Ninth, one of the characteristic features of the Islamic banks is the existence of what
is called `Al-zakat fund'. This seeks to establish social equality. Such funds are found
in the Kuwaiti Finance House (KFH), the Islamic Bank of Jordan (IBJ) and various
other Islamic banks. This fund is financed by taking 2.5% of the bank's capital every
year, with the bank's customers are given the option of paying their Zakat to the bank.
Finally, the importance of the 5Cs (capital, capacity, collateral, character, and
condition): The Islamic banks attach varying degrees of importance to the elements of
the 5Cs from that of the Traditional or commercial banks. The commercial bank may
give priory to the collateral, whereas the Islamic bank gives priority to character of
customer. The commercial bank is perhaps more interested in the capital and capacity,
but the Islamic bank is found to be more interested in capacity than in capital. On the
other hand, there may be some similarity between the commercial bank and the

Islamic bank on the issue of priority attached to the security and soundness of any
project submitted to the bank for the purpose of financing.
Traditional banking
The functions and operating modes of

Islamic Banking
The functions and operating modes of

Traditional banks are based on manmade Islamic banks are based on the principles
principles.

of Islamic Shariah.

The investor is assured of a

In contrast, it promotes risk sharing

predetermined rate of interest.

between provider of capital (investor) and

the use of funds (entrepreneur).

It aims at maxmizing profit without any

It also aims at maximizing profit but

restriction.

subject to Shariah restrictions.

It does not deal with Zakat.

In the modern Islamic banking it has

become one of the service-oriented
functions of the Islamic banks to collect
and distribute Zakat.

Leading money and getting it back with

Participation in partnership business is

interest is the fundamental function of

the fundamental function of the Islamic

the Traditional banks.

banks.

Its scope of activities is narrower when

Its scope of activities is wider when

compared with an Islamic bank.

compared with a Traditional bank. It is, in

effect, a multi-purpose institution.

It can charge additional money

the Islamic banks have no provision to

(compound rate of interest) in case of

charge any extra money from the

defaulters.

defaulters.

In it very often, banks own interest

it gives due importance to the public

becomes prominent, it makes no effort

interest. Its ultimate aim is to ensure

to ensure growth with equity.

growth with Equity.

For interest based commercial banks,

For the Islamic banks, it is comparatively

borrowings from the money market are

difficult to borrow money from the

relatively easier.

money market.

Since income from the advance is fixed,

Since it shares profit and loss, the Islamic

it gives little importance to developing

banks pay greater attention to developing

expertise in project appraisal and

project appraisal and evaluations.

evaluation.
The Traditional banks give greater

The Islamic banks, on the other hand,

emphasis on credit-worthiness of the

give greater emphasis on the viability of

clients.

the projects.

The status of a Traditional bank, in

The status of Islamic bank in relation to

relation to its clients, is that of creditor

its clients is that of partners, investors and

and debtor.

trader.

A Traditional bank has to guarantee all

Strictly speaking and Islamic bank cannot

its deposits.

do that.

Theoretical Comparison
Traditional Banking

Islamic Banking

Is based on interest.

Is based on profit or rent

Deals in money or papers.

Deals in assets.

Is based on fixed return on both Sides of

Is based on profit sharing on deposits

the balance sheet.

side, and on profit on assets side.

Does not involve itself in trade and Actively participates in trade, production
business

and valid services through valid

contracts.

6.4 Survival of Islamic Banking & Finance

Survival of Islamic banking depends on the following: (1) its economic viability, (2)
its stability, (3) its response to challenges to its identity, and (4) confidence of
depositors and savers.

6.4.1 Economic Viability:

Economic viability of Islamic banking/financing is not an issue for two reasons:

Islamic banking is just another way of banking.

Islamic banking offers a better financial architecture, on economic grounds.

Let us take the case of a bank client (C) who actually needs to buy something for
which he does not have funds to meet the seller (S)s demand for payment. Currently
a bank (B) comes in the picture as follows:

The prohibition of riba makes the loan option economically infeasible for the bank. It
can, however, still play a meaningful role and help the client to tide over his liquidity
problems as follows:

The above picture will remain by and large the same if the client needs something on
lease basis. However, if usage of funds involves several transactions at the clients
end, Islamic bank can share its resources with the client under partnership
arrangementsmodarabah or musharakahto do the needful.
The above analysis implies that Islamic banks will always be able to address
financing concerns of their clients. And, in fact, they will have more than one distinct
option to do so. Note that financial tag for Islamic financial instruments need not be
an issue because numbers can always be worked out to show that cost of Islamic
financing remains the same as that associated with interest-based financing.

It is also noteworthy that Islamic financing implies direct linkage between financial
flows and real flows in the economy. That is, funds will flow from Islamic banks only
against real economic activity. Thus, investors will approach Islamic banks only when
they have genuine needs. End in dichotomy between financing and the use of funds
will lead to integration of real and financial sectors in the economy. In this sense,
Islamic financial architecture will be superior to the existing interest-based financing
architecture.

6.4.2 Stability:
According to Dr. Mohsin Khan, in his 1985 article in IMF Working Papers, when
there is downswing in an interest-based economy depositors existing claims remain a
liability of the banking system. This forces the banks into debt management. That is,
creation of new and more costly debt against the banksin the form of new deposits
and borrowings from other sourcesin order to retire existing debt to the depositors.
This action reinforces the process of downswing, and hampers the pace of recovery in
the economy. As against this, Islamic banking has advantage that bank obligations to
depositors automatically adjust, both in downswing and recovery phases, due to the
principle of profit-and-loss sharing.
More recently, in an article on the web Dr Tariqullah Khan of the IDB has stated the
same point as follows. A banking system would be unstable if it concentrates asset
risks on bank capital. Since Islamic banking principle is based on risk sharing and it
spreads risks between bank depositors and bank capital, it is inherently more stable. If
this inherent quality is coupled with prudential regulations and supervision and with
implementation of internationally acceptable standards of risk management,
transparency and corporate governance, Islamic banking can practically become an
ideal alternative to the traditional banking system in achieving equity, stability and
efficiency.
It is also well-known in traditional finance literature that interest-based debt finance is
an important source of economic instability, as compared with equity finance.
Relevance of this point for our purpose needs no further comment.
Last but not the least, direct linkage between financing and application of funds under
Islamic banking will mean an end to credit or untied cash, as found in the existing

interest-based economies.3 Thus, an important cause of mismatch between aggregate

demand and aggregate supply in the economy will be removed. This will mean less
demand-pull inflation. On the other hand, linkage of financing to economic activity
will help in easing supply constraints in the economy. This will result in, among other
things, employment generation. These considerations lead us to conclude that
frequency, intensity and duration of business cycles will be less with Islamic banking.

6.4.3 Challenges to Identity:

Let us take the case of Murabahah financing, i.e., financing via sale on deferred
payment basis. A reference to the diagram on Islamic Solution: Bank as a Trader in
section 1.2 above, clarifies how bank enters into the transaction process as a trader.
That is, it comes in the picture between the seller and the bank client: it first buys the
thing and then sells the same to the client. A simple way to do so is as follows:

The numerals in the diagram show the sequence of events in the transaction process.
It is possible to define a financial instrument such that (i) there is little or no time lag
between creation of banks obligations to the supplier and its claims against the client
and (ii) physical commitments on the banks part are negligible.
As against the above, at present most of the murabahah financing work as follows:

There is a promise/agreement between a bank and its client. This binds the
client to purchase thing(s) in question from the bank, creates a financing
facility in the name of the client, and authorizes the client to directly purchase
from the suppliers (though at the behest of the bank).

The client makes necessary purchase(s), and payment advices are sent to the
bank that the bank honors.

The client directly takes delivery of the good(s) from the supplier.

Once the thing(s) is (are) with the client, a sale-purchase agreement is made
between the bank and the client as follows. The client offers to buy (what is
already with him) and the bank agrees to sell the same thing!

The client discharges his payment obligations to the bank.

The above process is materially no different from that associated with Suppliers
Credit currently in vogue in interest-based banking. Thus, if murabahah financing
works as above, sooner or later questions may be raised about its claim to a separate
identity. Change in labels and terms are unlikely to be a lasting defense.

6.4.4 Confidence of Depositors and Savers:

Dr. Tariqullah Khan recently raised this issue as follows. A bank licensed as an
Islamic bank may be running on a very sound financial footing. However, if the
depositors came to know that the bank has violated its Shariah mandate, the
depositors will lose confidence and the finding will trigger deposit withdrawal and
probably collapse of the bank. By contagion effect this can lead to financial instability
threatening economic development.
One may add that success begets envy and, hence, scrutiny. Caution is, therefore,
warranted against any thing that creates doubts about the Shariah credentials of
Islamic banks transactions, especially on the financing side.

7.1 Financial Statement Analysis

Financial statements reflect the collection, tabulation, and financial summarization of
the accounting data. Four statements are involved:

7.1.1 Income statement:

The income statement, often called the statement of income or statement of earnings,
is the report that measures the success of enterprise operations for a given period of
time. The business and investment community uses this report to determine
profitability, investment value and credit worthiness. It provides investors and
creditors with information that helps them predict the amounts, timing, and
uncertainty of future cash flows.

7.1.2 Balance sheet:

The balance sheet sometimes referred to as the statement of financial position, reports
the assets, liabilities, and stockholders equity of a business enterprise at a specified
date. This financial statement provides information about the nature and amounts of
investments in enterprise resources, obligations to creditors, and the owners equity in
net resources. It therefore helps in predicting the amounts, timing and uncertainty of
future cash flows.

7.1.3 Statement of cash flows:

The statement of cash flows reports cash receipts, cash payments, and net change in
cash resulting from operating, investing, and financing activities of an enterprise
during a period, in a format that reconciles the beginning and ending cash balances.

7.1.4 Statement of retained earnings:

The statement of retained earnings, which reconciles the balance of retained earnings
account from the beginning to the end of the period. This financial statement shows
the utilization of profits of the company i.e., dividend declared, amount transferred to
general reserve or any other reserve are shown in this account.

7.1.5 Statement of changes in Equity: This statement shows changes in equity.

IAS 1 Presentation of Financial Statements requires the following regarding statement
of changes in equity.

7.2 Ratio Analysis of Last 5 Years of CBL:

For evaluating a Companys Financial condition and performance, the financial
analysts need to examine the financial health of a Company on various aspects and
Ratio is widely used such a tool. We can define financial ratios as an index, which
relates to accounting number and is obtained by dividing one number by the other.
The analysis of financial statements thus refers to the treatment of the information
contained in the financial statements in a way so as to afford a full diagnosis of the
profitability and financial position of the firm concerned. For this purpose financial
statements are classified methodically, analyzed and compared with the figures of
previous years or other similar firms.

7.2.1 Return on Total Asset (ROA)

ROA for public companies can vary substantially and will be highly dependent on the
industry. This is why when using ROA as a comparative measure, it is best to compare
it against a company's previous ROA numbers or the ROA of a similar company. It
indicates how capable the management of the bank has been in converting the banks
asset into net earning i.e how much profit a company is able to generate for each
dollar of asset invested.
Return on Asset (ROA) = (Profit after Taxes/ *Average Total Assets)

Year
Profit After Taxes
Total Assets

2005

2006

2007

2008

2009

2010

240.02

343.46

398.11

818.72

1849

35303.74

47445.75

48755.40

57114.58

76466.80

90898

ROA

0.58%

0.71%

0.75%

1.23%

*Average Total Assets = Opening + Ending Total Assets/2

(Taka in million)
For Example: Return on Assets of 2009:
818.72/ [(57114.58+76466.80)/2] x 100 = 1.23%

Figure: Return on Asset

Analysis: We can see that ROA ratio is 0.58%, 0.71%, 0.75%, 1.23% and2.20% in
respectively, 2006, 2007, 2008, 2009 and 2010. Ratio range is 0.58% to 2.20%. , that
ROA rises at its peak at 2.20% in 2010 and fall down in 2006 it became 0.58%. But in
2007, 2008 and 2009, it has been slightly increased compared to the previous year. So
it can be said that company generates 0.58%, 0.71%, 0.75%, 1.23% and 2.20% return
on the assets that it employs in its operations in this five years time period.

7.2.2 Return on Equity (ROE)

The return on common equity (ROE) measure the return earned on the common stock
holders investment in the firm. Generally the higher this return, the better off is the
owners. The amount of net income returned as a percentage of shareholders
equity. Return on equity deals with a corporation's profitability by revealing how
much profit a company generates with the money shareholders have invested.
Return on Equity (ROE) = (Profit after Taxes / *Average Shareholder Equity)
Year
2005
2006
2007
2008
2009
2010
Profit After Taxes

240.02

818.72

1849

Total equity

1958.40 2530.90 2874.37 4217.48 5864.23

11519

ROE

21.3%

10.69%

343.46

12.71%

398.11

11.23%

16.24%

2.20%

*Opening +Closing Shareholder Equity/2

(Taka in million)

Figure: Return on Equity

Analysis: We can see that ratio is 10.69%, 12.71%, 11.23%, 16.24% and 21.30% in,
2006, 2007, 2008, 2099 and 2010. Ratio range is 10.69% to 21.30%., ROE reached its
highest at 21.30% in 2010 and lowest at 10.69% in 2006. So it can be said that City
Bank generates a 10.69%, 12.71%, and 11.23%, 16.24% and 21.30% return on the
capital invested by the owners of the Bank in those years. Here, ROE increasing last 5
years, so it is good news for the company.

7.2.3 Percentage Financial Leverage

Basically the company borrows capital or debt at one rate and invests the borrowed
capital at higher rate. Therefore, the most companies have positive leverage. When the
return on investments (Total Assets) is greater than the interest on borrowed funds, the
differences i.e. - the benefit accrue to the shareholder.

Financial Leverage = Return on Equity Return on Assets

Year

2006

2007

2008

2009

Return on Equity

10.69%

12.71%

11.23%

16.24%

21.3%

Return on Assets

0.58%

0.71%

0.75%

1.23%

2.20%

10.11%

12.00%

10.48%

15.01%

19.1%

Financial Leverage

2010

Analysis: The Percentage of Financial Leverage of City Bank is 10.11%, 12.00%,

10.48%, 15.01% and 19.1% in respectively 2006, 2007, 2008, 2009 and 2010. Ratio
range is 10.11% to 19.1%. Its continuously increase 2007, 2009, 2010, but price
decrease slightly in 2008, so overlay it is a good sign for the Bank.

7.2.4 Earning per share (EPS)

EPS is based on the number of shares outstanding instead of the balance sheet
amount (Historical Data), Investors can easily interpret EPS individually

Analysis: We can see that EPS is 20.20, 25.14, 25.34, 52.11 and 59.40 in 2006, 2007,
2008, 2009 and 2010. Its vary 20.20 to 59.40, EPS rises at its peak at 59.40 in 2010
and fall down in 2006 it became 20.20. We see in 2007 and 2008 it has been slightly

increase compared to the previous year. Than 2009 and 2010 EPS are increasing
highly. Investors are attracting and invest to the companies share.

7.2.5 Price Earning Ratio

The price earning ratio measures the relationship between the current market price of
the stock and its earning per share. The PE ratio can be viewed as an indicator of
investors expected growth and risk for a companys stock. A high growth rate
suggests a higher PE ratio and high level of perceived risk.
Price Earning Ratio = Current Market Price / Earnings per share
Year

2006

2007

2008

2009

2010

390

725.25

451.50

729.55

1000

Earnings per share

20.20

25.14

25.34

52.11

59.4

Price Earning Ratio

19.31

25.09

17.82

14.00

16.84

Current Market Price

Analysis: The price earnings ratio of City Bank is 19.31, 25.09, 17.82, 14.00 and
16.84 in respectively 2006, 2007, 2008, 2009 and 2010. Ratio range is 14.00 to 25.09.
The higher price earning ratio in 2007 at 25.09, but price falls down in 2008 and 2009
than slightly increase in 2010 at 16.48.. As the price earnings ratio is stable in 2010 it
is better than 2009, so it is a good sign for the Bank.

7.2.6 Net Assets Value per Share

It measures the book value per share outstanding in the market.
Net Assets Value per Share = Total Share holder Equity / No of Share
Outstanding.

Year

2006

Total Share holder Equity

2009

2010

2530.90 2874.37 4217.48 5864.23

11519

No of Share Outstanding
Net Assets Value per Share

2007

2008

10.80

11.88

13.66

15.71

38.9

234.34

241.95

308.70

373.25

296.12

Analysis: The Net Assets Value per Share of City Bank is 234.34, 241.95, 308.70,
373.25 and 296.12 in respectively 2006, 2007, 2008, 2009 and 2010. Its continuously
increasing 2006 to 2009, but in 2010 it slightly decreases at 373.25 to 296.12. The
highest value in 2009 that is 373.25 and lowest value is 234.34 in 2006. The overalls
Net Assets Value per Share is stable, so it is a good sign for the Bank.

7.2.7 Equity Multiplier Ratio

Like all debt management ratios, the equity multiplier is a way of examining how a
company uses debt to finance its assets. Its also known as the financial leverage ratio
or leverage ratio. Equity multiplier is the ratio of banks total assets divided by its
total equity. This ratio shows a company's total assets per dollar of stockholders'
equity. A higher equity multiplier indicates higher financial leverage, which means the
company is relying more on debt to finance its assets.
Equity multiplier (EM) = Total asserts / Total Shareholder Equity
Year

2006

2007

2008

Total Assets

47445.75

48755.40

57114.58 76466.80

Total equity
EM
Taka in million)

2009

2530.90

2874.37

4217.48

5864.23

18.75

16.96

13.54

13.04

2010
90898
11519
7.89

Figure: Equity Multiplier

Analysis: The Equity Multiplier Ratio of City Bank is 18.75, 16.96, 13.96, 13.04 and
7.89 in respectively 2006, 2007, 2008, 2009 and 2010. Its continuously decreases in
2006 to 2010, the highest ratio in 2006 that is 18.75 and lowest ratio is 7.89 in 2010.

7.2.8 Net Interest Margin

The net interest margin measures how large a spread between interest revenues and
interest cost management has been able to achieve by close control over earning
assets and the pursuit of the cheapest sources of funding. The net interest margin is
calculated using the following formula:
Net Interest margin (NIM) = (Interest income Interest Expense) / Total asset
Year

2006

2007

2008

2009

2010

Interest Income

3772.07

4183.26

4669.37

5742.82

7090

Interest Expenses

2567.27

3235.36

3162.89

3671.99

3516

I-E

1204.80

947.90

1506.48

2070.83

3574

48755.40 57114.58 76466.80

90898

Total Asset
NIM

47445.75
2.54%

1.94%

2.64%

2.71%

3.93%

(Taka in million)

Analysis: The Net Interest Margin of The City Bank is 2.54%, 1.94%, 2.64%, 2.71%
and 3.93% in respectively 2006, 2007, 2008, 2009 and 2010. Its slightly decreases
2007, than it slightly increases in 2008, 2009 and 2010. The highest value in 2005
that is 3.06% and lowest value is 1.94% in 2007.

7.2.9 Net Non-Interest Margin

The non interest margin measure the amount of non interest revenue stemming from
deposit service charges and other service charge the financial firm has been able to
collect relative to the amount of non interest costs incurred. The net non-interest
revenue is calculated using the following formula:
Net Non Interest Margin: (Non interest Revenues- Non interest Expenses) / Total
Assets.
Year

2006

2007

2008

2009

2010

No Interest Income

1445.36

1624.29

1873.80

2297.05

3728

No Interest Expenses

1155.36

1316.32

1625.37

2112.24

3201

290

307.97

248.43

184.81

527

48755.40 57114.58 76466.80

90898

NI - NE
Total Asset
NNIT

47445.75
0.61%

0.63%

0.44%

0.24%

0.58%

(Taka in million)

Analysis: The Net Non Interest Margin of The City Bank is 0.61%, 0.63%, 0.44%,
0.24% and 0.58% in respectively 2006, 2007, 2008, 2009 and 2010. We see that its
slightly increases 2007 at 0.63%, than it slightly Decreases in 2008 and 2009, but in
2010 it rapidly increase at 0.58%. That is good sing for bank.

7.2.10 Credit Deposit Ratio

The amount of a banks loans divided by the amount of deposits at given time period,
it is the proportion of loan-assets created by banks from the deposits received. The
higher the ratio, the higher the loan-assets created from deposits.
Credit Deposit Ratio = Loans and Advance/ Deposit X 100
Year

2006

2007

2008

2009

2010

Loans and Advance

30489.02

26788.47 34420.94 43486.42

60327

Deposit

40881.41

40539.63 45034.33 62384.28

67420

Credit Deposit Ratio

75.31%

66.08%

76.43%

69.71%

89.48%

Analysis: The Credit Deposit ratio of The City Bank is 75.31%, 66.08%, 76.43%,
69.71% and 89.48% in respectively 2006, 2007, 2008, 2009 and 2010. Ratio range is
66.08% to 89.48%. The highest point in 2010 that is 89.48% and lowest point is
66.08% in 2007. As the credit deposit ratio is stable and in 2008 it is better than 2007,
so it is a good sign for the Bank and the same times 2009 it is fall down 69.71% that
is bad sing. Than again in 2010 is better than 2009, so its better than all previous
years.

7.2.11 Percentage of Non Performing Loan

Non performing loans are reported by banks in their quarterly FDIC call reports as
non accrual loans. When a bank reports a loan as non accrual its because there is
no longer any reasonable expectation that the loan will be repaid according to terms.
Percentage of nonperforming loans equals total nonperforming loans divided by total
loans. Nonperforming loans are those loans that bank managers classify as 90-days or
more past due or non accrual in the call report.
Banks often report their ratio of nonperforming loans to total loans as a measure of
the quality of their outstanding loans. A smaller NPL ratio indicates smaller losses for
the bank, while a larger (or increasing) NPL ratio can mean larger losses for the bank
as it writes off bad loans.
Percentage of Non performing Loans = Totals Non Performing Loans/ Total
loans and Advance

Analysis: The percentage of non performing loans of The City Bank is 7.18%, 6.24%,
6.30%, 4.87% and 4.40% in respectively 2006, 2007, 2008, 2009 and 2010. Ratio
range is 4.40% to 7.18%. The highest Non performing loan in 2006 that is 7.18% and
lowest non performing loan is 4.40% in 2005. As the Non Performing Loan ratio is
stable in 2007 and 2008, so it is a good sign for the Bank in 2009 and 2010 it is fall
down 4.87% and 4.40% that means minimum losses for the bank as it writes off bad
loans.

7.2.12 Cost-to-Income Ratio

The cost-to-income ratio is a key financial measure, particularly important in valuing
banks. It shows a company's costs in relation to its income. To get the ratio, divide the
operating costs (administrative and fixed costs, such as salaries and property
expenses, but not bad debts that have been written off) by operating income. The ratio
gives investors a clear view of how efficiently the Company is being run - the lower it
is, the more profitable the bank will be. Changes in the ratio can also highlight
potential problems: if the ratio rises from one period to the next, it means that costs
are rising at a higher rate than income, which could suggest that the company has
taken its eye off the ball in the drive to attract more business.

Analysis: The Cost to Income Ratio of The City Bank is 43.60%, 51.17%, 48.08%,
48.36% and 43.80% in respectively 2006, 2007, 2008, 2009 and 2010. We see that its
increases 2006 to 2007, at 43.60% to 51.71%, than it slightly Decreases in 2008, 2009
and 2010. The highest value in 2007 that is 51.17% and lowest value is 43.60% in
2006. To improve the cost- to- income ratio, that show higher the income against the
cost. In this ratio we see that almost 50% income against cost in last three years
except 2010.

7.2.13 Capital Adequacy Ratio

Measure of the financial strength of a bank, expressed as a ratio of its capital to its
assets Two types of capital are measured: tier one capital, which can absorb losses
without a bank being required to cease trading, and tier two capital, which can absorb
losses in the event of a winding-up and so provides a lesser degree of protection to
depositors.
A measure of a bank's capital, it is expressed as a percentage of a bank's risk weighted
credit exposures.
X 100
Year
Core Capital (Tier-1)
Supplementary
Capital (Tier-2)
Total Capital
Risk Weighted Assets
CAR

2006

2007

2008

2009

2010

1969.20

2312.70

2710.80

3535.10

9260

631.80

843.60

1242.70

1624.10

3120

2601.00

3156.30

3953.50

5159.20

12380

28238.90

25036.90

35918.90

45714.50

111049

9.21%

12.61%

11.01%

11.29%

11.15%

Analysis: The Capital Adequacy Ratio of The City Bank is 9.21%, 12.61%, 11.01%,
11.29% and 11.15% in respectively 2006, 2007, 2008, 2009 and 2010. Ratio range is
9.21% to 12.61%. The highest Capital Adequacy in 2007 that is 12.61% and lowest
Capital Adequacy is 9.21% in 2006. As the Capital Adequacy ratio is stable in 2008,
2009 and 2010, so it is a good sign for the Bank.

7.2.14 Operating Profit per Employee

This ratio is most useful when compared against other companies in the same
industry. Ideally, a company wants the highest revenue per employee possible, as it
denotes higher productivity. Operating Profit per employee is a measure of how
efficiently a particular company is utilizing its employees. In general, relatively high
operating profit per employee is a positive sign that suggests the company is finding
ways to squeeze more revenue out of each of its workers.
An important ratio that looks at a company's sales in relation to the number of
employees they have. It is calculated as:
Operating Profit per Employee = Profit before provision / Number of Employees.
Year

2006

2007

2008

2009

2010

1494.70

1255.87

1754.92

2255.64

4100

Number of Employees

1989

1991

2134

2424

2685

Operating Profit per Employee

0.75

0.63

0.82

0.93

1.53

Profit Before Provision

Analysis: The operating profit per employee of The City Bank is 0.75, 0.63, 0.82,
0.93 and 1.53 in respectively 2006, 2007, 2008, 2009 and 2010. The Ratio range is
0.63 to 1.53. The highest Operating profit per employee in 2010 that is 1.53 and
lowest Operating profit per employee is 0.63 in 2007. As the Operating profit per
employee is overall stable, so it is a good sign for the Bank.

7.2.15 Cost of Fund

The amount of money paid in interest on a loan. The interest cost that a financial
institution must pay for the use of money. It also refers to the interest rate in addition
to the absolute amount in interest.

Analysis: The Cost of Fund of The City Bank is 6.94%, 7.55%, 6.90%, 6.08% and
4.90% in respectively 2006, 2007, 2008, 2009 and 2010. We see that its slightly
increases 2006 to 2007, than it slightly Decreases in 2008, 2009 and 2010. The
highest value in 2007 that is 7.55% and lowest value is 4.90% in 2010.

7.3 SWOT Analysis

SWOT analysis is a tool for auditing an organization and its environment. It is the
first stage of planning and helps marketers to focus on key issues. SWOT stands for
strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are
internal factors. Opportunities and threats are external factors.
SOWT analysis provides information that is helpful in matching the firms resources
and capabilities to the competitive environment in which it operates. It is instrumental
in strategy formulation and selection.

Sound profitability and growth with good internal capital generation

Larger corporate client base
Experienced and efficient management team and human resource
Quaity products and services
Company reputation and goodwill
Large number of Branches all over the country
Always maitain a superior liquidity position

Lack of adequate marketing (advertising and promotion) effort

Lack of full scale automation
Lack of trained employes.
Not all branches provide online services
Debit Card service is little poor than the competitor

Scope of market penetration through diversified products

Automation of transaction processes and online branch banking
Regulatory environment favoring private sector development
Value addition in products and services
Increasing purchasing power of people
Increasing trend in international business

Increased competition for market share in the industry

Frequent changes of banking rules by the Central Bank
Market pressure for lowering of lending rate
National and global political unrest
Default culture of credit

The Strengths,Weaknesses,Opportunities, and Threats (SWOT) analysis of CBL is

described in the following table,

8.1 Findings from the Overall Activities

During the period of internship achieved huge experience as well as understood the
entire banking system of CBL, Principal Branch, Motijheel, and found different
information regarding their activities which enrich knowledge extensively. CBL is one
of the fast growing and committed privet commercial bank in the country. It conducts
business activities efficiently around the country to achieve its objectives, and goals
and gradually forwarding towards its mission and vision. The bank have been
achieving continuous growth rate in all spares of banking operation since its
establishment. All of its departments are working hard for better customer services
and recently City Bank introduces City Manarah - Islamic Banking. Abreast these, I
also have found the following essence through careful investigation

At present CBL has 102 branches including Islamic Banking branch

&SME center.
I observed overall activates of City Manarah (Islamic Banking), ratio

analysis, and identify difference between Traditional and Islamic Banking.

Shortage of experts in Islamic banking: The supply of trained or

experienced bankers has lagged behind expansion of Islamic banking.

Absence of accounting (and auditing) standards affects to Islamic banks:
Uncertainty in accounting principles involves revenue realization,

disclosures of accounting information, accounting bases. Valuation,

revenue and expense matching, etc. Thus the results of Islamic banking
schemes may not be adequately defined. Particularly profit and loss shares

attributed to depositors.
Lack of uniform standard of credit analysis, especially for PLS schemes.
Similarly, there is a widespread training involving related aspects such as
financial feasibility studies, monitoring of ventures, and portfolio

evaluation.
No universally Accepted Methods of regulation or Auditing, In Islamic
finance, there are no universally accepted methods of regulation or
auditing and the declaration of a financial product of transaction as Halal is
the responsibility the individual shar iah committees concerned without
commonly accepted financial instruments or clear understanding of the
accounts of a transaction counter party, no efficient and sizeable financial

market can develop.

Lack of knowledge of Islamic Financial Products Although most Muslims
are aware of Islamic financing possibilities, and some use the services
provided by Islamic banks and the Islamic facilities offered by Traditional
banks, there is a lack of knowledge concerning the terms of the financial

products, and how to use the instruments available.

It is highly important that international traditional banking institutions
shall continue opening Islamic units provided their adherence to the
rulings and regulations of Islamic Sharia, as well as, Islamic banking
standards. Like in our country HSBC and Standard Chartered are open a

separate division of Islamic banking product.

City Manarah is considered to be better than debt financing. We claim that
it serves to keep the financial market in Bangladesh for real goods and
services, therefore making it less capable of betting like speculation.

Private sector usually concentrates in the urban areas where as City Bank
Ltd spread their banking network all over the country.

8.2 Alternative strategies & Recommendations

Currently The City Bank Limited is operating with Centralized Banking system, for
this reason sometimes it will not be possible for any branch officers to serve
immediately when necessary. Now the whole world is changing very swiftly for
globalization & banking strategies are also moderate time to time for their better
service & competition in the industry. City Bank is also changing its strategies
according to the environment, such as 3 years ago it changed its logo & it works like a
magic for the bank.
After analysis of all gathered information and other relevant documents, CBL should
carefully consider following matters:
1. To avoid Shortage of Experts in Islamic Banking Gov. can establish a training
institution to qualify Islamic Banking staff or other students interested to
acquire knowledge about it.
2. At present CBL perform business activities through 95 of its branches but they
should open more branches in order to reach to more customer.
3. Developing and enforcing banking laws and legislation for Islamic banks in
order to create an independent supervisory system to be formulated by a legal
structure with clear, comprehensive and detailed stipulation of the different
perspectives of the rights, duties and nature of Islamic bank dealings besides
organizing the operations of Islamic branches of Traditional banks, or at least
stipulating a full part of that matter within bank and credit laws and
regulations.
4. The sound efforts of the Association can not be neglected in the field of
developing the accounting and auditing aspects of the Islamic Financial

Institution, introducing these aspects and their applications by way providing

training opportunities. Actually regulations and standards are currently used
and led to introducing a number of investments and financing moods based on
Islamic principles such as profit and loss sharing.
5. Drawing special laws and legislations to Islamic banks to shift into an
independent supervisory system with legal outline laying in detail and
accurately the rights, duties, and the nature of the Islamic banks dealings; and
also adjusting the works of the Islamic units of the traditional banks.
6. Providing all possible support and assistance to the Islamic banking units
operating within traditional banks, and taking necessary arrangements to
achieve appropriate co-ordination to promote the market volume available for
Islamic banks.
7. Designing patterns and forms of regular data required from Islamic banks.
These should be developed and approved by Islamic and central bank officials
for the purpose that such patterns and forms meet the requirements of
supervisory objectives on the one hand and adapt to the nature of Islamic
banking operations on the other.
8. Account opening procedure is too much critical in both Traditional and City
Manarah, it should be easier otherwise Customer will reluctant to open an
account with CBL.
9. CBL need to increase own ATM booth as soon as possible.
10. ATM service of the bank is completely dissatisfactory thats why they should
improve ATM service.
11. Cheque clearing procedure should be reduced within 1 day.
12. Customer service should be more smart and fast.
13. Using the advanced technology to join Islamic banks units with modern
information and communication network. There is also a need for data bank to
assist these banks.
14. Incorporate more customer friendly products.
15. Changes in lending policies will not suffice the purposes unless it is followed
by a change in the attitude and out look of both the borrowers and the bankers.
16. Day by day the datas are increasing as well as networks become busy by
utilizing its total facility. Now days it has been observed that the networks are
going down due to huge pressure. Consider the present capacity and future
enhancement CBL should increase and improved its IT infrastructure.

8.3 Conclusion
As an organization, the City Bank has earned the reputation of top banking operation
in Bangladesh. The organization is much more structured compared to any other bank
operating local or foreign in Bangladesh. It is relentless in pursuit of business
innovation and improvement. It has a reputation as a partner of consumer growth.
With a bulk of qualified and experienced human resource, City Bank can exploit any
opportunity in the banking sector. It is pioneer in introducing City Manarah with
many new products and services in the banking sector of the country.
Religious principles remain at the heart of peoples preference for Islamic banks. This
indicates that the banks should remain highly dedicated to Islamic principles. Any
attempts to introduce any products/service (particularly the ones that have a fixed
amount of profit upfront instead of a ratio of profit sharing) that may have substantial
similarity with the traditional banking products/services should be thoroughly
explained on the basis on Islamic principles and should be checked for customers
acceptance.
At a fundamental level, an Islamic financial system can be described as a Fair and a
Free system where Fairness is the primary objective; however, it also
circumscribes the freedom of the participants in the system. Though, in Islam
participants are free to enter into transactions but this basic norm of freedom doest not
imply rampant freedom to contract and is constrained by other norms, such as, the
prohibition of Riba and Gharar.
Islamic banks can provide efficient banking services to the nation if they are
supported with appropriate banking laws, and regulations. This will help them
introducing Profit and Loss Sharing (PLS) modes of operations, which are very much
conducive to economic development. It would be better if Islamic banks had the

opportunity to work as a sole system in an economy. That would provide Islamic

banking system to fully utilize its potentials. Studies show that Islamic banks can not
operate with its full efficiency level if it operates under a Traditional

banking

framework, their efficiency goes down in a number of dimensions. The deterioration

is not because of Islamic banks own mechanical deficiencies. Rather it is the
efficiency-blunt operations of the Traditional banking system that puts obstructions to
efficient operation of Islamic banks. This does not mean that the survival of Islamic
banks operating within the Traditional banking framework is altogether threatened.
Evidences from Bangladesh indicate that Islamic banks can survive even within a
Traditional banking framework by which over from PLS to trade related modes of
financing.
The City Bank Ltd. has previously set up a Retail Finance Center, centralized retail
credit and collection management unit, to launch retail loans for individuals. CBL has
diversified its assets and remittance, loan portfolio and now CBL is focusing on
establishing a formal small and medium enterprise (SME) as well as recently City
Bank introduces City Manarah - Islamic Banking actives with more new value added
consumer banking products to satisfy its customers better.

Bibliography
1. www.thecitybank-bd.com
2. www.bangladeshbankorg.com
3. www.mof.gov.bd
4. www.medea.be/
5. http://www.islamic-banking.com/
6. Annual Report of City Bank Limited, 2006-2010
7. Economic Division, Bank O Arthik Protisthansamuher Karjyabalee 2001020011, Ministry of Finance, Dhaka
8. Bangladesh Bank BCD & BPRD circulars
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Historical Perspective, Vol. xxii, No. 2, Page: 309-323, December 2001,
Journal of Business Studies, University of Dhaka, Dhaka
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of Illiois, Fall 1991.