Evaluation of Corporate Investment standards of different Islamic and non Islamic banks in Banglades

Evaluation of Corporate Investment standards of different Islamic and non Islamic banks in Bangladesh and its overall effect in Bank’s Performance

1. Introduction and Background

Corporate Investment is a generic term given to different banking services that large

companies, governments, or other big institutions need in order to carry out their

functions. Corporate banking consists of simple business of issuing loans to more

complex matters, such as helping minimize taxes paid by overseas subsidiaries,

managing changes in foreign exchange rates, or working out the details of financing

packages necessary for the construction of a new office, plant or other facility.

Corporate investment has the bankers who typically help clients raise money through

loans. When necessary, corporate bankers will bring in the expertise of their capital

markets colleagues.

In addition Commercial banking, Bank provides financial and technical assistance to

broaden the private as well as public sector industrial base of the country. It prioritizes,

especially, Export Oriented/Export Linkage industrial units, Efficient Import

Substitution, Joint Ventures, Commercialization of local technology and promotion of

agro-based industry. Corporate investment is one of the more popular and visible

function of bank in all over the world. Corporate investment is a facility for the corporate

clients to purchase goods or service for their business use on the assumption that the

company has a stable source of income over the next few years. It enables the consumers

have access to their desire goods and service based on future purchasing power.

The Corporate investment facilities are varying from bank to bank in terms of conditions,

eligibility, eligible item or goods, security and the necessary documentations. Bank has

introduced standards which are to improve the opportunity and interest of the

entrepreneurs of the country and this function is known as corporate investment.

In Bangladesh corporate investment program of different banks have made a significant

change in the corporate client group for providing loans. This loan is very much

convenient for client as well as profitable for the offering banks. corporate investment

facility play a vital role to create a distinctive image in consumer’s mind because it deals

with one to one consumer, so by corporate investment it’s very easy to come near to

consumer and to know their perception about a bank.

1.1 Origin of the Report

This report is an individual assignment as part of the internship program for the

completion of the MBA course at Bangladesh University of Professionals. The internship

program of 10 week has been conducted at Shajalal Islami Bank Limited from November

28, 2011 to February 3, 2011. The internal supervisor of the internship Major

Asaduzzaman of Bangladesh University of Professionals and the external internship

supervisor FAVP Mr. Lutful Haque of, Shajalal Islami Bank Limited, Kawran Bazar

Branch assigned the research topic jointly on December 18, 2010. The research topic for

the internship is “Evaluation of Corporate investment standards of different Islamic and

non Islamic banks in Bangladesh and its overall effect in Bank’s Performance – A study

based on Shahjalal Islami Bank Limited (SJIBL)” .With the proper guidance of both the

supervisors, this report could come to an existence.

1.2 Problem Statement

Development of the country mainly depends on the growth of the industrial sector and

growth of the business. For development intensive efforts should be undertaken to

accelerate the rate of industrialization in the country. In order to attain this objective,

large amount of industrial credit was funneled to the industrial sector. Today set up a

large business or industry become a dream for the entrepreneurs. But it is not possible for

an individual entrepreneur to arrange the full capital for the investment. Nowadays

entrepreneur takes loan from different financial institute

In recent days financing has become an important area for Commercial Banks in

Bangladesh. To align its corporate policy with the regulation of Central Bank, banks

have become more concerned about corporate investment and opened windows to

conduct business or set up industry in particular area.

A good number of Islamic and non Islamic Banks in our country are successfully

operating this program. But the standards such as requirements, document, interest rate,

installment system of the Corporate investment of different banks are different.

Considering the popularity of Corporate investment it will try to identify comparison its

various aspects, which are directly related, with the Corporate investment customers and

Corporate investment providing bankers and its effect on the providing banks

performance. Again, most of the aspects are related with the salient features of corporate

investment in the relevant sample banks

1.3 Objectives of the Research

Broad Objectives

To evaluate the different present standards of corporate Investment of different Islamic

and non Islamic banks and its effect on the banks overall performance, and a competitive

analysis between Shahjalal Islami Bank Limited and other banks.

Specific Objectives

To know in details about the corporate loan standards of different Islamic and

non Islamic banks in Bangladesh.

To find out the different factors clients consider for selecting bank.

To find out the corporate clients awareness about prerequisite for corporate loan

by Islamic and non Islamic banks.

To find out the clients perception about the interest charge and other charges or

expenses charged by Islamic and non Islamic banks for corporate investment.

To find out the clients perception about loan processing time of different Islamic

and non Islamic banks.

To find out clients perception about the procedural obligation of Banks for

corporate loan.

To find out the clients perception about corporate loan disbursement system of

different Islamic and non Islamic banks in Bangladesh.

To find out the corporate clients preference towards Islamic and non Islamic

bank for taking their loan.

To find out the perception about corporate loan repayment system of different

Islamic and non Islamic banks in Bangladesh

To find out the present situation of corporate loan of different Islamic and non

Islamic banks in Bangladesh.

To find out rules and regulations of Bangladesh bank regarding corporate

investment for Commercial Banks.

To know the effect of corporate investment on Islamic and non Islamic banks

performance.

1.4 Research Questions

Research Questions 1: What are the factors that are important for corporate loan of

different Islamic and non Islamic bank?

Justifications: This question will help me to know the difference important factors like

interest rate, payment system, loan amount, mode of repayment, securities, step taken for

defaulters etc of Islamic and non Islamic bank.

Research Questions 2: What is the relationship between corporate loan program and

Islamic and non Islamic Banks Performance?

Justifications: This question will help me to know what the effect of corporate loan on

banks performance is.

Research Questions 3: What are the clients awareness about prerequisite of corporate loan that

borrower need for loan of Islamic and non Islamic Banks?

Justification: This question will help me to know whether or not clients are well known with

prerequisite documents and what procedural obligation and charges clients face for Islamic and

non Islamic Banks for corporate loan.

Research Questions 4: What is the satisfaction level of required documents or securities that

clients need to submit for obtaining loan of Islamic and non Islamic Banks?

Justifications: This question will help me to know how hassle client have to face for submitting

required documents of Islamic and non Islamic Banks.

Research Questions 5: What are the Bangladesh Bank’s guidelines or policy about corporate

loan?

Justification: This question will help me to know whether or not the Islamic and non Islamic

Banks are following guidelines given form Bangladesh bank.

Research Questions 6: What is corporate client’s perception about loan disbursement system of

Islamic and non Islamic Banks?

Justification: This question will help me to understand the existing loan disbursement system of

Islamic and non Islamic Banks.

Research Questions 7: What is the satisfaction level of the clients about profit/interest

rate, loan processing time, documentation and other factors of selected bank?

Justification: This question will help me to understand the client’s awareness about

banks profit/interest rate charged loan processing time, documentation and other factors

Research Questions 8: What is corporate client’s perception about service charge or

processing cost of Islamic and non Islamic Banks for corporate lending?

Justification: This question will help me to understand the client’s opinion about service

charge and processing cost for corporate lending of Islamic and non Islamic Banks.

Research Questions 9: What is corporate client’s perception about repayment system of


Justification: This question will help me to understand the existing loan repayment

system of Islamic and non Islamic Banks

1.5 Research Hypotheses

The hypothesis for this research will be formulated in details after exploratory research.

However, the model of hypothesis may be as follows:

Hypotheses-1:

Null Hypothesis H0: 40 % or more of the corporate clients are aware about prerequisite

corporate loan.

Alternative Hypothesis H1: less than 40 % of the corporate clients are aware about

prerequisite corporate loan.

Hypotheses-2:

Null Hypothesis H0: Profit charged or interest rates of Islamic banks significantly differ

from non Islamic banks for corporate investment.

Alternative Hypothesis H1: Profit charged or interest rates of Islamic banks

insignificantly differ from non Islamic banks for corporate investment.

Hypotheses-3:

Null Hypothesis H0: There is an association between service charge or processing cost

and corporate investment standard of Islamic and non Islamic bank.

Alternative Hypothesis H1: There is no association between service charge or

processing cost and corporate investment standard of Islamic and non Islamic bank.

Hypotheses-4:

Null Hypothesis H0: There is no significant difference in corporate investment

documentation process of Islamic banking and non Islamic bank.

Alternative Hypothesis H1: There is significant difference in corporate investment


Hypotheses-5:

Null Hypothesis H0: Islamic and non Islamic banks corporate investment loan

processing time insignificantly differs insignificantly.

Alternative Hypothesis H1: Islamic and non Islamic banks corporate investment loan processing time insignificantly differs significantly

Hypotheses-6:

Null Hypothesis H0: Corporate investment disbursement system of Islamic bank

(Payment order) is more preferable than Non Islamic Bank (Cash).

Alternative Hypothesis H1: Corporate investment loan disbursement system of Islamic

bank (Payment order) is not preferable than Non Islamic Bank (Cash).

Hypotheses- 7:

Null Hypothesis H0: There is a significant difference repayment system of corporate

investment standard of Islamic and non Islamic banks.

Alternative Hypothesis H1: There is no significant difference between repayment

system of corporate investment standard of Islamic and non Islamic banks

Hypotheses- 8:

Null Hypothesis H0: There is a positive association between corporate loan standard and

Banks performance.

Alternative Hypothesis H1: There is no positive association between corporate loan

standard and Banks

Hypotheses-9:

Null Hypothesis H0: there is a significant relationship between corporate loan standard

and Banks positive performance.

Alternative Hypothesis H1: There is no significant relationship between corporate loan standard and Bank positive performance

1.6 Scope of the Research

This research has deal the corporate investment of different Islamic and non Islamic

banks in Bangladesh banking sector and its effect on the banks performance. Therefore

my working area is whole banking sector of Bangladesh. But this kind of research needs

lot of time. For convenient and complete the research with the limited time the research

will be conducted competitive analysis of corporate investment standards of six privet

Islamic and non Islamic bank names Shajalal Islami Bank, Social Investment Bank

limited, Islami Bank Limited, Trust Bank Limited, Bank Asia and AB Bank. A primary

survey has been conduct to find out the opinions of different bank executives, consumers

and government regulatory authorities. It has focused on the very limited comparable

credit practices of selected Banks.

1.7 Limitations of the study

The limitations of the study are as follows

The credit policies and manuals of Banks are of confidential nature and thus it is

difficult to collect the necessary literature and documents within this short time.

The bank officials though helpful in every respect do not have much time to

explain the internal procedures.

Many operations relating to the credit extension run simultaneously by different

credit officials and it will be difficult to capture the sequence of any particular

credit proposal.

Borrowers do not often have the time to cooperate in the information gathering

process.

1.8 Benefits of the study

Commercial banks are both Islamic and non Islamic providing different types of

investment for profit form lending of their deposits. Besides there are many business

clients who looking for a suitable lending opportunities. This report will help the

management of Islamic and non Islamic Banks to know the opinions of the clients about

policy of corporate investment and as results banks will be able to give a suitable

investment program that will attract more business people for taking financial help from

their banks.

1.9 Report preview

The report has discussed mainly in eight chapters. Literature review and overview of

Shajalal Islami Bank are discussed in the second and third chapter. Fourth chapter talks

about the corporate investment standers of different Islamic and non Islamic banks of

Bangladesh. The project part of the research has discussed at chapter five. Summary of

findings and recommendation are discussed briefly in chapter six and seven respectively.

And finally the chapter eight is the conclusions.

2. Literature Review

The primary objectives for the formation of the first Islamic bank, Bank Islam Malaysia

Berhad was to strive in its operation as a commercial bank based on Shariah laws in

facilitating and banking services to both the Muslim and non-Muslim societies in this

country by achieving strength and capacity to develop from time to time. Therefore, the

bank has to operate its business without Riba or usury as an alternative to the

conventional banking operating based on usury or interest. In order to operate a banking

business and other financial dealings, the bank has to operate based on profit and loss

sharing mechanism. This is to ensure better social justice in the distribution of the added

created wealth of the bank to the depositors, customers benefiting from financings and

the equity holders of the bank. In this regard, the bank has to ensure it may become

strong financially and expanding in all aspects of its operation as this will then become

the measure on the ability of Shariah laws and rules as well as capabilities of the

Muslims in offering an alternative way of life when dealing with banking business

(Mohd Nasir and Amirul Hafiz, 2006).

The key characteristic of Islamic finance is the prohibition of Riba, Islamic Financial

ethics and law. The literal meaning of Arabic word, Riba is increase, addition of growth.

However, it is usually translated as usury. Riba or usury is defined as extra or excess in

lending and borrowing or additional in terms of weight or measurement in an exchange

or buying and selling transaction. All transactions and contracts must be free from

elements of Riba. The prohibition of Riba in Islamic finance is form based traditions

(habith) and relates to prohibition of Riba in loan, sale or exchange contracts or exchange

sale contract. Those who earn from usury stand only like one who is struck by the devil’s

touch. This is because they claim that usury is a form of trade. Therefore the act of

giving and taking as well as managing usury or interest is forbidden in Islam. Usury is

any fixed percentage of earnings in return for funds deposited (Mohd Nasir and Amirul

Hafiz, 2006) Islamic banking is an activity based on Islamic Syariah principles, which do

not allow the paying and receiving of interest and promotes profit sharing in the conduct

of banking. The most important difference between Islamic and conventional banking is

the prohibition of interest in Islamic banking. Islamic banking activity is based on the

trading principles of buying and selling of assets. Following that, in conventional

financing, customer’s outstanding loan consists of principal plus the interest charged

then onwards. The interest is actually the financial institution’s cost in obtaining the

funds and its profit. Islamic financing work on the concept of buying and selling where

the financial institution purchases the property and subsequently sells it to customers

above the purchase price (Mohd Nasir and Amirul Hafiz, 2006).

The “Islamic banking system has gained momentum worldwide”. Citibank opened one

new branch in Bahrain and Sudan adhering to Islamic Sharia’h principles. When a

customer borrows money from a bank, it may lead to the interest rate. Thus, Islamic bank

will use Shariah principles and specially offer the product and services like conventional

banks. Customer pleasure has been a critical perception in contemporary marketing

related to buyer behaviour. If customers are satisfied with a particular product or services

offering after its use, then they are likely to engage in a repeat purchase. Then, the

customer satisfaction is often described as being related to factors such as service quality

and future services like convenience, competitiveness, location of service providers and a

form of attitude that results from the comparison of expectation with performance. The

Islamic banking system is expected to face strong competition not only from the Islamic

banks but also from well-established conventional banks offering Islamic products and

services (Naser and Pendlebury, 1997).

Modern banking system was introduced into the Muslim countries at a time when they

were politically and economically at low ebb, in the late 19th century. The main banks in

the home countries of the imperial powers established local branches in the capitals of

the subject countries and they catered mainly to the import export requirements of the

foreign businesses. The banks were generally confined to the capital cities and the local

population remained largely untouched by the banking system. The local trading

community avoided the “foreign” banks both for nationalistic as well as religious

reasons. However, as time went on it became difficult to engage in trade and other

activities without making use of commercial banks. Even then many confined their

involvement to transaction activities such as current accounts and money transfers.

Borrowing from the banks and depositing their savings with the bank were strictly

avoided in order to keep away from dealing in interest which is prohibited by religion.1

In 1963, Islamic banking came into existence on an experiment basis on a small scale in

a small town of Egypt. The success of this experiment opened the doors for a separate

and distinct market for Islamic banking and finance and as a result, in 1970s Islamic

banking came into existence at a moderate scale and a number of full-fledge Islamic

banks was introduced in Arabic and Asian countries. Most of these Islamic banks were in

Islamic countries. Having started on a small scale, Islamic banks and non-banking

financial institutions are now in operation even on more intensive scale. Today, Islamic

banks are operating in more than sixty countries with assets base of over $166 billion and

a marked annual growth rate of 10%-15%. In the credit market, market share of Islamic

banks in Muslim countries has risen from 2% in the late 1970s to about 15 percent today

(Aggarwal and Yousaf 2000). These facts and figures certify that Islamic banking is as

viable and efficient as the conventional banking.

1 http://users.bart.nl/~abdul/chap4.html

http://users.bart.nl/~abdul/chap4.html

To adhere to the teachings of Islamic Law (Shari'ah) – avoid paying and receiving Riba,

avoid Gharar, investing in profit-sharing ventures, avoid investing in such business that

are unethical and impermissible, and making socially responsible investments – are the

distinguishing points as well as goals of all Islamic banks. How well these Islamic

financial institutions have performed and to what extent they have been successful in

achieving these goals have been the question marks for the scholars, researchers, and the

stakeholders.

Where Islamic banking, on the one side, is being regarded as a fastest growing market,

on the other side, it is not free from issues, problems, and challenges. Numerous studies

have been performed since the inception of the modern Islamic banking and finance.

Conceptual issues underlying interest free financing (Ahmad 1981, Karsen 1982) have

been the prime focus of these previous studies on Islamic banks. It is hard to find enough

coverage in the existing literature on the issues of viability of Islamic banks and ability to

mobilize saving, pool risk and facilitate transactions (Hassan & Bashir 2003). However,

there are few studies that have focused on policy implications of eliminating interest

payments [see for example, Khan (1986) and Khan & Mirakhor (1987)].

Although the phenomenon of Islamic Banking and finance has emerged in recent

yearsand despite the considerable development of Islamic banking sector, the studies

focusing on the efficiency of the Islamic banks are still limited in number [see, for

example, Yudistira (2003) and Sufian (2007)]. Most of the studies that have been

conducted, generally evaluate the performance of Islamic banks with regards to the

relationship between profitability and bank characteristics. Bashir (2000) and, Hassan &

Bashir (2003) employ bank level data and perform regression analysis to determine the

underlying determinants of Islamic performance. Samad & Hassan (2003) and Kader &

Asarpota (2007) apply financial ratio analysis to assess the performance of the Malaysian

Islamic bank and UAE Islamic banks respectively. Similarly, to measure efficiency of

Islamic banks in Bangladesh, Sarker (1999) utilizes Banking efficiency model and

claims that Islamic banks can stay alive even within a traditional banking architecture in

which Profit-and-Loss Sharing (PLS) modes of financing are less dominated. Sarkar

(1999) further claims that Islamic financial products have different risk characteristics

and consequently different prudential regulations should be in place.

Samad and Hassan (2000) evaluate intertemporal and interbank performance in

profitability, liquidity, risk and solvency, and community involvement of an Islamic

bank (Bank Islamic Maalysia Berhad (BIMB) over 14years for the period 1984-1997.

The study is intertemporal in that it compares the performance of BIMB between the two

time period 1984-1989 and 1990-1997. This is not a new method (Elyasiani 1994). To

evaluate interbank performance, the study compares BIMB with two conventional banks

(one smaller and one larger than BIMB) as well as with 8 conventional banks. Using

financial ratios to measure these performance and F-test and T-test to determine their

significance, the results show that BIMB make statistically significance improvement in

profitability during 1984-1997, however, this improvement when compared with

conventional banks is lagging behind due to several reasons. This result is consistent

with that of Samad (1999) and Hassan (2003). The study also reveals that BIMB is

relatively less risky and more solvent as compared to conventional banks. These results

also conform to risk-return profile that is BIMB is comparatively less profitable and less

risky. Performance evaluation of BIMB indicates that it is more liquid as compared to

the group of 8 conventional banks. Results of the primary data gathered by surveying

40% to 70% bankers identify that lack of knowledgeable bankers in selecting, evaluating

and managing profitable project is a significant cause why Musharka and Mudarabah are

not popular in Malaysia.

Survey and analysis by Ismail and Abdul Latif (2001) on financial reporting of Islamic

banks shows that the main difference between standards produced by Accounting and

Auditing Organization for Islamic Financial Institutions (AAOIFI) and selected Islamic

banks in Malaysia including Islamic bank is in classification of deposits funds and the

particular prominence that is given to restricted investment accounts and unrestricted

investment accounts from other deposits like current and saving. Most of the intellectual

activity over the past few decades has been geared toward into developing Shari’ah-

compliant alternatives for bank financing. The deposits side attracted little attention. A

closer look at the matters reveals that the line of distinction between Islamic banks and

their interest-based counterparts is thin. Tahir (2007)

Abdus Samad (2004) in his paper examines the comparative performance of Bahrain’s

interest-free Islamic banks and the interest-based conventional commercial banks during

the post Gulf War period 1991-2001. Using nine financial ratios in measuring the

performances with respect to (a) profitability, (b) liquidity risk, and (c) credit risk, and

applying Student’s t-test to these financial ratios, the paper concludes that there exists a

significant difference in credit performance between the two sets of banks. However, the

study finds no major difference in profitability and liquidity performances between

Islamic banks and conventional banks.

Kader and Asarpota (2007) utilize bank level data to evaluate the performance of the

UAE Islamic banks. Balance sheets and income statements of 3 Islamic banks and 5

conventional banks in the time period 2000 to 2004 are used to compile data for the

study. Financial ratios are applied to examine the performance of the Islamic banks in

profitability, liquidity, risk and solvency, and efficiency. The results of the study show

that in comparison with UAE conventional banks, Islamic banks of UAE are relatively

more profitable, less liquid, less risky, and more efficient. They conclude that there are

two important implications associated with this finding: First, attributes of the Islamic

profit-and-loss sharing banking paradigm are likely to be associated as a key reason for

the rapid growth in Islamic banking in UAE. Second, UAE Islamic banks should be 18

regulated and supervised in a different way as the UAE Islamic banks in practice are

different from UAE conventional banks.

Saleh and Rami (2006) in order to evaluate the Islamic banks’ performance in Jordon,

examine and analyze the experience with Islamic banking for the first and second Islamic

bank, Jordan Islamic Bank for Finance and Investment (JIBFI), and Islamic International

Arab Bank (IIAB) in Jordon. The study also highlights the domestic as well as global

challenges being faced by this sector. Conducting profit maximization, capital structure,

and liquidity tests as performance evaluation methodology, the paper finds several

interesting results. First, the efficiency and ability of both banks have increased and both

banks have expanded their investment and activities. Second, both banks have played an

important role in financing projects in Jordan. Third, these banks have focused on the

short-term investment. Fourth, Bank for Finance and Investment (JIBFI) is found to have

high profitability. Finally, the study concludes that Islamic banks have high growth in the

credit facilities and in profitability.

Bashir (2000) examines the determinants of Islamic banks’ performance across eight

Middle Eastern countries between 1993 and 1998. Using cross-country bank-level data

on income statements and balance sheets of 14 Islamic banks in eight Middle Eastern

countries for each year in the 1993-1998, the study closely examines the relationships

between profitability and the banking characteristics. After controlling for economic and

financial structure indicators such as – macroeconomic environment, financial market

structure, and taxation – the study shows some very important and interesting results.

First, the profitability measures of the Islamic banks react positively to the increases in

capital and loan ratios, which is intuitive and consistent with previous studies. Second,

the study highlights the empirical role that adequate capital ratios and loan portfolios

play in explaining the performance of Islamic banks. Third, the results indicate that

customer and short-term funding, non-interest earning assets, and overhead are also

important for promoting banks’ profits. Fourth, the results reveal that foreign-owned

banks are more profitable than their domestic counterparts. Fifth, keeping other things

constant, there is evidence that implicit and explicit taxes affect the bank performance

measures negatively. Sixth, favorable macroeconomic conditions have positive effect on

performance measures of the bank. Finally, the results of the study show that stock

markets are complementary to bank financing.

A similar study performed by Hassan and Bashir (2003) analyzes how the performance

of the Islamic banks is affected by bank characteristics and the overall financial

environment. They utilize cross-country bank level data on Islamic banks in 21 countries

for each year in 1994-2001 to closely examine the performance indicators of Islamic

banks. In general, they find their analysis of determinants of Islamic banks profitability

consistent with previous findings. The study indicate that controlling for macroeconomic

environment, financial market structure, and taxation, the high capital and loan-to-asset

ratios lead to higher profitability. Everything remaining equal, the regression result of the

study reveals that there is negative effect of implicit and explicit taxes on the bank

performance measures, while there is positive impact of favorable macroeconomic

conditions on bank performance measures. That is, favorable macroeconomic

environment appears to kindle higher profit margins. Results also show surprisingly a 19

strong positive correlation between profitability and overhead. That is in the Islamic

banking market expense preference behavior appears to hold. They also find in their

study that size of the banking system has negative impact on the profitability except net

on interest margin.

Yudistira (2003) in his study makes an empirical analysis on efficiency and provides new

evidences on the performance of 18 Islamic banks over the period 1997-2000. Panel data

set for this time period is extracted from non-consolidated balance sheets and income

statements of these Islamic banks with specific purpose of seeing the impact of recent

financial crises on efficiency of Islamic banks. This study is different from previous

studies in that it utilizes non-parametric approach, Data Envelopment Analysis (DAE) to

analyze the technical efficiency, pure technical efficiency, and scale efficiency of Islamic

banks. Being in line with the principle of Islamic financial system, the intermediation

approach is used to specify input-output variables of Islamic banks. The study finds

several results. First, the overall efficiency results indicate that there is a small (at just

over 10%) inefficiency across 18 Islamic banks, which is considerable as compared to

many conventional counterparts. Similarly, global crisis in 1998-1999 badly affected the

performance of Islamic banks; however, they performed better afterwards. Second, the

results show that small and medium sized Islamic banks faced diseconomies of scale

which suggests that M&A should be encouraged. Moreover, as compared to their

nonlisted counterparts, publicly listed Islamic banks are found to be less efficient. Lastly,

Country specific factors mainly determined the efficiency differences across sample data.

Sufian (2007) performs a similar study to provide new evidence on the relative efficiency

between the domestic and foreign banks Islamic banking operation in Malaysia during

the period of 2001-2004. Non-parametric Data Envelopment Analysis (DEA)

methodology has been utilized to distinguish between three different types of efficiency:

technical, pure technical and scale efficiencies. The study also used intermediation

approach to specify input-output variables of Islamic banks. A series of parametric and

non-parametric tests were performed to examine whether the domestic and foreign banks

were drawn from the same population, as most of the most of the results could not reject

the null hypothesis at 5% level of significance. Finally, Spearman Rho Rank-Order and

the Parametric Pearson correlation coefficients were employed to examine the

association between the efficiency scores derived from the DEA results with the

traditional accounting ratios. Several results are drawn form the study. The results from

the DEA show that efficiency of Malaysian Islamic banks recovered slightly in years

2003 and 2004 after declining in year 2002. The domestic Islamic banks are found

marginally more efficient than foreign Islamic banks. The study examines that operating

at the wrong scale of operations has been the main reason for the Malaysian Islamic

banks inefficiency. The dominance of scale in determining the technical efficiency of

Malaysian Islamic banks is further confirmed from the results of the correlation

coefficients. The results of the study also indicate that profitability is significantly and

positively correlated to all efficiency measures.

A similar study performed by Bashir (2000), In general, our analysis of determinants of

Islamic bank profitability confirms previous findings. Controlling for macroeconomic

environment, financial market structure, and taxation, the results indicate that high

leverage and large loans to asset ratios lead to higher profitability. The results also

indicate that foreign-owned banks are more profitable than their domestic counterparts.

Everything remaining equal, there is evidence that implicit and explicit taxes affect the

bank performance measures negatively. Furthermore, favorable macroeconomic

conditions impact performance measures positively.

3. Overview of Shajalal Islami Bank Limited

Banks play an important role in economy of any country. At Bangladesh Muslim

constituted more than about 90% of its population. This population possesses strong faith

on Allah and wants to lead their lives as per the constructions given in the holy Quran

and the way shown by the prophet Hazrat Muhammad (Sm). But No Islamic Banking

system was developed here upto 3983. The traditional banking is fully based on interest

it is commonly meant as commercial banks. But interest is absolutely prohibited by

Islam. As a result people of Bangladesh have been experiencing such a no-Islamic and

prohibited banking system against their normal values and faith.

In the Islamic banking system the bank receive no interest. In this case bank receives its

entire deposit from the investment of the clints on the basis of profit sharing places it to

the actual entrepreneurs on the basis of profit sharing. So it is clear that in case of the

traditional banking system, a fixed percentage of interest, irrespective of income earned

is paid to the depositors. The depositors of Islamic banking are never deprived of excess

income, which the bank may make at the end of year. Not only has this traditional bank

given fixed interest rate even when they incur operational loss. The critics of Islamic

Banking system are of the opinion that both are found same in terms of deposits

mobilization and advances investment.

The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are

Nationalised Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign

banks and the rest five are Development Financial Institutions (DFIs). Among these

banks only six local banks have fully Islamic banking system, Shajalal Islami Bank

Limitd is one of the Islami Bank.

3.1 Background of SJIBL

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

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

the Sunnah. Naturally, it remains a deep cry in their hearts to fashion and design their

economic lives in accordance with the precepts of Islam.

The establishment of Shahjalal Islami Bank Limited (SJIBL) on 2001 is the true

reflection of this inner urge of its people, which started functioning with effect from 10th

May 2001. It commenced its commercial operation in accordance with principle of

Islamic Shariah on the 10th May 2001 under the Bank Companies Act, 1991. It is

committed to conduct all banking and investment activities on the basis of interest-free

profit-loss sharing system. In doing so, it has unveiled a new horizon and ushered in a

new silver lining of hope towards materializing a long cherished dream of the people of

Bangladesh for doing their banking transactions in line with what is prescribed by Islam.

With the active co-operation and participation of Islamic Development Bank (IDB) and

some other Islamic banks, financial institutions, government bodies and eminent

personalities of the Middle East and the Gulf countries, Islami Bank Bangladesh Limited

has by now earned the unique position of a leading private commercial bank in

Bangladesh. Shahjalal Islami Bank Limited” offers the full range of banking services

for personal and corporate customers, covering all segments of society within the

framework of Banking Company Act and rules and regulations laid down by our central

bank. Diversification of products and services include Corporate Banking, Retail

Banking and Consumer Banking right from industry to agriculture, real estate to software

and is backed by the latest technology.

The Bank is managed by a Team of professional Executives and Officials having

profound banking knowledge & expertise in different areas of management and

operation of Banks. During the short span of time, Shahjalal Islami Bank so far

introduced a good number of attractive deposit products to broaden the resource base and

also Investment products to deploy the deposit resources so mobilized. Some more

schemes covering the deposits, Investments & Services will be introduced gradually in

near future suiting to the taste and requirement of the clients. The Bank has a strong

Shariah Council consisting of prominent Ulama, Fuquah & Economists who meet

periodically to confer decisions on different Shariah issues relating to Banking Operation

& to address them and to give necessary guidance to the management on Shariah

Principle. Since inception, Bank has been performing in all the sectors i.e. general

Banking, Remittance, Import, Export & Investment. All our branches are fully

computerized having on line Banking facility for the clients.

During last nine years SJIBL has diversified its service coverage by opening new

branches at different strategically important locations across the country offering various

service products both investment & deposit. Islamic Banking, in essence, is not only

INTEREST-FREE banking business, it carries deal wise business product thereby

generating real income and thus boosting GDP of the economy. Board of Directors

enjoys high credential in the business arena of the country, Management Team is strong

and supportive equipped with excellent professional knowledge under leadership of a

veteran Banker Mr. Muhammad Ali.

COMPANY PROFILE IN BRIEF

Name Shahjalal Islami Bank LimitedChairman Alhaj Engr. Md. Towhidur Rahman

Managing Director Muhammad Ali

Registered Office 2/B, Uday Sanz,, Gulshan South Avenue,Gulshan-1,Dhaka-1216

Auditors M/S. Syful Shamsul Alam & Co

Tax Advisor M/S K.M Hasan & Co.

Legal Advisor Hasan & Associates

Legal Status Public Limited Company.Nature of Business Commercial, Corporate, Investment & Retail

BankingFirst meeting of the promoters held on

4th September, 2000.

Date of Certificate of 1st April, 2001.

IncorporationDate of Certificate of Commencement of Business

1st April, 2001.

Banking License received on 18th April, 2001.First Branch License received on 24th April, 2001Inauguration held on 10th May, 2001.Authorized Capital Tk.80.00 crore.Paid up Capital Tk.20.50 crore.Number of Branches (as on 20.06.2010)

52

Telephone No. 88-02-9570812, 7160591Fax No. 88-02-9570809, 9553562Website www.shahjalalbank.com.bd

3.2 Vision of Shajalal Islami Bank Limited

To be the unique modern Islami Bank in Bangladesh and to make significant

contribution to the national economy and enhance customers' trust & wealth, quality

investment, employees' value and rapid growth in shareholders' equity.

3.3 Mission of Shajalal Islami Bank Limited

To expand Islamic banking through welfare oriented banking system, ensure equity and

justice in economic activities, extend financial assistance to poorer section of the people

and achieve balanced growth & equitable development.

To provide quality services to customers.

To set high standards of integrity.

To make quality investment.

To ensure sustainable growth in business.

To ensure maximization of Shareholders' wealth.

To extend our customers innovative services acquiring state-of-the-art technology

blended with Islamic principles.

To ensure human resource development to meet the challenges of the time.

3.4 Moto of Shajalal Islami Bank Limited

Committed to Cordial Service.

3.5 Objectives of Shajalal Islami Bank Limited

From time immemorial Banks principally did the functions of moneylenders or

"Mohajans" but the functions and scope of modern banking are now-a-days very wide

and different. They accept deposits and lend money like their ancestors, nevertheless,

their role as catalytic agent of economic development encompassing wide range of

services is very important. Business commerce and industries in modern times cannot go

without banks. There are people interested to abide by the injunctions of religions in all

sphere of life including economic activities. Human being is value oriented and social

science is not value-neutral. Shahjalal Islami Bank believes in moral and material

development simultaneously. "Interest" or "Usury" has not been appreciated and

accepted by "the Tawrat" of Prophet Moses, "the Bible" of Prophet Jesus and "the

Quran" of Hazrat Muhammad (sm).

Efforts are there to do banking without interest Shahjalal Islami Bank Limited avoids

"interest" in all its transactions and provides all available modern banking services to its

clients and want to contribute in both moral and material development of human being.

No sustainable material well being is possible without spiritual development of mankind.

Only material well-being should not be the objective of development. Socio-economic

justice and brotherhood can be implemented better in a God-fearing society.

Other objectives of Shahjalal Islami Bank include:

To establish interest-free and welfare oriented banking system.

To help in poverty alleviation and employment generations.

To contribute in sustainable economic growth.

To remain one of the best banks in Bangladesh in terms of profitability and assets

quality.

To earn and maintain a 'Strong' CAMEL Rating

To ensure an adequate rate of return on investment.

To maintain adequate liquidity to meet maturing obligations and commitments.

To play a vital role in human development and employment generation.

P ro po s ed O rg an o gra m -- .. ................. Bra n ch

In vestm ent Ad m in istration(BB/HO Com pliance, lnvestm ent

docum entation, m onitoring ,all returns )

Custom er Care

Rem ittance, local & foreig n(DD/PO /TT /O n line)

Account O penin g

Custom er S ervic e

Receivin g T elle r Paying Telle r

Chief T elle r

Cash O peratio n

Clearin g

Accounts & IT

Accou nts & IT/Clearing /Cash

Opera tion Manager

Inves tm ent (com posite) Inves tm ent(case to case )

In vestm ent Dep artm en tAppriasal, P rop osal, Recovery

Export & G arm entsO peration

Im port

Fo reig n Trad e O peration

Trade Service M anager/Relationship M anager

M anager/Senior Relationship M anager/Relationship M anager

To develop and retain a quality work force through an effective Human

Resources Management System.

To pursue an effective system of management by ensuring compliance to ethical

norms, transparency and accountability at all levels.

3.6 Strategies of Shahjalal Islami Bank include

To strive for customers best satisfaction & earn their confidence.

To manage & operate the Bank in the most effective manner.

To identify customers needs & monitor their perception towards meeting those

requirements.

To review & updates policies, procedures & practices to enhance the ability to

extend better services to the customers.

To train & develop all employees & provide them adequate resources so that the

customers needs are reasonably addressed.

To promote organizational efficiency by communicating company plans, polices

& procedures openly to the employees in a timely fashion

3.7 Management Strategy of Shahjalal Islami Bank include

The entire employees are divided into two categories at large:

a) Bank Official

b) Bank staff

The hierarchy of the Management is as follows:

The whole management functions as per following Organogram:

Figure: Proposed Organogram of Shahjalal Islami Bank Ltd

3.8 Financial Strategy

Shahjalal Bank limited started it’s business operation when the world had just

experienced the deterioration in the overall economy and declining growth for almost all

major regions of the world. The overall economic scenario in Bangladesh was also under

crucial situation. Confronting many different difficulty of our economy the bank has

successfully established a track of steady growth and desired level of achievement.

Within five months of inception, the Bank could attain “breakeven” position. As on

20.12.2003, the Bank has achieved profit worth of Tk.19.00 crore. Besides, the bank is

increasing asset financing. The Board of Directors of the Bank does not compromise on

the quality of assets and the management, within many obstacles has shown their ability

to generate steady growth in business. In the process, the Bank has been able to maintain

a satisfactory capital adequacy ratio. As per guideline of the central bank, limit on

portfolio concentration has necessitated diversification of it’s investment. As a result,

small and medium enterprises have been receiving financial assistance.

The management has become more strength in servicing the clients by developing its

technology, human resources and service policy.

3.9 Stock Summary of SJIBL

Authorized Capital : Tk. 4,000 million

Paid up Capital : Tk. 2,245.98 million

Face Value per Share : Tk. 100

3.10 Board of Directors of SJIBL

Chairman Alhaj Engr. Md. Towhidur Rahman

Vice Chairmen Alhaj Mohiuddin Ahmed

Alhaj Md. Sanaullah Shahid

Directors Alhaj Sajjatuz Jumma,

Alhaj Mohammed Faruque,

Alhaj Anwer Hossain Khan,

Alhaj Tofazzal Hossain,

Alhaj Md. Harun Miah,

Alhaj Mohammed Farooq,

Alhaj Mohammed Hasan,

Alhaj Abdul Halim

Independent Directors Alhaj Nazmul Islam Nuru

Sponsors Alhaj Md. Abdul Mannan

Managing Director Mohammad Ali

3.11 Shariah Council of SJIBL

Shariah Council of the Bank is playing a vital role in guiding and supervising the

implementation and compliance of Islamic Shariah principles in all activities of the Bank

since its very inception.

Members of the Shariah Council meet frequently and deliberate on different issues

confronting the Bank on Shariah matters. They also conduct Shariah inspection of

branches regularly so as to ensure that the Shariah principles are implemented and

complied with meticulously by the branches of the Bank.

3.12 Management Hierarchy of SIBL

Chairman

Board of Directors

Managing director

Deputy Managing Director

Senior Executive Vice President

Executive Vice President

Senior Vice President

Vice President

Senior Assistant Vice President

First Assistant Vice President

Assistant Vice President

Senior Principal Officer

Principle Officer

Senior Officer

Officer

Fig: Organizational Management Hierarchy of SIBL

3.13 Activities of Shajalal Islami Bank Limited

The major actives of SJIBL is exchanges of right to possession of money and exchange

of money from credit for exchange of money from credit for money. As a banking

business it includes deposits taking, extending credit to corporate organization, retail and

small and medium enterprise, leases and hire purchase financing, issuance of local and

international credit cards etc.

The mode of banking included interest based conventional and shariah based Islamic

Banking. It also performs Merchant Banking function under the license issued by

Securities and Exchange Commission, Dhaka , Bangladesh which offers portfolio

management, Issuemanagement, underwriting, lease financing, lending at share

purchase.

The main function of SJIBL are-

Retail / Personal Banking

Foreign Remittance

Credit Facilities and Programme

Utility Service

Micro Enterprise and Special Credit

Rural Banking & Credit Programme

Merchant Banking

Bank Guaranty

3.14 Product and Services of Shajalal Islami Bank Limited

Shajalal Islami Bank Ltd. has launched several financial products and services

considering the needs and requirements of the cuslomer SJIBL have classified the

product under different head as below:

3.14.1 General Banking:

General Banking is the starting point of all banking operation. General banking division

aids in taking deposits and simultaneously provide some ancillaries services. It provides

those customers who come frequently and who come one time in banking for enjoying

ancillary services. It is the department which provides day to day services to customers.

Every day it receives deposits from the customers and meets their demands for cah

honoring check. General banking consist of the following sections:

Customer service

Account opening/ Closing

Payment Order Issue

Demand draft issue/ Collection

T.T Issue and collect

Account Transfer

Deposit

Clearing etc

3.14.2 Deposit Scheme

Deposit comes from saving and according to investment scheme able fund theory, the

four source of saving are house hold, business, government and companies retain

earning. Among these as a low cost sensitive and large source house hold savings is the

most important for bank. Considering the demography, income, and other variables

SJIBL has introduce the following deposit schemes:

Mudaraba Monthly Income

Mudaraba Double Money

Mudaraba Monthly Deposit

Mudaraba Millionaire

Mudaraba Haji Deposit

Mudaraba Housing Deposit

Mudaraba Small Business

Mudaraba Cash Waqf Deposit

Mudaraba Lakhopoti Deposit

Mudaraba Bibaho Deposit

Mudaraba Mohor Deposit

Mudaraba Shikhkha Deposit

Mudaraba Special Term Deposit

Deposit schemes are classified by above categories as policy to meet the customers need

and diversification of sources of financing.

3.14.3 Investment Scheme

Bank has to invested the collected fund at higher rate than the depositors rate and

difference between the deposit and investment rare is known as spread. SJIBL offers

several investment scheme considering customers occupation, business and other

requirements. These are called SME and Customer Credit (CC) which have more Return

on Investment (ROI) than the corporate investment. SJIBL has introduce the following

investment schemes:

Small & Medium Enterprise Investment

Small Business Investment

Housing Investment

Household Durable

Car Investment

CNG Conversion Investment

Overseas Employment Investment

Investment Scheme for Doctors

Investment Scheme for Marriage

Investment Scheme for Education

3.14.4 Foreign Exchange Service

Foreign exchange department of SIBL is one of the most important department of all

department this department deals the following activities

Import section

Export section

Foreign Remittance section

3.15 Corporate Investment Processing of SJIBL:

Since Shahjalal Islami Bank is running Shariya based banking system, so they exercise

islamic term for Deposit Scheme, Loan .etc. For example “loan” term is used as

Investment. The bank offers a wide range of Islamic financial products like

a) Short Term financial

b) Mid term financial

c) Long term financial - Up to 5 years

d) Long term financial -Above 5 years.

But the processing system of all investment products is same. Here we give a short

overview about the whole process in theoretically.

3.15.1 Life Cycle of Loan Products:

The investment-client starts repayment as per schedule in regular manner for the

disbursed amount. In parallel, the Branch Investment Officer starts monitoring. If

any deviation founds in compliance of terms and condition and Investment

financial health he prepares an early alert and send it to Investment

Administration Division, HO.

If the customer repays the Investment regularly the account is adjusted at

maturity. Sometime it may require restructuring of the repayment schedule at any

time during the validity period. It is possible at any time. If repayment is

irregular, it becomes overdue and/or classified.

At the end of month, the Profit of the all accounts (except BAD/LOSS marked)

applies to the Investment account and the Profit for the regular Investment is

credited to the income account. In case of classified account (except

BAD/LOSS), the Profit is credited to the Suspense Account.

The classified Investment information must be reported to the central bank at the

month end and quarter end by submitting the CL, CIB and SBS3 report

Whenever the Investment account is marked BAD/LOSS, the Profit calculation

continues but the Profit application to Investment account stops.

If the Classified Investment account seems recoverable, then as per Head office

approval Investment account proceeds to rescheduling. If the Investment account

is rescheduled it gets a newer life. The rescheduled Investment information must

be kept in the system for Central bank reporting.

During the rescheduling, the suspense Account balance for that Investment

account must be recovered first. Sometimes it may hold some balance after the

rescheduling and declassification of the Investment account if the recovered

amount is less than the suspense balance for that Investment.

If the Classified Investment account seems unrecoverable, then the HO recovery

unit proceeds to Lawsuit filing. After lawsuit filing the system stops Profit

calculation. And capitalize all unapplied Profit to the Investment account while

marking Lawsuit. And System just holds the account status open until the Court

gives any resolutions.

As per court order, recovery unit of Head office liquidates the collaterals of the

customer and adjusts the Investment.

Meanwhile, if the Investment is not rescheduled, the Recovery Unit writes off the

Investment and transfers the Investment to a separate Written-off Investment

Register. Though it is washed out from the balance sheet of the Bank, the

recovery process continues.

3.15.2 Process Work Flow:

Prospective customer collects application form from the respective Branch and

submits the Investment application to the relationship officer/Branch Investment

officer.

The relationship officer / Branch Investment officer scrutinizes the application

form, collects necessary information, if any required and assess the investment

worthiness of the investment-client. If the proposal is not worth /bankable he

returns a refusal letter to the customer immediately. If it is acceptable he forwards

the same to Branch investment committee.

If the Branch Investment committee founds viable then they will approve the

Investment and forward the application to the Investment Division, Head office,

otherwise they will reject the proposal.

Head office Investment Official will scrutinize the application, analyze and

prepare a memo with due diligence along with their observations/ results of

analysis and to place it to the HO Investment Committee. He also submits “One

Obligor Report” for the customer if the customer has other liabilities with the

Bank.

After full satisfaction, the proposal will be approved by the existing delegated

authority of head office (Head of investment Committee-> Managing Director->

Executive Committee-> Board). If not, then he will decline the proposal. If the

Proposal is approved, the sanction letter of the Investment is sent to branch along

with required terms and Documentation list. And Investment administration

division will setup an approval limit for the customer of sanctioned/approved

Investments.

After getting the approval, branch offers the Investment to the customer. And

collects the customer’s acceptance along with required security documents.

Branch then informs the head office with a list of document those have received

from the customer and puts the documents in safe custody and records the entry

in Safe in/ Safe out register.

Branch then initiate the Investment commitment and request for disbursement

authority from Head office Investment Administration division.

Head Office Investment Administration Division sets up the Disbursement Limit

and render authority to the Branch.

Getting the disbursement authority, Branch creates the Investment Account/Deal for

the Investment against the Investment limit and disburses the amount to Customer by

crediting Pay order or Service account and debiting the Investment Account and

generates a repayment schedule as per HO sanction

3.15.3 Steps in Approval Process:

Step-1: A potential customer collects prescribed Investment Application Form (Annexure

-1) from the Relationship Officer of Branch/Regional Corporate Banking

Department/Corporate Banking Division, Head Office/Web address of the Bank.

Later, he/she submits the filled in Investment Application Form along with

necessary papers and documents.

Step-2: The Relationship Officer scrutinizes the Investment Application Form and other

documents submitted by the customer and make a preliminary assessment on

creditworthiness of the potential investment-client. He/she collects further

information from the customer if it is felt necessary. And, if he/she finds the

proposal not bankable, he/she sends a refusal letter to the customer immediately.

On the other hand, if he/she finds it acceptable, he/she forwards the application to

the concerned Relationship Manager.

Step-3: The Relationship Manager, singly or jointly with Relationship Officer, visit the

customer’s business premise and try to acquire proper understanding about the

business position, actual investment requirement, repayment capacity etc.

Besides, he/she negotiates with the customer about the structure of the proposed

investment facility. Apart from this he/she assesses the value of the security to be

offered and prepares Valuation Report. Finally, the Relationship Manager

summarizes all these information in the Pre-sanction Inspection Report/Call

Report/Visit Report in the Bank’s prescribed format in which he/she recommends

for some specific investment facility for the customer.

Step-4: The Relationship Manager sends the Pre-sanction Inspection Report (Annexure-

3) to the Corporate Banking Division, Head Office or to the Regional Corporate

Banking Department, if any. The Head of Corporate Banking Division/Regional

Corporate Banking Department assesses the investment proposal. He/she might

contact with the Relationship Manager or directly to the customer for any query.

Finally, if he/she decides to refuse the proposal or to proceed further with the

proposal and communicates his /her decision to the Relationship Manager.

Step-5: If the Head of Corporate Banking Division/Regional Corporate Banking

Department refuses, the Relationship Manager sends a refusal letter to the

customer. If he/she is positive, the Relationship Officer collects duly filled in CIB

Inquiry Form from the customer and submits it to the Investment Information

Bureau of Bangladesh Bank for latest CIB Report through Investment

Administration Department, Head Office. Everything may stop here if CIB report

shows that the customer has classified liability in its name and/or in the name of

its sister concern(s). In that case, the customer is regretted accordingly.

Step-6: Meanwhile, the Relationship Officer rates the customer as per Risk Grading

System of the Bank. Finally, the Relationship Manager originates a formal

Investment Proposal in which the Head of Corporate Banking Division affixes

his/her recommendation regarding the proposal.

Step-7: The Head of Corporate Banking Division, Head Office then forwards the

proposal to the Investment Risk Management Department, Investment Division

along with necessary papers. The concerned Investment Officer conducts in-

depth Investment Analysis (Due Diligence) and affixes his/her

comments/observations/findings.

Step-8: The Investment Officer places the proposal along with his/her

comments/observations/findings before the Head of Investment/Head Office

Investment Committee. The Head of Investment may contact with the Head of

Corporate Banking for his/her queries. He/she may also express his/her

reservation on a particular issue/risk and ask the Head of Corporate Banking to

clarify his/her position and/or risk minimization technique(s). Finally, he might

decline the proposal. And, if he/she is fully satisfied he/she may approve the

facility if it is within his/her delegated authority. If it is beyond his/her delegated

authority, he /she would recommend the proposal to the Managing Director.

Step-9: The Managing Director may decline the proposal if he/she is not satisfied about

the proposal. If he/she is satisfied and if it is within his/her delegated power,

he/she approves the proposal. If the proposal exceeds his/her delegated authority,

he/she recommends it to the Executive Committee of the Board of Directors,

which has the supreme authority to sanction any investment.

Step-10: If the facility is approved (whoever is the approval authority), the Investment

Risk Management Department of Investment Division issues sanction letter to the

Corporate Banking Division/Branch along with a Documentation Check List

which clearly spells out what are the documentation formalities required to be

completed before disbursement. A copy is sent to Investment Administration

Department, Investment Division.

Step-11: The Corporate Banking Division/Branch then issues sanction letter to the

customer in line with the letter of Investment Risk Management Department and

requests the customer to complete documentation formalities.

3.15.4 Phases of Disbursement:

During the disbursement the following steps will follow:

Create Customer profile

Entry to the Sanction Register after the proper approval of the TERM Investment.

Branch will collect the entire necessary document and the documents submitted

by the Customer would be entered in Safe-In and Safe-Out register and linked

with the sanction ID.

Investment Administration Division official will check the document status from

the Document register.

Investment Administration Division Official will give the disbursement approval

to the branch.

Branch will then create the Investment account and disburse the Investment by

Pay order and debiting the Customer Investment Account. Disbursement of the

Investment is done as single disbursement or in Phases in accordance with the

Sanction terms of the Investment.

At the same time the repayment schedule is created and linked with Investment

account.. In some cases tailor made schedule would be prepared. Schedule will

tailor made with respect to principal, Profit, grace period etc.

In repayment schedule Grace period may be allowed and Profit during grace

period is either collected at actual or capitalized in the Investment account.

3.16 Capital Market Services Division

The capital market showed notable progress during 2008. The monthly average price

index at the Dhaka Stock Exchange (DSE) showed an upward trend along with

substantial improvement of turnover value. The monthly average of all share price index

(DSI) DSEG, and DSE20 increased buy 55.1 percent, 49.6 percent, and 39.6 percent

respectively in June 2008 over June 2007. The daily average turnover stood at Tk. 2.3

billion in the year 2008 against Tk. 0.7 billion in the year 2007 showing a healthy growth

of 223.4 percent. The increased market turnover in 2008 was largely contributed by

trading of shares of banks, insurance companies, mutual funds, and power sector

companies. At the end of 2008, market capitalization at DSE was 17.8 percent of the

country’s GDP compared with 16.1 percent in June 2007. However, volatility in the

stock market seems to have magnified recently, which needs careful investigation and

monitoring by the stock market regulators.

Shahjalal Islami Bank commenced its Brokerage House operation in the year 2008

through a separate division named ‘Capital Market Service Division’ (CMSD). CMSD

provides BO Account facility and margin facility to its customers to invest in the

secondary markets. Diversified products with different category of investment ceiling

and other value added services are also available for customers.

The customers were also provided with assisted services facilities on the basis of

published information and accounts. The division managed portfolio value of more than

833 million under margin accounts. As a result, profitability of CMSD shown significant

positive trend during 2008. Divisional contribution was 2.21% percent to total operating

profit before Provision and taxes of the Bank. The Bank has established a well decorated

and highly technology based trading facilities for the connivance of the customers.

3.17 Performance of SJIBL

Despite changing macro-economic condition and volatile money market and foreign

exchange market, Shahjalal Islami Bank Limited was successful in achieving much

higher than national growth in deposit, Investment (loan), export and remittance

business. AS on 31st December 2009 total deposit of the Bank stood at Tk. 47,459

million showing a growth rate of 61.31%, total amount of Investment of the Bank stood

at Tk. 43,958 million with a growth rate of 59.67%. During the year import volume stood

at Tk. 42,551 million with a growth rate of 66.93% compared to that of the precious

year.

Operational Performance of SJIBL of last 3 years

PARTICULARS 2007 2008 2009

Paid up Capital 1,871,650,000 2,245,980,000 2,740,095,600

Total Capital ( Core +

Supplementary) 3,040,882,802 4,069,092,335 5,429,972,779

Capital Surplus 1,189,432,802 1,122,699,335 1 ,546,690,779

Total Assets 28,346,996,395 44,109,502,922 58,920,895,401

Total Deposit 22,618,187,303 34,279,739,993 47,459,231,493

Total Investment (Loans &

Advance) 20,616,605,335 32,918,773,668 43,958,260,711

Total Contingent Liabilities and

Commitment 20,616,605,335 10,771,113,500 14,475,137,526

Investment Deposit Ratio ( % ) 91.15% 90.23% 92.62%

Percentage of Classified Investment

against total Investments 0.62% 0.44% 0.94%

Profit after Tax and Provision 646,992,691 817,709,533 1,070,568,293

Amount of Classified Investment 128,246,000 143,243,000 413,234,220

Provisions kept against classified

Investment 23,009,403 28,009,403 118,009,403

Provisions surplus 10,723,827 20,801,366 98,703,709

Cost of Fund 10.40% 10.99% 11.07%

Profit Earning Assets 25,303,841,268 39,889,424,692 53,131,793,268

Non-Profit Earning Assets 3,043,155,127 5,327,543,961 5,789,102,133

Return on Investment in Securities 11.41% 16.84% 11.74%

(ROI)

Return on Assets (ROA) 2.60% 2.22% 2.08%

Income from Investment in

Securities 97,974,405 192,717,942 409,019,391

Earnings Per Share 28.81 29.84 3 9.07

Net Income Per Share 28.81 29.84 39.07

Price Earnings Ratio (Times) 10.58 8.55 9.79

4. Corporate Investment Standard of Islamic and Non Islamic Banks in Bangladesh

Investment is esteemed as the key that unlocks the possibilities of economic progress. It

has great importance in wealth creation. Investment is important to the ordinary

consumer at the local shop as well as to the multi-national organizations. Indeed credit

has assumed the status of an institution in commercial relation.

Investments constitute the major revenue earning asset of a Bank. Banks lend mostly

depositors money. Investment fund having cost implications and repayment obligations

to the depositors have to be managed efficiently with minimum possible Investment

(default) risk.

4.1 Corporate Investment of Shajalal Islami Bank Limited

Since Shahjalal Islami Bank is running Shariya based banking system, so they exercise

islamic term for Deposit Scheme, Loan .etc. For example “loan” term is used as

Investment. The bank offers a wide range of Islamic financial products like

Short Term Investment

Midterm Investment

Long term Investment - Up to 5 years

Long term Investment -Above 5 years.

But the processing system of all investment products is same. Purpose of the Investment

is moral. The main purpose of the investment is to provide finance facilities to the large

companies, governments, or other big institutions need in order to carry out their

functions and to boost up the economic condition of the county. This will help to solve

poverty problem by providing and upgrading basic infrastructure. It will improve the

quality of business. It provides easy terms and minimum profit charged and flexible

repayment schedule, disbursed in a prompt way.

Target Market

Investment project provides business people’s basic need business development

priorities. So people from different business group can be comprised under investment

project. Many financial institutions in our country are providing such facilities. SJIBL

(Shajalal Islami Bank Limited) boelongs to that class.Their target customer groups are.

Higher income group privet large companies, governments, or other big

institutions which having sufficient flows of income. Higher income group privet

large companies, governments, or other big institutions which having sufficient

flows of income. which are fully secured i.e. fully cash covered

Medium income group companies or self invested of middle earning bracket that

can participate with own equity. For example government, semi government

organization, businessmen, private firms etc. Having strong repayment capacity

of the borrower.

Lower income group business people but the company demonstrates consistently

strong earnings and cash flow certainty.

The provided fund can be used

In construction of factory building on land already owned / to be purchased.

In purchase of goods, machineries, vehicles , land etc that to be used for business

purpose

For innovation / extension / finishing of the business.

Any other business related project that may consider viable for finance.

Eligibility

Banker evaluates the proposal of customer and they decide whether the project approval

is possible or not. In case of allocation Investment, they judge the eligibility of

investment. To get the investment facility things are required.

The company demonstrates consistently strong earnings and cash flow certainty.

Borrower has well established, strong market share.

Borrowers have adequate liquidity, cash flow and earnings.

Acceptable company guarantee

Strong repayment capacity of the borrower

Ceiling of Loan

The amount of the loan or facility should be based upon the realistic need of the

borrower. This need must be analyzed carefully given the data provided by the borrower

coupled with a realistic assessment of the projected cash flows to repay the loan.

For SJIBL the highest amount of loan allowable for single client is 15% of paid-up

capital for funded and 50%of paid-up capital for funded and non funded business.

Here we can find the eligible mortgage loan to value ratio which means the ratio of the

eligible mortgage loan as determined by the borrower’s or an independent appraiser.

Types of Credit Facilities

The Bankers extend credit facilities to their clients in various forms matching with the

purpose and repayment status. Credit facilities are allowed to the client mainly in 02

(two) forms:

Funded Facility (Overdraft, Time Loan, Trust Receipt (TR), Inland Bill Purchase (IBP))

Non-funded Facility (Letter of Credit (L/C), Back to Back L/C, Letter of Guarantee)

Loan Disbursement

Disbursement system is through payment order not in cash.

The loan after sanction is disbursed one time or in different phases as the client /

Bank Authority deems fit depending on requirement

Bank will disburse the loan after the client invests his / her own equity

In case of construction, the disbursement will be matched with the clients won

investment.

Disbursements under loan facility will only be made when all security

documentation is in place and all credit approval terms have been met

Loan may be disbursed directly to the supplier(s) to procure raw materials for the

building

Loan may be disbursed in phase of depending on progress of work upon

submission of duly certified statement of expenditure as per disbursement

schedule

Branch to synchronize the project implementation schedule, progress of work and

accordingly arrange withdrawal / disbursement of the facility

Profit Charge:

Profit chage for the investment SJIBL follows the Sharia guideline of the Bangladesh

Bank. Prevailing profit rate 13.00% that may vary time to time for funfed investment.

For regular client this charge varies from 11% to 13% p.a.

Charges

As usually bank charges Profit charge and other charges on their investment. SJIBL

processing charges depend on the amount of the investment according to the investment

policy. It charges other fees also, like any incidental costs in any form whatsoever (i.e.

legal, professional, valuation etc.) in the negotiation, preparation, execution, and

enforcement of the offer will be charged on account of the client.

Mode of the payment

The repayment will be started from the subsequent month of disbursement or from the

following month at end of grace period. Grace period varies from2 to 18 months. The

payment will make in amortized monthly installment comprising of principal and

interest. There is no extra charge for grace period profit charge.

Security

The Guarantee of the owner(s) and perhaps also of certain key personnel, of the

borrowing concern is always required and will serve as a secondary source of loan

repayment.

It keeps collateral on case to case basis, if available:

Mortgage of any other property

Pledge of shares/ securities and other encashable securities

Lien on retirement benefits

Assignment of life insurance policy

Guarantee from a person acceptable to the bank

Collateral:

Collateral is required as a secondary source of repayment. At a minimum, any

equipment, building or other asset purchased with loan proceeds should be pledged or

mortgaged to the bank as collateral for the loan. Moreover, the primary place of business

and / or production is required as collateral.

Numerical analysis

Table- 1: Disbursement in Investment of SJIBL for the years 2006-2009 are presented below

Year

2006 2007 2008 2009Investment(Tk. in million)

14,207 19,028 29,197 40,369

Figure 1: Investment (Tk. in Millions) of SJIBL from 2006 to 2009

4.2 Corporate loan of Trust Bank Limited

Any Bangladeshi business organization that has the means and capacity to repay bank

laon. In specific terms, Professional loan officers analyze financial and non-financial

information of proposed borrowers and set preferred levels of collateral and covenants.

Borrower selection is associated with the amount of information examined, lenders' risk

preferences and years of lending experience.

Eligibility

Any Bangladeshi Privet or public limited business organization that have adequate

liquidity, cash flow and earnings.



Rate of interest

These should be determined on case to case basis abiding by the rules of regulatory

authorities. The general interest rate is 13% or as revised from time to time. But for

special case this rate reduces.

Ceiling of Loan

When the bank allocates loan they select the length of loan to provide. They consider the

repayment worthiness of the loanee and the assets which s/he is holding. But there is

restriction for allocation above a certain level.

For Trust bank the highest amount of loan allowable for single client is 15% of paid-up

capital for funded and 50%of paid-up capital for funded and non funded business. This

term loam starts from 50 lac taka

Disbursement mode

Disbursement system is in cash through the branch account.

Phase-wise disbursement by credit to savings/current account against progress of

work.

Single disbursement to the Real seller through account payee check or online

transaction to the sellers account the date of registration of sale deed-in case of

purchase of machineries, raw material or goods.

Disbursement may be structured matching with the periodic requirement of the

borrower in implementation of a project along with involvement of equity

participation of the borrower itself.

Tenor:

Tenor shall be structured to meet the needs of the business and not to provide the longest

possible repayment period.

Service Charge and processing cost


authorities. It is generally 1% including 15% VAT will be added

Grace Period:

The borrower may need a brief grace period on principal loan payments in order to

provide enough time to commence production and resulting cash generation.

Guarantees:



repayment.

Collateral:





Numerical analysis

Table- 2: Disbursement in Investment of Trust Bank for the years 2006-2009 are presented

below (Tk. in Millions)

Year

2006 2007 2008 2009

Investment 2145 3290 4,962 8,705

Figure 2: Investment (Tk. in Millions) of Trust Bank from 2006 to 2009

4.3 Corporate Investment of Islami Bank Limited

Islami Bank is the pioneer of the Islamic banking system in Bangladeh Islami Bank starts

theShariya based banking system, it introduce islamic term for Deposit Scheme,

Loan .etc. For example “loan” term is used as Investment. The bank propose a wide

range of Islamic financial products like.But the processing system of all investment

products is same. Investment facilities are allowed to the client mainly in 02 (two) forms:

Funded Facility (Overdraft, Time Loan, Trust Receipt (TR), Inland Bill Purchase

(IBP))

Non-funded Facility. (Letter of Credit (L/C), Back to Back L/C, Letter of

Guarantee)

Target Market

Target customer groups are.

Higher income group privet large companies, governments, or other big

institutions which having sufficient flows of income. Higher income group privet

large companies, governments, or other big institutions which having sufficient

flows of income. which are fully secured i.e. fully cash covered

Medium income group companies or self invested of middle earning bracket that

can participate with own equity. For example government, semi government

organization, businessmen, private firms etc. Having strong repayment capacity

of the borrower.

lower income group business people The company demonstrates consistently

strong earnings and cash flow certainty.

Eligibility


The borrower has excellent liquidity and low leverage.

The company demonstrates consistently strong earnings and cash flow certainty.


Very good management skill & expertise.

Credit facilities fully covered by the guarantee of a top tier local Bank.

Aggregate Score of 85 or greater based on the Risk Grade Score Shee

Ceiling of Loan

For Islami Bank the highest amount of loan allowable for single client is 15% of paid-up

capital for funded and 50%of paid-up capital for funded and non funded business. But

the amount is the about 80% of the total project cost.

Here we can find the eligible mortgage loan to value ratio which means the ratio of the

eligible mortgage loan as determined by the borrower’s or an independent appraiser.

Investment facilities are allowed to the client mainly in 02 (two) forms:

Funded Facility (Overdraft, Time Loan, Trust Receipt (TR), Inland Bill Purchase

(IBP))

Non-funded Facility. (Letter of Credit (L/C), Back to Back L/C, Letter of

Guarantee)

Loan Disbursement

Disbursement system is through payment order not in cash.

The loan after sanction is disbursed one time or in different phases as the client /

Bank Authority deems fit depending on requirement

In case of construction, the disbursement will be matched with the clients won

investment.

Loan may be disbursed directly to the supplier(s) to procure raw materials for the

building

Loan may be disbursed in phase of depending on progress of work upon

submission of duly certified statement of expenditure as per disbursement

schedule.

Profit Charge:

Prevailing profit rate 13.00% that may vary time to time for funded investment. For

regular client this charge varies from 11% to 13% p.a.

Charges

As usually bank charges Profit charge and other charges on their investment. processing

charges depend on the amount of the investment according to the investment policy. It

charges other fees also, like any incidental costs in any form whatsoever (i.e. legal,

professional, valuation etc.) in the negotiation, preparation, execution, and enforcement

of the offer will be charged on account of the client.

Mode of the payment

The repayment will be started from the subsequent month of disbursement or from the

following month at end of grace period. Grace period varies from 6 to 18 months. The

payment will make in amortized monthly installment comprising of principal and

interest. There is no extra charge for grace period profit charge.

Security

It keeps collateral on case to case basis, if available:

Mortgage of any other property

Pledge of shares/ securities and other encashable securities

Lien on retirement benefits

Assignment of life insurance policy

Guarantee from a person acceptable to the bank

Numerical analysis

Table- 3: Disbursement in Investment of Islami Bank for the years 2006-2009 are presented

below (Tk. in Millions)

Year

2006 2007 2008 2009

Investment 113,575 144,920 169,830 202,885

Figure 3: Investment (Tk. in Millions) of Islami Bank Limited from 2006 to 2009

4.4 Corporate loan of Bank Asia

Bank Asia Limited is a scheduled non Islamic commercial bank in the private sectoras a

public limited company. It introduces the many convenient & practical corporate loans

that suits business people al financing needs. Let it be for new company setup,

construction, extension or renovation – Bank Asia is here with the vital solution for

business people.

Loan size

Loan amount are three types up to BDT 5million, BDT 5 million to BDT 3 cores and

more than BDT 3 cores. But it is not more than 15% of its total paid up capital.

Tenure

For funder corporate loan tenor shall be structured to meet the needs of the business but

not to provide the longest possible repayment period

Interest rates

Attractive Interest rates based on loan amount. It is generally 13% p.a. but for special

clint it varies from 11.5 to 13% p.a. For non financial purpose it is 7%.

Processing fee

Processing fee – 1% of the loan amount for the fresh applicants and 0% for the take-over

loans.

Eligibility

Any Bangladeshi privet, public or government organization.

Disbursement mode


work.








Grace Period:

Bank Asia charge client for interest after a grace period. The borrower may need a brief

grace period on principal loan payments in order to provide enough time to commence

production and resulting cash generation. Grace period varies from 6 to 15 months but

for non financial investment there is no grace period.

Numerical analysis

Table- 4: Disbursement in Investment of Bank Asia Limited for the years 2006-2009 are

presented below (Tk. in Millions)

Year

2006 2007 2008 2009Investment 3345 4211 6210 9054

Figure 4: Investment (Tk. in Millions)of Bank Asia Limited from 2006 to 2009 (Tk. in Millions)

4.5 Corporate loan of Social Islami Bank Limited

After assessment of credit risk and taking decision for recommendation, the credit officer

has the responsibility to carefully structure the credit transaction so that risk and

uncertainty are minimized.

Eligibility

After assessment of credit risk and taking decision for recommendation, the credit officer

has the responsibility to carefully structure the credit transaction so that risk and

uncertainty are minimized.

Any Bangladeshi Privet or public limited business organization that have

adequate liquidity, cash flow and earnings.



Rate of interest


authorities. In general profit charge is 13% p.a. or as revised from time to time. But for

special case this rate reduces to 11.5% .

Ceiling of Loan

The highest amount of loan allowable for single client is 15% of paid-up capital for

funded and 50%of paid-up capital for funded and non funded business. This investment

starts from 5 million BDT .When the bank allocates investment they select the length of

loan to provide. They consider the repayment worthiness of the clint and the assets which

s/he is holding. But there is restriction for allocation above a certain level.

Disbursement mode

Disbursement system is in payment order.


work.







Tenor



Service Charge and processing cost

processing charges depend on the amount of the investment according to the investment

policy. It charges other fees also, like any incidental costs in any form whatsoever (i.e.

legal, professional, valuation etc.) in the negotiation, preparation, execution, and

enforcement of the offer will be charged on account of the client.

Guarantees



repayment.

Collateral





Numerical analysis

Table- 5: Disbursement in Investment of Social Islami Bank Limited for the years 2006-2009 are


Year

2006 2007 2008 2009

Investment 12661 13406 15575 22415

Figure 5: Investment (Tk. in Millions) of SJIBL from 2006 to 2009 (Tk. in Millions)

4.6 Corporate Loan of AB Bank Limited

Customer Segment

Any Bangladeshi individual or group of company who has the means and capacity to

repay bank laon. In specific terms, these could be local, multinationals, middle to large

size companies, taxpaying company having a reliable source of income.

Eligibility

Any Bangladeshi Privet or public limited business organization that have

adequate liquidity, cash flow and earnings.



Rate of interest

@ 13.00% p.a. with quarterly rest or as revised from time to time.

Loan size

15 % of the paid-up capital of the bank but not more than 80% of the total project.

Tenor



Disbursement mode


work of the construction house.

Single disbursement to the Real Estate Developer/Owner through payment order

on the date of registration of sale deed-in case of purchase of flat.

Disbursement on installment basis to the Real Estate Developer through payment

order as per allotment letter and agreed terms & conditions as stipulated under

legal documentation clause.

Loan processing fee and Service Charge

Tk. 5000/- to be realized at the time of disbursement of loan. 2% p.a. on loan amount to

be realized at the time of loan disbursement of loan. It varies for different types of loan.

Disbursement mode








Grace Period, Guarantees and Collateral

The borrower may get a brief grace period on principal loan payments in order to provide

enough time to commence production and resulting cash generation.



repayment.





Numerical analysis

Table- 6: Disbursement in Investment of AB Bank Limited for the years 2006-2009 are


Year

2006 2007 2008 2009

Investment 6281 8884 11408 16369

Figure 5: Investment (Tk. in Millions) of AB Bank limited from 2006 to 2009 (Tk. in

Millions)

5. Project part

5.1. Methodology of the Study

This paper will endeavor to present and analyze standard of corporate investment and to

identify its effects on banks performance. Questionnaires has been used to collect

information. Shajalal Islami Bank Ltd and five prominent Commercial Banks are

selected Banks in Bangladesh for survey and data collection are Trust bank Limited, AB

Bank Ltd, Islami Bank Bangladesh Ltd, Social Investment Bank Limited, Bank Asia.

The following steps or tasks has been maintained for design of my research-

1. Design the Exploratory, research

2. Define the information required

3. Specifying the measurement & scaling process

4. Constructing a pretest questionnaire & Data collection form

5. Specifying the sample size and process

6. Develop a plan for data collection

5.2 Type of Research

This is an explicit research where I have analyzed secondary data to find out the present

situation of issuing corporate investment. A primary survey has conducted to find out the

opinions of different bank executives and corporate clients.

5.3 Sampling Plan for the Research

There are two types of sampling technique i.e. probabilistic sampling and non-

probabilistic sampling technique. I will use the Non-probability Sampling Technique

(convenient Sampling) for this study.

5.4 Target Population for the Research

To perform the study, there is huge information needed. For this study the information

will collected from organization professionals like employee of the corporate investment

risk management department of selected Banks. It also collected from others bank’s

credit management division and the corporate person who has taken corporate lending

from the bank.

5.5 Sampling Frame, Sample Type and Sample Size

The sampling frames of the research are bank executives, the corporate people who have

taken corporate lending from the bank from the selected banks

Table- 7: Strata, Sample Frame, Sample Siza and Sample Size

Strata Sampling Frame Data Collection Method

Sample type Sample Size

Executives of Bank

From Banks Head Office

Questionnaire survey using personal interview

Quota Sampling

49

Corporate person who have taken the loan

No Particular sample frame available

Questionnaire survey using personal interview

Convenient sampling

83

Determination of sample size

Sample size for bank executive is 49

Sample size for corporate person who have taken the loan is 83

The following equations have been used to determine sample size:

Sample Size for Bank executives

n = (N * z2 * p* q) / (N * d2 + z2 * p * q)

Here,

n = Number of sample size,

N = Number of population size,

z = Reliability (level of confidence)

d = Precision, p = proportion, q = 1-p

For research,

N = 60, z = 1.64 (90% confidence level), d = 5% = 0.05, p = 0.5, q = 1-0.5 =0.5

= 49.05

=49 (rounding up to the next higher integer)

Sample Size for Corporate Clients

For research,

N = 120, z = 1.64 (90% confidence level), d = 5% = 0.05, p = 0.5, q = 1-0.5 =0.5

= 82.97

=83 (rounding up to the next higher integer)

5.6 Data Collection

Primary Data

The primary data are collected from the clients of corporate investment and the corporate

investment departments of SJIBL and other banks by interviewing personnel of the

respective departments. The heads of the departments or senior executives have been

interviewed. However, the analysis and the explanation are the authors’ own.

Secondary Data

The secondary data of the study are based on a review of documents and database of

selected banks. The data has been collected also from the annual report of some others

commercials bank in Bangladesh. The industry best practices are largely based on

Bangladesh Bank manual, guidelines and databases. Books and published articles on this

topic have also been consulted.

5.7 Data Analysis

The raw data has analyzed by suitable form of statistical analysis. To analyze the data, at

first raw data was coded. After coding the data, raw data analyzed using SPSS. Testing

of the hypotheses have done through the use of one and two tail Z and Chi square test.

Based on these tests hypotheses has been accepted or rejected.

5.8 People awareness about corporate loan

Related Question: What are the clients awareness about prerequisite of corporate loan

that borrower need for loan of Islamic and non Islamic Banks?

Hypotheses:

Null Hypothesis H0: 40 % or more of the corporate clients are aware about prerequisite

corporate loan.

Alternative Hypothesis H1: less than 40 % of the corporate clients are aware about

prerequisite corporate loan.

Table-8: Data Collected and Finding

Were you aware the prerequisite of corporate lending of Bank before applying?

Yes No Total

Number of

respondents

% Number of

respondents

% Number of

respondent

s

%

49 60 32 40 81 100

Source: Primary

Mathmetically,

Ho: p <0.40

H1: p ≥0.40

From interpretation of survey, it is found that 49 clients were aware about the

prerequisite of corporate lending before applying. Thus the value of the sample

proportion is P = 49/81=0.60

Here

PHo= 0.40

qHo= 0.60

Thus the value of σp can be determined as follows:

Standard Error ( p ) = nqp HH 00

= 4060.040.0

= 0.07746

z observe = p

Hpp

0

= 6455.007746.0

40.045.0

= 0.6455

Now, Z Critical = ± 1.96 at 95 % confidence level

Figure-7: Hypothesis test for client’s awareness about the prerequisite of corporate

lending before applying.

Results: As z observe = 0.6455 is inside the acceptance region of +1.96, so null hypothesis

is accepted and alternative hypothesis H1 is rejected. So 40% or more of Clients are

aware about the prerequisite of corporate lending of different Islamic and non Islamic

bank before applying.

5.9 Corporate client’s perception about profit/interest rate of different

Islamic and non Islamic bank

Research Questions: What is the satisfaction level of the clients about profit/interest

rate of Islamic and non Islamic bank?

Hypotheses:

Null Hypothesis H0: Profit charged or interest rates of Islamic banks significantly differ

from non Islamic banks for corporate investment.

Alternative Hypothesis H1: Profit charged or interest rates of Islamic banks

insignificantly differ from non Islamic banks for corporate investment.

Table-9: Cross tabulation of clients satisfaction about profit charged or interest

rates and Islamic and non Islamic bank of the respondents

+1.96 0.6455

Type of Bank

Profit/ Interest rate

Total Very satisfied

Somewhat satisfied

Neither satisfied nor dissatisfied

Somewhat dissatisfied

Very Dissatisfied

Islamic Bank

Count 11 21 11 4 3 50Expected Count 8.6 17.9 11.7 6.8 4.9 50.0

Non Islamic Bank


Total


Chi-Square Tests

Value dfSignificant Level

Pearson Chi-Square 8.184 4 0.1

Contingency Coefficient .303

Figure-8: Hypothesis test for client’s satisfaction about profit charged or interest rates

and Islamic and non Islamic bank.

Interpretation: The table value of 2 for (degrees of freedom) = (2-1) x (3-1) = 4 at

10% level of significant is 7.779. Thus the calculated value of 2 is higher than the

tabulated value. So the null hypothesis is rejected. From this test, it is revealed that the

profit charge or interest rates of Islamic and non Islamic banks are almost similar. Form

the table we find that more of the clients of Islamic bank are very satisfied and satisfied

because Islamic banks more flexible about profit chare if the client has large amount of

fixed deposit. But also the non Islamic banks provide this service.

5.10 Corporate client’s perception about service charge of Islamic and non

Islamic Banks for corporate lending

Research Question: What is corporate client’s perception about service charge or

processing cost of Islamic and non Islamic Banks for corporate lending?

Hypotheses-:

Null Hypothesis H0: There is an association between service charge or processing cost

and corporate investment standard of Islamic and non Islamic bank.

Alternative Hypothesis H1: There is no association between service charge or

processing cost and corporate investment standard of Islamic and non Islamic bank.

Table-10: Cross tabulation of respondent client’s perception about service charge or processing cost for

corporate lending of Islamic and non Islamic bank.

Type of Bank

Service charge Total

Very High High Moderate Low Very LowIslamic Bank

Count 24 14 10 0 2 50Expected Count 16.7 21.0 9.3 .6 2.5 50.0

Non Islamic Bank

Count 3 20 5 1 2 31Expected Count

10.3 13.0 5.7 .4 1.5 31.0

Total


Chi-Square Tests


Pearson Chi-Square 16.510 4 .1


Figure-10: Hypothesis test for client’s perception about service charge or processing

cost for corporate lending of Islamic and non Islamic bank.



tabulated value. So the null hypothesis is rejected. From this test, it is revealed that there

is no relation between corporate loans and processing cost of Islamic and non Islamic

bank and it is more or less similar.

5.11 Corporate client’s perception about processing time of Islamic and non

Islamic Banks for corporate lending

Research Questions: What is the satisfaction level of the clients about loan processing

time, of Islamic and non Islamic bank?

Hypotheses:

Null Hypothesis H0: Islamic and non Islamic banks corporate investment loan

processing time insignificantly differs insignificantly.

Alternative Hypothesis H1: Islamic and non Islamic banks corporate investment loan

processing time insignificantly differs significantly.

Table-11: Cross tabulation of respondent client’s perception about loan processing time of Islamic and non

Islamic bank.

Type of Bank

Loan Processing Time


Somewhat satisfied



Very Dissatisfied

Islamic Bank


Non Islamic Bank

Count 12 14 3 2 0 31Expected 5.7 13.8 5.4 4.6 1.5 31.0

Total

Count 15 36 14 12 4 81Expected 15.0 36.0 14.0 12.0 4.0 81.0

Chi-Square Tests


Pearson Chi-Square 17.594 4 0.1


Figure-10: Hypothesis test for client’s perception about loan processing time of Islamic

and non Islamic bank.



tabulated value. So the null hypothesis is rejected. From this test, it is revealed that the

loan processing time of Islamic and non Islamic banks differs. Form the table we find

that more of the clients of non Islamic bank are very satisfied and satisfied because non

Islamic banks processes loan so quickly and its vary from 10 days to 40 working days

but at Islamic bank it takes about 15 to 60 working days. Islamic bank requires more

time because they investigate the project and also a sariah board meeting is required for

the Investment.

5.12 Corporate client’s opinion about loan documentation system of different


Research Questions 7: What is the satisfaction level of the clients about profit/interest

rate, loan processing time, documentation and other factors of selected bank?

Hypotheses-8:

Null Hypothesis H0: There is no significant difference in corporate investment


Alternative Hypothesis H1: There is significant difference in corporate investment


Table-12: Cross tabulation of respondent client’s perception about documentation

system of Islamic and non Islamic bank.

Type of Bank

Documentation

Total Very difficult Difficult

Neither Difficult nor easy Easy

Very easy

Islamic Bank


Non Islamic Bank

Count 8 20 1 1 1 31Expected Count 10.3 18.0 1.1 .8 .8 31.0

Total


Chi-Square Tests


Pearson Chi-Square 1.482 4 .1


Figure-11: Hypothesis test for client’s perception about documentation system of

Islamic and non Islamic bank.


10% level of significant is 7.779. Thus the calculated value of 2 is lower than the

tabulated value. So the null hypothesis is no rejected. From this test, it is revealed that

the documentation process of Islamic and non Islamic bank is more or less similarities.

From the table it is observed that more of the client’s of Islamic banks perceive that

documentation process of Islamic bank more difficult and lengthy

5.13 Corporate client’s opinion about loan disbursement system of different


Research Questions: What is corporate client’s perception about loan disbursement system of


Hypotheses-:

Null Hypothesis H0: Corporate investment disbursement system of Islamic bank

(Payment order) is more preferable than Non Islamic Bank (Cash).

Alternative Hypothesis H1: Corporate investment loan disbursement system of Islamic

bank (Payment order) is not preferable than Non Islamic Bank (Cash).

Table-13: Cross tabulation of respondent client’s perception about disbursement system of Islamic and non

Islamic bank.

Type of Bank

Disbursement system

TotalVery satisfied

Somewhat satisfied



Very Dissatisfied

Islamic Bank


Non Islamic Bank

Count 6 14 7 3 1 31Expected Count

7.3 14.9 3.8 4.2 .8 31.0

Total


Chi-Square Tests


Pearson Chi-Square 5.394 4 .1Contingency Coefficient .250

Figure-12: Hypothesis test for client’s perception about disbursement system of Islamic

and non Islamic bank.




the client’s preference about disbursement process of Islamic and non Islamic banks

differs. Corporate clients prefer more payment order (PO) than cash payment because

sometimes it is difficult for cash movement also Islamic banks send the PO to the

seller’s address or the parties who deal with the corporate clients. So the transaction cost

of the client has not to pay. Also some of the client prefers cash payment system of the

non Islamic banks because PO system delays the transaction process than online and

quick payment system.

5.14 Corporate client’s perception about repayment system of Islamic and

non Islamic Banks.

Research Questions: What is corporate client’s perception about repayment system of


Hypotheses-:

Null Hypothesis H0: There is a significant difference repayment system of corporate

investment standard of Islamic and non Islamic banks.

Alternative Hypothesis H1: There is no significant difference between repayment

system of corporate investment standard of Islamic and non Islamic banks.

Table-14: Cross tabulation of respondent client’s perception about repayment system for

corporate lending of Islamic and non Islamic bank.

Type of Bank

Repayment system


Somewhat satisfied



Very Dissatisfied

Islamic Bank


Non Islamic Ban


Total


Chi-Square Tests


Pearson Chi-Square6.899 4 .1


Figure-13: Hypothesis test for client’s perception about repayment system for corporate

lending of Islamic and non Islamic bank.




there is a difference between corporate loans standard and repayment of Islamic and non

Islamic bank. More of the respondents satisfied with the repayment system of Islamic

bank because the grass period is more. Also Islamic banks don’t charge any extra charge

for the gress perid charge but other no Islamic banks charge extra charge for gress period

charge. Also Islamic banks consider the profit charge if the client side failed to pay the

profit but then it strictly observe the business.

5.15. Relation between corporate loan program and Islamic and non Islamic

Banks Performance

Research Questions:

What is the relationship between corporate loan program and Islamic and non Islamic

Banks Performance?

Hypotheses-:

Null Hypothesis H0: There is a positive association between corporate loan standard and

Banks performance.

Alternative Hypothesis H1: There is no positive between corporate loan standard and

Banks performance.

Table-15: Percentage of Investment income of different banks of their total income.

Total Income (Million in TK)

Bank Year2007 2008 2009

AB Bank 3217 4118 5360Bank Asia 2253 2892 4129Trust Bank 1328 2006 2467Islami Bank 5161 11594 12326

Shajalal Islami Bank 1628 2,322 2916Social Investment Bank 902 1291 1717

Investment Income (Million in TK)

AB Bank 1734 2152 2923Bank Asia 1296 1658 2380Trust Bank 660 1,172 1553ISLAMI Bank 3200 7381 8293Shajalal Islami Bank 1013 1049 1586

Social Investment Bank 450 660 1015

% of Investment income of total Income

AB Bank 53.90 52.27 54.53Bank Asia 57.52 57.33 57.63Trust Bank 49.73 58.44 62.94Islami Bank 61.99 63.66 67.28Shajalal Islami Bank Bank 62.21 45.166 54.38

Social Investment Bank 49.99667957 51.16312586 59.11354012Source: Secondary

Interpretation: Table-8 gives the total percentage of corporate investment income of the

sample banks of their total income from 2007 to 2009. In the table, the first portion show

the yearly income of the selected bank and the second portion shows the yearly income

from the Corporate investment. The third column displays the percentage of the

investment income of the total income. From the table in is clear that every selected

bank, investment income is from near50% or more than its total income. So obviously if

the corporate investment reduces then the annual income of the banks will be reduced.

So corporate investment has a positive impact on banks financial performance. It is clear

if the corporate investment standard is no suitable for a clint then the client moves to

other bank and the bank losses its profit.

6. Summary of the Findings

The present corporate investment of Banks in Bangladesh is fully developed

and highly segmented. Almost 40% or more of Clients of corporate

investment of different banks are aware about the prerequisite of corporate

lending of different Islamic and non Islamic bank before applying for

corporate lending. Because this is an important thing for the organization to

know the different features of the bank otherwise they have to pay lot.

There is no significant difference in profit charge or interest rates between the

Islamc and non Islamic banks. But both the Islamic and non Islamic banks

have some special offer for the clients if the client is a regular business client

or has a large amount of deposit at the bank then the interest rate vary from

11.5 %– 13% for non Islamic bank and 11%-13% for Islamic banks.

Service charge of Islamic and non Islamic banks is almost same. But there is

a difference that Islamic banks declare the service charge for varying amount

of lending but non Islamic banks charge a fixed % of the loan amount. From

the clients side there is no clam for the service charge because they thought it

is negligible amount for them.

Clients are not satisfied with procedural obligation (Security Documents and

acceptable Security) for obtaining a corporate lending from both Islamic and

non Islamic Bank.

A significant difference has been found in corporate investment processing

period of Islamic and non Islamic Banks. Whereas non Islamic banks

processes loan so quickly and its vary from 10 days to 40 working days but at

Islamic bank it takes about 15 to 60 working days.

Disbursement system of Islamic and non Islamic banks is different and clients

prefer payment order system of Islamic banks more than the non Islamic

banks cash payment system.

The repayment system of Islamic bank preferable for the client than the non

Islamic banks. Because the gress period and gress period Profit or interest

charge.

Corporate investment has a positive impact on the banks performance.

Almost more than 50% annual income of the banks comes from the corporate

investment. The corporate investment standard of the Islamic banks much

better than the non Islamic banks for that the annul investment of the Islamic

banks is higher than the non Islamic banks. Annual income of Islamic banks

for year 2009 vary from 54-67% of total income whereas for non Islamic

banks vary from 54-62%.

7. Recommendation

Corporate investment processing time of Islamic banks is much higher than the

non Islamic banks. If Islamic banks reduce the processing times then it will be an

attractive project for the corporate clients.

Both the Islamic and non Islamic banks clients think that the service charge is

high. So by reducing the service charge, Banks can make the corporate

investment more suitable to the Clients.

As clients are not satisfied with documentation procedural obligation for both

Islamic and non Islamic banks, So Banks should consider it to make easy for

clients.

Though the disbursement system of Islam bank (Payment order) is more

preferable, it should can also start the cash payment system through online beside

the existing system which the can reduce the procedural obligation for the client.

Non Islam banks can start the Payment Order disbursement system beside the

existing online procedure.

8. Conclusions

Business arena of Bangladesh is increasing day by day, a large number of people moves

towards the various businesses. But it is no possible for a single person or group to invest

for a new Business or industry, for that business people moves towards different banks to

have a suitable corporate lending. Although it is high productive investment and secure

in sense for bank that nothing will lose. The dream to have a suitable business industry is

impossible without Banks investment. Though both the Islamic and non Islamic banks

have the corporate investment program for the business people but there is some

limitations in their corporate investment standards. If they can overcome these

limitations then both the Islamic and non Islamic banks will be facilitate because the

main source of income of the banks comes from the corporate investment program.

Shajalal Islami Bank Limited is a promising bank in the current banking sector. It has a

promise to fulfill every possible customers needs and serve the society with high

efficiency and satisfaction. As a private commercial bank, it has to face severe

competition as there are many Islamic and non Islamic banks currently carrying out their

operation in Bangladesh. Because of growing level of competition, banks operating in

Bangladesh are compelled to put their attention and effort on their customers. Shajalal

Islami Bank Limited is not out of this competition. As a developing bank, it should focus

on their corporate investment service give their maximum to their corporate client’s

satisfaction to maximize the profit.

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