1.0 IntroductionThe word Bank refers to the financial institution deals with money. Commercial banks are the primary contributor to the economy of the country. They are borrowing money from the locals and lending the same to the business as loans and advances. So the people and the government are very much dependent on these banks as the financial intermediary. Moreover, banks are profit -earning concern, as they collect deposits at the lowest possible cost and provide loans and advances at higher cost. The differences between two are the profit for the bank. Involvement of the banking sector in different financial events is increasing day by day. At the same time the banking process is becoming faster, easier and the banking arena is becoming wider. As the demand for better service increases, the banking organizations are coming with innovative ideas. In order to survive in the competitive field of the banking sector, all banking organizations are looking for better services and opportunities providing to their clients. As a result, it has become essential for every person to have some ideas on the bank and banking procedure. Bank is the financial intermediary which collects funds from surplus unit and makes lending or investment to the deficit unit and through this dealing earns interest/profit. And to maximize the profit is the main objective of the bank. The commercial banking system dominates Bangladesh's financial sector. Bangladesh Bank is the Central Bank of Bangladesh and the chief regulatory authority in the sector. The banking system is composed of four state-owned commercial banks, five specialized development banks, thirty private commercial Banks and nine foreign commercial banks. The Nobel-prize winning Grameen Bank is a specialized micro-finance institution, which revolutionized the concept of micro-credit and contributed greatly towards poverty reduction and the empowerment of women in Bangladesh. Pursuant to Bangladesh Bank Order, 1972 the Government of Bangladesh reorganized the Dhaka branch of the State Bank of Pakistan as the central bank of the country, and named it Bangladesh Bank with retrospective effect from 16 December 1971. The banking system of Bangladesh is dominated by the 4 Nationalized Commercial Banks. Private Banks are the highest growth sector due to the dismal performances of government banks (above). They tend to offer better service and products. The banking system of Bangladesh is consists of 30 private commercial banks and 9 foreign commercial banks. Out of the specialized banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet the credit needs of the agricultural sector while the other two ( Bangladesh Shilpa Bank (BSB) & Bangladesh Shilpa Rin Sangtha (BSRS) are for extending term loans to the industrial sector. There are 7 full-fledged Islamic Bank in Bangladesh and despite it 9 conventional bank has 20 islamic wings which provide Islamic banking services.

1.1Origin of the ReportReporting means the written presentation of the evidence and findings of a research or practical workings. After completion of the internship program report submission is essential. The report is based on a topic that can satisfy both organization and my academic institution. Internship is the last part of my BBA course. Being a BBA student internship and report of internship submission is essential for me. Without completion of internship and report of internship, I cant be able to complete my BBA course. This report is submitted to my internship supervisor, Mr. Dr. A R khan Professor, Department of Banking, University of Dhaka. After completion of 3 months internship program I need to submit the internship report to my department to finish my BBA program. And that purpose I have completed my 3 months internship program at SOCIAL ISLAMI BANK LIMITED, PRINCIPAL BRANCH, MOTIJHEEL, DHAKA. I have assigned a topic Investment Operation and Investment Risk Management of SOCIAL ISLAMI BANK LIMITED and the authority of SOCIAL ISLAMI BANK gave me the opportunity to work at the principal Branch for three months on the topic.

1.2 Objective of the StudyThe main objective of practical orientation is to get a clear-cut idea about the Investment operation and Investment Risk Management of SOCIAL ISLAMI BANK LTD. Along with the main objective other objectives of report are: To apply theoretical knowledge with practical situation To understand the real management situation and to gather practical knowledge To familiar with banking environment, clients, working hours, values, conditions and other things related to bank To analyze the financing system of the bank and to have greater contribution towards countrys economy To identify problems faced by the customers and the bankers To evaluate whether the customer service provided by SOCIAL ISLAMI BANK LTD. is good enough for its congenial existence and growth To find out the growth rate of business of SIBL To describe the concept of Islamic Banking systems and operation methods To familiar with the modes of investments of SIBL To familiar with the concept of Family Empowerment Micro-Credit Programs To familiar with the concept and operation procedure of the Family Empowerment Micro-Enterprise Programs

To describe the concept of SME loan. To describe the concept of SME loan. To illustrate the characteristics of SME Banking. To describe how SME loan is processed by Social Islami Bank Limited. To find out some problems of SME banking of Social Islami Bank Limited To familiar with the concept of Cash Waqf Certificate Account and its operation procedure for the

development of poor class people To familiar with the concept of Corporate Social Responsibility and its effects to the society 1.3 Scope of the Report There are certain boundaries to cover this report. To achieve the objectives of the report, i.e. through knowledge about the organizational functions and its management, it is not possible to cover each and every activities performed in the organization within a short period of time. The report has covered Non-Formal and Voluntary Banking Services provided by Social Islami Bank Limited. 1.4 Methodology of the Study This report has been prepared on the basis of experience gathered during the period of internship. For preparing this report, I have held group discussions and interviewed officers and clients of the bank. To carry out the study, both primary and secondary data were used Data collection: (i) Primary data: Discussion with the reactive organizations officials Face to face conversation with the officer Work experience in the Head office as an intern Direct observations Practical desk work Different types of brochure provided by Non-formal and Voluntary Banking Department

(ii)

Secondary dataFor the completion of the present study, secondary data has been collected. The main sources of secondary data are: Annual reports of the Bank Various files and documents of Non-Formal & Voluntary banking services division of Social Islami Bank Ltd Articles related to SME management in different journals and magazines

Data from published reports of Bangladesh Bank Different Books, journals, Periodicals, Monthly News letter of Social Islami Bank Ltd, News papers etc. Different website & Social Islami Banks website

1.5 Limitation of the StudyThis report has some limitations. These are given below: 1. Time constraint was a major drawback in this study. Three months time is not sufficient to cover such a wide area 2. Another limitation of this report is the banking policy is not to disclose any information earlier, which will publish in future. For this reason I could not collect any data of 2011 3. At the principal branch the officers and executives are too busy to disclose anything to me ant the principal branch is the very busy branch 4. Some personnel of Bank are not proactive, friendly and exposure 5. Most of the employees of the Bank are not familiar with the activities, terms and concepts of the Bank

1.6 My Jobs & Responsibilities as an Intern at Social Islami Bank Limited, Principal Branch, DhakaI have been attached as an intern of Social Islami Bank Limited from the month of June 2011 in its Principal Branch, Non-Formal & Voluntary division as well as Investment and Risk Management Department. From the first day of my attachment I have been working in different departments including Investment Administration Department (IAD), Investment Risk Management (IRM) & Training. But during this time period I spent most of the time in Investment and Risk Management Department (IRMD). During this internship period I learned various aspects of Non-Formal and Voluntary Banking and its different department & documentation. Moreover, I also learnt about various aspects of compilation of data, CIB report of Bangladesh Bank in prescribed ABABIL (software) and as per guidelines of Bangladesh Bank & Social Islami Bank Limited.

Chapter 2 Overall Scenario of SMEs & Role of Bangladesh Bank2.0 SME: Definition for SMEs is often considered to be an obstacle for business studies and market research. Definitions in use today define thresholds in terms of employment, turnover and assets. They also incorporate a reasonable amount of flexibility around year-to-year changes in these measures so that a business qualifying as an SME in one year can have a reasonable expectation of remaining an SME in the next. The thresholds themselves, however, vary substantially between countries. As the SME thresholds dictate to some extent the provision of government support, countries in which manufacturing and labor-intensive industries are prioritized politically tend to opt for more relaxed thresholds. The development of small and medium enterprises (SMEs) in developing countries is generally believed to be a desirable end in view of their perceived contribution to decentralized job creation and generation of output. SMEs constitute the dominant source of industrial employment in Bangladesh (80%), and about 90% of the industrial units fall into this category. The actual performance of SMEs, however, varies depending on the relative economic efficiency, the macro-economic policy environment and the specific promotion policies pursued for their benefit. Table 1: Finally SME has the following characteristics: Small Medium Total Asset* Number of employee Total Asset Number of employee 50 Lakh 10 Crore Less than 50 Trade and service 50,000-5,000,000 Less than 25 50,000-10,050,000 Less than 50 1.5 Crore 20 Crore Industry * Total asset means excluding land and factory. (Amounts are in BDT)

2.1 SMEs in Bangladesh Historically, Bangladesh followed a development strategy in which private investment was controlled through a host of regulations involving investment sanctioning, credit disbursement, import licensing, foreign exchange allocation, etc. While these regulatory barriers thwarted private investment in general, the impact fell unevenly on SMEs. This was because of the relative inability of the SMEs to cope with the regulations compared to their large-scale counterparts. Thus, the policy regime was largely biased against the SMEs although, paradoxically, promoting SME development was a stated objective of successive governments. In a bid to render its industrial sector internationally competitive and to move towards greater efficiency in its production structure, Bangladesh implemented a number of economic reforms during the 1980's, underwritten by the familiar structural adjustment policy. These included deregulation of sanctioning procedure and relaxation of other regulatory barriers, easing of import procedure, reducing trade barriers, following a market oriented exchange rate policy, and implementation of fiscal, monetary and public enterprise reforms. These reforms helped remove a large part of the policy bias against SMEs that prevailed earlier. Recent studies confirm that these reforms had positive impacts reflected in a fairly rapid growth of the sector during the past decade. However, because of their structural weaknesses, the SMEs may need more pro-active policies for their development in addition to the further removal of the policy biases.

2.2 SMEs - number and success No one knows for sure how many SMEs there are in Bangladesh today. It was around 1978 that the BSCIC (Bangladesh Small and Cottage Industries Corporation), under the Ministry of Industries, conducted a survey to find

out the number of cottage and small industries of the country. Inspite of the question about the validity and dependability of the survey, in absence of any other effort by the Bangladesh Bureau of Statistics (BBS) or any other agency, this initiative did provide a useful benchmark but it was never updated. The survey results drew the conclusion that : There are approximately 6 million micro, small and medium enterprises (MSMEs) Including enterprises with up to 100 workers employing a total of 31 million people 40 per cent of the population of the country of age 15 years and above. About three quarters or more of the household income in both urban and rural areas is provided by the MSMEs (Table: 2a).

Table 2: Percentage of household income contributed by SMEs Rural(%) Urban(%) Total(%) 41 45 42 Provides all or almost all 19 14 18 Provides more than half 16 14 16 Provides about half 20 17 19 Provides Less than half 4 9 6 Provides Nothing 100 100 100 Total Source: ICG/MIDAS Survey, 2008. The high level of income contribution was attributed to the fact that the enterprises worked ten hours per day, 28 days per month for eleven months a year. The industrial structure of SMEs consisted of primarily:

Wholesale and retail trade and repairs Production and sale of agricultural goods Services

14.00%

40.00% 15.00%

Manufacturing only 22.00%

Figure 1: Industrial structure of SMEs. Thus the survey brought out very prominently the fact that the large untapped potential for expansion in manufacture and production could be exploited (or contributing more significantly to the national economy. Another vital finding of the survey under discussion was that SMEs contributed BDT 741 ($ 12.5) billion or nearly 25 per cent of the GDP (BDT 2,996 billion) in 2003. Those who tend to look down on micro and small industries may be shocked to note that enterprises employing 2-5 workers are credited for having contributed 51 percent share of the total SME contribution to the economy, followed by 26 percent by those having only one worker and 10 per cent by those having 6-10 workers (Table 4). The sectoral contribution of SMEs to the GDP is also interesting. Manufacturing contributed the highest proportion (38 per cent), followed by Agriculture (24 per cent) and, closely following, Wholesale and Retail Trade and Repairs (23 per cent) .

Contribution (%) to GDP by Size60 50 40 30 20 10 0 1 2 to 5 6 to 10 11 to 20 21 to 50 51 to 100 26 10 6 5 2

51

Figure 2: Contribution of SMEs to GDP by size (Percentage)1 20 0 2 4 24 23 4

Agriculture Fishing Manufacturing Construction Wholesale and retail trade Hotels and restaurants Transport, Storage and communications Real state, renting and business activities

1 38

Figure 3: SMEs to GDP by sector (Percentage)

Contribution of

For LDCs like Bangladesh, SMEs are a highly cost-effective route to industrial development. The present size of the population in the 2-14 years age group is approximately 16 million. They will be candidates for new jobs. Together with another 10 million inactive people still looking for employment, the total size of the new entrants to the job market may be said to be around 25 million.

2.3 Bank-wise SME Centers: (Table 3) Serial No. 1 2 Name of the Bank IFIC Bank Ltd. IBBL Total No. of SME centers 5 20

3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

National Bank Ltd. City Bank Ltd. NCC Bank Ltd. Prime Bank Ltd. Southeast Bank Ltd. Dhaka Bank Ltd. Social Islami Bank Ltd. DBBL Standard Bank Ltd. Mercantile Bank Ltd. Premier Bank Ltd. Trust Bank Ltd. BRAC Bank Ltd. MTBL Bank Asia Shahjalal Islami Bank Ltd. Jamuna Bank Ltd. Commercial Bank of Ceylon Eastern Bank Ltd. Grand total

10 10 8 5 10 5 10 10 6 3 5 5 60 10 10 7 5 6 23 233

2.4 Role of Bangladesh BankAlongside the disbursement of loans, since FY 2004-05 Bangladesh Bank has taken up a scheme of Tk.100 crore for refinancing the schedule bank and financial institutions against the loan given to SMEs. as revolving fund. Presently, this scheme has been widened with an enhanced allocation of Tk.500 crore as revolving fund. Up to June 2008, Tk.409.41 crore, was disbursed to different scheduled banks and financial institution for refinancing. Moreover, ADB has finalised an agreement with Bangladesh Bank to provide additional US$ 30 million to this sector. These resources would strengthen the financing programme of SME. This would result in employment generation in one hand and enhancement of purchasing power of the poor on the other. Under this programme, the financing capabilities of various financial institutions and banks have been enhanced and up to June, 2008 Bangladesh Bank has disbursed Tk. 762.54 crore for refinancing. Out of this, the contribution of IDA and ADB was Tk. 163.46 crore and Tk.189.68 crore respectively while that of Bangladesh bank was Tk.409.41 crore. Detailed refinancing of Bangladesh Bank to various financial institutions and banks is shown at table 4a in the appendix here I just mentioned the contribution of Bangladesh bank.No. of Beneficiary Enterprises BB financing Criteria 79.21 2706 1097 827 50% 100% 206.75 123.45

5000

00% Working Capital Mid Term Long Term Loan Loan

Figure: 6a & 6b: Financing criteria

of BB and number of beneficiary enterprises. Not only Bangladesh bank but also our PCBs are playing a good role to contribute this sector the scenario is as follows:

Total Amount of Loan40 35 30 25 20 15 10 5 0 33.88

18.09 9.82 5.85 8.91 1.47 9.42 9.63 7.81 0.5 1.69 3.99

Figure 7: Contribution of PCBs to the SME sector.

2.5 SME loan target set for 2011 by Bangladesh BankBangladesh Bank (BB) has set the loans disbursement target for the small and medium enterprise (SME) sector for 2011 at Tk625b. This figure is 64.56% higher than the revised disbursement target of 2010 at Tk380b. Private commercial banks will disburse Tk451.76b while the state-owned commercial banks and financial institutions will be disbursing Tk134.99b. Nine foreign commercial banks got a target to disburse Tk15.93b. The non-banking financial institutions have to reach Tk22.65b in loans to the SME entrepreneurs. The central bank has stressed on cluster and area-approach for loan disbursement to improve employment creation.

Chapter-Two: Literature Review

Chapter-Three: Organizational Profile3.0 EVOLUATION OF ISLAMIC BANKING For an expanding economy, a developed and efficient banking system is indispensable. Among others, it helps transfer of financial resources from surplus units to deficit units and, hence, helps accelerate the pace of development by securing uninterrupted supply of financial resources to people engaged in numerous economic activities. The tremendous development that the world economy has experienced in the last few decades was contributed by several factors among which, growing institutional supply of loan able funds must have played the pivotal role. The role of banking is comparable to what an artery system does in the human body. Both commercial banks and other development financial institutions provide short-, medium-, and long-term credits to businesspersons and entrepreneurs who usually take the lead in ventures of economic development. Institutional supply of credit has been made possible by a system of financial intermediation organized in a way where conventional banks collect small savings from the public by offering them a fixed rate of interest and advancing the loan able funds out of the deposited money to enterprising clients charging relatively higher rates of interest. The margin between these two rates is the bank's income. In addition, banks also provide many other services to the public for which it receives service charges Despite the outstanding contribution of the conventional banking system (interest-based), several ancient and modern economists are critical about its efficiency level. Some economists consider the role of interest in the conventional banking mechanism as a major negative factor that contributes to cyclical fluctuations in the economy (Minsky 1982). Specifically, the ineffectiveness of interest rate as a stabilization tool during the period of the Great Depression is a case to note. This eventually called for Keynesian Prescription of government intervention (Keynes 1964). Similar concern was expressed in a story published in Newsweek regarding Henry Kissinger, the former Secretary of State of USA. To quote, The instability has persisted and the uncertainty has continued. After going through the throes of painfully high levels of inflation, the world economy has experienced a deep recession and unprecedented rate of unemployment, complicated further by high level of real interest rates and unhealthy exchange rate fluctuations (Newsweek 1983). More recent concern over the potential instability of the world monetary and financial system was expressed by Maurice Allais, a Nobel Laureate, who called for an urgent reform of the World Economic Order (Allais 1993, pp.13-16. This called for the emergence of a new system of banking capable of tackling new challenges that the present world economy, particularly the financial sector, has been facing. Thus, Islamic banking emerged as a response to both religious and economic exigencies. While religious exigency calls for avoiding any transaction based on interest, economic exigencies, on the other hand, provide a new outlook to the role of banking in promoting investment / productive activities, influencing distribution of income and adding stability to the economy. Islamic banking is thus perceived as an improved system in all dimensions.

3.1.1 What is Islamic Banking?

Islamic banking has been defined in a number of ways. The definition of Islamic bank, as approved by the General Secretariat of the OIC, is stated in the following manner An Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its operations Shawki Ismail Shehta viewing the concept from the perspective of an Islamic economy and the prospective role to be played by an Islamic bank therein opines: It is, therefore, natural and, indeed, imperative for an Islamic bank to incorporate in its functions and practices commercial investment and social activities, as an institution designed to promote the civilized mission of an Islamic economy (Ibid). Ziauddin Ahmed says, Islamic banking is essentially a normative concept and could be defined as conduct of banking in consonance with the ethos of the value system of Islam (Ibid). Islamic banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as PLS-banks.

3.1.2 Objectives of Islamic Banking The primary objective of establishing Islamic banks all over the world is to promote, foster and develop the application of Islamic principles in the business sector. More specifically, the objectives of Islamic banking when viewed in the context of its role in the economy are listed as following:

To offer contemporary financial services in conformity with Islamic Shariah; To contribute towards economic development and prosperity within the principles of Islamic justice; Optimum allocation of scarce financial resources; and To help ensure equitable distribution of income.

These objectives are given below:

Offer Financial Services Islamic Banking for Development Optimum Allocation of Resources Islamic Banking for Equitable Distribution of Resources

3.1.3 Distinguishing features of Islamic Banking An Islamic bank has several distinctive features as compared to its conventional counterpart. Chapra (1985, PP.154-57) has outlined six essential differences as below:

Abolition of interest (Riba): Since Riba is prohibited in the Quran and interest in all its forms is akin to Riba, as confirmed by Fuqaha and Muslim economists with rare exceptions, the first distinguishing feature of an Islamic bank must be that it is interest-free. Adherence to public interest: Activity of commercial banks being primarily based on the use of public funds, public interest rather than individual or group interest will be served by Islamic commercial banks. The Islamic banks should use all deposits, which come from the public for serving public interest and realizing the relevant socio-economic goals of Islam. They should play a goal-oriented rather than merely a profit-maximizing role and should adjust themselves to the different needs of the Islamic economy. Multi-purpose bank: Another substantial distinguishing feature is that Islamic banks will be universal or multi-purpose banks and not purely commercial banks. These banks are conceived to be a crossbreed of commercial and investment banks, investment trusts and investment -management institutions, and would offer a variety of services to their clients. A substantial part of their financing would be for specific projects or ventures. Their equity-oriented investments would not permit them to borrow short-term funds and lend to long-term investments. This should make them less crisisprone compared to their capitalist counterparts, since they would have to make a greater effort to match the maturity of their liabilities with the maturity of their assets.

More careful evaluation of investment demand: Another very important feature of an Islamic bank is its very careful attitude towards evaluation of Applications for equity oriented financing. It is customary that conventional banks evaluate applications, consider collateral and avoid risk as much as possible. Their main concern does not go beyond ensuring the security of their principal and interest receipts. Since the Islamic bank has a built in mechanism of risk sharing, it would need to be more careful in how it evaluates financing requests. It adds a healthy dimension in the whole lending business and eliminates a whole range of undesirable lending practices. Work as catalyst of development: Profit-loss sharing being a distinctive characteristic of an Islamic bank fosters closer relations between banks and entrepreneurs. It helps develop financial expertise in nonfinancial firms and also enables the bank to assume the role of technical consultant and financial adviser, which acts as catalyst in the process of industrialization and development.

3.1.4 Operational Techniques of Islamic Bank

SOURCES OF FUNDS:

The financial resources of the Islamic banks consist of ordinary capital resources comprising paid-up capital and reserves, and funds rose through borrowings from the central bank and other banks (inter-bank borrowing), and issue of Islamic financial instruments. The major part of their operational funds is, however, derived from the different categories of deposits accepted on the Islamic principles of Al-Wadiah (safe custodianship) and Mudaraba (trust financing). For the sake of ease of understanding we call these two sources as Primary and secondary. These are discussed as under.

PRIMARY SOURCES: a. Paid-Up Capital Islamic banks are public limited companies incorporated under the companies Act, which are listed on the Stock Exchange. Individuals and institutions, local and foreign, have subscribed their capital b. Liquid Assets Every Islamic bank is further required to keep at all times minimum amount of liquid assets against its deposit liabilities expressed as certain percentage of the deposits, as may be prescribed from time to time by notice in writing by the central bank. For this purpose, liquid assets mean (i) Cash in bank, (ii) balances with the central bank/other designated banks, (iii) Government Investment Certificates, and (iv) such other assets as may be approved by the central bank. Failure to keep the minimum liquid assets invokes penalty for each day of deficiency. c. Borrowing from Central Bank To tide over temporary liquidity shortages Islamic banks, as member banks, are entitled to borrow from the central bank, as the lender of last resort.

d. Inter-Bank Borrowing The Islamic banks have established interest-free fund arrangements with local and foreign banks on the basis of reciprocity.

SECONDARY SOURCES: Like interest-based conventional banks, the main function of Islamic banks is to mobilize savings and provide financial support to the entrepreneurs bank, on the other hand, neither pays nor receives interest from any of its transactions thereby saving everybody from the curse of interest. Techniques employed by Islamic banks for saving mobilization are as follows. a) Al-Wadiah Account

Islamic banks receive deposits in their Al-Wadiah account. This account is similar to the demand deposit account of interest-based banks. Al-Wadiah Deposits are short-term funds b) General Mudaraba Account. The Mudaraba account of Islamic banks is different from the checking account of an interest-based bank. Mudaraba is a form of business contract where one party supplies money and the other manages the business by investing labor and time. c) Term Mudaraba Account d) Special Mudaraba Account When an Islamic bank receives a Mudaraba deposit for investment in some specific business, sector, or project, the deposit is called a "Special Mudaraba Deposit".

3.1 AN OVERVIEW OF THE BANKSIBL started its operation on the 22nd November in 1995 as a second generation Islamic bank I close co-operation and assistance of some renowned personalities of the Islamic world. H.E. Dr. Hamid AL Gabid, former secretary general of OIC & Prime Minister of Niger, H.E. Dr. Abdullah Omar Nasseef, Deputy Speaker of Saudi Shura Council & Exsecretary general of Rabeta Al-Islami, H.E. Ahmed M. Salah Jamjoom, former commerce minister of Saudi Government, H.E. Prof. Dr. Ahmad EI-Naggar (Egypt) participated to this noble endeavor as sponsor shareholders. Targeting poverty, SOCIAL ISLAMI BANK LIMITED is indeed a concept of 21 st century participatory three sector banking model in one: in the formal sector, it works as an Islamic participatory Commercial Bank with human face approach to credit and banking on the profit and loss sharing: it is a Non-formal banking with informal finance and credit package that empowers and humanizes real poor family and create local income opportunities and discourages internal migration; it is a Development Bank intended to monetize the voluntary sector and management of Waqf, Mosque properties and introducing cash Waqf system for the first time in the history. In the formal corporate sector, this Bank would, among others, offer the most upto date banking services through opening of various types of deposit and investment accounts, trade financing, providing letters of guarantee, opening letters of credit, collection of bills, leasing of equipment and consumers durable, hire purchase and installment sale for capital goods, investment in lowcost housing and management of real estate, participatory investment in various industrial, agricultural, transport, educational and health projects and so on. To enhance the performance of the bank the management adopted strategic plan that include increase in efficiency, establishment of transparency, efficiency and accountability in all spheres of banking practices and as a logical consequence of reform. Establishing Central Trade Processing Unit (CTPU) and Central Remittance Processing Unit (CRPU) are one of the reform processes that the bank had undertaken during the year 2010 to serve the client more efficiently and effectively. SIBL has increased its authorized paid up capital from 4000 million to 10000 million in the year 2010. The bank also obtained approval for issuance of Right share @ 1:1 at per three times from Securities and Exchange Commission in 2007,2008 and 2011 resulting additional capital of taka 534.56 million added in 2008, 1250.86 million in 2009 and taka 2987.82 million will be added with the paid up capital in 2011. The year 2010 has ended with a capital surplus of Taka 165.16 million. Having the year 2009 as a successful return SIBL witnessed a remarkable growth too in different sectors in the year 2010. The bank has successfully opened 12 new branches and 10 SME service centers throughout the year and such total number of branches have stood at 64.

3.2 Mission of Bank

Satisfactory customer service.

d create local income opportunities. - by way of mobilizing funds and social services. 3.3 Vision of the BankSocial Islami Bank Ltd started its journey with the concept of 21st Century Islamic participatory three sector banking model: i) Formal Sector- Commercial Banking with latest technology; ii) Non-Formal Sector - Family Empowerment Micro-Credit & Micro-enterprise program and iii) Voluntary Sector - Social Capital mobilization through CASH WAQF and others. Finally, "Reduction of Poverty Level" is our Vision, which is a prime object as stated in Memorendum of Association of the Bank with the commitment "Working Together for a Caring Society".

3.4 POSITION OF THE BANKSocial Islami Bank Limited has taken a renewed drive and zeal aiming at consolidating its business in more focused areas like SME, agro-finance, remittance and search for alternative delivery channel. Under alternative delivery channel, ATM, SMS banking, Internet banking and mobile-based remittance payment systems are gradually introduced to reach the SIBL services to the doorsteps of the customers. The bank under the newly planned IT scheme, VISA card both debit and credit are also in operation. SIBL, a second-generation bank, operating according to Islami banking system has now 64 branches. It has also formed two subsidiary companies namely, SIBL Securities Ltd. and SIBL Investments Ltd. SIBL has set its strategy to convert all its banking activities from traditional branch-based banking system to a centralized processing unit (CPU) based banking, controlled directly from the central point. Meanwhile, bank has centralized its international trade finance through a focused Centralized Trade Processing Unit (CTPU) for up gradation of service distribution system in all the branches irrespective of being an AD or Non-AD branch. As a result, every SIBL branch has been authorized to facilitate LC clearance to its clients. The bank also adopted other reform by establishing Central Remittance Processing Unit (CRPU) in order to serve its clients more efficiently and effectively. At the other extreme, bank introduced SIBL Visa Islamic Credit card having four types of card namely Duel Currency Gold, Duel Currency Classic, Local Currency Gold and Local Currency Classic.

SIBL under its organizational restructuring process introduced a new organgram as approved by the Board of Directors of the bank. With the introduction of it, the bank can now achieve the corporate objectives in regard to better customer focus/performance management/better risk management/efficiency and productive level increase and accountability and reward culture. The bank maintained and achieved strong position in all key access of operations despite challenges. Capital of the bank was TK. 12.60 crore at the very inception, and by the year 2010 it increased to TK. 467.86 crore. Deposits of the

bank stood at TK. 4485.08 crore and total assets stood at TK. 5516.85 crore as on 31 December, 2010 which indicated a growth of 41.98% and 37.99% respectively over the previous year. The bank achieved 37.99% growth in investment with a total investment portfolio of TK. 3668.03 crore in 2010 compared to TK. 2658.06 crore in 2009. The classified investment was only 4.76% of total investment. The bank registered an operating profit of TK. 163.86 crore in the year 2010 with remarkable growth of 53.96% compared to TK. 106.43 crore in 2009. SIBL has projected its business paln for the year 2011 pronouncing slogun the year of image building and consolidation of business. The banks professional focus is given on customers satisfaction and for this; customer care desk has already been installed in its 29 key branches. In phases, one stop service will be introduced for privileged clients/Honble clients/Fast track clients and women clients. 3.5 A Brief History of SIBL 24th September 1989: Model of Social Investment Bank Ltd (SIBL) presented before the president and cabinet at Bhaban by the founder of the bank. Prof M. M. Mannan. 30th December 1989: Formal application for SIBL made to Bangladesh Bank (BB). 6th December 1994: Letter of interest for SIBL received from BB. 5th December 1995: Inauguration by the President of the Peoples Republic of Bangladesh. Social Islami Bank Limited (SIBL) is a banking company registered under the companies Act 1994 with its head office 15 Dilkusha C/A, Dhaka-1000. The Bank started its operation from 22, November 1995. SIBL is a capitalized new generating Bank with an authorized capital and paid up capital of Taka 585 million in 2005 and also. 585 million respectively as of December 2004.Currently the bank has 42 branches and 10 SME Service Centers. More branches are planning to be opened soon. The bank undertakes all types of banking transaction to support the development of trade and commerce in the country. SIBL services are also available for the entrepreneurs to set up new ventured and BMRE of industrial units. To provide clientele services in respect of international trade it has established wide corresponded banking relationship with local and foreign banks covering major trade and financial interest home and abroad. SIBL understands all types of banking transactions to support the development of trade and commerce of the country. SIBLs services are also available for the entrepreneurs to set up new ventures and BMRE of industrial units.

3.6 Service provided by the SIBL in accordance of Islamic ShariahSocial Islami Bank Ltd. has efficient and well-experienced manpower along with ultra modern technology to provide quickest and quality service to the customer. So this bank is operating in three sectors that already mentioned .In these three sectors, various services provided in accordance of Islamic Shariah and these are mentioned below: Formal Banking Sector: Social Islami Bank Ltd. Gives special importance on savings. The objectives and principles of the saving policy of the Bank are to encourage people to save for self and for the country as a whole, develop a sustained saving habit among the people and mobilize deposits through the operation of the following accounts: Deposit Account: Al Wadiah Current Deposit. Mudaraba Savings Deposit. Mudaraba Term Deposit. Special Saving Scheme: Mudaraba Monthly Profit. Hajj Scheme. Mudaraba Millionaire Scheme. Mudaraba Special Savings (Pension) Scheme. Mudaraba Education Savings Scheme. Mudaraba Double Benefit Deposit Scheme. Mudaraba Foreign Currency Term Deposit Scheme. Mudaraba Monthly Deposit Scheme. Mudaraba Lakhopati Deposit Scheme. Mudaraba Mohar Deposit Scheme. Mudaraba Marriage Savings Scheme.

(a) (b)

(c)

Investments: Bai-Muazzal: (1) Commercial, (2) House Hold, (3) Trust Receipt. HPSM-Commercial: (1) Shirkat, (2) Ijarah, and (3) Sale. Mudaraba-Bill of Exchange Mudaraba-Post Import Mudaraba-Commercial Foreign Exchange Trade: (1) Export Finance, (2) Import Finance, (3) Foreign Remittance, (4) SWIFT. Non-Formal Banking Sector: The Banks special program is directed mainly to up-lift the socio-economic conditions of rural and urban poor. In order to achieve this objective, Social Islami Bank Ltd. is involved in the mobilization and utilization of local resources and the surplus labour mainly from within and provides employment opportunities to the unemployed and the land less besides investing in N.G.O activities, educational, health expansion activities, Social Fellowship Program for students etc. Some activities are given below: Family Empowerment Micro Credit Program. Family Empowerment Micro Enterprise Program. Small And Medium Enterprises (SMEs) Program. Development and Rehabilitaion Scheme: Displaced Garments Child Workers Students Stipend Disbursement Program, aiming to eliminate child labor from the garments sector, implemented jointly with the ILO. Small & Medium Enterprise Development Program jointly with JOBS Project, USAID. Other Programs with International Organization (ILO/UNICEF): Micro-Credit Program to the garments child worker (parents)/adult family member jointly with ILO under project finance from the Govt. of Italy and Norway. Financial assistance among the 100 parents/guardian of former garments working children under project UNICEF to continue their education. Family Empowerment Micro-Credit Program for self-employment of HTR (Hard to Reach) graduates to implement micro-credit program in connection with the Letter of Exchange (LOE) signed with UNICEF. Voluntary Banking Sector: It is the right time for globalization of Islamic voluntary sectors activities. In this process Islamic Bank in the 21st Century can play a very vital role in reactivating and institutionalizing the role of Islamic Socio- Economic institutions and various voluntary and obligatory tools of redistribution of income through innovative financial instruments and management of fund. Social Islami Bank Ltd. has a special program of development of various religious and social service oriented institutions. Within this program, Mosque, Maktab, Waqf, Charitable organizations etc will be modernized and activated. All properties under this program will be utilized in productive activities on participation basis. Besides, Hajj (pilgrimage) scheme is included in the program of Social Islami Bank Ltd. Cash Waqf certificate has already been introduced for the first time in history. Various methods of compulsory and voluntary Islamic distribution of finance, such as Zakat, Sadakah, Waqf etc. will be institutionalized.

1. 2. 3. 4. 5.

Social Islami Bank Ltd. is in the process of organizing Voluntary Capital Market Operation for mobilization of necessary fund and in the process of developing the following financial instruments with different sets of rules in accordance with Shariah: 1. Cash Waqf Scheme. 2. Mosque Waqf PropertyDevelopment Scheme. Ancillary Service: 1. Locker Service. 2. Utility Bill Service. E-AGE Banking:

1. Any Branch Banking. 2. ATM (Debit Card). 3. E-AGE Banking >> Online Banking. 3.10 Key Areas of Operations Social Islami Bank Limited is used to perform all Banking activities by the help of following Departments General Banking Department Foreign Exchange Department Investment Department Others Department: Information & Communication Technology Division Financial Administration Division International Division General Services Division Managing Director's Secretariat Business Development & Marketing Division Audit & Inspection Division Chairman's Secretariat Share Division Board Secretariat Human Resources Division Shariah Board Secretariat SIBL Training Institute SME Banking Division Law & Recovery Division Board Audit Cell MIS, Planning & Research Division Internal Control & Compliance Division Investment Risk Management Division Voluntary Banking Division

3.5 Organizational Structure (Organogram)

Chapter-Four: Non-Formal Banking ServicesFamily Empowerment Micro-Credit and Micro Enterprise Social Financing Line of Islamic Development Bank (IDB) To Local Islamic Banks and Alleviation of Poverty4.0 Setting of the Problems and ObjectivesThe family is a basic foundation of human society. The foundation of a family is laid through marriage and the relationship between husband and wife is viewed in Islam as that of a garment and its weaver; it is a civil contract, imparting mutual rights and duties. The management of Micro-Credit and Micro Enterprise Social Financing Schemes can alter this traditional role of the family. Credit Transfer Power: Credit can transfer power to powerless and help alleviation of poverty: It can reinforce power of the powerful and help in concentration and inequitable distribution of income and thus aggravating the poverty. Seen from this prospective, it can empower a family or disintegrate it. So the management of Micro-Credit and Micro Enterprise Financing have profound impact on Micro economic sociology of the family involving the individual in the family, organization and activity within the family and the relationship among family member consisting mainly of husband, wife and children as well as Macroeconomic sociology of the family involving interchange and transactions between the family and society in which it operates. Because family are linked together with other social structure in extended family, neighborhood, villages, communities, kinship groups. The family performs a vital part of the function essential to the individual and group life. Despite the fact the corporation replaces the family in the production of mass consumption goods and services in the industrial society, the family still perform a member of important economic functions. The many farms that were operated as family enterprises, new enterprises in business and industries often began as family enterprise. Often capital came to be drawn from family holdings and business expanded by family financing. Most of the small and medium-scale business and industries in the developing countries have been family enterprises. Apart from this, family is one of the major consumer units in any society. One way to create new markets is by changing the habit of the consumers through efficient marketing method: installment of buying and selling is an important aspects of family economy inter-change. Similarly, rotating family savings schemes can be used in diverse family economy interchange activities. In Bangladesh, there is at least 15 million families living below poverty line. They can hardly enter into market.

4.1 The Frontiers of Family Empowerment Credit Programs Through Islamic Non-formal BankingGenerally speaking, the family empowerment credit programs come under Non-formal Banking. Non-Formal Banking deals with informal finance in non-corporate sector. The popular view of informal sector activities is that they are primarily those of petty traders, street hawkers, and shoeshine boys and confined to employment on the periphery of the main urban areas. On the contrary, informal activities are the way of doing things, characterized by: (1) ease of entry; (2) reliance of indigenous resources; (3) family ownerships of enterprises; (4) small scale of operation; (5) labor intensive and adapted technology; (6) skills acquired outside the formal school system; and (7) unregulated and competitive markets. One important characteristic of the formal sector is its relationships to the government. Economic activities formally and officially recognized. They obtained the direct benefit of access to credit, foreign exchange concessions, work permit and a formidable list of benefits that reduce the cost of capital in relation to that of labor. Partly because of its privileged access to resources, the formal sector is characterized by large enterprise sophisticated technology, high wage rates, high average profits and foreign ownership. The informal sector on the other hand , is often ignored and in some respects helped and in some harassed by the authorities. Enterprises and individuals within it operate have no access to the formal credit institutions. The evidence suggests that the bulk of employment in the informal sector is economically efficient and profit making, though small scale. As indicated earlier these non-corporate sector which covers small scale producers

and enterprise traders, small farmers and low income and middle groups of people account for 30-70% of the labor force in some developing countries. It is to be recognized that the top income groups to the working poor would result in new types of laborintensive investments in both urban and rural areas. This should not only generate demand for the products of the non-formal sector but also encourage innovations in labor-intensive techniques in this sector. This is where Islamic Bank must make a conscious and planned intervention. The difference of wealth and income between urban and rural area draws migrants towards the urban concentrations, not the spread of wealth. It is to be mentioned here that a small farmer or a small entrepreneur having no access to institutionalized source of credit establishes semi-permanent relations with suppliers and buyers, frequently at the expense of his profit and become hesitant to innovate, particularly in agriculture, for , he can not take the chance of failure. These characteristics behavioral response are not inherent in the informal sector, they are adaptive responses to low income. In this context it becomes imperative for the Islamic Banks to work in the non-corporate sector. There are number of approaches which have been tried elsewhere can be adopted or adapted by Islamic Banks. Let me say a few words about Group Lending Schemes and Rotating saving and credit Associations. Group Lending Schemes: Group lending is one of the most popular forms of informal finance. The funds for group leading schemes can come from a commercial bank, a government development Bank or private institutions. The role of the group varies. The idea is that by joining together, small borrowers can reduce the costs of borrowing and improve their access to credit. The two most common means of providing group accountability are (a) Joint and several liability and (b) limited liability.

Rotating savings and credit Associations:Rotating saving and credit associations (ROSCAs) are a popular form of informal finance. They have various aliases: tanda in Mexico, pasanaku in Bolivia, san in the Dominican republic, syndicate in Belize, gamaiyah in Egypt, isusu in Nigereia, susu in Ghana, tontine in Niger, hagad in Somalia, zitique in Mozambique, arisan in Indonesia, paluwagan in the Philippine, shit in India and Srilanka, pia huey in Thailand, hui in China, kye in Korea and ko in Japan. ROSCAs intermediate in the most basic way. A small number of individuals, typically six to forty, form a group and select a leader who periodically collects a given amount ( a share) from each member. The money collected (the fund) is then given in rotation to each member of the group. In some countries, such as India and Cameroon, ROSCAs have evolved into formal banks. Three types of ROSCAs are found in many countries, In common ROSCAs, the leader receives no special consideration (other than possibly getting the first fund).

4.2 Family Empowerment Social Financing Programs of Social Islami Bank Limited.: An Analytical and comparative ReviewTo the best knowledge, SIBL is the only Bank in Bangladesh, Perhaps in the world which started with the very phase, Targeting Poverty, which starting its objects in Memorandum and Articles of Association for achieving a goal of participatory economy for a caring society. Clearly, this bank intends to implement Micro Credit and Micro Enterprise program much beyond the scope of market economics as indicated earlier. SIBL is indeed a concept of 21st century participatory three Sector Banking model in one: in the formal corporate sector, it would work as an Islamic participatory Commercial Bank with human face approach to credit and banking on the basis of profit and loss sharing; it is a Non-formal Banking with the poor in noncorporate sector dealing with informal finance and credit package that empowers and humanizes real poor family and create local income opportunities and discourage internal migration; it is a Development Bank intended to monetize the third voluntary sector, committed basically to financing development and management of Waqf and Mosque properties as well as Non Muslim Trust properties. In the process, this Bank intends to empower and humanize the family as a basic unit of the society. Experience indicates that successful family empowerment credit program or group lending schemes, under Non-formal Banking of SIBL works well with groups that are homogeneous and jointly liable for defaults. The practice of denying credit to all group members in case of default is found to be most effective and least costly way of enforcing joint liability. Group lending arrangements without collateral are less subjective to the dangers of portfolio concentration because Bank is diversifying lending by serving a varied clientele in different areas under its family empowerment credit arrangements. Bank also is ensuring joint liability of wife and husband in cse of lending to family or groups of families. It humanizes family and discourages internal immigration. Any attempt to decompose family through various credit and financing schemes in its ultimate analysis bound to generate the forces of disintegration of families, internal migration, child delinquency, social alienation and social conflict. Any credit program which does not manage its socio-economic consequences cannot alleviate poverty. Besides Bank has already introduced Rotating Family Savings and Credit Net and Group installment credit scheme for any group of individual? In the light of this experience, SIBL is also in the process of developing program to assist Agriculture co-operative in providing tailor-made credit package to achieve their objectives in rural settings. In case of Non-formal banking operation, it is the bank which goes to the clients, organize and motivate them into viable income generating household, family or groups. In an effort to achieve the corporate objectives of SIBL, it has under its Non-formal Banking sector, started implementing (a) Environmental friendly business program with small traders of Tokai (mainly street children of distressed parents) with recovery rate of 100%, (b) Real life Tokai Non-formal school of management, (c) empowerment and humanizing family credit program involving modest investment with beneficiaries around 12,000 in various parts of Bangladesh in a modest scale. A serious beginning has been made. More than 40% of investment partners of SIBL are from Non-formal sector indicating its commitment to reach the poor family at the grass root level.

4.3 Family Empowerment Social Credit: A Comparative Review It is apparent from the operations of SIBL that it works on a fundamentally different approach and socioeconomic philosophy compared to other major Banking. Financial and Non-Banking Financial Institutions (NBFIs) i.e. Grameen Bank and Non-government Organization (NGO) operating in Bangladesh for alleviation of rural and urban poverty. While Grameen Bank in Bangladesh intends to empower the women, as opposed to man (as over 95% of its clients are women) and most of the other NGOs intend to empower the poor, as opposed to rich, they are heavily dependent on foreign loans, aids and grants and work on high interest rate basis on implicit assumptions of social class conflict, whilst the SIBL intends to empower the family as a basic social unit and generate its own internal resources through re-empowering, institutionalizing the various Islamic obligatory and voluntary tools of redistribution of income, humanizing formal and non-formal sector as well as monetizing the voluntary sector of the economy. SIBL intends to involve both man women, rich and poor in poverty alleviation programs and to work on participatory basis on the implicit assumptions of social class harmony. Clearly, it implements its programs with economic and social transparency without dependent on foreign aid or grants. In fact, a real value added of this bank lies in its power of new thinking for socio-economic well being of people at the grass-root level, strengthening family values and the moral foundation of the society. By teaching the women to be independent and defiant with their husbands, voluntary organizations are presumed to be undermining the family. Religious groups argued that the NGOs work with women was a form of cultural intersiction imposed through western imaterialistic and secular values. When peoples identity and culture are threatened, they often react by going back to their roots. At this stage social investment and social charity and welfare need to be clearly distinguished. There is confusion between Islamic Social Investment and Islamic Charity. What islamci Bank should do is social investment with built-in provision for social subsidy. While the phrase Social social welfare has been overused or misused in most cases, the concept of Social investment is not properly understood in popular discussion. The social investment in a project refers to a process of investment which should enable is target group or its beneficiaries to develop the sustaining capacity even after withdrawal of the support by the sponsoring agency. The grant in aid element in such investment or credit package needs to be consciously designed so that sustainability and accountability remain transparent. The absence of such criteria are generally found in the most social charity and welfare. The experience suggests that social welfare projects sponsored by most of the NGOs in Bangladesh and elsewhere in Muslim countries tend to create a built-in dependency. Once the support of the NGOs are withdrawn or the flow of aid stops for one reasons or another, this project cease to exist or make its beneficiary worse off in the sense that discontinuation of support push them back beyond their original level of living. Here adjustment process is painful and tends to generate social stress, tension, alienation and protest. Eventually this vulnerable groups turns into a class of alienated people, most likely to commit social crime in both rural and urban setting. At this stage, a comparative review of SIBL approach and approaches of other Non-banking financial institutions and NGOs as outlined in Table-I for social investment will be useful and suggestive. The following table will show that ongoing micro credit and micro enterprise programs of SIBL is indeed fundamentally different and deeply rooted in shariah compared to Non-Banking financial institutions and other NGOs approaches, operating in Bangladesh. Sl. No 1 SIBL Approach Micro-credit for empowering family: ensuring joint liability of wife and husband in case of lending to family or groups of families without collateral No ceiling and floor: Micro credit covers hard core poor also (street children in the urban slump and is tailor make) NBFIs and NGOs Approach Micro credit for decomposing and eventual disintegration of the family. For example: Grameen Banks credit empowers women as opposed to man (i.e. over 98% of its clients are women) Main criterion for membership in many NGOs disbursing loans is a ceiling on land holdings of no more than half an acre and on less real in practice and a floor on the level of income Credit is interest based, not in conformity with shariah

2

3

4

Credit linked to culture as rooted in Islamic values provisioning for perpetual social capital accumulation Credit provisioning on a nominal profit Interest rate is 25% to 35% for the poor. In

5

6

7

8 9 10

or non-profit basis (i.e. flat rate 08% and public health credit @ 5% per annum. At present formal Banking expected profit/return rate varies from 14.5% to 18% In the event of loss there is a provision for sharing the loss and schemes to upscale their operations Providing deposit savings and investment services and schemes to upscale their operations Assisting Micro credit/enterprise with provision for credit access to the formal Banking of SIBL, thereby allowing the poor to cross the frontiers of Nonformal Banking Credit based on depositors fund and no external grants/loan Recovery of loan about 97% confirmed by external audit Financial accountability subject to scrutiny by statutory external auditors and central Bank

many cases defaulters are forced to sell their meager assets or to go to local money lenders who could charge up to 120 % interest

There is no such provision of sharing of loss rather there are reports of ruthless force to defaulters This facility is limited in scope and coverage Working on the household and does not provide credit access to formal Banking

75-100% based on external grant Recovery reported to be 95-97% They are not subject to such control

4.4 Micro-credit line of Social Islami Bank Ltd.: Selected issues and ProblemsCurrently SIBL is investing a maximum amount of TK. 2500/- equivalent to US$ 500 per family without collateral security under Micro Credit programs as permissible by the central bank of the country. This amount is considered insufficient for the purpose of crossing the border of poverty line. The credit ceiling should be raised to at least us$ 1000/- per family. The maximum amount of TK.2.5 Lac equivalent to US$ 5000 is allowed for investment per micro enterprise borrower under existing Banking Law. This ceiling of investment for Islamic Ban in other countries will of course vary depending on the stage of the development of the country, is per capital income and other related socio economic indicators. While the NGOs lend maximum amount of TK. 5000/- only equivalent to US$ 100 per person. With this meager amount none would overcome the boundary of poverty. Hence all their clients tend to movie in the same circle. In Bangladesh there is at least 15 million poor families which can be covered under micro credit program in phases. In this context, the following five operational issues of SIBL can provide insights for strategic alliances and business net working among IDB and Islamic Banks: a) There is fund constraint for desired expansion of the program in consideration of the fact that central bank of Bangladesh allows commercial bank to invest a very small part of the total deposit in this area b) The cost of fund invested in current micro credit program is relatively high not only due to supervision cost but also utilization of depositors money which affects SIBLs rate of profit to depositors c) SIBL has not yet received any grant or concessional fund for financing its current micro credit projects d) SIBL has flexibility in managing the fund, if received. The bank can make direct investment in micro credit and micro enterprise; it can supervise investment through NGOs or it can undertake such projects on co-financing basis or any other basis mutually agreed 4.5 FAMILY EMPOWERMENT MICRO ENTERPRISE PROGRAM SOCIAL ISLAMI BANK LIMITED is a three sector joint venture shariah based bank integrating Formal, Nonformal and Voluntary sector Banking. Become operational on 22nd November, 1995 besides, Formal banking aiming at achieving the corporate objective of the Bank the family empowerment micro enterprise program is operated through Non-formal sector Banking. Family Empowerment Micro-Enterprise program is introduced to enhance the socio-economic condition of the potential entrepreneur, small and medium Businessmen, successful Micro-Credit graduate into Micro-Enterprise program through income generating activities.

4.5.0 Objectives: To promote and develop Micro and small enterprise to generate employment on a self-sustainable basis To create savings habit and to provide investment resources to the potential entrepreneur to increase their business who have no access to the formal banking To provide necessary investment to new entrepreneurs who want to be self-employment To enroll the successful Micro credit graduate into Micro enterprise program 4.5.1 Target Group: New entrepreneurs or existing small businessmen having no collateral and those who cannot expand their business due to shortage of capital Ongoing small businessmen having ownership/possession of firm/farm/shop or any other holdings Micro-credit graduate, who are interested to expand their business

4.5.2 Modes of Investment: 1. Profit& Loss Sharing Mode: Musharaka 2.Profit Sharing but Loss Bearing Mode: Mudarabah 3. Bai-Modes (Buying & Selling) Bai-Murabaha Bai-Muajjal Bai-Salam Bai-Ishtisna 4. Rent Sharing Modes: Ijarah (Lease) Hire Purchase under Shirkatul Melk (HPSM)

4.5.3 Ceiling of Investment: Collateral security is not required for investment ceiling upto TK. 50,000/-. However guarantee of two solvent persons are required Collateral security to be obtained for investment ceiling above TK. 50,000/= up to TK.2,50,000/=.

4.5.4 Procedure of Investment: Each selected client have to open a mudaraba savings accoung (MSD A/C) or Al-Wadiah Current Deposit Account (AWCD A/C) with SIBL Each client-businessman should obtain trade license from the concerned authority Each Businessman/Entrepreneur having experience of at least one year will be given preference to avail of the investment facilities The equity ratio of all the entrepreneurs is usually 80:20. The entrepreneurs having equity ratio 60:40 will be given preference The clients who have performed their Micro-credit investment satisfactorily, will be given preference to promote their business in Micro Enterprise program provided they are in a position to fulfill the criteria of this program Every selected client/entrepreneur interested to avail these investments may apply in Banks prescribed form The payment of the investment will be made directly to the suppliers of the goods by account payee cheque/payment order against invoices ( in name of the bank) showing the goods supplied

4.5.5 Profit and other Charges: Rate of Profit: 11% per annum (approximate) Risk Fund: 1% per annum on the net investment

4.5.6 Security: Under this program, collateral securities in the form of Mortgage against properties and or 3 rd party personal guarantee are needed. In case of investment upto TK.50,000/- goods (raw materials/finished goods/machineries) will be treated as security In case of Investment exceeding TK. 50,000/- collateral security in the form of equitable Mortgage shall be obtained as Bank rule In all cases clients must sign bank charges documents i.e. promissory note etc. 4.5.7 Purpose of Investment: Client will have the liberty to choose the purpose relating to small and medium Enterprise either from the following projects or any other suitable projects under Family Empowerment Micro Enterprise Program objectives: Agricultural Projects Poultry & live stock projects Fishery projects Processing & manufacturing projects Transport & communication projects Trading projects Different types of small trading projects Shop keeping projects Medicine shop keepers projects Sewing machine projects Readymade garments projects

Recovery of Investment: Generally the repayment of the investment shall be made on monthly installment basis. However, in special cases, repayment shall start depending on the nature of investment subject to recommendation of the branch given specific reasons. Table-: Family Empowerment Micro-Enterprise Statistics

Family Empowerment Micro-EnterpriseParticulars Amount of investment Amount Due Amount Outstanding Amount Recovered Rate of Recovered 2006 25.244 22.91 3.46 21.784 86% Year(amount in crore) 2007 2008 2009 23.43 21.62 15.52 20.88 18.12 7.05 2.78 4.41 7.25 20.65 17.21 8.27 88% 80% 53% 2010 11.13 5.63 0.502 10.628 95%

Graph-4.3: Investment amount in family empowerment micro-enterprise program

Investment in Micro-Enterprise Program (Fig in crore)2010, 11.13 2006, 25.244

2009, 15.52 2008, 21.62

2007, 23.43

Graph-4.4: Outstanding amount in Family Empowerment Micro-Enterprise Program

Amount in Outstanding (crore in TK)2010, 0.502

2006, 3.46

2009, 7.25 2007, 2.78

2008, 4.41

Graph-4.5: Rate of Recovery of Family Empowerment Micro Enterprise Program Investment

Rate of Recovered2006, 86%

2010, 95%

2009, 53%

2007, 88%

2008, 80%

Graph- 4.0: Family Empowerment Micro-Credit Program (amount of investment in crore)

Amount of investment in Micro Credit Program ( amount in crore)

2010, 17.78

2006, 22.8

2009, 18.84 2007, 20.98

2008, 19.89

Graph- 4.1: Family Empowerment Micro-Credit Program (amount of outstanding in crore)

Outstanding amount of Micro credit program2010, 0.6883

2009, 3.56

2006, 4.66

2008, 5.56

2007, 3.35

Graph-4.2: Family Empowerment Micro-Credit Program (rate of recovered)

Rate of Recovered

2006, 80% 2010, 96%

2007, 84% 2009, 81%

2008, 72%

Chapter-Five: Small and Medium Enterprise (SME)5.0 New Definition of Small & Medium Enterprise (SMEs):Definition of the SME & Micro Credit & Cottage Industries: SL Segment Sector value of the fixed Assets (Except Land No. of the & Building) including setup cost Business 1 cottage industries Not more than 5.00 Lac 2 Micro Service & Industries Trading Manufacturing 3 Small Service & Industries Trading Manufacturing 4 Medium Service & Industries Trading Manufacturing < 5.00 Lac 5.00 Lac to 50.00 Lac 5.00 Lac to 100.00 Lac 50.00 Lac to 1000.00 Lac 100.00 Lac to 1500.00 Lac 1000.00 Lac to 3000.00 Lac

Labor or Manpower

Not more than 10 person >10 person