The Thin Line Between Profit and Riba: What Every Muslim Should Know

Finding means to support oneself as a Muslim while upholding one's beliefs and morals might be difficult. The problem of riba is one of the main challenges we have in the financial sphere. The term "riba," which is sometimes translated as "usury" or "interest," describes the charge or payment of any additional sum on a loan or debt. Riba is outright forbidden in Islamic banking because it violates the fairness, justice, and social responsibility values that are central to our faith.

So what precisely distinguishes profit from riba, and how can we manage this complicated problem in our day-to-day lives? We will discuss the idea of profit in Islamic finance as well as the numerous types of riba that Muslims need to be aware of in this blog article. Along with providing some helpful advice for obtaining financial success while being faithful to our faith, we'll also talk about the significance of avoiding riba in our business dealings. This essay is for you whether you're an experienced investor or just getting started with your financial path. So let's explore the fine line between profit and riba in greater detail.

 I. Introduction

Islam views riba as one of the gravest sins, and both the Quran and the Sunnah make clear that it is forbidden. There are two sorts of riba: riba al-nasi'ah, which refers to the collection of interest on loans or debts, and riba al-fadl, which relates to the trade of similar commodities or services but with different valuations. Due to the concentration of wealth and exploitation of the weak and vulnerable, riba is prohibited on the grounds of fairness, justice, and social welfare.

Muslims must distinguish between profit and riba correctly since doing so might have detrimental effects. Profit is halal and acceptable, while riba is haram and categorically forbidden. Riba can cause one's riches to lose its barakah (blessings) and even bring about financial collapse. As a way of providing for oneself and one's family, assisting others, and advancing society, on the other hand, making halal profit brings benefits and blessings from Allah. In the parts that follow, we'll go into more detail about the concepts and rules of profit and riba in Islamic finance and offer helpful advice for building a successful financial future while upholding our moral ideals.

What is Profit in Islamic Finance?

In Islamic finance, "profit" refers to the revenue or gain derived through the exchange of goods or services. Unlike to riba, which involves charging or paying exorbitant amounts on loans or debts, profit is generated by the acquisition, sale, or investment of assets or businesses. As it serves as a motivator for people and enterprises to engage in good and productive activities, profit is seen as a crucial component of economic activity.

Principles of Fairness and Risk-Sharing in Islamic Finance

Fairness, which is founded on the notion that economic advantages and obligations should be shared evenly among all parties concerned, is one of the fundamental tenets of Islamic finance. Together with sharing information and expertise, this also entails sharing risks and benefits. The technique of risk sharing used in Islamic finance allows the investor and the entrepreneur to split the profits and hazards of a business endeavor. The idea of mudarabah—a partnership agreement between an investor (the rab al-maal) and an entrepreneur—is the foundation for this risk-sharing approach (the mudarib). In this agreement, the cash is provided by the investor, the knowledge is provided by the entrepreneur, and the earnings are divided according to a pre-determined ratio. This ensures that the risks and rewards of the venture are shared equitably between the two parties, and that the entrepreneur is incentivized to work hard and make the business successful.

The prohibition of gharar, or undue ambiguity, which can result in fraud, deception, and exploitation, is another crucial tenet of Islamic banking. This concept makes sure that all parties have a realistic grasp of the risks and rewards associated with financial transactions and that they are based on clear, transparent conditions. In conclusion, profit is a necessary and acceptable component of Islamic finance, provided that it is acquired via moral and halal methods. Islamic finance is founded on the values of equity, risk-sharing, and openness, which encourage just and sustainable economic activity that benefits both people and society as a whole.

 

II. Understanding Riba in Islamic Finance

Definition of Riba and its Various Forms

Riba is sometimes interpreted as "usury" or "interest," but in Islamic banking, its true meaning is more complex and subtle. Any excess or growth that is added to the principle sum in a financial transaction without a matching rise in the value of the goods or services traded is referred to as riba. There are two main forms of riba in Islamic finance:

·         Riba al-nasi'ah: This kind of riba is assessed on loans or obligations that are postponed or prolonged past their initial due date. This covers any increase in the debt's principal as well as any penalties or other costs incurred as a consequence of the postponement or extension.

·         Riba al-fadl: This sort of riba is levied on the trade of commodities or services that fall under the same category or type but are provided in various amounts or with varied levels of quality. This includes any excessive or unfair trade that gives one side a disproportionate advantage or gain.

Both forms of riba are prohibited in Islamic finance, as they violate the principles of fairness, justice, and social welfare.

Prohibition of Riba in Islamic Finance and its Rationale

The prohibition of riba in Islamic finance is based on several reasons, including:

• Since riba favors the lender at the borrower's expense, it leads to an unfair and uneven allocation of wealth. Financial exploitation, poverty, and societal instability may result from this.

• Riba violates the principles of fairness and risk-sharing because it involves charging a fixed amount of return regardless of the actual performance or outcome of the transaction. Riba encourages hoarding and speculative behavior because it incentivizes people and institutions to earn profits without engaging in productive or beneficial activities.

• In Islam, riba is seen as a serious sin, and the prohibition of it is a cornerstone of the moral and ethical standards of the religion.

In Islamic finance, the use of profit-sharing agreements like mudarabah and musharakah as well as avoiding debt-based transactions are some of the ways that the ban of riba is enforced. This makes sure that all parties are equally benefiting from financial activity and that it is founded on the values of fairness, transparency, and social responsibility.

In conclusion, the prohibition of riba in Islamic finance is a fundamental tenet of the faith's moral and ethical code and is founded on the ideals of justice, fairness, and societal welfare. Muslims may support an ethical and just global economy by refraining from riba and advocating sustainable and ethical financial practices.

 

III. Why Avoiding Riba is Important

In addition to being a core principle of Islamic finance, avoiding riba is crucial for Muslims who seek to reconcile their financial decisions with their moral and ethical principles. In this section, we'll look at the moral and theological arguments against using riba as well as the social and financial repercussions of doing so.

Religious and Ethical Reasons for Avoiding Riba

Avoiding riba is a method for Muslims to preserve the values of justice, fairness, and social welfare that are at the foundation of their faith, as well as a matter of legal compliance.Islam prohibits riba for several reasons, including:

• Riba is viewed as a serious evil in Islam, and it is forbidden based on explicit verses in the Quran and hadiths that stress the value of refraining from any kind of exploitation or injustice.

• Riba fosters hoarding and speculating, which is contrary to the spirit of Islamic entrepreneurship and social responsibility.

• Riba breaches the principles of justice and equality since it allows the lender to profit from the borrower's misfortune and generates an unequal distribution of wealth.

Muslims may show their dedication to the ideals of justice, fairness, and social welfare by refraining from riba and encouraging ethical and sustainable financial practices. By doing so, they will also help to create a society that is more just and equal.

Social and Economic Consequences of Riba

Muslims may show their dedication to the ideals of justice, fairness, and social welfare by refraining from riba and encouraging ethical and sustainable financial practices. By doing so, they will also help to create a society that is more just and equal. Some of the main consequences of riba include:

• Financial exploitation and debt: Riba-based loans can keep people in a cycle of debt and poverty since the fees and interest can mount up quickly and become unsustainable.

• Unequal wealth distribution: Riba enables the lender to receive a set return regardless of the transaction's outcome, which can result in an uneven wealth distribution and a concentration of economic power in the hands of a select few.

• Riba-based transactions may promote speculative behavior and a concentration on short-term rewards, which can result in market instability and financial catastrophes.

• Absence of accountability and transparency: Riba-based transactions may be opaque and lacking in transparency, which might erode the integrity of the financial system and foster an environment of mistrust.

Individuals and communities may help create a more fair and equitable society and a financial system that is founded on the values of openness, accountability, and social responsibility by avoiding riba and encouraging ethical and sustainable financial activities. Avoiding riba is crucial for a number of reasons, including religious, moral, social, and economic considerations as well as legal compliance. Muslims may contribute to a more equitable and just global economy and help create a more successful and sustainable future for all by maintaining the values of justice, fairness, and social welfare and supporting ethical and sustainable financial practices.

Practical Tips for Achieving Halal Profit

After discussing the significance of avoiding riba and encouraging moral and sustainable financial behavior, let's look at some useful advice for generating halal profit. We'll go through several methods for making money and investing without using riba in this part, along with some instances of halal investment possibilities.

Strategies for Investing and Earning Income without Riba

Focusing on investments and revenue streams that are founded on justice, equity, and risk-sharing is one of the important tactics for generating halal profit. Some of the main strategies for achieving halal profit include:

·         Investing in equity-based crowdfunding platforms: Without using interest-based loans, equity-based crowdfunding enables investors to fund startups and small companies in return for a portion of the company's stock. This makes it possible for investors to receive a return on their investment based on the company's profitability rather than on interest payments.

·         Investing in sukuk: Sukuk are bonds that adhere to Sharia law and are built on the concepts of risk-sharing and asset-backed finance. Instead of paying interest, Sukuk gives investors a predetermined return based on the performance of the underlying assets.

·         Investing in real estate: If real estate is organized as a partnership or joint venture as opposed to an interest-based loan, it might be a halal investment option. This enables investors to get a portion of the profits based on how well the asset performs rather than on interest payments.

·         Investing in socially responsible funds: Investment vehicles known as socially responsible funds put an emphasis on environmental, social, and governance (ESG) considerations and steer clear of businesses that participate in immoral activities such manufacturing weapons, alcohol, or gaming.

Muslims may make halal profit and support a more ethical and sustainable financial system by concentrating on investments and revenue sources that are founded on justice, equity, and risk-sharing principles.

In conclusion, generating halal profit necessitates a dedication to moral and ethically sound financial practices, as well as a concentration on investments and revenue streams that are founded on the values of equality, justice, and risk-sharing. Muslims may help create a more fair and equitable world economy and a more affluent and sustainable future for everybody by researching halal investment options and encouraging ethical and sustainable financial practices.

Ins and Outs of Negotiable Instrument

Negotiable Instruments are essentially credit instruments with features of negotiability. Credit is the privilege to buy now and pay later. It also includes borrowing of money now with a view to pay later. Instruments, which evidence or acknowledge such credits are called, credit instruments. There are some credit instruments, which are not negotiable. That is why they are called credit instruments but they do not have the features of negotiability, e.g. IOU (I owe you), Postal Order etc. Among the negotiable instruments, some are negotiable under law (N.I. Act, 1881) e.g. Cheque, Bill of Exchange, Promissory Notes and other are negotiable because of mercantile usage and custom. Treasury Bonds, Dividend warrants etc. are example of Negotiable Instruments according to usage and customs.

A negotiable instruments is transferable document, which satisfies certain conditions. These instruments pass on freely from hand to hand and thus form an integral part on the modern business. Definition of Negotiable Instruments:

1. As per sec. 13 of N.I. Act “A negotiable instrument means a Promissory Note, Bill of Exchange or cheque payable either to order or bearer.”
2. Justice K.C. Wills defines a negotiable instruments as “The property in which is acquired by anyone who takes it benefice and for value not withstanding any defect of title in the person from whom he book it.”

Security Deposit Receipt (SDR)

A security deposit receipt is a written undertaking issued by a branch of a bank to pay a certain sum of money to a specified person or organisation. A security receipt is issued and paid by the same branch of a bank and as such the same. The person or the organization in whose favour it is issued is known as beneficiary. It is sold to the applicant on payment of value who may or may not be our customers and is called the purchaser. The person or the organisation in whose favour it is issued is known as beneficiary it is sold to the applicant on payment of value who may or may not be our customer and is called the purchaser. A security deposit receipt may be sold to any person who desires to offer the same in payment of arnest money, security deposit and other dues to Government agencies autonomous bodies, companies, local authorities etc. in the course of business and other dealings.
 

Different Bank Accounts Opening Process

Banking sector is flourishing day by day. Banks are engaging themselves for different types of servicing for their customers. But at the beginning of availing some services, customers have to open account without any lapses in the bank. There are different types of accounts in banks, such as individual account, joint account, clubs & society account, trustee account etc.  I will discus about these account opening procedures which will help bankers for their career and for safety of banks.

Individual account opening 
1. The account opening form and specimen signature card shall be supplied to the customers which shall be filled and signed by him.
2. Suitable introduction shall be obtained from a respectable party known to the bank account holder/bank officer.
3. Manager shall use sufficient intelligence and common sense in ascertaining the genuineness of new accounts.
4. It shall be ascertained from the reference book that the new account is not similar to any other account opened earlier. Note to this effect shall be made on the account opening form and the ledger, if there is any similarity.
5. The signature of the introducer shall be verified by the officer incharge of deposit department.
6. The Manager’s approval shall be obtained on the account opening form. In case of big branches the officer incharge of Deposit Department may also approve the account opening form.
7. In the event of death of the individual, all operations in this account shall be stopped forthwith. A red line shall be drawn just below the balance of the account. As soon as information is received either through news paper per some reliable source about the death of a constituent, the date of death and source of information shall be on the ledger folio of the relevant account.

Ins and outs of Bank Companies Act, 1991

Bank Companies Act, 1991 is a guideline for Banks is a guideline for Commercial Banks and the Central Bank of the country as well. All banks of Bangladesh have to abide by the provisions of this Act. This Act has given necessary power to the Central Bank i.e. Bangladesh Bank to control the Commercial Banks and Specialized Banks in line with its monetary policy. This Act has 124 Sections. I will not discuss all the sections rather discussing ins and outs of this act.

 

Power of the Bangladesh Bank to control the law making of advances:
1. Whenever the Bangladesh bank is satisfied that it is necessary in interest of the public to do so, it may make the policy subject to advances to be taken by the bank companies in general or their bank company related or by any bank company in particular and when the policy has been so determined or the bank company concern shall be bound to follow the policy that it determined.
2. without prejudice to the generality of the poser conferred by sub-section, the Bangladesh Bank may make directions to bank companies in general or to any bank company in particular or any particular group of bank companies which is compulsory followed in respect of the under written matters-
(a) The credit ceiling to be furnished;
(b) The ratio to be cited between the total advances and small loans or other loans;
(c) The motive of which advances may or may not be drawn;
(d) The maximum limit of the advances may be given to Bank Company, special classes of banks or companies or person or group of persons;
(e) The secured advances and the margin of requirement; and
(f) The rate of interest to be determined on advances.

MITGHAMR MODEL

Most of the Muslim Countries of the world are under developed. Currently they are engaged in instituting socio-economic development programmes. But almost in all Muslim Countries success in this field is very much insignificant. This is due to top-down nature of the programmes and inconsistency with the cultural values and beliefs of the people. Mitghamr Islami Bank, the first of its kind in 20th century was established at Mitghamr, a village of Nile delta in 1963 with a view to bring some development in socio-economic field in the process of Islam.

CONSIDERATIONS:

Institutions designed for development must reflect the needs and aspirations of the people concerned and must be consistent with the beliefs and spiritual values of the society in which it operate. Failure to take this into account will result in the failure of the institution to achieve its objectives. Top-down development programmes often do not coincide with the requirements, beliefs and spiritual values of the society. So the people do not feel encouraged in participating in implementation of these types of programmes. Bottom up programme may reverse the situation. Effective contribution of the masses in the development process is less important in no way. Mobilization of local savings and other resources, specially human resources are essential for development. Communication gap should be considered between the intellectuals & the general working people.

Management of Project Risk

Project Risk is the combination of the probability of an uncertain event and its consequences. A positive consequence presents an opportunity; a negative consequence poses a threat.

Type of risk 

Generic Risk : any uncertainty that, if it occurs, would affect the project. 

Project Risk : any uncertainty that, if it occurs, would affect one or more project. Exp. Time, cost, performance, satisfaction.

Business Risk : any uncertainty that, if it occurs, would affect the business to generate the expected profit. Exp: Profitability, market share, competitiveness, Internal Rate of Return (IRR), reputation, repeat work, share price.

Competitive Risk : the earning and cash flows of the project may be affected by unanticipated actions of the competitors.
Industry specific Risk : Any risk arises in the industry to which the project belongs. Exp: unexpected technological development, regulatory changes.
Market Risk : Any unanticipated changes in macroeconomic factors have an impact on all projects. Exp: GDP growth rate, inflation, interest rate, unemployment.

International Risk : The earning and cash flows may be affected for international events. Exp: changes in exchange rate, political violence.
Safety Risk : any uncertainty that, if it occurs, would affect one or more safety objectives. Exp: Low accident rate, minimal lost days, reduced insurance premiums, regulatory compliance.
Technical Risk : any uncertainty that, if it occurs, would affect one or more technical objectives. Exp: Performance, functionality, reliability, maintainability.
Security Risk : any uncertainty that, if it occurs, would affect one or more security objectives. Exp: Information security, physical security, asset security, personnel security.

Guarantee and Indemnity for Loan/Credit

Generally loans and advances are made against tangible securities. When a customer has no tangible security to offer or when the security offered is inadequate, a guarantee is demanded by the banker.

A guarantee is a promise by a third person to the lender for the present or future debt of the borrower. The person who gives the guarantee is called a surety or guarantor. The person to whom the guarantee is given is called creditor or beneficiary. The person in respect of whose default the guarantee is given is called the principal debtor.

Example: P lends Tk. 5000/- to Q and R promises to P that if Q does not pay the money R will do so. This is a contract of guarantee. Here Q is the principal debtor, P is the creditor or beneficiary, and R is the guarantor or surety.

Section 126 of the contract Act, 1872 defines a contract of guarantee as,” a contract to perform the promise or discharge the liability of a third person in case of his default.”

WORKING CAPITAL ASSESSMENT

What is Working Capital?

Usually, a business concern, to speak more of a manufacturing unit, needs two types of finance. Firstly, it requires capital for the purpose of acquiring fixed and other long-term assets. This type of finance is usually provided by the long-term sources of funds. Secondly, it needs finance for working capital for its current operational purposes i.e., capital required to finance the current assets generated/required for the process of manufacturing and selling is called the Working Capital. The term Working Capital is used as a gross as well as a net concept. Gross Working Capital represents the totality of fluctuating funds invested in all current assets in a business. Whereas Net Working Capital refers to the excess of current assets over current liabilities and indicates the margin or buffer for meeting obligations within the ordinary operating cycle of the business.

Management of Working Capital:

Working capital unless deployed and managed effectively in the business will not yield the desired result. Fixed assets once acquired judiciously, will not bother the management for a certain period, but Working Capital which is the life blood for the current operations of the business needs to be properly assessed, raised and deployed. Working Capital funds are raised from the following two main sources: (a) Funds generated from current operations (b) Short term bank borrowings, trade credit, short term deposits, owners' equity etc. Funds thus raised are usually deployed in various phases of Operating Cycle.

RECOVERY OF STUCK-UP LOANS AND ADVANCES: MONITORING AND SUPERVISING OF CREDIT

Banks lend money to their customers for various purposes with a view to making profit after meeting all relative costs (Cost of fund, establishment cost, administrative cost, etc.) Bank collects fund from depositors i.e. Banks borrow fund from depositors. So advanced money comes from outside of the Bank repayable on demand and or as per schedule fixed earlier along with Interest. So we must recover money from the borrower after proper utilization to refund the same to the depositors and also to accommodate new customers afresh and to continue Bank's activities on revolving /cyclic process.

But it is experienced that in most of the cases money advanced to the borrower is very difficult to recover as per agreed terms due to failure of proper identification of following factors:

(a) Failure to identify genuine borrower.

(b) Failure to identify honest and sincere borrower for honoring financial commitment.

(c) Failure to identify capacity of the borrower to run the business successfully

(d) Failure to assess inherent risks (Financial, business, management & security risk) in the business and its mitigating factors.

(e) Failure in proper utilization of fund.

(f) Failure in protecting diversion of fund.

(g) Lack of supervision, follow-up and monitoring process..

BASEL-ii IMPACT IN CREDIT RISK MANAGEMENT

Basel-II implementation is challenging. For such event, banking sector needs services of techno- human resources. Why? The reply is to combat multiple risks facing the financial sector. In order to address high tech information technology, Complex business transactions, derivatives and various swaps has been significantly increasing the risk in banking sector.
One important aim of Basel-II initiatives is international convergence of Capital standard. Capital is very important for banks as it is a business not on money of the people. Capital is a cushion against their business loss, it promotes public confidence and measures soundness and stability. Since 2oo3, Bangladesh Bank introduced risk management practices focusing on five Core risk areas such as Credit risk, asset and liability balance sheet risk, foreign exchange risk, Internal Control and Compliance risk and money laundering risk and Information Technology risk. The simple fact is that banks are doing Business with depositor’s money which is repayable 100 percent. Fund is invested in risky investments. Therefore, in order to Judge the financial health of the bank, it is necessary to see whether banks are investing the money cautiously or not. All stakeholders including regulators and depositors are interested to know how the banks are performing.

Bank's Credit or Loan facilitiy Types

Credit The word "Credit" is derived from the Latin word Credo or Krado meaning I believe. It is usually defined as one's ability to buy to a promise to pay. From the Banker's point of view Credit is the confidence of the lender on the ability and willingness of the borrower to repay the debt as per schedule of repayment.

A bank provides loan to a company, with a fixed maturity and often featuring amortization of principal. If this loan is in the form of a line of credit, the funds are drawn down shortly after the agreement is signed. Otherwise, the borrower usually uses the funds from the loan soon after they become available. Bank term loans are very a common kind of lending.

In other words, a loan that an individual or a business owner gets Atom a bank is called Bank Loan.

Types of Credit:
Credit may be classified on Various Basis. These are
• FUNDING
• TERM
• SECURITY
• SECTORAL
• CLASSIFICATION STATUS

Bank Account Opening/Closing, Lapses, Precaution and Remedy

Common consideration for opening accounts
1. The law of contract governs opening of accounts. Contract between the bank and the customer. Account Opening forms when signed, contract is executed.
2. Any adult person of Bangladesh national can open account with the bank.
3. Minor cannot enter into contract except for the necessaries of life and under certain special circumstances. Natural/Legal guardians can open account in the name of the minor.
4. Insolvent and mentally unsound person can not execute any contract hence can not open account.
5. Proposed account holder must remain present at the time of opening of the account and he must sign on the account opening form and specimen signature card in presence of the Manager/Authorized officer.
6. Photograph of the account holder must be obtained (except for FDR account). The introducer must attest photograph of the account holder.
7. The account holder must be properly introduced (except for FDR account).
8. Recording of nominee has been made compulsory in case of any account in the name of individual. Photograph and signature of the nominee are to be obtained and the account holder must attest the same.
9. Branch Manager must open the account or accord permission in writing to open the account by the authorized official.
10. Certificate from the local Chairman/Member of the Union Parishad/Municipal Corporation or from any respectable person acceptable to the bank.
11. Copy of Passport, if available.
12. Certificate relating to date of birth of the account holder.
13. Certificate of the Employer in case of service holder.

RELATIONSHIP BETWEEN BANKER & CUSTOMER

Before we take up the relationship that exists between a banker and his customer, let us understand the definitions of the terms banker and customer.
Definition of Banking:
According to the section 3 of the Negotiable Instrument Act 1881, "Banker includes persons, or a corporation or a company acting as bankers."
According to the section 5(0) of the Banking Companies Act 1991, "Bank Company" means any company serves transactions (Banking Business in Bangladesh) including new bank and specialized banks.
According to the section 5(P) of the Banking Companies Act 1991, "Banking Business" means accepting, in order to lend or invest, of deposits of money from the public which will be paid on demand or otherwise and will be withdrawal by cheque, draft, order or otherwise.

Cheque book: issuance & Delivery of Cheque Book, Lost & Cancellation, Payment of Cheque & Stop Payment

A cheque is an unconditional written order, bearing date to the banker from the drawer, where maintaining his account to pay on demand a certain specified sum of money expressed in both figures and words, to the named person or his order or bearer.
According to sec-6 of Negotiable Instrument Act (NIA)-1881- A cheque is a bill of exchange drawn upon a specified banker and not expressed to be payable otherwise than on demand.

Parties in a Cheque:  There are 3 (Three) parties in a cheques: 1) The drawer - Customer, Account holder, who issue the order. 2) The Drawee - The Banker, on whom the order is issued. 3) The payee - Beneficiary of a cheque who is to receive the payment.

Functions of Bank's Cash Department of a Branch

Functions of cash are one of the most important functions of the Bank. It is of extreme necessity that the cashiers and officers as well as other staffs of the bank should understand this very well. Our main discussion of Cash Department will be on Branch Cash balance, Safe custody of cash, Custody of keys/Duplicate keys, Maintenance of Vault book, Sorting of Notes and Coins, Security measures, Irregularities in the functions of the Cash Department and its' remedial.

Receipt & Payment of Cash:
Cash will be received by the Receiving Cashier/Teller from the customers on bank's printed form called pay-in-slip. The concerned Receiving Cashier/Teller will ensure that the name of the account holder, account number, name of the branch, date, denominations of the notes and coins are legibly written on the pay-in-slips. He/She must also ensure that the pay-in-slips are signed by the person depositing the cash. After counting the cash carefully, the Receiving Cashier/Teller put the 'Cash Received' stamp with date and enters the amount in the Teller's Cash Proof Sheet under a Serial Number which will also be put in the both part of the pay-in-slip with joint signature of the concerned Teller and the Head Teller. In some cases, cash is received on bank's vouchers for various transactions (PO, TT, MT, Commission, VAT etc.).

INTERNAL CONTROL & COMPLIANCE

INTERNAL CONTROL POLICY
Itroduction
Banking is a diversified and complex .linancial activity which is no longer limited within the geographic boundary of a country. In many banks internal control is identified with internal audit; the scope of internal control is not limited to audit work. It is an integral part of the daily activity of bank, which on its own merit identifyes the risks associated with the process and adopts a measure to mitigate the same. Internal Audit on the other hand is a part of Internal Control system which reinforces the control system through regular review.
Definition
Internal control is the process, affected by a company's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, the reliability of financial reporting and compliance with applicable laws, regulations, and internal policies.

Exchange rate and foreign remittance

Exchange rate is hte rate at which a specific currency can be exchanged with a standard foreign currency.
A foreign exchange transaction is either sells or purchase transaction. Therefore, the bank would quote two different rates of exchange.

Buying Rate & Selling rate:
The rate at which the central of any country buys foreign money is called buying rate. On the other hand , the rate bat which the central bank of any country sells foreign money is called selling rate.

Classification of Exchange Rate:
i) Fixed Rate
ii) Floating Rate:-
• Independent Floating
• Managed floating
• Pegging
 • Single currency
• Composite currency : a) SDEBIT & b) Other basket.

Mechanism of Foreign Exchange Export

In the export section, two types of L/Cs are opened-

•  Back to Back L/C
•  Export L/C

Back to Back L/C:

A back to back mechanism involves two separate L/Cs. One is master export L/C and another is back to back L/C. on the strength of Master export L/C Bank issues Back to Back L/C.
Back to Back L/C is commonly known as Buying L/C. On the contrary, Master Export L/C is known as Selling.

Features of Back to Back L/C:

•  Is an import L/C to procedure goods/raw materials for further processing.
•  Is opened basedon Export L/C.?
•  Is a kind of Export Finance?
•  Export L/C is at sight but Back to Back L/C is at Usance.
•  No margin is required to open Back to Back L/C

Mechanism of Foreign Exchange Import

To import, a person should be competent to be an “Importer”. According to Import & Export Control Act, 1950, the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) form Central Bank. And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.

Importer’s Application for L/C Limit / Margin:

To have an import L/C limit, an importer submits an application to the issuing Bank furnishing the following information:-

01)    Full particulars of bank account
02)    Nature of business
03)    Required amount of limit
04)    Payment terms and conditions
05)    Goods to be imported
06)    Offered security
07)    Repayment schedule