The Banking System of Bangladesh-Prospects &Challenges

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Committed to Ensure the International Quality EducationThe term paper on:“The banking system of Bangladesh-Prospects &Challenges”PREPARED FORMr. Sheikh Mozaffar HossainProfessorDepartment of Business AdministrationIBAIS UniversityPREPARED BYMd. Saiduzzaman SelimMasters of Business AdministrationIBAIS University7 January, 2015
The banking system of Bangladesh-Prospects &ChallengesLetter of Transmittal7thJan 2015Mr. Sheikh Mozaffar HossainProfessorIBAIS Business SchoolDhanmondi-27, DhakaDear Sir,It is with great respect that we sate that; I am very delighted to submit the research paper on“Thebanking system of Bangladesh-Prospects &Challenges”.Thi sinteresting,challengingand ana ly ti calr es ear ch s tud yprovides understanding of banking system in details and challenges on going in theculture of the industry .The research paper hasbee n pr epa red w ith g rea t e ff or ts an d d edi cati o n;i ncompliance with course requirements and your instructions withinthe deadline for submissions is Jan7th2015. I have tried my level best to complete the paper with respect to the desired requirements. Ihave found comprehensive learning experience for writing and preparing this report. I therefore,strongly hope that you will accept this onerous task with satisfaction.Yours sincerelyMd. Sumon
The banking system of Bangladesh-Prospects &ChallengesAcknowledgementsIn the beginning, we are grateful to the almighty Creator to help us completing this term-Paperon time.Thetermpaper has been written by me. I am profoundly acknowledged to myclassmates, friends and to reviewer. Especially I would like to thank my friend SaiduzzamanSelim for reviewing, comments and providing useful help during the initial phase of this paper. Iam grateful to theresearcherswho has helped me to collect information from their ownresearch’s studies on that particular fields. I would like to thank the all participant scholars tothis study. In addition,for completing the research paper, credits should go to my honorablecourse teacher toMr.Sheikh Mozaffar Hossainfor-delivering-beneficial-lectures-and-instruction-in-the-class.To end this, let us express gratefulness to all of contributors again for their generosity and wish to thisprocess.The Name of Acknowledged Research Scholar:Md. Sumon
The banking system of Bangladesh-Prospects &ChallengesIntroduction:Banking systemplays very important role in the economic life of the nation. The health of theeconomy is closely related to the soundness of its banking system. Although banks createnonew wealthbut their borrowing, lending and related activities facilitate the process ofproduction, distribution, exchange and consumption of wealth. In this way they become veryeffective partners in the process of economic development. Today modern banks are veryuseful for the utilization of the resources of the country. The banks aremobilizingthe savingsof the people for theinvestment purposes. If there would be no banks then a great portion of acapital of the country would remainidle.A bank as a matter of fact is just like a heart in theeconomic structure and the Capital provided by it is like blood in it. As long as blood is incirculation the organs will remain sound and healthy. If the blood is not supplied to any organthen that part would become useless, so if the finance is not provided to Agricultural sector orindustrial sector, it will be destroyed. Loan facility provided by banks worksas an incentivetothe producer to increase the production. Many difficulties in theinternational paymentshavebeen overcome and volume of transactions has been increased. Cheques,draftsbills ofexchange andletters of creditare very importantinstruments ofthe banks. The banks collectthese instruments drawn onbanks inother cities orcountriesand proceeds according to theaccounts of the customer's concerns.A little history of banking system:A bank is a financial institution licensed by a government. Its primary activities includeproviding financial services to customers while enriching its investors. Many financialactivities were allowed over time. The level of government regulation of the banking industryvaries widely, with countries such as Iceland, having relatively light regulation of the bankingsector, and countries such as China having a wide variety regulations but no systematic processthat can be followed typical of a communist system. The name bank derives from the Italianword banco “desk/bench”, used during the Renaissance by Jewish Florentine bankers, whoused to make their transactions above a desk covered by a green tablecloth. However, there aretraces of banking activity even in ancient times. In fact, the word traces its origins back to theAncient Roman Empire, where moneylenders would set up their stalls in the middle ofenclosed courtyards called macella on a long bench called a bancu, from which the wordsbanco and bank are derived. As a moneychanger, the merchant at the bancu did not so much
The banking system of Bangladesh-Prospects &Challengesinvest money as merely convert the foreign currency into the only legal tender in Rome—thatof the Imperial Mint.The earliest evidence of money-changing activity is depicted on a silver drachm coin fromancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, and c. 350–325 BC,presented in the British Museum in London. The coin shows a banker’s table (trapeza) ladenwith coins, a pun on the name of the city.Definition of Bank:The Jews in Jerusalem introduced a kind of banking in the form of money lending before thebirth of Christ. The word ‘bank’ was probably derived from the word ‘bench’ as during ancienttime Jews used to do money -lending business sitting on long benches. First modern bankingwas introduced in 1668 in Stockholm as ‘Svingss Pis Bank’ which opened up a new era ofbanking activities throughout the European Mainland. In the South Asian region, early bankingsystem was introduced by the Afghan traders popularly known as Kabuliwallas. Muslimbusinessmen from Kabul, Afghanistan came to India and started money lending business inexchange of interest sometime in 1312 A.D. They were known as ‘Kabuliwallas’.Bank is a financial institution and intermediary, which collect deposits through its differentdeposit mechanism and provide loans and advances among the loan Clients/ investors with theview to earn profit. Thus a bank is a financial intermediary and a dealer of loans and debts. Infinancial concept, banking means safe custody of money and at the same time an institution formoney transaction. To regulate the banking business some financial laws of the government arefollowed, the old ones are the British Stamp Law, 1881 and English Exchange Bill, 1882. Otherlaws include the English Financial Act of 1915 and Indian Company Act of 1931 and theIndian Banking Regulation Act of 1949.The concept of Banking is an old civilization. Banking activities in its earliest crude form oflending and exchange prevailed during the ancient period. The legend of huge treasure of theGreat King Solomon, the man of great wisdom, son of David (Alaihee-aas-Salam) and theactivities of taxation and banking during his reign in 1005 B.C.The business of banking is in many English common law countries not defined by statute butby common law, the definition above. In other English common law jurisdictions there are
The banking system of Bangladesh-Prospects &Challengesstatutory definitions of the business of banking or banking business. When looking at thesedefinitions it is important to keep in minds that they are defining the business of banking for thepurposes of the legislation, and not necessarily in general. In particular, most of the definitionsare from legislation that has the purposes of entry regulating and supervising banks rather thanregulating the actual business of banking. However, in many cases the statutory definitionclosely mirrors the common law one.Examples of statutory definitions:“Banking business” means the business of receiving money on current or depositaccount, paying and collecting cheques drawn by or paid in by customers, the makingof advances to customers, and includes such other business as the Authority mayprescribe for the purposes of this Act; (Banking Act (Singapore), Section 2,Interpretation).“Banking business” means the business of either or both of the following:Receiving from the general public money on current, deposit, savings or other similaraccount repayable on demand or within less than [3 months] ... or with a period ofcall or notice of less than that period.Paying or collecting cheques drawn by or paid in by customers. The Indus ValleyCivilization, the Roman Civilization, the Greek Civilization, the Egyptian Civilization,the Mesopotamian Civilization, the Babylonian Civilization, the Vedic IndianCivilization, the Muslim Civilization played important roles in giving birth to andflourishing of Bank.Whoever, being an individual firm, company or corporation generally deals in the business ofmoney and credit is called bank. In our country, any institution, which accepts, for the purposeof lending or investment deposits of money from public, repayable on demand or otherwise,and with transferable by checks draft order and otherwise can be termed as a bank.The purpose of banking is to ensure transfer of money from surplus unit to deficit units. Bankis all countries work as the repository of money. The owners look for safety and amount ofinterest for their deposits with Banks. Entrepreneurs try to obtain money from the banks asworking capital and for long-term investment. These entrepreneurs welcome effective andforward-looking advice for investment. Banking sector thus owe a great to the deposit holderson the hand and the entrepreneurs on the other. They are expected to play the role of friend,
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