Chapter 1

BRIEF HISTORY
A banker is described as a person transacting the business of accepting for
the purpose of lending or investment of deposits of money from the public,
repayable on demand or otherwise and withdraw-able by cheque, draft order and
includes any post office savings bank.
On 14th August 1947, 487 branches of different banks were operating in
Pakistan. By 30th June, 1948, 292 branches winded up their business in Pakistan
and the remaining 105 branches restricted their banking operations to a minimum
level. The only bank, which shifted its head office from Bombay to Karachi, was
the Habib Bank Limited.
Muslim Commercial Bank with the assistance of Quaid-e-Azam
Mohammad Ali Jinnah, started operating in July 9, 1947 with an Authorized
capital of Rs. 3 crores. Indo-Pak subcontinent, the Bank moved to Dhaka from
where it commenced its business in August 1948. And in 1956 the bank shifted its
head office to Karachi, where it is still working.
In 1948 Ms. Ispahanani and Mr. Abdul Hameed Adamjee purchased the
bank. At that time the bank showed a historical performance and profit.

NATIONALIZATION:
In 1974 the government felt a harsh need of nationalization of banks and
financial institution and the nationalization act was introduced. Under this act,
Muslim Commercial Bank was the first bank, which was nationalized. In the same
year Premier Bank was merged with MCB and it started work as a government
bank. This nationalization effected the bank badly.

PRIVATIZATION:
All the financial institutions and banks did not show good performance
after nationalization, and again the government felt a big ned to privatize these
banks. In 1991 the bank was privatized again. The government of Pakistan
transferred the management of tbe bank to National group, one of the leading
groups in the field of business. They were sold 25% shares. Now this group has
50% of the total shares. Government has 25% shares and general public also has
the same shares.

OBJECTIVES OF MCB:
Every organization is established to accomplish certain objectives. The
main objectives of the MCB include:

Improved Customer Service.

Quick Disposal of Credit Claims.
Efficient operation of the officers in co-operative environment.
Communication with other branches.
Controlling officers.

Introducing new products in order to attract more customers, such as

profit plan schemes, Khushali Bachat Accounts etc.
Increasing in foreign exchange reserve.
The Bank has played a vital role in mobilizing the public foreign exchange
reserves. Deposits mix of the bank depicts that, round about 60% of the present
volume have been mustered in the form of foreign currency accounts.

Commual Services
For the purpose of building high image in the community, the subject bank
has conributed two crore rupees during 1997 for plantation in the country. It is
providing free services to the charitable organization such as Edhi Trust, Shaukat
Khanum Memorial Trust. Similarly it also sponsors recreational activities such as
sports and refreshment. Programs have been sponsored during the recent past.
Providing Employment
unemployment is our national problem. The bank is playing a very useful
role to tackle it. MCB have a vast network of 1300 branches, with a staff of round
about 16,000 people working in it.

STRATEGIES TO ACHIEVE OBJECTIVES OF THE BANK

Muslim Commercial Bank Limited is a business entity and all its activities
are directed towards the prime objectives, which is profit. But the only difference
is that it sells the intangible products i.e. the services.
Now in order to achieve this important goal, the management has evolved
multidimentional policies. Especially after privatization of the bank on April
1991, a very enlightened management took the charge of Muslim Commercial
Bank Limited. Mr. Hussain Lawai the renowned and experienced banker assumed
the office of the Chief Executive i.e. the President of the MCB.
Major aspects concentrating are the following:

Effective use of electronic media

For the first time in the banking history of Pakistan a very effective
campain was launched on TV, Radio, reputed newspapers, journals, bills etc.
MCB changed its monogram, after a long trial of selection. Impressive solgans
were developed , very modern and attractive ads were presented to the general
public. Above all, the services of electronic media were hired in the prime time
and the messages were repeated over and over again. As that was a take off point
for MCB, therefore, very heavy expenditures were incurred, on development and
reptition of some very useful and attractive advertisements.

Enlighted Personnel Policies

In addition to very effective promotional campaign, MCB Human
Resource Division played a very constructive role in formulating very enlightened
human resource development programs. Mainly the whole program was based on
the following few points.

A) To hire the highly qualified as well as experienced staff from the open
market. Special preference was given to MBA`s and then to the experienced staff
of BCCI. Ultimately the 1st batch of MBA`s was hired in july 1992. The
management was aware of the fact that if you offer peanuts, you will find only
monkeys, therefore they offered attractive packages and thus were able to succeed
in skimming cream of the market.

B) A comprehensive six months theoretical program was devised at MCB

Staff Colleges, located at Karachi and Lahore for providing some reasonable
knowledge to the newly hired qualified staff. The stated theoretical training
program was supplemented by the practical branch training. Not only the new
staff but also the old staff was provided the essential training to cope with tbe
forthcoming challenges.

Compatible Package
The MCB management is aware of the fact only a satisfied worker can
provide the required level of sevices to the customers. Therefore after
privatization the staff salaries have been revised three times. The first time was
35% , the second was 32%, and the last one was 20%. Now on the aggregate the
MCB worker is getting the most competitive salary and benefit package.

Exellent Working Environment

In order to cater for all segments of our society, a new concept of
corporate banking was introduced for the first time in our country in 1992. Some
model branches were prepared in all big cities like Karachi, Lahore, Islamabad
etc. The qualified staff was deputed in these branches in addition to very
impressive decoration of the premises.

Modernization of Branches
 In order to attract the custmer, huge expenditures were incurred on
computerization of branches. In addition to telex and fax, the SWIFT system has
been installed at particular vranches for the sake of fast and less expensive
communication throughout the SWIFT membor countries. This is the sole
privilege of MCB in our country. Further to it Auto teller Machines (ATM) have
been installed at specific branches to ease the payment procedure for the
customers.

Launching of New Products

MCB research development has also excelled th eother competitors by
offering some very special products, exactly in line with the needs of different
classes of customers. Example is Rupee Traveler`s Cheques (RTC), Capital
growth Certificate, PLS 365 Accounts, Mahana Khushali Scheme etc.

Decentralization of Authority
In order to avoid the unnecessary delay in decision making, MCB has
adopted the policy of decentralization , where the General Manager, the Regional
Manager and the Branch Manager have been empowered by the Head Office to
make some important decision within the limit of their respective powers. This
way a lot of problems faced by MCB customers are solved at the grass root level
without referring it to the Head Office Karachi. Ultimately customers problems
are solved well in time, which has resulted in tremendous growth of the bank in
all aspects.

Effective Reward Punishment Policy

For the sake of increasing efficiency of the staff a very useful policy, of
rewarding the extra-ordinary performance and punishment for the deliberate
wrongdoing has been adopted by the present management. For example good staff
members are awarded with early promotion and special increments. At the same
time many staff members have been sacked in the recent past for committing
blunders or minor frauds. In short on account of very positive approach due
regards for the clients and timely attention towards the aforesaid policy aspect
Muslim Commercial Bank Limited have become the market leader with regard to
growth in profit, business and deposits. For example the deposits of the bank have
raised from 21 billion rupees in 1991 to Rs. 137 billion in 1997. Similar is the
ratio of business of profit of this August institution.

Branch Network
MCB is a huge organization, having branch nerwork throughout the
country. From management point of view the branches are grouped under regions,
and regions under circles.
22 circles are working under which there was 50 regions and 1326
branches through out the country and five branches are working abroad. Province
wise position of circles, regions and branches is as under.

Province Circles Regions Branches

Baluchistan 1 2 40
NWFP&AJ 3 9 251
K
Punjab 11 27 752
Sindh 7 12 283
Total 22 50 1326
Divisions of MCB

Agriculture Division
General Services Division
Special Assets Management Group
Business Development and Marketing Division
HRD Division
RTC and Master Card Division
Central Accounts Division
Industrial Credit Division
O & M Division
Corporate Affairs Division
Information Management
Legal Affairs Division
Credit Management Division
Inspection and Audit Division
Islamization Division
Finance and Treasury Division
Investment Banking Group
International Division
Training Division
Foreign Trade and Exchange Operation Division

ORGANIZATIONAL STRUCTURE
MCB is a very large and complicated organization having many divisions,
branches, and administrative offices all over the country and outside the country.
So it has no specific organizational structure, we can make so many structures on
different basis which are given below;
On the basis of Geographical Locations.
On the basis of Executives.
Span of Control

MCB is a very large organization with many branches in defferent areas of

the country and different divisions under the Head Office. So it is managed
through broad span of control with decentralization of authority. All the
Executives, including Senior Executive Vice Presidents (SEVP`s), General
Managers (GM`s), Regional Managers (RM`s), Vice Presidents (VP`s), and
Branch Managers are delegated with a certain amounts of authority.
But still many decisions of small importance, are made by Top
Management for control purposes. So there is a mix of centralized and
decentralized authority in this respect.

Chapter 2
GENERAL BANKING

ACCEPTANCE OF DEPOSITS
There are two basic principles of banking, first deposits and secondly
advances. Deposits play a pivotal role in commercial banking. In deposits it could
be initiated by the cash pay in slip when a customer enter into the bank he will fill
up the pay in slip for which he must have an account to enter into a valid contract,
which is called customer banker relationship. This contract could be launched of
on opening jof account.

OPENING OF AN ACCOUNT:-
The banking history is reputed with various instances of fraud due to
incorrect opening of account. Therefore, the branch manager and other officer had
to taken care and exercised required precautions at the time of opening of account.
At the time of opening of account, officers and manager should tactfully obtain as
much information as possible about the character and integrity of hte person. His /
her correct name, address and occupation. This infact will be the only opportunity
when they will be able to talk to prospective customer in the friendlyand frank
atmosphere. The customer can be classified as follows:-

individuals.
Partnership firms.
Joint stock companies.
Agents.
Clubs.
Societies and associations.
Executives and administrators.
Trusts local bodies.

For opening of account, the person should meet the following

requirements.
He / She should be a major one.
He / She should have attained the age of 18 and having allotted NIC No.
He / She should be a sane person i.e. He / She should understand the terms and
conditions of the contract.
He / She must not be a bankrupt and his / her liabilities should not exceed than
that of the assets declared by him / her.

CLASSIFICATION OF DEPOSITS:-
Deposits can be classified in the following way:-

Current Deposits.
PLS Deposits.

1. CURRENT DEPOSITS:-
These are those kind of deposits which are not remunerative in nature i.e.
no profit is given on these deposits.
There is no limit on withdrawal within th ebanking hours customer can
present number of cheques. Every type of custumer meeting the conditions os
account opening can open these accounts.

2. PLS DEPOSITS:- (profit and loss sharing)

These are called remunerative deposits i.e. profit paying, to these account
holder profit is paid. We can classify these types of accounts in the following
categories.

Saving bank account.

Short Notice term deposits 7 days.
Short Notice term deposits 30 days.
Term deposits Reciepts 3 months.
Term deposits Reciepts 6 months.
Term deposits Reciepts 1-5 years.
 On saving bank deposits the bank pays, periodical profit is paid on the
minimum closing balance.

SCHEMES OFFERED BY MCB

To inculcate the habit of saving among the people and public, MCB has
introduced remunerative schemes, which include;

1. Khushali Bachat Account:-

As the name indicates, this scheme has been started to encourage savings.

The main features of this account are;

Introduced for the first time in Pakistan.
8 % rate of return is given per annum.
Return are calculated on daily product basis and paid half yearly.
It provides the facility of helping the account holders to pay utility bills
(electricity, telephone and gas) through their accoutn, without making any queues
and delay.

2. Mahana Khushali Scheme:-

MCB has introduced this scheme to encourage investment by paying profit
month after month.
The salient features of this scheme are:-
Khushali certificate can be purchased by individuals (singly or jointly), by the
proprietorship / partnership concerns or companies etc. in their name.
Minimum amount of investmet shall be 10,000 and maximum amount can be
1,000,000.
The Khushali certificate will be of five years maturity.
14. 70 % per annum profit is paid monthly. It is reviewed in 6 months.
AMOUNTS IN Rs. MONTHLY PROFIT IN Rs.

1,000,000 1,225,000
5,00,000 6,12,500
1,00,000 1,22,500
50,000 61,250
25,000 306,25
10,000 122.50

On profit by MCB branches at the time of paying the profit on monthly

basis.

Payment of profit is done by either crossed pay order or any other way of transfer
of money. In case the account holder does not receive the profit, it will be credited
to his account and for the next month the profit will be paid on new balance.
In case the premature encasement is desired PLS, profit saving rate will be
applied as the bank announces for a particular period. If the certificate is held for
less than 90 days, no profit will be given.

CAPITAL GROWTH SCHEME:-

This scheme is based on half yearly profit, but is not paid to the customer
or credited to his / her account.
The amount of profit so provided on six monthly intervals is treated as
being reinvested, to attract profit at the applicable rate like the principal amount of
deposit. In other words, under this scheme, the half-yearly profit is provided on a
cumulative basis, and retains with the bank, until final payment on maternity or
open completion of the period set out for Haj Mobarak Account.
CAPITAL GROWTH CERTIFICATE:-
At the time of issuing a capital growth certificate, the branch will make an
entry in thestandard book SB 133, in the manner as required for an entry of term
deposit in SB 9, in chronological order. Each page of this book has a provision of
bearing one year`s record of the deposit receipts, including the provision of
declared profit, twice a year, on a six mnthly basis. The first six column of this
book relate to the particulars of deposit, while column no-7 refers to the amount;
in addition, upto date profit provided to each deposit receipt. Column nos-9 and
12 are meant for calcualtion of six monthly profit and these columns will only be
used when the rate of profit is declared.
The profit so calculated would be added to the previous cumulative
amount of each deposit receipt and toatal thereof will be noted in the next column
of cumulative amount. The profit will not be desbursed or paid to the customer /
depositor as it will be treated as being reinvested for attracting profit on the entire
accumulated amount of each deposit certificate.

PREMATURE WITHDRAWAL: -
The CGC are originally issued for a total period of five years and,
maturity, the face value amount becomes approximately double one premature
withdrawal, profit is allowed at the simple rate, applicable for the period the
deposit has remained with the Bank. For this purpose, the branch is advised to
keep a schedule containing the monthly-declared rates of all the previous periods,
duly updated, so that the calculation of profit in such cases can easily be made.
The actual amount calculated along with the depositor, by debiting the profit
payable account (CGC) and capital growth certificate account, respectively. The
payment entry, recovery of Zakat and withholding tax, wherever applicable, will
also be noted in SB-133 simultaneously, for updating the deposit record. Amount
of Zakat and tax will as usual, be credited to the respective account.
The profit on each deposit certificate is regularly provided in six monthly
basis and up to date of recording of provision is available in SB-133 against every
individual deposit certificate. As such upon premature withdrawals the branch
shall pay the actual calculated profit for the period of the deposit, as per the rules
indicated above, and will reserve the excess amount of provision, if any.

ZAKAT AND TAX CALCULATION

In capital growth certificates the profits are only paid at the time of
encashment, on either maturity of before maturity. As such, the Zakat, wherever
applicable, is recovered on the total encashment value of the Deposit certeficate
(i.e. the face value plus accumulated profit there upon) at 2.5%. the withholding
tax is however; recovered only in the amount of accumulated profit at the
applicable rate.

OVERDUE CAPITAL GROWTH CERTEFICATES

The CGC already overdue for payment but which remain outstanding will
not attract profit after maturity. In order to keep these deposits separate from other
regular deposits, branch will carry for the details of such deposits on separate
folios to be resereved for overdue deposits im SB-133, and the oricnal entry of the
deposit, in the folio of the regular deposits, will be closed. Inorder to sgregate the
figure of overdue deposits in SB-9A. a separate folio will also be reserved, and
the cumulative value as appearing in the SB-133 against each overdue CGC will
be transffered from regular record to this overdue section og SB-9-A, after
transffering to overdue, no further deosits on these deposits, except fot their
intervening period (the period between the last half year end, and the maturety
date of the deposit), will be applied on declaration of profit rate for the period, in
which the intervening period is covered.
 In case the deposit is withdrawn before the declaration of the profit the
share of the profit for intervening period will be added at the prescribed rate and
paid to the depositor. If, however, the deposit is withdrawn after the declaration of
the profit, the actual amount on the declared rate will be calculated for this
remaining period and paid to the depositor, in the prescribed manner. The entries
for such amount of the profit will oinly be passed at the time of deposit or
declaration of profit rate, which ever is earlier.

REINVESTMENT ON MATURITY
On maturity of a capital growth certificate, the customer may desire to
reinvest the total amount including profit, for a like period of 5 years. In such
cases the branch will treat the reinvested deposit in CGC, as a fresh deposit and
payment of existing CGC will be made in a manner set out above. However if the
customer visits the bank after three months or more from the date of maturity to
redeposit the amount, the branch will calculate the profit for the overdue period
and encashment will be followed. A new CGC will be issued for the encahment
proceeds of the existing one and the balance amount, if any, will be paid to the
customer.

HAJJ MUBARAK SAVING ACCOUNTS

Hajj mubarak saving accounts are the non-checking accounts in which a
monthly installment is deposited by the customer for pilling up an amount
including profit, nearly equivalent to the cost of performing Hajj, within the
specified period of two or three years at the option of the depositor. The monthly
installment for such deposit has been fixed by estimating the period and total
amount required to be accumulated in the account until the time submitting hajj
application by the depositor.
Hajj Mubbarak Saving Deposit Scheme, is slightly different from capital
growth certificates as in CGC the amount of deposit certificate remains constant,
whereas HMS, the balance fluctuates regularly, as a result of monthly deposits in
each account. Considering this factor, no special book is maintained for these
accounts.

OPENING OF HMS ACCOUNT

After completion of the application form and related formalities of a HMS
account, the particulars of the account will be noted in the left side of folio of the
ledger and the credit entry of initial deposit will be passed in the Account. On the
top of the page, a note should be given to signify the duration of the Account and
monthly instalments to be deposited by the customer. The right hand folio of the
ledger should be reserved for recording the profit on the HMS account, in no case
should this folio be used for opening of new account. On the top of this page in
the space provided for the heading, the words “profit provision on HMS account”
should be written, to identify the folio for computing profit on the balances of
accounts.

DEFAULT IN INSTALLMENTS
In HMS account, the depositor is required to deposit in installments, the
amount equal to cost of performing hajj, for specified duration. In case of default
this period is extended up to th3 number of months that payment was defaulted.
For having a watch on regular payments by the customer, the branch will check
the ledger on the last day of each month to note the names and acconts of the
defaulters. If the customer does not pay the installments for three continous
months a reminder in writing on the given address should be sent to get the
account regularized.

WITHDRAWL FORM THE SCHEME

A customer may request to withdraw the funds from his HMS account
before completing the period of deposit or to discontinue to participate in the
scheme. In cases, the brach will apply profit on the deposti in declared for PLS
SB accounts, during the period of deposit for each term of six months. The
calculation of profit will be made on monthly product basis and paid along with
the orignal deposit, through cash detail voucher after completing the relevant
formalities for closure of account as per procedure. The amount of Zakat and
withholding tax should be deducted from the amount of profit.
PAYMENT ON COMPLETION OF PERIOD
By the time of com-letion of the stipilated duration of an account, the total
amount in HMS account would have accumulated to a sum nearly equivalent to
the passage cost for performing Hajj by the account holder or his nominee in case
of his death. At the time of calling applications fron the intending Hajj pilgrims,
the branch will rewiew the ledger of HMS account and note the names of account
holders who have already completed the total number of installments in the
account. The branch requests them to to call on the bank to complete the
application and other formalities of hajj passage and also sents an application
form at their address. When the customer visits the branch, the entire amount in
the customers account is used towards the recovery of Hajj dues against his
application, and his account is closed. Any shortfall in the amount will be paid by
the customer.

KHANUM BACHAT ACCOUNT SCHEME

INTRODUCTION

Under Khanum Bachat Account Scheme, a monthly sum of Rs. 1000 will
have to be deposited by a customer regularly for ten years, on or before the sixth
day of each month and at maturity, a lump sum payment including profit will be
nade to the Account holder. According to the average prevailing rate of profit, it is
expected that the total amount would be arround Rs. 257,000 subject to deduction
of Zakat and with holding tax etc. wherever applicable at the time of
maturity/payment.
Expected rate pof profit is 14.77% per annum, exactly the same rate
normally declared for 5 years term deposit, subject to change according to the
market situation.

OPENING OF THE ACCOUNT:

 Khanum Bachat Account scheme is slightly diffenet form CGC and other
term deposits as in all these schemes the ammount of deposit remains constant,
whereas in KBS, the balance fluctuating regularly because of monthly deposit in
each account. Considering this factor, no spaecial book has been devised for
maintaining these accounts.
After completion of the application form and related formalities of a
Khanum Bachat Account, the particulars of the account will be noted on the
ledger and the credit entry of initial deposit will be passed in the Account. On top
of this page, in the space provided for heading the word profit provision on KHB
should be written.

WITHDRAWAL FROM THE SCHEME:

A customer may request to with draw the fund form her/his KHB Account
before completing the period of deposit or discontinue to participate in the
scheme. In such cases, the branh will apply profit on the deposit in KHB Acoount
at a simple rate of profit declared for PLS SB Account, during the period of
deposits for each term of six month. The calculation of profit will be made on
monthly product basis as per SB rules, and paid with the original deposit through
cash debit voucher after completing the relevant formalities for closure of account
as per procedure.

DEDUCTION OF TAXES AN ZAKAT FROM PROFITS: -

At the time of payment of deposits amount including profits, either on
maturity or before maturity, the amount of withholding Tax and Zakat wherever
applicable, will be deducted in the prescribed manner.

CASH DEPARTMENT

Cash department performs the following functions”

receipts
payments
RECEIPTS
The money will either come in or go out of the bank. Its record should be kept.
Cash department performs all these functions. The deposits of all customers of the
bank are controlled by means of ledger account. Every customer has his own
ledger account and separate ledger cards.

PAYMENTS
Payments made by cash department can be easily explained under the following
headings.

CHECKS
Check is defined as a written order of a depositor upon a bank to pay to
prder of a designated party of to the bearer, a specified sum of money on demand.

KINDS OF CHECKS

BEARER CHECK
It is cashable at counter o0f the bank, this check can also be collected through
clearing.

ORDER CHECK
It is also cashable at the counter but its holder must satisfy the banker that he is
the proper man to collect the payment of the check and he has to show his identity
through an account holder of the bank. It can also be collected through clearing.

CROSS CHECK
It is not cashable at the counter; it can only be credit to the payees account. If
there are persons having accounts at the same bank, one of the accountholders
issues a cross check in favor of the other, this check will be credited to the
account of the person to whom check was issued and debited from the account of
the person who issues the check.

ISSUING A CHECKBOOK
One of the functons of account opening department is to issue the check
books. When any customer applies for a new checkbook he has to present the
checkbook issue requisition slip with his two signatures to the officer concerned,
the officer will varify the signature and on the varification of signature, the
checkbook is issued.
The saving account (PLS) checkbook consists of 10 pages while the
current account consists if 20, 50, of 100 pages. An exise duty of Rs. 2 per leaf is
charged.

MCB RUPEES TRAVELERS CHECK (RTC)

RTCs are used only in Pakistan. These are as good as cash because with RTC one
has the power to purchase and a feeling of security as well.
RTCs are acceptable at major shops, travel agents, hotels, business establishments
and all MCB branches. One does not have to be a MCB account holder for
purchasing RTCs.
RTCs are a safe and convinient way to conduct every day business. The person
goes to MCB branch and asks for the issuance of RTC. Then he deposits the
money on cash counter and provides the receipt to RTC officer. He issues RTC in
his name stamp. The buyer mnust sign the checks becauwse if blank checks are
lost , he will lose protection.
RTCs are in two different denominations i.e. Rs. 10,000 and Rs. 50,000 per leaf.
One can purchase RTC of Rs.50,000 at moximum at one time from one branch.
RTC should be counter signed on the space provided in check only at the time of
encashment and in the presence of the officer of ecashing branch.
About 400 branches of MCB are authorized to sell RTC. These are controlled by
RTC division in head office. When one purchases RTC from any branch or when
he get it encashed, it is debited to head office on the same day.
RTC is a very profitable scheme for MCB. The money depositd by the money
deposited by customer for MCB RTC is at HQ disposal as long as the RTC is not
encashed. The more is the period between issuance and ebcashment, the more will
be the profit for MCB.
1% commision is charged on RTC. In case the RTC is stolen or lost, one must
report to the nearest branch of MCB and report to the nearest police station.

MAIL TRANSFER
When a customer requests the bank to transfer his money from this bank to any
other bank or the branch of some other bank in the city, outside the city or outside
the country, the first thing he had to do is to fill an application form. In which he
states that I want to transfer the money from this bank to that bank by mail. If the
customer is the account holder of the bank, it will debit his account and the
concerned officer will fill the six different forms to make the transfer complete.
The five forms used for this purpose are listed below:
Branch mail transfer form.
Issuing branch register copy.
Debit voucher.
Beneficiary’s advice
Advice to customer.
If the customer is not the account holder of this bank, then firstly, he has to
deposit the money and then above procedure will adopted to transfer his money.

DEMAND DRAFT:
Demand draft is another way of transfer of money from one bank to
another bank. Unlike pay order, a form is required to be filled for the issuance of
the demand draft in which necessary particulars about the beneficiary and the
sender are given. The sender deposits the amount of DD plus commission and
other charges on the bank counter, from where he is given a receipt and in
accordance with this receipt he is issues a demand draft.
After issuing the DD, the remmittance department sends credit advice to
the branch to which the DD is sent, when the responsible branch receives the DD
from the originating branch, they credit it, and when the DD comes for clearing
they debit the account.
MCB deals with two types of DDs.

OPEN DD:
Open DD is one which is payable directly at the counter and there is no need of
crediting it to the account.

CROSS DD:
Cross SS is one which is paid through account. The amount of the DD is credited
to the favorng account and then he can transact in ordinary way through check.
DD charges in MCB vary proportionately with the amount of DD. In MCB
different charges of DD in Pak Rupeees are as follows:
Up to 10,000 is 15%
From 10,000 to 100,000 is 11%
From 100,000 to 500,000 is 0.5%
In adition to above charges a fixed excise duty of Rs. 2 per draft is charged.

TELEGRAPHIC TRANSFER (TT).

With the changing requiremtns of customers, MCB has introduced a faster
mode of transfer of money. Like DD the sender is required to apply through a
form in which he will give all the necessary details about the sender and the
beneficiary. The sender deposits the amount of DD plus commission and other
charges on the bank counter, from where he is given a receipt , the remmittance
officials send a telegram to the concerned branch and they make payment to the
customer. Vouchers are sent by ordinary mail to keep the record. On TT, no
excise duty is charged only commission and telegram charges are charged.

Chapter 3
INTRODUCTION TO ADVANCES

Credit extension is the most important activity for all financial institutions,
because it is the main source of earning. However, at the same time, it is a very
dangerous task because of the risks. Now it is quite clear that risks cannot be
eliminated but can certainly be minimized largely with certain techniques.
In order to reap the full advantages of credit and to make good decisions,
the following aspects must be given due consideration.

A. QUALITIES OF GOOD BORROWERS:-

A good borrower is also a good depositor, therefore, in order to conduct

our test we must analyze the 7 Cs qualities before extending credit, which are as
follows.

1. Character of the borrower:-

An individual has two types of character.

A. Moral character:-
i.e. we must certify whether the borrower is morally sound or not. For
example, we must know whether he is a drinker, or is he a liar etc. A good
borrower must have sound moral character.

B. Commercial Character:-
Here we look upon his dealings with the financial institutions of a business
community. We guess the character of individual from his family background, his
social community and from open market.
In case of old customers, the record of accomplishment will guide us in
the matter. Thus we may add that the sobriety, the promptness of payment, good
habits and personality. The ability and willingness to carry a project from
beginning to the end and reputation of the people, with whom he deals, will go to
make the character of a customer.

2. Capacity:-
It is the ability to meet obligations when due, secondly we must see
whether, the individual or business entity is having the borrowing capacity i.e. the
individual is not a minor and in case of Limited Companies, the memorandum and
articles of association allows the directors to borrows.
Further to it, technical capacity should also be assessed.

3. Capital:-
Capital is necessary because it is the main shock-absorbing portion of a
business, secondly it compels the businessman to make all out efforts for success
of the business. The capital should be adequate i.e. neither it should be more than
his requirement to avoid the wastage of it, nor it should be less, otherwise he will
not be able to run the business on full scale. In case of under utilized capacity,
there will be less profit and consequently low repayment ability.

4. Condition:-
Both economic and political conditions of the country must be heeded
upon. In case of bad economic condition of the industry, such as textile industry,
financing will be very risky and similar is the case of political conditions. In case
of adverse economic and political condition, the chances of recovery will be
remote.

5. Collateral:-
Collateral security is essential because in the case of failure of our above-
cited techniques, due to uncertain conditions, the bank will resort to the collateral
securities, held against for realization of their outstanding.
6. Country Risk:-
If there is political uncertainity, a war has broken in the country then
realization of loans will be difficult.

7. Currency Risk:-
It should be wise to consider fluctuation of currency i.e. whether the
subject currency will appreciate or depreciate.

B. QUALITIES OF GOOD LENDING

An advance may be good or bad. However, a good lending must have the
following qualities.

Safety:-
safe lending is most essential. In case we make the decision purely on
merit basis, then our lending will possess high degree of safety and the risks will
be minimized to the least possible level.

Liquidity:-
Shorter the period of advance more liquid it will be consequently the risk
of default will be minimum. Thus, working cqpital finances are more liquid then
term laons.

Dispersal:-
It will be highly adviseable to diversify your risk by making different
types of industries and clients instead of one kind of customer. In such case, your
risk will be spread over several sectors and in case of failure of one sector, the
bank will not be faced with disaster.

Suitability:-
 It is very essential to assess the genuine requirements of the borrower
and then make sample advance to meet his requirements properly. If smaller
advance is allowed, then the client will not be in a position to utilize his full
capacity. Resultantly, the profit will be low and repayment capacities will be
weak. On the other hand, if bigger advance is allowed, then first the borrower will
make its unprofitable uses and ultimately the repayment will be beyond his reach.

BANKS CREDIT POLICY

The privatization of the Bank has now added resposibility to MCB,
improving Banks portfolio of financing and provision of more efficient service to
the present as well as prospective customers.
MCB is therefore, required to discharge its responsibility effectively and
efficiently to bring itself at par or on even keel with the standard of international
Banks. For this purpose, it has to follow basic guidelines, while recommending /
approving present credit limit and marketing new prospective customer.

1. MARKETING STRATEGIES
The field staff is already actively engaged in deposit mobilization.
Similarly, a marketing strategy had to be evolved to identify business potentials in
their area of operation. MCB will as a matter of policy identify and encourage
clients having good market reputation and standing of at least five years in their
business, to have borrowing relationship with itself. MCB has also established
contacts with its old customers, who for one reason or the other does not bank
with it.
In case of existing customer, it maintains close relationship with them and
in no way should fail to cater for all their genuine financing requirements.
2. IDENTIFICATION OF VALUED CLIENTS
List of potential prospective customer is prepared. Periodical visits are
made to them and a diary maintained for follow up, as our basic job is to provide
service and credit to our constituents.
A regular visit to the market is also essential to maintain the flow of
information about the economic situation and the financial assessment of the
clients dealing with MCB. This will enable the field executives to keep
themselves abreast about the changing health of a particular financial sector,
ultimately strengthening assets portfolio.
Sometimes defaulters of bank are also accommodated perhaps through
oversight.
Repaying capacity of the borrowers and appeal of the securities offered
are not taken into consideration.
Facilities are allowed, which are much in excess of their requirements,
means and repaying capacity. It is, therefore enjoined that.

Track Record:-
A party having sound track record and maintaining unimpeachable record
of honesty / integrity and business reputation in the market should be always
welcomed for business relationship.

Purpose:-
Purpose of borrowing should be discussed with the borrowers and clearly
spelled out in the proposal. The purpose should not be for any speculative
activities, for hoarding, or for any illicit / unethical trade practices.

Marketability:-
Marketability of the securities offered shoud be looked into throughly i.e.
the securities so offered are easily disposed off in the market, under situations of
distress or of financing having become stuck up.
 Hypothcation:-
Loans / Finance against hypothecation of stocks and trust receipt should
be extended to the parties of good means and excellent reputation and collateral
should be kept under strict surveillance.

Defaulters:-
No credit facility should be extended to the borrowers, their associations,
allied concerns, member of the family who are in default with MCB or any other
bank, or have been allowed waivers or write-offs. N.O.C`S on multiple borrowing
should be obtained as per existing practice.

Business Commitment:-
While considering advance proposals, foreign exchange business
commiments should be kept in view in the ratio of 1:3 along with rate of return
i.e. yield on the business given. Head office will issue guidelines on charging of
mark-up from time to time, keeping in view credit market condition.

Margin:-
Proper margin should be maintained as per State Bank of Pakistan credit
restrictions. One should prescibe minimum margin on the facilities recommended.
3. CREDIT INVESTIGATION:-
A high degree of care and attention should be paid to credit investigation
and the choice of borrowers. The antecedents of borrowers, their credit
worthiness, means, standing and capability to manage the business are perhaps
not looked into as minutely as it should be in case of limited companies to whom
facilities are extended. Particulars of the charges on their assets are not found in
the records of the branch. The financial position of the companies is not discussed
nor analyzed in the relevant reports. We need not debate on the importance of
compiling of comprehensive credit reports on borrowers, which must contain.

Name and address of the customer (Partners and Directors).

Details of assets, such as stock-in-trade, stores & spares, trade debts investments /
deposits, land, building, machinary and capital work in progress (for expansion of
unit) with details of liabilities such as long term loans, directors loans, overdue
installments current maturity, short term borrowing and trade creditors to
ascertain net worth of a client / borrower.
As for the immovable properties of a concern / directors, the municipal / survey
number and address along with encumbrance should be obtained and evaluated
independently.
Details of their sister / allied concerns and associates including opinions of other
banks on them, also on their sister concerns are obtained. Reports on Limited
Companies should review their financial position based on their financial position
based on latest financial statements. It should contain particulars of charge on
their assets to ensure that the charges already registered by MCB. For this
purpose, we should engage services of a reliable advocate to obtain a detailed
charge report from the Registrar, joint stock companies. Report on individual
directors must also be included, giving necessary particulars as per data is given
above credit reports should be revised and reviewed at least once a year or at the
time of renewal.
4. GRANT OF FINANCES
Apart from the usual facility of pledge, accommodation against
hypothecation of stock and trust receipt is extended to parties, which do not
commensurate with their own investment and experience.

Industrial units:-
Finances to industrial concerns should be as far as possible on pledge basis
with suitable allocations for hypothecation of stocks in process after due
assessment of the requirements in this respect. Finances against second charges
should not be allowed. First charge or paripassu charge should be obtained as a
matter of policy.

General Services:-
Effort should be made to market all types of banking services such as
Remittances, Sale of Travellers Cheques etc. to borrowers from MCB.

Professionals:-
Financial advances to contractors, service companies like Chartered
Accountants, Cost Accounts, Consultants etc., should not be allowed.

Large finances:-
In case of request, for finances of more than Rs. 1,000 Million by a
partnership concern, the partners should be asked to form a Private Limited
Company for due consideration.
5. DOCUMENTATION:-
It has been observed that facilities are allowed without completion of
necessary documentation or with defective ones. Discrepancies in documents are
allowed to remain uncorrected indefinitely.
Manager should certify that all documentation formalities are complete in
all respect disbursement of finances. The Manager should certify this at the time
of the renewal / change of facilities to the customers.

6. CONDUCT OF ACCOUNT:-
Proper storage of the stocks, their safety and adequate watch and ward
should be ensured. Inspection of godowns and stock should be carried out
periodically. Turnover of the stocks and fluctuations in the accounts should be
watched regularly to avoid stagnancy in finances.
You should arrange to conduct inspection of stocks hypothecated
on monthly basis, where band does not hold any collateral security.

7. MONITORING OF FINANCES:-
We ensure proper administration of finances sanctioned and disbursed.
One should follow the following steps for proper operations of credit portfolio of
our bank:-
Repayment programs should be adhered to strictly and non-compliance is taken
care of with remedial steps.
Seasonal advances should be adjusted in time.
Finance against trust receipt must be paid on due dates.
Inspection of stocks should be carried out periodically and deficiency /
discrepency, if found should be rectified promptly.
Movement of stock should be carefully watched to ensure healthy operations.
Accumulation of slow moving stocks should be avoided and their quick disposal
ensured.
8. NON-FUND BASED FACILITIES:-
Due to lack of monitoring and control, non-fund-based facilities such as
guarantees, bind bonds and letters of credit end up in forced loan and finances. It
is therefore, advised that:-
Adequate cash margin and securities should be insisted upon for guarantees and
letter of credit keeping in view S.B.P.S. margin restriction.
Where bank is forced to allow funded facilities a proper program for realization of
imported goods be chalked out.
No guarantee is to be issued in favor of DFI`s (PICIC / IBP / ICP / NDFC) etc. or
to supply credit. If there is a proposal, it should be referred to Head Office for
consideration approval.

ADVANCES / CREDIT
The various types of finance accommodation provided by the bank fall
into two broad categorize namely:-

FUND FACILITIES:-
In the form of Running Finance, Demand Finance, Cash Finance, Payment
against Document Finance against imported Merchandise, Finance against Trust
Receipt, Export Finance, Foreign Bills purchased and after such facilities where
funds are provided to customers upon sanction of the respective credit line.
NON-FUNDED FACILITIES:-
Also known as Contingent Liabilities such as letter of credit, letter of
guarantees, bid bonds, performance bond etc.

(1) Finance:-
When a banker makes an advance in a lump-sum, the whole of which is
withdrawn and is supposed to be repaid generall, wholly at one time, it is called a
finace. The characteristics of the Finance are following.
Loan is for a single transaction, repayable either in monthly or annual
installment or in lump sum, the payment period is fixed say one year, two years
etc. Sucurity is required for availing of this opportunity sanction either by Head
Office or by branch is necessary.
The advance is made to facilitate the part either from some fixed
investment or to boost up the working capital.

(2)Running Finance:-
When a customer requires temporary accommodation, he may be allowed
to overdraw, his current account, usually against collateral / securities. From the
customers of view this arrangement like the case credit is advantageous as he is
required to pay interest on the amount actually used by him. The essential
difference, between cash finance and running finance is that, the latter is supposed
to be a form of bank credit to be made use of occasionally. Both finances are used
at the time of need.
The difference is only with regard to security i.e. C.F. is allowed only
against pledge of stock.
The charge created is within 21 days of disbursement of war to put public LTD
Co. with registrar joint stock Company. When finance is allowed to a Private
Limited Company. It is on the fixed assets.
 There are three types of charges.

First Charge:-
Always a better charge holder. In case of liquidation, he / she
receives first.

Second Charge:-
In this case the first charge holder receives first and the second
charge holder receives the left over. Which always does not cover the entire loan.
Second charge is not better.

Paripasu Charge:-
In this case, two banks have a common charge on a company and
in case of liquidation, both the banks receive the amounts in proportion to their
investments of the amount.

CONDITIONS FOR LOANS

A company applying for loan from five lacs up to 20 lacs will definitely
provide a balance sheet signed by the borrower.
If the loan is from two million upto ten million, balance sheet is to be
countersigned from Chartered Accountant, above 10 million audited balance sheet
will be essential along with auditor`s report.
Running finance facility to be adjusted once in three months or 90 days
per day. Normally for new applicants it is 61 Paisas per 1000 per day. Insurance
of stock and property is necessary. Now the banks are free to quote their own rate
of mark-up. Therefore, rates may very from bank to bank.
TYPES OF CHARGE FORMS:-
a. IB-6
(Interest free banking or Islamic banking)
This is that form of charge in which there is agreement between the
bank and the client.

b. IB-8
Application for letter of credit.

c. IB-12
This is for the purpose of promissory note.

d. IB-25 (a)
Hypothecation of stock.

e. IB-26
Pledge of stock

f. IB-27
Trust Receipts

g. IB-28
Lieu mark on equitable securities which are in the form of
certificates.

h. IB-29
Guarantee form

e. IB-30
This is a counter guarantee specimen
TYPES OF SECURITIES REQUIRED FOR RUNNING FINANCE:-
Two requirements for taking laon in Running Finance.
a. Hypothecation of stock.
b. Mortgages: Lieu mark on F.C. or Pak Rupees deposits.

a. Hypothecation of Stock.
This is weak type of security because control of stock is with the party.
Stocks to be duly insured against fire, burglary, etc.
Stock report to be submitted by the party on fortnightly / monthly basis.
Delivery order not required because the goods are under the control of party, but
frequent stock verification is made by the bank.
No name plate is required in case of hypothecation of goods.

b. Mortgages.
It is transfer of interest in the property to the bank. Mainly there are two
types of mortgages.
1. Equitable Mortgage.
2. Registered Mortgage.
1. Equitable Mortgage.
In this type of mortgage, a person comes with the original title deeds of
the property along with fresh NEC (Non Encumbrance Certificate). NEC ensures
that property has not been mortgaged. For this, the bank takes legal opinion from
its legal advisor. In case of constructed property, we take information from PDA
(Peshawar Development Authority). This information mainly includes e.g.
approved map from PDA.

Valuation certificate.
It is taken from the Architect who is approved by the bank management.
His job is to evaluate the mortgaged property.
For the purpose of equitable mortgage of property following documents
are obtained. A memorandum of deposits of title deeds, which is on charge form
of
IB-24.

Irrevocable General Power of Attorney.

It has to be registered with the sub-registrar of property.

Agreement to create Registered Mortgage.

2. REGISTERED MORTGAGE / LEGAL MORTGAGE.

To some extend, it is same as equitable mortgage. But there is defference
in the following factors.
a. Cost of mortgage is increased. A full mortgage deed is registered. The
stamp duty is paid at certain rates, in NWFP; it is 3 % of the amount of mortgage.
Thereafter 1 % mortgage registration fee is also paid to the sub-registrar
properties and then the mortgage is registered with him. Therefore, it case of
registered mortgage, some extra expenses are incurred on it, but it is safer than the
equitable mortgage.
3. Cash Financing.
A cash finance is an arrangement by which a banker allows his customer
to borrow money upto certain limit against either a bond of credit by one or more
securities or certain other securities. This is the most favorite mode of borrowing
by large commercial and industrial concerns in Pakistan, on account of the
advantage that a customer need not borrow at once, the whole of the amount, he is
likely to require, but can draw such amounts as and when required. Its limit is for
one year. Each entry must be adjusted from sixty days to six months.

4. Demand Finance.
In this type of finance, the amount is given at once to the customer. In this
type, different kinds of security can be taken. Repayment of loan can be of either
to two types.

A. LUMP SUM.
In this type, borrower has to pay the entire amount after expiry date with
mark up of agreed rate.

b. INSTALLMENT REPAYMENT.
In this type the borrower has to repay the entire amount in installments,
that can be monthly, quarterly or yearly. It depends upon the agreement.
 PLEDGE OF SECURITIES.
1. Stock under direct controm of the bank.
2. Stocks to be duly insured against fire and burglary, etc.
3. Stock report to prepared by the party, bank on monthly basis duly
incorporated delivery of stocks if any during
the month.
4. Delivery of goods is made against cash payment and is supported
by delivery order.
5. Stacking of stocks is made in the godown and bank name plate is
displayed out side the godown.

5. FINANCE AGAINST IMPORTED MERCHANDISE (FIM).

This is normally allowed to importers. Charge form in this case is IB-27.
FIM is short-term facility extended by the opening, to such importers who are
unable to retire their documents due to lack of funds against letter of credit.
Therefore, when the importer does not have sufficient funds to get his
consignment released, then he arranges with the bank. The bank releases his
consignment and keeps it in the bank godown as a pledge. The party deposits
money and gets the goods. His FIM account should be adjusted within three
months as matter of rule, but the bank does not impose any penalty before six
months have lapsed. After this period, party pays to bank 1 % annual interest. It
should be kept in view that FIM facility is permissible only against pledge of
merchandise.

6. FINANCE AGAINST PACKING CREDIT (FAPC).

Finance against Packing Credit is a pre-shipment facility granted to the
exporter. The exporter would utilize funds for the execution of the export order
and would subsequently tender to the bank export documents after affecting the
shipment of assignment. The goods however, remain under lien of the bank.

Two forms of FAPC.

This type of FAPC is made against letter of credit or export order from bank own
resources.
Advance made to the borrower based on amount approved by the State Bank of
Pakistan, keeping in view exporters past performance. Advance is made by the
bank based on refinance, which is subsequently obtained from the State Bank of
Pakistan. Rate of interest chargeable on such accounts where counter financing is
available is 8 %. Remember that in FAPC the bank deals only with the documents
and not with the goods.

7. FINANCE AGAINST FOREIGN BILLS (FAFB).

This is a past shipment facility granted to the exports / borrowers against
export document covering consignment sent out side Pakistan. The exporter
submits following documents to the bank.
Bill of Exchange.
Invoice Performa.
Packing List.
Certificate of Origin.
Insurance Cover Note.
Bill of Lading & other documents as per L/C terms.

The borrower will give these documents. These documents are as security
and gives financial facilities on these documents.
In FAFB, the bank only deals with the documents and not with the goods.
8. FINANCE AGAINST TRUST RECEIPT (T.R).
The customer on whose behalf the bank issued a letter of credit may desire
to obtain the documents of title relating to goods received under the L / C, to
enable them to obtain delivery of the goods and arrange to retire the bills, out of
the sale proceed of goods. Upon favorable consideration by the bank of the
customer`s, request the documents of title are delivered against the customers
signature on the prescribed trust receipt form / related security and documents.
Thus the borrowers are bound under legal obligation, to pay the outstanding out of
the sale proceed of the sale proceed of the relevant goods. Trust Receipt have to
be adjusted within 45 days.

EXPORT FINANCE SCHEME

This scheme provides finance at the stage of pre or post shipment of eligible items
under two parties i.e., part 1 and part 2.
The period of finance extends to a minimum of 150 days or as per the validity of
the L / C whichever is earlier.
The period however may be enhanced on such items and conditions as advised by
SBP from time to time.
Under part 1 finance is provided based on a firm order / contract or L / C on a
case to case basis.
Under part 2 however the firm order / contract or L / C is not required, since
finance is to be provided to the exporters based on his last financial years export
performance.
This availment is controlled from the total of all exports of eligible commodities
as reflected in Form EE made during the past year through any bank.

EXPORT FINANCE UNDER PART 1.

Under part-1 of the scheme, the commercial banks provides concessionary
finance to the exporters for financing the exports of eligible commodities on case
basis against individual firm expert order irrecoverable Letter of Credit.
The term firm export order shall include contract of sale, confirmation
order for sale, purchase order, performa invoice and similar other documents
evidencing purchasing of goods by foreign buyers. The information such as;
Name and address of -------------------.
Commodity.
Quantity rate amount etc.
Period of shipment.
Term of payment as also signature of exporters should be provided in such
documents. The exporter must verify the signature of the buyer. As for L / C, it
would be enough that it indicates the name of commodity and the amount.

The maximum period for which exports finance under part-1 of the
scheme can be extended to the exporter is 150 days.
Concessionary finance on pre-shipment and post shipment can be availed
of, provided the total period of finance for pre-shipment and post-shipment taken
together does not exceed 150 days.
In case where the exporter desires to avail the facility under the scheme
exclusively at post-shipment stage, the facility shall be admissible to him for a
maximum period of 150 days as calculated from the date of shipment or up to the
date of realization of the export proceeds which ever occurs earlier.
The exporter is liable to submit the relative proof of shipment within 21
working days of expiry of loan / final repayment failing which the case is treated
as that of non-shipment and fine as prescribed under the scheme is charged.
In case shipping documents are subsquently submitted the same shall be
examined by SBP and if found in order fine already recovered for non-shipment
shall be refunded after retaining fine at the prescribed rate for the period of delay
in submission of the prescribed documents.
 The shipping documents produced must be in conformity with the firm
contract L / C based on which finance has been availed of. If shipment are
affected with changes in rate specification / style / term of payment or new
nominee, the same should be covered by necessary amendments to contract / L.C.
In case buyer / commodity totally differs, the case would become that of
substitution for which requisite formality is to be observed.
Export on consignment sale basis does not qualify for refinance facility.
The export on collection basis against Firm Contracts are, however, eligible for
concessionary finance subject to the exchange control regulations.

EXPORT FINANCE UNDER PART 2:-

Export refinance is sanctioned to the exporters based on their previous
years repored performance. Concessional rate of mark up is charged from the
exporters. Refinance is founded by SBP to the financial institution against their
disbursement. Under this, the rate of mark up is then shared between financial
institution and SBP at the agreed percentage.
Against the limit obtained under Part-2, the exporter shall have to reatriate
export proceeds from eligible commodities equal to at least 2-4 times of his daily
average finance during the relevant period.

DOCUMENTATION:-
The bank obtains documents to secure the advances. Based on these
documents the bank can charge the borrower in the court of law. The said
documents would vary from advance i.e. in FAFB and FAPC, different sets of
charge forms would be executed by the borrower. But the basic document i.e.
promissory note would remain the same for all types of advance.

Promissory Note:-
There are three types of promissory notes, which are mentioned below:-
For individual or proprietorship.
For partnership or joint account.
Limited Company.

FOR CASH FINANCES (HYPOTHECATION):-

Promissory note.
Letter of Agreement.
Letter of pledge of goods.

FINANCE AGAINST FOREIGN BILLS:-

Promissory note.
Letter of Arrangement.

FOR TRUST RECEIPT:-

Bills of exchange duly accepted by party DP Notes.
Letter of trust.
Invoice.
Mark up agreement.
Packing List.
Personal Guarantees of directors where ever necessary.
EXPORT FINANCE UNDER PART-1:-
a) Pre-shipment

SP note.
Copy of letter of Credit.

b) Post-shipment

DP note.
Undertaking on non judicial stamp paper.
Copy of letter of Credit.
Bills of lading.
Invoices.
Duplicate copy of forms.

EXPORT FINANCE UNDER PART 2:-

DP note
undertaking on non-judicial stamp paper.
Form EF.

PROCEDURE OF APPLYING FOR LOAN

In MCB procedure for obtaining loan is:
Any customer who applies for loan he/she should have an account
(usually current account) with the MCB branch concerned. That account should
be in running position because when applying for a loan, the branch prepares a
proposal of his account. That proposal is sent to General Manager Office for
necessary action.
If limit comes under discretionary powr of General Manager then he / she
may approve. If it is above the limit of GM Office it is sent to Credit Management
Division of Head Office. If the amount is above the power of Credit Manager
Division then president of MCB, decides the case.
When the approval comes, bank gives terms and conditions to the party.
The customer completes his documents and papers, required in approval letter.
The bank does not advance 100 % loan againsta security. Rather a 30 %
margin is decucted from all the loans.
The borrower has to provide some important documents i.e.
Two personal guarnatees.
Charge forms.
Confidential Report.
NIB non-interest Banking.
Charge forms are taken from party, if it turns bankrupt, the bank goes to
court of law where this agreement helps. It is a printed and prescribed agreement.
There are several type of charge forms in MCB i.e.
IB6 A for term loan.
IB6 A When loans is given to employee of some organization.
IB12 Promissory Notes.
IB25 This is letter of hypothecation.
IB26 It is used when stock is pledged.
IB28 It is marking of lieu on any insrument of Bank.

When all these documents are completed, the loan is desbursed and it is
credited to the borrower account.
CLASSIFICATION OF ADVANCES

If the loan is not repaid within specified time, or if markup is not

paid, then the same account is termed struck up, under prudential rules and
regulations (1988). In SAARC countries, World Bank implements it. There are
four categories of classified advances.

Other Assets Especially Mentioned

If the loan or installment or markup is over due for 30 days in short term
and for 90 days in long term loan facility, the finance is classified and struck up.
No provision is required.

2. Substandard
When no repayment of installment or markup is received from borrower
from 6 months to one year, in case of short term and 1-2 years in case. Then that
finance is classified as substandard. The provision of 20 % of difference between
the outstanding amount and value of easily reliable assets without intervention of
courts.

3. Doubtful
In case of short term loan when the principal or mark up is overdue for
more than one year up to two year and in the case of long term loan from two
years up to 3 years then th esubject advance will classified as doubtful and the
provision will be required at 50 % of the difference of outstanding minus value of
easily readable assets.

3. Loss
In case of short term having the amount of protocol / M-up in not repaid
above 2 year and in case of long term above 3 years then loan will be classified as
loss and 100 % provision will be made against it.
Note in case of trade bills, the outstanding will be directly classified into
loss category after a period of 6 month and 100 % provision will be made for it.
No mark up will be charged on classified advance and that mark up
already charged will be kept in suspense account instead of crediting to income
account.
When a finance or advance is classified the mark up charged on the same
is credited to mark up received suspense account and not to the income account.
When a loan is struck up MCB, through local advisors sends notice to
borrower. Banking tribunal deals struck up cases. Such cases are reported to the
Head Office and Head reports to State Bank of Pakistan to make sure that profit
of bank is not overstated.

STAFF LOANS
The staff of MCB is provided different types of loans to maintain high
levels of living standards. Following types of loans are provided to the staff
members:-
House building.
Car loan.
Motor cycle loan.
Advance against provident fund balance.
Advance against four basic salaries.
Flood loans.

1. House Building loan.

It is for all employees against mortgage of property after completion of
three years of service. For clerical and non-clerical, it is free of interest. Where as
for the officers it is free of interest upto four hundred thousand where as for the
rest of a mark up at the rate 10 % is charged.
2. Car loan.
It is only allowed for the officers of the band. For a total amount of
180,000, at the mark up of 10 %.

3. Motorcycle loan.
It is provided to all employees of the bank. The maximum amount of this
loan is 55,000 and is free of interest.

4. Advance against provident fund.

It is provided to all employees against there 80 % of provident fund
balance. It is deducted every month. It is repayable within five years. The rate of
interest is 10 %.

5. Advance against four basic salaries.

It is provided to the clerical and non-clerical staff and is repayable in one
year. The interest rate is 6% per annum.

6. Flood loans.
This facility is provided to the employees from scale 1 to scale 7 and to
officer of Grade 1 to Grade 3 whose house or property is damaged by rain. The
amount of during 1996 was up to 20,000 rupees. It is interest free. It is deducted
directly from the salary from the equal monthly installment.

GUARANTEE.
A guarantee is an under taking by a person to discharge the liability of
another if and only if the letters fails to meet it in himself. It is a personal liability
arising upon promissory note.
Guarantee means when third party assumes the liability for repayment of
laon. For this charge, form IB-29 is required. This facility is provided by the bank,
that some times any government or party working in private sector needs a bank
guarantee for the purpose that if the party defaults the bank will pay.
A type pf guarantee is mandatory target, which means target assigned by
state bank of Pakistan to financial institution for making necessary advances to
different sectors of economy. Now these types of finances are not available.
In guarantee there are three main characters, these are
Principal: the person who is taking loan.
Financial Institution: it gives loan can also be called tender or creditor.
Guarantor: it gives surety about repayment of loan for the principal.
There are two types of contract in guarantee. One is between principal
and financial institution which is a legal agreement binding by law.
Second, one is between the financial institution and the guarantor. Guarantor
reponsibility is primary when the principal debtor commits default.

INDEMNITY.
It is a contract when a person by himself makes a commitment to save the
other party from any sort of loss caused to him by his acts or acts of other people.
In this case, two parties are involved that is financial institution and indemnifier.
In this counter guarantee charge form, IB-30 is used. When a bank is providing
the guarantee facilities, they require a counter counter guarantee from the
applicant and this guarantee for safeguarding the interest of the bank. The counter
guarantee provided to the bank from the applicant is in the form of undertaking. If
the applicant defaults, the bank start legal procedures. However, if the applicant is
applying for a guarantee of one hundred thousand. Rupees and deposits a margin
of the same amount. Then there is no need of the legal procedures.
 All the long funds based facilities in the end are considered as the fund
based facilities. 0.4% per quarter commision for all type of guarantee issued
in favor of different departments except collection of customers where the rate of
commission is 0.6% per quarter. All the guarantees are issued for one year but
where guarantee issued in favor of SNGPL (Sui Northern Gas Pak Ltd) is for two
years.

CHARGE FORMS.

IB-24 Memorandum of deposit of tittle deed.

Use in equitable mortgage.
IB-23 For register mortgage of property.
IB-25 A Hypothecation of stock.
IB-26 Pledge of stock.
IB-27 Trust receipt.
IB-28 Lien mark on equitable security.
Where in the form of certificate.
IB-29 Guarantee form.
IB-30 Counter guarantee.
IB-31 By back agreement for marketable securities.
IB-6 Agreement for mince on mark up basis.
IB-8 Application for letter of credit.
CF-19 Lien mark on Foreign Currency Accounts.
Chapter 4
FOREIGN EXCHANGE

There is not a single country in the world, which is self-sufficient. There is

constant inflow and outflow of goods and services from one country to another.
When goods and services are exported to another country, the money is to be
received from foreigners, and when they are imported, money is to be paid to
them. The receiving or making payments to person, firm or government in foreign
countries involves many problems. First, the transfer of the means of payments
across national boundaries. Second the conversion of one country into that of
another country. The problems of international payments would not have so
diversified if there has been only one common currency acceptable in all countries
of the world. As every country has its own measure of value; U.K., its pound,
Germany its Mark, Japan its Yen, America its Dollar, Pakistan its Rupee, etc., so
currency of one country is not legal tender in other countries. Thus the problem of
the conversion of the currency of one country into that of other has arisen.

MEANING OF FOREIGN EXCHANGE.

The word ‘foreign exchange’ is related to exchange methods and
mechanism through which the payments in connection with international trade are
made. It covers the methods through which
The currency of one country is exchanged for that of another.
The forms in which exchanges are conducted, and
The ratio at which they are effected.
In the words of H.E.Evit, “the means and methods by which rights to wealth in
terms of the currency of one country are converted into rights to wealth in terms
of the currency of another country are known as foreign exchange.”
Heartly Whither defines foreign exchange as “a mechanism by which
international indebtedness is settled between two countries.”

IMPORTANCE OF FOREIGN EXCHANGE

 The importance of foreign exchange is described in brief as under:

Foreign exchange reserves show the financial strength and the stage of
development of the economy.
A persistent adverse balance of payments indicates that the economy is in bad
shape. The government must increase the foreign exchange balance by increasing
exports and reducing imports of visible and invisible items.
The foreign exchange ratio shows direct relationship between the prices of the
commodities in the national and international model.
The acceptance of currency at a predetermined rate makes the international trade
easy.
The foreign exchange balances of a country directly effect the rates of exchange.
A hard currency nation has stability in foreign exchange rate.
The rising foreign exchange balances of a nation increases its credit worthiness in
the international capital market.

FOREIGN EXCHANGE MARKET

A foreign exchange market is a place where foreign exchange transactions

take place. In words of Kindleberger, “foreign exchange market is a place where
foreign moneys are bought and sold.” It is a part of money market in financial
centers. In Pakistan there is no foreign exchange market as defined above. Here
the most important component of foreign exchange market is Central Bank of the
country or its authorized dealers. All exporters are required to surrender the
foreign exchange earnings to the Central Bank of its authorized dealers within the
specified period and then receive local currency in exchange of that. Similarly the
importers have to pay for the imported goods. They can get the foreign exchange
from the Central Bank or its authorized dealers for making payments to the
exporter.
FUNCTIONS OF THE FOREIGN EXCHANGE MARKET
There are three main functions of foreign exchange market.

TRANSFER FUNCTION
The basic and primary function of foreign exchange market is to transfer
purchasing power between the countries. The transfer function is performed
through T.T, M.T, Draft, Bill of exchange, Letter of Credit, etc. the Bill of
Exchange is the most important and effective method of transferring purchasing
power between two parties located in different countries.

CREDIT FUNCTION
Another important function of foreign exchange market is to provide credit to
importer debtor. The exporters draw the bill of exchange on the importers on their
bankers. On the acceptance of the bills by the importers or their bankers, the
exporter will get the money realized on the maturity of the bills. In case the
exporters are anxious to receive the payment earlier, the bills can be discounted
by their bankers, or foreign exchange banks or discount houses.

HEDGING FUNCTION
The foreign exchange market performs the hedging function covering the risks on
foreign exchange transactions. There are frequent fluctuations in exchange rates.
If the rate is favorable, the exporter will gain and vice versa. In order to avoid the
risk involved, the foreign exchange markets provide hedges or actual claims
through forward exchange rate. The agencies of foreign currency guarantee the
payment of foreign exchange at a fixed rate. The exchange agencies bear the risks
of fluctuation of exchange rates.

KINDS OF FOREIGN EXSCHANGE TRANSACTIONS

The foreign exchange transactions are usually put into four categories:
Current transactions,
Capital transactions,
Short term financial transactions, and
Working balances.

CURRENT TRANSACTIONS.
As regards the current transactions, they are further divided in to clauses.

Visible Trade:
Visible trade is based on the import and export of physical goods known as
merchandise.

Invisible trade:
The invisible trade has no direct relation with import and export of physical
goods. It is the payment made to or received from the foreigners for the
swhipping, banking, insurance services received or provided to them. Interest on
capital, dividend or remmitance of profits, etc., from one country to another also
fall in the category of invisible trade.

CAPITAL TRANSACTIONS
Capital transactions are different from financial transactions. Ewhen a country
grants aid or gives long term loans or invests emoploying foreign exchange in
another country, a capital transaction is then said to have operated.

SHORT TERM FINANCIAL TRANSACTION

If the citizens of one country, due to political or economic reasons, transfer their
foreign exchange resources to another country for a short period, ti is then said to
be a short-term financial transaction of foreign exchange.
WORKING BALANCE
The commercial banks sometimes keep their working balances in foreign
currencies in other countries for earning higher profits or due to the fear of
devaluation in the home currency or unfavorable political conditions in the home
coutry. In all such cases, the demand for and supply of foreign exchange is
affected.

IMPORTS

DEFINITION

Imports mean bringing commodity into Pakistan from outside, by sea, land or
area.

REGISTRATION

Import of goods into Pakistan is regulated by Ministry of Commerce, government

of Pakistan, under the Import and Export control act, 1950. No import is
permissible from Israel or any other country, which may be notified by the
Ministry of Commerce. Import of goods originating from any of these countries is
also prohibited. Imports from India are regulated as notified by the Ministry of
Commerce, from time to time.
No one can import goods into Pakistan unless he is registered with the export
promotion bureau under the registration (importers and exporters) order, 1993 or
exempted from the provisions of the said order.

IMPORTS UNDER LETTER OF CREDIT

The imports of items not subject to authorization from the Export Promotion
Bureau-Ministry of Commerce will be made by opening of LC subject to
following terms and conditions:
Before opening LC, Authorized Dealers must ensure that the importer holds a
valid registration as importer with the Export Promotion Bureau. To this end,
reference should be made to category passbook issued by the EPB. In case an
importer opens a LC with more than one bank the Authorized Dealer holding the
original category pass book will make out Photostat copies thereof, authenticate
the same and furnish other concerned Authorized Dealers with it and will keep
record thereof.
The items of import covered by a LC can be changed before shipment of goods
provided new items are importable and the application for change is submitted to
the bank within the validity of LC. In case original beneficiary fails to honor its
commitment, Authorized Dealers can transfer LC to another beneficiary provided
the items of import are not changed and transfer is made within the validity of the
original LC.
Where authorization from Ministry of Commerce is required for import, LC will
be opened only on the production of the requisite authorization.
No LCs are to be opened for goods which have already been imported. In such
cases, clearance of the Ministry of Commerce, Government of Pakistan will have
to be obtained.
All importers while applying for establishment of LC for an amount exceeding
Rs. 45000/- during a financial year would produce a valid certificate of
membership of at least one of the trade organizations licensed and recognized by
the Federal Government.
Payments can be made in 18 months from the date of opening of LC or on the
expiry of ussance period, if any, whichever is later.
LC may provide for negotiation of documents within a period not exceeding 30
days from the date of shipment.
Authorized Dealers may also make amendments in the LC with reference to the
State Bank provided the Amendments are not in conflict with the provision of this
manual or the Import Trade Control Regulations.
PROCESSING OF FORMS.
`Applications for remittance against imports into Pakistan should be made on
Form “I”, which should be signed by importer or his authorized agent. Signatory
should disclose his status/ capacity in the concerned firm. In case the form is
signed by the agent of the importer it should be ensured by the authorized dealers
that he holds a valid legal power of attorney from the importer and the terms of
the power of attorney are such that the importer as well as attorney can be held
responsible jointly and severally under the Foreign Exchange Regulation Act,
1947. The form should be submitted to an Authorized Dealer who must sign the
certificate as provided therein under his stamp and signature. In cases where the
authorized dealers are empowered to approve remittance on behalf of the State
Bank, they will do so by recording their approval on the form. In all other cases,
the forms together with the required supporting documents should be forwarded
to the State Bank for approval.
Form I consists of four copies. The original copy of the form duly signed by the
importer is required to be sent to the State Bank by the Authorized Dealers with
their monthly return of sales. In cases where the importers do not retire the
documents and the Authorized Dealers fail to get the original copies of the form
signed by them, they should themselves sign the quardtruplicate copy of the form
and send it with the monthly return to the State Bank. All the cases where
importer fails to sign the Form “I” should be specifically reported to State Bank.

RATES OF COMMISSION TO BE CHARGED BY BANKS

Authorized Dealers may recover commission at the following rates on LC
covering imports by the Government routed through State Bank.
In respect of cash/ reimbursed loans/barter expressed in U.S. Dollars or any other
foreign currency including LCs under A.C.U arrangements:
1/8% if the value of the LC is less than Rs. 250,000
1/6% if the value of the LC is Rs. 250,000 or more.
In respect of non reimbursable credits and rupee barters: 3/8% irrespective of the
value of the letter of credit.
The above charges are inclusive of foreign correspondent’s charges. However, in
addition to the above, Authorized Dealers may recover actual cable/telex charges
where L/C are desired to be established through cable/telex confirmation charges
of foreign bank’s confirmation is also to be added on opener’s request.

IMPORTS WITHOUT LC.

The importers registered with the Export Promotion Bureau under the
provisions of Registration (Importers & Exporters) Order, 1993, can make
imports either by opening letters of credit or by registering the indents/Performa
invoices or orders with the Authorized dealers. As the exception of the above
general rule, registered importers have been permitted to make imports up to US$
10,000 (or equivalent in other currencies) without opening of L/C or registering
the indent/Performa invoice or orders with the Authorized Dealers, and make
remittances their against. The registered importers are free to make remittances in
respect of such imports either in advance or after reciept of the goods in Pakistan.
The remittances can be made through demand draft/telegraphic transfer/mail
transfer. In cases where the registered importers make advance payment for such
imports, they will be required to furnish to the Authorized Dealers at the time of
making a request for remittances, an undertaking to produce invoices and bills of
landing/ airway bill within a period of four months from the date of advance
payment. The Authorized Dealers will persue the matter with the importers and
report those cases to the area foreign exchange office where the requisite
documents are not produced within the prescribed time limit. In cases where
remittances are made after receipt of goods in Pakistan, the registered importers
can approach the Authorized Dealers for remittances on the basis of invoice or
original bills of landing or airway bill. The Authorized Dealers have our general
permission to make advance payments or arrange remittances against the
prescribed documents on receipt of goods in Pakistan.
DISCREPANCIES.
In case where the overseas negotiating bank does not make payment to the
supplier but sends the documents to the bank in Pakistan on collection basis due
to discrepancy in the documents the Authorized Dealers will deposit counterpart
funds with the State Bank on retirement of the documents by the importer
concerned. The prescribed period for deposit of counterpart funds will be
reknocked as from the date of retirement of bill by the importer. If the funds were
held back by the Authorized Dealers beyond the prescribed period, fine would be
charged.
In those cases where the negotiating banks make payment to the suppliers under
reserve or guarantee due to minor discrepancies in documents, either the
document should be sent back to the negotiating bank or the counterpart funds
deposited with the State Bank within a maximum period of one week from the
date of the receipt of the documents. In case, however, the designated bank in
Pakistan chooses to retain the documents beyond the prescribed period of one
week, a statement of all such cases should be sent to the Director of Accounts,
Economic Affairs Division, Government of Pakistan, Islamabad and concerned
Chief Manager of the State Bank showing the particulars of shipping documents
and indicating name and addresses of importers, letter of credit numbers and
dates, vessel, commodity of foreign currency amount specifying the detailed
reasons for not depositing the amount specifying the detailed reasons for not
depositing the amount within the prescribed period of one week. The cases in
which deposits are made within a week need not be reported.

FOREIGN CURRENCY ACCOUNTS.

The foreign currency accounts section performs different functions. For
example, cash deposits, cash withdrawn form the account, and inward
remittances. The functions of the foreign currency accounts section are discussed
as under.
One cans directly deposits / cash cheques from the bank.
If a cheque comes from a foreign correspondent bank, they will deposit it in the
said account.
Family maintenance (meaning receiving dollars from a person and if he do not
have a foreign currency account, then the bank will pay him in Pakistani rupees)
The bank has different foreign currency rates, for different purposes.
If the L/C is about the export, then the bank has different rate for foreign.
If the LC is about the imports of the goods, then the rate will vary from exports.
The person who opened the L/C can book the rates up to six months. The bank
has different rates. This is provided so that to cover the devaluation risks. This
method is also called swapping.
The rate of foreign currency, for the person who converts directly is foreign
currency notes in to Pak rupee will be different.
There are different types of accounts, which wil be discussed one by one:

Current Account:
This account is for the business purposes or for those peoples who with
draw or deposits the amount very frequently. This account is considered as no
profit no loss account. The current account is opened from at least five hundered
dollars. There is no restrictions on the number of cheques being cashed. If the
balance is below five hundered dollars, then it is discretion of the account officer
to close it or leave it as it is. If the amount is less then five hundered dollars, and
the account is not closed, then the bank will charge five dollars in six months.
Other banks charge more then five dollars especially the foreign banks.
Saving Accounts.
It is a profit and loss sharing account (PLS). It is interest-otiented account,
the MCB gives 6.12% interest per annum.
The saving account can be opened in three types of currency,
US Dollars.
Deutsche Marks.
British Pounds.
Khushali Dollar Account (KDA).
The profit is given on daily basis. There is restriction on drawing cheques,
not more than four cheques could be drawn in a mouth.

Fixed Deposit Receipts.

As the name shows, it is fixed deposit account. One can deposit his
amount from seven days up to five years.

Inwards Remittances.
The account section also deals with inwards remittances, meaning the
purchase of telegraphic (TT), mail transfer (MT), currency notes etc.

Travelers Cheques (TC).

The account officer has a specified amount of stock of traveler’s cheques.
The account officer acts as a trustee on behalf of the travelers Cheques company.
When giving the TC, they have one-percent commission. When cashing, they pay
them off in rupees. If the TC are purchased in a foreign country, then only the
person who has a foreign currency accounts can deposit it in his account and get
dollars.

EXPORTS

GENERAL:

The government of Pakistan has prohibited the export by post and

otherwise than by post, of any goods either directly or indirectly to any place
outside Pakistan, unless a declaration is furnished by the exporter to the Collector
of Customer or to such other persons as the State Bank may specify in this behalf
that foreign exchange representing the full export value of the goods has been or
will be disposed off in a manner and within a period specified by the State Bank.

EXPORTS EXEMPTED FROM EXCHANGE CONTROL PROCEDURE

The prohibition mentioned above does not apply to exports to

Afghanistan, exports to Iran by land route under special arrangement and to the
export of following:
Leather garments manufacturers are entitled to export 50 (fifty) samples in a
calendar year irrespective of monetary ceiling.
Personal effects whether accompanied of unaccompanied of travelers.
Ship stores and transshipment cargo.
In case of exports by post, a certificate signed by a gazeted officer or by any
person entitled to use service postage stamps should be pasted on the outer cover
of the parcel to the above effect.
Gift packets where they are accompanied by a declaration by the sender that the
contents of the packet do not involve any transaction in foreign exchange.
Where the packet is covered by a certificate issued by the State Bank to the effect
that the export of the parcel does not involve any transaction in foreign exchange.
Customs authorities will not allow exports without declaration on the export
except in the cases listed above.

3. EXCHANGE CONTOL REGULATIONS

Exchange control regulations regarding exports cover all exported from
Pakistan irrespective of they are subject to license under the Export Trade Control
Regulations or not. Similarly, nothing in the Exchange Control Regulations as
laid down by Government from time to time, including the necessity of obtaining
an export license wherever necessary. The Government of Pakistan has under the
Export Trade Control Regulations banned exports to South Africa and Israel.

4. REGISTERATION OF EXPORTERS:
Under the Registration [importers and exporters] orders, 1952, no person can
export any goods unless he is duly registered as an exporter with the Chief
Controller of Imports and Exports. Authorized Dealers should, therefore, ensure
before certifying any export from “E” as required in para 7 below that the person
is so registered. The registration number should be quoted on the relative export
forms.

5. FORMS PRESCRIBED FOR DECLARING EXPORTS:

As required under the Federal Government Notification Nos.1 [6] ECS|48 and
1[7] ECS|48 both dated 1st July 1948 the exporters are required to declare their
exports the Customs | Postal authorities in form “E”.

METHOD AND PERIOD OF PAYMENT:

Full export value of the goods exported from Pakistan and declared to the
Customs
authorities should be received in approved manner as embodied in the State
Bank’s Notification, within the period of four months from the date of shipment
posting as the case may be, or within such periods as may be prescribed by the
State Bank through specific or general permission, through an authorized dealer
either in convertible foreign currency in which the authorized dealer maintains
account or in Pakistani Rupees from a non-resident bank account. However,
where the term of sale / irrevocable LC provide for the payment on 120 days
issuance / 270 days issuance in case of carpets from the date of shipment /
posting, it shall be permissible for the exporter to repatriate the export proceeds
within 135 / 285 days from the date of shipment / posting. Prior approval of the
State Bank should be obtained before arranging for the payment in any manner
other than that indicated above.
As an exception to the above payment for goods exported to countries other than
those with which Pakistan has special payment arrangements e.g. Asian Clearing
Union member countries etc., may also be accepted form any foreign currency
accounts maintained with banks in Pakistan including an account maintained by
the exporter himself.

CERTIFICATION OF EXPORT FORMS BY AUTHORIZED DEALERS

Before the export forms are lodged by the exporters with the customs / postal
authorities all the copies thereof are required to be cretified as under by the
Authorized Dealers.

Certified that the above exporter is known to us, that he is bonafied businessman
in Pakistan and he has made arrangements with us for realization of the export
proceeds of the goods declared on this form within four months from the date of
shipment in accordance with the State Bank’s notification. We are satisfied with
the said arrangements. We have also satisfied ourselves about the bona fides of
the importers /consignee abroad and his credentials etc.

We undertake that export proceeds against shipment on firm contract shall be

received by us in the period prescribed by the State Bank.

We undertake that in the event of non realization of export proceed against

shipment on consignment sale with in the stipulated period, we shall obtain from
the exporter and furnish to the State Bank of Pakistan a full explanation as to the
circumstances resulting in non-realization.
Authorized Dealers shall not certify any export form unless they have satisfied
themselves with regard to the following:

Arrangements have been made for the realization of exports proceeds of the goods
covered by the relative export forms.

Bonafides of the consignees’ abroad and their credentials have been verified.
Where necessary they should make discreet inquiries through their foreign
correspondents. In case of shipments against T.R (term receipts) of D.A
(documents against acceptance) greater care should be exercised by the
Authorized Dealers in certifying the relative export forms.

Arrangements have been made for the receipt of documents of title of goods like
Railway Receipt, Bill of Lading, Airway Bill and Truck Receipt.

Genuiness of the charter party where shipment is to be made against the charter
party Bill of Lading has been verified.

The export form has been signed by the exporter or by the authorized agent. The
signatory should disclose his status / capacity in the concerned firm / company
etc.

LC for export to Asian Clearing Union member country has been received under
the ACU arrangement, unless the export is covered by the loan / credit extended
to the Importing country by International Agencies like IBRD, Asian
Development Bank etc., in which case LCs will be established envisaging
payment in convertible currencies outside the ACU arrangement.

MAKING OUT AND DELIVERY OF SHIPPING DOCUMENTS

 In exercise of powers all carriers whether common or private (railway,
steam ship, motor trucking or air line companies) and their agents has been
directed by the State Bank as under;

In respect of export of goods from Pakistan to foreign countries by land route or

by sea, the Railway Receipts, Bills of Lading, Truck Receipts or any other
documents of title to cargo should be drawn only to the order of an authorized
dealer designated for the purpose by the exporter. This restriction will not apply if
the exporter produces a certificate to the carriers from the authorized dealer
concerned in the prescribed form. The certificate will be issued by the authorized
dealer only if the shipment is being made against an advance payment or against
an irrevocable LC which calls for drawing of documents of title to cargo to the
order of opening bank, or the importer, or the exporter or to order and blank
endorsed. In all cases the railway receipts, bill of lading and other documents of
title to cargo should be delivered by the carriers to the authorized representative
of Authorized Dealer concerned holding authority letter for collecting these
documents.

In respect of export of goods from Pakistan to foreign countries by air, the airway
bills and any other documents of title to cargo should be drawn to the order of a
bank in the country of import nominated by the Authorized Dealer designated for
this purpose by the exporter. In case of exports against an advance payment or
against an irrevocable LC which calls for drawing of documents of title to cargo
to the order of importer abroad, the airway bill and other documents of title to
cargo may be drawn to the order of importer abroad, provided the exporter
produces to the carriers a certificate to this effect from the Authorized Dealer
concerned holding authority letter for collecting these documents.
ENDORSEMENT OF SHIPPING DOCUMENTS BY THE AUTHORIZED
DEALERS

The authorized dealers to whose order the relative railway receipts, bills of
lading However, under letters of credit, which call for such blank endorsement.

SCRUTINY OF DOCUMENTS

On receipt of the bill of lading/ airway receipt etc., along with the form ‘E’ and
the exports form and satisfy themselves that they conform in all respects to the
declarations made on the relative export forms and the amount of the bills and
invoices is not less than the value declared on them. All such cases where the
Authorized Dealers consider that the value declared to the Customs and accepted
by them does not represent the true value of the goods should be promptly
reported to the State Bank. The Authorized Dealers may, however, accept bills |
documents for negotiation | collection if the if the difference between the value
stated on the relative export form and the amount of the bill/ in voice represents
legitimate adjustments on account of short weight or actual freight and other items
of similar nature. Details of such adjustments must be given on the relative export
forms and must be authenticated by the Authorized Dealers under their stamp and
signature.

EXPORTS SUBJECT TO RECEIPT OF ADVANCE PAYMENTS OR

IRREVOCABLE LETTERS OF CREDIT.

In case of commodities export, which is subject to receipt of advance

payment or irrevocable LC, shipment will be allowed by the custom only on the
basis of the authorized dealer on the export forms to the effect that either advance
payment or irrevocable LC has been received covering export of the goods
mentioned on the export form.

SHIPMENT SHUT-OUT ENTIRELY

Where shipment is to be made by a particular vessel is entirely shutout and

reshipped by another vessel, the exporter should apply on the prescribed form in
duplicate to the Customs for permission to alter the name of the vessel on the
relative export form and the shipping bill.
Where a shipment is entirely shutout and is not being reshipped immediately by
another vessel, the exporter should give the notice to the Customs in the
prescribed form in the duplicate. It will be the responsibility of the exporter to
produce to the authorized dealer who had certified the export form, a copy of the
shutout notice duly certified by the Customs within 21 days from the date of
certification of the export form. On receipt of the shutout notice, the authorized
dealers should treat the relative export forms as cancelled and forward the shutout
notices to the State Bank.