al-arafah islami bank

Al Arafah Islami Bank Ltd.

Introduction

After the surrender of the Pakistani forces on 16th December 1971, the government of the

Peoples Republic of Bangladesh formally took over the charge of the administration of

the territories now constitute Bangladesh. In order to rehabilitate the war devastated

banking system of Bangladesh, the government promulgated a law called Bangladesh

Bank (temporary) Order, 1971(Acting Presidents Order No 2 of 1971). By this order the

State Bank of Pakistan was declared as Bangladesh Bank and the offices, branches and

assets of the said State Bank was declared to be deemed as offices, branches and assets of

Bangladesh Bank. It was also declared by the aforesaid Order that all currency notes and

coins issued by the said State Bank and government of Pakistan and were in circulation in

Bangladesh shall be deemed to have issued by the Bangladesh Bank. By the steps stated

above, the banking system of Bangladesh started with a legal shape.

The number of banks in all now stands at 48 in Bangladesh. Out of the 48 banks, four are

Nationalized Commercial Banks (NCBs), 30 local private commercial banks, 9 foreign

banks and the rest five are Development Financial Institutions (DFIs). Sonali Bank is the

largest among the NCBs while Bank Asia is leading in the private ones. Among the 9

foreign banks, Standard Chartered and HSBC has become the largest in the country.

Besides the scheduled banks, Samabai (Cooperative) Bank, Ansar-VDP Bank,

Karmasansthan (Employment) Bank and Grameen bank are functioning in the financial

sector. Bangladesh Bank (BB) regulates and supervises the activities of all banks.

Private sector banks started functioning during the year 1983-84 with the objective of

government policy to make sure effective and meaningful participation of the private

sector in the overall national economy.

The perception of Islamic banking has been bloomed from the inspiration of building up a

society on justice in accordance with basic socio-economic principles of Islam. The

difference between Islamic bank and conventional bank is on principles. The functions of

this type of bank are completely different. This bank is established on Islamic Shariah and


all types of transactions are free from interest. Justified profit is the basis of financial

transaction of this bank. This bank is committed to establish socio-economic justice. Al-

Arafah Islami Bank Bangladesh Limited is the first interest free commercial bank in

South-East Asia. The bank has opened 50 branches covering important commercial areas.

Al-Arafah Islami Bank Bangladesh is a financial institution whose status, rules and

procedures expressly state its commitment to the principle of Islamic Shariah.

Consequently Islamic banks operate on Islamic principles of profit and loss sharing,

strictly avoiding interest, which is the root of all exploitation and is responsible for large-

scale inflation and unemployment. In this report, I undertake microscopic analysis mainly

on “General Banking, Investment mode and Foreign Exchange.”


Origin of the report

This report is based on an internship program. IBTRA arranges internship program to

gather practical knowledge about banking activities followed by AIBL for University

students as Universities conducted with different organization after the completion of

theoretical courses of program of Masters of Business Administration (MBA). Each

intern must carry out a specific project, which is assigned by the IBTRA. Consequently a

report based on the projects is to be submitted to the authority of IBTRA. We select AL-

ARAFAH ISLAMI BANK LIMITED (AIBL) for our internship & since then I have

started our realistic orientation program in General Banking, Investment & foreign

exchange department. But we have prepared our project paper on investment as it is

assigned by IBTRA.

Hence we were placed in Local Branch of AL-ARAFAH ISLAMI BANK LIMITED

from 06th June to 12th August , 2009.


Acknowledgement

It is our great privilege to express our gratitude to our creator Allah (SWT) for such great

opportunity to be in touch with AL-ARAFAH ISLAMI BANK LIMITED (AIBL) for the

following days. We also have to put our heartened feelings and gratitude for the kindness

and assistance that was provided to us to complete our assigned report as on the topic

“General Banking, Investment and Foreign Exchange.” In preparing the proposed

report we have taken great assistance support and guidance from the persons of AL-

ARAFAH ISLAMI BANK LIMITED Training and Research Academy (AIBTRA) and

from our branch as well.

We express our heart full thanks to all the faculty members of AL-ARAFAH ISLAMI

BANK LIMITED (AIBL) especially to Mr. Muhammad Abu Taher (AVP,Manager), who

gave us necessary information and excellent guidance to prepare this internship report.

We are very grateful to Mr Md. Khairul Enam (officer consumer banking),Mr.Golam

Hossain & Mr. Ariful Bari for their hearty co-operation to learn about AIBL “General

Banking, Investment Mode &Foreign Exchange” as well.

We also like to thanks all the other employees of all level for their beloved manner and

attitude that they had shown to us during the staying in the Branch.


Executive Summary

This report is prepared as requirement of the internship of MBA program of different

university. This report focuses Three months working experiences in Banani Branch, AL-

ARAFAH ISLAMI BANK LIMITED. This report will give a clear idea about activities

and operational strategies of (AIBL). Especially this report focuses on the General

Banking, Investment Mode and Foreign Exchange by AIBL.

AL-ARAFAH ISLAMI BANK LIMITED (AIBL) was established in September’27 ,1995

with a clear manifesto of demonstrating the operational meanings of participatory

economy, banking and financial activities as an integral part of an Islamic code of life.

The philosophy of AL-ARAFAH ISLAMI BANK is to establish as egalitarian society

based on the principle of social justice and equity. As an integral part of this process AL-

ARAFAH ISLAMI BANK introduced measures to abolish interest and charge or pay

fixed interest on loans or deposits. Interest of pre determined interest on deposits; the

depositors participate in the profit of the bank as an agreed ratio. Whereas, interest based

conventional banks pay a fixed interest on savings and time deposits and grant loans with

interest for any purpose.

Basically AIBL is an Islamic Bank based on “ISLAMIC SHARIAH”. It follows the

alternative concept of Al-Arafah Islamic Banking. Which represents unique human

approach to credit and banking based on profit-oriented economy devoid of interest, in

this regard AIBL has introduced a number of income generating programs for the

millions of urban and rural poor. With the objective in view AIBL has formulated a

profitable live in a batter society with greater security and peace. AIBL is opening in a

three sectors banking system, such as formal, non-formal and voluntary sector. General

banking, Investment and foreign exchange are operated under the formal sector.

Development management of Waqf and mosque properties, management of in heritance

properties, and joint venture project for management of non-profit foundations, charitable

trusts and organizations are executed under the voluntary sector


Objective of the study

The first objective of writing the report is fulfilling the partial requirements of the MBA

program. In this report, we have attempted to give on overview of AL-ARAFAH ISLAMI

BANK LIMITED in general. Following are the main objectives

To familiar the history and operations of Islami Banking in Bangladesh.

To show the investment mechanism and product offerings in different modes of

AIBL.

To show overall investment proposal, appraisal procedures, documentation system

of AIBL and Conventional Banks.

To show the differences with conventional banking regarding investments aspects.

To identify strength and weakness of investments of AIBL.

To identify the problems related to investments faced by AIBL.

To recommend actions that may be necessary to redesign the investments of

AIBL.


Justification of the study

In our economy, there are mainly three types of schedule commercial banks are in

operation. They are Nationalized Commercial Banks, Local Private Commercial Banks

and Foreign Private Commercial Banks. Islami Bank has discovered a new horizon in the

field of banking area, which offers different General Banking, Investments and Foreign

Exchange banking system. So I have decided to study on the topic “General Banking,

Investment and Foreign Exchange”. Because the Internship program of the university is

an integral part of the MBA program. So it is obligatory to undertake such task by the

students who desirous to complete and successfully end-up their MBA degree. This also

provides an opportunity to the students to minimize the gap between theoretical and

practical knowledge. During the internship program the teachers of the department are

attached to actively and constantly guide the students. A student are required to work on a

specific topic based on their theoretical and practical knowledge acquired during the

period of the internship program and then submits it to the teacher. That is why we have

prepared this report.


Methodology of the study

For carrying out this project paper I had to study the actual banking operations of AIBL.

In order to carry out this study, two sources of data and information have been used:

a) Primary data

I discussed with the executives & officials of the AIBL and found the approximate data,

which has been presented in the report. I also discussed with the officials of conventional

Banks & IBTRA regarding the issue and found necessary information, which has been

presented in the report.

b) Secondary data

● Annual Reports of 2004-2008 of Al-Arafah Islamic Banking Ltd.

● Desk report of the related department

Manuals of Al-Arafah Islamic Banking Limited (Bai-Murabaha, Bai-Muajjal, Bai-

Salam, Musharaka)

Training sheets which are provided by Islami Bank Training and Research

Academy (IBTRA).


Scope of the report

The scope of this paper is limited to the organizational structure, background, and

objectives, functions, and investment performance of AIBL as a whole. The scope is also

limited to different investment schemes, modes, mechanism, investment proposal

appraisal procedures, monitoring and documentation of IBBL.


Limitations of the study

There are some limitations in our study. We faced some problems during the study which

we are mentioning them as below-

i) Lack of time:

The time period of this study is very short. I had only 8 weeks in my hand to complete

this report, which was not enough. So I could not go in depth of the study. Most of the

times the officials were busy and were not able to give us much time.

ii) Insufficient data:

Some desired information could not be collected due to confidentiality of business.

iii) Lack of monitory support:

Few officers sometime felt disturbed, as they were busy in their job. Sometime they

didn’t want to supervise us out of their official work.


Chpater-01

General Banking of AIBL

Introduction

General Banking is the heart of Banking. Here money collection procedure occurs. Other

services, like cheque encashment, account transfer; account closing, bills and remittance

are given here. So general banking is the most important thing in banking service.

Procedures

1. Issuance of token, Maintenance of subsidiary day Book, writing of day Book,

balancing of Ledger.

2. Opening of A/c Mudaraba Savings A/cs Mudaraba term deposit A/c Al-Wadiah current

A/cs, Mudaraba Hajj saving A/cs, writing of A/c opening registers and issuance of pass

book and cheque Book.

3. Maintenance of current A/c ledgers, deposit ledger and TDR ledger and operation of

computer.

4. Writing of transfer scroll, statement of current A/cs and deposit A/c and Hajj deposit

A/c pass book.

5. Bills: Outward & inward Bills (OBC & IBC) and clearing.

6. Remittance: Issuance and payment of DD, TT, PO etc.

7. Writing of clean cash Book and posting of General Ledger and checking of computer

final sheets with General Ledger.

8. Maintenance of charges, suspense and sundry deposit A/c, maintenance of dead stock

and stationery articles registers.

9. Schedule Telegram and preparation of General ledger A/c statement.

10. Establishment: Preparation of Salary, pay sheet, LPC, maintenance leave

register, personal files and method of correspondence and payment of income

tax.


Dispatch

Inward

1. Inward mail, other than those which are registered, marked confidential and addressed

personally to same official, may be opened by an authorized member pf staff who should

enter in the inward mail register and mention serial number of the mail register on the

letter/ paper received, affix "Received" date stamp on it and delivery the same to the

concerned officials against acknowledgment.

2. Letters addressed personally to any official shall be opened by the address only.

3. Registered mails and mails marked confidential will be opened by an officer or

management in small branches. All these letters shall however entered in the inward mails

registers.

4. Stop payment instructions and court orders shall be received authorized officials who

will immediately note date & time on it and take necessary steps.

OUTWARD

1. Outward letters must bear serial number and entry in the register with name and

address.

2. Each typist will maintain a typist master file and dispatch Clark also maintain a

separate master file for future record.

3. Local letters may be delivered through peon book. If the area is large and letters are

many in number service of post-office may be utilized.

4. Letters dispatched must be entered in the outward mail register and bear proper postal

stamps, if sent through post office.

5. Remarks such as ‘Urgent’ ‘By Airmail’ ‘Register' 'Registered with A/D' 'Confidential'

etc. must appear on top of the letter as well as envelop.

6. If the letters are sent by registered post or courier service, postal receipt/ courier receipt

must be maintained by the dispatch department in a file. Similarly acknowledgments

received back should be maintained in the file.

7. If any telegram is sent by any branch, a copy of the message duly signed by authorized

officer must be sent by post to the address as confirmation.

8. Similarly when the branch receives any inward telegram, they must compare it with the

confirmatory copy when received.

9. Receipt for telegraphic message issued by telegraph office should be maintained in a

file and authorized officer must check them at the time of passing expenses voucher.


10. If any telegram is sent relating to services given to a customer. Charges should be

recovered from the customer concerned.

11. Manager and other officers of the bank must ensure economic use of telephone. Trunk

call & STD conversation must be short. If telephone is used on account if customers,

charges must be recovered.

12. Trunk calls & STD calls must be recovered in the trunk call register and verified with

the telephone bill when received from T&T office.

General Characteristics of Deposit Account:

Bank receives deposit by different accounts. Those are two types:

i) Al Wadiah --- Client A/C is conducted under Al - Wadiah system

ii) Mudaraba Mode --- Client- Sahib Al Mal

Bank- Mudarib

Under this arrangement - profit distribution under agreed ratio and loss (if any) will be

borne by Sahib Al Mal

Under Mudaraba mode there are many accounts as under:

i) MSA - Mudaraba Savings Account

ii) MHSA - Mudaraba Hajj Savings Account

iii) MSB - Mudaraba Savings Bond

iv) MSS - Mudaraba Special Scheme

v) MTDR - Mudaraba Term Deposit Account

vi) MMPDS - Mudaraba Monthly Profit Deposit Scheme

vii) MMS - Mudaraba Mahor Savings A/C

viii) MSNA - Mudaraba Short Notice A/C

Al-Wadiah Current A/C (AWCA)

AWCA accounts are unproductive in nature, is nature, as banks lovable investment fund

is concerned sufficient fund has to be kept in liquid from, as current deposits are demands

liabilities. Thus huge portion of his fund becomes on performing for this reason banks do

not pay any of AWCA - CD account holder. Businessmen and companies are the

customers of this product.

Mudaraba Saving Account (MSA)

As per Bangladesh bank instruction 90% of SB deposit are treated as time liability and

10% of it as demand liability. In IBL there is a restriction about drawing money from SB


account but any time holder may draw money of any amount with prior motive. General

house holder and individuals are the clients of this account

Mudaraba Term Deposit (MTDR)

Fixed deposits are of two kinds midterm deposit (MTD) and term deposit (TD)

instrument whose maturity period is within one year are known as MTD and those above

one year are considered as term deposit. Calculation of profit TDR and provisioning

regarding this is quite complicated issue. Profit is calculation at each maturity date and

provision is made on that. Also at the month and provision of profit is made.

Mudaraba saving Account (MSNA) A/C

MSA account can be treated can be treated as semi term deposit. Deposit should be kept

in these accounts for at least seven days to get interest of MSA accounts is less then SB

accounts. (5.5%) Generally profit but may increase to 6% or more depending on the fund

Checkbook is issued them but frequent use of checkbook is discouraged. Governmentally

organization big corporate house and banks are generally the clients of this account.

Account Opening Eligibility

a) Persons over 18 years (except some restricted persons),b) Account of Club,c)

Association,d) Agent,e) Govt.,f) Semi Govt.,g) Organization,h) Liquidators,i) Minor,j)

Married Women,k) Pordanshil Women,l) Illiterate Persons

Account Closing:

First a customer has to submit an application with his/her signature mentioning that

he/she wants to close his/her A/C. Then the signature will be verified by the officer.

Customer has to certify by different department (Advance, Foreign Exchange department)

of Bank that he/she has no liabilities to the Bank. After that the Customer's A/C is debited

and then Bank issue a Pay Order in the name of A/C holder.

General Practice at Regarding Accounts, in Account Opening Register:

After fulfilling all the requirements for opening account necessary entries are given in

the account opening register. There are several registers for several accounts as MSA,

AWCA, TDR etc. Date of opening name of the account holder, nature of business,

address, initial deposit, and introduction various information are recorded in that

register. New accounts number is given from the list of new numbers provided by the

computer department.3.7.1


The principles of calculation and distribution of profit to Mudaraba Depositors

generally followed by different Islami Banks are as under:

Mudaraba Depositors share income derived from investment activities i.e. from the

use of fund.

Mudaraba Depositors do not share any income derived from miscellaneous banking

services where the use of fund is not involved, such as commission, exchange, service

charges and other fees realized by the Bank.

Profit and losses resulting from the use of funds are separately maintained in the

accounts from other income and expenditure relating to other activities and services

offered by the Bank.

Mudaraba Deposits get priority in the matters of investment over Bank's equity and

other cost free funds.

Mudaraba Depositors do not share any income derived from investing Bank's equity

and other cost free fund.

The amount of the statutory cash reserve and the liquidity reserve, which are required

to be maintained with Bangladesh Bank, is deducted from the aggregate balance of

Mudaraba Deposits to arrive at the net balance of profit sharing deposit.

The gross income derived from investments during the accounting year is, at first,

allocated to Mudaraba Deposits and cost-free-funds according to their proportion in

the total investment.

Islami Bank Bangladesh Ltd, at present, applies the following weightages to

Mudaraba Deposits:


Sl. no. Particulars of Deposits Weightages

1. Mudaraba Hajj Savings A/C : 11 to 12 years 1.35

2. Mudaraba Hajj Savings A/C : Upto 10 years 1.30

3. Mudaraba Special Savings (Pension) A/C (MSS): 10 years 1.30

4. Mudaraba Special Savings (Pension) A/C (MSS) : 5 years 1.10

5. Mudaraba Muhur Savings Account (MMSA) : 10 years 1.30

6. Mudaraba Muhur Savings Account (MMSA) : 5 years 1.10

7. Mudaraba Savings Bond (MSB) : 8 years 1.25

8. Mudaraba Savings Bond (MSB) : 5 years 1.10

9 Mudaraba Monthly Profit Deposit A/C (MMPDS) 1.20

10. Mudaraba Term Deposit Account (MTDA) : 36 months 1.00





15. Mudaraba Savings A/C (MSA) 0.75

16. Mudaraba Foreign Currency Deposit A/C (MFCDA) 0.75

17. Mudaraba Special Notice A/C 0.55

Source: Diary 2005, AIBL, Page 13-14.

Differential rates of weightages have been assigned to Mudaraba Depositors on

account of the following factors:

a) Period of Deposits

The longer the period of deposit, the greater the risk they bear with regard to

fluctuation of the rates of profit and erosion of the value of deposit due to

inflation. The Term Depositors have also to forgo profit in case of premature

encashment.

b) Banking Facilities

The Term Depositors do not enjoy any banking facility such as, operating accounts by

cheques, transfer of account from one branch to another, collection of cheques and other

instruments, executing standing instructions through their accounts and so on and so


forth. On the other hand, the PLS Savings Depositors have freedom to get the above

services through their accounts. PLS Short Notice Depositors enjoy still greater facilities

in regard to making deposits in and withdrawal from their accounts.

c) The pattern of Rates of Return on various types of cost bearing deposits of the

traditionalBanks in our Money Market have also an important bearing on

allocation of weightage a different rates.

d) In consideration of the above factors, full weightage has been assigned to our

Mudaraba Deposits of 36 months and relatively lower Weightages have been

given to Mudaraba Deposits of lower periods, Mudaraba Savings and Mudaraba

Short Notice Deposits.

Local Remittance

AIBL sells and purchases PO, DD and TT to its customers only. It does not offer

remittance service frequently to those other then its customer.

Pay Order (PO) :

Pay Order an instrument, which is used to remit money with in a city thorough banking

channel the instruments are generally safe as most of them are crossed.

Issuing of a pay order (PO) :

A customer can purchase pay order in different ways:

By Cash A/C............................................................................. Dr

By account Client A/C ............................................................. Dr

By transfer head office/other departments client A/C ............. Dr

Bills Payable (PO) A/C ............................................................Cr

Income A/C commission on Remittance .................................Cr

Demand Draft (DD)

Demand Draft is many popular instruments for remitting money from one corners of

country another. The instrument is basically used for transfer and payment. Difference

between pay order and demand draft is in terms of place only PO is used for remittance

money with in the city where as DD is used for within the country DD too, constitutes


current liability on the part of a bank. At AIBL DD is not sold to people other than its

customer.

Telegraphic Transfer (TT)

Telegraph transfer in one of the fastest means of transferring money from one branch to

another or from one to another. The TT issuing bank instructs its counterpart by tested

telex message regarding remittance of money. No instrument is given for TT both parties

should have account, as money is transferred.

Clearing

As far safety is concerned customers get crossed check for the transaction. As we know

crossed check cannot be encased from the counter rather it has though been collected

through banking channel i.e. clearing. A client of AIBI received a check of another bank,

which is located with in the clearing range deposit, the checks in account at AIBL New

AIBL will not the money until the check is honored.

Transfer Delivery

Transfer delivery is a cheque collection procedure among internal branches within the

Clearing House. When a cheque is of a Branch Office is deposited to another Branch

Office, then collecting branch on that date sends that cheque to their, Local Office, sends

that cheque to that respective branch and takes necessary action for honoring cheque.

If the cheque is dishonored then authorized branch send the cheque to the local office and

Local Office send that cheque to the collecting branch on the collecting date.

Here Clearing house function is not required because transactions occur among the same

branch of same Bank within the Clearing House.


Cheque is of a same branch of AIBL

If the cheque is of a Branch Office of a Bank (within the Clearing House of same city)

then the collection branch send the cheque to the authorized branch/drawn on branch and

issues an IBCA to the collecting branch.

On the other hand, if the cheque is of another Bank (outside of Clearing House to another

city) then cheque collecting branch will find out whether any branch office of the

collecting branch situated near to Authorized branch.

If yes, then cheque collecting branch will send the cheque to the branch office near

Authorized branch, that branch (near Authorized branch) office collect the cheque from

drawn on branch and issues an IBCA.

If not, then the collecting branch will send that cheque to the Authorized branch, after that

Authorized branch will send a DD with mentioning the name of their branch office near

collecting branch and collecting branch will collect that cheque thereby.

Debit Transaction

Incase of responding transactions, say a customer wants to draw any sort of financial

instrument of a branch to some other place at his/her convenient then authorized branch

of that financial instrument issues an IBCA to that "Drawn On" branch. Here "Drawn On"

branch of Responding Branch pays on behalf of Originating Branch and record all

transactions in the Debit side of the IBG A/C.

Credit Transaction

Cheques are deposited for payment in a branch that branch sends those cheques or other

financial instrument to Clearing House for clearing. After clearing those cheques or

financial instruments collecting branch makes payment against those financial

instruments, before paying this branch as Originating Branch sends an IBDA to the

Authorized Branch/Responding BranchIf those financial instruments are dishonored then

respective parties are not paid and authorized Branch/Responding Branch again sends an

IBDA to the Originating Branch. These returned financial instruments advice are

recorded in the Credit side of the IBG A/C.

Cash

Cash section demonstrates liquidity strength of a bank. It also sensitive as it deals with

liquid money. Maximum concentration is given while working on this section. As far as

safety is concerned specials precaution is also taken. Tense situation prevail if there is any

imbalance in the case.


Vault

All cash instruments (PO, DD, Check) and other valuables are kept in the vault is insured

up to Tk. 4 core with a local insurance company. If cash stock goes beyond its limit of

Tk. 4 core the excess money is transferred to Bangladesh bank if there is shortage of cash

during transaction period money is transferred to drawn from the central bank. There are

three keys of the vault, which are given to three seniors most officers. Daily an estimated

amount of cash is brought out from the vault for transaction purpose. No more than Tk. 4

core brought at once from the vault on a single day.

Teller Customers Relationship

In a bank a person who delivers and receives cash from the cash counter is known as

teller a customer meets most of the time in a bank with a taller on the counter.

So teller should hold certain quality should be friendly, provided prompt service and be

accurate in his task.

Cash Packing and Handling

Cash packing and handling needs a lot of care as any mistake may lead to disaster.

Packing after banking hour when the countries closed cash is packed according to

denomination. Notes are counted several times and packed in bundle Stetted and stumped

with initial.

Evening Banking:

After the banking hour the cash counter is closed. But sometimes customers come to draw

or deposit money after the service hour. However their money is received or paid

recorded in the next daybook. This is known as evening.


Chapter-02

Investment Mode of

AIBLInvestment Mode of AIBL

The most important difference between the Conventional and Islamic bank is that both

the banks operate to earn profit but they differ in the way of operation. Al-Arafah Islamic

Bank emphasis on legitimate (Halal) business. On the other hand traditional bank is not

operated by the following rules and regulations approved by Islam that is the most

powerful contradiction between them. Al-Arafah Islamic Bank does not invest in loans

and fixed interest securities. It can invest in ordinary share only while interest based bank

can invest in loans and different kinds of securities. Al-Arafah Islamic Bank establishes

and participate projects with its client as a partner and bears the risk along with the client

on a proportionate basis. Besides, other conventional banks sometimes finance projects

but do not bear risk. Finally, the concept of Al-Arafah Islamic Bank is to establish on

egalitarian society based on principles of social justice and equity. Whereas traditional

banks pay a fixed interest on savings, time deposit and grant loans with interest for any

purpose. We have gathered the fact that investment management is the theme of AIBL.

The bank takes deposits and invests the same based on the profit-loss sharing. Bank go

for the investment mainly which are long term and profitable in nature. AIBL also give

high concentration on the investment that will generate more employment. As investment

is one of the most priority areas for the AIBL, so it needs to cautious in investment

decision. To ensure proper investment AIBL always go with in-depth study before

making the investment


Investment Objectives of AIBL

The objectives and principles of investment operations of the Banks are:

1. The investment fund strictly in accordance with the principles of Islamic

Shariah.

2. To diversifies its portfolio by size of investment, by sectors (public and

private), by economic purpose, by securities and by geographical area

including industrial, commercial and agricultural.

3. To ensure mutual benefit both for the Bank and the investment client by

professional appraisal of investment proposals, judicious sanction of

investment, close and constant supervision and monitoring therefore.

4. To make investment keeping the socio-economic requirement of the country in

view.

5. To increase the number of potential investors by making participatory and

productive investment.

6. To finance various developments schemes for poverty alleviation, income and

employment generation with a view to accelerating sustainable socio-

economic growth and upliftment of the society.

7. To invest in the form of goods and commodities rather than give out cash

money to the investment clients.

8. To encourage social upliftment enterprises.

9. To shun even highly profitable investment in fields forbidden under Islamic

Shariah and is harmful for the society.

10. The Bank extends investments under the principles of Bai-Marabaha, Bai-

Muazzal Hire purchase under Shairkatul Melk and Musharaka. The Bank is

making sincere efforts to go for investment under Mudaraba principle in near

future.

Investment Policy of AIBL

Investment operation of a Bank is very important as the greatest share of total revenue is

generated from it, maximum risk is centered in it and the very existence of a Bank mostly

depends on prudent management of its Investment Port-folio.

a) Bai-Murabahab) Bai-Muajjalc) Bai-Salamd) Istishna’a

a) Mudarabab) Musharaka

a) Hire Purchaseb) Hire Purchase Under shirkatul Melk

Bai- Mechanism Share Mechanism Ijara Mechanism


For efficient deployment of mobilized resources in profitable, safe and liquid sector a

sound, well-defined and appropriate Investment Policy is necessary.

The important feature of the investment policy of the Bank is to invest on the basis of

profit-loss sharing system in accordance with the tenets and principles of Islami Shariah.

Earning of profit is not the only motive and objective of the Bank’s investment policy

rather emphasis is given in attaining social good and in creating employment

opportunities.

Pursuant to the Investment Policy adopted by the Bank a 7-year Perspective Investment

Plan’ has been drawn-up for the year 1995 to 2002 and put into implementation. Recently

a further 5-year perspective investment plan has been drawn up for the year 2003 to 2008

and put into implementation. The plan aims at diversification of the investment port-folio

by size sector geographical area, economic purpose and securities to bring in phases all

sectors of the economy and all types of economic groups of the society within the fold of

Bank’s investment operations.

Investment Mechanism of AIBl


Investment Instrument of AIBL

Trading modes (Bai-Mechanism)

Bai-Murabaha

Meaning

The terms “Bai” and “Murabaha” have been derived from Arabic words Murabaha” and

“Bai”. The word Bai means purchase and sale and the word Murabaha means a in cash”

Bai-Murabaha meas sale for which payment is in cash or in future fixed date or within a

fixed period. In short, it is a sale on cash.

Definition

Bai-Murabaha may be defined as a contract between a buyer and a seller under which the

seller sells certain specific goods (permissible under Islamic Shariah and the Law of the

land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date

in lump-sum or by installments. The profit marked-up may be fixed in lump-sum or in

percentage of the cost price of the goods.

Types of Murabaha

In respect of dealing parties Bai-Murabaha may be of two types.

Ordinary Bai-Murabaha

If there are only two parties, the seller and the buyer, where the seller as an ordinary

trader purchases the goods from the market without depending on any order and promise

to buy the same from him and sells those to a buyer for cost plus profit, then the sale is

called Ordinary Bai-Murabaha.

Bai-Murabaha on Order and Promise

If there are three parties, the buyer, the seller and the Bank as an intermediary trader

between the buyer and the seller, where the Bank upon receipt order from the buyer with

specification and a prior outstanding promise to buy the goods from the Bank, purchases


the ordered goods and sells those to the ordering buyer at a cost plus agreed profit, the

sale is called “Bai-Murabaha on Order or Promise”, generally known as Murabaha.

This Murabaha upon order and promise is generally used by the Islami Banks, which

undertake the purchase of commodities according to the specification requested by the

Clients and sale on Bai-Murabaha to the one who ordered for the goods and promised to

buy those for its cost price plus a marked-up profit agreed upon previously by the two

parties, the Bank and the Clients

. Bai Muajjal

Meaning

The terms “Bai” and “Muajjal” have been derived from Arabic words Ajal and Bai. The

word Bai means purchase and sale and the word Ajal means a fixed time or a fixed

period” Bai-Muajjal meas sale for which payment is made at a future fixed date or within

a fixed period. In short, it is a sale on credit.

Definition

Bai-Muajjal may be defined as a contract between a buyer and a seller under which the

seller sells certain specific goods (permissible under Islamic Shariah and the Law of the

Country), to the buyer at a agreed fixed price payable at a certain fixed future date in lump-

sum or within a fixed period by fixed installments. The seller may also sell the goods

purchased by him as per order and specification of the Buyer.

Bai - Salam

Meaning

The terms “Bai” and “Salam” have been derived from Arabic wordsBai and Salam. The word

“Bai” means “sale and purchase” and the word Salam means “Advance”. “Bai-Salam” means

Advance Sale and Purchase.


Definition

Under this mode Bank will executive purchase contract with the client and make payment

against purchase of product, which is under process of production. Bai-Salam contract will be

executed after making any investment showing price, quality, quantity, time, place and mode

of delivery. The profit is to be negotiated. The payment as the price of the goods is made at

the time of Agreement / on the spot and the delivery of the goods is deferred.


Bai-Istishna

Meaning

The word Istishna has been derived from the word” Istishna” which means industry or

Manufacturing enterprise. Istishna means to goods manufactured by placing orders to a

manufacturer.

Definition

Isteshna'a is a contract between a manufacturer/seller and a buyer under which the

manufacturer/seller sells specific product(s) after having manufactured, permissible under

Islamic Shariah and Law of the Country after haying manufactured at an agreed price

payable in advance or by installments within a fixed period or on/within a fixed future

date on the basis of the order placed by the buyer

Leasing mode (Ijarah mechanism

Hire purchase /Ijarah

The term Ijarah has been derived from the Arabic works Ajr and Ujrat which means

consideration, return, wages or rent. This is really the exchange value or consideration,

return, wages, rent of service of an Asset. Ijarah has been defined as a contract between

two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service on

benefit gainst a specified consideration or rent from the asset owned by the Hiree. It is a

hire agreement under which a certain asset is hired out by the Hiree to a Hirer against

fixed rent or rentals for a specified period.

Hire Purchase Under shirkatul Melk

Hire purchase under shirkatul Melk is a special type of contract which has been

developed through practice. Actually, it is a synthesis of three contracts: Shirkat, Ijarah

and sale. Shirkat means partnership. Shirkatul Melk means share an ownership. When


two or more persons supply equity, purchase an asset, own the same jointly, and share the

benefit as per agreement and bear the loss in proportion to their respective equity, the

contract is called Shirkatul contract.


Share Mechanism

Mudaraba

It is a from of partnership where one party provides the fund while the other provide the

expertise, labor and the letter referred to at the Mudarib any profits accrued are shared

between the two parties on a pre –agreed basis, while capital loss in exclusively born by

the partner providing the capital.

Musharaka

The term Shirkat and Musharakah have been derived from Arabic words “Shairkah” and

“Sharika.” The word shirkah means a partnership between more than one partner. Thus

the ward “Musharaka” and “Shirkat” means a partnership established between two or

more partners for purpose of a commercial venture participate both in the capital and

management where the profit may be shared between the partners as per agreed upon .

Small business investment scheme

Bangladesh a third-wood developing country is rich in natural and human resources. In

spite of vast possibilities, the majority people of the country live in hardship-below

poverty tapped, explored and exploited. Physical labor is their only means of earning. A

large segment of this populace is active youth force. Many of them are efficient,

intelligent and energetic with initiative & drive and have courage to tale risks. But they

can not uplift their socio-economic condition due to poverty, lack of financial support and

other required facilities.

Housing investment scheme

One of the basic human needs is to have a house to live in. A house is in an abode of

peace and happiness. Housing has now become an acute problem in the country,

especially in the towns, cities and metropolis. With their limited income, it has become

almost impossible on the part of the lower middle class, middle class and sometimes,

even for upper middle class to solve their housing problem. To meet this basic human

need, Al-Arafah Islamic Bank Limited is committed to contribute to this end to provide a

peaceful and happy

Real estate investment program

Professionals, Service-holders, Businessmen, Real Estate Developer and other categories

of people who are not entitled for availing investment facilities under Housing Investment


Scheme, shall be eligible under this programme Investment is to be extended to build new

houses and for extension/ completion of the house already constructed, commercial

building, shopping complex, flat apartment etc.

Transport investment program:

Under this scheme, investment in being allowed to the existing successful businessmen

and potential entrepreneurs in this sector for all types of road and water transport with

simple and easy terms and conditions. The bank is also extending investment facilities to

multinational companies, established, business houses and well to do officials and

professionals for acquisition of private cars, microbus and jeeps.

Car investment scheme

Car is considered as on essential mode of transport in the modern society, particularly by

a section of the officials, business houses and business executives and established

Micro industries investment scheme

Al-Arafah Islamic Bank Ltd. has been appreciably participating in this direction by

financing industrial sector. With a view to creating wider base for industries, the Bank

has decided to launch "Micro Industries Investment Scheme" through its Branches

Investment at minimum possible risk.

Liquidity of investments.

Conform to central bank’s investment restrictions.


Chapter-03

Foreign Exchange of AIBL

Meaning of Foreign ExchangeMeaning of Foreign Exchange

Foreign Exchange means currency & trade exchange say conversion of one to another.

This is a part of economic & Science. This is a big deal divided into different currencies

instrument such as Draft, Traveler Cheque, Bill of Exchange business including sell,

purchasing of currency notes & TC etc.

Currency Exchange means the conversion of one Currency into another.

Foreign Exchange Market:Foreign Exchange Market:

Foreign Exchange market means the places where foreign currency is bought & sold. In

this more that supply, currency value.

Alternately following are the features of foreign exchange market:

1. Bank & client.

2. Different Banks in the same foreign exchange market.

3. Different Bank & Schedule Bank of the same country.

4. Different Control Bank.

Islami a Bank follows the following the two craters in respect & payment of foreign

exchange:

1. Local currency market value &

2. Foreign currency market value.

Exchange is being controlled:

1. To stabilize the rate of exchange.

2. To protect domestic industries.

3. For proper implementation of plans.

4. To increase the bargaining strength

5. To check over invoicing & Under invoicing


Authorized Dealer Branch:Authorized Dealer Branch:

Bangladesh bank in exercise of the power under section 3 of Foreign Exchange regulation

Act. 1947 issues a license to schedule Bank where they have adequate trained

Officer/Staff to deal in Foreign Exchange. The banks that are authorized to deal in foreign

exchange are called authorized dealers.

Arbitrage of Foreign Exchange:Arbitrage of Foreign Exchange:

Arbitrage can be defined as simultaneous buying and selling of foreign currencies for the

purposes of making profit Arbitrage is carried out mostly by banks, They keep constant

watch over the latest development in the financial market of the world.

Foreign Exchange Regulation Items:Foreign Exchange Regulation Items:

1. Bangladesh Bank Manual.

2. Foreign Exchange Circular.

3. Public Notice

4. Import & Export Policy Gazette

5. Ministry of Commerce Circular

6. BCD circular.

7. Guide lines for foreign exchange regulation.

8. Other authorization (i.e. NBC Dept)

Methods of effecting payment of AIBL

Islami Bank follows the following methods to make payments between countries.

1. Telegraphic Transfer (TT): This is an instruction for transfer of money by

Telegram, Cable or telex from a bank in one country to another Bank in different

center. This is an instruction form the Importers Bank to the exporters Bank. The

TT charge is realized by us from the partly as per Bank circular.

2. Mail Transfer (M.T): This transfer is the order to pay cash to a 3 rd party. This

Transfer is sent by mail & the charge must be realized as per Bank circular.

3. Drafts & Cheque: A draft is pay order issued by one Bank to another Bank or its

branch.


Activities of Foreign Exchange

There are three kinds of foreign exchange transaction

1. Import

2. Export &

3. Remittance.

In the following these are discussed in brief.

IMPORTIMPORT

Meaning of Import Meaning of Import

Import means lawfully carrying out of anything from one country to county for Buying. It

will be occurred according to the Government law.

Important Policy Order Important Policy Order

Based on the needs of commodity and availability of finance, Government declares

policy. For import of goods for a particular period having approval from the National

Assembly is defined as Import policy order. Import policy is a guideline of a set of rules

envisaged by Government Authority i.e. the Ministry of Trade and commerce for the

registered importer for import of goods inside the country.

Duration Duration

Earlier import policy has been formulated for two years. But present import policy order

has been formulated for 5 (five) years, Effect from the 14 th June 2002 to 30th June 2008

and valid till announce of new import policy order. If require Government can revise the

policy in each every years.

Import related feesImport related fees

Four categories of importer registration renewal fees are as under

Categories Yearly heights

import

Registration

Fees (Taka)

Renewal

A 5.00 500/- 500/-

B 15.00 1500/- 1500/-

C 50.00 3000/- 3000/-

D Above 50.00 5000/- 5000/-


Regulations of Import::

L/C: may be open under deferred payment basis.

Direct Payment in Abroad:

Only for Bangladeshi National who live in abroad for service. Those who are entitled to

purchases the importable goods for direct payment to the beneficiary from his own

service without opening any L/C, The goods must be sent to the Bangladesh. Nationals

who lived in Bangladesh. In that case no approval is required from CCI & E.

Time Limit Opening of L/C:

Letter of Credit shall be opened by all importers within 120 days from the date of

registration of LCAF with the Bangladesh Bank unless otherwise notified.

Validity of LCA for Shipment:

Unless otherwise specified, shipment of goods shall take place within 17 month in the

case of machinery and spare parts and 11 months in the case of all other items form the

date of issuance of LCA from by Bank or registration of LCA form within Bangladesh

Bank registration unit as the case may be.

Document required to be submitted along with LCA Form:

Importers in both public sector and private sector shall submit to their nominated banks

the following documents along with the L/C authorization Form for opening letter of

credit.

a) L/C application form duly signed by the importer.

b) Indent for goods issued by indenture or pro-forma invoice obtained from

the foreign supplier, as the case may be and

c) Insurance cover note.

Import L/C (Letter of Credit):Import L/C (Letter of Credit):

A letter of credit is a conditional Bank undertaking of payment. In other words letters of

credit is a letter form the importer Bankers to the exporter that the bills if drawn as per

terms & conditions complied with will be honored on presentation.


Definition of L/C:

A letter of Credit is a conditional bank undertaking of payment. In other words letters of

credit is a letter form the importer bankers to the exporter that the bills if drawn as per

terms and conditions are compiled with will be honored on presentation

As per UCPDC 500 a credit may be either:

i) Revocable.

ii) Irrevocable.

The Credit, therefore, should clearly indicate whether it is revocable or irrevocable. In the

absence or such indication the credit shall be deemed to be irrevocable.

Classification of L/C:

Revocable L/C,Irrevocable L/C,Confirmed L/C,Transferable L/C,Divisible

L/C,Revolving L/C,Restricted L/C,Red Clause L/C,Green Clause L/C,Back-to-Back L/C

Types of L/C:

1. Revocable Credit:

As per Article no. 8 (a) A revocable credit is a credit which can be amended or canceled

by the issuing bank at any time without prior notification to the seller since to offers little

security to the seller.

2. Irrevocable Credit:

As per Article no 9 an irrevocable credit constitutes a definite undertaking of the issuing

Bank. A credit cannot be amended or cancelled without the agreement of all parties. It

gives the seller grater assurance of payment. An irrevocable credit can be either confirms

or unconfirmed dependant on the desire of the seller.

L/C application & Procedure for Opening L/C :L/C application & Procedure for Opening L/C :

For opening L/C the client is to submit to the bank an application in the printed format of

the designated bank. This is called L/C application form which is also an agreement

between the importer and the bank. The form is to be stamped under stamp Act. In force

in Bangladesh. The importer must submit the LCA & IMP and indent or contract.

Purchase order/pro-forma invoice (duly accepted by the importer) along with L/C

application.

The L/C application must be completed/ filled in and signed by the authorize person of

the importer giving the following particulars:

a. Full name and address of the supplier of beneficiary and importer.


b. Brief description of the goods.

c. L/C value for US$, etc. (CFR value) which must not exceed the LCA value.

d. The unit price, quantity quality of the goods.

e. Origin of the goods, port of loading and port of destination must be mentioned.

f. Model of shipment (Sea, Air, Truck or Rail etc.)

g. List date of shipment and negotiation time (must not be beyond 30 days from the

shipment date).

h. Insurance cover note number and name or the company.

i. Tenor of draft (1.e, sight/ issuance/ deferred etc.

j. Mode of advising L/C (i.e. airmail/ full telex short cable etc.)

k. Opening of L/C under UCPDC publication No. 500/- ICC revision 1993.

l. Whether shipment/ transshipment is allowed.

m. Instruction to add confirmation if required.

n. LCA Number.

o. Any other relevant information and instruction if any must be mentioned in the

L/C application form.

A written application from opener is verified a relevant license/ LCA/ permit of the loan/

Barter must remain valid up to that period the extension is sought. Increase of L/C

amount may be done provided the LCA covers the increase in amount.

L/C amount can be decreased provided the relevant Indent is amending accordingly and

with the consent of beneficiary.

Each of clauses of the L/C can be amended provided the parties involve the L/C consent

to it. Procedure or preparation and dispatch:

Amendment is to be typed in the Banks printed format. The copies of the amendment

must be dispatched to all concerned as done in dispatching the L/C. Amendment be kept

in the L/C file chronologically date wise.


Back to Back L/CBack to Back L/C

Meaning of Back to Back L/CMeaning of Back to Back L/C

Back to Back L/C is a type of import L/C either in inland or in abroad, which open

against lien on valid expert L/C.

In our country in export garment this method of finance is widely used and very well

known to the manufacturers of garments. Bangladesh exporter received an irrevocable

L/C. for supply readymade shirts from an American Bank. For manufacture of the

ordered shirts the exporter. Dose not has required raw materials and cloths. To execute

the order he is to import materials and cloths from Korea.

Then the Bangladesh exporter does not have the required raw materials and clothes. To

excite the order he is to import materials and cloths from Korea.

Then the Bangladeshi exporter will have to open an import L/C favoring Korean suppler

for import of cloths and accessories. The L/C is opened by the Bangladeshi bank keeping

the American Bank L/C in the ‘back’ (i.e. to fulfill the requirement) of the export L/C is

called back to back L/C.

While opening such import L/C the Bangladeshi exporter is to pledge to manufacture the

shirt by the Korean in imported cloths under boded ware house system.

Problems of Back to back L/C Problems of Back to back L/C

1. Shipment time gap: Sometime time is shorted for exporting against import

L/C, kit may be caused.

2. Terms and rules violations: AIBL cannot violate the rules & term of

Shariah council.


EXPORTMeaning of Export: Meaning of Export: Export means lawful carrying out of anything from one country to

another country for sale

Definition of ExporterDefinition of Exporter

The importers and exports trade of the country is regulated by the Imports Exports

Control Act 1950. No person /firm is allowed to export any thing from Bangladesh unless

he is registered with CCI and E under the registration order (Importer and Exporter) 1952.

To become an exporter an ERC (export Registration Certificate) must be obtained from

the office of CCI & E.

Export under L/C

Exporters are allowed to export the commodity under irrevocable letter of credit. Under

this type of export, exporter will ship the goods as pr terms of the credit and will get

payment as per arrangement of the credit.

General Rules for Export

There are some rules, which are mandatory for export of any goods form Bangladesh. The

rules are as under:

(1) No Person can export any goods from Bangladesh, unless he is duly registered as an

exporter with the CCI & E.

(2) All export must be declared on the EXP form, which is consisting of 4 copies.

(3) Export mush is against any of the following:

a) Export L/C.

b) Firm Contract.

c) Advance Payment.

REMITTANCMeaning of RemittanceMeaning of Remittance

The word “Remittance” originates from the word “remit” which means to transmit

money/ fund. In banking terminology, the work “remittance means transfer of fund one

place to another. When money transferred from one country to another is called “Foreign

Remittance”


Types of Remittance:Types of Remittance:

Foreign remittance may be classified into.

Inward Foreign Remittance.

Outward Foreign Remittance.

Mechanism of RemittanceMechanism of Remittance

FCAD- Foreign currency A/C Dollar.

FCAP- Foreign currency A/C Dollar.

MFCD- Mudaraba foreign currency deposits.

PFC- Private foreign currency.

FCAD- Exp.- Foreign currency A/C dollar export.

NRO- Non residence dollar.

NRT- No residence Taka.

PDAP- properly development A/C dollar.

PDAP- properly development A/C pound.

Instruments of Foreign Remittances:Instruments of Foreign Remittances:

Cash for : Dollar, Pound, France Fr. Riyal or any other currency.

T.C. : Travelers Cheque.

F.D.D : Foreign Demand Draft.

T.T : Telegraphic Transfer, Cable transfer or swift transfer.

M.T : Mail Transfer.

I.M.O : International Money Order.

Cheque : By any person & institution..

P.O : Payment Order.

PROBLEMS & RECOMMENDATION

PROBLEMS

Islamic Banking is a new phenomenon in our country during last two decades. So

majority of our people have no proper knowledge about the activities of Islamic

Banking as well as its investment mechanism hamper large scope of investment of

AIBL.

Most of the people in our country have a bad impression of AIBL operations

regarding indirect generation of interest which meaning no difference between


investment of AIBL loan / Credit / advance of conventional banks for this reason,

they are not too much interested to make investment with AIBL.

Because of improper insufficient application of Islamic Banking rule in our

country. The investment operations of AIBL can't run smoothly.

AIBL, which is committed to avoid interest, can’t invest the permissible part of its

statutory liquidity Reserve and short Term liquidity surplus in those securities.

Recommendation

1. AIBL should increase skilled manpower to do its financial activities more efficiently.

So that many of the employees do not have to do extra work.

2. The Bank should go aggressive advertising and promotional activities to get a broad

geographic coverage.

3. The authority of AIBL should introduce more innovative and modern customer

service.

4. Practice amount of doubtful income declined substantially during the year as

compared to the past few years, indicating more carefulness of the Management in

complying with Shariah. As a result, idle money will be invested to increase potential

profit of this Bank.

5. Inclusion of more subjects based on the Quran and Sunnah in the Training courses of

the Islami Bank Training & Research Academy in order to develop human resources

having morally.


Performance of AIBL: APPENDIX (Figure in Million)

Particulars 2004 2005 2006 2007 2008

Authorized Capital 1,000 1,000 25,000 25000 25000

Paid-up Capital 586.96 677.94 854.20 1153.18 1383.81

Reserved Fund & other reserve 270.27 365.87 536.00 653.00 905.33

Shareholder’s Equity(Capital & Reserve

957.26 1220.16 1690.18 2037.74 2705.74

Deposits (Growth.) 10108.28 11643.66 16775.34 23009.13 29690.12

Investments (Growth) 8150.16 11474.41 17423.19 22906.37 29723.79

Import Business 9337.49 12631.60 18821.40 27042.72 32685.13

Export Business 3639.34 4932.90 9142.70 12714.91 20176.64

Inward Foreign Remittance 292.00 455.60 1346.54 1843.94 2672.04

Guarantee Business 305.09 299.15 520.15 601.88 784.49

Total Income 1120.85 1452.68 2172.48 2955.61 4387.27

Total Expenditure 771.96 904.48 1202.71 2199.43 2859.17

Net Profit before Tax 348.89 548.20 969.77 756.18 1528.10

Payment to Govt.(Income Tax) 154.76 262.90 470.02 347.31 668.24

Dividend 15.5% 26% 35% 20% 30%

Total Assets (excluding off balance

sheet items)12874.61 15336.89 21368.16 30182.32 39158.44

Fixed Assets 195.17 208.00 215.10 2334.48 396.76

No. of Foreign Correspondents 775 815 830 840 850

Number of Shareholders 5379 5402 4487 12013 10664

Number of Employees 803 771 912 1033 1080

Number of Branches 40 41 46 46 50

Book Value per Share (Taka) 178.58 205.98 232.63 196.69 195.53

Earning per Share (Taka) 26.36 38.78 55.02 25.10 48.29

Market Value per Share (Taka) 323.00 306.00 242.00 440.00 444.00

Capital Adequacy Ratio 14.56% 12.17% 10.71% 10.92% 11.20%

Note: Tk. in (Million).Foreign Exchange Business performance of AIBL compared to that of

national position:


In million taka.

Year

Import Export Remittance

National AIBL% of

AIBLNational AIBL

% of

AIBLNational AIBL

% of

AIBL

1995 127986 6204 4.85 68235 3967 5.81 29835 1814 6.08

1996 146930 8778 5.97 81600 4949 6.06 34692 2029 5.85

1997 163500 8612 5.27 92985 5842 6.28 40260 2403 5.97

1998 201105 14623 7.27 114645 7790 6.79 45847 2943 6.42

1999 257765 21218 8.23 134935 11016 8.16 88873 2447 4.40

2000 293190 17874 6.10 152105 11764 7.73 56352 3328 5.91

2001 323625 17370 5.37 184785 14469 7.83 66173 4806 7.26

2002 363335 20238 5.57 206220 14894 7.22 75662 6361 8.41

2003 403790 20396 5.05 228870 14798 6.47 90024 8415 9.35

2004 463990 25327 5.46 286710 16889 5.89 98481 7644 7.76

2005 492140 25907 5.26 319115 16082 5.04 115785 9879 8.53

2006 495210 33788 6.82 314550 16673 5.30 164844 14670 8.90

2007 599250 46237 7.72 361870 21738 6.01 184913 16668 8.01

2008303510

Jan--Aug

59804

Jan-Dec---

466200

Jan--Aug

29151

Jan-Dec---

139964

Jan--Aug

23669

Jan-Dec---

Source: Economic Trends published by Bangladesh Bank.

Foreign Exchange Business performance of AIBL during the year 2006 & 2007 and

target for 2008:


IMPORT

SL

No.

Name of

Branch

Achieved

2006

Target

for

2007

Achieved

2008

%of

achieved

over target

Target

for

2008

Corporate Branch :

01 Local 10025 14536 12847 88 17986

02 F. Exchange 3328 4826 4585 95 6419

03 Nowabpur 3629 5262 3774 72 5284

04 Head Office 1039 1560 2207 141 3090

Sub Total 18021 26184 23413 89 32778

Zonal Branch :

01 Dhaka South 8962 13675 11169 82 16083

02 Dhaka North 1253 2301 782 34 1571

03 Chittagong 8171 11913 9338 78 13429

04 Bogra Zone 4779 6930 7365 106 10317

05 KhulnaZone 4475 6606 7460 113 10891

06 Comilla Zone 576 676 277 41 1016

Sub Total 28216 42101 36391 86 53307

Grand Total 46237 68285 59804 88 86085


EXPORT

SL

No.

Name of

Branch

Achieved

2006

Target

for

2007

Achieved

2008

%of

achieved

over target

Target

for

2008

Corporate Branch :

01 Local 13124 18374 16200 88 22683

02 F. Exchange 2054 2875 3028 105 4239

03 Nowabpur 560 784 769 98 1077

04 Head Office 228 330 709 215 993

Sub Total 151166 22363 20708 93 28991

Zonal Branch :

01 Dhaka South 4764 7063 6848 97 9587

02 Dhaka North 193 604 363 60 508

03 Chittagong 571 950 860 91 1204

04 Bogra Zone 99 276 194 70 272

05 KhulnaZone 145 303 178 59 249

06 Comilla Zone ----- 50 ----- ---- ----

Sub Total 5772 9246 8443 91 11820

Grand Total 21738 30609 29151 92 40811


REMITTANCE

SL

No.

Name of

Branch

Achieved

2006

Target

for

2007

Achieved

2008

%of

achieved

over target

Target

for

2008

Corporate Branch :

01 Local 5482 8234 5019 61 7278

02 F. Exchange 232 348 356 102 516

03 Nowabpur 58 87 39 45 57

04 Head Office 330 512 380 74 551

Sub Total 6109 9181 5794 63 8401

Zonal Branch :

01 Dhaka South 1594 2404 2652 110 3850

02 Dhaka North 1737 2617 3173 121 4604

03 Chittagong 1564 2360 2068 88 3011

04 Bogra Zone 484 730 945 128 1389

05 KhulnaZone 534 825 994 120 1451

06 Comilla Zone 4646 7003 8043 115 11684

Sub Total 10559 15945 11875 112 25990

Grand Total 16668 25126 23669 94 34391


TOTAL

SL

No.

Name of

Branch

Achieved

2006

Target

for

2007

Achieved

2008

%of

achieved

over target

Target

for

2008

Corporate Branch :

01 Local 28638 41144 34068 83 47946

02 F. Exchange 5614 8049 7969 99 11174

03 Nowabpur 4247 6133 4582 75 6417

04 Head Office 1597 2402 3296 137 4633

Sub Total 40098 57728 49915 86 70171

Zonal Branch :

01 Dhaka South 15320 23142 20669 89 29521

02 Dhaka North 3183 5522 4318 78 6684

03 Chittagong 10306 15223 12266 81 17645

04 Bogra Zone 5362 7942 8504 107 11977

05 KhulnaZone 5154 7734 8632 112 12591

06 Comilla Zone 5222 7729 8320 108 12700

Sub Total 94547 67292 62709 93 91117

Grand Total 84643 125020 112624 90 161287

Confidential Report 2008


Summary of Foreign Exchange Business performance of AIBL as on

31.12.08

SL

No

Nature of

Business

Achievement

during

2006

Target

for

2008

Achievement

during

2008

% of

achievement

over target

2008

% of

growth

over

2008

Target

for

2008

Projected

Growth

Rate

01 Import 46237 67044 59804 89.20 29.34 86085 44

02 Export 21738 30433 29151 95.79 34.10 40811 40

03 Remittance 16668 25002 23669 94.67 42.00 34391 45

Total 84643 122479 112624 91.95 33.06 151287 43

Foreign Exchange Business:

SL

No

Nature of

Business

2008 2007 Growth of

2008 over

2006Amount

% of Total

AmountAmount

% of Total

Amount

01 Import 59804 53 46237 54 29

02 Export 29151 26 21738 26 34

03 Remittance 23669 21 16668 20 42

Total 112624 100 84643 100 33


Notes

2007 2008Current AssetCash 2019209679 2415216307

Balance with other Banks & Financial Institutions

3477042678 1382983634

Maturity grouping of Investment (up to one year)

88225921 66853386

Maturity grouping of bills purchases & discounted

13177365769 14834146957

Total 19157850675 18302923656

Current Liabilities:Borrowing from others 1780000000 1320000000

Maturity grouping of Deposit 20072123915 16371599213

Residual. Maturity grouping of Others 0 0

Total 21852123915 17691599213

Ratio analysis: Ratio analysis refers to the relationship determined from a firm’s

financial statement expressed in simple mathematical form. It is used to compare and

investigate the logical relationship between different pieces of financial information. It is

helpful to highlight the strength or weakness of a firm. Following ratios can be calculated

to depict the performance of AL-ARAFAH ISLAMI BANK LTD. over year, as well as

in comparison with the industry average.


LIQUIDITY RATIO

Current and quick ratio is mostly used to measure the liquidity, this ratio measure the

banks ability to fulfill its short term debts out of its liquid assets.

CURRENT RATIO

AL-ARAFAH BANK LTD. INDUSTRY AVARAGE (2008) DBL: 1.13 EBL: 1.14 Average CBL: 1.07 1.12 EXIM: 1.15 PBL: 1.10

Current Ratio 2008 =

=18302923656/17691599213

= 1.03 x

Current Ratio 2008 =

= 19157850675/21852123915 = 0.88 x

Name of the Bank

2008 2008 Industry Average

Al-Arafah Islami Bank Ltd

1.03 x 0.88 x 1.12x

COMMENTS: The liquidity position of the bank was more increase year by year than

industry average. The industry average was poor .The overall liquidity position was at all

satisfactory. Because of, the liquidity position of the bank as strong as average bank.


LEVERAGE RATIO

Debt ratio and debt to equity ratio is mostly used to measure the leverage ratio, the

employment of the assets or the source of fund for which the firm hat to fixed cost and get

fixed return may be tremens as leverage. Increase in leverage in crease the level of risk as

well as return and vice versa.

DEBT RATIO: It measures the firs ability to pay its long term debt. This ration

gives two answers they are:

1. Is the company financed mainly by debt or equity?2. Does the company make enough to pay the interest on its total loan when due?

AL-ARAFAH ISLAMI BANK LTD. INDUSTRY AVARAGE(2008) DBL: 0.94 EBL: 0.91 CBL: 0.94 0.93 EXIM: 0.92 PBL: 0.93

Debt Ratio 2007 =

= 28144824936 / 39158437848 = 0.93

Debt Ratio 2008 =

=28144824936 / 30182323406 = 0.93

Here we compare the performance of AL-ARAFAH ISLAMI BANK LTD in 2008 in terms of its performance in 2007 as well as the Industry average of 2007.Name of the Bank 2007 2008 INDUSTRY

AVARAGEAl-Arafah Islami Bank LTD

0.93 0.93 0.93

COMMENTS: This ratio’s indicate of debt mgt in comparison to average industries. The

bank highly levered and dependent on creditors on the assets is increasing over the years.

Under such circumstances it would be difficult for the bank .The arrange outside

financing unless the improve on equity finance.


DEBT TO EQUITY RATIO/MANAGEMENT EFFICIENCY RATIO:

AL-ARAFAH ISLAMI BANK LTD. INDUSTRYAVARAGE (2008)

DBL: 17.3 EBL: 10.4 Average CBL: 15.9 13.8 EXIM: 11.74 PBL: 14.

Debt to Equity Ratio 2007=

= 28144824936 203749847 = 13.81

Debt to Equity Ratio 2008=

= 36452697089 2705740759 = 13.47

We compare the performance of AL-ARAFAH ISLAMI BANK LTD.. in 2004 from

2008 as well as the Industry average of 2008.

Name of the Bank 2007 2008 Industry average

Al-Arafah Islami bank

13.81 13.47 13.8

COMMENTS: The performance of the debt position is at all satisfactory. The debt position of bank is reduce year by year’s


Return on Assets

ROA 2007 = Net income / Total Asset =347344759 / 30182323406 =0.0115

ROA 2008 = Net income / Total Asset = 668383316 / 39158437848 =0.017

COMMENTS: The bank wills capable to earn adequate profit .Because of, ROA is more

increase year by year. The recent year profitability position and Return on assets is more

than industry average.

RETURN ON EQUITY RATIO (ROE):

It measures the return that the company earns on every tk. of owners and shareholders

investments. If ROE increases then return against every tk. invested in the firm by owners

and shareholders increases.

AL –ARAFAH ISLAMI BANK LTD. INDUSTRYAVARAGE (2008)

DBL: 22.5 % EBL: 11.28 % Average CBL: 11.9 % 19 % EXIM: 23 % PBL: 26.5 %

ROE 2007 = Net Income / Total Equity =347344759 / 2037498470 = 0.1704

ROE 2008 = Net Income / Total Equity = 668683316 / 2705740759 = 0.2470 Here we compare the performance of AL-ARAFAH BANK LTD in 2007from 2008 as

well as the Industry average of 2007.


Name of the Bank 2007 2008 INDUSTRY AVARAGE

Al-Arafah Islami Bank Ltd.

17.04 % 24.70 % 19 %

COMMENT: The bank wills capable to earn adequate profit .Because of, ROE is more

increase year by year. The recent year profitability position and Return on equity is more

than industry average.

Working capital:

Working capital 2007:

18302923656 -17691599213

= 611324443

Working capital 2008:

19157850850675 – 21852123915

= (2694273240)

Comment: The working capital mgt position is increase year by year. It will possible,

the adequate working capital to operate other banking activities.


Performance at a glance(In Million taka)


Operating Profit

(In Million Taka)

Deposit Mix (%)


Sector wise Investment (%)


Finding

Al-Arafah Islami bank is the pioneer of private banking sector

It provides high quality service to the customer in all area

By virtue of high customer satisfaction bank build strong goodwill

It provides excellence service at comparatively lower charge

Both interest rate on deposit and interest rate on various loans is comparatively

lower

Special schemes like Monthly saving scheme, Al-Arafah Islami Bank Ltd. saving

scheme are very popular.

Modern banking services like online banking, wide range of ATM service ,one

stop banking service are not available

Contemporary security arrangement is not existing

Lack of new feature deposit and loan product

Loan assessment and approval procedure is lingering


Suggestion

Al-Arafah Islami Bank Limited is a large organization and banking is a complex and

comprehensive task. So it is difficult for me, by my little knowledge, to give suggestion

regarding improvement of the service of AIBL. From my observation I have found that

following things may improve the service of the bank

Modern banking service like online banking, branch network system needs to

introduce.

A wide range of network will bank the bank more competitive

If AIBL establish networking system with all branches then it can easily transfer

data one another branch within short time.

Instead of introducer system bank may use national ID card for account opening

to reduce the difficulty of the customer

Bank can introduce new featured deposit product to increase amount of deposit

Modern security facilities like close circuit camera is demanded

Emphasis on advertising and branding of the bank is essential to increase the

customer base

Website of AIBL need to be enriched to give more information to the customer

AIBL may introduce diverse loan product to meet various requirement of the

customer

Whole loan process need to be shorten so that customer can get loan in short time


Conclusion

From its inception Al-Arafah Islami bank is serving the customer ensuring high level of

satisfaction. Through its integrity, innovation and relentless ef fort it has made a distinct

position among other bank. Though the bank is facing some problems it has more

opportunity to flourish itself.


BIBLIOGRAPHY

Books:

1. A.A.M. Habibur Raman; Islami Banking.

2. Md. Haider Ali; A Hand Book of Islami Banking & Foreign Exchange Operation.

3. Bangladesh Bank; Guide lines for Foreign Exchange Transactions.

4. Howard R. Goldsmith; Import / Export

(A Guide to Growth, Profits and Market Share).

5. Sayed Ashraf Ali; Foreign Exchange & International Finance.

6. A.K. Chatterjee ; Principles of Foreign Exchange.

7. M. Omar Chapra; Review of Islami Economics.

Reports

1. Annual Report of AIBL, 2008.

2. Confidential Report of AIBL, 2008

3. Al-Arafah Islamic Bank Ltd. Parichiti-2001

4. Economic Trends published by Bangladesh Bank


ABBREVITIONS

A/C : Account

ACA : Al Wadia Current Account

MSD : Mudaraba Savings Deposit

MSND : Mudaraba Short Notice Deposit

MTD : Mudaraba Term Deposit

MSD : Mudaraba Special Deposit

BP : Bills Pabable


Internship Report

ON

General Banking, Investment

& Foreign Exchange of“AL- ARAFAH ISLAMI

BANK LIMITED”.

Al-Arafah Islami Bank Ltd.


SOUTHEAST UNIVERSITYl


Internship Report

ON

General Banking, Investment

& Foreign Exchange of“AL- ARAFAH ISLAMI

BANK LIMITED”.(Banani Branch.)

SOUTHEAST UNIVERSITY


Internship Report

ON

General Banking, Investment & Foreign Exchange of

“AL- ARAFAH ISLAMI BANK LIMITED”.

(Banani Branch.)

PREPARED FORMr. Kazi M. TariqueAssistant Professor

School Of Business Studies Southeast University

PREPARED BYMd. Khalid Hussain

ID No. – 2008010001026Program – MBA, RegularMajor-Finance & Banking

Batch – 18th

Southeast University

Date of Submission: 29th July, 2009


Southeast University, Dhaka, Bangladesh


July 29, 2009

ToMr. Kazi M TariqueAssistant ProfessorsSchool of Business StudiesSoutheast University

Subject: Submission of internship report.

Sir,

Here is the report of my internship project in AL-ARAFAH ISLAMI BANK LIMITED

that you authorized on June 06, 2009. The project was “General banking, investment and

foreign exchange operation of AL-ARAFAH ISLAMI BANK LIMITED.

The report covered the comprehensive banking, especially foreign exchange business &

its problem and prospect of AIBL. Finally, the report tried to identify the probable

reasons of the problem and suggestions are made for the business mechanism of AIBL to

betterment of the current situation. Instructions regarding the size of the report and

limited time to study affect the report. Major limitations include unavailability of

complete data for 2008and lack of generalization of the findings as it was done in a case

study format.

At the end I hope that the report will shed some light on the topic even with the

limitations. I am again thankful to you for your kind co-operation.

Sincerely Yours,

Md. Khalid Hussain

ID NO-2008010001026, Batch-18th

Prog.-MBA (Regular), Major: Finance & Banking

School of Business Studies

Southeast University


Table of Illustration Particulars Page

Introduction 1Origin of the report 3Acknowledgement 4Executive summary 5Objectives of the study 6Justification of the study 7Methodology of the study 8Scope of the report 9Limitations of the study 10Chapter -1 General Banking 11-20Chapter -2 Investment 21-28Chapter-3 Foreign Exchange 29-45

Notes & Ratio Analysis 46-51Graphical Presentation 52-54Finding 55Suggestion 56Conclusion 57Bibliography 58

Abbreviation 59


CERTIFICATE

This is to certify that the internship on “General Banking ,Investment &Foreign Exchange” has

been submitted for the award of the degree of Masters of Business Administration (MBA)

major in Finance&Banking from Southeast University, carried out by Md.Khalid Hussain

of 18th batch bearing ID:2008010001026, under my supervision. To the best of my

Knowledge and as per his declaration, any part of this report has not been submitted for

any degree, diploma or certificate.

He is permitted to submit the Internship Report.

------------------------------------------Mr. Kazi M. Tariuqe

Assistant ProfessorSchool of Business StudiesSoutheast University


DECLARATION

I, Md.Khalid Hussain, the student of Masters of Business Administration (MBA) 18th

batch bearing ID: 2008010001026 major in Finance&Banking from Southeast

University , would like to solemnly declare here that an internship report on “General

Banking ,Investment &Foreign Exchange” has been authentically prepared by me. While

preparing this internship report, I didn’t breach any copyright act intentionally. I am

further declaring that, I did not submit this report anywhere for awarding any degree,

diploma or certificate.

_______________________ Md.Khalid HussainMBA (Major in Finance&Banking)18th BatchID: 2008010001026Southeast University

al-arafah islami bank

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