1. Internship Report On The Investment and Comprehensive Performance Analysis of commercial Bank. A case Study of Al-Arafah Islami Bank Ltd. Prepared For: Abdullah Iftikhar Lecturer School of Business Studies Southeast UniversityPrepared By: Md. Fayshal Hossan Miazy ID: 2009110000038 Batch: 22nd Major in Finance Program: BBA Southeast UniversityDate of Submission: 12th May, 2013

2. Internship Report On The Investment and Comprehensive Performance Analysis of commercial Bank. A Case study of Al-Arafah Islami Bank LtdPrepared For: Abdullah Iftikhar Lecturer School of Business Studies Southeast University Prepared By: Md Fayshal Hossan Miazy ID# 2009110000038 BAtch: - 22 mAjor- FinAnce ndProgrAm: - BBADate of Submission: 12 May, 2013 Page 2 of 168 3. Internship Report on The Investment and Comprehensive Performance Analysis of Commercial Bank. A Case Study of Al- Arafah Islami Bank Ltd.Page 3 of 168 4. AbbreviationSN 01AIBLAl-Arafah Islami Bank Ltd02SJIBLShahjalal Islami Bank Ltd03SIBLSocial Islami Bank Ltd04FSIBL05EBLExim Bank Ltd06A/CAccount07ROAReturn on Assets08ROEReturn on Equity09RODReturn on Deposit10ROIReturn on Investment11AVPAssistance Vice- President12SDUSDisbursed to Saving Deficit Units13SSUSavings Surplus Units14L/CLetter of Credit15CIBCredit Information Bureau16HDSHousehold Durables Scheme17ISDInvestment Scheme for Doctors18SEISSmall Enterprise Investment Scheme19REIPReal Estate Investment Program20AIISAgricultural Implement Investment SchemeFirst Security Islami Bank LtdPage 4 of 168 5. DedicationDedicate to my respected parents, family members & My respected teachers.Page 5 of 168 6. Letter of Transmittal 12 May, 2012 Abdullah Iftikhar Lecturer School Of Business Studies Southeast University Subject: Submission of Internship Report. Dear Sir, This is my pleasure to submit my internship report on The Investment and Comprehensive Performance Analysis of Commercial Bank, A Case study of Al-Arafah Islami Bank Ltd It was a great opportunity for me to acquire knowledge and experience in respect of functions, procedures and operational mechanism of a commercial bank based on Islami Shariah while working in Al-Arafah Islami Bank, Khilkhet Branch. This report contains three (03) parts- first part contains organizational overview and the investment of Al-Arafah Islami Bank, second part contains comprehensive performance analysis among five Islami Banks (Al-Arafah Islami Bank, Shahjalal Islami Bank, Social Islami Bank, First Security Islami Bank and Exim Bank), and third or final part contains Research part, which covered with clients view analysis. I believe that the knowledge and experience I have gathered during my internship period will immensely help me in my future professional life. I therefore, request your favor to accept my Internship Report. Yours Sincerely--------------------------Md Fayshal Hossan Miazy ID# 2009110000038 BBA. 22nd Batch. Major- Finance Southeast University Page 6 of 168 7. Declaration of SupervisorThis is certifying that Md. Fayshal Hossan Miazy ID: 2009110000038, student of Southeast University, School of Business BBA program has completed the internship report titled The Investment and Comprehensive Performance Analysis of Commercial Bank, A Case study of Al-Arafah Islami Bank Ltd successfully under my supervision. To the best of my knowledge and as per his declaration the internship report is an authentic work on the issue and has not been submitted to anywhere for awarding any degree. I wish his every success in life.Supervisor---------------------Abdullah Iftikhar Lecturer School of Business Studies Southeast UniversityPage 7 of 168 8. Declaration of StudentI hereby declare that the report of internship namely The Investment and Comprehensive Performance Analysis of Commercial Bank, A Case study of Al-Arafah Islami Bank Ltd by me after completing three (03) month of internship in Al-Arafah Islami Bank at Khilkhet Branch and comprehensive study of the overall Investment & Performance Analysis of Al-Arafah Islami Bank . I also declare that this report is my original worked and prepared for academic purpose which is a part of BBA program.-----------------------------------Md Fayshal Hossan Miazy ID# 2009110000038 BBA. 22nd Batch. Major- Finance Southeast UniversityPage 8 of 168 9. ACKNOWLEDGEMENTAt first I would like to express my deepest gratitude to Almighty Allah for giving me the strength and the ability to finish the task and submit the internship report within the planned time. Then I am very much grateful to the Al-Arafah Islami Bank Limited (AIBL) Khilkhet Branch for providing me the opportunity to complete my internship. First of all I am deeply indebted to our honorable Dean Prof. Sirajuddaula Shaheen, then my Internship Supervisor Abdullah Iftekhar Lecturer, School of Business Studies, Southeast University for his whole hearted supervision to me during Internship period. Without his support and encouragement this Internship report I cant submit it due time. My heartiest gratitude goes to Mr. Md. Sharif Chowdhury, Assistant Vice-President & Manager of Al-Arafah Islami Bank Limited (AIBL), Khilkhet Branch for giving me permission for my internship in his organization & valuable advice and suggestions to complete the report in an appropriate manner. My special thanks to Mr. Shah Alam, PO & second manager AIBL, Khilkhet Branch and also grateful to Mr. Kazi Md. Abul Hashem PO, Mr. Md. Jasim Uddin, Investment In charge, Nazmul Senior Field officer, Omar Faruq, Md. Shohel & Ibrahim Khalil (Executive Officer) for providing me assistance, provide necessary information, and advice which can help me to complete my internship report. I am also grateful to all the staffs and all the officers of the Al-Arafah Islami Bank Limited (AIBL), Khilkhet Branch. Finally I would like thank my all friends, honorable Teachers, my respected Parents & other family members for giving me help in every stage.Page 9 of 168 10. Executive Summary Investment is the main part of the bank. This report contains handy information about investment of profit base bank. The first chapter of this report is introduction where contain statement of the profit, objective, methodology, limitation of the report. In the second chapter introduces the overview of AIBL introduces background, vision, mission, board of director, management structure of AIBL shariah board of the bank AIBL, special feature of AIBL and Al-Arafha Islamic Bank limited micro finance. In the third chapter focused all about investment of AIBL. Invest by mainly three mechanisms which describe in theoretical background. There are two types of investment. Sector wise investment & Mode-wise investment. They are Bai-mechanism, Leasing mechanism & Share mechanism. AIBL commonly Bai-mode. Sometimes they use Leasing-mechanism. It is the discussion part about various special terms what I use in this report and various mode of investment. They also invested in Household Durable Scheme, Real Estate Investment Program etc. The fourth chapter is the main part where includes product and services of AIBL. In this chapter give briefly description about all product and services of AIBL. In this part I am hardly try to all information about product and services of Al-Arafah Islamic bank including deposit product of AIBL, financial product, account operation of AIBL, the functions of AIBL, online general banking service and other activities of AIBL. AIBL on investment, such as the problems of Mudaraba is lack of govt. support, uncertain cost of capital, the problems of Musharaka lack of expertise persons, lack of legal frame work of Islami Banking in Bangladesh. The problem of Ijarah is: disposing the asset, when the asset is no longer be needed, uncertainty about the total life of the asset etc. AIBL should initiate different investment modes according to diverse needs of clients by conducting huge research and study etc.Page 10 of 168 11. Table of Contents ChapterParticularsIntroductionPage No. 01-081.1Introduction 1.2 Background of the Report021.3 Origin of the report021.4 Objective of the report03-041.5 Scope of the study 0101041.6 Methodology of the study051.6.1 Primary data051.6.2 Secondary data051.7 Sampling051.7.1 Population05-061.7.2 The Sample Units061.7.3 The Sampling Frame061.7.4 The Sampling Design061.7.5 The Sample Size061.7.6 The Sampling Plan061.7.7 Some Important Facts About The overall Survey 1.8 Benefit of the reportPage 11 of 1680607 12. 1.9 Limitations of the study07-08Organizational Overview09-312.1 Organizational Overview of Al-Arafah Islami Bank Ltd102.2 Historical Background of Al-Arafah Islami Bank Limited10-112.3 AIBL Profile 0211-122.4 Vision& Mission of AIBL12-132.4.1 Vision122.4.2 Mission12-132.5 Objectives of AIBL 2.6 Other objective of Al Arafah Islami Bank includes13 13-142.7 Commitments142.8 AIBL at a Glance14-152.9 CORE VALUES162.10 Special Features of the Bank16-172.11 Board of Directors of AIBL18-192.12 Management of AIBL20-212.13 Shariah Board of AIBL21-222.14 Members of AIBL's Fatwa & Shariah222.15 The Board's Role222.16 Important Duties of the Shariah Board232.17 SHARIAH SUPERVISORS24Page 12 of 168 13. 2.18 SHARIAH AUDITING242.19 SWIFT CODES of AIBL24-252.20 AIBLS LIBRARY262.21 Corporate Social Responsibilities of AIBL26-272.22 AIBL Khilkhet Branch272.23 Organogram of Al-Arafah Islami Bank Ltd. Khilkhet Branch, Dhaka 2.24 Operating activities of Khilkhet branch Theoretical Framework for Investment2829-31 32-623.1 Investment333.2 Introduction of Investment Division333.3 Investment Assessment343.4 Mode of Investment353.5 Trading modes (Bai-Mechanism)363.5.1 Bai-Murabaha363.5.2 Bai Muajjal363.5.3 Bai- Salam363.5.4 Bai-Istishna37033.6 Leasing mode (Ijarah mechanism)373.6.1 Ijarah Muntahia Bittamleak (Hire Purchase) 37 3.6.2 Hire Purchase Under shirkatul Melk 3.7 Share Mechanism 3.7.1 Mudaraba38 38-39 39-40Page 13 of 168 14. 3.7.2 Musharaka403.8 Others413.8.1 Quard413.8.2 Uzrat Bill Wakala413.9 PROCESS OF INVESTMENT423.10 Investment Growth42-453.11 Documentation46-473.12 Investment Principles48-493.13 Guide Lines by Bangladesh Bank49-503.14 Guideline for Sanctioning Investment by Bangladesh Bank & Head Office 3.15 Special Scheme under Investment51523.15.1 Household Durables Scheme (HDS)52-533.15.2 Investment Scheme for Doctors (ISD)53-543.15.3 Small Enterprise Investment Scheme (SEIS)54-553.15.4 Real Estate Investment Program (REIP)55-563.15.5 Transport Investment Scheme (TIS)573.15.6 Car Investment Scheme (CIS)58-593.15.7 Agricultural Implement Investment Scheme (AIIS)59-603.15.8 Micro Industries Investment Scheme (MIIS)60-613.16 Process of Investment Performance Analysis Page 14 of 16862 63 15. 4.1 Theoretical Review 4.2 Ratio Analysis64-684.3 Time Series Analysis046469-924.4 Comparative Analysis among Five Islami Banks Research Part 0593-104105-1325.1 The Questionnaire1065.2 Clients view Analysis106-132SWOT Analysis133-1356.1 SWOT Analysis in AIBL 6.2 Strengths1346.3 Weaknesses1346.4 Opportunities1346.5 Threats06134-135135Findings, Recommendations and Conclusion136-1427.1 Summary of Findings 071377.2 Problems & Limitations1387.3 Recommendations138-1417.4 Conclusion141-142References143Appendix144-157Page 15 of 168 16. CHAPTER-1 INTRODUCTIONPage 16 of 168 17. 1.1 Introduction The term Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law (Shariah) principles and guided by Islamic economics. In particular, Islamic law prohibits usury, the collection and payment of interest, also commonly called riba in Islamic discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam (such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values). Islamic banking has the same purpose as conventional banking: to make money for the banking institute by lending out capital. But that is not the sole purpose either. The basic principle of Islamic banking is based on risk-sharing which is a component of trade rather than risk-transfer which is seen in conventional banking. Islamic banking introduces concepts such as profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijar). In an Islamic mortgage transaction, instead of lending the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabahah. An innovative approach applied by some banks for home loans, called Musharaka alMutanaqisa, allows for a floating rate in the form of rental. The bank and borrower form a partnership entity, both providing capital at an agreed percentage to purchase the property. The partnership entity then rents out the property to the borrower and charges rent. The bank and the borrower will then share the proceeds from this rent based on the current equity share of the partnership.Page 17 of 168 18. 1.2 Background of the Report:A develop banking sector plays a vital role for financial stability of a country. In the BBA program, the internship is one of the vital parts, which has to be done by every student .the internship program provides an opportunity for the students to minimize the gap between theoretical and practical knowledge and will help in practical life. I got this great opportunity to perform my internship program in the Al-Arafah Islami Bank Ltd. I have completed internship program based on theoretical and practical knowledge. Through this report an individual can expect to have a good knowledge about the service quality between the Supporting Desk Officers and Front Desk Officers (CRO). I have tried my level best to put more emphasis on the SME loan and the service quality level between the Front Desk Officers and the Supporting Desk Officers since it was the topic of my internship program. This report is to be used only for the academic purpose. I have collected all the necessary and relevant data from various primary, secondary and tertiary sources. After three months long hard labor, it has become possible for me to make the report comprehensive and factual. The data is truly and strictly confidential and no one can use its components in full or partial. I would like to give thanks to everyone who has helped and encouraged me in the process of preparing this report.1.3 Origin of the report The BBA internship program is a mandatory requirement for the students who are graduating from the BBA programme of Southeast University, Department of Business Administration. In the internship program, I was attached to a host organization named ' Al-Arafah Islami Bank Ltd ' Khilkhet branch for 12 weeks. During this period I learned how the host organization works with the help of the internal supervisor. As a result I have decided to make a report on "The Investment and Comprehensive Financial Performance Analysis of Al-Arafah Islami Bank Ltd ".Page 18 of 168 19. 1.4 Objective of the report The objective of this study is to have a clear concept and some practical experience about Financial Statement Analysis Systems of an organization. However, we had some textbook knowledge but had little in real life, practice so ever. This report is designed to know more about the overall banking Systems of the United Commercial Bank Limited and analyze the ratio of this organization and identify the financial condition of this organization. In addition, the study seeks to achieve the following objectives:To identify the level of customer satisfaction of AIBL. To recommend ways of improving the service standard that accommodates a rapidly growing customer volume. To find out what are the major factors that hamper satisfaction among General banking service in AIBL. To examine the activities of the loans and advanced department. To see if inclusion of some necessary product or documentation feature that is currently absent, or improvement of some existing facility can act to increase customer satisfaction. To submit a report, for the fulfillment of my BBA practical. The main objective of this report is to find out the The Investment and Comprehensive Performance Analysis of Al-Arafah Islami Bank Limited.. To gather comprehensive knowledge on overall banking functions and the expectations of the customers regarding the service level of the bank. Identify the factors contributing to the attractive and operative performance of the local branch of the bank. Page 19 of 168 20. To make a study of the facts in order to arrive at certain conclusion about overall banking operation. Identify the main objectives of AIBL Investment Disbursement. To find out the sector in which AIBL provides Investment. To evaluate financial affairs of the Bank To visualize the quantitative and qualitative aspects of AIBL To identify policy recommendations for further improvement To evaluate the performance of AIBL with others four Islami bank.1.5 Scope of the study The report will be limited to the level of customer satisfaction in the investment and performance analysis of AIBL. The focus of this report will be only on the investment and financial performance analysis of AIBL. The report is developed on the basis of my work in general banking with AIBL, Khilkhet Branch. In spite of limitation I also got some facility to complete my internship report. The employees whose held a responsible post in the entire department helped me lot. They gave me all essential data and conversation with me. My university internship supervisor also helped me a lot. He gave me a guidelines how to prepare my report more attractive and perfect. This bank has given me the opportunity to observe the banking environment for the first time indeed. I got an opportunity to gather experience by working in the different departments of the branch under the supervision of different departmental heads.Page 20 of 168 21. 1.6 Methodology of the study I have got all the relevant information from my working experience with AIBL, their Annual report, some circular, various brochures, AIBL web site and such. Some information is taken from some of my friends.1.6.1 Primary data: The primary data of this report is the information, which is gathered from AIBL while I worked with them. 1.6.2 Secondary data: The secondary data of this report are collected from AIBL Annual report, and also some reports from which I got idea about the way of writing a report. Secondary Sources: Secondary data are collected in the following ways: Data gathered within the organization itself. Data gathered from Texts Internet sources. General reports. Annual reports Official documents Credit manual and foreign exchange manual of the bank.1.7 SAMPLING: 1.7.1 POPULATION: The population in the research is mainly the branch customer and employees this population has been selected mainly because we are conducting the survey on the perception about the matter amongst the branch customer and employees.Page 21 of 168 22. 1.7.2 THE SAMPLE UNITS: The sampling unit in case of this research consists of the branch customer and employees 1.7.3 THE SAMPLING FRAME: The sampling frame usually contains a list of elements from which the sample is drawn. The survey has been conducted at different levels of customers coming to the branch such as Priority customer, Excel Customer, Corporate customer And so on. And also the different levels of employees in the branch. 1.7.4 THE SAMPLING DESIGN: The sample design used in this case is random sampling method. When taking the random sampling into consideration there is always a chance that error might occur. This happens when there is a difference in the sampling that is done during the course of the survey. There are different types of sampling that can be done. In the case 0f our report we have also used stratified sampling. 1.7.5 THE SAMPLE SIZE: The sample size in my case is 25 customers of the different level of clients in the Khilkhet branch. 1.7.6 THE SAMPLING PLAN: We have gathered the data based on the focus group interview and experience survey through the questionnaire. 1.7.7 SOME IMPORTANT FACTS ABOUT THE OVERALL SURVEY: The Speed of data collection: moderate to fast The respondents cooperation: Moderate1.8 Benefit of the report As a student, I have learned about a bank; I also have learned the report writing, as a great deal of theory is included in this report. It will be also benefited for the people who are interested to know about AIBL.Page 22 of 168 23. 1.9 Limitations of the study The present study was not out of limitations. But as an internee it was a great opportunity for me to know the banking activities in Bangladesh especially of AL-ARAFAH-ISLAMI Bank. Some constraints are appended bellow: The main limitation for conducting this report is time limitation and resources. Three months is not enough to understand all the activities of a bank and how they handle their clients. Lack of experience has also acted a constraint for the exploration of the topic. Following are the Limitations: Limitation of time was one of the most important factors to collect data. A longer time period would have ensured a much better result for the study findings. Every organization has its own secrecy that is not revealed to others. While collecting data i.e. interviewing the credit officials they did not discuss much information for the sake of confidentiality of the Bank. Due to lack of experience, there is a chance of having some mistake in the report though best effort has been applied to avoid any kind of mistake. Lack of depth of knowledge, lack of experience in collecting information and analytical ability for writing such report. There were some misunderstanding between me and the bank officials while searching the some required information. The main constraint of the study is inadequate access to information. Due to time limitations many of the aspects could not be discussed in the report. The employees did not disclose much information for the sake of the confidentiality of the organization. Since the bank personals were very busy, they could provide me very little time. The clients were too busy to provide me much time for interview. Though I have prepared many reports before, I had no experience of internship. So inexperience is one of the main constraints of the study. Lack of social awareness about the modern and competitive banking system. Lack of cooperation with others Page 23 of 168 24. CHAPTER-2 ORGANIZATIONAL OVERVIEWPage 24 of 168 25. 2.1 Organizational Overview of Al-Arafah Islami Bank Ltd Al-Arafah Islami Bank Ltd. as the name implies a newly formed commercial bank in Bangladesh. It has been incorporated in Dhaka, Bangladesh as a public limited company and its Head Office of the Bank is located at, 36, Dilkusha(6-9 Floor) C/A Dhaka-1000, Bangladesh C/A, Dhaka- 1000. In the world of consumerism the business organization of the world strive for the consumers satisfaction as a number one business strategy whatever may be the product of the organization, either service or non service. Service is the product of bank. There is a saying that customer service starts rights right from the stairs of the bank building. The guard at the door is first person pep resents of the bank, receives a customer with wishes in smiling face.2.2 Historical Background of Al-Arafah Islami Bank Limited Islam provides us a complete lifestyle. Main objective of Islamic lifestyle is to be successful both in our mortal & immortal life. Therefore in every aspect of our life we should follow the doctrine of AL-Quran and lifestyle of Hazrat Muhammad (Sm) for our supreme success. Al Arafah Islami Bank Ltd was established (registered) as a private limited company, under the Company Act, 1994 on 18 June 1995 for providing modern banking system based on AlQuran and Sunnah. The inaugural ceremony of Al-Arafa Islami Bank Ltd (AIBL) took place on 27 September 1995and AIBL started journey with 5 branches. Now AIBL operates 92 branches in Bangladesh.[1] Al-Arafah Islami Bank is an interest free Shariah Bank of Bangladesh rendering all types of commercial banking services under the regulation of the Bank Company Act, 1991. The Bank conducts its business on the principles of Musaraka, BaiMurabaha, BaiMuazzal and Hire Purchase transactions approved by Bangladesh Bank. Naturally, its modes and operations are substantially different from those of other conventional commercial banks. There is a Shariah Council in the Bank who maintains constant vigilance to ensure that the activities of the Bank are being conducted on the Page 25 of 168 26. precepts of Islam. All activities of the Bank are conducted according to Islamic Shariah where profit is the legal alternative to interest.2.3 AIBL Profile With the objective of achieving success here & hereafter by pursuing the way directed by Allah and the path shown by His Rasul (SM), Al Arafah Islami Bank Ltd was established (registered) as a private limited company on 18 June 1995. The inaugural ceremony took place on 27 September 1995. The authorized capital of the Bank is Tk.5000.00 million and the paid up capital is Tk. 4677.28 million as on 31.12.2010. Renowned Islamic Scholars and pious businessmen of the country are the sponsors of the Bank. 100% of paid up capital is being owned by indigenous shareholders. The equity of the bank stood at Tk. 9647.45 million as on 31 December 2010, the manpower was 1711 and the number of shareholders was 49,386. It has achieved a continuous profit and declared a good dividend over the years. High quality customer service through the integration of modern technology and new products is the tool of the bank to achieve success. The bank has a diverse array of carefully tailored products and services to satisfy customer needs. The Bank is committed to contribute significantly to the national economy. It has made a positive contribution towards the socio economic development of the country with 78 branches of which 21 is AD throughout the country.Since its establishment, AIBL opened 5 branches in 1995, 5 in 1996,10 in 1997, 10 in 1998, 5 in 1999, 2 in 2000, 3 in 2001, 1 in 2005, & 5 in 2006 i.e. at the end of 2006 the Bank Branch reaches to 46.Total number of employees of the Bank was 771 in 1995 and reached to 912 in 2006. Al-Arafah Islami Bank Ltd. has 101 branches and a total of 2500 employees the authorized capital of the Bank is Tk.5000.00 million and the paid up capital is Tk. 4677.28 million as on (31.December.2010). Renowned Islamic Scholars and pious businessmen of the country are the sponsors of the Bank. 100% of paid up capital is being owned by indigenous shareholders. Page 26 of 168 27. Al-Arafah Islami Bank Ltd. was established not only to earn profit and to develop economy of the country but also it had an ultimate goal to get reward in the Heaven by banning interest in business. Since its commencement the Bank has been trying to achieve this goal. The Islam loving people specially who are not interested with interest, should help this Bank giving deposit and taking investment from this Bank.2.4 Vision& Mission of AIBL 2.4.1 Vision To be a pioneer in Islami Banking in Bangladesh and contribute significantly to the growth of the national economy. 2.4.2 Mission Achieving the satisfaction of Almighty Allah both here & hereafter. Proliferation of Shariah Based Banking Practices. Quality financial services adopting the latest technology. Fast and efficient customer service. Maintaining high standard of business ethics. Balanced growth. Steady & competitive return on shareholders' equity. Innovative banking at a competitive price. Attract and retain quality human resources. Extending competitive compensation packages to the employees. Firm commitment to the growth of national economy. Involving more in Micro and SME financing.2.5 Objectives of AIBL From time immemorial Banks principally did the function of moneylenders or Mohajans but the function and scope of modern banking are now-a-days very wide and different. They accept deposits and lend money like their ancestors, nevertheless, their role as catalytic agent of economic development encompassing wide range of services is very important. Business commerce and industries in modern times cannot go without banks. There are people Page 27 of 168 28. interested to abide by the injunctions of religion in all sphere of life including economic activities. Human being is value oriented And social science is not value neutral. Al arafah islami bank believes in moral and material development simultaneously. Interest or Usury has not been appreciated and accepted by the tawrat of Prophet Moses, the Bible of Prophet Jesus and the Quran of Hazarat Muhammad (SM). Effort are there to do banking without interest Al Arafa islami bank limited avoids interest in all its transactions and provides all available modern banking services to its client and want to contribute in both moral and material development of human being. No sustainable material well being is possible without spiritual development of mankind. Only material well being should not be the objective of development. Socio economic justice and brotherhood can be implemented better in a Godfearing society.2.6 Other objective of Al Arafah Islami Bank includes: To establish interest-free and welfare oriented banking system. To establish a modern banking system for all kinds of people. To help in poverty alleviation and employment generation. To contribute in sustainable economic growth. To eradicate the poverty and to do social services by establishing Schools, Madrashas, University, Hospitals, Public Library etc. To establish the relationship between bank and customer as partnership Basis. Finally to achieve ultimate goal 2.7 Commitments Ours is a customer focused modern Islamic Banking sound and steady growth in both mobilizing deposit and making quality Investment to keep our position as a leading Islami bank in Bangladesh. To deliver financial services with the touch of our heart to retail, small and medium scale enterprises, as well as corporate clients through our branches across the country. Our business initiatives are designed to match the changing trade & industrial needs of Page 28 of 168 29. the clients.2.8 AIBL at a Glance Islam provides us a complete lifestyle. Main objective of Islamic lifestyle is to be successful both in our mortal and immortal life. Therefore in every aspect of our life we should follow the doctrine of Al-Qur'an and lifestyle of Hazrat Muhammad (Sm.) for our supreme success. Al-Arafah Islami Bank started its journey in 1995 with the said principles in mind and to introduce a modern banking system based on Al-Quran and Sunnah. A group of established, dedicated and pious personalities of Bangladesh are the architects and directors of the Bank. Among them a noted Islamic scholar, economist, writer and exbureaucrat of Bangladesh government Mr. A.Z.M Shamsul Alam is the founder chairman of the bank. His progressive leadership and continuous inspiration provided a boost for the bank in getting a foothold in the financial market of Bangladesh We present some data on the bank below: Particulars(In million taka) 2007 20082004200520061000.001000.002500.002500.002500.00Paid up Capital586.99677.94854.201153.181383.81Reserve Fund488.00542.22835.981091.95905.33Shareholders Equity957.261220.161690.182037.502705.7410108.2811643.6616775.3423009.1329690.12Investment8150.1611474.4117423.1922906.3729723.79Import9337.4912631.601882.1427042.7232685.13Export3639.344932.90914.2712714.9120176.64Total Income1120.851452.682172.482955.614387.26Total Expenditure771.96904.481202.712199.432859.16Profit before Tax348.89548.20855.47756.181528.09Profit after Tax158.76262.90470.02347.31668.24Income Tax157.00215.10385.45235.53590.66Total Assets12874.6115336.8921368.1730182.3239158.44Fixed Assets195.17208.00215.11334.48396.76Earnings per share (Taka)263.68387.80550.2430.1248.29Authorized CapitalDepositPage 29 of 168 30. Profit Earning Ratio Dividend per share4.89 15.5%26.00%35%20%30%537954024487120131066480377191210331080Number of Branches4041464650Manpower per Branch20192023Bonus No. of Shareholders Number of Employees2.9 CORE VALUES For customersTo become most caring Bank- by providing the most courteous and efficient service in every area of our business. For employeesBy promoting the well- being of the members of the staff. For our shareholdersBy ensuring fair return on their investment through generating stable profit. For our communityBy assuming our role as a social responsible corporate entity in a tangible manner through close adherence to national policies.2.10 Special Features of the Bank: Al-Arafah Islami Bank is singular in every positive aspect. The Bank provides a bunch of state-of-art banking services within the wide bracket of shariah. It is unique with its products, strict with its principle and uncompromising with its honesty. Here are some special features of AIBL that make it notable in Islami banking sector:All activities of the bank are conducted according to Islamic Shariah where profit is the legal alternative to interest. The banks investment policy follows different modes approved by Islamic shariah based on the Quran and Sunnah. Page 30 of 168 31. The bank is committed towards establishing welfare oriented banking system and creates employment opportunities. According to the need and demand of the society and the country as a whole the bank invests money to different Halal business. The bank participates in different activities aiming at creating jobs, implementing development projects of the government and creating infrastructure. The bank is committed to establish an economic system resulting in social justice and equitable distribution of wealth. It is committed to bring about changes in the underdeveloped rural areas for ensuring balanced socio economic development of the country through micro credit program and financing of SMES as well. According to Mudaraba system, the depositors ate the partners of the investment income of the bank. About 70% of the investment income is distributed among the Mudaraba depositors. To render improved services to the clients imbued with Islamic spirit of brotherhood, peace and fraternity and by developing an institutional cohesion. The bank is contributing to economic and philanthropic activities. AIBL English Medium Madrasah and AIBL library patronize by the Bank are two such examples.Page 31 of 168 32. 2.11 Board of Directors of AIBL:Badiur Rahman ChairmanSarker Mohammad Shameem Iqbal Vice ChairmanAlhajj Md. Harun-ar-Rashid Khan DirectorAlhajj Nazmul Ahsan Khaled DirectorAlhajj Abdul Malek Mollah DirectorAlhajj Hafez Md. Enayetullah DirectorAlhajj Abdul Moktadir DirectorAlhajj Ahamedul Haque DirectorAlhajj Abdus Samad DirectorAlhajj Abu Naser Mohammad Yeahea DirectorAlhajj Abdus Salam DirectorAlhajj Niaz Ahmed DirectorPage 32 of 168 33. Engr. Kh. Mesbahuddin Ahmed DirectorMohammed Emadur Rahman DirectorMd. Rafiqul Islam DirectorAnwar Hossain DirectorDr. Momtaz Uddin Ahmed DirectorBrigadier General M A Malek (Retd) DirectorEkramul Hoque Ex-Officio DirectorMd. Ashik Hossain DirectorPage 33 of 168 34. 2.12 Management of AIBL ::: Managing Director :::Ekramul Hoque Managing Director ::: Deputy Managing Director :::Md. Rafiqul Islam Khondoker Nayeemul Kabir Md Mofazzel Hossain Deputy Managing Director Deputy Managing Director Deputy Managing DirectorKazi Towhidul Alam Deputy Managing DirectorMd. Golam Rabbani Deputy Managing DirectorPage 34 of 168 35. ::: Executive Vice President :::Md. Mominul Haque Bhuiyan Executive Vice PresidentMd. Fazlul Karim Executive Vice PresidentMd. Mahmoodul Haque Executive Vice PresidentMuhammed Nadim ACA Executive Vice PresidentSyed Masodul Bari Executive Vice President2.13 Shariah Board of AIBLShariah Board Scholars of high repute with extensive experience in law, economics and banking systems and specialising in law and finance as prescribed by Islamic Shariah make up the AIBL's Fatwa & Shariah Supervision Board. The Board is appointed by the bank's Board of Directors. The Shariah Board supervises the development and creation of innovative Shariah -compliant investment and financing products and services. The Board is empowered to issue fatwas on any matter proposed to it by different business units of the bank. The Shariah auditors ensure that all the transactions are carried out in strict compliance to Islamic principles of banking. This framework along with a stringent compliance to rules has made AIBL the pioneering organization to practice Islamic finance in true letter and spirit. The name AIBL has come to signify innovation, financial dynamism, leadership and above all a complete assurance that all the transactions are free from riba Page 35 of 168 36. (interest).2.14 Members of AIBL's Fatwa & Shariah Supervision Board are: Mufti Abdur RahmanChairmanMufti Ruhul Amin MemberMoulana Abdul Basit BarkatpuriMufti Muinul IslamMemberMemberAlhaz A Z M Shamsul AlamMd. Abdur Rahim KhanMemberSecretaryBadiur RahmanMember (By Holding of Position)2.15 The Board's Role The Fatwa & Shariah Supervision Board oversees the application of different aspects of Shariah in the Bank. It also ensures that all transactions are in strict compliance with the right of contradicting (fatwa) any violating procedures, if found. The Board of Directors is obligated to obey the fatwas, irrespective of whether a unanimous or a majority consensus secured the decision (clause ---- of the Banks Memorandum & Articles of Association). Board meetings are held periodically or whenever the need arises. The rights of the Board are enshrined in Article Seven o the Bank's Memorandum & Articles of Association (Clauses). 2.16 Important Duties of the Shariah Board: As an expert source on Islamic Principles (Including Fatwas), the Board through a representative, usually the General Secretary of the Board, supervises the Shariah compliance of all the transactions in the Bank. Page 36 of 168 37. To devote time and effort to devising more Shariah -compliant transactional procedures, templates and banking products that enable the Bank to adapt to market trends while maintaining a high competitive edge in deposit procedures, investments, and banking services. At the same time, the Board gives its opinion on proposed new templates, and banking transactions. Analyzing unprecedented situations that are not covered by fatwa, in the Bank's transactional procedures or those reported by different departments, branches and even the customers. This is to ensure Shariah compliance before the Bank develops any new products or implements any new procedure. Analyzing contracts and agreements concerning the Bank's transactions, as submitted by the Chairman of the Board of Directors or any department/branch within the bank or requested by the Board itself so that Shariah compliance can be evaluated and maintained. Ensuring Shariah compliance in the implementation of all banking transactions and correcting any breaches. Analyzing administrative decisions, issues and matters that require the Board's approval. Supervising Shariah training programmes for the Bank's staff. Preparing an annual report in the Bank's balance sheet with respect to its Shariah compliance. The Fatwa & Shariah Supervision Board submits a complete annual report for the Board of Director, summarizing all the issues referred to the Board, as well as its opinion on the Bank's transactional procedures.2.17 SHARIAH SUPERVISORS The Clause ---- of the Bank's Memorandum & Articles of Association requires the Board of Directors to appoint a Shariah Supervisor, responsible for monitoring all the Bank's transactional procedures and assuring Shariah compliance. Also the General Secretary of the Fatwa & Shariah Supervision Board, the Shariah Supervisor handles queries about the Bank's administration from staff members, shareholders, depositors and customers, liaises with the Shariah auditors and provides them with guidance. He submits reports and suggestions to the Fatwa & Shariah Supervision BoardPage 37 of 168 38. and to the Chairman of the Board of Directors. The position also calls for participation in the Bank's training programmes.2.18 SHARIAH AUDITING The supervisory function forms a part of the Shariah Supervision procedures, its main task being to check Shariah compliance under the guidance of the Shariah Supervisor. The auditors continuously review the Bank's transactional procedures to ensure adherence to the framework created by the Fatwa & Shariah Supervision Board. The Shariah auditors submit periodic reports to the Shariah Supervisor so as to monitor and maintain Shariah compliance.2.19 SWIFT CODES of AIBL 01. Head Office02. Motijheel Branch03. Moulvi Bazar BranchSWIFT CodeSWIFT CodeSWIFT CodeALAR BD DHALAR BD DH 066ALAR BD DH 06704. Nawabpur Road Branch05. Corporate Branch06. VIP Road BranchSWIFT CodeSWIFT CodeSWIFT CodeALAR BD DH 074ALAR BD DH 075ALAR BD DH 07707. Banani Branch08. Bogra Branch09. Agrabad BranchSWIFT CodeSWIFT CodeSWIFT CodeALAR BD DH 079ALAR BD DH 071ALAR BD DH 06910. Khatungong Branch11. Jubilee Road Branch12. Khulna BranchSWIFT CodeSWIFT CodeSWIFT CodeALAR BD DH 072ALAR BD DH 076ALAR BD DH 068Page 38 of 168 39. 13. Rajshahi Branch14. Laldighirpar Branch15. Saidpur BranchSWIFT CodeSWIFT CodeSWIFT CodeALAR BD DH 073ALAR BD DH 070ALAR BD DH 07816. Dilkusha Branch17. New Elephant Road Branch18. Uttara Model Town BranchSWIFT CodeALAR BD DH 082SWIFT CodeALAR BD DH 080SWIFT CodeALAR BD DH 08119. Jatrabari Branch20. Dhanmondi Branch21. North South Road BranchSWIFT CodeSWIFT CodeSWIFT CodeALAR BD DH 083ALAR BD DH 084ALAR BD DH 08522. Gulshan Branch SWIFT CodeALAR BD DH 0862.20 AIBLS LIBRARY The AIBL's library houses a vast collection of more than 4,000 books on Islamic Fiqh, law, economy, banking and Shariah , The library was primarily established with the aim of serving the Fatwa & Shariah Supervision Board's research team and the AIBL staff. The facility is also accessible to the banks customers, researchers and students of higher education.2.21 Corporate Social Responsibilities of AIBL Al-Arafah Islami Bank Foundation : The Bank has a Foundation launching philanthropic activities. Al-Arafah Islamic International School & College and Al-Arafah Islami Bank Library are major two wings for launching Page 39 of 168 40. philanthropic activities.Al-Arafah Islamic International School & College: Al-Arafah Islamic International School & College has been established by the Al-Arafah Bank Foundation with a view to building next generation according to the ideals of peace and equality of Islam and to establishing banking and other aspects of life in the way of Islam. The prime aim of this Islamic International School & College is to contribute towards building human resource and in the broader sense to ensure human welfare. With the view Al-Arafah Islami Bank Foundation has established Al-Arafah Islamic International School & College at Dhanmondi in 1998. Such institution upto O level of its kind is for the first time in Bangladesh. Al-Arafah Islami Bank Library : Library is the carrier & reservoir of knowledge. Al-Arafah Islami Bank has shown that other than generating profit, it can also contribute significantly in the field of providing good source of knowledge by establishing a public library at 32, Topkhana Road, Chittagong Bhaban (1st floor), Dhaka, thus strengthening social development. It is situated in a sound, healthy surroundings. It harbors 23,000 books of reference for the researchers, students, professionals, bankers, physicians, engineers, politicians, writers or journalists, even for the kids. It is open to all from the year 2000 and well located & accessible to everybody. It procured some exceptional collection of books on religion, economics, banking, computer science, business administration, sociology, English & Arabic language and juvenile literature in Bangla, English, Urdu & Arabic, which are very rare.2.22 AIBL Khilkhet Branch Al-Arafah Islami Bank Limited opened its khilkhet branch 29-11-2010 to cover the huge & prospective customer from the area of khilkhet. Md. Sharif Chowdhury is the Assistant vice president (AVP) & he is the manager of khilkhet branch. It has a large office which can accommodate good number of customer comfortably. This branch doesnt deal large foreign exchange transaction. The branch has efficient human resources that can meet up customers needs. Order wise work is distributed properly. Page 40 of 168 41. 2.23 Organogram of Al-Arafah Islami Bank Ltd. Khilkhet Branch, DhakaAVP & Manager Md. Sharif ChowdhurySenior Executive Officer (SEO) Md. Shah AlamGB Incharge Principle Officer (PO)Investment Incharge Senior Executive Officer (SEO) Md. Joshim UddinCash Incharge Executive Officer (EO)A Executive Officer (EO) Md. Omar FaruqInvestment Officer Naimur RahmanExecutive Officer (EO) ASM Salauddin BaharEO of Foreign Exchange Md. Abdul KhalekOfficer Md. Abdur RahimSenior Field Supervisor Md. Nazmul HaqueExecutive Officer (EO) Md. ShohelOfficer Md. Ishfaque KabirField Assistant Md. Kamal HossainOfficer Md. Saidul IslamOfficer Md. Ibrahim KhalilPage 41 of 168 42. 2.24 Operating activities of Khilkhet branch Function of AIBL may be divided into four categories i. General banking activities ii. Investment banking activities iii. Foreign exchange activities iv. Others activities. These functions are discussed briefly as below: General banking activities General banking activities is the heart of banking. Here money collection procedure occurs. General banking activities are discussed briefly as below: a. Cash Receive: Cash section is include general banking activities. Cash section is very important for deposit mobilization. b. Cash Payment: General banking section close various kinds account and cash payment is made from this section. c. A/c opening: In this section various kinds of account is opened. Those are Mudaraba A/c, Al-wadia Current A/c, Mudaraba sort notice deposit A/c Mudaraba terms deposit A/c, Installment terms deposit A/c, Hajj deposit A/c etc. d. Cheque Issue: General banking section issue cheque book. Chequebook is very important for money transaction. e. A/c Closing: Various type of A/cs are closed in this section f. Clearing activities: In this section all clearing instrument send to Bangladesh Bank / Sonali Bank Clearing house and after completing clearing process clearing amount of are credit to concerned accounts. g. Deposit Mobilization: Deposit mobilization is the main function of general banking section. Actually all section are engaged in deposit mobilization but deposit mobilization procedure are done this section. Mainly deposit are collection from savings surplus units (SSU) and loan or credit is disbursed to saving deficit units (SDUS). h. Bill Collection: AIBL collect bill on behalf on various institution or enterprise from their customers. For example electric bill, Telephone bill, Gas bill, Mobile bill etc.Page 42 of 168 43. i. Investment Activities: Almighty creature said in his holy Quran that Ahallahul baia and harramahu Riba that means Allah permitted trading and forbidden interest Islamic bank is a financial institution whose statutes rules and procedures expressly state its commitment to the principles of islamic shariah and to the banning of the receipts and payment of interest in on any of its operations. So Islami bank always avoids interest and emphasizes on profit business. Islami bank financing product is Murabaha, Bai-Muazzal, Ijara, Salam, and Istisna, Out of these various debt based financing products. The most popular are Murabaha and Bai-Muazzal. Investment activities AIBL are discussed as below:Disbursed financed to the business firms and persons: The most important function of an Islami bank is disbursed finance to industries and business firm or persons. Disbursed leased finance to various industries: Islami bank disbursed leased finance to various industries. Lease finance may be two types operating lease and financial lease. Issue bank Guarantee: AIBL issue bank guarantee on behalf or its clients. In this way banks helps a business firm to run their business smoothly. Foreign exchange activities: Foreign exchange is another important department for banking service the functions of foreign exchange section are as below: L/C issue: A letter of credit is a conditional undertaking of payment, a letter by the importers bank to the exporter that the bills if drawn as per terms and conditions are strictly complied with will be honor on presentation. AIBL issue L/C on behalf of its clients and its very important for foreign exchange transaction. Bill negotiation: AIBL issues export L/C and negotiate the export bill. Foreign remittance: Foreign exchange deportment plays a vital role for foreign remittance. Foreign exchange department maintain various Nostro and Vastro A/c Page 43 of 168 44. all over the world. Its keeps correspondence with foreign banks. Foreign exchange or foreign transaction done through these nostro and vostro A/c.Others activities:Banks play important role for development of a country. Others function of a bank are as below: Provide information to Bangladesh bank and others institution and that information is important for policy making. To help the Bangladesh Bank and govt. for implementation fiscal and monitory policy. Provide valuable information as well as opinion to its clients for their business firm. Providing local facilities to safe keeping peoples valuable assets.Page 44 of 168 45. CHAPTER-3 THEORITICAL FRAMEWORK FOR INVESTMENTPage 45 of 168 46. 3.1 Investment: Investment means transaction between two parties in which one (the creditor or lender) supplies money, goods, services or securities in return for a promised future payment by the other (the debtor or borrower). Such transaction normally includes the payment of interest to the lender but AL-Arafah Islami Bank Limited always avoids interest and emphasizes on profit-based business. Investment may be extended by the public or private institutions to finance business activities, agricultural operation, consumer expenditures or government projects. "Investment" means any such modes of financing which Islamic Bank does in accordance with principles of Shariah or as per the Shariah approved modes like Mudaraba, Musharaka, Bai-Murabaha, Bai-Muajjal, Istisna, Lease, Hire-purchase under Shirkatul Melk, etc. 3.2 Introduction of Investment Division: AL-ARAFAH ISLAMI Bank Ltd is a new generation bank. It is committed to provide high quality financial services/products to contribute to the growth of GDP of the country through stimulating trade & commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and over all sustainable socio-economic development of the country. In achieving the aforesaid objective of the bank, investment operation of the bank is of paramount importance as the greatest share of total revenue of the band is generated from it, maximum risk is centered in it and even the very existence of band depends on prudent management of its investment portfolio. The failure of a commercial bank is usually associated with the problem in investment portfolio and is less often the result of shrinkage in the value of other assets. As such investment portfolio not only features dominant in the assets structure, it is critically important to the success of the bank also. In view of the above this investment policy and control guidelines of the bank has been prepared which is subject to amendment, revision, readjustment and refinement from time to time as may be warranted by the change of circumstances due to passage of time to suite the requirement of the bank. 3.3 Investment Assessment: Relationship Manager(s)Investment Officer(s) shall conduct a thorough assessment of Page 46 of 168 47. investment requirement before recommending any new proposal. There after all investment at least annually at the time of renewal and enhancement. The assessment procedure shall include the following issues: 1. Mode of Investment 2. Investment limit 3. Purpose of investment 4. Rate of profit 5. Primary Security 6. Collateral Security- its acceptability, its coverage, its control and genuine etc 7. Margin 8. Repayment capacity and repayment schedule 9. Period of investment 10.Other terms and conditions in case of necessity.Page 47 of 168 48. 3.4 Mode of Investment:Page 48 of 168 49. 3.5 Trading modes (Bai-Mechanism)3.5.1 Bai-Murabaha Bai-Murabaha may be defined as Contractual buying and selling at a mark-up profit. In this case, the client requests the Bank to purchase certain goods for him. The Bank purchases the goods as per specification and requirement of the client. The client receives the goods on payment of the price which includes mark-up profit as per contract. Under this mode of investment the purchase/ cost price and profit are to be disclosed separately. 3.5.2 Bai Muajjal Bai-Muajjal is a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Shariah and Law of the Country), to the buyer at an 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. In Bank's perspective, Bai-Muajjal is treated as a contract between the Bank and the Client under which the bank sells to the Client certain specified goods, purchased as per order and specification of the Client at an agreed price payable within a fixed future date in lump sum or by fixed installment. 3.5.3 Bai- Salam Bai- Salam means advance purchase. It is a mode of business under which the buyer pays the price of the goods in advance on the condition that the goods would be supplied / delivered at a particular future time. The seller supplies the goods within the fixed time.Page 49 of 168 50. 3.5.4 Bai-Istishna A contract executed between a buyer and a seller under which the seller pledges to manufacture and supply certain goods according to specification of the buyer is called Istisna. An Istisna agreement is executed when a manufacturer or a factory owner accepts a proposal placed to him by a person or an Institution to produce/manufacture certain goods for the latter at a certain negotiated price. Here, the person giving the order is called Mustasni, the receiver of the order is called Sani and the goods manufactured as per order is called Masnu. An order placed for manufacturing or producing those goods which under prevailing customs and practice are produced or manufactured will be treated as Istisna contract.3.6 Leasing mode (Ijarah mechanism) 3.6.1 Ijarah Muntahia Bittamleak (Hire Purchase) Under this mode, the bank purchases vehicles, machineries and instruments, building, apartment etc. and allowed clients to use those on payment of fixed rents in installments with the ultimate objective to sell the asset to the client at the end of the rental period . The client acquires the ownership/ title of the assets/ properties subject to full payment/ adjustment of all the installments. 3.6.2 Hire Purchase Under shirkatul Melk Definition 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 Page 50 of 168 51. and bear the loss in proportion to their respective equity, the contract is called Shirkatul contract. Stages of Hire Purchase under Shirkatul Melk Thus Hire Purchase under Shirkatul Melk Agreement has got three stages: Purchase under joint ownership. Hire and Sale and /or transfer of ownership to the other partner Hirer. Hire Purchase under Shirkatul Melk through gradually transfer (sale) of legal title/ownership of the hired asset/property Under this type certain .asset / property' is purchased with equal or unequal equity participation and owned jointly by the parties -the Bank and the Client. The Bank's share / portion of the asset is hired out to tile Client partner against fixed rent/rentals per unit of time for a fixed period with a promise that the Hire Bank will sell or transfer the ownership of its portion to the Client Hirer gradually part by part in proportion to the consideration paid. So that the Hire's portion of the asset on payment of the total price at the end of the hire period. Under this system the total price of the hired property / asset should be determined and divided over the period of hire contract (per unit of time) so that the Hirer in addition to the payment of fixed rent /rentals may pay gradually the proportionate consideration of the total price of the hired property or asset to acquire proportionate ownership of the same part by, part and become full owner of the hired asset at the end of the hire period. It should be noted that there should be a separate sale contract for payment / acquisition of each share (per unit of time as per hire deal) / part of asset sold to the Hirer and the amount of rent should be decreased proportionately with decrease of Hire's ownership and increase of Hirer's ownership on the property/asset. If, for any reason, the hire contract is revoked prior to the payment I transfer of full title to the Hirer, the Hirer will share that part of the title to the hired property which has been Page 51 of 168 52. transferred to him against payment made by him and the remaining part will be shared by the Hire Bank. If any loss arises to the Bank after the sale of Bank's share to the property / asset that shall be recouped from the Client / Client's security. In our Bank, we shall be following this type of Sale Contract in Hire Purchase under Shirkalul Melk. 3.7 Share Mechanism3.7.1 Mudaraba Definition 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. Important Features: Bank supplies capital as Sahib- al Mall and client invest if in the business with his experience. The client maintains administration and management. Profit is divided as per agreement. Bank bears the actual loss alone. Client cannot take another investment for that specific business without the permission of the Bank. 3.7.2 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 ratio and the loss. If any incurred, is to be borne by the partners at per capital /equity ratio. In case of investment Musharaka meaning a partnership between the bank and the client for a particular business in which both the bank and client provide capital at an agreed upon ratio Page 52 of 168 53. and bear the loss, if any in proportion to their respective equity. Bank may move itself with the selected client for conducting any Shariah permissible business under Musharaka mode.Important Features: The investment client will normally run manage the business. The bank shall take part in the policy and decision making as well as overseeing (supervision and monitoring) the operation s of the business of the client. The bank may appoint suitable personal(s) to run the manage the business and to maintain books of accounts of the business property. As the investment client shall manage the enterprise, the bank may more share of profit tohim than that of his proportion capital contribution.Loss, if any, shall be shared on the basis of capital ratio.3.8 Others 3.8.1 Quard It is a mode to provide financial assistance/ loan with the stipulation to return the principal amount in the future without any increase thereon. 3.8.2 Uzrat Bill Wakala Murabaha Post Import (MPI) The importers apply for investment facility against imported goods after shipment for payment of the invoice values of the goods to the seller/supplier including custom duty, VAT and other expenses. In such a case, Islamic banks allow a Bai-Murabaha investment facility under single deal concept. It is so called as the Letter of Credit. Bills and the handling of Post-shipment are settled under one agreement while opening the letter of credit for importing the goods.Page 53 of 168 54. 3.9 PROCESS OF INVESTMENTPROCESS OF INVESTMENTApplicant applies for the Investment in the prescribed form of the bank describing the types and purpose of loan.1. Collecting credit information about the applicant to determine credit worthiness of the borrower. Source of 2. Personal investigation, confidential report of other bank, head office, branch, and chairman of commerce. 3. CIB (central information bureau) a. Evaluation of compliance with its lending policy b. Evaluating the proposed security.Then bank prepare a Investment proposal which contains terms and conditions of loan for approval of ManagerTakes the necessary papers and signatures from borrower.Page 54 of 168 55. 3.10 Investment GrowthInvestment Growth Year Investment & Advances2012106764.55(Tk. In Millions) 201177062.73Page 55 of 168201053800.792009200837636.0928832.80 56. Investment Growth The investment of the bank has stood at BDT 77714.95 million as on 31 st December 2011 as against BDT 53582.96 million in the previous year showing a net increase by 45.04%. The investment portfolio of the bank is well diversified and covers a broad spectrum of business and industries including readymade garment, textile, edible oil, ship scrapping, steel and engineering,chemical,pharmaceuticals,cement,telecommunication,construction,healthcare, education, transport and investment under consumer scheme. The bank has geared up effort to improve the recovery rate of disbursed investment and also taken adequate measures for converting the classified investment into performing assets. As a result, classified investment of the bank could be kept at low level for below the national average. It is 0.95% in this bank as on 31 st December 2011. The bank gives top-most priority to the creation of quality assets and does appropriate risk grading while approving commercial, trade and project investment to different Clients. Sector wise Investment in 2012 SectorTaka in MillionAgriculture, Fishing and Forestry793.48Industry24274.6Construction3450.99Water works and Sanitary Service Transport and Communication Storage320.28 3435.77 48.04Trade Finance46500.49Miscellaneous5196.92Total (Including profit receivable) Less Unearned Profit On Investment Total83626.57 5925.62 106764.55Page 56 of 168 57. Page 57 of 168 58. 3.11 Documentation A. Customer analysis: Capital structure of the company Authorized capital and paid up capital Reserve and retained earnings Share holdings of the share holders Management team Group and affiliate companies Ability to comply investment convent Security Ability and integrity B. Industry analysis: Contribution to GDP of the concern industry Key risk factors of the industry Growth of the industry Domestic market of the industry International market of the industry C. SupplierBuyer analysis: Domestic International Potentiality of the buyer or supplier Strength and weakness of the buyer or supplier D. Historical Financial analysis: Minimum three years Financial Statement (FSS) analysis Guarantor (s)Corporate guarantor (s) Financial Statement analysis Quality and sustainability of the borrowers Cash flow statement Strength of the borrowers balance sheet Leverage Profitability E. Project Financial Performance: Page 58 of 168 59. Where term investment facilities are being proposed in favor of any new industrial unit an expertise team comprising RM. Engineer in the concern field and financial analyst, the team will prepare a feasibility study as per current industrial policy. F. Account Conduct: Trade payment Cheques payment Timely payments Irregular payment Banks investment payment with profit Excess over limit drawings Excess over DP drawing Banks commission and charges payment G. Mitigating Factor: Margin Volatility High debt load ( LeverageGearing ) Overstocking or debtor issues Repaid growth, acquisition or expansion Management changes or succession issues Customer or Supplier concentration Lack of transparency or industry issues. H. Investment Structure: Amount of investment Tenors of investment Justification of investment Based on the project repayment ability installment to be determined3.12 Investment Principles: The Principle of lending is a collection of certain accepted time tested standards, which ensure the proper use of loan fund in a profitable way and its timely recovery. Different authors describe different principles for sound lending. 1. Safety Page 59 of 168 60. 2. Security 3. Liquidity 4. Adequate yield 5. DiversitySafety: Safely should get the prior importance in the time of sanctioning the loan. At the time of maturity the borrower may not will or may unable to pay the loan amount. Therefore, in the time of sanctioning the loan adequate securities should be taken from the borrowers to recover the loan. Banker should not sacrifice safety for profitability. AL-ARAFH-ISLAMI Bank Ltd. exercises the lending function only when it is safe and that the risk factor is adequately mitigated and covered. Safety depends upon: The security offered by the borrower: and The repaying capacity and willingness of the debtor to repay the loan with interest. Liquidity: Banker should consider the liquidity of the loan in time of sanctioning it. Liquidity' is necessary to meet the consumer need. Security: Banker should be careful in the selection of security to maintain the safety of the loan. Banker should properly evaluate the proper value of the security. If the estimated value is less than or equal to loan amount, the loan should be given against such securities. The more the cash near item the good the security. In the time of valuing the security, the Banker should be more conservative.Adequate Yield: As a commercial origination, Banker should consider the profitability. So banker should consider the interest rate when go for lending. Always Banker should fix such an interest rate for its lending which should be higher than its savings deposits interest rate. To ensure this profitability Banker should consider the prospect of the project. Diversity: Banker should minimize the portfolio risk by putting its fund in the different fields. If Bank put its entire loan able fund in one sector it ill increase the risk. Banker should distribute its Page 60 of 168 61. loan able fund in different sectors. So if it faces any problem in any sector it can be covered by the profit of another sector3.13 Guide Lines by Bangladesh Bank Guideline of processing investment (According to Bangladesh Bank & Head Office): Enter the Application in the Investment Proposal Received and Disposal Register (B-53) and allot a Serial Number to it. Examine shariah permissibility of the goods. Reject the proposal outright, if not permitted by Islamic Shariah. Check-up Credit Restriction Schedule of Bangladesh Bank and Head Office Current Investment Policy Guidelines. Visit the Business establishment of the Client. Talk to the business and important personalities of the locality to ascertain the Honesty, Integrity and Business dealings of the Client. Request for confidential report of the client from local Bank Branches. Confident Report from Credit Information Bureau (CIB) of Bangladesh Bank through Head Office Investment Division as per Instruction Circular of Head Office in this Regard. Obtain Financial Statement/Balance Sheet of the Client for the last three consecutive years for Investment Proposals of Tk. 50.00 lac or above as per Head Office Instruction. Inspect Land, Building, other Assets and Properties proposed to be Mortgaged or Hypothecated. Forward Documents, Title Deeds and other relevant Papers to approve Lawyer of the Bank for examination and furnishing his opinion. Obtain Lawyers Opinion as per clause No. 8.02. Please study the following carefully and note down the actual findings in the Appraisal Form against each item : Effective demand, price of the goods, short or long-term duration, quality and other specifications of the goods, availability, etc. of the sand or projected goods.Page 61 of 168 62. Where sale price of the goods is payable by the client at specified future date in lump sum or installments as per proposal. For Bai-Murabaha Commercial and Bai Murabaha Industrial Investment, prepare Appraisal Report on F-167B. For appraisal Bai-Murabaha agriculture and For BaiMurabaha Import use special Appraisal Form devised for each of those, if any, otherwise F-167B providing the available/required supplementary information. In course of preparation of the appraisal report please ensure incorporation of all information of all information, particulars figures and statistics in Appraisal Form correctly with special attention to the following: Contact primarily with the producers/sellers/suppliers of the goods in the market, study the market price and work out the purchase and sale prices of the goods as per guidelines.3.14 Guideline for Sanctioning Investment by Bangladesh Bank & Head Office On completion of Appraisal as provided herein above, of the Proposal is found viable, issue Sanction Advice (F-188) if it is within the business power of the Branch mentioning all the terms and condition is duplicate to the Client and endorse copies to Zonal and Head Offices retaining one copy in the Clients file duly accepted by the Client. If the proposal is not within the Discretionary Power of the Branch, the Branch shall with Appraisal Report on F-167A and F-167B to Zonal Office/Head Office. If the proposal is within the Business Power of the Zonal Office, Zonal Office shall accord Approval /Regret the Proposal. If the proposal is not within the Business of the Zonal Office shall forward the proposal to Head Office with their views and recommendations. On receiving the proposal and the Appraisal Report along with supporting papers Head Office will either approve or Regret. If the Branch/the Zonal Office /Head Office, the branch will issue the Sanction advice (F-188) with a copy to Zonal Office /Head Office duly recorded in /Facility Sanctioned Register (B-119) with authority to the investment Client for the limit. Page 62 of 168 63. Open file Client-wise, affixing the Fixed Number allotted to him as per Limit Register (B-117) and Clients name, address, telephone number be recorded prominently in the inner side of the investment File for easy tracing in case of need. In case of investment to the existing Client, obtain required papers, document with the past performance and outstanding liabilities of the Client, if any and process of sanction the proposal as per instruction laid down here-in-above after due evaluation or study. In case of investment the bank follows this requirement. Sometime it may be miss uses but almost the bank follows the respective guideline. . 3.15 Special Scheme under Investment 3.15.1 Household Durables Scheme (HDS) Objective To increase standard of living and quality of life of the fixed income group by extending them investment facilities to purchase household articles. Target Group Permanent Officials of Govt. / Semi-Govt. / Autonomous Body / Corporations / Banks & FIs / Defense Forces / Madrasah / School / College / University Teachers / Businessmen / House owners of Metropolitan & other District Head Quarters / Professionals (Doctors / Engineers / Lawyers etc.) / Existing clients / Wage Earners / University / Medical Students / Officials of renowned Private Firms. Nature of Goods / Items Electronics & electrical goods, Motor cycle / Bi-cycle, Furniture / Fixtures, Ornaments, Instruments / Equipments for Medical & Engineering students etc. Mode of InvestmentPage 63 of 168 64. Bai-Muajjal Period of Investment Maximum 1-years Rate of Return 18.00% or rate to be determined by the Bank from time to time. Amount of Investment For All Metropolitan Cities Tk.0.30 million For Districts & Municipalities Tk.0.20 million Others Tk.0.10 million Age of Clients Service holders : 2-yrs unexpired service Other than service holders : Minimum 27-years & Maximum 65 years How to Apply Application Form shall have to be collected from nearest Branch of Islami Bank Bangladesh Ltd. 3.15.2 Investment Scheme for Doctors (ISD) Objective i. To help unemployed qualified doctors to go for self-employment ii. To provide latest medical equipments to specialist doctors to extend modern medicare facilities throughout the country. Target Group Doctors (MBBS), Dentist (BDS),Homeopath,Unani, Ayurbed Doctors Page 64 of 168 65. Nature of Goods / Items X-ray/ ECG/Pathological & other equipments/Apparatus/Modern medical equipments/ other accessories.Mode of Investment Bai-Muajjal / HPSM (item wise). Period of Investment Maximum 5-years Rate of Return 18.00% or rate to be determined by the Bank from time to time. Amount of Investment For All Metropolitan Cities: Tk.1.50 million For Districts: Tk.1.00 million For Thana / Municipalities: Tk.0.70 million How to Apply Application Form shall have to be collected from nearest Branch of Islami Bank Bangladesh Ltd. 3.15.3 Small Enterprise Investment Scheme (SEIS) Objective i. To help the educated unemployed youths of rural and urban areas for self-employment. ii. To provide investment to small businessmen and entrepreneurs. Target GroupPage 65 of 168 66. Jobless young people / small traders / small & cottage industries / service sector with a valid trade license.Nature of Goods / Items Dairy, beef fattening, fishery, poultry & duckery,live stock farming, workshop,tailoring,garments sweetmeat, grocery,stationery, electrical and electronics, shoes, cloths, laundry, small restaurant etc. Mode of Investment Bai-Muajjal Period of Investment Maximum 1-year in Bai-Muajjal & Maximum 2-years in HPSM. Rate of Return 18.00% or rate to be determined by the Bank from time to time. Amount of Investment For All Metropolitan Cities : Tk.0.50 million For Districts & Municipalities : Tk.0.30 million Others : Tk.0.20 million How to Apply Application Form shall have to be collected from nearest Branch of Islami Bank Bangladesh Ltd. 3.15.4 Real Estate Investment Program (REIP) ObjectivePage 66 of 168 67. i. To ease the housing problem in the urban areas. ii. To make arrangement for comfortable accommodation of the fixed income group. Target Group Land lords, service holders, businessmen, professionals, expatriates etc. Nature of Goods / Items Construction of building, purchase of flats / ready made building, extension / renovation of house, installation of lift, generator, sub station etc. Mode of Investment Bai-Muajjal Period of Investment Maximum 15-years Rate of Return 18.00% or rate to be determined by the Bank from time to time. Amount of Investment a)For Construction, up to 60% but not to exceed Tk.10.00 million b) For purchase of Flat / Apartment up to 50% but not to exceed Tk.7.50 million. c) For purchase of Ready-made House, up to 50% but not to exceed Tk. 10.00 million. Age of Clients Maximum 65-years. How to Apply Application Form shall have to be collected from nearest Branch of Islami Bank Bangladesh Ltd.Page 67 of 168 68. 3.15.5 Transport Investment Scheme (TIS) Objective i. To ease the existing transportation problem. ii. To ensure speedy economic growth and development of the country particularly the expansion of trade, commerce & industry. Target Group Persons, businessmen, firms having proven experience in transport business, Official/Commercial use by the business firms & industries,established clinic & hospitals etc. Nature of Goods / Items Bus, Truck, Minibus, Double Decker, Private Car, Micro Bus, Jeep, Auto Rickshaw, Pick up Van, Human Hauler, Baku, Vessel etc. Mode of Investment Bai-Muajjal Period of Investment 3 to 5 years Rate of Return 18.00% or rate to be determined by the Bank from time to time. How to Apply Application Form shall have to be collected from nearest Branch of Al Arafha Islami Bank Bangladesh Ltd.3.15.6 Car Investment Scheme (CIS) Objective Page 68 of 168 69. To help a section of the officials, business houses and business executives and established professionals for movement in discharging their duties and responsibilities punctually and efficiently. Target Group Permanent officials, teachers, businessmen, house owners, professionals, existing clients of IBBL,wage earners etc. Nature of Goods / Items Reconditioned / Brand new Private Car / Micro / Jeep / Auto Rickshaw etc. Mode of Investment Hire Purchase under Shirkatul Melk (HPSM) Period of Investment Maximum 4-years for reconditioned car and 5-years for brand new cars. Rate of Return 18.00% or rate to be determined by the Bank from time to time. Amount of Investment Tk.2.00 million for reconditioned and Tk.3.00 million for brand new car. Age of Clients Minimum 21 years, Maximum 65 years. How to Apply Application Form shall have to be collected from nearest Branch of Al Arafha Islami Bank Bangladesh Ltd. 3.15.7 Agricultural Implement Investment Scheme (AIIS) ObjectivePage 69 of 168 70. i. To provide power tillers, power pumps, shallow tube wells, thresher machines etc. on easy terms to unemployed rural youths for self-employment. ii. To the farmers to help augment production in agriculture sector. Target Group Educated / uneducated farmers & persons / youths. Nature of Goods / Items Power Tiller / Power pump / Deep / Shallow tube well / Thresher machine / Combined harvester / Tractor / Rice transplanter / USG making Machine / Drum Seeder / Agro processing machinery & equipments etc. Mode of Investment Bai-Muajjal Period of Investment Maximum 1-year for Bai-Muajjal & Maximum 2-years for HPSM. Rate of Return 18.00% or rate to be determined by the Bank from time to time. Amount of Investment Maximum Tk.0.30 million. How to Apply Application Form shall have to be collected from nearest Branch of Al Arafha Islami Bank Bangladesh Ltd. 3.15.8 Micro Industries Investment Scheme (MIIS) Objective i. To create wider base for industries as well as to encourage establishment of microindustries in different areas of the country. ii. To create potential entrepreneurs. iii. Diversification of Bank investment port-folio. Page 70 of 168 71. Target Group Engineering diploma / Degree holders / Technical persons. Nature of Goods / Items Food & agriculture / plastic & rubber/ forestry & furniture / dairy product processing / engineering/ leather / chemicals / textiles / recycling / service electrical accessories / paper product / handicrafts industries / computer technology industries /manufacturing of garments / sewing and other machines for tailoring etc. Mode of Investment Bai-Murabaha Period of Investment Maximum 1-year for Bai-Murabaha & Maximum 3-years for HPSM (excluding gestation period). Rate of Return 14.50% or rate to be determined by the Bank from time to time.Amount of Investment For All Metropolitan cities : Up to Tk.1.50 million For Districts & Municipalities : Up to Tk.1.00 million Others :Up to Tk.0.50 million How to Apply Application Form shall have to be collected from nearest Branch of Islami Bank Bangladesh Ltd.Page 71 of 168 72. 3.16 Process of Investment: Process of Investment Heads ApplicationCharacteristics Applicant applies for the Investment in the prescribed form of the bank describing the types and purpose of loan.Sanction1. Collecting credit information about die applicant to determine the credit worthiness of the borrower. Sources of information 2. Personal Investigation, Confidential Report from other bank. Head Office/Branch/Chamber of Commerce, 3. CIB (Central Information Bureau) report from Central Bank. i. Evaluation of compliance with its lending policy, ii. Evaluating the proposed security. 4. LRA is must for the loan exceeding one crore - as ordered by Bangladesh Bank. 5. If everything is in accordance the loan is sanctionedDocumentationThen bank prepare a Investment proposal which contains terms and conditions of loan for approval of Ra or Manager Takes the necessary papers and signatures from borrowerDisbursementAn Investment Account is opened. Where customer A/C--------Dr. Respective Loan A/C --------------------------------------- Cr.Page 72 of 168 73. CHAPTER-4 PERFORMANCE ANALYSISPage 73 of 168 74. 4.1 Theoretical Review: 4.2 Ratio Analysis Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and Market Value Ratios. Ratio Analysis as a tool possesses several important features. The data, which are provided by financial statements, are readily available. The computation of ratios facilitates the comparison of firms which differ in size. Ratios can be used to compare a firm's financial performance with industry averages. In addition, ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time. Because Ratio Analysis is based upon accounting information, its effectiveness is limited by the distortions which arise in financial statements due to such things as Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in financial analysis, to obtain a quick indication of a firm's performance and to identify areas which need to be investigated further.Short-term Solvency or Liquidity Ratios Short-term Solvency Ratios attempt to measure the ability of a firm to meet its short-term financial obligations. In other words, these ratios seek to determine the ability of a firm to avoid financial distress in the short-run. The two most important Short-term Solvency Ratios are the Current Ratio and the Quick Ratio.Page 74 of 168 75. Loan-To-Deposit Ratio - LTD' A commonly used statistic for assessing a bank's liquidity by dividing the banks total loans by its total deposits. This number, also known as the LTD ratio, is expressed as a percentage. If the ratio is too high, it means that banks might not have enough liquidity to cover any unforeseen fund requirements; if the ratio is too low, banks may not be earning as much as they could be. Profitability Ratio Profitability ratios show a company's overall efficiency and performance. We can divide profitability ratios into two types: margins and returns. Ratios that show margins represent the firm's ability to translate sales dollars into profits at various stages of measurement. Ratios that show returns represent the firm's ability to measure the overall efficiency of the firm in generating returns for its shareholders. Return on Assets The Return on Assets ratio is an important profitability ratio because it measures the efficiency with which the company is managing its investment in assets and using them to generate profit. It measures the amount of profit earned relative to the firm's level of investment in total assets. The return on assets ratio is related to the asset management category of financial ratios. The calculation for the return on assets ratio is: Net Income/Total Assets = _____%. Net Income is taken from the income statement and total assets is taken from the balance sheet. The higher the percentage, the better, because that means the company is doing a good job using its assets to generate sales. Return on Equity The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company. The calculation is: Net Income/Stockholder's Equity = _____%. Net Page 75 of 168 76. income comes from the income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage, the better, with some exceptions, as it shows that the company is doing a good job using the investors' money. Return on Deposit (ROD) The return on debt (ROD) can be expressed as the quantification of a companys performance or net income as allied to the amount of debt issued by the company. Putting it other way, the return on debt refers to the amount of profit generated for every dollar held by a company in debt. As stated by Investopedia, the return on debt is an intricate financial modeling skill rather than being a commonly used financial reporting factor. Moreover, companies carrying a significant amount of debt relating to capital and/or assets are more prone to economic downturns during a decline in earnings and credit measures might be tightened.Leverage Ratio /Capital Structure Ratio A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.Equity-to-Assets Ratio The equity-to-assets ratio is one of many financial ratios used to determine the financial health and long-term profitability of a corporation. It is often used by investors to determine whether the corporation's shares are a safe investment. Though important, the equity-to-assets ratio should be used only with other financial ratios to determine a corporation's overall financial health. Efficiency RatioPage 76 of 168 77. In banking, a ratio of expenses to revenue. For example, if a bank spends $10 million and makes $15 million in a given month, its efficiency ratio is .67. Banks desire a lower efficiency ratio because this means that the bank is making considerably more than it is spending and is therefore on sound fiscal footing. One way to conceptualize the efficiency ratio is to say it is the measure of what a bank must spend in order to make one dollar. In the above example, the bank must spend 67 cents. Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery. Operational Efficiency A market condition that exists when participants can execute transactions and receive services at a price that equates fairly to the actual costs required to provide them. An Operationally-efficient market allows investors to make transactions that move the market further toward the overall goal of prudent capital allocation, without being chiseled down by excessive frictional costs, which would reduce the risk/reward profile of the transaction. Asset utilization ratio The asset utilization ratio measures management's ability to make the best use of its assets to generate revenue. This is particularly meaningful in a manufacturing, where fewer capital assets are used to produce products. The asset utilization ratio is calculated by dividing total sales by the net book value of the capital assets. Once calculated, this ratio can then be compared to benchmark industry standard ratios, or it can be compared to ratios of other comparable businesses. Total Expenses to Total Assets Total Expenses to Total Assets is the ratio between total Expense and total assets. It provides information regarding total costs involved annually for investment funds. The costs include expenses like legal fees, management fees, and other operational expenses. Total Expense Ratio is also called as Expense Ratio. Total expense ratio = Total expense / Total assets Page 77 of 168 78. The Expense helps in measuring the funds assets which are sold or used to manage the expenses relating to the fund. The output is expressed as a percentage and is calculated on a yearly or annual basis.Credit Risk Ratio The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Investors are compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation.Credit risk is cl