You are on page 1of 168
Internship Report On The Investment and Comprehensive Performance Analysis of commercial Bank. A case Study
Internship Report On The Investment and Comprehensive Performance Analysis of commercial Bank. A case Study
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 University

Prepared By:

Md. Fayshal Hossan Miazy

ID: 2009110000038 Batch: 22 nd Major in Finance Program: BBA Southeast University

Date of Submission: 12 th May, 2013
Date of Submission: 12 th May, 2013
2009110000038 Batch: 22 n d Major in Finance Program: BBA Southeast University Date of Submission: 12
2009110000038 Batch: 22 n d Major in Finance Program: BBA Southeast University Date of Submission: 12
Internship Report On The Investment and Comprehensive Performance Analysis of commercial Bank. A Case study
Internship Report On The Investment and Comprehensive Performance Analysis of commercial Bank. A Case study

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 University

Prepared By:

Md Fayshal Hossan Miazy

ID# 2009110000038

BAtch: - 22 nd mAjor- FinAnce

ProgrAm: - BBA

Date of Submission: 12 May, 2013

Page 2 of 168

Internship Report on The Investment and Comprehensive Performance Analysis of Commercial Bank. A Case Study

Internship Report on

Internship Report on The Investment and Comprehensive Performance Analysis of Commercial Bank. A Case Study of

The Investment and Comprehensive Performance Analysis of Commercial Bank. A Case Study of Al- Arafah Islami Bank Ltd.

and Comprehensive Performance Analysis of Commercial Bank. A Case Study of Al- Arafah Islami Bank Ltd.
and Comprehensive Performance Analysis of Commercial Bank. A Case Study of Al- Arafah Islami Bank Ltd.

Page 3 of 168

  Abbreviation SN     01 AIBL A l-Arafah I slami B ank L td
 

Abbreviation

SN

   

01

AIBL

Al-Arafah Islami Bank Ltd

02

SJIBL

Shahjalal Islami Bank Ltd

03

SIBL

Social Islami Bank Ltd

04

FSIBL

First Security Islami Bank Ltd

05

EBL

Exim Bank Ltd

06

A/C

Account

07

ROA

Return on Assets

08

ROE

Return on Equity

09

ROD

Return on Deposit

10

ROI

Return on Investment

11

AVP

Assistance Vice- President

12

SDUS

Disbursed to Saving Deficit Units

13

SSU

Savings Surplus Units

14

L/C

Letter of Credit

15

CIB

Credit Information Bureau

16

HDS

Household Durables Scheme

17

ISD

Investment Scheme for Doctors

18

SEIS

Small Enterprise Investment Scheme

19

REIP

Real Estate Investment Program

20

AIIS

Agricultural Implement Investment Scheme

Page 4 of 168

Dedication

Dedication Dedicate to my respected parents, family members & My respected teachers. Page 5 of 168

Dedicate to my respected parents, family members

&

My respected teachers.

Page 5 of 168

12 May, 2012

Abdullah Iftikhar

12 May, 2012 Abdullah Iftikhar Letter of Transmittal Lecturer School Of Business Studies Southeast University Subject:

Letter of Transmittal

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. 22 nd Batch. Major- Finance

Southeast University

Page 6 of 168

Declaration of Supervisor This is certifying that Md. Fayshal Hossan Miazy ID: 2009110000038 , student

Declaration of Supervisor

This 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 University

Page 7 of 168

Declaration of Student I hereby declare that the report of internship namely “The Investment and

Declaration of Student

I 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. 22 nd Batch. Major- Finance

Southeast University

Page 8 of 168

ACKNOWLEDGEMENT At first I would like to express my deepest gratitude to Almighty Allah for

ACKNOWLEDGEMENT

At 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 can’t 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

Executive Summary Investment is the main part of the bank. This report contains handy information

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

  Table of Contents Chapter   Particulars Page   No.   Introduction 01-08
 

Table of Contents

Chapter

 

Particulars

Page

 

No.

 

Introduction

01-08

1.1Introduction

01

1.2 Background of the Report

02

1.3 Origin of the report

02

1.4 Objective of the report

03-04

1.5 Scope of the study

04

01

1.6 Methodology of the study

05

1.6.1 Primary data

05

1.6.2 Secondary data

05

1.7

Sampling

05

1.7.1 Population

05-06

1.7.2 The Sample Units

06

1.7.3 The Sampling Frame

06

1.7.4 The Sampling Design

06

1.7.5 The Sample Size

06

1.7.6 The Sampling Plan

06

1.7.7 Some Important Facts About The overall

06

Survey

1.8

Benefit of the report

07

Page 11 of 168

  1.9 Limitations of the study 07-08   Organizational Overview 09-31 2.1 Organizational
 

1.9

Limitations of the study

07-08

 

Organizational Overview

09-31

2.1

Organizational Overview of Al-Arafah Islami

10

Bank Ltd

2.2

Historical Background of Al-Arafah Islami

10-11

Bank Limited

02

2.3 AIBL Profile

11-12

2.4 Vision& Mission of AIBL

12-13

2.4.1 Vision

12

2.4.2 Mission

12-13

2.5 Objectives of AIBL

13

2.6 Other objective of Al Arafah Islami Bank

13-14

includes

2.7 Commitments

14

2.8 AIBL at a Glance

14-15

2.9 CORE VALUES

16

2.10 Special Features of the Bank

16-17

2.11 Board of Directors of AIBL

18-19

2.12 Management of AIBL

20-21

2.13 Shariah Board of AIBL

21-22

2.14 Members of AIBL's Fatwa & Shariah

22

2.15 The Board's Role

22

2.16 Important Duties of the Shariah Board

23

2.17 SHARIAH SUPERVISORS

24

Page 12 of 168

  2.18 SHARIAH AUDITING 24 2.19 SWIFT CODES of AIBL 24-25 2.20 AIBL’S LIBRARY 26
 

2.18 SHARIAH AUDITING

24

2.19 SWIFT CODES of AIBL

24-25

2.20 AIBL’S LIBRARY

26

2.21 Corporate Social Responsibilities of AIBL

26-27

 

2.22 AIBL Khilkhet Branch

27

2.23 Organogram of Al-Arafah Islami Bank Ltd.

28

Khilkhet Branch, Dhaka

2.24

Operating activities of Khilkhet branch

29-31

 

Theoretical Framework for Investment

32-62

3.1 Investment

33

3.2 Introduction of Investment Division

33

3.3 Investment Assessment

34

3.4 Mode of Investment

35

3.5 Trading modes (Bai-Mechanism)

36

3.5.1 Bai-Murabaha

36

3.5.2 Bai Muajjal

36

03

3.5.3 Bai- Salam

36

3.5.4 Bai-Istishna

37

3.6

Leasing mode (Ijarah mechanism)

37

3.6.1 Ijarah Muntahia Bittamleak (Hire Purchase)

37

3.6.2 Hire Purchase Under shirkatul Melk

38

3.7

Share Mechanism

38-39

 

3.7.1

Mudaraba

39-40

Page 13 of 168

3.7.2 Musharaka 40 3.8 Others 41 3.8.1 Quard 41 3.8.2 Uzrat Bill Wakala 41 3.9

3.7.2

Musharaka

40

3.8 Others

41

3.8.1 Quard

41

3.8.2 Uzrat Bill Wakala

41

3.9 PROCESS OF INVESTMENT

42

3.10 Investment Growth

42-45

3.11 Documentation

46-47

3.12 Investment Principles

48-49

3.13 Guide Lines by Bangladesh Bank

49-50

3.14 Guideline for Sanctioning Investment by

51

Bangladesh Bank & Head Office

3.15

Special Scheme under Investment

52

3.15.1 Household Durables Scheme (HDS)

52-53

3.15.2 Investment Scheme for Doctors (ISD)

53-54

3.15.3 Small Enterprise Investment Scheme

54-55

(SEIS)

3.15.4 Real Estate Investment Program (REIP)

55-56

3.15.5 Transport Investment Scheme (TIS)

57

3.15.6 Car Investment Scheme (CIS)

58-59

3.15.7 Agricultural Implement Investment

59-60

Scheme (AIIS)

 

3.15.8

Micro Industries Investment Scheme

60-61

(MIIS)

3.16

Process of Investment

62

Performance Analysis

63

Page 14 of 168

  4.1 Theoretical Review 64 04 4.2 Ratio Analysis 64-68 4.3 Time Series Analysis 69-92
 

4.1 Theoretical Review

64

04

4.2 Ratio Analysis

64-68

4.3 Time Series Analysis

69-92

4.4 Comparative Analysis among Five Islami

93-104

Banks

 

Research Part

105-132

05

5.1 The Questionnaire

106

5.2 Clients view Analysis

106-132

 

SWOT Analysis

133-135

6.1 SWOT Analysis in AIBL

134-135

6.2 Strengths

134

06

6.3 Weaknesses

134

6.4 Opportunities

134

6.5 Threats

135

 

Findings, Recommendations and Conclusion

136-142

7.1 Summary of Findings

137

07

7.2 Problems & Limitations

138

7.3 Recommendations

138-141

7.4 Conclusion

141-142

 

References

143

Appendix

144-157

Page 15 of 168

CHAPTER-1 INTRODUCTION Page 16 of 168
CHAPTER-1 INTRODUCTION Page 16 of 168
CHAPTER-1
CHAPTER-1

INTRODUCTION

Page 16 of 168

1.1 Introduction

1.1 Introduction The term “Islamic banking” refers to a system of banking or banking activity that

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 al- Mutanaqisa, 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

1.2 Background of the Report:

1.2 Background of the Report: A develop banking sector plays a vital role for financial stability

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

1.4 Objective of the report

1.4 Objective of the report The objective of this study is to have a clear concept

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.the study seeks to achieve the following objectives: To recommend ways of improving the service standard

To recommend ways of improving the service standard that accommodates a rapidly growing customer volume.To identify the level of customer satisfaction of AIBL. To find out what are the major

To find out what are the major factors that hamper satisfaction among General banking service in AIBL.that accommodates a rapidly growing customer volume. To examine the activities of the loans and advanced

To examine the activities of the loans and advanced department.hamper satisfaction among General banking service in AIBL. To see if inclusion of some necessary product

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.examine the activities of the loans and advanced department. To submit a report, for the fulfillment

To submit a report, for the fulfillment of my BBA practical.existing facility can act to increase customer satisfaction. The main objective of this report is to

The main objective of this report is to find out the “The Investment and Comprehensive Performance Analysis of Al-Arafah Islami Bank Limited.”.To submit a report, for the fulfillment of my BBA practical. To gather comprehensive knowledge on

To gather comprehensive knowledge on overall banking functions and the expectations of the customers regarding the service level of the bank.Performance Analysis of Al-Arafah Islami Bank Limited.”. Identify the factors contributing to the attractive and

Identify the factors contributing to the attractive and operative performance of the local branch of the bank.overall banking functions and the expectations of the customers regarding the service level of the bank.

Page 19 of 168

To make a study of the facts in order to arrive at certain conclusion about

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

Identify the main objectives of AIBL Investment Disbursement.at certain conclusion about overall banking operation. To find out the sector in which AIBL provides

To find out the sector in which AIBL provides Investment.the main objectives of AIBL Investment Disbursement. To evaluate financial affairs of the Bank To visualize

To evaluate financial affairs of the BankTo find out the sector in which AIBL provides Investment. To visualize the quantitative and qualitative

To visualize the quantitative and qualitative aspects of AIBLInvestment. To evaluate financial affairs of the Bank To identify policy recommendations for further improvement

To identify policy recommendations for further improvementvisualize the quantitative and qualitative aspects of AIBL To evaluate the performance of AIBL with others

To evaluate the performance of AIBL with others four Islami bank.To identify policy recommendations for further improvement 1.5 Scope of the study The report will be

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

1.6 Methodology of the study

1 . 6 Methodology of the study I have got all the relevant information from my

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.Secondary data are collected in the following ways: Data gathered from Texts Internet sources. General reports.

Data gathered from Textsways: Data gathered within the organization itself. Internet sources. General reports. Annual reports Official

Internet sources.within the organization itself. Data gathered from Texts General reports. Annual reports Official documents Credit

General reports.itself. Data gathered from Texts Internet sources. Annual reports Official documents Credit manual and foreign

Annual reportsData gathered from Texts Internet sources. General reports. Official documents Credit manual and foreign exchange manual

Official documentsfrom Texts Internet sources. General reports. Annual reports Credit manual and foreign exchange manual of the

Credit manual and foreign exchange manual of the bank.sources. General reports. Annual reports Official documents 1.7 SAMPLING: 1.7.1 POPULATION: The population in the

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

1.7.2 THE SAMPLE UNITS: The sampling unit in case of this research consists of the

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 respondent’s cooperation: Moderate

1.8 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

1.9 Limitations of the study The present study was not out of limitations. But as

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.the exploration of the topic. Following are the Limitations: Every organization has its own secrecy that

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.have ensured a much better result for the study findings. Due to lack of experience, there

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.information for the sake of confidentiality of the Bank. Lack of depth of knowledge, lack of

Lack of depth of knowledge, lack of experience in collecting information and analytical ability for writing such report.best effort has been applied to avoid any kind of mistake. There were some misunderstanding between

There were some misunderstanding between me and the bank officials while searching the some required information.information and analytical ability for writing such report. The main constraint of the study is inadequate

The main constraint of the study is inadequate access to information.officials while searching the some required information. Due to time limitations many of the aspects could

Due to time limitations many of the aspects could not be discussed in the report.constraint of the study is inadequate access to information. The employees did not disclose much information

The employees did not disclose much information for the sake of the confidentiality of the organization.many of the aspects could not be discussed in the report. Since the bank personals were

Since the bank personals were very busy, they could provide me very little time.for the sake of the confidentiality of the organization. The clients were too busy to provide

The clients were too busy to provide me much time for interview.were very busy, they could provide me very little time. Though I have prepared many reports

Though I have prepared many reports before, I had no experience of internship. So inexperience is one of the main constraints of the study.clients were too busy to provide me much time for interview. Lack of social awareness about

Lack of social awareness about the modern and competitive banking system.internship. So inexperience is one of the main constraints of the study. Lack of cooperation with

Lack of cooperation with othersmain constraints of the study. Lack of social awareness about the modern and competitive banking system.

Page 23 of 168

CHAPTER-2 ORGANIZATIONAL OVERVIEW Page 24 of 168
CHAPTER-2 ORGANIZATIONAL OVERVIEW Page 24 of 168
CHAPTER-2
CHAPTER-2

ORGANIZATIONAL

OVERVIEW

Page 24 of 168

2.1 Organizational Overview of Al-Arafah Islami Bank Ltd Al-Arafah Islami Bank Ltd. as the name

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-Qur’an 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 Al- Qur’an 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

precepts of Islam. All activities of the Bank are conducted according to Islamic Shariah where

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

Al-Arafah Islami Bank Ltd. was established not only to earn profit and to develop economy

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.to the growth of the national economy. 2.4.2 Mission Proliferation of Shariah Based Banking Practices. Quality

Proliferation of Shariah Based Banking Practices.satisfaction of Almighty Allah both here & hereafter. Quality financial services adopting the latest technology.

Quality financial services adopting the latest technology.hereafter. Proliferation of Shariah Based Banking Practices. Fast and efficient customer service. Maintaining high

Fast and efficient customer service.Quality financial services adopting the latest technology. Maintaining high standard of business ethics. Balanced

Maintaining high standard of business ethics.the latest technology. Fast and efficient customer service. Balanced growth. Steady & competitive return on

Balanced growth.service. Maintaining high standard of business ethics. Steady & competitive return on shareholders' equity.

Steady & competitive return on shareholders' equity.high standard of business ethics. Balanced growth. Innovative banking at a competitive price. Attract and

Innovative banking at a competitive price.Steady & competitive return on shareholders' equity. Attract and retain quality human resources. Extending

Attract and retain quality human resources.equity. Innovative banking at a competitive price. Extending competitive compensation packages to the

Extending competitive compensation packages to the employees.price. Attract and retain quality human resources. Firm commitment to the growth of national economy. Involving

Firm commitment to the growth of national economy.competitive compensation packages to the employees. Involving more in Micro and SME financing. 2.5 Objectives of

Involving more in Micro and SME financing.Firm commitment to the growth of national economy. 2.5 Objectives of AIBL From time immemorial Banks

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

interested to abide by the injunctions of religion in all sphere of life including economic

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 God-

fearing society.

2.6 Other objective of Al Arafah Islami Bank includes:

To establish interest-free and welfare oriented banking system.2.6 Other objective of Al Arafah Islami Bank includes: To establish a modern banking system for

To establish a modern banking system for all kinds of people.establish interest-free and welfare oriented banking system. To help in poverty alleviation and employment generation. To

To help in poverty alleviation and employment generation.establish a modern banking system for all kinds of people. To contribute in sustainable economic growth.

To contribute in sustainable economic growth.To help in poverty alleviation and employment generation. To eradicate the poverty and to do social

Togeneration. To contribute in sustainable economic growth. eradicate the poverty and to do social services by

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.Madrashas, University, Hospitals, Public Library etc. Finally to achieve ultimate goal 2.7 Commitments Ours is a

Finally to achieve ultimate goalrelationship between bank and customer as partnership Basis. 2.7 Commitments Ours is a customer focused modern

2.7 Commitments

Ours is a customer focused modern Islamic Banking sound and steady growth in bothBasis. Finally to achieve ultimate goal 2.7 Commitments mobilizing deposit and making quality Investment to keep

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 mediumto keep our position as a leading Islami bank in Bangladesh. scale enterprises, as well as

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 ofand medium scale enterprises, as well as corporate clients through our branches across the country. Page

Page 28 of 168

the clients.

the clients. 2.8 AIBL at a Glance Islam provides us a complete lifestyle. Main objective of

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-Qur’an 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 ex-

bureaucrat 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:

 

(In million taka)

Particulars

2004

2005

2006

2007

2008

Authorized Capital

1000.00

1000.00

2500.00

2500.00

2500.00

Paid up Capital

586.99

677.94

854.20

1153.18

1383.81

Reserve Fund

488.00

542.22

835.98

1091.95

905.33

Shareholders’ Equity

957.26

1220.16

1690.18

2037.50

2705.74

Deposit

10108.28

11643.66

16775.34

23009.13

29690.12

Investment

8150.16

11474.41

17423.19

22906.37

29723.79

Import

9337.49

12631.60

1882.14

27042.72

32685.13

Export

3639.34

4932.90

914.27

12714.91

20176.64

Total Income

1120.85

1452.68

2172.48

2955.61

4387.26

Total Expenditure

771.96

904.48

1202.71

2199.43

2859.16

Profit before Tax

348.89

548.20

855.47

756.18

1528.09

Profit after Tax

158.76

262.90

470.02

347.31

668.24

Income Tax

157.00

215.10

385.45

235.53

590.66

Total Assets

12874.61

15336.89

21368.17

30182.32

39158.44

Fixed Assets

195.17

208.00

215.11

334.48

396.76

Earnings per share (Taka)

263.68

387.80

550.24

30.12

48.29

Page 29 of 168

 
 

Profit Earning Ratio

   

4.89

   

Dividend per share

15.5%

26.00%

35%

20%

30%

Bonus

No. of Shareholders

5379

5402

4487

12013

10664

Number of Employees

803

771

912

1033

1080

Number of Branches

40

41

46

46

50

Manpower per Branch

20

19

20

23

 

2.9 CORE VALUES

For customers- To become most caring Bank- by providing the most courteous and efficient service in every area of our business. For employees- By promoting the well- being of the members of the staff. For our shareholders- By ensuring fair return on their investment through generating stable profit. For our community- By 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.of AIBL that make it notable in Islami banking sector: The bank‟s investment policy follows different

The bank‟s investment policy follows different modes approved by Islamic shariah based on the Quran and Sunnah.the bank are conducted according to Islamic Shariah where profit is the legal alternative to interest.

Page 30 of 168

The bank is committed towards establishing welfare oriented banking system and creates employment opportunities. According

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

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.banking system and creates employment opportunities. The bank is committed to establish an economic system

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.projects of the government and creating infrastructure. According to Mudaraba system, the depositors ate the

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.through micro credit program and financing of SMES as well. To render improved services to the

To render improved services to the clients imbued with Islamic spirit of brotherhood, peace and fraternity and by developing an institutional cohesion.income is distributed among the Mudaraba depositors. The bank is contributing to economic and philanthropic

The bank is contributing to economic and philanthropic activities. AIBL English Medium Madrasah and AIBL library patronize by the Bank are two such examples.with Islamic spirit of brotherhood, peace and fraternity and by developing an institutional cohesion. Page 31

Page 31 of 168

2.11 Board of Directors of AIBL:

2.11 Board of Directors of AIBL: Badiur Rahman Chairman Sarker Mohammad Shameem Iqbal Vice Chairman Alhajj
Badiur Rahman Chairman Sarker Mohammad Shameem Iqbal Vice Chairman Alhajj Md. Harun-ar-Rashid Khan Director
Badiur Rahman
Chairman
Sarker Mohammad Shameem
Iqbal
Vice Chairman
Alhajj Md. Harun-ar-Rashid
Khan
Director

Alhajj Nazmul Ahsan Khaled Director

Khan Director Alhajj Nazmul Ahsan Khaled Director Alhajj Abdul Moktadir Director Alhajj Abu Naser Mohammad

Alhajj Abdul Moktadir Director

Ahsan Khaled Director Alhajj Abdul Moktadir Director Alhajj Abu Naser Mohammad Yeahea Director Alhajj Abdul

Alhajj Abu Naser Mohammad Yeahea Director

Alhajj Abdul Malek Mollah Director

Yeahea Director Alhajj Abdul Malek Mollah Director Alhajj Ahamedul Haque Director Alhajj Abdus Salam Director

Alhajj Ahamedul Haque Director

Abdul Malek Mollah Director Alhajj Ahamedul Haque Director Alhajj Abdus Salam Director Page 32 of 168

Alhajj Abdus Salam Director

Page 32 of 168

Alhajj Hafez Md. Enayetullah Director

Director Page 32 of 168 Alhajj Hafez Md. Enayetullah Director Alhajj Abdus Samad Director Alhajj Niaz

Alhajj Abdus Samad Director

Director Page 32 of 168 Alhajj Hafez Md. Enayetullah Director Alhajj Abdus Samad Director Alhajj Niaz

Alhajj Niaz Ahmed Director

Engr. Kh. Mesbahuddin Ahmed Director Anwar Hossain Director Ekramul Hoque Ex-Officio Director Mohammed Emadur Rahman

Engr. Kh. Mesbahuddin Ahmed Director

Engr. Kh. Mesbahuddin Ahmed Director Anwar Hossain Director Ekramul Hoque Ex-Officio Director Mohammed Emadur Rahman

Anwar Hossain

Director

Engr. Kh. Mesbahuddin Ahmed Director Anwar Hossain Director Ekramul Hoque Ex-Officio Director Mohammed Emadur Rahman

Ekramul Hoque

Ex-Officio Director

Anwar Hossain Director Ekramul Hoque Ex-Officio Director Mohammed Emadur Rahman Director Dr. Momtaz Uddin Ahmed

Mohammed Emadur Rahman Director

Hoque Ex-Officio Director Mohammed Emadur Rahman Director Dr. Momtaz Uddin Ahmed Director Page 33 of 168

Dr. Momtaz Uddin Ahmed Director

Page 33 of 168

Director Dr. Momtaz Uddin Ahmed Director Page 33 of 168 Md. Rafiqul Islam Director Brigadier General
Director Dr. Momtaz Uddin Ahmed Director Page 33 of 168 Md. Rafiqul Islam Director Brigadier General

Md. Rafiqul Islam Director

Director Page 33 of 168 Md. Rafiqul Islam Director Brigadier General M A Malek (Retd) Director

Brigadier General M A Malek (Retd) Director

Page 33 of 168 Md. Rafiqul Islam Director Brigadier General M A Malek (Retd) Director Md.

Md. Ashik Hossain Director

2.12 Management of AIBL

::: Managing Director :::

2.12 Management of AIBL ::: Managing Director ::: Ekramul Hoque Managing Director ::: Deputy Managing Director

Ekramul Hoque Managing Director

::: Deputy Managing Director :::

Hoque Managing Director ::: Deputy Managing Director ::: Md. Rafiqul Islam Deputy Managing Director Khondoker
Hoque Managing Director ::: Deputy Managing Director ::: Md. Rafiqul Islam Deputy Managing Director Khondoker

Md. Rafiqul Islam

Deputy Managing

Director

Khondoker Nayeemul Kabir Deputy Managing Director

Md Mofazzel Hossain Deputy Managing Director

Director Md Mofazzel Hossain Deputy Managing Director Kazi Towhidul Alam Deputy Managing Director Md. Golam

Kazi Towhidul Alam Deputy Managing Director

Md. Golam Rabbani Deputy Managing Director

Page 34 of 168

::: Executive Vice President ::: Md. Mominul Haque Bhuiyan Executive Vice President Md. Fazlul Karim

::: Executive Vice President :::

::: Executive Vice President ::: Md. Mominul Haque Bhuiyan Executive Vice President Md. Fazlul Karim Executive

Md. Mominul Haque Bhuiyan Executive Vice President

Md. Fazlul Karim Executive Vice President

Muhammed Nadim ACA Executive Vice President

Vice President Muhammed Nadim ACA Executive Vice President Md. Mahmoodul Haque Executive Vice President 2.13 Shariah

Md. Mahmoodul Haque Executive Vice President

2.13 Shariah Board of AIBL

Shariah Board

Syed Masodul Bari Executive Vice President

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

(interest).

(interest). 2.14 Members of AIBL's Fatwa & Shariah Supervision Board are: Mufti Abdur Rahman Chairman Moulana

2.14 Members of AIBL's Fatwa & Shariah

Supervision Board are:

Mufti Abdur Rahman

Chairman

Moulana Abdul Basit Barkatpuri

Member

Alhaz A Z M Shamsul Alam

Member

Badiur Rahman

Member (By Holding of Position)

Mufti Ruhul Amin Member

Mufti Muinul Islam

Member

Md. Abdur Rahim Khan

Secretary

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

Bank’s 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:

(Clauses). 2.16 Important Duties of the Shariah Board: As an expert source on Islamic Principles (Including

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

To devote time and effort to devising more Shariah -compliant transactional procedures, templates and banking

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

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.opinion on proposed new templates, and banking transactions. Analyzing contracts and agreements concerning the Bank's

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.develops any new products or implements any new procedure. Ensuring Shariah compliance in the implementation of

Ensuring Shariah compliance in the implementation of all banking transactions and correcting any breaches.so that Shariah compliance can be evaluated and maintained. Analyzing administrative decisions, issues and matters that

Analyzing administrative decisions, issues and matters that require the Board's approval.of all banking transactions and correcting any breaches. Supervising Shariah training programmes for the Bank's

Supervising Shariah training programmes for the Bank's staff.issues and matters that require the Board's approval. Preparing an annual report in the Bank's balance

Preparing an annual report in the Bank's balance sheet with respect to its Shariah compliance.Shariah training programmes for the Bank's staff. The Fatwa & Shariah Supervision Board submits a complete

balance sheet with respect to its Shariah compliance. The Fatwa & Shariah Supervision Board submits a

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 Board

Page 37 of 168

and to the Chairman of the Board of Directors. The position also calls for participation

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 Office
01. Head Office

SWIFT Code

ALAR BD DH

02. Motijheel Branch

SWIFT Code

ALAR BD DH 066

03. Moulvi Bazar Branch

SWIFT Code

ALAR BD DH 067

04. Nawabpur Road Branch

05. Corporate Branch

06.

VIP Road Branch

SWIFT Code

SWIFT Code

SWIFT Code

ALAR BD DH 074

ALAR BD DH 075

ALAR BD DH 077

07. Banani Branch

08. Bogra Branch

09.

Agrabad Branch

SWIFT Code

SWIFT Code

SWIFT Code

ALAR BD DH 079

ALAR BD DH 071

ALAR BD DH 069

10. Khatungong Branch

11. Jubilee Road Branch

12. Khulna Branch

SWIFT Code

SWIFT Code

SWIFT Code

ALAR BD DH 072

ALAR BD DH 076

ALAR BD DH 068

Branch SWIFT Code SWIFT Code SWIFT Code ALAR BD DH 072 ALAR BD DH 076 ALAR
Branch SWIFT Code SWIFT Code SWIFT Code ALAR BD DH 072 ALAR BD DH 076 ALAR
Branch SWIFT Code SWIFT Code SWIFT Code ALAR BD DH 072 ALAR BD DH 076 ALAR
Branch SWIFT Code SWIFT Code SWIFT Code ALAR BD DH 072 ALAR BD DH 076 ALAR

Page 38 of 168

Branch SWIFT Code SWIFT Code SWIFT Code ALAR BD DH 072 ALAR BD DH 076 ALAR
Branch SWIFT Code SWIFT Code SWIFT Code ALAR BD DH 072 ALAR BD DH 076 ALAR
 
 

13.

Rajshahi Branch

14.

Laldighirpar Branch

 

15. Saidpur Branch

 

SWIFT Code

 

SWIFT Code

 

SWIFT Code

ALAR BD DH 073

ALAR BD DH 070

ALAR BD DH 078

16.

Dilkusha Branch

17.

New Elephant Road Branch

18.

Uttara Model Town Branch

 

SWIFT Code

 

SWIFT Code

ALAR BD DH 080

 

SWIFT Code

ALAR BD DH 082

 

ALAR BD DH 081

19.

Jatrabari Branch

20.

Dhanmondi Branch

21.

North South Road Branch

 

SWIFT Code

 

SWIFT Code

 

SWIFT Code

ALAR BD DH 083

ALAR BD DH 084

ALAR BD DH 085

22. Gulshan Branch
22. Gulshan Branch

SWIFT Code

ALAR BD DH 086

2.20 AIBL’S 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 bank’s 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

philanthropic activities.

philanthropic activities. Al-Arafah Islamic International School & College: Al-Arafah Islamic International School

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 doesn’t deal large foreign exchange transaction. The branch has efficient human resources that can meet up customer’s needs. Order wise work is distributed properly.

Page 40 of 168

2.23 Organogram of Al-Arafah Islami Bank Ltd. Khilkhet Branch, Dhaka AVP & Manager Md. Sharif

2.23 Organogram of Al-Arafah Islami Bank Ltd. Khilkhet Branch, Dhaka

AVP & Manager Md. Sharif Chowdhury

Branch, Dhaka AVP & Manager Md. Sharif Chowdhury Senior Executive Officer (SEO) Md. Shah Alam GB

Senior Executive Officer (SEO)

Md. Shah Alam

Chowdhury Senior Executive Officer (SEO) Md. Shah Alam GB Incharge Principle Officer (PO) Executive Officer (EO)
GB Incharge Principle Officer (PO) Executive Officer (EO) Md. Omar Faruq Executive Officer (EO) Md.
GB Incharge
Principle Officer (PO)
Executive Officer (EO)
Md. Omar Faruq
Executive Officer (EO)
Md. Shohel
Officer
Md. Ibrahim Khalil
Investment Incharge Senior Executive Officer (SEO) Md. Joshim Uddin Investment Officer Naimur Rahman EO of
Investment Incharge
Senior Executive Officer (SEO)
Md.
Joshim Uddin
Investment Officer
Naimur Rahman
EO of Foreign Exchange
Md. Abdul Khalek
Senior Field Supervisor
Md.
Nazmul Haque
Field Assistant
Md.
Kamal Hossain
Cash Incharge Executive Officer (EO) Executive Officer (EO) ASM Salauddin Bahar Officer Md. Abdur Rahim
Cash Incharge
Executive Officer (EO)
Executive Officer (EO)
ASM Salauddin Bahar
Officer
Md. Abdur Rahim
Officer
Md. Ishfaque Kabir
Officer
Md. Saidul Islam

Page 41 of 168

2.24 Operating activities of Khilkhet branch

2.24 Operating activities of Khilkhet branch Function of AIBL may be divided into four categories i.

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

i. Investment Activities: Almighty creature said in his holy Quran that “Ahallahul baia and harramahu

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:

Investment activities AIBL are discussed as below: Disbursed financed to the business firms and persons: The

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:

run their business smoothly. Foreign exchange activities: Foreign exchange is another important department for banking
run their business smoothly. Foreign exchange activities: Foreign exchange is another important department for banking

Foreign exchange is another important department for banking service the functions of foreign exchange section are as below:

the functions of foreign exchange section are as below: L/C issue: A letter of credit is

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

for foreign remittance. Foreign exchange department maintain various “Nostro” and “Vastro” A/c Page 43 of 168
for foreign remittance. Foreign exchange department maintain various “Nostro” and “Vastro” A/c Page 43 of 168

Page 43 of 168

all over the world. Its keeps correspondence with foreign banks. Foreign exchange or foreign transaction

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.of a country. Others function of a bank are as below: To help the Bangladesh Bank

To help the Bangladesh Bank and govt. for implementation fiscal and monitory policy.and that information is important for policy making. Provide valuable information as well as opinion to

Provide valuable information as well as opinion to its clients for their business firm.and govt. for implementation fiscal and monitory policy. Providing local facilities to safe keeping peoples valuable

Providing local facilities to safe keeping peoples valuable assets.monitory policy. Provide valuable information as well as opinion to its clients for their business firm.

Page 44 of 168

CHAPTER-3 THEORITICAL FRAMEWORK FOR INVESTMENT Page 45 of 168
CHAPTER-3
CHAPTER-3

THEORITICAL FRAMEWORK FOR INVESTMENT

Page 45 of 168

3 . 1 Investment: Investment means transaction between two parties in which one (the creditor

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

investment requirement before recommending any new proposal. There after all investment at least annually at

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

3.4 Mode of Investment:

3.4 Mode of Investment: Page 48 of 168
3.4 Mode of Investment: Page 48 of 168

Page 48 of 168

3.5 Trading modes (Bai-Mechanism)

3.5 Trading modes (Bai-Mechanism) 3.5.1 Bai-Murabaha Bai-Murabaha may be defined as Contractual buying and selling at

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

3.5.4 Bai-Istishna

3.5.4 Bai-Istishna A contract executed between a buyer and a seller under which the seller pledges

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

and bear the loss in proportion to their respective equity, the contract is called Shirkatul

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.under Shirkatul Melk Agreement has got three stages: Hire and Sale and /or transfer of ownership

Hire andhas got three stages: Purchase under joint ownership. Sale and /or transfer of ownership to the

Sale and /or transfer of ownership to the other partner Hirer.got three stages: Purchase under joint ownership. Hire and Hire Purchase under Shirkatul Melk through gradually

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

transferred to him against payment made by him and the remaining part will be shared

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 Mechanism

3.7.1 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 hisby the partner providing the capital. Important Features: experience. The client maintains administration and

experience.

The client maintains administration and management.and client invest if in the business with his experience. Profit is divided as per agreement.

Profit is divided as per agreement.The client maintains administration and management. Bank bears the actual loss alone. Client cannot take another

Bank bears the actual loss alone.and management. Profit is divided as per agreement. Client cannot take another investment for that specific

Client cannot take another investment for that specific business without thedivided as per agreement. Bank bears the actual loss alone. permission of the Bank. 3.7.2 Musharaka

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

and bear the loss, if any in proportion to their respective equity. Bank may move

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.business under Musharaka mode. Important Features: The bank shall take part in the policy and decision

The bank shall take part in the policy and decision making as well as overseeingThe investment client will normally run manage the business. (supervision and monitoring) the operation s of

(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 ofand to maintain books of accounts of the business property. profit to him than that of

profit to him than that of his proportion capital contribution.

Loss, if any, shall be shared on the basis of capital ratio.to him than that of his proportion capital contribution. 3.8 Others 3.8.1 Quard It is a

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

3.9 PROCESS OF INVESTMENT

3.9 PROCESS OF INVESTMENT PROCESS OF INVESTMENT  Applicant applies for the Investment in the prescribed
PROCESS OF INVESTMENT  Applicant applies for the Investment in the prescribed form of the
PROCESS OF INVESTMENT
 Applicant 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

3.10 Investment Growth

3.10 Investment Growth Investment Growth (Tk. In Millions) Year 2012 2011 2010 2009 2008

Investment Growth

(Tk. In Millions)

Year

2012

2011

2010

2009

2008

Investment &

         

Advances

106764.55

77062.73

53800.79

37636.09

28832.80

        Advances 106764.55 77062.73 53800.79 37636.09 28832.80 Page 55 of 168

Page 55 of 168

Investment Growth

Investment Growth The investment of the bank has stood at BDT 77714.95 million as on 31

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

Sector

Taka in Million

Agriculture, Fishing and Forestry

793.48

Industry

24274.6

Construction

3450.99

Water works and Sanitary Service

320.28

Transport and Communication

3435.77

Storage

48.04

Trade Finance

46500.49

Miscellaneous

5196.92

Total (Including profit receivable)

83626.57

Less Unearned Profit On Investment

5925.62

Total

106764.55

Page 56 of 168

Page 57 of 168
Page 57 of 168

Page 57 of 168

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. Supplier \ Buyer analysis:

Domesticmarket of the industry C. Supplier \ Buyer analysis: International Potentiality of the buyer or supplier

Internationalof the industry C. Supplier \ Buyer analysis: Domestic Potentiality of the buyer or supplier Strength

Potentiality of the buyer or supplierC. Supplier \ Buyer analysis: Domestic International Strength and weakness of the buyer or supplier D.

Strength and weakness of the buyer or supplierDomestic International Potentiality of the buyer or supplier D. Historical Financial analysis: Minimum three years

D. Historical Financial analysis:

of the buyer or supplier D. Historical Financial analysis: Minimum three years Financial Statement (FSS) analysis

Minimum three years Financial Statement (FSS) analysisof the buyer or supplier D. Historical Financial analysis: Guarantor (s) \ Corporate guarantor (s) Financial

Guarantor (s) \ Corporate guarantor (s) Financial Statement analysisMinimum three years Financial Statement (FSS) analysis Quality and sustainability of the borrower’s Cash flow

Quality and sustainability of the borrower’s(s) \ Corporate guarantor (s) Financial Statement analysis Cash flow statement Strength of the borrower’s balance

Cash flow statementanalysis Quality and sustainability of the borrower’s Strength of the borrower’s balance sheet Leverage

Strength of the borrower’s balance sheetand sustainability of the borrower’s Cash flow statement Leverage Profitability E. Project Financial Performance:

Leverageflow statement Strength of the borrower’s balance sheet Profitability E. Project Financial Performance: Page 58 of

Profitabilityflow statement Strength of the borrower’s balance sheet Leverage E. Project Financial Performance: Page 58 of

E. Project Financial Performance:

Page 58 of 168

Where term investment facilities are being proposed in favor of any new industrial unit an

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 paymentstudy as per current industrial policy. F. Account Conduct: Cheques payment Timely payments Irregular payment Banks

Cheques paymentcurrent industrial policy. F. Account Conduct: Trade payment Timely payments Irregular payment Banks investment payment

Timely paymentspolicy. F. Account Conduct: Trade payment Cheques payment Irregular payment Banks investment payment with profit

Irregular paymentConduct: Trade payment Cheques payment Timely payments Banks investment payment with profit Excess over limit

Banks investment payment with profitpayment Cheques payment Timely payments Irregular payment Excess over limit drawings Excess over DP drawing Banks

Excess over limit drawingsIrregular payment Banks investment payment with profit Excess over DP drawing Banks commission and charges payment

Excess over DP drawinginvestment payment with profit Excess over limit drawings Banks commission and charges payment G. Mitigating Factor:

Banks commission and charges paymentprofit Excess over limit drawings Excess over DP drawing G. Mitigating Factor: Margin Volatility High debt

G. Mitigating Factor:

MarginBanks commission and charges payment G. Mitigating Factor: Volatility High debt load ( Leverage\Gearing ) Overstocking

Volatilitycommission and charges payment G. Mitigating Factor: Margin High debt load ( Leverage\Gearing ) Overstocking or

High debt load ( Leverage\Gearing )and charges payment G. Mitigating Factor: Margin Volatility Overstocking or debtor issues Repaid growth, acquisition or

Overstocking or debtor issuesMargin Volatility High debt load ( Leverage\Gearing ) Repaid growth, acquisition or expansion Management changes

Repaid growth, acquisition or expansiondebt load ( Leverage\Gearing ) Overstocking or debtor issues Management changes or succession issues Customer or

Management changes or succession issuesor debtor issues Repaid growth, acquisition or expansion Customer or Supplier concentration Lack of transparency or

Customer or Supplier concentrationor expansion Management changes or succession issues Lack of transparency or industry issues. H. Investment

Lack of transparency or industry issues.or succession issues Customer or Supplier concentration H. Investment Structure: Amount of investment Tenors of

H. Investment Structure:

Amount of investmentof transparency or industry issues. H. Investment Structure: Tenors of investment Justification of investment Based on

Tenors of investmentissues. H. Investment Structure: Amount of investment Justification of investment Based on the project repayment

Justification of investmentStructure: Amount of investment Tenors of investment Based on the project repayment ability installment to be

Based on the project repayment ability installment to be determinedinvestment Tenors of investment Justification of investment 3.12 Investment Principles: The Principle of lending is a

3.12 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

2. Security

3. Liquidity

4. Adequate yield

5. Diversity

2. Security 3. Liquidity 4. Adequate yield 5. Diversity Safety: Safely should get the prior importance

Safety:

Security 3. Liquidity 4. Adequate yield 5. Diversity Safety: Safely should get the prior importance in

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:willingness of the debtor to repay the loan with interest. Banker should consider the liquidity of

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.

the security, the Banker should be more conservative. Adequate Yield: As a commercial origination, Banker should
the security, the Banker should be more conservative. Adequate Yield: As a commercial origination, Banker should

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

put its entire loan able fund in one sector it \\ill increase the risk. Banker should
loan able fund in different sectors. So if it faces any problem in any sector

loan able fund in different sectors. So if it faces any problem in any sector it can be covered by the profit of another sector

3.13 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.Disposal Register (B-53) and allot a Serial Number to it. Check-up Credit Restriction Schedule of Bangladesh

Check-up Credit Restriction Schedule of Bangladesh Bank and Head Office Current Investment Policy Guidelines.the proposal outright, if not permitted by Islamic Shariah. Visit the Business establishment of the Client.

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.Bank and Head Office Current Investment Policy Guidelines. Request for confidential report of the client from

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.the Honesty, Integrity and Business dealings of the Client. Obtain Financial Statement/Balance Sheet of the Client

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.as per Instruction Circular of Head Office in this Regard. Inspect Land, Building, other Assets and

Inspect Land, Building, other Assets and Properties proposed to be Mortgaged or Hypothecated.of Tk. 50.00 lac or above as per Head Office Instruction. Forward Documents, Title Deeds and

Forward Documents, Title Deeds and other relevant Papers to approve Lawyer of the Bank for examination and furnishing his opinion.and Properties proposed to be Mortgaged or Hypothecated. Obtain Lawyers Opinion as per clause No. 8.02.

Obtain Lawyers Opinion as per clause No. 8.02.of the Bank for examination and furnishing his opinion. Please study the following carefully and note

Please study the following carefully and note down the actual findings in the Appraisal Form against each item :his opinion. Obtain Lawyers Opinion as per clause No. 8.02. Effective demand, price of the goods,

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.the following carefully and note down the actual findings in the Appraisal Form against each item

Page 61 of 168

Where sale price of the goods is payable by the client at specified future date

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

For Bai-Murabaha Commercial and Bai Murabaha Industrial Investment, prepare Appraisal Report on F-167B. For appraisal Bai-Murabaha agriculture and For Bai- Murabaha 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.future date in lump sum or installments as per proposal. 3.14 Guideline for Sanctioning Investment by

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 Client’s file duly accepted by the Client.Sanctioning Investment by Bangladesh Bank & Head Office If the proposal is not within the Discretionary

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.one copy in the Client’s file duly accepted by the Client. If the proposal is within

If the proposal is within the Business Power of the Zonal Office, Zonal Office shall accord Approval /Regret the Proposal.Report on F-167A and F-167B to Zonal Office/Head Office. If the proposal is not within the

If the proposal is not within the Business of the Zonal Office shall forward the proposal to Head Office with their views and recommendations.Zonal Office shall accord Approval /Regret the Proposal. On receiving the proposal and the Appraisal Report

On receiving the proposal and the Appraisal Report along with supporting papers Head Office will either approve or Regret.to Head Office with their views and recommendations. If the Branch/the Zonal Office /Head Office, the

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.and the Appraisal Report along with supporting papers Head Office will either approve or Regret. Page

Page 62 of 168

Open file Client-wise, affixing the Fixed Number allotted to him as per Limit Register (B-117)

Open file Client-wise, affixing the Fixed Number allotted to him as per Limit Register (B-117) and Client’s 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

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 evaluationof the investment File for easy tracing in case of need. or study. In case of

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 Investment

Page 63 of 168

Bai-Muajjal

Period of Investment

Maximum 1-years

Rate of Return

Period of Investment Maximum 1-years Rate of Return 18.00% or rate to be determined by the

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

Nature of Goods / Items

Nature of Goods / Items X-ray/ ECG/Pathological & other equipments/Apparatus/Modern medical equipments/ other

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 Group

Page 65 of 168

Jobless young people / small traders / small & cottage industries / service sector with

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)

Objective

Page 66 of 168

i. To ease the housing problem in the urban areas. ii. To make arrangement for

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

3.15.5 Transport Investment Scheme (TIS)

Objective

3.15.5 Transport Investment Scheme (TIS) Objective i. To ease the existing transportation problem. ii. To ensure

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

To help a section of the officials, business houses and business executives and established professionals

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)

Objective

Page 69 of 168

i. To provide power tillers, power pumps, shallow tube wells, thresher machines etc. on easy

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 micro- industries in different areas of the country.

ii. To create potential entrepreneurs.

iii. Diversification of Bank investment port-folio.

Page 70 of 168

Target Group

Target Group Engineering diploma / Degree holders / Technical persons. Nature of Goods / Items Food

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

3.16 Process of Investment:

Process of Investment

3.16 Process of Investment: Process of Investment Heads   Characteristics Application Applicant applies for

Heads

 

Characteristics

Application

Applicant applies for the Investment in the prescribed form of the bank describing the types and purpose of loan.

Sanction

1.

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 sanctioned

Documentation

Then 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 borrower

Disbursement

An Investment Account is opened. Where customer A/C--------Dr.

Respective Loan A/C --------------------------------------- Cr.

Page 72 of 168

CHAPTER-4 PERFORMANCE ANALYSIS Page 73 of 168
CHAPTER-4 PERFORMANCE ANALYSIS Page 73 of 168
CHAPTER-4
CHAPTER-4

PERFORMANCE

ANALYSIS

Page 73 of 168

4.1 Theoretical Review:

4.2 Ratio Analysis

4.1 Theoretical Review: 4.2 Ratio Analysis Ratio Analysis is a form of Financial Statement Analysis that

Ratio Analysis is a form of Financial Statement A