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“Analysis of Investment procedure and performance of Al-

Arafah Islami Bank Limited (AIBL)”

Prepared by
Name: MD. Hasan Al Mamun
ID: 133011029

Supervised by
Mohammad Shah Shuja Bin Jabber
Assistant Professor
University of Liberal Arts Bangladesh (ULAB)

Submitted in Partial Fulfillment of the Requirements for the Degree

Bachelor of Business Administration

17th August, 2017

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PLAGIARISM DECLARATION

1. I know that plagiarism means taking and using the ideas, writings, works or
inventions of another as if they were one’s own. I know that plagiarism not
only includes verbatim copying, but also the extensive use of another
person’s ideas without proper acknowledgement (which includes the
proper use of quotation marks). I know that plagiarism covers this sort of
use of material found in textual sources and from the Internet.

2. I acknowledge and understand that plagiarism is wrong.

3. I understand that my research must be accurately referenced.

4. This assignment is my own work, or my group’s own unique group

assignment. I acknowledge that copying someone else’s assignment, or part
of it, is wrong, and that submitting identical work to others constitutes a
form of plagiarism.

5. I have not allowed, nor will I in the future allow, anyone to copy my work
with the intention of passing it off as their own work.

Name __________________________________________________ (BLOCK

LETTERS)

ULAB ID #____________________

Signature _____________________________ Date ___________________

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Letter of transmittal
August 17, 2017
Mohammad Shah Shuja Bin Jabber
Assistant Professor
ULAB School of Business
University of Liberal Arts Bangladesh (ULAB)
House 56, Road 4/A
Dhanmondi, Dhaka 1209

Subject: Submission of internship report on “Analysis of investment procedures and

performance of Al-Arafah Islami Bank Limited (AIBL)”.

Dear Sir,

This is my great pleasure to submit the Internship report of my three months long Internship
program at Al-Arafah Islami Bank Limited (AIBL).The title of the report is “Analysis of
investment procedures and performance of Al-Arafah Islami Bank Limited (AIBL)”. This report
has been prepared to fulfill the requirement of my internship program at my assigned
organization. I have put my utmost effort to make this report a successful one. It has been a
joyful & enlightening experience for me to work in the organization & prepare this report

I therefore, request and hope that you would be kind enough to accept my evaluation and oblige
thereby.

Sincerely yours,
Md. Hasan Al Mamun
ID: 133011029
Department: BBA
Email: hasan.mamun.bba@ulab.edu.bd
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Acknowledgement
First of all, I would like to thank Almighty Allah for giving me the capability to complete my
internship report. Then I would like to thank my parents for their valuable support during my
internship they helped me a lot to complete my task. They inspired me a lot.

Secondly, I would like to thank my organizational supervisor Mr.Lutfor Rahman (Manger

operations). He helped me a lot learn about banking activities and also helping me with proper
data which were required for my internship report.

Thirdly, I would like to give thank to HR Division of Al-Arafah Islami Bank limited as they have
given chance me to do internship at Hazaribagh branch.

I am also thankful to the other officials Mr. Salehin hossain (Senior officer), MD. Saifullah
(Executive officer), MD. Golam Mostafa (Executive officer), K.M Naimul Hasan (Executive
officer) as they have helped me a lot by guiding me to learn banking, understanding professional
manners and also helping me with proper data which were required for my internship report.

Without their co-operation it would not be possible for me complete this report. They supply
valuable information to me. Lastly I would like to thank my parents again because during my
intern I faced some difficulties they helped me to overcome those problems and inspired me to
complete my report.
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Executive summary

As a part of academic requirement and completion of BBA program, I have been assigned to
complete internship report on “Analysis of Investment procedure and performance of Al-Arafah
Islami Bank Limited (AIBL)”. This report focuses on investment performance of AIBL at
Hazaribagh branch. Especially this report focuses on mode of investment, investment procedure
and effectiveness of investment policy.

Islami Banking System is becoming more and more attractive day by day to peoples irrespective
of nations, religious, colors and species. More than 300 Banks & financial institutions are
serving Islami banking throughout the world. At present in our country 8 full-fledged Islamic
Banks are working successfully.

Al-Arafah Islami Bank Limited (AIBL) was established in September 27 1995 with the objective
of achieving success in life here & hereafter following the way directed by the Holy Quran. The
main philosophy of AIBL is to conducting banking activities in accordance with Islamic Shariah
where profit is the alternative of interest. AIBL introduce profit loss sharing products to the
customer which are getting more popular day by day.

AIBL is committed towards establishing welfare oriented banking system, by creating

employment opportunities for the lower income people. According to the need and demand of
the society and the country as a whole the bank invests money to different ‘Halal’ business. The
bank participates in different activities aiming at creating jobs, implementing development
projects of the government and creating infrastructure.

The bank is committed to the country’s economy by delivering financial service through its 148
branches all over Bangladesh.
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S.L Table of Contents Page

Part A: Internship Experience
1 AIBL profile 8
1.1 AIBL vision 8
1.2 AIBL mission 8
1.3 AIBL products and services 9
1.4 Geographical business location 10
1.5 Porters five forces model analysis 10
1.6 SWOT analysis 12
2 Internship roles and responsibility 14
3. Observations 15
3.1 Recommendations 15
3.2 Conclusion 16
Part B: Research Project
1 Introduction 17
2 Objects of the report 17
3 Methodology of the report 18
4 Scope of the report 18
5 Limitations of the report 18
6 Review of literature 19
Analysis and Findings
(Chapter 1)
7 What is Islamic investment? 20
8 Investment modes of AIBL 20
9 Investment divisions of AIBL 23
10 Investment procedure of AIBL 24
Analysis and Findings
(Chapter 2)
11 Analyze the types of investment scheme 28
12 Analyzing the mode of investment of Hazaribagh Branch (AIBL 33
Analysis of Findings
(Chapter 3)
13 Investment policy of AIBL 38
14 Effective of investment policy 39
Conclusion

15 Findings of the report 44

16 Recommendations 45
17 Conclusion 46
18 Bibliography 46
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Part A: Internship Experience

1. AIBL Profile:

Al-Arafah Islami Bank Ltd is one of the largest Islami Bank in Bangladesh. The bank started
their journey on 18 June 1995 as a private limited company. A number of 20 dedicated Islamic
personalities of Bangladesh are the architect of the bank among them Mr.A.Z.M Shamsul Alam
is the founding chair man.

Al-Arafah Islami Bank Limited provides commercial and consumer banking, trade finance, and
other related custody and clearing services in Bangladesh. The authorized capital of the Bank is
Tk.15000.00 million and the paid up capital is Tk. 8343.24 million as on 31.12.2015. 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. 14478.06 million as on 31 December 2013, the manpower
was 2387 and the number of shareholders was 58466. 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 148 branches
(up to 2017) of which 23 is AD throughout the country.

1.1 AIBL Vision:

To be a pioneer in Islami Banking in Bangladesh and contribute significantly to the growth of the
national economy.

1.2 AIBL Mission:

Achieving the satisfaction of Almighty Allah Steady & competitive return on shareholders'
both here & hereafter. equity.
Proliferation of Shariah Based Banking Innovative banking at a competitive price.
Practices.
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Quality financial services adopting the latest
technology.
Fast and efficient customer service.
Maintaining high standard of business ethics
Balanced growth
Attract and retain quality human resources.
Extending competitive compensation packages to
the employees.
Firm commitment to the growth of national
economy.
Involving more in Micro and SME financing.

1.3 AIBL Products and Services:

Deposits Products Investment products Services

Mudaraba short notice deposit (SND) Investment in Agriculture Sector ATM Card Service
Mudaraba saving deposit (MSD) Investment in Industrial Sector Mcash
Mudaraba term deposit (MTDR) Investment in Business Sector Locker Service
Monthly profit based term deposit
(PTDR) Investment in Foreign Trade Agent banking
Monthly installment based term deposit
(ITD) Investment in Construction and Housing
Al-Arafah monthly hajji deposit (MHD) Investment in Transportation Sector
Al-Arafah termed hajji deposit (THD) Hire Purchase Shirkatul Melk (HPSM)
Monthly installment based marriage Investment Schenes in Masque and
saving investment scheme ( MIS) Madrasa (MMIS)
Village and Small Investment Schemes
Al-Arafah saving bonds (ASB) (GSIS)
Small Enterprise Investment Schemes
Foreign currency deposit (FCD) (SEIS)
Pension deposit scheme (PSD) Consumer Investment Schemes (CIS)
Cash waqf deposit scheme (CWD)
Mudaraba lakhopoti deposit scheme
(LDS)
Mudaraba special pension deposit
scheme (MSPDS)
Mudaraba kotipoti deposit scheme
(MKDS)
Mudaraba double benefit deposit
scheme (MDBDS)
Mudaraba triple benefit deposit scheme
(MTBDS)
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1.4 Geographical Business location:

AIBL has committed to contribute to national economy with 148 branches all over the
Bangladesh
Division Number of branches Total
Dhaka 69
Chittagong 36
Sylhet 8 148
Khulna 12
Rajshahi 8
Barisal 10
Rangpur 5

1.5 Porters Five forces Model Analysis:

1.5.1 Threats of new Entrants:

Threats of new entrants are low in Bangladesh banking industry. In Bangladesh if anyone wants
to start a bank he/she will need 400 corer taka. It is difficult to start a bank with this large capital,
so we can assume that the threat of new entry is low because the starting capital is too large. To
start a bank we also need political support because of the political instability of the country.
There are some others factor that come under consideration when determining of new entrants
such as Brand loyalty. In banking industry established banks have thousands of loyal customers
all over the Bangladesh. Cost advantage is another crucial factor that customer cares a lot and of
course established banks maintain cost advantage banking system all over the Bangladesh so it
will be difficult for the competitors to enter into the industry with cost advantage initially. There
are 56 Banks in Bangladesh and 11 more are waiting to join the industry but there are
government regulations and lots of paper work needed to start a bank and which needs a lot time
due to corruption the paper work process is slow in Bangladesh which is another obstacle for the
new entrants. So we can assume that threat of new entrants is low in banking industry.

1.5.2 Bargaining power of Buyers:

In banking industry buyers means the customer who takes loans from the banks? There are two
types of buyer in banking industry one is individual customer and another is corporate customer.
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In terms of individual customer the bargaining power is low in banking industry because the
customers have no power to set the interest rate as well as the banking regulation.

Now in terms of corporate customer the bargaining power is also low in banking industry but
they can bargain about the limitation of investment amount because corporate customers are
those who have a large amount of deposit in the bank and they took a high amount of loan from
the bank by exercising their bargaining power in this scenario the buyer act as a customer and
supplier as the same time. That’s why banks maintain a good relationship with their corporate
customer. But we can say that bargaining of buyer is low in banking industry

1.5.3 Bargaining power of Suppliers:

In banking industry supplier means depositors who deposit money to the bank .Now there are
two types of supplier in banking industry one is Individual and another is corporate. In terms of
individual supplier the bargaining power is low because the central bank of Bangladesh imposes
rules and regulation for the depository institution and banks are controlled by their parent branch.
In this scenario individual depositor are those who deposit lower amount of taka to the banks and
banks enjoy the most of the profits by setting the low interest rate.

Now in terms of corporate supplier the bargaining power is also low in banking industry but the
corporate supplier are the main supplier of the bank they deposit large amount of money and
without their supply a bank cannot be run in the long run. So banks consider a little bargaining
power form corporate supplier which is not significant. So we can assume that bargaining power
of corporate supplier is also low in banking industry.

1.5.4 Threat of Substitute:

Thereat of substitute is moderate in banking industry. Because there are 35 non banking financial
institutions in Bangladesh they all offer different types of products to their customer with a
competitive price. Among 35 Lanka Bangla Finance limited, IDLC Finance Limited, MIDAS
Finance Limited, Investment Corporation of Bangladesh, Uttra Finance and investment Limited
are more popular than some banks in Bangladesh. So it can be said that substitute products are
available in Bangladesh banking industry.
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Among the 35 non banking financial institution some of them are giving loan to the customer
with lower interest rate and the process of taking loan is easy compare to many government bank
in Bangladesh in this case it’s expected that customer will move to the substituted products. So
in conclusion we can said that threat of substitute is very high in banking industry

1.5.5 Rivalry among established Firms:

In banking industry competition between existing banks is very high, everybody wants to
increase their market share by offering various products and service to the customers. So many
banks are taking first mover’s advantage in the market as a result competition among them raised
every year.

Now there are 56 conventional and 8 ISLAMI banks in Bangladesh who offer similar products
and service. Most importantly they all targeted the big corporation which makes competition
very high. In 2014 Islami banking achieves 14% of the market share and the schedule bank
achieves 86% of the market this tells us about the competition among Islami banks and
conventional banks in Bangladesh.

1.6 SWOT analysis of AIBL:

1.6.1 Strengths:
Capital adequacy ratio: As per Bangladesh bank requirement bank has to maintain capital
adequacy ratio 10.62%. AIBL maintain an average CAR ratio of 14.4% over the year.

Banking Software: AIBL use software named ABABIL reached 9th position in global ranking
for Islamic Banking Software.

Geographical Business position: AIBL has wide network of branches in all over Bangladesh.
Currently the bank has 148 branches in 7 divisions of Bangladesh.

Good will: AIBL already earned customer loyalty. The customers of AIBL are highly committed
to the Bank.
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Quality Human Resource: AIBL has skilled and quality human resource currently the bank has
3070 employee including 181 executives among them 321 employees are nominated for outside
training course viz.

1.6.2 Weakness:
Centralized Management: The major decisions in AIBL are making by the top authority
without counseling with the lower level managers.

Non-performing loan: AIBL non performing loan was increased over the year.

Lack of human recourses: AIBL lack human recourses in the GB and Remittance department
as a result customer feel irritated during the rush hour.

Operating system: AIBL still using windows xp in most of their computers.

Lack of ATM booth: AIBL lacks number of ATM booths in all over Bangladesh as a result
customer are not satisfied with ATM service provide by the bank.

Lack of promotional activities: AIBL lacks marketing activities compare to other Islami banks
in Bangladesh.

1.6.3 Opportunities:

Customer service: AIBL can improve its customer service in accordance with Islamic Shariah.
It can introduce more innovative way of Islamic banking in Bangladesh.

Increasing Number of ATM booth: As a popular Islami bank in Bangladesh AIBL still lacks
number of ATM booths although it has strong demand by the customers.

Internet Banking: As an emergence of internet in Bangladesh AIBL can introduce e-banking to

its customer, which will create more scope to the bank.

Market Penetration: AIBL can penetrate new market through diversified products and services
in accordance with Islami Shariah.
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1.6.4 Threats:

Banking regulation: The central bank of Bangladesh has no well established Islami banking
regulation.

High tax rate: Government of Bangladesh can impose high tax on banking activities.

Increasing Competition: As a profitable industry it attracts new competitors so in banking

industry competition is increased between existing and new comer competitor. Because
everybody want to increased their market share.

Lack of Awareness: In some cases customers are not aware of Islami Banking system

Political instability: One of the major problems in Bangladesh is political instability which
causes great distraction in the banking sector.

Emergence of Technology: AIBL lacks modern technology at many of their branches

2. Internship Roles and Responsibility:

After completing the 11th semester of BBA program, I was attached to a host organization for
three months internship. I joined at Al-Arafah Islami Bank Limited at Hazaribagh branch.
During the internship program I was assigned in different department of the bank that gives me
the scope to learn about corporate life which I can relate to my academic studies.

In this internship program I was worked in different department. At first I worked in the General
Banking department. In GB department I was assigned to open new account and writing check
for the customers. In AIBL if anyone wants to open a saving or current account he/she must
submit their national ID card photocopy as well as nominees national ID card copy. Customer
also needs to provide their present and permanent address and 2 copies photo of account holder
and 1 copy photo of nominees. The account holder has to give 13 sign in the accounting opening
from including check requisition .And at last customer has to give at least six hundred taka to the
cash by using zoma book in order to fulfill the process. In terms of deposit and fixed deposit one
 P a g e | 15

can use their birth certificate to open an account but other requirements are same as saving
account.

In the middle of internship program my organizational supervisor assigned me in the remittance

department where I learn about the remittance activities. In remittance department I was assigned
to verify the customers National ID and wrote the check. I also worked in the investment
department for a very short period of time where I was learned about the investment procedure.
Here most of the time I was assigned for data entry.

In the last days of my internship I was assigned in the cash section where my responsibility was
to collect gas and electricity bill form customer and input the data into a format which is provide
by CPDC.

I enjoyed my internship, employs are very helpful. It has helped me to learn about the corporate
culture.

3. Observation:
In three months of my internship program I observe several problems at Hazaribagh branch
which are given below
• AT Hazaribagh branch infrastructure quality was not at satisfactory level.
• Lack of human recourses in GB and remittance department.
• AIBL account opening from is complex in nature.
• Networking system within branch computers is weak.
• Limited internet connections

3.1 Recommendation:

• AIBL need to make its account opening form simple in nature.

• IT system of AIBL needs to be upgraded.
• Internship program of AIBL should be more organized.
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• During rush hour employee in GB and remittance are getting frustrated because they
lacks human resource in those departments. AIBL need to hired more employee there.
• In AIBL there is no internet connection in many computers which causes delay in
working. AIBL need to improve this condition.

3.2 Conclusion:
Banking industry in Bangladesh is a profitable industry everybody targeted the big corporate
client in order to increase the market share as well as their profitability. But very few banks are
targeting the small industry. As an Islami bank AIBL encourage investment in small industry.
During my internship program I found working in AIBL at Hazaribagh branch quite enjoyable.
All the employers are very helpful. Working environment was excellent. But during rush hour
customers are getting frustrated because lack of human recourse at the branch. But in general
AIBL customer’s service is excellent. Customers are happy about the service they get from the
bank. However bank need to develop its infrastructure quality in order to provide best service to
the customer.
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Part B: Research Project

1. Introduction:

Banking sector is one of the most profitable sectors in Bangladesh. The sector continuously
contributes to countries GDP and overall development activities. Currently there are 56 banks in
Bangladesh among them 6 banks are operating as full-fledge Islami bank.

Bangladesh has a long history of Islamic banking science 1983. Along with conventional bank
Islamic banks covers 20% of the market share in banking sector. Islamic banks offer various
types of deposits for its customer such as current account, saving account, investment account.
Mainly Islamic banks mobilized its deposits on Mudaraba investment mechanism. According to
Bangladesh bank Islamic Banks’ Deposits reached by Tk. 202,009.90 million representing
13.62% point to point growth from Tk. 1482,992.10 million as on 30 September 2015 to Tk.
1685,002.00 million as on 30 September 2016.

More over all Islamic Banks’ Investments increased by Tk. 229,705.80 million representing
18.68% point to point growth from Tk. 1229,851.70 million as on 30 September 2015 to Tk.
1459,557.50 million as on 30 September 2016. But compare with conventional banks this
performance is not good, and still PLS investment products are not very popular in Bangladesh.

However with the tremendous growth of our national economy and the overwhelming popularity
of Islami banking will improve this situation very near. It can be said that Islamic banks can
provide more efficient banking services to the nation if they are supported by the central bank
with appropriate banking rules, and regulations. This will help Islamic banks to introduce PLS
modes of operations, which are very much conducive for our economic development.

2. Objective of the report:

The main objective of this report is to provide a critical analysis of Investment procedure
performances of. However this report also has some specific objectives such as

1. To fulfill the requirement of B.BA program.

2. To analyze the end-to-end Investment procedure of AIBL.
3. To analyze the types of investment schemes
 P a g e | 18

4. To analyze the types of investment of AIBL.

5. To analyze the effectiveness of investment policy of AIBL.

3. Methodology of the report:

This report is descriptive in nature which will elaborately present the Investment procedure and
performances of AIBL. To complete this report I have used both primary and secondary data
which are given below.

3.1 Primary Data:

1. Face to face communication with branch executives.

3.2 Secondary Data:

1. Annual report of Al-Arafah Islami Bank Limited (AIBL).

2. Website of Al-Arafah Islami Bank Limited (AIBL)
3. Academic journals and Articles etc.

4. Scope of the report:

This report will concern about the Investment procedure and performances of AIBL. In this
report overall investment procedure of AIBL will be discussed as well as the effectiveness of
investment policy.

5. Limitations of the report:

• Data sources are limited primarily to the Hazaribagh Branch

• Some questions are not answered by the official.
• Personal inability to read some financial data.
• All the necessary information are not provided by the branch officials
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6. Review of Literature:

Islamic banking refers to a system of banking activates that is based on the principle of Shariah
law which is guided by Islamic economics. In Islamic Banking it is prohibited to collect payment
as an interest form investor and lender but Islami banking share profit and loss with customers.

The difference between Islami bank and a conventional bank is that Islamic bank maintain a
Shariah rules which is known as Fiqh al-Muamalat, otherwise their purpose are same. The
principle source of Shariah rules is The Quran and hadith.

Bangladesh has a long history of Islami banking currently there are 8 Islami banks in
Bangladesh. Islami banking industry significantly contributes to the country’s economy. In
recent time there are a lot of study conducts based on Islami banking performances mainly the
studies are descriptive empirical and statistical in nature. However this trend is changing a lot of
new techniques have been applied today to measure the performance of Islami banking.

Md. Abdul Awwal Sarker (1999) used five efficiency test criteria to measure the performance of
Islamic banks in Bangladesh. Primary Data has been collected from the banks concerned
departments. The study found that only Islami Bank Bangladesh maintain positive growth in
deposits. In terms of investment, Islami banks were mainly focused on the Murabaha and Bai-
Muazzal modes during the time period of the study and Islamic Bank Bangladesh Limited
maintain positive growth in investment compare to other Islami banks. The study also suggested
that the Islami banks can performed more efficiently if it had the opportunity to work as a sole
system in an economy.

Alam, M. N. (2000) attempted to analyze the growth trend of deposit and investment of IBBL
during the period of (1983- 1994). The study used secondary data form IBBL annual reports. The
study found that the deposit position of IBBL has been increased over the year and IBBL mainly
mobilized its deposit under AL-Wadia and Mudaraba modes. In terms of investment position
IBBL performed well in Murabaha and Bai-Muajjal modes and their growth rate increased over
the year but the growth rate is decreased in Musharaka mode.
 P a g e | 20

Evana Nusrat Dooty & Mohammed Syedul Islam (2014) conduct an empirical study on
investment of Islamic bank .This study examined and evaluate the performance of investment of
Islamic Bank for the time period 2005-2009 in comparison with conventional Bank. For
comparison between Islami banks and conventional banks the study selected Islami Bank
Bangladesh Limited and Mutual Trust Bank Limited. For empirical analysis the study used
secondary data from banks annual report. To analyze the investment performance the study used
profitability ratio, deployment ratio, liquidity ratio and risk ratio. The study found that the
investment performance of Islami bank were different at time and mixed in comparison.

Analysis and Findings

7. What is Islamic Investment?

According to Bangladesh Bank the Islamic investment means any such modes of financing
which Islamic bank company dose in accordance with principles of Shariah or as per the Shariah
approved modes like Mudaraba, Musharaka, Bai- Murabaha, Bai- Muajjal, Istisna, etc.

8. Investment modes of AIBL

AIBL investment its money in various modes in accordance with the Islamic Shariah. Earning
profit is not the main aim of AIBL investment rather AIBL aimed at reducing poverty through
generating employment in Bangladesh. AIBL modes of investment are given below.

Bai-Mechanism Share Mechanism Ijarah Mechanism

Bai-Murabaha Mudaraba Hire Purchase under Shirkatul Melk.

Bai-Muajjal Musharaka Ijarah

Bai-Salam

Istisna
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8.1 Bai-Murabaha:

The terms "Bai-Murabaha" have been derived from Arabic words (Bai and Ribhun). The
word Bai means purchase and sale and the word Ribhun means an agreed upon profit. Bai-
Murabaha" means sale on agreed upon profit.

Bai-Murabaha is a contract between a buyer and a seller at a mark-up profit under which the
client request the bank to buy some certain goods for him. The bank purchases the goods as per
the requirement of the client (Under Islamic Shariah).The client received the goods on payment
which includes mark-up profit as per the agreement. This is called Bai-Murabaha investment

8.2 Bai-Muajjal:
The word Bai-Muajjal has been derived from Arabic words (Bai’un and Ajalun). The word
Bai’un means purchase and sale and the word Ajalun means a fixed time or a fixed period. Bai-
Muajjal means sale for which payment is made at a future fixed date or within a fixed period. In
short, it is a sale on Credit.

Bai-Muajjal is a contract between a buyer and a seller under which the seller sells a certain
specific goods to the buyer at a fixed price that is payable in future at a fixed date (Under Islamic
Shariah) or the buyer may pay at a fixed period with fixed installment. The seller may also sell
the goods purchased by him as per the order and specification of the buyer.

8.3 Bai-Salam:

The term Bai-Salam has been derived from Arabic words (Bai’un and Salamun). The word
Bai’un means purchase and sale and the word Salamun means advance Bai-Salam means
advance purchase and sale.

Bai-Salam is a contract between a buyer and a seller in which advance cash payment is made for
goods to be delivered later on. Then seller agrees to supply specific goods to the buyer at a future
date in exchange of an advance price fully paid at a spot. It is to be noted that the transportation
and storage cost are mention in the contract.
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8.4 Istisna:

The word Istisna is derived from root word Sana which means to manufacture or to construct or
something. Istisna is a contract between a manufacturer and a buyer under which the
manufacturer sells the good after having constructed it (Under Islamic Shariah) but the payment
should be paid in advance with agreed amount or at a future specific date with specific
installment on the basis of the order.

8.5 Mudaraba:

Mudaraba is an agreement between two parties in which one party provide capital and another
party provides entrepreneurial skills to conduct business. The one who is providing capital is
known as Shahib al-maal and the one who is provide skills are known as Mudarib.

Mudaraba is a contract where the investor Shahib al-maal invests money and the Mudarib uses
this money to conduct business .The profit is share between them as per the agreement. But the
losses only bear by the investor. If there any misconduct of doing business or violation of
agreement then the Mudarib will bear the loss. In this agreement the investor will have no such
power to enter fare the business activity. Mudaraba contacts are limited to a specific time period

There are two types of Mudaraba Contract

Restricted Mudaraba: The restricted Mudaraba contract means where the investor invests
money to conduct a specific business and the entrepreneur are bound to do this business he/she
can’t not use this money to conduct another business, this is called restricted Mudaraba

Unrestricted Mudaraba: The unrestricted Mudaraba contract means where the investor invests
money and the entrepreneur use those money to conduct any kind of business whatever he/she
want and which is suitable and profitable for both parties.

8.6 Musharaka:

The word Musharaka has been derived from the Arabic word Shirkat or Sharikat. In Arabic,
Shirkat or Sharikat or Shirk means partnership or sharing.
 P a g e | 23

Musharaka means partnership where both parties provide the capital to conduct the business.
Both parties have the right to act as a management of the business but in generally bank gives
that power to the client to conduct the business. The profit and loss are shared by both parties in
this agreement.

8.7 Hire Purchase under Shirkatul Melk

Hire Purchase under Shirkatul Milk (HPSM) is a combination of three contracts they are Shirkat
Ijarah & Sale

Shirkat: Shirkat means partnership. Shirkatul Melk means share in ownership. In this contract
two or more parties supply capital to buy an asset, where both parties own the same. And both
the parties share profit-loss as per agreement this can defined as Shirkatul Melk contract.

Ijarah: Ijarah is an agreement between two parties that permits one party (the lessee) to use an
asset or property owned by another party (the lessor) for an agreed-upon price over a fixed
period of time.

Sale: Sale is a contract between a buyer and a seller through which the ownership of certain
goods or asset is transferred by the seller to the buyer against agreed upon price paid or to be
paid by the buyer.

9. Investment division of AIBL:

In AIBL invest department are divided into two parts they are

• Appraisal Unit
• Monitoring unit
• Recovery Unit

Appraisal Unit:

Appraisal unit are responsible for disbursement of investment. At the first stage of investment
process customers approaches to them to submit their proposal. They collect the entire necessary
information form customer to approve the investment proposal. If the proposal is liked by the
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investment officer they will send it to the branch manager to approve it. If the branch manager
approves the proposal appraisal unit will take necessary action for disbursed the investment.

Monitoring Unit:

Monitoring unit is responsible for the overall process of investment. In AIBL monitoring unit
also set the time of meeting with customer. For any inquiry customers are advised to contract
with the monitoring unit. They also monitor the activities of recovery unit.

Recovery Unit:

When the investment proposal is approved by the branch manager and disbursed it the recovery
unit checks all the information that is attached to the investment agreement. They physically
ensured the security of the investment by checking the collateral that is given under the
investment agreement. They also side visit to the customer business and check the statement of
business monthly in some cases even weekly. If they find anything wrong or that is not match
with the investment policy they will take necessary action to recover the investment. If any
customer fails to return the investment the recovery unit will take action according to the
agreement sign by both parties.

In AIBL at Hazaribagh branch there are two executives who is worker under a head of
investment department. In general both the monitoring unit and recovery unit work together in
the investment department.

10. Investment Procedure of Al-Arafah Islami Bank Limited:

Investment process of Al-Arafah Islami bank takes different stage to complete. In general bank
takes deposit from customers than use the amount of deposit for investment so if banks fail to
recover the investment bank will fail to meet depositors demand and ultimately it will collapse.
So investment process takes time and need an in-depth analysis for investment approval.
 P a g e | 25

In Al-Arafah Islami Bank if a desire customer who wants takes investment form bank, first he
will approach to the Head of investment department with his/her proposal. The head of
investment will check the eligibility of the desire customer and then there will be a discussion
about the investment proposal. If the head of investment liked the proposal then he/she will
discuss it to the second man of the branch the second man will send the proposal to the head of
the branch. After successfully complete the discussion bank take the client proposal and the
process Began with eligibility checking.

Eligibility checking of the desire Customer:

• First customer age must have to be 21to 68 years.

• Customer must have to be a Bangladeshi Resident.
• Customer must have to open a saving account or current account with respective branch
of AIBL.
• Customer must have to a permanent income source, For Example: If the customer is a
service holder he/she must have 3 years of experience and if the customer is businessman
he/she must have to show the income source of last 3 year. But in terms of banks official
they must have to be permanent and 2 years of service experience.
• Customer must have a valid Tin Number.
• Customer must have to agree with the banks rules-regulation and terms of the investment.
• Customer must have to the owner of a valuable mortgage asset against his taken
investment.

After eligibility checking bank will check the 5’c of the customer

5c’s of the customer include:

• Character
• Capacity
• Capital
• Collateral
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• Condition

Application Stage:

After checking the 5cs of a customer bank will collect all the necessary information to
approve the investment proposal. This is to be noted that this information are crucial for
approval. Documents that are needed are given below

National ID For joint stock company Memorandum

(MOA) & Articles of association (AOA)
Photo 4 copies passport size. Tin certificate photocopy
Trade License Photocopy Details of personal assets
Vat Certificate Photocopy Detailed summary of the sundry Debtors
and creditors.
Attested photocopy of partnership deed IRC (For importer)
form
3 years of income statement for Musharaka ERC (Exporter)
and Mudaraba Investment.

Appraisal Stage:

After collecting the entire necessary information bank will evaluate them. Bank will check
whether the customer is doing business with Shariah permissibility. Bank will also visit customer
business in order to check honesty by talking to the locality. In this stage bank will check the
credit restriction form Bangladesh bank current investment policy.

If the head of investment department found anything wrong and which is against the bank policy
bank can cancel the proposal. But if the bank found everything all right bank will provide an
appraisal form (F-167B) to the customer to gather all the information. The appraisal from
contains
 P a g e | 27

Owners Information Assets and Liability position of the customer.

Company’s information with list of partners. Lawyer’s opinion.
Purpose of the investment. Previous Bank information.
Details of investment facilities. Risk analysis.
Insurance coverage. Audit observation.
Business analysis.

Sanction Stage:

In this stage bank will approve the investment proposal of the desire customer and the customer
will receive a sanction letter from Bank which contains

• Investment Amount (Limit in Millions)

• Purpose of Investment
• Mode and period of investment
• Rate of return

Security:

In allowing investment bank generally bank takes security as per the bank policy and it varies
from mode to modes for example in Bai-Murabaha if the cash security is fixed 25% bank
investment stand 75%. And bank always takes securities that are immovable.

Documentation stage:

In this stage bank will check the require documents if necessary bank might ask for more
information such as

Stock report Particulars of the proposal

Liability position of customer Particulars of mortgage
Ongikarnama Particulars of the properties
Ghosonapotro CIB report
Business performance report Trade license
Current situation of assets
 P a g e | 28

Before disbursement Bank also visit to the mortgage property of the customer in order to clarify
the physical position of the property.

Disbursement Stage:

In this stage the desire customer and the Branch manager will sign the disbursement paper and
after that customer will get his/her desire fund form the bank.

Recovery Stage:

This is the last stage of investment procedure .To recover the investment bank will continuously
contract with the customer. Bank also goes for a site visit of the customer physical property. In
some cases bank might ask customer to submit the monthly report of the business performance.
In order to be fair bank will check whether the customer is doing business ethically or not and if
bank find anything wrong the invest agreement will be cancel and bank will take every necessary
steps to recover the investment.

11. Analyze the types of investment scheme

Consumer investment scheme (CIS)

In order to increase the living standard of people this schemes is running in the bank. The main
purpose of this scheme is giving investment facility to people for purchasing household articles.

Features:

Collateral: If the investment is cross 3lack to 10 lacks, Taka sufficient collateral will be obtained
as per bank policy.

Other security: Personal guarantee, Post dated cheques for monthly installment, Personal
guarantee of relatives, Hypothecation of purchased asset.

Investment parameter: Consumer products such as TV, AC, Furniture etc.

Mode of investment: Bai-Muajjal (CIS).

Investment amount: Without collateral 3lack with collateral up to 10lack.

Rate of return: 15% (For employers who have 3years of unexpired service the rate is13%).
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Repayment duration & system Minimum 1month Maximum 48 months (: Monthly Installment
basis)

• Personal Investment schemes (PIS)

In order to secure future needs of the people this scheme is running in the bank. This investment
schemes is only for the people who are self employed or service holder living in the area where
bank operates.

Features:

Collateral: without collateral.

Other security: Personal guarantee, Post dated cheques for monthly installment, Personal
guarantee of relatives, Hypothecation of purchased asset.

Investment parameter: For marriage expenses, Hospitalization, Educational expenses

Mode of investment: Bai-Muajjal (PIS).

Investment amount: Without collateral 3lack with collateral up to 10lack.

Rate of return: 15% (For employers who have 3years of unexpired service the rate is13%).

Repayment duration & system: Minimum 1month maximum 48 months (: Monthly

Installment basis)

• Auto/Car investment scheme

This investment scheme is only applicable for a Bangladeshi resident who is a self employed
person or a service holder and who has the ability to repay bank investment.

Features:

Collateral: without collateral.

Other security: Personal guarantee, Post dated cheques for monthly installment, Personal
guarantee of relatives, Hypothecation of purchased asset.

Investment parameter: For purchasing new reconditioned car.

Mode of investment: HPSM (CIS).

Investment amount: Maximum 20 lack.

 P a g e | 30

Rate of return: 15%

Repayment system: Minimum 24 months maximum 78 months (Monthly Installment basis)

• House finance investment Scheme

This scheme is only for the Bangladeshi resident. In order apply for this investment customer
must have to submit his/her nationality versification. The customer must have the ability to repay
bank investment.

Features:

Collateral & Other security: Registered mortgage, Verified site plan, Power of attorney of
land, Personal guarantee, Post dated cheques for monthly installment, Personal guarantee of
relatives, Hypothecation of purchased asset.

Investment parameter: To construct new building or rebuild old structure.

Mode of investment: HPSM (CIS).

Investment amount: Maximum 70 lack.

Rate of return: 15% (Stipulated by the bank)

Repayment system: Maximum 240 months (Monthly Installment basis)

• Consumer financial scheme

This scheme is only for professional like Doctor, Lawyer, and Engineers. The main purpose of
this scheme is to support them for purchasing different equipment based on their profession. To
apply for this scheme customer must have to 3 years unexpired of service and for self employed
minimum 2 years business record.

Features

Collateral & Other security: Personal guarantee, Post dated cheques for monthly installment,
Personal guarantee of relatives, Hypothecation of purchased asset, ICB certificates, Insurance
over bank assets, Collateral security will obtained as per bank policy.

Investment parameter: To construct new building or rebuild old structure.

Mode of investment: HPSM (CIS).

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Investment amount: Maximum 2 lack.

Rate of return: 15% (Stipulated by the bank)

Repayment system: Maximum 60 months (Monthly Installment basis)

• Small enterprise investment scheme (SEIS)

In order to speed country’s small trade bank introduce this scheme. Skilled employees are
recruiting for expansion of this scheme.

Features

Collateral: Free

Other security: Personal guarantee, Post dated cheques for monthly installment, Personal
guarantee of relatives, Hypothecation of purchased asset,

Investment parameter: Manufacturing, service, Trade

Mode of investment: HPSM (SEIS) & Bai-Muajjal (SEIS) .

Investment amount: Maximum 5 lack.

Rate of return: As Stipulated by the bank

Repayment system: Maximum 36 months (Monthly Installment basis)

• Grammen small investment small scheme (GSIS)

In order to socio-economic development of rural poor this scheme is introduce in 2001.Mainly

rural branches are working for this scheme. The specialty of this scheme is group based
investment scheme

Features

Collateral: Free

Other security: Personal guarantee, Post dated cheques for monthly installment, Personal
guarantee of relatives, Hypothecation of purchased asset,

Investment parameter: Manufacturing, service, Trade (Micro-level)

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Mode of investment: HPSM (GSIS) & Bai-Muajjal (GSIS) .

Investment amount: Maximum 50,000

Rate of return: As Stipulated by the bank

Repayment system: Maximum 50 weeks (weekly Installment basis)

• Micro enterprise investment scheme (MEIS)

In order to give priority for the client who need money more than the cottage industry but lower
than small enterprise the bank has introduced this scheme.

Features

Collateral: Free

Other security: Personal guarantee, Post dated cheques for monthly installment, Personal
guarantee of relatives, Hypothecation of purchased asset,

Investment parameter: Manufacturing, service, Trade

Mode of investment: HPSM (MEIS) & Bai-Muajjal (MEIS). .

Investment amount: Maximum 10 lack

Rate of return: As Stipulated by the bank

Repayment system: Maximum 24months (Monthly Installment basis).

• Rural agriculture investment scheme (RAIS)

In order to boost up countries agriculture sector and encourage the marginal farmers banks has
introduce this scheme.

Features

Collateral: Free as per bank decision.

Other security: Personal guarantee, Post dated cheques for monthly installment, Personal
guarantee of relatives, Hypothecation of purchased asset,

Investment parameter: Agriculture product like crop fishers, livestock poverty alleviation.
 P a g e | 33

Mode of investment: HPSM (MEIS) & Bai-Muajjal (MEIS). .

Investment amount: Maximum 10 lack

Rate of return: As Stipulated by the bank

Repayment system: Maximum 24 months or post harvest single payment basis (Monthly
Installment basis).

12. Analyzing Mode Wise Investment of Hazaribagh Branch

To measure the investment performance of Hazaribagh branch this report analyze the mode wise
investment of Hazaribagh branch.

Bai-Mechanism:

Investment in Bai Muajjal (General)

Actual Amount

Years 2013 2014 2015 2016

Disbursement 932,740,000 24,340,000 45,000,00 0

Recovery 1,133,657,650 149,705,000 6,249,000 428,606

Source: Disbursement report of Hazaribagh branch (2013-2016)

Discussion: In this graph it is Clear that investment in Bai-Muajjal (General) mode decrease over
the year and it reached 0 in the year of 2016 which indicate that in AIBL monitoring unit fails to
retain their customer over the year .In 2013 the bank reach its highest position of 932,740,000
TK After that their investment decrease at a rate of 97% in 2014 and then 87 % in 2015 at last
there is no investment occurred in 2016 which show the weakness of the bank in this particular
mode. But in terms of recovery the bank did an excellent job. Their recovery reached highest 1,
33,657,650 TK in 2013 after that it was decreases 86% compare to 2013. But compare to the
 P a g e | 34

investment amount recovery performance is good. However bank need to improve this situation
otherwise customer will switch different bank or substitute products.

Investment in Bai-Muajjal (GEN) MEF

Actual Amount

Years 2013 2014 2015 2016

Disbursement 323,100,000 979,180,000 636,190,000 332,420,500

Recovery 32,944,075 813,637,916 630,554,000 659,180,429

Source: Disbursement report of Hazaribagh branch (2013-2016)

Discussion: In this graph it is clear that the disbursement is fluctuated over the year and in 2013
it was stood at 323,100,000 TK and then in 2014 it increased and stood 979,180,00 TK which is
the highest in this category of Bai-Mechanism after that the amount decreased gradually but
compare to 2013 it was still good which indicate the bank tried hard to improve the current
situation and also trying to attract the customer as a result the disbursement fluctuated over the
year. But in terms of recovery the bank did an excellent job their recovery increased over the
year with a high growth rate.

Investment in Bai-Muajjal PIS (STAFF)

Actual Amount

Years 2013 2014 2015 2016

Disbursement 0 2,533,000 2,094,000 1,674,000

Recovery 0 608,990 2,136,603 1,477,272

Source: Disbursement report of Hazaribagh branch (2013-2016)

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Discussion: In this graph we can see that there was no disbursement occurred in 2013.But in
2014 it was stood at 2,533,000 TK which was highest in this category after that amount
decreased gradually, in 2015 it was stood at 2,094,000 TK and then in 2016 it was stood at
1,674,000 TK .But the decrease rate is not high compare to other category. In terms of recovery
the bank did not perform well in 2014 but in 2015 bank did a tremendous job they recover
2,136,603Tk which was the highest in this particular category. After that in 2016 the recovery
rate decreased and it was stood at 1,477,272 but compare to the disbursement amount recovery is
good in this mode which indicates that recovery unit did an excellent job in this category.

Investment in Bai-Muajjal CIS (STAFF)

Actual Amount

Years 2013 2014 2015 2016

Disbursement 1,441,000 1,762,000 2,471,000 1,364,000

Recovery 1,056,349 1,761,843 1,964,403 1,502,140

Source: Disbursement report of Hazaribagh branch (2013-2016)

Discussion: In this graph we can see that disbursement increased over the year. In 2013 it was
stood at 1,441,000 TK and after that disbursement increased at a rate of 22.27% and stood 1,
762, and 00 in 2014 than in 2016 it was stood at 2,471,000 which were highest among the years.
The increase rate between 2013 to 2015 was 71.47 % which indicated that the bank retain their
customers by offering various facility. Recovery performance is good in this category compare to
other category of Bai-Muajjal. Here the recovery was increased over the year and reached
highest in 2015 at 1,964,403 TK and the suddenly it decreased at 23 % and stood at 1,502,140
TK in 2016 but compare to 2013 it was still good which indicate that the overall performance in
this category was good during the years.

Investment in Bai-Murbaha (GENERAL)

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Actual Amount

Years 2013 2014 2015 2016

Disbursement 0 75,490,000 69,619,000 25,331,000

Recovery 0 10,000,000 109,268,800 71,888,900

Source: Disbursement report of Hazaribagh branch (2013-2016)

Discussion: In this graph we can see that disbursement decrease over the year. In 2013 there was
no disbursement occurred in this category of Bai- mechanism. But in 2013 it was stood at
74,490,000 TK which was the highest in this category after that investment decrease at a rate of
7% from 2014 to 2015 and then 63% from 2015 to 2016 which indicate that AIBL investment
strategy was no appropriate in this category to attract or retain customers that’s why they lose
customer over the year. But in terms of recovery bank did and an excellent job after 2014 their
recovery increased and slightly fall in 2016 but compare to 2014 which was still good. So it is
necessary for the bank to improve this condition otherwise their net investment income will fall.

Investment in Bai-Istisna

Actual Amount

Years 2013 2014 2015 2016

Disbursement 5,300,000 6,805,000 4,205,000 0

Recovery 2,102,282 2,895,000 1,600,000 0

Source: Disbursement report of Hazaribagh branch (2013-2016)

Discussion: In this category of Bai- Mechanism the bank fails to recover from investment over
the year which shows the weakness of recovery unit. The recovery in this mode decrease over
the year except 2014 it was stood 2,895,000tk which was the highest in this category. After that
it decreases at a rate of 44% from 2014 to 2015. And in 2016 bank fail to recover from
investment .But in terms of disbursement it was fluctuated over the year and reached highest in
2014 but compare to recover the performance was very poor. If it continued bank will fail to
 P a g e | 37

meet depositors demand. Bank need to change their investment strategy for improving current
condition.

Share Mechanism:
Investment in Musharaka

Actual Amount

Years 2013 2014 2015 2016

Disbursement 2,300,000 4,005,000 4,805,000 6,005,000

Recovery 2,102,282 2,895,000 2,900,000 4,905,000

Source: Disbursement report of Hazaribagh branch (2013-2016)

Discussion: In this graph it is clear the disbursement increased over the year. In 2013 it was
stood at 2,300,000 TK and then it was increased at a rate of 74% from 2013 to 2014 it reached
highest in 2016 and stood 6, 00,5000 increased rate from 2015 to 2016 was 24%. Which indicate
that the investment performance in this category was tremendous over the years. In terms of
recovery the performance was also good compare to other modes because recovery increased
over the year. In 2013 it was stood at 2,102,282 TK and 2016 it was stood at 4,905,000tk almost
double compare to 2013 which shows tremendous growth. So we can said that bank performance
was good in this mode over the year.

Hire Purchase under Shirkatul Melk

Investment in H.P.S.M. REAL EASTE (LONG TERM)

Actual Amount

Years 2013 2014 2015 2016

Disbursement 1,300,000 6,000,000 5,000,000 2,350,000

Recovery 3,268,466 2,412,989 3,267,588 6,287,438.70

Source: Disbursement report of Hazaribagh branch (2013-2016)

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Discussion: In this graph it is clear that disbursement fluctuated over the year and it reached
highest in 2014. After that disbursement decreased at a rate of 16% from 2014 to 2015 and then
50% from 2015 to 2016, which indicate that bank did not perform well in this category of
investment. For long term investment AIBL offers are not attractive than other conventional
banks that’s why they lose customers over the year. In terms of recovery the bank did an
excellent job their recovery increased over the year except 2014, otherwise their recovery
increased 35% and 90% 2014 to 2015 and 2015 to 2016 which was exceptional. But if the bank
fails to retain their customer there will be a collapse in this category of investment so bank need
to improve this condition.

Investment in H.P.S.M. REAL EASTE (SHORT TERM)

Actual Amount

Years 2013 2014 2015 2016

Disbursement 600,000 400,000 325,000 1,000,00

Recovery 400,120 600,000 326,500 90,433.22

Source: Disbursement report of Hazaribagh branch (2013-2016)

Discussion: In this graph we can see that disbursement in this category was decreased over the
year and reached lowest in 2016 which is not good for the bank. The decreased rate was 33%
from 2013 to 2014 and 18% from 2014 to 2015. The bank fails to attract new customer as a
result disbursement decreased over the year. But in terms of recovery the bank did an excellent
job their recovery fluctuated over the year but compare to disbursement which was good and it
shows that AIBL recovery unit are doing their job more professionally .In this category recovery
reached highest in 2014 and stood at 600,000Tk . However bank need to attract new customer to
improve current condition.

13. Investment Policy of AIBL:

AIBL investment policy is to invest in accordance with Islamic Shariah. AIBL management
expect that in Bangladesh with all their branches they will render their best efforts to make
 P a g e | 39

quality investment in accordance with the Shariah principles and they will give their best effort
to maintain the quality of investment over the time with their best recovery system.

To motivate the valued clients with satisfactory
performance of other banks to route their
business through us
To boost up SME and Micro investment
To encourage women entrepreneurs in allowing
investment
To encourage investment in the productive
sectors
To prefer investment in development oriented,
employment generating and poverty alleviation
sectors
To ensure diversification of investment portfolio
by size, sector, economic purpose and
geographical area for minimizing risks of
concentration as well as to ensure equitable
deployment of fund
To make investment covered by adequate
securities as stated in the norms of existing
business discretionary powers
To change the nature, trend of investment
depending on the economic activities
To sanction investment ensuring proper
appraisal as well as actual need of the client

14. Effectiveness of Investment policy

In order to see how AIBL performed in terms of their investment policy in comparison with
Islami Bank Bangladesh Limited (IBBL) in 2016 this report analyze the invest trend of AIBL
and IBBL to measure the effectiveness of investment policy.

Mode wise investment (General):-

Modes of investment 2016 (Amount in millions)

AIBL %To total IBBL %To total
investment investment
Bai-Murabaha 17336 8.74 382176 62.00
Mudaraba 0 0 5000 0.81
Musharaka 0 0 602 0.10
Bai-Muajjal 76527 38.60 54387 8.82
Hire purchase 49639 25 139567 22.64
Quard 1879 0.94 14047 2.28
Bai-Salam 0 0 6436 1.05
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Bill purchase & Discount 16364 8.28 14204 2.30

Others 36505 18.44 0 0
Total 198250 100% 616419 100%

Source: Annual reports 2016 (AIBL, IBBL)

Discussion:

From the above table it is found that both AIBL an IBBL distributes its investment into different
modes. Among the modes AIBL highly preferred at Bai-Muajjal mode, around 38.6% of their
total investment was made under this mode in 2016. On the other hand IBBL preferred Bai-
Murabaha mode around 62 % of their total investment was made under this mode. After Bai-
Murabaha and Bai-Muajjal both the bank preferred Hire purchase mode around 25% and 22% of
their total investment has made under this mode respectively of AIBL and IBBL. From the table
we can say that AIBL investment was not diversified compare to IBBL because they lack
investment in Mudaraba, Musharaka and Bai-salam mode which indicate that AIBL investment
policy is not effective in terms of diversification. AIBL should change this trend in order to be
gain market share in the Islamic banking system in Bangladesh.

Sector wise investment:

2016 (Amount in millions)

Sector AIBL %To total IBBL %To total
investment investment
Agriculture 2519 1.3 15425 2.50
Industry 97344 49.10 219377 35.59
Construction/Real state 9052 4.56 47972 7.78
Transportation 6223 3.13 7592 1.23
Storage 8773 4.42 0 0
Commercial/SME 53891 27.18 244713 39.70
Miscellaneous 20448 10.31 37464 6.08
Total 198250 100% 616419 100%
Source: Annual reports 2016 (AIBL, IBBL)
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Discussion:

Form the Above table it demonstrate that both AIBL and IBBL distributes its investment in
different sectors. But the industrial development of the country falls under the priority of both the
banks. In 2016 among different sector both AIBL and IBBL invested heavily in industrial sector.
Around 49.10% and 35.59% of their total investment was made under this sector respectively to
AIBL and IBBL. But IBBL highly preferred in commercial and SME sector where AIBL lack
investment in this sector. Around 39.70% of IBBL investment was made under this sector while
AIBL invest only 27.18%. After analyzing the table it can be said that both the banks encourage
investment in productive sector but IBBL heavily encourage women entrepreneurs and SME
investment but AIBL still lack it. Which indicate that AIBL did not implement its investment
policy while investing in diffract sectors. In order to boost countries economy AIBL should
change this trend.

Division wise investment:

Division wise investment (IBBL) Division wise investment (AIBL)

2%
3% 2%2% 1% Dhaka 4% 1%1% 0% Division
3%
Chittagong Dhaka
9%
Khulna 11% Chittagong
7%
Rajshahi Khulna
56%
20% Rangpur Rajshahi
78%
Sylhet Rangpur
Barisal Sylhet

Source: Annual reports 2016 (AIBL, IBBL)

Discussion:

Form the above table it can be said that both AIBL and IBBL provide most of their investment in
Dhaka division. But AIBL heavily invested in Dhaka compare to IBBL that is because around
49% of their investment was made in industrial sector. IBBL invest in all over Bangladesh while
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AIBL lacks it, AIBL didn’t invest all the 8 division in Bangladesh. AIBL investment its fund
depending on the economic activities while IBBL spread their investment all over Bangladesh.
Which indicate that both the bank have their own investment strategy and policy to gain the
market share.

Investment Growth:
Year 2014 2015 2016
Investment Growth Investment Growth Investment Growth
rate rate rate
AIBL(Amount in millions) 155026 19.1% 165698 6.8% 198250 19.6%
IBBL (Amount in millions) 463475 14.9% 530195 14.3% 616419 16.2%

Source: Annual reports AIBL & IBL (2014-2016)

Discussion:

From the above table it can be said that investment was increased over the year for both AIBL
and IBBL. But in contrast with the growth rate of investment it varies year to year. In 2016 AIBL
and IBBL investment was stood 198250TK and 616419TK million respectively which was the
highest among three years for both the bank and shows tremendous growth from 2015 to 2016.
From 2015 to 2016 growth rate of investment for AIBL and IBBL stood 19.6% and 16.2%
respectively. But compare to IBBL investment amount it outperformed AIBL over the year
which shows weakness in AIBL investment policy. So AIBL should improve this situation.

Investment income
Year 2014 2015 2016
IBBL (Amount in millions) 19725 18568 18830
AIBL (Amount in millions) 49109 48152 52942

Source: Annual reports AIBL & IBBL (2014-2016)

Discussion:

Form the above table the data exhibits that the income from investment was fluctuated over the
year for both AIBL and IBBL. But AIBL investment income was low compare to IBBL as their
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investment is also low, it was stood 19725 million in 2014 which was the highest among three
years after that it decrease 5.8% from 2014 to 2015 and then it was increased 1.8% from 2015 to
2016 and stood 18830 million. On the other hand IBBL investment income slightly decreased in
2015 but it was increased 9.9% from 2015 to 2016 ant stood 52943 million. Which indicate that
AIBL investment strategies and policy is not effective compare to IBBL

Classified investment:
Year 2014 2015 2016
IBBL (Amount in millions) 22807 22541 23601
AIBL (Amount in millions) 6982 7713 8994

Source: Annual report AIBL & IBBL (2014-2016)

Discussion:

From the above table it can be said that the classified investment was increased over the year for
AIBL but on the other hand it was fluctuated for IBBL. AIBL classified investment reached
highest in 2016 and stood 8994 million it was increased 16.6% from 2015 to 2016 which was not
good for AIBL. But for IBBL classified investment was decreased gradually but it slightly
increased in 2016 at 4.7% but compare to AIBL which was still shows good sign for IBBL. From
the analysis we can say that AIBL investment strategies and policies are week compare to IBBL.
So AIBL should be careful while investing its fund in different sector.

Provision against classified investment:

Year 2014 2015 2016
IBBL (Amount in millions) 9391 9293 10075
AIBL (Amount in millions) 1518 2100 2586

Source: Annual report AIBL& IBBL (2014-2016)

Discussion:
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Provision against classified investment was increased over the year for both AIBL and IBBL as
their classified investment also increased. This means to absorb the risk from classified
investment both bank increased their provision over the year. From the table it is clear that IBBL
reserve more fund to absorb the risk than AIBL. Which indicate that AIBL investment policy is
less effective than IBBL?

Recommendation and conclusions

15. Findings of the report

AIBL is one of the most popular Ismail bank in Bangladesh, who focused on modern Islamic
banking system. AIBL always want make sure about its position in the industry by mobilizing its
deposit and making quality investment. During my internship I got some findings about the bank
which are given below:-

• AIBL lack quality human resources in investment department, as a result their

disbursement process takes time.
• AIBL lacks different modes of investment at all the branch because not all the branches
are allowed to give investment under Mudaraba and Musharaka mode.
• Among different modes AIBL heavily preferred Bai-Muajjal mode of investment, about
38.60% of their total investment are made under this mode in 2016.
• At Hazaribagh branch AIBL investment decrease over the year from 2013 to 2016 due
to the movement of leather industry from Hazaribagh.
• At Hazaribagh branch AIBL heavily invest in Bai-Muajjal mode under consumer
investment scheme. In 2016 their investment reached 979,180,000 TK, which was the
highest in all modes that Hazaribagh branch allowed.
• AIBL investment recovery rate fluctuated over the year.
• In 2016 AIBL lacks Quard, Mudaraba, Musharaka mode of investment compare to
IBBL which shows weakness in AIBL investment strategies & policy
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• AIBL heavily invest in industrial sector, 49.10% of their investment made in this sector
while other Islami banks like IBBL invest in the entire economical sector of the
country. AIBL also lack investment in the development activities of the country.
• AIBL lacks investment all the 8 divisions of Bangladesh and among the divisions AIBL
only preferred Dhaka 78% of their total investment are made in Dhaka. While other
Islami banks such as IBBL spread their investment in all over Bangladesh.
• AIBL investment income is increasing over the year but compare to IBBL which is not
significant.
• AIBL didn’t encourage women entrepreneur for investment.
• AIBL investment policy is not effective in the entire sector and AIBL didn’t implement
its investment policy while investing in different sectors.

16. Recommendations:

Islamic banking in Bangladesh is getting popular day by day and customers want diversified
product and services from the bank. In order to be successful in the banking industry AIBL
should follow the trends. Based on my findings here are some recommendations that are given
below

• AIBL should hired quality human resource in the investment department.

• AIBL should introduce Mudaraba and Musharaka mode of investment at all the
branches. It should focus all the mode of investment not just Bai-Muajjal. Because
customer wants diversified products .AIBL should follow current trend in order to be
successful in the banking industry.
• AIBL recovery unit should be more active because their classified investment increases
over the year. AIBL investment strategies and policy need to be modify as well in order
made their investment attractive to the customer.
• AIBL need to improve its infrastructure quality as well as internal networking system in
order to provide quality service to the customer
• AIBL need to modify its accounting opening from so that customer feel easy to fulfill the
form
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16. Conclusion:

Banking industry in Bangladesh is highly competitive; everybody wants to increase their market
share by providing various services to the customers. As a result banks need to develop an
effective business strategy as well as policy in order to make their position higher in the industry.
AIBL is no different of that. The management of AIBL always tries to maintain a steady growth
by delivering their banking services across the country.

This report analyzes the mode wise investment of AIBL at Hazaribagh branch. The branch is
located very near to the leather industry as a result most of their investment has made in this
sector, but due the movement of leather industry form Hazaribagh their investment decrease over
the year. Not just that Hazaribagh bank highly preferred Bai-Muajjal mode of investment. Other
mode of investment is not popular here especially the bank lacks Mudaraba mode of investment.
And recovery rate form investment fluctuated over the year

This report also analyzes the effectiveness of investment policy of AIBL and found that AIBL
investment policy is not effective in many sector. The bank lack investment in all over
Bangladesh. Classified investment of the bank increases over the year. So in order to be
successful bank management should take care of this problem as well as it should make
attractive investment scheme for the customers
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17. Bibliography

• Md. Abdul Awwal Sarker (1999); Islamic banking in Bangladesh: performance problems and
prospectus, International Journal of Islamic Financial Services Vol. 1 No.3
• Mohammed Nurul Alam (2000); Islamic banking in Bangladesh: A case study of IBBL
International Journal of Islamic Financial Services Vol. 1 No.4
• Sharif Rayhan Siddique & A F M Mafizul Islam (2001), Banking Sector in Bangladesh: Its
Contribution and Performance; Journal of Business Research, vol. 3, 2001
• Md. Nazirul Islam Sarker& Md. Harun Or Rashid (2015); An Impact of Banking Activities
of Private Commercial Islamic Bank to Economic Development in Bangladesh: A Case
Study on First Security Islami Bank Limited (FSIBL); Journal of Investment and
Management 2015; 4(5): 264-272
• Evana Nusrat Dooty & Mohammed Syedul Islam (2014); Investment Performance of Islamic
Bank: An Empirical Study; Asian Business Review, Volume 4, Number 1/2014 (Issue 7)

Annual report:
• Annual report of AIBL (2013-2016)
• Annual report of IBBL 2016
Website:
• Website of AIBL “ http://www.al-arafahbank.com/ “
• Website of IBBL “http://islamibankbd.com/index.php “