Internship Report

On
General Banking & Foreign Exchange Activities of Al-Arafa
Islami Bank Limited

Submitted To

Dr. Leyaket Hossain Mahmood

Professor
Department of Accounting & Information Systems
Jagannath University, Dhaka-1100.

Prepared By

Md. Taushik Ahamed

Student ID: B170201026
Batch: 13th; Section: A
Department of Accounting & Information Systems,
Jagannath University, Dhaka-1100.

Submission Date: 5th March, 2023

 Table of Contents
Particulars Page No.
Letter of Transmittal i
Declaration ii
Supervisor’s Certificate iii
Acknowledgement iv
Executive Summary v
Chapter 01 Introduction 1
1.1 Introduction 1
1.2 Objectives 1
1.3 Methodology of the study 3
1.4 Scope of the report 3
1.5 limitations of the Report 3
Chapter 02 Al-Arafah Islami Bank Limited: An Overview 4
2.1 Background of Al-Arafah Islami Bank Ltd. 4
2.2 Company Profile 5
2.3 Mission & Vision of AIBL 5
2.4 Value & Commitments 6
2.5 Objective of AIBL 6
2.6 Organogram of AIBL 7
2.7 Financial performance of the Bank 8
2.8 Service Provided by AIBL 10
2.9 Moods of Investment 10
Chapter 03 Conceptual Framework of Bank 12
3.1 What is bank 12
3.2 History of Banking 12
3.3 Bangladesh Bank 13
3.4 Functions of Bangladesh Bank 14
3.5 Types of Banks in Bangladesh 15
3.6 Some Banking Terms 16
Chapter 04 Experience During Internship 19
4.1 General Banking 19
4.1.1 General Banking functions at Dhanmondi Branch 19
4.1.2 Types of Accounts 19
4.1.3 Account Opening 21
4.1.4 Account Opening Process 21
4.1.5 Information Collected to Open Account 22
4.1.6 Dormant Account 23
4.1.7 Transfer of Account 23
4.1.8 Account Closing Process 24
4.1.9 Cheque Clearing 24
4.1.10 Clearing Department 25
4.1.11 Types of Cheques Collected by Clearing Department 25
4.1.12 Clearing House 25
4.1.13 Types of Clearing 26
4.1.14 Remittance 26
4.1.15 Foreign Remittance 26
4.1.16 Local Remittance 26
4.2 Foreign Exchange Activities 27
4.2.1 Foreign Exchange Departments 27
4.2.2 Import Procedures 27
4.2.3 Functions of Import Section 28
4.2.4 Letter of Credit 28
4.2.5 Importer’s Application for L/C Limit Margin 28
4.2.6 Parties Involved in a L/C 29
4.2.7 Documents Used in Foreign Trade 30
4.2.8 Export Procedure 32
4.2.9 Export Pricing and Costing 33
4.2.10 Formalities and Procedure 34
4.2.11 Papers Required for new export 34
4.2.12 Preparation of export Documents 35
4.2.13 Export Financing 35
4.2.14 Processing and Opening of Back-to-Back L/C 35
4.2.15 Export Cash Credit 36
4.2.16 Packing Credit 36
4.2.17 Back-to-Back credit facility 36
4.2.18 Foreign remittance 36
4.2.19 Remittance Procedures for Foreign Currency 37
4.2.20 Formalities for Opening Foreign Currency Account 37
Chapter 05 Learning’s from Organization 39
5.1 Learning’s from Organization 39
5.2 Learning’s from Internship Program 39
5.3 SWOT Analysis of Dhanmondi Branch 39
5.4 Overall Findings
Chapter 06 Recommendations and Conclusions 42
6.1 Recommendations 42
6.2 Conclusions 42
Bibliography
 Letter of Transmittal
Date: 05th March, 2023

To
Dr. Leyaket Hossain Mahmood
Professor
Department of Accounting and Information systems
Jagannath University, Dhaka

Subject: Submission of the report on General Banking & Foreign Exchange Activities
of Al Arafah Islami Bank.

Dear Sir,
With due respect I would like to state that it is a matter of great pleasure and honor for me
to submit my internship report on “General Banking & Foreign Exchange Activities of
Al-Arafah Islami Bank Ltd. From Dhanmondi Branch” assigned as my topic of
internship. In preparation of this report, I have followed and maintained the format and
rules of a formal internship report as instructed by you. The internship program gave me
the opportunities to have as insight on the General Banking & foreign activities of Al
Arafah Islami bank. The consignment was of great worth and apply, as it helped me to
increase my analytical skills and practical knowledge and helped me to become
familiarized with the corporate world. I have tried heart and soul to make the report
effective and useful. To prepare the report I have collected what I believe to be most
relevant information to make my report as analytical and reliable as possible. I have
concerned my best effort to achieve the objectives of the report and hope that my endeavor
will serve the purpose. The practical knowledge and experience gathered during my report
preparation will help in my future professional life.

I would really be grateful if you enlighten me with your thoughts and views regarding the
report. Also, if you wish to enquire about an aspect of my report, I would gladly answer
your queries. Thank you.

Sincerely Yours

……………………………
Md. Taushik Ahamed
ID: B170201026
Batch:13 th
Department of Accounting & Information Systems
Jagannath University, Dhaka

i
 Declaration

I, here declare that the internship report namely “General Banking & Foreign Exchange
Activities of Al-Arafa Islami Bank Limited” under the supervision of Dr. Leyaket
Hossain Mahmood, Professor, Department of Accounting & Information Systems,
Jagannath University, submitted by Md. Taushik Ahmed, ID: B170201026, 13th Batch,
Department of Acounting & Information Systems, Session: 2017-2018, Jagannath
University, after completing of 3 (three) months of internship period with Dhanmondi
Branch, Al-Arafah Islami Bank Limited existing activities and its implementation.
I also declare that this report is my original work of my experience and prepared for
academic purpose which is a part of B.B.A programme and I further affirm that the report
is original and no part of this report has been occupied from elsewhere.

……………………………
Md. Taushik Ahamed
Student ID: B170201026
Batch: 13th; Section: A
Department of Accounting & Information Systems
Jagannath University
Dhaka-1100

ii
 Supervisor’s Certificate

I am very pleased to declare that Md.Taushik Ahamed, ID: B-170201026, Section: A,

Batch: 13th, Program: BBA, Department of Accounting & Information Systems,
Jagannath University,Dhaka, has been given with the topic “General Banking & Foreign
Exchange Activities of Al-Arafah Islami Bank Ltd.” for researching and writing an
internship report on the subject he has review all the relevant literature and has been
survived practically at Al-Arafah Islami Bank Ltd. From Dhanmondi Branch for three
months to collect both of primary and secondary data. I have supervised her throughout the
preparation of the internship paper.
I also certify that the internship paper is an original one and has not been submitted
elsewhere in previously for publication in any form.
He is wished all the best in her effort.

……………………………

Dr. Leyaket Hossain Mahmood

Professor
Department of Accounting and Information systems
Jagannath University, Dhaka

iii
 Acknowledgement

At the very beginning I would like to express my deepest gratitude to the almighty Allah
for giving me the strength and capability to continue my everyday tasks both inside and
outside these work place during the whole period of internship program to finish the task
within the schedule time. I would like to thank my honorable supervisor Dr. Leyaket
Hossain Mahmood, Professor, Department of Accounting and Information systems,
Jagannath University, Dhaka, for guiding me throughout the course of my BBA internship
program.

My deepest appreciation and special thanks go to Business Administration department of

Jagannath University, Dhaka for providing me an opportunity to come closer to the real
world and help me in enriching my knowledge.

I also express my warm gratitude and cordial thanks to the Rajibul Islam Bhuiyan (EVP)
and others of Al Arafah Islami Bank especially Tariq Mahmud (GB Incharge), Amina
Akhter Shoilee (SEO), Mossaraf Hossain who have given me the chance to work with
them and helped a lot by providing the information and enabling to prepare this report. I
have received their generous help and support.

I am providing thanks to all of my other collogue of Al Arafah Islami Bank from

Dhanmondi Branch for helping me to complete this report. For their suggestions and
comments which inspired me greatly to prepare the report successfully and their heartiest
co-operation which makes my destination easier.

I would like to take the opportunity to express my wholehearted gratitude to my fellow

friends, near and dear who offered encouragement, information, inspiration and assistance
during the course of constructing this report.

Then at last, I shall be grateful to those persons who read this report and who shall get
benefit from this report at present and future.

iv
 Executive Summary

Commercial banks are one of the key contributors in the economy of developing countries.
They act as financial intermediaries by performing the function of mobilizing the funds
from one party and lending the same to another while making reasonable amount of profit.
People and the government itself are very much dependent on the service provided by the
various banks in the financial market.

Al-Arafah Islami Bank ltd. has emerged in the banking sector in1995 in our country. They
are operating their activities with 3 major dimensions like General Banking, Investment
and Foreign Exchange Operation.

It is important that Al-Arafah Islami Bank does not deal with money lending rather they
deal with goods. They invest money in various profitable business activities, either directly
by themselves or in partnership with other, seeking to earn or share legitimate (Halal)
profit. They have provision for Quard Hasana or beneficent loan in deserving case without
any consideration of profit but return on the same.

These are returnable, if and when the beneficiary is able to repay. AIBL deals with goods
which is measurable by money and share profit or loss with the beneficiaries. On the other
hand, conventional bank directly deals with money or credit by the contract of pre-agreed
fixed interest rate.

Shortly it can be said this report in its beginning introduced the AIBL which shows its
historical
background, the mission, values, performance and also other aspects.

Finally, recommendation also provided from my view point.

v
 Chapter-1
Introduction

1.1 Introduction

Bangladesh is one of the largest Muslim Countries in the world. The people of this country
are deeply committed to lead an Islamic way of life which is based on the principle of
Holy Quran and the Sunnah. The Al-Arafah Islami Bank which is established on June 18,
1995 is the true reflection of this inner urge of its people which started functioning with
effect from September 27, 1995. It is committed to conduct all Financial Activities
banking and Investment activities on the basis of interest free profit and loss sharing
system. In doing so it has unveiled a new horizon and unheard in new silver lining of hope
towards materializing a long-cherished dream of the people Bangladesh for doing their
Banking transaction in line with what is prescribed by Islam. With the active cooperation
and participation of Islamic Development Bank (IDB) and some other Islamic Banks,
financial institutions and government bodies, Al-Arafah Islami Bank Limited has new
earned the unique position of a leading private commercial bank in Bangladesh. Al-Arafah
Isalmi Bank Limited has made a positive contribution towards the socio-economic
development of the country by opening 46 branches in which 16 authorized dealer
throughout the county.

1.2 Objectives

General Objectives:

The main purpose of the study to know the overall financial operational performance of
the Al-Arafah Islami Bank Ltd. and fulfilling the practical requirements of the BBA
program . The objective of Islamic banking is not only to earn profit but also to do good
and welfare to the people. Islam upholds the concept that money, income and property
belong to Allah and this wealth is to be used for the God of the society.

Specific Objectives:

• To observe the General Banking & foreign exchange operation of AIBL and
their services review the techniques used by the bank to make it lucrative.
• An analysis and discussion of General Banking & foreign exchange services of
the bank.
• To evaluate of the present performance of the bank regarding General Banking
& foreign exchange.
1
 • To search the problems of this branch of AIBL.
• Determining the drawbacks of the existing foreign exchange system.
• Recommending some guidelines to improve the effectiveness of foreign
exchange services.

1.3 Methodology

To make the report more meaningful and presentable, two sources of data and information
have been used widely these are Primary Data and Secondary Data. Both primary and
secondary data sources were used to generate the report. But Most of the information
collected from secondary sources.

Primary sources of data:

 Face to face conversation with the bank officers &staffs.

 Conversation with the clients.

 Different' manuals of AIBL

Secondary sources of data:

 Procedure manual published by the Al-Arafah Islami BankLtd.

 Files and documents of the branch.

 Annual reports of Al-Arafah Islami BankLimited

 Different papers of Al-Arafah Islami Bank.

 DSE library

 Bangladesh Bank Journals

1.4 Scope of the Report

As I was working in the Al-Arafah Islami Bank Limited, Dhanmondi Branch, I got the
opportunity to learn different part of banking system. My supervisor divided my parts so
that I can get the opportunity to work in General Banking & Foreign Exchange division to
analysis the whole financial activities.

2
1.5 Limitation of the Report

The work is mainly based on interpreting primary data. There is insufficiency of

Secondary data, but for the purpose of the betterment of the present position of the bank’s
accounting procedure, collecting, interpreting and integrating primary data has been
utilized.

Though a very comprehensive and a well-organized report has been tried to be produced
but there are still some limitations present here.

Since the time allocated for internship program is twelve weeks, it may have a coercive
effect on this study lowering the actual value and standard.

• The communication gap among the different personnel because of excessive

workload.
• Inexperience about practical work.
• Because of sensitiveness, the department does not want to disclose information
about the financial situation, which leads to do report.
• Lack of accessibility to respondents.
• The bank authorities are so busy that they could not give me sufficient time for
discussion about Accounting Procedure and its problems.
• Dealing with some ambivalent information.
• Problems for lack of my research work
• Clients are not always interested to spend time for interviews.
• The main constraint was insufficiency of information, which is highly required for
the study. It was unable to provide some formatted documents and data for the
study.
• Since the bank personnel were very busy, they failed to give me enough time to
complete the report.
• The clients were very busy. So, they were unable to give me much time for
interview.
• Such a study carried out by me for the first time. So, inexperience is one of the
main factors that constituted the limitation of the study.

3
 Chapter-2
Al-Arafah Islami
Bank Limited: An Overview

2.1 Background of Al-Arafah Islami Bank Ltd.

Al-Arafah Islami Bank Limited has been established and functioning with effect from 27th
September 1995 as a schedules commercial Bank of Bangladesh strictly based on Islamic
Shariah principles. Islamic Banking has been operating in more than 70 countries of the
world including Bangladesh through 218 institutions. It has in the meantime established its
beneficial approach and efficiency on operation.

Islamic Banking system has its inborn inner strength as follows:

• It gives a fixed percentage of investment income to the depositors. Therefore, in

order to give better rate of profit its investment portfolio is managed properly so
that better investment income can be earned and paid to the depositors.

• The Management cost is to be borne out of a fixed portion of investment income

and service charge earned by the bank. Therefore, efficient customer services and
better portfolio management are required to be ensured by the management.

• The depositors can calculate their interest income to be earned from conventional
banks and thereby make expenditure with consequential inflation which the
depositors of Islamic Bank cannot do as they cannot foresee profit income.

• Since Islami Bank invests its fund in different Islamic Modes of Finance
particularly in Mudaraba and Musharaka and also accepts deposits on Mudaraba
principal Entrepreneurship as well as sense of belongingness to the Bank is
developed.

• In buying &selling modes of financing like Murabaha, Bai-Muajjal, Izara, end

uses are ensured strictly as per principles of Islamic Shariah. Thus, funds cannot
be diverted for other purpose.

• Islami Bank attaches importance to human resources development. As such the

employees are trained discreetly, in this regard on which the conventional Bank
does not give much importance.

4
2.2 Company Profile
Name of The Company Al-Arafah Islami Bank Limited
Nature of Business A public limited company registered in
Bangladesh on 18th June 1995, under the companies
Act 1994 and enlisted in
Dhaka Stock Exchange Ltd. & Chittagong Stock
Exchange Ltd.

Registered Office Head Office Peoples Insurance Building(6th – 9th

Floor) 36, Dilkusha Commercial Area Dhaka-1100,
Bangladesh.

SWIFT Code ALAR BD IS (means Branch Code)

E-Mail aibl@alarafahbank.com

Webpage: www.al-arafahbank.com

2.3 Mission & Vision of AIBL

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

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

5
2.4 Value & Commitments

Value
• AIBL values are based upon the fundamental principles that define our culture and
are brought life in our attitude and behavior. It is their values that make us unique
and seen from five basic principle:
• Excellence: The market is which AIBL operate is becoming increasing
competitive and their customers now have abundance of choice.
• Integrity: AIBL success depends upon trust. Their customers are society in general
expect us to process and steadfastly to high moral principle and profession
standard.
• Customer focus: AIBL need to understand fully the needs of their customers and
to adapt our product and service to meet these.
• Meritocracy: AIBL believes in giving opportunities and advantage to its employee
son the basic of their ability.
• Progressiveness: AIBL believes in the achievement of society through the
adoption of enlightened working practice innovative new product and process a
sprite of enterprise.

Commitments

• Theirs is a customer focused modern Islamic Banking with sound and steady
growth in both deposit mobilization and making quality Investment to keep our
position intact as a leading Islami Bank in Bangladesh.
• To deliver financial services with the touch of our heart to retail, small and
medium scale enterprises, as well as corporate clients through our branches across
the country.
• To always align our business initiatives with the ever changing industrial and
business needs of the clients.
• To deliver product and services that creates value for the customers.

2.5 Objective of AIBL

Al-Arafah Islami Bank Limited is Islamic Banking institutions that operates with the
objectives implement and materialize the economic and financial principles of Islamic in
the banking arena. The objectives of AIBL are not only to earn profit, but also to do good
and welfare to the people. The main objectives of AIBL are listed below-

• To establish participatory banking instead of banking on debtor creditor

relationship.
• To invest through different modes permitted under Islamic Shariah.
• To accepts deposits on profit loss sharing basis.

6
 • To establish as welfare-oriented banking system.
• To extend co-operation to the poor, the helpless and the low income group for their
economic up liftmen.
• To play a vital role in human development and employment generation.
• To contribute towards balances growth and development of the country through
investment operations particularly in the less developed areas.
• To contribute in achieving the ultimate goal of Islamic economic system.
• To conduct interest free banking.

2.6 Organogram of AIBL

7
2.7 Financial Performance of the Bank
Particulars 2017 2018 2019 2020 2021 Growth%

Income Statement
Investment Income 20491.03 24956.81 28811.65 26331.28 23446.01 (10.96)
Profit paid on Deposit 11784.20 16256.61 18604.42 16556.64 13072.79 (21.04)
Net Investment 8,706.83 8700.20 10207.23 9774.64 10373.22 6.12
Income
Non Investment 3557.36 3769.39 4037.57 3655.46 4250.17 16.27
Income
Non Investment 5308.42 6160.70 6384.18 6742.33 7129.25 5.74
Expenses
Net Non Investment
Income (1751.06) (2391.31) (2346.61) (3086.87) (2879.08) (8.85)
Profit Before Tax & 6955.77 6308.89 7860.62 6687.77 7494.14 12.06
Provision
Provision For 1354.89 2177.98 2867.66 1887.90 2655.58 40.66
Investment
Profit Before Tax 5600.88 4130.91 4992.96 4799.87 4838.56 0.81
Provision For Tax 2431.38 1674.11 2556.33 2228.06 2712.12 21.73
(including Deferred
Tax)
Profit After Tax 3169.05 2456.80 2427.63 2571.81 2126.44 (17.32)
Balance Sheet
Authorized Capital 15000.00 15000.00 15000.00 15000.00 15000.00 -
Paid up Capital 9943.06 10440.22 10659.02 10649.02 10649.02 -
Reserve Funds &
Other Reserves 8556.96 9336.62 10318.64 11418.96 11733.35 2.75
Shareholders’ Equity 22520.68 23483.22 24148.24 24455.85 25900.33 1.75
(Capital & Reserve)
Deposits 244806.26 266205.48 297241.81 326023.41 353287.97 8.36
Investment 235905.23 261874.13 288486.02 308620.66 336890.72 9.16
Investment in Shares
& Securities 10145.49 12214.67 16170.52 21563.67 30156.14 39.85
Fixed Assets 3260.38 4494.61 4351.93 5833.88 5470.27 (6.23)
Total Assets
(Excluding off- 319255.29 338456.30 381051.81 418298.65 462687.05 10.61
balance sheet items)
Foreign Exchange
Business
Import Business 156700.00 168573.80 171611.70 169378.90 261556.10 54.43
Export Business 104540.00 114481.90 108967.10 104939.40 135786.90 29.40
Guarantee Business 6443.41 7096.02 8274.25 10511.21 13673.41 30.08
Inward Foreign 20700.00 36917.20 37713.40 43807.00 52662.10 20.61
Remittance
Capital Measures
Core Capital (Tier-l) 21459.85 22379.93 22817.41 23930.30 29301.30 22.44
Supplementary 5488.97 10078.56 9735.77 15327.20 14359.58 (6.31)
Capital (Tier-ll)
Tier-l Capital Ratio 10.40 10.12 10.22 9.59 10.37 0.78

8
Tier-ll Capital Ratio 2.66 4.56 4.36 6.14 5.08 (1.06)
Total Capital 26948.82 32458.69 32553.18 39258.09 43660.88 11.21
Total Capital Ratio 13.06 14.68 14.58 15.74 15.46 (0.28)
Investment Quality
Volume of Non-
Performing 9921.51 12690.72 13100.41 11769.58 16566.84 40.76
investment
% of NPIs to Total
Investment 4.10 4-79 4.82 3.80 4.81 26.58
Provision for
Unclassified 1723.04 1891.00 2157.28 2787.10 3084.10 10.66
Investment
Provision for
Classified Investment 3096.15 3946.09 6022.02 6436.96 8173.23 23.01
Provision for Off
Balance sheet 570.42 689.80 778.50 935.50 1093.40 16.88
Exposures
Share Information
Number of Shares
Outstanding 994306428 1044021750 106902185 106902185 1,064,902,185 -
Earning per Share 3.15 2.35 2.28 2.41 1.96 (0.45)
(Taka)
Book Value per Share 20.88 20.80 21.13 22.35 22.73 .38
(Taka)
Market Price per 24.10 19.90 17.20 22.20 26.60 4.40
Share (Taka)
Price Earning Ratio 7.64 8.48 7.56 9.22 13.57 4.35
(Times)
Price Equity Ratio 1.15 0.96 0.81 0.9.99 1.17 0.18
(Times)
Dividend per Share
Cash Dividend (%) 15.00 15.00 13.00 15.00 15.00 -
Bonus Share 5.00 2.00 - - - -
Operating
Performance Ratio
Net Profit Margin% 3.87 3.42 3.73 3.45 3.26 (0.19)
Investment /Deposit 89.95 89.87 88.93 86.92 87.57 0.65
Ratio
Return on Equity 14.07 10.46 14.07 10.10 8.21 (1.98)
(ROE)%
Return on Assets 0.99 0.73 0.64 0.61 0.46 (0.16)
(ROA)%
Cost of fund % 7.50 8.70 9.02 7.50 6.00 (1.50)
Cost /Income ratio in
operating business 43.28 49.41 44.28 50.20 48..75 (1.45)
(%)
Other Information
Number of Branch 154 168 182 184 201 9.24
Number of Employees 3446 3682 3795 3866 4247 9.86
Number of 30386 25793 24276 22142 19146 (13.53)
Shareholders

9
2.8 Services provided by AIBL
The importance of mobilizations of savings for the economic development of our
country can hardly be over emphasized. We considered savings and deposits as
lifeblood of the bank. More the deposit, greater is the strength of the bank. The bank
intends to launch various new savings scheme with prospect of higher return duly
supported by a well-orchestrated system of customer services. The bank would cater
to the credit needs of individuals as well as corporate clients. Initial it will emphasize
on trade finance, which would be short term and self-liquidating in nature.
Considering the importance of foreign trade in our national life, financing and
handling of export & import business and also handling of foreign remittance business
would be given top most priority. Moreover, the bank operates all of its activities
under the rules and regulations of Islamic Shariah. The services provided by the Al-
Arafah Islami Bank Ltd. are given bellow:

1.General banking
• Different accounts open, issues of DD. TT. PO,
• Clearing,
• FD, Different Scheme etc.

2.Credit/advance
• SOD General loan
• House building loan
• Lease finance
• Hire purchase
• CC hypo
• Staff loan
• CCSetc.

3.Foreign exchange
• Export
• Import
• Remittance

2.9 Modes of Investment

1. Bai-Murabaha:

Bai-Murabaha may be define as a contract between a buyer and a seller under which the
seller sells certain specific goods (permissible under Islamic Shariah and the law of the
land ) to buyer at a cost plus agreed profit payable in cash or on any fixed future date in

10
lump sum or by installments. The profit marked up may be fixed in lump sum or in
percentage of the cost price of the goods.

2. Mudaraba:

Moradabad refers to a contract between two parties in which one party supplies capital to
the other party for the carrying on some trade on the condition that the resulting profits are
distributed in a mutually agreed proportion and loss is borne by the provider of the capital.

3. Musharaka:

The word ‘musharaka’ is derived from the Arabic word ‘Sharikah’. That means
partnership. It is a partnership between two or more parties who trade woth a join capital.
The profit is to be dividends into a known and fixed percentage. All the partners including
the bank have the right to participate in the management.

4. Bai-Muajjal:

A contract in which the seller allows the buyer to pay the price of a commodity at a future
date in lamp sum or installment (which may be higher than the spot price) this is a sort of
credit sale for profit. Bai-muajjal is useful in financing requirements of industry and
agriculture.

5. Bai- Salam:

Bai-Salam is a contract in which the buyer pays the agreed price of a commodity in
advance and the commodity is delivered to the buyer at a specified future price. This is
useful mechanism for agricultural products and industrial product.

11
 Chapter-3
Conceptual Framework of Bank

3.1 What is Bank?

A bank is a financial institution that is licensed to accept checking and savings deposits
and make loans. Banks also provide related services such as individual retirement
accounts (IRAs), certificates of deposit (CDs), currency exchange, and safe deposit
boxes.

3.2 History of Banking

Ancient
The concept of banking may have begun in the times of ancient
Assyria and Babylonia with merchants offering loans of grain as collateral within
a barter system. Lenders in ancient Greece and during the Roman Empire added two
important innovations: they accepted deposit and changed money.Archaeology for this
period in Iran, Ancient China and India also shows evidence of money lending

Medieval
The present era of banking can be traced to medieval and early Renaissance Italy, to the
rich cities in the center and north like Florence, Lucca, Siena, Venice and Genoa.
The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing
branches in many other parts of Europe. Giovanni di Bicci de' Medici set up one of the
most famous Italian banks, the Medici Bank, in 1397. The Republic of Genoa founded the
earliest-known state deposit bank, Banco di San Giorgio (Bank of St. George), in 1407
at Genoa, Italy.

Early modern
Fractional reserve banking and the issue of banknotes emerged in the 17th and 18th
centuries. Merchants started to store their gold with the goldsmiths of London, who
possessed private vaults, and who charged a fee for that service. In exchange for each
deposit of precious metal, the goldsmiths issued receipts certifying the quantity and purity
of the metal they held as a bailee ; these receipts could not be assigned, only the original
depositor could collect the stored goods.
Gradually the goldsmiths began to lend money out on behalf of the depositor,
and promissory notes (which evolved into banknotes) were issued for money deposited as
a loan to the goldsmith. Thus by the 19th century we find in ordinary cases of deposits of
money with banking corporations, or bankers, the transaction amounts to a mere loan
or mutuum, and the bank is to restore, not the same money, but an equivalent sum,
12
whenever it is demanded and money, when paid into a bank, ceases altogether to be the
money of the principal (see Parker v. Marchant, 1 Phillips 360); it is then the money of the
banker, who is bound to return an equivalent by paying a similar sum to that deposited
with him when he is asked for it. The goldsmith paid interest on deposits. Since the
promissory notes were payable on demand, and the advances (loans) to the goldsmith's
customers were repayable over a longer time-period, this was an early form of fractional
reserve banking. The promissory notes developed into an assignable instrument which
could circulate as a safe and convenient form of money backed by the goldsmith's promise
to pay] allowing goldsmiths to advance loans with little risk of default. Thus the
goldsmiths of London became the forerunners of banking by creating new money based on
credit.

The Bank of England originated the permanent issue of banknotes in 1695. The Royal
Bank of Scotland established the first overdraft facility in 1728. By the beginning of the
19th century Lubbock's Bank had established a bankers' clearing house in London to allow
multiple banks to clear transactions. The pioneered international finance on a large
scale, financing the purchase of shares in the Suez canal for the British government in
1875.

3.3 Bangladesh Bank

On 7 April 1972, after the Independence War and the eventual independence of
Bangladesh, the Government of Bangladesh passed the Bangladesh Bank Order , 1972
(P.O. No. 127 of 1972), reorganising the Dhaka branch of the State Bank of Pakistan as
Bangladesh Bank, the country's central bank and apex regulatory body for the country's
monetary and financial system.
The 1972 Mujib government pursued a pro-socialist agenda. In 1972, the government
decided to nationalise all banks to channel funds to the public sector and to prioritise credit
to those sectors that sought to reconstruct the war-torn country – mainly industry and
agriculture. However, government control of the wrong sectors prevented these banks
from functioning well. This was compounded by the fact that loans were handed out to the
public sector without commercial considerations; banks had poor capital lease, provided
poor customer service and lacked all market-based monetary instruments. Because loans
were given out without commercial considerations, and because they took a long time to
call a non-performing loan, and once they did, recovery under the erstwhile judicial system
was so expensive, loan recovery was abysmally poor. While the government made a point
of intervening everywhere, it did not set up a proper regulatory system to diagnose such
problems and correct them. Hence, banking concepts like profitability and liquidity were
alien to bank managers, and capital adequacy took a backseat
In 1982, the first reform program was initiated, wherein the government denationalised
two of the six nationalised commercial banks and permitted private local banks to compete
in the banking sector. In 1986, a Commission National on Money, Banking and
Credit was appointed to deal with the problems of the banking sector, and a number of

13
steps were taken for the recovery targets for the nationalised commercial banks and
development financial institutions and prohibiting defaulters from getting new loans. Yet
the efficiency of the banking sector could not be improved.
The Financial Sector Adjustment Credit (FSAC) and Financial Sector Reform Programme
(FSRP) were formed in 1990, upon contracts with the World Bank. These programs sought
to remove government distortions and lessen the financial repression. Policies made use of
the McKinnon-Shaw hypothesis, which stated that removing distortions augments
efficiency in the credit market and increases competition. The policies therefore involved
banks providing loans on a commercial basis, enhancing bank efficiency and limiting
government control to monetary policy only. FSRP forced banks to have a minimum
capital adequacy, to systematically classify loans and to implement modern computerised
systems, including those that handle accounting. It forced the central bank to free up
interest rates, revise financial laws and increase supervision in the credit market. The
government also developed the capital market, which was also performing poorly.
FSRP expired in 1996. Afterwards, the Government of Bangladesh formed a Bank Reform
Committee (BRC), whose recommendations were largely unaddressed by the then-
government.
At present it has ten offices located at Motijheel, Sadarghat, Chittagong, Khulna, Bogra,
Rajshahi, Sylhet, Barisal, Rangpur and Mymensingh in Bangladesh; total manpower stood
at 5807 (officials 3981, subordinate staff 1826) as of 31 March 2015.

3.4 Functions of Bangladesh Bank

The Bangladesh Bank performs all the functions that a central bank in any country is
expected to perform. Such functions include maintaining price stability through economic
and monetary policy measures, managing the country's foreign exchange and gold reserve,
and regulating the banking sector of the country. Like all other central banks, Bangladesh
Bank is both the government's banker and the banker's bank, a lender of last resort".
Bangladesh Bank, like most other central banks, exercises a monopoly over the issue of
currency and banknotes. Except for the one, two, and five taka notes and coins which are
the responsibility of the Ministry of Finance of the Government of Bangladesh. The major
functional areas include :
• Formulation and implementation of monetary and credit policies.

• Regulation and supervision of banks and non-bank financial institutions, promotion

and development of domestic financial markets.
• Management of the country's international reserves.
• Issuance of currency notes.
• Regulation and supervision of the payment system.
• Acting as banker to the government .
• Money laundering prevention.

14
 • Collection and furnishing of credit information.
• Implementation of the Foreign Exchange Regulation Act.
• Managing a deposit insurance scheme .

3.5 Types of Banks in Bangladesh

After the independence, banking industry in Bangladesh started its journey with 6
Nationalized commercialized banks, 3 State owned Specialized banks and 9 Foreign
Banks. In the 1980's banking industry achieved significant expansion with the entrance of
private banks. Now, banks in Bangladesh are primarily of two types:

• Scheduled Banks:
The banks that remain in the list of banks maintained under the Bangladesh Bank
Order, 1972.
• Non-Scheduled Banks:
The banks which are established for special and definite objective and operate
under any act but are not Scheduled Banks. These banks cannot perform all
functions of scheduled banks.

Scheduled Bank

State-owned Commercial Bank

means the commercial banks owned by the Recipient which propose to make or have
made a subgrant to a Dealer and which have entered into a Participating Bank Agree-
ment with the Recipient, and "State-owned Commercial Bank" means any one of them.
There are s which are fully or majorly owned by the Government of Bangladesh.
Specialized Banks (SDBs):
The specialized banks are defined as those banks that are banking operations that serve
a specific type of economic activity, such as industrial activity or agricultural or real
estate, under the resolutions of their establishment. Specialized bank does not have to
accept demand deposits of the main aspects of its activities.

Private Commercial Bank

Private commercial bank means the commercial banks other than commercial banks
owned by the Recipient which propose to make or have made a Subgrant to a Dealer and
which have entered into a Participating Bank Agreement with BI, and
"Private Commercial Bank" means any one of them.
1. There are 43 private commercial banks which are majorly owned by
individuals/the private entities. PCBs can be categorized into two groups:

15
 2.
a) Conventional PCBs: 33 conventional PCBs are now operating in the industry.
They perform the banking functions in conventional fashion i.e., interest based
operations.
b) Islami Shariah based PCBs: There are 10 Islami Shariah based PCBs in
Bangladesh and they execute banking activities according to Islami Shariah based
principles i.e., Profit-Loss Sharing (PLS) mod.

Foreign Commercial Bank

Foreign Commercial Bank are those banks that are incorporated abroad, later they opened
their branch in Bangladesh. There are 9 FCBs operating in Bangladesh.

3.6 Some Banking Terms

Account
A type of financial property or financial obligation that is held and owned under account
holder name. When someone open a financial account—whether it’s a checking account,
savings account, CD or money market account—he/she have certain rights and
responsibilities as an account holder.

Joint account
An account with two or more owners that own the account equally, with the same rights
and obligations of using the account.

Savings account
A savings account may have been Someone’s first experience with the banking industry.
He/she have a number of options for where to stow savings safely, both at banks and credit
unions.

Annual Percentage Rate

The total annualized cost of a loan. When someone borrow money, whether it’s via a
credit card, car loan or another loan, the lender is required to disclose the APR, so
borrower understand the full cost of borrowing the money.

Annual Percentage Yield( APY)

The annual yield earned on a deposit account, such as a savings, money market or CD
account. Savers can use APY as one of several factors to help determine which savings
options are the best.

Available balance
The amount of money someone have in his bank account that is available to spend or
withdraw. If someone have recently deposited a check or made purchases, those

16
transactions may still be marked as pending and may not be included in your available
balance.

Check
A type of financial instrument that instructs the check writer’s bank to make a payment to
the recipient indicated on the check. Some people write paper checks and other people use
their bank’s online bill pay feature to issue electronically generated checks.

Checking account
Checking account, sometimes referred to simply as a bank account, is a home base for
making financial transactions. The account can be interest-bearing, or non-interest-bearing,
depending on the bank or credit union.

Compound interest
When someone save money in an interest-earning account, such as a savings account or
CD, compound interest is the powerful financial effect that helps your savings grow over
time. With compound interest, savings multiply over time by earning interest on top of the
principal plus interest, year after year.

Credit
Credit generally refers to ability to borrow—the willingness of banks and other lenders to
extend a loan to someone.

Debit card
This is a payment method that’s connected to the checking account. Debit cards work
similarly to credit cards and can be accepted at the same points of sale, but the money that
A/C holder spend gets deducted from checking account balance.
Direct deposit
A payment method where people can sign up to have paychecks automatically
deposited into their account, without having to endorse and deposit a check. Many banks
offer reduced fees to customers who have recurring direct deposits.

Endorsement
To cash or deposit a check, Account holder must sign his/her name on the back. This is
known as an endorsement.
Fraudulent charges
Many banks have strong protections against fraudulent transactions. If a suspicious
transaction occurs on account, bank may prevent the payment from going through until
they talk with A/C holder to confirm that the purchase is valid.

Grace period
A certain amount of time when a borrower can delay making a payment on a loan or credit
card account without paying a penalty or incurring interest charges.

17
Investments
Investments are financial assets that are purchased and sold by investors, with the goal of
earning a return on investment (ROI).

Maturity date
This is the date of expiration for the contractual obligation of a financial instrument.

Overdraft
Something that occurs when someone make a purchase with his/her debit card or write a
check for an amount that exceeds his/her checking account’s available balance.

Solvency
When banks have enough money to cover potential losses. Banks are expected to maintain
a sufficient level of capital to remain solvent and avoid failure.

18
 Chapter-4
Experience During internship

4.1General Banking Activities

4.1.1 General Banking Functions at Dhanmondi Branch

Financial institution/ intermediary that mediates or stands between ultimate borrowers and
ultimate lenders is knows as banking financial institution. Banks perform this function in
two ways- taking deposits from various areas in different forms and lending that
accumulated amount of money to the potential investors in other different forms. General
banking department aids in taking deposits and simultaneously provides some ancillaries
services.

General banking is the front-side banking service department. It provides those customers
who come frequently and those customers who come one time in banking for enjoying
ancillary services. In some general banking activities, there is no relation between banker
and customers who will take only one service form bank. On the other hand, there are
some customers with who bank are doing its business frequently. It is an important
department for all banks because it provides day-to-day service to the customers. Front
Desk is the important for general banking. Customers give their deposits and meet their
demand for cash by honoring cheques. Besides this a customer opens new accounts, remit
funds, issues bank drafts and pay orders etc. There are various sections in this department,
which are as follows: –

· Cash Section

· Accounts Opening Section

· Cheque Clearing Section

· Remittance Section

4.1.2 Types of Account:

1. Al-Wadiah Current Deposit:

One of the most significant sources of deposits is the Al-wadiah current Deposit (CD). It
has some similarity with the current account of other conventional bank. It refers deposit
of money allowing somebody to sue it. Al-Wadiah Current Deposit is accepted on Al-
Wadiah.
19
2.Mudaraba Savings Deposit (MSD):

Mudaraba Savings Deposit is the deposit of one party and on the basis of operation by
another party this deposit is taken.Usually, this type of account is opened by the middle or
lower class people who wish to save a part of their incomes to meet the future needs. It
encourages the non-trading people to deposit a small amount of money.

3. Monthly Installment Based Term Deposit (ITD):

It is a type of deposit scheme that is also available in the conventional. But the basic
difference with the Islami bank is that, total deposited money which is the clients is not
fixed. It depends on whether the bank earns profit or loss from that money.

4. Mudaraba Lakhpoti Deposit Scheme (LDS):

• One can select the maturity period from 3, 5, 8, 10 or 12 years.

• This eye-catching scheme is lucrative because it will accumulate profit on your
deposit in a daily-stay basis with a weight age 0.05 more than that of a 2 years
deposit.
• A single person can open more than one account in the same branch.
• Tax will be applicable on the deposited amount along with profit according to the
country law.
• Monthly installment can be deposited on any working day from any branch.

5. Mudaraba Term Deposit Receipt (MTDR/FDR):

• Fixed Deposit is neither transferable nor negotiable.
• Fixed Deposit Account may be opened by individuals, firms, companies, corporate
body etc.
• Fixed Deposit average 1, 3,6,12-month interest rate 12% of profit.
• Rate of interest payable to Fixed Deposit Accounts shall be approved/ advised by
Head Office from time to time.
• FDR may be encased before maturity on written request of the depositor. For
payment of interest, branch shall follow Head Office instruction in this regard from
time to time.
• Extra care shall be taken in case duplicate FDR is proposed for lien to any bank.

The signature of the depositor is to be admitted by authorized officer both in AOF and S.S.
Card. The AOF will be retained in file and the S.S. Card shall be kept in S.S. Card Box
under custody of the concerned authorized officer.

6. Monthly Profit Based Term Deposit Scheme (MPTD):

• An exciting scheme to get monthly profit based on term deposit.

20
 • An effective saving plan for individual/company and non-resident Bangladeshis to
invest.
• Any amount of Tk. 1 (one) lac or its multiple may be deposited in this scheme.
• If necessary, the deposit may be cashed before maturity at a profit rate on
Mudaraba Savings Deposit.
• The scheme will have a minimum duration of 5 years.
• There will be Tk.937.50 estimated profit for each Tk.1,00,000/- of deposit.
• Tax will be applicable on the deposited amount along with profit according to the
country law.

7. Mudaraba Lakhpoti Deposit Scheme (LDS):

• One can select the maturity period from 3, 5, 8, 10 or 12 years.

• This eye catching scheme is lucrative because it will accumulate profit on your
deposit in a daily-stay basis with a weight age 0.05 more than that of a 2 years
deposit.
• A single person can open more than one account in the same branch.
• Tax will be applicable on the deposited amount along with profit according to the
country law.
• Monthly installment can be deposited on any working day from any branch.

4.1.3 Account Opening

Account opening section is an important factor for banks because customer is the main
source of bank. Selection of customer is another important factor. Bank’s success and
failure largely depends on their customers. If customer is not good then may create fraud
and other problems by their account with bank and thus destroy goodwill of banks.
Therefore, bank must be conscious in selecting its customer. For this reason Al-Arafah
Islami Bank Ltd. keep key information system.

4.1.4 Accounts Opening Process

Recently, Bangladesh Bank has been declared, designed and enforced a unique format of
form for every banks. This format should hold the important document in a same manner
and process

respectively for different kind of accounts. Al-Arafah Islami Bank Ltd. is not different
from this practice. Accounts opening process can be as follows:

Step 1

• Receiving filled up application in bank’s prescribed form mentioning what type of

account is desired to be opened.
21
 • The form is filled up by the applicant himself/ herself
• Two copies of passport size photographs from individual are taken and in case of
firms photographs of all partners are taken
• Officer are taken information from customer by key information system

Step 2

• Applications must submit required documents

• Applications must sign specimen signature sheet and give mandate

• Introducer’s signature and accounts number-verified by legal officer

Step 3

• Filling & signing up KYC or Know Your Customer Form

• Filling & signing up Owner Information Form

Step 4

• Authorized Officer accepts the application

Step 5

• Minimum balance is deposited-only cash is accepted

Step 6

• Account is opened and a cherub book and pay-in-slip book is given

4.2.5 Information Collected to Open Account

Accounts opening information that is collected by the Al-Arafah Islami Bank Ltd. varies
for each type of account.

Individual

• Name

• Present and Permanent Address

• Date of birth and age

•Nationality

• Tax Information Number (TIN- if available )

• Passport or certificate provided by the employer

22
 • Photograph of the account holder

• One photograph of the nominee duly attested by the account holder.

• Nominee declaration form

• Money laundering leaflet

· Partnership Firm

• All the required information mentioned for Individual Accounts; along with,

• Copy of Partnership Dead

• Mandate from the partners is essential – indicating who will operate the account

· Limited Company

• All the required information mentioned for Individual Accounts; along with,

• Certificate of Incorporation

• Copy of Memorandum and Article of Association

• Certificate of Commencement

• Copy of Resolution of the Board of Directors

4.1.6 Dormant Account

If any account is inoperative for more than one year is called dormant account. To operate
these accounts manager permission is necessary

4.1.7 Transfer of Account

An account can be transferred from branch to branch and only from the same bank.
Following steps are considered for this purpose:

· Application in written to the Manager of the account maintaining branch

· Manager sends a request to the manager of the desired branch of depositors

· Sends original Account opening application and specimen signature sheet with the
balance remained in the account at he sent Manager’s request

· New account is opened at desired

23
4.1.8 Account Closing Process

· Go to Account à Close à Deposit Account

· Enter the profit, Tax and closing charge ( Tk. 150.00) amount.
· Enter pay order number/ savings account number/ Appropriate GL account to transfer the
net payable amount.
· Finally Save.
4.1.9 Cheque Clearing

Bank receives all kinds of cheque in favor of the client for clearing. When cheque is
received it is necessary to endorse it and cross it specially.

Types of Cheque Explanation Clearing Process

Inward Clearing Cheque received from Party’s A/c…Dr.Al-Arafah Islami Bank Ltd.
Cheque the clearing house of Al- General A/c…Cr.
Arafah Islami Bank Ltd.

OBC(Outward Cheques of other branch These cheques are directly sent to the
Bills for of Al-Arafah Islami respective branch and request them to sent
Collection) Bank Ltd. within its IBCA. When it comes, then customer’s A/c is
clearing house area. credited for the cheque.

Clearing Cheque Cheques another bank These cheques are sent to clearing house via
within Al-Arafah Islami Dhanmondi Branch. When drawee bank
Bank Ltd. clearing honor the cheques, then the account of cheque
house area. depositors are credited.

Outward Cheques for another If any branch of Al-Arafah Islami Bank Ltd.
Clearing bankoutside the clearing exists within the clearing house area of
area drawee banks then Al-Arafah Islami Bank
Ltd. send the cheque to that branch of Al-
Arafah Islami Bank Ltd. and sends IBCA to
it.

Inward Bills From other branch of These cheques are settled by IBCA, i.e.
forCollection Al-Arafah Islami Bank debiting depositor’s account and crediting
(IBC) Ltd. sender’s branch account

From another bank These cheques are settled debiting depositor’s

outside the clearing account and sending DD, MT, TT in favor of
house sender’s bank.

24
4.1.10 Clearing Department

Cheques clearing section of Al-Arafah Islami Bank Ltd. receives cheque, demand drafts
and pay orders of their clients. Upon the receipt of the instrument the cheque clearing
section examines three types of payment modules.

· Whether the Paying Bank within Dhaka City: The cheques clearing section of Al-
Arafah Islami Bank Ltd., Dhanmondi Branch sends Inter Branch Debit Advice (IBDA) to
the head office on the receiving day of the instruments. The main branch takes those
instruments to the clearing house on the following day. If the instruments are dishonored,
Head Office of Al-Arafah Islami Bank Ltd. sends IBDA to the Al-Arafah Islami Bank
Ltd., Dhanmond Branch.

· Whether the Paying Bank of their own branch: The cheque clearing section of Al-
Arafah Islami Bank Ltd., Dhanmond Branch sends Outward Bills for Collection (OBC) to
the concerned paying branch to get Inter Branch Credit Advice (IBCA) from the paying
branch. If the paying branch dishonors the instrument, the paying branch returns it to the
Al-Arafah Islami Bank Ltd., Dhanmond Branch describing why the instrument is
dishonored.

4.1.11 Types of Cheque Collected by Clearing Department:

· Local Bills Collection Cheques (LBC)

Local bills collection cheques are those cheques, which are collected and paid by two
different branches of a bank situated in the same city.

Outward Bills Collection Cheque (OBC)

OBC cheques are those cheques, which are collected and paid by two different branches of
same or different bank situated in the outstation.

·Transfer Cheque

Transfer Cheques are those cheques, which are collected and paid by the same branch of
Al-Arafah Islami Bank Ltd.

4.1.12 Clearing House

Clearing House is an arrangement under which member banks agree to meet, through their
representatives, at an appointed time and place to deliver instruments drawn on the other
and in exchange, to receive instruments drawn on them. The net amount payable or
receivable as the case may be, is settled through an account kept with the controlling bank

25
4.1.13 Types of Clearing

· Outward Clearing

Outward clearing means when a particular branch receives instruments drawn on the other
bank within the clearing zone and those instruments for collection through the clearing
arrangement is considered ad outward clearing for that particular branch.

· Inward Clearing

When a particular branch receives instruments, which drawn on them and sent by other
member bank for collection are treated as inward clearing.

4.1.14 Remittance

Sending money from one place to another through some charges is called remittance. To
pa or receive money of customers in the form of remittance from one place to another,
from one person to another inside and outside the national boundary is an earning source
of every bank. Dhanmondi Branch, Al-Arafah Islami Bank Ltd. operates both the foreign
and local remittance to serve it’s customers. In addition, this service is an important part of
country’s payment system. Through this service, people can transfer their funds from one
place to another place very quickly.

4.1.15 Foreign Remittance

Foreign remittance is to send money of customers from one place to another, from one
person to another outside the national boundary. Though Dhanmondi Branch, Al-Arafah
Islami Bank Ltd. is AD branch, it can able to serve the customers by receiving and paying
their incoming foreign remittance in the form of local currency. Foreign remittance is
received by the bank via some internationally authorized agents. There are two medium of
agent for foreign remittance at Dhanmondi Branch, Al-Arafah Islami Bank Ltd.; they are:

Moneygram

Eldorado

4.1.16 Local Remittance

Sending money of customers in the form of remittance from one place to another, from
one person to another inside and outside the national boundary is another earning source of
every bank. As being a non-ad branch Dhanmondi Branch of Al-Arafah Islami Bank Ltd.
only operates the local remittance to serve the customers. In addition, this service is an
important part of country’s payment system. Through this service, people can transfer their
funds from one place to another place very quickly. There are several techniques for
collecting local remittance. These are:

26
· Demand Draft (DD)

Pay Order

· Telegraphic Transfer (TT)

4.2 Foreign Exchange Activities

4.2.1 Foreign Exchange department

Foreign exchange can simply be defined as a process of conversion of one currency into
another. In ordinary sense “Foreign Exchange” means Foreign Currency, which refers to
the rate of exchange the price of one unit of foreign exchange in termFs of another
currency. But in its complete sense, foreign exchange means the mechanism or the media
used and the rate at which these media are exchange with another.

Foreign Exchange department of Al-Arafah Islami Bank Ltd. is one of the most important
of all departments. This department divided into three parts, the first one is the Import
Department the second part is the Export Department & the third part is Foreign
Remittance Department.

Following flow chart depicts the multifarious functions usually done by the FED:

4.2.2 Import Procedure

To import, a person should be competent to be and importer. According to

Import and Export Control Act, 1950, the Office of Chief Controller of
Import and Export provides the registration (IRC) to the importer. In an
international business environment, buyers and sellers are generally unknown
27
 to each other. So seller of goods always seeks security for the payment of his
exported goods. Bank gives export guarantee that it will pay for the goods on
behalf of the buyer if the buyer does not pay. This guarantee is called Letter
of Credit. Thus the contract between importer and exporter is given a legal
shape by the banker by 'Letter of Credit.

4.2.3 Functions of Import Section

The form IMP contains the followings—

• Name and address of the Authorizeddealers.

• Amount of remittance to be permitted (i.e./Camount)
• LCA form no. Date and value in Taka.
• Description of goods.
• Invoice value in foreign currency, (i.e./Camount)
• Country oforigin.
• Port ofshipment.
• Name of steamer /Airline
• Port ofimportation.
• Indenter’s name andaddress.
• Indenter's registration number with CCI & E and BangladeshBank.
• Full name and address of theapplicant.

4.2.4 Letter of Credit

A letter of credit is a letter issued by a bank (known as the opening or the issuing
bank) at the instance of its customer (known as the opener) addressed to a person
(beneficiary) undertaking that the bills drawn by the beneficiary will be duly honored
by it (opening bank) provided certain conditions mentioned in the letter gave been
complied with.

4.2.5 Importer’s Application for L/C Limit Margin

To have an import L/C limit, an importer submits an application to the Department of Al-
Arafah Islami Bank Ltd. furnishing the following information:

1 Full particulars of bank account.

28
2 Nature of business.

3 Required amount of limit.

4 Payment terms and conditions.

5 Goods to be imported.

6 Offered security.

7 Repayment schedule.

Now if the officer thinks the application to open an L/C in not fit, the following entries are
given to realize the L/C, Charges, Postage and L/C margin.

4.2.6 Parties Involved in a Letter of Credit

Importer Who applies for L/C

Issuing Bank It is the bank which opens/issues a L/C on behalf of the

importer.
Confirming Bank It is the bank, which adds its confirmation to the credit and it, is
done at the request of issuing bank. Confirming bank may or
may not be advising bank.
Advising or Notifying It is the bank through which the L/C is advised to the exporters.
Bank This bank is actually situated in exporter's country. It may also
assume the role of confirming and / or negotiating bank
depending upon the condition of the credit.
Negotiating Bank It is the bank, which negotiates the bill and pays the amount of
the beneficiary- The advising bank and the negotiating bank
may or may not be the same. Sometimes it can also be
confirming bank.
Accepting Bank It is the bank on which the bill will be drawn (as per condition
of the credit). Usually it is the issuing bank.
Reimbursing Bank It is the bank, which would reimburse the negotiating bank after
getting payment - instructions from issuing bank.

The following papers are required when opening a new L/C

1. Certificate of Board of Directors.

2. Resolution of Commencement.

29
3. Resolution of Board of Directors.
4. Confidential report to be obtained from their previous bank.
5. Report/ Inquiry to be obtained from CIB of Bank.
6. Credit Report to be obtained from correspondent bank, internationally reputed agency
introspects to the supplier.
7. LRA to be made in case of big liability.
8. Valid Import Registration Certificate (IRC).
9. Trade License.
10. TIN Certificate.
11. VAT Certificate.
12. Three (3) copies declaration by the importer that they have paid/ submitted return of
income tax of proceeding last year.
13. Membership Certificate of Chamber of Commerce Industry.
14. Membership Certificate BGMEA (Incase of Garment Ind.)
15. Banded warehouse license (Incase of Export Oriented Industry).
16. LCA From.
17. Insurance cover note.
18. Proforma Invoice/ Indent.
19. Application for opening of L/C duly billed in and signed.
20. IMP form duly signed.
21. Memorandum and Article of Association of the company.
22. Certificate of incorporation with RJSC.

4.2.7 Documents Used in Foreign Trade

Bill of exchange

A Bill of Exchange is an instruction by the exporter (drawer) to the importer or the

importer’s bank to make payment of the amount mentioned in it. A Bill of Exchange is
a negotiable instrument and is governed by the Negotiable Instruments Act. The bill
under a letter of credit may be drawn in the issuing bank or another drawee bank but
not on the importer. If the credit nevertheless calls for a bill on the applicant, the bank
will consider such bills as additional documents. The various types of bills are:

D/A and D/P bills

A usance bill may be on D/A or D/P terms. If it is on D/a terms (Documents against
acceptance), the collecting bank is to deliver the documents to the drawee on the
acceptance of the bill by him. The payment will be made by the drawee on the due date of
the bill. For the period from the date of acceptance to the date of payment, the bank
remains unsecured. If it is a D/P bill (Documents against payment), the documents will be
delivered to the drawee only on payment until which time they are retained by the bank.
Therefore, the bank retains control over goods until payment is received.

30
Inland and foreign bills

A bill, which is drawn in Bangladesh and made payable in or drawn upon any person
resident in Bangladesh, is an inland bill. Thus, an inland bill must fulfill both the
conditions that (i) it is drawn in Bangladesh and (ii) it is payable in Bangladesh or drawn
on person resident in Bangladesh (even though payable abroad). Any bill that does not
fulfill either of the conditions is a foreign bill. Thus, a bill drawn in Bangladesh, payable at
a place outside Bangladesh by a person resident outside Bangladesh and a bill drawn at a
place outside Bangladesh, but payable in Bangladesh are foreign bills.

Marine Insurance Policy

The loss or damage to goods during the voyage or shipment would affect any one or more
parties involved in the transaction, viz., the importer, the exporter, the shipping company
and the bank which has paid against the documents covering the goods. Marine insurance
offers the desired cover against loss of or damage to the goods during the transaction. It
allows free flow of international trade by absorbing an important uncertainty connected
with it.

Marine insurance may cover the ship (hull insurance) or the goods (cargo insurance). The
consideration for which a marine insurance contract is undertaken is the ‘premium’. The
insurance may be for either partial loss or total loss. The applicant must submit the
insurance cover note and the money receipt with other relevant documents to the advising
bank.

Invoices

Various types of invoices are required in L/C. Brief descriptions of those invoices are
given below:

Commercial Invoice:

A commercial invoice is a statement containing full details of the goods sipped. The
general contents of a commercial invoice used in foreign trade are:

• Names and addresses of the seller and buyer;

• Details of goods shipped-quantity, quality, description and value;
• Packing details and packing marks;
• Price and amount payable by the buyer;
• Terms of trade-FOB, CFR OR CIF, etc;
• Details of freight charges, insurance premia and other chargers;
• Reference to the sale contract in fulfillment of which the shipment is made;
• Name of the vessel in which the goods are shipped; and

31
 • Reference to the license number under which the import is made.

Proforma Invoice:

A Proforma Run contains all the details in a commercial invoice. The word 'profit run' is
different from the commercial inventory by appearing. This is not a sales proof. The
following operations may be required in the following forms:

It may be the basis of which the contract of sale is concluded later. When the product is
sent on a consignment basis, a profit invoice that is sent to the vendor's agent can be used
only; It acts as a guide for the price of the product the agent sells.
It may be used support a tender a sale contract

4.2.8 Export Procedure

Entering into an Export contract

In order to avoid disputes, it is necessary to enter into an export contract with the overseas
buyer. For this purpose, export contract should be carefully drafted incorporating
comprehensive but in precise terms, all relevant and important conditions of the trade deal.

There should not be any ambiguity regarding the exact specifications of goods and terms
of sale including export price, mode of payment, storage and distribution methods, type of
packaging, port of shipment, delivery schedule etc. The different aspects of an export
contract are enumerated as under :

• Product, Standards and Specifications

• Quantity
• Inspection
• Total Value of Contract
• Terms of Delivery
• Taxes, Duties and Charges
• Period of Delivery/Shipment
• Packing, Labeling and Marking
• Terms of Payment– Amount/Mode & Currency
• Discounts and Commissions
• Licenses and Permits
• Insurance
• Documentary Requirements
32
 • Guarantee
• Force Majeure of Excuse for Non-performance of contract
• Remedies

Arbitration, It will not be out of place to mention here the importance of arbitration clause
in an export contract Court proceedings do not offer a satisfactory method for settlement
of commercial disputes, as they involve inevitable delays, costs and technicalities. On the
other hand, arbitration provides an economic, expeditious and informal remedy for
settlement of commercial disputes. Arbitration proceedings are conducted in privacy and
the awards are kept confidential. The Arbitrator is usually an expert in the subject matter
of the dispute. The dates for arbitration meetings are fixed with the convenience of all
concerned. Thus, arbitration is the most suitable way for settlements of commercial
disputes and it may invariably be used by businessmen in their commercial dealings.

4.2.9 Export Pricing and Costing

Export pricing should be differentiated from export costing. Price is what we offer to the
customer. Cost is the price that we pay/incur for the product. Price includes our profit
margin, cost includes only expenses we have incurred. Export pricing is the most
important tool for promoting sales and facing international competition. The price has to
be realistically worked out taking into consideration all export benefits and expenses.
However, there is no fixed formula for successful export pricing. It will differ from
exporter to exporter depending upon whether the exporter is a merchant exporter or a
manufacturer exporter or exporting through a canalizing agency. You should also assess
the strength of your competitor and anticipate the move of the competitor in the market.
Pricing strategies will depend on various circumstantial situations. You can still be
competitive with higher prices but with better delivery package or other advantages.

Your prices will be determined by the following factors:

• Range of products offered

• Prompt deliveries and continuity in supply
• After-sales service in products like machine tools, consumer durables
• Product differentiation and brand image
• Frequency of purchase
• Presumed relationship between quality and price
• Specialty value goods and gift items
• Credit offered
• Preference or prejudice for products originating from a particular
• Aggressive marketing and sales promotion
33
 • Prompt acceptance and settlement of claims
• Unique value goods and gift items

The exports from Bangladesh is subject to export trade control exercise by the Ministry of
Commerce through Chief Controller of Export and Imports (CCI & E). No exporter is
allowed to export any commodity permissible for export from Bangladesh unless he is
registered with CCI & E and holds valid Export Registration Certificate (ERC). The
Export Registration Certificate (ERC) is required to be renewed every year. The Export
Registration Certificate (ERC) is to be incorporated on EXP forms and other documents
connected with exports.

4.2.10 Formalities and Procedure

1. Export Receipt L / C: Obtain export L / C form export issued by the importer.

2. Submission of export documents: After supplying the product to the exporter, all the
documents required by the collecting bank will be submitted.

3. Checking the export documents: After checking the document near the banker to verify
the documents according to the lock / C terms.

4. Discussion of export documents: If the bank accepts the document and gives the
exporters a standard draft and forward documents to provide bank called a compromise
bank. If the bank does not buy L / C, the bank generally acts as a collecting bank.

5. Revenue earning: This time the issuing bank payment is realized.

6. Report to Bangladesh Bank: According to the instructions of the Bangladesh Bank, the
bank should report the latest payment to the respective division of Bangladesh Bank.

7. PROGRESS PROJECT CERTIFICATE (PRC) Issue: To get cash assistant to the bank,
the supplier / exporter will have to issue the export certificate of export L / C.

4.2.11 Papers Requirement for new Export

• Export Realization Certificate (ERC).

• Trade License.
• Membership Certificate Form Chamber/ EPB.
• Account To Be Maintained With Bank.
• Export L/C Contract.
34
 • EXP Form To Be Certified.
• TIN Certificate.
• VAT Certificate.
• Memorandum and Article of Association of the Company.
• Confident Credit Report to Be Obtained of the Importer.
• Registered Partnership Deed In Case of Partnership Concern.

4.2.12 Preparation of Exports Documents

• Bill of exchange or Draft.

• Bill of Lading.
• Invoice.
• Insurance Policy/ Certificate.
• Certificate of Origin.
• Inspection Certificate.
• Consular Invoice.
• Packing List.
• Quality Control Certificate.
• GSP Certificate.
• Photocopy-sanitary Certificate.

4.2.13 Export Financing

• Export Cash Credit (ECC).

• Packing Credit (PC)
• Back-to-Back Credit Facility (BTB).
• Foreign Documentary Bills Purchased (FDBP).

4.2.14 Processing and Opening of Back-to-Back Letter of Credit

An exporter desired to have an Import L/C limit under Back-to-Back arrangement. In that
case the following papers & documents are required:

• Full Particulars of Bank Account.

• Balance Sheet.
35
 • Statement of Assets & Liability.
• Trade License.
• Valid Bonded Warehouse License.
• Membership Certificate.
• Income Tax Declaration.
• Memorandum of Articles.
• Partnership Deed.
• Resolution.
• Photographs of Al Directors.

On receipt of above documents and papers the Back-to-Back Letter of Credit opening
section will prepare a credit report. Branch must obtain sanction from Head Office for
Opening Back to Back L/C.

Back-to-Back Letter of Credit opened without Head Office concern because of valued
clients of the Bank. In that case an officer of Foreign Exchange Department will send a
Post to the Head

4.2.15 Export Cash Credit (ECC)

Export Cash Credit (ECC) is extended to the companies who are involved in exporting
goods and services. Export Cash Credit (ECC) is provided to procure raw materials,
Packing List, Wages, Salaries, Utility etc. the quantum of Export Cash Credit (ECC) is
usually 75% of the export L/C.

4.2.16 Packing Credit (PC)

Packing Credit (PC) is granted to export oriented industry usually garments industry to
finance their expenses for Utility, Salaries, Wages etc. the quantum of packing credit is
usually 10 % to 155% of the value of the export L/C.

4.2.17 Back-to-Back Credit Facility (BTB

Back-to-Back Credit Facility (BTB) is issued to import raw materials for export –oriented
industry usually of garments. The primary security of Back-to-Back Credit (BTB) is
export L/C usually the quantum of Back-to-Back Credit (BTB) L/C is 75% of the value of
Master L/C.

36
4.2.18 Foreign Remittance
This bank is authorized dealer to deal in foreign exchange business. As an authorized
dealer, a bank must provide some services to the clients regarding foreign exchange
and this department provides these services.

The basic function of this department are outward and inward remittance of foreign
exchange from one country to another country. In the process of providing this
remittance service, it sells and buys foreign currency. The conversion of one currency
into another takes place an agreed rate of exchange, which the banker quotes, one for
buying and another for selling. In such transactions the foreign currencies are like am
other commodities offered for sales and purchase, the cost (convention value) being
paid by the buyer in home currency, the legal tender.

4.2.19 Remittance Procedure of Foreign Currency

There are two types of remittance:

1. Inward remittance

2. Outward remittance.

Inward Foreign Remittance:

Inward remittance covers purchase of foreign currency in the form of foreign T.T.,
D.D, and bills, T.C. etc. sent from abroad favoring a beneficiary in Bangladesh.
Purchase of foreign exchange is to be reported to Exchange control Department of
Bangladesh bank onForm-C.

Outward Foreign Remittance:

Outward remittance covers sales of foreign currency through issuing foreign T.T.
Drafts, Travelers Check etc. as well as sell of foreign exchange under L/C and against
import bills.

4.2.20 Formalities for opening foreign currency (FC) Account:

The AD may without prior approval of the Bangladesh Bank open Foreign
Currency (FC) account in the name of:

1. Bangladesh national residingabroad.

2. Foreign nationals residing abroad/ in Bangladesh and also foreign firms

37
 3. Registered abroad and operating in Bangladesh and abstract foreign
missions and their expatriate employees.

4. Resident of Bangladesh nationals working with the foreign / international

organization operating in Bangladesh provided their salary in paid in
foreigncurrency.

Foreign exchange earned through business doves or service rendered in

Bangladesh cannot be put into theseaccounts.

No payment in foreign currency (FC) may be made to any resident in Bangladesh

out of the foreign currency (FC) account.

All citizens of Bangladesh and other persons are residing to Bangladesh who
became the owner of any foreign currency (FC).

Papers required:

• Application duly billed in and signed.

• Photograph (two copies).

• Passport photocopy.

• Work permit from board investment. (In case of foreign nationals).

38
 Chapter: 5

Learning Points, SWOT Analysis

and Findings

Learnings
Staying the internship period of 3 months at Al-Arafah Islami Bank, Dhanmondi Branch
as an Internee was extensively experiencing. I have gone through a lot of new situations,
experienced a very new environment and learned about professional life.

5.1 Learning’s from Organization

In the processing of collecting, gathering, synchronizing information and preparing this
report; I have learned many banking procedures, facts such as Account opening, closing,
Profit taking, transferring also dealing with different types of customers & situations.

5.2 Learning’s from Internship Program

The learning’s form Internship program was a new experience since such event is very
new in a Student’s life. I have learned to study a bank’s documents and prepare an
affiliation report. Within the period, I had to deal with different designated employees &
stuffs of the branch and several types of clients. I faced several types of situations, some
made me happy, some sad, some anger etc. Through this ups and downs, I have come to
know what is the environment of an office and how to deal with it. This experience surely
made me prepared for my next corporate life.

5.3 SWOT Analysis of Dhanmondi Branch:

SWOT analysis provides an opinion and adjustment whether the organizations current
position is satisfactory or not.

39
SWOT at a glance of Dhanmondi Branch

Strength:
Human Factor

Opportunity: Threats:
Getting new
clients SWOT Robbery

weakness:
High cost of
Fund

Strengths:

❖ Wide image.
❖ Enthusiastic Employee.
❖ Excellent Management
❖ Human factor and innovation power.
❖ Satisfactory Environment

Weaknesses:

❖ It has high-cost fund.

❖ The advertising and promotional activities of this branch are up the mark.
❖ It has highly exposed dependency on term deposit.
❖ They have not set up proper network system.
❖ The bank has limit ATM service.
❖ The Division is not strong because the branch put due importance to utilization of
technology-based service to the customers.
❖ Infrastructure Cost.

40
Opportunity:

❖ Complacency among rival firms.

❖ Getting new clients.
❖ More physical presence.
❖ Maintain a good relationship with client.

Threats:

❖ Lacking of customers awareness regarding Islamic banking

❖ Increase number substitute service in the market.
❖ Stiff competition.
❖ Lake of enough technology for the branch.
❖ Certain Bangladesh Bank’s rules and regulations.
❖ Rude Customer.
❖ Robbery.

5.4 Overall Findings:

• They have not sufficient efficient employees to operate different department in the
Branch’s they should increase efficient employees in different department.
• Staff meetings and departmental meetings at the branch level does not hold or very
few which is very essential to develop service quality as well as problem solving.
But this practice is very few. So it may create major problem in future.
• Technology that they are using for their banking system is not up to date.
• There is a gap between the customers and bankers. Customers are unaware about
the moral of Islamic Banking System. Sometimes they are not familiar with the
rules of Islamic Banking.
• Advertising and promotion are the weak points of Al-Arafah Islami Bank Limited.
Dhanmondi branch is also outers‟ promotional service.
• Some international and local savings bonds give high rate of returns. AIBL does
not buy these because it is against the rules of Islamic Banking System. So the
branch is also following the rule.

41
 Chapter-6

Recommendations and Conclusion

6.1 Recommendations

▪ AIBL should concentrate in increasing its profit earning capacity.

▪ It should develop effective marketing strategy to attract new customers.
▪ Raising the capital, statutory reserve and increase the investment.
▪ The number of branches should be increased.
▪ Expand and diversify customer base.
▪ Upgrade Online Banking.
▪ Recruit more skilled employees regularly.
▪ Bank should introduce independent ‘Marketing Department’
▪ Few branches are not under online banking system, so all the branches should
confirm on line banking system.
▪ More meetings, seminars, symposiums and get-together should be organized
by the Branches to develop the awareness among the clients of the Bank about
Islamic Banking and its advantages.
▪ Ensure stable dividend.
▪ Ensure high level customer service.
▪ The Bank should follow Islami Sharia strictly in every of its operation.
▪ Bank should introduce ATM system.
▪ Should introduce one-stop service Centre.
▪ Bank should increase their office space and take more care in interior decoration.
▪ Bank should increase their office space and take more care in interior decoration.

6.2 Conclusion

The financial sector of our country is largely depended on banking sector. Over the
decade the banking business has been rising to the top of all. In this competitive
banking business environment, only excellent services are expected to sustain in
the industry.

Although the growth of the bank was satisfactory over previous years, the growth
in foreign exchange business is not satisfactory. Especially in remittance business,
the bank is lagging behind with other banks. The target customers of the banks are
low-end segment of the market & the IT sector of the bank is very poor.

42
To retain customers & attract new customers, the bank has to establish ATM
network immediately because people now want to bank even at midnight.

The study of the foreign exchange activities of Al-Arafah Islami Bank Ltd has
facilitated me with experiencing a vast practical knowledge of banking operation &
corporate work environment.

43
 Bibliography
Report, Journal:

• Annual report of AIBL2015-2019

• “A Journal of Islamic Banking” published by AIBL

Publications:
• Manuals & circulars of Al-Arafah Islami Bank
• Several Booklets from AIBL

Website:
• http//www.al-arafahbank.com
• Bangladesh Bank