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8/9/2019 Report Overall Financial Activities
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The Overall Financial Activities
Of
Al-Arafah Islami Bank Ltd (AIBL),
Bangladesh
Based on the study on !"! Financial statement and #usiness $olice
I%BAT
1
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The Overall Financial activities of
Al-Arafah Iislami Bank Ltd (AIBL),Bangladesh
SUBMITTED TO&
' '%*TAFI+% A'A.
Faculty of (/BA)
B%* !"
SUBMITTAD BY:
GROPE NAME: ONIKER PRANTOR
.A'0 I 1O2A' 0'AIL /LA**
OLLA*A%++A'A
.
IO3
"!!!4" BBA
AIBA+A'A. "!!!45 BBA
'O*I%
A'A.
"!!!64 BBA
FAT0'A
A7T0 *I'A
"!!!65 BBA
2
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Letter of Transmittal
nd A$ril, !""
'd'ustafi8ur ahman
Faculty of (/BA)
*chool of Business *tudies
International %niversity Of Business Agriculture and Technology
ear *ir,
ere is the re$ort on titled the overall foreign e9change activities of Al-Arafah Islami Bank Ltd
(AIBL), Bangladesh-a com$rehensive study 1re$ared for you as a final re$ort of the semester
It took one month to $re$are the re$ort and :e have tried to gather as much information as
$ossi#le :ithin this limited time Although the sti$ulated time is not enough to have in de$th
kno:ledge a#out the real cor$orate :orld, this re$ort give mi much insight in Islamic #anking
$racticed #y the conventional #anks like (AIBL)
I :ould like to thank you for giving us the o$$ortunity to $re$are this re$ort under your sincere
guidance and coo$eration
Thank you,
*incerely yours,
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Acno!le"#ement
A lot of concentration, effort, res$onsi#ility and study have #een involved in $re$aring this $a$er
into realty In $re$aring a re$ort one need a num#er of assistance and guidance from relia#le
sources This re$ort also stands on the #asis of such efforts I have $leasure to e9$ress my
gratitude to my gro$e mem#ers In $re$aring the re$ort, I received active co-o$eration from the
;1 res$onsi#le as a manager, "st A;1 es$onsi#le as a second officer, Officer of Al-Arafah
Islami Bank (AIBL)I sincerely e9$ress my heart- felt gratitude to them for their co-o$eration,
:hich hel$ed me to conduct and com$lete this re$ort They have $rovided us some im$ortant
#ooks on #anking and some #ooks on marketing and finance sharing, consent and given some
advice of making a research re$ort o:ever this re$ort suffers from many shortcomings
'oreover, I have e9erted my #est effort in $re$aring this re$ort
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TABL0 OF /O.T0.T* 1age
Title Fly============================i
Title 1age===========================ii
Letter of transmittal=======================iii
Ackno:ledgement========================iv
09ecutive *ummary=======================v
()( INTRODU*TION+++++++++++++++++++++))(" Origin of the re$ort======================="> O#?ective of the study===================="@ *co$e of the study======================"5 'ethodology========================,)( -istor' of Al.Arafa/ Islami Ban Limite"++++++++++++
Aims and O#?ective======================> 'ission and ;ision of AIBL==================@ /ommitments========================>" MANAGEMENT O0 AIBL+> 1lanning===========================
>> Organi8ing==========================>@ *taffing===========================>5 irecting===========================>6 /ontrolling==========================> istri#ution of Branch=====================>4 The Financial $osition of AIBL==================> AIBL 1roduct *ervice ======================
>"2enenral Banking=====================>" Foreign 09change===================> *ervices of the #ank====================>> 1roducts of AIBL=====================
1)2 Banin# s'stem in Ban#la"es/++++++++++++++++++++@" /or$orate Information====================))@ Financial Analysis of Al-Arafah Islami Bank =============@> 1erformance of AIBL=======================@@ 1rogressive Analysis of AIBL====================@@" /a$ital============================@@ e$osit============================@@> Investment===========================
5
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@@@ 2rameen C *mall 'edium 0nter$rise (*'0) *cheme=========@@5 International Trade========================@@6 Investment Income========================@5 ) 0conomic Im$act Analysis of AIBL&===================3)2 0%nctions of Al.Arafa/ Islami Ban Lt" +++++++++++++++++))
5" Foreign 09change of Al-Arafah Islami Bank Ltd ===============5 O$ening L/ in AIBL& ==========================5> Im$ort Business&==========================5@ 09$ort Business&==========================55 1rocedure of $re$aring LD/=======================56 Back to Back LD/&===========================5 Features of Back to Back LD/=======================54 Foreign ocuments Bills for /ollection (FB/)&===============4)2 Performance Anal'sis of AIBL++++++++++++++++++++++)
6" Al-Arafa Islami Bank Ltd& * O$$ortunities============================6"@ Threats===============================5)( ENDING PART P0 T-E REPORTE++++++++++++++++++++)
Findings and Analysis==========================4" ecommendations============================" /onclusion==============================="!! A$$endi9===============================
"!" Bi#liogra$hy===========================
INTRODU*TION:
,) Ori#in of t/e Re6ort:
This re$ort is a com$rehensive study $re$ared as a reEuirement for the com$letion of
the BBA 1rogram of I%BAT- International %niversity of Business Agriculture and
Technology) The $rimary goal of re$ort is to $rovide an o$$ortunity for translation of
6
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theoretical conce$tions in real life situation)
months com$rehensive study a#out the 1roducts and :orks of Al Arafah Islamic Bank
Limited in Bangladesh)
The com$rehensive study a#out the 1roducts and :orks of Al Arafah Islamic Bank and
other Traditional Banks in Bangladesh $re$ared under the guidance of our faculty
mem#er Tanvir (e
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To suggest remedial measurement for the im$rovement of the :hole $rocess of the
Al- Arafah Islami Bank Ltd
To formulate recommendations that could add value to the service of Al- Arafah Islami
Bank Ltd
3) Sco6e of t/e Re6ort3) Sco6e of t/e Re6ort
This re$ort hel$s me to understand the clear real-time e9$erience a#out the total management of
AIBL It hel$s me to understand, ho: the #ank manages its total $rocesses It also hel$s me to
understand ho: they deal :ith the customers as :ell as the foreign $olicy of their #ank like- the
$rocess of doing L/ and e9$ort C im$ort etc
4) Information Nee"s
In order to conduct this research $ro?ect and fulfill the research o#?ectives the follo:ing
information :ill #e reEuired&
Information a#out Al Arafah Islami Bank Limited
Information a#out the facility $rovided #y AIBL
Information a#out the ?o# characteristics
Information a#out com$ensation and #enefits $olicy
2eneral information a#out the em$loyees of AIBL
2eneral information a#out motivation conce$ts
Information a#out the different :ings of 1B C head office of AIBL
Information a#out the e9$ectation of the em$loyees of AIBL
To kno: the financial $erformance of the #ank
To kno: the :ork of general #anking system of the #ank
Met/o"olo#': A esearch may #e conducted either e9$loratory or conclusive Based u$on the
research to$ic and environment scenario I have decided to conduct e9$loratory research To
conduct the research I have collected t:o ty$es of data
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A) 1rimary ata and
B) *econdary ata
A sam$le survey :as conducted to collect $rimary data using t:o $re-designed survey
instruments from concerned grou$s follo:ing an a$$ro$riate sam$le design
9) So%rces of "ata
I have collected #oth $rimary and secondary data I collected *econdary data from $rior records
of AIBL
I have collected $rimary information #y intervie:ing em$loyees, managers via the $rocess
assigned #y AIBL, o#serving various organi8ational $rocedures, structures, directly
communicating :ith the customers
a) Primar' So%rce of Information
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> 2rou$ Instruction 'anual C Business Instruction 'anual
@ 1rior research re$ort
5 Any information regarding the Banking sector
,;) E$ternal So%rces
" ifferent #ooks and $eriodicals related to the #anking sector
Bangladesh Bank e$ort
> .e:s$a$ers
1revious re$orts and ?ournals relevant to the #anking industry
Other $u#lished documents of Bangladesh Bank
elevant AIBL $a$er and $u#lished documents)
Annual re$orts of !!6, !!)
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(() Limitation of t/e Re6ort
Time frame for the research is very limited
Large-scale research is not $ossi#le due to constraints and restrictions $osed #y the
organi8ation The research only covers the em$loyees of %ttara 'odel To:n Branch, haka
The survey :as limited to the em$loyees of 2eneral #anking and Foreign 09change
ivision
es$ondents :ere #usy as :ell as reluctant to go through the $rocess of
Euestionnaire
The res$ondents sometimes did not agreea#le in $roviding accurate statistics and
information. Historical Background of Al Arafah Islami Bank:
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#ank ho:ever, renders all ty$es of commercial #anking services under the regulation of the Bank
/om$anies Act "" It conducts its #usiness on the $rinci$les of musharaka, #ai-mura#aha, #ai-
mua??al and hire $urchase transactions A *hariah /ouncil of the #ank maintains constant
vigilance to ensure that the activities of the #ank are #eing conducted according to the $rece$ts
of Islam
) O78ecti&es of AIBL:
Al-Arafah Islami Bank Limited is Islamic Banking institutions that o$erates :ith the o#?ectives t
im$lement and materiali8e the economic and financial $rinci$les of Islamic in the #anking arena
The o#?ectives of AIBL are not only to earn $rofit, #ut also to do good and :elfare to the $eo$le
The main o#?ectives of AIBL are listed #elo:-
To conduct interest free #anking
To esta#lish $artici$atory #anking instead of #anking on de#tor creditor relationshi$
To invest through different modes $ermitted under Islamic *hariah
To acce$ts de$osits on $rofit loss sharing #asis
To esta#lish as :elfareoriented #anking system
To e9tend co-o$eration to the $oor, the hel$less and the lo: income grou$ for their
economic u$ liftmen To $lay a vital role in human develo$ment and em$loyment generation
To contri#ute to:ards #alances gro:th and develo$ment of the country through
investment o$erations $articularly in the less develo$ed areas To contri#ute in achieving the ultimate goal of Islamic economic *ystem
(2) *or6orate *%lt%re:
This #ank is one of the most disci$lined Banks :ith a distinctive cor$orate culture ere they
#elieve in shared meaning, shared understanding and shared sense making Their $eo$le can see
and understand events, activities, o#?ects and situation in a distinctive :ay They mould their
manners and etiEuette, character individually to suit the $ur$ose of the Bank and the needs of the
customers :ho are of $aramount im$ortance to us The $eo$le in the Bank see themselves as a
tight knit teamDfamily that #elieves in :orking together for gro:th The cor$orate culture they
#elong has not #een im$osedM it has rather #een achieved through their cor$orate conduct
>) Mission:
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Achieving the satisfaction of Almighty Allah #oth here C hereafter)
1roliferation of *hariah Based Banking 1ractices)
Huality financial services ado$ting the latest technology)
Fast and efficient customer services)
'aintaining high standard of #usiness ethics)
Balanced gro:th)
*teady C com$etitive return on shareholders eEuity)
Innovation #anking at a com$etitive $rice)
Attract and retain Euality human resources)
09tending com$etitive com$ensation $ackages to the em$loyees)
Firm commitment to the gro:th of national economy)
Involving more in 'icro C *'0 financing)
1) ?ision:
To #e a $ioneer in Islami Banking in Bangladesh and contri#ute significantly to the
gro:th of the national economy
To im$rove Banker- /ustomer relationshi$ through im$roving customer service
To develo$ ne: and innovate $roductDservice through integration of technology and
$olicy and $rinci$le
3) *ommitments:
Ours is a customers focused modern Islamic Banking making sound and steady
gro:th in #oth mo#ili8ing de$osit and making Euality Investment to kee$ our
$osition as a leading Islamic #ank in Bangladesh)
To deliver financial services :ith the touch of our heart to retail, small and
medium scale enter$rises, as :ell as cor$oration clients through our #ranches
across the country)
Our #usiness initiatives are designed to match the changing trade C industrial
needs of the clients)
") MANAGEMENT O0 AIBL:
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For any financial and non-financial organi8ation, 'anagement are the most valua#le and
im$ortant resources of any kind of organi8ation And, a :ell-organi8e management $rovides the
organi8ation to reach its ultimate goal 'anagement means $lanning, organi8ing, staffing,
directing and controlling of all financial and non-financial resources of an organi8ation ifferent
as$ects of management $ractice in AIBL are discussed #elo:
Plannin#
AIBL has done its $lanning :ithin the $revie: of the cor$orate $lan The overall $lanning
a$$roach in AIBL is to$ to #ottom 0ach #ranch can $lan according to the goal im$osed #y the
cor$orate level It doesnt $lan inde$endently And, AIBL has a $lanning sector This de$artment
is mainly res$onsi#le for the overall $lanning
Or#ani@in#AIB is organi8ed as $er the e9isting #usiness locations It has fifty #ranches, each of :hich is a
se$arate entity 0ach unit is res$onsi#le for its o:n $erformance and each is headed at least #y a
*enior Assistant ;ice 1resident (*A;1) in designation follo:ed #y 'anager (O$erations) e is
directly res$onsi#le for the $erformance of their unit
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AIBL does not #elieve in the traditional #anking It tries to increase and maintain its market
share in the $rivate #anking sector through t:o ty$es of control techniEues&
• Feed For:ard /ontrol
• Feed#ack /ontrol
Feed#ack control techniEue monitor out$uts of a $rocess and feed into the system to o#tain
desired out$uts On the other hand feed for:ard control techniEue monitor in$uts into a $rocess
to ascertain :eather these are as $lanned or not If they are not, the in$uts are changed in order to
get the desired result
20. Distri7%tion of Branc/es:
AIBL started its :orking at "6"M 'oti?heel /DA :ith a Branch named 'oti?heel Branch on th
*e$tem#er, "5 :as the first C main Branch of AIBL and has #een o$erating throughout the
country The ead Office of the Bank :as situated at the same holding of 'oti?heel Branch since
its esta#lishment #ut from "" anuary, !! it has started its :orking at its o:n $remises >6,
ilkusha (6th, th, 4th C th floor), haka-"!!! The age of the Bank is only "" years and during
this short $eriod of time, the Bank has esta#lished total @6 Branches over the country and made a
smooth net:ork inside the country The num#er of Branches as ivision :ise is mentioned in the
follo:ing ta#le&
Di&ision No) of Branc/es
haka ivision @
/hittagong ivision ""
a?shahi ivision @
7hulna ivision @
*ylhet ivision 6
Barisal ivision "
Total 32
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,() AIBLs Pro"%cts an" Ser&ices:
Al-Arafah Islami Bank Limited is $roviding many $roduct and services to satisfy their customers For
that reason, AIBL has made significant $rogress in all areas of its o$erations :ithin a short $eriod of time,
such as de$osit mo#ili8ation, credit management, remittance handling and foreign e9change and trade
AIBL offers variety of $roducts and services to the customers :hich are $icked u$ #elo:&
a) General Banin#:
/urrent Account
*aving AD/
*T (*hort Term e$osit) AD/
Fi9ed e$osit Account
" 'onths Fi9ed e$osit
> 'onths Fi9ed e$osit
6 'onths Fi9ed e$osit " 'onths Fi9ed e$osit
Foreign /urrency AD/
7) 0orei#n E$c/an#e:
Letter of /redit Issue
Letter of /redit Advise
Foreign ocumentary Bill 1urchase (FB1)
Foreign ocumentary Bill /ollection (FB/)
Bill of .egotiation
Foreign emittance
c) Ser&ices of t/e Ban:
AT' /ard *ervice
Online Banking
Lookers *ervice
") Pro"%cts of AIBL:
/ash management
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Balance inEuiry
Funds transfer
o:nloading transaction information
Loan a$$lications
Investment activity
Other value-added services
(,) T/e Banin# S'stem in Ban#la"es/
The financial system of Bangladesh consists of Bangladesh Bank (BB) as the central #ank, @
nationali8ed commercial #anks (./B), 5 government o:ned s$eciali8ed #anks, >! domestic
$rivate #anks, "" foreign #anks (including Islamic Bank) and 4 non-#ank financial institutions
including " /entral #ank The financial system also em#races insurance com$anies, stock
e9changes and co-o$erative #anks The financial sector of Bangladesh is dominated #y the
commercial #ank A num#er of national, $rivate, foreign, s$eciali8ed commercial #ank and non-
#anking financial institutions having a net:ork of corres$ondents and #ranches are o$erating all
over the country and a#road to center to the $eo$le and #usiness of the country After the reform
$rogram, the financial institutions are more systematic and #orro:ing and lending through
formal markets is increasing A$art from normal commercial #anking, #anks are no: $roviding
consumer credit scheme, and financing in industrial credit and develo$ment $ro?ect 0lectronic
commerce gives the #anking industry a real com$etitive edge The #anking industry of our
country has started its ?ourney soon after the li#eration :ar in "" The early !s, immediately
after li#eration, #anking industry started its ?ourney :ithout any $artici$ation of the $rivate
sector in a very restrictive financial system In early 4!s fe: $rivet commercial #anks :ere
allo:ed to start functioning ue to lack of e9$erience and a#sence of su$ervisory as :ell as
controlling environment, "st generation $rivate #anks faced various $ro#lems in the ne9t fe:
years uring the late 4!s and early !s, :ith the $assage of Financial *ector eform $rogram,
Banking egulation *tructure suggested #y BI* and follo:ed #y develo$ed countries #egan to
start incor$oration into the #anking regulations of Bangladesh The follo:ing ta#le sho:s a fe:
sna$ shots that indicates a #rief history of the #anking industry of Bangladesh
,) *or6orate Information:
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.ame of the Bank Al Arafah Islami Bank Limited
/hairman Badiur ahman
;ice /hairman Alha?? 'ir Ahmad *o:dagar
'anaging irector ' A *amad *heikh
/om$any *ecretary 'd 'offa88al ossain
Legal *tatus 1rivate Limited /om$any
1rinci$al Activity /ommercial Banking
egistered Office 1eo$les Insurance Building >6, ilkusha /DA, haka-"!!!
(ate of egistration "4 une "5
"st Branch o$ening 'oti?heel #ranch, (haka
O$ening ceremony *e$tem#er "5)
Authori8ed /a$ital 5!!)!! million)
1aid u$ ca$ital ">4>)4" million
Local 1artnershi$ of /a$ital "!!J
0Euity !5)@ million
.um#er of Branches 5!
(e$osit 6!)"> million
Investment >)> million
.um#er of man$o:er "!4!
Number of shareholders 12013.
1hone 56445, 564", 56>5>, 564!!
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Fa9 44!--56>5"
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e$osit ""6@>66 "65>@ >!!"> 6!"
Investment ""@@@" "@>" !6> >
Im$ort "6>"6! "44"@ !@ >645">
09$ort @>! "@ ""@" !"66@
Total Income "@564 "@4 556" @>46
Total 09$enditure !@@4 "!" "@> 45"6
1rofit #efore Ta9 5@4! 455@ 56"4 "54!
1rofit after Ta9 6! @!! >@>" 664@
Income Ta9 "5"! >45@5 >55> 5!66
Total Assets "5>>64 ">64" >!"4> >"54@@
Fi9ed Assets !4!! "5"" >>@@4 >66
0arning $er share (Taka) >44! 55!@ >!" @4
1rofit 0arning atio @4
ividend $er share 6!!J >5J !J >!J
.o of *hareholders 5@! @@4 "!"> "!66@
.um#er of 0m$loyees " " "!>> "!4!
.um#er of Branches @" @6 @6 5!
'an$o:er $er Branch " ! >
a) Performance of AIBL at a #lance:
The overall $erformances of AIBL are $icked u$ as follo:s through gra$hical re$resentation
In Million Taa;
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2004 2005 2006 2007 2008
957.26 1220.16 1690.18 2037.5
2705.74
10108.311643.7
16775.3
23009.1
29690.12
8150.16
11474.4
17423.2
22906.4
29723.79
348.89 548.2 969.77 756.18 1528.1
*hareholders 0Euity e$osite Investment 1rofit #efore Ta9 C 1rovision
0i#: Performance of AIBL
,) Pro#ressi&e Anal'sis of AIBL:
At the end of current year, the num#er of de$ositors stood at @>,> and the amount of de$osit
has accumulated to Tk "65>> million The total num#ers of investors are ">"> and total
investment e9tended to them :as a sum of Tk "@>" million
The #ank has earned Tk "@4 million and incurred an e9$ense of Tk "!" million in the
current year At the end of the year the $rofit #efore ta9 has stood Tk 455@ million :hich is
4J more than Tk @4!! million $re-ta9 income of the last year
a) *a6ital
The Bank company act 1991 :hich $assed in 'arch, !!> includes a $rovision of raising the
ca$ital to a ne: level of Tk "!! core for the commercial #anks In com$liance :ith the ne:
$rovision, the #ank has raised its ca$ital from Tk @"54 core in the year !! to Tk 4556 core
in !!> #y issuing a right share against each of e9isting shares in the year !!> and declared
"6J #onus dividend from the $rofit of the year !!> The #ank again declared "5!J #onus
dividend from the $rofit !!@as a result, the $aid u$ ca$ital of the #ent stood at taka 6
million as at >"st ecem#er, !!5
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Bank declared 6!!J #onus dividend for the year !!5 As a result the $aid u$ ca$ital of the
#ank stood at taka 45@ million as at >"st ecem#er, !!6
7) Reser&e" 0%n"
The total #alance of the reserve fund stood at Tk 4>5@ million in the current year against Tk
5@ million com$ared to $revious year !!5 In this fund, the #ank e9$erienced a gro:th rate
of 5@"4Js
c) *a6ital A"e%ac'
The Bangladesh Bank has fi9ed the ratio of ca$ital adeEuacy against isk-!@ cores At >" ecem#er !!6, the ca$ital
adeEuacy ratio of the #ank is "!"J against ""J at the same $eriod of !!@
2004 2005 2006 2007 2008
12874.61 15336.8921368.16
30182.32
39158.44
Fig& Total Assets (In 'illion Taka)
") De6osit
The total de$osit of the #ank :as Tk "65>> at >"st ecem#er, !!6, of :hich #ank de$osit
:as Tk 6"" million and general de$osit :as Tk 4@>@! core At the same time in the last
year, the amount of total de$osits :as Tk "6"6>6" million taka At the same time in the last
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Deposit Mix
2004 2005 2006 2007 2008
7012.128013.25
10022.3311643.66
16775.33
1 2 3 4 5
Year
Amount
(Million
a!a)
Year
Mode wise Investment:
28"
16"3"1"
0"
0"0"
49"
#ai$Mura%&a
'ire$ur&ase*n+er
,&ir!atul Mel!
#ai$Mua--al
uar+
#ai$,alam
Mu+ara%a
Mus&ara!a
otal
year, the amount of total de$osit :as ""6@>66 million taka in this area the gro:th rate is
@@!J
Fig& e$osit 'i9
e) In&estment
At the end of year !!6, the amount of investment of the #ank :as Tk >4 core in
com$arison to Tk "@>" million in com$arison to tk""@@@" million of the last year
!!5The amount of investment has increased 5@44 million taka :ithin this $eriod, :hich is
around 5"4@J
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Sector wise Investment
25"
16"
4"2"3"1"
51"
/n+ustrial
ommerial
eal state
ransport
Ariulture
t&ers otal
Fig& 'ode
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Investment Mix
2004 2005 2006 2007 2008
6030.25 7045.8 7500.25
11474.41
17423.19
1 2 3 4 5
Year
Amount
in
(Million
Year
a!a)
Fig& Investment 'i9
#) International Tra"e
At the year of !!6, the #ank e9$erienced satisfactory gro:th in the foreign trade At the end of
!!5, the total amount of foreign trade Export, Import and Remittance; :as Tk "4!!"!
millionM :hich has increased at 6!"4J to reach Tk 4465!! million in !!6 The total e9$ort
of the #ank :as Tk@>! million in !!5, :hich has increased at 45>@J gro:th rate to reach
Tk "@! million in !!6, :hereas the national gro:th :as 45>@J during the same $eriod
*imilarly the amount of im$ort has increased from Tk "6>"6! million of !!5 to Tk "44"@!
million in !!6, e9$eriencing a gro:th rate of @4!J Last year the amount of remittance
through the #ank :as Tk @556! million, :hich gro:s to Tk !!! million in the current year
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2004 2005 2006 2007 2008
9337.49
12631.6
18821.4
27042.7
32685.1
3639.344932.9
9142.7
12714.9
20176.6
Total Import Total Export
Fig& Total Im$ort C 09$ort (In 'illion Taka)
/) In&estment Income
The total investment of the #ank :as Tk"@>! million at >" st ecem#er of !!6 The total
income generated from this investment is Tk "!"@! million>> :hich is 4!>J of the total
income At the corres$onding $eriod of !!, this income :as Tk 4> of the total income
m) Ris Mana#ement of AIBL
The risk of Al-Arafah Islami Bank limited is defined as the $ossi#ility of losses, financial or
other:ise The risk management of the Bank covers 5 (five) /ore risk Areas of #anking ie
/redit risk management, foreign e9change risk management, Assets Lia#ility 'anagement,
$revention of money laundering and esta#lishment of Internal /ontrol and /om$liance The
$rime o#?ective of the risk management is that the Bank takes :ell calculative #usiness risks
:hile safeguarding the BankGs ca$ital, its financial resources and $rofita#ility from various risks
In this conte9t, the Bank takes ste$s to im$lement the guidelines of Bangladesh Bank
The failure may result from un:illingness of the counter $arty of decline in hisDher financial
condition Therefore, BankGs credit risk management activities have #een designed to address all
these issues
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>) Economic Im6act Anal'sis of AIBL:
0conomic im$act can #e defined as any increase or decrease in $roductive $otential of an
economy By analy8ing the economic im$act :e can understand ho: a #ank adds value to the
society 0conomic im$acts can #e #roadly categori8ed as&
i) irect Im$act
ii) Indirect Im$act
a) Direct Im6act
irect im$acts are the immediate economic effects resulting from the #anks financial
transactions Banks direct contri#ution to the economy resulted in the creation of em$loyment
o$$ortunities, $ayment of ta9 to the government and ma9imi8ation of shareholders :ealth
7) In"irect Im6act
Indirect im$acts are the s$ill over economic effects that occur through Banks normal course of
o$erations Banks generate indirect im$act #y addressing the deficiency of ca$ital in the
economy #y mo#ili8ing de$osit and channeling the same to $ros$ective investors
Through catering financial services, the Bank hel$ed distri#ute the :ealth among all the
stakeholders for e9am$le shareholders received dividend, de$ositors and investors got $rofit,
em$loyees received com$ensation and other #enefits, the under $rivileged rea$ed #enefits out of
/* :hile the government government earned ta9 revenue
At the end of !!4, the Bank mo#ili8ed total de$osits of BT ,> million as investment to
different sectors of the economy A$art from these, the Bank $erformed significant im$ort and
e9$ort #usiness
D) 0%nctions of Al-Arafah Islami Bank Ltd
0%nctions of AIBL:
Islamic #anks render almost similar services to their customers conventional #anks do)
Like a conventional #ank, AIBL also acce$ts de$osits from customers and advances
loans) AIBL also acts as a custodian of its customers and $erforms all foreign
transactions on #ehalf of them) AIBL $erform mainly three different ty$es of functions)
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() General Banin# Acti&ities of AIBL:
2eneral Banking activities of AIBL are $erformed through the follo:ing areas&
E) 0orei#n E$c/an#e of Al.Arafa/ Islami Ban Lt")
0orei#n E$c/an#e De6artment of AIBL:
28
General Banking
ustomer
!elation
"esk#$
" Buildu$ relation:ith clients
Accounto$ening(o$erating;
/urrent AQ/
*aving AQ/
'*T
''**
'
'0> Account
/losing
@Issue cheEue #ook
51osting ofo$ening Cclosingaccounts
61ro$ermaintainingof 73/
form C
"is%atch
" 1rovidesdocumentssending :ithdate Cnum#er
eceivedocumentsfrom courier
> *endsdocuments
throughcourier
ash
" eceiving C $ayment ofcash
*ignatureverifying
> Accountschecking offundssufficiencyfor any
$ayment@ 'aintainingsharetransactions
5 1rovidingincome ta9certificate
6. *olvencycertificate.
learing
" /heEue receivesfor collection
/heEue, 1O,, TT receivefor transfer
> .ikashmaintaining, $rinting C co$yand validation $rint
@ LB/ issue C
receive5 OB/ issue C
receive6 IB/ADIBA
issue C receive 1re$aring salary
sheet4 Issue
e9$enditurevoucher
. ifferentstatementpreparation
or 'ea+
ustomer
!elation
"esk#&
'(on#
o%erating)
" Buildu$ relation 1rofit giving
voucher issue of F
@ emittance& 1ay Order
TT
1.
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Financial institutions es$ecially #anks $lay a very im$ortant role in foreign e9change transaction
of a country 'ainly transactions :ith overseas counties of im$orts, e9$orts and foreign
remittance are the main function of the Foreign 09change de$artment
Foreign e9change refers to the $rocess or mechanism #y :hich the currency of one country is
converted into the currency of another country Foreign e9change is the means and methods #y
:hich rights to :ealth in a countryGs currency are converted into rights to :ealth in another
countryGs currency Foreign 09change e$artment $lays significant roles through $roviding
different services for the customers O$ening or issuing letters of credit is one or the im$ortant
services $rovided #y the #anks
() O6enin# L* in AIBL:
There are several factors for :hat customers come to this #ank to o$en L/ The $rocedures,
techniEues, facilities, services and other factions for o$ening L/ are stated details as follo:s&
a) Letter of *re"it:
A letter of credit is a letter issued #y a #ank (kno:n as the o$ening or the issuing #ank) at the
instance of its customer (kno:n as the o$ener) addressed to a $erson (#eneficiary) undertaking
that the #ills dra:n #y the #eneficiary :ill #e duly honored #y it (o$ening #ank) $rovided certain
conditions mentioned in the letter have #een com$lied :ith
7) Parties of t/e LC*
Im$orter
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.egotiating Bank It is the #ank, :hich negotiates the #ill and $ays the amount
of the #eneficiary The advising #ank and the negotiating
#ank may or may not #e the same *ometimes it can also #e
confirming #ank
Acce$ting Bank It i s the #ank on :hich the #ill :ill #e dra:n (as $er
condition of the credit) %sually it is the issuing #ank
eim#ursing Bank It is the #ank, :hich :ould reim#urse the negotiating #ank
after getting $ayment instructions from issuing #ank
c. Issuing Bank
The Issuing Bank or the O$ening Bank is one :hich issues the credit ie undertakes,
inde$endent of the undertaking of the a$$licant& to make $ayment $rovided the terms and
conditions of the credit $rovides for sight $ayment, or at :ith The $ayment may #e at sight if the
credit $rovides for sight $ayment or at maturity dates if the credit $rovides for deferred $ayment
0s$ecially the issuing #ank should satisfy himself on the credit :orthiness of the a$$licant The
credit a$$lication must #e in accordance :ith the %niform /ustoms and $ractices for
ocumentary /redit (%/1/) L/ $u#lication no 5!! edition of ">
") A"&isin# Ban
The Advising Bank advises the credit to the #eneficiary authenticating the genuineness of the
credit The advising #ank is generally situated in the countryD$lace of the #eneficiary
e) *onfirmin# Ban
A confirming Bank is one :hich adds its guarantee to the credit o$ened #y another #ank, there#y,
undertaking the res$onsi#ility of $ayment D negotiation D acce$tance under the credit in addition
to that of the issuing #ank A confirming #ank normally docs so if reEuested #y the issuing #ank
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A .egotiating Bank is the hank nominated or authori8ed #y the issuing #ank to $ay, to incur a
deferred $ayment lia#ility, to acce$t drafts or to negotiate the credit
#) Reim7%rsin# Ban
A eim#ursing Bank is the #ank authori8ed to honor the reim#ursement claims in settlement of
negotiation D acce$tance D $ayment lodged :ith it #y the negotiating #ank or acce$ting #ank It is
normally the #ank :ith :hich the issuing #ank has account from :hich $ayment is to #e made
eim#ursement claims in foreign e9change #usiness settled #y the %niform ules for
eim#ursement (%)I// $u#lication no 55
,) Im6ort B%siness:
Im$ort trade in Bangladesh is controlled under the Im$ort and 09$ort control Act "5!
Authori8ed ealer Banks :ill im$ort the goods into Bangladesh follo:ing the im$ort $olicy,
$u#lic notice, F0 circular and other instructions from com$etent authorities from time to time
Im$ort $ayments during !!-!4 amounted to %*R "6!! million (>!J of 21) com$ared to
%*R ""5 million (5"!J of 21) in !!6-! sho:ing an increase of 6!J in !!-!4
com$ared to "6>!J increase in !!6-! The significant increase in the overall volume of
im$orts stemmed from im$orts of ca$ital goods, consumer C intermediate goods, and im$orts #y
01+s
T/e Year ise Im6ort as 0ollo!s:
Year ,22, ,22> ,221 ,223 ,224 ,225
Im$ort
Business
555 5"65" 64 >>@ "6>"6! "44"@!
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Fig& "" 1erformance of Im$ort Business
a) Process to O6en a LC*
If a $arty comes to o$en a L/ at this #ranch then the follo:ing reEuirement is reEuired-
a /urrent AD/
# egistration /ertificate DI/
c TI. D;AT certificate
d Insurance /over .ote
e Indeed D Invoice
f L/A(Letter of /redit Authori8ation) agreement form
g Foreign 09change egulation Act, "@ form (I'1)
Other $ayment of the $arty-
a Insurance cover note :ith $ayment order commission and vat
# 'argin (J of L/ value)
Then the #ank o$ens the L/ and sent to the #eneficiarys #ank In case of foreign L/, the
documents are sent through s:ift
Then the e9$orter or #eneficiary sent the goods and #eneficiary #ank sent document :hich
refers that the $arty has sent the goods
And this issuing #ank has to $ay to the #eneficiarys #ank For this the #ranch sent the
$ayment amount to the OI (ead Office International ivision) and the OI $ays this
amount through .O*TO AD/ of the #ank
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The du$licate co$y of the L/ needs to release the goods from the customs And the #ank
su$$lies this document to the $arty to release their goods from the custom
The #ank has to inform a#out the L/ and goods to the Bangladesh Bank in Foreign 09change
egulation Act, "@ form (I'1) And then the L/ is closed
*)6rose"iors Pre6are a LC*
To $re$are a LD/ the #ranch takes care on the follo:ing $oints&
LD/ .um#er 1lace and date of issue
ate and $lace of e9$iry *hi$ment date
1resentation $eriod A$$licant
Beneficiary Advising Bank
Amount Availa#ility
Tenure of the draft ocuments reEuired
1ayment %/1
Bill of lading Bill of 09change
1re-shi$ment Ins$ection ata content
*$ecial conditions Authenticity of the credit
1art-shi$ment and Trans shi$ment 1ort of shi$ment and $ort of destination
>) E$6ort B%siness:
The goods and services sold #y Bangladesh to foreign households, #usinessmen and 2overnment
are called e9$ort The e9$ort trade of the country is regulated #y the Im$orts and 09$orts
(control) Act, "5! There are a num#er of formalities, :hich an e9$orter has to fulfill #efore and
after shi$ment of goods The e9$orts from Bangladesh are su#?ect to e9$ort trade control
e9ercised #y the 'inistry Of /ommerce through /hief /ontroller of Im$orts and 09$orts (//I
C 0) .o e9$orter is allo:ed to e9$ort any commodity $ermissi#le for e9$ort from Bangladesh
unless he is registered :ith //I C 0 and holds valid 09$ort egistration /ertificate (0/) The
0/ is reEuired to #e rene:ed every year The 0/ num#er is to #e incor$orated on 0K1 forms
and other documents connected :ith e9$orts
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T/e Year ise E$6ort as 0ollo!s:
Fig& " 1erformance of 09$ort Business
a) Bac to Bac LC*:
A #ack to #ack mechanism involves t:o se$arate LD/ One is master e9$ort LD/ and another is
#ack to #ack LD/ On the strength of 'aster LD/, Bank issues Back to Back LD/ Back to Back
LD/ is commonly kno:n as Buying LD/ On the contrary, 'aster 09$ort LD/ is kno:n as
*elling
It is sim$ly issued to the clients against an im$ort LD/ Back-to-Back mechanism involves t:o
se$arate LD/ One is master 09$ort LD/ and another is Back-to-Back LD/ On the strength of 'aster 09$ort LD/ #ank issues #ank to Back LD/ Back-to-Back LD/ is commonly kno:n as
Buying LD/ On the contrary, 'aster 09$ort LD/ is kno:n as *elling LD/
0eat%res of Bac to Bac LC*:
An Im$ort LD/ to $rocure goods Dra: materials for further $rocessing
34
Year ,22, ,22> ,221 ,223 ,224 ,225
09$ort Business 5@6> "4@ >!55 3639.34 @>! "@!
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It is o$ened #ased on 09$ort LD/
It is a kind of 09$ort Finance
09$ort LD/ is at *ight #ut #ack to Back LD/ is at insurance
.o margin is reEuired to o$en Back to #ack LD/
A$$lication is registered :ith //IC0
A$$licant has #onded :arehouse license
LD/ value shall not e9ceed the admissi#le $ercentage of net FOB value of relative 'aster
LD/
Insurance $eriod :ill #e u$ to "4! days
The im$ort LD/ is o$ened for 5J of the value of 09$ort LD/
ere LD/ issued against the lien of e9$ort LD/
Arrangements are such that e9$ort LD/ matures first then out of this e9$ort $rofit, im$ort
LD/ is $aid out
(; Doc%ments Re%ire" for O6enin# a Bac.to.7ac LC*:
In Al-Arafah Islami Bank Ltd 1rinci$al Branch, follo:ing $a$ersD documents are reEuired for
o$ening a #ack-to-#ack LD/-
" 'aster LD/
;alid Im$ort egistration /ertificate (I/) and 09$ort egistration /ertificate (0/)
> LD/ A$$lication and L/AF duly filled in and signed
@ 1erforma Invoice or Indent
5 Insurance /over .ote :ith money recei$t
6 I'1 Form duly signed
In addition to the a#ove documents, the follo:ings are also reEuired to e9$ort oriented garment
industries :hile reEuesting for o$ening a #ack-to-#ack LD/
" Te9tile 1ermission
;alid Bonded
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If all the documents are in order then the #ank $urchase the documents *everal things
should #e checked at the time of $urchasing
o: much #ack-to-#ack and 1/ ($acking /redit) facility the client has taken
After taking all these charges, the rest amount is $aid to the client and a FB1 account is
o$ened
>; 0orei#n Doc%ments Bills for *ollection 0DB*;:
Al-Arafah Islami Bank Ltd for:ards the documents for collection due to the follo:ing reasons&
If the documents have discre$ancies
If the e9$orter is ne: client
The #anker is in dou#t
Foreign documentary #ills for collection signifies that the e9$orter :ill received $ayment only
:hen the issuing #ank gives $ayment The e9$orter su#mits du$licate 0K1 from and commercial
invoice su#seEuently
*. +oreign !emittance
Foreign remittance $lays a significant role in a #anking system though economy system of a
country Like other Al-Arafah Islami Bank Ltd also have a de$artment of foreign e9change
dealing 'ostly %* dollar, 0uro, British $ound and other remittances like Australian dollar,
/anadian dollar, 'alaysian ringgit and currencies of 'iddle 0ast have #een dealing here Other
Al-Arafah Islami Bank Ltd #uys and sells all regular kinds of foreign currencies though foreign
e9change de$artment is not availa#le in all the #ranches of Al-Arafah Islami Bank Ltd
a) O%t!ar" Remittance:
On 'arch @, "@ Bangladesh Taka :as declared converti#le for current international
transaction As a result remittance #ecomes more li#erali8ed Out:ard remittance include sale of Foreign /urrency #y TT, 'T, raft, T/ or in cash for $rivate, official and commercial $ur$ose
Tra&elers */e%e
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Travelers /heEue (T/) is an instrument for a s$ecific amount of :idely acce$ted foreign
currencies, issued in favor of TravelersD ;isitors to carry foreign e9change for meeting heir
e9$enses in a#road
TravelerGs cheEue may #e in different currencies, such as %* ollar, 1ound *tarling, a$anese
3en, *audi iyal, /anadian ollar, French Frank, 2erman 'arks, and *:iss Frank etc But
travelerGs cheEue is not issued in this #ranch
Iss%ance of O%t!ar" DD an" TT :
As may also issue , TT on their foreign corres$ondent favoring Bangladesh nationals or
foreign nationals as $er their entitlement But foreign TT and are not issued in this #ranch
7) In!ar" Remittance:
The term in:ard remittance includes not only $urchase of foreign currency #y TT, 'T, raft etc
#ut also $urchase of #ills, $urchase of T/ %tmost care should #e taken :hile $urchasing notes,
T/, and similar instrument for $rotecting the #ank from $ro#a#le loss as :ell as safety of the
#ank officials concerned But this ty$e of $urchase is not done in this #ranch
c) *ollection of 0orei#n *%rrenc' Instr%ment: 1rinci$al Branch collects foreign remittance
through the follo:ing instruments on #ehalf of their customer-
'oney 2ram
09$ress money
Instant cash
1lacid e9$ress
emit master
,) SOT ANALYSIS of AIBL
*
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Ban re6%tation AIBL has already esta#lished a favora#le re$utation in the #anking industry of
the country :ith its significant #usiness gro:th
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stage :hich needs to #e modified as soon as $ossi#le to com$ete in the market
c) OPPORTUNITIES
Go&ernment s%66ort
2overnment of Bangladesh has $rovided its full su$$ort to the #anking sector for a sound
financial status of the country, as it is #ecoming one of the vital sources of em$loyment in the
country no: *uch government concern :ill facilitate and su$$ort the long-term vision for Al-
Arafah Islami Bank
E&ol%tion of Online Banin#
0mergence of e-#anking :ill o$en more sco$e for Al-Arafah Islami Bank to reach the clients not
only in Bangladesh #ut also in the glo#al area It :ill also facilitate :ide area net:ork in #et:een the #uyer and the $roduction unit of Al-Arafah Islami Bank Ltd to smooth o$eration to
meet the desired need :ith least deviation
Di&ersification
AIBL can $ursue a diversification strategy in e9$anding its current line of #usiness The
management can consider o$tions of starting client service in its merchant #anking division
Pro"%ct line 6roliferation
In this com$etitive environment AIBL can e9$and its $roduct line to enhance its *ustaina#le
/om$etitive Advantage (*/A) As a $art of its $roduct line $roliferation, AIBL can concentrate
more on *'0 C Agro #ased industrial loan #ecause these t:o sectors have huge $otential
") T-REATS
M%ltinational Bans:
The emergence of the multinational #anks and their ra$id e9$ansion $oses a $otential threat to
the ne: 1/Bs ue to the #ooming energy sector, more foreign #anks are e9$ected to arrive in
Bangladesh 'oreover, the already e9isting foreign #anks such as *tandard /hartered are no:
$ursuing an aggressive #ranch e9$ansion strategy These #anks are esta#lishing more #ranches
country:ide and are e9$ected to get into for o$eration soon *ince the foreign #anks have
tremendous financial strength, it :ill $ose a threat to local #anks to a certain e9tent in terms of
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gra##ing the lucrative clients
U6comin# Bans:
The u$coming $rivate local #anks can also $ose a threat to the e9isting 1/B* It is e9$ected that
in the ne9t fe: years more local $rivate #anks may emerge If that ha$$ens the intensity of
com$etition :ill rise further and #anks :ill have to develo$ strategies to com$lete against an on
slaughter of foreign #anks
Mer#ers an" ac%isitions:
The :orld:ide trend of mergers and acEuisition in financial institutions is causing concentration
in $o:er in the industry and com$etitors are increasing in $o:er in their res$ective areas
*ontem6orar' Bans:
The contem$orary #anks of AIBL such as haka Bank, 1rime Bank, 0astern Bank and utch-
Bangla Bank are its ma?or rivals 1rime Bank and others are carrying out aggressive cam$aign to
attract lucrative cor$orate clients as :ell as #ig time de$ositors AIBL should remain :atchful
a#out the ste$s take #y these #anks as these :ill in turn affect AIBL strategies
Political Insta7ilit':
%nsta#le $olitical situations cause great distraction in the other:ise smooth flo: of #usiness
*udden artals and other $olitical $rograms sometimes $resent $ro#lems for the em$loyees (es$
female em$loyees) in commuting to and from the office 1olitical insta#ility also $romotes a
:eak la: and order system leading to an increase in crime rate in the society This might also #e
considered as a $otential e9ternal threat for a financial institution
G) En"in# Part of t/e Re6ort:
() 0in"in#s of t/e St%"':
*ome findings of Al-Arafah Islami Bank Limited, %ttara 'odel To:n Branch are given #elo:-
In Foreign 09change e$artment they follo: the traditional #anking system The entire
Foreign 09change $rocedures are not fully com$uteri8ed
*ervice $ersonnel are :orking under $ressure #ecause they have to deal :ith large num#er of
customer every day
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Technology that AIBL is using for their #anking system is not u$dated .o: there is some
international #ank in Bangladesh, they are very fast and very u$ dated
The Al-Arafah Islami #ank is too much centrali8ed For each and every :ork, #ranch office
has to get $ermission from the head office The head office tightly controls each and every
#ranch
Lack of information to get and sitting arrangement in the #ranch is a trou#le for the
customers
Advertising and $romotion are the :eak $oint of Al-Arafah Islami Bank Ltd AIBL does not
have any effective marketing activities Others #anks have #etters marketing strategy
Al-Arafah Islami Bank Ltd has less amount of foreign e9change #usiness com$are to other
Banks
Lack of com$etitiveness in $roduct and service innovation
,) Recommen"ations:
The fast $ace of gro:th in the Islamic financial sector and the emergence of conventional finance
com$anies offering Islamic $roducts and services has #rought critical attention to key issues
facing this sector *ome of the core issues identified after analy8ing this re$ort that Al-Arafah
Islami Bank Limited should give lots of attention in many sectors, :hich are given #elo:
Increased market trans$arency is needed to enhance credi#ility and increase consumer
confidence The a$$lication of relevant international accounting standards :ill enhance
trans$arency of Islamic financial institutions and the com$ara#ility of financial
statements At this stage, Islamic $roduct standards and accounting $ractices are not yet
acce$ted glo#ally
Increased education is needed to ensure that the *hariah standards are understood and
acce$ted across the industry #y regulators, international organi8ations, and the $rivate
sector
Foreign e9change de$artment should #e fully com$uteri8ed and reduce the $a$er #ased
:ork to make it more smooth and faster
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A ro#ust regulatory and su$ervisory frame:ork is necessary to maintain financial
sta#ility and gro:th of Islamic finance as a via#le, resilient, and sustaina#le sector The
uniEue characteristics of Islamic #anking o$erations and Islamic financial instruments
reEuire the develo$ment of a regulatory-su$ervisory frame:ork that adeEuately addresses
the reEuirements of this industry
The authority of AIBL should e9ert $ressure on 2overnment #odies to run $ro$er and
sufficient a$$lication of Islamic #anking la:s in Bangladesh
At the #eginning time of o$ening of Letter of /redit, every officer should check the
reEuired documents very carefully :hether there is any mistake or not
Inclusion of more su#?ects #ased on the Huran and *unnah in the Training courses of
the Islami Bank Training C esearch Academy in order to develo$ humanresources having morally
Arrangement of monthly DEuarterly training courses D:orksho$s for the clients should #e
selected #y the Branches in order to $romote Foreign 09change activities of the desired
level
To fulfill the vision of Smass #ankingS this Bank should $rovide more foreign e9change
and other sorts of facilities to ne: customersDne: entre$reneurs Dne: #usinessmenD ne:
com$anies etc
AIBL should give more em$hasi8e on their marketing effort and try to increase
their sales force
AIBL should try to attend different ty$e of target customers
AIBL should Introduce Islami e#it and /redit /ards as soon as $ossi#le
They should carryout more $romotional activities to make clients a:are a#out their
offers
It :as o#served that, AIBL is a#sent in T;, 1rint 'edia, Bill Boards, and
*$onsorshi$s etc The Bank should advertise a#out itself and its offers so that
it can attract more customers that :ill increase the #usiness volume of the #ank
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AIBL should give the highest attention on recovery of #ad things related to o$ening
L/ This concerns the :orst image of the Bank to the clients
AIBL should utili8e SInternshi$ 1rogramS as one kind of $romotion $olicy to encourage
its $resent and $otential customersDclients Because, young generations are the vital $ost of
our economy To do so this Bank should $rovides facilities to the internees through
$ro$er $lacement and $ractical o$erations as :ell as ?o# certainty to those :ho #ring
introduced themselves the #est $erformers in doing their $articulars
>) *oncl%sion:
The conce$t of Islami Banking is several decades old The third attem$t to esta#lish an Islamic
Financial Institution took $lace in 1akistan in the late "5!′s :ith the esta#lishment of a local
Islami Bank in a rural area (
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management are also #eing enhanced Foreign irect Investment e$artment :ill #e fully
com$uteri8ed soon
-) A66en"i$ Part:
() Bi7lio#ra6/'
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