Internship Report

On
Credit Disbursement System of Al-Arafah Islami Bank
Limited, Bangladesh

By

Fahmin Hassan
ID. NO.: 2010110001023
Program: MBA Regular Program

MASTER OF BUSINESS ADMINISTRATION

MAJOR IN FINANCE

School of Business Studies

SOUTHEAST UNIVERSITY, DHAKA, BANGLADESH

Date of submission: 14th May, 2015
 Internship Report
On
Credit Disbursement System of Al-Arafah Islami Bank
Limited, Bangladesh

An internship report submitted to the

School of Business Studies, Southeast University, Dhaka
in partial fulfillment of the requirements for the award of the degree of

Master of Business Administration

Major in Finance

By

Fahmin Hassan
ID. NO.: 2010110001023
Program: MBA Regular Program
School of Business Studies

Under the supervision

of

Dr. Talukder Golam Rabby

Assistant Professor
Department of Economics
School of Arts and Social Sciences
Southeast University
Dhaka, Bangladesh

ii
 The Internship entitled

Credit Disbursement System of Al-Arafah Islami Bank

Limited, Bangladesh
Submitted

By

Fahmin Hassan

ID. NO.: 2010110001023, a student of MBA Regular Program has been accepted as satisfactory
in partial fulfillment of the requirement for the degree of Master of Business Administration
major in Finance on May 14, 2015.

BOARD OF EXAMINERS

1. Name:_________________________________________ Convener
Designation:____________________________________
School of Business Studies
Southeast University

2. Dr. Talukder Golam Rabby Supervisor

Assistant Professor
Department of Economics,
School of Arts and Social Sciences
Southeast University

3. Name:_________________________________________ Member
Designation:____________________________________
School of Business Studies,
Southeast University

4. Name:_________________________________________ Member
Designation:____________________________________
School of Business Studies
Southeast University

iii
 Letter of Transmittal

Date: 14 May, 2015

To
Dr. Talukder Golam Rabby
Assistant Professor
Department of Economics
School of Arts and Social Sciences
Southeast University

Subject: Submission of internship/dissertation report on “Credit Disbursement System of Al-

Arafah Islami Bank Limited, Bangladesh.”

Dear Sir,
With due respect, I would like to state that, I, Fahmin Hassan, a student of MBA Regular
Program, ID: 2010110001023, of Southeast University have completed the internship report
paper based on the topic “Credit Disbursement System of Al-Arafah Islami Bank Limited,
Bangladesh”, as the partial requirement of the MBA program.

The preparation of this formal study paper is of a great expectation in our MBA program and I
am pleased enough to submit it applying all that I think should have to be included and which
should not be included. It was a great experience for me. The report has put on impression in my
mind that, all that matters is the efficient management of one’s time, skill, experience,
knowledge, and finally reality. If we were not asked to submit such paper we might remain
isolated from practical field. During the preparation of the report, we had to face some
difficulties that has been erased out with your propound help and assistance. Without your
cooperation and guideline, this report would have been an incomplete one insufficient one.

Finally, thank you for your supportive thought and kind consideration for formulating an idea
and developing the structure of the paper.

Thanking you,

Fahmin Hassan
I.D: 2010110001023
Major in Finance, MBA Regular Program
School of Business Studies

iv
 Letter of Endorsement

The Internship Report entitled “Credit Disbursement System of Al-Arafah Islami Bank
Limited” has been submitted to the office of the Dean in partial fulfillment of the requirements
for the degree of Master of Business Administration, Major in Finance, School of Business
Studies, Southeast University on May 14, 2015 by Fahmin Hassan, ID: 2010110001023. The
report has been accepted and may be presented to the Internship Defense Committee for
evaluation.
(Any opinions, suggestions made in this report are entirely that of the author of the report. The
University does not condone nor reject any of these opinions or suggestions)

Dr. Talukder Golam Rabby

Internship Supervisor

v
 CANDIDATE’S DECLARATION

I here by declared that this Internship Report or any part of it has not been submitted elsewhere
for the award of any degree or diploma.

Date: May 14, 2015 -----------------------------

Fahmin Hassan

vi
Dedications:

This work is dedicated

To
My parents

vii
 Acknowledgement

Completion of this report has made me grateful to a number of persons. First of all I would like
to acknowledge my supervisor and teacher Dr. Talukder Golam Rabby, not only for giving the
opportunity to prepare the report but also for providing me a lot of support to improve the report.
He was always available when I needed his help, suggestions and guidelines.

I am also grateful to Md. Mazharul Islam, Vice President, Head of Human Resources, Al-Arafah
Islami Bank Limited, for giving me the valuable opportunity to do my internship. At the same
time, I have to show my gratitude to the entire Team Banani Branch of Al-Arafah Islami Bank
Limited, as they had always been there for me when I needed them the most. Their active
participation to all my questions, queries during my internship has made this journey a true
success. Especially I want to thank my organizational supervisor Md. Moinuddin, First Assistant
Vice President, AIBL. I would like to name here Mr. Shamsul Karim (Senior Executive Officer),
& Md. Mahmood Hasan (Executive Officer). Thanks to all of them for providing valuable
suggestions and information to prepare this report. It was my privilege and I feel truly honored
working with such a wonderful team.

I am grateful to my parents who guided me through the entire studies and had helped me morally
and spiritually.

Fahmin Hassan
Date: May 14, 2015

viii
 Executive Summary

I have prepared my internship report based on successfully completed Internship Program at Al-
Arafah Islami Bank Limited, Banani Branch as a requirement of my MBA program in School of
Business, Southeast University. My topic is Credit Disbursement System of Al-Arafah Islami
Bank Limited. In this report I described about Islamic concept about investment (credit),
available products of AIBL, condition of investment of the bank, and how they manage their
investment money. To describe these things I presented necessary table, graphs and exact figure
of the money deployed in various sectors.

The first chapter shows different aspects of the report like a brief introduction, origin of the
report, statement of the Issue, objectives, significance, methodology, and limitations of the study.
Second chapter shows a brief company overview. In this section different important data about
Al-Arafah Islami Bank Limited is provided. Background, vision, mission, commitments, special
features, product line, organogram of AIBL and some other necessary company related
information is provided in this chapter.

The next chapter, chapter 3, is the most important chapter of this report. It describes the
investment management of AIBL. I have described how the bank allocates fund in different
investment portfolio to make profit. I have showed current investment position of the bank and
some previous records. I have also described the Shariah concept about investment of the bank.
There is a detailed description about the bank’s investment products, so that its managing
strategy could be understood more clearly.

Finally, in the last chapter, chapter 4, the conclusion has been made, followed by some of my
recommendations.

ix
 Table of Contents

Title Page ii
Board Of Examiners iii
Letter of Transmittal iv
Letter of Endorsement v
Candidate’s Declaration vi
Dedications vii
Acknowledgement viii
Executive Summary ix
Table of Contents x
List of Tables xi
List of Figures xii
Chapter 1: Introduction 1
1.1 Introduction 1
1.2 Motivation 1
1.3 Statement of the Problem 2
1.4 Objectives of the Study 2
1.5 Methodology of the Study 2
1.5.1 Type of Research 2
1.5.2 Data Collection Procedure 2
1.6 Limitations of the Study 4
Chapter 2: Company Overview 5
2.1 Background of AIBL 5
2.2 Vision 5
2.3 Mission 5
2.4 Commitments 6
2.5 Special Features of AIBL 6
2.6 Corporate Information 7
2.7 Corporate Culture 7
2.8 AIBL at a Glance 8
2.9 Financial Highlights of Last 5 Years of AIBL 9
2.10 Value Added Statement 10
2.10.1 Economic Value Added Statement 11
2.10.2 Market Value Added Statement 12
2.11 Credit Rating 12
2.12 Hierarchy of the Management Team 14
2.13 Organogram of an AIBL Branch 14
2.14 Internal Control & Compliance (ICC) Environment 15
2.15 Shariah Board of AIBL 16
2.15.1 Shariah Board 16
2.15.2 The Board’s Role 16
2.15.3 Important Duties of the Shariah Board 17
2.15.4 AIBL’s Library 17
2.15.5 Shariah Supervisors 18
2.15.6 Shariah Auditing 18

x
 2.16 Types of Internal and External Audit & Inspection 18
2.17 Correspondent Relationship 18
2.18 Products and Services Provided by AIBL 19
Chapter 3: Credit Disbursement System of AIBL 21
3.1 Investment of AIBL 21
3.2 Investment Growth 21
3.3 Sector-Wise Investment 22
3.4 Classified Investment Ratio 23
3.5 Micro, Small, & Medium Enterprises (MSME) Investment 24
3.6 Agricultural Investment 26
3.7 Special Schemes for Agricultural Development: Rural Agricultural Investment Scheme
(RAIS) 27
3.8 Investment for Growing Spices at a Lowest Profit Rate (4%) 27
3.9 Al-Arafah Khamerbari Investment Scheme 28
3.10 Investment on Women Entrepreneurs 28
3.11 Cottage & Micro Enterprises Investment 29
Bangladesh Bank Definition of Cottage & Micro Enterprise 29
3.12 Al-Arafah Solar Energy Investment Scheme 30
3.13 Modes of Investments of AIBL 31
3.13.1 Murabahah 31
3.13.2 Bai’ Muajjal (Credit Sale) 32
3.13.3 Bai’ Salam 32
Basic Features & Conditions of Salam: 32
3.13.4 Ijarah 33
Ijarah Thumma Al Bai’ (Hire Purchase) 34
Ijarah-Wal-Iqtina 34
3.14 Investment Processing of AIBL 34
3.14.1 Application Stage 35
3.14.2 Appraisal Stage 36
3.14.3 Sanction Stage 37
*Cash / Goods Security 37
3.14.4 Documentation Stage 38
3.14.5 Disbursement Stage 38
3.14.6 Monitoring & Recovery Stage 39
Chapter 4: Conclusions and Recommendations 40
4.1 Conclusions 40
4.2 Recommendations 41
Reference: 42

List of Tables

Table 2.1: Corporate Information 7

Table 2.2: AIBL's Financial Highlights of Last 5 Years 9
Table 2.3: Total Value Added 10

xi
Table 2.4: Credit Rating 13
Table 2.5: Hierarchy of the Management Team 14
Table 2.6: Organogram of an AIBL Branch 14
Table 2.7: Products & Services of AIBL 19
Table 2.8.1: Different Product Schemes of AIBL 20
Table 2.8.2: Different Product Schemes of AIBL 20
Table 3.1: Sector-Wise Investment 22
Table 3.2: Total MSME Investment 25
Table 3.3: The Achievement of 2014 ~ 2015 26
Table 3.4: Investment on Women Entrepreneurs 29
Table 3.5: Bangladesh Bank Definition of Cottage & Micro Enterprise 30
Table 3.6: GSIS Details of AIBL 30
Table 3.7: AIBL Solar Energy Investment Scheme 31

List of Figures

Figure 1.1: Sources of Data Collection 4

Figure 2.1: Distribution of Value Addition 10
Figure 2.2: Economic Value Addition 11
Figure 2.3: Market value of total equity 12
Figure 3.1: Annual Investment Growth 21
Figure 3.2: Percentage of Sector-Wise Investment 22
Figure 3.3: Percentage of Classified Investment Ration 23
Figure 3.4: MSME Portfolio of AIBL 25
Figure 3.5: Sector-Wise SME Development 25
Figure 3.6: Percentage of Sector-Wise Agricultural Investment 27

xii
 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 Islamic way of life as enshrined in the Holy Qur'an and the Sunnah.
Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in
accordance with the precepts of Islam. The establishment of Al-Arafah Islami Bank Limited on
18 June 1995 is the true reflection of this inner urge of its people, which started functioning with
effect from 27 September 1995. This Islamic banking is banking or banking activity that is
consistent with the principles of sharia and its practical application through the development of
Islamic economics. As such, a more correct term for 'Islamic banking' is 'Sharia compliant
finance'. Sharia prohibits acceptance of specific interest or fees for loans of money (known as
riba, or usury), whether the payment is fixed or floating. Investment in businesses that provide
goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam
("sinful and prohibited"). Although these prohibitions have been applied historically in varying
degrees in Muslim countries/communities to prevent unislamic practices, only in the late 20th
century were a number of Islamic banks formed to apply these principles to private or semi-
private commercial institutions within the Muslim community. Islamic banking commenced
operations in Bangladesh in 1983. There are 8 Islami Shariah based banks in Bangladesh and
they execute banking activities according to Islami Shariah based principles i.e. Profit-Loss
Sharing (PLS) mode.

1.2 Motivation

To complete MBA Program in School of Business, SouthEast University, a student requires

completing an Internship Program with an organization followed by writing a report. This report
is the fulfillment of the requirement for the evaluation process of the internship program. This
report titled “Credit Disbursement System of Al-Arafah Islami Bank Limited” is conducted on
the basis of my practical internship experience at Banani Branch of Al-Arafah Islami Bank

1
Limited. After consultation with my faculty supervisor Dr. Talukder Golam Rabby, Assistant
Professor, Department of Economics, School of Arts and Social Sciences, SouthEast University
and under the direction of my organizational supervisor Md. Moinuddin, First Assistant Vice
President, Banani Branch, Al-Arafah Islami Bank Limited, I have prepared this internship report
with the mentioned topic.

1.3 Statement of the Problem

This study focuses on the current credit disbursement system, strength and weaknesses of credit
disbursement strategy and future initiatives taken to improve the condition of Credit
Disbursement System of Al-Arafah Islami Bank Limited (AIBL).

1.4 Objectives of the Study

The objectives of the study are:

Ø To understand the credit disbursement system of Al-Arafah Islami Bank Limited,
Ø To provide some policy guidelines that would make the credit disbursement system of
AIBL more efficient.

1.5 Methodology of the Study

1.5.1 Type of Research

The study is exploratory in nature. It gives an insight and comprehensiveness of the

Credit Disbursement System. To collect and analyze the information for this report, I
have used both qualitative and quantitative research methods.

1.5.2 Data Collection Procedure

Different data and information are required to meet the goal of this report. Those data and
information were collected from various sources, such as, primary and secondary which
is showed below:

2
a) Primary Sources of Data

Primary source of data are known as the data, which are collected through
observation and direct contact. They are not derived from any other sources. The
primary data are the information collected during the internship period by the
observation and involvement. Most of the primary data are collected through the
following sources:

i. Day to day operation with staff of AIBL

ii. Direct dealings with the customer in the bank
iii. Personal involvements in the activities of bank
iv. Observations of the bank and its environment
v. Daily activities during internship

b) Secondary Sources of Data

The secondary data is one, which has already been collected by a source other than
present investigator. Secondary data include both raw data and published summaries.
Documentary secondary data include written material such as; books, journal articles,
newspapers as well as administrative and public records. These types of data are
collected through following ways:

i. Annual report of AIBL

ii. File study
iii. Brochure of AIBL
iv. Website of AIBL
v. Bank rate sheet
vi. Online Studies
vii. Different books and newspapers

3
 Sources

Primery
• Day to day operation with AIBL
Staff
• Direct dealings with customers
• Personal involvements with the
activities of the bank
• Observations of the bank and its
environment
• Daily activities during internship

Secorndery
• Annual report of AIBL
• File Study
• Brochure of AIBL
• Website of AIBL
• Bank rate sheet
• Online study
• Different books & Newspapers

Figure 1.1: Sources of Data Collection

1.6 Limitations of the Study

On the way of preparing this report, I have faced following problems that may be termed as the
limitations of the study:
v Bank’s policy of not disclosing some sensitive data and information for obvious reason
posed an obstacle to prepare more informative report.
v Personal limitations like inability to understand some official terms, office decorum etc.
created a few problems.
v The duration of completing internship program and preparing internship report was
inadequate. It was very difficult for me to understand an organization‘s environment and
collect information in such a short time.

4
 Chapter 2: Company Overview

2.1 Background of AIBL

Al Arafah Islami Bank Ltd was established (registered) as a private limited company on 18th
June 1995. The inaugural ceremony took place on 27 September 1995. A group of established,
dedicated, and pious personalities of Bangladesh are the architects and directors of the bank.
Among them a noted Islamic scholar, economist, writer and ex-bureaucrat of Bangladesh
Government, Mr., A.Z.M Shamsul Alam is the founder chairman of the bank. The authorized
capital of the Bank is Tk.15000.00 million and the paid up capital is Tk. 9,469.58 million (as per
their 2014 Annual Report). Renowned Islamic Scholars and pious businessmen of the country
are the sponsors of the Bank. Indigenous shareholders own 100% of paid up capital. The equity
of the bank is at Tk. 18,159.52 million (Annual Report, 2014), the manpower 2,649 and the
number of shareholders are 52,007. It has achieved a continuous profit and declared a good
dividend over the years. High quality customer service through the integration of modern
technology and new products is the tool of the bank to achieve success. The bank has a diverse
array of carefully tailored products and services to satisfy customer needs. The Bank is
committed to contribute significantly to the national economy. It has made a positive
contribution towards the socio economic development of the country with 119 throughout the
country.

2.2 Vision

• To be a pioneer in Islami Banking in Bangladesh and contribute significantly to the

growth of the national economy.

2.3 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.

5
 • Maintaining high standard of business ethics.
• Balanced growth.
• Steady & competitive return on shareholders' equity.
• Innovative banking at a competitive price.
• Attract and retain quality human resources.
• Extending competitive compensation packages to the employees.
• Firm commitment to the growth of national economy.
• Involving more in Micro and SME financing.

2.4 Commitments

• Ours is a customer focused modern Islamic Banking making sound and steady growth in
both mobilizing deposit and making quality Investment to keep our position as a leading
Islami Bank in Bangladesh.
• To deliver financial services with the touch of our heart to retail, small and medium scale
enterprises, as well as corporate clients through our branches across the country.
• Our business initiatives are designed to match the changing trade industrial needs of the
clients.

2.5 Special Features of AIBL

As an Islami bank, we are singular in every positive aspect. We provide a bunch of state-of-art
banking services within the wide bracket of Shariah. We are unique with our products, strict with
our principle and uncompromising with our honesty. Some of our special features that make us
notable in Islami banking sector are as follows:
• All activities of the bank are conducted according to Islamic Shariah where profit is
the legal alternative to interest.
• AIBL’s investment policy follows different modes approved by Islamic Shariah based
on Quran & Sunnah.
• The bank is committed towards establishing a welfare-oriented banking system to
meet the needs of low income and underprivileged class of people.
The Bank upholds the Islamic values of establishment of a justified economic system through

6
social emancipation and equitable distribution of wealth.

2.6 Corporate Information

Table 2.1: Corporate Information

Date of Registration 18th June 1995

Commencement of Operation 27th September 1995
1st Branch Motijheel Branch, Dhaka
Opening Ceremony 27 September, 1995
Authorized Capital 15,000.00 Million
Paid-up Capital 9,469.58 Million
Local Partnership of Capital
100%
Equity
Equity BDT 18,159.52 Million
Number of Branches 119
Deposit BDT 166,851.17 Million
Investment BDT 146,740.36 Million
Number of Employees 2,649
Number of Shareholders 52,007
Chairman Mr. Baduir Rahman
Managing Director Mr. Habibur Rahman
Web Address www.al-arafahbank.com
Head Office Address 36 Dilkusha (6-9 Floor) C/A, Dhaka 1000

2.7 Corporate Culture

Al-Arafah Islami bank is one of the most disciplined Banks with a distinctive corporate culture
based on Islami Shariah. Here they believe in shared meaning, shared understanding and shared
sense making. The people in this bank can see and understand events, activities, objects and
situation in a distinctive way. They mould their manners and etiquette, character individually to
suit the purpose of the Bank and the needs of the customers who are of paramount importance to
the bank. The people in the Bank see themselves as a tight knit team/family that believes in
working together for growth. The corporate culture has developed has not been imposed; it has
rather been achieved through their Corporate conduct.

7
 2.8 AIBL at a Glance

Islam provides us a complete lifestyle. Main objective of Islamic lifestyle is to be successful both
in our mortal and immortal life. Therefore in every aspect of our life we should follow the
doctrine of Al-Qur'an and lifestyle of Hazrat Muhammad (Sm.) for our supreme success. Islami
Banking System is becoming more and more attractive day by day to peoples irrespective of
nations, religious, colors and species. More than 300 Banks & financial institutions are serving
Islami banking throughout the world. At present in our country 8 full-fledged Islamic Banks are
working successfully. And other traditional banks have Islami Banking Wings conducting
Shariah based banking activities. Recent Development of Bangladesh Government Islamic
Investment Bond (BGIIB) is the milestone for Shariah based banking practices in Bangladesh.
Al-Arafah Islami Bank started its journey in 1995 with the said principles in mind and to
introduce a modern banking system based on Al-Qur’an and Sunnah.
A group of established, dedicated and pious personalities of Bangladesh are the architects and
directors of the Bank. Among them a noted Islamic scholar, economist, writer and ex-bureaucrat
of Bangladesh government Mr. A. Z. M Shamsul Alam is the founder chairman of the bank. His
progressive leadership and continuous inspiration provided a boost for the bank in getting a
foothold in the financial market of Bangladesh. A group of 20 dedicated and noted Islamic
personalities of Bangladesh are the member of Board of Directors of the bank. They are also
noted for their business acumen. Its authorized capital is Taka 15,000.00 Million and the paid-up
capital is Taka 9,469.58 Million. The equity of the bank stands at Tk. 18,159.52 Million (Annual
Report, 2014) the manpower 2,649 and 52,007 shareholders. It has achieved a continuous profit
and declared a good dividend over the years. High quality customer service through the
integration of modern technology and new products is the tool of the bank to achieve success.
The bank has a diverse array of carefully tailored products and services to satisfy customer
needs. The Bank is committed to contribute significantly to the national economy. It has made a
positive contribution towards the socio economic development of the country with 110 branches
of which 22 is AD throughout the country. Wisdom of the directors, Islamic bankers and the
wish of Almighty Allah make Al- Arafah Islami Bank Ltd. most modern and a leading bank in
Bangladesh.

8
2.9 Financial Highlights of Last 5 Years of AIBL
Table 2.2: AIBL's Financial Highlights of Last 5 Years

9
 2.10 Value Added Statement

Value added is a measure of wealth created by the Bank through various business activities. The
statement of value added shows the total wealth created and how it was distributed among
stakeholders, including the Government, employees and shareholders.

Table 2.3: Total Value Added

Figure 2.1: Distribution of Value Addition

10
 2.10.1 Economic Value Added Statement

Economic Value Added (EVA) indicates the true economic profit of the company. EVA is an
estimate of the amount by which earnings exceed or fall short of the required minimum return for
shareholders at comparable risk. EVA of the Bank stood at BDT 2,846.07 million as on 31
December 2014 as against that of BDT 1,738.49 million in 2013.

Economic Value Addition

BDT25,000.00

BDT20,000.00

BDT15,000.00

BDT10,000.00
Figure in Billion

BDT5,000.00

BDT0.00
ity

BDT5,000.00
qu

om

se

ax
E

en
nc

es
T
r 's

xp

n
l I

rg
te

tio
de

l E
ta

ha
ra

BDT10,000.00
ol

To

di
ta

po

l C
eh

Ad
To

ta
Co
ar

e
pi
Sh

lu
Ca

Va

BDT15,000.00
ic
om
on

BDT20,000.00
Ec

Shareholder's Capital Economic

Total Income Total Expense Coporate Tax
Equity Charges Value Addition
2014 BDT18,159.52 BDT22,211.79 BDT15,878.34 BDT2,161.64 BDT1,325.74 BDT2,846.07
2013 BDT16,091.17 BDT19,723.41 BDT14,774.85 BDT2,083.73 BDT1,126.34 BDT1,738.49

Figure 2.2: Economic Value Addition

11
 2.10.2 Market Value Added Statement

Market Value Added (MVA) is the difference between the equity market value of the company
and the book value of equity invested in that company. Market Value Added Statement indicates
how much wealth has been created for the capital providers in a particular period of time. A high
market value addition indicates that the company has created substantial wealth for the equity
holders

Figure 2.3: Market value of total equity

2.11 Credit Rating

Credit Rating Agency of Bangladesh (CRAB) Limited has adjudged AA 3 (pronounced Double
A Three) rating in the Long Term and ST-2 rating in the Short Term for Al-Arafah Islami Bank
Limited.

12
 Table 2.4: Credit Rating

Based on Audited Financial Statement 2013

Date of Rating 31st December, 2013
Validity 30th June, 2015
Outlook Positive

Definitions of AA3 & ST-2 are given below:

AA3 (very Strong Capacity & Very High Quality): Commercial Banks rated in this category
have very strong capacity to meet their financial commitments. They differ from the highest-
rated commercial banks only to a small degree. This level of rating is adjudged to be of very high
quality and is subject to very low credit risk.
ST-2 (High Grade): Commercial Banks rated in this category are considered to have strong
capacity for timely repayment. Commercial Banks rated in this category are characterized with
commendable position in terms of liquidity, internal fund generation and access to alternative
sources of funds.

13
2.12 Hierarchy of the Management Team
Table 2.5: Hierarchy of the Management Team

Managing Director

Deputy Manaing Director

Executivr Vice President

Senior Vice President

Vice President

Assistant Vice President

2.13 Organogram of an AIBL Branch

Table 2.6: Organogram of an AIBL Branch

Branch Manager

Second Officer

Senior Officer

Officer

Junior Officer

Assistant Officer

Messenger

14
 2.14 Internal Control & Compliance (ICC) Environment

The internal control environment is the framework, under which internal controls are developed,
implemented and monitored. The main components, which together comprise the control
environment, are:

(a) Board of Directors: One of the responsibilities of the Board of Directors is the financial
stewardship. Financial stewardship involves the directors being the guardians of the Bank's
assets and being predisposed to act in the shareholders/stakeholders best interests. The Board is
actively concerned with sound corporate governance, risk management and that understands and
diligently discharges its responsibilities by ensuring that the bank is appropriately and effectively
managed and controlled; to fulfill the oversight responsibilities of the Board including
implementation of the objectives, strategies and overall business plans for effective functioning
of the bank, the Board shall have the following Committees: (a) Executive Committee, (b) Audit
Committee & (c) Risk Management Committee. All the above committees are also the element
of Internal Control of the bank

(b) Board Audit Committee: The Audit Committee has particular responsibility to evaluate the
adequacy and appropriateness of internal control, internal audit and risk management, evaluate
compliance with laws and regulations etc.

(c) Management: Management actively manages and operates the bank in a sound and prudent
manner as per policy & guidelines of Board of Directors and regulatory authorities.

(d) Shariah Supervisory Committee: To ensure whether the Shariah Principles are followed in
all the transactions & procedures of any activities.

(e) All the Zonal/ Divisional/ Departmental Heads/ Branch Managers & Executive/ Officials
have to play a few roles in implementing Internal Control & Compliance of the Bank.

(f) Independent Internal Audit Mechanism: Independent Internal & External Audit have
scope of providing bias free reports to the competent authority, so that the authority can maintain
integrity standard of its financial operation and goal of the bank can be achieved in long run.

15
(g) Standard Policy/ guidelines on Risk Management & all the important aspects of the bank,
well designed Organizational Structure, Concurrent Audit, Auto Information/ Whistle Blowing
System, healthier use of Information Communication & Technology (ICT), well designed
Management Information System (MIS) etc. also ensure the smooth Internal Control &
Compliance of the bank.

2.15 Shariah Board of AIBL

2.15.1 Shariah Board

Scholars of high repute with extensive experience in law, economics and banking systems and
specializing in law and finance as prescribed by Islamic Shariah make up the AIBL's Fatwa &
Shariah Supervision Board. The bank’s Board of Directors appoints the Board. The Shariah
Board supervises the development and creation of innovative Shariah-compliant investment and
financing products and services. The Board is empowered to issue fatwas on any matter
proposed to it by different business units of the bank. The Shariah auditors ensure that all the
transactions are carried out in strict compliance to Islamic principles of banking. This framework
along with a stringent compliance to rules has made AIBL the pioneering organization to
practice Islamic finance in true letter and spirit. The name AIBL has come to signify innovation,
financial dynamism, leadership and above all a complete assurance that all the transactions are
free from riba (interest).

2.15.2 The Board’s Role

The Fatwa & Shariah Supervision Board oversees the application of different aspects of Shariah
in the Bank. It also ensures that all transactions are in strict compliance with the right of
contradicting (fatwa) any violating procedures, if found. The Board of Directors is obligated to
obey the fatwas, irrespective of whether a unanimous or a majority consensus secured the
decision.

Board meetings are held periodically or whenever the need arises. The rights of the Board are
enshrined in Article Seven o the Bank's Memorandum & Articles of Association (Clauses).

16
 2.15.3 Important Duties of the Shariah Board

Ø As an expert source on Islamic Principles (Including Fatwas), the Board through a

representative, usually the General Secretary of the Board, supervises the Shariah
compliance of all the transactions in the Bank.
Ø To devote time and effort to devising more Shariah -compliant transactional procedures,
templates and banking products that enable the Bank to adapt to market trends while
maintaining a high competitive edge in deposit procedures, investments, and banking
services. At the same time, the Board gives its opinion on proposed new templates, and
banking transactions.
Ø Analyzing unprecedented situations that are not covered by fatwa, in the Bank's
transactional procedures or those reported by different departments, branches and even
the customers. This is to ensure Shariah compliance before the Bank develops any new
products or implements any new procedure.
Ø Analyzing contracts and agreements concerning the Bank's transactions, as submitted by
the Chairman of the Board of Directors or any department/branch within the bank or
requested by the Board itself so that Shariah compliance can be evaluated and
maintained.
Ø Ensuring Shariah compliance in the implementation of all banking transactions and
correcting any breaches.
Ø Analyzing administrative decisions, issues and matters that require the Board's approval.
Ø Supervising Shariah training programs for the Bank's staff.
Ø Preparing an annual report in the Bank's balance sheet with respect to its Shariah
compliance.
Ø The Fatwa & Shariah Supervision Board submits a complete annual report for the Board
of Director, summarizing all the issues referred to the Board, as well as its opinion on the
Bank's transactional procedures.

2.15.4 AIBL’s Library

The AIBL's library houses a vast collection of more than 4,000 books on Islamic Fiqh, law,
economy, banking and Shariah, The library was primarily established with the aim of serving the

17
Fatwa & Shariah Supervision Board's research team and the AIBL staff. The facility is also
accessible to the bank’s customers, researchers and students of higher education.

2.15.5 Shariah Supervisors

The Bank's Memorandum & Articles of Association requires the Board of Directors to appoint a
Shariah Supervisor, responsible for monitoring all the Bank's transactional procedures and
assuring Shariah compliance.

Also the General Secretary of the Fatwa & Shariah Supervision Board, the Shariah Supervisor
handles queries about the Bank's administration from staff members, shareholders, depositors
and customers, liaises with the Shariah auditors and provides them with guidance. He submits
reports and suggestions to the Fatwa & Shariah Supervision Board and to the Chairman of the
Board of Directors. The position also calls for participation in the Bank's training programs.

2.15.6 Shariah Auditing

The supervisory function forms a part of the Shariah Supervision procedures, its main task being
to check Shariah compliance under the guidance of the Shariah Supervisor.

The auditors continuously review the Bank's transactional procedures to ensure adherence to the
framework created by the Fatwa & Shariah Supervision Board. The Shariah auditors submit
periodic reports to the Shariah Supervisor so as to monitor and maintain Shariah compliance.

2.16 Types of Internal and External Audit & Inspection

Risk Based Comprehensive Internal Audit Inspection, Quarterly Foreign Exchange & Investment
Audit, Core Risk Management (CRM) System Inspection, Surprise Inspection, Special
Inspection, Shariah Audit, Management Audit, Concurrent Audit, External Audit,
Regulatory/Bangladesh Bank Inspection etc. are carried out effectively and efficiently.

2.17 Correspondent Relationship

The Bank has continued efforts and endeavor to develop relationship with foreign

18
correspondents worldwide to facilitate the International Trade operation of the Bank. As on 31st
December 2013, the number of foreign correspondents is 298 Banks in 52 countries and number
of Nostro accounts with foreign correspondent banks stood 26 (twenty six) in 5 major
international currencies. The bank also enjoys substantial credit lines from the correspondent
banks for adding confirmation to letter of credit as and when needed which is facilitating our
international trade.

2.18 Products and Services Provided by AIBL

Table 2.7: Products & Services of AIBL

19
 Table 2.8.1: Different Product Schemes of AIBL

• Al Wadiah Current Deposit (CD)

• Mudaraba Short Notice Deposit (SND)
• Mudaraba Savings Deposit (MSD)
• Mudaraba Term Deposit (MTDR)
• Monthly Profit Based Term Deposit (PTD)
• Monthly Installment Based Term Deposit (ITD)
• Al-Arafah Monthly Hajj Deposit (MHD)
• Al-Arafah Termed Hajj Deposit (THD)

Deposit
• Monthly Installment Based Marriage Savings Investment Scheme (MIS)
• Al-Arafah Savings Bond (ASB)
• Foreign Currency Deposit (FCD)
• Pension Deposit Scheme (PDS)
• Cash Waqf Deposit Scheme (CWD)
• Mudaraba Lakhpoti Deposit Scheme (LDS)
• Mudaraba Millionaire Deposit Scheme (MDS)
• Mudaraba (Special) Pension Deposit Scheme (MSPDS)
• Mudaraba Kotipoti Deposit Scheme (MKDS)
• Mudaraba Double Benefit Deposit Scheme (MDBDS)

Table 2.8.2: Different Product Schemes of AIBL

• Investment in Agricultural Sector

• Investment in Industrial Sector
• Investment in Business Sector
• Investment in Foreign Trade
• Investment in Construction and Housing
• Investment in Transportation Sector
• Hire Purchase (HPSM)
Investment • Investment Schemes in Masque and Madrasa (MMIS)
• Village and Small Investment Schemes (GSIS)
• Small Enterprise Investment Schemes (SEIS)
• Consumer Investment Schemes (CIS)

• Import
Foreign • Export

Trade • Remittance

20
 Chapter 3: Credit Disbursement System of AIBL

3.1 Investment of AIBL

The investment of the Bank stood at Tk. 146,740.36 million as on 31st December 2014 as
against Tk. 125,715.39 million in the previous year showing an increase by 16.72%. The
investment portfolio of the Bank is well diversified and covers a broad spectrum of businesses
and industries including readymade garments, textile, edible oil, ship scraping, steel &
engineering, chemicals, pharmaceuticals, cement, telecommunication, construction, health
care, real estate, education, transport and investment under consumer schemes. The bank have
geared up efforts to improve the recovery rate of disbursed investment and also taken
adequate measures for converting the classified investment into performing assets. As a result,
classified investment of the bank could be kept at a low level of 4.50%, far below the national
average. The bank gives top-most priority to the creation of quality assets and does appropriate
risk grading while approving commercial, trade and project investment to different clients.

3.2 Investment Growth

Annual Investment (in Million Taka)

1,46,740.36
1,06,650.42 1,25,715.39
77,714.95
36,134.08 53,582.96

2009
2010
2011
2012
2013
2014

Figure 3.1: Annual Investment Growth

21
Figure 3.1 shows the investment growth of AIBL from 2009 to 2014. We can see that the
investment of AIBL is increasing every year. In 2014 the amount of investment was is Tk.
146,740.36 million, which was much higher than 2009’s Tk. 36,134.08 million.

3.3 Sector-Wise Investment

Table 3.1: Sector-Wise Investment

Sector-Wise Investment 2014

Sectors Taka in million
Agriculture, Fishing and Forestry 1,970.16
Industry 61,743.00
Construction 7,175.90
Water works and Sanitary Service 6,701.60
Transport & Communication 8,411.10
Storage 1,032.50
Trade Finance 59,246.92
Miscellaneous 14,192.49
Total (Including Profit Receivable) 160,464.67
Less Unearned Profit on Investment 13,724.37
Total 146,740.36
Miscellaneous, Agriculture,
8.84% Fishing &
Forestry, 1.23%

Industry, 38.48%

Trade Finance,
36.92%

Construction,
Transport & Storage, 0.64% Water Works 4.47%
Communications, & Sanitary
5.24% Services,
4.18%
Figure 3.2: Percentage of Sector-Wise Investment

22
The above chart shows sector wise investment of AIBL for the year 2014. We can see that
highest amount of investment was made on Industry sector as AIBL always encourages industry
basis entrepreneurs to do business with AIBL. 38.48% of the investment was made to this
sector. Second highest investment was made to Trade Finance. About 36.92% of the total
amount was invested to Trade Financing sector.

3.4 Classified Investment Ratio

Any bank investment that is in danger of default is classified investment. Classified investments
have unpaid interest and principal outstanding, and it is unclear whether the bank will be able
to recoup the investment proceeds from the borrower. Banks usually categorize such
investments as adversely classified assets on their books.

In the year 2014 bank's classified investment ratio of AIBL increased to 4.50%, which was to
2.77% in the previous year. In the year 2014 AIBL’s target is below 2.77%.

Percentage of Classified Investment

Ratio
4.50%

2.77%

1.63%
1.14%
0.95%

2010 2011 2012 2013 2014

Figure 3.3: Percentage of Classified Investment Ration

23
 3.5 Micro, Small, & Medium Enterprises (MSME) Investment

Micro, Small, & Medium Enterprise (MSME) play a pivotal role in the economic growth and
development of a country. MSME works as the platform for job creation, income generation,
and development of forward and backward industrial linkages. MSMEs occupied a unique
position in the economy of Bangladesh. Micro, Small and medium enterprises (MSMEs) make
up the largest portion of the employment base in many developing countries and, indeed, are
often the foundation of the local private sector. Now the MSMEs are not only concentrated to
low-tech, traditional, and agro-based economic activities; these are spread over other non-
traditional manufacturing and service sector as well. To achieve high and sustained economic
growth, a triggering force is mandatory to exit from endemic poverty and socio-economic
deprivation.

MSMEs constitute the dominant source of industrial employment in Bangladesh (80%), and
about 90% of the industrial units fall into this category. The actual performance of MSMEs,
however, varies depending on the relative economic efficiency, the macroeconomic policy
environment and the specific promotion policies pursued for their benefit.

To ensure proper manifestation and rapid advancement of Micro, Small & Medium Enterprises,
a number of schemes are running in this bank. In the light of a unique definition of Bangladesh
Bank, the bank is giving a priority over financing to three categories of enterprises viz. Industry,
Trade & Services. As on 31 December 2014, total SME investment portfolio is Tk. 86,277
Million, which is 50.47% of Total Investment portfolio. Among them Tk. 36,827.2 Million is
under Small Enterprises and Tk. 49,449.8 Million is under Medium Enterprises. The Bank priors
service and manufacturing along with Area Approach Method when SME financing.

The report as on 31st December 2014 is shown in the table:

24
 Table 3.2: Total MSME Investment

Total Investment To MSME Investment (In Million)

Description 2012 2013 2014
Total SME Portfolio 24,095.7 68,913.6 86,277.0
% of SME Portfolio to Total Portfolio 22.59% 54.81% 50.47%
Target of SME Investment 16,000 20,000 35,000
Total SME Disbursement 16,284.6 28,592.8 39,666.2
% of Achievement 101.78% 142.96% 113.33%
Number of SME Clients 26,550 38,910 50,640
SE Collateral Free Investment 489.8 582.5 628.3

MSME Portfoilo of AIBL

Figure in Million

8,450.00 68,913.60 86,277.00

9,870.00
11,360.00 12,750.00
15,886.40 17,370.90
2007 2008
2009 2010
2011
2012
2013
2014

Figure 3.4: MSME Portfolio of AIBL

Sector-Wise SME Development

23%
4%

73% Industry
Service
Trade

Figure 3.5: Sector-Wise SME Development

In SME sector, our collateral free schemes are: Small Enterprise Investment Scheme (SEIS) &
Small Enterprise Financing Festival (SEF-Festival). Those are running in all 119 Branches. Skilled
and experienced staffs are recruited in the concerned branches to ensure proper expansion of

25
collateral security free SEIS & SEF-Festival investment.

3.6 Agricultural Investment

Agricultural Investment is dealt by Agricultural Department functioning under the control of

MSME Investment Division. To face the increasing food shortage of the country, the bank is
paying massive attention to invest on agricultural sectors. The main items of agricultural sectors
are: crops, fisheries, warehouse, poverty alleviation, irrigation, livestock development etc. At
the end of December 2014, total agricultural investment portfolio is Tk. 2,116.1 Million for the
fiscal year 2014-2015. With collateral and without collateral both are practiced in agricultural
investment.

Table 3.3: The Achievement of 2014 ~ 2015

The Achievement of 2014 ~ 2015 is as Follows:1

Current Fiscal Year
1) Short Term Loan Accumulated Outstanding
Disbursement
a) Crops 73.8 329.4
b) Fisheries 62.9 185.2
c) Crop Storage 42.6 158.2
d) Poverty Alleviation 349.2 324.5
e) Others 93.1 358.7
Sub Total = (a+b+c+d+e) 621.6 1,356.0
2) Term Loan
a) Irrigation Tools 24.6 111.0
b) Livestock
178.8 163.5
Development
c) Fisheries 391.2 144.6
d) Agricultural Tools 20.3 27.5
e) Others 27.2 313.5
Sub Total = (a+b+c+d+e) 642.1 760.1
Grand Total 1,263.7 2,116.1

1 In million

26
 Sector-Wise Agricultural Investment
2014 ~ 2015
16% 23% Livestock
11% Crop
10%
Fisheries
15%
25% Poverty Alleviation
Warehouse of Crops
Others

Figure 3.6: Percentage of Sector-Wise Agricultural Investment

To promote agricultural sectors properly, our collateral free agricultural schemes are: Rural
Agricultural Investment Scheme (RAIS) & Khamerbari Investment Scheme. Those schemes are
running in all rural Branches. Skilled and experienced staffs are recruited in the concerned
branches to ensure proper development of marginal farmers.

3.7 Special Schemes for Agricultural Development: Rural Agricultural

Investment Scheme (RAIS)

On the basis of socio-economic development of marginal and lessee farmers, this agricultural
based program named 'Rural Agricultural Investment Scheme (RAIS)' is running in this Bank.
Development of country's internal food production as well as socio-economic sectors of farmers
is the main focus here. AIBL has already listed 2,325 farmers under this scheme and total
investment is Tk. 291.6 Million of which outstanding is Tk. 100.4 Million.

3.8 Investment for Growing Spices at a Lowest Profit Rate (4%)

As per instruction of Bangladesh Bank, and to increase the production of different types of spices
like Pulse, Oil-seed, Spice and Maize, we started investment at a lowest rate of profit (only 4%)
to the marginal farmers.

27
 3.9 Al-Arafah Khamerbari Investment Scheme

To make a priority to invest in the crop sector of Bangladesh, AIBL has launched the product
named: "Al-Arafah Khamerbari Investment Scheme (Khamerbari)". With this product, AIBL
works for farmer's community surrounding the Branch. The field officials motivate farmers to
grow the potential corps based on their previous farming experience. This scheme is an
innovative action to develop the crop sector of Bangladesh. AIBL has disbursed Tk. 23.5 Million
investment among 885 farmers under this scheme so far.

3.10 Investment on Women Entrepreneurs

About 50% of the populations of Bangladesh are women. Women participation in the
mainstream of economic activities especially in the productive sectors is crucial for attaining
sustainable economic growth, poverty reduction and women's empowerment. But women
participation in economic sector is inadequate and the number of women entrepreneurs is very
low compared to that of their male counterparts. In fact, there exist many obstacles in women
participation in the mainstream of economic activity although the degree of integrity, devotion,
creativity and expertise of women make us surprised. Especially women participation in
microcredit programs and readymade garments industry is contributing significantly to the
country's industrialization. Similarly, participation of women entrepreneurs in SME sector is
vital for the flourishing of Bangladesh economy and enhancing women empowerment.

Al-Arafah Islami Bank Ltd. is working with women entrepreneurs to make them capable of
earning by connecting with country's economic activities. AIBL gives priority to women
entrepreneurs to invest on various productive sectors. Aside from collateral secured investment,
collateral security free investment is also considered in the question of women development.

The report as on 31st December 2014 is shown in the table: -

28
 Table 3.4: Investment on Women Entrepreneurs2

Description 2013 2014

Total SME Portfolio in
5,802.3 6,532.3
Women Entrepreneurs
% of SME Portfolio to
8.42% 8.57%
Women Portfolio
Target to SME Investment
1,100 1,500
in Women Entrepreneurs
Amount of Disbursement to
1,021.6 1,542.4
Women Entrepreneurs
% of Achievement 92.87% 101.69%

3.11 Cottage & Micro Enterprises Investment

Cottage & Micro Enterprises make up the largest portion of the employment base in many
developing countries and, indeed, are often the foundation of the local private sector. Now
those enterprises are not only concentrated to low-tech, traditional, and agro-based economic
activities; these are spread over other non- traditional manufacturing and service sector as well.
To achieve high and sustained economic growth, a triggering force is mandatory to exit from
endemic poverty and socio-economic deprivation.

Bangladesh Bank Definition of Cottage & Micro Enterprise

As per Bangladesh Bank SMESPD Instruction Circular No. 1, dated: 19th June 2011, Cottage and
Micro Enterprises are being defined as follows:

2 In Million Taka

29
 Table 3.5: Bangladesh Bank Definition of Cottage & Micro Enterprise

Fixed Assets Value

in Taka Excluding And / or Total
Attributes under the
Land & Building Number of
Categories
(Including Employees
Replacement Cost)
Manufacturing Less than 5 Lac Less than 10
Cottage Industry /
Service Less than 5 Lac Less than 10
Enterprise
Trade Less than 5 Lac Less than 10
Manufacturing 5 Lac ~ 50 Lac 10 ~ 24
Micro Industry /
Service Less than 5 Lac Less than 10
Enterprise
Trade Less than 5 Lac Less than 10

According to the Bangladesh Bank definition and in supporting to the cottage and micro
enterprise sectors in Bangladesh, the bank has launched two important schemes named:
Grameen Small Investment Scheme (GSIS), running for 15 years, and Micro Enterprise
Investment Scheme (MEIS), which is running for 5 years.

The statistics as on 31st December 2014 is shown in the table: -

Table 3.6: GSIS Details of AIBL

Accumulated Disbursement Tk. 2,315 Million

Latest Portfolio TK. 404.8 Million
Number of Villages Covered 2,072
Number of Clients 39,052 Persons
Savings by The Clients Tk. 220.4 Million
Recovery Rate 99.98%

3.12 Al-Arafah Solar Energy Investment Scheme

A Pioneer investment scheme named 'Al-Arafah Solar Energy Investment Scheme' is launched in
order to spread the benefits of renewable energy among the rural people. This program treats
as an innovative step on the history of Private Banking Sector in Bangladesh. Actually, solar
energy is a renewable, efficient, and non-polluting energy source. Homeowners, who install
solar systems, are helping to reduce the emission of green house gases, which have a direct

30
relation to global warming. This scheme also has unveiled the wide field of Green Banking
concept, the burning issue.

'Solar Energy Investment Scheme' is running under the control of SME Investment Division.
Skilled Electric Engineers & Solar Technicians are recruited in order to ensure the perfect
technical support.

AIBL has already established 3,05,135 Watt Peak of electricity among 6,311 families through 27
Rural Branches so far. The bank is running this program with own funding as well as permanent
skilled personnel.

The report as on 31st December 2014 is shown in the table: -

Table 3.7: AIBL Solar Energy Investment Scheme

Accumulated Disbursement Tk. 190.7 Million

Portfolio Tk. 56.6 Million
Electricity Provided 305,135 Watt Peak
Number of Privileged Family 6,311
Number of Branches under the Scheme 27
Recovery Rate 100%

3.13 Modes of Investments of AIBL

When money is deposited in the AIBL, the bank, in turn, makes investments in different forms
approved by the Islamic Shariah with the intention to earn a profit. Not only a bank, but also an
individual or organization can use Islamic modes of investment to earn profits for wealth
maximization. Some popular modes of investment of AIBL’s are discussed below:

3.13.1 Murabahah
This concept refers to the sale of goods at a price. This includes a profit margin agreed to by both
parties. The purchase and selling price, other costs, and the profit margin must be clearly stated
at the time of the sale agreement. The bank is compensated for the time value of its money in the

31
form of the profit margin. This is a fixed-income loan for the purchase of a real asset (such as
real estate or a vehicle), with a fixed rate of profit determined by the profit margin. The bank is
not compensated for the time value of money outside of the contracted term (i.e., the bank cannot
charge additional profit on late payments); however, the asset remains as a mortgage with the
bank until the default is settled.

3.13.2 Bai’ Muajjal (Credit Sale)

Literally Bai' Muajjal means a credit sale. Technically, it is a financing technique adopted by
Islamic banks that takes the form of Murabahah Muajjal. It is a contract in which the bank earns
a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a
future date in a lump sum or in installments. It has to expressly mention cost of the commodity
and the margin of profit is mutually agreed. The price fixed for the commodity in such a
transaction can be the same as the spot price or higher or lower than the spot price. Bai' Muajjal
is also called a deferred-payment sale. However, one of the essential descriptions of riba is an
unjustified delay in payment or either increasing or decreasing the price if the payment is
immediate or delayed.

3.13.3 Bai’ Salam

Bai’ Salam means a contract in which advance payment is made for goods to be delivered later
on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange
of an advance price fully paid at the time of contract. It is necessary that the quality of the
commodity intended to be purchased is fully specified, leaving no ambiguity leading to dispute.
The objects of this sale are goods and cannot be gold, silver, or currencies based on these metals.
Barring this, Bai’ Salam covers almost everything that is capable of being definitely described as
to quantity, quality, and workmanship.
Basic Features & Conditions of Salam:
• The transaction is considered Salam if the buyer has paid the purchase price to the seller
in full at the time of sale. This is necessary so that the buyer can show that they are not
entering into debt with a second party in order to eliminate the debt with the first party,
an act prohibited under Sharia. The idea of Salam is normally different from the other

32
 either in its quality or in its size or weight and their exact specification is not generally
possible.
• Salam cannot be affected on a particular commodity or on a product of a particular field
or farm. For example, if the seller undertakes to supply the wheat of a particular field, or
the fruit of a particular tree, the Salam will not be valid, because there is a possibility
that the crop of that particular field or the fruit of that tree is destroyed before delivery,
and, given such possibility, the delivery remains uncertain. The same rule is applicable to
every commodity the supply of which is not certain.
• It is necessary that the quality of the commodity (intended to be purchased through
Salam) be fully specified leaving no ambiguity which may lead to a dispute. All the
possible details in this respect must be expressly mentioned.
• It is also necessary that the quantity of the commodity be agreed upon in unequivocal
terms. If the commodity is quantified in weights according to the usage of its traders, its
weight must be determined, and if it is quantified through measures, its exact measure
should be known. What is normally weighed cannot be quantified in measures and vice
versa.
• The exact date and place of delivery must be specified in the contract.
• Salam cannot be affected in respect of things, which must be delivered at spot. For
example, if gold is purchased in exchange of silver, it is necessary, according to Shariah,
that the delivery of both be simultaneous. Here, Salam cannot work. Similarly, if wheat
is bartered for barley, the simultaneous delivery of both is necessary for the validity of
sale. Therefore the contract of Salam in this case is not allowed.
• This is the most preferred financing structure and carries higher order Shariah
compliance.
3.13.4 Ijarah
Ijarah means lease, rent or wage. Generally, the Ijarah concept refers to selling the benefit of
use or service for a fixed price or wage. Under this concept, the Bank makes available to the
customer the use of service of assets / equipment such as plant, office automation, motor
vehicle for a fixed period and price.

33
 Ijarah Thumma Al Bai’ (Hire Purchase)
Parties enter into contracts that come into effect serially, to form a complete lease/ buyback
transaction. The first contract is an Ijarah that outlines the terms for leasing or renting over a
fixed period, and the second contract is a Bai’ that triggers a sale or purchase once the term of
the Ijarah is complete. For example, in a car financing facility, a customer enters into the first
contract and leases the car from the owner (bank) at an agreed amount over a specific period.
When the lease period expires, the second contract comes into effect, which enables the
customer to purchase the car at an agreed price. The bank generates a profit by determining in
advance the cost of the item, its residual value at the end of the term and the time value or
profit margin for the money being invested in purchasing the product to be leased for the
intended term. The combining of these three figures becomes the basis for the contract
between the Bank and the client for the initial lease contract. This type of transaction is similar
to the contractum trinius, a legal maneuver used by European bankers and merchants during
the middle Ages to sidestep the Church's prohibition on interest bearing loans. In a contractum,
two parties would enter into three concurrent and interrelated legal contracts, the net effect
being the paying of a fee for the use of money for the term of the loan. The use of concurrent
interrelated contracts is also prohibited under Shariah Law.

Ijarah-Wal-Iqtina
A contract under which an Islamic bank provides equipment, building, or other assets to the
client against an agreed rental together with a unilateral undertaking by the bank or the client
that at the end of the lease period, the ownership in the asset would be transferred to the
lessee. The undertaking is an integral part of the lease contract to make it conditional. The
rentals as well as the purchase price are fixed in such manner that the bank gets back its
principal sum along with profit over the period of lease.

3.14 Investment Processing of AIBL

Generally a bank takes certain steps to deliver its proposed investment to the client. But the
process takes deep analysis. Because banks invest depositors fund are not bank’s own fund. If
the bank fails to meet depositors demand, then it must collapse. So each, bank should take

34
strong concentration on investment proposal. However, Al-Arafah Islami Bank (AIBL) makes its
investment decision through successfully passing the following crucial steps-

Here, investment taker (client) approaches to any of the branch of Al-Arafah Islami Bank
Bangladesh Limited (AIBL). Then he talks with the manager or respective officer (investment).
Secondly, bank considers five C’s of the client. After successful completion of the discussion
between the client and the bank, bank selects the client for its proposed investment. It is to be
noted that the client/ customer must agree with the bank’s rules & regulations before availing
investment.

Generally, bank analyses the following five C’s of the client-

I. Character
II. Capacity
III. Capital
IV. Collateral
V. Condition

3.14.1 Application Stage

At this stage, the bank will collect necessary information about the prospective client. For this
reason, bank informs the prospective client to provide and or fill duly respective information,
which is crucial for the initial of investment proposal. Generally, here, all the required
documents for taking investment have to prepare by the client himself. Documents that are
necessary for getting investment of AIBL are prescribed below-

• Trade License photocopy (for proprietorship)

• Abridged pro forma income statement
• Attested copy of partnership deed (for partnership business)
• Prior three (03) years` audited balance sheet (for Joint Stock Company)
• Prior three (03) years` business transaction statement for the Musharaka / Mudaraba
investment
• Abridged proof income statement for the Musharaka / Mudaraba investment

35
 • Attested copy of the Memorandum (MOA) & Articles of Association (AOA) for the joint
stock company
• Attested copy of the Tax Identification Number (TIN) including final assessment
• Detailed summary of the sundry debtors and creditors (including both time & schedule)
• Summary of the personal movable & immovable assets, and others

3.14.2 Appraisal Stage

At this stage, the bank evaluates the client and his/ her business. It is the most important stage.
Because, on the basis of this stage, bank usually goes for sanctioning the proposed investment
limit or proposal. If anything goes wrong here, the bank suddenly stops to make payment of
investment. In order to appraise the client, AIBL provides a standard F-167B from (Appraisal
report) to the client for gathering all the information. However, the following contents are
presented from that appraisal report:

• Company’s or client’s information

• Owner’s information
• List of partners
• Purpose of investment / facilities
• Details of proposed facilities / investment
• Break up of present outstanding
• Other liabilities of the client
• Previous banker’s information
• Details of sister / allied concerns
• Allied deposits as on
• Business / industry analysis
• Relationship analysis
• Asset- liability position of the client as per audited balance sheet
• Working capital assessment
• Risk grade

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 • Particulars of the go down for storing MPI / Murabahah goods
• Insurance coverage
• Audit observation
• Security analysis
3.14.3 Sanction Stage
As this stage, the bank officially approves the investment proposal of the respective client. In
this case client receives bank’s sanction letter. Al-Arafah Islami Bank (AIBL) sanction letter
contains the following elements:
• Investment Limit in Million
• Mode & amount of Investment
• Purpose of investment
• Period of Investment
• Rate of Return
• Securities
o Primary- Stock of goods in the primary security
o LC/ Bills- Related Documents
o Murabahah Post Investment (MPI)/ Bai’ Murabahah- Pledge of MPI / Bai-
Murabahah goods
o MPI/ Bai’ Murabahah- TR: Lien on goods to be released
o Cash/ Goods*
o Bai’ Murabahah- 25% cash security on cost price to be subsequently converted
to goods security
o TR (Trust Receipt) - Without cash security
o Collateral- Immovable properties
*Cash / Goods Security
In allowing Murabahah investment and amount of cash security is generally realized from the
client (amount depends on the nature of goods, creditworthiness of the client, collateral
security obtained etc.) which is converted to goods security after purchase of goods purchased
out of bank’s investment and client’s cash security is pledged to the bank, kept under bank’s

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custody before its delivery to the client on payment.

Example- if for Murabahah investment cash security is fixed at 25% Bank’s investment stands at
75% on the total goods purchased. For example, if cost of total goods purchased is Tk. 100,000
Bank’s investment will be tk. 75,000 and client’s cash security will be tk. 25,000.

3.14.4 Documentation Stage

At this stage, usually the bank analyses wealthier required documents are in order. In the
documentation stage, AIBL checks the following some documents of the client:

• Tax Payment Certificate

• Stock Report
• Trade License (Renewal)
• VAT Certificate
• Liability statement from different parties
• Receivable from different clients
• Other assets statement
• Aungykar Nama
• Ghosona Potra
• Three (03) years net income & business transaction
• Performance report with bank
• Valuation Certificate
• Particulars of the proposal
• Particulars of the mortgagor
• Particular of the properties
• Outstanding liability position of the bank
• CIB (Credit Information Bureau) report
3.14.5 Disbursement Stage
As this stage, bank decides to pay out money. Here, the clients get his/ her desired funds or
goods. It is to be noted that before disbursement a ‘site plan’ showing the exact location of

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each mortgage property needs to be physically verified.

3.14.6 Monitoring & Recovery Stage

At this final stage of investment processing of the Al-Arafah Islami Bank Limited (AIBL), bank will
contact with the client continually, for example- bank can obtain monthly stock report from the
client in case of micro investment. Here the bank will keep his eye on over the investment
taker. If needed, bank will physically verify the client’s operations. Also if back feels that
anything is going wrong then it tries to recover its investment fund from the client.

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 Chapter 4: Conclusions and Recommendations

4.1 Conclusions

Banks play a very vital role in the economic development of the country. The popularity of
banks is increasing day by day which leads to increase competition as well. Currently 56 Banks
are operated in Bangladesh. All the Commercial banks are offering almost the same products and
services. But the way they provide the services are different from each other. Islamic banks are
committed to run all its activities as per Islamic Shariah.

Al-Arafah Islami Bank limited is a leading Private Islami bank in Bangladesh with superior
customer bases that are loyal, faithful, worthy towards the bank. The service provided by the
young energetic officials of the Al-Arafah Islami Bank Limited is very satisfactory. As an Islami
bank, AIBL has to follow the rules of Bangladesh bank despite the fact that these rules sometime
restrict the foreign business to some extent. During my internship in this branch, I have found the
Credit / Investment Department to be very efficient; therefore this department plays a major role
in the overall profitability of the branch and to the Bank as a whole.

Al-Arafah Islami Bank Ltd is one of the most potential Islami banks in the Islami banking sector.
It has a large portfolio with huge assets to meet up its liabilities and the management of this bank
is equipped with the expert bankers and managers in all level of management.

The Bank’s drive towards market leadership as well as quality in choosing business will continue
in the coming years although competition is intensified with the opening of more financial
institutions. The Bank is optimistic that the volume of business will increase in future through
pragmatic and market friendly policies. The Bank shall continue to explore new fields of
investment and take steps to open new Branches for Banking. The bank should endeavor to adopt
customer-oriented policies and introduce new techniques that will help to earn profit and
increase greater confidence of the existing prospective customers.

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It was an honor for me that I have worked as an intern in a reputed organization like Al- Arafah
Islami Bank Limited. AIBL is a bank that offers the best Islami banking services to its customer
and also a fast growing bank. By working at the Banani Branch, the knowledge learned would be
helpful enough to sustain with the real organizational environment.

4.2 Recommendations

v AIBL should change the outlook of the branch to attract premium customers.
v AIBL should provide an effective training program for the junior level officers.
v The service in Banani Branch has real good prospect, thus the bank should work
actively so that it can attract more clients.
v As it has been seen that AIBL’s Investment income were more than double by last 4
years, it convey very good sign. They should try to retain their position.
v From the geographical allocation it has been seen that AIBL give less concentration at
Khulna and Barisal Region but more concentration at Dhaka and Chittagong, they
should give concentration at Khulna and Barisal Region also.
v Optimal cost for sanctioning and disbursing investment should be minimized.
v The number of branches should be increased.
v Bank should offer more facilities to the consumers such as Credit Card, master card,
ATM Machine etc.
v Banking is service-oriented marketing. Its business profit depends on its service quality.
That is why the authority always should be aware about their service quality. Employees
must give individual attention to the consumer. For that, they can recruit more
employees.
v AIBL should invest in profitable sector. Among the different sector AIBL should invest
highly in Industry and Commerce sector for high profit.

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 Reference:

1) AIBL Annual Report 2014

2) AIBL Annual Report 2013
3) http://al-arafahbank.com
4) http://facebook.com/alarafah.bd
5) http://en.wikipedia.org/wiki/Islamic_banking
6) http://www.bangladesh-bank.org/fnansys/bankfi.php

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