Overall Performance of Al-Arafah Islami Bank Limited.

EXECUTIVE SUMMARY

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-Quran and lifestyle of Hazrat Muhammad (sm.) for our supreme success. Al-Arafah Islami Bank (AIBL) 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 if established dedicated and pious personalities of Bangladesh are the architect and directors of the bank. Among them a noted Islamic scholar, economist, writer and ex-bureaucrat of Bangladesh Govt. 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 26 dedicated and noted Islamic Personalities of Bangladesh are the member of executive council of the Bank. Al-Arafah Islami Bank Ltd. (AIBL) has 46 Branches and 1033 employees (as on December 2007). It’s authorized capital is 2500 million Tk and paid up capital is taka 1153 million Tk.

The report is based on two months (08 Feb to 08 May 2011) working experience on Al-Arafah Islami Bank Limited (AIBL). I was assigned in the Dhanmondi Branch, Dhaka of AIBL. This report gives a clear idea of the activities, operation strategies and the performance of AIBL, incorporated in 1995 and become operational with view to provide exclusive service facilities to its client and accordingly meet the demand of banking service all over Bangladesh. During this 15 years of its operation, the bank had been widely acclaimed by the business community from small businesspersons to conglomerates for forward looking outlook and innovative financial solutions.

The whole report consists of seven parts.   Part two to five is based on the AIBL and the services it provides and about Dhanmondi Branch. Part three, four and five are based on the General Banking, Foreign Exchange and

Investment Division of AIBL Dhanmondi Branch respectively. Part six based on the bank’s mission and vision, Marketing Strategy followed by AIBL to achieve its’ goals and objectives along with its Financial statement and performance analysis. It also shows the last four years deposit, investment, export and import, earnings and the ultimate goal profit of Dhanmondi Branch side by side the Head Office deposit, investment, export and import earnings, dividend and profit. In this part, I also tried to make some analysis of data regarding these factors.

In part seven, I have shown the strength, weakness, threat and opportunities of AIBL and the findings, recommendations and conclusion.

The working environment of AIBL is very conductive and friendly. The staffs are specialized in their respective fields. Each of them works on their own and there is close supervision from the top. The motivation of the employees, I believe comes from the very sense of responsibility. Each member is individually responsible for his or her work.

My overall experience had been very fascinating and I believe internship period of AIBL will definitely help me a lot in building me future career.

Orientation of the Report

METHODOLOGY

A sample survey was conducted to collect primary data using two pre-designed survey instruments from concerned groups following an appropriate sample design. In view of the complexities involved in generating quantitative data for assessing the real impact, qualitative data were also collected using Focus Group Discussions (FGDs). In the context of the unique features of the area an attempt was made to identify the strengths, weaknesses, opportunities and threats of the banking sector.

Data Collection

This study is mainly based on secondary data available from the various divisions and departments of AL-ARAFA ISLAMI BANK, in addition to these other necessary information have been collected from the daily news papers, relevant journals, annual reports of Al-Arafah Islami Bank Ltd, Web side and publications of other relevant institutions have also been taken into consideration.

Primary sources of data:

• Face to face conversation with the bank officers & staffs.
• Conversation with the clients.
• Different’ manuals of Al-Arafah Islami Bank Limited.
• Different circulars of Al-Arafah Islami Bank Limited.

Secondary sources of data:

• Procedure manual published by the Al-Arafah Islami Bank Ltd.
• Files and documents of the branch.
• Annual report of Al-Arafah Islami Bank Limited, 2007
• Different papers of Al-Arafah Islami Bank.
• Unpublished data.
• Different text books.

OBJECTIVE OF THE STUDY

The main objective of this study is to have some practical exposures that will be helpful for my Final year courses in the MBA Program.

To achieve the broad objective the following specific objectives has been attained:

• To find out the marketing strategy of Al-Arafah Islami Bank Ltd Bank Ltd.
• To find the financial performance of Al-Arafah Islami Bank Ltd Bank Ltd.
• Analyzing the performance of the bank
• To find out the different banking procedures of the branch.
• To know the competitive strength and weakness of the bank.
• To know the marketing and expansion strategy of bank that can help to face the potential threats and opportunities.
• To know the technological advantage and lacking of this bank in the modern banking system.
• To find out the relations among the various department.
• To make a bridge between the theories & practical procedures of banking day-to-day operations.
• To make possible recommendations for the internship organization to improve the services & service range so that the department can cater to the needs and demands of customers

• scope of the study

At Al-Arafah Islami Bank Limited, I have firstly tried to acquire knowledge and experience about the overall banking system. The report mainly focused on “Overall performance of Al-Arafah Islami Bank Limited; A study on Al-Arafah Islami Bank Dhanmandi Branch.”

Here I have discussed about overall services and functions rendered by Al-Arafah Islami Bank Limited, i.e. customer advance, remittance, clearing, cash department, foreign exchange department & modern equipment used by the bank. Which have been observed during the two months Internship program.

The report also finds out some possible recommendations, which might be taken or accepted by the management of the bank.

LIMITATIONS OF THE STUDY

Despite my sincerest endeavor in preparing a perfect report, some of the limitations are inescapable. These are as follows:

• Within such a short period of time (nine weeks), it was not possible for me to study everything about Al-Arafah Islami Bank, Dhanmondi Branch.
• The officers are so much busy that they cannot properly co-operate with me, which are a problem.
• Bank’s policy of not disclosing some data and information for obvious reason, which could be very much useful.
• To analysis SWOT of emerging market is a wide spread survey material. However, time constraint restricted the report to specific feature.
• The study requires experience to be fruitful but it was completely absent to me.
• Sometimes the officials were reluctant to give proper information regarding their activities because they felt hesitation and ambiguity to give data and information.
• Lack of personal knowledge and experience.

INTRODUCTION

History of AL-Arafah Islami Bank (AIBL):

Islamic ideology encourages us to succeed in life here& hereafter. To achieve this success we must follow the way dictated by the HOLY QURAN and the path shown by Rasul (SM). With this goal in view AL Arafah Islami Bank Ltd was established (registered) as a public limited company on 18 June 1995. The inaugural ceremony took place on 27 September 1995. The authorized capital of the Bank is TK.2500.00 million and the paid up capital TK.1153 million. Some very renowned Islamic personalities and pious businessmen of the country are the sponsors of the bank. The total paid up capital was invested locally.

The Bank is committed to contribute significantly in the national economy. It has made a positive contribution towards the towards the socio economic development of the country by opening 46 branches on which 16 authorized dealer (AD) throughout the country.

The equity of the bank stood at TK.2037 million Crore as on 31 December 2007, the manpower are 1033 and number of shareholders are 12013.

The Bank conducts its business on the principles of Musaraka, Bai-muazzal, and hire purchase transactions approved by Bangladesh Bank. Naturally, its modes and operations are substantially different from those of other conventional commercial Bank. There is a Shariah council in the Banks who maintains constant vigilance to ensure that the activates of the bank are being conducted on the precepts of Islam. The Shariah council consists of prominent Ulema, reputed, Bankers, renowned lawyers and eminent Economist.

Special Features of AIBL:

¨   All activities of the bank are conducted according to Islamic Shariah where profit is the legal alternative to interest.

¨   The banks investment policy follows different modes approved by Islamic Shariah based on Quran & Sunnah.

¨   The bank is committed towards establishing welfare oriented banking system, economic upliftment of the low-income group of people, create employment opportunities.

¨   According to the needs and demands of the society and the country as a whole the bank invests money to different Halal business. The bank participates in different activities aiming at creating jobs, implementing development projects taken by the government and developing infrastructure.

¨    The bank is committed to establish an economic system through social justice and equal distribution of wealth. It is committed to bring about changes in the underdeveloped rural areas for ensuring balanced socioeconomic development of the country through micro credit program.

¨ According to Mudaraba system, the depositors are the partners of the investment income of the bank. During the period under review, 70% of the investment income has been distributed among the Mudaraba depositors.

¨To render improved services to the clients imbued with Islamic spirit of brotherhood, peace and fraternity and by developing an institutional cohesion.

¨   The bank is contributing to economic and philanthropic activities side by side. AIBL English Medium Madrasah and AIBL library are among mention worthy.

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.

SHARIAH BOARD

Shariah Council of AIBL consists of 5 members specialized in Fiqhul Muamalat (Islamic Commercial Law) according to guidelines given by the Bangladesh Bank to ensure whether all banking operations are transacted in accordance with Islami Shariah i.e. Qur’an, Sunnah, Ijma, and Iztihad.

In the year 2007 the Shariah Council has complied various decisions taken by the council on different matters at different times under the caption “Islami Banking Shariah Nitimala (1995-2006) and prepared a Shariah Manual and published which is first of its kind in Bangladesh. Shariah Council advices everybody concerned to comply with Shariah requirements and render all out efforts to increase the standard of service rendered to the clients.

Information Technology of AIBL

AIBL has already started providing on-line general banking services to the clients from 23 May 2008 through a network of all branches in the country using satellite based Communication links. This bank is a member of the Society for Worldwide Interbank Financial Telecommunications (SWIFT).All of the Authorized Dealer Branches has SWIFT connectivity. The bank will introduce a few more products for the client, such as, SMS banking, Tele-banking, Internet Banking etc in near future. To present the overall picture of the bank to the Depositors, Shareholders, and Investment Clients and Well wishers in home and abroad transparently bank has designed a web site as www.al-arafahbank.com.

Welfare Projects Of AIBL

Staff Welfare Project

The Bank always kept a careful eye on the economic security and benefit of its staffs & officers. The Bank operates a contributory provident fund, a social security & benevolent fund and a gratuity fund for its employees. In the year 2007 Tk. 7.5 lac was paid to wife of late Mr. Shahidul Islam, AVP & former branch manager of Joydevpur Branch from bank’s social security & benevolent fund. Till now a total of Tk. 30 lac has been paid from the fund to the families of late officers & staffs of the bank.

Al-Arafah Islami Bank Foundation

The Bank has a Foundation launching philanthropic activities Al-Arafah English Medium Madrasah and Al-Arafah Islami Bank Library are major two wings for launching philanthropic activities.

Al-Arafah English Medium Madrasah

Al-Arafah English Medium Madrasah has been established by the Al-Arafah Bank Foundation with a view to building next generation according to the ideals of peace and equality of Islam and to establishing banking and other aspects of life in the way of Islam. The prime aim of this madrasah is to contribute towards building human resource and in the broader sense to ensure human welfare. With this in view Al-Arafah Islami Bank Foundation has established an English Medium Madrasah at Dhanmondi in 1999. Such institution up to O level of its kind is for the first time in Bangladesh.

Al-Arafah Islami Bank Library

Library is the carrier and reservoir of knowledge. Al-Arafah Islami Bank has shown that other than generating profit, it can also contribute significantly in the field of providing good source of knowledge by establishing a public library at 32, Topkhana Road, Chittagong Bhaban (1^st floor), Dhaka, thus strengthening social development. It is placed in a sound, healthy surroundings. It harbours 23,000 books of reference for the researchers, students, professionals, bankers, physicians, engineers, politicians, writers or journalists, even for the kids. It is open to all from the year 2000 and well located & accessible to everybody. It procured some exceptional collection of books on Religion, Economics, Banking, Computer Science, Business Administration, Sociology, English & Arabic language and juvenile literature in Bangla, English, Urdu & Arabic which are very rare.

Varieties of good books were procured in the library, but those were predominantly to enrich Islamic knowledge and culture. To fulfill that goal Al-Arafah Islami Bank distributed a total of 1084 copies of Arabic-BangIa ‘Torjomatul Quran’ to all the upazillas of the country.

Education is the harmonious development of body, mind & soul. If religion is not attached to it the real attitude towards life and values will fail to develop. It is mandatory to learn Elm-e-Din to govern our life in the right way of Islam. To fulfill this noble intention Al-Arafah Islami Bank Library started Dars-ul-Quran (Teachings of Quran) program. This program will cover translation with detail explanation of Quran starting from Sura Fatiha upto Sura Nas gradually. Dars-ul-Quran program takes place every Monday after Magrib prayer.

SERVICES OF Al-Arafah Islami BANK LTD.

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

Manpower of AIBL Dhanmondi Branch

General Banking Division

The starting point of all the banking operations is General Banking. It is an important department for all banks because it provides services to the customers day-to-day. Front Desk is the important for general banking. Customers give their deposits and meet their demand for cash by honoring Cheques. The customer opens new accounts, remit funds, issues bank drafts and pay orders etc. There are various sections in this department, which are as follows: –

1)    Cash Section

2)    Accounts Opening Section

3)    Cheque Clearing Section

4)    Remittance Section

1)CASH SECTION

The most vital and important section of the branch is Cash Department. It deals with all kinds of cash transactions. This department starts the day with cash in vault. Each day some cash that is opening cash balance are transferred to the cash officers from the cash vault. Opening cash balance is added by cash receipts and payments. The figure is called closing balance. This balance is then added to the vault. This is the final cash balance figure for the bank at the end of any particular day.

2)ACCOUNT OPENING

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

Accounts Opening Process

Step 1

1.               I.    Receiving filled up application in bank’s prescribed form mentioning what type of account is desired to be opened.
2.             II.    The form is filled up by the applicant himself/ herself
3.            III.    Two copies of passport size photographs from individual are taken, in case of firms
4.           IV.    photographs of all partners are taken
5.            V.    Officer are taken information from customer by key information system

Step 2

1.               I.    Applications must submit required documents
2.             II.    Applications must sign specimen signature sheet and give mandate
3.            III.    Introducer’s signature and accounts number-verified by legal officer

Step 3

1.               I.    Filling & signing up KYC or Know Your Customer Form
2.                 II.      Filling & signing up Owner Information Form

Step 4

Authorized Officer accepts the application

Step 5

Minimum balance is deposited-only cash is accepted

Step 6

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

INFORMATION COLLECTED TO OPEN ACCOUNT

A. Individual             

1. Name
2. Present and Permanent Address
3. Date of birth and age
4. Nationality
5. Tax information number (TIN- if available )
6. Passport or certificate provided by the employer
7. Photograph of the account holder
8. One photograph of the nominee duly attested by the account holder.
9. nominee declaration form
10. money laundering leaflet

B. Partnership Firm

1. Information Mentioned in –A
2. Copy of Partnership Dead
3. Mandate from the partners is essential – indicating who will operate the account

C. Limited Company

1. Information Mentioned in –A
2. Certificate of Incorporation
3. Copy of Memorandum and Article of Association
4. Certificate of Commencement
5. Copy of Resolution of the Board of Directors

DORMANT ACCOUNT

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

TRANSFER OF ACCOUNT

When account is transferred, following steps are considered:

A)   Application in written to the Manager of the account maintaining branch

B)   Manager sends a request to the manager of the desired branch of depositors

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

New account is opened at desired branch

3)CHEQUE CLEARING

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

Cheque received from the Clearing House of Al-Arafah Islami Bank.Party’s A/C —-Dr.

Al-Arafah Islami Bank General A/C—CrOBC

(Outward Bills for Collection)Cheques of other branch of Al-Arafah Islami Bank within its Clearing House area.These Cheques are directly sent to the respective Branch and request them to sent IBCA. When it comes, then Customer’s Account’s is credited for the Cheque.Clearing ChequeCheques another Bank within Al-Arafah Islami Bank Clearing House area.These cheques are sent to clearing house via Dhanmondi branch. When drawee bank honor the Cheques, then the account of Cheque depositors are credited.Outward ClearingCheques for

another bank

outside the clearing areaIf any branch of Al-Arafah Islami Bank exists Within the clearing house area of drawee Bank then Al-Arafah Islami Bank send the Cheque to that Branch of Al-Arafah Islami Bank and sends IBCA to it.Inward Bills for Collection (IBC)From other branch of Al-Arafah Islami BankThese Cheques are settled by IBCA, i.e. debiting depositor’s account and crediting sender’s                                                                                        branch accountFrom another bank outside the clearinghouseThese Cheques are settled debiting depositor’s account and sending DD, MT, TT in favor of sender’s bank.

4)LOCAL REMITTANCE

When money is sending from one place to another place for the customer is another important service of banks. In addition, this service is an important part of country’s payment system. For this service, people, especially businesspersons can transfer funds from one place to another place very quickly. There are five kinds of techniques for remitting money from one place to another place. These are:

1)    Demand Draft

2)    Telegraphic Transfer

3)    Telephone Transfer

4)    Pay Order

Telegraphic and Telephone Transfer (TT) are almost the same, both are them are known as TT in short.

PAY ORDER

Pay order gives the payee the right to claim payment from the issuing bank. It is payment from issuing branch only. Within the clearinghouse area of issuing branch. Payment is made through clearing.

1)    Examine genuinely the pay order

2)    Enter into PO register and give contra entry

3)    Debit if fund OK for payment.

Charges of pay order are shown in bellow by a chart:

 DEMAND DRAFT

This is an instrument through which customer’s money is remitted to another person/ firm/organization in outstation (Outside the clearing house area) from a branch of one bank to an outstation branch of the same bank or to a branch of another bank (with prior arrangement between that bank with the issuing branch)

Demand Draft Payment is made through the following process:

1)    Confirm that the DD is not forged one.

2)    Confirm with sent advice.

3)    Check the “Test Code”

4)    Make payment

TT

This is a mode of transfer / remittance of customer’s money from a branch of one bank to another branch of the sane bank or to a branch of another bank (with prior arrangement between that bank with the TT issuing branch) through telephonic message. The issuing branch used to send the message of such remittance /transfer to the drawer/payee branch through telephone adding certain code number or test number on the basis of text key apparatus developed by the concerned bank for its different branches.

Various Types Of deposit account

AIBL Bank offers following types of deposit account:

1.   Mudaraba Savings Deposit Account (MSD)

2     Mudaraba Current Deposit Account (CD)

3     Mudaraba Term Deposit Receipt Account (MTDR)

4    Short Notice Deposit Account (SND)

5   Installment Term Deposit (ITD)

6     Mudaraba Hazz Account

7     Mudaraba Pension   Scheme

8     Mudaraba Lakhpoti Scheme

9     Mudaraba milliner Scheme

10  Mudaraba Kotipoti Scheme

11  Mudarab Double Deposit Scheme.

BRIF DESCRIPTION OF DIFFERENT ACCOUNTS:

1. Current Account:

Current account facilitates the account holder to draw money at any times but no profit is given to the current account deposited money. Current accounts can be opened by any individual or joint or any name of

proprietorship business, private limited company or public limited company, association, clubs, societies, trusts etc. Generally, current account is opened for businessman and traders for easy transaction. By taking this liability, AL-ARAFHA-ISLAMI Bank takes service charge 100/- for six months.

2. Mudaraba Term Deposit Receipt Account (MTDR):

It’s a certain period deposited system, which is not repayable before the maturity date of a fixed period. AL-ARAFHA-ISLAMI Bank offers higher rates of profit on such deposits. Usually customers are allowed to open this account for a certain period and the rate of profit in accordance with the terms of the deposit. The features of MTDR as follows:

Minimum balance: TK 10000.00

3. Savings Account:

To maintain smooth and certain life in future Savings account is very suitable for middle class groups. The attributes of Savings Account are:

• 500/- is the minimum amount of initial deposit.

• Client cannot withdraw money more than twice a week,

• The profit rate is 8% against MD account

For opening of this type of accounts following requirements are necessary:

a) The introducer must be attested photograph.

b) The introducer must be account holder of MD of AL-ARAFAH-ISLAMI Bank Bangladesh Ltd.

4. Short Term Deposit (SND):

Short Term Deposit has following attributes:

• 6% profit rate against STD.
• No restriction over withdrawal of money
• 1000/- is the minimum balance.

a) Installment Term Deposit (ITD)

It’s a sure investment for a steady return. It can be opened for 5, 8, 10, or 12 years for Tk.200, Tk.300, Tk.500, Tk.1000, Tk.1500 and Tk2000. The savings amount is to be deposited any day of the month. If the depositor has a separate account in the bank for which a standing instruction can be given to transfer the monthly deposit in the scheme’s

account. Incase of failure to make the monthly installment in the schedule time 5% on overdue installment amount will be charged. The lowest charge will be Tk. 10 and this will be added with the following months installment. After 3 years of savings in this schemed the depositor is eligible for a loan up to 80% of his deposited amount.

b) Highlights of the Scheme

• Mudaraba Lakhpoti Scheme
• Mudaraba milliner Scheme
• Mudaraba Kotipoti Scheme

Mudaraba Kotipoti Scheme: This are the most popular & target oriented schemes. One can open for 3,4,5,6,7,10,12,15,18,20 years and have to pay (Monthly installment) 2,39,500/- 1,69,500/- 1,27,500/- 99,500/- 80,000/- 46,000/- 33,450/- 21,485/- 14,330/- 11,100/- respectively and will get 1corror.

Mudaraba milliner Scheme: For Mudaraba milliner Scheme 3,4,5,6,7,10,12,15,20 year’s monthly installments are 23,950/- 16,950/- 12,750/- 9,950/- 8,000/- 4,600/- 3,345/- 2,170/- 1,150/- respectively and will get 10million.

Mudaraba Lakhpoti Scheme: For Mudaraba Lakhpoti Scheme 3,5,8,10,12 year’s monthly installments are 2,375/- 1,275/- 670/- 460/- 335/-/- respectively and will get 1lak.

Conditions of the Scheme

1) By filling up a form an account is opened.

2) A non-transferable deposit receipt will provide to the customer after opening the account.

3) If the deposit is withdrawn before a 5-year term, then saving interest rate will be applicable and paid to the depositor. However, no in profit paid if the deposit is withdrawn within 1 year of opening the account and Monthly Income paid to the customer will be adjusted from the principal amount.

4) This scheme will be credited to the loan account until liquidation of the loan amount inclusive of profit. A depositor can avail loan up to 80% of the deposit amount under this scheme.

c) Mudaraba Double Deposit: 

Savings works as the very foundation of development. Savings is the prime source of business investment in a country. So it helps to build up capital. To create more awareness and motivate people to save, AL-

ARAFAH-ISLAMI Bank offers Mudaraba Double Deposit. Here people put their money for double return after 6years.

Conditions Of The Scheme:

a)   The deposit can be made in multiplies of TK. 10000.00.

b) This is 6 years period deposit. The deposit cannot be withdrawn at any time with in the maturity date.

c) Al-Arafah monthly deposited Hazz account:

d)Pension scheme

CLEARING DEPARTMENT

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

• Whether the paying bank within Dhaka city.
• Whether the paying bank outside Dhaka city.
• Whether the paying bank of their own branch..

The Paying Bank within Dhaka City:

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

 The Paying Bank of Their Own Branch:

The cheque clearing section of Al-Arafah Islami Bank Ltd., Dhanmond branch sends outward bills for collection (OBC) to the concerned paying branch to get Inter Branch Credit Advice (IBCA) from the paying branch. If the paying branch dishonors the instrument, the paying branch returns it to the Al-Arafah Islami Bank Ltd., Dhanmond branch describing why the instrument is dishonored.

Types of Cheque Collected By Clearing Department:

1. Transfer Cheque

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

2. Local Bills Collection Cheques (LBC)

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

3. Outward Bills Collection Cheque (OBC):

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

CLEARING HOUSE

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

Types of Clearing

1. Outward Clearing

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

2. Inward Clearing

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

Foreign Exchange Division

Foreign exchange is the means and methods by which rights to wealth in a country’s currency are converted into rights to wealth in another country’s currency. In banks when we talk of foreign exchange, we refer to the general mechanism by which a bank converts currency of one country into that of another. Foreign Exchange Department (FED) is the international department Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks are known as Authorized Dealers. If the branch is authorized dealer in foreign exchange market, it can remit foreign exchange from local country to foreign countries. So AL-ARAFAH-ISLAMI Bank, Principal branch is an authorized dealer.

There are three kinds of foreign exchange transaction:

A) Import

B) Export

C) Remittance.

A) IMPORT

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

Letter of Credit

Definition

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

Parties to the L/C

Steps for import L/C Operation

 8 steps operation:

Step 1 – Registration with CCI&E

•     For engaging in international trade, even trader must be first registered with the Chief Controller of Import and Export.

•     By paying specified registration fees to the CCI&E- the trader will get IRC/ERC (Import/Export Registration Certificate), to open L/C with bank, this IRC is must.

Step 2 – Determination terms of credit

•    The terms of the letter of credit are depending upon the contract between the importer and exporter. The terms of the credit specify the amount of credit, name and address of the beneficiary and opener, tenor of the bill of exchange-period and mode of shipment and of destination, nature of credit, expiry date name and number of sets of shipping documents etc.

Step 3 – Proposal for Opening of L/C

To have an import LC limit an importer submits an application to department to AL-ARAFAH-ISLAMI Bank. The proposal contains the following particulars:

•  Full particulars of the bank account

•  Nature of business

•  Required amount of limit

•  Payment terms and conditions

•  Goods to be imported

•  Offered security

•  Repayment schedule

Step 4 – Application by importer to the banker to open letter of credit

•           For opening L/C, the importer is required to fill up a prescribed application form provided by the banker along with the following documents:

Step 5 – Opening of L/C by the bank for the opener:

•           Taking filled up application form from the importer.

•           Collects credit report of exporter from exporter’s country through his foreign correspondence there.

•           Opening bank then issues credit by air mail/TELEX/SWIFT followed by L/C advice as asked by the opener through his foreign correspondent or branch as the case may be, at the place of beneficiary. The advising bank advises the L/C to the beneficiary on his own form where it is addressed to him or merely hand over the original L/C to the beneficiary if it is so addressed.

Step 6 – Shipment of goods and lodgment of documents by exporter:

Then exporter ships the goods to the destination of the importer country.

Sends the documents to the L/C opening bank through his negotiating bank. Generally the following documents are sent to the Opening Banker with L/C:

8. Pre-shipment Inspection Certificate4. Certificate of Origin9. Vessel Particular5. A certificate stating that each packet contains the description of goods over the packet.10.Shipment Certificate

Step 7 – Lodgment of Documents by the opening Bank from the negotiating bank:

After receiving the documents, the opening banker scrutinizes the documents. If any discrepancy found, it informs the importer. If importer accepts the fault, then opening bankers call importer retiring the document. At this time many thing can happen. These are indicated in the following:

• Discrepancy found but the importer accepts – No problem occurs in lodgment.

• Discrepancy found and importer not agreed to accept – In this case, importer protest and send back all the documents to the exporter and request his to make in the specified manner. Here banker is not bound to pay because the documents send by exporter is not in accordance with the terms of L/C.

• Documents are OK but importer is willing to retire the documents – In this case bank is obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this payment by bank is one kind of credit to the importer and this credit in banking is known as PAD.

• Everything is O.K. but importer fails to clear goods from the port and request bank to clear– In this case banks clear the goods and takes delivery of the same by paying customs duty and sales tax etc. So, this expenditure is debited to the importer’s account and in banking it is called LIM.

Step 8 – Retirement

The importer receives the intimation and gives necessary instruction to the bank for retirement of the import bills or for the disposal of the shipping document to clear the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank or may ask for LTR (Loan against Trust Receipt).

B) EXPORT

 Understanding

The goods and services sold by Bangladesh to foreign households, businessmen and Government are called export. The export trade of the country is regulated by the Imports and Exports (control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and after shipment of goods. The exports from Bangladesh are subject to export trade control exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CC & E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CC! & E and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed ever}year. The ERC number is to be incorporated on EXP forms and other documents connected with exports. The formalities and procedure are enumerated as follows:

1. Obtaining exports LC: To get export LC form exporter issued by the importer.

2. Submission of export documents: Exporter has to submit all necessary documents to the collecting bank after shipping of goods

3. Checking of export documents: After getting the documents banker used to check the documents as per LC terms

4. Negotiation of export documents: If the bank accepts the document and pays the value draft to the exporter and forward the document to issuing bank that is called a negotiating bank. If the bank does buy the LC then the bank normally acts as collecting bank

5. Realization of proceeds: This is the period when the issuing bank has realized the payment.

6.   Reporting to the Bangladesh bank: As per instruction by Bangladesh bank the bank has to report to respective department of Bangladesh bank by mentioning latest payment.

7. Issue to proceeds realization certificate (PRC): Bank has to issue proceeds realization certificate of export LC to the supplier / exporter for getting cash assistance

4 Export operation

Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments sector is the largest sector that exports the lion share of the country’s export; Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries, Bangladesh exports about 40% of its readymade garments products to U.S.A. Most of the exporters who export through AL-ARAFAH-ISLAMI BANK are readymade garment exporters. They open export L/Cs here to export their goods, which they open against the import L/Cs opened by their foreign importers.

Export L/C operation is just reverse of the import L/C operation For exporting goods by the local exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter.

 As an advising bank

It receives documents from the foreign importer and hands it over to the exporter. Sometimes it adds confirmation on the L/C on request from the Opening Bank. By adding confirmation, it assumes the responsibility to make payment to the exporter.

 As Negotiating Bank

It negotiates the bills and other shipping documents in favor of the exporter. That is_? it collects the proceeds of the export-bill from the drawer and credits the exporter’s account for the same. Collection proceed from the export bill is deposited in the bank’s NOSTRO account in the importer’s country. Sometimes the bank purchases the bills at discount and waits till maturity of the bill. When the bill matures, bank presents it to the drawer to encash it.

In our country Export and Import operation of bank is very much related with one another because of use of Back to Back and maturity of payment for Back-to-Back L/C is set in such that it can be paid out of export proceeds.

Back-To-Back L/C

It is simply issued to the clients against an import L/C. Back-to-Back mechanism involves two separate L/C. One is master Export L/C and another is Back-to-Back L/C. On the strength of Master Export L/C bank issues bank to Back L/C. Back-to-Back L/C is commonly known as Buying L/C. On the contrary, Master Export L/C is known as Selling L/C.

Features of Back to Back L/C

• An Import L/C to procure goods /raw materials for further processing.

• It is opened based on Export L/C,

• It is a kind of Export Finance.

• Export L/C is at Sight but back to Back L/C is at Usance.

• No margin is required to open Back to back L/C

• Application is registered with CCI&E

• Applicant has bonded warehouse license.

• L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C.

• Usance period will be up to 180 days.

• The import L/C is opened for 75% of the value of Export L/C.

• Here L/C issued against the lien of export L/C.

• Arrangements are such that export L/C matures first then out of this export  profit, import L/C is paid out.

Documents Required for Opening a Back-to-back L/C

In AL-ARAFAH-ISLAMI Bank Principal Branch, following papers/ documents are required for opening a back-to-back L/C-

1. Master L/C

2. Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)

3. L/C Application and LCAF duly filled in and signed

4. Proforma Invoice or Indent

5. Insurance Cover Note with money receipt

6. IMP Form duly signed

                In addition to the above documents, the followings are also required to export oriented garment industries while requesting for opening a back-to-back L/C –

1.   Textile Permission

2.   Valid Bonded Warehouse License

3.   Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the applicant for quota items.

Check list of export L/C   

Following defective points are usually found in the Master L/C. So, these points are so much carefully checked by the bank officials. These are:

1. Name of the Advising Bank.

2. Name of Transferring Bank

3. Form of Doc. credit:

• Name of Issuing Bank

• Documentary Credit No. And issuing date

• Date of shipment

• Expiry date and place

4.   Applicant/ for order of/ On Account.

5.   Beneficiary/ Favoring

6.   Amount

7.   Availability of Credit

8.   Partial shipment/ Transshipment

9.   Payment condition /Draft Sight

10. Category.

11. Description of goods:

• Item

• Total Qty

• Unit price

12. B/L Clause

13. Reimbursement clause.

14. UCPDC Clause

15. Net FOB value.

 Payment of back to back L/C:

In case back to back as 60-90-120-180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C issuing bank.

L/C under EOF:

• Exporter development Fund is created by Bangladesh Bank to give encourages to the exporter in Bangladesh.

• Generally Back-to-Back L/C is Usance L/C that is here bill of exchange is payable after some maturity date say 90 or 120 days after the date of acceptance/negotiation. But some foreign seller may require sight payment. Here import L/C matures first. In that case Bangladesh Bank gives the fund to the bank to pay the price of imported goods in favor of the local purchaser of raw materials. When export proceeds come, first Bangladesh Bank loan to the importer is adjusted and remaining part goes to the importer of raw materials.

4Negotiation of Export Documents:

The most common method of financing exporters is negotiation of documents under L/C. It is a post-shipment credit. Here the bank acts as a negotiating bank. After the shipment of the goods, the exporter submits the relative documents to the branch for negotiation. The documents are to submit within the period mentioned in the L/C. after approval of negotiation of the bill the full particulars of the documents are branch with a forwarding letter. The branch claim reimbursement from the issuing bank or from the reimbursing bank, giving clear instructions to credit the proceeds of the bill to the AL-ARAFAH-ISLAMI Bank head office NOSTRO A/C maintained with the named correspondent bank abroad under telex intimation to the Principal branch and Head Office (International Division).

Negotiation stands for payment of value to the exporter against “the documents stipulated in the LAC. If documents are in order, AL-ARFAH-ISLAMI Bank purchases (negotiates) the same on the basis of banker- customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

If the bank is not satisfied with the documents submitted to AL-ARAFAH-ISLAMI Bank gives the exporter reasonable time to remove the discrepancies or sends the documents to L/C opening bank for collection. This is known as Foreign Documentary Bill for Collection (FDBC) entered into the foreign, bill Purchased (F.B.P) register. The documents are sent to the L/C opening

Presentation of export documents for negotiation/ Purchase:

After shipment exporter submits the following documents to AL-ARAFAH-ISLAMI Bank for negotiation.

• Bill of exchange

• Bill of Lading

• Invoice

• Insurance Policy/Certificate

• Certificate of Origin

• Inspection Certificate

• Consular Invoice

• Packing List

• Quality Control Certificate

• G.S.P. certificate.

4Foreign documentary bills for collection (FPBC):

AL-ARAFAH-ISLAMI Bank forwards the documents for collection due to the following reasons,

* If the documents have discrepancies.

* If the exporter is a new client.

FDBC signifies that the exporter will receive payment only when the issuing bank gives payment AL-ARAFAH-ISLAMI Bank make regular follow-up with the L/C opening Bank in case of any delay in getting payment.

4 Settlement of Local Bills:

1.   The settlement of local bills is done in the following ways. –

2.   The customer submits the L/C to AL-ARAFAH-ISLAMI Bank along with the documents to negotiate

3.   AL-ARAFH-ISLAMI Bank official scrutinizes the documents to ensure the conformity \\ith the terms and conditions.

4.   The documents are then forwarded to the L/C opening bank.

5.   The L/C issuing bank gives the acceptance and forwards an acceptance letter.

6.   Payment is given to the customer on either by collection basis or by purchasing the document.

4 Mode of payment of export bill under L/C:

As per UCPDC 500, 1993 revision there are four types of credit. These are as follows;

* Sight Payment Credit: In a Sight Payment Credit the bank pays the stipulated sum immediately against the exporter’s presentation of the documents.

* A   Deferred payment Credit: In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of exchange is involved. Payment is given to the party at the rate of D. A 60-90-120-180 as the case may be. But the Head office is paid at T.T clean rate. The difference between the two rates us the exchange trading for the branch.

* Acceptance credit: In acceptance credit, the exporter presents a bill of exchange payable to him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment

* Negotiation Credit: In Negotiation credit, the exporter has to present a bill of exchange payable to him in addition to other documents that the bank negotiates.

C) FOREIGN REMITTANCE

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

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

Remittance procedures of foreign currency

There are two types of remittance:

1.   Inward remittance

2.   Outward remittance.

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

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

Working of this department

1.   Issuance of TC, Cash Dollar /Pound

2.   Issuance of FDD, FTT & purchasing, Payment of the same.

3.   Passport endorsement.

4.   Encashment certificate-

5.   F/C Account opening &filing.

6.   Opening of Export FC retention Quota A/C& maintain.

7.   Maintenance of ledger of Cash Dollar, FC Deposit A/C & TC.

8.   Maintain FBC register &follow up FBC.

9.   Opening of Student file &Maintain.

10. Preparation of all related statement, Voucher & posting.

11. Preparation of Weekly, Monthly. Yearly Statement for Bangladesh Bank return timely.

12. Attending all related correspondence to other Bank or Institutions.

Modes:

The remittance process involves the following four modes

Sell

Bank sells Dollar / Pound for using in abroad by the purchaser. The maximum amount of such sell is mentioned in the Bangladesh Bank publication of ‘Convertibility of Taka for Currency Transactions in Bangladesh’Purchase

Bank   can purchase dollar from resident and non – resident Bangladeshi and Foreigner. Most dollars purchased comes from realization of Export Bill of Exchange.

Traveler’s Cheque

Issue of TC

TC is useful to traveler abroad. Customers can encase the TC in abroad from the drawee bank. TC is alternative to holding cash and it provides better security than holding cash in hand.

Buying of TC

If any unused leaf of TC is surrendered bank buys it from the customer. All payments are made in local currency. Banks generally

buy only those TC.Telex Transfer

Outward TT

It remits fund by tested TT via its foreign correspondence bank in which it is maintaining its NOSTRO Account.It also makes payment according to telegraphic message of its Incoming foreign correspondence bank from the corresponding VOSTRO Account.Foreign Demand Draft

Bank issue Demand Draft in favor of purchaser or any other according to, instruction of purchaser. The payee can collect it for the drawer bank in which the Issuing bank of Demand Draft holds its NOSTRO Account. Bank also makes payment on DD drawn on this bank by its foreign correspondence bank through the VOSTRO Account.

In these processes of remittance, bank must have to make profit as a business institution. Profit is made in two ways:

1.   Commission charged

2.   Difference in the buying and selling rate.

Miscellaneous Services by This Department

•    Student File: Students who are desirous to study abroad can open file in the Bank. By opening this file, bank assures the remittance of funds in abroad for study.

•    F.C Accounts: Foreign Currency Accounts opened in the names of Bangladeshi nationals or persons of Bangladeshi origin working or self -employed abroad can now are maintained as long as the account holders desires.

•    RFCD: Stands for Resident Foreign Currency Accounts. Persons” ordinary resident in Bangladesh may maintain foreign currency accounts with foreign exchange brought in at abroad. Balance of such accounts is freely remittable abroad.

Formalities for opening foreign currency (FC) Account:

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

1.   Bangladesh national residing abroad.

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

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

4. Resident of Bangladesh nationals working with the foreign / international organization operating in Bangladesh provided their salary in paid in foreign currency.

Foreign exchange earned through business doves or service rendered in Bangladesh cannot be put into these accounts.

No payment in foreign currency (FC) may be made to any resident in Bangladesh out of the foreign currency (FC) account.

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

Papers required:

• Application duly billed in and signed.
• Photograph (two copies).
• Passport photocopy.
• Work permit from board investment. (In case of foreign nationals).

RISK IN FOREIGN EXCHANGE BUSINESS

Foreign Exchange Business involves the following risks:

1)    Risk of non-delivery of goods: May not be delivered to the buyer due to some mishaps frauds or any other reason.

2)    Risk of receiving sub-standard goods: Till the time the goods are received under a shipment none can be sure of the quality of the goods involved.

3)    Risk of non payment: Buyer may fail to honor his commitments.

4)    Risk of frauds in goods: Contracted to buy cement but got sand. The above risks trade common to inland trade as also the foreign trade. There are some risk which are peculiar to foreign exchange business.

5)    Exchange risk: Exchange of currencies can cause loss to some parties – seller or buyer due to the inherent risk of exchange rate fluctuation.

6)    Failure of foreign banks: It may be possible that the foreign bank may not be able to pay the equivalent due to bank failures.

Sudden changes in policies: This is referred to as political risk. Exchange control regulation, import export policies and trade regulation are changed over night which will put the parties in difficulties.

Recommendations:

i) Decision Making: Decision making power should be decentralized effectively so that business can promptly be enhanced.

ii)Number of Employees: A handsome number of qualified employees & staffs should be appointed very soon for maintaining the normal flow of work.

iii) Records keeping system: Filing  and  record  keeping system of the bank should me modernized .At present operation system is partially computerized and on line banking should be started very soon.

iv) Effective information system: Effectiveness of credit policy largely depends on Bank’s branch, divisional & national level information system.

v) Development of manpower: Effective implementation of credit policy and recovery tare depends on higher educated, trained and skilled personnel. Bank should procure and develop such types of employees for its credit wings.

 SWOT Analysis in AIBL:

Every organization is composed of some internal strengths  and weaknesses and also has some external opportunities and threats in its whole life cycle.

Strengths:

-AIBL provides its customer excellent and consistent quality is every service.

-AIBL is financially sound company.

– AIBL utilizes state of the art technology to ensure consistent quality and operation.

-AIBL provides its works force an excellent place to work

-AIBL already achieved a good will among the cli

-AIBL has research and training division.

 Weaknesses:

-AIBL lacks well trained human resource in some area.

-AIBL lacks aggressive advertising.

-The procedure of credit facility is to long compare to other banks.

-Employees are not motivated in some areas.

 Opportunities:

-Emergence of on line banking will open more scope for AIBL.

-AIBL can introduce more innovative and modern customer service.

-Many branches can be opened in local remote area as its high demand.

-AIBL can recruit experienced, efficient and knowledgeable officers and staffs as it offers good working environment.

 Threats:

-The worldwide trend of mergers and acquisition in financial institutions is causing problems.

-Frequency taka devaluation and foreign exchange rate fluctuation is causing problem.

-lots of new banks are coming in the scenario with new service.

– Local competitors can capture huge market share by offering similar products

Conclusion:

Al-Arafah Islami Bank ltd. is a non government commercial Bank in Bangladesh, which started its business from 1995.I t is a unique combination of Shariah & Islamic banking. Among non government commercial banks, Al-Arafah Islami Bank Ltd. is a milestone for economic development. It has been playing an important role to eradicate the unemployment problem in Bangladesh. Over 800 employees and 5500 shareholders are getting benefit from this organization. But most of the people in our country have misconception about Islamic banking specially Al-Arafah Islami Bank Ltd. & other Islamic banks. They can not find any difference in its operation between conventional commercial Banks and Islamic Banks because they have no clear idea about the activities as well as investment mechanism of Islamic banks.

The Bank is committed to run its activities as per Islamic Shariah and thus it has different investment(credit) modes, different repayment schedules, different disbursement procedure, different mark up system. and also has a different Credit(Investment) policy. ‘Mark up’ means adding some additional value after purchasing the goods  but before top sell the same to another people. This system is accepted in Islamic Shariah because here money is converted to goods.’ Money begets money’ is prohibited in Islamic Shariah. People is getting more benefit from the dealings of Islamic banking because here quarterly interest is not charged and there is no possibility of interest  to be converted  into principal. But it needs to mention here that Islamic Banks like AIBL incurred huge loss in case of default cases. Islamic Banks can’t  charge extra amount on the residual principal of the overdue accounts like other conventional banks but some compensation is imposed on the accounts to protect huge accounts to be overdue/classified. It can not take part in call money market. Mudaraba, Musharaka are another mode of investment in Islamic Banking. But here honesty is the only pre-requisite. For ensuring more benefit, more facility from Islamic banks like AIBL we have to be honest and more sincere to repay the taken money from these banks in time.