Report on Islami Banking System in Al Arafah Islami Bank

Historical background of AL-ARAFAH ISlAMI Bank

Al Arafah Islami Bank Limited started its operation on 18 June, 1995 as a scheduled commercial bank as per rules and regulations of Bangladesh Bank. It renders all types of commercial banking operations to its customers within the preview of the Bank Companies Act, 1991 and in line with the directives and policy guidelines laid down by Bangladesh Bank. At present, Al Arafah Islami Bank has made substantial headway in terms of business growth, profitability and establishing its image as one of the leading private sector Bank. Its march towards reaching greater heights in operation continues with full enthusiasm. The Sponsors of the Bank are a renowned group of industrialists and businessmen with a proven track record.

The year 2010 is the 15^th year of operation since Bank’s inception in 1995. To achieve the desired goal, it has intention to pursuit of excellence at all stages with a climate of continuous improvement. During the year 2010 the bank participated in CSR activities by financial assistance in different areas like education, training, healthcare, sports, natural disaster etc.

The bank is blessed with a well-designed management structure with clearly defined responsibility. The Shariah Council comprising leading Islamic Scholars of the country well versed in Shariah in the bank which is entrusted with the responsibility to ensure that the activities are conducted on the precepts of Islam. The bank adheres to Shariah based best business practices at all times within a complex legal and regulatory environment.

With the objectives of achieving success in life here & hereafter following the way directed by the Holy Quran and path shown by Rasul (SM) Al Arafah Islami Bank Ltd. was established as a public limited company. The inaugural ceremony took place on 27 September 1995. The bank’s investment policy follows different modes approved by Islamic Shariah based on the Quran & Sunnah. It has made a positive contribution towards the socio economic development of the country.

 Al Arafah Islami Bank of Bangladesh Limited is a second-generation private commercial bank in the country with commendable operating performance. It provides a wide range of commercial banking services. Bank has achieved success among its peer group within a short span of time with its professional and dedicated team of management having long experience, commendable knowledge and expertise in convention with modern banking with all its resources, the management of the bank firmly believes that the Bank would be able to encounter problems that may arise both at micro and macro economic levels.

PHILOSOPHY of the Al- arafah islami bank

The motto or the philosophy of the Bank is “Shariah”. Al-Arafah Islami  Bank feels that, if they can meet maximum clientele requirements in less time with efficiency, then they will be able to accomplish a successful business in the world of banking. Their main objective is – they want to provide every single customer service available in today’s banking procedure for their clientele. Thus they can guarantee the excellence in banking to their valuable customers.

Banking CORPORATE MISSION

Al Arafah Islami Bank’s mission is to provide service to the clients with the help of a skilled and dedicated workforce whose creative talents, innovative actions and competitive edge make the position unique in giving quality service to all institutions and individuals that Al-Arafah Islami Bank care for. In an intensely competitive and complex financial and business environment, the bank particularly focuses on growth and profitability of all concerned.

•       To provide excellent quality Customer service.
•       To maintain Corporate and business ethics.
•       To become a trusted repository of customers’ money and their financial advisor.
•       To make our stock superior and rewarding to the customers/share holders. And to display team spirit and professionalism.

CORPORATE CULTURE of AL-Arafah Islami  bank

  AL Arafah Islami Bank is one of the most disciplined Banks with a distinctive corporate culture. Here we believe in shared meaning, shared understanding and shared sense making. AIBL’s people can see and understand events, activities, objects and situation in a distinctive way. They should 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 bank. The people in the Bank see themselves as a tight knit team/family that believes in working together for growth. The corporate culture they belong has not been imposed; it has rather been achieved through their corporate conduct. The Bank achievement has been possible because of the able leadership; dedicated and committed services provided by all levels of management and staff which all possible because of a good and quality full corporate culture.

bank commitment

 The purpose of the banking business is, obviously, to earn profit, but the promoters and the equity holders of Al-Arafah Islami Bank are aware of their commitment to the society to which they belong. A chunk of the profit is kept aside and/or spent for socio-economic development through trustee and in patronization of art; culture and sports of the country and the bank want to make a substantive contribution to the society where we operate, to the extent of our separable resources.

PRINCIPLES OF AL-ARAFAH ISLAMI BANK

 As we know that bank does its business with the money of others, so it is relatively a risky business organization. By avoiding these risk bank wants to become a powerful and confidential organization for the economic development of the bank. Therefore, like other Al-Arafah Islami Bank also follows some principles.  Some of the principles are in the below:

Cannon of Solvency: Bank should have enough money to run the banking business smoothly. Banking activities may be hampered if the fails to pay clients money on demand. Therefore, Al-Arafah Islami Bank to run the banking business smoothly follows the principle of solvency.

Cannon of Safety: To ensure the depositor’s money as well as the loan amount Al-Arafah  follows the principle of safety. The bank also takes clear investigation about the clients before sanctioning any loan.

Cannon of Honesty and Reliability: People save their money and valuable things in the bank based on the honesty and reliability of the bank. Therefore, to gain the attention of the clients Al-Arafah Islami Bank always try to be honest and reliable.

Cannon of efficiency: Every bank’s success depends a lot on the performance of bank’s employees. Therefore to achieve this success Al-Arafah Islami Bank also follows the principle of efficiency by providing efficient services to the clients.

Cannon of Secrecy: The bank that does not disclose secrets of the customer attract more clients. Therefore Al-Arafah Islami Bank by maintaining secrecy of the clients also follows the principle of secrecy.

Cannon of Liquidity: Liquidity means how quickly a bank can transform its assets to cash. It is one of the major principles of banking business.

Products & Services of Al-Arafah Islami Bank Limited

The product and services that are currently available are given below:

1. Cash Management.
2. Wire Transfer.
3. Automated clearinghouse transactions.
4. Bill presentment and payment.
5. Funds transfer.
6. Downloading transaction information.
7. Loan application.
8. Investment activity.
9. Others value added services.

Deposit Product of Al Arafah Islami Bank Limited

•  Mudaraba Term Deposit.

1.   36 Months
2.   24 Months
3.   12 Months
4.   06 months
5.   03 Months

• Mudaraba Savings Deposit.
• Short Notice Deposit (SND).
• Monthly Hajj Deposit.
• Monthly Installment Term Deposit.
• Monthly Profit Based Deposit.
• Monthly Savings Investment.
• Marriage Saving Investment Schemes.
• Pensioners Deposit Scheme.
• Cash WAQF.
• Kotipati Deposit Scheme.
• Millionaire Deposit Scheme.
• Double Benefit Scheme.
• Triple Benefit Scheme.

Investment Product of Al Arafah Islami Bank Limited

1. General Investment.

•   Murabaha Investment.
•   Bai-Muajjal Investment.
•   Hire-Purchase Investment.
•   Pre shipment Investment.
•   Quard

  Uzrat Bill Wakala.

2. Maturity grouping of Investment.

•  Payable on Demand
•  Up to 1 Month
•  Over 1 Month but not more than 3 Month
•  Over 3 Month but not more than 1 Year
•  Over 1 Year but not more than 5 Year
• Over 5 Year.

Corporate Profile of AIBL

Date of Registration                         : 18 June 1995

1^st Branch                                          : Motijheel Branch, Dhaka

Opening Ceremony                           : 27 September, 1995

Authorized Capital                           : 2500.00 million

Paid up Capital                                 : 1,383.81 million

Number of Shareholders                   : 10,664

Auditors                                            : Hoda Vasi Chowdhury & co.

                                                            Chartered Accountants

                                                            BTMC Bhaban, Level 8

                                                            7-9 Karwan Bazar, Dhaka 1215

                                                            Syful Samsul Alam & co.

                                                            Chartered Accountants

                                                            ParamountHeights 65/2/1 Level 6

                                                            Purana Paltan, Dhaka 1000

Registered Office                             : PeoplesInsuranceBuilding

                                                            36, Dilkusha Commercial Area

                                                            (6^th -9^th) Floor, Dhaka 1000

Tel: PABX                                        : 9567885, 9567819, And 9569653

Fax                                                    : 880-2-9569351

SWIFT                                              : ALARBDDH

E-mail                                                : aibl@al-arafahbank.com

Web                                                   : www.al-arafahbank.com

Investment of AIBL

The most important difference between the Conventional and Islamic bank is that both the banks operate to earn profit but they differ in the way of operation. Islami Bank gives emphasis on legitimate (Halal) business. On the other hand traditional bank is not operated by the following rules and regulations approved by Islam that is the most powerful contradiction between them. Islamic Bank does not invest in loans and fixed interest securities. It can invest in ordinary share only while interest based bank can invest in loans and different kinds of securities. Islami Bank establishes and participate projects with its client as a partner and bears the risk along with the client on a proportionate basis. Besides, other conventional banks sometimes finance projects but do not bear risk. Finally, the concept of Islamic Bank is to establish on egalitarian society based on principles of social justice and equity. Whereas traditional banks pay a fixed interest on savings, time deposit and grant loans with interest for any purpose. We have gathered the fact that investment management is the theme of AIBL. The bank takes deposits and invests the same based on the profit-loss sharing. Bank go for the investment mainly which are long term and profitable in nature. AIBL also give high concentration on the investment that will generate more employment. As investment is one of the most priority areas for the AIBL, so it needs to cautious in investment decision. To ensure proper investment AIBL always go with in-depth study before making the investment.

 Investment Objectives of AIBL

The objectives and principles of investment operations of the Banks are:

• The investment fund strictly in accordance with the principles of Islamic Shariah.
• To diversifies its portfolio by size of investment, by sectors (public and private), by economic purpose, by securities and by geographical area including industrial, commercial and agricultural.
• To ensure mutual benefit both for the Bank and the investment client by professional appraisal of investment proposals, judicious sanction of investment, close and constant supervision and monitoring therefore.
• To make investment keeping the socio-economic requirement of the country in view.
• To increase the number of potential investors by making participatory and productive investment.
• To finance various developments schemes for poverty alleviation, income and employment generation with a view to accelerating sustainable socio-economic growth and uplift men of the society.
• To invest in the form of goods and commodities rather than give out cash money to the investment clients.
• To encourage social uplift men enterprises.
• To shun even highly profitable investment in fields forbidden under Islamic Shariah and is harmful for the society.
• The Bank extends investments under the principles of Bai-Marabaha, Bai-Muazzal Hire purchase under Shairkatul Melk and Musharaka. The Bank is making sincere efforts to go for investment under Mudaraba principle in near future.

Investment Policy of AIBL 

Investment operation of a Bank is very important as the greatest share of total revenue is generated from it, maximum risk is centered in it and the very existence of a Bank mostly depends on prudent management of its Investment Port-folio. For efficient deployment of mobilized resources in profitable, safe and liquid sector a sound, well-defined and appropriate Investment Policy is necessary.

The important feature of the investment policy of the Bank is to invest on the basis of profit-loss sharing system in accordance with the tenets and principles of Islami Shariah. Earning of profit is not the only motive and objective of the Bank’s investment policy rather emphasis is given in attaining social good and in creating employment opportunities.

The plan aims at diversification of the investment port-folio by size sector geographical area, economic purpose and securities to bring in phases all sectors of the economy and all types of economic groups of the society within the fold of Bank’s investment operations.

A sound well defined, well planned and appropriate investment policy frame work is a pre-requisite for achieving the goal of the Bank i.e. implementation and materialization of the economic and financial principles of Islam in the Banking area and justice in trade, commerce and industry and to build socio-economic infrastructure, create opportunity for income and sustained economic growth of the country.

Salient Features of Investment

•   Observance of the legal investment limit of the bank.
•   Observance of the legal investment limit of the client.
•   Optimum utilization of investment fund.
•   Profitability of the investments.
•   Safety and security of the investments.
•   Investment at minimum possible risk.
•   Liquidity of investments.
•   Conform to central bank’s investment restrictions.
•   Preference to short term investments.
•  Preference to the investments for small size.
• Satisfactory return on investments.

Investment Strategies

Risk in the investment and return thereon are interrelated. An investment policy that emphasizes a high return must accept relatively high risk. Conversely, an investment policy that will tolerate only small amount of risk must be prepared to accept a relatively low return. As such, it is really difficult whether to select a high return portfolio on high risk or low risk port-folio with a low return. Nevertheless, considering all aspects following guidelines shall be followed as strategy for banks investment:

1.  If two portfolios have the same risk but different returns, the port-folio having higher return shall be preferred.
2.  If the two portfolios have the same expected returns, but different degrees of risk, the port-folio with lower risk shall get preference.
3.  If one portfolio has both a higher return and a lower risk than another, the first port-folio shall be preferred.
4.  Keeping in view the risk factor, the bank shall maintain flexibility in determination of rate of return on investments on case to case basis in consideration of the risk element involved in the respective investment.
5.  Emphasis is given for expansion and strengthening cottage and small industries sector and rural industries. This immensely potential industrial sub-sector shall create employment opportunities to rural and semi-urban population and shall have positive contribution in employment and income generation and poverty alleviation of the low-income group.
6.  Investment facilities shall be extended for establishment and expansion of export oriented forward / back ward linkage and import substitute industries.
7.  The bank requires retaining 10% of its total deposit liability as Statutory Liquidity Ratio (SLR) including 4% Cash Reserve Ratio (CRR) with the central bank. The bank may go for investments up to 90% of its total deposit. The perspective investment plan is being formulated quantifying the allocation of investments size-wise, sector-wise, and geographical area-wise, economic purpose-wise, security-wise and mode-wise keeping in view 20% projected growth of deposit each year.
8.  Taking into consideration the broad objectives of the bank, national priority, socio-economic need, growth level of the economy, the investments port-folio of the bank may gradually be diversified and allocated in term of size, sector, geographical area, economic purpose, security and mode.
9.  Safety, security, profitability and liquidity of Bank’s investments.
10.  Each branch invests, at least 50% of its deposits locally.
11.  Enhance of extending limit of good investment clients.
12.  Adopting of modern technology.

Bai-Murabaha 

Meaning

The terms “Bai” and “Murabaha” have been derived from Arabic words Murabaha” and “Bai”. The word Bai means purchase and sale and the word Murabaha means a in cash” Bai-Murabaha means sale for which payment is in cash or in future fixed date or within a fixed period. In short, it is a sale on cash.

Definition

Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The profit marked-up may be fixed in lump-sum or in percentage of the cost price of the goods.

Types of Murabaha

In respect of dealing parties Bai-Murabaha may be of two types.

Ordinary Bai-Murabaha

If there are only two parties, the seller and the buyer, where the seller as an ordinary trader purchases the goods from the market without depending on any order and promise to buy the same from him and sells those to a buyer for cost plus profit, then the sale is called Ordinary Bai-Murabaha.

Bai-Murabaha on Order and Promise 

If there are three parties, the buyer, the seller and the Bank as an intermediary trader between the buyer and the seller, where the Bank upon receipt order from the buyer with specification and a prior outstanding promise to buy the goods from the Bank, purchases the ordered goods and sells those to the ordering buyer at a cost plus agreed profit, the sale is called “Bai-Murabaha on Order or Promise”, generally known as Murabaha.

This Murabaha upon order and promise is generally used by the Islami Banks, which undertake the purchase of commodities according to the specification requested by the Clients and sale on Bai-Murabaha to the one who ordered for the goods and promised to buy those for its cost price plus a marked-up profit agreed upon previously by the two parties, the Bank and the Clients.

Important Features of Bai-Murabaha

1)      It is permissible for the client to offer an order to purchase by the bank particular goods deciding its specification and committing him to buy the same from the bank on Murabaha, i.e. cost plus agreed upon profit.

2)      It is permissible to make the promise binding upon the client to purchase from the bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.

3)      It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the damages.

4)      It is also permissible to document the debt resulting from Bai-Murabaha by a guarantor, or a mortgage, or both like any other debt.  Mortgage/Guarantee/Cash security may be obtained prior to the signing of the agreement or at the time of signing the agreement.

5)      Stock and availability of goods is a basic condition for signing a Bai-Murabaha agreement. Therefore, the bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai-Murabaha agreement with the client.

Bai-Muajjal

Meaning

The terms “Bai” and “Muajjal” have been derived from Arabic words Ajal and Bai. The word Bai means purchase and sale and the word Ajal means a fixed time or a fixed period” Bai-Muajjal means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on credit.

Definition

Bai-Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the Country), to the buyer at a agreed fixed price  payable at a certain fixed future date in lump-sum or within a fixed period  by fixed installments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.

Important Features of Bai-Muajjal

1)      It is permissible for the client to offer an order to purchase by the bank particular goods deciding its specification and committing him to buy the same from the bank on Bai-Muajjal i.e. deferred payment sale at fixed price.

2)      It is permissible to make the promise binding upon the client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.

3)      It is permissible to take cash / collateral security to guarantee the implementation of the promise or to indemnify the damages.

4)      It is also permissible to document the debt resulting from Bai-Muajjal by a guarantor, or a mortgage or both like any other debt. Mortgage/Guarantee/Cash security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.

5)   Stock and availability of goods is a basic condition for signing a Bai-Muajjal agreement, therefore, the bank must purchase the goods as per specification of the client to acquire ownership of the same before signing the Bai-Muajjal agreement with the client.

Bai – Salam

Meaning

The terms “Bai” and “Salam” have been derived from Arabic words Bai and Salam. The word “Bai” means “sale and purchase” and the word Salam means “Advance”. “Bai-Salam” means Advance Sale and Purchase.

Definition

Under this mode Bank will executive purchase contract with the client and make payment against purchase of product, which is under process of production. Bai-Salam contract will be executed after making any investment showing price, quality, quantity, time, place and mode of delivery. The profit is to be negotiated. The payment as the price of the goods is made at the time of Agreement / on the spot and the delivery of the goods is deferred.

Fixation of Purchase Price

Points are to be considered at the time of bargaining with the client for fixation of price of the goods to be purchase under Bai-Salam. The time for taking delivery of the goods is anticipated time from the date of date of Bai-Salam price to final disposal of the goods. Taking delivery and costs for marketing, transportation charges, and selling commission etc. Godson Guard’s salary, insurance, rent etc. Present market price and the anticipated sale price at the time of disposal of the goods. Expected rate of returns is as per Head Office norms. All areas of appraisal should be carefully studied and the Appraisal forms should be completed properly. Purchase price shall be fixed-up with due study keeping in view that after sale of the goods the Bank gets profit as per expected Rate of Return.

Taking Delivery

The client shall exclusively utilize the investment for the purpose for which he has taken it and shall deliver/export the goods as per Bai-Salam Agreement. The Bank shall take delivery of the goods from the client either by itself or through its representative as per Bai-Salam Agreement and Delivery Schedule. The bank shall not disburse the investment unless the client completes all necessary arrangements for the proposed production /manufacture. In case the Client tails to produce and deliver/export the goods, he will immediately refund the money received from the Bank. If necessary Bank may authorize the Client in writing to sell/deliver/supply/export the Bai-Salam goods against his /their license /contract/sale agreement for and on behalf of the Bank as its agent at a price not lower than the price fixed by the Bank provided a separate agency agreement is executed between the bank and the Client (Agent).

Taking delivery of the goods after the due date of delivery as per schedule shall be at the absolute discretion of the Bank.

Important Feature of Bai-Salam

1)      Bai-Salam is a mode of investment allowed by Islamic Shariah in which commodity/product can be sold without having the said commodity/product either in existence or physical/constructive possession of the seller.

2)      Generally, industrial and agricultural products are purchased in advance under Bai-Salam mode of investment.

3)      It is permissible to obtain collateral security from the seller client to secure the investment.

4)      It is also permissible to obtain mortgage and/or personal guarantee from a third party as security.

5)      Bai-Salam on a particular commodity/product or on a product of a particular field or farm cannot be affected.

Leasing mode 

Hire purchase /Ijarah 

The term Ijarah has been derived from the Arabic works Ajr and Ujrat which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an Asset. Ijarah has been defined as a contract between two parties, the Hiree and Hirer where the Hirer enjoys or reaps a specific service on benefit giant a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.

Hire Purchase Under shirkatul Melk

Hire purchase under shirkatul Melk is a special type of contract which has been developed through practice. Actually, it is a synthesis of three contracts: Shirkat, Ijarah and sale. Shirkat means partnership. Shirkatul Melk means share an ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul contract.

Stages of Hire Purchase under Shirkatul Melk

Thus Hire Purchase under Shirkatul Melk Agreement has got three stages:

• Purchase under joint ownership.
• Hire and
• Sale and /or transfer of ownership to the other partner Hirer.

Investment under Special Schemes

Household durable scheme:

Al Arafah Islami Bank Limited has introduced Household Durables Investment Scheme, which has already created great enthusiasm among the people and received tremendous response from them. Objectives are to assist the service holders with limited income in purchasing household articles such as:

Objectives:

• To assist the service holders with limited income in purchasing household durables.
• To assist the fixed income group in raising the standard of living.  
• To create opportunity for the service holders to enjoy the benefit of modern and sophisticated living and at the time lead a decent and honest life.

Investment scheme for doctors:

A good number or newly graduated doctors from Medical Colleges are unemployed. Many of the medical graduates are waiting for job because the opportunity for Government service is limited. If these young doctors could be self-employed by extending investment facilities, they could make modern facilities available at the door-steps of rural people.

In view of the above facts, Al-Arafah Islami Bank Limited has taken the initiative an introduced the ” Doctors Investment Scheme” to ensure modern treatment and medical facilities available to the people through extension of Bank’s investment facilities for self-employment of newly graduated doctors and at the same time extending investment facilities to the established medical practitioners to procure modern and sophisticated medical equipment.

Objectives:

• To provide investment facilities for establishment of chambers, clinics, pharmacies and procurement of medical equipment by the unemployed medical graduates and thus to provide self-employment.
•  To assist newly passed unemployed medical graduates to establish clinics by way of formation of groups by 5 doctors.
•  To assist experienced and established physicians to procure improved and modern medical equipment and thus to improve the standard and techniques of treatment.
• To assist specialists and consultant physicians to procure specialised medical equipment for extending improved treatment to the people.

Small business investment scheme:

Bangladesh a third-world developing country is rich in natural and human resources. In spite of vast possibilities, the majority people of the country live in hardship-below poverty tapped, explored and exploited. Physical labor is their only means of earning. A large segment of this populace is active youth force. Many of them are efficient, intelligent and energetic with initiative & drive and have courage to tale risks. But they cannot uplift their socio-economic condition due to poverty, lack of financial support and other required facilities.

Aims and objectives:

1.  To expand investment facilities for the small traders and entrepreneurs in urban and rural areas with a view to raise their level of income and to improve their quality of life.
2.  To inspire and encourage unemployed youths to establish small business enterprises and thereby to create opportunities for self-employment for ensuring social justice and welfare of the people in large scale.
3.  To extend investment facilities to those small entrepreneurs who could not avail any credit or investment facilities from any bank or financial institutions or otherwise deprived of from such investment facilities.  

Housing investment scheme:

One of the basic human needs is to have a house to live in. A house is in an abode of peace and happiness. Housing has now become an acute problem in the country, especially in the towns, cities and metropolis.

With their limited income, it has become almost impossible on the part of the lower middle class, middle class and sometimes, even for upper middle class to solve their housing problem.

To meet this basic human need, Al-Arafah Islami Bank Limited is committed to contribute to this end to provide a peaceful and happy.

Objectives:

1.  To extend the benefits of the investment of the bank under the scheme to different sections of the people.
2.  To assist in solving the existing housing problem of the country.
3. To assist the service holders and professionals with fixed income to arrange for houses of their own.
4. To extend the investment facilities of the bank to every nook and corner of the country, by size of investment, by sector of investment and on the basis of geographical area.
5. To make investment facilities easily available under Islamic Shariah to those people who do not want to avail investment facilities from interest-based financial institutions.

Real estate investment program:

Professionals, Service-holders, Businessmen, Real Estate Developer and other categories of people who are not entitled for availing investment facilities under Housing Investment Scheme, shall be eligible under this program Investment is to be extended to build new houses and for extension/ completion of the house already constructed, commercial building, shopping complex, flat apartment etc.

Transport investment program:

Under this scheme, investment in being allowed to the existing successful businessmen and potential entrepreneurs in this sector for all types of road and water transport with simple and easy terms and conditions. The bank is also extending investment facilities to multinational companies, established, business houses and well to do officials and professionals for acquisition of private cars, microbus and jeeps.

Aims and Objectives:

1. To assist in the development of communication system of the country.
2.  To help overcome the existing transportation problem.
3. To assist solvent service-holders and professionals having fixed income for acquisition of private cars and thus to help them to improve their professional efficiency and the standard of living.

Car investment scheme:

Car is considered as on essential mode of transport in the modern society, particularly by a section of the officials, business houses and business executives and established professionals for movement in discharging their duties and responsibilities punctually and efficiently. Many of these categories of people cannot purchase a car on payment of entire purchase value at a time out of their own sources. To meet this need Al-Arafah Islami Bank has introduced the ‘Car Investment Scheme’ for the mid and high ranking officials of government and semi-government organizations, corporations; executives and directors of big business houses and companies arid also for persons of different professional groups on easy payment terms and conditions.

Objectives:

• To meet the demand of senior officials of different organizations, established business houses and companies and persons of various professional groups who essentially need a car but can not afford to purchase on payment at a time.
• To assist the above categories of persons to procure a car on easy payment terms and conditions and thus become its proud owner.
• To assist in minimizing transport problem in the private sector and help the mid and high ranking officials and professionals with fixed income in the improvement of their standard of living.
• To extend the range of bank’s investment facilities to various sections of people in line with the ideals of the bank.
• To diversify the investment portfolio of the bank by size, sector and volume.

Rural development scheme of AIBL:

Al-Arafah Islami Bank Limited (AIBL) envisages an economic system based on equity and justice. Taking into consideration that majority of the population below poverty line lives in rural Bangladesh, the Bank has devised a Rural Development Scheme (RDS) with a view to creating employment opportunity for them and alleviates their poverty through income generation activities.

The AIBL through its RDS project has been implementing integrated programs for the landless poor, aged laborers and marginal farmers aimed at meeting their basic needs and promoting their comprehensive development. Consciousness among the poor needs should be enhanced so that they can lift their position in the socio-economic structure of the country. In order to consolidate their economic base, invested money should be used in income generating activities so the poorer section of the population can become self-reliant. RSD works for the realization of that objective.

Objectives:

• To extend investment facilities to agricultural, other farming and off-farming activities in the rural areas.

• To finance self-employment and income generating activities of the rural people, particularly the rural unemployed youths and the rural poor.

• To alleviate rural poverty through integrated rural development approach.

• To extend investment facilities for rural housing, keeping in view the needs of housing facilities of the rural dwellers.

• To provide educational services and safe drinking water, sanitation & Medicare facilities to the down trodden people.

Agricultural implements investment scheme:

Bangladesh is predominantly an agricultural country with vast majority of people living in rural areas. Most of our people for their living are dependent on agriculture. Agriculture still contributes the lion share of the gross domestic product. But we could not as yet become self-sufficient in food production. We still import a bulk quantity of food grains from abroad to meet the deficit. We must modernize our agriculture and establish more and more industries in order to minimize imports

The Bank has introduced “Agriculture Implements Investment Scheme” to provide power tillers, power pumps, shallow tube-wells, thrasher machine etc. On easy terms unemployed youths for self-employment and to the farmers help augment production in agricultural sector.

Objectives:        

• To create opportunities for self-employment of un-employed rural youths.
•  To help farmers to augment agricultural production.
•  To assist in the introduction and use of modern technology in the agricultural sector.
•  To play auxiliary role in achieving self-sufficiency in food production.

Micro industries investment scheme:

Al-Arafah Islami Bank  Ltd. has been appreciably participating in this direction by financing industrial sector. With a view to creating wider base for industries, the Bank has decided to launch “Micro Industries Investment Scheme” through its Branches.

Objectives:  

1.         To create income generating employment opportunities through establishment of new micro industries and BMRE of existing units by providing necessary investment facilities.
2.         To encourage establishment of micro industries in different areas of the country by potential entrepreneurs like educated unemployed youths, technically qualified and skilled /semi skilled persons.
3.         To encourage wage-earners to utilise their hard-earned money in the country by providing additional investment needs for establishment of micro -industries.
4.         To provide investment facilities for self -employment of the unemployed and under employed persons having education, knowledge, skill, experience and initiative to undertake micro industrial enterprises.

SOWT Analysis of AIBL

Strength of the Branch

1. Strong Liquidity position
2. Stable source of fund
3. Largest Network of branches among the banks

Weakness of the Branch

• Marginal capital adequacy ratio.
• Inadequate IT infrastructure
• Lack of Islamic money market instrument

Opportunities of the Branch

• Rising awareness of Islamic banking
• Regulatory environment favoring private sector development
• Goodwill.

Threat of the Branch

• Increased competition in the market for public deposits
• Shrinkage in export, import and guarantee business due to economic slump and war Government Rules and regulation.

Investment pricing techniques

The pricing of investment products shall be judiciously and appropriately made taking in view the bank rate, cost of fund, risk factor involved, ruling investment prices of the banking sector, demand / supply interaction of the investment products, socioeconomic impact of investment products and national priority. Flexibility and competitiveness shall also be taken into consideration to ensure that the pricing is appropriate and competitive for easy marketing of the products, to yield fair rate of return on investment s as well as to uphold the social welfare objectives of the special investment schemes. The pricing shall be reviewed and evaluated from time to time and be adjusted as per prevailing situation and experiment.

• The price of an investmentis the “lump sum profit” that the buyers (investment clients) must pay to the sellers (bank); in addition to the amount principal.
• The price or the “profit” of an investment is determined by the true cost of the investment to the bank (base rate) plus profit / risk premium for the bank’s services land acceptance of the risk.
• The components of the true cost of an investment are:

1.Administrative cost

2.Cost of capital

These two components add-up to the bank’s “cost”.

Administrative cost = Administrative cost (godown rent, transport cost and godown staff salary).

Cost of capital = Return on capital or the Rate of Return investors

Profit charge= Purchase price (cost) + administrative cost +agreed Profit

(Fixed in lump sum or in percentage of the cost price of the goods)

There are many Causes of overdue. Some import causes are as follows:

1. Wrong in the selection of the client
2. Wrong in the selection of project / firm
3. Not to assess / appraise project properly (management, credibility, marketing and financial aspects)
4. Not to assess working capital. Over estimation or under estimation must be avoided.
5. Not to finance timely
6. Diversion of fund by the client
7. Not buying and selling of the goods properly
8. Dishonesty of the client
9. Lack of supervision, monitoring and follow up
10. Not to realize required equity of the client

Rebate

Rebate may be allowed to the investment account (at the calculated rate of profit) in lump sum, but very nearest to the Rate of Return for earlier adjustment of the concerned amount within due date.

Compensation

Bank may charge compensation on the overdue investment accounts for the overdue period at the calculated rate of profit. But no compensation is charged without the approval of the Review Committee. The branches must send R.C. Memo to Head Office immediately after the account becomes overdue. Preferably within 7 days from the date of overdue of the account. Against Review Committee’s specific approval the compensation may only be charged on the concerned overdue account at the calculated rate of profit.

Profit / compensation charged on investments classified as substandard and doubtful be kept in suspense and not be taken as income

Imposition of profit / compensation is stopped on investments classified as Bad / Loss. In case of filing suit profit / compensation may be charged up to the date of filing suit and suit to be filed for principal; and profit / compensation amount. But profit / compensation to be kept in suspense account profit / compensation charged for any other reason on investment classified as Bad/ Loss also to be kept in suspense Accounts.

Deposit Trends of Four Banks:

           Table: (Deposit of four banks)                         Tk. in million

The table shows that Islami Bank Bangladesh contains the higher position in the consecutive years. After that EXIM Bank contains the second position among four banks.

Trend of Investment in Share & Securities of Four Banks:

Table: (Trend of investment of four banks)         Tk. in million

From table we can say that Islami Bank Bangladesh maintains the highest position in investment of share and bonds, and again EXIM Bank Remains in the second position where Al-Arafah Islami Bank in third and Social Islami Bank in fourth position.

Mode wise Investment of Al-Arafah Islami Bank Limited

Table: 4 (Mode wise Investment Data)                    Taka in million                                     

(Mode Wise Investments of AIBL as on 31 December 2009)

The mode wise investment of Al-Arafah Islami Bank describe the Bai-Muazal is in top position of the investment sectors. Then Murabaha is in the second position and HPSM in third and Quard in fourth position.

Mode wise Investment of Islami Bank Bangladesh Limited

Table:  (Mode wise Investment of IBBL)         Taka in Million                                                                                  

Chart: (Mode wise Investment of IBBL)

From the table  it can be described that the Bai-Murabaha maintains the highest position of the around 51% among the other sectors. HPSM is the second position of the investment sectors which maintains the 34.64% of total investment and Mudaraba is nil in 2009 and Musharaka is the lowest portion of the investment.

Mode Wise investment of EXIM Bank Ltd.:       

Tk. in million

Table: 7 (Mode Wise Investment of EXIM Bank)

 Total deposit and investment position: 2005 to 2009 of Al-Arafah Islami Bank Ltd.  

                                                                                                                      Tk. in Million                     

The graph shows the deposit and investment opposition of Al-Arafah Islami Bank from 2005-2008. From this graph it can be noticed that the in 2007 the investment total is higher than the 4 other previous year and the investment of total deposit is gradually is decreasing up to 2009 and from 2005 the total investment is gradually is increasing up to 2006.

Total deposit and investment position: 2005 to 2009 of Islami Bank Bangladesh Ltd.:

                                                                                       Tk. in Million  

The graph shows the total investment position of Islami Bank Bangladesh Ltd. It can be observed that the investment is continuously increasing from 2004-2008. In 2009 investment position is the top most which is the result of continuously increment of the periods. It is the good symbol for the company that the attain in its investment.

 Total deposit and investment position: 2005 to 2009 of Social Investment Bank Ltd.:  

  Table:  (Total deposit and investment of SIBL)                                                 Tk. in Million

The graph shows the percentage of total investment of total deposit of Social Islami Bank Limited. The graph describes says that in 2007 the investment was higher among the periods and gradually decreases to 2009. From the very beginning 2005 the investment percentage were increasing to 2006. The 2005 was the worst position in the percentage of investment.

Total deposit and investment position: 2005 to 2009 of EXIM Bank Ltd.:

 Table: (Total deposit and investment of EXIM Bank)  Tk. in Million                                                                                                                                                            

The chart shows the total percentage of investment of total deposit of EXIM Bank Limited. The shows the investment is increases and decreases sometimes throughout the period. But in 2005 the investment was higher among the periods. And the percentage of investment decreases dramatically in 2006. In the following year the investment is going to increase up to 2008 and in 2009 the investment is decrease.

 Sector-wise Investment of Al-Arafah Islami Bank Ltd.: 

Table:  (Sector-wise Investment)                                      Tk. in Million                                                                                                               

In 2008 the company given more emphasis to trade finance sector and in the similar year in industrial sector dominates the second position of the investment storage sector is in lowest position. Comparing to the industry, construction, water works and sanitary services, transport, agriculture and others maintain the progressive position of these sectors.

Sector-wise Investment of IBBL

Table:  (Sector-wise Investment)                                                         Tk. in Million

In 2009 the Islami Bank Bangladesh Ltd., all the time maintain the higher position compared to 2008. The most noticeable sector is the industrial phase. The lowest portion is the transport sector.

Sector-wise Investment of Social Islami Bank Ltd.:

Table:(Sector-wise Investment)                                Tk. in Million

In 2009 the company given more emphasis to industry sectors for investment and after that the company emphasis to commercial sector to investment because commerce is the most potential aspect of investment to carry out the progress of the country and for the nation. Besides these micro investment is the lower position of the other sectors.

Sector-wise Investment of EXIM Bank Ltd.:

Table:  (Sector-wise Investment)                                    Tk. in Million

From the table it can be shown that the sector wise investment of EXIM Bank Ltd. In textile industries sector is the most important sector for investment of the bank among the other sectors. The company chooses it for its more potentialities and for its bright future. The also emphasizes on the other sectors for investment finances for export and commercial sectors are also important.

Problems and Prospects of AIBL 

Despite tremendous popular support spectacular success in terms of mobilization of deposit and distribution of profit Islamic banking in Bangladesh yet to achieve the desired level of success due to the absence of appropriate legal framework for carrying out Islamic Banking operations in the country. All the government- approved securities in Bangladesh are interest bearing; Besides, Islamic Money Market in Bangladesh is yet to develop. As a result the Islamic banks, which are committed to avoid interest, cannot invest the permissible part of their Statutory Liquidity Reserve and short Term Liquidity in those securities.

AIBL  is experiencing different problems including the investment program under the Islamic Shariah. Due to this, it is yet to conduct the some schemes which are agreed with the Islamic law and some of the schemes has already been closed and which are under operations are not out of flows.

The following section highlights the major findings of the problem that are associated with the investment program of AIBL.

The problem of Musharaka:

•  The concept of Mudarib being amen (trustworthy) is the cornerstone of the application of the technique. The fact that the Sahib-al-mal (in this case the bank) bears all the loss in Musharaka may result in moral hazards.
• The presence of moral hazards may not allow the bank to make large investment with and individual Mudarib. This may affect the profitability of the bank.
•  Too much adventurism can bring about low profit or even loss, and that may lead to the loss of customer.
• Lack of knowledge
• Lack of expertise persons
• Lack of governmental support
• Lack of legal framework of Islamic Banking in Bangladesh
• Uncertain cost of capital
• Opportunity cost of capital

The problem of Bai-Salam:

1.       The asset can yield income only during its productive life. it is also uncertain what price the asset will fetch if the bank wants to dispose it at any time during its productive life.
2.    Uncertainty about the extent to which the asset will remain on lease during its life.
3.    On expiry of the contract with the first lessee, the owner cannot be certain how long it may take to find another lessee or how much rent will then be agreed. Even if the first lessee renews the contract, it is quite possible that he might demand a reduction in the rent against possible defect that may adversely affect the productivity or service for which the asset was rented.
4.       Leasing based techniques creates liquidity problems.

The problem of Bai-Muajjal:

1.   Client doesn’t repay the profit in time.
2.   Bank has to bear the risk of goods until those are delivered to the client and the bank is also responsible for any damages of the goods in this period.
3.    The bank will face problem if the client refuse to satisfy the contract.

The problem of Bai-Murabaha:

  Client doesn’t repay the profit in time.

  Bank has to bear the risk of goods until those are delivered to the client and the bank is also responsible for any damages of the goods in this period.

  The bank will face problem if the client refuse to satisfy the contract.

General problems:

•   The decoration of the branches is older than other commercial banks.
•   They don’t use the Share Mode of investment.
•   Absence of Islamic Money Market.
•    State law defers with Islamic Shariah
•    Lack of proper monitoring system of the Islamic Banks by the central bank
•    Absence of Islamic Economic system in Bangladesh.
•    In the money market of Bangladesh there is no easy provision to take short time loan from the bank.

Recommendations

As we have seen from the comparison the four banks are trying to perform well in the previous years. The recommendations for Al-Arafah Islami Bank and other three banks (EXIM, Islami Bank Bangladesh Limited, Social Islami Bank Limited) are as follows:

 Recommendation to Al-Arafah Islami Bank Limited: 

This bank should increase the deposit amount in the following years. In 2009 the bank deposited BDT Taka 29690.12 million which is very little to BDT Taka 200343.41 million of Islami Bank Bangladesh Limited. They should increase the deposit in the next years. The investment position of the bank is also lower compared to the other banks except Social Islami Bank Limited. The bank should increase the investment. The mode wise investment of this bank is not satisfactory so it should be developed. This bank is almost maintaining the traditional banking so it should innovate on-line banking. The bank should increase the branch network and should introduce new technology. The information should be available to the shareholders.

Should launce centrally on-line banking:

Al-Arafah Islami Bank Limited yet not started centrally on-line banking system. To coup with the new customers the banks should launce or introduce new banking and modern technological system banking.

Recommendation to the Government:

The government should take an initiative to open an Islamic money market in Bangladesh.

The government should also take an initiative to develop a legal framework of Islamic banking in Bangladesh.

The government should develop an Islamic economic system in Bangladesh.

Recommendation to the Civil Society:

The people should improve their morality for the proper use Islamic banking in Bangladesh. They should return the amount of profit in due time.

Recommendation for Islami Bank Bangladesh limited:

Should enhance ATM network:

The ATM networking system of Islami Bank is not so enhanced. The transaction through IBBL ATM incurs problem. The system deducted more money from the client’s account. This type of service gathers chaos and customers’ satisfaction. They also need to install more ATM booths to provide service quickly and easily to the customers.

Increase investment:

Through the observation of comparative analysis of four banks it is firstly noticeable that IBBL all time maintains the top position among the four banks. There are diversified sectors of investment in Bangladesh and the potential sectors are increasing day by day. The Islami Bank Bangladesh Limited will meet the demand of all diversified sectors. All the Islami banking and general banking system will increase the investment portion and will contribute in the national and domestic progress of income.

Recommendation to Social Islami Bank Limited:

The Social Islami Bank is one of the potential banks in Bangladesh to foster the Islami Banking system. In bank is performing very well in this country and getting rewards for their excellent performance. Incase of deposit the bank should be increase compared to the other three banks. The deposit is lower among these four banks. In investment sector the word lower is possible to repeat among these four banks. So the should be increase in the following year. The mode wise investment of the bank is in fourth position among these four banks. The mode wise investment of this bank should be increased. The bank should establish more branches and install more ATM booths and introduce on-line banking to carryout more customers and to earn more profit.

Recommendation to EXIM Bank:

Enlarge customers in different sectors:

They have to increase their Letter of Credit (LC) customer. Banks take margin against opening LC. They charge the margin on the customer according to their relationship with that bank. In the competitive market, EXIM bank should charge a lower rate of margin over the customer to increase the customer and maintain a long term relationship with the customer.

Give more training and development to increase the efficiency level of the employee:

Every company should establish an efficient customer care service. Because with this they can stay touched with the customer and customer can get immediate help of their problem. To establish that the specific company should have to have an efficient employee group.

Commence new creation and services:

EXIM Bank already has the online banking services. But they don’t have own ATM booth. Their consumers withdraw cash by using the others banks booth. They have to introduce their own credit card service.

• Increase loans and advances in the prospective sectors:

• Upgrade the existing system by using the latest software programs
• Increase the promotional activities and develop the R & D.

 Conclusion

The Islamic Banks are performing as the satisfactory level to meet the optimum financial flow in Bangladesh and outside the Bangladesh. They are trying to invest among different types of people. They are helping very much people to properly operate their business and their family effectively. The most of the people of our country are living under the poverty line. The Islamic Banks are operating according to the Islami Shariah.

The four banks mentioned here are investing in different sectors in to execute their business and profitably. The investment position of four banks is different in the various sectors. The scenario of deposit of these banks is increasing in the last previous years. The Islami Bank is in the top position of investment among the four banks. The EXIM bank in the second position more than 57000 million in 2009 and Al-Arafah in third position and Social Islami Bank in the fourth position and deposited near to taka 24000 million in 2009. In the review of investment position among the four banks Islami Bank Bangladesh is in the first position and invested Tk. 187586.55 million in 2009, EXIM Bank is in the second position and investment amount tk.2894 million in 2009 which is the increase position of these banks. The Al-Arafah Islami Bank is in the third position and invested amount taka 1090 and Social Islami Bank in the fourth position in 2009 among the four banks.

In the preview of mode wise investment the Islami Bank Bangladesh Limited is maintaining the optimum position. Incase of total deposit and investment Islami Banks is in the first position and Social Islami Bank in the fourth position in 2009.