Overall Performance of Al-Arafah Islami Bank Limited

The main purpose of the report is to analysis Overall Performance of Al-Arafah Islami Bank Limited. Other objectives are to find out the marketing strategy and financial performance of Al-Arafah Islami Bank. Here also analysis the competitive strength and weakness and the marketing and expansion strategy of bank that can help to face the potential threats and opportunities. Finally 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.

Introduction

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.

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.

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.

Other than this Al-Arafah Islami Bank Library arranges shows of feature films or Documentary films on Islamic life & Culture.

General Banking

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: –

• Cash Section
• Accounts Opening Section
• Cheque Clearing Section
• Remittance Section

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.

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.

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.

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:

• Demand Draft
• Telegraphic Transfer
• Telephone Transfer
• 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.

• Examine genuinely the pay order
• Enter into PO register and give contra entry
• 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:

• Confirm that the DD is not forged one.
• Confirm with sent advice.
• Check the “Test Code”
• 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.

Payment process of TT is:

• Confirm issuing branch
• Confirm payee A/C
• Confirm amount
• Make payment
• Receive advice

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)

Installment Term Deposit (ITD)

• Mudaraba Hazz Account
• Mudaraba Pension Scheme
• Mudaraba Lakhpoti Scheme
• Mudaraba milliner Scheme
• Mudaraba Kotipoti Scheme
• 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

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
• Whether the paying bank outside Dhaka
• 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:

Transfer Cheque

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

Local Bills Collection Cheques (LBC)

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

Outward Bills Collection Cheque (OBC):

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

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

Outward Clearing

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

Inward Clearing

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

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:

1. A) Import
2. B) Export
3. 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:

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).

Accounting Procedure in case of L/C Opening

When the officer thinks fit the application to open a L/C, giving the following entries-creates the following charges-

Amendment of L/C:

After opening of L/C some time’s alteration to the original terms and conditions become necessary. These amendments involve changes in:

a  Unit price

1. Extension of validity o the L/C
2. Documentary requirements etc.

Such amendments can be affected only if all the concerned parties agree i.e. the beneficiary, the importer, the issuing bank and the advising bank.

For any amendment the importer must request the issuing bank in writing duly supported by revised indent/proforma invoice. The issuing bank then advises the required amendment to the advising bank. L/C amendment commission including postage is charged to the clients A/C.

 Loan against Trust Receipts (LTR)

• Advance against a Trust Receipt obtained from the Customers are allowed to only first class tested parties when the documents covering an import shipment or other goods pledged to the Bank as security are given without payment. However, for such advances prior permission/sanction from Head Office must be obtained.
• The customer holds the goods or their sale-proceeds in trust for the Bank, till such time, the loan allowed against the Trust Receipts is fully paid off.
• The Trust Receipt is a document that creates the Banker’s Hen on the goods and practically amounts to hypothecation of the proceeds of sale in discharge of the lien.

Loan Against Imported Merchandise (LIM)

Advance (Loan) against the security of merchandise imported through the Bank may be allowed either on pledge or hypothecation, of goods, retaining margin prescribed or their Landed Cost, depending on their categories and Credit Restriction imposed by the Bangladesh Bank. Bank shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM Account.

 Payment Procedure of Import Documents

This is the most sensitive task of the Import Department The officials have to be very much careful while making payment. This task constitutes the following:

Date of Payment

Usually payment is made within seven days after the documents have been received. If the payment is become deferred, the negotiating bank may claim interest for making delay.

Preparing Sale Memo

A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter Branch Exchange Trading Credit Advice is sent to ID.

Requisition for the Foreign Currency

For arranging necessary fund for payment a requisition is sent to the International Department

Transmission of Message

Message is transmitted to the correspondent bank ensuring that payment is being made.

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

 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.

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.

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.

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

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.

RISK IN FOREIGN EXCHANGE BUSINESS

Foreign Exchange Business involves the following risks:

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

• 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.

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

• 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.

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

• 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.

Investment Division

AL-ARAFAH-ISLAMI is a new generation bank. it is committed to provide high quality financial services/products to contribute to the growth of GDP of the country through stimulating trade & commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and over all sustainable socio-economic development of the country. In achieving the aforesaid objective of the bank, investment operation of the bank is of paramount importance as the greatest share of total revenue of the band is generated from it, maximum risk is centered in it and even the very existence of band depends on prudent management of its investment portfolio. The failure of a commercial bank is usually associated with the problem in investment portfolio and is less often the result of shrinkage in the value of other assets. As such investment portfolio not only features dominant in the assets structure of the, it is critically important to the success of the bank also. In view of the above this investment policy and control guidelines of the bank has been prepared which is subject to amendment, revision, readjustment and refinement from time to time as may be warranted by the change of circumstances due to passage of time to suite the requirement of the bank.

Investment policy:

The investment policy should be updated annually to reflect changes in the economic outwork and evolution of bank’s investment portfolio. The investment proposal should be forwarded to head office for sanction with recommendation showing justification that should include the following:

a) Industry and business segment focus:

The bank shall provide suitable investment services & products for the following sectors, which must meet the other requisites as set by the bank from time to time.

Sectors:-

a) Steel & engineering.

b) Food & Allied.

c) Agriculture.

d) Textile & garments.

e) Pharmaceuticals & Chemicals.

f) Paper & paper products.

g) Service industries.

h) Housing & real Estate.

i) Cement.

j) Bricks Fields.

k) Edible oil.

l) Assembling industry.

m) Cottage industry.

n) Electronics & Electrical Commodities.

o) Construction company.

p) Trading (retail/whole sale)

q) Others.

Every year at the time of investment budgeting a clear indication of banks appetite for growth to be reflected approved investment budget shall be strictly followed for the development of the bank.

b) Investment categories:

As initiated by Bangladesh bank vide BCD circular no. 33 dated 16-11-89 different kinds of lending were subdivided into 11 categories w. e. f 01-01-90, which was subsequently reduced to 9 vide BCD circular no. 23 dated 09-10-93 and again to 7 prime sectors vide BCD circular no. 8 dated 25-04-94 for fixation of rates of profit by the individual banks on competitive basis depending on the cost of funds, prevailing market condition and monetary policy of the country.

Investment has primarily been divided into two major groups:

i) lzara bill baia: these are the investments made by the bank with fixed repayment schedules. the term of investment are defined as follows:

Short term                  :           up to 12 months

Medium term             :           more than 12 and up to 36 months.

Long term                  :           more than 36 month.

ii) Continuing investments: these are the investments having no fixed repayment schedule, but have an expiry date at which it is renewable on satisfactory performance.

Further all categories of investments have been accommodated under the 7 prime categories as under:

1.Agriculture:

Investment facilities to the agriculture sector fall under this category. it is subdivided into tow major heads:

Investment to primary producers: financing under these categories refers to the investment facilities allowed to production units engaged in farming, fishing, forestry or livestock.

Investments to processors or traders of agricultural products are not to be categories as agricultural investments.

investments to tea gardens for production are treated as agricultural investment, but investments to tea gardens for export should be treated under the category “investment on export’’. Similarly medium and ling term investments to tea gardens are categorized as industrial term lending.

Investment to dealers/distributors: it refers to the financing allowed to input dealers and (or) distributors in the agricultural sectors.

Agriculture investment may include short, medium and long investments as well as continuing investment. As such it may fall under the head “lzara bill baia /lzara bill baia (HP)/lzara (LF)”

2. lzara bill baia for large & medium scale industry: this category of investments accommodate the medium and long term financing for capital structure formation of new industries or for BMRE Of The existing Units who are engaged in manufacturing goods and services.

3.lzara bill baia to small & cottage industry: these are the medium and long term investments allowed to small & cottage manufacturing industries (small industry is  presently defined as those establishments whose total investment in fixed capital such as land, building machinery and equipment (excluding taxes and duties) does not exceed 30 million taka and investment in cottage industries also fall within this definition).

No short term or continuing investments are to be included in this category.  Like the large & medium scale industry it is also allowed in the form of “lzara bill baia/ lzara bill baia (HP)/lzara (LF)”.

4.Working capital: investment allowed to the manufacturing units to meet their working capital requirements, irrespective of their size-big, medium or small, fall under the category.

These are usually continuing investments and as such fall under the head “Bai-Muazzal”.

5.investment on export: investment facilities allowed to facilitate export of all items against letter of credit and/or confirmed export orders fall under this category. it is accommodated under the heads “Musharaka pre- shipment (ECC), Musharaka pre- shipment(PC), foreign documentary bills purchased (FDBP), Local Documentary Bills Purchase (LDBP) etc.

6.Commercial lending: short-term investments and continuing investments allowed for commercial purposes other than exports fall under this category. It includes import financing, financing for internal trade, service establishment etc. no medium and ling term investments are accommodated here. these category of investments are allowed in the from of (i) Murabaha post import (MPI) (ii) investment against trust receipt (TR) (iii) Murahaha import bills (MIB), (iv) Bia-Muazzal, (v) lzara bill baia, etc. for commercial purposes.

Others: any investment that does not fall in any of the above categories is considered under the category “Others”. It includes investment to (i) transport equipments; (ii) Construction works including housing (commercial/residential), (iii) work order finance, (iv) Personal investment, etc.

c) TYPES OF INVESTMENT FACILITIES:

Depending on the various nature of financing all the lending activities have been brought under the following major heads:

lzara bill baia (general)

Short term, medium term & long term investments followed to individual/firm/industries for a specific purpose but for a definite period and generally repayable by installments fall under this head. This type of lending is mainly allowed to accommodate financing under the categories (i) large & medium scale industry and (ii) others are also included here.

Izara Bill Baia (HB):

Investments allowed to individual/enterprises for construction of house (commercial) fail under this type of investment. The amount is repayable by monthly installment with a specified period. Such investments are known as Izara Bill Baia (HB): No investment for construction of residential house building shall be accommodated to the Bank’s customer where there is no other business consideration.

Izara Bill Baia (Staff HB):

Investment allowed to our Bank employees for purchase/construction of house shall be know as Investment (STAFF HB).

Other Investment to Staff :

Investment allowed to employees other than for House Building shall be grouped under head of Staff Izara Bill Baia (General).

Bai-Muazzal:

Investment allowed to individual/firm for trading as well as wholesale purpose or to industries to meet up the working capital requirements against hypothecation of goods as primary security fall under this type of lending, it is a continuous investment. It is allowed under the categories (i) “Commercial Lending” when the customer is other than a industry and (ii) “Working Capital” when the customer is an industry.

Murabaha:

Financial accommodations to individual/firm for trading as well as for wholesale or to industries as working capital against pledge of goods as primary security fall under this head of investment. !t is also a continuous investment and like the above allowed under the categories (i) “Commercial Lending” and (ii) Working Capital”. ‘

Izara Bill Baia (HP) :

Izara Bill Baia (HP) is a type of installment investment under which the Purchaser agrees to take the goods on hire at a stated rental, which is inclusive of the repayment of Principal as well as profit for adjustment of the investment within a specified period.

Izara (LF) :

Izara (LF) is one of the most convenient sources of acquiring capital machinery and equipment whereby a client is given the opportunity to have an exclusive right to use an asset usually for an agreed period of time against payment of rent. It is a term financing repayable by installment.

House Hold Durable Scheme (HDS) :

It is a special investment scheme of the Bank to finance purchase of consumer durable to the fixed income group to raise their standard of living. The investments are allowed on soft terms against personal guarantee and deposit of specified percentage of equity by the customers. The investment is repayable by month installment within a fixed period.

Bai-Muazzal (General/FO) :

Investment allowed to individual/firms against financial obligation (i.e. lien on MTDR/ PSP/BSP/insurance Policy/Share etc.) This may not be a continuous Investment.

Bai-Muazzal (WO):

Investment allowed against assignment of work order for execution of contractual work fails under this head. This investment is generally allowed for a definite period and specific purpose i.e. it is not a continuous investment.

Bai-Muazzal (Export) :

Investment allowed for purchasing foreign currency for payment against L/Cs (Back to Back) where the exports do not materialize before the date of import payment. This is also an investment for temporary period, which is known as export finance and fafls under the category “Commercial Lending”.

Murabaha Import Bills (MIB) :

Payment made by the bank against lodgment of shipping documents of goods imported through L/C falls under this head. It is an interim investment connected with import and is generally liquidated against payment usually made by the party for retirement of the documents for release of imported goods from the customs authority it fails under the category “Commercial Lending”.

Murabaha Post Import (MPI) :

Investment allowed for retirement of shipping documents and release of gods imported through L/C taking effective control over the goods by pledge in Godown under Bank’s lock & key fall under this type of investment. This is also a temporary investment connected with import that is known as post-import finance and falls under the category “Commercial Lending”.

Trust Receipt (TR) :

Investment allowed for retirement of shipping documents and release of goods imported through L/C fall under this heard. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the investments within a given period. This is also a temporary investment connected with import and know as post-import finance and falls under the category “Commercial Lending”.

d) SINGLE BORROWER/GROUP LIMITS/SYNDICATION:

Bank may allow investment facilities to a single customer/Group (Funded & non funded) up to its 50% of total capital out of which funded facilities must not exceed 25% of total capital. All proposal submitted to Head Office will also be required to indicate the extent of the Bank’s global exposure to that customer group.

Group exposure shall be deemed to include the total investment facilities as detailed below:

• Investment facility in the name of the borrower.
• Investment facility in the name of the firms & companies in which the borrower or its partner or its director is the proprietor or a partner or a Director.
• Investment facility in the name of any firm of company in which the borrower or its partner or its director owns 20% or more share even if not a Director.
• Any Investment facility guaranteed by the borrower or its partner, or its Director.

However, definition of group exposure if given by Bangladesh Bank shall be followed regardless of the above definition.

e) LENDING CAPS:

The Bank shall establish a specific Industry sector exposure cap by preparing a sector wise investment budget In order to avoid over concentration in any one-industry sector. The Investment budget shall release (after approval from the Board) in the month January of every year. Investment budget shall be proposed /released considering the following points:

Total Facilities:

The aggregated of all cash facilities shall not exceed 80% of customer’s deposits; it is further governed by the statutory and liquidity reserve requirement of Bangladesh Bank.

Term Facility :

Aggregate Long Term facilities shall’ not exceeds 20% of the total investment portfolio. Facilities shall not be allowed for a period exceeding 5 (Five) year. Any exceptions will require the approval of the Board of Director.

Unsecured Facilities:

Aggregate Bank investments to corporate or individual customers which are not secured by collateral and are allowed on the strength of customer’s personal integrity and financial standing or the corporate customer’s balance sheet, with or without hypothecation of stock shall not exceed 30% of the total investment portfolio.

No clean investments are allowed to accommodate.

Sector-wise Allocation:

Sector-wise allocation of investment/investment budget shall be made in the month of January of each year with the approval of Executive Committee/Board of Directors. This will be reviewed from time to time.

Security:

Security accepted against investment facilities shall be properly valued and shall be affected in accordance with the laws of the country in which the security is held. An appropriate margin of security will be taken to reflect such factors as the disposal costs or potential price movement of the underlying assets.

f) DISCOURAGED BUSINESS TYPE:

The Banks should outline industries or leading activities that are discouraged. As a minimum, the following should be discouraged.

–   Military Equipment/Weapons Finance.

–   Highly Leveraged Transactions.

–   Finance of Speculative Investments.

– Logging, Mineral Extraction/Mining, or other activity that is Ethically of Environmentally Sensitive.

– Lending to companies listed on CIB black list or known defaulters.

– Counter parties in countries subject to UN sanctions.

– Share Lending.

– Taking an Equity Stake in Borrowers.

– Lending to Holding Companies.

– Bridge Investments relying on equity/debt issuance as a source of repayment.

– Tannery Finance.

– Izara Bill Baia (HB-residential) who has no other business with the Bank

INVESTMENT FACILITY PARAMETERS:

a) Tenure:

Bank shall not ordinarily go for any investment facilities for long term basis. Short-term investment facilities shall be for 3 month to 12 months. Medium term investment shall be 12 months to 36 months. Long terms investment shall be more than 36 months.

b) Size:

i) Maximum 50% (Funded & non-funded) of total capital of the Bank

ii) Maximum 25% (funded) facility of total capital of the bank.

c) Security:

All assets (Bai-Muazzal & Murabaha) must be covered under proper insurance risk with enlisted insurance Companies. Insurance coverage obtained outside enlisted companies are discouraged. For valuation of securities following guidelines to be followed:

Valuation of Primary Security:

• MPI: MPI facility shall be allowed as post-import finance against imported goods under our L/Cs. MPI facility should not exceed invoice value net of L/C margin unless the4 Bank agrees to finance duties/VAT. However, where market price of the goods is lower than landed cost necessary arrangement should be made with the customer to obtained additional deposit. Head Office should approve the price at which MPI goods to be released to customer or it may be at market price or landed cost whichever is higher,
• Murabaha: Valuation of the goods to be pledged to the Bank against Murabaha limit shall in no cases exceed:

1. The landed cost or market prices whichever is lower in case of imported goods.
2. The ex-mill/factory price of market price whichever is lower in case of domestically manufactured commodities as evidenced by invoice.
3. The wholesale price/competitive market price duly verified by the Branch and approved by Head Office.

Valuation of Collateral Security:

Branches should meticulously follow following instructions:

• The property should be physically inspected and verified jointly by 2 (two) Bank’s Officers, one of who should be the Branch Manager of the 2^nd A valuation certificate mentioning market value and forced sale value should be prepared in the designated from supplied to the Branches and to be jointly signed by the above mentioned 2 (two) inspecting officers of the Bank. The forced sale value of the collateral security will have to be 1.5 times higher than the facility/facilities allowed unless specifically waived by the approving authority giving full justification.
• A Site Plan” and “Map” along with 3R size distinct photographs of the mortgaged property covering full exposure from 3 angles mentioning detailed particulars on the back to the photographs duly authenticated by the authorized officer(s) to be obtained by the Branches.
• Its should be ensured that the collateral security is in the physical possession of the mortgagors(s) and the mortgagor(s)/owner(s) has/have valid title over it. >
• A letter of satisfaction from the Bank’s Lawyer to be obtained that the mortgage formality has been properly created.

CROSS BORDERS RISK:

Limit to be established by the Board of individual Country as well as or aggregate Bank Credit exposures to different countries. These limits are to be reviewed from time to time with due regard to the political and economic environment in each country. The country exposure limits may be utilized up to maximum amounts for different maturities as follows:

For maturities up to one year: 100% of the limit.

For maturities up to two years:         maximum 50% of the limit.

For maturities up to three years;       maximum 25% of the limit

For maturities beyond three years:   maximum 10% of the limit.

For exceptions, approval is required from the Board of Director.

LENDING PRINCIPLES:

The Principle of lending is a collection of certain accepted time tested standards, which ensure the proper use of loan fund in a profitable way and its timely recovery. Different authors describe different principles for sound lending.

1. Safety
2. Security
3. Liquidity
4. Adequate yield
5. Diversity

1. Safety

Safely should get the prior importance in the time of sanctioning the loan. At the time of maturity the borrower may not will or may unable to pay the loan amount. Therefore, in the time of sanctioning the loan adequate securities should be taken from the borrowers to recover the loan. Banker should not sacrifice safety for profitability.

AL-ARAFH-ISLAMI Bank Ltd. exercises the lending function only when it is safe and that the risk factor is adequately mitigated and covered. Safety depends upon:

* The security offered by the borrower: and

* The repaying capacity and willingness of the debtor to repay the loan with interest.

2. Liquidity

Banker should consider the liquidity of the loan in time of sanctioning it. Liquidity’ is necessary to meet the consumer need.

3. Security

Banker should be careful in the selection of security to maintain the safety of the loan. Banker should properly evaluate the proper value of the security. If the estimated value is less than or equal to loan amount, the loan should be given against such securities. The more the cash near item the good the security. In the time of valuing the security, the Banker should be more conservative.

4. Adequate Yield

As a commercial origination, Banker should consider the profitability. So banker should consider the interest rate when go for lending. Always Banker should fix such an interest rate for its lending which should be higher than its savings deposits interest rate. To ensure this profitability Banker should consider the prospect of the project.

5. Diversity

Banker should minimize the portfolio risk by putting its fund in the different fields. If Bank put its entire loan able fund in one sector it \\ill increase the risk. Banker should distribute its loan able fund in different sectors. So if it faces any problem in any sector it can be covered by the profit of another sector

Process of Loan:

PROCESS OF HANDLING LOANS:

LENDING AUTHORITY

As sure proper and orderly conduct of the business of the Bank, the Board of Directors’ will empower the Managing Director and other Executives of the Bank to lend up certain amount under certain terms and conditions at their discretion. The lending officer is broadly categorized as follows:

• Managing Director
• Deputy Managing Director
• Executive vice President Asst.
• Senior vice President
• Vice President
• Senior Asst. vice President
• Asst. Vice President.

The amount and scope of each Officer lending authority is a function of the amount and extent of authority required by the officer to carry out his/her responsibilities to the Bank and its clients may prudent, effective manner. It must be emphasized mat an Officer will not be delegated lending authority only on the basis of his position. In other words, an officer does not automatically get lending authority by virtue of his corporate and/ or functional title. Specified lending authority will be delegated by the Managing Director to various Executives after taking into consideration his proven credit judgment, knowledge and experience. The amount of lending authority approved by the Board for various Executives form the upper limits of the authority that may be delegated to an officer holding corporate title. Each individual lending authority will be delegated to him in writing. The managing Director with the Executive Committee/ Board will review all lending authorities periodically.

CIB (Credit Information Bureau)

Bangladesh Bank has established within itself a Credit Information Bureau (CIB), which collects credit information from the banks. Banks are required to furnish such information in respect of credit limit of Tk.50000 and over. They mention the Name of facility, security and charge along with outstanding balance. After consolidating such information in respect of each customer the central bank supplies to the total limits sanctioned to and the number of banks dealing with a party. Thus the banks can find out if any of their customers is having excessive borrowings from the banking system at any particular time.

LOAN CLASSIFICATION:

Loan classification is a process by which the risk or loss potential associated with the loan accounts of a bank on a particular date is identified and quantified to measure accurately the level of reserves to be maintained by the bank to provide for the probable toss on account those risky loan.

Like other banks, all types of loans of AL-ARAFH-ISLAMI fall into following four scales:

• Unclassified: Repayment is regular.
• Substandard: Repayment is stopped or irregular but has reasonable prospect of improvement.
• Doubtful debt: Unlikely to be repaid but special collection efforts may result in partial recovery.
• Bad/Loss: Very little chance of recovery.

CLASSIFICATION OF LOANS:

DOCUMENTATION

Documentation can be described as the process or technique of obtaining the relevant documents. In spite of the fact that banker lends credit to a borrower after inquiring about the character capacity and capital of the borrower he must obtain proper documents executed from the borrower to protect him against willful defaults. Moreover, when money is lent against some security of some assets, the document must be executed in order to give the banker a legal and binding charge against those assets. Documents contain the precise terms of granting loans and they serve as important evidence in the law courts if the circumstances so desire. That’s why all approval procedure and proper documentation shall be completed prior to the disbursement of the facilities.

CONSIDERATION FOR SECURITY DOCUMENT

AIBL considers the following point for obtaining security document:

1. Marketability
2. Easy ascertainment of value

Stability of value

1. Storability
2. Low cost of labor & supervision
3. Transportability

Durability

The securities that is acceptable to the bank in respect of credit facilities

1. Cash & equivalent.
2. Wage earners bond.
3. ICB unit certificate.
4. Precious metal.
5. L/C & Guarantee.
6. Document bills.
7. Rental state.
8. Quality of good security.
9. Clean title.

CREDIT DISBURSEMENT

Having completely and accurately prepare the necessary loan documents, the loan officer ready to disburse the loan to the borrower’s loan account. After disbursement, the loan needs to be monitored to ensure whether the terms and conditions of the loan fulfilled by both bank and client or not.

ADMINSTRATION/MONITORING:

The Administration of the loan process shall ensure. Compliance with all Saws and regulations at both local and global levels including bank policy as set out in this document and the Banks credit manual/ circulars.

Proper analysis of credit proposal is complex and requires a high level of numerical as well as analytical ability and common sense to ensure effective understanding of the concepts and thus common sense. To ensure effective understanding of the concepts and thus to make the overall credit portfolio of the Bank healthy proper staffing of the credit departments shall be done through placement of qualified officials who hare got the right aptitude, formal training in finance, credit risk analysis. Bank credit procedures as well its required experience. Where repayment and interest servicing performance of a credit deteriorates shall be identifies at an early state and closely-monitored to avoid low losses.

Loans/facilities, where appropriate and related security will be monitored and reviewed by a separate unit of unconnected with the credit approval process on a regular basis in order to assess the collected ability of the loan and effectiveness of the security. This Unit will report to the Managing Director or his designated officer.

MARKETING STRATEGIES OF AL-ARAFAH ISLAMI BANK

Vision of AIBL:

To be a pioneer in Islamic Banking in Bangladesh and contribute significantly to the growth of the national economy.

Mission of AIBL:

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

To attain the above vision and mission AIBL follow the following Marketing Strategies:

• The main strategy of the bank is using Islami Banking System to attract its market.
• Providing efficient customer service
• Maintaining corporate and business ethics
• Being trusted repository of customers’ and their financial advices
• Making its products superior and rewarding to the customers
• Display team spirit and professionalism
• Sound capital base
• Enhancement of shareholders wealth
• Fulfilling its social commitments by expanding its charitable and humanitarian activities

• Providing high quality financial services in export and import trade.
• Building tight personal relationship with customers and clients
• Taking less promotional activities and emphasizing on relationship marketing.

FINANCIAL HIGHLIGHTS OF AIBL (2006-2007)

BALANCE SHEET

LIABILITIES:

Capital shareholders equity :

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 2005-2006

GROWTH OF AIBL

PERFORMANCE OF AL-ARAFAH ISLAMI BANK LIMITED

DEPOSIT

The total deposit of AIBL is increasing sharply. The total deposit of bank was Tk. 23009.13 million at 31^st December 2007 as against Tk. 16775.33 million at 31^st December 2006 recording growth of 37.16% of which Tk. 685.50 million was bank deposit and general deposit was 22323.63 million Tk. The graph shows that the deposit collection rate is dramatically increasing year to year:

INVESTMENT

The investment of the Bank stood at Tk. 22906.37 Million as on 31^st December 2007 as against Tk. 17423.19 Million in the previous year showing an increase by 31.47%. The growth of Investment from 2004 to 2007 shown graphically, graph shows that every year the bank earns a huge amount of income from Investment account.

OPERATING PROFIT

The Bank earned operating profit of Tk. 756.18 million during this year 2007 before the pre-tax profit of the bank during the year 2006 was Tk. 969.77 million and thus the bank attained negative growth of 22.02% in respect of operating profit. The growth of operating profit for the year 2004 to 2007 graphically given below. Political unrest, economic recession and many other factors badly affected they total banking sector, so that it earn lower profit than the previous year.

DIVIDEND

The Bank has been paying Dividend every year since 1998 just after conversion of a public limited company. The Board of Directors of the Bank recommend 20% stock dividend in the year 2007, which is lower than the previous year because of lower operating profit. Dividend for different years shown below graphically:

EXPORT

The total export earning in 2004 was Tk.3639.34 Million and in 2007 it was Tk.12714.91 Million. So it is seen that the export earnings was 3.49 times in 2007 than 2004. It is also depicted from the figure.

IMPORT

The total Import earning in 2004 was Tk.9337.49 Million and in 2007 it was Tk.27042.72 Million. So it is seen that the Import earnings was 2.9 times in 2007 than 2004. It is also depicted from the figure

HUMAN RESOURCES

The total number of human resources in 2004 was 771 and in 2007 it was 1033.So number of employees in AIBL has increased by 262 employees from the year 2004 to 2007, which is shown below graphically:

BRANCHES

The total number of Branches in 2004 was 40 and in 2007 it was 46.So number of Branches in AIBL has increased by 6 Branches from the year 2004 to 2007, but in 2007 there were no addition of Branches, this is shown below graphically:

 PERFORMANCE OF AIBL

(THREE YEARS DEPOSIT, INVESTMENT, EXPORT, IMPORT & PROFIT)

ANALYSIS OF DATA

From the above it is seen Dhanmondi branch of AIBL is running well to the goals of the AIBL. Though it has shown some cyclical variation in various years but its deposit collection, investment, export & import activities and above all the ultimate target is showing that Dhanmondi branch of AIBL perform its management expectation satisfactorily.

DEPOSIT

The Bank’s deposit collection rate is quite well such as in 2005 and 2007. It collected Tk. 102.48, 67.4 and 60.89 cores respectively although management targeted Tk.150, 100 and 60 cores respectively. But it could not achieve its target in 2006 and 2007 because Economic recession, political and for many other reasons. But in 2005 it achieve 101.50% of its target. The collection of deposit is gradually increasing. That is shown by the graphically representation.

INVESTMENT

The Branch made more investment than its target in 2005.In 2005 its investment target was 16 crore whereas its achievement was 17.70. In 2006 its target was 40 crore, but achievement was 17.79. In 2007 it has achieved 42.22% of its total target.  The investment is gradually increasing. That is shown by the graphically representation.

EXPORT

AIBL Dhanmondi branch is less export oriented. in 2007 it has an export target of 20 lac only whereas it has achieved 29 lac export which is 148.53% of target.

IMPORT

In 2005 the AIBL Dhanmondi Brach has achieved 94.68 %of its import target. Its target was 15 crore where its achievement was 14.19 crore. In 2006 and 2007 Its import target was 30 and 20 crore respectively where its achievement was 12.51 and 20.06 crore respectively. Achievement percentage in 2006 and 2007 was 41.7% and 100.31% respectively.

PROFIT

The profit earning capacity of the branch is not good. This branch is failed to fulfill the targeted profit in 2007. Its target was 10 crore where it achieved only 1.19 crore, which is 11.96% of its target. The branch achieved 100.10% and 103.14% of its target 2005 & 2006 respectively. High operating expense is the worst condition of profit. The graph shows how year to year the branch earned its profit.

SWOT ANALYSIS

Not surprisingly, in the competitive arena of marketing era SWOT analysis is a must based on Product, Price, Place and Promotion of a financial institute like private bank. From the SWOT analysis we can figure out ongoing scenario of the bank. So to have a better view of the present banking practices of Al-Arafah Islami Bank Ltd.

SWOT Analysis

In SWOT analysis two factors act as prime movers

• Internal factors which are prevailing inside the concern which include Strength and weakness.
• On the other hand another factor is external factors which act as opportunity and threat.

Strength:

• Usage of faster PC Bank software.
• Membership with SWIFT.
• Good banker-customer relationship.
• Online banking system.
• Islami Shariah based Banking system.
• Energetic as well as smart work force.
• Competitive Profit provider comparing with other Islamic Bank.
• Strong Financial Position.
• Efficient administration

WEAKNESS:

• Reluctance to ad campaign.
• Existing manual vouchers.
• Lack of consumer credit scheme.
• Manpower is not sufficient.
• Marketing policy is not well setup.
• Limited number of branches in its network.
• Officers have limited experience and not enough trained
• Many inexpert and laggard assistant officers.
• The bank has no ATM service
• Insufficient number of deposit Scheme and loan.

OPPORTUNITY:

• Huge business area.
• Introducing consumer credit scheme.
• Growth of sales volume.
• Introducing branch banking through online.
• Develop relations and correspondence with foreign banks.
• More concentrated Banking based on Islamic Shariah.
• Few Competitors practicing Islamic Banking.

THREATS:

• Competitors have more attractive deposit schemes.
• Bangladesh Bank has no well established Islami Banking Rules.
• Different classic services of other banks.
• Entrance of new private commercial banks.
• Young, energetic, dynamic, talent and smart work force of competitors.
• imposes high rate of taxes and VAT.
• Political unrest and Economic recession.
• Illegal business operation by the some clients.

Findings and Analysis:

• AIBL profit earning capacity is not satisfactory.
• Its marketing strategy is not well designed.
• Existing Human Resources are not sufficient for AIBL. They have to recruit more skilled employees.
• Number of Branches are not satisfactory, AIBL have to give more emphasize on increasing number of Branches.

• Recruitment and selection process is a time consuming and lengthy process and irregular.
• The whole activities of AIBL is not computerized, still there exist manual record keeping system.
• Sometimes Islami Shariah are not properly followed.
• Job security is lower in AIBL.
• Insufficient training program for the employees.
• Slower in modernization comparing with its competitors.
• The working environment in any branch is not congenial & appropriate. The working desk provides sound pollution. It looks like a hall room.
• The modern technology is not used in the recruitment and selection process. The backdated methods are using for selection till today.
• Salary structure of AIBL is satisfactory comparing with other Islamic Banks, the pension policy and the payment of pension to the employees are very fair and transparent.
• The transfer and promotion process is fair but the promotion is not faster.
• Loan facilities are very attractive to the employees of AIBL.
• Most of the policies are backdated. Only the authority amends the policy but preserve the old policy.
• There is no policy to build up harmonious relationship among the employees. The employees cannot protest the injustice of the authority because the pure trade union is absent there.
• The record keeping system is also backdated, not followed computerized system properly
• Security system of many branches is not sufficient.

RECOMMENDATION

• AIBL should concentrate in increasing its profit earning capacity.
• It should develop effective marketing strategy to attract new customers.
• Raising the capital, statutory reserve and increase the investment.
• The number of branches should be increased
• Expand and diversify customer base.
• Upgrade Online Banking.
• Recruit more skilled employees regularly.
• Bank should introduce independent ‘Marketing Department’
• Personal relationship should be build with the customers.
• Customers are the heart of the organization. They should provide more space in the office and if possible they should have some entertainment facility.
• The employee of the branch should be trained continuously.
• Few branches are not under online banking system, so all the branches should confirm on line banking system.
• More meetings, seminars, symposiums and get-together should be organized by the Branches to develop the awareness among the clients of the Bank about Islamic Banking and its advantages.
• Ensure stable dividend.
• Ensure high level customer service.
• The Bank should follow Islami Sharia strictly in every of its operation.
• Bank should introduce ATM system.
• Should introduce one-stop service centre.
• Bank should keep their annual report, brochure, bulletin etc. available to provide their customer.
• Bank should introduce consumer credit scheme.
• Bank should increase their office space and take more care in interior decoration.

• Bank should introduce independent ‘Marketing Department’.
• Some new investment schemes are to be introduced for socio-economic development and welfare of the distressed humanity.
• Finally the Bank should has the vision to automate its all operations and functionalities and should be committed to achieve the goal to be a lead Bank in the country both in service and in technical aspect and to fulfill the requirements of mass people.

Conclusions

Today the banking service is very competitive. From the practical materialization of customer dealing procedure during the whole period of my practical orientation in AL-ARAFAH-ISLAMI Bank limited I have reached a firm and concrete conclusion in a very confident way. I believe that my realization will be in harmony with most of the banking thinkers. It is quite evident that to build up an effective and efficient banking system to the highest desire level, computerized transaction is must.

AL-ARAFAH-ISLAMI Bank Ltd. is a new generation Bank. It is committed to provide high quality financial services/products to contribute to the growth of G.D.P of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socio-economic development of the country. The is not so far when it will be in a position to overcome the existing constraints and it may be expected that by establishing a network over the country and by increasing resources this bank will be able to play a considerable role in the portfolio of development of financing.

Success in the banking business largely depends on effective lending. Less the amount of loan losses, the more the income will be from credit operations. The more the income from credit operations the more will be the profit of the AL-ARAFAH-ISLAMI Bank Ltd. and here lays the success of credit financing.

It can be argued that though the results achieved so far are not satisfactory, credit financing is a modern scientific technique for enhancing AL-ARAFAH-ISLAMI Bank’s strength and there lies the opportunities to make it more effective in the future for our own benefit.

From the learning and experience point of view I can say that I really enjoyed my internship at AL-ARAFAH-ISLAMI Bank Ltd. from the very first day. I am confident that this 02 (Two) months internship program at AL-ARAFAH-ISLAMI Bank Ltd. will definitely help me to realize my further carrier in the job market.