Title of the Report:

Islamic Finance in Investment - An alternative to conventional

Banking. (A perspective taken from Al-Arafah Islamic Bank
Dhanmondi Branch)

Chapter-One
Introduction

AIBL always try to give the better service through maintain various types of steps, they Provide
excellent information about investment, loan, and Foreign exchange issue and they always
maintain good relation to their Clients. They provide excellent service for their Borrowers.

1.1 Rational:
Internship program offers an opportunity to know the environment of a particular organization.
By doing this program, I have developed and refined my theoretical knowledge gained in the
classroom. This program provides exciting experience of their Foreign exchange, Investment and
management style of that organization, which helps me to fill the gap between theoretical and
real practical world. A perfect consideration between theory and practice is important in the
context of modern business world. Therefore, the American International University-Bangladesh
arranges internship program as a partial completion of MBA program. This program is necessary
for every student to complete his or her graduation degree. Internship program brings students
closer to the business theory and practical and thereby help them to substantiate their knowledge
so that they can prepare themselves to start a successful career.
As part of my graduate program, I am currently working as an Intern in a renowned financial
institution named Al-Arafah Islamic Bank Limited. Till the period of my internship, I am
working in several departments. I had spent most of the time working in Investment Department.
I have tried to learn some topics regarding Investment activities. So I chose to my report topic as
Islamic Finance in Investment - An alternative to conventional Banking. (A perspective
taken from Al-Arafah Islamic Bank Dhanmondi Branch) On this report I represent all of the
banks Investment activity, facility provided to the valuable customers. Moreover Investment is
one of the major sectors for a bank. It is the main sources of the bank income. The bank collect
fund from the customer who is the surplus unit holder and invest in various sector. In Islamic
Banking System investment is totally interest free. It is related with profit. Sometime the
investing fund may be disrupted. For this reason it is rational to analysis investment. Again it is
the heart of the bank because Bank income rationally depends on Investment.

1.2 Background of the Organization:

1.2.1 History of AL-Arafah Islami Bank (AIBL):
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
3

doctrine of Al-Qur'an and lifestyle of Hazrat Muhammad (Sm.) for our supreme success. AlArafah Islami Bank started its journey in 1995 with the said principles in mind and to introduce a
modern banking system based on Al-Quran and Sunnah. A group of established, dedicated and
pious personalities of Bangladesh are the architects and directors of the Bank. Among them a
noted Islamic scholar, economist, writer and ex-bureaucrat of Bangladesh government Mr.
A.Z.M Shamsul Alam is the founder chairman of the bank. His progressive leadership and
continuous inspiration provided a boost for the bank in getting a foothold in the financial market
of Bangladesh. A group of 20 dedicated and noted Islamic personalities of Bangladesh are the
member of Board of Directors of the bank. They are also noted for their business men. Al-Arafah
Islami Bank Ltd. has 78 branches and a total of 1711 employees (upto December 2014). Its
authorized capital is Taka 5000 millions and the paid-up capital is Taka 4677.28 millions.
Wisdom of the directors, Islamic bankers and the wish of Almighty Allah make Al-Arafah Islami
Bank Ltd. most modern and a leading bank in Bangladesh.
1.2.2 Profile of AIBL:
With the objective of achieving success here & hereafter by pursuing the way directed by Allah
and the path shown by His Rasul (SM), Al Arafah Islami Bank Ltd was established (registered)
as a private limited company on 18 June 1995. The inaugural ceremony took place on 27
September 1995. The authorized capital of the Bank is Tk.5000.00 million and the paid up
capital is Tk. 4677.28 million. Renowned Islamic Scholars and pious businessmen of the country
are the sponsors of the Bank. 100% of paid up capital is being owned by indigenous
shareholders.
The equity of the bank stood at Tk. 9647.45 million and the manpower was 1711 and the number
of shareholders was 49,386. It has achieved a continuous profit and declared a good dividend
over the years. High quality customer service through the integration of modern technology and
new products is the tool of the bank to achieve success. The bank has a diverse array of carefully
tailored products and services to satisfy customer needs.
The Bank is committed to contribute significantly to the national economy. It has made a positive
contribution towards the socio economic development of the country with 78 branches.

1.2.3 Concepts of Islamic Banking:

The difference between Islamic bank and conventional bank is on principles. The functions of this type of
bank are completely different. This bank is established on Islamic Shariah and all types of transactions are
free from interest. Justified profit is the basis of financial transaction of this bank. Islamic banks are
committed to establish socio-economic justice.

1.2.4 The Need for Islamic Banking:

The objective of Islamic banking is not only to earn profit but also to do good and welfare to the
people. Islam upholds the concept that money, income and property belong to Allah and this
wealth is to be used for good of the society .Islamic Banks operate on Islamic principle of profit
and loss sharing strictly avoiding interest, which is the root of all expansion and is responsible
for large-scale inflation and unemployment. An Islamic bank is committed to do away with
disparity and established elasticity in the economy, trade, commerce and industry build
socioeconomic infrastructure and create employment opportunities.
1.2.5 Related Definitions of Islamic Bank:
The general secretary at of the organization of the Islamic conference defines an Islamic Bank,
as Islamic bank is a financial institution whose status, rule and procedure expressly state its
commitment to the principle of Islamic Shariah and to the banning of procedures expressly state
its commitment to the principles of Islamic Shariah and to the banning of the receipt and
payment of interest on any of its operation. All including Bangladesh have approved the above
definition of Islamic Bank. The Islamic Development Bank and other national and international
Islamic Banks have also adopted the above definition as their operating guide. Islamic Act 1983
of Malaysia has given the following definition:
Islamic Banking means any company, which carries on Islamic Banking business and
holds a valid license, and all the offices and branches in Malaysia of such a bank shall
deemed to be one bank.
The Islamic Republic of IRAN has promulgated The for usury- free banking on

August 30, 1983 incorporating the detail objective and duties of the banking system in
Iran

 Islamic Banking Business means banking business whose aims and operation do not

involve any elements, which is not approved by the religion of Islam.

1.2.6 Chairman and Board of Directors Al-Arafah Islami Bank Ltd:

Md. Badiur Rahman

Chairman

Sarker Mohammad Shameem Iqbal

Vice Chairman

Al-hajj Md. Harun-ar-Rashid Khan

Director

Al-hajj Nazmul Ahsan Khaled

Director

Al-hajj Abdul Malek Mollah

Director

Al-hajj Anower Hossain

Director

Al-hajj Hafez Md. Enayet ullah

Al-hajj Abdul Muktadir

Director
Director

Al-hajj Ahamed ul Haque

Director

Al-hajj Abdus Samad

Director

Al-hajj Abdus Salam

Director

Dr. Momtaz Uddin Ahmed

Director

Al-hajj Engr. Kh. Mesbah uddin Ahmed

Shareholder Director

Md. Ekramul Hoque

Ex-Officio
Director/Managing
Director

Md. Mofazzal Hossain

Company Secretary

1.2.7 Vision & Mission:

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

Achieving the satisfaction of Almighty Allah both here & hereafter.

Proliferation of Shariah Based Banking Practices.

Quality financial services adopting the latest technology.

Fast and efficient customer service.

Maintaining high standard of business ethics.

Balanced growth.

Steady & competitive return on shareholders' equity.

Innovative banking at a competitive price.

Attract and retain quality human resources.

Extending competitive compensation packages to the employees.

Firm commitment to the growth of national economy.

Involving more in Micro and SME financing.

1.2.8 Commitments of AIBL:

Ours is a customer focused modern Islamic Banking sound and steady growth in both
mobilizing deposit and making quality Investment to keep our position as a leading
Islami bank in Bangladesh.

To deliver financial services with the touch of our heart to retail, small and medium scale
enterprises, as well as corporate clients through our branches across the country.

Our business initiatives are designed to match the changing trade & industrial needs of
the clients.

1.3 Objective:
The first objective of the study is to finish graduation programmed. Objectives can be
categorized in to two ways such as primary objective and Specific objectives.
1.3.1primary Objective:
To complete the internship as per requirement for completing the MBA program of American
International University-Bangladesh (AIUB) and have a sound knowledge about Banking,
specifically about the investment tools of a bank.
1.3.2 Specific Objectives:
The first objective of writing the report is fulfilling the partial requirements of the MBA
program. In this report, I have attempted to give an overview of "Islamic Finance in Investment An alternative to conventional Banking. (A perspective taken from Al-Arafah Islamic Bank
Dhanmondi Branch).

Following are the main objectives:

To get idea about the different mode of investment of AIBL.

To identify factors affecting the investment of AIBL.
To show overall investment proposal, appraisal procedures, documentation system of
AIBL and Conventional Banks.
How the investment procedure is carried out in the Bank.
Identify about the collection process of investment (loan).
Evaluate financial relationships of the Bank related with investment modes.
Providing suggestions for further improvement of "Al-Arafah Islami Bank Ltd"
investment tools.
To suggest in order to finding problem.

Chapter-Two
Investment Related Activities

2.0 Work Related

I have done my internship in Al-Arafah Islamic Bank Ltd (AIBL), there I have gathered
tremendous amount of knowledge and got an in depth idea of the banking process and
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specifically about investment tools. Internship under an industry is basically done for the
wellbeing of student for gaining better understanding the scenario of real business. Internship is a
portion of the Master of Business Administration (MBA) program, this program is set to develop
a student for achieving success in future and to connect the student with the real world, this
program acts as a simulation for student, where the student needs to gain a practical experience
about a business or firm which facilitates the connection between the study and experience.
This report is prepared according to the knowledge I have gathered during the period of my
internship. Participating in work related activities, questioning officials and observing gave me
an in depth knowledge about the departments.

2.1Activities in Investment Tools in AIBL:

From all the holding deposits taken from customers, the bank utilizes it for the purpose of
investment in different sectors by financing its clients. I learnt from here that Islami banks differs
from conventional banks by providing different investment products (modes) to a client and in a
way it doesn't charge interest rather it buy and sell or goes in partnership with the client or it
leases property, it does business with the client as profit and loss sharing (PLS). Moreover I
learnt that Islami Banks under Shariah law doesn't invest in "Haram" goods or services, which is
treated as illegal. I also learnt and questioned the officials about many things to get the
knowledge on my areas of interest on investment tools. There is a power delegation to sanction
an investment, in our branch VP has a limit to sanction a loan and if it's not in his power then he
sends the investment proposal to the Head Office of the Bank, also Credit Information Bureau
(CIB) under Bangladesh Bank plays an essential function to give necessary information about a
particular client about his/her past records.
2.1.1 Investment Policy:
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 Banks investment policy rather emphasis is given in
attaining social good and in creating employment opportunities.
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Pursuant to the Investment Policy adopted by the Bank a 7-year Perspective Investment Plan has
been drawn-up for the year 2007 to 2014 and put into implementation.The plan aims at
diversification of the investment port-folio by size sector geographical area, economic purpose
and1 securities to bring in phases all sectors of the economy and all types of economic groups of
the society within the fold of Banks investment operations.
A sound well defined, well planned and appropriate investment policy frame work is a prerequisite for achieving the goal of the Bank 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.
2.1.2 Strategies:
Risk in the investments and return both 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 port-folio on high risk or low risk portfolio with a low return.
Nevertheless, considering all aspects following guidelines shall be followed as strategy for banks
investments.

If two port-folios have the same risk but different returns, the port-folio having higher return
shall be preferred.

If the two port-folios have the same expected returns, but different degrees of risk, the portfolio with lower risk shall get preference.

If one port-folio has both a higher return and a lower risk than another, the first port-folio
shall be preferred.

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.

Emphasis is given for expansion and strengthening cottage and small industries sector and
rural industries. This immensely potential industrial sub-sector shall create employment
11

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.

Investment facilities shall be extended for establishment and expansion of export oriented
forward / back ward linkage and import substitute industries.

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.

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.

Safety, security, profitability and liquidity of Banks investments.

Each branch invests, at least 50% of its deposits locally.

Enhance of extending limit of good investment clients.

Adopting of modern technology.

So, banks investment policy, investment planning and investment budgeting, till situation changes
improve, shall aim at promotion of quality general investment.

Bai2.1.3Mode Mechanism
of Investment:

Ijara
Mechanism

Share
Mechanism

a) Bai-Murabaha

a) Hire Purchase

a) Mudaraba

b) Bai-Muajjal

b) Hire Purchase
Under
shirkatulMelk

b) Musharaka

c) Bai-Salam
d) Istishnaa

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2.1.4 Bai-Mechanism:
"Bai" means any purchase and sale of goods in cash or on credit or in advance at a prefixed

profit, which may or may not be disclosed to the client.

The Bai-Mechanism Investment are four types:
a) 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 sale in cash BaiMurabaha 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 BaiMurabaha
In respect of dealing parties Bai-Murabaha may be of two types.

13

i.

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 BaiMurabaha.
ii.

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.
B) 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 BaiMuajjal 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.
14

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.
C) 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.

D) Bai-Istishna:

15

Meaning
The word Istishna has been derived from the word Istishna which means industry or
Manufacturing enterprise. Istishna means to goods manufactured by placing orders to a
manufacturer.

Definition
Isteshna'a is a contract between a manufacturer/seller and a buyer under which the
manufacturer/seller sells specific product(s) after having manufactured, permissible under
Islamic Shariah and Law of the Country after haying manufactured at an agreed price payable in
advance or by installments within a fixed period or on/within a fixed future date on the basis of
the order placed by the buyer.
2.1.5

Ijarah mechanism :

There are two types of Ijarah mechanism :

A) 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 Hirer 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 Hirer. It is a hire agreement under which a certain asset is hired out by
the Hirer to a Hirer against fixed rent or rentals for a specified period.

16

B) Hire Purchase Under shirkatul Melk(HPSM):

This is a sale contract between a buyer and a seller under which the ownership of certain goods
or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the
buyer.
Thus, in Hire Purchase under Shirkatul Melk mode both the bank and the client supply equity in
equal or unequal proportion for purchase of an asset like land, building, machinery, transports
etc. Purchase the asset with that equity money, owns it jointly, shares the benefit as per
agreement and bears the loss in proportion to their respective equity. The portion of the asset
owned by the bank is leased out to the client partner for a fixed rent per unit of time for a fixed
period. Lastly the bank sells and transfers the ownership of its portion to the client against
payment of price fixed for that part either gradually or in lump sum within the hire period or after
the expiry of the hire agreement. In case of Hire Purchase under Shirkatul Melk transaction of
the asset involved is jointly purchased by the Lessor (Bank) and the Lessee (Client) with
specified equity participation under a Shirkatul Melk Contract in which the amount of equity and
share in ownership of the asset of each partner (Lessor Bank & Lessee Client) are clearly
mentioned. Under this agreement, the Lessor and the Lessee becomes co-owner of the asset
under transaction in proportion to their respective equity participation.
2.1.6 Share Mechanism:
A). Mudaraba :
It is a from of partnership where one party provides the fund while the other provide the
expertise, labor and the letter referred to at the Mudarib any profits accrued are shared between
the two parties on a pre agreed basis, while capital loss in exclusively born by the partner
providing the capital.
Important Features:
Bank supplies capital as Sahib- al Mall and client invest if in the business with his
experience.
The client maintains administration and management.
Profit is divided as per agreement.
Bank bears the actual loss alone.
Client cannot take another investment for that specific business without
the permission of the Bank.
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B) Musharaka:
The term Shirkat and Musharakah have been derived from Arabic words Shairkah and
Sharika. The word shirkah means a partnership between more than one partner. Thus the ward
Musharaka and Shirkat means a partnership established between two or more partners for
purpose of a commercial venture participate both in the capital and management where the profit
may be shared between the partners as per agreed upon ratio and the loss. If any incurred, is to be
borne by the partners at per capital /equity ratio.
In case of investment Musharaka meaning a partnership between the bank and the client for a
particular business in which both the bank and client provide capital at an agreed upon ratio and
bear the loss, if any in proportion to their respective equity. Bank may move itself with the
selected client for conducting any Shariah permissible business under Musharaka mode.

Important Features:

The investment client will normally run manage the business.

The bank shall take part in the policy and decision making as well as overseeing
(supervision and monitoring) the operation s of the business of the client. The bank
may appoint suitable personal(s) to run the manage the business and to maintain
books of accounts of the business property.
As the investment client shall manage the enterprise, the bank may more share of
profit to him than that of his proportion capital contribution.
Loss, if any, shall be shared on the basis of capital ratio.
2.1.7 Other Investment Modes of AIBL:
a) Quard: Quard means loan without interest. Client has to repay the principal amount to the
bank. This loan facility is extended only to deserving cases on compassionate grounds and
special welfare consideration. The principal amount is refundable within a reasonable time. The
ultimate objects of both the consumption and production Quard are to enable the client to support
economic problems. In AIBL it is created against pledge of Term Deposit. Thus it is also called
Quard against Term Deposit Receipt (TDR). And if it's against pledge of Car, then it will be
termed in that way.
18

b) Trust Receipt: This is an investment facility for the client for release of goods imported
through L/C. The goods are handed over to the importer (client) under trust with the arrangement
that sale proceeds should be deposited to liquidate the investments within a given period.
c) Murabaha (Import Bills): AIBL pays up the exporter (foreign bank) if the importer (client)
fails to pay the payment within time, the delay of payment may happen due to lack of proper
documentation or delay of shipment. Profit is taken by the bank till the goods aren't reached by
the bank.
d) Murabaha (Post Import): This is an investment facility given to the client by AIBL, after the
import of goods if the client fails to pay the loan amount then AIBL takes the charge of the goods
and keeps in its storehouse, the bank releases the amount of goods only on which the payment
has been made.
e) Foreign Bill Purchase: In terms of late bill payment by the exporter to the client (importer), the
bank purchases the foreign bills on behalf of the client at a specified rate. i.e. if $1=82.5tk, then
bank will buy it for 79.5tk.
f) Foreign Bill Collection:In terms of collection of foreign bill the bank helps the client to
acquire the money from the exporter by negotiating with the foreign bank.
g) IBP (Inland Bill Purchase): For local goods payment made through purchase of inland
bills/cheques to meet the urgent requirement of the client.
2.1.8 Product Wise Investment of AIBL:
Bai-Muazzal product of AIBL is leading the pack followed by Murabaha, Hire Purchase
Investment, Bills Purchased, Quard and Pre-Shipment Investment respectively. Interestingly,
AIBL is not investing on its Musharaka product.
2.1.9 Performance of Investment Tools of AIBL:
The investment of the bank has stood at Tk.6333.25 million as on 31st December 2014 as against
Tk 1384.89 million in the previous years how an increase by 45.04 %. The investment portfolio
of the bank is well diversified and covers abroad spectrum of businesses and industries including
readymade garments, textile, edible oil, ship scraping, steel & engineering, chemicals,
19

pharmaceuticals, cement, telecommunication, construction, health care, real estate, education,

transport and investment under consumer schemes.
Though in year 2011 there was a liquidity crisis in the banking sectors as well as volatility in the
capital market but AIBL has attained significant growth in the investment tools.

2.1.10 Special Scheme under Investment:

i. 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.

ii. 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, Islami Bank Bangladesh 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 Banks 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.

iii. Small business investment scheme:

20

Bangladesh a third-wood 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 tools of this
populace is active youth force. Many of them are efficient, intelligent and energetic with
initiative & drive and have courage to take risks. But they cannot uplift their socio-economic
condition due to poverty, lack of financial support and other required facilities.
iv. 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, Islami Bank Bangladesh Limited is committed
to contribute to this end to provide a peaceful and happy.

v. 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 programmed. 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.
vi. 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.
21

vii. 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 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.
viii. 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, edge 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.
ix. 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 selfsufficient in food production. We still import a bulk quantity of food grains from abroad to meet
22

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, slow tube wells, thrasher machine etc. On easy terms
unemployed youths for self-employment and to the farmers help augment production in
agricultural sector.
x. 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.
2.1.11 Small & Medium Enterprise Investment:
The role of small and medium enterprises (SMEs) is indispensable for overall economic
development of a country like Bangladesh. Being labor intensive with short gestation period,
SMEs are capable of increasing national income as well as rapid employment generation;
achieving goal of eradicating extreme poverty and women empowerment. SME development is
currently considered as one of the major pro-poor socioeconomic development policy. Fulfilling
the growing domestic demand with local resources and products is critical to economic growth.
SMEs are playing a vital role in meeting domestic demand in our country. To ensure proper
manifestation and rapid advancement of Small & Medium Enterprises, a number of SME related
schemes are running in this Bank. In the light of a unique definition by Bangladesh Bank, bank is
giving priority over financing to three categories of enterprises viz. Industry, Trade & Services.
Investment up to December 2014 of SME investment portfolio is 15886.40 million. Besides, to
speed up SME investment flow and to include in people who are beyond the range of banking
facilities, a scheme named 'Small Enterprise Investment Scheme (SEIS)'is launched.
With this scheme, operation of collateral security free SME investment is running all 88 branches
are under the operation. At the end of December 2014, number of security free SME investment
client is 3019 and investment portfolio is Tk.553.72 million. Skilled and experienced staffs are
recruited in different branches to ensure proper expansion of collateral security free SME
investment. We prior Area Approach Method when SME financing. The statistics as on 31
December, 2014 is shown in the table:

23

Particulars
SME Investment Portfolio

Status
Tk. 653.63 Million

Terms & Conditions Stipulated by the Bank

SEIS Investment (Collateral Security Free)
Minimum Investment
Maximum Investment
Number of Clients
Number of Branches under the scheme
Rate of Profit
Supervision Fee
Maximum Duration
Repayment system
Recovery Rate
Terms & Conditions

Tk. 553.72 Million

Tk. 50,000.00
Tk. 700,000.00
3019 Persons
88
10 %
0.50 %
3 years
Monthly Installment
99.98 %
Soft

2.1.12 Grameen Small Investment Scheme:

Bangladesh has achieved the richest experience of poverty alleviation through rapid expansion of
microfinance activities in the last one and half decade. So the experience of microfinance in
Bangladesh has made important contributions to the emergence of this concept globally. On the
focus of socio-economic development of rural poor, a scheme named 'Grameen Small Investment
Scheme (GSIS)' is running in the bank from the year 2001. At present, 51 rural branches are
included in this scheme and this number is increasing gradually. At the end of December 2014,
Tk. 533.00 million is disbursed to 22,500 clients in different income generated programs, of
which outstanding is Tk. 205.38 million. Functioning on the basis of Group has scheme helps on
socio-economic development of farmers, labors, fishermen, micro businessmen and small
entrepreneurs. Another important objective of this scheme is to give priority to make
economically self-dependent of rural women entrepreneur. To get investment under this scheme,
no collateral security is required. Repayment system is weekly installment basis. Basically, this
scheme is one kind of supervised investment system and skilled personnel are working in
different branches to ensure proper as well as continuous supervision.
2.1.13 Investment on Agricultural Sectors:
24

To face the increasing food shortage of the country, bank is paying massive attention to invest on
agricultural sectors. The main items of agricultural sectors are- crops, fisheries, warehouse,
poverty alleviation, irrigation, livestock development etc. At the end of December 2013, total
agricultural investment portfolio is Tk. 628.01 million of the fiscal year 2013-2014. With
collateral and without collateral both are practiced in agricultural investment.
2.1.14 Solar Energy Investment Scheme:
A Pioneer investment scheme named 'Al-Arafah Solar Energy Investment Scheme' is launched in
order to face the present electricity crisis and to spread the benefits of renewable energy among
the rural people. This program treats as an innovative step on the history of Private Banking
Sector in Bangladesh. It also has unveiled the wide field of Green Banking concept, the burning
issue. 'Solar Energy Investment Scheme' is running under the control of SME Department with
the support of newly created Power & Technology Unit. Skilled Electric Engineers & Solar
Technicians are recruited in order to ensure the perfect technical support. We have already
established 99,705 Watt Peak of electricity among 1885 families through 15 Rural Branches so
far. We are running this program with own funding as well as skilled personnel.
2.1.15 Sector Wise Investment of AIBL:
AIBL utilizes both location based and sector based diversification, location based is done by
widening their branches and sector wise AIBL allows investment in various sectors of business.
Sector
Agriculture, Fishing and Forestry
Industry
Construction
Water Works & Sanitary Service
Transport & Communication
Storage
Trade Finance
Miscellaneous
Total (Including PR)
Less Unearned Profit
Total

BDT in million
793.48
24,279.60
3,412.99
302.28
3,435.77
48.04
46,167.49
5,186.92
83,626.57
5,911.62
77,714.95

From the above chart and table it can be seen that trade finance and industry sector are
dominating all other sectors of AIBL.
25

2.1.16 Business Tools to focus on Investment of AIBL:

According to its 16 years of experience in banking in this country AIBL finds suitable investment
services or products on the following sectors:
Sectors:
Housing and Real

Construction Company

Trading

Edible Oil

(Retail/Wholesale)
Pharmaceuticals and

Bricks and Fields

Food Products
Electronics & Electrical

Chemicals
Service Industries
Cottage Industry
Assembling Industry

Estate
Steel & Engineering
Agriculture
Cottage Industry
Paper Products

Commodities
2.1.17 Investment Sanction Steps in AIBL:
Step
s
1

Particulars
Application

Processes
Applicant applies for the loan in the prescribed
form of the bank describing the type and purpose

Sanction

of the loan.
1. Collecting Credit information about the applicant
to determine the credit worthiness of the borrower
from the available sources of information.
2. Personal Investigation, Nature of the client,
3.

(Central

Information

Bureau)

report

from

Bangladesh Bank.

All past loan record of the client.

Evaluation of compliance with its lending

policy.
Evaluation of the proposed security.
4. Lending Risk Analysis (LRA) is must for the loan
amount exceeding 1 crore Tk - as ordered by
Bangladesh Bank.
5. If the entire requirement is fulfilled and is in
accordance with AIBL's policy then the loan is
26

sanctioned.
3

Documentat

The bank prepares a loan proposal which contains

ion

terms and conditions of the loan.

The bank takes necessary papers and signatures

Disburseme
nt

from the client.

A loan account is opened.
Customer A/CDr.
Loan A/C.Cr.

2.1.18 Required Documents for Investment Proposal:

Trade License, IRC (Import Registration Certificate) if the client is importer, Membership of
Association (if the client is a member in any business association), TIN (Tax Identification
Number), Voter ID, Client's Photo, Holding Tax (For mortgage of land/building), Application for
the investment, Balance Sheet for the purpose of IRG (Investment Risk Grading), Inventory
Balance, Yearly Sales report, Personal Assets documentation, etc.

Provision on Investment:
A percentage of money is kept aside as provision amount on investment, provision amount varies
from sector to sector but this is used for general purpose.

Type of Classification

Rate of Provision

Unclassified (UC)

1%

SMA (Small Mentioned A/c)

5%

Substandard (SS)

20%

Doubtful (DF)

50%

Bad debt (BL)

100%

27

2.1.19 AIBL's Collection & Remedial Management:

Monitoring:
The bank's Investment portfolio is subject to a continuous process of monitoring. This is
achieved by regular generation of over limit and overdue reports where it shows the facilities are
being exceeded and where payment of (Principal + Profit) is late.
To monitor the bank follow and identifies:

Past due principal or profit payment.

Timely corrective action is taken to tackle findings of any internal, external or regulator

inspection/audit.
All investment facilities to be reviewed timely.
Computer system should be able to produce the reports for branch and head office.

Recovery:
Unless full amount is not recovered the bank posses a financial risk. Recovery Unit is to initiate
collection process from the time when an account becomes felonious until it is regularized by
means of payment or closed with full payment amount collected. AIBL's recovery unit regularly
inspects the due date of payment, goes for surprise visit, prepares overdue lists quarterly and
diarizes due date of payment to put more emphasis on the collection procedure.
AIBL has geared up efforts to improve the recovery rate of disbursed investment and also taken
adequate measures for converting the classified investment into performing assets. As a result,
classified investment of the bank could be kept at a low level far below the national average. It is
0.95% as on 31 December 2014, classified investment declined to 0.95% compared to 1.14% as
on 31 December 2013.The bank gives top-most priority to the creation of quality assets and does
appropriate risk grading while approving commercial, trade and project investment to different
clients.

2.2 Organization-wide
2.2.1 Investment Division:
28

I spend most of time in the investment division. So I learn lot of things in investment division and they
are:
Types of Investment Facilities.
Investment (Lending) Caps.
Investment Facility Parameters.
Investment Application Format.
Reporting of new facilities.
Responsibilities of different functionaries.
Distribution of policy to the investment/marketing officers.
Investment Training.
Ensure the commercial profitability of the bank.
Encourage the socio-economic development, poverty alleviation, and employment
generation.
Investment Diversification.

2.3 Others relevant activities:

Besides Investment division I spend few days on other division of the bank because the divisions
are interrelated. I got a general brief on the foreign exchange to know the relationship with the
general banking and credit analysis. I also do some supplementary work. Where the batch
regarding the transaction are maintained, matched with daily transaction and stored.

29

Chapter-Three
Constraints/Challenges and Proposed
Course of Action for improvement

30

3.1 Identified/Observed in the Organization:

3.1.2 Problems Identified in the Investment Department of AIBL (Dhanmondi Branch):
Regulation on Investment is not followed: From side talks I heard and identified the VP (Vice
President) of the branch sanctions loan without meeting necessary criteria (i.e. sanctioning loan
with weak security). This actually happens because the head office gives VP a particular target to
fulfill.
Sluggish server: Sometimes if something (i.e. investment repayment entry, closing investment
account) is done in the software then it takes too much time to update the data, this happens
mainly due to server slowdown.
Lack of training: It has been noticed that one of the employee in the investment department
hasn't been trained before joining the bank, these creates a gap between the employees, what I
noticed is some employee had their training before joining the branch and the newly joined
employee is learning from the trained employee, to me it is not justified.
Delay of Service: If a client comes and wants to take a printout of the loan account statement
then the client have to wait for sometime because the printer is busy and is used by other official.
Also same thing happens if the server doesn't work properly.
Improper Supervision: Few times I noticed that the SEO (Senior Executive Officer) had to read
the task because the PO (Principal Officer) didn't supervise him properly.
31

No Manual found on Investment in the Branch: I know AIBL has manual for their Investment
system but as an intern I found it difficult to get the terms of investment products because the
branch has lost the copy of the manual.

3.2 Academic Preparation:

The perfect co-ordination between theory and practice is of paramount importance in the context
of the modern business world in order to resolve the dichotomy between the theoretical &
practical areas. Internship Program brings a student closer to the real life situation & thereby
helps to launch a career with some prior experience. The internship Program at Al-Arafah Islami
Bank Ltd helped me a lot to learn about the practical environment & situation of a Sariah based
financial institution and also make up a bridge between the theoretical & practical aspects.
However there is a huge different between theory and real life explanation. According to my
opinion in real life common sense is very much important. Common sense means doing the
right thing at right time at right place. No strategy is not bad which does not make any loss, no
strategy is not good which does not make any profit. Before implication any strategy cannot be
judge as good or bad. Main objectives of a strategy are to make profit for the organization. There
is no any specific strategy for branding, after success it become brand.

32

Chapter-Four
Lessons Learned from
The Internship Program

33

4.1 Implications to Organization/Company:

Almost everything was covered under University's Academic Program of MBA in AIUB on
Major in Finance to have broad knowledge about real life scenario, besides this MBA program
covers the purpose of carrying out job in all sectors of business.
Things which matched with my academic preparation during my internship in investment
department I worked for:

Ratio analysis on leverage, liquidity and profitability is covered in Financial Institutions and

Markets, they were really helpful while observing investment terms.

Brief knowledge about banking term activities that was also covered under Financial

Institutions and Markets and also Bank fund Management.

How the communication between investment department and head office works were all
taught in the Business Communication course.

4.2 Implications to Universitys Internship Program:

The graduation program that I have completed from the university has enhanced my theory
based knowledge on the different aspect of the organizational structure, behavior and
function that will enable me to work in the real world structural organization. The good
initiative of our university is that they have made the provision to have the practical exposure
in working to the organization through internship program.

4.3 Others:
34

The internship program that goes for three months has enabled me to prepare myself to work
in the structural organization under the disposition of the management. There I have gathered
not only the function are done in the organization but also the discipline and punctuation in
the work field in where I am going to enter in future.

Chapter-Five
Concluding Statements

35

5.1 Summary:
Today the banking service is very competitive. So the real from the practical materialization, I
have reached a firm and concrete conclusion. 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 for a modern
banking.
Al-Arafah Islami Bank Limited is a new generation Bank. It is committed to provide high quality
financial services or products to contribute to the growth of GDP 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 in
Bangladesh.
Success in the banking business largely depends on effective management, excellent service,
latest technology, goal setting and overall plane. Al-Arafah Islami Bank Limited has every
quality to do the business successfully. I think, within few years, Al-Arafah Islami Bank Limited
will achieve top class banking business bank in our country.

36

5.2 Suggestions for AIUB:

Faculty members of AIUB should give an idea on Islamic banking besides commercial
banking.
AIUB should add new course on Trading of Commodities, so that student will get the
image of import and export in business sector.
More laboratories of computers are required to open, so that Business students can be
more familiar with application of business software's.
AIUB should take funds from students for opening research facility on business, so that
students can perform various researches on business sectors of Bangladesh.

Chapter-Six
Suggestions for Improvement
Or
Course of Action
37

6.1 Specific suggestions:

More concentration on customer satisfaction will give a chance AIBL to achieve more
depositors, and more depositor means they can invest more and as a result they will able to

meet both the demand of customers and investment clients.

AIBL should perform more Islamic Shariah research so that they can widen their investment

product portfolio; other PCBs are offering various types of loan.

A well designed and user friendly website needs to be developed by AIBL because their
present website is not much informative and investment client will fail to understand their

offerings.
AIBL should keep investment operation manual in all the branches so that new employees

those who were not trained can get the outmost picture of the investment system of AIBL.
AIBL have to give importance on online banking system, the current system is not up to the
mark, the investment client can't view their profile because the site is still under construction

even on this 2015.

AIBL need to open more ATM booths, booths of AIBL are hardly to find here and there, and
moreover ATM booths work as a marketing agent, so the bank will get more attention from

the customers which will definitely enhance their investment sector.

To maximize the investor base, AIBL should perform more CSR activities and other
promotional activities (advertisement on news, advertisement on paper and magazines, bill
boards, social internet sites, sponsoring programs, etc).

AIBL can diffuse its scope of investment through focusing Shariah concept regarding
investment among the Bank officers; employer and the Clients by strong training, workshops
and Clients get - together.
38

Inclusion of more subjects based on the Huly Quran and Sunnah in the Training courses of
the Islami Bank Training & Research Academy in order to develop human resources having
morally.

Arrangement of monthly /quarterly training courses /workshops for the clients selected by the
Branches in order to promote Investment clients of the desired level.

AIBL should appoint sufficient number of women employees to deal women entrepreneurs
and professionals and understand their needs and thus create demand for investment.

To fulfill the vision of "mass banking" this Bank should grants investment portfolio to new
entrepreneurs /new businessmen new companies etc.

AIBL should utilize "Internship Program" as one kind of promotion policy to encourage its
present and potential investment clients. Because, young generation is the vital post of our
economy. To do so this Bank should provides facilities to the internees through proper
placement and practical operations as well as job certainty to those who bring introduce
themselves the best performers in doing their particulars.

Maximum clients do not know about AIBL Loan schemes. They should carry at more
promotional activities to make clients aware about their offers.

It was observed that, AIBL is absent in TV, Print Media, Bill Boards, and Sponsorships etc.
Bank should advertise about itself so that it can attract more clients. That will increase the
business volume of the bank.

Finally the Bank should have the vision to automate it 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.

6.2 References:
Books & Reports:
Various types of publications of AIBL.
Annual Report of Al-Arafah Islami Bank Limited.(2014)
Banking journal.
39

 Several Booklets from AL-ARAFAH ISLAMI Bank.

Several Newsletter s from AL-ARAFAH ISLAMI Bank.
Credit Operational Manual of AL-ARAFA H ISLAMI Bank Limited.
SHARIAH MANUEL published by Al-Arafah Islami Bank Limited.

Bibliography:
http://banglapedia.swarch.com.bd/Ht/T_0234.htm.
http://www.highbeam.com/doc/1P1-83729256.html.
Al-Arafah Islami Bank Limited web site-www.alarafahbank.com
SHARIAH MANUEL published by Al-Arafah Islami Bank Limited.
Several Booklets from Al-Arafah Islami Bank Limited.
Several News letters from Al-Arafah Islami Bank Limited.
http://banglapedia.search.com.bd/HT/T_0234.htm.
http://en.wikipedia.org/wiki/List_of_Banks_in_Bangladesh.

40

Chapter-Seven
Appendices

41

7.1 Appendices:

42