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Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

1.1 Origin of the Report

This report is based on an internship program. IBTRA arranges internship program to gather
practical knowledge about banking activities followed by AIBL for University students as
Universities conducted with different organization after the completion of theoretical courses
of program of Bachelor of Business Administration (BBA). Each internee must carry out a
specific report, which is assigned by the University. We select Al-Arafah Islami bank Limited
(AIBL) for my internship & since then I have started my realistic orientation program in
Foreign Exchange Department. But I have prepared my report on General Banking,
Investment & Foreign Exchange as it is assigned by the University.
Hence I was placed in Banani Branch of Al-Arafah Islami bank Limited from 19 th September
to 19th December , 2012.
1.2 Objective of the study
The first objective of writing the report is fulfilling the partial requirements of the BBA
program. In this report, I have attempted to give on overview of Al-Arafah Islami bank
Limited in general. Following are the main objectives
To familiar the history and operations of Islami Banking in Bangladesh.
To show the investment mechanism and product offerings in different modes of AIBL.
To show overall investment proposal, appraisal procedures, documentation system of
AIBL and Conventional Banks.
To show the differences with conventional banking regarding investments aspects.
To identify strength and weakness of investments of AIBL.
To identify the problems related to investments faced by AIBL.
To recommend actions that may be necessary to redesign the investments of AIBL.
1.3 Justification of the study
In our economy, there are mainly three types of schedule commercial banks are in operation.
They are Nationalized Commercial Banks, Local Private Commercial Banks and Foreign
Private Commercial Banks. Islami Bank has discovered a new horizon in the field of banking
area, which offers different General Banking, Investments and Foreign Exchange banking
system. So I have decided to study on the topic General Banking, Investment and Foreign
Exchange. Because the Internship program of the university is an integral part of the BBA
program. So it is obligatory to undertake such task by the students who desirous to complete
and successfully end-up their BBA degree. This also provides an opportunity to the students

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

to minimize the gap between theoretical and practical knowledge. During the internship
program the teachers of the department are attached to actively and constantly guide the
students. A student are required to work on a specific topic based on their theoretical and
practical knowledge acquired during the period of the internship program and then submits it
to the teacher. That is why I have prepared this report.
1.4 Methodology of the study
For carrying out this project paper I had to study the actual banking operations of AIBL.
In order to carry out this study, two sources of data and information have been used:
a) Primary data
I discussed with the executives & officials of the AIBL and found the approximate data,
which has been presented in the report. I also discussed with the officials of conventional
Banks regarding the issue and found necessary information, which has been presented in the
b) Secondary data
Annual Reports of 2011 of Al-Arafah Islami Bank Ltd.
Desk report of the related department
Manuals of Al-Arafah Islami Bank Ltd (Bai-Murabaha, Bai-Muajjal, Bai-Salam,
Training sheets which are provided by Islami Bank Training and Research Academy
1.5 Scope of the report
The scope of this paper is limited to the organizational structure, background, and objectives,
functions, and investment performance of AIBL as a whole. The scope is also limited to
different investment schemes, modes, mechanism, investment proposal appraisal procedures,
monitoring and documentation of AIBL.
1.6 Limitations of the study
There are some limitations in our study. We faced some problems during the study which we
are mentioning them as belowi) Lack of time

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

The time period of this study is very short. I had only 4 weeks in my hand to complete this
report, which was not enough. So I could not go in depth of the study. Most of the times the
officials were busy and were not able to give us much time.
ii) Insufficient data
Some desired information could not be collected due to confidentiality of business.
iii) Lack of monitory support
Few officers sometime felt disturbed, as they were busy in their job. Sometime they didnt
want to supervise us out of their official work.
1.7 What is Islamic Banking?
Islamic bank is a financial Institution that operates with the objective to implement and
materialize the economic and financial principles of Islam in the banking area. The
organization of Islamic conference (OIC) defines an Islamic bank as a financial institution
whose statutes, rules and procedures expressly state its commitment to the principals of
Islamic Shariah and to the banning of the receipt and payment of interest on any of its

According Islamic banking Act 1983 of Malaysia Islamic bank is a company, which carries
on Islamic banking business. Islamic banking business means banking business whose aims
and operations do not involve any element which is not approved by the religion of Islam.
It appears from the above definitions that Islamic banking is system of financial
intermediation that avoids receipt and payment of interest in its transactions and conducts its
operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively,
this is a banking system whose operation is based on Islamic principles of transactions of
which profit and loss sharing (PLS) is a major feature, ensuring justice and equity in the
economy. That is why Islamic banks are often known as PLS-banks.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

1.8 Why Islamic Bank?

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 the good of the society.
Islamic banks operate on Islamic principals of profit and loss sharing, strictly avoid interest,
which is the root of exploitation and is responsible for large-scale information and
unemployment. An Islamic bank is committed to do away with disparity and establish justice
in the economy, trade, commerce and industry, build socio-economic infrastructure and create
employment opportunities.

1.9 RIBA and its basic features

The word used by the Quran concerning interest is Riba. The literal meanings of Riba are
money increase, increase of anything or increment of anything from its original amount
(Maududi 1979, p.84). However, all increases are not considered as Riba in Islam. Money
may increase in business activities as well. This increase is not at all considered as Riba. The

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

increase, instead of being prohibited (Haram), is approved (Halal) in Islam. Islam prohibits
only those increases that are charged on the loan with a prefixed rate.
Muslim scholars equate interest with Riba. In the Shariah, Riba technically refers to the
premium that must be paid by the borrower to the lender along with the principal amount as
a condition for the loan or for an extension in its maturity (Chapra 1985, p.64). In other
words, Riba is the predetermined return on the use of money. In the past there has been
dispute about whether Riba refers to interest or usury, but there is now consensus among
Muslim scholars that the term covers all forms of interest and not only excessive interest
(Khan 1985, p.52).
Imam al Rajhi describes, During the era of Jahiliah people invested their money and
charged Riba on a monthly basis, though the invested amount remained unchanged. Money
so invested was called back at the time of repayment. In case of the borrower being unable to
pay back, the lender extended the period of repayment enhancing the amount to be paid on
and above the principal amount. Abu Bakr al Jasas writes, During the period of Ignorance
the lender and borrower came to an agreement that the borrower would pay back within a
specified period the principal amount along with the agreed upon excess. Ibne Hajar
Askalani says, Excess goods or money charged on and above principal amount is Riba.

The basic characteristics of Riba are Origin of riba is loan(Quard or Dayn)

Riba is excess over and above the principal loan
Riba is charged or paid only as a condition of loan or time and no other recompense,
price or exchange value is paid for the excess or Riba

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Riba is related with time and become double and redouble and multiple with passage
Riba is not related with the result of business.
1.10 RIBA and Profit
Most of the persons are trying to connect Riba with profit. In effect, they are fundamentally
different from each other. These misunderstanding will be removed if we look at the
differences of the Riba and Profit. These differences are as follows:



1. When money is charged, its imposed 1. When money is used in trading (for e.g.)
positive and define result is Riba
its uncertain result is profit.
2. By definition, Riba is the premium paid 2. By definition, profit is the difference
by the borrower to the lender along with between the value of production and the
principal amount as a condition for the cost of production.
3. Riba is prefixed, and hence there is no 3. Profit is post-determined, and hence its
uncertainty on the part of either the givers amount is not known until the activity is
or the takers of loans.
4. Riba can not be negative, it can at best be 4. Profit can be positive, zero or even
very low or zero.
5. From Islamic Shariah point of view, it is 5. From Islamic Shariah point of view, it is
6.Riba is not related with the result of 6.Profit is related with Business

2.1 Status of the Bank

Al-Arafah Islami Bank Ltd was established in 1995 under the companies Act, 1994 as a
banking Company with limited Liability by shares. It is an interest frees Shariah bank of

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Bangladesh rendering all types of commercial banking service under the regulation of Bank
Companies Act, 1991. The Bank conducts its business on the principles of Musaraka, BaiMurabaha, Bai-muazzal and Fire Purchase transactions approved by Bangladesh Bank.
Naturally its modes and operations are substantially different from those of other
conventional commercial banks. There is a Shariah Council in the bank who maintains
constant vigilance to ensure that the activities 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.
2.2 Vision of AIBL
To establish Islamic banking through the introduction of welfare oriented banking and also
ensure equity and justice in the field of all economic activities, achieve balanced growth and
equitable development through diversified investment operations particularly in the priority
sectors and less development areas of the country. Encourage social-economic boost and
financial services to the low -income community particularly in the rural areas.
2.3 Mission of AIBL
To conduct interest free banking.
To establish participatory banking instead of banking on debtor creditor relationship.
To invest through different modes permitted under Islamic Shariah.
To accept deposits on profit-loss sharing basis.
To establish a welfare-oriented banking system.
To extend co-operation to the poor, the helpless and the low-income group for their
economic uplift
To play a vital role in human development and employment generation
To contribute towards balanced growth and development of the country through
investment operations particularly in the less developed areas.
To contribute in achieving the ultimate goal of Islamic economic system

2.4 Aims and objectives

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

The motto of the Al-Arafah Islami Bank Ltd is to explore a new horizon of innovative
modern banking creating an automated and computerized environment providing one stop
service and prepare itself to face the new challenges of globalization and 12th century.
One of the main objectives of the bank is to be a provider of high products and services to
cater to the needs of its corporate clients and provides a comprehensive range of financial
services to national and multinational companies.
2.5 Organgram

Manpower Position of AIBL

Managing Director

Tea Boy



Executive Vice President

Assistant Officer

Senior Vice President

Junior Officer

Vice President

Probationary Officer

Assistant Vice President


Senior Officer


Senior Principle Officer

Principle Officer

Source - Service Rule of AIBL

2.6 Management System of AIBL

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

The management team of the Bank consists of high motivated, well educated and high skilled
and dynamic executives who have been contributing substantially in the continued growth
and progress of the bank. The management is ably supported and assisted by well motivated
and experienced officers and members of staff.
2.7 Financial Highlights of the company
Authorized Capital
Paid up Capital
Reserve Fund
Shareholders Equity
Total Income
Total Expenditure
Profit before Tax
Profit after Tax
Income Tax
Total Assets
Fixed Assets
Earning per share (Taka)
Profit Earning Ratio
Dividend per share
No. of Shareholders
Number of Employees
Number of Branches
Manpower per Branch





(In million taka)


2.8 Features of AIBL

All activities of the bank are conducted according to Islamic shariah.
The banks investment policy follows different modes approved by Islamic shareah
based on Quaran & Sunnah.
The bank is committed towards establishing welfare oriented banking system,
economic upliftment of the law- income group of people, create employment

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

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 also committed to bring about changes in the underdeveloped rural areas for
ensuring balanced socio economic development of the country through micro credit
program, according to mudaraba system
The bank is contributing to economic and philanthropic activities side by side. AlArafah English Medium Madrasah and AIBL Library are among mention worthy.
2.9 International Trade
At the year of 2010, the bank experienced satisfactory growth in the International trade. At
the end of 2009, the total amount of International Trade (export, import and Remittance) was
13268.83 million taka; which has increased at 35.81% to reach 18020.10 million taka in
2010. The total export of the bank was 3639.34 million taka in 2009, which has increased at
35.54 % growth rate to reach 4932.90 million taka in 2010, whereas the national growth was
15.70% during the same period. Similarly the amount of import has increased from 9337.49
million taka of 2009 to 12631.60 million taka in 2010, experiencing a growth rate of 35.27%.
Last year the amount of remittance through the bank was 292.00 million taka, which grows to
455.60 million taka in the current year.
2.10 Correspondent Banking Relationship
The main aim of Al-Arafah Islami Bank Ltd is to increase its foreign exchange business and
in this connection we are doing international banking with all major banks of the world. At
present we are maintaining correspondent banking relationship with 20 major reputed banks
of the world.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

2.11 Foreign exchange risk Management

Foreign exchange risk is defined as the potential change in earnings arising due to change in
market prices. International Division independently conducts the transactions and passing of
their entries in books of accounts. All foreign exchange transactions are revalued at Mark-to
Market rate as determined by Bangladesh Bank at the month-end. All Nostrum accounts are
reconciled on monthly basis and outstanding entry beyond 30 days is reviewed by the
Management for its settlement.
2.12 Nature of Business
All kinds of commercial banking services are provided by the bank to the customers
following the provisions of Banking Companies Act, 1991, Bangladesh banks directives and
the principles of Islamic Shariah.
2.13 Capital Adequacy
The Bangladesh Bank has fixed the ratio of capital adequacy against Risk-Weighted Assets at
9.00% in place of 8% in the month of September 2007. In 2007, the amount of total equity of
the bank was 41.57 Crore taka, which stood at TK.85.56 Crore in the year 2008 and Taka
104.27 Crore in the year 2009. This year it stood at taka 130.56 Crore. At 31 December 2010,
the capital adequacy ratio of the bank is 12.16 % against 14.56% at the same period of 2009.

3.1 Types of Accounts in Al-Arafah Islami Bank

A bank is essentially an intermediary of short-term investment/funds. It can carry out
extensive lending/investment operations only when it can effectively mobilize the savings of
the community.

A good banker is one who effectively mobilizes the savings of the

community as well as makes such use of savings by making it available to productive and
priority sectors of the economy thereby fostering the growth and development of the nations
Accounts are opened under the following two modes 1

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

1. Al-Wadeeah ( Current Account)

2. Al-Mudaraba (Deposit Account)
1. Al-Wadeeah (Current Account): The word Al-Wadeeah has been derived from the
Arabic word Wadayn which means to keep/to deposit/to give up/Amanat. As per Shariah ,
Amanat means to keep something (goods/money/others) to any reliable person/institution for
safe and secured preservation of the same keeping its ownership unchanged and which will
be returned to the owner of the fund on demand as it is/in original shape. In case of Amanat
Bank/any other institution cannot use, invest and amalgamate the funds without the prior
permission of the owner of the Amanat.
The depositor can deposit any amount in this account
The depositor can withdraw any amount by cheque
No profit is allowed in this account
The depositor shall also not bear any loss
Cheques, bills etc collected in this account against commission
Govt. excise and incidental charge realize from this a/c as per rule.
2. Al-Mudaraba (Deposit Account): The word Mudaraba derived from the Arabic word
Darb/Darabun. Literally it means movement to earn profit (munafa). It is a form of
partnership where one of the parties called the Shahib-al-mal provides a specified amount
of capital and acts like a sleeping or dormant partner, while the other party called the
Mudarib (entrepreneur), provides the entrepreneurship and management for carrying on any
venture, trade, industry or service with the objective of earning profit. The Mudarib is
required to work with honesty and sincerity and to exert the maximum possible care and
precaution in the exercise of the functions.
3.2 Mudaraba Deposit Products
Mudaraba Short Notice Account (MSNA)
Mudaraba Savings Account (MSA)
Mudaraba Term Deposit Receipt (MTDR)
Mudaraba Savings Bond (MSB)
Mudaraba Special Scheme (MSS)
Mudaraba Monthly Profit Distribution Scheme (MMPDS)
Mudaraba Muhor Savings Account (MMS)

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Mudaraba Waqf Cash Account (MWCA)

Mudaraba Hajj Savings Account (MHSA)
Mudaraba Foreign Currency Deposit
3.3 Different Types of Account Holders
Anyone can open an account with the banker if he is not incapable of entering into a valid
contract and the banker is satisfied of his bonafide and is willing to enter into the business
relations with him. There are certain types of accounts in regard to which the banker should
take note of the relative laws and exercise pre-cautions in order to safeguard its interest.
Some types are:
A/c opened by minors
Joint (two or more persons)
Co-operative societies
Public bodies
3.4 Account opening
This section opens account. It receives account opening application from the interested
applicants, examines and scrutinizes the applications and then selects final customers.
Selection of customers is very much important as the success and failure of the bank is
largely dependent on the valued customers. If the customer is found to be fraudulent or
create some sort of forgery, it will ultimately destroy the goodwill of the company.
The following formalities must be maintained by the customer for opening of different types
of account.
3.5 Individual
1. Genuine & acceptable introduction
2. Attested photograph of the account operators/A/c holders

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

3. Certificate from the Chairman/ Commissioner/ Gazetted Officers or any responsible

4. Verification of introducers signature
5. Admittance of the signature(s) of opener/ operators A/c
6. Transaction profile
7. Obtain KYC
8. Declaration/Undertaking
9. Letter of Thanks
(a) It must be sent to the A/c holder and introducer
(b) Office copy to be affixed with the AOF
(c) It will have to be dispatched under registered courier
(d) Courier /Postal receipt must be affixed to the AOF
(e) This receipt must contain the A/c number against which the letter has been sent
3.6 Joint Accounts
1. All item for individual account holder as stated above
2. Two or more persons can open an account
3. Authorized person can operate the account
4. Authority is automatically revoked by death, insanity or bankruptcy
5. Stoppage of payment by any one of the account holders
6. Special instruction regarding operation of the A/c in any of the following forms:
(a) By any of the Joint account holder singly
(b) By either or survivor singly
(c) By either singly
(d) By any two or more joint account holding jointly
(e) By all the survivors jointly
3.7 Sole Proprietorship
In case of opening an account by a sole-proprietor of a firm, he/she should sign the account
opening form and furnish his specimen signature showing his representative character.
1. All items for individual account holder as stated above.
2. Valid trade license or attested photocopy thereof issued by the competent authority
3. Membership certificate from local business association/Chamber of Commerce
3.8 Partnership Firm

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

A banker should not open an account in the name of a partnership unless one or more of the
partners apply to him to do so. Except where the partner, making an application for the
opening of an account in the firms name, is deprived of the power, which fact is known to
the banker, there can be no legal objection to a banker opening an account in the name of the
firm at request. Failure, however, to make proper enquiries by referring to the partnership
agreement or any other record in writing which maybe available before opening of account
on behalf of a firm in a partners name may lead a banker in trouble.
1. All items for individual account holder as stated above.
2. Valid trade license or attested photocopy thereof issued by the competent authority
3. Two or more person can form a partnership firm by partnership deed. (Registered
4. Clear mandate for operating the a/c from the partners regarding name of the persons to
draw cheques and borrow money, to overdraw, to mortgage or to sell properties owned
by the firm
5. In case of insolvency of the firm: Operation should be stopped after receiving notice of
insolvency of the firm
3.9 Private Limited Company
A company registered under the Companies Act, 1913 has a legal entity apart from its
shareholder. Private Company means a company which by its articles:
Restricts the right to transfer the shares if any;
Limits the number of its members 2 to 50
Prohibits any invitation to the public to subscribe for the shares, if any or debentures
of the company.
When a current account is to be opened for a private limited company the banker will have to
obtain the following requirements:
1. All terms for individual account holder as stated above
2. Copy of memorandum and articles of association duly certified by the
Secretary/Director of the company
3. Certificate of incorporation
3.10 Mudaraba Savings A/c (MSA A/c)
1. Nationality certificate from Ward Commissioner/ UP Chairman or Passport
(photocopy) of every signatories of the A/c

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

2. KYC form for individual

3. Introduction of any current account/ Savings account holder
4. Two copies attested photographs of a/c operators
3.11 Mudaraba Special Savings (Pension) MSS A/c
1. KYC Form for individual
2. Introduction of any current account/ Savings account holder.
3. Two copies attested photographs of a/c operators.
3.12 Closing of an Account
It could be closed either by a banker or by the customer itself.
Banker: If the customer does not have transaction with the bank for more than a year it may
categorized as irregular. And if the customer does not have transaction for 10 years, the
customer will be sent a letter.
Customer: If the customer intentionally wants to close the account he/she has to write an
application forwarding the Manager with reasons behind the closure of the account.
3.13 Types of Deposit & Their Corresponding Provisional Profit
Particular of Deposit

Provisional Profit

Mudaraba Hajj Savings

From 11 to 25 years


From 1 to10 years


2. Mudaraba Waqf Cash Deposit


3. Mudaraba Special Savings (Pension)

For 10 years


For 5 years


4. Mudaraba Muhor Savings A/c

For 10 years


For 5 years


5. Mudaraba Saving Bond

For 8 years


For 5 years


6. Mudaraba Monthly Profit Deposit Scheme


7. Mudaraba Term Deposit

36 months


Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

24 months


12 months


06 months


03 months


8. Mudaraba Savings Account


3.14 Cash Section

A bankers transactions are mainly of three types. They include
Transfer &
The cash section of any bank plays very significant role in general banking department
because, it deals with most liquid assets. Basically cash department is the most vital and
sensitive department of the branch which deals with all kinds of transaction in cash. All cash
receipts and payments are made through this department. The Al-Arafah Islami bank is
equipped with electronic machinery with fully computerized system which delivers quick
service to its valued customers. This section receives cash from depositors and pay cash
against cheques, draft, Pay order (PO), etc over the counter. This section accepts cheques
from the depositors for payment in cash. The drawer who wants to receive money against
cheque comes to the payment counter and presents the cheque to the officer. He verifies the
following information:

Date of the cheque


Signature of the account holder


Material alteration


Whether the cheque is crossed or not


Whether the cheque is endorsed or not


Whether the amount in figure and in word corresponds with each one

Then the officer checks the cheque from the computer for further verification. Here is the
following information that is checked.

Whether there is sufficient balance or not


Whether there is stop payment instruction or not


Whether there is any legal obstruction or not

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

The cash section deals with all type of negotiable instruments. It also includes the Vault
which is used as the store of the cash instruments. The vault is insured up to a certain
amount, which is called the vault limit; the excess cash is then transferred to Bangladesh

The AIBL, Banani Branch Vault limit is 1.5 crore.

When the excess cash is

transferred, the cash officer issues IBDA. The vault counter is around 35 lacs. Any client
who wants to deposit money will fill up the deposit slip and give the form along with the
money to the cash officer over the counter. The cash officer counts the cash and compares
with the figure written in the deposit slip. He then puts his signature on the slip along with
the cash received seal and records in the cash receive register and also in the computer
against the account holder.
3.15 Bills & Clearing Section
A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand. [Section-6, Negotiable Instrument Act, 1881]
A cheque may be an open cheque (which can be presented for payment by the holder) or a
crossed cheque (which can be paid only through a collecting banker.)
The picture below (Fig.1) shows a typical cheque issued by banks.

Cheques of its customers are received for collection from other banks. In case of receiving
cheques, following points should be checked very carefully:
The cheques should not carry a date older than the receiving date for more than 1
months. In that case it will be a stale cheque and it will not be allowed for
The amount in figure and words in both sides of the pay-in-slip should be same.
The name mentioned in the cheque should be same in both side of the pay-in-slip
and it should be the same with the name mentioned in the cheque

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

The cheque must be crossed

3.16 Types of cheque
Inward clearing cheques: Inward cheques are those ones drawn on the respective branch
which have been presented on other banks and will be cleared/honored through the clearing
house. For example, the cheque drawn on AIBL, Head Office.
Outward Cheques: These cheques are received on the counter from other banks. There are 3
1. Drawn on another branch of AIBL. These are called Outward Bills for Collection
2. Drawn on another bank, which is situated in the clearing house area. This cheques
are called clearing cheque.
3. Drawn on another bank, which is situated outside the clearing area. These cheques
are also called as OBC.
3.17 Outward Bills for Collection (OBC)
OBC are those cheques drawn on other banks which are not within the same clearing house.
An officer gives OBC seal on this type of cheques and later sends a letter to the manager of
the branch of the same bank located in the branch on which cheque has been drawn. After
collection of that bill, branch advice the concerned branch in which cheque has been
presented to credit the customer account through IBCA. In absence of the branch, officer
sends a letter to the manager of the bank on which the cheque is drawn. That bank will send
pay order in the name of the branch. This is the procedure of OBC mechanism.
3.18 Inward Bills for Collection (IBC)
All clearing cheques are not received on the counter. Some cheques are received from other
source for collection. These cheques are received from other branch of Al-Arafah Islami
Bank. These cheques are settled by sending IBCA.
3.19 Remittance
Remittance means transmission/transfer of money from one place to another.


remittance represents remittance that takes place within the territory of a country.
Virtually there are three types of remittances as under:
DD- Demand Draft
TT Telegraphic Transfer

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

PO - Payment Order
3.20 Demand Draft
According to Section 85 (A) of the negotiable instruments Act, a demand draft is an order to
pay money drawn by one office of the bank upon other office of the same bank for a sum of
money payable to order on demand.
The followings are essential features of a demand draft issued by the bank:
1. It is a negotiable instrument
2. It is drawn by one office of a bank upon another office of the same bank
3. It is payable on demand.
3.21 Issuance of DD
1. A prescribed Application Form bearing No (F20). The following columns should be
filled in properly.
(a) Name & address of the applicant
(b) Telephone No
(c) Date
(d) Signature of the applicant
(e) Name of the payee
2. Commission to be realized/charged as per Head Office circular, at present

@0.1 %

but min TK.40/3. Total amount should be deposited by the party in cash or cheque as per arrangement.
4. Printed DD block/leaf to be filled in by a bank official as per request of the purchase
(a) Name of the issuing branch
(b) Date
(c) A/c payee rubber stamp
(d) Payees name
(e) Amount in words and figure
(f) Drawee branch
Investment is the action of deploying funds with the intention and expectation that they will
earn a positive return for the owner (Brokington 1986, p.68). Funds may be invested in either
real assets or financial assets. When resources are used for purchasing fixed and current
assets in a production process or for a trading purpose, then it can be termed as real
investment. The establishment of a factory or the purchase of raw materials and machinery

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

for production purposes are examples in point. On the other hand, the purchase of a legal
right to receive income in the form of capital gains or dividends would be indicative of
financial investments. Specific examples of financial investments are: deposits of money in a
bank account, the purchase of Mudaraba Savings Bonds or stock in a company.
4.2 Investment Objectives of Al-Arafah Islami Bank
The objectives and principles of investment operations of the Banks are The investment fund strictly in accordance with the principles of Islamic Shariah.
To diversifies its portfolio by size of investment, by sectors (public and private), by
economic purpose, by securities and by geographical area including industrial,
commercial and agricultural.
To ensure mutual benefit both for the Bank and the investment client by professional
appraisal of investment proposals, judicious sanction of investment, close and
constant supervision and monitoring therefore.
To make investment keeping the socio-economic requirement of the country in view.
To increase the number of potential investors by making participatory and productive
To finance various developments schemes for poverty alleviation, income and
employment generation with a view to accelerating sustainable socio-economic
growth and upliftment of the society.
4.3 Strategies
Risk in the investments and return thereon are interrelated. An investment policy that
emphasizes a high return must accept relatively high risk. Conversely, an investment policy
that will tolerate only small amount of risk must be prepared to accept a relatively low return.
As such, it is really difficult whether to select a high return port-folio on high risk or low risk
port-folio with a low return.
Nevertheless, considering all aspects following guidelines shall be followed as strategy for
banks 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 port-folio with lower risk shall get preference.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank


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 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.

4.4 Investment Mechanism of Al-Arafah Islami Bank

Bai- Mechanism


a) Bai-Murabaha
b) Bai-Muajjal
c) Bai-Salam
d) Istishnaa

a) Mudaraba
b) Musharaka

Ijara Mechanism

a) Hire Purchase
b) Hire Purchase
Under shirkatul

4.5 Bai-Murabaha
Bai-Murabaha may be defined as 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.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

4.6 Types of Murabaha

In respect of dealing parties Bai-Murabaha may be of two types.
Ordinary Bai-Murabaha
If there are only two parties, the seller and the buyer, where the seller as an ordinary trader
purchases the goods from the market without depending on any order and promise to buy the
same from him and sells those to a buyer for cost plus profit, then the sale is called Ordinary
Bai-Murabaha 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 of 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.
In this Bank, Bai-Murabaha is treated as a contract between the Bank and the Client under
which the Bank purchases the specified goods as per order and specification of the client and
sells those to the ordering client at a cost plus agreed upon profit payable within a fixed
future date in lump-sum or by fixed installments. Thus it is a sale of goods on profit by
which ownership of the goods is transferred by the Bank to the Client, but the payment of the
sale price (cost plus profit) by the Client is deferred for a fixed period.
4.7 Operational Procedures of Investment of AIBL
The Bank shall sell the goods at a higher price (Cost + Profit) to earn profit. The cost of
goods sold and profit mark-up therewith shall separately and clearly be mentioned in the BaiMurabaha Agreement. The profit mark-up may be mentioned in lump sum or in percentage of
the purchase/cost price of goods. But, under no circumstances, the percentage of the profit
shall have any relation with time or expressed in relation with time, such as per month, per
annum etc. The price once fixed as per agreement and deferred cannot be further increased. It
is permissible for the Bank to authorize any third party to buy and receive the goods on
Banks behalf. The authorization must be in a separate contract.
Induction of client

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Processing and appraisal
Purchase of goods by the Bank
Taking delivery of goods by the Bank
Sales and delivery of goods to the client
4.8 Application
Obtain application in triplicate from the client of F-167A and record the

same in the

Investment Proposal Received and Disposal Register (B-53).

Obtain and affix attested photograph(s) of the Proprietor /Partner/Directors/
Trustee/ Administrator on the top right hand corner of the application.
Scrutinize the application of the Client to see that(a) All columns are properly field in;
(b) Particulars and information given therein are complete and correct in all
(c)All required Documents/papers as listed in the footnote for the application
is submitted;
4.9 Special Schemes under Investment Modes
Household Durable Scheme
Al-Arafah Islami Bank has introduced Household Durables Investment Scheme which has
already created great enthusiasm among the people and received tremendous response from
them. Objectives are to assist the service holders with limited income in purchasing
household articles such as Furniture, Electric and Electronic equipments like Television,
Refrigerator, Gas cooker etc.

Investment Scheme for Doctors

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

Rural Development Scheme of Al-Arfah Islami Bank

Al-Arafah Islami Bank 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 Al-Arafah Islami Bank through its RDS project has been implementing integrated
programs for the landless poor, wage 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.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

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 the deficit. We must modernize our agriculture and establish more and more industries
in order to minimize imports. The Bank has introduced Agriculture Implements Investment
Scheme" to provide power tillers, power pumps, shallow tube wells, thrasher machine etc. On
easy terms unemployed youths for self-employment and to the farmers help augment
production in agricultural sector.

Micro Industries Investment Scheme

Al-Arafah Islami Bank 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.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

4.10 Data Analysis of the Investment of Al-Arafah Islami Bank

























& 1,337.05


































Table: 4.10 Mode-wise Investment

Chart Industrial Investment

Chart - Commercial Investment

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Chart - Investment in Real State

Chart - Investment in Agriculture

Chart - Investment in Other Sectors

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

4.11 AIBL has Extended Finance Covering all Sectors of the Economy

































Chart - Investment Portfolio 2011

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

5.1 Foreign Exchange

Foreign Exchange Department is a very important department of, Al-Arafah Islami Bank
which deals with import, export and foreign remittances. Foreign Exchange department is an
international department of the bank. It facilitates international trade through its various
modes of services.

It bridges between importers and exporters.

If the branch is an

authorized dealer in foreign exchange market, it can remit foreign exchange from local
country to foreign country. This department mainly deals in foreign currency, thats why it is
called foreign exchange department.

Bank branch should be authorized dealer, with due approval from Bangladesh Bank to run
foreign exchange transactions. According to the Bangladesh Law, the payment must be
received within 120 days.
Foreign Exchange Department is dividend in to 3 sections




Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

5.2 Mode of Foreign Exchange Business

1. Import
2. Export
3. Remittance
A. Inward Remittance
B. Outward Remittance
5.2.1 Meaning of Import
Import means lawfully carrying out of anything from one country to county for Buying. It
will be occurred according to the Government law.

5.2.2 Classification of Importer

Importers are those who are authorized by the import Trade Control Authority that is CCI& E
for import of goods essential for consumption or for production purposes.
There are mainly three types of Importer

Commercial Importer


Industrial Importer.


Importer under Wage Earner Scheme - WES

(1) Commercial Importer

It means an importer registered under the importers, exporters and indenture registration
order 1981 who import goods for sale.
(2) Industrial Importers
When issued to an industrial consumer, gives the items of import as raw materials and
packing materials and spare parts, the value of entitlement and ITC classification.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

(3) Importers under - WES

It means registered importers who import only under the WES. WES importers can be
importing all permissible items as declared by the import policy and notification. Besides all
registered commercial and industrial importer also can import under WES.
Other Importers are as follows
Lease Financing Import.
Govt. Sector Importer.
Import under Bonded Ware-House System.
Import by Actual Users.
Import by E.P.Z.

5.2.3 Import Policy Order

Earlier import policy has been formulated the five years. But present import policy order has
been formulated for 3 (three) years, Effect from the 14th June 2003 to 30th June 2006 and valid
till announce of new import policy order. If require Government can revise the policy in each
every years.
5.2.4 General Rules in connection with import
Restriction of Import
a) Negative list of Merchandises.
b) Restricted list.
c) Footnote under Restricted List
d) Freely importable items.
ITC number is compulsory (H.S code 6 digit) to be mentioned in the L/C and LCAF to
identification the item to be imported.
1. Requirement Right of Refusal (ROR) for public sector agency from Ministry of
Industry or respective Ministry/department of both to Import item under Restricted
2. Import cannot be Israel.
3. Pre-shipment inspection (PSI) for private sector normally PSI is not mandatory.
4. Shipment to be made through Bangladeshi ship some exemption

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5.2.5 The Documentary Letter of Credit

Letter of Credit is a credit contract where the Opening/Issuing Bank is committed to place an
agreed amount of money at the beneficiarys disposal under some agreed conditions. In other
words letters of credit is a letter form the importer Bankers to the exporter that the bills if
drawn as per terms & conditions complied with will be honored on presentation.

Definition of L/C
A letter of Credit is a conditional bank undertaking of payment. In other words letters of
credit is a letter form the importer bankers to the exporter that the bills if drawn as per terms
and conditions are compiled with will be honored on presentation
As per UCPDC 500 a credit may be either:




The Credit, therefore, should clearly indicate whether it is revocable or irrevocable. In the
absence or such indication the credit shall be deemed to be irrevocable.
Types of L/C
1. Revocable Credit: As per Article no. 8 (a) A revocable credit is a credit which can
be amended or canceled by the issuing bank at any time without prior notification to the seller
since to offers little security to the seller.
2. Irrevocable Credit: As per Article no 9 an irrevocable credit constitutes a definite
undertaking of the issuing Bank. A credit cannot be amended or cancelled without the
agreement of all parties. It gives the seller grater assurance of payment. An irrevocable credit
can be either confirms or unconfirmed dependant on the desire of the seller.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Other types of Letter of Credit are as follows 1. Confirmed


2. Transferable L/C.
3. Divisible L/C.
4. Back to Back L/C.
5. Revolving L/C.
6. Restricted L/C
7. Red clause L/C.
8. Green Clause L/C
9. With Recourse
10. Without Recourse
5.2.6 Registration of Importer
As per import & Export control Act. 1950 no person can indent, import or export any goods
into Bangladesh except kin case of exemption issued by the Government of the peoples
Republic of Bangladesh. Violation of this order is punishable with fine under the
provisions of Sea Customs Act 1878 as applied by sub section (3) of Section 3 of this
Procedure for obtaining, IRC ( Import Registration Certificate )
Through public notice or import policy the chief controller of imports & Exports invites
applications usually for registration of importers. The following papers/ documents are
required for submission to CCI&E or area office of CCI & for import registration certificate:
1. Application form.
2. Nationality Certificate.
3. Income Tax registration Certificate with GIR.
4. Trade License from the municipal or local Authority.
5. Membership Certificate.
6. Partnership deed (for partnership firm)
7. Certificate of Registration with the register of joint Stock Co. & Articles and
Memorandum of Association in case of Limited Co.
8. Bank Certificate.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

9. Documentary evidence for business existence.

10. Original copy of Treasury Chalan being payment of registration fees.
11. Original copy Chaplin for passbook.
12. Other documents if any required by the CCI & E.
13. Ownerships documents or Rent receipts of the place of Business.
14. Survey clearance from the relevant Authority.
The nominated bank of the application will examine the papers/documents s& verity the
signature of the applicant and forward the same to the concerned office of the CCI & E with
forwarding schedule in duplicate through banks representative. The duplicate copy of the
same bearing the acknowledgement of CCI & E office of the receipt of the documents is back
by the bank and is preserved. If the documents are found in order and the CCI & E is satisfied
the IRC is issued to the applicant and sent direct to the nominated bank. The passbook is also
issued by the CCI & E simultaneously to the importer and sent direct to the nominated bank.
Parties to Letter of Credit
1. Importer (Buyer)/Applicant
2. The Issuing Bank (Opening Bank)
3. The Advising Bank (Notifying Bank)
4. Exporter/Seller (Beneficiary)
5. Confirming Bank
6. Negotiating Bank
7. The Paying/Reimbursing/Accepting/Remitting
Applicant: The person/body who requests the bank (opening bank) to issue letter of credit.
As per instruction and on behalf of the applicant, the bank opens L/C in line with the terms
and conditions of the seller contract between the buyer and the seller.
Opening bank/Issuing Bank: The bank which open/issue letter of credit on behalf of the
applicant/ importer. Issuing banks obligation is to make payment against presentation of
documents drawn strictly as per terms of the L/C.
Advising/Notifying Bank: The bank through which the L/C is advised/forward to the
beneficiary (exporter). The responsibility of advising bank is to communicate the L.C to the
beneficiary after checking the authenticity of the credit. It acts as an agent of the issuing
bank without having any engagement on their part.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Beneficiary: Beneficiary of the L/C is the party in whose favor the letter of credit is issued.
Usually they are the seller or exporter.
Confirming Bank:

The bank which under instruction in the letter of credit adds

confirmation of making payment in addition to the issuing bank. It is done at the request of
the issuing bank having arrangement with them. This confirmation constitutes a definite
undertaking on the part of confirming bank in addition to that of issuing bank.
Reimbursing/Paying Bank: the bank nominated in the letter of credit by the issuing bank to
make payments stipulated in the document, complying with reimbursing bank.
1. Contract





2. Doc .Credit
4. Advise of
Doc .Credit

3. Documentary Credit

The Canadian Advising Bank

The Bangladeshi Issuing Bank

Figure: The Documentary Credit Cycle

Documents submitted by the importer before opening of the L/C
a. Trade License (Valid).
b. Import Registration certificate (Must be kept in the bank custody).
c. Passbook import.
d. Income Tax declaration.
e. Membership certificate.
f. Memorandum of Articles (In case of Ltd. Co.)
g. Registrar deed (In case of partnership firm)

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h. Resolution.
i. Photo one copy.
Bank will supply the following papers/documents before opening of the L/C
a) L/C application form.
b) LCAF Form.
c) IMP Form
d) Murabaha agreement.
e) Charge documents paper.
The above paper must be completed duly filled and signed by the party and verified the
5.2.7 Import Procedure under Al-Arafah Islami Bank
1. Selection of Clients On the basis of
a. Credit Report.
b. Credibility.
c. CIB Report.
(To association of liability if any with other bank.)
2. Induction of client as Importer.
3. L/C
a. Conditional Undertakings of bank payments.
b. .Processing to open
c. Permissibility and marketability of the item.
d. Price competitiveness.
e. Credit report of the supplier.
f. Fixation of the cash security.
g. Documentation.
h. Preparation of vouchers.
i. Realizations of the cash security, commission and other charge.
4. Througing of L/C
a. SWIFT is a worldwide community. It has over 7500 financial institution over 199
Countries as its member.
b. Air mail/Telex through advising Bank.
5. Lodgment
a. Checking of import documents upon receipt from negotiating banks.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

b. Entry the bills register.

c. Passing the voucher.
d. Purchase of FC. Fund for payment of the bills.
6. Retirement
a. Preparation of cost memo.
b. Intimation to importer regarding arrival of shipping document.
c. Asking the bill paying banks dues showing in the cost memo.
d. Delivery of the documents against receipt of payment
7. Post Import Finance
a. At the request of importer bank undertakes clearing of the imported goods paying duty.
VAT and other relevant charges stores the same under control
b. Delivers to importer against payment as per prior arrangement.
8. Enlistment of C&F agent
a. For C&F purpose. C&F agents are enlisted under different categories.
9. Reporting
a. To Bangladesh Bank
b. Monthly returns statement to the Head office.

Figure : Summary of the Plan of Payments

5.3 Export
5.3.1 Meaning of Export
Export means lawful carrying out of anything from one country to another country for sale.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

5.3.2 Definition of Exporter

The importers and exports trade of the country is regulated by the Imports Exports Control
Act 1950. No person /firm is allowed to export any thing from Bangladesh unless he is
registered with CCI and E under the registration order (Importer and Exporter) 1952. To
become an exporter an ERC (export Registration Certificate) must be obtained from the
office of CCI & E.
5.3.3 Procedure for obtaining Export Registration Certificate (ERC)
For obtaining Export Registration Certificate (ERC), intending Bangladesh Exporters are
required to apply to the CCI & E authority in the prescribed from along with the following
a) Nationality Certificate.
b) Copy of valid Trade License.
c) Income Tax Certificate.
d) Bank Certificate.
e) Copy of rent receipt of the business firm.
f) Registered Partnership Deed in case of partnership concerns.
g) Memorandum of Articles & Association and Incorporation certificate in
Case of Limited Company.
On satisfaction of the CCI & E the potential exporter is advised to deposit export registration
fee of Tk. 1,000/- through Treasury Chelan to Bangladesh Bank/ Sonali Bank for enabling
them to issue ERC. The ERC may be renewed every year on payment of renewal fee of Tk.
1,000/- through Treasury Chelan as started.
5.3.4 Different types of Export
a. Export under L/C
Exporters are allowed to export the commodity under irrevocable letter of credit. Under this
type of export, exporter will ship the goods as pr terms of the credit and will get payment as
per arrangement of the credit.
b. Consignment basis export

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Exports are allowed against firm contract. As per contract, importer will ship the goods and
the buyer will make payment after selling the consignment.
c. Export against advancement payment
Sometimes exporter receives payment in advance. In that case Authorized Dealer should
obtain a declaration from the exporter on the Advance receipt voucher certifying the
purpose of the remittance. Then the exporter will export the goods against the advance

5.3.5 General Rules for Export

There are some rules, which are mandatory for export of any goods form Bangladesh. The
rules are as under:
(1) No Person can export any goods from Bangladesh, unless he is duly registered as an
exporter with the CCI & E.
(2) All export must be declared on the EXP form, which is consisting of 4 copies.
(3) Export mush is against any of the following:
a) Export L/C.
b) Firm Contract.
c) Advance Payment.
(4) Transport documents related to land route or sea and any other Author8ized Dealer. The
Airway Bill and any other documents of title to car4go may be drawn to the order of a Bank
in the country of import. However in case of advance payment, transport document may be
drawn to the order of Foreign Importer Bank endorsement of transport documents is
prohibited. Directions under Sl. No. shall not apply in the following cases:
a) Export of Trade sample.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

b) Personal Effects.
c) Goods shipped under the order of Govt.
d) Export of fresh fish, vegetable and fruits.
5.3.6 Export Documents Checking
After submissions of export documents by the exporter, Bank must check, whether the entire
required document submitted or not. Bank must examine all documents stipulated in the
credit with reasonable care to ascertain
whether or not they appear, on their face to
be in compliance with the terms and
conditions of the credit. The Banks will not
examine documents not stipulated in the
credit. To examine documents Bank must
follow the L.C terms and international
standard banking practice. Automated or
computerized carbon copies to be treated as original documents if it is marked original
Copy documents need not be signed. Multiple documents means one original and remaining
copies, Signature, Mark, Stamp or label is sufficient for authentication of document. Bank
will accept a prohibited in the L/C.
5.3.7 Export Financing
To meet up the cost of the goods to be exported, the exporter, the exporter may require Bank
finance. Besides, he may require finance for go down rent, freight etc. Event after shipment
of the goods, exporter may require Bank finance to meet-up his current expenditure up to
repatriation of the export proceeds.
There are two types of export finance:
(I) Pre-shipment finance.
(ii) Post shipment finance.
5.3.8 Pre-shipment finance
Pre-shipment investment is finance, allowed by a Bank to an exporter, to meet the cost up to
the shipment of the goods t overseas buyer. The purpose of the investment is to purchase raw
materials or finished goods or manufacturing processing, packing and transporting the goods.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

5.3.9 Post shipment finance

There is a time gap between export of the goods and realization of the proceeds. So exporter
may require finance in that period to continue his business. So Bank may finance against
export documents ensuring the following:
1) Export documents comply the credit terms.
2) Buyer is bona-fide.
3) Partys past performance is satisfactory.
4) Any other security in case of export under contract.

5.3.10 Aa. Security of Pre-shipment Investment

1) Bank will mark loin on the related export L/C.
2) Bank will finance against a L/C having sufficient time to procure the goods for export.
3) Finance to be done after arrival of the imported raw materials under back-to-back L/C.
4) Bank will supervise the production from time to time to ensure export of the goods in time.
5) If finance is applied for a particular purpose Bank will ensure the proper use of the money
for the purpose only.
6) Change documents to be signed by the exporter before disbursement of the PSI.
7) In case of Quota finance, Quota allocation letters to be kept lien with the Bank.
8) Bank will adjust the liability proportionately from related export documents.
5.4 Remitance
5.4.1 Meaning of Remittance
The word Remittance originates from the word remit which means to transmit money/
fund. In banking terminology the word remittance means transfer of fund one place to
another. When

money transferred from one


another is called Foreign



Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

5.4.2 Types of Remittance

Foreign remittance may be classified into.
Inward Foreign Remittance.
Outward Foreign Remittance.
5.4.3 Inward Foreign Remittance
Inward Foreign Remittance means Remittance received from foreign countries from abroad.
In other words remittance coming into our country from other countries by the remitter by
way of permissible banking channel through freely convertible Foreign Currencies is called
Inward Foreign Remittance i.e. payless point of view it is inward foreign remittance. On the
other hand remitters point of view it is called outward Foreign Remittance. During The year
1995-1996 Bangladesh received and amount of US$ 1217.062 Mil as Foreign remittance. The
above process of Remittance may be presented diagrammatically as under:
5.4.4 Outward Remittance
Outward remittance of funds be made by means of T.T., D.D.T.T. etc. the remitter has to
deposit money along with the application contains name and address of the payee name of the
currency etc. All outward remittances must cover the transactions approved by the
Bangladesh Bank. Which are usually for importers travel & educational expenses.
5.4.5 Direct/ Indirect Remitter
Wage Earners: Bangladeshi citizens are working abroad both in private sector & in Govt.
Indenture: Indenting commission & Agency commission received from suppliers from
abroad. Bangladeshi citizens are working in Bangladesh Embassy abroad.
Donors: Foreign Donors can only remit to Bangladesh through the Govt. Register
Organization & institution etc.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Exporters: Export proceeds also remitted to Bangladesh against exporting of goods.

Instruments of Foreign Remittances
Cash for
: Dollar, Pound, France Fr. Riyal or any other currency.


: Travelers Cheque.


: Foreign Demand Draft.


: Telegraphic Transfer, Cable transfer or swift transfer.


: Mail Transfer.


: International Money Order.


: By any person & institution..


: Payment Order.

5.5 Foreign Exchange Performance of AL-ARAFAH ISLAMI BANK

AL-ARAFAH ISLAMI BANK has glorious history in mobilizing Foreign Exchange
Business. Over the years the banks Foreign Exchange Business was a record high amount
among all banks in Bangladesh.
The Bank has a wide Network of Authorized Dealers throughout the year. Well- equipped
and international network with skilled manpower, the bank is confident of running Foreign
Exchange business efficiently to the satisfactory of importers, exporters and Bangladeshi
Expatriates working abroad.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

From the coefficient table, we can see that the beta coefficient of XI which is customer
satisfaction of Al-Arafah Islami Bank is .931 which shows a positive relationship between
overall performance of Al-Arafah Islami Bank and satisfaction of customers towards the
6.1 SWOT Analysis
Like other organizations, AIBL also have its strength, weakness, opportunities and threats.
The following stated the SWOT analysis of the bank.
AIBL provides its customer excellent & consistent quality in every service.
AIBL is a financially sound company.
AIBL utilize state of the art technology to ensure consistent quality & operation.
AIBL provides its works force an excellent place to work.
AIBL has already achieved goodwill among the clients.
AIBL has a research division.
They have a very few number of branches and foreign exchange department. This is a
great weakness. If they cannot recover this weakness, they will not increase earnings
from foreign exchange sector.
They cannot open sufficient number of L/C in a month. Because they have not enough
exporter and importer. This is another great weakness for foreign exchange
Risk Management system is not strong. The bank has already exposed to a variety of
risks the most important of which are credit risk, market risk and liquidity risk.
IT Division is not strong because bank put due importance to utilization of technologybased service to the customers.
Emergence of E-banking will open more scope for AIBL.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

AIBL can introduce more innovative and modern customer service.

Many branches can be open in remote location.
The world wide trend of mergers and acquisition in financial institutions is causing
Frequent taka devaluation and foreign exchange rate fluctuation is causing problem.
Lots of new banks are coming in the scenario with new service.
Local competitors can capture huge market share by offering similar products.
It goes without saying that AIBL has turned over a new leaf of general people through the
invention of new products, which are easily introduced and accepted by the general people on
account of its reliability and flexibility.
Overall my observation we can say that customer service quality AIBL is good and
continuously meets the challenges of developing new product and service.
AIBL is a well-known private bank in Bangladesh. It is high time to improve the performance
to provide the international flavored service by a Local bank. A set of recommendation is set
forth below to improve the banking service:
AIBL can diffuse its scope of investment through focusing Shariah concept regarding
investments among the Bank officers; employer and the Clients by strong training,
workshops and Clients get - together.
The authority of AIBL should exert pressure on Government bodies to run proper and
sufficient application of Islamic banking laws in Bangladesh.
Practice amount of doubtful income declined substantially during the year as
compared to the past few years, indicating more carefulness of the Management in
complying with Shariah. As a result, idle money will be invested to increase potential
profit of this Bank.
Inclusion of more subjects based on the Quran and Sunnah in the Training courses of
the Islami Bank Training & Research Academy in order to develop human resources
having morally.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

This Bank should arrange a wide varieties of regular programs like "ISLAMIC


etc. about Islamic Banking Function countrywide to remove the negative impression
about Islamic Bank.
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 a 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.
Most of the people in our country have a bad impression about Islamic Banking operations
regarding indirect generation of interest, which means no difference between investments of
Islamic Banks loan/credit/advance of conventional banks for this reason. They are not much
interested to investment with Islamic Bank because majority of our people have no proper
knowledge about the activities of Islamic banking as well as its investment mechanisms.
AIBL through its aggressive progress and continuous success has, by how, earned the
reputation of being one of the leading private sector banks of the country. The bank has
shown hard line progress in this important sector. Main items of import are machinery,
garments, fabrics and accessories, ships for scrapping, rice, pharmaceuticals etc. where as
main items of exports are jute products, readymade garments, leather, frozen fish, fertilizer
etc. AIBLs capital adequacy, deposits, reserves, earning per share, export, import and
remittances are increasing day by day. So, no doubt AIBL is a growing profitable financial

The future of Al-Arafah Islami Bank hinges, by and large, on their ability to find a viable
alternative to interest for financing all types of loans. They should recognize that their success
in abolishing interest has been only partial and they have yet to go a long way in their search
for a satisfactory alternative to interest. Simultaneously, Al-Arafah Islami Banks need to
improve their managerial capabilities by training their personnel in project appraisal,

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

monitoring, evaluation and performance auditing. Moreover, the future of Islamic banks also
depends on developing and putting into practice such accounting standards which provide
timely and reliable information of the type that the Islamic banks would require for profitsharing, rent-sharing or for cost-plus financing. These standards are yet to be developed. The
Al-Arafah Islami Bank would have to work hard to pursue their clients to accept these
standards so that a reliable information base is established.

Kothari, C. R.; Research Methodology Methods & Techniques, Second Edition, McGraw
Hill Com. Inc.; New York, USA, 2010.
Khan, M.Y. & Jain, P.K, Financial Management, 3rd Edition, Tata McGraw-Hill Publishing
Co. Ltd., New Delhi, 1999.
Runyon, Richard P., Inferential Statistics, Philippines: Addison-Wesley Publishing Company,
Inc., 1977.
Bragg, S.M., Accounting and Finance for Your Small Business, 2 nd Edition, McGraw-hill
Book Co. USA, 2011.
Periodicals & Journals
Adams, D., and Vogel, R.C.; Financial Markets in Low Income Countries: Recent
Controversies and Lessons. World Development, 1986, Volume 14 (4). PP 34-39
Anu, Mahmood 1998. Inside Bangladesh Economy. Published by BIBM, 63 New Eskaton,
and Dhaka-1000. PP 9-21.
Philips, J. (2009) Challenges to effective Implementation of Micro-Finance Programs in
Refugee Setting in Forced Migration Review No 20. Oxford.

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Annual Report of Al-Arafah Islami Bank Ltd, 2010
Annual Report of Al-Arafah Islami Bank Ltd, 2011
Prospectus of Al-Arafah Islami Bank Ltd, 2011
Service Rule of Al-Arafah Islami Bank Ltd, 2011
Loans and Advances Guideline of Al-Arafah Islami Bank Ltd, 2011
Others: Web Sites
For the year ended 31 December, 2011


Investment Income
Profit Paid on Deposit
Net Investment Income


Commission, Exchange and Brokerage

Other Operating Income


Total Operating Income

Operating Expenses
Salaries & allowance & Contribution to P.F 19

31 December, 2010

31 December,





Directors & Sharia Council fees




Rent, Taxes, Insurance, Lighting etc.




Postage, Telegram, Telephone & Stamp




Legal charges
Audit Fee
Salary & Allowances to the Managing





Depreciation & Repairs to the Bank





Stationary, Printing, Advertisement etc.

Other expenses


Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Total operating expenses

Profit / (Loss) before Tax & provision
Provision against Investments
Other provisions
Total provision
Profit/(Loss) before Tax
Current tax
Deferred tax
Provision for Taxation
Net Profit/(Loss) after Tax
Retained earning carried forward



Statutory Reserve



Retained Earning
Earning per Ordinary share (EPS)




As at 31 December, 2011
In hand (including foreign currencies)
With Bangladesh Bank And Sonali
Balance with other
Financial Institutions
In Bangladesh
Outside Bangladesh



2010 (Taka)











Money at Call & Short Notice

Investment in shares
General Investment etc.
Bills purchased and discounted

2011 (Taka)

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Fixed Assets including

Furniture & Fixtures
Other Assets
Non-banking Assets


















Total Assets
Financial Institution and Agents
Deposit and Other Accounts
Al-Wadia Current Accounts and
Mudaraba Savings Deposit
Mudaraba Short Notice Deposit
Mudaraba Term Deposit
Mudaraba Special Deposit
Bills Payable

Other Liabilities
Total Liabilities


Capital/Share Holders Equity

Paid up Capital
Bonus Share
Asset Revaluation Reserve
Statutory Reserve
Exchange Equalization
Retained Earning
Total Share holders equity
Total liability and share holders
Contingent Liabilities
Acceptance and endorsement
Letters of Guarantee
Letters of credit
Bills for Collection


Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

Other Contingent Liabilities

Less Margin





Other Commitments:
Documentary Credits and other short
term trade related transactions
Forward Assets Purchased and Forward
Undrow note issuance and Revolving
Underwriting Facilities
Undrow Formal standing Facilities,
Credit lines and other commitments
Total off Balance Sheet items including
part of these financial statements
Project Questionnaire
Name ..
1. Al-Arafah Islami Bank incurs minimal time in approving loan.
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree

e. Strongly Disagree

2. You are satisfied with the installment procedure and interest rate that you have to pay after
taking loan.
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree
e. Strongly Disagree
3. Al-Arafah Islami Bank provides an attractive interest rate on FDR.
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree

e. Strongly Disagree

4. Al-Arafah Islami Bank provides the services all the time that it promises to do so.
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree
e. Strongly Disagree
5. You dont have to wait for a long time in depositing or withdrawing cash in Al-Arafah
Islami Bank.
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree
e. Strongly Disagree
6. Depositing and withdrawing cash is easier in Al-Arafah Islami Bank.
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree
e. Strongly Disagree

Internship Report on Foreign Exchange Operational of Al-Arafah Islami Bank

7. You are satisfied with the process for applying and getting loan from Al-Arafah Islami
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree
e. Strongly Disagree
8. You are satisfied with the locker charge against the service, Al-Arafah Islami Bank is
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree
e. Strongly Disagree
9. Al-Arafah Islami Bank has made easier for you to check your account through internet and
SMS banking.
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree
e. Strongly Disagree
10. You are satisfied with the online banking system of Al-Arafah Islami Bank.
a. Strongly Agree
b. Agree
c. Neutral
d. Disagree
e. Strongly Disagree
Prepared by
Md. Ariful Islam
Southeast University