Chapter-1

Introduction

1. Origin of the Study:

Al-Arafah Islami bank limited was established in 1995 under the Bank Companys act 1991
as a banking company with limited liability by shares. It is an interest free shariah bank of
Bangladesh rendering all types of commercial banking services under the regulation of Bank
Companys act 1991.The rules, regulation and activities of AIBL is according to Islamic
Shariah. The primary objective of this Bank is to carry on all kinds of banking business in
Bangladesh. It is one of the fast growing leading online banks in private sector. This is a
descriptive report on Al-Arafah Islami Bank Ltd. that mentions the activities of General
Banking system, On-line banking and corporate social responsibility (CSR) of the bank.

2. Rational of the study:

As business student it is indispensable to undergo some practical study like this for the
purpose of having flavor of professional atmosphere and make rectification, as required. The
specific objectives of the study are:

To fulfill the academic requirement for the course MBA

To observe and study various desk works of the Bank

To get a brief experience about the environment and trends of an organization.

To present how this bank is operating to its General Banking site, online &
contributing to our country.

To describe how this bank is offering and attracting to customers.

3. Objective and Scope of the study

Al-Arafah Islami Bank Ltd. is one of the leading banks in Bangladesh. The scope of the study
is limited to the Elephant Road branch, annual report of AIBL, Booklet of AIBL and their
website only. The report covers the organizational structure, background, functions and the
performance of the branch as well as the bank. The scope of the study is just to acquaint with
the general banking scenario of AIBL, particularly in Elephant road Branch. For the bindings
of security all the data could not be enclosed in this report.

4. Methodology
Sources of information: Both primary and secondary information sources were used to
complete this report.
Primary sources: Primary sources were employees and executives from the bank.
Following factors were considered to collect information:
There is informal conversation with the clients.
Practical work exposures form the different desks of the various
departments of the Branch covered.
Relevant file study as provided by the officers concerned.
Secondary sources: Secondary information was collected from following ways.

Annual Reports of AIBL Bank Ltd.

Booklet of AIBL Bank Ltd.

Periodicals published by Bangladesh Bank.

Various books regarding general banking functions.

Also from the web site.www.al-arafahbank.com (some edition is needed)

5. Limitations of the study

In preparing this report I faced some limitations. During this Internship I worked all the departments of
AIBL one after another. AIBL is a large private bank, but three months study time is too short in an
organization like AIBL and this was the main limitation of my Internship Program. Other constraints
that I faced during the course of my internship are as follows:
The officials of the organization remain extremely busy through out the day. So
in spite of their keen interest they did not have enough time to supervise and
guide me.
Depth of focus of information and system is not possible because of the
organizational confidentiality.
Very limited published material is available regarding a bank.
In many cases, up to date information is not published or was not given.
Getting Relevant papers and documents were strictly prohibited.

Chapter-2
Familiarization with Organization

2.1 Historical Perspective and Corporate Information:

2.1.1 About Al-Arafah Islami Bank:
With the objective of achieving success in life here and hereafter following the way directed
by the Holy Quran and the path shown by Rasul (SM) Al-Arafah Islami Bank Ltd was
established (registered) as a public limited company on 18 June 1995. The inaugural
ceremony took place on 27 September 1995. The authorized capital of the Bank is
TK.2500.00 million and the paid up capital is TK. 1383.81 million as on 31.12.2008.
Renowned Islamic Scholars and pious businessmen of the country are the sponsors of the
Bank. 100% of paid up capital is being owned by local Shareholders. The equity of the bank
stood at TK.2705.74 million as on 31 December 2008, the manpower was 1080 and the
number of shareholders was 10664.

2.1.2Background
Al-Afrafah Islami Bank Limited is a scheduled commercial bank. The Bank was established
under the Bank Companies Act 1991 and incorporated as a public limited company under the
Companies Act 1994 in Bangladesh with the primary objective to carry on all kinds of
banking business in Bangladesh. The Bank is listed with Dhaka Stock Exchange Limited and
Chittagong Stock Exchange Limited in 1998. AIBL commenced its business as scheduled
bank with effect from June 18, 1995.

2.1.3 History of AIBL

The concept of Islami banking is several decades old. The first attempt to establish on Islamic
financial institution took place in Pakistan in the late 1950 with the establishment of a local
Islamic bank in a rural area. Some pious landlords who deposited funds at no interest as then
loaned to small landowner for agricultural development initiated the experiment. The second
pioneering experiment of putting the principles of Islamic bank and finance into practice was
conducted in Egypt from 1963 to 1967 through the establishment of the Mitghamr saving
bank in a rural area of the Nile Delta. The experiment soon become successful more branches
were opened in different parts of the country. Although the project made a good start and
initial results were more than encouraging it suffered setback owing to changes in the
5

political atmosphere. Another kinds of Islamic banking for the pilgrims of Malaysia were
established in 1963. Which was later on incorporated into the pilgrims Management fund
Board in 1969.The 1974 OIC summit in Lahore, Pakistan voted to create the intergovernmental Islami Development Bank (IDB). The bank was created in 1975 with aim to
serve as the World Bank and IMF for the member Muslim countries. The Dubai Islamic Bank
established in 1975 is considered to be the first modern Islamic bank in the private sector.
Then various Islamic banks established all over the world. At present Islamic banks are
strong positions in all over the world as well as Bangladesh. For the purpose of maintaining
boost modern management, advanced technology, good profitability and steady growth
transparency Al-Arafah 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-bureau craft 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 26 dedicated and noted Islamic
personalities of Bangladesh are the member of executive council of the bank. Wisdom of the
directors, Islamic bankers and the wish of Almighty Allah make Al- Arafah Islami Bank Ltd.
most modern and a leading bank.

2.1.4 Corporate Information

Corporate Information' 2008

Date of Registration
Opening ceremony
Authorized Capital
Paid up capital
Local Partnership of Capital
Equity
Number of branches
Deposit
Investment
Number of manpower
Number of shareholder

18 June 1995
27 September, 1995
2500.00 Million
1383.81 Million
100 %
2705.74 Million
50
29690.12 Million
29723.79 Million
1080
10664

2.2. Nature of Business (AIBL Focus):

2.2.1 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. The objectives of Al-Arafah Islami Bank Limited remain to
offer modern & innovative products & services to its clients in Bangladesh.

2.2.2 Objectives of Al-Arafah Islami Bank Ltd:

AIBL achieved stable growth and continuous progress to become one of the leading private
sector Banks of the country. The distinguishing objectives of AIBL are as bellow:

All activities are conducted on interest free system according to Islamic Shariah
principles.

Investment is made through different modes as per Islamic Shariah.

Investment income of the bank is shared with the Mudaraba depositors according to
an agreed upon ratio, ensuring a reasonably fair rate of return on their deposits.

Aims to introduce welfare oriented banking system and also establish equity and
justice in the field of all economic operations.

Extend Socio-economic and financial services to individuals of all economic

backgrounds with strong commitment are rural upliftment.

Plays a vital role in human resources development and employment generation

particularly among the unemployed youths.

Portfolio of investment and investment policy have been specially tailored to achieve
balanced growth & equitable development through diversified investment operations
particularly in the priority sectors and in the less developed areas of the national
economy.

Ensures Shariah compliance through regular and effective guidance of powerful and
highly esteemed Shariah Council consisting of 13 members.

2.2.3 Special features of Al-Arafah Islamic Bank:

Al-Arafah Islami Bank is singular in every positive aspect. The Bank provides a bunch of
state-of-art banking services within the wide bracket of shariah. It is unique with its products,

strict with its principle and uncompromising with its honesty. Here are some special features
of AIBL that make it notable in Islami banking sector:
All activities of the bank are conducted according to Islamic Shariah where
profit is the legal alternative to interest.
The banks investment policy follows different modes approved by Islamic
shariah based on the Quran and Sunnah.
The bank is committed towards establishing welfare oriented banking system
and creates employment opportunities.
According to the need and demand 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
of the government and creating infrastructure.
The bank is committed to establish an economic system resulting in social
justice and equitable distribution of wealth. It is committed to bring about
changes in the underdeveloped rural areas for ensuring balanced socio
economic development of the country through micro credit program and
financing of SMES as well.
According to Mudaraba system, the depositors ate the partners of the
investment income of the bank. About 70% of the investment income is
distributed among the Mudaraba depositors.
To render improved services to the clients imbued with Islamic spirit of
brotherhood, peace and fraternity and by developing an institutional cohesion.
The bank is contributing to economic and philanthropic activities. AIBL
English Medium Madrasah and AIBL library patronize by the Bank are two
such examples.

2.2.4 Activities of Shariah Council for the year 2008:

Shariah council consists of 6 members specialized in Fiqhul Muamalat (Islamic Commercial
Law) according to ensure whether all banking operations are transacted in accordance with
Islami Shariah. All the business activities of the Bank according to run all the business
activities of the Bank according to Shariah guidelines. Honorable members of the Shariah
council in several General Meetings , sub committee meetings and emergency meeting in the
year 2008 discussed the matters placed before them by the Board and management of the
Bank to give directives and suggestions in the field of Shariah principles. In the year 2008 the
Shariah council has compiled various decisions taken by the council on different matters at
different times under the caption Islami Banking Shariah Nitimala (1995-2006) and prepared
a Shariah Manual and published which is first of its kind in Bangladesh. Shariah council
advises everybody concerned to comply with Shariah requirements and render all out efforts
to increase the standard of service render to the clients. Muraqibs of the council have visited
all branches (50) of the Bank during the year to observe the Shariah compliance, give
necessary instructions on the spot and submitted report to the council. They have also
submitted corrective measures to rectify the laws in implementing Shariah guidelines into the
banking operations.

2.2.5 AIBL at a Glance:

(Million Taka)

Particulars 2001

2002

2003

2004

2005

2006

2007

2008

Authorized
Capital

1000.00

1000.00

1000.00

1000.00

1000.00

2500.00

2500.00

2500.00

Paid up

253.00

253.00

253.00

586.96

586.96

854.20

1153.18

1383.81

Reserve fund

117.63

155.43

155.43

488.96

488.96

835.98

1091.95

905.33

Share holders
equity

370.63

408.43

408.43

957.26

957.26

1690.18

2037.50

2705.74

Deposit

7879.18

7163.00

7163.00

10108.28

10108.28

16775.33

23009.13

29690.12

Capital

Investment

5079.21

6403.60

6403.60

8150.16

8150.16

17423.19

22906.37

29723.79

Import

5559.27

5162.51

5162.51

9337.49

9337.49

18821.40

27042.72

32685.13

Export

2524.63

1894.77

1894.77

3639.34

3639.34

9142.70

12714.91

20176.64

Total Income

800.35

835.42

835.42

1120.85

1120.85

2172.48

2955.61

4387.26

Total
Expenditure

678.84

671.48

671.48

771.96

771.96

1202.71

2199.43

2859.16

Profit before
Tax and

39.48

163.94

163.94

348.89

348.89

969.77

756.18

1528.09

19.53

50.71

127.06

154.76

262.90

470.02

347.31

668.24

Tax

13.82

57.76

103.96

157.00

215.10

385.45

235.53

590.68

Total Assets

9253.77

8759.33

10886.82

12874.61

15336.89

21368.16

30182.32

39158.44

Fixed Assets

58.54

114.83

126.23

195.17

208.00

215.10

334.48

396.76

Earning
Share

10.14

31.24

25.11

26.36

38.78

55.02

30.12

48.29

Dividend

7.5%

20%

Bonus
16%

Bonus
15.15%

Bonus
26%

Bonus
35%

Bonus
20%

Bonus
30%

Number of

5778

5557

5584

5379

5402

4487

12013

10664

659

670

685

803

771

912

1033

1080

40

40

40

40

41

46

46

50

Provision
Profit
after
Tax and
Provision

per

Shareholders
Number of
Employees
Number of
Branches

10

2.3. Vision, Mission and Commitment of AIBL

2.3.1 Vision:
To be a pioneer on Islami Banking in Bangladesh and contribute significantly to the growth
of the national economy.

2.3.2 Mission:

Achieving the satisfaction of Almighty Allah both here and hereafter.

Proliferation of Shariah Based Banking Practices.

Quality financial services adopting the latest technology.

Fast and efficient customer service.

Maintaining high standard of business ethics.

Balanced growth.

Steady and competitive return on shareholders equity.

Innovative banking at a competitive price.

Attract and retain quality human resources.

Extending competitive compensation packages to the employees.

Firm commitment to the growth of national economy.

Involving more in Micro and SME financing.

2.3.3 Commitments:

Ours is a customer focused modern Islamic Banking making sound and steady
growth on 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 and industrial
needs of the clients.
11

2.4. Organizational Structure:

2.4.1 Organ gram of the AIBL
Managing Director (MD)
Deputy Managing Director (DMD)
Executive Vice President (EVP)
Senior Vice President (SVP)

Vice President (VP)

Asst Vice President (AVP)
Senior Principal Officer (SPO)

Principal Officer (PO)

Senior Officer (SO)

Officer
Junior Officer (JO)
Asst. Officer (AO)
Messenger Gun Guard (MCG)
12

2.4.2 Board of Directors

Board of Directors

Designation

Jb. Al-Hajj Badiur Rahman

Chairman

Jb. Al-Hajj Mir Ahmed Sowdagar

Vice Chairman

Jb. Al-Hajj Nazmul Ahsan Khaled

Director

Jb. Al-Hajj Md. Harun-ar-Rashid

Jb. Al-Hajj Abdul Malek Mollah

Director
Director

Jb. Al-Hajj Hafez Md. Enayet Ullah

Jb. Al-Hajj Kazi Md. Mofizur Rahman

Director

Jb. Al-Hajj Abdul Moktadir

Jb. Al-Hajj Ahamedul Haque
Jb. Al-Hajj Abdus Samad
Jb. Al-Hajj Kh. Mesbahuddin Ahmed

Director
Director
Director
Director

Director

2.4.3 Distribution of Branches:

AIBL started its working at 161, Motijheel C/A with a Branch named Motijheel Branch on
27th September, 1995 was the first & main Branch of AIBL and has been operating
throughout the country. The Head Office of the Bank was situated at the same holding of
Motijheel Branch since its establishment but from 11 January, 2007 it has started its working
at its own premises 36, Dilkusha (6th, 7th, 8th & 9th floor), Dhaka-1000. The age of the Bank is
only 14 years and during this short period of time, the Bank has established total 50 Branches
over the country and made a smooth network inside the country. The number of Branches as
Division wise is mentioned in the following table:

Division
Dhaka Division
Chittagong Division
Rajshahi Division
Khulna Division
Sylhet Division
Barisal Division
Total

No. of Branches
24
12
4
4
5
1
50
13

Source: http:// www.al-arafahbank.com

2.5. Products and Services of AIBL

2.5.1 Deposit Products of AIBL:
In order to deposit mobilization from savings surplus unite AIBL offers various deposit
products to the clients.
The deposit products of AIBL are as follow:
a. Installment based term deposit scheme
b. Monthly profit based term deposit scheme
c. Monthly hajj deposit scheme
d. One time hajj deposit scheme
e. Mudaraba Kotipoti deposit scheme (KDS)
f. Mudaraba Lakhotipoti deposit scheme (LDS)
14

g. Mudaraba Milliners deposit scheme (MDS)

h. Mudaraba double benefit deposit scheme (DBS)
i. Mudaraba pension scheme (PDS)
j. Mudaraba cash waqufh deposit scheme
k. Al-Arafah Savings bond
l. Special Savings Scheme
m. Marriage deposit and investment scheme

Name of Products

Percentage ( % )

Al-Wadia Current Accounts

14.56%

Mudaraba Savings Accounts

20.23%

Mudaraba Short Notice Deposits

2.91%

Mudaraba Terms Deposits

46.94%

Mudaraba Special Deposit

14.17%

Bills Payable

1.17%
Total

100%

2.5.2 Financial Product of AIBL:

All kinds of commercial banking services are provided by AIBL to the customers following
the principles of Islamic shariah the provisions of the bank company Act 1991 and
Bangladesh Banks directives.Financing products (Debt-Based) are as below:
1. Murabaha (Industrial, Commercial, Real estate)
2. Bai-Muajjal Agriculture Transport etc
15

3. Hire purchase sirkatul milk Agriculture Transport etc

4. Quard Agriculture Transport etc
5. Bai Istisna Agriculture Transport etc
6. Bai Salam Agriculture Transport etc
7. Investment for Fisheries
8. Investment for Poultry rearing
9. Investment for cattle rearing
10. Investment for poultry firm etc

2.5.3 Accounts operation of AIBL:

In the Al- Arafah following accounts are operation:
Al-Wadiah Current account
Mudarabah deposit Account
Short Notice deposit
Mudarabah term deposit
Mudaraba Hajj deposit
Term Hajj Deposit
Installment term Deposit
Saving installment deposit
Monthly profit based deposit
Marriage saving installment scheme
Al- Arafah Saving Bond.

2.5.4 Functions of AIBL:

Function of AIBL may be divided into four categories

16

i. General banking activities

ii. Investment banking activities
iii. Foreign exchange activities
iv. Others activities.

These functions are discussed briefly as below:

i.

General banking activities: General banking activities is the heart of banking. Here
money collection procedure occurs. General banking activities are discussed briefly
as below:

a. Cash Receive: Cash section is include general banking activities. Cash section is very
important for deposit mobilization.
b. Cash Payment: General banking section close various kinds account and cash
payment is made from this section.
c. A/c opening: In this section various kinds of account is opened. Those are Mudaraba
A/c, Al-wadia Current A/c, Mudaraba sort notice deposit A/c Mudaraba terms deposit
A/c, Installment terms deposit A/c, Hajj deposit A/c etc.
d. Cheque Issue: General banking section issue chequebook. Chequebook is very
important for money transaction.
e. A/c Closing: Various type of A/cs are closed in this section
17

f. Money Remittance: Money remittance is very important for economic development

and business activities. Money remittance is done by TT, DD, PO, IBCA, MT, OBC,
LBC, and General banking section issue these instruments.
g. Clearing activities: In this section all clearing instrument send to Bangladesh Bank /
Sonali Bank Clearing house and after completing clearing process clearing amount of
are credit to concerned accounts.
h. Deposit Mobilization: Deposit mobilization is the main function of general banking
section. Actually all section are engaged in deposit mobilization but deposit
mobilization procedure are done this section. Mainly deposit are collection from
savings surplus units (SSU) and loan or credit is disbursed to saving deficit units
(SDUS).
i. Bill Collection: AIBL collect bill on behalf on various institution or enterprise from
their customers. For example electric bill, Telephone bill, Gas bill, Mobile bill etc.
j. Investment Activities: Almighty creature said in his holy Quran that Ahallahul baia
and harramahu Riba that means Allah permitted trading and forbidden interest
Islamic bank is a financial institution whose statutes rules and procedures expressly
state its commitment to the principles of islamic shariah and to the banning of the
receipts and payment of interest in on any of its operations.
So Islami bank always avoids interest and emphasizes on profit business. Islami bank
financing product is Murabaha, Bai-Muazzal, Ijara, Salam, and Istisna, Out of these
various debt based financing products. The most popular are Murabaha and BaiMuazzal.
ii. Investment activities AIBL are discussed as below:

Disabused financed to the business firms and persons: The most important
function of an islami bank is disbursed finance to industries and business firm or
persons.

Disbursed leased finance to various industries: Islami bank disbursed

leased finance to various industries. Lease finance may be two types operating lease
and financial lease.
18

Issue bank Guarantee: AIBL issue bank guarantee on behalf or its clients. In
this way banks helps a business firm to run their business smoothly.

iii. Foreign exchange activities:

Foreign exchange is another important department for banking service the functions of
foreign exchange section are as below:

L/c issue: A letter of credit is a conditional undertaking of payment, a letter by the

importers bank to the exporter that the bills if drawn as per terms and conditions are
strictly complied with will be honor on presentation.

AIBL issue L/c on behalf of its clients and its very important for foreign exchange
transaction.

Bill negotiation: AIBL issues export L/C and negotiate the export bill.

Foreign remittance: Foreign exchange deportment plays a vital role for foreign
remittance. Foreign exchange department maintain various Nostro and Vastro A/c
all over the world. Its keeps correspondence with foreign banks. Foreign exchange or
foreign transaction done through these nostro and vostro A/c.

iv. Others activities:

Banks play important role for development of a country. Others function of a bank are as
below:

Provide information to Bangladesh bank and others institution and that information is
important for policy making.

To help the Bangladesh Bank and govt. for implementation fiscal and monitory
policy.

Provide valuable information as well as opinion to its clients for their business firm.

Safe keeping peoples deposit.

Providing local facilities to safe keeping peoples valuable assets.

19

Providing S.M.S Banking

AIBL operating an English medium madras a.

2.6. Online general banking service of AIBL

The Bank has already started providing on-line general banking services to the clients
through a network of all branches in the country using satellite based Communication links.
AIBL is a member of the Society for Worldwide Interbank Financial Telecommunications
(SWIFT). All of AIBL Authorized Dealer Branches have SWIFT connectivity. The Bank may
introduce a few more products for client, such as:

SMS Banking

Tele Banking

Internet Banking etc.

To present the overall picture of the Bank to the Depositors, Shareholders, Investment Clients
and Well wishers in home and abroad transparently bank has designed a web site as www.alarafahbank.com

2.7. The International Trade of AIBL:

International Trade is one of the major activities conducted by the Bank. At the end of the
year, the total amount of foreign trade (export, import and Remittance) was 41601.58 million
taka showing a growth of 41.93%. The total export revenue of the bank was 9142.70 million
taka in the previous year, which has increased by 39.07% to 12714.91 million taka in this
year. Similarly the amount of import has increased from 1884.40 million taka to 27042.72
million taka in this year, experiencing a growth of 43.68%. During the previous year the
amount of remittance through the bank was 1346.54 million taka, which grew to 1843.95
million taka in the current year.
International Trade in Graph :( Million Taka)

20

2.8. Position in Stock Market:

Banks share sustained a steady strong position induction since its at Dhaka Stock Exchange
in 1998. In Dhaka Stock Exchange the face value of taka 100 of the share was traded at taka
515 highest in the current year. The market trend of our banks share in Dhaka Stock
Exchange between January to December is stated in the list:
Month
January
February
March
April
May
June
July
August
September
October
November
December

Opening
294.96
306.42
316.06
282.24
293.88
303.00
351.16
328.25
339.42
376.08
444.00
433.00

High
311.00
319.50
334.00
339.90
318.80
324.00
385.47
355.00
368.00
415.00
515.00
450.00

Low
264.80
298.20
292.00
245.05
254.00
281.50
330.00
310.75
324.50
322.00
378.25
409.00

Closing
309.10
301.57
322.20
251.77
308.85
320.62
338.50
319.00
325.75
391.25
438.75
440.00

2.9. Deposits of AIBL:

The total deposit of the bank was Tk.29690.12 million at 31 st December 2008 as against
Tk.23009.13 million at 31st December 2007. The present strategy is to increase the deposit
21

base through maintaining competitive profit rates and having low cost of funds to ensure a
better spread with an average return on investment. The mix deposit of the bank on December
31 the year was as follows:

Deposit Mix
Products
a. Al wadia Current Account
b. Mudaraba Saving Deposit
c. Mudaraba Short Notice Deposit
D. Mudaraba Term Deposit
e. Mudaraba Special Deposit
f. Bills Payable
Total

Taka in Million
3097.90
3932.23
761.77
11233.59
3629.54
354.10
23009.13

Deposit Growth in Graph: ( Million Taka)

2.10. Investment of AIBL:

The investment of the bank stood at Tk. 29723.79 million as on 31 st December 2008 as
against Tk. 22906.37 million in the previous year showing an increase. The investment
portfolio of the bank is well diversified and covers a broad spectrum of business and
22

industries including readymade garments, textile, edible oil, ship scraping, steel and
engineering, chemicals, pharmaceuticals, cement, telecommunication, construction, health
care, real estate, education, transport and investment under consumer schemes.
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 was 3.71% as on 31 st December 2007. The bank gives top-moat priority to the
creation of quality assets and does appropriate risk grading while approving commercial,
trade and project investment to different clients.

Sector wise Investment

Sectors

Taka in million
28.65
1690.72
1059.40
887.24
945.97
17622.39
672.00
22906.37

a. Agriculture
b. Industry
c. Construction
d. Transport
e. Storage
f. Trade Finance
g. Miscellaneous
Total

Investment Growth in Graph: ( Million Taka)

23

2.11. Rate of profit and type of Deposits in the current year:

The rate of Profit given to different types of deposit holders are as under:
SL.No.
1.

Types of Deposit
Mudaraba Term Deposit

Profit %

(a)
(b)
(c)
(d)
(e)
2.
3.
4.
5.

36 Months
24 Months
12 Months
6 Months
3 Months
Mudaraba Savings Deposit
Short Notice Deposit
Monthly Hajj Deposit
Monthly Installment Term Deposit

10%
10%
12%
11.50%
11%
5%
4%
10.25%
10.25%

6.
7.
8.
9 (a)
9 (b)
9 (c)
10.
11.
12.

Monthly Profit Based Term Deposit

Monthly Savings Investment
One Time Hajj Deposit
Al-Arafah Savings Bond(3 Years)
Al-Arafah Savings Bond(5Years)
Al-Arafah Savings Bond(8 Years)
Marriage Saving Investment Scheme
Pensioners Deposit Scheme
Special Saving (pension) Scheme

11.25%
8%
9.50%
10%
10.50%
11%
8.25%
10.80%
10.25%

13.
14.
15.
16.
17.

Cash WAQF
Lakhopati Deposit Scheme
Kotipoti Deposit Scheme
Millionaire Deposit Scheme
Double Benefit Scheme

9.50%
10.25%
10.25%
10.25%
12.25%

2.12. Dividend paid by AIBL:

The bank has been paying dividend every year since 1998 just after conversion of a public
limited company. The Board of Directors of the Bank is pleased to recommend 30% stock
dividend in the year 2008.Table of Historical Dividend Payment Percentage:

24

Dividend

paid

Year
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008

Dividend (%)
15%
12%
12%
7.50%
20%
16%
15.50%
26%
35%
20%
30%

25

shown in graph:

Chapter-3
General Banking

26

A.3. General Banking Activities

Introduction: Financial institution intermediary that mediates or stands between ultimate
borrowers and ultimate lenders is knows as banking financial institution. Banks perform this
function in two ways- taking deposits from Surplus Unit i.e. from various areas in different
forms and lending that accumulated amount of money to the Deficit Unit i.e. to potential
investors in other different forms. General banking department aids in taking deposits and
simultaneously provides some ancillaries services. General Banking department is the heart
of every banking work. It does the most important and basic work of the banks. General
banking is the starting point of all banking operation that starts on account opening and end
on account closing. All other departments are linked with this department. It provides day-today services to the customer. Every day it receives deposits from the customers and meets
their demand for cash by honoring cheques. It opens new accounts, remit fund, issue bank
drafts and pay orders, collected outward and inward bills and so on. General banking is also
known as retail banking.

General Banking has five major sections in a branch. These sections are:
1.1 Account Opening section
1.2 Mudaraba Deposit Section or FDR Section
1.3 Local Remittance Section

1.4 Bill Collections and Clearing Section

1.5 Cash Section

3.1.1 Account opening Section:

Opening the account is penetration to the relationship between client and Bank. For deposit
money client open an account. Account is the systematic record of transaction to deposit
and withdrew by client allowing using bank service against a cost of fees. Deposit account
consists of two forms:
1. Demand or current
2. Time or saving deposit
In current deposit client deposit and withdrew money frequently so bank can't invest this
money outward. For demanding the money bank will pay any time. So services fees take for
this deposit. But in saving account money deposits are idle so bank can invest this money on
other sector. Then bank give proportion of profit whatever they earn. Deposit account can
27

take on various forms. They consist of two forms,

1. Demand or current deposit and
2. Time or saving deposit
The following accounts are operated in AIBL:
Al-Wadiah Current account
Mudarabah deposit Account
Short Note deposit
Mudarabah term deposit
Mudaraba Hajj deposit
Term Hajj Deposit
Installment term Deposit
Saving installment deposit
Monthly profit based deposit
Marriage saving installment scheme
Al- Arafah Saving Bond.

3.1.2 Al-Wadia Current Accounts:

General Characteristics:

Al-Wadia Current Accounts are unproductive in nature as banks loan able fund is
concerned. Sufficient fund has to be kept in liquid form, as current deposits are
demand liability.

Businessmen and companies are the main customers of this product.

Thus huge portion of this fund become non-performing. For this reason banks do
not pay any profit Al-Wadia Current Account holders.

There is no restriction on the number and the amount of withdrawals from a

current account.

Service charge and incidental charges are recovered from the depositors since the
bank make payments and collect the bills, drafts, cheques, for any number of
times daily.

28

Service charge is charged two times in year through June and December. Amount
of service charge is 250 in June and 250 in December. So total service charge in
year 500.

The Banks through current accounts grant the loans and advances

In practice of AIBL, a minimum balance of TK.2000 has to be maintained.

3.1.3 Mudaraba Savings Accounts

General Characteristics:

Profit is paid on this account. AIBL offers 5% profit for Mudaraba Savings
Accounts.

Generally, banks require a 7-day prior notice if the total amount of one or more
withdrawals on any date exceeds 25% or more than 15,000 of the balance of the
account.

Generally householders, individuals and other small-scale savers are the clients of
this account

Minimum Balance of Tk.500 is to be maintained and initial deposit is also Tk 500.

Service charge is charged two times in year through June and December. Amount
of service charge is 150 in June and 150 in December. So total service charge in
year 300.

Govt. charge 10% only on profit of the customer.

3.1.4 Mudaraba Short Notice Deposits

General Characteristics:

Customers deposit money for a shorter period of time.

STD account can be treated as semi-term deposit

STD should be kept for at least thirty days to get interest.

The profit is offered for Mudaraba Short Notice Deposits is less than that of
savings deposit.

In practice, AIBL offers 4% rate of profit for Mudaraba Short Notice Deposits.

Frequent withdrawal is discouraged and requires prior notice.

29

In Mudaraba Short Notice Deposits Minimum Balance is Tk.5000.

Service charge is charged two times in year through June and December. Amount
of service charge is 250 in June and 250 in December. So total service charge in
year 500.

3.2 Account Opening Process:

Under this section, AIBL Bank Assistant Officer opens different types of accounts on the
request of clients. The procedure of opening account is given is given below.

Step 1

Receiving filled up application and signed by account holder in banks

prescribed form mentioning what type of account is desired to be opened
# The form is filled up by the applicant himself / herself.
# Two copies of passport size photographs from individual are taken, in case of
firms photographs of all partners are taken.(attested by the introducer)
#Applicants must submit citizenship certificates: Photocopy of valid passport

Step 2

or ward commissioner certificate

# Application must sign in A/c opening form and KYC (Know Your Customer)
form
# Introducers signature and accounts number verified by legal officer.
# Nominee name, signature and photograph one copy.

Step 3
Step 4
Step 5

Authorized Officer accepts the application

Minimum balance is deposited only cash is accepted
Account is opened and a pay-in-slip book is given

Bank activity: After fill up account opening form and KYC by customer the assistant officer
done following job:

Verify all information by assistant officer then

Entry all customer information into AIBLs online server.

After completion of entry assistant officer it sends to Second officer/Manager for

authorization.

If Second officer/Manager satisfies with customer information he gives

authorization.

Assistant officer gets new account number for certain customer after
authorization.
30

After fulfilling the above formalities, Bank provides the customer pay-in-slip
book that customer deposit their initial deposit.

After the above formalities bank provide a Chaque Book to the depositor.

3.3 Special Caution must be taken for the following customers:

In the name of
individual/

The client has to fill up an account opening form. Terms and

conditions are printed on the back of the form. The form contains the
declaration clause, special instructions etc.
In this type, the formality is same as individual account, but in the

In joint name

special instruction clause, either or survivor or former or survivor

Proprietorship

clause is marked
In addition, the customer has to submit the valid Trade License and
Tax Paying Identification Number (TIN) along with the application.
i.
A copy of notarized partnership deed certified by all the
partners or Registered partnership deed.

Partnership Firm

Public

Limited

Company

Private

Limited

Company
Non-trading

ii.

Resolution of the partners regarding account opening.

iii.

Photographs attested of those who will operate.

iv.

Trade license.

v.
i.

Mandate as to operation of the account.

Certificate of Incorporation

ii.

Copy of Memorandum and Articles of Association duly

certified by the Register of Joint Stock Companies.

iii.

Certificate of Commencement

iv.
i.

Copy of Resolution of the Board of Directors

Certificate of Commencement is not necessary

ii.

Certificate of Incorporation

iii.

Copy of Memorandum and Articles of Association

iv.

Copy of Resolution of the Board of Directors

i.

Concerns

Registration Certificate under the Societies Registration Act,

1962

(Societies,Clubs

ii.

Certified copy of Bylaws & Regulations/ Constitution.

and Associations)

iii.

Certified copy of Resolution for opening and operation of

account.

iv.

Power of attorney to borrow

31

Joint account in
the

name

minor

of

A minor cannot open an account in his own name due to the

incapacity to enter into a contract. He can open an account in AIBL in
joint name of another person who will be guardian of him.

3.4 Mudaraba Terms Deposits Section:

Every conventional bank there is a fixed deposit section but in Al-Arafah calls this Mudaraba
term deposit (MTDR). In this type of deposit a large or small amount of money can depositor
in the bank for which a comparatively high rate of interest, is offered to depositor for the
period of 3 months, 6 months, 1 year, 2 Years & 3 years, with the condition the client can not
withdrew the amount before maturity but can drew the profit rate on the basis of saving
deposit rate. The terms and their rate of profit of AL-Arafah Islami bank are as follows:
Types of Deposit
a) 3 Months Mudaraba Term Deposit
b) 6 Months Mudaraba Term Deposit
c) 12 Months Mudaraba Term Deposit
d) 24 Months Mudaraba Term Deposit
e) 36 Months Mudaraba Term Deposit

Profit Rate
11%
11.50%
12%
10%
10%

3.4.1 General Characteristics:

Popularly, it is known as Fixed Deposit Receipt (FDR). Term deposits are made
with the bank for a fixed period of time.

The bank needs not to maintain cash reserves against these deposits and therefore,
the bank offers high rate of profit on such deposits.

In AIBL, fixed deposit account is opened in customer choice time.

3.4.2 Opening of Fixed Deposit Account:

The depositor has to fill an application form

In case of a deposit in joint name, AIBL also takes the instructions regarding
payment of money on maturity of the deposit.

The banker also takes the specimen signatures of the depositor(s).

Necessary entries are given on the FDR register and on line.

32

An FDR is then issued to the depositor acknowledging receipt of the sum of

money mentioned therein. It also contains the rate of profit & the date on which
the deposit will mature.

3.4.3 Payment of Profit:

It is usually paid on maturity of the fixed deposit. AIBL calculates profit at each maturity
date.

3.4.4 Premature Encashment of FDR:

A depositor has the right to claim for refund of his deposit before expiry of the fixed term.
Bank may in special consideration allow premature encashment on application of the
depositors subject to the under noted conditions:
1. For FDR which are 3 months maturity no profit will be payable at the premature
encashment, only the principle amount will be refunded.
2. When premature encashment is allowed of FDR with tenure of over 3 months, profit
will be paid if encashment before expiry of 6 months at the rate of 3 months
prescribed profit rate.
3. Premature encashment is allowed of FDR with tenure of over 6 months, profit will be
paid if encashment before expiry of 12 months at the rate of 6 months prescribed
profit rate and the same theory will also be applicable for premature FDR encashment
of 2 years and 3 years.

3.4.5 Lost of FDR:

If the instrument is lost from the possession of the holder, the holder is asked to fulfill the
following requirements:

Party should inform it to the bank immediately;

Furnish an Indemnity Bond;

On fulfilling the above requirements a duplicate FDR is then issued to the

customer by the bank.

3.4.6 Renewal of FDR:

33

a.

FDR is automatically renewed within seven days after the date of its maturity if the
holder does not come to en-cash the instrument.

b.

Renewal will be for the previously agreed maturity period.

Accounting Treatment for FDR:

Cash A/C --------------------------------Dr.

On Cash:
Purchase of FDR:

FDR A/C -------------------------------------Cr.

Clearing ---------------------------------Dr.

By PO/DD:

Sundry Creditors -----------------------------Cr.

Sundry Creditors ----------------------Dr.

When honored:

FDR A/C--------------------------------------Cr.
FDR A/C --------------------------------Dr.

Encashment
FDR:

of Encashment

of Interest on FDR A/C ------------------Dr.

FDR:

Excise duty on FDR ------------------------Cr.

10% Income Tax on Interest --------------Cr.
Cash A/C -------------------------------------Cr

3.5 Local Remittance Section:

In banking language money transmitted domestically are known as local remittance. For local
remittance purpose AIBL purchases and sells some instruments for its customers. The
instruments are Pay Order (PO), Demand Draft (DD), Telegraphic Transfer (TT), and Mail
Transfer (MT).

3.5.1 Pay Order (P.O.)

Pay order is an instrument, which is used to remit money within a city through banking
channel. The instruments are generally safe as most of them are crossed.
Charge for Pay Order:
Amount
Tk.1.00 to Tk.1,00,000
Tk.1,00,001 to Tk.5,00,000
Tk.5,00,001 to Tk.10,00,000
Tk.10,00,000 above

Commission
20

Vat
3

30
50
100

5
8
15

Issuing of a pay Order (PO):

A customer can purchase pay order in different ways:

34

By cash
By account
By transfer

Cash A/C.....................................Dr.
Bills Payable (P.O) A/C...............................................Cr.
Income A/C Commission on Remittance*.......................Cr.
Clients A/C .......................................................... Dr.
Bills Payable (P.O) A/C ..............................................Cr.
Income A/C Commission on Remittance*......Cr.
Head office \ other departments client A\C......Dr.
Bills Payable (P.O) A/C ............................Dr.
Income A/C Commission on Remittance* ..................Cr.

From the above accounting treatments it is clear that the money, which is received by the
bank from selling the instrument, is kept under bills payable account. It is current liability on
the part of bank, which implies that, money received in this purpose has to be paid to the
payees collecting bank on placement of the instrument.
Settlement of a P.O.
When P.O. submitted by collecting bank through clearing house, the issuing bank gives
payment.
Bills payable A\C.......................................... Dr.
Balance with Bangladesh Bank..................... Cr.
Thus banks liability is settled by debiting bills payable. But before giving payment it should
be examined whether endorsement was given by the collecting bank or not. If not then the
instrument is dishonored marking Endorsement required.

When P.O. is lost:

Incase the instrument is lost, the holder whether payee or buyer will inform it to the issuing
bank immediately. Bank will mark stop payment on the Bills Payable (P.O.) register. Buyer
will then ask for a new instrument by submitting a G.D. A new Instrument will be delivered
marked In lieu of.
Collection of PO:
A customer of AIBL who is the payee of a P.O. will deposit it for collection. The instrument
is given to the clearing that will place it to the issuing bank in the clearinghouse. Before
placement, AIBL as a collecting bank gives necessary endorsement.

35

3.5.2 Demand Draft (DD)

Demand Draft is a very much popular instrument for remitting money from one corner of a
country to another. The instrument is basically used for transfer and payment. Difference
between pay order and demand draft is in terms of place only. P.O. is used for remitting
money within the city whereas DD is used for within the country. With the introduction of
ONLINE banking the importance is DD has reduced. Now the customers can draw the
money from any of its branch. Fund transfer is free of cost for all accounts holder.
Procedures for issuing a DD:
a.

DD application from filled in and money deposited by the customer.

b.

Necessary entries are given to a register name DD OUT concern (drawn on) branch.
A number, which is taken from this register, is known as Controlling number.

c.

An Account payee only crossed instrument given.

Charge for Demand Draft:

The charge for DD is (.15%) for any amount and vat 15% but minimum charge is Tk. 50 and
vat is Tk. 8. So minimum charge is tk. 58.
Cancellation of a DD:
If the holder of the instrument wants to cancel it, he should submit a request letter in this
regard. Issuing branch then sends an I.B.D.A. (Inter Bank Debit Advice) to the drawn on
branch against the I.B.C.A. (Inter branch Credit Advice) which was sent previously.
Accounting treatment:
H.O. A/C Drawn on Branch ....................... Dr.
Customer Account........................................ Cr

3.6. Bill Collections and Clearing Section:

Customers do pay and receives bill from their counter party as a result of transaction. AIBL
collects the bills on behalf of their customers. Collection mechanisms in AIBL are clearing,
Outward Bill for Collection (OBC), Inward Bills for Collection.

3.6.1 Clearing
When the bill is within the range of the clearinghouse it is sent for collection through clearing
section. As far as safety is concerned customers get crossed cheque for the transaction
36

Crossed check cant be encashment from the counter; rather it has to be collected through
banking channel i.e., clearing. If a client of AIBL received a check of another bank that is
located within the clearing range and deposit the instrument in his account at AIBL, then
AIBL will collect the money through clearing house. After received the check AIBL will
credit client account. However, the amount is credited in the customer a/c but he will not get
the money until the check is honored.

3.6.2 Procedures for collection:

a. Received seal is stamped on the cheque
b. Crossing of the cheques are done
c. Proper endorsement is given
d. Clearing seal with date is given
e. Cheques are sorted bank wise and entries are given.

3.6.3 Function in the Clearing House:

a.

The clearinghouse is an assembly of the locally operating scheduled banks for

exchange of checks, drafts, and other demand instruments drawn on each other and
received from their respective customers for collection.

b.

The house meets at the appointed hour on all working days under the chairmanship of
the central bank. The clearinghouse sits twice in a working day.

c.

The members submit the claimable checks in the respective desks of the banks and
vice-versa.

d.

Consequently, the debit and credit entries are given.

e.

At the end, the debit summation and the credit summation are calculated. Then the
banks clear the balances through the check of Bangladesh Bank.

f.

The dishonored checks are sorted and returned with return memo.

g.

The dishonored instruments for Elephant Road Branch are given following treatment:

Customer A/C ------------------------------------------Dr.

Balance with Bangladesh Bank -------------------------------Cr.
h.

If the instruments are dishonored then they are sorted again and sent back to the
returning house along with their return memo.

i.

Later on all the instruments of AIBL which were claimed by other banks are sorted
and delivered to respective branches.
37

j.

If the instruments are honored the treatment is:

Customer A/C ----------------------------------------Dr.

Balance with B.B. ------------------------------------------Cr.

3.6.4 Outward Bills for Collection (OBC):

If the bill is beyond the clearing range then it is collected by OBC mechanism. Customer
deposit cheque, drafts etc. for collection, attaching with their deposit sleep, Instrument within
the range of clearing are collected through local clearing house, but the other which are
outside the clearing range are collected through OBC mechanism. A customer of AIBL
Elephant Road Dhaka is depositing a cheque, of Sonali Bank Coxs Bazar. Now as a
collecting bank AIBL Elephant Road Branch will perform the following task;

3.6.5 Procedure:
a. Depositing the cheque along with deposit-slip
b. Crossing of the cheques are done indicating Elephant Road as collecting bank.
c. Endorsement Payees A/C will be Credited on realization is given
d. Entries are given in the Outward Clearing Register (OBC)
Collecting bank can collect it either by its branch or by the drawers bank. They will forward
the bill then to that particular branch. OBC number will give on the forwarding letter.

3.7. Cash Section

Cash section that is the most vital and sensitive of the branch deals whit all kind of
transaction in cash. All cash receipts and payments are made through this department. This
department starts the day whit cash in vault. This cash amount is called opening cash balance.
All the day, a bank makes some cash payment and takes some cash receipts. Net figure of
these cash receipts and payment is added to the opening cash balance. The figure is called
closing balance. This closing balance is then added to the vault, and this is the final cash
balance figure for the bank at the end of any particular day. Cash section demonstrates
liquidity strength of a bank. It is also sensitive as it deals with liquid money. Maximum
concentration is given while working on this section. As far as safety is concerned special
precaution is also taken.

38

3.7.1 Vault:
All cash, instruments (PO, DD, cheque) and other valuables are kept in the vault. Principal
branchs vault is incurred up to Tk. 2 crore with a local insurance company. If cash stock goes
beyond its limit of Tk. 2 crore, the excess money is transferred to Bangladesh Bank. If there
is shortage of cash during transaction period money is drawn from the central bank. There are
three keys of the vault, which are given to three seniors most officer. Daily, an estimated
amount of cash is brought out from the vault, for transaction purpose.
Functions of Cash Department:
# Cash payment is made only against cheque
Cash

# This is the unique function of the banking system which is known

Payment

as payment on demand
# It makes payment only against its printed valid Cheque
# It receives deposits from the depositors in form of cash

Cash

# So it is the mobilization unit of the banking system

Receipt

# It collects money only its receipts forms

Cash payment or Cheque cancellation process:
Step 1

Receiving Cheque by the employee in the cash counter

Verification of the followings by the cash Officer in online.
i.

Date of the Cheque (it is presented within 6 month from issue

date)

Step 2

Step 3
Step 4

ii.

Issued from this branch

iii.

Amounts in figure and sentence written does not differ

iv.

Signature of the drawer does not differ

v.
Cheque is not torn or mutilated
Gives pay cash seal and sends to the payment counter (verified by an
officer)
Payment officer makes payment

3.7.2 Books maintained by Cash section:

Though most of transactions are through On-line and signature, photo and account balance
are check in computer that network with server. But following registers keep for this section.
Vault Register
Cash Receipt Register

It keeps account of cash balance in vault in the bank.

Cash receipt in whole of the day is recorded here.
39

Cash Payment Register Cash payments are made in a day are entered here.
Cash calculation for final entry in vault register is done
Rough Vault Register
here, as any error and correction here is not acceptable.
Balance here is compared with vault register. If no
Cash Balance Book
difference is found, indicates no error.

3.7.3. Cheque and Crossing:

A Cheque is a bill of exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand. [According into section-6, negotiable instrument Act, and
1881.]
A cheque may be classified into:

An open cheque, which can be presented for payment by the holder at

the counter of the drawers bank.

A crossed cheque, which can be paid only through a collecting banker.

Crossing cheque: A cheque is said to be crossed when two transverse parallel lines with or
without any words are drawn across the face. Crossing may be general, special or restrictive.

B.3. Investment Activities

Introduction: Investment means transaction between two parties in which one (the creditor
or lender) supplies money, goods, services or securities in return for a promised future
payment by the other (the debtor or borrower). Such transaction normally includes the
payment of interest to the lender but AL-Arafah Islami Bank Limited always avoids interest
and emphasizes on profit-based business. Different modes of investment of AIBL are as
follows:
2.1 Mudarabah
2.2 Musharaka.
2.3 Bai- Murabaha.
2.4 Bai-mujjal.
2.5 Hire-purchase.
2.6 Bai-salam.

Investment activities of AIBL are discussed as below:

2.1 Mudarabah
40

The term Mudarabah refers to a contract between two parties in which one party supplies
capital to the other party for the purpose of

engaging in a business activity with the

understanding that any profits will be shared in a mutually agreed upon. On the other hand
losses are the sole responsibility of the provider of the capital. The first party provides capital
and the other party provides the expertise with the purpose of earning lawful profit (approved
by Islamic Law) which will be shared in a mut6ually agreed upon proportion.

2.2 Musharaka
The word Musharaka is derived from the Arabic word Sharikah meaning partnership.
It is a partnership between two or more parties with a joint capital. Profit should be
distributed in proportion to each partner's share in the capital. Because profit relates to the
capital, and should therefore revert to the capital's owner.
The features of Bai-musharakah:

(1) It is partnership business on the basis of profit & loss. There type two parties (i)
Bank (ii) customers.

(2) Both parties will invest capital. Capital may be equal or unequal.
(3) Profit will be distributed between the parties proportion to the capital and
also loss will be bear proportion to the capital.

(4) Each partner has the right to work but it is not essential for rights of
Musharaka.

2.3 Bai-Murabaha
The terms Bai-Murabaha have derived from Arabic words Bai and Ribhan. The word Bai
means purchase and sale and the word Ribhun means an agreed upon profit. So BaiMurabaha means sale for an agreed upon profit. It 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 word Law of the land to the Buyer at a cost plus and agreed upon
profit payable or on some date in the future in lump-sum or by installments. The profit may
be either a fixed sum or based on a percentage of the price of the goods.
The features of Bai-Murabaha investment system:
41

I. In this system the bank purchases the customers reference commodity from 3rd
person on the request of customer to sale cost plus profit to the customer on the basis
of written agreement
2. There are three party (i) Commodity seller (3rd party) (ii) Bank
(Commodity seller of 1st purchaser) (iii) Customer (the 2nd buyer of
commodity)
3. The bank purchases the commodity least a little time. Then accomplished the
written agreement customer and bank.
4. Bank kept the commodity its own ware house after purchasing the
commodity.
5. Customer can receive total commodity paying the value the customer pay
off/discharge of a debt in that amount which quantity of commodity can will take.
6. The commodity cost price, profit amount mention in the written agreement the
customer carry on travel rent, insurance, ware house rent. Security wages and others
expenses.
7. The commodity sale price should not increase on any circumstance if values would
have fixed.

2.4 Bai-Mujjal
The term Bai and Muajjal are derived from the Arabic words Bai and Ajal where
Bai means purchase and sale and Ajal means a fixed time or a fixed period. So BaiMuajjal is a sale for which payment is made at a future fixed date or within a fixed period. In
short, it is a sale on credit. It is basically a contract between a buyer and seller under which
the seller sells certain specific goods, permissible under shariah and law of the country to the
buyer at an agreed fixed price payable at a certain fixed future date in lump-sum or in fixed
installments.
The features of Bai-Muajjal investment system:
(1) There are three parties in this system (i) commodity seller (3rd party). (ii) Bank
(commodity seller or 1st purchaser) (iii) customer (the 2nd buyer of commodity).
(2) Bank sales commodity on credit to the customer; purchasing the mention commodity on
request of customer.
42

(3) Bank should purchase commodity from third party and bank should bring the commodity
its ownership.
(4) Firstly commodity has to supply to the customer in the future period. Commodity had
gone to the customer before pay of the debt.
(5) Bank is not bound to inform to the customer the cost price & profit amount to the
customer.
(6) Bank cannot fix extra charge if the customer fails to pay off the price of the commodity in
time.

2.5 Hire Purchase (Shirkatul Milk)

It is a contract under which the Bank shall invest to purchase articles for the clients on
obtaining initial equity and rent out the same at a determined rate to be charged on the
outstanding balance amount (on reducing balance method), together with an additional
amount to pay off the principal together with accrued rent in a fixed period.
Under this system, bank and customer purchase the commodity with combined capital it is
called hire purchase under shirkatul milk.

The feature of Hire-purchase investment system

1) After completion the agreement commodity transfers to the customer.

2) Commodity obtaining to the clients but ownership to the bank.
3) Ownership transfer to the client in lime when repay the rental value and
value of commodity.

4) Bank collect the rent until realize of the debt.

5) Customer uses and controls the wealth on the basis of agreement. But
ownership obtaining.

2.6 Bai-Salam: The term Bai-Salam is used to define a sale in which the buyer makes
43

advance payment, but delivery is delayed until some time in the future. Usually the
seller is an individual or business and the buyer is the bank. In this system the price of
commodity should repay advanced. Seller supplies the commodity to the purchaser
(Bank) in the future period. This bank repays advance payment to the customer after
fixing the value of the commodity conditions of purchase that commodity. Them
customer supplies the commodity to the bank in the future advance fixing time.
Usually these types of invest bank invest in agriculture & Industry.

The features of Bai-salam investment system:

1)

It is an advance purchase & sale agreement. In this system

firstly bank release the value of commodity to the customer. A
fixed period in the future the commodity supplies to the bank
by customer.

1)

There are two parties in this purchase and sale agreement. First
Bank (purchaser) (ii) customer (seller).

2)

Name of commodity, quality, quantity, features supply date,

place, travel expense etc. mention dearly at the written agreement.

C.3. Foreign Exchange Activities

Introduction: Foreign Exchange Department of Al- Arafah Islami bank is one of the most
important departments. This department handles various types of activities by three separate
sections:
3.1 Import section.
3.2 Export section.
3.3 Foreign remittance section

3.1 Import section:

This section basically deals with various items such as:
Letter of credit (L/C)
44

 Payment against Document (PAD)

Payment against Trust Receipt (PTR)
Loan Against Imported Merchandise (LIM)

3.1.1 Import Procedure:

To import a person should be competent to be an importer according to import an export
control act 1950, the office of chief controller of import and export provide the registration
to the importer.

3.1.2 Importers Application for LC limits Margin:

To have an import limit an importer submits an application to department of Al Arafah
Islami Bank. Furnishing the following information:
Full particular of Bank account.
Nature of business.
Required amount of limit.
Payment terms and condition.
Good to be imported.
Offered Security.
Repayment schedule.

3.1.3 Presentation of Documents:

The seller should submit the following document:
Invoice.
Bill of lading.
Cert IABLate of deposit
Packing list.
Weight list.
Shipping advice.
45

 Non-negotiable copy of bill of lading.

Bill of exchange.
Per shipment inspection report.
Shipment cert IAB Late.

3.2 Export Section:

3.2.1 Investment Procedure on Import Goods:
1. Customer shows Performa invoice to the bank after getting it's from foreign company.
2. Customer wants permission to open L/C for a consolidate amount.
3. The bank accepts to open L/C.
4(a) Application and agreement for irrevocable L/C. One copy is given to the customer. For
checking:

Performa invoice.

Form-imp (for imports only) For Bangladesh Bank,

Foreign exchange regulation act, 1947

(Which will approval (if required) by Bangladesh Bank)

4(b) Letter of credit Authorization application form for industrial consumer.

5. Bank request to submit some additional document. They are as follows:
(a) Signed invoices in 8 fold certifying to be obtain,

LCAF No.

Issued under cash SEM/Bonded-ware house license

H.C. Codes No.

(b) Full set of clean shipped on Board ocean Bill(s) of Landing/Airway Bill/Track
Receipt market freight prepaid/collect drawn or endorsed to the order of AL-Arafah
Islami bank.
(c) Insurance covered by openers.
(d) Cert IAB Late of origin in duplicate from chamber of commerce.
(e) Detailed packing list in 6 fold.
(f) All foreign bank charges including reimburse fees/commission out side
Bangladesh are or applicants/beneficiary etc.
6. After opening L/C AIBL send information to the beneficiary bank
46

7. After reaching shipping document in this bank if the customers are unable pay off
expenditure of VAT, Tax. C & F Charge. The price of commodity in that case customer
submits an application to get opportunity for investment.
8. If the bank sanction investment against L/C import commodity, in that regard bank payoff
price import commodity to the beneficiary bank and commodity will take under its
control release the commodity form port/ Airport.
9. Customer will release the goods totally or partially from the bank paying off the price of
commodity on the basis of agreement.

3.2.2 Steps to be taken when Processing Investment

1. Firstly customer come and writes an application to the manager of this
branch to get investment opportunity.
2. It the manager signed on the application further management, customers show this
application an investment department.
3. In that time customer's has to buy printing application form by 30 (thirty) Tk. and
submit again after fulfill the total criterion of that form. [Application form are given
under of this features]
4. Then investment department study technical & economic of each operation.
5. Investigation of the customer's financial portion and his financial dealing.

In this regard this branch sent his detail information to the Bangladesh Bank
Information Bureau to get information about customer's debt in other bank

Account position [liability position] to other bank is to be taken from customer to

know his present liability position.

6. After getting all information about physical securities of personal securities by a third party
in favor of the customer in investment department recommend to the manager for
sanction investment.
7. There are two type of power has given for sanction to the branch manager a limited range
of Taka. If the beyond explicit that limit the branch manager send all document to the
investment board of this bank.
8. Continuous supervision and follow up we therefore have a follow up section in every
47

branch and the headquarters. In some case, we are financing, as in the case of mills, we
have noticed that continuous supervision and follow-up heads to sizable raising the profit
levels.
9. If the bank sanction any type of investment then the bank send investment sanction advice
to the customer.
10. Bank takes various type of agreement from customer. They are as follows:
i)

Balance confirmation

ii)

Letter of authority

iii)

Letter of disbursement

iv)

Demand promissory note

ii)

Demand promissory note revival letter

v)

Demand promissory note deliver note

iii) Letter of guarantee

iv) Letter of disclaimer.
vi)

Letter of arrangement etc.

11. The customer has to open current account in this bank.

12. Bank gives pay order on the behalf of financing amount to the name of customer.
13. The drafting of the contracts in such a way that they give the bank all the necessary rights
of intervening legally, performance of the operations.
14. The control of funds coming into and going out of the operation through the
determination of withdraws and repayments, with a view to enable the make full use of its
funds.

3.3 Foreign Remittance Section:

Foreign exchange department plays a vital role for foreign remittance. Non- resident
Bangladeshi can enjoy instant fund transfer and other banking facilities trough AIBL internet
banking for example:
1. Non-resident Bangladeshi by opening one account for himself and other
accounts for his/her near and dear ones with AIBL can transfer fund through
SWIFT from any bank in the world.

48

2. He/she can now enjoy full range of internet banking facilities from aboard;
such as.

Monitoring balance and transfers of his/her account

Utility bill payments in Bangladesh

Payment of loan installment due with any other

Organization/banks in Bangladesh

Opening of FDR account debiting his/her savings/current account

Issue standing instruction on his/her account with AIBL to

transfer a fixed amount of money in a particular date of every
month to other accounts of his/her near and dear ones with AIBL.

3. His/her near and dear ones can now enjoy full facilities of AIBLs online
branches and internet banking.

D.4. General Practice for All Types of Accounts:

4.1 Cheque book
a.

To facilitate withdrawals and payment to third parties by the customer, AIBL provides
cheque book to the customer.

b.

Al-Wadia Current Accounts cheque book contains 20 and 50 leafs, while Mudaraba
Savings Accounts account cheque book has 10 leafs. Bank maintains a separate
register and also record in online in this regard.

c.

Requisition slip is provided to the customer in cheque book to issue new cheque book.

d.

A new cheque book should be delivered only to the account holder. Otherwise
authorization letter is needed from client for delivery to other person.

e.

Issuing cheque book after verification of signature & photo and signature keep record
in register.

4.2 When cheque book is lost:

A guarantee form is taken from the account holder when his book is lost, where he
indemnifies the bank in this regard. A new requisition sleep is given to him for a new
cheque book. Only verification of senior officer will approve in this case.
4.3 Incidental charges:

49

a.

TK. 250 each for twice a year is debited from customers Al-Wadia Current Accounts
for rendering service to him.

b.

Again TK. 200 each is debited from customers account for providing him the
solvency certificate.

c.

Service charge for Savings A/C is TK.300 per year.

d.

TK. 200 is charged from customer as penalty if his cheque is dishonored.

4.4 Tax:
Whatever the amount of profit is accrued 10% tax is debited from the account at the time of
crediting profit.
4.5 Accounting Treatment:
Credit voucher is made for this purpose:
Customer Account ..................................................Dr.
10% Income Tax on profit in deposit ..................Cr

XXX
XXX

4.6 Closing of an account:

The closing of an account may happen:
a.

If the customer is desirous to close the account

b.

If AIBL finds that the account is inoperative for a long duration.

To close the account, the cheque book is to be returned to the bank. AIBL takes all the
charges by debiting the account and the remaining balance is then paid to the customer.
Necessary entries are given to the account closing register and computer.
4.7 Transfer of an Account
Account holder may transfer his account from one branch to another branch. For this he/she
must apply to the manager of the branch where he is maintaining account. Then manager of
Elephant Road Branch sends a request letter to the manager of the branch where the account
holder wants to transfer his account. With his request he sends original copy of account
opening application and specimen Signature Card and photocopy of application for
transferring the account with the balance remained account. But now-a-days customer need
not transfer their account from one branch to another branch. They can make transaction any
AIBL branch with truly on-line facility.
4.8 Account inquiry:
50

A customer can obtain the statement of his account by the submission of an application in
prescribed balance inquiry receipt. AIBL not charges any amount for this statement.

51

Chapter-4
Online Banking & CSR

4. A. On-line Banking
52

4.1 Introduction: The Bank has already started providing on-line general banking
services to the clients through a network of all branches in the country using satellite based
Communication links. To present the overall picture of the Bank to the Depositors,
Shareholders, and Investment clients and well wishers in home and abroad transparently bank
has designed a web site as www.al-arafahbank.com. The journey for on-line Banking started
when the Board of Directors of AIBL conceived the idea of a fully on-line banking in its
truest sense with a view to materializing their dream of providing world class banking
facilities to its valued customers. The customers of AIBL can now enjoy the following world
class banking service locality at a reasonably and affordable price through the fully
automated real-time banking services.

4.2 Function of Online Banking:

The functions of on-line banking of AIBL are as follows:

A customer can take services through a network of all Branches of AIBL

except Mymensing, Comilla and Narayangang (Pagla).

He /she can withdraw or deposit money from all Branches of AIBL.

He/she can deposit loan installment to all Branches of AIBL.

International financial transaction can be carried out by the on-line

SWIFT Interface of the banking software.

He/she can enjoy facilities of Loan installment payments from his/her

savings/current accounts.

Fund transfer to other accounts

Sweep-out facility, enabling his/her to transfer the money from an

account when it exceeds a pre-defined amount.

Sweep-in facility, enabling his/her to bring money from another

account when the first account balance falls below a pre- defined
amount.

4.3 Internet Banking:

53

AIBL Internet banking will enables customer to access his/her personal or business accounts
anytime anywhere from home, office or when traveling. Internet Banking gives customer the
freedom to choose his/her own banking hours. It will save time, money and effort. It's fast,
easy, secure and best of all.
The following will be the Internet Banking Features for AIBLs Retail and Corporate
Customers:

Checking of account summary: The Customer will be able to view the list of
Current, Saving, Term Deposit and Loan accounts with the current balance.

Account Activity: The customer will be able to see or print his transaction activity in
a given account for a particular period.

Transfer Funds: The customer will be able to transfer funds from one of his accounts
to another of his accounts within the bank.

Pay Bills: The customer will pay his utility bill (like Electricity, WASA, GAS,
Telephone etc.)

Open/Modify Term Deposit: The customer will be able to open a term deposit by
transferring funds from one of his current or savings accounts with the bank.

Loan Repayments: The customer can make payment of the loan installment from his
account.

Statement Request: The customer can be able to make a request for account
statement for a required period. The bank will manually service this request.

Cheque Book Request: The customer can make a request for a Cheque book.

Cheque Status Inquiry: The customer will choose an account and enter the Cheque
number for which the status should be viewed.

Stop Payment Cheque: The customer will mark his Cheque leaf as stop payment.

Interest Rate Inquiry: The customer will be able to query on the profit rates on
Mudaraba saving deposit & Term Deposit Products.

54

Foreign Exchange Rate Inquiry: The customer will be able to query on the Foreign
Exchange (FX) Rates using this function.

Change Password: The customer will be able to change his Internet Banking
Password using this function.

1.3.1 Extra Features for Corporate Customer:

Letter of Credit: The customer will initiate the LC application through Internet
Banking.

Bank Guarantee: The customer will initiate the Bank Guarantee through Internet
Banking.

Limits Query: The customer will view his Loan Limits and Limits Utilization
through Internet Banking.

4. B. Corporate Social Responsibility (CSR)

4.1 Introduction:
It is important that citizens of a society enjoy the full benefits that society offers. A society, in
turn, flourishes when its citizen can contribute their fullest potential. The well-being of
individuals is jeopardized when normal developmental processes are interrupted by personal
crisis, poverty, unemployment, poor health and inadequate education. Al-Arafah Islami Bank
(AIBL) addresses social concerns that are well-being of people and society. AIBL practices
thus encompass the professional activities of helping individuals, families, groups,
organizations, and communities to enhance or restore their capacity for optimal social
functioning and of creating societal benefits. Al-Arafah Islami Bank (AIBL) is consistently
pursuing its objective of being active in those social areas where it is needed most. The AlArafah Islami Bank Foundation carries out diverse social and philanthropic activities in the
field of education, health, conservation of nature, creation of social awareness, rehabilitation
of distressed people and such other programs to redress human sufferings. It also promotes
different socio-cultural and sports activities. The CSR activities of the bank can broadly be
categorized under two heads: Continuous and Need basis. The continuous programs are
mostly of permanent nature, which the foundation contemplates to carry out years together.

55

4.2 Kinds of Program:

The continuous program can be broadly classified under the following three categories:
i.

Al-Arafah English Medium Madrasah

ii.

Al-Arafah Islami Bank Library

iii.

Micro finance and Poverty Alleviation

4.2.1 Al-Arafah English Medium Madrasah:

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

4.2.2 Al-Arafah Islami Bank Library:

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

4.2.3 Micro Finance and Poverty Alleviation:

AIBL feels to reason out unemployment as one of the reason of poverty. As a part of its social
commitment, AIBL extended its helping hand to bring the unemployed workforce of the
country into the stream of economic activities and undertook a series of projects. Special
56

investment program is launched by the Bank through 4 branches for poverty alleviation under
micro financing program in the rural area. The objective of the program is the program is to
introduce Shariah based banking system in rural area creating employment through financing
low income group, building up savings attitude, improving living standard of low income
group, alleviating povrty through financing small projects. The total amount of investment as
on December 2007 is Tk. 29.36 million where the recovery is 100%. The performance in this
area as on 31.12.2007 is shown in the table:
Particulars
Total Investment
Number of Clients
Minimum Investment
Maximum Investment
Number of Branches
Number of Village Covered
Rate of Profit
Recovery Rate
Terms and Conditions

Amount/ Number
Tk. 29.36 Million
852 Persons
Tk. 1000.00
Tk. 30,000.00
4
92
15%
100%
Soft

4.3. Theme:
AIBL believe that only profit cannot be the last for any business entity as neither society
without business nor business without society is likely to bring about any sort of
development in true sense. There must be a confluence and harmony of social and corporate
goals and strategies. AIBL, since its inception was active in various social activities, which
increased manifold over the period of time and its growth.

57

Chapter-5
Findings, Recommendations and Conclusion

58

Findings:
1) In Online banking system customer very satisfy with the new system such as
Transfer of money.
2) Theoretically any person can purchase pay order, demand draft and telex transfer by
depositing money and commission.
3). Now the banking environment is very competitive so this bank should keep necessary
observation in customer service. It must be evaluated volume of work, number of
customer and the officer that provide service to the customer in every month.
4) AIBL is using integrated software named Ababil which is not well examined and
appropriate
5) Dhaka Bank Ltd, Eastern Bank Ltd, One Bank Ltd, BRAC Bank Ltd, Dutch Bangla Bank
Ltd. are also provides online banking service so AIBL should try to provide better service
than those.
6) There are only 47 branches in all over the country of AIBL.
7) The variation of task in front desk is very high.
8) In case of crossing cheque I did not observe any crossing with Not negotiable as much
as I stayed in bank orientation though theory have been given emphasis on the effect of
A/C pay only and not negotiable. The role of Not negotiable is not so much.
There is no provision in law regarding A/C payee crossing. But it has been developed in
practice. If the words, A/C payee are added to a crossing, it becomes an A/C pay crossing.
9) The degree of relationship between banker and customer determines how much theory
deviate from practical work. Regular evolution is necessary.
10) The speed of Internet is medium. So it can not provide online banking service very fast.
11) Some time I found problem in server that is networking problem of all branches.
12) The activity of AIBLs Corporate Social Responsibility (CSR) very well to the society. I
found very good job in Improvement of Education and Poverty Alleviation.
13) AIBL is using metro link network. Sometimes network are disconnected. Its a problem
for AIBL.

59

Recommendations:
1) Prompt service in account opening section is necessary. Only one officer is done this job &
customer pressure is so high.
2) Contract with international bank and financial institution for remittance.
3) Every month should evaluate the volume of work, number of customer and the officer that
provide service to the customer.
4) AIBL needs more branch in important area in Dhaka as well as out side the capital. There
is also need some branch in remote area so that all type of people gets service.
5) It is necessary to reduce diversification of task in front desk.
6) For speed Internet banking there is necessary for high technology.
7) The responsibility of the society of AIBL is very good. My recommendation is that if
AIBL set up complete and modern Hospital or school or NGO that work for welfare of
poor then it will be good jobs.
8) As few local private banks and also foreign banks provide Online banking service in our
country, AIBL must evaluate the level of online facilities in time to time than other.
9) AIBL has to create inter-bank money market widely.
10) I think that there is shortage of manpower in ABIL. So they should appoint now
employees in AIBL.

60

Conclusion:
Al-Arafah Islami Bank Limited is one of the most potential Banks in the banking sector. It
has a large portfolio with huge assets to meet up its liabilities and management of this bank is
equipped with the expert bankers and managers in all level of management. So it is not an
easy job to find out the drawbacks of this branch. I would rather feel like producing my
personal opinion about the ongoing practices in Elephant Road Branch. AI-Arafah Islami
Bank Limited uses most modern and internationally recognized banking software. The bank
used Ababil bank solution software. It produce large amount of investment. The General
Banking system of AIBL is very fast. AIBL provide good General Banking service to the
customer in all over Bangladesh. Especially I know about Elephant Road Branch that it
provide good General Banking service to the customer. Al-Arafah Islami Bank Limited
provides an up-to-date training program to its all employees from top to bottom. This
program helps the employees to provide a better service to their respective customer. AlArafah Islami Bank Limited is a socially responsible bank in the country. The bank maintains
a regular donation program to all over the country. Al-Arafah Islami Bank Foundation is the
official name of the donation program.

61

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1. General Banking Manual of Al-Arafah Islami Bank, 2007
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5. Al-Arafah Islami Bank Limited (AIBL) Annual Report, 2006
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Notes and Guidelines of Workshops
Handout provided by IBTRA
http://www.google.com//
http://www.idb.com//
http://www. Islamibankbd.com//

63