INTERNSHIP REPORT

ON
“INVESTMENT MANAGEMENT OF AL-
ARAFAH ISLAMI BANK LTD.”

SUBMITTED TO
DR. ZAHURUL ALAM
PROFESSOR
DEPT. OF MANAGEMENT
UNIVERSITY OF CHITTAGONG

SUBMITTED BY
SHANJEDA TASNEEM TARFDER
ID: 14302111
SESSION: 2013-2014
DEPT. OF MANAGEMENT
UNIVERSITY OF CHITTAGONG

DATE OF SUBMISSION: 27th AUGUST, 2019

 LETTER OF SUBMISSION

Date: 27th August, 2019

Dr. Zahurul Alam
Professor
Department of Management
University Of Chittagong

Subject: Submission of Internship Report.

Dear Sir,
I am very pleased to submit my Internship Report on “Investment Management of Al-
Arafah Islami Bank Ltd.” as a part of the requirement for the fulfillment of the BBA
Program. Without the sincere co-operation and proper guidance of you, it is not possible
for me to prepare the report. For this act of kindness I am grateful to you. This report is
not free from mistake due to some limitations. I hope you will accept it with gracious
consideration.
I believe and hope that one will find this paper informative and enlightening and will
help future researchers for extended research in this field.
I will be available for any further clarification that one may feel necessary in this regard.

Yours Truly,

---------------------------------
Shanjeda Tasneem Tarfder
ID: 14302111
Session: 2013-14
Department of Management
University of Chittagong

II
 ACKNOWLEDGEMENTS

In performing my internship report, it‟s a successful one I have to take the help &
guideline of some respected persons. First of all I‟m grateful to Almighty Allah who
gives me sound mind & sound health to accomplish my internship report. The
completion of this report gives me much pleasure. I‟m immensely pleased & elated to
mention the names of the eminent persons who are the real strength behind this report
simply because without their encouragement & support this report would have been non-
existent.

I would like to thank my honorable supervisor Dr. Mohammad Khaled Afzal,

Professor, Department of Management, University of Chittagong, for his proper
instruction, suggestion, evaluation, which helped me to write this report in the proper
way. I also like to thank our honorable coordinator Dr. Mohammad Harisur Rahman
Hawlader, Professor, Department of management, University of Chittagong and
honorable Chairman Dr. Md. Sahidur Rahman, Professor, Department of management,
University of Chittagong.

In preparing the report I have taken great assistance, support & guidance from the
officials of Al-Arafah Islami Bank Ltd, Hathazari branch, Chittagong. I have to convey
my heartened feelings & gratitude to them for the kindness & assistance that was
provided to me to complete my assigned report. I‟m very much grateful to Mr.
Mohammed Momtazul Hoque, AVP & manager, Al -Arafah Islami Bank Ltd. I would
like to specially thanks Md. Nurul Abser, FAVP & Manager, Md. Ibrahim Hossain,
Principal Officer, Md. Shahedul Islam, Officer, Hossen Mohammad Tajel, Officer,
SM Abul Manzur, Officer in charge, Md. Abdul Momin, Senior Executive Officer,
Md. Taslim Uddin, officer, Mrs. Jannatun Nur, Officer, Hathazari Branch,
Chittagong.

III
 EXECUTIVE SUMMERY

Internship is the fulfillment of the partial requirements of the BBA program. It can help
to find out relationship between practical and theoretical knowledge and can know how
business actually works. After doing eight weeks internship in Al-Arafah Islami Bank
Ltd I can prepare a report which covers “Investment Management of AIBL”.

This report contains five chapters. Chapter one focuses on introduction i.e., objective of
the study, methodology of the study, limitation and scope of the study.

Chapter two includes organization overview, vision, mission, goal, features,

commitments, corporate information, number of branch, corporate structure, product and
service etc.

Chapter three covers the conceptual aspects of investment management of AIBL like
investment objective, policies, strategies, modes, principles, processing, sources of funds
and investment analysis etc.

Chapter four covers interpretation of ratio analysis, findings related to deposit and
investment management, findings related to management and customers.

Chapter five includes problems, recommendations and conclusions etc.

IV
 TABLE OF CONTENTS

Sl. No. Title Page No.

Letter of Submission II
Acknowledgements III
Executive Summery IV
Table of Contents V-VI
CHAPTER ONE: INTRODUCTION 1-2
1.1 Introduction 1
1.2 Objectives of the study 1
1.3 Scope of the study 1
1.4 Methodology of the study 2
1.5 Limitations of the study 2
CHAPTER TWO: COMPANY PROFILE 3-11
2.1 Organizational Overview of AIBL 3
2.2 Vision 4
2.3 Mission 4
2.4 Goal of AIBL 4
2.5 Features of AIBL 4
2.6 Commitments 5
2.7 Corporate Information 5
2.8 Branch Network 6
2.9 AIBL Hathazari Branch Profile 6
2.10 AIBL‟s Product & Services 7
2.11 Corporate Slogan of AIBL 8
2.12 Corporate Structure o AIBL 9
2.13 SWOT Analysis of AIBL 10
2.14 Deposit and Investment performance of the year 2016 and 2017 11
CHAPTER THREE: INVESTMENT MANAGEMENT OF AIBL 12-26
3.1 Investment Operation Objectives 12
3.2 Investment Policy of AIBL 12
3.3 Investment Strategies of AIBL 13

V
Sl. No. Title Page No.
3.4 Modes of investment 13
3.5 Investment activities of AIBL 16
3.6 Principles of Investment of AIBL 16
3.7 Investment Process at AIBL 17
3.7.1 Selection of client 17
3.7.2 Application Stages 17
3.7.3 Appraisal Stage 18
3.7.4 Sanction Stage 19
3.7.5 Documentation Stage 19
3.7.6 Disbursement Stage 20
3.7.7 Monitor and Recovery Stage 20
3.8 Processing of Investment Proposal 20
3.9 Investment Analysis 21
3.9.1 Flow chart of Investment process with time frame 22
3.9.2 Investment Growth rate of AIBL (in million tk) 23
3.9.3 Sector wise loan disbursements of AIBL 24
3.9.4 Ratio Analysis 26
CHAPTER FOUR: FINDINGS AND DISCUSSION 27-28
4.1 Findings related to Deposit & Investment Management 27
4.2 Findings related to the Management 28
4.3 Findings Related To Customers 28
CHAPTER FIVE: PROBLEMS, RECOMMENDATIONS AND
29-30
CONCLUSION
5.1 Problems of investment management 29
5.2 Recommendations for investment management 29
5.3 Conclusion 30
References 31

VI
 CHAPTER ONE
INTRODUCTION

1.1 Introduction
Bangladesh is one of the largest Muslim countries in the world. The people of this
country are deeply committed to Islamic way of life as enshrined in the Holy Quran and
the Sunnah. The establishment of Al Arafah Islami Bank Ltd on 18 th June 1995 is an
addition at that urge. It is committed on the basis of interest free profit loss sharing
system. In doing so, it has unveiled a new horizon and ushered in a new silver living of
hope towards materializing a long cherished dream of the people of Bangladesh for
doing their banking transactions in line with what is prescribed by Islam with the active
cooperation and participation of financial institutions, government bodies, eminent
personalities of Middle East of Gulf countries. Al Arafah Islami Bank Ltd has by now
earned the unique position a leading private commercial bank in Bangladesh. Though
Islamic banking system is different from conventional banking system, it also provides
loans and collects deposits from clients. Also investment is one of the main modes of
financing which Islami bank does in accordance with principle of shariah which inspires
me to work at AIBL (Al-Arafah Islami Bank Ltd) and to know about investment
management activities here.

1.2 Objectives of the study

 To know about Al Arafah Islami Bank Ltd (AIBL).
 To know the conceptual aspects of investment management activities of AIBL.
 To analyze the investment performance of AIBL.
 To suggest ways for further development in operation..

1.3 Scope of the study

The study is conducted on Al Arafah Islami Bank Limited, Hathazari Branch which
would focus on the following areas-
 AIBL at a glance.
 Investment appraisal system.
 Modes of investment.
 Investment analysis and strategies.
 Organization structures and responsibilities of management.

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1.4 Methodology of the study
The report has been prepared on the basis of experience gained during the period of
internship. To prepare the report, related data have been collected from the primary and
secondary sources.

Primary Data:
Primary data were collected from the following sources:
 Personal interview:
 Face to face interview with the officers.
 Telephone interview with the officers.
 Direct observation
 Practical work exposures from the different desk of various department of the
branch covered.
 Informal conversation with the clients.

Secondary Data:
Secondary data were collected from the following sources:
 Annual report of AIBL.
 Booklets of Bangladesh Institutes of Bank Management.
 Periodicals published by Bangladesh Bank.
 Websites of the AIBL.
 Theoretical books related to banking sectors.

1.5 Limitations of the study

This report has some limitations likely:
Officials were not fluently giving their opinions due to time constraints and fear of losing
confidentiality. To maintain the privacy and corporate obligations some personnel do not
agree to disclose some information to me. There was some conceptual problems between
the personnel and I. Lack of opportunity to visit more than one branch.

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 CHAPTER TWO
COMPANY PROFILE

2.1 Organizational Overview of AIBL

Being one of the biggest Muslim nations Bangladeshi individuals are especially careful
about the Islamic way of life. The general population here is particularly strict in
following the Quran and the Sunnah of prophet. Therefore to live a haram free living
they follow Islamic rules in every way possible. This created a lack of Islamic shariah
banking here in Bangladesh. The foundation of A1 Arafah Islamic Bank Limited on 18
June 1995 is the genuine result of the demand of individuals for an Islamic shariah in
banking. This was the core reason Al-Arafah established its banking from 27
September 1995.

Concurrently the bank is operating with an Authorized capital 15,000.00 million and
Paid up capital 9,943.06 Million. The bank is mainly guidance and well balanced
control Islamic scholars and experienced and educated businessmen makes sure that
the bank is running according to the Islamic Sariah and there is no sign of giving
earning interest at any part of the financing system. The bank‟s has its full paid up
capital is owned by indigenous stakeholders.

AIBL has the total equity balance of TK 21,362,249,730 till the dated 31 December
2017, the current manpower is 3446 and the number of shareholders was 36695. The
bank‟s business activities produced consistent profit declared a decent dividend
throughout the years for its shareholders. As far as my findings are concerned the bank
furnishes quality support of its clients with blend of Islamic guidelines and current
innovation in their day by day exchanges , nonstop improvements of new plans for the
general population is the key of the bank to make progress in such brutal rivalry in the
banking area now a days.

The bank is committed to contribute fundamentally to the national economy. It has

made a positive commitment towards the financial advancement of the country with
154 branches all over the country.

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2.2 Vision
To be a pioneer in Islami Banking in Bangladesh & contribute significantly to the growth
of the national economy.

2.3 Mission
 Achieving satisfaction of Almighty Allah both here & hereafter.
 Proliferation of Shariah based banking practices.
 Fast & efficient customer services.
 Maintaining high standard of business ethics.
 Quality financing services adopting the latest technology.
 Steady & competitive return on shareholders‟ equity.
 Innovative banking at a competitive price.
 Attract & retain quality human resources.
 Involving more in Micro & SME financing.
 Balanced growth.

2.4 Goal of AIBL

The adage of the AI-Arafah Islami Bank Ltd is to reach the edge of modem banking
making a computerized and modernized service to its clients giving relentless service
and set it up to confront the new challenges of the dynamic world of business. AIBL has
the following goals.
 A total Customer focused modern Islamic Banking with quality and continuous
growth through various new deposit schemes with quality Investment mechanism
to retain the leading position.
 Deliver financial service to small scale business and continue the cycle of
economic development.
 Adaptable to the changes of clients demand.

2.5 Features of AIBL

As far as Islamic banks are concerned AIBL unique in every dimension. Unlike other banks
it provides a bunch Islamic services within the wide bracket of shariah. Some of the special
and unique features that make AIBL notable in Islami banking sector are as follows:
 All activities of AIBL are led under profit and loss based framework as per
Islamic Shariah.

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  Its speculation arrangements under various modes are completely Shariah
consistent and very much checked by the leading group of Shariah Council.
 During the year 2007, 70% of the investment income has been distributed among
the Mudaraba depositors.
 AIBL has made itself counted as online bank from 2008 for that Bangladeshi
software has been used to promote the local developers.
 AIBL regularly arranges its AGMs (Annual General Meeting). Whenever needed
EGMs (Extraordinary General Meeting) are also arranged.
 Its dividend is regularly paid to shareholders. In 2017, they declared 15% cash &
5% bonus dividend to the shareholders.
 AIBL provides dedicated services to the clients along with Islamic spirit view
goodness.
 AIBL is committing itself to be a welfare-oriented banking system and always
actively meet the needs of poor.
 AIBL carries the core Islamic values of establishing a justified economic system
through equal distribution of wealth among the society.

2.6 Commitments:
 To deliver financial services with the touch of their heart to retail, small and
medium scale enterprises, as well as corporate clients through their branches
across the country.
 Their business initiatives are designed to match the changing trade and industrial
needs of the clients.

2.7 Corporate Information (Table 2.1 )

Date of Registration : 18 June, 1995
1st Branch : Motijheel Branch, Dhaka
Opening Ceremony : 27 September, 1995
Authorized Capital : 15,000.00 Million
Paid-up Capital : 9,943.06 Million
Local Partnership of Capital : 100%
Equity : 22,520.68 Million
Number of Branches : 154

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Deposit : 244,806.26 Million
Investment : 235,905.23 Million
Number of Employees : 3,446
Number of Shareholders : 30,386

2.8 Branch Network (Table 2.2)

At present AIBL have 154 branches all over the country. In a bid to expand their network
of Branches they got approval to open 9 (Nine) new branches in 2018. The number of
branches as Division wise is mentioned in the following table-
Division No. of Branches
Dhaka 77
Rajshahi 8
Rangpur 5
Khulna 14
Sylhet 7
Barishal 11
Chattogram 46

2.9 AIBL Hathazari Branch Profile (Table 2.3)

Bank Name: Al-Arafah Islami Bank Limited
Branch Name: Hathazari Branch
Address: Salamatullah Bhaban, Kachari Road, Hathazari, Chittagong
Telephone: 031 2601679-80, 018 11408492
SWIFT Code: ALARBDDH
Routing Number: 015153221
District: Chittagong
Service Hours: (Sunday – Thursday): 10:00 am - 4:00 pm
Friday: Closed
Saturday: Closed
Working Days: Sunday - Thursday (Except Holidays)

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2.10 AIBL’s Product & Services
Investment/Loan Product
 Agricultural sector
 Industrial sector
 Business sector
 Construction & housing sector
 Investment schemes in Mosque & Madrasa
 Village & small investment schemes
 Consumer investment scheme

Services
 Mudaraba current account
 Mudaraba saving account
 Mudaraba term deposit (SND)
 Monthly savings investment
 One time Hajj deposit
 School student (Minor) Mudaraba saving A/C
 Monthly profit based term deposit (PTD)
 Monthly installment based term deposit (ITD)
 Al-Arafah monthly hajj deposit (MHD)
 Al-Arafah termed hajj deposit (THD)
 Al-Arafah saving bond (ASB)
 Farmers, Freedom fighters, garments worker mudaraba saving A/C

Deposit Schemes
 Pension deposit schemes (PDS)
 Mudaraba (special) pension deposit scheme (MSPDS)
 Mudaraba double benefit deposit scheme (MDBDS)
 Cash waqf deposit schemes (CWD)
 Mudaraba lakhpoti deposit schemes (LDS)
 Mudaraba Millionaire deposit schemes (MDS)

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Foreign Exchange
 Foreign documentary bill purchase (FDPS)
 Foreign documentary bill purchase (FDBC)
 Bill of negotiation
 Foreign Remittance

Letter of Credit (LC)

 Letter of credit issue
 Letter of credit advice

2.11 Corporate Slogan of AIBL

“A Combination of Shariah & Modern Banking”

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2.12 Corporate Structure of AIBL

• Chairman
• Vice Chairman
Top Management • Board of Director
• Managing Director
• Deputy Managing Director

• Senior Executive Vice President

• Executive Vice President
• Senior Vice President
Executive Level • Consultant
Management
• First Vice President
• Senior Assistant Vice President
• Assistant Vice President

• Senior Executive Officer

Mid Level • Executive Officer
Management
• Senior Office

• Management Trainee Officer

Junior Level • Junior Officer
Management
• Assistant Officer
• Trainee Officer

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2.13 SWOT Analysis of AIBL (Source: Annual Report, 2017-2018)
Strengths:
 AIBL feels responsible for providing its customer quality service in consistent
manner.
 AIBL has good financial backup.
 It uses the latest technology to operate its daily transactions.
 AIBL has good working environment for both staffs and client.
 AIBL holds a good reputation in the banking markets.
 AIBL maintains a costly R&D sector for better offers and schemes.

Weaknesses:
 AIBL has a gap of well trained staffs.
 AIBL don‟t have enough promotional campaigns like other banks.
 Staff feel they are paid less compared to other banks.
 Staff management schedule is weak.
 Demand for Islami bank is increasing day by day.
 Modern technologies are getting handy.
 Increase of investors in the country.

Opportunities
 Emergence of e-banking.
 Innovative and modern customer service.
 Opening branches in remote location.

Threats:
 Other commercial banks are also opening Islami branches.
 Inflation affects are hampering profits of bank.
 The rates of profit reduced due to use of 7% profit quota.
 Other bank has far better technology to service their customers.

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2.14 Deposit and Investment performance of the year 2016 and 2017 (Table 2.4)
SL.No. Particulars 2016 2017 Comment
1 Total Deposits 199,703.93 244,806.26 Good
2 Total Investment 196,519.38 235,905.23 Good
3 Investment Deposit Ratio[%] 88.50 89.95 Satisfactory
4 ROE (%) 16.69 14.07 Good
5 ROA (%) 1.23 0.99 Worsen
6 Debt Ratio (times) 0.92 0.93 Worsen
7 Provision kept against Classified
2,586.67 3,096.15 Good
Investment
8 Investment income 18,830.15 20,491.03 Better
9 Income from operating business 35.60 43.28 Good
10 Debt to Equity ratio (times ) 11.79 13.18 Bad
11 Equity to Asset Ratio (times) 0.08 0.07 Bad

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 CHAPTER THREE
INVESTMENT MANAGEMENT OF AIBL

Investment: Investment is the part of a bank‟s loanable funds which are employed in
money market or capital market by purchasing securities for the purpose of earning
income. (Khan, 2009)

3.1 Investment Operation Objectives:

 To invest fund strictly in accordance with the principles of Islamic Shari‟ah.
 To diversify its investment portfolio by different perspectives.
 To ensure manual benefit both for the bank and the investment client.
 To made investment keeping the socio-economic requirement of the country in view.
 To increase the number of potential investors by making participatory and
productive investment.
 To finance various developments schemes for poverty alleviation, income and
employment generation with a view to accelerate sustainable socioeconomic
growth and for uplift of the society.
 To invest in the form of goods and commodities rather than give out cash money
to the investment clients.
 To encourage social elevation of enterprises.
 To neglect even highly profitable investment in fields forbidden under Islamic
Shari‟ah and harmful for the society.

3.2 Investment Policy of AIBL

Investment operation of a bank is extremely vital because the greatest share of total
revenue is generated from it, most risk is targeted in it and therefore the existence of a
bank largely depends on well management of its investment mechanism. For economical
readying of mobilized resources in profitable, safe and liquid sector a sound, well-
defined and acceptable Investment Policy is important.

One of the vital features of the investment policy of the bank is to invest on the basis of
profit-loss sharing system in accordance with the principles of Islami Shariah. Profit
generation is the solo motive, the objective behind this investment scheme the bank
emphasis in actively participating in social good according to the Quran and Sunnah.

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In order to implement the Investment Policy adopted by the Bank a 7-year long term
Plan has been drawn-up for year between 1995 to 2002 and put into effect. Then another
5-year investment plan has been taken for the year 2003 to 2008 and put into effect.
These plans aim at diversify the investment by size sector geographical area, economic
purpose and securities to bring in phases all sectors of the economy and all types of
economic groups the society within the fold of Bank's investment operations

3.3 Investment Strategies of AIBL

Risk within the investments and come on that are reticulate. Associate investment policy
that emphasizes a high come should settle for comparatively high risk. Conversely,
associate investment policy that may tolerate solely bit of risk should be ready to simply
accept a comparatively low come. As such, it's very troublesome whether or not to pick
out a high come portfolio on high risk or low risk portfolio with a low come.
Nevertheless, considering all aspects following pointers shall be followed as strategy for
banks investments.
 If two portfolios have an equivalent risk however completely different returns,
the portfolio having higher come shall be most preferred.
 If the 2 portfolios have constant expected returns, however completely different
degrees of risk, the portfolio with lower risk shall get preference. If one portfolio
has each the next come and a lower risk than another, the first portfolio shall be
preferred.
 Keeping seeable the risk issue, the bank shall maintain flexibility in
determination of rate of come on investments on case to case basis in thought of
the risk part concerned within the several investments.
 Emphasis is given for enlargement and strengthening small scale industries and
rural industries. This vastly potential industrial sub-sector shall produce.

3.4 Modes of investment

Bai Mechanism:
Bai Murabaha mode of investment
The term „Bai-Murabaha‟ has been deriving from Arabic words‟ Bai‟ & „Ribhun‟. The
word Bai means purchase & sale & the word Ribhun means an agreed upon profit. „Bai-
Murabaha‟ means sale on agreed upon profit. Bai Murabaha may defined as a contract

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between a buyer & seller under which the seller sells certain specific goods permissible
under Islamic shariah & 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.

Bai- Muajjal Mode of Investment:

The terms BAi & Muajjal are derived from the Arabic words Bai & Ajal. The word Bai
means purchase & sale the word Ajal means a fixed time. It‟s a sale for which payment
is made at a future fixed date. In short, It‟s a sale on credit.

The Bai-Muajjal maybe defined as a contract between a buyer & a seller under which the
seller sells the certain specific goods , permissible under Shariah & 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.

Bai-salam mode of investment:

Bai-saalm is a combination of two Arabic words Bai & Salam. Bai refers to purchase &
sale while Salam means advance. Here payment is made in Advance. It is a form of sale
on delayed terms in which the money may be paid first & the goods delivered at a later
date.

Bai- salam may be defined as a contract between a buyer & seller under which the seller
sells in advance the certain goods permissible under Islamic shariah & the law of the
land to buyer at an agreed price payable on execution of the said contract & the goods
are delivered as per specification, size, quality at a future time in a particular place.

Bai- Istisna mode of investment:

The word Istisna has been derived from an Arabic word which means industry. Istisna
means to purchase specific products by placing order to a manufacturer or to sale
specific products after having the same manufactured against order of a buyer. Istisna is
a contract between a manufacturer/seller & a buyer under which the manufacturer/ seller
sells specific products. After having manufactured, permissible under Islamic shariah &
law of the country after having manufactured at an agreed price payable in advance or by
installments within fixed period /fixed future date on the basis of the order placed by the
buyer. In short, it is a contract with a manufacturer to make something.

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Risk and Gain Sharing Mechanism:
Mudaraba Mode of Investment:
Mudaraba is a partnership in profit whereby one party provides capital & the other party
provides skill & labor. The provider of capital is called „Shahib Al-Maal‟ while the
provider of skill & labor is called „Mudarib‟.

Mudaraba is a contract of those who have capital with those who have expertise where
the first party provides capital & the other provides the expertise with the purpose of
earning Halal (Lawful) profit which will be devised between them in ratio agreed upon.

Musharaka mode of Investment:

Musharaka is a contract of partnership between two or more parties in which all the
partners contribute capital, participate in management & share the profit in proportion to
their capital or as per pre-agreed ration & bear the loss, if any, in proportion to their
capital/equity ratio.

In the context of Islamic banking financing, Musharaka maybe of two types:

1. Permanent Musharaka
2. Diminishing Musharaka

1. Permanent Musharaka:
Permanent Musharaka maybe defined as contract of partnership business between the
Islamic bank & its clients in which the bank participates in the equity & share the profit
at a pre-agreed ratio or bear the loss, if any, in proportion to the ratio of capital/equity
where termination period of the contract is not specified. This is also called continued
Musharaka.

2. Diminishing Musharaka:
Diminishing Musharaka is a special form of partnership in which one of the partner
promises to buy the share of the partner gradually until the title to the equity is
completely transferred to him.

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3.5 Investment activities of AIBL
Investment is the action of deploying funds with the intension and expectation that they
will earn a positive return for the owner. 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.
Specific examples of financial investments are: Deposits of money in a bank account, the
purchase of Mudaraba savings bonds or stock in a company. Since Islam condemns
hoarding savings and a 2.5 percent annual tax.

ZAKAT is imposed on savings of the owner of excess savings, if he is unable to invest in

real assets, has no option but to invest his savings in financial assets.

3.6 Principles of Investment of AIBL

The Principles of investment operation of the bank are:
1. To invest fund strictly in accordance with the principles of Shariah.
2. 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 thereof.
3. To make investments keeping the social-economic requirement of the country' in
view.
4. To increase the number of potential investor by main participatory and productive
investment.
5. To finance various development schemes for poverty alleviation, income and
employment generation with a view to an accelerating sustainable social-
economic growth of the society.
6. To invest in the form of goods and commodities rather than giving out cash
money to the investment clients.
7. Any investment on products or services that causes bad effect to human is strictly
prohibited like alcohol production cigarette manufacturing etc.

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3.7 INVESTMENT PROCESS AT AIBL
Investment practice consists of stages like selection of the client, application stage,
processing and appraisal, sanctioning stage, documentation stage, disbursement stage,
monitoring & recovery stage. These stages are the heart and core of the bank‟s
investment department. Al-Arafah Islami Bank (AIBL) makes its investment decision
through successfully passing these crucial steps; the steps are discussed in detail below.

3.7.1 Selection of client

Here, the client approaches to the branch of AIBL. He talks with the manager or
respective officer (investment). Secondly, bank considers four C‟s of the client. After
completion of the discussion successfully between them, bank selects the client for its
proposed investment it is to be noted that the client must agree with the bank‟s rules &
regulations before availing investment. Generally, bank analyses the following four C‟s
of the client
 Character
 Capacity
 Capital Collateral
 Condition

3.7.2 Application Stages

The bank collects necessary information about the prospective client at this stage. For
this reason, the bank informs the prospective client to provide and fill a form with
respective information which is crucial for the initial of investment process. Documents
that are necessary for getting investment of AIBL are prescribed below
 Photocopy of the Trade License
 Income statement
 Attested copy of partnership deed (if partnership basis is selected).
 Recent three (03) years audited balance sheet (for Joint Stock Company)
 Three (03) years‟ business transaction statement for the Musharaka / Mudaraba
investment Abridged proof income statement-for the Musharaka / Mudaraba
investment.
 Attested copy of the Memorandum of Association (MOA) & Articles of
Association (AOA) for the joint stock company.

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  Attested copy of the Tax Identification Number (TIN certificate).
 Detail summary of the sundry debtors and creditors.
 Summary of the personal movable & immovable assets and others.

3.7.3 Appraisal Stage

This is the evaluation stage, here the bank evaluates the client and his/ her business. It is
considered to be the most important stage because, on the basis of this stage, bank usually
goes for sanctioning the proposed investment limit or proposal. If a single thing goes bad
here, the bank stops to make sanction of the investment. In order to appraise the client,
AIBL gives a standard FI 67B form (Appraisal report) to the client for gathering all the
information. However, the following contents are presented from that appraisal report:
 Company‟s information
 Owner‟s information
 List of partners in the business
 Purpose of investment
 Details of proposed investment
 Break up of present outstanding -other liabilities of the client
 Previous Bank‟s information details of sister/ Allied concerns
 Allied deposits as on
 Business Industry Analysis if any
 Relationship analysis if any
 Asset- Liability position of the client as per Audited Balance sheet - Working
capital assessment risk grade.
 Particulars of the go down for storing MPI Murabaha goods -insurance coverage
 Audit observation -Security analysis.

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3.7.4 Sanction Stage
This is the conclusion stage; here the bank officially agree the investment proposal of the
respective client. In this case client receives bank‟s sanction letter. Al- Arafah Islami
Bank (AIBL) sanction letter contains the following elements
 Investment limit in million
 Mode & amount of investment
 Purpose of investment
 Period of on investment
 Rate of return
 Securities
 Stock of goods is the primary security
 LC/ Bills - Related documents
 Murabaha Post Investment (MPI) / Bai- Murabaha- Pledge of MPL/ Bai-
Murabaha goods.
 MPI Bai-Murabaha
 Cash/ Goods- Bai Murabaha- 25% cash security on cost price.
 TR (Trust Receipt)-without cash security
 Collateral-immovable properties

3.7.5 Documentation Stage

In the documentation stage, usually the bank analyses whether required documents are in
order. In the documentation stage, AIBL checks the following some documents of the
client
 Tax payment certificate
 Stock report
 Trade license (Renewal)
 VAT certificate
 Liability statement from different parties
 Receivable from different clients

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3.7.6 Disbursement Stage
At this stage bank decides to pay out money. Here the clients get his desired funds of
goods. It is to be noted that before disbursement a „site plan‟ showing the exact location
of each mortgage property needs to be physically verified.

3.7.7 Monitor and Recovery Stage

Monitoring consists of the activities that analyzes the validity of the documents client
provided, stating the use of money that will be taken from the loan account, here the
client need to give documents like vouchers of the goods that will be bought for business
and other related documents that proves his legality of purchase. The taken loan has a
validity of one year, within that time the client help deposit all the taken amount of loan
in the account, that‟s what recovery part does. In the recovery part the officers make sure
that the loans are put back within one year.

3.8 Processing of Investment Proposal:

After proper appraisal, investment proposal should be processed for Head office
approval. The proposal should accompany the following papers or documents:
1. Application of the client.
2. Photograph of the client duly attested by the branch incumbent.
3. CIB inquiry form duly filled by the client.
4. Up-to date trade license.
5. Up-to date TIN certificate.
6. IF-48 and IF-49 duly filled by the client.
7. Resolution of the Board of Directors regarding investment from AIBL (In case of
limited company)
8. Memorandum and Articles of Association (In case of limited company).
9. Certificate of incorporation (In case of limited company).
10. Certificate of commencement of business (In case of limited company).
11. Registered partnership deed (In case of partnership company).
12. Legal opinion on collateral security.
13. Letter of consent along with attested photograph of the mortgagor (In case of 3rd
party mortgagor).
14. Valuation certificate by the bank‟s panel surveyor.
15. Valuation certificate by branch officials as per Head office format.

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 16. Manager‟s certificate of genuineness of collateral security as per Head office
format.
17. Visit report on the client‟s business establishment.
18. Declaration of assets & liabilities of the client.
19. Declaration of movable assets of the client.
20. Declaration of stock in trade.
21. Profit & loss A/C of last three years (In case new company, projected Profit &
Loss A/C is to be taken).
22. Balance Sheet of last three years (In case new company, projected Balance Sheet
is to be taken).
23. IRQ (Investment Risk Grading).
24. Statement of a WCD/MSD A/C of last one year.
25. Cost estimate (In case of HPSM reinvestment).
26. Projected Income Statement (In case of HPSM (re) investment).
27. Copy of work order (In case of bank guarantee facility).
28. Project profile (In case of project investment).

3.9 Investment Process Analysis

The investment of the bank has stood at Tk. 235,905.23 million as on 31st December 2017
as against Tk. 196,519.38 million in the previous year showing an increased by 20.04%. The
investment portfolio of the bank is well diversified and covers a broad spectrum of
businesses and industries including readymade garments, textile, edible oil, ship scraping,
steel & engineering, chemicals, pharmaceuticals, cement, telecommunication, construction,
health care, real estate, education, transport and investment under consumer schemes. We
have geared up efforts to improve the recovery rate of disbursed investment and also taken
adequate measures for converting the classified investment into performing assets. As a
result, classified investment of the bank could be kept at a low level far below the national
average. It is 4.10% as on 31 December 2017.

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3.9.1 Flow chart of Investment process with time frame
Application Stage
(Min 2 days-Max 6 days)

Appraisal Stage
(Min 2 days-Max 7 days)

Sanction Stage
(Min 2 days-Max 5 days)

Documentation Stage
(Min1 day-Max 2 days)

Disbursement Stage
(1day)

Monitor and Recovery Stage

Minimum time needed for all stages (2+2+2+1+1) = 8 days

Maximum time needed for all stages (6+7+5+2+1) = 21 days
So, Average time needed for a loan disbursement = 14.5 days with standard deviation
1.83 days.

8 14.5 21

9(-3σ) 14.5 20 (+3σ)

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3.9.2 Investment Growth rate of AIBL (in million tk) (Table 3.1)
Year 2015 2016 2017
Investment 162,503.14 196,519.38 235,905.23
Operating Income 110189.16 200663.97 240150.19
Source: Annual Report

Investment Operating Income

300,000.00

250,000.00

200,000.00

150,000.00

100,000.00

50,000.00

0.00
2015 2016 2017

Figure 3.1: Investment and Operating Income of AIBL

From figure 3.1 it is seen that operating income of the bank is increasing comparatively
with the investment. Since operating income is increasing at per investment, we can say
that the bank is efficient in utilization of money.

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3.9.3 Sector wise loan disbursements of AIBL (Table 3.2)
Particulars 2014 2015 2016 2017 2018
AGRICULTURE 6890000 10060000 10590000 10600000 10560000
GSIS 7122000 9950000 9918000 9541000 8561000
STAFF 3879000 3124000 3270000 2240000 930882
SEIS 1782000 5657000 6577000 2615000 942000
SEF 4340000 2612300 3140000 7100000 8420000
SME 124000 162230 124000 152000 150000
REAL-ESTATE 9590000 8273100 6660000 4690000 8240000

Particulars 2014 (P0) 2015 (P1) 2016 (P2) 2017 (P3) 2018 (P4)
AGRICULTURE 100% 146% 153.70% 153.85% 153.27%
GSIS 100% 139.70% 139.26% 134% 120.20%
STAFF 100% 80% 84% 58% 240%
SEIS 100% 317% 369% 146% 56%
SEF 100% 60.19% 72.35% 163.59% 194%
SME 100% 130.63% 100% 122.58% 120.96%
REAL-ESTATE 100% 86.26% 69.44% 48.90% 85.92%

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 AGRICULTURE GSIS STAFF SEIS

SEF SME REAL-ESTATE

400%

375%

350%

325%

300%

275%

250%

225%

200%

175%

150%

125%

100%

75%

50%

25%

0%
2014 (P0) 2015 (P1) 2016 (P2) 2017 (P3) 2018 (P4)

Figure 3.2: Sector wise loan disbursements of AIBL

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3.9.4 Ratio Analysis
Investment Deposit (ID) Ratio (Table 3.3)
As Islamic and non-conventional bank, AIBL is to maintain investment deposit ratio at
around 90 percent as per guideline of Bangladesh bank.
Year Ratio
2014 94.21%
2015 93.43%
2016 89.07%
2017 91.67%

Interpretation
Table 3.3 shows that investment to deposit ratio of Al Arafah Islami Bank Ltd. was
increased over the year. Higher investment to deposit ratio is 94.21% in the year 2014.
And the lowest ratio is 89.07% in the year 2016. The year 2017 shows good sign as it is
higher than 90%, but the year 2014-2016 shows positive sign for the bank.

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 CHAPTER FOUR
FINDINGS AND DISCUSSION

4.1 Findings related to table 2.4

AIBL is committed to provide banking services that is purely based on Islamic Sharia
transparent and efficient in this competitive environment. Deposit & Investment
Management related finding for the year 2016 and 2017 are given below:
 We can see that deposit is the main part of the AIBL fund. So we can say that deposit
is the heart of AIBL. Investment of the bank increased with the increase of deposit.
 AIBL‟s total deposit amount is increased in 2017.
 In 2017 total deposit amount is TK. 244,806.26 million. In 2016 it was TK.
199,703.92 million
 The Investment deposit ratio is used to calculate a bank‟s ability to cover
withdrawals made by its customers. If the ratio is too high, it means that banks
might not have enough liquidity to cover any unforeseen fund requirements; if
the ratio is too low, banks may not be earning as much as they could be. AIBL‟s
Investment Deposit Ratio of 2016 is 88.50% and 2017 is 89.95%. Which is good
for the bank.
 Any bank investment that is in danger of default is called classified investment.
Classified investments have unpaid interest and principal outstanding, and it is
unclear whether the bank will be able to recoup the investment proceeds from the
borrower. Banks usually categorize such investments as adversely classified asset
on their books.
 Investment income is performance measure used to evaluate the efficiency of an
investment.
 AIBL‟s investment income has been increased in 2017.It was 18,830.15 in 2016 but
in 2017 it is increased to 20,491.03 .Higher investment income is good for the bank.
 Debt ratio of AIBL in 2016 was 0.92 times. In 2017, it was 0.93 times. It
indicates that most of the assets of AIBL are financed by debt.
 Debt to Equity ratio indicates that on an average, debt is 11 times higher than equity.
 Total Equity to total Asset ratio of AIBL in 2016 is 0.08 times and in 2017 is 0.07
times which indicates a very small portion of assets are financed by equity.

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4.2 Findings related to the Management
Shortage of available product: In AIBL, there is less investment product (six
investment product) available.

Centralized decision making: The decision making of the bank is too much centralized.
No decision is made without authorization of the Head Office. So that the time required
obtaining investment facilities are longer.

Conflict with central bank: Islamic economy is required to execute real Islamic
banking practice. Bangladesh Bank does not cover real practice of Islamic banking. So
there is conflict between Bangladesh Bank & Islamic Bank.

4.3 Findings Related To Customers

Limitation on investment amount: Investment limit of the bank is small to customer
needs.

Modes are unknown to borrower: Borrowers are highly acquainted with Islamic mode
of investment.

Limitation of investment period: Investment periods of the bank under different

schemes is short to customer needs.

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 CHAPTER FIVE
PROBLEMS, RECOMMENDATIONS AND CONCLUSION

5.1 Problems of investment management

Less number of investment modes:
There are only six investment modes. The bank largely depends on Bai Maujjal mode.
Other modes such as Ijara Mechanism (Higher purchase under Shirkatul Melk, Ijara Bil
Bai) is not available here. So they have no customer of this modes and earning less
profit.

Time consuming investment procedures:

Investment processing is so complex that customer cannot get fund easily and on time.
Here average time needed for a loan disbursement is 14.5 days with a standard deviation
1.83 which means actual performance is not good.

Unavailability of strong marketing policy:

Though the bank has investment policy but it has no strong marketing policy to attract or
increase more customers to remind them about banking service.

Decrease in loan disbursement among staffs:

Loan disbursement among staffs of AIBL is decreasing day by day. So, staffs are not
taking loans from their own bank.

5.2 Recommendations for investment management

Introducing more investment modes:
They should increase more investment modes like Ijara mechanism (a contract between
two parties, the lessor and lessee where the lessee‟s have the right to enjoy a specific
benefit against consideration or rent and wages from the lessor) and make these modes
more attractive for client benefits.

Simplifying investment procedures:

Investment procedures should make easy and simple. They should reduce application
and appraisal stage‟s maximum time to reduce total time as well as standard deviation.

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Practicing strong marketing policy:
AIBL should concentrate about strong marketing policy to increase more customers to
remind them about banking service. They can introduce cloud computing and customer
relationship strategy for marketing their investment products.

Increasing loan disbursement among staffs:

To increase loan disbursement the bank should decrease interest rate and improve other
facilities related to loan for staffs.

5.3 Conclusion
From the practical implementation of customer dealing procedure during whole period of
practical orientation of AIBL it can be said a concrete conclusion in a very confident
way. Everyone should believe that the realization will be in harmony most of the banking
thinkers. It is quite evident that to build up an effective and efficient banking system is a
must. Success in the banking business largely depends on effective investment. Less the
amount of investment losses, the more the income will be the profit of the bank and here
lays the success of investment financing.

By observing overall performance and profitability of AIBL, it can be said the bank is
maintaining better position. AIBL‟s investment income is good. In year the bank is
trying to improve by establishing a sound capital base. The bank is trying to make their
products and services more attractive to the customers. Also, the bank is enhancing its
wealth and attracting more investors by performance.

Actually AIBL is a private sector bank having a small market share of the industry.
Although it‟s a third generation bank facing Government deposit retractions. It has all
the potential to penetrate in the market. Finally, if the weakness are addressed
appropriately and opportunities are explored with a stable and adroit management
having regard to appropriate corporate governance and modern automation technology as
well as introducing more investment mode, simplifying investment procedures,
practicing strong marketing policy and so on . It is expected that AIBL advances up in
the ladder of success in the coming years.

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 REFERENCES

Anonymous (2018). Al Arafah Islami Bank Limited. Retrieved from http://www.al-

arafahbank.com.

Anonymous (2018). Islami Bank Bangladesh Limited. Retrieved from

http://www.bangladeshbank.com.

Anonymous (2018). Al Arafah Islami Bank Limited. Retrieved from

http://www.wikipedia.org.com.

Khan. A, R., (2009). BANK MANAGEMENT: A Fund Emphasis, Dhaka: Brother‟s

Publications.

Uddin, M. M. (30 June, 2018). Annual report of AIBL 2017-2018. Retrieved from
https://aibl.com.

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