Table of Contents

Chapter 1: Introduction …………………………………………………..……………03

1.1 Background of the study……………………………..………………………….04
1.2 Statement of the Project Issue ..…………………………………………..….….05
1.3 Objective of the Study ………………………………….……………………….05
1.3.1 Major objective ………………………………….…………………….05
1.3.2 Specific objective …………………………………..…………………..05
1.4 Scope and Limitations …………………………………….……………….……06

Chapter 2: Literature Review…………………………………………..…………… 07

Chapter 3: Organizational Profile…………………………………………………... 11

3.1 Background of the Organization………………………………………….…...12

3.2 Mission ……………………………………………………………………..…...13
3.3 Vision …………………………………………..……………………………….13
3.4 Commitments …………………………………..………………………………13
3.5 Corporate Structure of AIBL ……………………...………………………….14
3.6 Modes of Investment …………………………………..………………………15
3.6.1 Bai- Murabaha …………………………….…………………………17
3.6.2 Bai-Muajjal …………………………………………………………..17
3.6.3 Bai-Salam …………………………………………………………….17
3.6.4 Bai-Istisna …………………………………….………………………17
3.6.5 Bai-as-Sarf ……………………………………………………………18
3.6.6 Mudaraba …………………………………………………………….18
3.6.7 Musharaka ……………………………………………………………18
3.6.8 HPSM …………………………………………………………………18

1
Chapter 4: Methodology ………………………………………………………………20

4.1 Research Types …………………………………………………………………21

4.2 Data Types ………………………………………………………………………21
4.2.1 Primary sources of data ……………………………….……………...21
4.2.2 Secondary sources of data …………………………….……………...21
4.3 Data processing and analysis …………………………………….…………….22

Chapter 5: Analysis and Findings…………………………………..….……...........23

5.1 Theoretical differences between Islamic & Conventional banking …..……..24

5.1.1 Conceptual Differences ………………………………………………24
5.1.2 Principle-wise Differences …………………………….……………..24
5.2 Statistical Differences between AIBL & DBBL ……………………………...27
5.2.1 Return on Asset ……………………………………………………....27
5.2.2 Return on Equity (ROE) …………………………………………….29
5.2.3 Net Profit Margin …………………………………………………….31
5.2.4 Net Investment/Interest Margin …………………………………….33
5.2.5 Earnings per share (EPS) ……………………………………………35
5.3 SWOT Analysis…………………………………………………………………37
5.4 Findings …………………………………………………………………………38

Chapter 6: Recommendations and Conclusion …………………………………39

6.1 Recommendation ………………………………………………………………40

6.2 Conclusion ……………………………………………………………………...41

References
Appendix

2
 Chapter-01

Introduction

1.1 Background of the study

3
Bank is very old institution that is contributing toward the development of any economy and is
acted as an important service industry in the modern world. Economic history shows that
development has started everywhere with the banking system. Modern banks play an important
part in promoting economic development of a country.

Today's modern banks are not only providing traditional banking but also expanding the many
financial services. In today's world the life of the people directly or indirectly are within the
arena of banking whether conventional or Islamic banking. Although Islamic banking is not a
newer concept in Bangladesh as it has started its operation since 1983, very few people are aware
about its operation. But things are changing. Islamic banking is also getting popularity in the
country. The innovation of interest-free banking systems proved its worth in the country's money
market and many new banks have been established to operate in compliance with Shariah.
Islamic banking is to conduct banking business or activities according to the principles of
Islamic Shariah and no part of the business either in form and substance has any elements not
approved by Islamic Shariah. Islamic Banks are now not only focusing on the conventional
Shariah products but also investing in the SME's, Microfinance Agriculture sectors and Garment
sectors in Bangladesh.

Internship is given such importance because knowledge and learning only gets perfect when it is
associated with practice and experience. I believe with the help of this internship new doors of
opportunities are opened. The interns get to know professionalism, develop new contacts and
networking, which may aid them to find new job offers. Writing report on it is equally important
as it must be written after very keen observation of the workplace. Internship program is
essential for every student who studies in the Department of Business Administration, for this
reason a student takes the internship program at the last stage of the bachelor's degree, to launch
a career with some practical experience. Against this condition, I have completed my three
months internship in the Al-Arafah Islami Bank Ltd.

1.2 Statement of the Project Issue

4
For the economic development of a country bank plays a vital role, but traditional commercial
banking systems are interest based and in Islamic banking interest is prohibited. In this regard to
establish a banking system that run according to Shariah, the concept of Islamic banking arises.

Though the regular banking system and the Islamic banking system operate in different mode of
investment, there is confusion that both systems have merely any fundamental differences.
Accordingly, the profit of a commercial bank is the variance between the amount of interest that
has been paid to the depositors and the interest that has been charged to the borrowers.
Furthermore, other financial transactions are provided by commercial banks, including letters of
credit and guarantees. On the other hand, Islamic banks are traders, agent or partners in business
but not the lending institutions. It is a relationship of profit and loss sharing. This confusion
appears a question that how Al-Arafah Islami Bank Ltd. makes profit in comparison with other
traditional banks and sustain in the competitive market?

1.3 Objective of the study

1.3.1. Major objective

The main objective of the study is to understand the concept of profitability and make
comparisons between Al-Arafah Islami Bank Limited and Dutch Bangla Bank Limited.

1.3.2. Specific objective

The specific objectives of this study are as follows:

 To find out the differences between the conventional /traditional banking system &
Islamic banking system by comparing their profitability.
 To understand how an Islamic Bank runs its business without interest.
 To understand how an Islamic bank works as traders, agent or partners in business.

1.4 Scope and Limitations

5
Internship program is essential for every student, especially for the students of Business
Administration. It helps them to know the real life situation. I have completed my three months
internship in the Al-Arafah Islami Bank Ltd. It is a great opportunity for me to acquire
knowledge and experience in respect to practical orientation with Al-Arafah Islami Bank Ltd.

Despite the effort that has been engaged to derive a report as relevant as possible but there have
some problems to gather enough experience of such vast banking business. It is not easy task to
collect data and information about my requirement. So the study suffers from various limitations,
some of these are mentioned below:

 The time of three months is not sufficient to know all activities of the whole banking
system for preparing the report.

 The Bank is a busy place where having heavy rush of people, whom officers need to deal
with. So allocation of time for an internee is very much tough for the officers of the bank.

 Almost all the personnel were apparently too busy to assist us with their valuable support.

 Because of the limitation of information some assumption was made. So there may be
some personal mistakes in the report.

6
 Chapter-02

Literature Reviews

7
The difference between Islami bank and a conventional bank is that Islamic bank maintain a
Shariah rules which is known as Fiqh al-Muamalat, otherwise their purpose are same. The
principle source of Shariah rules is The Quran and hadith. Islamic banking is an Ethical Banking
System, and its practices are based on Islamic (Shariah) laws. Interest in completely prohibited
in Islamic banking. It is asset based financing, in which trades of elements prohibited by Islam
are not allowed. For example, you cannot take a loan for a Wine Shop. On the other
hand, Conventional Banking is an unethical banking system based on Man-Made Laws. It is
profit-oriented and its purpose is to make money through interest. Many previous studies and
researches have been made in order to examine the factors which have an impact on operation,
transaction and profitability of Islamic and conventional banks, and to compare their
performances.

(Islam, 2017) Islamic banking in Bangladesh is growing rapidly with partial practice of Shariah
amid the absence of a proper regulatory framework, posing threat to religious belief and profit
margin of the banks’ clients and investors. Islamic banking based on a frame within the Shariah
principles, has been initiated aiming to provide economically viable financial intermediation
alternatives to conventional banking. The intermediation between the ‘haves’ and ‘have-nots’
among customers across all segments is consistent with Shariah intending to eliminate interest by
developing a real sector, generating permissible (halal) activities, promoting profit and loss
sharing, establishing social equity, upholding values and maintaining purity of contract.

(Hanif, 2011) Islamic banking is growing at a rapid speed and has showed unprecedented growth
and expansion in last two decades in spite of mismatching of financing framework and business
practice. The perception of large majority of Muslims whether existing practice of Islamic
banking is sharia complaint or merely copy of conventional practices under the banner of sharia.
It is further found that Islamic banking is not merely copy of conventional banking rather major
differences are existed in the operations of Islamic banking according to Islamic sharia.

(Alamgir, 2017) “Islamic banking is profitable from all aspects,” said the research paper of the
Bangladesh Institute of Bank Management (BIBM). The study identifies the problem areas as
well as success factors in Islamic Banking Operations of Banks in Bangladesh. .The paper was

8
shared at a workshop on 'Islamic banking operations of banks' at the institute in Dhaka. The
research found that the net profit margin for conventional banks was 1.9 percent in 2016 against
3.6 percent for Islamic banking. Similarly, incomes against all assets were 5.5 percent for
general banking and 7.3 percent for Islamic banking. The default rate on loans is also low in
Islamic banking. The default rate on loans for general banking was 9.2 percent, but it was 4.3
percent for sharia-based banking.

(Čihák & Hesse, 2008) investigated the performance of financial analysis in order to evaluate
stability of Islamic and Conventional banks. Their study has chosen a sample of twenty countries
depending on Banks cope that contained Islamic and conventional banks. They have classified
the Islamic and commercial banks according to the size of assets to less or more than a billion
dollars. By using standard of stability ―Z-score‖, which measures the financial sustainability of
banks, the study highlighted that small Islamic banks are more stable than both small and large
commercial banks, and the large commercial banks are more stable than large Islamic banks.

(Zarrouk, Jedidia, & Moualhi, 2016) The findings reveal that profitability is positively affected
by banks’ cost-effectiveness, asset quality and level of capitalization. The results also indicate
that non-financing activities allow Islamic banks to earn higher profits. Islamic banks perform
better in environments where the gross domestic product and investment are high. There is
evidence of several elements of similarities between determinants of the profitability for Islamic
and conventional banks. The inflation rate, however, is negatively associated with Islamic bank
profitability.

(Hassan, 2017) finds that Bank profitability is measured by ROA, ROE and NIM, and therefore,
three models are proposed. The study uses panel data and fixed effect model or random effect
model are applied to estimate all three equations. Based on the study, when bank profitability is
measured by ROA, capital to risk assets is found out to be statistically significant and negatively
correlated to the profitability. In addition, liquidity, which is measured by investment to deposit
ratio in this study, appeared significant and shows positive relationship with bank profitability.
To operate efficiency is found to be negatively correlated to bank profitability in all the three
models and the study recommends controlling the operating cost as tightly as possible. A bank
may reduce its operating cost by embracing efficient technology.

9
(Chouikh & Blagui, 2017) stated that profitability is negatively correlated with board size. That
means the more number of officials are present in the board of directors, the lower is the bank
performance and vice versa. Instead of leading to wiser decision making, a larger board would
result in ineffective initiatives. On the other hand, bank size is positively correlated with bank
profitability. The higher the bank size, the better the bank performance. Finally, the exogenous
variable privatization is evidenced to be statistically significant and positively correlated to bank
performance. Therefore, State-owned banks should reconsider the option of being privatized.
They consider ROA, ROE and Price to Book value (P/B) ratio as the indicator of profitability.
The study applies panel-data model regressions to check relationship between endogenous and
exogenous variables. Other than board size, bank size and privatization, they also consider cost
of efficiency, capital to asset as bank specific variables and GDP growth rate and inflation as
macro-level variables, but no significant relationship is found between bank profitability and
these variables.

All these research may have different result due to differences in method, country, and research
period. Based on previous research most of the research shows that there are significance
difference found and Islamic Banks are more profitable than Conventional Bank. Islamic Bank's
principle might be different from Conventional Banks, Islamic Banks use risk-sharing and
prohibit riba while Conventional Banks uses profit-maximization. However, since both Islamic
and Conventional Banks work in same environment, it is likely possible to differentiate its
financial characteristics.

10
 Chapter-03

Organizational Profile

3.1 Background of the Organization

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 Qur'an and the Sunnah.

11
Naturally, it remains a deep cry in their hearts to fashion and design their economic lives in
accordance with the precepts of Islam. In August 1974, Bangladesh signed the Charter of Islamic
Development Bank and committed itself to reorganize its economic and financial system as per
Islamic Shariah.

In November 1982, Bangladesh Bank, the country's Central Bank, sent a representative to study
the working of several Islamic Banks abroad. In November 1982, a delegation of IDB visited
Bangladesh and showed keen interest to participate in establishing a joint venture Islamic Bank
in the private sector. They found a lot of work had already been done and Islamic banking was in
a ready form for immediate introduction. Two professional bodies Islamic Economics Research
Bureau (IERB) and Bangladesh Islamic Banker's Association (BIBA) mode significant
contributions towards introduction of Islamic Bank in the country, They came forward to provide
training on Islami Banking to top bankers and economists to fill up the vacuum of leadership for
the future Islamic banks in Bangladesh. They also help seminars, symposia and workshops on
Islamic economics and banking throughout the country to mobilize public opinion in favor of
Islamic banking.

Their professional activities were reinforced by a number of Muslim entrepreneurs working

under the aegis to the then Muslim Businessmen society (now reorganized as industrialist &
Businessmen Association). The body concentrated mainly in mobilizing equity capital for the
emerging Islamic Bank. 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 lead a Haram free living they
follow slamic rules in every way possible. This created a lack of Islami shariah banking here in
Bangladesh. At last, the long drawn struggle to establish an Islamic bank in Bangladesh becomes
a reality. Islamic Bank Bangladesh Limited was established in March 1983.The foundation of
Al-Arafah Islami 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 with 10 branches.

3.2 Mission

 Achieving the satisfaction of Almighty Allah both here & hereafter.

12
  Proliferation of Shariah Based Banking Practices.
 Quality financial services adopting the latest technology.
 Fast and efficient customer service.
 Maintaining high standard of business ethics.
 Balanced growth.
 Steady & competitive return on shareholders’ equity.
 Innovative banking at a competitive price.
 Attract and retain quality human resources.
 Extending competitive compensation packages to the employees.
 Firm commitment to the growth of national economy.
 Involving more in Micro and SME financing.

3.3 Vision

The vision of Al-Arafah Islami Bank Limited is to be a pioneer in Islami Banking in Bangladesh
and contribute significantly to the growth of the national economy.

3.4 Commitments

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

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

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

3.5 Corporate Structure of AIBL

13
 Chairman
Top Management Vice Chairman
Board of Directors
Managing Directors
Deputy Managing Directors

Senior Executive Vice President

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

Mid Level Management Senior Executive Officer

Executive Officer
Senior Principle Officer
Principle Officer

Junior Level Management Management Trainee Officer

Junior Officer
Assistant Officer
Trainee Assistant

3.6 Modes of Investment

14
Al-Arafah Bank Limited is a bank of modern times. It is by far responsible for satisfying
customers with quality financial services/products and to aid GDP growth of’ the country by
developing business & boost industrialization, raising export and import. This creating enormous
employment scope and help reduce unemployment, poverty thus raise standard of living of
people and develop an overall socio-economic structure of the country.

In achieving such noble objective investment department of the bank is of shares equal
responsibility and importance as a vital part of the total revenue of the bank is generated from it
along with maximum risk. The failure of a commercial bank is when the investment mechanism
fails assets. Therefore investment department not only features dominant position in the asset
structure, it is undoubtedly responsible for the success of the bank also, above all this investment
policy and control guidelines of the bank has been prepared which is subject to amendment,
revision, readjustment and refinement from time to time as may be warranted by the change of
circumstances due to passage of time to suite the requirement of the bank.

Investment 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.

15
 Modes of Investment

Bai (Trading) Share Ijarah/Leasing

Mechanism (Partnership) Mechanism
Mechanism

Bai- Murabaha Musharaka HPSM

Bai-Muajjal Mudaraba

Bai- Salam

Bai- Istisna

Bai-as-Sarf

3.6.1 Bai- Murabaha

16
The word Bai means purchase and sale and the word Ribhun means an agreed upon profit. Bai-
Murabaha" means sale on agreed upon profit.
Bai-Murabaha is a contract between a buyer and a seller at a mark-up profit under which the
client request the bank to buy some certain goods for him. The bank purchases the goods as per
the requirement of the client (Under Islamic Shariah).The client received the goods on payment
which includes mark-up profit as per the agreement. This is called Bai-Murabaha investment.

3.6.2 Bai-Muajjal
The word Bai’un means purchase and sale and the word Ajalun means a fixed time or a fixed
period. Bai-Muajjal means sale for which payment is made at a future fixed date or within a
fixed period. In short, it is a sale on Credit.
Bai-Muajjal is a contract between a buyer and a seller under which the seller sells a certain
specific goods to the buyer at a fixed price that is payable in future at a fixed date (Under Islamic
Shariah) or the buyer may pay at a fixed period with fixed installment. The seller may also sell
the goods purchased by him as per the order and specification of the buyer.

3.6.3 Bai-Salam
The term Bai-Salam has been derived from Arabic words (Bai’un and Salamun). The word
Bai’un means purchase and sale and the word Salamun means advance Bai-Salam means
advance purchase and sale.
Bai-Salam is a contract between a buyer and a seller in which advance cash payment is made for
goods to be delivered later on. Then seller agrees to supply specific goods to the buyer at a future
date in exchange of an advance price fully paid at a spot. It is to be noted that the transportation
and storage cost are mention in the contract.

3.6.4 Bai-Istisna
The word Istisna is derived from root word Sana which means to manufacture or to construct or
something. Istisna is a contract between a manufacturer and a buyer under which the
manufacturer sells the good after having constructed it (Under Islamic Shariah) but the payment
should be paid in advance with agreed amount or at a future specific date with specific
installment on the basis of the order.

3.6.5 Bai-as-Sarf
17
Bai-as-Sarf is a trading mechanism where the bank buy foreign currency from the client at an
agreed rate.Bank purchase the foreign currency value of the documents under Bai-as-Sarf:
Foreign Documentary Bill (FDB).

3.6.6 Mudaraba
Mudaraba is an agreement between two parties in which one party provide capital and another
party provides entrepreneurial skills to conduct business. The one who is providing capital is
known as Shahib al-maal and the one who is provide skills are known as Mudarib.

Mudaraba is a contract where the investor Shahib al-maal invests money and the Mudarib uses
this money to conduct business .The profit is share between them as per the agreement. But the
losses only bear by the investor. If there any misconduct of doing business or violation of
agreement then the Mudarib will bear the loss. In this agreement the investor will have no such
power to enter fare the business activity. Mudaraba contacts are limited to a specific time period.

3.6.7 Musharaka
Musharaka is a contract of partnership between two or more individuals or bodies. Musharaka
means partnership where both parties provide the capital to conduct the business. Both parties
have the right to act as a management of the business but in generally bank gives that power to
the client to conduct the business. The profit and loss are shared by both parties in this
agreement.

3.6.7 Hire Purchase under Shirkatul Melk (HPSM)

Hire Purchase under Shirkatul Milk (HPSM) is a combination of three contracts they are Shirkat
Ijarah & Sale.

 Shirkat: Shirkat means partnership. Shirkatul Melk means share in ownership. In this
contract two or more parties supply capital to buy an asset, where both parties own the
same. And both the parties share profit-loss as per agreement this can defined as
Shirkatul Melk contract.

18
 Ijarah: Ijarah is an agreement between two parties that permits one party (the lessee) to
use an asset or property owned by another party (the lessor) for an agreed-upon price
over a fixed period of time.

 Sale: Sale is a contract between a buyer and a seller through which the ownership of
certain goods or asset is transferred by the seller to the buyer against agreed upon price
paid or to be paid by the buyer.

19
Chapter- 04

Methodology

20
4.1 Research Types
This report is focused on descriptive type of research design. I basically emphasize on the
financial and statistical observation. Almost the entire report has been conducted based on my
practical observation and depth observation regarding financial activities.
The study evaluates the bank performance of Islamic and conventional banks in terms of
profitability. Banks performance is measured on set critical factors that are thought to be specific
to performance of any bank. The required ratios are calculated and necessary arithmetical and
statistical working workings are done to see the performance year wise.

4.2 Data Types

In order to make the report more meaningful and presentable two sources of data and
information have been used widely. Both primary and secondary sources were used to collect
data. For preparing this report, I also collected the information from both primary and secondary
sources.

4.2.1 Primary sources of data

 Face to face conversation with the bank employees and staffs

 Informal conversation with consumers
 Practical work exposures with the different desks of the departments of the branch.

4.2.2 Secondary sources of data

 Annual report of Al Arafah Islami Bank Limited.

 Annual report of Dutch Bangla Bank Limited.
 Different Websites
 Different Journals
 Different Reports
 Bangladesh Economic Review
 Training Sheets which are provided by Al-Arafah Islami Bank Training and Research
Academy.

21
4.3 Data processing and analysis
As it is a comparative study of two banking systems these are Al Arafah Islami Bank Limited
and Dutch Bangla Bank Limited. Analysis is done through the comparison of different modes of
Profitability.

The study considers five measures of profitability as dependent variables which are Return of
Assets (ROA) as ratio of net income to average assets, Return on Equity (ROE) as ratio of net
income to average equity, Net Interest Margin (NIM), Net Profit Margin ratio and Earnings per
Share (EPS) ratio. To find out the ratios I basically used some tools like MS Word, MS Excel
etc.

22
 Chapter 05

Analysis and Findings

5.1 Theoretical differences between Islamic & Conventional banking

23
5.1.1 Conceptual Differences

The financial transactions of commercial banks are based on interest and the concept of the
relationship between the debtor and the lender. Accordingly, the profit of a commercial bank is
the variance between the amount of interest that has been paid to the depositors and the interest
that has been charged to the borrowers. Furthermore, other financial transactions are provided by
commercial banks, including letters of credit and guarantees, and they also produce different
kinds of derivatives. It aims at maximizing profit without any restriction.

On the other hand, it also aims at maximizing profit but subject to Shariah restrictions. The
Islamic banking system works according to the concept of the partnership that emerges between
the banks and the depositors. It is a relationship of profit and loss sharing (PLS) which allows
both parties to go forward in owning physical goods and undergoing trading processes. The
depositors in the Islamic banking system are recognized as entrepreneurs. Therefore, Mudarabah,
Musharaka, Murabaha, Ijarah, Bai Muajal, Istisna, Bai-Salam and prepaid purchase are
considered the best substitutes for the Islamic banks to avoid interest, which is clearly forbidden
in Islam.

5.1.2 Principle-wise Differences

Islamic Banking

The functions and operating modes of Islamic banks are based on the principles of Islamic
Shariah. These are

 Profit and Loss sharing: It is one of the best principles of Islamic finance where the
partners will share their profit and loss according to the part they played in the business.
There will be no guarantee on the rate of the returns that the Muslims will play the part of
a partner and not a creditor.

 Prohibition of Riba: It can be regarded as the prohibition of interest. The wealth will get
the return without any risk or effort. In principles of Islamic banking, taking advantages
of the issues that other are facing is unjust.

 Shared Risk: In the economic transactions, the risk sharing is promoted by the Islamic
banking. When two or more parties will share the risk following the principles of Islamic

24
 banking the burden of the risk will be divided and reduced in the parties. So it will
improve the economic activity of the state.

 Prohibition of Gharar: It can be regarded as the prohibition of uncertainty. According

to the Islamic finance principles, Muslims are not allowed to participate in the ambiguous
and uncertain transactions. According to Islamic rules, both parties should have a proper
control over the business. As well as the complete information should be shared with
both parties so that the profit and loss will be equally shared.

 Prohibition of Gambling: In Islam, the acquisition of wealth through evil means or the
exclusion of financing and dealing in sinful activity or participation in gambling is
prohibited. It will protect the Muslims from the conventional insurance products.

 No Investment on Prohibited Industries: The industries that are harmful to society or

have a threat to the social responsibilities are prohibited in Islam. They are alcohol,
pornography, prostitution, pork, drug etc.

 Zakat: There is a property tax included in the rules of Islam that it known as Zakat,
which allows the balanced distribution of wealth. According to the Islamic banking
principles the fair amount of Zakat is deducted from the accounts of Muslim in the holy
month of Ramadan. Islamic banks promote this social responsibility and distribute the
amount among the needy.

Commercial or traditional Banking

The functions and operating modes of conventional banks are based on fully manmade
principles.

 Principle of liquidity: The principle of liquidity is very important for the commercial
bank. Liquidity refers to the ability of an asset to convert into cash without loss
within a short time. Paying the deposited money on demand of customers is called
liquidity in sense of banking.

 Principle of Solvency: Solvency means the financial capability or sufficiency in the

capital. To stay in these competitive market commercial banks must have sufficient
capital. If the funds are not sufficient the bank cannot run his business. The main
25
 source of fund of the commercial bank is the deposited money by the depositors’
through the different type of account.

 Principle of Profitability: The main objective of the commercial bank is to earn a

profit. For earning profit commercial bank have to make the investment by providing
short-term loan, before providing loan commercial bank have to compensate a certain
amount of money as liquidity.

 Principle of Loan and investment: The main source of profit of bank is granting
loans to any individual or organization. Investment is the profitable and sound source
of income. Commercial banks invest in business and investment sector.

 Principle of Savings: Commercial banks collect fund by creating savings facilities.

Commercial banks try to collect savings from society surplus. The commercial bank
makes the investment from this savings to generate profit. So, more savings, more
investment, and more profit.

 Principle of Services: Commercial bank ensures best services to their customers.

The success of a bank depends on the services provided by the bank. Customer
chooses those banks that provide improved services.

 Principle of Secrecy: Customers want to keep secret about their valuable assets and
money. So banks must have to keep secret about their customer’s account. If a
commercial bank does not maintain secrecy the customer will be dissatisfied.

 Principle of Efficiency: In this competitive market, there is no alternative way

without efficiency in management. So commercial bank must train their employees to
increase the efficiency in management.

5.2 Statistical Differences between AIBL & DBBL

5.2.1 Return on Asset:

26
Return on assets is a profitability ratio that provides how much profit a company is able to
generate from its assets. ROA is shown as a percentage, and the higher the number, the more
efficient a company's management is at managing its balance sheet to generate profits. 

Return on Asset % = Net Profit / Total Assets

Years/ banks Al Arafah Islami Bank Limited (AIBL) Dutch Bangla Bank limited (DBBL)

2013 1.31 1.08

2014 1.10 1.03

2015 1.08 1.24

2016 1.23 1.05

2017 0.99 0.79

MEAN 1.14 1.04

This table shows bank wise mean and year wise return on assets of AIBL and DBBL
respectively where AIBL has the greatest mean (1.14) than DBBL (1.04) in last five years when
compared with each other. As comparison of ROA performance between two banks, AIBL has
better ROA than DBBL in most of years.

27
 Return on Assets

1.40%

1.20%

1.00%

0.80%
AIBL
DBBL
0.60%

0.40%

0.20%

0.00%
2013 2014 2015 2016 2017

As AIBL and DBBL are the parts of banking industry so their most of assets come from debt
which is the reason for their inconsistency in ROA performance.
The column chart represents ROA between two banks AIBL and DBBL According to AIBL the
return on assets fluctuate overtime in the year of 2013 to 2017 whereas the return on assets of
DBBL remaining almost same in 2013 and 2014 but in 2015 it increased significantly but the
following two years it decreased gradually.

5.2.2 Return on Equity (ROE)

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Return on equity (ROE) is a measure of profitability that calculates how many profit a company
generates with each shareholders' equity. Return on equity reveals how much after-tax profit a
company earned in comparison to the total amount of shareholder equity found on the balance
sheet.

Return on Equity % = Net Profit / Total shareholders’ equity

Years/ banks Al Arafah Islami Bank Limited (AIBL) Dutch Bangla Bank limited (DBBL)

2013 14.15 15.83

2014 12.80 15.19

2015 12.82 18.03

2016 15.69 15.70

2017 14.07 12.60

MEAN 13.90 15.47

This table shows bank wise mean and year wise return on equity of AIBL and DBBL
respectively where DBBL has the greatest mean (15.47) than AIBL (13.90) when compared with
each other. As comparison of ROE performance between two banks, DBBL has better ROE than
AIBL in last five years.

29
 Return on Equity

20.00%
18.00%
16.00%
14.00%
12.00%
AIBL
10.00%
DBBL
8.00%
6.00%
4.00%
2.00%
0.00%
2013 2014 2015 2016 2017

The column chart represents ROE between two banks AIBL and DBBL. According to AIBL the
return on equity fluctuate overtime in the year of 2013 to 2017 whereas the return on equity of
DBBL increased in 2015 significantly but the following two years it decreased gradually. DBBL
had better ROE rate than AIBL in the year of 2013 to 2015. In 2016 the return on equity of two
banks are almost same and in 2017 AIBL has better return on equity than DBBL.

30
5.2.3 Net Profit Margin

Net profit margin is the percentage of revenue remaining after all operating expenses, interest,
taxes and preferred stock dividends have been deducted from a company's total revenue. The net
profit margin ratio is a profitability ratio  that measures what percentage of each dollar earned by
business ends up as profit at the end of the year.

Net Profit Margin % = Net Profit / Total revenue

Years/ Al Arafah Islami Bank Limited (AIBL) Dutch Bangla Bank limited (DBBL)
banks
2013 12.67 9.97

2014 11.78 10.63

2015 13.28 13.82

2016 17.78 13.01

2017 15.46 10.42

MEAN 14.19 11.57

This table shows bank wise mean and year wise Net Profit Margin of AIBL and DBBL
respectively where AIBL has the greatest mean (14.19) than DBBL (11.57) when compared with
each other. As comparison of Net Profit Margin ratio between two banks, AIBL has better Net
Profit Margin than DBBL in last five years.

31
 Net Profit Margin

20.00%
18.00%
16.00%
14.00%
12.00%
10.00% AIBL
DBBL
8.00%
6.00%
4.00%
2.00%
0.00%
2013 2014 2015 2016 2017

The column chart represents Net Profit Margin between two banks AIBL and DBBL. According
to AIBL the Net Profit Margin fluctuates overtime in the year 2013 to 2017 whereas the Net
Profit Margin of DBBL increased in 2015 significantly but the following two years it decreased
gradually. AIBL has better Net Profit Margin than DBBL in the year 2013 to 2017 except only in
2015 DBBL had better Net Profit Margin than AIBL.

5.2.4 Net Investment/Interest Margin:

32
Net Interest Margin (NIM) is a profitability ratio that measures how well a company is making
investment decisions by comparing the income, expenses, and debt of these investments. In
other words, this ratio calculates how much money an investment firm or bank is making on its
investing operations. This is similar to the gross margin of a regular company.

Net Interest Margin% = Net interest income/ Total Assets

Years/ Al Arafah Islami Bank Limited (AIBL) Dutch Bangla Bank limited (DBBL)
banks
2013 3.38 3.95

2014 3.37 3.88

2015 3.27 4.01

2016 2.87 3.76

2017 2.73 3.68

MEAN 3.13 3.86

This table shows bank wise mean and year wise Net Investment/ Interest Margin of AIBL and
DBBL respectively where DBBL has the greatest mean (3.13) than AIBL (3.86) when compared
with each other. As comparison of Net Investment/ Interest Margin ratio between two banks,
DBBL has better Net Investment/ Interest Margin than AIBL in last five years.

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 Net Investment/Interst Margin

4.50%
4.00%
3.50%
3.00%
2.50% AIBL
2.00% DBBL
1.50%
1.00%
0.50%
0.00%
2013 2014 2015 2016 2017

The column chart represents Net Investment/Interest Margin between two banks AIBL and
DBBL According to AIBL the Net Investment/Interest Margin is decreased gradually in the year
2013 to 2017 whereas the Net Investment/Interest Margin of DBBL is remaining almost same in
the year 2013 to 2017.

5.2.5 Earnings per share (EPS)

34
Earnings per share (EPS) is the portion of a company's profit allocated to each share of common
stock. Earnings per share serves as an indicator of a company's profitability. Earning per share is
the same as any profitability or market prospect ratio. Higher earning per share is always better
than a lower ratio because this means the company is more profitable and the company has more
profits to distribute to its shareholders.

Earnings per share = (Net Income – Preferred Dividends)/

Weighted Average Shares Outstanding

Years/ banks Al Arafah Islami Bank Limited (AIBL) Dutch Bangla Bank limited (DBBL)

2013 2.16 10

2014 2.2 11

2015 2.25 15.1

2016 3.07 8.88

2017 3.15 12.28

MEAN 2.56 11.45

This table shows bank wise mean and year wise Earnings per share of AIBL and DBBL
respectively where DBBL has the greatest mean (11.45) than AIBL (2.56) when compared with
each other. As comparison of Earnings per share ratio between two banks, DBBL has better
Earnings per share than AIBL in last five years.

35
 Earning Per Share

16
14
12
10
8 AIBL
DBBL
6
4
2
0
2013 2014 2015 2016 2017

The column chart represents Earnings per share between two banks AIBL and DBBL. Earning
per share of AIBL is increased gradually in the year 2013 to 2017 whereas the Earnings per share
of DBBL increased in 2015 significantly but the following two years it fluctuates overtime.

5.3 SWOT Analysis

36
SWOT is an acronym of Strength, Weakness, Opportunity and Threat. After analyzing the
profitability performance of two banks I analyzed the SWOT regarding my topic.

5.3.1 Strength
 AIBL already achieved goodwill among the clients so that it has better ROA and Net
Profit Margin than DBBL.
 As an Islamic bank, everyone has faith on AIBL because it’s performing according to
shariah rules.

5.3.2 Weakness
 AIBL’s ROE and NIM are quite low as compared to DBBL.
 Lack of large branch network in rural area that’s affect on profitability ratios.

5.3.3 Opportunity
 Need to improve its market return for their sustainability.
 As an Islamic nation, demand for Islamic bank is increasing day by day. If AIBL grabs
their market well and provides well service they can improve their profitability.

5.3.4 Threat
 Conventional banks are also opening Islamic banking branches as they know huge
amount of Muslim community live in our country.
 AIBL binds with some strong Shariah rules so that they cannot take any decision from
outside the Shariah rule to increase their profitability.

5.4 Findings

37
AIBL is one of the most popular Ismail bank in Bangladesh, who focused on modern Islamic
banking system. AIBL always want make sure about its position in the industry by mobilizing its
deposit and making quality investment. I got some findings about my related topic:-

 Islamic banks perform better in environments where the gross domestic product and
investment are high.

 To increased profitability and stability, Islamic banks need to increase its liquidity ratio.

 AIBL has larger assets size and with efficient management lead to greater return on
assets.

 AIBL investment policy is not effective in the entire sector and AIBL doesn’t implement
its investment policy while investing in different sectors.

 AIBL lacks investment of all the 8 divisions of Bangladesh and among the divisions
AIBL only preferred Dhaka for investment which is 78% of their total investment. While
other banks spread their investment in all over Bangladesh.

38
 Chapter -06
Recommendation and
Conclusion

39
6.1 Recommendation

Working in AIBL was an absolute pleasure for me; from there I have learned so many important
lessons about the corporate culture. However while working in AIBL I have come across some
of the issues that I thought need to improve. I have included those in this recommendation
section in list form so that the findings have some solutions.

 As an Islamic bank, clients are interested to know about the price and quality of bank
services as well as any new service that AIBL will be offered.

 Islamic Bank should take its strength by increasing investments which are coming from
trading business.

 Need to adapt a more universal banking model because customer wants diversified
products. AIBL should follow current trend in order to be successful in the banking
industry. The authority of AIBL should introduce more innovative and modem customer
service to remain competitive like mobile app for payment

 Improvement in cost efficiency to achieve higher profits and increasing the chance of
survival in deregulated and competitive markets.

 Offers straightforward strategies for implementing non-financing activities to improve

Islamic bank profitability.

 Islamic Bank should go with aggressive and promotional activities so that clients will get
attract to take the service of the bank and increase its profitability.

40
6.2 Conclusion

Bangladesh is one of several least affected countries from the recent global financial crisis. One
of the reasons could be the development of Islamic banking system in Bangladesh. Banking
industry in Bangladesh is highly competitive; everybody wants to increase their market share by
providing various services to the customers. As a result banks need to develop an effective
business strategy as well as policy in order to make their position higher in the industry. AIBL is
not different from that. The management of AIBL always tries to maintain a steady growth by
delivering their banking services across the country.

This report analyzes on the profitability comparison between Islamic bank and conventional
bank. So in this report Al Arafah Islami Bank represents as Islamic Bank and Dutch BanglaBank
Limited represents as conventional bank. As I completed my internship from Al Arafah Islami
Bank so I prefer to work on Al Arafah Islami Bank and collect more information of AIBL to
complete this report. And I got all the information of Dutch BanglaBank Limited from via
internet and their Annual reports. AIBL has great profitability somewhere when it is compared
with DBBL. It has better ROA and Net Profit Margin than DBBL according to last five years
data. Beside these AIBL needs to improve their profitability more to sustain in the competitive
market.

To conclude I would like to say that Al-Arafah Islami Bank Ltd is one of the most potential
Islami banks in the Islami banking sector. It has a large portfolio with huge assets to meet up its
liabilities and the management of this bank is equipped with the expert bankers and managers in
all level of management. The Bank’s drive towards market leadership as well as quality in
choosing business will continue in the coming years, although competition is intensified with the
opening of more financial institutions with islami sariah. So in order to be successful bank
management should take care of their problem as well as it should make attractive investment
scheme for the customers.

41
References

 Noman, A. H. (2015). An Empirical Investigation of Profitability of Islamic Banks in.

Global Journal of Management and Business Research: FINANCE , 11-20.
 Chouikh, A., & Blagui, y. (2017). The Determinants of Bank Performance: The Case of
Tunisian Listed Banks. Journal of Finance and Accounting , 53-60.
 Hanif, M. (2011). Islamic Banking: Theory and Practice. Islamabad: CreateSpace
Independent Publishing Platform
 Čihák, M., & Hesse, H. (2008). Islamic Banks and Financial Stability: An Empirical
Analysis. IMF.
 Hassan, S. M. (2017). The Determinants of Bank Profitability:. BRAC University.
 Hesse, M. Č. (2008). Islamic Banks and Financial Stability: An Empirical Analysis. IMF.
 Islam, S. (2017). The ‘flexible’ Shariah practice of Islamic banking in Bangladesh.
Dhaka Tribune.
 Sajib, K. (2017). Investment Methods of Al-Arafah Islami Bank Limited. Dhaka.
 Alamgir, M. (2017). Islamic banking growing rapidly. Dhaka: The Daily Star.
 Zarrouk, H., Jedidia, K. B., & Moualhi, M. (2016). Is Islamic bank profitability driven by
same forces as conventional banks? International Journal of Islamic and Middle Eastern
Finance and Management , 46-66.
 Shovon, T. A. (2015). Comparative analysis of Conventional and Islamic Banks of
Bangladesh. Dhaka.
 Annual Reports of AIBL. (2018, November). Retrieved from Al-Arafah Islami Bank
Limited: https://al-arafahbank.com/Annual-Reports.php
 Annual Reports of DBBL. (2018, November). Retrieved from Dutch Bangla Bank
Limited: https://www.dutchbanglabank.com/investor-relations/financial-statements.

 Profitability Ratios Formula. (2018, December). Retrieved from my Accounting Course:

https://www.myaccountingcourse.com/financial-ratios/profitability-ratios

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Acronyms

AIBL= Al-Arafah Islami Bank Limited

DBBL = Dutch Bangla Bank Limited
BIBM = Bangladesh Institute of Bank Management
ROA= Return on Asset
ROE= Return on Equity
NIM= Net Interest/Investment Margin
EPS= Earnings per Share
GDP= Gross Domestic Product
IDB= Islamic Development Bank 
IERB= Islamic Economics Research Bureau
BIBA= Bangladesh Islamic Banker's Association
SME= Small to Medium Enterprise
FDB= Foreign Documentary Bill
HPSM= Hire Purchase under Shirkatul Milk
PLS= Profit and Loss Sharing

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