Chapter 1: Introduction

1.0 Prelude
Financial institutions have a very wide range of activities in the economy of a country. Banks are the
most important ones in the financial sector as they play a very crucial role in the economy. The
banking business mainly maintains the flow of funds from depositors to investors. In doing so, the bank
needs to collect a deposit from the depositors and then distribute those as loans to the investors.
Besides, the bank assists in international trade, money transfer, collection and payment of utility and
other bills, etc.

Al-Arafah Islami Bank Limited (AIBL) is one of the leading Islamic banks in our country that strive
for customer’s best satisfaction and earn confidence. To manage and operate the bank in the most
effective manner and to identify customer needs and monitor their perception towards meeting those
requirements the bank review and updates policies, procedures and practices to enhance the ability to
extend better services to the customers. All activities of the bank are conducted according to Islamic
Shariah where profit is the legal alternative to interest. The bank’s investment policy follows different
modes approved by Islamic Shariah based on the Qur’an & Sunnah. The bank is committed to
establishing an economic system resulting in social justice and equitable distribution of wealth. It is
committed to bringing about changes in the underdeveloped rural areas for ensuring balanced socio-
economic development of the country through microcredit programs and financing of small & medium
enterprises (SME) as well. For the sustainability of the bank, investment management and investment
performance of the bank is crucial. If the performance is good, it is also important to know whether the
performance is sustainable or not. All these factors have driven me to make an investigation of the
investment performance of AIBL (Muradpur branch).

1.1 Conceptual framework

Islamic banking is one of the fastest-growing segments of the banking industry not only in Muslim
countries along with Islamic banks but also in the West. At present, senior managers of Islamic
Shariah-based banks believe they must compete on commercial grounds by offering a more cost-
effective financial package to non-Muslim as well as Muslim customers. The main factor stimulating
this dramatic growth is the spread of the Islamic religion globally. Islam is the fastest-growing religion
of the world and Muslims are increasingly looking for financial instruments and services that adhere to

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their principles. According to Brook (1999), Some non- Muslims believe the Islamic banking system to
be commercially sound as they are also participating in Islamic banking.

Islamic banks are supposed to offer products and instruments that are consistent with Islamic Shariah
and the cultural characteristics of Muslim societies. Financial instruments should emphasize profit-loss
sharing (equity). Interest is prohibited, which seems to exclude debt contracts. Shaik & Ali (2009) have
revealed that interest-free banking is making it compulsory for Islamic banks to take an active part in
business profit and loss sharing. Thus, Islamic banks opt to take less risk.

Islamic financial instruments take the form of contracts between providers and users of funds to
manage risk. On the asset side, Islamic banks engage in investment and trading activities according to
the various contracts available. On the deposit side, funds are mainly mobilized based on a ‘Mudaraba’
contract. Islamic banking, from a theoretical perspective, is based on the principle of profit and loss
sharing (PLS-mode) in place of interest-based deposit and lending found in conventional banks. But
this has given rise to two conflicting juristic views in contemporary Islamic banking. Progressive
Islamic intellectuals argue that there is no need to reinvent products offered by conventional banks in
the globally competitive banking industry. Instead, Islamic Shariah-based banks should embrace the
minimal necessary modifications to these conventional products to ensure Shariah compliance. Belal et
al. (2014) described the situation of the tendency to emphasize form over substance as symptomatic of
‘big businesses’ driven by profit-making maximum. Mahmoud (2006) an Egyptian scholar have found
that those

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intellectuals who oppose conventional financial practice sense that the Islamic banking system needs to
renovate pre-modern contracts by rigorously embedding Shariah and social responsibility into the
bank's business practices.

Islamic banks widely use Islamic mark-up contracts such as Murabaha, Ijara, and Istisna, but there is
doubt about their acceptance under Islamic law because they can imply a fixed return on investment for
the financing financial institutions. According to Siddiqi and Khan (1987), many Islamic scholars
believe that mark-up contracts, while permissible, still should be avoided out of fear that these mark-up
contracts may open a ‘back door’ to interest. Researchers like Aggarwal and Yousef (2000) also argue
that there is a formal equivalence between mark-up contracts and debt, but the equivalence isn’t based
on the payment of interest.

The current literature shows that knowing the investment performance of a bank is very important for
the bank itself and many other stakeholders for making the right decision. Ratio analysis is supposed to
be an effective method for investment performance analysis.

1.2 Objectives of the report

The main objective of the report is to evaluate the investment management performance of Al Arafah
Islami Bank Limited, Muradpur Branch, Chittagong . To accomplish the main objectives, the following
additional objectives have been covered-
a) To give an overview of Al Arafah Islami Bank Limited.
b) To analyze investment policy and authority involved in investment management of AIBL.
c) To analyze investment procedures and appraisal of AIBL.
d) To examine the investment performance of AIBL (Muradpur Branch).
e) To identify constraints of the investment management performance of AIBL.
f) To provide some prudent policy measures for improving the performance of AIBL.

1.3 Scope of the report

This report has covered analysis of investment management performance of Al Arafah Islami Bank Limited,
Muradpur Branch, Chittagong, for 5 years from (2015-2019).

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1.4 Research design: Method, Techniques, and Methodology
To meet the objectives of the study I’ve applied various qualitative & quantitative techniques like
statistical tools & software and other relevant methods. Formal and oral discussion, direct
observation, questioning clients, and printed papers of the bank were found useful.
1.4.1 Population and samples
In Bangladesh, there are 61 commercial banks. Here all commercial banks are the population of the
study. The total branches of AIBL in Bangladesh are 78. I collected information regarding retail
investment practice in my internship period to justify the current position of the bank. It’s not possible
to collect information from all branches. So I collected the desire information from sample branches.
Here, the Muradpur branch of AIBL in Chittagong is a sample of the study.

1.4.2 Data collection

To meet the objectives of the study I’ve applied various qualitative & quantitative techniques like
statistical tools & software and other relevant methods. Formal and oral discussion, direct
observation, questioning clients, and printed papers of the bank were found useful.

1.4.2.1 Collection of primary data

The primary data have been collected from the practical data work, face-to-face conversation with
officers and staff, face-to-face conversational with clients, direct observation.

1.4.2.2 Collection of secondary data

Most of the data used in the study have come from secondary sources. Such as procedure manual
published by the AIBL, annual report of the AIBL, different relevant reports, journals, newspaper,
books, Office circular and other published papers, Website of the AIBL.
1.4.3 Data analysis: techniques used for data analysis

The data so collected analyzed through the application of statistical techniques and procedures. Several
graphs (such as bar diagrams, lines and charts) figures, and tables are being used in process of analysis.
The numerical data are being represented graphically whenever required to make the interpretation
easier.

1.5 Limitations of the report

The study was thorough & systematic but some problems can be the limiting factors of the significance
of the study:

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  Within such a short period, I couldn't study everything about AIBL, Muradpur branch.

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  The officers are so much busy that they cannot properly co-operate with me,
which is a problem.
 Bank’s policy of not disclosing some data and information for obvious
reasons, which could be very much useful.
 Sometimes the officials were reluctant to give proper information regarding
their activities because they felt hesitation and ambiguity to give data and
information.
 Lack of personal knowledge and experience.

 Lack of a useful website of the bank.

1.6 Organization of the report

The remaining part of this report has been divided into three chapters. They are as
follows: Chapter 2 offers an overview of Al Arafah Islami Bank Limited
Chapter 3 offers the findings and their analysis

Chapter 4 covers ???????????????

Chapter 2: Overview of Al Arafah Islami Bank Limited

2.0 Introduction of AIIBL

To achieve success here & hereafter by pursuing the way directed by Allah & the path shown by
His Rasul (SM), AIBL was established (Registered) as a private Ltd company in June 1995. The
inaugural ceremony took place on 27 September 1995. The authorized capital of the bank is BDT
15000.00 Million & the paid-up capital is BDT 10649.02 Million. Renowned Islamic scholars &
pious businessmen of the country are the sponsors of the bank. 100% of paid-up capital is being
owned by indigenous shareholders. It has achieved a continuous profit and declared a good
dividend over the years. High-quality customer service through the integration of modern
technology and new products is the tool of the bank to achieve success. The bank has a diverse
array of carefully tailored products and services to satisfy customer needs.

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The bank conducts its business on the principles of Mudaraba, Bai-muajjal, and hire purchase
transactions approved by Bangladesh bank. Naturally, its modes and operations are substantially
different from those of another conventional commercial bank. There is a shariah council in the
banks that maintains constant vigilance to ensure that activities of the bank are being conducted
on the precepts of Islam. The shariah council consists of prominent ulema, reputed bankers,
renowned lawyers and eminent economist.

To make the holy intention of the bank successful a group of 13 specialized & profound Islamic
persons Of Bangladesh is elected as the member of the Board of Directors of the Bank. To carry
out its activities flawlessly AIBL as of June 2020 has 180 branches & and a total of 3682
employees all over the country. (AlBL, 2020)

2.1 Vision, mission, objectives, and goals of AIBL

2.1.1 Vision of AIBL
To be a pioneer in Islami Banking in Bangladesh and contribute significantly to the growth of the
national economy.

2.1.2 Missions of AIBL

 Achieving the satisfaction of Almighty Allah both here and hereafter.
 The proliferation of Shariah-based banking practices
 Quality financial services adopting the latest technology
 Fast and efficient customer service
 Maintaining a high standard of business ethics
 Balance growth
 Steady and competitive return on shareholders’ equity
 Innovative banking at a competitive price
 Attract and retain quality human resources
 Extending competitive compensation packages to the employees
 A firm commitment to the growth of the national economy
 Involving more in Micro and SME financing.

2.1.3 Objectives of AIBL

To establish a banking system devoid of interest and based on Islamic Shariah. To offer banking
facilities to those people who are staying outside of the banking habit. To provide commercial
and investment banking services to big business clients.

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2.1.4 Goals 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 itself 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 mechanisms
to retain the leading position.
 Deliver financial service to small-scale businesses and continue the cycle of
economic development.
 Adaptable to the changes in clients' demand.

2.2 Characteristics/ Features of AIIBL

As Islami banking, we are singular in every positive aspect. We provide a bunch of state-of-art
banking services within the wide bracket of Shariah. Some of the special features that make us
notable in Islamicislami banking sector are as follows

I. All activities of AIBL are conducted under a profit/loss-based system according to

Islamic Shariah to get the nation rid of Usury.
II. Its investment policies under different modes are fully shariah-compliant and well
monitored by the board of Shariah council.
III. During the year 2007, 70% of the investment income has been distributed among the
Mudaraba depositors.
IV. In 2008 AIBL has included online banking in its wide range of services. Bangladeshi
software has been introduced in this feature to promote the local developers.
V. AIBL regularly arranges its AGMs (Annual General Meeting). Whenever needed
EGMs (Extraordinary General Meeting) are also arranged.
VI. We regularly pay a dividend to our valued shareholders.
VII. We believe in providing dedicated services to the clients imbued with the Islamic
spirit of brotherhood, peace and fraternity.
VIII. The bank upholds the Islamic values of loss-based a justified economic system
through social emancipation and equitable distribution of wealth.

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 IX. The bank believes in social and philanthropic activities and has established AIBL
English medium madrasah and AIBL library

Table 3.1-AIBL at a glance

Bank Name Al-Arafah Islami Bank Limited

Registration 18th June, 1995

1st Branch Motijheel Branch, Dhaka

Opening ceremony 27 September , 1995

Authorized Capital 15000 Million

Paid up Capital 10649.02 Million

Local Partnership of Capital 100%

Investment 261,874.13 Million

No of Branches 180

No. of Employees 3682

Source-Annual report of AIBL 2019

2.3 Organogram: Authority and responsibility

The organizational Hierarchy of AIBL

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 Chairman

Vice-Chairman

Director

Managing Director (MD)

Deputy Managing Director (DMD)

Senior Executive Vice President (SEVP)

Senior Vice President (SVP)

Vice President (VP)

Senior Assistant Vice President (SAVP)

First Assistant Vice President (FAVP)

Senior Principle Officer (SPO)

Principle Officer (PO)

Senior Officer (SO)

Officer

Probationary Officer

Assistant Officer

Trainee Officer

Computer Operator and Sub-staff.

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 Figure: Management Hierarchy of Muradpur Branch of Al-Arafah Islami Bank
Responsibilities

 Board of Directors:

A fourteen-member Board of Directors is responsible for the strategic planning and overall
policy guidelines of the bank. Among them, 11 represent as the sponsors and general public, 1
senior official as Company Secretary and another one as the Shareholder Director.

Executive Committee

There is an Executive Committee of the board to dispose of urgent business proposals. The
executive committee is assembled by nine members.

Audit Committee

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Besides, there is a three-member Audit Committee on the board to oversee compliance with
major regulatory and operational issues.

Managing Director

The managing director is responsible for the performance of the bank as dictated by the board’s
overall strategy and he reports to the chair or board of directors.

Deputy Managing Director

Deputy managing director provides supports to the managing director and is empowered by the
managing director to manage the day-to-day overall operational activities.

Senior Executive Vice President

Senior executive vice president executes decisions and responsible for the professional
development of lower-level executives, ensuring a high-performance level within a bank.

Senior Vice President

Senior vice president communicates bank’s strategy to board of directors and responsible for
helping the bank to achieve financial goals and objectives, preparing budgets, etc.

Vice Presidents

Vice Presidents are responsible for generating profits for the bank which requires increases in
deposits and loans. Senior Assistant Vice President and First Assistant Vice President helps the
vice president of a bank to meet these requirements.

Shariah Council

There are another eight members of the Shariah Council to accelerate, monitor, control,
supervise and maintain the modes of the Islamic Banking System. Key issues are managed by a
Management Committee headed by the CEO and Managing Director to facilitate rapid decisions.

Fatwa and Shariah Supervision Board

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The fatwa and Shariah Supervision Board oversee the application of different aspects of Shariah
in the bank. It also ensures that all the transactions are in strict compliance with the right of
contradicting (Fatwa) any violating procedures if they are found. The Board of Directors is
obligated to obey the fatwas, irrespective of whether a unanimous or a majority consensus
secured the decision (Clause of the Bank’s Memorandum & Articles of Association).

 Shariah Supervisors

The clauses of the Bank’s Memorandum & Articles of Association requires the board of
Directors to appoint a Shariah Supervisor, responsible for monitoring all the bank’s transactional
procedures and assuring Shariah compliance. In current, there are six supervisors of the Fatwa &
Supervision Board.Supervision Board and to the Chairman of the Board of Directors. The
position also calls for participation in the Bank’s Training Programs.

 Shariah Auditing

The supervisory function forms a part of the Shariah Supervision procedures, its main task is to
check Shariah compliance under the guidance of the Shariah Supervisors. The Auditors
continuously review the bank’s transactional procedures to ensure adherence to the framework
created by the Fatwa & Shariah Supervision Board. The Shariah Auditors submit periodic reports
to the Shariah Supervisors to monitor and maintain Shariah compliance.

2.4 Products and services of AIBL

AIBL Deposit

Al Arafah Islami Bank Bangladesh Limited mobilizes deposits through different types of
accounts. Al-Wadiah Accounts

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 Al Arafah Islami Bank Bangladesh Limited operates Al-Wadeah Current Account on the
principles of Al-Wadiah. The Bank commits to refund money deposited in these Accounts on the
demand of customers.

Mudaraba Accounts

In the perspective of these accounts, the Bank is 'Mudarib' and customers are 'Shahib AlMal'. On
behalf of depositors, the Bank invests their deposited money and distributes a minimum of 65%
of investment income earned through the deployment of Mudaraba funds among Mudaraba
depositors after the closing of the year.

Others are –

I. Al-Wadeah Current Account (AWCA)

II. Mudaraba Savings Account (MSA)
III. Mudaraba Term Deposit Account (MTDR)
IV. Mudaraba Special Notice Account (MSNA)
V. Mudaraba Hajj Savings Account (MHSA)
VI. Mudaraba Special Savings (Pension) Account (MSSA)
VII. Mudaraba Savings Bond (MSB)
VIII. Mudaraba Monthly Profit Deposit Account (MMPDA)
IX. Mudaraba Muhor Savings Account (MMSA)
X. Mudaraba Waqf Cash Deposit Account (MWCDA)
XI. Mudaraba NRB Savings Bond (MNSB) Account
XII. Mudaraba Foreign Currency Deposit Account (MFCD)
XIII. Students Mudaraba Savings Account (SMSA)
XIV. Mudaraba Farmers Savings Account (MFSA)

AIBL Investment Products

Investment Products The special feature of the Investment Policy of the Bank is to invest
based on a profit-loss sharing system following the tenets and principles of Islamic Shari'ah.
Earning of 16 | P a g e profit is not the only motive and objective of the Bank's Investment

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 Policy rather emphasis is given to attaining social goals and objectives in creating
employment opportunities.

Following modes are used for investment:

BAI-MODES

I. Bai-Murabaha ,Bai-Istijrar
II. II. Bai-Muajjal
III. Bai Salam
IV. Bai-As-Sarf

SHARE-MODES

I. Mudaraba
II. Musharaka

IJARA-MODES

Hire Purchase Under Shirkatul Melk

Under consumer financing, the Bank finances to the individuals for meeting their personal.
Family and household needs. The Bank has taken up various welfare-oriented investment
schemes.

Investment Schemes

I. House Hold Investment Scheme

II. Investment Scheme for Doctors (ISD)
III. Transport Investment Scheme (TIS)
IV. Car Investment Scheme (CIS)
V. Small Business Investment Scheme (SBIS)
VI. Micro Industries Investment Scheme (MIIS)
VII. Agricultural Implement Investment Scheme (AIIS)
VIII. Real Estate Investment Program (REIP)
IX. Real Estate Investment (Commercial & Working Capital

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 X. Agricultural Investment of IBBL
XI. NRB (Non-Resident Bangladeshi) Entrepreneurs Investment Scheme(NEIS)
XII. Women Entrepreneurs Investment Scheme (WEIS)

Rural Development Scheme

Bangladesh with its 40% people living below the poverty line and 18% living in absolute poverty
is suffering from acute rural-urban economic disparity coupled with illiteracy, lack of proper
health and sanitation facilities. The agriculture sector is unable to provide any further scope for
employment resulting in the influx of rural population towards urban areas. AIBL was founded
with the major objective of establishing an Islamic economy for balanced economic growth by
ensuring the reduction of rural-urban disparity and equitable distribution of income. Because of
the above, Branches of the Bank have been encouraged to invest their deposits in their respective
areas and in particular for the economic upliftment of the rural people. Accordingly, a Scheme in
the name and style of 'Rural Development Scheme' has been introduced to cater to the
investment needs of the agriculture and rural sector to create opportunities for the generation of
employment and raising the income of the rural people to alleviate poverty.

AIBL card services

i. VISA Debit Card

ii. Khidmah Credit card
iii. Hajj card iv. Salary card
iv. Travelcard
v. Newly updated VISA card

Online services

i. Internet Banking (ibanking)

ii. E-Commerce
iii. MCash
iv. Mobile banking
v. SMS banking
vi. Islami banking call center

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2.5 Market position of AIBL
2.6 Objective of the internship
The actual objective of an internship program is to put students in a real working condition
before they got an actual job. Here they match their student life knowledge with organizations'
daily practice. Students can learn some of the basic and theoretical organizational behavior that
cannot be thought of by theories.

i. To know how to banker deals with clients maintain the rules and regulations given by
Bangladesh bank.
ii. To analyze the retail credit performance of AIBL.
iii. To know the features of various department of AIBL.
iv. To analyze the strength, weaknesses, opportunities, and threats of AIBL.

II.7Internship working experience

As an intern, I have joined Al Arafah Islami Bank Ltd (Muradpur Branch) in March 2021 and
completed my 6-week internship. The time duration of my work was from 10.00 am to 12.00 pm
3days a week. In this short period, I got a chance to work in the loan department, the accounting
department, general banking department. The experience I have gathered from my internship
period are given below-

Job Title Duration (days)

Account opening 5 days
Deposit slips 5 days
Debit voucher, a credit voucher 2 days
Loan operation department 3 days
Receive and authorize a check 3 days
Work in SBS and CBS software 3 days
Investment moods, mechanism, procedure 2 days

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 Third chapter: Finding and their analysis
3.1 Introduction
(Five lines over investment policy and authority)

3.1.1 Investment Policy of AIBL

Policy definition
Investment Policy Objective
Investment Policies of AIBL

3.1.2 Investment Authority of AIBL

 Manager
 Regional manager
 DMD Investment
 Managing Director and CEO
 Management Committee (MANCOM)
 Executive Committee
 Board of Directors

3.2 Analysis of Investment Procedures and Appraisal of AIBL

(five lines brief)

3.2.1 Investment Procedure of AIBL

3.2.1.1 Investment for Financing working capital
Products

Procedures

3.2.1.2 Investment for Financing Fixed Assets

Products

Procedures

3.2.1.3 Investment for Financing International Trade

3.2.2 Appraisal of Investment
Documentation

Risk Assessment and Measurement

Attributes of Investment Clients

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