Internship Report

on

Investment Activities of Al-Arafah Islami

Bank Limited: A Study on Manda Branch

Supervised by
---- Supervisors Name ------- Designatin ----Department of Business Administration
--------------- University

Submitted by
---- Students Name -----ID: BBARM ----------Program: BBA; Major: Finance
Batch: ---------Department of Business Administration
-------------------- University

University
Logo

----------------- University
Date of Submission: 27 January 2016

Investment Activities of Al-Arafah

Islami Bank Limited: A Study on
Manda Branch

Internship Report
on
Investment Activities of Al-Arafah Islami
Bank Limited: A Study on Manda Branch

Supervised by
---- Supervisors Name ------- Designatin ----Department of Business Administration
--------------- University

Submitted by
-----------------------ID: BBARM ----------Program: BBA; Major: Finance
Batch: ---------Department of Business Administration
-------------------- University

University
Logo

----------------- University
Date of Submission: 27 January 2016

Students Declaration
I am --- Name ------, ID: -------- hereby declare that the presented internship report
titled Investment Activities of Al-Arafah Islami Bank Limited: A Study on
Manda Branch is uniquely prepared by me after collecting and analyzing all related
valuable data on Al-Arafah Islami Bank Limited. I also confirm that, the report is only
prepared to fulfill academic requirement not for any other purposes.

It is also declared that, this report has not been submitted to any other
University/Collage/Institution for any certificate, diploma or degree.

------ Name ----ID:

Program: BBA
Batch: ---Major: Finance
Department of Business Administration
------------ University
Date:

Official Certification
This is to certify that the Internship Report titled Investment Activities of Al-Arafah
Islami Bank Limited: A Study on Manda Branch is done by ------ Students Name
------ , ID: ----------- , Major in Finance as a partial fulfillment of the requirement of
Bachelor of Business Administration (BBA) degree from the Department of Business
Administration, -------------- University.

The report is accepted in terms of quality and from as directed by the university
authority.

---- Supervisors Name -----

Chairman

Associate Professor & Supervisor

Internship Committee

Department of Business Administration

Department of Business Administration

-------------------- University

Bangladesh Islami University

Acknowledgement
At first I like to express my deepest gratitude to almighty Allah for giving me the
strength and the composure to finish the task within the scheduled time. My next
thanks goes to my beloved parents without them none of my effort is valuable. Then I
am very grateful to the Al-Arafah Islami Bank Limited for providing me the
opportunity to complete my assignment.
My sincere gratitude goes to my honorable supervisor Zulfiqar Hasan,
Associate Professor, Department of Business Administration, Faculty of Business
Studies. Without his support and encouragement this report would havent been
possible such an endeavor to enhance my practical knowledge about the real business
world deserves great appreciation. His suggestions and comments to make the report a
good one was really a great source of spirit for me. I received friendly cooperation
from the officers and members of staffs of Al-Arafah Islami Bank Limited, Manda
Branch, Dhaka. I want to express my cordial gratitude to them for their cooperation
without which it would not possible to complete the report. I would like to special
thanks Md. Nazmul Huda (Vice Presedent & Manager), Mohammad Masum Billah
(SPO), Md. Al- Helal (PO) at Al-Arafah Islami Bank Limited, Manda Branch both of
the respected executives works behind me doing my internship.
I would like to put in black and white my heartiest gratitude and ineptness to Md.
Kamruzzaman (EO), I also would like to especial thanks, Md. Anwar Hussain (Officer).

For their constant guidance and help in completing this report and saving my valuable
time placement and on time termination of internship period. At last I must mention
the wonderful working environment and co-operative group behavior of this bank that
has enabled me a great deal to do and observe the banking activities during my
internship period of three months. Finally I would like to acknowledge all the officers
and staffs of the Manda Branch for their help and co-operation whose continuous
support has enriched my Knowledge in Banking.
.

----- Name -------

Executive Summary
This report is prepared on Investment Activities of Al-Arafah Islami Bank
Limited: A Study on Manda Branch. This report describes a step by step approach
of different investment modes of Al-Arafa Islami Bank Ltd. Bank has a sufficient role
in the economic development process of a country. For achieving the specific
objectives of the study, data will be gathered most of from primary sources and little
from secondary sources. Some financial tools and techniques are used to analyze the
investment activities of this selected bank.
The report has been segregated into five chapters those are given. The 1st chapter
contains the background, objectives, limitation etc. of the study and the 2nd chapter
highlights profile of Al-Arafa Islami Bank Ltd. On the other hand the 3rd chapter
Literature Review and the 4th chapter is the analysis and Findings of the study.
Finally 5th chapter contains, recommendations.
The study finds that the Bank has not sufficient employees to operate investment
department in the bank. Investment in Agricultural Sector Al- Arafah Islami Bank Ltd
could not sufficient profit. The socio-economic development of rural poor people, a
scheme named Grameen Small Investment. The grameen small investors are cannot
proper facility to investment. The bank is also started working with women
entrepreneurs to make them capable of earning by connecting with countrys
economic activities. Small & Medium Enterprises, a number of SME related schemes
are running in this Bank but facility is normal.
The major recommendations of the study are: The Al-Arafah Islami Bank Limited
should increase efficient employees in investment department. Investment in
Agricultural Sector Al- Arafah Islami Bank Ltd proper recycling Agricultural Sector,
then the bank would be profit this sector. By the side of collateral secured investment,
collateral security free investment is also considered in the question of women
development. Small & Medium Enterprises, a number of SME related schemes are
running in this Bank but facility is normal. So the bank should increase Small &
Medium Enterprises.

Acronyms
A/C

Account

MSD

Mudaraba Saving Deposit

ACA

Al Wadia Current Account

MSND

Mudaraba Short Notice Deposit

MTDR

Mudaraba Term Deposit Receipt

BP

Bills Payable

AIBL

Al-Arafa Islami Bank Limited

SND

Short Notice Deposit

STD

Short Term Deposit

PTD

Profit Term Deposit

OBC

Out ward Bills for Collection

PAD

Payment Against Document

LTR

Loan against Trust Receipt

MDB

Foreign Documentary Bills

LIM

Loan against Imported Merchandise

SOD

Secured Over Draft

PO

Pay Order

L/C

Letter of Credit

BL

Bill of Lading

AD

Authorized Dealer

BEFTN

Bangladesh Electronic Fund Transfer Network

FDI

Foreign Direct Investment

BIBA

Bangladesh Institution of Bankers Association

AWB

Air Way Bill

Table of Contents
Contents

Page No.

Students Declaration

Office Certification

ii

Acknowledgement

iii

Executive Summary

Acronyms
Chapter: 1

Introduction

vi
1-4

1.1

Intoduction of the Study

1.2

Objectives of the Study

1.3

Methodology of the Study

2-3

1.4

Scope of the Study

1.5

Time Schedule of the Study

1.6

Limitations of the Study

Chapter: 2

Profile of Al-Arafah Islami Bank Limited

5-14

2.1

History of AIBL

2.2

Aims and Objective of AIBL

2.3
2.4

Special Features of AIBL

Vision of AIBL

2.5

Mission of AIBL

2.6

Goals of AIBL

8-9

2.7

Commitments

2.8

Management of AIBL

2.9

Organgram of AIBL

10

2.10

Financial Information

11-12

2.11

SOWT Analysis

13-14

Chapter: 3

Conceptual Frameworks

7-8
8
8

15-26

3.1

Definition of Bank

15

3.2

Types of bank

15-18

3.3

Function of bank

18-23

3.4

Contributions of Bank

3.5

Problems of Bank

3.6

Problem Solutions of Bank

24

3.7

Investment

24

3.8

Types of investment

3.9

Objectives of Investment

25

3.10

Investment Strategies

26

Chapter: 4

Analysis & Findings

23
23-24

24-25

27-42

4.1

Investment Activities of Al-Arafah bank Limited

28

4.2

Mode of Investment of AIBL

29

4.3

Bai- Mechanism

29-32

4.4

Share Machahism

32-34

4.5

Ijara Machanism

34-35

4.6

Quard Hasana

4.7

Special Investment Scheme

4.8

Trend of AIBL Year Wise Investments

38

4.09

Mode Wise Investment

39

4.10

Sector Wise Investment

39-40

4.11

Special Investment 2014

40-42

4.12

Major Findings of the Study

Chapter: 5

Recommendations & Conclusion

35
35-38

42
43-46

5.1

Recommendations

44

5.2

Conclusion

45

5.3

References

46

Chapter 01:
Introduction

1.1 Introduction
Financial sector of Bangladesh, like most developing countries, is dominated banking
enterprises. Banks at early stages of history of Bangladesh were nationalized and there was
mismatch between assets and liabilities.
An asset or item that is purchased with the hope that it will generate income or appreciate in
the future. In an economic sense, an investment is the purchase of goods that are not
consumed today but are used in the future to create wealth. In finance, an investment is a
monetary asset purchased with the idea that the asset will provide income in the future or
appreciate and be sold at a higher price. Banking sector is a key factor for the development of
the national economy. It plays a very important role in attaining a high GNP growth rate by
creating job opportunity, inviting & encouraging investment.
The investing of money or capital in order to gain profitable returns, as interest, income, or
appreciation in value. A particular instance or mode of investing. a thing invested in, as a
business, a quantity of shares of stock, etc something that is invested.

1.2 Objectives of the Study

The main objective of the study is to know the evaluation modes of investment of Al-Arafah
Islami Bank Limited. The specific objectives of the study are given as :
i.

to know the investment activities of Al-Arafa Islami Bank Ltd;

ii.

to analyze

the

overall

investment

proposal,

appraisal

documentation system of AIBL and Conventional Banks;

procedures,

iii.

to identify the problems related to investments faced by Al-Arafa Islami Bank

Ltd; and

iv.

to recommend few solution to overcome of this problems.

1.3 Methodology of the Study

For achieving the specific objectives of the study, data will be gathered most of from primary
sources and little from secondary sources.

Sources of Data Collection

I have collected my information/ data from the following sources, which helped me to make
this report. The source can divide into two parts such as:
a)Primary Sources and
b)

Secondary Sources

Use both the sources

a)Primary Sources: Primary sources include interviews and conversation with officers
and executives of the Bank of different divisions and departments.
b) Secondary Sources: Secondary sources of information include.
i.

Annual Report of 2014 of Al-Arafah Islami Bank Ltd.

ii.

Desk report of the related department

iii.

Manuals of Al-Arafah Islami Bank Ltd. (Bai-muajjal, Bai-murabaha, Bai-salam, Baimudarabah)

iv.

Training Sheets which are provided by Al-Arafah Islami Bank Training and Research
Academy.

v.

General Report

vi.

Project Profile

vii.

Journals

viii.

Periodicals

ix.

Selected books and other publications etc.

1.4 Scope of the Study

The scope of this paper is limited to the organizational structure, background, and objectives,
functions, and investment performance of Al-Arafah Islami Bank Ltd as a whole. The scope
is also limited to different investment schemes, modes, mechanism, investment proposal
appraisal procedures, monitoring and documentation of Al-Arafah Islami Bank Ltd.

1.5 Time Schedule of the Study

As per university schedule time I have prepared the time schedule are the following:
Table 01: Time Schedule
SL. No

Particulars

1.

Data collection

20

2.

Data Processing

20

3.

Report Prepare

33

4.

Report Checking

15

5.

Report Binding

Total

Days

90 days

Table: Created

1.6 Limitations of the Study

Every task has some limitations. I faced some usual constraints during the course of my
internship. Though I have given utmost effort to prepare this report but there are some
limitations of the study. They are as follows-

A. Short of Time.
B. Insufficient Data.
C. All the concerned personnel of the bank have not been interviewed.
D. Lack of in-depth knowledge & analytical ability for writing such report.
E. Another limitation of this report is banks policy of not disclosing the facts.
F. Some data and information are not available for obvious reason, which could be very
much useful.
G. Lack of enough experience in analyzing data.
H. The report would be much more fruitful if allowed some more time.
I. All the financial statements are not correct but the analysis is done based on the figures
available in the financial statements.

Chapter 02:

Profile of the Al-Arafah

Islami Bank Limited

2.1 History of Al-Arafah Islami Bank Limited

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.
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.
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.Then Al Baraka Bank was
established. Finally in 1995 Al- Arafah Islami Bank Ltd. was established in Bangladesh with
10 branches.

2.2 Aims and Objective of AIBL

i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.

To conduct interest-free banking.

To establish participatory banking instead of banking on debtor-creditor
relationship.
To invest on profit and risk sharing basis.
To accept deposits on Mudaraba & Al-Wadeah basis.
To establish a welfare-oriented banking system.
To extend co-operation to the poor, the helpless and the low-income group for
their economic enlistment.
To play a vital role in human development and employment generation.
To contribute towards balanced growth and development of the country
through investment operations particularly in the less developed areas.
To contribute in achieving the ultimate goal of Islamic economic systems
To establish a well-balanced economic system.

2.3 Special Features of AIBL

i.
ii.

All activities of the bank are conducted according to Islmic Shariah where profit is
the legal alternative to interest.
The banks investment policy follows different modes approved by Islamic shariah
based in the Quran & Sunnah.

iii.

iv.

v.

vi.

vii.
viii.

The bank is committed towards establishing welfare oriented banking system,

economic up liftmen of the low-income group of people, create employment
opportunists.
According to the need and demand of the society and the country as a whole the bank
invests money to different Halal business. The bank participants in different
activities aiming at creating jobs, implementing development projects of the
government and creating infrastructure.
The bank is committed to establish an economic system resulting in social justice and
equitable distributing of wealth. It is committed to bring about changes in the
underdeveloped rural areas for ensuring balanced socio economic development of the
country through micro credit program and financing of SMEs as well.
According to Mudarabah system, the depositors are the partners of the investment
income of the bank. About 70% of the investment income is distributed among the
Mudaraba depositors.
To render improved services to the clients imbued with Islamic spirit of brotherhood,
peace and fraternity and by developing an institutional cohesion.
The bank is contributing to economic and philanthropic activities. AIBL English
Medium Madrasah and AIBL library patronize by the Bank are two such examples.

2.4 Vision of AIBL

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.

2.5 Mission of AIBL

I.
II.

Achieving the satisfaction of Almighty Allah both here & hereafter.

Proliferation of Shariah Based Banking Practices.

III.

Quality financial services adopting the latest technology.

IV.

Fast and efficient customer service.

V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.

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.

2.6 Goals of AIBL

I.
II.
III.

Establishment of Adl (Justice), to attain Hasana (good) and Falah (welfare) in this life
and life hereafter.
To establish Ihsan (gracious conduct or Kindness) in economic affairs.
Establishment of Maroof (proper and good acts, insufficient ) in economic life.

IV.
V.
VI.
VII.
VIII.

Elimination of Munker (Evil, wrong of injurious practices) from economic life.

Achieve maximum economic growth
Maximize employment to ensure maximum distribution of wealth in society.
Achieve universal education.
Encourage Co-operation in society.

2.7 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 Al-Arafah
Islami Bank Limited 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.

2.8 Management of AIBL

The company is managed by its Board of Directors consisting of 15 members. The Board appoint
an excutive committee consisting of Sponsor Director (Chairman, Vice Chairman), its member,
Shareholder Director, Ex officier Diroctor, Company Sectary. The committee is authorized to
observe and review major day ti day operational functions including investment plans, budgets
and other investment activities.
The Board is also responsible for establishing the companys policies and reviewing the
operational performance of the company including approval of large investment transactions and
major found procurement. The Board appoints, The Managing Director responsible for managing
the companies overall operations within the framework of policies for the company. The Borad
also appoints the Policy Committee of eight directors who formulate the personnel policy

2.9 Organogram of Al-Arafah Islami Bank Limited

Figure 01: Organogram of AIBL

Managing Director
Deputy Managing Director
Executive Vice President

Senior Vice President

Vice President
Assistant Vice President
First Assistant Vice
Senior Principal Officer
Principal Officer

Source: Organogram of an AIBL.

2.10 Financial Information (Amount in Million Taka)

Table 02: Financial Information
Particular

2010

2011

2012

2013

2014

5,000.00

5,000.00

10,000.00

10,000.00

15,000.00

1,798.95

4,677.28

5,893.37

7,130.98

8,343.25

1,223.18

1,779.08

2,437.43

4,079.63

4,827.20

3,564.73

9,790.36

11,989.11

14,050.69

16,091.17

Deposits

38,355.50

53,882.96

82,186.98

118,683.39 140,980.55

Investment

36,134.08

53,582.96

77,714.95

106,650.42 125,715.39

Total Income

5,305.64

7,685.57

11,332.59

16,692.58

19,723.41

Total

3,575.81

4,462.30

7,005.81

11,937.04

14,774.85

Authorized
Capital
Paid up Capital
Reserve

Funds

&Other Reserve
Shareholders'
Equity (Capital &
Reserve)

Expenditure
Profit Before Tax

1,729.83

3,223.27

4,326.78

4,755.54

4,948.56

Profit Before Tax

1,589.24

2,852.47

3,946.62

3,944.10

4,360.41

Profit After Tax

858.99

1,959.04

2,198.75

1,945.41

2,276.68

Fixed Assets

466.30

655.39

968.13

2,394.62

2,517.22

48,515.79

74,005.01

106,768.18

149,320.36 173,161.63

Import Business

34,074.80

55,934.10

76,112.10

71,931.70

85,915.00

Export Business

23,546.10

32,042.40

52,202.10

58,476.60

68,980.30

3,498.07

9,582.85

11,924.50

13,073.14

15,113.62

567.89

929.96

1,123.40

1,731.59

1,511.75

9.68

13.21

12.31

10.38

13.33

1.57

1.28

1.16

1.37

1.33

4,065.96

10,512.81

13,047.90

14,804.73

16,625.37

11.25

14.49

13.47

11.75

14.66

1.68

1.14

0.95

1.63

2.77

179,895,360

467,727,936

2.00

4.14

2.79

2.03

2.46

19.82

16.47

16.69

19.70

19.29

& Provision

Total

Assets

(Excluding
balance

offsheet

items)

Capital Measures
Core

Capital

(Tier-l)
Supplementary
Capital (Tier-ll)
Tier-l

Capital

Ratio
Tier-ll

Capital

Ratio
Total Capital
Total

Capital

Ratio
% of NPIs to
Total investment
Number

of

Shares

589,337,199 713,098,010

Outstanding
Earnings

per

Share (Taka)
Book Value per
Share (Taka)

834,324,67
1

Price

Earnings

Ratio (Times)
Price

Equity

Ratio (Times)
Dividend

11.23

13.24

13.55

11.97

7.76

2.71

4.06

2.26

1.23

0.99

30

26

21

17

13.50

60

78

88

100

110

1,296

1,711

1,807

2,110

2,387

11,382

49,386

54,267

52,739

58,466

per

Share
Cash

Dividend

(%)
Bonus Share
Number

of

Branches
Number

of

Employees
Number

of

Shareholders

Source: Annual Report of AIBL

2.11 SWOT Analysis

SWOT Analysis provides an opinion and adjustment whether organizations currently position
is satisfactory or not.

A) Strengths

The bank has earned customer loyalty as organizational loyalty.

Skilled personals have developed professional relationships with their customers and
clients which is an emotional tie on regular business.

AIBL is always trying to ass new and modern equipments.

Employees are sharing good atmosphere in AIBL so that it gave them reason to work
efficiently and to become dedicated in banking.

AIBL maintain corresponding relationship with many foreign banks so that it is an

effective measure for the smooth business.

The top management officials all have had reputed of banking experience, skill and
proficiency.

B) Weaknesses

The advertising and promotional activities of this bank are up to the mark

Reference appointment is very much effective in AIBL. As a result of this there are
many who are only drawing salaries at the end of the month but making a minimum
contribution towards the organization.

There are some officers who work hard but are not appreciated by the authority.

AIBL has not set up proper network system among branches.

The bank does not have any research and development division.

C) Opportunities

The bank can introduce more innovative and modern customer service to better
survive in the competition.

They can also offer micro credit business for individual and small business.

It is high time that they should move toward the online banking operation because
some banks are already introducing the online banking operation.

Bank will be able to accommodate knowledgeable, Skilled, experience and hard

working person by offering attractive remunerations and fringe benefits with nice
working environment

By expending the financial policy with credit facility customer are very much secure
in business environment.

D) Threats

Central bank (Bangladesh bank) is always supervising the local and foreign banks in
Bangladesh and sometimes it is hampering the normal operation of private bank.

Through the innovation working is in continuous process but the other rival banks are
copying it within the short time.

The world in advancing toward technology very fast. Though AIBL taken effort to
join ht stream, it is not possible to complete the mission due to the poor technological
infrastructure of our country.

They are carrying our aggressive campaign to attract lucrative corporate client as well
as big time depositor.

Local competitors can also capture a huge market share by offering similar products
and services provide by the bank.

Chapter 03:
Conceptual Framework

3.1 Definition of Bank

Bank is a financial institution that collects societys surplus cash and gives a part of
that as loan to investors for earning profit. So, bank is an intermediately institution
that makes relationship between the owner of surplus saving and the investor of
deficit capital.
A bank provides service activity and acts as an intermediary between creditor and
lender. In broader sense, it is said that bank is the heart of complex financial structure.
-American Institute of Bankers

3.2 Types of bank

The focus of banking is varied, the needs diverse and methods different. Thus, we need
distinctive kinds of banks to cater to the above-mentioned complexities. Deposit-taking
institutions take the form of commercial banks, which accept deposits and make commercial,
real estate, and other loans. There are also mutual savings banks, which accept deposits and
make mortgage and other types of loans. Another type is credit unions, which are cooperative
organizations that issue share certificates and make member (consumer) and other loans.
The banking industry can be divided into following sectors, based on the clientele served and
products and services offered:
1. Retail Banks
2. Commercial banks
3. Cooperative banks
4. Investment Banks
5. Specialized banks
6. Central banks
1. Retail Banks:
Retail banks provide basic banking services to individual consumers. Examples include
savings banks, savings and loan associations, and recurring and fixed deposits. Products and
services include safe deposit boxes, checking and savings accounting, certificates of deposit
(CDs), mortgages, personal, consumer and car loans.
2. Commercial Banks:

Banking means accepting deposits of money from the public for the purpose of lending or
investment. Commercial Banks provide financial services to businesses, including credit and
debit cards, bank accounts, deposits and loans, and secured and unsecured loans. Commercial
banks in modern capitalist societies act as financial intermediaries, raising funds from
depositors and lending the same funds to borrowers. The depositors claims against the bank,
their deposits, are liquid, meaning banks are expected to redeem deposits on demand,
instantly.
There are two types of commercial banks, public sector and private sector banks.
(a) Public Sector Banks:
Public sectors banks are those in which the government has a major stake and they usually
need to emphasize on social objectives than on profitability.
(b) Private sector banks:
Private sector banks are owned, managed and controlled by private promoters and they are
free to operate as per market forces.
3. Investment Banks:
An investment bank is a financial institution that assists individuals, corporations and
governments in raising capital by underwriting and/or acting as the client's agent in the
issuance of securities. An investment bank may also assist companies involved in mergers
and acquisitions, and provide ancillary services such as market making, trading of derivatives,
fixed income instruments, foreign exchange, commodities, and equity securities.
4. Cooperative Banks:
Cooperative Banks are governed by the provisions of State Cooperative Societies Act and
meant essentially for providing cheap credit to their members. It is an important source of
rural credit i.e., agricultural financing in India.
5. Specialized Banks:
Specialized banks are foreign exchange banks, industrial banks, development banks, exportimport banks catering to specific needs of these unique activities. These banks provide
financial aid to industries, heavy turnkey projects and foreign trade.

6. Central Banks:
Central banks are bankers banks, and these banks trace their history from the Bank of
England. They guarantee stable monetary and financial policy from country to country and
play an important role in the economy of the country. Typical functions include implementing
monetary policy, managing foreign exchange and gold reserves, making decisions regarding
official interest rates, acting as banker to the government and other banks, and regulating and
supervising the banking industry.

3.3 Function of Bank

The functions of banks are briefly highlighted in following Diagram or Chart.
Figure 01: Function of Bank

Functions of Bank
Secondary Functions

Primary
Functions

Accepting
Deposits

Granting
Advances

Agency
Functions

Utility
Functions

Source: Dr. A R Khan Bank Management

These functions of banks are explained in following paragraphs of this article.
A. Primary Functions of Banks
The primary functions of a bank are also known as banking functions. They are the
main functions of a bank.
These primary functions of banks are explained below.
1. Accepting Deposits
The bank collects deposits from the public. These deposits can be of different types,
such as:a. Saving Deposits
b. Fixed Deposits
c. Current Deposits

d. Recurring Deposits

a. Saving Deposits
This type of deposits encourages saving habit among the public. The rate of interest is
low. At present it is about 4% p.a. Withdrawals of deposits are allowed subject to
certain restrictions. This account is suitable to salary and wage earners. This account
can be opened in single name or in joint names.
b. Fixed Deposits
Lump sum amount is deposited at one time for a specific period. Higher rate of
interest is paid, which varies with the period of deposit. Withdrawals are not allowed
before the expiry of the period. Those who have surplus funds go for fixed deposit.
c. Current Deposits
This type of account is operated by businessmen. Withdrawals are freely allowed. No
interest is paid. In fact, there are service charges. The account holders can get the
benefit of overdraft facility.
d. Recurring Deposits
This type of account is operated by salaried persons and petty traders. A certain sum
of money is periodically deposited into the bank. Withdrawals are permitted only after
the expiry of certain period. A higher rate of interest is paid.
2. Granting of Loans and Advances
The bank advances loans to the business community and other members of the public.
The rate charged is higher than what it pays on deposits. The difference in the interest
rates (lending rate and the deposit rate) is its profit.
The types of bank loans and advances are :a. Overdraft
b. Cash Credits
c. Loans
d. Discounting of Bill of Exchange

a. Overdraft
These types of advances are given to current account holders. No separate account is
maintained. All entries are made in the current account. A certain amount is
sanctioned as overdrafts which can be withdrawn within a certain period of time say
three months or so. Interest is charged on actual amount withdrawn. An overdraft
facility is granted against a collateral security. It is sanctioned to businessman and
firms.
b. Cash Credits
The client is allowed cash credit upto a specific limit fixed in advance. It can be given
to current account holders as well as to others who do not have an account with bank.
Separate cash credit account is maintained. Interest is charged on the amount
withdrawn in excess of limit. The cash credit is given against the security of tangible
assets and / or guarantees. The advance is given for a longer period and a larger
amount of loan is sanctioned than that of overdraft.

c. Loans
It is normally for short term say a period of one year or medium term say a period of
five years. Now-a-days, banks do lend money for long term. Repayment of money can
be in the form of installments spread over a period of time or in a lump sum amount.
Interest is charged on the actual amount sanctioned, whether withdrawn or not. The
rate of interest may be slightly lower than what is charged on overdrafts and cash
credits. Loans are normally secured against tangible assets of the company.
d. Discounting of bill of exchange
The bank can advance money by discounting or by purchasing bills of exchange both
domestic and foreign bills. The bank pays the bill amount to the drawer or the
beneficiary of the bill by deducting usual discount charges. On maturity, the bill is
presented to the drawee or acceptor of the bill and the amount is collected.

B. Secondary Functions of Banks

The bank performs a number of secondary functions, also called as non-banking
functions.
These important secondary functions of banks are explained below.

1. Agency Functions
The bank acts as an agent of its customers. The bank performs a number of agency
functions which includes:a. Transfer of Funds
b. Collection of Cheques
c. Periodic Payments
d. Portfolio Management
e. Periodic Collections
f.

Other Agency Functions

a. Transfer of Funds
The bank transfer funds from one branch to another or from one place to another.

b. Collection of Cheques
The bank collects the money of the cheques through clearing section of its customers.
The bank also collects money of the bills of exchange.

c. Periodic Payments
On standing instructions of the client, the bank makes periodic payments in respect of
electricity bills, rent, etc.
d. Portfolio Management
The bank also undertakes to purchase and sell the shares and debentures on behalf of
the clients and accordingly debits or credits the account. This facility is called
portfolio management.
e. Periodic Collections
The bank collects salary, pension, dividend and such other periodic collections on
behalf of the client.
f. Other Agency Functions
They act as trustees, executors, advisers and administrators on behalf of its clients.
They act as representatives of clients to deal with other banks and institutions.

2. General Utility Functions

The bank also performs general utility functions, such as:a. Issue of Drafts, Letter of Credits, etc.
b. Locker Facility

c. Underwriting of Shares
d. Dealing in Foreign Exchange
e. Project Reports
f.

Social Welfare Programmes

g. Other Utility Functions

a. Issue of Drafts and Letter of Credits

Banks issue drafts for transferring money from one place to another. It also issues
letter of credit, especially in case of, import trade. It also issues travelers cheques.
b. Locker Facility
The bank provides a locker facility for the safe custody of valuable documents, gold
ornaments and other valuables.
c. Underwriting of Shares
The bank underwrites shares and debentures through its merchant banking division.
d. Dealing in Foreign Exchange
The commercial banks are allowed by RBI to deal in foreign exchange.
e. Project Reports
The bank may also undertake to prepare project reports on behalf of its clients.
f. Social Welfare Programmes
It undertakes social welfare programmes, such as adult literacy programmes, public
welfare campaigns, etc.
g. Other Utility Functions
It acts as a referee to financial standing of customers. It collects creditworthiness
information about clients of its customers. It provides market information to its
customers, etc. It provides travelers cheque facility.

3.4 Contributions of Bank

Banks have the following further good prospects to grow
1) Bank investment portfolio can be diversified and extended for long term
financing.
2) Bank can develop guide lines for day-to- day consultation and clientele
motivation.
3) Banks can expand their network in the rural areas of Bangladesh.

4) The research and development (R&D) for Economics, Banking and Finance
can be geared up.
5) Co-operation among Banks can be extended throughout the world.
6) Other countries, who have established Banks, if involve with international
trade, that would contribute to grow international transactions under. This will
further help developing a common Market.
7) The Central Banks of the countries can help creation of environment for
Banking with more responsibilities.
8) Uniform accounting systems and standers can be developed for providing
consistency in accounting treatment of various options and products of Banks.
9) New and innovative products can be designed for financing on profit and loss
sharing basis.

3.5 Problems of Bank

1) Low interest rate presents a sensational problem for bank earnings.
2) The second problem is slow growth of loan volumes. It might sound like a
patient banker would eventually see her problem solved by slow loan growth.
Unfortunately, deposits are growing faster than loans.
3) The third banking understanding the rules are a major challenges, possible
even greater than altering practices to comply with problem is new
regulations. A huge amount of rule making remains to be completed.
4) Recession is a risk for banks and the entire economy. Bankers, along with all
other business leaders, should do contingency planning for a possible
downturn.
5) The banks will be forced to go for risky investment after collecting deposit at
high rate form an already saturated market. It will seriously affect the overall
bank business and the industry as well.

3.6 Problem Solutions of Bank

1) The vital issue that deserves priority attention of both central bank and the
government is better banking coverage of hitherto neglected rural areas.

2) On the top of everything, both the central bank send the government will have
to ensure the entry of stronger players in the banking area and keep close
watch on the effects of such an entry on the overall banking industry.
3) The Bangladesh Bank and Bangladesh Institute of Bank Management (BIBM)
have to take preparation on structuring the banks training up the bankers.
4) The central bank will have to closely examine the track records of the
sponsors and it must not give in to political pressure of any aort on this issue.
5) The quality of the bank directors should be maintained scrupulously.

3.7 Investment
An asset or item that is purchased with the hope that it will generate income or appreciate in
the future. In an economic sense, an investment is the purchase of goods that are not
consumed today but are used in the future to create wealth. In finance, an investment is a
monetary asset purchased with the idea that the asset will provide income in the future or
appreciate and be sold at a higher price.

3.8 Types of investment

Investment, as the dictionary defines it, is something that is purchased with money that is
expected to produce income or profit. Investments can be broken into three basic groups:
ownership, lending and cash equivalents.
a. Ownership Investments
Ownership investments are what come to mind for most people when the word "investment"
is batted around. Ownership investments are the most volatile and profitable class of
investment.
b. Lending Investments
Lending investments allow you to be the bank. They tend to be lower risk than ownership
investments and return less as a result. A bond issued by a company will pay a set amount
over a certain period, while during the same period the stock of a company can double or
triple in value, paying far more than a bond - or it can lose heavily and go bankrupt, in which
case bond holders usually still get their money and the stockholder often gets nothing.
c. Cash Equivalents

These are investments that are "as good as cash," which means they're easy to convert back
into cash.

3.9 Objectives of Investment

The objectives of investment operations of the banks are:

The investment fund strictly in accordance with the principle Islamic Shariah.

To diversifies its portfolio by size of investment, by sectors (public and private), by

economic purpose, by securities and by geographical area including industrial,
commercial and agricultural.

To ensure mutual benefit both for the Bank and the investment client by professional
appraisal of investment and monist therefore.

To make investment keeping the socio-economic requirement of the country in view.

To increase the number of potential investors by making participatory and productive

investment.

3.10 Investment Strategies

Risk in the investment and return thereon are interrelated. An investment policy that
emphasizes a high return must accepts relatively high risk. Conversely, an investment policy
that will tolerate only small amount of risk must be prepared to accept a relatively low return.
As such, it is really difficult whether to select a high return portfolio on high risk port-folio
with a low return. Nevertheless for banks investment:
I.

If two portfolios have the same risk but different returns, the port-folio having higher
return shall be performed.

II.

If two portfolios have the same expected returns, but different degrees of risk, the
port-folio with lower risk shall get performance.

III.

If one portfolio has a higher return and a lower risk then another, the first port-folio
shall be performed.

Chapter 04:
Analysis and Findings

4.1 Investment Activities of Al-Arafah bank Limited

Bangladesh is a largest of the Muslim countries in the world. The people of the country are
deeply committed to lead an Islamic way of life which is best on the principle of Holy Quran
and the sunnah. The Al- Arafah Islami Bank Ltd which is established on June 18, 1995 is the
true reflection of this inner urge of its people which started banking with effect from
September 27, 1995. It is committed to conduct all Financial Activities banking and
Investment Activities on the basis of interest free profit and loss sharing system. In doing so it
has unveiled in a new horizon and unheard in a new silver lining of hope towards
materializing a long cherished dream of the people of Bangladesh for doing their Banking
Transaction in line with what is prescribed by Islam. With the active co-operation and
participation of Islamic Development Bank (IDB) and some other Islamic Banks, financial
institution and government bodies, Al- Arafah Islami Bank Ltd has new earned the unique
position of a leading private commercial bank in Bangladesh.
Al- Arafah Islami Bank Ltd has made a positive contribution towards the socio economic
development of the country by opening 100 branches in which 20 authorized dealer
throughout the country.

Al- Arafah Islami Bank Ltd involved in many investment activities. Some of these are

a.

Investment in Agricultural Sector

b.

Investment in Industrial Sector

c.

Investment in Business Sector

d.

Investment in Foreign Trade

e.

Investment in Construction and Housing

f.

Investment in Transportation Sector

g.

Hire Purchase (HPSM)

h.

Investment Schemes in Masque and Madrasa (MMIS)

i.

Village and Small Investment Schemes (GSIS)

j.

Small Enterprise Investment Schemes (SEIS)

k.

Consumer Investment Schemes (CIS)

4.2

Modes of Investment of AIBL

Figure 01: Modes of Investment of AIBL

Modes of Investment

Bai-Mechanism

a)
b)
c)
d)

Share Mechanism

Bai-Murabaha
Bai-Muajjal
Bai-Salam
Istisnas

a) Murabha
b) Musaraka

Ijara Mechanism

a) Hire Purchase
b) Hire Purchase

Under
ShirkatulM

Sources: AIBL Annual Report-2014

4.3 Bai-Mechanism
4.3.1 Bai- Murabaha
Bai-Murabahamay be defined as a contract between a Buyer and a seller under which
the seller sells certain specific goods permissible under Islamic Shariah and the Law
of the land to the buyer at a cost plus agreed profit in cash or on any fixed future date
in lump.
a. Ordinary Bai-Murabah
If there are only two parties the seller and the buyer, where the seller as an ordinary trader
purchase the goods from the market without depending on any order and promise to buy the
same from him sells those to a buyer for cost plus profit then the sale is called Ordinary BaiMurabah.
b. Bai- Murabaha on Order and Promise
If there three parties, the buyer, the seller, and the bank as an intermediary trader between the
buyer and seller where the Bank upon receipt of order from the buyer with specification and a
prior outstanding promise to by the goods from the bank, purchase the ordered goods and
sells those to the ordering buyer at a cost plus agreed profit, the sale is called Bai-Murabaha
on an order or promise, generally known as Murabaha

Categorization
Bai Murabaha Commercial: Investment for Purchase & sale goods to individual / firm/
company /for commercial purpose shall be termed as Bai Murabaha Commercial.
BaiMurabaha Industrial: Investment to industrial undertaking in the Form of Land,
Buildings, Machineries, Equipments, Raw Materials, etc. shall be termed as BaiMurabaha
Industrial.
BaiMurabaha Agriculture: Investment to agriculture sector for supply of seeds, fertilizer
etc. shall be termed as Bai Murabaha Agriculture.
BaiMurabaha Import: Investment for Import of goods from abroad shall be termed as Bai
Murabaha import. Enter the Application in the Investment Proposal Received & Disposal
Register & allot a Serial Number to it

4.3.2 Bai Muajjal

Bai-muazzal may be defined as a contract between Buyer and Seller under which the seller
sells certain specific goods ( permissible under shariah and law of the country), to the buyer at
an agreed price payable at a certain fixed future sate in lump sum or within a fixed period by
fixed installment . The seller may also sell the goods purchase by him as per order and
specification of the buyer. It may be noted here that in case of Bai-Muazzal and BaiMurabaha, the Al-Arafa Islami Bank is a financier to the client not in the sense that the bank
finances the purchase of goods by the client rather it is a financier by differing the receipt of
the sale price of goods, it sells to the client .If the bank does not purchase the goods or does
not make any purchase agreement with the seller but only makes payment of any goods
directly purchased and received by the client from the bank seller under Bai-Muazzal / BaiMurabaha agreement, that will be a remittance or payment of the amount on behalf of the
client any profit on this amount shall be nothing but interest.
Important Features:

a. It is permissible for the client to offer an order to purchase by the bank particular goods
deciding its specification and committing to buy the same from the bank on Bai-Muazzal
and deferred sale at a fixed date.

b. It is permissible to make the promise binding upon the client to purchase from the bank,
that is, he is to either satisfy the promise or to indemnify the damage.
c. It is permissible to take cash/collateral security to guarantee the implementation of the
promise or to indemnify the damage.
d. It is also permissible to document the debt resulting from Bai-Muazzal by a guarantor, or
a mortgage both like any other debt. Mortgage / Guarantee / Cash security may be
obtained prior to the signing of the Agreement or at the time of signing the agreement.
Stock and availability of goods is a basic condition for signing a Bai-Muazzal agreement.
Therefore, the bank must purchase the goods as per specification of

Categorization
Bai Muazzal Commercial: Investment for Purchase & sale goods to individual / firm/
company / society for commercial purpose shall be termed as Bai Muazzal Commercial.
Bai Muazzal Industrial: Investment to industrial undertaking in the Form of Land,
Buildings, Machineries, Equipments, Raw Materials, etc. shall be termed as Bai Muazzal
Industrial.
Bai Muazzal Agriculture: Investment to agriculture sector for supply of seeds, fertilizer
etc. shall be termed as Bai Muazzal Agriculture.
Bai Muajjal Import: Investment for Import of goods from abroad shall be termed as BaiMuazzal import. Enter the Application in the Investment Proposal Received & Disposal
Register& allot a Serial Number to it.

4.3.3 Bai-salam
Bai- Salam may be defined as a contract between a buyer and a seller under which the seller
sells in advance the certain commodity, product permissible under Islamic shariah and law of
the land to the buyer at an agreed price.
Feature of Bai-Salam
1)

It is permissible to obtain collateral security from the seller client to secure the
investment from any hazard.

2)

It is also permissible to obtain mortgage or personal guarantee.

4.3.4 Istisnas Sale:

Definition of Istisnas Sale
The Istisnas sale is a contract in which the price is paid in advance at the time of the contract
and the object of sale is manufactured and delivered later. It is a contract with a manufacturer

to make something and it is a contract on a commodity on liability with the provision of work.
AIBL can utilize Istisnas in two ways.

It is permissible for the bank to buy a commodity on Istisnas contract then sell it
after receipt for cash or deferred payment.

It is also permissible for the bank to enter into an Istisnas contract in the capacity of
seller to those who demand a purchase of a particular commodity and then draw a
parallel Istisnas contract in the capacity of a buyer with another party to manufacture
the commodity agreed upon in the first contract.

4.4 Share Mechanism

4.4.1 Bai-Mudarabah
The term Mudaraba has been derived from one of the meaning of the Arabic work Darb
which means Travel? Thus the word Mudaraba means Travel for undertaking business.
Definition:
Mudaraba is a partnership in profit whereby one party provides capital and the other party
provides skill and labor. The provider of capital is called Shahib al-maal while the provider
of skill and the labor is called Mudarib. So, Mudaraba may be defined as a contract of
partnership where the Shahib-al-maal provides capital to the Mudarib for investing it in a
commercial enterprise by applying his labor and endeavor. Both the parties share the profit as
per agreed upon ratio and the losses, if any, being borne by the provider of funds i.e. Shahibal-maal except if it is due to breach of trust i.e. misconduct, negligence or violation of the
conditions agreed upon by the Mudarib. If there is any loss incurred due to reasons mentioned
above, the Mudarib becomes liable for that.
Important Features:
i.

Bank supplies capital as Shahib-al-maal and the client invest if in the business with
his experience.

ii.

Administration and Management is maintained by the client.

iii.

Profit is divided as per agreement.

iv.

Bank bears the actual loss alone.

v.

Client cannot take another investment for that specific business without the
permission of the Bank.

4.4.2 Bai-Musaraka

The word Musharaka has been derived from the Arabic word Shirkat or Sharikat in Arabic
Shirkat or Sharikat or shirk means partnership or sharing. Thus the literal meaning of
Musharaka is sharing though the connotation of this term is limited than the term Shirkat. The
Musharaka has been introduced recently in Islamic banking literature to mean a particular
type of Shirkat.
A contract of partnership between two or more individuals or bodies in which all the partners
contribute capital, participate in the management, share the profit in proportion to their capital
or as per the agreed ratio and bear the loss in proportion to their capital/ equity ratio. In AIBL
we take part in such type of business with our clients.

Types of Musharaka
1) Permanent Musharaka: It is a continued Musharaka as the time of dissolution not
specified in the Musharaka contract, annual profit share between the parties at pre-agreed
ratio, such type of Musharaka intended to continue up to the dissolution of the enterprise /
company but one can sell his share equity before dissolution. AIBL can use this project.
2) Diminishing Musharaka: It is a special type of Musharaka where the ownership of the
asset/property of the Bank gradually reduced and goes to the account of the client with
the payment of share value by the client in addition to share in profit as per agreed
agreement. Under this concept Bank & its client participate in the joint ownership of the
asset property or commercial enterprise. Share capital of Bank divided into a number of
units and the client undertakes to purchase the units of the share capital of the Bank one
by one and finally the client becomes the owner of total asset/enterprise. This type of
musharaka is suitable for the finance of the asset/property having regular income.

4.5 Ijara Mechanism

4.5.1Shirkatul Melk
Hire purchase under Shirkatul Melk is a special type of contract which has been developed
through practice. Actually, it is a synthesis of three contracts:
1. Shirkat
2. Ijarah
3. Sale
1. Shirkat

Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more
persons supply equity, purchase an asset, own the same jointly, and share the benefit as per
agreement and bear the loss in proportion to their respective equity, the contract is called
Shirkatul Melk contract.
2. Ijarah
The term Ijarah has been derived from Arabic words Ajr and Ujrat which means
consideration, return, wages or rent. This is really the exchange value or consideration, return,
wages, rent of service of an asset. Ijarah has been defined as a contract between two parties,
the Hire and Hirer where the enjoys or reaps a specific service or benefit against a specific
consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a
certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified
period.
Related Terminologies of elements of Ijarah
a) According to the majority of Fuquah there are three general and six detailed elements
of Ijarah:
I.
II.

The wording: This includes offer and acceptance.

This includes a Hire the owner of the property and a Hirer the part that benefits
from the use of the property.

b) The Hiree (Muazzal): The individual or organization hires/ rent out the property of
Service are called the Hiree (Muazzal)
c) The Hirer (Mustajir): The individual or organization hires/ takes the hire of the
property or service against the consideration rent/wages/ remuneration is called the
benefit (Mustajit).
d) The benefits/rents (Majur): the benefit which is hired /rented out is called the benefit
(Majur).
e) The rent (Ajr or Ujrat): The consideration either in monetary terms or in kinds fixing
quantity of goods for only to be paid against the benefit of the assets or service of the
asset is called the rent or Ujrat or Ajr.

4.6 Quard Hasana

Quard Hasana is a contract in which one of the parties (the lender) places into the ownership
of the other party (the borrower) a definite parcel of his property, in exchange nothing more
than the eventual return of something in the same value of the property loaded.

4.7 Special Investment Scheme

The Bank, since its inception, has been working for the uplift and emancipation of the
underprivileged, downtrodden and neglected sections of the populace and has taken up
various schemes for their well-being. The objectives of these schemes are to raise the standard
of living of low-income group, development of human resources and creation of avenues for
self-employment.
1. Household Durable Scheme
The objective of the scheme is to increase standard of living and quality of life of the fixed
income group by extending them investment facilities to purchase household articles such as
furniture like Almeria, sofa set, wardrobe; electric and electronic equipments like television,
refrigerator, gas cooker; air conditioner, PC, washing machine; electric generator-IPS, UPS;
motor cycle; corrugated iron sheet, cement, rod, wood etc. for construction of dwelling house;
gold ornaments, tube-well, mobile telephone set etc. medical / engineering instruments /
equipment, computer, books, etc. for students.
2. Real Estate Investment Program
Professionals, Service-holders, Businessmen, Real Estate Developer and other categories of
people who are not entitled for availing investment facilities under Housing investment
scheme, shall be eligible under this program. Investment is to be extension / completion of the
house already constructed, commercial building, flat/ apartment. Investments in construction
(Real Estate) Sector increased by Tk. 2023.23 core i.e. 5.23% as against 10.54% of all sectors
to Tk. 40728.98 core during the FY 2013-2014 as compared to increases of Tk. 6671.09 core
i.e. 20.82% as against 10.07% of all sectors to Tk. 38705.45 core during FY 2012-2013. The
Share of Investments in construction (Real Estate) Sector at the end of FY 2013-2014 was
8.67% as compared to 9.11% at the end of FY2012-2013.
3. Transport Investment Scheme
To ease the existing transportation problem and ensure speedy economic growth and
development of the country particularly the expansion of trade, commerce and industry, the
bank has taken up this scheme.
4. Car Investment Scheme
Car is considered as an essential mode of transport in the modern society, particularly by a
section of the officials, business houses and business executives and established professionals
for movement in discharging their duties and responsibilities punctually and efficiently.

5. Micro, Small& Medium Enterprise Investment

To ensure proper manifestation and rapid advancement of Small & Medium Enterprises, a
number of SME related schemes are running in this Bank. In the light of a unique definition
by Bangladesh Bank, bank is giving priority over financing to three categories of enterprises
viz. Industry, Trade & Services. Investment up to December 2014 SME sector is Tk.68913.60
million, which is 52.96% of total investment portfolio. Besides, to speed up SME investment
flow and to include in people who are beyond the range of banking facilities, a scheme named
Small Enterprise Investment Scheme (SEIS) is launched. With this scheme, operation of
collateral security free SME investment is running.
6. Grameen Small Investment Scheme
On the focus of socio-economic development of rural poor, a scheme named Grameen Small
Investment Scheme (GSIS) is running in the bank from the year 2001. Functioning on the
basis of Group and Samity, this scheme helps on socio-economic development of farmers,
labors, fishermen, micro-businessmen and small entrepreneurs.
7. Investment on Agriculture Sectors
To face the increasing food shortage of the country, bank is paying massive attention to invest
on agricultural sectors. The main items of agricultural sectors are- crops, fisheries, warehouse,
poverty alleviation, irrigation, Livestock development etc. Agriculture investment increased
by Tk 2980.80 core i.e. 12.98% as against 10.45% OF ALL SECTOR to Tk. 25951.90 crore
during the FY 2013-2014 as compared to increases of Tk. 2040.90 crore i.e. 9.75% as against
10.07% of all sectors to tk. 22971.10 crore during FY 2012-2013. The share of Agriculture
Investments at the end of FY 2013-2014 was 5.53% as compared to 5.41% at the end of
FY2012-2013.
8. Rural Agriculture Investment Scheme
On the basis of socio-economic development of marginal and lessee farmers, an agricultural
based programmed named Rural Agricultural Investment Scheme (RAIS) is launched.
Developments in countrys internal food production as well as socio-economic sector of
farmers are the main focus of this programmed.
9. Al-Arafah Solar Electricity Investment Scheme
A different type of investment scheme named Al-Arafah Solar Electricity Investment
Scheme is launched in order to face the present electricity crisis and to spread the benefits of
renewable energy among the rural people. This program treats as a innovative step on the

history of Private Banking Sector in Bangladesh. It also has unveiled the wide field of Green
Banking concept, the burning issue.
Solar Electricity Investment Scheme is running under the control of SME Department with
the support of newly created Power & Technology Unit. Skilled Engineers & Solar
Techniques are recruited in order to ensure the perfect technical support.
10. Investment on Women Entrepreneurs
Al-Arafah Islami Bank Ltd. is working with women entrepreneurs to make them capable of
earning by connecting with countrys economic activities. Women entrepreneurs to invest on
various productive sectors. By the side of collateral secured investment, collateral security
free investment is also considered in the question of women development.
11. Micro Industries Investment Scheme
To create wider base for industries as well as to encourage establishment of micro-industries
in different areas of the country by the potential entrepreneurs and for diversification of the
Banks investment portfolio, the bank introduced Micro industries investment scheme.
Different sectors including food and agriculture based leather industries, chemical industries,
textile industries, recycling industries, service industries, electrical accessories industries,
computer technology industries, roof tiles and any other viable micro-industries have been
identified for financing under the scheme. Investment in Micro Industry Sector increased by
Tk 12181.16 core i.e. 7.95% as against 10.54% of all sector to Tk. 165365.92 core during the
FY 2013-2014 as compared to increases of Tk. 23552.09 core i.e. 18.17% as against 10.07%
of all sectors to tk. 153184.76 core during FY 2012-2013. The share of Agriculture
Investments at the end of FY 2013-2014 was 35.22% as compared to 36.06% at the end of
FY2012-2013.

4.8 Trend of AIBL Year Wise Investments

The following table shows the year wise investment position of AIBL during 2010-2014.
Table no 01: Trend of AIBL Year Wise Investments.
Year

Tk.

Increase %

2010

62756

2011

83894

33%

2012

102145

22%

32%

2013

123950

22%

2014

174058

40%

Sources: Annual Report 2014

4.9 Mode wise investment

This table showed the comparing rate of Investment on the basis of year wise. It is focuses an
Increasing rate for the respective bank. In the year 2011 it was 83894

but in 2014 it was

174058. It indicates a positive growth.

The following table shows the Mode wise investment position of AIBL during 2011-2014
Table no 02: Mode wise investment.
Mode

Bai-Murabaha

(Amount in Lac Taka)

2011

2012

Amount

Amount

2013
Amount

2014
Amount

12,003.92

17,112.56

23,522.94

59465.00

HPSM

8,496.87

10,664.08

14,131.48

15132.20

Bai-Muajjal

4,478.34

4,753.54

4,965.74

3921.00

1,337.05

1,386.14

1,865.26

1700.00

640.23

923.16

1,298.19

1974.29

Bai-Salam

407.98

906.00

Mudaraba

52.00

52.00

52.00

55.00

Musharaka

428.91

346.28

37.02

28.00

27,437.32

35,237.76

46,280.61

83,007.49

Purchase

&

Negotiation
Quard

Total

Sources: Annual Report 2014

4.10 Sector Wise Investment 2014

This table reveals that the mode wise Investment of AIBL. According the last report the
balance are shown here. In Bai-Murabah it has a positive growth in the continuously. It is the
main investment mechanism. In Hire Purchase (HPSM), the trend also increasing. Purchase
and negotiation remain in increase position. Quard is also increase in the contentious year. On
the basis of Musharaka is decreasing.

The following table shows the sector wise investment position of AIBL during 2010-2014
Table no 03: Sector wise investment.
Mode

(Amount in Million Taka)

2010

2011

2012

2013

2014

Amount

Amount

Amount

Amount

Amount

10,040.11

11,526.18

19,692.68

24,480.21

35,593.03

Commercial

9,849.80

15,722.00

17,534.07

20,467.76

26,877.02

Real Estate

2,406.20

2,576.00

3,581.72

5,204.18

5,785.11

Transport

1,120.90

1,397.00

1,851.32

2,475.11

2,472.46

Agriculture

1,756.74

2,344.82

2,350.52

2,235.29

3,537.17

Others

2,263.57

1,671.76

1,270.30

4,144.94

1,593.77

Total

27,437.32

35,237.76

46,280.61

59,007.49

75,858.56

Industrial

Sources: AIBL Annual Report-2014

4.11 Special Investment 2014

In this table focuses the sector wise investment. Actually this Bank invested in Industrial &
Commercial Sector but they also providing loan in other sector.
The following table shows the different Special investment position of AIBL during 20102014
Table no 04: Special Investment.
Name of schemes
Rural Development

2010

(Amount in Million Taka)

2011

2012

2013

2014

272.60

371.10

432.04

570.88

789.97

735.20

865.90

886.79

910.91

878.76

81.50

95.10

97.21

101.01

85.54

967.90

1,147.50

1,822.38

2,311.60

2,442.54

22.90

27.40

28.25

33.58

30.30

Scheme
Household Durable
Scheme
Investment Scheme
for Doctor
Transport Investment
Scheme
Car Investment

Scheme
Small Business

216.80

244.10

325.06

395.75

501.26

.80

6.30

6.63

10.10

17.18

16.70

18.80

13.66

12.70

14.69

467.90

499.50

597.64

661.56

672.10

1,507.00

1,641.70

2,264.35

3,418.85

4,713.70

14.28%

13.37

Investment Scheme
Micro Industries
Investment Scheme
Agricultural
Investment Scheme
Housing Investment
Scheme
Real Estate Investment
Program
% to total

15.63%

13.95%

13.99%

Investment
Sources: AIBL Annual Report-2014
The respective Bank contains some special Investment Scheme. In these sectors the rate of
margin is not high. It helps to improve the economic condition of the Economy.
The following Graphs shows the total investment position of AIBL during 2010-2014.
Figure 05: Total Investment Position 2010-1014.

Total investment position: 2010 to 2014

102,144.51
83,893.63

Million Tk.

59,007
46,281

35,238

1,413.04

2010

1,906.78

2011

Sources: AIBL Annual Report-2014

3,068.36

2012

4,573.97

2013

4,358.85

2014

It helps to find the year wise investments performance. According to the table the
overall investment is increasing in the year to year. In this graph indicate the overall
investment position of the respective bank. It indicates the increasing the increasing
position. It is good sign for the respective bank. In the continuous year investment
position also increasing.

4.12 Major findings of the study

After analyzing the investment activities of AIBL Bank, the study finds that 1. The Bank has not sufficient employees to operate investment department in the bank.
2. Investment department meeting at the branch level does not held or very few which is
very essential to develop service quality.
3. Investment in Agricultural Sector Al- Arafah Islami Bank Ltd could not earn sufficient
profit.
4. Car service is not available for the officials, business houses and business executives and
established professionals for movement in discharging their duties and responsibilities.
5. The socio-economic development of rural poor people, a scheme named Grameen Small
Investment. The grameen small investors are cannot proper facility to investment.
6. The bank is also started working with women entrepreneurs to make them capable of
earning by connecting with countrys economic activities.
7. Professionals, Service-holders, Businessmen, Real Estate Developer and other categories
of people who are not entitled for availing investment facilities under Housing investment
scheme, shall be eligible under this program.
8. Small & Medium Enterprises, a number of SME related schemes are running in this Bank
but facility is normal.

Chapter 05:
Recommendations and
Conclusion

5.1 Recommendations
Based on the findings and observations, the recommendations of the study are given as1. The Al-Arafah Islami Bank Limited should increase efficient employees in investment
department.
2. Investment department meeting at the branch level meeting is very essential to develop
service quality as well as problem solving. But this practice is very few. So it may create
major problem in future. So the bank should never keep anything pending.
3. Investment in Agricultural Sector Al- Arafah Islami Bank Ltd

proper recycling

Agricultural Sector, then the bank would be profit this sector.

4. Car is considered as an essential mode of transport in the modern society, particularly by a
section of the officials, business houses and business executives and established
professionals for movement in discharging their duties and responsibilities punctually and
efficiently.
5. The socio-economic development of rural poor people, a scheme named Grameen Small
Investment. The grameen small investors if proper facilities to investment then the small
investors of grameens deposit this bank.
6. The bank is also started working with women entrepreneurs to make them capable of
earning by connecting with countrys economic activities. By the side of collateral secured
investment, collateral security free investment is also considered in the question of women
development.
7. Professionals, Service-holders, Businessmen, Real Estate Developer and other categories
of people who are not entitled for availing investment facilities under Housing investment
scheme, shall be eligible under this program. Investment is to be extension / completion of
the house already constructed, commercial building, flat/ apartment.
8. Small & Medium Enterprises, a number of SME related schemes are running in this Bank
but facility is normal. So the bank should increase Small & Medium Enterprises.

5.2 Conclusion
Al-Arafah Islami Bank Limited has made a revolutionary in the conventional banking
especily in the field of bank investment. Al-Arafah Islami Bank Limited because
successful in providing that bank investment can be made properly, profitability
following profit and loss sharing concept with abolishing interest and which is also
beneficial to human being and society.
An asset or item that is purchased with the hope that it will generate income or appreciate
in the future. In an economic sense, an investment is the purchase of goods that are not
consumed today but are used in the future to create wealth. In finance, an investment is a
monetary asset purchased with the idea that the asset will provide income in the future or
appreciate and be sold at a higher price.
And those all characteristics of bank investment are absolutely absent in case of
conventional bank. Bank without interest seems feasible as far as it goes. But it stills a
waits a fair trial without which it will be dogmatic to pass any judgment on it. Practical
experience is therefore no guide as to its success or failure. The rate of return can fall to
zero as envisaged in Islam only in an ideal society in which future can be perfectly foreseen and social security prevails from cradle to grave.
In this case even on single country can unilaterally work out the system because of closer
international ties and inter- dependence. Therefore, such a system pre-supposes an
international community imbibed with a sense of cooperation and universal brotherhood
and spirit of Islam.

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Fabozzi, J. F. 2012). Foundation of financial markets and institutions. 10th Edition. New York, USA:
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Gordon, E. M. (2010). Banking theory, law & practice. 11th Edition. New York, USA: Pearson
Education
Lawrence, J. G. (2013). Principles of managerial finance. 12th Edition. . New York, USA: Pearson
Education
Rose, P. S.. (2012). Bank management & financial services. 11th Edition. New York, USA: McgrawHill Publications
Ross, A.S., Westerfield, R. W., & Jordan, B. D. (2015). Fundamental of corporate finance. 8th
Edition. New York, USA: Mcgraw-Hill Publications

Annual Reports
AIBL, Bangladesh. (2015). Income Statement. Annual Report 2014. Dhaka, Bangladesh: AIBL
Publications Department