Investment Performance of Al-Arafah Islami Bank

1.
1 Origin of the report

Banks are the most important financial institutions in a modern economy. They are an
integral part of modern economic activities. They play a pivotal role in the
development of a country. They help accelerate the pace of development process by
securing uninterrupted supply of financial resources to people engaged in numerous
economic activities. The role of banking is comparable to what an artery system does
in the human body. Main role of banks are financial intermediation i.e. mobilization
of funds from small depositors and allocate them to entrepreneurs for investment.
Though, initially the major function of banking was to mobilize savings and transfer
them to entrepreneurs, over time they have come to perform a number of other
functions as well. In addition to offering their services for safe custody of money, and
other valuables, they also offer demand deposits, easy transfer of money, letters of
guarantees, collection of utility bills, and loans for consumer durables and investment.
Because of the development such as credit cards, ATMs, etc it has become very easy
to make payments through bank. In a modern economy a large part of current incomes
are deposited with the banks. Because of the facilities mentioned above, people desire
to get their money increased through investment and avoid withdrawing except
emergency. This phenomenon enables the banks to create money out of money.
They also help transfer of financial resources from surplus units to deficit units and,
hence, helps accelerate the pace of development by securing uninterrupted supply of
financial resources to people engaged in numerous economic activities.
The tremendous development that the world economy has experienced in the last few
decades was contributed by several factors among which, growing institutional supply
of loan able funds must have played the pivotal role. The role of banking is
comparable to what an artery system does in the human body. Both commercial banks
and other development financial institutions provide short, medium, and long-term
credits to businesspersons and entrepreneurs who usually take the lead in the venture
of economic development. Therefore, Islamic scholars have dealt with the theoretical
foundations of the banking activities with a view to find alternative.
1
1.2 Objectives of the Report
The main objective of this study is to know the investment performance of the Al-
Arafah Islami Bank. The specific objectives of the study are given as-
i) To know the investment activities of AIBL,

ii) To know the investment appraisal procedure AIBL,
iii) To know the investment positions of AIBL,
iv To identify the problems of AIBL related with investment,
v) To recommended few solutions to overcome of those problems.
1.3 Methodology of the Study

Secondary form of information is used to prepare the report. The details of these sources
are highlighted below-
Secondary Sources
Sources of secondary data can be defined as-
Internal Sources
i. Bank's Annual Reports

ii. Brochures of Al-Arafah Islami Bank Limited
iii. Manuals of Al-Arafah Islami Bank Limited (Bai-Murabaha, Bai-Muajjal,

Bai-Salam, Musharaka)
iv. Internal Records
v.Desk report of the related departments
vi. Website of AIBL
External Sources
i. Relevant books, Journals, Newspapers, Different Newsletters.
ii. Publications regarding banking functions, foreign exchange operation and

credit policies.
iii. Bangladesh Bank Report

iv. Newspapers
2
v. Websites
vi. Loan and Advances Act & Order.

Data Analysis: Data has been analyzed by using table, graphs, simple ratio analysis
percentage and other statistical tools and techniques.
1.4 Scope of Study

The report covers the organizational structure, background, objectives, functions and
investment performances of the bank. . The scope is also limited to different
investment performances, investment proposal appraisal procedures, monitoring and
documentation of AIBL. The scope of the study is just to acquaint with the
operational mechanisms of AIBL, international banking system & the services it
provides to the customers.
I get opportunities to finish the report of Banani Branch, Al-Arafah Islami Bank
Limited, on about Investment Performances Section.Within the stipulated time,
specially I have covered one major areas of AIBL. This is listed below and described
in this report. Investment Performances Section of Al-Arafah Islami Bank Limited.
1.5 Limitations of the Study

Being required to complete the internship program and prepare the report timely I
faced the following limitations-
i) The major limitation was the sensitivity of the data. As it is a highly competitive
market, release of material information to competitors have negative impact on
business. Ten weeks is a very short period to scrutinize all the activities of all
departments of a leading banking company like AIBL.
ii) Extreme work pressure restricted the officials to give us much time even if they
had cordial intentions to provide information.
iii) Some questions were avoided or not exactly answered by the respondents may be
because of lack of clear idea.
3
iv) Secondary sources of data relating to the banking industry in Bangladesh are very
limited as sufficient books, publications and journals were not available.
Despite all these limitations, we have given the best of our efforts and tried to make
the report as informative and comprehensive as possible.
4
2.1 Introduction
Al-Arafah Islami Bank Limited is a Joint Venture Public Limited Company engaged
in commercial banking business based on Islamic Shariah among the private sector
Banks in Bangladesh. 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. The
establishment of Al-Arafah Islami Bank Limited on 18 June 1995, is the true
reflection of this inner urge of its people, which the opening ceremony took place on
27 September 1995. It is committed to conduct all banking and investment activities
on the basis of interest-free profit-loss sharing system. In doing so, it has unveiled a
new horizon and ushered in a new silver lining of hope towards materializing a long
cherished dream of the people of Bangladesh for doing their banking transactions in
line with what is prescribed by Islam. Some other Islamic banks, financial institutions,
government bodies and eminent personalities of the Middle East and the Gulf
countries, Al-Arafah Islami Bank Limited has by now earned the better position of a
leading private commercial bank in Bangladesh.
2.2 Historical Background AIBL

Islam provides us a complete lifestyle. Main objective of Islami lifestyle is to be
successful both in our mortal and immortal life. Therefore in every aspect of our life
we should follow the doctrine of Al-Quran and lifestyle of Hazrat Muhammad (sm)
for our supreme success. The bank also known as AIBL and the head office of the
bank is based in Dhaka. A group of established, dedicated and pious personalities of
Bangladesh are the architects and directors of the Bank. Among them a noted Islamic
scholar, economist, writer and ex-bureau craft of Bangladesh government Mr. A.Z.M.
Shamsul Alam is the founder Chairman of the bank. His progressive leadership and
continuous inspiration provided a boost for the bank in getting a foothold in the
financial market of Bangladesh. The bank 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
5
satisfy customer needs. The Bank is committed to contribute significantly to the
national economy. AIBL provides many opportunities to their clients. They provide
Deposit Scheme, Investment, SME Banking, Micro Finance, Foreign Trade etc. In
Deposit Scheme, the provides Al Wadiah Current Deposit Scheme, Mudaraba Savings
Deposit Scheme, Mudaraba Term Deposit Receipt, Mudaraba Short Notice Deposit
etc. In Investment, they invest in Transportation sector, Hire purchase sector, Mosque
and Madrasa, Village and Small investment etc. In SME Banking service, they
provide SME Entrepreneurs, Agro Industries, Small business, women entrepreneurs
etc. In Micro Finance, they work to facilitate rural entrepreneurs, to develop socio
economic condition of rural people, to create employment scope etc. The bank also
provide others services such as Internet banking, SMS banking, Mobile banking,
Locker service, Remittance service, ATM service etc. The bank has 119 branches, 8
SME units, 35 ATMs and 2606 manpower ,80 authorized dealer(AD) throughout the
country and the number of shareholders were 58,466. Its authorized capital is Taka
15,000.00 million and the paid-up capital is Taka 8343.25 million o.(up to September
2014)The bank uses all latest banking system to serve their clients and also use latest
technology. Wisdom of the directors, Islamic bankers and the wish of Almighty Allah
make Al-Arafah Islami Bank Ltd most modern and a leading bank in Bangladesh.
2.3 Mission of AIBL

The Mission of AIBL are given as-
i) Achieving the satisfaction of Almighty Allah both here& hereafter.
ii) Proliferation of Shariah Based Banking practices.
iii) Quality financial services adopting the latest technology.
iv) Fast and efficient customer service.
v) Maintaining high standard of business ethics.
vi) Balanced growth.
vii) Steady& competitive return on shareholders equity.
viii) Innovative banking at a competitive price.
ix) Attract and retain quality human resources.
2.4 Vision of AIBL
6
AIBLs vision is to always strive to achieve superior financially performance, be
considered a leading Islamic Bank by reputation and performance. So it tries to
To operate based on Islamic principles of transactions along with ensuring
justice and equity in the economy.
i. To be a pioneer in Islami Banking in Bangladesh and contribute significantly
to the growth of the national economy.
ii. To improve Banker customer relationship through improving customer
service
iii. To develop now and innovate product/service through integration of
technology and policy and principle.
2.5 Objectives of AIBL

Al-Arafah Islami Bank Limited is Islamic Banking institutions that operates with the
objectives implement and materialize the economic and financial principles of Islamic
in the banking arena. The objectives of AIBL are not only to earn profit, but also to do
good and welfare to the people. The main objectives of AIBL are listed below-
i. To establish participatory banking instead of banking on debtor creditor
relationship.
ii. To invest through different modes permitted under Islamic Shariah.
iii. To accepts deposits on profit loss sharing basis.
iv. To establish as welfare-oriented banking system.
v. To extend co-operation to the poor, the helpless and the low income group
for their economic up liftmen.
vi. To play a vital role in human development and employment generation.
vii. To contribute towards balances growth and development of the country
through investment operations particularly in the less developed areas.
viii. To contribute in achieving the ultimate goal of Islamic economic system.
ix. To conduct interest free banking.
x. To eradicate the poverty and to do social services by establishing Schools,
Madrashas, University, Hospitals, Public Library etc.
2.6 Strategic Objectives of AIBL

i. To ensure customers' satisfaction.
7
ii. To ensure welfare oriented banking.
iii. To establish a set of managerial succession and adopting technological

changes to ensure successful development of an Islamic Bank as a stable
financial institution.
iv. To prioritize the clients welfare.
v. To emerge as a healthier & stronger bank at the top of the banking sector and
continue stable positions in ratings, based on the volume of quality assets.
vi. To ensure diversification by Sector, Size, Economic purpose & geographical

location wise Investment and expansion need based Retail and SME/Women
entrepreneur financing.
vii. To invest in the thrust and priority sectors of the economy.
viii.To strive hard to become a employer of choice and nurturing & developing
talent in a performance-driven culture.
ix. To pay more importance in human resources as well as financial capital.
x. To ensure lucrative career path, attractive facilities and excellent working

environment.
xi. To ensure zero tolerance on negligence in compliance issues both Shariah

and regulatory issues.
xii. To train & develop human resources continuously & provide adequate
logistics to satisfy customers need.
2.7 Functions of AIBL

Some restraint at the time of preparing the report is appended bellows-
i. To maintain all types of deposit accounts.
ii. To make Investment.
8
iii. To handle foreign exchange business.
iv. To extend other banking services.
v. To conduct social welfare activities through Islamic Bank Foundation.
2.8 Management Structure of AIBL
Figure No: 01 Structure of AIBL
9
2.9 Corporate Information of AIBL
Name of the Company Al-Arafah Islami Bank Ltd.
Legal Form A public limited company incorporated
10
in Bangladesh on 1st April 1995 under
the companies act 1994 and listed in
Dhaka Stock Exchange Limited.
Commencement of Business 27th September 1995
Registered Office Peoples Insurance Building 36,
Dilkusha(6-9 Floor) C/A, Dhaka-1000,
Bangladesh
Tel:PABX +880-2-7123255-7, 9568007, 9569353
Fax No. + 880-2-9569351
Website www.al-arafahbank.com
SWIFT ALARBDDH
E-mail [email protected]
Company Secretary Md. Mofazzal Hossain
Auditors SYFUL SHAMSUL ALAM & CO.
Chartered Accountants Paramount
Hights (level-6) 62/2/1, Box Culvert
Road Purana Palton, Dhaka-1000
No. of Branches 119
No. of Employee 2,606 upto September 2014
Authorized Capital Tk. 15,000 Million
Paid Up Capital Tk.8343.25 Million
Local Partnership of Capital 100%
Face Value Per Share Tk.10
Equity Capital Tk. 16,091.17Million
Number of Shareholder 58,466
Source: AIBL website.
2.10 Equity of AIBL

As per Capital Adequacy Policy prescribed by Bangladesh Bank, the Central
Bank of the Country, banks has maintained 8.81% Capital on its Risk-Weighted
Assets against which total equity of the Bank as on 31-12-2013. This was:
Date Amount of TAKA

30-09-2013 11,803.30 Million
30-06-2012 10,318.63 million
11
31-12-2011 9,400.03 Miilion
31-12-2010 8,619.81 million
31-12-2009 7,572.08 million
31-12-2008 6,957.74 million
31-12-2007 6,435.96 million
31-12-2006 5,331.14 million
31-12-2005 4,691.12 million
31-12-2004 4,266.47 million
31-12-2003 3,540.52 million
31-12-2002 2,993.24 million
2.11. Differences between Conventional Bank & Islami Bank
Table 04: Differences between Conventional Bank & Islami Bank.
Conventional Bank Islamic Bank
1. The functions and operating modes of 1. The functions and operating modes
conventional banks are based on fully of Islamic banks are based on the
manmade principles. principles of Islamic Shariah.
2. The investor is assured of a 2. In contrast, it promotes risk sharing

predetermined rate of interest. between provider of capital (investor)
and the user of funds (entrepreneur).
3. It aims at maximizing profit without any 3. It also aims at maximizing profit
12
restriction. but subject to Shariah restrictions.
4. It does not deal with Zakat. 4. In the modern Islamic banking

system, it has become one of the
service-oriented functions of the
Islamic banks to be a Zakat Collection
Centre and they also pay out their
Zakat.
5. Lending money and getting it back with 5. Participation in partnership

compounding interest is the fundamental business is the fundamental function
function of the conventional banks. of the Islamic banks. So we have to
understand our customer's business
very well.
7. Very often it results in the bank's own 7. It gives due importance to the
interest becoming prominent. It makes no public interest. Its ultimate aim is to
effort to ensure growth with equity. ensure growth with equity.
8. For interest-based commercial banks, 8. For the Islamic banks, it must be

borrowing from the money market is based on a Shariah approved
relatively easier. underlying transaction.
9. Since income from the advances is 9. Since it shares profit and loss, the
fixed, it gives little importance to Islamic banks pay greater attention to
developing expertise in project appraisal developing project appraisal and
and evaluations. evaluations.
10. The conventional banks give greater 10. The Islamic banks, on the other
emphasis on credit-worthiness of the hand, give greater emphasis on the
clients. viability of the projects.
13
11. The status of a conventional bank, in 11. The status of Islamic bank in
relation to its clients, is that of creditor and relation to its clients.
debtors.
3.1 Introduction
Investment is a term with closely related in business management, finance, economics

and different theories. Investment means savings through delayed consumption.
According to economics, Investment is referred as the utilization of resources in order

to increase income or production output in the future.
According to economists, Investment refers to any physical or tangible asset, for

example, a building or machinery or equipment. On the other hand, finance
professionals define investment as money utilized for buying financial assets, for
example, stocks, bonds, etc. People get involved in this type of investment in the
expectation that it will generate cash flows in the future.
14
According to finance, Investment refers to the buying of a financial product or any
valued item with anticipation that position returns will be received in the future.
According to economics theories, investment is defined as per unit production of
goods, which have not been consumed, however, will be used for the purpose of
future production.
According to business management theories, investment refers to tangible assets like

machinery and equipments, and, building and intangible assets like goodwill.
According to personal finance theories, an investment is the implementation of money

for buying shares or mutual funds or purchasing an asset with the involvement of the
factor of capital risk.
According to real estate theories, investment I referred to money utilized for buying
property for the purpose of ownership or leasing.
3.2 Objectives and Principles of Investment

The special feature of the investment policy of Islamic Banks is to invest based on
profit-loss sharing system in accordance with the tenets and principles of Islamic
Shariah. Earnings of the profits is not the only motives and objectives of the Al-
Arafah Islami Banks investment policy rather emphasis is given in attaining social
good and in creating employment opportunities .
The objectives and principles of investment operation of the banks are-
i. To invest fund strictly in accordance with the principles of Islamic Shariah.
ii. To diversify its investment portfolio by size of investment portfolio, by
sectors, by economics purpose, by securities and by geographical area
including industrial, commercial & agricultural.
iii. To ensure mutual benefit both for the bank and the investment client by
professional appraisal of investment proposals, judicious sanction of
investment, close and constant supervision and monitoring thereof.
iv. To make investment keeping the socio-economic requirement of the country
in view.
v. To increase the number of potential investors by making participatory and
productive investment.
15
vi. To invest in the form of goods and commodities rather than give out cash
money to the investment clients.
vii. To encourage social upliftment enterprises.
viii. To ensure, avoid all the investment forbidden by the Islamic Shariah.
3.3 Investment Policy of AIBL

Investment policy of Islamic Banks and non Islamic Banks are fully different. The
investment policies of Al-Arafah Islami banks are:
i. Strict observation of Islamic Shariah Principles.
ii. Investment to national priority sectors.
iii. Preference to short-term investment.
iv. To ensure safety and security of investments.
v. To look profitability of investments.
vi. Investment to industrial sectors.
3.4 Financial Performance of Al-Arafah Islamic Bank Ltd.

AIBL is one of the new entrants of the 3 rd generation bank having only 119 branches
currently. Within short time period, AIBL has been to create an image as a progressive
and dynamic financial institution for itself and has earned significant reputation in the
country banking sector. Despite of stiff competition in banking sector, AIBL witness a
considerable improvement in its overall business performance during 31 December,
which contributed to consolidate the position of the bank. Financial Performance of
Al-Arafah Islamic Bank Limited for last five years (2009-2013) is given bellow:
Table No: 03 (In Million Taka)

Particulars 2013 2012 2011 2010 2009
Investment income 14,119.18 8,974.0 3,502.1 2,243.1 2,220.4

9 4 5 7
Profit paid to depositors 9,575.64 5,543.4 2,220.4 1,628.6 1,383.8
5 7 3 1
Net investment income 4,543.53 1,693.3 1,281.6 614.52 936.81
2 8
Commission, Exchange and 1,207.20 5,123.9 885.12 712.46 410.26
other income 6
16
Total operating income 6,522.95 1,468.7 2,166.8 1,326.9 1,235.8
5 0 8 7
Total operating expense 4,403.90 3,655.2 638.70 570.80 644.59
1
Profit before tax and 1,726.69 363.47 1,528.1 756.18 1,528.0
provision 0 9
Provision on investment and 757.67 3,291.7 269.20 173.34 269.20
others 4
Profit before Tax 3,646.22 1,519.6 1,258.9 582.84 1,258.8
8 0 9
Net profit after Tax 1,919.52 1,772.0 668.24 347.31 668.23
6
Earnings per share (EPS) 2.69 3.01 148.29 25.10 3.72
Source: AIBL Annual Report 2012 & 2013.
3.5 Modes Wise Investment Performance of AIBL
AIBL invest its money in various sectors of the economy through different
performance and permitted by Shariah and approved by the Bangladesh Bank. The
Performance of Investment is as follows:
I. Bai-Mechanism
a) Bai-Muajjal.
b) Bai-Murabaha.
c) Bai-Salam.
d) Bai-Istishna.
II. Share Mechanism
a) Mudaraba.
b) Musharaka.
III. Ijara Mechanism
a) Hire Purchase under Shirkatul Melk.
b) Ijara.
3.5.1 Bai-Mechanism
a) Bai-Muajjal
Meaning
The terms BaiandMuajjal " have been derived from Arabic words and . The
17
word means purchase and sale and the word means a fixed time or a fixed
period. Bai-Muajjal " means sale for which payment is made at a future fixed date or
within a fixed period. In short, it is a sale on Credit.
Important Features Bai-Muajjal
i. It is permissible for the Client to offer an order to purchase by the Bank

particular goods deciding its specification and committing him to buy the
same from the Bank on Bai-Muajjal i.e. deferred payment sale at fixed price.
ii. 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
damages caused by breaking the promise without excuse.
iii. It is permissible to take cash/collateral security to guarantee the

implementation of the promise or to indemnify the damages.
iv. It is also permissible to document the debt resulting from Bai-Muajjal by a

Guarantor, or a mortgage. or 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.
v. Stock and availability of goods is a basic condition for signing a Bai-Muajjal

Agreement, Therefore, the Bank must purchase the goods as per specification
of the Client to acquire ownership of the same before signing the Bai-Muajjal
Agreement with the Client.
Invest in Bai-Muajjal
Figure No: 03
18
8000
6000
4000
2000
amount in Thousand
0
year-2009 year-2010 year-2011 year-2012 year-2013
3
00
01
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year
Source: AIBL Annual Report 2013

Table No: 04 (Figure in Thousands)
Year 2009 2010 2011 2012 2013
Amount 4862 5062 5500 5750 6650
Discussion
On the above table and graph shows that the investment of the bank demonstrated
steady growth over the years. The invest of Bai-Muajjal mechanism TK.4862
thousands in 2009, TK.5062 thousands in 2010, TK.5500 thousands in 2011, TK.5750
thousands in 2012, and TK.6650 thousands in 2013.Investment day to day increase on
the Bank. Because bank service and quality are very high. However, the bank should
try to improve its current situation. The Investment of Bai-Muajjal mechanism growth
is (6650-4862) =1788 from the 2009 to 2013. As on growth rate of 36.77%at the end
of 2013.Which exceeds the growth rate of 2009, 2010, 2011 & 2012.
Recovery of Bai-Muajjal
19
Figure No: 04
7000
6000
5000
4000
year-2009
3000
Amount in Thousand year-2010
2000 year-2011
year-2012
1000
year-2013
0
9
3
01
01
01
00
01
r- 2
-2
-2
-2
-2
ar
ar
ar
ar
a
Ye
ye
ye
ye
ye
Year

Year 2009 2010 2011 2012 2013
Amount 5134 5521 5400 5630 6440
b) Bai-Murabaha
Meaning
20
The terms "Bai-Murabaha" have been derived from Arabic words and ( Bai and
Ribhun). The word means purchase and sale and the word means an agreed
upon profit. Bai-Murabaha" means sale on agreed upon profit.
Important Features Bai-Murabaha
The Bank shall sell the goods at a higher price (Cost + Profit) to earn profit. The cost
of goods sold and profit mark-up therewith shall separately and clearly be mentioned
in the Bai-Murabaha Agreement. The profit mark-up may be mentioned in lump sum
or in percentage of the purchase/cost price of the goods. But, under no circumstances,
the percentage of the profit shall have any relation with time or expressed in relation
with time, such as per month, per annum etc. The price once fixed as per agreement
and deferred cannot be further increased.
Invest in Bai-Murabaha
Figure No: 05
25000000
20000000
15000000
10000000
5000000
amount in Thousand 0
3
9
01
00
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year
Year 2009 2010 2011 2012 2013

Amount 10004786 11112835 10419100 17298200 19289900
21
Discussion
steady growth over the years but in the year of 2011 the bank low investment. The
invest of Bai-Murabaha mechanism TK.10004786 thousands in 2009, TK.11112835
thousands in 2010, TK.10419100 thousands in 2011, TK.17298200 thousands in
2012, and TK.1928990 thousands in 2013.
The Investment of Bai-Murabaha mechanism growth is (19289900-17298200)
=1991700 from the 2012. As on growth rate of 11.51% at the end of 2013.Which
exceeds the growth rate of 2012 but in the year 2011; it is decreased because
investment is lower than other year 2010 and 2009. However, AIBL should try to
improve its current situation.
Recovery in Bai-Murabaha
Figure No: 06
20000000
15000000
10000000
0
3
9
01
00
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year
Year 2009 2010 2011 2012 2013

Amount 1005556 10348726 8410000 16500000 18578200
7
22
c) Bai-Salam
Definition
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
IslamicShariah and the law of the landto the buyer at an agreed price payable on
execution of the said contract and the commodity/ product is / are delivered as per
specification,size, quality, quantity, at a future time in a particular place.
Important FeaturesBai-Salam
i. Bai-Salam is a mode of investment allowed by Islamic Shariah in which
commodity / product can be sold without having the said commodity/ product
either in existence or physical / constructive possession of the seller.
Generally, industrial and agricultural products are purchased / sold in advance
under Bai-Salam mode of investment.
ii. It is permissible to obtain collateral security from the seller client to secure the
investment from any hazards.
Invest in Bai-Salam
Figure No: 07
700000
600000
500000
400000
300000
100000
0
9
3
00
01
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year
23
Year 2009 2010 2011 2012 2013
Amount 103309 145209 191500 422500 622700
Discussion
steady growth over the years. The invest of Bai-Salam mechanism TK.103309
thousands in 2009, TK.145209 thousands in 2010, TK.191500 thousands in 2011,
TK.422500 thousands in 2012, and TK.622700 thousands in 2013.
Recovery of BaiSalam
Figure No: 08
700000
600000
500000
400000
300000
year-2009 year-2010
100000 year-2011 year-2012 year-2013
0
9
3
00
01
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year

Year 2009 2010 2011 2012 2013
Amount 1003 1107 1443 4058 7850
24
d) Bai-Istisnaa
Definition
Bai-Istisnaais acontract between a manufacturer / seller and a buyer under which the
manufacturer/seller sells specific products after having manufactured, permissible
under Islamic Shariah and Law of the country after having manufactured at an agreed
price payable in advance or by installment within a fixed period or on / within a fixed
future date on the basis of the order placed by the buyer.
In Istisnaacontract, the buyer is called al-mustasni, the seller is called al-sani and
the goods or the subjects matter of the contract al-masnoo.
Rules and Conditions

I. There must be a contract between the manufacturer and the buyer, which shall
be the principal instrument to govern the advance selling and buying under
Istisnaa.
II. The name specification,brand,quantity, quality, size etc. of the products must
be clearly specified in the contract leaving no ambiguity.
III. Unit price and total price of the products must be fixed and mentioned in the
contract.
IV. The time and place of delivery should be mentioned in the contract.
V. The name of party who will bear the cost of transportation, storage charge / go
downrent, insurance etc. also be mentioned in the contract.
VI. The seller shall remain responsible for quality, quantity, and specification of
the products till physical delivery of the same to the buyer.
VII. After taking delivery of the products the buyer shall be the owner and shall
bear all risks till disposal / sale of the products.
VIII. The manufacturer also the right to obtain security, in any form, to guarantee
that the price is payable on due time.
3.5.2 Share Mechanism

a) Mudaraba
Meaning
25
The term Mudaraba has been derived from one of the meaning of the Arabic word
which means Travel. Thus the word Mudaraba means Travel for undertaking
businesses.
Definition
Mudaraba is a partnership in profit whereby one party provides capital and the other
partyprovides skill and labour. The provider of capital is called Sahib-al-maal and
the provider of labour is called Mudarib
Role for Sahib-al-Maal

i. To provide capital.
ii. Not to participate in the business actively.
iii. Not to dictate the mudarib.
Role for Mudarib
i. Toconduct the busines independently.
ii. Has to compensate the lossif the business fails at his own fault.
Kinds of Mudaraba
i. Restricted Mudaraba (AlMdaraba Al Muqayyadah):
A restricted Mudaraba is a contract in which the shahib -al-maal impose any
restrictions on the actions of the Mudarib.
ii. Unrestricted Mudaraba (AlMdaraba Al Mutlaqah):
A restricted Mudaraba is a contract in which the shahib-al-maal impose no restrictions
on the actions of the Mudarib.
b) Musharaka
Musharaka may be defined as a contract of partnership between two or more
individuals or bodies in which all the partners contribute capital, participate in the
management, share the profits in proportion to their capital, or as per-agreed ratio and
bear the loss, if any, in proportion to their capital / equity ratio.
Important Features of Musharaka
i. The investment client will normally run manage the business.
ii. The bank shall take part in the policy and decision making as well as
overseeing the operations of the business of the client. The bank may appoint
26
suitable personal to run the business and to maintain books of account of the
business property.
iii. As the investment client shall manage the enterprise, the bank may more share
of profit to him than that of his proportion capital contribution.
iv. Loss , if any shall be shared on the basis of capital ratio
Invest in Musharaka
Figure No: 09
6000000
5000000
4000000
3000000
amount in Thousand
2000000
1000000
0
0
9
3
01
00
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year
Year 2009 2010 2011 2012 2013
Amount 1239240 1490000 1309668 3370000 4980350
Discussion
steady growth over the years but in the year of 2011 the bank low invest. The invest of
Musharaka mechanism TK.1239240 thousands in 2009, TK.1490000 thousands in
27
2010, TK.1309668 thousands in 2011, TK.3370000 thousands in 2012, and
TK.4980350 thousands in 2013.
The Investment of Bai-Musharaka mechanism growth is (4980350-3370000)
=1610350 from the 2012 to 2013. As on growth rate of 47.78% at the end of
2013.Which exceeds the growth rate of 2012 but in the year 2011; it is decreased
because investment is lower than other year 2010 and 2009. However, AIBL should
try to improve its current situation.
Recovery in Musharaka
Figure No: 10
6000000
5000000
4000000
3000000
1000000
0
0
9
3
01
00
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year

Year 2009 2010 2011 2012 2013
Amount 1323540 1520000 718700 2170000 5042200
3.6. Ijara Mechanism

a) Hire Purchase under Shirkatul Melk
28
Under this mode Bank may supply implements/ equipment/goods on rental basis. The
ownership of the implements/equipment/goods will be with the Bank and the client
jointly and the portion of the client will remain to the Bank as mortgage until the
closure of the investment account, but the client will be authorized to possess the
equipment for certain period. The client, after completion of the installments, will be
the owner of the implements/ equipment/goods.
Important Features
In Hire Purchase under Shirkatul Melk Agreement, the Shirkatul Melk contract is
affected from the day the equity of both parties deposited and the asset is purchased
and continues upto the day on which the full title of Hire (Bank) is transferred to the
Hirer (Client).
Investment in HPSM
Figure No: 11
600000
500000
400000
300000
200000
amount in Thousand
100000
0
9
3
00
01
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year
Year 2009 2010 2011 2012 2013
Amount 312985 367865 267100 399450 490700
Discussion
29
steady growth over the years but in the year of 2011 the bank low invest. The invest of
HPSM mechanism TK.312985 thousands in 2009, TK.367865 thousands in 2010,
TK.267100 thousands in 2011, TK.399450 thousands in 2012, and TK.490700
thousands in 2013.
Recovery in HPSM
Figure No: 12
4000000
3500000
3000000
2500000
2000000
1500000
year-2009 500000 year-2011
year-2010 year-2012 year-2013
0
0
9
3
01
00
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year
Year 2009 2010 2011 2012 2013

Amount 1533645 1821066 1240000 2768900 3689756
Discussion
The investment of the bank demonstrated recovery steady growth over the years but
in the year of 2011 the bank low recoveries invest. The invest recovery of HPSM
mechanism TK.1533645 thousands in 2009, TK.1821066 thousands in 2010,
TK.1240000 thousands in 2011, TK.2768900 thousands in 2012, and TK.3689756
thousands in 2013.
3.7. AIBL Trend of Investment
30
This following figure shows the upward trends for AIBL investment, from 2009 to
2013.
350000
300000
250000
200000
150000
amount in Million Taka 100000
Growth 20% Growth 24% 0 Growth 19% Growth 23% Growth 16%
3
9
2
00
01
01
01
01
-2
-2
-2
-2
-2
ar
ar
ar
ar
ar
ye
ye
ye
ye
ye
Year
Discussion
On the above graph shows that the investment trend of the bank demonstrated steady
growth over the years. The invest trend TK.144921 million in 2009, TK.180054
thousands in 2010, TK.214616 thousands in 2011, TK.263225 thousands in 2012, and
TK.305841 thousands in 2013. Investment day to day increase on the Bank. Because
bank service and quality are very high. However, the bank should try to improve its
current situation.
The Investment trend of AIBL has increased in every year. So AIBL has increased at
growth rate of 39% wherein the overall investment of AIBL has increased at rate of
16% in the year 2013 over 2012.
3.8. Vertical Analysis

3.8.1. Balance Sheet of AIBL
31
Al-Arafah Islami Bank Bank Limited
Balance Sheet as at December 31, 2013
2013 2012
PROPERTY AND ASSETS
Notes (BDT) (BDT)
Cash 3 4,374,119,340 3,717,354,095
Cash in hand (Including Foreign Currencies) 443,342,558 452,062,448
Balance with Bangladesh Bank and Sonali Bank 3,930,776,782 3,265,291,647
Limited (Including Foreign Currencies)
Balance with Other Banks and Financial
4 327,911,508 209,201,299
Institutions
In Bangladesh 177,928,388 126,848,623
Outside Bangladesh 149,983,120 82,352,676
Money at Call and Short Notice 5 - 520,000,000
Investments 6 7,690,121,767 7,099,966,878
Government 5,681,107,430 4,875,680,349
Others 2,009,014,337 2,224,286,529
Loans and Advances 7 41,993,945,81431,877,860,104
Loans, Cash Credit, Overdraft etc. 7.A 37,362,451,99128,799,208,279
Bills Purchased and Discounted 7.B 4,631,493,823 3,078,651;825
Fixed Assets Including Premises, Furniture
8 682,999,856 593,203,096
and Fixtures
Other Assets 9 859,623,164 922,951,636
Non-Banking Assets - -
Total Assets 55,928,721,44944,940,537,108
Borrowings from other Banks, Financial
10 2,326,325,000 774,250,000
Institutions and Agents
Deposits and other Accounts 11 46,374,178,83338,139,901,767
Current Accounts and Other Accounts 11.1 5,831,638,358 5,220,658,499
Bills Payable 11.2 677,763,825 889,880,108
Savings Bank Deposits 11.3 3,020,870,440 2,344,752,184
Fixed Deposits 11.4 17,501,418,86614,632,634,933
Bearer Certificate of Deposits 11.5 - 25,939,840
Deposits Under Schemes 11.6 19,342,487,34415,026,036,203
Other Liabilities 12 3,610,885,506 3,097,081,462
Total Liabilities 52,311,389,339 42,011,233,229
Capital/ Shareholders' Equity
Paid-up Capital 13.1 1,798,677,900 1,498,898,300
Statutory Reserve 14 1,222,833,902 966,496,902
Other Reserves 15 233,183,099 161,038,249
Surplus in Profit & Loss Account 16 362,637,209 302,870,428
Total Shareholders' Equity 3,617,332,110 2,929,303,879
32
Total Liabilities and Shareholders' Equity 55,928,721,44944,940,537,108
Contingent Liabilities A
Acceptances and Endorsements 17 8,157,477,000 5,780,70'1,000
Letters of Guarantee 17.1 3,640,902,808 3,225,932,724
Irrevocable Letters of Credit 17.2 7,281,346,277 9,287,543,504
Bills for Collection 17.3 73,305,882 94,981,372
Other Contingent Liabilities 17.4 764,829,154 514,946,142
Total 19,917,861,12118,904,104,742
Other Commitments B
Total
Total Off-Balance Sheet Items Including
19,917,861,12118,904,104,742
Contingent Liabilities (A+B)
3.8.2 Profit and Loss Account of AIBL

Profit and Loss Account
For the year ended December 31, 2013
2013 2012
Particulars
Notes (BDT) (BDT)
Interest Income 18.1 4,875,241,879 3,686,414,282
Less : Interest Paid on Deposits,
19 4,045,970,142 3,159,295,227
Borrowings etc.
Net Interest Income 829,271,737 527,119,055
Investment Income 18.4 751,100,500 764,485,995
Commission, Exchange and Brokerage 20 917,199,841 790,361,690
Other Operating Income 21 333,960,039 319,692,585
2,002,260,380 1,874,540, 270
Total Operating Income 2,831,532,117 2,401,659,325
Salaries and Allowances 23 611,587,111 452,854,242
Rent, Taxes, Insurance, Electricity, etc. 24 155,724,646 124,305,552
Legal Expenses 25 5,045,236 5,955,217
Postage, Stamps, Telecommunication etc. 27,045,459 28,289,005
Stationery, Printings, Advertisements etc. 26 63,499,399 56,743,714
Chief Executive's Salary and Fees 23.1 6,450,000 4,388,203
Directors' fees 22 2,163,600 1,900,700
Auditors' Fees 500,000 500,000
Depreciation & Repair of Fixed Assets 27 74,617,737 60,174,509
33
Other expenses 28 303,383,441 281,399,317
Total Operating Expenses 1,250,016,629 1,016,510,459
Profit before Provision 1,581,515,488 1,385,148,866
Provision against Classified Loans 12.2 117,958,107 30,103,390
Provision against Unclassified Loans 12.2 77,174,000 61,687,181
Other Provisions 12.1.2 104,700,000 94,521,000
Total Provisions 299,832,107 186,311,571
Total Profit before Taxes 1,281,683,381 1,198,837,295
Provision for Taxation 12.1.1 665,800,000 658,338,000
Net Profit after Taxation 615,883,381 540,499,295
Retained Surplus brought forward from
3,090,828 2,138,633
previous year
618,974,209 542,637,928
Appropriations
Statutory Reserve 256,337,000 239, 767,500
Retained Surplus 362,637,209 302,870,428
618,974,209 542,637,928
Earnings Per Share (EPS) 29 34.24 30.05
3.9 Ratio Analysis
3.9.1 Net Working Capital

Net Working Capital = Current Asset Current Liability
Table No: 06 Net working capital
Year Current Assets Current Liabilities Net Working Capital

2009 4,031,684,955 2,260,755,481 1,770,929,474
2010 3,682,510,712 2,555,566,286 1,126,944,426
2011 4,411,836,436 3,500,845,103 910,991,333
2012 3,843,512,855 2,640,868,554 1,202,644,301
2013 4,774,311,194 2,216,744,401 2,557,566,793
Source: Annual Report (2009-13) of AIBL
Graphical Presentation
Figure No: 03
34
Net Working Capital
255
0
177
24
Net Working Capital
in billion
0
12
0
2009 112
2010 91
2011 120
2012 2013

Interpretation
We know, the standard of net working capital is 1:1. Net working capital of Al-
Arafah Islami Bank Limited had been increased gradually in the preceding 2 years
(2012-2013) Though in the year 2012, it is decreased because a current liability is
higher then other year 2011 and 2010. However, the company should try to improve
its current situation.
3.9.2 Current Ratio

Current Assets
Current Ratio
Current Liability
Table No: 07 Current ratio
Year Current Asset Current Liability Current Ratio
2009 4,031,684,955 2,260,755,481 1.78
2010 3,682,510,712 2,555,566,286 1.44
2011 4,411,836,436 3,500,845,103 1.26
2012 3,843,512,855 2,640,868,554 1.46
2013 4,774,311,194 2,216,744,401 2.15
Figure No: 04
35
Current Ratio
3
2.5
2 1.78
1.44 1.46
1.5 1.26
1
0.5
0
2009 2010 2011 2012 2.15
2013
Interpretation
As a manufacturing company, we know, the standard of current ratio is 2:1. The

companys current ratio varies from 1.78 to 2.15 proceeding from the last 5 years. So,
according to our evaluation the company is not enough able to meet up its current
obligation.
(Current Asset Inventory)
i.Quick / Acid Test Ratio =

Current Liability
Table No: 08 Quick Ratio
Year Current asset Inventory Current liability Quick Ratio
1,342,364,47
2009 4,031,684,955 2,260,755,481 1.19
8
1,544,191,79
2010 3,682,510,712 2,555,566,286 0.84
8
2,026,736,32
2011
4,411,836,436 2 3,500,845,103 0.68
2,098,755,23
2012 3,843,512,855 1 2,640,868,554 0.66
2,207,078,08
2013 4,774,311,194 2 2,216,744,401 1.16
36
Figure No: 05
Current Ratio
3
2.5
2 1.78
1.44 1.46
1.5 1.26
1
0.5
0
2009 2010 2011 2012 2.15
2013
Source: Annual Report (2007-13) of MBL
Interpretation
We know, the standard of quick ratio is 1:1.The Bank, MBL has a quick ratio from
1.19 to 1.4 among the years 2007-2011. But the ratio had fallen in year 2010. So the
company should try to regain its increasing trend of quick ratio.
3.9.3Analyzing Activities Ratio

Cost of goods sold
i. Inventory Turnover Ratio =
Average inventory
Table No: 09 Inventory turnover ratio
Year Cost of Goods Sold Inventory Inventory Turnover

2009 3,525,402,669 1,342,364,478 2.62/3times
2010 4,268,447,662 1,544,191,798 2.76/3times
2011 4,856,061,933 2,026,736,322 2.40
2012 5,672,565,973 2,098,755,231 2.70/3times
2013 6,561,288,485 2,207,078,082 2.97/3times
Figure No: 06
37
Inventory Turnover Ratio
5
4
3 2.62
2
1
0
2009 2.76
2010 2.4
2011 2.7
2012 2.97
2013
Interpretation
We know, the standard of inventory turnover ratio is generally 8 times. The Banks
inventory turnover ratio has fluctuated throughout the period and the highest value
can be observed during FY 2007 and FY 2011
3.9.4 Average Collection Period
Account Receivable
i. Average Collection Period =
Average Sales per Day
Year Accounts Receivable Average Sales Per Day Average Collection

Period (days)
2009 288,732,137 6,089,905,396/360 17.07
322,864,637 7,500,811,349/360 15.5
2010
360,245,646 8,680,825,186/360 14.93
2011
2012 477,562,002 10,172,729,107/360 16.90
2013 508,249,174 11,849,964,755/360 15.44
Table No: 10 Average collection period
Figure No: 07
38
Average Collection Period (Days)
20 17.07
16
12
8
4
0
2009 15.5
2010 14.93
2011 16.9
2012 15.44
2013
Interpretation
We know, the standard of average collection period is 60 days to 90 days and the
lower, it is more efficient. The average collection period of the company has
fluctuated throughout the whole period
Sales
i i. Fixed Asset Turnover =
Net Fixed Assets
Table No: 11 Fixed asset turnover ratio
Year Sales Net Fixed Assets Fixed Asset Turnover Ratio (time)
2009 3,089,905,396 5,267,302,357 1.16
2010 3,500,811,349 6,804,429,292 1.10
2011 4,680,825,186 8,291,290,984 1.04
2012 8,172,729,107 9,407,730,001 1.08
2013 8,849,964,755 10,255,189,084 1.16
Figure No: 08
39
Fixed Asset Turnover Ratio
2
1.5
1.16
Fixed Asset Turnover Ratio
1
0.5
0
2009 1.1
2010 1.04
2011 1.08
2012 1.16
2013
Interpretation
We know, the standard of fixed asset turnover ratio for large organization is generally
4 times. AIBLs fixed asset turnover ratio fluctuates from 1.08 to 1.04 and the highest
value can be observed during FY 2007 and 2011. But still it is below the standard.
Sales
iii. Total Asset Turnover =
Total Assets
Table No: 12 Total asset turnover ratio
Year Sales Total Assets Total Asset Turnover Ratio (time)
2009 6,089,905,396 9,298,987,312 0.65
10,486,940,00
7,500,811,349 0.71
2010 4
12,703,127,42
8,680,825,186 0.68
2011 0
10,172,729,10 13,251,242,85
0.77
2012 7 6
11,849,964,75 15,029,500,27
0.79
2013 5 8
40
Figure No: 09
Total Asset Turnover Ratio

1
0.8
0.65
0.6 Total Asset Turnover Ratio
0.4
0.2
0
2009 0.71
2010 0.68
2011 0.77
2012 0.79
2013
Interpretation
We know, the standard of total asset turnover ratio for large organization is 2 times.
The companys total asset turnover ratio fluctuates from 0.65 to 0.79 which is below
the standard. So, again AIBL should try to obtain a greater total asset turnover ratio.
3.9.5 Analyzing Leverage Ratios
i. Debt Ratio =
Total Liabilities
Total Assets
Year Total Liabilities Total Assets Debt Ratio
2009 2,896,972,540 9,298,987,312 0.31
2010 3,153,682,392 10,486,940,004 0.30
20011 2,339,142,506 12,703,127,420 0.18
2012 2,896,972,540 13,251,242,856 0.21
2013 3,153,682,392 15,029,500,278 0.20

41
FigureNo:10
Debt Ratio
0.6
0.45
0.31
0.3
0.15
0
2009 0.3
2010 0.18
2011 0.21
2012 0.2
2013
Interpretation
The debt ratio of AIBL fluctuates from 0.31 to 0.18. We know, debt ratio indicates
how much portion of total assets is financed by the debt. The lower, it is less risky. So,
the companys debt ratio is satisfactory. The company should keep this trend.
Shareholders Equity

Debt- Equity Ratio Long Term Debt
Table No: 14 Debt-equity ratio
Year Long-term Debt Shareholders Equity Debt-Equity Ratio
2009 636,217,059 6,402,014,772 0.10

2010 598,116,106 7,333,257,612 0.08
2011 785,241,612 8,417,040,705 0.10
2012 997,553,246 10,925,978,216 0.10
2013 1,368,376,052 12,940,209,559 0.10
42
Figure No: 11
Debt-Equity Ratio
0.25
0.2
0.15
0.1
0.1
0.05
0
2009 0.08
2010 0.1
2011 0.1
2012 0.1
2013
Interpretation
We know the standard of debt-equity ratio is 2 to 3.5:1. The debt-equity ratio of MBL
has fluctuated throughout the whole period. The company should work hard to
achieve the standard.
Total Equity
ii. Equity Ratio =
Total Assets
TableNo: 15 Equity ratio
Year Total Equity Total Assets Equity Ratio

2009 6,402,014,772 9,298,987,312 0.69
2010 7,333,257,612 10,486,940,004 0.70
2011 8,417,040,705 15,058,188,280 0.60
2012 10,925,978,216 14,904,565,646 0.73
2013 12,940,209,559 16,405,752,756 0.79

43
Figure No: 12
Equity Ratio
1
0.8 0.69
0.6
Ratio 0.4
0.2
0
2009 0.7
2010 0.6
2011 0.73
2012 0.79
2013
Interpretation
The equity ratio of Mercantile Bank Ltd. fluctuates from 0.69 to 0.79. We know,
equity ratio indicates how much portion of total assets is financed by the equity. If the
ratio is higher, it is less risky. Simultaneously it also decreases the firms value. So,
the company should determine a ratio which is not so high, not so low. Here, the
equity ratio is satisfactory.
EBI T
iii. Time Interest Earned Ratio Interest
Table No: 16 Time interest earned ratio
Year EBIT Interest Time Interest Earned Ratio
2009 1,580,204,535 139,863,636 11.30
2010 1,825,752,239 236,845,084 7.71

2011 1,709,305,818 351,868,423 4.90
2012 2,929,027,852 454,691,855 6.44
2013 3,325,901,958 320,320,168 10.38

44
Figure No: 13
Time Interest Earned Ratio

11.3 10.38
13
7.71
9
Ratio 4.9
5
1
2009 2010 2011 6.44

2012 2013
Year
Interpretation
The companys time interest earned ratio fluctuates from 4.90 to 11.30. As we know,
if this ratio is equal to 1 or more than 1, the firm is able to meet up the interest
payment. Though the ratio has fallen a while in the year 2009, still MBL is able to
meet up the interest payment in the preceding 5 years (2007-2011).
3.9.6 Analyzing Profitability Ratios
Gross Profit
i. Gross Profit Margin =
Table No: 17 Gross profit margin Sales
Year Gross Profit Sales Gross Profit Margin %

2009 2,564,502,727 6,089,905,396 42%
2010 3,232,363,687 7,500,811,349 43%
2011 3,401,781,806 8,680,825,186 40%
2012 4,148,230,595 10,172,729,107 40%
2013 4,901,289,925 11,849,964,755 41%

45
Figure No: 14
Gross Profit Margin

42% 43% 41%
%
30
Profit Margin
0%
2009 2010 40%

2011 40%
2012 2013
Year
Interpretation
We know, the standard of gross profit margin is 20% to 30%. The companys gross
profit margin fluctuates from 40% to 43%. Here, the gross profit margin has an
increasing trend, which is desirable. So, MBL should maintain this trend.
Operating Profit or EBIT
ii. Operating Profit Margin =
Table No: 18 Operating profit margin
Year Operating Profit Sales Operating Profit Margin

2009 1,580,204,535 6,089,905,396 0.26
2010 1,825,752,239 7,500,811,349 0.24
2011 1,709,305,818 8,680,825,186 0.20

10,172,729,10
2,368,437,227 0.23
2012 7
11,849,964,75
2,689,618,986 0.23
2013 5
46
Figure No: 15
Operating Profit Margin
0.18 0.18 0.16

24
0.
0
2009 2010 0.16

2011 0.17
2012 2013
Year
Interpretation
We know, the standard of Operating profit margin is near about 20%. The companys
operating profit margin fluctuates from 0.2 to 0.26 which is quite satisfactory. Here,
MBL should try to hold its current operating profit margin trend.
iii.Net Profit Margin = Net Profit after Taxes

Sales
Table No: 19 Net profit margin
Year Net Profit after Taxes Sales Net Profit Margin
2009 1,165,864,616 6,089,905,396 0.19
2010 1,303,242,840 7,500,811,349 0.17
2011 1,381,863,093 8,680,825,186 0.16
2012 1,890,052,929 10,172,729,107 0.18
2013 2,087,871,791 11,849,964,755 0.18
47
Figure No: 16
Net Profit Margin
0.18 0.18
32
0.16
0.
0
2009 2010 0.16

2011 0.17
2012 2013
Year
Interpretation
We know, the standard of net profit margin is 5% to 10%. The companys net profit
margin fluctuates from 0.16 to 0.19. It was increasing in the years from 2007 to 2008.
But it has been decreasing from year 2009 which is not desirable. So, MBL should try
to increase the net profit margin.
Net Profit after Tax

iv. Return on Investment =
Total Assets
Table No: 20 Return on investment
Year Net Profit after Taxes Total Assets Return on Investment
2009 1,165,864,616 9,298,987,312 0.13

10,486,940,00
1,303,242,840 0.12
2010 4
15,058,188,28
1,381,863,093 0.10
2011 0
14,904,565,64
1,890,052,929 0.13
2012 6
2013 2,087,871,791 16,405,752,75 0.13
48
6
Figure No: 1
Return on Investment
0.18 0.18 0.16

24
0.
0
2009 2010 0.16

2011 0.17
2012 2013
Year
Interpretation
The Banks return on investment varies from 0.1 to 0.13 in the preceding 5 years
(2007-2011). The companys return on investment has a decreasing in the year 2009,
which is not desirable. So, the management should work hard to increase the return
associated with investment.
Net Profit after Tax

V. Return on Equity (ROE) = Shareholders Equity
Table No: 21 Return on equity
Year Net Profit after Taxes Shareholders Equity Return on Equity%
2009 1,165,864,616 6,402,014,772 0.18

2010 1,303,242,840 7,333,257,612 0.18
2011 1,381,863,093 8,417,040,705 0.16
2012 1,890,052,929 10,925,978,216 0.17
2013 2,087,871,791 12,940,209,559 0.16
49
Figure No: 18
Return on Equity
0.18 0.18 0.16

24
Return on Equity
0.
0
2009 2010 0.16

2011 0.17
2012 2013
Year
Interpretation
The Banks return on equity varies from 0.02 to 0.18 in the preceding 5 years (2007-
2011) and the highest value can be observed during the FY 2007 and the lowest value
can be observed during the FY 2008 and 2009, which is not desirable. So the
management should work hard to increase the return associated with equity.
Earnings Available for Common stockholders
Vi. Earnings per Share (EPS) =

Number of Shares Outstanding
Table No: 22 Earning per share
Earnings Available to Common Number of Shares Earnings Per

Year
Stockholders Outstanding Share
2009 1,165,864,616 4,968,000 234.67
2010 1,303,242,840 5,961,600 218.61
2011 1,381,863,093 8,942,400 154.53
2012 1,890,052,929 12,072,240 156.56
2013 2,087,871,791 15,090,300 138.36
50
Figure No: 19
Earning Per Share

11.3 10.38
13
7.71
9
4.9
5
1
2009 2010 2011 6.44

2012 2013
Year
Interpretation
The Banks earnings per share vary from 138.36 to 234.67 in the preceding 5 years
(2007-2011) and the lowest value can be seen in the FY 2011 which is not desirable.
Therefore, earning per share of MBL should be increased to attract investors.
Vii. Price Earnings Ratio = Market Price per Share of Common Stock
Earnings per Share
Table No: 23 Price earnings ratio
Year Market Price per share Earnings per Share Price Earnings Ratio
2009 2,276 234.67 9.70

2010 2,447 145.74 16.79
2011 4,110 154.53 26.60
2012 2,935 125.25 23.43
2013 3,581 138.36 25.88
51
Figure No: 20
Interpretation
The Banks price earnings ratio varies from 9.70 to 16.40 in the preceding 5 years
(2007-2011). It has an increasing trend which is satisfactory. So the company should
maintain this trend further.
III.10 SWOT Analysis
52
SWOT Analysis is an important tool for evaluating the companys Strengths,
Weaknesses, Opportunities and Threats. It helps the organization to identify how to
evaluate its performance and understand the macro environment, which in turn would
help the organization to navigate in the turbulent ocean of competition.
Strength and Weakness are internal attributes. Which can addressed by analyzing the
organizations values, norms, operational procedures, working environment, reward
and punishment systems, quality and experience of employees, financial soundness,
quality and experience of management, reputation and loyalty of Customers and so
on.
Opportunity and threat are external attributes. These arise from the environment in
which the organization operates. External environment consists of the legal and
regulatory requirements, competitive situation and position in the industry life cycle,
53
growth of the industry, strength and Weaknesses of the competitors and other
macroeconomic factors.
Overall, the mix is exciting. I live in an age of growth, change, and business
revolution. The globalization offers me opportunities and threats. I need to make my
dealing with it one of my biggest strength, to minimize my Weakness. The SOWT
analysis of AIBL is presented below.
Strengths
Strengths are the internal resources and capabilities that allow an organization to
achieve better performance than its competitors. The salient strengths of AIBL are:
Adequate internal fund: AIBL maintains adequate retained earnings and

general reserve. So it does not need to borrow money from Bangladesh Bank
or any other banks.
More funds for Investment: For adequate financial ability, more paid up
capital, and financial solvency, AIBL can provide more investments to clients
relative to competitors.
Honest and Reliable Employees: The employees of AIBL are reputed for
their honesty and reliability. They always devote themselves to be efficient and
provide better Customers service.
Experience management team: The management team is skilled and

experienced and it always followed its vast (20years) experience since its
establishment.
Weakness
54
Weakness is the internal problems and lacking that restricts an organization to achieve
performance as its competitors do. The salient Weaknesses of AIBL are:
Centralized decision making: In the organization, decision-making is more

or less centralized at the top of the organization. A group of senior managers
make all significant operating decisions and then communicates to the
managers at lower level. This trend is common to almost all banks which
make managers reluctant to change and innovation.
Lack of diversification: The investment condition of AIBL is not diversified
in terms of sector as Ill as Customers. Sometimes proper procedures like
collateral and documentation are not complied so there is high exposure to
risk.
Lack of coordination: Sometimes lack of co-ordination found among the
branches and Head Office.
Opportunities
Opportunities are the external possibilities that may allow an organization to achieve
better performance than its competitors in the future. The salient Opportunities of
AIBL are:
Emergence of E-banking and mCash: Emergence of E-banking has opened

more scope for AIBL. It will help the Customers know their account
information from their home personal Computer and mobile phone.
Increase distributional network: It has financial capabilities to increase its

distributional network in uncovered area or network.
Increasing interest for Al-Arafah Islami Bank Limited: Most of my people

are piome; they want to deposit their fund in interest free organization. For this
55
reason, AIBL have enough opportunity for deposit mobilization and also for
strong base of equity AIBL can disburse large scale of Investment, which can
help to achieve more profit and poverty elevation.
Threats
Threats are the external possibilities that may restrict an organization to achieve better
performance as its competitors may do in the future. The salient Threats of AIBL are:
Regulatory environment: The rules and regulations about financial system in

Bangladesh are not favorable for AIBL. Therefore, they have to face varicose
problems to operate their activities according to Islamic Shariah.
Exchange rate risk: Frequent taka devaluation and foreign exchange rate
fluctuation is cambering excessive Exchange rate risk.
4.1 Findings of the Report

Bangladesh is not a full-fledged Islamic country, not all activities are operating
according to the Shariah of Islam. However, the AIBL is trying to operate their
activities conform to Islamic Shariah as much as possible. From the long and rigorous
study and close observation, we got some findings about AIBL that are presented
below-
i. Bai-Muajjal mechanism AIBL reach the standard position, investment increase
36.77% in 2013 than is higher from 2012.Which is able to meet up its current
obligation.
ii. Bai-Murabaha mechanism AIBL is not standard of the investment. AIBL has
fallen in year 2011. Investors will be worried at this investment. But in 2013
investment growth 11.51% than 2012.
iii. Bai-Salam mechanism AIBL is not standard of the investment. Because AIBL has
fallen in year 2011. Investors will be worried at this investment.
56
iv. In Musharaka mechanism AIBL is not standard of the investment. AIBL has fallen
in year 2011. Investors will be worried at this investment. But in 2013 investment
growth 47.78% than 2012.
v. In HPSM mechanism AIBL is not standard of the investment. AIBL has fallen in
year 2011. Investors will be worried at this investment. But in 2013 investment
growth 22.84% than 2012.
vi. AIBL investment trend has been increasing from the year 2009 from 2013 which
is able to meet up the current position.
vii. Islamic Banking is a new phenomenon in our country during last two decades.
Therefore, majority of our people do not have proper knowledge about the
harmful impact of interest and the activities of AIBL as well as its investment
mechanisms, which hamper large scope of investment of AIBL.
viii. Investment of the Al-Arafah Islami Bank Limited portfolio are not diversified and
extended for long term financing under Musharaka and Mudaraba.
ix. People are not interested to invest in AIBL because they are not aware of the
investment methods of Islami Bank.
x. The investment policy of AIBL is not popular in all sectors of people in
Bangladesh. At that cause the rate of return of AIBL is not high rate of return from
their investment policy.
xi. The Musharaka and Mudaraba investment is not available to all clients.
xii. The AIBL investment monitoring has some lacking. As for that the Al-Arafah
Islami Bank Limited investment cant reach in the people or business sector.
xiii. This Bank cannot invest in all economic sectors, goods, and services which are
prohibited by the law of Islam so are deceived of many profitable investment
opportunities.
xiv. As the call money market involves interest, AIBL do not participate in the call
money market. As a result AIBL needs to maintain more liquidity to facilitate the
withdrawal needs of the depositors, which in term reduces profitability.
4.2 Recommendations of the report
57
Islamic Banking System of Bangladesh, as a new paradigm of banking, has been able
to establish its own presence with a continued expansion geared by increasing
acceptance by the people. To continue this dynamic expansion, the first action that
deserves immediate attention is the promotion of the image of Al-Arafah Islami Bank
Limited (AIBL). Strategies have to be carefully devised so that the image of Islamic
character and solvency as a bank is simultaneously promoted. The following policy
actions are suggested for immediate application for the investment-
i. AIBL should try to improve Bai-Murabaha investment mechanism.
ii. Should be emphasis in Bai-Salam investment mechanism.
iii. AIBL should try to improve Bai-Musharaka investment mechanism.
iv. Should be emphasis in HPSM investment mechanism.
v. Monthly /quarterly training courses /workshops should be arranged for the
clients, selected by the branches in order to promote Investment clients of
the desired level.
vi. AIBL can diffuse its scope the investment through focusing Shariah concept
regarding investment among the Bank officers, employers and the clients by
strong training, workshops and clients get together.
vii. Practice amount of doubtful income declined substantially during the year as
compared to the fast few years, Including, more carefulness of the
Management in complying with Shariah, As a result, idle money will be
invested to increase potential profit of this bank.
viii. Al-Arafah Islami Bank Limitedshould be expand their Investment in the
whole country.
ix. Investment performance of Islami Bank should be diversified and extended
for long term financing under Musharaka and Mudaraba.
x. Islami Bank Investment of financing can be broadly classified into equity
and debt instruments, while equity instruments are Mudarabah and
Musharaka, debt instruments arise from Sale transactions, these fixed.
xi. To fulfill the vision of "mass banking" this bank should grant investment
portfolio to new entrepreneurs.
xii. Decision making process should be free of ambiguity and be time conscious
xiii. Has to ensure reasonable spread and return on assets.
58
So finally Islami banks should be develop unanimous Shariah Manual or guidelines
for day to day consultation and clientele motivation.
59
4.3 Conclusion
Bangladesh is a developing country. Without developing banking sector, this countrys

business sector is not possible to progress rapidly. In such condition, AIBL is trying to
develop banking sector through ensuring welfare oriented servicing to the people.
Islami Banking is not possible to establish without Tauhid, Reshalat and trust of
Akhirat.
Interest free banking system is no more a concept. It is now a reality, a dynamic
system, embodying a set of superior banking mechanism. More than 300 Islamic
bank and financial institutions are operating in different countries throughout the
world. With a marked success from this inception in our country in 1983, AIBL has
been operating with real confidence in co-operation with other conventional banks.
Bringing a new concept in such business sector, which is growing so rapidly in the
world, is really a bold step. As the largest Islamic commercial bank, Islamic bank
took various steps to create employment opportunities and socio-economic
development for the poor through Islamic Shariah and an overall climate for the
introduction of large scale Islamic Banking in Bangladesh.
To conclude we must say that, Al-Arafah Islami Bank Limited (AIBL) has been
established with a view to conduct interest free banking to establish participatory
banking instead of debtor-creditor relationship and Al-Arafah Islami Bank Limited
(AIBL) has immense potential to work in Bangladesh. It can play a vital role in
bringing revolutionary changes in our life with both material and moral world from
in individual and collective level.
60
Appendix 1:
Balance Sheet of Al-Arafah Islami Bank Ltd
As of December 31, 2012 & 2013
2013 2012
PROPERTY AND ASSETS
(BDT) (BDT)
Cash 4,374,119,340 3,717,354,095
Cash in hand (Including Foreign Currencies) 443,342,558 452,062,448
Balance with Bangladesh Bank and Sonali 3,930,776,782 3,265,291,647
Bank Limited (Including Foreign Currencies)
Balance with Other Banks and Financial
327,911,508 209,201,299
Institutions
In Bangladesh 177,928,388 126,848,623
Outside Bangladesh 149,983,120 82,352,676
Money at Call and Short Notice - 520,000,000
Investments 7,690,121,767 7,099,966,878
Government 5,681,107,430 4,875,680,349
Others 2,009,014,337 2,224,286,529
Loans and Advances 41,993,945,814 31,877,860,104
Loans, Cash Credit, Overdraft etc. 37,362,451,991 28,799,208,279
Bills Purchased and Discounted 4,631,493,823 3,078,651;825
Fixed Assets Including Premises, Furniture
682,999,856 593,203,096
and Fixtures
Other Assets 859,623,164 922,951,636
Non-Banking Assets - -
Total Assets 55,928,721,449 44,940,537,108
Borrowings from other Banks, Financial
2,326,325,000 774,250,000
Institutions and Agents
Deposits and other Accounts 46,374,178,833 38,139,901,767
Current Accounts and Other Accounts 5,831,638,358 5,220,658,499
Bills Payable 677,763,825 889,880,108
Savings Bank Deposits 3,020,870,440 2,344,752,184
Fixed Deposits 17,501,418,866 14,632,634,933
Bearer Certificate of Deposits - 25,939,840
Deposits Under Schemes 19,342,487,344 15,026,036,203
Other Liabilities 3,610,885,506 3,097,081,462
Total Liabilities 52,311,389,339 42,011,233,229
Capital/ Shareholders' Equity
61
Paid-up Capital 1,798,677,900 1,498,898,300
Statutory Reserve 1,222,833,902 966,496,902
Other Reserves 233,183,099 161,038,249
Surplus in Profit & Loss Account 362,637,209 302,870,428
Total Shareholders' Equity 3,617,332,110 2,929,303,879
Total Liabilities and Shareholders' Equity 55,928,721,449 44,940,537,108
Contingent Liabilities
Acceptances and Endorsements 8,157,477,000 5,780,70'1,000
Letters of Guarantee 3,640,902,808 3,225,932,724
Irrevocable Letters of Credit 7,281,346,277 9,287,543,504
Bills for Collection 73,305,882 94,981,372
Other Contingent Liabilities 764,829,154 514,946,142
Total 19,917,861,121 18,904,104,742
Other Commitments
Total
Total Off-Balance Sheet Items Including
19,917,861,121 18,904,104,742
Contingent Liabilities (A+B)
Appendix 2:
Profit-Loss Account of Al-Arafah Islami Bank Ltd
As of December 31, 2012, 2013
2013 2012
Particulars
(BDT) (BDT)
Interest Income 4,875,241,879 3,686,414,282
Less : Interest Paid on Deposits,
4,045,970,142 3,159,295,227
Borrowings etc.
Net Interest Income 829,271,737 527,119,055
Investment Income 751,100,500 764,485,995
Commission, Exchange and Brokerage 917,199,841 790,361,690
Other Operating Income 333,960,039 319,692,585
2,002,260,380 1,874,540, 270
Total Operating Income 2,831,532,117 2,401,659,325
Salaries and Allowances 611,587,111 452,854,242
62
Rent, Taxes, Insurance, Electricity, etc. 155,724,646 124,305,552
Legal Expenses 5,045,236 5,955,217
Postage, Stamps, Telecommunication etc. 27,045,459 28,289,005
Stationery, Printings, Advertisements etc. 63,499,399 56,743,714
Chief Executive's Salary and Fees 6,450,000 4,388,203
Directors' fees 2,163,600 1,900,700

Auditors' Fees 500,000 500,000
Depreciation & Repair of Fixed Assets 74,617,737 60,174,509
Other expenses 303,383,441 281,399,317
Total Operating Expenses 1,250,016,629 1,016,510,459
Profit before Provision 1,581,515,488 1,385,148,866
Provision against Classified Loans 117,958,107 30,103,390
Provision against Unclassified Loans 77,174,000 61,687,181
Other Provisions 104,700,000 94,521,000
Total Provisions 299,832,107 186,311,571
Total Profit before Taxes 1,281,683,381 1,198,837,295
Provision for Taxation 665,800,000 658,338,000
Net Profit after Taxation 615,883,381 540,499,295
Retained Surplus brought forward from
3,090,828 2,138,633
previous year
618,974,209 542,637,928
Appropriations
Statutory Reserve 256,337,000 239, 767,500
Retained Surplus 362,637,209 302,870,428
618,974,209 542,637,928
Earnings Per Share (EPS) 34.24 30.05
63
Bibliography
1. Barnett, Michael L. L. and Salomon, Robert M. (2003) Throwing a Curve

at Socially Responsible Investing Research: A New Pitch at an Old Debate.
InOrganization & Environment, Vol. 16, No. 3, pp. 381-389.
2. Edna, Carew (1996), The language of Money,Allen Curwin,
Australia.Chaps, M.Umar (2000), Review of Islamic Economics,Pakistan.
3. M KabirHasan (2003), Text Book on Islamic Banking,Islami Economics
Research Bureau, Dhaka.
4. Sharp, William F,Alexander, Gordon J,Baily,Jeffery V. (1978),Investments
6th edition, Prentice Hall India, USA.
5. ZviBodie, Alex Kane,Marcus, Alan J. (1989), Investments 6 thedition,Tata
Me Graw-Hill, USA.
Report & Brochure
1. AIBL Annual Report in 2013- Published by AIBL.
2. AIBL Annual Report in 2012- Published by AIBL.
3. AIBL Investment Manuals (2012) - Published by AIBL.
4. AIBL Investment Manuals (2011) - Published by AIBL.
5. Booklet namely Introduction of Islami Bank Bangladesh Ltd.
6. Booklet namely Islami Bank 30 years of Progress.
7. Branch Managers Conference Book 2012.
8. Brochures of Al-Arafah Islami Bank Limited.
Website
1. www.al-arafahbank.com
2. www.answer.com
3. www.finance.com
4. www.google.com
64

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1.

1 Origin of the report

i) To know the investment activities of AIBL,

1.3 Methodology of the Study

Sources of secondary data can be defined as-

i. Bank's Annual Reports

iii. Manuals of Al-Arafah Islami Bank Limited (Bai-Murabaha, Bai-Muajjal,

i. Relevant books, Journals, Newspapers, Different Newsletters.

ii. Publications regarding banking functions, foreign exchange operation and

iii. Bangladesh Bank Report

vi. Loan and Advances Act & Order.

1.4 Scope of Study

1.5 Limitations of the Study

2.2 Historical Background AIBL

2.3 Mission of AIBL

2.4 Vision of AIBL

2.5 Objectives of AIBL

2.6 Strategic Objectives of AIBL

iii. To establish a set of managerial succession and adopting technological

iv. To prioritize the clients welfare.

vi. To ensure diversification by Sector, Size, Economic purpose & geographical

vii. To invest in the thrust and priority sectors of the economy.

ix. To pay more importance in human resources as well as financial capital.

x. To ensure lucrative career path, attractive facilities and excellent working

xi. To ensure zero tolerance on negligence in compliance issues both Shariah

2.7 Functions of AIBL

2.8 Management Structure of AIBL

Figure No: 01 Structure of AIBL

Source: AIBL website.

2.10 Equity of AIBL

Date Amount of TAKA

30-06-2012 10,318.63 million

2.11. Differences between Conventional Bank & Islami Bank

Table 04: Differences between Conventional Bank & Islami Bank.

Conventional Bank Islamic Bank

2. The investor is assured of a 2. In contrast, it promotes risk sharing

3. It aims at maximizing profit without any 3. It also aims at maximizing profit

4. It does not deal with Zakat. 4. In the modern Islamic banking

5. Lending money and getting it back with 5. Participation in partnership

8. For interest-based commercial banks, 8. For the Islamic banks, it must be

Investment is a term with closely related in business management, finance, economics

According to economics, Investment is referred as the utilization of resources in order

According to economists, Investment refers to any physical or tangible asset, for

According to business management theories, investment refers to tangible assets like

According to personal finance theories, an investment is the implementation of money

3.2 Objectives and Principles of Investment

3.3 Investment Policy of AIBL

3.4 Financial Performance of Al-Arafah Islamic Bank Ltd.

Table No: 03 (In Million Taka)

Investment income 14,119.18 8,974.0 3,502.1 2,243.1 2,220.4

Source: AIBL Annual Report 2012 & 2013.

3.5 Modes Wise Investment Performance of AIBL

Important Features Bai-Muajjal

i. It is permissible for the Client to offer an order to purchase by the Bank

iii. It is permissible to take cash/collateral security to guarantee the

iv. It is also permissible to document the debt resulting from Bai-Muajjal by a

v. Stock and availability of goods is a basic condition for signing a Bai-Muajjal

Source: AIBL Annual Report 2013

Amount 4862 5062 5500 5750 6650