Report On AIBL (GB & FE)

A Rare Combination of Shariah and Modern Banking
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P Pa ar rt t O On ne e
P Pr re ef fa at to or ry y P Pa ar rt t


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I In nt te er rn ns sh hi ip p R Re ep po or rt t
O On n
General Banking & Foreign Trade Activities of Al-
Arafah Islami Bank Limited: A Study on Motijheel
Branch


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T Th hi is s R Re ep po or rt t i is s d de ed di ic ca at te ed d t to o M My y H Ho on no or ra ab bl le e S Su up pe er rv vi is so or r
Farhana Noor


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I In nt te er rn ns sh hi ip p R Re ep po or rt t
O On n
General Banking & Foreign Trade Activities of Al-Arafah Islami Bank
Limited:
A Study on Motijheel Branch

Supervised by:
Farhana Noor
Senior Lecturer
Department of Business Administration
Faculty of Business & Economics
Daffodil International University

Prepared By:
Rahat Hasan Rana
Id: 101-11-1439
Batch: 25th
Major in Accounting

Date of Submission: .2013


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Acknowledgement

The successful accomplishment of this report is the outcome of the contribution of a number
of people to whom I am grateful and thanked them from the very deep of my heart. At the
beginning, I would like to express my sincere gratefulness to Almighty Allah for enabling me
to prepare this report in complete form.
I would like to express my special gratitude to my honorable supervisor Farhana Noor,
Senior Lecturer, Faculty of Business & Economics, for providing me much needed
suggestions to prepare this report. His inspiration, kind direction helped me in building
courage and confidence to face the practical situations.
I express my sincere gratitude to Jashim Ahmed Chowdhury, Assistant vice president Al-
Arafah Islami Bank limited, Motijheel Corporate Branch, for his kind co-operation and
guidance. The members of Al-Arafah Islami Bank Limited management were very co-
operative and helpful. They helped me by providing various data, guidance and direction.

Thanks to all those persons who helped by providing information and their necessary
materials.


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Letter of Transmittal
,2013
To
Farhana Noor
Senior Lecturer
Subject: Submission of Internship Report.
Madam,
It is a great pleasure to submit my internship report on General Banking, & Foreign
Exchange Activities of Al-Arafah Islami Bank Limited.
The whole report is based on my academic knowledge of BBA program and practical
experience gained during internship. I tried my best to prepare the report. If any further
clarification required regarding my report, I will gratefully respond to any clarification
required.
Finally, I would like to thank you for kind guidance and help. I hope and pray that you would
be kind enough to accept the report and oblige thereby.
Sincerely Yours

Rahat Hasan Rana
ID: 101-11-1439
BBA 25
th
Batch
Major in Accounting


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Letter of Acceptance

This is to certify Rahat Hasan Rana ID: 101-11-1439 has prepared this internship report
entitled General Banking & Foreign Exchange Activities of Al-Arafah Islami Bank
Limited (AIBL) in Motijeel Corporate branch in, under my supervision & guidance, I do
here by approve the style & content of this internship report. This is for the partial fulfillment
of four year graduation degree of BBA in Major-Accounting of Daffodil International
University.

I wish his ever success in life

....
Farhana Noor
Internship Supervisor
Senior Lecturer
Department of BBA


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DECLARATION

I solemnly declare that this Internship Report is the outcome of original project work written
in my own Language and it is not the replica of any other student. It has been submitted for
the partial fulfillment of the requirements of the degree of Bachelor of Business
Administration (BBA) under the guidance of honorable supervisor, Farhana Noor, Senior
Lecturer, Faculty of Business & Economics, Daffodil International University, Bangladesh. It
has not been submitted to any other University or Institution for any degree.

.
Rahat Hasan Rana
ID: 101-11-1439


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Executive Summary

This report is a combination of three month Internship program with Al-Arafah Islami Bank
Limited (AIBL) is one of the most important institution in this country.

The title of the report is the General Banking, & Foreign Trade Activities of Al-Arafah
Islami Bank Limited. This report is concerned with the evaluation and analysis of the
general banking and foreign trade activities of AIBL. The purpose of internship is to meet the
requirement of BBA program and gain practical knowledge by understanding the corporate
culture. The report started with the introductory remarks and subsequently summarizes the
profile of Al-Arafah Islami Bank Limited, theoretical aspects, analysis and findings, major
findings in the general banking of AIBL, and the closing part consists conclusion and
recommendations.

The introduction part of this report emphasizes the background, objective, scope,
methodology, data analysis and limitations of the report. The report is descriptive in nature.
Overview of AIBL includes Objective, business policy, function, and shareholding structure,
board of directors, management committee and continued activities of AIBL.

Hypothetical aspect of this report is general banking of AIBL. Analysis and findings part I
have analyzed the general banking of AIBL on the basis of my experience and observation
(which I have got through my internship program from AIBL).


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TABLE OF CONTENT
Part One
Prefatory Part
Page
Number

Title Page
2

Dedication
3

Preface
4

Acknowledgement
5

Letter of Transmittal
6

Letter of Acceptance
7

Declaration
8

Executive Summery
9

Table of Contents
10

List of Tables,Charts,Diagrams
14
Part Two
Report Body
Page
Number
I ntroduction
Chapter One
Introductory Part
1.2
Objectives of the study 16
1.2.1
General objective

17
1.2.2
Specific objectives 17
1.3
Methodology of the Study 18

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1.3.1
Sources of Information and data 18
1.3.2
Period covered 18
1.3.3
The process of application of the techniques and
reason
19
1.4
Limitations of the Study 19
Chapter Two
Organization Profile of Al-Arafah Islami Bank
2.1
Background 31
2.2
Value Added Statement 33
2.3
At a Glance of Al-Arafah Islami Bank Limited 34
2.4
Functional Area of AIBL 34
Chapter
Three
General Banking Activities of AIBL
3.1
Account Opening Section 31
3.1.1
Who can open an account? 33
3.1.2
Necessary documents to open an account 34
3.2
Bills & Clearing Section 34
3.2.1
Cash transaction 36
3.2.1.1
Cash receipt 36
3.2.1.2
Cash payment 36
3.2.2
Clearing Transaction 36
3.2.2.1
Inward clearing 36
3.2.2.2
Outward clearing 36
3.2.3
Transferring Transaction 37
3.3
Remittance Section 37
3.3.1
Demand Draft: 36
3.3.1.1
Issues of Demand Draft 36
3.3.1.2
Payment of Demand Draft 36
3.3.1.3
Dishonor of Demand Draft 36
3.3.1.4
Loss of Draft 37
3.3.2
Telegraphic Transfer 37
3.3.2.1
Mail Transfer Advice 37
3.3.3
Pay Order 38
3.4
CASH SECTION 38
3.4.1
Cheque 39
3.4.1.1
When Banker makes payment of a Cheque 39
3.4.1.2
When banker may refuse payment of a cheque 40
3.4.1.3
Answer generally given in case of dishonored cheque 40
3.4.1.4
Punishment of Bouncing of cheque 40
3.5
Account Division 40
3.5.1
General Account 40
3.5.2
Extract 41
3.5.3
Debit Voucher 41

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3.5.4
Account Closing 41
3.5.5
Account Transfer 41
3.5.6
Bank Account Statement & Certificates 41
Chapter
Four
Foreign Exchange Activities of AIBL Bank Ltd
4.1
Literature Review 43
4.2
AIBL Bank and Trade Finance 44
4.2.1
AIBL Bank Statement policy 44
4.2.2
Function of Trade Finance Department 44
4.2.3
Parties Involve in Trade Finance 45
4.3
IMPORT Bills 46
4.3.1
Import Procedure and Practice 46
4.3.2
Documentary Credit or L/C 48
4.3.2.1
Various steps in the operation of Documentary Credit 48
4.3.2.2
Different types of documentary credit or L/C : 50
4.3.2.3
Stage to a documentary Credit 52
4.3.2.4
Advantages and Disadvantages of Documentary
Credit
54
4.4
EXPORT Bills 55
4.4.1.
Export financing 56
4.4.1.1.
Pre shipment credit 56
4.4.1.2.
Post Shipment Credit 57
4.4.2.
Operating procedure 58
4.4.3
Methods of payment in export sales 59
4.5
Collection 61
4.5.1
Documentary collection 64
4.5.2
Clean Collection 64
4.5.3
Advantages and Disadvantages of Clean Collection 65
4.6
Banks facilities and Services to Exporter and Importer 65
4.6.1
Export facilities and Services 65
4.6.2
Import facilities and services 66
4.7
Remittance 66
4.7.1
Inward Remittance 67
4.7.2
Outward Remittance 68
4.8
Core Concept of Foreign Exchange 69
4.8.1
Different terms used in foreign exchange 69
4.8.2
Relevancy of Foreign Exchange Revenue for AIBL 70
4.9
Factor Affecting Fluctuation In Exchange Rates 70
4.9.1
Exchange rate in Bangladesh and its function over
time
71
4.10
Ways of avoiding Exchange Risk 72
Chapter Five
Findings, Recommendations & Conclusion
5.1
Findings 74
52
Recommendat ions 75

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5.3 Conclusion 76
Part Three
Appended Part
Page
Number
A: Bibliography 77
B: Appendices: 77
Appendix - 01 78

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List Of
Tables,Charts,Diagrams
Page Number
1.1 Period covered 18
2.2 Value Added Statement 23
2.3 At a Glance of Al-Arafah
Islami Bank Limited
24
3.3.2 The charges of T.T 37
3.3.2.1 The charges of M.T.A 37
4.1 Import business of other
Banks (2010 - 2012)
47
4.2 Import business of AIBL
Bank
47
4.3 Amount of Guarantee 48
4.4 Steps in D/C 49
4.5 Shows the Back to Back
Credit Procedure
51
4.6 AIBL involvement in D/C 53
4.3.2.4 Advantages and
Disadvantages of
Documentary Credit
54
4.7 Export amount in other
Banks
55
4.8 Export 55
4.9 Cash in Advance 60
4.10 Open Account 60
4.11 Bills for Collection 62
4.12 Collection 63
4.5.3 Advantages and
Disadvantages of Clean
Collection
65
4.13 Remittance 67

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Part : Two
Report Body

Chapter: 1

Introductory Part


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Chapter: 1
Introduction
1.1 Rationale of the study

Islam provides us a complete lifestyle. Main objective of Islamic 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-Qur'an and lifestyle of Hazrat Muhammad (Sm.) for our supreme success.
Al-Arafah Islami Bank started its journey in 1995 with the said principles in mind and to
introduce a modern banking system based on Al-Quran and Sunnah.
General banking is maintenance of Deposit A/C, Saving accounts/ Current accounts/cash
credit deposits/Fixed deposits/short term deposits/margin deposits/Bond deposits/F.C. Bond
deposits. Receipts & payment of cash. Handling transfer transactions and operations of
clearing house. Maintenance of accounts with Bangladesh Bank & other banks. Collection of
Cheques & Bills. Issue and payment of Demand Drafts, Telegraphic Transfers and payment
Orders. Executing customers standing Instructions. Maintenance of safe Deposit Lockers and
Internal Accounts of the banks. Reporting to head office about daily position. Saving all
transaction record in computer. Closing and transfer of different types of accounts. Keeping
good relation with valued customer.
Now a day, foreign trade plays a vital role in banking. It is a system or process in which one
national currency is converted into another and of transferring money from one country to
another. It is mainly consist of export, import and other foreign Remittance. In a developing
country, foreign direct investment (FDI), export, import, foreign remittance etc. plays very
significant role. There is a great opportunity to invest the foreign remittance which also
comes from wages earners working abroad, in several prospective investing fields like
energy sector, telecommunication, information technology etc, in our economy.
Therefore, General Banking and Foreign Exchange has an important role to play in the
financial sector of Bangladesh. Consequently, the study of General Banking and Foreign
Exchange the context of Bangladeshs developing economy is of great opportunity


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1.2 Objectives of the study

1.2.1 General objective

The general objective is that; practically know about general banking and foreign
Trade actives and it how to apply our real life.

1.2.2 Specific objectives

To analysis the General Banking Transaction procedures maintained by the AIBL
To analysis the Foreign Trade Transaction procedures maintained by the AIBL
To evaluate General Banking and Foreign Trade performance of The AIBL.
To identify problems in General Banking & Foreign Trade operations of The
AIBL.
To recommend some suggestions for the successful operations of General
Banking and Foreign Trade activities of the AIBL.


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1.3 Methodology of the Study

The following methodology has been followed to come to a successful conclusion of the
report:-

1.3.1 Sources of I nformation and data:
The sources of information are:
Primary data
Officers.
Conversion with clients.

Secondary data
Different Circulars issued by the head office of Bangladesh Bank.
Banks Annual reports.
Prior research report.
Some printed materials like brushier, hand notes etc.
Data Collection through personal interviews.

1.3.2 Period covered

Department Total Days
General banking 40
Foreign Exchange 50
Total 90

Table 1.1 shows the period covered during the internship


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1.3.3 The process of application of the techniques and reason
A critical analysis of the data has been made through the bar diagram and line graph
over the last five years. This has enabled me to visualize the trend of the variables of
interest over time; indicators of bank perforation have also been computed through
ratios of variables and spread-burden analysis. In addition ROE, Profitability etc. have
been critically analyzed.
Trade finance procedure of documentary credit of the AIBL has been critically
evaluated through the analysis of diagram, flow charts. This will provide the
identification of the problems faced by AIBL and ways of removing the problems.
Protection of foreign exchange risk occurring out of transaction exposure for AIBL by
flowchart.

1.4 Limitations of the Study
Deposit all out co-ordination from the bank official, I faced some limitations. The main
problem I faced in preparing the paper was that inadequacy and lack of availability of
required data. This report is an overall view of general and foreign trade of AIBL. But there
are some limitations for preparing this report. These barriers, which hinder may work, are
as follows:
Difficulty of accessing latest data of internal operation.
Most limitation of this report is Banks policy is not to disclose some data
and information for obvious reason, which could be very much useful.
Lack of Experience on preparing these type of report
Sometimes data could not be verified.
The scope limited by the availability of data.
I was placed to this bank for only 3 months of time and working like a regular
employee hindered the opportunity to put the better effort for the study.

With All this limitation I try my best to make this report as best as possible. So readers are
requested to consider these limitations while reading and justifying any part of my study.


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Chapter: 2

Organizational Profile of Al Arafah Islami Bank Ltd


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Chapter: 2
Organizational Profile of Al Arafah IslamiBank Ltd

2.1 Background
With the objective of achieving success in life here & hereafter following the way directed by
the Holy Quran and the path shown by Rasul (SM) Al Arafah Islami Bank Ltd was
established (registered) as a public limited company on 18 June 1995. The inaugural
ceremony took place on 27 September 1995. The authorized capital of the Bank is Tk.
10,000.00 million and the paid up capital is Tk. 7,130.98 million as on 31.12.2012.
Renowned Islamic Scholars and pious businessmen of the country are the sponsors of the
Bank. 100% of paid up capital is being owned by local shareholders.
The equity of the bank has stood at Tk. 14,050.69 million as on 31 December 2012, the
manpower was 2,110 and the number of shareholders was 52,739. It has achieved a
continuous profit and declared a good dividend over the years. High quality customer service
through the integration of modern technology and new products is the tool of the bank to
achieve success. The bank has a diverse array of carefully tailored products and services to
satisfy customer needs. The Bank is committed to contribute significantly to the national
economy. It has made a positive contribution towards the socio economic development of the
country with 100 branches of which 21 is AD throughout the country.
We are pledge-bound to convert the Bank into an Islami Bank on global standard which will
be dynamic in actions, progressive in ideas, honest in dealings, correct in judgment, futuristic
in attitude, fair in approach, polite in behavior and devoted to high quality service to
customers. Our aims are for boosting modern management, advanced technology, good
profitability and steady growth transparency. We are also firmly committed to disclosure and
compliance to shariah and regulatory authorities. Today the bank is an agile organization
which promotes innovation, encourages improvement, values sense of urgency and develops
people who accept challenges and turns them into opportunities

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

Mission
Achieving the satisfaction of Almighty Allah both here & hereafter.
Proliferation of Shariah Based Banking Practices.
Quality financial services adopting the latest technology.
Fast and efficient customer service.
Maintaining high standard of business ethics.

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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.

Commitments
Ours is a customer focused modern Islamic Banking making sound and tidy growth
in both mobilizing deposit and making quality Investment to keep our position as a
leading Islami Bank in Bangladesh.
To deliver financial services with the touch of our heart to retail, small and medium
scale enterprises, as well as corporate clients through our branches across the country.
Our business initiatives are designed to match the changing trade & industrial needs
of the clients.

CAPITAL POSITION (up to 2012)

Authorized capital Tk. 10,000.00 million.
Paid-up capital Tk. 7,130.98 million.
Total Reserve up to 31.12.2012 Tk. 118,683.39million
Investment 106,650.42 Million
The Bank is required to transfer 50 percent of its net profit before tax to capital
Fund as per the Banking Companies

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2.2 Value Added Statement
Value added is a measure of wealth created by the Bank through various business activities.
The statement of value added shows the total wealth created and how it was distributed
among stakeholders, including the Government, employees and shareholders.

Particulars 2012 2011
Income from Banking Service 16,692.58 11,332.59
Cost of Services & Supplies (10,618.44) (6,037.50)
Value added by Banking Services 6,074.14 5,295.09
Provisions for Investment & Off-Balance
Sheet Items
(811.44) (380.16)
Total Value Addition 5,262.70 4,914.93
Value Distributed
To Employees 1,419.21 918.41
To Statutory Reserve 729.24 658.35
To Government as Income Tax 1,998.69 1,747.87
Depreciation 150.66 86.77
Retained Earning 964.90 1,503.53
Total 5,262.70 4,914.93


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2.3 At a Glance of Al-Arafah Islami Bank Limited

Full name Al Arafah Islami Bank Limited
Nick Name AIBL
Type Private Limited Company
Bank Type Private Commercial Banks of Bangladesh
SWIFT Code ALARBDDH
Industry Industry
Headquarters 36, Dilkusha (6-9 floor) C/A Dhaka-1000,
Bangladesh
Established/Founded 1995
ATM Network Available
Foreign Exchange Available
Branches in Bangladesh AIBL has branches all over the country
Bangladesh (100 Branches)
Contact Phone: +880-2-7123255-7, 9568007, 9569353
Fax: +880-2-9566160-69 9566074-75
Email: aibl@al-arafahbank.com
Logo


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Organ gram of Al-Arafah Islami Bank Limited

Market Value Addition:

Total number of share outstanding: 713,098,010
Market value per share: BDT 24.29

BOARD OF DIRECTORS
MANAGING DIRECTORS
GM
OPERATION
OFFICER IN
CHARGE
ACCOUNT
OFFICER IN
CHARGE
CREDIT
AGM
INTERNATI
ONAL
DGM
INDUSTRIA
L CREDIT
AGM
ESTABLIS
HMENT
AGM
COMPUTE
R
DGM
ADMINISTR
ATION
GM
DEVELOPMENT

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Capital Adequacy Ratio:

Share Holders Equity:


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Deposit Mix:

Investment Growth:


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Export & Import:

Income & Expenditure:


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2.4 Functional Area of AIBL:
Export and Import Function
Retail Banking
Industrial financing trade financing
Syndicated Loan
Project financing
Hire purchase
Lease financing
Online service
Automated Accounting
Integrated System
Signature Verification
Any Branch Banking
ATM Services
Other Delivery Channel Services


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Chapter: 3

General Banking Activities of AIBL


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Bank is nothing but an intermediary between lender (surplus unit) and borrower (deficit unit).
Savings and deposits are the main strength of the banks to provide loan. And the interest
earned from the difference borrowing and lending is the major portion of banks income.
Banks also earns from variety of operation. Branch banking includes four operational
divisions in Al-Arafah Islami Bank Limited.
General banking is the front side banking service department. It provides those customers
who come frequently and those customers who come one time in banking for enjoying
ancillary services. In some general banking activities, these are no relation between banker
and customers with who bank are doing its business frequently. Al-Arafah Islami Bank
Limiteds general banking is divided into five sectors. These are:
Account opening Section
Bills and clearing section
Remittance section
Cash section
Accounts section
Initially all the accounts are opened through deposit money by the customer and these
accounts are called deposit account. Normally a person needs to open an account to take
services from the bank. Without opening an account, one cannot enjoy variety of services
from the bank. Thus, the banking usually begins through the opening of the account with the
bank.
3.1 Account Opening Section
The money deposited with the banker is not held by him in trust but as his debts to the
depositors and the relationship that exists between the banker and the depositor is strictly that
of debtor and creditor. The banker becomes the owner of the money and is free to utilize the
same in any way he chooses an is bound at the place where the deposits are maintained to
make repayment thereof by an equal amount on demand, at notice or at the end of the
specified period with or without interest depending on the nature of the deposits.
The deposits are accepted by the banker through current and savings accounts, which is
withdraw able by cheques. The depositors are repayable on demander otherwise and
withdraw able by cheques, draft, and order of otherwise.
Al Arafah Islami Bank Limited keeps the deposits on the form of different account. Like
Al- Wadiah current Deposit
Mudaraba Saving Deposit
Short Notice Deposit
Mudaraba Terms Deposit Receipt
Mudaraba Investment Terms Deposit
Mudaraba Fixed Deposit Receipts
Mudaraba Profit Payable Terms Deposits
Mudaraba Monthly Hajj Deposit
Mudaraba Terms Hajj Deposit
Mudaraba Double Scheme
Mudaraba Kotipoti Scheme.


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Type of Services

Mudaraba Terms Savings Deposit: Deposit in monthly installment @Tk.300/-, Tk.500/-,
Tk.1000/-Tk.1500/- & Tk.2000/- is obtained under the aforesaid scheme for a tenure
of 5,8,10 and 12 years and the same is withdrawal with profit at the end of the tenure.

Monthly Profit based Term Deposit: Under the above scheme, deposit of Tk. 1.00 lac and
multiple thereof are accepted for a term of 5 (five) years and the bank gave profit thereon
Tk. 885 per month per lac and proportionately on the rest amount of deposit under the
category during the year under review. The aforesaid rate shall, however, be adjustable at
the close of calendar year on finalization of accounts.

Monthly Haj Deposit: Hajj deposit at monthly installment from 1 (one) year to 20(twenty)
years are accepted under the above scheme to enable the account holder to perform Hajj
out of the accumulated saving with profit.

Onetime Haj Deposit: Under the above scheme, fixed amount of Hajj deposits are
accepted from the clients for particular term and as per rules profit is accumulated thereon
per year in this regard. As and when the fixed deposit is matured, Hajj expenses are
defrayed by the same. Under the scheme, the guardians may also open Hajj account to
enable their successors to perform Hajj. Highest amount of profit is paid in the above
types of deposit by the bank.

Savings Investment Deposit: Deposit under the scheme is accepted by monthly
installment and after expiry of the term; double amount of such savings is given as
investment in feasible sectors by the bank as per choice of the depositors without any
collateral security. Any one by saving under the scheme can take business venture on
utilization the amount saved under the scheme as well as availing bank investment.

Marriage Savings Deposit: Fixed monthly installment for a particular period is to be
deposited to defray the expenses of marriage and the bank allows double of saving or
Tk.30,000/- which is higher as investment to procure ornaments, furniture, fixture etc.,
repayable in 24 monthly installments without any collateral security.

Savings Bond Deposit: Under this scheme the bank has introduced saving bonds for Tk.
10,000/-, Tk.25,000/- and Tk. 100,000/- for 3,5 and 8 years. After the completion of the
tenure the deposit

Investment: The Total investment of the bank stood at Tk.5079.21 million against
Tk.3728.41 million during the corresponding period of last year. The percentage of
increase is 36.23% as against 13.00% in banking sector.

The bank extends investments to the clients under the following modes of investment
under Islamic Shariah:

Bai-Murabaha or simply Murabaha: The terms Bai-Murabaha have derived from
Arabic words Bai and Ribhum. The word Bai means purchase and sale and the word
Ribhum means an agreed upon profit. So Bai-Murabaha means sale for an agreed upon
profit. It may be defined as a contract between a Buyers and a Seller under which the

Page | 33

seller sells certain specific goods permissible under Islamic Shariah and the word Law of
the land to the Buyer at a cost plus and agreed upon profit payable today or on some date
in the future in lump-sum or by installments. The profit may be either a fixed sum or
based on a percentage of the price of the goods.

Musharaka: The word Musharaka is derived from the Arabic word Sharikah meaning
partnership. Islamic jurists point out that the legality and permissibility of Musharakah is
based on the injunctions of the Holy Quran, Sunnah and Ijma (consensus) of the
scholars.

Musharaka transaction may be conducted in the following manner:
One, two or more entrepreneurs approach an Islamic Bank to request the financing
required for a project. The bank, along with other partners, provides the necessary capital
for the project. All partners including the Bank have the right to participate in the project.
The profit is distributed according to an agreed ratio. However, losses are shared in
exactly the same proportion in which the different partners have provided the finance for
the project.

Mudarabah: The term Mudarabah refers to a contract between two parties in which one
party supplies capital to the other party for the purpose of engaging in a business activity
with the understanding that any profits will be shared in a mutually agreed upon. Losses,
on the other hand, are the sole responsibility of the provider of the capital. The first party
provides capital and the other party provides the expertise with the purpose of earning
lawful profit (approved by Islamic law) which will be shared in a mutually agreed upon
proportion.

Bai-Muajjal: The term Bai and Muajjal are derived from the Arabic words Bai and Ajal
where Bai means purchase and sale and Ajal means a fixed time or a fixed period. So Bai-
Muajjal is a sale for which payment is made at a future fixed date or within a fixed
period. In short, it is a sale on Credit. It is basically a contract between a 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 fixed price payable at a certain fixed future date in
lump-sum or in fixed installments.

3.1.1 Who can open an account?
These above accounts may be open by---
Individual
Partnership
Minor (Minor can open the account in the name of the minor's guardian or jointly
with the guardian)
Club, Societies, Trusts etc
Joint venture
Proprietorship
Private Limited Company
Public Limited Company
Non-trading concerns
Co-operative society
Corporation and public body

Page | 34

3.1.2 Necessary documents to open an account
When a customer/ organization/ company/ firm/ society/ club/ etc. want to open bank account
he/ she have to filled a bank prescribed form and have to attached their organizations
documents are as follows.
Individual or Proprietorship
National ID
Trade License
Photograph
Tex certificate (not mandatory)
Birth Certificate
Organizations seal, etc

Partnership
Trade License
Photograph
Partnership Deed
Tex certificate
Organization seal, etc

Private Limited Company
Trade License
Photograph of Directors
Certificate copy of Memorandum and Articles of Association
Certificate of Incorporation
List of Directors as per return of joint stock company with signature
Resolution for opening account with the bank
Signature and seal. etc
After observation of all the formalities/ documents mentioned above, the applicant is required
to deposit minimum Tk for opening a savings account and Tk for opening a current account.
This is called initial deposit. As soon as this money is deposited, the bank opens an account
in the name of the applicant. It should be noted that the permission of the component
authority for opening of an account is a must. The banker then supplies the following books
to the customer to operate the accounts.
Deposit book
A cheque book

3.2 Bills & Clearing Section
Transaction is a financial event, which changes the financial position of a company. There are
three types of transaction that is performed by the Al-Arafah Islami Bank Limited.
Cash transaction
Clearing transaction

Page | 35

3.2.1 Cash transaction
Cash department is a sensitive and important place of bank. Cash receiving and cash payment
is the first and important duty. A bank should member that the image of a bank is dependent
on cash officer of the bank. If the cash officer is not smart, outstanding and handsome person,
then it is meant this does not care for its customers.
3.2.1.1 Cash receipt
Receiving cash officer should draw his attention to avoid from these types of notes when he
/she taken money from the customers.
Mutilated note
Mismatched note
Forged note
Incorrect note
Burn note

3.2.1.2 Cash payment
The officer should enough care when he/she makes payment of a cheque. Some of the
important checkpoints are given below:
Amount of the cheque
Who is the draw of the cheque
Verifying the signature
Posted and cash paid sale on the cheque
Name of the branch
Is it a fraud cheque?
After payment, the cheque the officer should maintain/noted account number, name of the
draw, and withdrawal amount in a register book.

3.2.2 Clearing Transaction
Clearing transaction is of two types one is clearing another is outward clearing.
3.2.2.1 Inward clearing
When any client of any bank gives cheque to the creditors, the creditor generally gives
deposit to their respective bank account for collection. Then the banks will send those
cheques to Bangladesh bank. The Bangladesh bank then sends this types of cheques to btheir
respective bank main branch this type of transaction is called inward clearing.
3.2.2.2 Outward clearing
When the bank gets different types of cheques of different banks from their client for
collection, they then send cheques to their main branch. The main branch then sends those
cheques to Bangladesh Bank. The Bangladesh Bank sends those to the respective banks.
3.2.3 Transferring Transaction

Page | 36

Transferring Transaction is the type of transaction in which money is not physically moved.
But it is moved from one account to another through debit and credit voucher.

3.3 Remittance Section
Remittance of fund is ancillary services of AIBL like other commercial Banks. It aids to
remit fund from one place to another place on behalf of its customers as well as non-customer
of bank. AIBL has its branches in the major cities of the country and therefore, its service one
of the best mediums for remittance of funds from one place to another.
The main instruments used by AIBL principle branch for remittance of funds.
Pay order
Demand Draft
Telegraphic Transfer

3.3.1 Demand Draft:
A bank draft is an unconditional order issued by one branch of a bank on its branch to pay a
certain sum of money to the named person or order on demand. Hence, a bank draft is always
payable on demand it is also known as demand draft.
Essential feature of Demand Draft:
It is drawn by one office of a bank upon some other office of the same bank.
It is payable on demand.
Its payment is to be made to the person whose name is mentioned or according to his
order.
In other words, it cannot be made payable to the bearer.
3.3.1.1 Issues of Demand Draft
The person intending to remit the funds though a bank draft has to deposit the money to be
remitted together with the commission, which the banker charges of its services. The amount
of commission depends on the account to be remitted. On receipt of the required amounts
along with due filled in prescribed form, the banker issues a draft and hand over it to the
purchaser.
3.3.1.2 Payment of Demand Draft
If the draft is not crossed, the payee can draw the amount in cash upon presentation of the
same to the draw branch with satisfactory evidence of his identify or can draw the money by
depositing to his account there of any other bank. The draft being payable to certain particular
person or order the banker must satisfy himself as to the title of the person presenting it for
receiving the payment. The banker is discharged from liability only payment in due course.
3.3.1.3 Dishonor of Demand Draft
Normally a bank cannot refuse to make the payment of a draft, as it is his own obligation to
pay unless the presented draft is a forged one or there is double as to the identity of the
person presenting it for payment. He cannot also refuse to make the payment of a draft of the
plea of non-receipt of the relative advice from the issuing office.

Page | 37

3.3.1.4 Loss of Draft
If the issuing branches reported about loss, theft or damages of any draft it must promptly
inform the matter to the drawee branch and request to stop payment order such draft. Being
reported by the issuing branch, the drawee branch will note it to guard it sell against the
fundament encasement of the lost draft. This is essential so that the banker is not held
responsible for making payment otherwise than in due course.
3.3.2 Telegraphic Transfer
Telegraphic transfer, it may branch telephone or telex. Transfer means fund/ money transfer
from one branch to another branch not in same area. Sometimes the remitter of the funds
requires the money to be available to the payee immediately. In that case, the banker is
requested by him to remit the funds telegraphically. The bank passes T.T. by a secret code,
which input by the GB in charge and branch Manager. But at present T.T is being isolated
because of online banking system of AIBL. The online banking system reduces the demand
of Telegraphic Transfer. In Dhaka division the online fee is 100% free but outside the Dhaka
the rate is free up to 1.00 lac taka.

The charges of T.T
Commission 1% but not less than Tk. 10
Telex Tk. 30(fixed)
Sundry Vat Tk.10

3.3.2.1 Mail Transfer Advice
Where the remitter desires the banker to remit the funds to the payee instead of purchasing a
draft himself, the banker does it through a Mail Transfer Advice. The payee must have an
account with the paying office as the amount remitted in such a manner, is meant for credit to
the payees account and not for cash payment.

The charges of M.T.A:
Commission 1% but not less than Tk. 10
Mailing Cost Tk. 30 (fixed)


Page | 38

3.3.3 Pay Order
Unlike an MT or TT the bankers payment order is meant for making payment of the
bankers own or of the customers dues locally and not for affecting any remittance to an
outstation. In a sense, the payment order is used for making a remittance to the local creditor.
The post are in the form of receipts, which are required to be discharged by the beneficiaries,
where applicable on revenue stamps of appropriate value, against payment in cash or through
an account. The PO is not a negotiable instrument and cannot be endorsed or crossed like a
bankers draft.
3.4 CASH SECTION
Cash is the lifeblood of all financial activities. Cash section is a very sensitive point of the
branch. This section deals with all types of negotiable instruments and it includes vault,
used as the store of cash, instruments. The vault is insured up to Tk.20 lac. Insured amount
yet to be enhanced to Tk. 40 lac. Operation of this section begins when the banking hour
starts. Cash officer begins his/her transaction with taking money from the vault, known as
the opening cash balance. Vault is kept in a more secured place. The amount of opening
cash balance is entered into a register. After whole days transaction, the surplus money
remains in the cash counter is put back in the vault and known as the closing balance. If the
cash stock goes beyond this limit, the excess cash is then transferred to AIBL main branch.
The main functions of this section are-
1. Cash Receipt
2. Cash Payment

Cash Receipt
Cash receipt procedure is given below-
1. The depositor first fills up the Deposit-in-Slip.
2. Depositor deposits the money.
3. Officer receives the money, counts and then enters in the Cash Receipt Register, and
finally signs with seal and dates the deposit-in-slip.
4. Slip is then passed to another officer, who enters the receipt details like serial no,
amount, etc. in his register, signs the slip and keeps the banks part of the slip. Other
part is given to the depositor.
At the end of the day, entries are cross checked with the register kept at the cash counter to
see whether the transactions are correct or not
Cash Payment Some important check points for making the payment are as follows-
Endorsement
Endorsement is done by putting signature of the drawer on the back of the negotiable
instrument for the purpose of negotiation. By blank endorsement, an order instrument is
made as bearer.
Crossing

Page | 39

Generally two types of crossing are practiced, namely- General Crossing and Special
Crossing. Basically it gives a direction to the paying bank not to pay the check amount
over the counter. General crossing includes A/C payee crossing only. Drawing two
parallel and transverse lines do it. On the other hand, special crossing is like general
crossing but in addition bank name is also mentioned. This gives the direction to the same
to pay the check only to the banker, whose name appears in the crossing or to his agent.
Cash payment procedure is given below-
1. Customer first deposits the check (s) to the cash section. Authorized individual checks
whether it is materially altered, proper endorsed, crossed or not. Being satisfied the total
requirements; he passes it to the computer for checking the balance. Operator verifies
the check leaf security no. If matched, then operator signs. Otherwise noticed to the
individual for stop payment;
2. Authorized officer is then verified the signature with the Specimen Signature Card
(SSC);
3. Send the instrument to the computer section once again for posting;
4. Cash officer is then asked the bearer to sign on the back of the instrument. At the same
he just enters the payment details in his register and pays the money to the bearer;
5. At the end of the day, this information must be tallied with computer postings to ensure
the correctness of payment.

3.4.1Cheque
A cheque is a written order to the bank given by an account holder to pay money from his
account. A cheque is usually on the printed form supplied by the bank to their account holder.
Parties to a cheque:
Drawer: A person who orders the bank to pay money from his account.
Drawee: A person which pays the account of the cheque.
Payee: A person who receives his amount of the cheque.

3.4.1.1 When Banker makes payment of a Cheque
1. The cheque should be written in the banks supplied printed cheque form.
2. The cheque should be presented for payment only to the branch of his bank on which it
draw
3. The cheque should be submitted with a date.
4. the amount in words and figure must be same.
5. The account holder signs the scheme.
6. There should be sufficient balance/ funds in the account of his customer to meet the
cheque.

Page | 40

3.4.1.2 When banker may refuse payment of a cheque
Whether the cheque is post dated.
Whether the cheque is out of dated.
Whether the fund is insufficient.
Whether drawer does not sign the cheque.
On receipt of customers stop payment instruction.
On receipt of a notice of a customers death.
On receipt of a notice of customers insanity.

3.4.1.3 Answer generally given in case of dishonored cheque
Refer to drawer;
Not arrange for;
Exceeds arranged;
Endorsement irregular;
Drawer deceased;
Words and figure differs;
Drawers signature differs;
Payment stop by the drawer;
Cheque is mutilated;
Cheque is out of date/ post dated requires revaliation;
Crossed cheque please present through a bank.

3.4.1.4 Punishment of Bouncing of cheque
If the drawer is found guilty of a criminal offence under section 138 he would be punished
with a imprisonment of one year of a fine to the extent of twice the amount of the cheque
dishonor or both.
A clearing house is such a type of house where all members bank settled their interbank
transactions through their Bangladesh account. As the central bank, Bangladesh Bank is the
leader of clearing house in Bangladesh. There are 53 members bank in Bangladesh u
3.5 Account Division
Account department is a department with which cash and every department is related. It
records the profit and loss account and statement of assets and liabilities by applying Golden
Rules of book keeping i.e. GAAP. The functions of it are theoretical based. AIBL principle
Branch records its accounts daily, weekly, and monthly every records
3.5.1 General Account
The account that is to be maintained with H/O of AIBL for the purpose of settlement of inter-
branch transactions. Generally A/C is an important one which has to be maintained by each
branch of AIBL. Indeed General A/C is a record of originating and responding transactions
among inter-branches of the same bank. All types of assets and liabilities of one branch with
another one are settled through this account.


Page | 41

3.5.2 Extract
Extract is a statement of all originating and responding transactions among inter- branches
debit and credit advice. At the end of the day, all the debit and credit advices of different
department come to account department. It makes extract in light of all advices.
3.5.3 Debit Voucher
For making cash payment like entertainment, conveyance, and account department writes a
debit voucher. Amount is withdrawn through cash section by presenting debit voucher.
3.5.4 Account Closing

Account closing is also done by account opening section. The customer may close
his/her/their account(s) at any time giving notice to the bank. Similarly, the bank on genuine
ground may close customer(s) account giving reasonable notice for the action or without any
notice if the conduct of the account is not satisfactory to the bank or any reason(s)
whatsoever. In either case, bank will realize a closing charge from the customers account.
The usual closing charge is Tk. 300 + 15% VAT. But, the closing charge of account within
three months of opening is Tk.500 + 15% VAT.
To close an account:
Account holder requires applying in a specific form with full signature.
He/she/they must surrender the unused leaves/cheque book provided by the
bank.
Verification of signature and approval by operation head.
Close the account.
On closure of the account, the bank will pay the credit balance (if any) of the account and any
profit due to the customer(s). The customer(s) shall surrender the unused cheque
books/leaves along with the requisition slip and other materials (if any) supplied by the bank
for operation of the account.

3.5.5 Account Transfer

Account opening section also transfers account to from one branch to another on customers
request. The steps are:
Application for account transfer
The customer(s) shall surrender the unused cheque books/leaves along
with the requisition slip and other materials (if any) supplied by the bank
for operation of the account.
Verification of signature and approval of operation head
Close the account
Inform the respective branch.
Forward the documents.
3.5.6 Bank Account Statement & Certificates
All types of bank statements and certificates such as solvency certificates, income tax
certificates, B.O. certificates etc. are issued by the bank on favor of the customers. As per
customers instruction the bank dispatch the account statement/advice to his/her/their address.
Moreover, on customers request, bank provides statement and certificates related to the
account.

Page | 42

Chapter: 4



Page | 43

Chapter: 4
4.1 Literature Review
Banks play a very important role in effecting Foreign Exchange Transaction of a country.
Mainly transaction with overseas countries is respect of imports; exports and Foreign
Remittance come under the preview of foreign exchange transactions. Banks are the vital
sector by which such transactions are effected or settled. Central Bank records all sorts of
foreign exchange transaction and therefore, transaction effected by the Banks and other
authorized quarters are to be reported regularly (Daily, Fortnightly, Monthly, Quarterly,
Yearly etc) to Bangladesh Bank by the foreign exchange department of every Banks. Foreign
Exchange Department plays a vital role to earn the Banks maximum profit. This department
is classified according to their activities. The foreign exchange department consists of three
sections, these are as follows:
Import Section

Export Section

Foreign Remittance Section

Foreign Exchange Department, Banks facilitates their clients in enhancing International
Trade. The provision of finance to importers (Trust Receipt Facility, Documentary Credit
Facility) and exporters (Negotiation of export Bills, Purchase of Bill for collection)
encourages enterprises to engage in trade and enhance their liquidity position. Bank makes
the payment International Trade through letter of credit to the exporter on behalf importers.
Banks is a media of fund transfer from one party to another. In International Trade, as both
importers and exporters in different countries and do not deal with same currency, they have
to confront the risk of currency fluctuation. This exchange risk can be transferred from the
trader to the bank i. e. ready to provide the former with forward foreign exchange or currency
option so that the importer and the seller can devote their time to their business.


Page | 44

4.2 AIBL Bank and Trade Finance
AIBL Bank plays an important role in international trade. The trade finance department of
AIBL is efficient of their activities and provides the best services to their clients. The major
clients of AIBL are corporate clients. Performing their activities since 1989, AIBL has a very
good relationship with the big corporate clients of Bangladesh. Trade finance department
consist of Bills (Import) and Bills (Export).

4.2.1 AI BL Bank Statement policy
All AIBL employees are responsible for ensuring compliance with the Bank policies and
procedures Operational Manual (OM), Know Your Client (KYC), and other policies. It is
imperative that the trade finance staff is fully conversant with all aspects of the above stated
documents relating to Letter of Credit (L/C), Documentary and clean Collection, Bank
Guarantee, and Bank to Bank Reimbursement and export Bills.

a. International chamber of commerce (ICC) Uniform Rules, customs and practice:
Transactions relating to L/C, Documentary and clean collection, Bank to
Bank reimbursement are processed subject to and in conformity with the
current versions of International Chamber of Commerce Publication
b. Credit policies:
Bank has their own credit policies and procedures for all Trade finance
activities. These are Credit Principle, Global credit portfolio limit, Credit
categories, Types of credit activities, Credit approval, Credit administration,
Credit monitoring and review.
c. Know Your Client (KYC):
Relationship Managers (RM) are responsible for ensuring that client profile
are kept current and that copy is distributed in accordance with the Banks
Know your client policy.

4.2.2 Function of Trade Finance Department
Trade finance consists of the following areas of activity:
Import Bills
Export Bills
Bills Processing Unit


Page | 45

Basic function:
1. All transactions related to Import Transaction
2. All transactions related to Export Transaction
3. Handling of L/C reimbursements
4. Checking and collection of export bills for correspondent Banks.

4.2.3 Parties I nvolve in Trade Finance
1. The applicant: The applicant is the party that induces the Banks to issues
the letter of credit. The applicant is normally obligated to reimburse the
Bank for any payment made under letter of credit.

2. The issuing Bank: The issuing Bank is the Bank that issues the letter of
credit. The issuing Bank undertakes an absolute obligation to pay upon
presentation of documents drawn in strict conformity with the terms and
condition of the letter of credit.

3. The Advising Bank: An advising Bank simply advises a letter of credit
without any obligation on its part. However, the advising Bank shall take
reasonable care to check the apparent authenticity of the credit that it
advises. The advising Bank is typically a Bank in the Beneficiaries.

4. The Beneficiary: The beneficiary is the party entitled to drawn payment
under the letter of credit. The beneficiary will have to present the required
documents to avail payment under the letter of credit.

5. The Confirming Bank: The confirming Bank confirms that the issuer has
issued a letter of credit. The confirming Bank becomes directly obligated
on the credit to the extent of its confirmation and by confirming the Bank
receives the rights and obligation of an issuer

6. The Nominating Bank: The Bank where drafts drawn under the credit are
payable. In case of a usance credit where drafts are to be accepted by this
Bank.

7. The Negotiating Bank:The Bank that negotiates document under letter of
credit upon presentation. Typically advising Bank as nominated as
negotiating Bank


Page | 46

4.3 IMPORT Bills
Import Bills deals with L/Cs and the issuance of L/Cs for import purposes. The letter of credit
serves as a vehicle for the importer and exporter to ensure that their goods and money are
coming. It is important to remember that the Bank deals with documents and not goods.
There are various steps towards the issuance of L/Cs; these steps will also AIBL, as well as
various Banks serving as negotiating, confirming, etc. Banks. L/Cs are used for the purchase
and sale of goods.
L/C is used mainly in trade. They usually include the mode of shipment of a specified goods,
and what the port of destination is the expiry of the shipment, the document all need to be
submitted to the issuing Bank, Certificate of Origin, of where the goods is produced,
inspection certificates, as to quantity and quality, are countries may have their own set of
demands they want to ask.
There are two criteria for importing goods:
1. Commercial ( Normally AIBL takes 50% margin of total values of goods )
2. Industrial ( Normally AIBL takes 10% margin of total values of goods)

There are also two types of L/C:
1. Sight L/C: Sight L/C has also to be immediately through advanced payment can be
allowed.
2. Usance L/C: Usance L/C has also to be paid at a fixed maturity date. For example,
payment upon the receipt of goods.

Beneficiaries that want to apply for a L/C need to have proper credit facilities. After
calculating the outstanding, and there is a still room, then L/C is issued. Calculation of
margin and charges are also done. Upon the receipt of goods, proper documentation is
certified, and then payment is done. The reimbursement of funds can be made in through
negotiating. They can be negotiated to the Bank of choice of the relevant currency.
4.3.1 Import Procedure and Practice
1. Regulation
2. Import policy
3. Licensing for Imports
4. Making the purchase contract
5. Opening the Letter of Credit
6. Amendments to Letter of Credit
7. Securing and Lodgment of Documents
8. Verification and Lodgment of Documents by the L/C opening Bank


Page | 47

Chart 4.1: Import business of other Banks (2010 - 2012)

Amount in Million TK
Chart 4.1 shows the import amount in other Banks (2010 - 2012). As
Compared to other Banks AIBL import amount has fallen in 2012.

Chart 4.2: Import business of AIBL Bank

Chart 4.2 shows the import in million taka of AIBL Bank. The import has increased
during the period 2008 to 2012.

0
20000
40000
60000
80000
2008 2009 2010 2011 2012
AIBL
Prime Bank
Dhaka Bank
0
20000
40000
60000
80000
2008 2009 2010 2011 2012
Import (Million Tk.)

Page | 48

Chart 4.3: Amount of Guarantee

Amount of Garments increased as increase the number of Garments which is shown
as chart 4.3. It is increased by 30 percent in 2012 as compare in the year 2011.
4.3.2 Documentary Credit or L/C
Documentary credit is written undertaking given by a Bank (Issuing Bank, Opening
Bank) to a seller (Beneficiary, Exporter) at the request and on the instruction of the
Buyer (Applicant, Importe ) to pay either at sight or at a determinable future date, a
stated sum of money against stipulated documents and fulfillment of all the terms
and condition in the D/C. It is most suitable on the flowing circumstances:
When the importer is not well known, the exporter selling on credit terms
may have importers promise of payments backs by a buyer Banker.

On the other hand, the importer may not wish to pay the exporter until it is
reasonably certain that the merchandise has been shipped in the good
condition. A D/C in this case, can satisfy both the exporter and the importer.

4.3.2.1 Various steps in the operation of Documentary Credit
The importer and exporter have made a contract before a L/C is issued.
Importer applies for a letter of credit from his issuing Bank.
Issuing Bank opens a L/C, which is channeled through its overseas correspondent
Bank, known as advising Bank
Advising Bank informs the exporter of the arrival of the L/C.
Exporter ships the goods to the importer or other designated place as stipulated in the
L/C.

0
500
1000
1500
2000
2500
3000
3500
2008 2009 2010 2011 2012
Garments (Million ok TK)

Page | 49

Diagram 4.4: Steps in D/C

COTRACT,
IMPORTER
BUYER -
APPLICANT EXPORTER
SELLER -
BENIFICIARY
SHIP
GOODS
TAKE
DELEVERY
GOODS
ISSUING BANK
L/C
ADVISING,
CONFIRMING,NE
GOTIATING
BANK
NEGOTIATI
ON OF
EXPORT
BILLS
APPLY L/C
PREPARE
AND PASS
DOCUMENT
ADVISE
L/C
RELEASE
DOCUMENTS
AGAINST
CASH
SEND
DOCUMENT
MAKE
PAYMENT

Page | 50

Documents are sent to issuing Bank for reimbursement or payment.
Issuing Bank release documents to importers when the letter makes payment to the
former or against the letter trust receipt facility.
Importer takes delivery of goods upon presenting on the transport documents.

4.3.2.2 Different types of documentary credit or L/C :
1. Red clause credit
A red clause credit is a special type of credit with a clause inserted which authorizes
the advising or confirming Bank to make advances to the Beneficiary before
presentation of the documents.
In other words, it is a pre- shipment finance in the form of a loan the advising /
confirming Bank provides to the beneficiary, with payment of principle and interest
Guaranteed by the issuing Bank of the client.
Possible risk in issuing a Red Clause credit:
Exporter may use the advance for other purpose.
Documents presented from the exporter may have discrepancies
unacceptable to the importer.

2. Revolving Credit
A revolving credit is a credit, which provide for the amount of the credit to be
renewed automatically after use without the need to renew the credit every time. A
Revolving credit With respect to time can be cumulative or non cumulative.
It can be renewed with respect to either:
Time
Amount (i.e. total value of the credit)

3. Transferable Letter of Credit
A Transferable letter of credit, which can be transferred in whole or in part by the
original beneficiary to one or more Second Beneficiaries. It is normally used when
the first beneficiary does not supply the goods himself, but acts as a middleman
between the supplier and ultimate buyer.
4. Standby Credit
A standby credit is a guarantee type of documentary credit. It might in many form
such as pure loan forms, bid bond and performance guarantee form etc

Page | 51

5. Back To Back Credit
When beneficiary receives a documentary credit which is not transferable, and he
cannot furnish the goods himself, he may arrange with the Banker to issue a second
credit (which is known as Back to Back L/C) to a supplier to supply the goods.

The Bank issuing Back to Back Credit will obtain repayment through the master
credit which is deposited to the issuing Bank of the Back to Back Credit

FOREIGN COUNTRY BANGLADESH

Diagram 4.5: Shows the Back to Back Credit Procedure
ULTIMA
TE
BUYER
APPLICA
NT L/C
MASTER
L/C
ISSUING
BANK
ADVISING
BANK
MIDDLEMAN
BENIFICIARY
OF MASTER
L/C
APPLICANT OF
B/B L/C
B/B L/C
ISSUING
BANK
ADVISING
BANK/NEG
OTIATING
BANK
SUPPLIER
BENIFICIARY
OF B.B L/C

Page | 52

6. Standby Credit
A standby credit is a guarantee type of documentary credit. It might in many form
such as pure loan forms, bid bond and performance guarantee form etc.
7. Confirmed Credit
If a letter of credit is confirmed by a Bank (The advising Bank), this mean that, in
addition to the definite undertaking to the issuing to honor beneficiarys draft, the
advising Bank also makes its a promise to pay the beneficiary.

4.3.2.3. Stage to a documentary Credit
(A) Issuance of L/C
(B) Execution of Amendment
(C) Advising Letter Of Credit
(D) Confirming Letter OF Credit
(E) Advising Amendment
(F) Negotiation
(G) The process include following:
At negotiating Bank
At issuing Bank


Page | 53

AIBL Bank Banks in beneficiary locate

Diagram 4.6: AIBL involvement in D/C

ISSUING BANK
ADVING BANK
CONFIRMING
BANK
CORRESPONENT BANK
NEGOTIATING
BANK
BENIFICIARY
REIMBURSEMENT BANK

Page | 54

4.3.2.4 Advantages and Disadvantages of Documentary Credit

Advantages Disadvantages
IMPORTER * An importer can be assured the
exporter has complied with certain
steams and conditions as specified
in the D/C before payment.
* He can insist of shipment of
goods within a certain time by
stipulating a latest shipment date.
* He can have export advice from
his Banker as to the D/C terms.
* He can ask for financial
assistance from his Banker such as
T/R.
* Protection offered by DCP500.
* Since Banks deals in document
only: Goods may not be the same
as these specified in the credit.
* Issuing Bank are obligated to
pay even through the conditions
of goods may be poor.
* D/C commission is relatively
costly.
* Line of credit or application is
necessary before an importer can
open an D/C, this may cause
extra inconvenience and is time
consuming.
EXPORTER * The risk of non payment is
lower provided he complies with
D/C terms and condition.
* It is a safe method through
which to obtain prompt payment
after shipment.
* The exporter can have export
advice from his Banker.
* The exporter also can seek
financial assistance from his
Banker before the buyer makes
payment, such as negotiation of
export Bills advance etc.
* It is comparatively costly.
* Sometimes, the terms and
condition cannot be fulfilled
such as unreasonable shipment
date and expiry date, adding on
D/C the clause of Restriction
of a designated vessel to be
informed by D/C amendment .
* The goods are shipped before
receiving payment; So it is not
100% safe.


Page | 55

4.4 EXPORT Bills
They deal with incoming L/Cs from various Banks. AIBL usually serves as an advising
Bank; but sometimes at request it also serves as confirming and negotiating Bank.

Chart 4.7: Export amount in other Banks
Chart 4.7 shows the export amount in other Banks (2008 to 2012).
This department has to verify L/Cs. As a confirming Bank, AIBL takes responsibility over
the issuing Bank. If the issuing Bank does not pay the beneficiary then AIBL has to as an
advising Bank its job is to verify the L/C, and if it passes their checklist ; Advise it. If all
documents are in accordance with the L/C then payment can be authorized.

Chart 4.8: Export
Chart 4.8 shows the increasing export in million taka over time supported by AIBL Bank

0
10000
20000
30000
40000
50000
60000
2008 2009 2010 2011 2012
AIBL
Prime Bank
Dhaka Bank
0
20000
40000
60000
2008 2009 2010 2011 2012
Export

Page | 56

4.4.1. Export financing
Pre shipment credit
Post shipment credit
Financing of exports constitutes an important part of Bank activities. The exporter
needs finance at various stages; some at the Pre shipment stage and the other of the
post shipment stage.
4.4.1.1. Pre shipment credit
Pre shipment credit, as the name suggest, is given to finance the Activities of an
exporter prior to the actual shipment of good. Pre shipment credit is essentially as
short term credit and liquidated by negotiation or purchase of export bills covering the
merchandise. Generally, the Bank grants pre shipment credit against irrevocable,
confirmed, unrestricted letter of credit received by an exporter from an overseas
buyer.
Pre shipment credit given under the following arrangement:
1. Cash credit against hypothecation:
Under these arrangements a credit is sanctioned against
hypothecation of the raw materials or finished goods intended for export.
2. Cash credit against pledge:
Not infrequently, a cash credit limit is sanctioned against pledge of
exportable goods or raw materials.
3. Cash credit against Trust Receipt:
Under this arrangement credit limit is sanctioned against trust receipt.
4. Packing credit:
This facility is generally extended when the goods become ready for the
shipment for a very short period. Packing credit is given to the exporter
against the security of railway receipt, steamers receipts etc.
5. Back to Back Letter of Credit:
Under this arrangement the Bank finances an export by opening a letter of
credit on behalf of the exporter who has received a letter of credit from the
overseas buyer but is not the actual manufacturers of producer of the
exportable goods.
6. Advance under Red clause Letter of Credit:

Page | 57

Under the red clause Letter of Credit, the Bank provides advance to the
exporter prior to shipment under the authority of the opening Bank.
Procedure for sanction of pre shipment finance:
The following are some of the points that must be borne in mind for this purpose:
1. Export Letter of Credit should from a reputable Bank abroad whose status has to
be ascertained. The letter of credit should be irrevocable, unrestricted, and valid
and preferably confirmed.
2. Expiry date of letter of credit should be properly recorded in the book.
3. The credit worthiness of the exporter and his exporter performance are to be
invariably ascertained.
4. The period for which the credit is sanctioned should be clearly mentioned.
5. In case of pledge Bankers effective control should be mentioned.
6. Charges documents and other necessary documents as stipulated in the sanction
letter should be properly obtained.
7. Guarantee / Policies should be obtained under the export credit scheme
administered by Insurance Company
4.4.1.2. Post Shipment Credit
Post shipment credit is given to the exporter by Banks after the actual shipment of
goods. The necessity for post shipment credit arises because the exporters who have
shipped the goods have to wait for a long receiving payment for the overseas buyers;
the period of waiting depends on the terms of payment. The exporter needs funds to
carry on his normal export activities.
AIBL also finances the export at post shipment stage on verification of the credit
worthiness and soundness of both the buyers and the seller by preparing application
for limit (AFL).
1. Negotiating documents under letter of credit: The document generally include
(a) Bill of exchange or Draft
(b) Bill of lading
(c) Insurance Policy
(d) Indent / Pro-forma Invoice
(e) Invoice
(f) Certificate of origin
(g) Inspection certificate
(h) Packing list
(I) Weight list & any other documents specially called for in the letter of credit.

Page | 58

2. Purchase of DP and DA bills
The provision of finance by way of negotiation of documents against payment (DP)
and documents against acceptance (DA) bills is generally made in favor of the
exporter who have been given bill purchase limit.
The Bank should obtain instruction from the drawer of the bill covering the following
aspects:
Documents against payment or acceptance
Instruction to protest

3. Advance against Bills for collection:
The Bank generally accepts bills for collection of proceeds when they are not drawn
under a letter of credit or when the documents, even through drawn against in L/Cs
contains some discrepancies

4.4.2. Operating procedure
1. Telex / Swift Messages:
The procedures are as follows according to the system:
The following Telex and SWIFT Messages to be received from the
Register:
1. Export L/Cs
2. Amendments
3. Other messages:

Note:
a. For unauthenticated messages telex is to be sent to our
correspondent for authentication.
b. Some messages are to be sent to local Bank for test
authentication.
c. Bills and L/C related messages to be filled in the
respective fill.


Page | 59

2. Advising:
Take reference for Telex, SWIFT and mail L/Cs and amendments from the
L/C register.
Fill up L/C checklist.
Insert L/Cs and amendments in the system.
Making photocopy of all messages.
Mail outside Dhakas L/C and amendments by courier and pack mail.
3. Document Mailing
Type bill schedule.
Endorse bill of exchange and shipping documents.
Endorse in L/Cs.
Photocopy of the documents.
Shorts Bills.
Mail clients information

4.4.3 Methods of payment in export sales
The following methods of payment are ranked in the order of measuring risk to the exporter.
In other words, they are increasingly unfavorable to the exporter but favored by the importer.
A. Cash in advance

B. Documentary credit or L/C
(note: this already explained above the bills import)
C. Documentary collection
(note: this defined to next section)
D. Open document

A. Cash in advance
Cash in advance gives exporter the greatest protection because exporter
either before shipment or upon arrival of the goods receives of payment.
Sometimes exchange controls of the importers country may cause payment delays or
even prevent method it most suitable.


Page | 60

1. Pays exporter before exporter makes
Delivery of goods

2. Delivery of goods upon receipt of
Payment
Diagram 4.9: Cash in Advance
B. Open account
The credit items are arranged between the buyer and the seller, but the seller has little
evidence of the importers obligation to pay a certain amount at the certain date. This
payment method is, therefore, risky for the seller.

Diagram 4.10 shows open account procedure

1. Exporters ships the goods before being paid

2. Importer makes payment upon
Receipt of goods
Diagram 4.10: Open Account

IMPORTER
BUYER
DRAWEE
EXPORTER
SELLER
DRAWER
IMPORTER
BUYER
DRAWEE
EXPORTER
SELLER
DRAWER

Page | 61

Although the payment method bears a higher risk for seller, open accounts sales have greatly
expanded due to the major increase in international trade, and the sellers eager to major
export volume.
A comparative statement of the methods of payment is given below with the classification of
risk category and merits and demerits of each method:
Method Risk Chief advantages Chief disadvantages
Cash in advance L No credit extension is required. Can limit sales potential
disturb some potential
customer.
Sight draft M/L Retains control and title;
Ensured payment before goods
are delivered.
I f customer does not or cannot
accept goods, goods remains at
port of entry and no payment
is due.
Letter of credit
I rrevocable
Revocable

M
M/H
Bank accepts the responsibility
to pay; payment upon
presentation of papers.
I f revocable, terms can change
during contract week.
Time draft
M/H
Lowers customer resistance by
allowing extended payment.
Same as sight draft, plus goods
are delivered before payment is
due or received.
Consignment sales M/H Facilities delivery; Lowers
customer resistance.
Capital tied up until sales;
must establish distributions
credit worthiness; need
political countries; increased
risk from currency controls.
Open account H Simplified procedure; No
customer resistance.
High risk; Seller must finance
production; increased risk
from currency controls.

* L: Low risk ; M: Medium risk ; H: High risk

4.5 Collection
Collection are a method of settling the monitory side of international Trade transactions in
both goods and services. Where goods are Involved, the documents allowing the buyer to
take delivery of these Goods will be routed through Banks in the exporters and importers
Countries.


Page | 62

Chart 4.11 Bills for Collection

Chart 4.11 shows that the total amount of bill for collection over the
year. It is increased very sharply growth rate during the 2001 to 2005.
There are two types of collection.
1. Documentary Collection
2. Clean Collection

The first type is documentary collection, which means collection of:
Financial documents and commercial documents.
Commercial documents only.

The another type is clean collection. It consists of one or more bills of exchange or
promissory notes, for obtaining cash. Clean collection requires no other commercial
documents to be attached.
Please refer to the diagram on 4.12 for an explanation of various steps in the operation of the
collection: -

0
2
4
6
2008 2009 2010 2011 2012
Bill for Collection

Page | 63

Diagram 4.12 shows the collection procedure

1. Goods shipped to buyer

4.Present 5. Makes payment or 7. Pays export
document accepts draft
for payment
2. Forward
Documents

6. Sent payment

3. Forward Documents
Forward Documents

Diagram 4.12: Collection

PRESENTING
BANK
EXPORTE
R SELLER
PRINCIPL
E
IMPORTE
R BUYER
DRAWEE
COLLECTING
BANK
REMITTING
BANK

Page | 64

4.5.1 Documentary collection
These collection entails the use of commercial documentation, they are concerned
with goods and, although not obliged, Bank frequently take steps to protect the goods
in their customers interests.
The payment instruction in a documentary collection is usually a bill of exchange,
which is drawn by exporter (Seller) on the importer (buyer)
The bill of exchange that can be drawn is the following two types:
1. Sight bill: A bill of exchange drawn by the drawer (exporter) at sight for immediate
payment.
2. Term bill: A bill of exchange drawn by the drawer (exporter) and provides
times for the drawer to pay at a fixed or determinable future date, such as 30 days
sight.

4.5.2 Clean Collection
Collection, which do not include goods but consist of documentation only, usually a
bill of exchange, or occasionally a check, is known as clean collections. They are
frequently used for the settlement of trade on open account and for service rendered,
rather than goods supplied. They are very simple for Banks to process since goods are
not directly involved.
The term Collection applies to the procedure under which payment to the client for
a check, draft or similar instrument is made only after the proceeds have been
received from the Drawer. Thus Collection requires special handling.


Page | 65

4.5.3 Advantages and Disadvantages of Clean Collection
COLLECTION
Advantages Disadvantages
IMPORTER
* For clean collection, buyers
can take possession of the goods
before payment.
* For D/A collection, the buyer
can inspect and sell the goods
before payment.
Terms bill provide the buyer
with a period of credit from the
exporter. Hence its liquidity can
improved.
* If he default on an accepted Bill
of exchange (Notwithstanding the
poor condition of the goods). Legal
action can be taken against him.
* If he refuse to accept or pay a
bill, pretest by the exporter against
non acceptance or the exporter
can take non payment, this can
damage the reputation of the
importer.
EXPORTER
* It is cheaper than D/A.
* A presenting Bank may have
influence over the foreign buyer
and thus he more able to collect
the payment than an open
account basis.
* Exporters may obtain
immediate payment by
negotiation of the bill or
applying for Bank advance.
* Exporter can retain control
over the goods D/P.
* Loss of control over goods under
D/A.
* No guarantee that buyer will
pay because Presenting Banks are
to collect the Payment only.
* In case of delays or difficulties,
an exporter has to bear all the cost
arising such as demurrage charges
in the importers country.
* He has to bear buyers credit
risk and country risk.

4.6. Banks facilities and Services to Exporter and Importer
4.6.1. Export facilities and Services
Overdraft (O/D): Overdraft are granted to a customer in order to finance his
daily business requirements and assist his cash flow position.
Bills (Advance): The Bank may agree to offer thus type of finance if thinking
that the Exporter is reliable
Negotiation of export bills: After the beneficiary has effected shipment, he may
present documents to his Banker for negotiation. Sight bills might be negotiated
by the exporters Bank.
Performance Bond: This is a written instrument, issued by a Bank or a surety
company, stating that the exporter will comply with the terms of the contract with
the buyer, otherwise the buyer will receive compensation for any losses suffered
as a result of the exporters failure to perform under the contract.

Page | 66

Guarantee/Indemnity: Guarantee and Indemnity are Banking service available
to both exporters and importers.
Red clause credit: It is a pre-shipment finance granted to the exporter by and at
the risk of the issuing Bank.
Packing loan: The purpose of packing loan is to help the exporter to buy raw-
materials for production or to buy the necessary goods required by the D/C.
Letter of Indemnity: It is a undertaking given by a Bank on behalf of his
customer to another Bank. The Bank giving the promise is primarily liable.
Leasing: This is a financial arrangement in which the Banks and their subsidiary
companies known as lesser of leasing companies hold the title to property or
equipment which the customer known as the leases use it.
4.6.2. Import facilities and services
A. Overdraft (O/D)
B. Documentary Credit Facility (D/C)
C. Loan against imported merchandise: LAM is an advance to the
importer based on the imported goods as the security.
D. Trust receipt facility: This is a document executed by a customer who
agrees to hold the goods in trust for and on behalf of the Bank.
E. Shipping Guarantee: A shipping guarantee is an undertaking given by a
Bank on behalf of his customer to a shipping company to return the
original transport documents.
F. Collection

4.7. Remittance
Designing a global Remittance policy,
The task facing International financial executives is to co-ordinate the used of the various
financial linkages in a manner consistent with value maximization for the firm as a whole.
This tasks require the following four inter-related decisions:
1. How much money (if any) to remit
2. When to do so.
3. Where to transmit these funds
4. Which transfer method(s) to use
A common or shared responsibility with cash development is the custodianship of the volt.
Two groups independently monitor the inflow and outflow of financial instruments to and

Page | 67

from the volt. Bangladesh Bank checks deposits are processed for collection from
Bangladesh Bank.

Chart 4.13 shows Remittance in Million taka of AIBL Bank. It is shown that AIBL Banks
Remittance business has been increased by steady growth rate during the year 2008 2011.

Remittance Department
This Department deals with the basic paying and receiving of funds into the Bank, for the
clients. They transfer, or wire money abroad as well as locally through TT or SWIFT, etc..
They work very closely with the cash department. They also sell Government bonds to clients
and organizations.
Remittance Department works as an intermediary for clients and actions taken on their
accounts. Automatic credits and debits are not necessary done, especially in cases of
International transactions. They deal with fund transfers both locally and abroad as well.
A principal mode of remitting fund abroad is through SWIFT. Other traditional mode TT,
Telex, Mailing of Drafts, and transfer of TCs is also used. In both case of incoming and
outgoing remittances the purpose is to be disclosed. Local fund transfer is also done here,
there areas of transfer activities include:
1. Issuance of Pay order
2. Salaries
3. TT to any where the country
4. TT to other parts of the country
4.7.1 I nward Remittance
Function in Inward Remittance
0
5
10
15
20
25
30
2008 2009 2010 2011 2012
Remittance

Page | 68

Step 1: Fund Received
Step 2: Clarification by
I. Own Client
II. Other Client
III. Foreign Mission and International Bodies

Step 3: If the fund is for own client
I. Check faster account
II. Valid IRC Copy
III. Vat Register Certificate
IV. Check the fund account
V. Message transfer date

Step 4: Process the fund

4.7.2 Outward Remittance
Outward Remittance
Bank Condition:
Client must have an account in AIBL
Process:
1. Travel Mucilaginous
2. Document transfer by SWIFT other transaction activities
Types of Transaction (Remittance Department):
1. Govt. Bond Sold
2. Govt. Bond interest paid
3. Other Bank check collection
4. NFCD Open
5. NFCD interest paid
6. NFCD Encasement
7. Credit Advance/Debit Advance
8. Outgoing Payment Instruction
9. Collection item both local/Foreign
10. Incoming Payment Instruction Pay order Installed
11. Salary Disbursed
12. Foreign Currency Draft Issued
13. Correspondence
14. Incoming Collection

Page | 69

15. Bangladesh Bank Check Collection

4.8. Core Concept of Foreign Exchange
a. Foreign Exchange Business
In Foreign Exchange Business, the Commodity is Currency, Buying and
Selling of any currency against local currency is called Foreign Exchange
Business.
According to Bangladesh Bank order 1972, Foreign exchange means foreign
currency and includes any Instrument drawn, accepted made and issued under
clause 13 of section 16 of the Bangladesh Bank order 1972.
b. Foreign Exchange Rate

The rate of exchange is the price of the one currency expressed inters of
another currency. The rate at which exchange dealer would buy or sell foreign
exchange in terms of the domestic currency is known as the rate of exchange.
c. Foreign Exchange Transactions
All transactions related to FOREX are monitored and controlled by the
Treasury Department of the Bank. This Department is responsible for
providing all FOREX rate, interest rates. Basically there are two types of
transactions taking place through out of the Bank spots and forwards.
Approximately 95% of all FOREX transactions are spot transactions.
4.8.1. Different terms used in foreign exchange
Terminology of foreign exchange market. A foreign exchange rate is the price of one
currency expressed in terms of another currency.
Spot rate: A spot rate is a rate quoted immediately, for delivery of the currency to the
buyer within the working days.
Forward rate: The exchange rate quoted for transaction which called for the delivery
of the currency at future date.
Inter Bank market: This is a foreign market for commercial Banks only and the
rate is known as Inter Bank.

A Forward Exchange Contract may be either fixed of option

Page | 70

1. Fixed means that performance of the contract may take place on a specified date in
the future.
2. Option means that performance of the contract may take place, at the option of the
customer, on any date before maturity.

Premium and Discount
Forward rate for a currency is quoted as an adjustment to the spot rate. This department
Is at a either Premium or a Discount.
If the forward rate of a currency is more expensive than the spot rate, it is
quoted in premium
If the forward rate for a currency is more cheaper than the spot rate, it is quoted
in discount.

Buying rate and Selling rate

Buying rate means the Bank is buying the currency. The customer is selling the
currency to the Bank in this transaction.
Selling rate means the Bank is selling the currency. The customer is buying the
currency to the Bank in this transaction.

Exchange rate is quoted in Buying rate and Selling rate, the difference of the rate is Called
Spread.
4.8.2. Relevancy of Foreign Exchange Revenue for AIBL
Revenue generated in Foreign Exchange (FOREX) business has turn out to be an
important element for generating income for AIBL.

4.9. Factor Affecting Fluctuation In Exchange Rates
Medium and Long -Term Factors:
1. Balance of payment
If the country suffer from a balance of payment deficit, its currency will depreciate.
If, on the other hand, a country experiences balance of payment surplus, its currency
will appreciate.
2. Rate of Inflation

Page | 71

If the country suffer from high inflation rate, its currency will depreciate. On the other
hand, if a country experiences a relatively low Inflation rate, its currency will
appreciate.
3. Interest Rate
The currency, which gives a relatively high interest rate, will appreciate while the
currency, which only offer a relatively low interest rate, will depreciate.

Short Term Factors:
1. Official Intervention
2. Hot Money

Hot Money refers to money, which flows in for speculative purpose. When Hot
Money Flows into a country, its currency will appreciate and vice versa. Hot money is
a very substantial forces affecting the movement in exchange rate.

4.9.1 Exchange rate in Bangladesh and its function over time

Bangladesh currency is pegged to composite of nine currency. In Bangladesh capital
account transaction are regulated even through our currency is made convertible in
current account of the Balance of Payment in 1993 and therefore our exchange rate is
technically fixed.
The four factors that are usually taken into consideration while determining exchange
rate in Bangladesh are given below
Real effective exchange rate (REER has a positive relationship with exchange
rate)

Balance of current account (BOCA has a negative relationship with exchange
rate)

Foreign Exchange Revenue (FER has a negative relationship with exchange rate

Unofficial exchange rate (UER has a negative relationship with exchange rate).


Page | 72

4.10. Ways of avoiding Exchange Risk
1. Forward exchange contract:
An immediately firm and binding contract
For the purchase and sale of a specified quantity
At a rate of exchange fixed at a time the contract is made.
For delivery at a future time

Types: Contracts
a) Fixed performance at a specified data in the future
b) Option : Performance at any data between two

1. specified date
(Note: Option under forward exchange contract should not be mixed up with
currency option).
2. Currency Option
3. Open a foreign currency account

Buy foreign currency and deposit it in a foreign currency account. Any receipts
and payments are to be made from this account so as to avoid any losses in the
movement of exchange rate.


Page | 73

Chapter: 5



Page | 74

Chapter: 5

5.1. Findings
In recent years, the foreign exchange business of Al-Arafah Islami Bank Ltd is increasing at a
faster rate. As a state owned scheduled bank, Al-Arafah Islami Bank Ltd is playing an
important role toward the growth and economic development of Bangladesh. Al-Arafah
Islami Bank Ltd is rendering a stable support to the national foreign exchanges business.
Although the foreign exchange business is increasing day by day there are also some
obstacles around it which are as follows:
1. One problem relates to technology, the bank must try to adopt new
technologies. Otherwise the profitability of the bank may hamper.

2. To meet the challenges in the banking industry and to help employees to adapt
to the changes and new working condition, training is essential but no such
training center has yet been established in AIBL. Moreover, training given to
employees is not adequate.

3. Besides, SWIFT is being used in some branches and the head office of the
bank for trade finance related operations like documentary credit,
documentary collections, fund transfer, guarantee, etc. with optimum security,
but not in all branches.

4. The officers are very helpful to the business men. Some of our business men
do not know exactly the procedures of opening L/C. the officers of AIBL help
them properly to execute their business.

5. To make the process easy, bank should give emphasis to use the modern
communication media like e-mail, fax, internet etc.

6. Modern technical equipment like computer, ups, modem etc. is not sufficient
in foreign exchange department, which results in the delay of exchange
process.

7. The data base system of foreign exchange department is not very systematic.
Also documentation and filing process of foreign exchange operation is not
user friendly, which sometimes wastes valuable time.

8. Letter of credit (L/C) opening system for the importer is easy. It consumes
time and money as well.


Page | 75

5.2. Recommendations

I had the practical exposure in Al-Arafah Islami Bank Ltd. for just twelve weeks, with my
little experience in the bank in comparison with vast and complex banking system, it is very
difficult for me to recommend. We have observed some shortcomings regarding operational
and other aspects of their banking. On the basis of my observation we would like to
recommend the followings:

The branch need to set up well designed IT section by using more updated
technology and information.
Adequate on the job training is required for the newly employed personnel.

SWIFT service should be introduced in each and every branch of the bank, which
will help to smooth then the foreign exchange operations of the bank.

Some officers of the bank are not self motivated. They should be self- motivated
by training.

The bank should do more advertisement for attracting new customers.

AIBL needs sufficient computer, ups, modem etc for foreign exchange
department.

The bank should develop an effective database system to analyze the data of
foreign exchange business.

Bank should provide emphasis to make the documentation and filing process of
foreign exchange operation user friendly.

Letter of credit L/C opening system for the exporter should be easier.

I think the Management should employ at least few more employee in foreign trade
department as I have seen from my practical experience that many customers wait for a long
time for any service as they see that only one concerned official is doing their best to meet the
requirements of the customers.


Page | 76

5.3. Conclusion

Al-Arafah Islami Bank Ltd is committed to Boost up export, reduce import, raising of Gross
Domestic Product (GDP) and increase employment.
All the branches of AIBL are authorized dealer of Foreign Exchange Business. The authorized
dealer motivates the importer to import Raw materials, Fabrics, Frozen fish, jute items, and
electronics goods, Accessories, Chemicals, and Vegetable Fat etc.

The import or exports are motivated by the Al-Arafah Islami Bank Ltd to the foreign
exchange business, particularly to open the letter of credit. A letter of credit offer advantages
both to the importer and exporter. The advantages accruing to either of the parties differ
depending upon the nature of credit opened. There are certain Common benefits accruing
from the use of credit as under.
AIBL is playing a vital role in financing import and exports of the country. Without Bank's
co-operation, it is not possible to run any business or production activity in this age. Exports
and import need finance in various stages of their activities. Export and import financing
need letter of credit (L/C), payment against documents (PAD), loan against imported
merchandise (LIM) etc. All these facilities are being provided by BASIC Bank Limited. For
this purpose Bank considers the borrower's business standing, integrity, liability with the
bank and term and conditions of the L/C. There is lot of risks involved in foreign exchange
business. So, the Basic Bank Limited has to clearly serve the customers from a neutral point
and gather the current information about the market.


Page | 77

Part Three
Appended Part
A: Bibliography
In Text
1. Foundation of International trade finance, KWLUK, The Hong Kong Institute of
Bankers.

2. Multinational Business Finance Eiteman, Stonehill and Moffelt. 6
th
edition.

3. Multinational Financial Management, Allan C. Shapiro, 4
th
edition.

4. Business Finance, Prof. M Shahjahan Mina, 3
rd
edition.

5. Annual report of Al-Arafah Islami Bank Ltd, Prime Bank and Dhaka Bank, 2012.

B: Appendices:
On profile of BASI C Bank
1. Al-Arafah Islami Bank Ltd; Annul Report 2011&2012

2. Al-Arafah Islami Bank Ltd policy Guide lines on Foreign Exchange 2011

3. Al-Arafah Islami Bank Ltd Several Booklist

4. AIBL prospectus

Online
1. http://www.al-arafahbank.com/
2. http://www.al-arafahbank.com/profile.php
3. http://www.al-arafahbank.com/Annual-Reports.php


Page | 78

Appendix - 01
Bank Performance at a glance
This section deals with performance analysis of AIBL highlighting the certain aspect of AIBL through
chart and the situation of spread, Burden and productivity indicator over the last five years

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A Rare Combination of Shariah and Modern Banking

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