The perceived need for & practical implications of overall bank management at Al-Arafah Islami Bank Limited

Report on The perceived need for & practical implications of overall bank management at Al-Arafah Islami Bank Limited

Submitted To: Md. Shawkat Hossain Lecturer and course instructor of Islami Banking & Investment (FNB: )

Submitted by: Name of the members Mohsi NIhad Ornab Rajesh Paul Md. Shuaib Shahriar Rusho S. M. Kaiser Ahmed Lamia Nuzhat Shashi Md. Riaz Rahman Student ID. 613 617 620 625 1923 1929

BBA Program Batch: 02

Dhaka, Bangladesh 16 February 2013

Department of Finance & Banking Jahangirnagar University

Executive summary
Commercial banks are one of the key contributors in the developing countries. They act as financial intermediaries by performing the function of mobilizing the funds from one group and lending the same to another while making a reasonable amount of profit after meeting the cost of fund. The banking practice of conventional banking and Islamic banking is highly different from the concept. The Islamic concept thinks the interest as the harmful for the economy and banking should be done on the Shariah basis. At the very upset of this bank it was operated under this concept of Islamic Shariah which is called Islamic banking. The Islamic banking collects deposits from different viewpoints so the whole banking practice with the clients differ highly from conventional banking. The Islamic banking used the credit in different name that is Investment. Here the mode of investment is mainly depending on the type of collateral. Here the bank goes with the client a type of business relationship where the bank made agreement to conduct business for the client, the bank is the owner of the money and property where the client just provide the labor and share the profit with the bank. The Bank conducts its business on the principles of Musharaka, Bai-Murabaha, Bai-muazzal and Hire Purchase transactions approved by Bangladesh Bank. One of the largest businesses carried out by the AIBL is foreign trading. The trade among various countries falls for close link between the parties dealing in trade. The situation calls for expertise in the field of foreign operations. Foreign exchange department of Al- Arafah Islami Bank is one of the most important departments of all departments. This department handles various types of activities by three separate sections: Import section Export section Foreign remittance section.

One of the core functions of AIBL is to create the claim against individual borrower or real the purpose of sanctioning credit bank grants loan in the form of different securities. By the primary security we mean the financial claim of holder against the real sector of economy. In banking the sector the financial claim of bank against issuer called investors, borrowers and difficult units. This core function of a bank is performed by the credit department of the bank. In this case the relationship of bank and customers is that of the creditors and debtor.

February 16, 2013 Md. Shawkat Hossain Lecturer Department of Finance & Banking Jahangirnagar University Savar, Dhaka-1342 Subject: Submission of report Dear Sir: Here is the report that you asked us to prepare on The perceived need for & practical implications of overall bank management at Al-Arafah Islami Bank Limited. Doing some careful analysis and consideration, we mainly focus on the key aspects of the management process of Al-Arafah Islami Bank Limited. We hope that this report will be up to your expectation and draw your appreciation. If you have any question or inquiry regarding this report, please call us. We are looking forward to receiving your comments and suggestions on this report. Sincerely Yours, ______________________________ Mohsi NIhad Ornab (ID: 613) ______________________________ Rajesh Paul (ID: 617) ______________________________ Md. Shuaib Shahriar Rusho (ID: 620) ______________________________ S. M. Kaiser Ahmed (ID: 625) ______________________________ Lamia Nuzhat Shashi (ID: 1923) ______________________________ Md. Riaz Rahman (ID: 1929)
2nd

Batch, B.B.A. Program

Department of Finance & Banking Jahangirnagar University Savar, Dhaka-1342

Acknowledgement

All the praise is for Allah, the supreme authority of the Universe, the most merciful and beneficent, who blesses us with the knowledge, gave us the courage and allowed us to accomplish this task. Assistance and co-operations in different people of different stages of our report helped us to add more beauties to the report. At the event of the report submission I sincerely remember all of them and express my gratitude to them. At the very beginning, we want to express our profound gratitude to our respected course teacher Md. Shawkat Hossain, to provide us with such a nice opportunity to prepare this kind of a report on The perceived need for & practical implications of overall bank management at Al-Arafah Islami Bank Limited. Without the flexibility that he has given to us, it would not be possible to finish our research work. We would also like to take this opportunity to express our wholehearted gratitude to our fellow friends who offered encouragement, information, inspiration and assistance during the course of preparing this report. Sincerely yours, ______________________________ Mohsi NIhad Ornab (ID: 613) ______________________________ Rajesh Paul (ID: 617) ______________________________ Md. Shuaib Shahriar Rusho (ID: 620) ______________________________ S. M. Kaiser Ahmed (ID: 625) ______________________________ Lamia Nuzhat Shashi (ID: 1923) ______________________________ Md. Riaz Rahman (ID: 1929)
2nd

Batch, B.B.A. Program

Department of Finance & Banking Jahangirnagar University Savar, Dhaka-134

1.0

Introduction

This chapter starts with a discussion on Origin of the report(1.1). Then it comes, the relevance and background of the research (1.2) to provide a clear understanding about the research. After the background an elaboration is given on the objective of the research (1.3). The scope of the research that sets the boundary of the research are discussed too (1.4). Then after that a brief discussion is given on the limitation to the research (1.6). Finally there is a summary for this part (1.6).

1.1. Origin of the Report: The prime objectives of this report are to fulfill the partial requirement for the course of Islamic Banking & Investment. Since, its compulsory for all the grou ps of students of 2nd batch of Department of Finance & Banking, Jahangirnagar University to understand the current practice of Islamic Banking theories to explore real life business situation. Al-Arafah Islami Bank Limited is a place where I could learn the business dealings. This organization has created a positive image to the customer mind by providing better service. This Bank has introduced some Modern Islamic Banking Scheme that has high market demand. As it maintain the pace with the competitive business world, its activities, culture, philosophy and style leads an intern student to be the best at any field of working life. With this view, during my internship I was assigned to Dilkusha branch, AlArafah Islami Bank Ltd, with other activities I specially tried to observe the overall banking procedure and function of this branch.

1.2. Background and relevance of the research: The Context Financial institution and banks play an important role in financial inter mediation and thereby contribute to the overall growth in the economy. Presently the financial system in Bangladesh consists of the central bank, nationalized commercial/specialized banks, private banks, foreign banks and other non-bank financial institution. This report is based on one commercial Bank that is the Al-Arafah Islami Bank Ltd or AIBL.

1.3. Objectives of the research The primary objective of writing the report is fulfilling the partial requirements of the BBA program. In this report, Ive attempted to give an overview of Al -Arafah Islami Bank

Limited in general. Also in the major part, we have shown the practical approach of Foreign Exchange. Some following objectives of the report are as shown: To present an overview of Al-Arafah Islami Bank Ltd.. To show Islamic banking background of this era as well as of this country. To present the credit from the Islamic perspective. To show present condition of investment. To gain or achieve the practical Idea of banking System of AIBL To explain the general banking activities of AIBL. To explain the activities of foreign exchange of AIBL To identify the problems of AIBL prevailing in its banking system To suggest some possible recommendations to overcome the problems.

1.4. The scope of the research This report will cover an organizational overview of Al-Arafah Islami Bank Limited.it will give a wide view of different stages of operational procedure of Al-Arafah Islami Bank Limited, starting from the investment application to investment disbursement and the comparison between standard and existing credit appraisal system of a Bank. Then the report covers Foreign exchange operation and General Banking as an Islamic Bank.

1.5. Methodology To complete this report weve followed a systematic study which include inspecting and talking to the executives at different levels of the organization to know the present scenario of the banking practice. To facilitate make the report more meaningful and presentable two sources of data and information have been used widely. The primary sources which are as follows Unceremonious conversation with the client. Relevant file study as provided by the officers concerned. Face to face conversation with the executives and the officers of the bank.

The Secondary Sources of data and information are as follows-

 Various books, articles, compilations etc, regarding general banking functions. Websites. Statement affairs. Periodicals published by Bangladesh Bank

1.6. Limitation The report is accompanied with the following limitations Access to data regarding different performance indicators of Al-Arafah Islami bank Ltd. The report is mainly based on the secondary data which published by different organization as annually, half-yearly, monthly, weekly and daily. Time constraints are additional limitations of this report. Due to some legal obligation and business secrecy banks are reluctant to provide data. For this reason, the study limits only on the available published data and certain degree of informal interview. The bankers are very busy with their jobs which lead a little time to consult with. Finally, some recent data which were needed to enrich this report but the unwillingness of the executives of the bank due to confidentiality was made my report limited to data content.

2.0. Islamic Banking

In this chapter Islamic banking concept is briefly discussed from various perspectives. Section 2.1 discusses on the definition of Islamic banking while principles of Islamic banking has been described on section 2.2. Distinguished features of Islamic Banking have been put in the section 2.3 and section 2.4 focuses on the differences between Islamic Banking and Conventional Banking.

2.1. Definition of Islamic Banking Islamic banking is actually a kind of participants banking that is conducted according to the Islamic Sharia (the way to the source of life) maintain the rules of Islamic economies. According to Islamic Banking Act of Malaysia, an Islamic bank is a company, which carries on Islamic banking business, Islamic banking business means banking business whose aims and operations dont involve any element which is not approved by the religion Islam. Dr. Ziauddin Ahmed says, Islamic banking is essentially a normative concept and could be defined as conduct off banking in consonance with the ethos of the value system of Islam. It appears from the above definitions that Islamic banking is systems of financial intermediation that avoids receipts and payments of interest in its transactions and conduct its operations in a way that it helps achieve the objectives of an Islamic economy. Alternatively, this is a banking system whose operation is based on Islamic principles of transactions of which profit and loss sharing is major feature, ensuring justice and equity in the economy. That is why Islamic banks are often known as profit and loss sharing banks.

2.2. Principles of Islamic Banking Allah [The Creator] has made business legal, but strictly prohibited interest (Usury/Riba) -Al-Quran, Volume-2, Verse-179 Islamic Banking concept is based on Sharia(Each and every laws of Quran is the laws for universe)

 The absence of interest (riba/usury): Interest is totally prohibited in Islamic shariah. So the main principle of Islamic banking is the absence of interest in the investment or dealing of transection. The supplier of the funds here must be compensated and the compensation must be consistent with the level of profit loss sharing. The exchange or transection based on speculation (gharar): Islamic banks cant oin Islamic shariah although modern economy is based on speculation. Such speculation is based on short sale (a process of selling the product at a comparatively better price and buying back the product within a time period in lower price) to make a balance in The exchange or transection based on oppression (Zulum): Islamic banks cant do business deal or transection by making others threatened or by showing rivalry with the opponents or make them do deal by oppression, coercion and also by discrimination in order to create a cosmopolitan or brotherhood among the people. Introduction of Islamic tax (zakat): In Islamic shariah it is must to give zakat for every Muslim. So each and every Islamic bank has to deal with the Islamic tax for the betterment of the society and in order to ensure a rational or balanced distribution of wealth of the society. Exchange of products controversial to sharia (haram products): Islamic banks cant deal or exchange the products in business which is strictly prohibited in Islamic shariah such as- illegal drugs, narcotics, weapons etc. as they are strictly restricted in Islam.

2.3 Distinguishing Features of Islamic Banking An Islamic bank has several distinctive features as compared to its conventional counterpart. Six essential differences as below I.Abolition of Interest (Riba): Since Riba is prohibited in the Holy Quran and interest in all its form being akin to Riba as, confirmed by Fukaha and Muslim economists with rare exceptions, the first distinguishing feature of an Islamic bank must be that it is interestfree, while the abolition of Riba would be the first and essential difference between the conventional interest-based commercial banks and Islamic banks, if would not the constitute the only difference between them. The nature, outlook and operations of an Islamic bank would have to undergo a complete transaction.

II. Adherence to Public Interest: Activity of commercial banks being primarily based on the use of public funds, public interest rather than individual or group interest will be served by Islamic commercial banks. The Islamic banks should use all deposits, which come from the public for serving public interest and realizing the relevant socioeconomic goals of Islam. They should play a goal-oriented rather than merely a profitmaximizing role and should adjust themselves to the different needs of the Islamic economy. III. Multi-Purpose Bank: Another substantial distinguishing feature is that Islamic banks will be universal or multi-purpose banks and not purely commercial banks. These banks are conceived to be a crossbreed of commercial and investment banks, investment trusts and investment management institutions and would offer a variety of services to their customers. A substantial part of their financing would be for specific projects or ventures. Their equity-oriented investments could not permit them to borrow short and lend long. This should tend to make them less crisis-prone compared to their capitalist counterparts. Since the overnight, call loan or very short-term inter-bank market may be available to them only to a limited extent, they may have to make a greater effort to match the maturity of their liabilities with the maturity of their assets. IV. More Careful Evaluation of Investment Demand: Another very important feature of an Islamic bank is its very careful attitude towards evaluation of applications for equity oriented financing. It is customary that conventional banks evaluate applications, considers collateral and avoids risks as far as possible. Their main concern does not go beyond ensuring the security of their principle and interest receipts. Since the Islamic bank has in built mechanism of risk-sharing, it would need to be careful more careful. It adds a healthy dimension in the whole lending business and eliminates a whole range of undesirable lending practices. V. Work as Catalyst of Development: Profit-Loss-Sharing being a distinctive characteristic of an Islamic bank, if fosters closer relations between banks and VI. Entrepreneurs: It helps develop financial expertise in non-financial firms also enables the banks to assume the role technical consultants and financial advisors and act as catalysts in the process of industrialization and development. The bank would take care of all the responsible and agreed financial needs of their clients thus relieving them of `the need to run around for funds to overcome their normal liquidity shortages.

2.4. Differences between Islamic Banking and Conventional Banking: A comparative study between conventional banking &Islamic banking is given below: Criteria Conventional banking Functional & operational Man made mode Rate of interest It is the life blood of Banking system Islamic Banking
Based on Islamic Shariah Interest/ Ushuri is strictly prohibited in Islamic Banking system

Zakat Basic principle Defaulters Expertise resources Growth of equity Guarantee of accounts

Not applicable Borrowing and lending Penalties applicable under compound interest method No application of resources creation Personal growth Must

Mandatory
Participation in the business and profit and loss sharing. Additional payment/ compensation (charity fund) Application of creation expertise resources of

Basic principle Basic proposition

Credit worthiness Clients

Profit Maximization Borrowing at a lower principle and lending a higher principle Must in conventional Participation of parties based on PLS banking Partners/ investors/merchants Borrowers and lenders

Public growth Mudarabah accountoptional Al wadiah accountmandatory Wealth maximization Wealth maximization by participation of both parties based on profit loss sharing

3.0. Islamic Banking in Bangladesh: This chapter focuses on the background and the possibility of Islamic Banking system of Bangladesh. 3.1. Possibilities of Islamic Banking in Bangladesh

Bangladesh is a Muslim majority country and almost 89.58% of the total populations are Muslims. Hindu is the second majority having 9.34% of the total populations. In addition to these three other major groups are Buddhists (0.62%), Christians 9 (0.31%), and Animists (0.15%). In spite of this variety, people live coherently in the society and thats why UN declared Bangladesh a Moderate Muslim Democratic Country.

Table-2.1: Religion Statistics in Bangladesh (in %)

So as a large portion of its population is Muslim, the Islamic Banking concept becomes very popular in Bangladesh. Now there are several Islamic banks in Bangladesh. Such as: Islamic Bank Bangladesh Ltd., Al-Arafah Bank Islami Bank Ltd., AB Bank Ltd., EXIM Bank Ltd, ICB Islamic Bank Ltd., Social Islami Bank Ltd. etc. As we are working with AlArafah Islami Bank Ltd., so we will focus on the Bank management of this bank.

3.2. Perceived need for practical implications of Bank management (from the perspective of Al-Arafah Islami Bank Ltd.) In spite of having great possibilities in Islamic bamking sector of Bangladesh, it is very challenging as well. There are so many reasons behind it. But the basic reasons are:1) Changing the banking rules & regulations (Legal settings): Determining the fair prices against virtual prices. As there are many competitors, so it is very sensitive matter to decide what is the perfect price against virtual services.

Determining the deposit insurance scheme. Determining capital adequacy. Determining the level of liquidity. Determining credit risk management. Determining the level of reserves. Determining the appointment of the board of directors. Determining the rules on recruitment and selection of employees. Determining the rules on approval or non-approval of loans. Direction for appraisal review and assurance of the loan projects.

2) Emerging the level of completion due to technological advancement (IT) As the modern age is an age of advanced technology, it changes rapidly. Its very difficult to sustain in this fast market. To cope up with this market, Bank Al-Arafah Islami Bank needs to be updated and to be quick.

3) Increasing the international relations (Globalization) Modern world is a global village. Now there is no boundary to get access in anywhere. Business becomes global because of increase in international relation. So its challenging to compete with so many competitors in this open market.

4.0. Al-Arafah Islami Bank Ltd.

In this chapter the organizational overview of Al-Arafah Islami Bank Ltd. will be discussed on.

4.1. Background of the Organization 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-Quran 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. Al-Arafah Islami Bank incorporated in Bangladesh as a banking company in 1995 with limited liability by shares. It started business on 27 September of that year with an authorized capital of Tk 1,000 million. At inception, its paid up capital was Tk 101.20 million divided into 101,200 ordinary shares of Tk 1,000 each. 23 sponsors of the bank subscribed the total issued capital. In 2000, the paid up capital of the bank increased to Tk 253 million, of which Tk 126.50 million were paid by the promoters/sponsors and Tk 126.50 million by the general public. The bank is listed in the two of the country and has offered 126,000 shares for subscription and trading by the public. Al-Arafah Bank is an interest-free Shariah bank and its modus operandi is substantially different from those of regular commercial banks. The bank however, renders all types of commercial banking services under the regulation of the Bank Companies Act 1991. It conducts its business on the principles of musharaka, Bai-Murabaha, bai-muajjal and hire purchase transactions. A Shariah Council of the bank maintains constant vigilance to ensure that the activities of the bank are being conducted according to the precepts of Islam. 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- bureaucrat 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 A group of 13 dedicated and noted Islamic personalities of Bangladesh are the member of Board of Directors of the bank. They are also noted for their business acumen. Al-Arafah Islami Bank Ltd. has 46 branches and a total of 1033 employees (as of December 2008). Its authorized capital is Taka 2500 million and the paid-up capital is Taka 1153.18 million. 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.

4.2. Vision To be the pioneer bank in the banking arena of Bangladesh under the Shariah guidelines and contribute significantly to the national economy.

4.3. Mission To launch a welfare-oriented banking system. To invest through different modes that is acceptable under Islamic Shariah. To allow customer deposits on profit-loss sharing basis. To perform interest free banking. To found participatory banking instead of banking on debtor creditor relationship. To display team spirit and professionalism. To provide high quality financial services in export and import trade. To maintain corporate and business ethics.

4.4. Goal and Objective of AIBL The maxim of the Al-Arafah Islami Bank Ltd (AIBL) is to discover a new horizon ofinnovative contemporary banking creating an automated and computerized environment providing one stop service and prepare itself to countenance the new challenges of globalization and 12th century. One of the main objectives of the bank is to be a provider of high products and services to cater to the needs of its corporate clients and provides a comprehensive range of financial services to national and multinational companies. The growing technological revaluation in the bank is not sooutlying future. It has previously introduced Swift, Online Banking.

5.0 Practical Implication of Bank Management at Al-Arafah Islami Bank Ltd.

5.1 Bank Management: Bank management is the sum total of all systemic activities relating to deposit mobilization, to ensure effective and efficient utilization of funds and to provide foreign exchange services to maximize shareholders wealth through profit maximization value creation and better customer satisfaction. The manager of financial institution is to create a whole (integrated management system) higher than the sum total of the parts. It means to ensure and integrate productive system greater than the sum of the resources used to it" ------ Peter F Drucker. Bank Management System: There are 5 stages of overall bank management system.

Planning

Organizing

Coordianting

Motiavating

Controlling

Planning: A basic management function involving formulation of one or more detailed plans to achieve optimum balance of needs or demands with the available resources. The planning process Identification of the goals or objectives to be achieved: Here two types of goals have to be achieved Short term goal: maximization of profit Long term goal: maximization the valuation of the farm and wholly development of society by giving better service to the customer. Develop strategies to achieve the goals and objective

 Implement, direct, and monitor all steps in their proper sequence

Identification of the goals or objectives to be achieved

Implement, direct, and monitor all steps in their proper sequence

Organizing:

Develop strategies to achieve the goals and objective

Organizing is the management function which synchronizes and combines human, physical and financial resources to achieve the stated objective. As all the three resources are important to get results, thats why organizational function helps in achievement of results which is in fact very important for the better function of the organization. According to Chester Barnard, Organizing is a function by which the concern is able to define the role positions, the jobs related and the co- ordination between authority and responsibility. Hence, a manager always has to organize in order to get results. A manager performs organizing function with the help of following steps:-

Identification of activities- All the activities which have to be performed have to be identified first. All these activities have to be grouped and classified into units. Departmentally organizing the activities- In this step, the manager tries to combine and group similar and related activities into units or departments Classifying the authority- Once the departments are made, the manager likes to classify the powers and its extent to the managers. This activity of giving a rank in order to the managerial positions is called hierarchy.

 Co-ordination between authority and responsibility- Relationships are established among various groups to enable smooth interaction toward the achievement of the organizational goal Distribution of labor-Here the manager divides the work according to the hierarchy. The main function of this part is distribution of labor.

Identification of activities Departmentally organizing the activities

Distribution of labor

Organizing

Co-ordination between authority and responsibility

Classifying the authority

Coordination: Coordination is a process of working together rather than separately. In order to create a harmonious coordination system there must be Transparent flow of information Work and time schedule Motivating: Certain behavior and rewards to the employees to get the maximum level of output from them.Sometimes behavior can be negative and punishment can take place over rewards to get the best output from the employees. Controlling: Controlling is a systematic approach of doing a comparative analysis between prospecting and actual performance in order to reduce the gaps between them by taking corrective actions.

Positive aspect Perspective Performance Actual Performance Comparative Analysis

Stabilization

Controlling actions

Negative aspect

Corrective actions

5.2 Management of AIBL Management is the process of planning, leading and controlling the work of organizations members and of using all available organizational resources to reach stated organizational goals. The strength of a bank depends on the strength of its management team. Al-Arafah Islami Bank Ltd. is proud to have a team of highly motivated, well-educated and experienced executives who have been contributing substantially to the continued progress of the bank. The management is ably supported and assisted by well-motivated and experienced officers and members of staff.

5.3.0. Bank management practice at Al-Arafah Islami Bank Ltd. Bank management is basically the sum total of all systematic courses of activities relating to: Mobilization of funds (To raise fund) Utilization of funds Providing Foreign Exchange services

5.3.1. Mobilization of funds It means raising funds by accumulating deposits from the clients. Deposits from the clients: A. Al-WADIA CURRENT DEPOSIT (CD) B. MUDARABA SHORT NOTICE DEPOSIT (MSD) C. MUDARABA SAVINGS DEPOSIT

D. MUDARABA TERM DEPOSIT (MTD) E. DEPOSIT UNDER OTHER SCHEMES F. MONTHLY PROFIT BASED TERM DEPOSIT (PTD) G. MONTHLY INSTALLMENT BASED TERM DEPOSIT (ITD) H. MONTHLY INSTALLMENT BASED HAJJ DEPOSIT (MHD) I. ONETIME HAJJ DEPOSIT (THD) J. MARRIAGE & INVESTMENT DEPOSIT (MIS) K. AL-ARAFAH SAVINGS BOND (ASB) L. FOREIGN CURRENCY DEPOSIT (FCD) M. PENSION DEPOSIT SCHEME (PDS) N.CASH WAQFA DEPOSIT SCHEME (CWD) O. MUDARABA MILLIONAIRE DEPOSIT SCHEME P. MUDARABA DOUBLE DEPOSIT SCHEME Q. MUDARABA LACPOTI DEPOSIT SCHEME R. MUDARABA KOTIPOTI DEPOSIT SCHEME

A. Al-WADIA CURRENT DEPOSIT (CD): Al-Arafah Islami bank Limited receives deposits in their Al-Wadiah current account. Usually business people runs Al-Wadiah current account. In Al-Wadiah current account customers can deposit and withdraw money, whenever they want. In this account, there is no restriction of withdrawing money. But in Al-Wadiah current account customers do not get any profit. Bank with take some money as service charge.

B. MUDARABA SHORT NOTICE DEPOSIT (MSD): Mudaraba Short Notice Deposit account is similar like Al-Wadiah current account. In Mudaraba Short Notice Deposit account customers can deposit and withdraw money any time whenever they want. But there is a restriction in withdrawing money. They have to inform the manager if they want to withdraw big amount. Like Mudaraba Savings Deposit account the customers get profit here. This profit is given every year at a predefined rate of last year.

C. MUDARABA SAVINGS DEPOSIT: Al-Arafah Islami bank Limited also receives deposits by Mudaraba Savings Deposit. General people run this accounts. In Mudaraba Savings Deposit account customers can deposit money any time whenever they want. But they cannot withdraw money whenever they want, there is some restriction. Customers can withdraw money two times in a week and ten times in a month. But if they want to withdraw any big amount they have to give notice to the manager. If bank earn any profits the depositors will get at a predetermined percentage and the bank retains the residual amount as its profit.

D. MUDARABA TERM DEPOSIT (MTD): Interest-based banks receive different kinds of Term Deposits from the depositors. The deposits are generally for 3 months, 6 months, 9 months, one year, 2 years, or 3 years, and the bank pays a stated interest rate on each of these deposits, which varies depending on the term. In general, the bank pays a higher rate of interest the longer the term of the deposit and lower rates for shorter time periods. In addition, a higher rate of interest is generally paid on term deposits than on saving deposits. Depositors are not generally allowed to withdraw money from a term deposit until the term matures. Premature withdrawal may result in penalties in excess of the interest earned, resulting in a negative return. Once a time deposit matures, the depositor may wish to reinvest for a new term.

AIBL Special Savings Scheme: This scheme is well known in the market as a well named Deposit Pension Scheme in other banks. If a client deposit an amount of fixed on the monthly basis often a few years i.e. 5 and 10 years he gets amount at a time. The bank offers approx 12% interest for this scheme particulars of which as follows: 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 Hajj 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.

Savings Investment Deposit (MHD):

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.

Al-Arafah Savings Bond: 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 deposited money may increase by 1.5 or even double.

AIBL Regular Deposit Program: RDP is a special services plan that follows to save a monthly basic and get a handsome amount at maturity. RDP account gives you the convenience of saving regularly in time with cherished dream RDP in the right solution. To open RDP account all you need is to be over 18 Years of age and a Bangladesh citizen you can open a RDP account within 10 days of the month by filling up a prescribed account opening form at any branch of AIBL. Term of AIBL Regular Deposit Program: You need to open a RDP account for 3 or 5 Years i.e. 36 and 60 equal monthly deposits respectively. Minimum and Maximum Monthly Deposit Amount: Under the RDP you can chose between a minimum monthly deposit amount of TK.300 and maximum amount of TK.1000.

Mudaraba Lakhopati Savings Scheme: In this scheme if a parson Deposit an amount for a period of 3 Years, 5 Years, 8 Years, and 12 Years he will get interest for the Deposit on the monthly basis.

Mudaraba Millennium Savings Scheme: With this excellent scheme deposit will increase to millions taka. The main attraction of this Mudaraba-based scheme is that, profit will be accumulated on your deposit in a daily-stay basis. To make it a more important scheme it will have a weightage of 1.05, which is 0.05 more than that of a 3 years deposit.

Mudaraba Katipoti Savings Scheme: With the help of Kotipoti scheme, your savings will rise to a mammoth amount of 10 million taka. Various installment amounts along with different maturity periods are available in this scheme, which will definitely match your requirement. Grameen & Small Investment Scheme: AIBL has introduced a new investment project as grameen and small investment. The objective of this project is to introduced Shariah based banking system in rural and village area, creating employment through financing in low income group, build up savings attitude, improvement of living standard of rural low income mass people, creating opportunity to carry out Islamic lifestyle by way of alleviating poverty and at the same time financially establish career men/women by investing in small investment projects.

5.3.2. Utilization of fund Utilization of funds is basically related to Investment activities Trade financing Lending activities

5.3.2.1 Investment activities/ Credit Division 5.3.2.1.1. Type of Investment and Advances offered by AIBL: a) Secured Overdraft (SOD) b) Loan (General) c) House Building Loan (Staff) d) Demand Loan e) Transport Loan f) Industrial Credit g) House Building Loan (General) h) Transport Loan (Staff) i) Cash Credit (Hypothecation) j) Past Due Bills

k) Loan against Trust Receipt (LTR)

5.3.2.1.2. Investment products of AIBL A. BAI-MUAJJAL Meaning of Bai-Muajjal: Bai-Muajjal means credit sale of goods by the bank to the customer. Such contracts provide for a margin of profit or mark-up to the bank as mutually agreed upon by the buyer (client) and the seller (bank). Goods are kept at the disposal of the customer/buyer and the sale price can be paid either in lump sum or in installments. The Bai-Muajjal may be defined as a contract between a buyer and a 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. Important Features of Bai-Muajjal: It is permissible and in most cases, the client will approach the bank with an offer to purchase a specific good through a Bai-Muajjal agreement. It is permissible to make the promise binding upon the client to purchase the goods from the bank. In other words, the client is required to either satisfy the promise or to indemnify the bank for damages caused by breaking the promise without excuse. It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the bank for damages caused by non-payment. 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. Stock and availability of goods is a basic condition for signing a Bai-Muajjal Agreement. Therefore, the bank must purchase the goods in accordance with the specifications of the client, prior to signing the Bai-Muajjal Agreement with the client. All goods purchased on behalf of a Bai-Muajjal agreement are the responsibility of the bank until they are delivered to the client.

 The bank must deliver the goods to the client at the time and place specified in the contract. The bank may sell the goods at a higher price than the purchase price to earn profit. The price is fixed at the time of the agreement and cannot be altered. The bank is not required to disclose the profit made on the transaction.

B. BAI-MURABAHA Meaning of Murabaha: The terms Bai-Murabaha" means sale for an agreed upon profit. Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods permissible under Islamic Shariah and the Law of the land to the buyer at a cost plus an agreed upon profit payable today or on some date in the future in lump-sum or by installments. The profit either may be a fixed sum or based on a percentage of the price of the goods. Types of Murabaha: In respect of dealing parties Bai-Murabaha may be of two types Ordinary Bai-Murabaha and Bai-Murabaha Order on and Promise. Ordinary Bai-Murabaha is a direct transaction between a buyer and a seller. Here, the seller is an ordinary trader who purchases goods from the market in the hope of selling these goods to another party for a profit. In this case, the seller undertakes the entire risk of his capital investment in the goods purchased. Whether or not he earns a profit depends on his ability to find a buyer for the merchandise he has acquired. Bai-Murabaha Order on and Promise involves three parties - the buyer, the seller and the bank. Under this arrangement, the bank acts as an intermediary trader between the buyer and the seller. In other words, upon receipt of an order and agreement to purchase a certain product from the buyer, the bank will purchase the product from the seller to fulfill the order. Important Features of Murabaha: A client can make an offer to purchase particular goods from the bank for a specified agreed upon price, including the cost of the goods plus a profit.

 A client can make the promise to purchase from the bank, that is, he is either to satisfy the promise or to indemnify any losses incurred from the breaking the promise without excuse. It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify any losses that may result. Documentation of the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt is permissible. Mortgage/Guarantee/Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement. Stock and availability of goods is a basic condition for signing a Bai-Murabaha Agreement. Therefore, the bank must purchase the goods in accordance with the specifications of the client, thereby taking ownership of the goods before signing the Bai-Murabaha agreement with the client.

Upon acquiring the goods, the bank assumes the risk of ownership. In other words, the bank is responsible for damages, defects, and /or spoilage to the merchandise until such time that it is actually delivered to the buyer. The bank must deliver the goods to the client at the date, time, and place specified in the contract. The bank sells the goods at a price above the cost to obtain a profit. The sale price that is charged by the bank is agreed upon in the Bai-Murabaha. The profit can be stated in terms of a flat dollar amount or on a percentage of the purchase price. If a percentage is used, the percentage shall never be expressed in terms of time, in order to avoid confusion that the price is a form of interest (Riba), which is not allowed. The price agreed to in the agreement is binding on both parties. It is permissible for the bank to contract with a third party to buy and receive the goods on its behalf. This agreement must be a separate contract.

Application of Bai-Murabaha: Murabaha is the most frequently used form of finance in Islamic banking throughout the world. It is suitable for financing the different investment activities of customers with regard to the manufacturing of finished goods, procurement of raw materials, machinery, and other required plant and equipment purchases.

C. MUSHARAKA Meaning of Musharaka: The word Musharaka is derived from the Arabic word Sharikah meaning partnership. In Al- Arafah Islami Bank, a typical 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. They can also waive this right. The profits are to be distributed according to an agreed ratio, which need not be the same as the capital proportion. However, losses are shared in exactly the same proportion in which the different partners have provided the finance for the project.

Types of Musharaka:

In respect of dealing parties Musharaka may take two forms Permanent Musharaka and Diminishing Musharaka. Permanent Musharaka: In this case, the bank participates in the equity of a company and receives an annual share of the profits on a pre-rate basis. The period of termination of the contract is not specified. This financing technique is also referred to as continued Musharaka. The contributions of the partners under this mode may be equal or unequal percentages of capital for the purpose of establishing a new income-generating project or to participate in an existing one. In this arrangement, each participant owns a permanent share in the capital structure and receives his share of the profits accordingly. This type of a partnership is intended to continue until the company is dissolved. However, one can exit the partnership by selling his share of the capital to another investor.

Diminishing Musharaka:

Diminishing or Digressive Musharaka is a special form of Musharaka, which ultimately culminates in the ownership of the asset or the project by the client. It operates in the following manner. The Bank participates as a financial partner, in full or in part, in a project with a given income forecast. An agreement is signed by the partner and the bank, which stipulates each party's share of the profits. However, the agreement also provides payment of a portion of the net income of the project as repayment of the principal financed by the bank. The partner is entitled to keep the rest. In this way, the bank's share of the equity is progressively reduced and the partner eventually becomes the full owner. When the bank enters into a Diminishing Musharaka its intention is not to stay in the partnership until the company is dissolved. In this type of partnership, the bank agrees to accept payment on an installment basis or in one lump sum, an amount necessary to buy the banks partnership interest. In this way, as the bank receives payments over and above its share in partnership profits, its partnership interest reduces un til it is completely bought out of the partnership.

D. MUDARABA Definition of Mudaraba: The term Mudaraba 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. Mudaraba is a contract of those who have capital with those who have expertise, where the first party provides capital and the other party provides the expertise with the purpose of earning Halal (lawful) profit which will be shared in a mutually agreed upon proportion. This type of business venture serves the interest of the capital owner and the Mudarib (agent). The capital owner may not have the ability or the experience to run a profitable business. On the other hand, the agent (the Mudarib) may not have adequate capital to invest in a business or project. Therefore, by entering into a contract of Mudaraba each party compliments one another, allowing a business venture to be financed. The following are the steps of the Mudaraba contract.

E. BAI-SALAM Meaning of Bai-Salam: Bai-Salam is a term used to define a sale in which the buyer makes advance payment, but the delivery is delayed until sometime in the future. Usually the seller is an individual or business and the buyer is the bank. The Bai-Salam sales serve the interests of both parties: a) The seller receives advance payment in exchange for the obligation to deliver the commodity at some later date. He benefits from the Bai-Salam sale by locking in a price for his commodity, thereby allowing him to cover his financial needs whether they are personal expenses, family expenses or business expenses.

b) The purchaser benefits because he receives delivery of the commodity when it is needed to fulfill some other agreement, without incurring storage costs. Second, a BaiSalam sale is usually less expensive than a cash sale. Finally a Bai-Salam agreement allows the purchase to lock in a price, thus protecting him from price fluctuation. Application of Bai-Salam: Bai-Salam sales are frequently used to finance the agricultural industry. Banks advance cash to farmers today for delivery of the crop during the harvest season. Thus banks provide farmers with the capital necessary to finance the cost of producing a crop. Bai-Salam sale are also used to finance commercial and industrial activities. Once again the bank advances cash to businesses necessary to finance the cost of production, operations and expenses in exchange for future delivery of the end product. In the meantime, the bank is able to market the product to other customers at lucrative prices. In addition, the Bai-Salam sale is used by banks to finance craftsmen and small producers, by supplying them with the capital necessary to finance the inputs to production in exchange for the future delivery of products at some future date. Thus as has been demonstrated, the Bai-Salam sale is useful in providing financing for a variety of clients, including farmers, industrialists, contractors and traders. The proceeds in a Bai-Salam sale may be used to cover the finance of operation costs and capital costs.

F. IJARAH

Elements of Ijarah: According the majority of Fuqaha, there are three general and six detailed elements of Ijarah: i. ii. iii. iv. v. The Wording: This includes offer and acceptance Contracting Parties: This includes a lessor, the owner of the property, and a lessee, the party that benefits from the use of the property. Subject Matter of the Contract: This includes the rent and the benefit. The Lessor (Mujjir): The individual or organization who leases out/rents out the property or service is called the lessor. The Lessee: (Mustajir): The individual or organization who hires/takes the lease of the property or service against the consideration rent/wages/remuneration is called the lessee (Mustajir). The Benefit (Maajur): The benefit that is leased/rented out is called the benefit (Maajur)

vi.

The rent (Ujrat): The consideration either in monetary terms or in quantity of goods fixed to be paid against the benefit of the goods or service is called the rent or Ujrat.

Definition of Ijara The term Ijara has been defined as a contract between two parties, the lessor and the lessee, where the lessee enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the lessor. It is a lease agreement under which a certain asset is leased out by the lessor or to a lessee against specific rent or rental for a fixed period.

G. QARD HASAN Meaning of QARD HASAN: Qard Hasan is a contract in which one of the parties (the lender) places into the ownership of the other party (the borrower) a definite parcel of his property, in exchange nothing more than the eventual return of something in the same value of the property loaned. Interest on all kinds of loans is prohibited in Islam, so a loan that is to be given in accordance with the Islamic principle, has to be, a benevolent loan (Qard Hasan) i.e. a loan without interest. It has to be granted on the grounds of compassion, i.e. to remove the financial distress caused by the absence of sufficient money in the face of dire

need. Since banks are profit driven organizations, it would seem that there is not much opportunity for the application of this technique. However, Islamic banks also play a socially useful role. Hence they make provisions to provide Qard Hasan besides engaging in income generating activities.

5.3.2.1.3 Securities: It is supervisory credit scheme. Tangible security in the form of mortgage may not be available in all the cases. So mortgages will not be mandatory. Security will be stipulated on a case to basic as under (one or several of the following) a. Registered mortgage of land and building. b. Mortgage/assignment of possession right c. Assignment of security money advance rent if any d. Assignment of Trade Receivable not older than 90 days e. Hypothecation of machinery, equipment, vehicles, stock-in-trade, raw materials, work-in-process and finished goods. f. Personal Guarantee from persons acceptable to the Bank. g. Post-dated cheques h. Lien on deposits/saving certificates/financial obligations i. Any other securities to be demand suitable by the Bank depending on the situation like Insurance Guarantee, Corporate Guarantee, Assignment of Contract, Security Money etc.

5.3.2.2. Trade Finance 5.3.2.2.1. Lease Finance: AIBL offered Lease finance facilities to its valued clients with a view to facilitate clients to acquire equipments and machineries without investing any fund in spite of playing fixed lease rentals. Fixed fewer rentals can be tailored both in terms of amount and timing to the profit and cash flow position of the Lease-Holder. At the end of the lease contract the lease assets back to the clients with a nominal and depreciated value. Facilities of Lease:

1. Free the Capital tied in capital expenditure 2. Leasing allows utilizing the capital elsewhere to general higher profits it also reduce cash out flow 3. The equipment that leased does not appear on clients balance sheet, clients financial ratios improve. 4. To avoid budgetary constraints in capital expenditure 5. Lease rentals are treated as revenue expenditure and are entirely deduct able for tax purpose.

Item of Leasing: 1. Any category of equipment and Machinery 2. Office automation equipments 3. Medical Treatment diagnosis 4. Vehicles for transportation etc

5.3.2.2.2. Definition of Sale Contract This is a contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by the seller to the buyer against agreed upon price paid by the buyer. In the case of Hire Purchase under Shirkatul Melk, the lessor bank sells or transfers its title to the asset under a sale contract on payment of sale price. Stages of Hire Purchase under Shirkatul Melk: Hire Purchase under Shirkatul Melk Agreement has got three stages: Purchase of asset under joint ownership of the lessor and the lessee. Hire, and Sale and transfer of ownership by the lessor to the other partner - lessee. Important Features:

 In case of Hire Purchase under Shirkatul Melk transaction, the asset or property involved is jointly purchased by the lessor and the lessee with specified equity participation. In which the amount of equity and share in ownership of the asset of each partner are clearly mentioned. Under this agreement, the lessor and the lessee become co-owners of the asset under transaction in proportion to their respective equity. Hire Purchase under Shirkatul Melk Agreement, the exact ownership of both the lessor and lessee must be recognized. However, if the partners wish and agree the asset purchased may be registered in the name of any one of them or in the name of any third party clearly mentioning the same in the Hire Purchase Shirkatul Melk Agreement.

The share of the purchased asset owned by the lessor is put at the disposal possession of the lessee keeping the ownership with him for a fixed period under a hire agreement in which the amount of rent per unit of time and the benefit for which rent to be paid along with all other agreed upon stipulations are clearly stated. Under this agreement the lessee becomes the owner of the benefit of the asset not of the asset itself, in accordance with the specific provisions of the contract that entitles the lessor the rentals. As the ownership of leased portion of asset lies with the lessor and rent is paid by the lessee against the specific benefit, the rent is not considered as price or part of price of the asset. In the Hire Purchase under Shirkatul Melk agreement the Lessor does not sell or the lessee does not purchase the asset but the lessor promise to sell the asset to the lessee only if the lessee pays the cost price/equity price of the asset as fixed and as per stipulations on which the lessee also gives undertakings. promise to transfer legal title by the lessor and undertakings given by the lessee to purchase the ownership of leased asset upon payment part by part as per stipulations are affected only when it is actually done by a separate sale contract. cost the exact subject of lessee, except in cases of emergencies and acts of Allah. The lessee is responsible for keeping the leased asset (s) in good condition throughout the whole period of lease, and if the asset is damaged or defrayed due to transgressions default or negligence of the lessee, he shall be responsible to compensate for that. The lessee cannot without obtaining prior written permission of the bank make changes in the exact item of lease, and or remove it from its place of installation, and transfer it to another location. In a hire purchase under Shirkatul Melk agreement, any stipulation may be made, provided it is not against the nature and requirements of the contract

itself, nor does it violate the Lessee laws of Islam, and is also acceptable to both parties.

5.3.2.2.3 HIRE-PURCHASE Hire-Purchase under Shirkatul Melk has been developed through practice. Actually, it is a synthesis of three contracts: Shirkat Ijarah and Sale. Definition of Shirkatul Melk: Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset and own the same jointly and share the benefit as per agreement and loss in proportion to their respective equity, the contact is called Shirkatul Melk. In the case of Hire Purchase under Shirkatul Melk, Islamic banks purchase assets to be leased out, jointly with client under equity participation, own the same and share benefit jointly until the full ownership is transferred to the client.

5.3.2.3. Lending Activities o o o o Loans with cost Loans without cost Providing over-drafts Commission or fees based transaction

Loan Ceiling: 1. For small enterprise : Maximum TK.50,00,000/-

Loan Renewal: Successive loans depend on track record of previous loan. Usually, repayment behavior and expansion of business by the borrower are the main consideration renewal and enhancement of the loan amount. Interest:

9 % above Bank Rate Presently 14% (changeable)

Penal Interest: If any borrower fails to adjust loan within validity period or to repay consecutive 02 (two) installments penal interest 0.25% per month shall be charged on the defaulted amount.

Period of Loan: a. In case of continuous Loan: 01 (One ) year b. In case of Term Loan: Maximum 05 (five) years.

Mode of Repayment: a. In case of continuous loan credit turnover in the account must be equal to the limit in a quarter and full adjustment within the validity period. b. In case of term loan, the loan should be repaid by monthly installments through postdate cheques as per amortization scheduled. Sale proceeds should be deposited in the account regularly.

5.3.3. Foreign Exchange Services 5.3.3.1 Introduction One of the largest businesses carried out by the commercial bank is foreign trading. The trade among various countries falls for close link between the parties dealing in trade. The situation calls for expertise in the field of foreign operations. Foreign exchange department of Al-Arafah Islami Bank is one of the most important departments of all departments. This department handles various types of activities by three separate sections: a) Import section b) Export section. c) Foreign remittance section.

5.3.3.2 Import Financing Import means bringing merchandise to country from any place rest of the world. Two things mainly involves with import of merchandise; bringing of commodities physically into the country any making payment towards the cost of the merchandise and services connected with its dispatch to the importer.

5.3.3.2.1. Procedure for obtaining IRC (Import Registration Certificate): To perform the import business registration with the licensing authority of the area is an urgent. Through public notice the chief controller of Imports and Exports invites applications usually for registration of importers. For getting this registration the following papers/ documents are required for submission to CCI&E (Chief Controller of Import and Export) or area office of CCI &E for import registration certificate: 1. Application form 2. Nationality certificate 3. Income tax registration certificate 4. Trade License from the municipal or the local authority 5. Membership Certificate 6. Partnership Certificate (for partnership concern) 7. Certificate of Registration with the registrar of joint stock Company. 8. Memorandum of Association in case of limited Company. 9. Bank Certificate. 10. Ownership documents or rent receipts of the place of business. 11. Original Copy of Treasury Challan being payment of registration fees. 12. Other documents prescribed in the import policy.

5.3.3.3. Export Financing Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and woven), Jute, Jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign

countries. Garments sector is the largest sector that exports the lion share of the country's export. Bangladesh exports most of its readymade garments products to U.S.A and European Community (EC) countries. Export means our carrying of anything from one country to another for sale with the stipulated period for to earn foreign exchange; make favorable balance of payment position & stabilize marketability.

5.3.3.4. Remittance: Remittance means transfer of fund. If we pronunciation of the word "Remittance" we understand transfer of fund through a Bank from one place to another place which may be executed the country or between two countries. Remittance which is effected within the country is called Local Remittance and which is effected between two countries is called Foreign Remittance. Remittance plays a vital role in the development of the country. Without effect of remittance no country can develop herself. Bangladesh is rich enough in respect of human resources. So Inward Remittance has great importance in our country.

6.0. Key Findings

6.1 SWOT Analysis

6.1.1. Core strength of Islamic bank, Al-Arafah Islami Bank as well The followings are the core strength of Islamic bank for which it is now considered to be the emerging sector for success: In accordance with Islamic Shariah, all actions of the bank are conducted where profit is the legal substitute to interest. The total deposit of the bank was TK. 26,685,444,177million at 31st December 2008. At the same time in the year 2007, the amount of total deposits was 23,009,128,287million taka. In this area the growth rate is 86.22%. So deposit is a good strength of AIBL. Experienced manpower and efficient employees are being involved in busy subsection of this section to meet the clients satisfaction. One of the core strength of Islamic bank is that it distributes a significant amount of profit that they earn by investing different areas. On the other hand, in case of conventional banking they provide a fixed amount of return which is called RIBA or Interest that may not be consistent with the profit positioning of banks operations. So, in case of conventional banking, they either sacrifice by bearing losses or deprived the depositors by not paying them the part of profit. Islamic bank collects deposits by Murabaha mode whereas they invest by Musharaka mode that increases the intimacy with the bank and with the depositor. Islamic bank works to the development the socio-economic and value system of the people that is not seen in case of conventional banking. Islamic bank doesnt incur losses as it provides the return under the scientific process whereas the conventional banks provide interest though they incur losses thatultimately reduce the deposit of the client. Islamic bank invests in the human welfare sector. So, Islamic bank practices mainly welfare banking. These banks invest only those sectors where human welfare can be

ensured. Therefore, it can be said that the benefits that the Islamic banks has it significant which give the new era t the banking sector around the world as well as the Al-Arafah Islami Bank Ltd.

6.1.2. Major weakness of Islamic Banking, Al-Arafah Islami Bank as well Islamic banking is guided by some principles but it has some weakness, some of the major weaknesses are discussed in below: Profit and loss sharing (PLS) dominates the theoretical literature on Islamic finance. Broadly PLS is a contractual agreement between two or more transacting parties, which allows them to pool their resources to invest in a project to share in profit and loss. Most Islamic economists contend that PLS based on two major modes of financing, namely Mudaraba and Musharaka, is desirable in an Islamic context wherein reward sharing is related to risk sharing between transacting parties. Almost all theoretical models of Islamic banking are either based on Mudaraba or Musharaka or both, but now actual practice of Islamic banking is far from these models. Nearly, all Islamic banks, investment companies and investment fund offers trade and project finance on mark-up 3, commissioned manufacturing, or on leasing bases. PLS features marginally in the practice of Islamic banking and finance. Islamic bank deposited 10% cash amount against the Bangladesh Bank (BB) requirement of SLR and CRR, on which the Islamic banks has no chance to earn profit. On the other hand the conventional banks deposited only 4% of CRR on without profit basis. From the observation it will be clear that Islamic banks are not getting any profit on 6% on cash deposits. Risk Management system is not strong. The bank has already exposed to a variety of risks the most important of which are credit risk, market risk and liquidity risk. Liquidity risk is the risk that the Bank in unable to meet payments obligations and potential payment obligation as and when these fall due without incurring unacceptable losses. AIBL is not out of this weakness.

6.1.3. Some opportunity of AIBL Some opportunity of AIBL may be as follows: Rate of interest is so high. Therefore, PCBs are making well done in regards of lending and besides deposit collection from the market. Govt. Banks are not able to fulfill market

demand and this opportunity is taking by the PCBs. Finding cost is far above the ground for lending is great opportunity for the bank. By reason of lack of poor performance of NCBs in our country though they are grabbing an huge deposits from the market, PCBs are fulfilling the high demand of the financial marketing lending money towards deficit sources. Complimentary business climate for commercial banks in the country in comparison with other business. The concern of new banks is very crucial point. Anybody or organization cannot easily establish a commercial collecting paid-up capital and govt. is fully retracted in regards of giving permission to commercial bank in the country. In addition, in our country there are no closing rules for commercial banks. Consequently of which as an existing commercial banks AIBL have a great opportunity and potential for its favorable business opportunity. An additional mentionable opportunity of the PCBs is high grades of services in regards of customer service. What's more the NCBs service is very poor and so much traditional. Therefore of which it has easily achieved public respond easily creating their positive approach gradually.

6.1.4. Threats of AIBL Some threats that may face in conducting Islamic banking by AIBL are: The financial market strength of our country is not well-built. By itself to recover the lending money is a great threat. Since in our countrys business chain like other countries is dependable each other. As a result, if the monetary flow faces any obstacle it hampers the running of full chains. Consequently recovery face a great threat for commercial banks and AIBL is in boundary of this threat. An additional major hindrance for banks is its classified loan. Through this picture is not new for this particular bank it is exists to all commercial banks throughout the world. But in our country this bad culture created by the NCBs and its impacts comes to the PCBs also. But over viewing the banks performance we found that it is still in safe side in comparison with others but in should be careful to overcome this threat. Corporate Governance establishes specific responsibility to ensure accountability and fairness in functions of the company and also to comply with the requirements of regulatory agencies; care has been taken to improve Corporate Governance. As part of this AIBL should now follow the corporate governance principles.

 Corporate Governance establishes specific responsibility to ensure accountability and fairness in functions of the company and also to comply with the requirements of regulatory agencies; care has been taken to improve Corporate. As part of this AIBL should now follow the corporate governance principles.

6.2. Recommendations and suggestions o AIBL can pursue a diversified strategy in expanding its current line of business. The management can consider options of starting merchant banking for minimizing the risk and getting more return, they should prepare portfolio management. In Islamic banking system the loan is very lengthy process. AIBL should take steps to minimize the process of loan system. Because customers dislike lengthy process. AIBL should offer different types of loans to their own staffs immediately after confirming their job. These loans will influence them for better performance. The interest rate on this loan must be less than other banks interest rate. To motivate the staff the management of AIBL should give more increments in salary. AIBL should increase the ratio of investment. Now they should take risk when they give loans to their clients, because there is a lot of idle money in their bank. One of the most important limitation is that it has not much of advertisement of its Islamic banking operations. It can gain double benefit of attracting deposit and credit. Therefore AIBL should give a mass advertisement mentioning the different offerings. AIBL should use the latest banking technology to provide better services to the customers. It will also attract the customers of international banks. AIBL should pursue advertising campaign to build a strong image among the people. The manager of AIBL should have the power of giving small loans to the clients. It is very important for the bank to increase the investment. Bank should offer more facilities to the customers such as credit card, visa card, ATM machine etc. to survive in the completion. The management should take immediate situation to take the current opportunities.

Bibliography

A. Books, Periodicals & Journals: Banks and legal environments by Dr. R. M. Dev Nath, page no-103 An application of Islamic Banking Principles to Microfinance by Ruhul Dhumale and Amela Sapcanin Anu Mahmood 1998: Inside Bangladesh economy; published by BIBM, 63 New Eskaton, and Dhaka-1000,PP9-21. Bangladesh Bank Circular B. Websites: www.al-arafahbank.com www.bangladeshbank.com http://www.shahfoundationbd.org/hannan/article10.html www.scribd.com www.assignmentpoint.com http://podelise.ru

Conclusion
The prospect of Islamic Banking is very bright because Muslim people everywhere want Islamic Banking. As a Muslim country, there are great possibilities in front of Islamic Banking system in Bangladesh. The AIBL has been trying to operate its business successfully in Bangladesh since 1995. AIBL has already developed an image of goodwill among its clientele by offering excellent services. The success has resulted from dedication, commitment and dynamic leadership of its management over the periods. During the short span of time of its operation, the bank has successfully grabbed a position a position as progressive and dynamic financial institution in the country. This progress of Al-Arafah Islami Bank Ltd. is a result of its balanced and well-managed bank management system. The banking practice of conventional banking and AlArafah Islami Bank Limited is highly different from the concept. The Islamic concept thinks the interest as the harmful for the economy and banking should be done on the Shariah basis. At the very upset of this bank it was operated under this concept of Islamic Shariah which is called Islamic banking. The Islamic banking collects deposits from different viewpoints so the whole banking practice with the clients differ highly from conventional banking. The Islamic banking used the credit in different name that is Investment. Here the mode of investment is mainly depending on the type of collateral. Here the bank goes with the client a type of business relationship where the bank made agreement to conduct business for the client, the bank is the owner of the money and property where the client just provide the labor and share the profit with the bank. The Bank conducts its business on the principles of Musharaka, Bai-Murabaha, Bai-muazzal and Hire Purchase transactions approved by Bangladesh Bank. One of the largest businesses carried out by the AIBL is foreign trading. The trade among various countries falls for close link between the parties dealing in trade. The situation calls for expertise in the field of foreign operations. Foreign exchange department of Al- Arafah Islami Bank is one of the most important departments of all departments. The problems mentioned in the preceding pages are not insurmountable. Most of them can be solved with more research and dedicated efforts. IDB, OIC Fiqh Academy, International Islamic Banking organizations and individual Islamic banks should put more resources in research in Islamic Banking, Finance and Economic issues. Cooperation of Central Banks and the Governments will be needed in some areas. We have no doubt in mind that Islamic banking will expand more and more in the entire world.