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Internship Report on“Overall Branch Banking and A Comprehensive Review on    Investment of Al-Arafah Islami Bank Limited” ...
“Overall Branch Banking and A Comprehensive Review on    Investment of Al-Arafah Islami Bank Limited”                     ...
This report is submitted as the partial fulfillmentof BBA program                         3
Date: August 2, 2007ToSub: Submission of Internship report on “Overall Branch Banking and A Comprehensive Reviewon Investm...
ACKNOWLEDGEMENTI would like to acknowledge the guidance and effort of Internship and placement committee forarranging such...
PrefaceWe shall be benefited of by our education if we can effectively apply the institutional educationin practical field...
Table of Contents       Chapter – 1 Introduction                     01-051.01   Introduction                             ...
8
4.04    Types of Deposit Account and There Formalities              254.05    Remittance                                  ...
Executive Summary        10
Through this Internship report an attempt has been made to assess theperformance of Al-Arafah Islami Bank Limited (AIBL). ...
One important challenge that the banking sector is facing is the introductionof information technology in the banking syst...
To achieve the maximum benefit from the investment both funded and nonfunded the major issue is select the sound ones. In ...
14
1.01 Introduction:The Jews in Jerusalem introduced a kind of banking in the form of moneylending before the birth of Chris...
1.02 Rational of the study:With the rapid growing competition (due to free market economy) among nationalized,foreign and ...
a) Primary Sources:           Discussion with Bank Officers.           Personal observation.           Desk work in dif...
18
2.01 Organizational Overview of Al-Arafah Islami Bank Ltd:Al-Arafah Islami Bank Ltd. as the name implies a newly formed co...
Al-Arafah Islami Bank Ltd. was established not only to earn profit and to developeconomy of the country but also it had an...
►To establish an modern banking system for all kinds of people►To take part in the economic growth of the country.►To erad...
Dhaka Division                22            Chittagong Division           10            Rajshahi Division              4  ...
Chairman                    Advisor               Board of Director                     Assistant Vice President          ...
►Board of Directors►Executive Committee►Audit Committee►Management Committee►Shariah council2.15 Environment of Al- Arafa ...
3.01.1 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 yearsand the same is withdrawal withprofit ...
3.01.6 Marriage Savings Deposit:Fixed monthly installment for a particular period is to be deposited to defray theexpenses...
is distributed according to an agreed ratio. However, losses are shared in exactly the same   proportion in which the diff...
4.01 General Banking practices in Al-Arafah Islami:Bangladesh is one of the less developed countries. So the economic deve...
emphasis whether these commercial banks are effectively and honestly performing theirfunctions, assigned duties and respon...
The client has to fill up a light green account opening form. Terms and conditions areprinted on the back of the form. The...
b). The name of the persons who are authorized to execute documents with the bank oncompany’s behalf. Societies, Clubs an...
In Al-Arafah Islami Bank Ltd, fixed deposit account is opened in two forms- Midterm(MTD), which is less then one year & th...
It includes the vault that is used as the beyond this limit, the excess cash is thentransferred to Bangladesh Bank. This s...
In this type, the formality is same as individual account, but in the special instructionclause, either or ‘survivor’ or ‘...
 Societies, Clubs and Associations:In case of these sorts of accounts Al-Arafah Islami Bank Ltd requires the followingdoc...
A fixed deposit account is then issued to the depositor acknowledging receipt of thesum of money mentioned therein. It als...
b) Between banks in the same country.    c) Between banks in the different centers.    d) Between banks and central bank i...
b). Small and Cottage Industries. Very often term financing for agriculture and othersare also included here.2. House Buil...
The documents to be obtained:                  i. DP note.                  ii. Letter of disbursement.                 ii...
The clients are Service Holders and Businessman. Service holders can be Governmentand Private. In case of Government offic...
The amount and scope of each Officers lending authority is a function of the amountand extent of authority required by the...
To have an import L/C limit, an importer submits an application to the Department of Al-Arafah Islami Bank Ltd furnishing ...
 Membership Certificate of Chamber of Commerce Industry.        According to be maintained with the bank.        Member...
C) Loan Against Trust Receipt (LTR):Loan Against Trust Receipt (LTR) is post import finance extended to the importer ofgoo...
 Interest Rate. Incremental Incentive on Interest for Interest Based Bank. Extent of Export Credit. Checking and Advis...
 L/C Opening flow chart in case of BTB L/C:                                        Opening of BTB              ABP (Accep...
 Brief description of the goods. Last date of shipment and negotiation time (must not be beyond 30 days from the   shipm...
 VAT Registration Certificate.Bank will supply the following papers/ documents before opening of the L/C: Letter of Cred...
Amendment is to be typed in the Banks printed format. The copies of the amendmentmust be dispatched to all concerned as do...
♣ Procedure for Outward Bills for Collection:                Depositing the cheque along with Deposit Slip               E...
52
5.01 Definition of Investment:Investment, transaction between two parties in which one ( the creditor or lender)supplies m...
investment:At the end of the year 2006, the amount of investment of the bank was Tk. 17423.19million in comparison to Tk. ...
55
7.01 Role of CIB in Bangladesh:Due to irregular and insufficient flow of credit information in the banking system thepropo...
57
8.01 Credit Risk Grading:Credit risk grading is an important tool for credit risk management as it helps the Banks& financ...
is extracted from “PRUDENTIAL REGULATIONS FOR BANKS: SELECTED ISSUES”(updated till August 07, 2005) by Bangladesh Bank are...
Investment                                                                           RISK                  Financial      ...
Principal Risk Components:                            Weight:    Financial Risk                                        50...
⇒ Coverage                      5%   Business/Industry Risk                                                    18%       ...
After the risk identification & weightage assignment process (as mentioned above), thenext steps will be to input actual p...
2   Good                 GD      85+3   Acceptable           ACCPT   75-844   Marginal/Watchlist   MG/WL   65-745   Specia...
9.01 Investment Assessment:Relationship Manager(s)  Investment Officer(s) shall conduct a thoroughassessment of investment...
There after all investment at least annually at the time of renewal and enhancement.The assessment procedure shall include...
    Domestic           International           Potentiality of the buyer or supplier           Strength and weakness o...
 Management changes or succession issues        Customer or Supplier concentration        Lack of transparency or indus...
10.01 Summary of Findings:The 2 (two) months internship program has been going to be finished through writinga report. Dur...
Internship report
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Internship report

  1. 1. Internship Report on“Overall Branch Banking and A Comprehensive Review on Investment of Al-Arafah Islami Bank Limited” 1
  2. 2. “Overall Branch Banking and A Comprehensive Review on Investment of Al-Arafah Islami Bank Limited” Submitted to Professor Ashraf Hossain Dean School of Business Asian University of Bangladesh Md.Ataur Rahman Program - BBA ID # 200330154 Major in Marketing Uttara Campus Submission Date March 30, 2008 2
  3. 3. This report is submitted as the partial fulfillmentof BBA program 3
  4. 4. Date: August 2, 2007ToSub: Submission of Internship report on “Overall Branch Banking and A Comprehensive Reviewon Investment of Al-Arafah Islami Bank Limited."Dear Sir,With due respect and humble submission I would like to inform you that I am the students ofMd.Shohel Khan ,School of Business . It is indeed a great pleasure to have the opportunity tosubmit the Internship report. I have prepared the opportunity to submit the Internship reportaccording to your instructions. The topic name is " Overall Branch Banking and A ComprehensiveReview on Investment of Al-Arafah Islami Bank Limited. ". While preparing this Internshipreport I came to know about several terms on banking sector. I have tried my best to present allthe things to make the report more informative and usual one. If any part of the assignmentsmeans inappropriate and irrelevant with the subject please advise me.In fine I am very grateful to you for assigning such an important area of banking and your kindand generous guidance to make the report successful.Thanks and Best Regards,Md. Shohel khan.ID:200420373Batch:21stProgram:BBAMajor:FinanceAUB 4
  5. 5. ACKNOWLEDGEMENTI would like to acknowledge the guidance and effort of Internship and placement committee forarranging such a nice program for co-relating theoretical learning with real life situation.It’s a pleasure to convey my heartiest gratitude and greeting to my honorable supervisor Mr. Md.Zahid hossain, Lecturer, School of Business, Asian University of Bangladesh (AUB). None of hisco-operation it would have been possible to prepare the report into a nice ending.I would also like to acknowledge and thanks the following personnel who has extended their whole-hearted co-operation for preparing the report.1.Md. Forkan Uddin Managing Director Experience : Over 25 Years of Travel Trade and InternationalRecruitment Special Record :Founder of Saimon Group of Companies, the giant Travel and International Recruitment House in BangladeshPresident of Association of Travel Agents in Bangladesh (ATAB)Director of Dhaka Chamber of Commerce & Industries (DCCI)2.Wazirul Alam Position : Director, Sales & Marketing Experience : Over 30 years in multinational companiesSpecial Record :Ex-Country Manager, American Express Travel Related Services –Bangladesh,Executive member of The Institute if Management Consultants of Bangladesh,General Secretary of The Institute of Marketing & Research Bangladesh.3.Col.(Retd.) Shafi Ahmed Position : Director, Administration Experience : Over 28 Years inBangladesh Army Special Record : Achieved “Ellie Wiesel Ethical Award” for distinguishedservices in East Timor, as member of UN Team.I am also gratitude to all other Personnel of Link Persons International Ltd. for their earnest co-operation.Finally, I would like to convey my heartiest thanks and gratitude to all of my teachers, friends, andmany others who extend their support to prepare the report. 5
  6. 6. PrefaceWe shall be benefited of by our education if we can effectively apply the institutional educationin practical fields. Hence, we all need practical education to apply theoretical knowledge in realworld. By considering this importance arranges internship program each semester compulsoryfor the students of Bachelor of Business Administration to complete the requirement of thecourse. As a part of this program my topic of the study was selected as “Overall BranchBanking and A Comprehensive Review on Investment of Al-Arafah Islami Bank Limited.”.I tried my best to conduct effective study by collecting current data. Even though if mistakeappears, it is truly undesirable. So I would request to look at the matter with merciful eyes. 6
  7. 7. Table of Contents Chapter – 1 Introduction 01-051.01 Introduction 011.02 Rational of the study 031.03 Scope of the study 041.04 Methodology 041.05 Time period of the study 041.06 Sources of data collection 041.07 Objectives of the report 05 Chapter – 2 Organizational overview 06-152.01 Organizational overview of AIBL 072.02 Historical background of AIBL 072.03 Mission of AIBL 082.04 Vision of AIBL 082.05 Special feature of the bank 082.06 Objectives of AIBL 092.07 Auditors 102.08 Training and Motivation 102.09 Human Resources in AIBL 112.10 Line of business 112.11 Activities of AIBL Foundation 122.12 Branches of AIBL 132.13 Hierarchy of position in AIBL 142.14 From of organization 152.15 Environment of AIBL 15 Chapter – 3 AIBL Products and Service 16-223.01 Deposit 173.02 Investment 193.03 Foreign trade 22 Chapter – 4 Overall Branch Banking 23-954.01 General Banking practices in AIBL 244.02 Cash 244.03 Procedures of opening of Accounts 25 7
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  9. 9. 4.04 Types of Deposit Account and There Formalities 254.05 Remittance 324.06 Advance Banking 344.07 Formalities for opening Foreign Currency (FC Account) 514.08 Import Procedure 544.09 Export Procedure 594.10 Incoterms 654.11 Back to Back LC 674.12 Foreign Exchange 684.13 Letter of Credit (LC) 794.14 Procedure for opening LC 844.15 Clearing House & Collection of Bill 94 Chapter – 5 Investment 96-995.01 Definition of Investment 975.02 Introduction of Investment 975.03 AIBL 2006 Deposit, Investment & Assets Information 98 Chapter – 6 Investment Decision 100-1046.01 Lending Decision 1016.02 Safety 1016.03 Liquidity 1016.04 Profitability 1026.05 Purpose 1026.06 Security 1036.07 Disposal 1036.08 National Interest 104 Chapter – 7 Role of CIB in Bangladesh 105-1077.01 Role of CIB in Bangladesh 1067.02 Functions of CIB 106 Chapter – 8 Credit Risk Analysis 108-1228.01 Credit Risk Grading 1098.02 Definition of Credit Risk Grading 1108.03 Function of Credit Risk 1108.04 Use of credit Risk Grading 1118.05 Numbers & Short Name of graders Used in the CRG 1118.06 Regulatory Definition of Grading of classified accounts 1128.07 Basis of Loan classification 1128.08 How to Complete Investment (Credit) Risk Grading 115 Chapter – 9 Investment Assessment 123-1279.01 Investment Assessment 124 Chapter – 10 Concluding Part 128-13510.01 Summary of Findings 12910.02 Problems & Limitation 13110.03 Recommendation 9 13210.04 SWOT Analysis in AIBL 133
  10. 10. Executive Summary 10
  11. 11. Through this Internship report an attempt has been made to assess theperformance of Al-Arafah Islami Bank Limited (AIBL). Basically thisreport has been developed from the basis of secondary data. The sources ofinformation are annual report of the bank, internet, newspaper, magazineetc. My experience also helps me to establish this report.Banking is a system of intermediation. Modern commercials banks sincetheir early days had been doing two main functions. These are Acceptance ofdeposits from the public and lending money to the people.In addition, they also involved themselves in investment. Apart from theprincipal function, they also have to render various services to the people.The ever-changing demands of the society, business and industry have ledthe banks to undertake such services for enhancing their utility to thesociety at large. Based on nature of these services, they may be classified asunder (a) agency services: collection and payment of cheques, payment onbehalf of customs, purchase and sale of stocks, acting as trustees, acting asagency (b) General services: opening letter of credit, safe custody, dealingin foreign exchange, providing Investment reports, underwriting of loans,providing remittance facilities, complete service in foreign trade.The structure of the banking system has changed substantially over the last few years.NCBs’ role has gone down. Their share in total assets went down from 54 percent in 1998 to34 percent in 2006. On the other hand, PCBs’ share went up from 27 percent in 1998 to 65percent in 2006. The change reflects adoption and implementation of new policies for thebanking sector.It is unlikely true that default culture in our banking sector is a common phenomenon whichhampers the strength of the banking sector. But arrival of private bank in our economy hasrapidly change this environment. The classified loan over the total loan of our private bankis between 5%-8% whereas it is more than 25% in our government bank. As a privatecommercial bank we are very much conscious in this regards. 11
  12. 12. One important challenge that the banking sector is facing is the introductionof information technology in the banking system in an aggressive manner.This is required to improve management efficiency, reduce operational cost,improve customer services, and increase transparency.The earning and profitability of the banking sector have also improved in recent years and itis generally measured by return on assets (ROA) and return on equity (ROE).Hence, the banking sector would play a vital role in the development of thecountry and efficient and sound banking management would led the countryto reach at the highest peak of success.AIBL aims at maintain in effective relationship with the customers, marketing of Investmentproducts, exploring new business opportunities etc. AIBL takes well calculative business riskwhile safeguarding it’s capital, financial resources and profitability from various risk.Presently, Al-Arafah Islami Bank Ltd. has got 46 braches and a total of 784 employeesworking in AIBL (as of June 2006). Its authorized capital is Taka 250 crores and the paid-upcapital is Taka 85.40 croresThe bank conducts its business on the principles of islami sarih. Musharaka, Bai-Murabaha,Bai-Muajjal and Hire Purchase investment modes are approved by Bangladesh Bank.Naturally, its mode and operations are substantially different from those of otherconventional commercial banks. There is a Shariah Council in the bank who maintainsconstant vigilance to ensure that the activities of the bank are being conducted on theprecepts of Islam.The Al-Arafah Islami bank has an Asset Liability Committee (ALCO) that reviews liquidityrequirement of the bank, the maturity of assets and liabilities, deposit and lending pricingstrategy and the liquidity contingency plan. The prime objective of the ALCO is to monitorand avert significant volatility in net profit income, investment value and exchangeearnings.AIBL strives hard to optimize profit through conduction of transparent business operations within the legal and social framework with malice to none and justice for all. 12
  13. 13. To achieve the maximum benefit from the investment both funded and nonfunded the major issue is select the sound ones. In this regard projectappraisal as well as evaluation should be considered most. Before financingin any project the quantities and qualitative judgment is essential. Thefinancial strength, management structure, business size, business line,nature of business, competitor etc. should be identified. After financingstrong monitoring is also required. As a member of the banking family weare bound to follow the rules and regulation of the government. So we areconscious enough to conduct our operation abiding by direction ofBangladesh Bank. For this reason we have to serve different information inthe credit information bureau of Bangladesh Bank. 13
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  15. 15. 1.01 Introduction:The Jews in Jerusalem introduced a kind of banking in the form of moneylending before the birth of Christ. The word bank was probably derived fromthe word bench as during ancient time Jews used to do money -lendingbusiness sitting on long benches.First modern banking was introduced in 1668 in Stockholm as Svingss Pis Bank’,which opened up a new era of banking activities throughout the European Mainland.In the South Asian region, early banking system was introduced by the Afgan traderspopularly known as Kabuliwallas. Muslim businessmen from Kabul, Afganistan came toIndia and started money-lending business in exchange of interest sometime in 1312A.D. They were known as Kabuliawallas.The financial system of Bangladesh consists of Bangladesh Bank (BB) as the centralbank, 4 nationalized commercial banks (NCB), and 5 government owned specializedbanks, 30 domestic private banks, 10 foreign banks and 28 non-bank financialinstitutions. The financial system also embraces insurance companies, stock exchangesand co-operative banksThe structure of the banking system has changed substantially over the last few years.NCBs’ role has gone down. Their share in total assets went down from 54 percent in1998 to 40 percent in 2006. On the other hand, PCBs’ share went up from 27 percent in1998 to 43 percent in 2006. The change reflects adoption and implementation of newpolicies for the banking sector.One important challenge that the banking sector is facing is the introduction of informationtechnology in the banking system in an aggressive manner. This is required to improvemanagement efficiency, reduce operational cost, improve customer services, and increasetransparency.Hence, the banking sector would play a vital role in the development of the country andefficient and sound banking management would led the country to reach at the highestpeak of success. 15
  16. 16. 1.02 Rational of the study:With the rapid growing competition (due to free market economy) among nationalized,foreign and private commercial banks as to how the banks operates its bankingoperation and how customer service can be made more attractive, the expectation ofthe customers has immensely increased. Reciprocating the sentiment,commercial/private banks are trying to elevate their traditional banking service to abetter standard, to meet the challenging needs, demands. Side by side these bankshave now concentrated their attention towards diversification of their products for betterperformances and existence. For the above circumstances, it has become necessaryfor Al-Arafah Islami Bank Ltd, one of the leading commercial banks, to focus itsattention towards the improvement of the customer service. That’s why it is quitejustified to make an in-depth study about its operation and evaluate the service providedby this bank and scope for its improvement. The study may help formulating policyregarding the ideas relating to the feelings of the customers and bankers.Further more, Al-Arafah Islami Bank Ltd executives who are actually executing thepolicies undertaken by the top management will have a chance to communicate theirfeelings and will have the feedback about their dealing from the customers.1.03 Scope of the Study:The scope of this report is to analyze the operation of all departments and to evaluatethe performance of the different departments of Al-Arafah Islami Bank Ltd1.04 Methodology:The methodology of the report is stated below, which was appropriately exercised inachieving the above stated objective.1.05 Time period of the study:For the fulfillment of the desired purpose following working days are spend to variousdepartment:Al-Arafah Islami Bank Ltd. Motijheel Branch, Rahman Mansion, 161, Motijheel C/A, Dhaka,Bangladesh.1.06 Sources of Data collection:The inputs are collected from two sources: 16
  17. 17. a) Primary Sources:  Discussion with Bank Officers.  Personal observation.  Desk work in different sections/departments. b) Secondary Sources:  Annual report of the Bank.  Consultation of related book and publications.  Different Statements.  File, Balance sheet and various documents. c) Data Processing: Collected information is processed by the use of computer system. Detailed analysis, working variables and working definitions are embodied in the report1.08 Objectives of the Report:The primary objectives of the report are: • To submit a report, for the fulfillment of my BBA practical. • The main objective of this report is to find out the “Overall Branch Banking and A Comprehensive Review on Investment of Al-Arafah Islami Bank Limited.”. • To gather comprehensive knowledge on overall banking functions and the expectations of the customers regarding the service level of the bank. • Identify the factors contributing to the attractive and operative performance of the local branch of the bank. • To make a study of the facts in order to arrive at certain conclusion about overall banking operation. • Identify the main objectives of AIBL Investment Disbursement. • To find out the sector in which AIBL provides Investment. • To evaluate financial affairs of the Bank • To visualize the quantitative and qualitative aspects of AIBLTo identify policy recommendations for further improvement 17
  18. 18. 18
  19. 19. 2.01 Organizational Overview of Al-Arafah Islami Bank Ltd:Al-Arafah Islami Bank Ltd. as the name implies a newly formed commercial bank inBangladesh. It has been incorporated in Dhaka, Bangladesh as a public limitedcompany and its Head Office of the Bank is located at Rahman Mansion, 161, MotijheelC/A, Dhaka- 1000.In the world of consumerism the business organization of the world strive for theconsumers satisfaction as a number one business strategy whatever may be theproduct of the organization, either service or non service. Service is the product of bank.There is a saying that customer service starts rights right from the stairs of the bankbuilding. The guard at the door is first person pep resents of the bank, receives acustomer with wishes in smiling face.2.02 Historical Background of Al-Arafah Islami Bank Limited:Al-Arafah Islami Bank Ltd. (AIBL) was incorporated on 18 June,1995 with authorizedcapital of Tk.1000 million (100 Crore) and paid up capital of Tk.10.12 Crore paid up bythe Sponsors/Directors and Tk.10.12 Crore was offered to the public for subscribedportion of public issue of shares. The Bank was formally inaugurated on 27 thSeptember, 2005 with Motijheel Branch (Principal Branch).The Management of theBank is vested in a Board of Directors consisting of 24 members including the ManagingDirector of the Bank. Among 24 Directors 2 (two) Directors came from the publicshareholders. Managing Director is the chief executive of the Bank. There is a Shariahcouncil of 7 (seven) members in Al-Arafah Islami Bank Ltd. to monitor the investmentswhether it invests in Shariah allowed sectors or not .Since its establishment, AIBLopened 5 branches in 1995, 5 in 1996,10 in 1997, 10 in 1998, 5 in 1999, 2 in 2000, 3 in2001, 1 in 2005, & 5 in 2006 i.e. at the end of 2006 the Bank Branch reaches to 46.Totalnumber of employees of the Bank was 771 in 1995 and reached to 912 in 2006 andduring the short period of its activities the Bank has made remarkable progress invarious activities. Since commencement of its activities on 18 June ,1995 the Bank hasmobilized the deposit of Tk.6415.79 million and 16775.33 million at the end of the year1999 and 2006. Foreign exchange business handled by the Bank during the year 1999to 2006 were Tk.7859.72 million and 11314.18 million respectively and investment wasTk.3793.71 million and 17423.18 million at the end of the year 1999 and 2006respectively. The bank earned a profit of Tk.31.70 million in the year 1999 compared toTk.470.02 million (profit after tax and provision) in the year 2006. 19
  20. 20. Al-Arafah Islami Bank Ltd. was established not only to earn profit and to developeconomy of the country but also it had an ultimate goal to get reward in the Heaven bybanning interest in business. Since its commencement the Bank has been trying toachieve this goal. The Islam loving people specially who are not interested with interest,should help this Bank giving deposit and taking investment from this Bank.2.03 Mission of Al-Arafah Islami Bank Limited:By establishing an interest free atmosphere in day to day business transactions, thePromoters, Sponsors & Directors expect the Shafayat from our beloved Prophet HadratMuhammad (S) and the ultimate emancipation in the Afterwards.2.04 Vision of Al-Arafah Islami Bank Limited:To establish an interest free transaction in the economy2.05 Special feature of the bank:i) All activities of the bank are conducted according to Islamic Sharia where profit is thelegal alternative to interest.ii) The Bank’s investment policy follows different modes approved by Islamic Shariahbased on Quran & Sunnah.iii) The Bank is committed towards establishing a welfare oriented banking system,economic upliftment of the low-income group of people, create employmentopportunities.iv) According to the needs and demands of the society and the country as a whole theBank invests money to different Halal business. The bank participates in differentactivities aiming at creating jobs, implementing development projects taken by theGovernment and developing infrastructure.v) The Bank is committed to establish an economic system through social justice andequal distribution of wealth.vii) The Bank is contributing to economic and philanthropic activities side by side. AlArafah English Medium Madrasha and AIBL Library are among mention worthy.(Source-Annual Report-2005, P-24)2.06 Objectives of AIBL:►To establish an interest free economy. 20
  21. 21. ►To establish an modern banking system for all kinds of people►To take part in the economic growth of the country.►To eradicate the poverty and to do social services by establishing Schools, Madrashas, University, Hospitals, Public Library etc.►Finally to achieve ultimate goal i.e. Nazat in Akhirat.2.07 Auditors:In terms of Article 149 of the Articles of Association of the Bank M/S Pinaki and Co.Chartered Accountants were re-appointed as external auditors for conducting the auditof accounts as 31st December, 2000. The Auditor M/S Pinaki & Co. CharteredAccountants being eligible offered themselves for re-appointment for the year 2001. Butnow M/s Rahman Rahman Hoq becomes the auditor in the year 2005.2.08 Training and Motivation:Training and Motivation are utmost important to bring about positive change in theoutlook of the manpower and to increase efficiency. Set of trained and efficientworkforce is indispensable for any commercial bank and they are the fundamentalstrength of the bank.2.11.1 Al-Arafah English Medium Madrasah:Al-Arafah English Medium Madrasah has been established by the Al-Arafah BankFoundation with a view to building next generation according to the ideals of peace andequality of Islam and to establishing banking and other aspects of life in the way2.12 Branches of AIBL:AIBL started its working at 161, Motijheel C/A with a Branch named Motijheel Branch on27th September,1995 was the first & main Branch of AIBL and has been operatingthroughout the country. The Head Office of the Bank was situated at the same holdingof Motijheel Branch since its establishment but from 11 January, 2007 it has started itsworking at its own premises 36, Dilkusha (6 th, 7th, 8th & 9th floor), Dhaka-1000. The age ofthe Bank is only 11 years and during this short period of time, the Bank has establishedtotal 46 Branches over the country and made a smooth network inside the country. Thenumber of Branches as Division wise is mentioned in the following table: Division No. of Br. 21
  22. 22. Dhaka Division 22 Chittagong Division 10 Rajshahi Division 4 Khulna Division 4 Sylhet Division 5 Barisal Division 1 Total 462.13 Hierarchy of Position in AIBL Bank 22
  23. 23. Chairman Advisor Board of Director Assistant Vice President Senior Principle Officer Principle Officer Executive Officer Assistant Officer Managing Director Senior Executive Vice President Senior Vice President Vice President Senior Assistant Vice President Junior Officer2.14 Form of Organization: 23
  24. 24. ►Board of Directors►Executive Committee►Audit Committee►Management Committee►Shariah council2.15 Environment of Al- Arafa Islami Bank:“Al- Arafa Islami Bank shall bear the mark of the Sunnah of our prophet Muhammad (S),of our faith and conviction, our values and attitudes towards life and that the entireenvironment of Al- Arafa Islami Bank shall be in conformity with Sunnah, simple in style,noble and rich in thought, but dynamic and far reaching in impact, exemplary inefficiency and service to the customers.” 24
  25. 25. 3.01.1 Mudaraba Terms Savings Deposit:Deposit in monthly installment @Tk.300/-, Tk.500/-, Tk.1000/-Tk.1500/- & 25
  26. 26. Tk.2000/- is obtained under the aforesaid scheme for a tenure of 5,8,10 and 12 yearsand the same is withdrawal withprofit at the end of the tenure.3.01.2 Monthly Profit based Term Deposit:Under the above scheme, deposit of Tk. 1.00 lac and multiple thereof are accepted for aterm of 5 (five) years and the bank gave profit thereon Tk. 885 per month per lac andproportionately on the rest amount of deposit under the category during the year underreview. The aforesaid rate shall, however, be adjustable at the close of calendar year onfinalization of accounts.3.01.3 Monthly Haj Deposit:Hajj deposit at monthly installment from 1 (one) year to 20(twenty) years are acceptedunder the above scheme to enable the account holder to perform Hajj out of theaccumulated saving with profit.3.01.4 Onetime Haj Deposit:Under the above scheme, fixed amount of Hajj deposits are accepted from the clientsfor 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 theirsuccessors to perform Hajj. Highest amount of profit is paid in the above types ofdeposit by the bank.3.01.5 Savings Investment Deposit:Deposit under the scheme is accepted by monthly installment and after expiry of theterm, double amount of such savings is given as investment in feasible sectors by thebank as per choice of the depositors without any collateral security. Any one by savingunder the scheme can take business venture on utilization the amount saved under thescheme as well as availing bank investment. 26
  27. 27. 3.01.6 Marriage Savings Deposit:Fixed monthly installment for a particular period is to be deposited to defray theexpenses of marriage and the bank allows double of saving or Tk.30,000/- which ishigher as investment to procure ornaments, furniture, fixture etc., repayable in 24monthly installment without any collateral security.3.01.7 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 depo3.02 Investment:The Total investment of the bank stood at Tk.5079.21 million against Tk.3728.41 millionduring the corresponding period of last year. The percentage of increase is 36.23% asagainst 13.00% in banking sector. The bank extends investments to the clients underthe following modes of investment under Islamic Shariah:3.02.1 Bai-Murabaha or simply Murabaha: The terms “Bai-Murabaha” have derived form 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 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.3.02.2 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 Qura’n, 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 27
  28. 28. 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.3.02.3 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.3.02.4 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.3.02.5 Bai-Salam: The term Bai-Salam is used to define a sale in which the buyer makes advance payment, but delivery is delayed until some time in the future. Usually the seller is an individual or business and the buyer is the bank. 28
  29. 29. 4.01 General Banking practices in Al-Arafah Islami:Bangladesh is one of the less developed countries. So the economic development ofthe country depends largely on the activities of commercial banks. So we need to 29
  30. 30. emphasis whether these commercial banks are effectively and honestly performing theirfunctions, assigned duties and responsibilities. In thus respect we need to knoThe cash section of Al-Arafah Islami Bank Ltd deals with all types of negotiableinstruments, cash and other instruments and treated as a sensitive section of the bank.It includes the vault that is used as the beyond this limit, the excess cash is thentransferred to Bangladesh Bank. This section performs the following functions:1. Cash Packing:After the banking hour cash is packed according to the denomination. Notes arecounted and packed in bundles and stamped with initial.2. Allocation of Currency:Before starting the Banking hour all tellers give requisition of money through “ Tellercash proof sheet”. The head Teller writes the number of the packet denomination wisein “Reserve sheet” at the end of the day, all the notes remained are recorded in thesheet.4.03 Procedure for Opening of Accounts:Before opening of a currents or savings account, the following formalities must becompleted by the customer: Submit application on the prescribed form. Furnishing photographs- 2 (Two) copies. Introduction by an account holder. Putting specimen signatures in the specimen card. Mandate, if necessary.After fulfilling above formalities, opens an account for the client and provide thecustomer with a pay-in-slip book and a checkbook in case of savings account andcurrents account.4.04 Types of Deposit Accounts and Their Formalities:A. Current AccountIn this kind of account a customer can deposit his money and can write one or morecheck to withdraw their money. For doing this notice is not required. He can deposit itwhenever he/ she wants to and also can withdraw it whenever he/ she wants toIn The Name of Individual: 30
  31. 31. The client has to fill up a light green account opening form. Terms and conditions areprinted on the back of the form. The form contains the declaration clause, specialinstructions etc. two copies of passport size photograph duly attested by the introducerare affixed with the form. In Joint Name:In this type, the formality is same as individual account, but in the special instructionclause, either or ‘survivor’ or ‘former or survivor’ clause is marked. Proprietorship:In addition the customer has to submit the valid Trade License and Tax PayingIdentification Number (TIN) along with the application. Partnership:In case of partnership account, the bank asks for, A copy of the partnership agreement (Partnership Deed) A letter signed by all the partners containing the following particulars. The name and addresses of all partners The nature of the firm’s business The name of the partner authorized to operate the account in the name of the firm, including the authority to draw, endorse and accepting the bills and mortgage and sell the properties belonging to the firm. Limited Company:On having the desire to open an account from a limited company, an EXIM Bank Officerasks for the following documents: Registration Certificate from the Registrar of Joint Stock of Companies Certificate of Incorporation Certificate of Commencement of Business Memorandum of Association Articles of Association Copies of Annual Accounts Copies of the Board’s resolution, which containsa). The name of the persons who have been authorized to operate the bank account onbehalf of the company. 31
  32. 32. b). The name of the persons who are authorized to execute documents with the bank oncompany’s behalf. Societies, Clubs and Associations:In case of these sorts of accounts Al-Arafah Islami Bank Ltd requires the followingdocuments: Registration Certificate Under the Societies Registration Act, 1962 Copies of Memorandum, Articles of Association Resolution of the Managing Committee. Power of Attorney to Borro Non-government Organization (NGO):The account opening procedure is same but in exception is that the RegistrationCertificate from the Social Welfare Department of Government must be enclosed withthe application. Joint Account in The Name of Minor:A minor cannot open an account in his own name due to the incapacity to enter into acontract. He can open an account in Al-Arafah Islami Bank Ltd in Joint name of anotherperson who will be guardian of him.B. Savings Bank Account:This deposit is basically meant for small-scale savers. There is restriction onwithdrawals in a month. Heavy withdrawals are permitted only against prior notice.Interest is paid on these types of accounts. Short-term Deposit (STD):In Short-term Deposit, the deposit should be kept for at least seven days to get interest.The interest offered for STD is less than that of savings deposit. In Al-Arafah IslamiBank Ltd various big companies, Organizations, Government Departments keep moneyin STD accounts. Frequent withdrawal is discouraged and requires prior notice. Fixed Deposit:They are also known as time liabilities or term deposits. These are deposits, which aremade with the bank for a fixed period specified in advance. The bank need not maintaincash reserves against these deposits and therefore, the bank offers high are of intereston such deposits. 32
  33. 33. In Al-Arafah Islami Bank Ltd, fixed deposit account is opened in two forms- Midterm(MTD), which is less then one year & the other is Term Deposit, which is more than oneyear.Opening of Fixed Deposit Account:The depositor has to fill an application form where in he mentions the amount ofdeposit, the period for which deposit is to be made & the name/ names is which thefixed deposit receipt is to be issued. In case of a deposit in Joint name Al-Arafah IslamiBank Ltd. also takes the instructions regarding payment of money maturity of thedeposit. The banker also takes the instructions regarding payment of money on maturityof the deposit. The banker also takers the instructions regarding payment of money onmaturity of the deposit. The banker also taker specimen signatures of the depositors.A fixed deposit account is then issued to the depositor acknowledging receipt of thesum of money mentioned therein. It also contains the rate of interest & the date onwhich the deposit will fall due for payment. Payment of Interest:It is usually paid on maturity of the fixed deposit. Al-Arafah Islami Bank Ltd calculatesinterest at each maturity date and provision is made on that “Miscellaneous creditorexpenditure payable accounts” is debited for the accrued interest. Encashment of F.D.R:In case of premature FDR, Al-Arafah Islami Bank Ltd is not bound to accept surrenderof the deposit before its maturity date. In order to deter such a tendency the interest onsuch a fixed deposit is made cut a certain percentage less a the agreed rate. Normallysavings bank deposit interest rate is allowed. Loss of FDR:In case of a lost FDR, the customer is asked to record a GD (General Diary) in thenearest Police Station. After that the customer has to furnish an Indemnity Bond to Al-Arafah Islami Bank Ltd a duplicate FDR is then issued to the customer by the bank.4.02 Cash:The cash section of Al-Arafah Islami Bank Ltd deals with all types of negotiableinstruments, cash and other instruments and treated as a sensitive section of the bank. 33
  34. 34. It includes the vault that is used as the beyond this limit, the excess cash is thentransferred to Bangladesh Bank. This section performs the following functions:1. Cash Packing:After the banking hour cash is packed according to the denomination. Notes arecounted and packed in bundles and stamped with initial.2. Allocation of Currency:Before starting the Banking hour all tellers give requisition of money through “ Tellercash proof sheet”. The head Teller writes the number of the packet denomination wisein “Reserve sheet” at the end of the day, all the notes remained are recorded in thesheet.4.03 Procedure for Opening of Accounts:Before opening of a currents or savings account, the following formalities must becompleted by the customer: Submit application on the prescribed form. Furnishing photographs- 2 (Two) copies. Introduction by an account holder. Putting specimen signatures in the specimen card. Mandate, if necessary.After fulfilling above formalities, opens an account for the client and provide thecustomer with a pay-in-slip book and a checkbook in case of savings account andcurrents account.4.04 Types of Deposit Accounts and Their Formalities:A. Current Account:In this kind of account a customer can deposit his money and can write one or morecheck to withdraw their money. For doing this notice is not required. He can deposit itwhenever he/ she wants to and also can withdraw it whenever he/ she wants to. In The Name of Individual:The client has to fill up a light green account opening form. Terms and conditions areprinted on the back of the form. The form contains the declaration clause, specialinstructions etc. two copies of passport size photograph duly attested by the introducerare affixed with the form. In Joint Name: 34
  35. 35. In this type, the formality is same as individual account, but in the special instructionclause, either or ‘survivor’ or ‘former or survivor’ clause is marked. Proprietorship:In addition the customer has to submit the valid Trade License and Tax PayingIdentification Number (TIN) along with the application. Partnership:In case of partnership account, the bank asks for, A copy of the partnership agreement (Partnership Deed) A letter signed by all the partners containing the following particulars. The name and addresses of all partners The nature of the firm’s business The name of the partner authorized to operate the account in the name of the firm, including the authority to draw, endorse and accepting the bills and mortgage and sell the properties belonging to the firm. Limited Company:On having the desire to open an account from a limited company, an EXIM Bank Officerasks for the following documents: Registration Certificate from the Registrar of Joint Stock of Companies Certificate of Incorporation Certificate of Commencement of Business Memorandum of Association Articles of Association Copies of Annual Accounts Copies of the Board’s resolution, which containsa). The name of the persons who have been authorized to operate the bank account onbehalf of the company.b). The name of the persons who are authorized to execute documents with the bank oncompany’s behalf. 35
  36. 36.  Societies, Clubs and Associations:In case of these sorts of accounts Al-Arafah Islami Bank Ltd requires the followingdocuments: Registration Certificate Under the Societies Registration Act, 1962 Copies of Memorandum, Articles of Association Resolution of the Managing Committee. Power of Attorney to Borro Non-government Organization (NGO):The account opening procedure is same but in exception is that the RegistrationCertificate from the Social Welfare Department of Government must be enclosed withthe application. Joint Account in The Name of Minor:A minor cannot open an account in his own name due to the incapacity to enter into acontract. He can open an account in Al-Arafah Islami Bank Ltd in Joint name of anotherperson who will be guardian of him.B. Savings Bank Account:This deposit is basically meant for small-scale savers. There is restriction onwithdrawals in a month. Heavy withdrawals are permitted only against prior notice.Interest is paid on these types of accounts. Short-term Deposit (STD):In Short-term Deposit, the deposit should be kept for at least seven days to get interest.The interest offered for STD is less than that of savings deposit. In Al-Arafah IslamiBank Ltd various big companies, Organizations, Government Departments keep moneyin STD accounts. Frequent withdrawal is discouraged and requires prior notice. Fixed Deposit:They are also known as time liabilities or term deposits. These are deposits, which aremade with the bank for a fixed period specified in advance. The bank need not maintaincash reserves against these deposits and therefore, the bank offers high are of intereston such deposits.In Al-Arafah Islami Bank Ltd, fixed deposit account is opened in two forms- Midterm(MTD), which is less then one year & the other is Term Deposit, which is more than oneyear.The banker also taker specimen signatures of the depositors: 36
  37. 37. A fixed deposit account is then issued to the depositor acknowledging receipt of thesum of money mentioned therein. It also contains the rate of interest & the date onwhich the deposit will fall due for payment. Payment of Interest:It is usually paid on maturity of the fixed deposit. Al-Arafah Islami Bank Ltd calculatesinterest at each maturity date and provision is made on that “Miscellaneous creditorexpenditure payable accounts” is debited for the accrued interest. Encashment of F.D.R:In case of premature FDR, Al-Arafah Islami Bank Ltd is not bound to accept surrenderof the deposit before its maturity date. In order to deter such a tendency the interest onsuch a fixed deposit is made cut a certain percentage less a the agreed rate. Normallysavings bank deposit interest rate is allowed. Loss of FDR:In case of a lost FDR, the customer is asked to record a GD (General Diary) in thenearest Police Station. After that the customer has to furnish an Indemnity Bond to Al-Arafah Islami Bank Ltd a duplicate FDR is then issued to the customer by the bank. Renewal of F.R.D.:In Al-Arafah Islami Bank Ltd, the instrument is automatically renewed within seven daysafter the date of its maturity if the customer does not come to en-cash the FDR. Theperiod for renewal is determined as the previous one.4.05 Remittance:Remittance can be done by telegraph transfer, mail transfer, traveler’s Cheque anddrafts and Cheque. There are two steps of remittance:o Inland Remittance:By using ways we can do it. When one bank sends these T.T, M.T, T.C or Cheque toanother bank than it will be called inland remittance. It is done within the country fromone bank to another.o Foreign Remittance:When a bank got this T.T, M.T, T.C and cheque from outside bank, which is not situatedin the home country than it will be called foreign remittance. Using these methods alsohas done it. Types of Remittance: a) Between banks and non-banks customers. 37
  38. 38. b) Between banks in the same country. c) Between banks in the different centers. d) Between banks and central bank in the same country. e) Between central bank of different customers. Administration/ Monitoring:The administration of the loan process shall ensure, compliance with alllaws and regulations at both local and global levels including bank policy asset out in this document and the Banks credit manual/circulars. Types of Credit Activities:Depending on the various nature of financing all the lending activities have beenbrought under the following major heads: Loan Long Term Short Term Commercial House building loan, Loan project or industrial loan and transport loan. Cash credit (pledge),Cash credit (Hypothecation), Loan general, Secured overdraf (SOD), Loan aganist imported merchandise1. Loan (General):Short term and long term loans allowed to individual/ firms/ industries for a specificpurpose but a definite period and generally repayable by installments fall under thishead these types of lending are mainly allowed to accommodate financing under thecategories.a). Large and Medium Scale Industries. 38
  39. 39. b). Small and Cottage Industries. Very often term financing for agriculture and othersare also included here.2. House Building Loan (General):Loans allowed to individual/enterprises construction of house (residential orcommercial) fall under this type of advance. The amount is repayable by monthlyinstallment within a specified period, advances are known as Loan (HBL-GEN). Introduction:House Building loan is one of the common credit policies of banking sector. There wasonly one institution in our country, which is specified in HBFC, Bangladesh HouseBuilding Finance Corporation. Now days, besides this bank many commercial banksand Leasing Company provides house-building loan to the customers. Interest rate:Currently the interest rate is 16%. But it may changes from time to time depending onthe market interest rate. From the customers point of view this changes have anadverse impact on the customers. Some times if they have to bear a higher interest onthe principal amount which causes a great burden on them.But from the banks point of view this is very good to maintain the markup. Becausewhen the market interest rate raises 1% than they are getting 1% less markup. So forthis clause of increasing interest rate they can have the same markup by increasing theinterest rate changing on the clients. So this is very effective for the Bank to maintainmarkup. Disbursement Procedure:The disbursement procedure or timing of disbursement depends on the client or theprogress of work of the construction. The disbursement can be made two or threestages or more depending on the above conditions. Mode of repayment:The loan shall be adjusted by monthly installment basis. The repayment will start from6(six) months of the date of first disbursement (it may change according to the termsand conditions of the agreement) Collateral:The land and the construction on the land are normally given as collateral. It maychanges-- 39
  40. 40. The documents to be obtained: i. DP note. ii. Letter of disbursement. iii. Letter of installment. iv. Letter of guarantee. v. Letter of undertaking. vi. Letter of agreement, vii. Irrevocable general power of attorney. viii. Memorandum of deposit of title deed. ix. Any other documents if considered. House Building Loan (Staff):Loans allowed to the Bank employees for purchase/construction of house shall beknown as Staff Loan (HBFC-STAFF).Other Loans to Staff:Loans allowed to employees other than for House Building shall be grouped underhead staff Loan (general).Cash Credit (Hypo)Advances allowed to individual/ firm for trading as well as wholesale purpose or toindustries to meet up the working capital requirements against hypothecation of goodsas primary security fall under this type of lending. It is a continuous credit. It is allowedunder the categories:0"Commercial lending" when the customer is other than an industry and "WorkingCapital" when the customer is an industry. Consumers Credit Scheme of Al-Arafah Islami Bank Ltd.Introduction:Consumer Credit Scheme is a major program of Al-Arafah Islami Bank Ltd. In CCS the bankengage an agent who works on behalf of the Bank. This agent performs all the works prior to thesanction of the CCS. They do the inspection and make all the documents necessary for CCS. Forthis purpose they get commission.Clients : 40
  41. 41. The clients are Service Holders and Businessman. Service holders can be Governmentand Private. In case of Government officer, the client must be an officer in rank.Products:Electronic goods, cars, jeeps, microbuses, Mobile telephone, T&T telephone etc.Profit Rate:Down paymentDown payment is 20% of the CCS amount. It is considered as equity. The payment is50% for vehicles.Advance allowed for retirement of shipping documents w d release of goods importedthrough LIC falls under trust with the arrangement that sale proceeds should bedeposited to liquidate the advances within a given period. This is also a temporaryadvance connected with import and known as post-Import finance and falls under thecategory "Commercial Banking. IBP (inland bill purchased):Payment made through purchase of inland bills/cheques to meet urgent requirement ofthe customer falls under this type of credit facility. This temporary advance is adjustablefrom the proceeds of bill/ Cheques purchased for Collection. It falls under the category"Commercial Lending". Credit AdministrationThe principle elements of bank credit administration are as follows: A. Credit approval. B. Credit file maintenance. C. Facility evidence maintenance. D. Credit monitoring and review. Credit Approval:The primary factor determining the quality of the Banks credit portfolio is the ability ofeach borrower to honor, on a timely basis, all credit commitments made to the Bank.The authorizing credit personnel period to credit approval must accurately determinethis.The credit approval process shall be governed by the Bank Credit Policy framework,which can be summarized under the following:Asstt. Vice President 41
  42. 42. The amount and scope of each Officers lending authority is a function of the amountand extent of authority required by the officer to carry out his /her responsibilities to theBank and its clients ma prudent, effective and efficient manner. Approval under Dual Signature:All approval of credit facilities must be conveyed under dual signature, and ideally bothhe signatures must have the required lending authority. If however, two lending officersof the required lending authority are not available, one of the signatories must have thelending authority.4.07 Formalities for Opening Foreign Currency (FC) Account:The AD may without prior approval of the Bangladesh Bank open Foreign Currency(FC) account in the name of: 1. Bangladesh national residing abroad. 2. Foreign nationals residing abroad/ in Bangladesh and also foreign firms registered abroad and operating in Bangladesh and abstract. 3. Foreign Missions and their expatriate employees. 4. Resident of Bangladesh nationals working with the foreign/ international organizations operating in Bangladesh provided their salary in paid in foreign currency. RATE OF EXCHANGE:It means the price of one currency expressed in terms of another currency. Rate ofexchange is the rate by which the relation among different foreign currencies isestablished in terms of local currency of that country. Value at which one country’scurrency can be converted into another’s currency.4.08 Import Procedure:To import a person should be competent to be an “Importer”. According to Import andExport control Act 1950, the office of Chief Controller of Import and Export provides theregistration (IRC) to the importer. After obtaining this person has to secure a letter ofcredit authorization from Bangladesh Bank. And then a person becomes a qualifiedimporter. He is the person who requests or instructs to open an L/C. he is also calledopener or applicant of the credit Importer’s Application for L/C Limit Margin: 42
  43. 43. To have an import L/C limit, an importer submits an application to the Department of Al-Arafah Islami Bank Ltd furnishing the following information:  Full particulars of bank account.  Nature of business.  Required amount of limit.  Payment terms and conditions.  Goods to be imported.  Offered security.  Repayment schedule.Now if the officer thinks the application to open an L/C in not fit, the following entries aregiven to realize the L/C, Charges, Postage and L/C margin. Presentation of the Documents:The seller being satisfied with the terms and the conditions of the credit proceeds todispatch the required goods to the buyer and after that has to present the documentsevidencing dispatching of goods to the negotiating bank. After receiving all thedocuments the negotiation bank then checks the documents against the credit  Invoice.  Bill of Lading  Certificate of Deposit  Packing List.  Weight List.  Shipping Advice.  Non-negotiable copy of bill of lading  Bill of Exchange  Pre-Shipment inspection report  Shipment Certificate. Following Paper Required for New Imported While Opening on L/C:The following papers are required when opening a new L/C:  Valid Import Registration Certificate (IRC).  Trade License.  TIN Certificate.  VAT Certificate.  Three (3) copies declaration by the importer that they have paid/ submitted return of income tax of proceeding last year. 43
  44. 44.  Membership Certificate of Chamber of Commerce Industry.  According to be maintained with the bank.  Membership Certificate BGMEA (Incase of Garment Ind.)  Banded warehouse license (Incase of Export Oriented Industry).  LCA From.  Insurance cover note.  Proforma Invoice/ Indent.  Application for opening of L/C duly billed in and signed.  IMP form duly signed. Payment Procedure of The Import Documents:This is the most sensitive task of the import department. The officials have to be verymuch careful while making payment. This task constitutes the following: I. Date of payment: Usually payment is made within seven days after the document have been received. If the payment is become deferred the negotiating bank may claim interest for making delay. Advising a L/C:It is customary to advise a credit to the seller through an advising bank. Advisingthrough a bank is a proof of apparent authenticity of the credit to the beneficiary towhom it is addressed. Before forwarding/ advising the credit to the seller underappropriate forwarding coverage, the advising bank have to verify the signature of theofficer of the opening bank and ensure that the terms and conditions of the credit arenot violation of the existing exchange control regulations and other regulations relatingto export. Very often advising bank receives requests from issuing ban to add theirconfirmation while advising credit to the beneficiary. Import Financing:A) Letter of Credit (L/C) Facility:Bank in favor of exporter on behalf of the importer issue L/C. L/C is issued to importgoods for trading and manufacturing process.B) Loan Against Import Merchandise (LIM):Loan Against Import Merchandise (LIM) is post import finance, which is granted in favorof the importer to retire shipping documents against import of goods. This is generallyrepaid within 30 days. 44
  45. 45. C) Loan Against Trust Receipt (LTR):Loan Against Trust Receipt (LTR) is post import finance extended to the importer ofgoods. Importer issues a trust receipt favor of Bank and takes possession of the goodsmarkets and sells the products and repay within the stipulated period.4.09 Export Procedure:The exports form Bangladesh is subject to export trade control exercise by the Ministryof Commerce through Chief Controller of Export and Imports (CCI & E). no exporter isallowed to export any commodity permissible for export from Bangladesh unless he isregistered with CCI & E and holds valid Export Registration Certificate (ERC). TheExport Registration Certificate (ERC) is required to be renewed every year. The ExportRegistration Certificate (ERC) is to be incorporated on EXP forms and other documentsconnected with exports.4.12 Foreign Exchange:Foreign exchange can simply be defined as a process of conversion of one currencyinto another. A well know author of some popular books on foreign exchange, Dr. PaulEinzig tells that foreign exchange means “a system or process of conversion of onenational currency into another and of transferring money from one country into another”.In ordinary sense “Foreign Exchange” means Foreign Currency, which refers to the rateof exchange the price of one unit of foreign exchange in terms of another currency. Butin its complete sense, foreign exchange means the mechanism or the media used andthe rate at which these media are exchange with another.Foreign Exchange department is divided into two parts, the first one is the ExportDepartment and the second part is the Import Department.4.12.1 Export Department:When any organization wants to export any product to other country than that particularorganization usually opens an Export Letter of Credit (L/C) from this department. Foreign Exchange Operation (Export Financing):Exporter means any person lawfully exporting goods from Bangladesh to any othercountry in the world. After shipment the exporter has to tender the documents to theBank within the stipulated period for the negotiation of the documents are drawnIncentives are as follows: Export Finance: 45
  46. 46.  Interest Rate. Incremental Incentive on Interest for Interest Based Bank. Extent of Export Credit. Checking and Advising of Export Letter of Credit:On receipt of Export letter of Credit it is to be recorded in the Banks inward register andthen the signature of a Bank and finally it is to be forwarded to the beneficiary underforwarding schedule. Processing and Opening of Back-to-Back Letter of Credit:An exporter desired to have an Import L/C limit under Back-to-Back arrangement. Inthat case the following papers & documents are required: Full Particulars of Bank Account. Balance Sheet. Statement of Assets & Liability. Trade License. Valid Bonded Warehouse License. Membership Certificate. Income Tax Declaration. ACU Letter of Credit (L/C):This types of L/C as same as Case L/C. reimbursement must be made on ACUNOCTRO A/C countries. Reimbursement authority should be sending on the same dayof the Letter of Credit (L/C) is sent. Procedure for Transferable Letter of Credit (L/C):The original beneficiary when request the banker in writing to effect transfer the Letter ofCredit (L/C) to the second beneficiary, the signature of the original beneficiary on theletter of request must be verified by his banker. The Letter of Credit (L/C) can betransferred only on the terms and conditions specified in the original credit.4.15 Procedure for Opening Letter of Credit (L/C):An importer desirous to have an import Letter of Credit (L/C) limit must have applied tothe designated bank in prescribed form for sanction of margin, Letter of Credit (L/C) limitit etc. 46
  47. 47.  L/C Opening flow chart in case of BTB L/C: Opening of BTB ABP (Accepted Lien of Export L/C L/C under that Bills For Export L/C Payment) Collection/ Purchase Export Made Under Production of Export Bills Collection From Inform To Head Nosto A/C Export L/C issuing Office Bank Head Office ETDA A/ Credit Advice to C (Debit) Branch Respective If PC Facility BTB Payment Party A/C Then (Credit) Adjustment Figure: Letter of Credit (L/C) Opening Process Letter of Credit (L/C) Application:For opening Letter of Credit (L/C) the client is to submit to the bank an application in theprinted format of the designated bank. This is called Letter of Credit (L/C) applicationform, which is also an agreement between the importer and the bank. The form is to bestamped under stamp Act. The importer must submit the LCA and IMP and Indent orcontract / purchase order/ proforma invoice (duly accepted by the importer) along withLetter of Credit (L/C) application.The Letter of Credit (L/C) application must be completed/ filled in and signed by theauthorized person of the importer giving the following particulars. Full name and address of the supplier or beneficiary and importer. 47
  48. 48.  Brief description of the goods. Last date of shipment and negotiation time (must not be beyond 30 days from the shipment date). Examination of Letter of Credit (L/C) Application:On receipt of Letter of Credit (L/C) application an officer of L/C section must check itvery careful by the following manner. That the terms and conditions as stipulated in the L/C application are consistent with the exchange control and import trade regulation and UCPDC 500. That all the information mentioned in above column have been furnished. That the terms to be imported are eligible according to importers entitlement. That the goods are not being imported or originated form South Africa or Israel. If the goods are imported form any member countries of ACU. That the validity of the L/C must not exceed the validity of LCA. L/C is opened within the validity period permitted in the License.For Letter of Credit (L/C) limit following information are to be furnished by the applicant. Preparation of Credit Report:Bank prepares credit report in prescribed forms. Character, Capacity and Capital, whichare known as the three C’s of credit. Instead of the three C’s some mentions the threeR’s i.e. reliability, responsibility and resources. To these three C’s we may add two moreC’s i.e. collateral and conditions. Position of Letter of Credit (L/C):Import section will see whether there is sufficient fund available in the account to coverthe margin to be sanctioned, commission, postage, cable or telex charge etc. If it isfound O.K, Letter of Credit (L/C) will be sanctioned.In all cases the sanction must be informed to the importer for acceptance. On receivingconfirmation from the client then the terms and conditions of the sanctioned areacceptable, the subsequent documentation/ charge document are taken up.Following papers/ documents submitted by the importer before opening of the L/C: Memorandum of (In case of partnership firm). Resolution. Photo One Copy. 48
  49. 49.  VAT Registration Certificate.Bank will supply the following papers/ documents before opening of the L/C: Letter of Credit (L/C) Application Form. LCA Form. IMP Form. Charge Documents Paper. Guarantee Form.The above papers must be completed duly filled in and signed by the party and verifiedthe signature. Maintenance of Register:The sanction must be recorded in the following registers: Document Execution Registers. All the charge documents must be recorded in this register. Limit Register. Liability Ledger. Confidential Report of Beneficiary of Letter of Credit (L/C):According to exchange control regulations bankers are required to obtain confidentialreport of the beneficiary of Letter of Credit (L/C) before opening the same, if the amountof Letter of Credit (L/C) exceeds Tk. 5 lac. Bank can open Letter of Credit (L/C) belowTk. 5 lac without obtaining C.R.Banker can write to their foreign correspondents to supply the C.R. But from practicalexperience foreign correspondents of different country are not supplied timely.To overcome the above situation bankers can conduit reference book i.e. MUWN/DUNN/ BRADSTREET/ Trade directory of various chambers of commerce of differentcountries in the world.On receipt of C.R. form any source the banker can accumulate the same in one masterfile. LCA Registration:Letter of Credit (L/C) authorization forms consisting of six copies. 1 st copy for exchangecontrol purposes, 2nd copy for the licensing authority, 3rd and 4th copies for the CCI and Procedure or Preparation and Dispatch: 49
  50. 50. Amendment is to be typed in the Banks printed format. The copies of the amendmentmust be dispatched to all concerned as done in dispatching the L/C. Amendment can bedone either by cable/ telex or airmail.Each and every amendment of L/C must be noted in the L/C file and copies of eachamendment are kept in the L/C file chronologically (date wise). Bank Charge:Amendment commission is to be realized from the party as per instruction ofBangladesh Bank F.C. circulars. Accounting Procedure:Dr. Party’s Account.Cr. Commission Account.Cr. P & T Account.4.16 Clearing House & Collections of Bill:According to the Article 37(2) of Bangladesh Bank Order 1972, the banks, which are themember of the clearinghouse, are called as Scheduled Banks. The scheduled banksclear the cheques drawn upon one another through the clearinghouse. This is anarrangement by the central bank where everyday the representative of the memberbanks gathers to clear the cheques. Banks for credit of the proceeds to the customer’saccounts accept cheques and other similar instruments.Procedures for Collection:The following procedures are taken for collection, Crossing of the cheques are done “Payee’s A/C Credited” endorsement Entries are given in the outward clearing Register “Clearing” seal is given Cheque Cheques are sorted bank wise and entries are given to the computer Entries are given to the “Clearing House Register” 50
  51. 51. ♣ Procedure for Outward Bills for Collection: Depositing the cheque along with Deposit Slip Endorsement “Payee’s A/C will be credited on realization ” is given Crossing of the cheques are done indicating Principal Branch as collecting bank Entries are given in the outward clearing Register 51
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  53. 53. 5.01 Definition of Investment:Investment, transaction between two parties in which one ( the creditor or lender)supplies money, goods, services or securities in return for a promised future paymentby the other ( the debtor or borrower). Such Transaction normally includes the paymentof interest to the lender. Investment may be extended by the public or private institutionsto finance business activities, agricultural operation, consumer expenditures orgovernment projects.5.02 Introduction of Investment:Modern Investment management is extended through specialized financial institutionsof which commercial banks are the oldest and most important. In present days ofindustrial economics, the banks are able to extend and increase the supply ofInvestment by the creation of Investment management for their loan customers. Thelender must judge each loan he makes on the basis of the charter of the borrower (hisintention to pay), (his capacity to pay), (based on his potential for earning) and hiscollateral pledged in case of default on the loan. The terms of Investment transactionsmay be publicly regulated to prevent abuses by customers and lenders as well as tochannel Investment in to particular sectors of the economy.5.03 AIBL 2006 Deposit, Investment and Asset Information:Deposit:The total deposit of the bank was Tk. 16775.33 million at 31st December 2006, of whichbank deposit was 611.72 million taka and general deposit was 16163.61 million taka. Atthe same time in the last year, the amount was total deposit was 11643.66 million taka.In this area the growth rate is 44.07%. 18000 2006 16000 14000 2005 12000 2004 10000 2003 2002 8000 6000 4000 2000 0 Deposit Fig:1 Deposit 53
  54. 54. investment:At the end of the year 2006, the amount of investment of the bank was Tk. 17423.19million in comparison to Tk. 11474.41 million of the last year 2005. the amount ofinvestment has increased 5948.78 million taka within this period, which is around51.84% 2006 18000 16000 14000 2005 12000 10000 2003 2004 2002 8000 6000 4000 2000 0 Investment Fig: 2 InvestmentTotal Assets: 2006 1% 4% 1% 7% 5% Cash in hand B.Bank & S. Bank Other Bank Investment Fixed Assets 82% Other Assets Fig: Total Assets 1. Cash in hand 1% 2. B.Bank & S.Bank 7% 3. Other Bank 5% 4. Investment 82% 5. Fixed Assets 1% 6. Other Assets 4% 54
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  56. 56. 7.01 Role of CIB in Bangladesh:Due to irregular and insufficient flow of credit information in the banking system theproportion of classified loan in relation to total credit is very high. This proportion ofclassified loan operated a bad culture in the Banking sector. In order to eliminate thebad culture & to equip the banks with proper credit information for loan applicationprocessing, proposal for relation of CIB was put forward by different committee andorganizations and it was established in 1992.7.02 Functions of CIB: i) To standardize information flow on loans/credits within the Bangladesh Banking system. ii) To increase the speed & accuracy with which the credit information is made available to banker assessing credit role. iii) To combine the information gathered on classified loans with the information on newly sanctioned loans to the borrowers thereby making available on integrated information package. iv) To integrate the default loan information in the CIB its timely submission to the banks for loan application processing. v) To collect credit information on quarterly basis from banks. 56
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  58. 58. 8.01 Credit Risk Grading:Credit risk grading is an important tool for credit risk management as it helps the Banks& financial institutions to understand various dimensions of risk involved in differentcredit transactions. The aggregation of such grading across the borrowers, activitiesand the lines of business can provide better assessment of the quality of credit portfolioof a bank or a branch. The credit risk grading system is vital to take decisions both atthe pre-sanction stage as well as post-sanction stage.At the pre-sanction stage, credit grading helps the sanctioning authority to decidewhether to lend or not to lend, what should be the loan price, what should be the extentof exposure, what should be the appropriate credit facility, what are the various facilities,what are the various risk mitigation tools to put a cap on the risk level.8.04 Use of Credit Risk Grading: • As evident, the CRG outputs would be relevant for individual credit selection, wherein either a borrower or a particular exposure/facility is rated. • Risk grading would also be relevant for surveillance and monitoring, internal MIS and assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level analysis.8.05. Numbers & Short names of graders used in the CRG: The proposed CRG scale consists of 8 categories with Short names and Numbers are provided as follows: GRADING SHORT NAME NUMBER Superior SUP 1 Good GD 2 Acceptable ACCPT 3 Marginal/Watch List MG/WL 4 Special Mention SM 5 Sub standard SS 6 Doubtful DF 7 Bad & Loss BL 88.06 Regulatory Definition on Grading of Classified Accounts:Irrespective of credit score obtained by a particular obligor, grading of the classifiednames should be in line with Bangladesh Bank guidelines on classified accounts, which 58
  59. 59. is extracted from “PRUDENTIAL REGULATIONS FOR BANKS: SELECTED ISSUES”(updated till August 07, 2005) by Bangladesh Bank are presently as follows:8.07 Basis of Loan Classification:A. Objective Criteria:Any Continuous Loan if not repaid/renewed within the fixed expiry date for repaymentwill be treated as irregular just from the following day of the expiry date. This loan will beclassified as Sub-standard if it is kept irregular for 6 months or beyond but less than 9months, as `Doubtful if for 9 months or beyond but less than 12 months and as `Bad &Loss if for 12 months or beyond.In case any installment(s) or part of installment(s) of a Fixed Term Loan is not repaidwithin the due date, the amount of unpaid installment(s) will be termed as `defaultedinstallment.B. Qualitative Judgment:If any uncertainty or doubt arises in respect of recovery of any Continuous Loan,Demand Loan or Fixed Term Loan, the same will have to be classified on the basis ofqualitative judgment be it classifiable or not on the basis of objective criteria.Note: a) Any change in classification criteria provided by the Bangladesh Bank shall supersede this grading system for classified accounts. b) An account may also be classified based on qualitative judgment in line with Bangladesh Bank guidelines. c) A particular bank may have classification criteria stricter than Bangladesh Bank guidelines. a) Evaluation of Security Risk: Risk that the bank might be exposed due to poor quality or strength of the security in case of default. b) Evaluation of Relationship Risk: These risk areas cover evaluation of limits utilization, account performance, conditions/ covenants compliance by the borrower and deposit relationship. 59
  60. 60. Investment RISK Financial Business/ Management Security Relationship Risk Industry Risk Risk Risk Risk Size of Leverage Business Experience Security Account Conduct Coverage Age of Liquidity Business Succession Collateral Utilization of Coverage Limit Business Outlook Compliance of Profitability Team Work Support Covenants/ Condition Industry Growth Coverage Personal Deposits Market Competition Barriers to Business Fig. Investment (Credit) Risk Grading diagram Step IIAllocate weightages to Principal Risk ComponentAccording to the importance of risk profile, the following weightages are proposed forcorresponding principal risks.
  61. 61. Principal Risk Components: Weight: Financial Risk 50% Business/Industry Risk 18% Management Risk 12% Security Risk 10% Relationship Risk 10% Step III Establish the Key ParametersPrincipal Risk Components: Key Parameters: Financial Risk Leverage, Liquidity, Profitability & Coverage ratio. Business/Industry Risk Size of Business, Age of Business, Business Outlook, Industry Growth, Competition & Barriers to Business Management Risk Experience, Succession & Team Work. Security Risk Security Coverage, Collateral Coverage and Support. Relationship Risk Account Conduct ,Utilization of Limit, Compliance of covenants/conditions & Personal Deposit. Step IV Assign weightages to each of the key parameters.Principal Risk Components: Key Parameters: Weight: Financial Risk 50% ⇒ Leverage 15% ⇒ Liquidity 15% ⇒ Profitability 15%
  62. 62. ⇒ Coverage 5% Business/Industry Risk 18% ⇒ Size of Business 5% ⇒ Age of Business 3% ⇒ Business Outlook 3% ⇒ Industry growth 3% ⇒ Market Competition 2% ⇒ Entry/Exit Barriers 2% Management Risk 12% ⇒ Experience 5% ⇒ Succession 4% ⇒ Team Work 3% Security Risk 10% ⇒ Security coverage 4% ⇒ Collateral coverage 4% ⇒ Support 2% Relationship Risk: 10% ⇒ Account conduct 5% ⇒ Utilization of limit 2% ⇒ Compliance of covenants /condition 2% ⇒ Personal deposit 1% Step V Input data to arrive at the score on the key parameters
  63. 63. After the risk identification & weightage assignment process (as mentioned above), thenext steps will be to input actual parameter in the score sheet to arrive at the scorescorresponding to the actual parameters. a) Open the MS XL file named, CRG_SCORE_SHEET b) The entire XL sheet named, CRG is protected except the particular cells to input data. c) Input data accurately in the cells which are BORDERED & are colored YELLOW. d) Some input cells contain DROP DOWN LIST for some criteria corresponding to the Key Parameters. Click to the input cell and select the appropriate parameters from the DROP DOWN LIST as shown below. e) All the cells provided for input must be filled in order to arrive at accurate risk grade. f) We have also enclosed the MS Excel file named, CRG_Score_Sheet in CD ROM for use. Step VI Arrive at the Credit Risk Grading based on total score obtainedThe following is the proposed Credit Risk Grade matrix based on the total scoreobtained by an obligor. Number Risk Grading Short Score Name 1 Superior SUP  100% cash covered  Government guarantee  International Bank guarantees
  64. 64. 2 Good GD 85+3 Acceptable ACCPT 75-844 Marginal/Watchlist MG/WL 65-745 Special Mention SM 55-646 Sub-standard SS 45-547 Doubtful DF 35-448 Bad & Loss BL <35
  65. 65. 9.01 Investment Assessment:Relationship Manager(s) Investment Officer(s) shall conduct a thoroughassessment of investment requirement before recommending any new proposal.
  66. 66. There after all investment at least annually at the time of renewal and enhancement.The assessment procedure shall include the following issues: 1. mode of Investment 2. investment limit 3. Purpose of investment 4. Rate of profit 5. Primary Security 6. Collateral Security- its acceptability, its coverage, its control and genuine etc 7. Margin 8. Repayment capacity and repayment schedule 9. Period of investment 10. Other terns and conditions in case of necessityIn addition the RM (Relationship Manager ) Investment officers shall address thefallowing issues which assessing investment proposal: A. Customer analysis :  Capital structure of the company  Authorized capital and paid up capital  Reserve and retained earnings  Share holdings of the share holders  Management team  Group and affiliate companies  Ability to comply investment convent  Security  Ability and integrity B. Industry analysis:  Contribution to GDP of the concern industry  Key risk factors of the industry  Growth of the industry  Domestic market of the industry  International market of the industry  SWOT of the industry C. Supplier Buyer analysis :
  67. 67.  Domestic  International  Potentiality of the buyer or supplier  Strength and weakness of the buyer or supplierD. Historical Financial analysis :  Minimum three years Financial Statement (FSS) analysis  Guarantor (s) Corporate guarantor (s) Financial Statement analysis  Quality and sustainability of the borrower’s  Cash flow statement  Strength of the borrower’s balance sheet  Leverage  ProfitabilityE. Project Financial Performance: Where term investment facilities are being proposed in favor of any newindustrial unit an expertise team comprising RM. Engineer in the concern fieldand financial analyst. The team will prepare a feasibility study as per currentindustrial policy.F. Account Conduct : ► Trade payment ► Cheques payment ► Timely payments ► Irregular payment ► Bank’s investment payment with profit ► Excess over limit drawings ► Excess over DP drawing ► Bank’s commission and charges paymentG. Mitigating Factor : Following risk mitigating factors to be identified in the investment assessment  Margin  Volatility  High debt load ( LeverageGearing )  Overstocking or debtor issues  Repaid growth, acquisition or expansion
  68. 68.  Management changes or succession issues  Customer or Supplier concentration  Lack of transparency or industry issues.H. Investment Structure:  Amount of investment  Tenors of investment  Justification of investment  Based on the project repayment ability installment to be determined  Proposed investment an oust and tenor is not excessiveI. Security:  Primary security should be acceptable, marketable & legal items  Slow, perishable, obsolete, banned, expired items not to be taken as security  A current valuation of collateral security shall be obtained
  69. 69. 10.01 Summary of Findings:The 2 (two) months internship program has been going to be finished through writinga report. During the time of internship I have tried with my best to acquire theoretical

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