Al-Arafah Islami Bank

1. Investment Policy and Activities
Analysis of
Al-Arafah Islami Bank Ltd.

2. Prepared By
Sumon Khan
School Of Business
ID No.: 142 102 025
Presidency University
Dhaka, Bangladesh

3. Executive Summary
This report is based on an analysis of investment policy activity of “Al-
ArafahIslami Bank Ltd, Natun Bazar Baridhara Branch. Among all the
branches of AIBL, “Natun Bazar Baridhara Branch” is the part of the
internship program. This report covers the overall performances that are
investment policy and activities analysis of Al-arafahIslami Bank Limited.
The source data is mainly secondary, which was collected from monthly
and daily reports of AIBL, Natun Bazar Baridhara Branch. The primary data
collected from interviewing, different personnel of Al-ArafahIslami Bank
Limited.

4. Chapter-1

5. Background of the study
• As a student of Bachelor of Business Administration (BBA) everyone
has to conduct a practical orientation in any organization for
fulfilling the requirements of the 12 weeks Internship Program. The
main purpose of the program is to expose the students to the real
world situation. This report is done as a partial requirement of the
internship program for the BBA students. This report is prepared for
the internship program consisting of a major in depth study of the
total banking business of Al-ArafahIslami Bank Ltd. Practical
knowledge is fundamental for the application of theoretical
intelligence. Bearing this in mind and internship program was being
included in the BBA curriculum. The goal of this analysis is to
expose the student in the organizational work situation and also to
provide an opportunity for applying classroom learning in practice.
There are some difference between theories and practice.

6. Rationale of the Study
• All business concern earns a profit through selling either a
product or a service. A bank does not produce any tangible
product to sell but does offer a variety of financial services to
its Customers.

7. Objectives of the Study
• Primary Objective:
1. The general objective of this report is to prepare and submit a report on
"Investment Policy and activities analysis of Al- ArafahIslami Bank Ltd.”
Within the time specified.
• Secondary Objective:
1. To analyze the investment activities.
2. To analyze the problems and barriers faced by the banks in
Bangladesh.
3. To suggest a supportive role in the progress of banking system in
financial sector.
4. To recommend some policies for overcoming problems and
barriers faced by Bank.

8. Limitation of the study
• Although I have tried to find out the relationship between
theoretical knowledge and practical implication I found some
difference between I learn in the theory and what are practical. The
report was completed under certain constraints which were:
• Difficulty in gaining accesses to accounts of the bank.
• Difficulty in obtaining relevant data even with the help of the bank
employees.
• Only 45 days were not sufficient to visit all the desks of the branch.
• Unavailability of necessary documents.
• In collecting information, there is some problem because of the
excessive nature of confidentiality maintained by the officials.
• Sometimes data could not be verified. In most case, there is not any
of study was option but assume data without verification.
• I could not use the recent financial statements of 2017 because
those were Un-audited.

9. Chapter-2

10. Sources of Data
• Primary Sources of Data
1. Face-to-face conversation with the respective officers and stuffs of
the branch and head office.
2. Face-to-face conversation with clients visited the branch.
3. Practical work experience in the different desk of the department
of the branch covered.
• Secondary Sources of Data
1. Daily diary (containing my activities of practical orientation in AI-
ArafahIslami Bank Ltd.).
2. Manual of AI-Arafah Islami Bank.
3. Annual Report of AI-Arafah Islami Bank Ltd,2017
4. Website of AI-Arafah Islami Bank Ltd.
5. Unpublished data.
6. Different text books

11. Methods of Data collection
• Relevant data for this report has been collected primarily by direct
investigations of different records, papers, documents, operation
process and different personnel. Information regarding office
activities of the bank has been collected through consulting bank
records and discussion with bank personnel.
• Data sources
The information and data for this report have been collected from
both the primary and secondary sources.
• Data processing
Data collected from secondary sources have been processed
manually and qualitative approach has been used through the
study.

12. Chapter-3

13. History of the Bank
• Al-Arafah Islami Bank Limited is a Banking Company registered under the
Companies Act, 1994 with its head office at Peoples Insurance building,
36, dilkusa commercial area, Motijheel; Dhaka-1000.The Bank started
itsoperation from 27 September, 1995. With the objective of achieving
success here in this world & hereafter by pursuing the way directed by
Allah and the path shown by His Rasul (SM), AI-ArafahIslami Bank Ltd. was
established as a private limited company
AI-Arafah Bank is an interest-free shariah bank and its mode of operation 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-Muazzal and hire purchase
transaction. A shariah council of the bank keeps constant observation to
ensure that the activities of the bank are being conducted according to
the principle of Islam.

14. Vision & Mission
Vision
• To be a pioneer in Islamic Banking in Bangladesh.
• Contribute significantly towards the growth of the national economy.
• To establish an interest free transaction in the economy.
Mission
• To achieve satisfaction of Almighty Allah both in this world and even in afterlife.
• To increase the volume of Shariah Based Banking Practices.
• To satisfying diverse needs of its customers through collection of products at a competitive price by
using appropriate technology and providing timely service.
• Fast and efficient customer service.
• Maintaining high standard of business ethics.
• To maintain balanced growth.
• To maintain steady & competitive return on shareholders' equity.
• To introduce innovative banking at a competitive price.
• To capture and retain quality human resource.
• To extend competitive compensation packages to the employees.
• Firm commitment to the growth of national economy.
• To engage more in Micro and SME financing.

15. Objective
Al-Arafah Islami Bank Ltd. believes in its uncompromising commitment to fulfill its customer needs and
satisfaction and to become their first choice in banking. AIBL is devoted to run all its activities as per
Islamic Shariah. AIBL throughout its steady progress and continued success has by now, earned the
reputation of being one of the leading Private Banks of the country. The objectives of AIBL are as
under:
• All the activities of AIBL are conducted on interest-free system according to Islamic Shariah.
• Investment is made through different mode permitted under Islamic Shariah.
•
• Investment income of bank is shared with the Mudaraba depositors according to a ratio to ensure a
reasonably fair rate of return on their depositors.
• Its aims are to introduce a welfare-oriented banking system and also to establish equity and
justifies in the field of all economic activities.
• It extends co-operative to the poor, helpless, and low-income group of the people for their
economic enlistment particular in the rural areas.
• It plays a vital role in human resource development and employment-generation, particularly for
the unemployed youths.
• Its aims are to achieve balanced growth & development of the country through investment
operations, particularly in the less development areas

16. Management Structure of AIBL

17. Capital Position
Source: Annual Report, 2016 Al-Arafah Islami Bank Ltd.
Authorized capital
Paid up capital
Deposit
Investment
Total Reserve and Surplus up to
5.10.2016
Tk. 15000 Million
TK. 9943.06 Million
Tk. 199,703.91 Million
Tk. 196519.38 Million
Tk. 7,468.16 Million

18. 5 Year Financial Highlights
Particulars 2012 2013 2014 2015 2016 Growth %
Income Statement
Investment Income 14,998.60 17,966.32 19,725.91 18,568.00 18,830.15 1.41
Profit paid on
Deposit 9,710.48 12,107.71 12,616.77 11,073.01 9,957.73 (10.07)
Net Investment
Income 5,288.12 5,858.61 7,109.14 7,494.99 8,872.42 18.38
Non Investment
Income 1,693.98 1,757.09 2,485.88 2,511.94 2,791.54 11.13
Non Investment
Expenses 2,226.56 2,667.14 3,261.57 3,646.78 4,152.93 13.88
Net Non
Investment Income (532.58) (910.05) (775.69) (1,134.84) (1,361.39) 19.96
Profit Before Tax
& Provision 4,755.54 4,948.56 6,333.45 6,360.15 7,511.03 18.10
Provision For
Investment 811.44 588.15 1,846.86 1,796.68 1,547.87 (13.85)
Profit Before Tax 3,944.10 4,360.41 4,486.59 4,563.47 5,963.16 30.67
Provision For Tax
(including Deferred
Tax) 1,998.69 2,083.73 2,161.64 2,097.59 2,613.76 24.61
Profit After Tax 1,945.41 2,276.68 2,324.95 2,465.88 3,349.40 35.83
Balance Sheet

19. Information of Natun Bazar Branch
Particular Information
Date of Incorporation 15.12.2011
No. of Division at that Time Two division General Banking & Investment
Period of 1st Investment 3.06. 2012
No. of Division at Now Three Division
No. of Employee at Now 16
Total Deposit at now About 2080000000 Tk
Total Investment at Now 50 croreTk
Total Profit 55000000 Tk
Situated at 149, Natun Bazar, Dhaka.

20. Chapter-4

21. Investment Practice of AIBI
• Investment is one of the important functions
of AlBL. AlBL collect Deposits on Al-wdia and
Mudaraba principles and deploy the collected
fund using sharia-based Mechanism & Modes
of Investment.

22. Objective and principle of Investment
The principles of investment operations of the bank are:
• To invest fund strictly in accordance with the principals of Shariah.
• To ensure mutual benefit both for the bank and the investment client by
professional appraisal of investment proposals, judicious sanction of
investment close and constant supervision and monitoring thereof.
• To make investment keeping the social-economic requirement of the
country in view.
• To increase the number of potential investor by main participatory and
productive investment.
• To finance various development schemes for poverty alleviation, income
and employment generation with a view to an accelerating sustainable
social-economic growth of the society.
• To invest in the form of goods and commodities rather than giving out
cash money to the investment clients.
• To avoid even high profitable investment in field forbidden under Islamic
Shariah and are harmful for the society

23. Mechanism & Modes of Investment of AIBL
Bai - Mechanism Share Mechanism Ijara Mechanism
Murabaha Mudaraba Hire Purchase SirkatulMelk (HPSM)
Bai-Muazzal Musaraka

24. Investment under Special Schemes of AIBL
• AIBL provides some special scheme for their client. This scheme is
given bellow:
• Investment Scheme for Doctors
• House Hold Durable Scheme
• Housing Investment Scheme
• Real Estate Investment Program
• Transport Investment Scheme
• Micro Industries Investment Scheme
• Staff House Building Investment Scheme
• Staff Household Durable Scheme

25. Investment Overview of AIBL
Year 2012 2013 2014 2015 2016
Investment 106,650.42 125,715.39 146,740.37 162,503.14 196,519.38
0.00
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
140,000.00
160,000.00
180,000.00
2012 2013 2014 2015 2016
Investment Growth
Investment
Graph: 1: Investment Growth
Source: Annual Report, 2016.

26. Investment Overview of AIBL
Sectors Taka in million
Agriculture, fishing & forestry 2,298.10
Industry 97,344.00
Construction 9,052.00
Water works and stationery service 489.60
Transport 7,692.90
Storage 1,080.00
Trade Financing 53,891.30
Total 56703.80
Sector wise Investment 2016 Agriculture, fishing & forestry
Industry
Construction
Water works and stationery
service
Transport
Storage
Trade Financing
Graph: 2: Sector wise Investment.
Source: Annual report of AIBL 2015

27. Performance of investment of AIBL (Natun-Bazar
Baridhara Branch)
Year 2014 2015 2016
Deposits 166,851.17 169,887.08 199,703.91
Table: Total Deposit of Natun-Bazar Branch
150,000.00
155,000.00
160,000.00
165,000.00
170,000.00
175,000.00
180,000.00
185,000.00
190,000.00
195,000.00
200,000.00
2014 2015 2016
Total Deposit
Series 1
Graph: 3: Total Deposit
Source: Yearly statement of Natun-Bazar Branch

28. Investment Position Of Murabaha Investment
Year 2014 2015
Murabaha Investment 41,81,708.00 1,62,05,179.00
Table: Investment Position of Murabaha
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
4500000
2014 2015
Murabaha
Series 1
Graph: 4: Investment Position of Murabaha
Source: Yearly statement of Natun-Bazar Branch

29. Investment Position Of Bai-Muazzal
Year 2014 2015 2016
Bai-Muazzal Investment 436686489.69 429398001.43 369144610.88
Table: Investment Position of Bai-Muazzal
320000000
340000000
360000000
380000000
400000000
420000000
440000000
2014 2015 2016
Bai Muazzal
Series 1
Graph: 5: Investment Position of Bai-Muazzal
Source: Yearly statement of Natun-Bazar Branch

30. Investment Position of HPSM
Year 2014 2015 2016
HPSM Investment 23963730.51 25559697.28 36212850.90
Table: Investment Position of HPSM
0
5000000
10000000
15000000
20000000
25000000
30000000
35000000
40000000
2014 2015 2016
HPSM
Series 1
Graph: 6: Investment Position of HPSM
Source: Yearly statement of Natun-Bazar Branch

31. Chapter 5

32. PEST Analysis of Islami Banking System
Political Factor:
•-International trade agreements
-Governmental support
Economical:
• -Market size
-Stable economy.
Societal Factors:
• -Growing economy
-Growing demand
-Workforce
-Income level is at a
constant increase
Technological Factor:
•-Technological problems
-Increase in development costs
-Development risks
-Increasing automation
-Increasing automation in
businesses
-Government regulations
-Mobile technology

33. SWOT Analysis of AIBL
Strengths
• Usage of faster PC Bank software.
• Membership with SWIFT.
• Good banker-customer relationship.
• Online banking system.
• Islamic Shariah based banking system.
• Energetic as well as smart work force.
• Strong Financial Position.
Weakness
• Reluctance to ad campaign.
• Existing manual vouchers
• Lack of consumer credit scheme
• Manpower is not sufficient
• Marketing policy is not well setup
• Limited number of branches in its network.
Opportunity
• Huge business area
• Introducing consumer credit scheme.
• Growth of sales volume.
• Introducing branch banking through online.
• Develop relations and correspondence with foreign
banks.
• More concentrated Banking based on Islamic Shariah.
• Few competitors practicing Islamic Banking.
Threats
• Competitors have more attractive deposit schemes.
• Bangladesh Bank has no well established Islamic
Banking rules.
• Different classic services of other banks.
• Entrance of new private commercial banks.
• Govt. imposes high rate of taxes and vat.
• Political unrest and Economic recession.
• Illegal business operation by the some clients.

34. Findings
• In every year deposit amount and the investment amount increase in AIBL.
• Among the different sector AIBL invest highly in Industry and Commerce sector.
• It is seen that AIBL is provide more investment facility in urban areas than rural
areas.
• The growth rate of investment of Al-Arafah Islami Bank is increase year by year.
• The classified investment against take total investment of Al-Arafah Islami Bank.
• The Bank revalues its investment operations within limited number of investment
modes and does not initiate investment modes according to change/diverse needs
of people.
• Bank’s total investment position is decreasing gradually because of poor
performance.
• Especially SME investment is depended on Women entrepreneurs largely.
• Every mode of investment is in the deteriorating position without HPSM (General)
mode.

35. Recommendation
• AIBL should make its investment schemes more attractive for availing high
return projects.
• In agriculture sector AIBL’s investment is not satisfactory and that is 1.29%.
They should increase the level of investment in that sector.
• They should give more attention in increasing their deposits in different
accounts.
• Al-Arafah Islamic Bank should attention highly to hold their position in
Industry and commerce sector investment; moreover they should try to
improve their near future competition.
• From the geographical allocation at Dhaka and Chittagong. They should
give concentration investment at Khulna and Barisal region also.
• Classified investment is changeable from 2006 to 2016 and should give
concentration to control this.

36. Thank You