Foreign Exchange Activities of Al Arafa Islami Bank LTD

Internship Report
Foreign Exchange Activities

Of
Al-Arafah Islami Bank Ltd.
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Foreign exchange activities of AIBL

Internship Report
INTERNSHIP REPORT
Foreign Exchange Activities

Of
Al-Arafah Islami Bank Ltd.
Submitted to: Sohani Islam

Lecturer
Department of Business Administration
Stamford University Bangladesh
Submitted by: Md. Abul Hossain

ID No. # BBA 028 08105
Batch – 28th, Section-A
Stamford University Bangladesh Page14
Date of submission: November 10, 2009

Internship Report
November 10, 2009
Sohani Islam
Lecturer
Dept. of Business Administration
Subject: Submission of internship paper.
Dear Sohani Madam
I hereby submit the internship report on the topic “Foreign Exchange Activities of Al-Arafah
Islami Bank Ltd.”” intended to fulfill the partial requirement of my BBA program.
It would be difficult for me to get the work done without your proper supervision & guideline. I
tried my best to work sincerely to cover all aspects regarding the matter. Though I faced some
limitations in preparing this report, I have thoroughly enjoyed in preparing this internship report,
which has contributed significantly to my understanding on the essentials and important practical
knowledge.
I therefore hope that the report will fulfill the requisite objectives that you wanted to get done by
me.
Sincerely yours Checked & signed
…………………………… ……………………………..
Md. Abul Hossain Sohani Islam
ID No. # BBA 028 08105
Batch – 28th, Section A
Dept of Business Administration
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Student’s Declaration
I hereby declare that the report of internship namely “Foreign Exchange Activities of Al-Arafah
Islami Bank Ltd.”
By me after the completing of 3 (three) months of internship with Al-Arafah Islami Bank Ltd at
New Elephant Road Branch and a comprehensive study of the existing activities of Al-Arafah
Islami Bank Ltd and its implementation.
I also declare that this paper is my original worked and prepared for academic purpose which is a
part of BBA and the paper may not be used in actual market scenario.
Md. Abul Hossain

ID No. # BBA 028 08105
Batch – 28th, Section A
Dept of Business Administration
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Supervisor’s Declaration
I hereby declare that the concerned report entitled “Foreign Exchange Activities of Al-Arafah
Islami Bank Ltd.” is an original work by Md. Abul Hossain, bearing ID No: BBA 028 08105
Major in Finance, Department of Business Administration, Stamford University Bangladesh,
completed his internship under my supervision and submitted for the partial fulfillment of the
requirement of the degree of Bachelor of Business Administration (BBA) at Stamford University
Bangladesh.
Sohani Islam
Lecturer
Stamford University, Bangladesh

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To Whom It May Concern
This is to certify that, Md. Abul Hossain a student of BBA program, bearing ID No: BBA02808105,
Major in Finance, Department of Business Administration, and Stamford University Bangladesh has
completed the internship report titled “Foreign Exchange Activities of Al-Arafah Islami Bank Ltd.”
successfully under my supervision.
I wish him every success in his life.
Supervisor
Sohani Islam
Lecturer,

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CONTENTS
Acknowledgement 10
Executive summary 11
CHAPTER ONE: INTRODUCTION 14
1.1 Introduction 15
1.2 Origin of the report 15
1.3 Rationale of the Study 16
1.4 Acronyms & abbreviations 17
1.5 Methodologies 18
1.6 Source of Data 18
1.7 Objective of the study 19
1.8 Limitations of the study 19
CHAPTER TWO: BACKGROUND OF AIBL 20

2.1 Vision of AIBL 21
2.2 Mission of AIBL 21
2.3 Marketing Strategies History of AIBL 21
2.4 History of AIBL 22
2.5Special features of AIBL 23
2.6 Management of AIBL 23
2.6.1 Hierarchy of the executive body 24
2.7 Corporate culture & CSR 25
2.8 Workforce of New Elephant Road branch 25
2.9 Information technology of AIBL 25
2.10 Classification of bank’s products 26
2.11 Services provided by AIBL 28
2.12 Growth of AIBL 31
CHAPTER THREE: INDUSTRY OVERVIEW 36

3.1 Global economy 37
3.1.1 Global competitors 37
3.1.2 Socio-economic Phenomena 37
3.2Bangladesh economy 38
3.2.1 Banking sector 39
3.2.2 Import situation 39
3.2.3 Export situation 40
3.2.4 Export policy 41
CHAPTER FOUR: FOREIGN EXCHANGE DIVISION OF AIBL 43

4.1 Foreign exchange operations 44
4.2 Import 44
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4.2.1 Import registration certificate (IRC) 45

4.2.2 Functions of Import section 45

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4.2.3 Letter of credit (L/C) 46

4.2.3.1 Parties to the L/C 46
4.2.3.2 Mechanism of L/C operation 47
4.2.3.3 Amendment of L/C 48
4.2.4 Payment procedure of import documents 52
4.3 Export 53
4.3.1 Export operation 54
4.3.2 Back-to-back L/C 55
4.3.3 Negotiation of export documents 56
4.4 Foreign remittance 57
4.4.1 Remittance procedures of foreign currency 62
4.5 Miscellaneous services by the department 64
4.6 Risk in foreign exchange business 65
CHAPTER FIVE: FOREIGN EXCHANGE PERFORMANCE ANALYSIS 66

5.1 Historical performance OF AIBL 67
5.2 Foreign exchange performance over time 69
5.2.1 Assumptions to the analysis 69
5.2.2 List of banks selected for comparison 70
5.2.3 Growth statistics in Foreign exchange business 70
5.2.4 Aggregate performance of the selected banks 71
5.2.5 Sector wise comparison 75
5.2.6 Regression analysis 78
5.2.7 Stability of Export and Import Business of AIBL 80
5.3 Future prospects of the bank 81
5.4 Problems in the business sector 82
5.5 Critics of Islamic Banking 83
5.6 Subjective judgments 85
5.7 Performance in other sectors 86
CHAPTER SIX: PERFORMANCE OF AIBL 87

6.1 Financial Highlights 88
6.2 Growth of AIBL 92
6.3 Performance of the branch 93
6.4 Analysis of Data 96
6.5 SWOT Analysis 103
6.6 Findings and analysis 106
CHAPTER SEVEN: RECOMMENDATIONS & CONCLUSIONS 108
7.1 Proposal 109

7.2 Conclusions 112
BIBLIOGRAPHY & APPENDIX 113
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Acknowledgement
At the very beginning, I would like to thank my honorable teacher & supervisor of my
internship program Sohani Islam.
I am very much pleased to offer my thanks and gratitude to the HRD of Al-Arafah Islami
Bank Ltd for giving me the opportunity to work with the bank in its New Elephant Road
Branch. I would also like to give thanks to Md. Atiqur Rahman-Assistant (Vice president) &
Manager, Md. Yabidul Haque (Principal Officer), Md. Golam Quddus (Principal Officer) &
Investment In charge, Md. Shariful Alam (Senior Officer), Md. Qamrul Huda (Senior Officer),
Md. Abul Kalam Azad, Md. Mamunur Rahman, Sharif Hasan, Md A K Al-Mamun, Md.
Munaem Haque and Md. Hanif Mollah of New Elephant Road Branch to help me throughout
my internship program.
I also give a special thanks to all the personnel of New Elephant Road Branch of Al-Arafah
Islami Bank Ltd for helping me to collect data.
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Executive summary
This internship report is a partial requirement for the Bachelor of Business Administration
program. The report is based on 65 days (2 nd June to 2nd August 2009) working experience on Al-
Arafah Islami Bank Limited (AIBL). I was assigned in the New Elephant Road Branch, Dhaka of AIBL.
This report gives a clear idea of the activities, operation strategies and the performance of AIBL’s
foreign exchange activities
There are several variable taken for analysis of the report which are number of letter of credit
opening, irrevocable letter of credit, commission on foreign exchange, volume of import, back-to-
back L/C, foreign documentary bills for purchase, export finance, volume of export, foreign currency
deposit etc, exchange gain, foreign remittance.
The data has been collected from primary & secondary sources. Primary sources are group
discussion, practical work experience, case study & interview. Secondary Sources are DSE library,
several books and periodicals related to the banking sector, Bangladesh Bank’s report, Different
circular sent by the head office of AIBL, Annual Report’s of AIBL and other private banks.
The analysis of AIBL’s performance in foreign exchange transactions has been conducted based on
the trend analysis, factor analysis & Comparative Analysis in which recent performance in
foreign exchange transactions of AIBL with other selected banks.
The report consists of six parts. The first part describes the introductory matters of a formal report
which includes acronyms & abbreviations, rationale of the study, limitations etc.
The second part gives a concise description of the organization. These include origin & evaluation of
AIBL, Islami banking system, concepts & principles etc. To their point of view – “Islam provides us a
complete lifestyle. Main objective of Islamic lifestyle is to be successful both in our mortal and
immortal life. Therefore in every aspect of our life we should follow the doctrine of Al-Quran and
lifestyle of Hazrat Muhammad (sm.) for our supreme success.” Al-Arafah Islami Bank (AIBL) started
its journey in 1995 with the said principles in mind and to introduce a modern banking system
based on Al-Qur’an and Sunnah.
A group of noted Islamic scholar, economist, writer and ex-bureaucrat of Bangladesh Govt. Mr. A. Z.
M. Shamsul Alam is the founder chairman of the Bank. His progressive leadership and continuous
inspiration provided a boost for the bank in getting a foothold in the financial market of
Bangladesh .A group of 26 dedicated and noted Islamic Personalities of Bangladesh are the member
of executive council of the Bank. Al-Arafah Islami Bank Ltd. (AIBL) has 46 Branches and 1033
employees (as on December 2007). Its authorized capital is 2500 million Tk and paid up capital is
taka 1153 million Tk.
The third part gives a brief description of macroeconomic environment including the financial
sector of Bangladesh & foreign exchange activities by the country.
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The economy of Bangladesh has once again faced a great challenge mainly for the devastating
natural and other catastrophes combined with political uncertainties, abolition of quota regime of

Internship Report
readymade garments industries, abnormal price-hike of imported commodities including oil posed
great challenges for the economies.
Some brief foreign exchange information of the country is- Exports (2006-07): US$ 12177.86 mn,
Imports (2006-07): US$ 17156.80 mn, Trade Deficit: US$ 4978.90 mn, Foreign Exchange
Reserve: US$ 5514.60 mn, Remittances: US$ 3447.32 mn.
The fourth part of the report analyzes the theoretical aspects of foreign exchange transactions of
AIBL. There are three kinds of foreign exchange transactions- Export, Import & Remittance. Foreign
exchange business starts with a Letter of Credit (L/C). The part also describes various terms used in
foreign exchange business like back-to-back L/C, FOB, understanding, shipment, LIM, LTR etc.
According to import and export control act, 1950, the officer of the chief controller of import and
export provides the registration (IRC) to the importer. After obtaining this, this person has to secure
a letter of credit authorization (LCA) from Bangladesh Bank and then a person becomes a qualified
importer. He is the person who requests or instructs the opening bank to open an L/C. he is also
called opener or applicant of the credit.
AIBL is an authorized dealer (AD) to operate foreign exchange transaction. With the legal
formalities the bank serves the customers with export, import & remittance services. In the process
of providing remittance service it sells and buys foreign currency, the conversation of one currency
into another takes place at an agreed rate of exchange , which than Banker quote one for buying and
another for selling. There are various types of Income of the Bank in Foreign Exchange Sector.
The main concentration of the report is in fifth part. In this part the performance of the bank has
been assessed in the foreign exchange business. The analysis was done with some stated principles
which are some specific assumptions. The assumptions were –
 The reported financial data are free from error & bias because there were no scopes of the
study is to verify the data
 Analysis & findings are valid up to June 2007 because the other data are not available
 The data shown of 2008 are estimated figures
 I have selected banks with the following classification criterion
o Local commercial banks (PCB)
o Foreign banks (FB)
o Govt.’s specialized banks
 The banks selected are assumed to be the representatives of banking sector of our country
Selected banks are - Dhaka Bank Ltd., National Bank Ltd., AB Bank Ltd., Standard Chartered Bank,
HSBC, Citi Bank N. A., Sonali Bank Ltd. & Basic Bank Ltd.
The growth statistics shows that the economic downturn in 2005 & 2008 influenced the whole
banking industry.
In the comparative analysis it was revealed that –

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 Al-Arafah Islami Bank is lagging behind compared to the other banks in foreign exchange
business. But the bank has a consistent performance with the trend of industry’s
performance
 The remittance business for Al-Arafah Islami Bank is significantly lower than the other local
competitors.
 This can be a cause of customer focus /market segment of the bank
 The bank has a huge amount of loan incentives for export & import business compared to
other performances in foreign exchange activities
 The bank provides comparatively higher loan facilities in export & import business
However, a brief performance overview on deposit & investment division of the bank revealed that
the bank is heavily concentrating on deposit schemes. With the advantage of religious belief hence
Islamic Banking concept, the bank is getting an edge with deposit schemes which is a strong success
factor of the bank.
The working environment of AIBL is very conductive and friendly. Although they don’t maintain
strict hierarchical protocol among the staffs the environment is much more relaxed & easy. The
staffs are specialized in their respective fields. Each of them works on their own and there is close
supervision from the top. The motivation of the employees comes from the very sense of
responsibility. The sixth part ends up the report with major findings & complementary remarks.
The human resources division is lacking of ensuring modern independent work environment as
women are especially discouraged to join the bank’s workforce. However, to their view, they don’t
like to see women as working outside the home as Islami Shariah doesn’t.
With all analysis & judgments, I have tried to evaluate the performance of AIBL in foreign exchange
activities. I express my heartiest gratitude to all the parties related to make the work done.
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Chapter One
Introduction
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1.1 Introduction
Banking system occupies an important place in a nation's economy. A banking institution is

indispensable in a modern society. Financial institutions are very much essential for the overall
development of a country. Especially banks play an important role in the field of promotion of
capital, encouragement of entrepreneurship, generation of employment opportunities etc. Market
economy or free economy is widely used-concept about the present economy of Bangladesh. The
country adopted the concept in the late seventies with the privatization of significant number of
enterprises. The practices of free market economy started from the eighties with the changing of
the world economy. A number of initiatives were taken from the nineties to increase the
competition and efficiency in money market, relaxation of unwanted rules and regulations,
improvement of loan related law and other situations and improve the financial base of the banks
of the country. In recent times the banking sector over the world has been undergoing a lot of
changes due to deregulation, technological innovation, globalization etc. Banking sector in
Bangladesh is lagging behind in adopting these changes.
1.2 Origin of the report
The internship program is required course for the students who are completing BBA from the
Department of Business Administration in the faculty of business studies of Stamford University
Bangladesh. It is a 3 credit hour program with duration of two months. Students who have
completed all the required courses are eligible for this program. In the internship program I was
attached to the Al-Arafah Islami Bank Limited for one and half months. During this period I
have learned how the organization works and how it manages its credit.
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1.3 Rationale of the Study
This report is on the basis of the course requirement of BBA Program in the Department of
Business Administration of Stamford University Bangladesh. Theoretical knowledge will be little
important unless it is applicable in practical aspects. As some practical experience is required
after the completion of BBA program from as part of course requirement, I was assigned to the
Al-Arafah Islami Bank Ltd-New Elephant Road Branch for 65 working days from 2nd June
2009 to 2nd August 2009.
The report is prepared on the basis of 60 days practical experience at Al-Arafah Islami Bank
Ltd (AIBL) that helped a lot to learn about the practical situation of a financial institution and
implement theoretical knowledge in corporate work environment.
For a country like Bangladesh the foreign exchange activities are major indicators of national
economy. To observe & realize the movement of foreign exchange I choose the bank’s foreign
exchange department for my internship paper with my supervisor’s consent. I tried here to
analyze elaborately the facts related to foreign exchange activities.
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1.4 Acronyms & abbreviations

 AIBL Al-Arafah Islami Bank Ltd
 AD Authorized Dealer
 BB Bangladesh Ban
 BC Bangladeshi Currency
 BE Bills of Exchange
 B/L Bill of lading
 BTB Back-to-Back
 CC (H) Cash Credit (Hypo).
 CC (P) Cash Credit (Pledge).
 CCI&E Chief Controller of Import and Export
 CD Current Deposit.
 DD Demand Draft
 ERC Export Registration Certificate
 FBBC Foreign Documentary Bills For Collection
 FBBP Foreign Documentary Bills For Purchased
 FC Foreign Currency
 FOB Free On Board
 GDP Gross Domestic Product
 HR Human Recourse
 IBC Inward Bills for Collection.
 IBCA Inter Bank Credit Advice
 IBDA Inter Bank Debit Advice
 ID International Department
 IRC Import registration Certificate
 L/C Letter of Credit
 LCA Letter of Credit Authorization
 LIM Loan against Imported Merchandise
 LTR Loan against Trust Receipts
 MT Mail Transfer.
 NOC No Objection Certificate
 OBC Outward Bills for Collection
 PAD Payment against Documents
 PC Packing Credit
 PI Performa Invoice
 PO Pay-Order.
 PTR Payment against Trust Receipt
 SB Savings Bank.
 SOD Secured Overdraft.
 STD Short Term Deposit.
 TC Traveler’s Cheque
 TIN Tax Identification Number
 T.T Telegraphic Transfer
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1.5 Methodologies

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To meet the objectives of the study I’ve applied various qualitative & quantitative
techniques like statistical tools & software and other relevant methods. Formal and oral
discussion, direct observation, questioning clients and printed papers of the bank were
found useful.
1.6 Source of Data

This study is mainly based on secondary data available from the various relevant journals, annual
reports of Al-Arafah Islami Bank Ltd, DSE library and publications of other relevant institutions.
However the bank was a tough source of data as they lack of a useful website & some excuse of
confidentiality.
Primary sources of data:
 Face to face conversation with the bank officers & staffs.

 Conversation with the clients.
 Different' manuals of AIBL
Secondary sources of data:
 Procedure manual published by the Al-Arafah Islami Bank Ltd.

 Files and documents of the branch.
 Annual reports of Al-Arafah Islami Bank Limited
 Different papers of Al-Arafah Islami Bank.
 DSE library
 Bangladesh Bank Journals
1.7 Objective of the Study

General Objective:
 To get practical exposure to corporate culture
 To understand the system and methodology adopted in conducting day to day banking
by AIBL
 To get an overall idea of banking from banker’s point of view.
Specific Objective:
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 To observe the foreign exchange operation of AIBL and their services review the
techniques used by the bank to make it lucrative.
 An analysis and discussion of foreign exchange services of the bank.
 To evaluate of the present performance of the bank regarding foreign exchange.
 To search the problems of this branch of AIBL
 Determining the drawbacks of the existing foreign exchange system.
 Recommending some guidelines to improve the effectiveness of foreign exchange
services.
1.8 Limitation of the Study

The study was thorough & systematic but there were some problems which can be the limiting
factors of the significance of the study:
 The financial statements were up to 2007, recent data were not published yet.
Macroeconomic data are also unavailable after 2007.
 Within such a short period of time, it was not possible for me to study everything
about Al-Arafah Islami Bank, New Elephant Road Branch.
 The officers are so much busy that they cannot properly co-operate with me,
which is a problem.
 Bank’s policy of not disclosing some data and information for obvious reason,
which could be very much useful.
 Sometimes the officials were reluctant to give proper information regarding their
activities because they felt hesitation and ambiguity to give data and information.
 Lack of personal knowledge and experience.
 Lack of a useful website of the bank
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Chapter Two
Background of AIBL
2.1 Vision of AIBL:
To be a pioneer in Islamic Banking in Bangladesh and contribute significantly to the growth of

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2.2 Mission of AIBL:
 Achieving the satisfaction of Almighty Allah both here and hereafter.

 Proliferation of Shariah Based Banking practices.
 Quality financial services adopting the latest technology.
 Fast and efficient customer service.
 Maintaining high standard of business ethics.
 Balanced growth.
 Steady and competitive return on shareholders’ equity.
 Innovative banking at a competitive price.
 Attract and retain quality human resources.
 Extending competitive compensation packages to the employees.
 Firm commitment to the growth of national economy.
 Involving more in Micro and SME financing.
2.3 To attain the above vision and mission AIBL follow the following
Marketing Strategies:
 The main strategy of the bank is using Islami Banking System to attract its market.
 Providing efficient customer service
 Maintaining corporate and business ethics
 Being trusted repository of customers’ and their financial advices

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 Making its products superior and rewarding to the customers

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 Display team spirit and professionalism
 Sound capital base
 Enhancement of shareholders wealth
 Fulfilling its social commitments by expanding its charitable and humanitarian activities
 Providing high quality financial services in export and import trade.
 Building tight personal relationship with customers and clients
 Taking less promotional activities and emphasizing on relationship marketing.
2.4 History of Al-Arafah Islami Bank (AIBL)

Islamic ideology encourages us to succeed in life here& hereafter. To achieve this success we
must follow the way dictated by the HOLY QURAN and the path shown by Rasul (SM). With
this goal in view AL Arafah Islami Bank Ltd was established (registered) as a public limited
company on 18 June 1995. The inaugural ceremony took place on 27 September 1995. The
authorized capital of the Bank is TK.2500.00 million and the paid up capital TK.1153 million.
Some very renowned Islamic personalities and pious businessmen of the country are the
sponsors of the bank. The total paid up capital was invested locally.
The Bank is committed to contribute significantly in the national economy. It has made a positive
contribution towards the towards the socio economic development of the country by opening 46
branches on which 16 authorized dealer (AD) throughout the country.
The equity of the bank stood at TK.2037 million Crore as on 31 December 2008, the manpower
are 1033 and number of shareholders are 12013.
The Bank conducts its business on the principles of Musaraka, Bai-muazzal, and hire purchase
transactions approved by Bangladesh Bank. Naturally, its modes and operations are substantially
different from those of other conventional commercial Bank. There is a Shariah council in the
Banks who maintains constant vigilance to ensure that the activities of the bank are being
conducted on the precepts of Islam. The Shariah council consists of prominent Ulema, reputed,
Bankers, renowned lawyers and eminent Economist.
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2.5 Special Features of AIBL

All activities of the bank are conducted according to Islamic Shariah where profit
is the legal alternative to interest.
The banks investment policy follows different modes approved by Islamic
Shariah based on Quran & Sunnah.
The bank is committed towards establishing welfare oriented banking system,

economic upliftment of the low-income group of people, create employment
opportunities.
According to the needs and demands of the society and the country as a whole the
bank invests money to different Halal business. The bank participates in different
activities aiming at creating jobs, implementing development projects taken by the
government and developing infrastructure.
The bank is committed to establish an economic system through social justice

and equal distribution of wealth. It is committed to bring about changes in the
underdeveloped rural areas for ensuring balanced socioeconomic development of
the country through micro credit program.
According to Mudaraba system, the depositors are the partners of the investment
income of the bank. During the period under review, 70% of the investment income
has been distributed among the Mudaraba depositors.
To render improved services to the clients imbued with Islamic spirit of

brotherhood, peace and fraternity and by developing an institutional cohesion.
The bank is contributing to economic and philanthropic activities side by side.

AIBL English Medium Madrasah and AIBL library are among mention worthy.
2.6 Management Al-Arafah Islami Bank Ltd.

There are numerous boards & committees to handle the banks management decisions & tasks
(detailed list is given in appendix). The management includes the following:
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1. Operating body

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2. Executive committee
3. Audit committee
4. Shariah council
Hierarchy of the Executive Body of AIBL:
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Branch Location all over Bangladesh:

Currently the bank is operating with 46 branches scattered over the country. The detailed branch
name & geographical locations are provided by graph:
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2.7 Corporate Culture & CSR

The bank has a friendly work environment which is not usual in other commercial banks.
However the efficiency of the employees & a strict corporate protocol is not present in the bank.
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The people in the Bank see themselves as a tight knit team/family that believes in working

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together for growth. The corporate culture has developed has not been imposed; it has rather
been achieved through their Corporate conduct.
Shariah Board:
Shariah Council of AIBL consists of 5 members specialized in Fiqhul Muamalat (Islamic
Commercial Law) according to guidelines given by the Bangladesh Bank to ensure whether all
banking operations are transacted in accordance with Islami Shariah i.e. Qur’an, Sunnah, Ijma,
and Iztihad.
In the year 2007 the Shariah Council has complied various decisions taken by the council on
different matters at different times under the caption “Islami Banking Shariah Nitimala (1995-
2006) and prepared a Shariah Manual and published which is first of its kind in Bangladesh.
Shariah Council advices everybody concerned to comply with Shariah requirements and render
all out efforts to increase the standard of service rendered to the clients.
Welfare Projects of AIBL:

Al-Arafah Islami Bank also runs some welfare project which they term as their corporate social
responsibility (CSR). Here are brief descriptions of the projects:
Staff Welfare Project:

The Bank always kept a careful eye on the economic security and benefit of its staffs & officers.
The Bank operates a contributory provident fund, a social security & benevolent fund and a
gratuity fund for its employees. In the year 2007 Tk. 7.5 lac was paid to wife of late Mr. Shahidul
Islam, AVP & former branch manager of Joydevpur Branch from bank's social security &
benevolent fund. Till now a total of Tk. 30 lac has been paid from the fund to the families of late
officers & staffs of the bank.
Al-Arafah Islami Bank Foundation:

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The Bank has a Foundation launching philanthropic activities Al-Arafah English Medium
Madrasah and Al-Arafah Islami Bank Library are major two wings for launching philanthropic
activities.
Al-Arafah English Medium Madrasah:
Al-Arafah English Medium Madrasah has been established by the Al-Arafah Bank Foundation
with a view to building next generation according to the ideals of peace and equality of Islam
and to establishing banking and other aspects of life in the way of Islam. The prime aim of this
madrasah is to contribute towards building human resource and in the broader sense to ensure
human welfare. With this in view Al-Arafah Islami Bank Foundation has established an English
Medium Madrasah at Dhanmondi in 1999. Such institution up to O level of its kind is for the
first time in Bangladesh.
Al-Arafah Islami Bank Library:
Library is the carrier and reservoir of knowledge. Al-Arafah Islami Bank has shown that other
than generating profit, it can also contribute significantly in the field of providing good source of
knowledge by establishing a public library at 32, Topkhana Road, Chittagong Bhaban (1st floor),
Dhaka, thus strengthening social development. It is placed in a sound, healthy surroundings. It
harbours 23,000 books of reference for the researchers, students, professionals, bankers,
physicians, engineers, politicians, writers or journalists, even for the kids. It is open to all from
the year 2000 and well located & accessible to everybody. It procured some exceptional
collection of books on Religion, Economics, Banking, Computer Science, Business
Administration, Sociology, English & Arabic language and juvenile literature in Bangla, English,
Urdu & Arabic which are very rare.
Education is the harmonious development of body, mind & soul. If religion is not attached to it
the real attitude towards life and values will fail to develop. It is mandatory to learn Elm-e-Din to
govern our life in the right way of Islam. To fulfill this noble intention Al-Arafah Islami Bank
Library started Dars-ul-Quran (Teachings of Quran) program. This program will cover
translation with detail explanation of Quran starting from Sura Fatiha upto Sura Nas gradually.
Dars-ul-Quran program takes place every Monday after Magrib prayer.
Other than this Al-Arafah Islami Bank Library arranges shows of feature films or Documentary
films on Islamic life & Culture.
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2.8 Workforce of AIBL’s New Elephant Road Branch

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2.9 Information Technology of AIBL

AIBL started providing on-line general banking services to the clients from 23 May 2008
through a network of all branches in the country using satellite based Communication links. This
bank is a member of the Society for Worldwide Interbank Financial Telecommunications
(SWIFT).All of the Authorized Dealer Branches has SWIFT connectivity. The bank will
introduce a few more products for the client, such as, SMS banking, Tele-banking, Internet
Banking etc in near future. To present the overall picture of the bank to the Depositors,
Shareholders, and Investment Clients and Well wishers in home and abroad transparently bank
has designed a web site as www.al-arafahbank.com.
The bank present uses “ABABIL” as banking solution software. However the software is not so
much sophisticated. Very often the software related problems hamper the operations.
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2.10 Classification of Bank’s Products:

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Products
Deposits Advances International Consultancy Miscellaneous

banking
Term
deposits L/C, Foreign Tax, consultancy, Self-custody,
currency Merchant banking Sale of drafts,
project, Standing
Counseling, instruction,
Investment Trusteeship.etc.
counseling
Fund oriented Non-fund oriented
Terms
Guarantees,
loans, Clean
Letter
loans,
ofBills
credit.
discounting, Pre
shipment, Post
shipment, Lines of
credit- Secured,
unsecured,
Overdraft.
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2.11 Services provided by AIBL:

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The importance of mobilizations of savings for the economic development of our country can
hardly be over emphasized. We considered savings and deposits as lifeblood of the bank. More
the deposit, greater is the strength of the bank. The bank intends to launch various new savings
scheme with prospect of higher return duly supported by a well-orchestrated system of customer
services. The bank would cater to the credit needs of individuals as well as corporate clients.
Initial it will emphasize on trade finance, which would be short term and self-liquidating in
nature. Considering the importance of foreign trade in our national life, financing and handling
of export & import business and also handling of foreign remittance business would be given top
most priority. Moreover the bank operates all of its activities under the rules and regulations of
Islamic Shariah. The services provided by the Al-Arafah Islami Bank Ltd. are given bellow: -
Bank services
General banking Credit/advance Foreign exchange
SOD General loan, Export

Different
accounts open, House building
Import
issues of DD. TT. loan, Lease
PO, Clearing, finance, Hire Remittance
purchase, CC
FD, Different hypo, Staff loan,
Scheme etc. CCS etc.
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2.12 Growth of AIBL

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Figure in Million Tk.
Sl. No. Particulars 2004 2005 2006 2007
01. Authorized Capital 1000.00 1000.00 2500.00 2500.00
02. Paid-up Capital 586.96 677.94 854.20 1153.18
03. Reserve Fund 488.96 542.22 835.98 1091.95
04. Deposits 10108.28 11643.66 16775.33 23009.13
05. Investment 8150.16 11474.41 17423.19 22906.37
06 Import 9337.49 12631.60 18821.40 27042.72
07 Export 3639.34 4932.90 9142.70 12714.91
08. Profit before Tax and Provision 348.89 548.20 969.77 756.18
09. Profit after Tax and Provision 154.76 262.90 470.02 347.31
10. Total Assets 12874.61 15336.89 21368.16 30182.32
10. Earnings per Share 26.36 38.78 55.02 30.12
11. Dividend Bonus Bonus Bonus Bonus

15.50% 26% 35% 20%
12. Number of Employees 803 771 912 1033
13. Number of Branches 40 41 46 46
2.12.1 Deposit
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The total deposit of AIBL is increasing sharply. The total deposit of bank was Tk. 23009.13
million at 31st December 2007 as against Tk. 16775.33 million at 31st December 2006 recording
growth of 37.16% of which Tk. 685.50 million was bank deposit and general deposit was
22323.63 million Tk. The graph shows that the deposit collection rate is dramatically increasing
year to year:
2.12.2 Investment
The investment of the Bank stood at Tk. 22906.37 Million as on 31 st December 2007 as against
Tk. 17423.19 Million in the previous year showing an increase by 31.47%. The growth of
Investment from 2004 to 2007 shown graphically, graph shows that every year the bank earns a
huge amount of income from Investment account.
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2.12.3 Operating Profit

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The Bank earned operating profit of Tk. 756.18 million during this year 2007 before the pre-tax
profit of the bank during the year 2006 was Tk. 969.77 million and thus the bank attained
negative growth of 22.02% in respect of operating profit. The growth of operating profit for the
year 2004 to 2007 graphically given below. Political unrest, economic recession and many other
factors badly affected they total banking sector, so that it earn lower profit than the previous year.
2.12.4 Dividend
The Bank has been paying Dividend every year since 1998 just after conversion of a public
limited company. The Board of Directors of the Bank recommend 20% stock dividend in the
year 2007, which is lower than the previous year because of lower operating profit. Dividend for
different years shown below graphically:
2.12.5 Export
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The total export earnings in 2004 were Tk.3639.34 Million and in 2007 it was Tk.12714.91
Million. So it is seen that the export earnings was 3.49 times in 2007 than 2004. It is also
depicted from the figure.
2.12.6 Import
The total Import earning in 2004 was Tk.9337.49 Million and in 2007 it was Tk.27042.72
Million. So it is seen that the Import earnings was 2.9 times in 2007 than 2004. It is also depicted
from the figure
:
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2.12.7 Human Resources

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The total number of human resources in 2004 was 771 and in 2007 it was 1033.So number of
employees in AIBL has increased by 262 employees from the year 2004 to 2007, which is shown
below graphically:
2.12.8 Branches
The total number of Branches in 2004 was 40 and in 2007 it was 46.So number of Branches in
AIBL has increased by 6 Branches from the year 2004 to 2007, but in 2007 there were no
addition of Branches, this is shown below graphically:
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Chapter Three
Industry Overview
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3.1 Global Economy

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Every firms operation is connected with the world, as a bank it more affected by global economy.
 Financial performance, quality, price etc. of Global Competitors
 Socio-economic Phenomena
 Foreign Exchange Rate.
3.1.1 Global Competitors

As the banking sector of our country involves global partner, our domestic banking sector have
to compete with the international competitors .So, it should provide services matching with the
improved international quality. If they are able to do so, they are able to gain higher earnings.
Financial performances of some other global banks, operated in Bangladesh, are quite better than
the two banks, which is a potential threat for this company.
3.1.2 Socio-economic Phenomena

Two important socio-economic variables are Political Condition and Taste pattern. The world is
now in an instable economic condition. And the main reason behind it is the terrorism, which is
the product of political condition. The economy of a county is biased by its political condition.
As maximum countries are in economic instable condition the whole world is economically
instable. As the environment, technology and income level is changing now day by day, the taste
pattern of the world customer is also changing rapidly. To keep pace with this rapid change our
concerned banks are also try to do something which may help them to survive in the present
changing world strongly.
Foreign Exchange Rate:
Though there is no huge change in the world economy, the economies of various countries are
fluctuating rapidly. And this fluctuation effects to the exchange rate of that country’s currency
with dollar. Some of them are rising against dollar rapidly and some are falling. Foreign
exchange rate of dollar in Bangladesh is comparatively very high. ($1 = TK. 69.45). As banking
sector is the main financial sector foreign exchange changes affects deeply to it.
3.2 Bangladesh Economy

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The economy of Bangladesh has once again faced a great challenge mainly for the devastating
natural and other catastrophes combined with political uncertainties, abolition of quota regime of
readymade garments industries, abnormal price-hike of imported commodities including oil
posed great challenges for the economies. Side by side, the inflationary trend across the global
economy together with the apprehension of sluggish growth further deepened the challenge.
Basic Information:
Currency : Taka (Tk.)

GDP at Current Price : Tk. 4674.97 billion (US$ 68.05 billion)
Annual per capital GDP : US$ 482
GDP growth rate at (1995/96) constant price : 6.51 percent
Agricultural growth rate at constant price : 2.95 percent
Industrial/Mfg growth rate (% of GDP) : 11.19 percent
Large & Medium scale Industry : 11.56 percent
Small scale Industry : 10.28 percent
Service sector growth:
rate of GDP at current price : 12.45 percent

Inflation rate (12 month average) : 8.65 percent
Domestic savings rate of GDP: 20.46 percent
National savings rate of GDP: 29.15 percent
Investment rate of GDP: 24.33 percent
Exports (2006-07): US$ 12177.86 mn
Imports (2006-07): US$ 17156.80 mn
Trade Deficit : US$ 4978.90 mn
Foreign Exchange Reserve : US$ 5514.60 mn
Remittances : US$ 3447.32 mn
Foreign Investment:
Direct: US$ 263mn

Portfolio: US$ 48 mn
Bank rate: 5.0 per cent
Broad Money (M2): 222042.60 crores
Total No. of Limited Co.

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Public Limited Co: 35,000

Private Limited Co.: 23,000

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Principle Industries :
Garments, Pharmaceuticals, Textiles, Paper, Manufacturing, Newsprint, Fertilizer,
Leather and Leather goods, Sugar, Cement, Fish processing, Steel & Chemical
industries etc.
Major export items:

Garments, Tea, Jute, Frozen shrimps, Leather products, Newsprint, paper,
Naphtha, Urea, etc.
Principle imports:
Fuel, Rice, Wheat, Cotton & Textile, Petroleum products, Fertilizer, Staple fibers,
yarn etc.
3.2.1 Banking Sector

The commercial banking system dominates Bangladesh's financial sector with limited role of
Non-Bank Financial Institutions and the capital market. The Banking sector alone accounts for a
substantial share of assets of the financial system. The banking system is dominated by the 4
Nationalized Commercial Banks, which together controlled more than 54% of deposits and
operated 3388 branches (54% of the total) as of December 31, 2004. Out of the 5 specialized
banks, two (Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank) were created to meet
the credit needs of the agricultural sector while the other two (Bangladesh Shilpa Bank (BSB) &
Bangladesh Shilpa Rin Sangtha (BSRS) ) are for extending term loans to the industrial sector.
Twenty-eight financial institutions are now operating in Bangladesh. Of these institutions, 1(one)
is govt. owned, 15 (fifteen) are local (private) and the other 12(twelve) are established under
joint venture with foreign participation.
3.2.2 Import Situation of Bangladesh over the year
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3.2.3 Export Performance of Bangladesh over the year

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Year Total Export Growth
1997-1998 18813.04 0.00%
1998-1999 23416.38 24.47%
1999-2000 25491.10 8.86%
2000-2001 28818.52 13.05%
2001-2002 34858.74 20.96%
2002-2003 34366.14 -1.41%
2003-2004 37915.45 10.33%
2004-2005 44827.22 18.23%
2005-2006 53233.97 18.75%
2006-2007 70746.35 32.90%
3.2.4 Export Policy of Bangladesh

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Export Policy Objectives:

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The principal objectives of the export policy are as follows –
 To achieve optimum national growth through increase of exports to

regional and international markets.
 To narrow down the gap between the country’s export earning and import
payment through achievement of the export targets.
 To undertake timely steps for production of exportable goods at a

competitive price with a view to expand the existing market,
 To take the highest advantage of entering into the post Uruguay liberalized
and globalizes international market.
 To make our exportable items more attractive to the market through

product diversification and quality improvement.
 To establish backward linkage industries.
 To simplify export procedures.
 To develop an export infrastructure.
 To develop trained human resources in the export sector.
Export Policy Strategies:
 Provide assistance through developing necessary numbers of product

development councils for increased product of export items;
 Provide market intelligence to producers and exporters on product demands and
prices in markets abroad;
 Offer increased institutional facilities through trading and export houses to
encourage export;
 Offer assistance in establishing seal of quality organization or similar
organizations to ensure quality of export items in required cases;
 Offer assistance in establishing “Bangladesh International Arbitration Centre” or
similar organizations for prompt settlement and disposal of Trade disputes;
 Offer assistance to producers for development of product designs and use of
modern technology;
 Offer assistance to enable exporters getting acquainted with the strategies and
methods of countries which attained remarkable success in export trading and
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highlight the exporters; and

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 Organize single country export fair for Bangladeshi products abroad and offer
assistance to exporters in participating trade fairs in different countries.
Export Incentives:
 Income tax exemption for export earning: Under the income tax law other than
the owners of factories not registered in Bangladeshi, all exporters will get 50%
exemptions in their income taxes.
 Exemption in insurance premium
 Bond facilities for export oriented industries
 Facilities for duty free import of capital machineries for export - oriented
industries
 The export-oriented industries will get the advantage of importing 10 percent

spare parts of their capital machineries without duty in every two years.
 Providing alternative facilities to export-oriented local textiles and RMG other

than duty-bond or duty-draw-back
 Tax holiday & Duty-draw-back scheme.
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Chapter Four
Foreign Exchange Division of AIBL
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4.1 Foreign Exchange Operations

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Foreign exchange is the means and methods by which rights to wealth in a country's currency are
converted into rights to wealth in another country's currency. In banks when we talk of foreign
exchange, we refer to the general mechanism by which a bank converts currency of one country
into that of another. Foreign Exchange Department (FED) is the international department
Bangladesh Bank issues license to scheduled banks to deal with foreign exchange. These banks
are known as Authorized Dealers. If the branch is authorized dealer in foreign exchange market,
it can remit foreign exchange from local country to foreign countries. So AL-ARAFAH-ISLAMI
Bank, Principal branch is an authorized dealer.
There are three kinds of foreign exchange transaction:
A) Import
B) Export
C) Remittance.
4.2 Import
To import, a person should be competent to be and importer. According to Import and Export
Control Act, 1950, the Office of Chief Controller of Import and Export provides the registration
(IRC) to the importer. In an international business environment, buyers and sellers are generally
unknown to each other. So seller of goods always seeks security for the payment of his exported
goods. Bank gives export guarantee that it will pay for the goods on behalf of the buyer if the
buyer does not pay. This guarantee is called Letter of Credit. Thus the contract between importer
and exporter is given a legal shape by the banker by 'Letter of Credit.
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4.2.1 Import Registration Certificate (IRC)

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The first thing one need to carry on a business of import is called Import Registration
Certificate. But registration is not required for import goods, which do not involved remittance
of foreign exchange like medicine; reading materials etc. can be imported without registration by
the users within monetary limit. Documents to be required for Import Registration Certificate are
as follows —
 Income Registration Certificate

 Nationality Certificate
 Certificate from Chambers of Commerce and Industry Registered Trade
 Association
 Bank Solvency Certificate
 Copy of Trade License
 Requisite fees
4.2.2 Functions of Import Section

The form IMP contains the followings—
 Name and address of the Authorized dealers.

 Amount of remittance to be permitted (i.e./C amount)
 LCA form no. Date and value in Taka.
 Description of goods.
 Invoice value in foreign currency, (i.e./C amount)
 Country of origin.
 Port of shipment.
 Name of steamer / Airline
 Port of importation.
 Indenter’s name and address.
 Indenter's registration number with CCI & E and Bangladesh Bank.
 Full name and address of the applicant. Page14
4.2.3 Letter of Credit

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Definition:
A letter of credit is a letter issued by a bank (known as the opening or the issuing bank) at the
instance of its customer (known as the opener) addressed to a person (beneficiary) undertaking
that the bills drawn by the beneficiary will be duly honored by it (opening bank) provided certain
conditions mentioned in the letter gave been complied with.
4.2.3.1 Parties to the L/C
Importer Who applies for L/C
Issuing Bank It is the bank which opens/issues a L/C on behalf of the importer.
Confirming Bank It is the bank, which adds its confirmation to the credit and it, is done
at the request of issuing bank. Confirming bank may or may not be
advising bank
Advising or Notifying It is the bank through which the L/C is advised to the exporters. This
Bank bank is actually situated in exporter's country. It may also assume the
role of confirming and / or negotiating bank depending upon the
condition of the credit.
Negotiating Bank It is the bank, which negotiates the bill and pays the amount of the
beneficiary- The advising bank and the negotiating bank may or may
not be the same. Sometimes it can also be confirming bank.
Accepting Bank It is the bank on which the bill will be drawn (as per condition of the
credit). Usually it is the issuing bank
Reimbursing Bank It is the bank, which would reimburse the negotiating bank after
getting payment - instructions from issuing bank.
4.2.3.2 Mechanism of L/C operation

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Indenter
Importer (Buyer) Exporter (Seller)

Contract
C
L/
of
Sub
s n
mit
ent io
t
doc
um n at
en
um
doc io m
m
ents
nt t cat fir
y
me sen pli on
Pa
Pay Pre Ap C
Issue of L/C Advising

bank/Confirming
Issuing Bank Bank/Negotiating
Forward documents bank
Makes payment
ment
pay
es
Mak
Paying bank
Steps for import L/C Operation

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Step 1 - Registration with CCI&E:
• For engaging in international trade, even trader must be first registered with the Chief
Controller of Import and Export.
• By paying specified registration fees to the CCI&E- the trader will get IRC/ERC
(Import/Export Registration Certificate), to open L/C with bank, this IRC is must.
Step 2 - Determination terms of credit:
• The terms of the letter of credit are depending upon the contract between the importer and
exporter. The terms of the credit specify the amount of credit, name and address of the
beneficiary and opener, tenor of the bill of exchange-period and mode of shipment and of
destination, nature of credit, expiry date name and number of sets of shipping documents etc.
Step 3 - Proposal for Opening of L/C:
To have an import LC limit an importer submits an application to department to AL-

ARAFAH-ISLAMI Bank. The proposal contains the following particulars:
 Full particulars of the bank account

 Nature of business
 Required amount of limit
 Payment terms and conditions
 Goods to be imported
 Offered security
 Repayment schedule
Step 4 - Application by importer to the banker to open letter of credit:

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• For opening L/C, the importer is required to fill up a prescribed application form
provided by the banker along with the following documents:
1. L/C Application form 7. Authority to debit account
2. Filled up LCA form 8. Filled up amendment request Form
3. Demand Promissory Note 9. IMP form
4. pro-forma invoice 10. Insurance cover note and money receipt
5. Tax Identification number 11. Membership certificate
6. Import registration certificate 12. Rate fluctuation undertaking
Step 5 - Opening of L/C by the bank for the opener:
• Taking filled up application form from the importer.
• Collects credit report of exporter from exporter's country through his foreign
correspondence there.
• Opening bank then issues credit by air mail/TELEX/SWIFT followed by L/C advice as
asked by the opener through his foreign correspondent or branch as the case may be, at
the place of beneficiary. The advising bank advises the L/C to the beneficiary on his own
form where it is addressed to him or merely hand over the original L/C to the beneficiary
if it is so addressed.
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Step 6 - Shipment of goods and lodgment of documents by exporter:

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Then exporter ships the goods to the destination of the importer country and sends the documents to the
L/C opening bank through his negotiating bank. Generally the following documents are sent to the
Opening Banker with L/C:
1. Bill of Exchange 6. Packing List
2. Bill of Lading 7. Advice Details of Shipment
3. Commercial Invoice 8. Pre-shipment Inspection Certificate
4. Certificate of Origin 9. Vessel Particular
5. A certificate stating that each packet 10.Shipment Certificate

contains the description of goods over the
packet.
Step 7 - Lodgment of Documents by the opening Bank from the negotiating bank:
After receiving the documents, the opening banker scrutinizes the documents. If any discrepancy
found, it informs the importer. If importer accepts the fault, then opening bankers call importer
retiring the document. At this time many thing can happen. These are indicated in the following:
• Discrepancy found but the importer accepts - No problem occurs in lodgment.
• Discrepancy found and importer not agreed to accept - In this case, importer protest and
send back all the documents to the exporter and request his to make in the specified manner.
Here banker is not bound to pay because the documents send by exporter is not in accordance
with the terms of L/C.
• Documents are OK but importer is willing to retire the documents - In this case bank is
obligated to pay the price of exported goods. Since importer did not pay for bill of exchange, this
payment by bank is one kind of credit to the importer and this credit in banking is known as
PAD.
• Everything is O.K. but importer fails to clear goods from the port and request bank to
clear- In this case banks clear the goods and takes delivery of the same by paying customs duty
and sales tax etc. So, this expenditure is debited to the importer's account and in banking it is
called LIM.
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Step 8 – Retirement:
The importer receives the intimation and gives necessary instruction to the bank for retirement of
the import bills or for the disposal of the shipping document to clear the imported goods from the
customs authority. The importer may instruct the bank to retire the documents by debiting his
account with the bank or may ask for LTR (Loan against Trust Receipt).
Accounting Procedure in case of L/C Opening

When the officer thinks fit the application to open a L/C, giving the following entries-creates the
following charges-
Particulars Debit/Credit Charges in Taka
Customer's A/C Debit
L/C Margin A/C Credit
Commission A/C on L/C Credit 50%
VAT Credit 15% on commission
SWIFT Charge Credit 3000/=
Datamax Credit 1000/=
Stamp Credit 150/=
Postage Credit 300/=
DHL/Courier Credit 1500/=
4.2.3.3 Amendment of L/C:

After opening of L/C some time's alteration to the original terms and conditions become
necessary. These amendments involve changes in:
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a. Unit price

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b. Extension of validity o the L/C
c. Documentary requirements etc.
Such amendments can be affected only if all the concerned parties agree i.e. the beneficiary, the
importer, the issuing bank and the advising bank.
For any amendment the importer must request the issuing bank in writing duly supported by
revised indent/proforma invoice. The issuing bank then advises the required amendment to the
advising bank. L/C amendment commission including postage is charged to the clients A/C.
 Loan against Trust Receipts (LTR)
 Advance against a Trust Receipt obtained from the Customers are allowed to only first
class tested parties when the documents covering an import shipment or other goods
pledged to the Bank as security are given
 Without payment. However, for such advances prior permission/sanction from Head
Office must be obtained.
 The customer holds the goods or their sale-proceeds in trust for the Bank, till such time,
the loan allowed against the Trust Receipts is fully paid off.
 The Trust Receipt is a document that creates the Banker's Hen on the goods and
practically amounts to hypothecation of the proceeds of sale in discharge of the lien.
Loan against Imported Merchandise (LIM)
Advance (Loan) against the security of merchandise imported through the Bank may be allowed
either on pledge or hypothecation, of goods, retaining margin prescribed or their Landed Cost,
depending on their categories and Credit Restriction imposed by the Bangladesh Bank. Bank
shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods
cleared through LIM Account.
4.2.4 Payment Procedure of Import Documents
This is the most sensitive task of the Import Department the officials have to be very much
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careful while making payment. This task constitutes the following:

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 Date of Payment
Usually payment is made within seven days after the documents have been received. If the
payment is become deferred, the negotiating bank may claim interest for making delay.
Preparing Sale Memo
A sale memo is made at B.C rate to the customer. As the T.T & O.D rate is paid to the ID, the
difference between these two rates is exchange trading. Finally, an Inter Branch Exchange
Trading Credit Advice is sent to ID.
 Requisition for the Foreign Currency
For arranging necessary fund for payment a requisition is sent to the International Department.
 Transmission of Message
Message is transmitted to the correspondent bank ensuring that payment is being made.
4.3 Export
 Understanding
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The goods and services sold by Bangladesh to foreign households, businessmen and Government
are called export. The export trade of the country is regulated by the Imports and Exports
(control) Act, 1950. There are a number of formalities, which an exporter has to fulfill before and
after shipment of goods. The exports from Bangladesh are subject to export trade control
exercised by the Ministry Of Commerce through Chief Controller of Imports and Exports (CC &
E). No exporter is allowed to export any commodity permissible for export from Bangladesh
unless he is registered with CC! & E and holds valid Export Registration Certificate (ERC). The
ERC is required to be renewed every year. The ERC number is to be incorporated on EXP forms
and other documents connected with exports. The formalities and procedure are enumerated as
follows:
1. Obtaining exports LC: To get export LC form exporter issued by the importer.
2. Submission of export documents: Exporter has to submit all necessary documents to the
collecting bank after shipping of goods
3. Checking of export documents: After getting the documents banker used to check the
documents as per LC terms
4. Negotiation of export documents: If the bank accepts the document and pays the value draft
to the exporter and forward the document to issuing bank that is called a negotiating bank. If the
bank does buy the LC then the bank normally acts as collecting bank
5. Realization of proceeds: This is the period when the issuing bank has realized the payment.
6. Reporting to the Bangladesh bank: As per instruction by Bangladesh bank the bank has to
report to respective department of Bangladesh bank by mentioning latest payment.
7. Issue to proceeds realization certificate (PRC): Bank has to issue proceeds realization
certificate of export LC to the supplier / exporter for getting cash assistance.
4.3.1 Export operation

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

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largest sector that exports the lion share of the country's export; Bangladesh exports most of its
readymade garments products to U.S.A and European Community (EC) countries, Bangladesh
exports about 40% of its readymade garments products to U.S.A. Most of the exporters who
export through AL-ARAFAH-ISLAMI BANK are readymade garment exporters. They open
export L/Cs here to export their goods, which they open against the import L/Cs opened by their
foreign importers.
Export L/C operation is just reverse of the import L/C operation For exporting goods by the local
exporter, bank may act as advising banks and collecting bank (negotiable bank) for the exporter.
As an advising bank
It receives documents from the foreign importer and hands it over to the exporter. Sometimes it
adds confirmation on the L/C on request from the Opening Bank. By adding confirmation, it
assumes the responsibility to make payment to the exporter.
As Negotiating Bank
It negotiates the bills and other shipping documents in favor of the exporter. That is ? it collects
the proceeds of the export-bill from the drawer and credits the exporter's account for the same.
Collection proceed from the export bill is deposited in the bank's NOSTRO account in the
importer's country. Sometimes the bank purchases the bills at discount and waits till maturity of
the bill. When the bill matures, bank presents it to the drawer to encash it.
In our country Export and Import operation of bank is very much related with one another
because of use of Back to Back and maturity of payment for Back-to-Back L/C is set in such that
it can be paid out of export proceeds
4.3.2 Back-To-Back L/C

It is simply issued to the clients against an import L/C. Back-to-Back mechanism involves two
separate L/C. One is master Export L/C and another is Back-to-Back L/C. On the strength of
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Master Export L/C bank issues bank to Back L/C. Back-to-Back L/C is commonly known as
Buying L/C. On the contrary, Master Export L/C is known as Selling L/C.
Features of Back to Back L/C:
 An Import L/C to procure goods /raw materials for further processing.

 It is opened based on Export L/C,
 It is a kind of Export Finance.
 Export L/C is at Sight but back to Back L/C is at usage
 No margin is required to open Back to back L/C
 Application is registered with CCI&E
 Applicant has bonded warehouse license.
 L/C value shall not exceed the admissible percentage of net FOB value of relative Master
L/C.
 Usage period will be up to 180 days.
 The import L/C is opened for 75% of the value of Export L/C.
 Here L/C issued against the lien of export L/C.
 Arrangements are such that export L/C matures first then out of this export profit, import
L/C is paid out.
Documents Required for Opening a Back-to-back L/C:
In AL-ARAFAH-ISLAMI Bank Principal Branch, following papers/ documents are required for
opening a back-to-back L/C-
1. Master L/C
2. Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)
3. L/C Application and LCAF duly filled in and signed
4. Proforma Invoice or Indent
5. Insurance Cover Note with money receipt
6. IMP Form duly signed
In addition to the above documents, the followings are also required to export oriented garment
industries while requesting for opening a back-to-back L/C -
1. Textile Permission
2. Valid Bonded Warehouse License

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3. Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the
applicant for quota items.
Check list of export L/C
Following defective points are usually found in the Master L/C. So, these points are so much
carefully checked by the bank officials. These are:
1. Name of the Advising Bank.
2. Name of Transferring Bank
3. Form of Doc. credit:
• Name of Issuing Bank
• Documentary Credit No. And issuing date
• Date of shipment
• Expiry date and place
4. Applicant/ for order of/ On Account.
5. Beneficiary/ Favoring
6. Amount
7. Availability of Credit
8. Partial shipment/ Transshipment
9. Payment condition /Draft Sight
10. Category.
11. Description of goods:
• Item
• Total Qty
• Unit price
12. B/L Clause

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13. Reimbursement clause.

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14. UCPDC Clause
15. Net FOB value.
Payment of back to back L/C:
In case back to back as 60-90-120-180 days of maturity period, deferred payment is made.
Payment is given after realizing export proceeds from the L/C issuing bank.
L/C under EOF:
• Exporter development Fund is created by Bangladesh Bank to give encourages to the

exporter in Bangladesh.
• Generally Back-to-Back L/C is Usance L/C that is here bill of exchange is payable after
some maturity date say 90 or 120 days after the date of acceptance/negotiation. But some foreign
seller may require sight payment. Here import L/C matures first. In that case Bangladesh Bank
gives the fund to the bank to pay the price of imported goods in favor of the local purchaser of
raw materials. When export proceeds come, first Bangladesh Bank loan to the importer is
adjusted and remaining part goes to the importer of raw materials.
4.3.3 Negotiation of Export Documents:

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The most common method of financing exporters is negotiation of documents under L/C. It is a
post-shipment credit. Here the bank acts as a negotiating bank. After the shipment of the goods,
the exporter submits the relative documents to the branch for negotiation. The documents are to
submit within the period mentioned in the L/C. after approval of negotiation of the bill the full
particulars of the documents are branch with a forwarding letter. The branch claim
reimbursement from the issuing bank or from the reimbursing bank, giving clear instructions to
credit the proceeds of the bill to the AL-ARAFAH-ISLAMI Bank head office NOSTRO A/C
maintained with the named correspondent bank abroad under telex intimation to the Principal
branch and Head Office (International Division).
Negotiation stands for payment of value to the exporter against "the documents stipulated in the
LAC. If documents are in order, AL-ARFAH-ISLAMI Bank purchases (negotiates) the same on
the basis of banker- customer relationship. This is known as Foreign Documentary Bill Purchase
(FDBP).
If the bank is not satisfied with the documents submitted to AL-ARAFAH-ISLAMI Bank gives
the exporter reasonable time to remove the discrepancies or sends the documents to L/C opening
bank for collection. This is known as Foreign Documentary Bill for Collection (FDBC) entered
into the foreign, bill Purchased (F.B.P) register. The documents are sent to the L/C opening
Presentation of export documents for negotiation/ Purchase:
After shipment exporter submits the following documents to AL-ARAFAH-ISLAMI

Bank for negotiation.
• Bill of exchange
• Bill of Lading
• Invoice
• Insurance Policy/Certificate
• Certificate of Origin
• Inspection Certificate
• Consular Invoice
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• Packing List

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• Quality Control Certificate
• G.S.P. certificate.
Foreign documentary bills for collection (FPBC):
Al-Arafah Islami Bank forwards the documents for collection due to the following reasons,
* If the documents have discrepancies.
* If the exporter is a new client.
FDBC signifies that the exporter will receive payment only when the issuing bank gives
payment AL-ARAFAH-ISLAMI Bank make regular follow-up with the L/C opening
Bank in case of any delay in getting payment.
Settlement of Local Bills:
1. The settlement of local bills is done in the following ways. -
2. The customer submits the L/C to AL-ARAFAH-ISLAMI Bank along with the documents to
negotiate
3. AL-ARAFH-ISLAMI Bank official scrutinizes the documents to ensure the conformity \\ith
the terms and conditions.
4. The documents are then forwarded to the L/C opening bank.
5. The L/C issuing bank gives the acceptance and forwards an acceptance letter.
6. Payment is given to the customer on either by collection basis or by purchasing the

document.
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 Mode of payment of export bill under L/C:

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As per UCPDC 500, 1993 revision there are four types of credit. These are as follows;
* Sight Payment Credit: In a Sight Payment Credit the bank pays the stipulated sum
immediately against the exporter's presentation of the documents.
* A Deferred payment Credit: In deferred payment, the bank agrees to pay on a specified
future date or event, after presentation of the export documents. No bill of exchange is involved.
Payment is given to the party at the rate of D. A 60-90-120-180 as the case may be. But the Head
office is paid at T.T clean rate. The difference between the two rates us the exchange trading for
the branch.
* Acceptance credit: In acceptance credit, the exporter presents a bill of exchange payable to
him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is
to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter
can then represent it for payment on maturity. Alternatively he can discount it in order to obtain
immediate payment
* Negotiation Credit: In Negotiation credit, the exporter has to present a bill of exchange
payable to him in addition to other documents that the bank negotiates.
4.4 Foreign Remittance

This bank is authorized dealer to deal in foreign exchange business. As an authorized dealer, a
bank must provide some services to the clients regarding foreign exchange and this department
provides these services.
The basic function of this department are outward and inward remittance of foreign exchange
from one country to another country. In the process of providing this remittance service, it sells
and buys foreign currency. The conversion of one currency into another takes place an agreed
rate of exchange, which the banker quotes, one for buying and another for selling. In such
transactions the foreign currencies are like am other commodities offered for sales and purchase,
the cost (convention value) being paid by the buyer in home currency, the legal tender.
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4.4.1 Remittance procedures of foreign currency

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There are two types of remittance:

1. Inward remittance
2. Outward remittance.
Inward Foreign Remittance:
Inward remittance covers purchase of foreign currency in the form of foreign T.T., D.D, and
bills, T.C. etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of foreign
exchange is to be reported to Exchange control Department of Bangladesh bank on Form-C.
Outward Foreign Remittance:
Outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts,
Travelers Check etc. as well as sell of foreign exchange under L/C and against import bills
retired.
Working of this department
1. Issuance of TC, Cash Dollar /Pound
2. Issuance of FDD, FTT & purchasing, Payment of the same.
3. Passport endorsement.
4. Encashment certificate-
5. F/C Account opening &filing.
6. Opening of Export FC retention Quota A/C& maintain.
7. Maintenance of ledger of Cash Dollar, FC Deposit A/C & TC.
8. Maintain FBC register &follow up FBC.
9. Opening of Student file &Maintain.
10. Preparation of all related statement, Voucher & posting.
11. Preparation of Weekly, Monthly. Yearly Statement for Bangladesh Bank return timely.
12. Attending all related correspondence to other Bank or Institutions.
Modes:
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The remittance process involves the following four modes

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Cash Sell Bank sells Dollar / Pound for using in abroad by the purchaser. The
Remittance maximum amount of such sell is mentioned in the Bangladesh Bank
Dollar/ publication of 'Convertibility of Taka for Currency Transactions in
Pound Bangladesh’
Purchase Bank can purchase dollar from resident and non - resident Bangladeshi
and Foreigner. Most dollars purchased comes from realization of Export
Bill of Exchange.
Issue of TC TC is useful to traveler abroad. Customers can encase the TC in abroad

from the drawee bank. TC is alternative to holding cash and it provides
Traveler's better security than holding cash in hand.
Cheque
Buying of If any unused leaf of TC is surrendered bank buys it from the customer.
TC All payments are made in local currency. Banks generally
buy only those TC.
Telex Outward It remits fund by tested TT via its foreign correspondence bank in which
Transfer TT it is maintaining its NOSTRO Account.
It also makes payment according to telegraphic message of its Incoming foreign

correspondence bank from the corresponding VOSTRO Account.
Foreign Bank issue Demand Draft in favor of purchaser or any other according to, instruction
Demand of purchaser. The payee can collect it for the drawer bank in which the Issuing bank of
Draft Demand Draft holds its NOSTRO Account. Bank also makes payment on DD drawn
on this bank by its foreign correspondence bank through the VOSTRO Account.
In these processes of remittance, bank must have to make profit as a business institution. Profit is
made in two ways:
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1. Commission charged

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2. Difference in the buying and selling rate.
4.4.2 Miscellaneous Services by This Department
Student File: Students who are desirous to study abroad can open file in the Bank. By opening
this file, bank assures the remittance of funds in abroad for study.
F.C Accounts: Foreign Currency Accounts opened in the names of Bangladeshi nationals or
persons of Bangladeshi origin working or self -employed abroad can now are maintained as long
as the account holders desires.
RFCD: Stands for Resident Foreign Currency Accounts. Persons" ordinary resident in
Bangladesh may maintain foreign currency accounts with foreign exchange brought in at abroad.
Balance of such accounts is freely remittable abroad.
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
3. Registered abroad and operating in Bangladesh and abstract foreign missions and their
expatriate employees.
4. Resident of Bangladesh nationals working with the foreign / international organization
operating in Bangladesh provided their salary in paid in foreign currency.
Foreign exchange earned through business doves or service rendered in Bangladesh cannot be
put into these accounts.
No payment in foreign currency (FC) may be made to any resident in Bangladesh out of the
foreign currency (FC) account.
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All citizens of Bangladesh and other persons are residing to Bangladesh who became the owner
of any foreign currency (FC).
Papers required:
 Application duly billed in and signed.
 Photograph (two copies).
 Passport photocopy.
 Work permit from board investment. (In case of foreign nationals).
4.6 Risks in Foreign Exchange Business

Foreign Exchange Business involves the following risks:
1) Risk of non-delivery of goods: May not be delivered to the buyer due to some mishaps
frauds or any other reason.
2) Risk of receiving sub-standard goods: Till the time the goods are received under a
shipment none can be sure of the quality of the goods involved.
3) Risk of nonpayment: Buyer may fail to honor his commitments.
4) Risk of frauds in goods: Contracted to buy cement but got sand. The above risks trade
common to inland trade as also the foreign trade. There are some risk which are peculiar
to foreign exchange business.
5) Exchange risk: Exchange of currencies can cause loss to some parties – seller or buyer
due to the inherent risk of exchange rate fluctuation.
6) Failure of foreign banks: It may be possible that the foreign bank may not be able to
pay the equivalent due to bank failures.
7) Sudden changes in policies: This is referred to as political risk. Exchange control

regulation, import export policies and trade regulation are changed overnight which will
put the parties in difficulties.
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Chapter Five
Foreign Exchange Performance Analysis
5.1 Historical performance of AIBL

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Here is a sum of historical performance of AIBL:
Figure in Million Tk.

Sl. No. Particulars 2004 2005 2006 2007
01. Authorized Capital 1000.00 1000.00 2500.00 2500.00

02. Paid-up Capital 586.96 677.94 854.20 1153.18
03. Reserve Fund 488.96 542.22 835.98 1091.95
04. Deposits 10108.28 11643.66 16775.33 23009.13

05. Investment 8150.16 11474.41 17423.19 22906.37
06 Import 9337.49 12631.60 18821.40 27042.72
07 Export 3639.34 4932.90 9142.70 12714.91
08. Profit before Tax and Provision 348.89 548.20 969.77 756.18
09. Profit after Tax and Provision 154.76 262.90 470.02 347.31
10. Total Assets 12874.61 15336.89 21368.16 30182.32
10. Earnings per Share 26.36 38.78 55.02 30.12
11. Dividend Bonus Bonus Bonus Bonus
15.50% 26% 35% 20%
12. Number of Employees 803 771 912 1033
13. Number of Branches 40 41 46 46
Performance in security market

Previous 1 year price graph:
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Highest value 567.5

Lowes value 346

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Other Information of the Company:

Listing Year 1998
Market Category A
Electronic Share Y
Sponsor/Director
Share Percentage: 49.11 Govt.0 Institute 0 Foreign 0 Public 50.89
Remark EPS & NAV of 2006 is derived from company's newly adjusted Face Value.
Address of the Company:
Address: Rahman Mansion, 161, Motijheel, C/A, Dhaka - 1000
Contact Phone: (8802) 7123255-7
Fax: 88 - 02 - 9569351
Email/Web Address: www.al-arafah.com
5.2 Foreign exchange performance over time

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To analyze the performance of AIBL in foreign exchange business I have established some
assumptions-
5.2.1 Assumptions to the analysis

 It is assumed that the reported financial data are free from error & bias because there
were no scopes of the study is to verify the data
 All the analysis & findings are valid up to June 2007 because the other data are not
available
 The data shown of 2008 are estimated figures
 I have selected banks with the following classification criterion
o Local commercial banks (PCB)
o Foreign banks (FB)
o Govt.’s specialized banks
 The banks selected are assumed to be the representatives of banking sector of our
country.
5.2.2 List of banks selected for comparison

Private commercial banks: Dhaka Bank Ltd.
National Bank Ltd.
AB Bank Ltd.
Foreign Banks: Standard Chartered Bank
HSBC
Citi Bank N. A.
Govt. specialized banks: Sonali Bank Ltd.
Basic Bank Ltd.
However, the whole analysis is based on comparison & relationships between these banks & Al-
Arafah Islami Bank Ltd. The derived comparative results may vary if other banks are selected.
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5.2.3 Growth statistics in Foreign exchange business

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Here is the growth statistics of the banking sector (selected banks). The figures of 2008 are
estimated by the individual banks.
Growth statistics in Foreign exchange business

2003 2004 2005 2006 2007 2008
AIBL Export 18.30% -44.90% 356.01% 39.06% -1.68%
Import 18.69% -44.72% 272.62% 43.68% -16.80%
Remittance -3.31% -50.00% 517.12% 104.55% -24.04%
All Export 35.11% -53.74% 236.08% 20.33% -34.27%

Banks Import 38.01% -43.47% 141.02% 33.37% -28.69%
Remittance 18.79% -49.97% 211.77% 23.30% -39.80%
Comments:
In the above table we see that the growth in foreign exchange sector is negative both in the
selective banks & AIBL at 2005 & 2008. So we can say that the macroeconomic variables like
political turmoil, global economic situations are responsible factors for the downturn.
5.2.4 Aggregate performance of the selected banks
Comments:
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Here we see that a deep downturn in the year 2005 & 2008. This is because of political & other
macroeconomic variables.
5.2.5 Sector wise comparison between selected banks & AIBL

The sector wise comparison reveals that
 Al-Arafah Islami Bank is lagging behind compared to the other banks in foreign
exchange business. But the bank has a consistent performance with the trend of
industry’s performance
 The remittance business for Al-Arafah Islami Bank is significantly lower than the other
local competitors.
 This can be a cause of customer focus /market segment of the bank
 The bank has a huge amount of loan incentives for export & import business compared to
other performances in foreign exchange activities
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Comments:
Export operation of AIBL is significantly lower than other counterparts but consistent with the
ups & downs.
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Comments:
Import operation of AIBL is also significantly lower than other counterparts but consistent with
the ups & downs.
Comments:
Remittance operation of AIBL is significantly lower than other counterparts and inconsistent
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with the ups & downs. They are much weaker in the remittance business.

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Note: Comparison between AIBL & individual category wise banks are given in appendix1
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5.2.6 Regression analysis of AIBL’s profit, Export and Import

2004 2005 2006 2007
Import 9337 12632 18821 27043
Export 3639 4933 9143 12715
Profit after Tax and 155 263 470 347
Provision
Linear regression model for Import & Profit:

Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate

1 .661(a) .437 .155 122.41648
A) Predictors: (Constant), Import
Anova (b)
Model Sum of Squares df Mean Square F Sig.

1 Regression 23225.161 1 23225.161 1.550 .339(a)
Residual 29971.589 2 14985.794
Total 53196.750 3
a) Predictors: (Constant), Import

b) Dependent Variable: Profit
Coefficients (a)
Standardized
Model Unstandardized Coefficients Coefficients t Sig.
B Std. Error Beta

1 (Constant) 117.166 165.619 .707 .553
Import .011 .009 .661 1.245 .339
a) Dependent Variable: Profit

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Interpretation:

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By coefficient of correlation (R), we can measure association between export and profit after tax
or import and profit after tax. Basically it provides the direction either positive or negative of the
correlation. The advantage of the coefficient of correlation is that it provides a measure of the
strength of the correlation & it gives the true direction of the correlation (+ or -) but only the
square root of the strength of the correlation.
As we know, the value -1 represents a perfect negative correlation that means when one
increases, the other decreases in exactly the same proportion. The value +1 represents when one
increases, the other increases in exactly the same proportion. The value 0 represents a lack of
correlation. Here correlation coefficient (R) of import & profit is 0.661
This clearly indicated the movement direction of the two variables. R of import is 0.661 which is
moderately positively correlated says that
 If import business increases Tk. 1 then profit after tax will be increased by Tk. 0.66
 R2 value of 0.437 indicates that about 43.7% of variations in the AIBL’s profits can be
explained by its import operations
 Finally the results are significant at 33.9 % significance level.
Linear regression model for Export & Profit:
Model Summary
Adjusted R Std. Error of

Model R R Square Square the Estimate
1 .711(a) .506 .259 114.64383
a) Predictors: (Constant), Export
Anova (b)
Sum of
Model Squares df Mean Square F Sig.
1 Regression 26910.334 1 26910.334 2.047 .289(a)
Residual 26286.416 2 13143.208
Total 53196.750 3
a) Predictors: (Constant), Export

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Coefficients (a)

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Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta

1 (Constant) 134.591 134.536 1.000 .422
Export .023 .016 .711 1.431 .289
Interpretation:
R of export is 0.711 which is moderately positively correlated says that

 If import business increases Tk. 1 then profit after tax will be increased by Tk. 0.71
explained by its export operations
 Finally the results are significant at 28.9 % significance level
Linear regression model for Export, Import & Profit:
Model Summary
Adjusted R Std. Error of

Model R R Square Square the Estimate
1 .854(a) .729 .188 120.01901
a) Predictors: (Constant), Import, Export
Anova (b)
Sum of
Model Squares df Mean Square F Sig.
1 Regression 38792.188 2 19396.094 1.347 .520(a)
Residual 14404.562 1 14404.562
Total 53196.750 3
a) Predictors: (Constant), Import, Export

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Coefficients (a)

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Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta

1 (Constant) 354.732 280.336 1.265 .426
Export .175 .169 5.443 1.040 .488
Import -.081 .090 -4.755 -.908 .531
Interpretation:
R of export is 0.854 which is moderately positively correlated says that

 If import & export business increases Tk. 1 then profit after tax will be increased by Tk.
0.85
explained by its combined operations of import & export
 Finally the results are significant at 52 % significance level
5.2.7 Stability of Export and Import Business of AIBL
2004 2005 2006 2007 SD CV

Import 9337 12632 18821 27043 7788.105 45.9%
Export 3639 4933 9143 12715 4136.917 54.4%
Profit after Tax 155 263 470 347
and Provision
(Amount in Crore)
Correlaton(Import, Profit) 0.6618027
Correlation(Export, Profit) 0.7121657
Average(Import) 16958
Average(Export) 7607
Interpretation:
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Stability in foreign exchange business is influenced by several international and domestic

factors. Factors that influenced in foreign exchange businesses are – exchange rate, bargaining

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power of exporter and importer, country’s political disturbance, competitiveness of banking

sector and other macro economic factors. For measuring stability of export and import business
of EXIM Bank, we have calculated Standard deviation (SD) and Coefficient of variation (CV)
which is relative measures of standard deviation.
Here we see,
 Standard deviation in import business of AIBL is Tk. 7788.105 millions and

Coefficient of Variation is 45.9%.
 On the other hand export business standard deviation is Tk. 4136.917 millions
with CV of 54.4%.
 So we can say that the export import operation is not stable for the bank at a
satisfactory level
5.3 Future Prospects of the Bank

Islami banking system is lagging behind in foreign exchange business because of the market
segment they are considering. But in spite of present limitations in the field of foreign exchange
Islami banks like AIBL has significant potential-
 Bangladesh is a Muslim dense region. People of our country have a significant soft
corner in any matter regarding Islam. So the Islamic Banking also got a tremendous
support from the people especially from religious considerations
 There are huge local people especially from the lower class families are abroad most in
the middle east as laborers
 Most of these people are illiterate & they can’t operate banking activities in high end
banks like Standard Chartered, Dhaka Bank, Citi NA. With this market segment in
hand the Islami Banks like AIBL is growing rapidly
 Moreover, they pay a lower rate of returns on deposits compared to conventional banks
 As AIBL is doing business as profit and loss share basis, its interest is not fixed like
conventional banking system where interest is fixed. Clients have to pay the interest on
the amount he or she borrowed at a fixed rate whether they earn any profit or not utilizing
that loan.
 People are becoming used to about Islamic Banking operation.
5.4 Problems in Foreign Exchange Business for AIBL:

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 Lack of latest or improved technologies and skilled manpower for operating foreign
exchange business.
 Lack of sophisticated software for Islamic banking solution is a great problem in modern
banking era
 Lack of legal Islamic framework for conducting foreign exchange business. In

conventional banking system foreign currency is considered as goods not as currency and
its value fluctuate continuously which is not in accordance with Islami framework.
 Due to absence of Government Shariah board, many aspect of Islamic financing

technique remains unsolved such as in case of delay of payment of post import.
 Banks deal with documents not with goods. But according to Islam, bank should deal
with goods. So, today’s banking system is contradictory to Islami Shariah.
 AIBL cannot show the interest as income received from Nostro A/C which means Local
Bank’s account with a Foreign Bank. For reserving funds at Nostro A/C, foreign banks
give 3 to 5% interest for using this currency. Because interest is strictly prohibited in
Islam, AIBL don’t take it rather it is contributed to the Bank Foundation.
 Backward linkage is a problem for foreign exchange business which is related to back to
back L/C. Backward linkage refers to those small industries that support the large
industry.
5.5 Critics of Islami Banking:

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There are some critics regarding most of these saying that it’s not but a flattery. Here we can see
some critics of Islamic Banking system:

Though the popularity notwithstanding, critics of Islamic economics have not been
sparing. It has been attacked for its alleged "incoherence, incompleteness, impracticality,
and irrelevance;” driven by "cultural identity" rather than problem solving.

Others have dismissed it as "a hodgepodge of populist and socialist ideas," in theory and
"nothing more than inefficient state control of the economy and some almost equally
ineffective redistribution policies," in practice.

In a political and regional context where Islamist and ulema claim to have an opinion
about everything, it is striking how little they have to say about this most central of
human activities, beyond repetitious pieties about how their model is neither capitalist
nor socialist.

So far withstanding critic of the Islamic financial practice pertains to its product’s
structure. Interest-bearing (Riba) and speculation-involving (Gharar) trading are clearly
prohibited by explicit canonical texts.

Presumably all the financial structures of all the Islamic products should be interest and
speculation free. Nevertheless, some new empirical studies hypothesize that “Islamic
finance products’ structure is based on the Islamic prohibitions; however, these products’
risk management is still based on revoking the underlying prohibitions”.

The most prominent case here is Islamic financial market products such as, inter alia,
Salam and Istisna’ these products are used are hedging methods for the Islamic bonds
Sukuk.

There have been some innovations that try to avoid falling in interest-based and/or
speculation based transactions. Parallel Salam and synthetics are the most recent.

In Bangladesh, many allegations have been drawn on Islami Sharaih based banks’
activities like funds.

There are several foundations like “Islami Bank Foundation” has severe allegations of
exploiting money in political purposes in the name of welfare projects or corporate
social responsibility.
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5.6 Subjective Judgments:
The study of Al-Arafah Islami Bank Ltd’s foreign exchange activities has revealed the following
about the bank-
 The bank is performing in the bottom-line compared to its competitors
 They haven’t developed any ATM & Online services which is the main reason
for customers’ dissatisfaction to the bank
 Foreign remittance inflows & outflows are very poor compared to other
selected banks
 The bank has a biasness in HRD which unwelcome female workforce in the
bank
 The employees of the bank lack of skills & excellence because of recruiting
system’s instability & lack of transparency
 The software that the bank is using is very unsophisticated & hampers operations very
often
 The bank normally target the lower segment of the market & those who are not used to
sophisticated banking service because of illiteracy
 The bank is heavily depended on deposit schemes for doing business
 The IT infrastructure is not satisfactory; they don’t have a usable website
 In foreign exchange department it is required to communicate with foreign banks

frequently and quickly. To make the process easy modem communication media for
example e-mail, Fax and win fax, Internet etc. should be used more frequently. But the
bank doesn't have mass use of this medium of communication.
 In some cases the number of employee engaged in rendering specific services is

insufficient.
 Employees are exposed to customer excessively which is an obstacle in systematic and

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5.7 Performance in Other Sectors:

Although the deposit & investment sectors are beyond the scope of our analysis, I further
reviewed the performances in these sectors briefly. The study revealed that
 The bank is heavily concentrating on various deposit schemes as they have a strategic
advantage over the conventional commercial banks because of “Islami Shariah Based
Banking”
 With the deposit scheme business the bank can invest the funds at a higher rate whereas
they pay a lower percentage of return compared to the conventional banks
 The religious aspects of our local customers are also helpful to the bank to accumulate a
huge amount of funds as Muslims are religiously avoiding to take interest rather profit
sharing to their view
 Their market segment is also an important factor which covers the low-end customers
who are not usual in other conventional banks
Deposit:
The total deposit of AIBL is increasing sharply. The total deposit of bank was Tk. 23009.13
million at 31st December 2007 as against Tk. 16775.33 million at 31st December 2006 recording
growth of 37.16% of which Tk. 685.50 million was bank deposit and general deposit was
22323.63 million Tk. The graph shows that the deposit collection rate is dramatically increasing
year to year:
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Investment
The investment of the Bank stood at Tk. 22906.37 Million as on 31 st December 2007 as against
Tk. 17423.19 Million in the previous year showing an increase by 31.47%. The growth of
Investment from 2004 to 2007 shown graphically, graph shows that every year the bank earns a
huge amount of income from Investment account.
Operating Profit
The Bank earned operating profit of Tk. 756.18 million during this year 2007 before the pre-tax
profit of the bank during the year 2006 was Tk. 969.77 million and thus the bank attained
negative growth of 22.02% in respect of operating profit. The growth of operating profit for the
year 2004 to 2007 is graphically given below. Political unrest, economic recession and many
other factors badly affected they total banking sector, so that it earn lower profit than the
previous year.
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5.8 General banking & investing functions

General banking operations
The starting point of all the banking operations is General Banking. It is an important department
for all banks because it provides services to the customers day-to-day. Front Desk is the
important for general banking. Customers give their deposits and meet their demand for cash by
honoring Cheques. The customer opens new accounts, remit funds, issues bank drafts and pay
orders etc. There are various sections in this department, which are as follows: -
1) Cash Section
2) Accounts Opening Section
3) Cheque Clearing Section
4) Remittance Section
A detailed operation of general banking division is given in the appendix2
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5.9 Performances of AIBL (New Elephant Road Branch)

(Three Years Deposit, Investment, Export, Import & Profit)
Tk. In Crore
Year Head of Accounts
Deposit Target Deposit Achieved Achieved in Percentage
2007 150 102.48 68.32%
2006 100 67.4 67.40%
2005 60 60.89 101.50%
Investment Target Investment Achieved Achieved in Percentage
2007 50 21.11 42.22%
2006 40 17.79 44.22%
2005 16 17.70 110.65%
Export Target Export Achieved Achieved in Percentage
2007 .20 .29 148.53%
2006 - - -
2005 - - -
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Import Target Import Achieved Achieved in Percentage
2007 20 20.06 100.31%
2006 30 12.5 41.7%
2005 15 14.19 94.64%
Profit Target Profit Earned Earned in Percentage
2007 10 1.19 11.96%
2006 3.5 3.6 103.14%
2005 2 2.002 100.10%
Chapter Six
Performance of AIBL
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6.1 Financial Highlights of AIBL

Balance Sheet (2006-2007)
Property & Assets 2007 2006
Cash
In hand (including foreign currency) 381,766,435 232,088,682
Balance with central bank & other banks 1,637,443,244 1,523,363,956
2,019,209,679 1,755,452,638
Balance with other banks and financial

institution
In Bangladesh 2,437,841,149 1,001,829,867
Outside Bangladesh 245,142,485 24,616,909
2,682,983,634 1,026,446,776
Money at call & short notice ------ ------
Investment in share and Securities 868,583,386 2,000,000
Govt. 800,000,000 ------
Others 68,583,386 2,000,000
Investments
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General Investment etc. 21,116,394,966 15,571,766,350

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Bills Purchased & Discount 1,789,972,964 1,851,423,411
22,906,367,930 17,423,189,761
Premises & fixed assets 334,476,460 215,105,651
Others assets 1,370,702,317 500243533
Non Banking Asset ------ ------
Total assets 30,182,323,406 21,368,168,142
Liabilities & Capital 2007 2006
Liabilities:
Borrowing from other banks financial 1,320,000,000 ------

Institutions & agents
Deposits & other Accounts
Al-Wadia Current Account 3,097,906,953 2,443,198,486
Mudaraba Saving deposit 3,932,227,170 3,393,889,202
Mudaraba Short notice deposits 761,766,781 489,453,134
Mudaraba Term deposit 11,233,591,127 7,874,927,822
Mudaraba Special deposits 3,629,539,263 2,377,235,299
Bills Payable 354,096,993 196,649,305
23,009,128,287 16,775,335,248
Others Liabilities 3,815,696,649 2,902,648,591
Total Liabilities 28,144,824,936 19,677,983,839
Capital shareholders equity:

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Paid up capital 1,153,175,400 854,204,000

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Asset Revaluation Reserve 64,603,248 64,603,248
Statutory reserves 586,886,597 470,317,865
Exchange Equalization 2,057,198 2,057,198
Retain Earning 230,776,027 299,001,992
Total share holder equity 2,037,498,470 1,690,148,303
Total liabilities & shareholder equity 30,182,323,406 21,368,168,142
Profit & Loss Account for the Year Ended of 2006-2007
Income 2007 2006
Investment income 2,243,147,857 1,701,397,140
Less: profit paid on deposits. (1,628,628,877) (819,714,448)
Net Interest Income 614,518,980 881,682,692
Commission, exchange & brokerage 566,470,987 354,330,314
Income from Investment in Share /Securities 2,601,615 -----
Other operating Income 143,388,985 116,754,951
712,461,587 471,085,265
Total operating Income 1,326,980,567 1,352,767,957
Salaries & allowances 400,419,052 253,064,455
Directors and Sharia Council fees and expenses 5,363,612 3,879,804
Rent, taxes, insurance, lighting & traveling 66,389,460 40,352,105
Legal expenses 5,120,925 2,711,699
Postage, stamp, telegram & telephone 15,904,341 13,597,210
Auditors’ fee 200000 100,000
Depreciation and Repairs 19,677,065 15,806,628
Salary & Allowance to the Managing Director 4,300,000 2,600,000

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Stationery, printing & advertisement 13,127,054 9,559,875
Other expense 40,298,765 41,326,495

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Total Operating Expenses 570,800,273 382,998,271
Profit before Tax and provision 756,180,294 969,769,686
Provision against Investment and Contingent

173,336,636 114,300,000
Liabilities
Other Provision ----- -----
Total provision 173,336,636 114,300,000
Profit/Loss before tax 582,843,658 855,469,686
Current tax 354,484,244 384,023,920
Deferred Tax (118,954,752) 1,427,360
Provision for Taxation 235,529,492 385,451,280
Net Profit/Loss after tax 347,314,166 470,018,407
Retained Profit brought forward 30,593 77,523
347,344,759 470,095,930
Appropriation
Statutory Reserve 116,568,732 171,093,937
116,568,732 171,093,937
Retained Earnings 230,776,027 299,001992
Earning per Ordinary Share 30.12 55.02
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6.2 Growth of AIBL

Overall Performance of AIBL:
(Figure in million where applicable)
Particulars 2008 2007 2006 2005 2004
Authorized Capital 1,6000 1,000.0 1,000,0 200.0 200.0
Paid up Capital 798.6 399.3 199.7 99.8 99.8
Net Profit After tax 1,138 409.5 248.8 142.6 100.6
Shareholders’ equity 3,688.8 2,453.5 2085.4 1,865.0 1,742.4
Deposits 50,817 43,586.4 39,360.2 36,891.9 34,615.2
Investments 11,188.3 14,455.8 9,564.5 10,062.1 12,794.0
Fixed Assets 1,065.7 1,014.0 942.1 776.2 782.8
Total Assets 58,444.3 52,860.3 45,217.0 42,062.2 39,700.9
Total Off Balance Sheet 8,806.9 8,830.5 7,428.5 8,538.8 7,883.6

Exposure
Earnings Per Share (EPS) 142.56 102.56 124.59 142.83 100.73
Market Value Per Share 3,393.75 4,854.75 2,312.25 2,811.00 2,373.75
Price Earnings Ratio 23.81 47.34 18.56 19.68 23.57
Book Value Per Share 437.88 573.73 957.66 1,694.54 1,571.71
Return On Asset (ROA) 1.95% 0.77% 0.55% 0.34% 0.25%
Return On Equity (ROE) 30.86% 16.69% 11.93% 7.65% 5.78%
Return On Investment (ROI) 7.48% 6.37% 5.83% - -
Table 2.4 Overall performance of UBL for last five years
6.2.1 Share Information:

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Earnings per share (2008) = No. of ordinary shares outstanding / Net profit after tax
(409,535,557 /
3,993,296) =
142.56 Taka
Figure 2.5 Earning Per Share (EPS)
Earnings per share has been calculated in accordance with BAS-33: “Earning per Share (EPS)”
Market Value per share (2008) = 3,393.75 Taka
Fig ure2.6
Market
Value per Share
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Book Value per Share (2008) = 437.88 Taka
Figure2.7
Book Value per Share
Price Earnings Ratio (2008) = (Price of Stock / EPS) = (4854.75/102.56)
= 23.81
Figure2.8 Price Earnings Ratio

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6.2.2 Operating Performance Ratio:
ROA (2008) = (Net Profit/ Total Asset) = (409,535,557/52,860,332,730) = 1.95%
Figure2.9 Return on Asset
Return on Equity (2008) = (Net profit/ Total Share Holders Equity)
= (409,535,557/2,453,557,156) = 30.86%
Figure2.10 Return on Equity (ROE)

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Return on Investment (2008) = (Income from Investment/Total Investment)
= (920, 833194.3 / 14, 455, 780134) = 7.48%
Figure2.11 Return on Investment
6.2.3 Information Regarding Income Statement
Net Profit after tax :
Figure2.12 Net Profit

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6.2.4 Balance Sheet Information:
Share Holders Equity:
Figure 2.13 Share holders equity
Total Assets:
Figure2.14 Total Asset

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Deposits:
Figure 2.15 Deposits
Investments:
Figure2.16 Investments
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6.3 Performance of AIBL (New Elephant Road Branch)
(Three Years Deposit, Investment, Export, Import & Profit)
Tk. In Crore
Year Head of Account
Deposit Target Deposit Achieved Achieved in Percentage
2007 150 102.48 68.32%
2006 100 67.4 67.40%
2005 60 60.89 101.50%
Investment Target Investment Achieved Achieved in Percentage
2007 50 21.11 42.22%
2006 40 17.79 44.22%
2005 16 17.70 110.65%
Export Target Export Achieved Achieved in Percentage
2007 .20 .29 148.53%
2006 - - -
2005 - - -
Import Target Import Achieved Achieved in Percentage
2007 20 20.06 100.31%
2006 30 12.5 41.7%
2005 15 14.19 94.64%
Profit Target Profit Earned Earned in Percentage
2007 10 1.19 11.96%
2006 3.5 3.6 103.14%
2005 2 2.002 100.10%

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6.4 Analysis of Data:

From the above it is seen New Elephant Road branch of AIBL is running well to the goals of the
AIBL. Though it has shown some cyclical variation in various years but its deposit collection,
investment, export & import activities and above all the ultimate target is showing that New
Elephant Road branch of AIBL perform its management expectation satisfactorily.
6.4.1 Deposit:
The Bank’s deposit collection rate is quite well such as in 2005 and 2007. It collected Tk. 102.48,
67.4 and 60.89 cores respectively although management targeted Tk.150, 100 and 60 cores
respectively. But it could not achieve its target in 2006 and 2007 because Economic recession,
political and for many other reasons. But in 2005 it achieve 101.50% of its target. The collection
of deposit is gradually increasing. That is shown by the graphically representation.
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6.4.2 Investment:
The Branch made more investment than its target in 2005.In 2005 its investment target was 16
Crore whereas its achievement was 17.70. In 2006 its target was 40 Crore, but achievement was
17.79. In 2007 it has achieved 42.22% of its total target. The investment is gradually increasing.
That is shown by the graphically representation.
6.4.3 Export:
AIBL New Elephant Road branch is less export oriented. in 2007 it has an export target of 20 lac
only whereas it has achieved 29 lac export which is 148.53% of target.
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6.4.4Import:
In 2005 the AIBL New Elephant Road Brach has achieved 94.68 %of its import target. Its target
was 15 crore where its achievement was 14.19 crore. In 2006 and 2007 Its import target was 30
and 20 crore respectively where its achievement was 12.51 and 20.06 crore respectively.
Achievement percentage in 2006 and 2007 was 41.7% and 100.31% respectively.
6.4.5 Profit:
The profit earning capacity of the branch is not good. This branch is failed to fulfill the targeted
profit in 2007. Its target was 10 crore where it achieved only 1.19 crore, which is 11.96% of its
target. The branch achieved 100.10% and 103.14% of its target 2005 & 2006 respectively. High
operating expense is the worst condition of profit. The graph shows how year to year the branch
earned its profit.
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6.5 SWOT Analysis:

Not surprisingly, in the competitive arena of marketing era SWOT analysis is a must based on
Product, Price, Place and Promotion of a financial institute like private bank. From the SWOT
analysis we can figure out ongoing scenario of the bank. So to have a better view of the present
banking practices of Al-Arafah Islami Bank Ltd
SWOT Analysis
Internal External
Internal
Factors External
Factors
Factors Factors
Strength Weakness Opportunity Threats
In SWOT analysis two factors act as prime movers
 Internal factors which are prevailing inside the concern which include Strength and
weakness.
 On the other hand another factor is external factors which act as opportunity and threat.
6.5.1 Strength:
 Usage of faster PC Bank software.
 Membership with SWIFT.
 Good banker-customer relationship.
 Online banking system.
 Islami Shariah based Banking system.
 Energetic as well as smart work force.
 Competitive Profit provider comparing with other Islamic Bank.

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 Strong Financial Position.

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 Efficient administration
6.5.2 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.
 Officers have limited experience and not enough trained
 Many inexpert and laggard assistant officers.
 The bank has no ATM service
 Insufficient number of deposit Scheme and loan.
6.5.3 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.

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6.5.4 Threats:
 Competitors have more attractive deposit schemes.
 Bangladesh Bank has no well established Islami Banking Rules.
 Different classic services of other banks.
 Entrance of new private commercial banks.
 Young, energetic, dynamic, talent and smart work force of competitors.
 Govt. imposes high rate of taxes and VAT.
 Political unrest and Economic recession.
 Illegal business operation by the some clients.
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6.6 Findings and Analysis:
• AIBL profit earning capacity is not satisfactory.
• Its marketing strategy is not well designed.
• Existing Human Resources are not sufficient for AIBL. They have to recruit more skilled
employees.
• Number of Branches are not satisfactory, AIBL have to give more emphasize on
increasing number of Branches.
• Recruitment and selection process is a time consuming and lengthy process and irregular.
• The whole activities of AIBL is not computerized, still there exist manual record keeping
system.
• Sometimes Islami Shariah is not properly followed.
• Job security is lower in AIBL.
• Insufficient training program for the employees.
• Slower in modernization comparing with its competitors.
• The working environment in any branch is not congenial & appropriate. The working
desk provides sound pollution. It looks like a hall room.
• The modern technology is not used in the recruitment and selection process. The
backdated methods are using for selection till today.
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• Salary structure of AIBL is satisfactory comparing with other Islamic Banks, the pension
policy and the payment of pension to the employees are very fair and transparent.

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• The transfer and promotion process is fair but the promotion is not faster.
• Loan facilities are very attractive to the employees of AIBL.
• Most of the policies are backdated. Only the authority amends the policy but preserve the
old policy.
• There is no policy to build up harmonious relationship among the employees. The

employees cannot protest the injustice of the authority because the pure trade union is
absent there.
• The record keeping system is also backdated, not followed computerized system properly
• Security system of many branches is not sufficient.
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Chapter Seven
Recommendation & Conclusion
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7.1 Proposals
The overall analysis revealed that Al-Arafah Islami Bank Ltd. is not so much sophisticated in
Foreign Exchange Business. To overcome the problems in the foreign exchange activities I
would like to offer few proposals -
 Concentrate on the high-end customers with a new advertising & marketing effort
 Increase the skilled employees by revising the recruitment process
 Eliminate the bias against female workforce
 Establish corporate behavior & maintain chain of protocol in every section of the banks
activities
 Establish a sophisticated IT-division by revising current problems
 Establish ATM network immediately because without ATM network the bank can’t retain
customers in near future
 One of the business strategies is promotion. Successful business depends how
they can promote their products or services to the customer. In this connection to
improve the business status bank should introduce more promotional programs.
 Female workforce could be equally treated to grow up a descent corporate culture
 Foreign exchange department should be fully computerized that the exchange process
would be convenient for both the bankers and the clients.
 Delegation of authority should be made enough to make the speed of providing service
fast.
 The bank should consider the customer complaint. For providing that service, bank can
launch Customer Service Department which is absent in the bank
 The Bank should reexamine the salary structure of the employees which may attract
fresher and help to improve the productivity of existing employees.
 The bank has to increase the number of Authorization Dealership (AD) license in order to
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7.2 Recommendation:
• AIBL should concentrate in increasing its profit earning capacity.
• It should develop effective marketing strategy to attract new customers.
• Raising the capital, statutory reserve and increase the investment.
• The number of branches should be increased
• Expand and diversify customer base.
• Upgrade Online Banking.
• Recruit more skilled employees regularly.
• Bank should introduce independent ‘Marketing Department’
• Personal relationship should be build with the customers.
• Customers are the heart of the organization. They should provide more space in the office
and if possible they should have some entertainment facility.
• The employee of the branch should be trained continuously.
• Few branches are not under online banking system, so all the branches should confirm on
line banking system.
• More meetings, seminars, symposiums and get-together should be organized by the

Branches to develop the awareness among the clients of the Bank about Islamic Banking
and its advantages.
• Ensure stable dividend.
• Ensure high level customer service.
• The Bank should follow Islami Sharia strictly in every of its operation.
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• Bank should introduce ATM system.

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• Should introduce one-stop service centre.
• Bank should keep their annual report, brochure, bulletin etc. available to provide their
customer.
• Bank should introduce consumer credit scheme.
• Bank should increase their office space and take more care in interior decoration.
• Bank should introduce independent ‘Marketing Department’.
• Some new investment schemes are to be introduced for socio-economic development and
welfare of the distressed humanity.
• Finally the Bank should has the vision to automate its all operations and functionalities
and should be committed to achieve the goal to be a lead Bank in the country both in
service and in technical aspect and to fulfill the requirements of mass people.
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7.3 Conclusion:
The financial sector of our country is largely depended on banking sector. Over the decade the
banking business has been rising to the top of all. In this competitive banking business
environment, only excellent services are expected to sustain in the industry.
Although the growth of the bank was satisfactory over previous years, the growth in foreign
exchange business is not satisfactory. Especially in remittance business, the bank is lagging
behind with other banks. The target customers of the banks are low-end segment of the market &
the IT sector of the bank is very poor.
To retain customers & attract new customers, the bank has to establish ATM network
immediately because people now want to bank even at midnight.
The study of the foreign exchange activities of Al-Arafah Islami Bank Ltd has facilitated me
with experiencing a vast practical knowledge of banking operation & corporate work
environment.
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Bibliography & Appendix
Bibliography
I. Annual report 1999-2007

II. Bangladesh economic review, vol-2007
III. Bangladesh economic review, vol-2006
IV. Bangladesh economic review, vol-2005
V. Bangladesh economic review, vol-2004
VI. Bangladesh economic review, vol-2003
VII. Banking sector overview, 2003-2007; published by Bangladesh Bank
VIII. Dhaka Stock Exchange (DSE) library
IX. Manuals & circulars of Al-Arafah Islami Bank
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1. Banking sector wise comparison:
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x po
E r t
. 0
0 3 0 0
. 0 0 0
6 . 0 9 0 0. 0 2 0 .0 0 1
1 5 0 .0 0
2 0 .0
3 0 .0
4 0 .0
x p
E o ne tia l
5 0 .0 b se rve d
O
r o fit
P
Exponential curve fit for export & profit
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Exponential curve fit for import & profit

I m
o r t
p
0 0 0
1 . 0 1 5
0 0 0
. 0 0 0
2 . 0 5 0 0
2 . 0
2 0 .0
3 0 .0
4 0 .0
x p
E o n e n
ti a
l
5 0 .0 Obse rv e
d
P r
f it
o
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2. General banking terms:

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General banking operations:
The starting point of all the banking operations is General Banking. It is an important department
for all banks because it provides services to the customers day-to-day. Front Desk is the
important for general banking. Customers give their deposits and meet their demand for cash by
honoring Cheques. The customer opens new accounts, remit funds, issues bank drafts and pay
orders etc. There are various sections in this department, which are as follows: -
5) Cash Section
6) Accounts Opening Section
7) Cheque Clearing Section
8) Remittance Section
1) Cash Section:
The most vital and important section of the branch is Cash Department. It deals with all kinds of
cash transactions. This department starts the day with cash in vault. Each day some cash that is
opening cash balance are transferred to the cash officers from the cash vault. Opening cash
balance is added by cash receipts and payments. The figure is called closing balance. This
balance is then added to the vault. This is the final cash balance figure for the bank at the end of
any particular day.
BOOKS MAINTAINED BY THIS SECTION
Vault Register : It keeps account of cash balance in vault in the bank.
Cash Receipt Register : Cash receipt in whole of the day is recorded here.
Cash Payment Register : Cash payments are made in a day are entered here.
Rough Vault Register : Cash calculation for final entry in vault register is done here
as any error and correction here is not acceptable. ,
Cash Balance Book : Balance here is compared with vault register. If no

difference is found, indicates no error.
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Local Remittance:

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When money is sending from one place to another place for the customer is another important
service of banks. In addition, this service is an important part of country’s payment system. For
this service, people, especially businesspersons can transfer funds from one place to another
place very quickly. There are five kinds of techniques for remitting money from one place to
another place. These are:
1) Demand Draft
2) Telegraphic Transfer
3) Telephone Transfer
4) Pay Order
Telegraphic and Telephone Transfer (TT) are almost the same, both are them are known as TT in
short.
Pay Order:
Pay order gives the payee the right to claim payment from the issuing bank. It is payment from
issuing branch only. Within the clearinghouse area of issuing branch, Payment is made through
clearing.
Demand Draft:
This is an instrument through which customer’s money is remitted to another person/

firm/organization in outstation (Outside the clearing house area) from a branch of one bank to an
outstation branch of the same bank or to a branch of another bank (with prior arrangement
between that bank with the issuing branch)
TT:
This is a mode of transfer / remittance of customer’s money from a branch of one bank to
another branch of the sane bank or to a branch of another bank (with prior arrangement between
those banks with the TT issuing branch) through telephonic message. The issuing branch used to
send the message of such remittance /transfer to the drawer/payee branch through telephone
adding certain code number or test number on the basis of text key apparatus developed by the
concerned bank for its different branches.
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Various Types Of deposit account
AIBL Bank offers following types of deposit account:
I. Mudaraba Current Deposit Account (CD)

II. Mudaraba Savings Deposit Account (MSD)
III. Mudaraba Term Deposit Receipt Account (MTDR)
IV. Short Notice Deposit Account (SND)
V. Installment Term Deposit (ITD)
VI. Mudaraba Hazz Account
VII. Mudaraba Pension Scheme
VIII. Mudaraba Lakhpoti Scheme
IX. Mudaraba milliner Scheme
X. Mudaraba Kotipoti Scheme
XI. Mudarab Double Deposit Scheme.
Mudaraba Kotipoti Scheme: This is the most popular & target oriented schemes. One can open
for 3,4,5,6,7,10,12,15,18,20 years and have to pay (Monthly installment) 2,39,500/- 1,69,500/-
1,27,500/- 99,500/- 80,000/- 46,000/- 33,450/- 21,485/- 14,330/- 11,100/- respectively and will
get 1corror.
Mudaraba milliner Scheme: For Mudaraba milliner Scheme 3,4,5,6,7,10,12,15,20 year’s monthly
installments are 23,950/- 16,950/- 12,750/- 9,950/- 8,000/- 4,600/- 3,345/- 2,170/- 1,150/-
respectively and will get 10million.
Mudaraba Lakhpoti Scheme: For Mudaraba Lakhpoti Scheme 3,5,8,10,12 year’s monthly
installments are 2,375/- 1,275/- 670/- 460/- 335/-/- respectively and will get 1lak.
Conditions of the Scheme
1) By filling up a form an account is opened.
2) A non-transferable deposit receipt will provide to the customer after opening the account.
3) If the deposit is withdrawn before a 5-year term, then saving interest rate will be applicable
and paid to the depositor. However, no in profit paid if the deposit is withdrawn within 1 year of
opening the account and Monthly Income paid to the customer will be adjusted from the
principal amount.
4) This scheme will be credited to the loan account until liquidation of the loan amount inclusive
of profit. A depositor can avail loan up to 80% of the deposit amount under this scheme.
5) Mudaraba Double Deposit: Savings works as the very foundation of development. Savings
is the prime source of business investment in a country. So it helps to build up capital. To create
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more awareness and motivate people to save,

Internship Report
Al-Arafah Islami Bank offers Mudaraba Double Deposit. Here people put their money for double
return after 6years.
Conditions Of The Scheme:
 The deposit can be made in multiplies of TK. 10000.00.

 This is 6 years period deposit. The deposit cannot be withdrawn at any time with in the
maturity date.
 Al-Arafah monthly deposited Hazz account:
 Pension scheme
Clearing Department:
Cheques clearing section of Al-Arafah Islami Bank Ltd. receives cheque, demand drafts and pay
orders of their clients. Upon the receipt of the instrument the cheque clearing section examines:
 Whether the paying bank within Dhaka city.
 Whether the paying bank outside Dhaka city.
 Whether the paying bank of their own branch..
The Paying Bank within Dhaka City:
The cheques clearing section of Al-Arafah Islami Bank Ltd., New Elephant Road Branch sends
Inter Branch Debit Advice (IBDA) to the head office on the receiving day of the instruments.
The main branch takes those instruments to the clearinghouse on the following day. If the
instruments are dishonored, Head Office of Al-Arafah Islami Bank Ltd. sends IBDA to the Al-
Arafah Islami Bank Ltd., New Elephant Road branch
The Paying Bank of Their Own Branch:
The cheque clearing section of Al-Arafah Islami Bank Ltd., New Elephant Road branch sends
outward bills for collection (OBC) to the concerned paying branch to get Inter Branch Credit
Advice (IBCA) from the paying branch. If the paying branch dishonors the instrument, the
paying branch returns it to the Al-Arafah Islami Bank Ltd., New Elephant Road branch
describing why the instrument is dishonored.
Financial Highlights of AIBL

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Balance Sheet (2006-2007)

Internship Report
Property & Assets 2007 2006
Cash
In hand (including foreign currency) 381,766,435 232,088,682
Balance with central bank & other banks 1,637,443,244 1,523,363,956
2,019,209,679 1,755,452,638
Balance with other banks and financial

institution
In Bangladesh 2,437,841,149 1,001,829,867
Outside Bangladesh 245,142,485 24,616,909
2,682,983,634 1,026,446,776
Money at call & short notice ------ ------
Investment in share and Securities 868,583,386 2,000,000
Govt. 800,000,000 ------
Others 68,583,386 2,000,000
Investments
General Investment etc. 21,116,394,966 15,571,766,350
Bills Purchased & Discount 1,789,972,964 1,851,423,411
22,906,367,930 17,423,189,761
Premises & fixed assets 334,476,460 215,105,651
Others assets 1,370,702,317 500243533
Non Banking Asset ------ ------
Total assets 30,182,323,406 21,368,168,142
Liabilities & Capital 2007 2006
Liabilities:
Borrowing from other banks financial 1,320,000,000 ------

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Institutions & agents

Internship Report
Deposits & other Accounts
Al-Wadia Current Account 3,097,906,953 2,443,198,486
Mudaraba Saving deposit 3,932,227,170 3,393,889,202
Mudaraba Short notice deposits 761,766,781 489,453,134
Mudaraba Term deposit 11,233,591,127 7,874,927,822
Mudaraba Special deposits 3,629,539,263 2,377,235,299
Bills Payable 354,096,993 196,649,305
23,009,128,287 16,775,335,248
Others Liabilities 3,815,696,649 2,902,648,591
Total Liabilities 28,144,824,936 19,677,983,839
Capital shareholders equity :

Paid up capital 1,153,175,400 854,204,000
Asset Revaluation Reserve 64,603,248 64,603,248
Statutory reserves 586,886,597 470,317,865
Exchange Equalization 2,057,198 2,057,198
Retain Earning 230,776,027 299,001,992
Total share holder equity 2,037,498,470 1,690,148,303
Total liabilities & shareholder equity 30,182,323,406 21,368,168,142
Profit & Loss Account for the Year Ended (2006-2007)
Income 2007 2006
Investment income 2,243,147,857 1,701,397,140
Less: profit paid on deposits. (1,628,628,877) (819,714,448)
Net Interest Income 614,518,980 881,682,692
Commission, exchange & brokerage 566,470,987 354,330,314
Income from Investment in Share

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2,601,615 -----
/Securities

Internship Report
Other operating Income 143,388,985 116,754,951
712,461,587 471,085,265
Total operating Income 1,326,980,567 1,352,767,957
Salaries & allowances 400,419,052 253,064,455
Directors and Sharia Council fees and

5,363,612 3,879,804
expenses
Rent, taxes, insurance, lighting &

66,389,460 40,352,105
traveling
Legal expenses 5,120,925 2,711,699
Postage, stamp, telegram & telephone 15,904,341 13,597,210
Auditors’ fee 200000 100,000
Depreciation and Repairs 19,677,065 15,806,628
Salary & Allowance to the Managing

4,300,000 2,600,000
Director
Stationery, printing & advertisement 13,127,054 9,559,875
Other expense 40,298,765 41,326,495
Total Operating Expenses 570,800,273 382,998,271
Profit before Tax and provision 756,180,294 969,769,686
Provision against Investment and

173,336,636 114,300,000
Contingent Liabilities
Other Provision ----- -----
Total provision 173,336,636 114,300,000
Profit/Loss before tax 582,843,658 855,469,686
Current tax 354,484,244 384,023,920
Deferred Tax (118,954,752) 1,427,360
Provision for Taxation 235,529,492 385,451,280
Net Profit/Loss after tax 347,314,166 470,018,407
Retained Profit brought forward 30,593 77,523

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347,344,759 470,095,930

Internship Report
Appropriation
Statutory Reserve 116,568,732 171,093,937
116,568,732 171,093,937
Retained Earnings 230,776,027 299,001992
Earning per Ordinary Share 30.12 55.02
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Foreign Exchange Activities of Al Arafa Islami Bank LTD

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Internship Report

Foreign Exchange Activities

Foreign exchange activities of AIBL

Foreign Exchange Activities

Submitted to: Sohani Islam

Submitted by: Md. Abul Hossain

Date of submission: November 10, 2009

Foreign exchange activities of AIBL

November 10, 2009

Subject: Submission of internship paper.

Dear Sohani Madam

Sincerely yours Checked & signed

Stamford University Bangladesh

Foreign exchange activities of AIBL

Md. Abul Hossain

Foreign exchange activities of AIBL

Department of Business Administration

Stamford University, Bangladesh

Foreign exchange activities of AIBL

To Whom It May Concern

I wish him every success in his life.

Department of Business Administration

Stamford University Bangladesh

Foreign exchange activities of AIBL

CHAPTER TWO: BACKGROUND OF AIBL 20

CHAPTER THREE: INDUSTRY OVERVIEW 36

CHAPTER FOUR: FOREIGN EXCHANGE DIVISION OF AIBL 43

4.2.1 Import registration certificate (IRC) 45

Foreign exchange activities of AIBL

4.2.3 Letter of credit (L/C) 46

CHAPTER FIVE: FOREIGN EXCHANGE PERFORMANCE ANALYSIS 66

CHAPTER SIX: PERFORMANCE OF AIBL 87

CHAPTER SEVEN: RECOMMENDATIONS & CONCLUSIONS 108

7.1 Proposal 109

Foreign exchange activities of AIBL

Foreign exchange activities of AIBL

Foreign exchange activities of AIBL

In the comparative analysis it was revealed that –

Foreign exchange activities of AIBL

Foreign exchange activities of AIBL

Foreign exchange activities of AIBL

Banking system occupies an important place in a nation's economy. A banking institution is

1.2 Origin of the report

Foreign exchange activities of AIBL

1.3 Rationale of the Study

Foreign exchange activities of AIBL

1.4 Acronyms & abbreviations

Foreign exchange activities of AIBL

1.6 Source of Data

Primary sources of data:

 Face to face conversation with the bank officers & staffs.

Secondary sources of data:

 Procedure manual published by the Al-Arafah Islami Bank Ltd.

1.7 Objective of the Study

 To get practical exposure to corporate culture

 To get an overall idea of banking from banker’s point of view.

Foreign exchange activities of AIBL

1.8 Limitation of the Study

Foreign exchange activities of AIBL

2.1 Vision of AIBL:

To be a pioneer in Islamic Banking in Bangladesh and contribute significantly to the growth of

the national economy.

Foreign exchange activities of AIBL