A PROPOSAL OF INTERNSHIP PROGRAM

OPERATING PERFORMANCE OF AL- ARAFAH ISLAMI BANK LIMITED: A STUDY ON HAZARIBAG BRANCH

OPERATING PERFORMANCE OF AL- ARAFAH ISLAMI BANK LIMITED: A STUDY ON HAZARIBAG BRANCH

Prepared to Farhana Rob Shampa Senior Lecturer in Finance Department of Business Administration Northern University Bangladesh

Prepared By Md. Monirul Islam ID:BBA 090303330 Program: BBA Email: imonirul20@yahoo.com

Introduction:
The majority of Bangladesh population is Muslim. Islam strictly forbids its followers to deal with conventional Banks. The central issue concerns the payment of interest on loans and savings. Islamic law forbids this practice while it is common practice in the conventional banking industry. In this respect, Islam suggests a different banking system based on financial products that emphasize the sharing of both the profits and losses between the borrower and lender. In spite of, the majority of the population of Bangladeshi is Muslim; All Islamic bank has not been very successful in Bangladesh. Islamic banking institutions have been in business in Bangladesh for a long time. However, the market share is very small and they have failed to attract the interest of borrowers or the savers. Islamic banks in Bangladesh have not been very successful like Malaysia and Pakistan. Al -Arafah Islami Bank Ltd. (AIBL) was established (registered) as a private limited company on 18th June, 1995. The authorized capital of the Bank is Tk. 5,000.00 million and the paid up capital is Tk. 4,677.28 million. Renowned Islamic Scholars and pious businesspersons of the country are the sponsors of the AIBL Bank. Paid up capital is being owned100 percentage by indigenous shareholders. The equity of the Bank stood at Tk. 9,647.45 million as on (31 December 2010), the manpower was 1,711(app.) and the number of shareholders was 49,386. It has achieved a continuous profit and declared a good dividend over the years. High quality customer service through the integration of modern technology and new products is the tool of the bank to achieve success. The bank has a diverse array of carefully tailored products and services to satisfy customer needs. The Bank is committed to contribute significantly to the national economy. It has made a positive contribution towards the socio economic development of the country with 101 branches of which 21 is authorized dealer throughout the country.

Problem Statement:
Islamic banking stands for the use of money as a medium of exchange. Conventional banking, on the other hand, emphasizes the need for maintaining liquidity and hence requires an adequate amount of reserves. Basic principle of Islamic banking being PLS-based financing and thereby having been exposed to increased risk, it would conceivably require higher liquidity and reserves. The conventional banks follow borrowing and lending mechanisms, the Islamic bank does trading and investment mechanisms and neither accepts nor pays interest in any of its activities. And the other is that the conventional banks provide and receive interest for deposit and advance but Islamic banks are concerned with profit in case of both deposit and investment. There are 7 Islamic banks operating in Bangladesh but all Islamic banks have been very successful in Bangladesh. However, the market share is very small and they have failed to attract the interest of borrowers or the savers. Performance analysis is one of great measurement to know any Bank Financial position. Ratio analysis is an important tool for analyzing the company's financial performance. Ratio analysis is an important technique of financial statement analysis. Accounting ratios are useful for understanding the financial position of the bank. Different users such as investors, management, bankers and creditors use the ratio to analyze the financial situation of the company for their decision making purpose. Here actually we will try to analyze the performance of Al- Arafah Islami Bank Ltd based on ratio analysis. By analyzing performance, we can identify previous and current position of AIBL. We try to find out the initiative would take by the AIBL.

Background:
The environment and the banking industry can both benefit if more bank customers start to use the online banking services that are available like an online savings account. Benefits of online banking include less paperwork, less mail, and less driving to branch offices by bank customers, which all have a positive impact on the environment the act of performing or the state of being performed. By analyzing the performance of AIBL, we can easily identify what is the situation of that Bank and as well as the branch position. Actually, this performance is analyzed based on

horizontal financial analysis method. That is why we easily identify what was the condition of AIBL and what is the present situation of AIBL. An Islamic bank is simultaneously a commercial bank, an Investment bank and a development bank. So it is very difficult to find a common and unanimously accepted yardstick to compare the performance of different categories of banks. There are five sets of indicators, such as general business measures, social profitability measures, branch performance measures, employee performance measures, and profitability measures. Which measures the performance of commercial banks in this internship work, we would like to measure the comparative performances of Islamic banks operating in Bangladesh.

Objective of the Study:

The broad objectives of the study are to critically appraise the recent operating scenario of AIBL banks in Bangladesh and present scenario related to some issues of how the operating performance would be more efficient as well as effective for Islamic bank. The objectives are: Main Objective: To identify specialized functions and characteristics of AIBL.

Supporting Objectives: To trace the history and operations of AIBL in Bangladesh. Analyzing performance of AIBL based on various types of ratio analysis according to horizontal financial statement. To identify the existing, operating status of AIBL. To identify the existing services provided by the AIBL. To gather information related to the strengths and weaknesses of the Bank and as well as the Hazaribag branch. To suggest the better ways of enhancing the performance of the Bank.

Finally, to recommend actions that may be necessary to redesign the operating system for ensuring measurement of various performances and disclosure of significant information.

Significance of the study:

It is very important to know what the performance of AIBL is. It is so much important to know whether the performance good or bad. AIBL will be benefited by comparing the required and taken (prevailing) initiative. Bangladesh Bank can accelerate/expedite their present initiatives and can modify their existing stated policy for sustain a profitable one. Other banks can get lesson how to keep away their bank such a profitable as well as the identified other problem bank can also rethink about their policies and functions.

Methodology:
The internship work try to identify the most widely used indicators of bank performance and applies the same to make a thorough examination of various performance dimensions of the Bank. The data required for this study will be collected from both primary and secondary sources; however, majority of the information will be collected from secondary sources. In this regard, Last 06 years data of AIBL will be collected and last 6 months performance of the branch.

Data Presentation and Analysis:

To analyze and present the data, the statistical techniques like MS word, Ms excel and SPSS-16 will be used. The analysis of the report will be based on horizontal financial analysis method. There are some other methods of performance measurement such as EVA, Stress Testing, sensitivity analysis, and Credit rating will not be adopted in this regard.

Sources of Data:
The main sources of data used in the study included annual reports of AIBL. The following sources have been used for the purpose of gathering and collecting data as required.

Primary data: Study of relevant file Branch Manager & Second Officer. To observe daily activities regularly.

Oral and informal interview of officers and employees in Al- Arafah Islami bank and
personal observation.

Practical work experience.

Secondary Data: Annual report of Al- Arafah Islami Bank limited.( 2007-2012) Statement of Affairs January to June 2013 of that branch. (Jan- June 2013) Various prescribed forms of investment will be analyzed. Official records of Al- Arafah Islami Bank limited. Website of Al- Arafah Islami Bank limited. Manuals of investment of AIBL. Different textbooks & materials. Audit reports. Internet and various study selected reports. Relevant data were collected from various Bangladesh Bank publications, viz., o Economic Trends, o Scheduled Bank Statistics, o Annual Reports of Bangladesh Bank o Bangladesh Bank Bulletin. Five major dimensions of performance viz. general business measures, profitability, management soundness and social profitability were analyzed by using appropriate indicators or ratios. A list of the indicators is provided in the appendix.

Market share and growth rate of different categories of banks against certain variables were also provided.

In addition, trend values were calculated to find the absolute changes of the variables and their direction of change.

Scope of the study:

Al- Arafah Islami Bank limited is to become the first choice in commercial banking and to make significant contribution for the society. It formally launched business activities on 27-09-1995. The report will concentrate only upon AIBL as a case study. Due to successful completion of essential part of the report have the opportunity to discuss regarding following issues: The present situation of Al- Arafah Islami Bank Ltd based on performance Analysis. To know about the previous years performance situation. The problems of overall banking practice in AIBL. Comparison with other Islamic banks in Bangladesh.

Limitations of the study:

The sources of the report are collected from different desks, various documents of Al- Arafah Islami Bank Limited (AIBL). Though the entire staff member remains busy all the time for their deskwork, they helped a lot to manage and collect the data & information.

But it was very difficult to collect information on the client as it is very sensitive and secret issue for the Bank. Every task has some limitations. Therefore, there have also some limitations of the study. These are as follows-

a) Shortage of time: This report is written within a shorter period of time since many days have passed during the training session. Therefore, the time constraint of the study hindering the course of vast area and time for preparing a report within the mentioned period is difficult.

b) Busy working environment: The officials had some times been unable to provide information because of their huge routine work. That is why we do not gather vast knowledge about the critical issues.

c) Secrecy of Management: There some information which are confidential for collecting the data. Therefore, some data could not been collected for confidentiality or secrecy of management. d) Other Problem: Organizations does not have an enrich library to study & other things.

Budget of the study:

Financial Budget:

Particulars Semester fee Internship Credit fee (3 credit) Report binding fee Transportation cost for work in the bank Contact with internship supervisor Miscellaneous Total cost for internship (App.)

Amount (TK.) 4,000.00 7,500.00 2,000.00 2,000.00 800.0 2,000.00 = Tk. 18,300

Time frame: Gantt chart

The following Gantt chart will explain the time frame of the internship period. Activities Duration Time (Month) May Proposal. 10 days Data collection. Report writing and analyzing data. June July August

20 Days

70 days

Submitting of final 7 days Report.

Source: Self devised