Chapter: One

Introduction

1
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.

Day by day, new competitors appear with better ideas & Products as well as scheme.
Since inception in 18th June, 1995, Al-Arafah Islami Bank Limited had a single vision
that is to be a pioneer in Islami Banking in Bangladesh and contribute significantly to
the growth of the national economy. This report is an attempt to reflect the investment
position of Al-Arafah Islami Bank Ltd. in the banking industry of the country in
respect of their activities in the arena of investment as part of Finance. This study
helped me to analyze the investment performance of Al-Arafah Islami Bank Ltd.
through Mirpur-1 Branch.

2
1.2: BACKGROUND OF THE REPORT
In order to fulfill the requirement of BBA degree from Prime University every student
has to submit Internship report. This program has been designed to facilitate the
students and the executive to provide basic theoretical knowledge and practical in the
job activities in the context of Bangladesh. As part of the program, I am highly proud
of as an employee of Al–Arafah Islami Bank Limited and selecting the topic “Foreign
Exchange Operations of Al-Arafah Islami Bank Limited" In the project program, my
academic supervisor Madam, Tabassum Akter, Senior Lecturer, Department of
Business Administration, Prime University, assigned me the topic of my report and
my organizational supervisor Md.Reazul Kabir (Reaz), Al-Arafah Islami Bank
Limited, Mirpur-1 Branch.The reason behind choosing this topic is that, to illustrate
the activities of the host organization Al-Arafah Islami Bank Limited. This bank has
given emphasis on better customer service and more customer satisfaction. I have
tried to my best to properly apply my potentiality and theoretical knowledge to make
the report reliable and worthy information.

1.3: SIGNIFICANCE OF THE REPORT

The internship report is an important partial requirement of BBA program. This is
because knowledge and learning become perfect when it is associated theory and
practice. That is student can train and prepare themselves for the job market. A poor
country like Bangladesh has an over whelming number of unemployed educated
graduates. As they have no practical experience been able to gain normal professional
knowledge to establish networking, which is important for getting a job. Therefore, it
is obvious that the significance of Projects clearly justified as the crucial requirement
of getting BBA certificate.

1.4: SCOPE OF THE REPORT

The report covers the details of Al-Arafah Islami Bank practices about all activities. It
also highlights-
 An overview of Al-Arafah Islami Bank.
 Performance and evaluation of foreign exchange of Al-Arafah Islami Bank
limited

1.5: OBJECTIVES OF THE REPORT

3
Broad Objective: The broad objective of this report is to analyze the Foreign
Exchange Operations of Al-Arafah Islami Bank
Specific Objectives:
The following objectives can be listed as the Specific objectives of the study:
 To know procedure of export and import financing and remittance flow
conducted by Al-Arafah Islami Bank Ltd.
 To analyze the trend of export & import financing and remittance flow of Al-
Arafah Islami Bank Ltd.
 To examine the earrings of import financing, export financing and remittance
flow during the period.
 To compare the market share of Al-Arafah Islami Bank Limited to National
foreign exchange financing.

1.6: METHODOLOGY OF THE REPORT

Methods followed to perform a job or conducting activities to compare a task is called
methodology. Although we tried to use both qualitative and quantitative method in
our report as the mixture of those two would yield the best outcome

Research design
This report is descriptive in nature. It has been conducted by collecting secondary
data. Annual reports of Al-Arafah Islami Bank Ltd. were the major secondary data
sources in this regard. This study been conducted by collecting data for the period of 5
years from 2012 to 2016.

 Sources of data
1.6.1: primary source:
 Informal discussion with the officers and personal observation.
1.6.2: secondary sources:
 Annual report of Al-Arafah Islami Bank Ltd.
 Different books
 Website of Al-Arafah Islami Bank Ltd. (www.alarafahbank.com)
 Web based support from the internet

 Tools used for Analysis and reporting

4
To organize this report I used several diagrams, graphs and different charts. To
analyze the performance of foreign exchange of Al-Arafah Islami Bank Ltd., we used
trend analysis, and comparative analysis. For reporting, I used software like Microsoft
Word, Microsoft Excel and Microsoft power point.

1.7: LIMITATIONS OF THE REPORT

To provide the correct information and to make the report read worthy, support from
various sources is essential. In spite of my whole hearted effort, I could not collect
some information required at the time of the study. So this study is not free from the
following limitations.
 Limited work experience- most of the working days at Al-Arafah Islami
Bank Ltd., I had to work in local export department. So I less knows about
other department like foreign export.
 Time limitation- due to shortage of time, the accuracy of information
might not have been completely perfect.
 Inadequate data- lack of available information about the business
operations of Al-Arafah Islami Bank Ltd. Because of the unwillingness of
the busy key person, necessary data collection becomes hard.
 Lack of record- large scale research was not possible due to constrain and
restriction posed by the org.
 Confidentiality- in order to guard the secrecy of the bank Al-Arafah Islami
Bank Ltd. is not interested to disclose some certain information required
for this report.

5
 Chapter: Two
Theoritical Framework

6
2.1 FOREIGN TRADE
Foreign trade can be easily defined as a business activity which transcends national
boundaries. The foreign trade department deals with the export and import business of
various clients. The clients open L/C for importing and exporting goods from and to
abroad through this division. In the case of import, the bank usually works as the
issuing bank and in the case of export the bank works as advising bank or negotiating
bank or as both. The foreign trade of different countries in the aggregate constitutes
international trade. The nature, level of development and significance of foreign trade
are determined by the specific mode of production. International division of labor is
the basis of foreign trade.

Foreign trade transactions are classified under three categories-

 Import Trade: Import trade refers to purchase of goods from one country to
another country or inflow of goods and services from foreign country to home
country. The party who brings the good is called importer. An import of a good
occurs when there is a change of ownership from a non-resident to a resident; this
does not necessarily imply that the goods in question physically cross the frontier.
 Export Trade: Export trade refers to the sale of goods by one country to another
country or outflow of goods from the home country to a foreign country. Export
means shipping the goods and services out of the part of the country. The seller of
such goods and services is referred to as an “exporter”. In international trade,
exports refer to selling goods and services produced in the home country to other
markets.
 Remittance: A Remittance is a transfer of money by a foreign worker to an
individual in his or her home country. Money sent home country by migrants
competes with international aid as one of the largest financial inflows to
developing countries. Workers Remittance is a significant part of international
capital flows, especially with regard to labour-exporting countries.

7
2.2 DEFINITION
 Swift: The bank has become the member of SWIFT Alliance Access, a multi
branch secure financial system provided by the society for Worldwide Inter-bank
Financial Telecommunications [SWIFT], Belgium. With the activation of the
SWIFT system the bank enjoys instant, low-cost, speedy and reliable connectivity
for L/C transaction, fund transfer, message communication and other worldwide
financial activities.
 Letter of credit: Letter of credit (L/C) can be defined as a "Credit Contract"
where by the buyer bank is committed (on behalf of the buyer) to place an agreed
amount of money at the sellers disposal under some agreed conditions. Since the
agreed conditions include, amongst other things, the presentation of some
specified documents, the letter of credit is called documentary letter of credit. As
per UCPDC 500, a letter of credit may be both revocable and irrevocable.

2.3 PARTIES INVOLVE IN LETTER OF CREDIT

The major parties involved in a letter of credit are discussed below:
 Applicant/importer/buyer: Applicant which is also referred to as account party
is normally a buyer or customer of the goods, who has to make payment to
beneficiary. LC is initiated and issued at his request and on the basis of his
instructions.
 Issuing Bank (Opening Bank): The issuing bank is the one which create a
letter of credit and takes the responsibility to make the payments on receipt of
the documents from the beneficiary or through their banker.
 Beneficiary/exporter/seller: Beneficiary is normally stands for a seller of the
goods, who has to receive payment from the applicant. A credit is issued in his
favor to enable him or his agent to obtain payment on surrender of stipulated
document and comply with the term and conditions of the L/C. If L/C is a
transferable one and he transfers the credit to another party, then he is referred to
as the first or original beneficiary.
 Advising Bank: An Advising Bank provides advice to the beneficiary and takes
the responsibility for sending the documents to the issuing bank and is normally
located in the country of the beneficiary.

8
  Confirming Bank: Confirming bank adds its guarantee to the credit opened by
another bank, thereby undertaking the responsibility of payment/negotiation
acceptance under the credit, in additional to that of the issuing bank.
 Negotiating Bank: The Negotiating Bank is the bank who negotiates the
documents submitted to them by the beneficiary under the credit either advised
through them or restricted to them for negotiation. On negotiation of the
documents they will claim the reimbursement under the credit and makes the
payment to the beneficiary provided the documents submitted are in accordance
with the terms and conditions of the letters of credit.
 Reimbursing Bank: Reimbursing Bank is the bank authorized to honor the
reimbursement claim in settlement of negotiation/acceptance/payment lodged
with it by the negotiating bank. It is normally the bank with which issuing bank
has an account from which payment has to be made.
 Second Beneficiary: second beneficiary means who represent the first
beneficiary or original beneficiary in their absence wherein the credits belongs
to original beneficiary is transferable as per terms.

2.4 TYPES OF LETTER OF CREDIT

The major types involved in a letter of credit are discussed below:
 Commercial Letter of Credit: Commercial letter of credit is mainly used as a
primary tool in international trade such as exporting and importing
transactions. The majority of commercial letter of credit is issued subject to
the latest version of UCP (uniform customs and practice for documentary
credits). The ICC publishes UCP which is the set of rules that governs the
commercial letters of credit procedures.
 Standby letters of credit: Standby letter of credit means the payment to be
utilized when the principal perform its duties. As an example, let us consider
an exporter who ships the goods according to the sales contract and apply to
the nominated bank for the payment. If the nominated bank decides that the
presentation is conforming to the terms and conditions of the credit and UCP
rules then the exporter will be paid.
 Revocable letter of credit: Revocable letter of credit gives issuer the
amendment or cancellation right of the credit, any time without prior notice to
the beneficiary. Since revocable letter of credit does not provide any

9
 protection to the beneficiary, they are not used frequently. In addition, UCP
600 has no reference to revocable letter of credit. All credits issued subject to
UCP 600 are irrevocable unless otherwise agreed between the parties.
 Irrevocable letter of credit: Irrevocable letter of credit cannot be amended
and cancelled without the agreement of the credit parties. Unconfirmed
irrevocable letters of credit cannot be modified without the written consent of
both the issuing bank and the beneficiary. Confirmed irrevocable letters of
credit need also confirming banks written consent in order any modification or
cancellation to be effective.
 Unconfirmed letter of credit: Unconfirmed letter of credit can be described
as a letter of credit, which has not been guaranteed or confirmed by any bank
other than the bank that opened it.
 Confirmed letter of credit: Confirmation means a definite undertaking of the
confirming bank, in addition to that of the issuing bank, to honour or negotiate
a complying presentation. If a letter of credits payment undertaking is
guaranteed by a second bank, in addition to the bank originally issuing the
credit this kind of credit is called a confirmed letter of credit.
 Clean letters of credit: Clean letter of credit is issued only by the request of
the highest credit standing companies. It is suitable for various commercial
situations where no movement of goods is expected. Historically these types
of credits have been used in the traveller letter of credit.
 Transferable letter of credit: Transferable letter of credit is a documentary
credit that is issued with the option to allow a trader to transfer its rights and
obligations to the supplier.
 Back-to-back letters of credit: It is an arrangement in which on irrevocable
letter of credit serves as the collateral for another. The advising bank of the
first letter of credit becomes the issuing bank of the second L/C. unlike
transferable letter of credit, there are two separate letters of credits exist in
back-to-back letter of credit transactions.
 Advance payment (Red Clause) letter of credit: Letter of credit is a
provision (Traditionally written or typed in red ink) which allows a seller to
draw up to a fixed sum from the advising or paying-bank, in advance of the
shipment or before presenting the prescribed documents.

10
2.5 DIFFERENT ACCOUNTS IN L/C OPERATION
 Nostro Account: Nostro account means “our account with you”. A Nostro
account is a foreign currency account of a bank maintained its foreign
correspondents abroad. For example, US Dollar Account of DBBL maintained
with Citibank, N.A, New York, USA is a Nostro account of AIBL.
 Vostro Account: Vostro account means “your account with us”. The account
maintained with foreign correspondent in a bank of a particular country is
known as Vostro account. What is the nostro account for a bank in a particular
country is a vostro account for the bank abroad maintaining the account thus
the account of DBBL with City Bank N.A, New York is regarded as it’s nostro
account held with City Bank, while City Bank N.A, New York regards it as a
it’s vostro account held for AIBL.
 Loro Account: Loro account means “their account with you”. Account
maintained by third party is known as Loro account; suppose AIBL is
maintaining an account with City Bank N.A, is also maintaining a nostro
account with City Bank N.A, New York. From the point of view of DBBL
Southeast Bank’s account maintained with City Bank N.A New York is the
Loro account.

2.6 SOME IMPORTANT TERMS OF LETTER OF CREDIT

 Free on Board: One of the most commonly used and misused terms, FOB
means that the seller used his frights forever forwarder to move the
merchandise to the port or designated point of origin. Through frequently used
to describe inland movement of cargo, FOB specially refers to ocean or inland
water way transportation of goods. “Delivery” is accomplished when the
shipper releases the goods to the buyer’s forwarder. The buyer’s responsibility
for insurance and transportation begins at the same moment.
 Cost and Freight: This term formally known as CNF defines two distinct and
separate responsibilities one is dealing with the actual cost of merchandise “c”
and the other “F” refers charges to a predetermined destinations point. It is
the sellers’ responsibilities to get goods from their door to the post of
destination. “Delivery” is accomplished at this time. It is a buyer’s
responsibility to cover insurance form the port of origin or port of shipment to
buyer’s door.

11
  Cost, Insurance and Freight (CIF): This arrangement similar to CFR, but
instead of the buyer insuring the goods for the maritime phase of the voyage,
the seller will insure the merchandise. In this arrangement the seller usually
chooses the forwarder. “Delivery” as above, is accomplished at the port of
destination.

2.7 DOCUMENTARY CREDIT

Documentary credit means the same thing than “letter of credit”. Traders and bankers
in some parts of the world (US, Asia) tend to use the term “letter of credit” or the
abbreviation “L/C”, while some bankers (in Europe) prefer to use “documentary
credit” or “D/C”. Documentary credits facilitate international payments by providing
security for both the exporter and the importer. The seller receives an advance
assurance of payment upon presentation of documents conforming to the terms and
conditions of the letter of credit, and the buyer is assured that the bank will not pay
unless the seller has actually submitted documents strictly complying with the
documentary credit.

2.8 COMMERCIAL INVOICE

A commercial invoice is a document used in foreign trade. It is used as a customs
declaration provided by the person or corporation that is exporting an item across
international borders. Although there is no standard format, the document must
include a few specific pieces of information such as the parties involved in the
shipping transaction, the goods being transported, the country of manufacture, and the
harmonized system codes for goods. A commercial invoice must also include a
statement certifying that the invoice true, and a signature.
As in a domestic shipment, good business practice that a commercial invoice
includes-
 Full address of shipper, seller and consignee if different.
 The respective reference number.
 Date of order.
 Shipping date.
 Mode of shipment.
 Delivery and payment terms.
 A complete description of the merchandise and price.

12
2.9. BILL OF LADING
A Bill of lading (sometimes abbreviated as B/L or BOL) is the cardinal document
against an import L/C. it is a document of title to goods evidencing its dispatch from
the exporting to the importing country. The B/L issued by the shipping company
facilitates negotiation of documents. Through if the exporter ensures:
 It is clean.
 It evidence that the consignment is on board and that bears the date of
shipment not after the stipulated date.
 It must state the position with regard to how and who has paid or would pay
the freight.
 It must indicate the port of loading and the name of the port of destination.
2.10. BILL OF EXCHANGE
A bill of exchange is an instruction by the exporter (drawer) to the importer or the
importer's bank to make payments of the amount mentioned in it. A bill of exchange
is a negotiable instrument and is governed by the Negotiable Instrument Act.
 Its date must not be prior to the date of shipment or subsequent to the date of
presentation.
 Its value must correspond to the value of the invoice and must not exceed the
L/C amount
 It must be drawn to the order of a bank.

A bill of exchange is also called a draft but, while all drafts are negotiable
instruments, only “to order” bills of exchange can be negotiated. According to the
1930 convention providing a uniform law for bills of exchange and promissory notes
held in Geneva (also called Geneva Convention) a bill of exchange contains:
 The term bill of exchange inserted in the body of the instrument and
expressed in the language employed in the drawing up the instrument.
 An unconditional order to pay a determinate sum of money.
 The name of the person who is to pay (drawee).
 A statement of the time of payment.
 A statement of the place where payment is to be made.
 The name of the person whom or to whose order payment is to be made.
 A statement of the date and of the place where the bill is issued.

13
2.11 FOREIGN EXCHANGE
Foreign exchange refers to the process or mechanism by which the currency of one
country is converted into the currency of another country. 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 countries 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.

Banks play a very important role in effecting Foreign Exchange Transaction of a

country. Mainly transaction with overseas countries in respect of imports, exports and
Foreign Remittance come under the preview of foreign exchange transactions. Banks
are the vital sector by which such transactions are effected/settled. Central Bank
records all sorts of foreign exchange transaction and therefore, transaction effected by
the Banks and other authorized quarters are to be reported regularly (Daily,
Fortnightly, Monthly, Quarterly, Yearly etc.) to Bangladesh Bank by the foreign
exchange department of every Banks. Foreign Exchange Department plays a vital role
to earn the Banks maximum profit. This department is classified according to their
activities.

The foreign exchange department consists of three sections, these are as follows:

FOREIGN EXCHANGE

Export Import Remittance

14
2.12: IMPORT FINANCING
Import is foreign goods and services purchased by customers, firms and government
in Bangladesh. An importer must have import Registration certificate given by chief
controller of import and export to import anything from other country. To obtain IRC
the following certificate requires:

 Nationality Certificate
 Banks solvency certificate
 Asset certificate
 Registration partnership deed
 Memorandum and article of association
 Certificate of incorporation
 Rent recipe of the premises.

15
2.13IMPORT FINANCING PROCURERS

1. Importers application for L/C



2. Scrutinizing of the importers L/C application

3. Proposal of the head office


4. Transmitting the L/C to the advising bank


5. Making negotiation by the beneficiary or importer


6. Amendment of L/C in times of need


7. Informing the exporter by the negotiating bank


8. Pre shipment inception before exporting the goods


9. Shipping of goods by the exporter


10. Presentation of Doc. To the nag, bank by the exporter

11. Forwarding the Doc. To the Al-Arafah Islami Bank Ltd. by the negotiating bank


12. Receiving and examining the Document


13. Payment of the exporter


14. Submission of returns

16
2.14 MAJOR STEP OF IMPORT L/C OPERATION
Step 01: Importers application for L/C:
For the purpose of opening the credit of importer is required to fill up and signed a
stamp. They has to provide the following information in the application.
 Full name and address of the beneficiary
 Types of business
 Amount of limit required
 Goods to be imported
 Origin of the goods
 Historical background
 Mode of transportation

Step 02: Scrutinizing of the importers L/C application:

For opening L/C the client has to submit the application prepared by the way to the
Al-Arafah Islami Bank. This L/C application is also an agreement between the bank
and importer. Along with the application the Al-Arafah Islami Bank Ltd. detect the
following certificate and paper-
 Proposal letter
 Application and agreement for irrevocable L/C with adhesive stamp of TK.
150.
 Import licence
 HS Code
 TIN
 Vat registration
 Indenting certificate
 Performa invoice- two copies.
 Letter of credit authorization from the industrial four copies. (Within this-IRC
number, total amount).
 Signature of direct of the firm and manager of SEBL.
 After preparing the procedure the bank provide offer in prescribe “offering
sheet”.
 Approval certificate of BB on behalf of importer.

17
Step 03: proposal to head office:
For verifying all papers, certificate and signature regarding L/C the Al-Arafah Islami
Bank Ltd. makes and send a proposal to the head office along with the require
documents.
Step 04: Transmitting the L/C to the advising bank:
After opening L/C in favor of importer the Al-Arafah Islami Bank Ltd. Transmit it to
the advising bank for advising it to the beneficiary. The main copy of transmitted but
the duplicate one is reserved at Mirpur branch for its own record. Transmitted L/C
through three methods, which are follows-
 Courier
 Telex/fax
 SWIFT

Step 05: Making negotiation by the beneficiary or importer:

After getting L/C from the advising bank of behalf of the issuing bank of beneficiary
it makes of negotiation with the advising bank and other third bank for exporting
goods to the importer through negotiating bank and issuing bank. If the beneficiary
makes the negotiation with the advising bank then the advising bank is converted into
negotiating bank.

Step 06: Amendment of L/C in times of need:

Amendment of L/C in did the agreement between the importer and exporter if needed.
Amendments they want to bring in the L/C have to be informed to the Al-Arafah
Islami Bank Ltd. Generally the L/C amended for the following references-
 Extension of the validity of the credit
 Increasing of the L/C value due to change of price or unit price
 Charge of documentary requirement

Step 07: Informing the exporter by the negotiating Bank:

After getting the advice, the negotiating bank advice the exporter in exporting his
goods. The negotiating bank tells the exporter that it is ready to negotiate the business
dealing between the importer and the exporter. The exporter being advised by the
advising bank make everything ready for shipment and sends all the documents to the
related authority for pre-shipment inspection. Act of negotiation and advising of
exporter section of the foreign exchange department on Al-Arafah Islami Bank Ltd.

18
Step 08: Pre shipment inception before exporting the goods:
The government has decided for that-
 Importing goods must have the pre-shipment report by their lasted institution.
 The pre-shipment inception company along with date and serial number must
certify invoice and packing list.
 Pre-shipment Inception Company will issue a certificates stating that they
have certificated the invoice value of the goods and that certificate must be
enclosed with original shipping documents.

Step 09: Shipment of goods by the exporter:

If the pre shipment is valid, the exporter then he exports his/her goods to the importer.
The exporter uses the convenient vehicle to export the goods. It may be ship, truck
etc. but importer must be informed about it.

Step 10: Presentation of Doc. To the neg. bank by the exporter:

The exporter keeps all the documents of shipment for submitting these to the
negotiating bank to get payment.

Step 11: Forwarding the Doc. To the Al-Arafah Islami Bank Ltd. by the
negotiating bank:
The negotiating bank scrutinizes all these documents and if it identifies these
documents are legal, forward the information to the import section of the foreign
exchange dep’t of the SEBL. The negotiating bank prepares all the duplicate of these
to keep at the bank for their own record and forward all these documents with a
schedule to the issuing bank.

Step 12: Receiving and examining the documents by the Al-Arafah Islami Bank
Ltd.:
On receipt of the documents, the Al-Arafah Islami Bank Ltd. examines all documents.
The checklist some of these documents are as follows-
 Examine of L/C.
 Examine of bill of exchange.
 Examine of commercial invoice.
 Examine of bill of lading.
 Examine the insurance policy.

19
Step 13: Payment to the exporter by the Al-Arafah Islami Bank Ltd.:
Foreign exchange payment to the exporter is made either through advising bank or
reimbursement bank. If there is a direct give and take relation with that the advising
bank AIBL request the advising bank to pay the export for the particular shipment.
Otherwise through the third party the payment is made. The reimbursement bank also
is to advice separately with a copy of L/C specific instruction to honor reimbursement
claim. The Al-Arafah Islami Bank pays to the advising or reimbursement bank
afterward.

Usually payment is given with seven days of the document receive. But if the
importer is unable to make payment then the document is purchased by the
negotiating bank or loan is created against importer merchandise to make payment to
the exporter. However for other case the Al-Arafah Islami Bank Ltd. claims interest.

Step 14: Submission of reports:

Foreign exchange function is performed by different particulars but BB controls all of
this activities. For this, according to the law of BB all foreign exchange documents
are to submit to BB after the foreign exchange trading ends. In this way foreign
exchange activities of Al-Arafah Islami Bank Ltd. branch comes to end.

2.15 PAYMENTS SYSTEM OF THE IMPORT DOCUMENT

This is the most sensitive task of the import department. The officials have to be very
much careful while making payment. The task constitutes the following –
 Date of payment: Usually payment is made within 7 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 BC rate to the customer. As
the T.T and OD rate is paid to the ID, the difference between these two rates is
exchange trading. Finally, an inter branch exchange trading 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 telex: A telex is transmission to the correspondent to the
correspond bank ensuring that payment is being made.

20
2.16 EXPORT FINANCE
Financing exports constitutes an important part of a bank’s activities. Exporters
require financial services at four different stages of their export operation. During
each of these phases exporters need different types of financial assistance depending
on the nature of the export contract.
 Pre-shipment credit
 Post-shipment credit

Pre-shipment credit:
Pre-shipment credit, as the name suggests, is given to finance the activities of an
exporter prior to the actual shipment of the goods for export. The purpose of such
credit is to meet working capital needs starting from the point of purchasing of raw
materials to final shipment of goods for export to foreign country. Before allowing
such credit to the exporters the bank takes into consideration about the credit
worthiness, export performance of the exporters, together with all other necessary
information required for sanctioning the credit in accordance with the existing rules
and regulations. Pre-shipment credit is given for the following purposes:
 Cash for local procurement and meeting related expenses.
 Procuring and processing of goods for export.
 Packing and transporting of goods for export.
 Payment of insurance premium.
 Inspection fees.
 Freight charges etc.

An exporter can obtain credit facilities against lien on the irrevocable, confirmed and
unrestricted export letter of credit in form of the followings:
 Export cash credit (Hypothecation)
 Export cash credit (Pledge)
 Export cash credit against trust receipt.
 Packing credit.
 Back to back letter of credit.
 Credit against Red-clause letter of credit.

21
Post Shipment Credit:
This type of credit refers to the credit facilities extended to the exporters by the banks
after shipment of the goods against export documents. Necessity for such credit arises,
as the exporter cannot afford to wait for a long time for without paying
manufacturers/suppliers. Before extending such credit, it is necessary on the part of
banks to look into carefully the financial soundness of exporters and buyers as well as
other relevant documents connected with the export in accordance with the rules and
regulations in force. Banks in our country extend post shipment credit to the exporters
through:
 Foreign Documentary Bills Purchased (FDBP).
 Local Documentary Bills Purchased (LDBP).

2.17 EXPORT FINANCING PROCURERS

There are a number of formalities, which an exporter has to fulfill before and after
shipment of goods. These formalities or procedures are enumerated as follows:

Registration of Export


Securing the Order


Signing the Contract


Receiving L/C


Procuring the materials and shipping of goods


Submission of the Documents to the bank for Negotiation

22
2.18 MAJOR STEPS OF EXPORT FINANCING

1. Registration of Exporters:
For obtaining an Export registration Certificate (ERC) Bangladesh exporters are
required to apply to the controller in the prescribed form along with the following
documents:
 Nationality and asserts certificate.
 Article of association and certificate of incorporation in case of limited
company.
 Bank Certificate.
 Income tax certificate.
 Trade license etc.
2. Securing the Order:
Upon registration, the exporter may proceed to secure the export order. Contracting
the buyers directly through correspondence can do this.
3. Signing the Contract:
 Description of the goods
 Quantity of the commodity
 Price of the commodity
 Shipment
 Insurance and marks
 Inspection
 Arbitration
4. Receiving the Letter:
After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C)
clearly stating terms and conditions of export and payment.
5. Procuring the Material:
Then the exporter should take the preparation for making agreement for delivery of
goods as per L/C terms prepare and submit shipping documents.
 EXP form
 ERC (Valid)
 L/C copy
 Customers Duty Certificate
 Transport Documents

23
  Insurance Documents
 Invoice
 Bill of Exchange (If required)
 Certificate of origin

6. Final Step:
After those exporter submits all these documents along with a letter of indemnity to
AIBL for negotiation. An officer scrutinizes all the documents. If the document is a
clear one AIBL will purchase the documents on the basis of banker customer
relationship. This is knows as Loan against Accepted Bills (LAAB).
2.19 PAYMENT SYSTEM OF EXPORT L/C
The most common methods of payment under a L/C are as follows:
 Sight payment credit: In a sight payment credit, the pays the stipulated sum
immediately against the exporter’s presentation of the documents.
 Negotiation credit: In negotiation credit, the exporter has to present a bill of
exchange payable to him in addition to other documents, i.e. the bank
negotiation.
 Deferred payment credit: In deferred payment, they agree to pay on a
specified future date or event, after presentation of the export documents. No
bill of exchange is involved. But the head office is paid at T.T clear rate. The
difference between the two rates is the exchange trading for the branch.
 Acceptance credit: In acceptance credit, the exporter presents hall of
exchange payable to him and drawn at the agreed tenor (that is on a specified
future date event) on the bank that is to accept it. Bank signs it’s accepted on
the bill returns to the exporter.

2.20 REMITTANCE FINANCE

Remittance means sending of fund. The word remittance we understand sending/
transferring of funds through a bank from one place to another place which may be
within the country or between two countries, one in abroad is called Foreign
Remittance. Foreign Remittance" means purchase and sale of freely convertible
foreign currencies as admissible "Foreign Exchange Regulations Act-1947" and
"Guidelines for Foreign Exchange transaction -VOL. 172 of the country. Purchase of
foreign currencies constitutes inward foreign remittance and sale of foreign currencies
constitutes outward Foreign Remittance.

24
2.21 TYPES OF REMITTANCE FINANCE
There are two types of foreign remittance-
1. Inward remittance
2. Outward remittance

Inward foreign remittance & its procedures:

Inward remittance covers purchase of foreign currency in the form of foreign T.T,
FDD, MC, TC, DL, and bills ac., 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.

1. Checks the 2. Fill up the 3. Insert to 4. After all

documents from from the clients. code/pin in the confirmation,
the clients. software. give money to
the clients.

Figure 4.11.1: Inward Remittance process of Al-Arafah Islami Bank Ltd.

Out ward foreign remittance & its procedures:

Remittance which is made from our country to abroad are called outward remittance.
The term outward Remittance includes not only remittance i.e. sale of foreign
currency by TT, MT, Drafts, Travelers cheque but also includes payment against
imports into Bangladesh and local currency credited to Non-resident Taka accounts of
foreign Banks or convertible Taka account.

1. Fill up the 2. Send that from 3. Grant that from 4. After authorization
bank through to the BB by post by BB through bank can sell those
bank through them for their seal by their foreign currencies with
authorization authorization in valid period of time
given by BB
Figure 4.11.2: Outward Remittance process of Al-Arafah Islami Bank Ltd.

25
2.22 INSTRUMENTS OF FOREIGN REMITTANCE FINANCING
Instruments of Foreign Remittance are given below:
 Cash for: Dollar, Pound, France Fr, Riyal or any other currency.
 T.C: Traveller Cheque.
 F.D.D: Foreign Demand Draft.
 T.T: Telegraphic Transfer, Cable Transfer or SWIFT Transfer.
 M.T: Mail Transfer.
 I.M.O: International Money Order
 Cheque: By any person & institution.
Foreign Demand Draft (FDD): A foreign demand draft or FDD is an instrument
most banks use for effecting transfer of money. It is a negotiable instrument. To buy a
FDD from a bank, you are required to fill an application.

Mail Transfers or Mail Order: Mail transfer is an instrument used by a remitting

bank to the playing bank advising in writing to make payment of certain amount of
specific beneficiary. This involves loss of interest to the purchaser and for this reasons
banks can afford to make M.T rate then T.T rate.
Telegraphic Transfer: T.T is an order of payment of money sent by the telex or
cable. Funds are paid to beneficiary in the foreign country usually on the same day.
No less of interest or expense on stamp duty etc.
Electronic Mode: More and more banks are now offering an electronic mode of
transfer of funds likes electronic transfer system, cash management product etc. the
remittance of funds through these modes is much quicker and the time is reduced to
hours and in some cases even minutes.

26
 Chapter: THREE
An Overview of Al-Arafah Islami Bank Limited

27
3.1: BACKGROUND
Al-Arafah Islami Bank Limited (AIBL) registered under the Companies Act 1913,
started its operations from the 18th of June’1995. It is governed by the Banking
Companies Act 1991. With the objective of achieving success here & hereafter by
pursuing the way directed by Allah and the path shown by His Result (SM), Al-Arafah
Islami Bank Ltd. was established (registered) as a private limited company on 18 June
1995. The inaugural ceremony took place on 27 September 1995. The authorized
capital of the Bank is Tk.5000.00 million and the paid up capital is Tk. 9,943.00
million as on 31.12.2016. Renowned Islami Scholars and pious businessmen of the
country are the sponsors of the Bank. 100% of paid up capital is being owned by
indigenous shareholders.

The equity of the bank stood at Tk.21,337.48 million as on 31 December 2016, the
manpower was 3070 and the number of shareholders was 36,695.00 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 140 branches (up to Dec, 2016) of which 24 AD throughout the country.

28
AIBL AT A GLANCE
NAME AL-ARAFAH ISLAMI BANK LIMITED (AIBL)
Date of incorporation 18th June, 1995
Date of inauguration of operation 27th September, 1995
1st Branch Motijheel Branch, Dhaka
Opening Ceremony 27 September, 1995
Banking Software ABABIL
Head Office 36Dilkusha C/A, Dhaka-1000, Bangladesh
PABX : +880-2-7123255-7, 9568007, 9569353
Logo of the bank

Name of the chairman of the Alhajj Abdus Samad ( Labu )

Board

Name of The Managing Director Md. Habibur Rahman

Number of Branches 154 Branches (Up to Dec’2017)
Services provided Deposit scheme, Credit facility and foreign
exchange services
Authorized Capital 15,000.00 Million
Paid up capital 9,943.06 Million
Local Partnership of Capital 100%
Equity 21,337.48 Million
Investment 1,96,519.38 Million
Deposit 1,99,703.92 Million
Number of Employees 3070
Number of Shareholders 36,695.00
SWIFT ALARBDDH
E-mail aibl@al-arafahbank.com
Web www.al-arafahbank.com

29
3.2: ORGANIZATIONAL GOALS AND OBJECTIVES
AIBL is unique in its objectives. It is a blend of development and Commercial Banks.
To undertake project promotion to identify profitable areas of investment
 To establish participatory banking instead of banking on debtor creditor
relationship
 To invest through different modes permitted under Islami Shariah
 To accepts deposits on profit loss sharing basis
 To conduct Workshop on Green Banking & Environment Risk
Management.
 To extend co-operation to the poor, the helpless and the low income group
for their economic up liftmen
 To play a vital role in human development and employment generation
 To Undertake Plantation program all over the country.
 To contribute in achieving the ultimate goal of Islami economic system

3.3:VISION OF AL-ARAFAH ISLAMI BANK LIMITED

• To be a pioneer in Islami Banking in Bangladesh and contribute significantly to the
growth of the national economy.

3.4: MISSION OF AL-ARAFAH ISLAMI BANK LIMITED

• Achieving the satisfaction of Almighty Allah both here & 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.
• Steady & 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.

30
3.5: CORE VALUE OF AIBL

Core value means an organization’s commitment to sustainability and to acting in an

environmentally friendly way, a commitment to innovation and excellence and a
commitment to doing well for the whole.

The core value of AIBL is given bellow:

 Trust in almighty Allah

 Strict observance of Islami Shariah
 Highest standard of Honesty, Integrity & Morale
 Welfare Banking
 Personalized service
 Adoption of changed Technology
 Proper Delegation, Transparency & Accountability.

3.6: COMMITMENTS TO CLIENTS

 AIBL has a customer focused modern Islami Banking sound and steady
growth in both mobilizing deposit and making quality Investment to keep our
position as a leading Islami bank in Bangladesh.
 To deliver financial services with the touch of our heart to retail, small and
medium scale enterprises, as well as corporate clients through our branches
across the country.
 AIBL’s business initiatives are designed to match the changing trade &
industrial needs of the clients.

31
3.7:ORGANIZATIONAL HIERARCHY OF AL-ARAFAH ISLAMI BANK
LTD

Managing Director

Deputy Managing
Director (DMD)

Executive Vice
President (EVP)

Sr. Vice President

(SVP)

Vice President (VP)

Assistant Vice
President (AVP)

First Asst. Vice

President

Senior Principal
Officer

Principal Officer

Senior Executive
Officer

Executive Officer

Officer

MCG

32
 Chapter: Four
Analysis & Finding Foreign
Exchange Performance

33
4.1 YEAR WISE FOREIGN EXCHANGE BUSINESS FINANCING
Table 4.1: Year Wise Foreign Exchange Business Financing (Tk. In Million)
Year 2012 2013 2014 2015 2016
Amount of Foreign
153528. 161937. 185629. 195910. 218674.
Exchange Business
7 8 7 7 2
Financing
Growth Rate 13.50% 5.20% 13.80% 5.60% 11.61%
Source: Annual report of AIBL 2012-2016

Graphical Presentation:

Total Performance of Foreign Exchange Financing Business

250000
218674.2
200000 195910.7
185629.7
150000 153525.7 161937.8

100000
50000
0
2012 2013 2014 2015 2016

Figure 4.1: Amount of foreign exchange financing business

Total Growth Rate

15.00%
13.50% 13.80%
11.61%
10.00%

5.00% 5.20% 5.60%

0.00%
2012 2013 2014 2015 2016

Figure 4.2: Growth rate of foreign Exchange Financing Business

Interpretation:
The graph shows that the foreign exchange business financing of AIBL was increased
over the year from Tk. 153525.70 million in 2012to Tk. 218674.2million in 2016.
Growth rate of foreign exchange business financing of AIBL was fluctuated and
decreased over the year from 13.50% in 2012 to 11.61%in 2016 which was not a good
indicator of bank foreign exchange performance.

34
4.2: YEAR WISE IMPORT BUSINESS FINANCING
Table 4.2: Year wise Import Business Financing (TK. IN MILLION)
Year 2012 2013 2014 2015 2016
Import Business
71931.7 85915.00 101244.7 107049.80 118786.60
Financing
Growth rate -5.49% 19.44% 17.84% 5.73% 11.61%
Source: Annual report of AIBL 2012-2016
Graphical presentation:

Import Business Financing

120000
100000 107049.80 118786.60
80000 101244.7
71931.7 85915
60000
40000
20000
0
2012 2013 2014 2015 2016

Figure 4.2: Amount of Import Business Financing

Growth rate of import business Financing:

Growth Rate of Import Business Financing

25.00%
20.00% 19.44% 17.84%
15.00%
10.00% 11.61%
5.00% 5.73%
0.00%
-5.00% 2012 -5.49% 2013 2014 2015 2016
-10.00%

Figure 4.2: Growth rate of Import Business Financing

Interpretation:
The figure shows that the import business financing of AIBL was increased over the
year from Tk. 71,931.70millionin2012 to Tk. 1,18,786.60 million in 2016. Growth
rate of import business financing was fluctuated and increased over the year of
analysis from

-5.49% in 2012 to 11.61%in 2016due to political unrest in couple of years.

35
4.3: YEAR WISE IMPORT FINANCING EARNINGS
Table 4.3: Import Financing Earnings (Tk. In Million)
Year 2012 2013 2014 2015 2016
Foreign Exchange Earnings 1626 1945 1776 2074 3018
Import Business Earnings 720 840 680 910 1353
Import Business Earnings as % of
44.28% 43.18% 38.80% 43.87% 48.70%
Foreign Exchange Earnings
Source: Annual report of AIBL 2012-2016

Graphical Presentation:

Import Business Financing Earnings

1500
1353
1000
840 910
720 680
500

0
2012 2013 2014 2015 2016

Figure: 4.3: Amount of import business financing Earnings

Import Business Earnings as Percentage of FE Earnings

60.00%
50.00% 48.71%
44.28% 43.18% 43.87%
40.00% 38.80%
30.00%
20.00%
10.00%
0.00%
2012 2013 2014 2015 2016

Figure: 4.3: Import business financing Earnings as percentage

Interpretation:
The graph shows that, earnings from import business financing was fluctuated and
increased over the year from Tk. 720 million in 2012 to tk. 1353 million in 2016.
Import earning percentage of total foreign exchange earning was also fluctuated and
increased over the year from 44.28% in 2012 to 48.71% in 2016.

36
4.4: YEAR WISE EXPORT BUSINESS FINANCING
Table 4.4: Export Business Financing (Tk. In Million)
Year 2012 2013 2014 2015 2016
Export Business
58476.60 68980.30 75843.90 79362.90 88152.20
Financing
Growth Rate 12.02% 17.96% 9.95% 4.64% 11.07%
Source: Annual report of AIBL 2012-2016

Graphical Presentation:

Year wise export business financing

100000
80000 79362.9 88152.20
75843.9
60000 68980.3
58476.6
40000
20000
0
2012 2013 2014 2015 2016

Figure 4.4: Amount of Export Business Financing

Growth Rate of Export Business Financing

20.00%
17.96%
15.00%
12.02% 11.07%
10.00% 9.95%

5.00% 4.64%
0.00%
2012 2013 2014 2015 2016

Figure: 4.4: Growth Rate of Export Business Financing

Interpretation:
The graph shows that the Export business Financing was increased over the year from
TK.58476.60 million in 2012 to TK.88152.20million in 2016. But the growth rate of
export business financing was decreased from 12.02%% in 2012which was not a good
indicator of banks export business financing performance 11.07% in 2016.

37
4.5: YEAR WISE EXPORT FINANCING EARNINGS
Table5.5: Export Financing Earnings (Tk. in million)
Year 2012 2013 2014 2015 2016
Total Foreign Exchange Business
1626 1945 1776 2074 3018
Financing Earnings
Export Business Financing
696 835 810 866 1261
Earnings
Export earning as % of foreign
Exchange Business Financing 42.80% 42.93% 45.60% 41.75% 45.69%
Earnings
Source: Annual report of AIBL 2012-2016

Graphical Presentation:

Earnings from export Business Financing

1500
1261
835 866
1000
696
500 810

0
2012 2013 2014 2015 2016

Figure 4.5: Amount of Export Business Financing Earnings

Export Business Financing Earning As Percentage of Foreign

Exchange Earnings
46.00% 45.60% 45.69%
44.00%
42.80% 42.93%
42.00% 41.75%
40.00%
38.00%
2012 2013 2014 2015 2016

Figure 4.5: Export Business Financing Earnings Percentage of Foreign Exchange

Earnings

Interpretation:
The graph shows that, the earnings from export business financing was increased
from Tk.696 million in 2012 to Tk. 1261 million in 2016. And as percentage of total
foreign exchange business earnings, it was also increased from 42.80% in 2012to
45.69% in 2016.

38
4.6: YEAR WISE FOREIGN REMITTANCE FINANCING
Table 4.6: Year Wise Foreign Remittance Financing (Amount TK in million)

Year 2012 2013 2014 2015 2016

Total Foreign Remittance
6876.20 23120.40 7042.50 8541.10 9498.00
Financing
Growth Rate 55.15% 236.24% (69.50%) 21.28% 11.20%
Source: Annual report of AIBL 2012-2016

Graphical presentation:

Year wise Total remittance Financing

25000
23120.4
20000
15000 9498
8541.1
7042.5
10000
6876.2
5000
0
2012 2013 2014 2015 2016

Figure 4.6: Amount of Remittance Financing

Growth Rate of Remittance Financing

300.00%
236.24%
200.00%

100.00%
55.15% 21.28%
0.00% 11.20%
2012 2013 2014 2015 2016
-69.50%
-100.00%

Figure 4.6: Growth Rate of Remittance Financing

Interpretation:
The above graph shows that the remittance business financing of AIBL was fluctuated
and increased over the year from 55.15% in 2012 to 11.20% in 2016. But the growth
rate of foreign remittance financing was decreased from 55.15% in 2012 to11.20% in
2016.

39
4.7 YEAR WISE FOREIGN REMITTANCE FINANCING EARNINGS
Table 4.7: Foreign Remittance Financing Earning (Amount TK. in millions)

Year 2012 2013 2014 2015 2016

Total foreign exchange Earnings 1626 1945 1776 2074 3018
Remittance earnings 210 270 286 298 404
Remittance earnings as% of foreign
12.91% 14.72% 14.72% 14.36% 40%
Exchange Earnings
Source: Annual report of AIBL 2012-2016

Graphical presentation:

Year wise remittance Financing Earnings

500
404
400 286 298
300 270
200
210
100
0
2012 2013 2014 2015 2016

Figure 4.7: Amount of Remittance Financing Earnings

Remittance Financing Earnings as percentage of foreign exchange

earnings
20.00%
14.72%
15.00% 12.91% 13.08%
14.36%
10.00%
9.88%
5.00%
0.00%
2012 2013 2014 2015 2016

Figure 4.7: Remittance Financing Earnings As Percentage

Interpretation:
The graph shows that the earnings from remittance was increased over the year from
Tk. 210 million in 2012to Tk.404 million in 2016. Remittance earnings as percentage
of foreign earnings was also increased over the year from 9.88% in 2012 to 14.36% in
2016

40
4.8 FE EARNINGS AS PERCENTAGE OF TOTAL INCOME
Table 4.8: FE Earnings as Percentage of Total Income (TK. in million)

Year 2012 2013 2014 2015 2016

Total Income 38400 50343 56092 58045 59825
Foreign Exchange Earnings 1626 1945 1776 2074 2404
FE Earnings as percentage of Total
4.23% 3.86% 3.16% 3.57% 4.02%
income
Source: Annual report of AIBL 2012-2016

Graphical Presentation:

FE Earnings As Percentage of total Income

4.50%
4.00% 4.02%
4.23% 3.16%
3.50%
3.86% 3.57%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2012 2013 2014 2015 2016

Figure 4.8: FE Earnings as percentage of total income

Interpretation:
The graph shows that, the contribution of foreign exchange earnings in total income
of AIBL was fluctuated over the year. It was decreased from 4.23% in 2012 to 3.86%
in 2013 but after that it was increased to 4.02% in 2016.

41
4.9: IMPORT, EXPORT &REMITTANCE AS PERCENTAGE OF FE
BUSINESS FINANCING
Table 4.9: Import, Export and Remittance In % of Total FE Business Financing
Year 2012 2013 2014 2015 2016
Total FE Business 135190.4 153528.7 161937.8 185629.7 195910.7
Financing

Import 36.07% -5.49% 19.44% 17.84% 5.73%

Export 62.92% 12.02% 17.96% 9.95% 4.64%
Remittance 55.15% 236.24% -69.50% 21.28% 11.20%

Graphical Presentation:
100%

80%

60%

40%

remittance
20%
export
0%
import
2012 2013 2014 2015 2016
-20%

-40%

-60%

-80%

Figure 4.9: Import, Export and Remittance In % of Total FE Business Financing

Interpretation:
The graph shows that, the contribution of import in total foreign exchange business
was moderate and at the part of export is quite low then other sectors and at the same
time the contribution of remittance is high.

42
4.10: Comparative Analysis
4.10.1 MARKET SHARE OF AIBL TO NATIONAL IMPORT:
Table 4.10.1: Market Share of AIBL to National Import (Tk. in million)

Year 2012 2013 2014 2015 2016

Import of AIBL 76112.10 71931.70 85915.00 101244.70 107049.80
National Import 2400279 2713000 2914526 3200560 3459000
Market Share of AIBL
3.17% 2.65% 2.94% 3.16% 3.09%
to National Import
Source: Annual report of AIBL 2012-2016

Graphical Presentation:

Market Share of AIBL to National Import

3.50%
3.17% 3.16% 3.09%
3.00% 2.94%
2.65%
2.50%

2.00%

1.50%

1.00%

0.50%

0.00%
2012 2013 2014 2015 2016

Figure 4.1: Market Share of AIBL in national import

Interpretation:
That graph shows that, contribution of AIBL in total national import was fluctuated
over the year. It was decreased from 3.17% in 2012 to 2.65% in 2013 &then
fluctuated over the year, which indicates a good performance of management in
import business financing.

43
4.10.2 MARKET SHARE OF AIBL TO NATIONAL EXPORT
Table 4.10.2: Market Share of AIBL to National Export (Tk. in million)
Year 2012 2013 2014 2015 2016
Export of AIBL 52202.10 58476.60 68980.30 75843.90 79362.90
National Export 1134598 1893880 2221485 2458947 2789747
Market Share of AIBL to
6.70% 4.46% 4.28% 4.56% 4.78%
national Export
Source: Annual report of AIBL 2012-2016

Graphical representation:

Market Share Of AIBL to National Remittance

7.00%

6.00% 6.07%

5.00%
4.78%
4.46% 4.56%
4.28%
4.00%

3.00%

2.00%

1.00%

0.00%
2012 2013 2014 2015 2016

Figure 4.2: Market Share of AIBL to National Export

Interpretation:
The graph shows that, the contribution of AIBL in total national export was
fluctuating but decreased over the year of analysis. It was 6.70% in 2012 but after that
it decreased in 4.46% in 2013 and over the year it was fluctuated which was not a
good indicator of bank foreign exchange performance.

44
4.10.3: MARKET SHARE OF AIBL TO NATIONAL REMITTANCE
Table: 4.10.3: Market Share of AIBL To National Remittance
Year 2012 2013 2014 2015 2016
National Remittance 920429 1014597 1142419 1217569 1138796
National Remittance of 6876.20 23120.40 7042.50 8541.10 9498.00
AIBL
Market Share of AIBL to 0.74% 2.27% 0.62% 0.70% 0.83%
national Remittance
Source: Annual report of AIBL 2012-2016

Graphical Presentation:

Market Share Of AIBL to National Remittance

2.50%
2.27%
2.00%

1.50%

1.00%
0.83%
0.74% 0.70%
0.62%
0.50%

0.00%
2012 2013 2014 2015 2016

Figure 4.3: Market Share of AIBL To National Remittance

Interpretation:
The graph shows that market share of AIBL in remittance was fluctuated over the
year of analysis. It was 0.74% in 2012 and then suddenly rise up to 2.27% in 2013,
but after that it decreased to 0.83% in 2016 .And it was a good induction of bank FE
performance.

45
SWOT Analysis in AIBL:

Every organization is composed of some internal strengths and weaknesses and also
has some external opportunities and threats in its whole life cycle.

Strengths:

 AIBL provides its customer excellent and consistent quality is every service.
 AIBL is financially sound company.
 AIBL utilizes state of the art technology to ensure consistent quality and
operation.
 AIBL provides its works force an excellent place to work
 AIBL already achieved a good will among the clients.
 AIBL has research and training division.
 AIBL has attractive salary structure.

Weaknesses:

 AIBL lacks well trained human resource in some area.

 AIBL lacks aggressive advertising.
 The procedure of credit facility is to long compare to other banks.
 Employees are not motivated in some areas.

Opportunities:

 AIBL can introduce more innovative and modern customer service.

 Many branches can be opened in local remote area as its high demand.
 AIBL can recruit experienced, efficient and knowledgeable officers and staffs
as it offers good working environment.
 Emergence of on line banking will open more scope for AIBL.

Threats:

The worldwide trend of mergers and acquisition in financial institutions is causing

problems.

 Frequency taka devaluation and foreign exchange rate fluctuation is causing

problem.
 Lot of new banks are coming in the scenario with new service.
 Local competitors can capture huge market share by offering similar products.

46
FINDINGS OF THE STUDY

 Foreign Exchange business financing of AIBL was increased over the

year from Tk.1, 53,528.70 million in 2012 to Tk.2, 18,674.20 million
in 2016. But the growth rate of foreign exchange business financing of
AIBL was fluctuated over the year.
 Import financing, Export financing and foreign remittance flow of
AIBL was increased over the year. But the growth rate of import
financing and remittance flow was fluctuated but growth rate of export
business financing was decreased over the year.
 Earnings from import financing, export financing and foreign
remittance flow of AIBL were fluctuated over the year. But the
contribution of import business financing was higher in relative to
export financing and flow of AIBL.
 Contribution of foreign exchange earnings on total income of AIBL
was decreased over the year from 13.50% in 2012 to 11.61% in 2016
which was not a good indicator of bank foreign exchange performance.
 The market share of AIBL in national import, export and remittance
business financing was decreased over the year, which was not a good
indicator of bank foreign exchange performance.

47
 Chapter: FIVE
Recommendation & Conclusion

48
5.1: RECOMMENDATIONS

 AIBL should try to develop attractive financing packages such as pre-

shipment finance, export guarantee facility etc. at a low rate of
exporters and importers to maintain and increase the trend of its import
and export business
 The bank can earn more foreign remittance inflow if they are able to
reduce charges, commissions and fees related to remittance. AIBL
should maintain regular contact with remitters and offer them quality
service to beta competition and to retain leading position in handling
foreign remittance.
 To increase earnings from foreign exchange business, the bank
management should give more contraction on their existing and
potential clients. They should develop new plan and operate their
activities more efficiently to mat tract new customer.
 Foreign exchange department can provide consulting facilities to new
exporter and importer to attract new customer.
 To increase the market share of AIBL in national export, import and
remittance business the bank management should try to increase
efficiency level by assessing the unique needs of the clients in the
changing pattern of world trade.

49
5.2: CONCLUSION

Al-Arafah Islami Bank Ltd. is a non-government commercial Bank in Bangladesh,

which started its business from 1995.I t is a unique combination of Shariah & Islamic
banking. Among non-government commercial banks, Al-Arafah Islami Bank Ltd. is a
milestone for economic development. It has been playing an important role to
eradicate the unemployment problem in Bangladesh. Over 3000 employees and
36,695 shareholders are getting benefit from this organization. But most of the people
in our country have misconception about Islamic banking specially Al-Arafah Islami
Bank Ltd. & other Islamic banks. They cannot find any difference in its operation
between conventional commercial Banks and Islamic Banks because they have no
clear idea about the activities as well as investment mechanism of Islamic banks .The
Bank is committed to run its activities as per Islamic Shariah and thus it has different
investment (credit) modes, different repayment schedules, different disbursement
procedure, different mark-up system, and also has a different Credit (Investment)
policy. Import, Export and foreign remittance business financing of AIBL was
increased over the year. Growth rate of import and foreign remittance business
financing was fluctuated but growth rate of export business financing was decreased
over the year. In national import, export and remittance business was decreased over
the year, which was not a good indicator of bank foreign exchange performance. The
bank can earn more foreign remittance inflow if they are able to reduce charges,
commissions and fees related to remittance. AIBL should maintain regular contact
with remitters and offer them quality service to beta competition and to retain leading
position in handling foreign remittance. Foreign exchange department can provide
consulting facilities to new exporter and importer to attract new customer. Foreign
exchange department can provide consulting facilities to new exporter and importer to
attract new customer. The bank can earn more foreign remittance inflow if they are
able to reduce charges, commissions and fees related to remittance

50
Reference:

Book Reference

Annual Report of Al-Arafah Islami Bank Limited from 2012 to 2016

Annual Report of Bangladesh Bank from 2012 to 2016
Foreign Exchange Manual of Al-Arafah Islami Bank Limited in 2016
Jeevanandam, C. (2000). Foreign Exchange: Practices and Control. India:
Sultan Chand and Sons Publication, pp.136-150
Kothari, C.R. (2003). Research Methodology.India:WishwaPrakashan,Second
edition, pp. 15-18
Miah, H. J. A. (2009). A Hand Book of Islami Banking & Foreign Exchange
Operation. Bangladesh: Prokashani Publication, pp.135-147

Web Reference

www.al-arafahbank.com
www.bb.org.bd

51
Appendix

52
 PERFORMANCE OF AL-ARAFAH ISLAMI BANK LIMITED (AIBL) AT A
GLANCE

5 YEAR FINANCIAL HIGHLIGHTS (AMOUNT IN MILLION TK.)

PARTICULARS 2012 2013 2014 2015 2016 GROWTH%

INCOME STATEMENT

Investment 14,998.6 17,966.32 19,725.91 18,568.00 18,830.15 1.41

Income 0
Profit-paid-on- 9,710.48 12,107.71 12,616.77 11,073.01 9,957.73 (10.07)
Deposit
Net-Investment 5,288.12 5,858.61 7,109.14 7,494.99 8872.42 18.38
Income
Non-Investment 1,693.98 1,757.09 2,485.88 2,511.94 2791.54 11.13
Income
Non-Investment 2,226.56 2,667.14 3,261.57 3,646.78 4152.93 13.88
Expenses
Net-Non- (532.58) (910.05) (775.69) (1,134.84) (1,361.39) 19.96
Investment
Income
Profit Before Tax 4,755.54 4,948.56 6,333.45 6,360.15 7,511.03 18.10
& Provision
Provision For 811.44 588.15 1,846.86 1,796.68 1,547.87 (13.85)
Investment
Profit Before Tax 3,944.10 4,360.41 4,486.59 4,563.47 5,963.16 30.67
Provision For 1,998.69 2,083.73 2,161.64 2,097.59 2,613.76 24.61
Tax (including
Deferred Tax)
Profit After Tax 1,945.41 2,276.68 2,324.95 2,465.88 3,349.40 35.83
BALANCE SHEET

Authorized 10,000.00 15,000.00 15,000.00 15,000.00 15,000.00 -

53
Capital
Paid up Capital 7,130.98 8,343.25 9,469.58 9,469.58 9,943.06 5
Reserve Funds 4,079.63 4,827.20 5,620.87 6,432.32 7,468.16 16.10
& Other Reserve
Shareholders’ 14,050.69 16,091.17 18,159.52 19,236.07 21,337.48 10.92
Equity (Capital
& Reserve)
Deposits 118,683.39 140,980.55 166,851.17 169,887.08 199,703.91 17.55
Investment 106,650.42 125,715.39 146,740.37 162,503.14 196,519.38 20.93
Investment in 5,511.24 7,138.93 9,120.90 8,851.13 9.058.68 2.34
Shares &
Securities
Fixed Assets 2,394.62 2,517.22 2,661.11 3,057.38 3240.18 5.98
Total Assets 149,320.36 173,161.63 210,439.01 229,106.66 272,900.04 19.11
(Excluding off-
balance)
FOREIGN EXCHANGE BUSINESS

Import Business 71,931.70 85,915.00 101,244.70 107,049.80 118,786.60 10.96

Export Business 58,476.60 68,980.30 75,843.90 79,362.90 88,152.20 11.07
Guarantee 1,955.72 2,006.61 3,365.27 4,471.41 4,981.34 11.40
Business
Inward Foreign 23,120.40 7,042.50 8,541.10 9,498.00 11,735.40 23.56
Remittance
CAPITAL MEASURES

Core Capital 13,073.14 15,113.62 17,181.97 18,244.48 20,359.39 11.59

(Tier-l)
Supplementary 1,731.59 1,511.75 1,732.06 4,828.03 5,095.97 5.55
Capital (Tier-ll)
Tier-l Capital 10.38 13.33 12.74 13.17 11.92 (9.43)
Ratio
Tier-11 Capital 1.37 1.33 1.28 3.48 2.98 (14.33)
Ratio

54
Total Capital 14,804.73 16,625.37 18,914.03 23,072.51 25,455.36 10.33
Total Capital 11.75 14.66 14.03 16.65 14.91 (10.45)
Ratio
INVESTMENT QUALITY

Volume of Non- 1,783.60 3,598.83 6,982.60 7,713.67 8,994.98 16.61

Performing
investment
% of NPIs to 1.63 2.77 4.50 4.66 4.54 (2.58)
Total
investment
Provision for 1,021.15 749.60 938.27 1,049.54 1,352.83 24.08
Unclassified
investment
Provision for 711.63 1,128.03 1,518.78 2,141.00 2.586.67 23.16
Classified
investment
Provision for 221.66 273.37 305.01 346.75 449.88 29.74
Off Balance
sheet Exposures
SHARE INFORMATION
Number of 713,098,010 834,324,671 946,958,503 946,958,50 994,306,42 5.00
Shares 3 8
Outstanding
Earnings per 2.03 2.46 2.20 2.25 3.07 36.48
Share (Taka)
Book Value per 19.70 19.29 19.18 20.31 21.46 5.64
Share (Taka)
Market Price 24.29 19.10 14.90 14.70 15.90 8.16
per Share
(Taka)
Price Earnings 11.97 7.76 6.77 6.53 5.18 (20.75)
Ratio (Times)

55
Price Equity 1.23 0.99 0.78 0.72 0.74 2.19
Ratio (Times)

Cash Dividend - - 14.00 10.00 20.00 100.00

(%)
Bonus Share 17 13.50 - 5.00 (100.00)

Net Profit 5.88 5.70 5.88 4.91 4.60 (6.37)

Margin%
Investment 90.56 88.74 84.58 88.59 88.50 (0.10)
/Deposit Ratio
Return on 13.85 14.15 12.80 12.82 15.67 22.21
Equity (ROE)%
Return on 1.30 1.31 1.10 1.08 1.23 14.21
Assets (ROA)%
Cost of fund % 12.34 11.02 10.85 9.18 7.92 (13.73)
Cost /Income 31.89 35.02 33.99 36.44 35.60 (2.30)
ratio
l
Number of 100 110 119 129 140 8.53
Branches
Number of 2,110 2,387 2,649 2,810 3,070 9.25
Employees
Number of 52,739 58,466 52,007 44,427 36,695 (17.40)
Shareholders

56