Professional Documents
Culture Documents
1.1
Introduction
1.2
1.3
1.4
1.5
1.6
Methodology
Limitations
Page 1
Introductio
n
1.1 Introduction:
Banking is one the most competitive industries of Bangladesh that has seen a huge amount of
growth during the last decade. A large number of new banks have made their places in the
industry and yet there are more to register in the list. In such a highly competitive service
industry, the importance of customer satisfaction cannot be de-emphasized.
To keep pace with this situation, we need banking knowledge for future career. If we want to
build our career in banking area, only theoretical knowledge would not help us. As internship
program is established to gather practical knowledge regarding various sector of economy, I
chose to get practical knowledge regarding banking sector and I select Al-Arafah Islami Bank as
my organization to work.
The duration of my program was 3months and during this period, I have learned many things. I
observed that there is a great difference between theoretical knowledge and practical knowledge.
I learned many terms, functions and nature of banking activities. I also get practical knowledge
regarding organizational environment.
Page 2
Introductio
n
To find out the marketing strategy of Al-Arafah Islami Bank Ltd Bank Ltd.
To find the financial performance of Al-Arafah Islami Bank Ltd Bank Ltd.
To know the marketing and expansion strategy of bank that can help to face the potential
threats and opportunities.
To know the technological advantage and lacking of this bank in the modern banking
system.
To make a bridge between the theories & practical procedures of banking day-to-day
operations.
1.4 Scope:
The study encompasses the overall banking activities, management, organizational structure,
credit facilities & Foreign Exchange Division, Retail banking of Al-Arafah Islami Bank.
Page 3
I have got the opportunities to see the internal work environment as like their thought, their
behavior, their services as well as with their strategies that they follows, which was really helpful
for me.
Introductio
n
1.5 Methodology:
In order to carry out this study, two sources of data and information have been used:
1.6 Limitations:
The study report consists of few limitations:
The report has been conducted within a limited time frame.
The study is self financed.
Only dhanmondi branch has been considered for the study.
To analysis SWOT of emerging market is a wide spread survey material. However, time
constraint restricted the report to specific feature.
Page 4
Banks policy of not disclosing some data and information for obvious reason, which could be
very much useful.
Chapter 2: Banking
Overview
2.1
Introduction
2.2
2.3
2.4
2.5
2.6
2.7
Page 5
Banking Overview
2.1 Introduction:
A bank is a financial institution whose main objective is the mobilization of fund from the
surplus unit to deficit unit. In the process of acceptance of deposits and provision of loan, Bank
creates money. This characteristics feature sets bank apart from other financial institutions.
Bank is very old institution that is contributing toward the development of any economy and is
treated as an important service industry in modern world. Now a day the function of bank is not
limited to within the same geographical limit of any country. Due to globalization and free
market economy, this industry is facing severe competition in any country and implementation of
WTO will further increase competition. The overall performance of Bank does not only depend
upon the banking industry itself but also on the performance of economy where it is operating.
Page 6
the Bangladesh Bank. By the steps stated above, the banking system of Bangladesh started with a
legal shape.
Banking Overview
The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are
Nationalized Commercial Banks (NCBs), 28 local private commercial banks, 12 foreign banks
and the rest five are Development Financial Institutions (DFIs). Sonali Bank is the largest among
the NCBs while Bank Asia is leading in the private ones. Among the 12 foreign banks, Standard
Chartered and HSBC has become the largest in the country. Besides the scheduled banks,
Samabai (Cooperative) Bank, Ansar-VDP Bank, Karmasansthan (Employment) Bank and
Grameen bank are functioning in the financial sector. Bangladesh Bank (BB) regulates and
supervises the activities of all banks.
Private sector banks started functioning during the year 1983-84 with the objective of
government policy to make sure effective and meaningful participation of the private sector in
the overall national economy.
The perception of Islamic banking has been bloomed from the inspiration of building up a
society on justice in accordance with basic socio-economic principles of Islam. The difference
between Islamic bank and conventional bank is on principles. The functions of this type of bank
are completely different. This bank is established on Islamic Shariah and all types of transactions
are free from interest. Justified profit is the basis of financial transaction of this bank. This bank
is committed to establish socio-economic justice.
Page 7
Banking Overview
Bangladesh Bank
Commercial Bank
Private
Bank
Nationalized
bank
Traditional
Bank
BKB
Co-operative Banks
Foreign
Bank
Islamic Bank
RAKUB
BSBL
BSB
CCBL
BSRS
PSC
BASIC
Grameen
Bank
Karmasanghtan
Bank
Ansar-VDP
Unnayan Bank
Sources: Chowdhry, L.R. (2002, 2nd edition), A Text Book On Banker Advances
RAKUB-
Page 8
BSB-
BSRS-
BASIC-
BSBL-
CCBL-
PCS-
Page 9
national and international Islamic Banks have also adopted the above definition as their
operating guide. Islamic Act 1983 of Malaysia (Act no.276) has given the following definition:
Islamic Banking means any company, which carries on Islamic Banking business and
holds a valid license, and all the offices and branches in Malaysia of such a bank shall
deemed to be one bank.
Banking Overview
The Islamic Republic of IRAN has promulgated The for usury- free banking on
August 30, 1983 incorporating the detail objective and duties of the banking system in
Iran;
Islamic Banking Business means banking business whose aims and operation do not
involve any elements, which is not approved by the RELIGION OF Islam.
Page 10
countries and of Islamic banks and financial institution in about 50 countries of Asia, Africa,
Europe , America like U.K, U.S.A,Germany,Argentina, Denmark, Luxemburg, Switzerland and
India have been established. The banking system of Pakistan and Iran was established on the
basis of Islamic Shariah.
Banking Overview
In AGUST 1974, Bangladesh signed the Charter of Islamic Development Bank and
committed itself to recognize its economic and financial system as Islamic Shariah.
In January 1941, the president of Peoples Republic of Bangladesh while addressing the
3rd Islamic summit conference held at MAKKA and TAIF suggested, The Islamic
countries should develop a separate Banking system of their own in order to facilities
trade and commerce.
The statement of the president indicate favorable attitude of the Government of the
people Republic of Bangladesh towards establishing Islamic Banks and financial
institution in the country.
Earlier in November 1980, Bangladesh Bank, the countrys central Bank, sent a
representative to study the working of several Islamic Bank in a aboard.
In November 1982, a delegation of IDB Visited Bangladesh and showed keen interest to
participate to establishing a joint venture Islamic bank in the private sector. They found a
lot of work had already been and Islamic banks were already forming for immediate
introduction. Two professional bodies-Islamic economic researches Bureau (IERB) AND
Bangladesh Islamic Bankers Association (BIBA) made significant contribution toward
introduction of Islamic banking in the country.
They come forward to provide training on Islamic banking to top bankers and economist
to fill-up the vacuum of leadership for the future Islamic banks in Bangladesh. Thy also
held seminars, symposia and workshops on Islamic economics and banking throughout
the country to mobilized public opinion in favor of Islamic banking.
Page 11
At last the long drawn struggle to established an Islamic bank in Bangladesh become a
realty and Islami bank Bangladesh Ltd was established in 1983 in which 19 Bengali
national, 4 Bangladeshi institution an 11 banks, financial institution and Government
bodies of the middle East Europe including IDB AND two eminent personalities of the of
Saudi Arabia joined hands to make the dream a reality.
Later, other five Islamic Banks, Islamic Insurance and financial institution were
established in the country. Exim bank is one of them. Some Traditional banks opened
Islamic Banking branches in some major cities
Banking Overview
The objective of the shariah is to promote the welfare of people, which lies in
safeguarding their faith, their life intellect, their posterity and their wealth. Whatever
ensure these five interest and desirable.(AL-Ghazzali)
Economics is a science, which studies human relationship between ends and scare means,
which have alternative, use.(Prof.L.Robbins)
Islamic economics aim at the study of human falah achieved by organizing the resources
of the earth on basis of co-operation and participants(MdAkramkha)
Economics is the science of how man uses resources and means of production to study
his needs accordingly to predetermine code given by ALLAH (SWT) in order to achieve
the greatest equity (Princes Muhammad AL-Faisal).
Economics is a social science which studied the economic problem of the people imbued
of the value of Islam. It is a composite science, which studies problem of production,
distribution and consumption through integrative system of exchange and transfer over
the time and their social and moral consequences in the light of Islamic rationalism. It
assumes the presence of Islamic mean.
The Process & Challenges of Retail Products
Page 12
Islamic economic is that branch of knowledge, help realize through allocation and
distribution of scare resources that is co firmly Islamic technique
without unduly
The basis of Shariah is wisdom and welfare of the people in the world and the hereafter.
This welfare lies in complete justice, marry, well being and wisdom from welfare to
misery and wisdom and to folly has nothing with shariah (Ibn AL-qayyim)
Banking Overview
Page 13
3. Stability in the value of money to enable the medium of exchange to be a reliable unit of
account, a just standard of deferred payments, and a stable store or value.
4. Mobilization and investment of savings for economic development in an equitable manner
such that a just return is ensured to all parties concerned, and
5. Effective rendering of all services normally expected from the banking system.
Chapter 3:
Organizational Overview
3.1
History of AIBL
3.2
3.3
3.4
3.5
Audit Committee
3.6
3.7
3.8
3.9
3.10
3.11
Corporate Culture
3.12
Shariah Board
3.13
3.14
Page 14
Organizational Overview
Page 15
Organizational Overview
All activities of the bank are conducted according to Islamic Shariah where profit is the
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.
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.
Page 16
AIBL English Medium Madrasah and AIBL library are among mention worthy.
Organizational Overview
Chairman
Vice Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Page 17
Director
Shareholder Director
Ex-Officio
Director/Managing
Director
Company Secretary
Organizational Overview
Chairman
Co-Chairman
Member
Member
Member
Member
Member
Member
Member
Chairman
Member
Member
Chairman
Member
Member
Member
Page 18
Member
Secretary (Acting)
Organizational Overview
Additional
Managing
Director
Executive Vice
President
Senior Vice
President
Vice President
Page 19
Assistant Vice
President
Organizational Overview
Page 20
Branch
ManagerAVP
Second
Officer
Senior
Officer
Officer
Junior
Officer
Assistant
Officer
Messenger
Organizational Overview
Page 21
DHAKA DIVISION(25):
Motijheel
Moulovi Bazar
VIP Road
Motijheel Corporate
Nowabpur Road
North South Road
Hazaribag
Keranigong
Uttara Model Town
New Elephant Road
Banani
Gulsan-2
Mirpur
Mouchak
Dhanmondi
Mohammadpur Krishi Market
Dilkusha
Islampur
Progoti Sboroni
Mymensing
Joydebpur
Madhobdi
Pagla
Narayangonj
Kapasia
CHITTAGONG
DIVISION(10)
Agrabad
Khatun Ganj
Jubily Road
O R Nizam Road
Coxs Bazar
Chowmouhani
Feni
Comilla
Companohonj
RAJSHAHI DIVISION(4):
Rajshahi
Bogura
Syedpur
Mohadevpur
KHULNA DIVISION(6):
Khulna
Satkhira
Mongla
Benapole
Jessore
Chuknagar
BARISAL DIVISION(2):
Barisal
Jhalokhati
SYLHET DIVISION(5):
Lal Dhigir Par
Jinda Bazar
Moulovi Bazar
Ruposhpur
Biani Bazar
Organizational Overview
Page 22
Organizational Overview
Page 23
Al-Arafah Islami bank is one of the most disciplined Banks with a distinctive corporate culture
based on Islami Shariah. Here they believe in shared meaning, shared understanding and shared
sense making. The people in this bank can see and understand events, activities, objects and
situation in a distinctive way. They mould their manners and etiquette, character individually to
suit the purpose of the Bank and the needs of the customers who are of paramount importance to
the bank. The people in the Bank see themselves as a tight knit team/family that believes in
working together for growth. The corporate culture has developed has not been imposed; it has
rather been achieved through their Corporate conduct.
Page 24
Organizational Overview
Page 25
Organizational Overview
The Process & Challenges of Retail Products
Page 26
Deposits
Advances
Time
demand
Fund oriented
International
banking
L/C, Foreign
currency
Consultancy
Miscellaneous
Tax, consultancy,
Marcent banking
project,
Counseling,
Investment
counseling
Self-custody,
Sale of drafts,
Standing
instruction,
Trusteeship.etc.
Non-fund oriented
Guarantees
Terms loans, Clean
Letter of credit.
loans, Bills
discounting, Pre
shipment, Post
shipment, Lines of
credit- Secured,
unsecured,
Overdraft.
Page 27
Bank services
General banking
Different accounts
open, issues of
DD. TT. PO,
Clearing,
FD, Different
Scheme etc.
Credit/advance
SOD General loan,
House building
loan, Lease finance,
Hire purchase,CC
hypo, Staff loan,
CCS etc.
Foreign exchange
Export
Import
Remittance
Chapter 4: General
The Process & Challenges of Retail Products
Banking
Page 28
4.1
4.2
Cash Section
4.3
Account Opening
4.4
Cheque Clearing
4.5
Local Remittance
4.6
4.7
Clearing Department
4.8
Clearing House
Page 29
General Banking
the bank.
: Cash calculation for final entry in vault register is done here as any
error and correction here is not acceptable.
Page 30
General Banking
Cash Receipt
Step 2
Step 3
Step 4
Page 31
General Banking
Page 32
General Banking
Page 33
General Banking
Transfer of Account
When account is transferred, following steps are considered:
A) Application in written to the Manager of the account maintaining branch
B) Manager sends a request to the manager of the desired branch of depositors
C) Sends original Account opening application and specimen signature sheet with the
balance remained in the account at he sent Managers request
D) New account is opened at desired branch
Explanation
Clearing Process
Inward
Clearing
Clearing
Cheque
OBC
House
Islami
of
area.
Clearing Cheque Cheques
within
another
Al-Arafah
Cheques for
another bank
Inward Bills for CollectionFrom other branch of Al-These Cheques are settled by IBCA, i.e. debiting
(IBC)
branch account
From another bank outsideThese Cheques are settled debiting depositors account
the clearinghouse
Page 34
General Banking
Commission
20
30
50
100
VAT
3
4
8
15
Total
23
34
58
115
General Banking
Demand Draft
The Process & Challenges of Retail Products
Page 35
Make payment
5) Receive advice
General Banking
Page 36
3 months
11.00%
6 months
11.50%
1 year
12.00%
General Banking
3. Savings Account:
The Process & Challenges of Retail Products
Page 37
To maintain smooth and certain life in future Savings account is very suitable for middle
class groups. The attributes of Savings Account are:
500/- is the minimum amount of initial deposit.
Client cannot withdraw money more than twice a week,
The profit rate is 8% against MD account
For opening of this type of accounts following requirements are necessary:
a) The introducer must be attested photograph.
b) The introducer must be account holder of MD of AL-ARAFAH-ISLAMI Bank
Bangladesh Ltd.
4. Short Term Deposit (SND):
Short Term Deposit has following attributes:
General Banking
b) Highlights of the Scheme
o Mudaraba Lakhpoti Scheme
The Process & Challenges of Retail Products
Page 38
General Banking
c) Mudaraba Double Deposit:
Page 39
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 more awareness and
motivate people to save, ALARAFAH-ISLAMI Bank offers Mudaraba Double Deposit. Here people put their money for
double return after 6years.
Conditions Of The Scheme:
a) The deposit can be made in multiplies of TK. 10000.00.
b) This is 6 years period deposit. The deposit cannot be withdrawn at any time with
in the maturity date.
c) Al-Arafah monthly deposited Hazz account:
d)Pension scheme
Page 40
1. Transfer Cheque
Transfer Cheques are those cheques, which are collected and paid by the same branch of AlArafah Islami Bank Ltd.
2. Local Bills Collection Cheques (LBC)
Local bills collection cheques are those cheques, which are collected and paid by two different
branches of a bank situated in the same city.
3. Outward Bills Collection Cheque (OBC):
OBC cheques are those cheques, which are collected and paid by two different branches of same
or different bank situated in the outstation.
Chapter 5: Foreign
Exchange Division
Page 41
5.1
5.2
Import
5.3
Export
5.4
Foreign Remittance
Foreign Exchange
Division
The Process & Challenges of Retail Products
Page 42
5.2 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'.
Page 43
Foreign Exchange
Division
Advising or Notifying
Bank
Negotiating Bank
Accepting Bank
confirming bank.
It is the bank on which the bill will be drawn (as per
Reimbursing Bank
Page 44
Foreign Exchange
Division
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-ARAFAHISLAMI Bank.
The proposal contains the following particulars:
Nature of business.
Goods to be imported.
Offered security.
Repayment schedule.
receipt
11. Membership certificate
12. Rate fluctuation undertaking
Page 45
Foreign Exchange
Division
Step 5 - Opening of L/C by the bank for the opener:
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.
6. Packing List
2. Bill of Lading
3. Commercial Invoice
4. Certificate of Origin
9. Vessel Particular
Page 46
Foreign Exchange
Division
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.
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:
Particulars
Customer's A/C
L/C Margin A/C
Commission A/C on L/C
VAT
SWIFT Charge
Data max
Stamp
Postage
HL/Courier
Debit/ Credit
Debit
Credit
Credit
Credit
Credit
Credit
Credit
Credit
Credit
Charges in Taka
12%
10%
50%
15% on commission
3000/=
1000/=
150/=
300/=
1500/=
Page 47
Foreign Exchange
Division
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
a Unit price.
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/preformed 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
Page 48
shall also obtain a letter of undertaking and indemnity from the parties, before getting the goods
cleared through LIM Account.
Foreign Exchange
Division
5.3 Export:
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).
The Process & Challenges of Retail Products
Page 49
Foreign Exchange
Division
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:
Page 50
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.
Foreign Exchange
Division
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 in cash 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.
Page 51
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.
Foreign Exchange
Division
Page 52
Foreign Exchange
Division
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.
3.
Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the
Page 53
Item
Total Qty & Unit Price
12. B/L Clause
13. Reimbursement clause.
14. UCPDC Clause
15. Net FOB value.
Foreign Exchange
Division
Page 54
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
Foreign Exchange
Division
(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
Page 55
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.
document.
Foreign Exchange
Division
Page 56
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.
Foreign Exchange
Division
Page 57
Chapter 6: Investment
Division
Page 58
Investment Division
Page 59
Investment Division
Sectors:a) Steel & engineering.
b) Food & Allied.
c) Agriculture.
d) Textile & garments.
e) Pharmaceuticals & Chemicals.
f) Paper & paper products.
g) Service industries.
h) Housing & real Estate.
i) Cement.
j) Bricks Fields.
k) Edible oil.
l) Assembling industry.
m) Cottage industry.
n) Electronics & Electrical Commodities.
o) Construction Company.
p) Trading (retail/whole sale)
q) Others.
Every year at the time of investment budgeting a clear indication of banks appetite for growth to
be reflected approved investment budget shall be strictly followed for the development of the
bank.
b) Investment categories:
As initiated by Bangladesh bank vide BCD circular no. 33 dated 16-11-89 different kinds of
lending were subdivided into 11 categories w. e. f 01-01-90, which was subsequently reduced to
9 vide BCD circular no. 23 dated 09-10-93 and again to 7 prime sectors vide BCD circular no. 8
dated 25-04-94 for fixation of rates of profit by the individual banks on competitive basis
depending on the cost of funds, prevailing market condition and monetary policy of the country.
Page 60
Investment Division
up to 12 months
Medium term
Long term
ii) Continuing investments: these are the investments having no fixed repayment schedule, but
have an expiry date at which it is renewable on satisfactory performance.
Further all categories of investments have been accommodated under the 7 prime categories as
under:
1. Agriculture:
Investment facilities to the agriculture sector falls under this category. it is subdivided into tow
major heads:
a) Investment to primary producers: financing under this categories refers to the investment
facilities allowed to production units engaged in farming, fishing, forestry or livestock.
Investments to processors or traders of agricultural products are not to be categories as
agricultural investments.
investments to tea gardens for production are treated as agricultural investment, but investments
to tea gardens for export should be treated under the category investment on export. Similarly
medium and ling term investments to tea gardens are categorized as industrial term lending.
b) Investment to dealers/distributors: it refers to the financing allowed to input dealers and
(or) distributors in the agricultural sectors.
Agriculture investment may include short, medium and long investments as well as continuing
investment. as such it may fall under the head lzara bill baia /lzara bill baia (HP)/lzara (LF)
ii) lzara bill baia for large & medium scale industry: This category of investments
accommodate the medium and long term financing for capital structure formation of new
Page 61
industries or for BMRE Of The existing Units who are engaged in manufacturing goods and
services.
iii) lzara bill baia to small & cottage industry: These are the medium and long term
investments allowed to small & cottage manufacturing industries (small industry is presently
defined as those establishments whose total investment in fixed capital such as land, building
machinery and equipment (excluding taxes and duties) does not exceed 30 million taka and
investment in cottage industries also fall within this definition).
No short term or continuing investments are to be included in this category. Like the large &
medium scale industry it is also allowed in the form of lzara bill baia/ lzara bill baia (HP)/lzara
(LF).
iv)Working Capital: Investment allowed to the manufacturing units to meet their working
capital requirements, irrespective of their size-big, medium or small, fall under the category.
These are usually continuing investments and as such fall under the head Bai-Muazzal.
V) Investment on export: Investment facilities allowed to facilitate export of all items against
letter of credit and/or confirmed export orders fall under this category. it is accommodated under
the heads Musharaka pre- shipment (ECC), Musharaka pre- shipment(PC), foreign documentary
bills purchased (FDBP), Local Documentary Bills Purchase (LDBP) etc.
Page 62
Investment Division
Page 63
Investment Division
VI. Murdaraba:
Financial accommodations to individual/firm for trading as well as for wholesale or to industries
as working capital against pledge of goods as primary security fall under this head of investment.
!t is also a continuous investment and like the above allowed under the categories (i)
"Commercial Lending" and (ii) Working Capital". '
X. Bai-Muazzal (General/FO) :
Investment allowed to individual/firms against financial obligation (i.e. lien on MTDR/
PSP/BSP/insurance Policy/Share etc.) This may not be a continuous Investment.
XI. Bai-Muazzal (WO):
Investment allowed against assignment of work order for execution of contractual work fails
under this head. This investment is generally allowed for a definite period and specific purpose
i.e. it is not a continuous investment.
The Process & Challenges of Retail Products
Page 64
Investment Division
Page 65
Investment Division
Page 66
Investment Division
Investment facility in the name of the firms & companies in which the borrower or its
partner or its director is the proprietor or a partner or a Director.
Investment facility in the name of any firm of company in which the borrower or its
partner or its director owns 20% or more share even if not a Director.
Any Investment facility guaranteed by the borrower or its partner, or its Director.
However, definition of group exposure if given by Bangladesh Bank shall be followed regardless
of the above definition.
e) Lending Caps:
The Bank shall establish a specific Industry sector exposure cap by preparing a sector wise
investment budget In order to avoid over concentration in any one-industry sector. The
Investment budget shall release (after approval from the Board) in the month January of every
year. Investment budget shall be proposed /released considering the following points.
I. Total Facilities:
The aggregated of all cash facilities shall not exceed 80% of customer's deposits, it is further
governed by the statutory and liquidity reserve requirement of Bangladesh Bank.
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Investment Division
III. Unsecured Facilities:
Aggregate Bank investments to corporate or individual customers which are not secured by
collateral and are allowed on the strength of customer's personal integrity and financial standing
or the corporate customer's balance sheet, with or without hypothecation of stock shall not
exceeds 30% of the total investment portfolio.
IV. Sector-wise Allocation:
Sector-wise allocation of investment/investment budget shall be made in the month of January of
each year with the approval of Executive Committee/Board of Directors. This will be reviewed
from time to time.
V. Security:
Security accepted against investment facilities shall be properly valued and shall be effected in
accordance with the laws of the country in which the security is held. An appropriate margin of
security will be taken to reflect such factors as the disposal costs or potential price movement of
the underlying assets.
Page 68
l. Izara Bill Baia (HB-residential) who has no other business with the Bankg)
Page 69
Investment Division
a) Tenure:
Bank shall not ordinarily go for any investment facilities for long term basis. Short-term
investment facilities shall be for 3 month to 12 months. Medium term investment shall be 12
months to 36 months. Long terms investment shall be more than 36 months.
b) Size:
i) Maximum 50% (Funded & non-funded) of total capital of the Bank
ii) Maximum 25% (funded) facility of total capital of the bank.
c) Security:
All assets (Bai-Muazzal & Murabaha) must be covered under proper insurance risk with enlisted
insurance Companies. Insurance coverage obtained outside enlisted companies are discouraged.
For valuation of securities following guidelines to be followed:
d) Valuation of Primary Security:
MPI: MPI facility shall be allowed as post-import finance against imported goods under our
L/Cs. MPI facility should not exceed invoice value net of L/C margin unless the4 Bank agrees to
finance duties/VAT. However, where market price of the goods is lower than landed cost
necessary arrangement should be made with the customer to obtained additional deposit. Head
Office should approve the price at which MPI goods to be released to customer or it may be at
market price or landed cost whichever is higher,
Page 70
Investment Division
Murabaha: Valuation of the goods to be pledged to the Bank against Murabaha limit
The landed cost or market prices whichever is lower in case of imported goods.
II.
III. The wholesale price/competitive market price duly verified by the Branch and approved
by Head Office.
e) Valuation of Collateral Security :
Branches should meticulously follow following instructions:
The property should be physically inspected and verified jointly by 2 (two) Bank's
Officers, one of who should be the Branch Manager of the 2 nd Officer. A valuation
certificate mentioning market value and forced sale value should be prepared in the
designated from supplied to the Branches and to be jointly signed by the above
mentioned 2 (two) inspecting officers of the Bank. The forced sale value of the collateral
security will have to be 1.5 times higher than the facility/facilities allowed unless
specifically waived by the approving authority giving full justification.
A Site Plan" and "Map" along with 3R size distinct photographs of the mortgaged
property covering full exposure from 3 angles mentioning detailed particulars on the back
to the photographs duly authenticated by the authorized officer(s) to be obtained by the
Branches.
Its should be ensured that the collateral security is in the physical possession of the
mortgagors(s) and the mortgagor(s)/owner(s) has/have valid title over it.
A letter of satisfaction from the Bank's Lawyer to be obtained that the mortgage formality
has been properly created.
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Investment Division
f) Cross Borders Risk:
Limit to be established by the Board of individual Country as well as or aggregate Bank Credit
exposures to different countries. These limits are to be reviewed from time to time with due
regard to the political and economic environment in each country. The country exposure limits
may be utilized up to maximum amounts for different maturities as follows:For maturities up to one year: 100% of the limit.
For maturities up to two years:
Page 72
Investment Division
AL-ARAFH-ISLAMI Bank Ltd. exercises the lending function only when it is safe and that the
risk factor is adequately mitigated and covered. Safety depends upon:
The security offered by the borrower: and
The repaying capacity and willingness of the debtor to repay the loan with interest.
2. Liquidity:
Banker should consider the liquidity of the loan in time of sanctioning it. Liquidity' is necessary
to meet the consumer need.
3. Security:
Banker should be careful in the selection of security to maintain the safety of the loan. Banker
should properly evaluate the proper value of the security. If the estimated value is less than or
equal to loan amount, the loan should be given against such securities. The more the cash near
item the good the security. In the time of valuing the security, the Banker should be more
conservative.
4. Adequate Yield:
As a commercial origination, Banker should consider the profitability. So banker should consider
the interest rate when go for lending. Always Banker should fix such an interest rate for its
lending which should be higher than its savings deposits interest rate. To ensure this profitability
Banker should consider the prospect of the project.
5. Diversity:
Banker should minimize the portfolio risk by putting its fund in the different fields. If Bank put
its entire loan able fund in one sector it \\ill increase the risk. Banker should distribute its loan
able fund in different sectors. So if it faces any problem in any sector it can be covered by the
profit of another sector
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Investment Division
Characteristics
Applicant applies for the loan in the prescribed form of the bank describing
Sanction
Page 74
Investment Division
Page 75
Investment Division
6.7CIB:
Bangladesh Bank has established within itself a Credit Information Bureau (CIB), which collects
credit information from the banks. Banks are required to furnish such information in respect of
credit limit of Tk.50000 and over. They mention the Name of facility, security and charge along
with outstanding balance. After consolidating such information in respect of each customer the
central bank supplies to the total limits sanctioned to and the number of banks dealing with a
party. Thus the banks can find out if any of their customers is having excessive borrowings from
the banking system at any particular time.
Doubtful debt: Unlikely to be repaid but special collection efforts may result in
partial recovery.
6.9 Documentation:
Documentation can be described as the process or technique of obtaining the relevant documents.
In spite of the fact that banker lends credit to a borrower after inquiring about the character
capacity and capital of the borrower he must obtain proper documents executed from the
borrower to protect him against willful defaults. Moreover, when money is lent against some
security of some assets, the document must be executed in order to give the banker a legal and
binding charge against those assets. Documents contain the precise terms of granting loans and
they serve as important evidence in the law courts if the circumstances so desire. That's why all
approval procedure and proper documentation shall be completed prior to the disbursement of
the facilities.
The Process & Challenges of Retail Products
Page 76
Investment Division
6.11 Administration:
The Administration of the loan process shall ensure. Compliance with all Saws and regulations at
both local and global levels including bank policy as set out in this document and the Banks
credit manual/ circulars.
Proper analysis of credit proposal is complex and requires a high level of numerical as well as
analytical ability and common sense to ensure effective understanding of the concepts and thus
common sense. To ensure effective understanding of the concepts and thus to make the overall
credit portfolio of the Bank healthy proper staffing of the credit departments shall be done
through placement of qualified officials who hare got the right aptitude, formal training in
finance, credit risk analysis. Bank credit procedures as well its required experience.
Where repayment and interest servicing performance of a credit deteriorates shall be identifies at
an early state and closely-monitored to avoid low losses.
Loans/facilities, where appropriate and related security will be monitored and reviewed by a
separate unit of unconnected with the credit approval process on a regular basis in order to assess
the collected ability of the loan and effectiveness of the security. This Unit will report to the
Managing Director or his designated officer.
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Investment Division
6.12 Modes:
The remittance process involves the following four modes:Cash
Sell
Remittance
Dollar/
Pound
Traveler's
TC
Cheque
Telex
Transfer
TT
Account.
Bank issue Demand Draft in favor of purchaser or any other according
Demand
to, instruction of purchaser. The payee can collect it for the drawer bank
Draft
in which the Issuing bank of 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.
Investment Division
The Process & Challenges of Retail Products
Page 78
In these processes of remittance, bank must have to make profit as a business institution. Profit is
made in two ways:
1. Commission charged
2. Difference in the buying and selling rate.
Page 79
Investment Division
Papers required:
Passport photocopy.
Rate of exchange:
It means the price of one currency expressed in terms of another currency. Rate of exchange is
the rate by which the relation among different foreign currencies is established in terms of local
currency of that country. Value at which one country currency can be converts into another's
country.
In exercise of the power conferred by section three of exchange regulation ACT 1947?
Bangladesh has issued license to certain bank to deal in foreign exchange is called authorized
dealer.
Spot rate: it is quoted for transaction where the foreign currency bought or sold is to be received
or delivered immediately. The current rate of exchange quoted in the foreign exchange market.
Forward rate: when a rate is applied to a future date it is called forward rate at which foreign
exchange can be sold or bought for delivery at a future time.
Cross rate: the rate of exchange quoted expressing the quotation for any two currencies in term
of a third.
SWAO: sport rate against forward purchased or a spot purchase against forward rate.
Pence rate / direct quotation: rates are quoted in tarn's foreign currency per one unit of foreign
currency.
Page 80
Investment Division
Currency rate / indirect quotation: rates are quoted in terms of foreign currency per one unit
of home currency.
Buying rate: authorized dealer applies this at the time of purchasing / negotiation of export
document and payment against TT. MT, check and drafts required from abroad.
Selling rate: authorized dealer applies this at the time of lodgment of import documents,
realization of LC margin from importer and other foreign exchanges transaction on overseas
bank.
Telquel rate: This is the rate when rate of foreign currency is quoted according to the since of
the bill.
Forward rate at a discount: when forward rate is higher than that of spot rate.
Forward rate at a premium: when forward rate is lower than that of spot rate.
Getting
Getting Loan
Loan Proposal
Proposal
from
from the
the Client
Client
Collecting
Collecting Information
Information
About
About Client
Client
Disbursing
Disbursing Loan
Loan
Recovery
Recovery of
of the
the Loan
Loan
Usual
Usual Recovery
Recovery Legal
Legal Recovery
Recovery
Evaluating
By Agent
About
About Project
Project
Legal
Legal Assessment
Assessment
Supervision
Supervision
of
of the
the Loan
Loan
Evaluating
Evaluating Project
Project
and
and Proposal
Proposal
Evaluating
Evaluating Collateral
Collateral
Sanctioning
Sanctioning and
and
Documentation
of
Documentation of Loan
Loan
Decision
Decision
Head
Head Office
Office
Level
Level
Branch
Branch Level
Level
Evaluation
Evaluation
Branch
Branch Level
Level
Page 81
Chapter 7: Investment
Risk Grading
Page 82
Page 83
The Investment Risk Grading (IRG) is a collective definition based on the pre-specified
scale and reflects the underlying Investment-risk for a given exposure.
Investment Risk Grading is the basic module for developing a Investment Risk
Management system.
Page 84
As evident, the IRG outputs would be relevant for individual Investment selection,
wherein either a borrower or a particular exposure/facility is rated. The other decisions
would be related to pricing (Investment-spread) and specific features of the Investment
facility. These would largely constitute obligor level analysis.
Risk grading would also be relevant for surveillance and monitoring, internal MIS and
assessing the aggregate risk profile of a Bank. It is also relevant for portfolio level
analysis.
SHORT NAME
SUP
GD
ACCPT
MG/WL
SM
SS
DF
BL
NUMBER
1
2
3
4
5
6
7
8
Page 85
A clear definition of the different categories of Investment Risk Grading is given as follows:
Superior - (SUP) - 1
Investment facilities, which are fully secured i.e. fully cash covered.
international Bank.
Good - (GD) - 2
Bank.
Acceptable - (ACCPT) - 3
These borrowers are not as strong as GOOD Grade borrowers, but still
demonstrate consistent earnings, cash flow and have a good track record.
Acceptable management
Page 86
higher than normal leverage, thin cash flow and/or inconsistent earnings.
Investment detected.
Substandard - (SS) - 6
Financial condition is weak and capacity or inclination to repay is in doubt.
These weaknesses jeopardize the full settlement of loans.
Bangladesh Bank criteria for sub-standard Investment shall apply.
An Aggregate Score of 45-54 based on the Risk Grade Score Sheet.
Investment Risk Grading
The Process & Challenges of Retail Products
Page 87
Doubtful - (DF) - 7
Full repayment of principal and interest is unlikely and the possibility of loss is
extremely high.
However, due to specifically identifiable pending factors, such as litigation,
liquidation procedures or capital injection, the asset is not yet classified as Bad &
Loss.
Bangladesh Bank criteria for doubtful Investment shall apply.
An Aggregate Score of 35-44 based on the Risk Grade Score Sheet.
Bad & Loss - (BL) - 8
Investment of this grade has long outstanding with no progress in obtaining
repayment or on the verge of wind up/liquidation.
Prospect of recovery is poor and legal options have been pursued.
Proceeds expected from the liquidation or realization of security may be awaited.
The continuance of the loan as a bankable asset is not warranted, and the
anticipated loss should have been provided for.
This classification reflects that it is not practical or desirable to defer writing off
this basically valueless asset even though partial recovery may be affected in the
future. Bangladesh Bank guidelines for timely write off of bad loans must be
adhered to. Legal procedures/suit initiated.
Bangladesh Bank criteria for bad & loss Investment shall apply.
An Aggregate Score of less than 35 based on the Risk Grade Score Sheet.
The following step-wise activities outline the detail process for arriving at Investment risk
grading.
Page 88
Step I
Financial Risk
Business/Industry Risk
Management Risk
Security Risk
Relationship Risk
Step II
According to the importance of risk profile, the following weightages are proposed for
corresponding principal risks.
Principal Risk Components:
Weight:
Financial Risk
50%
Business/Industry Risk
Management Risk
12%
Security Risk
10%
Relationship Risk
10%
Step III
18%
Financial Risk
Business/Industry Risk
Key Parameters:
Leverage, Liquidity, Profitability & Coverage ratio.
Size of Business, Age of Business, Business
Management Risk
Security Risk
Security
Coverage,
Collateral
Coverage
and
Support.
Relationship Risk
Page 89
Key Parameters:
Financial Risk
50%
Leverage
15%
Liquidity
15%
Profitability
15%
Coverage
Weight:
5%
Business/Industry Risk
18%
Size of Business
5%
Age of Business
3%
Business Outlook
3%
Industry growth
3%
Market Competition
2%
Entry/Exit Barriers
2%
Management Risk
12%
Experience
5%
Succession
4%
Team Work
3%
Security Risk
10%
Security coverage
4%
Collateral coverage
4%
Support
2%
Relationship Risk
10%
Account conduct
Utilization of limit
5%
2%
Page 90
2%
1%
Investment Risk Grading
Step V
After the risk identification & weightage assignment process (as mentioned above), the next steps
will be to input actual parameter in the score sheet to arrive at the scores corresponding to the
actual parameters.
This manual also provides a well programmed MS Excel based Investment risk scoring sheet to
arrive at a total score on each borrower. The excel program requires inputting data accurately in
particular cells for input and will automatically calculate the risk grade for a particular borrower
based on the total score obtained. The following steps are to be followed while using the MS
Excel program.
Step VI
The following is the proposed Investment Risk Grade matrix based on the total score obtained by
an obligor.
Number
1
Risk Grading
Superior
Short Name
SUP
Score
100% cash covered
Government guarantee
International Bank
guarantees
2
3
Good
Acceptable
GD
ACCPT
85+
75-84
4
5
6
7
8
Marginal/Watchlist
Special Mention
Sub-standard
Doubtful
Bad & Loss
MG/WL
SM
SS
DF
BL
65-74
55-64
45-54
35-44
<35
Page 91
Investment Risk Grading should be completed by a Bank for all exposures (irrespective
of amount) other than those covered under Consumer and Small Enterprises Financing
Prudential Guidelines and also under The Short-Term Agricultural and Micro - Investment.
For Superior Risk Grading (SUP-1) the score sheet is not applicable. This will be
guided by the criterion mentioned for superior grade account i.e. 100% cash covered,
covered by government & bank guarantee.
Investment risk grading matrix would be useful in analyzing Investment proposal, new
or renewal for regular limits or specific transactions, if basic information on a borrowing
client to determine the degree of each factor is a) readily available, b) current, c)
dependable, and d) parameters/risk factors are assessed judiciously and objectively. The
Relationship Manager as per Data Collection Checklist should collect required information.
Relationship manager should ensure to correctly fill up the Limit Utilization Form in
order to arrive at a realistic earning status for the borrower.
Risk factors are to be evaluated and weighted very carefully, on the basis of most up-todate and reliable data and complete objectivity must be ensured to assign the correct
grading. Actual parameter should be inputted in the Investment Risk Grading Score Sheet .
Page 92
All Investment proposals whether new, renewal or specific facility should consist of a)
Data Collection Checklist, b) Limit Utilization Form c) Investment Risk Grading Score
Sheet, and d) Investment Risk Grading Form.
The Investment officers then would pass the approved Investment Risk Grading Form
to
Investment
Administration
Department
and
Corporate
Banking/Line
of
The appropriate approving authority through the same Investment Risk Grading Form
shall approve any subsequent change/revision i.e. upgrade or downgrade in Investment risk
grade.
Page 93
breach of loan covenants or adverse market rumors that warrant additional caution, a Investment
Risk Grading Form should be presented.
Major document deficiency prevails (such deficiencies include but not limited
to; board resolution for borrowing not obtained, sanction letter not accepted by
client, charges/hypothecation over assets favoring bank not filed with Registrar,
Joint Stock Companies, mortgage not in place, guarantees not obtained, etc.)
The Investment Risk Grading Form of accounts having Early Warning Signals should be
completed by the Relationship Manager and sent to the approving authority in Investment Risk
Management Department. The Investment Risk Grade should be updated as soon as possible and
no delay should be there in referring Early Warning Signal accounts or any problem accounts to
the Investment Risk Management Department for their early involvement and assistance in
recovery.
Page 94
Department
Business/Investment
and
will
Administration
be
referred
to
Corporate
Department/Recovery
Unit
Banking/Line
for
updating
of
their
MIS/records.
Investment Risk Grading
If a Bank has its own well established risk grading system equivalent to the proposed
Investment risk grading or stricter, then they will have the option to continue with their own
risk grading system.
Number
Risk Grading
Short
Page 95
1
2
3
4
5
6
7
8
Superior
Good
Acceptable
Marginal/Watchlist
Special Mention
Sub-standard
Doubtful
Bad & Loss
SUP
GD
ACCPT
MG/WL
SM
SS
DF
BL
Annually
Annually
Annually
Half yearly
Quarterly
Quarterly
Quarterly
Quarterly
Investment Risk Grading
Bank should have comprehensive MIS reports on Investment risk grading to evaluate
entire Investment portfolio of the Bank. There are 4 Formats of such MIS reports on
Investment risk grading as under.
Investment Risk Grading Report (Consolidated)
Investment Risk Grading Report (Branch Wise)
Investment Risk Grading Report (Branch & Risk Grade Wise)
Investment Risk Grading Report (Grade Wise Borrower List)
Page 96
The FSS is well designed and programmed software having two parts. Input and Output Sheets.
The financial numbers of borrowers need to be inputted in the Input Sheets which will then
automatically generate the Output Sheets.
Page 97
Reference No.:
Borrower
Group Name (if any)
Branch:
Industry/Sector
Date of Financials
Completed by
Approved by
Number
1
2
3
4
5
6
7
8
Criteria
Weight
A. Financial Risk
50%
1. Leverage: (15%)
Debt Equity Ratio () - Times
Total Liabilities to Tangible Net
worth
All calculations should be based on
annula financial statements of the
borrower (audited preferred)
2. Liquidity: (15%)
Current Ratio () -Times
Current Assets to Current Liabilities
Short
SUP
GD
ACCPT
MG/WL
SM
SS
DF
BL
30/07/2009
78
Acceptable
Score
Fully cash secured, secured by
government guarantee/international
bank guarantee
85+
75-84
65-74
55-64
45-54
35-44
<35
Score
Actual Parameter
Score
Obtained
15
14
13
0.17
15
0.51 to 0.75 x
0.76 to 1.25 x
1.26 to 2.00 x
2.01 to 2.50 x
2.51 to 2.75 x
More than 2.75
12
11
10
8
7
0
15
14
13
12
11
10
8
0.75
Parameter
Page 98
3. Profitability: (15%)
Operating Profit Margin (%)
(Operating Profit/Sales) X 100
0.70 to 0.79 x
Less than 0.70
Greater than 25%
20% to 24%
15% to 19%
10% to 14%
7% to 9%
4% to 6%
1% to 3%
Less than 1%
7
0
15
14
13
12
10
9
7
0
15.06
15
5.07
4. Coverage: (5%)
Interest Coverage Ratio () - Times
Earning before interest & tax
(EBIT)
Interest on debt
3
2
0
50
0.55
3
2
1
0
Favorable
Stable
Slightly Uncertain
Cause for Concern
3
2
1
0
Favorable
4. Industry Growth
Strong (10%+)
Good (>5% - 10%)
Moderate (1%-5%)
No Growth (<1%)
3
2
1
0
5. Market Competition
Dominant Player
Moderately Competitive
Highly Competitive
2
1
0
Moderately Competitive
6. Entry/Exit Barriers
Difficult
Average
> 60.00
30.00 59.99
10.00 29.99
5.00 - 9.99
2.50 - 4.99
5
4
3
2
1
< 2.50
> 10 Years
> 5 - 10 Years
2 - 5 Years
< 2 Years
42
Page 99
Average
Easy
Total Score- Business/Industry
Risk
C. Management Risk
1. Experience
1
0
18
12%
3. Team Work
Ready Succession
Succession within 1-2
years
Succession within 2-3
years
Succession in question
4
3
Very Good
Moderate
Poor
Regular Conflict
3
2
1
0
Ready Succession
Very Good
3
2
0
2
0
12
Fully Pledged
facilities/substantially
cash covered / Reg.
Mortg. for HBL
Registered Hypothecation
(1st Charge/1st Pari passu
Charge)
2
1
No security
Registered Mortgage on
Municipal
corporation/Prime Area
property
Registered Mortgage on
Pourashava/Semi-Urban
area property
Equitable Mortgage or No
property but Plant and
Machinery as collateral
10
Registered
Hypothecation (1st
Charge/1st Pari passu
Charge)
Registered Mortgage on
Municipal
corporation/Prime Area
property
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3. Support (Guarantee)
No collateral
Personal Guarantee with
high net worth or Strong
Corporate Guarantee
0
2
Personal Guarantees or
Corporate Guarantee with
average financial strength
No support/guarantee
Personal Guarantees or
Corporate Guarantee
with average financial
strength
0
10
10%
More than 3 years
Accounts with faultless
record
2. Utilization of Limit
(actual/projection)
2
1
0
100.00%
3. Compliance of Covenants /
Conditions
Full Compliance
Some Non-Compliance
No Compliance
2
1
0
Full Compliance
4. Personal Deposits
No depository
relationship
No depository relationship
Total Score- Relationship Risk
0
10
100
78
Chapter 8: Marketing
Strategies of AIBL
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Page 102
Page 103
Chapter 9: SWOT
Analysis, Findings,
Recommendation &
Page 104
9.1SWOT 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.
Internal
Internal
Factors
Factors
Strength
External
External
Factors
Factors
Weakness
Opportunity
Threats
9.1.1 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.
Strong Financial Position.
Efficient administration
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9.1.2 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.
9.1.3 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.
9.1.4 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.
The Process & Challenges of Retail Products
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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.
The whole activities of AIBL is not computerized, still there exist manual record
keeping system.
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.
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.
The transfer and promotion process is fair but the promotion is not faster.
Most of the policies are backdated. Only the authority amends the policy but
preserve the old policy.
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The record keeping system is also backdated, not followed computerized system
properly
Conclusion
9.3 Recommendation:
Customers are the heart of the organization. They should provide more space in the office
and if possible they should have some entertainment facility.
Few branches are not under online banking system, so all the branches should confirm on
line banking system.
The Bank should follow Islami Sharia strictly in every of its operation.
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Bank should increase their office space and take more care in interior decoration.
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.
SWOT Analysis, Findings, Recommendation &
Conclusion
9.4 Conclusion:
Today the banking service is very competitive. From the practical materialization of
customer dealing procedure during the whole period of my practical orientation in ALARAFAH-ISLAMI Bank limited I have reached a firm and concrete conclusion in a very
confident way. I believe that my realization will be in harmony with most of the banking
thinkers. It is quite evident that to build up an effective and efficient banking system to the
highest desire level, computerized transaction is must.
AL-ARAFAH-ISLAMI Bank Ltd. is a new generation Bank. It is committed to provide
high quality financial services/products to contribute to the growth of G.D.P of the country
through stimulating trade and commerce, accelerating the pace of industrialization,
boosting up export, creating employment opportunity for the educated youth, poverty
alleviation, raising standard of living of limited income group and overall sustainable
socio-economic development of the country. The is not so far when it will be in a position
to overcome the existing constraints and it may be expected that by establishing a network
over the country and by increasing resources this bank will be able to play a considerable
role in the portfolio of development of financing.
Success in the banking business largely depends on effective lending. Less the amount of
loan losses, the more the income will be from credit operations. The more the income from
credit operations the more will be the profit of the AL-ARAFAH-ISLAMI Bank Ltd. and
here lays the success of credit financing.
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It can be argued that though the results achieved so far are not satisfactory, credit financing
is a modern scientific technique for enhancing AL-ARAFAH-ISLAMI Banks strength and
there lies the opportunities to make it more effective in the future for our own benefit.
From the learning and experience point of view I can say that I really enjoyed my
internship at AL-ARAFAH-ISLAMI Bank Ltd. from the very first day. I am confident that
this 03 months internship program at AL-ARAFAH-ISLAMI Bank Ltd. will definitely
help me to realize my further carrier in the job market.
10.1 Bibliography
10.2 Reference
Page 110
10.1 Bibliography:
o http://banglapedia.search.com.bd/HT/T_0234.htm
o http://www.secbd.org/Full%20Prospectus%20of%20Trust%20Bank%20Limited.pdf
o http://en.wikipedia.org/wiki/List_of_Banks_in_Bangladesh
o http://investing.businessweek.com/research/stocks/private/snapshot.asp?
privcapId=31030707
o http://www.highbeam.com/doc/1P1-83729256.html
Annual Report of AL-ARAFAH ISLAMI Bank Limited (2007)
Several Booklets from AL-ARAFAH ISLAMI Bank.
Several Newsletter s from AL-ARAFAH ISLAMI Bank.
Credit Operational Manual of AL-ARAFA H ISLAMI Bank Limited.
SHARIAH MANUEL published by Al-Arafah Islami Bank Limited.
10.2 Reference:
Aladwani, A. M. & Palvia, P. C. (2002) Developing and validating an instrument for
measuring user-perceived web quality, Information & Management, 39, pp. 467476.
Ariely, D. (2000) Controlling the information flow: effects on customers decision
making and preferences, Journal of Consumer Research, 27 (September), pp. 233248.
Cronin, J, Jr. & Taylor, S.A. (1992) Measuring service quality: a reexamination and
extension, Journal of Marketing, 56(3), pp. 5568.
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Davis, F. D. (1989) Perceived usefulness perceived ease of use and user acceptance of
information technology, MIS Quarterly, 13(4), pp. 319340.
Huizingh, E. K. (2000) the content and design of web sites: an empirical study,
Information & Management, 37, pp. 123134.
Kaiser, H. F. (1974) an index of factorial simplicity, Psychometrika, 39, pp. 3136.
Liu, C. & Arnett, K. P. (2000) Exploring the factors associated with web site success
in the context of electronic commerce, Information & Management, 38, pp. 2333.
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