Islamic bankers have modeled the financial system in accordance with the philosophy and ethics of Islam to cater to the business needs of the Muslims. Interest free banking forms the basic tenet of an Islamic banking is a system that does not allow payment or receipt of Riba but does allow profit sharing/risk sharing. It is based on the pillars or concepts of Mudaraba, Musharaka, Bai-Murabaha, Bai-Muazzal, Bai-Salam, and Esare Bill-Biyee etc. Islamic Banks have several characteristics that are different from conventional banks. Interest-free is the main characteristic of Islamic banks. The conventional banking system is organized on the basis of a fixed payment called interest. That is why the practices of the modern banking system are in conflict with the principles of Islam which strictly prohibit interest on any type transaction. Islam is opposed to exploration in every form and stands for fair and equitable dealings among all men. To charge interest from some one who is constrained to borrow to meet his essential consumption requirement is considered an exploitative practice in Islam. Moreover, charging of interest on loans taken for productive purposes is also prohibited because it is not an equitable form of transaction. Besides interest-free, other distinguishing feature of Islamic bank are profit and loss sharing, Zakat (the compulsory income tax) implementation, avoiding gharar (speculation in doing transaction or activities), and not involve the production or consumption of goods and services that are illegal from the point view of Islam. In short, Islamic banks is emphasized on fulfill the teaching of the Holy Qur'an rather than maximum returns.
3.2: islamic Banking VS. Conventional Banking:
One must refrain from making a direct comparison between Islamic banking and conventional banking (apple- to-apple comparison). This is because they are extremely different in many ways. Conventional banking practices are concerned with elimination of risk whereas Islamic banks bear the risk when involved in any transaction. When conventional banks involve in transaction with consumer they do not take the liability only get the benefit from consumer in form of interest whereas, Islamic banks bear all the liability when involve in transaction with consumer. Getting out any benefit without bearing its liability is declared Haram in Islam. Conventional banks make money on money. In Islamic banking all transactions are based on the principle that funds do not generate funds, unless they are coupled with an activity or work.
Conventional banking is essentially based on the debtor-creditor relationship between the depositors and the bank. The status of Islamic banks in relation to their clients is that of partners, investors, traders, buyers and sellers. Partnering new business is the fundamental function of the Islamic banks. Conventional banks work on interest. Islamic banks eliminate interest and give due importance to the public interest. One of the clear differences between Islamic banking and conventional banking transactions are predominantly based on buying/selling or exchanging contracts whereas conventional transactions are based on lending contracts. As Islam forbids making money on money, Islamic transactions have to be backed by an asset or a service. This is ensured that real assets and inventories are built out of these transactions. Generally, we all know that the main difference between Islamic banks and conventional banks is the source of law which governs these banks. The functions and operations of conventional banks are based on man-made principles, while Islamic banks are based on Shariah principles.
3.3: History and Background of AIBL:
Al-Arafah Islami Bank Limited, a leading Shariah based Islami Bank of Bangladesh was established as a private limited company on 18 June, 1995 under the Companies Act 1994 and Bank Companies Act 1991. The Bank commenced its commercial operation on 27th September, 1995 by opening its first branch-Motijheel Branch (AD) at 161 Motijheel C/A, Dhaka. AIBL for finance, investment and foreign exchange was established as a private shareholding company in 1995 and was licensed with the objective to practice financing, banking and investment activities in compliance with the Islamic Shariah law. In order to ensure the modern application of the banking system is in the line with Shariah requirements, it is strongly stressed that the objective behind the establishment of Al-Arafah Islami Bank Ltd is to achieve Falaah (success in the world and in the hereafter). As an Islamic bank, AIBL is totally free from any kind of interest. Al-Arafah Islami Bank Ltd has been modeled in accordance with philosophy and ethics of Islam to cater to busines needs of the Muslims. Its main business is to obtain funds from the public on the basis of Mudaraba and to supply funds to businessmen on the Mudaraba basis also.
It is a Shariah compliant bank in terms of its operational pattern, unique customer focus, risk management, organizational advancement in terms of state of art, IT implementation, expansion of branch network, diversification of products and services, new business development, building of an efficient and a dedicated workforce and ensuring the highest level of transparency in all spheres of operations and performance presentation. The Bank is presently manned by 1080 personnel (Executives-51, Officers-932, Others-97) with 14 Divisions / Departments and 55 branches including 17 AD branches across the country. The AIBL is listed with both Dhaka Stock Exchange and Chittagong Stock Exchange. The agenda and objectives of this bank are not grounded for the sake of welfare in hereafter life only but for the socio-economic development in this world as well. It is committed to conduct all banking and investment activities on the basis of interest-free profit-loss sharing system. This bank is firmly determined to contribute to the country economy through its dynamic activities. Above all this bank has extended its helping hand to lead a happy life with regard to ensuring overall welfare for the people of classes. A group of established, dedicated and pious personalities are the architects or promoters of this bank. Especially its founder chairman Mr. A. Z. M. Shamsul Alam was a renowned Islamic thinker, economist, writer and successful executive of Bangladesh government. The bank is now in existence for his ardent effort and continued inspiration. The Board of Directors of AIBL consists of 26 members including the Managing Director and among them, 10 members are from sponsor shareholders. The Board formed two committees namely Executive Committee and Audit Committee. The Bank is committed to contribute significantly to the national economy. The AIBL is pledge- bound to convert the Bank into a Islami Bank on global standard which will be dynamic in actions, progressive in ideas, honest in dealings, correct in judgment, futuristic in attitude, fair in approach, polite in behavior and devoted to high quality service to customers. Its aim is for boosting modern management, advanced technology, good profitability and steady growth transparency. It is also firmly committed to disclosure and compliance to shariah and regulatory authorities. Today the bank is an agile organization which promotes innovation, encourages improvement, values sense of urgency and develops people who accept challenges and turns them into opportunities
3.4: Corporate Information:
1. NAME OF THE BANK
Al-Arafah Islami Bank Limited
2. ADDRESS
Peoples Insurance Building
36, Dilkusha Commercial Area
(6th - 9th Floor), Dhaka - 1000
3. CONSTITUTION
Limited Company
4. NATURE OF BANK
Islami Banking Company
5. BANKING SINCE
27 September, 1995
6. YEAR OF ESTD. OF THE BANK
18 June, 1995
7. NATURE OF BUSINESS
Joint Venture
8. CAPITAL BASE : AUTHORIZED CAPITAL, PAID-UP APITAL
2500.00 Million, 1383.81 Million
9. OWNERSHIP PATTERN
100 % owned by Bangladeshi entrepreneurs.
10. EQUITY
2705.74 Million
11. NUMBER OF SHAREHOLDERS
10664
12. NUMBER OF BRANCHES
54
13. DEPOSIT
29690.12 Million
14. INVESTMENT
29723.79 Million
15. Web site
www.al-arafahbank.com.
3.5: Vision:
To be a pioneer in Islami Banking in Bangladesh and contribute significantly to the growth of the national economy.
3.6: Mission:
Twelve missions mentioned in the Annual Report 2008 are:
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
Balanced growth
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
3.7: Slogan:
A rare combination of shariah & modern banking.
3.8: Objectives of the Bank:
Whenever a new institution comes into existence, claimed that it would be an institution with difference. Otherwise it would be burned with questions. So does this bank come into being as a unique version with combination of Islamic Shariah and modern banking practice with the following objectives in mind:
Be the best Islami bank in Bangladesh
Achieve excellence in customer service next to none and superior to all competitors.
Cater to all differentiated in segments of Retail and Wholesale Customers.
Be a high quality distributor of product and service.
To facilitate the Islamic banking system in the country.
Use state of the art technology in all spheres of banking.
3.9: Features of the Bank:
Al-Arafah Islami Bank Limited was established in 1995 under the Companies Act, 1994 as Banking Company with Limited Liability by shares. It is an interest free Shariah Bank of Bangladesh rendering all types of commercial banking services under the regulation of Bank Companies Act, 1991. The Bank conducts its business on the principles of Musaraka, Bai-Murabaha, Bai-muazzal and Hire Purchase transactions approved by Bangladesh Bank. Naturally, its modes and operations are substantially different from those of other conventional commercial banks. The activities of the bank are being conducted on the percepts of Islam. As an Islamic banking system it differs from other conventional interests based banking. The bank deserves the following unique features:
All activities of the bank are conducted according to Islamic Shariah where profit is the legal alternative to interest.
The bank's investment policy follows different modes approved by Islamic shariah based on the Qur'an & Sunnah.
The bank is committed towards establishing welfare oriented banking system, economic upliftment of the low-income group of people, create employment opportunities.
According to the need and demand of the society and country as a whole the bank invests money to different 'Halal businesses. The bank participates in different activities aiming at creating jobs, implementing development projects of the government and creating infrastructure.
The bank is committed to establish an economic system resulting in social justice and equitable distribution of wealth. It is committed to bring about changes in the underdeveloped rural areas for ensuring balanced socio economic development of the country through micro credit program and financing of SME's as well.
According to Mudaraba system, the depositors are the partners of the investment income of the bank. About 70% of the investment income is distributed among the Mudaraba depositors.
To render improved services to the clients imbued with Islamic spirit of brotherhood, peace and fraternity and by developing an institutional cohesion.
The bank is contributing to economic and philanthropic activities. AIBL English Medium Madrasah and AIBL library patronize by the Bank are two such examples.
3.9.1: Main Functions of the Bank:
The Functions of AIBL are varied and multifaceted. It is to perform any actions that are required to do in order to be successful in its endeavor. Many a functions are being performed by AIBL of which the important ones indicated are as under
Take deposits
Make investment wherever safe & profitable
Manage capital from relatively easier & cheaper sources on favorable term.
3.9.2: departments of the Bank:
If the jobs are not organized considering their interrelationship and are not allocated in a particular department it would be very difficult to control the system effectively. If the department is not fitted for the particular works there would be haphazard situation and the performance of a particular department would not be measured. Al-Arafah Islami Bank Limited has done this work very well.
General Banking Department
Investment Department
Cash Department
Foreign Exchange Department
3.9.3: Chain of Command of Al-Arafah Islami Bank Limited:
Al-Arafah Islami Bank Limited follows a hierarchy pattern of command. Each branch is organized functionally along the line division with facilities and the manager assigns tasks to his subordinate personnel and supervises their performance.
Chain of Command of AIBL is shown below.
Chairman
Vice- Chairman
Board of Directors
Executive Committee
Policy Committee
Managing Director
Deputy Managing Director
Executive Vice President
Senior Vice President
Vice President
Assistant Vice President
Senior Principal Officer
Principal Officer
Senior Officer
Officer
Management Trainee Officer
Junior Officer
3.9.4: Management Team of AIBL:
The Bank is blessed with a well-designed management structure with clearly defined responsibilities .The responsibility of banking business operation in accordance with Islamic principles, rules and regulations is upon the Bank Management. All the posts of the bank are of executives and officers. The total number of employees of the bank is 1080.
3.9.5: Al-Arafah Islami Bank Limited, Khulna Branch:
The Khulna Branch of AIBL is located at the A. Hossain Plaza, 4, Sir Iqbal Road, Khulna, Bangladesh. The branch opens for business transaction at 10.00 am and continues up to 1.00 pm in Saturday. The banking transaction hour of the bank is 10.00 A.M. to 4.00 P.M. from Sunday to Thursday. The bank remains closed at Friday including government holidays. The total number of employees of this branch is 33.
Al-Arafah Islami Bank Limited, Khulna Branch is registered as Authorized Dealer Branch. It works as a sales and service centre like all other branches. At this branch gets all the approval service procedure from the head office-Dhaka Main, it does not face any legal problem.
3.9.6: Hierarchy of the Khulna Branch:
At Khulna Branch, Vice President, Abdur Rahim Duary holds the top position in the hierarchy.. The General Banking Department, Credit / Investment Department, and the Foreign Exchange Department works directly under the supervision of BM. Senior Principal Officer, Mr. Ferdous Hasan looks after the General Banking Department. Principal Officer, Mr. Md. Shah Alam looks after the Investment Department. Assistant Vice President, Mr. Kazi Md. Selim looks after the Foreign Exchange Department. Senior Officer, Mr. Abdul Mannan looks after the Cash Department. Hierarchy of the Khulna Branch is shown below:
Vice President
(Branch Manger)
Assistant Vice President Assistant Vice President
(Second Officer) (Foreign Exchange In charge)
Senior Principal Officer
Principal Officer
Senior Officer
Officer
Junior Officer
Assistant Officer
3.9.7: Customers of Khulna Branch:
AIBL- Khulna Branch deals with all kinds of customers; both individual clients and business clients.
3.9.8: Credit Rating Report:
CRISL assigns 'BBB+' rating to Al-Arafah Islami Bank Limited in the long term and ST-3 rating in the short term on the basis of the bank's average fundamentals, moderate assets quality, marginal capital adequacy, sound profitability, good liquidity and limited market share. Financial institutions rated in this category fall under CRISL category of investment grade and are adjusted to offer moderate degree safely for repayment of financial obligations. This level of rating indicates that a bank has weakness in some areas of operation. However, these entities are considered to have the capability to over come the above limitations with persistent effort. Risk factors are more variable in periods of economic stress. AIBL is a second generation private bank in the country and is performing above averages as compared to industry but still competing to reach the level of average of its per group. A team of professionals having expertise in Islamic banking system manages it. The management has been taking care of capital adequacy maintenance and liquidity management as per the requirement of Bangladesh Bank.
3.9.9: Corporate Culture:
Al-Arafah Islami Bank Limited has the vision to automate all its banking operations and functionalities. The Bank is committed to achieve the goal to be the leading Bank in the country both in service and in technical aspects and to fulfill the requirements of mass people. Al-Arafah Islami Bank Limited is patterned of Islamic norms & ethics with modern technology to achieve the goal in new century.
3.9.10: Corporate Social Responsibility (CRS):
CRS has been defined as "the integration of business operations and values whereby the interests of all stakeholders, including customers, employees, investors, and the environment are reflected in the organizations polices and actions. By CSR practices an organization can improve communication with the community and other stakeholders, ensure accountability and transparency in its operation , improve internal decision making and cost saving, enhance corporate image, improve reputation and ability to enlarge market share and Enhancement of customer true worthiness, profitability and sustainable development .As a corporate citizen , AIBL has profound commitment to the society . The Bank believes that ultimate success doesn't depend on profit maximization rather it entails some responsibilities to be carried out to the society. During the year 2008 the bank participated in CSR activities by financial assistance in different areas like education, training, healthcare, sports, natural disaster, city beautification, etc. AIBL responds positively in every sphere of social activities. The Bank is delivering innovative solution to its valued customers and in the same manner the bank is also helping different areas of social activity through its CSR activities. In the year 2008, AIBL donated BDT 7 million for CRS activities. As a part of social commitments Bank accommodated 122 students from different renewed universities for doing internship program in its Bank during the year 2008.
3.9.11: Shariah Council:
Islamic banks, in its day to day operation face numerous problems and come across doubtful matters for which they require interpretation, clarification and or judgment from a competent authority. Al-Arafah Islami Bank Limited performs and exercises all its task in the light of shariah.The AIBL established a Shariah Council to advice and provides guidance on Islamic Banking Operations. The Shariah Council of the Bank consists of 8 (eight) members including Chairman of the Board, prominent ulema and other personalities. Tasks of the Shariah Council are to assist the bank management by advising them matters on matters relating to shariah. The Shariah Council gives necessary instructions and guidelines to the management from time to time to operate the bank according to the shariah principles. The Council is responsible to analyze and prepare independent opinion based on Islamic Shariah.
3.9.12: AIBL's Products and Services:
Since incorporation, the bank has lunched several banking products in the market, which has drawn huge public interest. Among these, Muraraba Term Deposit, Mudaraba Saving Deposit, Short Notice Deposit, Monthly Profit Based Term Deposit, Monthly Saving Investment and SME Loan have attained significant popularity among the people. Products and services include:
Cash management
Wire transfer.
Automated clearinghouse (ACH) transactions.
Bill presentment and payment.
Balance inquiry.
Funds transfer.
Downloading transaction information.
Loan applications.
Investment activity.
Other value-added services.
3.9.13: Prevention of money laundering:
Money laundering risk is defined as the loss of reputation and expenses incurred as penalty for being negligent in prevention of money laundering. In order to address the money laundering risk, the bank follows standard procedures such as, no account can be opened without having an introduction and KYC (know your customer) against each and every account. Transaction profile (TP) is taken for every account and actual transactions of the account are to match with the declared transaction profile. For mitigating the risk the Bank has a Central Compliance Unit (CCU) at Head office. The unit reviews the anti money laundering activities of the bank on regular basis.
3.9.14: Internal control and compliance:
Operational loss may arise from error and fraud due to lack of internal control and compliance. Through Internal Control and Compliance Division (ICCD) management controls operation activities of the Bank. Bank has established separate Internal Audit & Inspection Department, Audit Monitoring Department and Regulatory Compliance Department under ICCD. Audit Monitoring Department is ensuring the compliance of Audit & Inspection Reports while Regulatory Compliance Department is ensuring the compliance of Regulatory Rules and Regulations. The Audit committee of the Board subsequently reviews the reports of the Internal Control and Compliance Division. ICCD independently reports the Internal Control System and Financial Health of the Board of Directors.
