Al-Arafah Islami Bank

Al-Arafah Islami Bank incorporated in Bangladesh as a banking company in 1995 with limited liability by shares. It started business on 27 September of that year with an authorised capital of Tk 1,000 million. At inception, its paid up capital was Tk 101.20 million divided into 101,200 ordinary shares of Tk 1,000 each. 23 sponsors of the bank subscribed the total issued capital. In 2000, the paid up capital of the bank increased to Tk 253 million, of which Tk 126.50 million were paid by the promoters/sponsors and Tk 126.50 million by the general public. The bank is listed in the two stock exchanges of the country and has offered 126,000 shares for subscription and trading by the public. Al-Arafah Bank is an interest-free shariah bank and its modus operandi is substantially different from those of regular commercial banks. The bank however, renders all types of commercial banking services under the regulation of the Bank Companies Act 1991. It conducts its business on the principles of musharaka, bai-murabaha, bai-muajjal and hire purchase transactions. A Shariah Council of the bank maintains constant vigilance to ensure that the activities of the bank are being conducted according to the precepts of Islam.

The management of the bank is vested in a 23-member board of directors, who oversee the affairs of the bank through a managing director, the chief executive officer of the bank. In December 2000, the bank had a total of 622 employees, including its executives and it had 35 branches (30 urban and 5 rural). The registered head office of the bank is at Motijheel, Dhaka.

Total deposits of the bank as at the end of the business year 1996 stood at Tk 1,305.63 million and comprised mudaraba term deposits (25.66%), mudaraba savings deposits (30.95%), mudaraba short-notice deposits (11.85%), Hajj deposits (0.02%), special scheme deposits (0.30%) and current and contingency accounts (31.21%). The bank's deposits have significantly increased over the years and stood at Tk 7,307.59 million on 31 December 2000. The deposit-mix of the bank in 2000 remained almost unchanged except the inclusion of bearer certificates of deposits and the special deposit scheme.

All activities of the Al-Arafah Islami Bank are conducted on an interest-free system according to Islamic Shariah. It invests all of its surplus funds on the basis of the trade mode of financing ensuring buying and selling of halal commodities and on a profit and loss sharing basis. A fixed percentage of income derived from investment of mudaraba deposits is distributed to the mudaraba deposit holders. The investment of the bank is supervised strictly so that no investment becomes overdue with consequential loss of investment income. The total investment of Al-Arafah Islami Bank stood at Tk 3,728.41 million in 2000 as against Tk 781.09 million in 1996. Its modes of investments are: a) mudaraba finance - purchase and sale of commodities as per requests by clients permissible under shariah regulations; b) bai-muajjal - cost plus sale of the commodity on deferred payment basis against adequate collateral; c) bai-salam (advance sale) - buying of goods from producers/suppliers on payment in advance after entering into a firm contract and receipt of their delivery at a future specified date; d) ijara bil-bai (hire purchase sirkatul meelk) - purchase of durable items on equity participation by both the bank and the client and handing them over to the client on installment sale rental basis; e) mudaraba - entire capital provided by the bank against firm assurance of the entrepreneur that he will manage the business properly and efficiently as manager and the profits derived from the investment will be shared in accordance with the agreement between the bank and the client; and f) musharaka - capital is provided by the bank and the investment client on the basis of partnership, in which profit is shared in agreed ratio and the loss is shared on equity ratio.

The bank has recently introduced some schemes for upliftment of fixed wage-earners as well as small traders and for income generating activities. These are: Desired Durables Investment Scheme (DDIS), Masjid Madrasah based Investment Scheme (MMIS), Small Business Investment Scheme (SBIS), Special Pally Biniog Prakalpa (Rural Investment Project) and Transport Investment Scheme. On 31 December 2000, the bank had a total of Tk 620.5 million (16.44% of total investment) as classified investments. The amount of provision it has maintained for classified investments was Tk 219.5 million. The investment-deposit ratio of the bank was 51.02%.

The amount of foreign exchange business handled by the bank during January-June, 2000 was Tk 5,950 million. In the year 1999, its handling of exports was Tk 2,304 million, of imports Tk 5,556 million and remittances Tk 250 million. Total assets of the Al-Arafah Islami Bank has increased at moderate rates during the 6 years of its banking operations and stood at Tk 8,580 million in 2000 against Tk 2,416 million in 1995. Operating efficiency of the bank has improved at slower rates. Net profit after provision and tax of the bank was Tk 45.80 million in 1999 and Tk 62.94 million in 2000.