Investment decisions and profitability analysis of Al-Arafah Islami Bank Limited

Abstract

Islamic Banking sector is one of the fastest-growing sectors in Bangladesh. According to the report of Bangladesh Bank, Islamic Banks hold 28.21% of the market share of the banking market. Currently, 10 full-fledged Islamic Banking is operating in the country. Al-Arafah Islami Bank Limited is the market challenger of the Islamic Banking industry. It was incorporated on 27th September 1995 as a private Islamic Bank in Bangladesh. Currently, AIBL has 201 branches across the country. It provides bank loans, security services, deposit schemes etc. It is also involved in import-export businesses, industrial businesses, transportation, and agriculture and it has other business investments. The popular deposit schemes of the bank are the Mudaraba saving deposit, Pension deposit scheme, Bai Salam etc. To analyze the profitability and investment of the bank, I have used both primary and secondary data. Primary data are collected from the interview of the Bank’s supervisor and other primary data are of my personal observation. Secondary data are collected from Annual reports, business magazines, newspapers etc. In my study, I have found several issues at AIBL such as non performing loans, lack of effective human resources, network and service issues, centralized management of the bank etc. The profitability and income from investment and non-investment sectors are diminishing gradually in 2020 and 2021. There is a lack of quality human resources at Dakshin Khan Branch, Dhaka. AIBL does not allow investing under Mudaraba and Musharaka modes in all branches. Bai-Muajjal is the largest mode of investment for AIBL in the year 2020-21. Due to COVID, there is a reduction in the total investment of the bank. The recovery rate of disbursement has fluctuated every year in business performance. To recover the situation, I have added effective recommendations for AIBL. I recommend AIBL invest more in other modes of investment such as Mudaraba and Musharaka modes to recover investment losses and engage effective manpower in every branch. The bank should recover disbursement on a quarterly basis. They should also solve network issues, change infrastructure and management policy and update their KYC form to improve the bank’s performance.