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“Performance Analysis of Islamic Financial Transaction Terminology”
1.1 Objectives of the Study:
The objective of the report is to comprehensive study on Al Arafah Islami Bank Ltd and to find out the opportunities for the Islamic Banking Service. The objective of the study is also to identify the Islamic Banking Procedure based on Shariah and the Holy Qur’an and also it’s marketing process. The primary and secondary objectives of this report are as follows:
(a) Primary Objectives:
· Identifying the ways how an Islami bank runs its business through investment without interest.
(b) Secondary Objectives:
· Understanding the differences between Islamic Banking System and Commercial Banking System.
· To create a model for an Islamic Banking Services.
· Finding out whether the investment mode of the Islami bank helps economy.
· Understanding the overall picture of AIBL.
· To observe Banker- Customer relationship.
· To gain experience on different functions of the different departments of the bank.
· To know discipline and behavior of an organization that will help me to buildup my career.
1.2 Background of the Study:
This study is made for the partial requirement of the BBA program. As the internee was assigned in the “Performance Analysis of Islamic Financial Transaction Terminology” during the internship period, practical knowledge has been gathered on the sector. As observation is the main task of the division, the report is aimed to work on that topic.
Practical work situation is sometime may different from what is learn theoretically. Though the business processes are based on theory, the application has to be different to meet the requirements of a situation. The “Performance Analysis of Islamic Financial Transaction Terminology” has been observed practically and presented in this report to observe the real situation.
1.4 Scope of study:
In organization part, the report generates an overview of the AL-Arafah Islami Bank Limited. But it would be so difficult if Jinat Liala (Lecturer, University of Southeast Asia) and M. Mohiuddin Sharifi, (Manager, AIBL) did not help to generate information. The scope of the report is restricted to the collection record and disbursement process of the Islamic banking system of Al-Arafah Islami Bank Limited. But it was not possible for me to collect any information on payroll and planning & services as their activities are highly confidential.
1.5 Justification of the Study:
As this study has been done based on imperial evidence, it will have both practical and academic value. It will help the concerned parties to get a clear picture regarding the contribution of AIBL since its inception. From this study one can be able to know about present practice of AIBL on Islamic-economic development in our country. The findings of this report will help to take appropriate actions and steps for the betterment of existing practice, which basically help the industrial development of the country on Islamic ways banking. It would also be cleared what procedures have AIBL been following to recover the Islamic banking. It is well known to everybody that institutional education and practical life is totally different. Practical life is the application of institutional education. So, it is natural to face realities of life in practical oriented life.
1.6 Benefits of the Study:
This study bridges between practical & theoretical life. It has created an opportunity to face practical life for the first time. To have obtained a comprehensive knowledge on the organization, it has made clear what procedures AIBL follow to implement how the banks run by following the Holy Quran. It has enriched my personal skills and knowledge on identification of the marketing process of Islamic banking services and measures to overcome the problem and also gained knowledge on rehabilitation programs of AIBL.
1.7 Methodology of the Study:
Correct and smooth completion of research work requires adherence to some rules and methodologies. In order to conduct the report, the decision has been taken to collect various types of primary data and secondary data. Data have been collected by oral interviewing of the responsible officers. After collecting data from the interview and material provided by them, data were first carefully scrutinized. Then the data were organized as required.
In order to make the study effective and efficient, following two sources of data and information have been used widely:
(a) Primary information/data
The primary data have been collected by oral interviewing of the responsible officers and staffs of the AIBL, practical deskwork, direct observation of the functions of various departments of AIBL and relevant documental studies as provided by the officers concerned.
(b) Secondary Information/data:
Secondary data means the existing primary data that was collected by someone else or for a purpose other than the current one.
Sources of Data:
Sources can be classified as:
(i) Primary Sources and
(ii) Secondary Sources
|(i) Primary Sources :
1.8 Limitations of the Study:
This internship report is the first assignment outside of our course curriculum in the practical life. In performing this report our lack of proper knowledge greatly influenced the performance. Besides, some limitations in preparing this report have been faced. The main limitations are as follows:
- To collect data and information, it is a common tendency of any departments to keep back their departmental data and information.
- Unavailability to required published documents.
- Lack of experience and efficiency to prepare the standard report.
- The main constraint of the study was shortage of time.
- Since the Bank personnel were very busy, they failed to give me enough time to complete the report.
- The clients were very busy, so they were unable to give me much time for interview.
2. Background of Al Arafah Islami Bank Ltd
With the objective of achieving success here & hereafter by pursuing the way directed by Allah and the path shown by Prophet Muhammad (SM), Al Arafah Islami Bank Ltd was established (registered) as a private limited company on 18 June, 1995. The inaugural ceremony took place on 27 September, 1995. The authorized capital of the Bank is Tk.2500.00 million and the paid up capital is Tk. 1153.18 million as on 31.12.2007. Renowned Islamic scholars and pious businessmen of the country are the sponsors of the bank. 100% of paid up capital is being owned by indigenous shareholders.
The equity of the bank stood at Tk. 2037.50 million as on 31 December, 2007, the manpower was 1033 and the number of shareholders was 12013. It has achieved a continuous profit and declared a good dividend over the years. High quality customer service through the integration of modern technology and new products is the tool of the bank to achieve success. The bank has a diverse array of carefully tailored products and services to satisfy customer needs.
The Bank is committed to contribute significantly to the national economy. It has made a positive contribution towards the socio-economic development of the country with 47 branches off which 17 are authorized dealer (AD) throughout the country.
To be a pioneer in Islamic Banking in Bangladesh and contributes significantly to the growth of the national economy.
- 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.
2.3 Zonal and Branch Offices:
Table – 01
|Established||:||October 31, 1995|
|Authorized||:||TK. 2,500 million|
|Paid-up||:||TK. 1,153.18 million|
2.4 AIBL at a Glance:
|Islam provides us a complete lifestyle. Main objective of Islamic lifestyle is to be successful both in our mortal and immortal life. Therefore in every aspect of our life we should follow the doctrine of Al-Qur’an and lifestyle of Hazrat Muhammad (Sm.) for our supreme success. Al-Arafah Islami Bank started its journey in 1995 with the said principles in mind and to introduce a modern banking system based on Al-Qur’an and Sunnah. A group of established, dedicated and pious personalities of Bangladesh are the architects and directors of the Bank. Among them a noted Islamic scholar, economist, writer and ex-bureaucrat of Bangladesh government Mr. A.Z.M Shamsul Alam is the founder chairman of the bank. His progressive leadership and continuous inspiration provided a boost for the bank in getting a foothold in the financial market of Bangladesh. A group of 13 dedicated and noted Islamic personalities of Bangladesh are the member of Board of Directors of the bank. They are also noted for their business acumen. Al-Arafah Islami Bank Ltd. has 53 braches and a total of 1080 employees (upto December 2008). Its authorized capital is Taka 2500 million and the paid-up capital is Taka 1153.18 million. Wisdom of the directors, Islamic bankers and the wish of Almighty Allah make Al-Arafah Islami Bank Ltd. most modern and a leading bank in Bangladesh.
We present some data on the bank below (In million taka):
From this graph we can see that the deposit of Al-Arafah Islami Bank Ltd. has increased year by year. In 2005 the deposit of Al-Arafah Islami Bank Ltd. was 10108.28 million and after one year in 2006 it increased to 11643.66 million then in 2007 it became 16775.34 million. In 2008 their deposit was 23009.13 million and in 2009 they builtup their position to 29690.12 million.
From this graph we can see that the import of Al-Arafah Islami Bank Ltd. has increased year by year. In 2005 the import of Al-Arafah Islami Bank Ltd. was 9337.49 million and after one year in 2006 it increased to 12631.6 million then in 2007 it became 18821.4 million. In 2008 their import was 27042.72 million and in 2009 they builtup their position to 32685.13 million.
From this graph we can see that the export of Al-Arafah Islami Bank Ltd has increased year by year. In 2005 the export of Al-Arafah Islamic Bank Ltd was 3639.34 million and after one year in 2006 it increased to 4932.9 million then in 2007 it became 9142.7 million. In 2008 their export was 12714.91 million and in 2009 they builtup their position to 20176.64 million.
(iv) Profit after Tax:
From this graph we can see that the Profit after Tax of Al-Arafah Islami Bank Ltd in 2005 was 158.76 million and after one year in 2006 it increased to 232.9 million then in 2007 it became 470.02 million. But in 2008 their place fall into 347.31 million and in 2009 they builtup their position to 668.24 million.
2.5 Special Features of the Bank:
As an Islamic bank, we are singular in every positive aspect. We provide a bunch of state-of-art banking services within the wide range of Shariah. We are unique with our products, strict with our principles and uncompromising with our honesty. Some of our special features that make us notable in Islamic banking sectors are as follows:
- All activities of AIBL are conducted under a profit/loss based system according to Islamic Shariah to get the nation rid of Usury.
- Its investment policies under different modes are fully Shariah compliant and well monitored by the board of Shariah Council.
- During the year 2007, 70% of the investment income has been distributed among the Murabaha depositors.
- In 2008, AIBL has included online banking in its wide range of services. Bangladeshi software has been introduced in this feature to promote the local developers.
- AIBL regularly arranges its AGMs (Annual General Meeting). Whenever needed EGMs (Extraordinary General Meeting) are also arranged.
- We regularly pay dividend to our valued shareholders. For the year of 2008, we declared 30% bonus dividend to our shareholders.
- We believe in providing dedicated services to the clients imbued with Islamic spirit of brotherhood, peace and fraternity.
- Bank is committed towards establishing a welfare-oriented banking system to meet the needs of low income and underprivileged class of people.
- The Bank upholds the Islamic values of establishment of a justified economic system through social emancipation and equitable distribution of wealth.
- Following the Islamic traditions, it is assisting in the economic progress of the socially deprived people; in the creation of employment opportunities and in promotion of rural areas to ensure a balance development of the country.
The Bank believes in social and philanthropic activities and has established AIBL English Medium Madrasha and AIBL Library. More endeavors will inshallah follow in future.
2.7 Board of Directors:
The board consists of 12 (Twelve) directors. The number of the board of Directors of the bank holds very respectable position in the society. They are from highly successful and industrial group of Bangladesh. It is mentionable that the whole members of the Directors Board of the bank carried a special carrier- they are Hajji and they already committed “The whole activities in the bank will be as a ‘Ibadah’ “. Jb. Al-Hajj Md. Badiur Rahman is the Chairman of the board while Jb. Al-Hajj Md. Harun-ur-Rashid Khan is the vice President & the Company secretary is Jb. Md. Mofazzal Hossain (the Executive Vice President of the bank).
|Jb. Al-Hajj Badiur Rahman|
|S M Shameem Iqbal|
|Jb. Al-Hajj Nazmul Ahsan Khaled|
|Alhajj Md. Harun-ur-Rashid Khan|
|Alhajj Abdul Malek Mollah|
|Alhajj Hafez Md. Enayetullah|
|Alhajj Abdus Salam|
|Alhajj Abdul Moktadir|
|Alhajj Ahamedul Haque|
|Alhajj Abdus Samad|
|Alhajj Abu Naser Mohammad|
|Md. Ashik Hossain|
|Md. Rafiqul Islam|
|Mohammd Emadur Rahman|
|Sabrina Farah Ahmed|
|Alhajj Niaz Ahmed|
|Dr. Momtaz Uddin Ahmed|
2.7.1 Organizational Structure of the Bank:
- Vice Chairman
- Board of Directors
- Managing Director
- Deputy Managing Director
- Additional Managing Director
- Executive Vice President
- Senior Vice President
- Vice President
- Assistant Vice President
- Senior Principal Officer
- Principal Officer
- Senior Officer
- Junior Officer
- Assistant Officer
2.8 Shariah Board of AIBL:
Scholars of high repute with extensive experience in law, economics & banking systems and specialising in law and finance as prescribed by Islamic Shariah make up the AIBL’s Fatwa & Shariah Supervision Board. The Board is appointed by the bank’s Board of Directors. The Shariah Board supervises the development and creation of innovative Shariah compliant investment and financing products and services. The Board is empowered to issue fatwas on any matter proposed to it by different business units of the bank. The Shariah auditors ensure that all the transactions are carried out in strict compliance to Islamic principles of banking. This framework along with a stringent compliance to rules has made AIBL the pioneering organization to practice Islamic finance in true letter and spirit. The name AIBL has come to signify innovation, financial dynamism, leadership and above all a complete assurance that all the transactions are free from Riba (interest).
2.8.1 The Board’s Role:
The Fatwa & Shariah Supervision Board oversees the application of different aspects of Shariah in the Bank. It also ensures that all transactions are in strict compliance with the right of contradicting (fatwa) any violating procedures, if found. The Board of Directors is obligated to obey the fatwas, irrespective of whether a unanimous or a majority consensus secured the decision (clause —- of the Bank’s Memorandum & Articles of Association).
Board meetings are held periodically or whenever the need arises. The rights of the Board are enshrined in Article Seven of the Bank’s Memorandum & Articles of Association (Clauses).
2.8.2 Important Duties of the Shariah Board:
- As an expert source on Islamic Principles ( Including Fatwas), the Board through a representative, usually the General Secretary of the Board, supervises the Shariah compliance of all the transactions in the Bank.
- To devote time and effort to devising more Shariah compliant transactional procedures, templates and banking products that enable the Bank to adapt to market trends while maintaining a high competitive edge in deposit procedures, investments and banking services. At the same time, the Board gives its opinion on proposed new templates and banking transactions.
- Analysing unprecedented situations that are not covered by fatwa, in the Bank’s transactional procedures or those reported by different departments, branches and even the customers. This is to ensure Shariah compliance before the Bank develops any new product or implements any new procedure.
- Analysing contracts and agreements concerning the Bank’s transactions, as submitted by the Chairman of the Board of Directors or any department/branch within the bank or requested by the Board itself so that Shariah compliance can be evaluated and maintained.
- Ensuring Shariah compliance in the implementation of all banking transactions and correcting any breaches.
- Analysing administrative decisions, issues and matters that require the Board’s approval.
- Supervising Shariah training programmes for the Bank’s staff.
- Preparing an annual report in the Bank’s balance sheet with respect to its Shariah compliance.
- The Fatwa & Shariah Supervision Board submits a complete annual report to the Board of Directors, summarizing all the issues referred to the Board, as well as its opinion on the Bank’s transactional procedures.
2.8.3 Shariah Supervisors:
The Clause —- of the Bank’s Memorandum & Articles of Association requires the Board of Directors to appoint a Shariah Supervisor, responsible for monitoring all the Bank’s transactional procedures and assuring Shariah compliance.
Also the General Secretary of the Fatwa & Shariah Supervision Board, the Shariah Supervisor handles queries about the Bank’s administration from staff members, shareholders, depositors and customers, liaises with the Shariah auditors and provides them with guidance. He submits reports and suggestions to the Fatwa & Shariah Supervision Board and to the Chairman of the Board of Directors. The position also calls for participation in the Bank’s training programmes.
2.8.4 Shariah Auditing:
The supervisory function forms a part of the Shariah Supervision procedures, its main task is to check Shariah compliance under the guidance of the Shariah Supervisor.
The auditors continuously review the Bank’s transactional procedures to ensure adherence to the framework created by the Fatwa & Shariah Supervision Board. The Shariah auditors submit periodic reports to the Shariah Supervisor to monitor and maintain the Shariah compliance.
2.8.5 Members of AIBL’s Fatwa and Shariah:
Supervision Board are:
|Sl||Name of the board||Designation|
|01||Jb. Maolana Md Siddiqur Rahman||Chairman|
|02||Janab Al-Hajj Md. Anowar Hossain||Member|
|03||Janab Moulana Abu Sayeed Muhammad Omar Ali||Member|
|04||Janab Mufti Muinul Islam||Member|
|05||Janab Al-Hajj AZM Shamsul Alam||Member|
|06||Jb. Md. Abdur Rahim Khan||Secretary (CC)|
2.9 Branch-Location all over Bangladesh:
|Dhaka Division (23)||Sylhet Division (06)||Barishal Division (3)||Chittagong Division (08)||Khulna Division (05)||Rajshahi Division (5)|
|1. Motijheel Bruch 2. Moulvi Bazar 3. Nowabpur Road 4. VIP Road 5. Corporate Branch Motijheel 6. New Elephant Road 7. Uttara Model Town 8. North-South Road 9. Bonani 10. Mirpur 11. Mouchak 12. Dhanmondi 13. Madhabdi 14. Pagla 15. Jaydebpur 16. Mohammadpur Krishi Market 17. Narayangonj 18. Mymensin 19. Dilkius 20. Islampur 21.Jatrabari(west) 22.Jatrabari(East) 23. Nikunjo||1. Laldhigirpar 2. Rupashpur 3. Zinda Bazar 4. Moulvi Bazar 5. Ambarkhana Branch 6. Beani Bazar Branch||1.Brishal 2.Jhalakathi 3. Mongla||1. Agrabad 2. Khatungonj 3.Chowmouhani 4. R Nizam Road 5. Companygonj 6. Comilla 7. Gallai 8. Jubilee Road||1. Khulna 2. Jessore 3. Banapole 4. Shakhira 5. Chuknagar||1. Rajshahi 2. Saidpur 3. Mohadebpur 4. Bogra 5. Satkhira|
2.10 Schedule of Charges: Al-Arafah Islami Bank Ltd. Schedule of Charges on Effect from 01/07/2008
2.11 Corporate Social Responsibilities of Al-Arafah Islami Bank Ltd.
2.11.1 Al-Arafah Islami Bank Foundation:
The Bank has a foundation launching philanthropic activities. Al-Arafah English Medium Madrasah and Al-Arafah Islami Bank Library are major two wings for launching philanthropic activities.
2.11.2 Al-Arafah English Medium Madrasaha:
Al-Arafah English Medium Madrasah has been established by the Al-Arafah Bank Foundation with a view to building next generation according to the ideals of peace and equality of Islam and to establish banking and other aspects of life through the way of Islam. The prime aim of this madrasah is to contribute towards building human resource and in the broader sense to ensure human welfare. With this view Al-Arafah Islami Bank Foundation has established an English medium Madrasah at Dhanmondi in 1999. Such institution upto O level of its kind is for the first time in Bangladesh.
2.11.3 Al-Arafah Islami Bank Library:
Library is the carrier & reservoir of knowledge. Al-Arafah Islami Bank Ltd. has shown that other than generating profit, it can also contribute significantly in the field of providing good source of knowledge by establishing a public library at 32, Topkhana Road, Chittagong Bhaban (1st floor), Dhaka, thus strengthening social development. It is situated in a sound, healthy surroundings. It harbors 23,000 books of reference for the researchers, students, professionals, bankers, physicians, engineers, politicians, writers or journalists, even for the kids. It is open to all from the year 2000 and well located & accessible to everybody. It procured some exceptional collection of books on religion, economics, banking, computer science, business administration, sociology, English & Arabic language and juvenile literature in Bangla, English, Urdu & Arabic, which are very rare.
The AIBL’s library houses a vast collection of more than 4,000 books on Islamic Fiqh law, economy, banking and Shariah. The library was primarily established with the aim of serving the Fatwa & Shariah Supervision Board’s research team and the AIBL staff. The facility is also accessible to the bank’s customers, researchers and students of higher education.
2.12 Micro Finance:
The economy of Bangladesh mostly depends on rural development. Poverty stands in the way of the growth of this economy. Although numbers of NGOs and financial organizations work in the sub-urban and villages with a view to alleviating poverty, a very few are found working with the compliance of Islamic Sariah. It is a national responsibility to alleviate poverty from the rural area. To help change the socio-economic condition of the impoverished people of the villages, Al-Arafah Islami Bank Limited has initiated a project entitled “Krishi O Grameen Khudra Biniog Prokolpa (Microfinance)”. With this project, Bank is working for reduction of poverty, development in agricultural sectors, creation of job opportunities etc. We hope this will develop the socio-economic condition of a large segment of the rural folk.
It is a group based work. The main characteristics are:
- This is a supervised investment programme.
- A group consists of 5 (five) members.
- 8 (eight) groups make a Samitee. It means that a Samitee contains 40 members.
- Every group has a Group Leader and a Deputy Group Leader.
- Every Samitee has a Samitee Leader and a Deputy Samitee Leader.
- All members must attend the weekly meeting.
- Ceiling of Microfinance Investment is from Tk. 3,000 to Tk. 50,000.
- To facilitate rural entrepreneurs.
- To develop socio-economic condition of rural people.
- To save rural people from usury.
- To facilitate the growth of agro-industries.
- To create employment scope.
- To broaden the base of Islamic Banking in the rural society.
- To encourage women entrepreneurs.
Working Capital Investment
- Fixed Capital Investment.
- HPSM (20% Equity) required.
- Securities Against Investment.
- Members in a group are the guarantor of each other.
- Personal guarantee of local eminent personalities.
- Hypothecation of stock-in-trade and goods to be fixed delivered under deferred payment.
- If necessary, Bank may lien personal savings and long term deposits.
- Nationality Certificate from Union Parishad Chairman or Birth Registration Certificate or National ID card.
- Letter of group guarantee.
- Letter of agreement.
- Some necessary Cha.rge Documents
- Permanent resident of branch’s commanding area.
- Age must range between 18 to 50 years.
- Physically fit and capable of working hard.
- The person borrowed any amount of money from other institution is not eligible to be our microfinance member.
- All members in a group are the guarantor of each other.
- Other terms and conditions stipulated by the bank.
- Members of the group have to open a Non-operative Savings Account in their individual names.
- Minimum Weekly compulsory savings is 0.2% of approved investment.
- Normally members cannot withdraw their savings before adjustment of investment but when emergency, they can take it by fulfilling some terms and conditions.
2.13 SME Banking:
Small and Medium Enterprise (SME) is playing a significant role to the growth of overall GDP of the country. Of all industrial productions, a huge part comes from SME. In order to boost up the small and medium enterprises of the country, Bangladesh Bank has recently advised the commercial banks to enhance the flow of investment and offered directives and policies to supervise and monitor this sector.
As SME has emerged as a thrust sector, Al-Arafah Islami Bank Ltd. also considers it importance to extend and enhance finance for the same. Keeping this idea in the forefront, the bank has prepared an integrated policies, methods and procedures for SME investment.
- To facilitate small and medium level entrepreneurs.
- To boost up the small business in the country.
- To facilitate the growth of agro-industries.
- To create employment.
- To broaden the base of Islamic Banking in the society.
- To encourage women entrepreneurs.
- Working Capital Investment
- Murabaha / Murabaha TR
- MPI / MPI- TR
- Fixed Capital Investment
- HPSM (Equity required)
- Permanent resident of Bangladesh.
- The age must range between 25 years to 60 years.
- Physically fit and capable of working hard.
- Capable of reading & writing.
- Capable of managing his / her business successfully.
- Sufficient Infra-structure and skilled personnel.
- At least 02 (two) years experience in the applied business.
- Having Transparent CIB Report.
- Valid Licenses such as- Trade License, VAT registration, TIN, NOC from Environment Department (where applicable).
- Other terms and conditions stipulated by the bank.
2.13.4 Securities Against Investment:
- Personal guarantee of spouse/parents/other family members.
- In case of limited companies, guarantees of all directors other than nominated directors shall be obtained.
- Registered mortgage of immovable properties with registered Power of Attorney (for 2 lac and above).
- Third party personal guarantee (at least one).
- Post dated cheques of each installment and one undated cheque of full investment value including full mark-up profit.
- Hypothecation on the inventory, receivables, advance payments, plant and machinery.
- Bank may relax the security for investment amount up to 2 lac for the growth of SME investment.
2.14 Foreign Trade:
Foreign Trade is one of the pioneer business activities of the bank conducted by and routed through the International Division. International Division of AIBL has been functioning successfully having a good number of skilled officials headed by Senior Vice President who has a long experience in this business line.
In order to accelarate/promote the Foreign Exchange business of the bank , man power of this Division has been exerting their all out efforts in establishing Correspondent Banking Relationship with world reputed banks , in hunting corpororate clients to boost up Import & Export business by rendering their best and skilled services.
International Division has been giving utmost importance to the functioning of treasury operation in dealing as it has always been considered as an important avenue for generating income of the bank . Besides, ID is continuing its utmost effort to establish the remmitance arrangements with the world renowned companies to bring the wage earners remmittance from the Bangladeshi nationals in abroad to contribute in widening the national revenue of the country for increasing remittance.As a result significant result has been made in the Foreign Trade.
2.15 SWOT Analysis: