The microscopic origin of the ferroic and multiferroic properties of AlFeO3 have been carefully investigated. The maximum entropy method was applied to X-ray diffraction data and ab initio density functional theory calculations in order to obtain the electron density distributions and electric polarization. The study of chemical bonds shows that the bonds between Fe(3d) and O(2p) ions are anisotropic, leading to the configuration of shorter/longer and stronger/weaker bonds. This leads to electric polarization. Density of states calculations showed a magnetic polarization as a result of a weak ferromagnetic ordering. These results unambiguously show that AlFeO3 is a multiferroic material and exhibits a magnetoelectric coupling at room temperature, as has already been shown by experiments.