An Over View of BANGLADESH SHILPA BANK

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An Over View of BANGLADESH SHILPA BANK

1.1 Introduction:

Bangladesh Shilpa Bank (BSB) established under the Bangladesh Shilpa Bank Order 1972 (Presidential Order No. 129 of 1972) on 31 October 1972, to provide credit facilities and equity support to industrial enterprises in Bangladesh. It is the prime development financing institution (DFI) in the country for extending financial assistance for industrialisation. The Bank provides long and medium-term loans both in local and foreign currencies, guarantees repayment of loans raised by investors from other sources, and provides equity support by way of outright purchase of shares and by underwriting the public issue of shares. It also extends short-term bridge financing and working capital loans on a limited scale. BSB provides free technical advice in respect of plant and machinery, product and process, raw materials, market for products, and other related aspects to prospective entrepreneurs. It prepares project profiles for private entrepreneurs. All industrial projects either in the public sector or in the private sector are eligible for financial assistance from the bank. It follows a policy of diversifying its lending portfolio for widespread geographical dispersal of industrial enterprises, especially in less-developed areas of the country. With the view to bringing more dynamism and diversity in its activities, BSB started full-fledged commercial banking in 1993-94. This enables bank-financed projects to obtain commercial banking services including working capital loans, import of raw materials, etc

2.1 Historical Background:

Industries play indispensable role in the economic enlargement of every country. This is why Industrialization has been used as main mechanism of economic expansion in many developing countries. Government of Bangladesh instituted adevelopment financial institution named Bangladesh Shilpa Bank on 31^s December, 1972 under the presidential order no. 129 of 1972 with a mission of speeding the process of industrialization of the country by providing financial support and equity backing. It has been extending long and medium term loan facilities in local and foreign currencies to industrialize projects in the private and public sectors. Initially, the authorised capital of the bank was Tk 1,000 million in 1972 and the paid up capital was then Tk 750 million, which was subscribed by the government of the People’s Republic of Bangladesh. Later, the authorised and paid up capital was enhanced. In 2000, the authorised capital was Tk 2,000 million divided into 2 million shares of Tk 1,000 each. Tk 1,320 million (66%) was subscribed and paid up by the government while the rest were left for subscription by Bangladeshi nationals or by financial institutions at home and abroad.

The bank created a reserve fund of Tk 7 million in its first year of operations. In 1999-2000, the total reserve fund and other reserves of the bank stood at Tk 392.36 million. In 1982, the bank created a special equity fund titled ‘Quasi Equity’ by converting the 3rd, 5th, 6th and 8th UK credits received by it immediately after independence in 1971. The prime objective of the bank is to accelerate industrial growth in the country by financing industries, by providing advisory services in setting up new projects, and by assisting in balancing, modernisation, replacement and expansion (BMRE) of existing industrial units

Institutional Overview of BSB

Established	October 31,1972
Organization	Hear office	Dhaka
	Division	05
	Department	21
	Zonal office	03
	Branch office	15
	Manpower	769

2.2 Capital Structure and Sources of Fund:

Capital Structure of BSB

Capital Structure	Tk. (in Million)
Authorized	2000
Paid – Up	2000

Sources of Bank’s fund are the Government, Bangladesh Bank, Commercial Bank’s local / overseas financial institutions and supplies credit. At least fifty one percent of the authorized capital of Bangladesh Shilpa Bank must be subscribed by the government and remaining forty nine percent may be subscribed Bangladeshi nations or by financial institutions local or foreign. Presently, 100 percent ownership of the bank belongs to the government.

2.3 Ownership of BSB:

At least Bangladesh Government subscribes 51 percent of the Authorized capital of BSB and remaining 49 percent is subscribed by Bangladeshi nationals or by local or foreign Financial Institutions. Presently, 100 percent ownership of the Bank belongs to the Government.

2.4 Mission of BSB:

Bangladesh Shilpa Bank is the state owned Lending Department Financial Institution (DFI) of Bangladesh. The mission of BSB is accelerating the process of industrialization of the country by providing financial assistance and equity support.

2.5 Management of BSB:

The overall policy formulation and the general direction of Bank’s operation is taken in a Board of Directors appointed by the Government. This Board of Directors consists of 9(nine) members including the Chairman and the Managing Director. Non-Governments shareholders subscribing to the capital of the bank shall eventually elect 4 directors from amongst themselves. The Managing Directors is the chief executives of Bank. The General Managers assist the Managing Director in conducting the overall banking business.

2.6 Functions of BSB:

BSB extents term loan facilities in local and foreign currencies to industrial projects (both new and BMRE) in the and public sectors. Besides Bank also performs the following activities:

Ø Provides working capital loans to industrial projects.

Ø Provides equity support in the form of underwriting and bridge finance to public limited companies.

Ø Issues guarantees on behalf of borrowers for repayment of loan.

Ø Extends commercials banking services along with deposit mobilization.

Ø Purchases and sales shares / securities for BSB and on behalf of customers as member of Dhaka Stock Exchange (DSE) ltd. and Chittagong Stock Exchange (CSE) ltd. for capital market development; and

Ø Conducts projects promotional activities along with preparation of various sub-sectoral study reports.

2.7 Other Activities

Advisory services:

The bank assists the interested entrepreneurs in selecting industrial projects having appropriate technology and potential market by providing advisory services and various information.

Training:

For upgrading the professional competence and skills of its employees, the bank is continually arranging training programs both at home and aboard. During FY-2002-03, 229 offices were provided in-house and local training. Besides, 40 offices wee sent aboard for the purposes.

Computerization:

To improve the working efficiency and provide better customer service, computerization of bank’s activities is on. In this regard, the bank has undertaken a far-figure action plan. Implementation of the first phase of network-based computerization is at the final stage.

2.8 Organizational Chart of BSB:

2.9: Significant Financial Indicators of BSB (in million taka)

Indicators	2003-04	2004-05	2005-06	2006-07	2007-08
Total income	771	772	714	690	824
Total expenses	350	941	343	338	361
Net profit(loss) before tax	421	(220)	335	497	326
Total loan & advances	6532	5269	6432	7010	6509
Total borrowings	7191	5911	5125	4538	3894
Total deposits	721	710	655	655	707
Reserve fund & other reserves	823	823	823	881	1110
Paid- up capital	2000	2000	2000	2000	2000
Authorized capital	2000	2000	2000	2000	2000
Provision for income tax	–	–	–	497	77
Payment to national exchequer	–	–	–	10	10
Per cent
Total income to total assets	3.56	5.15	5.62	5.54	7.05
Total expenses to total assets	1.62	6.72	2.98	2.72	3.09
Total expenses to total income	45.40	130.33	48.03	44.98	43.65
Total financial expenses to total income	14.92	6.93	9.24	8.16	2.28
Net profit to total income	54.60	(30.47)	46.92	72.16	39.56
Net profit to total equity	17.02	(9.76)	12.94	16.45	9.69
Administrative expenses to:
Total assets	0.94	1.56	1.94	2.26	2.61
Total expenses	58.00	23.27	69.96	83.25	84.51
Total income	26.33	30.33	35.01	40.78	37.01
ratio
Debt- equity	7:01	3:01	2.94:1	1.40:1	1.19:1
Debt- service coverage	4	2	2	2	2

2.10: BSB at a Glance: ( number of projects)

Indicators	2003-04	2004-05	2005-06	2006-07	2007-08
Loans Applications Received	51	83	96	51	47
Term Loan Sanction
New	21	34	45	37	12
BMRE	3	1	2	–	–
Additional	3	3	5	2	8
Total:	27	38	52	39	20
Working Capital Loan Sanctioned	14	23	43	53	45
Term Loan Disbursed	5	3	9	15	3
Started Commercial Operation	4	7	25	8	27
Rephrased / Rescheduled	6	14	23	31	14
Entered Into Loan Portfolio	17	23	16	13	16
Liquidated Loan Liabilities	22	41	20	20	21
Total Loan Portfolio	308	166	164	179	177
Write off ledger	–	281	283	278	321
Total No of Projects	308	447	447	457	498
(Million Taka)
Term Loan Sanctioned	989	1009	1311	1006	918
Term Loan Disbursed	297	144	485	534	384
Loan Recovered	19	14	232	105	3
Working Capital Loan Sanctioned	26	21	32	196	33
Working Capital Loan Disbursed	1124	1391	1159	1065	981
Rephrased / Rescheduled	149	259	790	280	423

2.11: Zonal & Branch Offices of BSB (Location):

	Location and Zonal Office

2.12: Prospects of BSB

Having a SWOT analysis is one of the most prolific techniques to bear out the prospects of an organization. The comparison of threats, opportunities, weaknesses and strengths is normally referred to as a SWOT analysis. It is popularly known as SWOT. The central purpose of the SWOT analysis is to identity strategies that align, fit, or match a company’s resources and capabilities to the demands of the environment in which the company operates. To put it another way, the purpose of the strategic alternatives generated by a SWOT analysis should be to build on company strength in order to exploit opportunities and counter threats and to correct company weakens. SWOT analysis explains in two broad ways on viewed of organizations environment. These are:

a): External Environment Analysis: It includes:

· Threats

· Opportunities and

b): Internal Environment Analysis: It includes:

· Weakness

· Strength

Throughout my period of internship program in BSB, I came across some aspects relating to the bank’s threats, opportunities, weaknesses and strengths which are more or less affects its performance. The points are summarized in the following table.

THREATS q Recovery systems are very weak q In some cases recovery policies are not practices properly q Introduction of certain harder banking rules and regulation q Third party consideration (Bangladesh Bank, Ministry of Finance etc. regulates the overall internal activities of the bank and bank must be bound to follow the rules f Bangladesh Bank.)

WEAKNESS q Employee relation is bad in some cases q Normally in BSB mid and low level personnel are les qualified and experienced. q Bureaucracy official process hampered the daily internal workflow q The prime weakness I found lack of motivation of workers, originating from interpersonal clash, work environment, low salary structure q Absence of team work because of interpersonal clash q Management

OPPORTUNITIES q Gear –up recovery through setting up of pragmatic recovery targets q Expansion of new area of investment q Clearing loan ledger with exit facilities q All about efforts for deposit mobilization q Undertake need-based training program including computer training to all officers & develop a computerized data-base system and q Full computerization of bank’s activities

STRENGTHS q As a prime DFI, it has a large number of qualified & experienced professionals. q Structural set-up & business location is strategic. q BSB’s assets position is quite satisfactory and q BSB has requisite strength and opportunity to sustain the challenge of the market economy

Functional Department of BSB and Their Activities:

3.1: Departments

Bangladesh Shilpa Bank has eight well-designed departments. The operational activities of Bangladesh Shilpa Bank have been operated by these departments in different ways. Every department has its own policies, procedure, and strategy to lending, and implementing credit. Each of the department depends on each other for sanctioning loan for propose industries. Loan Operation Department is the first step of loan sanction procedure and it is the most important department of Bangladesh Shilpa Bank:-

v Loan Operation Department

v Documentation and Machineries Procurement Department

v Project Implementation Department

v Project Rehabilitation Department

v Human Resource Management Department

v Law Department

v Loan Accounting Department

v Central Recovery Department.

3.2: Loan Operation Department :

Bangladesh Shilpa Bank grants loan on the basis of certain criteria. Any entrepreneur who wants to borrow money, from Bangladesh Shilpa Bank must fulfill at first Bank Standard Questionnaire Form (BSQF) in terms of TK. 1000.00. These processes are as follows:

1. At first an application form is supplied to the entrepreneur for taka 1,000.00 only.
2. After filling up the application form it is submitted by the entrepreneur;
3. A project appraisal letter is supplied by the entrepreneur;
4. After analyzing the project appraisal, the board decides whether the loan should be sanctioned or not;
5. If the loan is sanctioned it is forwarded to the project implementation department.

3.3: Project Implementation Department:

When the loan operation department forwards the documents to the Project implementation department (PID), it performs the following activities:

1. Undertaking necessary action initiatives after granting loan in favor of the project.
2. Taking necessary action to make the factory lay-out.
3. Making necessary adjustment in case of change of the project place, change of board of directors and change or extension of product mix etc.
4. Making necessary attempt to give the loan a stage after the loan granting.
5. To ensure that necessary capital has been supplied by the entrepreneur to ensure its proper utilization.
6. To give necessary assistance in the case of Bridge loan from any financial institution.
7. Taking necessary initiatives to construct the lay- out of the project according to construction cycle.
8. Monitoring the machinery of the project, inspection and taking any kind of advice regarding to any machine related problem from machinery department.
9. Verification of new material process of project ensuring the cash capital according to the loan terms and condition and providing necessary assistance in this matter.
10. Inspection and monitoring experimental production extension of loan period.
11. Making the final construction report (FCR) and transferring it to central recovery department (CRD) and concerned department/authorities.
12. Determination of the construction period of the project preparing loan repayment schedule and taking after necessary action regarding this.
13. Monitoring and inspecting the project to see whether the project is implementing according to time schedule and taking necessary initiatives to solve any kind of problem arising out therefore, and providing necessary advice to the entrepreneur.
14. Receiving insurance letter against the predetermined risk of the implementation project assets and ensuring its deposit to bank.
15. Inspection of the utility of the principles regarding the project implementation and presiding up to date principles.

3.4: Documentation and Machinery Procurement Department:

After sanctioning loan by Loan Operation Department, it issues a letter to documentation department, parties and after concerned departments. The documentation department issues a letter to the parties to produce necessary documents. Those documents are:

1. Memorandum of Association and Articles of Association.
2. The land upon which the project will be established, document of this land must be produced.
3. Receipts of rent.
4. Documentation fee.
5. Mouja Map.
6. The documents that reveal that the land were not sold within preceding two years.

Then a form is filled up. These documents are sent to lawyer. It every thing is good enough it is transferred to project implementation department.

In the documentation process the borrower are required to submit a copy of memorandum of association and articles of association. It is returned after the confirmation that it has been submitted according to the rules the borrower company must submit after the authorization by direction of registration of Joint Stock Company and firm. The following activities are performed during the time of documentation process:

· The Borrower Company must submit necessary documents.

· Verification of documents by documentation and machinery dept. and law dept.

· Preparation of all documents of the borrower company director.

3.5: Central Recovery department

Project implementation department makes a repayment schedule and gives it to the borrower. Normally the interval is 6 months. This department inspects the project after every 6 months to see whether there is any leakage. If the borrower fails to repay the loan as the application of the borrower it is rescheduled. Sometimes a portion of interest is exempted. If the borrower fails to repay the loan than it is transferred to law department to take legal action on the application of the borrower. Sometimes the project is transferred to project Rehabilitation Department to restore the project.

Principles of classification of loan and provision:

For the purpose of classification all loans and advances are divided into 4. These are:

1. Continuous loan: The loan which can be granted and recovered without any repayment schedule but have an expiry date and maximum limit are called continuous loan.
2. Demand loan: The loan which must be repaid as the bank calls it is demand loan.
3. Term loan: The loan which must be repaid as the bank calls it is term loan.
4. Short-term agricultural and micro-credit: The loan which is paid in less term and condition is known as short-term agricultural and micro-credit loan.

Objective criteria:

If any continuers loan is not repaid within the expiry date then it is called irregular loan. The classification of loan are as follows:

6 months > continuous loan > 3 months = sub topped

12 months > continuous loan > 6 months = doubtful

Continuous loan > 12 months = bad

If any installment of any term loan is not repaid within specific date it is treated installment default.

Maintenance of provision:

1. On the basis of the equity of the loan the following precession are maintained:

A. Substandard 20%

B. Doubtful 50%

C. Bad debt 100%

2. On short term agricultural and micro-credit the following provision to be kept:

A. On all debt other than bad debt 5%

B. On bad debt 100%

3.6: Loan Accounting Department:

Loan Accounting Department is the department which centrally maintains all loan amounts of the bank. There are 4 sections which perform the activities of the department:

1. Not due section

2. Amount due section / over due section

3. Replacement section

4. General and policy section.

1. Not due is the installment not yet due for payment in schedule time fixed by the project

Department /Branch officer.

2. The payment of installment and interest in not paid /cleared in time is overdue.

The functions of this department are:

a. accurately list of balance preparation

b. advice sending to borrower

c. Quarter / half year by interest charge.

3. When the overdue is rephrased or waived then the replacement section will do the needful activities.

4. General and policy section do the following:

a. To prepare the monthly Trial balance

b. Monthly recovery statement

c. Monthly disbursement schedule

d. To make entry all the transaction as per daily statement received from the branch officer.

e. All list of balances of not due send to the Head Office and staff as specific guidelines

of the authorities.

f. To prepare distribution of work among the officers and staff as specific guidelines of the authorities.

3.7: Law Department:

If the Bangladesh Shilpa Bank fails to recover its loan in the normal way, it must undertake alternative actions and file case in the court. The cases which Bangladesh Shilpa Bank files are:

1. Recovery Case Section 33
2. Financial Loan Case Section 5(a)
3. Certificate case Section 35
4. Bankruptcy Case Section 9(1)
5. Case if Check is not cashed Section 198

(Petition case)

6. Case if machinery of projects are

Transferred from the project Section 37

3.8: Human Resources Management Department:

Bangladesh Shilpa Bank has total 725 personnel. It is divided into two categories. These are:

1. Job-wise distribution
2. Profession-wise distribution

Training & Development of Human Resource:

Bank has a Training Department for upgrading the professional competence and skills of its officers and Staff. Below are the main functions of Training Department: –

q To prepare & implement Annual Training Program.

q To impart training of the Officers/Staff regarding business & operations of the Bank.

q To adopt measures to hold in-house training and make arrangements to send Bank’s officers to overseas training programs.

q To establish liaison with domestic & overseas organizations relating to training.

q To send Officers to local training institutions for improving professional skills; and

q To organize Seminar/Workshop/Symposium on key economic/banking issues.

Types of Training:

There are as many as 3 (three) types of training as under: –

Ø In-house.

Ø Local and

Ø Overseas.

Logistic support:

Training Department has the following logistic support: –

Ø Training Hall with Air-condition facility accommodating about 25 (twenty five) participants.

Ø Multi-media Projector.

Ø Flip Chart.

Ø Mini Computer Lab and

Ø In-house Resource Persons.

Project Appraisal Procedure

4.1: Bases of Appraisal

A project is a venture for an investment to generate, expand and/or develops certain facilities in order to start the productions of goods and/or services in a group of people during a certain period of time. For the purpose of BSB, project means a scheme for capital investment to develop facilities to provide goods and services. BSB’s main function is to extend financial assistance to industrial project. It basically needs to be satisfied about the overall viability of a project to be financed. For this purpose, an objective assessment of the viability of the project is required to be examined by BSB from various points of view. This is what can be called project appraisal.

The aim of project appraisal is to examine the need, which a project is designed to meet and to judge whether the project is likely to meet this need in an efficient way. Project appraisal provides a rational basis for decision-making. In case of short-term lending, it is not usually necessary to make expensive study of the customer’s future potential. Examination of general creditworthiness of a customer and his current financial position is adequate.

There can be no fixed or standardized approach to project appraisal. Numerous and diverse elements enter into the process of appraisal. It is difficult to have a cut and dried formula with the help of which a proposal for financial assistance can be adjusted straightway as acceptable or unacceptable. While broadly the same set of factors is taken into consideration in the scrutiny of individual applications, the weight age given to the factors varies from project to project. In practice, project appraisal covers five different aspects of a project, viz.

ü Management and Organization

ü Technical

ü Market

ü Economic, and

ü Financial.

4.2 Management Aspects

An assessment of the promoters in respect of their integrity, experience and capabi1ities to implement and run the project is of prime importance before extending credit facilities to them. There are no set rules to find out if the borrowers or promoters are the men of integrity. It is to be done by direct and indirect investigation. The borrower’s experience .and capabilities can, on the other hand, be assessed in terms of his educational background, special qualifications, practical business experience, receptiveness to new ideas, or good advice, the general reputation and above all his potentiality to learn new things and adaptability to new and changing situation.

The extent to which crucial probing with regard to these aspects may be necessary depends on the type of the project and the background of promoters. If, for example, a project incorporating a relatively complex technique and process is promoted by an entrepreneur with proven abilities and experience, the crucial areas to be probed may be, among others, the competence of the managerial and technical executives likely to be in charge of the project. But if such as the competence and previous experience of the promoter, their collaboration tie-up arrangement, the technical and managerial backing he has already line up, their financial resource, etc. may have to be thoroughly scrutinized.

4.3 Organizational Aspects

Closely related to the management is the type of organizational structure necessary to carry out and operate the project successfully. So far as organization is concerned, there are two basic queries; what organization is needed to bring the project to the operating stage and what organization will be needed thereafter. In the operating phase, one of the most common questions is the extent to which responsibility and authority should be centralized or delegated. The answer depends on the scale of operation, its geographical dispersion, the degree of specialization of personnel, and the number of persons to whom responsibility can be delegated. Internal controls should also be reviewed. These are basic to sound organization. For a management to function efficiently, the organization should be able to provide prompt reports on current performance that can be checked against both past performance and previous projections of future trends so as to bring problems to light as they arise. It is equally important that the organization should be able to put the decisions of management into effect without delay. Besides, sound budget and inventory control are needed.

4.3.1. Credit Investigation

Appraisal of management and organization of project cannot be dined adequately without undertaking methodical credit investigation. The following two broad objectives are intended to be realized through the credit investigation.

Ä Proper identification of the application, and

Ä whether they can and will live up to their commitments in a nominal way. Through an organized credit investigation answers to the following specific questions are sought:

q Who are the applicants?

q What are their present professions or vocations?

q Are they persons of proven honesty and recognized integrity?

q Are they persons of proven honesty and recognized integrity?

q What is the extent of their financial worth?

q How much they can and are willing to invest from their own resources?

q How far they are capable of implementing and running the project?

4.3.2. Sources of Credit Data

For the purpose of evaluating the credit worthiness of the applicants, particulars and information are necessary about their character (honesty and integrity), capital (properties and possessions), capacity (entrepreneurial and managerial ability), liquidity (cash and nark cash assets), etc. Information necessary for evaluating these traits and qualities can be obtained from a number of Sources. There are several methods like written requests, telephone conversation, meeting information at social gatherings, etc. which may be jointly or severally adopted to obtain the required information. The usual sources of information can be broadly divided into internal sources and external sources. The external sources can again be sub-divided into personal contacts and indirect investigation

4.3.3. Internal Sources

In case the applicants are exiting borrowers of the Bank, the internal records and behavior of respective loan accounts will reveal great deal of information about their bank-ability. Details of past borrowings/equity-support such as amount, date of sanction, amount repaid, amount outstanding and overdue, together with comments on aspects like replacements, moratorium, etc, if any, should be incorporated in the credit report.

4.3.4. External Sources

For the new applicants, the credit investigator has to depend primarily on the external source to verify the statements and declarations made in the loan application. The main external sources are.

· Credit Information Bureau (CIB) Report. If the corn report indicates that the proposed sponsors are defaulters to any Bank/OFI, their proposal should be turned down as per decision of the GOB,

· Interview with the applicants,

· Financial statements, deed and statutory documents, etc.

· Inspection of the applicants, place of business and properties, and

· Other sources like commercial bankers of the applicants, business firms, trade circle, friends and associates, Registrar of join Stock Companies/Firms, District Registrar Sub-registrar, Local periodicals, Government Publications, etc.

4.3.5. Applicants-Their Honesty and Integrity

The main task of the credit investigator is to ascertain the real identity of the applicants with regard to their honesty, integrity and their legal authority to borrow or to raise institutional equity. The starting point for him is the loan application and specifically the declaration of the personal assets of the applicants. On this basis, he should have a threadbare discussion with the applications.

The credit investigator should keep it in mind that the applicants should not only be citizens of Bangladesh, but they must also not be minors, bankrupts or persons of unsound mind. He should also be well aware of the legal status of proprietorship concerns, partnership firms and limited­ liability companies with regard to membership, capital, objectives, borrowing capacity and tax obligations.

4.3.6. Properties and Possessions of the Applicants

The financial standing of the applicants is judged by means, of direct reference to their movable and immovable properties. The value’ of total assets minus corresponding borrowings, if any, would indicate the net worth. Although the assets free from encumbrances should from the basis of assessing the financial standing, the details of the existing borrowings from different sources should be stated in the credit report to throw light on the borrowings from different sources should be stated in the credit report to throw light on the borrowings habits of the applicants. There are compelling reasons for which the credit investigator has to be satisfied about the ownership and real value of the declared assets.

4.3.7. Liquidity Status of the Applicant(s)

The credit investigator must be satisfied that the applicants are financially capable of undertaking a project of the contemplated size. This calls for determination of the sources and the extent of funds that the applicants are capable of mobilizing and also the extent they are ready to invest. The liquid funds necessary for investment in the project may be mobilized by the applicants from one or more conventional sources.

4.3.8. Capacity of the Applicants

Because of the complexity involved in setting up and ensuring profitable operations of an industrial project, the most important pre-requisite that the Bank expects the applicants to possess is the capability to manage and supervise. The success of a project depends primarily on this trait of the sponsors. Its presence blooms a project and its absence dooms the same. Unfortunately this is most difficult to judge. As indicated in the proceeding paragraph, the entire credit analysis is directed to point up this qualitative characteristic of the sponsors. Individual, capability is reflected in the conglomeration of skill and resourcefulness, education and. experience, age and personal health, etc. The first consideration for the credit investigator is to ascertain how successful the applicants are in their present trade and profession. The second consideration is to judge whether they are financially and managerially competent to undertake implementation of the project. The thing consideration is to forecast ability to run the project successfully upon implementation. Analysis of the past operations, opinion of the commercial bankers, independent opinion from outside sources, etc. would be useful in assessing the capability of the applicants. It may be mentioned here that while “assessing the sponsor’s capability, the following point should be examined.­

4.4. Technological Aspects

The technical aspects of in industrial project are appraised to determine whether the project is sound with regard to every engineering and technological consideration, including product specification, process, size, internal balance, suitability and availability of physical facilities, designs and layouts of equipment and buildings etc. In a developing country like Bangladesh, where there is hardly and indigenous technological base to support the industrialization process the industr1al undertakings have to be conceived on the basis of know or borrowed technology until such time as the development of local technology is sufficient.

The second important aspect of technical study includes evaluation of resources to be used for setting up the project as well as operating it subsequently. The physical resources to be used are to be transformed into financial tens. Hence, the task of the engineer is to evaluate quantitatively the resources such as project land, building materials, machinery, equipment, stores and spares, raw materials, labor, power, fuel, etc. Then he is to work out the cost of, these resources. In monetary sense to determine the capital cost of the project and also it’s operating cost after implementation. While evaluating the capital outlay and physical facilities, the engineer will have to determine the production cycle and also the time schedule for implementing the project.

In the case of a project involving technical collaboration or borrowed technology, the project engineer has to examine various facets of technology transplant and its adoption to suit the local conditions including the terms and conditions of technology transfer and financial and economic implications of such transfer of technology. Although basically, technology transfer takes place between two systems, namely, the domestic acquisition system (the sponsors) and the delivery system (foreign collaborations), the development bank which acts as a gate-keeper between the two systems has a vital role to play in determining the suitability of the borrowed technology, the terms and conditions of technology transfer and its impact on the project as a whole. The ultimate aim of project appraisal by a Development bank is to determine the profitability of the project both from commercial and social points of view.

This cannot be undertaken unless through technical studies and cost analysis have been made a related technical problems solved. Thus, the technical studies and cost analysis provided the basis both for the initial estimates of the profitability of an investment during the initial stages and for the final decision to implement the project or not. The technical appraisal, therefore, constitutes the foundation of the entire super-structure of project appraisal.

A development Bank may need to consult or contact with specialized engineering services from outside for specialized matters, particulars relating to projects to be based on complex technology. However good an engineer of Development Bank may be in studies or specific operations, he cannot be expected to be expert in all fields of specialization. This point is of great practical significance while dealing with a project in which the country has no previous experience. In such a situation, particularly in the case of a project involving large capital outlay, it is advisable to find out best advisors (consultants) from outside. For because any defect in the project design and formulation will eventually affect the enterprise adversely.

4.4.1. Basic Aspects of Technical Appraisal

The basic aspects to be analyzed in the course of technical appraisal are –

4.4.1 (A) Preliminary investigation

q Products/ Service;

q Raw materials;

q Skills and technology required for manufacture/ service; and

q Testing and analytical report.

4.4.1(B). Selection of production process­

v Choice of alternative and selection criteria;

v Wastage in manufacturing process;

v Disposal of wastes and effluents and

v Environment and pollution control.

v Machinery and equipment for production/service

v Productive capacity and efficiency in Site selection­

v Site selection-

§ Technical factors;

§ Cost factors of production;

§ Marketing factors;

§ Administrative and housing factors; and

§ Transportation factors.

v Layout plan­-

o Site;

o Building;

o Plant and Machinery; and

o Supplementary Installations.

v Analysis and evaluation of utilities and supplies

§ Raw materials;

§ Stores and spares;

§ Technical Know-how;

§ Transfer of technology;

§ Power, Fuel, Water, Steam ere;

§ Labor; and

§ Transporting.

v Work Schedule.

v Estimation and evaluation of cost.

4.5. Marketing Appraisal

An industrial project is to bring in some goods ‘or services for a community. But the community does not need them infinitely. Their demand is of course finite and at given prices.

4.5.1. Concept Of Market

Ordinarily, the market means a precise place where commercial transactions occur. In a broader sense, however, it is termed as the sum of contacts between buyers and sellers of a product or service, the price and quantity exchanged of which are detonated by the forces of demand and supply. Market, in this sense, may be formally organized and geographically centered or it may, be either. The market includes the whole environment in which the enterprise is to live and to which it must adapt itself: consumers, suppliers, competitors and all kinds of technical, material, political, legal and administrative restrictions. Market analysis is the first “screening” stage in the project appraisal, at which projects that cannot expect satisfactory market acceptance shall be rejected.

4.5.2. Marketing Plan

a) Marketing Objective:

Marketing plan, as in the case of production and financial plan, should have objective in the backdrop; and the objective is what is wanted to be achieved. The objective may be more than one and quantifiable. For appropriate marketing objective, it is necessary to look at depth into the

ü Macro/micro demand/ supply situation for specific products in the market.

ü existing and expected competition in local and foreign markets,

ü Market share, etc.

While appraising industrial projects, the Bank is required to analyze these factors and to bring out the objective in quantitative terms.

b)Product Identification:

Identification of the goods or services to be exposed to the environment are to be known before operation. One way of identifying them is in term of their complementarily and Competitiveness. Complementary goods are used together in a single consumption activity. Cameras, films and developing instruments and chemicals constitute a set of such complements. Complementary goods may be sold together or separately.

Another way of distinguishing goods and services is in terms of their consumers. These are: Final goods, Intermediate goods and Investment Goods. Lastly, the goods and services may be either new or existing in the market.

4.5.3. Methodology:

The initial objective of demand analysis is the determination of current effective demand. Effective demand represents the total quantity of a specific product purchased at a given price in a particular market over a given period. The base for estimation is the actual consumption figure during the relevant period.

The equation of apparent consumption is as follows:

C=P+ (M-X) + X

Where,

C = Consumption

P = Domestic production

M = Imports

X = Exports

S = Changes in Stock

Once current demand has been estimated for the entire market, it becomes necessary to segment the market to make future projections. Effective market segmentation will therefore:

ü help to understand better market behavior and responses,

ü enable the concentration of efforts on promising market segments,

ü enable the fine tuning of marketing strategy to the needs of target segments,

ü Increase total sales, reduce costs and step up profits.

Market can also be segmented as follows-

a) Consumer Markets

q Geographic:

· Administrative regions

· Geographic regions

· Climate

· City-size

· Rural-district cut-size.

q Socio-economic:

· Income (level, dynamics, distribution)

· Age

· Sex

· Occupation – education

· Family size

· Income elasticity of demand

· Prices and availability of complimentary goods

· Govt. policies – nationality

· Social class

· Culture

q Personality and behavior:

· Life style

· Leadership

· Ambition

· Conservatism

· Buying motive – loyalty

· Extroversion and introversion

· Service sensitivity and introversion – service sensitivity

· Promotional sensitivity

b) Industrial Markets:

q Number and types of industrial users:

· Size

· Ownership

· Age of equipment

· Regional concentration

· Vertical vs. horizontal markets- technological progress.

q Buying power:

· Number of employees

· Number of employees

· Value-added.

The market analysts should collect and analyze the following data for export market:

q World Trade:

· Names of the countries to which the product will be exported

· How these countries are at present meeting their demand. If through import, what are the countries of their origin?

· Time series data regarding export and import.

q Characteristics of Specific Intermediaries (Exporter, Importer):

· General description of types available

· Margins

· Effectiveness

· Regulation

· Contacts in export market

· Marketing tasks they are able and prepare to carry.

q Transport and Insurance:

· Traditional transportation means

· Costs of freight and insurance – timing of delivery

· Delivery terms, DIF, FOB, etc.

q Market Accessibility:

· Tariffs and fees

· Non-tariff barriers

· Quality standards

· Health, medical and safety requirements

· Package standards

· Import quotas

· Customs regulations

· Political and administrative barriers:

· Trading habit

· Comparative advantage

q Terms and conditions of sales and distribution arrangement

q Export incentive available

q Past export trend/ performance of the product(s)

4.5.4. Supply analysis:

Local producer’s past and present output, together with capacity utilization review provides a convenient departure point for an analysis of supply situation and outlook, which combined with demand estimates, will determine the project’s position in the market and thus expected.

Compared with the variety of methods applicable for demand forecasting, projecting the future supply position in the market is a rather unassuming task. Availability of the production in the market is a function of:

ü domestic producers present and projected capacities

ü new projects being under construction present and projected export volume

ü foreign manufacturer’ capacities, marketing strategies and development plans,

ü Government policies.

4.5.5. Supply Gap:

Considering the future demand for the product and total potential supply of the same, the analyst should, estimate the projected supply gap. It is to be examined how the supply gap justifies the setting up of the project under consideration.

4.5.6. Market Share:

Having estimated the supply gap, the market analyst should calculate the project’s contribution towards the reduction of this gap. In fact, market share is the marketing objective.

4.5.7. Marketing Information

The procedure ofmarket analysis, outlined above, call for systematic collection of information about the market for the goods and services to be considered. Some of this information is quantitative while other is qualitative.

4.5.8. Quantitative Information

The following quantitative information is to be collected in physical on a national basis:

Consumption Data:

§ Production

§ Imports

§ Exports

For international comparison, such data for comparable foreign countries are also to be collected.

Industrial census:

· Number of productive units

· Distribution of productive units by location.

· Installed production capacity.

Demographic Data:

· Distribution of population by age, sex, marital status, religion, literacy, income, occupation and region.

· Average size of a family

· Rate of population growth

· Rate of organization.

The following quantitative data, express in terms of value, are also be collected on a national basis:

Prices:

· F.G.B. price of exports

· C.LF. price of imports.

· Ex-factory price of products and services.

· Wholesale price annual average.

· Consumer’s price index

Disclaimer: