A study on BRAC Bank SME Lending Activities
BRAC Bank Limited is a scheduled commercial bank in Bangladesh. It established in Bangladesh under the Banking Companies Act, 1991 and incorporated as private limited company on May 20, 1999 under the Companies Act, 1994. Its operation started on July 4, 2001 with a vision to be the market leader through to providing all sorts’ support to people in term of promoting corporate and small entrepreneurs and individuals all over the Bangladesh.
BRAC Bank will be a unique organization in Bangladesh. The Bank consists of major divisions named 1) Corporate banking, 2) Retail banking, 3) Treasury, 4) Small & Medium Enterprise (SME). At present the Bank operating its business by 29 Branches. BRAC Bank is the first local commercial banks that proving online banking service to its customers from the very beginning of its starts.
BRAC Bank, for the first time among local commercial banks, starts providing loan facilities to small and medium trading, manufacturing and service oriented enterprises all over the country.
1.1 Origin of the Report
As a part of the Internship Program of Bachelor of Business Administration course requirement, I am assigned for preparing a report on the activities that I am currently doing at BRAC Bank Limited (BBL) for the period of 12 weeks starting from 05 May 2009 to 06 July, 2009 at Motijheel , I am assigned in the Financing SME and its impact on economic development: A study on BRAC Bank SME Lending Activities.
My organizational supervisor is Mr. Shah Alam Bhuiyan, SAVP & Head of Asset Operations Department. My internship report topic is “Financing SME and its impact on economic development: A study on BRAC BANK LIMITED SME Lending Activities.” Pioneer in SME Loan Disbursement, which is assigned by organizational supervisor. My faculty supervisor WAHIDUZZAMAN KHAN, Department of Business Administration, Asian University of Bangladesh has also approved the topic and authorized me to prepare this report.
1.2 Objective of the Report
To know SME documentation process and disbursement activity.
§ To analyze the SME loan processing activities
§ To know the operational procedure of Asset Operations Department for SME loan processing
§ To analyze strength & weakness of the Asset Operations Department
§ To access the key performance indicator of the department
§ To know the disbursement and recovery procedures of SME loans
§ To know the enterprise selection criteria to provide SME loan
§ To know the terms and conditions of SME loans
§ To know the success factor of SME banking at BRAC Bank Limited.
§ To Analyze micro and macro environment of the economy
1.3 Scope of the Study
Scope of the study is quite clear. Since Asset Operations Department is dealing with all types of loan activities in the bank. So studying these core themes, Opportunities are there to learn other aspects of SME matters.
§ Concept of SME and its impact in overall economy of Bangladesh
§ Entrepreneurship development situation through SME banking
§ Importance of SME banking in context of Bangladesh
§ Pioneer’s strategy regarding SME banking
§ Other bank’s performance in comparison to the SME banking at BBL
§ Small entrepreneurs of rural –urban spectrum are enjoying the BRAC Bank loan facility without the presence of bank at rural area.
§ Virtual banking concept through SME banking
§ Difference of different banking concept
The study uses both primary data and secondary data. The report is divided into two parts. One is the Organization Part and the other is the Project Part. The parts are virtually separate from one another
The information for the Organization part of the report was collected from secondary sources like books, published reports and web site of the BRAC Bank Limited (www.bracbank.com). For general concept development about the bank short interviews and discussion session were taken as primary source.
The information for the Project “Analysis of SME loan in BRAC Bank Limited” both were collected from primary and secondary sources. For gathering concept of SME loan, the Product Program Guideline (PPG) thoroughly analyzed. Beside this observation, discussion with the employee of the SME department and loan administration division the said bank was also conducted. More over a market survey was conducted with a specific questioner. To identify the implementation, supervision, monitoring and repayment practice- interview with the employee and extensive study of the existing file was and practical case observation was done.
Figure 1.1 Data Collection Method
? Operational Manual: Some of the secondary data is collected from the operational manual of Asset Operations Department
The Economy and Overall Banking Sector
2.1 World Economy- An over view
As we enter into the new millennium the process of trade liberalization and globalization have presented new challenges as well as greater opportunities. Economic boundaries of nations are being abolished and the world is gradually becoming a global village, in the beginning of the year 1999 the Euro currency started to replace the currency of eleven European union countries. In the financial service sector profound changes have been taking place globally. E-commerce is becoming the predominant mode of transactions. We are witnessing revolutionary changes in the fields of cost control, retail channels, range and delivery of services, accessibility and reach. These changes have already triggered off reorganization, amalgamation, and takeover of financial institution globally.
2.2 Bangladesh Economy-An over view
The improved political environment in the country, after a delayed period of civil disobedience brought a much-awaited economic stability during the financial year (FY) 2002-2004. The macro economic development during the year was marked by a healthy GDP growth and moderate inflation. For the second year, running a bumper rice harvest maintained growth at above 5% and GDP growth during the FY 2004 was at 5.52%. GDP growth during the FY 2006 is 10.66%. On the other hand, the growth performance in industry was slow with manufacturing growth 3.3% being one of the lowest rates in the recent years. Several unfavorable factors contributed to this situation, which included disturbance in the supply of natural gas, which in the turn affected the power supply and production activities.
Furthermore, labor disputes during the second quarter of the year badly affected the operation of Chittagong port. In the services sector, growth in transportation, storage, and communication contributed to about 13% to the total GDP but growth in trade sector was slow due to lower import growth.
During the year some positive initiative were taken in the banking sector with improvements in the legal and regulatory environment to improve loan recovery but unfortunately the high quantum of nonperforming assets and under capitalization continued to plague the entire banking sector thus causing a major threat to the macroeconomic stability. The size of classified loans increased significantly, which contributed to lower profitability of the banks. Reserve of gross foreign exchangeof the BB stood lower at US$3033.88 million at the end of March, 2005 compared to US$3179.41 million at the end of February. This was, however, higher than US$2653.50 million at the end of March 2004.
The pressures on foreign exchange reserve continue due to low aid disbursement and sizeable private capital outflow, which amounted to around US$ 120 million. The official exchange rate was devaluated by 4.6% in seven steps in FY 2002 and in two steps during July-August 02 thus raising the cumulative rate of devaluation to 6.7%. The external account declined from over 5% of GDP to less than 3% (US$ 0.9 million) in FY 02 which was mainly a result of healthy export growth (14%) and a significant increase in remittances from abroad, which in turn was due to stable political environment and a higher rate of contraction in import of food grains and capital goods.
Investment rate in FY 04 showed some increase and the declining trend in private savings was substantially reserved. The national savings rate increased from 11.9% of GDP in FY 03 to 14.6% in FY 04. This was partly due to increased inward remittances, increase in nominal interest rates and lower rate of inflation.
Some key indicator of the economy of Bangladesh regarding banking sector is given follows:
1. Total revenue collection: The government of Bangladesh collect total revenue during July-June, 2008-09 increased by Tk.3351.08 crore or 14.72 % to Tk.32294.60 crore compared to Tk.19165.49 crore during the same period of the preceding year<href=”#_ftn1″ name=”_ftnref1″ title=””>
2. Outstanding borrowing of the government: At the end of June, 2009 the outstanding borrowing of the government stood at Tk.38031.91 crore, recording an increase of Tk.1843.47 crore or 4.81% over June, 2009
3. Exports: During June-July, 2008-09 total export of the country stood higher by US$688.86 million or 15.00% to US$6415.60 million compared to US$57892.74 million during the same period of the preceding year
4. Import payments: During June-July, 2008-09 total import payment increased by US$1353.70 million or 22.31% to US$7153.50 million compared to US$5989.80 million during the same period of the preceding year.
5. Fresh opening of import LC’s: During June-July, 2008-09 fresh opening of import LC’s increased by US$1834.58 million or 24.30 % to US$ 9382.84 million compared to US$7548.26 million during the same period of the preceding year
Total remittances: During June-July, 2008-09 stood total remittances of the country higher by US$420.20 million or 14.79 percent to US$2933.03 million compared to US$2502.83 million during the same period of the preceding year.
2.3 Economic development and the evolving of BRAC Bank.
The context of the financial and economic condition of Bangladesh, 2008-2009 was a remarkable year. September 11 tragedy when deteriorating the world economy, also affected our economy. But effort for implementation of the on going reforms in the financial and others of the economy were strengthened and a pragmatic approach to macroeconomic management was adopted during the year under report. To bring about desired pace in overall economic activities a moderately accommodative monetary policy was pursued during 2003-2004 in close consonance with the rehabilitation and development programmed. Of course there was a policy for keeping inflection at a tolerable rate. The face of overall economic activities in the country gathered momentum during 2003-2004 for extending agricultural loans at easy terms and for arrangement and supply of agricultural input including fertilizers in a fair price. As a result an agriculture friendly environment was created in the country. Growth rate of GDP has been strengthened during the year mainly due to strong expansion of agriculture sector and significant pickup of export demand right and effective policy at the right time in successful implementation of agriculture rehabilitation program and hard labor of the country’s toiling production contributed to humped production of food crops during the year. As a result, total food grain production increased by 14.2% bolstering overall output growth of the agricultural sector up from 3.3% in 2002-2003 to 5.5% in 2003-2004. Improved global economic environment led to perceptible buoyancy of demand for Bangladesh export commodities, which also helped increased industrial productions. Growth rate of the industrial sector increased from 3.2% in 2002-2003 to 4.3% 2003-2004.
As a result, overall growth rate of GDP accelerated from 5.3% in the previous year to 5.52% in 2003-2004. The gross domestic savings in the current market prices during the year under report increased by Tk. 3999.80 crore or 10.3% to Tk. 42901.40 crore and gross investments increased by Tk. 5393.00 crore or 11.1% to Tk. 54150.5 crore. In this context a new dynamic bank emerged named BRAC Bank, a fully online scheduled commercial bank opened in 2001, is dedicated to offer its clientele truly international standard banking services. BRAC Banks customer friendly product with convenient features is all designed to meet the grouting and changing needs. Most important, The BRAC Bank has a team of expert sales persons who will take banking at the doorsteps of customers.
Data Source: Source: http://www.Bangladesh-bank.org/econdata/Bangladesh..Php
3.1 Background of the Organization
BRAC Bank Limited is a scheduled commercial bank in Bangladesh. It established in Bangladesh under the Banking Companies Act, 1991 and incorporated as private limited company on 20 May 1999 under the Companies Act, 1994. BRAC Bank will be a unique organization in Bangladesh. The primary objective of the Bank is to provide all kinds of banking business. At the very beginning the Bank faced some legal obligation because the High Court of Bangladesh suspended activity of the Bank and it could fail to start its operations till 03 June 2001. Eventually, the judgment of the High Court was set aside and dismissed by the Appellate Division of the Supreme Court on 04 June 2001 and the Bank has started its operations from July 04, 2001.
The importance of financial intermediaries in the development of the overall economy of country cannot be described in short. From the inception of the civilization the banking sector dominate the economic development of a country by mobilizing the saving from the general people and channeling those saving for investment and thus economic development and growth. In ancient time, the importance of commercial banks after the ravage of the liberation war to develop a better economy was severally needed and it is needed now and will be required in future also. In time-to-time Government of Bangladesh agreed to permit the private commercial banking in the country. BRAC bank will be knowledge-based organization where the BRAC Bank professionals will learn continuously from their customers and colleague’s world wide to add value. It will work as a team, stretch, they will innovate and break barriers to serve customers and create customers loyalty through a value chain of responsive and professional delivery. The bank promotes broad-based participation in the Bangladesh economy through the provision of high quality banking services. BRAC Bank will do this by increasing access to economic opportunities for all individuals and business in Bangladesh with a special focus on currently under-served enterprises and households across the rural – urban spectrum. BRAC Bank believes that the pursuit of profit and developmental goals is mutually reinforcing.
Increasing the ability of under – served individuals and enterprises to build their asset base and access market opportunities will increase the economic well being for all Bangladeshis at the same time, this will contribute significantly to the profitability of the Bank. BRAC Bank intends to set standards as the Market leader in Bangladesh. It will produce earnings and pay out dividends that can support the activities of BRAC, the Bank’s major shareholder. Development and poverty alleviation on a countrywide basis needs mass production, mass consumption and mass financing.
BRAC Bank goal is to provide mass financing to enable mass production and mass consumption, and thereby contribute to the development of Bangladesh. BRAC Bank intends to set standard as the market leader in Bangladesh by providing efficient, friendly and modern fully automated online service on a profitable basis aiming at offering commercial banking service to the customers’ door around the country, BRAC Bank limited established 45 branches up-to this year.
This organization achieved customers’ confidence immediately after its establishment. Within this short time the bank has been successful in positioning itself as progressive and dynamic financial institution in the country. It is now widely acclaimed by the business community, from small entrepreneur to big merchant and conglomerates, including top rated corporate and foreign investors, for modern and innovative ideas and financial solution. Thus within this short time it has been able to create an unique image for itself and earned significant solution in the banking sector of the country as a bank with a difference. The emergence of BRAC Bank Limited is an important event in the country’s financial sector at the inception of financial sector reform. The authorized capital of BBL is Tk. 1000 million and paid up capital of the same bank is Tk. 500 million.
|Shore Cap International||8.76%|
|General Public through IPO||40%|
Fig-1.2 Shareholders of BRAC Bank Limited
The Chairman of the Bank is Mr. Fazle Hasan Abed. Now the Managing Director of the bank is Mr. Imran Rahman. The bank has made a reasonable progress due to its visionary management people and its appropriate policy and implementation.
BRAC Bank will be a unique organization in Bangladesh. It will be a knowledge-based organization where the BRAC Bank professionals will learn continuously from their customers and colleagues worldwide to add value. They will work as a team, stretch themselves, innovate and break barriers to serve customers and create customer loyalty through a value chain of responsive and professional service delivery.
Continuous improvement, problem solution, excellence in service, business prudence, efficiency and adding value will be the operative words of the organization. BRAC Bank will serve its customers with respect and will work very hard to instill a strong customer service culture throughout the bank. It will treat its employees with dignity and will build a company of highly qualified professionals who have integrity and believe in the Bank’s vision and who are committed to its success. BRAC Bank will be a socially responsible institution that will not lend to businesses that have a detrimental impact on the environment and people.
BRAC Bank will adhere to highly professional and ethical business principles and internationally acceptable banking and accounting standards. Every BRAC Bank professional will need first of all a commitment to excellence in all that he/she does, a keen desire for success, a determination to excel and a drive to be the best.
BRAC Bank will be the absolute market leader in the number of loans given to small and medium sized enterprises throughout Bangladesh. It will be a world-class organization in terms of service quality and establishing relationships that help its customers to develop and grow successfully. It will be the Bank of choice both for its employees and its customers, the model bank in this part of the world.
The objective of BRAC Bank Limited is specific and targeted to its vision and to position itself in the mindset of the people as a bank with difference. The objective of BRAC Bank Limited is as follows:
- Building a strong customer focus and relationship based on integrity, superior service.
- To creating an honest, open and enabling environment
- To value and respect people and make decisions based on merit
- To strive for profit & sound growth
- To value the fact that they are the members of the BRAC family – committed to the creation of employment opportunities across Bangladesh.
- To work as a team to serve the best interest of our owners
- To relentless in pursuit of business innovation and improvement
- To base recognition and reward on performance
- To responsible, trustworthy and law-abiding in all that we do
- To mobilize the savings and channeling it out as loan or advance as the company approve.
- To establish, maintain, carry on, transact and undertake all kinds of investment and financial business including underwriting, managing and distributing the issue of stocks, debentures, and other securities.
- To finance the international trade both in import and export.
- To develop the standard of living of the limited income group by providing Consumer Credit.
- To finance the industry, trade and commerce in both the conventional way and by offering customer friendly credit service.
- To encourage the new entrepreneurs for investment and thus to develop the country’s industry sector and contribute to the economic development.
3.6 Bank’s Culture
Bank has adopted trust as a corporate value which is acronym for team work, respect for all people, unquestionable integrity, excellence in everything BRAC Bank of SME do, Sense of urgency in getting things done and total commitment.
All employees are expected to conduct themselves in accordance with the rules and regulations of the bank.
3.7 Bribes & Inducements
It is not acceptable to offer or receive any form of bribe or inducement, or direct anyone else to do on behalf of the bank. The following activities are strictly prohibited:
· Payment or other benefits which violate the country’s law or the bank’s policies
· Payment or other benefits for procurement of business
· Payment or other benefits to public officials or politicians to induce them to exercise their discretion in the bank’s favor
3.8 Management of BRAC Bank Limited
Boards of directors are the sole authority to take decision about the affairs of the business. Now there are 5 directors in the management of the bank. All the directors have good academic background and have huge experience in business. Mr. Fazle Hasan Abed is the chairperson of the bank. The board of directors holds meetings on a regular basis.
If the jobs are not organized considering their interrelationship and are not allocated in a particular department it would be very difficult to control the system effectively. If the departmentalization is not fitted for the particular works there would be haphazard situation and the performance of a particular department would not be measured. BRAC Bank Limited has does this work very well. Departments are as follows:
1. Human Resources Department
2. Financial Administration Department
3. Asset Operations Department
4. Credit Division
5. SME Division
6. Internal Control & Compliance Department
7. Marketing & Product Development
8. Impaired Asset Management
9. Remittance Operation Department
10. Treasury Front
11. Treasury Back
12. General Infrastructure Service
13. Information Technology Department
14. Customer Service Delivery
15. Cards Division
16. Call Center
17. Cash Management
18. Secured Remittance department
19. Women Entrepreneur Cell
20. Payment Service
3.10 Business Units
There are five different business units generating business BRAC Bank Limited:
o Small & Medium Enterprise (SME)
o Corporate Banking
o Retail Banking
o Remittance Services
All the units are being operated in a centralized manner to minimize costs and risks.
3.11 Products and Services
i) Small & Medium Enterprise (SME)
The most valuable natural resource of Bangladesh is its people. Micro lenders are working here in the financial field, providing very small amount and on the other hand regular commercial banks have been providing bigger amount of loans to larger industries and trading organizations. But the small medium entrepreneurs were over looked. This missing middle group is the small but striving entrepreneurs, who because of lack of fund cannot pursue their financial uplift, as they have no property to provide as equity to the commercial banks. With this end in view-BRAC Bank was opened to serve these small but hard working entrepreneurs with double bottom line vision. As a socially responsible bank, BRAC Bank wants to see the emancipation of grass-root level to their economic height and also to make profit by serving the interest of missing middle groups. 50% of our total portfolio usually collected from urban areas, channeled to support these entrepreneurs who in future will become the potential strength of our economy. We are the market lenders in giving loans to Small and Medium Entrepreneurs. We have been doing it for the last five years.
BRAC Bank Ltd has in total 900 unit offices, 80 zonal office, 12 territory and 1800 Customer Relationship Officers. These CRO’s work for the Bank to converge clients for getting the loan. Once CRO’s get the loan application and if it is less than 500,000 TK then zonal officer has the authority to approve the loan. But if it is above 500,000 then the CRO’s send it to Head Office for all necessary approval. After approving the loan then Asset Operation Department starts its work. As the growing, the amount of files and disbursement is getting bigger. In September 2006 AOD has processed 3249 files amounting Tk. 1,235,200,000. So SME Division’s success greatly relies on the performance. Up to April 2007, BBL provides loans for 70000 clients and in total 2265 crore TK. But the most important thing is only 17 crore TK is bad loan, this is a great achievement for SME unit of BBL. Currently they have 44147 outstanding clients and in total 1070 crore TK SME loan.
220.127.116.11 SME Network Coverage
1. Prothoma Rin.
2. Supplier Finance.
3. Anonno Rin.
4. Digoon Rin.
6. Pathshala Rin.
7. Opurbo Rin.
SME Loan process flow is shown below-
When a client comes for a loan request, first he meets a CRO, then the following process take place:
ii) Corporate Banking
Categories- the facilities our corporate Division offers to our customers are mainly of two-
Funded Facilities Non-Funded Facilities
Funded tells us that this type of facilities allows the customer to have money ‘on his hand’ for use i.e. he will get money as to meet his business demand. Examples are-
1. Working Capital Loan.
2. Over Draft Facility.
3. Term Loan.
4. Lease Finance.
5. Demand Loan.
Non-Funded facilities are those type of facilities where customers don’t get fund on their hand rather get Bank’s Guarantee service to do international trading-import and export. Letters of Credit, Bank guarantees etc. are the examples of the non-funded facilities.
Working Process of corporate wing:
An example will be handy to understand when the corporate wing starts its work. Say you are one of our clients. You need Tk. 5 core to be used in your business. The first you may contact is the RM (Relationship Manager) who is our delegate to make all kinds of negotiation with you. He then Would take the proposal to the corporate Head takes it for further analysis such as whether it would be profitable venture for the Bank, or whether the Bank can disburse more in the industry etc. Then if the Corporate Head thinks it fit to go ahead, he then would take the file to the credit division – works to find out the worthiness of the borrower and other relevant facts important to assess the possibility of recovery. Then it goes to the credit committee and then finally the file goes to the Managing Director. A diagram is given for better understanding-
Big sanction Small sanction
iii) Retail Banking
Retail Loans are consumers’ loan. Based on the customer demand these loans are given. 1BRAC Bank has a wide range of retail loan-
1. Car Loan.
2. Doctor’s Loan.
3. Secured Loan/OD.
4. High Flyer Loan.
5. Top Up Loan.
6. Credit Card Loan.
7. Study Loan.
8. Teacher’s Loan.
9. Now Loan.
10. Salary Loan.
Process Flow of Retail Loan
BRAC Bank’s Retail Division is being operated centrally. Under the Retail Banking Division all the branches, which acts as sales & service center, are reportable to Head of Retail Banking. Different products of Retail Banking are as follows:
i) Deposit Products
ii) Lending Products
iii) Locker Services
iv) Remittance Services etc.
BRAC Bank Limited is now offering 6 depository products for mobilizing the savings of the general people:
· Savings A/C
· Current A/C
· STD A/C
· Fixed Deposit A/C
· Loan Product
BRAC Bank is offering the following loan and advance product to the client for financing different purpose that fulfill the requirements of the bank and have good return to the investment as well as satisfy the client. The loan and advance products are:
iv) Product and services
The bank has its concentration for new product and services development for satisfying its customer and increasing its customer base. The bank firmly believes that technology based
product and services will play significant role in the performance of the bank as people are getting more conscious about their service quality. They prefer now faster service with least cost. For delivering faster service the bank has introduced online banking service from the very beginning. There are some new products and services that BBL has lately introduced. These are:
§ Now Loan
§ Salary Loan
§ Credit card Services (Proposed)
§ Islamic Banking Services (Proposed)
§ ATM services
BRAC Bank Limited is always emphasizing the improvement of banking service and betterment of living standard of the general people of Bangladesh. The product and services are targeted to the lower level to the upper level income group in deposit collection. For lending, the services are made if certain requirements are fulfilled.
Money Market Desk
BRAC Bank has a strong presence in the Treasury Market in Bangladesh. The Money Market Desk of the Treasury Division mainly deals in Bangladeshi Taka transactions. The basic activities undertaken by the Money Market Desk are:
· Management of Statutory Reserves viz. Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR)
· Daily Funds & Liquidity Management
· Investment Management
· Call/Overnight Lending & Borrowing
· Term Money Borrowing & Lending
· Repurchase Agreement
· Treasury Bills (T-Bills)
vi) Secured Remittance Services (SRS)
BRAC bank has introduced an innovative remittance services for Bangladeshis living abroad with some unique features compared to any of the existing remittance program. Bangladeshi expatriates can now send their money to their relatives any where in Bangladesh even to the remotest part within 24 hours at a reasonable cost and competitive exchange rate.
vii) Information Technology
BRAC Bank Ltd. is currently running countrywide true online banking system. The system allows their customers to do transactions all around the country. The bank cheques are all marked with Barcodes that makes each cheque unique and disallows it to be duplicated. All the signature and customer information with their pictures can be verified from any console at any branch on the bank. We also ensure Offsite backup and Disaster Recovery. Their Goal is to provide a true online baking system, which will not only fulfill the demand of time but also set new benchmarks in twenty-first centuries banking world.
vii) Special Feature
- All Branches are computerized
- 99% banks work is automated using latest technology
- BRAC Bank is a member of SWIFT community
- Intercity Branches are connected via optical fiber backbone network
|1301||Comilla Branch||1509||Satmosjid||6302||Biani Bazar|
3.13 Performance of BRAC Bank Limited
BRAC Bank Limited will be the most successful private sector commercial bank in our country, though it started its operation few years back. It has achieved the trust of the general people and made reasonable contribution to the economy of the country by helping the people investing allowing credit facility.
3.14 Capital Fund
The authorized and paid up capital of BBL is TK.1000 million and TK.500 million respectively. The paid up capital is one of the strongest in the banking industry. The bank is going to raise its paid up capital in the month July, 2009 by TK.500 million with issuing public share of 5, 00,000 of TK.100 each.
Internal and External source of cash
|Surplus in profit||(9,095,940)||70,346,259||224,490,340||226,006,069|
(Amount in Taka)
Analysis on SME loan Process
4.1 Basic Appraisal of Small &Medium Enterprise
Business or project appraisal is a technique of evaluating and analyzing Business from various aspects, primarily the risks associated with that business enterprise. At the time of appraisal of any manufacturing, trading or service related organization, factory or industry; one has to perform a feasibility study on the different aspects. These are:
· Management and Personal Aspects
· Technical Aspects
· Marketing Aspects
· Financial Aspects
· Social Economic Aspects
· Security Aspect
Management and personal aspects
During the appraisal prosecute the Customer Relation Officer (CRO) should endeavor to obtain details about the prospective borrowers, some of which are:
· Business related information
· Credit History
· Liquidity Information
· Management Background
In considering the above, one should look at the business is managed. CRO should also consider clients previous credit history like facilitates sought and availed, loan repayment an overdue record, if anyone checks the client’s bank account and amount of balance maintained. Management’s qualification, experience, successor and maintenance of records should provide insight in to the business.
From a business perspective, this aspects deals with design of the system in place, the operation of the business, the different type of physical resources used, the technology used, the capacity to handle business and all other inputs. Labor, raw materials, utilities etc.) Among the technical factors to be investigated during an appraisal are:
- The size of project
- The process, materials, equipment, and reliability of technical systems to be used
- Location of projects
- Sustainability of the plans, layout and design used
- Total quantity of the goods /Service produced/Traded monthly
- Environment of the business and its surrounding areas
- Availability to various factors of production, both physical and human
- Raw materials availability, price level and its variation to be considered
A CRO should consider the following factors of a business before making any loan commitment with a customer:
Total demand and supply of the products in the market that the business operates in growth of sales and major marketing threats that the business may face.
This aspect allows us to check the financial health of a business, through an analysis of the profit and loss account, balance sheet, cash flows, ratios, and requirement of working capital. If the collection of the financial data can be done properly, then it may be able to make a somewhat realistic picture of the business financial position. How ever, all the data collected must be crosschecked as much as possible with the physical features of business.
The following things are to be considered and determined at the time of verifying the financial feasibility of the business:
a) Current year’s profit/loss of the business & probable profitability of business after taking loan
b) Determination of assets, liabilities and net worth of the manufacturing/ trading / service institution before and after taking loan
c) Present net cash flow of the business after disbursement of loan should be determined,
d) To know the cash position of the institution
e) To know the source of income, production and other expenditure of the business probable financial risks of the business.
Socio Economic Aspects
Here the analyst like to observe the contribution of the business to the country’s GDP, the employment generated, the sort of adverse impact of the business on the environment, if an other benefit to the country.
Along with observation of different aspects and views of the projects, the CRO should also see closely the aspects of the projects and ensure about the reliability to the mortgaged property/assets. Ensure proper survey or verification of the security offered, Ensure attachment of survey report.
4.2 Organizational Layout Of BRAC Bank SME Loan
· Credit Division
· Business Development Division
· MIS Division
SME Activities In Terms Of Market
The main focus of BRAC Bank is to develop human and economic position of a country. Its function is not limited only to providing and recovering of loan. But also try to develop economy of a country. So reasons for this program from the viewpoint of BBL:
a. Support Small Enterprise
The small enterprise, which requires 2 to 30, lacks Tk. loan, but these has no easy access to the banks/financial institutions. For example: In the of 3 to 8 lacs amount of loans is provided without any kind of mortgage.
b. Economic Development
Economic development of a country largely depends on the small and medium seal enterprises. Such as, if we analyze the development history of Japan, the development of small & medium scale enterprises expedite the development of that country.
c. Employment Generation
The bank gearing employment opportunities by two ways: Firstly, by providing loan to the small enterprises expanding, these businesses require more workers. Secondly, Small & Medium Enterprise (SME) program requires educated and energetic people to provide support to entrepreneurs.
d. Profit Marking
SME program is a new dimensional banking system in the banking world. Most of the CRO’s are providing door-to-door services to the entrepreneurs. Entrepreneurs are satisfied by the service of the bank and make profit.
e. Encourage Manufacturing
The focus of BRAC Bank is to encourage manufacturing by the entrepreneurs who produce by purchasing various types of materials. CRO try to educate them to produce material if possible because if they can produce in line of purchase profits will be high.
f. Spread the experience
Another reason of BRAC Bank is to spread the knowledge on the importance of SME banking regarding various businesses. The customer services officer share their knowledge from various businesses and tries to help the entrepreneurs who have shortage of the gathered knowledge. CRO’s who are the driving force of SME division of BRAC Bank also gather knowledge about various businesses and make stronger knowledge base.
5.1. Security Documentation against Loan
A document is a written statement of facts and a proof or evidence of particular transaction between parties involved. While allowing any disbursements against credit facilities to borrowers, it should be ensured that prior to any disbursements; security documentation is fully and properly completed.
a) Purpose of Decorate Documentation and its Importance
Documentation is necessary for the acknowledgement of a debt and its terms and conditions by the borrower and the creation of charge on the securities in favor of the bank by the borrower. Correct and proper documentation allows a bank to take legal measures against the default borrowers.
If filing a suit with the courts against a default borrower becomes necessary, the court will first review all documents. If any of the documents is found to be defect or incomplete, the purpose of security documentation will be defeated and a court ruling in favor the bank cannot be expected. Proper care should, therefore, be taken while completing security documentation.
b) Type of Securities
The following listed securities may be obtained from borrower against loan to enterprises, either individually or in a combination.
It is really up to the bank what they would like to accept as security from the borrower as not all the securities stated below are suitable:
· Mortgage of loan and other immovable property with power of attorney to sell
· Lien of Fixed Deposits receipts with banks and other non-banking financial institutions, lined, these have to confirm by the issuer.
· Lien of Pratirakshay sanchay patra, Bangladesh sanchay patra, ICB unit certificates and wage earner development bond, all considered Quasi or Near cash items
· Lien of shares quoted in the stock exchange (This is rarely accepted)
· Pledge of goods (Banks are akin to stay away from such securities now a days)
· Hypothecation of Goods, Book Debt & Receivables, Plant & Machineries
· Charge on fixed assets of a manufacturing enterprise
· Lien of cheque, Drafts and order
· Lien of work orders, payment to be routed through the bank and confirmed by the issuer.
· Shipping documents of imported goods
c) Land Related Securities Documentation Process
Each SME unit offices are lilies with at least two local lawyers who will work on behalf of the bank. These always will be employed whenever a borrower and where the security will be landed and immovable property accept a loan sanction. Any one of the lawyers will be provided with photocopies of all the relevant land related documents and while handing over show the original documents to them, The lawyers will carry out checks of the originals and if satisfied returned to the borrower. The documents generally provided are:
· Title Deeds or Deed of conveyance otherwise known as ‘Jomeer Dalil’ which signifies ownership of a particular land.
· Baya Dalil or Chain of Documents, which signifies that the conveyance of titles has been proper and legal.
· Mutation Certificate if Khatian which signifies that the title if the land has been duly registered in the Government/Sub-registrar’s records.
· Duplicate Carbon Receipt or DCR
· Latest Khajna or land rent receipt
· Purchase such as CS Khatian, SA Khatian and BS Khatian
· Mouja Map
· Municipal rent receipts if the land falls within a municipal area
The lawyer will then carry out a search at the Sub-registrar of land’s office to check if the proffered land is actually registered in the name of the proposed mortgagor and whether the said land is free from any encumbrances. The Sub-register’s office, which means that the land or immovable property can be mortgaged to the bank, then the lower will provide his own opinion on the acceptability of the property, whether it is legally held and explain the chain of ownership. If all is acceptable, the lawyer will draw up the Mortgage Deed that will be registered, the irrevocable power if attorney to sell the land and the Memorandum of Deposit of Title Deed. The lawyer will have the borrower or the Mortgagor, if different or 3rd party, sign the documents in front of the Sub-registrar of land to register the mortgage, The CRO must ensure that the receipt for the original Mortgage deed must be signed off (Discharged) at the back of the receipt so that the bank may obtain the originals in the future. The borrower will bear all the charges and will pay directly at the Sub-Registrar’s office including the cost of the stamp paper required. The cost of the lawyer will also be realized from the borrower be an account payee cheque in favor of the lawyer and handed over to the lawyer straight away.
The charges related to the creation of mortgages and other associated costs are incorporated in a separated sheet and are attached herewith. The CRO will have all other security documents, as sent by SME HO, signed by the borrower and hand carry all the security documents including all the original land documents and deliver those to the credit administration officer who will check the list of documents and receive those through a check list in writing. The credit administration officer once satisfied will prepare the disbursement memo to disburse the loan.
i) Equitable Mortgage or Memorandum of Deposit of Title Deeds
It is created by a simple deposit of title deeds supported by a Memorandum of Deposit of Title Deeds along with all the relevant land documents. All the searches and verification of documents as stated above must be carried out to validate the correct ownership of the property. This deed also provides the bank power to register the property in favor of the bank for further security, if needed.
ii) Registered Mortgage
It is created by an execution of a Mortgage Deed registered irrevocably in favor of the bank at the Sub-Registrar of land’s office. This virtually gives the bank the right to posses and self if accompanied with a registered irrevocable power of attorney to sell the property executed by the owner of the property, in case of default.
e) Basic Charge Documents
i) Sanction Letter
Once a loan is approved, the borrower is advised by a ‘Sanction or offer letter’ which states the terms and condition s under which all credit facilities are offered and which forms an integral part of there security documentation. If the borrower accepts, then a contract between the bank and the borrower is formed and which both party are obligated to perform. Accordingly, all other charge documents and securities are drawn up and obtained. A standard sanction letter is attached herewith. All documents shall be stamped correctly and adequately before or at the time of execution. An un-stamped or insufficiently stamped document will not form basis of suit. Stamps are of 4 (Four) kinds. These are Judicial, Non-judicial, Adhesive and embossed impressed. Documents to be executed (Signed) by the borrowers concerned must be competent to do so in official capacity.
Following precautions should be taken at the time of execution of the security documents:
· The signature on the documents should be made in the presence of the CRO. The CRO should sign as witness on all charge documents.
· The document are to be filled in with permanent ink or typed
· If the document consist more than I page, the borrower should sign on each page
· If the signature of any third party is required to be obtained whose specimen signature is not available, then the main applicant should verity the specimen signature of the third party
· No document or column in any document should remain blank
· As far as possible there should be no erasure, cancellation or alternation in the document. If, however, there is any correction, overwriting or alteration, then that must be authenticated by a full signature of the signatory.
After stamping and execution of documents, the question of registration comes up. However, not all documents are requ