Financing SME and its Impact on Economic Development: BRAC Bank Limited.
Organizational Overview
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.
BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shore cap International, has been the fastest growing Bank in 2004 and 2005. The Bank operates under a “double bottom line” agenda where profit and social responsibility go hand in hand as it strives towards a poverty-free, enlightened Bangladesh.
A fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. In the last five years of operation, the Bank has disbursed over BDT 5000 crore in loans to nearly 150,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh.
1. BRAC
BRAC, a national, private organization, started as an almost entirely donor funded, small-scale relief and rehabilitation project initiated by Fazle Hasan Abed to help the country overcome the devastation and trauma of the Liberation War and focused on resettling refugees returning from India. Today, BRAC has emerged as an independent, virtually self-financed paradigm in sustainable human development. It is one of the largest Southern development organizations employing 97,192 people, with 61% women, and working with the twin objectives of poverty alleviation and empowerment of the poor.
2. International Finance Corporation
The International Finance Corporation (IFC) is a member of the World Bank Group and is headquartered in Washington, DC. Established in 1956, IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives.
IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. The organization promotes sustainable private sector investment in developing countries that is economically beneficial, financially and commercially sound, and environmentally and socially sustainable; as a way to reduce poverty and improve people’s lives. It is the belief of the organization that sound economic growth is the key to poverty reduction; that it is grounded in the development of entrepreneurship and successful private investment; and that a business environment is needed for the latter to thrive and contribute to improve people’s lives.
International Finance Corporations (IFC) funding comes from the Asian Development Bank, Canada, the European Commission, the Netherlands, Norway, the United Kingdom and IFC itself. IFC is a 19% shareholder in BRAC Bank. A new assistance program signed in August 2005 aims to double the bank’s number of small and medium enterprise clients in 18 months through campaigns to target women entrepreneurs and rural clients, introduce new products and train branch managers.
3. Shore Cap International
Shore Cap International Ltd. is an international private non-profit, equity company seeking to invest in small business banks and regulated micro finance institutions in countries with developing and transitional economies. Founded in mid 2003, Shore Cap has a current base of $28.3 million in capital commitments and seeks to support the growth of development finance institutions in Africa, Asia and Eastern Europe. The institution has made investments totaling $7 million in Bangladesh, India, Cambodia, Armenia, Mongolia and Kenya. Shore Bank is a 9% investor of Shore Cap and runs the management company, which oversees investment activities.
Shore Cap typically invests between $500,000 and $2 million for an ownership position of 10-25% of a company. As a minority shareholder, Shore Cap seeks financial institutions with a strong, experienced management team and a committed set of local development-minded investors. Shore Cap currently owns 18% of BRAC Bank Limited.
4. Shareholding Structure
| Shareholders | Percent |
| BRAC | 31.74% |
| International Finance Corporation | 9.50% |
| Shore Cap International | 8.75% |
| General Public through IPO | 40% |
| Non-Residents Bangladeshi’s | 5% |
| Mutual Funds | 5% |
| Others | 0.01% |
| Total | 100% |
Fig- Shareholders of BRAC Bank Limited
Logo of BRAC Bank:
Corporate Vision:
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. So BRAC Bank operates following a specific vision like:
ü Sustained growth in ‘small & Medium Enterprise’ sector.
ü Continuous low cost deposit growth with controlled growth in Retained Assets.
ü Continuous endeavor to increase fee based income
ü Keep our Debt Charges at 2% to maintain a steady profitable growth
ü Achieve efficient synergies between the bank’s Branches, SME Unit Offices and BRAC field offices for delivery of Remittance and Bank’s other products and services.
Mission
“Building a profitable and socially responsible financial institution focused on Markets and Business with growth potential, thereby assisting BRAC and stakeholders build a “just, enlightened, healthy, democratic and poverty free Bangladesh”.
Corporate Values
The Bank’s Strength emanates from its owner – BRAC. This means, it will hold the following values and will be guided by them as it does its jobs.
Value the fact that we are a member of the BRAC family:
- Creating an honest, open and enabling environment
- Have a strong customer focus and build relationships based on integrity, superior service and mutual benefit
- Strive for profit & sound growth
- Work as a team to serve the best interest of our owners
- Relentless in pursuit of business innovation and improvement
- Value and respect people and make decisions based on merit Base recognition and reward on performance
- Responsible, trustworthy and law-abiding in all that we do.
Goals
BRAC Bank will be the absolute market leader in the number of loans given to small and medium sized enterprises through out 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.
Objectives of the Bank:
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 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.
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.
Achievements
BRAC Bank gets ICMAB National Best Corporate Award 2007, Wednesday, December 19, 2007 – BRAC Bank Limited, the fastest growing bank in Bangladesh has recently received ICMAB National Best Corporate Award 2007 for the criteria of its Capital Adequacy, Asset Quality, Profitability, Liquidity, Corporate Governance, Market Share, Contribution to National Economy, Risk Management, Regulatory Compliance, Disclosure, CSR in the category of “Financial Institutions”. This is the first such award in Bangladesh, which recognizes various local corporate for their efficiencies. BRAC Bank has been rated as one of the 3 best private sector banks in Bangladesh by The Institute of Cost and Management Accountants of Bangladesh (ICMAB).
- Fastest growing bank in the country for the last two years
- Leader in SME financing through 429 offices
- Biggest suit of personal banking & SME products
- Large ATMs (Automated Teller Machine) & POS (Point of Sales) network
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. Muhammad A. (RUMEE) ALI is the chairperson of the bank. The board of directors holds meetings on a regular basis.
Management team:
|
|
|||||||
|
||||||||
|
|
|
|
|
|
||||
|
||||
|
|
Board of Directors:
| Mr. Muhammad A. (RUMEE) ALI Chairman | |
| Mr. Syed Humayun Kabir, Director | Mr. Md. Aminul Alam, Director |
| Mr. Mark A. Coffey
(Nominated By Shore cap International Limited), Director |
Mr. Md. Mahbubur Rahman
Acting Managing Director and CEO |
| Mr. Quazi Md. Shariful Ala
(Nominated by BRAC), Director |
Ms. Nihad Kabir
Director (Independent Director) |
Departments of BRAC Bank Limited
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
Products and Services
There are five different business units generating business BRAC Bank Limited:
o Small & Medium Enterprise (SME)
o Corporate Banking
o Retail Banking
o Treasury
o Remittance Services
All the units are being operated in a centralized manner to minimize costs and risks.
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 lac 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 429 unit offices, 91 zonal office, 12 territory and 3100 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 2008 AOD has processed 5059 files amounting Tk. 2,425,200,000.
So SME Division’s success greatly relies on the performance. Up to April 2008, BBL provides loans for 120000 clients and in total TK. 4355 crore. But the most important thing is only TK 24 crore is bad loan; this is a great achievement for SME unit of BBL. Currently they have 30147 outstanding clients and in total TK. 760 crore SME loan.
ii) Corporate Banking:
Categories- the facilities our corporate Division offers to our customers are mainly of two-
Funded Facilities Non-Funded Facilities
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-
Working Capital Loan.
Over Draft Facility.
Term Loan.
Lease Finance.
Demand Loan.
Non-Funded Facilities-
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-
iii) Retail Banking
Retail Loans are consumers’ loan. Based on the customer demand these loans are given. BRAC 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.
The product and services that are currently available are given below
iv) New 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
v) Treasury:
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
Treasury Services
· 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
Branches
BRAC Bank Limited is fast growing commercial banks in our country. Bank has established a good operating network throughout the country. It has 59 branches, 91 zonal offices & 429 unit offices of SME throughout the country till November 30, 2008
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.
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 September, 2006 by TK.500 million with issuing public share of 5, 00,000 of TK.100 each.
The Economy and Overall Banking Sector
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.
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 non performing assets and under capitalization continued to plague the entire banking sector thus causing a major threat to the macro economic 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 2008 compared to US$3179.41 million at the end of February. This was, however, higher than US$2653.50 million at the end of March 2007.
The pressures on foreign exchange reserve continue due to low aid disbursement and sizeable private capital outflow, which amounted to around US$ 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 08 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 07 to 14.6% in FY 08. 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-March, 2007-08 increased by Tk.2351.08 crore or 11.72 % to Tk.20294.60 crore compared to Tk.18165.49 crore during the same period of the preceding year[1]
2. Outstanding borrowing of the government: At the end of February, 2008 the outstanding borrowing of the government stood at Tk.35031.91 crore, recording an increase of Tk.1543.47 crore or 4.61% over June, 2007
3. Exports: During July-February, 2007-08 total export of the country stood higher by US$622.86 million or 13.00% to US$5415.60 million compared to US$4792.74 million during the same period of the preceding year
4. Import payments: During July-January, 2007-05 total import payment increased by US$1233.70 million or 21.31% to US$7023.50 million compared to US$5789.80 million during the same period of the preceding year.
5. Fresh opening of import LC’s: During July-February, 2007-08 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.
6. Total remittances: During July-March, 2007-08 stood total remittances of the country higher by US$320.20 million or 12.79 percent to US$2823.03 million compared to US$2502.83 million during the same period of the preceding year.
Economic development and the evolving of BRAC Bank:
The context of the financial and economic condition of Bangladesh, 2007-2008 was a remarkable year. September 11 tragedy and recent depression 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 2006-2007 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 2006-2007 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 2006-2007 to 5.5% in 2007-2008. 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 2006-2007 to 4.3% 2007-2008.
As a result, over all growth rate of GDP accelerated from 5.3% in the previous year to 5.52% in 2007-2008. 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.
About Small & Medium Enterprise
4.0 Overview on SME loan:
The most valuable natural resource of Bangladesh is its people. As a nation we struggled for our independence and now the attainment of economic uplift is the main goal. 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 and medium entrepreneurs were overlooked. This missing middle group is the small but striving entrepreneurs, who because of lac 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-roots level to their economic height and also to make profit by serving the interest of missing middle groups. 50% of its total portfolio usually collected from urban areas, are channeled to support these entrepreneurs who in future will become the potential strength of our economy. BRAC Bank is the market leader in giving loans to Small and Medium Entrepreneurs. They have been doing it for the last five years.
Definition of SME:
SME is defined as any business entity having investment of up to BDT 100 million (excluding land and buildings) and has employed less than 100 people. This definition is adopted by the Bangladesh Ministry of Industry.
The official Industrial Policy 2005 definition of the Government of Bangladesh for SME’s:
§ “Small Enterprise” means enterprises with fixed capital investment (excluding land and building) of less than Taka 15 million (approx. USD 250,000).
§ “Medium Enterprise” cover enterprises with fixed capital investment (excluding land and buildings) between Taka 15 million and Taka 100 million (approx. USD 1.67 Million)
SMEs in Bangladesh:
The recent results of the national private sector survey of enterprises in Bangladesh indicate that there is presence of nearly six million micro, small and medium enterprise in the country. About 90% of all enterprises have 10 or fewer workers. Over three-quarters of the enterprises are located in rural areas and the overwhelming majority of employment generated by the SMEs is also in rural areas.
SME contribution to the Economy:
Small and medium-sized enterprises (SMEs), including micro enterprises, make a significant contribution to economic and industrial development in Bangladesh like any other economics. They form the backbone of the private sector, making up over 90 percent of enterprises, and account for 80% of the industrial employment and about 40% of industrial output. The survey mentioned above shows that these SMEs contributed BDT 741 billion to the GDP or up to 25% of GDP in 2007-08.
The existence of 6 million SMEs reflects the fact that they are more suited to the conditions prevailing in the country than larger enterprises because they tend to be more attuned to the local resource base. In this regard, they display the following strengths in particular:
· SMEs Create Jobs
They play an important role in generating employment at reasonable rates of remuneration, especially for workers with limited skills and women who have few alternative sources of income. They therefore provide an important vehicle for the sustainable achievement of the poverty – reduction objectives at the core of the present development agenda. In Bangladesh, SMEs employ around 31 million people.
- SMEs promote an efficient allocation of resources.
They tend to have a greater propensity for labor – rather than capital – intensity, which renders them especially appropriate for the typically labor – abundant and capital – scarce economics of developing countries. To the extent that these enterprises operate in “informal” markets, the factor and product prices they face also provide a better reflection of social opportunity costs than the prices faced by large enterprise.
- SME Support the building of systemic productive capacity.
They help to absorb productive resources at all levels of the economy and contribute to the establishment of dynamic and resilient economic systems in which small and large firms are interlinked. They also tend to be more widely dispersed geographically than larger enterprises, support the development and diffusion of entrepreneurial spirit and skills, and help to reduce economic disparities between urban and rural areas.
- SMEs can respond flexibly to changing conditions.
Because of their relatively small size which precludes the emergence of various structural rigidities and overly complicated decision – making processes, SMEs are potentially very well placed to respond rapidly and effectively to changing circumstances. Provided that they can gain access to the relevant information and have the necessary skills, they can rapidly adjust their output and the processes used in its manufacture.
Constraints
Some basic constraints for SME development are:
- Lac of methodologies and approaches for development and promotion.
- Lac of appropriate service delivery mechanisms and service providers
- Lac of market information and market linkage.
- Lac of sources of technology and equipment
- Shortage of Capital
- Low levels of education and technical skills
- Lac of GOB policy
- Poor quality of products and service.
- Lac of Sub sector focus
- Lac of business Development Services (BDS) Linked Management/ Accounting training course.
According to the SME survey conducted by ICG, the two most pressing problems encountered by the SMEs are “lac of money” and “not enough customers”.
According to an IFC report commercial banks’ financing procedure does not differentiate SMEs, in general, which deters SME to bank financing. Recently, however, some banks are focusing on SME’s as promising target segment. While micro credit is well in its matured stage carried out by many NGOs and micro credit organizations like Grameen Bank, BRAC, ASA etc., large scale financing, on the other hand, is one the offer from all the commercial banks. Between these two extremes, there is a large gap faced by SMEs, often termed as the “missing middle”, of Bangladesh. This void is expected to widen in the forthcoming years as more and more micro-enterprise are graduating upward to SME segment. Of late, banks have started to recognize this market of SME and the huge future demand for money by them. This has created some movement to look for ways to address this market by all the financing institutions in the industry.
Due to increased attention of development partners like World Bank, ADB etc., Bangladesh Bank and other development organizations, Commercial Banks are under pressure in addressing SME entrepreneurs. In reality, banks have so far seemed to show little concern when it comes to financing smaller enterprises, as most SMEs are unable to offer substantial “collateral” when they approach to a financing agency or bank.
Why SME Loan?
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 the economy of a country. So reasons for this program from the viewpoint of BBL:
Support Small Enterprise:
The small enterprise, which requires 2 to 30, lac Tk. loan, but they have no easy access to the banks/financial institutions. For example: In case of Anonno loan, an amount of 3 to 8 lac is provided without any kind of mortgage.
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.
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.
Profit Marking
SME program is a new dimensional banking system in the banking world. Most of the CROs are providing door-to-door services to the entrepreneurs. Entrepreneurs are satisfied by the service of the bank and make profit.
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.
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.
SME Network coverage:
SME Products:
Anonno Rin
“Anonno Rin” is a business loan designed to finance small scale trading, manufacturing and service ventures, especially to help small and medium entrepreneurs to meet their short-term cash flow shortages and bridge the fund-flow gaps.
Eligibility:
Entrepreneurs with minimum 2 years experience in the same line of business
Business must be a going- concern with more than 1 year in operation
Loan Limit:
From BDT 3 lac to BDT 9.5 lac.
Features:
Loan without mortgage
Loan for Working Capital Finance and/or fixed assets purchase
Easy repayment system of monthly installment or Single Installment
For excellent borrowers who have paid or are paying in due times, we offer discounted rates
Quick, quality banking throughout the country
Apurbo Rin
Apurbo is a loan facility for Small and Medium business. Apurbo loan has been designed and targeted for relatively bigger business units requiring loan above Tk. 8 lac to 30 lac.
Eligibility:
Entrepreneurs having a minimum of 3 years of some business activities
A business which must be a going concern for 3 years
Loan Limit:
Starting from BDT 8 lac to maximum of BDT 30 lac.
Features:
Simple loan processing for expanding your business
Quick disbursement
Disbursement in one or two installments
Flexible monthly repayment plan
Pathshala Rin:
“Pathshala Rin” is a loan designed to meet the needs of small and medium sized private educational institutions, such as kindergartens, schools and colleges etc.
Eligibility
The educational institution must be in operation for minimum 3 years
The educational institute must be a profit making concern
Loan Limit:
Minimum BDT 3 lac to maximum BDT 30 lac
Features:
Loan up to 9.5 lac without Mortgage
Loan for purchasing fixed assets
Easy monthly installment
Minimum documents
Easy & faster processing
Flexible interest rate based on security and loan amount
Aroggo Rin
“Aroggo” is a loan allowed to various Health service Provider like private clinics, diagnostics centers and doctors’ chambers. The product offers fixed assets purchase financing under equated Monthly Installments.
Eligibility:
Minimum 2(two) years in operation.
Health center must be located in the same address for at least 6 months.
Health center must be a profit making concern.
Doctors having 5 years of experience can avail the loan in his/her personal name.
Loan Limit:
Minimum of 3 lac to maximum of 30 lac
Features
Loan up to 9.5 lac without Mortgage
Minimum documents
Easy loan processing
Loan repayment schedule is spread up to 3 years
Flexible interest rate based on security and loan amount
Digoon Rin
This is a double loan on your deposit. Now you do not need to encase your savings rather you can take double amount of loan on your deposit for your business expansion.
Eligibility:
Entrepreneur having minimum 2 years of business activities
The business which must be a going concern for 2 years Cash security (BRAC Bank FDR) 50% of the loan amount.
Loan Limit:
Minimum of 5 lac to maximum of BDT 30 lac.
Features:
Double amount of loan on your deposit
Attractive return against the deposit
Flexible repayment plan in monthly installment and single installments
Quick disbursement
Aparajita Rin
“APARAJITA RIN” is a loan facility for small and medium sized business, which are operated by women entrepreneur. The product offers terminating loan facilities for the purpose of working capital finance and/or fixed assets purchase.
Eligibility:
Entrepreneurs with minimum 2 years experience in the same line of business
Minimum 1(One) year of continuous business history
Loan Limit:
From minimum BDT 3 lac up to maximum of BDT 9.5 lac.
Features:
Loan without Mortgage
Easy repayment system
Minimum documents
Easy & faster processing
For excellent borrowers who have paid or are paying in due times, we offer discounted rates.
Disbursement of WEC Loan:
In the small span of operation, WEC has already satisfied the financial need of 1,343 Women Entrepreneur Cell (WEC) has excelled incredibly in the disbursement amount by BDT 39.17 crore and client base of 981 from 2007 to 2008.
BIZNESS Account
“Bizness Account” is an interest bearing current account for sole proprietorship business Entrepreneur.
Eligibility:
Small and medium sized business entrepreneur of a sole proprietorship business
Opening balance only BDT-10, 000.00
Features:
4% interest on daily balance
Smart Business Card
Cash withdrawal limit in ATM BDT 1, 00,000 per day and any amount in POS
24 hour Access to ATMs/ POS
Tk-50, 000 withdrawn facilities (per day) from ATM & Tk-100, 000 from POS
No Minimum Balance, No Ledger Fees, No hidden cost
Phone Banking, Online Banking, SMS Banking, Internet Banking facility
Cash Secured Loan
“Cash Secured Loan” is a loan facility for small and medium sized business. There are two types of loan facility in the product i.e. Secured Loan and Secured Overdraft. These facilities are fully secured by fixed deposit of BRAC Bank.
Eligibility:
6 (Six) months experience in the same line of business.
BRAC Bank FDR minimum 100% of loan amount
Loan Limit:
From minimum BDT 3 lac up to maximum of BDT 30 lac
Features:
Loan against FDR
Flexible interest rate based on FDR interest rate and loan value
Loan for starting new business
Bizness loan
Bizness loan is an equated monthly loan facility for all types of business who have healthy bank transactions for the purpose of working capital finance and/or fixed assets purchase.
Eligibility:
Healthy bank transactions
Minimum 3 (three) years of continuous business history
BRAC Bank FDR 50% of the loan amount for new loan and 30% of the loan amount for repeat loan
Loan Limit:
From minimum BDT 10 lac to maximum of BDT 50 lac.
Features:
Loan against FDR value
Monthly installment system up to 60 months
Borrower having loan with other financial institute can also avail Bizness Loan
Attractive rate of interest on FDR
Proshar Rin:
“Proshar” is a loan facility for small & medium sized manufacturing business. The product offers loan facilities for working capital finance and/or fixed assets purchase.
Eligibility
Entrepreneur must have minimum 2 years experience in the same line of business
Minimum 2 (Two) years of continuous business history of the enterprise
Loan Limit:
From minimum BDT 3 lac up to maximum of BDT 30 lac
Features
Without Mortgage up to Taka 9.50 Lac
Easy Monthly Installment
Favorable Interest Rate based on amount and security
Easy & Faster Processing
Trade Plus
Trade plus is a composite facility for small & medium sized import-oriented businesses to meet their trade finance requirements.
Eligibility
An import-oriented business having valid trade license, Import registration certificate, V.A.T. Registration certificate & T.I.N. Certificate.
Features:
Two types of Letter of Credit Facilities – One off LC and Revolving LC
Two types of post import finance facility –LATR & Revolving loan
Overdraft facility for day to day working expenses
Loan tenure of Letter of Credit – 180 days
Flexible repayment system
Limitation:
: LC (One-Off): BDT 3.00 Lac – BDT 30.00 Lac
LC (Revolving): BDT 5.00 Lac – BDT 30.00 Lac
LATR: BDT 3.00 Lac – BDT 30.00 Lac
Revolving Loan: BDT 5.00 Lac – BDT 30.00 Lac
Overdraft: BDT 5.00 Lac – BDT 30.00 Lac
Super Supply Loan:
Super Supply Loan is a loan facility for Suppliers of various large retailers, marketing companies, manufacturing companies and various corporate houses. This product’s main objective is to help various Suppliers to meet their financial