INDUSTRIAL PROMOTION AND DEVELOPMENT COMPANY
OF BANGLADESH LIMITED
Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the diverse financial needs of various sectors of an economy and thus contribute to the economic development of the country as well as to the deepening of the country’s financial system. According to Goldsmith (1969), financial development in a country starts with the development of banking institutions. As the development process proceeds, NBFIs become prominent alongside the banking sector. Both can play significant roles in influencing and mobilizing savings for investment. Their involvement in the process generally makes them competitors as they try to cater to the same needs. However, they are also complementary to each other as each can develop its own niche, and thus may venture into an area where the other may not, which ultimately strengthens the financial mobility of both.
In relatively advanced economies there are different types of non-bank financial institutions namely insurance companies, finance companies, investment banks and those dealing with pension and mutual funds, though financial innovation is blurring the distinction between different institutions. In some countries financial institutions have adopted both banking and non-banking financial service packages to meet the changing requirements of the customers. In the Bangladesh context, NBFIs are those institutions that are licensed and controlled by the Financial Institutions Act of 1993 (FIA ’93).
NBFIs give loans and advances for industry, commerce, agriculture, housing and real estate, carry on underwriting or acquisition business or the investment and re-investment in shares, stocks, bonds, debentures or debenture stock or securities issued by the government or any local authority; carry on the business of hire purchase transactions including leasing of machinery or equipment, and use their capital to invest in companies.
Background of IPDC
IPDC, the pioneer of the leasing industry in Bangladesh started in 1981 as the first private sector Development Finance Institution (DFI) in Bangladesh. Now it becomes the most relevant and sophisticated Non Banking Financial Institution in the country. Beside developing and promoting the industry sector IPDC have proved their expertise in the retail business sector as well.
IPDC at a Glance
For the last two and a half decades the name IPDC has been synonymous with excellence, quality, integrity, innovation and pioneering spirit. These are the traits that IPDC continuously aspire to live up. As a company it has inherited a rich legacy of technical know how, engineering expertise, managerial and financial acumen, and, above all, the goodwill and loyalty of employees, shareholders, business associates and hundreds of customers. IPDC is continuing to build business on the ethics and values in IPDC.
|Incorporation of the Company||1981|
|Sponsoring the establishment of the first leasing company of Bangladesh (IDLC)||1984|
|First institutional funding to private sector education (Scholastica School)||1998|
|Financing the first private sector cellular telecom company in Bangladesh (Citycell)||1998|
|Issuance of Cumulative Redeemable Preference Share pioneer among the Financial Institutions||2001|
|Financing the first theme park in Bangladesh (Fantasy Kingdom)||2002|
|Issuance of Zero Coupon Bond through Asset Backed Securitization||2004|
|Introducing Retail Deposit Products||2006|
|Public Issuance of Shares||2006|
|Trading of shares on DSE and CSE||2006|
Capital and Shareholding Structure of IPDC
At beginning IPDC was first established by a distinguished multilateral team of shareholders. The founding shareholders of IPDC are:
– The Government of Peoples’ Republic of Bangladesh (GOB) – 30.0%
– Commonwealth Development Corporation (CDC), of the UK – 17.5%
– German Investment & Development Company (DEG), of Germany – 17.5%
– International Finance Corporation (IFC), an affiliated of the World Bank – 17.5%
– The Aga Khan Foundation for Economic Development (AKFED) – 17.5%
Later AKFED has been the major shareholder with 66% ownership of IPDC and Government of Bangladesh with 28%. The present share holding structure (an on 31 December, 2007) of IPDC represents the following scenario:
|Shareholder||No. of Shares||Paid Up Capital||Percentage|
|Government of the People’s Republic of Bangladesh (GOB)||1,350,000||135,000,000||22%|
|Aga khan Foundation of Economic Development (AKFED)||3,149,992||314,999,200||51%|
|Summit Industrial & Mercantile Corp. (Pvt.) Limited||140,070||14,007,000||2%|
|Alliance Holdings Limited||140,070||14,007,000||2%|
Present and Future Outlook of IPDC
IPDC has very well defined and elaborate statements crystallizing the management’s view about the organization’s current and long term path.
Corporate Structure of IPDC
The corporate structure of IPDC is well structured and saturated. The Board of Directors governs all the current activities and future outlook of the company. The company has 4 (four) individual committee for monitoring the routine works of the company. The committees are (1) Audit committee; (2) Board Credit Committee; (3) Human Resource Committee; (4) Management Committee. Beside this the company has 6(six) core department. On the following the detail of IPDC’s corporate and organizational structure is presented.
Board of Directors of IPDC
The AKFED (Aga Khan Foundation for Economic Development) has dominated the Board as the single highest shareholder with its six Directors out of eight. There are two government representative Directors and one independent Director. On the following table the details of Board of Directors is presented.
|Chairman||Dr. Mr. Nurul Amin|
|Director||M. Mahbubur Rahman|
|Director||Shasid M. Loan|
Audit Committee of IPDC
The Audit Committee is liable for both internal and external audit. Creating audit manual for the company, employing external auditor, making routine internal audit, make sure of that the company is performing according to the audit rules and regulation are some significant tasks of the audit committee. At present the committee has 1 chairman (Dir. Xavier Lucas) and five members (Dir. Shabir Kassam, Dir. Shabbir Hashmi, Dir Shahid Mahmood Loan, Dir Altaf Hossain and Dir. M. Mahbubur Rahman).
Credit Committee of IPDC
Making final approval of different investment and credit proposal, monitoring the performance of existing investments and loans, approval of action taken against C1 and C2 client are some significant task of credit committee. At present the credit committee has 1 Chairman (Dir. Altaf Hossain) and 4 Members (Dir. M. Mahbubur Rahman, Dir. Sulaiman Ajanee, Dir. Shabbir Kassam, Dir Shahid Mahmood Loan and MD Mominul Islam).
Human Resource Committee of IPDC
Final approval of recruitment, determination the standard of providing incentives an performance bonus, performance appraisal of existing employees, approval of promotion are some common significant task of HR Committee. At present there are one Chairman (Dir. & Chairman of IPDC Md. Nurul Amin) and three members (Dir. Sulaiman Ajanee, Dir. Ashraf Ali, Dir. Altaf Hussain and Dir Shahid Mahmood)
Management Committee of IPDC
Management Committee is dully liable for monitoring the routine operation and drive the company to the organizational goal. At present Management committee has the following member structure:
|– Mominul Islam||Managing Director & CEO –Current Charge|
|– Dilip Kumar Mondol||Senior Manager & CFO – Current Charge|
|– Rezwan Daud Shams||Head of Investment|
|– Md. Mahmudul Haque||Head of Special Asset Management|
|– Mousumi Yasmin||Company Secretary and Head of Legal Affairs|
|– Mostofa Kamal||Head of Internal Auditor|
|– Omiyas Ferdous Kabir||Secretary to Management Committee|
Organizational Structure of IPDC
On the following pages the detail organ gram of IPDC is presented.
To be the most respected and innovative financial institution of the country
To be the brand of quality and integrity for delivering innovative and tailored financial solutions to a diverse client base
To ensure maximum returns on investment
Profitability is the key to achieving superior returns, building our capital and motivating and retaining our best people.
To ensure steady sustainable growth in business
Our increasing corporate profits since inspection have been manifestations of our steady growth. Amidst a competitive environment, our goal is now to take the organization forward with excellence in all our operations. We shall harness and use our distinctive competencies to ensure a long term competitive advantage.
To improve the quality of service
Our strength is not in the volume but in the quality of service that we provide. Our clients’ interests always come first. We relentlessly strive to anticipate the needs of changing needs of our clients and to develop better solution to those needs. Our experience tells that if we serve our clients to the best of our ability, our own success follows.
To create innovative product and services
Creativeness and imagination is encouraged in everything we undertake. We pride ourselves in having pioneered many products and services that have become standard in the industry.
To maintain highest level of ethical standard
We are dedicated to comply fully with the spirit of laws, rules and ethical principles that govern us. Our continued success depends upon unwavering adherence to these standards.
– We address clients’ need promptly, impartially and with utmost importance.
– We take great pride in our dedicated teams of staffs members and will continue to develop potentials and skills at all levels within our organization by rewarding outstanding performance and promoting from within to develop a climate of high expectation and achievements.
– We remain quality-minded and devoted to uphold our corporate culture.
– We will retain our position of leadership in this field through our commitment to quality, compliances, services and values.
– We will continue personal and corporate involvement in activities benefiting the society and nation.
– We uphold the values of the communities we are privileged to serve by honoring their traditions and preserving the environment.
– We pledge to remain alert to economic changes which affect our businesses and to respond to ever-changing market demand.
– We will continue to confront all challenges through planning, balanced, diversification and orderly growth.
– We take our responsibility towards our shareholders very seriously and are committed to be a model for others to follow.
Retail Business Department
This department is responsible for managing asset and liability retail products, using promotional strategies and marketing new products. The detail activities of Retail Department of IPDC are given below.
– Ensuring fulfillment of the annual budget
– Acquiring new business and increase the customer base
– Developing new products and formulating marketing strategies to market retail asset and retail liability products
– Formulating annual promotion strategy for the retail business products
– Liaison with advertising agency to set up the annual marketing and promotional plan for the retail business
– Implementing strategic tie-ups with 3rd party agencies like car dealers, travel agencies, white good marketing companies, developers for smooth marketing of auto loan, personal loan, home loan.
– Implementing roll out of sales executives on contractual basis for both retail asset and liability
– Monitoring day to day retail activities
Product Performance of IPDC
IPDC specialized in project financing and provides innovative investment solutions. This includes investing in projects that add value and contribute to the country’s overall economic development. IPDC has also special focus in infrastructure and social sector projects. IPDC has also been proving innovative investment solutions and project advisory service to its clients in industrial and social sector like education and health care. The product performance of IPDC has possessed the intention to attain the following objective.
– Employment and income generation
– Revenue generation for the Government
– Production capacity addition
– Earned of saved foreign exchange
– Linkage and business development
– Skills and technology transfer
– Offering environmental risk assessment and its management
The established positive image of IPDC is the result of consistent commitment towards excellence in providing financial service through more than two decade. With a conscious effort to anticipate influence in the domestic and foreign environment, IPDC has the ability to adapt to the changing needs of time.
IPDC envisages continuing and expanding its role as a catalyst in inspiring, strengthening and enhancing the financial sector development of the country. IPDC has pioneered the concept of lease financing in Bangladesh. It was one of the Industrial Development Leasing Company of Bangladesh Limited (IDLC). Another IPDC initiative has been developing the concept of house mortgage finance in the country. IPDC was also promoter shareholder of National Housing and Finance Company Ltd. (NHFL). IPDC has been credited with pioneering subscription of cumulative Redeemable Preference Share and issuance of Zero Coupon Bond through asset backed securitization as an alternate means of finance. The product pattern of IPDC can be presented as below
IPDC Retail Product
With the commencement of retail business in July 2006, IPDC provides the wealth creation opportunity for individuals and investment prospects for institutions. This segment offer wide ranging liability products for all quality of people.
Within a very short span of time IPDC was able to attract a broad range of individual and institutional clients. The lifeblood of the retail segment is its customer and IPDC offer personal and individual services to its clients. IPDC continuously strives to recognize the clients by anticipating and responding to client needs. The detail of IPDC retail product is given below.
IPDC has possessed a wide liability product line in retail segment. The products are designed with the consideration of different targeted and niche market. The detail of IPDCC liability product is given below.
Profit based Schemes:
Under this schemes profit or return is paid to the investors after a certain time period. Products details are given below.
Annual Profit Schemes (APS)
Return paid of yearly
|Interest rate: 1 Year||13.25%|
Quarterly Profit Schemes (QPS)
Return paid off quarterly
|Interest rate: 1 Year||12.90%|
Monthly Profit Schemes (MPS)
Profit paid off Monthly
|Interest rate: 1 Year||12.75%|
Cumulative Profit Schemes (CPS):
Profit will be capitalized annually and accumulated amount will be paid back or rolled over at maturity. Hence this scheme can provide maximum return through reinvesting profit.
Double Money Deposit Schemes (DMDS):
Under this schemes the initial deposited will be doubled and paid back to potential depositors after 5 year 09 months
|– Minimum Deposit||BDT 500,000.00|
|– Term||5Years 09 Months|
|– Maturity Amount||BDT 1,000,000.00|
Millionaire Deposit Schemes (MDS):
Under this scheme depositor initially have to deposit an initial amount then s/he has to continue a monthly installment till maturity. The products are as follows:
|Initial Deposit||BDT 100,000.00||BDT 50,000.00|
|Monthly Installment||BDT 10,000.00||BDT 10,000.00|
|Term||5Year 7 Months||6 Years|
|Maturity Amount||BDT 1,000,000.00||BDT 1,000,000.00|
Deposit Premium Scheme (DPS):
Under this scheme depositors have to make a monthly installment and at the maturity s/he will receive a fixed amount. Product details are as follows:
|Monthly Installment||BDT 10,000.00|
|Maturity Amount||BDT 430,000.00|
Fixed Deposit – Institutional
IPDC is very much sincere to provide the highest value to the corporate fund. This scheme provides institutions the secured investment option with a maximum value of corporate fund. The terms, conditions, product features are highly customized and negotiable.
In parallel to expanding our range of liability product, IPDC also plans to introduce various asset based retail products to serve the client needs with maximum possible effort and sincerity. This products are-
Ü Auto loan
Ü Persona Loan
Ü Home Mortgage Loan
Ü Home Improvement Loan
IPDC recently launched (January 2008) their auto loan product with a huge market campaign. The target markets of this product are salaried executives, business person, and self employed professional.
Loan amount have to be repay over 60 months for reconditioned car and over 72 months for brand new car. Int. Rate and loan processing fees are very competitive.
Commercial Innovativeness of IPDC
IPDC is renowned for their innovative and smart commercial policy. They not only limit their commercial policy to go through the common policy and fantasy. They try to understand the client need, style, taste, aptitude and accordingly they design their commercial policy to attract he consumers and increase their client base. On the following some real scenario is given.
If we take a look of IPDC’s this advertisement of IPDC deposit schemes (Interest First) then we can guess the innovative idea of IPDC to attract their consumer.
Here we can see that a mango in
an immature tree which indicate that any one get the result sooner than any other if they will make invest in IPDC. In the case of “Money Hive” advertisement we can see that how small savings of
an investor can reach their setting target. In this way IPDC always exhibit their innovativeness in making commercials of their product.Beside product advertisement IPDC is not at one step before in general advertisement and commercial police. Several time IPDC make different innovative advertisement on the behalf of their company.
This advertisement not only prove that they are very much prompt, safe and growing in building wealth for such a long time but also prove their smartness in their commercial policy. Just look at below.
SWOT analysis of IPDC
SWOT analysis can give us a real view about the threat absorbing and opportunity taking ability of IPDC. It also provides us the real scenario about the internal strength and weaknesses of IPDC. On the following the SWOT analysis of IPDC is given
Ü Strong capital base
Ü Experienced management team
Ü Coordination between the department
Ü Strong investment and retail team to increase client base
Ü Good relationship with present and prospectus client
Ü Diversified funding sources
Ü Outstanding market share
Ü Corporate shareholding structure
Ü Diversified business exposure
Ü Significantly deterioration in Asset Quality having adequate provisions
Ü High ownership concentration
Ü Declining financial performance
Ü Weak treasury management
Ü More percentage of special asset than major competitors
Ü Risk management
Ü MIS should be more developed in treasury management
Ü High turnover rate in top and mid tier management
Ü Business expansion opportunity
Ü Market demand for diversified financial product
Ü SME financing
Ü Fund raising opportunity through new financial products
Ü Capital market operation
Ü Scope of more product diversification
Ü Scope of doing merchant banking, fund management operation
Ü Commercial banks’ portfolio
Ü Commercial banks’ opportunity to enter in the operations
Ü Increasing local and foreign cost of fund
Ü New entrants into the market
Ü Low entry barrier in the industry
Generic Strategy pursued by IPDC
The overall IPDC business strategy has changed significantly. The company has switched over from the venture capital financing to absolute commercial lending which is considered to be a paradigm shift. IPDC business concentration was limited mainly in financing as leading private sector Development Financing Institutions. For this paradigm shift of IPDC the generic strategy has also shift to a new one.
For doing business in lease financing, cost of fund is a vital important thing. The product designing process, features offering and price charge (lending rate of IPDC) also varies with the cost of fund of IPDC. Our observation support that IPDC often follow the “Product Differentiation” as their generic strategy.
In financial institution, production process and production cost consideration is insignificant. Because the main product of financial institutions are financial product and the production cost mainly refer to technical know how and expertise. So the firms which have diversified product line must have to possess this entire thing for their products development. In my observation the financial institution can follow “Cost Leadership” as their generic strategy when they have the single product line or they are specialized in special sort of business activity.
IPDC was specialized in lease financing and their target customer was mostly corporate client. So it was a simple product line for IPDC. That’s why the generic strategy pursued by IPDC was “Cost Leadership”
The business strategy of IPDC has changed and it is diversifying their product line. Beside this the retail business sector of IPDC is booming. So now it is impossible for IPDC to possess the “Cost Leadership” strategy as their generic strategy. Usually IPDC has shifted their generic strategy to “Product Differentiation”.
For differentiation their product, IPDC has expert team and skilled human resources for designing different sort of product considering the market demand and acceptability. The supportive service related to their product is really prompt and action oriented. The repayment pattern their matured deposit, payment of different installment of different obligations, corporate advisory service and other related products and services are really superior to any other firms in the industry.
If we consider the sustainability of this strategy, then it can be said that the strategy is not sustainable. The market demand for financial product dramatically changed and all the factors is purely dominated by the interest rate. So we can make a conclusion about the overall generic strategy pursued by the industry is not sustainable at all.
Future Prospects of IPDC
The business prospects of the FIs mostly depend on the macroeconomic fundamentals of the country. Macro economic indicators of Bangladesh are promising. The immediate shock of the withdrawal of quota system from RMG sector has now been absorbed having little impact on the economy. Although woven sector to some extent is in uncomfortable position, the knit sector has been doing considerably well. The Government has been trying to diversify the export basket adding more exportable products. The remittance from Bangladesh working abroad has also increased keeping a positive impact on the foreign exchange. Under the above backdrop it is expected that Macro Economic fundamentals will remain promising in the coming years.
Through the macroeconomic activities of Bangladesh forecasted promising but too many bank and Non Bank financial institutions (note: detail of the industry position is
discussed in the Industry analysis sector in this report) are now in operation in a small country like Bangladesh. Consequently, the institutions have been facing though competition in grabbing the market share.
On the other hand, the Government has increased corporate tax to 45% in FY 2002-03 for the financial institutions. Introducing Basel II by Bank International Settlement regarding capital adequacy on the basis of either Standardized Approach or Internal Rating Based Approach will remove the present practice of 20% risk weight of financing in financial institutions by the banks.
The above capital adequacy advantage of banks to financing in financial institutions including Fls will reshuffle the exposure according to the rating of the respective institutions. This may decrease the present wholesale fund through banking sector to Fls, unless the Fls carry high investment grade rating.
Therefore, extraction of fund from banking system will depend on the overall performance of the FIs. Under the above backdrop, the business volume of the FIs is in ascending trend of its credit portfolio. IPDC, a private sector financial institution has been showing promising business growth.
It has enough potential to acquire further market share if the weaknesses are properly addresses and opportunities are tapped in time. In addition, higher degree of care for collection of infected assets is likely to bring about a more promising future.Furthermore IPDC has the premium opportunity for flourishing. There are some other highly market demanding sector (merchant banking operation, private fund management, financial engineering product) where IPDC is not operating yet. IPDC can be more benefitted if they start operation is this lucrative sector.
RECOMMENDATION AND CONCLUSION
• IPDC should concentrate in increasing its profit earning capacity.
• It should develop effective marketing strategy to attract new customers.
• Raising the capital, statutory reserve and increase the investment.
• The number of branches should be increased
• Expand and diversify customer base.
• Recruit more skilled employees regularly.
• IPDC should introduce independent ‘Marketing Department’
• Personal relationship should be build with the customers.
• Customers are the heart of the organization. They should provide more space in the office and if possible they should have some entertainment facility.
• The employee of the branch should be trained continuously.
• More meetings, seminars, symposiums and get-together should be organized by the Branches to develop the awareness among the clients .Ensure stable dividend.
• Ensure high level customer service.
• IPDC should introduce ATM system.
• Should introduce one-stop service centre.
• IPDC should keep their annual report, brochure, bulletin etc. available to provide their customer.
• IPDC should introduce consumer credit scheme.
• IPDC should increase their office space and take more care in interior decoration.
• IPDC should introduce independent ‘Marketing Department’.
• Some new investment schemes are to be introduced for socio-economic development and welfare of the distressed humanity.
• Finally the IPDC should has the vision to automate its all operations and functionalities and should be committed to achieve the goal to be a lead in the country both in service and in technical aspect and to fulfill the requirements of mass people.
Today the NBFI Industry of Bangladesh service is very competitive. From the practical materialization of customer dealing procedure during the whole period of my practical orientation in IPDC of Bangladesh limited I have reached a firm and concrete conclusion in a very confident way. We believe that my realization will be in harmony with most of the thinkers. It is quite evident that to build up an effective and efficient banking system to the highest desire level, computerized transaction is must.
It is committed to provide high quality financial services/products to contribute to the growth of G.D.P of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the educated youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socio-economic development of the country.
The is not so far when it will be in a position to overcome the existing constraints and it may be expected that by establishing a network over the country and by increasing resources this Company will be able to play a considerable role in the portfolio of development of financing.
Success in the business largely depends on effective lending. Less the amount of loan losses, the more the income will be from credit operations. The more the income from credit operations the more will be the profit of the IPDC of Bangladesh limited and here lays the success of credit financing.
It can be argued that though the results achieved so far are not satisfactory, credit financing is a modern scientific technique for enhancing IPDC of Bangladesh limited strength and there lies the opportunities to make it more effective in the future for our own benefit.
From the learning and experience point of view I can say that I really enjoyed my internship at IPDC of Bangladesh limited. from the very first day. I am confident that this 03 (Three) months internship program at IPDC of Bangladesh limited. will definitely help me to realize my further carrier in the job market.
· Annual Report of IPDC of Bangladesh Limited (2008)
· Several Booklets from IPDC of Bangladesh Limited.
· Several Newsletter s from IPDC of Bangladesh Limited.
· IPDC of Bangladesh Limited web site, www.ipdcbd.com
· Credit Operational Manual of IPDC of Bangladesh Limited.