Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

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Loan Operations Analysis & Evaluation: Bangladesh Shilpa Bank

Background of Bsb

Non-Bengali entrepreneurs and the public sector nearly monopolized economic activity in the Pakistan era. Of the very few business professionals are active in East Pakistan fewer yet survived after the war. Post independence Bangladesh therefore presented a unique set of opportunities and problems for the private sector. The good news was that without the stranglehold of the elite Pakistan business family the field was wide open for the development of a homegrown Bengali private sector, but that both a capital base and an entirely new entrepreneurial class would have to be developed out of an economic vacuum.

Capital formation rapidly occurred and the newly nationalized banks found themselves with serious asset management problem because there were few professional entrepreneurial risk takers with business skills and proven track records to which this capital could be made available under normal and prudent banking practice.

Under this sort of circumstances, the former Industrial Development Bank of Pakistan (IDBP) and the Equity Participation Fund (EDF) both of which were established for the industrial development of Pakistan were converted into single institution named Bangladesh Shilpa Bank. Bangladesh Shilpa Bank comes into existence on October 31, 1972 by the Promulgation of Bangladesh Shilpa Bank order 1972 (president’s order no 129 of 1972). The BSB order, 1972 was amended subsequently by the parliament to provide more operational autonomy to its management.

The main objective of BSB is to provide finance both in local and foreign currencies for establishment of new industrial projects as well as balancing, modernization, replacement and expansion of existing industrial units in Bangladesh both in private and public sectors. It provides other types of financial assistances like guarantees for credit/loans; equity support and working capital loan to BSB financed projects.


Bangladesh Shilpa Bank comes into existence on October 31, 1972 by the Promulgation of Bangladesh Shilpa Bank order 1972. The head office of this institution is in Dhaka. Presently, Bangladesh Shilpa Bank has five divisions, twenty-one departments, three zonal offices and fifteen branch offices. Total number of employees of the organization is 794, as on the date up to June 30, 2004.


Table – 01

Established : October 31, 1972


: Head Office Dhaka
Division 5
Department 21
Zonal Office 3
Branch Office 15
Manpower 794
Capital Structure:
Authorized : TK. 2,000 million
Paid-up : TK. 1,320 million

Authorized capital of Bangladesh Shilpa Bank is Tk.. 2000 million and the amount of paid up capital Tk.. 1320 million. Other sources of Bank’s fund are the Government, Bangladesh Bank, Commercial Banks, local/overseas financial institutions and suppliers’ credit. At least fifty one percent of the authorized capital of Bangladesh Shilpa Bank must be subscribed by the government and remaining forty nine percent may be subscribed Bangladeshi nationals or by financial institutions local or foreign. Presently, 100 percent ownership of the bank belongs to the government


At least the government subscribes 51% of the authorized capital of BSB and the remaining 49% is subscribed by Bangladeshi Nationals or by local or foreign financial institutions. Presently, 100% ownership of the bank belongs to the Government.



Bangladesh Shilpa Bank (BSB) is the state owned Leading Development Financial Institution (DFI) of Bangladesh. ‘Shilpa’ means industry. BSB provides financial and technical assistance to broaden the private as well as public sectors industrial base of the country. It prioritizes, especially, Export Oriented/Export Linkage industrial units, Efficient Import Substitution, Joint Ventures, Commercialization of local technology and promotion of agro-based industry.


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


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

Provides working capital loans to industrial projects;

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

Issues guarantees on behalf of borrowers for repayment of loan;

Extend commercials banking services along with deposit mobilization;

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

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


In BSB interest rate is not same in all sectors. There are differences in interest rate. Export oriented industries are charged 9% interest rate. Agro based industries, small & cottage industries, large & medium industries are charged 10% interest rate in case of long-term loan. In Export loan interest rate starts from 7% to 11% from different case. On the other hand, in commercial, bridge & other loans interest rate starts from 10% to 14.50%.


There are eight functional departments of Bangladesh Shilpa Bank. The operational activities of Bangladesh Shilpa Bank have operated by these departments in different way. Every department has its own policies, procedure, and strategy to lending, and implementing credit. Each of the department is depends on each other for sanctioning loan for propose industries, which applied for loan. Loan Operation Department is the first step of loan sanction procedure and it is comparatively most important department of Bangladesh Shilpa Bank.

1. Loan Operation Department

2. Project Implementation Department

3. Human Resource Management Department

4. Law Department

5. Loan Accounting Department

6. Project Rehabilitation Department

7. Central Recovery Department

8. Documentation and Machineries Procurement Department

10A LOAN Operation Department

Bangladesh Shilpa Bank (BSB) grants loan on the basis of certain criteria. The loan operation department does the first activities of loan granting. Any entrepreneur who wants to borrow money, from Bangladesh Shilpa Bank must fulfill at first Bank Standard Questionnaire Form (BSQF) in terms of Tk. 1,000.

Functions of Loan Operation Department:

i. At first an application form is supplied to the entrepreneur (required Tk. 1,000), after the entrepreneur submits filling up the application form. After filling up the application form it is submitted by the entrepreneur. A project appraisal letter is supplied by the entrepreneur

ii. To give advice to the entrepreneur about industrial investment. To give loan from and to appraise the proposed project from various aspects- Management & organizational appraisal, technical appraisal, marketing appraisal, economic appraisal & financial appraisal.

iii. To take clearance from privatization board for proposed project, if necessary.

iv. To take necessary action to process and approve co-financing project

v. Loan sanction letter send to subsequent department

vi. To take necessary action to implement the project

vii. Re-evaluate the project on the basis of past evaluated loan agreement if necessary, according to the updated information

viii. To issue gazette notification about loan procedure on behalf of government

ix. To examine and appraise the joint venture proposal of Bangladeshi and foreign investors

x. Advise about preparation of loan application form to non-resident people of Bangladesh

xi. To encourage foreign lease-financing organization who provide equipment and new technology to set up business in our country.

xii. Keeping of non-resident Bangladeshi and joint investment guarantee statement preparation, memorandum and approved letter

xiii. To evaluate and give opinion about zonal office sanctioning loan and their lending activities

xiv. After analyzing the project appraisal, the board decides the loan should be sanctioned or not;

xv. If the loan is sanctioned it is forwarded to the project implementation department.

10B PROJECT Implementation department

When the loan operation department it is forwarded to project sanctions the loan implementation department (PID) performs the following activities:

i. Undertaking necessary initiative after granting loan in favor of the project.

ii. Taking necessary action to make the factory lay-out.

iii. Making necessary adjustment in case of change of the project place, change of board of directions and change/extension product mix etc.

iv. Making necessary attempt to give the loan a stage by stage after the loan granting.

v. To ensure that necessary capital has been supplied by the entrepreneur and to ensure its proper utilization.

vi. To give necessary assistance in the case of Bridge loan from any financial institution.

vii. Taking necessary indicatives to construct the lay-out of the project according to construction cycle.

i. Monitoring the machinery of the project, inspection and taking any kind of advice regarding to any machine related problem from machinery department.

ii. Verification of new material process of project ensuring the cash capital according to the loan terms and condition and providing necessary assistance in this matter.

iii. Inspection and monitoring experimental production extension of loan period.

iv. Making the final construction report (FCR) and transferring it to central recovery department (CRD) and concerned department/authorities.

v. Determination of the construction period of the project preparing loan repayment schedule and taking after necessary action regarding this.

vi. Monitoring and inspecting the project to see whether the project is implementing according to time schedule and taking necessary initiatives to solve any kind of problem arising out there form and providing necessary advice to the entrepreneur.

vii. Receiving insurance letter against the predetermined risk of the implementation project assets n ensuring its deposit to bank.

viii. Inspection of the utility of the principles regarding the project implementation and presiding up to date principles.

10C DOCUMENTATION and machinery procurement DEepartment

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

Functions of Machinery Procurement & Documentation Department

  1. Documentation schedule preparation/selection and approving for tender
  2. To assist the promoters to invite tender and other formalities
  3. Give advice to investor’s/entrepreneurs about tender invitation to collect project machinery
  4. To analyze the tender price, quality of machinery among the bidders and taking approval from the authority
  5. Documentation and contract completion with loan recovery after loan sanction
  6. Examination of project memorandum and statement of affairs

.10D CENTRAL recovery department

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


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

1. Not due section: Not due is the installment not yet due for payment in schedule time fixed by the project department/Branch officer.

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

The functions of this section are:

    1. Accurately list of balance preparation
    2. Advice sending to borrower
    3. Quarter/half year by interest charge.

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

4. General and policy section:

General and policy section do the following:

a. To prepare the monthly Trial balance.

b. Monthly recovery statement.

c. Monthly disbursement schedule

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

e. All list of balances of not due send to the Head Office and branch Office.

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


If the Bangladesh Shilpa Bank fails to recover its loan in the normal way; it must take alternative action and file case in the court.

Legal action taken during the year 2003-2005

Position of projects under litigation 2003-2004 2004-2005

Number of projects Number of projects

Legal notice issued 126 33
Filling of suit 205 23
Cases settled outside the court 6 11
Auction 2 11

10G HUMAN Resource MANAGEMENT Department

The department of Human Resource Management was not it name as now. Modernizing the structure of the administration of the bank and development the skill of the human resources and reducing operating cost of the organization. The director’s 244th meeting was conducted on 23rd April 1996. In this meeting, rename of the Administration Department as “Administration & Human Resources Department” and Department of Labor as “Department of Human Resources Management”.

There are five sections in this department

SL. No. Section Activities
01 General administration & policy section 1. Fixing principle relating to human resources activities/position

2. Fixing principle relating to organization

3. Fixing principles relating to delegation of power

4. Activities relating to trade union

02 Management section 1. Provide employment policy

2. Provide transfer policy

3. Provide promotion policy

4. Fixing pay scale

5. Fixing annual increment policy

03 Disciplinary section Mitigate the compliant against personnel
04 Welfare section 1. Provide scholarship policy

2. Assist the helpless personnel

3. Provide retirement benefit

05 Leave & medical section 1. Provide medical facility & allowance

2. Provide vacation opportunities

3. Provide conveyance facility & allowance


The objective of BSB is to stimulate industrialization of the country. But many of the projects, which are loaned by BSB, become sick and cannot carry on their projects. There are many reasons, so government tries to revive the proposed project for greater advancement of the country.

In these types of cases, BSB provides assistance to rebuild their structure to restart their businesses. Additional financial assistance may be required moreover, more information and advice may given so that the entrepreneur may run the business more efficiently, sufficient return & contribution to the economy.

Functions of Project Rehabilitation Department

  1. Recommendation and taking to rehabilitate a project after tracing the cause of sickness if the files are transferred to Project Rehabilitation Department from the ensured department/ branch/ zonal office after the primary analysis of the project. The rehabilitation process starts after the recommendation of the advisory committee formed by the General Managers.
  1. The files of the projects are transferred to Law Department to take necessary actions, which are deemed not to be rehabilitated. Again if there is no opportunity to rehabilitate any it also rejected.
  1. Verification of the proposal regarding rehabilitation recommendation preparing the implementation schedule and taking necessary initiatives to take care the project and deciding the single or joint management system of the bank and performing other activities regarding these.
  1. Production of the rehabilitated project, making of the products analysis the targeted loan recovery and actual situation and taking necessary initiates regarding these


Sickness in the industrial units is not a new phenomenon as is evident in the developing countries. Even in the industrially advanced countries of the world, varying degrees of sickness are found to occur. An industrial unit may face a number of odds during its implementation and operation stage because of a number of factors in the environment – internal and external. If the problems perpetuate & does not permit the unit to pursue the normal course of operations leading to reasonable utilization of capacity, generation of surplus, debt servicing, etc, it can be presumed that some kind of sickness has engulfed the unit and if this trend grows unchecked, it would adversely affect production and employment in the country besides other socio-economic repercussions. However, it is also recognized that in a market economy, the survival of the fittest and weeding out of inefficient industrial units is a natural outcome, which is considered useful as well because the exit of the non-competitive and loss-incurring units should not pose difficulty to any society. But sickness assuming an epidemic shape creates concerns to the policy makers and stakeholders. Experience suggests that small-scale industries are more prone to sickness as compared to medium and large-scale industries. In this context, sickness in small industry should not be left only to the market forces. Creation of objective conditions and enabling environment through suitable policy support are essential for sustained growth of the small industry sector in the developing economies. It is, therefore, imperative to diagnose the causes of sickness so that preventive measures are suggested. Even if a small unit turns sick despite taking all possible precautionary measures, efforts should be made to find out the possibility of its revival. This warrants appropriate package of restructuring and rehabilitation strategies. If the unit’s survival is still under threat, it should be better allowed to die a natural death.

The researchers have shown the incidence of sickness and causes thereof in the industry sector of Bangladesh with particular reference to small industry sub-sector and suggest policy measures, both preventive and corrective, to address the problem of sick industries in the backdrop of pursuing the rapid industrialization strategy as the major prop for acceleration of economic growth in their paper. For this purpose, extensive survey of literature has been made and relevant Govt. publications, pervious studies and various initiatives taken by the successive Governments have been consulted. Section–II presents the industrial scenario in Bangladesh, Section-III highlights the role of small industries in the economy and polices pursued, Section-IV brings out the sickness syndrome prevailing in the industrial sector of Bangladesh, industrial sickness in neighboring countries is briefly described in Section – V, and Section-VI deals with the suggested policy framework for prevention of industrial sickness and rehabilitation measures.


In this section the researchers have shown the industrial sicknesses and its incidence in Bangladesh.

They said that Sick industries refer to those units, which perform poorly against expected results, incurs cash losses for consecutive years, gradually erode the entire net worth and obviously fail to service the debt obligations.

They think that the following major criteria are used to identify a sick unit-

A unit incurring financial loss/not being capable to produce at / above break-even point

A unit incurring continuous cash losses

A unit having negative equity

A unit having excess of current liabilities over current assets

A unit making defaults in payment of principal sums with interest.

A unit having low capacity utilization

A unit having worsening debt-equity ratio

They also observed that it is very difficult to recognize sick units on some definite criteria as a wide variety of interlinked symptoms characterize the sickness of a unit. Likewise, a number of causes are responsible for turning an industrial unit as sick. These causes prevailing simultaneously in a unit may be closely inter-related or even independent of each other. Some of the causes originate outside the unit (e.g. changes in the structural and environmental factors like infrastructural problem, govt. policies, etc.) and some crop up within the unit itself that relate to the functional areas like management, production, finance etc.

BIDS also made a comprehensive study on sick Industries in 2005. This study based on Ministry of Industry (MOI) data reveals that the highest incidence of sickness is as follows-

Sectors % of sickness
The manufacturing of textiles 19.6%
The sub-sectors-food manufacturing 14.3%
Non-electrical machinery 5.7%
Leather and its products 5.4%

It appears from the study that ‘small scale’ industries is at the top (72.5%) in terms of incidence of sickness, followed by “medium” and “large” scale industries – 19.7% and 4.1% respectively.

From the enterprise level survey of the study they found that among the internal factors causing industrial sickness, the entrepreneurs have singled out use of obsolete technology as the most important one (23%) followed by faulty employee appointment (15%), lack of working capital (13%), marketing problem (11%), poor management (9%), and wrong feasibility (5%). Among the external factors, lack of working capital has been mentioned as the single most important cause (35%) followed by natural calamities (13%), trade liberalization (9%), problems in disbursement of project loan (7.5%), poor infrastructure/utilities (7%), political unrest (5%), and smuggling (3%).

They have also identified some causes of Industrial Sickness and suggested policy measures for Prevention and Rehabilitation.They classifiedthe causes into two categories:

(I) External causes (exogenous factors)

The external causes, which are beyond the control of the industrial unit, usually affect the industry group as a whole.

(II) Internal causes (endogenous factors)

Internal causes occur due to some intra-firm weaknesses in various functional areas of the unit and are, therefore, management related:

SL. Broad Area Detail Causes
01. Management
  1. Lack of proper education, training, experience and business outlook of the Sponsors/Entrepreneurs
  2. Poor Entrepreneurial skills
  3. Poor Management
  4. Poor Equity base
  5. Lack of Integrity/Division of Funds
  6. Faulty Project Planning and Appraisal
02. Production/ Technical
  1. Wrong choice of technology
  2. Improper utilization of production capacity
  3. Imbalanced and Defective Machinery
  4. Poor Raw-material Planning
  5. Inadequate Quality Control
  6. Poor labor relations
  7. Location problem
03. Marketing
  1. Lack of Market Planning
  2. Inadequate Market Survey
  3. Poor Collections
  4. Defective Pricing
04. Finance
  1. Poor Management of Financial Resources
  2. Delay in Mobilization of Equity Funds
  3. Faulty Costing
  4. Adverse debt-equity combination
  5. Lack of Proper Accounting system
05. Personnel
  1. Lack of Competence
  2. Lack of Loyalty
  3. Lack of Professionalism
SL. Broad Area Detail Causes
01. Govt. Policy & Implementation
  1. Frequent Policy changes
  2. Lack of Proper Implementation of Industrial Policies
  3. Liberal Import Policies
  4. Poor Infrastructure / Frequent Power Disruption
  5. Smuggling
  6. Fiscal Anomalies
  7. Exchange Rate Fluctuation
  8. Lack of Co-ordination between various ministries and Govt. Departments, etc.
  9. Over-Saturation of particular industry type / Sector due to wrong policy
  10. Non-availability of Raw-material, etc.
02. Bank & Financial Institutions
  1. Non-availability/Inadequacy of Working Capital
  2. Lack of required financial assistance for BMRE
  3. High rate of Interest on bank loan
  4. Lack of timely decision & support by the banks and financial institutions.
03. Environment
  1. Political Unrest
  2. Labor Unrest
  3. Market Recession
  4. Delay in Project Implementation


They have shown that small industrial units fall sick much to the occurrence of external causes while medium and large industries get exposed to sickness largely due to internal causes. Though it would be hardly impossible to eliminate the causes altogether, attempts should be made to undertake measures that would reduce the magnitude of ailment in the industrial units for healthy survival and growth. So, they have suggested to take the following measures to prevent industrial sickness:

1. Macro-economic Policy changes:

The industrial entrepreneurs should make their own appraisal within a predictable macro-economic environment. For this, policy changes should not be abrupt, have to be pre-announced and gradual.

2. Sub-Sector wise Long term Policy:

For each sub-sector, the long-term policy (e.g. for a period of 5 years) should be announced by the Government so that entrepreneurs’ appraisal of the policy implications do take a near-accurate shape.

3. Implementation of the Announced Polices:

There should be effective co-ordination amongst the various ministries, Govt. Departments and relevant agencies involved for proper implementation of policies related to industrialization.

4. Development of Small industry Sector:

The small industry sector is characterized by low-level of technology, low equity base, traditional management practices, poor marketing outlets and undeveloped sub-contracting arrangement. The small industries should not be left to the market forces only. The following measures may be taken for preventing sickness in the small-scale sector:

Arranging access to institutional credit at reasonably lower rate of interest.

Industrial Estates equipped with the required facilities should be set up in suitable locations.

Entrepreneurship and Technology training should be arranged and then linked with the provision of credit facilities. A national level training institute for entrepreneurship development in the small-scale sector should be set up. Meanwhile, BSCIC Training Institute and DCCI Business Institute may be strengthened for up gradation of capability of the existing entrepreneurs.

Establishing complimentary relationship with the medium and large industries should make sub-contracting arrangements. Government supplies may be procured from small industries as far as possible.

Data Bank should be developed at the Chamber Bodies/BOI/BSCIC to facilitate the adequate flow of market-related information.

There may be one marketing agency entrusted with the responsibility of purchasing all goods manufactured by SSI units (Say, up to Tk. 10 million investment) and the task of channeling sales through various sales depots.

5. Rationalization of Tariff:

In cases where deemed necessary, some protective measures should be taken by restricting import of the locally produced finished goods so that fiscal anomalies could be removed.

6. Improvement of Infrastructural Facilities:

Insfrstructural facilities including utilities should be made available to the entrepreneurs at low cost and at the appropriate time.

7. Monitoring of Saturation in Particular industry Sub-sector:

There should be some agency entrusted with the task of monitoring the establishment of too many units in the same sub-sector so that over-crowding could be prevented.

8. Development of Linkage Industries:

In order to mitigate the problem of non-availability/scarcity of raw material as well as marketing of finished goods, backward and forward linkage industries should be set up in a planned way. Moreover, close linkage of industry with agriculture will help ease problem of scarcity of raw material.

9. Active Support of Banks and Financial Institutions:

In case of industrial units where term loan is needed, the availability of working capital should be ensured as part of the financial package.

Banks should provide due attention to process the working capital needs of the industrial units without any delay.

The banks and financial institutions should actively consider BMRE Loan for the existing industrial units undergoing the reality of rapid change in technology so that productive capacities are not rendered idle/underutilized.

Interest rate on loan should be made lower by improving operational efficiency of the banks. This will help reduce financial costs of the industrial units and thus gain access to competitiveness.

Bank-client relationship should be based on understanding of the mutual problems and prospects for greater interest of survival of both the entities.

Banks should improve the quality of project appraisal in order to prevent the growth of born- sick projects and for that, availability of adequate and accurate data and skilled manpower have to be ensured.

Banks could fix up a time limit for sanction and disbursement of loan limits for helping timely implementation of the projects/utilization of capacity of the borrowing industrial units.

Monitoring system of the projects financed by the banks should be thoroughly intensive and for this, both off-site and on-site mechanisms should be used in conjunction with each other in order to take timely steps for prevention of sickness.

Educated entrepreneurs with technical know-how should be encouraged to set up industrial units. They should be provided with all possible support, both financial and non-financial without emphasis on collateral.

10. Expansion of Market Base through Increased Exports:

Domestic market is gradually getting squeezed due to the influx of officially imported foreign goods and smuggled goods. On the one hand, increasing the number of exportable products should expand export market. On the other, anti-smuggling drive should be strengthened. For this, import policy should be restructured in a way that discourages smuggling to a great extent.

11. Use of Predictive Models:

Banks and entrepreneurs should follow some predictive models for early detection of sickness on the basis of evaluation of financial health of the industrial units.

12. Facilitation of Enabling Environment

Deterioration of Law and Order, extortion, harassment etc. should be checked at any cost. In case of natural calamities, special assistance should be provided for resilience.


They also suggested the following measures for the industrial units approaching towards sickness and already turned are as follows:

(i) Every bank and financial institution should have a “Project Rehabilitation Cell” manned by the experts of various disciplines. There should be ongoing process of evaluation of the heath of the assisted units by the banks to detect early warning signals. For this, congenial bank-client relationship is a must for extending co-operation to each other.

Genuine sick units capable of being revived should be allowed rehabilitation package by way of rescheduling of existing loans, waiver/remission of interest payments, conversion of short-term liabilities into long term obligations, etc. depending on the merit of the each case.

There might be one “Interest Remission Committee” to be formed by the Govt. from time to time to address the genuine problems of small sick units (where investment ceiling may be up to Tk. 1 crore). However, this step should not encourage the non- sick units to avail of this temporary facility. The screening process should be strict enough to select the genuine sick units for such concession. As it was followed previously, the Govt. may compensate up to 50% of the waived interest to the concerned banks.

If necessary, change of management of the sick units should be brought in to facilitate successful running of the projects.

Only financial and management rehabilitations of the sick units will not bring the desired result unless Govt. assistance in the form of reduced taxes, duties, concessions on various charges like gas, electricity, etc., imposition of restriction on related import items etc are made available.

Bangladesh Bank may set up a sick industry Cell to monitor the performance of the lending institutions in handling the problems of sick units and to co-ordinate the rehabilitation efforts of banks, financial institutions, Govt. and other agencies involved.

Possibilities of mergers and acquisitions may be explored in case of sick industrial units not capable of being revived by their own strengths. Suitable policy guidelines may be framed in this regard.

SOEs found chronically sick should not be allowed to operate in the limping state any further. In case of sick SOEs capable of being revived, disinvestments process may be expedited.


Mr. Saha, Head of Research Division of Depository Financial Institution (DFI) (1997) carried out a research work on industrial sickness of the DFI- financed projects in Bangladesh.

He identified the following principal causes are responsible for the sickness of DFI-financed projects:

i. Internal:

    1. Marketing problem (31%)
    2. Management inefficiency and lack of entrepreneurial skills (22%)
    3. Faulty project planning and appraisal (14%)
    4. Imbalance of machinery and inappropriate technology (12%)
    5. Implementation delay in (mobilization of equity, etc) (12%)
    6. Others (diversion of funds, labor problem, etc.) (9%)

ii. External:

    1. Delays in loan sanction and disbursement (22%)
    2. Non- availability/ shortage of working capital (21%)
    3. Power problem (15%)
    4. Changes in Govt. policy (import liberalization) (13%)
    5. Non-availability/ irregular supply of raw material and other critical inputs (11%)
    6. Natural calamities (57%)
    7. Smuggling, Political unrest (5%)
    8. Others (8%)

He found out the following important findings of the study:

Most of the sick projects (64%) were established during the 1980s’

Average capacity utilization of the sick projects was 41%

Working capital finance gap (difference between the required working capital and available working capital) prevailed within the range of 21-80%. for 76.48% of the sample sick projects.


In 1988, under the sponsorship of Ministry of Industries (MOI), Government of Bangladesh (GOB), the House of Consultants Ltd. undertook a study to develop criteria and identify the causes of sickness of manufacturing establishments in Bangladesh and find solutions to remove or at least reduce the impact of the causes. According to the study, an industrial unit has been defined to be sick if it fails to cover all the costs of production (including finance cost) and earn normal profit in the long run (i.e., a three – year period). A set of criteria was developed for the study in order to identify an industrial unit as sick which are as follows:

If it incurs net loss in consecutive years,

If its debt-equity ratio deteriorates over time (net loss wiping out the equity base),

If it fails to meet debt-servicing liabilities on time,

If it defaulted in payment of past taxes,

If its share price is going down (in case of public limited companies listed in the stock exchange),

If it is facing working capital problem and its cash ratio is declining over time (creating liquidity problem).

By applying the above criteria to a sample of 300 industrial units, it was found that 67.3% were sick in terms of one or more criteria. The extent of sickness is the highest i.e., 75.8% among the small-scale industries. The major causes contributing to the state of sickness are listed below:

Poor entrepreneurship

Lack of proper studies

Lack of management & technical knowledge

Low equity base and dishonesty of purpose

Poor market planning

Idle capacity/low capacity

Infrastructure (power, etc)

Shortage of funds (Working capital & BMRE)

The study suggested a number of measures to alleviate the cause of industrial sickness. The immediate measures included–Easing debt burden, Reappraisal of sick units, Debt-equity swap, Rescheduling, Funds for BMRE & Working Capital, Manpower training, uninterrupted power supply, etc. On the other hand, the suggested long run measures were – conducting sector reviews, developing project preparation capability, creating an Institute of Technology, creating management capability, etc. However this study suffers from methodological problem.


A ‘Sick Industries rehabilitation and Revival Cell’ was formed in the middle of 1991 at the Ministry of Industries (MOI). The cell headed by the Secretary, MOI, and GOB with representatives of all prominent chambers and financial institutions had the following terms of reference –

To define a sick industry

To identify sick industries and the reasons thereof on the basis of a survey

To submit report with specific recommendations for arriving at the appropriate solutions in each case

1. Definition of sick industry according to Sick Industries rehabilitation and Revival Cell

The cell defined a sick industry as follows –

An industrial unit (a) which could not reach the stage of normal production with normal profit or (b) has incurred loss or remained at the unprofitable level for consecutive 3 to 6 years from the first year of commercial production or (c) could not produce above the break-even point for reasons beyond the control of the entrepreneurs.

2. Causes of sick industry according to Sick Industries rehabilitation and Revival Cell

The Cell identified the following major causes of various types of industries fallen sick:

Selection and Implementation of Projects without the required feasibility studies

Supply of imbalanced and defective machinery

Inadequate/Non-availability of working capital (in majority of the cases)

Non-provision of financial assistance for BMRE, where necessary

Lack of timely decision and support by the financial institutions and the related agencies (in majority of the cases)

Loss incurred by natural calamities.

Unauthorized inflow of smuggled and officially duty-free foreign goods

Frequent power disruption, irregular supply & high price of power

Improper utilization of productive capacity

Disruption of production due to political unrest, labor unrest, etc

High rate of interest on bank loan

Marketing problem for locally produced goods

Upward movement of exchange rates

Fiscal anomalies between the imported raw material of locally produced goods and imported finished goods.

Lack of sound management

Lack of proper implementation of industrial policies

3. Recommendations of Sick Industries rehabilitation and Revival Cell for sick industry

A number of recommendations were suggested by the selection committees separately sub-sector-wise in order to rehabilitate and revive the identified sick industries, which were finally approved by the sick industry cell. The principal recommendations were here as under:

Waiver of 100% penal and 50% – 100% normal interest

Rescheduling of outstanding loan for repayment in easy installments

Provision of necessary working capital, financial and technical assistance to BMRE cases after conducting fresh feasibility studies

Withdrawal of all filed suits

Supply of electricity and other utilities on regular basis and discontinuance of peak hours of electricity

Unnecessary delays in providing financial assistance and support to be avoided

Stoppage of unauthorized inflow of foreign goods

Lowering of interest rate on industrial loan

Fiscal anomalies to be removed

Introduction of special insurance scheme on easy terms for natural calamities

Compilation of accurate statistics for investment decision

In order to provide protection to home industry, local goods that are produced abundantly should be discouraged for import.

The report further suggested that as there exists special need for co-ordination between the operations of the different ministries, agencies, banks and financial institutions and the policies and rules of the Govt. and various laws for rehabilitation of sick industries, a “Board for Industrial and Financial Restructuring” might be formed through enactment of special laws. Under the same law, there may be a high level appellate authority to review the appeals of the concerned quarters and provide judgments against the decisions of the said board.


The Fifth Five Year Plan (1997-2002) was launched by the Government. Unlike the previous Five-Year Plans, the Fifth Five Year Plan recognized the presence of a large number of sick industries and listed the main reasons therefore as follows:

Depreciation of taka in relation to the foreign currency in which loan capital was obtained

Technological obsolescence

Withdrawal or lowering of protective tariff wall,

Management inefficiency

Inadequate working capital support by the banking system; and

Pilferages by the sponsors, in collusion with the personnel of the lending banks or financial institutions

In this paper it has been suggested that during the plan period concrete steps will be taken to remove the relevant causes of sickness through joint efforts of the owners, management, labor and the funding agencies.


While announcing the national budget for the financial year 1998-99, the Finance Minister referred to the sick industries in Bangladesh. Though he admitted the realities of sickness in the context of governing principles of capitalism, he attributed the main reasons of sickness to mismanagement, political and economic stability and rapid liberalization and unexpected shifts in economic policy. A package of supportive measures was proposed in the budget speech with a view to scaling down the problems of sick industries which are follows:

Since small entrepreneurs are adversely affected by the phenomenon of sickness and detailed investment analysis is hardly possible in case of small units, steps would be taken for providing assistance to the small sick industries already registered with MOI.

A special committee would be set up to consider remission of interest and penal interest up to 100% of those enlisted sick industries which had borrowed up to Tk. 50 lacs from any state-owned bank. The Government would reimburse 50% of such remitted interest amount to banks. The amount remaining due after remission would become payable by three years in monthly installments.

Sponsors of sick industries having borrowed more than Tk. 50 lacs, and being unable to pay the dues, may submit compromise proposal to the banks for decision on the basis of bank-client relationship. In cases, the sponsors believe that their sick industries can be profitably rehabilitated; they may submit feasibility reports to the concerned banks for taking appropriate steps on the basis of guidelines given by the special committee.

Where court cases are pending, all proceedings would be taken within the legal framework without compromising the interests of the banks.

Upon implementation of the above measures, all Govt. Committees relating to sick industries would stand abolished and hence, all sick industries would have to seek redress under the Bankruptcy Act.

The Government will issue bonds worth Tk. 60 crore in FY 1998-99 to compensate the banks for implementation of the above measures. If necessary, allocations for this purpose may be enhanced in the future.


The Ministry of Finance considered some observations of SIA and constituted a ‘Special Committee on Interest Remission’ under the convener ship of a retired judge.

While resolving the cases under consideration for remission of interest, the following reasons were found to be dominant in contributing to sickness in industries:

Selection of project without proper feasibility studies and appraisal

Failure in selecting appropriate technology

Supply of defective machinery due to inexperience of both entrepreneurs and banks

Problem in marketing the produced goods

Location problem and lack of skilled manpower

Non-availability/Inadequacy of working capital from the financing banks

Delay in financing decision and loan disbursement

Natural disasters

Smuggling of foreign goods/liberal import policy

Frequent power disruption/Non-availability of gas and power connection.

Frequent changes in exchange rates and fiscal anomalies.

Lack of co-ordination amongst various ministries and Govt. departments

Over-crowding of industries in the same sub-sector

Deterioration of law and order, political instability, extortion, strike, etc

Management inefficiency, etc

However, in April 2001 the Finance Minister in his speech remarked that there was no scope for continuing state support for rescue of sick industries. He added that the Govt. tried its best to reduce the number of sick industries from over 1700 to less than 400 through supportive measures. But this should not be looked upon as a permanent phenomenon in a market oriented economy.


Govt. urged to frame law for protecting sick industries

–Staff Correspondent

President of Bangladesh sick Industries Association Chowdhury Muhammad Ishaq urged the government to constitute a rehabilitation and reconstruction board and frame an appropriate law for protecting the sick industries of the country.

He said at a Press conference held at the National Press Club on Saturday, “The government had identified 2580 industries as the sick industries and of them 100 are in the public sector. About one lakh workers have become jobless and 49000 people have been affected directly due to serious disruption in these industries,”

He said- only 700 sick industries could be traced and others were abolished. The president of the association alleged that the government policy for rescheduling the loans was not the borrower friendly.

He urged for keeping the sick industries out of the purview of Artha Rin Adalat. Responding to a question he said the association had submitted its demands to the government and met with the Minister for Law and Parliamentary Affairs Barrister Moudud Ahmed. The minister according to them assured the association of reviewing the problem faced by the sick industries.


Entrepreneurs in distress: Rescue plan of sick industries shelved

-By Staff Reporter

Chowdhury Muhammad Ishaq, President of Bangladesh sick Industries Association said that entrepreneurs burdened with their sick industries have been passing their days in distress since 1991, due to non-implementation of the government decision to write off bank’s bad debts.

He thi