SME Activities OF BRAC BANK LIMITED

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SME Activities OF BRAC BANK LIMITED

1.0 Introduction

BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shorecap International, started its journey in 2001 and in just 10 years proved to country’s fastest growing bank. The Bank operates under a “double bottom line” agenda where profit and social responsibility goes hand in hand as it strives towards a poverty-free, enlightened Bangladesh. BRAC Bank Limited is a scheduled commercial bank in Bangladesh. It established under the Banking Companies Act, 1991 and its operation started on July 4, 2001 with a vision to be the market leader through providing all sorts support to people in term of promoting corporate and small entrepreneurs and individuals all over the Bangladesh.

The bank consist of major divisions named 1) Corporate banking, 2) Retail banking, 3) Treasury, 4) Small & Medium Enterprise (SME). At present the Bank operating its business by 69 branches. BRAC Bank is the first local commercial banks that proving online banking service to its customers from the very beginning of its starts.

BRAC Bank, for the first time among local commercial banks, starts providing loan facilities to small and medium trading, manufacturing and service oriented enterprises all over the country.

1.1 Origin of the Report

As a part of the Internship Program of Bachelor of Business Administration course requirement, I have been aassigned for preparing a report on the activities that I am currently doing at BRAC Bank Limited (BBL) for the period of 12 weeks started from March 1, 2011 to May 31, 2011. At BRAC Bank Limited (BBL), I have been assigned in the SME , Finance Planning & Analysis, Finance Division.

1.2 Objective

The broad objective of this project:

1. How BRAC BANK Ltd operates SME banking operation around the country though its extensive network

2. Why Market concentration and product diversification are considered the main strategies for expanding the SME business.

1.2.1 Specific Objective

To support the broad objectives better we have developed some specific objectives. These are:

1. How BRAC BANK Ltd operates SME banking operation around the country though its extensive network

• What is the Structure of SME division of BBL

• History of BRAC Bank SME

• SME Product Details

• Operation Process of SME Loan Disbursement of BBL

2. Why Market concentration and product diversification are considered the main strategies for expanding the SME business.

• Market segmentation

• Bases for segmenting consumer market

• Target consumer

• Target market

• Differentiated marketing

• SWOT Analysis

1.3 Methodology

The study was totally based on primary data and secondary data. As the report has three parts, the organization part and job part data was collected from secondary sources books, brochures, leaflets, files, published reports and official web site of BRAC Bank Limited. For SME related information I took short interview of the SME Department employees. Apart from this, Annual reports, magazines, financial flash back of BRAC Bank and different SME related journals used as a secondary data.

1.4 Limitations of the Report:

The sources of the report are collected from different desks, various documents of BRAC Bank Limited (BBL). Though the entire staff member remains busy all the time for their desk work they helped a lot to manage and collect the data & information. But it was very difficult to collect information on the client as it is very sensitive and secret issue for the Bank. Every task has some limitations. So, there have also some limitations of the study. These are as follows-

Shortage of time period: This report is written within a shorter period of time since many days have passed during the training session. So the time

a. constraint of the study hindering the course of vast area and time for preparing a report wit the mentioned period is really difficult.

b. Busy working environment: The officials had some times been unable to

c. provide information because of their huge routine work. That is why we do not gather vast knowledge about the critical issues.

d. Secrecy of Management: There some information which are confidential for collecting the data. So, some data could not been collected for confidentiality or secrecy of management.

e. Uneven Sample Distribution: The sample distribution may not be

f. even, there may be a majority of people coming from a fixed range of income level.

1.5 Scope

The report has three parts. First part is the organization part where I covered brief about the organization. Second part is the job part where I covered what I did in the office. Though I worked in SME Finance department but I also covered the reconciliation process. In the third part, this is assigned by supervisor, SME Activities of BRAC Bank Limited. In this part I covered how BRAC Bank operate SME banking through its extensive network and why market concentration and product diversification are considered the main strategies for expanding the SME business.

2.1Background of BRAC Bank

BRAC Bank Ltd, a full service commercial bank with Local and International Institutionalshareholding, is primarily drive by creating opportunities and pursuing market niches not traditionally met by conventional banks. BRAC Bank has been striving to provide “best-in-the-class” services to its diverse range of customers spread across the country under an on-line banking platform.

Today, BRAC BANK Limited, one of the latest generation of commercial banks which started its journey on the 4th of July 2001 with a vision to be the absolute market leader through providing the entire range of banking services suitable to the needs of modern and dynamic banking business as well as to promote broad based participation in the Bangladesh economy through the provision of high quality banking services. The unique strength of BRAC Bank lies in the fact that BRAC one of the world’s largest private development organization is its key shareholder and the bank’s vision are thus aligned with those of BRAC.

The reason BRAC Bank is in business is to build a profitable and socially responsible financial institution focused on markets and businesses with growth potential, thereby assisting BRAC and stakeholders build a “just, enlightened, healthy, democratic and poverty free Bangladesh”. BRAC Bank fulfills the purpose by reaching for high standards in doing everything for their customers, shareholders, associates and communities upon, which the future prosperity of their company rests.

BRAC Banks envisages providing mass financing by increasing access to economic opportunities for all individuals and business in Bangladesh with a special focus on currently under-served enterprises across the rural-urban spectrum BRAC Bank is surviving in the large banking arena through its unique and competitive products and it is the only local bank providing 100% integrated on-line banking services.

BRAC Bank Limited consists of four major business divisions namely Corporate Banking Division, Retail Banking Division, Small and Medium Enterprise (SME) and Foreign Trade & Treasury.

Corporate Division provides full range of commercial banking products and services to any potential corporate clients including multinationals, large or medium local corporate, NGOs, institutional bodies.

Retail Division offers a wide array of lucrative and competitive banking products to the individual customers of the bank. Currently there are six lending products and a number of other attractive new products will be launched shortly. It also offers different types of term deposit scheme and attractive STD & Savings deposit schemes giving interest on daily balance.

BRAC Bank Limited, hereinafter called BBL, is a first growing third generation-scheduled commercial bank incorporated on 20^th May 1999 as a public limited company under Companies Act, 1994 with multinational collaboration including IFC of The World Bank Group & Shore Cap. BBL started its operation on 4^th July 2001. The main sponsor of the bank is the BRAC. The Bank is pioneer and focused on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped. BBL believes, this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh. BBL caters the banking services to its rapidly growing customers through 69 branches and 421 SME Unit Offices.

Shareholding Structure of Brac Bank Limited

As on 31.12.2010

Corporate Chronicle & Information

Registered office: 1, Gulshan Avenue, Gulshan-1, Dhaka-1212

Company Registration Number: C-37782(2082) of 1999

Inauguration of Banking operations: 4^th July 2001

First SME unit office: 1^st January 2002

Signing with ShoreCap as investor: 29^th December 2003

Signing with IFC as investor: 8^th May 2004

First installation of ATM: 3^rd April 2005

Issuing of Preferential share: 31^st January 2006

Signing with Infosys and 3i Infotech for changing Bank’s IT platform: 1^st

August 2007

24×7 Phone Banking opening:9^th September 2006

Initial public offering of shares held in 2006

Listing with CSE: 24^th January

Listing with DSE: 28^th January 2007

Commencement of share trading in DSE and CSE: 31^st January

Credit Card launching: 06^th February

2500 remittance delivery points

Introduction of Probashi Banking: 14^th April 2007

Launching of Travel related services (TRS): 20^th November 2007

PDB collection via mobile banking: 15^th October 2009

Launching of Probashi Biniyog: 4^th May 2010

Off-Shore Banking launched: 21^st June 2010

Co-branded ATM booth launching with Rupali bank Limited: 25^th September

2010

Launching of Planet Card: 23^rd Oct 2010

Corporate Vision

Building a profitable and socially responsible financial institution focused on Market and Business with growth potential, thereby assisting BRAC and stakeholders to build a “just, enlightened, healthy, democratic and poverty free Bangladesh”.

Corporate Mission

· Sustained growth in “Small & Medium Enterprise” sector

· Continuous low-cost deposit growth with controlled growth in retail assets

· Corporate Assets to be funded through self-liability mobilization. Growth in assets through syndications and investment in faster growing sectors

· Continuous endeavor to increase non-funded income

· Keep our debt charges at 2% to maintain a steady profitable growth

· 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

· Manage various lines of business in a fully controlled environment with no compromise on service quality

· Keep a diverse, far flung team fully motivated and driven towards materializing the Bank’s vision into reality

Core Values

· 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

· To be responsible, trustworthy and law-abiding in all that we do

The Brand Promise of BRAC Bank LTD :

The brand promise of BRAC Bank LTD is “Astha Obichol”. It is a bangle word that denotes trust on BRAC Bank remains the same no matter what in terms of quality services.

The logo of Brac Bank has been made keeping in mind the goal of the organization, the square structure of the logo means solid and strong, the golden color in the lower portion of the logo means the ‘Golden Bangladesh & her fertile land, The Blue color in the upper portion means ‘the sky with enormous & unlimited opportunity’. The white colored curve means ‘Growth and Progress’. White circles in the blue color mean the flashing sun that gives light to everywhere.

Management of Brac Bank:

The board of directors is the top management and policy making body of BRAC Bank LTD. Presently the board of directors consists of a chairman and five directors. It is to be noted the managing director, is also a member of the board. The directors are appointed from amongst those who have experiences and shown capacity in the field of finance and banking, trade, commerce, industry etc. The chief executive officer (CEO)executes all the activities under the direction of the board. The officer and the other line and staff personnel are appointed by the bank’s own recruitment committee.

Table2.1 Name of the Directors

Table2.2 Name of Management Committee

Functional Department of BRAC Bank:

The departments of Brac Bank can be categorized into two ways are shown in following chart:

Human Resource Division

SME Division Finance Division

Corporate Cash Management & Custodial Service

Retail Division Credit Risk Management

Probashi Banking Division Operations Division

(Foreign Trade Division) Company Secretariat

Regulatory and Internal Control

Operational Risk Management

Treasury and Financial Institution

Information Technology Division

Program Management Division

Research & Development Division

Service Quality Division

Corporate Affairs Division

Wings of BRAC Bank Ltd:

BRAC Bank Limited consists of four major business divisions:

a. Corporate Banking Division

b. Retail Banking Division

c. Small and Medium Enterprise(SME)

d. Foreign Trade & Treasury

A. Corporate Banking Division:

BRAC Bank’s Corporate Banking team exists to provide both banking services and a financial partnership with local large and medium corporates, trading houses and joint ventures. As the financial partner of choice for the corporate sector, BRAC Bank is distinguished by our:

• Quality of service
• Value of innovative solutions
• Level of trust with our clients
• Market knowledge

Through the team our clients have access to a wide range of financial services including:

· Debt capital

· Equity capital

· Ongoing relation support

· Financial markets

Our Objectives:

• To provide wide range of financial services professionally, efficiently and competitively to achieve pre-eminent position in chosen market.
• Diversify revenue stream through product innovation.
• A Well-diversified credit portfolio, which produces a reliable and consistent return to investment.

Our values:

• Services to our customers
• Quality in everything we do
• Competitiveness and a will to win
• Growth and development of our people
• Continuous productivity improvement
• Professionalism and ethics in all our actions
• Growing profit for our stakeholders

B. Retail Banking Division

Retail Division offers a wide array of lucrative and competitive banking products to the individual customers of the bank. It also offers different types of term deposit scheme and attractive STD &Savings schemes giving interest on daily balance.

As a part of total banking solution it has introduced an innovative and one o its kind Remittance Services under the style and name “Secured & Easy Remittance Service”(SERS). The aim of the program is to introduce easy and secured remittances services whereby people will be comfortable and secured in remitting funds without hassle and delay. Using the countrywide network of BRAC comprising more than 11000 field offices the SRS will ensure secured and only 24 hour lead time delivery of remittances anywhere in Bangladesh.\

C. Small and Medium Enterprise (SME): SME is an additional and specialized horizon of the bank which serves the bank’s special focus on promoting broad based participation by catering to the small and medium entrepreneur. The network of SME has already been established through the Bangladesh.

The SME market in Bangladesh is large. BRAC Bank is absolute market leader in the number of loans given to small & medium enterprises throughout Bangladesh. The Bank disbursed almost BDT 144467 million since inception till 2010, of which disbursed BDT .32549 million in 2010.

D. Foreign Trade & Treasury Division:

Treasury Division is one of the major divisions of BRAC Bank . It deals with money market. All treasury related products are processed in conformity with the Bank’s Operational, Trading, and Money market, Term placing, Deal settlement, Commercial positioning keeping, Treasury, Credit, Finance & other applicable policies.

Treasury Operations calculates investment figure, prepares the auction application, forwards the application to Bangladesh Bank for Bid and Treasury Operations maintains and reconciles all accounts with foreign and local banks.

Major Responsibilities:

It deals with Money Market

It deals with Foreign Exchanged Department

BRAC Bank is gradually growing up to establish itself in the Banking arena of Bangladesh to be market leader in terms of service quality and a trusted partner in the development of Bangladesh.

3.1 Definition of SME

SME stands for Small and Medium Enterprise. The “Policy Strategies for Development of Small & Medium Enterprises (SME) 2005” published by SME Cell of the Ministry of Industries categorizes Small and Medium Enterprises using the following definitions:

a. Manufacturing enterprise

Small Enterprise: an enterprise should be treated as small if, in current market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc. excluding land and building, were to be up to Tk. 15 million.

Medium eEnterprise: an enterprise should be treated as medium if, in current market prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services ( such as turn-key consultancy), etc. excluding land and building, were to be up to Tk.100 million.

b.Non-Manufacturing activities (such as trading or other services).

Small enterprise: an enterprise should be treated as small if it has less than 25workers, in full-time equivalents;

Medium enterprise: an enterprise should be treated as medium fi it has between 25 and 100 employees.

3.2 SME History of BRAC Bank Ltd:

He wants to see poverty banished forever. This has been his single-minded pursuit in life. Ever since a devastating cycle wreaked havoc on the lives of the people and property in the coastal regions of pre-independence Bangladesh 1970, everything changed for a young chartered accountant. The young man was so moved by the death and destruction that he, along with some friends, dedicated to set up HELP to carry out relief and rehabilitation efforts. Later after the independence of Bangladesh the young man sold his flat in London and decided to set up a relief and rehabilitation center in the war ravaged Bangladesh. He never looked back.

He is Sir Fazle Hasan Abed, the founder and chairperson of BRAC, the world’s largest NGO, arguably in terms of size and operation. BRAC has been working relentlessly to realize the hidden potential of mankind, especially the ones who are most deprived of opportunities.

It is this same vision that motivated him to come up with a bank that could realize the untapped potentials of this country. Traditionally banking in Bangladesh has mainly addressed the mid to large sized businesses or the professionals. When Sir Fazle Hasan Abed established BRAC Bank he did it with the goal to serve the highly motivated group of entrepreneurs who wanted to break out of the vicious cycle of poverty and take control of their own future. We call them the “Missing Middle”. His long cherished dream of availing quality finance services to these small to medium businesses finally come to reality. BRAC Bank proud to be the pioneering and largest SME bank in Bangladesh, discharging over 10,000 core taka in SME loan and helping fulfillment of more than 256,000 dreams that change hundreds and thousands of lives every day.

SME banking division of BRAC Bank Limited has successfully made a mark in creating platform for small and medium entrepreneurs in “Access to Finance”, the key to the prime obstacle towards growth of SMEs. Since inception BRAC Bank upholds the motto to finance the “Missing Middle” the underserved market segment of SMEs. Years of market knowledge and understanding, committed resources, countrywide coverage and well aligned strategies have made the bank an expert in SME financing and the bank has successfully developed an examined and successfully model in SME financing in Bangladesh.

The strengths of BRAC Bank’s SME Banking Division behind the success of growth are as follows:

· Dynamic human resource

· Country distribution network and coverage

· Continuous development in creating innovative products

· Unique loan approval process and monitoring

· Robust risk management system

The bank has incorporated double bottom line approach in its operation –

1) Making profit by mobilizing fund from urban to rural areas.

2) Performing social responsibility by creating an entrepreneurial class.

Along with Small & Medium Enterprise financing, SME banking division is also actively working in creating awareness and imparting knowledge to SMEs about financial record keeping, dealing with modern banks and industry best practices in SME operation. In an attempt to ensure customer awareness and to strengthen the relationship with customers, SME banking division arranged informative campaigns and road shows for SMEs located across the country.

3.2 Importance of SME

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:

3.2.1 Support Small Enterprise

The small enterprise, which requires BDT 2 to 30 lacks 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 lacks is provided without any kind of mortgage.

3.2.2 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.

3.2.3 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.

3.2.4 Profit Making

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.

3.2.5 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.

3.2.6 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.

3.3 SME Products

BRAC Bank, being the youngest bank, took a step to break away from usual tradition and tapped into the true suburb entrepreneurial initiatives.

Today, with over 10,000 cores of loans disbursed till date, BRAC Bank is country’s largest SME financier that has made more than 265,000 dreams come true!

If you have a dream on which you trust, let us make it true together.

3.3.1 Anonno Rin

This is a small scale loan designed to finance small scale trading, manufacturing and service ventures, especially to aid the purchase of fixed assets and to finance working capital.

Eligibility

· Entrepreneurs aged between 18 to 60 years

· Entrepreneurs with minimum 2 years experience in the same line of business

· A business which must be a going-concern with more than 1 year in operation

Maximum Amount

· From minimum BDT 3 lac up to maximum of BDT 8 lac

Features

· Loan without mortgage

· For excellent borrowers who have paid or paying in due times, we offer discounted rates

· Quick, quality banking throughout the country

· Potential women entrepreneurs will also get the facilities of this loan

3.3.2 Apurbo Rin

In order to help our SME borrowers for financing working capital or to purchase fixed assets,

BRAC Bank offers APURBO. It caters to the need of entrepreneurs who are operating in trading, manufacturing, service, agriculture, non-farm activities, agro- based industries and other sectors of our economy.

Eligibility

· Entrepreneurs having a minimum of 3 years of some business activities

· A business which must be a going concern for 3 years

· Age minimum 25 years and maximum up to 60 years

Maximum Amount

· Starting from BDT 8 lac to maximum of BDT 30 lac Features

· Without mortgage loan below 10 lac

· Simple loan processing for expanding your business

· Quick disbursement

· Disbursement in one or two installment

· Flexible monthly repayment loan

3.3.3 Pathshala Rin

This is a loan designed to meet the needs of small and medium sized private educational institutions, such as kindergartens, schools and colleges etc.

Eligibility

· A small & medium educational institute that is in operation for minimum 3 years

· The institution should be sole proprietorship, partnership, private limited company or society

· The educational institute must be a profit making concern

Maximum Amount

· Minimum BDT 3 lac to maximum BDT 30 lac Features

· Without mortgage for loan below 10 lac

· Loan for fixed assets purchase & civil construction 9 Loan repayment can be spread up to 4 years

· Minimum documentation

· Monthly repayment loan

· Quick disbursement

· Flexible interest rate based on security

3.3.4 Aroggo Rin

This loan is suitable for private clinics, diagnostics centers and doctors’ chambers to purchase fixed assets under equated monthly installments.

Eligibility

o Institutions with at least 2 years in operation & profit making concern

o Doctors having 5 years of experience

Maximum Amount

· Minimum of 3 lac to maximum of 30 lac Features

· Loan without mortgage up to 8 lac

· Easy loan processing

· Loan repayment schedule is spread up to 3 years

· 1% loan processing fee

· Flexible interest rate based on security

3.3.5 Digoon Rin

DIGOON RIN is a loan facility for Small and Medium enterprise. This product’s main objective is to help various Small and Medium entrepreneurs to meet their short-study cash flow shortages or bridge the fund-flow gaps. Double loan on your deposit. For your business expansion, you do not need to encash your savings rather you can take double amount of loan on your deposit

Eligibility

Ø Entrepreneur having minimum 2 years of business activities

Ø The business which must be going concern for 2 years

Ø Aged between 18 years to 55 years

Maximum Amount

· Minimum of 5 lac to maximum of 30 lac BDT

Features

· Double amount of loan on your deposit

· Attractive return against the deposit

· Flexible repayment plan monthly installment and single installments

· Quick disbursement

3.3.6 Supplier Finance

SUPPLIER FINANCE is a loan facility for the enlisted Suppliers of various large retailers, marketing companies, distributors, exporters etc. This product’s main objective is to help various Suppliers to meet their short-study cash flow shortages or bridge the fund-flow gaps.

Eligibility

· If you are an enlisted supplier of a corporate house with which BRAC Bank has a corporate tie-up

· Have minimum 3 years of continuous operation

· Have 1 year continuous relationship with the purchasing firm Maximum Amount

Minimum

· BDT 3 lac up to maximum BDT 30 lac

Features

o Equal monthly installment and revolving loan facility

o 1% of loan amount as the processing fee

3.4 SME Network Coverage

3.5 Highlights of SME Banking Division of BRAC Bank

BRAC Bank serves the Small and Medium Enterprises through its 421SME Unit Offices situated at different parts of the country. Customer Relation Officer (CRO) operates the SME Banking at the Unit offices. Some units comprise a Zone which is headed by a Zonal Manager. Again Zones comprise a Territory headed by a Territory Manager. All the Territories across the country monitored by Four BDMs. And the central SME division monitors all of them.

The central SME division has following wings for monitoring and controlling SME Loans distributed by the unit offices across the country:

1) General Unit

2) Large Business Unit

3) Business Unit

4) ADFC (Supplier and Distribution Finance Unit)

5) Monitoring Cell

6) Commercial credit Unit

3.6Correspondence Banks:

Where BRAC Bank does not have any unit offices, it distributed SME loans through its correspondence Banks namely The City bank Ltd, Janata Bank, Krishi Bank, Pubali BankLtd.SME Banking Division is confident enough to continue its ever increasing growth to take the bank ahead of its imagination and to erect newer and starling milestones in banking industry.

3.3.7A. Categories of loans;

All loans and advances will be grouped into 4(four) categories for the purpose of classification, namely a) Continuous Loan, b) Demand Loan, c) Fixed Term Loan, d) Short-term Agriculture & Micro Credit.

a) Continuous Loan : The loan accounts in which transaction may be made within certain limit and have an expiry date for full adjustment will be treated as Continuous Loan. Examples are CC, OD(over draft).

b) Demand Loan : the loans that becomes repayable on demand by the bank will be treated as Demand loan. If any contingent or any other liabilities are turned to forced loan( i.e. without any prior approval as regular loan) those too will be treated as Demand Loan. Such as forced Lim, PAD,FBP and IBP etc.

c) Fixed Term Loan: The loans, which are repayable within a specific time period under a specific schedule will be treated as Fixed Term Loan.

d) Short-term Agricultural & Micro Credit: Shot-term Agricultural Credit will include the short-term credits as listed under the Annual Credit Program issued by the Agricultural Credit and Special Program Department (ACSPD) of Bangladesh Bank. Credit in the agricultural sector repayable within 12 months will also be included herein.

e) Short-term Micro Credit will include any micro credit not exceeding Tk.25000 and repayable within 12 months, be those termed in any names such as Non-agricultural credit, self-reliant Credit, Weaver’s Credit or Bank’s individual project credit.

B. Basis for Loan Classification:

Objective Criteria:

1) Past Due/Over due

i)Any Continuous Loan if not renewed/repaid within the fixed expiry date for repayment will be treated as past due/overdue from the following day of the expiry date.

ii) Any Demand Loan if not repaid/rescheduled within the fixed expiry date for repayment will be treated as past due/overdue from the following day of the expiry date.

iii) In case of any installment(s) or part of installment(s) of a Fixed Term Loan (not over five years) is not repaid within the fixed expiry date, the amount of unpaid installment(s0 will be treated as past due/overdue from the following day of the expiry date.

iv) In case of any installment(s) or part of installment(s) of a Fixed Term Loan(over five years) is not repaid within the fixed expiry date, the amount of unpaid installment(s) will be treated as past due/overdue after six months of the expiry date.

v) The Short-term Agricultural and Micro-credit if not repaid within the fixed expiry date for repayment will be considered past due/over due after six months of the expiry date.

2) All classified loans other than Special Mention Account (SMA) will be treated as Standard.

3) A Continuous credit, Demand loan or a Term Loan which will remain overdue for a period of 90 days or more, will be put into the “Special Mention Account(SMA)” and interest accrued on such loan will be credited to Interest Suspense Account, instead of crediting the same to Income account. This will help banks to look at account with potential problems in a focused manner and it will capture early warning signals for accounts showing first sign of weakness.

4) Any continuous loan will be classified as:

‘Sub-standard’ if it is past due/overdue for 6 months or beyond but less than 9 months.

‘Doubtful’ if it is past due/over due for 9 months or beyond but less than 12 months.

‘Bad/Loss’ if it is past due/over due for 12 months or beyond

5) Any Demand loan will be classified as:

‘Sub-standard if it is remains past due/overdue for 6 months or beyond but not over 9 months from the date of claim by the bank or from the date of creation of forced loan.

‘Doubtful’ if it is remains past/ due/overdue for 9 months or beyond but not over 12 months from date of the claim by the bank or from the date of creation of forced loan.

‘Bad/Loss” if it is re

mains past/overdue for 12 months or beyond from the date of claim by the bank or from the date of creation of forced loan.

6) In case of any installment(s) or part of installment(s) of Fixed Term Loan is not repaid within the due date, the amount of unpaid installment(s) will be termed as ‘defaulted installment’.

3.7 Sector wise Distribution of SME Banking

3.8 Obstacles and Challenges faced BRAC Bank Limited in SME

At the beginning phrase of the SME, BRAC Bank Limited faced lots of obstacles and challenge. There was a shortage of capital, absence of high technology, high employee turnover, lack of Skills entrepreneur, no trade license of businessman etc. These problems are described in brief below:

3.8.1 Financial Constraint

At the very beginning of the SME, BRAC Bank have financial constraints. BRAC Bank does not have enough liquid money so that they failed to satisfy every customers need.

3.8.2 Absence of High Technology

Absence of high technology was another constraint for the BRAC Bank limited. At that time they do not have strong inter-banking software so that they failed to contact with different SME service centre.

3.8.3 High Employee Turnover

In 2001 employee turnover rate was pretty high. BRAC Bank does not have any legal bindings to their employees. Employees quit their job according to their wish. So it also hampers the SME Service.

3.8.4 Lack of Skills Entrepreneur

At that time entrepreneurs were not educated enough. They do not have sufficient skills about the different types of paper requirement. It hampers the loan processing time.

3.8.5 Trade License

Trade license was another major problem for BRAC Bank. Most of the business man does not have their business trade license. Without proper documents it was quite hard to sanction the loan.

3.8.6 Poor Physical Infrastructure

Inadequate supply of necessary utilities like electricity, water, roads and highways hinder the growth of SME sector.

3.8.7 Employee Skills

At that time employees do not have sufficient knowledge about SME. It was costly to train all the employees. So lack of proper training to employees was another obstacle for SME growth.

3.8.8 Lack of Information

At that time SME just got a new shape in our country. So no one has clear idea about it. So vague and wrong information were passed among the people.

3.9 Steps Taken to Overcome the Obstacles

In order to overcome the above mentioned obstacles BRAC Bank started follow some steps, these steps were –

3.9.1 BRAC Bank started to expand their SME network

In 2001 BRAC Bank Limited their SME loan business with 4 SME sales and service center. Gradually they have started to expand their network. Now they have 421 SME sales and service center.

3.9.2 Training Session for employees

At the very beginning of SME operation employees do not have sufficient knowledge to handle the customer. Besides at that time there were lack of educate employees to join this sector. So BRAC Bank started to train up employees those who have started to join in SME division.

3.9.3 Orientation Session for Borrowers

Besides training with the employees BBL also started to train the borrowers also. Most of the borrowers are not educate at all. Even they don’t pass the S.S.C or H.S.C. So BBL started to organize orientation session for a group of borrowers.

3.9.4 Tried to Overcome Financial Constraint

At the very beginning BBL investment was low in the SME loan. Gradually they have started to invest huge in the SME. As they have a strong background of shareholders.

3.9.5 Educate the Entrepreneurs

At that time most of the entrepreneurs just passed the S.S.C or H.S.C level. So they have a very poor knowledge about the banking transaction. They come for the loan but they don’t have any trade license. So educate the entrepreneurs were other steps to overcome the obstacles.

3.9.6 Employee Commitment

As employee turnover was quite high so BBL started to give handsome remuneration to their employees. They started to provide some extra facilities to their employees. Besides they also started to take contract sign for 2 or 3 years from the employees.

3.9.7 Advancement of Technology

BRAC Bank Limited also started to develop their technology. In consequent of this they have transfer their software from MBS to Finacle. Now the respective department can easily find out whether the particular borrower paid his installment or not.

3.10 Selection of Potential Enterprise for SME

3.10.1 Enterprise selection Criteria

The success of SME will largely depend on the selection of a business and man behind it. In terms of the business (Enterprise), the following attributes should be sought:

1. The business must be in operation for at least one year

2. The business should be environment friendly, no narcotics or tobacco business

3. The business should be legally registered, i.e., valid trade license, income tax or VAT registration, wherever applicable.

4. The business should be in legal trade, i.e.; smuggling will not be allowed or socially unacceptable business will not be entertained.

5. The business must have a defined market with a clear potential growth

6. The business must be located ideally close to the market and the source of its raw materials/suppliers. It should have access to all the utilities, skilled manpower’s that are required.

7. Any risk assessed by the management in turn will become a credit risk for the bank. So effort should make to understand the risk faced by the business.

3.10.2 Entrepreneur Selection Criteria

In order to understand the capability of the management behind the business, the following should be assessed:

1. The entrepreneur should be physically able and in good health, preferably between the age of 25-50. If he/she is an elderly person closer to 50, it should be seen what the succession process will be and whether it is clearly defined or not.

2. The entrepreneur must have the necessary technical skill to run the business, i.e. academic background or vocational training, relevant work experience in another institution or years of experience in this line of business.

3. The entrepreneur must have and acceptable social standing in the community (People should speak highly of him), he should possess a high level of integrity (doesn’t cheat anyone, generally helps people), and morally sound (Participates in community building)

4. The entrepreneur must possess a high level of enthusiasm and should demonstrate that he is in control of his business (Confidently replies to all queries) and has the ability to take up new and fresh challenges to take the business forward.

5. Suppliers or creditors should corroborate that he pays on time and is general in nature

6. Clear-cut indication of source of income and reasonable ability to save.

3.10.3 Guarantor Selection Criteria

Equally important is the selection of a guarantor. The same attribute applicable for an entrepreneur is applicable to a guarantor. In addition he should posses the followings:

1. The guarantor must have the ability to repay the entire loan and is economically solvent (check his net worth)

2. The guarantor should be aware about all the aspect of SEDF loan and his responsibility

3. Govt. and semi-govt. officials can be selected as a Guarantor such as schoolteacher, college teacher, doctor etc.

4. Police, BDR and Army persons, political leaders and workers, and religious leader cannot be selected as a guarantor.

5. The guarantor should know the entrepreneur reasonable well and should preferably live in the same community.

3.11 SME Loan Process Flow

When a customer comes to the unit office for a loan request, first he/she meets with the customer relationship officer to discuss about the loan, which loan product is suitable for him/her. After then the following process takes place.

Flow Chart for Processing