Repayment Behavior of SME Loan Borrowers of BRAC Bank

Main objective of this report is to analyze the repayment behavior of SME loan borrowers of BRAC Bank. Other objectives are find out basic appraisal of SME loan and to know the terms and conditions of SME loan. Here also discuss about the disbursement and recovery procedures of SME loan. Finally focus on to know how the SME loan borrowers would behave in repaying their loan and to know whether SME loan borrowers are dully paying their installments or not.

Objective of the Report:

Broad Objectives

• To analyze the repayment behavior of SME loan borrowers

Specific Objectives

• To find out basic appraisal of SME loan
• To know the enterprise selection criteria to provide SME loan
• To know the terms and conditions of SME loans
• To know the disbursement and recovery procedures of SME loans
• To make some policy implications and conclusion to further the development of SME loan products of BBL
• To know the work process and monitoring system of Asset operation Department
• To access the key performance indicator of the department
• To know how the SME loan borrowers would behave in repaying their loan.
• To know whether SME loan borrowers are dully paying their installments or not.

Background of the Organization:

BRAC Bank Limited is a scheduled commercial bank in Bangladesh. It established in Bangladesh under the Banking Companies Act, 1991 and incorporated as private limited company on 20 May 1999 under the Companies Act, 1994. The primary objective of the Bank is to provide all kinds of banking business. At the very beginning the Bank faced some legal obligation because the High Court of Bangladesh suspended activity of the Bank and it could fail to start its operations till 03 June 2001. Eventually, the judgment of the High Court was set aside and dismissed by the Appellate Division of the Supreme Court on 04 June 2001 and the Bank has started its operations from July 04, 2001. The Chairman of the Bank is Mr. Fazle Hasan Abed. Now the Managing Director of the bank is Mr. Imran Rahman. The bank has made a reasonable progress due to its visionary management people and its appropriate policy and implementation.

Corporate Vision:

BRAC Bank will be a unique organization in Bangladesh. It will be a knowledge-based organization where the BRAC Bank professionals will learn continuously from their customers and colleagues worldwide to add value. They will work as a team, stretch themselves, innovate and break barriers to serve customers and create customer loyalty through a value chain of responsive and professional service delivery.

Continuous improvement, problem solution, excellence in service, business prudence, efficiency and adding value will be the operative words of the organization. BRAC Bank will serve its customers with respect and will work very hard to instill a strong customer service culture throughout the bank. It will treat its employees with dignity and will build a company of highly qualified professionals who have integrity and believe in the Bank’s vision and who are committed to its success.  BRAC Bank will be a socially responsible institution that will not lend to businesses that have a detrimental impact on the environment and people. So Brac Bank operates following a specific vision like:

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

Corporate Mission:

• Sustained growth in ‘small & Medium Enterprise’ sector
• Continuous low cost deposit growth with controlled growth in Retained 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 fee based 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

Corporate Values:

The Bank’s Strength emanates from its owner – BRAC. This means, it will hold the following values and will be guided by them as it does its jobs.

Value the fact that we are a member of the BRAC family

• Creating an honest, open and enabling environment
• Have a strong customer focus and build relationships based on integrity, superior service and mutual benefit
• Strive for profit & sound growth
• Work as a team to serve the best interest of our owners
• Relentless in pursuit of business innovation and improvement
• Responsible, trustworthy and law-abiding in all that we do.

Goals:

BRAC Bank will be the absolute market leader in the number of loans given to small and medium sized enterprises through out Bangladesh. It will be a world-class organization in terms of service quality and establishing relationships that help its customers to develop and grow successfully. It will be the Bank of choice both for its employees and its customers, the model bank in this part of the world.

Objectives of the Bank:

The objective of BRAC Bank Limited is specific and targeted to its vision and to position itself in the mindset of the people as a bank with difference. The objective of BRAC Bank Limited is as follows:

• Building a strong customer focus and relationship based on integrity, superior service.
• To creating an honest, open and enabling environment
• To value and respect people and make decisions based on merit
• To strive for profit & sound growth
• To value the fact that they are the members of the BRAC family – committed to the creation of employment opportunities across Bangladesh.
• To work as a team to serve the best interest of our owners
• To relentless in pursuit of business innovation and improvement
• To base recognition and reward on performance
• To responsible, trustworthy and law-abiding in all that we do
• To mobilize the savings and channeling it out as loan or advance as the company approve.
• To establish, maintain, carry on, transact and undertake all kinds of investment and financial business including underwriting, managing and distributing the issue of stocks, debentures, and other securities.
• To finance the international trade both in import and export.
• To develop the standard of living of the limited income group by providing Consumer Credit.
• To finance the industry, trade and commerce in both the conventional way and by offering customer friendly credit service.
• To encourage the new entrepreneurs for investment and thus to develop the country’s industry sector and contribute to the economic development.

Bank’s Culture:

Bank has adopted trust as a corporate value which is acronym for team work, respect for all people, unquestionable integrity, excellence in everything BRAC Bank of SME do, Sense of urgency in getting things done and total commitment.

All employees are expected to conduct themselves in accordance with the rules and regulations of the bank.

Departments of BRAC Bank Limited:

If the jobs are not organized considering their interrelationship and are not allocated in a particular department it would be very difficult to control the system effectively. If the departmentalization is not fitted for the particular works there would be haphazard situation and the performance of a particular department would not be measured. BRAC Bank Limited has does this work very well. Departments are as follows:

1. Human Resources Department
2. Financial Administration Department
3. Asset Operations Department
4. Credit Division
5. SME Division
6. Internal Control & Compliance Department
7. Marketing & Product Development
8. Impaired Asset Management
9. Remittance Operation Department
10. Treasury Front
11. Treasury Back
12. General Infrastructure Service
13. Information Technology Department
14. Customer Service Delivery
15. Cards Division
16. Call Center
17. Cash Management
18. Secured Remittance department
19. Women Entrepreneur Cell
20. Payment Service

Business Units:

There are five different business units generating business BRAC Bank Limited:

• Small & Medium Enterprise (SME)
• Corporate Banking
• Retail Banking
• Treasury
• Remittance Services

All the units are being operated in a centralized manner to minimize costs and risks.

Products and Services:

Small & Medium Enterprise (SME):

For SME loan operation,

BRAC Bank Ltd has in total 900 unit offices, 80 zonal office, 12 territory and 1900 Customer Relationship Officers. These CROs work for the Bank to converge clients for getting the SME loan. Once CROs get the loan application and if it is less than 500,000 TK then zonal officer has the authority to approve the loan. But if it is above 500,000 then the CROs send it to Head Office for all necessary approval. After approving the loan then Asset Operation Department starts its work. As the scopes of businesses are growing, the amount of files and disbursement is getting bigger. In May 2007, AOD has processed 3249 files amounting Tk. 1,235,200,000. So SME Division’s success greatly relies on the performance. Up to April 2007, BBL provides loans for 70000 clients and in total 2265 core TK. But the most important thing is only 17 core TK is bad loan; this is a great achievement for SME unit of BBL. Currently they have 44147 outstanding clients and in total 1070 core TK SME loan.

SME Products-

1. Prothoma Rin.
2. Supplier Finance.
3. Anonno Rin.
4. Digoon Rin.
5. AroggoRin.
6. Pathshala Rin.
7. Opurbo Rin.

Performance of BRAC Bank Limited:

BRAC Bank Limited will be the most successful private sector commercial bank in our country, though it started its operation few years back. It has achieved the trust of the general people and made reasonable contribution to the economy of the country by helping the people investing allowing credit facility.

Capital Fund:

The authorized and paid up capital of BBL is TK.1000 million and TK.500 million respectively.  The paid up capital is one of the strongest in the banking industry. The bank is going to raise its paid up capital in the month September, 2006 by TK.500 million with issuing public share of 5, 00,000 of TK.100 each,

Internal and External source of cash

(Amount in Taka)

Activities of AOD (Asset operations department)

Formerly known as the Loan Administration Department, Asset operations department tries to mitigate all loan portfolio risks and also tries to ensure effective control and monitoring securities and documentation process. It has started its operations with retail and corporate loan portfolios of Gulshan Branch in May 2003. The loan portfolios of remaining branches were brought under its control in June 2003. Finally in July 2003, the SME division also came under its control. Today, the Asset Operations Department of this bank is playing an enormous role risk mitigation as well as smooth disbursement and monitoring of loans initiated by all its three business divisions: SME, Retail and Corporate.

As can be seen in the process illustrated above, the Asset operations department acts as the last frontier in the disbursement process. After the clients have been reviewed and recommended by the appropriate business divisions and approved by the credit committee, the files are then sent to asset operations where the disbursement is initiated after proper scrutiny of all documents and securities.

In this way, the asset operations department provides the much needed back office support to the business divisions in disbursing the loans marketed by them to actual customers. It is the last check-point to mitigate all loan related risks before disbursement of a loan and performs in line with the Credit Risk Management Guidelines of Bangladesh Bank. All its activities and responsibilities fall under two broad categories as tabulated below:

In addition to the activities mentioned above, Asset Operations Department also prepares all legal documents in cooperation with the bank’s legal consultants and for settling other legal disputes of the bank if any.

SME Asset Ops:

This segment deals with approved SME loan files for checking and disbursement. SME Asset Ops consist of three segments:

• Documentation team

This team receives approved SME loan files from SME unit offices as well as from SME head office and Credit department. Members of this team check these files to make sure that all the required documents and securities are in order. For any missing documents, the help desk team informs the respective Customer Relation officers (CRO). Files are delivered to Disbursement team after checking.

• Disbursement team

This team starts to work on the loan files if all the documents of the files are in order. They create the loan account, collect necessary charges and disburse the loan amount to the client’s account.

• Help Desk team

SME help desk deals with loan files that have some missing documents in them. All the CROs of BRAC bank all over Bangladesh makes their queries here for any type of assistance.

• Repayment Team

The repayment team collects repayment of SME loans.

SME Asset Ops is also responsible for loan account closing, rescheduling, and issuance of No Liability Certificates of all SME loans.

Retail Asset Ops:

Approved Retail loan files are received by this team for checking and disbursement. This team comprises of two segments:

• Documentation Team

This team receives approved Retail loan files from our credit department, obtains CIB report from CIB team, and Checks files to make sure that all the required docs and securities are in order. If any documentation deficiency is found, respective Direct Sales Executives (DSE) or Branches are informed through our lotus mail.

• Disbursement Team

This team receives files from the documentation team and disburses the loan after taking all necessary charges.

Retail Asset Ops is also responsible for loan account closing, rescheduling, renewal, enhancement and issuance of No Liability Certificate of Retail loans.

Corporate Asset Ops:

The Corporate wing of AOD (Asset Operations Department) is serving the back office activities for the Corporate Division of the Bank. The structure of the department is formed according to the CRM (Credit Risk Manual). This wing has the following main functions:

• Checking the required documents of the loan takers.
• Sending all the documents to the legal advisers for verification
• Receiving the CIB report
• Disbursing the loan (account entries) and taking necessary charges
• Receiving the repayment and follow up (accounting entries)
• Keeping the documents in safe custody

The facilities offered by corporate asset ops is  two categories: Funded facilities and Non Funded facilities.

Asset Monitoring and Control:

The main responsibility of this team is to review and re-check all the loan files that were disbursed by SME, Retail, and Corporate Team to minimize our risk. Other tasks involve collecting CIB reports from Bangladesh Bank, internal and external audit compliances, preparation and submission of all reports to Bangladesh Bank, safe custody of loan files and securities and vault management. AMC is a combination of four teams:

• Post Disbursement Review Team
• CIB Team
• Vault Management Team
• Insurance Management Team

Overview on SME loan

The most valuable natural resource of Bangladesh is its people. As a nation we struggled for our independence and now the attainment of economic uplift is the main goal. Micro lenders are working here in the financial field, providing very small amount and on the other hand regular commercial banks have been providing bigger amount of loans to larger industries and trading organizations. But the small and medium entrepreneurs were overlooked. This missing middle group is the small but striving entrepreneurs, who because of lack of fund cannot pursue their financial uplift, as they have no property to provide as equity to the commercial banks. With this end in view-BRAC Bank was opened to serve these small but hard working entrepreneurs with double bottom line vision. As a socially responsible bank, BRAC Bank wants to see the emancipation of grass-roots level to their economic height and also to make profit by serving the interest of missing middle groups. 50% of its total portfolio usually collected from urban areas, are channeled to support these entrepreneurs who in future will become the potential strength of our economy. Brac Bank is the market leader in giving loans to Small and Medium Entrepreneurs. They have been doing it for the last five years.

Why SME Loan?

The main focus of BRAC Bank is to develop human and economic position of a country. Its function is not limited only to providing and recovering of loan but also tries to develop the economy of a country. So reasons for this program from the viewpoint of BBL:

Support Small Enterprise:

The small enterprise, which requires 2 to 30, lacks Tk. loan, but they have no easy access to the banks/financial institutions. For example: In case of Anonno loan, an amount of 3 to 8 lacks is provided without any kind of mortgage.

Economic Development

Economic development of a country largely depends on the small and medium seal enterprises. Such as, if we analyze the development history of Japan, the development of small & medium scale enterprises expedite the development of that country.

Employment Generation

The bank gearing employment opportunities by two ways: Firstly, by providing loan to the small enterprises expanding, these businesses require more workers. Secondly, Small & Medium Enterprise (SME) program requires educated and energetic people to provide support to entrepreneurs.

Profit Marking

SME program is a new dimensional banking system in the banking world. Most of the CROs are providing door-to-door services to the entrepreneurs. Entrepreneurs are satisfied by the service of the bank and make profit.

Encourage Manufacturing

The focus of BRAC Bank is to encourage manufacturing by the entrepreneurs who produce by purchasing various types of materials. CRO try to educate them to produce material if possible because if they can produce in line of purchase profits will be high.

Spread the experience

Another reason of BRAC Bank is to spread the knowledge on the importance of SME banking regarding various businesses. The customer services officer share their knowledge from various businesses and tries to help the entrepreneurs who have shortage of the gathered knowledge. CRO’s who are the driving force of SME division of BRAC Bank also gather knowledge about various businesses and make stronger knowledge base.

Security Documentation against Loan:

A document is a written statement of facts and a proof or evidence of particular transaction between parties involved. While allowing any disbursements against credit facilities to borrowers, it should be ensured that prior to any disbursements; security documentation is fully and properly completed.

Purpose of Decorate Documentation and its Importance:

Documentation is necessary for the acknowledgement of a debt and its terms and conditions by the borrower and the creation of charge on the securities in favor of the bank by the borrower. Correct and proper documentation allows a bank to take legal measures against the default borrowers.

If filing a suit with the courts against a default borrower becomes necessary, the court will first review all documents. If any of the documents is found to be defect or incomplete, the purpose of security documentation will be defeated and a court ruling in favor the bank cannot be expected. Proper care should, therefore, be taken while completing security documentation.

Type of Securities:

The following listed securities may be obtained from borrower against loan to enterprises, either individually or in a combination.

It is really up to the bank what they would like to accept as security from the borrower as not all the securities stated below are suitable:

• Mortgage of loan and other immovable property with power of attorney to sell
• Lien of Fixed Deposits receipts with banks and other non-banking financial institutions, lined, these have to confirm by the issuer.
• Lien of Pratirakshay sanchay patra, Bangladesh sanchay patra, ICB unit certificates and wage earner development bond, all considered Quasi or Near cash items
• Lien of shares quoted in the stock exchange (This is rarely accepted)
• Pledge of goods (Banks are akin to stay away from such securities now a days)
• Hypothecation of Goods, Book Debt & Receivables, Plant & Machineries
• Charge on fixed assets of a manufacturing enterprise
• Lien of cheque, Drafts and order
• Lien of work orders, payment to be routed through the bank and confirmed by the issuer.
• Shipping documents of imported goods

Land Related Securities Documentation Process:

Each SME unit offices are lilies with at least two local lawyers who will work on behalf of the bank. These always will be employed whenever a borrower and where the security will be landed and immovable property accept a loan sanction. Any one of the lawyers will be provided with photocopies of all the relevant land related documents and while handing over show the original documents to them, the lawyers will carry out checks of the originals and if satisfied returned to the borrower. The documents generally provided are:

• Title Deeds or Deed of conveyance otherwise known as ‘Jomeer Dalil’ which signifies ownership of a particular land.
• Baya Dalil or Chain of Documents, which signifies that the conveyance of titles has been proper and legal.
• Mutation Certificate if Khatian which signifies that the title if the land has been duly registered in the Government/Sub-registrar’s records.
• Duplicate Carbon Receipt or DCR
• Latest Khajna or land rent receipt
• Purchase such as CS Khatian, SA Khatian and BS Khatian
• Mouja Map
• Municipal rent receipts if the land falls within a municipal area

The lawyer will then carry out a search at the Sub-registrar of land’s office to check if the proffered land is actually registered in the name of the proposed mortgagor and whether the said land is free from any encumbrances. The Sub-register’s office, which means that the land or immovable property can be mortgaged to the bank, then the lawyer will provide his own opinion on the acceptability of the property, whether it is legally held and explain the chain of ownership. If all is acceptable, the lawyer will draw up the Mortgage Deed that will be registered, the irrevocable power if attorney to sell the land and the Memorandum of Deposit of Title Deed. The lawyer will have the borrower or the Mortgagor, if different or 3^rd party, sign the documents in front of the Sub-registrar of land to register the mortgage, The CRO must ensure that the receipt for the original Mortgage deed must be signed off (Discharged) at the back of the receipt so that the bank may obtain the originals in the future. The borrower will bear all the charges and will pay directly at the Sub-Registrar’s office including the cost of the stamp paper required. The cost of the lawyer will also be realized from the borrower be an account payee cheque in favor of the lawyer and handed over to the lawyer straight away.

The charges related to the creation of mortgages and other associated costs are incorporated in a separated sheet and are attached herewith. The CRO will have all other security documents, as sent by SME HO, signed by the borrower and hand carry all the security documents including all the original land documents and deliver those to the credit administration officer who will check the list of documents and receive those through a check list in writing. The credit administration officer once satisfied will prepare the disbursement memo to disburse the loan.

Mortgage:

I) Equitable Mortgage or Memorandum of Deposit of Title Deeds

It is created by a simple deposit of title deeds supported by a Memorandum of Deposit of Title Deeds along with all the relevant land documents. All the searches and verification of documents as stated above must be carried out to validate the correct ownership of the property. This deed also provides the bank power to register the property in favor of the bank for further security, if needed.

ii) Registered Mortgage

It is created by an execution of a Mortgage Deed registered irrevocably in favor of the bank at the Sub-Registrar of land’s office. This virtually gives the bank the right to posses and self if accompanied with a registered irrevocable power of attorney to sell the property executed by the owner of the property, in case of default.

Basic Charge Documents:

i) Sanction Letter

Once a loan is approved, the borrower is advised by a ‘Sanction or offer letter’ which states the terms and condition s under which all credit facilities are offered and which forms an integral part of there security documentation. If the borrower accepts, then a contract between the bank and the borrower is formed and which both party are obligated to perform. Accordingly, all other charge documents and securities are drawn up and obtained. A standard sanction letter is attached herewith. All documents shall be stamped correctly and adequately before or at the time of execution. An un-stamped or insufficiently stamped document will not form basis of suit. Stamps are of 4 (Four) kinds. These are Judicial, Non-judicial, Adhesive and embossed impressed. Documents to be executed (Signed) by the borrowers concerned must be competent to do so in official capacity.

Following precautions should be taken at the time of execution of the security documents:

• The signature on the documents should be made in the presence of the CRO. The CRO should sign as witness on all charge documents.
• The document are to be filled in with permanent ink or typed
• If the document consist more than I page, the borrower should sign on each page
• If the signature of any third party is required to be obtained whose specimen signature is not available, then the main applicant should verity the specimen signature of the third party
• No document or column in any document should remain blank
• As far as possible there should be no erasure, cancellation or alternation in the document. If, however, there is any correction, overwriting or alteration, then that must be authenticated by a full signature of the signatory.

After stamping and execution of documents, the question of registration comes up. However, not all documents are required to be registered.

For the extension of any type of credit/loan facility, the following loan documents, which are considered basic, should be obtained from all borrowers:

• Demand Promissory Note
• Letter of Continuity (This is not always taken if there is only loan disbursement)
• Letter of Arrangement
• General Loan Agreement
• Letter of Disbursement
• General Loan Agreement
• Letter of Disbursement; Basically a letter requesting disbursement of the loan
• Letter of Installment, in case the facility is to be repaid in installment

Other Basic Charge Documents:

i) Demand Promissory Note (DP Note)

It is a written promise by a borrower to pay the whole amount of existing or future loans/credit facilities on demand. It also gives the banks power to ask the borrower to repay the loan amount with interest without any prior notice. Section 4 of the Negotiable Instrument Act 1881 defines a promissory note as an instrument in writing, signed by the maker, to pay a certain sum of money only to, or the order of, a certain person, or to the bearer of the instrument, following precautions are to be taken while preparing a promissory note. Type the amount of the credit facility/loan in words and in figures. Type the rate of interest for the loan, which the borrower will subject to verify the signature of the borrower.

ii) Letter of Continuity

This instrument is used in conjunction with the demand promissory note. This is to secure rights of recovery for existing and future credit facility, which are advanced in parts or on a recovery basis. Loan accounts may from time to time be reduced or even the balance in the said loan account may be in credit so this instrument, validates the said D.P Note, for making further drawings under the facility continuously possible.

iii) Letter of Arrangement

 This is a right given by the borrower to the bank to cancel the facility at any time without having to assign any reason. This is also an acknowledgement by the borrower that the credit facility has been approved in his favor and the borrower has to execute all necessary documents to avail credit facility.

iv) General Loan Agreement

A loan agreement is an agreement of contract stating the general terms for the extension of a loan or credit facilities. The General loan agreement sets out the general standard terms and conditions governing the existing or future extension of loan or erudite facilities to the borrower.

v) Letter of Disbursement

This is simple a letter requesting disbursement of the loan/credit facilities at the agreed rate of interest.

Other Security Documents:

i) Letter of Undertaking

This is a Deed of agreement executed by the borrower agreeing to commit to carry out any or a particular obligation to avail of loan/credit facility.

ii) Letter of Hypothecation of Goods & Stocks and Book Debt and Receivable:

These letters Hypothecation are actually two different sets of documents but because of their similarity, these are being explained together. These documents create an equitable or floating charge in favor of the bank over the goods and services and/ or book debts and receivables that are being financed where neither the ownership nor the possession is passed to the bank. Under this agreement, the borrower undertakes to keep the percent stock of goods and that, which may increase from time to time in good condition in future, in good condition. This hypothecation gives the bank the power to possesses and sell the mentioned goods and stocks or claims the book debts directly from the debtors in order to settle the borrower’s dues to the bank.

iii) Letter of Hypothecation of Plant & Machinery

Under this agreement, the Borrower undertakes to keep the present plant and machinery at the present location in good condition and which gives the bank the power to posses and sell the mentioned plant and machinery to meet the borrower’s dues to the bank. In case of limited company, both private and public, these Letters of Hypothecation with schedules are usually registered with the Registrar of Joint Stock of Companies (RJSC) that provides more security to the banks.

iv) Letter of Lien

A lien the right of one person to retain property in his hands belonging to another until certain legal demands against the owner of the property by the person in possession are satisfied. Thus a bank or a creditor  who has in its possession a lien over the goods in respect of the money due by the borrower, as a general rule has the right to exercise certain powers to hold on to the security. In addition, if the bank has right to set off the value of the said goods or instrument in its possession, then the bank can sell the goods or encase the instrument to liquidate the dues by the borrower.

V) Right to Set Off

This deed of agreement gives the bank the right to offset the value of the goods or financial instrument in its possession and which has been discharged by the owner of that asset, against dues owned by the borrower.

vi) Letter of Disbursement

This agreement gives the bank the right to possess goods and other assets in rented or leased premises of the borrower despite the fact that owner or the premises may be unable to realize dues from the borrower himself.

vii) Personal Guarantees

This is a guarantee of a person or third who is not the direct beneficiary of the loan/credit facility but is equally liable for the loan. The involvement of a 3^rd party creates additional pressure on the borrower to minimize the risk. The guarantor is the person who has to pay the entire outstanding loan and interest if the borrower fails to pay for any reason.

Selection of Potential Enterprise for SME:

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.

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 (Does not 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.

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. 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 Imam of mosque cannot be selected as a guarantor.
5. The guarantor should know the entrepreneur reasonable well and should preferably live in the same community

Terms and Conditions of SME Loan:

The SME department of BRAC Bank will provide small loans to potential borrower under the following terms and condition:

• The potential borrowers and enterprises have to fulfill the selection criteria
• The loan amount is between Tk. 2 lacks to 30 lacks.
• SME will impose loan processing fees for evaluation / processing a loan proposal as following;

Loan can be repaid in two ways:

1. In equal monthly loan installment with monthly interest payment, or
2. By one single payment at maturity, with interest repayable a quarter end residual on maturity

Loan may have various validates, such as, 3 months, 4 months, 6 months, 9 months, 12 months, 15 months, 18 months, 24 months, 30 months and 36 months. The borrower must open a bank account with the same bank and branch where the SME has its account Loan that approved will be disbursed to the client through that account by account payee cheque in the following manner: Borrower name, Account name, Banks name and Branch’s name The loan will be realized by 1^st every months, starting from the very next months whatever the date of disbursement, through account payee cheque in favor of BRAC Bank Limited A/C. With Bank’s named and branches name The borrower has to issue an account payable blank cheque in favor of BRAC Bank Limited before any loan disbursement along with all other security. The borrower will install a signboard in a visible place of business of manufacturing unit mentioned that financed by “BRAC Bank Limited”.

The borrower has to give necessary and adequate collateral and other securities as per bank’s requirement and procedures. SME, BRAC Bank may provide 100% of the Net Required Working Capital but not exceeding 75% of the aggregate value of the Inventory and Account Receivables. Such loan may be given for periods not exceeding 18 months. Loan could also be considered for shorter periods including one time principal repayment facility, as stated in loan product sheet.

In case of fixed asset Financing 50% of the acquisition cost of the fixed asset may be considered. While evaluating loans against fixed asset, adequate grace period may be considered depending on the cash generation after the installation of the fixed assets. Maximum period to be considered including grace period may be for 36 months.

Monitoring:

Monitoring is a system by which a bank can keep track of its clients and their operations. So monitoring is an essential task for a CRO to know the borrowers activities after the loan disbursement. This also facilitates the build up of an information base for future reference.

Importance of Monitoring:

Through monitoring a CRO can see whether the enterprise invested the sanctioned amount in the pre-specified area of his business, how well the business is running, the attitude of the entrepreneur, cash credit sales and purchase, inventory position, work in process and finished goods etc, This information will help the CRO/BRAC Bank to recover the loan accruing to the schedule and to take the necessary decisions for repeat loans. Moreover, monitoring will also help to reduce delinquency. Constant visit over the client /borrower ensures fidelity between the bank and the borrower and tends to foster a report between them.

Area of Monitoring:

The purpose is to know the entire business condition and all aspects of the borrowers so that mishap can be avoided.

Business Condition

The most important task of the CRO to monitor the business frequently, it will help him to understand whether the business is running well or not, and accordingly advice the borrower, whenever necessary. The frequency of monitoring should be at least once month if all things are in order.

Production

The CRO will monitor the production activities of the business and if there is any problem in the production process, the CRO will try to help the entrepreneur to solve the problem. On the other hand the CRO can also stop the misuse of the loan other than for the purpose for which the loan was disbursed.

Sales

Monitoring sales proceed is another important task of the CRO it will help him to forecast the monthly sales revenue, credit sales etc. which will ensure the recovery of the monthly loan repayments from the enterprise as well as to take necessary steps for future loans.

Investment

It is very important to ensure that the entire loan has been invested in the manner invented. If the money is utilized in other areas, then it may not be possible to recover the loan.

Management of raw materials

In case of a manufacturing enterprise, management of raw materials is another important area for monitoring. If more money is blocked in raw materials then necessary, then the enterprise may face a fund crisis. On the other hand the production will suffer if there is not enough raw materials.

Monitoring System:

The CRO can consider the following things for monitoring

The CRO will monitor each business at least once a month. He/she will make a monitoring plan/ schedule at beginning of the month

During monitoring the CRO must use the prescribed monitoring from and preserve in the client file and forward a copy of the report to SME head office immediately.

An SME branch will maintain the following files

The file wills contain-

• Purchase Receipt,
• Delivery Memo’s,
• Quotations
• In addition, all other papers related to furniture and fixture procurement

Other fixed assets and refurbishment

All fixed assets and refurbishment related papers such as purchase receipt, Delivery memo’s, Quotation, Guarantee and Warrantee papers, Servicing related papers and any other paper related to fixed assets are refurbishment will be in this file.

Lease agreement file

This file will contain all papers related to lease agreement between the SESDS office and owners of the leased premises.

Individual client file

Individual files are to be maintained for each borrower and will hold loan application, Loan Proposal, Copies of Loan Sanction Letter, Disbursement Memo, Monitoring Report, CIB application and Report, Credit report from other bank and all other correspondents including bank receipt.

Statement file

All types of statement sent to SME head office will be kept in this file chronologically

Office instruction file

All kind of office instruction regarding administration should be kept in this file.

Operating instruction and guideline files.

All kind office instruction and guidelines related to operating should be kept in this file

New forms introduction file

All minutes of meeting, whenever held, should be kept in this file.

Security documents and legal aspect file

One set of security documents and lawyer’s opinions and suggestions regarding issue will be kept in this file. The original should be send to SME head office on a weekly basis

Survey form file

After conducting survey, all survey will be kept in this file chronological.

SME Banking System:

• Every SME unit office will have a current account with a designate bank in the area of a unit office. This bank account will be opened and operated by SME head office.
• To meet petty expense such as stationary, entertainment and other incidental expense, all unit office will be allowed patty cash of Tk. 2000/=
• The cheque of this patty cash will be issued from SME head office in the beginning of the month. All vouchers relating to such expenses should be send to the accounts from SME head office
• All the clients must open their account with the same bank account on the same day after receiving those from the borrowers, who should given a received as prescribed.
• Cheques should be deposited to the SME unit office bank account on the same day after receiving those from the borrowers, who should given a receipt as prescribed.
• Any loan installment credit should be transferred to the SME head office account in Gulshan, Dhaka on the same day as per agreement with bank.
• Every CRO should have an individual account in the same bank branch for their personal use and to receive their salaries and other benefits.
• Payment of lease rentals, utility bills and cheque drawn on the SME unit office bank account and issued by SME head office should pay other expenses (Large amount). If these bills are small amount, they should be paid from the patty cash and replenished later.
• All the financial accounting entries will be passed at the SME head office and will maintain separately on the basis of the unit office.

Economic Mapping Survey:

After starting a SME, unit office in a new area the CRO will conduct a survey of the business. The objective of the survey is to collect relevant information about the business, which will help to select potential business for SME loans.

Mapping and Survey Method:

To conduct the economic mapping and survey properly, the following process should be followed:

• The CRO will prepare a physical map of his working area showing main roads, businesses, markets, and industrial locations. In this map, the CRO will show different kinds of business in different colors. This map will show the approximate location of all kinds of business within the area and it will be kept on the display board at the SME unit office.
• The CRO will drive his total working area into several clusters, if possible, after that he will conduct the survey cluster wise. After completing one cluster, the CRO will start surveying another cluster.
• At the beginning of the survey, the CRO will screen out business that does not need loans over 2 lacks.
• After the survey, CRO will preserve the survey form cluster wise in a separate file. Based on the survey, the CRO will identify the potential businesses to pursue those for SME loans.
• Therefore, CRO will approach the potential borrowers immediately to process loan application

For initial assistance, CRO may approach

• BRAC office
• Trade Associations and Chambers
• Local govt. office like UNO and Municipal office

Once potential borrower is formally approached, then all details should be incorporated in the client register as per the prescribed format.

Procedure of BRAC bank SME loan

Loan Sanction activities:

• Select potential enterprise: For SME loan, in this step the CRO conduct a survey and identify potential enterprise. Then they communicate with entrepreneurs and discuss the SME program.
• Loan Presentation: The function of CRO is to prepare loan presentation based on the information collected and provided by the entrepreneur about their business, land property (Where mortgage is necessary)
• Collect confidential information: Another important function of a CRO is to collect confidential information about the client from various sources. The sources of information are suppliers regarding the client’s payment, customers regarding the delivery of goods of services according to order, various banks where the client has account, which shows the banks transactions nature of the client.
• Open clients accounts in the respective bank: When the CRO decided to provide loan to the client then he/she help the client to open an bank account where BRAC bank has a STD a/c. BRAC bank will disburse the loan through this account. On the other hand the client will repay by this account. Although there is some exception occur by the special permission of the authority to repay by a different bank account.
• Fill up CIB form: CRO give a CIB (Credit Information Burue) form to the client and the client fill and sign in it. In some case if the client is illiterate then the CRO fill the form on behalf of the client. Then CRO send the filled and signed form to the SME, head office.
• Sending CIB to Bangladesh Bank: The SME, head office collects all information and sends the CIB form to Bangladesh Bank for clearance. Bangladesh Bank return this CIB form within 10-12 days with reference no.

CIB report from Bangladesh Bank: In the CIB report Bangladesh Bank use any of the following reference no:

• NIL: if the client has no loan facility in any bank or any financial institution then BB (Bangladesh Bank) use ‘NIL’ in the report
• UC (Unclassified): if the client has any loan facility in any bank or financial institution and if the installment due 0 to 5.99 then BB use UC in the report
• SS (Substandard): if the client has any loan facility in any bank or financial institution and if the installment due 6 to 11.99 then BB use SS in the report
• DF (Doubtful): if the client has any loan facility in any bank or financial institution and if the installment due 12 to 17.99 then BB use DF in the report
• BL (Bad lose): if the client has any loan facility in any bank or financial institution and if the installment due 18 or above then BB uses BL in the report. This report indicates that the client is defaulter and the bank should not provide loan the client.
• Loan decision considering CIB report: Considering CIB report, BRAC bank decide whether it will provide loan the client or not. If the bank decides to provide loan then the SME of head office keep all information and send all papers to the respective unit office to apply with all necessary charge documents.

Loan Sanction:

The respective unit office sanctions loan to the client if it is 2 to 5 lacks, and then sends the sanction letter including all necessary charge documents to the loan administration division for disbursing the loan. If the amount is higher than 5 lacks then the respective unit office sends the proposal to SME, head office for sanction. The head of SME sanctions the loan and sends the sanction letter including all documents to the loan administration division for disbursement and inform the respective unit office regarding sanction of the loan.

Disbursement of SME loan:

Pre Disbursement Manual Activities

• Prepare loan file: Receiving all documents, Loan Administration Division prepare a loan file with all documents received from the unit office.
• Charge documents checking: The loan administration division checks all charge documents. Following charge documents are checked:
• Money receipt (Risk fund).
• Sanction letter.
• Demand promising note (With stamp of Tk 20/=)
• Letter of arrangement (With stamp of Tk 150/=)
• General loan agreement (With stamp of Tk 150/=)
• Letter of undertaken (With stamp of Tk 150/=)
• Letter of stocks and goods (With stamp of Tk 150/=)
• Letter of hypothecation book debt and receivable (With stamp of Tk 150/=)
• Letter of disbursement
• Photocopy of trade license (attested by CRO)
• Insurance (Original copy)
• Blank claque with signature (one cheque for full amount and others same as no of installment on Favor of BRAC bank, no date, no amount)
• Two guarantors (one must be Spouse/parents)
• If the loan provide for purchase of fixed assets or machineries and if the loan amount is over Tk 50,000/= then the stamp of a certain amount is require)

Documents deficiency and problem resolving: If there is any error found then it informed to the respective CRO. If the application form is not filled properly then the file send to the CRO to fill the application properly. If any document error found then the loan administration division asked the CRO to send the require documents and the file stored to the loan administration division.

Prepare disbursement list: The loan administration division lists all new sanctioned clients’ details and send a request to the treasury through internal mail.

Disbursement of the amount: Sending the list to the treasury of BRAC bank for disburse the amount, the treasury disburse the amount to the client through the mother account of the clients bank. BRAC bank disburse amount through any of the following banks corporate branch nearer the BRAC bank head office and the corporate branch of the respective bank send the amount to the client account in the respective branch. These banks are:

• BRAC Bank Limited
• The City Bank Limited
• Janata Bank
• Bangladesh Krishi Bank
• Pubali Bank
• Agrani Bank

Message sent to the unit office: Completing the disbursement, loan administration division sent a SMS to the respective CRO informing the disbursement of the sectioned loan.

MBS entries for loan disbursement

Initial ID generation: After sending the list to the treasury, the loan administration division generates an initial ID against the borrower. Entering required information, the banking software MBS automatically provide a ID no for the borrower.

Loan account opening: According to the ID, the loan administration division opens a loan account in MBS against the borrower. Entering all required information, the MBS automatically give an account no. For the borrower.

Cost center assign: The loan administration division enter the following information in MBS:

• Security details set-up
• Guarantor details set-up
• Loan other details set-up

Risk fund collection: The loan administration division opens a different account risk fund of the client. This is known as loan processing fees. Receiving the risk fund, the loan administration division prints voucher and posting the voucher in the MBS. The amount of risk fund is not refundable.

Activision of the loan: Loan administration division do the following tasks to activate the loan

• Loan sanction details set-up
• Repayment schedule set-up and printing
• Loan activation
• Disbursement and CC wise voucher print
• Disbursement voucher posting

Post Disbursement Manual Activities

• Repayment schedule sent to unit office: Completing the disbursement of the sanctioned amount the loan administration division prepare a repayment schedule in MBS and send it to the unit office. CRO from the unit office collect it and reached to the respective client. The client repays the loan according to this schedule.
• Loan details MBS entry: The loan administration division enters details information regarding the loan in MBS. Each officer has an ID no in MBS and if there is any error found then the respective officer would be responsible for it. So every body remain alert at the time of MBS entry.
• Document stamp cancellation: The loan administration division cancels all document stamps. In future if any client found defaulter and the bank file sued against him then stamps of these document help to get the judgment favor of the bank. But If these stamps are not canceled then the judgment may not on favor the bank.
• Send the loan file to archive: completing all activities, loan administration division sends the loan file to the archive for future requirement. In future if any document of the loan account requires then the bank can collect the file from archive and get the necessary document. If the clients take repeat loan then it is not require applying all documents because his all documents stored to the bank.

SME Loan Recovery Procedures:

The repayment process starts immediately after one month of the loan taken. Suppose if a loan is taken in July 7, 2007 then the repayment process will be started from August 7, 2007 and the borrower will pay his/her first installment in that date. Before that date, the borrowers will be informed about the number of installments and amount of each installment. He can deposit the installment by himself or by the Customer relationship officer (CRO). Again they can deposit the installments either in any branch of Brac Bank or in any correspondence bank (where Brac Bank has no branch). If the borrower cannot pay the installment in the stipulated date, interest will be charged for each day before they pay that installment. Again interest will be reduced if the borrower pays the installment before the date of repayment. Interest will be charged and added to the principal amount for every month or every 3 three months depending on the policy for each loan disbursement.

How ever, after the borrower repays the loan installments there are number of steps done in the repayment procedure of SME loan. These steps are:

• Receive SMS/Fax for installment deposits

When the borrower repays any installment of the loan then he/she informs it to the unit office/CRO. Then the unit office/CRO sends an SMS through mobile phone or a Fax to the loan administration division informing the repayment. A loan administration division collects these SMS /Fax and takes a paper print of these SMS.

• Entry the installment information to MBS

Loan administration division entries the repayment installment information to the banking software MBS.

• Print Vouchers

Completing the entry, the loan administration division takes paper print of all vouchers in a prescribed yellow paper.

• Check SMS/Fax and solve problems (If any)

The loan administration is responsible for all entry in MBS. If there is any error found in future then the respective officer who is entering this information in MBS will be liable for it. User ID will easily identify it. So they are always aware of to ensure the correct entry. Completing the entry of information, they print a hard copy and check it with the SMS/Fax. If there is any error found then it is solved and ensures the correct information entry.

• Repayment voucher check and posting

If it confirmed that all entering information is correct and there is no error, then the responsible officer of the loan administration division posts it to MBS. If one time posted, it is not rectifiable without permission of the higher authority. So the loan administration is always aware of regarding the recovery procedures of SME loan.

Closing procedures of SME loans

• Pre-closing manual activities

Receive SMS/Fax requesting for closing: The borrowers repay the loan as per repayment schedule. When the repayment is being complete the borrower request the unit office/CRO to close his loan account. The unit office/CRO sends a SMS/Fax the loan administration division requesting to close the loan account of the respective borrower.

Print the SMS/Fax: Receiving the request from the respective unit office/CRO, the loan administration division takes a paper print and takes necessary steps to close the account.

Bring the loan file from archive: The loan account file of the respective borrower is brought from the archive. And the documents of file are checked with MBS record.

Obtained approval from the concern authority: it is require the permission of concerned authority to close the loan. If concerned authority approved the closing of the loan account then next initiatives are taken.

Checking in MBS: The loan administration division checks the loan status in MBS. If there is any difference found with the SMS/Fax from unit office and MBS then deposits sleeps are re-checked. Then the loan administration division calculates the total balance of the loan account (Ledger balance + buffer interest +Excise duty)

SMS sent to concerned CRO: Loan administration division sent an SMS to the concerned CRO informing the current balance of the requested loan account.

Receive and print closing SMS/Fax checking & freezing: The concerned CRO send a final SMS to loan administration division informing that the respective borrower cleared all his liabilities regarding the loan. The loan administration division takes paper print of the SMS, check it and finally close the loan account.

Analysis of loan repayment behavior

SME loan in fact, a small loan ranging from 2 lacks to 30 lacks given to small or medium enterprises not for initiating the business but for the purpose of working capital management or for purchasing any long term asset. Any sound organization after one year of their starting of business can apply for this loan. It almost a rare case for Brac Bank that an SME borrower will default to repay the loan he/she has taken even the loan is given without taking any collateral. There are several reasons for which the SME loan borrowers hardly default. These reasons may like:

• The loan amount is not as large as it would be difficult to repay it.
• Mediocre entrepreneurs hardly default to repay loans. They are very conscious about their reputation in the market.
• As the loan is taken for meeting up of working capital, it can be easy to repay after the sales revenue is collected from respective customers.

However, from the observation of 37 SME loan borrowers’ personal and repayment information we find the following results:

• Average age of SME borrowers is 39
• Average education of most of the SME borrowers is Class IX or X.
• Average Experience (As a promoter of the business) is 11 years (along with some extreme values.
• Average Experience(As an employee of the same business) is 8 years
• Monthly income and expenditure of the Entrepreneur is around TK. 30000 and TK. 23000 respectively.
• Average personal and family assets are around TK. 150000 and TK. 240000 respectively
• Almost all of the borrowers are 55% retailer and 45% whole seller
• Average number of employees they have is 3
• Average Amount of loan taken by them is around TK. 379729.7

• Average time period of loan they take to repay is 26 months
• Average amount of loan suppose to be paid is 275314.47

• Average amount of loan currently repaid is TK. 286847.62 per person.

• Average amount of loan due for recovery is TK. 6679.62 per person.

We have gathered 8 variables to analyze the relationship of each variable with recovery rate. These variables are:

• Age of the borrowers
• Education of the borrowers
• Experience of the borrowers related to their business.
• Amount of loan taken by the borrowers
• Term of loan
• Income of the borrowers
• Personal Asset of the borrowers
• Nature of business

Findings

Brac bank, as we know, is one of the fastest growing banks in Bangladesh. SME banking which has made the performance of this bank so enlightened is its core product to offer to the small and mediocre business entrepreneurs. In fact no businessman could think ever before that they could take loan so easily, without any collateral and without going to bank. But Brac Bank has made this improbable process so successfully through SME banking.

How ever from the analysis of SME loan repayment behavior I can make the following findings:

Age have a significant impact on the recovery of SME loan. Young entrepreneurs have a lower rate of recovery. On the other hand as middle aged and experienced entrepreneurs are very loyal with their loan repayment they can make proper and timely repayment of their loans. And that’s why most of the SME loan borrowers age rages from 30 to 40.

Education does not have any direct relationship with the recovery rate. In fact, Most of the entrepreneurs of retail and whole business (small or medium in size) are not highly educated. Most of them studied up to class 9 or 10. Sometimes there are some entrepreneurs who have only alphabetic knowledge or who can give their signature only. But still they are running their business so well for many years. In this case experience makes them successful in their business. So, education does have much impact on these small and medium enterprises and also on the recovery rate of SME loans.

Experience is the most significant variable, which has a great impact on any kind of business and recovery rate as well. Experienced entrepreneurs run their business so tactfully, identify the exact time what is there pick time of sales and when they need fund. They take the loan in the pick season when they have excess demand but short of capital. Then they ensures the best use of the loan and finally they reach to success and make the dully installments. So their recovery rate is good and that’s why Brac bank looks always for experienced entrepreneurs.

Number of installments (term of loan) and amount of loan taken do affect recovery rate slightly. But trends show that BRAC bank prefers to disburse loan of an amount of 300000 and at a term of 18 to 24 months.

Another variable affecting recovery rate very much is the income of the borrowers. The higher the existing income of the borrowers, the lower the rate of default. Higher income groups make the best use of the loan they have taken and get success. On the other hand lower income group may misuse the loan and ultimately may default in paying installments.

Personal or family asset might have some impact while sanctioning the loan as well as when recovering the loan installments. Suppose if a borrower fails to pay one of his installments, bank can find his personal assets as back up for the recovery of the installments.

Retail business and wholesale business both types of businesses get loans from Brac Bank but whole sellers have a higher recovery rate as their business transactions occur at lot size and their collection is much quick.

Finally we can say that SME loan is a loan given especially to entrepreneurs who are experienced small or medium businessmen, more or less middle aged, at least moderate income generated and who have reasonable personal or family asset. That’s why their recovery rate is so high that is 97%. And their default rate is so small compared to other loan categories. Sometimes borrowers go for early settlements of their loans.

Conclusion and policy implication

In fact, Brac bank promotes broad-based participation in the Bangladesh economy through the provision of high quality and modern banking services. SME loan is one of such quality product through which they offer the small and mediocre entrepreneurs a quality banking services and earn the maximum profit as well. The recovery rate of this loan is 97%, which is extremely good in comparison to any other bank’s recovery rate. Brac Bank has made it possible as the loan is given to experienced, small and mediocre entrepreneurs most of whom are middle aged, slightly educated and having moderate income and this class of people is very loyal. But they can serve this class of customers with more commitment and loyalty and they can turn the recovery rate to 100%. For this they can make the following policy implications:

• Redefine mission/vision towards achievement of “Double Bottom-line”
• Commit resources specifically for growth of SME business.
• Implement strict and continuous monitoring system of the whole recovery process.
• Train the Customer Relationship officers more comprehensively and realistically so that customers may not face any trouble while getting and repaying the loan.
• Analyze customers’ behavior that what type of customer makes default and stop giving them SME loan.
• Risk Management department’s audit report should be more strict and reliable so that possible defaulter may not get the loan.
• Whether the borrowers are utilizing the loan on the right purpose should be ensured.

Recommendation

Considering all the findings and analyzing all the data the following recommendations are made, which will benefit both BBL and its customers.

• As we have seen that 11pm to 5pm is the main rush hour, so necessary CSA’s should be allocated in that time. From the customers’ suggestions we also found that it is very needed to increase the proper allocation of manpower to improve the service quality.
•  The number of telephone/mobile should increase so that customers can call at daytime. Telephone/mobile busy related troubles should be decreased.
• The authority should minimize the problem solving duration and call waiting duration so that the overall customers’ satisfaction increases.
• Another very important thing from my personal observation is that one person calls for several times for the same problem, which increases the call frequency. Proper assurance and solution over phone can a better alternative to reduce extra calls and it also reduce the call waiting duration
• It was found that the DSAs (Direct Sales Agents) are mostly the source of providing miss information to the cardholders about their cards. So, necessary steps should be taken so that they avoid this practice and give proper product information.
• Only understanding the customer problem will not highly satisfy them unless individual attention and caring highly satisfy them. So proper individual attention and caring should be more to highly satisfy customer.
• The service providers should give their best keeping in mind that all kind of customers can get the service. Because most customers think that all the customers can avail this benefit.
• From the CSAs some body should make supervisors and they should give the responsibilities in different areas (currier, lost card, statement etc). It is very good news that for every evening shift there is one supervisor. But the concept of supervisor should change from shift wise to task wise.
• Proper monitoring the activities of the call center could be better solution for handling queries.
• The CSAs should provide more information to the cardholders so that their learning level become high resulting the high customers satisfaction.

Considering the age of “24 – hour customer service” we can compare it with a newborn baby. Therefore, like that baby the authority of the “24 – hour customer service” should develop strategic planning taking lessons from the past. They have to remember that the now customers have more choice and many alternatives.

At the very end of the ‘internship program’ working three months, it can be expected that these above recommendations will help to rearranging some infrastructures, which will support the large customers based service of credit card division of BRAC Bank Limite

Appendix

Questionnaire Designing

Proposition – 1:

Proposition:

Customer Satisfaction of repayment behavior on SME loan, it should be depended by different types of variables of customers Such as age, education, income, rate of interest, etc. Following some questions:

Questions for this proposition:

1. What is SME? What are the different types of SME products are provided in customers.
2. What is the Relationship of recovery rate with age of the borrowers?
3. The Relationship of recovery rate with education of the borrowers?
4. The Relationship of recovery rate with the experience of the borrowers?
5. The Relationship of recovery rate with income of the borrowers?
6. Do you think we can satisfy you more than before by 24hrs customer service?
7. If we ask you to rank the over all satisfaction regarding the quality of the service, please tell me your desired rank (before and after 24 – hour customer service).
8. Please tell us your opinion of getting services in different areas before 24-hrs customer service.
9. Please tell us your opinion of getting services in different areas after 24-hrs customer service.

Proposition – 2:

Proposition:

Consumer life style influence their buying behavior and ultimately it reflects on their perception on credit card.

Questions for this proposition:

1. In which occupation are you involved?
2. If you don’t mind, could you please tell me in which group does your age fall?
3. For how long have you been operating in this bank?
4. Which credit card are you holding?
5. When do you call here most?

Proposition – 3:

Proposition:

Proper medium of communication is the prerequisite to satisfy the customers where the customer satisfaction mostly depends on it.

Questions for this proposition:

1. Have you ever faced any trouble in inquiring over telephone?
2. Do you think the number of phone should be increased?

Proposition –

Proposition:

24 – Hours customer service is mainly benefited to the businessman.

Questions for this proposition

1. In which occupation are you involved?
2. What kind of customers do you think will be the mostly benefited by this 24hrs-customer service?

Proposition – 5:

Proposition:

Customers’ suggestions reflect their needs and help to make profit in the business.

Questions for this proposition:

We want to improve this 24 hrs customer service. How do you think it should be improved?

Questionnaire On

“Customer Satisfaction: Before and After Launching 24 – hour Card Customer Services”

Dear respondent, I am doing my internship in BRAC Bank’s AOD department. For my internship report I need the following information. I am ensuring you that I will use this information only for the purpose of writing my internship report. Please fill in this questionnaire.

1. In which occupation are you involved?

2. If you don’t mind, could you please tell me in which group does your age fall?

3. For how long have you been with this bank?

……………… Months. …………………Years

4. Which credit card are you holding?

5. What type of query do you usually do in this bank regarding credit card service?

6. After launching 24 hrs customer service queries it has become easier for the customers to get information or solving problems than the past –the statement is:

7. Do you think we can satisfy you more than before the 24-hr customer service was launched?

8. When do you call here most?

1. 7 AM – 11 AM
2. 11 AM – 3 PM
3. 3 PM – 7 PM
4. 7 PM – 11 PM
5. 11 PM – 3 AM
6. 3 AM – 7 AM

9. If I ask you to rank the over all satisfaction regarding the quality of the service, please tell me your desired rank. (Extremely dissatisfied – 01, Somewhat dissatisfied – 02, Neither satisfied nor dissatisfied – 03, Somewhat satisfied – 04, Extremely satisfied – 05)

Why did you say that?

Before:…………………………………………………………………………………………………………………………………………………………………………………………………………………….…………………………………………

After:………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….

10. Have you ever faced any trouble in inquiring over telephone?

Yes, what ………………………………………………………………………………………………………………………….……………………………………………………………………….

11. Please tell me your opinion of getting services in different areas before 24-hrs customer service? (Strongly dissatisfied – 01, Somewhat dissatisfied – 02, Neither satisfied nor dissatisfied – 03, Somewhat satisfied – 04, Strongly satisfied – 05)

12. Please tell me your opinion of getting services in different areas after 24-hrs customer service? (Strongly dissatisfied – 01, Somewhat dissatisfied – 02, Neither satisfied nor dissatisfied – 03, Somewhat satisfied – 04, Strongly satisfied – 05)

13. Do you think 24 – hour service is essential for cardholders?

14. Do you think the number of phone should be increased?

15. What kind of customers do you think will be the mostly benefited by this 24hrs-customer service?

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16. We want to improve this 24 hrs customer service. How do you think it should be improved?

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Thanks for your co-operation.