Report on Corporate Social Responsibility and Small Medium enterprise of Southeast Bank LTD [PART-1]

Three month internship program which is a part of MBA program, gave me the opportunity to gather practical knowledge on Banking. This assignment is basically about Corporate Social Responsibility (CSR) and SME financing of Bangladesh. Both of these topics are literature based which I tried to find out what these is all about in the theoretical part and match it with my employer SEBL what are they doing?

As the requirement of the MBA Program a student have to complete an internship under an organization for a period of three months. I am working Southeast Bank at New Elephant Road Branch, Dhaka as a Junior officer. In relation to this requirement I’m doing all sort of work but my concentration is on SME financing.

After the meeting with my supervisor Dr. Laila Arjuman Ara, we both decided to create a report on CSR later I requested to Madam to include SME as it is related to my job. In this report I have collected information from various sources and put my practical job experience.

In my three month of the working career I have tried my level best to prepare a report which can reflect the actual scenario CSR and SME activities of different bank’s of Bangladesh and also try to compare it with the Southeast Bank Limited. This is why my report is titled as —

The main objective of the study is to examine the Corporate Social Reporting and SME financing and also find out where SEBL stands in these two issues. To achieve the main objective, the following specific objectives have been covered in this study.

1. To identify the nature and extent of CSR practices in the companies, listed on DSE.
2. To assess the importance of Corporate Social Reporting.
3. To observe the position of social information in the Annual Report.
4. To identify the problems regarding Corporate Social Reporting practices.
5. To put forward necessary suggestions to overcome the problems.
6. To analyze the SME sector in Bangladesh.
7. To know the enterprise selection criteria to provide SME loan.
8. To know the terms and conditions of SME loans.
9. To know the disbursement and recovery procedures of SME loans.
10. To make some recommendations and conclusion to further the development of SME loan products of Southeast Bank Ltd.
11. Entry of commercial banks into SME banking industry in Bangladesh.
12. Recent performance level of the SEBL on SME loan in the country.

The study uses both primary data and secondary data. The report is divided into two parts. One part is the theoretical part and the other part is the practical part. The information for the theoretical part of the report was collected from secondary sources like books, published reports and web site of the SEBL (www. sebl.com). For general concept development about the bank short interviews and discussion session were taken as primary source. For the practical part of the report general working experience has been utilized.

Information regarding CSR is being collected from Annual Report of Southeast Bank and reports regarding CSR of Bangladesh bank. The information for the Project” Analysis of SME loan in SEBL Bank Limited” both were collected from primary and secondary sources. For gathering concept of SME loan, the Product Program Guideline (PPG) thoroughly analyzed. Beside this observation, discussion with the employee of the SME department and loan administration division they said bank was also conducted. More over a market survey was conducted with a specific questioner. To identify the implementation, supervision, monitoring and repayment practice- interview with the employee and extensive study of the existing file was and practical case observation was done.

In recent times a business case has been made for CSR around the world (Pachauri, 2004). A number of academic observers (Belal, 2002; O’Dwyer, 2002; Owen, Swift, & Hunt, 2001; Owen, Swift, Humphrey, & Bowerman, 2000), however, have expressed concern that current CSR practice has failed to achieve the fundamental objective of transparency and accountability (Medawar, 1976). The rapid pace of globalization of markets over the last few decades has added new dimensions to the concept of corporate responsibility in the context of the market economy.

There is a significant and growing interest in the legal academy in exploring new ways to regulate corporations and, in particular, an interest in a shift from regulation to governance. So, Corporate Responsibility has been gaining space in the public policy sphere day by day. It has been increasingly becoming a part of the business practice and has generally been considered as a pragmatic response to consumer and civil society pressures (Bhattacharya, D., 2003). Conventional models, such as command-and-control regulation, operate under a deterrence approach to regulation (Malloy, 2003), which is generally adversarial and punitive (Ruhnka and Boerstler, 1998). Although this traditional approach to regulation has provided many benefits to society (e.g., cleaner air, safer products, and less discrimination), it has its limits and in some cases may have the unintended consequence of actually reducing social welfare (Aalders and Wilthagen, 1997; Sunstein, 1990). For example, some argue that a strict and inflexible regulatory approach may cause some organizations to adopt an adversarial approach to regulators, instead of making good faith attempts to follow the law (Malloy, 2003).

In response to the need for the law to evolve to reflect changes in society and growing complexities, governments have experimented with new approaches to regulation that come closer to self-regulation. Although critics view self-regulation as simply advancing a policy of deregulation (Sinclair, 1997), an increasing number of legal scholars reject a choice between self-regulation and command-and-control and advocate a legal regime based on governance.

Previous studies (Belal, 2001; Imam, 2000) indicated that there is a low level of CSR in Bangladesh and this is the field of study for this research. The main objective of this report is to examine the Corporate Social Responsibility reporting practices in some selected companies listed in Dhaka Stock Exchange. The study identified the companies making disclosure of CSR, its legal status; position of CSR related issues in the Annual Reports. With respect to poor CSR reporting practices, the main problems that have been identified in this study are lack of provision for reporting in the Companies Act, 1994, lack of separate accounting standard, lack of understanding and awareness, lack of qualified and trained personnel and lack of motivation. The study has also put forward suggestions to overcome the problems. The CSR reporting practices need to be improved without any further delay in order to streamline the financial reporting of the selected companies.

In spite of related peoples willingness I could not avail the full concentration as I supposed to have. The officers are extremely busy with their assigned jobs. And even I had to perform the internship while doing the job. On the way of my study, I have faced the following problems that may be termed as the limitations/shortcoming of the study. The main limitations encountered in producing this report are:

      I am a full time employee of Southeast Bank Limited. It was difficult for me to allocate enough time to prepare the report. For an analytical purpose adequate time is required. Due to the time limit, the scope and dimension of the study has been curtailed.

      At the time of preparing my report I tried to gather every details of process but the major limitation is lack of adequate information.

      Due to lack of experience, there may have been faults in the report though maximum labors have been given to avoid any kind of slip-up.

      Load at the work place also stood as a barrier to prepare this report.

      Poor Library Facility: Most of the commercial bank has its own modern, rich and wealthy collection of huge and various types of banking related books, Journals, Magazines, Papers, Case Studies, Term Papers, Assignments etc. But the library of Southeast Bank Limited is not well ornamented.

1.6. About South East Bank Ltd

Southeast Bank Limited is a scheduled Bank under private sector established under the ambit of bank Company Act, 1991 and incorporated as a Public Limited Company under Companies Act, 1994 on March 12, 1995. The Bank started commercial banking operations effective from May 25, 1995. During this short span of time the Bank had been successful to position itself as a progressive and dynamic financial institution in the country. The Bank had been widely acclaimed by the business community, from small entrepreneur to large traders and industrial conglomerates, including the top rated corporate borrowers for forward-looking business outlook and innovative financing solutions. Thus within this very short period of time it has been able to create an image for itself and has earned significant reputation in the country’s banking sector as a Bank with vision. Presently it has thirty branches in operation.

The emergence of Southeast Bank Limited at the junction of liberation of global economic activities, after the URUGUAY ROUND has been an important event in the financial sector of Bangladesh. The experience of the prosperous economies of Asian countries and in particular  of  South  Asia, has been the driving force and the strategies behind operational policy option of the Bank. The Company Philosophy – “A Bank with Vision” has been preciously the essence of the legend of bank’s success.

Southeast Bank Limited has been awarded license by the Government of Bangladesh as a Scheduled Bank in the private sector in pursuance of the policy of liberalization of banking and financial services and facilities in Bangladesh. In view of the above, the Bank within a period of 10 years of its operation achieved a remarkable success and met up capital adequacy requirement of Bangladesh bank.

Corporate Mission and Vision of Southeast Bank Limited

Mission:

q   High quality financial services with the help of latest technology.

q   Fast and accurate customer service.

q   Balanced growth strategy.

q   High standard business ethics.

q   Steady return on shareholder’s equity.

q   Innovative banking at a competitive price.

q   Deep commitment to the society and the growth of national economy.

q   Attract and retain quality human resource.

Vision:

To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the national economy.

Core Objectives:

The bank’s overall objective is to have a higher profitability than that of the weighted average of other banks. As such the main focus of the Bank is on highly profitable business with convincing growth potential. Vision for the future is the characteristic that differentiates Southeast Bank from other competitors.

Main Operational Area:

As a commercial bank, Southeast Bank does all traditional banking business including the wide range of savings and credit scheme products, retail banking and ancillary services with the support of modern technology and professional excellence. The bank has launched a number of financial products and services since its inception. Among them different types of monthly savings schemes have achieved wide acceptance among the people.

Brief Profile of Southeast Bank Limited:

Date of Incorporation:

12^th March, 1995

02.

Date of Commencement of Business:

12^th March, 1995

03.Capital                  Authorized:

Tk. 2500.00 Million

                              Paid-up:

Tk. 677.16 Million

Reserve Funds:

Tk.622.99 Million

04.

Deposits:

Tk. 20,118.82 Million

05.

Advances:

Tk. 15,548.11 Million

06.

Operating Profits:

Tk. 665.16 Million

07.

Loan as a % of Total Deposits:

77.28%

08.

Global Relations:

350 Correspondents Worldwide

09.

Number of Employees:

2560

10.

Capital Adequacy Ratio:

9.20%

11.

Ratio of Classified Loans to Total Loans:

2.09%

12.

Return on Assets:

1.11%

13.

Name of the Chairman of SEBL:

Mr. Alamgir Kabir, FCA

14.

Number of Branches:

66

15.It is a Publicly Traded Company:

Share quoted daily in DSE & CSE

16.

Credit Card:

Member of Master & VISA Card

17.Banking Operation System:

Both conventional & Islamic Shariah System

18.Technology Used:

Member of SWIF Online Banking Computer System

 Chapter-2

Corporate social responsibility (csr) & Southeast bank ltd (Sebl)

Corporate social responsibility (CSR), also called corporate responsibility, corporate citizenship, responsible business and corporate social opportunity is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, suppliers, employees, shareholders, communities and other stakeholders, as well as the environment. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.

Corporate Social Responsibility (CSR) is a concept whereby organizations consider the interests of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations. This obligation is seen to extend beyond the statutory obligation to comply with legislation and sees organizations voluntarily taking further steps to improve the quality of life for employees and their families as well as for the local community and society at large.

The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; still others argue that it is an attempt to preempt the role of governments as a watchdog over powerful multinational corporations.

The World Business Council for Sustainable Development defines corporate responsibility as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce, their families and the local community and society at large.

More than goodwill, corporate community involvement or strategic corporate philanthropy, corporate responsibility is a genuine attempt by a company to build meaningful relationships between the corporate sector and the rest of society.

Corporate responsibility is achieved when businesses adapts all of its practices to ensure that it operates in ways that meet, or exceed, the ethical, legal, commercial and public expectations that society has of business.

To be considered effective, corporate responsibility must be an integrated part of day-to-day business, engaging all stakeholders and including strategies to support individual managers to make socially responsible decisions, conform to ethical behavior and obey the law.

In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles).

Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia, descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have re-branded their core values in the light of business ethical considerations (e.g. BP’s “beyond petroleum” environmental tilt).

The term CSR itself came in to common use in the early 1970s although it was seldom abbreviated. The term stakeholder, meaning those impacted by an organization’s activities, was used to describe corporate owners beyond shareholders from around 1989.

Taking responsibility for its impact on society means in the first instance that a company accounts for its actions. Social accounting, a concept describing the communication of social and environmental effects of a company’s economic actions to particular interest groups within society and to society at large, is thus an important element of CSR.

A number of reporting guidelines or standards have been developed to serve as frameworks for social accounting, auditing and reporting:

• Account Ability’s AA1000 standard, based on John Elkington’s triple bottom line (3BL) reporting
• Accounting for Sustainability’s Connected Reporting Framework .
• Global Reporting Initiative’s Sustainability Reporting Guidelines
• Good Corporation’s Standard developed in association with the Institute of Business Ethics
• Green Globe Certification / Standard
• Social Accountability International’s SA8000 standard
• The ISO 14000 environmental management standard
• The United Nations Global Compact promotes companies reporting in the format of a Communication on Progress (COP). A COP report describes the company’s implementation of the Compact’s ten universal principles.
• The United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) provides voluntary technical guidance on eco-efficiency indicators, corporate responsibility reporting and corporate governance disclosure.
• Verite’s Monitoring Guidelines

The FTSE Group publishes the FTSE4Good Index, an evaluation of CSR performance of companies.

In some nations legal requirements for social accounting, auditing and reporting exist (e.g. in the French bilan social), though agreement on meaningful measurements of social and environmental performance is difficult. Many companies now produce externally audited annual reports that cover Sustainable Development and CSR issues (“Triple Bottom Line Reports”), but the reports vary widely in format, style, and evaluation methodology (even within the same industry). Critics dismiss these reports as lip service, citing examples such as Enron’s yearly “Corporate Responsibility Annual Report” and tobacco corporations’ social reports.

The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting business to adopt measures beyond financial ones (e.g., Deming’s Fourteen Points, balanced scorecards). Orlitzky, Schmidt, and Rynesfound a correlation between social/environmental performance and financial performance. However, businesses may not be looking at short-run financial returns when developing their CSR strategy.

The definition of CSR used within an organization can vary from the strict “stakeholder impacts” definition used by many CSR advocates and will often include charitable efforts and volunteering. CSR may be based within the human resources, business development or public relations departments of an organization,  or may be given a separate unit reporting to the CEO or in some cases directly to the board. Some companies may implement CSR-type values without a clearly defined team or programme.

The business case for CSR within a company will likely rest on one or more of these arguments:

2.4.1. Human resources

A CSR programme can be seen as an aid to recruitment and retention, particularly within the competitive graduate student market. Potential recruits often ask about a firm’s CSR policy during an interview, and having a comprehensive policy can give an advantage. CSR can also help to improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering.

2.4.2. Risk management

Managing risk is a central part of many corporate strategies. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. These events can also draw unwanted attention from regulators, courts, governments and media. Building a genuine culture of ‘doing the right thing’ within a corporation can offset these risks.

2.4.3. Brand differentiation

In crowded marketplaces, companies strive for a unique selling proposition which can separate them from the competition in the minds of consumers. CSR can play a role in building customer loyalty based on distinctive ethical values. Several major brands, such as The Co-operative Group and The Body Shop are built on ethical values. Business service organizations can benefit too from building a reputation for integrity and best practice.

2.4.4. License to operate

Corporations are keen to avoid interference in their business through taxation or regulations. By taking substantive voluntary steps, they can persuade governments and the wider public that they are taking issues such as health and safety, diversity or the environment seriously, and so avoid intervention. This also applies to firms seeking to justify eye-catching profits and high levels of boardroom pay. Those operating away from their home country can make sure they stay welcome by being good corporate citizens with respect to labor standards and impacts on the environment.

2.4.5. Criticisms and concerns

Critics of CSR as well as proponents debate a number of concerns related to it. These include CSR’s relationship to the fundamental purpose and nature of business and questionable motives for engaging in CSR, including concerns about insincerity and hypocrisy.

Corporations exist to provide products and/or services that produce profits for their shareholders. Milton Friedman and others take this a step further, arguing that a corporation’s purpose is to maximize returns to its shareholders, and that since (in their view), only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole. Although they accept that corporations should obey the laws of the countries within which they work, they assert that corporations have no other obligation to society. Some people perceive CSR as incongruent with the very nature and purpose of business, and indeed a hindrance to free trade. Those who assert that CSR is incongruent with capitalism and are in favor of neo liberalism argue that improvements in health, longevity and/or infant mortality have been created by economic growth attributed to free enterprise.

Critics of this argument perceive neo liberalism as opposed to the well-being of society and a hindrance to human freedom. They claim that the type of capitalism practiced in many developing countries is a form of economic and cultural imperialism, noting that these countries usually have fewer labor protections, and thus their citizens are at a higher risk of exploitation by multinational corporations.

A wide variety of individuals and organizations operate in between these poles. For example, the Leadership Alliance asserts that the business of leadership (be it corporate or otherwise) is to change the world for the better. Many religious and cultural traditions hold that the economy exists to serve human beings, so all economic entities have an obligation to society (e.g., cf. Economic Justice for All). Moreover, as discussed above, many CSR proponents point out that CSR can significantly improve long-term corporate profitability because it reduces risks and inefficiencies while offering a host of potential benefits such as enhanced brand reputation and employee engagement.

Some critics believe that CSR programs are undertaken by companies such as British American Tobacco (BAT), the petroleum giant BP (well-known for its high-profile advertising campaigns on environmental aspects of its operations), and McDonald’s (see below) to distract the public from ethical questions posed by their core operations. They argue that some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation with the public or with government. They suggest that corporations which exist solely to maximize profits are unable to advance the interests of society as a whole.

Another concern is when companies claim to promote CSR and be committed to Sustainable Development whilst simultaneously engaging in harmful business practices. For example, since the 1970s, the McDonald’s Corporation’s association with Ronald McDonald House has been viewed as CSR and relationship marketing. More recently, as CSR has become main stream, the company has beefed up its CSR programs related to its labor, environmental and other practices^. All the same, in McDonald’s Restaurants v Morris & Steel, Lord Justices Pill, May and Keane ruled that it was fair comment to say that McDonald’s employees worldwide ‘do badly in terms of pay and conditions and true that ‘if one eats enough McDonald’s food, one’s diet may well become high in fat etc., with the very real risk of heart disease.

Similarly Shell has a much-publicized CSR policy and was a pioneer in triple bottom line reporting, however, this did not prevent the 2004 scandal concerning its misreporting of oil reserves—an act which seriously damaged its reputation and led to charges of hypocrisy. Since then, the Shell Foundation has become involved in many projects across the world, including a partnership with Marks and Spencer (UK) in three flower and fruit growing communities across Africa.

Critics concerned with corporate hypocrisy and insincerity generally suggest that better governmental and international regulation and enforcement, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner.

Since there is so much CSR about, you might think big companies would by now be getting rather good at it. A few are, but most are struggling.

CSR is now made up of three broad layers, one on top of the other. The most basic is traditional corporate philanthropy. Companies typically allocate about 1% of pre-tax profits to worthy causes because giving something back to the community seems “the right thing to do”. But many companies now feel that arm’s-length philanthropy—simply writing cheques to charities—is no longer enough. Shareholders want to know that their money is being put to good use, and employees want to be actively involved in good works.

Money alone is not the answer when companies come under attack for their behaviour. Hence the second layer of CSR, which is a branch of risk management. Starting in the 1980s, with environmental disasters such as the explosion at the Bhopal pesticide factory and the Exxon Valdez oil spill, industry after industry has suffered blows to its reputation. Big pharma was hit by its refusal to make antiretroviral drugs available cheaply for HIV/AIDS sufferers in developing countries. In the clothing industry, companies like Nike and Gap came under attack for use of child labour. Food companies face a backlash over growing obesity. And “Don’t be evil” as a corporate motto offers no immunity: Google was one of several American technology titans hauled before Congress to be grilled about their behaviour in China.

So, often belatedly, companies respond by trying to manage the risks. They talk to NGOs and to governments, create codes of conduct and commit themselves to more transparency in their operations. Increasingly, too, they get together with their competitors in the same industry in an effort to set common rules, spread the risk and shape opinion.

All this is largely defensive, but companies like to stress that there are also opportunities to be had for those that get ahead of the game. The emphasis on opportunity is the third and trendiest layer of CSR: the idea that it can help to create value. In December 2006 the Harvard Business Review published a paper by Michael Porter and Mark Kramer on how, if approached in a strategic way, CSR could become part of a company’s competitive advantage.

That is just the sort of thing chief executives like to hear. “Doing well by doing good” has become a fashionable mantra. Businesses have eagerly adopted the jargon of “embedding” CSR in the core of their operations, making it “part of the corporate DNA” so that it influences decisions across the company.

With a few interesting exceptions, the rhetoric falls well short of the reality. “It doesn’t go very deep yet,” says Bradley Googins, executive director of the Boston College Centre for Corporate Citizenship. His centre’s latest survey on the state of play in America is called “Time to Get Real”.

There is, to be fair, some evidence that companies’ efforts are moving in a more strategic direction. The Committee Encouraging Corporate Philanthropy, a New York-based business association, reports that the share of corporate giving with a “strategic” motivation jumped from 38% in 2004 to 48% in 2006. But too often corporate strategy is not properly joined up. In the car industry, Toyota has led the way in championing green, responsible motoring with its Prius hybrid model, but it has lobbied with others in the industry against a tough fuel-economy standard in America. Surveys point to a big gap between companies’ aspirations and their actions (see chart 2). And even corporate aspirations in the rich world lag far behind how much the public expects business to contribute to society.

According to Mr Porter, despite a surge of interest in CSR, in most cases it remains “too unfocused, too shotgun, too many supporting someone’s pet project with no real connection to the business”. Dutch Leonard, like Mr Porter at HarvardBusinessSchool, describes the value-building type of CSR as “an act of faith, almost a fantasy. There are very few examples.”

Perhaps that is not surprising. The business of trying to be good is confronting executives with difficult questions. Can you measure CSR performance? Should you be co-operating with NGOs, and with your competitors? Is there really competitive advantage to be had from a green strategy? How will the rise of companies from China, India and other emerging markets change the game?

This special report will look in detail at how companies are implementing CSR. It will conclude that, done badly, it is often just a fig leaf and can be positively harmful. Done well, though, it is not some separate activity that companies do on the side, a corner of corporate life reserved for virtue: it is just good business.

The banking sector of Bangladesh has a long history of involvement in benevolent activities like donations to different charitable organizations, to poor people and religious institutions, city beautification and patronizing art & culture, etc. Recent trends of these engagement indicates that banks are gradually organizing these involvements in more structured CSR initiative format, in line with BB Guidance in DOS circular no. 01 of 2009.

The June 2009 BB Guidance circular suggested that banks could begin reporting their CSR initiatives in a modest way as supplements to usual annual financial reports, eventually to develop into full blown comprehensive reports in GRI format. Information on CSR expenditure available from annual reports of banks, compiled together, bring up the following picture of sectorial patterns:

                                       Table-2.1: Sectorial pattern of CSR expenditure reported by banks

                                                                                                                                                                 (Taka in million)

In the year 2008, large concentration in the field of disaster relief, both in participation and expenditure wise, was observed mainly because of the cyclone ‘Sidr’. Whereas, in the year 2009 & 2010, the ‘Education’ and ‘Health’ sectors were getting more attention and appeared to be the most popular area for CSR activities as huge investments are being made by several banks in these segments. These shifts point to the responsiveness of the banking community to the changing need of the society.

Following are some notable features observed from the CSR activities carried out by the banks:

• In a natural calamity-prone area like Bangladesh, there remains an existing and distinctive CSR agenda focused on the business contribution to tackling social crises in the affected area. Disaster relief and rehabilitation became the segment where the highest number of banks participated to help ease the sufferings of the affected people. In the current context, a desired move from the traditionally popular fields of education or health.
• In the education segment, more and more banks have taken long-term or renewable scholarship programs for under-privileged but meritorious students for the persuasion of their studies instead of providing one time recognition awards to good performers.
  • Some banks choose to provide continued financial support for maintaining operating costs of health care organizations. A bank undertook a continuous program called ‘Smile Brighter Program’ to perform as many operations possible per year on cleft-lipped boys and girls to bring back smile on their face.
  • Several banks have taken steps and introduced investment schemes to cater the needs of

Self employment and poverty alleviation under which micro-finance is channeled to the

             Target groups, such as poor farmers, landless peasants, women entrepreneurs, rootless

            slum people, handicapped people, etc.

• A few banks have taken steps to introduce Interest-free Education Loan to poor and meritorious students to help bear monthly educational expenditure including food, accommodation etc. The loan is distributed to the selected students in monthly installments till their completion of studies up to the Masters Degree level.

• A good number of banks have created separate Foundation/Trusts as non-profitable, nongovernmental organization, solely devoted to the cause of charity, social welfare and other benevolent activities towards the promotion CSR objectives. These banks are providing a certain percentage of the pre-tax pro_it/net pro_it each year towards its CSR activities.

The BB guidance circular suggested embracing of CSR with decisions taken at the highest corporate level (board of directors of the bank), and to choose action programs and performance targets through a consultative processes involving the internal and external stakeholders concerned. As seen in the following table, 12 PCBs and 3 FCBs reported to have embraced CSR with decision at the highest corporate level, none of the SCBs and DFIs reported to have done anything in this regard. A total of 16 out of 30 PCBs and 1 out of 9 FCBs have formed separate Foundations or Trusts as non-profitable, non-governmental organization, solely devoted to the cause of charity, social welfare and other benevolent activities towards the promotion CSR objectives. These banks have also resolved to provide a certain percentage of the pre-tax profit/net profit each year towards its CSR activities. However, none of the banks reported to have adopted action programs and performance targets through consultative processes involving the internal and external stakeholders concerned as suggested in the guideline of June 1, 2008.

Table-2.2: Institutionalizing CSR at corporate level

2.9.1. Ingraining CSR practices within the organization & client businesses

Against the suggestion in the BB guidance circular for ingraining environmentally and socially responsible practices within the organization, only four banks (1 DFI and 3 PCBs) reported having taken steps for adoption of socially and environmentally responsible practices in their own internal operations. The DFI mentioned that they have taken actions towards providing a modern, healthy and safe workplace and creating an environment conducive to learning and development. Regarding reducing the environmental impact as a result of their operation and business activity 1 DFI and 3 PCBs reported to have taken positive actions towards it.

Table-2.3: Ingraining CSR practices in the banks and their client businesses

As shown in the above table, 1 SCB, 2 DFIs and 8 PCBs have taken steps to foster CSR in their

client businesses in various economic sectors, assessing the social and environmental impacts of the enterprises/projects seeking finance. These banks reported that they try to ensure compliance with environmental standards while financing industrial projects, and that they have formulated environment policies in accordance with guidelines issued by the Government, in terms of which the environmental impacts are considered at the time of conducting Credit and Lending Risks Analysis. Projects likely to have adverse impact on environment are strongly discouraged by them. Some banks have also introduced guidelines requiring assessment of environmental and social impacts of the projects to ensure that operations of the projects would be eco-friendly. It is understood that, banks in Bangladesh in general try to ensure that enterprises projects seeking finance comply with the environmental and social requirements that are compulsorily mandated by laws and regulations. However, most of the banks did not report this in their annual reports.

Financial Inclusion

The CSR guidelines issued by Bangladesh Bank put special emphasis on reaching out with financial services to the less well-off population segments of the community in order to speed up financial inclusion of the large socially disadvantaged rural and urban population segments; drawing them in with appropriate financial service packages and with financing programs innovatively designed to generate new employment, output and income.

It was observed that 4 SCBs, 3 DFIs, 29 PCBs and 3 FCBs have responded positively to this call and undertaken programs for speeding up financial inclusion of the large socially disadvantaged rural and urban population segments. Out of these programs-

1.  4 SCBs, 3 DFIs, 28 PCBs and 3 FCBs were engaged in self-employment credit and Small and Medium Enterprise (SME) lending programs, taken up solo or in association with locally active Micro Finance Institutions (MFIs). These programs were mainly designed to create productive new on-farm/off-farm employment. The banks also formally recognized their philanthropic obligation towards the promotion and development of small and medium industries sector.
2.  1 DFI has _inanced programs for installation of biomass processing plants and for Effluent Treatment Plants (ETPs) in manufacturing establishments.

1. In order to provide support to small landholder farmers of Bangladesh who play a crucial role in the development of the country, 4 SCBs, 3 DFIs, 25 PCBs and 3 FCBs have disbursed agricultural loans mainly through their rural branches for diversified production of crops, oilseeds, spices, vegetables, fruits etc. by rural households, financing the growers directly or through suitable intermediaries in the value chain, and have provided credit support for combinations of farming activities. Concurrently, credit lines are also extended to different NGOs to support the initiatives for agricultural development and alleviation of poverty in the rural areas.

Two banks reported taking up initiatives aimed at prompt delivery of remittances from  migrant workers to recipients in remote rural households, or programs for card based mobile phone based delivery of  financial services to such households. Among bank financed self-employment & SME projects; dairy, fishery, poultry, goat rearing & cow fattening projects and financing of NGOs for enhancing the flow of micro-credit under NGO Linkage Loan were more prominent. Among the four classes of bank, DFIs were the most important participant in the SME sector. From chart 3 below it can be seen that, during the year 2009, the DFIs had the dominant share of SME credit outstanding during 2009 and 2010. Involvement of SCBs in SME lending does not show signs of stable upward trend. The engagements of PCBs however, have been in significant upward trend. Involvement of FCBs even though small in absolute size, is also showing signs of steady increase.

Chart 4 shows the trends of outstanding agricultural credit. Here again, the DFIs have dominant role, because of statutory obligation of two DFIs (BKB, RAKUB).

The volume of credit outstanding is no firm evidence of extent of financial inclusion per se however, chart 5 plots the trend of number of small sized bank loan accounts, a plausible proxy for increase in number of agricultural and small enterprise loan accounts and hence for financial inclusion. Trend lines in the chart indicate that the positive results from the CSR and other current initiatives for broadening financial inclusion are yet to show up with prominence

Social and environmental improvement

The banks had significant community investments by way of donations to initiatives of Civil

Society Organizations (CSOs), NGOs and institutions involved in health, education and culture; for social and environmental improvement including nutrition, health and education in the disadvantaged population segments. The following table shows participation of banks in various areas of community development:

Table-2.4: Community investment for social & environmental improvement

of donations to CSOs, NGOs or others

3

2

30

8

1. Education

3

2

22

5

2. Health

1

3

25

4

3. Disaster relief

3

2

5

8

4. Sports

3

1

14

3

5. Art and Culture

2

1

6

4

6. Environment

0

0

4

1

7. Others

2

1

16

3

It was observed that, Education and Health were the more popular area of participation by the banks in community development. A total of 3 SCBs, 2 DFIs, 22 PCBs and 5 FCBs have made donations to various educational institutions for their cause. In the health sector, 1 SCB, 3 DFIs,

25 PCBs and 4 FCBs patronized a number of health care organizations by way of financial support to them. Disaster Relief also received due attention as 3 SCBs, 2 DFIs, 25 PCBs and 8 FCBs have provided donations to Relief and Rehabilitation Programs for the people affected in different natural calamities.

On the other hand, as shown in the following table, only 12 banks out of 30 PCBs and 3 banks out of 9 FCBs have conducted direct social interventions, both as sustainable/continuous projects or occasional remedial measures. These banks actually tried to enrich economic and social indicators of the society by way of reducing poverty, giving standard health care service, proper nutrition, and ensuring environment friendly society for the present and future generation. However, none of the SCBs or DFIs conducted any direct social interventions. The following areas were covered by the banks that had direct social intervention programs:

1.  Having considered education as a tool for social change, 8 PCBs and 1 FCB have chalked out programs with a view to remove the access barrier of some of many economic hardship-hit estimable students to their desired level of education by providing scholarship, fellowship, infrastructural development, etc.
2.  Since a large number of poor people in our country are deprived of the opportunity to cure their health problem, 4 PCBs and 2 FCBs have established permanent health projects to reduce their sufferings.

Table-2.5: Direct social & environmental interventions

(4 Nos.)DFIs

(5 Nos.)PCBs

(30 Nos.)FCBs

(9 Nos.)Banks conducting direct social interventions, both as occasional measures or sustainable project001231. Education0 0 812. Health0 0 423. Disaster relief0 0 514. Sports0 0 0 05. Art and Culture0 0 116. Environment0 0 117. Others0 0 01

1. Bangladesh lies in a natural calamity-prone area where floods, cyclones and other natural calamities often occur. Some Banks have always been at the service of the people    afflicted by the natural calamities. 5 PCBs and 1 FCB have taken direct steps to provide     aid and rehabilitation program they considered necessary to the group of people affected in different natural disaster. 1 PCB and 1 FCB have some projects covering Art & culture aspects. 5. 1 PCB and 1 FCB have environmental project to combat the devastating effects of environmental changes for Green House affects due to Global warming.

Reporting CSR initiatives

The following figure shows that, 3 SCBs (75%), one DFI (20%) and 29 PCBs (97%) have reported their CSR initiatives as supplements to usual annual financial reports in accordance to the directive of Bangladesh Bank.

(Chart-2.6: Availability of CSR Reports.)

In case of FCBs, only audited financial statements are prepared for the host country, and their annual reports are published from their parent country. As a result, disseminating their CSR activities as supplements to usual annual financial report do not apply. It was also observed that:

1. 1 SCB, 1 DFI and 13 PCBs have reported the CSR activities separately as a chapter in the annual report to make it available in the public domain for perusal by stakeholders.
2. 1 SCB and 11 PCBs have provided details in those supplements. They have reported the action programs along with amount of investment made in each program.
3. 2 SCBs, one DFI and 4 PCBs have included a future plan in the annual financial reports. None of the banks have issued separate reports of their CSR programs and activities in comprehensive standard formats such as the GRI. Additional information had to be asked for in compiling this review, over and above the information provided in annual reports of banks. For convenience of all involved, banks and financial institutions will be well advised to take steps for more elaborate reporting in comprehensive standard formats.

Southeast Bank is pledge bound to respond to the expectation of the society. By fulfilling their responsibilities, they try to earn the highest trust of the community in which they operate. They act responsibly with regard to their customers, shareholders, employees, business associates, the environment and the society. They contribute to the sustainable development of the society as a whole. They recognize their obligation to the society. The ways they discharge their corporate social responsibility are:

• They contributing to the national economy
• They maintain fair, transparent and sound management based on the principles of self responsibility
• They help the under priviledge section of the society in education
• They create a free and active business environment
• They maintain high compliance standard
• They stand by distressed humanity in national calamities
• They help poor and needy in people in healthcare
• They take care of their employees.
• They help their customers to grow
• They continuously enhance shareholder value and follow stable dividend policy
• They support charitable ventures and environment protection efforts
• They ensure that environment is not harmed as result of their operation
• They contribute to women empowerment and women development
• They observe environment related laws and regulations
• They have scholarship schemes for the poor but meritorious students to change their lots
• They contribute to the development of art, education, culture and sports
• They carry on energy and resources saving activities in the bank
• They foster a relationship of understanding, trust and creditability with the community, in reciprocating, the citizens acknowledge the significance of their existence.

In the financial year of 2009, the bank spent Taka 24,747,500 for CSR activities. Southeast Bank Foundation which is funded by Southeast Bank Limited also carried out CSR activities throughout the year.

2.10.1. CSR of SEBL in 2007

In recent years, there has been growing recognition and acceptance that the behavior of business houses is an important factor in influencing a wide range of social, environmental, community and ethical issues. Their customers want to be treated fairly. Our regulators want to be confident that their operate within the logical and ethical standard with fairness, transparency and honesty. Their staff members want to be paid competitively and treated with respect. Our shareholders want to be assured that we consider the risks and opportunities while taking business decision and pay good dividend every year. The social spectrum under which we operate desires that we carry on our business responsibly and positively contribute to the society and the environment. They are committed to responsible business practices and to a policy of continuous improvement in applying sound environmental and social standards in their dealings with all their stakeholders.

In 2007, they have supported charitable ventures, relief operations, environment protection, education, art, culture, sporting events and have come to the aid of poor people for treatment of serious diseases. They have established Southeast Bank Foundation to do social work for community development. The foundation has provided direct financial support to numerous charities, events and organizations.

Their banking business depends on a network of relationship with their customers, employees, shareholders, suppliers, business associates, and the community. Their corporate social responsibility is about addressing the needs of all the parties in a way that both advances the Bank’s business and makes a positive contribution to the society.

Customers

The main channel we use to discharge our responsibility to the customers is by way of offering financial products and services those truly meet their needs. We strive to maintain the highest standard of ethics in the conduct of our business and feel proud of the trust the customers repose in us. In return, they carry out their every single transaction with them with the highest degree of commitment and transparency without any hidden cost. Our customers are our partners in business and we sincerely Endeavour to improve our relationship with them for our mutual benefit.

Employees

In their business which is dynamic and growing, they depend on their skilled and experienced human resource at every level in the organization. They offer them very competitive pay package and bonus. There are also provisions for handsome retirement benefits by way of Contributory Provident Fund, Gratuity and Superannuation benefits. They provide them with a safe and congenial work environment. Resultantly, the Bank has come out as an employer of choice. Rapid growth of business of the Bank presents opportunities for talented employees to take added responsibilities. Their employees follow the code of conduct as embodied in the Service Rules and Regulations of the Bank. The employees of the Bank are aware of their Responsibilities to the society. They donated total Tk.0.423 million out of their salary for flood and cyclone hit people of the country in 2007.

Shareholders

They are fully committed to the interest of our shareholders. Their constructive suggestions are implemented for the betterment of the company. They release enough disclosures for the information of the shareholders in the Annual Reports, half-yearly financial statements, the print and electronic media and in the Bank’s website. They always try to enhance shareholders value by optimizing financial performance at least cost. They continuously pay good dividends to the shareholders. The number of shareholders of the Bank is increasing which testifies their unshakable trust in the Bank.

Business Associates

They continuously try to create a lasting relationship with our suppliers and business associates for mutual growth. Their relationship with them is based on mutual trust and respect. They deal with them in a fair and transparent way.

Environment

They ensure that their operations are environment-friendly and discourage financing projects contrary to it. They have extended our helping hands to initiatives of community leaders for environment protection and development. They are one of the leading participants in the beautification of DhakaCity. The road-island from Russel Square to Manik Miah Avenue was beautified by our Bank.

Regulators

To be a responsible corporate citizen, we comply with the relevant laws, rules and regulations of all regulatory authorities. Their business practices are transparent and are appreciated by the regulators. They operate cautiously observing the anti-money laundering practices.

Community

They work to promote good community relations to foster a relationship of understanding, trust and credibility. They have a long history of support for charitable causes. In 2007, they have spent Tk.22.56 million as donations for education, sports, art, culture, health-cares, community development, relief operations etc. The major areas of donations are given in the table below:

 To whom given Amount in million0113.05.2007Society for Assistance to Hearing Impaired ChildrenTk.1.20

 0207.08.2007Chief Advisor’s Relief Fund for flood victims through Islamic Banks’ Consultative ForumTk.1.00

 0313.08.2007Chief Advisor’s Relief Fund for country’s flood victimsTk.5.00

 0429.11.2007Bangladesh Army Relief Fund for cyclone-SIDR victimsTk.5.00

 0503.12.2007Chief Advisor’s Relief Fund for cyclone-SIDR affected peopleTk.5.00

The Bank has also established Southeast Bank Foundation to participate in social work in a more organized way. In 2007, the Foundation donated Tk. 6.33 million for the distressed humanity. It may be cited that the Foundation has donated Tk.2.5 million to the Government of Bangladesh (GOB) for relief operations amongst the hill slide victims of Chittagong. It also donated Tk.0.5 million amongst the tornado affected people of Chhagalnaiya, Feni. To encourage female professionals in the field of accountancy of the country, the Foundation has decided to award 02 (two) scholarships for 02 (two) deserving female articled students of the Institute of Chartered Accountants of Bangladesh (ICAB) on a recurring basis to pursue Chartered Accountancy Course. Each scholarship holder will be paid Tk.3,000.00 per month for 03 (three) years and Tk.10,000.00 for books and other related expenditures.

2.10.2. CSR of SEBL in 2008

Southeast bank’s banking practice is based on a network of relationship with its employees, customers, suppliers, business associates, shareholders, regulatory authorities, and the community. The bank’s corporate social responsibility is about addressing the needs of all the stakeholders in a way that advances its business and makes a positive and meaningful contribution to the society.

Employees

The bank’s business is dynamic and growing. This dynamism and growth comes from its skilled and experienced human resource that can be found at every level of the organization. The bank offers its employees very competitive pay package and bonus that are reviewed on a continuous basis in line with the market forces. It provides the employees a safe and congenial work environment. It also offers its employee’s handsome retirement benefits by way of contributory provident fund, gratuity, and superannuation fund Ltd. As consequences, southeast bank has emerged as a bank with vision. Workplace of choice of many. The bank’s rapid growth in business present opportunities or talented employees to take added responsibilities. The employees follow the ethical and other codes of conduct as embodied in the service rules and regulations of the ban.

Customers

 The need to focus on the need to customers is fundamental to banking business. Southeast bank discharges this vital responsibility by offering financial products and services that truly meets their needs. In discharging this vital responsibility, the bank always strives to maintain the highest standard of ethics in the conduct of its business. The bank feels proud that these efforts have earned it the trust of the customers. This trust in turn motivates the bank to carry out every single transaction with the customers with the highest degree of commitment and transparency without any hidden cost. The bank looks upon the customers as its partners in business and sincerely endeavors to improve its relationship with them for mutual benefit.

Shareholders

The southeast bank is fully committed to protect the interest of its shareholders. Their constructive suggestions are implemented for the betterment of the company. It releases enough disclosures for the information of the shareholders in the annual reports, half yearly financial statements, and the print and electronic media and in the bank’s website. It always endeavors to enhance shareholders value by optimizing financial performance at least cost. Since inception, the bank has paid good dividends to the shareholders. The number of shareholders of the bank is increasing that testifies their unshakeable faith in the bank.

The bank’s business associates

The bank continuously endeavors to create a long lasting win relationship with its suppliers and business associates for mutual growth. Its relationship with them is based on mutual trust and respect. It deals with them in a fair and transparent way. Southeast Bank enjoys credit lines from correspondents and foreign banks and special credit line from ADB and IFC.

Environment

The Bank continuously strives to ensure that its operations are environment friendly and discourages financing projects contrary to it. It has extended its helping hands to initiatives of community leaders for environment protections and development. It is one of the leading participants in the beautification of Dhaka city. The beautification of the road island from Russel Square to Manik Miah Avenue has been done by southeast bank.

Regulators

Southeast bank firmly believes that it is imperative to comply with relevant laws, rules and regulations of all regulatory authorities to be a responsible corporate citizen. The bank’s business practices are transparent and are appreciated by the regulators. The bank operates cautiously observing the anti money laundering practices.

Community

Southeast bank works to promote good community relations to foster a relationship of understanding, trust and creditability. It has a strong history of support for charitable causes. In 2008, southeast bank has spent taka 14.82 million as donations for education, sports, art, culture, healthcare, community development, relief operations etc. the major areas of donations are given in the table below —

Southeast Bank Foundation

The bank has also established the Southeast Bank Foundation to participate in social work in a more organized manner. In 2008, the foundation donated taka 11, 75,000.00 for the distressed humanity. Out of the amount, taka 10.00 lac was given to Mr. Md. Rahimul Islam Majumder for medical treatment of his son’s hearing and speaking disability. Taka 175,000.00 was donated to the society for the welfare of the intellectually disable- Bangladesh.

To encourage female professionals in the field of accountancy of the country, the foundation has awarded scholarships for 02 (two) deserving female article students of the Institute of Chartered Accountants of Bangladesh (ICAB) on a recurring basis to  continue annually to pursue chartered Accountancy Course. Each scholarship holder is being given taka 3.000.00 per month for three years. Besides taka 10,000.00 was paid to each of them for books and other related expenditures.

2.10.3. CSR of SEBL in 2009

Southeast Bank’s banking practice is based on a network of relationship with its employees, customers, suppliers, business associates, shareholders, regulatory authorities and the community. The bank’s corporate social responsibility is about addressing the needs of all the stakeholders in a way that advances its business and makes a positive and meaningful contribution to the society.

Employees

The Bank’s business is dynamic and growing. This dynamism and growth comes from its skilled and experienced human resources that can be found at every level of the organization. The bank offers its employees very competitive pay package and bonus that are reviewed on a continuous basis in line with the market dynamics. It provides the employees a safe and congenial work environment. It also offers its employees handsome retirement benefits by way of contributory provident fund, Gratuity, Superannuation benefits, etc. as a consequences, Southeast Bank has emerged as bank with a vision; workplace of choice of many. The Bank’s rapid growth in business presents opportunities for talented employees to take added responsibilities. The employees follow the ethical and other codes of conduct as embodied in the service Rules and Regulations of the Bank.

Customers

The need to focus on the need of customers is fundamental to banking business. Southeast bank discharges these vital responsibilities by offering financial products and services that truly meet their needs. In discharging this vital responsibility, the bank always strives to maintain the highest standard of ethics in the conduct of its business. The bank feels proud that these efforts have earned it the trust of the customers. This trust in turn motivates the bank to carry out every single transaction with the customers with the highest degree of commitment and transparency without any hidden cost. The bank looks upon the customers as its patterns in business and sincerely endeavors to improve its relationship with them for mutual benefits.

Shareholders

The Southeast bank is fully committed to protect the interest of its shareholders. Their constructive suggestions are implemented for the betterment of the company. It releases enough disclosures for the information of the shareholders in the Annual Reports, half-yearly financial statements, the print and electronic media and in the Bank’s website. It always endeavors to enhance shareholders value by optimizing financial performance at least cost. Since inception, the Bank has paid good dividends to the shareholders. The number of shareholders of the Bank is increasing that testifies their unshakable trust in the Bank.

The Bank’s Business Associates

The Bank continuously endeavors to create a long-lasting win-win relationship with its suppliers and business associates for mutual growth. Its relationship with them is based on mutual trust and respect. It deals with them in a fair and transparent way. Southeast Bank enjoys credit lines from Correspondents and Foreign Banks and special credit line from ADB and IFC.

Environment

The Bank continuously strives to ensure that its operations are environment-friendly and discourages financing projects contrary to it. It has extended its helping hands to initiatives of community leaders for environment protection and development. It is one of the leading participants in the beautification of DhakaCity. The beautification of the road island from Russell Square to Manik Miah Avenue was done by the Southeast Bank. Regulators

Southeast bank firmly believes that it is imperative to comply with the relevant laws, rules and regulations of all regulatory authorities to be a responsible corporate citizen. The Bank’s business practices are transparent and are appreciated by the regulators. The Bank operates cautiously observing the anti-money laundering practices. Community Southeast Bank works to promote good community relations to foster a relationship of understanding, trust and credibility. It has a long history of support for charitable causes. In 2009, Southeast Bank has spent Tk.24.75 million as donations for education, sports, art, culture, health-care, community development, relief operations etc.

Their credit policy has been redesigned to avoid concentration of Bank’s credit in major cities and to encourage distribution of credit in priority sectors particularly in Agriculture and SMEs.

A senseless killing of valiant army officers was committed by the misguided BDR personnel at BDR Headquarters, Peelkhana, Dhaka on February 25, 2009. It widowed and orphaned innocent people and catapulted the affected families in distress and uncertainty. Southeast Bank pioneered and propagated an idea to stand by the affected families which won it wide appreciation at different levels.

In accordance with our devised formula, the Bank, in collaboration with the Government of Bangladesh, selected the following 7 (seven) bereaved families of the Shaheed Army Officers who embraced martyrdom at the carnage at BDR Headquarters to stand by them. Each family is being given Tk.40,000.00 (Forty Thousand) only per month totaling Tk.4,80,000.00 (Four Lac Eighty Thousand) only in a year and the contribution will continue for 10 (ten) years.

First year’s contribution for Tk.33,60,000.00 (Thirty Three Lac Sixty Thousand) only was paid to the widows of the Shaheed Army Officers at the Prime Minister’s Office (PMO) on April 01, 2009. Apart from the above, Southeast Bank also donated Tk.25,00,000.00 (Twenty Five Lac) only to the Prime Minister’s Relief Fund on 15 June, 2009 for relief operations amongst Cyclone Aila and other natural calamity victims.

National Economy

Southeast Bank has directly employed 1402 people in the service of the Bank. We have also generated employments for thousands of men and women in the projects and industrial ventures established with our finance. The credit policy of the Bank has also been so designed as to promote trade, commerce and industry which will ultimately contribute to the growth of national economy. It will also help creation of employment opportunities. By mobilizing deposits for the Bank, we have contributed to the formation of capital of the country. We have collected tax on

Interest/profit earning of the depositors for the public exchequer. Our Bank has been a conduit for bringing foreign remittance from Bangladeshi expatriates living abroad and thereby contributed to the overall foreign exchange reserve of the country. We contributed handsome amounts to the national exchequer in the preceding years as corporate tax.

Southeast Bank Foundation

The Bank has also established the Southeast Bank Foundation to participate in social work in a more organized manner. To meet corporate social responsibility, Southeast Bank Foundation has designed an educational program to support meritorious students in the secondary education level of poor and low income families. To begin with, a stipend program has been initiated for meritorious students who passed SSC examination in 2009. Applications have been invited through newspaper announcement. A number of 2746 students from all the Boards applied and only 230 of them have been qualified for stipend this year. They will receive Tk.1500 per month for the academic session (2009-2011) along with a lump sum of Tk.4000 to purchase books and accessories. The Foundation has also started a stipend program for the schools near and around the Southeast Bank Branches of rural and semi urban areas. The concerned branches will act as the focal points. The selected students will receive stipends while schools will receive necessary support to impart quality education. As many as 260 students have been selected from the schools around 19 branches of the Bank. For students of class VII and VIII, the stipend is Tk.600 per month along with a lump sum of Tk.1500, while Tk.1000 per month is the amount of stipend for students of class IX and class X; the lump sum for these classes is Tk-2500 only. The branch executives will liaise with the schools and students regarding the stipend program. Minor revision in the in- built infrastructure will be made to make environment of schools more student friendly. Gradually competent teachers of English and Mathematics will be provided to respective schools to ensure quality education.

2.10.4. CSR of SEBL in 2010

Southeast Bank works to promote good community relations to foster a relationship of understanding, trust and credibility. It has a long history of support for charitable causes. We help achieve lasting changes in the lives of people who are disadvantaged or vulnerable. In 2010, Southeast Bank has spent Tk.2.37 million as donations for education, sports, art, culture, health-care, community development, relief operations etc.

SEBL’s credit policy has been redesigned to avoid concentration of Bank’s credit in major cities and to encourage distribution of credit in priority sectors particularly in Agriculture and SMEs.

a)      A senseless killings of valiant army occurs was committed by the misguided BDR personnel at BDR Headquarters, Peelkhana, Dhaka on February 25, 2009. It widowed and orphaned innocent people and catapulted the elected families in distress and uncertainty. Southeast Bank pioneered and propagated an idea to stand by the elected families which won wide appreciation at deferent levels.

b)      In accordance with our devised formula, the Bank, in collaboration with the Government of Bangladesh, selected the following 7 (seven) bereaved families of the Shaheed Army Officers who embraced martyrdom at the carnage at BDR (now BGB) Headquarters to stand by them. Each family is being given Tk.40,000.00 (Forty thousand) only per month totaling Tk.4,80,000.00 (Four Lac Eighty thousand) only in a year and the contribution will continue for 10 (ten) years.

c)      First year’s contribution for Tk.3.36 million only was paid to the widows of the Shaheed Army Officers at the Prime Minister’s Office (PMO) on April 01, 2009. _e second year’s contribution of Tk.3.36 million was paid to the widows of the Shaheed Army Officers at the PMO vide pay orders dated February 02, 2010.

d)     Apart from the above, Southeast Bank also donated Tk.2.50 million only to the Prime Minister’s Relief Fund on 16 June, 2010 for relief operations amongst victims of _re incident at Neemtali and building collapse of Begunbari of Dhaka City.

e)      Southeast Bank also donated Tk.5.00 million on 26.07.2010 towards establishment of Muktijuddha Jadughar to uphold national heritage for posterity.

f)       Boxing is a neglected sport areas, Southeast Bank came forward for improvement of boxing in the country. Bank donated total Tk.2.26 million to Bangladesh Amateur Boxing Federation for the purpose.

g)      Southeast Bank donated Tk.5.00 million on 11.01.2010 to Bangladesh Olympic Association in co-sponsoring the 11^th SA Games Dhaka-2010. Southeast Bank donated Tk.0.50 million on 05.04.2010 to Bangladesh Hand Ball Federation in sponsoring the IHF Challenge Trophy, Bangladesh – 2010.

National Economy

Southeast Bank has directly employed people in the service of the Bank. We have also generated employments for thousands of men and women in the projects and industrial ventures established with our finance. Credit policy of the Bank has also been so designed as to promote trade, commerce and industry which will ultimately contribute to the growth of national economy. It will also help creation of employment opportunities. By mobilizing deposits for the Bank, we have contributed to the formation of capital of the country. We have collected tax on interest/profit earning of the depositors for the public exchequer. Our Bank has been a conduit for bringing foreign remittance from Bangladeshi expatriates living abroad and thereby contributed to the overall foreign exchange reserve of the country. We contributed handsome amounts to the national exchequer in the preceding years as corporate tax.

Southeast Bank Foundation

The Bank has also established the Southeast Bank Foundation to participate in social work in a more organized manner. In 2009 the Bank has sufficiently manned the Foundation to carry out activities towards the promotion of high order CSR i.e. activities over and beyond simple donation.

Under the Corporate Social Responsibilities (CSR), the Foundation has identified education as the main field of responsibility and has initiated a Scholarship Project in the Secondary Level to support meritorious students of poor and low income families in the year 2009. It has begun with two layers one for school students and the other for HSC Level College students.

A huge number of Secondary Schools established in the rural areas of Bangladesh within last two decades are yet to create conducive teaching environments mainly due to poorly trained underpaid teachers. Though government has taken a number of projects to address issues like training of teachers and stipend for girl students, the overall gain regarding quality education is not noteworthy.

Schools near and around the Southeast Bank Branches of rural and semi-urban areas identified to be improved are included in the project. The important components of the project are: a) scholarship for meritorious students of low income families studying from class VII – class X, b) training of teachers, c) enhancing facilities for library, science laboratory and computer laboratory. The respective Southeast Bank Branches act as the focal points of the scholarship program. Scholarship money for class VII and VIII is Tk.600/- per month with a lump-sum amount of Tk.1,500/-. For students of class IX and X stipend money is Tk.1,000/- per month with a lump- sum amount of Tk.2,500/-. The stipend will be renewed on the basis of annual results and class performances. The Foundation has selected 245 students in 2010 in the School Level.

The Southeast Bank Foundation has organized a month long English Course titled – Training of Teachers and Learners (TOTAL) for the English teachers of selected schools in December, 2010. This Course has been primarily designed to help them take new steps and guidelines in teaching English in the Secondary Level. Besides, two English Newspapers are being subscribed to each of these schools as reading materials for both teachers and students. Other innovative programs will be gradually included for these schools based on their respective needs.

A country wide Scholarship Project for Higher Secondary students has been undertaken from 2009. For students of class XI and XII the scholarship money is Tk.1500/- per month with a lump- sum amount of Tk.4,000/-.Applications are invited through a number of daily newspapers. Students who pass SSC examination or equivalent can apply for the SEB Foundation’s scholarship. Each student should have opened a SEB Account to realize the scholarship money. So far a number of 491 students are selected for the SEB Foundation Scholarship.

In the year under review, the foundation’s CSR expenditures are following:

Chapter-3

Small medium enterprises (sme) & Southeast bank ltd (Sebl)

In almost every part of the world, limited access to finance is considered a key constraint to private sector growth. This is especially true for SMEs of our country as they are facing different types of problems for availing institutional finance though SMEs play dominantly important role in the national economy of Bangladesh by making up over 90 per cent of industrial enterprises, providing employment to 4 out of 5 industrial workers and contributing to over one-third of industrial value-added to gross domestic product (GDP). The relative SME share in manufacturing value-added is much higher and estimated to vary between 45 to 50 per cent of totaling value-added generated by the manufacturing industries sector.

Further as important sources of new business creation and developing new entrepreneurial talents, these industries provide the much needed dynamism and vitality to the national economy. Implementation of poverty alleviation action programs and strategies is a systematic and continuous effort in Bangladesh. For that purpose, the Poverty Reduction Strategy of the government has clearly identified some core principles and parameters both at macro and micro levels for reducing the existing poverty level at least half within 2015 as targeted in the Millennium Development Goals (MDGs). Rapid and sustainable growth of SMEs is undoubtedly one vehicle for accelerating national economic growth to the point of having a measurable impact in the way of reduction of poverty and unemployment, generation of more employment. More than 90% of the industrial enterprises in Bangladesh are in the SME size-class. Generally, SMEs are labor intensive with relatively low capital intensity. The SME also posses a character of privilege as cost effective and comparative cost advantages in nature. The SME policy strategies have been formulated to assist in the achievement of the goals and targets the MDGs set by the Government.  Because of the definitional problems mentioned above, information on SME is not readily available in Bangladesh. BBS conducts annual surveys of the manufacturing sector, called the Census of Manufacturing Industry (CMI), but as mentioned earlier the BBS lumps under the “Large” category information on all units with 50 or more workers and hence the information cannot be separated in most cases for the 50-99 workers size category, which is

the more commonly used cut-off size limit for medium enterprises. Moreover, there is quite a bit of backlog in the processing of the CMI data. The latest available published CMI report is for the period 1999-2000. The prime agency for the promotion of small and cottage industries in Bangladesh is the Bangladesh Small & Cottage Industries Corporation (BSCIC). BSCIC is required to maintain information and data bank on small and cottage industries in Bangladesh and accordingly the agency carries out nation-wide surveys of the sector at some time intervals. However, the latest such survey by BSCIC was conducted in the late 1980s and it was based on the definition of small and cottage industries given in the earlier industrial policies that used capital rather than employment size as the cut-off limit. Fortunately, BBS carried out a nationwide census of all non-farm economic activities in 2001 and 2003 and a preliminary report based on the census has been made available recently. The report presents data by employment size category but there is no information on the size of fixed assets.

Schools are divided when it comes to defining SME. Each school has there own way of defining SME.

EU, USA and other country wise definition

Small and medium enterprises (also SMEs, small and medium businesses, SMBs, and variations thereof) are companies whose headcount or turnover falls below certain limits. The abbreviation SME occurs commonly in the European Union and in international organizations, such as the World Bank, the United Nations and the WTO. The term small and medium businesses or SMBs is predominantly used in the USA.

EU Member States traditionally have their own definition of what constitutes an SME, for example the traditional definition in Germany had a limit of 250 employees, while, for example, in Belgium it could have been 100. But now the EU has started to standardize the concept. Its current definition categorizes companies with fewer than 10 employees as “micro”, those with fewer than 50 employees as “small”, and those with fewer than 250 as “medium”. By contrast, in the United States, when small business is defined by the number of employees, it often refers to those with fewer than 100 employees, while medium-sized business often refers to those with fewer than 500 employees.

Both the US and the EU generally use the same threshold of fewer than 10 employees for small offices (SOHO).In most economies, smaller enterprises are much greater in number. In the EU, SMEs comprise approximately 99% of all firms and employ between them about 65 million people. In many sectors, SMEs are also responsible for driving innovation and competition. Globally SMEs account for 99% of business numbers and 40% to 50% of GDP.

In India, the Micro and Small Enterprises (MSEs) sector plays a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector accounts for about 39% of the manufacturing output and around 33% of the total export of the country. Further, in recent years the MSE sector has consistently registered higher growth rate compared to the overall industrial sector. The major advantage of the sector is its employment potential at low capital cost. As per available statistics, this sector employs an estimated 31 million persons spread over 12.8 million enterprises and the labour intensity in the MSE sector is estimated to be almost 4 times higher than the large enterprises.

In South Africa the term SMME, for Small, Medium and Micro Enterprises, is used. Elsewhere in Africa, MSME is used, for Micro, Small and Medium Enterprises.

Definition for SMEs is often considered to be an obstacle for business studies and market research. Definitions in use today define thresholds in terms of employment, turnover and assets. They also incorporate a reasonable amount of flexibility around year-to-year changes in these measures so that a business qualifying as an SME in one year can have a reasonable expectation of remaining an SME in the next. The thresholds themselves, however, vary substantially between countries. As the SME thresholds dictate to some extent the provision of government support, countries in which manufacturing and labour-intensive industries are prioritized politically tend to opt for more relaxed thresholds.

Breaking down the SME definition, Industry Canada defines a small business as one that has fewer than 100 employees (if the business is a goods-producing business) or fewer than 50 employees (if the business is a service-based business). A firm that has more employees than these cut-offs but fewer than 500 employees is classified as a medium-sized business.

Definition of the Government of Bangladesh

• Small Enterprise (SE) has less than 50 employees and / or less than 15 million Taka in Fixed Capital Investment.
• Medium Enterprise has 51-99 employees and / or Fixed Capital Investments between 1.5 and 100 million Taka

Bangladesh Bank Regulations for Small Enterprises

• Private entity with less than 60 employees for the Manufacturing Sector 30 employees for the Service Sector, 20 employees for the Trade Sector.

1) Service Sector: Total Assets (excluding lands and buildings) between 50,000 and 3 million Taka

2) Trade Sector: Total Assets (excluding lands and buildings) between 50,000 and 5 million Taka

3) Manufacturing Sector: Total Assets (excluding lands and buildings)
between 50,000 and 10 million Taka

Definitions of different commercial Banks of Bangladesh are as follows –

• HSBC Turnover                     < 2.5 million USD
• Citibank NA employees         <  60
• BRAC Bank Loan size           < 3 million Taka
• AB Bank Loan size                 < 100 million Taka

Southeast Bank definition regarding SME

Small Enterprise means an entity, ideally not a public limited company, which fulfils any of the following criteria:

Medium Enterprise means an entity, ideally not a public limited company, which fulfils any of the following criteria:

Financial services for the poor have proved to be a powerful instrument for poverty reduction enabling the poor to build assets, increase incomes and reduce the vulnerability to economic stress. Today, access to credit is recognized as a ‘right’ of people globally. Over the years, there has been phenomenal growth in activities of microcredit in many countries of the world and a transition in the paradigm and modalities of microcredit. Microcredit Summit Meeting first held in Washington DC, USA in February 1997 has launched a global movement to reach 100 million of the world’s poorest families, especially the women of those families, with credit for self-employment and other financial and business services by the year 2005. The UN has declared 2005 as the “International Year of Microcredit”, now is the time to reflect on the experiences of Bangladesh, the birthplace of micro finance and the country with the biggest and most vibrant micro finance sector.

As the microcredit movement matures, clearer idea of what its strengths are and what are its limitations. To move forward, countries like Bangladesh  need to be more effective, and increase outreach, design products to include the poorest, and also provide finance for growth and employment oriented small and medium enterprises (SMEs) which are needed to spread the poverty alleviation net wider, so that significant decline in poverty takes place.

A significant number of people around the world are excluded from full participation in the financial sector. Although the unbanked has been an issue for some time, the subject is now receiving greater attention, helped by the fact that 2005 is the United Nations’ Year of Micro-credit. Banking the unbanked is about bringing banking and financial services to those people who, up to now, have not had access. Although the unbanked is usually thought of in terms of individuals, it is an important issue for small firms as well.

Small and medium sized enterprises (SMEs) may not always have the same access to banks and financial institutions as big firms. Thus access of SMEs to the range of financial services is a key issue that needs to be considered in terms of banking the unbanked.

It is generally recognized that SMEs have a significant role in employment generation, poverty reduction and overall economic growth, especially for a developing economy like Bangladesh. SMEs are typically labor intensive industries with relatively low capital intensity. As such for a country like Bangladesh which is labor abundant and capital scarce, SMEs have a natural comparative advantage. In recognition of the strategic importance of the development of SMEs in promoting industrial growth, employment generation and poverty alleviation the SME sector has been declared as a priority sector in the Government’s Industrial Policy 2005 and various measures have been initiated to help maximize the SMEs growth potential.

Availability of finance is thought to be a major constraint to formation and growth of SMEs in Bangladesh. Banks are reluctant to expand their SME credit portfolio because they do not consider SME lending an attractive and profitable undertaking. This is so because SMEs are regarded as high risk borrowers because of their low capitalization, insufficient assets and their inability to comply with collateral requirements of the banks. Administrative costs are also higher because close monitoring and supervision the SME operation becomes necessary.

Despite all these facts banks and financial institutions have been providing finance to the SME sector and the volume of finance is showing an increasing trend. Most importantly the share of private sector banks in disbursement of credit to the SME sector has been increasing in recent years comparatively at a higher rate than the NCBs and state owned DFIs.

There is an issue of interest rate charged by banks and financial institutions for SME finance. Very often it is argued that the interest rate on SME loan is too high and needs to be lowered. In this regard it may me mentioned that following the interest rate liberalization policy as a part of financial sector reforms, the responsibility to determine interest on loans and advances has been left to the lending banks and financial institutions. Under the liberalized interest rate regime central bank’s intervention to reduce interest rate for a particular sector will not be in order and involve the risk of being construed as a retrograde policy. For entrepreneurs, though the supply of and access to finance is very important, the cost of fund is also a factor for their sustainability and expansion. The banks and financial institutions should consider the fact that if the rate of interest is too high, then the profitability of entrepreneurs, especially for those of the innovative projects will be adversely affected.

Bangladesh Bank (BB) has also undertaken programmes to provide relatively cheaper funds to the banks and financial institutions which might encourage them for SME financing.SME has been identified in the PRSP (Unlocking the Potential) as one of the seven critical sectors for pro-poor economic growth and special emphasis has been give on rapid growth and development of this sector. According to the PRSP the thrust of SME development should be on ‘modern’ SMEs that have higher growth potentials compared to the traditional SMEs. The policies towards SMEs should be based on a positive developmental attitude seeking to assist them by promoting efficiency, adaptation to new circumstances and technology, rather than protecting the sector through a distorted incentive structure. In the PRSP the actions suggested for the development of SMEs in Bangladesh include (i) Adoption of an unambiguous definition of SME; (ii) Strengthening of BSCIC’s capacity to provide market information; (iii) Simplification of regulatory procedures; (iv) Setting up an appropriate credit guarantee scheme for lending without real estate based collateral; (v) Enlarging the base of conduit lending institutions; (vi) Making BSCIC’s industrial estate programme demand driven; (vii) Priority development of the road network and supply of gas and electricity; (viii) Extension of BOIs One-Stop Service to cover SMEs; (ix) Greater public private cooperation for the design and implementation of effective business support service; (x) A differentiated and hassle-free indirect tax system for SME; (xi) Calibration of trade policy reform to support SME development.

Question arises why all the banks especially commercial banks are set for special SMEs? The answer is  Bangladesh Bank has set banks and non-banking financial institutions a target to disburse around Tk 24,000 crore loans to the SME sector during the current calendar year, a senior executive of the central bank said.

“This is the first time the central bank has set a target to disburse loans to the SME sector in the country. Bangladesh Bank earlier asked the banks to set their respective targets.
official of Bangladesh Bank said the country’s 48 foreign, state-owned and private banks and 24 non-bank financial organisations will disburse the loans.  According to official of Bangladesh Bank, outstanding loans to the SME sector stood at around Tk 52,000 crore and the number of loanees at about 4.4 lakh at the end of 2009.  He said if the 2010 target is achieved it would be the highest-ever loan disbursement to the sector in a single year. Acting managing director of SME Foundation Momtaj Uddin, however, termed the figure less-than-requirement. Referring to a research finding, he told that around Tk 18,28,000 crore is needed throughout the SME sector. He said the targeted loans should be properly disbursed to the entrepreneurs on easy terms. Most of the previous loans were restricted to the urban areas, he added.  Rural people, particularly women must be given SME loans, he said, adding that increased loans should go for the production sector. Asked which sub-sector would get priority, the official said: “Undoubtedly it’s the export-oriented manufacturing sector.”

Bangladesh Bank offer 100 percent refinancing facility if loans are given to production and service sectors but maximum 50-60 percent refinancing facility will be given in case of business loans. A recent BIDS study revealed that banks and non-banking financial institutions disburse loans mostly to the business sector.  Also revealed that the financial institutions gave loans to around 3.91 lakh small and medium entrepreneurs until September, 2009.

Of them, around 3.35 lakh are trading houses, 54,000 manufacturing and remaining service-sector firms. BIDS research recommended formulation of a guideline for giving collateral-free SME loans as the number of loan defaulters in the sector is negligible. The study conducted on branches of 14 banks revealed that SME loan recovery rate ranges between 80 percent and 100 percent. Bangladesh Bank has undertaken different plans to boost SME sector by increasing flow of money.

In the developing world Small and Medium Enterprise are playing a vital role for the development. They are the major and influential player in the economic growth of different countries like china and India. But still banks are very reluctant in case of lending to those entrepreneurs due to lack of security and high risk of default. Unavailability of finance thought to be a major constraint to formation and growth of SMEs in Bangladesh. Banks are reluctant to expand their SME credit portfolio because they do not consider SME lending an attractive and profitable undertaking.

Usually SMEs are labour intensive business firms. They play a major role in employment generation. So SME can be very effective in reducing poverty and ensuring long term economic growth. So the banks should come forward t finance those SMEs to contribute more in the development of the country. But there are lots of risks involved in SME financing, which the Bank should take very seriously. It is very important to identify and assess the risks properly to make the SME financing successful.

The economic and social importance of the small and medium enterprise sector is well recognized in academic and policy literature. It is also recognized that these factors in the economy may be underserved, especially in terms of finance. This has led to significant debates on the best methods to serve this sector.

There have been numerous schemes and programmes in markedly different economic environments. However, there are a number of distinctive recurring approaches to SME finance. Collateral based lending offered by traditional banks and finance companies is usually made up of a combination of asset based finance, contribution based finance, and factoring based finance, using reliable debtors or contracts. Information based lending usually incorporates financial statement lending, credit scoring and relationship lending. Viability based financing is especially associated with venture capital.

A substantial portion of the SME sector may not have the security required for conventional collateral based bank lending, nor high enough returns to attract formal venture capitalists and other risk investors. In addition, markets may be characterized by deficient information (limiting the effectiveness of financial statement based lending and credit scoring). This has led to claims of an SME finance Gap particularly in emerging economies. There have been at least two distinctive approaches to try to overcome the so-called SME finance gap.

The first has been to broaden the collateral based approach by encouraging bank lenders to finance SMEs with insufficient collateral. This might be done through an external party providing the collateral or guarantees required. Unfortunately, to the extent that the schemes concerned run counter to basic free market principles they tend to be unsustainable. This sector is increasing called the Meso-finance sector.

However, there is no evidence of any significant structural barriers to the supply of bank or private equity finance to suitable SME applicants on mutually satisfactory terms and conditions in contemporary Britain. The main obstacles to funding here appear to be on the demand rather than the supply side of the business plans, accounting and other information; inadequate assets for use as security; and insufficient high levels of profitability, gearing, liquidity, stability and other business financial performance criteria on the part of funding applicants.

The risks of SME Financing

The risks of SME financing can be classified under top major heads they are as follows –

• Internal risks : credit risk and liquidity risk
• External risks: interest rate risk, growth risk, market demand, competition, commodity risk, government policy
• Project risks: legal risk, security risk, marketing risk, operating risk.
• Others: environmental risk, family risk, health risk.

The effective management of lending to SMEs can contribute significantly to the overall growth and profitability of banks. There has been considerable research and analysis into the methods by which banks assess and monitor business loans, manage business financing risks, and price their products and how these methods might be further developed and improved. There has been particularly intensive scrutiny of the kinds of business financial information that banks use in making lending decisions and how reliable that information actually is. Bank have traditionally relied on a combination of documentary sources of  information, interviews and visits, and the personal  knowledge and expertise of managers in assessing and monitoring business loans. However, when assessing comparatively small and straightforward business credit applications bank may largely rely on standardized credit scoring techniques (quantifying such things as the characteristics, assets, and cash flows of businesses/ owners). Using such techniques and also centralizing or regionalizing business banking operations generally can significantly reduce processing costs. Standardized computer based assessment may also be more accurate and fairer than reliance on the personal judgments of local bank managers. As a result, banks may now be able to offer more loans, faster and in larger amounts, and reduce previously high security requirements. However, business lending as whole is substantially more diverse and complex than personal and residential mortgage lending. This coupled with the large size and inherently risky nature of many business loans tends to limit the scope and desirability of computerized credit scoring in assessment and monitoring.

Higher growth of the Small and Medium Enterprises (SMEs) can help cut poverty to a satisfactory level by eliminating various prejudices against labour intensive and creating jobs for the skilled manpower in the SME sector. This was revealed in the just released Bangladesh Bank annual report for fiscal 2006-07.

The report said, the key reasons behind the SMEs are not entering into manufacturing are financial constrains, dismal state of utilities, technology and policy discriminations. On the others hand, Bank and others financial institutions generally prefer large enterprise clients because of lower transition costs, and greater availability of collateral.

The SMEs also fall outside the reach of micro finance schemes, and thus compelled to depend on formal sources of funds at much higher interest rates, the Bangladesh Bank report said.

The BB report, however, said that other interrelated problems like shortage of short and long term finance, lack of modern technology and lack of promotional support services are major obstacles in the way of development of the SMEs sector. Higher growth of the Small and Medium Enterprises (SMEs) can help cut poverty to a satisfactory level by eliminating various prejudices against labour intensive and creating jobs for the skilled manpower in the SME sector.
This was revealed in the just released Bangladesh Bank annual report for fiscal 2006-07.

The report said, the key reasons behind the SMEs are not entering into manufacturing are financial constrains, dismal state of utilities, technology and policy discriminations. On the others hand, Bank and others financial institutions generally prefer large enterprise clients because of lower transition costs, and greater availability of collateral.

The SMEs also fall outside the reach of micro finance schemes, and thus compelled to depend on formal sources of funds at much higher interest rates, the Bangladesh Bank report said. The BB report, however, said that other interrelated problems like shortage of short and long term finance, lack of modern technology and lack of promotional support services are major obstacles in the way of development of the SMEs sector.

Considering these obstacles, the report said, Bangladesh Bank has adopted a preferential lending policy to promote the SME sector in line with the government development policies. An amount of Taka 2.27 billion was refinanced through different banks and financial institutions under some schemes during the fiscal 2006-07.

In the country, the annual report said, financing small and medium enterprises (SMEs) from banking sector is a long-standing demand that has been high on the agenda of the economists and the policymakers.

In Bangladesh the SMEs account for about 45% of manufacturing value addition. They account for about 80%of industrial employment, about 90% of total industrial units and about 25% of total labour force. Their total contribution to export earnings varies from 75- 80% based on the

Economic Census 2001-2003.

The total number of SMEs is estimated at 79754 establishments, of which 93.6% are small and 6.4% are medium. The 2003 Private Sector Survey estimated about 6 million micro, small, and medium enterprises defined as enterprises, with fewer than 100 employees who contributed around 20-25% of GDP.

The report observed that the SMEs demand for bank loan, especially, medium and long term financing is relatively high.

The Banks are reluctant to extend loans, especially, term loans to SMEs and the reasons for banks’ reluctance to extend loans to SMEs are perception that the current legal system is unable to protect their interests, funding costs are relatively high, shortage of access to long-term capital, inability to conduct proper due diligence and the current unavailability of information.

Among the many compelling reasons why SMEs fail to realize their full potential, inadequate access to finance is prominent and most commonly cited. With limited capital base of their own and little or no access to institutional financing they rely on inefficient financing service traditionally from informal sources, which eventually proves unsustainable let alone stimulate growth.

There were also attempts to channelize to the sector through public and private banks fund received from international agencies. There were provisions of favorable debt equity ratio, special interest rates and credit guarantee scheme. The central bank also issued directives to both public and private commercial banks regarding working capital loans, use of standardized documentation procedure and time limits for credit sanctioning and loan disbursement. Notwithstanding all these arrangements for financing small and medium enterprises, the actual delivery of institutional credit to this sector has been grossly inadequate. One of the main factors that have hampered flow of institutional finance into small and medium enterprises is a bank preoccupation with collateral based lending. Traditionally banks have used fixed asset ownership particularly land ownership as the basis for judging credit-worthiness. This puts small and medium enterprises at relative disadvantage as they often cannot put up such collateral for loan. Moreover, whatever collateral they can manage gets used up in taking the term loan leaving them with no means to seek working capital loan from institutional sources. Unlike their large-scale counterparts they cannot use influence and contacts and solve the problem by putting up collateral of dubious valuation. Banks, on their part, also tend to be less flexible about the collateral requirement in the case of the SMEs as they perceive SME loan to be more risky and the cost of monitoring and supervision of small loans to be higher.

Various alternatives to real estate based lending have been suggested for the SMEs. Group guarantee and peer pressure, successfully used in the case of micro-finance, do not appear appropriate for SMEs as these are mostly sole proprietorship units with capital size significantly larger than the amount typically disbursed under micro-finance. Use of assets other than land and building, such as fixture, equipment, vehicles etc as collateral is also a fairly standard practice in institutional finance but is of less use in the case of SMEs as these enterprises usually possess few such non-land assets. Sales proceeds, accounts receivable, inventory etc can be the basis of working capital loan, but this requires proper documentation of the transactions of the SMEs and close monitoring and supervision on the part of the lending institutions. Because of the informal nature of many SME transactions and high cost of small loan administration, use of such movable asset for working capital lending will involve certain difficulties.

SMEs as these enterprises usually possess few such non-land assets, Sales proceeds, accounts receivable, inventory etc can be the basis of working capital loan, but this requires proper documentation of the transactions of the SMEs and close monitoring and supervision on the part of the lending institutions. Because of the informal nature of many SME transactions and high cost of small loan administration, use of such movable asset for working capital lending will involve certain difficulties. Financial institutions could significantly reduce the risk when they are lending to SMEs without real estate based collateral if they (a) pre-screen SMEs on the basis of cash flow statements and information from business service providers and receivers to assess track records of firms and their ability to repay in future, and (b) implement close monitoring and supervision in the post-disbursement stage. In such cases, appropriate credit guarantee schemes will need to be devised for covering the lending institutions both for the risk involved as well as for the additional cost of loan administration.

In 2003-04, Bangladesh Bank set up a Tk. 10.0 billion refinancing scheme for credit to SMEs. Bangladesh Bank charges participating institutions 5% interest rate while the lending institutions decide on the lending rate of interest. This provides these institutions with the scope of attempting lending to SMEs without real estate based collateral as their risks will be covered through refinancing facility and they can accommodate any additional cost of loan administration through an appropriate spread between the borrowing and the lending rate. Because of the initial success of the program, government raised the amount to Tk.25 billion in the national budget 2004-05. Beside this, International Development Agency (IDA)  has provided US$ 10 million to Enterprise Growth and Bank Modernization Project (EGBMP) during FY 2004-5. Moreover, ADB has finalized an agreement with Bangladesh Bank to provide additional US$ 30 Million to this sector. These huge resources would strengthen the financial programme of EGBMP. This would result in employment generation in one hand and enhancement of purchasing power of the poor on the other hand. Under this programme, the financing capabilities of various financial institutions and banks have been enhanced and up to April, 2005 Bangladesh Bank has disbursed Tk.1237.34 million for refinancing. Out of this, the contribution of World Bank was Tk.237.26 million while that of Bangladesh Bank was Tk. 999.98 million. Detailed refinancing activities of Bangladesh Bank (BB) to various financial institutions and banks are shown at table-5 below:

Table – 3.1: Refinancing activities of BB and other Bank and financial Institutes

Name of the financial institution

Working capital

Mid

term

Long term

Total

No. of beneficiary enterprise

IDA portion

National Credit & Commerce Bank Ltd.15.6477.50 93.14228

Jamuna Bank Ltd.4.00  41 National Bank Ltd4  41 One Bank Ltd5.824.49 20.2969 The Premier Bank Ltd.57.93116.556.6381.1084 BRAC Bank Ltd38.05502.01 5403551219.75South East Bank Ltd27.901.5029.432  Uttara Finance & Investment Ltd7.7645.1055.54108.459 Prime Finance & Investment Ltd1414.005.5933.8517 Midas Financing Ltd0.5106.2639.59148.3245 Fidelity Assets & Securities Co.Ltd* 0.80 0.8010.6

IDLC of Bangladesh 17.8513.4831.332016.91Phoenix Leasing Co.Ltd1.215.0137.0754.1824 United Leasing Co.Ltd 29.8749.7879.6558 Lanka bangle  Ltd0.30.500.82  Total

173.081856.13208.041237.242192237.26

(Source: Bangladesh Bank)

It would be seen from the above Table that up to April 2005 Bangladesh Bank distributed Tk.1237.24 million as refinancing to 7 banks and 8 other financial institutions. It may be mentioned that the same amount of money was distributed by the above banks and financial institutions to 2192 SMEs earlier as loan. Out of the total loan Tk.173.08 million has been provided as working capital, T k. 856.13 million as mid-term loan and Tk. 208.04 million as long-term loan. About 18 banks and financial institutions have so far signed agreements with the central bank to get access to the refinancing facility. Banks and other financial Institutions have so far financed about 3094 SMEs. The Asian Development Bank (ADB) has ploughed into some $ 50 million to the government under its Small and Medium Enterprise Sector Development programme of the total $ 15 million is provided for SME sector policy and institutional restructuring and $ 5 million as technical assistance for capacity building and training. The rest $ 30 million went to the central bank’s enterprise fund. Historically, the commercial banks have been used as the exclusive conduits of funds for the SMEs. There is a strong case for exploring other possible conduits such as non-governmental organization (NGOs) who have success stories not only with micro finance but also with regard to credit to SMEs albeit in a limited way. As they are more developmental in character than commercial banks which are primarily profit oriented, this may help try out lending to SMEs without real estate based collateral and without having to reduce vigilance in pre and post lending stages.

The lack of access of SMEs to institutional finance is observed to be even higher when it comes to women owned or women managed enterprises. There is a general trend towards rise in women entrepreneurship in Bangladesh, but women trade bodies claim that social acceptability of this trend is not reflected in the attitude of the lending agencies, which discourages them from seeking institutional finance. The other major problem SME entrepreneurs face in seeking institutional finance is with regard to the preparation of the project proposal. In spite of directives from the central bank to follow standardized procedure, the loan application process has still remained lengthy and cumbersome. The entrepreneur often lacks the ability to formulate a proper project proposal. Even when he prepares the proposal drawing on outside expert services, there is no guarantee that the proposal will be evaluated properly as the financial institutions themselves lack adequate capability for proper project evaluation.

Loan processing, particularly in the case of public sector banks, involves high transaction costs for borrowers in terms of time and visits needed and unofficial payments made. Because of lack of proper autonomy and accountability, the public sector financial institutions are beset with inflexibility, inefficiency, political interventions and corruption. Since the performance of the bank officials is not properly evaluated they lack the incentive to bring larger number of suitable borrowers, particularly those in the small and medium enterprise sector, within the fold of institutional financing. They adopt a passive and inflexible attitude towards the borrowers either to avoid the risk of making an inappropriate lending or to force the borrower to make side payments for more favorable handling of the loan application. These problems are unlikely to go away without major institutional reforms of the public sector banks. Another major weakness of business financing in Bangladesh is lack of its modernization for purposes of e-commerce. In the context of an evolving globalize trading system the importance of e-commerce can hardly be overemphasized. But due to the absence of congenial telecommunication facilities and appropriate financial systems, business enterprises particularly SMEs have not taken any initiative towards e-commerce.

Bangladesh faces formidable developmental challenges. With a population density of 928 per square kilometer, it is the most densely populated country leaving aside a number of city-states. Per capita GDP of US$ 440 barely distances Bangladesh from a small number of countries at the very foot of the income scale. About 42 per cent of the population lives on the wrong side of the poverty line. Agriculture accounts for nearly a quarter of the GDP employing more than half of the labor force. About 77 per cent of the population still resides in the rural areas. Although population growth rate has come down to 1.47 per cent, annual growth of labor force is estimated to be 4.3 per cent. With the absorptive capacity of the agricultural sector limited to at most one third of the new entrants to the labor force, the country is faced with the pressing need of creating employment opportunities outside agriculture. The role of SME assumes special importance in this context.

To overcome the hurdles of financing and to make time-based progress ‘Local Enterprise

Investment Centre’ (LEIC) has been launched to facilitate improved access for the Small and

Medium Entrepreneurs (SMEs) to capital, innovation, new technologies and business practices

by way of establishing partnership with foreign or large local enterprises. Canadian International Development Agency (CIDA) and IDLC Bangladesh Limited jointly set up the LEIC to help develop a more vibrant private sector, which will serve as an engine for innovation, structural change and economic growth. The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has signed an Agreement to issue a local currency guarantee of up to $5 million with United Leasing Company Limited (ULC) in Bangladesh. Credit enhancement from the proposed guarantee will assist ULC to borrow the equivalent amount of local currency from Citibank Bangladesh and use the longer tenured funding to further expand its portfolio of leases to the SME sector in Bangladesh. The proposed guarantee will facilitate the mobilization of longer-term local currency financing from the more liquid foreign banks to leasing companies that serve the SME sector.

3.9.1        OBJECTIVES

The objectives of Small and medium enterprises financing credit policy of SEBL are described below:

1. To establish a sound combination of policy guidelines, lending guidelines, procedural guidelines and other standards & factors for financing the Small Enterprises.

1. To flow credit for creation of employment and generation of income on a sustainable basis through development of Small Enterprises and thus to enable the small entrepreneurs to ‘access to finance’.

1. To accelerate forward linkage, backward linkage, value addition activities and productivity improvement in order to establish and expand small scale manufacturing sector.

1. To promote women entrepreneurs of the country.

1. To participate in the socio-economic development of the country.

3.9.2.  DEFINITION

Small Enterprise means an entity, ideally not a public limited company, which fulfills any of the following criteria:

3.9.3        TARGET GROUP

The target groups for SME financing of SEBL are Entrepreneurs who are running small business units and willing to expand the business, Entrepreneurs who are willing to set up small scale manufacturing units/ service oriented units, Entrepreneurs who are involved in agro-based & agro-processing activities in small scale, Small scale contractors who execute work orders, supply orders and are required to be financed for execution of contracts; Women Entrepreneurs shall be given preferences.

Enterprises/ business units will be broadly categorized as 1.Service, 2.Trade, and 3. Manufacturing. The priority sectors will be as follows: Light Engineering & metal working, Electronics & electrical, Agro-based and agro-processing, Leather and leather products, Software development, Plastic & other synthetics, Healthcare & diagnostics Educational services, Pharmaceutical, cosmetics & toiletries, Herbal medicine, Handicrafts, Furniture.

3.9.4. SELECTION CRITERIA

The selection criteria’s for SME credit are described below:

• The legal form of business of the borrower is Sole Proprietorship/ Partnership/ Private Limited Company.
• The business is legally valid and the business firm has got all required licenses, permissions, registration certificates which are up-to-date at the time of application of credit facility.
• The business firm is registered in Bangladesh with majority shares owned by Bangladeshi nationals.
• The borrower’s principal place of business is in Bangladesh.
• The business is profitable and has a defined market with clear growth potentials.
• The entrepreneur is skilled, experienced and so far successful for managing the business for at least 02 (two) years.
• In case of new entrepreneur, he/ she is experienced in working in similar line of business and has technical-know-how about the business which he/ she wants to establish.
• The age of the proprietor/ partners/ key person of the business firm is within 20 years to 55 years.
• A clear succession plan is present.
• The entrepreneur is socially acceptable and his/ her reputation, integrity, trustworthiness, commitment are satisfactory.

3.9.5.   FORMS OF LENDING

The SE borrowers shall mainly be accommodated by the Product Program Guidelines (PPG) based products. In case of non-availability of appropriate PPG based product, the SE borrowers can be financed through Bank’s usual lending products. The SE borrowers who will intend to avail credit facilities through Islamic Banking System shall be accommodated by the existing investment products of Islamic Banking of the Bank.

The SE borrowers shall be accommodated in such a way that the purpose of credit facility matches with the type of lending product/ investment product. Following is the chart of purpose of credit facility which is not exhaustive; the Relationship Managers/ Officers shall assess the nature of financial requirements of the borrower and offer complete solution to meet borrower’s need.

3.9.6.  LENDING GUIDELINES

The minimum and maximum exposure of a bank on a single Small Enterprise shall remain within the range of Tk.2.00 lac and Tk.50.00 lac respectively subject to the following:

• In case of working capital finance: Maximum up to 100% of the net required working capital or 75% of the sum total of inventory and receivables whichever is lower.

• In case of fixed assets purchase: Maximum up to 90% of the purchase price.

3.9.6.1  Loan Tenor

In case of Continuous / Demand Loan: Maximum 01 (one) year. Again, In case of Term Loan: Maximum 05 (five) years.

3.9.6.2  Mode of repayment

In case of continuous loan, credit turnover in the account must be equal to the limit in a quarter and full adjustment within validity period. In case of Term Loan, the loan should be repaid by monthly/ quarterly installments through post-dated cheques.

3.9.6.3  Security

• Hypothecation on the inventory, receivables, advance payments, plant & machinery.

• Registered mortgage over immovable properties with registered Power of Attorney.

• Lien on deposits/ saving certificates/ ICB unit certificates/ financial obligations etc.

• Personal guarantee of the borrower. In case of limited companies, guarantee of all directors other than nominee directors shall be obtained.

• Personal guarantee of spouse (if married) or parents (if unmarried) of the borrower.

• Personal guarantees of two shop owners of the respective market/ two businessmen/ any other person acceptable to the bank.

• Postdated cheques for all installments and one undated cheque for full loan value including full interest.
• Any other securities to be deemed suitable by the Bank depending on banker-customer relationship.

3.9.6.4  Loan Renewal

Renewal of Loan or Successive Loan depends on track record of previous loan. Usually, repayment behavior and expansion of business of the borrower are the main considerations for renewal and enhancement of the loan amount.

3.9.6.5  Time Frame for approval

The time frame for approving/ declining a credit proposal shall be maximum 07 (seven) working days at Branch/ SME Service Center level, and maximum 05 (five) working days at Head Office level, provided all required information/ documents are in place. Clean facilities (collateral free credit) can be given upto Tk.10.00 lac on any single Small Enterprise. For financing the Women Entrepreneurs in SME sector under refinance scheme of Bangladesh Bank, financing up to Tk.25.00 lac against charge on assets of the enterprise and personal guarantee only can be made. Highest priority shall be given for accepting and settlement of the Loan applications from the Women Entrepreneurs in SME sector within a reasonable time period. All regulations as specified under ‘Bangladesh Bank’s Regulations’ are to be met. Branches/ SME Service Centers shall adhere to the Credit Policy of the Bank and the relevant Circulars/ Regulations/ Guidelines of the Bank/ Bangladesh Bank/ any other regulatory authority.

3.9.7        APPLICATION & APPROVAL PROCESSES

Any credit proposal and/ or pre-sanction Inspection Report/ call report/ visit report is to be originated from the Branch/ SME Service Center. The client shall have to open account with the relevant Branch/ SME Service Centre of the Bank. The client shall fill up the RFCF (Request For Credit Facility), Net Worth Statement, other pro forma (if any) correctly and completely. The client shall provide CIB undertakings, Financial Statements, other information/ papers/ documents required by the concerned official of the Branch/ SME Service Center. The concerned official of the Branch/ SME Service Center shall evaluate client’s proposal with due diligence, accomplish the relevant tasks meticulously and prepare the Credit Appraisal Form as per the prescribed format. Any requirement for further information regarding a particular credit proposal shall have to be communicated to the client within 03 (three) working days from the date of submission of the application by the client. If a particular credit proposal is found suitable, the Branch/ SME Service Center shall assign a unique identification number to the borrower and submit the credit proposal along with the required documents, such as Visit Report, Stock Report, CPV Report, Valuation Report etc. to the Head Office for approval.  The unique identification number shall consist of three parts: 3-digit Branch/ SME Service Center code, 2-digit month number, 2 digit year number & 4 digit unique serial number. At Head Office, the assigned Credit Officer(s) shall appraise the proposal in line with Bank’s credit policies and guidelines of Central Bank & other regulatory authorities and place the proposal to the competent approval authority for decision.

Flow Chart of Approval Process