Report on SME Loan of BRAC Bank Limited

Origin of the Report

A country is financially rich when it has modern financial institutions of its own. These institutions play a vital role in the field of financial stability and industrial development of the country. Due to Globalization and Technological revolution, the banking business has become very competitive now a days. All banks are competing to give effective real time service to their customers. For giving friendly service to the customers they need experienced and well-educated workforce. To create well-educated Business executives, Dhaka University has initiated EMBA program. In the EMBA Program, the Internship is one of the vital parts but in lieu of internship, project can be prepared if it is unavailable, which has to be done by every EMBA Student. For fulfilling that requirement I was assigned to prepare a project on SME loan of BRAC Bank. My faculty supervisor Md. Abul Kashem, Assistant Professor, Department of MIS, Dhaka University also approved the project and authorized me.

Objective of the Report

Broad Objective

To know details of SME loan in BRAC Bank Ltd

Specific Objectives

•       To know the SME loan activities in BRAC Bank
•       To find out basic appraisal of SME loan
•       To know the enterprise selection criteria to provide SME loan
•       To know the terms and conditions of SME loans
•       To Analyze micro and macro environment of the economy
•       To analyze the SME sector in Bangladesh
•       To analyze the Marketing Procedure of SME loans of BRAC Bank
•       To know the expectations of customers of BRAC Bank
•       To know the internal strength of SME related services of BRAC Bank Ltd.
•       To know the disbursement and recovery procedures of SME loans
•       To make some recommendations and conclusion to further the development of SME loan products of BRAC Bank Ltd.

Scope of the Study

The study will provide the scopes of knowing the following:

a)   The total concept of SME loan

b)   BRAC Bank specially focusing on SME loan to promote small entrepreneurs all over the country

c)   Characteristic of SME loan as a sophisticated area of finance.

d)   Recent performance level of the BRAC Bank SME loan in the country.

e)   Entry of commercial banks into SME banking industry in Bangladesh

f)    Small entrepreneurs of rural –urban spectrum are enjoying the BRAC Bank loan facility without coming in the bank.

Methodology

The study uses both primary data and secondary data. The information for the project was collected from secondary sources like books, published reports and web site of the BRAC Bank Limited (www.bracbank.com) . For general concept development about the bank short interviews and discussion session were taken as primary source. The information for the Project was 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 the said bank was also conducted. More over a market survey was conducted with a specific questionnaire. To identify the implementation, supervision, monitoring and repayment practice- interview with the employee and extensive study of the existing file and practical case observation was done.

 Limitation of the study

The study is not assumed free from limitation. Although adequate precautionary measures have been in collecting data from the present stuffy, it is not supposed to be complacent in the matter of reliability of those data. Naturally some limitations will remain. A few of the limitations are pointed out below:

a)   It would have been better if data could be taken from larger sample than what has been considered here. With a view to reducing the volume of work and expenditure, we have selected only some specific branches. It would have been better to cover all these branches in our study but that would have required more men, materials and money, which was beyond the capability of the study.

b)   It would have been better if data could be taken from all the entrepreneurial activities in rural areas in our study. However, with a view to reducing the expenditure on men and material. We have only taken data for some of the entrepreneurial activities. This is certainly a gap, which may invite criticism. Nevertheless, considering the present circumstances, we may expect a reasonable excuse for the same.

c)   The adequacy of data in specific fields and lack of co-operation from a few entrepreneurs have, to a certain extent, made the scope of our investigation limited. But the data collected from other entrepreneurs have possibly minimized such limitation.

The adequacies of the entrepreneur respondents do not maintain any record of their income, expenditure particulars of bank loans etc. Naturally, they have answered our questions from their memories, which might have adversely affected the reliability of the data, at least to a certain extent.

 World Economy- An over view

As we enter into the new millennium the process of trade liberalization and globalization have presented new challenges as well as greater opportunities. Economic boundaries of nations are being abolished and the world is gradually becoming a global village, In the beginning of the year 1999 the Euro currency started to replace the currency of eleven European union countries. In the financial service sector profound changes have been taking place globally. E-commerce is becoming the predominant mode of transactions. We are witnessing revolutionary changes in the fields of cost control, retail channels, range and delivery of services, accessibility and reach. These changes have already triggered off reorganization, amalgamation, and takeover of financial institution globally.

Bangladesh Economy-An over view

Bangladesh GDP has been growing at a rate of over 6% for the past 4 years. This strong GDP growth has been underpinned by more market oriented economic policies, a dynamic garment sector, and strong growth in overseas workers remittances. GDP is forecast to maintain its recent momentum over the medium term. Growth in GDP has steadily climbed up in recent years, reaching 6.7% in FY2006, driven by improved domestic and external demand.

This performance was reflected in a steady expansion in industry, led by export oriented manufacturing industry. a marked reduction in poverty, accompanied growth: the head count poverty rate declined by about 1.8% points a year between 2000 and 2005 to 40%, compared with a decline of only about 1% point a year in the preceding decade. The improvement was somewhat faster in rural than urban areas. Rising access of the poor to micro credit, a rapid expansion in overseas workers remittances, and improvement in physical and social infrastructure all contributed to the sharp drop in poverty.

On the expenditure side in FY2006, private consumption propelled growth. Investment rose by 0.5 percentage points to 25% of GDP, bolstered by a rise in private investment. Gross national savings increased by 0.8 percentage points to 26.6% of GDP, propelled by a rise in remittances.net export of goods and services remained negative.

inflation moved up steadily to average 7.2%.this exceeded the 7.0% limit set by Bangladesh bank, the central bank,in its first monetary statement (MPS)issued in January 2006.demand pressures generated by access money, a sharp depreciation in taka against the US dollar, a and a rise in global commodity prices , all heightened inflationary pressures. Rising export of some consumer items, pulling their domestic prices to higher global levels, also added to price pressure.

Introduction on economic development and the evolving of BRAC Bank

The context of the financial and economic condition of Bangladesh, 2005-2006 was a remarkable year. September 11 tragedy when deteriorating the world economy, also affected our economy. But effort for implementation of the on going reforms in the financial and others of the economy were strengthened and a pragmatic approach to macroeconomic management was adopted during the year under report. To bring about desired pace in overall economic activities a moderately accommodative monetary policy was pursued during 2005-2006 in close consonance with the rehabilitation and development programmed. Of course there was a policy for keeping inflection at a tolerable rate. The face of overall economic activities in the country gathered momentum during 2005-2006 for extending agricultural loans at easy terms and for arrangement and supply of agricultural input including fertilizers a fair price. As a result an agriculture friendly environment was created in the country. Growth rate of GDP has been strengthened during the year mainly due to strong expansion of agriculture sector and significant pickup of export demand right and effective policy at the right time in successful implementation of agriculture rehabilitation program and hard labor of the country’s toiling production contributed to humped production of food crops during the year.

As a result, total food grain production increased by 14.2% bolstering overall output growth of the agricultural sector up from 3.3% in 2004-2005 to 5.5% in 2005-2006. Improved global economic environment led to perceptible buoyancy of demand for Bangladesh export commodities, which also helped increased industrial productions. Growth rate of the industrial sector increased from 3.2% in 2004-2005 to 4.3% 2005-2006. As a result, over all growth rate of GDP accelerated from 5.3% in the previous year to 5.52% in 2005-2006. The gross domestic savings in the current market prices during the year under report increased by Tk 3999.80 crore or 10.3% to Tk 42901.40 crore and gross investments increased by Tk 5393.00 crore or 11.1% to Tk 54150.5 crore.

In this context a new dynamic bank emerged named BRAC Bank, a fully online scheduled commercial bank opened in 2001, is dedicated to offer its clientele truly international standard banking services. BRAC Banks customer friendly product with convenient features is all designed to meet the grouting and changing needs. Most important, The BRAC Bank has a team of expert sales persons who will take banking at the doorsteps of customers.

Board of Directors

MR. FAZLE HASAN ABED

Chairman

MR. SYED HUMAYUN KABIR

Director

MR. MD.AMINUL ALAM

Director

MR. QUAZI MD. SHARIFUL ALA (Nominated by BRAC)

Director

MR. PAUL D. CHRISTENSEN (Nominated by SHORECAP INTERNATIONAL LIMITED)

Director

MR. MUHAMMAD A. (RUMEE) ALI (Nominated by BRAC)

Director

MR. IMRAN RAHMAN

Managing Director and CEO

Company Profile

BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shorecap International, has been the fastest growing Bank in 2004 and 2005. The Bank operates under a “double bottom line” agenda where profit and social responsibility go hand in hand as it strives towards a poverty-free, enlightened Bangladesh’s fully operational Commercial Bank, BRAC Bank focuses on pursuing unexplored market niches in the Small and Medium Enterprise Business, which hitherto has remained largely untapped within the country. In the last five years of operation, the Bank has disbursed over BDT 1500 crore in loans to nearly 50,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh. Since inception in July 2001, the Bank’s footprint has grown to 22 branches, 350 SME unit offices and 19 ATM sites across the country, and the customer base has expanded to 200,000 deposit and 45,000 advance accounts through 2006. In the years ahead BRAC Bank expects to introduce many more services and products as well as add a wider network of SME unit offices, Retail Branches and ATMs across the country.

BRAC
BRAC, a national, private organization, started as an almost entirely donor funded, small-scale relief and rehabilitations project initiated by Fazle Hasan Abed to help the country overcome the devastation and trauma of the Liberation War and focused on resettling refugees returning from India. Today, BRAC has emerged as an independent, virtually self-financed paradigm in sustainable human development. It is one of the largest Southern development organizations employing 97,192 people, with 61% women, and working with the twin objectives of poverty alleviation and empowerment of the poor.

Shareholding Structure

Corporate Vision

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

Corporate Mission

• Sustained growth in ‘small & Medium Enterprise’ sector
•  Continuous low cost deposit growth with controlled growth in Retained Assets
•  Corporate Assets to be funded through self-liability mobilization. Growth in Assets through Syndications and
• Investment in faster growing sectors
• Continuous endeavor to increase fee based income
• Keep our Debt Charges at 2% to maintain a steady profitable growth
• Achieve efficient synergies between the bank’s Branches, SME Unit Offices and BRAC field offices for delivery of Remittance and Bank’s other products and services
• Manage various lines of business in a fully controlled environment with no compromise on service quality
• Keep a diverse, far flung team fully motivated and driven towards materializing the bank’s vision into reality

Corporate Value’s

Our Strength emanates from our owner – BRAC. This means, we will hold the following values and will be guided by them as we do our jobs.

• Value the fact that we are a member of the BRAC family
• Creating an honest, open and enabling environment
• Have a strong customer focus and build relationships based on integrity, superior service and mutual benefit
• Strive for profit & sound growth
• Work as a team to serve the best interest of our owners
• Relentless in pursuit of business innovation and improvement
• Value and respect people and make decisions based on merit
• Base recognition and reward on performance
• Responsible, trustworthy and law-abiding in all that we do

Goals

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

Objectives

      Building a strong customer focus and relationship based on integrity, superior service.

•       To creating an honest, open and enabling environment
•       To value and respect people and make decisions based on merit
•       To strive for profit & sound growth
•       To work as a team to serve the best interest of our owners
•       To relentless in pursuit of business innovation and improvement
•       To base recognition and reward on performance
•       To responsible, trustworthy and law-abiding in all that we do
•       To mobilize the savings and channeling it out as loan or advance as the company approve.
•       To establish, maintain, carry on, transact and undertake all kinds of investment and financial business
•       To finance the international trade both in import and export.
•       To develop the standard of living of the limited income group by providing Consumer Credit.
•       To finance the industry, trade and commerce in both the conventional way and by offering customer friendly credit service.
•        To encourage the new entrepreneurs for investment

 Bank’s Culture

Bank has adopted trust as a corporate value which is acronym for team work, respect for all people, unquestionable integrity, excellence in everything BRAC Bank of SME do, Sense of urgency in getting things done and total commitment. All employees are expected to conduct themselves in accordance with the rules and regulations of the bank.

 Bribes and inducements

It is not acceptable to offer or receive any form of bribe or inducement, or direct anyone else to do so on behalf of the bank. The following activities are strictly prohibited:

•       Payment or other benefits which violate the country’s law or the bank’s policies
•       Payment or other benefits for procurement of business
•      Payment or other benefits to public officials or politicians t induce them to exercise their discretion in the bank’s favor

Management of BRAC Bank Limited

Boards of directors are the sole authority to take decision about the affairs of the business. Now there are 5 directors in the management of the bank. All the directors have good academic background and have huge experience in business.   Mr. Fazle Hasan Abed is the chairman of the bank.

Departments of BRAC Bank Limited

BRAC Bank Limited has the following department-

•       Human Resources Department
•       Financial Administration Department
•       Loan Administration Division
•       Credit Division
•       SME Division
•       Internal Control & Compliance Department
•       Marketing & Product Development
•       Remittance Operation Department
•       Treasury Division
•       General Services division
•       Information Technology Department

Business Units

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

i)             Small & Medium Enterprise (SME)

ii)           Corporate Banking

iii)          Retail Banking

iv)          Treasury

v)           Remittance Services

Products and Services

i) Small & Medium Enterprise (SME)

• Anonno Rin
• Apurbo Rin
• Aroggo Rin
• Digoon Rin
• Pathshala Rin
• Prothoma Rin
• BIZNESS Account
• Supplier Finance

ii) Corporate Banking

      Debt capital

      Equity capital

      Ongoing relation support

      Financial markets

      Lease Finance

iii) Retail Banking

i)             Deposit Products

ii)           Lending Products

iii)          Locker Services

iv)          Remittance Services etc.

Branches

BRAC Bank Limited is fast growing commercial banks in our country. The said bank has established a good operating network throughout the country.  It has 18 branches throughout the country till October 2006.

Performance of BRAC Bank Limited

• Fastest growing bank in the country for the last two years
• Leader in SME financing through 350 offices
• Biggest suit of personal banking & SME products
• Large ATMs (Automated Teller Machine) & POS (Point of Sales) network

Capital Fund

The authorized and paid up capital of BBL is TK.1000 million and TK.500 million respectively.  The paid up capital is one of the strongest in the banking industry. The bank going to raise its paid up capital in the month September, 2005 by TK.500 million with issuing public share of 5,00,000 of TK.100 each.

Corporate Social Responsibility

Just as we have a corporate identity we have a social identity too. As a bank we are socially responsible. Fifty percent of our Loan portfolio is diverted to Small and Medium Enterprise banking, and as a financial intermediary we channel funds from the surplus ends to the needy. Countrywide network of SME Units cater to the needs of small entrepreneurs to help them build their asset base. We are market leaders in SME, striving for socio-economic upheaval in Bangladesh.

We do not support any finances that are detrimental to our environment. A portion of our revenue is channeled to support BRAC schools, where children study for free. 70% of these children are female.

Basic Appraisal of Small & Medium Enterprise

Business or project appraisal is a technique of evaluating and analyzing Business from various aspects, primarily the risks associated with that business enterprise. At the time of appraisal of any manufacturing, trading or service related organization, factory or industry; one has to perform a feasibility study on the different aspects. These are:

1. Management and Personal Aspects
2. Technical Aspects
3. Marketing Aspects
4. Financial Aspects
5. Social Economic Aspects
6. Security Aspect

a. Management and personal aspects: During the appraisal prosecute the Customer Relation Officer (CRO) should endeavor to obtain details about the prospective borrowers, some of which are:

1. Business related information
2. Credit History
3. Liquidity Information
4. Management Background

b. Technical Aspects: From a business perspective, this aspects deals with design of the system in place, the operation of the business, the different type of physical resources used, the technology used, the capacity to handle business and all other inputs (labor, raw materials, utilities etc.)

c. Marketing Aspects: A CRO should consider the following factors of a business before making any loan commitment with a customer:

Total demand and supply of the products in the market that the business operates in growth of sales and major marketing threats that the business may face.

d. Financial Aspects: This aspect allows us to check the financial health of a business, through an analysis of the profit and loss account, balance sheet, cash flows, ratios and requirement of working capital. If the collection of the financial data can be done properly, then it may be able to make a somewhat realistic picture of the business financial position. How ever, all the data collected must be cross-checked as much as possible with the physical features of business.

e. Socio Economic Aspects: Here the analyst like to observe the contribution of the business to the country’s GDP, the employment generated, the sort of adverse impact of the business on the environment, if an other benefit to the country.

f. Security Aspects: Along with observation of different aspects and views of the projects, the CRO should also see closely the aspects of the projects and ensure about the reliability to the mortgaged property/assets.

Ensure proper survey or verification of the security offered

Ensure attachment of survey report.

Organizational layout of BRAC Bank SME loan

1. Credit Division
2. Business Development Division
3. MIS Division

  SME Banking

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

SME Network Coverage

 SME Products

SME Network Coverage

SME Products

 Anonno Rin

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

Eligibility

• Entrepreneurs aged between 18 to 60 years
• Entrepreneurs with minimum 2 years experience in the same line of business
• A business which must be a going- concern with more than 1 year in operation

   Maximum Amount

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

   Features

• Loan without mortgage
• For excellent borrowers who have paid or are paying in due times, we offer discounted rates
• Quick, quality banking throughout the country
• Potential women entrepreneurs will also get the facilities of this loan

 Apurbo Rin

In order to help our SME borrowers for financing working capital or to purchase fixed assets, BRAC Bank offers APURBO. It caters to the need of entrepreneurs who are operating in trading, manufacturing, service, agriculture, non-farm activities, agro- based industries and other sectors of our economy.

Eligibility

• Entrepreneurs having a minimum of 3 years of some business activities
• A business which must be a going concern for 3 years
• Age minimum 25 years and maximum up to 60 Years

   Maximum Amount

• Starting from BDT 8 lac to maximum of BDT 30 lac

   Features

• Without mortgage for loan below 10 lac
• Simple loan processing for expanding your business
• Quick disbursement
• Disbursement in one or two installments
• Flexible monthly repayment plan

Aroggo Rin

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

Eligibility

• Institutions with at least 2 years in operation & a profit making concern
• Doctors having 5 years of experience

   Maximum Amount

• Minimum of 3 lac to maximum of 30 lac

   Features

• Loan without mortgage up to 8 lac
• Easy loan processing
• Loan repayment schedule is spread up to 3 years
• 1% loan processing fee
• Flexible interest rate based on security

Digoon Rin

DIGOON RIN is a loan facility for Small and Medium enterprise. This product’s main objective is to help various Small and Medium entrepreneurs to meet their short-term cash flow shortages or bridge the fund-flow gaps.

Double loan on your deposit. For your business expansion, you do not need to encash your savings rather you can take double amount of loan on your deposit.

Eligibility

• Entrepreneur having minimum 2 years of business activities
• The business which must be a going concern for 2 years
• Aged between 18 years to 55 years

   Maximum Amount

• Minimum of 5 lac to maximum of 30 lac BDT

  Features

• Double amount of loan on your deposit
• Attractive return against the deposit
• Flexible repayment plan in monthly installment and single installments
• Quick disbursement

Pathshala Rin

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

Eligibility

• A small & medium educational institution that is in operation for minimum 3 years
• The institution should be sole proprietorship, partnership, Private Limited Company, or Society
• The educational institute must be a profit making concern

   Maximum Amount

• Minimum BDT 3 lac to maximum BDT 30 lac

   Features

• Without mortgage for loan below 10 lac
• Loan for fixed assets purchase & civil construction
• Loan repayment can be spread up to 4 years
• Minimum documentation
• Monthly repayment plan
• Quick disbursement
• Flexible interest rate based on security

Prothoma Rin

“PROTHOMA RIN” is a loan facility for small and medium sized trading, manufacturing, service, agriculture, non-farm activities, agro-based industries etc. which are operated by women entrepreneur. The product offers terminating loan facilities for the purpose of working capital finance and/or fixed assets purchase.

Eligibility

• Entrepreneurs aged between 18 to 55 years
• Entrepreneurs with minimum 2 years experience in the same line of business
• Minimum 1(One) year of continuous business history

   Maximum Amount

• From minimum BDT 3 lac up to maximum of BDT10 lac

   Features

• In case the tenant borrower cannot obtain trade license showing her name as owner of the business, loan can be sanctioned in the personal name of the borrower
• For excellent borrowers who have paid or are paying in due times, we offer discounted rates
• Repay the loan in the method and time period that suits you the best
• Borrower availed any loan in the name of his/her sister concern business loan may be approved if the loan is regularly repaid from the sister concern business

 BIZNESS Account

Bizness Account is an interest bearing account only for business Enterprise for SME and Retail Banking. This product has been set in a way to encourage small & medium entrepreneur to enter into the wide range of modern banking facilities of BRAC Bank Limited.

Eligibility

• Small and medium sized business entrepreneur of a sole proprietorship business
• Entrepreneurs aged between 18 to 60 years
• Opening balance – BDT-10, 000.00

   Features

• 4% interest on daily balance
• Smart Business Card
• 24 hour Access to ATMs/ POS
• Tk-50, 000 withdrawn facility (per day) from ATM & Tk-100, 000 from POS
• No Minimum Balance, No Ledger Fees, No hidden cost
• No bar for using POS
• Phone-Banking, Online Banking, SMS Banking, Internet Banking facility
• Interest paid to account twice a year

Supplier Finance

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

Eligibility

• If you are an enlisted supplier of a corporate house with which BRAC Bank has a corporate tie- up
• Have minimum 3 years of continuous operation
• Have 1 year continuous relationship with the purchasing firm

   Maximum Amount

• Minimum BDT 3 lac up to maximum BDT 30 lac

   Features

• Equal monthly installment and revolving loan facility
• 1% of loan amount as the processing fee

 Security Documentation against Loan

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

a  Purpose of Decorate Documentation and its Importance

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

b Type of Securities

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

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

b-i)  Land related securities documentation process

Each SME unit office will lies with at least two local lawyers who will work on behalf of the bank. These always will be employed whenever a loan sanction is accepted by a borrower and where the security will be landed and immovable property.

Any one of the lawyers will be provided with photocopies of all  the relevant land related documents and while handing over show the original documents to them,. The lawyers will carry out checks of the originals and if satisfied returned to the borrower.

b-ii) there are two type of mortgage’s that are popular and usually accepted in Bangladesh:

i) Equitable Mortgage or Memorandum of Deposit of Title Deeds

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

ii) Registered Mortgage

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

Basic Charge Documents

Sanction Letter

Once a loan is approved, the borrower is advised by a ‘Sanction or offer letter’ which states the terms and conditions under which all credit facilities are offered and which forms an integral part of there security documentation. If the borrower accepts, then a contract between the bank and the borrower is formed and which both party are obligated to perform. Accordingly, all other charge documents and securities are drawn up and obtained. A standard sanction letter is attached herewith. All documents shall be stamped correctly and adequately before or at the time of execution.

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

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

Other Basic Charge Documents

i) Demand Promissory Note (DP Note)

It is a written promise by a borrower to pay the whole amount of existing or future loans/credit facilities on demand. It also gives the banks power to ask the borrower to repay the loan amount with interest without any prior notice.

ii) Letter of Continuity

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

iii) Letter of Arrangement

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

IV) General Loan Agreement

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

v) Letter of Disbursement

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

Other Security Documents

i) Letter of Undertaking

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

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

These letters Hypothecation are actually two different sets of documents but because of their similarity, these are being explained together. These documents create an equitable or floating charge in favor of the bank over the goods and services and/ or book debts and receivables that are being financed where neither the ownership nor the possession is passed to the bank.

iii) Letter of Hypothecation of Plant & Machinery

Under this agreement, the Borrower undertakes to keep the present plant and machinery at the present location in good condition and which gives the bank the power to posses and sell the mentioned plant and machinery to meet the borrower’s dues to the bank.

iv) Letter of Lien

A lien the right of one person to retain property in his hands belonging to another until certain legal demands against the owner of the property by the person in possession are satisfied. Thus a bank or a creditor  who has in its possession a lien over the goods in respect of the money due by the borrower, as a general rule has the right to exercise certain powers to hold on to the security.

v) Right of Set Off

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

vi) Letter of Disbursement

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

vii) Personal Guarantees

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

 Selection of Potential Enterprise for SME

Enterprise Selection Criteria

The success of SME will largely depend on the selection of a business and man behind it. In order to understand the capability of the management behind the business, the following should be assessed:

1. The entrepreneur should be physically able and in good health, preferably between the age of 25-50. If he/she is an elderly person closer to 50, it should be seen what the succession process will be and whether it is clearly defined or not.
2. The entrepreneur must have the necessary technical skill to run the business, i.e academic background or vocational training, relevant work experience in another institution or years of experience in this line of business.
3. The entrepreneur must have and acceptable social standing in the community (People should speak highly of him), he should possess a high level of integrity (Does not cheat anyone, generally helps people), and morally sound (Participates in community building)
4. The entrepreneur must possess a high level of enthusiasm and should demonstrate that he is in control of his business ( Confidently replies to all queries ) and has the ability to take up new and fresh challenges to take the business forward.
5. Suppliers or creditors should corroborate that he pays on time and is general in nature
6. Clear-cut indication of source of income and reasonable ability to save.

Guarantor Selection Criteria

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

1. The guarantor must have the ability to repay the entire loan and is economically solvent ( Check his net worth)
2. The guarantor should be aware about all the aspect of SEDF loan and his responsibility
3. Govt. and semi-govt. officials can be selected as a Guarantor such as schoolteacher, college teacher, doctor etc.
4. Police, BDR and Army persons, political leaders and workers, and Imam of mosque can not be selected as a guarantor.
5. The guarantor should know the entrepreneur reasonable well and should preferably live in the same community

Terms and Conditions of SME Loan

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

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

                  Loan Amount                                              Loan Processing Fee

2 lacs to 2.99 lacs                                             Tk 5000

3 lacs to 5 lacs                                                   Tk 7500

5.01 lacs to 15 lacs                                            Tk 10,000

15.01 lacs to 30 lacs                                          Tk 15,000

• Loan can be repaid in two ways:

a)    In equal monthly loan installment with monthly interest payment, or

b)    By one single payment at maturity, with interest repayable a quarter end residual on maturity

• Loan may have various validates, such as, 3 months, 4 months, 6 months, 9 months, 12 months, 15 months, 18 months, 24 months, 30 months and 36 months.
• The borrower must open a bank account with the same bank and branch where the SME has its account
• Loan that  approved will be disbursed to the client through that account by account payee cheque in the following manner: Borrower name, Account name, Banks name and Branch’s name
• The loan will be realized by 1^st every months, starting from the very next months whatever the date of disbursement, through account payee cheque in favor of BRAC Bank Limited A/C . With Bank’s named and branches name
• The borrower has to issue an account payable blank cheque in favor of BRAC Bank Limited before any loan disbursement along with all other security.
• The borrower will install a signboard in a visible place of business of manufacturing unit mentioned that financed by “BRAC Bank Limited”.
•   The borrower has to give necessary and adequate collateral and other securities as per bank’s requirement and procedures.
• SME, BRAC Bank may provide 100% of the Net Required Working Capital but not exceeding 75% of the aggregate value of the Inventory and Account Receivables. Such loan may be given for periods not exceeding 18 months. Loan could also be considered for shorter periods including one time principal repayment facility, as stated in loan product sheet.
• In case of fixed asset Financing 50% of the acquisition cost of the fixed asset may be considered. While evaluating loans against fixed asset, adequate grace period may be considered depending on the cash generation after the installation of the fixed assets. Maximum period to be considered including grace period may be for 36 months.

Monitoring

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

Important of Monitoring

Through monitoring a CRO can see whether the enterprise invested the sanctioned amount in the pre-specified area of his business, how well the business is running, the attitude of the entrepreneur, cash credit sales and purchase, inventory position, work in process and finished goods etc, This information will help the CRO/BRAC Bank to recover the loan accruing to the schedule and to take the necessary decisions for repeat loans.

Area of Monitoring

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

a. Business Condition

b. Production

c. Sales

d. Investment

e. Management of raw materials

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

Monitoring System

a. The CRO can consider the following things for monitoring:

The CRO will monitor each business at least once a month. He/she will make a monitoring plan/ schedule at beginning of the month During monitoring the CRO must use the prescribed monitoring from and preserve in the client file and forward a copy of the report to SME head office immediately.

b. A SME branch will maintain the following files:

The file will contain Purchase Receipt, Delivery Memo’s, Quotations And all other papers related to furniture and fixture procurement

c. Other fixed assets and refurbishment

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

d. Lease agreement file

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

e. Individual client file

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

f. Statement file

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

g. Office instruction file

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

h. Operating instruction and guideline files.

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

i. New forms introduction file

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

j. Security documents and legal aspect file

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

Customer Handling

In our country there are about 52 banks working with the people with varieties of their attractive products and services and there is a high level amongst competition each other. For sustaining, they offering various types of innovation for better service for the clients, so, to reach the closer best to the clients direct marketing gaining momentum in the country. In terms of SME, its targeted entrepreneurs are the subject of dealings to achieve the objectives of BRAC Bank and its policy is to contact with clients directly with a confident manner. Some key activities of a CRO:

• Conducting Survey Properly
• Individual contact with entrepreneur for selecting potential borrower
• Deliver BRAC Bank’s products and other services
• Keeping in close touch with clients to develop mutually beneficial long term relationship

There are two types of dealings-

Regular: The main duty of a CRO is to search new potential customer by providing door to door services. They talk with clients and monitor their manners, activities of their business and then provide the loan of the potential customers.  Most customers take hypothecation loan, which are unsecured loan. Normally it carries 2-5 lacs.

Unique: They also handle some unique customers who come to their unit offices to get the loan. Especially these clients demand 10-20 lacs for their business. In this case, clients have to provide collateral securities in favor of bank. The securities may be land or fixed deposits. It takes little bit of time to disburse the loan for a CRO.

 Macro Environment Analysis

It is very important to carry out a macro environment scanning for the banking industry in order to identify and analyze the external factor that affected the growth and development of the banking sector in Bangladesh. The financial institutions are always heavily influenced by the macro economic conditions both globally, regionally or locally. The key macro economic indicators like GDP growth rate, inflation, industrial growth rate, expansion of trade and commerce and other factors affects the operations and the pricing strategy of the bank.

Demographic Environment

Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics. The demographic environment is of major interest to marketers because it involves people and people make up markets. In terms of SME requirements customer is the main part of bank. If there is no client there is no business.

Economic Environment

Factors that affect consumer buying power and spending patterns. SME is very careful regarding economic issues in the country. Customer relation office is always keen to check purchasing materials and leading lifestyle of the client.  Because if the economic condition of a client become bad then he/she might not repay the loan.

Social Environment

As banks are service oriented organizations, they always have to consider the attitude of the customer. Customer now want a speedy service accompanied by attractive and well decorated impressive branches with customer friendly officers providing tailor made services to the customers. SME of BRAC Bank impressive office has already earned a reputation for the bank and has attracted lots of potential customers around the country.

Political Environment

The political environment consists of law, government agencies and pressure groups that influence and limit various organizations and individuals in a given society. SME of BRAC bank has to abide national laws like festivals, holidays. On the other hand, hartals, strikes, barriers can affect the economic condition of SME of BRAC Bank Limited. Under the latest World Bank recommendation the banking division of the ministry of finance is being abolished a step further in providing autonomy to Bangladesh Bank.

Technological Environment

BRAC bank of SME division has a strong network in the whole country. The main head office is in the capital city from which it operates with all the unit offices by means of mobile telephone. In the near future, SME might handed over the palmtop computer to all customer services offices to provide accurate and quick service to the clients.

Ecological Environment

Sometimes ecological environment can turnout the business of the clients. Foods, disasters can affect the business after having the BRAC bank loans or fire can burn out the whole business. To protect from these disasters BRAC bank do the insurance policy with the joint names of the client. So that client can get feedback from the insurance policy to run again his business. If client do not get support from the insurance company then BRAC bank give time or generate the client repayment schedule

Consumer

Marketing management job is to attract and build relationship with customers by creating customer value and satisfaction. It depends on other factors in the organization microenvironment- suppliers, customers, competitors, various publics which make up the organization’s value delivery system. The company needs to study its customer marketer closely in terms of Small and Medium Enterprise of BRAC Bank Limited and their customers group is specified. In terms of SME, most clients are carrying out trading business rather than manufacturing business. Few client are attached with service business like pharmaceutical, hospital, homeopath etc. In the trading business clients want loans to meet their working capital requirement. On the other hand, client wants 10-15 for purchasing fixed assets. In our country mostly 35-40 years old clients are carrying out loans regarding the type of their business. The clients who interested to take the loan of SME then they have maintained at least one year running business. It is a policy of this bank because in the mean while client can understand his business and can set a future plan.

Industry Analysis: SME facility of BRAC Bank Ltd.

a. Threat of New Entrant

In every industry, there is a threat of new entry, which varies according to industry. Similarly, the banking sector of Bangladesh also faces the threat of new entrants. However, the threat comes from two directions. The first threat comes from the arrival of the multinational banks and their branch expansion particularly due to the booming energy sector. For example, Standard Chartered Bank already inaugurate the SME loan.   Another threats comes from the emergence of new private commercial banks. For example, Southeast Bank, Dhaka Bank & others, the countries traditional banks are facing the treat of further competition and better  quality service. Similarly, the potential banks that may emerge in the next few years will further enhance the intensity of competition and may pose  further threat to the existing banks. At the same time, arrival of the foreign banks is posing threat and pressure on the existing banks. At the same time, arrival of the foreign banks is posing threat and pressure on the existing banks. Already Standard Chartered Bank and Hong Kong Sanghai Banking Corporation (HSBC) have started to provide small loans to clients and they are also going to start door to door services to clients.

b. Growth in the Industry

The rivalry among the competitors and the growth in the industry depends upon the intensity of competition. If the industry has a high intensity of competition then the industry will have a high growth rate, as all the firms will try to beat the others in order to grab the market share. Similarly, the banking sector of Bangladesh is growing considerably and at the same time competition is increasing. Currently BRAC bank SME division is a pioneer one and carrying out Digital Technology Management Systems.

 Evaluation of SME

October 07, 2001– Its operation started as the name of SESDF (Small Enterprise Support Development and Finance)

October 30, 2001– Its first loan disbursed to Mita Oil Mills as an overdraft loan

October 10, 2002– It got the name SME (Small and Medium Enterprise)

July 2002– SME run in the full swing

March 2003 – Month of greatest challenge and achievement ( Achievement-104%)

A sample MIS report has shown below:

Table-1

c. Competitors

Identifying the banks competitors

In terms of world bank advice, most of the  private banks are now ready to provide small or micro credit loan facility to the clients because small loans are less risky than the corporate loan. At the recent trend, many banks like Standard Chartered, Islami bank of Bangladesh, Southeast Bank, Dutch Bangla Bank Limited etc are going to take many aggressive steps in terms of small loan to clients.

Determining the competitors objectives

In our country, to provide big loans or long term loans are risky because Bangladesh Bank is carrying out lots of defaulter’s list. So most of the banks are now interested to provide small or micro credit lending in terms of small and medium enterprise business. The objective of the competitors is to capture in the market by providing small loans regarding and manufacturing business. But everyone’s common objective is economic development of this country.

Identify the competitor’s strategy

Standard chartered bank already sent marketing troops surrounding the cities for providing loans and deposits. CITI Bank is going to start retail service business for capturing the market. So competitor’s analysis is important factor to carry out in the long run business for any organizations. Among these banks, many of them have lower interest rates but lots of hidden costs and services.

In terms of business, marketing management as the analysis, planning, implementation and control of programs designed to create builds and maintains beneficial exchange with target clients for the purpose of achieving organizational objectives.

 Demand management

As a small and medium enterprise of BRAC bank, it basically provide small micro credit loans and also its product is different terms of small and medium terms of loans. Though it is pioneer division and makes demarcate plans to increase demand in the market in terms of small and medium enterprise. So SME provides the loan that affects the level, timing and nature of demand in a way that helps customer to enhance their business in spite of economic development. SME already have Zonal offices, 265unit offices around the country and 583 CRO to serve door to door customer services and also it exists close to 14482 clients.

A sample of MIS report has given below:

Table-2

Building Customer Relationship

The main security of SME is building relationship between clients and banks. Demands basically come from two groups: new customers and repeat customers. SME do not want to lose good customers because banks are facing new marketing realities like changing demographics, slow growth economy, more sophisticated competitors etc. For the repeat borrowers BRAC bank SME provides lots of extra benefits to clients to obtain satisfaction. The key to customer retention is superior value and satisfaction. With this in mind many banks are going to extreme to keep their customer satisfied.

SME relates with the modern marketing concept

      It provides customer satisfaction.

      Customer satisfaction through integrated effort.

      For integrated effort to come about organization belief that goals should and can be achieved.

In terms of SME the goal is to economic development of our country through meet and exceed customer needs better than competition. In terms of customer orientation, SME provides the best facilities to customers regarding their needs. SME provides unsecured loans up to 5 lacs which none of other banks provide. Though it is team base management bank, the behalf that corporate goals can be achieved and customers are satisfied by gaining trust of management.

 Strategic Planning in a Nutshell of SME

In terms of our country most financial institution starts out with extensive business and marketing plans to attract potential customers. But organization has some internal steps to carry out organization in the long run which it related to Small and Medium Enterprise of BRAC Bank Limited is as follows:

• Identify the major elements of the business environment in which the organization has operated over the previous few years. In terms of SME of BRAC Bank Limited, it provides loans to small and medium enterprise.
• Describe the mission of the organization in terms of its nature and function for the next two years. By thinking of clients benefits and satisfaction, SME will withdraw up to 10 lacs without collateral security for providing loans. Disbursement system will carry out by means of courier services.
• Explain the internal and external forces that will impact the mission of the organization. In terms of SME, it has various unit offices surround the country and has vast number of employees to handle different clients.
• Identifying the basic driving force that will direct the organization in the future. In terms of SME of BRAC Bank, it believes integrity, honesty and conciseness bilaterally of clients and us.
• Develop a set of long term objectives that will identify what the organization will become in the future. In terms of SME it has a long term vision to run into the organization.

Basically a strategic plan defines the organizations overall mission and objective. Within each business unit, marketing plays a role in helping to accomplish the overall strategic objectives.

Market Segmentation

The market consist of many types of customers, products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives. SME segments market into three categories: Trading, Manufacturing and Service. In trading business, there are different kinds like retailer, wholesaler, food business, general stores etc. in manufacturing, there are mills, bakery, press business, etc. In service business, there are pathology, hospitals and satellite business.

Bases for Segmenting Consumer Markets

There is no single way to segment a market. A market has to try different segmentation variables, alone and in combination, to find the best way to view the market structure.

Geographic segmentation: dividing a market in to different geographic units such as nations, states, region, countries, cities, or neighborhood. In terms of SME, it targets every region around the country in terms of small business. Now the SME has almost 265 unit offices to provide credit facilities to the clients around the country.

Demographic Segmentation: Dividing the market in to groups based  on demographic  variables such as age, sex, family, income, education, religion and nationality. In terms of SME, in some cases it is very strict.

Behavioral Segmentation: Behavioral segmentation divides buyers in to groups based on their knowledge, attitude, uses or responses to a product. basically SME segments clients at least whether the clients can understand his/her own business. SME gives very importance on attitude. At the first sight if any client behave rough then CRO never go to that particular client.

Target Consumer

To succeed in today’s competitive marketplace, organization must be customer centered and keeping them by delivering greater value. But before it can satisfy customers, organization must first understand their needs and wants. There are two many different kinds of consumers with too many different kinds of needs and some organization in a better position to serve certain segments of the market. In terms of SME of BRAC bank, target customer’s basically small and medium enterprises. BRAC bank SME targeted customers those who have minimum income of 40-70 thousand taka per month. So SME mainly targeted those clients who actually understand his own business. There are three sectors of target customers which SME follows: Trading, Service and Manufacturing. Basically according to the clients demand, SME support them financially to enhance their business.

Market Targeting

The process of evaluating each marketing segment’s attractiveness and selecting one or more segments to enter.  In terms of SME, the scope is specified which the target market is small and medium enterprise. But SEM is restricted on leather, jewelry and alcohol business.

Differentiated marketing: using a differentiating marketing strategy, an organization decides to target several markets or niches and designs separate offers for each. Basically it provides the loan within 25 days and gives the highest months to repay the loan than other banks. SME also categorizes the dealings with the customers in A, B & C groups.

A-Categories officers are dealing with the high educated clients, like MBA or PhD holder or highly social client.

B-Categories officers are dealing with the undergraduate or normal standard clients.

C- Categories officers are dealing with the non educated or illiterate normal clients.

 Market Positioning

Arranging for a product to occupy a clear, distinctive and desirable place relative to accomplish products in the minds of target consumers. Formulating competitive positioning for a product and detailed marketing mix to meet the customer demands, SME already establish different offices across the country. To positioning in the market, SME not only provide loan but also they give some valuable ideas to enhance the clients business and for economic development.

Once a company has decided which segments of the market it will enter, it must decide what positions it wants to occupy in those segments. A products positioning in the way the product is defined consumers mind relative to competing product. Main head office of SME is in Dhaka city and rest of its unit offices are spread out surrounding the country. Each unit office consist of 2 or 3 CRO who provides door to door services, they even work at night. Many banks have field officers but could not carry out the unit office facilities. So BRAC bank can reach to the potential clients at anywhere in the country.

Unique Selling Propositions:

Facilities- the main facility of SME is to provide quick service to the clients, which might take 15 to 20 days. Hypothecation loans are collateral security free which other banks take securities. If any clients got serious problem in business after taking SME loans then it gives reschedule to repay the clients loan. While taking repeat loan SME provide various facilities to the clients.

Different features- IFC and Shore banks are going to carry out equity participation with BRAC bank. It will deposit more funds to provide more loans to the clients, which cover around the whole country

Different services- to get the loan, client do not have to go in bank directly. All sort of work are done by the CRO for clients to have the loan quickly. In terms of necessities CRO go to clients home and bring repayments of the loan. In favor of clients, CRO also work in holidays.

 Marketing Strategies for Competitive Advantages

To be successful the company must do a better job than its competitors for satisfying target consumers. Thus marketing strategies must be geared to the needs of consumers and also to the strategies of competitors. The core competency of SME is that it already set up the business around the country and marketing officers go to the door to door to the clients. On the other hand, it provides the highest amount for unsecured loans than other banks. Also it provides extremely quick services to clients by getting the loan.

 Developing Marketing Mix

The set of controllable tactical marketing tools- product, price, place and promotion that the organization blends to produce it wants in the target market. The many possibilities can be controlled into four groups of variables known as the four P’s: Product, Price, Promotion and Place.

a. Product means the goods and services combination the company offers to the target market. In view of SME, they have short term and medium term loans whether CRO provide quick and quality services to clients. Customer service is another element of product strategy. A company designs its products and support services to profitability meet the needs of target customers. Short terms products means 3/6/9/12 months loan and mid term product means 15/18/24/30/36 months loan. For example- in Eid occasion most cloth merchants want short term loan to carryout a profitable business.

b. Price- is the amount of money customers have to pay to obtain the products. In terms of SME of BRAC bank, clients have to pay a certain amount of processing fees and stamp costs to get the loan. One of the factors that affect the companies own pricing moves. For example- many banks have processing fees with 1% or 2% additional charge and other miscellaneous costs. But BRAC bank has withdraws other costs and charges to carry out in the competitive market.

• Costly- BRAC bank SME interest rate is 24%. So it is little bit of costly by the competitive edge but the client gets this loan within very short period of time. In this situation client can not think about the interest rate because at the right time they get the loan which they can exercise in their business can yields profits.
• Easy sanction– If the CIB (Credit Information Bureau) is being cleared from Bangladesh Bank and all information is being transparent from client then the loan is become sanctioned in favor of client.
• All time consultancy– without taking any money, the officer of this bank give moral advices to clients to develop the business.

c. Place (Distribution) includes company’s activities that make the product available to target consumers. SME already spread out its unit offices around the country. SME tries to reach each and every small business enterprise to meet client’s demands. Marketing channel decisions are among the most important decision that management faces. Management must make channel decision carefully, incorporating today’s needs with tomorrow like selling environment. SME of BRAC bank already has 265 unit offices, which is spread throughout the country and 173 staffs working under this unit office. These officers have respective selected supervisors who directly report to the SME main head office. So SME division has everywhere in Bangladesh to serve all respective clients.

d. Promotion- means activities that communicate the merits of the product and persuade target customers to buy it. For example- up to 8 lacs taka SME don’t take collateral security to provide loan. Also for the repeat borrowers SME discounts up to 6% interest rate and tk 1000 for the respective client. Advertisement is one of the major elements in promotion. SME is focusing customers by printing various leaflets, magazines and showing banners in front of their respective unit offices.

Door to door service– it is a door to door customer services to clients. CRO knock the door of the business enterprise whether the client has required any loan or not.

Market to non Bank people: there are some clients who do not maintain any account in the bank. They deal by cash. By providing BRAC bank loans, these sorts of clients can be attached with the banks. Also they can understand more about banking and can have a good relationship with them.

Neglected People– there are some people who are very afraid of dealing with the bank. They were very simple dresses too afraid to the bank. But they are carrying out good business and potential clients. They could be target for the BRAC Bank Limited.

The 4 P’s of the marketing mix in terms of SME of BRAC bank

Managing the marketing effort in terms of SME

The company wants to design and put in to action the marketing mix that will best achieve its objectives in its target market. Many organizations follow four marketing management function-

  Analysis,

  Planning,

  Implementation and

  Control

Different categories of business

 In terms of survey analysis, it found that 55% of the clients are involved on trading business on the basis of banks enterprise scenario. Almost 30% sample clients are carrying out manufacturing business in our country and few are engaged in service business.

The loan area preference

Customers mentioned that they prefer their business area, which are close to their premises. It helps them to carry out their own business by staying in close and have mental satisfaction. Some clients commended that it would be risky if the location of the business is become far.

Age limit of the client

According to the survey, most of the clients are carrying out business whose ages are from 30 to 50. It has been found that few clients are on above 50. SME believes that in terms of our age limit in this country it will be very risky to provide loans above 60 aged clients.

Business maintains other loans or not

 It could be analyzed that most of the clients do not maintain taking BRAC bank SME loans. Small amount of clients are maintaining personal loan and few are carrying out lease financing for their internal activities.

Educational qualification of the clients

It can be state that the educational qualifications of the most clients are very poor at this business level in our country. Most clients have passed SSC and very few completed Graduation or Masters. In terms of their low educational background might not help long run decision making.

Business commencement

 Client has to maintain at least one year running business to have this loan. So by carrying out business clients should understand better about his/her own business or future plan and what would be the main season to have the loan.

Business required any loans

78% clients demand small loans whether it can develop their own business, which found in the survey. Few clients think that to take loan might be risky to carry out the business.

Purpose of loans

Most clients want loan to meet their working capital requirements. In our country most clients carry out trading business rather than manufacturing business. Few clients demand manufacturing loans to purchase of fixed assets.  In this case clients require medium loans like 15-30 lacs for purchasing fixed assets.

Rate of interest

52% clients are satisfied on existing interest rate by comparing with other banks in terms less security. Most clients prefer reducing balance method that BRAC bank proportion in favor of clients. 43% clients are not happy to get this loan with charged interest rate. They think interest rate should be reduced. 5% clients disagreed to comment on this regard. SME believe that they do not have any hidden costs and free from bribes. It is a fresh organization whether clients can have for loans in terms of small enterprise.

Duration of loans

In spite of analysis, most clients want more duration or time to repay the SME loan. More time means less amount of money to repay the loan whether clients think beneficial of it. Very few clients demand short term or single payment loan to repay.

Security preference

According to the survey, it can imply that 75% of the clients want to provide deposit hypothecation of business assets against loan which also they feel less risky. If the clients go for big amount then they have to deposit registered or equitable mortgage against loan which they feel too much risky. But land property sometimes carry triples amount of security from loan amount. So it they fail then the might sell their property.

Graph-8

Clients want fast service

According to the survey, it can be said that 55% of the clients avail the loan within 15 days. In terms of getting the loan clients buy the raw materials or order suppliers. A good number of sample clients will be satisfied if they get loan with 20-23 days. They are general clients and they do not have hurry to carry out business. Very few clients opine more than 25 days because in this case clients deposits land security. So automatically it takes more time to avail the loan.

Repay monthly installment

Majorities of clients are happy to repay the loan by equal monthly installment. Clients know when where and how they will repay the money. So there is not botheration between clients and CRO.

Business expansion from trading to manufacturing

n terms of survey, it has found that almost 55% of clients interested to expand the business from trading to manufacturing. Purpose of the loan is economic development in our country, which might divert the clients mind after having the loan expansion. 30 clients are not interested to expand their business from trading to manufacturing. 15%  did not answer this question.

Clients feel comfort to provide information

As we know that it is door to door business, so clients have to provide right information and show the right documents to CRO to get the loan at the right time. It can state that almost all clients feel comfortable to provide necessary information to avail the loan. If the client does not believe the CRO to show necessary documents or tell lie then CRO rejects the proposal without informing any top management.

Services by the CRO of SME of BRAC Bank Limited

According to survey, it can say that almost all clients are satisfied by service of CRO. In terms of SME, CRO is all in all to provide loan to customers. It is pioneer division and customers are fully satisfied by having this facility. Some times clients who do not get loan can complain to top management regarding CRO. In this case supervisors handle the situation to solve problem.

Most customer think that the SME of BRAC Bank Limited have voluntary changed because they are now providing quick services as well as quality services to the customers and they also very helpful. Customer mentioned that present level of customer service is doing very good because customers reflection tells that they are much better satisfied towards today’s service of SME, BRAC Bank  rather than the past.

Loan Sanction activities

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

• NIL
• UC (Unclassified)
• SS (Substandard)
• DF(Doubtful)
• BL (Bad lose)

Loan decision considering CIB report: Considering CIB report, BRAC bank decide whether it will provide loan the client or not. If the bank decides to provide loan then the SME of head office keep all information and send all papers to the respective unit office to apply with all necessary charge documents.

Loan Sanction: The respective unit office sanction loan to the client if it is 2 to 5 lacs and they send the sanction letter including all necessary charge documents to the loan administration division for disbursement the loan. If the amount higher than 5 lacs then the respective unit office send the proposal to SME, head office for sanction. The head of SME sanction the loan and send the sanction letter including all documents to the loan administration division for disbursement and inform the respective unit office regarding sanction of the loan.

Disbursement of SME loan

Pre Disbursement Manual Activities

• Prepare loan file: Receiving all documents, Loan Administration Division prepare a loan file with all documents received from the unit office.
• Charge documents checking: The loan administration division checks all charge documents. following charge documents are checked:

  Money receipt (Risk fund)

  Sanction letter

  Demand promising note (With stamp of Tk 20/=)

  Letter of arrangement (With stamp of Tk 150/=)

  General loan agreement (With stamp of Tk 150/=)

  Letter of undertaken (With stamp of Tk 150/=)

  Letter of stocks and goods (With stamp of Tk 150/=)

  Letter of hypothecation book debt and receivable(With stamp of Tk 150/=)

  Letter of disbursement

  Photocopy of trade license (attested by CRO)

  Insurance (Original copy)

  Blank claque with signature (one cheque for full amount and others same as no of installment on Favor of BRAC bank, no date, no amount)

  Two guarantors ( one must be Spouse/parents)

  If the loan provide for purchase of fixed assets or machineries and if the loan amount is over Tk 50,000/= then the stamp of a certain amount is require)

• Documents deficiency and problem resolving: If there is any error found then it informed to the respective CRO. If the application form is not filled properly then the file send to the CRO to fill the application properly. If any document error found then the loan administration division asked the CRO to send the require documents and the file stored to the loan administration division.
• Prepare disbursement list: The loan administration division lists all new sanctioned clients’ details and send a request to the treasury through internal mail.
• Disbursement of the amount: Sending the list to the treasury of BRAC bank for disburse the amount, the treasury disburse the amount to the client through the mother account of the clients bank. BRAC bank disburse amount through any of the following banks corporate branch nearer the BRAC bank head office and the corporate branch of the respective bank send the amount to the client account in the respective branch. These banks are:

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

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

MBS entries for loan disbursement

• Initial ID generation
• Loan account opening
• Cost center assign
• Risk fund collection
• Activision of the loan

Post Disbursement Manual Activities

Repayment schedule sent to unit office: Completing the disbursement of the sanctioned amount the loan administration division prepare a repayment schedule in MBS and send it to the unit office. CRO from the unit office collect it and reached to the respective client. The client repays the loan according to this schedule.

Loan details MBS entry: The loan administration division enters details information regarding the loan in MBS. Each officer has an ID no in MBS and if there is any error found then the respective officer will be responsible for it. So every body remains alert at the time of MBS entry.

Document stamp cancellation: The loan administration division cancels all document stamps. In future if any client found defaulter and the bank file sued against him then stamps of these document help to get the judgment favor of the bank. But If these stamps are not canceled then the judgment may not on favor the bank.

Send the loan file to archive:  completing all activities, loan administration division sends the loan file to the archive for future requirement. In future if any document of the loan account require then the bank can collect the file from archive and get the necessary document. If the client take repeat loan then it is not require to apply all documents because his all documents stored to the bank.

 SME Loan Recovery Procedures

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

Entry the installment information to MBS: Loan administration division entry the repayment installment information to the banking software MBS.

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

Cross Check SMS/Fax and solve problems (If any): The loan administration is responsible for all entry in MBS. If the there is any error found in future then the respective officer who is entering these information in MBS will be liable for it. It will be easily identified by user ID. So they always aware of ensure the correct entry. Completing the entry of information, they print a hard copy and cross check it with the SMS/Fax. If there any error found then it is solved and ensure the correct information entry.

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

 Closing procedures of SME loan

Pre-closing manual activities

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

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

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

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

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

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

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

MBS entries for loan closing

Pre closing data entry: Completing the manual activities, the loan administration division enters some information to MBS for future requirement and complete following tasks:

• Interest/provision charging & print voucher
• Charges collection & print voucher
• Final repayment entry & print voucher
• Final repayment entry checking
• Repayment voucher posting

Activate account closing in MBS: Completing above mentioned tasks, the loan administration division finally close the requested loan account in MBS.

Post closing manual activities

Re-checking with deposit slip:  Completing MBS activities, the loan administration re-check all deposit sleeps of the loan account. If there is any error found then immediately resolves it otherwise the file sends to the archive for future requirements. The client may take repeat loan in future and then information from this file will help to approve and disburse loan which will minimize risk. If the client asks to return security then the loan administration releases security completing following tasks:

• Documents photocopy before security release
• Closing certificate issuing and security release

Daily MIS updating for loan closing:  Finally the authorized officer of the loan administration division update the banking software MBS (Millennium Banking System) by closing the respective loan account.

 An overall case study

Alternative sources of funds from the view point of clients

BRAC Bank provides financial assistance to potential enterprises and committed entrepreneurs up to the amount of 2 to 30 lacs. There are also other sources of funds like nationalized commercial banks, private commercial banks that provide financial assistance to the enterprises. The alternative sources of funds from the viewpoint of clients are discussed below:

• Nationalized commercial banks: Once nationalized commercial banks provided most of the finance to the enterprises. Gradually, various kind irregularity, regulation, red tapism etc creates pains for entrepreneurs. As a result, various types of private commercial banks have emerged.
• Private commercial banks: Presently private commercial banks are providing better services than the nationalized commercial banks to the clients. But these banks are fouling mainly the large and medium scale business. As a result, small enterprises are not found by these banks.
• Other financial institutions: Other financial intuitions like various leasing corporations finance to the enterprises. But the small enterprise has no better access to these types of financial institutions.
• Relatives and friends: The above sources of funds are providing finance to the enterprises. The interested clients have to find out these organizations and communicate for financial assistance. On the other hand the CRO of BRAC bank find out potential enterprises for financial assistance. Though BRAC bank and alternative sources of funds of BRAC Bank provide loan to the client, BRAC bank is more client’s service oriented.

Interest rates and other charges and comments of clients- BRAC Bank provides mainly medium term loans to small enterprises and the repayment system is monthly installments. Say for example: if 3 lacs loan is provided to an enterprise for a 18 months, this enterprise will repay tk 19142 as monthly installment. Thus total amount repay by the enterprise is Tk 344556/= where Tk 300000 is principal and 44556 is interest. Some clients based on the nature of business feel the system unsuitable because the principle amount is not used for the whole period of the loan.

This is another system for providing loan to the enterprises which term loan. After a specific period of time the principal amount repaid, but the client quarterly tie should pay the interest, after each 3 month. In this case the rate of interest is 24%. The clients who have easy access to the various commercial banks, they are a little bit dissatisfied because most of the ease, they have pay bribe or they are not satisfied by the behaviors of the bankers of these banks, where CRO perform most of the function of the client.

when the client heard that CRO will perform most of the function for taking the loan, then considering his time, loan land cost reduction satisfied the client.

Findings & Recommendation

Our country is an under developed one. For being adjoin in the race of development SME plays vital role. BRAC Bank has undertaken a well endeavor to boost SME through dispersing loan. However it is not sufficient. Other banks & financial institution should move ahead the very activities. The smallest portions of population engaged in SME are being benefited whether the largest portion is reluctant. Progression will remain untouchable if the majority of population is far away. The following clarification should be considered therein-

      Remove complexity in loan disbursement process: The process of loan disbursement is a lengthy process. There are many steps undertaken in the process. Mainly there are three steps. They are pre disbursement, disbursement and post disbursement process. Each of those steps can be and should be made easier and simpler. Then the customer will be more interested to get the service.

      Quickening cash disbursement: The speed of the cash disbursement is not up to the mark. There are some excessive requirements to be fulfilled for the cash disbursement. The process should be faster to get the optimum benefit of the loan service.

      Remove or reducing the requirements of eligibility: There are many requirements to be satisfied by the client to get the loan. So, many potential customers are remaining out of the loan service which is contradictory with the vision mission of the organization. So, the       requirements for eligibility should be made less strict.

      Door to door marketing activities: To ensure as many people as possible will be benefitted from loan service there should be an extensive door to door marketing. To make every potential client informed about the service make them availing the service the door to door marketing is very much essential.

      Involvement of local authority and leaders: To make the whole process smooth and to get support from the local authority and leaders it is important to involve them in the process.

      Flexibility in loan recovery procedure: The loan recovery procedure should be flexible. The repayment system, Installment entry process, checking and problem solving process should be smooth, flexible and flawless to ensure the efficiency of the whole process.

      Focus on relationship based and customer oriented marketing: Long term relationship should be made with the customer. And marketing should be customer oriented. The needs and expectations of the customer should be prioritized to ensure the optimum customer satisfaction and to build a long term good relationship with the customer.

      Ensure effective team performance: There should be strong team spirit. In accomplishing the tasks effective teams should be involved. It will be far much easier to achieve the company goal if effective and efficient teams can be built.

      Building collaboration with other financial institution: There should be collaboration with other financial institution for different kinds of mutual co-operation and support.

      Flexibility in loan securities: Loan securities should be more flexible and security requirement should be less strict to ensure the involvement of more people in the loan service.

      Launching performance and loan payment based reward: Launching performance and loan payment based reward will be beneficial for the service. Because it will inspire the performance and loan repayment thus would help the whole process to run smoothly.