SME Banking System of Standard Chartered Bank

Background of the Report:

Through this report an individual can expect to have a good knowledge and understanding on the various methods of operation performed by Standard Chartered Bank particularly in the area of Financial Institutional Services. From the last three months of the bank’s disbursement, everything is tried to include in precise form. I have tried my level best to put more emphasis on the SME loan and its recovery process since it was the topic of my thesis  program. This report is to be used only for the academic purpose. I have collected all the necessary and relevant data from various primary, secondary and tertiary sources. After three months long hard labor, it has become possible for me to make the report comprehensive and factual. The data is truly and strictly confidential and no one can use its components in full or partial. I would like to give thanks to everyone who has helped and encouraged me in the process of preparing this report.

Origin of the Report:

As a mandatory part of the MBA program, all the students of Faculty of Business Studies, ASA UniversityBangladesh have to undergo a three-month long thesis  program with an objective to gain practical knowledge about business world. After this program, the students have to submit an thesis  report, which reflects their activities during the program. In SCB I was assigned in the Asset Operations Department. My organizational supervisor was Sukumar Sinha, Head of Trade Services. My project is ‘An overview on repayment behavior of SME loan borrowers of Standard Chartered Bank’ which was assigned by my internal supervisor Ajay Kumer Sarker, Officer, Trade Service.

Objective of the Report:

Broad Objectives

      To analyze the repayment behavior of SME loan borrowers

      To know SME loan and its process of recovery

Specific Objectives

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

Methodology:

Data requirements:

 In fact, my aim was to collect as much information as it can be possible for me to make an overview of the bank, its mission and vision, its departments and its functions. Of course I had to collect enough information so that I can make an analysis of SME loan and the specific behavior of its borrowers. I have collected around forty customers’ information so that I could know something about their age, education, experience, loan repayment behavior and so on. The data collected allowed me to make an analysis regarding SME loan, its process starting from sanction of loan to closing of loan and especially regarding SME loan borrowers behaviors that is whether they are paying dully or lately or they have any default tendency.

 Sources of data:

For collecting the required data, I have used different sources or methods like the following:

Primary data sources:

•        Interviews  of Customer relationship officers(CROs)
•        Focus group meetings
•        Direct observation
•        Secondary data sources:
•        Operational manual
•        Official Website
•        Banking journals
•        SCB newsletters
•        Research papers

Techniques of analysis:

Quantitative and qualitative data were collected and analyzed according to acceptable standards of practice. Different tables and graphs were used to make the data meaningful and comparable. Qualitative data were analyzed rationally and in comparison with current market condition. Necessary percentages and averages were calculated and the analyzed results were described step by step.

 Scope:

Scope of the study is quite clear. Since Asset Operations Department is dealing with all types of loan activities in the bank, studying these core themes, Opportunities are there to learn other aspects of SME matters.

•       Concept of SME and its impact in overall economy of Bangladesh
•       Entrepreneurship development situation through SME banking
•       Importance of SME banking in context of Bangladesh
•       Pioneer’s strategy regarding SME banking
•       Small entrepreneurs of rural –urban spectrum are enjoying the SCB loan facility without the presence of bank at rural area.
•       Virtual banking concept through SME banking

 Limitations:

The study has suffered from a number of barriers

Data from SCB is highly confidential for the outside people and I had no authority to use the core banking software.

SCB changes its core banking software, MBS to Finacle that’s why all the employees are very busy with their work, sometimes I had to wait more than one week for a piece of information.

Time is also a big constraint for my research. I have to submit a broader deal in a shorter form of outcome.

It was difficult to communicate with the customers, as many of them were unable to give me much time for interview.

 As I have taken a sample of 37 observations, there may be sampling error.

I had to go under my day to day job responsibility that I was supposed to do so. So I could get few more time to spend in collecting data for preparing my thesis  report.

Organization Overview

 preambles

Standard Chartered Bank, with institutional shareholdings by Standard Chartered Bank, International Finance Corporation (IFC) and Shore cap 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.

A fully operational Commercial Bank, Standard Chartered Bank 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 1700 crore in loans to nearly 50,000 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 26 branches, 350 SME unit offices and 25 ATM sites across the country, and the customer base has expanded to 200,000 deposit and 45,000 advance accounts. In the years ahead Standard Chartered Bank expects to introduce many more services and products as well as add a wider network of SME unit offices, Retail Branches and ATMs and paid up capital of the same bank is Tk 700.million.

Background of the Organization:

This project is a requirement of MBA Program and includes experiences during preparing this project. This report is about the Credit Card Services of Standard Chartered Bank in Bangladesh. Here the project contains different system, program, process, features and benefits of Credit Card.

Standard Chartered Bank is a multinational bank and started its business in Bangladesh in 1948 with a branch in Chittagong. Today it has 18 branches and 25 ATMs in different important places of this country. Standard Chartered Bank is the pioneer issuer of Credit Card in Bangladesh and it is also pioneer acquirer of Credit Card in Bangladesh. It acquires credit card since 1988 and started issuing credit cards from the year 1997. Today it has in total approximately 100,000 credit cards in the market with approximately 4000 merchants.

Logo of Standard Chartered Bank:

Corporate Vision:

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

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

“Building a profitable and socially responsible financial institution focused on Markets and Business with growth potential, thereby assisting Standard Chartered Bank 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 Standard Chartered Bank field offices for delivery of Remittance and Bank’s other products and services

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

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

 Corporate Values:

The Bank’s Strength emanates from its owner – Standard Chartered Bank. This means, it will hold the following values and will be guided by them as it does its jobs.
Value the fact that we are a member of the Standard Chartered Bank 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:

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

Objectives of the Bank:

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

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

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

Bank’s Culture:

Bank has adopted trust as a corporate value which is acronym for team work, respect for all people, unquestionable integrity, excellence in everything Standard Chartered 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 & Inducements:

It is not acceptable to offer or receive any form of bribe or inducement, or direct anyone else to do 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 to induce them to exercise their discretion in the bank’s favor

Departments of Standard Chartered Bank:

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

1. Human Resources Department
2. Financial Administration Department
3. Asset Operations Department
4. Credit Division
5. SME Division
6. Internal Control & Compliance Department
7. Marketing & Product Development
8. Impaired Asset Management
9. Remittance Operation Department
   1.    Treasury Front
   2. Treasury Back
      1. General Infrastructure Service
      2. Information Technology Department
      3. Customer Service Delivery
      4. Cards Division
      5. CallCenter
      6. Cash Management
      7. Secured Remittance department
      8. Women Entrepreneur Cell
      9. Payment Service

 Business Units:

There are five different business units generating business Standard Chartered Bank:

      Small & Medium Enterprise (SME)

      Corporate Banking

      Retail Banking

      Treasury

      Remittance Services

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

Products and Services:

Small & Medium Enterprise (SME):

For SME loan operation,

Standard Chartered Bank Ltd has in total 75 unit offices, 80, 12 territory and 1800 Customer Relationship Officers. These CROs work for the Bank to converge clients for getting the SME loan. Once CROs get the loan application and if it is less than 500,000 TK then zonal officer has the authority to approve the loan. But if it is above 500,000 then the CROs send it to Head Office for all necessary approval. After approving the loan then Asset Operation Department starts its work. As the scopes of businesses are growing, the amount of files and disbursement is getting bigger. In May 2011 , AOD has processed 3249 files amounting Tk. 1,235,200,000. So SME Division’s success greatly relies on the performance. Up to April 2011 , Standard Chartered Bank provides loans for 70000 clients and in total 2265 crore TK. But the most important thing is only 17 crore TK is bad loan; this is a great achievement for SME unit of Standard Chartered Bank. Currently they have 44147 outstanding clients and in total 1070 crore TK SME loan.

SME Products-

1. Prothoma Rin.

          2. Supplier Finance.

          3. Anonno Rin.

          4. Digoon Rin.

          5. AroggoRin.

          6. Pathshala Rin.

          7. Opurbo Rin.

SME Loan process flow is shown below-

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

Corporate Banking:

Categories- the facilities our corporate Division offers to our customers are mainly of two-

1. Funded Facilities
2. Non-Funded Facilities

Funded Facilities-

Funded tells us that this type of facilities allows the customer to have money ‘on his hand’ for use i.e. he will get money as to meet his business demand. Examples are-

Working Capital Loan.

Over Draft Facility.

Term Loan.

Lease Finance.

Demand Loan.

Non-Funded Facilities-

Non-Funded facilities are those type of facilities where customers don’t get fund on their hand rather get Bank’s Guarantee service to do international trading-import and export. Letters of Credit, Bank guarantees etc. are the examples of the non-funded facilities.

Working Process of corporate wing-

An example will be handy to understand when the corporate wing starts its work. Say you are one of our clients. You need Tk. 5 core to be used in your business. The first you may contact is the RM (Relationship Manager) who is our delegate to make all kinds of negotiation with you. He then Would take the proposal to the corporate Head takes it for further analysis such as whether it would be profitable venture for the Bank, or whether the Bank can disburse more in the industry etc. Then if the Corporate Head thinks it fit to go ahead, he then would take the file to the credit division – works to find out the worthiness of the borrower and other relevant facts important to assess the possibility of recovery.  Then it goes to the credit committee and then finally the file goes to the Managing Director. A diagram is given for better understanding-

 Retail Banking:

Retail Loans are consumers’ loan. Based on the customer demand these loans are given. Standard Chartered Bank has a wide range of retail loan-

1.  Car Loan.                                                         2. Doctor’s Loan.

3.  Secured Loan/OD.                                           4.  High Flyer Loan.

5.  Top Up Loan.                                                   6.  Credit Card Loan.

7.  Study Loan.                                                     8.  Teacher’s Loan.

9.  Now Loan.                                                       10. Salary Loan.

Standard Chartered Bank’s Retail Division is being operated centrally. Under the Retail Banking Division all the branches, which acts as sales & service center, are reportable to Head of Retail Banking. Different products of Retail Banking are as follows:

i)                    Deposit Products

ii)                  Lending Products

iii)                Locker Services

iv)                Remittance Services etc.

The product and services that are currently available are given below-

I) Depository Products

Standard Chartered Bank is now offering 6 depository products for mobilizing the savings of the general people:

• Savings A/C
• Current A/C
• STD A/C
• Fixed Deposit A/C
• DPS A/C

II) Loan Products

Standard Chartered Bank is offering the following loan and advance product to the client for financing different purpose that fulfill the requirements of the bank and have good return to the investment as well as satisfy the client. The loan and advance products are:

III) New Product and services

The bank has its concentration for new product and services development for satisfying its customer and increasing its customer base. The bank firmly believes that technology based product and services will play significant role in the performance of the bank as people are getting more conscious about their service quality. They prefer now faster service with least cost. For delivering faster service the bank has introduced online banking service from the very beginning. There are some new products and services that SCB has lately introduced. These are:

 Now Loan

 Salary Loan

 Credit card Services (Proposed)

 Islamic Banking Services (Proposed)

 ATM services

Standard Chartered Bank is always emphasizing the improvement of banking service and betterment of living standard of the general people of Bangladesh. The product and services are targeted to the lower level to the upper level income group in deposit collection. For lending, the services are made if certain requirements are fulfilled.

IV) Treasury

Money Market Desk

Standard Chartered Bank has a strong presence in the Treasury Market in Bangladesh. The Money Market Desk of the Treasury Division mainly deals in Bangladeshi Taka transactions. The basic activities undertaken by the Money Market Desk are:

• Management of Statutory Reserves viz. Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR)
• Daily Funds & Liquidity Management
• Investment Management

Treasury Services

• Call/Overnight Lending & Borrowing
• Term Money Borrowing & Lending
• Repurchase Agreement
• Treasury Bills (T-Bills)

v) Secured Remittance Services (SRS)

Standard Chartered bank has introduced an innovative remittance services for Bangladeshis living abroad with some unique features compared to any of the existing remittance program. Bangladeshi expatriates can now send their money to their relatives any where in Bangladesh even to the remotest part within 24 hours at a reasonable cost and competitive exchange rate.

vi) Information Technology (IT)

Standard Chartered Bank Ltd. is currently running countrywide true online banking system. The system allows their customers to do transactions all around the country. The bank cheques are all marked with Barcodes that makes each cheque unique and disallows it to be duplicated. All the signature and customer information with their pictures can be verified from any console at any branch on the bank. We also ensure Offsite backup and Disaster Recovery. Their Goal is to provide a true online baking system, which will not only fulfill the demand of time but also set new benchmarks in twenty-first centuries banking world.

Special Features

       All Branches are computerized

       99% of the bank’s work is automated using latest technology

       Standard Chartered Bank is a member of SWIFT community

       Intercity Branches are connected via optical fiber backbone network

Branches:

Standard Chartered Bank is fast growing commercial banks in our country. Bank has established a good operating network throughout the country. It has 26 branches throughout the country till December 30, 2006

 Performance of Standard Chartered Bank:

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

Capital Fund:

The authorized and paid up capital of Standard Chartered Bank is TK.1000 million and TK.500 million respectively.  The paid up capital is one of the strongest in the banking industry. The bank is going to raise its paid up capital in the month September, 2008 by TK.500 million with issuing public share of 5, 00,000 of TK.100 each.

Internal and External source of cash

(Amount in Taka)

Topic Analysis & Description

Overview on SME loan

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

 SME Loan?

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

Support Small Enterprise:

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

1. Economic Development

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

Employment Generation

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

Profit Marking

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

Encourage Manufacturing

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

Spread the experience

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

Security Documentation against Loan:

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

Purpose of Decorate Documentation and its Importance:

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

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

 Type of Securities:

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

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

        Mortgage of loan and other immovable property with power of attorney to sell

        Lien of Fixed Deposits receipts with banks and other non-banking financial institutions, lined, these have to confirm by the issuer.

        Lien of Pratirakshay sanchay patra, Bangladesh sanchay patra, ICB unit certificates and wage earner development bond, all considered Quasi or Near cash items

        Lien of shares quoted in the stock exchange (This is rarely accepted)

        Pledge of goods (Banks are akin to stay away from such securities now a days)

        Hypothecation of Goods, Book Debt & Receivables, Plant & Machineries

        Charge on fixed assets of a manufacturing enterprise

        Lien of cheque, Drafts and order

        Lien of work orders, payment to be routed through the bank and confirmed by the issuer.

        Shipping documents of imported goods

 Land Related Securities Documentation   Process:

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

        Title Deeds or Deed of conveyance otherwise known as ‘Jomeer Dalil’ which signifies ownership of a particular land.

        Baya Dalil or Chain of Documents, which signifies that the conveyance of titles has been proper and legal.

        Mutation Certificate if Khatian which signifies that the title if the land has been duly registered in the Government/Sub-registrar’s records.

        Duplicate Carbon Receipt or DCR

        Latest Khajna or land rent receipt

        Purchase such as CS Khatian, SA Khatian and BS Khatian

        Mouja Map

        Municipal rent receipts if the land falls within a municipal area

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

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

Mortgage:

I) Equitable Mortgage or Memorandum of Deposit of Title Deeds

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

 ii) Registered Mortgage

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

Basic Charge Documents:

i) Sanction Letter

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

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

       The signature on the documents should be made in the presence of the CRO. The CRO should sign as witness on all charge documents.

       The document are to be filled in with permanent ink or typed

       If the document consist more than I page, the borrower should sign on each page

       If the signature of any third party is required to be obtained whose specimen signature is not available, then the main applicant should verity the specimen signature of the third party

        No document or column in any document should remain blank

       As far as possible there should be no erasure, cancellation or alternation in the document. If, however, there is any correction, overwriting or alteration, then that must be authenticated by a full signature of the signatory.

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

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

        Demand Promissory Note

        Letter of Continuity (This is not always taken if there is only loan disbursement)

        Letter of Arrangement

        General Loan Agreement

        Letter of Disbursement

        General Loan Agreement

        Letter of Disbursement; Basically a letter requesting disbursement of the loan

        Letter of Installment, in case the facility is to be repaid in installment

Other Basic Charge Documents:

i) Demand Promissory Note (DP Note)

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

ii) Letter of Continuity

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

iii) Letter of Arrangement

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

iv) General Loan Agreement

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

v) Letter of Disbursement

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

 Other Security Documents:

i) Letter of Undertaking

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

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

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

iii) Letter of Hypothecation of Plant & Machinery

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

iv) Letter of Lien

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

V) Right to Set Off

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

vi) Letter of Disbursement

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

vii) Personal Guarantees

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

Selection of Potential Enterprise for SME:

Enterprise Selection Criteria:

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

1. The business must be in operation for at least one year
2. The business should be environment friendly, no narcotics or tobacco business
3. The business should be legally registered, i.e., valid trade license, income tax or VAT registration, wherever applicable.
4. The business should be in legal trade, i.e.; smuggling will not be allowed or socially unacceptable business will not be entertained.
5. The business must have a defined market with a clear potential growth
6. The business must be located ideally close to the market and the source of its raw materials/suppliers. It should have access to all the utilities, skilled manpower’s that are required.
7. Any risk assessed by the management in turn will become a credit risk for the bank. So effort should make to understand the risk faced by the business.

Entrepreneur Selection Criteria:

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

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

Guarantor Selection Criteria:

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

1. The guarantor must have the ability to repay the entire loan and is economically solvent (Check his net worth)
2. The guarantor should be aware about all the aspect of SEDF loan and his responsibility
3. 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 cannot be selected as a guarantor.
5. The guarantor should know the entrepreneur reasonable well and should preferably live in the same community

 Terms and Conditions of SME Loan:

The SME department of Standard Chartered 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;

Operating Profit Chart

 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 Standard Chartered Bank A/C. With Bank’s named and branches name

The borrower has to issue an account payable blank cheque in favor of Standard Chartered Bank 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 “Standard Chartered Bank”.

 The borrower has to give necessary and adequate collateral and other securities as per bank’s requirement and procedures.

SME, Standard Chartered Bank may provide 100% of the Net Required Working Capital but not exceeding 75% of the aggregate value of the Inventory and Account Receivables. Such loan may be given for periods not exceeding 18 months. Loan could also be considered for shorter periods including one time principal repayment facility, as stated in loan product sheet.

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

 Monitoring:

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

 Importance of Monitoring:

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

 Area of Monitoring:

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

 a. Business Condition

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

 b. Production

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

 c. Sales

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

 d. Investment

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

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. An SME branch will maintain the following files

The file will contain-

Purchase Receipt,

Delivery Memo’s,

Quotations

In addition, 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

k. Survey form file

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

SME Banking System:

 Every SME unit office will have a current account with a designate bank in the area of a unit office. This bank account will be opened and operated by SME head office.

To meet petty expense such as stationary, entertainment and other incidental expense, all unit office will be allowed patty cash of Tk. 2000/=

 The cheque of this patty cash will be issued from SME head office in the beginning of the month. All vouchers relating to such expenses should be send to the accounts from SME head office

All the clients must open their account with the same bank account on the same day after receiving those from the borrowers, who should given a received as prescribed.

Cheques should be deposited to the SME unit office bank account on the same day after receiving those from the borrowers, who should given a receipt as prescribed.

 Any loan installment credit should be transferred to the SME head office account in Gulshan, Dhaka on the same day as per agreement with bank.

 Every CRO should have an individual account in the same bank branch for their personal use and to receive their salaries and other benefits.

Payment of lease rentals, utility bills and cheque drawn on the SME unit office bank account and issued by SME head office should pay other expenses (Large amount). If these bills are small amount, they should be paid from the patty cash and replenished later.

All the financial accounting entries will be passed at the SME head office and will maintain separately on the basis of the unit office.

Procedure of STANDARD CHARTERED BANK  SME loan

Loan Sanction activities:

Select potential enterprise: For SME loan, in this step the CRO conduct a survey and identify potential enterprise. Then they communicate with entrepreneurs and discuss the SME program.

Loan Presentation: The function of CRO is to prepare loan presentation based on the information collected and provided by the entrepreneur about their business, land property (Where mortgage is necessary)

Collect confidential information: Another important function of a CRO is to collect confidential information about the client from various sources. The sources of information are suppliers regarding the client’s payment, customers regarding the delivery of goods of services according to order, various banks where the client has account, which shows the banks transactions nature of the client.

Open clients accounts in the respective bank: When the CRO decided to provide loan to the client then he/she help the client to open an bank account where Standard Chartered Bank has a STD a/c. Standard Chartered Bank will disburse the loan through this account. On the other hand the client will repay by this account. Although there is some exception occur by the special permission of the authority to repay by a different bank account.

Fill up CIB form: CRO give a CIB (Credit Information Burue) form to the client and the client fill and sign in it. In some case if the client is illiterate then the CRO fill the form on behalf of the client. Then CRO send the filled and signed form to the SME, head office.

Sending CIB to Bangladesh Bank: The SME, head office collects all information and sends the CIB form to Bangladesh Bank for clearance. Bangladesh Bank return this CIB form within 10-12 days with reference no.

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

NIL: if the client has no loan facility in any bank or any financial institution then BB (Bangladesh Bank) use ‘NIL’ in the report

UC (Unclassified): if the client has any loan facility in any bank or financial institution and if the installment due 0 to 5.99 then BB use UC in the report

SS (Substandard): if the client has any loan facility in any bank or financial institution and if the installment due 6 to 11.99 then BB use SS in the report

DF (Doubtful): if the client has any loan facility in any bank or financial institution and if the installment due 12 to 17.99 then BB use DF in the report

BL (Bad lose): if the client has any loan facility in any bank or financial institution and if the installment due 18 or above then BB uses BL in the report. This report indicates that the client is defaulter and the bank should not provide loan the client.

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

Loan Sanction:

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

Disbursement of SME loan:

Pre Disbursement Manual Activities

       Prepare loan file: Receiving all documents, Loan Administration Division prepare a loan file with all documents received from the unit office.

       Charge documents checking: The loan administration division checks all charge documents. Following charge documents are checked:

        Money receipt (Risk fund).

        Sanction letter.

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

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

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

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

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

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

        Letter of disbursement

        Photocopy of trade license (attested by CRO)

        Insurance (Original copy)

 Blank claque with signature (one cheque for full amount and others same as no of installment on Favor of Standard Chartered 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 Standard Chartered Bank for disburse the amount, the treasury disburse the amount to the client through the mother account of the clients bank. Standard Chartered Bank disburse amount through any of the following banks corporate branch nearer the Standard Chartered 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:

•         Standard Chartered Bank
•         The City Bank Limited
•         Janata Bank
•         Bangladesh Krishi Bank
•         Pubali Bank
•         Agrani Bank

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

MBS entries for loan disbursement

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

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

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

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

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

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

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

Post Disbursement Manual Activities

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

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

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

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

SME Loan Recovery Procedures:

The repayment process starts immediately after one month of the loan taken. Suppose if a loan is taken in July 7, 2011  then the repayment process will be started from August 7, 2011  and the borrower will pay his/her first installment in that date. Before that date, the borrowers will be informed about the number of installments and amount of each installment. He can deposit the installment by himself or by the Customer relationship officer (CRO). Again they can deposit the installments either in any branch of Standard Chartered Bank Bank or in any correspondence bank (where Standard Chartered Bank Bank has no branch). If the borrower cannot pay the installment in the stipulated date, interest will be charged for each day before they pay that installment. Again interest will be reduced if the borrower pays the installment before the date of repayment. Interest will be charged and added to the principal amount for every month or every 3 three months depending on the policy for each loan disbursement.

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

Receive SMS/Fax for installment deposits

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

Entry the installment information to MBS

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

Print Vouchers

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

Check SMS/Fax and solve problems (If any)

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

Repayment voucher check and posting

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

Closing procedures of SME loan:

 Pre-closing manual activities

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

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

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

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

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

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

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

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-checks all deposit sleeps of the loan account. If there is any error found then it is immediately resolved, 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.

Findings      

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

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

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

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

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

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

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

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

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

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

Recommendations

Though Standard Chartered Bank has performed better than other NCBs and in some cases better to many private banks, the recent trends shows that percentage of classified term loan has increased in every year. Following actions are recommended:

1. The person behind the business should be given the highest priority for sanctioning loan. In fact, transactions dealt, the past behavior of the loaner concerned, the nature of the business, the competition status of the product, probable gestation period and all such important relevant factors should be formed the basis of determining whether a particular case for loan should have been entertained or not. The collateral should have played only a minor role as a matter of last resort.
2. Rigid concern should be given to keep intact financial health of banks through proper classification and provisioning.
3. More attention on supervision, monitoring and inspection.
4. Skilled personnel should be recruited for the banks and professionalism should get priority.
5. Collateral do not have any effective role in the performance of a particular credit facility is evident form the case of collateral free export credit where loan defaults are few and far between. Hewever, the legacy of security oriented banking in Bangladesh left the banking system in Bangladesh left the banking system heavily dependant on disposing of real estates including building in the process of recovering debts. The lengthy procedure stands in the way of quick sale of these mortgaged properties.
6. Prevention is better than cure. This should be the watch ward for monitoring and supervising loan accounts of a bank. Making classifications and pursuing the borrowers to regularize the accounts rarely meet success. The cost of such exercise is also heavy. So the bank should evolve appropriate system to detect deficiencies in the management of credit operations well before it calls for classification. In this regard, effective no-site and off-site supervision system should be in place both in the scheduled  banks and central bank.
7. Inspection department should be manned efficient and intelligent officials. It should be an exclusive department with promising career path for its members. Officers of this department should not be transferred to other departments. Person behind the desk is equally important in a well- knit and efficient system. So personnel placed in the inspection departments of banks should be of quality and integrity.

Bangladesh Bank should take following actions:

1. Strengthening legal provision/ appropriate legal reform, following new laws are required:

• Money Loan Tribunal Act
• Debt Recovery Agencies Act
• financial Instrument (Security of loan) Act

These acts are to be introduced for quick recovery of loans. It will also help the banking sector by discouraging the clients not t defaulters.

1. Bangladesh Bank’s autonomy and power to regulate and supervise the financial sector should get priority as it deserves.
2. Exemplary punishment should be introduced to the people issuing bad cheques and bankers involved corruption and malpractice.
3. Legal system allows defaulters to delay lenders’ recourse process indefinitely, making the enforcement process a virtual mockery. Therefore, the issue of establishing a specialized debt collection agency for pursuing the top 500 defaulters needs special attention.
4. De-politicization of governance of banks.
5. The office of ombudsman for the financial sector has become a crying need. The proposed office of ombudsman for the financial sector will be responsible only to the Board of Director of Bangladesh Bank. The ombudsman will be helped by a network of ethics officers in each bank, who will be responsible only to the respective Board of Directors. The officer of ombudsman will deal with complaints of malpractice and corruption in the banking sector independently and will recommend appropriate punishments for the investigated cases.
6. Government should have minimum interference on lending. Government should facilitate them to run their business independently.
7. Government should take guard against policy of waiver.

Conclusion

It is a great pleasure for me to have practical exposure in Standard Chartered Bank because without practical exposure it couldn’t be possible for me to compare the theory with practice and it is well establish that theory without practice is blind.

There are number of commercial banks operating their activities in Bangladesh. The Standard Chartered Bank is a promising one in them. For the future planning and the successful operation in achieving its prime goal in this current competitive environment this report can be guideline.

An evaluation of the Credit Department and the Reason of Default Rate was the basic concern of my study and I completed this report on this basis Credit Department of Standard Chartered Bank.  A retail loan files evaluate & approved by this department before disbursed a loan. Day by day, Standard Chartered Bank increasing its business, that reason Standard Chartered Bank Credit Department approved more loan files everyday to its retail customer and my study was find out few factors from which we can assumed a good or defaulter borrower and place few recommendation by which they can mitigate their risk.

Banks always contribute towards the economic development of a country. Standard Chartered Bank compared with other banks is contributing more by investing most of their funds in fruitful projects and risk free individual. It is obvious that the right thinking of the bank including establishing a successful network over the country and increasing resources, will be able to play a considerable role in the portfolio of development of financing in the developing country like ours.