SME Loan of BRAC Bank and Its Overall Performance

Corporate Banking:

Being a major business unit of the bank, Corporate Banking division has been playing a significant role to achieve the overall objectives of the bank. Corporate Banking helps its customers to fulfill their objectives by carefully listening and analyzing their ideas, providing necessary expertise and composite products. The business unit operates through following products:

1. 1.      Corporate loan Products:

• Overdrafts
• Term loan
• Lease finance
• Loan against trust receipts (LATR)
• Work order finance
• Medium enterprise

1. 2.      Trade Finance:

• Letter of credit
• Letter of guarantee

1. 3.      Corporate cash management:

• NCS
• PTS
• Advantages to employers
• Advantages to employees
• Cash management service

Probashi Banking Services

SRS Highlights of the Financial Year : 2007

With a goal to provide fast and expeditious services to deliver remittances even in the most remote corner of Bangladesh, the network of electronically connected Field offices have been expanded more  than 1200 BDP outlets across the country for remittance payment.

An array of  products and services have been introduced targeting  the non-resident Bangladeshis living in different parts of World, a milestone of BRAC Bank as to becoming the pioneer in such operation. The official Launching of Probashi with a perspective to catering the beneficiaries of NRB Customers with their different banking needs.

 Cards Division:

BRAC Bank today has become the fastest   growing issuers of credit cards in Bangladesh.

Dedicated and well defined organizational verticals allow efficient and quick turnaround of all internal and external challenges. Acquiring sales, Portfolio, Product Development, Customer Services and Collection wings forms an effective Cards team to create a positive and lasting impact in the credit Card market of Bangladesh.

Treasury & Financial Institutions :

Treasury department is vested with the responsibility to measure and minimize the risk associated with Bank’s liquidity, foreign exchange exposure and asset liability management. Treausry continuously monitors price movement of foreign exchange and uses various hedging techniques to manage its open position in such a way that   minimizes risk and maximizes   return.

The Fl wing works as the trigger point of establishing new relationship with correspondent banks as   well as to maintain the existing relationship to provide a smooth funding channel for all business units. BRAC Bank has a strong worldwide corresponded network with the world’s leading 20 banks to facilitate trade, remittance & other services to its client efficiently and profitably.

Central Operation:

Central Operations is the warden of all kinds of loan securities of the valued customers of BRAC Bank. It is  a single point of contact of all loan documents and securities . Central operations support business and other operational uits through its following arms:

• Loan Archive
• Reconciliation
• Data Control
• Regional Operating Center

Enterprise Risk Management :

Enterprise Risk Management (ERM) is a new dimension for Brac Bank Ltd. ERM will set risk management strategy across the enterprise, designed to identify potential events that m ay affect the organization, and manage risk to be within its risk  appetite, to provide reasonable  assurance regarding the achievement  of organizational objectives.

Financial Administration:

Financial Administration department has the responsibility of doing financial planning and management chart of A/C and control, budgetary planning, cost management and ensure financial control across the Bank. It also generates and disseminates all forms of internal and external financial reporting regulatory reporting and all business MIS.

General Infrastructure Services: General Infrastructure Services (GIS) plays the vital pivotal role to ensure all kind of infrastructure support services for the Bank. This Department consists of six functional units namely infrastructu8re Development, Infrastructure Management, Operations, Procurement , Logistics and Small and Medium Enterprise Administration Unit. With the combined roles and responsibilities of all these Units, GIS is actually the execution point for all administrative related activities including the development of infrastructure setups for new Head office Premises, Branch ATM Booths, Sales Center for BRAC-Bank Limited.

Credit  Policy :

In order to minimize credit risk, BBL has formulated a comprehensive credit policy according to Bangladesh Bank Core Risk Management guidelines. Credit policy of BBL recommended through credit assessment and risk grading of all clients at the time of approval and Portfolio Review.

Consumer Service Delivery :

Consumer Service Delivery (CSD), an integral part of Bank’s business, complement the ever-flour8ishing retail  business through  account opening, customer statement generation, inter-bank cheque clearing, ATM &  credit card production , cheque-book production and processing government bonds. The year highlighted 850,000 inter-bank clearing cheque processing, 132,000 new account opening and more than 716,000 account statement generation. In addition, CSD also produced 109,000 welcome packs, 1269,000 ATM and new initiative credit-card- operations produced 32,000 cards.

 Company Secretariat : Company Secretariat is the flow line of all information to and from the Board of Directors. In the age of free economy, Company secretariat maintains a clear and distinct relation and liaison among investor, financiers, bankers donors, correspondents and many others of the market economy. The company secretariat of BRAC Bank limited is engaged to perform with a vital role in the management. There are two wings of company secretariat.

(a)    Board Secretariat

(b)    Share Division.

Impaired Assets Management :

Impaired Assets Management is new concept in the Banking arena. Impaired Assets Management (IAM) department of BBL is playing a pivotal role in managing non performing loan (NPL) and written off loan portfolio of BRAC and maintaining its portfolio at risk (PAR) at a low level. Separate segments of IAM department are engaged to monitor and follow-up NPLs of different business units.

Information Technology:

For BRAC  Bank , technology is the silent strength behind its wide array of products and its 24/7 service delivery capabilities. The BRAC bank technology infrastructure now supports real time, online transactions between 36 branches for over 457, 126 customers throughout Bangladesh

Human Resources :

Human Resources Division plays a very important role in BRAC Bank. Managing almost 4400 employees is a challenging task  and HRD is trying their best to do it in efficient manner.

The manpower of BRAC Bank is as follows:

HRD is also acting as a strategic business  partner constantly with the business units in order to achieve the projected growth  of Bank and in order to pursue the vision with the right blending of ethical commitments, we have created some core internal values which is called CRYSTAL all together .  CRYTAL stands for

C= Creative, R= Reliable,  Y= Young, S= Stable, T= Transparent, A= Accountable,

L= Loyal.

Marketing & Corporate :

Marketing & Corporate Affairs takes care of all forms of marketing and corporate communication, brand management, promotional activities, public relations and CSR activities . BRAC Bank aims to be the most preferred brand in its category and the Marketing and Corporate Affairs department works towards realizing that ambition

Performance analysis of BRAC Bank Limited

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

Shareholding Structure

The emergence of BRAC Bank Limited is an important event in the country’s financial sector at the inception of financial sector reform. The authorized capital of PBL is Tk. 1000 million and paid up capital of the same bank is Tk. 500 million.

Shareholding Structure

Analysis of Financial Statements

Operating Results                                                                   Figure in million Taka

Interest income for the period has increased by 71% because of increase of loan by 61% and investment income by 93% over previous year; because of change in investment mix and inclusion of long term nature BGTB at higher interest rates. These factors cause the significant increase in operating margin over previous year.

 Shareholder’s Equity

The Shareholders’ equity has increased by 45 percent over previous year. Paid up capital of the Bank is being raised from 1,000 million to 1 200 million in the year 2007 through issuance of bonus shares out of retained earnings in 2007. Besides this the bank also issued preference shares of Tk. 350 million in the year 2007. The statutory reserve also increased by Tk. 252.88 million over previous year balance of Tk.251 million. The Board of Directors recommended for raising paid up capital by issuing right share @ one for every five shares held at Tk. 500/- each including premium of Tk.400/- subject to approval of regulator authorities and EGM. However, Bank also proposed stock dividend of 10% which noticeably increase the capital base of the Bank.

SME in BRAC Bank

Banking Industry is one of the most promising industries of our country. The importance of the sector revealed through its contribution in the economic growth of the country. And now a day worldwide SMEs are recognized as engines of economic growth (Ahmed 1999).So SME finance has become a remarkable topic in the finance sector of Bangladesh.

 Brac Bank first fined out that the SME market in Bangladesh is large. From 2002 they have started to provide SMEs loan. From that time Brac bank special focus in promoting broad based participation by catering to the small and medium entrepreneur. Brac bank has already been established network of SME through out Bangladesh. Bank has adopted trust as a corporate value which is short form 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. And now one of the major product and service of Brac Bank Ltd. is SME loan. Their main reasons for providing SME lone is  to Support Small Enterprise, Economic Development, Spread the experience, Encourage Manufacturing, Profit Marking and Employment Generation Brac Bank start with a vision to be the absolute market leader in the number of loans given to small and medium sized enterprises through out Bangladesh.

 Reason of SME program from the view point of BRAC Bank

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

1. Support Small Enterprise: The small enterprise which requires 2 to 30 lacks taka loan, has no easy access to the banks/financial institutions. For example: 3 to 8 lacs amount of loans is provided without any kind of mortgage.
2. Economic Development: Economic development of a country largely depends on the small and medium seal enterprises. Such as, if we analyze the development history of Japan, the development of small & medium scale enterprises expedite the development of that country.
3. Employment Generation: The bank is generating employment opportunities by two ways:

      Firstly, by providing loan to the small enterprises expanding, as these business requires more workers.

Secondly, Small & Medium Enterprise (SME) program requires educated and energetic people to provide savories to entrepreneurs.

4. Profit Making: SME program is a new dimensional banking system in the banking world. Most of the CRO’s are providing door to door services to the entrepreneurs. The entrepreneurs are satisfied by the service of this bank and the bank also makes more profit.
5. Encourage Manufacturing: A focus of BRAC Bank is to encourage manufacturing by the entrepreneurs who are producing by purchasing various types of materials. CRO’s try to educate them to produce material if possible because if they can produce in line of purchase profits will be high.

6. Spread the experience: Another reason of BRAC Bank is to spread the knowledge of regarding various businesses. The customer services officer get knowledge from various businesses is and tries to help the entrepreneurs who have shortage of the gathered knowledge by CRO’s.

Selection Criteria 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 can not be selected as a guarantor.
5. The guarantor should know the entrepreneur reasonable well and should preferably live in the same community

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 an bank account where BRAC bank has a STD a/c. BRAC bank will disburse the loan through this account. On the other hand the client will repay by this account. Although there is some exception occur by the special permission of the authority to repay by a different bank account.
• Filled up CIB form: CRO give a CIB ( Credit Information Beurue) 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.

SME Loan Recovery Procedure 

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 a SMS through mobile phone or a Fax to the loan administration division informing the repayment. Loan administration divisions collect these SMS /Fax and take 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.

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 to 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.

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

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.

Portfolio analysis of SME loan

The main objective of this analysis is

1. To see that how much loan bank provided for which product.
2. To see that how much interest bank received from which product.
3. Comparing the bank’s performance of its different products.
4. Evaluating trends in the bank’s position over time.

Table3: Loan and Advance portfolio analysis:

• The portfolio of loan has increased from 2005 to 2006 and also 2006 to 2007.
• Bank’s interest received on loan also going in to upper trend. After comparing three years portfolio it’s found that bank get highest interest income in the year 2007.
• In every sector (Retail, Corporate, Staff and SME) loan has increased year to year. But SME loan has increased at notable amount especially from 2006 to 2007.
• Bank also received also a notable amount of interest from SME loan.

8.2 Ratio analysis:

The main objective of this analysis is

1. To see that how much percentage of loan bank provided for each product.
2. To see that how much percentage of interest bank received from each product.
3. To understand the bank’s performance of its different products.

Table 5: Ratio analysis:

• After ration analysis of three years it found that almost in all sector their portfolio is decreasing but only in SME sector their portfolio is increasing. Their staff loan also increasing but its quantity is very low comparer to SME loan.
• SME covers the highest portion of their portfolio. In 2005 its 42.4%, in 2006 it is more than half of the total portfolio, and in  2007 it is 62.77% of the total portfolio. So here we found that from 2005 to 2006 SME loan increase 9.39% and from 2006 to 2007 its increase 10.78%. that means SME loan trend is upper word
• Now a days SME loan is more profitable that’s why Brac bank giving more importance on SME loan.
• Interest income from SME loan has also increased from 2005 to 2007 as well as 2006 to 2007.but in other sectored interest income is also decreasing as like its loan portfolio. Form 2005 to 2006 banks interest income from retail and staff loan was started to increasing but in 2007 it’s started to decrease a lot.

Market Segmentation

In terms of our country most financial institution starts out with extensive business and marketing plans to attract potential customers. For a good market plan first we need to segment our market and than started to provide our service. In our literature review we stated that we can segment our market in 4 ways these are Geographic, Demographic, Psychographic and Behavioral Segmentation. So now we see how BRAC bank follows it. For view market structure BRAC bank try to follows market segmentation strategy

• Geographic segmentation: In terms of SME loan, it targets every region around the country in terms of small business. Now the SME has almost 392 unit offices to provide credit facilities to the clients around the country. Each of the SME unit offices mainly setup the district levels around the city but not in the rural or undeveloped areas.

• Demographic Segmentation: In terms of SME loan, in some cases it is very strict. If some one who has Hindu religion and live close to the border, SME would have very careful to provide loans to those clients. SME provide loans 20-60 aged peoples. SME is restricted to provide loans more than age of 65.
• Psychographic Segmentation: In terms of SME loan, clients are differing in attitudes, interest and activity like some are time constrained and some are money constrained. So bank always tries to focus these things and than very careful provide loans to those clients.
• Behavioral Segmentation: In terms of SME loan, few clients would be found those who had done MS and most of customers are secondary or higher secondary pass. But basically SME segments customers at least whether the customers can understand his/her own business.

Findings

After analyzing the report, I find some matter, which I want to discuss below:

• Fastest growing bank in the country for the last five years
•  Leader in SME financing through 392 unit offices
• Biggest suit of personal banking & SME products
• Large ATMs (Automated Teller Machine) & POS (Point of Sales) network

• In the BRAC Bank basically the most of the users are business man. In our country there is various kind of businessman. We also found that above 50% users are businessman.
• Maximum client’s age is between 30 to 50 years.
• We know that Bangladesh is a poor country and the educational background of Bangladeshi people is not too high level. Our users, basically businessmen are not too educated and they have very poor decision making power. This is the main drawback in our Banking field.
• Most of the businessman are want to take SME loan for develop their business. This SME loan is very helpful for meet the daily expenses. That means they use this loan as working capital. Very less people use this kind of loan for purchase fixed assets.
• It is also found that the rate of interest is satisfactory than other Banks. That’s why the clients are very happy with our rate of interest.
• Time duration play a very major role in the mind of clients. Because they want to take loan easily & early with minimum difficulties. In our country maximum people know that loan taking is time consuming and very difficult.
• Maximum clients are happy to repay their loans in equal installments with very easy process.

Recommendations

By analyzing the whole report conducted for BRAC Bank Limited, some recommendations could be made on the following issue to improve the overall performance.

• They should target the business man for the SME loan, because maximum users are business man.
• They should think about the middle agars. Because maximum users are between 30 to 50 years of age. And they are not interested of our loan. .
• They should provide loan easily with minimum efforts. That means the process of taking loan should be fast, easy and genuine.

Conclusion

BRAC Bank Limited is proving itself as the fastest growing bank with establishing its 36th branch only in 7 year of its journey and showing remarkable progress of its financial position with the mission of being countries leading bank providing world-class services in a cost effective manner. This bank first introduces the SME loan in commercial banking sector, which help the people of poor society both in rural and urban. One thing can be noted that time horizon is too little to predict or evaluate the performance but the analysis clearly represents the better performance of the BRAC Bank Limited since its inception in year 2001.

After analyzing the BRAC bank I may conclude that in developing countries like Bangladesh small & medium enterprises have come into the forefront of development agenda due to the recognition of their contribution in fostering growth, sustaining global economic recovery, generating employment and reducing poverty.