Executive Summary

BRAC Bank Limited is a scheduled commercial bank in Bangladesh. It established in Bangladesh under the Banking Companies Act, 1991 and incorporated as private limited company on May 20, 1999 under the Companies Act, 1994. Its operation started on July 4, 2001 with a vision to be the market leader through to providing all sorts’ support to people in term of promoting corporate, small entrepreneurs and individuals all over the Bangladesh. BRAC Bank will be a unique organization in Bangladesh. The bank consist of major divisions named 1) Corporate banking, 2) Retail banking, 3) Treasury, 4) Small & Medium Enterprise (SME). At present the Bank operating its business by 26 branches. BRAC Bank is the first local commercial banks that proving online banking service to its customers from the very beginning of its starts. BRAC Bank, for the first time among local commercial banks, starts providing loan facilities to small and medium trading, manufacturing and service oriented enterprises all over the country. The bank has already established its network in different area of the country with assistance of BRAC. As an intern I was assigned to scrutinize the SME loan facility

BRAC Bank is trying to develop economic condition of the country. So the bank provides loan facility 3 to 30 lacs taka to that small and medium enterprise who has no easy access to banks/financial institutes. The bank already established 36 Zones and 900 unit offices all over the country. There are 1185 Customer Relation Officers (CRO) providing door to door service to clients. Till December 2006, the bank provides loan facilities to 46000 clients which amount is Tk 1909.64 crore. Average loan size is Tk 4.16 lacs. The success of SME will largely depends on the selection of a business and man behind the business. BRAC Bank provides this facility to those whose business operation is minimum one year and environment friendly business. It provides no loan facility to tobacco business. The business should be legally registered and must have valid trade license. The entrepreneur should be physically able, preferably between the ages 25 to 50. He/She must have the necessary technical skills to run the business and acceptable social standing in the community i.e. people should speak highly of him/her. BRAC Bank gives equally important to the guarantor to getting the SME facility. The guarantor must have the ability to repay the entire loan and is economically solvent. The guarantor should know the entrepreneur reasonable well and should preferable live in the same community. SME loan can be repaid in two ways, 1) In equal monthly loan installment with monthly interest payment. 2) By one single payment at maturity, with interest repayable a quarter ends residual on maturity. Customer relation officers search new potential customer by providing door-to-door service. They talk with clients and monitor their manners, activities of their business and provide the loan to the potential customers. SME, BRAC Bank may provide 100% of net required working capital but not exceeding 75% of the aggregate value of the inventory and account receivable. Normally, organizations meet their working capital from over draft loan but BRAC Bank designed the loan to meet working capital but as term loan which is repaid in installment. The customer relation officers also monitor the borrowers activities after the loan disbursement. Monitoring also facilitates the build up of an information base for future reference.

Asset Operation Department acts as the last line defense of the bank. This division is responsible for the complete disbursement, recovery and closing procedures. The procedures start form the sanction of the SME loan. The respective select potential enterprise, collect confidential information about the enterprise, open clients account is the respective bank where BRAC Bank has its own account, filled up CIB form and send it to the Asset Operation Department. Then the Asset Operation Department starts its activities. The Asset Operation Department sends the CIB form to the Bangladesh Bank to know the CIB status of the applicant. If the report found clean then it send back to the unit office for send proposal for the loan. Then the unit office sanction loan and send it again in Asset Operation Department for disbursement. The Asset Operation Department then prepare a loan file and checks all necessary documents, prepare a list and disburse it. Then the Asset Operation Department starts enter all information regarding the loan in the banking software “millennium Banking System (MBS)” which includes initial ID generation, loan account opening, risk fund collection, activation of the loan. Post disbursement manual activities includes repayment schedule send to unit office, documents stamp cancellation, send the loan file to archive. Recovering activities include receive SMS/Fax for installment deposit, entry the installment information to MBS, print vouchers, cross check SMS/Fax and solve problems, repayment voucher check and posting. Closing activities includes receive SMS/Fax requesting for closing, bring the loan file from archive, obtained approve to closing from the concern authority, checking in MBS, SMS sent to concern customer relation officer (CRO), receiving and print closing SMS/Fax.

The core competence of the BRAC Bank is to provide the fastest loans to the clients in this country. To retain this competitive advantage BRAC Bank would provide computer and palmtop facilities whether they can give fastest services to clients than other banks. Also to convey the customer focus, BRAC Bank is trying to reduce collateral securities than other banks. It provides more collateral free secured loans to capture the market. Regarding the services by the CRO, almost all clients are satisfied by get these quick facilities from them. Though it is pioneer division of this bank, I tried to give an in-depth analysis for every factor, which relates the SME division from the perspective of customer satisfaction and dissatisfaction.

1. Introduction

Origin of the Report

As a part of the Internship Program of Bachelor of Business Administration course requirement, I was assigned for doing my internship in The BRAC Bank Limited (BBL) for the period of 3 months starting from October 01, 2006 to December 31, 2006. In BBL I was assigned in the Asset Operation Department for 3 months of the head office, Gulshan. My organizational supervisor was Mr. Shah Alam Bhuyan, FAVP & Head of Asset Operation Department. My project is ‘Analysis of SME loan in BRAC Bank Limited’ which was assigned by organizational supervisor of the said bank. My faculty supervisor Md. Atiqur Rahman, Assistant Professor of Islamic University also approved the project and authorized me to prepare this report.

1.2 Objective of the Report

Broad Objective

To know details of SME loan in BRAC Bank Ltd.

Specific Objectives

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

 1.3 Scope of the Study

 The study will provide the scopes of knowing the following:

a)    The total concept SME loan.

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

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

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

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

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

1.4 Methodology

The study uses both primary data and secondary data. The report is divided into two parts. One is the Organization Part and the other is the Project Part. The parts are virtually separate from one another

The information for the Organization part of the report was collected from secondary sources like books, published reports and web site  of the BRAC Bank Limited (www.bracbank.com) . For general concept development about the bank short interviews and discussion session were taken as primary source.

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

2. The Economy and Overall Banking Sector

2.1 World Economy- An over view

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

2.2 Bangladesh Economy-An over view

The improved political environment in the country, after a delayed period of civil disobedience brought a much-awaited economic stability during the financial year (FY) 2002-2006.

The macro economic development during the year was marked by a healthy GDP growth and moderate inflation. Those years were passed with bumper rice harvest; maintained growth at above 5% and GDP growth during the FY 2006 was at 7.18%. On the other hand, the growth performance in industry was slow with manufacturing growth 3.3% being one of the lowest rates in the recent years. Several unfavorable factors contributed to this situation, which included disturbance in the supply of natural gas, which in the turn affected the power supply and production activities. Furthermore, labor disputes during these years badly affected the operation of Garment sector and Chittagong port. In the services sector, growth in transportation, storage and communication contributed to about 13% to the total GDP but growth in trade sector was slow due to lower import growth.

During the year some positive initiative were taken in the banking sector with improvements in the legal and regulatory environment to improve loan recovery but unfortunately the high quantum of non performing assets and under capitalization continued to plague the entire banking sector thus causing a major threat to the macro economic stability. The size of classified loans increased significantly which contributed to lower profitability of the banks.

2.3 Introduction on economic development and the

      evolving of BRAC Bank.

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

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

3. The Organization

3.1 Introduction

BRAC Bank Limited is a scheduled commercial bank in Bangladesh. It established in Bangladesh under the Banking Companies Act, 1991 and incorporated as private limited company on 20 May 1999 under the Companies Act, 1994. BRAC Bank will be a unique organization in Bangladesh. The primary objective of the Bank is to provide all kinds of banking business. At the very beginning the Bank faced some legal obligation because the High Court of Bangladesh suspended activity of the Bank and it could fail to start its operations till 03 June 2001. Eventually, the judgment of the High Court was set aside and dismissed by the Appellate Division of the Supreme Court on 04 June 2001 and the Bank has started its operations from July 04, 2001.

The importance of financial intermediaries in the development of the overall economy of country cannot be described in short. From the inception of the civilization the banking sector dominate the economic development of a country by mobilizing the saving from the general people and channeling those saving for investment and thus economic development and growth. In ancient time

The importance of commercial banks after the ravage of the liberation war to develop a better economy was severally needed and it is needed now and will be required in future also. In time-to-time Government of Bangladesh agreed to permit the private commercial banking in the country.

BRAC bank will be knowledge-based organization where the BRAC Bank professionals will learn continuously from their customers and colleagues world wide to add value. It will work as a team, stretch, themselves innovate and break barriers to serve customers and create customers loyalty through a value chain of responsive and professional delivery. The bank promotes broad-based

Participation in the Bangladesh economy through the provision of high quality banking services. BRAC Bank will do this by increasing access to economic opportunities for all individuals and business in Bangladesh with a special focus on currently under-served enterprises and households across the rural – urban spectrum. BRAC Bank believes that the pursuit of profit and developmental goals is mutually reinforcing. Increasing the ability of under – served individuals and enterprises to build their asset base and access market opportunities will increase the economic well being for all Bangladeshis at the same time, this will contribute significantly to the profitability of the Bank. BRAC Bank intends to set standards as the Market leader in Bangladesh. It will produce earnings and pay out dividends that can support the activities of BRAC, the Bank’s major shareholder. Development and poverty alleviation on a countrywide basis needs mass production, mass consumption and mass financing. BRAC Bank goal is to provide mass financing to enable mass production and mass consumption, and thereby contribute to the development of Bangladesh. BRAC Bank intends to set standard as the market leader in Bangladesh by providing efficient, friendly and modern fully automated online service on a profitable basis

Aiming at offering commercial banking service to the customers’ door around the country, BRAC Bank limited established 13 branches up-to this year. This organization achieved customers’ confidence immediately after its establishment.

Within this short time the bank has been successful in positioning itself as progressive and dynamic financial institution in the country. The is now widely acclaimed by the business community, from small entrepreneur to big merchant and conglomerates, including top rated corporate and foreign investors, for modern and innovative ideas and financial solution. Thus within this short time it has been able to create an unique image for itself and earned significant solution in the banking sector of the country as a bank with a difference.

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.

Shareholders          No. of Shares          Amount in Tk.                 Percentage

BRAC                         3,173,900                    317,390,000                        63.48%

Shore cap Int’l Ltd.      875,700                      87,570,000                      17.51%

Int’l Finance Corp.      949,800                      94,980,000                      19.00%

Others                                  600                           60,000                            0.01%

                                    __________              ____________               ________

Total                           5,000,000                    500,000,000                  100.00%

The Chairman of the Bank is Mr. Fazle Hasan Abed. Now the Managing Director of the bank is Mr. Imran Rahman. The bank has made a reasonable progress due to its visionary management people and its appropriate policy and implementation.

 3.2 Vision

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

BRAC Bank will serve its customers with respect and will work very hard to instill a strong customer service culture throughout the bank. It will treat its employees with dignity and will build a company of highly qualified professionals who have integrity and believe in the Bank’s vision and who are committed to its success.

BRAC Bank will be a socially responsible institution that will not lend to businesses that have a detrimental impact on the environment and people.

3.3 Mission

BRAC Bank will adhere to highly professional and ethical business principles and internationally acceptable banking and accounting standards. Every BRAC Bank professional will need first of all a commitment to excellence in all that he/she does, a keen desire for success, a determination to excel and a drive to be the best

3.4 Goals

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

3.5 Objectives

The objective of BRAC Bank Limited are specific and targeted to its vision and to positioned itself in the mindset of the people as a bank with difference. The objectives of BRAC Bank Limited are 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 a member of the BRAC family – committed to the creation of employment opportunities across Bangladesh.
• To work as a team to serve the best interest of our owners
• To relentless in pursuit of business innovation and improvement
• To base recognition and reward on performance
• To responsible, trustworthy and law-abiding in all that we do
• To mobilize the savings and channeling it out as loan or advance as the company approve.
• To establish, maintain, carry on, transact and undertake all kinds of investment and financial business including underwriting, managing and distributing the issue of stocks, debentures, and other securities.
• To finance the international trade both in import and export.
• To develop the standard of living of the limited income group by providing Consumer Credit.
• To finance the industry, trade and commerce in both the conventional way and by offering customer friendly credit service.
•  To encourage the new entrepreneurs for investment and thus to develop the country’s industry sector and contribute to the economic development.

3.8 Management of BRAC Bank Limited

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

3.9 Departments of BRAC Bank Limited

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

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

3.10 Business Units

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

i)             Small & Medium Enterprise (SME)

ii)            Corporate Banking

iii)           Retail Banking

iv)           Treasury

v)            Remittance Services

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

3.11 Products and Services

i) Small & Medium Enterprise (SME)

The most valuable natural resource of Bangladesh is it’s people. 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 medium entrepreneurs were over looked. This missing middle group is the small but striving entrepreneurs, who because of lack of fund cannot pursue their financial uplift, as they have no property to provide as equity to the commercial banks. With this end in view-BRAC Bank was opened to serve these small but hard working entrepreneurs with double bottom line vision. As a socially responsible bank, BRAC Bank wants to see the emancipation of grass-root level to their economic height and also to make profit by serving the interest of missing middle groups. 50% of our total portfolio usually collected from urban areas, channeled to support these entrepreneurs who in future will become the potential strength of our economy. We are the market lenders in giving loans to Small and Medium Entrepreneurs. We have been doing it for the last five years.

BRAC Bank Ltd has in total 900 unit offices 1185 CROs. These CROs work for the Bank to converge clients for getting the loan. Once CROs get the loan application they send that to Head Office fir all necessary approval. If approved then the Asset Operation Department starts its work. As the growing, the amount of files and disbursement is getting bigger. In September 2006 AOD has processed 3249 files amounting Tk. 1,235,200,000. So SME Division’s success greatly relies on the performance.

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 client comes for a loan request, first he meets a CRO, then the following process take place:

Anonno Rin

Any potential small and medium trading, manufacturing and service enterprises all over the country can apply for  “Anonno” within a limit of Tk.3.0 lac to Tk.30.0 lac. Potential women entrepreneurs will also get the facilities of “Anonno”. The aim is to play a role in the socio-economic development of the country by expansion of business as well as creation of employment. Loan terms are of different term like 3, 4, 6, 7, 9, 12, 15, 18, 24, 30, and 36 months. In case of fixed assets purchase more than 18 months term is applicable. Loan is provided for purchase of fixed assets, inventory and on receivables. Loan can be repaid-

i)             By equal monthly installments (with interest)

ii)            By one single payment at maturity. In this case, partial Interest will be paid quarterly and residue at maturity along with principal.

Enterprise Selection Criteria to provide ‘Anonno’ facility

• The Entrepreneur must be physically able and between 25-50 age.
• The business must be legally valid, i.e. have valid trade license, income tax or VAT registration (Wherever applicable).
• The business must be in operation for at least one year
• The business must have all necessary infrastructure facilities and adequate work force
• The entrepreneur must be socially acceptable
• The entrepreneur must have clear-cut and specific source of income and ability to save
• The business must have a defined market with clear growth potentials
• The entrepreneur must have necessary knowledge and experience on the business, i.e. academic or vocational training, relevant work experience in other institution or a few years of experience in the same line of business

ii) Corporate Banking

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

            Funded Facilities                                            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-

1. Working Capital Loan.
2. Over Draft Facility.
3. Term Loan.
4. Lease Finance.
5. Demand Loan.
6. BMRE Loan etc.

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-

        Big sanction                                                                          Small sanction

iii-a) Retail Banking

Retail Loans are co0nsumers’ loan. Based on the customer demand these loans are given. BRAC 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.

BRAC 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-

Depository Product

BRAC Bank Limited 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

Loan Product

BRAC 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.

iii-b 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 BBL has lately introduced. These are:

• Now Loan
• Salary Loan
• Credit card Services (Proposed)
• Islamic Banking Services (Proposed)
• ATM services

BRAC Bank Limited 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

iv-a) Money Market Desk

BRAC 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

Iv-b) Products and services

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

v) Secured Remittance Services(SRS)

BRAC 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

BRAC Bank Ltd. is currently running countrywide true online fully automated baking 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 fulfills the demand of time but also set new benchmarks in twenty-first centuries banking world.

Special Feature

• All Branches are computerized
• 99% banks work is automated using latest technology.
• BRAC Bank is a member of SWIFT community
• Intercity Branches are connected via optical fiber backbone network.

3.12 Branches

BRAC Bank Limited is fast growing commercial banks in our country. The said bank has established a good operating network throughout the country.  It has 26 branches throughout the country till December 2006.

 3.13 Performance of BRAC Bank Limited

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

3.14 Capital Fund

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

 Internal and External source of cash

(Amount in Taka)

4. Analysis of SME loan in BRAC Bank

4.1  Basic Appraisal of Small &Medium Enterprise

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

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

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

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

In considering the above, one should look at the business is managed. The CRO should also consider clients previous credit history like facilitates sought and availed, loan repayment an overdue record, if any.

One should also check the client bank account and amount of balance maintained. Management’s qualification, experience, successor and maintenance of records should provided insight in to the business.

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

Among the technical factors to be investigated during an appraisal are:

• The size of project
• The process, materials, equipment, and reliability of technical systems to be used
• Location of projects
• Sustainability of the plans, layout and design used
• Total quantity of the goods /Service produced/Traded monthly
• Environment of the business and its surrounding areas
• Availability to various factors of production, both physical and human
• Raw materials availability, price level and its variation to be considered

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

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

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

The following things are to be considered and determined at the time of verifying the financial feasibility of the business:

• Current year’s profit/Loss of the business and probable profitability of business after taking the loan
• Determination of assets, liabilities and net worth of the manufacturing/ trading / service institution before and after taking loan
• Present net cash flow of the business after disbursement of loan should be determined,
• To know the cash position of the institution
• To know the source of income, production and other expenditure of the business probable financial risks of the business

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

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

Ensure proper survey or verification of the security offered

Ensure attachment of survey report.

4.2 Organizational layout of BRAC Bank SME loan

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

5.  SME Activities in Terms of Market

5.1 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.

5.1-a Purpose of Decorate Documentation and its Importance

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

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 very purpose of security documentation will be defeated and a court ruling in favor the bank cannot expect. Proper care should, therefore, be taken while completing security documentation.

5.1-b 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 confirmed by the issuer (Now these are rarely accepted)
• Lien of Pratirakkha sanchay patra, Bangladesh sanchay patra, ICB unit certificates and wage earner development bond, all considered Quasi or Near cash items. All these instruments, one lien, have to be confirm by the
• Lien of shares quoted in the stock exchange (This is rarely accepted)
• Pledge of goods (Banks are akin to stay away from such securities now a days)
• Hypothecation of Goods, Book Debt & Receivables, Plant & Machineries
• Charge on fixed assets of a manufacturing enterprise
• Lien of cheque, Drafts and order
• Lien of work orders, payment to be routed through the bank and confirmed by the issuer.
• Shipping documents of imported goods

5.1-b-i) Land related securities documentation process

Each SME unit office will 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-registerar’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 lower 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 mortgage 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.

5.1-b-ii) There are two type of mortgage’s that are popular and usually

              accepted in Bangladesh:

i) Equitable Mortgage or Memorandum of Deposit of Title Deeds

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

ii) Registered Mortgage

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

Basic Charge Documents

Sanction Letter

Once a loan is approved, the borrower is advised by a ‘Sanction or offer letter’ which states the terms and 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 debars 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), which provide 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 of Set Off

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

vi) Letter of Disbursement

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

vii) Personal Guarantees

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

5.2 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

5.3 Terms and Conditions of SME Loan

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

• The potential borrowers and enterprises have to fulfill the selection criteria
• The loan amount is between tk 3 lacs to 30 lacs.
• SME will impose loan processing fees for evaluation / processing a loan proposal as following;

                  Loan Amount                                              Loan Processing Fee

3 lacs to 5 lacs                                                   Tk 7500

5.01 lacs to 15 lacs                                            Tk 10,000

15.01 lacs to 30 lacs                                          Tk 15,000

• Loan can be repaid in two ways:

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

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

• Loan may have various validates, such as, 3 months, 4 months, 6 months, 9 months, 12 months, 15 months, 18 months, 24 months, 30 months and 36 months.

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

 5.4. Monitoring

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

Important of Monitoring

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

The file will contain

Purchase Receipt,

Delivery Memo’s,

Quotations

And all other papers related to furniture and fixture procurement

c. Other fixed assets and refurbishment

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

d. Lease agreement file

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

e.  Individual client file

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

f.  Statement file

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

g. Office instruction file

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

h.  Operating instruction and guideline files.

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

i.  New forms introduction file

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

j.  Security documents and legal aspect file

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

k.  Survey form file

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

Banking

• 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 petty 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 maintained separately on the basis of the unit office.

Economic Mapping Survey: After starting a SME unit office in a new area the CRO will conduct a survey of the business. The objective of the survey is to collect relevant information about the business, which will help to select potential business for SME loans. A survey from (Attached herewith) will be used for this purpose.

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

• The CRO will prepare a physical map of his working area showing main roads, businesses, markets and industrial locations. In this map, the CRO will show different kinds of business in different colors. This map will show the approximate location of all kinds of business within the area and it will be kept on the display board at the SME unit office.
• The CRO will drive his total working area into several clusters, if possible, after that he will conduct the survey cluster wise. After completing one cluster, the CRO will start surveying another cluster.
• At the beginning of the survey, the CRO will screen out business that does not need loans over 3 lacs.
• After the survey, the CRO will preserve the survey form cluster wise in a separate file. Based on the survey, the CRO will identify the potential businesses to pursue those for SME loans.
• Therefore, CRO will approach the potential borrowers immediately to process loan application

For initial assistance, CRO may approach

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

Once potential borrower are formally approached, their details should be incorporated in the client register as per the prescribed format.

6. Macro Environment Analysis

It is very important to carry out a macro environment scanning for the banking industry in order to identify and analyze the external factor that affected the growth and development of the banking sector in Bangladesh. A through analysis of the macro environment in which the banks operate will allow the banks to develop pro-active strategies and navigate the organization in the turbulent ocean of competition.

The financial institutions are always heavily influenced by the macro economic conditions both globally, regionally or locally. The key macro economic indicators like GDP growth rate, inflation, industrial growth rate, expansion of trade and commerce and other factors affects the operations and the pricing strategy of the bank. BRAC Bank Limited (BBL), since its inception has achieved a steady growth rate. However, the present economic downturn or recession is affecting BBL’s operations. The country is now under a deep recession having a major decline in industrial growth rate, galloping inflationary pressure, and decline in international trade with export targets for the fiscal year yet to be achieved and other factors will eventually affect BBL and other banks pricing strategies. Many banks will have to revise the interest rate structure for its various services in order to cope with economic slowdown. However, SME results for BBL is quite satisfactory, as they have surprised their stipulated targets despite the economic sluggishness going on in the country. Some practical example is as follows:

If the savings rate in our country decreases the purchasing power of our people will decreases. The demand for taking loan from bank will decline and client cannot repay the loan properly. On the other hand, if it is increase extremely then purchasing power will increase but people will have enough cash on hand which will reflect by not taking loans from financial organizations. So everything should be balanced.

Another example like- if the interest rate increases then people will not be interested for taking loans and as well as client will be unable to make profit by taking loans. On the other hand, if it decreases then bank will not be able to make profits quickly. So it would be considered for balancing both sides. Unemployment is another whether too much unemployment can affect the industry to understand the business properly. So this sort of impact might occur in the environment, which could have handle properly.

Demographic Environment

Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics. The demographic environment is of major interest to marketers because it involves people and people make up markets. In terms of SME requirements customer is the main part of bank. If there is no client there is no business. According to the location BRAC Bank SME unit offices already has reached in every cities around the country for providing door-to-door facilities. Some key factors of demographic environment are- urbanization, education, living standard etc. For example-In terms of urbanization, lots of new business and enterprises are growing rapidly in the city or town. So more banks can be aggressive for providing loans in newly developing areas. For having new banks in the city, the standard of living will increase for the people. Education is another major factor for developing a nation. Without literacy standard of living could not come for individuals. So each and every factor is interrelated to each other.

Economic Environment

Factors that affect consumer buying power and spending patterns. SME is very careful regarding economic issues in the country. Customer relation office is always keen to check purchasing materials and leading lifestyle of the client.  Because if the economic condition of a client become bad then he/she might not repay the loan. On the other hand if war occurs between the two countries then price of the products will increase and people will loss purchasing power. In this way, organization might affect economically.

On the other hand, A steady growth rate with continues market oriented reforms will contribute positively by expanding the volume of business and profitability of the bank. In an economy, a steady growth means there will be more investment, savings, and consumption in the economy. As a result, bank also gets more deposit and more projects for credit disbursement.

After disbursing the loan, if the economic condition of the business is being poor then BRAC Bank regenerate the repayment schedule of the client to repay the loan. On the other hand if the economic condition rise up then client repay the whole amount in favor of BRAC Bank Limited.

Social Environment

As banks are service-oriented organizations, they always have to consider the attitude of the customer. Customer now wants a speedy service accompanied by attractive and well decorated impressive branches with customer friendly officers providing tailor made services to the customers. SME of BRAC Bank impressive office has already earned a reputation for the bank and has attracted lots of potential customers around the country. In order to match with the customer needs, banks are also increasing varieties of products such as single short products, different short and medium term products and other services. One of the key factors of a social environment is social class growth. It carry out attitudes of various classes of people, such as upper class, middle class, lower class upper lower class, upper lower class, etc. The customer relation officer of BRAC Bank deals with them regarding their social classes.

The clients are accepting the SME loans with knowing the interest rate of 24% ( 2% per month). Client wants fast service rather than paying 24% interest. Some clients are argued about the interest rates. BRAC Bank is now thinking of to reduce it. BRAC Bank already have 3000 clients and disbursed 100 core. Next year its projected target is 8000-10000 clients and captures the market in our country. So, SME has a rapid growth in the market.

Political Environment

The political environment consists of law, government agencies and pressure groups that influence and limit various organizations and individuals in a given society. SME of BRAC bank have to abide national laws like festivals, holidays. On the other hand, hartals, strikes, barriers can affect the economic condition of SME of BRAC Bank Limited. Under the latest World Bank recommendation the banking division of the ministry of finance is being abolished a; step further in providing autonomy to Bangladesh Bank. The emergence of SME of BBL and other contemporary banks and the arrival of the foreign banks are all due to the on going reforms in the financial sector of Bangladesh. BBL is restricted to provide loans for the political leaders. Customer services officers of BRAC bank always avoid the political leaders who carry out business. But if any pressure occurs from the political sides to have the loan the top management handles the situation but never give the loan to them.

Technological Environment

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

Ecological Environment

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

 7. Micro Environment Analysis

7.1 Consumer

Marketing management job is to attract and build relationship with customers by creating customer value and satisfaction. It depends on other factors in the organization microenvironment- suppliers, customers, competitors; various publics, which make up the organizations, value delivery system.

The company needs to study its customer marketer closely in terms of Small and Medium Enterprise of BRAC Bank Limited and their customers group is specified. Their target group is only Small and Medium Enterprise client. The CRO closely monitor and try to build good report with clients. On the other hand corporate clients are different to have the loan. Each market type has special characteristics that call for careful study by the marketer.

In terms of SME, most clients are carrying out trading business rather than manufacturing business. Few clients are attached with service business like pharmaceutical, hospital, homeopath etc. In the trading business clients want loans to meet their working capital requirement. On the other hand, client want 10-15 for purchasing fixed assets. In our country mostly 35-40 years old clients are carrying out loans regarding the type of their business. The clients who interested to take the loan of SME then they have maintained at least one year running business. It is a policy of this bank because in the mean while client can understand his business and can set a future plan.

The educational qualification of our clients is very poor. Clients are undergraduate but carry out good business. SME support their clients who are carrying out good business and also give suggestions and guidelines to develop their business. If any client has maintain loans with other banks then SME is restricted to provide loans for that clients. The client to have a clearance certificate to get the loan from the BRAC bank.

It has been found out that in our country most clients need small loans to develop their own business. The world is being globalized and modernized. So by think of it client take risks to enhance and develop their business and BRAC bank is a good helping hand to help them.

In our country, clients want more time to repay the loan. BRAC bank gives adequate time for the client to repay the loan whether they can get benefit from it. Clients are very happy to repay the loan by equal monthly installment. Clients know the right time to repay the loan at the right place. But in the pick season, most client wants short fund requirement to carry out good business. Regarding interest rates, clients are not talk about more because clients get the loan at the right time from the BRAC bank. Clients are also happy by the issuance of security preferences because they do not have to provide any collateral security for hypothecation or unsecured loans.

SME of BRAC bank networks has everywhere in Bangladesh. So clients can have the SME loans wherever his business exists in the country. Also clients get the fast service from the BRAC bank.

The purpose of this loan is the economic development in our country, which might divert the clients mind after having the loans for expansion. Many clients have ambition to expand from trading to manufacturing business to generate more profit.

When a CRO would visit a business, the client must provide the proper and right information and show the right documents for justifying a good client. If any CRO feel bad smell in the business then the CRO reject that client without concerning the management. So clients should be feel comfortable to provide proper information to have the loan.

Regarding the service by the CRO, almost all clients are satisfied by get these quick facilities from them. Though it is pioneer division of this bank, so client should be fully satisfied by having this facility.

7.2 Industry Analysis: SME facility of BRAC Bank Ltd.

a. Threat of New Entrant

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

 b. Growth in the Industry

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

Evaluation of SME

October 07, 2001– its operation started as the name of SESDF (Small Enterprise

                               Support Development and Finance)

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

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

March 2003 – Month of greatest challenge and achievement (Achievement-104%) A sample MIS report has shown below:

c. Competitors

Identifying the banks competitors

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

Determining the competitors objectives

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

Identify the competitor’s strategy

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

In terms of SME, a sample comparison between BRAC Bank Limited and Islami Bank of Bangladesh has shown below:

8. Strategic Marketing Theories relate to SME BRAC Bank Limited

In terms of business, marketing management as the analysis, planning, implementation and control of programs designed to create builds and maintains beneficial exchange with

 Target clients for the purpose of achieving organizational objectives.

 8.1 Demand management

As a small and medium enterprise of BRAC bank, it basically provide small micro credit loans and also its product is different terms of small and medium terms of loans. Though it is pioneer division and makes demarcate plans to increase demand in the market in terms of small and medium enterprise. So SME provides the loan that affects the level, timing and nature of demand in a way that helps customer to enhance their business in spite of economic development. SME already have Zonal offices, 900 unit offices around the country and 1185 CRO to serve door-to-door customer services and also it exists close to 14482 clients.

8.2 Building Customer Relationship

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

8.3 SME relates with the modern marketing concept

First it provides customer satisfaction.

Second customer satisfaction through integrated effort.

Finally, for integrated effort to come about organization belief that goals should and can be achieved.

In terms of SME the goal is to economic development of our country through meet and exceed customer needs better than competition. In terms of customer orientation, SME provides the best facilities to customers regarding their needs. SME provides unsecured loans up to 5 lacs which none of other banks provide. In spite of integrated effort, SME is a team-based organization. CRO go to the door to door business and by depend on their behalf SME gives the loan to clients. Though it is team base management bank, the behalf that corporate goals can be achieved and customers are satisfied by gaining trust of management.

8.4 Strategic Planning in a Nutshell of Small and Medium Enterprise

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

• Identify the major elements of the business environment in which the organization has operated over the previous few years. In terms of SME of BRAC Bank Limited, it provides loans to small and medium enterprise. CRO or marketing officers deals with the clients directly and CRO’s are all in all to provide the loans in terms of their beliefs. SME is very friendly to provide various facilities by the existing clients.
• Describe the mission of the organization in terms of its nature and function for the next two years. By thinking of client’s benefits and satisfaction, SME will withdraw up to 10 lacs without collateral security for providing loans. Disbursement system will carry out by means of courier services. CRO will send necessary documents to head office to disburse the loan, which is nonparallel decision by comparing other banks.
• Explain the internal and external forces that will impact the mission of the organization. In terms of SME, it has various unit offices surround the country and has vast number of employees to handle different clients. Though it is a world’s number NGO’s bank, which has strong feedback and reputation in terms of social and environmental sights. By considering external forces, IFC or World Bank is financially collaborating with BRAC Bank. So it is big driving force for the SME of BRAC Bank Limited.
• Identifying the basic driving force that will direct the organization in the future. In terms of SME of BRAC Bank, it believes integrity, honesty and conciseness bilaterally of clients and us. Though it is credit division, so marketing officers can relate with bravery. Management is very strict in terms of that issue. It is a strong reputed organization so clients will faith on us and carries out long-term relation with SME.
• Develop a set of long-term objectives that will identify what the organization will become in the future. In terms of SME it has a long-term vision to run into the organization. Already It applying MBS (Millennium Banking System) software by means of online facilitates in terms of keeping all record and to way the process easier in the long run. SME thinks key business process with IT Management together in which IT can be enable can give best possible outcomes.

8.5 Key Marketing Processes Relate to SME

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

8.5-1.  Market Segmentation

The market consists of many types of customers, products and needs and the marketer has to determine which segments offer the best opportunity for achieving company objectives. SME segments the market into three categories: Trading, Manufacturing and Service. In trading business, there are different kinds like retailer, wholesaler, food business, general stores etc. in manufacturing, there are mills, bakery, press business, etc and also except purchasing manufacturer organization also take loans to meet the working capital requirements. In service business, there are pathology, hospitals and satellite business. Though in our country there is not much manufacturing organization, so most of the demands go for trading business. Though it is a small and medium enterprise therefore it focus on small loan clients that is small types of business like trading, manufacturing and service. Basically manufacturing clients take medium or low amount of loan during short period of time.

Bases for Segmenting Consumer Markets

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

Geographic segmentation: dividing a market in to different geographic units such as nations, states, region, countries, cities, or neighborhood. In terms of SME, it targets every region around the country in terms of small business. Now the SME has almost 265 unit offices to provide credit facilities to the clients around the country. Each of the SME unit offices mainly setup the district levels around the city but not in the rural or undeveloped areas. Though where the potential enterprises/businesses are more, SME try to develop unit office at those particular region/ areas to capture the entire market.

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

Behavioral Segmentation: Behavioral segmentation divides buyers in to groups based on their knowledge, attitude, uses or responses to a product. Many marketers believe that behavior variables are the best starting point for building market segments. In terms of SME, few clients would be found those who had done MS and most of clients are secondary or higher secondary pass. But basically SME segments clients at least whether the clients can understand his/her own business. SME gives very importance on attitude. At the first sight if any client behaves rough then CRO never go to that particular client.

8.5-2. Target Consumer

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

8.5-3.  Market Targeting

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

Differentiated marketing: using a differentiating marketing strategy, an organization decides to target several markets or niches and designs separate offers for each. Basically it provides the loan within 25 days and gives the highest months to repay the loan than other banks. In terms of trading business, if the business is not too big then SME is not allow to give more than 20 months to repay the loan. On the other hand, in case of manufacturing business, if the business is too big then SME gives the client gross period and more than 30 months to repay the loan. SME also categorizes the dealings with the customers in A, B & C groups.

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

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

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

8.5-4  Market Positioning

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

Once a company has decide which segments of the market it will enter, it must decide what positions it wants to occupy in those segments. A products positioning in the way the product is defined consumers mind relative to competing product. Main head office of SME is in Dhaka city and rest of its unit offices are spread out surrounding the country. Each unit office consist of 2 or 3 CRO who provides door to door services, they even work at night. Many banks have field officers but could not carry out the unit office facilities. So BRAC bank can reach to the potential clients at anywhere in the country. The CRO of SME never say to the customer at the first impression that interest rate is 24%. They try to make understand to the clients mind that 2% per month or equal monthly payment as well as many benefits.

Unique Selling Propositions:

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

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

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

8.5-5  Marketing Strategies for Competitive Advantages

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

8.5-6 Developing Marketing Mix

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

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

Short Term Products:

Easy repay- these categories of products are easy repaid for the clients. When the pick season comes like Christmas of EID then these short-term products could be required for the clients. If the clients have that loan at the pick season then clients business carry out hot cakes and easily can repay the loan to BRAC bank.

 Shirt fund requirement– without pick season, many clients could have required short funds to hold the tender or dealership. BRAC bank would be a good hand for the clients to have that dealership.

 Proper Utilization– on average, clients get these categories of loan for 18 to 24 months. So clients can easily utilize the money regarding the prospect of the business.

Easy repay– though it is a long time repayment schedule, so clients make the profits to get the required amount of loan and repay the loan in a monthly basis.

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

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

c. Place (Distribution) includes company’s activities that make the product available to target consumers. SME already spread out its unit offices around the country. SME tries to reach each and every small business enterprise to meet client’s demands. Marketing channel decisions are among the most important decision that management faces. Management must make channel decision carefully, incorporating today’s needs with tomorrow like selling environment. SME of BRAC bank already has 900 unit offices, which is spread throughout the country and 1185 staffs working under these unit offices. These officers have respective selected supervisors who directly report to the SME main head office. So SME division has everywhere in Bangladesh to serve all respective clients.

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

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

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

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

8.6 Managing the marketing effort in terms of SME

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

Marketing Analysis: SME always analyzes its market and marketing environment to find attractive opportunities and to avoid environmental threats. It is also analyze banks strengths and weakness as well as current and possible marketing action to determine which opportunities it can best pursue. For example: after analyzing the market, SME withdraws collateral security up to 8 lacs taka to get the loans.

9. SWOT analysis

SWOT analysis is an important tool for evaluating the company’s Strengths, Weaknesses, Opportunities and Threats. It helps the organization to identify how to evaluate its performance and scan the macro environment, which in turn would help organization to navigate in the turbulent ocean of competition.

9.1 Strengths

Company reputation: BRAC bank has already established a favorable reputation in the banking industry of the country particularly among the new comers. Within a period of 5 years, BBL has already established a firm footing in the banking sector having tremendous growth in the profits and deposits. All these have lead them to earn a reputation in the banking field

Sponsors: BBL has been founded by a group of eminent entrepreneurs of the country having adequate financial strength. The sponsor directors belong to prominent resources persons of the country. The Board of Directors headed by its Chairman Mr. F H Abed. Therefore, BBL has a strong financial strength and it built upon a strong foundation.

Top Management: The top management of the bank is also major strength for the BBL has contributed heavily towards the growth and development of the bank. The top management officials have all worked in reputed banks and their years of banking experience, skills, expertise will continue to contribute towards further expansion of the bank. At BBL, the top management is the driving force and the think tank of the organization where policies are crafted and often cascaded down.

Facilities and equipment: BBL has adequate physical facilities and equipments to provide better services to the customers. The bank has computerized and online banking operations under the software called MBS banking operations. Counting machines in the teller counters have been installed for speedy service ant the cash counters. Computerized statements for the customers as well as for the internal use of the banks are also available.

Impressive branches: This creates a positive image in the minds of the potential customers and many people get attracted to the bank. This is also an indirect marketing campaign for the bank for attracting customers. 26 branches of the bank are impressive and are compatible to foreign banks.

Interactive corporate culture: BBL has an interactive corporate culture. Unlike other local organization, BBL’s work environment is very friendly, interactive and informal. There are no hidden barriers or boundaries while interacting between the superior and subordinate. The environment is also lively and since the nature of the banking job itself is monotonous and routine. BBL’s likely work environment boosts up the spirit and motivation of the employees.

Teamwork at mid level and lower level: At BBL’s mid level and lower level management, there are often team works. Many jobs are performed in groups of two or three in order to reduce the burden of the workload and enhance the process of completion of the job. People are eager to help each other and people in general are devoted to work.

9.2 Weaknesses

Advertising and promotion of SME loan: This is a major set back for BBL and one of its weakest areas. BBL’s adverting and promotional activities are satisfactory but it SME loan is not advertised well. It does not expose its SME product to general public and are not in lime light. BBL does not have neon sign or any advertisement for SME loan in the city. As a result people are not aware of the existence of this bank.

NGO name (BRAC): BRAC is one of the largest NGO of the world and it is operating its activities in Bangladesh. BRAC bank is not a NGO bank but many people of them country consider it as a NGO bank like Grameen bank which is not correct.

Low remuneration package: The remuneration package for the entry and the mid level management is considerably low. The compensation package for BBL entry-level positions is even lower than the contemporary banks. Under the existing low payment structure, it will be very difficult to attract and retain higher educated employees in BBL. Specially CRO’s are not satisfied with compensation package provided to them.

9.3 Opportunities

Diversification: BBL can pursue a diversification strategy in expanding its current line of business. The management can consider options of starting merchant banking or diversify in to leasing and insurance. By expanding their business portfolio, BBL can reduce their business risk.

Product line proliferation: In this competitive environment BBL must expand its product line to enhance its sustainable competitive advantage. As a part of its product line proliferation, BBL can introduce the following products.

ATM: This is the fastest growing modern banking concept. BBL should grab this opportunity and take preparation for launching ATM. Since BBL is a local bank, they can form an alliance with other contemporary banks in launching the ATM.

9.4 Threats

Multinational banks: The emergence of multinational banks and their rapid expansion poses a potential threat to the new growing private banks. Due to the booming energy sector, more foreign banks are expected to arrive in Bangladesh. Moreover, the already existing foreign banks such as Standard Chartered is now pursuing an aggressive branch expansion strategy. This bank is establishing more branches countrywide and already launched is SME operatin. Since the foreign banks have tremendous financial strength, it will pose a threat to local banks.

Upcoming banks: The upcoming private local banks can also pose a threat to the existing private commercial banks like BBL. It is expected that in the next few years more local private banks may emerge. If that happens the intensity of competition will rise further and banks will have to develop strategies to compete against an on slaughter of foreign banks.

Contemporary banks: The contemporary banks of BBL such as Dhaka bank, prime bank and Dutch Bangla Bank are its major rivals. Prime bank and other banks are carrying out aggressive campaign to attract lucrative clients as well as big time depositors.

 Default culture: This is a major problem in Bangladesh. As BBL is a new organization the problem of non-performing loans or default loans is very minimum or insignificant. However, as the bank becomes older this problem arises and the whole community suffers from this chronic diseases. BBL has to remain vigilant about this problem so that proactive strategies are taken to minimize this problem if not elimination.

 10. Procedures of BRAC Bank SME loan

 10.1 Loan Sanction activities

• Select potential enterprise: For SME loan, in this step the CRO conduct a survey and identify potential enterprise. Then they communicate with entrepreneurs and discuss the SME program.
• Loan Presentation: The function of CRO is to prepare loan presentation based on the information collected and provided by the entrepreneur about their business, land property (Where mortgage is necessary)
• Collect confidential information: Another important function of a CRO is to collect confidential information about the client from various sources. The sources of information are suppliers regarding the client’s payment, customers regarding the delivery of goods of services according to order, various banks where the client has account, which shows the banks transactions nature of the client.
• Open clients accounts in the respective bank: When the CRO decided to provide loan to the client then he/she help the client to open an bank account where BRAC bank has a STD a/c. BRAC bank will disburse the loan through this account. On the other hand the client will repay by this account. Although there is some exception occur by the special permission of the authority to repay by a different bank account.

• Filled up CIB form: CRO give a CIB (Credit Information Burue) form to the client and the client fill and sign in it. In some case if the client is illiterate then the CRO fill the form on behalf of the client. Then CRO send the filled and signed form to the SME, head office.
• Sending CIB to Bangladesh Bank: The SME, head office collects all information and sends the CIB form to Bangladesh Bank for clearance. Bangladesh Bank return this CIB form within 10-12 days with reference no.
• CIB report from Bangladesh Bank: In the CIB report Bangladesh Bank use any of the following reference no:

• NIL: if the client has no loan facility in any bank or any financial institution then BB (Bangladesh Bank) use ‘NIL’ in the report
• UC (Unclassified): if the client has any loan facility in any bank or financial institution and if the installment due 0 to 5.99 then BB use UC in the report
• SS (Substandard): if the client has any loan facility in any bank or financial institution and if the installment due 6 to 11.99 then BB use SS in the report
• DF (Doubtful): if the client has any loan facility in any bank or financial institution and if the installment due 12 to 17.99 then BB use DF in the report
• BL (Bad lose): if the client has any loan facility in any bank or financial institution and if the installment due 18 or above then BB uses BL in the report. This report indicates that the client is defaulter and the bank should not provide loan the client.

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

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

10.2 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:

ü  Money receipt (Risk fund).

ü  Sanction letter.

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

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

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

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

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

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

ü  Letter of disbursement

ü  Photocopy of trade license (attested by CRO)

ü  Insurance (Original copy)

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

ü  Two guarantors (one must be Spouse/parents)

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

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

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

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

MBS entries for loan disbursement

• Initial ID generation: After sending the list to the treasury, the loan administration division generates an initial ID against the borrower. Entering required information, the banking software MBS automatically provide a ID no for the borrower.
• Loan account opening: According to the ID, the loan administration division opens a loan account in MBS against the borrower. Entering all required information, the MBS automatically give an account no. For the borrower.
• Cost center assign: The loan administration division enter the following information in MBS:

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

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

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

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

Post Disbursement Manual Activities

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

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

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

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

10.3 SME Loan Recovery Procedures

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

Print Vouchers:

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

Cross Check SMS/Fax and solve problems (If any): The loan administration is responsible for all entry in MBS. If the there is any error found in future then the respective officer who is entering these information in MBS will be liable for it. User ID will easily identify it. 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.

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

10.4 Closing procedures of SME loan in BRAC Bank:

i)             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 brought from the archive. Cross-chequed the documents of file with MBS record.

Obtained approval from the concern authority: it is require the permission of concerned authority to close the loan. If concerned authority 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.

ii) MBS entries for loan closing

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

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

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

Post closing manual activities:

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

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

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

11. An overall case study

Alternative sources of funds from the viewpoint of clients

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

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

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

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

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

Bibliography

1 Books, Publications and Journals of BRAC Bank Limited

2 Valuable discussion of supervisors during the period of internship.

3 Prospectus Of BRAC Bank Limited published in September 2006.

4 Bangladesh Bank related websites

5 Marketing Management, Philip Kotler, The millennium Edition

6 Rose, Peter S. Commercial Bank Management, International Edition 1999,

     Irwin Macgraw-Hill

7 Hemple, George H. Bank Management, 2^nd edition, 1986, John Wiley & Sons.

8 Ahmed, Iftekhar Uddin. Crisis of Credit Management, Ruprekha Publisher,

      Mirpur, Dhaka.

9 George Ruth. Commercial Lending, American Bankers Association, 1990

Credit Management (Planning, Appraisal, & Supervision) edited by S.L.N Simha, Indian Institute of Financial Management & Research.