The Analysis of the Case of a Default Borrower and a Successful Borrower

A DEFAULT SME BORROWER: TINNI AUTOMOBILES

Introduction of Tinni Auto mobiles:

Tinni Automobiles is a proprietorship concern. It was a “Motor Workshop” business concern at 42/A, Zigatola, Dhaka since 01.01.2004.The Borrowers is a children’s fantasy novel by the English author Mary Norton, published by Dent in 1952. It features a family of tiny people who live secretly in the walls and floors of an English house and “borrow” from the big people in order to survive.

Proprietor:

The proprietor of the concern is Mr.Abul Salam. He was born in the 1st September 1968 in the village of Dhamsahar under Uzirpur Thana of Barisal District. His father’s name is Md. Yusuf Ali and mother is Ms. Fatema Begum who has six issues of whom Mr. Md. Abul Salam is the eldest. He is married and has been blessed five issues.

Bank Account:

Mr. Md. Abul Salam opened an Al Wardia Current Account No. 40121110000277/2 on —— in the name of “Tinni Automobiles” in Shahjalal Islami Bank Limited, Satmasjid Road Branch, Dhaka.

Ms. Khadija Sultana applied for a SME loan for BDT 500,000.00 to Shahjalal Islami Bank Limited, Stamasjid Road Branch, Dhaka on 19.08.2009… Bank approved for BDT 400,000.00.

Details of the facility are as under:

Type of facilitySmall Enterprise Investment facility under SME.
Mode of FacilityHPSM (Term) investment facility.
Investment AmountBDT 5.00 Lac (Taka Five Lac) only.
PurposeTo purchase fixed assets (Automatic Tyre, changer machine, Air Compressor, F.C Engine & Welding Machine) For the business.
Rate of profita)      @14.50% p.a. repayable & recoverable on a monthly basis or the rate to be determined by the Bank from time to time.

b)      Compensation @ 2 % p.a. for the overdue amount shall be charged and recovered from the date of overdue till date of payment.

Service Charge1.00% p.a. to be realized upfront (for 1st year on approved limit and for subsequent year on outstanding principal balance to realized at the beginning of the anniversary).
Processing FeeTk. 1000.00 (Taka One Thousand) only, which will be realized before disbursement.
Risk Fund0.50 % (One Time) to be realized before disbursement.
Tenure24 months from the date of 1st disbursement.
Mode of repaymentBy 24 (Twenty Four) equal monthly installments. However, the entire balance outstanding will be adjusted along with the last installment.
Installment sizeTk 24,150.00 per month.
First Installment dueAfter 30 days from the date of first disbursement.
Mode of disbursement of investment facilityThrough issuance of payment order(s)/ Demand Draft in favor of supplier(s) for purchasing fixed assets (Automatic Tyre Changer Machine One Pcs, Origin-Italy, Model: Silver 222, Air Compressor One Pcs, Two Horse Power, F.C Engine Six Pcs, 660 CC and Welding Machine One pcs, 500 Amp) as per quotation provided with proposal and after obtaining written request of you.
In case of defaulted installmentIf you fail to repay 3 (three) consecutive installments, the entire investment facility shall be called back instantly and you will be obliged to repay the entire facility along with profit.

 Documents to be executed:

DP NoteLetter of Disbursement
Letter of RevivalLetter of Authority
Letter of ArrangementLetter of Guarantee
Purchase ScheduleHire Purchase under shirkatul meelk Agreement
Letter of UndertakingLetter of Hypothecation
Letter of InstallmentAny other documents deemed necessary to protect the interest of the Bank.

 Other Terms & Conditions:

  1. Disbursement to be made under the principles of Shariah.
  2. Drawings exceeding the approved limit shall not be allowed under any circumstances.
  3. All legal fees, insurance premium and other costs (if any) shall be borne by you. Any Govt. Levy, Excise Duty etc. on the facility will also be paid by you. Bank shall have the right to debit client’s a/c. at its discretion in case of need and to this effect a letter of authority from you to be obtained.
  4. If, any deal/installment becomes overdue, compensation to be charged at the rate decided by the Bank.
  5. You shall not divert Bank’s Investment under any circumstances.
  6. Stock report must be submitted by you on monthly basis.
  7. You will not avail any kind of investment facilities from other Bank(s)/Financial Institution(s) without obtaining NOC from our Bank.
  8. You can not bring any change to its business address without prior written consent of our Bank
  9. Insurance Policy covering Fire risk on hypothecated stocks and furniture-fixtures of you to be obtained for a minimum sum of 10% above the total facility amount of Tk. 5.00 lac from one of our enlisted insurance companies.
  10. Bank reserves the right to cancel the approval/ alter/amend any of the aforesaid clauses/terms and call back the entire or part of the Investment facilities at any time without assigning any reason whatsoever.
  11. This is subject to compliance of all related policies, circulars and guidelines of our Head Office, Bangladesh Bank and Government Bodies in connection with allowing/disbursement of the above facility(s).

The investment facility was disbursed on 10.09.2009 for two years and will be expired on 10.09.2011. After disbursement the client made repayment only 01 (one) installment i.e. upto 10.10.2009 and upto March 2011, 17 (seventeen) installments are overdue. According to Bangladesh Bank loan classification policy, the loan has been classified as Bad/Loss (BL).

The client stopped the repayment from October 2009 showing the cause that the business is not run well. Once the Client Relationship Officer (CRO) went to visit his workshop and found that the workshop is not there. The owner of the shop informed that all machinery either bought or shifted to another by turns and one night left Zigatola bag and baggage. The shop owner does not know where he is. And the proprietor does not receive the phone call. The present overdue is BDT 410,550.00 .

The present outstanding of the client is BDT 568,530.00.

Reasons for becoming a defaulter:

1. There is no collateral security against the investment facility. So the client may intentionally defaulter.

2. One guarantor is the spouse of the client who is untraceable. Another two guarantors are not able to pay the liability.

3. Lack of supervision & monitoring:

4. Lack of skilled bank employee.

5. Inadequate professionally capable persons to handle loan cases.

6. Funds may divert for borrower’s personal use.

7. Improper analysis of loan proposal.

8. CIB report was not collected in time.

9. Poor communication with borrower

10. No Previous bank account statement and loan statement.

11. Avoiding communication with the lending bank after disbursement.

A SUCCESSFUL BORROWER: R. N. TRADE INTERNATIONAL

Company Profile:

NameR.N. Trade International
Legal StatusProprietorship Concern
ProprietorMs. Nasrin Akter Runa
Type of ConcernTrading
Type of BusinessImporter and Trader of Medical Instruments
Business AddressSales Center: 12/2, Kazi Nazrul Islam Avenue

Shahbag Beponi Bitan (1st Floor), Dhaka.

Sister Concerns DetailName: R.N. International, Address: 43, Mitford, Dhaka.
Name: R. N. Medical, Address: 42, Mitford, Dhaka.
Client HistoryNew Client

 Details of the facility are as under:

Type of facilitySmall Enterprise Investment facility under SME.
Mode of FacilityBai-Muajjal (Term) investment facility.
Investment AmountTk. 7.00 Lac (Taka Seven lac) only.
PurposeTo meet working capital requirements for purchasing business items.
Rate of profit
  1. @ 14.50% p.a. repayable & recoverable on a monthly basis or the rate to be determined by the Bank from time to time.
  2. Compensation @ 2 % p.a. for the overdue amount shall be charged and recovered from the date of overdue till date of payment.
Service Charge@ 1.00% p.a. to be realized upfront (for 1st year on approved limit and for subsequent year on outstanding principle balance to be realized at the beginning of the anniversary).
Processing FeesTk. 1000.00 (Taka One Thousand) only.
Risk Fund0.50 % (One Time) to be realized before disbursement.
Tenure24 months from the date of 1st disbursement.
Mode of repaymentBy 24 (Twenty Four) equal monthly installments. However, the entire balance outstanding will be adjusted with the last installment.
Installment sizeTk. 33,780.00 (Taka Thirty Three Thousand Seven Hundred Eighty) only per month.
First Installment dueAfter 30 days from the date of first disbursement.
Mode of disbursement of investment facilityThrough issuance of payment order(s)/Demand Draft in favor of supplier(s) for purchasing the trading items (medical instruments) after obtaining: a) Quotations from the supplier(s) duly accepted by the client and verified by SME In-charge b) Written request of you.
In case of defaulted installmentIf you fail to repay 3 (three) consecutive installments, the entire investment facility shall be called back instantly and you will be obliged to repay the entire facility along with profit.
Validity for utilization of investment facilityThis sanction limit will be valid for 30 days from the date of issuance of sanction letter favouring you. If you fail to avail the entire facility within this stipulated time, the limit will become invalid.
Security of the investment facility
  1.   I.      Hypothecation of Stocks of Goods, book debts and receivables, furniture-fixture of you duly insured covering fire risk with bank’s mortgage clause.
  2. Hypothecation of the new fixed assets (Deep Refrigerator-2Pcs, General AC 2 Ton-2Pcs, Generator Disel-2Pcs, Fan-2Pcs and floor decoration items & fittings) to be purchased with our facility.
  3. 24 (Twenty Four) post dated cheques against entire monthly installments.
  4. One post dated Master Cheque for the full amount (with profit) of the facility.
  5. Personal Guarantees of:          

c)      Ms.Nasrin Akter Runa, Proprietor of R.N. Trade International.

d)      Mr. Md. Monirul Haque (Elder Brother of the owner); Present Address: 7/D, Politechnique Staff Quarter, Tejgon, Dhaka.

e)      Mr. Md. Shamsul Haque (Landlord of the Business Place); Present Address: 129/6, Elephant Road, New market, Dhaka.

f)       Mr. Md. Osman Goni Talukder (Landlord of the Owner’s Present Address); Present Address: 7/D, Politechnique Staff Quarter, Tejgaon, Dhaka.

g)      Mr. Md. Jakir Hossain (Brother in law of the owner); Present Address: 4/1, 3Matawail, South Jatrabari, Dhaka-1211.

 Documents to be executed:

DP NoteLetter of Disbursement
Letter of RevivalLetter of Authority
Letter of ArrangementLetter of Guarantee
Purchase ScheduleHire Purchase under Shirkatul Meelk Agreement
Letter of UndertakingLatter Of Hypothecation
Letter of InstallmentAny other documents deemed necessary to protect the interest of the Bank.

 Other Terms & Conditions:

  1. Disbursement to be made under the principles of Shariah.
  2. Drawings exceeding the approved limit shall not be allowed under any circumstances.
  3. All legal fees, insurance premium and other costs (if any) shall be borne by you. Any Govt. Levy, Excise Duty etc. on the facility will also be paid by you. Bank shall have the right to debit your A/C at its discretion in case of need and to this effect a letter of authority from you to be obtained.
  4. If, any deal/installment becomes overdue, compensation to be charged at the rate decided by the Bank.
  5. You shall not divert Bank’s Investment under any circumstances.
  6. Quality, Quantity, Prices and Storage of Hire Purchased fixed assets shall be ensured by you.
  7. You must provide stock report on monthly basis.
  8. You will not avail any kind of investment facilities from other Bank(s)/Financial Institution(s) without obtaining NOC from our Bank.
  9. You cannot bring any change of your business address without prior written consent of our Bank.
  10. Insurance Policy covering Fire risk on hypothecated stocks and furniture-fixtures of you to be obtained for a minimum sum of 10% above the total facility amount of Tk. 7.00 lac from one of our enlisted insurance companies.
  11. Bank reserves the right to cancel the approval/ alter/amend any of the aforesaid clauses/terms and call back the entire or part of the Investment facilities at any time without assigning any reason whatsoever.
  12. This is subject to compliance of all related policies, circulars and guidelines of our Head Office, Bangladesh Bank and Government Bodies in connection with allowing/disbursement of the above facility(s).

 The investment facility was disbursed on 10.02.2010 for two years and will be expired on 10.02.2012. After disbursement the client made repayment regularly. Not a single installment was overdue. According to Bangladesh Bank loan classification policy, the loan is STD.  Her response to the Bank is very positive.

 Life History of Nasrin Akter Runa:

Early life:

Nasrin Akter Runa is a successful woman entrepreneur. She was born in the 2nd   February 1977 in the village of Garbishadia under Hossainpur Thana of Kishorgonj District. Her father’s name was Md. Shamsul Haque and mother is Sufia Khatun who has five issues of whom Runa is the eldest.

 Her father was a small businessman. He passed away. Her mother is a housewife. Her family culture influenced her to be involved in business to lead an entrepreneurial life.

Education:

Nasrin Akter Runa started her early education at home. She completed her primary education from “Garbishadia Government Primary School”, Kishoregonj and got a talent pull scholarship in Class V. Then she got admitted into “Pippa Kandi High School”, Kishoregonj. As a student, she was brilliant. Most of the classes she got first place  and rest of second place. She passed class six, seven and eight. In junior scholarship, she also got a first grade scholarship and passed S.S.C. in 1992 with first division. She passed H.S.C. in 1994 with 1st division from “Hossainpur Degree College” and passed B.A. in 1997 from the same College. It is mentionable here that during this period, she used to meet her educational expenses through giving tuitions.  After sudden death her father, her family faced a great financial problem and she didn’t get admission in Masters Degree.

Initial Step in Business:

After the death of her father she had to take the responsibility of their family as she is the eldest issue of their parents and other brothers and sister were learning. At first she raised giving tuitions. But after two years she left all the tuitions as she did not get any interest in this profession. In 1999 she came to Dhaka and took a job in a Garments at Mirpur, Dhaka as a line man. But she was not enjoying this job.  Though she was not enjoying the job, she learned how to business and to take risk. Nasrin Akter Runa had interest in business as she had the origin in a business family. One of her relatives, who was involved in drug business, advised her to apply for a drug license and luckily she got a drug license.

Opportunity had and Utilized :

Nasrin Akter Runa sold her mother’s ornaments and managed about for BDT 50,000.00 (Taka fifty thousand) only as capital. She hired a shop at Tejgaon and started her drug business in 2000 in the name of “Runa Pharmacy”. Before starting business she took training in Pharmacy. At first her sell was not satisfactory but gradually her selling and income was increasing. This time her younger brother Md. Monirul Islam (3rd issue of her parents) came to Dhaka for helping her business. Her selling was rapidly increasing and capital also increasing.

Then she got some time and intended to start another new business named ‘Block and Boutiques’. Before starting this new business, she took training on Block and Boutiques from Youth Development Training Centre in 2003. She started the ‘Block and Boutiques’ business in the name of “Runa Block and Boutiques” at Nakhalpara, Dhaka. She started to sell boutiques to wholesalers and retail markets and gradually earn money. But in June 2004, one night her shop was stolen and the amount of lost was about 400,000.00 (Taka four lac) only. Again to start the business during that time, she took finance from BRAC Bank Limited under SME finance for BDT 200,000.00 (Taka two lac) only and the rest of the amount was backed by “Runa Pharmacy”. Her transaction and repayment was excellent with BRAC Bank Limited. For her goodwill, BRAC Bank Limited proposed her to extend the financial facility. In February 2005, she had to shift her Block and Boutiques shop due to misunderstanding with the owner of the shop to 170 Rampura, Dhaka. Customers were very satisfied to Runa for her good work and friendly behavior. It was a very profitable business. She continued and expanded her businesses. Now she is running her business at 170 Rampura, Dhaka and there are three salaried employees in her Boutiques shop. By this time, she bought two bighas agricultural land property in their village.

In 2007, she intended to start another business as an importer and distributors of medical equipments and accessories. She got a trade license and an IRC in the name of “R.N. Trade International” and hired a show room at 12/2 Kazi Nazrul Islam Avenue (2nd Floor), Dhaka-1208. She collected the capital for the new business by selling one bigha of land which she had bought, “Runa Pharmacy” and “Runa Block and Boutiques”. But the collected capital from the own sources was not sufficient to run the new business “R.N. Trade International”. In the meantime, one day during going to the show room, BDT 300,000.00 lac was hijacked from her. Then she applied to Shahjalal Islami Bank Limiuted, Satmasjid Road Branch for SME loan for BDT 700,000.00 (Taka seven lac) only and Shahjalal Islami Bank Limited provided her 700,000.00 (Taka seven lac) only under SME facility. Her repayment and transaction is also excellent with Shahjalal Islami Bank Limited. There are three employees in this business organization.

She is always positive to run these businesses and never has she become frustrated for the obstacles. From her businesses, it is clear that she has the intelligence to be an entrepreneur because she can identify the opportunity of new businesses.

 Obstacles Faced By Her:

During her business venture Runa faced many obstacles. A lot of events made her frustrated but she didn’t stop. Most of the painful events happened in her life in 2000 and 2004. In 2000 when she started “Runa Pharmacy” at Tejgaon, she had to pay Chada to the local mastans almost every day and she felt so sorrows. As a woman entrepreneur, she had to face many untold difficulties.

In 2003, she started ‘Runa Block and Boutiques’. Her business was running well. But June 2004, one night her Block and Boutiques shop was stolen and her Block and Boutiques business was going to stop. She again started the business by the SME facility provided by BRAC Bank Limited. In 2005 she had to shift her shop at Rampura due to misunderstanding with the shop owner. For the new location she had to lose many customers. But within a short time, she was able to create a market at Rampura.

In 2007, she started “R.N. Trade International” at 12/2 Kazi Nazrul Islam Avenue, Dhaka-1209 as an importer and Distributor of medical equipments and accessories with a limited capital. In the meantime a amount ofor BDT 300,000.00 (Taka three lac) only had been hijacked. She fallen in a great problem for the shortfall of capital to run the new business and her business was going to stop. But she could raise the capital by a SME loan for BDT 700,000.00 (Taka seven lac) only provided by Shahjalal Islami Bank Limited, Satmasjid Road Branch, Dhanmondi, Dhaka.

With her hard work and honesty she has raised her businesses day by day. She knows that failure is the pillar of success.

Achievement:

An entrepreneur’s great achievement is to be a successful entrepreneur. Runa is a self-employed woman. She enjoys with great pleasure by doing work. Three business organizations upto 2010 have been created by her. Now she has six permanent employees in her shops and when work load is increased she may appoint part-time workers. Her great achievement is that she can take risks, create business organizations successfully, and create employment opportunities. She has acquired accountability, emotional stability. Before starting the business, she has a few net worth. But at present her net worth is BDT174.00 lac (Taka one crore seventy four lac) only.

Contribution:

Runa’s business organizations have created and will create job opportunities for many people which will reduce the poverty of our country. Her business firm is not only providing jobs to the people of the country but also helping our economy to develop. Runa is a very social woman and she knows that she has much work to do for the society. She is a regular donor of different mosques, madrashas and orphanages.

Family life:

Runa is unmarried. She lives with her brother at Tejgaon and her mother and other sister and brothers live in their village home. Runa is very happy with her life.

Lessons:

One can learn many lessons from the life of Nasrin Akter Runa. Actually she is the symbol of hard work and honesty. She has sharp knowledge about business. We can learn from her life that anything is possible in this world. Hard work, honesty and patience are the key to success in life. She has proved that the combination of honesty and dedication can bring great success. We have learnt as the followings from the life of Nasrin Akter Ruma:

Reasons for becoming a successful Borrower:

1. There was collateral security against the investment facility.

2. There was one guarantor against the investment facility.

3. Well supervision & monitoring:

4. Skilled bank employee:

5. Professionally capable persons to handle loan cases.

6. Funds were used efficiently.

7. Proper analysis of loan proposal.

8. CIB report was collected in time.

9. Good communication with borrower.

10. Previous bank account statement and loan statement.

11. Good communication with the lending bank after disbursement.

Borrower