BRAC Bank Limited is incorporated as a public limited company on 4th of July 2001 under the company acts 1994 with able leadership of Mr. Fazle Hassan Abed who is the chairman of the bank. BRAC Bank limited a full service commercial bank with local and international institutional shareholding (Shor Cap Int’l Ltd., IFC). BRAC Bank has been striving to provide best-in-the-class services to its diverse range of customers spread across the country under an on-line banking platform. The bank consist of major divisions named Corporate banking, Retail banking, Probashi banking, Small & Medium Enterprise (SME).
Now a days SME loan sector is one of the major driving force in the development of a market economy. In recent time researchers and banks are give much attention on it, BRAC bank is one of them and now BBL is the market leader of SME loan. For BBL, SME loan is the “heart” of the bank, because their major sources of income come from SME loan. The study will give in-depth knowledge about SMEs and SME loan in case of BRAC Bank Ltd. This report will also discuss loan portfolio of BBL. Moreover this is an exploratory study which will explore impact of marketing strategy on the SME loan of BRAC Bank Limited. Some topics like Portfolio analysis, Ratio analysis, Analysis of Demand Management, Market Segmentation, Target Marketing and Market Positioning these are chosen for properly complete the study. Further a survey analysis is also prepared to evaluate customer behavior and their satisfaction level.
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.
Banking Industry is one of the most promising industries of our country. The importance of this sector revealed through its contribution in the economic growth of the country. This sector increase economic growth through mobilizing funds from surplus unit to the deficit unit. Banking Industry is moving towards rapid changes due to technological innovation and diversified needs of its customers.
The key to successful banking lies in the ability of balance many activities. The Brac Bank Limited has a responsibility to ensure efficient and effective banking operation in a sound manner. The bank focused on relationship based Banking, as it believes that the pursuit of profit and developmental goals are mutually reinforcing. This focus makes the bank to emphasize more on to explore and access market opportunities as well as build asset base to its clients conforming significant contribution to the profitability of the Bank.
Objectives of the study
- To present an overview of The Brac Bank Ltd.
- To evaluate the performance of the bank
- To get some idea about functional units
- To know the SME loan activities in BRAC Bank
- To know the enterprise selection criteria to provide SME loan
- To know the terms and conditions of SME loans
- To analyze the SME sector in Bangladesh
- To analyze the Marketing Procedure of SME loans of BRAC Bank
Primary and secondary data has been collected for the report purpose. So this report is based on both primary and secondary data.
Primary data are collected by:
- Previous performance matters booklet.
- Open ended and close ended questions.
- Data collected from internal report.
Secondary data has been collected from:
- Annual performance report of BBL.
- Bank records
- Journals of the Bank
Processing of Data:
After collection of the raw data, the following computer packages has been used in editing and processing the entire report
Limitations of the study
- Time is the big constraint for my research. I have to submit a broader deal in a shorter form of outcome. In this limited time I can take just snap short not ongoing things of SME loan of BBL.Data from Brac Bank is highly confidential for the outside people and I had no authority to use the core banking software.
The Banking System of Bangladesh
Bangladesh has a mixed banking system comprises of nationalized, private and foreign commercial banks. Bangladesh Bank (BB) has working as the central bank of the country since the independence of the country. Its prime jobs include issuing currencies, maintaining foreign exchange reserve and providing transaction facilities of all public monetary mattes. BB is responsible for planning and implementing the government’s monetary policy.
The banking sector of Bangladesh comprises of four categories of scheduled banks. These are nationalized commercial banks (NCBs), government owned development finance institutions (DFIs), private commercial banks (PCBs) and foreign commercial banks (FCBs). At present, there are four NCBs operating in Bangladesh. The second type is the DFIs which derive their funds mainly from the governments, other financial institutions, and supranational organizations. DFIs have taken a very specific form but most of them are oriented toward a specific economic activity or toward a region. There are five DFIs in Bangladesh. The third category, i.e. PCBs, finance the development of the currently industrialized countries. The profit motive stimulated the lending to promising sectors. In this category, there are thirty local PCBs and nine FCBs.
Banking system of Bangladesh:
No. of Banks
No. of Branches
The number of banks remained unchanged at 48 in 2006. These banks had a total number of 6562 branches as of December 2006. The number of bank branches increased from 6402 to 6562 due to opening of new branches by the PCBs mainly during the year. Structure of the banking sector with breakdown by type of banks is shown in Table below:
Table: Banking System Structure (billion tk)
Assets% of Industry
Assets% of Industry
Aggregated Balance Sheet:
Assets: Aggregate industry assets in 2006 registered an overall increase by 17.8 percent over 2005. During this period, NCBs’ assets increased by 3.1 percent and those of the PCBs’ rose by 22.9 percent. Loans and advances played a major role on the uses of fund. Loans and advances amounting to Taka 1543.6 billion out of aggregate assets of Taka 2406.7 billion constituted a significant portion (64.1 percent). Cash in tills were Taka 21.8 billion (below 1.0 percent); deposits with Bangladesh Bank were Taka 135.2 billion or 5.6 percent; other assets were Taka 454.0 billion or 18.9 percent and investment in government bills and bonds accounted for 10.5 percent (Taka 252.1 billion) of the assets.
Liabilities: The aggregated liability portfolio of the banking industry in 2006 was Taka 2406.7 billion of which deposits constituted Taka 1860.6 billion, or 77.3 percent and continued to be the main sources of fund of banking industry. Capital and reserves of the banks were Taka 122.9 billion or 5.1 percent of aggregate liabilities in 2006, as against Taka 89.9 billion or 4.4 percent in 2005.
Earnings and Profitability: Strong earnings and profitability profile of a bank reflect its ability to support present and future operations. More specifically, this determines the capacity to absorb losses by building an adequate capital base, finance its expansion and pay adequate dividends to its shareholders. Although there are various measures of earning and profitability, the best and widely used indicator is returns on assets (ROA), which is supplemented by return on equity (ROE) and net interest margin (NIM).
Earnings as measured by return on assets (ROA) and return on equity (ROE) vary largely within the industry. Table 5.9 shows ROA and ROE by type of banks and Chart 5.9 shows the aggregate position of these two indicators for all banks. Analysis of these indicators reveals that the ROA of the NCBs have been almost zero percent considering huge provision shortfall and that of the DFIs even worse. PCBs had an inconsistent trend but satisfactory and FCBs’ return on assets ratio consistently declined from 3.5 percent in 1999 to 2.2 percent in 2006.
NCBs return on equity ratio rose from -1.1 percent in 1999 to 3.0 percent in 2003 but considered as zero percent in 2006. In case of DFIs, the ROE sharply rose from -68.01 percent in 2000 to 12.3 percent in 2001 and again declined to -0.6 percent in 2003 and remained worse (-2.0 percent) in 2006. The sharp rise in 2001 was due to booking of net profit amounting to Taka 1.01 billion in 2001 against net loss of Taka 5.2 billion in 2000 by the DFIs. The huge loss of the DFIs in 2000 was mainly due to making of provisions by debiting ‘loss’ in their books of accounts. In 2006, BKB and RAKUB and the Oriental Bank Limited incurred loss due to their huge operating expenses.
BRAC Bank Limited
BRAC Bank Limited is one of the latest generations of scheduled commercial banks 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 Limited started its Journey on the 4th of July 2001 with a vision to be the absolute market leader through providing the entire range of banking services suitable to the needs of modern and dynamic banking business as well as to promote broad based participation in the Bangladesh economy through the provision of high quality banking services.
BRAC Bank Limited, with institutional shareholdings by BRAC, International Finance Corporation (IFC) and Shore Cap International has been the fastest growing Bank in 2004 and 2005. The Bank operates under a “double bottom line” agenda where profit and social responsibility go hand in hand as it strives towards a poverty-free, enlightened Bangladesh.
BRAC Bank is extending full range of banking facilities as per the directives of Bangladesh Bank. It intends to set standards as the absolute market leader in Bangladesh by providing efficient, friendly and modern fully automated on-line service on a profitable basis. Since inception, it has introduced fully integrated online banking service to provide all kinds of banking facilities from any of its conveniently located branches.
BRAC Banks envisages providing mass financing by increasing access to economic opportunities for all individuals and business in Bangladesh with a special focus on currently under-served enterprises across the rural-urban spectrum.
BRAC Bank is surviving in the large banking arena through its unique and competitive products and it is the only local bank providing 100% integrated on-line banking services.
In the last five years of operation, the Bank has disbursed over BDT 1500 crore in loans to nearly 50,000 small and medium entrepreneurs. The management of the Bank believes that this sector of the economy can contribute the most to the rapid generation of employment in Bangladesh. Since inception in July 2001, the Bank’s footprint has grown to 36 branches, 392 SME unit offices and 67 ATM sites across the country, and the customer base has expanded to 200,000 deposit and 45,000 advance accounts through 2007.
Within this short time the bank has been successful in positioning itself as progressive and dynamic financial institution in the country. It has 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. In the years ahead BRAC Bank expects to introduce many more services and products as well as add a wider network of SME unit offices, Retail Branches and ATMs across the country.
According to the Bank their mission is to –
- Building a profitable and socially responsible financial institution focused on Marketing and Business with growth potential, thereby assisting BRAC and stakeholders build a “just, enlightened, healthy, democratic and poverty free Bangladesh”.
Their Visions are-
- Sustained growth in ‘Small & Medium Enterprise’ sector
- Continuous low-cost deposit growth with controlled growth in Retail Assets
- Corporate Assets to be funded through self-liability mobilization. Growth in Assets through Syndications and investment in faster growing sectors.
- Continuous endeavor to increase fee based income
- Keep our Debt Charges at 2% to maintain a steady profitable growth
- Achieve efficient synergies between the bank’s branches. SME unite offices and BRAC field offices for delivery of Remittance and Bank’s other products and services
- Manage various lines of business in a fully controlled environment with no compromise on service quality
- Keep a drivers, far flung team fully motivated and driven towards materializing the Bank’s vision into reality
The objective of BRAC Bank Limited is specific and targeted to its vision and to position itself in the mindset of the people as a bank with difference. The objective of BRAC Bank Limited is as follows:
- Building a strong customer focus and relationship based on integrity, superior service.
- To create an honest, open and enable environment
- To add 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 the 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.
Management of BRAC Bank Limited
Boards of directors are the sole authority to take decision about the affairs of the business. Now there are 6 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.
BRAC Bank has a centralized banking structure through online banking system. BBL consisted of four major divisions namely
- Small and Medium Enterprise (SME) Division
- Retail Banking
- Corporate Banking and
- Probashi Banking.
Other important divisions are
- Card division
- Treasury & Financial Institutions
And to control the system effectively the bank has organized its activities considering their interrelationship among departments. If the allocation of activities are 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. These are –
- Central Operations
- Enterprise Risk Management
- Financial Administration
- General Infrastructure Servises
- Credit Policy
- Consumer service delivery
- Regulatory & Internal Control
- Company Secretariat
- Impaired Assets Management
SME Banking division-
The objective of this division is to achieve a two folded bottom line i.e. to build a profitable organization by contributing to the society and the economy, and eliminating poverty from the country. This division has so far covered 113000 customer by reaching the door steps of small and medium enterprises involved in different business sectors in the country. BRAC has long been serving the fund requirements of traders, manufacturers, importers, suppliers & distributors, Women entrepreneurs and other service providers like medical &educational institutes in a focused way. SME has also introduce a unique way of reaching the clients, spread throughout the country with 2000 efficient &n dedicated employee in the 392 unit offices.
3.7.1 Retail Banking-
This unit takes foremost funding responsibility of bank and is committed to offer multifarious services to entire customer base of the bank through Branch’s, Alternative delivery channels, Premier banking services and literally taking Retail banking products to doorsteps through Direct sale force. Different products of Retail Banking are as follows:
- Deposit products-
Fixed deposit, Interest first,
Abiram Account, DPS, EZee Account,
Saving Account, Short term deposit,
Current Account, Salary Account
- Loan products-
Now loan, Car loan,
Teacher’s loan, Credit card loan,
Travel loan, Top up loan,
High flyer loan
- Other services-
- Travel related services- The services provided through TRS centers are:
Travel loan Visa processing
Air ticketing TC endorsement
Hotel reservations Tourism package
- Premium Banking: Relationship Managers suggest appropriate investment opportunities to premium customers and ensures a mutual benefit.
- Alternative delivery channels- Alternative delivery channels derives operations of all ATM’s and CDM’s, Phone banking, SMS Banking and Internet banking. In 2007, a large number of ATMs AND CDMs were added to Brac bank’s network and the numbers are as follows-
|Total number of ATM’s as at 31.12.2007||54|
|Total number of CDM’s as at 31.12.2007||14|
Being a major business unit of the bank, Corporate Banking division has been playing a significant role to achieve the overall objectives of the bank. Corporate Banking helps its customers to fulfill their objectives by carefully listening and analyzing their ideas, providing necessary expertise and composite products. The business unit operates through following products:
- 1. Corporate loan Products:
- Term loan
- Lease finance
- Loan against trust receipts (LATR)
- Work order finance
- Medium enterprise
- 2. Trade Finance:
- Letter of credit
- Letter of guarantee
- 3. Corporate cash management:
- Advantages to employers
- Advantages to employees
- Cash management service
Probashi Banking Services
|Western Union transactions 2006:||88,772|
|Western Union transactions 2007:||325,966|
|Exchange house transactions 2006||97,700|
|Exchange house transactions 2007||167,000|
|Total Remittance inflow 2006||139 Million|
|Total Remittance inflow 2007||286 Million|
SRS Highlights of the Financial Year : 2007
With a goal to provide fast and expeditious services to deliver remittances even in the most remote corner of Bangladesh, the network of electronically connected Field offices have been expanded more than 1200 BDP outlets across the country for remittance payment.
An array of products and services have been introduced targeting the non-resident Bangladeshis living in different parts of World, a milestone of BRAC Bank as to becoming the pioneer in such operation. The official Launching of Probashi with a perspective to catering the beneficiaries of NRB Customers with their different banking needs.
BRAC Bank today has become the fastest growing issuers of credit cards in Bangladesh.
Dedicated and well defined organizational verticals allow efficient and quick turnaround of all internal and external challenges. Acquiring sales, Portfolio, Product Development, Customer Services and Collection wings forms an effective Cards team to create a positive and lasting impact in the credit Card market of Bangladesh.
Treasury & Financial Institutions :
Treasury department is vested with the responsibility to measure and minimize the risk associated with Bank’s liquidity, foreign exchange exposure and asset liability management. Treausry continuously monitors price movement of foreign exchange and uses various hedging techniques to manage its open position in such a way that minimizes risk and maximizes return.
The Fl wing works as the trigger point of establishing new relationship with correspondent banks as well as to maintain the existing relationship to provide a smooth funding channel for all business units. BRAC Bank has a strong worldwide corresponded network with the world’s leading 20 banks to facilitate trade, remittance & other services to its client efficiently and profitably.
Central Operations is the warden of all kinds of loan securities of the valued customers of BRAC Bank. It is a single point of contact of all loan documents and securities . Central operations support business and other operational uits through its following arms:
- Loan Archive
- Data Control
- Regional Operating Center
Enterprise Risk Management :
Enterprise Risk Management (ERM) is a new dimension for Brac Bank Ltd. ERM will set risk management strategy across the enterprise, designed to identify potential events that m ay affect the organization, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of organizational objectives.
Financial Administration department has the responsibility of doing financial planning and management chart of A/C and control, budgetary planning, cost management and ensure financial control across the Bank. It also generates and disseminates all forms of internal and external financial reporting regulatory reporting and all business MIS.
General Infrastructure Services: General Infrastructure Services (GIS) plays the vital pivotal role to ensure all kind of infrastructure support services for the Bank. This Department consists of six functional units namely infrastructu8re Development, Infrastructure Management, Operations, Procurement , Logistics and Small and Medium Enterprise Administration Unit. With the combined roles and responsibilities of all these Units, GIS is actually the execution point for all administrative related activities including the development of infrastructure setups for new Head office Premises, Branch ATM Booths, Sales Center for BRAC-Bank Limited.
Credit Policy :
In order to minimize credit risk, BBL has formulated a comprehensive credit policy according to Bangladesh Bank Core Risk Management guidelines. Credit policy of BBL recommended through credit assessment and risk grading of all clients at the time of approval and Portfolio Review.
Consumer Service Delivery :
Consumer Service Delivery (CSD), an integral part of Bank’s business, complement the ever-flour8ishing retail business through account opening, customer statement generation, inter-bank cheque clearing, ATM & credit card production , cheque-book production and processing government bonds. The year highlighted 850,000 inter-bank clearing cheque processing, 132,000 new account opening and more than 716,000 account statement generation. In addition, CSD also produced 109,000 welcome packs, 1269,000 ATM and new initiative credit-card- operations produced 32,000 cards.
Company Secretariat : Company Secretariat is the flow line of all information to and from the Board of Directors. In the age of free economy, Company secretariat maintains a clear and distinct relation and liaison among investor, financiers, bankers donors, correspondents and many others of the market economy. The company secretariat of BRAC Bank limited is engaged to perform with a vital role in the management. There are two wings of company secretariat.
(a) Board Secretariat
(b) Share Division.
Impaired Assets Management :
Impaired Assets Management is new concept in the Banking arena. Impaired Assets Management (IAM) department of BBL is playing a pivotal role in managing non performing loan (NPL) and written off loan portfolio of BRAC and maintaining its portfolio at risk (PAR) at a low level. Separate segments of IAM department are engaged to monitor and follow-up NPLs of different business units.
For BRAC Bank , technology is the silent strength behind its wide array of products and its 24/7 service delivery capabilities. The BRAC bank technology infrastructure now supports real time, online transactions between 36 branches for over 457, 126 customers throughout Bangladesh
Human Resources :
Human Resources Division plays a very important role in BRAC Bank. Managing almost 4400 employees is a challenging task and HRD is trying their best to do it in efficient manner.
The manpower of BRAC Bank is as follows:
|Number of Employees||4428||3047||1650||1216|
HRD is also acting as a strategic business partner constantly with the business units in order to achieve the projected growth of Bank and in order to pursue the vision with the right blending of ethical commitments, we have created some core internal values which is called CRYSTAL all together . CRYTAL stands for
C= Creative, R= Reliable, Y= Young, S= Stable, T= Transparent, A= Accountable,
Marketing & Corporate :
Marketing & Corporate Affairs takes care of all forms of marketing and corporate communication, brand management, promotional activities, public relations and CSR activities . BRAC Bank aims to be the most preferred brand in its category and the Marketing and Corporate Affairs department works towards realizing that ambition
Performance analysis of BRAC Bank Limited
BRAC Bank Limited will be the most successful private sector commercial bank in our country, though it started its operation few years back. It has achieved the trust of the general people and made reasonable contribution to the economy of the country by helping the people investing allowing credit facility.
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.
|Shore Cap International|
|General Public through IPO|
|Mutual funds through IPO|
Analysis of Financial Statements
Operating Results Figure in million Taka
% of Change
|Net Interest Income|
|Income from investment|
|Other Operating income|
|Loan Loss Provision|
|Net Profit Before taxes|
|Provision for Taxes|
|Profit after taxes|
Interest income for the period has increased by 71% because of increase of loan by 61% and investment income by 93% over previous year; because of change in investment mix and inclusion of long term nature BGTB at higher interest rates. These factors cause the significant increase in operating margin over previous year.
The Shareholders’ equity has increased by 45 percent over previous year. Paid up capital of the Bank is being raised from 1,000 million to 1 200 million in the year 2007 through issuance of bonus shares out of retained earnings in 2007. Besides this the bank also issued preference shares of Tk. 350 million in the year 2007. The statutory reserve also increased by Tk. 252.88 million over previous year balance of Tk.251 million. The Board of Directors recommended for raising paid up capital by issuing right share @ one for every five shares held at Tk. 500/- each including premium of Tk.400/- subject to approval of regulator authorities and EGM. However, Bank also proposed stock dividend of 10% which noticeably increase the capital base of the Bank.
SME in BRAC Bank
Banking Industry is one of the most promising industries of our country. The importance of the sector revealed through its contribution in the economic growth of the country. And now a day worldwide SMEs are recognized as engines of economic growth (Ahmed 1999).So SME finance has become a remarkable topic in the finance sector of Bangladesh.
Brac Bank first fined out that the SME market in Bangladesh is large. From 2002 they have started to provide SMEs loan. From that time Brac bank special focus in promoting broad based participation by catering to the small and medium entrepreneur. Brac bank has already been established network of SME through out Bangladesh. Bank has adopted trust as a corporate value which is short form for team work, respect for all people, unquestionable integrity, excellence in everything Brac Bank of SME do, Sense of urgency in getting things done and total commitment. All employees are expected to conduct themselves in accordance with the rules and regulations of the bank. And now one of the major product and service of Brac Bank Ltd. is SME loan. Their main reasons for providing SME lone is to Support Small Enterprise, Economic Development, Spread the experience, Encourage Manufacturing, Profit Marking and Employment Generation Brac Bank start with a vision to be the absolute market leader in the number of loans given to small and medium sized enterprises through out Bangladesh.
Reason of SME program from the view point of BRAC Bank
The main focus of BRAC Bank is to develop human and economic position of a country. Its function is not limited only to providing and recovering of loan. But also try to develop economy of a country. So reason for this program from the viewpoint of BRAC Bank is:
- Support Small Enterprise: The small enterprise which requires 2 to 30 lacks taka loan, has no easy access to the banks/financial institutions. For example: 3 to 8 lacs amount of loans is provided without any kind of mortgage.
- Economic Development: Economic development of a country largely depends on the small and medium seal enterprises. Such as, if we analyze the development history of Japan, the development of small & medium scale enterprises expedite the development of that country.
- Employment Generation: The bank is generating employment opportunities by two ways:
Firstly, by providing loan to the small enterprises expanding, as these business requires more workers.
Secondly, Small & Medium Enterprise (SME) program requires educated and energetic people to provide savories to entrepreneurs.
- Profit Making: SME program is a new dimensional banking system in the banking world. Most of the CRO’s are providing door to door services to the entrepreneurs. The entrepreneurs are satisfied by the service of this bank and the bank also makes more profit.
- Encourage Manufacturing: A focus of BRAC Bank is to encourage manufacturing by the entrepreneurs who are producing by purchasing various types of materials. CRO’s try to educate them to produce material if possible because if they can produce in line of purchase profits will be high.
- Spread the experience: Another reason of BRAC Bank is to spread the knowledge of regarding various businesses. The customer services officer get knowledge from various businesses is and tries to help the entrepreneurs who have shortage of the gathered knowledge by CRO’s.
Selection Criteria of Potential Enterprise for SME
Enterprise Selection Criteria
The success of SME will largely depend on the selection of a business and man behind it. In terms of the business (Enterprise), the following attributes should be sought:
- The business must be in operation for at least one year
- The business should be environment friendly, no narcotics or tobacco business
- The business should be legally registered, i.e., valid trade license, income tax or VAT registration, wherever applicable.
- The business should be in legal trade, i.e.; smuggling will not be allowed or socially unacceptable business will not be entertained.
- The business must have a defined market with a clear potential growth
- 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.
- 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:
- 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.
- 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.
- 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)
- 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.
- Suppliers or creditors should corroborate that he pays on time and is general in nature
- 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:
- The guarantor must have the ability to repay the entire loan and is economically solvent (Check his net worth)
- The guarantor should be aware about all the aspect of SEDF loan and his responsibility
- Govt. and semi-govt. officials can be selected as a Guarantor such as schoolteacher, college teacher, doctor etc.
- Police, BDR and Army persons, political leaders and workers, and Imam of mosque can not be selected as a guarantor.
- The guarantor should know the entrepreneur reasonable well and should preferably live in the same community
Loan Sanction activities
- Select potential enterprise: For SME loan, in this step the CRO conduct a survey and identify potential enterprise. Then they communicate with entrepreneurs and discuss the SME program.
- Loan Presentation: The function of CRO is to prepare loan presentation based on the information collected and provided by the entrepreneur about their business, land property (Where mortgage is necessary)
- Collect confidential information: Another important function of a CRO is to collect confidential information about the client from various sources. The sources of information are suppliers regarding the clients payment, customers regarding the delivery of goods of services according to order, various banks where the client has account which shows the banks transactions nature of the client.
- Open clients accounts in the respective bank: When the CRO decided to provide loan to the client then he/she help the client to open an bank account where BRAC bank has a STD a/c. BRAC bank will disburse the loan through this account. On the other hand the client will repay by this account. Although there is some exception occur by the special permission of the authority to repay by a different bank account.
- Filled up CIB form: CRO give a CIB ( Credit Information Beurue) form to the client and the client fill and sign in it. In some case if the client is illiterate then the CRO fill the form on behalf of the client. Then CRO send the filled and signed form to the SME, head office.
- Sending CIB to Bangladesh Bank: The SME, head office collect all information and send the CIB form to Bangladesh Bank for clearance. Bangladesh Bank return this CIB form within 10-12 days with reference no.
SME Loan Recovery Procedure
Receive SMS/Fax for installment deposits: When the borrower repays any installment of the loan then he/she informs it to the unit office/CRO. Then the unit office/CRO sends a SMS through mobile phone or a Fax to the loan administration division informing the repayment. Loan administration divisions collect these SMS /Fax and take a paper print of these SMS.
Entry the installment information to MBS: Loan administration division entry the repayment installment information to the banking software MBS.
Cross Check SMS/Fax and solve problems (If any): The loan administration is responsible for all entry in MBS. If the there is any error found in future then the respective officer who is entering these information in MBS will be liable for it. It will be easily identified by user ID. So they always aware to ensure the correct entry. Completing the entry of information, they print a hard copy and cross check it with the SMS/Fax. If there any error found then it is solved and ensure the correct information entry.
Monitoring is a system by which a bank can keep track of its clients and their operations. So monitoring is an essential task for a CRO to know the borrowers activities after the loan disbursement. This also facilitates the build up of an information base for future reference. The CRO will monitor each business at least once a month. He/she will make a monitoring plan/ schedule at beginning of the month
Area of Monitoring
The purpose is to know the entire business condition and all aspects of the borrowers so that mishap can be avoided.
a. Business Condition:
The most important task of the CRO to monitor the business frequently, it will help him to understand whether the business is running well or not, and accordingly advice the borrower, whenever necessary. The frequency of monitoring should be at least once month if all things are in order.
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.
Monitoring sales proceed is another important task of the CRO it will help him to forecast the monthly sales revenue, credit sales etc. which will ensure the recovery of the monthly loan repayments from the enterprise as well as to take necessary steps for future loans.
Portfolio analysis of SME loan
The main objective of this analysis is
- To see that how much loan bank provided for which product.
- To see that how much interest bank received from which product.
- Comparing the bank’s performance of its different products.
- Evaluating trends in the bank’s position over time.
Table3: Loan and Advance portfolio analysis:
- The portfolio of loan has increased from 2005 to 2006 and also 2006 to 2007.
- Bank’s interest received on loan also going in to upper trend. After comparing three years portfolio it’s found that bank get highest interest income in the year 2007.
- In every sector (Retail, Corporate, Staff and SME) loan has increased year to year. But SME loan has increased at notable amount especially from 2006 to 2007.
- Bank also received also a notable amount of interest from SME loan.
8.2 Ratio analysis:
The main objective of this analysis is
- To see that how much percentage of loan bank provided for each product.
- To see that how much percentage of interest bank received from each product.
- To understand the bank’s performance of its different products.
Table 5: Ratio analysis:
- After ration analysis of three years it found that almost in all sector their portfolio is decreasing but only in SME sector their portfolio is increasing. Their staff loan also increasing but its quantity is very low comparer to SME loan.
- SME covers the highest portion of their portfolio. In 2005 its 42.4%, in 2006 it is more than half of the total portfolio, and in 2007 it is 62.77% of the total portfolio. So here we found that from 2005 to 2006 SME loan increase 9.39% and from 2006 to 2007 its increase 10.78%. that means SME loan trend is upper word
- Now a days SME loan is more profitable that’s why Brac bank giving more importance on SME loan.
- Interest income from SME loan has also increased from 2005 to 2007 as well as 2006 to 2007.but in other sectored interest income is also decreasing as like its loan portfolio. Form 2005 to 2006 banks interest income from retail and staff loan was started to increasing but in 2007 it’s started to decrease a lot.
In terms of our country most financial institution starts out with extensive business and marketing plans to attract potential customers. For a good market plan first we need to segment our market and than started to provide our service. In our literature review we stated that we can segment our market in 4 ways these are Geographic, Demographic, Psychographic and Behavioral Segmentation. So now we see how BRAC bank follows it. For view market structure BRAC bank try to follows market segmentation strategy
- Geographic segmentation: In terms of SME loan, it targets every region around the country in terms of small business. Now the SME has almost 392 unit offices to provide credit facilities to the clients around the country. Each of the SME unit offices mainly setup the district levels around the city but not in the rural or undeveloped areas.
- Demographic Segmentation: In terms of SME loan, in some cases it is very strict. If some one who has Hindu religion and live close to the border, SME would have very careful to provide loans to those clients. SME provide loans 20-60 aged peoples. SME is restricted to provide loans more than age of 65.
- Psychographic Segmentation: In terms of SME loan, clients are differing in attitudes, interest and activity like some are time constrained and some are money constrained. So bank always tries to focus these things and than very careful provide loans to those clients.
- Behavioral Segmentation: In terms of SME loan, few clients would be found those who had done MS and most of customers are secondary or higher secondary pass. But basically SME segments customers at least whether the customers can understand his/her own business.
After analyzing the report, I find some matter, which I want to discuss below:
- Fastest growing bank in the country for the last five years
- Leader in SME financing through 392 unit offices
- Biggest suit of personal banking & SME products
- Large ATMs (Automated Teller Machine) & POS (Point of Sales) network
- In the BRAC Bank basically the most of the users are business man. In our country there is various kind of businessman. We also found that above 50% users are businessman.
- Maximum client’s age is between 30 to 50 years.
- We know that Bangladesh is a poor country and the educational background of Bangladeshi people is not too high level. Our users, basically businessmen are not too educated and they have very poor decision making power. This is the main drawback in our Banking field.
- Most of the businessman are want to take SME loan for develop their business. This SME loan is very helpful for meet the daily expenses. That means they use this loan as working capital. Very less people use this kind of loan for purchase fixed assets.
- It is also found that the rate of interest is satisfactory than other Banks. That’s why the clients are very happy with our rate of interest.
- Time duration play a very major role in the mind of clients. Because they want to take loan easily & early with minimum difficulties. In our country maximum people know that loan taking is time consuming and very difficult.
- Maximum clients are happy to repay their loans in equal installments with very easy process.
By analyzing the whole report conducted for BRAC Bank Limited, some recommendations could be made on the following issue to improve the overall performance.
- They should target the business man for the SME loan, because maximum users are business man.
- They should think about the middle agars. Because maximum users are between 30 to 50 years of age. And they are not interested of our loan. .
- They should provide loan easily with minimum efforts. That means the process of taking loan should be fast, easy and genuine.
BRAC Bank Limited is proving itself as the fastest growing bank with establishing its 36th branch only in 7 year of its journey and showing remarkable progress of its financial position with the mission of being countries leading bank providing world-class services in a cost effective manner. This bank first introduces the SME loan in commercial banking sector, which help the people of poor society both in rural and urban. One thing can be noted that time horizon is too little to predict or evaluate the performance but the analysis clearly represents the better performance of the BRAC Bank Limited since its inception in year 2001.
After analyzing the BRAC bank I may conclude that in developing countries like Bangladesh small & medium enterprises have come into the forefront of development agenda due to the recognition of their contribution in fostering growth, sustaining global economic recovery, generating employment and reducing poverty.