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Part-2:Introduction
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2.1 Introduction
It is possible to gather theoretical knowledge passing through books but it is insufficient to acquire
practical experience. Three month internship program which is a part of MBA program, gave me
the opportunity to gather practical knowledge on Banking. This assignment is basically about
SME financing of Bangladesh. This topic is literature based which I tried to find out what is all
about in the theoretical part and matches it with SEBL; what are they doing?
The company internship program applied by the faculty of Business study helps me to have practical
experience and its reporting also. As the requirement of the MBA Program a student have to
complete an internship under an organization for a period of three months In relation to this
requirement my concentration is on SME financing.
SEBL has actively been financing the SME Sector with the objective of supporting and
developing the entrepreneurial potential of Bangladesh. SEBL has a firm commitment to
contribute to every segment of the economy. SME Finance is just one of the steps towards the
fulfillment of this commitment. Of late financing in SMEs has been proven to be very beneficial
focus to this sector to expand scopes of extending credit facilities to enhance sustainable profit.
Through this internship program, I come to know about the organization structure, problems,
prospects and operational procedures of Southeast Bank Ltd. So, it is impossible to deny the
importance of internship of program.
2.2 Objectives
Internship program is done for the purpose of gathering practical experience about the corporate world.
After successful compilation of the internship program everybody has to submit a report on the basis of
his working experience.
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2.2.1 Broad Objective:
1. To accumulate practical work experience.2. To understand the marketing strategies of companies to stay ahead of competitors.3. To understand the problems and barriers they are facing in the way of financing of SME.4. To develop the report writing skill.5. To get the general idea about overall operation of Southeast Bank Limited.6. To identify the core competencies, which differentiate Southeast Bank from other financial
institutions.
2.2.2 Specific objective:
The main objective of the study is to examine SME financing and also find out where SEBL
stands in this issue. To achieve the main objective, the following specific objectives have been
covered in this study:
1. To analyze the SME sector in Bangladesh.2. To know the enterprise selection criteria to provide SME loan.3. To know the terms and conditions of SME loans.4. To know the disbursement and recovery procedures of SME loans.5. To make some recommendations and conclusion to further the development of SME loan
products of Southeast Bank Ltd.
6. Entry of commercial banks into SME banking industry in Bangladesh.7. Recent performance level of the SEBL on SME loan in the country.
2.3 Methodology
The study uses both primary data and secondary data. The report is divided into two parts. One
part is the theoretical part and the other part is the practical part. The information for the
theoretical part of the report was collected from secondary sources like books, published
reports and web site of the SEBL (www. sebl.com). For general concept development about the
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bank short interviews and discussion session were taken as primary source. For the practical
part of the report general working experience has been utilized.
The information for the Project Contribution on financing in SME of SEBL 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 they 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.
2.4 Scope of the study
This study in fact taken within its canvas of SEBL as a whole though the internship was done in
Gazipur Sadar Branch, Gazipur. The research will deal to identify how SEBL contributing in
financing SMEs of Bangladesh. This research project will focus on the performance of the
company in financing SME and the strategy and their ways to get the work done .
2.5Limitation of the study
In spite of related peoples willingness I could not avail the full concentration as I
supposed to have. The officers are extremely busy with their assigned jobs. And even I
had to perform the internship while doing the job. On the way of my study, I have faced
the following problems that may be termed as the limitations/shortcoming of the study.
The main limitations encountered in producing this report are:
I am a full time employee it was difficult for me to allocate enough time to prepare the
report. For an analytical purpose adequate time is required. Due to the time limit, the
scope and dimension of the study has been curtailed.
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At the time of preparing my report I tried to gather every details of process but the major
limitation is lack of adequate information.
Due to lack of experience, there may have been faults in the report though maximum
labors have been given to avoid any kind of slip-up.
Load at the work place also stood as a barrier to prepare this report.
Most of the commercial bank has its own modern, rich and wealthy collection of huge and
various types of banking related books, Journals, Magazines, Papers, Case Studies, Term Papers,
Assignments etc. But the library of Southeast Bank Limited is not well ornamented
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Part-3:Organizational Study
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3.1 Organization Overview:
Southeast Bank Limited is a scheduled Bank under private sector established under the ambit ofbank Company Act, 1991 and incorporated as a Public Limited Company under Companies Act,
1994 on March 12, 1995. The Bank started commercial banking operations effective from May
25, 1995. During this short span of time the Bank had been successful to position itself as a
progressive and dynamic financial institution in the country. The Bank had been widely
acclaimed by the business community, from small entrepreneur to large traders and industrial
conglomerates, including the top rated corporate borrowers for forward-looking business
outlook and innovative financing solutions. Thus within this very short period of time it hasbeen able to create an image for itself and has earned significant reputation in the countrys
banking sector as a Bank with vision. Presently it has thirty branches in operation.
The emergence of Southeast Bank Limited at the junction of liberation of global economic
activities, after the URUGUAY ROUND has been an important event in the financial sector of
Bangladesh. The experience of the prosperous economies of Asian countries and in
particular of South Asia has been the driving force and the strategies behind operational policy
option of the Bank. The Company Philosophy A Bank with Visionhas been preciously the
essence of the legend of banks success.
Southeast Bank Limited has been awarded license by the Government of Bangladesh as a
Scheduled Bank in the private sector in pursuance of the policy of liberalization of banking and
financial services and facilities in Bangladesh. In view of the above, the Bank within a period of
10 years of its operation achieved a remarkable success and met up capital adequacy
requirement of Bangladesh bank.
3.2 Corporate Mission and Vision
Mission:
High quality financial services with the help of latest technology.
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Fast and accurate customer service.
Balanced growth strategy.
High standard business ethics.
Steady return on shareholders equity.
Innovative banking at a competitive price.
Deep commitment to the society and the growth of national economy.
Attract and retain quality human resource.
Vision:
To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the
national economy.
3.3 Core Objectives:
The banks overall objective is to have a higher profitability than that of the weighted average
of other banks. As such the main focus of the Bank is on highly profitable business with
convincing growth potential. Vision for the future is the characteristic that differentiates
Southeast Bank from other competitors.
3.4 Main Operational Area:
As a commercial bank, Southeast Bank does all traditional banking business including the wide
range of savings and credit scheme products, retail banking and ancillary services with the
support of modern technology and professional excellence. The bank has launched a number of
financial products and services since its inception. Among them different types of monthly
savings schemes have achieved wide acceptance among the people.
3.5 Company Profile:
Table - 01 : Formation History at a glance
Certificate of Incorporation March 12, 1995
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Certificate of Commencement of Business March 12, 1995
Bangladesh Bank license March 23, 1995
First Branch Opened May 25, 1995
Number of Branches 94 as on 2012
Number of SME Branches 15 as on 2011
Number of Employees 1419 as on 01/06/2010
Global Correspondents 589 as on 31/12/2009
Listing of Shares DSE & CSE
3.5.1 Corporate Profile:
Name of the Company : Southeast Bank Limited
Chairman : Alamgir Kabir, FCA
Vice Chairman : Ragib Ali
Managing Director : Mahbubul Alam
Company Secretary : Muhammad Shahjahan
Legal Status : Public Limited Company
Date of Incorporation : March 12, 1995
Registered Office : Eunoos Trade Centre 52-53, Dilkusha C/A
(Level 2, 3 & 16), Dhaka-1000
Line of Business : Banking
Authorized Capital : Tk.10, 000.00 million
Paid Up Capital : 3,422.64 million
Year of Initial Public Offer : 1999
Stock Exchange Listing : April 10, 2000 (DSE) & April 24, 2000 (CSE)
Phone : 9571115, 7160866, 7173793, 9555466 & 9550081
Fax : 99550086, 9550093 & 9563102
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5. Company Secretary- 1 ( one)This is shown in the Organogram on the next page:
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Figure-01: Management Hierarchy of Southeast Bank Limited
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3.6 Rating of Different Banks & SEBL Position:
6 A-class, 27 B-class, 8 C-class, 5 D-class & 2 E-class banks.
A-Class Banks B-Class Banks
1. Prime Bank Ltd.2. Shahjalal Islami Bank Limited3. Commercial Bank of Ceylon4. State Bank of India5. Standard Chartered Bank6. Citi N.A.
1. Standard Bank Limited2. Exim Bank Ltd.3. Mercantile Bank4. NCC Bank5. BASIC Bank6. Pubali Bank7. Southeast Bank8. Mutual Trust Bank Limited9. Dutch-Bangla Bank10.Premier Bank
11.The Trust Bank
12.Bank Asia
13.Jamuna Bank
14.BRAC Bank
15.One Bank
16.Dhaka Bank
17.Eastern Bank
18.Islami Bank Bangladesh Ltd.
19.Uttara Bank
20.National Bank
21.The City Bank
22.Social Investment Bank
23.Habib Bank
24.National Bank of Pakistan
25.Bank Alfalah
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26.Woori Bank
27.HSBC
C-Class Banks D- Class Banks
1. UCBL2. Al-Arafah Islami Bank Ltd.3. IFIC Bank Ltd.4. A B Bank Ltd.5. First Security Bank Ltd.6. Bangladesh Shilpa Rin Sangstha7. Rupali Bank Ltd.8. Agrani Bank
1. Janata Bank2. Bangladesh Krishi Bank3. Bangladesh Shilpa Bank4. Rajshahi Krishi Unnayan Bank5. Sonali Bank
E- Class Banks
1. The Oriental Bank Ltd.2. Bangladesh Commerce bank Ltd.
Fig-02
3.7 Corporate Social Responsibility:
Southeast Bank is pledge bound to respond to the expectation of the society. By fulfilling the
responsibilities, the bank tries to earn the highest trust of the community in which it operate. It acts
responsibly with regard to its customers, shareholders, employees, business associates, the
environment and the society. It contributes to the sustainable development of the society as a whole. Itrecognizes its wider obligation to the society. The ways to discharge CSR are:
contribute to the national economy; maintain fair, transparent and sound management based on the principles of self
responsibility;
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help the under privileged section of the society in education; create a free and active business environment; maintain high compliance standard;
stand by distressed humanity in national calamities; help the poor and needy people in healthcare; take care of its employees; help the customers grow; continuously enhance shareholder value and follow stable dividend policy; support charitable ventures and environment protection efforts; ensure that environment is not harmed as a result of its operation; contribute to women empowerment and women development; observe environment related laws and regulations; it has scholarship schemes for the poor but meritorious students to change their lot; contribute to the development of art, education culture and sports; carry on energy and resource saving activities in the bank; foster a relationship of understanding, trust and credibility with the community
33..88IInnccoommeeSSttaatteemmeenntt
(Figure in BDT Million)
Particulars 2012 2011 2010 2009 2008
IInntteerreessttIInnccoommee 1177,,339944..0055 1133,,888866..5555 33,,778888..9900 22,,889900..6655 22,,223300..2266
IInntteerreessttEExxppeennsseess 1155330022..5555 1111776633..4455 22,,888888..7744 22,,332211..8888 11,,777744..3399
NET INTEREST INCOME22009911..55 22112233..11 990000..1166 556688..7777 445555..8877
IInnccoommeeffrroommIInnvveessttmmeenntt 33225588..4444 33226677..9911 11,,336611..4499 666666..1155 447744..4488
NNoonnIInntteerreessttIInnccoommee 11,,229966..7777 11,,111122..7788 666666..3344 551177005588 339988..2255
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NNoonnIInntteerreessttEExxppeennsseess 22,,004466..8899 11,,333355..6611 11,,001133..7744 771122..3300 550044..4400
NET NON-INTEREST INCOME &
INVESTMENT INCOME
11,,002211..9966 992299..9966 11,,001144..0099 447711..4433 336688..3333
PPrrooffiittbbeeffoorreePPrroovviissiioonn&&TTaaxx 22,,881177..4400 22,,441100..9966 11,,991144..2255 11,,004400..2200 882244..2200
PPrroovviissiioonnffoorrllooaannssaanndd
CCoonnttiinnggeennttlliiaabbiilliittiieess
334477..3399 334444..4444 335511..0055 117744..3399 441199..1166
PROFIT AFTER PROVISION BUT
BEFORE TAX
22,,447700..0011 22,,006666..5522 11,,556633..2200 886655..8811 440055..1166
CCoonnttrriibbuuttiioonnttooJJaammuunnaabbaannkk
ffoouunnddaattiioonn
1122..3355 1100..3322 77..8822 77..3333 --
TTaaxxiinncclluuddiinnggddeeffeerrrreeddTTaaxx 11,,112277..4466 999900..1188 663322..2266 338822..0055 331155..9933
PROFIT AFTER CONTRIBUTION TO
FOUNDATION AND TAX
11,,333300..2200 11,,006666..0022 992233..1122 447766..4433 8899..1111
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Part-4:Sectional Organizational Study
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4.1 Small medium enterprises (SME) & Southeast Bank Ltd (SEBL)
4.1.1 Introduction on SME:
In almost every part of the world, limited access to finance is considered a key constraint to
private sector growth. This is especially true for SMEs of our country as they are facing different
types of problems for availing institutional finance though SMEs play dominantly important role
in the national economy of Bangladesh by making up over 90 per cent of industrial enterprises,
providing employment to 4 out of 5 industrial workers and contributing to over one-third of
industrial value-added to gross domestic product (GDP). The relative SME share in
manufacturing value-added is much higher and estimated to vary between 45 to 50 per cent of
totaling value-added generated by the manufacturing industries sector.
Further as important sources of new business creation and developing new entrepreneurial
talents, these industries provide the much needed dynamism and vitality to the national
economy. Implementation of poverty alleviation action programs and strategies is a systematic
and continuous effort in Bangladesh. For that purpose, the Poverty Reduction Strategy of the
government has clearly identified some core principles and parameters both at macro and
micro levels for reducing the existing poverty level at least half within 2015 as targeted in the
Millennium Development Goals (MDGs). Rapid and sustainable growth of SMEs is undoubtedly
one vehicle for accelerating national economic growth to the point of having a measurable
impact in the way of reduction of poverty and unemployment, generation of more
employment. More than 90% of the industrial enterprises in Bangladesh are in the SME size-
class. Generally, SMEs are labor intensive with relatively low capital intensity. The SME also
poses a character of privilege as cost effective and comparative cost advantages in nature. The
SME policy strategies have been formulated to assist in the achievement of the goals and
targets the MDGs set by the Government. Because of the definitional problems mentioned
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above, information on SME is not readily available in Bangladesh. BBS conducts annual surveys
of the manufacturing sector, called the Census of Manufacturing Industry (CMI), but as
mentioned earlier the BBS lumps under the Large category information on all units with 50 or
more workers and hence the information cannot be separated in most cases for the 50-99
workers size category, which is
The more commonly used cut-off size limit for medium enterprises. Moreover, there is quite a
bit of backlog in the processing of the CMI data. The latest available published CMI report is for
the period 1999-2000. The prime agency for the promotion of small and cottage industries in
Bangladesh is the Bangladesh Small & Cottage Industries Corporation (BSCIC). BSCIC is required
to maintain information and data bank on small and cottage industries in Bangladesh and
accordingly the agency carries out nation-wide surveys of the sector at some time intervals.
However, the latest such survey by BSCIC was conducted in the late 1980s and it was based on
the definition of small and cottage industries given in the earlier industrial policies that used
capital rather than employment size as the cut-off limit. Fortunately, BBS carried out a
nationwide census of all non-farm economic activities in 2001 and 2003 and a preliminary
report based on the census has been made available recently. The report presents data by
employment size category but there is no information on the size of fixed assets.
4.1.2 Definition of SME
Schools are divided when it comes to defining SME. Each school has there own way of defining
SME.
4.1.3 EU, USA and other country wise definition
Small and medium enterprises (also SMEs, small and medium businesses, SMBs, and variations
thereof) are companies whose headcount or turnover falls below certain limits. The
abbreviation SME occurs commonly in the European Union and in international organizations,
such as the World Bank, the United Nations and the WTO. The term small and medium
businesses or SMBs is predominantly used in the USA.
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EU Member States traditionally have their own definition of what constitutes an SME, for
example the traditional definition in Germany had a limit of 250 employees, while, for example,
in Belgium it could have been 100. But now the EU has started to standardize the concept. Its
current definition categorizes companies with fewer than 10 employees as micro, those with
fewer than 50 employees as small, and those with fewer than 250 as medium.By contrast,
in the United States, when small business is defined by the number of employees, it often
refers to those with fewer than 100 employees, while medium-sized business often refers to
those with fewer than 500 employees.
Both the US and the EU generally use the same threshold of fewer than 10 employees for small
offices (SOHO).In most economies, smaller enterprises are much greater in number. In the EU,
SMEs comprise approximately 99% of all firms and employ between them about 65 million
people. In many sectors, SMEs are also responsible for driving innovation and competition.
Globally SMEs account for 99% of business numbers and 40% to 50% of GDP.
In India, the Micro and Small Enterprises (MSEs) sector plays a pivotal role in the overall
industrial economy of the country. It is estimated that in terms of value, the sector accounts for
about 39% of the manufacturing output and around 33% of the total export of the country.
Further, in recent years the MSE sector has consistently registered higher growth rate
compared to the overall industrial sector. The major advantage of the sector is its employment
potential at low capital cost. As per available statistics, this sector employs an estimated 31
million persons spread over 12.8 million enterprises and the labour intensity in the MSE sector
is estimated to be almost 4 times higher than the large enterprises.
In South Africa the term SMME, for Small, Medium and Micro Enterprises, is used. Elsewhere in
Africa, MSME is used, for Micro, Small and Medium Enterprises.
Definition for SMEs is often considered to be an obstacle for business studies and market
research. Definitions in use today define thresholds in terms of employment, turnover and
assets. They also incorporate a reasonable amount of flexibility around year-to-year changes in
these measures so that a business qualifying as an SME in one year can have a reasonable
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expectation of remaining an SME in the next. The thresholds themselves, however, vary
substantially between countries. As the SME thresholds dictate to some extent the provision of
government support, countries in which manufacturing and labour-intensive industries are
prioritized politically tend to opt for more relaxed thresholds.
Breaking down the SME definition, Industry Canada defines a small business as one that has
fewer than 100 employees (if the business is a goods-producing business) or fewer than 50
employees (if the business is a service-based business). A firm that has more employees than
these cut-offs but fewer than 500 employees is classified as a medium-sized business.
4.1.4 Definition of the Government of Bangladesh
Small Enterprise (SE) has less than 50 employees and / or less than 15 million Taka inFixed Capital Investment.
Medium Enterprise has 51-99 employees and / or Fixed Capital Investments between1.5 and 100 million Taka
4.2 Bangladesh Bank Regulations for Small Enterprises
Private entity with less than 60 employees for the Manufacturing Sector 30 employees for the
Service Sector, 20 employees for the Trade Sector.
1) Service Sector: Total Assets (excluding lands and buildings) between 50,000 and 3 million
Taka
2) Trade Sector: Total Assets (excluding lands and buildings) between 50,000 and 5 million Taka
3) Manufacturing Sector: Total Assets (excluding lands and buildings)
between 50,000 and 10 million Taka
4.3 Definitions of different commercial Banks of Bangladesh are as follows
HSBC Turnover < 2.5 million USD
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Citibank NA employees < 60 BRAC Bank Loan size < 3 million Taka AB Bank Loan size < 100 million Taka
4.4 Southeast Bank definition regarding SME
Small Enterprise means an entity, ideally not a public limited company, which fulfils any of the
following criteria:
Small EnterpriseTotal fixed Assets
(excluding land & Building)
Total no. of manpower
employed
Service Concern Taka 0.50 lac to taka 50.00 lac| Maximum 25
Trading Concern Taka 0.50 lac to taka 50.00 lac| Maximum 25
Manufacturing Concern Taka 0.50 lac to taka 1.50 Crore| Maximum 50
Medium Enterprise means an entity, ideally not a public limited company, which fulfils any of
the following criteria:
Medium Enterprise
Total fixed Assets
(excluding land & Building)
Total no. of manpower
employed
Service Concern Taka 50 lac to taka 50.00 lac| Maximum 50
Trading Concern Taka 50 lac to taka 50.00 lac| Maximum 50
Manufacturing Concern Taka 1.5 crore to taka 20 Crore| Maximum 150
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4.5 Some Issues in SME in Bangladesh
Financial services for the poor have proved to be a powerful instrument for poverty reduction
enabling the poor to build assets, increase incomes and reduce the vulnerability to economic
stress. Today, access to credit is recognized as a right of people globally. Over the years, there
has been phenomenal growth in activities of microcredit in many countries of the world and a
transition in the paradigm and modalities of microcredit. Microcredit Summit Meeting first held
in Washington DC, USA in February 1997 has launched a global movement to reach 100 million
of the worlds poorest families, especially the women of those families, with credit for self-
employment and other financial and business services by the year 2010. The UN has declared
2010 as the International Year of Microcredit, now is the time to reflect on the experiences of
Bangladesh, the birthplace of micro finance and the country with the biggest and most vibrant
micro finance sector.
As the microcredit movement matures, clearer idea of what its strengths are and what are its
limitations. To move forward, countries like Bangladesh need to be more effective, and
increase outreach, design products to include the poorest, and also provide finance for growth
and employment oriented small and medium enterprises (SMEs) which are needed to spread
the poverty alleviation net wider, so that significant decline in poverty takes place.
A significant number of people around the world are excluded from full participation in the
financial sector. Although the unbanked has been an issue for some time, the subject is now
receiving greater attention, helped by the fact that 2010 is the United Nations Year of Micro-
credit. Banking the unbanked is about bringing banking and financial services to those people
who, up to now, have not had access. Although the unbanked is usually thought of in terms of
individuals, it is an important issue for small firms as well.
Small and medium sized enterprises (SMEs) may not always have the same access to banks and
financial institutions as big firms. Thus access of SMEs to the range of financial services is a key
issue that needs to be considered in terms of banking the unbanked.
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It is generally recognized that SMEs have a significant role in employment generation, poverty
reduction and overall economic growth, especially for a developing economy like Bangladesh.
SMEs are typically labor intensive industries with relatively low capital intensity. As such for a
country like Bangladesh which is labor abundant and capital scarce, SMEs have a natural
comparative advantage. In recognition of the strategic importance of the development of SMEs
in promoting industrial growth, employment generation and poverty alleviation the SME sector
has been declared as a priority sector in the Governments Industrial Policy 2010 and various
measures have been initiated to help maximize the SMEs growth potential.
Availability of finance is thought to be a major constraint to formation and growth of SMEs in
Bangladesh. Banks are reluctant to expand their SME credit portfolio because they do not
consider SME lending an attractive and profitable undertaking. This is so because SMEs are
regarded as high risk borrowers because of their low capitalization, insufficient assets and their
inability to comply with collateral requirements of the banks. Administrative costs are also
higher because close monitoring and supervision the SME operation becomes necessary.
Despite all these facts banks and financial institutions have been providing finance to the SME
sector and the volume of finance is showing an increasing trend. Most importantly the share of
private sector banks in disbursement of credit to the SME sector has been increasing in recent
years comparatively at a higher rate than the NCBs and state owned DFIs.
There is an issue of interest rate charged by banks and financial institutions for SME finance.
Very often it is argued that the interest rate on SME loan is too high and needs to be lowered.
In this regard it may me mentioned that following the interest rate liberalization policy as a part
of financial sector reforms, the responsibility to determine interest on loans and advances has
been left to the lending banks and financial institutions. Under the liberalized interest rate
regime central banks intervention to reduce interest rate for a particular sector will not be in
order and involve the risk of being construed as a retrograde policy. For entrepreneurs, though
the supply of and access to finance is very important, the cost of fund is also a factor for their
sustainability and expansion. The banks and financial institutions should consider the fact that if
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the rate of interest is too high, then the profitability of entrepreneurs, especially for those of
the innovative projects will be adversely affected.
Bangladesh Bank (BB) has also undertaken programmes to provide relatively cheaper funds to
the banks and financial institutions which might encourage them for SME financing.SME has
been identified in the PRSP (Unlocking the Potential) as one of the seven critical sectors for pro-
poor economic growth and special emphasis has been give on rapid growth and development
of this sector. According to the PRSP the thrust of SME development should be on modern
SMEs that have higher growth potentials compared to the traditional SMEs. The policies
towards SMEs should be based on a positive developmental attitude seeking to assist them by
promoting efficiency, adaptation to new circumstances and technology, rather than protecting
the sector through a distorted incentive structure. In the PRSP the actions suggested for the
development of SMEs in Bangladesh include (i) Adoption of an unambiguous definition of SME;
(ii) Strengthening of BSCICs capacity to provide market information; (iii) Simplification of
regulatory procedures; (iv) Setting up an appropriate credit guarantee scheme for lending
without real estate based collateral; (v) Enlarging the base of conduit lending institutions; (vi)
Making BSCICs industrial estate programdemand driven; (vii) Priority development of the road
network and supply of gas and electricity; (viii) Extension of BOIs One-Stop Service to cover
SMEs; (ix) Greater public private cooperation for the design and implementation of effective
business support service; (x) A differentiated and hassle-free indirect tax system for SME; (xi)
Calibration of trade policy reform to support SME development.
4.6 Why all banks are set for Special SMEs?
Question arises why all the banks especially commercial banks are set for special SMEs? The
answer is Bangladesh Bank has set banks and non-banking financial institutions a target to
disburse around Tk 24,000 crore loans to the SME sector during the current calendar year, a
senior executive of the central bank said.
This is the first time the central bank has set a target to disburse loans to the SME sector in the
country. Bangladesh Bank earlier asked the banks to set their respective targets.
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Official of Bangladesh Bank said the countrys 48 foreign, state-owned and private banks and 24
non-bank financial organisations will disburse the loans. According to official of Bangladesh
Bank, outstanding loans to the SME sector stood at around Tk 52,000 crore and the number of
loanees at about 4.4 lakh at the end of 2009. He said if the 2010 target is achieved it would be
the highest-ever loan disbursement to the sector in a single year. Acting managing director of
SME Foundation Momtaj Uddin, however, termed the figure less-than-requirement. Referring
to a research finding, he told that around Tk 18,28,000 crore is needed throughout the SME
sector. He said the targeted loans should be properly disbursed to the entrepreneurs on easy
terms. Most of the previous loans were restricted to the urban areas, he added. Rural people,
particularly women must be given SME loans, he said, adding that increased loans should go for
the production sector. Asked which sub-sector would get priority, the official said:
Undoubtedly its the export-oriented manufacturing sector.
Bangladesh Bank offer 100 percent refinancing facility if loans are given to production and
service sectors but maximum 50-60 percent refinancing facility will be given in case of business
loans. A recent BIDS study revealed that banks and non-banking financial institutions disburse
loans mostly to the business sector. Also revealed that the financial institutions gave loans to
around 3.91 lakh small and medium entrepreneurs until September, 2009.
Of them, around 3.35 lakh are trading houses, 54,000 manufacturing and remaining service-
sector firms. BIDS research recommended formulation of a guideline for giving collateral-free
SME loans as the number of loan defaulters in the sector is negligible. The study conducted on
branches of 14 banks revealed that SME loan recovery rate ranges between 80 percent and 100
percent. Bangladesh Bank has undertaken different plans to boost SME sector by increasing
flow of money.
4.7 Identification and Assessment of Various Risks in SME financing
In the developing world Small and Medium Enterprise are playing a vital role for the
development. They are the major and influential player in the economic growth of different
countries like china and India. But still banks are very reluctant in case of lending to those
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entrepreneurs due to lack of security and high risk of default. Unavailability of finance thought
to be a major constraint to formation and growth of SMEs in Bangladesh. Banks are reluctant to
expand their SME credit portfolio because they do not consider SME lending an attractive and
profitable undertaking.
Usually SMEs are labor intensive business firms. They play a major role in employment
generation. So SME can be very effective in reducing poverty and ensuring long term economic
growth. So the banks should come forward t finance those SMEs to contribute more in the
development of the country. But there are lots of risks involved in SME financing, which the
Bank should take very seriously. It is very important to identify and assess the risks properly to
make the SME financing successful.
4.8 Importance
The economic and social importance of the small and medium enterprise sector is well
recognized in academic and policy literature. It is also recognized that these factors in the
economy may be underserved, especially in terms of finance. This has led to significant debates
on the best methods to serve this sector.
There have been numerous schemes and programmes in markedly different economic
environments. However, there are a number of distinctive recurring approaches to SME
finance. Collateral based lending offered by traditional banks and finance companies is usually
made up of a combination of asset based finance, contribution based finance, and factoring
based finance, using reliable debtors or contracts. Information based lending usually
incorporates financial statement lending, credit scoring and relationship lending. Viability based
financing is especially associated with venture capital.
4.9 The risks of SME Financing
The risks of SME financing can be classified under top major heads they are as follows
Internal risks : credit risk and liquidity risk
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External risks: interest rate risk, growth risk, market demand, competition, commodityrisk, government policy
Project risks: legal risk, security risk, marketing risk, operating risk. Others: environmental risk, family risk, health risk.
4.10 The Management of Lending SMEs
The effective management of lending to SMEs can contribute significantly to the overall growth
and profitability of banks. There has been considerable research and analysis into the methods
by which banks assess and monitor business loans, manage business financing risks, and price
their products and how these methods might be further developed and improved. There has
been particularly intensive scrutiny of the kinds of business financial information that banks use
in making lending decisions and how reliable that information actually is. Bank have
traditionally relied on a combination of documentary sources of information, interviews and
visits, and the personal knowledge and expertise of managers in assessing and monitoring
business loans. However, when assessing comparatively small and straightforward business
credit applications bank may largely rely on standardized credit scoring techniques (quantifying
such things as the characteristics, assets, and cash flows of businesses/ owners). Using such
techniques and also centralizing or regionalizing business banking operations generally can
significantly reduce processing costs. Standardized computer based assessment may also be
more accurate and fairer than reliance on the personal judgments of local bank managers. As a
result, banks may now be able to offer more loans, faster and in larger amounts, and reduce
previously high security requirements. However, business lending as whole is substantially
more diverse and complex than personal and residential mortgage lending. This coupled with
the large size and inherently risky nature of many business loans tends to limit the scope and
desirability of computerized credit scoring in assessment and monitoring.
Higher growth of the Small and Medium Enterprises (SMEs) can help cut poverty to a
satisfactory level by eliminating various prejudices against labour intensive and creating jobs for
the skilled manpower in the SME sector. This was revealed in the just released Bangladesh Bank
annual report for fiscal 2010-11.
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The report said, the key reasons behind the SMEs are not entering into manufacturing are
financial constrains, dismal state of utilities, technology and policy discriminations. On the
others hand, Bank and others financial institutions generally prefer large enterprise clients
because of lower transition costs, and greater availability of collateral.
The SMEs also fall outside the reach of micro finance schemes, and thus compelled to depend
on formal sources of funds at much higher interest rates, the Bangladesh Bank report said.
The report observed that the SMEs demand for bank loan, especially, medium and long term
financing is relatively high.
The Banks are reluctant to extend loans, especially, term loans to SMEs and the reasons for
banks reluctance to extend loans to SMEs are perception that the current legal system is
unable to protect their interests, funding costs are relatively high, shortage of access to long-
term capital, inability to conduct proper due diligence and the current unavailability of
information.
4.11 SMEs Access to FinanceBarriers and Windows
Among the many compelling reasons why SMEs fail to realize their full potential, inadequate
access to finance is prominent and most commonly cited. With limited capital base of their own
and little or no access to institutional financing they rely on inefficient financing service
traditionally from informal sources, which eventually proves unsustainable let alone stimulate
growth.
There were also attempts to channelize to the sector through public and private banks fund
received from international agencies. There were provisions of favorable debt equity ratio,
special interest rates and credit guarantee scheme. The central bank also issued directives to
both public and private commercial banks regarding working capital loans, use of standardized
documentation procedure and time limits for credit sanctioning and loan disbursement.
Notwithstanding all these arrangements for financing small and medium enterprises, the actual
delivery of institutional credit to this sector has been grossly inadequate. One of the main
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factors that have hampered flow of institutional finance into small and medium enterprises is a
bank preoccupation with collateral based lending. Traditionally banks have used fixed asset
ownership particularly land ownership as the basis for judging credit-worthiness. This puts
small and medium enterprises at relative disadvantage as they often cannot put up such
collateral for loan. Moreover, whatever collateral they can manage gets used up in taking the
term loan leaving them with no means to seek working capital loan from institutional sources.
Unlike their large-scale counterparts they cannot use influence and contacts and solve the
problem by putting up collateral of dubious valuation. Banks, on their part, also tend to be less
flexible about the collateral requirement in the case of the SMEs as they perceive SME loan to
be more risky and the cost of monitoring and supervision of small loans to be higher.
Various alternatives to real estate based lending have been suggested for the SMEs. Group
guarantee and peer pressure, successfully used in the case of micro-finance, do not appear
appropriate for SMEs as these are mostly sole proprietorship units with capital size significantly
larger than the amount typically disbursed under micro-finance. Use of assets other than land
and building, such as fixture, equipment, vehicles etc as collateral is also a fairly standard
practice in institutional finance but is of less use in the case of SMEs as these enterprises usually
possess few such non-land assets. Sales proceeds, accounts receivable, inventory etc can be the
basis of working capital loan, but this requires proper documentation of the transactions of the
SMEs and close monitoring and supervision on the part of the lending institutions. Because of
the informal nature of many SME transactions and high cost of small loan administration, use of
such movable asset for working capital lending will involve certain difficulties.
SMEs as these enterprises usually possess few such non-land assets, Sales proceeds, accounts
receivable, inventory etc can be the basis of working capital loan, but this requires proper
documentation of the transactions of the SMEs and close monitoring and supervision on the
part of the lending institutions. Because of the informal nature of many SME transactions and
high cost of small loan administration, use of such movable asset for working capital lending
will involve certain difficulties. Financial institutions could significantly reduce the risk when
they are lending to SMEs without real estate based collateral if they (a) pre-screen SMEs on the
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basis of cash flow statements and information from business service providers and receivers to
assess track records of firms and their ability to repay in future, and (b) implement close
monitoring and supervision in the post-disbursement stage. In such cases, appropriate credit
guarantee schemes will need to be devised for covering the lending institutions both for the risk
involved as well as for the additional cost of loan administration.
In 2003-04, Bangladesh Bank set up a Tk. 10.0 billion refinancing scheme for credit to SMEs.
Bangladesh Bank charges participating institutions 5% interest rate while the lending
institutions decide on the lending rate of interest. This provides these institutions with the
scope of attempting lending to SMEs without real estate based collateral as their risks will be
covered through refinancing facility and they can accommodate any additional cost of loan
administration through an appropriate spread between the borrowing and the lending rate.
Because of the initial success of the program, government raised the amount to Tk.25 billion in
the national budget 2009-10. Beside this, International Development Agency (IDA) has
provided US$ 10 million to Enterprise Growth and Bank Modernization Project (EGBMP) during
FY 2009-10. Moreover, ADB has finalized an agreement with Bangladesh Bank to provide
additional US$ 30 Million to this sector. These huge resources would strengthen the financial
programme of EGBMP. This would result in employment generation in one hand and
enhancement of purchasing power of the poor on the other hand. Under this programme, the
financing capabilities of various financial institutions and banks have been enhanced and up to
April, 2011 Bangladesh Bank has disbursed Tk.1237.34 million for refinancing. Out of this, the
contribution of World Bank was Tk.237.26 million while that of Bangladesh Bank was Tk. 999.98
million.
4.12 SME Financing Policy of SEBL
4.12.1 Objectives
The objectives of Small and medium enterprises financing credit policy of SEBL are described
below:
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1. To establish a sound combination of policy guidelines, lending guidelines, proceduralguidelines and other standards & factors for financing the Small Enterprises.
2. To flow credit for creation of employment and generation of income on asustainable basis through development of Small Enterprises and thus to enable the
small entrepreneurs to access to finance.
3. To accelerate forward linkage, backward linkage, value addition activities andproductivity improvement in order to establish and expand small scale
manufacturing sector.
4. To promote women entrepreneurs of the country.5. To participate in the socio-economic development of the country.
4.12.2 Definition
Small Enterprise means an entity, ideally not a public limited company, which fulfills any of the
following criteria:
Criteria
Small Enterprise Total Fixed Assets
(excluding land & building)
Total no. of manpower
employed
Service Concern Tk.0.50 lac to Tk.50.00 lac Maximum 25
Trading Concern Tk.0.50 lac to Tk.50.00 lac Maximum 25
Manufacturing Concern Tk.0.50 lac to Tk.1.50 crore Maximum 50
4.12.3 Target group
The target groups for SME financing of SEBL are Entrepreneurs who are running small business
units and willing to expand the business, Entrepreneurs who are willing to set up small scale
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manufacturing units/ service oriented units, Entrepreneurs who are involved in agro-based &
agro-processing activities in small scale, Small scale contractors who execute work orders,
supply orders and are required to be financed for execution of contracts; Women
Entrepreneurs shall be given preferences.
Enterprises/ business units will be broadly categorized as 1.Service, 2.Trade, and 3.
Manufacturing. The priority sectors will be as follows: Light Engineering & metal working,
Electronics & electrical, Agro-based and agro-processing, Leather and leather products,
Software development, Plastic & other synthetics, Healthcare & diagnostics Educational
services, Pharmaceutical, cosmetics & toiletries, Herbal medicine, Handicrafts, Furniture.
4.12.4 Selection criteria
The selection criterias for SME credit are described below:
The legal form of business of the borrower is Sole Proprietorship/ Partnership/ PrivateLimited Company.
The business is legally valid and the business firm has got all required licenses,permissions, registration certificates which are up-to-date at the time of application of
credit facility. The business firm is registered in Bangladesh with majority shares owned by
Bangladeshi nationals.
The borrowers principal place of business is in Bangladesh. The business is profitable and has a defined market with clear growth potentials. The entrepreneur is skilled, experienced and so far successful for managing the business
for at least 02 (two) years.
In case of new entrepreneur, he/ she is experienced in working in similar line of businessand has technical-know-how about the business which he/ she wants to establish.
The age of the proprietor/ partners/ key person of the business firm is within 20 years to55 years.
A clear succession plan is present.
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Personal guarantee of the borrower. In case of limited companies, guarantee of alldirectors other than nominee directors shall be obtained.
Personal guarantee of spouse (if married) or parents (if unmarried) of the borrower. Personal guarantees of two shop owners of the respective market/ two businessmen/
any other person acceptable to the bank.
Postdated cheques for all installments and one undated cheque for full loan valueincluding full interest.
Any other securities to be deemed suitable by the Bank depending on banker-customerrelationship.
4.12.9 Loan Renewal
Renewal of Loan or Successive Loan depends on track record of previous loan. Usually,
repayment behavior and expansion of business of the borrower are the main considerations for
renewal and enhancement of the loan amount.
4.12.10Time Frame for approval
The time frame for approving/ declining a credit proposal shall be maximum 07 (seven) working
days at Branch/ SME Service Center level, and maximum 05 (five) working days at Head Office
level, provided all required information/ documents are in place. Clean facilities (collateral free
credit) can be given upto Tk.10.00 lac on any single Small Enterprise. For financing the Women
Entrepreneurs in SME sector under refinance scheme of Bangladesh Bank, financing up to
Tk.25.00 lac against charge on assets of the enterprise and personal guarantee only can be
made. Highest priority shall be given for accepting and settlement of the Loan applications from
the Women Entrepreneurs in SME sector within a reasonable time period. All regulations as
specified under Bangladesh Banks Regulations are to be met. Branches/ SME Service Centers
shall adhere to the Credit Policy of the Bank and the relevant Circulars/ Regulations/ Guidelines
of the Bank/ Bangladesh Bank/ any other regulatory authority.
4.12.11 Application & approval processes
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Any credit proposal and/ or pre-sanction Inspection Report/ call report/ visit report is to be
originated from the Branch/ SME Service Center. The client shall have to open account with the
relevant Branch/ SME Service Centre of the Bank. The client shall fill up the RFCF (Request For
Credit Facility), Net Worth Statement, other pro forma (if any) correctly and completely. The
client shall provide CIB undertakings, Financial Statements, other information/ papers/
documents required by the concerned official of the Branch/ SME Service Center. The
concerned official of the Branch/ SME Service Center shall evaluate clients proposal with due
diligence, accomplish the relevant tasks meticulously and prepare the Credit Appraisal Form as
per the prescribed format. Any requirement for further information regarding a particular
credit proposal shall have to be communicated to the client within 03 (three) working days
from the date of submission of the application by the client. If a particular credit proposal is
found suitable, the Branch/ SME Service Center shall assign a unique identification number to
the borrower and submit the credit proposal along with the required documents, such as Visit
Report, Stock Report, CPV Report, Valuation Report etc. to the Head Office for approval. The
unique identification number shall consist of three parts: 3-digit Branch/ SME Service Center
code, 2-digit month number, 2 digit year number & 4 digit unique serial number. At Head
Office, the assigned Credit Officer(s) shall appraise the proposal in line with Banks credit
policies and guidelines of Central Bank & other regulatory authorities and place the proposal tothe competent approval authority for decision.
4.13 Credit assessment & risk management
The sources of repayment shall be identified specifically and the repayment capacity of the
client shall be assessed on the basis of assets conversion cycle and expected future cash flows.
In the same connection, current & projected financial statements shall be obtained before
processing a credit proposal. The Small Enterprises may not have proper books of accounts andthey may not be able to prepare current and projected financial statements due to lack of
sophistication and expertise. In such cases, the relationship officers at Branch/ SME Service
Center level shall assist the clients in obtaining/ developing such books of accounts/ financial
statements.
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Branches/ SME Service Centers must assess current status of the particular sector / industry the
Bank is lending to and its future prospects. Branches/ SME Service Centers must identify the key
drivers of the clients businesses, the key risks to their businesses and their risk mitigates.
A written declaration is to be obtained from the client divulging details of various credit
facilities being availed by the client from other institutions. The details given in the statement is
to be carefully examined and fresh credit facility will be allowed only after ensuring that the
total exposure in relation to the repayment capacity of the customer does not exceed the
reasonable limits.
Updated and clean CIB report on the client must be in place while processing the credit
proposal. Branches/ SME Service Centers shall conduct a thorough credit and risk assessment
for each credit facility. The outcomes of such assessment should be presented in the prescribed
Credit Appraisal Form (CAF), which will be forwarded to the Head Office for approval.
The assumptions and parameters used to project the future cash flows shall be documented
and annexed with the cash flow analysis undertaken by the Branches/ SME Service Centers.
Branches/ SME Service Centers shall obtain a copy of financial statements duly audited by a
practicing Chartered Accountant, relating to the business of every borrower who is a limited
company or where exposure of the Bank exceeds Tk.40.00 lac, for analysis and record.
Branches/ SME Service Centers shall obtain the prescribed RFCF (Request For Credit Facility)
duly filled in properly under the seal and signature of the client for every credit application
(including renewal, enhancement and rescheduling). Branches/ SME Service Centers shall
conduct Contact Point Verification (CPV) and prepare CPV Report as per prescribed format for
each client. Branches/ SME Service Centers shall obtain Personal Net Worth Statement for the
owner(s) of the SE. Branches/ SME Service Centers shall maintain database/ list of declined
credit proposals with firms name & owners name separately. Security documents are to be
prepared in accordance with approval terms and must be legally enforceable. Branches/ SME
Service Centers shall make disbursements only when all security documentation is in place. In
case of third party deposits/ security instruments, in order to minimize any inherent risk
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emanating from accepting third party deposits/ security instruments, Branches/ SME Service
Centers shall verify third partys signature against the specimen attached to the original
instrument and send the instrument to the issuing office for their verification and written
confirmation on lien marking and encashment of the instrument.
A clear segregation of credit collection/ recovery activities from marketing/ sales activities must
be made by way of assigning separate officer(s). Specifically assigned officer(s) shall carry out
the SEF activities in order to establish separate risk management capacity for SEF. Productivity
Tracking Analysis on each client is to be done through scrutinizing no of calls made, promise to
pay, kept promise, broken promise etc. Branches/ SME Service Centers shall put maximum
effort to minimize fraud risk by analyzing the CPV and validating the authenticity of all
documentation. Branches/ SME Service Centers shall conduct regular inspections (at least
quarterly) to ascertain the status of business activities for which the SE is financed. Such
inspection has to be documented properly.
4.14 Credit administration
4.14.1 Documentation:
Branches/ SME Service Centers shall ensure that all security documentation complies with theterms of approval. Branches/ SME Service Centers shall maintain control over all security
documentation. They will also monitor borrowers compliance with agreed terms and
conditions, and general monitoring of account conduct/ performance.
4.14.2 Legal Vetting
Mortgage documents shall be properly vetted by the Banks Legal Counsel. Banks Legal Counsel
shall certify that proper documentation, borrowers legal standing and enforcement of
securities are in place. Finally, Lawyers Satisfaction Certificate shall have to be obtained
regarding documentation where there are securities/collaterals other than Personal Guarantee
and Financial Obligation.
4.14.3 File Maintenance
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Separate and independent file(s) for each customer shall be maintained by the Branch/ SME
Service Center and Head Office. File(s) will be under the custody of the concerned Relationship
Officer/ Relationship Manager at Branch/ SME Service Center and Credit Officer at Head Office
who is handling the client within his/ her Division/Department.
4.14.4 Disbursement:
Branches/ SME Service Centers shall ensure that the disbursement of loan is made only after all
terms and conditions of approval have been met and all security documentation is in place.
Branches/ SME Service Centers shall ensure that the loans are to be properly utilized for the
same purposes for which they were acquired/ obtained. In case of need, a phase-wise
disbursement may be allowed with the progress of utilization of fund.
4.14.5 Monitoring:
The success of the SE financing depends on the extensive and intensive post disbursement
supervision, follow-up and monitoring. It must be ensured that the proceeds of the loan are not
being diverted, the sponsors are very serious to the operation of the project, quality is updated
and marketing effort is effective. Regular repayment must be ensured. Visit to the
establishment must be done at least one in a month. The visit should be done for strengthening
the spirit and loyalty of the customers. Monthly stock report is to be obtained duly filled in by
the borrower and signed by an officer of the Branch/ SME Service Centers after physical
verification, duly countersigned by the Head of Branch/ SME Service Center. Branches/ SME
Service Centers shall maintain strong MIS (Management Information System) on its entire SE
loan portfolio.
4.14.6 Compliance:
Branches/ SME Service Centers shall ensure timely submission of statements/ returns on SE
financing as per requirement of Head Office or any regulatory authority. Branches/ SME Service
Centers shall also ensure compliance with the Credit Policy of the Bank and the relevant
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Circulars/ Regulations/ Guidelines of the Bank/ Bangladesh Bank/ any other regulatory
authority.
4.14.7 Bangladesh Banks Regulations for SME Financing
4.14.7.1 Regulation-1
SOURCE AND CAPACITY OF REPAYMENT AND CASH FLOW BACKED LENDING
Branches shall specifically identify the sources of repayment and asses the repayment capacity
of the borrower on the basis of assets conversion cycle and expected future cash flows. In order
to add value, the Branches must assess conditions in the particular sector / industry they are
lending to and its future prospects.
The rationale and parameters used to project the future cash flows shall be documented andannexed with the cash flow analysis undertaken by the Branches. It is recognized a large
number of SEs will not be able to prepare future cash flows due to lack of sophistication and
financial expertise. It is expected that in such cases Branches shall assist the borrowers in
obtaining the required information and no SE shall be declined access to credit merely on this
ground.
4.14.7.2 Regulation-2
PERSONAL GUARANTEES
All facilities to SEs shall be backed by the personal guarantees of the owners of the SEs. In case
of proprietorship concern, spouses guarantee other than the personal guarantee of the owner
may be taken. In case of limited companies, guarantees of all directors other than nominee
directors shall be obtained.
4.14.7.3 Regulation-3
PER PARTY EXPOSURE LIMIT
The minimum and maximum exposure of a bank on a single SE shall remain within the range of
Tk.2.00 lac and Tk.50.00 lac respectively subject to the following:
In case of working capital finance: Maximum up to 100% of the net required working capital or
75% of the sum total of inventory and receivables whichever is lower.
In case of fixed assets purchase: Maximum up to 90% of the purchase price.
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4.14.7.4 Regulation-4
AGGREGATE EXPOSURE OF A BANK ON SMALL ENTERPRISE SECTOR
The aggregate exposure of the Bank on SE sector shall not exceed the limits as specified below:
% of classified SE advances to total portfolio of SE advances Maximum Limit
a. Below 5% 10 times of equity
b. Below 10% 6 times of the equity
c. Below 15% 4 times of the equity
d. Up to and above 15% Up to the equity
4.14.7.5 Regulation-5
LIMIT ON CLEAN FACILITIES
In order to facilitate growth of smaller loans, The Bank is free to determine security
requirements for loans up to Tk.10.00 lac.
4.14.7.6 Regulation-6
SECURITIES
Consequent to the regulation stated in Regulation -5, facilities provided to SEs shall be secured
by the Bank as follows:
For loan amounting Tk.2.00 lac to Tk.10.00 lac:
As a minimum banks must take charge over assets being financed.
For loan amounting Tk.10.00 lac to Tk.50.00 lac:
a) Hypothecation on the inventory, receivables, advance payments, plant & machinery.
b) Registered mortgage over immovable properties with registered Power of Attorney.
c) Personal Guarantees of Spouse/Parents/other family members.
d) One third party personal guarantee.
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It is recognized that a large number of enterprises other than limited companies (i.e., sole
proprietorship/ partnership firms etc.) may not have proper books of accounts including
balance sheet, profit & loss account and they may not be able to prepare current and future
cash flows due to lack of sophistication and expertise. It is expected that in such cases,Branches shall assist the borrowers in obtaining/ developing such books of accounts as per
forms/ formats prescribed by the Bank.
The Bank shall not approve and/ or provide any exposure (including renewal, enhancement and
rescheduling) until and unless the prescribed Loan Application Form is accompanied by
borrowers basic fact sheet under the seal and signature of the borrower.
4.14.7.11 Regulation-11
PROPER UTILIZATION OF LOAN
The Bank should ensure that the loans have been properly utilized by the SEs and for the same
purposes for which they were acquired / obtained.
4.14.7.12 Regulation-12
RESTRICTION ON FACILITIES TO RELATED PARTIES
The Bank shall not take any exposure on a SE in which any of its director, shareholder,
employee or their immediate family members are holding 5% or more of the share capital of
the SE.
4.14.7.13 Regulation-13
CLASSIFICATION AND PROVISIONING FOR ASSETS
Existing norms for usual loans & advances shall be applicable.
4.15 Product of Southeast Bank Limited in regards of SME
There are three basic products under the SEBLs SME financing. Each of them are enacted
below
4.15.1 Southeast Shopan
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1. Customer segment: Any SE client meeting definition criteria and target group criteria ofsoutheast banksSME credit policy.
2. Purpose : Any justifiable business purpose3. Nationality: Bangladeshi4. Age limit: From 22 years up to 55 years( the borrowers age must not exceed 60 at the
expiry of loan tenor). In case of partnership firm or private limited company, age of the
key person/chief executive officer is to be considered.
5. Minimum Income: Minimum income must be commensurate with the amount of loanrequired.
6. Borrowers eligibility: to be eligible for this loan borrower must have the followingeligibility
The legal form of business of the borrower is Sole Proprietorship/Partnership/Privatelimited company.
The business is legally valid and the business firm has got all required licenses,permissions, registration certificates which are valid and up to date at the time of
application of credit facility.
The business firm is registered in Bangladesh with majority shares owned byBangladeshi nationals.
The borrowers principal place of business is in Bangladesh. The business is profitable and has a defined market with clear growth potentials. The entrepreneur is skilled, experienced and so far successful for managing the business
for at least 02 (two) years. In special cases, this condition may be relaxed.
In case of new the entrepreneur, he/she is experienced for at least 02 years in workingsimilar line of business and has technical knowhow about the business which he/she
wants to establish. In special case, this condition may be relaxed.
The age of the proprietor/partners/key person of the business firm is within 22 years to55 years.
A clear succession plan is present The entrepreneur must be literate as per as practicable.
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The entrepreneur is socially acceptable and his/her reputation, integrity,trustworthiness, commitment are satisfactory.
1. Loan size: taka 2.00 lac to Taka 8.00 lac.2. Security arrangement: the following security is required for this product as per case
basis
Hypothecation on the inventory, receivables, advance payments, plant and machinery. Personal guarantee of the borrower. In case of limited companies, guarantee of the
directors other than nominee directors shall be obtained.
Personal guarantee of spouse (if married) or parents (if unmarried) of the borrower. Personal guarantees of two shop owners of the respective market/two businessmen/
any other person acceptable to the bank.
Post dated cheques for all installments and one undated cheque for full loan valueincluding full interest.
Usual charge documents. Any other securities to be deemed suitbable by the bank depending on banker customer
relationship.
The full amount may be allowed without any collateral security.1. Documentation: there are two types of documentation. Preapproval documentation
and post approval documentation.
Preapproval documentation
Photograph of the applicants Valid trade license At least 2 years old trade license. Partnership deed = notarized/registered by SRO
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7. Loan tenure: it can time loan for fixed asset procurement for 5 years or time loanmaximum of 3 years for other purposes or time loan of 1 year.
8. Grace period: negotiable depending upon nature of business and purpose of loan.9. Repayment arrangement: monthly installment in case of term loan and lumpsum within
expiry.
10.Financing mode: term loan, time loan.11.Distribution precondition: all the documentation formalities must be completed prior to
disbursement.
12.Debt to burden ratio: DBR must not exceed 60%.13.Loan takeover from other bank: in case of loan takeover from other bank, the loan
amount will be given in the form of a payment order favouring that particular bank to
settle the outstanding as well as the closing charges.
14.Contact Point Verification: all address of the applicant and guarantee must be verifiedby CPV agent where the Bank has agreement and in other case branch officials will do
the same.
15.Approval authority: as per delegation of business power for small Enterprise(SE)financing.
4.15.2 Southeast Shikor
1. Customer segment: any SE client meeting definition criteria and target group criteria ofsoutheast banks SME credit policy.
2. Purpose: Any justifiable business purpose.3. Nationality: Bangladeshi4. Age limit: From 22 years up to 55 years (the borrowers age must not exceed 60 at the
expiry of loan tenor). In case of partnership firm or private limited company, age of thekey person/chief executive officer is to be considered.
5. Minimum Income: Minimum income must be commensurate with the amount of loanrequired.
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o Personal guarantee of the borrower. In case of limited companies, guarantee ofthe directors other than nominee directors shall be obtained.
o Personal guarantee of spouse (if married) or parents(if unmarried) of theborrower.
o Personal guarantees of two shop owners of the respective market/twobusinessmen/ any other person acceptable to the bank.
o Post dated cheques for all installments and one undated cheque for full loanvalue including full interest.
o Usual charge documents.o Any other securities to be deemed suitable by the bank depending on banker
customer relationship.
o The full amount may be allowed without any collateral security.
1. Documentation: there are two types of documentation. Preapproval documentationand post approval documentation.
Preapproval documentation
Photograph of the applicants Valid trade license At least 2 years old trade license. Partnership deed = notarized/registered by SRO M/A or A/A including certificate of incorporation duly certified by registrar Joint Stock
Companies RJSC and attested by the Managing Director accompanied by an up to date
list of Directors.
Income Statement and Balance Sheet for last 3 years. Passport/ National ID/ Certificate from UP chairman or Ward Commissioner confirming
applicants age, nationality, address.
Duly filled in RFCF which will be provided by bank Duly filled in Personal Net Worth Statement of the applicants and guarantors
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Duly filled in CIB forms Any other documentation deemed to be necessary by the bank
Post approval documentation
Acceptance of the Sanction advice. Others as per the sanction advice.
1. Insurance: the hypothecated stocks/items will remain insured minimum 10% above thecredit facilities covering Fire, RSD, Theft and Burglary, Flood & Cyclone, MBD with Bank
mortgage clause, cost of which to be borne by the client. If the client is unwilling to
insure the hypothecated stock covering theft and burglary and Flood & Cyclone, an
undertaking is to be obtained from the client to the effect that in case of Theft and
Burglary, Flood & Cyclone and MBD the client will bear all the losses.
2. Loan processing fee : 1% on the approved loan amount .3. Interest rate or commission: if loan is funded then 13% -16% per annum. However, the
rate may be changed based on the market condition and policy of the Bank. If the loan is
nonfunded then charge is par bank schedule.
4. Overdue service charge: 2% per annum above the regular interest rate on the overdueamount.
5. Early settlement/Prepayment fee: 1% on the prepaid amount if paid before 1 year orthe outstanding amount exceeds 40% of the principal amount.
6. Stamp and Property valuation: all relevant stamp and property valuation charges mustbe borne by the customer.
7. Loan Tenure: for term loan maximum 5 years for fixed asset procurement and maximum3 years for other purposes. For time loan, OD, CC(H), CC(P), L/C,LTR,LIM,BTB L/C, PC,
ECG, BG, FDBP, IDBP, AAA all of these for one year.
8. Grace period: negotiable depending upon nature of business and purpose of loan.
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9. Repayment arrangement: monthly installment in case of term loan, monthlyinstallments or lump sum within expiry in case of time loan.
10.Financing mode: term loan, time loan, OD, CC(H), CC(P), L/C,LTR,LIM,BTB L/C, PC, ECG,BG, FDBP, IDBP, AAA.
11.Disbursement Precondition: all the documentation formalities must be completed priorto disbursement.
12.Debt burden ratio: DBR must not exceed 80%.13.Loan takeover from other bank: in case of loan takeover from other bank, the loan
amount will be given in the form of a payment order favoring that particular bank to
settle the outstanding as well as the closing charges.
14.Contact Point Verification: all address of the applicant and guarantee must be verifiedby CPV agent where the bank has agreement and in other case branch officials will do
the same.
15.Approval authority: as per delegation of business power for Small Enterprise financing.
4.15.3 Southeast Shuprova
1. Customer segment: any SE Woman Entrepreneur meeting definition criteria and targetgroup criteria of southeast banks SME credit policy.
2. Proprietorship concern100% owned by the woman.3. Partnership concern & Limited Company50% or above share owned by the women.
1. Purpose: Any justifiable business purpose.2. Nationality: Bangladeshi3. Age limit: From 22 years up to 50 years( the borrowers age must not exceed 55
at the expiry of loan tenor). In case of partnership firm or private limited
company, age of the key person/chief executive officer is to be considered.
4. Minimum Income: Minimum income must be commensurate with the amount ofloan required.
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Duly filled in CIB forms Any other documentation deemed to be necessary by the bank
Post approval documentation
Acceptance of the Sanction advice. Others as per the sanction advice.
1. Insurance: the hypothecated stocks/items will remain insured minimum 10% above thecredit facilities covering Fire, RSD, Theft and Burglary, Flood & Cyclone, MBD with Bank
mortgage clause, cost of which to be borne by the client. If the client is unwilling to
insure the hypothecated stock covering theft and burglary and Flood & Cyclone, an
undertaking is to be obtained from the client to the effect that in case of Theft and
Burglary, Flood & Cyclone and MBD the client will bear all the losses.
1. Loan processing fee: 1% on the approved loan amount.2. Interest rate or commission: if loan is funded then 13% -16% per annum. However, the
rate may be changed based on the market condition and policy of the Bank. If the loan is
nonfunded then charge is par bank schedule.
3. Overdue service charge: 2% per annum above the regular interest rate on the overdueamount.
4. Early settlement/Prepayment fee: 1% on the prepaid amount if paid before 1 year orthe outstanding amount exceeds 40% of the principal amount.
5. Stamp and Property valuation: all relevant stamp and property valuation charges mustbe borne by the customer.
6. Loan Tenure: for term loan maximum 5 years for fixed asset procurement and maximum3 years for other purposes. For time loan, OD, CC(H), CC(P), L/C,LTR,LIM,BTB L/C, PC,
ECG, BG, FDBP, IDBP, AAA all of these for one year.
7. Grace period: negotiable depending upon nature of business and purpose of loan.8. Repayment arrangement: monthly installment in case of term loan, monthly
installments or lump sum within expiry in case of time loan.
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9. Financing mode: term loan, time loan, OD, CC (H), CC (P), L/C, LTR, LIM, BTB L/C, PC,ECG, BG, FDBP, IDBP, and AAA.
10.Disbursement Precondition: all the documentation formalities must be completed priorto disbursement.
11.Debt burden ratio: DBR must not exceed 80%.12.Loan takeover from other bank: in case of loan takeover from other bank, the loan
amount will be given in the form of a payment order favoring that particular bank to
settle the outstanding as well as the closing charges.
13.Contact Point Verification: all address of the applicant and guarantee must be verifiedby CPV agent where the bank has agreement and in other case branch officials will do
the same.
14.Approval authority: as per delegation of business power for Small Enterprise financing.
4.16 Performance of SEBL in Financing SMEs
There is an increasing trend in the disbursements of SME credit by Southeast Bank Limited.
Recently 10 SME Service Centers has been established to concentrate more on SME Financing.
Last four quarters performance is analyzed below:
There is an upward trend in the financing for small entrepreneurs. The number of small
enterprises clients has increased in last 12 months. At June 2009, the no. was 1171. It increased
to 1286 in December 2009, 1403 in March 2010, and 1525 at June 2010.
Again we see that, there is an upward trend in the amount of disbursement made to the small
entrepreneurs. The disbursements at June 2009 were 14,944 lac which increased to 17,749 lac
in December 2009, 18,302 lac in March 2010 and 20685 lac in June 2010.The amount of
disbursement for small entrepreneurs increases by approximately 1778 lac.
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There is a upward trend in the financing for Medium size entrepreneurs. The number of
medium size enterprises clients has increased in last 12 months. At June 2009, the no. was 453.
It increased to 486 in December 2009, 594 in March 2010, and 676 at June 2010. In every
quarter, the no. of small enterprises clients is increases by approximately 78.
4.16.1 Performance of SME in Service Centers
To Comply with Bangladesh Banks guideline and to concentrate more on SME financing, 10
SME Service Centers had been set up by Southeast Bank Limited. They are still going through
the initial stages, with limited resources. It had total of 32 officers for the 10 SME Service
Centers. They are resided in Hathazari, Lohagara, Beanibazar, Tazpur, Biswanath, Shebarhat,
Sonagazi, Tangail, Jessore and Brahmanbaria. This year, The Total loans and advances provided
by them upto June 2010 is TK .6519 crore. Of them, only four had been able to provide SME
loans. All the SME Service Centers are currently running at losses. The total loss this year up to
June 2010 were 1.5129 crore.
4.17 SME Loan Procedures of SEBL
4.17.1 Loan Sanction activities
Select potential enterprise:For SME loan, in this step the officer conduct a survey andidentify potential enterprise. Then they communicate with entrepreneurs and discuss
the SME program.
Loan Presentation:The function of credit officer is to prepare loan presentation basedon 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 collectconfidential information about the client from various sources. The sources of
information are suppliers regarding the clients payment, customers regarding the
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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 tothe client then he/she help the client to open an bank account where SEBL bank has a
STD a/c. SEBL 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:Credit in charge give a CIB (Credit Information Burue) form to theclient and the client fill and sign in it. In some case if the client is illiterate then the
officer fill the form on behalf of the client. Then officer send the filled and signed form
to the SME, head office.
Sending CIB to Bangladesh Bank: The SME, head office collects all information andsends 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 thefollowing 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 andif 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 andif 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 ifthe 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 ifthe 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.
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Insurance (Original copy)
Blank claque with signature (one cheque for full amount and others same as no of
installment on Favor of SEBL , no date, no amount)
Two guarantors (one must be Spouse/parents)
If the loan provide for purchase of fixed assets or machineries and if the loan amount is
over Taka 50,000/= then the stamp of a certain amount is required.
Documents deficiency and problem resolving: If there is any error found then itinformed to the respective Officer. If the application form is not filled properly then the
file send to the officer to fill the application properly. If any document error found then
the loan administration division asked the officer to send the require documents and
the file stored to the loan administration division.
Prepare disbursement list: The loan administration division lists all new sanctionedclients details and send a request to the treasury through internal mail.
Disbursement of the amount: Sending the list to the treasury of SEBL bank for disbursethe amount, the treasury disburse the amount to the client through the mother account
of the clients bank. SEBL disburse amount through corporate branch nearer the SEBL
head office and the corporate branch of the respective bank send the amount to the
client account in the respective bran