SME Loan
Content
Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
1
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INTRODUCTORY PART
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Small and Medium Enterprise Loan of Pubali Bank Limited
1.1 Introduction
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. This sector accelerates 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. Banks deal with the most important factor of the economy i.e. Money. It flows funds from surplus unit to deficit unit and through this it facilitated the efficient allocation of the resources as well as accelerated economic growth. As the pace of globalization competition in banking sector is increasing very fast. Banks are becoming more customers oriented and offer High tech customized products to it’s target market to hold the market .To days SME sector is more important. Our central bank always keep monitoring banks performances. For Shareholders. For depositor. For Bangladesh Bank. For its own Assessment to view the future growth and profit treed.
1.2 Origin of the Study
This Internship Report is prepared on MBA program. The study paper based on the SME Loan. A case of Pubali Bank Limited in Bangladesh. To fulfill the report properly I have study industry analysis, overview Prospect and performance analysis of Pubali Bank Limited. My supervisor Mr Mohammad Salahuddin Southeast University, authorized me to prepare it.
1.3 Objectives of the study
Broad Objective
To know details of SME loan in Pubali Bank Limited The functions of SME, Operation, & conducted by Pubali Bank in the urban, rural and remote areas of Bangladesh.
Specific Objectives
To know company background and industry analysis. To find strategic marketing theories related to SME of Pubali Bank. To analyze of SME loan of Pubali Bank.
To know performance of Pubali Bank SME Loan. To know prospects of Pubali Bank SME loan. To prepare finding and recommendation.
1.4 Sources of data
In conducting the study, data and information have been collected from different sources. All these data were collected from the secondary & primary sources. The sources of data include the following:
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Small and Medium Enterprise Loan of Pubali Bank Limited
Primary Sources are as follows:
Personal observation Discussion with Bank’s officers Desk work in different section/division
Secondary Sources are as follows:
Different statements of Bank Annual report of Pubali Bank Limited Consultation of related books and publications Vouchers, leaflets, loan files, of the bank Files, balance sheet and various documents of Pubali Bank Limited
Processing of Data:
After collection of the raw data using the following computer packages had done editing and processing MS-Excel MS-Word
Data Analysis: The classified and tabulated data has been analyzed elaborately in a number of tables in the analysis part.
1.5 Methodology
• • •
The study is a result of the discussion with my supervisor. Following a report sample. Prepare comparative Analysis.
1.6 Limitations
The study has suffered from a number of barriers. Data from Pubali Bank is highly confidential. The information of Pubali Bank Ltd was not found in a structured way. Restriction of management. Inaccurate and contradictory information.
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
2
Company Background
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Small and Medium Enterprise Loan of Pubali Bank Limited
In this chapter, we can get the overall idea about Pubali Bank Limited Along with its impact on Bangladesh economy. Here is also shown the vision, Mission, Goals and objective. Different wings and its objective of PUBALI BANK have been shown in a brief. Again the product and services of this bank has reflected in this chapter.
2.1 History of Pubali Bank
The Bank was initially emerged in the Banking scenario of the then East Pakistan as Eastern Mercantile Bank Limited at the initiative of some Bangalee entrepreneurs in the year 1959 under Bank Companies Act 1913 . After independence of Bangladesh in 1972 this Bank was nationalized as per policy of the Government and renamed as Pubali Bank. Subsequently due to changed circumstances this Bank was denationalized in the year 1983 as a private bank and renamed as Pubali Bank Limited. The Government of the People's Republic of Bangladesh handed over all assets and liabilities of the then Pubali Bank to the Pubali Bank Limited. Since then Pubali Bank Limited has been rendering all sorts of Commercial Banking services as the largest bank in private sector through its branch network all over the country. Percentage of Shareholders Directors Cooperative Societies Banks and Financial Institutions Government Other Institutions Non Resident Bangladeshi General Public 11.30% 4.40% 9.11% 0.0002% 11.04% 3.4% 60.75%
2.2 Workforce
Total number of employees stood at 5,375 as on December 31, 2010.
2.3 Branches
Total numbers of branches are 400 as on December 31, 2010.The Principal Branch (Head office) of PUBALI BANK LIMITED is at 26, Dilkusha Commercial Area, Motijheel, Dhaka-1000.
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Small and Medium Enterprise Loan of Pubali Bank Limited
2.4 Brand Promise:
“OITIJJER PATH BEYE ORTHONOITIC AGGRAGATI”
2.5 Vision
To hold the position of best private commercial Bank in Bangladesh with adherence to meticulous compliance of rules and regulations and strong commitment to Corporate Social Responsibility.
2.6 Mission:
To become most remarkable and admirable private commercial bank in the country. To get recognition as a dynamic,innovative and customer service oriented bank. To keep momentum of continuous & steady growth with maximum transparency and to diversity products and resources. To expedite continuous up date of information and technology with all modern facilities to cope with demand and challenges of the time.
2.7 Corporate Objectives
• • • • Growth Value Addition Corporate Social Responsibilities Quality Standard
2.8 Aim
• • To match Corporate objectives, with Ownership and Accountability. To increase our value by releasing each individual’s potentials.
2.9 Corporate Structure
The management of the bank is vested in a 14-member board of directors with the managing director as its chief executive.All the directors have good academic background and have huge experience in banking sector. Mr. Hafiz Ahmed Mazumdar MP is the Chairman of the bank. The board of directors holds meetings on a regular basis. The current board of directors' name and management structure are given in the following table.
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Small and Medium Enterprise Loan of Pubali Bank Limited
2.10 Board of Directors
Name Mr. Hafiz Ahmed Mazumdar Mr. Moniruddin Ahmed Mr. Sk. Wahidur Rahman Mr. Monzurur Rahman Mr. Giashuddin Ahamed Mr. Ahmed Shafi Chowdhury Mr. Fahim Ahmed Faruk Chowdhury Mr. Habibur Rahman Mr. Mohammed Yaqub Mr. Muhammad Faizur Rahman Mr. Mustafa Shariar Ahmed Mr. Syed Moazzem Hussain Ms. Rumana Sharif Designation Chairman Director Director Director Director Director Director Director Director Director Director Director Director
2.11 Management team
Managing Director & CEO Mr Helal Ahmed Chowdhury Deputy Managing Director There are 4 DMD in PBL General Manager There are 17 General Mangers. Consultant There are 2 consultant of the Pubali bank Deputy General manager There are 52 Deputy General Manager Principal training institute Mr Badruddin Ahmed Asst General manager There are 131 Asst General managers
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Small and Medium Enterprise Loan of Pubali Bank Limited
2.12 Division of Head Office
Division name Board & MD's Secretariat Division Human Resources Division Establishment Division Law Division International Division Credit Division Credit Monitoring & Recovery Division Consumers Credit Division Audit Division Central Accounts Division Information Technology Division Lease Financing Division Internal Control & Compliance Division General Services and Development Division
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
3
Analysis of SME Loan of Pubali Bank Limited
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Small and Medium Enterprise Loan of Pubali Bank Limited
SME loan is of the products and services of Pubali Bank Limited, which is described elaborately in this chapter. Here the purpose of SME loan, types and nature of SME loan, SME activities in terms of market, Selection criteria of potential enterprise for SME has described. At last the loan sanction and monitoring process mentioned in brief.
Analysis of SME loan: Pubali Bank 3.1 SME Banking
The most valuable natural resource of Bangladesh is its people. This missing middle group is the small but striving entrepreneurs, who because of lack of fund cannot pursue their financial uplift, as they have no property to provide as equity to the commercial banks. With this end in view-Pubali Bank was opened to serve these small but hard working entrepreneurs with double bottom line vision. As a socially responsible bank, Pubali Bank wants to see the emancipation of grass-roots level to their economic height and also to make profit by serving the interest of missing middle groups.
3.2 SME Products
Although Pubali Bank is one of the oldest bank in our country but it has started its SME operation just recently under the consumer credit division. Pubali Bank has only three categories of SME loan. These are as follows: 1. Subarna Rin 2. Karmo-Uddog Rin 3. Sujan Rin
These are elaborately described below: Suborna Rin Purpose To meet the working capital requirement of SME business. Eligibilty
Minimum 2 years experience in the respective line of business Business must be going concern with more than 1 year of successful operation Satisfactory credit report from Bangladesh Bank Bank account in the name of the firm or the proprietor. Age of the borrower must not less than 18 years.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Maximum Amount From minimum BDT 2 lac up to maximum of BDT 10 lac.
Features Loan without collateral Hassle free loan and quick processing time Repayment in 12/24/36 monthly installment considering requirement of the borrower Personal Guarantee of a person acceptable to bank strong personal net worth. Hypothecation of goods, machinery, and equipment.
Repayment Repayment of the loan will be started after 1/2/3 months of disbursement by equal monthly installment as the case may be.
Karmo-Uddog Rin
Purpose To meet up short term fund requirement of SME business To meet up short term fund requirement of SME business run by women entrepreneur. Eligibility
Minimum 2 years experience in the respective line of business Business must be going concern with more than 1 year of successful operation Satisfactory credit report from Bangladesh Bank Bank account in the name of the firm or the proprietor. Age of the borrower must not less than 18 years.
Maximum Amount Starting from BDT 2 lac to maximum of BDT 10 lac Features Loan without collateral Hassle free loan and quick processing time Repayment in 12/24/36 monthly installment considering requirement of the borrower Personal Guarantee of a person acceptable to bank strong personal net worth. Hypothecation of goods, machinery, and equipment. 11
Small and Medium Enterprise Loan of Pubali Bank Limited
Sujon Rin
Purpose To purchase capital mechinary, office equipment, covered van, pick-up van etc.
Eligibility
Minimum 2 years experience in the respective line of business Business must be going concern with more than 1 year of successful operation Satisfactory credit report from Bangladesh Bank Bank account in the name of the firm or the proprietor. Age of the borrower must not less than 18 years.
Financing Range Maximum 90% of fixed assets to be purchased but not over Tk 10 Lac. Features Loan without collateral Hassle free loan and quick processing time Repayment in 12/24/36 monthly installment considering requirement of the borrower Personal Guarantee of a person acceptable to bank strong personal net worth.
3.3 Basic Appraisal of Small &Medium Enterprise
Business or project appraisal is a technique of evaluating and analyzing Business from various aspects, primarily the risks associated with that business enterprise. At the time of appraisal of any manufacturing, trading or service related organization, factory or industry; one has to perform a feasibility study on the different aspects. These are: a. b. c. d. e. f. Management and Personal Aspects Technical Aspects Marketing Aspects Financial Aspects Social Economic Aspects Security Aspect
a. Management and personal aspects: During the appraisal prosecute the R.O should endeavor to obtain details about the prospective borrowers, some of which are: i. Business related information 12
Small and Medium Enterprise Loan of Pubali Bank Limited
ii. Credit History iii. Liquidity Information iv. Management Background In considering the above, one should look at the business is managed. The R.O should also consider clients previous credit history like facilitates sought and availed, loan repayment an overdue record, if any. One should also check the client bank account and amount of balance maintained. Management’s qualification, experience, successor and maintenance of records should provided insight in to the business. b. Technical Aspects: From a business perspective, this aspects deals with design of the system in place, the operation of the business, the different type of physical resources used, the technology used, the capacity to handle business and all other inputs (labor, raw materials, utilities etc.) Among the technical factors to be investigated during an appraisal are: • • • • • • • • The size of project The process, materials, equipment, and reliability of technical systems to be used Location of projects Sustainability of the plans, layout and design used Total quantity of the goods /Service produced/Traded monthly Environment of the business and its surrounding areas Availability to various factors of production, both physical and human Raw materials availability, price level and its variation to be considered
c. Marketing Aspects: A R.O should consider the following factors of a business before making any loan commitment with a customer. Total demand and supply of the products in the market that the business operates in growth of sales and major marketing threats that the business may face. d. Financial Aspects: This aspect allows us to check the financial health of a business, Through an analysis of the profit and loss account, balance sheet, cash flows, ratios and requirement of working capital. If the collection of the financial data can be done properly, then it may be able to make a somewhat realistic picture of the business financial position. However, all the data collected must be cross-checked as much as possible with the physical features of business. The following things are to be considered at the time of verifying the financial feasibility of the business:
Current year’s profit/Loss of the business and probable profitability of business after taking the loan 13
Small and Medium Enterprise Loan of Pubali Bank Limited
Destination of assets, liabilities and net worth of the manufacturing/ trading / service institution before and after taking loan Present net cash flow of the business after disbursement of loan should be destined, To know the cash position of the institution To know the source of income, production and other expenditure of the business probable financial risks of the business
e. Socio Economic Aspects: Here the analyst like to observe the contribution of the business to the country’s GDP, the employment generated, the sort of adverse impact of the business on the environment, if an other benefit to the country. g.Security Aspects: Along with observation of different aspects and views of the projects, the R.O should also see closely the aspects of the projects and ensure about the reliability to the mortgaged property/assets. Ensure proper survey or verification of the security offered Ensure attachment of survey report.
3.4 Reason of SME program from the view point of Pubali Bank
The main focus of Pubali Bank is to develop human and economic position of a country. a. Support Small Enterprise: The small enterprise which requires 2 to 10 lacks taka loan, but these has no easy access to the banks/financial institutions. b. Economic Development: Economic development of a country largely depends on the small and medium seal enterprises. c. Employment Generation: The bank gearing employment opportunities by two ways: Firstly, by providing loan to the small enterprises expanding, these business requires more workers. Secondly, Small & Medium Enterprise (SME) program requires educated and energetic people to provide savories to entrepreneurs. d. Profit Marking: SME program is a new dimensional banking system in the banking world. The entrepreneurs are satisfied by the service of this bank and the bank also makes more profit. e. Encourage Manufacturing: A focus of Pubali Bank is to encourage manufacturing by the entrepreneurs who are producing by purchasing various types of materials. f. Spread the experience: Another reason of Pubali Bank is to spread the knowledge of regarding various businesses. 14
Small and Medium Enterprise Loan of Pubali Bank Limited
3.5 Selection of Potential Enterprise for SME Enterprise Selection Criteria
The success of SME will largely depend on the selection of a business and man behind it. In studies of the business (Enterprise), the following attributes should be sought: 1. The business must be in operation for at least one year 2. The business should be environment friendly, no narcotics or tobacco business 3. The business should be legally registered, i.e., valid trade license, income tax or VAT registration, wherever applicable. 4. The business should be in legal trade, i.e.; smuggling will not be allowed or socially unacceptable business will not be entertained. 5. The business must have a defined market with a clear potential growth 6. The business must be located ideally close to the market and the source of its raw materials/suppliers. It should have access to all the utilities, skilled manpower’s that are required. 7. Any risk assessed by the management in turn will become a credit risk for the bank. So effort should make to understand the risk faced by the business.
Guarantor Selection Criteria
Equally important is the selection of a guarantor. The same attribute applicable for an entrepreneur is applicable to a guarantor. In addition he should posses the followings: 1. The guarantor must have the ability to repay the entire loan and is economically solvent ( Check his net worth) 2. Govt. and semi-govt. officials can be selected as a Guarantor such as schoolteacher, college teacher, doctor etc. 3. Police, BDR and Army persons, political leaders and workers, and Imam of mosque can not be selected as a guarantor. 4. The guarantor should know the entrepreneur reasonable well and should preferably live in the same community
Monitoring
So monitoring is an essential task for R.O to know the borrowers activities after the loan disbursement.
Importance of Monitoring
Through monitoring a R.O can see whether the enterprise invested the sanctioned amount in the pre-specified area of his business, how well the business is running, the attitude of the entrepreneur, cash credit sales and purchase, inventory position, work in process and finished goods etc, This information will help the Pubali Bank to recover the loan accruing to the 15
Small and Medium Enterprise Loan of Pubali Bank Limited
schedule and to take the necessary decisions for repeat loans. Moreover, monitoring will also help to reduce delinquency.
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 RO 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. b. Production: The R.O will monitor the production activities of the business and if there is any problem in the production process, the RO will try to help the entrepreneur to solve the problem. c. Sales: Monitoring sales proceed is another important task of the R.O it will help him to forecast the monthly sales revenue, credit sales etc. which will ensure the recovery of the monthly loan repayments from the enterprise as well as to take necessary steps for future loans. d. Investment: It is very important to ensure that the entire loan has been invested in the manner invented. If the money is utilized in other areas, than it may not be possible to recover the loan. e. Management of raw materials: If more money is blocked in raw materials then necessary, then the enterprise may face a fund crisis.
Monitoring System
a. The R.O can consider the following things for monitoring: The R.O will monitor each business at least once a month. During monitoring the R.O must use the prescribed monitoring from and preserve in the client file and forward a copy of the report to SME head office immediately. b. A SME branch will maintain the following files: Purchase Receipt, Delivery Memo’s, Quotations and All other papers related to furniture and fixture procurement
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Small and Medium Enterprise Loan of Pubali Bank Limited
c. Other fixed assets and refurbishment
All fixed assets and refurbishment related papers such as purchase receipt, Delivery memo’s, Quotation, Guarantee and Warrantee papers, Servicing related papers and any other paper related to fixed assets are refurbishment will be in this file. d. Lease agreement file This file will contain all papers related to lease agreement between the SESDS office and owners of the leased premises e. Individual client file Individual files are to be maintained for each borrower and will hold loan application, Loan Proposal, Copies of Loan Sanction Letter, Disbursement Memo, Monitoring Report, CIB application and Report, Credit report from other bank and all other correspondents including bank receipt. f. Statement file All types of statement sent to SME head office will be kept in this file chronologically g. Office instruction file All kind of office instruction regarding administration should be kept in this file. h. Operating instruction and guideline files. All kind office instruction and guidelines related to operating should be kept in this file i. New forms introduction file All minutes of meeting, whenever held, should be kept in this file. j. Security documents and legal aspect file One set of security documents and lawyer’s opinions and suggestions regarding issue will be kept in this file. The original should be send to SME head office on a weekly basis k. Survey form file After conducting survey, all survey will be kept in this file chronological.
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
4
Performance of Pubali Bank Limited
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Small and Medium Enterprise Loan of Pubali Bank Limited
In this chapter we will know about the performance of Pubali Bank Limited In short and also the credit division and its structure. The activities of credit division and its performance can know by any one from here.
4.1 Overall performance of Pubali Bank Limited
Share Capital Authorized capital and paid up capital of the bank stood at Tk 5000.00 million and Tk 3822.00 million respectively in 2010. Out of total 30899 shareholders, Bangladesh Govt. held 93 share of taka 9300.00 while the remaining share of paid up capital Tk 3821.99 million were held by various institutions and individuals. Statutory and Other Reserve At the close of 2010 the statutory and other reserve of the bank stood at Tk 5687.25 million. Out of which statutory reserve was Tk 3152.72 million and other reserve was Tk 2534.53 million. Total reserves was Tk 4606.82 million at the end of the 2009. Deposits The deposit trend was positive in 2010. At the end of 2009 the total deposit was Tk 73016.53 million that came to end to Tk88466.46 million at the end of 2010 showing 21.16% increase. Out of total deposit, time deposit and demand deposit were Tk 27432.48 million and 61033.98 million respectively i.e 31.01% and 68.99% respectively. Borrowing from other Bank In 2010 the Bank borrowed Tk 427.25 million for business purpose compare to Tk 393.07 million during previous period. Advances Total advances of the bank as on 31 December 2010 stood at Tk 74203.33 million that showing an increase of Tk 12415.18 million @ 20.09% growth. In line with national economic development, the bank made advances to mainly as commercial loan, Import and export business, term loan to large and medium scale industries, House building loan, Working capital loan , and consumes credit and syndicate loan etc.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Investment Total investment of the bank was 12168.65 million during 2010.In comparison to previous year total investment was increased by Tk 3793.06 million @ 45.29% growth. The Bank mainly invested in Govt. Bond, Treasury Bills, approved debenture of private institutions.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Foreign Exchange Business A) Import Business During the year the bank handled import business worth Tk 60490 million. During the previous year the amount of Tk 58010 million. The amount of import business handled by the bank increased by Tk 2480 million during the year which was 4.28% higher than the previous year. B) Export Business The bank handled export business of Tk 24740 million during the year as against Tk 24790 million in the previous year. C) Inward Foreign Remittance Nonresident Bangladeshi sent foreign remittance equivalent to Tk 35250 million through the bank 2010 whereas the amount was Tk 28190 million in 2009. Position of Profit and Loss Total operating income and total operating expenditures of the bank during the year 2010 were Tk 6898.27 million and 3058.80 million respectively resulting a profit of Tk 3839.47 million before making provision for bad and doubtful debts and income tax. During the year the bank made a provision of Tk 170.00 million against the loans and advances, diminution in value of investments exposure of Off balance sheet items and provision of Tk 1577.24 million against the Corporate income tax and differed tax. As such the net profit of the bank stood at Tk 2092.23 million which the Board of Directors propose to appropriate in the following manner. Particulars Net Income Transferred to statutory reserve Transferred to General reserve Amount (million) 2092.13 733.89 1358.34
Bank Expansion and Modernization The bank expanded its operation through opening 15 (Fifteen) new branches at deferent places during the year 2010. As such the total no of branches of the bank stood at 400 all over the country. More over number of branches were shifted to new premises in more suitable places and a large number of branches were refurnished and modernized. 4.2 SME Performance of Pubali Bank 21
Small and Medium Enterprise Loan of Pubali Bank Limited
SME loan department of pubali bank has just recently started. So, It has not made any thing important to mention. Pubali Bank Limited disburse only Tk 60.9 million to the total number of 92 clients as on 31 march 2010 as Small and Medium Enterprise loan.
4.3 Client Selection and Sanction
The branch manager should be more prudent and show utmost diligence in selecting potential customers/ borrower. After sending proposal to R.O along with related papers for approval the R.O will scrutinize the same with extra care as collateral is not mandatory for most of the loan under SME financing up to Tk 10 lac and under discretion of the R.M(Regional manager). The R.M should satisfy himself after threadbare discussion with B.M(Branch Manager). Personal /physical verification of borrower’s business site and go down/showroom by the R.M is required for each and every case under SME.
Disbursement
Single time disbursement is applicable for all the SME financing schemes. Before disbursement the B.M will obtain a request letter from the borrower for disbursement.
Post dated cheque as security 12/24/36 numbers of cheque will be collected from the borrower as security considering the tenure of the loan, which will be collected on monthly basis. Memorandum of deposit of cheques The borrower will submit equal no of post dated cheques on the basis of the tenure of loan and repayment sequence. As SME finance of PBL is repayable on monthly installment basis one cheque for each month to be obtained from the borrower. After receiving the cheque the designated officer will make entry of all the cheque in memorandum of deposit cheques mentioning the following: Drawee Bank and Account no Cheque no Branch name Date Amount
These cheques must be duly signed by the borrower. The post dated cheque m received from borrowers must kept under custody of SME designated official under lock and key. There must be no deviation from this.
4.4 SME Loan Repayment/ Recovery Procedures
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Small and Medium Enterprise Loan of Pubali Bank Limited
Repayment will be started after 1/2/3 months of disbursement of all the loans under the SME financing Program. Each post dated cheque will be collected on monthly basis. The designated official of the branch is responsible for recovery of the loan under the SME scheme. The officer will inform the borrower personally over telephone or through letter at least 7 days earlier of the payment date. He along with the B.M must ensure regular repayment of SME loans. Remind letter must be issued to borrower after 2 days of overdue if any installment remains unpaid. The Regional Office (R.O) will monitor the disbursement and recovery process of SME loan. The R.M will always make close contact with the branch and guide the branches in selecting borrower’s as well as recovery of SME loans. It is the sole responsibility of both B.M and R.M to keep the SME portfolio a classification free one.
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
5
Prospects of Pubali Bank SME Loan
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Small and Medium Enterprise Loan of Pubali Bank Limited
In this chapter we can know about the future plan of PUBALI BANK SME Loan division.
5.1 Importance of SME
Today importance of SME could not ignorable. Here are some reasons why SME is so important now: • • • • • • • • • SMEs are Essential for a Competitive and Efficient Market SMEs are Critical for Poverty Reduction SMEs Play a Particularly Important Role in Developing Countries SME sector is the largest provider of employment in most countries, especially of new jobs SMEs are a major source of technological innovation and new products SMEs with high turnover and adaptability play a major role in removing regional and sector imbalances in the economy Easy entry and exit of SMEs make economies more flexible and more competitive Large number of SMEs creates competitive market pressure SMEs also play an essential role as subcontractors in the downsizing, privatization and restructuring of large companies
5.2 Development of SME
Customer Handling
In our country there are about 52 banks working with the people with varieties of their attractive products and services and there is a high level amongst competition each other. For sustaining, they offering various types of innovation for better service for the clients, so, to reach the closer best to the clients direct marketing gaining momentum in the country. In terms of SME, its targeted entrepreneurs are the subjects of dealings to achieve the objectives of Pubali Bank and its policy is to contact with clients directly with a confident manner.
• • • •
Conducting Survey Properly Individual contact with entrepreneur for selecting potential borrower Deliver Pubali Bank’s products and other services Keeping in close touch with clients to develop mutually beneficial long term relationship . 25
Small and Medium Enterprise Loan of Pubali Bank Limited
5.3 Macro Environmental Analysis
It is very important to carry out a macro environment scanning for the banking industry in order to identify and analyze the external factor that affected the growth and development of the banking sector in Bangladesh. A through analysis of the macro environment in which the banks operate will allow the banks to develop pro-active strategies and navigate the organization in the turbulent ocean of competition. The financial institutions are always heavily influenced by the macroeconomic conditions both globally, regionally or locally. The key macroeconomic indicators like GDP growth rate, inflation, industrial growth rate, expansion of trade and commerce and other factors affects the operations and the pricing strategy of the bank. Pubali Bank Limited (PBL), since its inception has achieved a steady growth rate. However, the present economic downturn or recession is affecting PBL’s operations. The country is now under a deep recession having a major decline in industrial growth rate, galloping inflationary pressure, and decline in international trade with export targets for the fiscal year yet to be achieved and other factors will eventually affect PBL and other banks pricing strategies. Many banks will have to revise the interest rate structure for its various services in order to cope with economic slowdown. However, SME results for PBL is quite satisfactory, as they have surprised their stipulated targets despite the economic sluggishness going on in the country. Some practical example is as follows: If the savings rate in our country decreases the purchasing power of our people will decreases. The demand for taking loan from bank will decline and client cannot repay the loan properly. On the other hand, if it is increase extremely then purchasing power will increase but people will have enough cash on hand which will reflect by not taking loans from financial organizations. So everything should be balanced. Another example like- if the interest rate increases then people will not be interested for taking loans and as well as client will be unable to make profit by taking loans. On the other hand, if it decreases then bank will not be able to make profits quickly. So it would be considered for balancing both sides. Unemployment is another whether too much unemployment can affect the industry to understand the business properly. So this sort of impact might occur in the environment, which could have handled properly.
Demographic Environment
Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics. The demographic environment is of major interest to marketers because it involves people and people make up markets. In terms of SME requirements customer is the main part of bank. If there is, no client there is any business. According to the location Pubali Bank SME unit offices already has reached in every cities around the country for providing door-to-door facilities. Some key factors of demographic environment are- urbanization, education, living standard etc. For example-In terms of urbanization, lots of new business and enterprises are growing rapidly in the city or 26
Small and Medium Enterprise Loan of Pubali Bank Limited
town. So more banks can be aggressive for providing loans in newly developing areas. For having new banks in the city, the standard of living will increase for the people. Education is another major factor for developing a nation. Without literacy standard of living could not come for individuals. Therefore, each and every factor is interrelated to each other.
Economic Environment
Factors that affect consumer buying power and spending patterns. SME is very careful regarding economic issues in the country. Customer relation office is always keen to check purchasing materials and leading lifestyle of the client. Because if the economic condition of a client become bad then he/she might not repay the loan. On the other hand if war occurs between the two countries then price of the products will increase and people will loss purchasing power. In this way, organization might affect economically. On the other hand, A steady growth rate with continues market oriented reforms will contribute positively by expanding the volume of business and profitability of the bank. In an economy, a steady growth means there will be more investment, savings, and consumption in the economy. As a result, bank also gets more deposit and more projects for credit disbursement. After disbursing the loan, if the economic condition of the business is being poor then Pubali Bank regenerates the repayment schedule of the client to repay the loan. On the other hand if the economic conditions rise up then client repay the whole amount in favor of Pubali Bank Limited.
Social Environment
As banks are service-oriented organizations, they always have to consider the attitude of the customer. Customer now wants a speedy service accompanied by attractive and well decorated impressive branches with customer friendly officers providing tailor made services to the customers. SME of Pubali Bank impressive office has already earned a reputation for the bank and has attracted lots of potential customers around the country. In order to match with the customer needs, banks are also increasing varieties of products such as single short products, different short and medium term products and other services.
Political Environment
The political environment consists of law, government agencies and pressure groups that influence and limit various organizations and individuals in a given society. SME of Pubali Bank has to abide national laws like festivals, holidays. On the other hand, hartals, strikes, barriers can affect the economic condition of SME of Pubali Bank Limited. Under the latest World Bank, recommendation the banking division of the ministry of finance is being abolished a step further in providing autonomy to Bangladesh Bank. The emergence of PBL SME and other contemporary banks and the arrival of the foreign banks are all due to the on going reforms in the financial sector of Bangladesh. PBL is restricted to provide loans for the political leaders. Customer services officers of Pubali Bank always avoid political leaders who carry out business. But if any pressure occurs from the political sides to have the loan the top management handles the situation but never give the loan to them. 27
Small and Medium Enterprise Loan of Pubali Bank Limited
Technological Environment
Pubali Bank of SME division has a strong network in the whole country. The main head office is in the capital city from which it operates with all the unit offices by means of mobile telephone. In the near future, SME might hand over the palmtop computer to all customer services offices to provide accurate and quick service to the clients.
Ecological Environment
Sometimes ecological environment can turnout the business of the clients. Foods, disasters can affect the business after having the Pubali Bank loans or fire can burn out the whole business. To protect from these disasters Pubali Bank do the insurance policy with the joint names of the client. So that client can get feedback from the insurance policy to run again his business. If client do not get support from the insurance company then Pubali Bank give time or generate the client repayment schedule.
5.4 Micro Environmental Analysis
Marketing management job is to attract and build relationship with customers by creating customer value and satisfaction. It depends on other factors in the organization microenvironment- suppliers, customers, competitors; various publics that make up the organizations value delivery system. The company needs to study its customer marketer closely in terms of Small and Medium Enterprise of Pubali Bank Limited and their customers group is specified. Their target group is only Small and Medium Enterprise client. The R.O closely monitor and try to build good report with clients. On the other hand corporate clients are different to have the loan. Each market type has special characteristics that call for careful study by the marketer. In terms of SME, most clients are carrying out trading business rather than manufacturing business. Few clients are attached with service business like pharmaceutical, hospital, homeopath etc. In the trading business clients want loans to meet their working capital requirement. On the other hand, client wants 10-15 for purchasing fixed assets. In our country mostly 35-40 years old clients are carrying out loans regarding the type of their business. The clients who interested to take the loan of SME then they have maintained at least one year running business. It is a policy of this bank because in the mean while client can understand his business and can set a future plan. The educational qualification of our clients is very poor. Clients are under graduate but carry out good business. SME support their clients who are carrying out good business and also give suggestions and guidelines to develop their business. If any client has maintain loans with other banks then SME is restricted to provide loans for that clients. The client needs clearance certificate to get the loan from the Pubali Bank. It has been found out that in our country most clients need small loans to develop their own business. The world is being globalizes and modernized. Therefore, client takes risks to 28
Small and Medium Enterprise Loan of Pubali Bank Limited
enhance and develop their business and Pubali Bank is a good helping hand to help them. In our country, clients want more time to repay the loan. Pubali Bank gives adequate time for the client to repay the loan whether they can get benefit from it. Clients are very happy to repay the loan by equal monthly installment. Clients know the right time to repay the loan at the right place. But in the pick season, most client wants short fund requirement to carry out good business. Regarding interest rates, clients are not talk about more because clients get the loan at the right time from the Pubali Bank. Clients are also happy by the issuance of security preferences because they do not have to provide any collateral security for hypothecation or unsecured loans. SME of Pubali Bank networks has everywhere in Bangladesh. So clients can have the SME loans wherever his business exists in the country. In addition, clients get the fast service from the Pubali Bank. The purpose of this loan is the economic development in our country, which might divert the clients mind after having the loans for expansion. Many clients have ambition to expand from trading to manufacturing business to generate more profit. When a R.O would visit a business, the client must provide the proper and right information and show the right documents for justifying a good client. If any R.O feel bad smell in the business then the R.O reject that client without concerning the management. So clients should be feel comfortable to provide proper information to have the loan.
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
6
Finding and Recommendation
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Small and Medium Enterprise Loan of Pubali Bank Limited
6.1 Finding Different categories of business:
In studys of survey analysis, it found that 55% of the clients are involved on trading business on the basis of banks enterprise scenario. Almost 30% sample clients are carrying out manufacturing business in our country and few are engaged in service business Charts:1 Different categories of business
Different Categories of Business
60% 50% 40% 30% 20% 10% 0% Series1 Trading 55% Manufacturing 30% Service 15%
The loan area preference:
Customers mentioned that they prefer their business area, which are close to their premises. It helps them to carry out their own business by staying in close and have mental satisfaction. Some clients commended that it would be risky if the location of the business is become far.
Age limit of the client:
According to the survey, most of the clients are carrying out business whose ages are between 30 to 50. It has been found that few clients are on above 50. SME believes that in studys of our age limit in this country it will be very risky to provide loans above 60 aged clients.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Charts:2 Age of clients
Ag e of C lients
50% 40% 30% 20% 10% 0% B elow 30 S eries 1 33% B etween 30 to A b ove 50 50 47% 20%
Business maintains other loans or not: It could be analyzed that most of the clients do not maintain taking Pubali Bank SME loans. Small amount of clients are maintaining personal loan and few are carrying out lease financing for their internal activities.
Educational qualification of the clients:
It can be state that the educational qualifications of the most clients are very poor at this business level in our country. Most clients have passed SSC and very few completed Graduation or Masters. In studys of their low educational background might not help long run decision making. SME supports those clients who can understand his/her own business. Charts: 3 Educational qualification
E d u c a tio n a l Q u an lific a tio
60% 40% 20% 0%
SSC
HSC 29%
G r a d u a te M a s te r s 20% 9%
S e r ie s 1 4 2 %
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Small and Medium Enterprise Loan of Pubali Bank Limited
Business commencement:
As an employee of this division, it should be mentioned that client has to maintain at least one year running business to have this loan. So by carrying out business clients should understand better about his/her own business or future plan and what would be the main season to have the loan.
Business required any loans:
78% clients demand small loans whether it can develop their own business, which found in the survey. Few clients think that to take loan might be risky to carry out the business. Charts: 4 Business required loan
Business Required Loan
No, 22% Yes No Yes, 78%
Purpose of loans:
According to the survey, it can analyze that most clients want loan to meet their working capital requirements. In our country most clients carry out trading business rather than manufacturing business. Few clients demand manufacturing loans to purchase of fixed assets. Charts: 5 Purpose of loan
Purpose of Loan
80% 70% 60% 50% 40% 30% 20% 10% 0%
77%
18%
Purchesing Fixed Assets Working Capital
Series1
5%
Others
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Small and Medium Enterprise Loan of Pubali Bank Limited
Duration of loans:
In spite of analysis, most clients want more duration or time to repay the SME loan. More time means less amount of money to repay the loan whether clients think beneficial of it. Very few clients demand short study or single payment loan to repay.
Security preference
According to the survey, it can imply that 75% of the clients want to provide deposit hypothecation of business assets against loan which also they feel less risky. If the clients go for big amount then they have to deposit registered or equitable mortgage against loan which they feel too much risky. But land property sometimes carry triples amount of security from loan amount. So it they fail then the might sell their property. Charts:6 Security performance
Security Preference
80% 60% 40% 20% 0%
75% 25%
Regs or Equitable Mortgage
Hypothecation
Clients want fast service: According to the survey, it can be said that 55% of the clients avail the loan within 15 days. In study of getting the loan clients buy the raw materials or order suppliers. A good number of sample clients will be satisfied if they get loan with 20-23 days. They are general clients and they do not have hurry to carry out business. Very few clients opine more than 25 days because in this case clients deposits land security. So automatically it takes more time to avail the loan.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Charts: 7 Time requirement
Time Requirement for Loan
Above 20 Days 5% 15 Days 20 Days 40% 15 Days 55% 20 Days Abov e 20 Days
Repay monthly installment: Majorities of clients are happy to repay the loan by equal monthly installment. Clients know when where and how they will repay the money. Charts: 8 Client repay
Client Repay Monthly Installment
80% 60% 40% 20% 0% Series1 Yes 75% No 25%
Risk Factors
•
Amount Related Risk: This type of risk arises when incorrect loan amount, interest rate, tenure or charges are posted in vouchers. Approval Related Risk: This type of risk is involved when the loan is disbursed without checking the approving authority of the respective credit approvers.
•
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Small and Medium Enterprise Loan of Pubali Bank Limited
•
Security Document Checking Risk: This type of risk arises when the security documents (post dated / blank cheques, FDR slips, DP notes, etc.) are not checked properly. Manual Error Risk: Error risk is involved in preparation of manual MIS reports. Land Related Documentation Risk: This type of risk is associated with proper valuation of land and preparation of mortgage documents. Error Entry Risk: This type of risk arises when incorrect cost centers, product codes or A/C heads are posted. Repayment Collection Risk: This type of risk is involved when repayment collection of SME loans are credited in wrong Bank accounts. Deposit slips should be sent through automated process from the unit offices. Loan Provision Risk: This type of risk arises if the adequate loan provision is not created. Fake Document Risk: Risk is involved if the documents provided with loan are false at all. Manual BB Returns Risk: BB returns (CL, CIB, SBS, Sector wise statement, etc) are prepared manually and this process arises accuracy risk. Risk for Disbursement: Absence of Automated Data Template arises disbursement risk. Time-bar Risk: Science service level agreement with other departments is not established yet failure of time schedule risk arises as all services are provided on demand. Credit Matrix Risk: This type of risk arises when there is insufficient support from MBS automation for updating credit matrix. Lease Module Risk: This type of risk exists because there is no automated leasefinancing module, which is most urgent requirement. Legal Risk: As there is no in house lawyer, legal risk is involved with day-to-day document preparation and checking. Lake of Skilled Manpower Risk: Loan administration needs skilled manpower to smoothen the whole operational process. Disbursement Pressure Risk: This type of risk arises when corporate loans are sometimes disbursed for the pressure of business unit without regularizing documentation requirements and deferral cases are not regularized in time.
• •
•
•
•
•
•
• •
•
•
•
•
•
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Small and Medium Enterprise Loan of Pubali Bank Limited
•
Lake of Knowledge of MBS Risk: Adequate knowledge and absence of training on MBS arises operational risk for Loan Administration department. Besides MBS operational manual should be available to all employees. Fire Accident Risk: This risk exists because there is no fireproof file cabinet in the vault; moreover fire extinguishments equipments are not sufficient. Documents Movement Risk: SME documents are frequently moving from the vault for the business analyzing part of the file; which arises risk for misplacing of the documents. Over Work Load Risk: Huge pressure of loan disbursement within the stipulated time bar causes late sitting of the employees; so error risk arises for over workload.
•
•
•
6.2 Suggestion & Recommendation
Pubali Bank has a strong network of having a number of branches all over the country. So, If it works hard in SME section, it can reduce poverty. This loan sanction procedure is very easy and the client can get loan easily so OD loan percentage is increasingly. Bank should take step to reduced OD and sanction loan carefully. Salary at Pubali Bank is really low in compared to other top level private Banks of our country. If bank increase salary employees will work very hard and disburse, recovery will be increase. The relationship of SME and other level of bank is not well so relationship of them will be developed. The bank should provide training to the SME officials so that they can work efficiently and customer selection process will be more efficiently. The number of employees & Officers should increase for operating official activities smoothly.
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Small and Medium Enterprise Loan of Pubali Bank Limited
6.3 Conclusion
Pubali Bank was set up with the growing need for capital mobilization and the need for formal contracts for a wider spectrum of clients of the country. When it came to SME financing, instead of approaching the problem by scaling down its regular operations, a separate program designed especially for SME financing was launched by Pubali Bank recently. Pubali Bank’s effort is noted in this regard for its complete focus on the credit needs of the small and medium enterprises. Pubali Bank Limited is one of the largest bank of our country having 386 branches in 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.Again, according to the CAMELS rating it has on an average rank 1 in its different basic parameters. Even though Pubali Bank’s different performance parameters are good, it should expand its operations to the rural mass people who basically are deprived from different quality services of Pubali Bank Limited
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Small and Medium Enterprise Loan of Pubali Bank Limited
Appendix
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Small and Medium Enterprise Loan of Pubali Bank Limited
PBL B.M R.M BB RO CIB SME ZM
: PUBALI BANK LIMITED : BRANCH MANAGER : REGIONAL MANAGER : BANGLADESH BANK : REGIONAL OFFICE : CREDIT INFORMATION BEURUE : SMALL AND MEDIUM ENTERPRISE : ZONAL MANAGER
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Small and Medium Enterprise Loan of Pubali Bank Limited
Bibliography
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Small and Medium Enterprise Loan of Pubali Bank Limited
Annual Report of the Pubali Bank Limited 2009, 2008. Francis, J.1991. Management Anticipation of Interest Rates: The Case of Commercial Banks. Journal of Business Finance & Accounting 18(5): 675-695. Holland, J. 1994. Bank Lending Relationships and the Complex Nature of BankCorporate Relations. Journal of Business Finance & Accounting 21(3): 367-393. Laitinen, E. K.1991. Financial Ratios and Different Failure Process. Journal of Business Finance & Accounting 18 (5): 649-972. Majumder, N. H. and S. Harun-ar-Rasshid. 2004. Project Appraisal Report. Journal of BIBM Bangladesh Bank (BB). 2006. Bank Regulation and Policy Deaprtment: Credit Risk Managemnt: BB. Product program guide of Pubali Bank Reichert, A. K.1991. A Comparison of Commercial Bank, Thrift, and Mortgage Bank Real Estate Lending Activity. Journal of Business Finance & Accounting 18(4):593-607. www.pubalibangla.com
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CHAPTER
1
.
INTRODUCTORY PART
1
Small and Medium Enterprise Loan of Pubali Bank Limited
1.1 Introduction
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. This sector accelerates 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. Banks deal with the most important factor of the economy i.e. Money. It flows funds from surplus unit to deficit unit and through this it facilitated the efficient allocation of the resources as well as accelerated economic growth. As the pace of globalization competition in banking sector is increasing very fast. Banks are becoming more customers oriented and offer High tech customized products to it’s target market to hold the market .To days SME sector is more important. Our central bank always keep monitoring banks performances. For Shareholders. For depositor. For Bangladesh Bank. For its own Assessment to view the future growth and profit treed.
1.2 Origin of the Study
This Internship Report is prepared on MBA program. The study paper based on the SME Loan. A case of Pubali Bank Limited in Bangladesh. To fulfill the report properly I have study industry analysis, overview Prospect and performance analysis of Pubali Bank Limited. My supervisor Mr Mohammad Salahuddin Southeast University, authorized me to prepare it.
1.3 Objectives of the study
Broad Objective
To know details of SME loan in Pubali Bank Limited The functions of SME, Operation, & conducted by Pubali Bank in the urban, rural and remote areas of Bangladesh.
Specific Objectives
To know company background and industry analysis. To find strategic marketing theories related to SME of Pubali Bank. To analyze of SME loan of Pubali Bank.
To know performance of Pubali Bank SME Loan. To know prospects of Pubali Bank SME loan. To prepare finding and recommendation.
1.4 Sources of data
In conducting the study, data and information have been collected from different sources. All these data were collected from the secondary & primary sources. The sources of data include the following:
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Small and Medium Enterprise Loan of Pubali Bank Limited
Primary Sources are as follows:
Personal observation Discussion with Bank’s officers Desk work in different section/division
Secondary Sources are as follows:
Different statements of Bank Annual report of Pubali Bank Limited Consultation of related books and publications Vouchers, leaflets, loan files, of the bank Files, balance sheet and various documents of Pubali Bank Limited
Processing of Data:
After collection of the raw data using the following computer packages had done editing and processing MS-Excel MS-Word
Data Analysis: The classified and tabulated data has been analyzed elaborately in a number of tables in the analysis part.
1.5 Methodology
• • •
The study is a result of the discussion with my supervisor. Following a report sample. Prepare comparative Analysis.
1.6 Limitations
The study has suffered from a number of barriers. Data from Pubali Bank is highly confidential. The information of Pubali Bank Ltd was not found in a structured way. Restriction of management. Inaccurate and contradictory information.
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
2
Company Background
4
Small and Medium Enterprise Loan of Pubali Bank Limited
In this chapter, we can get the overall idea about Pubali Bank Limited Along with its impact on Bangladesh economy. Here is also shown the vision, Mission, Goals and objective. Different wings and its objective of PUBALI BANK have been shown in a brief. Again the product and services of this bank has reflected in this chapter.
2.1 History of Pubali Bank
The Bank was initially emerged in the Banking scenario of the then East Pakistan as Eastern Mercantile Bank Limited at the initiative of some Bangalee entrepreneurs in the year 1959 under Bank Companies Act 1913 . After independence of Bangladesh in 1972 this Bank was nationalized as per policy of the Government and renamed as Pubali Bank. Subsequently due to changed circumstances this Bank was denationalized in the year 1983 as a private bank and renamed as Pubali Bank Limited. The Government of the People's Republic of Bangladesh handed over all assets and liabilities of the then Pubali Bank to the Pubali Bank Limited. Since then Pubali Bank Limited has been rendering all sorts of Commercial Banking services as the largest bank in private sector through its branch network all over the country. Percentage of Shareholders Directors Cooperative Societies Banks and Financial Institutions Government Other Institutions Non Resident Bangladeshi General Public 11.30% 4.40% 9.11% 0.0002% 11.04% 3.4% 60.75%
2.2 Workforce
Total number of employees stood at 5,375 as on December 31, 2010.
2.3 Branches
Total numbers of branches are 400 as on December 31, 2010.The Principal Branch (Head office) of PUBALI BANK LIMITED is at 26, Dilkusha Commercial Area, Motijheel, Dhaka-1000.
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Small and Medium Enterprise Loan of Pubali Bank Limited
2.4 Brand Promise:
“OITIJJER PATH BEYE ORTHONOITIC AGGRAGATI”
2.5 Vision
To hold the position of best private commercial Bank in Bangladesh with adherence to meticulous compliance of rules and regulations and strong commitment to Corporate Social Responsibility.
2.6 Mission:
To become most remarkable and admirable private commercial bank in the country. To get recognition as a dynamic,innovative and customer service oriented bank. To keep momentum of continuous & steady growth with maximum transparency and to diversity products and resources. To expedite continuous up date of information and technology with all modern facilities to cope with demand and challenges of the time.
2.7 Corporate Objectives
• • • • Growth Value Addition Corporate Social Responsibilities Quality Standard
2.8 Aim
• • To match Corporate objectives, with Ownership and Accountability. To increase our value by releasing each individual’s potentials.
2.9 Corporate Structure
The management of the bank is vested in a 14-member board of directors with the managing director as its chief executive.All the directors have good academic background and have huge experience in banking sector. Mr. Hafiz Ahmed Mazumdar MP is the Chairman of the bank. The board of directors holds meetings on a regular basis. The current board of directors' name and management structure are given in the following table.
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Small and Medium Enterprise Loan of Pubali Bank Limited
2.10 Board of Directors
Name Mr. Hafiz Ahmed Mazumdar Mr. Moniruddin Ahmed Mr. Sk. Wahidur Rahman Mr. Monzurur Rahman Mr. Giashuddin Ahamed Mr. Ahmed Shafi Chowdhury Mr. Fahim Ahmed Faruk Chowdhury Mr. Habibur Rahman Mr. Mohammed Yaqub Mr. Muhammad Faizur Rahman Mr. Mustafa Shariar Ahmed Mr. Syed Moazzem Hussain Ms. Rumana Sharif Designation Chairman Director Director Director Director Director Director Director Director Director Director Director Director
2.11 Management team
Managing Director & CEO Mr Helal Ahmed Chowdhury Deputy Managing Director There are 4 DMD in PBL General Manager There are 17 General Mangers. Consultant There are 2 consultant of the Pubali bank Deputy General manager There are 52 Deputy General Manager Principal training institute Mr Badruddin Ahmed Asst General manager There are 131 Asst General managers
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Small and Medium Enterprise Loan of Pubali Bank Limited
2.12 Division of Head Office
Division name Board & MD's Secretariat Division Human Resources Division Establishment Division Law Division International Division Credit Division Credit Monitoring & Recovery Division Consumers Credit Division Audit Division Central Accounts Division Information Technology Division Lease Financing Division Internal Control & Compliance Division General Services and Development Division
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
3
Analysis of SME Loan of Pubali Bank Limited
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Small and Medium Enterprise Loan of Pubali Bank Limited
SME loan is of the products and services of Pubali Bank Limited, which is described elaborately in this chapter. Here the purpose of SME loan, types and nature of SME loan, SME activities in terms of market, Selection criteria of potential enterprise for SME has described. At last the loan sanction and monitoring process mentioned in brief.
Analysis of SME loan: Pubali Bank 3.1 SME Banking
The most valuable natural resource of Bangladesh is its people. This missing middle group is the small but striving entrepreneurs, who because of lack of fund cannot pursue their financial uplift, as they have no property to provide as equity to the commercial banks. With this end in view-Pubali Bank was opened to serve these small but hard working entrepreneurs with double bottom line vision. As a socially responsible bank, Pubali Bank wants to see the emancipation of grass-roots level to their economic height and also to make profit by serving the interest of missing middle groups.
3.2 SME Products
Although Pubali Bank is one of the oldest bank in our country but it has started its SME operation just recently under the consumer credit division. Pubali Bank has only three categories of SME loan. These are as follows: 1. Subarna Rin 2. Karmo-Uddog Rin 3. Sujan Rin
These are elaborately described below: Suborna Rin Purpose To meet the working capital requirement of SME business. Eligibilty
Minimum 2 years experience in the respective line of business Business must be going concern with more than 1 year of successful operation Satisfactory credit report from Bangladesh Bank Bank account in the name of the firm or the proprietor. Age of the borrower must not less than 18 years.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Maximum Amount From minimum BDT 2 lac up to maximum of BDT 10 lac.
Features Loan without collateral Hassle free loan and quick processing time Repayment in 12/24/36 monthly installment considering requirement of the borrower Personal Guarantee of a person acceptable to bank strong personal net worth. Hypothecation of goods, machinery, and equipment.
Repayment Repayment of the loan will be started after 1/2/3 months of disbursement by equal monthly installment as the case may be.
Karmo-Uddog Rin
Purpose To meet up short term fund requirement of SME business To meet up short term fund requirement of SME business run by women entrepreneur. Eligibility
Minimum 2 years experience in the respective line of business Business must be going concern with more than 1 year of successful operation Satisfactory credit report from Bangladesh Bank Bank account in the name of the firm or the proprietor. Age of the borrower must not less than 18 years.
Maximum Amount Starting from BDT 2 lac to maximum of BDT 10 lac Features Loan without collateral Hassle free loan and quick processing time Repayment in 12/24/36 monthly installment considering requirement of the borrower Personal Guarantee of a person acceptable to bank strong personal net worth. Hypothecation of goods, machinery, and equipment. 11
Small and Medium Enterprise Loan of Pubali Bank Limited
Sujon Rin
Purpose To purchase capital mechinary, office equipment, covered van, pick-up van etc.
Eligibility
Minimum 2 years experience in the respective line of business Business must be going concern with more than 1 year of successful operation Satisfactory credit report from Bangladesh Bank Bank account in the name of the firm or the proprietor. Age of the borrower must not less than 18 years.
Financing Range Maximum 90% of fixed assets to be purchased but not over Tk 10 Lac. Features Loan without collateral Hassle free loan and quick processing time Repayment in 12/24/36 monthly installment considering requirement of the borrower Personal Guarantee of a person acceptable to bank strong personal net worth.
3.3 Basic Appraisal of Small &Medium Enterprise
Business or project appraisal is a technique of evaluating and analyzing Business from various aspects, primarily the risks associated with that business enterprise. At the time of appraisal of any manufacturing, trading or service related organization, factory or industry; one has to perform a feasibility study on the different aspects. These are: a. b. c. d. e. f. Management and Personal Aspects Technical Aspects Marketing Aspects Financial Aspects Social Economic Aspects Security Aspect
a. Management and personal aspects: During the appraisal prosecute the R.O should endeavor to obtain details about the prospective borrowers, some of which are: i. Business related information 12
Small and Medium Enterprise Loan of Pubali Bank Limited
ii. Credit History iii. Liquidity Information iv. Management Background In considering the above, one should look at the business is managed. The R.O should also consider clients previous credit history like facilitates sought and availed, loan repayment an overdue record, if any. One should also check the client bank account and amount of balance maintained. Management’s qualification, experience, successor and maintenance of records should provided insight in to the business. b. Technical Aspects: From a business perspective, this aspects deals with design of the system in place, the operation of the business, the different type of physical resources used, the technology used, the capacity to handle business and all other inputs (labor, raw materials, utilities etc.) Among the technical factors to be investigated during an appraisal are: • • • • • • • • The size of project The process, materials, equipment, and reliability of technical systems to be used Location of projects Sustainability of the plans, layout and design used Total quantity of the goods /Service produced/Traded monthly Environment of the business and its surrounding areas Availability to various factors of production, both physical and human Raw materials availability, price level and its variation to be considered
c. Marketing Aspects: A R.O should consider the following factors of a business before making any loan commitment with a customer. Total demand and supply of the products in the market that the business operates in growth of sales and major marketing threats that the business may face. d. Financial Aspects: This aspect allows us to check the financial health of a business, Through an analysis of the profit and loss account, balance sheet, cash flows, ratios and requirement of working capital. If the collection of the financial data can be done properly, then it may be able to make a somewhat realistic picture of the business financial position. However, all the data collected must be cross-checked as much as possible with the physical features of business. The following things are to be considered at the time of verifying the financial feasibility of the business:
Current year’s profit/Loss of the business and probable profitability of business after taking the loan 13
Small and Medium Enterprise Loan of Pubali Bank Limited
Destination of assets, liabilities and net worth of the manufacturing/ trading / service institution before and after taking loan Present net cash flow of the business after disbursement of loan should be destined, To know the cash position of the institution To know the source of income, production and other expenditure of the business probable financial risks of the business
e. Socio Economic Aspects: Here the analyst like to observe the contribution of the business to the country’s GDP, the employment generated, the sort of adverse impact of the business on the environment, if an other benefit to the country. g.Security Aspects: Along with observation of different aspects and views of the projects, the R.O should also see closely the aspects of the projects and ensure about the reliability to the mortgaged property/assets. Ensure proper survey or verification of the security offered Ensure attachment of survey report.
3.4 Reason of SME program from the view point of Pubali Bank
The main focus of Pubali Bank is to develop human and economic position of a country. a. Support Small Enterprise: The small enterprise which requires 2 to 10 lacks taka loan, but these has no easy access to the banks/financial institutions. b. Economic Development: Economic development of a country largely depends on the small and medium seal enterprises. c. Employment Generation: The bank gearing employment opportunities by two ways: Firstly, by providing loan to the small enterprises expanding, these business requires more workers. Secondly, Small & Medium Enterprise (SME) program requires educated and energetic people to provide savories to entrepreneurs. d. Profit Marking: SME program is a new dimensional banking system in the banking world. The entrepreneurs are satisfied by the service of this bank and the bank also makes more profit. e. Encourage Manufacturing: A focus of Pubali Bank is to encourage manufacturing by the entrepreneurs who are producing by purchasing various types of materials. f. Spread the experience: Another reason of Pubali Bank is to spread the knowledge of regarding various businesses. 14
Small and Medium Enterprise Loan of Pubali Bank Limited
3.5 Selection of Potential Enterprise for SME Enterprise Selection Criteria
The success of SME will largely depend on the selection of a business and man behind it. In studies of the business (Enterprise), the following attributes should be sought: 1. The business must be in operation for at least one year 2. The business should be environment friendly, no narcotics or tobacco business 3. The business should be legally registered, i.e., valid trade license, income tax or VAT registration, wherever applicable. 4. The business should be in legal trade, i.e.; smuggling will not be allowed or socially unacceptable business will not be entertained. 5. The business must have a defined market with a clear potential growth 6. The business must be located ideally close to the market and the source of its raw materials/suppliers. It should have access to all the utilities, skilled manpower’s that are required. 7. Any risk assessed by the management in turn will become a credit risk for the bank. So effort should make to understand the risk faced by the business.
Guarantor Selection Criteria
Equally important is the selection of a guarantor. The same attribute applicable for an entrepreneur is applicable to a guarantor. In addition he should posses the followings: 1. The guarantor must have the ability to repay the entire loan and is economically solvent ( Check his net worth) 2. Govt. and semi-govt. officials can be selected as a Guarantor such as schoolteacher, college teacher, doctor etc. 3. Police, BDR and Army persons, political leaders and workers, and Imam of mosque can not be selected as a guarantor. 4. The guarantor should know the entrepreneur reasonable well and should preferably live in the same community
Monitoring
So monitoring is an essential task for R.O to know the borrowers activities after the loan disbursement.
Importance of Monitoring
Through monitoring a R.O can see whether the enterprise invested the sanctioned amount in the pre-specified area of his business, how well the business is running, the attitude of the entrepreneur, cash credit sales and purchase, inventory position, work in process and finished goods etc, This information will help the Pubali Bank to recover the loan accruing to the 15
Small and Medium Enterprise Loan of Pubali Bank Limited
schedule and to take the necessary decisions for repeat loans. Moreover, monitoring will also help to reduce delinquency.
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 RO 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. b. Production: The R.O will monitor the production activities of the business and if there is any problem in the production process, the RO will try to help the entrepreneur to solve the problem. c. Sales: Monitoring sales proceed is another important task of the R.O it will help him to forecast the monthly sales revenue, credit sales etc. which will ensure the recovery of the monthly loan repayments from the enterprise as well as to take necessary steps for future loans. d. Investment: It is very important to ensure that the entire loan has been invested in the manner invented. If the money is utilized in other areas, than it may not be possible to recover the loan. e. Management of raw materials: If more money is blocked in raw materials then necessary, then the enterprise may face a fund crisis.
Monitoring System
a. The R.O can consider the following things for monitoring: The R.O will monitor each business at least once a month. During monitoring the R.O must use the prescribed monitoring from and preserve in the client file and forward a copy of the report to SME head office immediately. b. A SME branch will maintain the following files: Purchase Receipt, Delivery Memo’s, Quotations and All other papers related to furniture and fixture procurement
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Small and Medium Enterprise Loan of Pubali Bank Limited
c. Other fixed assets and refurbishment
All fixed assets and refurbishment related papers such as purchase receipt, Delivery memo’s, Quotation, Guarantee and Warrantee papers, Servicing related papers and any other paper related to fixed assets are refurbishment will be in this file. d. Lease agreement file This file will contain all papers related to lease agreement between the SESDS office and owners of the leased premises e. Individual client file Individual files are to be maintained for each borrower and will hold loan application, Loan Proposal, Copies of Loan Sanction Letter, Disbursement Memo, Monitoring Report, CIB application and Report, Credit report from other bank and all other correspondents including bank receipt. f. Statement file All types of statement sent to SME head office will be kept in this file chronologically g. Office instruction file All kind of office instruction regarding administration should be kept in this file. h. Operating instruction and guideline files. All kind office instruction and guidelines related to operating should be kept in this file i. New forms introduction file All minutes of meeting, whenever held, should be kept in this file. j. Security documents and legal aspect file One set of security documents and lawyer’s opinions and suggestions regarding issue will be kept in this file. The original should be send to SME head office on a weekly basis k. Survey form file After conducting survey, all survey will be kept in this file chronological.
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
4
Performance of Pubali Bank Limited
18
Small and Medium Enterprise Loan of Pubali Bank Limited
In this chapter we will know about the performance of Pubali Bank Limited In short and also the credit division and its structure. The activities of credit division and its performance can know by any one from here.
4.1 Overall performance of Pubali Bank Limited
Share Capital Authorized capital and paid up capital of the bank stood at Tk 5000.00 million and Tk 3822.00 million respectively in 2010. Out of total 30899 shareholders, Bangladesh Govt. held 93 share of taka 9300.00 while the remaining share of paid up capital Tk 3821.99 million were held by various institutions and individuals. Statutory and Other Reserve At the close of 2010 the statutory and other reserve of the bank stood at Tk 5687.25 million. Out of which statutory reserve was Tk 3152.72 million and other reserve was Tk 2534.53 million. Total reserves was Tk 4606.82 million at the end of the 2009. Deposits The deposit trend was positive in 2010. At the end of 2009 the total deposit was Tk 73016.53 million that came to end to Tk88466.46 million at the end of 2010 showing 21.16% increase. Out of total deposit, time deposit and demand deposit were Tk 27432.48 million and 61033.98 million respectively i.e 31.01% and 68.99% respectively. Borrowing from other Bank In 2010 the Bank borrowed Tk 427.25 million for business purpose compare to Tk 393.07 million during previous period. Advances Total advances of the bank as on 31 December 2010 stood at Tk 74203.33 million that showing an increase of Tk 12415.18 million @ 20.09% growth. In line with national economic development, the bank made advances to mainly as commercial loan, Import and export business, term loan to large and medium scale industries, House building loan, Working capital loan , and consumes credit and syndicate loan etc.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Investment Total investment of the bank was 12168.65 million during 2010.In comparison to previous year total investment was increased by Tk 3793.06 million @ 45.29% growth. The Bank mainly invested in Govt. Bond, Treasury Bills, approved debenture of private institutions.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Foreign Exchange Business A) Import Business During the year the bank handled import business worth Tk 60490 million. During the previous year the amount of Tk 58010 million. The amount of import business handled by the bank increased by Tk 2480 million during the year which was 4.28% higher than the previous year. B) Export Business The bank handled export business of Tk 24740 million during the year as against Tk 24790 million in the previous year. C) Inward Foreign Remittance Nonresident Bangladeshi sent foreign remittance equivalent to Tk 35250 million through the bank 2010 whereas the amount was Tk 28190 million in 2009. Position of Profit and Loss Total operating income and total operating expenditures of the bank during the year 2010 were Tk 6898.27 million and 3058.80 million respectively resulting a profit of Tk 3839.47 million before making provision for bad and doubtful debts and income tax. During the year the bank made a provision of Tk 170.00 million against the loans and advances, diminution in value of investments exposure of Off balance sheet items and provision of Tk 1577.24 million against the Corporate income tax and differed tax. As such the net profit of the bank stood at Tk 2092.23 million which the Board of Directors propose to appropriate in the following manner. Particulars Net Income Transferred to statutory reserve Transferred to General reserve Amount (million) 2092.13 733.89 1358.34
Bank Expansion and Modernization The bank expanded its operation through opening 15 (Fifteen) new branches at deferent places during the year 2010. As such the total no of branches of the bank stood at 400 all over the country. More over number of branches were shifted to new premises in more suitable places and a large number of branches were refurnished and modernized. 4.2 SME Performance of Pubali Bank 21
Small and Medium Enterprise Loan of Pubali Bank Limited
SME loan department of pubali bank has just recently started. So, It has not made any thing important to mention. Pubali Bank Limited disburse only Tk 60.9 million to the total number of 92 clients as on 31 march 2010 as Small and Medium Enterprise loan.
4.3 Client Selection and Sanction
The branch manager should be more prudent and show utmost diligence in selecting potential customers/ borrower. After sending proposal to R.O along with related papers for approval the R.O will scrutinize the same with extra care as collateral is not mandatory for most of the loan under SME financing up to Tk 10 lac and under discretion of the R.M(Regional manager). The R.M should satisfy himself after threadbare discussion with B.M(Branch Manager). Personal /physical verification of borrower’s business site and go down/showroom by the R.M is required for each and every case under SME.
Disbursement
Single time disbursement is applicable for all the SME financing schemes. Before disbursement the B.M will obtain a request letter from the borrower for disbursement.
Post dated cheque as security 12/24/36 numbers of cheque will be collected from the borrower as security considering the tenure of the loan, which will be collected on monthly basis. Memorandum of deposit of cheques The borrower will submit equal no of post dated cheques on the basis of the tenure of loan and repayment sequence. As SME finance of PBL is repayable on monthly installment basis one cheque for each month to be obtained from the borrower. After receiving the cheque the designated officer will make entry of all the cheque in memorandum of deposit cheques mentioning the following: Drawee Bank and Account no Cheque no Branch name Date Amount
These cheques must be duly signed by the borrower. The post dated cheque m received from borrowers must kept under custody of SME designated official under lock and key. There must be no deviation from this.
4.4 SME Loan Repayment/ Recovery Procedures
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Small and Medium Enterprise Loan of Pubali Bank Limited
Repayment will be started after 1/2/3 months of disbursement of all the loans under the SME financing Program. Each post dated cheque will be collected on monthly basis. The designated official of the branch is responsible for recovery of the loan under the SME scheme. The officer will inform the borrower personally over telephone or through letter at least 7 days earlier of the payment date. He along with the B.M must ensure regular repayment of SME loans. Remind letter must be issued to borrower after 2 days of overdue if any installment remains unpaid. The Regional Office (R.O) will monitor the disbursement and recovery process of SME loan. The R.M will always make close contact with the branch and guide the branches in selecting borrower’s as well as recovery of SME loans. It is the sole responsibility of both B.M and R.M to keep the SME portfolio a classification free one.
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
5
Prospects of Pubali Bank SME Loan
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Small and Medium Enterprise Loan of Pubali Bank Limited
In this chapter we can know about the future plan of PUBALI BANK SME Loan division.
5.1 Importance of SME
Today importance of SME could not ignorable. Here are some reasons why SME is so important now: • • • • • • • • • SMEs are Essential for a Competitive and Efficient Market SMEs are Critical for Poverty Reduction SMEs Play a Particularly Important Role in Developing Countries SME sector is the largest provider of employment in most countries, especially of new jobs SMEs are a major source of technological innovation and new products SMEs with high turnover and adaptability play a major role in removing regional and sector imbalances in the economy Easy entry and exit of SMEs make economies more flexible and more competitive Large number of SMEs creates competitive market pressure SMEs also play an essential role as subcontractors in the downsizing, privatization and restructuring of large companies
5.2 Development of SME
Customer Handling
In our country there are about 52 banks working with the people with varieties of their attractive products and services and there is a high level amongst competition each other. For sustaining, they offering various types of innovation for better service for the clients, so, to reach the closer best to the clients direct marketing gaining momentum in the country. In terms of SME, its targeted entrepreneurs are the subjects of dealings to achieve the objectives of Pubali Bank and its policy is to contact with clients directly with a confident manner.
• • • •
Conducting Survey Properly Individual contact with entrepreneur for selecting potential borrower Deliver Pubali Bank’s products and other services Keeping in close touch with clients to develop mutually beneficial long term relationship . 25
Small and Medium Enterprise Loan of Pubali Bank Limited
5.3 Macro Environmental Analysis
It is very important to carry out a macro environment scanning for the banking industry in order to identify and analyze the external factor that affected the growth and development of the banking sector in Bangladesh. A through analysis of the macro environment in which the banks operate will allow the banks to develop pro-active strategies and navigate the organization in the turbulent ocean of competition. The financial institutions are always heavily influenced by the macroeconomic conditions both globally, regionally or locally. The key macroeconomic indicators like GDP growth rate, inflation, industrial growth rate, expansion of trade and commerce and other factors affects the operations and the pricing strategy of the bank. Pubali Bank Limited (PBL), since its inception has achieved a steady growth rate. However, the present economic downturn or recession is affecting PBL’s operations. The country is now under a deep recession having a major decline in industrial growth rate, galloping inflationary pressure, and decline in international trade with export targets for the fiscal year yet to be achieved and other factors will eventually affect PBL and other banks pricing strategies. Many banks will have to revise the interest rate structure for its various services in order to cope with economic slowdown. However, SME results for PBL is quite satisfactory, as they have surprised their stipulated targets despite the economic sluggishness going on in the country. Some practical example is as follows: If the savings rate in our country decreases the purchasing power of our people will decreases. The demand for taking loan from bank will decline and client cannot repay the loan properly. On the other hand, if it is increase extremely then purchasing power will increase but people will have enough cash on hand which will reflect by not taking loans from financial organizations. So everything should be balanced. Another example like- if the interest rate increases then people will not be interested for taking loans and as well as client will be unable to make profit by taking loans. On the other hand, if it decreases then bank will not be able to make profits quickly. So it would be considered for balancing both sides. Unemployment is another whether too much unemployment can affect the industry to understand the business properly. So this sort of impact might occur in the environment, which could have handled properly.
Demographic Environment
Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics. The demographic environment is of major interest to marketers because it involves people and people make up markets. In terms of SME requirements customer is the main part of bank. If there is, no client there is any business. According to the location Pubali Bank SME unit offices already has reached in every cities around the country for providing door-to-door facilities. Some key factors of demographic environment are- urbanization, education, living standard etc. For example-In terms of urbanization, lots of new business and enterprises are growing rapidly in the city or 26
Small and Medium Enterprise Loan of Pubali Bank Limited
town. So more banks can be aggressive for providing loans in newly developing areas. For having new banks in the city, the standard of living will increase for the people. Education is another major factor for developing a nation. Without literacy standard of living could not come for individuals. Therefore, each and every factor is interrelated to each other.
Economic Environment
Factors that affect consumer buying power and spending patterns. SME is very careful regarding economic issues in the country. Customer relation office is always keen to check purchasing materials and leading lifestyle of the client. Because if the economic condition of a client become bad then he/she might not repay the loan. On the other hand if war occurs between the two countries then price of the products will increase and people will loss purchasing power. In this way, organization might affect economically. On the other hand, A steady growth rate with continues market oriented reforms will contribute positively by expanding the volume of business and profitability of the bank. In an economy, a steady growth means there will be more investment, savings, and consumption in the economy. As a result, bank also gets more deposit and more projects for credit disbursement. After disbursing the loan, if the economic condition of the business is being poor then Pubali Bank regenerates the repayment schedule of the client to repay the loan. On the other hand if the economic conditions rise up then client repay the whole amount in favor of Pubali Bank Limited.
Social Environment
As banks are service-oriented organizations, they always have to consider the attitude of the customer. Customer now wants a speedy service accompanied by attractive and well decorated impressive branches with customer friendly officers providing tailor made services to the customers. SME of Pubali Bank impressive office has already earned a reputation for the bank and has attracted lots of potential customers around the country. In order to match with the customer needs, banks are also increasing varieties of products such as single short products, different short and medium term products and other services.
Political Environment
The political environment consists of law, government agencies and pressure groups that influence and limit various organizations and individuals in a given society. SME of Pubali Bank has to abide national laws like festivals, holidays. On the other hand, hartals, strikes, barriers can affect the economic condition of SME of Pubali Bank Limited. Under the latest World Bank, recommendation the banking division of the ministry of finance is being abolished a step further in providing autonomy to Bangladesh Bank. The emergence of PBL SME and other contemporary banks and the arrival of the foreign banks are all due to the on going reforms in the financial sector of Bangladesh. PBL is restricted to provide loans for the political leaders. Customer services officers of Pubali Bank always avoid political leaders who carry out business. But if any pressure occurs from the political sides to have the loan the top management handles the situation but never give the loan to them. 27
Small and Medium Enterprise Loan of Pubali Bank Limited
Technological Environment
Pubali Bank of SME division has a strong network in the whole country. The main head office is in the capital city from which it operates with all the unit offices by means of mobile telephone. In the near future, SME might hand over the palmtop computer to all customer services offices to provide accurate and quick service to the clients.
Ecological Environment
Sometimes ecological environment can turnout the business of the clients. Foods, disasters can affect the business after having the Pubali Bank loans or fire can burn out the whole business. To protect from these disasters Pubali Bank do the insurance policy with the joint names of the client. So that client can get feedback from the insurance policy to run again his business. If client do not get support from the insurance company then Pubali Bank give time or generate the client repayment schedule.
5.4 Micro Environmental Analysis
Marketing management job is to attract and build relationship with customers by creating customer value and satisfaction. It depends on other factors in the organization microenvironment- suppliers, customers, competitors; various publics that make up the organizations value delivery system. The company needs to study its customer marketer closely in terms of Small and Medium Enterprise of Pubali Bank Limited and their customers group is specified. Their target group is only Small and Medium Enterprise client. The R.O closely monitor and try to build good report with clients. On the other hand corporate clients are different to have the loan. Each market type has special characteristics that call for careful study by the marketer. In terms of SME, most clients are carrying out trading business rather than manufacturing business. Few clients are attached with service business like pharmaceutical, hospital, homeopath etc. In the trading business clients want loans to meet their working capital requirement. On the other hand, client wants 10-15 for purchasing fixed assets. In our country mostly 35-40 years old clients are carrying out loans regarding the type of their business. The clients who interested to take the loan of SME then they have maintained at least one year running business. It is a policy of this bank because in the mean while client can understand his business and can set a future plan. The educational qualification of our clients is very poor. Clients are under graduate but carry out good business. SME support their clients who are carrying out good business and also give suggestions and guidelines to develop their business. If any client has maintain loans with other banks then SME is restricted to provide loans for that clients. The client needs clearance certificate to get the loan from the Pubali Bank. It has been found out that in our country most clients need small loans to develop their own business. The world is being globalizes and modernized. Therefore, client takes risks to 28
Small and Medium Enterprise Loan of Pubali Bank Limited
enhance and develop their business and Pubali Bank is a good helping hand to help them. In our country, clients want more time to repay the loan. Pubali Bank gives adequate time for the client to repay the loan whether they can get benefit from it. Clients are very happy to repay the loan by equal monthly installment. Clients know the right time to repay the loan at the right place. But in the pick season, most client wants short fund requirement to carry out good business. Regarding interest rates, clients are not talk about more because clients get the loan at the right time from the Pubali Bank. Clients are also happy by the issuance of security preferences because they do not have to provide any collateral security for hypothecation or unsecured loans. SME of Pubali Bank networks has everywhere in Bangladesh. So clients can have the SME loans wherever his business exists in the country. In addition, clients get the fast service from the Pubali Bank. The purpose of this loan is the economic development in our country, which might divert the clients mind after having the loans for expansion. Many clients have ambition to expand from trading to manufacturing business to generate more profit. When a R.O would visit a business, the client must provide the proper and right information and show the right documents for justifying a good client. If any R.O feel bad smell in the business then the R.O reject that client without concerning the management. So clients should be feel comfortable to provide proper information to have the loan.
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Small and Medium Enterprise Loan of Pubali Bank Limited
CHAPTER
6
Finding and Recommendation
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Small and Medium Enterprise Loan of Pubali Bank Limited
6.1 Finding Different categories of business:
In studys of survey analysis, it found that 55% of the clients are involved on trading business on the basis of banks enterprise scenario. Almost 30% sample clients are carrying out manufacturing business in our country and few are engaged in service business Charts:1 Different categories of business
Different Categories of Business
60% 50% 40% 30% 20% 10% 0% Series1 Trading 55% Manufacturing 30% Service 15%
The loan area preference:
Customers mentioned that they prefer their business area, which are close to their premises. It helps them to carry out their own business by staying in close and have mental satisfaction. Some clients commended that it would be risky if the location of the business is become far.
Age limit of the client:
According to the survey, most of the clients are carrying out business whose ages are between 30 to 50. It has been found that few clients are on above 50. SME believes that in studys of our age limit in this country it will be very risky to provide loans above 60 aged clients.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Charts:2 Age of clients
Ag e of C lients
50% 40% 30% 20% 10% 0% B elow 30 S eries 1 33% B etween 30 to A b ove 50 50 47% 20%
Business maintains other loans or not: It could be analyzed that most of the clients do not maintain taking Pubali Bank SME loans. Small amount of clients are maintaining personal loan and few are carrying out lease financing for their internal activities.
Educational qualification of the clients:
It can be state that the educational qualifications of the most clients are very poor at this business level in our country. Most clients have passed SSC and very few completed Graduation or Masters. In studys of their low educational background might not help long run decision making. SME supports those clients who can understand his/her own business. Charts: 3 Educational qualification
E d u c a tio n a l Q u an lific a tio
60% 40% 20% 0%
SSC
HSC 29%
G r a d u a te M a s te r s 20% 9%
S e r ie s 1 4 2 %
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Small and Medium Enterprise Loan of Pubali Bank Limited
Business commencement:
As an employee of this division, it should be mentioned that client has to maintain at least one year running business to have this loan. So by carrying out business clients should understand better about his/her own business or future plan and what would be the main season to have the loan.
Business required any loans:
78% clients demand small loans whether it can develop their own business, which found in the survey. Few clients think that to take loan might be risky to carry out the business. Charts: 4 Business required loan
Business Required Loan
No, 22% Yes No Yes, 78%
Purpose of loans:
According to the survey, it can analyze that most clients want loan to meet their working capital requirements. In our country most clients carry out trading business rather than manufacturing business. Few clients demand manufacturing loans to purchase of fixed assets. Charts: 5 Purpose of loan
Purpose of Loan
80% 70% 60% 50% 40% 30% 20% 10% 0%
77%
18%
Purchesing Fixed Assets Working Capital
Series1
5%
Others
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Small and Medium Enterprise Loan of Pubali Bank Limited
Duration of loans:
In spite of analysis, most clients want more duration or time to repay the SME loan. More time means less amount of money to repay the loan whether clients think beneficial of it. Very few clients demand short study or single payment loan to repay.
Security preference
According to the survey, it can imply that 75% of the clients want to provide deposit hypothecation of business assets against loan which also they feel less risky. If the clients go for big amount then they have to deposit registered or equitable mortgage against loan which they feel too much risky. But land property sometimes carry triples amount of security from loan amount. So it they fail then the might sell their property. Charts:6 Security performance
Security Preference
80% 60% 40% 20% 0%
75% 25%
Regs or Equitable Mortgage
Hypothecation
Clients want fast service: According to the survey, it can be said that 55% of the clients avail the loan within 15 days. In study of getting the loan clients buy the raw materials or order suppliers. A good number of sample clients will be satisfied if they get loan with 20-23 days. They are general clients and they do not have hurry to carry out business. Very few clients opine more than 25 days because in this case clients deposits land security. So automatically it takes more time to avail the loan.
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Small and Medium Enterprise Loan of Pubali Bank Limited
Charts: 7 Time requirement
Time Requirement for Loan
Above 20 Days 5% 15 Days 20 Days 40% 15 Days 55% 20 Days Abov e 20 Days
Repay monthly installment: Majorities of clients are happy to repay the loan by equal monthly installment. Clients know when where and how they will repay the money. Charts: 8 Client repay
Client Repay Monthly Installment
80% 60% 40% 20% 0% Series1 Yes 75% No 25%
Risk Factors
•
Amount Related Risk: This type of risk arises when incorrect loan amount, interest rate, tenure or charges are posted in vouchers. Approval Related Risk: This type of risk is involved when the loan is disbursed without checking the approving authority of the respective credit approvers.
•
35
Small and Medium Enterprise Loan of Pubali Bank Limited
•
Security Document Checking Risk: This type of risk arises when the security documents (post dated / blank cheques, FDR slips, DP notes, etc.) are not checked properly. Manual Error Risk: Error risk is involved in preparation of manual MIS reports. Land Related Documentation Risk: This type of risk is associated with proper valuation of land and preparation of mortgage documents. Error Entry Risk: This type of risk arises when incorrect cost centers, product codes or A/C heads are posted. Repayment Collection Risk: This type of risk is involved when repayment collection of SME loans are credited in wrong Bank accounts. Deposit slips should be sent through automated process from the unit offices. Loan Provision Risk: This type of risk arises if the adequate loan provision is not created. Fake Document Risk: Risk is involved if the documents provided with loan are false at all. Manual BB Returns Risk: BB returns (CL, CIB, SBS, Sector wise statement, etc) are prepared manually and this process arises accuracy risk. Risk for Disbursement: Absence of Automated Data Template arises disbursement risk. Time-bar Risk: Science service level agreement with other departments is not established yet failure of time schedule risk arises as all services are provided on demand. Credit Matrix Risk: This type of risk arises when there is insufficient support from MBS automation for updating credit matrix. Lease Module Risk: This type of risk exists because there is no automated leasefinancing module, which is most urgent requirement. Legal Risk: As there is no in house lawyer, legal risk is involved with day-to-day document preparation and checking. Lake of Skilled Manpower Risk: Loan administration needs skilled manpower to smoothen the whole operational process. Disbursement Pressure Risk: This type of risk arises when corporate loans are sometimes disbursed for the pressure of business unit without regularizing documentation requirements and deferral cases are not regularized in time.
• •
•
•
•
•
•
• •
•
•
•
•
•
36
Small and Medium Enterprise Loan of Pubali Bank Limited
•
Lake of Knowledge of MBS Risk: Adequate knowledge and absence of training on MBS arises operational risk for Loan Administration department. Besides MBS operational manual should be available to all employees. Fire Accident Risk: This risk exists because there is no fireproof file cabinet in the vault; moreover fire extinguishments equipments are not sufficient. Documents Movement Risk: SME documents are frequently moving from the vault for the business analyzing part of the file; which arises risk for misplacing of the documents. Over Work Load Risk: Huge pressure of loan disbursement within the stipulated time bar causes late sitting of the employees; so error risk arises for over workload.
•
•
•
6.2 Suggestion & Recommendation
Pubali Bank has a strong network of having a number of branches all over the country. So, If it works hard in SME section, it can reduce poverty. This loan sanction procedure is very easy and the client can get loan easily so OD loan percentage is increasingly. Bank should take step to reduced OD and sanction loan carefully. Salary at Pubali Bank is really low in compared to other top level private Banks of our country. If bank increase salary employees will work very hard and disburse, recovery will be increase. The relationship of SME and other level of bank is not well so relationship of them will be developed. The bank should provide training to the SME officials so that they can work efficiently and customer selection process will be more efficiently. The number of employees & Officers should increase for operating official activities smoothly.
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Small and Medium Enterprise Loan of Pubali Bank Limited
6.3 Conclusion
Pubali Bank was set up with the growing need for capital mobilization and the need for formal contracts for a wider spectrum of clients of the country. When it came to SME financing, instead of approaching the problem by scaling down its regular operations, a separate program designed especially for SME financing was launched by Pubali Bank recently. Pubali Bank’s effort is noted in this regard for its complete focus on the credit needs of the small and medium enterprises. Pubali Bank Limited is one of the largest bank of our country having 386 branches in 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.Again, according to the CAMELS rating it has on an average rank 1 in its different basic parameters. Even though Pubali Bank’s different performance parameters are good, it should expand its operations to the rural mass people who basically are deprived from different quality services of Pubali Bank Limited
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Small and Medium Enterprise Loan of Pubali Bank Limited
Appendix
39
Small and Medium Enterprise Loan of Pubali Bank Limited
PBL B.M R.M BB RO CIB SME ZM
: PUBALI BANK LIMITED : BRANCH MANAGER : REGIONAL MANAGER : BANGLADESH BANK : REGIONAL OFFICE : CREDIT INFORMATION BEURUE : SMALL AND MEDIUM ENTERPRISE : ZONAL MANAGER
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Small and Medium Enterprise Loan of Pubali Bank Limited
Bibliography
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Small and Medium Enterprise Loan of Pubali Bank Limited
Annual Report of the Pubali Bank Limited 2009, 2008. Francis, J.1991. Management Anticipation of Interest Rates: The Case of Commercial Banks. Journal of Business Finance & Accounting 18(5): 675-695. Holland, J. 1994. Bank Lending Relationships and the Complex Nature of BankCorporate Relations. Journal of Business Finance & Accounting 21(3): 367-393. Laitinen, E. K.1991. Financial Ratios and Different Failure Process. Journal of Business Finance & Accounting 18 (5): 649-972. Majumder, N. H. and S. Harun-ar-Rasshid. 2004. Project Appraisal Report. Journal of BIBM Bangladesh Bank (BB). 2006. Bank Regulation and Policy Deaprtment: Credit Risk Managemnt: BB. Product program guide of Pubali Bank Reichert, A. K.1991. A Comparison of Commercial Bank, Thrift, and Mortgage Bank Real Estate Lending Activity. Journal of Business Finance & Accounting 18(4):593-607. www.pubalibangla.com
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