SME Activities of Bank Asia Ltd.

1.0 Introduction:

Bank is committed to provide high quality financial services/products to contribute to the growth of the country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up export, creating employment opportunity for the youth, poverty alleviation, raising standard of living of limited income group and overall sustainable socio-economic development of the country. In achieving the aforesaid objectives of the Bank, SME lending operation of the Bank is of paramount importance as the greatest share of total revenue of the Bank is generated from it, maximum risk is centered in it and even the very existence of Bank depends on prudent management of its SME loan portfolio. The failure of a commercial Bank is usually associated with the problem in credit portfolio and its less often the result of shrinkage in the value of other assets. Now SME loan portfolio covers a big portion of overall credit portfolio. As such, SME loan portfolio not only dominates in the assets structure of the Bank, it is crucially importance to the success of the Bank also. Bank can lend up to 80% including SME loan of the total amount of its total time and demand liabilities. The rest 19% is kept as Statutory Liquidity Reserve (SLR) with Bangladesh Bank. But in practice banks do not lend the whole 80% and a certain portion is set to meet up the day-to-day banking operations and also meet up the liquidity requirement of the depositors. Bank can lend up to 15% of its paid up capital without the approval of Bangladesh Bank but above that level approval from Bangladesh Bank is required.

1.1 Origin of the report As a student of Bachelor of Business studies it is one of the courses of preparing internship report. I am assigned to prepare this report and I have worked at Bank Asia Ltd, Dhanmondi Branch from 8th January to 13th February I have done several task of Bank Asia Ltd especially at cash department, credit department & customer service department. I have assigned to prepare SME activities of Bank Asia as a part of credit department.
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1.2 Objective The broad objective of this report 1. The SME position in Bangladesh in comparison to other countries 2. How efficiently Bank Asia operates SME activities. Specific Objective: To support the broad objectives better we have developed some specific objectives. These are: 1. To know The SME concept from the perspective of Bangladesh as well as other countries. 2. Identify the importance of SME business in Bangladesh 3. Knowledge about history of SME business in Bangladesh. 4. Various SME product of Bank Asia 5. Operation Process of SME loan disbursement of Bank Asia Limited. 6. To know Bank Asias financial health by financial statement analysis. 7. SME lending Procedure of Bank Asia. 8. Monitoring system followed by Bank Asia. 9. Scrutinize the flaw of Bank Asia in case of SME loan that need to be rectified. 10. Draw some recommendation that helps the SME lending development of Bank Asia.

1.4 Scope The report has been designed into three parts. First part contains the brief description of organization. Second part covers the job description where I did the office and third part contains the SME in Bangladesh and the overall activities of SME in Bank Asia Ltd. The findings and recommendation are included in the conclusion part of this report.

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1.5 Limitation: There are several types of barrier faced by this study: 1. Bank Asia Ltd. Would not like to provide all the data as it is very confidential and there is no accessibility to their software named STEALER. 2. Time is also the big constraint to prepare this report 3. It is very tough to communicate the customer and customer would not like to share their financial health with Intern. 4. This report does not cover overall credit portfolio of rather only SME portfolio

1.6 Methodology The study information collected from two sources: 1. Primary sources 2. Secondary sources The first part of the report collected from secondary sources like books, brochures, leaflets, files, published reports and official website of Bank Asia Ltd. The second and third part I have collected also collected from secondary data but there was real time experience and interview of employees. Otherwise sever journal of SME and articles are also analyzed. Here is given the details source of information that made this report successful: Primary sources: Formal discussion with professionals and observation while working in different desks. Experience of working in the regarding department of the bank. Basic questionnaire analysis. Relevant file study as provided by the officers concerned.

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Secondary sources: The secondary data sources are: Five years annual reports. Monthly financial statements. Half yearly financial statement Manuals and brochures of Bank Asia Limited.

1.7 Benefit of the study: The analysis of the report is based on conceptual frame work of SME lending of Bank Asia. In a word, this report will present a short scenario on SME lending procedure and SME Lending condition of Bank Asia. This report will definitely extend the knowledge of the business students to be familiar with practical experience about SME loan and will teach to apply theoretical knowledge in the practical area.

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2.0 Overview of Bank Asia Limited. Bank Asia Limited is a schedule Bank under private sector established with in the ambit of Bank Company Act, 1991 and was incorporated as a Public Limited Company under Company Act, 1994 on September 28, 1999. The Bank started commercial banking operations from November 27, 1999 with the inauguration of the Banks Corporate Office at the Rangs Bhaban. A huge public response has enabled the Bank to keep up the plan of expanding its network. The opening of the principal office was the big leap forward and successively the opening of Gulshan and Chittagong branch expanded the horizon of Bank Asia to bring its services to valued clients more effectively. Within a short period, the bank has opened four more branches in Dhaka and two branches in Sylhet and Kishorgonj. In February 2001, Bank Asia took over the Bangladesh operation of The Bank of Nova Scotia, the first acquisition of a foreign bank by a local bank in the banking history of Bangladesh. Later, Bank Asia took over the Bangladesh operation of Muslim Commercial Bank of Pakistan in December 2001. These courageous moves were possible for some visionary decision makers and also dedicated team of professionals who are constantly putting their best efforts to establish the bank as one of the leading concerns in the industry. Bank Asia has so far been highly successful in keeping its customers satisfied with its high quality service, while continuing its expansion to reach more people around the country. Bank Asia conducts all types of commercial banking activities. The Bank is involved in most of the areas of commercial banking operations. The core business of the Bank comprises of trade finance, term finance, working capital finance and corporate finance. Bank Asia has acted as the lead arranger in raising term loan for a number of projects under syndicated finance and also participated in some cases under such financing arrangement. The Bank is also providing personal credit, service related to local and foreign remittances and several other products. The Personal Credit scheme of the Bank, which is designed to help the fixed income group in raising standard of living is competitively priced and has been widely appreciated by the customers. Bank Asias program under Poverty Alleviation Scheme delivered through rural branches in the form of micro credit is

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playing an important role towards socio economic development of the poor people in the rural areas. The management of Bank Asia is determined to maintain and upgrade the quality of these resources through continuous training and upgrading technology to keep pace with market demands, new developments and practices of the competitors. Bank Asia entered the market at a time when economic policy environment of the country is poised for higher level of business activities and growth. The prevailing macroeconomic management and the governments determination to carry on reforms in the banking sector provide a supporting and encouraging environment. 2.1 Corporate Vision: Bank Asias vision is to have a poverty free Bangladesh in course of a generation in the new millennium, reflecting the national dream. Their vision is to build a society where human dignity and human rights receive the highest consideration along with reduction of poverty. 2.2 Corporate Mission: The corporate mission of Bank Asia is to assist in bringing high quality service to their customers and to participate in the growth and expansion of national economy. To set high standards of integrity and bring total satisfaction to clients, shareholders and employees are the prime concern of Bank Asia Limited. Another important mission is to become the most sought after Bank in the country, rendering technology driven innovative services by dedicated team of professionals. 2.3 Core Values: Place customer interest and satisfaction as first priority and provide customized banking products and services. Value addition to the stakeholders through attaining excellence in banking operation. Maintain high ethical standard and transparency in dealings Be a compliant institution through adhering to all regulatory requirements

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Contribute significantly for the betterment of society. Ensure higher degree of motivation and dignified working environment for our human capital and respect optimal work life balance. Committed to protect the environment and go green.

2.4 Five Years Performance at a Glance of Bank Asia. Years Balance Sheet Authorized Capital Paid-up Capital Reverse fund surplus Total Shareholders Equity Deposits Loan And Advances Investments Fixed Assets Total Assets Total Off Balance Sheet Items Interest Earning Assets Non-Interest Earning Assets Source: Annual Report of Bank Asia Ltd. for five years. 6284.57 3231.01 2588.59 2023.71 6626.61 98949.48 65432.19 50782.65 36404.15 23851.83 12075.70 1837.28 105198.05 48974.68 9663.10 1018.38 68663.20 27978.82 6133.81 644.25 53371.25 19627.93 4203.14 498.43 38427.85 14067.63 3345.33 483.47 30478.44 11714.86 83601.26 79504.23 54832.82 50267.92 42435.24 39975.00 30004.09 28456.94 25289.36 22255.64 7059.94 4954.14 3332.96 2638.41 1949.74 4450.00 3002.74 4056.30 4,450.00 2144.81 2809.33 4450.00 1743.75 1589.21 4450.00 1395.00 1243.41 4450.00 1116.00 833.74 2010 2009 2008 2007 2006

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2.4 Five Years Performance at a Glance of Bank Asia. Year Income Statement Interest Income Interest Expenses Investment Income Non-Interest Income Non-Interest Expenses Total Income Total Expenditure Operating profit Profit Before Tax Profit After Tax & Provision Source: Annual Report of Bank Asia Ltd. for five years. 1929.58 1327.18 686.70 725.64 475.76 3579.52 2286.19 1405.74 1366.90 967.10 4248.86 2617.04 1904.88 1574.72 1071.88 12110.99 7862.13 8627.52 6010.48 6631.55 4726.67 4959.02 3384.30 3774.28 2702.40 2441.55 1512.47 987.66 679.26 516.00 2566.14 1367.03 1051.29 829.48 682.56 1163.49 1012.99 607.15 467.16 249.38 8381.35 5420.58 6,247.49 4,498.02 4973.11 3739.02 3662.38 2705.03 2842.34 2186.40 2010 2009 2008 2007 2006

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2.5 Ratio Analysis of Bank Asia The performance of the bank can be measured through various ratio analyses. With the help of 5 years balance sheet and income statement managed from the Annual Reports of Bank Asia Limited I have done the following ratio analysis. Return on Equity (ROE): Calculations for ROE: Net Profit After Tax Total Equity Capital Equity Capital = Paid-up Capital + Reserve & Surplus + Undistributed Net Profit Years ROE 2010 32.12% 2009 32.03% 2008 23.00% 2007 31.63% 2006 27.06%

Source: Annual Report of Bank Asia Ltd. for five years.

Return on Equity
35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2010 2009 2008 2007 2006

Return on Equity

Figure: Return on Equity of Bank Asia Ltd. for five years. Interpretation: The graph implies that the bank has more or less a consistent return on its equity. ROE is very much stable in the mentioned years. In 2008 ROE fall down because of the fall of net profit.

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Return on Assets (ROA): Calculations for ROA: Net Profit After Tax Total Assets. Years ROA 2010 2.22% 2009 2.18% 2008 1.87% 2007 2.11% 2006 1.77%

Source: Annual Report of Bank Asia Ltd. for five years

Return on Asset
2.50% 2.00% 1.50% Return on Asset 1.00% 0.50% 0.00% 2010 2009 2008 2007 2006

Figure: Return on Asset of Bank Asia Ltd. for five years. Interpretation: The chart represents that the bank has consistent trend of return on its assets with a minor fall in 2008 and 2006 because of the fall down of net profit.

Return on Investment (ROI): Calculations for ROI: Net Profit after Tax Investment. Years ROI 2010 .1597 2009 .1373 2008 .1119 2007 .1726 2006 .1422

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ROI
0.2 0.15 0.1 0.05 0 2010 2009 2008 2007 2006 ROI

Figure: Return on Investment of Bank Asia Ltd. for five years Interpretation: We see in the graph that ROI was high in the year 2007. In the year 2008 it seems little bit slow down and from the year 2009 to still now it is increasing trend. Investment to Asset Ratio: Calculations for Investment to Asset ratio: Investment Assets Years Investment to assets Source: Annual Report of Bank Asia Ltd. for five years. 2010 .1147 2009 .1407 2008 .1149 2007 .1093 2006 .1097

Investment to Asset Ratio

0.15 0.1 Investment to Asset Ratio 0.05 0 2010 2009 2008 2007 2006

Figure: Investment to Asset Ratio of Bank Asia Ltd. for five years.
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Interpretation: Here, investment to asset ratio is lower in 2010 because of the increase of the total investment. The highest bar in the year 2009 shows that less investment against the total assets in hand. In the year 2008, 2007, 2006 there were similar pattern of investment to assets ratio.

Investment to Deposit Ratio: Calculations for investment to deposit ratio: Investment Deposit. Years Investment to Deposit Source: Annual Report of Bank Asia Ltd. for five years. 2010 .1444 2009 .1762 2008 .1455 2007 .1401 2006 .1323

Investment to Deposit
0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2010 2009 2008 2007 2006

Investment to Deposit

Figure: Investment to Deposit Ratio of Bank Asia Ltd. for five years.

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Interpretation: The graph depicts that the bank has significantly less investment against its deposit. Here, investment means the loans and advances and deposit is the assets of the bank. In 2009 the ratio was in increasing mood because of the huge amount of investment against deposit.

Leverage Ratio: Calculations for Leverage Ratio: Total Liabilities Total Assets. Years Leverage ratio Source: Annual Report of Bank Asia Ltd. for five years. 2010 .93 2009 .92 2008 .94 2007 .93 2006 .94

Leverage Ratio
0.94 0.935 0.93 0.925 0.92 0.915 0.91 2010 2009 2008 2007 2006 Leverage Ratio

Figure: Leverage Ratio of Bank Asia Ltd. for five years.

Interpretation: Leverage ratio indicates the condition of the debt financing of the organization. Leverage ratios show the proportions of debt and equity in financing the institutions assets. A high debt institution is called highly leveraged and a low debt institution is called an institution with low leverage. The leverage ratio of the

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bank is quite high except in the year 2009. And there is also seemed inconsistency in leverage ratio. So, we can say that the bank is highly leveraged. Net interest margin: Calculations of Net interest margin: (Interest Income Interest Expense) Total Assets The net interest margin measures how large a spread between interest revenues and interest cost management has been able to achieve by close control over the earning assets and pursuit of the cheapest sources of funding. Years 2010 2009 .025 2008 .023 2007 .025 2006 .022

Net interest .028 margin

Source: Annual Report of Bank Asia Ltd. for five years.

Net Interset Margin

0.03 0.025 0.02 0.015 0.01 0.005 0 2010 2009 2008 2007 2006 Net Interset Margin

Figure: Net Interest Margin of Bank Asia Ltd. for five years.

Interpretation: The graph depicts that the Net interest margin is more or less same during years 2006, 2008 and 2010 and also same in the year 2009 and 2007.

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Advance per branch: Calculations of Advance per branch: Total Amount of Advances Total No. of Branches. Years Advance per branch Source: Annual Report of Bank Asia Ltd. for five years. 2010 1622.54 2009 1226.05 2008 1211.36 2007 981.27 2006 927.32

Advance per Branch

2000 1500 1000 500 0 2010 2009 2008 2007 2006 Advance per Branch

Figure: Advance of Bank Asia Ltd. for five years.

Interpretation: The graph implies that the bank has continuously increasing trend in respect of advance per branch. Advance per branch increased gradually from the yer2006 to 2010.

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Earnings per Share: Calculations of Earning Per Share: Earnings No. of Shares. EPS is the portion of an institutions profit allocated to each outstanding share of common stock. EPS serves as an indicator of institutions profitability. Years Advance per branch Source: Annual Report of Bank Asia Ltd. for five years. 2010 64.26 2009 61.88 2008 39.38 2007 52.02 2006 42.63

Earning Per Share

80 60 40 20 0 2010 2009 2008 2007 2006 Earning Per Share

Figure: Earning per Share of Bank Asia Ltd. for five years. Interpretation: The above figure demonstrates that the earning per share of the bank was positive. All the year the EPS is good enough expect 2008. It indicates that the bank maintain their earning per share very skillfully.

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Credit deposit ratio: Formula: Total loans and advances to total deposits. Years Credit Deposit Source: Annual Report of Bank Asia Ltd. for five years. 2010
.95

2009
.92

2008
.94

2007
.95

2006
.88

Credit to Deposit Ratio

95% 90% 85% 80% 2010 2009 2008 2007 2006 Credit to Deposit Ratio

Figure: Credit to Deposit of Bank Asia Ltd. for five years.

Interpretation: This Ratio indicates the total credit disbursement with the total deposit and it shows how much of deposit has been disbursed as loans. Here in 2006 we already know that the deposit was so higher than credit. So that the ratio is lower in that year.

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Price Earnings ratio: Calculations of Price Earnings Ratio: Market Price per Share Earning Per Share. Years PE ratio 2010 13.34 2009 6.90 2008 9.73 2007 10.03 2006 10.04

.. Source: Annual Report of Bank Asia Ltd. for five years.

Price Earning Ratio

15 10 Price Earning Ratio 5 0 2010 2009 2008 2007 2006

Figure: Price Earnings Ratio of Bank Asia Ltd. for five years.

Interpretation: Price Earnings Ratio shows the relationship between earning of the company and the market price of its stock. This ratio reflects investors assessments of an institutions future earnings the above figure demonstrates that the price earnings ratio of the bank was positive. The price earnings ratio of 2009 is lower than other years. So it is a good sign for the bank.

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Debt Equity Ratio: Calculations of Debt Equity Ratio: Total Debt (Current & Long-term Liabilities) Shareholders Equity. Years Debt Equity Ratio Source: Annual Report of Bank Asia Ltd. for five years. 2010 13.90 2009 12.86 2008 15.01 2007 13.56 2006 14.63

Debt to Equty
16 15 14 13 12 11 2010 2009 2008 2007 2006 Debt to Equty

Figure: Debt to Equity of Bank Asia Ltd. for five years.

Interpretation: Whatever way the debt equity ratio is calculated it shows the extent to which debt financing has been used in the business. A high debt equity ratio shows that the claims of creditors are greater than those of owners whereas a low ratio implies a greater claim of owners than creditors. Thus there is a need to strike a proper balance between the use of debt and equity. The most appropriate debt equity combination would involve a trade-off between return and risk. In the year 2009 and 2007 the equity position was in strongest than other years.

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Fixed Assets Turnover Ratio: Calculations of Fixed Assets Turnover Ratio: Turnover (Loans & Advances) Net Fixed Assets. This ratio measures how efficiently the management is using its fixed assets to generate sales. This high ratio indicates efficient utilization of fixed assets in generating sales turnover. Years Ratio 2010 43.27 2009 49.36 2008 62.05 2007 57.09 2006 46.03

Source: Annual Report of Bank Asia Ltd. for five years.

Fixed Asset Turnover Ratio

70 60 50 40 30 20 10 0 2010 2009 2008 2007 2006 Fixed Asset Turnover Ratio

Figure: Fixed Asset Turnover Ratio of Bank Asia Ltd. for five years.

Interpretation: Here we see that the fixed assets turnover ratio decreases from the year 2008. It measures that management is using its fixed assets to generate sale efficiently.
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Total Assets Turnover Ratio: Calculations of Total Assets Turnover Ratio: Turnover (Loans & Advances) Total Assets

Years Ratio

2010 .76

2009 .73

2008 .75

2007 .74

2006 .73

. Source: Annual Report of Bank Asia Ltd. for five years.

Total Asset Turnover Ratio

0.76 0.75 0.74 0.73 0.72 0.71 2010 2009 2008 2007 2006 Total Asset Turnover Ratio

Figure: Total Asset Turnover Ratio of Bank Asia Ltd. for five years.

Interpretation: This ratio shows the institutions ability of generating sales from all the financial resources committed to the bank. The ratio is inconsistent throughout the years. The Asset Turnover of the year 2009 is not better than previous years because Assets utilization is much but turnover is lower. So the year is not good to the other year

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2.5 Product & Services: Banking product and services differ from bank to bank. The product and services of several banks have several nature and features. This diversified nature and feature of banking product can attract customer to purchase the product. The special nature and feature also help to generate the brand value of a bank. Like other banks Bank Asia Limited initiated various types of banking product. These products are developed with considering the customers need and demand. Various types of Banking Products are initiated by Bank Asia Limited. These are mentioned chronologically

SME Product of Bank Asia: Sombridhi Somadhan Utshob Subarno Seba

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Business Banking

Letter of Credit

Deposit Accounts:

Double Ben Islamic Banking Deposit Procucts pecial

Profit Paying Deposit Scheme Investment Modes / Products

ocumentary Bills for Collection Consumer Finance

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Credit card: MASTERCARD LOCAL (Gold & Silver) VISA LOCAL (Gold & Classic) VISA DUAL (Gold & Classic) VISA INTERNATIONAL (Gold & Classic) VISA MINI (Classic) Service Products

Treasury & Foreign Exchange Money market Term 2.6 Management of Bank Asia Ltd. Board of directors of Bank Asia Ltd. has the sole authority to make decision of various affairs. There are 9 directors in Bank Asia Ltd. with good academic background. Mr. A. Rouf Chowdhury is the chairman of this bank. The management structure given below: Reverse Repo

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SME Activities of Bank Asia Ltd. Management Structure of Bank Asia Ltd. Board of Directors Chairman

Managing Director

Advisor

Deputy Managing Director

Company Secretary

General Service

Operations

Board Affairs

Share Department

Implementation of Board Decisions

Human Resource

Development & Planning

MIS/IT

Accounts/ Budget

Credit

International Division

Treasury

Specialized Services

Foreign Ex.

Dealing Room

Call Market

Corporate/Retail

Product Development & Marketing

Public Relations

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2.7 Job Part Introduction: Bank Asia Ltd. appointed me to the cash department in one of their booth called BGB booth at Pilkhana. Cash collection of two colleges was the main task in that booth. Otherwise various types of account open and information providing were the part of our work. Current account, Savings account, fixed deposit account opened in this booth. After collection period the employees move to the Dhanmondi branch.

Department: Customer Service Functions of the department: Account opening Giving information about different products Chequebook issue Fulfill customer queries on the desk and over phone Issuance of different documents for the customers ATM service

Customer service is the department that firstly and directly contracts the customer. In case of account opening the policy of Know Your Customer (KYC) must have to be followed & required documents as per instructions must be obtained in due course. Special concentration is required to deal with transaction profile. As per contract bank is liable to protect every customers accounts information secret. So in case of information transmittal bankers of this dept must have to be sure that this is the right person to know the information

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Department: Cash Functions of the department: Cash Management Receive cash from the customers Receive Cheques / other instruments for clearing Receive Cheques / other instruments for transfer Receive different bills & fees for the clients Payments to the customers against instruments Cash transaction report / Susceptive transaction report.

The personnel in the cash department must have to be very careful and mindful in doing their daily job, receiving and disbursing cash and other instruments. Management of cash has to be done efficiently so that the best possible utilization of money is possible. They also should have to be careful about unusual cash transaction, if so occurs then they should have to report that to the concerned authority.

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3.0 Definition of SME An SME is defined as, A firm managed in a personalized way by its owners or partners, which has only a small share of its market and is not sufficiently large to have access to the stock exchange for raising capital. SMEs ordinarily have few accesses to formal channels of finance and depend primarily upon savings of their owners, their families & friends. Consequently, most SMEs are sole proprietorships & partnerships. As with all definitions, this one is not perfect. Depending on context therefore definition of an SME will vary. Despite the common features globally, countries do not use the same definition for classifying their SME sector. Also, a universal definition does not appear feasible or desirable. SMEs have been defined against various criteria. The three parameters that are generally applied by the Governments to define SMEs are: Capital investment in plant and machinery Number of workers employed Volume of production or turnover of business Other definitions are based on whether the owner of the enterprise works alongside the workers, the degree of sophistication in management, and whether or not an enterprise lies in the "formal" sector. The definitions in use depend on the purposes these are required to serve according to the policies of the respective countries/Governments. A quantitative definition in each national context is, however, advantageous, as it makes it easier to target macro-level policies for a specific group of enterprises. The countries with such definitions have recorded a higher growth rate in the SME sector. This indicates that the more precise the definition, the more effective the transaction of policies intended to benefit the sector with actual results. In countries where no definition exists, the enterprises are in a disadvantageous position.

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3.1 Definition of SME as per Bangladesh Bank: Ministry of finance and Bangladesh bank follow the definition of better for business organization. According to the better for business forum the definition of SME is: Definition of Small Enterprise: Serial No. Sectors Fixed asset except land Employees & building 1. 2. 3. Service Business Industry 50,000-50,00,000 50,000-50,00,000 50,000-1,50,00,000 (Maximum) 25 25 50

Source: SME and Special Programs Department of Bangladesh Bank. Definition of Medium Enterprise: Serial No. Sectors Fixed asset except land Employees & building 1. 2. 3. Service Business Industry 50,00,000-10,00,00,000 50,00,000-10,00,00,000 1,50,00,00020,00,00,000 Source: SME and Special Programs Department of Bangladesh Bank. Enterprises shall be categorized using the following definition (fixed investment implies exclusion of land and building, and valuation on the basis of current replacement cost only): (Maximum) 50 50 150

Small enterprise:

an enterprise should be treated as small if, in todays market

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prices, the replacement cost of plant, machinery and other parts/components, fixtures, support utility, and associated technical services by way of capitalized costs (of turn-key consultancy services, for example), etc, excluding land and building, were to be up to Tk. 15 million; Medium enterprise: an enterprise would be treated as medium prices, the replacement cost of plant, machinery, if, in todays and other

market

parts/components, fixtures, support utility, and associated technical services (such as turn-key consultancy), etc, excluding land and building, were to be up to Tk. 100 million; a. For non-manufacturing activities (such as trading or other services), the

Taskforce defines: Small enterprise: an enterprise should be treated as small if it has less than 25

workers, in full-time equivalents; Medium enterprise: an enterprise would be treated as medium if it has between 25 and 100 employees; 3.2 Definition of SME in various countries Europe EU Member has individual definitions of what constitutes an SME. For example, the traditional definition in Germany had a limit of 255 employees, while, for example, in Belgium it could have been 100. The standardized view of EU denotes that less than 50 employees considered as small business and less than 250 employees considered as medium enterprise. Enterprise with less than 10 employees often classified as a small office or home office.

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United States In the United States, the Small Business Administration sets small business criteria based on industry, ownership structure, revenue, and number of employees, which in some circumstances may be as high as 1500 though is typically capped at 500. India The definition of SME in the India follows an act. The act denotes that an enterprise where investment in plant and machinery [original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006] does not exceed Rs. 25 lakh; Small enterprise An enterprise where the investment in plant and machinery [original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006] is more than Rs.25 lakh but does not exceed Rs.5 crore; and Medium enterprise A medium enterprise is an enterprise where the investment in plant and machinery (original cost excluding land and building and the items specified by the Ministry of Small Scale Industries vide its notification No. S.O. 1722(E) dated October 5, 2006) is more than Rs.5 crore but does not exceed Rs.10 crore. South Africa In South Africa the term is SMME for Small, Medium and Micro Enterprises. Elsewhere in Africa, MSME is used for Micro, Small and Medium Enterprises. Canada Industry Canada defines a small business as one that has fewer than 100 employees (if the business is a goods-producing business) or fewer than 50
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employees (if the business is a service-based business), and a medium-sized business as fewer than 500. New Zealand In New Zealand a SME has to be 19 people or fewer 3.3 Reason of increasing demand of SME loan in Bangladesh: Bangaldesh is the developing country. It is not possible to establish a large number of big industries overnight. The development depends on enhancing investment in SME sectors. Otherwise the entrepreneur is more eager to invest in SME sectors. The reason of increasing demand of SME loan is given below. Sales and profitability: In this Bangladesh it is possible to increase higher sales with lower cost in SME business. It is the source of rapid earning of entrepreneurs. The profitability is much higher than any other business loan. Employment: Unemployment is the talked of the topic problem in Bangladesh. The government cant fulfill this large demand of employment. This problem can be reduced by SME business with little capital. Higher incomes: SME is the source of higher income. Salary income in any institution is limited in amount. But SME business would be source of huge amount of money income. Increased exports/reduced imports: Various types of necessary product can be manufactured within country. So, demand would be met up domestically. It helps to reduce imports and increase exports. Increased competitiveness: Competition always increases the standard of product. When there is large number of SME business, the competition will increase as well as increase the standard of product. Bigger tax base: SME business would be the perfect source of government earning. Government can earn huge amount of taxable money from SME business. Decreased poverty: In this developing country like Bangladesh SME business is the most wanted method of alleviating poverty. Entrepreneur can earn

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money as well as create employment for others. It can easily decreased poverty. Reduced social inequities: SME business is the way of increasing standard of living. Increasing standard of living of the people living in same locality reduce the social inequities. Increased income for the banks: Bank can increase their income by SME lending. Bank can pursue people to do SME business and give loan to them. The portion of profit of business or the interest can be the source of banks income. 3.4 Importance of SME The main focus of Bank Asia is to develop human and economic position of a country. Its function is not limited only to providing and recovering of loan but also try to develop the economy of a country. So reasons for this program from the viewpoint of Bank Asia Limited:

Employment Generation Economic Profit Making Development

SME Support Small Enterprise Spread the Experience

Encourage Manufacturing

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1 Support Small Enterprise: The small enterprise, which requires BDT 2 to 30 lacks loan, but they have no easy access to the banks/financial institutions. For example: In case of Shubidha loan, an amount of 3 to 8 lacks is provided without any kind of mortgage. 2 Economic Developments: Economic development of a country largely depends on the small and medium seal enterprises. Such as, if we analyze the development history of Japan, the development of small & medium scale enterprises expedite the development of that country. 3 Employment Generations: The bank gearing employment opportunities by two ways: Firstly, by providing loan to the small enterprises expanding, these businesses require more workers. Secondly, Small & Medium Enterprise (SME) program requires educated and energetic people to provide support to entrepreneurs. 4 Profit Making: SME program is a new dimensional banking system in the banking world. Most of the banks are providing door-to-door services to the entrepreneurs. Entrepreneurs are satisfied by the service of the bank and make profit. 5 Encourage Manufacturing: The focus of BRAC Bank is to encourage manufacturing by the entrepreneurs who produce by purchasing various types of materials. CRO try to educate them to produce material if possible because if they can produce in line of purchase profits will be high. 6 Spread the Experience: Another reason of BRAC Bank is to spread the knowledge on the importance of SME banking regarding various businesses. The customer services officer share their knowledge from various businesses and tries to help the entrepreneurs who have
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shortage of the gathered knowledge. CROs who are the driving force of SME division of BRAC Bank also gather knowledge about various businesses and make stronger knowledge base.

3.5 Barriers in SME development in Bangladesh: Registration under Factories Act: 1965 Registered with the officer of the Chief Inspector of Factories and Establishments. Major source of delay, harassment and unofficial payment. Obtain certificate from the Department of Environment Identify the proper arrangement for anti-pollution and safety measures. Registration with Sponsoring Agency Bangladesh Small & Cottage Industries Corporation, Board of Investment(BOI) & Bangladesh Export Processing Zone Authority(BEPZA) Contract Enforcement and Resolution faced by both large and small firms. These regulatory barriers toward private investment especially SMEs. Relative inability of SMEs to cope with large-scale counterparts. Policy regime was largely biased against the SMEs Paradoxically, promoting SME development was a stated goal of successive governments.

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Figure: Barriers in SME development in Bangladesh 3.6 Contribution of SME in Bangladesh: The recent global financial meltdown has let us realize the significance of Small and Medium Enterprises much more than the previous days. When the corporate giants all around the world are finding it difficult to absorb the aftermath of the global financial disaster, SMEs have appeared as a balancing tool for the world economy as far as employment generation, economic growth and social stability is concerned. Financing the SMEs has opened the door for the economies around the world to work out a solution to lift up the living standards of a major portion of the population. Realizing this fact, many commercial banks have come forward to finance these small and medium enterprises, they have been left out from the prime focus of the banks. Redefining and branding of the SMEs have augm ented the significance of this sector many times. Bangladesh as a developing country SME contributes here a lot. It creates a lot of sectors of employment. A large number of populations are depending on SME business for their living hood. It also generate revenue at an accelerate mood. Surveys shows that SME;

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Provides 70% Employment Provides 80% Export revenue Percentage of Household income contributed by SMEs Rural % Urban % 45 Total % 42

Provides almost all

all

or 41

Provide more than 19 half Provide about half 16

14

18

14 17

16 19

Provides less than 20 half Provides nothing Total 4 100

9 100

6 100 Source: ICG/MIDAS Survey

50 40 30 20 10 0 Provides all or almost all Provide more than half Provide about half Provides less than half Provides nothing Series1 Series2

Figure: Graphical presentation of contribution of SME in rural and urban area.

In the graph we can see that rural & urbane people are almost same position in involving SME business. The equal concentration of rural & urbane people on SME business can increase the revenue as well as accelerate the growth of GDP. In this

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developing country like Bangladesh SME can be one of the crucial parts of increasing the GDP. Now we will see the contribution of SME in GDP on the basis of number of worker. The small & little initiative help a large amount in GDP growth. The SME business consisting only 2 or 5 worker remains in best position to SME contribution. Single worker continuing SME business also contributes a big portion of GDP growth. The survey about contribution of SMEs to GDP by size of enterprise given below: Contribution of SMEs to GDP by size of enterprise Total Contribution to GDP (Taka) Number of workers Total contribution to GDP Percent of total

contribution % 1 2-5 6-10 11-20 21-50 51-100 Total 193996555714 379663897358 73120983681 45183240157 33960498076 741064097360 741064097360 26 51 10 6 5 2 100 Source: ICG/MIDAS Survey Now we will discuss sector wised contribution of SME. In case of manufacturing the contribution is larger than any other sectors. So govt. should emphasis on this sector attentively. Other emerging sectors for SME development are agriculture, wholesale & retail trade and repairs. Other potential sectors will be considered as fishing, hotels & restaurant, real estate, renting and business activities and other service oriented business. The sector wised contribution of SME to GDP given below:

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Contribution of SMEs to GDP by sector (Taka)

Total contribution to GDP

Percentage contribution %

of

total

Agriculture Fishing Manufacturing Construction

177729637637 32872674464 282344700575 7196460200

24 4 38 1 23

Wholesale & retail trade 171335861390 and repairs Hotels and restaurants 28599263975

4 1

Transport, storage and 8950171356 communications Real estate, renting and 13771436794 business activities Education 151808506

Health and social work Other service activities Total

2743049893 15632094785 741327159609

0 2 100 Source: ICG/MIDAS Survey

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SME Activities of Bank Asia Ltd.

Particular sectors of SME contributed to GDP

40 35 30 25 20 15 10 5 0

Percentage of total contribution %

Figure: Sector wised contribution of SME to GDP. Yearly contribution of SME to GDP: The yearly contribution of SME to GDP shows the increasing trends. It indicates that people are more concern about SME business and they are succeeding in SME business. We expect further improvement of SME industries with the help of various banks and non-bank institutions.

Contribution of large and small industries to the GDP % 2004-5 Large industry Small Industry Total 15.40 15.59 15.76 15.97 16.25 4.39 4.46 4.60 4.68 4.78 11.01 2005-06 11.13 2006-07 11.16 2007-08 11.29 2008-09 11.47

Source: Economic Review, Ministry of Finance, GOB.

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Contribution of large and small industry

Large Industry Small Industry

11.01

11.13

11.16

11.29

11.47

4.39

4.46

4.6

4.68

4.78

2004-5

2005-06

2006-07

2007-08

2008-09

Figure: Yearly contribution of large and small industry to GDP. From the above figure we can see that there are similar trend of contribution in GDP growth of large and small industries. The slope of small industries is almost similar to the large company. It means that the more the investment in small industries can crease the output as like as the output of larger industries. So, there is no reason to neglect small industry to invest. Especially in Bangladesh it can bring a revolutionary change in GDP growth.

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Five most crucial sectors: If we analysis sectors wised contribution of SME in Bangladesh, the Garments sectors get the appraisal undoubtedly. The total contribution is more than 48% in the GDP. The revenue comes from garments very remarkable to the GDP growth which is unavoidable to the development of Bangladesh. Knitwear and hosiery remain in the second position and contribute more than 23% in GDP. Consecutively frozen foods, leather and goods, chemical product remain in third, fourth and fifth position in contribution. Chart of sectors wised contribution in GDP

Contribution
50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Garments knitwear and hosiery frozen foods Leather and leather goods

Contribution

chemical products

Figure: Special Sector wised contribution of SME to GDP.

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4.0 SME Product of Bank Asia: 1. Subidha: Subidha is the important SME product of Bank Asia Limited specially facilitate in trading. Subidha is the unsecured loan help to women to do SME business smoothly. The maximum loan tenor is 3 years. The install payment is monthly basis. The interest rate is 16% except processing fee. 2. Sristi: The SME loan Sristi specially designed for manufacturing purpose. It is unsecured in nature. Maximum loan period is 3 years. The interest rate is as same as SME product of Subidha 16%. It is the monthly installment payment based product. 3. Sofol: Sofol is unsecured in nature. It is designed for development in service oriented business. This SME loan generates the standard of services of business in SME sectors. The maximum tenor is 3 years with 16% interest rate. The payment style is monthly based. 4. Sondhi: Sondhi SME loan is secured in nature. This loan is given in the trading sectors of business. The maximum loan tenor is 5 years. As it is secured loan the interest rate is little bit lower than SME loan Sofol, Sristi and Subidha. The installment is monthly based. 5. Sombridhi: Sombridhi is secured manufacturing SME loan. This loan is designed with a view to improvement in manufacturing sectors. The prime customers of Sombridhi are garments manufacturer. The maximum tenure is

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5 years. As Sombridhi is secured loan the interest rate is 15%. It fol lows monthly basis payment system. 6. Seba: Seba is the secured loan specially for servicing sectors. The loan tenor is as usual as other secured SME loan 5 years. The interest rate is same as 15% and installment is monthly basis.

7. Somadhan: Somdhan SME loan is designed for three business sectors that cover the trading, manufacturing and service. Its specially help to support the ongoing SME business. So the loan tenor is very short only 1 year. The interest range would be fluctuated between 13-15%. The loan can be sanctioned by over drafting. 8. Utshob: Utshob is the agree-based SME loan. This loan actually provided on the basis of season. This is 9 month tenor loan. Interest rate is 16%. The loan should be paid in a single installment.

9. Subarno: The Bank Asia patronizes for women entrepreneurship. The SME loan Suborno is initiated for the development of women entrepreneurship. This SME loan influence women to enter business. The interest rate much more lowers than any other loan only 10%. The maximum loan tenor is 3 years. The equal monthly payment should be followed.

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Various SME product of Bank Asia and their Features are given:

SL Product Name 1 Subidha

Nature

Maximum Loan Tenor

Interest Loan Type Rate 16% Equal Monthly Installment

unsecured trading

3 years

Sristi

unsecured manufacturing

3 years

16%

Equal Monthly Installment

Sofol

unsecured service

3 years

16%

Equal Monthly Installment

Sondhi

secured trading

5 years

15%

Equal Monthly Installment

Sombridhi

secured manufacturing

5 years

15%

Equal Monthly Installment

Seba

secured service

5 years

15%

Equal Monthly Installment

Somadhan Trading Manufacturing Service

1 year

13-15%

Over Draft

8 9

Utshob Subarno

Seasonal Women entrepreneur

9 months 3 years

16% 10%

Single Installment Equal Monthly Installment

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SME Activities of Bank Asia Ltd.

4.1 Enterprise selection Criteria The success of SME will largely depend on the selection of a business and man behind it. In terms of the business (Enterprise), the following attributes should be sought: 1. The business must be in operation for at least one year 2. The business should be environment friendly, no narcotics or tobacco business 3. The business should be legally registered, i.e., valid trade license, income tax or VAT registration, wherever applicable. 4. The business should be in legal trade, i.e.; smuggling will not be allowed or socially unacceptable business will not be entertained. 5. The business must have a defined market with a clear potential growth 6. The business must be located ideally close to the market and the source of its raw materials/suppliers. It should have access to all the utilities, skilled manpowers 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.

4.2 Entrepreneur Selection Criteria In order to understand the capability of the management behind the business, the following should be assessed: 1. The entrepreneur should be physically able and in good health, preferably

between the age of 25-50. If he/she is an elderly person closer to 50, it should be seen what the succession process will be and whether it is clearly defined or not. 2. The entrepreneur must have the necessary technical skill to run the business, i.e. academic background or vocational training, relevant work experience in another institution or years of experience in this line of business.
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3. The entrepreneur must have and acceptable social standing in the community (People should speak highly of him), he should possess a high level of integrity (doesnt cheat anyone, generally helps people), and morally sound (Participates in community building) 4. The entrepreneur must possess a high level of enthusiasm and should

demonstrate that he is in control of his business (Confidently replies to all queries) and has the ability to take up new and fresh challenges to take the business forward. 5. Suppliers or creditors should corroborate that he pays on time and is general in nature 6. Clear-cut indication of source of income and reasonable ability to save. 4.3 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 possess the followings: 1. The guarantor must have the ability to repay the entire loan and is economically solvent (check his net worth) 2. The guarantor should be aware about all the aspect of SEDF loan and his

responsibility 3. Govt. and semi-govt. officials can be selected as a Guarantor such as

schoolteacher, college teacher, doctor etc. 4. Police, BDR and Army persons, political leaders and workers, and religious

leader cannot be selected as a guarantor. 5. The guarantor should know the entrepreneur reasonable well and should preferably live in the same community.

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SME Activities of Bank Asia Ltd.

4.4 SME loan approval process of Bank Asia Bank Asia Ltd. is very conscious about their loan sanction and they follow the benchmark of sanctioning loan. Customers approach to the bank and bank verify them very prudentially. Bank Asia Ltd. gives priority personal relation to sanction SME loan. But they also aware about some criteria given bellow: 1. Take Interview: Bank Asia Ltd. takes a short interview of a customer. It would be formal or informal. Bank tries to find out customers dedication to the business. Customers attitude is also noticeable in this respect. If the customer appears to lack sincerity in acknowledging the need to adhere to the terms of a loan, this must be recorded as a strong indicator weighing against approval of loan request. 2. Site Visit: After primary interview the bank authority verify the authentication of the interview. The head of the credit department goes to visit the site. AN officer of the bank usually makes a site visit to access the customers location and the condition of the property and to ask clarifying questions. 3. Submission of important Document: If all is favorable to this point, the customer is asked to submit several crucial documents the bank need in order to fully evaluate the loan request, including financial statements and, in the case of corporation, board of directors resolution authorizing the negotiation of a loan with the bank. There are loan documentation checklist of Bank Asia Ltd. given below: CIB report Central bank approval Accepted advice Letter Board resolution- Borrowing Authority Promissory note Letter of continuity General loan & collateral agreement Continuing guarantee Counter Indemnity Cross corporate guarantee
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Board resolution for corporate guarantee Registered Hypothecation of inventory Registered hypothecation of debts & Asset Registered hypothecation of fixed asset Registered mortgage of landed property Insurance policy of inventory/fixed assets Third party documents Term Loan agreement

4. Financial Analysis: Once all documents are on file, the credit analysis division of the bank conducts a thorough financial analysis of them aimed at determining whether the customer has sufficient cash flow and backup assets to repay the loan. 5. Brief Summery & Recommendation: The credit analysis division then prepares a brief summery & recommendation, which goes to the loan committee for approval. 6. Perfecting claim to collateral: If the loan committee approves the customers request, the loan officer or the credit committee will usually check on the property or other assets to be pledged as collateral in order to ensure that the bank has immediate access to collateral. 7. Signing a Contract: Once the loan officer and the banks loan committee are satisfied that both the loan and the proposed collateral are sound, the note and other documents that make up loan agreement are prepared and signed by all parties to the agreement.

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SME loan Approval Process followed by Bank Asia in accordance to Bangladesh Bank Guideline:

Credit Application Recommended by RM/ Marketing

Zonal Credit Officer (ZCO)

Head of Credit (HOC) and & Head of Corporate Banking (HOCB)

Managing Directors

Executive Committee

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Approval Process: 1. Application forwarded to Zonal Office for approved/decline 2. Advise the decision as per delegated authority (approved /decline) to

recommending branches. A monthly summary of ZCO approvals should be sent to HOC and HOCB to report the previous months approvals sanctioned at the Zonal Offices. The HOC should review 10% of ZCO approvals to ensure adherence to Lending Guidelines and Bank policies. 3. ZCO supports & forwarded to Head of Corporate Banking (HOCB) or delegate for endorsement, and Head of Credit (HOC) for approval or onward recommendation. 4. HOC advises the decision as per delegated authority to ZCO 5. HOC & HOCB supports & forwarded to Managing Director 6. Managing Director advises the decision as per delegated authority to HOC & HOCB. 7. Managing Director presents the proposal to EC/Board 8. EC/Board advises the decision to HOC & HOCB Regardless of the delegated authority HOC to advise the decision (approval/decline) to marketing department through ZCO

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4.5 Information required before sanctioning loan ? The potential borrower will submit application to bank or financial institution for loan by filling up of a specific Application form. The Application form (request for Credit Limit) contains following particulars: a) Name of the Borrower ----b) A/C No. ------------c) Business address (with telephone no.) [Residential address and Permanent address] -----d) Introducers name, A/C no. & address ----e) Date of establishment/ incorporation -----f) Trade license number, date and expiry date (Photocopy of trade license enclosed) -------g) GIR/TR no. & amount of income tax paid last year -----h) Constitution/ Status (Mention whether sole proprietorship/ partnership/ Public Ltd. company/ Private Ltd. company) -------i) Particulars of individual/ Proprietor/ Partners/ Directors (Name & Designation, fathers/ Husbands name, present & permanent address with Telephone no., % of shares held) -----j) Experience and background of Individual/Proprietors/ Partners/ Directors -------k) Full particulars of assets in the personal name of Individual/ Proprietor/ Partners/ Directors with valuation ----------l) Names of Subsidiaries/ Affiliates, percentage of share holding and nature of business ------

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m) Nature and details of business/ products (for which credit facility is applied for), Markets (Present market price per unite, Factory price), Estimated sales for next one year ............ n) Credit facilities required (type, amount, period, purpose, and mode of adjustment) .......... o) Details of securities offered with estimated value (Primary security, Collateral security, market value of the security) .......... p) Details of liabilities in the name of the client or in the name of any other partners/Directors or Subsidiaries/Affiliates Nature of advance, amount, security and validity of limit) ..... q) Balance Sheet/ Income Statement of Statement of Accounts of the following years attached (Preferably last 3 years) ........ r) Other relevant information ......... s) Proposed debt/equity ratio ......... t) Signature of the Applicant .............. ? After receiving the loan application form, bank or financial institution sends a letter to Bangladesh Bank for obtaining a report from there. This report is called CIB (Credit information Bureau) report. This report is usually collects this report if the loan amount exceeds Tk. 50 Lac. But banks or financial institutions usually collects this report if the loan amount exceeds Tk.1 Lac. The purpose of this report is to being informed that whether the borrower has taken loan from any other bank; if yes then whether these loans are classified or not. ? After receiving CIB report if the Bank thinks that the prospective borrower will be a good borrower, then the bank will scrutinize the documents. In this stage, the Bank will look whether the documents are properly filled up and signed.

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? Then comes processing stage. In this stage, the Bank will prepare a Proposal A proposal contains following relevant information ....... a) Name of the Borrower --b) Nature of Limit ----c) Purpose of Limit -----d) Extent of Limit --e) Security --f) Margin --g) Rate of Interest ------h) Repayment ------i) Validity ------Branch incumbent has the discretionary power to sanction loan (SOD) up to a fixed amount against financial obligations by informing Head Office. But in that case, the Branch Manager has to give attention to the following matters: - The interest rate of the loan must not be less than 4.5% and - The borrower must maintain 10% margin. Except this case, the branch has to send the proposal to the Head Office. Head Office will prepare a minute and submit it before the Executive Committee (EC). The minute has to be passed by EC. After passing the minute, it will be sent to Central Bank (Bangladesh Bank) for approval in case of following: ........ If the proposed limit exceeds 15% of Banks equity; ......... If the proposed limit against cash collateral securities exceeds 25% of Banks equity.

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? After the sanction advice, Bank will collect necessary documents (charge documents). These documents are -------a) Joint Promissory Note b) Single Promissory Note c) Letter of Undertaking d) Loan Disbursement Letter a) Debit Figure Confirmation Sheet b) Letter of Continuity c) Letter of Authority d) Letter of Revival e) Right of Recall the Loan. f) Letter of Guarantee g) Letter of Indemnity h) Trust Receipt i) Hypothecation of Goods j) Hypothecation of Vehicles k) Counter Guarantee l) Letter of Lien m) Letter of Lien in case of advance against FDR n) Letter of Lien And Authority for advances to third parties against Fixed Deposit/Call Deposit/Special Deposit or Margin or margin deposits. o) Letter of Authority to encase FDR

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p) Letter of Agreement for Packing Credit q) Letter of Guarantee for opening L/C r) Charges over Bonds or Certificates or shares etc. by third person, firm or company to secure specific and general liability. s) Memorandum of Deposit of Title Deeds t) Hypothecation of goods to secure a Demand Cash Credit Or Overdraft/Loan amount u) Guarantee by Third party. For withdrawing the loan amount, the customer creates a CD account and the loan is transferred to the CD A/C. Afterwards the customer can withdraw the money. FEASIBILITY REPORT: This report is from borrowers point of view. He or she prepares this report and submitted to the bank. CREDIT LINE PROPOSAL: In this step of the term loan the branch sends a credit line proposal to the head office for approval of the term loan. The credit line proposal contains the following particulars: ? Fresh/Renewal/Revision of the term loan ? Borrower name ? Types of business ? Capital structure ? Particulars of previous transaction ? Existing vis-a-vis proposed credit limits ? Movement of the accounts
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? Liabilities of sister concerns PROJECT APPRAISAL: It is the reinvestment analysis done by the banker before a project he approved. Project appraisal in the banking sector needed for the following reasons: ? To justify the soundness of an investment ? To ensure repayment of bank finance ? To achieve organizational goals ? To recommend if the project is not designed properly TECHNIQUES OF PROJECT APPRAISAL: An appraisal is a systematic exercise to establish that the proposed project is a viable preposition. The appraising officer checks the various details submitted by the promoter in first information sheet, credit application form, feasibility report. SIBL considers the following aspects in apprising: ? Entrepreneur ? Viability of the project: o Technical viability (location and site of the project). o Commercial viability (This study indicates evaluation of a projects feasibility in terms of market). o Financial viability. o Economic Viability. o Management and organization viability.

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4.6 Criteria before sanctioning loan: The most common sources of repayment of SME loans are the following: 1. The business borrowers profits or cash flow. 2. Business assets pledged as collateral behind the loan. 3. A strong balance sheet with ample amounts of marketable assets and net worth. 4. Guarantees given by the business, such as drawing on the owners personal property to backstop a business loan. 4.7 Analysis of SME loan Borrowers Financial Statement: Analysis of the financial statements of a business borrower, typically, begins when the banks credit analysis over time of how the key figures on the borrowers financial statement have changed. The common size ratios most often used to help analyze a business borrowers financial statements including the following: Important Balance Sheet percentage-composition ratios
Percentage composition of Assets Percentage composition of Liabilities and Total net Worth Cash/Total Assets Accounts payable/ Total Liabilities and net worth Marketable securities/Total Assets Notes payable/ total liabilities and net worth

Accounts receivable/Total assets

Taxes payable/Total liabilities and net worth

Inventories/Total Assets

Total current liabilities/ total liabilities and net worth

Fixed assets, net of depreciation/ Total Long term debt obligations/ Total liabilities assets Other Assets/ Total assets and net worth Other liabilities/ Total liabilities and net worth Total net worth/ Total liabilities and net worth

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Important Income-Statement percentage-composition ratios Percentage Composition of Total Income Cost of Sales/ Sales Gross profit/ Sales Labor Cost (wages, salaries, and fringe benefits)/ Sales Selling, administrative, and other expenses/ Sales Depreciation expenses/ Sales Other operating expenses/Sales Net operating profit/ Sales Interest expenses on borrowed funds/ Sales Net income before taxes/ Sales Income Taxes/ Sales Net income after taxes/ Sales

4.8 Financial Ratio Analysis of a SME loan Customers Financial Statements: Information from balance sheets and income statements is typically supplemented by the financial ratio analysis. By careful selection of items from a borrowers balance sheet and income statements, the loan officer can shed light on such critical areas in business lending as: 1. A borrowing customers ability to control expenses 2. A borrowers operating efficiency in using resources to generate sales and cash flow; 3. The marketability of the borrowers product line; 4. The coverage that earnings provide over a business firms financing cost; 5. The borrowers liquidity position, including the availability of ready cash; 6. The borrowers track record of profitability or net income; 7. The amount of financial leverage 8. Whether a borrower faces significant contingent liabilities that may give rise to substantial claims in future
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The business customers control over expenses: A barometer of the quality of a business firms management is how carefully it monitors and controls its expenses and how well its earnings- the primary sources of cash to repay the banks loan in most cases-are likely to be protected and grow. Selected financial ratios, usually computed by credit analysts to monitor a firms expense control program. Including the following: Wages and salaries/ Net Sales Overhead expenses/ Net Sales Depreciation expenses/ Net Sales Interest expense on borrowed funds/ Net Sales Cost of goods sold/ Net Sales Selling, administrative, and other expense/ Net Sales Taxes/ Net Sales.

Operating Efficiency: Measure of a business Firms performance: Its also useful to look at a business customers operating efficiency. How eff ectively are assets being utilized to generate sales and cash flow for the firm and how effectively are sales converted into cash? Important financial ratios here are: Annual cost of goods sold/ Average inventory Net Sales/ Total Assets Net Sales/net fixed assets Net Sales/Accounts and notes receivable Average collection period= (Accounts receivable/annual credit sales) 360

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Marketability of the customers Product or service: In order to generate adequate cash flow to repay a loan, the business customer must be able to market goods, services, or skills successfully. A bank can often assess public acceptance of what the business customer has to sell by analyzing such factors as the growth rate of sales revenue, changes in the business customers share of the available market, and the gross profit margin, defined as:

GPM=

A closely related and somewhat more refined ratio is the net profit margin NPM=

Coverage Ratio: Coverage refers to the protection afforded creditor of a firm based on the amount of the firms earnings. The best -known coverage ratios include the following:

Interest Coverage=

Coverage of interest and principal payments=

Coverage of all fixed payments=

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Liquidity Indicator for Business customer: The borrowers Liquidity position reflects his or her ability to raise cash in the timely fashion at reasonable cost, including the ability to meet loan payments when they come due. Popular measures of liquidity include the following: a) Current ratio= b) Acid-test ratio= c) Net liquid assets=Current assets- Inventories of raw materials or goodsCurrent liabilities. d) Net working capital=Current assets-current liabilities

The Financial Leverage factor as a barometer of a Business firms capital structure: Any lender of funds is concerned about how much debt a borrower has taken on in addition to the loan being sought. The term financial leverage refers to the use of debt in hope that the borrower can generate earning that exceed the cost of debt, thereby increasing the potential return to a business firms owners. Key financial ratios used to analyze any borrowing businesss credit standing and use of financial leverage are as follows: Leverage ratio= Capitalization ratio== Debt-to-sales ratio==

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4.9 Monitoring: Monitoring is a system by which a bank can keep track of its clients and their operations. So monitoring is an essential task for a CRO to know the borrowers activities after the loan disbursement. This also facilitates the buildup of an information base for future reference. 4.10 Loan Monitoring Guideline of Bank Asia: 1. Loan are examined on a periodic basis-for example, every 30, 60, or 90 days the largest loans outstanding may be routinely examined, along with a random sample of smaller loans. 2. Structuring the loan review process carefully to make sure the most important features of each loan are checked, including: a. The record of borrower payments, to ensure that the customer is not falling behind the planned repayment schedule. b. The quality and condition of any collateral pledged behind the loan. c. The completeness of loan documentation, to make sure the bank has access to any collateral pledged and possesses the full legal authority to take action against the borrower in the courts if necessary. d. An evaluation of whether the borrowers financial condition and forecasts have changed which may have increased or decreased the borrowers need for bank credit. e. An assessment of whether the loan conforms to the banks lending policies and to the standard applied to its loan portfolio by examiners from the regulatory agencies. 3. Reviewing most frequently the largest loans, because default on these credit agreements could seriously affect the banks own financial condition. 4. Conduction more frequent reviews of troubled loans, with the frequency of review increasing as the problems surrounding any particular loan increase. 5. Accelerating the loan review schedule if the economy slows down or if the industries in which the bank has made a substantial portion of its loan develop significant problems.

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4.11 Monitoring System: The CRO can consider the following thing for monitoring: i. The CRO will monitor each business at least once a month. He/she will make a monitoring plan/ schedule at the beginning of the month. During monitoring the CRO must use the prescribed monitoring from and preserve in the client file and forward a copy of the report to SME head office immediately. ii. A SME branch will maintain the following files: The file will contain Purchase Receipt, Delivery Memos and Quotations. In addition, all other pape rs related to furniture and fixture procurement iii. Other fixed assets and refurbishment: All fixed assets and refurbishment related papers such as purchase receipt, delivery memos, quotation, guarantee and warrantee papers, servicing related papers and any other paper related to fixed assets are refurbishment will be in this file. iv. Lease agreement file: This file will contain all papers related to lease agreement between the SESDS office and owners of the leased premises. v. Individual client file: Individual files are to be maintained for each borrower and that 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. vi. Statement file: All types of statement sent to SME head office will be kept in this file chronologically vii. Office instruction file: All kind of office instruction regarding administration should be kept in this file. viii. Operating instruction and guideline files: All kind of office instruction and guidelines related to operating should be kept in this file ix. New forms introduction file: All minutes of meeting, whenever held, should be kept in this file.

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x. Security documents and legal aspect file: One set of security documents and lawyers opinions and suggestions regarding issue will be kept in this file. The original should be send to SME head office on a weekly basis xi. Survey form file: After conducting survey, all survey will be kept in this file chronological. 4.12 Area of Monitoring: The purpose is to know the entire business condition and all aspects of the borrowers so that mishap can be avoided. i. Business Condition: The most important task of the CRO to monitor the business frequently, it will help him to understand whether the business is running well or not, and accordingly advice the borrower, whenever necessary. The frequency of monitoring should be at least once month if all things are in order. ii. Production: The CRO will monitor the production activities of the business and if there is any problem in the production process, the CRO will try to help the entrepreneur to solve the problem. On the other hand the CRO can also stop the misuse of the loan other than for the purpose for which the loan was disbursed. iii. Sales: Monitoring sales proceed is another important task of the CRO it will help him to forecast the monthly sales revenue, credit sales etc. which will ensure the recovery of the monthly loan repayments from the enterprise as well as to take necessary steps for future loans. iv. 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, then it may not be possible to recover the loan. v. Management of raw materials: In case of a manufacturing enterprise, management of raw materials is another important area for monitoring. If more money is blocked in raw materials then necessary, then the enterprise may face a fund crisis. On the other hand the production will suffer if there are not enough raw materials.
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4.13 Indicator of a weak or troubled loan examined by Bank Asia: 1. Irregular or delinquent loan payments 2. Frequent alterations in loan terms 3. Poor loan renewal record 4. Unusually high loan rate Raising debt- to-net-worth ratio 5. Missing documentation (Especially customers financial statement) 6. Poor quality collateral 7. Reliance on reappraisals of assets to increase the borrowing customers net worth 8. Absence of cash flow statements or projections 9. Customer reliance on nonrecurring source of funds to meet loan payments 4.14 Loan workouts process: What should a banker so when a loan is in trouble? Experts in loan workouts-the process of recovering the banks fund from a problem loan situation1. Bankers must always keep the goal of loan workouts firmly in mind: to maximize the banks chances for the full recovery of its funds. 2. The rapid detection and reporting of any problems with a loan are essential; delay often worsens a problem loan situation. 3. The loan workout responsibility should be separate from the lending function to avoid possible conflicts of interest for the loan officer. 4. Bank workout specialist should confer with the troubled customer quickly on possible options, especially for cutting expenses, increasing cash flow, and improving management control. 5. Estimate what resources are available to collect the troubled loan, including the estimated liquidation values of assets and deposits. 6. Loan workout personnel should conduct a tax and litigation search to see if the borrower has other unpaid obligations. 7. For business borrower, bank loan personnel must evaluate the quality, competence, and integrity of current management and visit the site to assess the borrowers property and operations.
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5.0 Comparative analysis of SME Credit Scheme of Six Different Banks currently Available in Bangladesh: Dhaka Bank Ltd. The Bank started branch operations at Belkuchi Sirajgonj in April 2003. Prior to the Banks intervention, the weaving community did not have the financial strength to stock their products till Eid ul Fitr when the annual sale takes place. Traders were taking advantage to the situation by buying up entire productions at low prices and liquidating stocks just before Eid. With financial services from Dhaka Bank Limited, the weavers have converted to power looms, significantly increased profitability and reduced the involvement of middlemen. Already they have identified several clusters and are working on improving access to finance within these clusters. Dutch-Bangla Bank Ltd. Dutch-Bangla Bank Limited (the Bank) is a scheduled commercial bank. The Bank was established under the Bank Companies Act 1991 and incorporated as a public limited company under the Companies Act 1994 in Bangladesh with the primary objective to carry on all kinds of banking business in Bangladesh. The Bank is listed with Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited. DBBL a Bangladesh European private joint venture scheduled commercial bank commenced formal operation from June 3, 1996. The Bank commenced its banking business with one branch on 4 July 1996. The bank opened SME windows in 2001. Prime Bank Ltd. As per decision of the Board of Directors of Prime Bank Ltd. in its 78th meeting held on 17.11.1999, Small & Medium Enterprise (SME) Cell has already been

established at Head Office under the Credit Division. Now the bank can replicate quality anywhere in the world. So, the competitive differentiation comes from swiftness to market and innovation. And in this regard, small companies right down to the individual can beat big bureaucratic companies ten out of ten times.

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Eastern Bank Ltd Small and Medium Enterprises (SME) in Bangladesh contributed 25% of gross domestic product (GDP) and 80% of the industrial jobs of the country in 2004. According to ADB, the country's estimated 6 million SMEs and micro enterprises firms of less than 100 employees have a significant role in generating growth and jobs. This is a sector that has its own distinct needs and requires specialized focus. Eastern Bank Ltd. (EBL) has launched SME Banking in early 2005 with this view in mind. Eastern Bank Ltd. Services in SME: Provide SMEs with easy access to financing. Deliver products that ensure superior returns to our customers. Orient customers with industry trends, regulatory issues etc., for their success. Value long-term relationship banking BRAC Bank Ltd. The BRAC Bank ltd started its operation in 2001. The SME portfolio includes Prothoma Rin Exclusively designed for women Anonno Rin This is a small-scale loan Apurbo Rin In order to help our SME Supplier Finance Bank Asia Limited: Bank Asia started its journey in SME lending in the year 2007 on the month June. Bank Asia launched a SME product named Shachhondo during the year. At first Bank Asia started only 39 small and medium entrepreneur but now the entrepreneur are increasing rapidly. The various product also initiated named Subidha, Sristi, Sofol, Sondhi, Sombridhi.

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Loan size: 1. Prime Bank Ltd Taka 1 Lac to Taka 75.00 Lacs 2. Dhaka Bank Ltd - Taka 0.50 Lac to Taka 50.00 Lacs 3. Eastern Bank Ltd- Taka 1 Lac to Taka 300.00 Lacs 4. Dutch-Bangla Bank Ltd- Taka 3 Lac to Taka 50.00 Lacs 5. BRAC Bank Ltd- Taka 3 Lacs to Taka 30.00 Lacs 6. Bank Asia Ltd.-Taka 2 Lacs to Taka 30 Lacs. Loan processing fees: 1. Prime Bank Ltd .50 % of the loan amount. 2. Dhaka Bank Ltd - .00 % of the loan amount. 3. Eastern Bank Ltd- not available 4. Dutch-Bangla Bank Ltd- not available 5. BRAC Bank Ltd- .50 % of the loan amount 6. Bank Asia Ltd.-1.00% of the loan amount. All the banks do not provide data about loan processing fees to their customers. The prime bank and BRAC bank limited only charges .50% as loan processing fees.

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Comparative Analysis of SME Credit Scheme of Six Different Banks

Name of the Bank Operation Started Loan Size Rate of Interest Loan processing Fees Dhaka Bank ltd. 2003 Taka 0.50 Lac Taka 50.00 Lacs Dutch Bangla Bank Ltd. 2001 Taka Lac to Taka 50.00 Lacs Prime Bank Ltd. 1999 Taka Lac to Taka 75.00 Lacs Eastern Bank Ltd. 2005 Taka Lac to Taka 300.00 Lacs BRAC Bank 2001 Taka 3 Lacs to Taka 30.00 Lacs Bank Asia 2007 Taka 2 10%1.oo% the amoun of 1 to 5 Only term loan. 18% to 24% p.a. .50 % of the loan amount 1 to 3 Only term loan 1 14% to 15% p.a. not available 1.5 to 5 years Only term loan 1 13% to 15% p.a. .50 % of the loan amount. up year to 3 13% to 15% p.a. not available 1 to 12% to .00 % of the loan amount. 1 to 5 years. Term loan and working capital loan 3 Term loan and working capital loan 1 Only working capital loan Period of Loan Mode of Finance

to 13% p.a.

years

years

lacs to 30 18%p.a. lacks

loan years

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5.1 Yearly comparison of Small and Medium Enterprise Finance in Bank Asia 2007: Bank Asia started its SME journey initiating Product named Shachhondo during the year, and has been availing of refinancing facility from Bangladesh Bank against disbursement of SME loans. Initially our journey in this business segment started with a meager number of 39 small and medium entrepreneurs. Bank disbursed Tk. 18.55 million during the year under review of which total outstanding was Tk. 17.56 million at the end of the year. But considering the potential and the needs of this segment we have set much higher target for 2008. We are effectively implementing the operation procedures prescribed by the SEDF, a concern of the IFC, after receiving technical assistance and comprehensive training in order to ensure sound and safe lending in this segment. With a modest beginning this year, we are prepared for and expecting a remarkable growth in 2008. In the year 2007 the allotment in the Small and medium enterprise (SME) is Tk. 17,560,976 Percentage of SME loan against total loan= *100 =0.0617 % 2008: The development of Small and Medium Enterprises is increasingly believed to be a desirable objective in view of their contribution to decentralized job creation and generation of output. For Bangladesh, SMEs have assumed special significance for poverty alleviation and contribution to the overall industrial and economic growth. Bank Asia attempts not only to provide financial products and services to this segment but also to help them to be educated and become aware of the ever changing business world. One of our prime visions is to offer customer friendly lending products and services so that SMEs can aspire to take advantage of opportunities of growth and wealth creation. Realizing the importance of SME to our
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national economy, Bank Asia has launched a product titled Shachondo which is designed for small manufacturing, trading and service oriented businesses. The SME finance grew in a moderate pace in the year 2008. To accommodate the demand of the emerging SME segment, the unit is developing more products which are expected to be formally launched in 2009. At the end of the year 2008, the total client number under the product Shachondo stood at 282. The Bank disbursed a total amount of Tk. 190.45 million during the year under review of which total outstanding was Tk. 152.40 million at the end of the year 2008. In the year 2008 the allotment in Small and medium enterprise (SME) is Tk. 152,408,212. Percentage of SME loan against total loan= *100 = 0.3812 % 2009: In accordance with the market trend, Bank Asia has also concentrated more on financing the SMEs in the year. At the beginning of the year 2009, SME cumulative disbursement stood at Tk.190.45 million whereas at the end of the year cumulative disbursement size increased to Tk. 997.32 million. Side by side, the bank established nine SME centers. At the end of the year 2009, the total client number under SME stood at 1,060. The Bank disbursed a total amount of Tk. 997.32 million during the year and total outstanding was Tk. 745.51 million at the end of the year. The SME department of the Bank is now pursuing for significant growth in the year 2010 by way of offering a wide range of SME loan products under competitive terms. The SME department is looking forward to increase the number of SME centre in the year 2010. In the year 2009 the allotment in Small and medium enterprise (SME) is Tk. 745.51 Percentage of SME loan against total loan= = 1.4830 % *100

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2010 Financing the SMEs has opened the door for the development of the economies around the world to work out a solution to lift up the living standard of a substantial part of mass population. These SME entrepreneurs are the people who have silently contribution to the national economies. They have been relentlessly supporting the corporate giants through supply chain but hardly get access to finance. SME sector has been accumulating the social capital in the country and now its the time to address their needs. Alongside, SME allows the banks to reduce loan to reduce loan concentration and minimize portfolio risk which will also provide added advantage in capital adequacy requirement as per BASEL 2 accord. Moreover, the central bank is allowing re-financing of SMEs which allows the banks to have a considerable spread. The Bank received refinanced amount of Tk. 40.07 million from Bangladesh Bank against SME financing during the year 2010.

SME Portfolio (in 2010)

Trading Manufacturing 2% 2% Service Women Entrepreneur

14%

82%

Figure: Sector wise allotment of SME

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The role of financing the SME is paramount as far as entrepreneurship development is concerned. With the expansion in the size of the SME sector, the financing needs of the sectors are also increasing and their significant opportunities for the banks to position their resources in such remunerative avenues. Bank Asia has strengthened and expanded its SME credit operations extensively. Bank Asia follows distribution of SME credit through its established branches & SME centers to cater the needs of the small segment of clients. As of 31st December 2010, the SME credit portfolio of the bank has Tk. 2142.16 million compared to Tk. 745.50 million in 2009. Bank Asia participated in the SME fair titled Assembly of Women Entrepreneurs and product Display organized by Bangladesh Bank(BB) on the BB training Institute premises in Bank Asia client, Tanuja Rahman Maya jessor emerged as the Best Woman Entrepreneur of the Year for making a successful foray into the countrys handicrafts market. Maya, owner of Rong Handicraft, has received the National SME Woman Entrepreneur Award 2010. In the year 2010 the allotment in Small and medium enterprise (SME) is Tk. 2142.22 million Percentage of SME loan against total loan= *100

=2.6944%

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Graphical representation

Percentage of SME loan against total loan

3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2007 2008 2009 2010 Percentage of SME loan against total loan

Figure: Yearly Allotment of SME loan in Bank Asia Ltd. We see in the graph the SME loan portfolio of Bank Asia is increased rapidly year by year. The increasing trend of SME loan portfolio can be explained in geometric rate. In the year 2007 the SME lean amount was only 17.56 million but in the year 2010 the SME loan portfolio increased in the amount Tk. 2142.22 million. This increasing demand only possible for increasing demand of SME loan and Bank Asias marketing strategy.

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5.02 Statistical Analysis REGRESSION /MISSING LISTWISE /STATISTICS COEFF OUTS R ANOVA /CRITERIA=PIN(.05) POUT(.10) /NOORIGIN /DEPENDENT VAR00003 /METHOD=ENTER VAR00002.

Regression Variables Entered/Removedb Model 1 Variables Entered VAR00002a Variables Removed Method . Enter

a. All requested variables entered. b. Dependent Variable: VAR00003

Model Summary Std. Error of the Model 1 R .999a R Square .998 Adjusted R Square .998 Estimate 1020.13285

a. Predictors: (Constant), VAR00002

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ANOVAb Sum of Model 1 Regression Residual Total Squares 2.027E9 3122013.075 2.030E9 df 1 Mean Square F Sig. .000a

2.027E9 1.948E3

3 1040671.025 4

a. Predictors: (Constant), VAR00002 b. Dependent Variable: VAR00003

Coefficients Unstandardized Coefficients Model 1 (Constant) VAR00002 B -1436.883 .964 Std. Error 1127.924 .022 .999 Standardized Coefficients Beta t -1.274 44.137 Sig. .292 .000

a. Dependent Variable: VAR00003

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Correlation Analysis: As is .998 that is close to +1. It means that the relationship between deposit

(Independent Variable) and loan and advance (Dependent Variable) is very positively strong. So, loan and advance will increase with the increase of deposit. ANOVA Analysis: Null Hypothesis: : Loan and advance will increase with the increase of deposit. : Loan and advance will not increase with the increase of

Alternative hypothesis deposit

At 5 % significant level with degree of freedom 1 and 3, critical value of F is 10.1. The calculated value of F is 1.948E3. That is lower than critical value. It means that null hypothesis is accepted. Even in case of 1% significance level the degree of freedom 1 and 3. , critical value of F is 34.1. The calculated value is lower than critical value. That means null hypothesis is accepted. So loan and advance will increase with the increase of deposit. Regression Analysis: Equation: Y=--1436.883 +.999X (1127.924) (.022)

Here, the constant is negative figure. It means that loan and advance not only depend on deposit but also other variable will have to be considered. Standard deviation: Standard deviation is the most and widely used measure of studying variation. It is a measure of how much spread or variability is present in the data. Here, I am going to show the variability of the loans and advances and the SME loan of Bank Asia Ltd. I used five years data to justify the variability in terms of years.

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Measurement of standard deviation: YEARS 2010 2009 2008 2007 STANDARD DEVIATON Loans and advances(X) 79504.23 50267.92 39975.00 28456.94 40275.67 SME Loan (Y) 2142.22 745.51 152.408 17.5609 841.28

Source: Annual Report of Bank Asia Ltd. for five years. Interpretation: Here, from the standard deviation analysis we can say that loans and advances of the Bank Asia are much variable than the SME loan. All the years the loans and advances are quite similar in comparison with the other years. But the SME loans are vary less than the total loan and advance. Coefficient of variation: The SD discussed so far is an absolute measure of variation. The corresponding relative measure is known as the coefficient of variation. It is used in such problems where we want to compare the variability of two or more than two series.

For Loan and Advance: C.V=(40275.6749573.772)/*100 =81.24% For SME loan: C.V=SD/Mean*100 = (841.28/764.42)*100 =110.05 % Interpretation: From the analysis we can see that the loans and advances are less variable than the SME loan. It may be the reason that the higher dispersion of SME loan than total loan.

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5.3 Obstacles and Challenges faced By Bank Asia Limited in SME At the beginning phrase of the SME, Bank Asia Limited faced lots of obstacles and challenge. There was a shortage of capital, absence of high technology, high employee turnover, lack of Skills entrepreneur, no trade license of businessman etc. These problems are describe in brief in below 1. Financial Constraint At the very beginning of the SME, Bank Asia has financial constraints. Bank Asia does not have enough liquid money so that they failed to satisfy every customers need.

2 Absence of High Technology Absence of high technology was another constraint for the Bank Asia limited. At that time they do not have strong inter-banking software so that they failed to contact with different SME service Centre.

3 High Employee Turnovers: In 2007 employee turnover rate was pretty high. Bank Asia does not have any legal bindings to their employees. Employees quit their job according to their wish. So it also hampers the SME Service

4 Lack of Skills Entrepreneur:

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At that time entrepreneurs were not educated enough. They do not have sufficient skills about the different types of paper requirement. It hampers the loan processing time.

5 Trade License Trade license was

another major problem for BRAC Bank. Most of the business man does not have their business trade license. Without proper documents it was quite hard to sanction the loan. 6 Poor Physical Infrastructures Inadequate supply of necessary utilities like electricity, water, roads and highways hinder the growth of SME sector. 7 Employee Skills At that time employees do not have sufficient knowledge about SME. It was costly to train all the employees. So lack of proper training to employees was another obstacle for SME growth. 8 Lack of Information At that time SME just got a new shape in our country. So no one has clear idea about it. So vague and wrong information were passed away among the people.

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5.4 Steps Taken to Overcome the Obstacles In order to overcome the above mentioned obstacles BRAC Bank started follow some steps, these steps were 1. Bank Asia started to expand their SME network In 2007 Bank Limited their SME loan business with few SME sales and service center. Gradually they have started to expand their network. Now they have 10 SME sales and service center. 2. Training Session for employees At the very beginning of SME operation employees do not have sufficient knowledge to handle the customer. Besides at that time there were lack of educate employees to join this sector. So Bank Asia Limited started to train up employees those who have started to join in SME division. 3. Orientation Sessions for Borrowers Besides training with the employees Bank Asia Limited also started to train the borrowers also. Most of the borrowers are not educate at all. Even they dont pass the S.S.C or H.S.C. So BBL started to organize orientation session for a group of borrowers.

4. Tried to Overcome Financial Constraint At the very beginning Bank Asia Limited investment was low in the SME loan. Gradually they have started to invest huge in the SME. As they have a strong background of shareholders. 5. Educate the Entrepreneurs At that time most of the entrepreneurs just passed the S.S.C or H.S.C level. So they have a very poor knowledge about the banking transaction. They come for the loan

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but they dont have any trade license. So educate the entrepreneurs were other steps to overcome the obstacles. 6. Employee Commitment As employee turnover was quite high so Bank Asia Limited started to give handsome remuneration to their employees. They started to provide some extra facilities to their employees. Besides they also started to take contract sign for 2 or 3 years from the employees. 7. Advancement of Technology of Bank Asia Limited also started to develop their technology. In consequent of this they have transfer their software from MBS to Finacle. Now the respective department can easily find out whether the particular borrower paid his installment or not. 5.5 Modern methods for analyzing and managing SME credit: Two modern factors of credit analysis and management: TRICK I-zation factors. Components of TRICK: There are five components of TRICK. Those are: Transparency Traditionally, bank business loans have been opaque. The process of securitization has contributed to the renewed interest in credit. Innovative developments of value at risk (VAR) and credit derivatives has lead to greater transparency and more rational pricing of credit. Risk Exposure Increased bankruptcies, both corporate and personal, are reasons for a renewed interest in credit risk.
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When collateral values deteriorate and become more volatile, these changes get lenders attention. Information Technology The potential for risk metrics techniques to be applied as credit metrics procedures has sparked a renewed interest in credit risk. This increased quantitative and technical approach to credit management and analysis has attracted financial engineers to the field. Also, credit derivatives have renewed interest in credit risk. Customers As debt instruments such as corporate bonds and commercial paper has expanded, banks have been pressured to find new customers. This greater exposure to default risk has been another driver in the renewed interest in credit risk.

Kapital Adequacy The revised Basle Accord further heightens the interest in credit risk by offering banks three ways of calculating minimum capital requirements: 1. A standardized method, which most community banks are expected to select. 2. Two internal ratings-based methods. I-zation factors These factors contain topic like globalization and reorganization. Reorganization of the bank lending function

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The treatment of the loan product is moving toward that of bonds, which means emphasis on: 1. Present value or price as discounted future cash flows 2. Probability of default (d) and default risk 3. Recovery rates () 4. Prepayment risk 5. External ratings (Moodys and S&P) Zeta Analysis: Zeta analysis is a model for identifying the bankruptcy risk of corporations. Zeta analysis is completed by the Altmans Z-score model. Altmans Z- score model= 1.2X1+ 1.4X2+3.3X3+0.6X4+.1.0X5 Where, X1=Working capital/Total assets. X2=Retained earnings/total assets. X3=EBIT/Total assets. X4=Market value of equity/ Book value of total debt. X4=ales/ total assets.

Here I take X corporation for my research. As a credit management officer I have to justify the possibility of the bankruptcy of the corporation. I have taken the five ratios hypothetically. Z = 1.2(0.5683) + 1.4(0.6307) + 1.4(0.0642) + 3.3(0.686)* +1.0(1.2817) = 3.4701 Bankruptcy level:

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If Z<2.675, assign to the bankrupt group. If Z>2.75, assign to the nonbankrupt group.

Here, X corporations Z-score is 3.470 which is greater than 2.675. So it has less possibility of bankruptcy. For this reason bank can provides credit to their organization. A Loan-Surveillance Model The objective of the typical credit or loan review classification model is to replicate judgments made by loan officers, credit mangers or bank examiners. Here I take hypothetical data of corporation Y for the judgment. The formula is: Y=-2.0434-5.24X1+.0053X2-6.6507X3+4.4009X4-.0791X5-.10206X6. The variable y which is a linear combination of the independent variables, is used in the following formula to determine the probability of noncompliance, P Here, P = 1/ (1 + e-y) where P = the probability of noncompliance. Here e=2.71828 If P>.50, assign to the noncompliance group. If P<.50, assign to the compliance group. X1 = (Cash + market securities)/Total assets = 0.043 X2=Net sales/(cash + market securities)= 30.03 X3 = EBIT/Total assets = = 0.064 X4 = Total debt/ Total assets = 0.274 X5 = Fixed assets/Net worth = 1.458 X6 = Working capital/net sales = 0.0828 For the corporation Y the model results: y = -1.53 and P = 0.18 <.50 so it is under the compliance group. So the loan can be sanctioned.
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6.0 SWOT analysis of Bank Asia Every organization is composed of some internal strengths and weaknesses and also has some external opportunities and threats in its whole life cycle. The following will briefly introduce the customer to the Bank Asias internal strengths and weaknesses, and external opportunities and threats as I have explored in the past ten weeks. Strength Superior Quality: Bank Asia provides its customers excellent quality of service. It gives the first priority to customer satisfaction. Dynamism: Bank Asia draws its strength from the adaptability and dynamism it possesses. It has quickly adapted to world class standard in terms of banking services. Bank Asia has also adapted state of the art technology to connect with the world for better communication to integrate facilities. Financial Strength: Bank Asia is a finally sound company backed by the enormous resource base of the mother concern Rangs Group. As result customers feel comfortable in dealing with the company. Efficient Management: All the levels of the management of Bank Asia are solely directed to maintain a culture of the betterment of the quality of the service and development of a corporate brand image in the market through organization wide term approach and open communication system. State of the Art Technology: Bank Asia utilizes state-of-the-art technology to ensure consistent quality and operation. The corporate office is equipped with SWIFT (SWIFT is a banking software, used by Bank Asia). All other branches are also equipped with SWIFT system. Experts: The key contributing factor behind the success of the Bank Asia is its employee, who is highly trained and most competent in their own field. Bank Asia provides their employees training both in-house and outside job. In-House Utility: Bank Asia is free from dependence on ever disruptive power supply of our public sources. The company generates the required

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power through generator fed on diesel. Water generation is done by deep tube wells on site and in abundance. Excellent Working Environment: Bank Asia provides its workforce an excellent place to work in. Total complex has been centrally air conditioned. The interior decoration was done exquisitely with choice of soothing colors and blend of artistic that is comparable to any overseas bank.

Weaknesses Limited Workforce: Bank Asia has limited human resources compared to its financial activities. There are not many people to perform most of the tasks. As a result many of the employees are burdened with extra workloads and work late hours with out any overtime facilities. This might cause high employee turnover that will prove to be too costly to avoid. Problem in Delivery: Few of the Bank Asias products offered to its clients like Personal Credit (PC) is lying idle due to proper marketing initiative from the management. These products can easily be made available in attractive ways to increases its client base as well as its deposit status.

Opportunities Government Support: Government of Bangladesh has rendered its full support to the banking sector for a sound financial status of the country, as it has become one of the vital sources of employment in the country now. Such government concern will facilitate and support the long-term vision of Bank Asia. Evaluation of E-Banking: Emergence of e-banking will open more scope for Bank Asia to reach the clients not only in Bangladesh but also in the global banking arena. Although the bank has already entered the world of e-banking but yet to provide full electronic banking facilities to its customer. A proper blend of Banking and information technology might give the bank leverage to its competitors. Nevertheless there are ample opportunities for Bank Asia to

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go for product innovation in line with the modern day need. The bank has yet to develop credit card facility, lease financing and merchant banking.

Threats Merger and Acquisition: The worldwide trend of merging and acquisition in financial institution is causing concentration. The industry and competitors are increasing in power their respective areas. Poor Telecommunication Infrastructure: As previously mentioned, the world is advancing e-technology very rapidly. Though Bank Asia has taken effort to join the stream of information technology, it is not possible to complete the mission due to poor technology and infrastructure of our country. Frequent Currency Devaluation: Frequent devaluation of Taka exchange rate fluctuations and particularly South-East Asian currency crisis adversely affects the business globally. Emergence of Competitors: Due to high customer demand, more and more financial institutions are being introduced in the country. There are already 52 banks of various types are operating in the country. Many banks are entering the market with new and lucrative products. The market for banking industry is now a buyer dominated market. Unless Bank Asia can come up with attractive financial products in the market, it will have to face steep competition in the days to come.

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7.0 Findings Though BRAC bank initiated the SME loan activities in Bangladesh, now more or less every bank performs SME lending activities in several branches. Bank Asia Limited started its journey of SME lending from June 2007 with SME loan named Shachhondo. Now Bank Asia plays a vital role in the SME sector of Bangladesh. Bank Asia started loans for 39 clients and in total 18.55 million TK. in the SME loan sector. Now Bank Asia has taken different strategies for the development of this sector, because it is the main profitable product of Bank Asia. In the recent years they launched different types of SME loan product for mitigate the different target customers needs. Throughout the survey analysis and 3 months internship period this reports found some shortfalls of SME sector of Bank Asia Limited. The findings of this report are given below: Though Bank Asia Limited started its SME journey in the year 2007 but the interest rate is so high in comparison to other loan. Most of the customers want to reduce the interest rate and increase tenure. With the interview of few customers it is seems that some customers are not satisfied with the attitude/behavior of SME loan department authority. Though customers expect some better service from privatized organization but there is huge number of documents in the helpdesk causes delay in the disbursement process. It creates dissatisfaction among customers that can pursue customers to take loan from other banks. Zonal offices have the restriction to approve higher amount of SME loan, but at present the percentage of repeat customers increase rapidly and most of the cases they apply for higher amount of SME loan.. Lack of marketing activities in the urban area, whereas other competitors are giving more ad at different spot.

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The remuneration package for the entry and the mid -level management is considerably low. The compensation package is for Bank Asia entry-level position even lower than the contemporary banks. Some of the borrowers do not install a signboard in a visible place of business or manufacturing unit mentioned that financed by Bank Asia Limited.

7.1 Recommendation: For better improvement of SME, Bank Asia Limited can consider the following recommendation: Reduce the interest rate because most of their competitors are providing loans at a lower rate for example most of the competitors banks providing loan at 12 -15% interest rate Increase marketing activities in the urban area because other competing industries are given huge ad in urban area which helps them to increase their customer base. Give proper training to the CROs with some real life problem because they are all in all for SME loan. Sometimes they made a mistake which results in customer harassment, increase processing time and charges. Look after CROs activities by the ZOs because sometimes they are hiding information and make mistakes to prepare financial statements and other documents. Increase amount of SME loan approval by the Zonal officer, at present they can approve up to 5 lacs. Increase amount up to 10 lacs without collateral security for providing loans Recruit fresh ZOs from outside to control CRO grievances (since present ZOs are mostly promoted CROs who have joined the Bank all most at same time).

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Frequently check clients are perform all the terms and condition of SME loan. Provide loans to the leather and jewelers industry, because leather is the 3 rd exporting product so it is better to encourage them for the economic development of Bangladesh Increase the remuneration and compensation package for the entry and mid -level management otherwise Bank Asia Limited cant retain the efficient and experi enced employees. The marketing strategy of SME loan need to be improved. The SME loan portfolio of Bank Asia must be increased. Much or less, few incentive for SME loan borrower need to be provided. A few number of customer blame about the attitude of ZO/CRO. The HR department must be conscious about their employees behavior.

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7.3 Conclusion: Undoubtedly this internship report helps me to nurture practical knowledge. Mere bookish knowledge cannot fulfill the thrust of knowledge. Internship period enhances my real life experience in various aspects. It is a great pleasure for me to have practical exposure in Bank Asia Limited because without practical exposure it couldnt be possible for me to compare the theory with practice and it is well establish that theory without practice is blind. There are number of commercial banks operating their activities in Bangladesh. The Bank Asia Limited is a promising one in them. For the future planning and the successful operation in achieving its prime goal in this current competitive environment this report can be guideline. SME is the most emerging sector to expand and Bank Asia has every potentiality to explore the SME business. This report presents some significant ways to meet the future challenges in SME business. But there still remains traditional approach of SME lending in Bank Asia Limited. This is needed to be changed to improve in SME lending. In this report I have mentioned little modern lending procedure which can help Bank Asia Limited to go ahead in SME lending. Nevertheless, the success of SME banking depends on the expertise and dedication of the field level officers. That is why continuous training and motivation is very much relevant to run the SME banking successfully.

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References http://www.bankasia-bd.com/ Annual Report of Bank Asia 2010, 2009, 2008, 2007. Short notes provided by Bank Asia Ltd. Raw documents provided by Bank Asia Ltd. Asian Development Banks Report on Bangladesh: Small and Medium Enterprise Sector Development Program. Article of SME and Special Program Department, Bangladesh bank. Economic Review of BTCL: 2010-11 Policy Strategies for Small & Medium Enterprises (SME) Development in Bangladesh (Ministry of Industries,Government of the Peoples Republic of Bangladesh) Article on Role of SMEs Export Growth in Bangladesh (Federation of Bangladesh Chambers of Commerce and Industry) International Journal of Business and Management.

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