Bangladesh Presentation (1)

8/8/2019 Bangladesh Presentation (1)

1/42

-Dr. M.P Singh & V.S Chopra-Center for Entrepreneur Development

India


2/42

Important trendsEconomic uncertaintyLiquidity management

InflationCurrencyLabour marketReal estate market

prospects for GDP growth for 2008 and2009 are 7.9% and 6.9%, respectively

Borrowing limit from foreign branches from 25% to Cash reserve ratio (CRR) -6.5%

Injection of 1 trillion rupees into the market

Consumer Price Index (CPI) climbed to 9% Commodity prices are slowing down this helps to ease inflation pressuresDepreciated by 24% in the last 12 months

63.3% population is between the ages of 15 and

30% or 340 million people, is below the age of 15Real estate demand, supported by middle classDepressed by increasing interest rates so far


3/42

ObjectiveTO double our percentage share of Globalmerchandise share.Use trade expansion as an effective instrument

of economic growth and employmentgenerationShort term objective

To arrest and reverse the declining trend of exports and provide additional support.Export target 15% till 2011 & There after 25%

Foreign Trade policy 2009-14


4/42

StrategiesFiscal incentivesinstitutional changesprocedural rationalization

Diversification of exports MarketImprovement in infrastructure related to exportsBringing down transaction costRefund of all indirect taxesSpecial thrust to employment intensive sector vizTextile , leather , Handicrafts.Directorate of trade remedy measures

Foreign Trade policy 2009-14


5/42

Technology upgradation scheme

Focus market Scheme

Focus product scheme

Market linked Focus product scheme

EPCG zero duty schemeTown of Export excellenceTUFS(technology upgradation fund scheme) for textile

26 new markets addedFMS incentive raised from 2.5 to 3%Simplification of application

Incentive raised from 1.25% to 3 %Large no of new products have been included


6/42

MDA/MAI Higher allocation is being provided.

Interest subvention facility2% interest rebate to 7 sp. Sector foremployment generation

Income tax exemption100% to EOU / STPI units till 2011

ECGC assistance

Cover extended from 90% to 95% till march2011


7/42

Value addition

Waiver of incentive recovery on write off.

Directorate of trade remedy measures(for MSMEs)

Minimum 15% under advance authorization

Incentive not recoverable subject to certain conditionReduction in transaction costMaximum fees reduced from Rs. 1.5 Lacs to Rs. 1 Lac.


8/42

Negotiationbetween Buyer and

seller

Exportorder

Procurement

of goods asper contract

Packing

Inspection

Shipment

AssemblingDocuments

Invoice , packinglist , transportdocument viz.

Culminatesinto

Exporters (sellers)BankSubmit

Documents

Importers(Buyers) Bank

Presentationof Docs to the

Buyer

Buyer


9/42

Buyer

Importers(Buyers) Bank

Collects thepayment remit

it toExporters

(sellers) Bank

Credit the sellers A/cafter deducting their

chargesSeller

Makespayment


10/42

Formation of export intl. Sale contractStructure of Export order.Special conditionQualityQuantityPrice and payment termsDelivery and trade termsDocumentationInvoiceInsuranceTransport documentBill of ExchangeGeneral conditionForce majeureJurisdictionApplicable LawPenalty clause / liquidated damages


11/42

4. Shipping documents

7. Payment5b. Shipping documents

3. Lodgmentof shippingdocuments5a. Payment

6. Payment

2. Shipment

1. Contract of SaleBuyer(Importer)

Seller(Exporter)

PresentingBank

RemittingBank


12/42


13/42


14/42


15/42


16/42


17/42

Risk is the possibility of an unfortunateoccurrence.Risk is the possibility of loss.

Risk is a combination of hazards.Risk is uncertainty of loss.Risk is the tendency that actual results maydiffer from predicted results.


18/42

Static Risks Dynamic Risks

1. These losses can be predicted.

2. These occur even if there is nochanges in the economicenvironment.

3. These risks can be covered byinsurance.

4. These risks do not benefit thesociety.

1. Dynamic risks are not easilypredictable.

2. These result from changes in theeconomic environment.

3. These are not suitable fortreatment by insurance.

4. These risks benefit the society.


19/42

Financial Risk This type of risk is concerned with financial loss. Losses due to non-financial risk cannot

be measured in monetary terms.

Non-financial Risk This type of risks may be during the selection of career, the choice of marriage partner,etc. These may or may not have any financial implications and are difficult to measure.

Pure Risk Pure risk are those which have only two outcomes, i.e., loss or no loss. Whereasspeculative risks involves the situation where is a possibility of gain .e.g. investment inshares.

Fundamental RisksFundamental risks are those risks which are there because of the problems relating to themajor factors such as exchange of economic, social, cultural, and political.


20/42

Business Risk It is concerned with possible reduction in business value from

any source. Unexpected changes in future net changes in future netcash flows are major source of fluctuations in business value.

(i) Price Risk : Price risk arises due to magnitude of cash flow due tochanges in out put and input prices. Output price risk due to the risk of changes in the prices which may change due to the change in thedemand for the goods

(ii) Credit Risk : Credit risk arises because of the delay or failure inmaking promised payments by the customers and other parties. Creditrisk is high in case of financial institutions, commercials banks, etc.

Personal Risk

Personal risks are the risks faced by individuals and families.There are number of personal risks like earning risk, medical expenserisk, liability risks, physical assets risk, financial asset risk and risk of longevity.


21/42

Payment RiskCredit RiskTransport related Risk

Exchange fluctuation RiskPolitical RiskInvestment RiskProduct liability RiskLegal RiskCultural Risk


22/42

Risk management is an integrated process of delineatingspecific areas of risk, developing a comprehensive plan,integrating the plan and conducting ongoing evaluation.

Risk management thus may be defined as the identification,analysis and economic control of those risks which canthreaten the assets or earning capacity of an enterprise.


23/42

Points supporting risk

Before identification, in fact risk can be measured. Its evaluation is possible only after its impact.

For risk management, systematic methods are required. For minimizing cost of handling risks, appropriate cost control devices

should be applied. Risk management should focus on assets and earning capacity of the

organization.

Principles of risk management are applicable to all sectors of economyincluding service sector.


24/42

1. Risk management is a scientific approach to deal with the problems of pure risks.

2. Risk management considers insurable and uninsurable risksand use suitable techniques for problems dealing with the

problems dealing with all pure risks.

3. Main emphasis of risk management is on reducing the cost of handling risk by using appropriate methods.


25/42

1. To evaluate the risks of the business.2. To evaluate the appropriate corporate polices and strategies.3. To effectively manage the people and process.4. To formulate plans and techniques to minimize the risks.5. To give advices and suggestions for handling the risks.6. To make the people aware about the various types of risks.7. To economize the handling of risks.8. To decide about which risks are to be avoided and which to be pursued

according to analysis.9. To fix the sum assured under the policy and to decide on whether to

insure or not.10. To select the appropriate to manage the risks.


26/42


27/42

4. Principle of corrective decision.In risk management, decision making is a process of involving information, choice of alternative actions, implementation and evaluation that is directed to the achievement of objectives.

Aspects of decision:(i) To retain the risk as it is which may be achieved with or without a reserve fund.

(ii) To prevent the loss of risk.

(iii) to transfer the risk through insurance, which involves selection of an insurer.

5. Principle of evaluationThis principle states that each available alternative has to be evaluated properly from allthe angles, i.e. financial, market etc.

6. Principle of alternative course action.

After evaluation a specific alternative is chosen which may give the desired result.


28/42

7. Principle of control of risk Effective control is the basis to measure the effectiveness of performance at

various levels of handling risk.

8. Principle of retention of risk It is related with the decision of retention of risk.

9. Principle of risk transferRisk transfer means the transfer of financial effect of risk to other party.


29/42

Protecting employees from accident.

Effective utilization of resources.

Minimizing cost of handling.

To maintain good relations with society and public.


30/42

Cost of Risk Risk management decisions are based on estimates of cost of losses and thus the cost of risk.

Components of cost of risk

1. Cost of expected lossesThe expected losses cover both direct and indirect losses. Direct losses include the costof repairing or replacing damaged assets, the cost of paying workers, etc.

Indirect losses include reduction in the net profits that result because of direct losses,such as the loss of normal profits and continuing extra expense.

2. Cost of control lossThis cost covers the cost of increased precautions and limits on risky activity to reduce

the frequency and severity of accidents and losses.

3. Cost of financingCost of loss financing covers the cost of self insurance, the loading in insurance

premiums, and the transaction cost of arranging, negotiating and arranging, negotiatingand enforcing hedging arrangements and other contractual risk transfers.


31/42

Cost of price change risk


32/42

Cost of price change risk Cost of price change risk involves those factors in which pure risk and

other risk, e.g. very important risk for the firms specially operating in theglobal environment is the risk of price change which may be due to exchangerate.

Types of risks which a firm faces.

1. Cost of risk and maximization of value firm.Value of business to shareholders depends fundamentally on the expected,magnitude, timing and risk associated with future net cash flows that will beavailable to provide shareholders with a return on their investment

2. Maximizing value by minimizing the cost of risk.Unexpected increases in losses that are not offset by cash inflows from

insurance contracts, hedging, arrangements or other contractual risk transfersincrease cash outflows and reduces generally cash inflows which will reducethe value of share of firm

Net Cash flow = Cash Inflow Cash outflow

Cost of Risk = Value without risk Value with risk


33/42

Risk management of individuals and cost of risk The concept of risk management is applicable to individual risk management decisions ,e.g. when choosing how to manage the risk of accidents from motor, an individual would consider the expected losses

from accidents, possible loss control activities and loss financingalternatives, and the cost of these alternatives, and the cost of these benefits of gathering information.

Risk management information system (RMIS)RMIS is designed to help the functions of risk management. These aresoftware tools. RMIS emphasis upon management of insurance

policies, exposure data, claims management, monitoring of safety andfinancial losses.

Uses of RMIS1. For reporting2. For claim adjustment process review3. For examination about reasons of accidents.


34/42

Problems of RMISIncompatibility of softwarePoor system documentationImpurity of data

Lacks of serviceObsolesceInflexibility of systemProblems of proprietary

Remedies for the above problems:Clear and comprehensive specifications

Need assessment in proper manner Reference checks, including on-site inspectionFinancial check Standard software configuration, such as DOS or WindowsInternal access to system expert.Solid vendor account team.

Organization of risk management in business


35/42

Organization of risk management in businessRisk management is becoming a very important function of management. In small organizations, the risks management istaken care of by the president or owner. In large organizations,risk management may be a separate department which may behandled by a separate risk manager or director of riskmanagement

Process of Risk Management

1. To define the objectives of the risk management2. To identify all significant risks3. To evaluate the potential frequency and severity of losses.4. To develop and select and managing risks

5. To implements the methods chosen for risk management6. To monitor the performance and suitability of the risksmanagement methods and strategies on an ongoing basis.


36/42

Methods of Risk Management

1. Loss Control

Loss control are those which reduce expected cost of losses by reducing thefrequency of losses and/or the severity losses that occur.

2. Loss financingLoss financing are the methods used to funds to pay for or offset losses thatoccur. It includes:

a. Retention b. Insurancec. Hedgingd. Other contractual risks transfers.

3. Internal risk reductionBusiness can reduce risks internally too through following:

a. Diversification, and b. Investment in information.


37/42

The most important step for risk management is toidentify the risks, i.e. to determine where the risks for the company lie. The risks may be various types likerisk to property, fixed assets and property, other areas

of potential loss like risk for the property which is borrowed or taken on lease or there may be someunusual risks like due to flood, earthquake or extraexpense.

f f b l l


38/42

Type of Loss

Property of Loss Liability losses

Directlosses

IndirectLosses

1. What types of property aresubject to damage ordisappearance?

2. What are the factors responsiblefor loss?

3. What is the value of property beexposed to loss?

4. Will the property be replaced if itis lost?

1. Will the firm the firm have toraise external funds to replaceuninsured property?

2. Assuming replacement, will thefirm suspend or cut backoperations after direct loss?

3. If the firm reduces or stops theoperations,

a. What would be the durationand how much normal profitcould be lost?

b. What operation expenses

would continue even aftersuspension or slowdown

1. What property might beharmed by the firm (customers,suppliers and others)?

2. How these parties be harmed ?3. What are the cost of defenses?

4. What is the cost of defenses?

1. Will revenues decline inresponse to decline in responseto possible damage to thefirms reputations?

a. What is the potential

magnitude of this loss.b. What is the actions mightreduce the resulting indirectlosses and what at cost?

2. Will products and serviceslikely be abandoned or theproducts reinsured losses?

T f P f L Li bili l


39/42

Type of Loss

Property of Loss Liability losses

IndirectLosses

c. Will revenue losses continue afternormal levels of production are resumedand, if so, what actions might reducethese losses and at what cost?

4. If the firm continues operating atpre-loss levels,

(a) what facilities or resourceswill be needed?

(b) what would be the additional costfrom using alternative facilities orresources.

3. Will the firm have to raiseadditional capital in the eventthat cash flows decline?

4. Could large uninsured lossespush the firm into financialdistress?


40/42

Various other losses

Losses to human resources .Human resources losses refers to the losses in the value of firm due to injuries,disabilities, death retirement and turnover of workers. Because of contractualcommitments and compulsory benefits, firms often compensate employees injuries,disabilities, death and retirement.

Losses of liabilityLiability losses relate mainly to legal liability losses occur due to relationships withmany parties like suppliers, customers, employees, costs associated with liabilitysuits can impose substantial losses on firms.

Loss from external economic forcesThis type of losses occur because of the changes in the prices of input or outputs.


41/42

Identification of Individual Earnings1. Drop in family exchange

There may be drop in the earnings of family due to the death or disability of earningmember or due to retirement.

2. Medical expensesDue to the health risk, there is a big medical expenses, this risk can be covered by

many ways.

3. Personal liabilityIndividuals can be sued and held for damages inflicted on others. This risk is mainly

for automobile.

Methods of risk identification.Risk identification can be divided into two steps:(1) The risk perception that is liability to perceive that there is an exposure.

(2) The identification of the operative cause or perils, coupled to the likely result.


42/42