Report of Sme on Sebl

8/12/2019 Report of Sme on Sebl

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Part-2:Introduction


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2.1 Introduction

It is possible to gather theoretical knowledge passing through books but it is insufficient to acquire

practical experience. Three month internship program which is a part of MBA program, gave me

the opportunity to gather practical knowledge on Banking. This assignment is basically about

SME financing of Bangladesh. This topic is literature based which I tried to find out what is all

about in the theoretical part and matches it with SEBL; what are they doing?

The company internship program applied by the faculty of Business study helps me to have practical

experience and its reporting also. As the requirement of the MBA Program a student have to

complete an internship under an organization for a period of three months In relation to this

requirement my concentration is on SME financing.

SEBL has actively been financing the SME Sector with the objective of supporting and

developing the entrepreneurial potential of Bangladesh. SEBL has a firm commitment to

contribute to every segment of the economy. SME Finance is just one of the steps towards the

fulfillment of this commitment. Of late financing in SMEs has been proven to be very beneficial

focus to this sector to expand scopes of extending credit facilities to enhance sustainable profit.

Through this internship program, I come to know about the organization structure, problems,

prospects and operational procedures of Southeast Bank Ltd. So, it is impossible to deny the

importance of internship of program.

2.2 Objectives

Internship program is done for the purpose of gathering practical experience about the corporate world.

After successful compilation of the internship program everybody has to submit a report on the basis of

his working experience.


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2.2.1 Broad Objective:

1. To accumulate practical work experience.2. To understand the marketing strategies of companies to stay ahead of competitors.3. To understand the problems and barriers they are facing in the way of financing of SME.4. To develop the report writing skill.5. To get the general idea about overall operation of Southeast Bank Limited.6. To identify the core competencies, which differentiate Southeast Bank from other financial

institutions.

2.2.2 Specific objective:

The main objective of the study is to examine SME financing and also find out where SEBL

stands in this issue. To achieve the main objective, the following specific objectives have been

covered in this study:

1. To analyze the SME sector in Bangladesh.2. To know the enterprise selection criteria to provide SME loan.3. To know the terms and conditions of SME loans.4. To know the disbursement and recovery procedures of SME loans.5. To make some recommendations and conclusion to further the development of SME loan

products of Southeast Bank Ltd.

6. Entry of commercial banks into SME banking industry in Bangladesh.7. Recent performance level of the SEBL on SME loan in the country.

2.3 Methodology

The study uses both primary data and secondary data. The report is divided into two parts. One

part is the theoretical part and the other part is the practical part. The information for the

theoretical part of the report was collected from secondary sources like books, published

reports and web site of the SEBL (www. sebl.com). For general concept development about the


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bank short interviews and discussion session were taken as primary source. For the practical

part of the report general working experience has been utilized.

The information for the Project Contribution on financing in SME of SEBL both were collected

from primary and secondary sources. For gathering concept of SME loan, the Product Program

Guideline (PPG) thoroughly analyzed. Beside this observation, discussion with the employee of

the SME department and loan administration division they said bank was also conducted. More

over a market survey was conducted with a specific questioner. To identify the implementation,

supervision, monitoring and repayment practice- interview with the employee and extensive

study of the existing file was and practical case observation was done.

2.4 Scope of the study

This study in fact taken within its canvas of SEBL as a whole though the internship was done in

Gazipur Sadar Branch, Gazipur. The research will deal to identify how SEBL contributing in

financing SMEs of Bangladesh. This research project will focus on the performance of the

company in financing SME and the strategy and their ways to get the work done .

2.5Limitation of the study

In spite of related peoples willingness I could not avail the full concentration as I

supposed to have. The officers are extremely busy with their assigned jobs. And even I

had to perform the internship while doing the job. On the way of my study, I have faced

the following problems that may be termed as the limitations/shortcoming of the study.

The main limitations encountered in producing this report are:

I am a full time employee it was difficult for me to allocate enough time to prepare the

report. For an analytical purpose adequate time is required. Due to the time limit, the

scope and dimension of the study has been curtailed.


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At the time of preparing my report I tried to gather every details of process but the major

limitation is lack of adequate information.

Due to lack of experience, there may have been faults in the report though maximum

labors have been given to avoid any kind of slip-up.

Load at the work place also stood as a barrier to prepare this report.

Most of the commercial bank has its own modern, rich and wealthy collection of huge and

various types of banking related books, Journals, Magazines, Papers, Case Studies, Term Papers,

Assignments etc. But the library of Southeast Bank Limited is not well ornamented


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Part-3:Organizational Study


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3.1 Organization Overview:

Southeast Bank Limited is a scheduled Bank under private sector established under the ambit ofbank Company Act, 1991 and incorporated as a Public Limited Company under Companies Act,

1994 on March 12, 1995. The Bank started commercial banking operations effective from May

25, 1995. During this short span of time the Bank had been successful to position itself as a

progressive and dynamic financial institution in the country. The Bank had been widely

acclaimed by the business community, from small entrepreneur to large traders and industrial

conglomerates, including the top rated corporate borrowers for forward-looking business

outlook and innovative financing solutions. Thus within this very short period of time it hasbeen able to create an image for itself and has earned significant reputation in the countrys

banking sector as a Bank with vision. Presently it has thirty branches in operation.

The emergence of Southeast Bank Limited at the junction of liberation of global economic

activities, after the URUGUAY ROUND has been an important event in the financial sector of

Bangladesh. The experience of the prosperous economies of Asian countries and in

particular of South Asia has been the driving force and the strategies behind operational policy

option of the Bank. The Company Philosophy A Bank with Visionhas been preciously the

essence of the legend of banks success.

Southeast Bank Limited has been awarded license by the Government of Bangladesh as a

Scheduled Bank in the private sector in pursuance of the policy of liberalization of banking and

financial services and facilities in Bangladesh. In view of the above, the Bank within a period of

10 years of its operation achieved a remarkable success and met up capital adequacy

requirement of Bangladesh bank.

3.2 Corporate Mission and Vision

Mission:

High quality financial services with the help of latest technology.


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Fast and accurate customer service.

Balanced growth strategy.

High standard business ethics.

Steady return on shareholders equity.

Innovative banking at a competitive price.

Deep commitment to the society and the growth of national economy.

Attract and retain quality human resource.

Vision:

To stand out as a pioneer banking institution in Bangladesh and contribute significantly to the

national economy.

3.3 Core Objectives:

The banks overall objective is to have a higher profitability than that of the weighted average

of other banks. As such the main focus of the Bank is on highly profitable business with

convincing growth potential. Vision for the future is the characteristic that differentiates

Southeast Bank from other competitors.

3.4 Main Operational Area:

As a commercial bank, Southeast Bank does all traditional banking business including the wide

range of savings and credit scheme products, retail banking and ancillary services with the

support of modern technology and professional excellence. The bank has launched a number of

financial products and services since its inception. Among them different types of monthly

savings schemes have achieved wide acceptance among the people.

3.5 Company Profile:

Table - 01 : Formation History at a glance

Certificate of Incorporation March 12, 1995


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Certificate of Commencement of Business March 12, 1995

Bangladesh Bank license March 23, 1995

First Branch Opened May 25, 1995

Number of Branches 94 as on 2012

Number of SME Branches 15 as on 2011

Number of Employees 1419 as on 01/06/2010

Global Correspondents 589 as on 31/12/2009

Listing of Shares DSE & CSE

3.5.1 Corporate Profile:

Name of the Company : Southeast Bank Limited

Chairman : Alamgir Kabir, FCA

Vice Chairman : Ragib Ali

Managing Director : Mahbubul Alam

Company Secretary : Muhammad Shahjahan

Legal Status : Public Limited Company

Date of Incorporation : March 12, 1995

Registered Office : Eunoos Trade Centre 52-53, Dilkusha C/A

(Level 2, 3 & 16), Dhaka-1000

Line of Business : Banking

Authorized Capital : Tk.10, 000.00 million

Paid Up Capital : 3,422.64 million

Year of Initial Public Offer : 1999

Stock Exchange Listing : April 10, 2000 (DSE) & April 24, 2000 (CSE)

Phone : 9571115, 7160866, 7173793, 9555466 & 9550081

Fax : 99550086, 9550093 & 9563102


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5. Company Secretary- 1 ( one)This is shown in the Organogram on the next page:


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Figure-01: Management Hierarchy of Southeast Bank Limited


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3.6 Rating of Different Banks & SEBL Position:

6 A-class, 27 B-class, 8 C-class, 5 D-class & 2 E-class banks.

A-Class Banks B-Class Banks

1. Prime Bank Ltd.2. Shahjalal Islami Bank Limited3. Commercial Bank of Ceylon4. State Bank of India5. Standard Chartered Bank6. Citi N.A.

1. Standard Bank Limited2. Exim Bank Ltd.3. Mercantile Bank4. NCC Bank5. BASIC Bank6. Pubali Bank7. Southeast Bank8. Mutual Trust Bank Limited9. Dutch-Bangla Bank10.Premier Bank

11.The Trust Bank

12.Bank Asia

13.Jamuna Bank

14.BRAC Bank

15.One Bank

16.Dhaka Bank

17.Eastern Bank

18.Islami Bank Bangladesh Ltd.

19.Uttara Bank

20.National Bank

21.The City Bank

22.Social Investment Bank

23.Habib Bank

24.National Bank of Pakistan

25.Bank Alfalah


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26.Woori Bank

27.HSBC

C-Class Banks D- Class Banks

1. UCBL2. Al-Arafah Islami Bank Ltd.3. IFIC Bank Ltd.4. A B Bank Ltd.5. First Security Bank Ltd.6. Bangladesh Shilpa Rin Sangstha7. Rupali Bank Ltd.8. Agrani Bank

1. Janata Bank2. Bangladesh Krishi Bank3. Bangladesh Shilpa Bank4. Rajshahi Krishi Unnayan Bank5. Sonali Bank

E- Class Banks

1. The Oriental Bank Ltd.2. Bangladesh Commerce bank Ltd.

Fig-02

3.7 Corporate Social Responsibility:

Southeast Bank is pledge bound to respond to the expectation of the society. By fulfilling the

responsibilities, the bank tries to earn the highest trust of the community in which it operate. It acts

responsibly with regard to its customers, shareholders, employees, business associates, the

environment and the society. It contributes to the sustainable development of the society as a whole. Itrecognizes its wider obligation to the society. The ways to discharge CSR are:

contribute to the national economy; maintain fair, transparent and sound management based on the principles of self

responsibility;


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help the under privileged section of the society in education; create a free and active business environment; maintain high compliance standard;

stand by distressed humanity in national calamities; help the poor and needy people in healthcare; take care of its employees; help the customers grow; continuously enhance shareholder value and follow stable dividend policy; support charitable ventures and environment protection efforts; ensure that environment is not harmed as a result of its operation; contribute to women empowerment and women development; observe environment related laws and regulations; it has scholarship schemes for the poor but meritorious students to change their lot; contribute to the development of art, education culture and sports; carry on energy and resource saving activities in the bank; foster a relationship of understanding, trust and credibility with the community

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Part-4:Sectional Organizational Study


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4.1 Small medium enterprises (SME) & Southeast Bank Ltd (SEBL)

4.1.1 Introduction on SME:

In almost every part of the world, limited access to finance is considered a key constraint to

private sector growth. This is especially true for SMEs of our country as they are facing different

types of problems for availing institutional finance though SMEs play dominantly important role

in the national economy of Bangladesh by making up over 90 per cent of industrial enterprises,

providing employment to 4 out of 5 industrial workers and contributing to over one-third of

industrial value-added to gross domestic product (GDP). The relative SME share in

manufacturing value-added is much higher and estimated to vary between 45 to 50 per cent of

totaling value-added generated by the manufacturing industries sector.

Further as important sources of new business creation and developing new entrepreneurial

talents, these industries provide the much needed dynamism and vitality to the national

economy. Implementation of poverty alleviation action programs and strategies is a systematic

and continuous effort in Bangladesh. For that purpose, the Poverty Reduction Strategy of the

government has clearly identified some core principles and parameters both at macro and

micro levels for reducing the existing poverty level at least half within 2015 as targeted in the

Millennium Development Goals (MDGs). Rapid and sustainable growth of SMEs is undoubtedly

one vehicle for accelerating national economic growth to the point of having a measurable

impact in the way of reduction of poverty and unemployment, generation of more

employment. More than 90% of the industrial enterprises in Bangladesh are in the SME size-

class. Generally, SMEs are labor intensive with relatively low capital intensity. The SME also

poses a character of privilege as cost effective and comparative cost advantages in nature. The

SME policy strategies have been formulated to assist in the achievement of the goals and

targets the MDGs set by the Government. Because of the definitional problems mentioned


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above, information on SME is not readily available in Bangladesh. BBS conducts annual surveys

of the manufacturing sector, called the Census of Manufacturing Industry (CMI), but as

mentioned earlier the BBS lumps under the Large category information on all units with 50 or

more workers and hence the information cannot be separated in most cases for the 50-99

workers size category, which is

The more commonly used cut-off size limit for medium enterprises. Moreover, there is quite a

bit of backlog in the processing of the CMI data. The latest available published CMI report is for

the period 1999-2000. The prime agency for the promotion of small and cottage industries in

Bangladesh is the Bangladesh Small & Cottage Industries Corporation (BSCIC). BSCIC is required

to maintain information and data bank on small and cottage industries in Bangladesh and

accordingly the agency carries out nation-wide surveys of the sector at some time intervals.

However, the latest such survey by BSCIC was conducted in the late 1980s and it was based on

the definition of small and cottage industries given in the earlier industrial policies that used

capital rather than employment size as the cut-off limit. Fortunately, BBS carried out a

nationwide census of all non-farm economic activities in 2001 and 2003 and a preliminary

report based on the census has been made available recently. The report presents data by

employment size category but there is no information on the size of fixed assets.

4.1.2 Definition of SME

Schools are divided when it comes to defining SME. Each school has there own way of defining

SME.

4.1.3 EU, USA and other country wise definition

Small and medium enterprises (also SMEs, small and medium businesses, SMBs, and variations

thereof) are companies whose headcount or turnover falls below certain limits. The

abbreviation SME occurs commonly in the European Union and in international organizations,

such as the World Bank, the United Nations and the WTO. The term small and medium

businesses or SMBs is predominantly used in the USA.


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EU Member States traditionally have their own definition of what constitutes an SME, for

example the traditional definition in Germany had a limit of 250 employees, while, for example,

in Belgium it could have been 100. But now the EU has started to standardize the concept. Its

current definition categorizes companies with fewer than 10 employees as micro, those with

fewer than 50 employees as small, and those with fewer than 250 as medium.By contrast,

in the United States, when small business is defined by the number of employees, it often

refers to those with fewer than 100 employees, while medium-sized business often refers to

those with fewer than 500 employees.

Both the US and the EU generally use the same threshold of fewer than 10 employees for small

offices (SOHO).In most economies, smaller enterprises are much greater in number. In the EU,

SMEs comprise approximately 99% of all firms and employ between them about 65 million

people. In many sectors, SMEs are also responsible for driving innovation and competition.

Globally SMEs account for 99% of business numbers and 40% to 50% of GDP.

In India, the Micro and Small Enterprises (MSEs) sector plays a pivotal role in the overall

industrial economy of the country. It is estimated that in terms of value, the sector accounts for

about 39% of the manufacturing output and around 33% of the total export of the country.

Further, in recent years the MSE sector has consistently registered higher growth rate

compared to the overall industrial sector. The major advantage of the sector is its employment

potential at low capital cost. As per available statistics, this sector employs an estimated 31

million persons spread over 12.8 million enterprises and the labour intensity in the MSE sector

is estimated to be almost 4 times higher than the large enterprises.

In South Africa the term SMME, for Small, Medium and Micro Enterprises, is used. Elsewhere in

Africa, MSME is used, for Micro, Small and Medium Enterprises.

Definition for SMEs is often considered to be an obstacle for business studies and market

research. Definitions in use today define thresholds in terms of employment, turnover and

assets. They also incorporate a reasonable amount of flexibility around year-to-year changes in

these measures so that a business qualifying as an SME in one year can have a reasonable


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expectation of remaining an SME in the next. The thresholds themselves, however, vary

substantially between countries. As the SME thresholds dictate to some extent the provision of

government support, countries in which manufacturing and labour-intensive industries are

prioritized politically tend to opt for more relaxed thresholds.

Breaking down the SME definition, Industry Canada defines a small business as one that has

fewer than 100 employees (if the business is a goods-producing business) or fewer than 50

employees (if the business is a service-based business). A firm that has more employees than

these cut-offs but fewer than 500 employees is classified as a medium-sized business.

4.1.4 Definition of the Government of Bangladesh

Small Enterprise (SE) has less than 50 employees and / or less than 15 million Taka inFixed Capital Investment.

Medium Enterprise has 51-99 employees and / or Fixed Capital Investments between1.5 and 100 million Taka

4.2 Bangladesh Bank Regulations for Small Enterprises

Private entity with less than 60 employees for the Manufacturing Sector 30 employees for the

Service Sector, 20 employees for the Trade Sector.

1) Service Sector: Total Assets (excluding lands and buildings) between 50,000 and 3 million

Taka

2) Trade Sector: Total Assets (excluding lands and buildings) between 50,000 and 5 million Taka

3) Manufacturing Sector: Total Assets (excluding lands and buildings)

between 50,000 and 10 million Taka

4.3 Definitions of different commercial Banks of Bangladesh are as follows

HSBC Turnover < 2.5 million USD


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Citibank NA employees < 60 BRAC Bank Loan size < 3 million Taka AB Bank Loan size < 100 million Taka

4.4 Southeast Bank definition regarding SME

Small Enterprise means an entity, ideally not a public limited company, which fulfils any of the

following criteria:

Small EnterpriseTotal fixed Assets

(excluding land & Building)

Total no. of manpower

employed

Service Concern Taka 0.50 lac to taka 50.00 lac| Maximum 25

Trading Concern Taka 0.50 lac to taka 50.00 lac| Maximum 25

Manufacturing Concern Taka 0.50 lac to taka 1.50 Crore| Maximum 50

Medium Enterprise means an entity, ideally not a public limited company, which fulfils any of

the following criteria:

Medium Enterprise

Total fixed Assets

(excluding land & Building)


employed

Service Concern Taka 50 lac to taka 50.00 lac| Maximum 50

Trading Concern Taka 50 lac to taka 50.00 lac| Maximum 50

Manufacturing Concern Taka 1.5 crore to taka 20 Crore| Maximum 150


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4.5 Some Issues in SME in Bangladesh

Financial services for the poor have proved to be a powerful instrument for poverty reduction

enabling the poor to build assets, increase incomes and reduce the vulnerability to economic

stress. Today, access to credit is recognized as a right of people globally. Over the years, there

has been phenomenal growth in activities of microcredit in many countries of the world and a

transition in the paradigm and modalities of microcredit. Microcredit Summit Meeting first held

in Washington DC, USA in February 1997 has launched a global movement to reach 100 million

of the worlds poorest families, especially the women of those families, with credit for self-

employment and other financial and business services by the year 2010. The UN has declared

2010 as the International Year of Microcredit, now is the time to reflect on the experiences of

Bangladesh, the birthplace of micro finance and the country with the biggest and most vibrant

micro finance sector.

As the microcredit movement matures, clearer idea of what its strengths are and what are its

limitations. To move forward, countries like Bangladesh need to be more effective, and

increase outreach, design products to include the poorest, and also provide finance for growth

and employment oriented small and medium enterprises (SMEs) which are needed to spread

the poverty alleviation net wider, so that significant decline in poverty takes place.

A significant number of people around the world are excluded from full participation in the

financial sector. Although the unbanked has been an issue for some time, the subject is now

receiving greater attention, helped by the fact that 2010 is the United Nations Year of Micro-

credit. Banking the unbanked is about bringing banking and financial services to those people

who, up to now, have not had access. Although the unbanked is usually thought of in terms of

individuals, it is an important issue for small firms as well.

Small and medium sized enterprises (SMEs) may not always have the same access to banks and

financial institutions as big firms. Thus access of SMEs to the range of financial services is a key

issue that needs to be considered in terms of banking the unbanked.


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It is generally recognized that SMEs have a significant role in employment generation, poverty

reduction and overall economic growth, especially for a developing economy like Bangladesh.

SMEs are typically labor intensive industries with relatively low capital intensity. As such for a

country like Bangladesh which is labor abundant and capital scarce, SMEs have a natural

comparative advantage. In recognition of the strategic importance of the development of SMEs

in promoting industrial growth, employment generation and poverty alleviation the SME sector

has been declared as a priority sector in the Governments Industrial Policy 2010 and various

measures have been initiated to help maximize the SMEs growth potential.

Availability of finance is thought to be a major constraint to formation and growth of SMEs in

Bangladesh. Banks are reluctant to expand their SME credit portfolio because they do not

consider SME lending an attractive and profitable undertaking. This is so because SMEs are

regarded as high risk borrowers because of their low capitalization, insufficient assets and their

inability to comply with collateral requirements of the banks. Administrative costs are also

higher because close monitoring and supervision the SME operation becomes necessary.

Despite all these facts banks and financial institutions have been providing finance to the SME

sector and the volume of finance is showing an increasing trend. Most importantly the share of

private sector banks in disbursement of credit to the SME sector has been increasing in recent

years comparatively at a higher rate than the NCBs and state owned DFIs.

There is an issue of interest rate charged by banks and financial institutions for SME finance.

Very often it is argued that the interest rate on SME loan is too high and needs to be lowered.

In this regard it may me mentioned that following the interest rate liberalization policy as a part

of financial sector reforms, the responsibility to determine interest on loans and advances has

been left to the lending banks and financial institutions. Under the liberalized interest rate

regime central banks intervention to reduce interest rate for a particular sector will not be in

order and involve the risk of being construed as a retrograde policy. For entrepreneurs, though

the supply of and access to finance is very important, the cost of fund is also a factor for their

sustainability and expansion. The banks and financial institutions should consider the fact that if


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the rate of interest is too high, then the profitability of entrepreneurs, especially for those of

the innovative projects will be adversely affected.

Bangladesh Bank (BB) has also undertaken programmes to provide relatively cheaper funds to

the banks and financial institutions which might encourage them for SME financing.SME has

been identified in the PRSP (Unlocking the Potential) as one of the seven critical sectors for pro-

poor economic growth and special emphasis has been give on rapid growth and development

of this sector. According to the PRSP the thrust of SME development should be on modern

SMEs that have higher growth potentials compared to the traditional SMEs. The policies

towards SMEs should be based on a positive developmental attitude seeking to assist them by

promoting efficiency, adaptation to new circumstances and technology, rather than protecting

the sector through a distorted incentive structure. In the PRSP the actions suggested for the

development of SMEs in Bangladesh include (i) Adoption of an unambiguous definition of SME;

(ii) Strengthening of BSCICs capacity to provide market information; (iii) Simplification of

regulatory procedures; (iv) Setting up an appropriate credit guarantee scheme for lending

without real estate based collateral; (v) Enlarging the base of conduit lending institutions; (vi)

Making BSCICs industrial estate programdemand driven; (vii) Priority development of the road

network and supply of gas and electricity; (viii) Extension of BOIs One-Stop Service to cover

SMEs; (ix) Greater public private cooperation for the design and implementation of effective

business support service; (x) A differentiated and hassle-free indirect tax system for SME; (xi)

Calibration of trade policy reform to support SME development.

4.6 Why all banks are set for Special SMEs?

Question arises why all the banks especially commercial banks are set for special SMEs? The

answer is Bangladesh Bank has set banks and non-banking financial institutions a target to

disburse around Tk 24,000 crore loans to the SME sector during the current calendar year, a

senior executive of the central bank said.

This is the first time the central bank has set a target to disburse loans to the SME sector in the

country. Bangladesh Bank earlier asked the banks to set their respective targets.


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Official of Bangladesh Bank said the countrys 48 foreign, state-owned and private banks and 24

non-bank financial organisations will disburse the loans. According to official of Bangladesh

Bank, outstanding loans to the SME sector stood at around Tk 52,000 crore and the number of

loanees at about 4.4 lakh at the end of 2009. He said if the 2010 target is achieved it would be

the highest-ever loan disbursement to the sector in a single year. Acting managing director of

SME Foundation Momtaj Uddin, however, termed the figure less-than-requirement. Referring

to a research finding, he told that around Tk 18,28,000 crore is needed throughout the SME

sector. He said the targeted loans should be properly disbursed to the entrepreneurs on easy

terms. Most of the previous loans were restricted to the urban areas, he added. Rural people,

particularly women must be given SME loans, he said, adding that increased loans should go for

the production sector. Asked which sub-sector would get priority, the official said:

Undoubtedly its the export-oriented manufacturing sector.

Bangladesh Bank offer 100 percent refinancing facility if loans are given to production and

service sectors but maximum 50-60 percent refinancing facility will be given in case of business

loans. A recent BIDS study revealed that banks and non-banking financial institutions disburse

loans mostly to the business sector. Also revealed that the financial institutions gave loans to

around 3.91 lakh small and medium entrepreneurs until September, 2009.

Of them, around 3.35 lakh are trading houses, 54,000 manufacturing and remaining service-

sector firms. BIDS research recommended formulation of a guideline for giving collateral-free

SME loans as the number of loan defaulters in the sector is negligible. The study conducted on

branches of 14 banks revealed that SME loan recovery rate ranges between 80 percent and 100

percent. Bangladesh Bank has undertaken different plans to boost SME sector by increasing

flow of money.

4.7 Identification and Assessment of Various Risks in SME financing

In the developing world Small and Medium Enterprise are playing a vital role for the

development. They are the major and influential player in the economic growth of different

countries like china and India. But still banks are very reluctant in case of lending to those


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entrepreneurs due to lack of security and high risk of default. Unavailability of finance thought

to be a major constraint to formation and growth of SMEs in Bangladesh. Banks are reluctant to

expand their SME credit portfolio because they do not consider SME lending an attractive and

profitable undertaking.

Usually SMEs are labor intensive business firms. They play a major role in employment

generation. So SME can be very effective in reducing poverty and ensuring long term economic

growth. So the banks should come forward t finance those SMEs to contribute more in the

development of the country. But there are lots of risks involved in SME financing, which the

Bank should take very seriously. It is very important to identify and assess the risks properly to

make the SME financing successful.

4.8 Importance

The economic and social importance of the small and medium enterprise sector is well

recognized in academic and policy literature. It is also recognized that these factors in the

economy may be underserved, especially in terms of finance. This has led to significant debates

on the best methods to serve this sector.

There have been numerous schemes and programmes in markedly different economic

environments. However, there are a number of distinctive recurring approaches to SME

finance. Collateral based lending offered by traditional banks and finance companies is usually

made up of a combination of asset based finance, contribution based finance, and factoring

based finance, using reliable debtors or contracts. Information based lending usually

incorporates financial statement lending, credit scoring and relationship lending. Viability based

financing is especially associated with venture capital.

4.9 The risks of SME Financing

The risks of SME financing can be classified under top major heads they are as follows

Internal risks : credit risk and liquidity risk


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External risks: interest rate risk, growth risk, market demand, competition, commodityrisk, government policy

Project risks: legal risk, security risk, marketing risk, operating risk. Others: environmental risk, family risk, health risk.

4.10 The Management of Lending SMEs

The effective management of lending to SMEs can contribute significantly to the overall growth

and profitability of banks. There has been considerable research and analysis into the methods

by which banks assess and monitor business loans, manage business financing risks, and price

their products and how these methods might be further developed and improved. There has

been particularly intensive scrutiny of the kinds of business financial information that banks use

in making lending decisions and how reliable that information actually is. Bank have

traditionally relied on a combination of documentary sources of information, interviews and

visits, and the personal knowledge and expertise of managers in assessing and monitoring

business loans. However, when assessing comparatively small and straightforward business

credit applications bank may largely rely on standardized credit scoring techniques (quantifying

such things as the characteristics, assets, and cash flows of businesses/ owners). Using such

techniques and also centralizing or regionalizing business banking operations generally can

significantly reduce processing costs. Standardized computer based assessment may also be

more accurate and fairer than reliance on the personal judgments of local bank managers. As a

result, banks may now be able to offer more loans, faster and in larger amounts, and reduce

previously high security requirements. However, business lending as whole is substantially

more diverse and complex than personal and residential mortgage lending. This coupled with

the large size and inherently risky nature of many business loans tends to limit the scope and

desirability of computerized credit scoring in assessment and monitoring.

Higher growth of the Small and Medium Enterprises (SMEs) can help cut poverty to a

satisfactory level by eliminating various prejudices against labour intensive and creating jobs for

the skilled manpower in the SME sector. This was revealed in the just released Bangladesh Bank

annual report for fiscal 2010-11.


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The report said, the key reasons behind the SMEs are not entering into manufacturing are

financial constrains, dismal state of utilities, technology and policy discriminations. On the

others hand, Bank and others financial institutions generally prefer large enterprise clients

because of lower transition costs, and greater availability of collateral.

The SMEs also fall outside the reach of micro finance schemes, and thus compelled to depend

on formal sources of funds at much higher interest rates, the Bangladesh Bank report said.

The report observed that the SMEs demand for bank loan, especially, medium and long term

financing is relatively high.

The Banks are reluctant to extend loans, especially, term loans to SMEs and the reasons for

banks reluctance to extend loans to SMEs are perception that the current legal system is

unable to protect their interests, funding costs are relatively high, shortage of access to long-

term capital, inability to conduct proper due diligence and the current unavailability of

information.

4.11 SMEs Access to FinanceBarriers and Windows

Among the many compelling reasons why SMEs fail to realize their full potential, inadequate

access to finance is prominent and most commonly cited. With limited capital base of their own

and little or no access to institutional financing they rely on inefficient financing service

traditionally from informal sources, which eventually proves unsustainable let alone stimulate

growth.

There were also attempts to channelize to the sector through public and private banks fund

received from international agencies. There were provisions of favorable debt equity ratio,

special interest rates and credit guarantee scheme. The central bank also issued directives to

both public and private commercial banks regarding working capital loans, use of standardized

documentation procedure and time limits for credit sanctioning and loan disbursement.

Notwithstanding all these arrangements for financing small and medium enterprises, the actual

delivery of institutional credit to this sector has been grossly inadequate. One of the main


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factors that have hampered flow of institutional finance into small and medium enterprises is a

bank preoccupation with collateral based lending. Traditionally banks have used fixed asset

ownership particularly land ownership as the basis for judging credit-worthiness. This puts

small and medium enterprises at relative disadvantage as they often cannot put up such

collateral for loan. Moreover, whatever collateral they can manage gets used up in taking the

term loan leaving them with no means to seek working capital loan from institutional sources.

Unlike their large-scale counterparts they cannot use influence and contacts and solve the

problem by putting up collateral of dubious valuation. Banks, on their part, also tend to be less

flexible about the collateral requirement in the case of the SMEs as they perceive SME loan to

be more risky and the cost of monitoring and supervision of small loans to be higher.

Various alternatives to real estate based lending have been suggested for the SMEs. Group

guarantee and peer pressure, successfully used in the case of micro-finance, do not appear

appropriate for SMEs as these are mostly sole proprietorship units with capital size significantly

larger than the amount typically disbursed under micro-finance. Use of assets other than land

and building, such as fixture, equipment, vehicles etc as collateral is also a fairly standard

practice in institutional finance but is of less use in the case of SMEs as these enterprises usually

possess few such non-land assets. Sales proceeds, accounts receivable, inventory etc can be the

basis of working capital loan, but this requires proper documentation of the transactions of the

SMEs and close monitoring and supervision on the part of the lending institutions. Because of

the informal nature of many SME transactions and high cost of small loan administration, use of

such movable asset for working capital lending will involve certain difficulties.

SMEs as these enterprises usually possess few such non-land assets, Sales proceeds, accounts

receivable, inventory etc can be the basis of working capital loan, but this requires proper

documentation of the transactions of the SMEs and close monitoring and supervision on the

part of the lending institutions. Because of the informal nature of many SME transactions and

high cost of small loan administration, use of such movable asset for working capital lending

will involve certain difficulties. Financial institutions could significantly reduce the risk when

they are lending to SMEs without real estate based collateral if they (a) pre-screen SMEs on the


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basis of cash flow statements and information from business service providers and receivers to

assess track records of firms and their ability to repay in future, and (b) implement close

monitoring and supervision in the post-disbursement stage. In such cases, appropriate credit

guarantee schemes will need to be devised for covering the lending institutions both for the risk

involved as well as for the additional cost of loan administration.

In 2003-04, Bangladesh Bank set up a Tk. 10.0 billion refinancing scheme for credit to SMEs.

Bangladesh Bank charges participating institutions 5% interest rate while the lending

institutions decide on the lending rate of interest. This provides these institutions with the

scope of attempting lending to SMEs without real estate based collateral as their risks will be

covered through refinancing facility and they can accommodate any additional cost of loan

administration through an appropriate spread between the borrowing and the lending rate.

Because of the initial success of the program, government raised the amount to Tk.25 billion in

the national budget 2009-10. Beside this, International Development Agency (IDA) has

provided US$ 10 million to Enterprise Growth and Bank Modernization Project (EGBMP) during

FY 2009-10. Moreover, ADB has finalized an agreement with Bangladesh Bank to provide

additional US$ 30 Million to this sector. These huge resources would strengthen the financial

programme of EGBMP. This would result in employment generation in one hand and

enhancement of purchasing power of the poor on the other hand. Under this programme, the

financing capabilities of various financial institutions and banks have been enhanced and up to

April, 2011 Bangladesh Bank has disbursed Tk.1237.34 million for refinancing. Out of this, the

contribution of World Bank was Tk.237.26 million while that of Bangladesh Bank was Tk. 999.98

million.

4.12 SME Financing Policy of SEBL

4.12.1 Objectives

The objectives of Small and medium enterprises financing credit policy of SEBL are described

below:


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1. To establish a sound combination of policy guidelines, lending guidelines, proceduralguidelines and other standards & factors for financing the Small Enterprises.

2. To flow credit for creation of employment and generation of income on asustainable basis through development of Small Enterprises and thus to enable the

small entrepreneurs to access to finance.

3. To accelerate forward linkage, backward linkage, value addition activities andproductivity improvement in order to establish and expand small scale

manufacturing sector.

4. To promote women entrepreneurs of the country.5. To participate in the socio-economic development of the country.

4.12.2 Definition

Small Enterprise means an entity, ideally not a public limited company, which fulfills any of the

following criteria:

Criteria

Small Enterprise Total Fixed Assets

(excluding land & building)


employed

Service Concern Tk.0.50 lac to Tk.50.00 lac Maximum 25

Trading Concern Tk.0.50 lac to Tk.50.00 lac Maximum 25

Manufacturing Concern Tk.0.50 lac to Tk.1.50 crore Maximum 50

4.12.3 Target group

The target groups for SME financing of SEBL are Entrepreneurs who are running small business

units and willing to expand the business, Entrepreneurs who are willing to set up small scale


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manufacturing units/ service oriented units, Entrepreneurs who are involved in agro-based &

agro-processing activities in small scale, Small scale contractors who execute work orders,

supply orders and are required to be financed for execution of contracts; Women

Entrepreneurs shall be given preferences.

Enterprises/ business units will be broadly categorized as 1.Service, 2.Trade, and 3.

Manufacturing. The priority sectors will be as follows: Light Engineering & metal working,

Electronics & electrical, Agro-based and agro-processing, Leather and leather products,

Software development, Plastic & other synthetics, Healthcare & diagnostics Educational

services, Pharmaceutical, cosmetics & toiletries, Herbal medicine, Handicrafts, Furniture.

4.12.4 Selection criteria

The selection criterias for SME credit are described below:

The legal form of business of the borrower is Sole Proprietorship/ Partnership/ PrivateLimited Company.

The business is legally valid and the business firm has got all required licenses,permissions, registration certificates which are up-to-date at the time of application of

credit facility. The business firm is registered in Bangladesh with majority shares owned by

Bangladeshi nationals.

The borrowers principal place of business is in Bangladesh. The business is profitable and has a defined market with clear growth potentials. The entrepreneur is skilled, experienced and so far successful for managing the business

for at least 02 (two) years.

In case of new entrepreneur, he/ she is experienced in working in similar line of businessand has technical-know-how about the business which he/ she wants to establish.

The age of the proprietor/ partners/ key person of the business firm is within 20 years to55 years.

A clear succession plan is present.


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Personal guarantee of the borrower. In case of limited companies, guarantee of alldirectors other than nominee directors shall be obtained.

Personal guarantee of spouse (if married) or parents (if unmarried) of the borrower. Personal guarantees of two shop owners of the respective market/ two businessmen/

any other person acceptable to the bank.

Postdated cheques for all installments and one undated cheque for full loan valueincluding full interest.

Any other securities to be deemed suitable by the Bank depending on banker-customerrelationship.

4.12.9 Loan Renewal

Renewal of Loan or Successive Loan depends on track record of previous loan. Usually,

repayment behavior and expansion of business of the borrower are the main considerations for

renewal and enhancement of the loan amount.

4.12.10Time Frame for approval

The time frame for approving/ declining a credit proposal shall be maximum 07 (seven) working

days at Branch/ SME Service Center level, and maximum 05 (five) working days at Head Office

level, provided all required information/ documents are in place. Clean facilities (collateral free

credit) can be given upto Tk.10.00 lac on any single Small Enterprise. For financing the Women

Entrepreneurs in SME sector under refinance scheme of Bangladesh Bank, financing up to

Tk.25.00 lac against charge on assets of the enterprise and personal guarantee only can be

made. Highest priority shall be given for accepting and settlement of the Loan applications from

the Women Entrepreneurs in SME sector within a reasonable time period. All regulations as

specified under Bangladesh Banks Regulations are to be met. Branches/ SME Service Centers

shall adhere to the Credit Policy of the Bank and the relevant Circulars/ Regulations/ Guidelines

of the Bank/ Bangladesh Bank/ any other regulatory authority.

4.12.11 Application & approval processes


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Any credit proposal and/ or pre-sanction Inspection Report/ call report/ visit report is to be

originated from the Branch/ SME Service Center. The client shall have to open account with the

relevant Branch/ SME Service Centre of the Bank. The client shall fill up the RFCF (Request For

Credit Facility), Net Worth Statement, other pro forma (if any) correctly and completely. The

client shall provide CIB undertakings, Financial Statements, other information/ papers/

documents required by the concerned official of the Branch/ SME Service Center. The

concerned official of the Branch/ SME Service Center shall evaluate clients proposal with due

diligence, accomplish the relevant tasks meticulously and prepare the Credit Appraisal Form as

per the prescribed format. Any requirement for further information regarding a particular

credit proposal shall have to be communicated to the client within 03 (three) working days

from the date of submission of the application by the client. If a particular credit proposal is

found suitable, the Branch/ SME Service Center shall assign a unique identification number to

the borrower and submit the credit proposal along with the required documents, such as Visit

Report, Stock Report, CPV Report, Valuation Report etc. to the Head Office for approval. The

unique identification number shall consist of three parts: 3-digit Branch/ SME Service Center

code, 2-digit month number, 2 digit year number & 4 digit unique serial number. At Head

Office, the assigned Credit Officer(s) shall appraise the proposal in line with Banks credit

policies and guidelines of Central Bank & other regulatory authorities and place the proposal tothe competent approval authority for decision.

4.13 Credit assessment & risk management

The sources of repayment shall be identified specifically and the repayment capacity of the

client shall be assessed on the basis of assets conversion cycle and expected future cash flows.

In the same connection, current & projected financial statements shall be obtained before

processing a credit proposal. The Small Enterprises may not have proper books of accounts andthey may not be able to prepare current and projected financial statements due to lack of

sophistication and expertise. In such cases, the relationship officers at Branch/ SME Service

Center level shall assist the clients in obtaining/ developing such books of accounts/ financial

statements.


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Branches/ SME Service Centers must assess current status of the particular sector / industry the

Bank is lending to and its future prospects. Branches/ SME Service Centers must identify the key

drivers of the clients businesses, the key risks to their businesses and their risk mitigates.

A written declaration is to be obtained from the client divulging details of various credit

facilities being availed by the client from other institutions. The details given in the statement is

to be carefully examined and fresh credit facility will be allowed only after ensuring that the

total exposure in relation to the repayment capacity of the customer does not exceed the

reasonable limits.

Updated and clean CIB report on the client must be in place while processing the credit

proposal. Branches/ SME Service Centers shall conduct a thorough credit and risk assessment

for each credit facility. The outcomes of such assessment should be presented in the prescribed

Credit Appraisal Form (CAF), which will be forwarded to the Head Office for approval.

The assumptions and parameters used to project the future cash flows shall be documented

and annexed with the cash flow analysis undertaken by the Branches/ SME Service Centers.

Branches/ SME Service Centers shall obtain a copy of financial statements duly audited by a

practicing Chartered Accountant, relating to the business of every borrower who is a limited

company or where exposure of the Bank exceeds Tk.40.00 lac, for analysis and record.

Branches/ SME Service Centers shall obtain the prescribed RFCF (Request For Credit Facility)

duly filled in properly under the seal and signature of the client for every credit application

(including renewal, enhancement and rescheduling). Branches/ SME Service Centers shall

conduct Contact Point Verification (CPV) and prepare CPV Report as per prescribed format for

each client. Branches/ SME Service Centers shall obtain Personal Net Worth Statement for the

owner(s) of the SE. Branches/ SME Service Centers shall maintain database/ list of declined

credit proposals with firms name & owners name separately. Security documents are to be

prepared in accordance with approval terms and must be legally enforceable. Branches/ SME

Service Centers shall make disbursements only when all security documentation is in place. In

case of third party deposits/ security instruments, in order to minimize any inherent risk


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emanating from accepting third party deposits/ security instruments, Branches/ SME Service

Centers shall verify third partys signature against the specimen attached to the original

instrument and send the instrument to the issuing office for their verification and written

confirmation on lien marking and encashment of the instrument.

A clear segregation of credit collection/ recovery activities from marketing/ sales activities must

be made by way of assigning separate officer(s). Specifically assigned officer(s) shall carry out

the SEF activities in order to establish separate risk management capacity for SEF. Productivity

Tracking Analysis on each client is to be done through scrutinizing no of calls made, promise to

pay, kept promise, broken promise etc. Branches/ SME Service Centers shall put maximum

effort to minimize fraud risk by analyzing the CPV and validating the authenticity of all

documentation. Branches/ SME Service Centers shall conduct regular inspections (at least

quarterly) to ascertain the status of business activities for which the SE is financed. Such

inspection has to be documented properly.

4.14 Credit administration

4.14.1 Documentation:

Branches/ SME Service Centers shall ensure that all security documentation complies with theterms of approval. Branches/ SME Service Centers shall maintain control over all security

documentation. They will also monitor borrowers compliance with agreed terms and

conditions, and general monitoring of account conduct/ performance.

4.14.2 Legal Vetting

Mortgage documents shall be properly vetted by the Banks Legal Counsel. Banks Legal Counsel

shall certify that proper documentation, borrowers legal standing and enforcement of

securities are in place. Finally, Lawyers Satisfaction Certificate shall have to be obtained

regarding documentation where there are securities/collaterals other than Personal Guarantee

and Financial Obligation.

4.14.3 File Maintenance


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Separate and independent file(s) for each customer shall be maintained by the Branch/ SME

Service Center and Head Office. File(s) will be under the custody of the concerned Relationship

Officer/ Relationship Manager at Branch/ SME Service Center and Credit Officer at Head Office

who is handling the client within his/ her Division/Department.

4.14.4 Disbursement:

Branches/ SME Service Centers shall ensure that the disbursement of loan is made only after all

terms and conditions of approval have been met and all security documentation is in place.

Branches/ SME Service Centers shall ensure that the loans are to be properly utilized for the

same purposes for which they were acquired/ obtained. In case of need, a phase-wise

disbursement may be allowed with the progress of utilization of fund.

4.14.5 Monitoring:

The success of the SE financing depends on the extensive and intensive post disbursement

supervision, follow-up and monitoring. It must be ensured that the proceeds of the loan are not

being diverted, the sponsors are very serious to the operation of the project, quality is updated

and marketing effort is effective. Regular repayment must be ensured. Visit to the

establishment must be done at least one in a month. The visit should be done for strengthening

the spirit and loyalty of the customers. Monthly stock report is to be obtained duly filled in by

the borrower and signed by an officer of the Branch/ SME Service Centers after physical

verification, duly countersigned by the Head of Branch/ SME Service Center. Branches/ SME

Service Centers shall maintain strong MIS (Management Information System) on its entire SE

loan portfolio.

4.14.6 Compliance:

Branches/ SME Service Centers shall ensure timely submission of statements/ returns on SE

financing as per requirement of Head Office or any regulatory authority. Branches/ SME Service

Centers shall also ensure compliance with the Credit Policy of the Bank and the relevant


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Circulars/ Regulations/ Guidelines of the Bank/ Bangladesh Bank/ any other regulatory

authority.

4.14.7 Bangladesh Banks Regulations for SME Financing

4.14.7.1 Regulation-1

SOURCE AND CAPACITY OF REPAYMENT AND CASH FLOW BACKED LENDING

Branches shall specifically identify the sources of repayment and asses the repayment capacity

of the borrower on the basis of assets conversion cycle and expected future cash flows. In order

to add value, the Branches must assess conditions in the particular sector / industry they are

lending to and its future prospects.

The rationale and parameters used to project the future cash flows shall be documented andannexed with the cash flow analysis undertaken by the Branches. It is recognized a large

number of SEs will not be able to prepare future cash flows due to lack of sophistication and

financial expertise. It is expected that in such cases Branches shall assist the borrowers in

obtaining the required information and no SE shall be declined access to credit merely on this

ground.


PERSONAL GUARANTEES

All facilities to SEs shall be backed by the personal guarantees of the owners of the SEs. In case

of proprietorship concern, spouses guarantee other than the personal guarantee of the owner

may be taken. In case of limited companies, guarantees of all directors other than nominee

directors shall be obtained.


PER PARTY EXPOSURE LIMIT

The minimum and maximum exposure of a bank on a single SE shall remain within the range of

Tk.2.00 lac and Tk.50.00 lac respectively subject to the following:

In case of working capital finance: Maximum up to 100% of the net required working capital or

75% of the sum total of inventory and receivables whichever is lower.

In case of fixed assets purchase: Maximum up to 90% of the purchase price.


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AGGREGATE EXPOSURE OF A BANK ON SMALL ENTERPRISE SECTOR

The aggregate exposure of the Bank on SE sector shall not exceed the limits as specified below:

% of classified SE advances to total portfolio of SE advances Maximum Limit

a. Below 5% 10 times of equity

b. Below 10% 6 times of the equity

c. Below 15% 4 times of the equity

d. Up to and above 15% Up to the equity


LIMIT ON CLEAN FACILITIES

In order to facilitate growth of smaller loans, The Bank is free to determine security

requirements for loans up to Tk.10.00 lac.


SECURITIES

Consequent to the regulation stated in Regulation -5, facilities provided to SEs shall be secured

by the Bank as follows:

For loan amounting Tk.2.00 lac to Tk.10.00 lac:

As a minimum banks must take charge over assets being financed.

For loan amounting Tk.10.00 lac to Tk.50.00 lac:

a) Hypothecation on the inventory, receivables, advance payments, plant & machinery.

b) Registered mortgage over immovable properties with registered Power of Attorney.

c) Personal Guarantees of Spouse/Parents/other family members.

d) One third party personal guarantee.


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It is recognized that a large number of enterprises other than limited companies (i.e., sole

proprietorship/ partnership firms etc.) may not have proper books of accounts including

balance sheet, profit & loss account and they may not be able to prepare current and future

cash flows due to lack of sophistication and expertise. It is expected that in such cases,Branches shall assist the borrowers in obtaining/ developing such books of accounts as per

forms/ formats prescribed by the Bank.

The Bank shall not approve and/ or provide any exposure (including renewal, enhancement and

rescheduling) until and unless the prescribed Loan Application Form is accompanied by

borrowers basic fact sheet under the seal and signature of the borrower.


PROPER UTILIZATION OF LOAN

The Bank should ensure that the loans have been properly utilized by the SEs and for the same

purposes for which they were acquired / obtained.


RESTRICTION ON FACILITIES TO RELATED PARTIES

The Bank shall not take any exposure on a SE in which any of its director, shareholder,

employee or their immediate family members are holding 5% or more of the share capital of

the SE.


CLASSIFICATION AND PROVISIONING FOR ASSETS

Existing norms for usual loans & advances shall be applicable.

4.15 Product of Southeast Bank Limited in regards of SME

There are three basic products under the SEBLs SME financing. Each of them are enacted

below

4.15.1 Southeast Shopan


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1. Customer segment: Any SE client meeting definition criteria and target group criteria ofsoutheast banksSME credit policy.

2. Purpose : Any justifiable business purpose3. Nationality: Bangladeshi4. Age limit: From 22 years up to 55 years( the borrowers age must not exceed 60 at the

expiry of loan tenor). In case of partnership firm or private limited company, age of the

key person/chief executive officer is to be considered.

5. Minimum Income: Minimum income must be commensurate with the amount of loanrequired.

6. Borrowers eligibility: to be eligible for this loan borrower must have the followingeligibility

The legal form of business of the borrower is Sole Proprietorship/Partnership/Privatelimited company.

The business is legally valid and the business firm has got all required licenses,permissions, registration certificates which are valid and up to date at the time of

application of credit facility.

The business firm is registered in Bangladesh with majority shares owned byBangladeshi nationals.

The borrowers principal place of business is in Bangladesh. The business is profitable and has a defined market with clear growth potentials. The entrepreneur is skilled, experienced and so far successful for managing the business

for at least 02 (two) years. In special cases, this condition may be relaxed.

In case of new the entrepreneur, he/she is experienced for at least 02 years in workingsimilar line of business and has technical knowhow about the business which he/she

wants to establish. In special case, this condition may be relaxed.

The age of the proprietor/partners/key person of the business firm is within 22 years to55 years.

A clear succession plan is present The entrepreneur must be literate as per as practicable.


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The entrepreneur is socially acceptable and his/her reputation, integrity,trustworthiness, commitment are satisfactory.

1. Loan size: taka 2.00 lac to Taka 8.00 lac.2. Security arrangement: the following security is required for this product as per case

basis

Hypothecation on the inventory, receivables, advance payments, plant and machinery. Personal guarantee of the borrower. In case of limited companies, guarantee of the

directors other than nominee directors shall be obtained.

Personal guarantee of spouse (if married) or parents (if unmarried) of the borrower. Personal guarantees of two shop owners of the respective market/two businessmen/

any other person acceptable to the bank.

Post dated cheques for all installments and one undated cheque for full loan valueincluding full interest.

Usual charge documents. Any other securities to be deemed suitbable by the bank depending on banker customer

relationship.

The full amount may be allowed without any collateral security.1. Documentation: there are two types of documentation. Preapproval documentation

and post approval documentation.

Preapproval documentation

Photograph of the applicants Valid trade license At least 2 years old trade license. Partnership deed = notarized/registered by SRO


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7. Loan tenure: it can time loan for fixed asset procurement for 5 years or time loanmaximum of 3 years for other purposes or time loan of 1 year.

8. Grace period: negotiable depending upon nature of business and purpose of loan.9. Repayment arrangement: monthly installment in case of term loan and lumpsum within

expiry.

10.Financing mode: term loan, time loan.11.Distribution precondition: all the documentation formalities must be completed prior to

disbursement.

12.Debt to burden ratio: DBR must not exceed 60%.13.Loan takeover from other bank: in case of loan takeover from other bank, the loan

amount will be given in the form of a payment order favouring that particular bank to

settle the outstanding as well as the closing charges.

14.Contact Point Verification: all address of the applicant and guarantee must be verifiedby CPV agent where the Bank has agreement and in other case branch officials will do

the same.

15.Approval authority: as per delegation of business power for small Enterprise(SE)financing.

4.15.2 Southeast Shikor

1. Customer segment: any SE client meeting definition criteria and target group criteria ofsoutheast banks SME credit policy.

2. Purpose: Any justifiable business purpose.3. Nationality: Bangladeshi4. Age limit: From 22 years up to 55 years (the borrowers age must not exceed 60 at the

expiry of loan tenor). In case of partnership firm or private limited company, age of thekey person/chief executive officer is to be considered.

5. Minimum Income: Minimum income must be commensurate with the amount of loanrequired.


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o Personal guarantee of the borrower. In case of limited companies, guarantee ofthe directors other than nominee directors shall be obtained.

o Personal guarantee of spouse (if married) or parents(if unmarried) of theborrower.

o Personal guarantees of two shop owners of the respective market/twobusinessmen/ any other person acceptable to the bank.

o Post dated cheques for all installments and one undated cheque for full loanvalue including full interest.

o Usual charge documents.o Any other securities to be deemed suitable by the bank depending on banker

customer relationship.

o The full amount may be allowed without any collateral security.

1. Documentation: there are two types of documentation. Preapproval documentationand post approval documentation.

Preapproval documentation

Photograph of the applicants Valid trade license At least 2 years old trade license. Partnership deed = notarized/registered by SRO M/A or A/A including certificate of incorporation duly certified by registrar Joint Stock

Companies RJSC and attested by the Managing Director accompanied by an up to date

list of Directors.

Income Statement and Balance Sheet for last 3 years. Passport/ National ID/ Certificate from UP chairman or Ward Commissioner confirming

applicants age, nationality, address.

Duly filled in RFCF which will be provided by bank Duly filled in Personal Net Worth Statement of the applicants and guarantors


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Duly filled in CIB forms Any other documentation deemed to be necessary by the bank

Post approval documentation

Acceptance of the Sanction advice. Others as per the sanction advice.

1. Insurance: the hypothecated stocks/items will remain insured minimum 10% above thecredit facilities covering Fire, RSD, Theft and Burglary, Flood & Cyclone, MBD with Bank

mortgage clause, cost of which to be borne by the client. If the client is unwilling to

insure the hypothecated stock covering theft and burglary and Flood & Cyclone, an

undertaking is to be obtained from the client to the effect that in case of Theft and

Burglary, Flood & Cyclone and MBD the client will bear all the losses.

2. Loan processing fee : 1% on the approved loan amount .3. Interest rate or commission: if loan is funded then 13% -16% per annum. However, the

rate may be changed based on the market condition and policy of the Bank. If the loan is

nonfunded then charge is par bank schedule.

4. Overdue service charge: 2% per annum above the regular interest rate on the overdueamount.

5. Early settlement/Prepayment fee: 1% on the prepaid amount if paid before 1 year orthe outstanding amount exceeds 40% of the principal amount.

6. Stamp and Property valuation: all relevant stamp and property valuation charges mustbe borne by the customer.

7. Loan Tenure: for term loan maximum 5 years for fixed asset procurement and maximum3 years for other purposes. For time loan, OD, CC(H), CC(P), L/C,LTR,LIM,BTB L/C, PC,

ECG, BG, FDBP, IDBP, AAA all of these for one year.

8. Grace period: negotiable depending upon nature of business and purpose of loan.


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9. Repayment arrangement: monthly installment in case of term loan, monthlyinstallments or lump sum within expiry in case of time loan.

10.Financing mode: term loan, time loan, OD, CC(H), CC(P), L/C,LTR,LIM,BTB L/C, PC, ECG,BG, FDBP, IDBP, AAA.

11.Disbursement Precondition: all the documentation formalities must be completed priorto disbursement.

12.Debt burden ratio: DBR must not exceed 80%.13.Loan takeover from other bank: in case of loan takeover from other bank, the loan

amount will be given in the form of a payment order favoring that particular bank to


14.Contact Point Verification: all address of the applicant and guarantee must be verifiedby CPV agent where the bank has agreement and in other case branch officials will do

the same.

15.Approval authority: as per delegation of business power for Small Enterprise financing.

4.15.3 Southeast Shuprova

1. Customer segment: any SE Woman Entrepreneur meeting definition criteria and targetgroup criteria of southeast banks SME credit policy.

2. Proprietorship concern100% owned by the woman.3. Partnership concern & Limited Company50% or above share owned by the women.

1. Purpose: Any justifiable business purpose.2. Nationality: Bangladeshi3. Age limit: From 22 years up to 50 years( the borrowers age must not exceed 55

at the expiry of loan tenor). In case of partnership firm or private limited

company, age of the key person/chief executive officer is to be considered.

4. Minimum Income: Minimum income must be commensurate with the amount ofloan required.


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Duly filled in CIB forms Any other documentation deemed to be necessary by the bank

Post approval documentation

Acceptance of the Sanction advice. Others as per the sanction advice.

1. Insurance: the hypothecated stocks/items will remain insured minimum 10% above thecredit facilities covering Fire, RSD, Theft and Burglary, Flood & Cyclone, MBD with Bank

mortgage clause, cost of which to be borne by the client. If the client is unwilling to

insure the hypothecated stock covering theft and burglary and Flood & Cyclone, an

undertaking is to be obtained from the client to the effect that in case of Theft and

Burglary, Flood & Cyclone and MBD the client will bear all the losses.

1. Loan processing fee: 1% on the approved loan amount.2. Interest rate or commission: if loan is funded then 13% -16% per annum. However, the

rate may be changed based on the market condition and policy of the Bank. If the loan is

nonfunded then charge is par bank schedule.

3. Overdue service charge: 2% per annum above the regular interest rate on the overdueamount.

4. Early settlement/Prepayment fee: 1% on the prepaid amount if paid before 1 year orthe outstanding amount exceeds 40% of the principal amount.

5. Stamp and Property valuation: all relevant stamp and property valuation charges mustbe borne by the customer.

6. Loan Tenure: for term loan maximum 5 years for fixed asset procurement and maximum3 years for other purposes. For time loan, OD, CC(H), CC(P), L/C,LTR,LIM,BTB L/C, PC,

ECG, BG, FDBP, IDBP, AAA all of these for one year.

7. Grace period: negotiable depending upon nature of business and purpose of loan.8. Repayment arrangement: monthly installment in case of term loan, monthly

installments or lump sum within expiry in case of time loan.


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9. Financing mode: term loan, time loan, OD, CC (H), CC (P), L/C, LTR, LIM, BTB L/C, PC,ECG, BG, FDBP, IDBP, and AAA.

10.Disbursement Precondition: all the documentation formalities must be completed priorto disbursement.

11.Debt burden ratio: DBR must not exceed 80%.12.Loan takeover from other bank: in case of loan takeover from other bank, the loan

amount will be given in the form of a payment order favoring that particular bank to


13.Contact Point Verification: all address of the applicant and guarantee must be verifiedby CPV agent where the bank has agreement and in other case branch officials will do

the same.

14.Approval authority: as per delegation of business power for Small Enterprise financing.

4.16 Performance of SEBL in Financing SMEs

There is an increasing trend in the disbursements of SME credit by Southeast Bank Limited.

Recently 10 SME Service Centers has been established to concentrate more on SME Financing.

Last four quarters performance is analyzed below:

There is an upward trend in the financing for small entrepreneurs. The number of small

enterprises clients has increased in last 12 months. At June 2009, the no. was 1171. It increased

to 1286 in December 2009, 1403 in March 2010, and 1525 at June 2010.

Again we see that, there is an upward trend in the amount of disbursement made to the small

entrepreneurs. The disbursements at June 2009 were 14,944 lac which increased to 17,749 lac

in December 2009, 18,302 lac in March 2010 and 20685 lac in June 2010.The amount of

disbursement for small entrepreneurs increases by approximately 1778 lac.


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There is a upward trend in the financing for Medium size entrepreneurs. The number of

medium size enterprises clients has increased in last 12 months. At June 2009, the no. was 453.

It increased to 486 in December 2009, 594 in March 2010, and 676 at June 2010. In every

quarter, the no. of small enterprises clients is increases by approximately 78.

4.16.1 Performance of SME in Service Centers

To Comply with Bangladesh Banks guideline and to concentrate more on SME financing, 10

SME Service Centers had been set up by Southeast Bank Limited. They are still going through

the initial stages, with limited resources. It had total of 32 officers for the 10 SME Service

Centers. They are resided in Hathazari, Lohagara, Beanibazar, Tazpur, Biswanath, Shebarhat,

Sonagazi, Tangail, Jessore and Brahmanbaria. This year, The Total loans and advances provided

by them upto June 2010 is TK .6519 crore. Of them, only four had been able to provide SME

loans. All the SME Service Centers are currently running at losses. The total loss this year up to

June 2010 were 1.5129 crore.

4.17 SME Loan Procedures of SEBL

4.17.1 Loan Sanction activities

Select potential enterprise:For SME loan, in this step the officer conduct a survey andidentify potential enterprise. Then they communicate with entrepreneurs and discuss

the SME program.

Loan Presentation:The function of credit officer is to prepare loan presentation basedon the information collected and provided by the entrepreneur about their business,

land property (Where mortgage is necessary)

Collect confidential information: Another important function of a CRO is to collectconfidential information about the client from various sources. The sources of

information are suppliers regarding the clients payment, customers regarding the


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delivery of goods of services according to order, various banks where the client has

account, which shows the banks transactions nature of the client.

Open clients accounts in the respective bank: When the CRO decided to provide loan tothe client then he/she help the client to open an bank account where SEBL bank has a

STD a/c. SEBL will disburse the loan through this account. On the other hand the client

will repay by this account. Although there is some exception occur by the special

permission of the authority to repay by a different bank account.

Filled up CIB form:Credit in charge give a CIB (Credit Information Burue) form to theclient and the client fill and sign in it. In some case if the client is illiterate then the

officer fill the form on behalf of the client. Then officer send the filled and signed form

to the SME, head office.

Sending CIB to Bangladesh Bank: The SME, head office collects all information andsends the CIB form to Bangladesh Bank for clearance. Bangladesh Bank return this CIB

form within 10-12 days with reference no.

CIB report from Bangladesh Bank: In the CIB report Bangladesh Bank use any of thefollowing reference no:

NIL: if the client has no loan facility in any bank or any financial institution then BB(Bangladesh Bank) use NIL in the report

UC (Unclassified): if the client has any loan facility in any bank or financial institution andif the installment due 0 to 5.99 then BB use UC in the report

SS (Substandard): if the client has any loan facility in any bank or financial institution andif the installment due 6 to 11.99 then BB use SS in the report

DF (Doubtful): if the client has any loan facility in any bank or financial institution and ifthe installment due 12 to 17.99 then BB use DF in the report

BL (Bad lose): if the client has any loan facility in any bank or financial institution and ifthe installment due 18 or above then BB uses BL in the report. This report indicates that

the client is defaulter and the bank should not provide loan the client.


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Insurance (Original copy)

Blank claque with signature (one cheque for full amount and others same as no of

installment on Favor of SEBL , no date, no amount)

Two guarantors (one must be Spouse/parents)

If the loan provide for purchase of fixed assets or machineries and if the loan amount is

over Taka 50,000/= then the stamp of a certain amount is required.

Documents deficiency and problem resolving: If there is any error found then itinformed to the respective Officer. If the application form is not filled properly then the

file send to the officer to fill the application properly. If any document error found then

the loan administration division asked the officer to send the require documents and

the file stored to the loan administration division.

Prepare disbursement list: The loan administration division lists all new sanctionedclients details and send a request to the treasury through internal mail.

Disbursement of the amount: Sending the list to the treasury of SEBL bank for disbursethe amount, the treasury disburse the amount to the client through the mother account

of the clients bank. SEBL disburse amount through corporate branch nearer the SEBL

head office and the corporate branch of the respective bank send the amount to the

client account in the respective bran