Prospect of SME Banking in Bangladesh the BRAC BAnck Perspective

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    CHAPTER 01: INTRODUCTION

    1.1 ORIGIN OF  THE REPORT

    As a part of the Internship Program of Bachelors of Business Administration program

    requirement, I chose to do my internship in the BRAC Bank Limited (BBL) for the

     period of ! "eeks starting from # $arch %##! to # $ay %##!& In BBL I "as assigned

    to the different concerned departments& $y organi'ational superisor "as $s& ahniyat

    A& *arim, +P -ead of -uman Resources& $y pro.ect is /Prospect of 0$1 Banking in

    Bangladesh2 he BRAC Bank Perspectie3 "hich "as assigned 4y organi'ational

    superisor of the said 4ank& $y faculty superisor $r& $ohammad $ohiuddin, Lecturer,

    IBA, also approed the pro.ect and authori'ed me to prepare this report&

    1.2 OBJECTIVE OF  THE REPORT

    he o4.ectie of the report is to study and ealuate the prospects of BBL in the 0$1

    sector of Bangladesh& In the process of doing so, I hae assessed the

    1.3 SCOPE OF  THE S TUDY

    I hae limited the study to the follo"ing parameters2

    • he total concept 0$1 loan

    • BBL3s special focus on 0$1 loan to promote small entrepreneurs all oer the

    country

    • Characteristic of 0$1 loan as a sophisticated area of finance&

    • Recent performance leel of the BBL 0$1 loans in the country&

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    1.4 METHODOLOGY

    he study uses 4oth primary data and secondary data& he report is diided into t"o

     parts& 5ne is the 5rgani'ation Part and the other is the Pro.ect Part& he parts are irtually

    separate from one another&

    1.4.1 PRIMARY SOURCES

    6or general concept deelopment a4out the 4ank short interie"s and discussion sessions

    "ere taken as primary source& $ore oer a market surey "as conducted "ith a specific

    questioner& o identify the implementation, superision, monitoring and repayment

     practice7 interie" "ith the employee and e8tensie study of the e8isting file "as and practical case o4seration "as done&

    1.4.2 SECONDARY SOURCES

    he information for the 5rgani'ation part of the report "as collected from secondary

    sources like 4ooks, pu4lished reports and "e4site of BBL ("""&4rac4ank&com)& 6or 

    gathering concept of 0$1 loan products of BBL, the Product Program 9uidelines (PP9s)

    "ere thoroughly analy'ed&

    1.4.3 S AMPLING

    6or the surey, cluster sampling "as thought to 4e appropriate& he 0$1 clients of BBL

    can 4e categori'ed into four clusters7

    • $anufacturing Businesses

    • rading Businesses

    • Agro74ased Businesses

    • 0erice Businesses

    :ithin the clusters, random sampling "as conducted according to adantage of the

    sureyor and also considering the time factor& he sample frame "as the list of e8isting

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    clients of BBL 0$1 loan facilities and the sample unit "as the indiidual entrepreneur&

    he sample si'e for each cluster "as determined as per the ratio of the total populations

    of the clusters& he total sample si'e "as limited to %##&

    1.5 LIMITATIONS

    ;espite my earnest efforts, there "ere some limitations that hindered the progress of this

    report&

    • 5n %! April %##!, due to an unfortunate accident, the 0$1 department of BBL

    caught fire& All documents "ere destroyed and it took many "eeks to restore allinformation from 4ackups& his greatly hindered the information collection

     process for the report&

    • he sample si'e of the surey conducted "as %## only due to time considerations&

    -o"eer, the diersified nature of the respondents "ill hopefully make up for this

    lacking&

    • Bank3s policy does not permit to disclose arious data and information related to

    Credit portfolio&

    • $ost recent data and information "ere not aaila4le& herefore the timeframe for 

    the report had to 4e limited to ;ecem4er %##

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    CCHAPTERHAPTER 02: T02: THEHE EECONOMYCONOMY  AND AND OO VERALL VERALL

    BB ANKING ANKING SSECTORECTOR

    2.1 WORLD ECONOMY- AN O VERVIEW

    As we enter into the new millennium the process of trade liberalization

    and globalization have presented new challenges as well as greater

    opportunities. Economic boundaries of nations are being abolished and

    the world is gradually becoming a global village. In the beginning of 

    the year 1999 the Euro currency started to replace the currency of 

    eleven European Union countries. In the nancial service sector

    profound changes have been taing place globally. E!commerce is

    becoming the predominant mode of transactions. "e are witnessing

    revolutionary changes in the elds of cost control# retail channels#

    range and delivery of services# accessibility and reach. $hese changes

    have already triggered o% reorganization# amalgamation# and taeover

    of nancial institution globally.

     $he prospect of a faster pace of monetary tightening contributed to a

    sharp drop in e&uity prices around the world in early 'ctober ())*.

    E&uity marets rebounded strongly since +ovember# boosted by signs

    of still robust growth in the U, as well as announcements of mergers#

    share buybacs and dividend increases. -apan outperformed most

    other e&uity marets throughout this period. Upward revisions in policyrates had a surprisingly muted impact on the prices of emerging

    maret assets. Emerging marets beneted from record inows of 

    foreign portfolio investment in ())*. As concerns about slowing U,

    growth eased# emerging marets bounced bac strongly from their late

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    'ctober lows. /y late +ovember# e&uity and bond prices had returned

    to their end!,eptember highs and had generally reached record levels

    by early -anuary ())0. E&uity marets have# however# weaened

    overseas thereafter mainly on account of renewed rmness in global

    crude oil prices. orporate credit default swap rates and bond spreads

    remained more or less unchanged in 'ctober although they have

    widened signicantly since +ovember. "hile long!term interest rates

    rose in many marets in ,eptember and 'ctober# they retreated

    slightly in +ovember# and at the end of 2ecember it was still unclear

    whether the recent rise in yields would prove as ephemeral as previous

    increases. $he increase in longer!term yields mainly reected upward

    revisions to interest rate e3pectations over the near term. 4urther# the

    potential for rising energy costs to add to inationary pressures was a

    ey focus of investors5 attention. $he rise in implied volatility also

    reected growing uncertainty about the economic outloo. 2uring

    2ecember (6!7)# ())* yields on 1)!year U, $reasuries fell briey

    below those on two!year notes for the rst time since 2ecember ()))#

    inverting in intra!day trading and signaling e3pectations that interest

    rates could fall in future that is generally associated with wea growth.

     $his inversion came as analysts were nally anticipating an end to the

    current tightening cycle and a lower long!term ris premium than in

    the past. In -anuary ())0# however# the spread has turned positive

    again. $he U, dollar appreciated by 7.*8 in trade!weighted terms

    during ())* and a similar trend continued in -anuary ())0.

    'f the maor central bans# the U, 4ederal :eserve has raised its policy

    rate by (* basis points each on thirteen occasions from 1.)8 in -une

    ()); to ;.(*8 by 2ecember ())* while recently providing indications

    of nearing the end of the cycle of measured rise in the policy rate. $he

    /an of England has ept its rate unchanged at ;.*)8 since August

    ())* in response to slowing domestic growth. $he European entral

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    /an onetary policy has been tightened in several

    economies in emerging Asia# primarily in response to higher fuel prices

    and to the measured pace of policy tightening in the U,. /an

    Indonesia raised its policy rate by *) basis points to 1(.6*8 on

    2ecember 0# ())* which was the tenth successive increase during the

    year. In $hailand# the 1;!day repurchase rate was increased for the

    seventh time since -anuary ())* from (.))8 to ;.(*8 on -anuary 1?#

    ())0. >onetary authorities in ,ingapore and @ong ong raised their

    policy rates by 1?6 basis points and ()) basis points# respectively#

    during the year up to 2ecember. In >alaysia# the policy rate was hied

    to 7.)8 in end!+ovember# ())*. In emerging maret economies in

    general# the direction of policy change has been towards either

    tightening or withdrawal of the accommodative stance.

    Economic growth in developing Asia and the Bacic surprised on the

    upside in ())*. In ,eptember last year# the  Asian Development 

    Outlook

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    prices# the  ADO 2006 revises up its aggregate growth proection for

    ())0# and# to a lesser e3tent# for ())6

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    improve loan recovery but unfortunately the high &uantum of non

    performing assets and under capitalization continued to plague the

    entire baning sector thus causing a maor threat to the macro

    economic stability. $he size of classied loans increased signicantly

    which contributed to lower protability of the bans.

    :eserve of gross foreign e3change  of the // stood lower at

    U,7)77.?? million at the end of >arch#())* compared to U,7169.;1

    million at the end of 4ebruary. $his was# however# higher than U,

    (0*7.*) million at the end of >arch# ());. $he pressure on foreign

    e3change reserve continues due to low aid disbursement and sizeable

    private capital outow# which amounted to around U, 1() million.

     $he oFcial e3change rate was devaluated by ;.08 in seven steps in 4C

    ())( and in two steps during -uly!August )( thus raising the

    cumulative rate of devaluation to 0.68. $he e3ternal account declined

    from over *8 of D2B to less than 78 < U, ).9 million= in 4C )( which

    was mainly a result of healthy e3port growth arch#());!)* increased by

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     $.2351.08 crore or 11.6( 8 to $.()(9;.0) crore compared to

     $.1?10*.;9 crore during the same period of the preceding year

    Outstanding borrowing of the government: At the end of 

    4ebruary#())* the outstanding borrowing of the government

    stood at Tk.35031.1 crore# recording an increase of 

     $.1*;7.;6 crore or ;.018 over -une#());

    !"#orts:  2uring -uly!4ebruary# ());!)* total e3port of the

    country stood higher by $%&'22.8' million  or 17.))8 to

    U,*;1*.0) million compared to U,;69(.6; million during the

    same period of the preceding year

    (m#ort #a)ments:  2uring -uly!-anuary# ());!)* total import

    payment increased by $%&1233.*0 million  or (1.718 to

    U,6)(7.*) million compared to U,*6?9.?) million during the

    same period of the preceding year.

    +resh o#ening of im#ort ,-s: 2uring -uly!4ebruary# ());!)*

    fresh opening of import H5s increased by $%&183.58 million

    or (;.7) 8 to U, 97?(.?; million compared to U,6*;?.(0

    million during the same period of the preceding year

    Total remittances:  2uring -uly!>arch#());!)* stood total

    remittances of the country higher by $%&320.20 million  or

    1(.69 8 to U,(?(7.)7 million compared to U,(*)(.?7 millionduring the same period of the preceding year

    /ross foreign e"change reserves: :eserve of gross foreign

    e3change of the // stood lower at $%&3033.88 million at the

    end of >arch#())* compared to U,7169.;1 million at the end of 

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    4ebruary. $his was# however# higher than U,(0*7.*) million at

    the end of >arch# ());

    /ross  foreign e"change balances: /alances of gross foreign

    e3change  held abroad by commercial bans stood higher at

    $%&3*.1' million  at the end of >arch# ())* compared to

    U,70;.06 million at the end of 4ebruary# ())* and U,71(.01

    million at the end of >arch# ());

    The rate of ination: $he ination rate increased to '.38  in

    4ebruary# ())* from *.*( 8 of -anuary# ())*.

    2.3 B ANKING SECTOR IN B ANGLADESH 

     $he /angladesh baning sector relative to the size of its economy is

    comparatively larger than many economies of similar level of 

    development and per capita income. $he total size of the sector at

    (0.*;8 of D2B dominates the nancial system# which is

    proportionately large for a country with a per capita income of only

    about U, 76). $he non!ban nancial sector# including capital maret

    institutions is only 7.((8 of D2B# which is much smaller than the

    baning sector. $he maret capitalization of the 2haa ,toc E3change

    was U,1#)(* million or (.198 of D2B as at mid!-une ())(. In

    contrast# the size of the total nancial sector in India# including bans

    and non!bans as well as the capital maret is 1*)8 arch ())(= of 

    its D2B# with commercial bans accounting for *?.78 of D2B.

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    Access to baning services for the population has improved during the

    last three decades. "hile population per branch was *6#6)) in 196(# it

    was 19#?)) in 1991. In ())1 it again rose to (1#7))# due to winding up

    of a number of branches and growth in population. ompared to India5s

    1*#))) persons per branch in ()))# /angladesh is not far behind in

    this regard. $his indicates that access to the baning system in the

    country is not a signicant problem.

     $he nance sector remains predominantly ban!based# accounting for

    908 of the sector5s resources. "hile there are sound bans# based on

    IA,# the baning sub!sector as a whole is technically insolvent.

    onsolidated data reported tend to have signicantly understated

    provisions. Adusting partly for the understatements# the nancials of 

    the baning sub!sector are characterized by about 7(8 +BH ratio#

    U,6() million shortfall in provisions# U,1#1)0 million shortfall in

    provisions and capital combined# and losses of U,0?* million after

    adusting for the shortfall in provisions in mid ())1. $he adustments

    would possibly be larger if provisioning as followed by maor

    international auditors were applied. +ational ommercialized /ans

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    (M ARCH 2005 )

    T)#e of 

    ank o.

    o. of 

    ranches

    of Total

    4sset

    of Total

    e#osit

    - ; 77?? ;).1; 79.6?

    % * 177; 6.17 6.((

    6- 7) 1**6 ;(.06 ;6.1?

    +- 1) 79 9.;0 *.?(

    Total ;9 071? 1)) 1))

    Source: Bangladesh Bank 

    In addition# one national co!operative ban# one Ansar!K2B /an# one

    armasangsthan /an and one Drameen /an and some non!scheduled bans are also in operation. In order to enhance the overall

    eFciency of +/s# decisions have been taen to rationalize ban

    branches# and up to -une ())*# 91 new branches were established and

    9 e3isting branches were closed under the Lbranch rationalization

    programL.

    /ans and other nancial institutions have been playing a ey role in

    activating the nancial sector that in turn infuses dynamism to the

    economy. /ans are engaged in upgrading the socio!economic status

    of the country by investing money to productive sectors. @owever# in

    the conte3t of globalization and operation of maret economy these

    institutions are facing immense competition with regard to speedy

    transaction of nancial intermediation and as such they are to provide

    their service as eFciently and e%ectively as possible. Diven this

    scenario# importance has been attached to the development of the

    nancial maret through baning sector.

    In order to uphold the rule of baning sector in nancial maret

    development the Dovernment has taen a range of measures which

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    include further deployment of ban branches and evaluation of their

    performance# classication of loans following the international

    standards assessment of capital ade&uacy# determination of &uality of 

    assets and earning of impressive prot.

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    CCHAPTERHAPTER 03: O03: ORGANIZATIONALRGANIZATIONAL OO VERVIEW VERVIEW

    3.1 B ACKGROUND

    BRAC Bank Limited started its .ourney on the >th of uly %## originating from its

    source BRAC  Bangladesh Rural Advancement Committee& BRAC is kno"n as the one

    of the most successful D95 in the "orld& $ainly, BRAC Bank originated due to

    successful story of BRAC micro finance& he Chairman, Mr. Fazle asan A!ed  4elieed

    that until modern, competitie financial serices are readily aaila4le including credit

    in amounts, terms and conditions that small can access, Bangladesh "ill not 4e a4le to

    create the large middle class that is a prerequisite to social sta4ility& 0o, the BRAC Bank 

    Limited came into e8istence due to the need of mass financing, "hich "ouldn3t hae

     4een possi4le "ith BRAC micro finance itself&

    oday BRAC Bank is considered as third generation !ank   e8tending full range of 

     4anking facilities 4y proiding efficient, friendly and modern fully automated on7line

    serice on a profita4le 4asis& 0ince its inception, it has introduced fully integrated online

     4anking serice to proide all kinds of 4anking facilities from any of its coneniently

    located 4ranches&

    3.2 THE VISION

    he ision of BRAC Bank Ltd& is 7Building a profita4le and socially responsi4le financial

    institution focused on $arkets and Businesses "ith 9ro"th Potential, there4y Assisting

    BRAC and stakeholders 4uild a E.ust, enlightened, healthy, democratic and poerty free

    BangladeshF& he BRAC Bank3s ision is thus aligned "ith those of BRAC

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    3.3 C APITAL S TRUCTURE  AND EQUITY P ARTNERS

    BRAC Bank has started "ith an initial capital of amount B; %

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    TABLE 2: HIGHLIGHTS OF LONG TERM PLANNING

    Particulars Actual (2005) Pro!ct!" (200#)

    No% O& Boot 7 ##

    'it O&&ic! %@? >##

    Pro&it B!&or! Ta* %(crore) %=%(crore)

    ATM ?

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    CHAPTER 04: FUNCTIONAL DIVISIONS OF BRAC

    B ANK LIMITED

    BRAC Bank has a centrali'ed 4anking structure through online 4anking system that

    resem4les the ABDHA$R5 $odel& BBL consisted of four ma.or diisions namely7

    ⇒ 0mall and $edium 1nterprise (0$1) ;iision,

    ⇒ Retail Banking,

    ⇒ Corporate Banking

    ⇒ reasury ;iision&

    5ther important diision are Credit Administration, Loan Administration, rade 6in, I,

    -R$, CCG, Internal Control etc, "hich "ork to support the ma.or 4usiness diisions&

    4.1 SME DIVISION

    he 4iggest operational diision of BRAC 4ank is the 0$1 (0mall $edium

    1nterprise) ;iision& 0$1 is directly related to 4usiness of the 4ank& BRAC Bank 

    extends loans to potential small and medium trading, manufacturing and service

    enterprises. This loan is able to provide quick and quality banking services to targeted

    business at any places of the country. Potential women entrepreneurs will also get the

    facilities of SM loan! this initiation is to play a role in the socio"economic development of the

    country by expansion of business as well as creation of employment. BRAC Bank "as

    titled to 4e the fastest gro"ing 4ank in %##> %## crore taka&

    he profita4ility of the 4ank came mostly from the 0$1 sector& 0$1 diision is enriched

    "ith more than ?## staffs and it has almost =## unit offices all oer the country&

    4.1.1 S TRUCTURE OF SMEDIVISION

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    • Fi!l" L!,!l: In the field leel there are three types of designated BRAC Bank 

    staff operates& hey are Customer Relation 5fficer (CR5), onal 5fficer (5)

    and erritory 5fficer ($)&

     

    o -RO (-usto$!r R!latio'si. O&&ic!rs):  here are a4out ?## CR5

    "orking all oer the country in =## unit offices& CR5 are assigned to spot

     potential entrepreneurs through out the country and motiate them to take

    loan from BRAC Bank& 1ach CR5 falls under their assigned territory and

    they hae to perform their .o4 "ithin that& hey are under direct

    superision of the onal 5fficers (5)& CR5 goes to people, identifies

    their need and according their need, suggest them to aail loan from

    BRAC Bank& CR5 are responsi4le for ealuating the trust"orthiness of 

    the client "hether they are capa4le to repay the loan or not& o proide

    loan and ensuring loan repayment are the t"o main tasks done 4y the

    CR5&

    o /O (/o'al O&&ic!rs): here are =! onal 5fficers& hese 5 controls the

    CR5& hey isit the spot that the CR5 already located& 1ach and eery

    enterprise "ill 4e isited 4y 5& 5 has the authority to sanction loan

    highest up to taka = lakh&

    o TM (T!rritor Ma'a1!r): here are > team $anagers& hey superise

    the 5&

    o AO (ualit Assura'c! O&&ic!r): here are % Juality Assurance

    5fficer& hey perform the .o4 of monitoring& hey superise the 5 and

    $&

    • H!a" O&&ic! L!,!l:

    o -r!"it:

    he Credit limit aries depending on the rank&

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    5 has the authority to sanction up to highest = lakh&

    $ has the authority to sanction up to highest < lakh

    If the credit limit e8ceed taka # lakh it goes to Credit Committee

    If the credit limit e8ceeds taka %# lakh it goes to the Board&

     

    o Loa' A"$i' 7 he posting is done in the system

    ($B0) in the Loan Admin& hen Loan Admin sends requisition to 6in

    Admin&

    o Fi' A"$i'2 6in Admin take care of the other 

    e8penses&

    o R!co,!r2 Recoery ;ept& prepares an oerdue

    report and informs the $& Recoery dept& keeps track of the money&

    Legal notices are gien to the defaulters&

    o MIS: $I0 dept& keeps the total record of loan from

    its sanction to repayment&

    4.2 RETAIL B ANKING

    Retail Banking is kno"n as general 4anking "here the indiidual customers get serices

    time to time from the local 4ranches of the larger commercial 4anks& In BRAC Bank 

    Retail section has 4een diided into t"o parts

    • 3istri4utio'  0ere the acquired customers

    • Sal!s  Business acquisition&

    hey 4oth are interdependent and "ork closely "ith each other& Retail offers different

    types of competitie 4anking products to the customers& he retail diision of the BRAC

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    Bank also offers some special types of deposits and loan scheme for the customer 

    attention&

    4.2.1 RETAIL DEPOSIT PRODUCTS

    • Current Account&

    • 0aing Account ($a8imi'e and Dormal 0aing Account)&

    • ;eposit Premium 0cheme (;P0)&

    • 0hort erm ;eposit (0;)&

    •  Dormal 6;R&

    A4iram (A hy4rid of 6i8ed ;eposit "ith pays internal on a monthly interal)&

    4.2.2 RETAIL LOAN PRODUCTS

    • 0alary Loan

    • Credit Card Loan

    • Life 0tyle Loan

    • Gnsecured Personal Loan

    • 0ecured 5er ;raft

    • eachers Loan

    • -igh 6lyer Loan

    • Premium erm ;eposit (P;)

    • 0haha. Loan (6or Bank 0taff only)

    • Ashadharon (6or Bank 0taff only)

    4.3 CORPORATE DIVISION

    Like Retail, corporate department has also t"o different "ings 7 Corporate Banking

    diision Cash $anagement&

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    4.3.1 CORPORATE B ANKING DIVISION

    Corporate Banking is a speciali'ed area of BRAC Bank, "hich addresses the dierse

    financial needs of Corporate Clients&

    his diision e8ists to proide 4anking serices and financial partnership "ith local andforeign 4usiness houses (Pu4lic and Priate Limited Companies), D953s, trading houses,

     .oint entures and arious goernment 4odiesKcorporations etc& As the financial partner of 

    choice for the corporate sector, BRAC Bank "ants to 4e distinguished 4y its2

    • Juality of serice

    • +alue of innoatie solutions

    • Leel of trust "ith clients

    • Customer kno"ledge

    Corporate clients can access a "ide range of financial serices offered 4y corporate

     4anking diision including2

    • ;e4t Capital

    • 1quity Capital

    5ngoing relation support

    • 6inancial $arkets

    • Pro"ucts: BRAC Bank proides a comprehensie range of innoatie

    corporate financial solutions tailored to suit each company3s needs& his range

    includes 4oth funded and non7funded facilities& 6ollo"ing are some of the

     products that BBL offers to its clients2

    • Corporate 6inance

    o Loan 0yndication

    o Pro.ect 6inance2 0hort and $edium term

    • 6inanceKCredit 18tension

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    • 5erdrafts

    • ;emand 6inance

    • :orking Capital 6inance

    • Receia4le ;iscounting

    • Pre and Post 18port 6inancing

    • 0hort7term loan2 reoling loans, LAR etc&

    • rade 

    o Letter of credit2 0ight, Gnsance etc&

    o 9uarantee2 Performance, 0ecurity, Adance Payment etc&

    • Lease financing

    • Tar1!t Mar!t:

    o Pharmaceuticals, oiletries, Chemicals and Pesticides

    o Po"er 9eneration, oil e8ploration, Industrial and household gases

    (Liquid, Petroleum 9ases etc&)

    o 1di4le oil, Bulk rading 1ssential Commodities, Industrial Ra"

    $aterials, Agricultural Inputs, Cement&

    o 9arments, e8tiles and related 4ack"ard linkages industries including

    spinning, *nitting, arn, 9arment accessories etc&

    o 6ood Processing and Beerage Industries&

    o Ca4le and Ca4le "ire, Information echnology&

    o Leasing CompaniesKDon Banking 6inancial Institutions&

    o -ealth serice Industry, Don 9oernmental 5rgani'ations&

    o ImportersKdealers of machinery, Industrial, 1lectrical equipment

    o 1ducation Institutions, Bone china, Ceramics, $elamine, plastic

     products&

    o $anufacturing and rading of Consumer ;ura4les,

    elecommunication, and Contractor 6inance&

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    o 0hip Breaking, Re7rolling Corrugated Iron (CI) 0heet $fg and related

     4usiness&

    o Air Lines, 0hipping Lines, 6reight 6or"arders, esting Inspection

    agencies, 6oot"ear and Leather&

    o o4acco products and ea&

    • Tar1!t -usto$!rs Grou.:

    o Leading ;omestic Corporate and rading -ouses&

    o Local medium and large corporate&

    o $DCs3

    o  D95s3

    o 1ducational Institutions&

    4.3.2TRANSACTION S ALES & SERVICES (TRS)

    he ma.or responsi4ility of BRAC Bank3s R0 ;iision is to support their Corporate

    Customer "ith the com4ined net"ork coers ;haka, Chittagong, 0ylhet 0aar 

     presently& R0 offer the no cost on line 4anking facility through = 4ranches BRAC

    Bank& hey offer cash deposit and "ithdra"als, cheque deposits, and money transfer 

    facility, account enquiries, gie cheque 4ook requisition and Account 0tatement "ith

    their follo"ing type of account2

    • Current Account

    • 0hort ;eposit Account (0;)

    • 6i8ed ;eposit

    • 0aings Account (for corporate employees)

    • Conerti4le Account

    • 6C Account

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    R0 diision also has Priority 0erice 0ystem for their Corporate Customer, "hich

    manages their 4usiness finance and cash resources ery coneniently& Priority 0erice

    Banking includes the follo"ing special serices2

    • Pick7up ;eliery 0erices

    • Auto fa8 Report

    • Corporate -elp Line

    • In"ard Remittance Information

    • 18press Payment

    4.4 TREASURY

    reasury diision at BBL deals "ith the fund position& his diision calculates and

     pro.ects the fund requirement to meet day7to7day operation& It has also t"o "ings, one is

    front office and the other is 4ack office& 6ront office deals "ith directly to the money

    market of the country& heir main .o4 is to lend money to other financial institution on

    call or short7term 4asis, if the 4ank has additional money idle& 5r if the 4ank falls short in

    liquidity, this diision 4orro"s money from other financial institution on the same 4asis&

    5n the other hand the 4ack office keeps records of the fund position of the 4ank&

    4.4.1OBJECTIVE

    • $anaging mandatory liquidity&

    • $a8imi'ing return from fund management&

    • $atching Asset and Lia4ility&

    • 9enerating profit from Intermediary functions&

    4.4.2 BUSINESS SEGREGATION

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    • Mo'! Mar!t: $oney $arket is a net"ork of financial institutions linked 4y

    telecommunication net"ork to facilitate lending and 4orro"ing of fund for short7

    term (less than a year)&

    • For!i1' E*ca'1! Mar!t: It is the organi'ational frame"ork "ithin "hich,

    financial institutions and indiidual3s trade or e8change foreign currencies&

    4.4.3 FUNCTIONS

    Mo'! Mar!t:

    o $aintenance of 0tatutory Resere

    o $eeting BranchK ;iision fund requirements

    o Call Loan taking and placing

    o erm taking and placement

    o $arket analysis

    • For!i1' E*ca'1! Mar!t:

    o Circulation of e8change and interest rate on 6M& ;eposits

    o $aintenance of daily e8change position "ithin the limit

    o

     Dostro fundingo 6or"ard quote

    CCHAPTERHAPTER 05:05:FINANCIALFINANCIAL PPERFORMANCEERFORMANCE RREVIEWEVIEW

    5.1 PERFORMANCE  AT  A GLANCE

     T ABLE 3: PERFORMANCE OF BBL

    Particulars 2005 2006 2007

    Paid up capital ,=%?

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    Capital 0urplusKdeficit >#?

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    5.2.1 PROFITABILITY

    In the year %##< the 4ank has earned an operating profit of B;

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     4ut compare to #=N increase in loans and adances this up"ard trend is still in

    accepta4le leel&

    • Ma'a1!$!'t Sou'"'!ss2 $anagement 0oundness is ery difficult to measure,

     4ecause it requires a qualitatie measurement rather than quantitatie

    measurement& Deertheless ratios such as total e8penditure to total income are

    generally used to measure management soundness& In this regard BBL3s total

    e8penditure to total income ratio is

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    CCHAPTERHAPTER OO6: E6: ENVIRONMENTALNVIRONMENTAL A ANALYSISNALYSIS

    6.1 M ACRO ENVIRONMENT ANALYSIS

    It is ery important to carry out a macro enironment scanning for the 4anking industry

    in order to identify and analy'e the e8ternal factor that affected the gro"th and

    deelopment of the 4anking sector in Bangladesh& A through analysis of the macro

    enironment in "hich the 4anks operate "ill allo" the 4anks to deelop pro7actie

    strategies and naigate the organi'ation in the tur4ulent ocean of competition&

    he financial institutions are al"ays heaily influenced 4y the macro economic

    conditions 4oth glo4ally, regionally or locally& he key macro economic indicators like

    9;P gro"th rate, inflation, industrial gro"th rate, e8pansion of trade and commerce and

    other factors affects the operations and the pricing strategy of the 4ank& BRAC Bank 

    Limited (BBL), since its inception has achieed a steady gro"th rate& -o"eer, the

     present economic do"nturn or recession is affecting BBL3s operations& he country is

    no" under a deep recession haing a ma.or decline in industrial gro"th rate, galloping

    inflationary pressure, and decline in international trade "ith e8port targets for the fiscal

    year yet to 4e achieed and other factors "ill eentually affect BBL and other 4anks

     pricing strategies& $any 4anks "ill hae to reise the interest rate structure for its arious

    serices in order to cope "ith economic slo"do"n& -o"eer, 0$1 results for BBL is

    quite satisfactory as they hae surprised their stipulated targets despite the economic

    sluggishness going on in the country&

    6.1.1DEMOGRAPHIC ENVIRONMENT

    ;emography is the study of human populations in terms of si'e, density, location, age,

    gender, race, occupation and other statistics& he demographic enironment is of ma.or 

    interest to marketers 4ecause it inoles people and people make up markets& In terms of 

    0$1 requirements customer is the main part of 4ank& If there is no client there is no

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     4usiness& According to the location BRAC Bank 0$1 unit offices already has reached in

    eery cities around the country for proiding door to door facilities& 0ome key factors of 

    demographic enironment are7 ur4ani'ation, education, liing standard etc& 6or e8ample7

    In terms of ur4ani'ation, lots of ne" 4usiness and enterprises are gro"ing rapidly in the

    city or to"n& 0o more 4anks can 4e aggressie for proiding loans in ne"ly deeloping

    areas& 6or haing ne" 4anks in the city, the standard of liing "ill increase for the

     people& 1ducation is another ma.or factor for deeloping a nation& :ithout literacy

    standard of liing could not come for indiiduals& 0o each and eery factor is interrelated

    to each other&

    6.1.2ECONOMIC ENVIRONMENT

    6actors that affect consumer 4uying po"er and spending patterns& 0$1 is ery careful

    regarding economic issues in the country& Customer relation office is al"ays keen to

    check purchasing materials and leading lifestyle of the client& Because if the economic

    condition of a client 4ecome 4ad then heKshe might not repay the loan& 5n the other hand

    if "ar occurs 4et"een the t"o countries then price of the products "ill increase and

     people "ill loss purchasing po"er& In this "ay, organi'ation might affect economically&

    5n the other hand, A steady gro"th rate "ith continues market oriented reforms "ill

    contri4ute positiely 4y e8panding the olume of 4usiness and profita4ility of the 4ank&

    In an economy, a steady gro"th means there "ill 4e more inestment, saings, and

    consumption in the economy& As a result, 4ank also get more deposit and more pro.ects

    for credit dis4ursement&

    After dis4ursing the loan, if the economic condition of the 4usiness is 4eing poor then

    BRAC Bank regenerate the repayment schedule of the client to repay the loan& 5n the

    other hand if the economic condition rise up then client repay the "hole amount in faor 

    of BRAC Bank Limited&

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    6.1.3SOCIAL ENVIRONMENT

    As 4anks are serice oriented organi'ations, they al"ays hae to consider the attitude of 

    the customer& Customer no" "ant a speedy serice accompanied 4y attractie and "ell

    decorated impressie 4ranches "ith customer friendly officers proiding tailor made

    serices to the customers& 0$1 of BRAC Bank impressie office has already earned a

    reputation for the 4ank and has attracted lots of potential customers around the country&

    In order to match "ith the customer needs, 4anks are also increasing arieties of products

    such as single short products, different short and medium term products and other 

    serices& 5ne of the key factors of a social enironment is social class gro"th& It carry out

    attitudes of arious classes of people, such as upper class, middle class, lo"er class upper 

    lo"er class, upper lo"er class, etc& he customer relation officer of BRAC Bank deals

    "ith them regarding their social classes&

    he clients are accepting the 0$1 loans "ith kno"ing the interest rate of %>N ( %N per 

    month)& Client "ants fast serice rather than paying %>N interest& 0ome clients areargued a4out the interest rates "hich BRAC Bank is no" think of to reduce it& BRAC

    Bank already hae =### clients and dis4ursed ## crore& De8t year its pro.ected target is

    @###7#### clients and captures the market in our country& 0o, 0$1 has a rapid gro"th

    in the market&

    6.1.4POLITICAL ENVIRONMENT

    he political enironment consists of la", goernment agencies and pressure groups that

    influence and limit arious organi'ations and indiiduals in a gien society& 0$1 of 

    BRAC 4ank hae to a4ide national la"s like festials, holidays& 5n the other hand,

    hartals, strikes, 4arriers can affect the economic condition of 0$1 of BRAC Bank 

    Limited& Gnder the latest :orld Bank recommendation the 4anking diision of the

    ministry of finance is 4eing a4olished aO step further in proiding autonomy to

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    Bangladesh Bank& he emergence of 0$1 of BBL and other contemporary 4anks and the

    arrial of the foreign 4anks are all due to the on going reforms in the financial sector of 

    Bangladesh& BBL is restricted to proide loans for the political leaders& Customer 

    serices officers of BRAC 4ank al"ays aoid the political leaders "ho carry out

     4usiness& But if any pressure occurs from the political sides to hae the loan the top

    management handles the situation 4ut neer gie the loan to them&

    6.1.5TECHNOLOGICAL ENVIRONMENT 

    BRAC 4ank of 0$1 diision has a strong net"ork in the "hole country& he main head

    office is in the capital city from "hich it operates "ith all the unit offices 4y means of 

    mo4ile telephone& In the near future, 0$1 might handed oer the palmtop computer to all

    customer serices offices to proide accurate and quick serice to the clients&

    6.1.6ECOLOGICAL ENVIRONMENT

    0ometimes ecological enironment can turnout the 4usiness of the clients& 6oods,

    disasters can affect the 4usiness after haing the BRAC 4ank loans or fire can 4urn out

    the "hole 4usiness& o protect from these disasters BRAC 4ank do the insurance policy

    "ith the .oint names of the client& 0o that client can get feed4ack from the insurance

     policy to run again his 4usiness& If client do not get support from the insurance company

    then BRAC 4ank gie time or generate the client repayment schedule

    6.2 MICRO ENVIRONMENT ANALYSIS

    $arketing management .o4 is to attract and 4uild relationship "ith customers 4y creating

    customer alue and satisfaction& It depends on other factors in the organi'ation

    microenironment7 suppliers, customers, competitors, arious pu4lics "hich make up the

    organi'ation3s alue deliery system&

    he company needs to study its customer marketer closely in terms of 0mall and $edium

    1nterprise of BRAC Bank Limited and their customers group is specified& heir target

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    group is only 0mall and $edium 1nterprise client& he CR5 closely monitor and try to

     4uild good report "ith clients& 5n the other hand corporate clients are different to hae

    the loan& 1ach market type has special characteristics that call for careful study 4y the

    marketer&

    In terms of 0$1, most clients are carrying out trading 4usiness rather than manufacturing

     4usiness& 6e" clients are attached "ith serice 4usiness like pharmaceutical, hospital,

    homeopath etc& In the trading 4usiness clients "ant loans to meet their "orking capital

    requirement& 5n the other hand, clients "ant #7< for purchasing fi8ed assets& In our 

    country mostly =# years old clients are carrying out loans regarding the type of their 

     4usiness& he clients "ho interested to take the loan of 0$1 then they hae maintained at

    least one year running 4usiness& It is a policy of this 4ank 4ecause in the mean "hile

    client can understand his 4usiness and can set a future plan&

    he educational qualification of our clients is ery poor& Clients are under7graduate 4ut

    carry out good 4usiness& 0$1 support their clients "ho are carrying out good 4usiness

    and also gie suggestions and guidelines to deelop their 4usiness& If any client has

    maintained loans "ith other 4anks then 0$1 is restricted to proide loans for that clients&

    he client to hae a clearance certificate to get the loan from the BRAC 4ank&

    It has 4een found out that in our country most clients need small loans to deelop their 

    o"n 4usiness& he "orld is 4eing glo4ali'ed and moderni'ed& 0o 4y think of it client take

    risks to enhance and deelop their 4usiness and BRAC 4ank is a good helping hand to

    help them&

    In our country, clients "ant more time to repay the loan& BRAC 4ank gies adequate time

    for the client to repay the loan "hether they can get 4enefit from it& Clients are ery

    happy to repay the loan 4y equal monthly installment& Clients kno" the right time to

    repay the loan at the right place& But in the pick season, most client "ants short fund

    requirement to carry out good 4usiness& Regarding interest rates, clients are not talk a4out

    more 4ecause clients get the loan at the right time from the BRAC 4ank& Clients are also

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    happy 4y the issuance of security preferences 4ecause they do not hae to proide any

    collateral security for hypothecation or unsecured loans&

    0$1 of BRAC 4ank net"orks has eery "here in Bangladesh& 0o clients can hae the

    0$1 loans "hereer his 4usiness e8ists in the country& Also clients get the fast serice

    from the BRAC 4ank&

    he purpose of this loan is the economic deelopment in our country, "hich might diert

    the clients mind after haing the loans for e8pansion& $any clients hae am4ition to

    e8pand from trading to manufacturing 4usiness to generate more profit&

    :hen a CR5 "ould isit a 4usiness, the client must proide the proper and right

    information and sho" the right documents for .ustifying a good client& If any CR5 feel

     4ad smell in the 4usiness then the CR5 re.ect that client "ithout concerning the

    management& 0o clients should 4e feel comforta4le to proide proper information to hae

    the loan&

    Regarding the serice 4y the CR5, almost all clients are satisfied 4y get these quick 

    facilities from them& hough it is pioneer diision of this 4ank, so client should 4e fully

    satisfied 4y haing this facility&

    6.3 INDUSTRY ANALYSIS: SMEFACILITY OF BRAC B ANK L TD.

    6.3.1THREAT OF NEW ENTRANT

    In eery industry, there is a threat of ne" entry, "hich aries according to industry&

    0imilarly, the 4anking sector of Bangladesh also faces the threat of ne" entrants&

    -o"eer, the threat comes from t"o directions& he first threat comes from the arrial of 

    the multinational 4anks and their 4ranch e8pansion particularly due to the 4ooming

    energy sector& 6or e8ample, 0tandard Chartered Bank already inaugurate the 0$1 loan&

    Another threats comes from the emergence of ne" priate commercial 4anks& 6or 

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    e8ample, 0outheast Bank, ;haka Bank others, the countries traditional 4anks are

    facing the treat of further competition and 4etter quality serice& 0imilarly, the potential

     4anks that may emerge in the ne8t fe" years "ill further enhance the intensity of 

    competition and may pose further threat to the e8isting 4anks& At the same time, arrial

    of the foreign 4anks is posing threat and pressure on the e8isting 4anks& At the same time,

    arrial of the foreign 4anks is posing threat and pressure on the e8isting 4anks& Already

    0tandard Chartered Bank and -ongking 0anghai Bangking Corporation (-0BC) has

    started to proide small loans to clients and they are also going to start door to door 

    serices to clients&

    6.3.2GROWTH IN  THE INDUSTRY

    The rivalry among the competitors and the growth in the industry depends upon

    the intensity of competition. #f the industry has a high intensity of competition then

    the industry will have a high growth rate, as all the firms will try to beat the others

    in order to grab the market share. Similarly, the banking sector of $angladesh is

    growing considerably and at the same time competition is increasing. %urrently

    $&'% bank SM division is a pioneer one and carrying out (igital Technology

    Management Systems.

    6.3.3COMPETITORS

    • I"!'ti&i'1 t! 4a's co$.!titors: In terms of "orld 4ank adice, most of the

     priate 4anks are no" ready to proide small or micro credit loan facility to the

    clients 4ecause small loans are less risky than the corporate loan& At the recent

    trend, many 4anks like 0tandard Chartered, Islami 4ank of Bangladesh, 0outheast

    Bank, ;atch Bangla Bank Limited etc are going to take many aggressie steps in

    terms of small loan to clients&

    • 3!t!r$i'i'1 t! co$.!titors o4!cti,!s: In our country, to proide 4ig loans or 

    long term loans are risky 4ecause Bangladesh Bank is carrying out lots of 

    defaulter3s list& 0o most of the 4anks are no" interested to proide small or micro

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    credit lending in terms of small and medium enterprise 4uniness& he o4.ectie of 

    the competitors is to capture in the market 4y proiding small loans regarding and

    manufacturing 4usiness& But eeryone3s common o4.ectie is economic

    deelopment of this country&

    • I"!'ti& t! co$.!titors+ strat!1: 0tandard chartered 4ank already sent

    marketing troops surrounding the cities for proiding loans and deposits& CII

    Bank is going to start retail serice 4usiness for capturing the market& 0o

    competitor3s analysis is important factor to carry out in the long run 4usiness for 

    any organi'ations& Among these 4anks, many of them hae lo"er interest rates 4ut

    lots of hidden costs and serices&

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    CCHAPTERHAPTER 07: K07: KEYEY A ASPECTSSPECTS RRELATEDELATED  TO TO  THE THE

    MM ARKETING ARKETING OFOF SME PSME PRODUCTSRODUCTS ININ BBLBBL

    7.1 DEMAND CREATION

    he 0$1 diision of BBL 4asically proides micro credit loans to small and medium

    enterprises& Because of its unique nature, the demand for 0$1 loans is different in nature

    to the demand for corporate or retail loans& A huge portion of the target market has

    traditionally 4een neglected 4y the 4anking sector and hence, is ignorant a4out 4ankingactiities& hus, a"areness 4uilding has 4een, and still is, a ital actiity of the demand

    management process of 0$1 loans& he process flo" of demand creation is as follo"s2

     

     Prospect of SME Banking in Bangladesh: The BRAC Bank Perspective=?

    7arket -ustomer

    eeds

    4wareness

    6roduct

    9elationshi#

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    he CR5s play a ital role in all the stages of demand creation apart from market

    identification and product deelopment& hey proide door7to7door serices for the

    clients and at the same time are al"ays in search for potential ne" clients& Because

    clients are ignorant a4out 4anking products that may satisfy their needs, the CR5s

    identify their needs, ealuate their requirements and determine "hich products are most

    suita4le for them&

    he ma.or security of the 0$1 products is 4uilding relationship 4et"een clients and

     4anks& ;emand 4asically comes from t"o groups2 ne" customers and repeat customers&

    Because 4anks are facing ne" marketing realities like changing demographics, slo"

    gro"th economy, more sophisticated competitors etc&, BBL cannot afford to lose clients&

    he key to customer retention is superior alue and satisfaction& As BBL recogni'es this

    fact, repeat 4orro"ers of 0$1 products en.oy lots of e8tra 4enefits&

    7.2 M ARKET SEGMENTATION

    he market consists of many types of customers, products and needs and the marketer 

    has to determine "hich segments offer the 4est opportunity for achieing company

    o4.ecties& BBL segments the market for 4anking products into three categories 4ased on

    the nature of the consumer2

     T ABLE 4: M ARKET SEGMENTATION OF BBL

    %egment Target 7arket

    orporate

    Enterprises with loan re&uirement of $aa 7) lacs

    or more

    ,mall M >edium

    EnterpriseEnterprises with loan re&uirement of $aa (!7) lacs

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    :etailIndividuals with loan re&uirements for consumer

    purposes

    By segmenting its consumers into these categories, BBL is trying to sere niche markets"here there is ample opportunity for gro"th&

    :ithin 0$1, the market is further segmented on the 4asis of the nature of the 4usiness as

    follo"s2

    7.3 T ARGET CUSTOMERS

    o succeed in today3s competitie marketplace, organi'ations must 4e a4le to hold on to

    its customers 4y deliering greater alue& In order to do this, an organi'ation must 4e a4le

    to identify the customers "ho "ould 4e 4enefited from their products& BRAC Bank hastargeted the small and medium enterprises that hae small loan requirements as the target

    consumers of their 0$1 products& -o"eer, BBL does not finance 4usiness startups& he

     4usiness has to 4e at least t"o years old to aail the 0$1 loan facilities offered 4y BBL&

    $ost of such 4usinesses are sole proprietorships& here are some partnerships as "ell, 4ut

     Prospect of SME Banking in Bangladesh: The BRAC Bank Perspective

    ,mall M >edium Enterprise

    Trading7anufacturin

    g4griculture %ervice

    "holesale

    Retail

    $ills

    Bakery

    9eneral0tores

    Press

    6actory

    6ood

    Beerage

    Poultry

    Pathology

    -ospital

    0chools Colleges

    ;airy

    =

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    limited companies are rarely seen in this category& he surey that I had conducted

     4rought up the follo"ing results as common characteristics of the respondents2

    • he mean age of the respondents "as [email protected]&? years and mode "as == years&

    • ?&> years and haing "orking capital

    requirement of around k& =#,###&

    7.4 M ARKET POSITIONING

    1ery product must hae a unique proposition that "ill ena4le it to fulfill the customers3

    needs& In case of loans, there are four factors that might influence the clients3 decisions

    regarding the selection of a loan from a 4ank2

    • Interest Rate

    • Collateral

    • ime Inoled in Acquiring the Loan

    • Repayment 0cheme and enure

     Dot all factors influence eery segment of the market& In the surey conducted, the

    follo"ing findings "ere reealed "hen the respondents "ere asked a4out their prime

    reason for o4taining 0$1 loans from BBL2

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    6rom this response, it can 4e concluded that BBL has 4een successful in positioning its

    0$1 loans as collateral7free and quick to get& In the segment that it operates, these

    features are the pre7dominant influencing factors in the minds of the clients& his position

    has ena4led BBL to attain the astounding gro"th that it has already achieed in such a

    short time&

    7.5 DEVELOPING THE M ARKETING MIX FOR SME LOANS

    7.5.1PRODUCT

    In order to sere the market more efficiently, BBL has designed arious products that "ill

     4e a4le to satisfy the needs of the clients& he summary of all the 0$1 loan products of 

    BBL can 4e found in Appendi8 III& -o"eer, a fe" important factors are "orth

    mentioning here&

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     T ABLE 5: DIFFERENT SME LOAN PRODUCTS OF BBL

    A'o''o A.ur4o Patsala Aro11o3i1u'

    Ri'

    Su..li!r

    Fi'a'c!

    Pur.os!

    6i8ed

    Asset,

    :orking

    Capital

    6i8ed

    Asset,

    :orking

    Capital

    6i8ed

    Asset

    6i8ed

    Asset

    6i8ed

    Asset,

    :orking

    Capital

    :orking

    Capital

    Loa' Si9! %[email protected] lacs @7=# lacs %7= lacs %7= lacs

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     T ABLE 6: PRICING OF DIFFERENT SME LOAN PRODUCTS OF BBL

    (nterest ,oan 6rocessing +ee

    lac108 p.a for loan $. 1*.))!7) lac

    6athsha

    la

    (;8 p.a. for loan $. (.))!1).))lac

    168 p.a. for loan $. 1).)1!1*.))lac

    108 p.a for loan $. 1*.))!7) lac

    (8 of loan amount forloan $. (!7.* lacs

    1.*8 of loan amount forloan ;!6.* lacs

    18 of loan amount for

    loan $. ? lac and above

    igun

    9in

    E&uated >onthly Installment loanfacilityG 168

    ,ingle Installment Hoan facilityG1?8

    1.*8 of loan amountplus KA$

    %u##lier

    +inance

    ((8 p.a. for 7 lacs to 9.* lacs

    168 p.a. for 1) lacs to 1* lacs

    1*8 p.a. for above 1) lacs to 1*lacs

    18 of loan amount plusKA$

    his differentiated pricing method for different amount of loans is designed to attract

    clients "ith arious requirements.

    7.5.3PLACE (DISTRIBUTION)

    BBL offers loans to 0$1 clients all oer the country& -o"eer, loans are processed

    centrally in the 0$1 ;iision of the Asset 5perations ;epartment& he 4ase unit of the

    distri4ution channel of the 0$1 ;epartment is the Gnit 5ffice& here are %7? CR5s in

    each unit office 4ased on the market potential of that particular unit& he CR5s are

    responsi4le for the grass7root leel  distri4ution of 0$1 loans& At present, there are

    almost #=

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    he distri4ution channel of 0$1 loans is as follo"s2

    he country is diided into ? territories& here are !< onal 5ffices and = Gnit 5ffices

    in the country& onal 5fficers hae the authority to approe loans up to k& @ lacs&

    7.5.4PROMOTION

    ;ue to the nature of clients, direct marketing techniques are ery effectie for the promotion of 0$1 loans of BBL& BBL has t"o main types of promotional actiities2

    • 3oorto3oor S!r,ic!: he CR5s identify potential clients and reach them "ith

    loan offerings& $ost of these clients are illiterate and do not maintain any

    financial documents& he CR5s help them prepare documents required 4y the

     4ank for them and proide them "ith necessary support in actiities like account

    opening, transaction, etc& he CR5s also promote the 0$1 loan products to

     potential clients& Because they hae a target to achiee, they do this "illingly&

    • Fl!rs ; Brocur!s2 6or the more educated clients, BBL proides flyers and

     4rochures in the unit offices as "ell as in the 4ranches& hese flyers contain

    specific features of the product they adertise& -o"eer, as this type of promotion

     Prospect of SME Banking in Bangladesh: The BRAC Bank Perspective

    Territor)

    onalO;ce

    onalO;ce

    $nit O;ce $nit O;ce$nit O;ce $nit O;ce

    >>

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    is handled 4y the $arketing ;epartment, it "ould not 4e "ithin the scope of this

    report to discuss more ela4orately on this promotional tool&

    7.6 SWOT ANALYSIS0:5 analysis is an important tool for ealuating the company3s 0trengths, :eaknesses,

    5pportunities and hreats& It helps the organi'ation to identify ho" to ealuate its

     performance and scan the macro enironment, "hich in turn "ould help organi'ation to

    naigate in the tur4ulent ocean of competition&

    7.6.1S TRENGTHS

    • -o$.a' R!.utatio':  BRAC 4ank has already esta4lished a faora4le

    reputation in the 4anking industry of the country particularly among the ne"

    comers& :ithin a period of < years, BBL has already esta4lished a firm footing in

    the 4anking sector haing tremendous gro"th in the profits and deposits& All these

    hae led them to earn a reputation in the 4anking field&

    • I',!stors:  BBL has 4een founded 4y a group of eminent entrepreneurs of the

    country haing adequate financial strength& he shareholders of the 4ank are all

    institutions themseles, "hich adds to the financial strength of the 4ank& his is

    one of the main reasons "hy BBL has 4een a4le to oercome the huge setup cost

    of the 0$1 loan distri4ution channel and also the huge running cost of the 0$1

    ;epartment&

    • Faciliti!s a'" E8ui.$!'t: BBL has adequate physical facilities and equipments

    to proide 4etter serices to the customers& he 4ank has computeri'ed and online

     4anking operations under the soft"are called $B0 4anking operations& his has

    shortened the loan processing time considera4le& At the same time, BBL can

    utili'e the distri4ution channel of its ma.or inestor, BRAC to operate in the rural

    regions of the country&

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    7.6.3WEAKNESSES

    • A",!rtisi'1 a'" Pro$otio' o& SME Loa': his is a ma.or set 4ack for BBL

    and one of its "eakest areas& BBL3s aderting and promotional actiities are

    satisfactory 4ut its 0$1 loans are not adertised "ell& It does not e8pose its 0$1 product to general pu4lic and are not in lime light& BBL does not hae neon signs

    or any other type of adertisement for 0$1 loans in the city& As a result people

    are not a"are of the e8istence of this 4ank&

    • 'satis&actor R!$u'!ratio' Paca1!:  he CR5s are not entirely satisfied

    "ith the compensation package they receie& here is no target74ased 4onus

    system in the 4ank, although the CR5s hae to meet targets& Although the CR5s

    are proided "ith motorcycles and mo4ile phones, it is not enough to motiate

    them&

    • Hu1! O.!rati'1 -ost: Because of the current structure, the operational cost of 

    0$1 loans is high& his has reduced considera4ly the profit from this 4usiness

    unit&

    7.6.3OPPORTUNITIES 

    • 3i,!rsi&icatio':  BBL can pursue a diersification strategy in e8panding its

    current line of 4usiness& he management can consider options of starting

    merchant 4anking or diersify in to leasing and insurance& By e8panding their 

     4usiness portfolio, BBL can reduce their 4usiness risk&

    • Pro"uct Li'! Proli&!ratio': In this competitie enironment BBL must e8pand

    its product line to enhance its sustaina4le competitie adantage& As a part of its

     product line proliferation, BBL can introduce ne", more segment7oriented

     products in the 0$1 sector&

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    • s! o& ATM i' 3is4urs!$!'t Proc!ss: A$s and P50 machines can 4e used to

    dis4urse "ith loans more efficiently& If each unit office is proided "ith a P50

    machine, it "ould 4e easier for clients to repay loans& Also, it "ould reduce the

     pressure on the CR5s&

    7.6.4 THREATS

    • Multi'atio'al Ba's:  he emergence of multinational 4anks and their rapid

    e8pansion poses a potential threat to the ne" gro"ing priate 4anks& ;ue to the

     4ooming energy sector, more foreign 4anks are e8pected to arrie in Bangladesh&

    $oreoer, the already e8isting foreign 4anks such as 0tandard Chartered are no"

     pursuing an aggressie 4ranch e8pansion strategy& his 4ank is esta4lishing more

     4ranches country"ide and has already launched its 0$1 operations& 0ince the

    foreign 4anks hae tremendous financial strength, it "ill pose a threat to local

     4anks&

    • .co$i'1 Ba's: he upcoming priate local 4anks can also pose a threat to the

    e8isting priate commercial 4anks like BBL& It is e8pected that in the ne8t fe"

    years more local priate 4anks may emerge& If that happens the intensity of 

    competition "ill rise further and 4anks "ill hae to deelop strategies to compete

    against an on slaughter of foreign 4anks&

    • Natio'al S.!ciali9!" Ba's:  D0Bs pose the ma.or threat to BBL in the 0$1

    sector& At present, they hold the ma.or portion of the 0$1 market& If these 4anks

     4egin to think aggressiely a4out financing the 0$1 sector, they may proe to 4e

    BBL3s prime competitors&

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    CCHAPTERHAPTER 08: A08: ANALYSISNALYSIS OFOF SME LSME LOANSOANS ININ BBL:BBL:

    PPRESENTRESENT SSCENARIOCENARIO

    8.18.1 DDEFINITIONEFINITION OFOF SMESME

    here are a lot of confusions regarding the definition of 0$1 "ithin the 4anking sectors&

    6or e8ample, BBL defines 0$1 as enterprises "ith loan requirements of k %7=# lacs& In

    0tandard Chartered Bank, ho"eer, 0$1 starts from k&

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    NSB !,[email protected] ? ###N

    he top ten market players in the 0$1 4anking sector and their market share are sho"n

     4elo"2

    8.2.28.2.2RREASONSEASONS BBEHINDEHIND  THE THE DDOMINANCEOMINANCE OFOF NCBNCBSS

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    here are arious reasons 4ehind the dominance of DCBs in the 0$1 sector&

    Gnfortunately, D0Bs, "hich are supposed to support the 0$1 sector, could not make

    such a dominant presence in the industry& he reasons 4ehind the dominance of DCBs in

    the 0$1 sector are discussed 4elo"2

    • (nterest 9ates:  $he +/s invest in the small and medium

    industry at a very low interest rate. $he average interest rate for

    ,>E loans in the di%erent categories are compared belowG

    he lo"est interest rate is in Agrani Bank "hich has an aerage interest rate of ?&

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    rural areas& As all transactions must 4e done through 4ranches, it gies the DCBs

    a distinct adantage in the 0$1 sector& he aerage 4ranch si'e of the different

     4anks in Bangladesh (category7"ise) is sho"n in the follo"ing ta4le2

     T T ABLE ABLE 8: C8: C ATEGORY ATEGORY-- WISE WISE BBRANCHRANCH SS TRENGTH TRENGTH OFOF

    BB ANKS ANKS

    Category Do& of BranchesAerage Branch

    0i'e

     DCB %#> [email protected]

    PCB %#?? !?

    6CB @ @

     D0B ==< %!?

    • /overnment 4ssistance: /angladesh /an provides nancial

    assistance to +/s and +,/s to invest in the ,>E sector. $his

    allows them to operate# even with a loss# at a lower price than

    the other bans. $his is one of the main reasons why the interest

    rates in the +/s are so low and thus# attractive for the clients.

    8.2.38.2.3GGROWTHROWTH ININ SME FSME FINANCINGINANCING BYBY  THE THE BB ANKING ANKING IINDUSTRYNDUSTRY

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    Investments in the ,>E sector have e3perienced an upward sloping

    curve in the last three years. 6rom 6igure > "e can see that the D0Bs hae

    actually suffered negatie gro"th in the year %##

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    his figure depicts the rather poor condition of the D0Bs& he DCBs hae e8perienced

    stagnant or negatie gro"th during these three years& BBL and I6IC Bank hae gro"n at

    a consistent rate during this period& 0tandard Chartered Bank has also made remarka4le

     progress during this period& anata Bank and R*GB hae e8perienced negatie gro"th in

    one year during this period "hile B0B had a constantly negatie gro"th rate&

    he gro"th rate in %##> and %##< of the top ten 0$1 inesting 4anks are as follo"s2

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     T T ABLE ABLE 9: G9: GROWTHROWTH RR ATE ATE FORFOR  THE THE T TOPOP T TENEN SMESME

    IINVESTORSNVESTORS

     Bank 2004 2005

    Agrani Bank ).*+ -./

    Sonali Bank /*./0 1).0/

    Janata Bank "1).-0 1-./1

    IFIC Bank /*.*) 0.+2

    BRAC Bank *1.3) +*.0

    BSRS 1./1 1).*)

    SCB /)+.*0 0-.1/

    RKUB 1.1 "-.)

    Eastern Bank /*.0) 10.*/

    BSB "1-.)1 "0/./*

    In 4oth %##> and, the highest gro"th rate "as achieed 4y 0tandard Chartered Bank7

    =%&@!N and !#&=N respectiely& -o"eer, as the 4ank has started 0$1 4anking only

    in %##>, this gro"th rate is e8pected& 0ame is the case for 1astern Bank Limited, "hich

    has e8perienced a gro"th of =%@&!

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    0$1 products& his has ena4led them to snatch a"ay a considera4le portion of 

    the 0$1 market from the DCBs& As they could not compete "ith the interest

    rates, they proided other facilities like minimum collateral and shorter 

     processing time&

    8.38.3 SME BSME B ANKING ANKING ININ BBLBBL

    5.3.15.3.1CCONTRIBUTIONONTRIBUTION OFOF  THE THE MM AJOR AJOR BBUSINESSUSINESS DDIVISIONSIVISIONS

    As is sho"n from 6igure %, BBL is one of the ma.or inestors in the 0$1 segment of 

    Bangladesh3s economy "ith a market share of ?&[email protected]& 1en "ithin the 4ank, 0$1

    consists of a ma.or portion of the total loan portfolio& he 4ank policy requires that at

    least N&

    -o"eer, in %##%&>

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    he total loan portfolio of BBL in the years %##%, %##= and %##> is sho"n in the

    follo"ing ta4le2

     T T ABLE ABLE 10: D10: DIVISIONIVISION-- WISE WISE LLOANOAN PPORTFOLIOORTFOLIO OFOF BBLBBL

    Figures in Million BDT 

    2002 2007 2006 2005

    SME == ,@# =,>=< ==

    R!tail #

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    he gro"th rate in the 4usiness diisions of BBL are as follo"s2

     T T ABLE ABLE 11: G11: GROWTHROWTH ININ  THE THE BBUSINESSUSINESS DDIVISIONSIVISIONS

    OFOF BBLBBL

    2007 2006 2005

    SME >?#&?%N @&?!N >@&!N

    R!tail >%!&>N %&?%N %#

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    6igure? sho"s that 0$1 has maintained a steady slope oer the years, "hereas the slope

    for retail and corporate has 4egun to 4ecome steeper after %##

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    Although  trading companies hae an @?&>=N share and serice companies &

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    8.48.4 PPERFORMANCEERFORMANCE OFOF SME LSME LOANSOANS OFOF BBLBBL

    he performance of a loan is determined 4y the repayment status of that loan& A loan hast"o statuses "hich determine its performance2

    • R!1ular Loa': :hen the repayment of a loan is made on time it is considered to

     4e a regular loan& A loan is performing as long as the installments of that loan are

     paid on time&

    • Irr!1ular Loa': A loan 4ecomes irregular "hen the installments are not paid on

    time or "hen installments are missed& he num4er of irregular accounts reflects

    the oerall credit quality of a loan portfolio 4ecause it is the point from "here

    loan accounts tend to moe to"ards 4eing defaulted& herefore the actual

    recoery efforts 4y the 4ank start here&

    8.4.18.4.1PPERFORMANCEERFORMANCE ININ CCOMPARISONOMPARISON  TO TO OO THER THER BBUSINESSUSINESS DDIVISIONSIVISIONS 

    o analy'e the performance of loans, BBL maintains records of oerdue installments& Insome cases, clients pay partial installments and in such situations, the installment is

    counted as per the proportion of paid amount to installment amount& here are t"o

    measures of performance ealuation in BBL&

    • Port&olio at Ris (PAR): he percentage of the total outstanding amount of 

    irregular loans is kno"n as Portfolio at Risk (PAR)& PAR is  the total amount

    outstanding of the irregular portion of the loan accounts e8pressed as a percentage

    of the outstanding amount of total loan portfolio& It is so called 4ecause the

    chance of its 4ecoming Bad ;e4t  is more than the regular accounts and hence,

    this portion of the portfolio is deemed to 4e at risk& he performance of loans in

    the different 4usiness diisions of BBL as on ;ecem4er = %##< is sho"n in the

    follo"ing ta4le2

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     T T ABLE ABLE 12: P12: PERFORMANCEERFORMANCE OFOF LLOANSOANS ININ BBLBBL

     Fig"res in B&T $$$

      R!tail SME -or.orat!

    Outsta'"i'1 ([email protected] 3!c 05) >,#>,@ >,@#!,%## %,@?<

    O,!r"u! 66%## I'stall$!'ts ?,?22 2>?27# 2>0?5

    PAR @@%66C 5%5C #%0C

    Arr!arOutsta'"i'1 Ratio 0%005 0%06# 0%075

     

    An analysis of the a4oe ta4le "ill reeal that in case of retail and corporate

    loans, most loans are irregular for one or t"o installments& he case is different

    "ith 0$1, though& In 0$1, the CR5s pursue clients for repayment right from the

    first installment date& herefore, the chances of irregularity are minimal&

    -o"eer, in case of larger 0$1 loans, irregularity e8ists 4ecause the installment

    amounts sometimes 4ecome too 4ig for the clients and they find it difficult to pay&

    In comparison "ith retail loans and corporate loans, the PAR is ery lo" for 0$1

    loans&

    • Arr!arOutsta'"i'1 Ratio: he arrear amount of an oerdue loan is the total

    amount of the installments that hae 4een missed& he performance is calculated

     4y diiding the total arrear amount 4y the total outstanding amount& he lo"er the

    ratio, the 4etter is the performance of a particular loan or loan segment& he a4oe

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    ta4le sho"s that the arrear7outstanding ratio of 0$1 loans is higher than that of 

     4oth retail and corporate loans& his can 4e e8plained 4y the follo"ing factors2

    o In 4oth retail and corporate loans, the olume of irregular loans in the 7

    & installments category is proportionately much higher than that of the

    other categories& In retail loans, this consists of !&>>N of the oerdue

    olume, and in corporate loans this figure is

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    o he loan si'e of 0$1 and Corporate loans are larger than that of Retail

    loans& As the tenure is more or less the same for all types of loans, the

    installment si'e in retail is much smaller than those of 0$1 and corporate&

    -ence, the arrear amount is also smaller&

    8.4.28.4.2PPERFORMANCEERFORMANCE OFOF SME LSME LOANSOANS OO VER VER T THEHE LL AST AST T THREEHREE Y YEARSEARS

    If "e consider the PAR oer the last three years, as is sho"n in 6igure >, "e can see that

    the PAR of 0$1 and Corporate loans has decreased in %##

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    0$1 and retail loans, "hich "ere almost identical& In %##>, the ratios for 0$1 and

    corporate loans respectiely "ere almost the same& his goes to sho" that in the 0$1

    sector, higher num4er of installments are 4ecoming oerdue, "hich is a cause for 

    concern&

    8.4.38.4.3SSECTORECTOR-- WISE WISE PPERFORMANCEERFORMANCE

    6igure ! sho"s the sector7"ise PAR of 0$1 loans from %##= to %## from @&%=N in %##=& he

    PAR for the oerall 0$1 loans reflects the changes in the trading sector, mainly 4ecause

    of the huge market share of the sector& he agriculture sector has maintained a fairlysta4le PAR at and around !N throughout the three7year period&

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     Prospect of SME Banking in Bangladesh: The BRAC Bank Perspective!!

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    CCHAPTERHAPTER 09: F09: FINDINGSINDINGS & R& RECOMMENDATIONSECOMMENDATIONS

    9.19.1 FFINDINGSINDINGS

    he scenario in the 0$1 sector is quite comple8& he data analy'ed did not indicate any

    specific trend in the market& -o"eer, the situation can 4e termed fairly prospectie if the

    market can 4e properly e8ploited& Based on my analysis I hae presented my findings

     4elo"&

    9.1.19.1.1OOPPORTUNITYPPORTUNITY OFOF GROWTHGROWTH

    At present the market leaders in the 0$1 industry are the DCBs& -o"eer, their market

    share has declined gradually in the last three years& he market share of the different

    categories of 4anks oer the preious three years is sho"n in the follo"ing ta4le&

     T T ABLE ABLE 11: C11: C ATEGORY ATEGORY-- WISE WISE MM ARKET ARKET OFOF SME LSME LOANSOANS

     Fig"res in #$$$%$$$ B&T 

      2007 2006 2005

    N-B &>@N

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    Amongst the PCBs inesting in the 0$1 sector, BBL has a market share of >?#&?%N in %##= to >@&!N in %##

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    %!N of the respondents "anted a loan of 4elo" k& % lacs& ;ue to the policy of 

    BBL, they "ere forced to take a aka % lac loan, een though they did not require

    the amount& $any more such clients might not hae 4een a4le to aail BBL loans

    due to their lo" loan requirements&

    • I't!r!st Rat!: he interest rate of BBL is the highest among its competitors&

    Although BBL proides other facilities to its clients, the high interest rate

    discourages many clients to approach the 4ank for loans& ;uring the surey,

    [email protected]&

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    9.1.39.1.3IINCREASINGNCREASING PPORTFOLIOORTFOLIO SSHAREHARE OFOF RRETAILETAIL  AND AND CCORPORATEORPORATE

    In %##% retail loans had a portfolio share of @&?#N& In %##< its share had increased to

    =&N& ;uring the same period, the portfolio share of 0$1 decreased from !&>N to>%&>& hey are2

    • I'cr!asi'1 Nu$4!r o& Pro"ucts: At present, the num4er of retail products in

    BBL is #& he recent inclusion of t"o ne" products7 study loan and trael loan

    has 4olstered the sales of retail products& 0$1 on the other hand has only !

     products, and among them, Apur4o loan is an e8tension of Anonno loan& 

    • S!1$!'t!" Mar!t A..roac: Retail loans are designed to cater to the needs of 

    the clients of different segments& hese loans are tailor7made according to the

    need requirements of the different segments& 6or e8ample, salary loans are only

    for employees and not 4usinessmen, teachers3 loan and doctors3 loan for teachers

    and doctors respectiely, and high7flyer loans for airlines personnel& his

    segmented approach is ne" for 0$1 loans, and there are only three such

    segmentation7oriented products7 Pathshala loan, Aroggo loan and 0upplier 

    6inance&

    he gro"th in corporate loans can 4e accredited to the inclusion of a ne" corporate loan

     product, the Commer Loan& his is a product to attract medium enterprises& he loan

    range of this product is from aka =# lacs to aka % crore&

    9.1.49.1.4PPORTFOLIOORTFOLIO SS TRUCTURE TRUCTURE OFOF SME LSME LOANSOANS

    6igures @, and # portray the portfolio structure of 0$1 loans product7"ise and sector7

    "ise& Anonno loans are the most dominant loan products in the 0$1 portfolio& Aroggo

    and Pathshala, 4eing ne" products, haen3t yet 4een a4le to penetrate the market

     Prospect of SME Banking in Bangladesh: The BRAC Bank Perspective?#

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    significantly& -o"eer, the huge olume of Anonno loans indicates that the aerage loan

    requirement of the clients is in 4et"een aka %[email protected] lacs&

    In the sector7"ise portfolio, trading companies dominate the market 4oth olume7"ise

    and num4er7"ise& Although  trading companies hae an @?&>=N share and serice

    companies &

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    dependence on the trading sector is still ery high, BBL is trying to diersify into other 

    sectors of the economy as "ell&

    he reason for the gradual decrease in the portfolio share of manufacturing companies is

    that entrepreneurs tend to change quickly from manufacturing companies to trading

    companies& In the surey conducted, =>N of the respondents reealed that they "ere

    engaged in other 4usinesses 4efore their present endeaor& 5ut of this =>N, =!&?!N "ere

    engaged in manufacturing 4usiness 4efore turning to trading concerns&

    9.1.59.1.5PPERFORMANCEERFORMANCE OFOF SME LSME LOANSOANS

    In %##>N of the oerdue olume,

    and in corporate loans this figure is

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    9.29.2 RRECOMMENDATIONSECOMMENDATIONS

    5n the 4asis of the a4oe findings, I hae made the follo"ing recommendations that BBL

    may take into considerations in order to e8ploit the potential 0$1 market&

    6.2.16.2.1IINCREASENCREASE  THE THE RR ANGE ANGE FORFOR SME LSME LOANSOANS

    As the surey and analysis hae reealed, many 0$1s require a smaller loan si'e& he

    current loan floor of aka % lacs is actually an e8cess of funds for them& hus BBL can

    consider dropping the floor to aka lac& his "ill increase the market si'e as "ell as the

     prospect for faster gro"th&

    9.2.29.2.2SSEGMENTEGMENT-O-ORIENTEDRIENTED A APPROACHPPROACH

    As is the case for retail products, 0$1 can pursue a more segment oriented approach to

    capture a larger portion of the market& BBL can introduce ne" tailor7made products for 

    the different sectors& De" product "ith slight modifications in price can 4e introduced for 

    the follo"ing segments2

    Clothes and foot"ear industry, "hich captures a4out N of the total portfolio&• 9rocery and household items, "hich captures a4out

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    9.2.49.2.4IINTRODUCINGNTRODUCING OO VERDRAFT VERDRAFT FF ACILITIES ACILITIES INTOINTO  THE THE SME SSME SECTORECTOR

    5erdraft facilities can 4e introduced to the 0$1 sector for clients "ith small loan

    requirements& his facility "ill enhance the prospect of "orking capital financing& hesi'e of the facility may 4e smaller than the e8isting loan si'es, 4ut the interest rate "ill 4e

    higher& As the si'e of the facility "ill 4e small and the tenure ery short, the higher 

    interest rate "ill not affect the client much&

    &%&< PPROPERROPER MMONITORINGONITORING OFOF LLOANSOANS

    here is an e8isting recoery team for the 0$1 diision to monitor the performance of 

    0$1 loans, yet, the performance is declining& herefore, BBL has to 4e more careful on

    this issue& In order to improe the performance of 0$1 loans the follo"ing steps can 4e

    taken&

    • An E1arly Alert 0ystemF can 4e introduced& his "ill keep track of the pro4a4ility

    of loans going 4ad& he system "ill consist of a detailed data4ase of all loans

    outstanding and "ill 4e updated daily& It "ill also signal the repayment date,

    amount and client particulars of a loan ahead of time so that the CR5s can then

     pursue the client to repay on time& A team can 4e allocated to constantly monitor 

    the data4ase&