Alongir Final

CHAPTER 1

introduction

1.1 WHAT IS INTERNSHIP?

Internship is a field project for a student of Business Administration of final year

that gives the student a chance to apply business theory practically in any organizational

environment. The objectives of internship are:

1. Practical fulfillment of MBA program.

2. Application of theoretical knowledge into practice.

3. Gaining work experiences.

4. Having an exposure for searching a good job in future.

5. Knowing/understanding gap between theoretical knowledge and practical situation.

Parts of Internship Report:

There are two parts of internship report. They are:

Part A: Organization Part.

Part-B: Project Part.

1.2 Origin of the report

One of the most important factors for industrialization and economic development of a

country is the availability of the credit facility. The continuing crisis of accumulation of

nonperforming and default banking loans has emerged as most of the serious

constraint in the path of economic development of Bangladesh as banking remains

the main intermediary vehicles in harnessing capital for accelerating the growth of

the productive sectors in Bangladesh in the absence of a healthy capital market.

But providing loans without proper appraisal are even more dangerous as the

depositors are put into great risk of losing their money and at the end, the crisis

Prepared By- Md. Alamgir 1

might go beyond overcome. So, I think it is very important to gather the technical know-

how regarding the critical analysis of credit approval procedure practiced by

the First Security Islami bank ltd. By preparing this report. This internship report on

First Security Islami Bank Limited is prepared to fulfill The partial requirement of the

internship program as full credit subject of the BBA program of The University. In Bangl

adesh today financial sector is one of the most established areas in the macroeconomic

sector. Economy and financial carrier of the country. So for the aspects of economic

development, banking sector must be reformed. In the process of forming a good

economic system, private banks are paling an important role compare to the government

banks in the country. For this reason I prepared my internship report on First Security

Islami Bank Limited.

1.3 Objective of the Study

To fulfill the partial requirement of the internship program as a full

credit subject of the BBA program.

To know about the sector of SME of FSIBL

To get an overall idea about the SME Banking in Bangladesh.

To know the operation of SME to develop the entrepreneur.

To describe the service of SME Banking of FSIBL

To analyze the barriers faced by the banks for SME Financing.

To know about the contribution of SME in economic development of country.

To know how the entrepreneur benefited from SME.


To find out the sectors of SME in which such types of problems exist.

To identify whether all process of SME are perfectly and effectively practiced or not.

To suggest a supportive role in the progress of SME banking system in financial

sector.

1.4 Scope of the Study

This study covered the overall SME banking system of First Security Islami Bank

Limited and also includes the relationship of the credit management with the bank

as well as principle covered by the bank as SME banking system.

1.5 Limitation of the Study

It is an uphill task to study the on the management so the report was completed

under certain constrains which were:

Difficulty in gaining accesses to financial sector.

Non-availability of the most recent statistical data about the SME.

As I am student it is not possible for me to collect all the necessary information from

entrepreneur.

I had to complete this report within a very short span of time that was not sufficient for

investigation.

Lake of Experience about SME financing.


1.6 Methodology of the study

This report is based mainly on observations that I experienced during the

internship period.

Data required for this report were collected from the annual report of First Security

Islami Bank. Apart form these; helpful information was collected from online resources.

1.7 Source of Data

The data sources used to prepare this report delineated as follows:

1. Primary Source:

a) Practical deskwork.

b) Face to face conversation with the officers and executives.

c) Face to face conversation with the clients.

2. Secondary Source:

a) Annual report of First Security Islami Bank Limited.

b) Prospectus of First Security Islami Bank Limited.

c) Bank’s financial statement.

d) Bank’s quarterly statement.

e) Bank’s daily affairs.

f) Broachers etc.


CHAPTER 2

ABOUT THE FIRST SECURITY ISLAMI BANK LIMITED

2.1 Definition of Bank:

We can define A bank as an institution, usually incorporated with power to issue its

promissory notes intended to circulate as money (known as bank notes); or to receive the

money of others on general deposit, to form a joint fund that shall be used by the

institution, for its own benefit, for one or more of the purposes of making temporary

loans and discounts; of dealing in notes, foreign and domestic bills of exchange, coin,

bullion, credits, and the remission of money; or with both these powers, and with the

privileges, in addition to these basic powers, of receiving special deposits and making

collections for the holders of negotiable paper, if the institution sees fit to engage in such

business."

Generally there are two main way of operating commercial bank. They are conventional

banking and Islamic banking system.

2.2 Islamic Banking:

The Islamic banking has been defined in a number of ways. The definition that is given

approved by Organization of Islamic Conference is most popular. According to The OIC,

The Islamic bank is a financial institution whose status, rules, and procedures expressly

state its commitment to the principle of Islamic Shariah and to the banning of receipt and

payment of interest on any of its operations.

It appears from the definition that Islamic banking is a system of financial intermediation

that avoids receipt and payment of interest in its transactions and conducts its operation in

a way that it helps achieve the objectives of an Islamic economy. And also it is operated

on the basis of Mudaraba theory. According to Mudaraba theory, the relationship

between bank and clients is not debtors-creditors, it is a relationship of trusteeship.

The difference between Conventional and Islamic Banking are shown in terms of a

box diagram as shown below:


Conventional Banks Islamic Banks

1 The functions and operating modes of conventional banks are based on manmade principles.

1 The functions and operating modes of Islamic banks are based on the principles of Islamic Shariah.

2 The investor is assured of a predetermined rate of interest.

2 In contrast, it promotes risk sharing between provider of capital and the user of funds.

3 It aims at maximizing profit without any restriction.

3 It also aims at maximizing profit but subject to Shariah restrictions.

4 It does not deal with Zakat. 4 In the modern Islamic banking systems, it has become one of the service-oriented functions of the Islamic banks to collect an distribute Zakat.

5 Leading money and getting it back with interest is the fundamental function of the conventional banks.

5 Participation in partnership business is the fundamental function of the Islamic banks.

6 It can charge additional money in case of defaulters.

6 The Islamic banks have no provision to charge any extra money from the defaulters.

7 For interest-based commercial banks, borrowing from the money market is relatively easier.

7 For the Islamic banks, it is comparatively difficult to borrow money from the money market.

8 The conventional banks give greater emphasis on credit-worthiness of the clients.

8 The Islamic banks, on the other hand, give greater emphasis on the viability of the projects.

9 A conventional bank has to guarantee its deposits.

9 Strictly speaking and Islamic bank cannot do it.

10 The status of a conventional bank, in relation to its clients, is that of creditor and debtors.

10 The status of Islamic bank in relation to its clients is that of partners, investors and trader.

11 The conventional Banking system has the recycling system. They charge interest on interest.

11 In Islami Banking system, there is no recycling of interest. There is mark-up/rebate system.


2.3 History of the First Security Islami Bank

First Security Islami Bank Limited (FSIBL) was incorporated in Bangladesh on 29

August 1999 as a banking company under Companies Act 1994 to

carry on banking business. It obtained permission from Bangladesh Bank on 22

September 1999 to commence its business. The Bank went for public issue on 20 July

2008 and its shares are listed with Dhaka Stock Exchange (DSE) and Chittagong Stock

Exchange (CSE).The Bank carries banking activities through its Ninety two (92)

branches in the country. The Bank converted its banking operation into Islamic Banking

based on Islamic Shariah from traditional banking operation on 01 January 2009

after obtaining approval from High Court, Finance Ministry and Bangladesh Bank.

The commercial banking activities of the bank encompass a wide range of services

including mobilizing deposits, providing investment facilities, discounting bills,

conducting money transfer and foreign exchange transactions, and performing other

related services such as safe keeping, collections and issuing guarantees, acceptances and

letter of credit. The Bank and its first branch at the busiest commercial hub of the country

at 23, Dilkusha Commercial Area, Dhaka. Branch Networks and Inter Division and

Branch Coordination

All the 92 branches are computerized under distributed server environment. Another few

branches are planning to open within December 2010. FSIBL has already started their on-

line, SMS and ATM banking facilities for their clients.

The Banking license for the Bank was issued by Bangladesh Bank on August 29, 1999

was opened on October 25, 1999 by Mr. M. Saifur Rahman, Ex-Honorable Finance

Minister, Government of the People’s Republic of Bangladesh as the chief guest. The

Authorized Capital of the Bank is Tk. 4,600,000,000 It’s paid up Capital and reserve

reached at present Tk. 2,300,000,000 The sponsors of the Bank are the leading business

personalities and eminent industrialists of the country having stakes in various segments

of the national economy.


2.4 Vision

To be the premier financial institution in the country providing high quality products and services backed by latest technology and a team of highly motivated personnel to deliver excellence in banking.

2.5 Mission

1. To contribute the socio- economical development of the country.2. Fast and accurate customer service.3. Balanced growth strategy.4. High standard business ethics.5. Steady return on shareholder’s equity. 6. Innovative banking at a competitive price.7. Attract and retain quality human resource.8. Firm commitment to the society and the growth of national economy.

2.6 First Security Islami Bank Now at Present

Having started its operations as a commercial bank in 1999, First Security Islami Bank is

today a synonym of quality banking products. It has a diverse array of carefully tailored

products and services to cater the needs of all customer segments. They have structured

their operational strategies to address the special and often complex needs of the

customers. In the growth graph, it has generated profit of Tk. 326,837,749 in the year

2012. The curve keeps soaring upward with dawn of everyday. Today First Security

Islami Bank is one of the leading and one of the most successful banking institutions in

Bangladesh with a total asset base of Tk. 47,978,552,952 as on 31.12.2009. First Security

Islami Bank has now emerged as a major player in the financial sector. Listed in both the

Dhaka and Chittagong stock exchange since late 2008 with an IPO that raised the paid-up

capital of the bank to Tk. 230,000,000 the current price levels of its shares and turnover

in trading is evidence of its high rating among investors. Banks are the pillars of the

financial system. Specially, in Bangladesh, the health of the banking system is very vital

because the capital market is little developed here. As the banks are still the major

sources of credit and exercise great influence on the financial system, it is extremely


important that the country’s banking system should be in good health in the interest of

investment activities, meeting the needs of all kinds of finance and related matters. Over

the years, First Security Islami Bank Ltd. has built itself as one of the pillars of

Bangladesh’s financial sector and is playing a pivotal role in extending the role of the

private sector of the economy. The bank has a strong branch network nationwide with 61

branches to effectively address the needs of its cross- segment customer base.

Corporate Information

Name of the Company First Security Islami Bank Limited

Legal Form

A scheduled commercial bank incorporated

on august 29,1999 as a public limited

company under the companies act 1994 and

bank companies act 1991.

Commencement of

Business25th October 1999

Registered Office10, Dilkusha Commercial Area

Dhaka-1000.

Website www.fsiblbd.com

SWIFT FSEBBDDH

Chairman Mr. Saiful Alam (Masud)

Managing Director Mr. A. A. M. Zakaria

No. of Branches 92

No. of SME Centers 05

No. of Employees 929

Stock Summary:

Authorized Capital Tk. 4,600,000,000

Paid up Capital Tk. 2,300,000,000

Face Value per Share Tk. 100


http://www.fsiblbd.com/

2.7 Board of Directors

2.8 Division of First Security Islami BankAll policy formulation and subsequent executions are done in the Head Office. It comprises nine major divisions. They are described below:

1. Credit & Administration Division2. Treasury and International Division3. Internal Control and Compliance Division4. Human Resources & Logistics Division5. Marketing Division6. Merchant Banking Division7. Share Division &Information Technology Division


Alhaj Akkas Uddin Mollah Chairman

Alhaj Md FarooqVice Chairman

Mr. Muhammad AliManaging Director

Alhaj Syed Nurul Arefeen Vice Chairman

Alhaj Syed Nurul Arefeen Vice Chairman

Farzana Parveen Director

Farzana Parveen Director

Rahima Khatun Director

Rahima Khatun Director

MS. Shamshad JahanDirector

MS. Shamshad JahanDirector

Atiqun NesaDirector

Atiqun NesaDirector

Md. Sharif Hossain Director

Md. Sharif Hossain Director

Alhaj A.K.M Ali JoharDirector

Alhaj A.K.M Ali JoharDirector

Shahidul IslamDirector

Shahidul IslamDirector

Alhaj Md. Wahidul Alam Seth Director

Alhaj Md. Wahidul Alam Seth Director

Mohammed Oheidul AlamDirectorMohammed Oheidul Alam

Director

Dr. Muhammad Loqman Director

Dr. Muhammad Loqman Director

Alhaj Md. Saiful AlamChairman

Alhaj Md. Saiful AlamChairman

Alhaj Late Hamidul HaqDirector

Alhaj Late Hamidul HaqDirector

A.A.M ZakariaManaging Director

A.A.M ZakariaManaging Director

2.9 Shariah Council

Shariah Council of the Bank is playing a vital role in guiding and supervising the

implementation and compliance of Islamic Shariah principles in all activities of the Bank

since its very inception. The Council, which enjoys a high status in the structure of the

Bank, consists of prominent Ulema, reputed banker, renowned lawyer and eminent

economist.

Members of the Shariah Council meet frequently and deliberate on different issues

confronting the Bank on Shariah matters. They also conduct Shariah inspection of

branches regularly so as to ensure that the Shariah principles are implemented and

complied with meticulously by the branches of the Bank.

2.10 Shariah Board


Chairman

Mr.Sheika ( Mowlana)Mohammad Qutubuddin

Chairman

Mr.Sheika ( Mowlana)Mohammad Qutubuddin

Vice ChairmanMufti Sayeed AhmedVice Chairman

Mufti Sayeed Ahmed

Member Secretary Moulana M. Shamaun Ali.

MemberMoulana Abdus Shaheed Naseem

MemberProf. Md. Sharif Hussain

MemberProf. Md. Sharif Hussain

MemberAlhaj Md. Saiful Alam

Chairman,First Security Islami Bank Limited

MemberAlhaj Md. Saiful Alam

Chairman,First Security Islami Bank Limited

MemberMohammad Azharul Islam

MemberMd. Abdul Maleq

2.11 Organizational structure of First Security Islami Bank Ltd:


Deputy Managing Director

Senior –Executive Vice President

Vice President

Executive Vice President

Senior Vice President

First Vice President

Senior Assistant Vice President

Assistant Vice President

Senior Principal Officer

Principal Officer

Officer

Senior Officer

Junior Officer

First Assistant Vice President

Assistant Officer

Trainee Assistant Officer

Probationary Officer

Managing Director

First Security Islami Bank Ltd is one of the fastest growing banks among all the private

Commercial Banks in Bangladesh. The institution started its function back on 25th

October, 1999. As a branch of First Security Islami Bank Ltd Jubilee Road Br. started its

function on 9th August, 2001.

2.12 Management Hierarchy of FSIBL,

2.13 Different Departments involved in FSIBL,

There are various departments engaged in providing services to the clients in the FSIBL,

Jubilee Road Branch. These are:

1) Customer Care Department.

2) Cash Department.

3) Accounts Department.

4) Investment Department.

5) Foreign Department.

6) IT Department

2.14 Statements prepared by Accounts section:

1. Sector wise balance position

2. Maturity balance sheet

3. Foreign currency statement

4. Branch Trail Balance


VP

Principal Officer

Senior Officer

Officer Junior Officer

Assistant Officer

Trainee Assistant

Officer

AVP

5. Liquidity position

6. Income expenses statement.

2.15 Products and Services of FIRST SECURTY ISLAMI BANK LTD.

1. General Productsa. Mudaraba Saving Account (MSD)b. Al-Wadiah Current Accountc. Mudaraba Short Term Deposit (MSTD)

2. Deposit Schemea. Mudaraba Term Deposit Scheme

(MTD)b. Mudaraba Double Benefit Scheme

(MDBS)c. Mudaraba Monthly Income Scheme

(MMIS)d. Mudaraba Monthly Saving Scheme

(MMSS)

3. Investment Schemea. Bai-Muajjal.b. Murabaha Wes Bills.c. Hire Purchase.d. Quard against TDR.e. Bills Purchase & Discount :

a) In-Land.b) Foreign

f. Loan against trust receiptg. Consumer credit schemes.h. Staff loan.

4. Servicesa. Western Union Money Transferb. First Solution & other money transferc. Locker Servicesd. Remittance- T.T., D.D., P.O, etc


CHAPTER 3

CONCEPT OF SME BANKING

3.1 Definition:

According to the latest circular of BANGLADESH BANK (Date: 26/05/2008), the

definition of small and medium enterprise sector is given below:

Small Enterprise – Small enterprise refer to those enterprise which are not any public

limited companies and which fulfill the following criteria-

Service concern –Having an investment of TK. 50,000 to TK. 50,00,000 excluding

land and building or employing up to 25 worker.

Business concern – Having an investment of TK. 50,000 to TK. 50,00,000 excluding

land and building or employing up to 25 worker.

Manufacturing concern - Having an investment of TK. 50,000 to TK. 1,50,00,000

excluding land and building or employing up to 50 worker.

Medium Enterprise – Medium enterprise refer to those enterprise which are not any

public limited companies and which fulfill the following criteria-

Service concern –Having an investment of TK. 50,00,000 to TK.10,00,00,000


Business concern – Having an investment of TK. 50,00,000 to TK. 10,00,00,000


Manufacturing concern - Having an investment of TK.1, 50,00,000 to TK. 2,00,00,000



3.2 Overview of the SMEs in the economy in our

country:

There is a great interest in small and medium enterprise (SME) as a major plank of

poverty reduction in Bangladesh. The government has formulated comprehensive

industrial policy 2005 by putting special emphasis for developing SMEs as a thrust sector

for balanced and sustainable industrial development in the country to help deal with the

challenges of free market economy and globalization.

Some data with a national scope that are pertinent characterizing SMEs in Bangladesh as

of 2001-2003 are presented in Table -1. The highlighted of this table is the following:

There are some 78,440 private sector establishment of various size in Bangladesh with

some 3.5 million workers employed with them. The urban Bangladesh accounts for some

60% of unit and 76% of employment in the private – sector enterprises. Rural Bangladesh

account for the rest. 93% of all unit in Bangladesh belong in the SME category, i.c. have

between 20 and 99 employees. However, SMEs account for only 44% of the total

employment of the enterprise sector.

Private limited company by liability account for strictly a very small proportion of the

total number of SMEs in Bangladesh.

Table-1: Number of unit and level of employment in small and medium enterprise, 2001-

03

Description Urbam

Small Medium Large

Rural

Small Medium Large

Total

Small Medium Large

No of unit 39.9 3.17 4.036 29.0 1.29 .88 68.96 4.46 5.01

% of total no of

units

50.9 4.o 5.1 38.1 1.6 1.11 87.9 5.9 6.4

Employment 740.4 211.5

1712.6

516.8 85.85

234.66

1257. 297.4

1947.3


% of total no of

Employment

21.14 6.0 48.9 14.8 2.4 6.7 35.9 8.5 55.6

3.3 Contribution of SMEs in the economy:

In view of present economic development effort in Bangladesh the SME sector play in

important role. These are reflected in the following performance/ activity of this sector.

During the Fourth Five year plan, a total of 0.35 million jobs were created against

the target of 0.4 million.

Contribution of SME sector too GDP remained above 4.5% During the period from

2000- 2001 to 2004- 2005 despite decline in the amount of advance by the banking sector

to this sector.

SME sector employs 255 of total labor force. As a result, this sector is the present

available sector for creation jobs.

SME sector help alleviate poverty, increase income level of rural people and

promote agro- industrial linkage in Bangladesh.

SME sector require lower energy supply, lower infrastructure facility and this

sector impose less environmental risk.

This contribution toward better utilization of local resources and skills that might

otherwise remain unutilized.

Small industries being labor oriented are capable of generating more employment.

There are necessary to maintain and retail traditional skill and handcrafts.

There are the only medium for diversification of rural economy and for peaceful

and concurrent socio- economic development of all classes of people.

From the above discussion, We can say that SMEs can play an important role in our

economy and country.


3.4 Loan document needed for SME financing by

Bank:

Criteria for loan selection are similar among financial institutions. Most frequently

requested document by financial institution as a part of the loan application process

include:

Personal guarantee

Business plan

Appraisal of assed to be finance

Purchases agreement

Cash flow projection

Personal financial statement

Formal application for financing

Business financial statement

Tin certificate

Citizenship certificate

Bank solvency certificate


Vat certificate

Export license

3.5 About the sample Banks:

Dhaka Bank Ltd

Prime Bank Ltd

Dutch Bangla Bank Ltd

Eastern Bank Ltd

First security Islami Bank Ltd

Mercantile Bank Ltd

BRACK Bank Ltd

3.6 Criterion for Sample Selection :

The banks for comparative analysis have been chosen in the basis of the following

criterion:

3.6.1 Loan size:

1. Prime Bank Ltd – Taka 1 Lac to Taka 75.00 Lacs

2. Dhaka Bank Ltd - Taka 0.50 Lac to Taka 50.00 Lacs

3. Eastern Bank Ltd- Taka 1 Lac to Taka 300.00 Lacs

4. Mercantile Bank Ltd- Taka 0.50 Lac to Taka 2.00 Lacs

5. Dutch-Bangla Bank Ltd- Taka 3 Lac to Taka 50.00 Lacs

6. BRAC Bank Ltd- Taka 3 Lacs to Taka 30.00 Lacs

7. First security Islami Bank Ltd- Taka 3 Lacs to 50 Lacs

Among the banks EBL offers the highest loan amount to the customers where as the

BRAC bank offers the lowest loan to its customers.


3.6.2 Rate of interest:

1. Prime Bank Ltd – 13% to 15% p.a.

2. Dhaka Bank Ltd - 12% to 13% p.a.

3. Eastern Bank Ltd- 14% to 15% p.a.

4. Mercantile Bank Ltd- 15% p.a.

5. Dutch-Bangla Bank Ltd- 13% to 15% p.a.

6. BRAC Bank Ltd- 18% to 24% p.a.18

7. First security Islami Bank Ltd- 15% p.a.

In terms of interest rate the Dhaka Bank Ltd offers the lowest rate of interest to its

customers. The highest rate is charged by BRAC Bank Ltd. The Mercantile Bank Ltd.

have the only bank that offers fixed rate for any loan customers.

3.6.3 Loan processing fees

1. Prime Bank Ltd – .50 % of the loan amount.

2. Dhaka Bank Ltd - .00 % of the loan amount.

3. Eastern Bank Ltd- not available

4. Mercantile Bank Ltd- not available

5. Dutch-Bangla Bank Ltd- not available

6. BRAC Bank Ltd- .50 % of the loan amount

7. First security Islami Bank Ltd- not available

All the banks do not provide data about loan processing fees to their customers.

The prime bank and BRAC bank limited only charges .50% as loan processing fess

3.6.4 Period of loan

1. Prime Bank Ltd – 1 to 5 years.

2. Dhaka Bank Ltd – 1 to 3 years.

3. Eastern Bank Ltd- up to 1 year.

4. Mercantile Bank Ltd- up to 2 years.

5. Dutch-Bangla Bank Ltd- 1.5 to 5 years.

6. BRAC Bank Ltd- 1 to 3 years.


7. First security Islami Bank Ltd- 1 to 5 years.

Among the banks the highest loan maturity date is offered by DBBL and Mercantile

Bank Limited offers the lowest maturity period

3.6.5 Mode of Finance

1. Prime Bank Ltd – Term loan and working capital loan

2. Dhaka Bank Ltd – Term loan and working capital loan

3. Eastern Bank Ltd- Only working capital loan

4. Mercantile Bank Ltd- Only term loan

5. Dutch-Bangla Bank Ltd- Only term loan

6. BRAC Bank Ltd- Only term loan

7. First security Islami Bank Ltd-Only term loan All the Banks providing SME financing facilities do not provide long-term loan to its

customers. Among the banks Prime and Dhaka Bank limited both provides term loan and

working capital loan to their customers. Other bank either provides term loan or working

loan to its customers capital.

3.7 Portfolio Size of different banks in SME Sector.

(Tk in crore)Serial No Name of the Bank Portfolio Size

1 BRAC Bank Ltd. 950.00 2 Eastern Bank Ltd. 300.00 3 Prime Bank Ltd. 108.44

4 Dutch-Bangla Bank Ltd. 16.38 5 Mercantile Bank Ltd. 6.63

6 Dhaka Bank Ltd. 5.72 7 First security Islami Bank Ltd 11,31

Total 1,398.48 (Source: Annual Repots of Prime Bank Ltd., Dhaka Bank Ltd., Eastern Bank Ltd., Mercantile Bank Ltd., Dutch-Bangla Bank Ltd. First security Islami Bank Ltd and BRAC Bank Ltd. 2007)

From the table we can see that the BRAC bank has the highest investment in the SME

sector followed by Eastern Bank Ltd. in second position. While the Prime Bank Ltd.,


Dutch-Bangla Bank Ltd., Mercantile Bank Ltd. and Dhaka Bank Ltd. are third, forth,

fifth and sixth respectively.

Graph 1: Portfolio Size of Six different banks in SME Sector :


3.8 Problems for financing SMEs:

SME sector faces a number of problems (Ahmed, 2000) to facilitate institutional credit.

These problems were looked into from the perspective of both borrower and lenders.

Problems from borrowers perspective:

Access to loan

Collateral

Complexity increases cost of loan

Extremely short grace period

Absence of comprehensive guidelines

Longer loan processing time and associate cost of uncertainty

Lack of basic infrastructure, inputs, managerial efficiency and inadequate sanction

Problems from lenders perspective:

Lack of information on loan application requirement among the SME loan seekers

Absences of an appropriate and clear-cut legal framework for enforcing quick recovery


In addition, the following problems are identified in the SME sector:

a. Inadequate allocation of fund for public sector.

b. Lack of co-ordination among lending agencies.

c. Shortage of long-term credit.

d. Unstable share market.

e. Lack of technological information.

f. Lack of uniform delivery model and training.

g. Absences of utilization of BSCIC services of NCBs for utilization of surplus fund.

h. Lack of technology assessment, innovation and adaptation of technology.

i. Lack of marketing effort and exploring new markets.

j. Competitive product market because of market economy.


CHAPTER 4

SECTOR OF SME FINANCE

4.1 Bonik SME

Now our SME clients are being involved in foreign trade, their network has been

expanded throughout the world. To facilitate the foreign trade transactions of the SME

clients, FSIBL is offering a product named ‘ Bonik SME’.

Purpose

To settle foreign trade payment & import document retirement line (mainly import

financing, e.g., L/C and LTR facility).

Key Features

Loan Amount: Min. BDT 5.00 lac to Max. BDT 50.00 lac.

Tenure: For each L/C highest 04 months and for each LTR highest 06 months.

L/C Margin and Commission: As per negotiation.

Fast and quality service.

No hidden charge.

Eligibility

Having business experience for at least 2 years in the same line.

Age Limit: 20 years to 60 years.

Required Documents

Last twelve months’ sales statement.

Last twelve months’ bank statement.

Valid Trade License of last two years.


National Voter ID/ Passport of the borrower.

4.2 Chalantika SME

To operate your business with extra ease, term loan is not always the only solution.

Keeping this capital requirement for your business, FSIBL is offering a package of

working capital solution [50% term loan & 50% revolving credit (cash credit) facility] to

run the business smoothly.

Purpose

To meet up working capital requirement of the business

Key Features

Loan Amount: BDT 5.00 lac to BDT 50.00 lac.

Tenure: For revolving loan- Maximum 01 year (Renewable).

For Term Loan- Maximum 36 months. Interest Rate: Competitive interest rate.


No hidden charge.

Registered Mortgage of Property is required.

Eligibility

Having business at least 2 years in the same line.

Age Limit of the Borrower : 20 years to 60 years.

Required Documents





Photographs of the borrower and the guarantors.

Utility bills of business.


4.3 Green SME

To save our beloved earth from the disaster of Green House Effect, FSIBL is offering

ECO friendly product ‘Green SME’. Under this product, you can get finance for ETP

plants in different sectors, Eco friendly vehicles, Eco friendly fields (reduce CO2

emission), Bio Fertilizer, Bio gas plants, Solar plants and Eco friendly any other business.

Mode of finance shall be Term Loan mainly.

Purpose

To facilitate establishment of eco friendly projects.

Key Features

Loan Amount: Max. 300 lac.

Tenure: Max. 60 months.

Interest Rate: Competitive interest rate.


No hidden charge.

Eligibility

Having business for at least 2 years in the same line.


Required Documents






Utility bills of the concerned business.


4.4 Jantrik SME

When any SME client wants to purchase any machine or vehicle for business, FSIBL is

there with the offer of ‘Jantrik SME’ through which the client can get a lease finance

facility.

Purpose

To procure machinery or vehicle for SME business purpose.

Key Features





No hidden charge.

Eligibility



Required Documents








4.5 NGO Shohojogi SME

From the very beginning, one of the goals of First Security islamic Bank Ltd. is to

provide services to the under privileged people of remote areas. Keeping that idea in

mind, the First Security islamic Bank Ltd. has come forward with a product for SME

customers named ‘NGO Shohojogi SME’. ‘NGO Shohojogi SME’ ensures wholesale

financing through the reputed NGOs in the country whose past records are remarkable,

repayment behaviors are satisfactory, growth rates are significant and above all loan

monitoring & recoveries are above 95%.

Purpose

To provide loan facility to the small enterprise through wholesale lending to the

NGOs.

Key Features

Loan Amount: Max. limit BDT 500.00 lac




No hidden charge.

Monthly installment basis.

Eligibility

Any type of NGO having certificate from Micro Credit Regulatory Authority to

operate business in Bangladesh.

Having business at least for 5 years in the same line.



Required Documents

Last twelve months’ sales statement. Last twelve months’ bank statement.


Personal guarantee of all the directors.

4.6 Shachchondo SME

Who does not want ‘Shachchondo’ in life? For the financial ease in your business, FSIBL

is offering ‘Shachchondo SME’ product through which you can enjoy both overdraft and

term loan facilities.

Purpose

To meet up working capital requirement of the business.

Key Features


Tenure: For 1st time loan- 12 months to 30 months. For Repeat Loan- 36 moths to

48 months.



No hidden charge.

A FDR shall be taken covering minimum 25% of the total ticket size. The SOD

facility shall be allowed upto 90% of the FDR amount.

Guarantor must be renowned business person and have permanent residence in

the commanding area/ possession of the shop.

Business premise must be owned/ possession held by the borrower.

Eligibility




Required Documents







4.7 Sommriddhi SME

Can you imagine – FSIBL is offering you four times loan facility against your encephala

securities like FDR !!!!! To avoid encashment of your long held savings - FSIBL is with

you with this amazing product ‘Sommriddhi SME’. Suppose, you have Tk. 5 lac deposit

as FDR with our bank and now you want some capital in your business. But you intend to

avoid encasement of your long held savings. If so, do not think anything else, just grab

this offer.

Purpose

Any justifiable business purpose.

Key Features

Loan Amount: Max. limit 50.00 lac.




No hidden charge.

Lien of FDR of 25% of the total loan amount.


Eligibility



Required Documents







4.8 Swabolombi SME

As an entrepreneur, definitely you need working capital to run your business smoothly.

To get this working capital generally you need to keep some collateral security like land

as mortgage to the Bank. But you do not have any landed property or any cash security of

your own. So ? Would it be the end of your dream ? FSIBL will never let you stop

because your business is our responsibility. First Security Islamic Bank Ltd. has

‘Swabolombi SME’ – Collateral free Term Loan in its basket. Just come with proper

documents & get it.

Purpose

Any justifiable business purpose.

Key Features



Tenure: For Trading & Service Industry 30 months. For Manufacturing industry

36 months.



No hidden charge.

Up to BDT 25.00 lac is collateral Free.

Eligibility



Required Documents








CHAPTER 5

PERFORMANCE EVALUATION OF FSIBL

5.1 Comparative analysis of the total amount of depositOver the years 2005, 2006, 2007,2008,2009.

DepositYear In Taka (‘000)2005 4600002006 10162672007 12434752008 14256422009 1675246


5.2 Total Capital (taka in million)

Year Total Capital2006 1147.282007 1347.912008 2862.192009 3379.032010 4582.212011 5622.11


Total Capital

£ 4,582.21 million

4000.00

3000.00

1.0000.00

0.00

2.000.00

5000.00

2006 2007 2008 2009 2010

35.60%

2011

5.3 Remittance (taka in million)

Year Remittance2006 48.442007 3302008 585.842009 558.752010 843.472011 942.57


Remittance

Tk. 843.47 million

800

700

500

400

600

900

2006 2007 2008 2009 2010

60%

2011

300

200

100

0

48.44

330

558.844

558.75843.47

2007

5.4 Foreign remittance

Foreign remittance of the bank stood at taka 843.47 million as of December 31 2010 as

against TK. 558.75 million in 2009. besides the bank has taken initiatives to make

remittance arrangements with some leading exchange houses at abroad.

5.5 Paid up capital (taka in million)

Year Total capital2006 900.002007 1000.002008 2300.002009 2300.002010 3036.002011 4000.00


Paid up Capital

Tk. 3,036 million

2000

1500

500

0.00

1000

2500

2006 2007 2008 2009 2010

32%

2011

3000

5.6 LOANS & ADVANCE

Loan and advance is the main source of bank’s income. Commercial banks earn 80% of

its profit from loan and advances. The loan and advance of First security islami bank is

shown below:

Provide lone in different sector

Amount Agriculture & Fisheries 11.58%Large & medium Enterprise

18.79%

Working capital 32.30%Export credit .22%Commercial credit 17.93%Small & Cortege Industry 1.90%Others 17.29%

Concentration of lone & advance


In FY05 after adverse impact of devastation flood and declining trend in interest rate

FSIBL, continued to explore its area of credit and was successful to build up a sizable

quantum of credit, which stood at tk.6.722.83 million as on 31.12.2008, registered an

overall increase by 63.80 percent over 2006. The total credit as on 31st December 2008

was Tk.6, 722.81 million. In compliance to regulatory requirement and to avoid risk of

single industry or large loan concentration and to maintain the Bank’s credit excellence

relating to proper risk management, yield exposure, tenor, collateral security proper

valuation etc. the credit portfolio of FSIBL was further diversified. FSIBL’s credit

facilities mainly concentrated on Trade Finance, Agriculture and related sector, project

finance, wholesale and retail trading, service sector, transport sector ,hospital, small

&medium entrepreneurs.

5.7 Credit Risk of First Security Islami Bank Limited:

Principal Risk Components Weight

Business/Industry Risk 18%Financial Risk 50%Management Risk 12%Security Risk 10%Relationship Risk 10%


5.8Balance sheet

FIRST SECURITY ISLAMIC BANKBALANCE SHEET

AS AT 31 DECEMBER 2010

particulars Notes

2010 2009

Property & assetsCashIn handBalance with Bangladesh bank and its agent

34857543203

6121731464245369057

5033532439

4329077314600624708

Balance with other bank & financial institutionIn Bangladesh Out Bangladesh

4 1036199077

926081336110117741

731150321

494050218237100103

Investment in shares & securitiesGeneral investmentBills purchase & discounted

5 2859354561

2331134100528220461

1852026032

1610674000241352032

InvestmentGovernmentother

6 52123903164

476402386964483664468

38725874774

356164504933109424281

Fixed assets including premises, furniture &fixtures Other assetsNon banking assets

7 573610332

2169188462

376477387

1259491999

Total assets 8 63619797799

47978552952

LIABLITIES & CAPITAL

Deposits and other accounts

56344959167

42423092722

Other liabilities 3354827146 2690049475


Total liabilities 59699786313

45113142197

Capital/shareholder equity 3920011486 2865410755

Total liabilities & shareholder equity

63619797799

47978552952

5.9 FSIBL Highlights

First Security Islamic Bank ltd.Highlights

For the year ended 31 December 2010

particulars 31.12.2010 31.12.2009Paid-up-capital 3036000000 2300000000

Total capital fund 4582217485 3379035832

Capital surplus 29266485 267692742

Total assets 63619797799 47978552952

Total deposit 56344959167 42423092722

Total investment 52123909164 38725874774

Total contingent liabilities & commitment

8859668340 5971673066

Investment deposit ratio 92.51 91.28

Percentage classified investment 2.61 2.14

Profit before tax & provision 1203600731 750837749

Amount of classified investment 1361392000 830515000

Provision kept against classified investment

542894000 507694000

Provision surplus 13658789 53834571


Cost of fund 8.90 9.28

Profit earning assets 56040956802 41371529125

Non Profit earning assets 7578840997 6607023827

Return on investment 9.24 2.79

Return on assets 1.89 1.56

Income from investment 264208027 53510527

Earning per share (tk.) 2.33 1.42

5.10 FSIBL Statement of Fixed Assets

First Security Islamic Bank ltd.Statement of Fixed AssetsAs at 31 December 2010

COST DEPRECIATION

Particulars 2009 Addition during The year

Sales/Transfer duringThe year

Balance as on

2010

Balance as on

2010Jan.

Charge during theyear

AdjustmentSales/transfer

2010Dec.

Written down 2010 Dec.

Building 66227032 63953943

- 130180975

376990

1646781 - 2023771

128157204

Furniture & fixture

240090047

108041386

- 348131433

66587335

23233404

- 89820739

258310694

Office equipment

178410030

80889916

- 259299946

65294951

29916812

- 95211763

164088183

Vehicles 37845372 6631850 - 44477222

13843196

7586526 - 21429722

23047500

Books 78837 3442 - 82279 71459 4069 - 75528

6751

Total 2010 522651318

259520537

- 782171855

146173931

62387592

- 20856152

573610332


3Total 2009 29737499

8235410820

- 522651318

113006566

41544826

8377461 146173931

376477387

CHAPTER 6

ANALYSIS AND FINDINGS OF FSIBL

6.1 Break Even Analysis:

Break-Even Analysis is commonly known as the Cost-Volume-Profit (CVP) analysis.

Break-even analysis shows the relationship between cost and revenue with respect to

profit. By showing the break-even point, this analysis says the minimum level of output

or sales that is required to equate the cost. Moreover, break-even analysis provides a

clear idea about the required volume of sales to earn a target profit. Thus break-even

analysis helps the decision criteria.

Fixed CostBEP = Sale per unit - Variable Cost per unit

6.2 Sensitivity Analysis:

Sensitivity analysis provides the picture of relative changes in overall profitability due to

change in any variable. Usually changes (increase) in material and other variable cost or

changes (decrease) in selling price are being taken into consideration for making

sensitivity analysis.

6.3 Ratio Analysis:

Ratio analysis is the analysis and interpretation of data given in the financial statement

such as: Balance Sheet, Income statement etc. Ratio is the quantitative expression of


relationship between two accounting figures. Ratio analysis gives a clear picture about

the strength and weakness of a firm, its historical performance and current financial

condition. The common ratios that are being used in the analysis are:

Liquidity Ratio:

i. Current Ratio

ii. Acid test etc.

Activity Ratio:

i. Inventory turnover Ratio

ii. Debtors/Receivable turnover Ratio

iii. Total asset turnover Ratio etc.

Solvency Ratio:

i. Debt-Equity ratio

Ii. Debt to total asset ratio

iii. Debt service coverage ratio etc.

Profitability Ratio:

i. Profit Margin

ii. Return on Investment

iii. Return on Equity etc.

Ratio Analysis:

Ratio AnalysisSI.NO. Particular 2011 2010 2009 2008 20071 Return on Average Assets

(ROAA)2.98 1.74 2.70 2.39 2.35

2 Return on Average Assets (after tax)

1.65 0.38 1.37 1.32 1.34

3 Return on Average 25.12 5.54 21.39 28.25 29.46


Equity (after tax)4 Net Interest

Margin(average)4.78 4.39 4.39 3.32 3.35

5 Net Interest Margin 4.46 3.88 4.06 2.39 2.87

6 Efficiency Ratio 40.46 37.96 38.64 38.40 39.74

7 Return on Investment 15.72 8.80 10.20 6.02 6.91

8 Profit Margin 21.25 13.05 18.18 21.03 19.59

9 Return on Risk Weighted Asset

4.22 2.69 4.35 4.03 4.68

10 Burden coverage 58.96 63.59 74.43 72.57 65.66

11 Ratio of fees income 10.31 10.34 11.96 11.00 9.75

12 Interest yield 13.77 12.77 13.87 10.68 11.58

13 Marginal cost of fund 8.38 7.64 8.89 6.82 7.08

14 Burden cost of fund 9.27 8.13 9.67 7.22 7.63

15 Burden yield on advances’ 14.73 13.58 15.34 12.09 11.90

16 Profit on lending 5.46 5.45 5.67 4.87 4.27

17 Yield on advanced 14.40 13.15 14.81 12.72 13.04

18 Interest expenses to total expenses

76.52 77.87 87.44 89.97 81.29

19 Salary exp. To total overhead exp

57.89 47.36 43.38 43.33 48.46

20 Salary exp. To total fees income

98.18 74.49 58.28 59.71 73.81

21 Expenses coverage 72.66 78.87 78.44 79.97 81.29

22 Return on paid-up capital 36.51 7.27 23.74 31.37 29.19

23 Productivity ratio 32.24 29.68 32.74 31.37 29.19

24 Per employee deposit 29.21 24.30 28.81 27.35 23.38

25 Staff per branch 23.97 24.60 21.43 21.88 22.35

26 Capital to deposit 8.95 8.95 9.85 6.34 6.46

6.4 Asset Quality Ratio (%):

Asset Quality RationSI.NO. Particulars 2011 2010 2009 2008 2007

Performance Ratio % 1 Nonperforming loan

to total loan2.84 5.06 5.03 0.46 0.04

2 Loan loss reserve to total loan

2.83 4.45 2.50 1.13 1.01


3 Loan loss reserve to NPL

99.35 88.02 49.81 242.98 2404.24

4 NPL reserve to NPL 49.52 61.74 28.21 20.00 39.75

5 Loan to deposit 77.04 79.42 74.03 76.18 64.33

6.5 SWOT ANALYSIS:

SWOT analysis is the critical analysis about an organization, where the Strength,

Weakness, Opportunity, Threats to that organization is analyzed . It includes all internal

and external aspects of the organization . We can show the total thing by the following

figure:

Figure 11Strength:

The growth of the company has so far been very steady and very high.

Excellent management team.

First Security Islami Bank has a very good pool of human resource.

High commitment of customer.

Bank has many attractive schemes.

First Security Islami Bank is maintaining steady profitability.


First Security Islami Bank offer online banking and evening banking service.


Weakness: Short periods of experience of the bank .

Officers have limited experience of the bank .

Small market share .

Heavily depends on head office for decision making.

High interest rate of loan.

No ATM service booth for attracting more customers.

Absence of separate marketing division.

Opportunity: Increasing demand of customer finance.

Investment potential of Bangladesh .

Relationship management.

Introduction of online banking thought out all branches within Bangladesh.

Threats: Some commercial and foreign bank as well as private bank.

Similar type of retail banking products.

Certain Bangladesh bank rules and regulation.

Customer awareness of pricing and services.

Strong competitions in the banking sector.

Day to Day change economic condition of the world.

Deposit interest rate is low and loan interest rate is high other than competition bank.


CHAPTER 7

FINDING, RECOMMENDATION AND CONCLUSION OF FSIBL

7.1 Findings of First Security Islamic Bank Limited:

While working at Jubliee Road Branch, Chittagong, I have attained a newer kind

of experience. After collecting and analysis data I have got some problem of the FSIBL.

These problems completely from my personal viewpoint, which is given below:

Lack of update products is a drawback of the general banking area of the

FSIBL . New products such as student loan, medical loan, marriage loan are not available

in FSIBL.

From the clients view introducer is one of the problems to open an account. It is general

problem to all commercial bank.

They face troubles with those clients who have not any knowledge in banking

transactions and banking rules.

As the deposit is heart of running the banking activities FSIBL Deposit growth not

good. Because FSIBL deposit rate is low other than commercial bank such as

Dhaka Bank, Prime bank Mercantile Bank, HSBC Bank, Bank Asia etc.

FSIBL has not recruited competent people to filling its lower and mid level position

they recruit only once a year. This is really tough to recruit high skilled

employees.

Lack of proper training arrangement of employees.

As a result of technological change such as use of new software There are few staffs

who have lacking in computer knowledge are not efficient enough to finish every task

immediately so before utilizing new technology proper training should be arrange.

Clients generally complain that rate of interest for various type of credit is quite high.

In many cases productivity from loaned investment is inadequate that borrower

become incapable in repaying loan.


one problem is that bank always follows the policy of risk averse in the world today all

the organization are moving in approach of risk taking. As a result it is facing some

problems and also facing competition from other bank

The recovery of capital in small business loan section is threatened.

FSIBL has insufficiencies of Authorized Dealer Branch in respect of the total foreign

business. Bank has only six branches, which have AD licenses. As a result in total foreign

exchange business is very small in respect of total market.

Per-shipment inspection certificate should obtain from the exporter of back to back

L/C. Because it reduce it fraud and forgery in case of import against master export L/C,

but all the time this pre-shipment inspection certificate are not wanted by the bank

FSIBL does not promote itself for catering its services to the public or the business

organization.

7.2 Recommendations

The existing credit policy is good enough to run the bank. But as the competition is

increasing day by day the bank should take some measures so that they can distinguish it

from the others. The credit management of First Security Islami Bank Ltd. can follow the

following suggestion to improve their performance and distinguish from others:

1. Giving authority to the Branch officials to take decisions to sanction a loan. Right

now, for every loan decision is made by Head office. But to faster the speed of

loan sanction the branch should be authorized to take decision.

2. Rebate charge on loan should be increased so that more customers are attracted to

make loan.

3. The period of loan should be extended.

4. The bank management can give permission to its branches to design or change

lending products on the basis of local demand.

5. The bank should recruit some young and energetic executives to ensure timely

recovery of disbursed consumer credit loan.

6. The clients of loan should be facilitated with online Banks and other benefits.

7. FSIBL should upgrade its website regularly and provide details information of

loan Scheme.


8. FSIBL Bank may also promote its loan program through different advertising

tools i.e. TV adds, News paper adds etc.

9. The Bank management can reduce the interest rate. Because of high interest rate,

some good loans turn to bad loans. But if the interest rate decreases than the

default loan will also decrease.

10. To risk grade the credit, the bank can follow other models besides the credit risk

grading model. Because the credit risk grading model is not hundred percent up to

the mark.

11. The bank management should always be concerned about the change in industry

so that they can notice the change and take proper actions to adopt the situation.

The credit management of Southeast Bank Ltd. can follow the abovementioned

suggestion to improve their performance so that they can be competitive in the market

and can gain some competitive advantage.

7.3 Conclusion

Banking has become the inspirable part of social transaction. From the very early age

it had taken in our society in the non-institutional form. After the Second World War as a

financial product lending had been fully structured and institutionalized in USA and other

developed countries. Now banking sector play an important role in modern society and

private commercial bank has competitive, diversified and dynamic compared to

traditional banking system. In banking sector FSBL is a name of trust, to improve the life

style of the people, to develop the business environment. Day by day its area of serving is

increased all over the country through setting up new branch at new place.

FSBL take a vital part in export and import business of Bangladesh through their

regulatory services and best quality services. The economy of any country depends with

the import and export position of the country. By observing the banking system in FSBL

jubilee Road Branch for one month it is clear to me without bank involvement that kind

of work cannot be possible.

FSBL is providing opportunity of gaining practical knowledge for the students like

internship program. During the period of my internship program I tried my best to

understand the concern. However it is also concern that this period of time was not


enough to understand everything of the concern. If any one wants to work in banking

sector he must have to know about all the department in a bank because one department

works related with another department works. I wanted to know about the credit section

of the bank because bank’s main earnings depend with that section. But I can’t because of

the limited period. Even though I tried my best level to make the informative, this report

contain many errors, there may be some printing mistakes no doubt for this reason I

apologize.

Bibliography:

1. Annual Report of First Security Islami Bank Limited.

2. Prospectus of First Security Islami Bank Limited.

3. Web Site Of First Security Islami Bank Limited:

www.fsiblbd.com.

4. ‘Amader Barta’- A quarterly news bulletin, First Security

Islami Bank Limited.

5. ‘Industry’- A Weekly supplement- Special Supplement on

CAMELS Rating.

6. Various Web Sites related to Islami Banking Systems.

7. ‘Islamic Financial System’-By Md. Nusrat e Aziz- First

Edition,

8. Previous Internship Reports.

9. UCPDC-600, 2007 Revision.


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