Demographic Characteristics of SME Customers of SME Financing in NBL

Demographic Characteristics of SME Customers of SME Financing in NBL

Prepared forMs. Sumaiya Zaman

Lecturer ULAB School of Business

Prepared byKamrun Naher

ID# 051011026ULAB School of Business

University of Liberal Arts Bangladesh (ULAB)

Aug27, 2009

August 27, 2009

Ms. Sumaiya Zaman

Lecturer

ULAB School of Business

University of Liberal Arts Bangladesh.

Dear Madam,

The report entitled “Review on SME Finance in NBL and Its

Performance Analysis” is submitted as a requirement for the partial

fulfillment of internship of BBA program at ULAB.

I would like to thank you with deep gratitude and cordial respect for

your warm co-operation to prepare this report. Your advice and

direction are really praise worthy which helped me a lot to learn

about the techniques of making a good report. In my view, this

report paper will help me to enrich my knowledge about the credit

function and operation in Financial Banking Institution of

Bangladesh. I have carefully used the information from annual

report, web site and from office sources.

I tried my best and worked with utmost sincerity to make this report

paper. It would be kind of you, if you please accept this report

paper.

Thanking you.

Sincerely yours,

_____________

Kamrun Naher

ACKNOWLEDGMENT

To accomplish the objectives of the report, the assistance and contributions of a

multitude of people need to be acknowledged. Firstly, I am highly grateful to NBL

Limited for allowing me to work on their company and access to different

information.

Secondly, I am greatly thankful to Ms Sumaiya Zaman, Lecturer, ULAB School of

Business for assisting me in understanding the internship report procedure and for her

valuable guideline.

Special thanks to Mr. Md., Kabir VP, Head of SME,NBL Ltd. for his kind and

invaluable support.

I would like to thank Mr.Mamunur Rahman , Senior principal Officer, NBL Ltd., my

institutional supervisor for his advice, ideas and guidelines regarding selection of the

topic and organization of the project work.

Lastly, I would like to thank all the Deputy Managers and Officers in SME Division,

NBL Ltd. for their great support and help in making my report.

Contents

Chapter & Title Page

Letter of Transmittal………………………………………………………… I

Acknowledgement…………………………………………………………… II

Executive Summary ………………………………………………………... IX

1.0 Introduction

1.1 Title……………………………………………………………. 1

1.2 Background…………………………………………. 1

1.3 Objective……………………………………………………... 1

1 .3 .1 Broad Ob jec t i ves………………………… 1

1.3 .2 Spec i f i c Ob jec t i ves……………………… 1

1.4 Scope of the Study…………………………………………… 2

1.5 Methodology…………………………………………………... 2

1.5.1 Sources of Information…………………………….. 2

1.5.1.1 Primary Data……………………………………… 2

1.5.1.2 Secondary Data………………………………….. 3

1.6 Limitations of the Study……………………………………… 3

2.0 Organization Part

a. 2.1 Overview of Industrial and Infrastructure Development Finance Company (NBL) Limited………………………………

2. 4

i. 2.1.1 The journey of

NBL……………………………...3. 4

i. 2.1.2 NBL at

Present…………………………………..4. 5

i. 2.1.3 Departments of

NDL…………………………….5. 5

i. 2.1.4 NBL-At a

Glance…………………………………6. 9

i. 2.1.5 Shareholding 7. 10

Structure……………………………

i. 2.1.6 Services Offered by

NBL……………………….8. 11

i. 2.1.7 Comparative Performance (as on 31.12.2008)..

9. 16

a. 10.

11.3.0 Project Part 12.

3.1 Definition of Small and Medium Enterprises (SMEs)………

3.2 An Overview On SME Finance In Bangladesh…………….

3.3 An Overview on Services of SMEs in INBL……………….

3.4 Scenario of SMEs Division in NBL…………………………

3.4.1 Places of Business that SME Division in NBL providing facilities………………………………3.4.2 Age limit of the SMEs clients…………………..

3.4.3 Forms of Business that SME Division in NBL providing facilities………………………………3.4.4 Scenario of SME’s Products in NBL………...3.4.5 Purpose of having SME facilities fromNBL..3.4.6 Nature of Business that SME Division in NBL provides Finance………………………………3.4.7 Years of Startup of the Business……………..

3.4.8 Total Revenue (Yearly) of the Client’s Business………………………………………………..

3.4.9 Total Asset (Excluding lands & buildings) of the Business……………………………………………

3.4.10 Number of Employees in Clients Business 3.4.11 Clients having Loan from any other

organization……………………………………………. 3.4.12 Clients having any other Sources of Income

3.4.13 Reasons of having finance from SME in NBL……………………………………………………3.4.14 Ranking between NBL, AB, ULC, BRAC Bank & Eastern Bank according to their SME Service…………………............................................

3.5 Recovery Performance of SMEs in NBL………………… 3.5.1 Reasons for Overdue and Default …………………

3.5.1.1 Change in Local & Foreign Policy…………… 3.5.1.2 … FINANCIAL PERFORMANC

……………….. 3.5.1.3 Poor Performance in Business………………. 3.5.1.4 Political Instability……………………………... 3.5.1.5 Insufficient Fund……………………………….

3.5.1.6 Client’s Relation with the Organization……

3.5.1.7 Clients Unwillingness…………………………

3.5.2 Yearly Recovery Performance SMEs in NBL……. 38

3.5.2.1 Lease Finance………………………………… 38

3.5.2.2 Term Finance………………………………….. 39

3.6 Sector-wise Recovery of lease finance and term loan…… 41

04. Findings & Recommendations………………………………………… 42

4.1 Findings……………………………………………………….. 424.2 Recommendations……………………………………………. 43

05. Conclusion………………………………………………………………. 44References…………………………………………………………………… 45

Table 1 : NBL– at a glance…………………………………………………………………… 9

Table 2 : Shareholding Structure of NBL…………………………………………………….. 10

Table 3 : Main Players of SME Finance Providing Organizations in Bangladesh …………….. 22

Table 4 : Places of Clients Business ………………………………………………………….. 26

Table 5 : Age Limits of Clients…………………………………………………………………. 26

Table 6 : Forms of Business ……………………………………………………………………. 27

Table 7 : SME Products in NBL……………………………………………………………… 27

Table 8 : Comparison of Factoring Charges between NBL, AB& ULC………………….. 28

Table 9 : Purposes of having SME facilities……………………………………………………. 29

Table 10 : Nature of Clients Business…………………………………………………………… 29

Table 11 : Startup year of Clients Business……………………………………………………… 30

Table 12 : Total Yearly Revenue of Clients Business…………………………………………… 31

Table 13 : Total Assets Value of Clients………………………………………………………… 31

Table 14 : Number of Employees in Clients Business…………………………………………… 32

Table 15 : Loans from other Organizations……………………………………………………… 32

Table 16 : Other Sources of Income……………………………………………………………... 33

Table 17 : Type of Sources of Income ………………………………………………………….. 33

Table 18 : Reasons of having loan from SMEs in NBL ……………………………………… 33

Table 19 : Ranking between NBL,AB , ULC, BRAC Bank, Eastern Bank…………………. 34

Table 20 : Yearly Recovery Rate of Lease Finance……………………………………………… 39

Table 21 : Yearly Recovery Rate from Term Loan……………………………………………… 40

Table22 : Sector-wise Annual Recovery Rate of NBL ………………………………………... 41

LIST OF TABLES

LIST OF FIGURESFigure 1 : Departments Of NBL…………………………………………………… 07

Figure 2 : Organogram of NBL…………………………………………………… 08

Figure 3 : Shareholding Structure of NBL………………………………………… 11

Figure 4 : Deposit composition of NBL…………………….................................... 14

Figure 5 : Investment Mix of NBL………………………………………………... 14

Figure 6 : Sources of Funds of NBL………………………………………………. 14

Figure 7 : Sector wise Portfolio of NBL………………………………………….. 15

Figure 8 : Profit after tax …………………………………………………………... 16

Figure 9 : Profit after tax of NBL…………………………………………………. 16

Figure 10 : Paid-up Capital ………………………………………………………….. 16

Figure 11 : Paid-up Capital of NBL….……………………………………………. 16

Figure 12 : ROE………………………………………………………………………. 17

Figure 13 : ROE of NBL…......................................................................................... 17

Figure 14 : ROA……………………………………………………………………… 17

Figure 15 : ROA of NBL……………………………………………………………. 17

Figure 16 : EPS……………………………………………………………………….. 18

Figure 17 : EPS of NBL…………………………………………………………….. 18

Figure 16 : Total Assets……………………………………………………………… 18

Figure 19 : Total Assets of NBL…………………………………………………… 18

Figure 20 : Total Debt………………………………………………………………... 19

Figure 21 : Total Debt of NBL……………………………………………………… 19

Figure 22 : Total Debt to Asset Ratio………………………………………………… 19

Figure 23 : Total Debt to Asset Ratio of NBL……………………………………… 19

Figure 24 : Commencement of the Operation Years ………………………………… 20

Figure 25 : Domestic factoring Process……………………………………………… 25

Figure 26 : Places of Business………………………………………………………... 26

Figure 27 : Age limit of the clients…………………………………………………… 26

Figure 28 : Forms of Business………………………………………………………... 27

Figure 29 : Proportion of SME Products……………………………………………... 27

Figure 30 : Purpose of the facilities………………………………………………….. 29

Figure 31 : Nature of Clients Business……………………………………………….. 30

Figure 32 : Startup year of Clients Business…………………………………………. 30

Figure 33 : Total Yearly Revenue of Clients Business………………………………. 31

Figure 34 : Total Asset (Excluding lands & buildings) of the Business…………….. 31

Figure 35 : Number of Employees in Clients Business……………………………… 32

Figure 36 : Any other loan from other organization………………………………….. 32

Figure 37 : Other source of income…………………………………………………... 33

Figure 38 : Type of Income Source…………………………………………………... 33

Figure 39 : Why NBL………………………………………………………………. 34

Figure 40 : Ranking between NBL, AB, ULC, BRAC Bank & Eastern Bank…... 34

Figure 41 : Yearly Recovery Rate Lease Finance……………………………………. 39

Figure 42 : Yearly Recovery Rate from Term Loan………………………………….. 40

Appendix A : Questionnaire

Appendix B : Annual Reports of NBL(2006, 2007, 2008 )

Appendix C : Annual Reports of NBL(2006, 2008)

Appendix D : Performance at a Glance (NBL)

Appendix

EXECUTIVE SUMMARY

Financial Banking Institutions are a new dimension for Bangladesh’s economic

growth. Efficient services from these companies can push up the industrial growth.

SME financing provides the industries a scope to invest with Collateral.

As all FBIs are providing SME facility by borrowing fund from Commercial banks,

the cost of financing facility is higher than direct borrowing. Only for this reason

many firms are not stepping forward to avail lease facilities, event though in all other

manners it is convenient. In this situation some FBIs enjoy the low cost funding from

institutions like CBSF, Bangladesh Bank and are providing relatively cheaper

financing facilities to the SME clients.

Lease financing is a very enormous step in industrial growth. Government support

and proper knowledge and information will help the citizens to avail lease facilities

from these established financial companies. In developed countries the lease financing

has a major contribution in the industrial as well as economic growth. So for the

growth of the country, FBI can play a vital role in the future.

The purpose of the report is to obtain an overview of the SME Financing Process of

NBL and analyze its effectiveness. For that Leasing Process of NBL needs to be

compared with other – Financial Banking Institution(s) specifically with IDLC,

IPDC and ULC (United Leasing Company).

The execution of SME financing process differs from FBI to FBI depending on the

organizational structure and Credit Policy of respective FBI or financing Company.

The execution of the financing process may differ in involvement of different

departments. But in any case the whole process has to go through 14 elementary

steps based on component activity of the Leasing Process. They are Preliminary

Contact and Inquiry, Application for Lease Facility Visiting the borrower and

Discussion, Analyze the Application, CIB Report and Bankers Report, Prepare and

Submit Credit proposal for the Board, Approval of Credit Proposal, Sanction of

Lease, Documentation, Security & Payments, Procurement of Lease Equipment,

Installation and Delivery, Disbursement and Execution (commercial operation),

Monitoring.

The client applies for required facility through letter. These required facility can

vary from different sort of equipments for manufacturing their products to vehicles

or expansion projects. The letter generally consists of brief description about the

asset to be procured, its price and reason for procurement along with its lease

period. NBL collect necessary information to analyze the proposal prepare the

Board Memo for approval by the Board members. After approval NBL sends an

offer letter to the client. The offer letter contains acquisition cost, lease period, per

month rental and other terms & conditions to be applied if the agreement is done.

The client accepts the offer and submits an accepted offer letter. If the client agrees

to the terms & conditions of the offer letter, they sign & seal the offer letter as

accepted and send it back to NBL. Then Agreement and necessary documents are

prepared and duly signed. After that lease asset is procured by NBL and given to the

client for delivery, installation, and trial run after that disbursement and execution is

done and commercial operations begin.

In NBL from preliminary contact and Inquiry to initial monitoring is done by

Department execute and all the steps after that monitoring take the responsibility. In

ULC Relation ship Manager is involved in marketing. Their responsibility is limited

up to approval of the credit proposal. Then Operations department carry out

Documentation and final execution. Monitoring department maintains the rental

payments.

After approval process time of NBL is competitive and shorter in most cases than

the average. But before approval NBL requires more time in 4 activities than the

average. Approval of proposal is showing the largest difference and apply, visit and

memo preparation is showing fairly same amount of deviation from average in a

significant level.

IDLC possess the shortest length of the process. Most of its activity requires less

time than other to be completed. In case of ULC and IPDC, they are also lacking in

few activities. But in total they have shorter process length than NBL.

1.0 Introductory Part

1.1 TITLE

“Review on SME Finance in NBL and Its Performance Analysis”

1.2 BACKGROUND

This report is a requirement for successful completion of the Internship of BBA

program. Exposure to the business world and acquiring practical work experience was

the primary objective of this assignment. I was attached with Industrial and

Infrastructure Development Finance Company Limited (NBL) for my internship. The

topic was selected and approved by Ms. Sumaiya Zaman.

1.3 OBJECTIVES

The basic purpose of the report is to see the overall SME Finance and its performance

of NBL

1 . 3 . 1 B r o a d O b j e c t i v e :

The broad objectives of the report are-

To understand and reveal the steps of processing of SME finance of

NBL.

To show the overall picture of recovery management of SME of NBL.

1 . 3 . 2 S p e c i f i c O b j e c t i v e s :

The Specific objectives are -

Analyze yearly recovery performance of SME products.

Identify classified and unclassified clients for SME of NBL.

Analyze sector wise client overdue and recovery rate for SME products.

Recommend some effective steps for better performance through

improved recovery system.

1.4 SCOPE OF THE STUDY

The report is on the lending process, criteria for sanctioning lease, term loans and

other products of SME as well, and sector wise recovery performance of lease, term

loans and other products of NBL. It is beyond the scope of the report to look into all

the financial services of Lease finance and Term loan provided by SME of NBL. So

the report has chosen only some of the selected activities and recovery process of

SME of NBL. To understand the entire process thoroughly, the report has also looked

into the selected sector wise investment and recovery rate of Lease finance and Term

loan activities of NBL.

1.5 METHODOLOGY

1 . 5 . 1 S o u r c e o f I n f o r m a t i o n

1 . 5 . 1 . 1 P r i m a r y D a t a

The report will be based on primary data collected from NBL. Primary data will be

collected to draw the procedural workflow of SME operation. The following

instruments will be used:

Interview: Interview of the assistant mangers and officers of NBL will be

undertaken to draw the procedural workflow of lease finance and term loan.

Officers from the monitoring and recovery department will also be

interviewed for collecting information regarding the overdue rates and

recovery performance of NBL.

Survey: A questioner was prepared to collect information about SME service

in NBL from clients.

Observation: Observation technique is going to be used to perform SWOT

analysis and to follow & draw the procedural workflow of Lease finance and

Term loan operation

Analysis : Only the files of selected individual clients (case Files) will be

chosen randomly from the stock of files of NBL, which will be examined and

analyzed to find out the number of Lease finance and Term loan approved by

the departments and the related data to carry on the project part.

Information Collected from NBLFinancing process SME Division

Financial Statement Annual Report Fin. & Acc. Dept.Total Investment Fin. & Acc. Dept.

Sector wise investment Fin. & Acc. Dept.Recovery Rate Monitoring and

Recovery Dept.

Collection of Information

1.5.1.2 Secondary Data

Some of the data and information will be collected from the secondary sources. These

sources are the audited financial statements of NBL for the year 2006, 2007, and 2008

respectively. Web site of NBL will also be used to collect data and information.

1.6 LIMITATION OF THE STUDY

The following limitations are apparent in the report:

Source of information may be confidential. That’s why I could not compare the

recovery process of NBL with other leasing company, as collection of information

was quite difficult from other companies.

Clients did not provide all the information and they fill up the questioner properly

which made me difficult to collect information properly.

2.0 Organization Part

2.1 OVERVIEW OF INDUSTRIAL AND INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY (NBL) LIMITED

2.1.1 The journey of NBL

The National Bank Limited (NBL) has a prolonged and glorious heritage in the

banking industry in Bangladesh. It is the pioneer in the local private commercial was

inaugurated on March 1983 under the supervision of Bangladesh Bank. A glorious

fact of the National Bank Limited is its approval as first private commercial bank

from Bangladesh Bank in our country.

Economic development activities in the post liberation period required service from

private commercial Banks. To fulfill this demand as well as to improve the

commercial banking ser-vice in Bangladesh, the National Bank Limited emerged as a

private limited company. The National Bank Limited is a remarkable addition to the

private sector branch banking in Bangladesh. Aiming at offering commercial banking

service to the customer's door around the country, the National Bank Limited

established 105 branches up to this year. This is the highest number for any private

commercial bank operating in Bangladesh. This organization achieve customer's

confidence immediately its establishment in domestic and international markets.

NBL took participation in Nepal Arab Bank Limited; Nepal in 1995. Under a

technical service agreement, NBL is extending management services to NBIL, in

1997. Bank opened a representative office in Yangoon, Myanmar. NBL is proud to

be, first private Bank in Bangladesh who introduce credit card (Master Card) both

local and international. The Bank has made agreement with Western Union

Remittance services for speedy transfer of money allover the world.

The National Bank limited provides financing in capital market, Credit line and

project financing, investment counseling, Underwriting any guarantee, Port folio

management etc along with traditional banking service, Sanchay Prokalpo and Bonus

Deposit scheme are- - praiseworthy banking service for the middle and lower income

group. Recently, this organization has taken operational decision of two projects:

Consumer Credit scheme and Credit Card marketing to widen its service and

customer base. The National Bank Limited is always emphasizing the improvement of

banking service and betterment of living standard of the general people of

Bangladesh.

2.1.2 NBL at present

NBL has been able to create a special image at home & abrode by introduction

different banking products, at the infancy of our garments Industry during the

Eighties. NBL pioneered allowing the entrepreneurs back to back LC facility without

any margin, thereby helping the Industry thrives to its present position. This foolhardy

but unique & generous endeavor of the bank has not only paved the way for

enrichment of the Country’s foreign exchange. In the history of development &

expansion Of garments Industry in Bangladesh, NBL name will remain engraved in

Golden letters.Presently, NBL is working with an efficient and active management

team. The management team is headed by the Managing Director of the company.

The major activities of NBL are divided into three distinctive departments. They are

Operations, Structured Finance and Finance & Accounts.

2.1.3 Departments of NBL

Operations Department: The operations department is being headed by the

Executive Vice President of the company. This department is responsible for

attracting new clients, maintaining the existing ones, providing the desired

financial services to the clients and monitoring the progress of the services as

well. The operations department is divided into three distinctive branches.

They are Corporate Finance, SME and Monitoring & Recovery.

The Corporate Finance department is headed by an AVP (Assistant Vice

President) and the AVP is the only person in this sub wing who reports

directly to the EVP (Executive Vice President) – Operations and also to the

Managing Director. The other members of the department are two Managers,

one Deputy Manager, four Assistant Managers and four Management

Trainees. Normally, there are team consisting of two persons in the corporate

finance department and each team is responsible for attracting new clients,

maintaining the existing ones, providing the desired financial services to the

clients and monitoring the progress of the services as well.

NBL started SME financing in the year 2006. This department is headed by an

AVP and the AVP directly reports to the Head of Operations. There is also a

Recovery and Monitoring wing and it is headed by a Manager. He directly

reports to the Head of Operations.

Structured Finance: Structured Finance department is headed by a Vice

President and the VP is directly responsible to the Managing Director. NBL is

active in syndication market and has acted as lead arranger to a number of

syndication facilities for large loans arranged by it. Structured Finance

encompasses syndicated fund arrangement including cross-border syndication

and other financial advisory services.

Finance & Accounts: Finance & Accounts department is being headed by an

Assistant Vice President of the company. He is also the Company Secretary of

NBL. This AVP is directly reportable to the Managing Director. Though this

department is very thinly staffed the activities are not that simple. To ensure

coordination and avoid any kind of conflict within, the department has been

divided into two separate sections.

The Head of Operations is the center of most of the activities in NBL. Since

treasury, recovery and monitoring, corporate finance, SME finance all these

departments is directly under him/her, the Head of Operations basically

directly responsible to carry out the mandate given by the board of directors

regarding policy and guidelines of providing credit facilities to the clients.

Even though there is a structured finance department, the operation

department also arrange syndicated credit facilities for its’ corporate clients.

DEPARTMENTS OF NBL

ORGANOGRAM OF NBL

NBL

CORPORATE FINANCE

OPERATIONS FINANCE & ACCOUNTS

STRUCTURED FINANCE

SME

MONITORING & RECOVERY

TREASURY

Figure 01(Source: internal)

Board of Directors

Managing Director

Head of Operations

EVP

Head of Structured

Finance (VP)

Head of Accounts &

Admin (AVP)

Head of SME Financing

(AVP)

Manager (0)

DeputyManager (1)

Assistant Manager(1)

Manager (1)

Deputy Manager(2)

Head of Corporate

Finance (AVP)

Manager (0)

Deputy Manager (3)

AssistantManager (0)

Manager (1)

Deputy Manager (1)

Assistant Manager (3)

Management Trainee (3)

Head of Treasury (0)

Manager (0)

DeputyManager(1)

Assistant Manager (1)

Head of Recovery

& Monitoring (0)

Manager (0)

DeputyManager(1)

AssistantManager (2)

ManagementTrainee (0)

Sr. Officer (0)

Assistant Manager(4)

ManagementTrainee (0)

Sr. Officer (1)

Officer (5)

Officer (0)

Figure 02(Source: internal)

2.1.4 NBL– at a glance

Name National bank limited

Registered Office 48, Dilkusha Commercial Area, Dhaka - 1000

Authorized capitalTk. 1,000,000,000.00 ( 10,000,000 shares of

Tk. 100 each)

Paid up capitalTk. 256,496,000.00 ( 2,564,960 shares of Tk.

100 each, fully paid up in cash)

Operating revenue (2007) Tk. 772.07 million

Operating profit (2008) Tk. 142.37 million

Net profit (2008) Tk. 84.44 million

Book value per share Tk. 170.35

EPS Tk. 32.88

Table 01: NBL -At a Glance (Source: http://www.nbl.com)

2.1.5 Shareholding Structure

http://www.nbl.com/

NBL is being represented by various institutional shareholders except for one. Among

the 15 shareholders there is only one individual shareholder who is Md.Matiul Islam,

the present Chairman of the company. Apart from this individual, rests of the

shareholders are various financial institutions both from the public and private sector.

The shareholding structure of NBL is shown below:

Name Of The Shareholder Percentage

Public Sector 21.2766%

Janata Bank 7.0992%

Sonali Bank 7.0992%

Investment Corporation of Bangladesh 7.0992%

Private Sector 78.7234%

Arab Bangladesh Bank Limited 7.0992%

Bank Asia Limited 7.0992%

BRAC Bank Limited 7.0992%

The City Bank Limited 7.0992%

Mutual Trust Bank Limited 7.0992%

Dhaka Bank limited 7.0992%

One Bank Limited 7.0992%

Southeast Bank Limited 7.0992%

Eastland Insurance Co. Limited 7.0992%

National Life Insurance Co. Limited 7.0992%

Pragati Insurance Co. Limited 7.0992%

Md. Matiul Islam 0.7092%

Table 02: Shareholding Structure of NBL(Source: Annual Report of NBL2008)

Figure 03(Source: Annual Report of NBL2008)

2.1.6 Services Offered by NBL

NBL started its journey with an enriched package of diverse financial services. The

company is aware that in financial markets different clients demand for different types

of financial services. Therefore to attract new clients and retain the existing ones NBL

offers a broad array of financial services. NBL realizes very well that unless it can

quickly respond to the assorted needs of the customers it will be hard to maintain

substantial profit margin in this era of severe competition.

Lease Finance: The leasing provides financial flexibility to enterprises for

procurement of capital assets without blocking their own funds. NBL procures

the necessary machinery and equipment used by the clients under leasing

arrangement. Lease rentals which include both interest and principal payments

are tax deductible expenditure. The documentation requirement also is simple,

convenient and less time consuming.

Term Loan: NBL provides both short term and long term loans for capital

expenditure. The longer maturity loans can reduce the size of installment

payments and help improve the cash flow of the enterprises. Fully amortized

equal payment or decreasing payment schedule can also be arranged to ease

repayment of debt obligations. NBL also provides loan facilities to meet

working capital requirements.

Structured Finance: NBL is active in the syndication market and has acted as

lead managers to a number of syndication facilities for large loans arranged by

it. With 10 Banks as promoter-shareholders & with a Board of Directors

comprising of the Chief Executive and policy makers of these financial

institutions, NBL is in a unique position to arrange syndication facilities by

tapping the resources of its own promoters. NBL‘s professional staff members

have the expertise and capability of providing best advice & services on the

financial viability of projects, and the credibility of the project sponsors. NBL,

as a lead arranger, does all the necessary documentation and execute &

administer the syndicated finance

SME Finance: NBL promotes small and medium entrepreneurs in

manufacturing and service industries through its SME Finance Scheme. The

aim is to provide quality service to the entrepreneurs with potential and

innovative ideas.

Home Loan: NBL provides Home Loan for the middle and lower income

people to purchase or construct flat/apartment for personal living only in 6 city

corporation area including Tongi, Gazipur, Savar and Narayangonj.

Deposit Scheme: NBL encourages Term Deposits for a period of 6 months

(institutions only) or one year and/or above. It offers attractive terms and

returns to the depositors as well as total security. The minimum amount of

deposit is Tk.50, 000/- and there is no maximum limit. The depositors will be

allowed to take loans & advances against deposits. The fund raised from

deposits is prudently utilized in various financial activities.

Advisory Services: NBL has a management team with Professional Bankers,

Chartered Accountants, MBAs, Engineers, Economists and Financial

Analysts. The expert team provides consultancy services and carries out

feasibility studies, technical and financial evaluation, market research, market

risk analysis etc. if necessary NBL may also appoint well reputed professional

from the market for this purpose.

Other Financial Services: It basically includes Bill discounting, Work order

finance, Underwriting and mutual fund etc.

Deposit composition of NBL

Figure 04 Investment Mix of NBL

(Source: Annual Report of NBL2008)

Sources of Funds of NBL Figure 05

(Source: Annual Report of NBL2008)

Figure 06(Source: Annual Report of NBL2008)

Deposit Composition

10.90%6.57%

80.91%

1.62%

Customer Deposits Insurance Companies Banks Financial Institutions

Investment Mix

33.86%

0.04%66.10%

Direct Finance Factoring & Investment in shares Lease

Sources of Funds

39%

0%

1%

34%

2%

1%

6%

16%

Long Term Loans Zero Coupon Bond

Lease Advance & Security Deposit Long Term Deposit

Refinance Bangladesh Bank Money Market Borrowing

Money Markte Borrowing Short Term Deposit

Industry wise loans &Advance

(Source: Annual Report of NBL 2008)

Other Local, 3.60%

Paper and Plastic products, 6.01%

Power & Electricity Co., 6.26%

Printing, Packaging, Publishing, 0.32%

Housing, 0.19%

Ispat Industry, 1.10%

Marbel Industries, 1.62%

Glass Industry, 3.75%

Information Technology, 0.22%

Food & Beverage, 4.17%

Entertainment, 2.97%

Engineering, 7.30%

Consumer Finance, 0.16%

Construction & Development, 1.81%

Commercial &Road Transport, 4.86%

Chemical, 11.78%

Bank/Fis, 1.10%

Cement Industries, 2.34%

Air/Water Transport, 1.92%Agriculture, 3.58%

Professional & Self employed, 1.12%

Spinning & Weaving and Dying etc., 3.34%

Tele Communication & Infrastructure, 2.44%

Textile & RMG, 14.40%

Trading & Manufacturing, 13.64%

2.1.7 Comparative Performance (as on 31-12-2008)

In this section the performance of the Industrial and Infrastructure Development

Finance Company Ltd (NBL) is compared with that of ILFSL, Premier Leasing BIFC

and IPDC, IDLC as on 31-12-2008.

Profit after tax:

Profit after Tax

84117

4677

133

303

0

50

100

150

200

250

300

350

NBL ILFSL PremierLeasing

BIFC IPDC IDLC

profit(BDT Million)

Nam

e o

f th

e N

FB

I

Series1

Figure08 Figure09(source:Annual (Source:http://www.dsebd.org/ipo/NBL.pdf) of NBL2004,05,06,07,08)

Among the 5 NBFIs IDLC has the highest profit and NBL is in 4th position. But if we

see the last 4 years profit of NBL, it increased 47% in 2007 and 17% in 2008

comparing previous year

Paid up capital

371230 305 293

648

200

0

100

200

300

400

500

600

700


BIFC IPDC IDLC

NFBI

BDT

in m

illio

n

Series1

Figure10 Figure11(source Annual (source:http://www.dsebd.or/ipo/NBL.pdf) Report of nbl)

Comparing with other 4 NBFIs NBL is in the 2nd position in case of paid-up capital

and IPDC in 1st position and comparing with last 4 years paid-up capital of NBL

increased every year.

Profit after Tax

84

4959

72

17%

-17%

18%

47%

0

10

20

30

4050

60

70

80

90

1 2 3 4

Years

Pro

fit

(BD

T i

n M

illi

on

)

-30%

-20%

-10%

0%

10%20%

30%

40%

50%

60%

Gro

eth

Rate

(%

)

Profit after Tax Growth

Return on Equity:

Figure12(source:http://www.dsebd.org/ipo/NBL.pdf)

Figure 13 (Source: Annual Report of NBL

A measure of a corporation's profitability that reveals how much profit a company

generates with the money shareholders have invested. That means the percentage of

profit that the company earned with the money shareholders has invested on it. Here

IDLC & NBL has more percentage than others represent that they are relatively good

for both the company and shareholders and the last four years ROE of NBL was able

to generate more profit with invested money.

Return on Asset:

ROW

1.28% 1.39% 1.54%

2.07%1.85%

2.37%

0.00%0.50%1.00%

1.50%2.00%2.50%

NBL

ILFS

L

Prem

ier

Leas

ing

BIFC

IPDC

IDLC

NFBI

Ratio Series1

Figure(source:http://www.dsebd.org/ipo/NBL.pdf Figure 15(source:Annual Report of

NBL)

ROE

24%17.00%

11.00%19.00%

8.00%

25.00%

0%

10%

20%

30%

NB

L

Pre

mie

rLe

asin

g

IPD

C

NBFI

RA

TIO

Series1

Earnings per Share:

ROA gives an idea as to how efficient management is at using its assets to generate

earnings. Here BIFC and IDLC had a highest and NBL had lowest percentage of

ROA in year 2008 compared to others. The last four years ROA of NBL shows that

last year there was no growth. It is important to the total assets is increasing. The

company acquiring more assets but it is probably reluctant to use assets for increasing

its profit.

3351

1526 21

152

020406080

100120140160

Price per sher(BDT)

NBL ILFSLPremierLeasing

BIFC IPDC IDLC

NFBI

EPS

Series1

Figure17Figure16 (source:Annual Report of (source:http://www.dsebd.org/ipo/NBL) NBL2004,05,06,07,08)

The portion of a company's profit allocated to each outstanding share of common

stock. EPS serves as an indicator of a company's profitability. Here, IDLC is in an

advantageous position with having highest EPS among the six companies and NBL is

in 3rd position but from last four years its EPS increases.

Total Assets:

Figure 19 (source: Annul Report of NBL)

Figure18(source:http://www.dsebd.org/ipo/NBL.pdf)

Total Assets (Tk. in million)BDT(million)

65898482

2925 2604

7195

14424

02000400060008000

10000120001400016000


BIFC IPDC IDLC

NFBI

BDT

IN M

illio

n

Series2

Comparing with the other companies NBL is in 4th position but comparing with last

four years asset of NBL it increased.

Total Dedts

3012

7792

2533 2189552

12916

0

2000

4000

6000

8000

10000

12000

14000

NBL ILFSL PremingLeasing

BIFC IPDC IDLC

NFBI

BD

T(M

illi

on

)

Series2

Figure20(source:http://www.dsebd.org/ipo/NBL.Pdf) Figure21

(source:AnnualReport of NBL)

One of the most important factors of a company is how much debt the company is

carrying. Less debt of a company indicates that it can afford the debt if it runs into

financial trouble. Comparing to the competing companies IIDFC had 3 rd highest

number of debt and in past four years its debt increased.

Total Debt to Total Assets Ratio

Total Debt to Total Assets Ratio

91.23%91.86%86.56%

84.10%

76.74%

89.54%

65.00%70.00%75.00%80.00%85.00%90.00%95.00%

NFBI

Rati

o

Series2

Figure22 (Source:http://www.dsebd.org/ipo/NBL.pdf Figure23 (source:Annual Report of NBL)

total Depts of IIDFC

2389

4657

3677

6011

54%

138%

-49%

63%

0

1000

2000

3000

4000

5000

6000

7000

1 2 3 4

Years

BD

T (

Mil

lio

n)

-100%

-50%

0%

50%

100%

150%

Gro

wth

Total Debts Growth

Debt ratio is used to measure a company's financial risk by determining how much of

the company's assets have been financed by debt. It’s better to have a position of debt

ratio near 0.5. If a company has less debt than its equity it can utilize its equity to pay

it’s debts in future and there is an opportunity of getting loans easily. From the above

table we can say that all of the three companies are having more or less very high

percentage of debt ratio and also NBL’s ratio increased comparing last four years.

Findings:

If we see the commencement year of NBL, IDLC, IPDC, BIFC, ILFSL and Premier

Banking Company NBL started its journey in 2001 and IPDC in 1983 and IDLC in

1985. As a new member of the NBFI industry NBL is doing better job.

commence ment of operation Year

2001

1996

20011998

19831985

1970

1975

1980

1985

1990

1995

2000

2005


BIFC IPDC IDLC

NFBI

Yea

r

Series2

Figure 24(Source:http://www.dsebd.org/ipo/NBL.pdf)

3.0 Project Part

3.1. Definition of Small and Medium Enterprises (SMEs)

There is no indefinite definition of SMEs. It depends on investment level and number

of workers, technologies and technical complexities of production, degrees of skills

demanded from workers and managers, end use of products and so on, which varies

from country to country. According to the definition of Bangladesh Bank circulation

published on 26/05/2008 Small Enterprises are those enterprises which

maintain/follow the following criteria:

Service Concern: The range of the total fixed asset has been set at Tk 50,000

to Tk 5.0 million, excluding land and building, and the number of employees

less than or equal 25.

Trading Concern: A small enterprise in trading should have a total asset

worth Tk 50,000 to Tk 5.0 million, excluding the value of land and building,

and the number of employees less than or equal 25.

Manufacturing Concern: The total asset for a small enterprise in the

manufacturing sector has been set at Tk 50,000 to Tk 15.0 million, excluding

land and building, and the number of employees less than or equal 50.

According to the same circulation of Bangladesh Bank circulation Medium

Enterprises are those enterprises which maintain/follow the following criteria:

Service Concern: The range of the total fixed asset has been set at Tk 5.0

million to Tk 10.0 billion, excluding land and building, and the number of

employees less than or equal 50.

Trading Concern: A small enterprise in trading should have a total asset

worth Tk 5.0 million to Tk 10.0 billion, excluding the value of land and

building, and the number of employees less than or equal 50.

Manufacturing Concern: The total asset for a small enterprise in the

manufacturing sector has been set at Tk 15.0 million to Tk 20.0 billion,

excluding land and building, and the number of employees less than or equal

150.

3.2 AN OVERVIEW ON SME FINANCE IN BANGLADESH

SMEs more or less start their operations using their own funds or family finance.

Normally these firms face significant problems in operating their operations, and

often lose their investment in the past. But now a day, SMEs can secure their

investment by getting loan easily from Banks and NBFIs. At present 38 commercial

and specialized banks and NBFIs provide SME Financing facilities at 10%-16.5%

interest rate.

The main players of SME Finance providing

organizations are:

Banks NBFIsAB Bank Ltd Industrial Promotion and Development

Company of Bangladesh Ltd. (IPDC)Bank Asia Ltd IDLCBrac Bank Ltd ULCBASIC Bank Phoenix

City Bank Ltd Uttara Finance and Investment Ltd.Dhaka Bank Ltd GSP Finance Company (Bangladesh) Ltd.Dutch Bangla Bank Ltd Prime Finance ltd.Eastern Bank Ltd Bay Leasing and Investment Ltd.Mercantile Bank ltd. Peoples Leasing and Financial services

Ltd.National Credit and Commerce Bank Ltd Bangladesh Industrial Finance Company

Ltd.Prime Bank Ltd Midas Financing Ltd.Premier Bank Ltd Bangladesh Finance and Industrial

Company Ltd.Pubali Bank Ltd NBL LtdShah Jalal Bank Ltd Islamic Finance and Investment Ltd.South East Bank Ltd Fareast Finance and Investment Ltd.Standard Bank Ltd Premier Leasing International ltd.Sonali Bank LtdJanata Bank LtdAgrani Bank Ltd

Table 03: Main Players of SME Finance Providing Organizations in Bangladesh(Source: http://www.bangladesh-bank.org)

3.3 AN OVERVIEW ON SERVICES OF SMEs IN NBL

NBL at present provide different types of lease and loan facilities to its clients. The

principal focus of the Company is on business of lease financing of capital goods for

industries such as plant, machinery, equipment, office equipment, power and energy

equipment etc. but they also provide short, medium and long term loans to its clients

as well. Though NBL provide other services to its clients but the main focus of the

project is on Lease finance and term loan procedures and their recovery management.

The different types of lease finance and term loan provided by NBL is given below:

(1) Lease finance: A lease is a contract. By its terms the owner of an asset (the

lessor) gives another party (the lessee) the exclusive right to use the asset, usually for

a specified period of time, in return for the payment of rent. Under the lease finance

scheme the obvious advantage to the lessee is the use of an asset without having to

buy it. For this advantage, the lessee incurs several obligations. First and foremost is

the obligation to make periodic lease payments, usually monthly or quarterly. Also the

lease contract specifies who is to maintain the asset. There are two types of lease

facilities that are financed by SME Division. They are:

o Direct Lease: Under direct leasing, a company acquires the use of an asset it

did not own previously. Terms and Conditions for Direct lease are::

Tenure: 3-5 years for lease

Ownership of the leased asset should be in the name of NBL

Insurance should be first party insurance (cover all the risks associate

with the leased asset).

o Sale and lease back: Under the sale and lease back agreement a firm sells an

asset to NBL, and after that NBL lease it back to the specific firm. Usually the

asset is sold at approximately its market value. The firm receives the sales

price in cash and the economic use of the asset during the basic sales period.

In return, it contracts to make periodic lease payments and give up title to the

asset. As a result, the lessor realizes any residual value the asset might have at

the end of the lease period, whereas before, this value would have realized by

the firm. The terms and conditions are the same as direct lease. The sale and lease

back mechanism may be understood from the following diagram:

Ownership of Lessee’s existing machinery

Price of machinery in cash

Lessee Lease agreement NBL

Monthly lease rentals

(2) Loan finance: Loan financing is another lucrative product offered by NBL. It

provides both long and short term financing to its prospective clients. NBL provides

two types of loan. They are:

Term loan: It is basically given to the client to meet capital expenditure as

well as working capital requirement. In case of term lending SME provide

three types of loan based on the duration. Those are:

Short-term loan is for “Less than 1 year” years.

Mid-term loan is for “1 to 3” years.

Long-term loan is for 3 and above years.

Time loan: The functions of time loan are as it is term loan but basically it is

taken only for 1 to maximum 2 years. The client of term loan paid IDCP

(Interest during Construction Period) instead of installments. The IDCP is

usually paid quarterly and after the end of the lending period the principal

amount will be paid fully by the clients.

(3) Factoring: Factoring of Accounts Receivable is a mode of financing receivables

arising out of supply of goods or delivery of services on credit. This revolving

financing facility enables the suppliers/service providers to realize the maximum

portion of the payment soon after the delivery is made to the buyer.

FINANCIAL PERFORMANCE

Commercial banks should maintain a minimum capital adequacy ratio of 8%, the

established specialized banks at least 10%, but new specialized banks and those with

not very satisfactory performance at least 20%.

2005 2006 2007 2008Capital Adequacy Ratio (%) 9.21 9.44 9.43 11.18Loan loss provision to Total Loan Ratio 1.77% 1.07% 0.74% 0.35%

9.21

9.44

9.43

11.18

0 2 4 6 8 10 12

2005

2006

2007

2008

C apital Adequac y ratio

This ratio expresses capital as a proportion of total risk-weighted assets. Both capital

and assets should be fairly stated with the appropriate loan loss provisions and

intangible assets having been deducted. As a commercial NBL, NBL maintain more

than 8% capital adequacy ratio for last few years. From 2005 to 2008 it exists from

9.43% to 11.18%.

L oan los s provis ion to total loan R atio

1.07%0.74%

0.35%0.95%

0.00%0.50%1.00%1.50%

2005 2006 2007 2008

Loan Loss provision decreases from last few years. In 2005 it was 1.77% but in 2008

it was .95%. Though Loan loss provision decreases, in 2008 it increase compared with

last two years.

The growth of assets is good for NBL Average growth is more than 20% over last five

years.

20% 22%27%

0%

10%

20%

30%

2006 2007 2008

G rowth of As s ets

In 2008 total assets was Tk. 191,362,349,717 and in 2006 it was Tk. 150,252,820,801. Growth was 27% and 22% consequently.

2005 2006 2007 2008Profit Expense ratio (%) 63% 61% 52% 66%Earnings per Share (Tk.) 519 488 368 43.14Efficiency Ratio (%) 35.65 38.99 44.92 37.72Profit After Tax(Tk. In mn) 1013.65 1125.82 1400.59 2049.05

NBL management team tries to minimize their operating expense and maintain the

quality management team for better service provide.NBL tries to increase their profit

by reducing operating cost. In 2008 profit expense ratio was 66% which was 30% in

2003. For increasing the bank branches and business as well operating expense also

increases. But a certain level of operating expense helps to organization to make

profit.

P rofit E xpens e R atio

63% 61% 52%66%

0%

50%

100%

2005 2006 2007 2008

Earning per share is Tk. 43.14 in 2008, but in 2006 and before 2006 it was around Tk.

300 to 500. In 2008 authority divides their share into 10 times, for that reason and also

for unpleasant economic condition EPS is Tk. 43.14.

Efficiency ratio is 37.72% in 2007 and 44.92% in 2006.NBL holds almost 9% market

share with 40% average efficiency ratio. NBL team incurred Tk. 2049.05 million in

the FY 2008. And company’s average performance is better over last few years.

E ffi c ienc y R atio

36.65%

38.99%

42.92%

37.72%

32.00% 34.00% 36.00% 38.00% 40.00% 42.00% 44.00%

2005

2006

2007

2008

6.1.4 Earnings Ability

Earnings are the first line of defense against the risks of losses in banking; as well as

losses arising from credit risk, interest rate risk, liquidity risk or currency risk.

2005 2006 2007 2008Return on assets (%) 1.1 1 1.03 1.2

Return on equity (%) 15.15 13.51 13.42 13ROI (%) 9% 9% 10% 10%Net income per staff 191,038 181,526 187,772 243,182

The ratio (ROA) of profit before tax to average total assets essentially is an indication

of management ability to generate income and its ability to control expenses. The

variations in this ratio could be due to a number of factors including a portfolio shift

to higher or lower yielding assets, an increase or decrease in the level of interest rates,

or an increase or decrease in fees and other income not related to the employment of

assets. NBL’s ROA increases over last few years. From 2005 to 2008 it increased

from .53% to 1.2%.

1.1 1 1.03 1.20.09 0.09 0.1 0.1

15.1513.51 13.42 13

0

2

4

6

8

10

12

14

16

2005 2006 2007 2008

R OA

R OI

R OE

ROE also increases during last few financial years. Average ROE is almost 13% over

last five years.

This ratio ROI relates interest earned on securities to total book value of securities

held by a bank. Government securities are held primarily for liquidity purposes while

other securities are held for getting benefit from their tax-free status.

Net Income per staff shows the NBL market position and management performance.

It also shows the earning capability of the company. Net income per staff comes from

Tk. 83759 to Tk. 243182 from FY 2005 to FY 2008.

Net inc me per s taff(T K .)

191,038 181,526 187,727243,182

-

100,000

200,000

300,000

2005 2006 2007 2008

6.1.5 Liquidity Risk

The acquisition of deposits and other funds is a necessary condition for the expansion of loans and investments beyond the amount permitted by the use of equity only. Maintaining adequate liquidity is a key constraint on the bank's profit-making capacity.

A Bank always has to maintain liquid money for meet up their customer obligation.

Though Bank is a service company, and most of the dealing related with people and

money so management should reserve enough liquid money for emergency customer

requirement.

C as h R atio

16.78% 16.99% 17.76%

10.27%

0.00%5.00%

10.00%15.00%20.00%

2005 2006 2007 2008

Cash ratio shows the liquidity position of the bank. The more percentage of ratio the

less liquidation of the company.

Inves tment to depos it ratio

86.36%86.89%

85.77%

87.13%

85.00%85.50%86.00%86.50%87.00%87.50%

2005 2006 2007 2008

2005 2006 2007 2008Cash ratio 16.78% 16.99% 17.76% 10.27%Investment to deposit ratio (%) 86.36 86.89 85.77 87.13

Place of Business73%

6% 3%9% 9%

0%10%20%30%40%50%60%70%80%

Place Name

%

In 2008, cash ratio of NBL is 10.27%. And in 2005 it was 22.68%. For decreasing the

result of ratio shows the good liquidity of the company.

Investment Deposit also show the company’s cash position. The result of this ratio

shows that, MBL invest more than 85% from their deposit.

3.4

Scenario of

SMEs Division in NBL:

3.4.1 Places of Business that SME Division in NBL providing facilities:

Table04: Table04:place of clientsBusiness

Figure26 (source survey)

Interpretation:

Mainly NBL is providing SME Finance facilities to those businesses which are

located in Dhaka, Narayangonj, Gazipur, Savar, Norshindhi and Chittagong. Through

out the survey I have found that they mainly provide finance to those businesses in

Dhaka city.

3.4.2 Age limit of the SMEs clients:

Table 05: Age Limits of Clients

Place Percentage Dhaka 73%Narayangonj 6%

Place Percentage Dhaka 73%Narayangonj 6%Norsindhi 3%Savar 9%Gazipur 9%

Age Limits Percentage21-30 7%31-40 60%41-50 23%51-Above 10%

Figure 27 (Source: survey)

Proportion of SMEs Products

57%

39%

4%

Lease Finance

Term Loan

Factoring

F orms of the bus ines s

10%

37%

53%

P roprietors hip

P artners hip

L imited C ompany


Interpretation:

From this figure I have been found that most of the SMEs clients are in the age limits

of 31-40 which represents that in Bangladesh people around 31-40 involve in various

business activities.

3.4.3 Forms of Business that SME Division in NBL providing facilities:

Forms PercentageProprietorship 53%Partnership 10%Private limited Company

37%

Table 06: Forms of Business

Interpretation:

From this figure, it can be said that SME Division in NBL provides finance mostly

proprietorship business which is 53% of total clients, then partnership which are 37%

and 10% is partnership.

3.4.4 Scenario of SME’s Products in NBL

Facility No. of ProjectsDisbursement

AmountPercentage

Lease Finance 125 153,318,000.00 57%

Term Loan & Time Loan

41 103,773,312.00 39%

Factoring 02 11,125,230.00 4%Total 168 268,216,542 100%

Table 07: SME Products in NBL

Figure 29(Source: survey)

Interpretation:

Lease Finance: Lease finance is a popular financial facility among small and medium

enterprise. SME authority gives lease finance to procure machineries, generator,

delivery van, private car for purpose etc. According to the chart, 57% of total

investment has been disbursed as lease finance. The number of projects of lease

finance is 125 among 168 projects. Apparently, SME authority is used to providing

lease facility in a larger scale. Here, any security is not required because NBL keeps

the ownership of the leased asset. And the client takes insurance policy covering all

risks. In case of car and delivery van, the registration is held in the name of NBL. At

the end of the maturity,NBL transfers ownership of the leased asset to the client.

Term & Time Loan: Basically term loans are given to various small and medium

enterprises to meet working capital requirement. Often enterprise needs money to

purchase raw material, construction of factory or office building, expansion of

business, meeting various expenses etc. There are three types of term loan in the SME

division, short term, medium term and long term. Maturity 1-2 years is short term, 3-4

years is mid term and 5 years is considered as long term. According to the chart, 39%

of total investment has been given as term loan and the number of term loan projects

is 41 among total 168 projects. It is necessary to mention that SME authority demands

security to give term loan. They ask the client to mortgage his land, building or

apartment as security. Without mortgage SME division of NBL does not provide any

term loan.

Factoring: NBL is providing factoring facilities through SME Division since 2008.

At present two clients namely Spirited Associates Ltd. And Electrocom Ideas &

Technologies Ltd are enjoying this facility. Factoring services are also being provided

Purpose of the Facility

0% 0%

38%

15%

47%

0%5%

10%15%20%25%30%35%40%45%50%

Pupose

%


by other NBFIs like IDLC, ULC, Lanka Bangla Finance Company etc. Comparison of

interest rate and other charges among NBL, ULC & IDLC is given below:

Company Name Interest Rate Service Charge (on bill amount)

VAT(on service charge)

NBL 18% 0.5% 15%ULC 15%-16% 0.25%-0.3% NillIDLC 14.5%-15.5% 0.25%-0.40% Nill

Table 08: Comparison of Factoring Charges between NBL, IDLC & ULC (Source: Internal)

To cope up with the current competition and also to grab more market share in

factoring services, NBL needs to restructurise its existing charges of factoring.

To cope up with the current competition and also to grab more market share in

factoring services, NBL needs to restructurise its existing charges of factoring.

3.4.5 Purpose of having SME facilities from NBL:

Purpose PercentageTo manage your working capital 38%To buy transports/ machineries for your business 47%To expand your business 0%To start up a new business 0%Others 15%

Table 09: Purposes of having SME facilities

Interpretation: Most of the clients come

to have finance to buy vehicles or

machineries and to manage working

capital.

3.4.6 Nature of Business that SME Division in NBL provides Finance:

Nature of Business Percentagea. Light engineering 0%


b. Plastic Manufacturing 3%c. Food processing 3%d. Garments & Textile 7%e. Knitting & Embroidery 11%f. Garments Accessories 10%g. Handicrafts 0%h. Printing & Packaging 18%i. Poultry 3%j. Clinic & Diagnostic center 3%k. Hotel & Restaurant 7%l. Educational institution 0%m. Others 35%

Interpretation:

Basically SMESs in NBL provides finance Light engineering, Handicrafts, Plastic

Manufacturer, Printing & Packaging, Food processing, Poultry, Garments & Textile,

Clinic & Diagnostic center, Knitting & Embroidery, Hotel & Restaurant, Garments

Accessories, Educational institution and many more like distributors, shipping,

courier services etc. According to my survey I have found that SMEs in NBL prefers

providing finance to printing and packaging industries.

3.4.7 Years of Startup of the Clients Business:

Nature of bus ines s a0%

b3%

c3% d

7%

e11%

f10%

g0%

h18%i

3%

j3%

k7%

l0%

m35%

a

b

c

d

e

f

g

h

i

j

k

l

m



Table 11: Startup year of Clients Business

Interpretation: From this figure it is clear that SME Division in NBL provides

finance to those businesses which has experience of business for at least 2 years. But

it gives importance to those businesses which had experience of business for last 5

years.

3.4.8 Total Revenue (Yearly) of the Client’s Business:

Total revenue (BDT Lac)

Percentage

4-23 32%24-53 18%54-73 11%74-93 4%94-113 14%114-500 21%

Table 12: Total Yearly Revenue of Clients Business

Interpretation:

32% clients of the total number of clients have revenue between 4-23 lac which shows

that to get finance from SME in NBL you must have 4 lac revenue yearly.

3.4.9 Total Asset (Excluding lands & buildings) of the Business:

Asset Value(BDT)

Percentage

2-61 lacs 56%62-121 lacs 20%

122-181 lacs 7%

182-241 lacs 7%

242-300 lacs 10%

Years of Startup

Percentage

1991-1995 14%1996-2000 10%2001-2005 48%2006-2008 28%



Table 13: Total Assets Value of Clients

Interpretation:

As the figure shows that the asset value of SMEs in NBL clients are minimum Tk. 2

lac and maximum 3 corers. So, for being a SMEs client in NBL one must have at least

asset valuing 2 lac Tk.

3.4.10 Number of Employees in Clients Business:

Table 14: Number of Employees in Clients Business

Interpretation: To being the client of SMEs you must have at least 5 employees in

your organization. In NBL most organizations have 51-750 employees. The survey

represent that most clients of SMEs in NBL are medium enterprises.

3.4.11 Clients having Loan from any other organization:

Table 15: Loans from other Organizations

Number of

Employees

Percentage

5-25 20%

26-50 10%51-Above 70%

Any other loan from other organization

Percentage

Yes 37%No 63%

20%10%

70%

0%

10%

20%

30%

40%

50%60%

70%

%

5-25 26-50 51-Above

Number of E mployees

Number of E mployes s In C lients B us ines s

Figure 36 (Source: survey)Interpretation:

Most of the clients of SMEs in NBL do not have any other loan from other

organization.

3.4.12 Clients having any other Sources of Income:

Table 16: Other Sources of Income

Type of Income source of the Client:

Other sourceof income

Percentage

Yes 37%

No 16%

Figure 24


Figure 24


Table 17: Type of Sources of Income

Interpretation:

Most of the clients of

SMEs in NBL have other

sources of income. Their

income source is mainly

from service.

3.4.13 Reasons of having finance from SME in NBL:

PrioritiesReasons 1 2 3 4 5

Friendly & fair environment 1 3 7 19 0

Simple & quick processing 17 8 5 0 0

Continuous service 0 10 12 8 0Flexible terms &

conditions13 11 4 2 0

If others please mention 0 0 0 0 30

Table 18: Reasons of having loan from SMEs in NBL

Type of IncomeSource

Percentage

Business 45%Service 55%

1 1

17

0

13

23

8

1011

3

7

5

12

4 4

19

0

8

2

5

0 0 0 00

2

4

6

8

10

12

14

16

18

20

1 2 3 4 5

Why NBL

Reasons Friendly & fair environment Simple & quick processing

Continuous service Flexible terms & conditions

Interpretation:

Most of SMEs clients in NBL came here because of the simple & quick processing

and flexible terms & conditions of loan.

3.4.14 Ranking between NBL, IDLC, ULC, BRAC Bank & Eastern Bank according to their SME Service:

Priorities Name of the Organizations 1 2 3 4 5NBL 26 4 0 0 0IDLC 1 7 16 3 3ULC 2 9 6 10 3BRAC Bank 1 10 5 12 2Eastern Bank Ltd. 0 0 2 6 22

Table 19: Ranking between NBL, IDLC, ULC, BRAC Bank, Eastern Bank

Interpretation: 26% of the total ranked SMEs of NBL at number 1. Those who are

new with NBL they prefer it as number 2. According to the survey NBL is in 1 st

position.

0

26

0

10

0

16

0

10

0

12

22

0

5

10

15

20

25

30

%

1 2 3 4 5 6

NBL,ulc,Eastern BankLtd,BRAC Bank

Ranking between the following organization

Series1

Series2

Series3

BRAC Bank 2nd, IDLC 3rd, ULC 4th and Eastern Bank is in 5th position

3.5 Recovery Performance of SMEs in IIDFC

Although the company selects its clients very carefully, but some of them are not

regular in their payments. As a result the monthly overdue occur and recovery rate

decreases. Recover rate fluctuates month to month because some clients fail to pay

monthly rentals on time. The recovery rate stays below 100% because of two reasons,

these are:

Overdue

Overdue rentals directly reflect on monthly financial report NBL faces overdue when

there is insufficient fund in the clients account. Before avail lease/loan facility the

Lessee/borrower provides required number of post-dated cheques to the lessor/lender.

In due date the account department place the cheque to designated bank and transfer

the amount from client’s (Lessee/borrower) account to NBL (Lessor/lender) account.

But some time because of insufficient fund the rentals are not collected or transferred

to lessor’s/borrower’s account. Due amounts sometime collected consecutive month.

Default

When the lessor/lender is sure that the lessee/borrower will not pay the overdue as

well as future rentals that is called default.NBL faced 3 (Three) default case till today.

At present NBL is taking legal actions against the lessee/borrower. Some agreements

are predicted as default in near future.

When clients who have taken loan show reluctance to repay their monthly

installments, recovery team of credit administration department follow them up in

different ways by:

Writing letter

Calling over the telephone or mobile phone

Visiting clients’ office or home

Engaging recovery agent

Sending legal notice

Writing letter and calling over phone to the clients are frequently done by the

monitoring department. If the clients can not be reached over phone, monitoring

department send someone to visit the client’s office or home. By informing the clients

about the current status of their account, this department often writes letter to them.

But those clients who have doubtful (12-17 nos. over due) and bad loss (more than 17

nos. over due) account are pursued by Managing Director himself with the help of

legal advisor. But very fortunately NBL does not have any client who has doubtful

and bad loss account. In case of Standard (1-2 no. Overdue), SMA (3-5 no. Overdue)

and Substandard (6-11 no. Overdue) if the clients intend to come in to a mutual

understanding and again want to reschedule agreement, the monitoring team of the

institution is flexible enough to settle the overdue account of those clients without

trying to make any hassle.

3.5.1 Reasons for Overdue and Default

If the lessee/borrower fails to pay the monthly rentals or fully fail to repay all dues to

the lessor/lender, the lessor/lender can claim the assets. But most of the time

lessor/lender prefer and asked for monthly rentals rather than the leased/loan assets.

This psychology leads to lower recovery rate.

Although NBL is very selective about their clients, but the organization does not

achieved 100% recovery rate because of monthly overdue payments. There are

different reasons for any leasing company fail to achieve 100% recovery rate.

The reasons are mentioned below:

Change in Local & Foreign Policy

Poor Sector’s Performance

Poor Performance in Business

Political Instability

Insufficient Fund

Client’s Relation with the Organization

Clients Unwillingness

3.5.1.1 Change in Local & Foreign Policy

Bangladesh has trade relationship with other foreign countries. Some major

businesses are directly related with outside world. Foreign policies play a direct role

deciding the performance of a company trading doing business with that particular

country. Policies taken by a foreign country, which will not favor trade; will surely

hinder the financial performance of that company which will result in not paying the

rentals. Local policies like taxes, Interest rate etc. affect the business in the same way.

Readymade Garments would be the precise example here. Withdrawal of quota, quota

for the other countries, has already affected the RMG sector. Withdraw of

government’s incentive to the textile industries has also hindered the expansion of the

industry. As the SME Division of NBL is providing a large amount of lease facilities

in Textile and RMG industries any regulation change or other undesirable policies

directly influence the recovery rate.

3.5.1.6 Client’s Relation with the OrganizationSome clients acquired because they have strong reference and have strong relation

with the top management. In this cases some clients does not have fully sound

position in the market and in future they fail to pay the rentals in time.

3.5.1.7 Clients Unwillingness

The unwillingness to repay is another reason for declining recovery rate. Some clients

do not pay their monthly rentals until the lessor reminds them. This is the notion of

some people and this is one of the major obstacles in recovery.

3.5.2 Yearly Recovery Performance SMEs in NBL:

3.5.2.1 Lease Finance

Lease finance is one of the major products of SME. Past 5 years’ data of recovery

from lease finance shows that year-to-year fluctuation of recovery is very little and

recovery rate is satisfactory in the past five years. From 2003 to 2004, the recovery

rate decreased from 88% to 86%. Again, from 2005 to 2006, the recovery rate

increased from 86% to 93%. But from 2007 to 2008, the recovery rate has started to

decrease. In 2006 the recovery rate has significantly decreased from 93% to 81%. So

the 2006 and 2007 is the worst year of recovery from lease finance in the history of

the past five years. Election, political instability, clients’ reluctance and the transition

period of management may be the reasons of this dissatisfactory performance of

recovery in the 2007 and 2008. SME department always try hard to recover the

overdue amount. We can see the trend of recovery rate of past five years through the

following table and graph.

Yearly Recovery Rate Lease FinanceYear Opening

Receivable (Taka)

A.

Accrual Receivable

(Taka)B.

Accrual + Opening

Receivable (Taka)

C=A.+B.

Closing Receivable

(Taka)D

Recovery (Taka)E =C-D

Recovery Rate

(E/C)*100

2007 29016450 206693107 235709557 43837752 191871805 81%2008 43837752 293469691 337307443 64116090 273191353 81%

Table 20: Yearly Recovery Rate of Lease Finance (Source: internal)

3.5.2.2 Term Finance:

Term Loan is the second major products of SMEs. Past 5 year’s data of recovery

from term finance shows that year-to-year fluctuation of recovery is high and

recovery rate is not satisfactory like lease finance. It is comprehensible that in 2004

the yearly recovery rate was significantly high rather than the other four years. In

2005 it decreased from 95% to 77%. After 2005 the recovery rate of term loan

gradually started to decrease. In 2007 the recovery rate has significantly decreased

from 69% to 43%. If we do comparative analysis between lease and term finance, it is

noticeable that recovery from lease finance is far better than that of term finance. I

have found a significant reason behind it. Whenever a customer takes loan under lease

operation, he or she is not the owner of the asset. So the customer always tries to pay

the monthly rental regularly lest his or her assets should be repossessed by the

company. But the customer who takes term loan by giving mortgage does not have

this fear. That is why; repayment performance of the clients of the term loan is less

satisfactory than that of the clients of term loan. We can see the trend of recovery rate

of past four years through the following table and graph.

Yearly Recovery Rate from Term Loan

Year Opening

Receivable

Accrual (Receivable

for the Relevant

Year)

Opening Receivable+

Accrual Recovery

Closing Receivable

Recovery Rate

2007 25523643 148886487 174410130 74581074 99829056 43%2008 99829056 313571980 413401036 277202061 136198975 67%

3.6 Sector-wise Recovery of lease finance and term loan

In some sectors the leasing firms are achieving 100% recovery rate but some sectors

are not regular in their payment. This reason the overall rate decreases. Total recovery

rate does not provide any clear scenario of the organization. To analyze the recovery

management sector-wise information is more reliable. Following table display the

sector-wise recovery rate from year 2007 to year 2008 of NBL.

Sectors2007(%)

2008(%)

1 Services 99.84 100

2 Distribution 99.87 100

3 Processed food & allied 99.80 100

Table 21: Yearly Recovery Rate from Term Loan

_ (Source: internal)

4 Pharmaceuticals 100 100

5 Individual 94.26 98.66

6 Textile 98.78 98.77

7 Readymade Garments N/A N/A

8 Engineering & Workshop 97.25 98.39

9 Publishing & Newspaper 93.91 100

10 Cement 27.41 0

11 Medical & Diagnostics 100 100

12 Other 74.92 100

13 Toiletries 100 N/A

14 Poultry 100 N/A

15 Education 98.44 N/A

Table 22: Sector-wise Annual Recovery Rate of NBL

(Source: internal)

Above table shows that some sectors like Marine Transport, Process Food and Allied,

Pharmaceuticals, Medical and Diagnostics and Poultry sectors are very much regular

in their payments. End of each year above mentioned sectors’ recovery rate was

around 100% to 99.50%.

Moderate rated sectors are Road Transport, Services, Textile, Individual and

Education. Annual recovery rates of these sectors stay between below 100% to 90%.

Very volatile sectors are those have recovery rate in below 90%. Readymade

Garments, Engineering and Workshop, Publishing and Newspaper, Cement, Toiletries

and others recovery reached to 80%. Some of above-mentioned sectors often achieved

100% recovery rate also. In Cement the rate is lowest at 44%.

04. Findings & Recommendations

After analyzing all the information some facts are exposed and some effective

recommendations are proposed.

4.1 Findings

Although NBL and other selected organizations are engage in lease financing, but

there is also some dissimilarities in management activities. The findings from the

analysis are discussed below:

IPDC is in the leasing business from 1981 and ULC is in from 1989. Compare to

them NBL is a popular company and have less experience in Bangladesh market.

Besides leasing IPDC and ULC offer other products and services in large scale the

market. NBL has Merchant Banking and Money Market Operation but in very big

scale.

The net profit of NBL in 2008 was 12% higher than the previous year and the

growth rate was 17%. The growth of net profit of ULC was 20%.

The yearly rate of disbursement NBL is higher than ULC. In 2000 the rate was

53.76% and 7.23% respectively. In 2001 NBL take a giant leap, which gave the

company to capture a strong market position. In 2002 the rate of disbursement was

27% for NBL and 19% for ULC.

All 3 (three) organizations provide lease facilities to different sectors of the

country. As the titles do not match with each other it is difficult to identify all the

sectors where they are investing.

IPDC invest in Agro Based Projects and in Infrastructure Development, which are

absent in NBL’s portfolio.

The amount of total leased asset of NBL is 50% less than ULC. The reason is

ULC is in the business for 12 years where as NBL is in for 9 years.

The overall recovery rate does not reflect the actual scenario as some sectors

achieved the 100% recovery rate.

The total recovery rate close to each other. NBL’s recovery rate range from 93%

to 89%, where as ULC has ranged 91% to 92% and IPDC has ranged from 92% to

95%.

Sector-wise recovery helps to identify the poor performance and also indicate the

economic condition of the country.

Sector-wise recovery rate can focus on different sectors and identify the position

in the economy by indicating the nature of payments.

IPDC has separate recovery cell lead by General Manager (GM) and the rate of

recovery is the highest among 3 (three) organizations.

ULC has a recovery division under Marketing Department and the recovery rate is

not around 91% but the rate is almost stable for last 3 (three) years.

NBL does not have any recovery division or cell and the recovery rate is

fluctuating from 93% to 89%.

As NBL does not have separate recovery division or cell, for that it is very lengthy

process to take actions to collect overdue. And the problems arise that who will

take the responsibility to make liaison between the client and the company.

By recovery division management can held responsible the designated person for

un-recovered payments.

Recovery cell or division can provide extra effort to the un-recovered payments

and take necessary actions promptly to collect the dues.

4.2 Recommendations

By analyzing 6 (six) different Non-banking Financial Institutions some

recommendations are point out to make the NBL’s recovery management system

effective. The recommendations are stated below:

Separate recovery department or cell is essential for increase the recovery rate.

The recovery division must involve a person from Marketing Department and one

from Accounting Department. The Manager of Internal Control Department.

Should supervise the division. The division must report to top management

regularly.

Beside CIB and Bankers Report,NBL should collect report on payment nature

from the client’s suppliers and other who are directly related with clients business.

Industry analysis should be done during the lease processing. NBL must collect

past data related to different industry and analyze the present situation as well as

predict the future. Because most of lease are long term (2-5 Years).

Although the clients are regular in their payment, a continuous close monitoring

must be carrying on to eliminate the default risk.

Every month before payment date a person from recovery division must inform

the clients by writing or through phone or e-mail.

If the client fails to pay 3 (three) consecutive payments, the recovery cell should

inform the top management to take corrective actions.

05. Conclusion

Financial Bank Institutions are a new dimension for Bangladesh’s economic growth.

Efficient services from these companies can push up the industrial growth. Lease

financing provides the industries a scope to invest without acquiring any liability.

As all NBFI is providing SME facility by borrowing fund from Commercial banks,

because of that the cost of lease facility is higher than direct borrowing. Only from

this reason many firms are not step forward to avail lease facilities, event though all

other manner it is convenient. In this situation some NBFI enjoys the low cost funding

from Commercial Bank, Bangladesh Bank and providing relatively cheaper lease

facilities to the clients.

Lease financing is a very enormous step in industrial growth. Government support

and proper knowledge and information will help the citizens to avail lease facilities

from these established financial companies. In developed countries the lease financing

has a major contribution in the industrial as well as economic growth. So for the

growth of the country NBFI can play a vital role in the future

References

Websites:

1. Anonymous; http://www.iidfc.com/; February 15, 2009

2. Anonymous;http://papers.ssrn.com/sol3/papers.cfm?abstract_id=928139;

February 17, 2009

3. Anonymous; http://www.dsebd.org/ipo/NBL.pdf; February 20,2009

4. Anonymous; http://www.bangladesh-bank.org/, March 01, 2009

5. Anonymous; http://www.ulc.com.bd/; April 05,2009

6. Anonymous; http://www.idlc.com/; April 05, 2009

Report:

1. Annual Reports of NBLLtd (2005, 2006, 2007, 2008)

2. Annual Reports of IDLC Ltd (2006, 2008)

Appendix: A

Questionnaire

http://www.idlc.com/

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=928139

Dear Sir / Madam:

I am a student of University of Liberal Arts Bangladesh (ULAB), assigned to do my

internship project report on SME Finance in NBL.

To help me getting more information, I need to know more about you and your

opinions about the NBL's SME Division. I would appreciate it if you would complete

this questionnaire. All the information will be treated as completely confidential and

used for academic purpose only; it will not be possible for anyone to identify the

information you give me when I write up the project report.

Thank you.

Kamrun Naher

(Intern)

Name & Designation : .................................................................................

Name of the Business : .................................................................................

Place of the business : .................................................................................

Age : A. 20-30

B. 31-40

C. 41-50

D. 50 and above.

Forms of the business : A. Proprietorship

B. Partnership

C. Limited Company

D. 50 and above.

(1) Which facility you are / going to enjoy from NBL?

a. Direct Lease Finance.

b. Sale or Lease Back.

c. Factoring

d. Term Loan

e. Time Loan

(2) For what purpose you need lease finance/ term loan?

a. To manage your working capital

b. To buy transports / machineries for your business

c. To expand your business

d. To start up a new business

e. If others, please mention .......................................................................

(3) Types of business for which you need lease finance / term loan?

a. Light engineering g. Handicraftsb. Plastic Manufacturing h. Printing & Packagingc. Food processing i. Poultryd. Garments & Textile j. Clinic & Diagnostic centere. Knitting & Embroidery k. Hotel & Restaurantf. Garments Accessories l. Educational Institution

(4) When did you start your business? (Mention the year only)..................................

(5)Annual Revenue of your business ...........................................................................

(6) Total asset value of your business excluding land and building .............................

(7) Number of employees of your organization ............................................................

(8) Do you have any other loan from other organization?Yes _______ No ______

If yes mention the name of the organization only ...........................................................

(9) Do you have other source of income?Yes _______ No ______

If yes mention the source (name of the organization and your designation) ...............................................................................................................................................

(10) Why NBL? (Please prioritize your answer)

PRIORITY

a. Friendly & fair environment .................

b. Simple & quick processing .................

c. Continuous service ................

d. Flexible terms & conditions .................

e. If others please mention ......................................................... .................

(11) Please rank the following organizations from 1 to 5 according to your priority

(1 = best, 2 = good, 3=ok, 4=bad, 5=worst)

a. NBL

b. IDLC

c. ULC

d. BRAC Bank Ltd

e. Eastern Bank Ltd.

(12) If NBL is your priority no. 1 then please go to question no. 13. If NBL is not

your priority no. 1 then please mention the reason for choosing NBL for SME loan.

........................................................................................................................................

(13) What more benefits for you went from SME Division in NBL?

a. .............................................................

b. .............................................................

c. .............................................................

d. .............................................................

Demographic Characteristics of SME Customers of SME Financing in NBL

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