Sme Financing of FSIBL

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.

Prepared By- Md. Alamgir 1

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 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 Bangladesh today financial secto

r is one of the most established areas in the macroeconomic sector.

Economy and finance is 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 in

formation from entrepreneur.

I had to complete this report within a very short span of time that wa

s 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-

8 The Islamic banks, on the other hand, give greater


worthiness of the clients. 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 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

7. Share Division &Information Technology Division

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:


VP

Principal Officer

Senior Officer

Officer Junior Officer

Assistant Officer

Trainee Assistant

Officer

AVP

1. Sector wise balance position

2. Maturity balance sheet

3. Foreign currency statement

4. Branch Trail Balance

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 Transfer


b. 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 excluding land and building or employing up to 50

worker.

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

10,00,00,000 excluding land and building or employing up to 50

worker.

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

TK. 2,00,00,000 excluding land and building or employing up to 150

worker.

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. Fast and quality service.

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%


5.8 Balance 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 1.65 0.38 1.37 1.32 1.34


Assets (after tax)

3 Return on Average Equity (after tax)

25.12 5.54 21.39 28.25 29.46

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

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.


Sme Financing of FSIBL

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