financing of small and medium enterprises by idlc finance limited (agrabad branch)

7/26/2019 Financing of Small and Medium Enterprises by IDLC Finance Limited (Agrabad Branch)

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Financing of Small and Medium Enterprises by IDLC Finance Limited: Agrabad Branch

I

Project Report on

FINANCING OF SMALL AND MEDIUM

ENTERPRISEs BY IDLC FINANCE LIMITED:

AGRABAD BRANCH

A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD

OF THE DEGREE OF MASTERS IN BUSINESS

ADMINISTRATION, CENTRE FOR BUSINESS

ADMINISTRATION, UNIVERSITY OF CHITTAGONG

Supervised by:

Dr. Ranjit Kumar Chowdhury

Professor, Department of Accounting

University of Chittagong

Prepared by:

Md. Sayful Islam

Centre for Business Administration

Evening MBA ProgramID: 1303064

3rd

Batch, 4thSemester (Finance & Banking)

DECEMBER, 2015


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II

Acknowledgements

All praise goes to ALLAH, the most benevolent, gracious and merciful, who has

made me able to accomplish the tedious job and write up this project report. The

completion of this study would have been impossible without the material andmoral support from various people. It is my obligation therefore to extend my

gratitude to them. First of all I thank the Almighty ALLAH for giving me good

health to accomplish that work.

I am greatly indebted to Dr. Ranjit Kumar Chowdhury, Professor, Department

of Accounting, University of Chittagong, for his effective supervision,

dedication, availability and professional advice. He guided me through the entire

course. I extend my gratitude to my lecturers who taught me in the MBA

programme, therefore enriching my project report with knowledge.

I would like to thank Mr. Musfequs Mahmood, Assistant Manager, Operations

Division, IDLC Finance Limited, Agrabad Branch, Chittagong, for his

guidelines and support. I would like to thank the employees of IDLC Finance

Limited, Agrabad Branch who were my respondents and deserve my

appreciation for their support and willingness for providing the required

information during my study.

My sincere thanks also goes to all Employees and Borrowers who provided theanswer of the questionnaire.


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III

Table of Contents

Acknowledgements II

Table of Contents III-IV

List of Tables VList of Figures VI

List of Abbreviations VI

Abstract VII

Chapter 1: Introduction

1.0 Introduction: ------------------------------------------------------------------------------- 2

1.1 Statement Of The Problem:-------------------------------------------------------------- 2

1.2 Objectives of the Study: ------------------------------------------------------------------ 2

1.3 Literature Review: ------------------------------------------------------------------------ 3

1.4 Methodology of the Study: --------------------------------------------------------------- 41.4.1 The population of the study: ---------------------------------------------------------------------- 4

1.4.2 The Samples of the study: ------------------------------------------------------------------------ 4

1.4.3 Scope of the study: --------------------------------------------------------------------------------- 4

1.5 Sources of Data: ---------------------------------------------------------------------------- 4

1.6 Data Analysis and interpretation: ------------------------------------------------------ 4

1.7 Limitations of the study: ----------------------------------------------------------------- 4

Chapter 2: Small and Medium Enterprises in Bangladesh

2.0 Small and Medium Enterprises: -------------------------------------------------------- 72.1 Definition of SME: ------------------------------------------------------------------------- 7

2.1.1 Previous Definition of SME by Industrial Policy 2005: ------------------------------------- 7

2.1.2 New Definition of SME by Industrial Policy 2010: ------------------------------------------ 7

2.1.3 New Definition of SME by Bangladesh Bank: ------------------------------------------------ 8

2.2 Major Sectors of SME in Bangladesh: ------------------------------------------------- 9

2.3 Importance of SMEs --------------------------------------------------------------------- 11

2.4 Industrial Policy 2010 -------------------------------------------------------------------- 122.4.1 Vision towards SME ------------------------------------------------------------------------------ 12

2.4.2 Objectives towards SME ------------------------------------------------------------------------- 13

2.4.3 Strategy towards SME ---------------------------------------------------------------------------- 13

2.4.4 Promoting SME industries ----------------------------------------------------------------------- 14

2.4.5 Policy of the Government ------------------------------------------------------------------------ 14

2.4.6 Objectives of the SME Policy: ------------------------------------------------------------------ 14

2.5 Bangladesh Bank SME Credit Policies and Programmes ------------------------- 152.5.1 Target for SME Credit: --------------------------------------------------------------------------- 15

2.5.2 Financing SME Sector: --------------------------------------------------------------------------- 16

2.5.3 Priority to the Small Entrepreneurs: ------------------------------------------------------------ 16

2.5.4 Eligibility of the Borrower: ---------------------------------------------------------------------- 16

2.5.5. Interest Rate on SME Credit: ------------------------------------------------------------------- 16

2.5.6 Training Programmes: ---------------------------------------------------------------------------- 17

2.5.7 Monitoring of SME Credit: ---------------------------------------------------------------------- 172.5.8 SME Service Centre: ----------------------------------------------------------------------------- 17


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IV

Chapter 3: IDLC Finance Limited: An Overview

3.0 History of IDLC Finance Limited ----------------------------------------------------- 203.0.1 Major events --------------------------------------------------------------------------------------- 20

3.1 Mission Vision and values: -------------------------------------------------------------- 213.1.0 Vision ----------------------------------------------------------------------------------------------- 21

3.1.1 Mission --------------------------------------------------------------------------------------------- 213.1.2 Strategic objectives ------------------------------------------------------------------------------- 21

3.2 Shareholding Structure: ----------------------------------------------------------------- 22

3.3 IDLC Subsidiaries: ----------------------------------------------------------------------- 223.3.1 IDLC Securities Limited: ------------------------------------------------------------------------ 22

3.3.2 IDLC Investments Limited: --------------------------------------------------------------------- 22

3.4 Products and Services -------------------------------------------------------------------- 223.4.1 Corporate Division -------------------------------------------------------------------------------- 22

3.4.2 Consumer Division ------------------------------------------------------------------------------- 23

3.4.3 SME Division -------------------------------------------------------------------------------------- 24

3.4.4 Capital Market Division -------------------------------------------------------------------------- 29

Chapter 4: Analysis of SME financing in Bangladesh

4.1 GDP and GDP Growth rate in manufacturing sectors of Bangladesh ---------- 31

4.2 Refinancing of SME in Bangladesh: -------------------------------------------------- 33

Chapter 5: Analysis of SME financing of IDLC Finance Limited

5.1 Lending Procedure: ---------------------------------------------------------------------- 36

5.2 SME Loan Disbursements of IDLC Finance Limited ------------------------------ 36

5.3 SME Loan Portfolio of IDLC Finance Limited ------------------------------------- 375.4 SME Division Active Customer Base of IDLC finance limited: ------------------ 37

5.5 SME Loan Status of the IDLC Agrabad Branch ----------------------------------- 38

5.6 SME loan quarter wise disbursement of last four years: -------------------------- 39

5.7 Interest Rate in SME --------------------------------------------------------------------- 40

5.8 Tenor of SME loans ---------------------------------------------------------------------- 41

5.9 Fees and Charges of SME loans -------------------------------------------------------- 43

5.10 Security policy --------------------------------------------------------------------------- 45

5.11 Restrictive Conditions ------------------------------------------------------------------ 46

5.12 Follow up and Inspection -------------------------------------------------------------- 46

5.13 behaviors ---------------------------------------------------------------------------------- 46

Chapter 6: Findings, Recommendation and Conclusion

6.1 Summery of Findings: ------------------------------------------------------------------- 49

6.2Recommendations ------------------------------------------------------------------------ 50

6.3 Conclusion: -------------------------------------------------------------------------------- 50

References: ------------------------------------------------------------------------------------- 51

Appendix A ------------------------------------------------------------------------------------- 53

Appendix B ------------------------------------------------------------------------------------- 54


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V

List of Tables

Name of the Table Page No.

Table 01: Criteria of Small business enterprise 08

Table 02: Criteria of Medium business enterprise 08

Table 03: Major Sectors of SME in Bangladesh 09

Table 04: Target of SME credit Disbursements 16

Table 05: GDP and GDP Growth rate in manufacturing sectors of Bangladesh 31

Table 06: Sub-sector growth and share in GDP of industry sector Output 32

Table 07: Data of Refinancing in SME sectors (up to 2014) 34

Table 08: SME loan disbursements 36

Table 09: SME loan portfolio 37

Table 10: No. of Customer in SME 37

Table 11: SME Loan Status of IDLC Agrabad Branch 38

Table 12: Quarter wise disbursements of last four years 39

Table 13: Quarter wise Interest rate of last four years 40

Table 14: Quarter wise loan tenor of last four years 42

Table 15: Fees and Charges for SME Division 43


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VI

List of Figures

Name of the figures Page No.

Figure 01: Values of IDLC Finance Ltd. 21

Figure 02: Shareholding Structure of IDLC finance Ltd as on 31stOct,

2015

22

Figure 03: GDP growth rate comparison 31

Figure 04: GDP structures of Small and Large industries 32

Figure 05: Contribution on GDP by Small and Large industries 33

Figure 06: Year wise bar diagram of SME loan disbursements 36

Figure 07: Year wise bar diagram of SME loan portfolio 37

Figure 08: Year wise bar diagram of SME loan customers 38

Figure 09: Pie Diagram of SME Loan Status of IDLC Agrabad Branch 38

Figure 10: Bar diagram of Quarter wise disbursements of last four years 40

Figure 11: Bar diagram of Quarter wise Interest rates of last four years 41

Figure12: Bar diagram of Quarter-wise Repayment period of Loan of

last 4 years

42

List of Abbreviations

ALCO Asset Liability Management Company

DBR Debt Burden Ratio

EMI Equal Monthly Installment

FI Financial Institutions

JICA Japan International Cooperation Agency

IDLC IDLC finance Limited

NBFI Non Bank Financial Institution

NPL Non Performing Loan

SME Small and Medium Enterprises

USPA Unrealized principal Amount


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VII

Abstracts

In Bangladesh, Small and Medium Enterprises (SMEs) are already one of the main

contributors to the countrys economy. One of the obstacles in developing SMEs is the

shortage of fund. The capital structure of small scale industries is very weak. SMEscannot finance from the organized capital market.

The main purpose of that study is to examine the financial policy, procedures and

operations of IDLC finance limited towards SMEs in Bangladesh. This study has been

carried out relying on both primary and secondary data. Primary data was collected

through questionnaire from both borrowers and employees .The respondents were the

Small and Medium Entrepreneurs financed by IDLC finance limited, Agrabad Branch.

Sample size was 15 borrowers out of 350 plus borrowers. Qualitative approach and

some statistical tools were used for data analysis and interpretation. Observation

method is used in some cases to complete the paper.

The Definition of SME has been updated on the viewpoint of Asset value and

manpower employed. The Industrial policy 2010 considered Small and Medium

Enterprises as an important driver of the solution of unemployment problem of

Bangladesh. Bangladesh Banks SME credit policy is favorable to SME financing in

Bangladesh. Disbursements in SME financing is increasing day by day.

The rates of interests were high and no rebate system available to encourage the

payment of installments. Security is the main issue regarding higher interest rate. The

trend of interest rate is falling down. Processing and other fees are high in viewpoint of

SME loan borrowers. The negative restrictive conditions hampered the smooth running

of the business. The security policy above the ceiling is collateral. The repayment

period and grace period allowed under the BBs programmes were insufficient and not

determined scientifically.

SME definition has to be updated in the line of inflation of the economy so that they

can get sufficient amount of loan without security. Policy should be more and more

specific rather only guideline. Refinancing policy of Bangladesh Banks and other

donors has to be expanded as much as possible for SME financing. Reduction ofInterest rate with rebate scheme in SME financing is highly recommended. The

repayment period should be favorable to borrowers. Debt Equity ratio and margin of

security should be liberalized. The Financial Institutions and SME foundation should

render necessary technical and suggestive services.


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Chapter 1

Introduction


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1.0INTRODUCTION:

Small and Medium Enterprises (SMEs) are the vibrant part of Bangladesh economy.

Some sectors including RMG, IT, Tourism, Health care, Pharmaceuticals etc. grew

rapidly in Bangladesh during the last decade. New generations come forward to

become an entrepreneur in these fields. But financing in the Small and medium

businesses is seemed to be the problem. Small and medium entrepreneurs cannot issue

shares in the capital market. So SMEs capital rising is a remarkable issue. Most of the

bank and NBFI stayed away in that case.

Despite of having constraints relating to raw materials, power, land, marketing,

transport, technical facilities and finance etc but the contribution to our GDP is good. In

fact, the SMEs are recognized as drivers of economic growth worldwide. The most

critical limitation that small and medium scale manufacturers face is the lack of

sufficient capital to operate the business. In most of the cases businesses started

using own savings and borrowing from friends and relatives, while banking source

come after that. It is not so easy to rise fixed and working capital from financial

institutions, since banks are not so willing to provide loan of small size for high

monitoring cost. On the other hand, potential small scale entrepreneurs are also not

so much interested due to procedural hazards and requirement of long time.

1.1STATEMENT OF THE PROBLEM:

Small and Medium Enterprises are one of the vital sectors of the economy and its

contribution is huge in the overall economic development of Bangladesh. But Small

and Medium Enterprises cannot issue share in the capital market. It cannot issue

commercial paper either. So SME financing is a very reasonable topic to examine.

SME finance division of a fina institution is a place of great importance in the context

of economic development of Bangladesh. So the study of SME financing policy and

evaluation of it through any Financial Institution is very important. The core problem

of the paper lies on the fact of evaluating the SME loan operation of an Non Bank

Financial Institution.Current scenario of SME financing can be cleared to the relating

persons at a very tiny context like a branch of an NBFI. This study will be helpful for

the SME businesses, Government policy makers, Financial Institution and regulatory

bodies, and persons who are interested in this field.

1.2OBJECTIVES OF THE STUDY:

The main purpose of that study is to examine the financial policy, procedures and

operations of IDLC finance limited towards SMEs in Bangladesh. experience the

reality of the corporate life and relate it with the academic knowledge.

The specific objectives of the study are-a. To study financial policy of Bangladesh towards SMEs.


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b. To examine the Bangladesh BanksSME credit policy.

c. To study the SME financing policy of IDLC finance limited.

d. To evaluate the SME loan operation of IDLC finance limited, Agrabad Branch,

Chittagong.

e. To find out the problems and prospects of SME financing by IDLC finance

limited in Bangladesh.

f.

To suggest some recommendations for further development of SME financing

in Bangladesh.

1.3LITERATURE REVIEW:

Small and Medium Enterprise is a key driver of any countries economy and there are

huge research on SME constraints, prospects, policies, financing etc.

Ranjit Kumar Chowdhury (1985) found that the policy of SME financing is not

properly practiced by Banks and revision is required.

Ranjit & Rashid, (1996) found SMEs have been facing multifarious problems related to

raw materials, power, land, marketing, transport, technical facilities and finance in

Bangladesh.

Sarder, (2000) and Kamal, (2002) suggested that Implementation of Comprehensive

proactive policy can give the adequate and proper support to grow the SME sector.

Razzaque, (2003) found that SME faces problem with cheap imports, lack of resources

& skills, and promotional difficulties.

In 2004, Bangladesh Bank introduced a refinancing scheme to overcome the financial

constraints faced by the SMEs.

In 2006, Bangladesh Government established the SME Foundation to support SMEs.

Minto, (2006) found that most potential investors in the SME sector today are not

entrepreneurs in the real sense, in as much as they do not have an already developed

capability to decide on viable investment avenues, develop project profiles and set up

appropriate establishments for production, management and marketing. Exports will

help increase the purchasing power of the teeming millions of rural and urban poor,

using goods from the SME sector. It is thus very clear why SME development should

proceed hand in hand with micro enterprise development.

Syed Manzur Quader, (2009) found in Bangladesh, high lending rate surfaced as the

biggest constraint in the growth of SMEs. Regulatory constraints related to utility and

labor comes in second position.

Azim, (2011) suggested to accept SME as an indispensable player in growth

acceleration and poverty reduction, worthy of its great potential and commitment in therequisite overall policy formulation and execution.


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1.4METHODOLOGY OF THE STUDY:

1.4.1THE POPULATION OF THE STUDY:

The population of the study was current 365 loan borrowers of IDLC finance limited,Agrabad Branch. And the population size of the employees was 60 in Agrabad Branch

where SME population was 30 employees.

1.4.2THE SAMPLES OF THE STUDY:

The sample was taken 15 borrowers and 15 employees. Sample size in case of

borrowers is low. Time constrain was the main problem of taking proper or higher

sample. Employees sampling included SME operations and other operations

employees.

1.4.3SCOPE OF THE STUDY:

The scope of the study is limited to Agrabad Branch of IDLC finance limited and

Period of the study includes a period of 4 years from 2012-2015.

1.5SOURCES OF DATA:

Data was collected from both Primary and Secondary Sources. The Primary data was

collected from employees and SME loan borrowers of IDLC finance limited, Agrabadbranch through questionnaire. The secondary data was collected from various

publications, reports, thesis papers, journals, books, newspapers, magazines and

websites.

1.6DATA ANALYSIS AND INTERPRETATION:

Quantity & Qualitative approach is adopted for data analysis and interpretation.

Different statistical tool like mean, weighted average, forecasting trend was used to

make the data analysis meaningful. The report relied primarily on an analyticaljudgment and critical reasoning through questionnaire. Different tables and graphs were

used to make the data comparable. Observation method is used in some cases to

complete the paper.

1.7LIMITATIONS OF THE STUDY:

The study has suffered from a number of limitations

a.

Data from IDLC finance ltd is highly confidential for the outside people.


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b. It was difficult to communicate with the customers, as many of them were unable to

give me much time for interview.

c. As I have taken a sample of small size (15 out of more than350) of observations,

there may be some sampling error. It requires much longer time for proper

sampling. It is not possible to collect whole data within a short time. Timelimitation is one of the main reasons and for that more detailed study was not

possible.

d.

Non availability of data in a systematic way.

e. Prior research and publication is very rare to collect both by manually and internet.

f.

Unavailability of the reference book is another limitation.


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Chapter 2

Small and Medium

Enterprises in Bangladesh


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2.0SMALL AND MEDIUM ENTERPRISES:

Small and Medium Enterprises (SMEs) are the small scale business which are confined

with Capital investment and man power employed. The SME market in Bangladesh is

large. Small and Medium Enterprises (SMEs) make up the largest portion of the

employment base in many developing countries and, indeed, are often the foundation ofthe local private sector. The coverage of SMEs as defined by the Industrial Policy is

very broad.

2.1DEFINITION OF SME:

2.1.1PREVIOUS DEFINITION OF SMEBY INDUSTRIAL POLICY 2005:

Bangladesh Government initiated policy strategy for SME 2005 (Industrial policy

2005). The policy defines the Small and Medium enterprises as follows:

Small Enterprise:

An enterprise would be treated as small if, in current market price, the replacement cost

of plant, machinery and other parts/components, fixtures, support utility, and associated

technical services by way of capitalized costs etc. excluding land and building, were to

up to Tk. 15 million. A non manufacturing enterprise should be treated as small if it has

less than 25 workers, in full-time equivalents;

Medium Enterprise:

An enterprise would be treated as medium if, in current market price, the replacement

cost of plant, machinery and other parts/components, fixtures, support utility, and

associated technical services by way of capitalized costs etc. excluding land and

building, were to up to Tk. 100 million. A non manufacturing enterprise should be

treated as medium if it has between 25 and 100 employees, in full-t ime equivalents.1

2.1.2NEW DEFINITION OF SMEBY INDUSTRIAL POLICY 2010:

Small Industry Enterprise:In manufacturing, small industry/enterprise would be those with assets worth Tk 5 to

100 million (defined as above) and/or 25 to 99 workers. In service industry and in

business, small enterprises will be those which employ 10 to 25 and have assets

(defined as above) worth Tk 500,000 to 10 million.

Micro Industry/Enterprise:

In manufacturing, micro industry/enterprise would be those with assets worth Tk

500,000 to 5 million (defined as above) and/or 10 to 24 workers or less. In service

1Industrial policy 2005, Government of Bangladesh


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industry and in business, micro enterprises will be those which employ 10 or less

people and have assets (defined as above) worth Tk 500,000 or less.

Cottage Industry/Enterprise:

In manufacturing, cottage industry/enterprise would be those with assets worth Tk500,000 to 5 million (defined as above) and/or 10 to 24 workers or less. In service

industry and in business, cottage enterprises will be those which employ 10 or less

people and have assets (defined as above) worth Tk 500,000 or less.

Medium Industry Enterprise:

In manufacturing, medium industry/enterprise would be those with assets worth Tk 100

to 300 million (minus land and factory building, and including replacement value)

and/or 100 to 250 workers. In service industry and in business, medium enterprises will

be those which employ 50 to 100 and have assets (defined as above) worth Tk 10 to

150 million.

If a business fits into any of the criterion for a large industry, it will be considered a

large industry though its other characteristics may be that of a medium one.2

2.1.3NEW DEFINITION OF SMEBY BANGLADESH BANK:

Bangladesh Bank has reset the definitions of small and medium enterprises (SME) as

per the National Industrial Policy Order 2010. The redefinition was done for the benefit

of banks and financial institutions.

Small Industry Enterprise:Small Enterprise refers to the firm/business which is not a public limited company and

complies the following criteria:

Table 01: Criteria of Small business enterprise

No table

of figures

entries

found.

Sector Fixed asset other than land and

building (Tk)

Employed manpower

(Not above)

01 Service 50,000-50,00,000 25

02 Business 50,000-50,00,000 25

02 Industrial 50,000-1,50,00,000 50

3

2Industrial Policy 2010, Definition of SME3Small & Medium enterprise (SME) credit policy and programs of Bangladesh Bank, Article 3.1, page 6


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Medium Industry Enterprise:

Medium Enterprise refers to the establishment/firm which is not a public limited

company and complies the following criteria:

Table 02: Criteria of Medium business enterprise

Serial no. Sector Fixed asset other than land and

building (Tk)

Employed manpower

(Not above)

01 Service 50,00,000-10,00,00,000 50

02 Business 50,00,000-10,00,00,000 50

02 Industrial 1,50,00,000-20,00,00,000 150

4

2.2MAJOR SECTORS OF SMEIN BANGLADESH:

The survey also found that the industrial structure of SMEs consisted of primarily

wholesale and retail trade and repairs (40 per cent), production and sale of agricultural

goods (22 percent), services (15 percent), and manufacturing only (14 percent)5

Bangladesh Bank identifies following sector for SMEs in Bangladesh-

Table 03: Major Sectors of SME in BangladeshSL Name SL Name

01. Processing of Agro based and Agro

products

02. Agro based Activity

03. Making and Marketing of agro

instruments

04. Making of fishing boat

05. Embroidery quilt and Loom 06. Food Seeds Preservation

07. Bakery 08. Hatchery

09. Dry Fish Processing 10. Information Technology Based

Activities

11. Computer Software and ICT Products 12. Cyber Caf

13. Entertainment i.e. Documentary Film,

Cinema, making DVD

14. Forest Industries and Furniture

Building

15. Horticulture, Flower Cultivation and 16. Cold storage

4

Small & Medium enterprise (SME) credit policy and programs of Bangladesh Bank, Article 3.2, page 65Abdul Awal Mintoo, SMEs in Bangladesh,CACCI Journal, Vol. 1, 2006, p. 4


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Flower Processing

17. Construction Business 18. Hospital and Clinic

19. Hotel, Restaurant and Tourism 20. Telecommunication

21. Mobile Phone accessories 22. Printing and Packaging.

23. Renewable Energy i.e. Solar Power,

Wind Mill, Bio-gas Power generation.

24. Light Engineering Industry

25. Electronics 26. Manufacturing Iodized salt

27. Crafts 28. Therapeutic

29. Jute Products 30. Stationary Goods

31. Frozen products 32. Leather and Leather Products.

33. Cosmetics and Toiletries 34. Making Flat rice and Puffed Rice

35. Rice Mills 36. Plastic Industry37. Wholesaler and Retailer Shop 38. Drug House/ Pharmacy

39. Phone Fax 40. Local Transports

41. Cinema Hall 42. Trading

43. Pavilion Business 44. Light Engineering Workshop

45. Mobile Set and Accessories Business 46. Different Small Business

47. Agro Machinery Business 48. Fertilizer Business

49. Trading of Jute 50. Clothing and Shoe Business

51. Rod, Cement Trading 52. Hardware business

53. Cookeries Business 54. Grocer business

55. LP Gas business 56. Ware House container service

57. Commercially Tree plantation 58. Photography

59. Transport and communication 60. Laboratory

61. Jewelry 62. Ginning and belling

63. Tailoring 64. Saloon and Beauty parlor

65. Community centre 66. Diagnostic centre

67. Artificial flower making 68. Making leather frame

69. Sericulture and silk industry 70. Making Toys

71. Boutiques 72. Ice factory

73. Mushrooms 74. Computer Training school

75. Making IPS 76. Indigenous handy craft and hand loom

77. Saw mill 78. Marine Industry i.e. Making of small

boat

79. Eco friendly transport 80. Derry and fish feed


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81. Making of brick field 82. Hand loom industry

83. Candle industry 84. Curry powder

85. Biscuit Factory 86. Exportable pottery

86. Food processing 87. Automobile body building

88. Oil and Dal mill 89. Manufacturing GI pipe

90. Making cement pillar 91. Mini sugar mill

92. Making molasses 93. Making Catechu

94. Hosiery 95. Welding industry

96. Brass, Bronze industry 97. Call centre

98. Digital color lab 99. Cable operator

100. Distributing electricity of Generator 101. Small Amusement park

102. Making of Bamboo and cane products 103. Small textile industry104. Biogas Plant 105. Producing seeds through tissue culture

106. Sand and stone business 107. Wood and Steal item business

108. Paddy and rice business 109. Embroidery quilt and loom

110. Cold mats 111. Nursery

112. Making of Sweets 113. Farming fish i.e. Shrimp

114. Making Battery 115. Making of Railway slipper

116. Making sanitary item 117. Making lime from Oyster

118. Fisheries Industries 119. Tea Industries

120. Making of Charcoal 121. Cold storage for potato seeds

122. Making of Vermicelli and Chanachur 123. Tissue culture of potato

124. Solar energy plant 125. Fruit processing industry

126. Poultry and Dairy firm 127. Other important sectors

6

2.3IMPORTANCE OF SMES

It is said internationally that Small and medium Enterprises (SMEs) account for about

50 percent of GDP and 60 percent of employment. SMEs are estimated to contribute

between 25 and 35 percent of world manufactured exports. Statistics show that Japan

has achieved its industrial development heavily based on SMEs. Some of the worlds

best performing economies, notably Taiwan and Hong Kong, are heavily based on

small enterprises. In much of the developing world, the private sector economy almost

entirely comprises of SMEs. In many developed countries, more than 90% of all

6Bank, B. (2015). "Open pdf file." Sectors in SME. Retrieved 11/22/2015, 2015, from

https://www.bb.org.bd/openpdf.php.


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enterprises are within the SME sub-sector while 80% of the total industrial labor force

in Japan, 50% in Germany and 46% in USA small businesses contribute nearly 39% of

the countrys national income. In many developing countries including Bangladesh,

manpower is relatively abundant. It is, therefore, imperative that their full and effective

utilization should become a focal point of socio-economic policies. Emphasis has to belaid on SME sector to absorb the surplus manpower in these countries. In fact,

developing of SME sector has been requires less capital outlay and at the same time it

provides more employment than the large-scale sector. Second, a SME unit does not

require highly sophisticated technology.7

2.4INDUSTRIAL POLICY 2010

Balanced development of agriculture and industry as the central pillar of "an

economically strong Bangladesh" had always been a cherished dream of the Father ofthe Nation, the superhero of Independence and the greatest Bengali of all time. The

Industrial Policy has amply provided for flourishing the private sector initiatives in tune

with the flagstones, enunciated in the Article No. 13 of the Constitution of Bangladesh,

of property rights in the areas of production management and distribution systems,

including by private enterprise.

The ethos and framework of policy, especially in terms of the overall strategies and

institutions, has evolved during the post-independence years in a bid to render the

various reform efforts launched by the government more effectively and successfully.

Industrial Policy-2010 aims at achieving the Millennial Development Goals (MDGs)

and, above all, reducing unemployment and the proportion of the population afflicted

by poverty and hunger to less than a half by 2017 through the adoption of short-,

medium- and long-term programmes that help build a modern and vibrant industrial

sector. Industrial Policy-2010 also pledges that no effort will be spared in raising the

growth rate of the Gross Domestic Product (GDP) to 8% by 2013, further to 10%

between 2017 and 2021, and thereby to elevate Bangladesh to the cherished rank of

middle-income country.

2.4.1VISION TOWARDS SME

In article 2.5, describes,

Cottage, small and medium industries will be proactively championed as pillars of

decentralized employment generation, womens entrepreneurship development and

poverty alleviation. Like in urban areas, rural areas vary in terms of the magnitude and

the characteristics of the prevailing poverty. The need to dilute the population pressures

in urban areas of Bangladesh is universally accepted. There will be growing re-

emphasis on micro, small and medium enterprises in the rural areas and villages in part

7

Syed Manzur Quader, M. N. (2009). Constraints to SMEs: A Rotated Factor Analysis .A ResearchJournal of South Asian Studies, 334 -350.


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to help gradual reduction of the rural-o-urban exodus of people in search of

employment opportunities, but above all to beef up incomes in rural and village

communities.

2.4.2OBJECTIVES TOWARDS SMEIn Article 2.13, describes,

Generation of productive employment, mainstreaming women in the industrialization

process and poverty alleviation is critical underlying objectives of the Industrial Policy

2010. To these ends, consonant with the imperative that labour-intensive are more

suited than capital-intensive industries, the Policy document will spell out measures for

the promotion of cottage, small and medium industries.

2.4.3STRATEGY TOWARDS SME

In Article 2.17, describes,Private sector will spearhead the industrialization drive. As its central tactic, it will be

abetted by the productive nurturing of agro-processing and labour-intensive industries.

The government will be limited to the role of a facilitator, pushing for and creating an

enabling environment for attracting increased private investment in areas of dynamic

comparative advantage. A strategic policy will be enacted in an effort to secure

legitimate protection to national manufacturers, including the provisioning of enabling

financing policies from the illicit, cross-border trade by way of strengthening the border

security.

In Article 2.29, describes,

Development of small, medium, micro, cottage and IT industries, including IT- enabled

services, will be two cornerstones of governments industrialization strategy. The

achievement of this objective will be the organising principle governing the

implementation of the Small and Medium Enterprise (SME) policy announced by the

government. A comprehensive approach to the development of this sector will be

adopted which will entail wide-ranging fiscal incentives, preferential access to finance,

favourable trade policy, provisioning of land and site services, and the facilitation of

technological and marketing support.


In line with the provisions of the SME policy, special measures will be taken todevelop women entrepreneurship ensuring access to land and finance and business

support services.


The Industrial Statistics Wing of the Bangladesh Bureau of Statistics (BBS) and the

management information system of various regulatory agencies, such as the Board of

Investment, BEPZA, BSCIC, SME Foundation, Bangladesh Handloom Board, etc., will

be strengthened preparatory to the setting up of an information and data bank where

investors can find information regarding investment and market opportunities, sources

of machinery and technology etc. Coordination between different public agencies will


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also be fostered to obtain consistent set of information on private investment, output

and employment on an on-going basis from the web-sites of those agencies.

2.4.4PROMOTING SMEINDUSTRIES

In Article 6.1, describes,The Government will adopt a separate SME policy titled, Policy Strategies for

Development of Small & Medium Enterprises (SME) by 2010. The policy of the

Government with respect to SME will be detailed out in that policy document. Small

and cottage industry development activities under the direction of BSCIC will grow to

continue besides strengthening and accelerating the growth of micro industry.

Particular importance will be given to innovation and expansion of new idea and

technology.

2.4.5POLICY OF THE GOVERNMENTIn Article 6.2, describes,

The Government recognizes SMEs as vehicles for enhancing the standard of life,

economic growth and poverty alleviation of the common people. The primary role of

the Government shall firstly, be that of a facilitator removing policy obstacles and

neutralizing market failures and, secondly, providing necessary promotional support of

various kinds like:

(a) Government will accentuate and sustain SME activities through motivation, loan

allocation and training of the entrepreneurs.

(b) Refinancing the SME sector through the 3 (three) funds created by Bangladesh

Bank will continue.

(c) Women Entrepreneurs will be given priority in the SME sector. At least 15% of

total sanction will be held in reserve in favour of the women entrepreneurs and the

interest rate will be 10% only.

(d) Special preferences will be provided to the development of the industries dealing

with Information and Communication Technology

2.4.6OBJECTIVES OF THE SMEPOLICY:


The broad objectives of the policy shall be to:

1.

Acknowledge the importance of SMEs as an indispensable player in growth

acceleration and poverty reduction.

2.

The SME policy strategies shall be embedded, in a broad-based and integrated

manner, in the Governments Medium Term Budgetary Framework (MTBF).

3.

Encourage and induce private sector development and promote the growth of FDI,

develop a code of ethics and establish good governance, ICT-based knowledge

managements and customer supremacy in the markets;

4. Identify and establish an appropriate physical and ICT network of infrastructure

and institutional delivery mechanism that facilitate the promotion of SMEs;


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5. Re-orient the existing fiscal and regulatory framework and government support

institutions towards facilitating achievement of the goals of SME policy;

6. Nurture and partner civil-society institution(s) having credible management teams

in terms of the delivery of needed services, leadership, initiation, counseling etc;

7.

Create innovative but meritocratic arrangements so that promising and potentialsmall enterprises with desired entrepreneurial track record and/or promise can be

offered financial incentives.

8. Help implement dispute settlement procedures that proactively shield small

enterprises especially from high legal costs and insidious harassment, if any;

9. Take measures to create avenues of mobilizing debt without collaterals to match in

order to assist small enterprises in dealing with their pervasive lack of access to

finance;

10.Systematically accord precedence to small versus medium enterprises, within the

limitations of governments resources; and

11.

Harness information & communications technologies, Internet Protocol (IP)-based

infrastructure, and electronic-governance etc. in an effort to parlay regulatory

services, all kinds of useful information and mentoring inputs, with an accent on

increasing the viability of SMEs in all sectors of the economy.

12.

(a) Enhancing the opportunities for marketing of SME products

(b) Enhancing sub-contracting facilities; and

(c) Diversification of export8

2.5BANGLADESH BANK SMECREDIT POLICIES ANDPROGRAMMES

Policy stressed on SME development for higher economic growth, narrowing the gap

of income inequality and poverty alleviation.

2.5.1TARGET FOR SMECREDIT:

Article 4, A total target of SME credit worth Tk. 23,995(Twenty three thousand nine

hundred ninety five crore) has been set by the banks and financial institutions for the

first time in 2010 considering SME development as one of the important developmentagenda of the country. According to the target, SME loan shall be disbursed to the

small, medium and women entrepreneurs. In future, banks/financial institutions will

send their target to the SME and Special Programmes Department as well as branch

offices of Bangladesh Bank fixing their target of SME loan sector wise, region wise

and branch wise. The SME credit target as fixed by the banks and financial institutions

has been summarized as following

8SME Chapter of Bangladesh Government Industrial Policy 2010


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Table 04: Target of SME credit Disbursements

Serial No. Banks & Financial Institutions Target

(Tk in Crore)

1 State-owned Commercial Banks 3,897

2 Specialized Banks 6003 Private Commercial Banks 17,478

4 Foreign Commercial Banks 707

5 Non-Bank Financial Institutions 1,313

Grand Total 23,995

2.5.2FINANCING SMESECTOR:

Article 7, Access to finance is vital for SME sector development. In many instances,

entrepreneurs raise complain regarding high rate of interest. Indeed, higher rate ofinterest is a major hindrance, but availability of adequate fund is very much important.

That is why, Bangladesh Bank is committed to facilitate SME credit through refinance

window. To develop SME sector, the fund of BB, IDA and ADB is being channelized

through refinance scheme. So far a total of Tk.1,432 crore has been refinanced (up to

December 2009) to 14,122 enterprises using the revolving fund (Tk.918 crore) of BB,

IDA & ADB. Moreover, Bangladesh Bank is going to launch an extended refinance

scheme of Tk. 660 crore very soon with the newly arranged ADB fund.

2.5.3PRIORITY TO THE SMALL ENTREPRENEURS:Article 8, Among SME enterprises/entrepreneurs in our country, small entrepreneurs

have more prospects for generating employment, reducing unemployment and

achieving economic growth. Keeping this in view, at least 40% of the total

disbursement target of SME credit should be reserved for small entrepreneurs and the

rest will be allocated to medium entrepreneurs.

2.5.4ELIGIBILITY OF THE BORROWER:

Article 14, Real entrepreneurs who are directly involved in SME sector will be

considered eligible for SME credit. Generally loan defaulters will not be entitled to getnew loan.

2.5.5.INTEREST RATE ON SMECREDIT:

Article 15, Banks/Financial institutions shall ix up the interest rate on small and

medium loan for the respective sector/sub-sector. The operating cost of the banks is

high for the small entrepreneurs. Reasonably, the rate of interest in this sector is

somewhat higher. Banks are being given directions to keep the interest rate within a

tolerable limit. Bangladesh Bank is providing refinance facility to banks and financial

institutions at bank rate (at present 5%) in SME sector. The fund obtained at bank rate


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through BB refinance window should be disbursed at bank rate + not more than 5%

interest to the client level (in case of women entrepreneurs).

2.5.6TRAINING PROGRAMMES:

Article 17, The SME sector in Bangladesh faces problems both from supply side anddemand side. However, to address the supply side problems, three refinance schemes of

Bangladesh Bank are already in place. Besides, the banks/financial institutions have

fixed target for disbursement in the current year. The existing main problem of the

demand side, on the other hand, includes: marketing of products, lack of skill and

knowledge of the entrepreneurs to improve quality of products, absence of SME

information data base etc. In order to develop genuine small and medium entrepreneurs,

it is essential to arrange trade fairs of the SME products matching buyer-suppler

improving the quality of product and package design, workshop and training on

technology and design development. For the purpose, the commercial banks and

international donor agencies will be requested to arrange training on entrepreneurship

development where Bangladesh Bank will play the supporting role.

Besides, institutions like BBTA, BIBM, DCCI, FBCCI, NASCIB, BWCCI, SME

Foundation will be requested to arrange training programmes on the development of

technology, skill and marketing of SME products. The banks and financial institutions

will incorporate the implementation status of such training programmes in their annual

report.

2.5.7MONITORING OF SMECREDIT:

Article 18, Like monitoring of agricultural credit, three tier monitoring systems (BB

Head Office, BB Branch Offices and Banks) will be established in case of SME credit.

Article 18.1, Purpose of the Monitoring of SME Credit:

a. To achieve the overall target of SME loan disbursement;

b. To achieve sector wise industrialization; such as higher growth of industry and

service sector, increasing the number of women entrepreneurs and their

development, district wise employment generation and poverty reduction;

c. To provide required credit to the small entrepreneurs without any harassment;

d. Special monitoring of the banks performance in providing credit to the women

entrepreneurs;e. To ensure area approach and cluster-based credit disbursement.

f. To ensure satisfactory recovery of the disbursed credit in this sector to address

any liquidity crisis;

g. And so on.

2.5.8SMESERVICE CENTRE:

Article 22, The banks (Private and Foreign) have so far opened 210 SME service

centers to provide more facilities to SME clients. Notably, in order to involve the banks


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in financing SME and Agriculture sector, licenses for SME/Agriculture branch are

being issued instead of SME Service Centre from this year (2010)9

9Major sections of Bangladesh Bank SME Credit policies and Programmes


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Chapter 3

IDLC Finance Limited: An

Overview


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3.0HISTORY OF IDLCFINANCE LIMITED

IDLC was initially established in Bangladesh in 1985 through the collaboration of

International Finance Corporation (IFC) of the World Bank, German Investment and

Development Company (DEG), Kookmin Bank and Korean Development Leasing

Corporation of South Korea, the Aga Khan Fund for Economic Development, the City

Bank Limited, IPDC of Bangladesh Limited, and Sadharan Bima Corporation. As the

company evolved, initial foreign shareholding of 49% was gradually withdrawn and the

last foreign shareholding was bought out by local sponsors in 2009.

Although IDLC initially started with Lease Financing as its core product, IDLC has

grown to become the largest multi-product Non-Bank Financial Institution of

Bangladesh, with almost equal focus in Corporate, Retail and SME sectors. Moreover,

IDLC has a significant presence in the Capital Markets. IDLCs merchant banking arm,

IDLC Investments Limited, a wholly-owned subsidiary of IDLC is a premier brand for

investment banking in the country. IDLCs stock brokerage arm, IDLC Securities

Limited, another wholly-owned subsidiary of IDLC is also amongst the top five brokers

in the country

Over the years, IDLC has attained a significant presence in the corporate sector of

Bangladesh. IDLC is highly respected by its clients, peers, employees and regulators

for its strong corporate governance, statutory compliance, high ethical standards, a

progressive and enabling working environment, and strong commitment to

environmental and social development.

IDLC continues to play a pioneering role in introducing and popularizing a variety offinancial instruments suiting ever-changing requirements of its fast-growing clients.

3.0.1MAJOR EVENTS

In 1985, Industrial Development Leasing Company of Bangladesh Limited is

incorporated.

In 1986, Commencement of leasing business

In 1990, A branch is established in Chittagong, the main port city of

Bangladesh.

In 1993, Listed on the Dhaka Stock Exchange In 1997, Commencement of Home Finance and Short Term Finance operations

In 1998, Licensed as a Merchant Banker by the Securities and Exchange

Commission

In 1999, Commencement of Corporate Finance and Merchant Banking

operations

In 2005, An MoU for strategic alliance is signed between IDLC and SBI Capital

Markets Limited, India.

In 2005, Local Enterprise Investment Centre (LEIC) is launched with the

objective of SME development, with contribution from the Canadian

International Development Agency (CIDA) of the Government of Canada.


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In 2006, SME-focused branch is opened at Bogra.

In 2007, Company name is changed to IDLC Finance Limited from the previous

Industrial Development Leasing Company of Bangladesh Limited.

In 2009, Gazipur SME Booth is opened.

In 2009, Imamgonj SME Booth is opened.

3.1MISSION VISION AND VALUES:

3.1.0VISION

We will be the best financial brand in the country

3.1.1MISSION

We will focus on quality growth, superior customer experience and sustainablebusiness practices

3.1.2STRATEGIC OBJECTIVES

Grow and develop our talent pool

Fully leverage new core banking platform

Optimize distribution points

Grow and diversify funding sources

Grow sales and service capabilities in Consumer Division

Aggressively grow SME portfolio Focus on top-tier clients in Corporate

Consolidate capital market operations and enhance capabilities

Embrace internationally accepted corporate governance and sustainable

business practices

Figure 01: Values of IDLC Finance Ltd.

Integrity

CustomerFocus

Trust andRespect

Simplicity

Equalopportunity

Passion

Values


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3.2SHAREHOLDING STRUCTURE:

Figure 02: Shareholding Structure of IDLC finance Ltd as on 31stOct, 2015

10

3.3IDLCSUBSIDIARIES:

3.3.1IDLCSECURITIES LIMITED:

IDLC Securities Limited, a fully-owned subsidiary of IDLC, offers full-fledged

international standard brokerage services for both its retail and institutional clients. It

has seats on both Dhaka Stock Exchange Limited and Chittagong Stock Exchange

Limited. It is also a Depository Participant (DP) of Central Depository Bangladesh

Limited (CDBL).

3.3.2IDLCINVESTMENTS LIMITED:

As per requirement of the Securities & Exchange Commission (SEC), IDLC formed a

separate subsidiary on May 19, 2010 in the name of IDLC Investments Limited, in

order to transfer its existing merchant banking activities to the newly formed entity.

IDLC applied to SEC to transfer the existing merchant banking license of IDLC

Finance Limited to IDLC Investments Limited. Accordingly, IDLC Investments

Limited has started its operations from August 16, 2011 to offer merchant banking

services to both our individual and institutional clients.

3.4PRODUCTS AND SERVICES

3.4.1CORPORATE DIVISION

3.4.1.1 Corporate Finance:

IDLC have extensive knowledge, expertise and experience to offer a range of financial

solutions in response to the needs of a broad spectrum of clientele, comprising of local

10IDLC finance limited website extracted on 23/11/15 from the link http://www.idlc.com/Shareholding-

Structure.php


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and multinational corporate houses in Bangladesh. Corporate finance includes the

followings-

Lease Financing: Asset backed financing against industrial machinery,

commercial equipments, office equipments, generators, vehicles, vessels, engines, etc.

Term Loan Financing: For meeting various regular capital/fixed

expenditures like balancing of production line, modernization of manufacturing

process, expansion of capacity and space, etc.

Working Capital Financing: IDLC offering working capital financing to

assist companies in carrying out day-to-day business operations.

Project Financing:For setting up of a new unit as addition to the existing

product line and capacity, a new concern of an existing group, a new Joint Venture

project of an existing company etc.

Specialized Products: For matching the repayments with cash flows,

allowing some more time for repayment, releasing working capital limits.

3.4.1.2 Structural Finance:

Fund-Raising: Asset backed financing against industrial machinery,

commercial equipments, office equipments, generators, vehicles, vessels, engines, etc.

Syndication

Private Placement of Equity

Project/Infrastructure Finance

Foreign Currency Loan

Special Funds

Advisory Services: The Structured Finance Department can offer a range of

advisory services to our corporate clients, complementing our fund-raising services to

meet their unique requirements.

Merger & Acquisition

Joint- Venture Matchmaking

Feasibility Study

3.4.2CONSUMER DIVISION

IDLC offers various attractive consumer bases schemes-

Deposit Scheme

Car loan


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Home Loan

Personal Loan

3.4.3SMEDIVISION

3.4.3.1 Small Enterprise Finance:

IDLC offers financing facilities to small-scale enterprises for carrying out their trading,

manufacturing or service business. Moreover, financing facilities for developing

commercial real estate can also be availed by such enterprises.

SME Loan: SME Loan is a facility designed to finance small-scale trading,

manufacturing and service ventures to help them meet short-term cash flow needs and

bridge the fund-flow gaps.

Eligibility: Entrepreneurs need to have minimum 2 years of experience in the same line of

business.

The Business must be a going concern with minimum operational experience of

2 years.

Loan Limit:

Minimum Taka 5 lacs to maximum Taka 1.5 crore.

Key Features:

IDLC offers loan without any collateral for up to Taka 15 Lacs

IDLC offers partial cash-secured loan up to Taka 70 Lacs

IDLC offers loan for Working Capital Finance and/or Lease finance for

business

Borrowers having loan facilities with other financial institutions can also avail

this facility

Convenient repayment options are offered, consisting of Equal monthly

installments and/or customized repayment schedule

IDLC brings fast and quality service at customers doorstep

ABASHAN Loan: "ABASHAN" is a loan facility extended to small

businesses that will construct or already have permanent structure for commercial rent

(popularly known as mess rent), that are located in places surrounding the industrial

areas and EPZs across the country.

Eligibility:

Entrepreneurs with minimum 1 year experience in the same line of business.

Business must be a going concern with at least 1 year in operation.

Monthly income from rental and other sources must be minimum Taka 60,000.


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Loan Limit:

Minimum Taka 3 lacs to maximum Taka 40 Lacs.

Key Features:

IDLC offers loan without any collateral for up to Taka 15 Lacs Borrowers having loan with other financial institutions can also avail Abashan

Loan.

Borrowers enjoy a convenient repayment system through Equated Monthly

Installments (EMI)

We bring fast and quality service at your doorstep

3.4.3.2 Medium Enterprise Finance:

SME-Mid segment offers mid and longer term financial solutions to a wide range of

enterprises with the potential of emerging as a promising Corporate House in nearfuture. Our portfolio comprises of various Limited, Partnership and Proprietorship

concerns from a wide range of prospective business sectors.

Lease Financing: Asset backed financing against industrial machinery,

commercial equipments, office equipments, generators, vehicles, vessels, engines etc.

Term Loan Financing: For meeting various regular capital/fixed expenditures

like balancing of production line, modernization of manufacturing process, expansion

of capacity and space etc.

Working Capital Financing IDLC offering working capital financing to assist

companies in carrying out day-to-day business operations

Project Financing: For setting up of a new unit as addition to the existing

product line and capacity, a new concern of an existing group, a new Joint Venture

project of an existing company etc.

Specialized Products: For matching the repayments with cash flows, allowing

some more time for repayment, releasing working capital limits refinancing of existinggood quality liabilities is made.

3.4.3.3 Suppliers Finance:

Supplier Finance is a revolving financing facility offered against receivables created

due to supply of goods or delivery of services on credit. This short-term facility enables

the suppliers/service providers to realize the maximum portion of the payment soon

after the delivery has been made to the buyer. In addition to financing, Supplier Finance

also offers other value-added services such as:

Sales Ledger Administration


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Follow-up and physical collection of payments

Monthly reporting

3.4.3.4 JICA-SME Loan

SME Loan by JICA is a loan facility under the two-step fund, provided by JapanInternational Cooperation Agency (JICA) offered to small and medium business

enterprises of Bangladesh. This Term Loan facility is offered for the purpose of

meeting Working Capital requirements and/or purchasing fixed assets.

Eligibility:

Entrepreneurs having a minimum of 1 year experience in the same line of

business.

The Business must be a going concern with minimum operational experience of

1 year.

Eligible Projects:

Fixed assets (including machinery, equipment, factory buildings and related

civil works)

Technical know-how, consultancy services and training

Working capital (including initial stocks or increase in stocks of raw materials,

spare parts and components)

Leasing of industrial and business equipment

Loan Limit: Minimum BDT 0.50 million to maximum BDT 50.00 million.

Loan Terms:

Fixed Assets Financing: 2 to 5 years

Working Capital Financing: 1 year, annually renewable up to 5 years

Interest Rate and Fees

We offer competitive interest rate and fees. Please contact any of our branch

offices for current rate and fees.

Key Features:

We offer loan without any collateral for up to BDT 1.50 million

We offer partial cash-secured loan up to BDT 7.00 million

We offer loan for Working Capital Finance and/or Lease finance for business

Borrowers having loan facilities with other financial institutions can also avail

this facility

Convenient repayment options are offered, consisting of Equal monthly

installments and/or customized repayment schedule

We bring fast and quality service at your doorstep


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Terms and Conditions:

Entrepreneurs have to submit the evidence of use of the proceeds of the Loan

(E.g. receipt or bill, invoice from suppliers)

Entrepreneurs have to submit financial statements for every accounting term, at

least on an annual basis , until the full repayment of the Sub-loan Entrepreneurs will allow the IDLC Finance Limited(PFI), Bangladesh Bank

(PIU), Ministry of Finance Finance Division (MOF-BFID) or Japan

International Cooperation Agency (JICA) to inspect the Project, if the PFI, PIU,

MOF-BFID or JICA so requests

Entrepreneurs have to follow all the environmental regulations established by

GOB (Government of Bangladesh) and JICA (Japan International Cooperation

Agency)

3.4.3.5 IDLC PurnotaBangladeshi women are moving the country forward with their relentless drive and

innovative approaches. But the journey towards becoming a successful women

entrepreneur is laden with obstacles. What women entrepreneurs require is a friend who

will understand her business needs. Be it a new or an old business, small or medium,

IDLC Purnota will provide a comprehensive solution that will provide women owned

businesses the necessary acceleration that it requires.

Key Features:

Working Capital and Long term Financing Facility for Women Owned

Businesses.

Minimum Loan AmountBDT 3 lac

Maximum Loan AmountContingent on the Nature and Condition of the

Business. - Unsecured LoanUp to BDT 25 lac

Determination of Payment Structure Based on Cash Flow

10% Interest for Loans up to BDT 50 lac under Bangladesh Bank Refinancing

Scheme

Grace period: 3-6 months for New Ventures in Manufacturing or Service Sector

Eligibility: Must have Minimum 1 year of Business Experience (Supported by Trade

License)

Age of the Applicant20 to 60 years

Other Features:

Business Facilitation Service- Assistance in Obtaining Regulatory Documents

and Licenses

Purnota Helpline- Information Services for Women Entrepreneurs

Purnota Training Center Capacity and Skill development, Business

Management and Vocational Training


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Purnota Insurance Insurance to Mitigate Against Losses Pertaining to

Individual, Family and Business

Purnota Digital Marketing Guidance on Marketing through Internet and

Social Networking Sites

Purnota Club

A Platform for Women Entrepreneurs to Share their Skills,Ideas and Experiences and Form an Intricate Network among One Another

Purnota Deposit Term Deposit at Attractive Rates (Up to 0.50% Higher Than

Regular Deposit Rates)

IDLC SME Advantage Card Attractive discount for Women Entrepreneurs

in Selected Partner Outlets

3.4.3.6 Commercial Space Loan (CSL)

With IDLC Commercial Space Loan you can build your business infrastructure quickly

by purchasing factory, warehouse, office, workers dormitory, sales center, customerservice outlets or developing it at own supervision. You can transfer existing liabilities

of same purpose with other bank/financial institutions too.

Eligible Firms:

Are 3 year or older in business

Attained a stable traction in business

Earn enough to repay debts

Own reasonable equity in business

Maintain regular bank transaction

Maintain standard business documents

Are unclassified in CIB database

Purchase space on business ground

Documents Required:

Trade and other licenses

Company incorporation certificates

Passport/NID of Sponsors and PGs

Financial Statements (3 year)

Bank/NBFI Transactions (1 year) Set of purchase documents

Set of land documents

Filled in CIB undertaking form

Business description and Sponsor bio-data

Key Features:

Loan of BDT 5 to 100 Million

Up to 8 years tenor

Up to 6 month grace period

Equal monthly/ Customized repayment


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Up to 70% funding of the cost

Tri-party agreement available

In-house document vetting

Quicker processing time

Possession purchase Dedicated 1 Stop Relationship Representative

On call Home service

3.4.4CAPITAL MARKET DIVISION

Portfolio Management: IDLC offers Portfolio Management services to both

individual and institutional investors through its subsidiary, IDLC Investments Limited.

Investors can avail its services through its major discretionary investment accounts

MAXCAP and Cap Invest.

Investment Banking: With a rich experience in Investment Banking, we

assist our clients to our best throughout the IPO process, along with sustained market

support.

Research: IDLC conducts several Capital market Researches

Brokerage Services:It includes, Trade Execution in Dhaka and Chittagong

Stock Exchange Limited, Appointment of dedicated and skilled sales representative and

Opportunities for trading through different financial instruments.11

11IDLC finance ltd website. Extracted On 12/15/2015 from http://www.idlc.com/home.php


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Chapter 4

Analysis of SME

Financing in Bangladesh


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4.1GDPAND GDPGROWTH RATE IN MANUFACTURING

SECTORS OF BANGLADESH

Since SMEs have significant role in the industrial growth but the contribution to GDP

is not up to the mark. GDP structure and growth rate during last 5 years is one of theindicators of the growth of Small to Large manufacturing industries. Small and Cottage

industries GDP amount increased from BDT20039 crore (2010) to BDT 26179.4 crore

(2014) in last 5 years whereas in case of Large industries the increased amount is

56581.2. And the growth rate in large industries is always higher than the small and

cottage industries except year 2009-10.

Table 05: GDP and GDP Growth rate in manufacturing sectors of Bangladesh

Industry

Small and cottage

Industry

Medium to large

industry

Total

GDP (Tk

in crore)

GDP

Growth(%)

GDP (Tk

in crore)

GDP

Growth(%)

GDP (Tk

in crore)

GDP

Growth(%)

2009-10 20039 8.17 79631.4 6.26 99670.4 6.64

2010-11 21176 5.67 88475.3 11.11 109651.3 10.06

1011-12 22569.1 6.58 97998.3 10.76 120567.4 9.98

2012-13 24557.9 8.81 108436.2 10.65 132994.1 10.31

2013-14 26179.4 6.33 118364 9.32 144543.4 8.78

2014-15(P) 30095.4 10.7 136212.7 10.24 166308.1 10.32

Source: Bangladesh Bureau of Statistics 12

Figure 03: GDP growth rate comparison

The GDP growth rate in case of small and cottage industry show mixed pattern in the

figure 03. Year by year GDP growth rate is fluctuating. But in case of Large to medium

12Bangladesh Bureau of Statistics, Economic reviews of several years

0

2

4

6

8

10

12

2009-10

2010-11

1011-12

2012-13

2013-14

2014-15(Prov)

GDP

Growth(%)

Small and

cottage

Industry

GDP

Growth(%)

Medium

to large

industry


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industry after 2011-12 GDP growth rate is sloping down but in a less intense pattern

than small industries.

Figure 04: GDP structures of Small and Large industries

Figure 04 drawn from Table 05, shows that Medium to large industries GDP amount is

higher the small and cottage industries that is natural in Bangladesh and not a matter of

concern. But The way of GDP amount increases in two sector is quite different. Small

and Cottage increase is very steady and increased amount is 30095.4-20039=10056.4

by 6 years whereas Medium to large industries GDP amount increase shows sloppy

tangent line. It is clear from the figure 04 that Red line follows intense slope than blue

one which is Large industry is spreading more quickly than Small and Cottageindustries.

Table 06: Sub-sector growth and share in GDP of industry sector Output

Contribution on GDP of last 3 years

Industry

Small (%) Medium to large (%)

2012-13 3.51 15.49

2013-14 3.51 15.95

2014-15(Prov) 3.65 16.52

0

20000

40000

60000

80000

100000

120000

140000

160000

2009-10

2010-11

1011-12

2012-13

2013-14

2

014-15(Prov)

Small and

cottage

Industry

GDP(Tk)

Medium to

large industry

GDP(Tk)


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Figure 05: Contribution on GDP by Small and Large industries

Contribution of Small industries to the GDP of Bangladesh is nearly constant and

negligible change or growth but on the other hand for medium to large industries it is

increasing slightly.

4.2REFINANCING OF SMEIN BANGLADESH:

Small and Medium Enterprises treated as a prospective sectors for solving

unemployment problem. To develop the SME sectors Refinancing facilities continued

through the Bangladesh Bank Fund, JICA fund and Women Entrepreneur Funds.

With the supervision of Bangladesh Banks, Banks and NBFIs come forward in SME

financing. Banks and NBFI financed BDT 177020.05 crore among 642674 Small and

Medium Enterprises upto 2013. And BDT 6078.03 crore is financed among 89874

entrepreneurs.

For the advancement and expansion of SME sectors, Bangladesh Banks financing

Commercial Banks and Financial Institutions in rotation refinancing scheme with the

help of government and different development assistance against the SME loan

financed by Banks and FIs. Currently 3 funds are in active from Bangladesh Bank in

SME sectors.

024

68

1012141618

Contributio

n on GDP of

last 3 yearsIndustry

Small(%)


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Table 07: Data of Refinancing in SME sectors (upto 2014)

Source: Bangladesh Economic Review 201413

13Bangladesh Economic Review 2014, Eight chapter, page 110

Refinancing Amount(Tk crore) Number of enterprise financed

Sl.No Name of Fund Current

Capital

Mid term

loan

long

terrm

loan

Total Loan Industry Commerce Service Total

1 Bangladesh Bank

Fund

384.76 593.88 241.66 1220.3 5018 5907 1759 12684

2 IDA Fund 80.34 132.47 99.8 312.61 1368 1306 486 3160

3 ADB Fund-1 144.48 132.27 58.19 334.94 800 2096 368 3264

4 ADB Fund-2 0 568.39 178.56 746.95 3765 7435 2445 13645

5 JICA Fund 2.76 27.75 101.93 132.44 103 7 60 170

6 Women

Entrepreneur

144.26 387.64 176.58 708.48 3263 4468 1298 9029

TOTAL 756.6 1842.4 856.72 3455.72 14317 21219 6416 41952


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Chapter 5

Analysis of SME Financing

of IDLC Finance Limited


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5.1LENDING PROCEDURE:

First of all customer has to apply for loan with some basic documents like tally khata,

banking transaction, sales book etc to prove creditability. After that IDLC judge the

creditability of applied customer by 4 working days. If everything is ok then offer

sanction letter. Otherwise negotiate with customer about principal, tenor, repaymentand security. Now customer needs to accept the sanction letter by 15 days. After

acceptance of sanctioned loan, IDLC ask tor documents required. Here it takes 2 days.

Then Disbursement takes a working day. So for worthy customer it will not take more

than 7 working days from apply to disburse. It could be accomplished by 3 days for

renowned and creditable customers.

Sanction grace period is 15 days

Disbursement grace is 6 days

Interest free grace is zero (For SME loan)

EMI free grace is also zero (For SME loan)

5.2SMELOAN DISBURSEMENTS OF IDLCFINANCE LIMITED

Table 08: SME loan disbursements

Year Amount(Tk

in Million)

2014 12053

2013 10392

2012 7498

2011 4485

2010 2712

Figure 06: Year wise bar diagram of SME loan

disbursements

SME loan disbursements of last five years show almost a linier growth pattern. In 2010

total SME disbursements was BDT 2712 million where it reaches to BDT 12053

million in 2014. And it will reach to BDT 15000 by 2015 as far SME section

information.

The increasing amount of disbursements indicates the consciousness and interest on

financing by SMEs through Banks and NBFI is improving. Mentioning at the

0

2000

4000

6000

8000

10000

12000

14000

2014 2013 2012 2011 2010

SME Loan

Disbursements(Tk in

million) Amount


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beginning of this paper, Financing of SME is very difficult. But SMEs are coming to

the NBFI for financing, finding it easier.

5.3SMELOAN PORTFOLIO OF IDLCFINANCE LIMITEDTable 09: SME loan portfolio

Year Amount(Tk

in Million)

2014 17905

2013 14334

2012 10178

2011 6870

2010 4182

Figure 07: Year wise bar diagram of SME loan portfolio

SME loan portfolio of IDLC finance Limited is increasing rapidly since 2006. Focusing

on SME the portfolio reaches from BDT 4182 million (2010) to BDT 17905 million

(2014) in almost a linier growth pattern.

5.4SMEDIVISION ACTIVE CUSTOMER BASE OF IDLC

FINANCE LIMITED:

Table 10: No. of Customer in SME

Year No. of

customer

2014 7196

2013 6638

2012 5222

2011 3462

2010 2004

Figure 08: Year wise bar diagram of SME loan

customers

The SME division provides specialist lending to small and medium-sized businesses

across a broad range of industries including steel, cement, light engineering, plastics

and textiles, among others, geographically spread across Bangladesh. The divisionsoperations include term loans, working capital loans and lease financing, customized

0

5000

10000

15000

20000

SME Loan Portfolio

Amount

0

2000

4000

6000

8000

SME Division

Active Customer

Base Amount


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around customer requirements. The division also supports and encourages women

entrepreneurship by providing them loans at attractive covenants. No. of Clients

increases from 2004 to 7196 in SME sector of IDLC finance Limited by last five

years.14

In the last question of the questionnaire for both customer and employees, 15 out of 15

borrowers are agreed to develop SME and 13 employees were strongly agreed, 2 were

agreed. So the loan disbursement growth is coincide with the customers and employees

expectations. And government policy is helping to increase the SME financing.

5.5SMELOAN STATUS OF THE IDLCAGRABAD BRANCH

Table 11: SME Loan Status of IDLC Agrabad Branch

Loan Status

No. of

Customer

Sanction (Tk

in Million)

Disburse (Tk

in Million)

URPA(Tk in

Million)

Bad Loan 3 2.89 2.89 2.89

Doubtful Loan 24 31.29 31.29 18.77

Sub Marginal Loan 13 33.60 33.60 19.36

Sub Standard Loan 3 6.00 6.00 2.50

Normal Loan 307 611.71 611.71 346.29

Grand Total 350 685.49 685.49 389.80

Figure 09: Pie Diagram of SME Loan Status of IDLC Agrabad Branch

SME division of IDLC finance Limited of Agrabad Branch listed only 3 bad loan

customer out 350 total this year. Sub standard and bad loan percentage is below 1% of

the total disbursements. By amount bad loan is BDT 2.89 million of the totals of BDT

14Annual Report 2014 of IDLC finance Limited, page 33

1% 5%5%

0%

89%

URPA

Bad Loan

Doubtful Loan

Sub-Marginal Loan

Sub-Standard

Normal


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389.80 Unrealized Principal amount. In Employees survey, also suggest about the

higher overdue customers in SME. Normal is 89% and except normal all others are

treated as NPL. So SME Bad loan amount is higher and it is 11% including sub

marginal and doubtful.

5.6SMELOAN QUARTER WISE DISBURSEMENT OF LAST FOUR

YEARS:

Table 12: Quarter wise disbursements of last four years

Row

Labels

Sum of Disbursement

Amount in BDT million

2012

Qtr1 40.43

Qtr2 75.00

Qtr3 64.20

Qtr4 113.73

2013

Qtr1 70.89

Qtr2 72.00

Qtr3 80.10

Qtr4 87.00

2014

Qtr1 103.90Qtr2 131.80

Qtr3 51.00

Qtr4 82.70

2015

Qtr1 106.40

Qtr2 8