1.1 Background: " A Study On SME Banking Practices in Janata Bank Limited"

“ A Study on SME Banking Practices in Janata Bank Limited”
1.1 Background
SME means Small and Medium Enterprise. Small & Medium Enterprise (SME) plays a pivotal
role in the economic growth and development of a country. Actually, SME works as the platform
for job creation, income generation, and development of forward and backward industrial
linkages and fulfillment of local social needs. SMEs occupy a unique position in the economy of
Bangladesh. In Bangladesh the SMEs account for about 45% of manufacturing value addition.
They account for about 80% of industrial employment, about 90% of total industrial units and
about 25% of total labor force. Their total contribution to export earnings varies from 75- 80%.
The total number of SMEs is estimated at 79754 establishments, of which 93.6% are small and
6.4% are medium which contributed around 20-25% of GDP. Small and medium enterprises
(SMEs) make up the largest portion of the employment base in many developing countries. Now
the SMEs are not only concentrated to low-tech, traditional, and agro-based economic activities;
these are spread over other non-traditional manufacturing and service sector as well. In fact, the
SMEs are recognized as locomotive of economic growth worldwide. To achieve high and
sustained economic growth, a triggering force is mandatory to exit from endemic poverty and
socio-economic deprivation. The entrepreneurs behind could—and should—play a much larger
role in development, but too often are held back by a lack of ready access to financing from local
formal sector financial institutions. Here lies the scope of banks to offer banking facilities to this
‘missing middle’ by offering different products that are specially featured for this segment. On a
long term perspective these banks expect to gradually develop the creation of an entrepreneurial
class across Bangladesh through proper financing and training. Banks are also developing their
procedure and operational guideline supported by structured recruitment process and subsequent
training with a view to mitigating credit risks and other risks for a smooth flow of SME
financing. Most businesses in Bangladesh are in need of small short-term loans to help finance
their working capital needs or purchase of fixed assets. So when a bank brings about a
momentous difference in these peoples’ lives by meeting their demand, the bank is more than a
bank. It’s a promise - a promise to rise against all adversities; a promise to quality livelihood; a
promise to endow ordinary people with extraordinary opportunities.
Page 1
Department of Accounting and Information Systems, Comilla University.
1.2 Origin of the Study

In today’s world, education is the imperative tool for understanding the real world and applying
knowledge for betterment of the society as well as in Business Sector. From the education session
the theoretical knowledge is obtained from various courses throughout the programs, which is
only the half way of the subject matter. Practical knowledge has no alternative. The perfect
coordination between theory and practice is of paramount importance in the context of modern
business graduates to get 10 to 12 weeks practical experience, which is known as “Internship
Program”. As a student of MBA, Comilla University, every student has to conduct a practical
orientation i.e., internship on any organization for fulfilling the requirements of the MBA
program. The main purpose of the program is to know the real world situation and to get a
glimpse of the corporate culture. In this regard, I have the opportunity to submit the report from
my experience while working as a Trainee in Janata Bank Ltd. Only theoretical knowledge
without any practical experience makes a person sterile. On the other hand a person having
practical experience but no theoretical exposure keeps him blind. The internship program is
designed to overcome such sterility. This program gives the chance to fulfil the theoretical
knowledge that is acquired from class lectures, books, journals etc. in the practical settings. Here,
I got an opportunity to realize the relevance and usefulness of the classroom learning and day to
day operational experience in JBL Corporate Banking and SME Banking.
I joined the Janata Bank Ltd. to undergo the internship program for the period of 3 months
starting from October 04, 2015 to January 03, 2016. My project is “A Study on SME Banking
Practices in Janata Bank Limited.”. This was assigned by my internal supervisor Dr. Mohammed
Belal Uddin, Associate Professor, Department of Accounting and Information Systems, Comilla
University.
Page 2
1.3 Rationale of the Study

The word “SME Banking” is very common concept in the business world. The Small and
Medium Enterprise (SME) worldwide are recognized as engines of economic growth. The
commonly perceived merits often emphasized for their promotion especially in the developing
countries like Bangladesh include their relatively high labor intensity dependence on indigenous
skill and technology contribution to entrepreneurship development and innovativeness and
growth of industrial linkage. Fostering SME growth in Bangladesh is irrefutable as these
industries offer bright prospects for creating large-scale employment and income earning
opportunities at relatively low cost for the un-and unemployed especially in the rural areas
strengthening the efforts towards achieving high and sustained economic growth which are
critically important prerequisites for triggering an exit from endemic poverty and socio-economic
deprivation.
Economic condition of Bangladesh is underdeveloped economics. One of the reasons may be its
underdeveloped banking system. Modern banking system plays a vital role for a nation’s
economic development. Over the last few years the banking world has been undergoing a lot of
change due to deregulation, technological innovations and globalization etc. These changes also
made revolutionary changes of a country’s economy. Present world is changing rapidly to face
the challenge of competitive free market economy. It is well recognized that there is an urgent
need for better-qualified management and better-trained staff in the dynamic global financial
market. In this regards, Janata Bank Limited is a state-owned bank. Through financial
intermediation the bank seeds avenues for employment of its funds where there is profit as well as
where risk is the minimum and the cost of administering loans is low.
While profit motivation remains the prime consideration for viable operation and growth of the
bank, the bank would also respond adequately to the socio-economic objectives formulated by the
government from time to time for accelerating pace of economic development of the country.
This investment options shall be chosen through skilful and prudent evaluation by the bank
officials of feasibility of the proposed ventures including measures to minimize risk factors. The
entrepreneurs would provide or hire managerial; skills, technology for production, marketing and
servicing thereby diminishing the risk of investment.
Page 3
1.4 Objectives of the Study
This study has some desired objectives in order to make it fruitful and effective in terms of
knowledge, expertise and skills. Following are the objectives:
 Broad Objective: The Prime Objective of this study is to evaluate and scrutinize the total
SME Banking Practices of Janata Bank Limited.
 Specific Objectives: To fulfill this main objective, the specific objectives are as follows:
 To know sector wise male and female SME financing.
 To find out the barriers against smooth flow of SME loan.
 To find out year wise Distribution of SME loans to Women Entrepreneurs.
 To find out the year wise SME loan disbursement.
 To examine the SME Banking policy guidelines of Bangladesh Bank.
 To know SME loan and its process of recovery.
 To make necessary recommendation.
1.5 Methodology of the Study

Methodology is the vital part of a report design. It is the heart of any report. It includes data
collection methods, study area method of data analysis etc. This chapter presents the qualitative
methodology that was followed to conduct this report. The following methodologies were
followed for the study:
1.5.1 Data Requirements & Analysis Method
Data are the raw materials for any study. Relevant data for the proposed research study were
collected from secondary sources. Secondary data were collected from the annual reports of the
selected Government & Non Government banks, Bangladesh Bank reports on SME, Bangladesh
banks website and from websites of the selected banks, SME Organizations of Bangladesh.
Primary data is mainly two types –
 Quantitative data and
 Qualitative data.
Page 4
1.5.2 Sources of Data
For preparing this report all information has been gathered from secondary sources. They are:
 Secondary Sources:
1. Annual report.
2. Different papers of the bank.
3. Unpublished data of the bank branch.
4. Website of the Janata Bank Limited.
5. Bangladesh Bank Guidelines.
6. Some newspapers (The daily sun, The daily star, Banglanews24.com, etc).
7. www.iosrjournals.org
8. Bangladesh Bank’s Official websites.
9. And some more websites.
Page 5
1.6 Scope of the Study

This report titled “A Study on SME Banking Practices in Janata Bank Ltd.” is mainly a
descriptive as well as analytical report. It mainly consists of two parts, are; organizational part
and learning part. The organizational part consists of various aspects of Janata Bank Ltd. (JBL)
as, mission, vision, historical review, financial condition, various departments and divisions,
management aspects, products and services, social responsibilities, financial highlight etc. The
later part focuses on the functions of the Corporate and SME departments, policy and practices,
structure, activities and performance etc. The study would focus specially SME Loan
disbursement and recovery process. The study has covered a curtail idea on JBL, taking proposal
of SME Loan, analyzing credit and performing activities for sanctioning loan by SME department
of JBL. Mentioning that, operation of SME departments are closely related to other department’s
activity as well.
This will eventually refer that how the bank help customers securing their cash and assets, getting
credit facility, repaying loan amount and bank’s regulatory compliance, lending policy, SME
schemes etc.
 Organizational Scope: I worked on some important departments of Janata Bank Ltd.;
Ghandhamati Bazar Branch. I used my best efforts in key areas to get the best result.
 Periodical Scope: Practical orientation in the bank has started from October 04, 2015 and
continued up to January 03, 2016. The total duration of the program was 90 days.
Page 6
1.7 Limitations of the Study

Although I have obtained wholehearted co-operation from employee of Janata Bank but they
were extremely busy. So they were not able to give me much time as I desired. Beside of that,
total duration of internship is not long enough to give me more than a superficial idea of the
functioning of the various departments. I was rotated through on the way of my study. I have
faced the following problems, which may be termed as the limitation/short coming of the study.
These are as follows:
 It was very different to collect the information from various personnel for the job
constrain.
 Bank policy was not disclosing some data and information for obvious reasons.
 Due to time limitation many of the aspects could not be discussed in the report.
 Since the banks personals were very busy, they could provide me little time.
 Another significant problem faced during the preparation of this report was the
contradictory explanation of a single subject by different employee.
 Because of the limitation of information some assumptions were made. So, maybe there
are some mistakes in the report.
 The time 3 months only, this is not sufficient to know all activities of the Bank. The
insufficiency of information was not adequately available. Moreover, the sources were
hazardous and in-disciplined. Therefore the providence of insufficient information came
out as a constraint.
 Almost all the personnel were apparently too busy to assist me with their valuable
support.
 Long internship was not able to provide me with adequate time to impose more databases
sophistic to the formulation of this report.
 During the internship, in many part of my enquiry, our performance was hindered by
some sort of inexperience of some of the personnel of the bank due to lack of orientation
to the procedure of such interns.
Page 7
2.1 Introduction
Janata Bank Limited has its prosperous past, glorious present and prospective future. JBL has
been flourishing as the second largest public sector Bank with the passage of time after facing
many stress and strain. The member of the board of directors is creative businessman and leading
industrialist of the country. To keep pace with time and in harmony with national and
international economic activities and for rendering all modern services, JBL, as a financial
institution automated all its branches with computer network in accordance with the competitive
commercial demand of time. Moreover, considering its forth-coming future the Bank has been
rearranging. The expectation of all class businessmen, entrepreneurs and general public is much
more to JBL. Keeping the target in mind JBL has taken preparation to open new branches .
The emergence of JBL in the public sector is an important event in the Banking area of
Bangladesh. Janata Bank Ltd. was born as the first hundred percent Bangladeshi owned Bank in
the public sector. From the very inception it is the firm determination of Janata Bank Ltd. to play
a vital role in the national economy. We are determined to bring back the long forgotten taste of
banking services and flavours. We want to serve each one promptly and with a sense of
dedication and dignity.
Janata Bank Limited, one of the state owned commercial banks in Bangladesh, has an authorized
capital of Tk. 30000 million, paid up capital of Tk. 19140.00 million.Immediately after the
emergence of Bangladesh in 1971, the erstwhile United Bank Limited and Union Bank Limited
were renamed as Janata Bank. On 15 th November, 2007 the bank has been corporatized and
renamed as Janata Bank Limited.
Janata Bank Limited operates through 900 branches including 4 overseas branches at United

Arab Emirates. It is linked with 1242 foreign correspondents all over the world.
The Bank employees more than 15(fifteen) thousand persons.
The mission of the bank is to actively participate in the socio- economic development of the
nation by operating a commercially sound banking organization, providing credit to viable
borrowers, efficiently delivered and competitively priced, simultaneously protecting depositors
funds and providing a satisfactory return on equity to the owners.
Page 8
 The Board of Directors is composed of 13 (Thirteen) members headed by a Chairman.

The Directors are representatives from both public and private sectors.
 The Bank is headed by the Chief Executive Officer & Managing Director, who is a
reputed banker.
 The corporate head office is located at Dhaka with 11 Divisions comprising of 56
Departments.
Now JBL is on line to establish trade and communication with the Prime Inter Janata Bank
Ltd.ing companies oh the world. As a result JBL will be able to build a strong root in Inter Janata
Bank Ltd.ing horizon. Bank has been drawing arrangement with well conversant money transfer
service agency “Western Union”. It has a full time arrangement for speedy transfer of money all
over the world.
Banking is not only a profit-oriented commercial institution but it has a public base and social
commitment. Admitting this true JBL is going on with its diversified banking activities. JBL
introduced Monthly Savings Scheme, Special Deposit Scheme, Consumer’s Credit Scheme and
Savings Insurance Scheme etc. to combine the people of lower and middle-income group.
2.2 Corporate Vision and Mission

2.2.1Vision
To become the effective largest commercial bank in Bangladesh to support socio-economic

development of the country and to be a leading bank in south Asia.
2.2.2 Mission
Janata Bank Limited will be an effective commercial bank by maintaining a stable growth
strategy, delivering high quality financial products, providing excellent customer service through
an experienced management team and ensuring good corporate governance in every step of
banking network.
Page 9
2.3 Strategic Objectives of JBL

We have
• Concern
• Commitment
• Competence
Our strengths We need
• Nationwide networks, 900 branches Sense of belonging (ownership) •
Team spirit •
• Foreign Network 4 branches
Human touch with clients •
• Foreign Corespondence 1242 Managerial efficiency •
• State owned image Innovative thinking •
Free from corruption •
• Market reputation
Improve on-line banking •
• Global recognition Introduction of mobile banking •
• Strong deposit base Broadening of deposit base •
Expedite cash recovery •
• Strong capital base
Making all branch profitable •
• No provision shortfall Improved training program •
• Skill manpower Boost up foreign remittance •
• Experienced management Ensure chain of command •
Correct estimation of borrowers demand •
• Newly recruited talents Proper valuation of security •
Customers preference •
Synthesis of mass banking and elite banking •
Avoid loan sanctioning bureaucracy •
Aware gender sensitivity •
Aesthetic infrastructure. •
Our brand
• Easy access to customers
• Quality and responsive staff
• Service with competitive cost
• Business diversification
• Professionalism
• High impact CSR
• No hidden cost
2.4 Core Values of JBL
Page 10
 Commitment
 Quality
 Diversity
 Sustainability
 Professionalism
 Transparency
 Responsibility
 Accountability
2.5 Code of Conduct

In accordance with the ethical principles the code of conduct of JBL employees shall:
 Act with integrity, competence and dignity;
 Loyal to the bank and bank’s interest;
 Maintain professionalism and ethical standards;
 Deliver professional service in accordance with JBL policies and relevant standards;
 Try to fulfill the customer needs in the best possible manner within the guideline of
corporate ethics;
 Keep all matters confidentially;
 Maintain knowledge of and comply with all applicable laws, rules and regulations;
 Never offered or accept illegal gifts or other facilities in order to achieve personal
advantage;
 Not engaged in any unprofessional conduct involving dishonesty, fraud,
misrepresentation or commit any act that reflects adversely on honesty, trustworthiness
and professional competence.
2.6 Ethical Principles

Page 11
Bank deals with public money where ethical compliance is very important. JBL follows and
maintain ethical values in every sphere of its banking operation and customer services. The core
ethics of JBL business are as follows:
 Implement justice and fairness;

 Ensure optimal customer services;
 Maintain privacy and secrecy of customer’s information;
 Prevent money laundering and corruption;
 Protects and upholds corporate values;
 Maintain accuracy and transparency in financial reporting;
 Protect natural environment.
2.7 Statement of Forward Looking Approach

The bank’s forward-looking statements are its management’s outlook on future events. Such
outlooks are based on management’s current achievement and are subject to uncertainty and
changes in circumstances. JBL forward looking statements contains management views and
advance thinking based on the assumption of business condition, future expectation. Economic &
financial scenario of the country and sustainability which are subject to some known & unknown
risk. As a result actual performance or results may be adverse or materially differ from original
plan due to a variety of factors including those without limitation to the followings:
 Changes in fiscal, monetary and trade policies;

 Changes in national economic and financial conditions;
 Changes in regulatory guidelines and government policy issues;
 Changes in accounting standards;
 Changes in corporate tax structure;
 Changes in legislation and regulation of VAT on banking services;
 Changes in interest rates, forex rates and commodity prices;
 Changes in confidence and behavior of customers;
 Instability in capital markets;
 Volatility of interest rate and money market;
Page 12
 Changes in socio-economic condition arises from natural calamity and political

disturbance;
 Global embargo/unrest in various countries affecting flow of remittances and trade;
 Changes in market structure and increases of business competitor;
 Adverse impact of inflationary pressure;
 Increase of provision requirements;
 Unforeseen natural disasters.
2.8 Corporate Profile

Corporate Profile of Janata Bank Limited - At a Glance
Name of Company Janata Bank Limited

Registered Office Janata Bhaban
110, Motijheel C/A, Dhaka-1000, Bangladesh.
Legal Status Public Limited Company
Date of Incorporation 21 May 2007
Date of Commencement of Business 31 May 2007
Authorized Capital Tk. 30,000 Million
Paid up Capital Tk. 19,140 Million
Face value per share Tk. 100 per share
Shareholding Pattern 100% Share owned by the Government of the
Peoples Republic of Bangladesh
Tax Identification No. 001-200-2732
Vat Registration No. 9011050160
Chairman Shaikh Md. Wahid-uz-Zaman
CEO & Managing Director Mr. Md. Abdus Salam
Chief Risk Officer Mr. Omar Farooque (DMD)
Head of Internal Control and Compliance Mrs. Mahtab Zabin (GM)
Chief Financial Officer (CFO) Mr. Md. Nurul Alam FCA, FCMA (GM)
Company Secretary Mr. Md. Mosaddake-Ul-Alam (GM)
Domestic Network
Number of Branch 900
Number of Divisional Office 11
Number of Area Office 47
Number of AD Branch 56
Overseas Network
Number of Branch 04
Location of Branches Abudhabi, Dubai, Al-Ain and Sarjah. UAE
Page 13
Chief Executive Office Obeid Sayah Al – Mansuri Building Zayed

1st Street (Electra Road), Post Box No 2630
Abu Dhabi, United Arab Emirates
Subsidiaries
Janata Capital and Investment Ltd. Dhaka.
Janata Exchange Company srl. Italy
Janata Exchange Company, USA Not yet started its operations
Number of Correspondence 1242
Number of Employees 14413
Number of Exchange House 72
Corporate Rating Status
Entity Rating A + in the long term
AR-2 in the short term
As Govt. owned Bank AAA in the long term
AR-1 in the short term
Telex 675840JBDBJ, 671288 JBHOBJ
Phone PABX 9560000, 9566020, 9556245-49, 9565041-45,
9560027-30
Fax 88-02-9564644, 9560869
E-mail md@janatabank-bd.com
Website www. janatabank-bd.com
Swift Code JANBBDDH
2.9 Key Milestones of JBL
1972 Commencement of banking operation
1976 Inaugurate 1st overseas branch in UAE
1990
Launching 1st computer in JBL.
1st cash dividend paid.

1999
Deposit crossed BDT 100,000 million.

2000
2001- JBL awarded “The bank of the year in Bangladesh” by London based financial times
2005 group.
&
Page 14
2011
Incorporation of Janata Exchange Company Srl, Italy.

2002
Inaugurate Janata Bank Software (JB Soft)

2002
Incorporate of ATM service.

2002
JBL crossed BDT 100,000 million of loans & advances.

2003
Received “Asian Banking Award” on Financing program for Women Entrepreneurship

2004
from
Asian Bankers Association (ABA) & Bank Marketing Association of the Philippines
(BMAP)
Received “Asian Banking Awards” on credit scheme for handicapped people from
2005
Asian Bankers Association (ABA) & Bank Marketing Association of the Philippines
(BMAP)
Received “World Best Bank Award” from New York based financial magazine global
2006-
finance.
2009
Incorporation and commencement of business as JBL

2007
Commencement of NRB branch.

2008
Launching of speedy remittance service.

2009
Issuance of 1st bonus share in JBL
Incorporation & commencement of Janata Capital & Investment Ltd.
2010
Launching of BACH operation.
Received “ICMAB Best Corporate Award” from Institute of Cost and Management
2011-
Accountants of Bangladesh (ICMAB).
2012
Launching of JBL CIB online system.

2011
Launching BEFTN & EFT operation.
Inauguration of online banking.
Landmark of BDT 100,000 million of foreign remittance.
JBL achieved highest operating profit among SCBs.
2011-
Page 15
2013
JBL at the top in CSR activities among the SCBs.

2012
Landmark of BDT 400,000 million deposit.
JBL Rewarded “Wholesale Banking Awards” &“Retail Banking Awards”&“Bank of
2012-
the year Award”
2013
by Asian Banking and Finance (CMG) Singapore.
Full automation of JBL branches.
2013
JBL Received “Performance Excellence Award” from Citi Bank N.A.
Inauguration of online deposit, payment & remittance system.
Enhancement of paid up capital to BDT 19,140 million
Issuance of highest right share in JBL history.
JBL achieved highest net profit among the SCBs & PCBs.
Received “ICAB Best Presented Annual Report Award” (1st position) from The
2014
Institute of
Chartered Accountants of Bangladesh (ICAB).
Received “ICAB Corporate Governance Award” from The Institute of Chartered
Accountants of Bangladesh (ICAB).
Received SAARC anniversary award for corporate governance from The South Asian
Federation of Accountants (SAFA)
Received “ICMAB Best Corporate Award” (1st position) from Institute of Cost and
Management
Accountants of Bangladesh (ICMAB).
Received “Asian Banking and Finance Awards 2014” from The Asian Banking and
Finance Magazine (ABF) in two categories:
1. Bangladesh domestic trade finance bank of the year and
2. Bangladesh domestic technology and operations bank of the year.
Received “Foreign remittance Award-2014”from Centre for non-resident
Bangladeshies.
JBL constitute Janata Bank Foundation.
JBL crossed BDT 510,000 million deposit.
JBL crossed BDT 310,000 million of loans & advances.
Page 16
Incorporation of Janata Exchange Company, USA.
JBL crossed 900 Branches all over the country.
2.10 Some key indicators of Janata Bank Limited from 2010 to 2014
(BDT in Crore)
Year
2010 2011 2012 2013 2014
Deposit 28656 36167 40977 47854 51601
Loans And 22573 25780 30534 28575 31977
Advances
Classified Loan 1182 1504 5320 3177 3738
Page 17
Import 18374 19728 18828 17667 14456
Export 11851 15375 15652 15325 15408
Foreign
5264 7228 10009 10398 10668
Remittance
Operating Profit
1203.64 1572.20 1453.38 1212.71 1068.33
Net Profit
490.70 444.50 (1528) 955.14 381.32
Manpower 12826 15020 15071 15485 14413
No. of Branches
861 873 888 897 904
Authorized
2000 2000 2000 2000 3000
Capital
Paid up
500.0 812.5 1100.0 1914.0 1914.0
Capital
2.11 Board of Directors
 Chairman of the Board of Directors

 Shaikh Md. Wahid-uz-Zaman
 Members of the Board of Directors

 Mr. Md. Emdadul Hoque
 Mr. Nagibul Islam Dipu
 Dr. R M Debnath
 Syed Bazlul Karim, B.P.M.
Page 18
 Prof. Mohammad Moinuddin

 Mr. Md. Abu Naser
 Mrs. Sangita Ahmed
 Prof. Dr. Nitai Chandra Nag
 Mr. A.K.M Kamrul Islam, FCA
 Mr. Md. Mahabubur Rahman Hiron
 Mr. Md. Abdus Salam, CEO & Managing Director
 Information about Independent Director
All the directors are independent in nature.
2.12 Management Hierarchy of JBL
Chairman
Director
Officer- i
Chief Executive Officer(CEO)
&
Managing Director (MD)
Officer-ii
Page 19
Officer-iii
Deputy Managing Director (DMD)
Assistant Executive Officer(AEO)
General Manager(GM)
Deputy General Manager(DGM)
Assistant General Manager(AGM)
First Assistant General Manager(FAGM)
Senior Executive Officer(SEO)
Executive Officer(EO)
2.13 Products & Services of JBL

Janata Bank Ltd. provides all commercial banking services to its clients focusing on the national
interest and sustainable growth. The major fields of its activities may be represented as below:
 Deposits  Loans & Advances
Current & Call Deposits Agriculture Loan Programs
Savings Bank Deposits Poverty Alleviation Program
Monthly Scheme Deposits Specialized Loan program

Term Deposits Rural Credit
Page 20
Special Notice Deposit Term Loan for Large and Medium Credit
Programs
 Financial Services Other Loans & Advances
Inland Remittance Loans for Thrust Sectors

Foreign Remittance Export Oriented Industry Term/Project
Financing
Other Financial Services(Pay Order, Pay Slip, Micro & Cottage Industries Loan
Security Deposit Receipt)
Working Capital
 Web based Spot Cash
Speedy Remittance Cell Export Financing
Import Financing
Western Union
Trade Financing
X-Press Money
Money Gram Other Credit Program

Samba Financial Group  Customer Care
Marchentrade Help Desk

Trans Fast Remtt Inquiry Desk
 Internet Banking  Other Services
Accounts Details Information Utility Services

Customer Statement Welfare Services
Cheque Status Q-Cash (ATM) Services
3.1 Introduction
The term small-scale industry is used everywhere, both in developed and developing countries,
to denote the characteristics of a particular size of industry. But its implications vary from country
to country on the basis of this section importance in the economy, the nature of the economy or
its stage of economic development, the type of industry, period in question, nature of the research
object or the researcher's objective and many other considerations. Even in a single country the
definition varies from time to time, due to changes in the above factors. This makes it difficult to
make an international comparison of small-scale industries. Of course, in recent years there have
Page 21
been attempts to give a unified universal definition of small-scale industry. But this can be
possible only with reasonable similarity of stage of economic development.
There is no denying the fact that the Small and Medium Enterprises (SMEs) can contribute much
to the development of our nation. Common sense tells us that a nation with limited capital should
invest in many small enterprises in diverse industries rather than a few large enterprises, failure of
one of which can dampen the economy. Moreover, given our insufficient personal wealth per
capita, individuals can only bring limited amounts of assets to new ventures. Needless to say, the
nation will be able to attract more entrepreneurs to the small and medium enterprises than to large
ones. There are also facts to support the importance of SMEs. According to the Government,
SMEs provide over 87% of the total industrial employment. Yet, SMEs are afflicted with an array
of constraints: lack of access to financial resources, inferior and unskilled manpower, lower level
of technology, difficulty in obtaining quality raw materials, poor marketing and management,
stiff competition from illegal imports and various infrastructural problems. Many SME products
have limited domestic demand, as our consumers cannot afford them. Entrepreneurs who try to
enter foreign markets face stiff competition.
3.2 Literature Review
Small and Medium Enterprises (SMEs) contribute largely to any economy by creating abundant
job opportunities, growing trade and investment sectors, increased output. SME sectors have huge
prospects in contributing positively toward GDP growth of an economy and thus getting even
increasing attentions now than ever before. Even the developed economies are quite ahead in
positioning SME business in spite of slackening economic growth (The Economist, 2012). The
sustainable development of SMEs in Bangladesh also depends largely upon the professional
activities of SME Foundation (Abdin, 2009).
Page 22
SMEs make up the largest portion of the employment base in many developing countries and,
indeed, are often the foundation of the local private sector. The entrepreneurs behind them could
and should play a much larger role in development, but too often are held back by a lack of ready
access to financing from local formal sector financial institutions (Rosen, 2003).SME financing
has recently been identified by experts as one of the major problems faced by SMEs in
Bangladesh (The Daily Star, 16th July, 2006). SMEs have very limited bank finance, which is
only around 10 percent, while self-finance remains the major source of their finance contributing
76.5 percent of fixed capital and 51.8 percent of working capital (Mahmud, 2006).
Economic downturns mostly affected small SMEs with few working capital, skilled workforce,
etc., especially those involved with trading and supplying products or services to other businesses
(Muhammad et al., 2010).Lack of infrastructural support, political unrest, shortage as well as
price hike of raw materials, high financing cost and inadequate utility facility are some of the key
factors for the slow development of manufacture based SMEs (Ahmed, Rahman & Haque, 2011).
Bangladesh faces some legal, regulatory and administrative constraints while working in the
prevailing policy environment (Hossain, 1998). Problems faced by SMEs like lack of training for
workers, harassment of government officials and poor supplementary utility facilities and sought
integrated steps from government (Khan et al., 2012). Financial institutions in Bangladesh are
well below serving the capital needs of potential users because of complex legislative boundaries
and hence hindering the potentiality of SMEs (Meagher, 1998).
As remedies the respondents advised financial incentives for sound business plan and public-
private partnership in providing effective training (Chowdhury et al.,2013). For increasing the
volume of lending to the SME sector, supply-side policy is not adequate (Bhattacharya and
Chowdhury, 2003). Thus sufficient working capital along with technical assistance should be
extended to existing SMEs. Not only the expansion of capital but also the designing of financial
products is important for SME development (Akterujjaman, 2010). Commercial banks being the
largest source of financing for SMEs, more participation in lending can result in excellent
opportunities by proving a wide market to serve and make SME lending a profitable banking
operation (Nagaraju and Vani, 2013). Bangladesh SME financing would be well-off with
Page 23
complete adoption of e-finance by reducing associated costs. The contribution of SMEs toward
GDP can be enhanced by implementing effective use of ICT in SME centers (Uddin & Riyadh,
2008).
3.3 SME Banking

The growth and development of SME is largely dependent upon cheap and quick access to
financial resources. More than ever before, nowadays SME contribute enormously to the
economic development of a country; emerging economies top the list. In Bangladesh, 80% of the
industrial employment comes through SME and hence much effort is being given toward
flourishing it further. However, growth has been affected a lot with contracting funds in the hands
of the owners making them vulnerable to slowing down. The major source of finance- the
commercial banks face increasing risks from inexperience of the SME owners, lack of well
prepared financial statements, in-depth knowledge about the actual need and government
bureaucracies. It has been found that in Bangladesh the segment is underserved by the financial
institutions (FI) with less focus on providing customer-tailored products, no specialized credit
risk assessment system and huge time required for credit clearance information are some of the
bigger challenges.
Bangladesh, being a developing country in terms of manpower and natural resources, posits
ample opportunities for SME development. SMEs use locally available inputs and technologies,
create large-scale employment opportunities, mobilize small private savings and develop
entrepreneurial characteristics.
However, this highly potential sector has not been able to reach the desired growth level. Several
studies examined the reasons behind and came up with problems in financing, infrastructure
facilities, government regulations, and inexperience. Access to financing continues to be one of
the most significant challenges for the growth and survival of SMEs which stems mainly from the
role played by the commercial banks.
3.3.1 Definition of SME Enterprise

Ministry of Industry and Bangladesh Bank accepted the definition of small and medium
enterprises recommended by Better Business Forum (BBF) as a uniform one. According to the
Page 24
definition, SME refers to the firm/business which is not a public limited company and complies
the following criteria:
A. Small Enterprise
Name of the Fixed Assets other than Land & Maximum Manpower
Enterprise(Small) Building Employed
Manufacturing BDT 50,000 – BDT 15,000,000 50
Service BDT 50,000 – BDT 5,000,000 25
Trading BDT 50,000 – BDT 5,000,000 25
B. Medium Enterprise
Name of the Fixed Assets other than Land & Maximum Manpower
Enterprise(Medium) Building Employed
Manufacturing BDT 15,000,000 – BDT 200,000,000 150
Service BDT 5,000,000 – BDT 100,000,000 50
Trading BDT 5,000,000 – BDT 100,000,000 50
3.3.2 The Major Areas of SME Banking
1. Agro-based and agro-processing 2. Agro-based activities such as fishing,

industry; preservation and marketing;
3. Agro-tools making and marketing; 4. Fishing boat building;
5. Nakshi Katha and handloom; 6. Food seed preservation and marketing;
7. Bakery; 8. Hatchery; by machine;
9. Dry fish processing; 10. IT-based activities;
11. Computer software and ICT goods; 12. Cyber cafe;
13. Entertainment such as, documentary 14. Forestry and furniture;
film, cinema and DVD production;
Page 25
15. Horticulture, floriculture & flower 16. Cold storage;

marketing;
17. Construction business such as, 18. Hospital and clinic;
construction industry and housing;
19. Hotel, restaurant and tourism; 20. Telecommunication;
21. Mobile phone accessories; 22. Printing and packaging;
23. Renewable energy such as, solar 24. Light engineering industry;
power, windmill;
25. Plastic industry; 26. Cosmetics and toiletries;
27. Handicrafts; 28. Herbal medicine industry;
29 Jute goods and jute mixed goods; 30. Stationery goods industry;
31. Frozen food; 32. Leather and leather products;
33. Electronics; 34. Artificial flower making;
35. Optical frame manufacturing; 36. Silkworm and silk industry;
37. Stuffed toys; 38. Ice mill;
39 Iodized salt production; 40. Flattened and fried rice production;
41. Rice mill/Auto rice mill; 42. Wholesale and retail shop;
43. Drug house/Pharmacy; 44. Phone-Fax;
45. Local transport; 46. Cinema hall;
47. Chatal business; 49. Old Iron goods;
48. Trading; 50. Mobile set and accessories business;
51. Electronics business; 52. Various small business;
53. Agro machinery/tools business; 54. Fertilizer business;
55. Jute trading; 56. Clothing and shoe business;
57. Rod and cement trading; 58. Hardware business;
59. Crockery business; 60. Grocery and chaff goods business;
61. LP gas businesses; 62. Warehouse and container service;
63. Commercial plantation; 64. Photography;
65. Transport and communication; 66. Laboratory;
67. Jewellery; 68. Ginning and baling;
69. Knowledge society with high quality 70. Tailoring;
merit and efficiency;
71. Saloon and beauty parlor, gymnasium; 72. Community centre;
73. Call centre; 74. Diagnostic centre;
75. Digital color lab; 76. Cable operators;
77. Electricity distribution produced by 78. Small amusement park;
generator;
79. Bamboo and cane goods production; 80. Boutiques;
81. Mushroom; 82. Computer training school;
83. Interior and exterior decoration; 84. Light engineering workshop;
85. IPS production; 86. Tribal handloom and specialized
Page 26
handloom(Komor tant);
87. Saw mill; 88. Boat industry such as, passenger
carrying small boat building;
89. Environment friendly transport (battery 90. Dairy and fish feed production;
operated) such as, easy bike (Jessore);
91. Brick field; 92. Khadi industry;
93. Agor and candle light production; 94. Mango juice, lichi, lotcon etc;
95. Spice grinding; 96. Biscuit factory;
97. Exportable soiled tali production; 98. Food processing;
99. Bus/Trauck body building; 100. Oil and pulse mill;
101. Pipe producing industry; 102. Manufacturing of cement pillar;
103. Mini sugar mill; 104. Molasses production;
105. Catechu production; 106. Hosiery;
107. Welding industry; 108. Bronze & brass industry;
109. Partex industry; 110. Biogas plant;
111. Production of juvelile fish (Reno 112. Seed production through tissue
pona); culture;
113. Sand & stone business; 114. Paddy-rice business;
115. Marketing of khadi goods; 116. Nakshi Kanta and handloom;
117. Cane matt (Shital pati); 118. Nursery;
119. Sweetmeat production; 120. Fish cultivation (shrimp, telapia,
pangas);
121. Battery manufacturing; 122. Railway slipper manufacturing;
123. Sanitary goods manufacturing; 124. Production of lime from oyster;
125. Pottery; 126. Tea industry;
127. Fruit processing industry; 128. Charcoal production;
129. Storage for potato seeds; 130. Semai, lachha & chanachur
production;
131. Potato tissue culture; 132. Solar electricity plant.;
Page 27
3.4 SME in Bangladesh: The Prospect
 Since SME sector is very much labor intensive with short gestation period, it is capable of
increasing national income as well as rapid employment generation. Our neighboring
countries have also given due importance on SME terming SME as ‘employment
generating machine’.
 The startup fund for SME is very low. So SME can accommodate our new, young and
small entrepreneurs who have not enough funds to make their dream business true. In this
way Bangladesh can nurture her entrepreneurs by SME.
 Again SME can act as the play ground for the new entrepreneurs. In our country there are
so many new entrepreneurs who are intending to start a large industry but they have
neither enough experience to start a large enterprise nor enough fund to operate it. So they
can take SME as the play ground then after having enough experience and fund they can
go for large scale enterprises.
 We should not remove our concentration from agriculture, because industrialization

cannot be the substitute for agriculture in this country. But industrialization can
complement our agriculture. If we think that industrialization can complement our
agriculture then SME can do a lot to supplement our heavy industries.
 SME can ensure maximum social inclusion as it reduces the income inequality. Poor
people who have not enough money they can start a small enterprise, they can earn their
livelihood through this SME. So we see that SME supports pro-poor growth and it works
for poverty alleviation.
 About half of the total population of Bangladesh is woman. If they remain

underdeveloped then it is not possible to achieve development. Women can start small
businesses to support their families. They can produce in which they are specialists like
designer goods, handloom goods, handicrafts, etc. In this way they can also contribute to
the country development and thus women empowerment can also be achieved.
Page 28
3.5 SME Banking Policy: Policy Guideline by Bangladesh Bank

3.5.1 Introduction
The role of Small and Medium Enterprises (SMEs) is indispensable for overall economic
development of a country particularly for developing countries like Bangladesh. Since this sector
is labor intensive with short gestation period, it is capable of increasing national income as well
as rapid employment generation; achieving Millennium Development Goals (MDGs) especially
eradication of extreme poverty and hunger, gender equality and women empowerment. SME
sector has played a vital role in economic development of some prosperous countries of Asia. Our
neighboring countries have also given due importance on SME. Terming SME as ‘employment
generating machine’ they stressed on SME development for higher economic growth, narrowing
the gap of income inequality and poverty alleviation. The present government has also put much
emphasis on the development of SME sector considering it as ‘the driving force for
industrialization’.
3.5.2 Steps/Measures Taken by BB for SME Development

Bangladesh Bank has already introduced several schemes and programmes to flourish and expand
SME Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been
facilitated for the development of SME Sector. Besides, to ensure institutional financial facilities
under easy conditions Bangladesh Bank has taken diverse steps; like opening of ‘Dedicated Desk’
for SME and ‘SME Service Centre’ in the banks and special facilities for the women
entrepreneurs. But reality is that expected outcome has not been achieved so far in this sector. In
the back drop of recent global recession and changed circumstances, it has become essential to
include all segments of people in the growth process through facilitating credit to the sectors
where less attention has been given due to present market mechanism, specially, in agriculture
and SME sector. Reasonably, a new department namely ‘SME and Special Programmes
Department’ has been established in Bangladesh Bank recently which will be solely responsible
for policy formulation, facilitating fund, monitoring and development of entrepreneurship in the
SME sector.
Page 29
3.5.3 Target for SME Credit

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 development agenda 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.
3.5.4 Area Approach Method

‘Area Approach method’ shall be applied for SME sector like agricultural credit. Territorial
industrial production, type of industrial products i.e. areas famous for industrial production or
important due to geographical location will be taken into consideration while disbursing SME
loan. Besides, cluster based approach will be helpful for the bank’s risk analysis and intensive
monitoring of SME financing. For this purpose, light engineering clusters, identified by Upazila-
wise lists of potential SME sectors identified by Branch Offices of BB (after discussion with the
local bankers) are attached herewith.
3.5.5 Cluster Development Policy

Banks/financial institutions will inform BB after adopting cluster development policy to flourish
SME sector. Cluster development policy can be formulated in co operation with banks, financial
institutions and NGOs. The objectives of this policy are to strengthen the existing cluster,
development of new clusters in special sector, development & expansion of sustainable and
competitive technology, skill development of entrepreneurs, and development of marketing
channels, reduce credit risk and enhance overall product development. Strategies for cluster
development:
- Identification of the cluster;
- Formation of committee for cluster development;
- Conduct baseline survey & diagnostic study;
- Fixation of action plan;
- Implementation of action plan;
- Review & monitoring.
Page 30
3.5.6 Financing SME Sector

Access to finance is vital for SME sector development. In many instances, entrepreneurs raise
complain regarding high rate of interest. Indeed, higher rate of interest 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.
3.5.7 Priority to the Small Entrepreneurs

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.
3.5.8 Priority to Refinance in Industry (Manufacturing) and Service Sector

Industry and service sectors are given priority over the business sector under refinance scheme by
Bangladesh Bank. 100% claims in industry and service sector is being refinanced. This policy
will be continued to create a friendly environment for employment generation and higher
production.
3.5.9 Special Arrangement for Women Entrepreneurs

About half of the population of Bangladesh is women. Therefore, women participation in the
mainstream of economy is crucial for attaining sustainable economic growth & poverty reduction.
But women participation in institutional economic sector is inadequate & the rate of women
entrepreneurs is very low compared to that of male counterparts. In fact, there exist many
obstacles in women participation in the mainstream of economy although the degree of integrity,
devotion, creativity and expertise of women society make us surprised. Especially women
participation in micro credit programmes and readymade garments industry is contributing
Page 31
significantly to the country’s industrialization. Similarly, participation of women entrepreneurs in

SME sector is vital for the flourishing of Bangladesh economy. Meantime, Bangladesh Bank has
taken some steps and formulated a guideline for the banks & financial institutions to ensure more
institutional financial facilities for women entrepreneurs in SME sector.
3.5.10 Collateral
Lack of collateral of small entrepreneurs is deemed as a major hindrance to the expansion of SME
credit. Collateral free credit for the share-croppers in agricultural sector is being disbursed.
Banks/financial institutions may provide collateral free credit facilities up to Tk. 25,00,000
against Personal Guarantee in SME sector especially for small and women entrepreneurs. Credit
can also be provided against hypothecation of products and machineries, if needed. However,
banks and financial institutions shall follow their own rules and banker-customer relationship to
determine collateral for credit facilities more than Tk. 25,00,000. Banks and financial institutions
shall apply their own due diligence method in selecting clients/ entrepreneurs. In this connection,
banks/financial institutions shall formulate their own credit policy following the guidelines of the
Central Bank as minimum benchmark and inform SME and Special Programmes Department of
Bangladesh Bank. Group security or social security can also be considered in formulating such
policy.
3.5.11 Grace Period

The entrepreneurs often raise complaints regarding short duration of grace period for repayment
of SME loan. Therefore, banks and financial institutions will consider the reasonable
grace/moratorium period at the time of formulating credit policy for SME sector.
3.5.12 Eligibility of the Borrower

Real entrepreneurs who are directly involved in SME sector will be considered eligible for SME
credit. Generally loan defaulters will not be entitled to get new loan.
Page 32
3.5.13 Interest Rate on SME Credit

Banks/financial institutions shall fix 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 through BB refinance window should be disbursed at bank rate +
not more than 5% interest to the client level (in case of women entrepreneurs).
3.5.14 Outsourcing of Credit Disbursement

Banks/financial institutions may seek assistance from private organizations/Non-Government
Organizations (NGO)/self-help group for selecting borrower, monitoring of credit disbursement,
recovery, motivation of the borrowers, training for them etc.
3.5.15 Incentives
SME loan should be extended to rural areas instead of centralizing at urban areas. The overall
success in SME target achievement will be considered as an important criterion for allowing the
respective banks to open new branch, Authorized Dealer (AD) branch and exchange houses
abroad.
3.5.16 Explanation of Few Terms

3.5.16.1 Cluster:
A cluster may be defined as a local agglomeration of enterprises (mainly SMEs but often also
including some large enterprises) which are producing and selling a range of related and
complementary products/services. For example, leather and leather products manufacturing
enterprises at Hazaribag of Dhaka is treated as the cluster of leather goods. Clusters are identified
considering various factors such as-geographical area, product or service etc.
3.5.16.2 Social Security/Collateral:
Social security/collateral refers to the guarantee given by any social institution/social community
(acceptable to both parties) to secure the loan. For example, when any business organization
(Chamber of Commerce and Industry/Association) gives guarantee/assets as security against the
loan taken by a person associated with the organization can be called social security.
Page 33
3.5.16.3 Group Security/ Collateral:

Group security means the security given by the group jointly against the loan taken by a group
member. Ideologically, this security includes both assets/guarantee. In reality, guarantee given
by the group is mostly used as Group Security for the repayment of the loan. In such case, if any
member becomes defaulter, whole group will be considered as defaulter and will be deprived of
further loan. As a result, defaulter member will be bound to pay the loan under the pressure of
group members.
3.5.16.4 Women Entrepreneur:
An woman engaged in business in her own name will be treated as women entrepreneur. The
women entrepreneurs should be given priority for SME loan and special facility (low rate of
interest) will be entitled under special consideration. It may be mentioned that if a woman
entrepreneur owns/ possesses more than 50% shares of a business, it will be deemed as a
business conducted by woman entrepreneur and will be entitled for facilities under special
consideration.
3.5.16.5 Loan/Investments:
Islamic banks operating in our country term ‘SME financing’ as ‘Investment’ instead of ‘Loan’.
For this reason, the term ‘investment’ used by Islamic banks is interchangeable with the word
‘loan/credit’ in SME financing.
Page 34
4.1 Purpose of SME Loan
 Working capital
 Purchasing of capital machinery
 Delivery Van /Transport for business purpose
 Renewing office/ Business premises
 Purchase of commercial land, possession for new venture
 Other eligible portfolio of the bank
4.2 SME Exposure Limit

The minimum and maximum exposure of the bank on single Small Enterprise shall remain
subject to the following:
 In case of working capital finance- Maximum up to 100% of the net required working
capital or 75% of the sum total of inventory and receivables whichever is lower.
 In case of fixed assets purchase- Maximum up to 90% of the purchased price. Limit on
clean facility for Tk. 2 Lac to below Tk. 10 Lac:
In order to facilitate growth of smaller loans, banks are free to determine security requirements
for loan below Tk. 10 Lac
 As a minimum Bank must take charge on assets being financed
 Branch should also obtain other common documents/ charge documents as applicable
 For Loan amounting Tk. 10 Lac to Tk. 50 Lac

Registered mortgage over immovable properties with registered power of attorney and
disclaimer from the mortgagor(s);
 Hypothecation on the inventory, receivables, advance payments, plants &machineries.

 Personal guarantee of spouse/ parents/ other family members.
 Third party guarantee from a person acceptable to the Bank.
 Post dated cheques for each installment and one post dated cheque for full loan value
including full interest.
 Branch shall also obtain other common documents/ charge documents as applicable.
Page 35
 Maximum Exposure
As per Bangladesh Bank's Guidelines the Bank can take the following maximum exposure in
SME finance:
Table : Exposure Limit of SME Financing for Banks

On the basis of the above criteria, Annual Budget for SME Finance shall be placed before the
Board of the Bank for approval.
4.3 Loan Pricing
 For small enterprises:

For unsecured loan: 19.00%
For partially or fully secured loan: 16.00 % to 19.00%
 For medium enterprises:
Interest rate varies from 16.00 to 19.00% (Interest rate may be changed from time to time
according to Bangladesh Bank Guideline)
 Loan processing fee:
For unsecured loan: (0.5 to1.50%) + VAT
For partially or fully secured loan: (0.5% to 1.50%) + VAT
 For overdue: Penal interest shall be charged @ 3% on the overdue amount
 Other fees & charges:
Documentation Charge - BDT- 2,000.00 Cheque Dishonoring Charge- BDT-500.00 Security
Replacement Fee - BDT-2,000.00 Reminder Fee- BDT-200.00 CIB Collection Fee - BDT-50.00
Reschedule Fee- BDT-2,000.00
Legal & Asset Valuation Fee -BDT- At actual
Early Settlement Fee - 1stquarter of loan tenor: 5%, 2ndquarter of loan tenor: 4%,3rdquarter of
loan tenor: 3% but for repeat financing it may come up to 1%
Page 36
4.4 Period of Loan

1. For continuous Loan: 1 (one) year
2. For Term Loan: Maximum up to 5(five) years
4.5 Mode of Repayment
1. For continuous loan credit turnover must be equal to the limit amount in a quarter and full
and final adjustment within the validity period
2. For term loan, repayment to be made by monthly installment and full and final
adjustment within the validity period.
4.6 Security for the Loan Facility

 Registered mortgage of property/assignment of possession right
 Hypothecation of stock and inventories
 Ownership of the vehicle/machinery purchased in the name of the Bank
 Ownership of the space/possession right purchased in Bank's name
 FDR duly likened& discharged
 Personal guarantee from the person(s) acceptable to the Bank
 Post dated cheque
 Any other security as deemed fit on a case to case basis.
4.7 Documents Required for the Loan Facility

 Loan Application Form duly filled in and signed by the customer.
 Borrower's Basic Fact Sheet under the seal and signature of the borrower.
 A written declaration obtained from the borrower divulging details of various facilities
already obtained from other institutions.
 Acceptance of the terms and conditions of Sanction Advice
 Copy of up-to-date Trade License
 Photographs of the client(s)/proprietor/ partners/ directors duly attested.
 Personal net worth statement of the proprietor / partners/ directors.
 Copy of up-to-date TIN Certificate.
 Short description of the products of the enterprise.
 Project Profile (if new project).
Page 37
 Quotation/ Indent/ Pro-forma Invoice etc (as applicable)

 Marketing distribution system of the company.
 Short profile of the proprietor / partners/ directors mentioning their business experience/
education etc.
 Brief description of the management of the company mentioning their educational
professional experiences.
 A latest liability statement of all the business concerns of the Group with other Banks/
Financial Institutions (Mentioning -name of business concern, name of bank and branch,
nature of facility, limit amount, outstanding, overdue, if any etc.)
 Latest Credit information Bureau (CIB) report from Bangladesh Bank.
 Copy of financial statements for last 03 years duly singed by the borrower
 Copy of Registered Partnership Deed duly certified as true copy or a partnership Deed on
non-judicial stamp of Tk.150 denomination duly notarized (as applicable).
 Copy of Memorandum & articles of Association of the company including Certificate of
Incorporation duly certified by Registrar Joint Stock Companies (RJSC) and attested by
the Managing Director accompanied by an up-to-date list of Directors (as applicable).
 Copy of Board Resolution of the company for availing credit facilities and authorizing
Managing Director/ Chairman/ Director for execution of documents and
operation of the accounts (as applicable).
 An Undertaking not to change the management of the company and the memorandum
and articles of the company without prior permission of the bank (as applicable).
4.8 Dedicated SME Branches in JBL

Although all the branches of Janata Bank Ltd (JBL) have got SME marketing officers, there are
dedicated SME banking branches for special attention to SME financing. The special attribute
that SME branches have is that these 8 branches must invest minimum 50% of their deposit
amount to SME financing. This makes a clear idea of the special care these branches give to
SME financing. These 8 branches are: Jurain SME Service Centre, Madaripur, Munshigonj,
Tongibari, Chapainawabgonj, Kazipur, Sherpur, Moulvi Bazar SME / Krishi Branch.
Page 38
4.9 Structure of SME Division
Page 39
4.10 Criteria and Conditions of SME loan
4.10.1 Selection Criteria of Potential Enterprise of SME

 Enterprise Selection Criteria
The success of SME largely depends on the selection of a business and man behind it. In terms
of the business (Enterprise), the following attributes should be sought:
 The business must be in operation for at least one year
 The business should be environmental friendly (Ex: No narcotics or Tobacco business)
 The business should be legally registered, i.e., valid trade license, income tax or VAT
registration, wherever applicable.
 The business should be in legal trade, i.e. smuggling will not be allowed or socially
unacceptable business will not be entertained
 The business must have a defined market with a clear potential growth
 The business must be located ideally close to the market and the source of its raw
materials/ suppliers. It should have access to all the utilities, skilled manpower's that are
required.
 Any risk assessed by the management in turn will become a credit risk for the bank. So
effort should be made to understand the risk faced by the business.
 Entrepreneur Selection Criteria

In order to understand the capability of the management behind the business, the following
should be assessed:
 The entrepreneur should be physically able and in good health, preferably between age
of: 20 to 60. If the proprietor is an elderly person closer to 60, it should be seen what is
the succession process will be and whether it is clearly defined or not.
 The entrepreneur must have the necessary technical skill to run the business, i.e academic
background or vocational training, relevant work experience in another institution or
years of experience in this line of business.
 The entrepreneur must possess a high level of enthusiasm and should demonstrate that he
is in control of his business and has the ability to take up new and fresh challenges to take
the business forward.
 Clear-cut indication of source of income and reasonable ability to save.
Page 40
 Guarantor Selection Criteria

Proper selection of guarantor is also equally important. The following attributes are important
while selecting the guarantor:
 The guarantor must have the ability to repay the loan and is economically solvent (check
his/ her net worth)
 The guarantor should be aware of all the aspect of the loan and the responsibilities
 The guarantor should be well known to the entrepreneur
4.10.2 Processing and Screening of Loan Proposal
Currently all the branches of JBL has dedicated SME officers for marketing the SME Loan.
These officers help in SME Loan and Deposit product marketing, proposal preparation, loan
documentation, loan disbursement, loan monitoring and recovery. Every loan proposal is
generated at the grass root level through the marketing officers. These officers primarily generate
the proposal and process the positive proposal under supervision of "Area Group Leader" and
place it to their respective "Regional SME Center". The Head of Regional SME Center Business
Development Manager (BDM) may decline the unviable loan proposal at their level. In viable
cases, he may conduct physical inspection (if necessary) and send the positive proposal to SME-
CRM Unit. The CRM unit at Head Office analyzes every pros and cons of the proposals and
recommends to the management for sanction of the loan if they think viable. After sanction of
the proposal, the SME- CRM unit sends the loan file to the concerned SME Center for
disbursement. After completing all documentation formalities as per sanction, the center will
disburse the loan through their respective branches after obtaining disbursement authority from
Credit Administration Division (CAD) and report it to "SME Banking Division" at Head Office.
The Work flow diagrammatically is as below:
Figure: SME Centralization System of JBL
Page 41
5.1 SME Credit Analysis-JBL
5.1.1 Sector wise Small and Medium Enterprise Financing for the Year 2014
JBL is actively involved in SME financing. Through providing credits in this sector the bank
plays a crucial role in income generation in rural and sub-urban areas through creation of
employment opportunities. The bank extended term loans and working capital to different
producers, business people and service providers under this sector. The industries that are
notable belong to such sectors as, textiles, jute, garments, environment friendly brick production,
light engineering, cottage industries, handicraft, accessories of readymade garments etc. The
following table summarizes the financing:
Summary of Small and Medium Enterprise Financing

(BDT in Million)
Type Sectors Male Female Total Percentage

Number Amount Number Amount
(Amount) (%)
Small Service 206 866.30 108 141.70 - -
Business 9323 12555.80 283 308.10 - -
Industry 210 282.20 8 13.50 - -
Total 9739 13704.30 399 463.30 14167.60 41.34%
Medium Service 2 37.60 - - - -
Business 2204 17141.70 6 28.00 - -
Industry 232 2731.40 25 163.20 - -
Total 2438 19910.70 31 191.20 20101.90 58.66%

Total - - 33615 - 654.50 34269.50 100%
SME
Financing
Page 42
Total SME Financing
25000
20000
Axis Title 15000
10000
5000
0
Small Medium
Figure: Total Small and Medium Enterprise Financing for the year 2014.
Percentage of Financing(%)
60.00%
50.00%
40.00%
Axis Title
30.00%
20.00%
10.00%
0.00%
Small Medium
Figure: Small and Medium Enterprises Financing(%) for the year 2014.
Page 43
5.1.2 Development of Women Entrepreneurs
Another important concept in SME financing is the development of women entrepreneurship.

Under the framework of SME, JBL is giving special emphasis in developing women
entrepreneurs and in line with the regulatory instruction. With a view to extending financial
support to women entrepreneurs, JBL provides credits facilities. It supports activities in
garments, items of home decoration, boutique, printing service, processed food, fast foods etc.
The following table shows the number of entrepreneurs and amount disbursed during last 5 (five)
years:
Year wise Distribution of Loans to Women Entrepreneurs
(BDT in Million)
Year Number Amount

2014 306 27.00
2013 38 14.20
2012 35 14.50
2011 30 10.00
2010 22 4.60
Development of Women Entrepreneourship (BDT in Million)

Amount
27
14.2 14.5
10
4.6
2014 2013 2012 2011 2010
Figure: Five Years Distribution of Loans to Women Entrepreneurs.
5.1.3 SME Financing
Page 44
SMEs play a vital role in any economy in terms of employment, income generation, alleviation
of poverty and development of local markets and supply chain. Its also develop local products to
meet local needs using local resources. Keeping this in the mind, JBL has formulated a
comprehensive policy for SME financing under the guidelines of Bangladesh Bank and made
significant progress in financing this sector with a view to developing a balanced and dynamic
industrial sector having a strong base of SMEs throughout the country. JBL puts its continuous
efforts by participating in various road shows, workshop, forums and fairs to build awareness
among the customers as well as building capacity of the SME officials. To ensure vibrant native
economy by financing in the SME sector, JBL is working relentlessly and has disbursed BDT
34,269.50 million in favor of various SME entrepreneurs in 2014 which is shown under the
table:
Small and Medium Enterprise Financing
(BDT in Million)
Nature of SME Total Loan Disbursement

Service 1045.6
Trading 30033.60
Manufacturing 3190.30
Total Disbursement 34269.50
SME Financing 2014
90%
80%
70%
60%
Axis Title 50%
40%
30%
20%
10%
0%
Pharmacutical Others RMG & Textile
Figure: SME Financing for the year 2014
5.2 SWOT Analysis of SME Division of JBL
Page 45
SWOT analysis is very helpful to measure and evaluate a stated objective within a very short
time. SWOT analysis, is also a strategic planning tool to evaluate these Strengths, Weaknesses,
Opportunities and Threats involved in a project or in a business venture. It involves specifying
the objective of the project or business venture and identifying the internal and external factors
that are favorable and unfavorable to achieve the objectives. The aim of the SWOT analysis is to
identify the key internal factors (Strengths, Weaknesses) which are controllable and external
factors (Opportunities, Threats) which are uncontrollable. After monitoring closely and working
proactively in the overall banking especially in SME Division of Janata Bank Limited following
Strengths, Weaknesses, Opportunities and Threats have been found:
Page 46
Positive Negative
STRENGTHS WEAKNESSES

Strong Accumulation of capital in  SME Loan portfolio lacks sectoral
Small and Medium Enterprises; diversification;
I  Raising more customers in SME  Absence of fully implifications of
N section of JBL; BB policies in SME financing;
 SME financing is improving  Failure of borrower selection and
T
socio economic conditions that the enterprises to properly estimate
E means this scheme is an effective their working capital requirement;
R one and has potentialities enough  The bank is disbursing most of
to be boost up our economy; their loan amount to the trading
N
 Requirement of collateral is sector but to encourage the proper
A reasonable and satisfactory to the growth of our country, they should
L client and SME financing is allocate more money in the
effective because customer manufacturing sector.
having no collateral security to
mortgage are also able to get
loans primarily.
OPPORTUNITIES THREATS
 New geographic territories for  Current market of SME is too
SME operation, workshops and competitive and JBL might lose a
training facilities for the SME big portion of it's prospective
E Officers; clients to other banks and NBFIs;
X  Management of the Bank is  Lack of proper monitoring for
giving priorities to enlarge the SME loans might become a threat
T
SME Loan exposure for less for Bank's overall performance in
E provisioning than the traditional the long run;
R CC Loans;  Global Market recession and
 Offering lower interest rate than increase of competitors;
N other banks can give and edge to  Due to global economic crisis
A JBL SME; Bangladesh Bank have decided
 Small and medium enterprise is that all the will keep their loan rate
L
one of the big opportunities for within 13% as a result it will
JBL, because day by day the increase their profitable level.
numbers of small and medium are
increasing and they are one of the
great sources of profit.
Page 47
5.2 Findings
Janata Bank Limited plays a vital role in the SME sector of Bangladesh. The findings of this
report are given below:
 According to Bangladesh Bank Rules, bank should provide 40% loan to Small Enterprises
and rest(60%) of the loan to Medium Enterprises. From our analysis in 2014,we can see
that JBL provides 41.34% loan to Small Enterprises and 58.66% loan to Medium
Enterprises which is close to the BB Rule;
 From Five Years Analysis(2010 to 2014),it is found that JBL provides more amount(about
27 million) to the Women Entrepreneurs in 2014 compared to previous years;
 Incase of Loan Disbursements(for the year 2014), JBL provides more amount to trading
sectors compared to service and manufacturing sectors;
 From Theoretical Analysis it is found that JBL does not fully comply BB SME Policy;
 From Theoretical Analysis, it is found that the quality of SME activities performed by
JBL makes difference because it wants to reduce the interest rate and increase tenure;
 Some customers are not satisfied with the attitude/behavior of SME personnel’s;
 Huge number of documents in the helpdesk causes delay in the disbursement process;
 Sometimes very simple work is done by the head office which takes time and make
difficulties, sometimes verification is done by a new officer which dangerous both for the
bank and the branch office in case of SME financing;
 JBL SME authority should carefully choose the proprietors while disbursing the SME
loan. Because overly aged persons cannot pay the SME loans. The maximum age limit
for taking any SME loan program is 60 years according to JBL SME policy;
 Inexperienced proprietors are not encouraged to gain the SME loans. It was found that
most of the proprietors have 5-10 years of experience who are currently getting the SME
loan;
 Most of the proprietors use this SME loan for purchasing raw materials. The other major
use of the SME loan is for meeting salary and daily expenses;
Page 48
 The problems or risks regarding SME loans for the bankers are like flexible repayment
options for borrowers, confusion with borrowing terms and conditions, wrong
information, risks with guarantee, documentation risk, moral hazard problems with
unsecured loans, monitoring activity etc.;
 Janata Bank Ltd. has not been successful in increasing their SME Portfolio over the
years, but the growth they are showing is good.
Page 49
6.1 Discussion
The study is completely based on my internship program in Janata Bank Limited. I have
successfully completed my internship program from Janata Bank Limited at Ghandhamati Bazar
Branch in Kotbari, Comilla. It was three months long internship program which I started from
October 04, 2015 to January 03, 2016. I did this internship program with pleasure and dignity. In
my internship period, I worked on “A Study on SME Banking Practices in Janata Bank
Limited.” It was a great experience to me that I achieved much knowledge about the different
types of banking reports. All employees of this bank were very helpful and they accept me
cordially and prefer me as a part of their team member.
For my study all information has been gathered from secondary sources. My report consist the
introductory part and the overview of the organization at first. The next portion includes the
theoretical framework of the study. I collect enough information about SME banking practices in
Bangladesh, and also in JBL.
My most important portion of the study is the analysis part, which is done in two steps:
 SME credit analysis-JBL;

 SWOT analysis.
At first the financial performance of SME financing is analyzed. This is done on the basis of past
data collected from JBLs’ Annual Report and other financial documents. At last the SWOT
analysis of the organizations Strengths, Weaknesses, Opportunities and Threats are done. The
final recommendations and conclusion is given on the light of overall analysis.
Page 50
6.2 Recommendations
For achieving the best possible targets, the bank should take following some steps. These can be-
 JBL should enlarge its SME financing to Medium Enterprises;
 To be attractive in SME financing, JBL should provide more SME loans to women
entrepreneurs in future;
 JBL should increase its SME financing in service and manufacturing sectors as like
trading sectors;
 JBL should follow BB SME policy guidelines fully;
 Allocate resources specifically for growth of SME business and implement strict and
continuous monitoring system of the whole recovery process;
 In case of SME loan portfolio, sectoral diversification should be increased;
 Workshops and training facilities should be enlarged for the SME officers more
comprehensively and realistically so that customers may not face any trouble while
getting and repaying the loan;
 JBL should make easy loan disbursement policy;
 Reducing the SME interest rate within considerable level and reducing the loan
processing time length, service charge in case of SME financing. Regular checking of the
SME portfolio should be made more successful;
 JBL should increase loan instalment period;
 Bank should revise their credit policy to make their SME financing program more
attractive and profitable to their customers;
 The banking industry is extremely competitive and continuously changing. Competitor
banks are introducing new products and services and taking new actions to manage SME
risk. So, JBL should put more time and money in developing new SME products;
 Credit Card should introduce as soon as possible and it should be available to customer;
 Bank should use the right people for the right place and analyze customers’ behavior that
what type of customer makes default and stop giving them SME loan;
 People must be properly motivated before its introduction and new application of any
new scheme;
Page 51
 The Janata Bank Limited should reduce manual and paper work, because it reduces
efficiency and also keeping more time. Bank must introduce e-banking system for better
customer service.
6.3 Conclusion
With the clear mission to satisfy diverse needs of its customers and to contribute socio-economic
development of the country, Janata Bank Limited is the second largest state owned commercial
bank with different outlook to offer the valued customers, a comprehensive range of financial
services and innovative products for sustainable mutual growth and prosperity. The sponsors are
reputed personalities; have a long heritage of trade, commerce and industry. They are highly
regarded for their entrepreneurial competence.
The main target is to make credits available to the all & their activities are aimed at multifaceted
growth where people from all economic strata will enjoy the benefits of better living standard,
dignity of labor and self worth. JBL provide Small and Medium Enterprise (SME) loan facilities
to experienced and inexperienced entrepreneurs located in the urban and sub-urban areas to
encourage new and educated young entrepreneurs to undertake productive ventures, to assist
them to take part in the economic activities. They keep constant persuasion with the Heads of
Branches to increase exposure in Small and Medium Enterprise (SME) Loan, but they are always
handicapped with shortage of manpower in the branches. Small and Medium Enterprise (SME) is
a supervised credit and needs more manpower for constant follow up, monitoring and recovery.
And as such, branches ask for posting of additional manpower exclusively for Small and Medium
Enterprise (SME). In this situation, it is necessary to increase substantial exposure in Small and
Medium Enterprise (SME), open separate desk in the branches with adequate manpower. The
bank must make a positive attempt to be more outward looking in their goals and aware of what is
happening. They should have to emphasize on the domestic scenario more closely and analyze
any certain trends and strategies of their competitors. By this way the Bank will be able to keep
on playing its important roles in our economy.
Page 52
In the industrial policy of Bangladesh the policy makers are not making any clear-cut policy for
the development of small enterprise. Further frequent changes of industrial polices are another
problem in this regard. Small business owners are also not getting any incentives such as tax
holiday, low rate interest policy, relaxed loan repayment policy etc from the government. Thus it
is strongly recommended that there should be a specific loan policy only for the SME where the
entrepreneurs will get various incentives and care from the policy makers as well as credit
providers. Lack of electronic and other media coverage and borrowers awareness about existing
or new facilities are further added constraints for this sector. There is also lack of training
programs and information about SME, its market and available facilities. Therefore proper
institutional and non-institutional training programs by the government and non-government
organizations should be offer to the investors. Further to combat with the existing environment
and help to accelerate sustainable growth of SMS as well as overall economy it is urgently
needed to develop mass awareness in the society and change the traditional believe of concerned
people.
Page 53
A. References
 Audretsch, D. (1995), “Innovation Growth and Survival.” International Journal of

Industrial Organization 13(4): p. 441-457.
 Annual Report of Janata Bank Limited, 2014 and 2013.
 Bhattacharya, D. and T.Chowdhury. (2003), “Financial Sector Reforms in Bangladesh:
The Next Round (Paper 22).” Centre for Policy Dialogue, Dhaka, p. 06.
 Credit Manual of Janata Bank Ltd. 2014.
 Different brochures of Janata Bank Ltd.
 Hoassain, N. (1998),“Contribution to SME Development in Bangladesh.” Job
Opportunities and Business Support (JOBS), Banani, Dhaka, p. 27.
 Khan, Atiqur Rahman (2010), “Development of Small and Medium Scale Enterprise in
Bangladesh: Prospects and Constraints.” Bangladesh Institute of Bank Management
(BIBM).
 M. Akterujjaman (2010), “Problems and Prospects of SMEs Loan Management.” 5(2): p.
39-43.
 Mahmud, W. (2006), “Local Business Dynamics: Ground Realities and Policy
Challenges.” Institutional Reform and the Informal Sector (IRIS), Dhaka, p. 13.
 Md Fazlur Rahman (2011), “SME takes centre stage.” The Daily Star, Monday, January
17.
 Mintoo, Abdul Awal (2006), “SMEs in Bangladesh”, CACCI Journal 1: p. 1-19.
 “SME Foundation to honour financial institutions”. Star Business Report, Published:
12:00 am Friday, March 07, 2014.
 Siddiquee, M. M., K. M. Z Islam. and M. I.Rahman (2006), “Revisiting SME Financing
in Bangladesh.” Daffodil International University Journal of Business and Economics
1(1): p.15.
 Several Booklets from Janata Bank Ltd.
 www.google.com
 www.investopedia.com
 www. janatabank-bd.com
Page 54
B. Appendix
Page 55
Page 56

1.1 Background: " A Study On SME Banking Practices in Janata Bank Limited"

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1.1 Background: " A Study On SME Banking Practices in Janata Bank Limited"

Uploaded by

Copyright:

Available Formats

“ A Study on SME Banking Practices in Janata Bank Limited”

1.2 Origin of the Study

1.3 Rationale of the Study

1.4 Objectives of the Study

1.5 Methodology of the Study

1.5.2 Sources of Data

1.6 Scope of the Study

1.7 Limitations of the Study

Janata Bank Limited operates through 900 branches including 4 overseas branches at United

The Bank employees more than 15(fifteen) thousand persons.

 The Board of Directors is composed of 13 (Thirteen) members headed by a Chairman.

2.2 Corporate Vision and Mission

To become the effective largest commercial bank in Bangladesh to support socio-economic

2.3 Strategic Objectives of JBL

2.5 Code of Conduct

2.6 Ethical Principles

 Implement justice and fairness;

2.7 Statement of Forward Looking Approach

 Changes in fiscal, monetary and trade policies;

 Changes in socio-economic condition arises from natural calamity and political

2.8 Corporate Profile

Name of Company Janata Bank Limited

Chief Executive Office Obeid Sayah Al – Mansuri Building Zayed

2.9 Key Milestones of JBL

1972 Commencement of banking operation

1976 Inaugurate 1st overseas branch in UAE

1st cash dividend paid.

Deposit crossed BDT 100,000 million.

Incorporation of Janata Exchange Company Srl, Italy.

Inaugurate Janata Bank Software (JB Soft)

Incorporate of ATM service.

JBL crossed BDT 100,000 million of loans & advances.

Received “Asian Banking Award” on Financing program for Women Entrepreneurship

Incorporation and commencement of business as JBL

Commencement of NRB branch.

Launching of speedy remittance service.

Launching of JBL CIB online system.

JBL at the top in CSR activities among the SCBs.

Incorporation of Janata Exchange Company, USA.

JBL crossed 900 Branches all over the country.

Deposit 28656 36167 40977 47854 51601

Loans And 22573 25780 30534 28575 31977

Classified Loan 1182 1504 5320 3177 3738

Import 18374 19728 18828 17667 14456

Export 11851 15375 15652 15325 15408

Manpower 12826 15020 15071 15485 14413

2.11 Board of Directors

 Chairman of the Board of Directors

 Members of the Board of Directors

 Prof. Mohammad Moinuddin

 Information about Independent Director

All the directors are independent in nature.

2.12 Management Hierarchy of JBL

“ A Study on SME Banking Practices in Janata Bank Limited”

Deputy General Manager(DGM)

Assistant General Manager(AGM)

First Assistant General Manager(FAGM)

Senior Executive Officer(SEO)

2.13 Products & Services of JBL

 Deposits  Loans & Advances

Current & Call Deposits Agriculture Loan Programs

Savings Bank Deposits Poverty Alleviation Program