Professional Documents
Culture Documents
1.1: Introduction
Small and medium enterprises (SMEs) all over the world have been playing a crucial role in
promoting economic development as well as industrial production (Akterujjaman, 2010). In
particular, SMEs provide the necessary foundations for sustained growth and rising income in
the less developed and transitional economies. SME financing is a topic of significant
research interest to academics and an issue of great importance to the policymakers of
Bangladesh and around the world (Ahmed, M. U. 2000). Economic as well as technical and
social arguments warrant the promotion of SMEs as they create large scale, low-cost
employment opportunities, use locally available inputs and technologies, mobilize small and
scattered private savings, develop entrepreneurship, and correct the regional imbalance in
development that exists in developing countries (Akterujjaman, 2010). Despite all these
potentials, SMEs are disappearing, abandoning the potential role they could have played in
economic development. Several studies have identified the major obstacles that include, but
not limited to financing, infrastructure facilities, taxes and regulations, and stability in
policies. Access to financing continues to be one of the most significant challenges for the
growth and survival of SMEs especially innovative ones (OECD, 2004). This paper focuses
on the financial constraints that SMEs face in BRAC Bank. In Bangladesh, commercial banks
are not interested to finance SMEs because of the high risk and high supervision cost
associated with this type of financing. Absence of sound collateral puts SMEs at a relative
disadvantage. It is generally recognized that SMEs have a significant role in employment
generation, poverty reduction and overall economic growth, especially for a developing
economy like Bangladesh. SMEs are typically labor-intensive industries with relatively low
capital intensity.
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1.3: Objectives of the Study
The main objective of the study is to find out the major problems and prospects of SME loan
management of BRAC Bank Ltd. However, the specific objectives are as follows:
1. To find out the problems and prospects in designing proper financial products for the
SMEs.
2. To find out the bank’s reasons for reluctance to providing loans to the SMEs.
3. To suggest recommendations to overcome the problems related to SME loan
management.
1.5: Limitations:
I have faced the following barriers while preparing the report.
1. Data from BRAC Bank Ltd., Head Office is highly confidential for the outside people
and I had no authority to use the core banking software (Finacle).
2. BRAC Bank Ltd. has very recently migrated from Millennium Banking System to
Finacle. That’s why all the employees are very busy with their works; sometimes I
had to wait more than one week for a piece of information.
3. I could get few more time to spend in collecting data for preparing my thesis paper.
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Chapter-2: Methodology
2.1 Methodology of the Study
Methodology describes working procedure of the study in a systematic manner. The study is
a qualitative one supported by quantitative data wherever necessary. The quality of the
research depends on a well designed methodology to achieve goals and objectives easily. A
dictionary of Social Science defined, "Methodology is the systematic and logical study of the
principles guiding scientific investigation" (Hamid, 1998). This research comprises four
major stages of work:
Conceptualization
Collection of Primary and secondary data from different source
Analysis of the collected data
Recommendation and conclusion
For non-manufacturing activities (such as trading or other services), the Taskforce defines:
(d) An enterprise would be treated as small if it has less than 25 workers, in full-time
equivalents;
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(e) An enterprise would be treated as medium if it has between 25 and 100
employees;
From both definitions above, land, once again, is excluded.
Having said that, an alternative, albeit informal, definition, of SMEs is used by the
Bangladesh Bureau of Statistics, using head-count for its basis. Enterprises with up to 9
employees are treated as “micro”; with between 10 and 49, as small; with between 50 and 99,
as medium, and all the rest, as large. For statistical purposes, this is the definition that we use
in this paper.
Bangladesh accounts for some 60% of units and 76% of employment overall in the private-
sector enterprise sector, with rural Bangladesh accounting for the rest. Ninety-three point six
(93.6%) of all units in Bangladesh belong in the SME category, i.e.; have between 20 and 99
employees. However, SMEs account for only 44% of the total employment of the enterprise
sector (Hoassain, 1998).
And different articles on newspaper also inspired to conduct the study. These are the main
belongings behind the development of concept of this study.
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1. Observation: Data were also collected through observation during interview.
2. Data were collected in February-March 2013. Analysis was done based on qualitative
research method.
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Chapter-3: Literature Review
3.1: Literature Review
The Daily Star in its editorial (2010) mentioned that many SME owners are to face
difficulties when they require bank loans. In fact, SME financing has recently been identified
by experts as one of the major problems faced by SMEs in Bangladesh.
Mahmud (2011) said that the 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.
A World Bank survey (2002) on Bangladesh’s SMEs identified lack of finance as the major
issue, with 55% SMEs reporting it. Bribes (21%), orders/marketing of product (28%), lack of
knowledge (12%), and license for work (8%), along with new technology (8%) were also
considered as major issues. Without the much vital capital, they have little chance of growth
or even sustenance in this mobile world. This study has tried to pinpoint, through empirical
research, the major, problems faced by SMEs and banks in Bangladesh in relation to
financing and has provided recommendations based on the findings to improve the situation.
Rosen (2003) mentioned that 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. IFC (2004) Annual Review report mentioned that in almost every part
of the world limited access to finance is one of the biggest obstacles to private sector growth.
This is especially true for smaller firms that have minimum influence on policy reform.
Bhattacharya and Chowdhury (2011) mentioned that Bangladesh Bank encourages banks to
give loans to projects for diversified industrial development. From the point of view of
limiting the credit risk exposures of the banks having a higher level of classified loan, the
new rule is justified. However, to consider large loans as risky loans (by the new rule) is not
reasonable. Moreover, for increasing the volume of lending to the SME sector, this sort of
supply-side policy is not adequate. In fact, under both directed lending (before 1990) and
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deregulated lending (after 1990) regimes, the demand-side factors were not considered;
consequently, resource allocation suffered.
A number of donors are working in Bangladesh in the interest of fostering SMEs. Some, like
the GTZ, are working not with entrepreneurs but with the chambers and industry associations
building their capacities to deliver needed services. Some, like the Catalyst, are putting
together a comprehensive base of knowledge and insights about living production clusters,
not all of them in manufacturing, namely, plastics, agricultural tools, textiles, pond culture,
and vegetable-raising (Berger, A. N. and G. E. Udell. 2005). Yet others such as the SEDF are
building enterprise-level capacities through training programs, efforts to upgrade project
management skills, enhancing the appraisal and evaluation capacities of financial institutions
concerned with SMEs.
In the UK, sections 382 and 465 of the Companies Act 2006 define a SME for the purpose of
accounting requirements.
According to this a small company is one that has a turnover of not more than £5.6 million, a
balance sheet total of not more than £2.8 million and not more than 50 employees. A
medium-sized company has a turnover of not more than £22.8 million, a balance sheet total
of not more than £11.4 million and not more than 250 employees. It is worth noting that even
within the UK this definition is not universally applied.
In the USA, the definition of small business is set by a government department called the
Small Business Administration (SBA) Size Standards Office. The SBA uses the term “size
standards” to indicate the largest a concern can be in order to still be considered a small
business, and therefore able to benefit from small business targeted funding. The concern
cannot be dominant in its field, on a national basis. It must also be independently owned and
operated. Unlike the UK and the European Union which have simple definitions applied to all
industries, the US has chosen to set size standards for each individual NAICS coded industry.
This variation is intended to reflect industry differences in a better way. The most common
size standards are 500 employees for most manufacturing and mining industries 100
employees for wholesale trade industries $6 million of annual receipts for most retail and
service industries $28.5 million of annual receipts for most general & heavy construction
industries $12 million of receipts for all special trade contractors $0.75 million of receipts for
most agricultural industries Breaking down the SME definition, Industry Canada defines a
small business as one that has fewer than 100 employees (if the business is a goods-
producing business) or fewer than 50 employees (if the business is a service-based business).
A firm that has more employees than these cut-offs but fewer than 500 employees is
classified as a medium-sized business. (www.about.com)
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In India the Small Scale Industries (SSIs) are industrial undertaking in which the investment
in fixed assets in plant and machinery, whether held on ownership terms or on lease or by
hire purchase does not exceed Rs. 10 million. The Small Scale Service And Business
(Industry related) Enterprises (SSSBEs) are industry related service and business enterprises
with investment in fixed assets, excluding land and building up to Ps. 1 million. (Ministry of
trade and Industry, Government of India)
Medium enterprise:
An enterprise would be treated as medium if, in current market prices, the replacement cost
of plant, machinery and other parts/components, fixtures, support utility, and associated
technical services by way of capitalized costs (of turn-key consultancy services, for example),
etc, excluding land and building, were to up to Tk. 100 million;
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Medium enterprise:
An enterprise should be treated as small if it has between 25 and 100 employees.
According to Bangladesh Bureau of Statistics different enterprises are defined as;
No. of employees
Micro 0-9
Small 10-49
Medium 50-99
Large Above 99
The Ministry of Industries, Government of Bangladesh has been identified following booster
sectors;
1. Electronics and electrical
2. Software-development
3. Light engineering and metal-working
4. Agro-processing/agro-business/plantation agriculture/specialist farming/tissue-culture
5. Leather-making and leather goods
6. Knitwear and ready-made garments
7. Plastics and other synthetics
8. Healthcare & diagnostics
9. Educational services
10. Pharmaceuticals/cosmetics/toiletries
11. Fashion-rich personal effects, wear and consumption goods (Kashfia, 2009).
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Chapter-4: BRAC BANK Limited at a Glance
4.1: Corporate Information
Registered Office: 1, Gulshan Avenue, Gulshan-1, Dhaka-1212
Signing with Infosys and 3i InfoTech for changing Bank’s IT platform: 1st August 2006
Auditor – S.F Ahmed & Co (Chartered Accountants, House # 25, Road # 13A, Block # D,
Banani, Dhaka-1213.
Legal Advisor, Law Valley, Shajan Tower, Commercial Block, Suit-202 (First Floor). 4
Shegun Bagicha, Dhaka-1000 (brac bank.com).
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offering services in the heart of rural and urban communities and employs about 1,200
business loan officers – around 70% of total staff. The reason BRAC Bank is in business is to
build a profitable and socially responsible financial institution focused on markets and
businesses with growth potential, thereby assisting BRAC and stakeholders to build a "just,
enlightened, healthy, democratic and poverty free Bangladesh." Which means to help make
communities and economy of the country stronger and to help people achieve their dreams?
We fulfill the purpose by reaching for high standards in everything we do: For our customers,
our shareholders, our associates and our communities, upon which the future prosperity of
our company rests. (bracbank.com)
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5. Keep our Debt Charges at 2% to maintain a steady profitable growth
6. Achieve efficient synergies between the bank's Branches, SME Unit Offices and
BRAC field offices for delivery of Remittance and Bank's other products and services
7. Manage various lines of business in a fully controlled environment with no
compromise on service quality
8. Keep a diverse, far flung team fully motivated and driven towards materializing the
bank's vision into reality (bracbank.com)
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Fig-1: Shareholding Structure
Shareholding
Shareholding
46.36%
43.77%
5.36% 3.22%
0.86% 0.43%
Source: (bracbank.com)
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4.10: Division of BRAC Bank Ltd:
There are five different business units generating business BRAC BANK Limited:
I. Small & Medium Enterprise (SME)
II. Corporate Banking
III. Retail Banking
IV. Treasury
V. Remittance Services
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Table-3: Deposit Products
Deposit Products Campus Account
Savings Account Term Deposits
Triple Benefit Savings Account DPS
Savings Classic Account Fixed Deposit
Aporajita Account Flexi DPS
Current Accounts Interest First Fixed Deposit
Current Classic Account Freedom Fixed Deposit (FFD)
Current Plus Abiram Fixed Deposit
EZee Account
Salary Account
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Bill Purchase
Bank Guarantees
Trade Finance
Letter of Credit (LC)
Letter of Guarantee (LG)
4.10.7: Cash Management
Cash & Trade Overview
Liability Products
Securities Services
4.10.8: Custodial Service
Probashi Biniyog
Probashi Abiram
Probashi DPS
4.10.11: Investments
Probashi Wage Earners' Bond
Probashi Biniyog
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4.10.12: Remittance Info
Western Union Money Transfer
Exchange Houses
Sponsors: BBL has been founded by a group of eminent entrepreneurs of the country
having adequate financial strength. The sponsor directors belong to prominent
resources persons of the country. The Board of Directors headed by its Chairman Sir.
F. H. Abed. Therefore, BBL has a strong financial strength and it built upon a strong
foundation.
Efficient Management: The top management of the bank is also major strength for
the BBL has contributed heavily towards the growth and development of the bank.
The top management officials have all worked in reputed banks and their years of
banking experience, skills, expertise will continue to contribute towards further
expansion of the bank. At BBL, the top management is the driving force and the think
tank of the organization where policies are crafted and often cascaded down.
Facilities and equipment: BBL has sufficient physical facilities and equipments to
provide better services to the customers. The bank has computerized and online
banking operations under the software called Finacle banking operations. Counting
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machines in the teller counters have been installed for speedy service ant the cash
counters. Computerized statements for the customers as well as for the internal use of
the banks are also available (brac bank Annual report).
NGO name (BRAC): BRAC is one of the largest NGO of the world and it is
operating its activities in Bangladesh. BRAC bank is not a NGO bank but many
people of them country consider it as a NGO bank like Grameen bank which is not
correct.
Remuneration: The remuneration package for the entry and the mid level
management is considerably low. The compensation package for BBL entry level
positions is even lower than the contemporary banks. Under the existing low payment
structure, it will be difficult to attract and retain higher educated employees in BBL.
Especially CROs are not satisfied with compensation package provided to them (brac
bank Annual report).
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Product line proliferation: In this competitive environment BBL must expand its
product line to enhance its sustainable competitive advantage.
Available Branches: With its proper and useful operational network, there is an
opportunity for IFIC to further expand its branches in many remote and new location
of the country which will deliver services to customer and earn a healthy profit for the
bank (brac bank Annual report-2011).
Upcoming banks: The upcoming private local banks can also pose a threat to the
existing private commercial banks like BBL. It is expected that in the next few years
more local private banks may emerge. If that happens the intensity of competition will
rise further and banks will have to develop strategies to compete against an on
slaughter of foreign banks.
Contemporary banks: The contemporary banks of BBL such as Dhaka bank, prime
bank and Dutch Bangla Ltd. are its major rivals. Prime bank and other banks are
carrying out aggressive campaign to attract lucrative clients as well as big time
depositors.
Leasing companies: Leasing companies like IDLC and others are also competitor for
BRAC Bank (brac bank Annual report-2011)
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Chapter-5 SME Banking Division
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5.3: Procedure of BRAC bank SME loan
Customer Relations Officer (CRO) helps a customer choose the scheme which best meets his
financial requirements and fits his business size and nature. The CRO then collects all the
requisite documents from the customer, consolidates the information, and after ensuring that
all the required documentation are in place, he prepares the Loan Application Proposal (LAP)
and passes it on to his Zonal Manager. The Zonal Manager visits the business, gives the file a
final check and forwards it to the Credit Risk Management department of bank (brac
bank.com).
The Credit Analyst in the SME Credit wing visits the business location and analyzes the loan
proposal by making an assessment of the customer’s ability to repay based on his business
profile and matching customer’s proposal with his credit assessment to determine whether the
customer can be financed. Its credit officers are always proactive in identifying and managing
any risks/gaps in the credit file and communicating them to the respective CRO’s so they can
correct the discrepancies and provide the required information. In areas where there is no
centralized credit assessment department, the bank has audit team that visits the business
location and assesses the file (brac bank.com).
The Origination department verifies the documentation and opens the loan accounts of the
customers. In addition, they help obtain the CIB of the customer, a mandatory requirement of
Bangladesh Bank. The loan is then disbursed to the customer. SME Business and CRM
jointly manage the collection responsibility across the country based on overdue aging. SME
Repayment Unit performs the functions of loan repayment and the Closing Unit does the loan
closure. The CRO obtains the deposit slip from the customers for the monthly installments;
he sends a mobile text to Head Office for realization of the installment. The slips are
collected at the repayment unit for reconciliation. As the loan matures, the closing and
clearing units handle the necessary paperwork and forward the clearance certificate and
redemption authority of mortgage property to the respective CRO/ZM, who then hand them
over to customer (brac bank.com).
5.3.1 Enterprise Selection Criteria: The success of SME will largely depend on the
selection of a business and man behind it. In terms of the business (Enterprise), the
following attributes should be sought:
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Business Age: The age of business must be one year. If the business is older than they
got more preference and facility.
Registration: The business should be legally registered, i.e., valid trade license,
income tax or VAT registration, wherever applicable.
Environment friendly: The business should be environment friendly, no narcotics or
tobacco business.
Define Market: The business must have a defined market with a clear potential
growth
Location of business: 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
Riskiness of business: Any risk assessed by the management in turn will become a
credit risk for the bank. So effort should make to understand the risk faced by the
business.
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6. Clear-cut indication of source of income and reasonable ability to save (Rabbani,
Mehnaz & Munshi, 2005).
5.4: Monitoring:
Monitoring is a system by which a bank can keep track of its clients and their operations. So
monitoring is an essential task for a CRO to know the borrowers activities after the loan
disbursement. This also facilitates the buildup of an information base for future reference.
Importance of Monitoring:
Through monitoring a CRO can see whether the enterprise invested the sanctioned amount in
the pre-specified area of his business, how well the business is running, the attitude of the
entrepreneur, cash credit sales and purchase, inventory position, work in process and finished
goods etc, This information will help the CRO/BRAC Bank to recover the loan accruing to
the schedule and to take the necessary decisions for repeat loans.
Business Condition
The most important task of the CRO to monitor the business frequently, it will help him to
understand whether the business is running well or not, and accordingly advice the borrower,
whenever necessary. The frequency of monitoring should be at least once month if all things
are in order.
Production
The CRO will monitor the production activities of the business and if there is any problem in
the production process, the CRO will try to help the entrepreneur to solve the problem. On
the other hand the CRO can also stop the misuse of the loan other than for the purpose for
which the loan was disbursed.
Sales
Monitoring sales proceed is another important task of the CRO it will help him to forecast the
monthly sales revenue, credit sales etc. which will ensure the recovery of the monthly loan
repayments from the enterprise as well as to take necessary steps for future loans.
Investment
It is very important to ensure that the entire loan has been invested in the manner invented. If
the money is utilized in other areas, then it may not be possible to recover the loan.
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Target Market:
1. Trading of grocery item
2. Hardware
3. Chemical products
4. Sanitary ware
5. Building materials (rod, cement, brick, paint, and others)
6. Electrical and electronic items
7. Imported foods (biscuits, cheese, juice, and such items)
8. Light machinery
9. Large tailoring business
10. Weaving mills
11. Bakery
12. Printing house
13. Feed mill
14. Poultry
15. Dairy farm
16. Fisheries
17. Manual/auto rice mill
18. Boutiques and parlors
19. Restaurant
20. Distributor of FMCG products/others
21. Fish wholesaler
22. Food grain wholesaler
23. Wood processing/saw mills
24. Many more…
Profit Making: SME program is a new dimensional banking system in the banking
world. Most of the CROs are providing door-to-door services to the entrepreneurs.
Entrepreneurs are satisfied by the service of the bank and making profit with guidance
of the bank.
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Map-1: SME Network of BRAC Bank
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Chapter-6 SME Product Details of BRAC Bank
6.1: Anonno Rin
A business loan scheme for the purpose of working capital finance and/or fixed assets
purchase to the small and medium sized trading, manufacturing, service, agriculture, non-
farm activities, agro-based industries etc. all over Bangladesh through marketing and
distribution offices (called unit offices) across the country. The loan, under this scheme,
would be secured by hypothecation on the inventory, receivables, advance payments, plant &
machineries, charge on immovable properties, third part y personal gu arantee,
equitable/registered mortgage of landed property, full or partial cash cover (in the form of
readily en cashable government bonds, mutual fund unit certificates and deposits/fixed
deposits in our Bank or in other Banks if the entrepreneur(s)/owner(s) offers/agrees to offer)
Table-4: Anonno Rin
INTERE
LOAN AMOUNT ST RATE
NAME ELIGIBILITY
FEATURES (BDT) &
CRITERIA
TENURE
Loan without
3 lac to 10 lac
Mortgage, Easy
Excellent Borrowers 18 – 60 years of age
installment
might get reduced
Anonno interest rates for
Minimum 2 years
Rin Discounted rates for repeat loans. 22% 24% p.a
experience in the
Excellent Borrowers p.a. for the first time
same line of business
and 20% p.a. for the
Quick, quality Business must be
second time.
banking throughout going concern for at
the country least 3 or more years.
Source: operation manual, SME BRAC Bank (2011)
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across the country. The loan, under this scheme, would be secured by hypothecation on the
inventory, receivables, advance payments, plant & machineries, charge on immovable
properties, third party personal guarantee, equitable/registered mortgage of landed property,
full or partial cash cover (in the form of readily encashable government bonds, mutual fund
unit certificates and deposits/fixed deposits in our Bank or in other Banks if the
entrepreneur(s)/owner(s) offers/agrees to offer)
Table-5: Apurbo Rin
LOAN INTEREST
NAME FEATURES AMOUNT RATE & ELIGIBILITY
(BDT) TENURE CRITERIA
25 – 60 years of age,
Without mortgage for
Those who have
loan below 10 lac.
property/land/building
17% p.a. at
Simple loan
monthly rest for
Apurbo processing for 10 Lac to 1 Minimum 3 years of
loans between
expanding your Crore Loans some sort of business
8.50 lac to 15
business activities
lac.
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Table-6: Digoon Rin
LOAN INTEREST
ELIGIBILITY
NAME FEATURES AMOUNT RATE &
CRITERIA
(BDT TENURE
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Table-7: Prothoma Rin
INTEREST
LOAN ELIGIBILITY
NAME FEATURES RATE &
AMOUNT CRITERIA
TENURE
(BDT)
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6.5: Pathshala Rin
The product offers term loan facilities for the purpose of fixed assets purchase under Equated
Monthly Installment. The loan would be secured by hypothecation on the inventory,
receivables, advance payments, equipments, furniture & fixtures, charge on immovable
properties, equitable/registered mortgage of landed property, partial or full cash cover (in the
form of readily encashable mutual fund unit certificates and deposits/fixed deposits in our
Bank or in other Banks).
Table-8: Pathshala Rin
INTEREST
LOAN ELIGIBILITY
NAME FEATURES RATE &
AMOUNT CRITERIA
TENURE
(BDT)
The institution
should be sole
24% p.a. at
proprietorship,
Without mortgage for monthly rest for
partnership,
loan below 10 lac loan amounting
Private Limited
3 lac to 10 lac
Company, or
Society
17% p.a. at
The educational
Loan for fixed assets monthly rest for
Pathshala 3 lac to 10 lac institute must be
purchase & civil loan amounting
a profit making
construction above 10 lac to
concern
15 lac
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plan
Quick disbursement
If you are an
Equal monthly enlisted supplier
3 lac to 9.5 lac-
installment and of a corporate
22% p.a at
revolving loan house with
Supplier monthly rest
facility 3 lac to 30 lac which BRAC
Finance
Bank has a
corporate tie- up
1% of loan 10 lac to 15 lac - Have 1 year
amount as the 17% p.a at continuous
processing fee monthly rest relationship with
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the purchasing
firm
Have minimum 3
Above 15 lac to
years of
30 lac - 15% p.a
continuous
at monthly rest
operation
Above 8 lac to 15
Easy loan 3 lac to 10
Aroggo lac - 17% p.a at
processing lac
monthly rest
Institutions with at least 2
Loan years in operation
Above 15 lac to 30
repayment
lac - 16% p.a at
schedule is
monthly rest
spread up to 3
years
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1% loan
processing fee
Flexible interest
rate based on
security
The
Type- A: Loan Type- D: Loan
entrepreneur
100% of the 95% of the face
must have
face value of value of Fixed
Cash Secured minimum 6
Fixed Deposit Deposit 3% p.a.
Loan 3 lac to 30 lac (Six) months
3% p.a. spread Spread over Fixed
experience in
over Fixed Deposit‟s interest
the same line of
Deposit‟s rate.
business.
interest rate
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Type- E:
Loan 80% of the To be
face value of Fixed determined by
Deposit. 2% p.a. Trade license (if
spread over Fixed available)
Deposit‟s interest
rate.
Source: operation manual, SME BRAC Bank (2011)
INTEREST
LOAN ELIGIBILITY
NAME FEATURES RATE &
AMOUNT CRITERIA
TENURE
(BDT)
Smart Business
Card Entrepreneurs
aged between 18
50,000
24 hour Access to 60 years
withdrawing 4% interest on
to ATMs/ POS
facility (per day) daily balance
Bizness Account from ATM &
No Minimum
100, 000 from Opening balance
Balance, No
POS -BDT-10,000.00
Ledger Fees, No
hidden cost
No bar for using Interest paid to Small and
POS account twice a medium sized
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year business
Phone-Banking, entrepreneur of
Online Banking, a sole
SMS Banking, proprietorship
Internet Banking business
facility
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Chapter-7 Data Analysis
7.1: Data Analysis
An analysis is generated from the questionnaire to fulfill the objectives of the study. The
respondents were employees of BRAC Bank Limited and customer, sample size was 150 and
simple random sample was applied. For the convenience of analysis the researcher has
calculated the percentage of the responses. For the ease of better understanding, the
researcher has presented the information of percentage under three headings (Agree/High,
Neither Agree nor Disagree/Moderate, and Disagree/Low). Several judgments are being
made from the responses of the employees of BRAC Bank Ltd. to validate the objectives of
the study. The results are presented below. The study finds that SMEs are not preparing
proper financial statement which creates problem for the bank in judging financial standings.
It is also observed that SMEs are not maintaining proper licensing (Figure 7).
BRAC Bank started its journey in 2001 with a mandate to serve the SMEs of Bangladesh &
to realize dreams and aspirations of SMEs especially in remote areas of the country.
• In-line with the mandate BRAC Bank continued to grow its SME portfolio, which is 53% of
Bank’s total portfolio.
500
Amount in US$
400
300
200
100
$1.00 $2.00 $3.00 $4.00 $5.00
Year of portfolio 2007 2008 2009 2010 2011
US $m 226 391 426 441 519
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Fig-3: Growth of BRAC Bank’s Portfolio type
Portfolio Type
State Owned
Banks
28%
Private Banks
59%
NBSIs
4%
Spcializeed
Banks
6%
Foreign Banks
3%
$160
$140
$120
$100
$60
$40
$20
$0
Jan-09 Jan-10 Jan-11
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Fig-5: Growth of BRAC Bank SME Deposits Portfolio
$600 $519
$500 $430 $441
$400
$300
$200 $155
$106
$65
$100
15% 24% 30%
$0
Jan-09 Jan-10 Jan-11
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Fig-7: Sourcing flow diagram of SME lone
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Fig-9: SMEs prepare proper financial statement
SMEs prepare proper financial statement
20
15
10
5
Frequency
0
Point
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Fig-11: BRAC Bank Limited grant large loan for the SMEs
BRAC Bank Limited grant large loan for the SMEs
25
20
15
10
5
Frequency
0
Point
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Fig-13: Responses on consideration of BBL for promotion of the products
3 Over Draft
2 Time Loan
1 Term Loan
0
Very High High
Moderate
Low
Very Low
Fig-14: Responses on the ability to design appropriate financial products for SME
segment
Responses on the ability to design appropriate financial
products for SME segment
4.5
3.5
3
Lack of Experience
2.5
Lack of importance
2 Regulation and formality
1.5 Lack of Trust
1 Lack of Feedback
0.5
0
Very
High
High Moderate Low
Very Low
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Fig-15: Responses on factors that can improve the quality of SME loan offering
5
4.5
4 Offering short-Term Loan
3.5
3 Offering lower interest
2.5 rates
2 Inter-connection
1.5
1 Greater SME market
0.5 research
0 Accurate credit information
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Fig-16: Amount of Loan Disbursed (BDT in millions)
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Fig-17: Amount of SME loan Repaid
Aroggo
6%
Apurbo
58%
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Fig-18: Amount of Loan Overdue
Amount of Loan Overdue(BDT in millions)
Prothoma Others
3% Anonno
Digoon rin 0% 16%
17%
Aroggo
6%
Apurbo
58%
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Table-17: Reason behind SME loan defaulting in 2012
Reason Frequency(f) Percentages (%)
Abscond 350 16.17
Business Closed 1265 58.46
Deceased 125 5.78
Case file 365 16.87
Others 59 2.73
Total
2,164 100
Source: Internal Data, SME Banking Operation of BBL
Business
Closed
58%
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Fig-20: Nature of Business of SME Loan borrowers
Nature of Business
Others
Service
8%
14%
Trading
45%
Manufact
uring
33%
Source: Survey Data 2013
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Fig-21: Purpose of SME Loan Taken
Others
24%
Purchase
Gain fixed asset
working 57%
capital
19%
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Fig-22: Amount of SME loan taken
12.00-
9.00- 30.00
12.00 6%
11%
2.00-6.00
6.00-9.00 53%
30%
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Fig-23: Term of SME loan Taken
60
50
40
30 Frequency(f)
Percentage(%)
20
10
0
Below 7 7-14 14-21 21-28 28-35 35 or
Months Months Months Months Months More
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7.12: Age of SME Loan Borrowers
Out of 150 respondents 125 made response to the question regarding age. Table 11 shows
that age group is maximum frequency is 30-40 years. This group contributes to 36.00% of
total respondent. The second large age is the 40-50years that contribute to 28.8%. It clearly
shows that most of the SME loan provided to people who are aged and experienced but there
are few borrower’s who are above 50 or more years.
40-50 years
29% 30-40 years
36%
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7.13: Education qualification of SME Loan Borrowers
124 out 150 respondents made response to the question regarding educational qualification.
Table-12 shows that the educational qualification of most of the borrowers 42.74% surveyed
is below SSC and 9.68% are educated up to SSC and 15.32% are educated up to HSC
level.20.97% have completed graduation. Only 11.29% of respondent have post graduation
degree.
Table-24: Education qualification of SME Loan Borrowers
Education Frequency(f) Percentage (%)
Below SSC 53 42.74
SSC 12 9.68
HSC 19 15.32
Bachelor 26 20.97
Masters 14 11.29
Total 124 100.00
Source: Survey Data 2013
Education Qualification
60
50
40
30 Frequency(f)
Percentage(%)
20
10
0
Below SSC HSC Bachelor Masters
SSC
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20,000-30,000. 27.10% of customer surveyed earns more than BDT 50,000monthly.the
monthly income of only 10.28%is less than BDT 10,000.
Monthly Income
Below
10,000
50,000 10% 10,000-
or 20,000
More 12%
27%
20,000-
30,000
30,000- 24%
40,000
17%
40,000-
50,000
10%
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Table-26: Business Experience of SME loan borrowers
Experience Frequency(f) Percentage (%)
Below 5 Years 39 26.53
5-10 Years 41 27.89
10-15 Years 26 17.69
15-20 Years 22 14.97
20 Years or More 19 12.93
Total 147 100.00
Source: Survey Data 2013
Business Experience
45
40
35
30
25
20
15
10
5
0
Below 5 5-10 Years 10-15 Years 15-20 Years 20 Years or
Years More
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Table-27: Business asset of SME loan borrowers
Business Assets (BDT in lac) Frequency(f) Percentage (%)
Below 5 lac 23 17.16
5.00-10.00 75 55.97
10.00-15.00 16 11.94
15.00-20.00 9 6.72
20.00 or More 11 8.21
Total 134 100.00
Source: Survey Data 2013
Business Assets
80
70
60
50
40
30
20
10
0
Below 5 lac 5.00-10.00 10.00-15.00 15.00-20.00 20.00 or
More
Eligibility
Any kind of organization (such as sole proprietorship, partnership, private limited company,
educational institution, NGO/Project, Co-operative society and so forth)
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Specialty of PRAPTI Current account
It is a current account in which interest is paid on daily balance. You can open up this
account in any branches across the nation with only BDT 2000. For withdrawal need it will
have debit card (only for sole proprietorship) with opening the account. And make their
transactions through 21 SME sales and service centre, 48 agri branch and 86 branches, over
300 ATMs and 30 cash deposit machines without hassle.
Rate of Interest
The following is the rate of interest applicable daily on ones balance.
0 - Below 5,000 0%
Miscellaneous Fee
Relationship Fee Free (If average balance is BDT 100,000 or above). BDT
(Half yearly) 500+15%VAT will be charged if average balance is below than BDT
100,000.
Cheque Book Fee First cheque book is free (25 leaf). From 2nd cheque book (Maximum
100 Leaf) BDT 8 + 15% VAT (per leaf) will be charged if average
balance is below than BDT 1,00,000.
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"Prachurjo" is a lucrative fixed deposit for small and medium businesses. With a minimum
50,000 TK, any business enterprise having valid trade license can open this account.
Specialties
1. Tenure: Minimum 1 month and maximum 36 months
2. No fees except govt excise / duty on interest earned,
3. Interest is applicable on maturity
4. No pre-encashment fees
(b) Collateral: The banks have some regulation of taking a minimum amount of collateral
against credit, but many small and medium entrepreneurs cannot fulfill the requirement.
(c) Complexity increases cost of loan: Many entrepreneurs is having problem because of high
interest rate. Banks, in many cases maintain high spread as a result there remains reckless
competition of making more profit from the Banks perspective. And, sufferers are general
entrepreneurs who borrow from the Bank (Quader, and Ahmed 2005).
(d) Extremely short grace period: In our country, grace period of repaying any credit is very
low. According to the SME entrepreneurs, almost all the Banks structured the loan in such a
way that entrepreneurs have to start the repayment of credit within a very short time after
disbursement of credit. This is really a big problem for the entrepreneurs because the
entrepreneurs are bound to generate profit instantly to fulfill the Banks requirement.
(f) Longer loan processing time and associate cost of uncertainty: Credit in this sector
requires longer processing time. Though it is small and medium enterprise Sector, processing
time for loan is not short. As a result banks are unwilling to enter in this sector.
(g) Lack of basic infrastructure, inputs, managerial efficiency and inadequate sanction: Most
of the SMEs do not have basic infrastructure of their own i.e. there is a lack of planned
infrastructure in this sector.
(a) Lack of information on loan application requirement among the SME loan seekers:
As credit application requires availability of adequate information, most of the SMEs do not
have adequate information.
(b) Absence of an appropriate and clear-cut legal framework for enforcing quick recovery:
Even Banks do not have appropriate legal framework in order to recover their disbursed
credit. Their recovery framework is not clear-cut as a result they fail to control the servicing
of loan.
Others problems:
High employee turnover
Due to limited growth of SME most of the skilled employees leave SMEs. It’s observed that
SMEs are knowledge creators but poor at knowledge retention.
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Poor physical infrastructure
Inadequate supply of necessary utilities like electricity, water, roads and highways hinder the
growth of SME sector. Moreover unfavorable geographical conditions increase the
transportation cost.
Financial constraints
Availability of finance hinders the growth of SMEs in Bangladesh. Bangladeshi bank
considers SMEs as high risk borrowers because of their inability to comply with the bank’s
collateral requirements. Only about 15-20% of the owners of SMEs own any immovable
property. Bankers issue loan on the basis of ownership of immovable property as collateral
risk. As a result it automatically excludes rest 80% SME’s from the list of privileged clients
of the banks.
Lack of information
Miah (2006) has observed that SMEs have very limited use of information technology (IT).
Accounting package is used by 1-2% of the SMEs. The use of computers is revealed by say
15% of the SMEs, while the use of the Internet for business purposes applies to say 8-10% of
SMEs.
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Access to Market and lack of awareness regarding the importance of marketing tool
For SME, owing a retail space is very expensive in the major cities in Bangladesh. As a result
many customers are not interested to buy products and services from SMEs. Because they
can’t judge the quality until they physically examined the product. Most of the cases SMEs in
Bangladesh are not able to use the Integrated Marketing Communication (IMC) tools. But
these tools play the role of important stimulus to motivate the customers and retain them. The
country does not have enough marketing capability and resources to invest in marketing.
Bureaucracy
It’s observed that the inadequate government supports are top ranking constraints for SMEs.
Unnecessary layers of Bureaucracy and red-taps reduce the competitiveness of SME and
raising the cost of transactions and operations.
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Chapter-10: Research Findings, Recommendation and Conclusion
Research Findings
There are various problems and prospects that are associated with SME loan management of
BRAC Bank. The findings of the analysis and interpretations are as follows:
1. SMEs are not preparing proper financial statement which creates problem for the bank
judging financial standings, profitability and credibility.
2. SMEs are not maintaining proper licensing which makes SMEs difficult to trace,
create problem for the bank maintaining records, and decrease SMEs credibility to the
bankers.
3. Upgraded technology affects SMEs ability to repay loans.
4. BBL considers promotion for the product like Over Draft, Time Loan, and Term Loan
to be adequate in SME’s sector.
5. Bank is not yet able to design appropriate financial products for SME segment due to
lack of importance and lack of feedback from SME owners.
6. Payback period suggested by banker is 1-3 years.
7. Bank does not consider informal loan providers as its competitors.
8. Bank is ready to grant loan to SMEs as a cluster.
9. Banks can trace SMEs better, can lower their cost of capital, and can give efficient
service if they grant loan cluster wise.
10. Shorter-term loans and lower interest rates will improve the quality of SME loan
offering.
11. Bank improves current SME offering through interconnection between individual and
SME loans so that higher amounts can be extracted.
12. Accurate credit rating information will improve the quality of SME loan offering.
Recommendations
In order to overcome the above mentioned problems the following suggestions are
recommended;
1. It should be maintain proper financial statement for SME’s loan borrowers.
2. Maintaining proper licensing is necessary to SME loan takers for the future security.
3. Technology must be easier and understandable to the SME loan borrowers.
4. Financial products design should be appropriate for SME segment for feedback from
SME owners.
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5. Interest rate is higher for SME loan. The interest rate as well as additional charges
such as loan processing fee should be reduced.
6. The documentation process must be easier because most of the borrowers are not well
educated.
7. The first step for BRAC Bank Limited would be to minimize this gap by relaxing
bank procedures of SME’s loan management.
8. Customer Relationship Officers (CRO) should be well-trained to provide better
service to SME loan borrowers.
9. Due to the absence of uniform definition the policy formulation and implementations
are not possible. Bank should take initiative to develop a uniform definition of each
category of SME’s.
10. To encourage manufacturing, BRAC bank should provide more SME loan to
entrepreneurs involved in production.
11. Effective monitoring system should be implemented for the whole recovery process.
12. In this era of intense competition continuous planning and quality improvement act as
a prerequisite for the survival of SMEs. In order to improve the quality SMEs can
follow the Just in Time (JIT) philosophy and use Total Quality Management (TQM)
and can ensure the improvement of quality and productivity at a time.
13. The bank should develop an official credit-rating system in easier way, even if in a
limited manner, as soon as possible so that they can have some idea about the
reliability of their SME clients.
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Conclusions
The SME sector in many developing countries has usually been neglected and discriminated
against in terms of access to government attention, access to finance, management and
marketing expertise and technology, as compared with large enterprises. SMEs in Bangladesh
contribute significantly to manufacturing growth and employment creation. There are around
27,000 medium sized enterprises and around 150,000 small-scale enterprises in the country.
At present, 80 percent of manufacturing establishments are SMEs, accounting for 80 percent
of the labor force, 50 percent of the output of the sector and 5 percent of GDP. SMEs provide
vital linkages to larger enterprises, particularly in the high-growth export sector, and also
form part of the core business activities in both rural and urban areas. The objectives of the
study are fulfilled despite some limitations. The problems are identified in this paper through
detailed analysis of collected data. On the other hand the problems that BBL faced in
designing proper financial products for SMEs are also identified. At the end, this study has
tried to offer some suggestions to overcome those problems. If the problems can be solved
the transaction between SMEs and BRAC Bank Limited will be increased.
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Appendix- A
Definition of SMEs by different institutions/ agencies
Source Small enterprise Medium enterprise
Industrial • Manufacturing and services activities with fixed total investment not
Policy 1991 exceeding Tk.30 million (excluding cost of land, establishment, and transport
cost of assets, tax and duty).
Industrial
Policy 2005 • Manufacturing sector: industries • Manufacturing sector: industries
having fixed assets below Tk.15 having fixed assets between Tk. 15
million. million and Tk.100 million.
Bangladesh • Services: Total fixed asset (TFA) • Services: TFA: Tk. 5 million to 100
Bank Tk.50 thousand to Tk. 5 million million (excluding land and building).
(excluding land and building). No. of No. of employee: less than 50
employee: less than 25 persons. persons.
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Appendix- B
Definition of SME in different countries
World Bank EU
Micro-enterprise: up to 10 employees, total Micro-enterprises: < 10 employees;
assets of up to $100,000 and total annual Small enterprises: 10-49 employees with
sales of up to $100,000; small enterprise-up maximum turnover up to 7 million euro.
to 50 employees, total assets of up to $3 Medium-sized enterprises: 50-250
million and total sales of up to $3 million; employees with maximum turnover up to 40
medium enterprise-up to 300 employees, million Euro. Maximum balance sheet total
total assets of up to $15 million, and total is 5 million for small euro and 27 million for
annual sales of up to $15 million. medium size enterprises.
Albania Latvia
Micro-enterprises: < 10 employees; Small enterprises: < 25 employees; max.
Small enterprises: 10-40 employees. turnover < Lats 200,000; and max. balance
Medium-sizedenterprises:50-250 employees. sheet total < Lats 70,000.
Azerbaijan Lithuania
Small enterprises: Small enterprises:
< 50 employees in industry; < 50 employees and max. turnover < litas
< 15 employees in transport; 500,000.
< 25 employees in construction; and
< 10 employees in retail trade and servicing.
Medium-sized enterprises:
51-250 employees in industry;
16-75 employees in transport;
26-150 employees in construction; and
11-50 employees in retail trade and
servicing.
Bulgaria Moldova
Small enterprises: Micro-enterprises: with employees < 20;
< 50 employees and max. Assets in balanceSmall enterprises: with employees between
sheet BGL 20 million. 20 and 75 persons.
Medium-sized enterprises: No definition
exists.
Belarus Romania
Small enterprises: < 200 employees in Small enterprises: 1-20 employees and
industry with maximum annual turnover turnover between LEI 10 million and 2
< Rbl 20 million; billion.
< 100 employees in innovation with Medium-sized enterprises: 21-200
maximum turnover employees and turnover between LEI 10
< Rbl 5 million; million and 2 billion
< 50 employees in construction and other
production
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spheres with max. turnover < Rbl 5 million;
< 50 employees in catering and public
services with max. turnover < Rbl 2 million;
< 25 employees in retail trade; and
< 25 employees in other non-production
spheres with max. turnover < Rbl 1.5
million.
Medium-sized enterprises: No definition
exists.
Hungary Russian Federation
Small enterprises: 11-50 employees; Small enterprises:
maximum turnover < HUF 500 million and < 100 employees in industry and
maximum balance sheet total < HUF 200 construction:
million. < 60 employees in agriculture;
Medium-enterprises: 51-250 employees; < 60 employees in science;
maximum turnover < HUF 2 billion and < 50 employees in wholesale trade;
maximum balance sheet total < HUF 1.25 < 30 employees in retail trade and household
billion. services; and
< 50 employees in other production and non-
production spheres.
Medium-sized enterprises: No definition
exists.
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REFERENCES
Alam, M. S. and M. A.Ullah. 2006. “SMEs in Bangladesh and Their Financing: An Analysis
and Some Recommendations.” The Cost and Management, 34(3):57-72.
BRAC Bank Limited. A Handbook of Operational Guidelines for Small Enterprise Loan
Scheme – BRAC Bank Limited.
Hamid, M., 1998. “Methods and Techniques of Social Research” University Press Limited,
Dhaka.
OECD. 2009. “The Impact of the Global Crisis on SME and Entrepreneurship Financing and
Policy Responses.” Centre for Entrepreneurship, SMEs and Local Development, p.5
Rabbani, Mehnaz & Munshi, Solaiman (2005). Financing SMEs and its Effect on
Employment Generation: A Study of Brac Bank’s SME Lending.
S. M. AKTERUJJAMAN. 2010. Problems and Prospects of SMEs Loan Management: A
Study on Mercantile Bank Limited, Khulna Branch, Volume– V, Issue– 02, July-December, 2010
www.bracbank.com
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