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A Report on BRAC Bank: Loans Introduction: BRAC Bank Began its Challenging Journey form year-2001 BRAC Bank has grog substantially in the two and a half years since its inception and it has now reached a point whereby word of minaret is no longer sufficient to adequately share its news. Now it is a world class commercial institution. Of course BRAC Bank’s most obvious mission is to provide the full scheme of quality barking set vices. But more than that BRAC Bank seeks to contribute to the development of Bangladesh through large scale financing of entrepreneurs, specially small ones. BRAC is a major shareholder of BRAC Bark. BRAC Bank believes that, development financing strategic can be profitable. Especially BRAC Bank didn’t/doesn’t invest a lot of money for its marketing purpose in com parson to other private commercial banks. Because bill boards are not available in Dhaka City or in television. There are four divisions of BRAC Bank Ltd. (1) Rattail Banking Division (2) Corporate Banking Division (3) Small is medium Enterprises (SME) division (4) Treasury division We can say that SME is the Backbone of BRAC Bank Ltd. Now let us see the short shape of SME Division of BRAC Bank Ltd. BRAC Bank Ltd focuses on basically dirt market procedures and relationship market procedures. Rapport building with a Client with ‘Relationship Marketing’ The concept of ‘Relationship marketing’ is relatively new and still in the process of evaluation. But this concept has three contemporary perspectives: 1. More emphasis should be given on developing long-tem relationship with the clients those have bright future and rather not to satisfy them with a single transaction. That is made the clients interested to receive loan from our bank repeatedly with satisfaction on our product and serivces. 2. The CSO have to develop and enhance enduring, relationship with the cliests, enterprises through providing continuous like, after loan disbursement follow-up, monitoring etc. Besides relationship have to develop with other influential groups, who are providing training and other technical support to them and ha control over the entrepeneur through sharing information, views and ideas.
3. Bringing together the quality of customer services and marketing activities to cover the target, so that the client feels the synergetic effect. CSO should consider that our clients deserve attractive products analysis from our Bank. A CSO can ensure these by providing ideas about business analysis and investment through consulting the clients. Relationship marketing is expected to yield the following benefits to the BRAC Bank in the longer run. • Repeat business through repeat loan disbursement • Enhance brand/product and services loyalty • Increase long-term profitability of Bank • Introduce new products and servicese • Expansion opportunities Relationship marketing also benefits our clients, clients, because they get better products, good backup services and they can talk about their problems and grivevances. Major benefits to the entrepreneurs are. • • • •
superior value therough better products and services complaints are heard customization of products and services for better satisfaction business analysis capabilities.
We can make a start with relationship marketing by using the following steps: • • • • • •
Creating a database for selected entrepreneurs Gathering more information about clients Identifying key and actual clients Creation the enterprises profile Getting closer to the customers/clients Maintaining relationship
Customer Dealigas Dimensions of Direct Marketing: Business firms through direct communication to eonvince them to receive their products and services today are increasingly approaching consumers or clients. In our country there are about 52 Bank working with the people with varieties of their attractive products and services and there is a high competition each other. For sustaining, they offering various types of innovation for better service for the clients. So, to reach the closer best to the clients direct marketing gaining momentum in the country. Direct marketing has scope of getting the client in close touch and hve them as a long-term customer. Direct marketing is four-step process-
Conducting survey properly Individual contact with entrepreneur for selecting potential borrower Deliver BRAC Bank’s products and other services Keeping in close touch with them to develop mutually beneficial long-term relationships.
Deirct approach may be used for the marketing of financial products. It is also effective where the firm has a family of products and services to offer to the same customer or clients. Direct marketing may use different media such as press coupons, telephone and electronic devices for contacting the customer. More over, a CSO of BRAC bank have scope to contact with their clients both directly visiting client’s enterprises physically and by their mobiles. In a competitive environment, to increase their reach and access to the related market, firms shoud evolve an integrated system of marketing. Even if they continue to distribute through conventional channels, they may develop and maintin direct contact to retain their customers. In our cases, our targeted enterpreneurs are the subjects of dealings to achieve the objectives of BRAC Bank, and our policy is to contact with clients directly with a confident manners. The Marketing Officers’ Role A successful Marketing Officer/CSO should be consider the following processes•
• •
Analysis: A CSO must be analytical during the selection of potential entrepreneurs and enterprises. For this CSO must analyze and interpret different financial statements through analyzing different appropriate ratios, analyzing the environment, management, system, relationship among the worker/staff and with the owner. Planning: A CSO must prepare a plan according to the given target abd also will make a schedule for achieving the target effectively and efficiently. Implementation: The CSO will perform the assigned job proerly to attain the target as per plan schedule. This process is specially as follows-
Translating strategic into a plan of action Implementing various activities as per plan Accomplishing predetermined objective
•
Control: CSO must check his activities with the plan and take necessary steps to minimize the gap if any. Besides he will take necessary steps for increasing his capacity. Factors that can hinder implementation • Contact with the clients untimely/irregularly • Failure to recognize competition • Faulure to recognize proper enterprises • Poor advertising and promotion • Ignore the potential client • Delaying the loan disbursement • Poor communication with the clients
Staff strength of BRAC Bank
Shareholders of BRAC Bank
MD’s Office 25 BRAC Bangladesh Tk. 317.5 million Business 441 Shore Cap International Tk. 87.5 million Ops 29 Total Paid up Capital Tk. 405.0 million Total no. of employess 495 DAY-TO-DAY TASKS OF CUSTOMER SERVICES OFFICERS (CSO) •
Seeking Potential clients
Survey of Potential Borrowers’ Enterprises
• • •
Evaluating Presnt position of the Business Identifying Business Location Assessing future potentials of the business
• • •
Contact proposed borrower for loans Assist to fill-up Loan Application Forms Get CIB application form filled up by borrower and send to HO Preparing Loan Presentation (Proposal) Contact lawyer regarding legal aspects and for verifying legal documents presented by the horrower Confirm the valuation and ownership of the mortgaged to SME HO. Carry/send security documents to SME HO Follow up with SME HO for loan disbursement Monitoring borrower’ business activities such as utilization of loans, sales, inventory etc, on a monthely basis Loan installment realization Contact default jborrowers to collect overdues Monitoring risky borrowers carefully and take necessary mecessary for recovery as per SME HO instructions
• • • Operational Tasks
• • • • • • •
Administrative Tasks
• • • • • • • • • • • •
Maintaining contact with SME HO, BRAC Bank/Supervisor Conducting survey and filling up SME Loan proposal Register based on potentiality Take necessary steps for reconciliation Maintaining different files and registers Contact other finacial institutions to obtain credit reporst about the proposed borrower Preparing repayment schedule Filling up the loan Register according to disbursements and repayments Preparing monthly monitoring plan Cross checking receipt book and loan register Checking the loan repayment schedule and cross checking recovery Preparing periodical reports Send fax e-mail about realization Collect bank statement Follow up bank that they transfer fund on due date
Loan Sanction Process Flow Chart Activities
Responsible Person
Preparation of two copies of Senction Letter and send to the Borrower for sign off
• •
Accepting the Sanction Letter Giving Risk fund and stamp costs for Charge Documents
• •
Issue receipts to the client Deposit risk fund and stamp costs in Unit office’s Bank A/C Sending the accepted copy of sanction letter along with charge documents
•
Credit Administration Department at SME HO
Respective client in the field
CSO at the Unit Office Level
SMELOAN PRODUCTS A. Installment Basis: SI NO
Loan Term
Principal loan Repayment
instatllment Interest Repayment
Short Term Loans 1
3,4,6,7,9,12 Months
Months
Months with principa; loan installment
Medium Term Loans 2
15,18,21,24,27,30 , 36, Months
Months
Months with principa; loan installment
B. Single Payment Basis: SI NO
Loan Term
Principal loan Repayment
instatllment Interest Repayment
Short Term Loans 1
3,4,6,7,9 Months
One single maturity
payment
at Monthly interest residue at maturity
and
Monthly Loan Disbursement (in million) 30.00 Amount (in million)
18.9
25.95
26.57
Oct’03
Nov’03
Dec’03
20.00 10.00 0.00
Loan Approval Process (Flow Chart) Activities
Responsible Person
Conducting preliminary survey and maintaining the suevey file and register properly
CSO at Unit level
Request CIB report and any other credit report from other Banks
CSO to SME HO
Filling up the Loan Application form by selected client
Selected entrepreneur in the field
Processing the Loan Proposal and forwarding to the Credit Dept 1. Queride the CSO for further clarification (if necessary) 2. Recommend for approvel or reject for specific reasons
Final approval or rejection
CSO at Unit level
Credit Det in SME HO
SME at HO
Note : It the CIB report is negative then the loan Processing will be terminated immediately
TERMS AND CONDITIONS OF SME LOANS The SME Department of BRAC Bank will provide small loans to potential borrower under the following therms and conditions: The potential borrowers and enterprises have to fulfill the selection criteria. The interest rate is: Loan Amount
Risk Fund
Up to Tk. 800.000 Above Tk. 800.000 to Tk. 1,500.000 Above Tk. 1,500.000 to Tk. 300.000
24% 21% 18%
Interest will be Calculated on actual Loan outstanding monthly rest.
on
SME will impose loan Risk Fund for evaluating/processing a loan proposal as follows: Loan Amount
Risk Fund
Up to
Tk. 200.000
Tk. 7,500
Above Tk. 500.000 to
Tk. 1,500.000
Tk. 10,000
Above Tk. 1,500.000 to Tk. 300.000
Tk. 15,000
Repeat borrower will get discount on Risk Fund: Repeat Loan : 50% Risk Fund of prescribed rate (if the borrower pays all installments in due date of his/her previous loan) If the borrower did not pay all the installments timely then following discount will be applicable: 2nd loan: Tk. 1000 3rd loan: Tk. 2500 Loan can be repaid in two ways: • •
In equal monthly loan installments. The installment comprises repayment of interest accrued and principal partially. Principal to be paid by one single payment at maturity. Interest repayable at every month end and residue on maturity.
•
Loans may have various terms, such as, 3 months, 4 months, 6 months, 7 months, 9 months, 12 months, 15 months, 18 months, 21 months, 24 months, 27 months, 30 months, months and 36 months.
•
The elient has to fill up a specific “Loan Application From” for a loan.
•
The borrower must open a bank account with the same bank and the branch where the respective SME unit office has its account.
•
The Loans be disbursed to the borrower’s account through T.T.
•
The realzation of loan installment will be started just after one month from the date of the disubrsement. All installments will be realized through account payee cheque in favour of “BRZC Bank Limited”.
•
The borrower has to issue several (equivalent to the number of installment) account payee cheques of certain numbers with date & amount as well as a blank cheque in favour of BRAC Bank along with documents. These cheques, except the blank cheque, will be kept at the SME unit office and the blank one will be kept with the SME HO. Afer full repayment of the loan, SME HO will back the blank cheque subject to the application of the borrower.
•
The elient has give necessary and adequate collateral and other securities as per bank’s requiremnet and procedures.
•
More than 8 Lacs and up to 15 lacs the loan will be equitable morthage of land with irrevocable power of attorney to sell the land.
•
Third party personal guarantee of two persons one of whom has net worth in excess of the loan amount. Additional guarantor is need in absence of Letter of Disclaimer.
•
In case of working Capital Financing SME may provide 100% of the net Required Working Capital but not exceeding 75% of the Aggregate Value of the Inventory and Accounts Receivable. Such loans may be given for periods including one single payment as stated in the Loan Product Sheet.
•
In case of Fixed Asset financing, maximum 75% of the acquisition cost of the fixed asset may be financed. But in this case Bank will not finance more than 50% on the total fixed assets of that enterprise including the purchasing of new fixed assets.
•
While evaluating loans against fixed assets, adequate grace period may be considered dependir go on the cash generation after the installation of the fixed assets. Maximum period to be consider including grace period amy be for 36 months.
•
Incase on equitable on registry mortgage, the value of land should be 110% (force sale value) of loan amount.
•
Credit saes will not be encouraged. More emphasize will be given to cash sales.
•
If a borrower repay 70% of loan, if the borrower required then next loan may be given after taking the rest 30% loan amount at a time.
•
If the enterprise is distributor/dealer, then papers regarding the distributorship dealership (like up-to-cate dealership) are required to take loan.
Loan Disbursement Process Flow Chart Activities
Responsible Person
Obtaining photocopies of land related doucuments and hand over to the lawyer
CSO at the Unit Office level
Preparation of Charge Documents confirm client’s signature
CSO at the Unit Office level
Preparation of Mortgage deeds and power of Attorney and get client’s siqnature on the sam • Register mortgage in local SubRegistry Office • Signing of all Charge Documents
Lawyer and the CSO
Respective Borrower
Obtaining all Charge documents mortgage deeds and land related documents and send to SME HO
CSO at the Unit Office Level
Preserving photocopies of Loan Application, Loan Presentation and Sanction Letter in the client’s to SME HO
CSO at the Unit Office Level
• Check and verifying all documents • Preparation of disbursement Memo
Make the disbursement therough T.T.
Credit Administration Officer
Accounts Department
MONITORING Monitoring is a system by which a Bank can keep track of is clients and their operations. So monitoring is an essential task for a CSO know the borrowers activities after the loan disbursement. The also facilitates the bulid up of an information base for future reference. Importance of Monitoring Through monitoring a SCO 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 recover the loan according to the schedule and to take the neessary. Constant vigil over the clients/borrowers ensures fidelity between the Bank and the borrower and tends to foster a rapport between them. Areas of Monitoring The purpose is to know the entire business condition and all aspects of the borrower so that mishap can be avoided. 1. Business Condition The most important task of a CSO is to monitor the business frequently. It will help him to understand whether the business is running well or not, and accordingly advice the borrower or take necessary precautionary steps whenever necessary. The frequency of monitoring should be at least ocne a month if all things are in order. 2. Production The CSO will monitor the production activities of the business and if there is any problem in the production process. On the other hand, the CSO can also stop the misuse of the loan other than purpose for which the loan was disubrsed. 3. Sales Monitoring “sales proceeds� is another impottant task of task of the CSO. It will help him to forecast the monthly sales revenue, credit sales, etc. Which will ensure the recovery of the monthly loan repayment from that enterprise as well as to take necessry steps for tuture loans. 4. Investment It is very important to ensure that the entire loan has been invested in the manner intended. If the money is utilized in other areas, then it may not be possible to recover the loan. 5. Management of Raw Material In case of a manufacturing enterprise, managemnet of raw r\materials is another imporant area for monitoring. If more money is blocked in raw materials than necessary, then the enterprise may face a fund crisis. On the other hand, if there is not enough raw materials the production will suffer. In both cases, the enterprise will incur losses that amy hamper regular repayment of loan. Monitoring Systerm The CSO can conside the following things for monitoring: 1. The CSO will monitor each business at least once a month.
2. The CSO will make a monitoring plan/schedule at the beginning of the month. 3. During monitoring the CSO must use the prescribed monitoring form and preserve it in the ‘Client File’ and forward a copy of the report to SME HO immediately. 4. CSO should get stock report from the customer every month and send to HO. 5. Management of Raw Material In case of a manufacturing enterpris, mangement of raw materials is another important area for monitoring. If more money is blocked in raw materials than necessary, then the enterprise may face a fund crisis. On the other hand, if there is not enough raw materials the production will suffer. In both cases, the enterprise will incur losses that may hamper regular repayment of loan. Monitoring System The CSO can consider the following things for monitoring: 1. The CSO will monitor each business at least once a month. 2. The CSO will make a monitoring plan/schedule at the beginning of the month. 3. During monitoring the CSO must use the prescribed monitoring form and preserve I in the ‘Client File’ and forward a copy ot the report to SME HO immediately. 4. CSO should get stock report from the customer every month and send toHO. REPORTING Reporting is one of the moust important functions for financial institutions. Reporting brings accountability as will as transparency. Moreover, analyzing reports, a Bank can easily track its present position, evaluate its performance and take decisions accordingly. This is an essential component for the sustainability as will as continuity of a Bank. In SME the following reporst should be prepared on a monthly basis and should be dispatched to SME HO no the first working day of the following month. Loan Installment Report This report will contain the monthly information about the sales, purchase, accounts rewceivables and payables, etc. Which helps us to understand the present position and overall condition of the enterprise. Moreover, from this report we can also understand if any unusual events occur in the enterprise and its causes and financial and other implications. Preparation of all reporst should be started from 25th of each month. All reports should be sent to SME HO through courier service on 1st working day every month. 4 IMPORTANT HUMAN CHARACTERISTICS : 1. 2. 3. 4.
Consciene Self Respect/Honr/Dignity Greed Fear
WHY PEOPLE REPAY THE LOAN?
1. 2. 3. 4.
Conscience/Values/Religion Respect Pressure Want to continue getting services
WHY PEOPLE REPAY THE LOAN? 1. 2. 3. 4.
Greed Not afraid Business failure Accident
CLASSIC EXAMPLE OF REGULAR REPAYMENT: 1. Milkamd Newspaper hawker 2. Telephone bill 3. BEXIMCO pays loan of foreign banks STEPS TO PREVENT /MINIMIZE BAD/DEFAULTLIOAN: DEFORE SANCTING TO CHECK: 1. Credit sale (is it excessive?) 2. Fund Diversion (Chance or intention of borrower?) 3. Disgruntled borrower (was he refused or harassed earlire?) 4. Business condition 5. Intention to pay 6. Honor for discipline 7. Are family expenses high? 8. Are there alternative source of income? 9. Borrower is within the grip 10.Involvement in speculation business 11. Excess/short financing 12. Slow item/dull season 13. Continuity of business 14. Not maintaining arms length (Favoritism/Nepotism/Indulge)
Deposit & Lending figure (31-12-03) Total deposit Total Loan
Tk. 3495.7 Million Tk. 2869.2 Million
Retail-at a glance (31-12-03) No. of Branches Deposit Loan
09 Tk. 1904.0 Million Tk. 577.9 Million
Corporate-at a glance (31-12-03) Depoosit Loan
Tk. 1496.8 Million Tk. 623.4 Million
SME-at a glance (31-12-30) Unit Offices Zones Zonal Officers (Zos) CROs Staffs of SME No of loan disbursed Loan disbursed Loan Outstanding Interest earned Processing fee Profit Cumulative profit
157 16 16 309 337 4445 Tk. 1889.9 Million Tk. 1667.4 Million Tk. 182.6 Million Tk. 34.6 Million Tk. 36.7 Million Tk. 26.5 Million