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

Financing of Small and Medium Enterprises by IDLC Finance Limited: Agrabad Branch
Project Report on
FINANCING OF SMALL AND MEDIUM
ENTERPRISEs BY IDLC FINANCE LIMITED:
AGRABAD BRANCH
A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD
OF THE DEGREE OF MASTERS IN BUSINESS
ADMINISTRATION, CENTRE FOR BUSINESS
ADMINISTRATION, UNIVERSITY OF CHITTAGONG
Supervised by:
Dr. Ranjit Kumar Chowdhury
Professor, Department of Accounting
University of Chittagong
Prepared by:
Md. Sayful Islam
Centre for Business Administration
Evening MBA Program
ID: 1303064
rd
th
3 Batch, 4 Semester (Finance & Banking)
DECEMBER, 2015
I
Acknowledgements
All praise goes to ALLAH, the most benevolent, gracious and merciful, who has
made me able to accomplish the tedious job and write up this project report. The
completion of this study would have been impossible without the material and
moral support from various people. It is my obligation therefore to extend my
gratitude to them. First of all I thank the Almighty ALLAH for giving me good
health to accomplish that work.
I am greatly indebted to Dr. Ranjit Kumar Chowdhury, Professor, Department
of Accounting, University of Chittagong, for his effective supervision,
dedication, availability and professional advice. He guided me through the entire
course. I extend my gratitude to my lecturers who taught me in the MBA
programme, therefore enriching my project report with knowledge.
I would like to thank Mr. Musfequs Mahmood, Assistant Manager, Operations
Division, IDLC Finance Limited, Agrabad Branch, Chittagong, for his
guidelines and support. I would like to thank the employees of IDLC Finance
Limited, Agrabad Branch who were my respondents and deserve my
appreciation for their support and willingness for providing the required
information during my study.
My sincere thanks also goes to all Employees and Borrowers who provided the
answer of the questionnaire.
II
Table of Contents
Acknowledgements
Table of Contents
List of Tables
List of Figures
List of Abbreviations
Abstract
II
III-IV
V
VI
VI
VII
Chapter 1: Introduction
1.0 Introduction: ------------------------------------------------------------------------------- 2
1.1 Statement Of The Problem:-------------------------------------------------------------- 2
1.2 Objectives of the Study: ------------------------------------------------------------------ 2
1.3 Literature Review: ------------------------------------------------------------------------ 3
1.4 Methodology of the Study: --------------------------------------------------------------- 4
1.4.1 The population of the study: ---------------------------------------------------------------------- 4
1.4.2 The Samples of the study: ------------------------------------------------------------------------ 4
1.4.3 Scope of the study: --------------------------------------------------------------------------------- 4
1.5 Sources of Data: ---------------------------------------------------------------------------- 4

1.6 Data Analysis and interpretation: ------------------------------------------------------ 4
1.7 Limitations of the study: ----------------------------------------------------------------- 4
Chapter 2: Small and Medium Enterprises in Bangladesh
2.0 Small and Medium Enterprises: -------------------------------------------------------- 7
2.1 Definition of SME:------------------------------------------------------------------------- 7
2.1.1 Previous Definition of SME by Industrial Policy 2005: ------------------------------------- 7
2.1.2 New Definition of SME by Industrial Policy 2010: ------------------------------------------ 7
2.1.3 New Definition of SME by Bangladesh Bank: ------------------------------------------------ 8
2.2 Major Sectors of SME in Bangladesh: ------------------------------------------------- 9

2.3 Importance of SMEs --------------------------------------------------------------------- 11
2.4 Industrial Policy 2010 -------------------------------------------------------------------- 12
2.4.1 Vision towards SME ------------------------------------------------------------------------------ 12
2.4.2 Objectives towards SME ------------------------------------------------------------------------- 13
2.4.3 Strategy towards SME ---------------------------------------------------------------------------- 13
2.4.4 Promoting SME industries ----------------------------------------------------------------------- 14
2.4.5 Policy of the Government ------------------------------------------------------------------------ 14
2.4.6 Objectives of the SME Policy: ------------------------------------------------------------------ 14
2.5 Bangladesh Bank SME Credit Policies and Programmes ------------------------- 15

2.5.1 Target for SME Credit: --------------------------------------------------------------------------- 15
2.5.2 Financing SME Sector: --------------------------------------------------------------------------- 16
2.5.3 Priority to the Small Entrepreneurs: ------------------------------------------------------------ 16
2.5.4 Eligibility of the Borrower: ---------------------------------------------------------------------- 16
2.5.5. Interest Rate on SME Credit: ------------------------------------------------------------------- 16
2.5.6 Training Programmes: ---------------------------------------------------------------------------- 17
2.5.7 Monitoring of SME Credit: ---------------------------------------------------------------------- 17
2.5.8 SME Service Centre: ----------------------------------------------------------------------------- 17
III
Chapter 3: IDLC Finance Limited: An Overview

3.0 History of IDLC Finance Limited ----------------------------------------------------- 20
3.0.1 Major events --------------------------------------------------------------------------------------- 20
3.1 Mission Vision and values: -------------------------------------------------------------- 21

3.1.0 Vision ----------------------------------------------------------------------------------------------- 21
3.1.1 Mission --------------------------------------------------------------------------------------------- 21
3.1.2 Strategic objectives ------------------------------------------------------------------------------- 21
3.2 Shareholding Structure: ----------------------------------------------------------------- 22

3.3 IDLC Subsidiaries: ----------------------------------------------------------------------- 22
3.3.1 IDLC Securities Limited: ------------------------------------------------------------------------ 22
3.3.2 IDLC Investments Limited: --------------------------------------------------------------------- 22
3.4 Products and Services -------------------------------------------------------------------- 22

3.4.1 Corporate Division -------------------------------------------------------------------------------- 22
3.4.2 Consumer Division ------------------------------------------------------------------------------- 23
3.4.3 SME Division -------------------------------------------------------------------------------------- 24
3.4.4 Capital Market Division -------------------------------------------------------------------------- 29
Chapter 4: Analysis of SME financing in Bangladesh

4.1 GDP and GDP Growth rate in manufacturing sectors of Bangladesh ---------- 31
4.2 Refinancing of SME in Bangladesh: -------------------------------------------------- 33
Chapter 5: Analysis of SME financing of IDLC Finance Limited
5.1 Lending Procedure: ---------------------------------------------------------------------- 36
5.2 SME Loan Disbursements of IDLC Finance Limited ------------------------------ 36
5.3 SME Loan Portfolio of IDLC Finance Limited ------------------------------------- 37
5.4 SME Division Active Customer Base of IDLC finance limited: ------------------ 37
5.5 SME Loan Status of the IDLC Agrabad Branch ----------------------------------- 38
5.6 SME loan quarter wise disbursement of last four years: -------------------------- 39
5.7 Interest Rate in SME --------------------------------------------------------------------- 40
5.8 Tenor of SME loans ---------------------------------------------------------------------- 41
5.9 Fees and Charges of SME loans -------------------------------------------------------- 43
5.10 Security policy --------------------------------------------------------------------------- 45
5.11 Restrictive Conditions ------------------------------------------------------------------ 46
5.12 Follow up and Inspection -------------------------------------------------------------- 46
5.13 behaviors ---------------------------------------------------------------------------------- 46
Chapter 6: Findings, Recommendation and Conclusion
6.1 Summery of Findings: ------------------------------------------------------------------- 49
6.2 Recommendations ------------------------------------------------------------------------ 50
6.3 Conclusion: -------------------------------------------------------------------------------- 50
References: ------------------------------------------------------------------------------------- 51
Appendix A ------------------------------------------------------------------------------------- 53
Appendix B ------------------------------------------------------------------------------------- 54
IV
List of Tables
Name of the Table
Page No.
Table 01: Criteria of Small business enterprise
08
Table 02: Criteria of Medium business enterprise
08
Table 03: Major Sectors of SME in Bangladesh
09
Table 04: Target of SME credit Disbursements
16
Table 05: GDP and GDP Growth rate in manufacturing sectors of Bangladesh
31
Table 06: Sub-sector growth and share in GDP of industry sector Output
32
Table 07: Data of Refinancing in SME sectors (up to 2014)
34
Table 08: SME loan disbursements
36
Table 09: SME loan portfolio
37
Table 10: No. of Customer in SME
37
Table 11: SME Loan Status of IDLC Agrabad Branch
38
Table 12: Quarter wise disbursements of last four years
39
Table 13: Quarter wise Interest rate of last four years
40
Table 14: Quarter wise loan tenor of last four years
42
Table 15: Fees and Charges for SME Division
43
List of Figures
Name of the figures
Page No.
Figure 01: Values of IDLC Finance Ltd.
21
Figure 02: Shareholding Structure of IDLC finance Ltd as on 31st Oct,
22
2015
Figure 03: GDP growth rate comparison
31
Figure 04: GDP structures of Small and Large industries
32
Figure 05: Contribution on GDP by Small and Large industries
33
Figure 06: Year wise bar diagram of SME loan disbursements
36
Figure 07: Year wise bar diagram of SME loan portfolio
37
Figure 08: Year wise bar diagram of SME loan customers
38
Figure 09: Pie Diagram of SME Loan Status of IDLC Agrabad Branch
38
Figure 10: Bar diagram of Quarter wise disbursements of last four years
40
Figure 11: Bar diagram of Quarter wise Interest rates of last four years
41
Figure12: Bar diagram of Quarter-wise Repayment period of Loan of
42
last 4 years
List of Abbreviations
ALCO
DBR
EMI
FI
JICA
IDLC
NBFI
NPL
SME
USPA
Asset Liability Management Company

Debt Burden Ratio
Equal Monthly Installment
Financial Institutions
Japan International Cooperation Agency
IDLC finance Limited
Non Bank Financial Institution
Non Performing Loan
Small and Medium Enterprises
Unrealized principal Amount
VI
Abstracts
In Bangladesh, Small and Medium Enterprises (SMEs) are already one of the main
contributors to the countrys economy. One of the obstacles in developing SMEs is the
shortage of fund. The capital structure of small scale industries is very weak. SMEs
cannot finance from the organized capital market.
The main purpose of that study is to examine the financial policy, procedures and
operations of IDLC finance limited towards SMEs in Bangladesh. This study has been
carried out relying on both primary and secondary data. Primary data was collected
through questionnaire from both borrowers and employees .The respondents were the
Small and Medium Entrepreneurs financed by IDLC finance limited, Agrabad Branch.
Sample size was 15 borrowers out of 350 plus borrowers. Qualitative approach and
some statistical tools were used for data analysis and interpretation. Observation
method is used in some cases to complete the paper.
The Definition of SME has been updated on the viewpoint of Asset value and
manpower employed. The Industrial policy 2010 considered Small and Medium
Enterprises as an important driver of the solution of unemployment problem of
Bangladesh. Bangladesh Banks SME credit policy is favorable to SME financing in
Bangladesh. Disbursements in SME financing is increasing day by day.
The rates of interests were high and no rebate system available to encourage the
payment of installments. Security is the main issue regarding higher interest rate. The
trend of interest rate is falling down. Processing and other fees are high in viewpoint of
SME loan borrowers. The negative restrictive conditions hampered the smooth running
of the business. The security policy above the ceiling is collateral. The repayment
period and grace period allowed under the BBs programmes were insufficient and not
determined scientifically.
SME definition has to be updated in the line of inflation of the economy so that they
can get sufficient amount of loan without security. Policy should be more and more
specific rather only guideline. Refinancing policy of Bangladesh Banks and other
donors has to be expanded as much as possible for SME financing. Reduction of
Interest rate with rebate scheme in SME financing is highly recommended. The
repayment period should be favorable to borrowers. Debt Equity ratio and margin of
security should be liberalized. The Financial Institutions and SME foundation should
render necessary technical and suggestive services.
VII
Chapter 1
Introduction
1.0 INTRODUCTION:
Small and Medium Enterprises (SMEs) are the vibrant part of Bangladesh economy.
Some sectors including RMG, IT, Tourism, Health care, Pharmaceuticals etc. grew
rapidly in Bangladesh during the last decade. New generations come forward to
become an entrepreneur in these fields. But financing in the Small and medium
businesses is seemed to be the problem. Small and medium entrepreneurs cannot issue
shares in the capital market. So SMEs capital rising is a remarkable issue. Most of the
bank and NBFI stayed away in that case.
Despite of having constraints relating to raw materials, power, land, marketing,
transport, technical facilities and finance etc but the contribution to our GDP is good. In
fact, the SMEs are recognized as drivers of economic growth worldwide. The most
critical limitation that small and medium scale manufacturers face is the lack of
sufficient capital to operate the business. In most of the cases businesses started
using own savings and borrowing from friends and relatives, while banking source
come after that. It is not so easy to rise fixed and working capital from financia l
inst it ut ions, since banks are not so willing to provide loan of small size for high
monitoring cost. On the other hand, potential small scale entrepreneurs are also not
so much interested due to procedural hazards and requirement of long time.
1.1 STATEMENT OF THE PROBLEM:

Small and Medium Enterprises are one of the vital sectors of the economy and its
contribution is huge in the overall economic development of Bangladesh. But Small
and Medium Enterprises cannot issue share in the capital market. It cannot issue
commercial paper either. So SME financing is a very reasonable topic to examine.
SME finance division of a fina institution is a place of great importance in the context
of economic development of Bangladesh. So the study of SME financing policy and
evaluation of it through any Financial Institution is very important. The core problem
of the paper lies on the fact of evaluating the SME loan operation of an Non Bank
Financial Institution. Current scenario of SME financing can be cleared to the relating
persons at a very tiny context like a branch of an NBFI. This study will be helpful for
the SME businesses, Government policy makers, Financial Institution and regulatory
bodies, and persons who are interested in this field.
1.2 OBJECTIVES OF THE STUDY:

The main purpose of that study is to examine the financial policy, procedures and
operations of IDLC finance limited towards SMEs in Bangladesh. experience the
reality of the corporate life and relate it with the academic knowledge.
The specific objectives of the study area. To study financial policy of Bangladesh towards SMEs.
2
b. To examine the Bangladesh Banks SME credit policy.

c. To study the SME financing policy of IDLC finance limited.
d. To evaluate the SME loan operation of IDLC finance limited, Agrabad Branch,
Chittagong.
e. To find out the problems and prospects of SME financing by IDLC finance
limited in Bangladesh.
f. To suggest some recommendations for further development of SME financing
in Bangladesh.
1.3 LITERATURE REVIEW:

Small and Medium Enterprise is a key driver of any countries economy and there are
huge research on SME constraints, prospects, policies, financing etc.
Ranjit Kumar Chowdhury (1985) found that the policy of SME financing is not
properly practiced by Banks and revision is required.
Ranjit & Rashid, (1996) found SMEs have been facing multifarious problems related to
raw materials, power, land, marketing, transport, technical facilities and finance in
Bangladesh.
Sarder, (2000) and Kamal, (2002) suggested that Implementation of Comprehensive
proactive policy can give the adequate and proper support to grow the SME sector.
Razzaque, (2003) found that SME faces problem with cheap imports, lack of resources
& skills, and promotional difficulties.
In 2004, Bangladesh Bank introduced a refinancing scheme to overcome the financial
constraints faced by the SMEs.
In 2006, Bangladesh Government established the SME Foundation to support SMEs.
Minto, (2006) found that most potential investors in the SME sector today are not
entrepreneurs in the real sense, in as much as they do not have an already developed
capability to decide on viable investment avenues, develop project profiles and set up
appropriate establishments for production, management and marketing. Exports will
help increase the purchasing power of the teeming millions of rural and urban poor,
using goods from the SME sector. It is thus very clear why SME development should
proceed hand in hand with micro enterprise development.
Syed Manzur Quader, (2009) found in Bangladesh, high lending rate surfaced as the
biggest constraint in the growth of SMEs. Regulatory constraints related to utility and
labor comes in second position.
Azim, (2011) suggested to accept SME as an indispensable player in growth
acceleration and poverty reduction, worthy of its great potential and commitment in the
requisite overall policy formulation and execution.
3
1.4 METHODOLOGY OF THE STUDY:

1.4.1 THE POPULATION OF THE STUDY:
The population of the study was current 365 loan borrowers of IDLC finance limited,
Agrabad Branch. And the population size of the employees was 60 in Agrabad Branch
where SME population was 30 employees.
1.4.2 THE SAMPLES OF THE STUDY:

The sample was taken 15 borrowers and 15 employees. Sample size in case of
borrowers is low. Time constrain was the main problem of taking proper or higher
sample. Employees sampling included SME operations and other operations
employees.
1.4.3 SCOPE OF THE STUDY:

The scope of the study is limited to Agrabad Branch of IDLC finance limited and
Period of the study includes a period of 4 years from 2012-2015.
1.5 SOURCES OF DATA:

Data was collected from both Primary and Secondary Sources. The Primary data was
collected from employees and SME loan borrowers of IDLC finance limited, Agrabad
branch through questionnaire. The secondary data was collected from various
publications, reports, thesis papers, journals, books, newspapers, magazines and
websites.
1.6 DATA ANALYSIS AND INTERPRETATION:

Quantity & Qualitative approach is adopted for data analysis and interpretation.
Different statistical tool like mean, weighted average, forecasting trend was used to
make the data analysis meaningful. The report relied primarily on an analytical
judgment and critical reasoning through questionnaire. Different tables and graphs were
used to make the data comparable. Observation method is used in some cases to
complete the paper.
1.7 LIMITATIONS OF THE STUDY:

The study has suffered from a number of limitations
a. Data from IDLC finance ltd is highly confidential for the outside people.
b. It was difficult to communicate with the customers, as many of them were unable to
give me much time for interview.
c. As I have taken a sample of small size (15 out of more than350) of observations,
there may be some sampling error. It requires much longer time for proper
sampling. It is not possible to collect whole data within a short time. Time
limitation is one of the main reasons and for that more detailed study was not
possible.
d. Non availability of data in a systematic way.
e. Prior research and publication is very rare to collect both by manually and internet.
f. Unavailability of the reference book is another limitation.
Chapter 2
Small and Medium

Enterprises in Bangladesh
2.0 SMALL AND MEDIUM ENTERPRISES:

Small and Medium Enterprises (SMEs) are the small scale business which are confined
with Capital investment and man power employed. The SME market in Bangladesh is
large. Small and Medium Enterprises (SMEs) make up the largest portion of the
employment base in many developing countries and, indeed, are often the foundation of
the local private sector. The coverage of SMEs as defined by the Industrial Policy is
very broad.
2.1 DEFINITION OF SME:

2.1.1 PREVIOUS DEFINITION OF SME BY INDUSTRIAL POLICY 2005:
Bangladesh Government initiated policy strategy for SME 2005 (Industrial policy
2005). The policy defines the Small and Medium enterprises as follows:
Small Enterprise:
An enterprise would be treated as small if, in current market price, the replacement cost
of plant, machinery and other parts/components, fixtures, support utility, and associated
technical services by way of capitalized costs etc. excluding land and building, were to
up to Tk. 15 million. A non manufacturing enterprise should be treated as small if it has
less than 25 workers, in full-time equivalents;
Medium Enterprise:
An enterprise would be treated as medium if, in current market price, the replacement
cost of plant, machinery and other parts/components, fixtures, support utility, and
associated technical services by way of capitalized costs etc. excluding land and
building, were to up to Tk. 100 million. A non manufacturing enterprise should be
treated as medium if it has between 25 and 100 employees, in full-time equivalents.1
2.1.2 NEW DEFINITION OF SME BY INDUSTRIAL POLICY 2010:

Small Industry Enterprise:
In manufacturing, small industry/enterprise would be those with assets worth Tk 5 to
100 million (defined as above) and/or 25 to 99 workers. In service industry and in
business, small enterprises will be those which employ 10 to 25 and have assets
(defined as above) worth Tk 500,000 to 10 million.
Micro Industry/Enterprise:
In manufacturing, micro industry/enterprise would be those with assets worth Tk
500,000 to 5 million (defined as above) and/or 10 to 24 workers or less. In service
1
Industrial policy 2005, Government of Bangladesh
industry and in business, micro enterprises will be those which employ 10 or less
people and have assets (defined as above) worth Tk 500,000 or less.
Cottage Industry/Enterprise:
In manufacturing, cottage industry/enterprise would be those with assets worth Tk
500,000 to 5 million (defined as above) and/or 10 to 24 workers or less. In service
industry and in business, cottage enterprises will be those which employ 10 or less
people and have assets (defined as above) worth Tk 500,000 or less.
Medium Industry Enterprise:

In manufacturing, medium industry/enterprise would be those with assets worth Tk 100
to 300 million (minus land and factory building, and including replacement value)
and/or 100 to 250 workers. In service industry and in business, medium enterprises will
be those which employ 50 to 100 and have assets (defined as above) worth Tk 10 to
150 million.
If a business fits into any of the criterion for a large industry, it will be considered a
large industry though its other characteristics may be that of a medium one. 2
2.1.3 NEW DEFINITION OF SME BY BANGLADESH BANK:

Bangladesh Bank has reset the definitions of small and medium enterprises (SME) as
per the National Industrial Policy Order 2010. The redefinition was done for the benefit
of banks and financial institutions.
Small Industry Enterprise:

Small Enterprise refers to the firm/business which is not a public limited company and
complies the following criteria:
Table 01: Criteria of Small business enterprise
No table Sector
of figures
entries
found.
Fixed asset other than land and

building (Tk)
Employed manpower
(Not above)
01
Service
50,000-50,00,000
25
02
Business
50,000-50,00,000
25
02
Industrial
50,000-1,50,00,000
50
2
3
Industrial Policy 2010, Definition of SME

Small & Medium enterprise (SME) credit policy and programs of Bangladesh Bank, Article 3.1, page 6
Medium Industry Enterprise:

Medium Enterprise refers to the establishment/firm which is not a public limited
company and complies the following criteria:
Table 02: Criteria of Medium business enterprise
Serial no.
Sector
Fixed asset other than land and Employed manpower

building (Tk)
(Not above)
01
Service
50,00,000-10,00,00,000
50
02
Business
50,00,000-10,00,00,000
50
02
Industrial
1,50,00,000-20,00,00,000
150
2.2 MAJOR SECTORS OF SME IN BANGLADESH:

The survey also found that the industrial structure of SMEs consisted of primarily
wholesale and retail trade and repairs (40 per cent), production and sale of agricultural
goods (22 percent), services (15 percent), and manufacturing only (14 percent)5
Bangladesh Bank identifies following sector for SMEs in BangladeshTable 03: Major Sectors of SME in Bangladesh
SL
Name
SL
Name
01.
Processing of Agro based and Agro
02.
Agro based Activity
04.
Making of fishing boat
products
03.
Making
and
Marketing
of
agro
instruments
05.
Embroidery quilt and Loom
06.
Food Seeds Preservation
07.
Bakery
08.
Hatchery
09.
Dry Fish Processing
10.
Information
Technology
Based
Activities
11.
Computer Software and ICT Products
12.
Cyber Caf
13.
Entertainment i.e. Documentary Film,
14.
Forest
Cinema, making DVD

15.
Horticulture, Flower Cultivation and
Industries
and
Furniture
Building
16.
Cold storage
Small & Medium enterprise (SME) credit policy and programs of Bangladesh Bank, Article 3.2, page 6
Abdul Awal Mintoo, SMEs in Bangladesh,CACCI Journal, Vol. 1, 2006, p. 4
Flower Processing
17.
Construction Business
18.
Hospital and Clinic
19.
Hotel, Restaurant and Tourism
20.
Telecommunication
21.
Mobile Phone accessories
22.
Printing and Packaging.
23.
Renewable Energy i.e. Solar Power,
24.
Light Engineering Industry
Wind Mill, Bio-gas Power generation.

25.
Electronics
26.
Manufacturing Iodized salt
27.
Crafts
28.
Therapeutic
29.
Jute Products
30.
Stationary Goods
31.
Frozen products
32.
Leather and Leather Products.
33.
Cosmetics and Toiletries
34.
Making Flat rice and Puffed Rice
35.
Rice Mills
36.
Plastic Industry
37.
Wholesaler and Retailer Shop
38.
Drug House/ Pharmacy
39.
Phone Fax
40.
Local Transports
41.
Cinema Hall
42.
Trading
43.
Pavilion Business
44.
Light Engineering Workshop
45.
Mobile Set and Accessories Business
46.
Different Small Business
47.
Agro Machinery Business
48.
Fertilizer Business
49.
Trading of Jute
50.
Clothing and Shoe Business
51.
Rod, Cement Trading
52.
Hardware business
53.
Cookeries Business
54.
Grocer business
55.
LP Gas business
56.
Ware House container service
57.
Commercially Tree plantation
58.
Photography
59.
Transport and communication
60.
Laboratory
61.
Jewelry
62.
Ginning and belling
63.
Tailoring
64.
Saloon and Beauty parlor
65.
Community centre
66.
Diagnostic centre
67.
Artificial flower making
68.
Making leather frame
69.
Sericulture and silk industry
70.
Making Toys
71.
Boutiques
72.
Ice factory
73.
Mushrooms
74.
Computer Training school
75.
Making IPS
76.
Indigenous handy craft and hand loom
77.
Saw mill
78.
Marine Industry i.e. Making of small

boat
79.
Eco friendly transport
80.
10
Derry and fish feed
81.
Making of brick field
82.
Hand loom industry
83.
Candle industry
84.
Curry powder
85.
Biscuit Factory
86.
Exportable pottery
86.
Food processing
87.
Automobile body building
88.
Oil and Dal mill
89.
Manufacturing GI pipe
90.
Making cement pillar
91.
Mini sugar mill
92.
Making molasses
93.
Making Catechu
94.
Hosiery
95.
Welding industry
96.
Brass, Bronze industry
97.
Call centre
98.
Digital color lab
99.
Cable operator
100. Distributing electricity of Generator
101. Small Amusement park
102. Making of Bamboo and cane products
103. Small textile industry
104. Biogas Plant
105. Producing seeds through tissue culture
106. Sand and stone business
107. Wood and Steal item business
108. Paddy and rice business
109. Embroidery quilt and loom
110. Cold mats
111. Nursery
112. Making of Sweets
113. Farming fish i.e. Shrimp
114. Making Battery
115. Making of Railway slipper
116. Making sanitary item
117. Making lime from Oyster
118. Fisheries Industries
119. Tea Industries
120. Making of Charcoal
121. Cold storage for potato seeds
122. Making of Vermicelli and Chanachur
123. Tissue culture of potato
124. Solar energy plant
125. Fruit processing industry
126. Poultry and Dairy firm
127. Other important sectors
2.3 IMPORTANCE OF SMES

It is said internationally that Small and medium Enterprises (SMEs) account for about
50 percent of GDP and 60 percent of employment. SMEs are estimated to contribute
between 25 and 35 percent of world manufactured exports. Statistics show that Japan
has achieved its industrial development heavily based on SMEs. Some of the worlds
best performing economies, notably Taiwan and Hong Kong, are heavily based on
small enterprises. In much of the developing world, the private sector economy almost
entirely comprises of SMEs. In many developed countries, more than 90% of all
Bank, B. (2015). "Open pdf file." Sectors in SME. Retrieved 11/22/2015, 2015, from
https://www.bb.org.bd/openpdf.php.
6
11
enterprises are within the SME sub-sector while 80% of the total industrial labor force
in Japan, 50% in Germany and 46% in USA small businesses contribute nearly 39% of
the countrys national income. In many developing countries including Bangladesh,
manpower is relatively abundant. It is, therefore, imperative that their full and effective
utilization should become a focal point of socio-economic policies. Emphasis has to be
laid on SME sector to absorb the surplus manpower in these countries. In fact,
developing of SME sector has been requires less capital outlay and at the same time it
provides more employment than the large-scale sector. Second, a SME unit does not
require highly sophisticated technology.7
2.4 INDUSTRIAL POLICY 2010

Balanced development of agriculture and industry as the central pillar of "an
economically strong Bangladesh" had always been a cherished dream of the Father of
the Nation, the superhero of Independence and the greatest Bengali of all time. The
Industrial Policy has amply provided for flourishing the private sector initiatives in tune
with the flagstones, enunciated in the Article No. 13 of the Constitution of Bangladesh,
of property rights in the areas of production management and distribution systems,
including by private enterprise.
The ethos and framework of policy, especially in terms of the overall strategies and
institutions, has evolved during the post-independence years in a bid to render the
various reform efforts launched by the government more effectively and successfully.
Industrial Policy-2010 aims at achieving the Millennial Development Goals (MDGs)
and, above all, reducing unemployment and the proportion of the population afflicted
by poverty and hunger to less than a half by 2017 through the adoption of short-,
medium- and long-term programmes that help build a modern and vibrant industrial
sector. Industrial Policy-2010 also pledges that no effort will be spared in raising the
growth rate of the Gross Domestic Product (GDP) to 8% by 2013, further to 10%
between 2017 and 2021, and thereby to elevate Bangladesh to the cherished rank of
middle-income country.
2.4.1 VISION TOWARDS SME

In article 2.5, describes,
Cottage, small and medium industries will be proactively championed as pillars of
decentralized employment generation, womens entrepreneurship development and
poverty alleviation. Like in urban areas, rural areas vary in terms of the magnitude and
the characteristics of the prevailing poverty. The need to dilute the population pressures
in urban areas of Bangladesh is universally accepted. There will be growing reemphasis on micro, small and medium enterprises in the rural areas and villages in part
7
Syed Manzur Quader, M. N. (2009). Constraints to SMEs: A Rotated Factor Analysis . A Research
Journal of South Asian Studies , 334 -350.
12
to help gradual reduction of the rural-o-urban exodus of people in search of

employment opportunities, but above all to beef up incomes in rural and village
communities.
2.4.2 OBJECTIVES TOWARDS SME

In Article 2.13, describes,
Generation of productive employment, mainstreaming women in the industrialization
process and poverty alleviation is critical underlying objectives of the Industrial Policy
2010. To these ends, consonant with the imperative that labour-intensive are more
suited than capital-intensive industries, the Policy document will spell out measures for
the promotion of cottage, small and medium industries.
2.4.3 STRATEGY TOWARDS SME

Private sector will spearhead the industrialization drive. As its central tactic, it will be
abetted by the productive nurturing of agro-processing and labour-intensive industries.
The government will be limited to the role of a facilitator, pushing for and creating an
enabling environment for attracting increased private investment in areas of dynamic
comparative advantage. A strategic policy will be enacted in an effort to secure
legitimate protection to national manufacturers, including the provisioning of enabling
financing policies from the illicit, cross-border trade by way of strengthening the border
security.
Development of small, medium, micro, cottage and IT industries, including IT- enabled
services, will be two cornerstones of governments industrialization strategy. The
achievement of this objective will be the organising principle governing the
implementation of the Small and Medium Enterprise (SME) policy announced by the
government. A comprehensive approach to the development of this sector will be
adopted which will entail wide-ranging fiscal incentives, preferential access to finance,
favourable trade policy, provisioning of land and site services, and the facilitation of
technological and marketing support.
In line with the provisions of the SME policy, special measures will be taken to
develop women entrepreneurship ensuring access to land and finance and business
support services.
The Industrial Statistics Wing of the Bangladesh Bureau of Statistics (BBS) and the
management information system of various regulatory agencies, such as the Board of
Investment, BEPZA, BSCIC, SME Foundation, Bangladesh Handloom Board, etc., will
be strengthened preparatory to the setting up of an information and data bank where
investors can find information regarding investment and market opportunities, sources
of machinery and technology etc. Coordination between different public agencies will
13
also be fostered to obtain consistent set of information on private investment, output

and employment on an on-going basis from the web-sites of those agencies.
2.4.4 PROMOTING SME INDUSTRIES

The Government will adopt a separate SME policy titled, Policy Strategies for
Development of Small & Medium Enterprises (SME) by 2010. The policy of the
Government with respect to SME will be detailed out in that policy document. Small
and cottage industry development activities under the direction of BSCIC will grow to
continue besides strengthening and accelerating the growth of micro industry.
Particular importance will be given to innovation and expansion of new idea and
technology.
2.4.5 POLICY OF THE GOVERNMENT

The Government recognizes SMEs as vehicles for enhancing the standard of life,
economic growth and poverty alleviation of the common people. The primary role of
the Government shall firstly, be that of a facilitator removing policy obstacles and
neutralizing market failures and, secondly, providing necessary promotional support of
various kinds like:
(a) Government will accentuate and sustain SME activities through motivation, loan
allocation and training of the entrepreneurs.
(b) Refinancing the SME sector through the 3 (three) funds created by Bangladesh
Bank will continue.
(c) Women Entrepreneurs will be given priority in the SME sector. At least 15% of
total sanction will be held in reserve in favour of the women entrepreneurs and the
interest rate will be 10% only.
(d) Special preferences will be provided to the development of the industries dealing
with Information and Communication Technology
2.4.6 OBJECTIVES OF THE SME POLICY:

The broad objectives of the policy shall be to:
1. Acknowledge the importance of SMEs as an indispensable player in growth
acceleration and poverty reduction.
2. The SME policy strategies shall be embedded, in a broad-based and integrated
manner, in the Governments Medium Term Budgetary Framework (MTBF).
3. Encourage and induce private sector development and promote the growth of FDI,
develop a code of ethics and establish good governance, ICT-based knowledge
managements and customer supremacy in the markets;
4. Identify and establish an appropriate physical and ICT network of infrastructure
and institutional delivery mechanism that facilitate the promotion of SMEs;
14
5. Re-orient the existing fiscal and regulatory framework and government support
institutions towards facilitating achievement of the goals of SME policy;
6. Nurture and partner civil-society institution(s) having credible management teams
in terms of the delivery of needed services, leadership, initiation, counseling etc;
7. Create innovative but meritocratic arrangements so that promising and potential
small enterprises with desired entrepreneurial track record and/or promise can be
offered financial incentives.
8. Help implement dispute settlement procedures that proactively shield small
enterprises especially from high legal costs and insidious harassment, if any;
9. Take measures to create avenues of mobilizing debt without collaterals to match in
order to assist small enterprises in dealing with their pervasive lack of access to
finance;
10. Systematically accord precedence to small versus medium enterprises, within the
limitations of governments resources; and
11. Harness information & communications technologies, Internet Protocol (IP)-based
infrastructure, and electronic-governance etc. in an effort to parlay regulatory
services, all kinds of useful information and mentoring inputs, with an accent on
increasing the viability of SMEs in all sectors of the economy.
12. (a) Enhancing the opportunities for marketing of SME products
(b) Enhancing sub-contracting facilities; and
(c) Diversification of export8
2.5 BANGLADESH BANK SME CREDIT POLICIES AND

PROGRAMMES
Policy stressed on SME development for higher economic growth, narrowing the gap
of income inequality and poverty alleviation.
2.5.1 TARGET FOR SME CREDIT:

Article 4, A total target of SME credit worth Tk. 23,995(Twenty three thousand nine
hundred ninety five crore) has been set by the banks and financial institutions for the
first time in 2010 considering SME development as one of the important 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. The SME credit target as fixed by the banks and financial institutions
has been summarized as following
SME Chapter of Bangladesh Government Industrial Policy 2010
15
Serial No.
1
2
3
4
5
Table 04: Target of SME credit Disbursements

Banks & Financial Institutions
Target
(Tk in Crore)
State-owned Commercial Banks
3,897
Specialized Banks
600
Private Commercial Banks
17,478
Foreign Commercial Banks
707
Non-Bank Financial Institutions
1,313
Grand Total
23,995
2.5.2 FINANCING SME SECTOR:

Article 7, Access to finance is vital for SME sector development. In many instances,
entrepreneurs raise complain regarding high rate of interest. Indeed, higher rate 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.
2.5.3 PRIORITY TO THE SMALL ENTREPRENEURS:

Article 8, Among SME enterprises/entrepreneurs in our country, small entrepreneurs
have more prospects for generating employment, reducing unemployment and
achieving economic growth. Keeping this in view, at least 40% of the total
disbursement target of SME credit should be reserved for small entrepreneurs and the
rest will be allocated to medium entrepreneurs.
2.5.4 ELIGIBILITY OF THE BORROWER:

Article 14, Real entrepreneurs who are directly involved in SME sector will be
considered eligible for SME credit. Generally loan defaulters will not be entitled to get
new loan.
2.5.5. INTEREST RATE ON SME CREDIT:

Article 15, Banks/Financial institutions shall ix up the interest rate on small and
medium loan for the respective sector/sub-sector. The operating cost of the banks is
high for the small entrepreneurs. Reasonably, the rate of interest in this sector is
somewhat higher. Banks are being given directions to keep the interest rate within a
tolerable limit. Bangladesh Bank is providing refinance facility to banks and financial
institutions at bank rate (at present 5%) in SME sector. The fund obtained at bank rate
16
through BB refinance window should be disbursed at bank rate + not more than 5%
interest to the client level (in case of women entrepreneurs).
2.5.6 TRAINING PROGRAMMES:

Article 17, The SME sector in Bangladesh faces problems both from supply side and
demand side. However, to address the supply side problems, three refinance schemes of
Bangladesh Bank are already in place. Besides, the banks/financial institutions have
fixed target for disbursement in the current year. The existing main problem of the
demand side, on the other hand, includes: marketing of products, lack of skill and
knowledge of the entrepreneurs to improve quality of products, absence of SME
information data base etc. In order to develop genuine small and medium entrepreneurs,
it is essential to arrange trade fairs of the SME products matching buyer-suppler
improving the quality of product and package design, workshop and training on
technology and design development. For the purpose, the commercial banks and
international donor agencies will be requested to arrange training on entrepreneurship
development where Bangladesh Bank will play the supporting role.
Besides, institutions like BBTA, BIBM, DCCI, FBCCI, NASCIB, BWCCI, SME
Foundation will be requested to arrange training programmes on the development of
technology, skill and marketing of SME products. The banks and financial institutions
will incorporate the implementation status of such training programmes in their annual
report.
2.5.7 MONITORING OF SME CREDIT:

Article 18, Like monitoring of agricultural credit, three tier monitoring systems (BB
Head Office, BB Branch Offices and Banks) will be established in case of SME credit.
Article 18.1, Purpose of the Monitoring of SME Credit:
a. To achieve the overall target of SME loan disbursement;
b. To achieve sector wise industrialization; such as higher growth of industry and
service sector, increasing the number of women entrepreneurs and their
development, district wise employment generation and poverty reduction;
c. To provide required credit to the small entrepreneurs without any harassment;
d. Special monitoring of the banks performance in providing credit to the women
entrepreneurs;
e. To ensure area approach and cluster-based credit disbursement.
f. To ensure satisfactory recovery of the disbursed credit in this sector to address
any liquidity crisis;
g. And so on.
2.5.8 SME SERVICE CENTRE:

Article 22, The banks (Private and Foreign) have so far opened 210 SME service
centers to provide more facilities to SME clients. Notably, in order to involve the banks
17
in financing SME and Agriculture sector, licenses for SME/Agriculture branch are
being issued instead of SME Service Centre from this year (2010) 9
Major sections of Bangladesh Bank SME Credit policies and Programmes
18
Chapter 3
IDLC Finance Limited: An

Overview
19
3.0 HISTORY OF IDLC FINANCE LIMITED

IDLC was initially established in Bangladesh in 1985 through the collaboration of
International Finance Corporation (IFC) of the World Bank, German Investment and
Development Company (DEG), Kookmin Bank and Korean Development Leasing
Corporation of South Korea, the Aga Khan Fund for Economic Development, the City
Bank Limited, IPDC of Bangladesh Limited, and Sadharan Bima Corporation. As the
company evolved, initial foreign shareholding of 49% was gradually withdrawn and the
last foreign shareholding was bought out by local sponsors in 2009.
Although IDLC initially started with Lease Financing as its core product, IDLC has
grown to become the largest multi-product Non-Bank Financial Institution of
Bangladesh, with almost equal focus in Corporate, Retail and SME sectors. Moreover,
IDLC has a significant presence in the Capital Markets. IDLCs merchant banking arm,
IDLC Investments Limited, a wholly-owned subsidiary of IDLC is a premier brand for
investment banking in the country. IDLCs stock brokerage arm, IDLC Securities
Limited, another wholly-owned subsidiary of IDLC is also amongst the top five brokers
in the country
Over the years, IDLC has attained a significant presence in the corporate sector of
Bangladesh. IDLC is highly respected by its clients, peers, employees and regulators
for its strong corporate governance, statutory compliance, high ethical standards, a
progressive and enabling working environment, and strong commitment to
environmental and social development.
IDLC continues to play a pioneering role in introducing and popularizing a variety of
financial instruments suiting ever-changing requirements of its fast-growing clients.
3.0.1 MAJOR EVENTS
In 1985, Industrial Development Leasing Company of Bangladesh Limited is

incorporated.
In 1986, Commencement of leasing business
In 1990, A branch is established in Chittagong, the main port city of
Bangladesh.
In 1993, Listed on the Dhaka Stock Exchange
In 1997, Commencement of Home Finance and Short Term Finance operations
In 1998, Licensed as a Merchant Banker by the Securities and Exchange
Commission
In 1999, Commencement of Corporate Finance and Merchant Banking
operations
In 2005, An MoU for strategic alliance is signed between IDLC and SBI Capital
Markets Limited, India.
In 2005, Local Enterprise Investment Centre (LEIC) is launched with the
objective of SME development, with contribution from the Canadian
International Development Agency (CIDA) of the Government of Canada.
20
In 2006, SME-focused branch is opened at Bogra.

In 2007, Company name is changed to IDLC Finance Limited from the previous
Industrial Development Leasing Company of Bangladesh Limited.
In 2009, Gazipur SME Booth is opened.
In 2009, Imamgonj SME Booth is opened.
3.1 MISSION VISION AND VALUES:

3.1.0 VISION
We will be the best financial brand in the country
3.1.1 MISSION
We will focus on quality growth, superior customer experience and sustainable
business practices
3.1.2 STRATEGIC OBJECTIVES
Grow and develop our talent pool

Fully leverage new core banking platform
Optimize distribution points
Grow and diversify funding sources
Grow sales and service capabilities in Consumer Division
Aggressively grow SME portfolio
Focus on top-tier clients in Corporate
Consolidate capital market operations and enhance capabilities
Embrace internationally accepted corporate governance and sustainable
business practices
Integrity
Customer
Focus
Passion
Values
Equal
opportunity
Trust and
Respect
Simplicity
Figure 01: Values of IDLC Finance Ltd.

21
3.2 SHAREHOLDING STRUCTURE:
Figure 02: Shareholding Structure of IDLC finance Ltd as on 31 st Oct, 201510
3.3 IDLC SUBSIDIARIES:

3.3.1 IDLC SECURITIES LIMITED:
IDLC Securities Limited, a fully-owned subsidiary of IDLC, offers full-fledged
international standard brokerage services for both its retail and institutional clients. It
has seats on both Dhaka Stock Exchange Limited and Chittagong Stock Exchange
Limited. It is also a Depository Participant (DP) of Central Depository Bangladesh
Limited (CDBL).
3.3.2 IDLC INVESTMENTS LIMITED:

As per requirement of the Securities & Exchange Commission (SEC), IDLC formed a
separate subsidiary on May 19, 2010 in the name of IDLC Investments Limited, in
order to transfer its existing merchant banking activities to the newly formed entity.
IDLC applied to SEC to transfer the existing merchant banking license of IDLC
Finance Limited to IDLC Investments Limited. Accordingly, IDLC Investments
Limited has started its operations from August 16, 2011 to offer merchant banking
services to both our individual and institutional clients.
3.4 PRODUCTS AND SERVICES

3.4.1 CORPORATE DIVISION
3.4.1.1 Corporate Finance:
IDLC have extensive knowledge, expertise and experience to offer a range of financial
solutions in response to the needs of a broad spectrum of clientele, comprising of local
10
IDLC finance limited website extracted on 23/11/15 from the link http://www.idlc.com/ShareholdingStructure.php
22
and multinational corporate houses in Bangladesh. Corporate finance includes the

followingsLease Financing: Asset backed financing against industrial machinery,
commercial equipments, office equipments, generators, vehicles, vessels, engines, etc.
Term Loan Financing: For meeting various regular capital/fixed
expenditures like balancing of production line, modernization of manufacturing
process, expansion of capacity and space, etc.
Working Capital Financing: IDLC offering working capital financing to
assist companies in carrying out day-to-day business operations.
Project Financing: For setting up of a new unit as addition to the existing
product line and capacity, a new concern of an existing group, a new Joint Venture
project of an existing company etc.
Specialized Products: For matching the repayments with cash flows,
allowing some more time for repayment, releasing working capital limits.
3.4.1.2 Structural Finance:

Fund-Raising: Asset backed financing against industrial machinery,
commercial equipments, office equipments, generators, vehicles, vessels, engines, etc.
Syndication
Private Placement of Equity
Project/Infrastructure Finance
Foreign Currency Loan
Special Funds
Advisory Services: The Structured Finance Department can offer a range of
advisory services to our corporate clients, complementing our fund-raising services to
meet their unique requirements.
Merger & Acquisition
Joint- Venture Matchmaking
Feasibility Study
3.4.2 CONSUMER DIVISION

IDLC offers various attractive consumer bases schemesDeposit Scheme
Car loan
23
Home Loan
Personal Loan
3.4.3 SME DIVISION

3.4.3.1 Small Enterprise Finance:
IDLC offers financing facilities to small-scale enterprises for carrying out their trading,
manufacturing or service business. Moreover, financing facilities for developing
commercial real estate can also be availed by such enterprises.
SME Loan: SME Loan is a facility designed to finance small-scale trading,

manufacturing and service ventures to help them meet short-term cash flow needs and
bridge the fund-flow gaps.
Eligibility:
Entrepreneurs need to have minimum 2 years of experience in the same line of
business.
The Business must be a going concern with minimum operational experience of
2 years.
Loan Limit:
Minimum Taka 5 lacs to maximum Taka 1.5 crore.
Key Features:
IDLC offers loan without any collateral for up to Taka 15 Lacs
IDLC offers partial cash-secured loan up to Taka 70 Lacs
IDLC offers loan for Working Capital Finance and/or Lease finance for
business
Borrowers having loan facilities with other financial institutions can also avail
this facility
Convenient repayment options are offered, consisting of Equal monthly
installments and/or customized repayment schedule
IDLC brings fast and quality service at customers doorstep
ABASHAN Loan: "ABASHAN" is a loan facility extended to small

businesses that will construct or already have permanent structure for commercial rent
(popularly known as mess rent), that are located in places surrounding the industrial
areas and EPZs across the country.
Eligibility:
Entrepreneurs with minimum 1 year experience in the same line of business.
Business must be a going concern with at least 1 year in operation.
Monthly income from rental and other sources must be minimum Taka 60,000.
24
Loan Limit:
Minimum Taka 3 lacs to maximum Taka 40 Lacs.
Key Features:
IDLC offers loan without any collateral for up to Taka 15 Lacs
Borrowers having loan with other financial institutions can also avail Abashan
Loan.
Borrowers enjoy a convenient repayment system through Equated Monthly
Installments (EMI)
We bring fast and quality service at your doorstep
3.4.3.2 Medium Enterprise Finance:

SME-Mid segment offers mid and longer term financial solutions to a wide range of
enterprises with the potential of emerging as a promising Corporate House in near
future. Our portfolio comprises of various Limited, Partnership and Proprietorship
concerns from a wide range of prospective business sectors.
Lease Financing: Asset backed financing against industrial machinery,
commercial equipments, office equipments, generators, vehicles, vessels, engines etc.
Term Loan Financing: For meeting various regular capital/fixed expenditures
like balancing of production line, modernization of manufacturing process, expansion
of capacity and space etc.
Working Capital Financing IDLC offering working capital financing to assist
companies in carrying out day-to-day business operations
Project Financing: For setting up of a new unit as addition to the existing
product line and capacity, a new concern of an existing group, a new Joint Venture
project of an existing company etc.
Specialized Products: For matching the repayments with cash flows, allowing
some more time for repayment, releasing working capital limits refinancing of existing
good quality liabilities is made.
3.4.3.3 Suppliers Finance:
Supplier Finance is a revolving financing facility offered against receivables created
due to supply of goods or delivery of services on credit. This short-term facility enables
the suppliers/service providers to realize the maximum portion of the payment soon
after the delivery has been made to the buyer. In addition to financing, Supplier Finance
also offers other value-added services such as:
Sales Ledger Administration
25
Follow-up and physical collection of payments

Monthly reporting
3.4.3.4 JICA-SME Loan
SME Loan by JICA is a loan facility under the two-step fund, provided by Japan
International Cooperation Agency (JICA) offered to small and medium business
enterprises of Bangladesh. This Term Loan facility is offered for the purpose of
meeting Working Capital requirements and/or purchasing fixed assets.
Eligibility:
Entrepreneurs having a minimum of 1 year experience in the same line of
business.
The Business must be a going concern with minimum operational experience of
1 year.
Eligible Projects:
Fixed assets (including machinery, equipment, factory buildings and related
civil works)
Technical know-how, consultancy services and training
Working capital (including initial stocks or increase in stocks of raw materials,
spare parts and components)
Leasing of industrial and business equipment
Loan Limit:
Minimum BDT 0.50 million to maximum BDT 50.00 million.
Loan Terms:
Fixed Assets Financing: 2 to 5 years
Working Capital Financing: 1 year, annually renewable up to 5 years
Interest Rate and Fees
We offer competitive interest rate and fees. Please contact any of our branch
offices for current rate and fees.
Key Features:
We offer loan without any collateral for up to BDT 1.50 million
We offer partial cash-secured loan up to BDT 7.00 million
We offer loan for Working Capital Finance and/or Lease finance for business
Borrowers having loan facilities with other financial institutions can also avail
this facility
Convenient repayment options are offered, consisting of Equal monthly
installments and/or customized repayment schedule
We bring fast and quality service at your doorstep
26
Terms and Conditions:

Entrepreneurs have to submit the evidence of use of the proceeds of the Loan
(E.g. receipt or bill, invoice from suppliers)
Entrepreneurs have to submit financial statements for every accounting term, at
least on an annual basis , until the full repayment of the Sub-loan
Entrepreneurs will allow the IDLC Finance Limited(PFI), Bangladesh Bank
(PIU), Ministry of Finance Finance Division (MOF-BFID) or Japan
International Cooperation Agency (JICA) to inspect the Project, if the PFI, PIU,
MOF-BFID or JICA so requests
Entrepreneurs have to follow all the environmental regulations established by
GOB (Government of Bangladesh) and JICA (Japan International Cooperation
Agency)
3.4.3.5 IDLC Purnota

Bangladeshi women are moving the country forward with their relentless drive and
innovative approaches. But the journey towards becoming a successful women
entrepreneur is laden with obstacles. What women entrepreneurs require is a friend who
will understand her business needs. Be it a new or an old business, small or medium,
IDLC Purnota will provide a comprehensive solution that will provide women owned
businesses the necessary acceleration that it requires.
Key Features:
Working Capital and Long term Financing Facility for Women Owned
Businesses.
Minimum Loan Amount BDT 3 lac
Maximum Loan Amount Contingent on the Nature and Condition of the
Business. - Unsecured Loan Up to BDT 25 lac
Determination of Payment Structure Based on Cash Flow
10% Interest for Loans up to BDT 50 lac under Bangladesh Bank Refinancing
Scheme
Grace period: 3-6 months for New Ventures in Manufacturing or Service Sector
Eligibility:
Must have Minimum 1 year of Business Experience (Supported by Trade
License)
Age of the Applicant 20 to 60 years
Other Features:
Business Facilitation Service - Assistance in Obtaining Regulatory Documents
and Licenses
Purnota Helpline - Information Services for Women Entrepreneurs
Purnota Training Center Capacity and Skill development, Business
Management and Vocational Training
27
Purnota Insurance Insurance to Mitigate Against Losses Pertaining to

Individual, Family and Business
Purnota Digital Marketing Guidance on Marketing through Internet and
Social Networking Sites
Purnota Club A Platform for Women Entrepreneurs to Share their Skills,
Ideas and Experiences and Form an Intricate Network among One Another
Purnota Deposit Term Deposit at Attractive Rates (Up to 0.50% Higher Than
Regular Deposit Rates)
IDLC SME Advantage Card Attractive discount for Women Entrepreneurs
in Selected Partner Outlets
3.4.3.6 Commercial Space Loan (CSL)

With IDLC Commercial Space Loan you can build your business infrastructure quickly
by purchasing factory, warehouse, office, workers dormitory, sales center, customer
service outlets or developing it at own supervision. You can transfer existing liabilities
of same purpose with other bank/financial institutions too.
Eligible Firms:
Are 3 year or older in business
Attained a stable traction in business
Earn enough to repay debts
Own reasonable equity in business
Maintain regular bank transaction
Maintain standard business documents
Are unclassified in CIB database
Purchase space on business ground
Documents Required:
Trade and other licenses
Company incorporation certificates
Passport/NID of Sponsors and PGs
Financial Statements (3 year)
Bank/NBFI Transactions (1 year)
Set of purchase documents
Set of land documents
Filled in CIB undertaking form
Business description and Sponsor bio-data
Key Features:
Loan of BDT 5 to 100 Million
Up to 8 years tenor
Up to 6 month grace period
Equal monthly/ Customized repayment
28
Up to 70% funding of the cost

Tri-party agreement available
In-house document vetting
Quicker processing time
Possession purchase
Dedicated 1 Stop Relationship Representative
On call Home service
3.4.4 CAPITAL MARKET DIVISION

Portfolio Management: IDLC offers Portfolio Management services to both
individual and institutional investors through its subsidiary, IDLC Investments Limited.
Investors can avail its services through its major discretionary investment accounts
MAXCAP and Cap Invest.
Investment Banking: With a rich experience in Investment Banking, we
assist our clients to our best throughout the IPO process, along with sustained market
support.
Research: IDLC conducts several Capital market Researches
Brokerage Services: It includes, Trade Execution in Dhaka and Chittagong
Stock Exchange Limited, Appointment of dedicated and skilled sales representative and
Opportunities for trading through different financial instruments.11
11
IDLC finance ltd website. Extracted On 12/15/2015 from http://www.idlc.com/home.php
29
Chapter 4
Analysis of SME
Financing in Bangladesh
30
4.1 GDP AND GDP GROWTH RATE IN MANUFACTURING

SECTORS OF BANGLADESH
Since SMEs have significant role in the industrial growth but the contribution to GDP
is not up to the mark. GDP structure and growth rate during last 5 years is one of the
indicators of the growth of Small to Large manufacturing industries. Small and Cottage
industries GDP amount increased from BDT20039 crore (2010) to BDT 26179.4 crore
(2014) in last 5 years whereas in case of Large industries the increased amount is
56581.2. And the growth rate in large industries is always higher than the small and
cottage industries except year 2009-10.
Table 05: GDP and GDP Growth rate in manufacturing sectors of Bangladesh
Industry
Small
and
cottage Medium
to
large Total
Industry
industry
GDP (Tk GDP
GDP (Tk GDP
GDP (Tk GDP
in crore) Growth(%)
in crore) Growth(%) in crore) Growth(%)
20039
8.17
79631.4 6.26
99670.4 6.64
2009-10
21176
5.67
88475.3 11.11
109651.3 10.06
2010-11
22569.1
6.58
97998.3 10.76
120567.4 9.98
1011-12
24557.9
8.81
108436.2 10.65
132994.1 10.31
2012-13
26179.4
6.33
118364
9.32
144543.4 8.78
2013-14
10.7
136212.7 10.24
166308.1 10.32
2014-15(P) 30095.4
Source: Bangladesh Bureau of Statistics 12
12
10
8
6
4
2
0
2009-10
2010-11
1011-12
2012-13
2013-14
2014-15(Prov)
GDP
Growth(%)
Small and
cottage
Industry
GDP
Growth(%)
Medium
to large
industry
Figure 03: GDP growth rate comparison

The GDP growth rate in case of small and cottage industry show mixed pattern in the
figure 03. Year by year GDP growth rate is fluctuating. But in case of Large to medium
12
Bangladesh Bureau of Statistics, Economic reviews of several years
31
industry after 2011-12 GDP growth rate is sloping down but in a less intense pattern
than small industries.
160000
140000
120000
100000
80000
60000
40000
20000
0
2014-15(Prov)
2013-14
2012-13
1011-12
2010-11
2009-10
Small and
cottage
Industry
GDP(Tk)
Medium to
large industry
GDP(Tk)
Figure 04: GDP structures of Small and Large industries

Figure 04 drawn from Table 05, shows that Medium to large industries GDP amount is
higher the small and cottage industries that is natural in Bangladesh and not a matter of
concern. But The way of GDP amount increases in two sector is quite different. Small
and Cottage increase is very steady and increased amount is 30095.4-20039=10056.4
by 6 years whereas Medium to large industries GDP amount increase shows sloppy
tangent line. It is clear from the figure 04 that Red line follows intense slope than blue
one which is Large industry is spreading more quickly than Small and Cottage
industries.
Table 06: Sub-sector growth and share in GDP of industry sector Output
Contribution on GDP of last 3 years
Industry
2012-13
2013-14
2014-15(Prov)
Small (%)
3.51
3.51
3.65
32
Medium to large (%)

15.49
15.95
16.52
18
16
14
12
10
8
6
4
2
0
Contributio
n on GDP of
last 3 years
Industry
Small(%)
Figure 05: Contribution on GDP by Small and Large industries

Contribution of Small industries to the GDP of Bangladesh is nearly constant and
negligible change or growth but on the other hand for medium to large industries it is
increasing slightly.
4.2 REFINANCING OF SME IN BANGLADESH:

Small and Medium Enterprises treated as a prospective sectors for solving
unemployment problem. To develop the SME sectors Refinancing facilities continued
through the Bangladesh Bank Fund, JICA fund and Women Entrepreneur Funds.
With the supervision of Bangladesh Banks, Banks and NBFIs come forward in SME
financing. Banks and NBFI financed BDT 177020.05 crore among 642674 Small and
Medium Enterprises upto 2013. And BDT 6078.03 crore is financed among 89874
entrepreneurs.
For the advancement and expansion of SME sectors, Bangladesh Banks financing
Commercial Banks and Financial Institutions in rotation refinancing scheme with the
help of government and different development assistance against the SME loan
financed by Banks and FIs. Currently 3 funds are in active from Bangladesh Bank in
SME sectors.
33
Table 07: Data of Refinancing in SME sectors (upto 2014)

Refinancing Amount(Tk crore)
Sl.No
Name of Fund
1
2
Bangladesh
Fund
IDA Fund
Current
Capital
Number of enterprise financed
Mid term long

loan
terrm
loan
593.88
241.66
Total Loan
Industry
Commerce
Service
Total
1220.3
5018
5907
1759
12684
80.34
132.47
99.8
312.61
1368
1306
486
3160
ADB Fund-1
144.48
132.27
58.19
334.94
800
2096
368
3264
ADB Fund-2
568.39
178.56
746.95
3765
7435
2445
13645
JICA Fund
2.76
27.75
101.93
132.44
103
60
170
Women
Entrepreneur
TOTAL
144.26
387.64
176.58
708.48
3263
4468
1298
9029
756.6
1842.4
856.72
3455.72
14317
21219
6416
41952
Bank 384.76
Source: Bangladesh Economic Review 201413
13
Bangladesh Economic Review 2014, Eight chapter, page 110
34
Chapter 5
Analysis of SME Financing

of IDLC Finance Limited
35
5.1 LENDING PROCEDURE:

First of all customer has to apply for loan with some basic documents like tally khata,
banking transaction, sales book etc to prove creditability. After that IDLC judge the
creditability of applied customer by 4 working days. If everything is ok then offer
sanction letter. Otherwise negotiate with customer about principal, tenor, repayment
and security. Now customer needs to accept the sanction letter by 15 days. After
acceptance of sanctioned loan, IDLC ask tor documents required. Here it takes 2 days.
Then Disbursement takes a working day. So for worthy customer it will not take more
than 7 working days from apply to disburse. It could be accomplished by 3 days for
renowned and creditable customers.
Sanction grace period is 15 days
Disbursement grace is 6 days
Interest free grace is zero (For SME loan)
EMI free grace is also zero (For SME loan)
5.2 SME LOAN DISBURSEMENTS OF IDLC FINANCE LIMITED

Table 08: SME loan disbursements
Year
Amount(Tk
in Million)
14000
2014
12053
12000
2013
10392
10000
2012
7498
8000
2011
4485
6000
2010
2712
SME Loan
Disbursements(Tk in
million) Amount
4000
2000
0
2014 2013 2012 2011 2010
Figure 06: Year wise bar diagram of SME loan

disbursements
SME loan disbursements of last five years show almost a linier growth pattern. In 2010
total SME disbursements was BDT 2712 million where it reaches to BDT 12053
million in 2014. And it will reach to BDT 15000 by 2015 as far SME section
information.
The increasing amount of disbursements indicates the consciousness and interest on
financing by SMEs through Banks and NBFI is improving. Mentioning at the
36
beginning of this paper, Financing of SME is very difficult. But SMEs are coming to
the NBFI for financing, finding it easier.
5.3 SME LOAN PORTFOLIO OF IDLC FINANCE LIMITED

Table 09: SME loan portfolio
20000
Year
15000
2014
2013
2012
2011
2010
Amount(Tk
in Million)
17905
14334
10178
6870
4182
10000
SME Loan Portfolio

Amount
5000
0
Figure 07: Year wise bar diagram of SME loan portfolio

SME loan portfolio of IDLC finance Limited is increasing rapidly since 2006. Focusing
on SME the portfolio reaches from BDT 4182 million (2010) to BDT 17905 million
(2014) in almost a linier growth pattern.
5.4 SME DIVISION ACTIVE CUSTOMER BASE OF IDLC

FINANCE LIMITED:
Table 10: No. of Customer in SME
Year
2014
2013
2012
2011
2010
No.
of
customer
7196
6638
5222
3462
2004
8000
6000
4000
SME Division
Active Customer
Base Amount
2000
0
Figure 08: Year wise bar diagram of SME loan

customers
The SME division provides specialist lending to small and medium-sized businesses
across a broad range of industries including steel, cement, light engineering, plastics
and textiles, among others, geographically spread across Bangladesh. The divisions
operations include term loans, working capital loans and lease financing, customized
37
around customer requirements. The division also supports and encourages women
entrepreneurship by providing them loans at attractive covenants. No. of Clients
increases from 2004 to 7196 in SME sector of IDLC finance Limited by last five
years. 14
In the last question of the questionnaire for both customer and employees, 15 out of 15
borrowers are agreed to develop SME and 13 employees were strongly agreed, 2 were
agreed. So the loan disbursement growth is coincide with the customers and employees
expectations. And government policy is helping to increase the SME financing.
5.5 SME LOAN STATUS OF THE IDLC AGRABAD BRANCH

Table 11: SME Loan Status of IDLC Agrabad Branch
No. of
Sanction (Tk Disburse (Tk URPA(Tk in
Loan Status
Customer in Million)
in Million)
Million)
Bad Loan
3
2.89
2.89
2.89
Doubtful Loan
24
31.29
31.29
18.77
Sub Marginal Loan
13
33.60
33.60
19.36
Sub Standard Loan
3
6.00
6.00
2.50
Normal Loan
307
611.71
611.71
346.29
Grand Total
350
685.49
685.49
389.80
URPA
1%
5%
5%
0%
Bad Loan
Doubtful Loan
Sub-Marginal Loan
Sub-Standard
Normal
89%
Figure 09: Pie Diagram of SME Loan Status of IDLC Agrabad Branch
SME division of IDLC finance Limited of Agrabad Branch listed only 3 bad loan
customer out 350 total this year. Sub standard and bad loan percentage is below 1% of
the total disbursements. By amount bad loan is BDT 2.89 million of the totals of BDT
14
Annual Report 2014 of IDLC finance Limited, page 33
38
389.80 Unrealized Principal amount. In Employees survey, also suggest about the
higher overdue customers in SME. Normal is 89% and except normal all others are
treated as NPL. So SME Bad loan amount is higher and it is 11% including sub
marginal and doubtful.
5.6 SME LOAN QUARTER WISE DISBURSEMENT OF LAST FOUR

YEARS:
Table 12: Quarter wise disbursements of last four years
Row
Sum of Disbursement
Labels
Amount in BDT million
2012
Qtr1
40.43
Qtr2
75.00
Qtr3
64.20
Qtr4
113.73
2013
Qtr1
70.89
Qtr2
72.00
Qtr3
80.10
Qtr4
87.00
2014
Qtr1
103.90
Qtr2
131.80
Qtr3
51.00
Qtr4
82.70
2015
Qtr1
106.40
Qtr2
89.38
Qtr3
71.80
Qtr4
42.20
Grand
Total
1282.54
39
Total
140.00
120.00
100.00
80.00
60.00
40.00
20.00
2012
2013
2014
Qtr4
Qtr3
Qtr2
Qtr1
Qtr4
Qtr3
Qtr2
Qtr1
Qtr4
Qtr3
Qtr2
Qtr1
Qtr4
Qtr3
Qtr2
Qtr1
.00
2015
Figure 10: Bar diagram of Quarter wise disbursements of last four years
The fourth quarter of 2015 is up to November. In general first quarter disbursements
are low except 2014. An overall disbursement in SME is slightly going up as shown in
the line diagram of the trend.
5.7 INTEREST RATE IN SME

Table 13: Quarter wise Interest rate of last four years
Row Labels
2012
Qtr1
Qtr2
Qtr3
Qtr4
2013
Qtr1
Qtr2
Qtr3
Qtr4
2014
Qtr1
Qtr2
Qtr3
Qtr4
2015
Qtr1
Qtr2
Qtr3
Qtr4
Grand Total
Average of Int. Rate

20.86538462
20.08553191
20.73710526
20.5125
20.04878049
20.47222222
20.63235294
19.95454545
19.64516129
18.89393939
19.65909091
18.58064516
17.89285714
16.92592593
17.67307692
17.85
19.52490872
40

Linear (Average of Int. Rate)
25
20
15
10
5
Grand Total
Qtr4
Qtr3
Qtr2
Qtr1
2015
Qtr4
Qtr3
Qtr2
Qtr1
2014
Qtr4
Qtr3
Qtr2
Qtr1
2013
Qtr4
Qtr3
Qtr2
Qtr1
2012
Figure 11: Bar diagram of Quarter wise Interest rates of last four years
Interest rate was above 20% for the year 2012 and first three quarter of the 2013. And
after that it fall down to less than 20% and currently staying below 18%. Trend line
show the falling of the interest rate. But still SMEs interest rate is higher than the other
loans. SME financing is treated as an unsecured loan.
Out of 15 samples of employees 2 were strongly agreed and 3 were agreed that interest
rate is higher. They are comparing it with the security level. Normally unsecured loan
bears 3% additional interest rate. In that context the said interest rate is reasonable. But
14 borrowers said it is higher compared to others loan. In case of fluctuation of interest
rate the interest rate 1 were disagreed, 11 were neutral, 2 were agreed and rest one were
highly disagreed.
Out of 15 samples 6 of them suggested the rate 10-13% and 14-17%, 2 of them
suggested 18-21%, only one suggest below 10%, and no one suggested more than 21%.
Trade license and National ID card and other documents are fair now a day, so there is
less chance to be defaulter intentionally. In that case interest rate should be reduced and
bad loan ratio supposed to be low.
In IDLC ALCO specified the pull rate at an regular interval normally quarterly. ALCO
meeting can be held in unscheduled time as well. And department wise spread is
determined considering the risk factor. In that case SME is taking higher spread than
others. According to Bangladesh Banks SME credit policies and program Article 15
explain about the interest rate. BB provides refinancing to Banks and NBFIs at Banks
rate (5%) and suggest not to adept more than 5% spread in case of Women
entrepreneurs. Besides following the guidelines IDLC offers 0.5-1% less interest rate to
women entrepreneurs in any loan.
5.8 TENOR OF SME LOANS
41
Table 14: Quarter wise loan tenor of last four years

Year Qtr
Average of Term (Months)
2012
Qtr1
15.8
Qtr2
32.38297872
Qtr3
30.18421053
Qtr4
31.775
2013
Qtr1
30.29268293
Qtr2
33.25925926
Qtr3
29.44117647
Qtr4
27.90909091
2014
Qtr1
29.09677419
Qtr2
29.66666667
Qtr3
28.13636364
Qtr4
29.06451613
2015
Qtr1
28.07142857
Qtr2
36.62962963
Qtr3
28.46153846
Qtr4
27.6
Grand Total
28.92263056
Term
40
35
30
25
20
15
10
5
0
2012
2013
2014
Qtr4
Qtr3
Qtr2
Qtr1
Qtr4
Qtr3
Qtr2
Qtr1
Qtr4
Qtr3
Qtr2
Qtr1
Qtr4
Qtr3
Qtr2
Qtr1
Total
2015
Figure 12: Bar diagram of Quarter-wise Tenor of Loan of last 4 years

Actually there is no definite guideline by Bangladesh Bank with respect to the
repayment period as well as grace period. Repayment period is different in case of
capital finance and working capital loans. For SME the repayment period is 24 months
42
to 60 months. Normally no grace period is considered for SME financing. Weighted

average is 28.92 months.
In customer survey 12 said loan tenor is favorable and 8 preferred 5 years, 3 preferred 6
years, 2 preferred 4 years and only 1 preferred 6+ years & below 3 years. Most of the
loan repayment is monthly. In suggestion of borrowers, 8 preferred monthly, 5
preferred quarterly and rest 2 semiannually repayments. The business style of
borrowers is different and revenue generated is different business in different interval.
So they want different installment period for payment. IDLC offers monthly,
sometimes quarterly and rarely semiannual repayment. Normally monthly repayment
allows for SME loans.
5.9 FEES AND CHARGES OF SME LOANS

Table 15: Fees and Charges for SME Division
Sl Fees/Charges
SME-Medium
Enterprise Finance
01. Appraisal Fee

02. Processing fee
03. Renewal fee
04. Late Payment fee
05. Bill discounting charge
SME-Small
Enterprise Finance
Supplier Finance
Up to 1% + VAT
Up to 1% + VAT
Up to 0.5% + VAT
Up to 1% + VAT
Up to 1% + VAT
Tk.5,000 to 1% + VAT
N/A
N/A
Up to 1% + VAT
Interest rate + 3% of
overdue amount
overdue amount
overdue amount
N/A
N/A
Up to 0.50%
Documentation fee (Loan

without Mortgage)
At actual or Tk
At actual or Tk
At actual or Tk
1500+VAT, whichever 1500+VAT, whichever 1500+VAT, whichever
is higher (not more
is higher (not more
is higher (not more
than 0.50% of the
than 0.50% of the
than 0.50% of the
sanctioned amount or sanctioned amount or sanctioned amount or
BDT 200,000
BDT 200,000
BDT 200,000
whichever is lower)
whichever is lower)
whichever is lower)
Documentation fee (Loan

with Mortgage)
At actual or Tk
8,650+VAT (for
Property Vetting,
drafting Mortgage &
IGPA Deed, Affidavit
and Adhesive/NonJudicial Stamp)
whichever is higher
(however, not more
06.
43
At actual or Tk
8,650+VAT (for
Property Vetting,
drafting Mortgage &
whichever is higher
(however, not more
At actual or Tk
8,650+VAT (for
Property Vetting,
drafting Mortgage &
whichever is higher
(however, not more
than 0.50% of the

sanctioned amount or
BDT 200,000
whichever is lower)
than 0.50% of the

BDT 200,000
whichever is lower)
than 0.50% of the

BDT 200,000
whichever is lower)
07.
Change of quotation of
leased asset after approval
BDT 1000 + VAT
BDT 1000 + VAT
BDT 1000 + VAT
08.
Change in agreement due

to customer request
Stamp Charge- At
Actual
Stamp Charge- At
Actual
Stamp Charge- At
Actual
09.
Credit Control
Amendment Fee
N/A
N/A
Up to BDT 10,000
At actual
At actual
At actual
Tk.1000 + VAT
Tk.1000 + VAT
Tk.1000 + VAT
At actual
At actual
At actual
13. Prepayment charge
Up to 2%+VAT
Up to 2%+VAT
Up to 2%+VAT
14. Foreclosure fee
Up to 2%+VAT
Up to 2%+VAT
Up to 2%+VAT
15. Lease assets transfer fee
Up to 1%+VAT
Up to 2%+VAT
N/A
16. Redemption of Mortgage
Stamp Charge- At
Actual
Stamp Charge- At
Actual
Stamp Charge- At
Actual
Issuance of any
17. certificate/statement/letter
within contract period
- First time - Free

- Duplicate Issuance TK.1,000.00+VAT
- First time - Free

- First time - Free

Issuance of any
18. certificate/statement after
settlement of facility
- First time - Free.

- Duplicate but within
one year after
settlement TK.3,000.00+VAT.
- Duplicate but after
one year of settlement
-TK. 5,000.00+VAT.

one year after
-TK. 5,000.00+VAT.

one year after
-TK. 5,000.00+VAT.
Tk.1000 + VAT
Tk.1000 + VAT
Tk.1000 + VAT
Delivering of service
20. against facility closed
before Five Years of more
BDT 3000+VAT
BDT 3000+VAT
BDT 3000+VAT
Insurance claim settlement

21.
on behalf of customer
- During the contract

period TK.1,000.00+VAT


10. Legal charges

11. Security replace fee
12. Land valuation charge
19.
Photocopy of land
documents
44
22.
Reimbursement of cheque
dishonoring charge
Issuance of transfer
23.
documents
24.
Incremental Interest (for

ICD only)
25. Insurance premium

26. Rescheduling charge
27.
CIB inquiry
charge(inclusive VAT)
- After settlement of
contract TK.5,000.00+VAT
At actual
At actual
At actual
- First time - Free

- Duplicate issuance Tk. 5,000.00+VAT
- First time - Free

- First time - Free

N/A
N/A
2%
At actual
At actual
At actual
N/A
N/A
N/A
Tk.500
Tk.350
Tk.500
Effective from July 201515
Above chart describes the fees and charges. All charged are extra from the interest rate
amounts. Combining Appraisal, processing and documentation charge the figure is
2.5% but employees mentioned documentation is included in processing charge.
Considering other fixed charges the average extra charge is lump sum 1.5-2%.In
customer survey 13 were agreed that processing fee is higher and 1 faced the speed
money asking. In all activities performed by the IDLC they charge fees from customer
in accordance with their policy.
5.10 SECURITY POLICY

Bangladesh Banks SME credit policy asked Banks and Disbursing authorities not to
insist upon the collateral security of the borrower. If a project was found to be feasible
from the technical, economic and managerial point of view, it was accepted without
any collateral. In IDLC finance Ltd every SME loans limit is specified in product
features. And within this limit there should be only P.G/C.G (Personal Guarantee/
Corporate Guarantee). It could be Directors, Mother companies, Buyers or suppliers
guarantee. Above the amount specified could be sanctioned but in that case there will
be requirement of Hypothecation, Mortgage, pledge or Lien. Debt Burden Ratio (DBR)
considered by IDLC is 50 percent but 70% is sometimes allowed in some rare SME
financing cases. Debt equity ratio is preferred by the customer is 80-90 by 8, 70-80 by 5
15
Webpage of IDLC finance limited, extracted from http://www.idlc.com on 9.21PM, 12th Dec, 2015
45
customers. More than 80% asked customers were satisfied with the sanctioned amount
compared to the application.
5.11 RESTRICTIVE CONDITIONS

Some restrictive conditions is tolerable like, Restriction on payment of unsecured
and/or secured loans provided by the management/partners/friends and relatives,
Restriction on any change in the capital structure, security and material contracts,
Limitation on further borrowing and on capital expenditure without prior consent of the
IDLC, and Restriction on dealing with other banks. Some strict restrictive conditions
like Borrowers will not able to make any loan or other investment out of the fund for
this project, They will not able to transfer or sell the sanction of this loan, and
Borrowers will also not able to make any change in the management without prior
approval of the banks. Customers (11 out of 15) said negatively about the restrictive
policy of the IDLC and 3 employees said that IDLC somewhat influences freedom of
business.
5.12 FOLLOW UP AND INSPECTION

The entrepreneurs stated that visits by the IDLC finance limited officials were helpful
to them as they got opportunity to exchange views and discuss problems faced by them.
It enables them to find a solution for the problems in close collaboration with the IDLC.
They also opined that if the officials inspects and supervise their projects, it would be
helpful to the healthy growth of the business because they would got opportunity to
exchange ideas, views and express their problems of running business.
The small entrepreneurs of Bangladesh are not so expert and trained. They need
frequent follow up and inspection. So the respective officials should visit the projects
frequently. Follow up and inspection of SME financing is one of the tasks of IDLC
finance limited. IDLC visit and follow up customer customers in two contexts. One is
payment follow up and another one is business follow up. Payment follow up is
basically the reminding of the customer about the EMI and Business follow up includes
fund utilization and business suggestion. More than 85% borrowers responded
positively about follow up of IDLC.
5.13 BEHAVIORS
It is found form observation that the behavior and hospitality to loan customer is not
same as deposit customer. And SME loan hospitality varies with other loan as well.
Three Employees were strongly satisfied, 2 were satisfied, 6 were unsure, 3 were
dissatisfied and 2 was strongly dissatisfied. Then mentioned Most of the SME business
46
Loan borrowers are not well educated and behaved. On the other hand 10 customers
said well about the hospitality of IDLC finance ltd.
47
Chapter 6
Findings, Recommendation
and Conclusion
48
6.1 SUMMERY OF FINDINGS:

The new Definition of Small and Medium Enterprises was not same by Bangladesh
Governments Industrial policy 2010 and Bangladesh Banks SME credit policy and
Procedures. The Definition has been updated on the viewpoint of Asset value and
manpower employed.
The Industrial policy 2010 considered Small and Medium Enterprises as an important
driver of the solution of unemployment problem of Bangladesh. Industrial Policy 2010
specified Objectives, Strategy, Policy, and Promotion towards SMEs. Bangladesh
Banks SME credit policy specified the target of SME credit, Priority, Eligibility,
Interest Rate, Training and Monitoring of SME financing. And It is strongly favorable
to SME financing in Bangladesh.
Specified products are found in Small and Medium Enterprises Financing by IDLC
finance limited. Several products were available under the heading of Small Enterprise
Finance, Medium Enterprise Finance and Suppliers Finance.
GDP contribution by Small Enterprises is increasing but not as same pattern of growth
as Medium to Large enterprises in Bangladesh. Bangladesh Banks Fund, JICA fund
and Women Entrepreneur Funds are providing refinancing facilities to develop SME
sectors.
The disbursements, customer base and portfolio of SME financing of IDLC finance
limited is growing better during last five years. IDLC was awarded best presented
Annual reports in 2014. The rates of interests were high and no rebate system available
to encourage the payment of installments. The trend of interest rate is falling down.
SME loan is treated as unsecured loan. Tenor is normally 5 years.
Processing and other fees are high in viewpoint of SME loan borrowers. The negative
restrictive conditions are a few and these hampered the smooth running of the business.
The security policy above the ceiling for specific product is collateral. The ceiling of
SME loan amount is below the definition of Bangladesh banks credit policy definition.
Interest free and EMI free grace period is zero for SME financing. Debt Burden Ration
is allowed by IDLC is 50% only is case of SME financing. Other fees and charges are
slightly higher which influence the effective rate of interest on the loan. The repayment
period is monthly most of the cases which is not sufficient for all kinds of businesses
and not determined scientifically.
49
6.2 RECOMMENDATIONS
1. The Definition of Small and Medium Enterprises by the Industrial Policy of
Bangladesh government and Bangladesh Bank credit policy should be same.
Small and Medium Enterprises definition has to be updated in the line of
inflation of the economy so that Borrowers can get sufficient amount of loan
without security.
2. Policy should be more and more specific rather guideline only regarding SME
financing.
3. Refinancing policy of Bangladesh Banks and other donors has to be expanded
as more as possible for SME financing.
4. Reduction of Interest rate with rebate scheme in SME financing is highly
recommended.
5. The repayment period should be favorable to borrowers.
6. Debt Equity ratio requirements and margin of security should be liberalized.
7. The FIs and SME foundation should render necessary technical and suggestive
services.
6.3 CONCLUSION:
Small and Medium Enterprises are different in the number of persons employed, capital
investments, size of the market or its products or degree of technology adopted. The
potentialities of development of SMEs are very great in Bangladesh because it is
substantially fulfilled with raw materials for various types of small scale industries,
cheap labour and a vast domestic market. Finance is the life blood of any industry
whereas it is the principal bottleneck of SMEs in Bangladesh. In Bangladesh, the Small
scale industries have weak capital structure. They do not have recourse to the organized
capital market. Banks and NBFIs charges higher interest rate from SMEs as it is
unsecured loan and amount is low. Governments policy towards SME and FIs
engagement in its can strengthen the structure of SMEs in Bangladesh. No doubt SMEs
have well contribution in societal and economical scenario of the country. The
government should persist the effort to improve infrastructure, legal framework and
Policy regarding SME financing.
50
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2. Ahmed, Momtaz Uddin (1999, Jan-march). Development of Small-scale
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3. Azim, M. T. (2011). Entrepreneurship Development in Bangladesh. In M. T.
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University Grant Commission of Bangladesh.
4. Bangladesh Economic Review, 2003 to 2014, Ministry of Finance, Government
of Bangladesh
5. Bank, B. (2015). Open pdf file. Sectors in SME. Retrieved from
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University studies (commerce) Vol. 12, pp 45.
10. Chowudhury, R. & Rashid, H. (1996). The role of Small Scale Industries in an
Under-developed Economy with reference to Bangladesh. Chittagong
University studies (commerce) Vol. 12, pp 48.
11. Dr Khondaker Golam Moazzem, Micro, Small and Medium Enterprises in
Bangladesh: Are They Scaling Up?
12. Economics Association, vol. 11, July 2005, pp. 10-27, Uttoran Offset Printing
Press, Rajshahi-6205, Bangladesh
13. Gov, B. (2015). Industrial Policy 2005 of bangladesh. Definition and
classifications of industial enterprises. Retrieved from http://www.fbccibd.org/policy/Industrial_Policy_2005.htm
51
14. Hossain, N. (1998), Constraints to SME Development in Bangladesh, Paper

Prepared for Job Opportunities And Business Support (Jobs) Program, mimeo
15. IDLC
finance
ltd
website.
http://www.idlc.com/home.php
Extracted
On
12/15/2015
from
16. Industrial Policy of Bangladesh 2005 and 2010, Government of Bangladesh

17. MIDAS. (Nov, 2009). Women Entrepreneurs in SMEs: Bangladesh perspective.
SME foundation.
18. Mujeri, M K (2005), Small and Medium Enterprises Development and Poverty
Reduction: Some Issues in Bangladesh, Rajshahi University
19. Ranjit Kumar Chowdhury. (1985). Some Aspects of the policies of financing
Small scale industries in Bangladesh. Chittagong University Studies
(Commerce) , 1.
20. Razzaque, Abdur (24th Dec, 2003). Market development for Bangladeshs
SMEs: An analysis of issues to constraints. (Paper prepared for a seminar of
Bangladesh Enterprise Institute)
21. S. M. Nasrul Quadir and Dr. Mohammad Saleh Jahur, Determinants of Success
and Failure of Entrepreneurs of SMEs in Bangladesh- An Explorative Study ,
European Journal of Business and Management, ISSN 2222-1905 (Paper) ISSN
2222-2839 (On-line)
22. Strategy for Development of the SME Sector in Bangladesh. Extracted from
http://www.plancomm.gov.bd/wp-content/uploads/2015/02/2_Strategy-forDevelopment-of-SME-in-Bangladesh.pdf accessed on: 11/25/2015 4:13 PM
23. Syed Manzur Quader, M. N. (2009). Constraints to SMEs: A Rotated Factor
Analysis . A Research Journal of South Asian Studies , 334 -350.
52
APPENDIX A
Questionnaire for the Employees of IDLC finance Ltd,

Agrabad Branch.
1. SME Interest rate is higher than other types of Loan
1
2
3
4
5
2. Is the Interest Rate regarding SME should be decreased?
Yes
No
3. There is a frequent Fluctuation of SME financing Interest rate in IDLC finance
ltd. 1
2
3
4
5
4. Bangladesh Banks SME credit policy is favorable for SME financing.
1
5. Terms and Restrictive policy of IDLC in SME financing is strict.

1
6. IDLCs Follow up and suggestion to the SME customer is regular.

1
7. Grace period should be extended in SME financing.

1
8. SME Customers behavior is not in satisfactory level

1
9. Number of Overdue customer is high in SME financing compared to other

financing.
1
2
3
4
5
10. SME financing should be expanded and liberalized.
1
2
3
4
1 Strongly Dissatisfied/ Strongly Disagree
2. Dissatisfied/Disagree
3. Neutral/Unsure
4. Satisfied/ Agree
5. Strongly satisfied/ Strongly agree
Name:
Designation:
Mailing:
53
APPENDIX B
Questionnaire for the SME loan Borrowers

(Please tick the fields of the following questions)
1. Are you satisfied with the Interest Rate?
Yes
No
2. What should be the range of Interest Rate(%)?
Less10
%
10-13
14-17
18-21
21+
3. Do you get required applied amount without security?

Yes
4. Percentage sanctioned
Less40
%
No
40-59
60-79
80-99
100
5. Is the security is collateral?

Yes
No
6. What should be the DBR (Debt Burden Ration)?
Less60
60-70
70-80
80-90
90+
6 yr
6+ yr
7. Should the Tenor of Loan be extended?

Yes
No
8. What should be the tenor of the loan by year?
Less
3yr
4 yr
5 yr
9. Is Loan repayment period favorable to your business?

Yes
No
10. Which one is better for you?
Montly
Qurtly
Annuly
SemiA
nly\
1Yr+
11. Does IDLC regularly inspect and follow up your business?

Yes
No
12. Follow up is helpful to you.
Strongly
Dissatisfied
Dissatisfied
Neutral
Please Turn Over
54
Satisfie
d
Strongly satisfied
13. Is Restrictive policy strict?

Yes
No
14. Are the Terms and conditions strict?

Yes
No
15. Is Influence in the freedom of business?

Yes
No
16. Is the Loan processing Fee high?

Yes
No
17. Has any employee Asked Speed money from you?

Yes
No
18. Is it takes more time to appraise the loan?

Yes
No
19. Is the Employees behavior good?

Yes
No
20. Should the SME financing be expanded and liberalized?

Yes
No
Name:
Business:
Address:
Mailing:
55

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

A RESEARCH PROJECT SUBMITTED IN PARTIAL

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

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

2.5 Bangladesh Bank SME Credit Policies and Programmes ------------------------- 15

Chapter 3: IDLC Finance Limited: An Overview

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

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

3.4 Products and Services -------------------------------------------------------------------- 22

Chapter 4: Analysis of SME financing in Bangladesh

Table 01: Criteria of Small business enterprise

Table 02: Criteria of Medium business enterprise

Table 03: Major Sectors of SME in Bangladesh

Table 04: Target of SME credit Disbursements

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

Table 08: SME loan disbursements

Table 09: SME loan portfolio

Table 10: No. of Customer in SME

Table 11: SME Loan Status of IDLC Agrabad Branch

Table 12: Quarter wise disbursements of last four years

Table 13: Quarter wise Interest rate of last four years

Table 14: Quarter wise loan tenor of last four years

Table 15: Fees and Charges for SME Division

Figure 01: Values of IDLC Finance Ltd.

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

Figure 04: GDP structures of Small and Large industries

Figure 05: Contribution on GDP by Small and Large industries

Figure 06: Year wise bar diagram of SME loan disbursements

Figure 07: Year wise bar diagram of SME loan portfolio

Figure 08: Year wise bar diagram of SME loan customers

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

Asset Liability Management Company

1.1 STATEMENT OF THE PROBLEM:

1.2 OBJECTIVES OF THE STUDY:

b. To examine the Bangladesh Banks SME credit policy.

1.3 LITERATURE REVIEW:

1.4 METHODOLOGY OF THE STUDY:

1.4.2 THE SAMPLES OF THE STUDY:

1.4.3 SCOPE OF THE STUDY:

1.5 SOURCES OF DATA:

1.6 DATA ANALYSIS AND INTERPRETATION:

1.7 LIMITATIONS OF THE STUDY:

Small and Medium

2.0 SMALL AND MEDIUM ENTERPRISES:

2.1 DEFINITION OF SME:

2.1.2 NEW DEFINITION OF SME BY INDUSTRIAL POLICY 2010:

Industrial policy 2005, Government of Bangladesh

Medium Industry Enterprise:

2.1.3 NEW DEFINITION OF SME BY BANGLADESH BANK:

Small Industry Enterprise:

Fixed asset other than land and

Industrial Policy 2010, Definition of SME

Medium Industry Enterprise:

Fixed asset other than land and Employed manpower

2.2 MAJOR SECTORS OF SME IN BANGLADESH:

Processing of Agro based and Agro

Agro based Activity

Making of fishing boat

Embroidery quilt and Loom

Food Seeds Preservation

Dry Fish Processing

Computer Software and ICT Products

Entertainment i.e. Documentary Film,

Cinema, making DVD