A study on SME banking system and procedure of BRAC Bank Limited

Abstract

BRAC Bank Limited is a scheduled commercial bank in Bangladesh. It established in Bangladesh under the Banking Companies Act, 1991 and incorporated as private limited company on May 20, 1999 under the Companies Act, 1994. Its operation started on July 4, 2001 with a vision to be the market leader through to providing all sorts’ support to people in term of promoting corporate, small entrepreneurs and individuals all over the Bangladesh. BRAC Bank will be a unique organization in Bangladesh. The bank consist of major divisions named 1) Corporate banking, 2) Retail banking, 3) Operations 4) Small & Medium Enterprise (SME). At present the Bank operating its business by 165 branches and 624 SME offices. BRAC Bank is the first local commercial banks that proving online banking service to its customers from the very beginning of its starts. BRAC Bank, for the first time among local commercial banks, starts providing loan facilities to small and medium trading, manufacturing and service oriented enterprises all over the country. The bank has already established its network in different area of the country with assistance of BRAC. BRAC Bank is trying to develop economic condition of the country. So the bank provides loan facility 3 to 30 lacs taka to that small and medium enterprise that has no easy access to banks/financial institutes. The bank already established 41 Zones and 624 SME offices all over the country. There is 2104 Officers providing service to clients. Till 2014, the bank Disbursed 471618 loans which amount is Tk 291871 million. The success of SME will largely depends on the selection of a business and man behind the business. BRAC Bank provides this facility to those whose business operation is minimum one year and environment friendly business. It provides no loan facility to tobacco business. The business should be legally registered and must have valid trade license. The entrepreneur should be physically able, preferably between the ages 21 to 50. She/he must have the necessary technical skills to run the business and acceptable social standing in the community i.e. people should speak highly of him/her. BRAC Bank gives equally important to the guarantor to getting the SME facility. The guarantor must have the ability to repay the entire loan and is economically solvent. The guarantor should know the entrepreneur reasonable well and should preferable live in the same community. SME loan can be repaid in two ways, 1) in equal monthly loan installment with monthly interest payment. 2) By one single payment at maturity, with interest repayable a quarter ends residual on maturity. Customer relation officers search new potential customer by providing door-to-door service. They talk with clients and monitor their manners, activities of their business and provide the loan to the potential customers. SME, BRAC Bank may provide 100% of net required working capital but not exceeding 75% of the aggregate value of the inventory and account receivable. Normally, organizations meet their working capital from over draft loan but BRAC Bank designed the loan to meet working capital but as term loan which is repaid in installment. The customer relation officers also monitor the borrowers’ activities after the loan disbursement. Monitoring also facilitates the buildup of an information base for future reference. Asset Operation Department acts as the last line defense of the bank. This division is responsible for the complete disbursement, recovery and closing procedures. The procedures start from the sanction of the SME loan. The respective select potential enterprise, collect confidential information about the enterprise, open clients account is the respective bank where BRAC Bank has its own account, filled up CIB form and send it to the Asset Operation Department. Then the Asset Operation Department starts its activities. The Asset Operation Department sends the CIB form to the Bangladesh Bank to know the CIB status of the applicant. If the report found clean then it send back to the unit office for send proposal for the loan. Then the unit office sanction loan and send it again in Asset Operation Department for disbursement. The Asset Operation Department then prepare a loan file and checks all necessary documents, prepare a list and disburse it. Then the Asset Operation Department starts enter all information regarding the loan in the banking software “Millennium Banking System (MBS)” which includes initial ID generation, loan account opening, risk fund collection, activation of the loan. Post disbursement manual activities includes repayment schedule send to unit office, documents stamp cancellation, send the loan file to archive. Recovering activities include receive SMS/Fax for installment deposit, entry the installment information to MBS, print vouchers, cross check SMS/Fax and solve problems, repayment voucher check and posting. Closing activities includes receive SMS/Fax requesting for closing, bring the loan file from archive, obtained approve to closing from the concern authority, checking in MBS, SMS sent to concern customer relation officer (CRO), receiving and print closing SMS/Fax. The core competence of the BRAC Bank is to provide the fastest loans to the clients in this country. To retain this competitive advantage BRAC Bank would provide computer and palmtop facilities whether they can give fastest services to clients than other banks. Also to convey the customer focus, BRAC Bank is trying to reduce collateral securities than other banks. It provides more collateral free secured loans to capture the market. Regarding the services by the CRO, almost all clients are satisfied by get these quick facilities from them. Though it is pioneer division of this bank, I tried to give an in-depth analysis for every factor, which relates the SME division from the perspective of customer satisfaction and dissatisfaction.