SME banking operation of BRAC Bank Limited

Abstract

Expansion of the Small and Medium Enterprises (SMEs) helped reduce poverty to a enduring level by removing obstacles in the Small-Medium labor intensive sectors. Access to finance has always been a problem and Small and medium entrepreneurship has a tremendous potential in empowering potential entrepreneurs and transforming society. BRAC Bank Ltd introduced SME Banking Division in 2001 by tapping this huge untapped segment. BRAC Bank at present is operating all over the country having 157+ Branches and Krishi Branches, 22 SME Sales and Service Centers, 300+ ATMs, 405 SME Unit offices. Its three pillars are 3P- People, Planet and Profit; ensures sustainable growth. BRAC Bank SME divisions target was to bring the “Missing Middle” under the financial Umbrella and bring a lasting socio-economic impact. Within 14 years of establishing it has proved to become the country’s largest SME finance provider and 4th large SME provider in the world in terms of lending volume. For inheriting business risk, SME sector is facing several constrains in terms of growth. Policy level complexity, financial constraints, legal bindings and industry structure are hindering financial institutions to support SME sector. Lack of SME supporters, poor infrastructure of the country, lack of entrepreneur’s skills, lender-borrower gap, huge market competitions are the major drawbacks for both borrowers and lenders. Again SME sector has tremendously contributed in the economy. Although being the country’s largest SME provider, BRAC Bank is continuously facing numerous challenges. Business risk, high interest rate, high defaulter rate, certain government policy change etc are the major challenges facing by BRAC Bank. Even though strict loan approval system is maintained, due to some unavoidable reason “bad-losses” sometimes occur resulting large number of defaulters. In order to mitigate this credit risk BRAC Bank follows consistent monitoring on borrowers. Lowering interest rate, more effective loan approval system, strong monitoring activities etc could improve BRAC bank’s performance, are highlighted in the recommendation part. Analysis of the Profile of the borrowers is also incorporated to give idea of borrower demographic profile.