SME Financing Criteria, Policy, Guidelines, Operational & Reporting Procedures, Risk Rating, IBBL's Contributions and Servicees rendered by SME Branch etc.ppt

Presentation on
SME Financing: Criteria, Policy Guidelines,
Operational & Reporting Procedures, Risk
Rating, IBBL’s Contributions and Services
rendered by SME Branch etc.
Prepared by
Md. Altaf Hossain
Sr. Vice President
SME Investment Division
Islami Bank Bangladesh Limited
Warm Welcome to
a_hossain@islamibankbd.com

Who are SMEs?
 SE : Small Enterprise/Industry
 ME :Medium Enterprise/Industry
 Micro Enterprise/Industry
 Cottage Industry
In IBBL SE & ME is dealt by SME Investment Division
(SMED) under Investment Wing.

Definition of Small Enterprise (SE)
Small Enterprise has the following characteristics
Sectors
(Concerns)
Total Fixed Asset
(excluding land &
building)
No. of employees
Manufacturing Between Tk.50.00 lac
- to Tk.10.00 crore
25 to 99
Trading Between Tk.5.00 lac-
to Tk.1.00 crore
10 to 25
Service Between Tk.5.00 lac-
to Tk.1.00 crore
10 to 25

Definition of Medium Enterprise (ME)
Medium Enterprise has the following characteristics
Sectors
(Concerns)
Total Fixed Asset
(excluding land &
building)
No. of employees
Manufacturing Over Tk.10.00 crore to
Tk.30.00 crore
100 to 250
Trading Between Tk.1.00 crore
to Tk.15.00 Crore
50 to 100
Service Between Tk.1.00 crore
to Tk.15.00 Crore
50 to 100

Definition of Micro Enterprise/Industry
Sectors
(Concerns)
Total Fixed Asset
(excluding land &
building)
No. of
employees
Manufacturi
ng
Between Tk. 5.00 lac
to Tk. 50.00 lac
10 to 24
Trading Below Tk. 5.00 lac Below 10
Service Below Tk. 5.00 lac Below 10

Definition of Cottage Industry
Sectors (Concerns) Total Fixed Asset
(excluding land &
building)
No. of employees
Cottage Industry Below Tk.0.05 crore Below 10 with family
Members
NB: If any enterprise falls in Micro Enterprise as per one standard but
falls in Coattege categories as per other standard, then the enterprise
will be treated as Micro Enterprise categories(upper) and so as to for
Micro, Small & Meduim Enterprise categories.

Hypothetical Example
1.Land ----------------------------------------Tk.50.00 lac
2. Building -----------------------------------Tk.75.00 lac
3. M/c. & Equipments ----------------------Tk.75.00 lac
4. Furniture & Fixtures ---------------------Tk.75.00 lac
5.Inventory / Stock -------------------------Tk.25.00 lac
6. Others------------------------------------- Tk. 10.00 lac
Total ------------------------------------------Tk.310.00 lac
Less (value of Land + Building)-----------Tk.125.00 lac
Total value of asset (excluding Land+Bldg.)=Tk.185.00 lac
No. of employees : 60 nos.
Asset Calculation:

Importance of SME
• SMEs are the engine of growth
• SMEs play important role for poverty reduction
• SME Sector is the largest provider of
employment in most countries, especially of
new jobs

Steps/ Measures taken by Bangladesh
Bank For SME Development
 Formation of SME & Special Programmes Department in
Bangladesh Bank.
 Refinancing Scheme of Bangladesh Bank
 Allowing the banks to open SME/Krishi Branches
 Setting target for the Banks
Introduction of cluster approach, area approach method for
achieving the target
 Setting SME dedicated desk, women dedicated desk

Obligatory Steps To be taken as Compliance
of Bangladesh Bank:
 SME cells at Zonal Office
 Dedicated Women Entrepreneurs & SME Desk
 Achieving Target of SME Exposure performance of which will impact opening new
branches, authorized dealer branches and opening exchange house in abroad
 Adopting area approach & cluster development method for achieving the target
 Allocation of fund for SME Sector to ensure smooth supply of fund
 Priority to SE sector, Industry and Service Sector, Women Entrepreneurs
 Identification of Real Women Enterprises
 Arrangement of Training for prospective entrepreneurs
 Availability of SME related information to the entrepreneurs

SME Business Strategy of IBBL
 IBBL emphasized on diversification of investment through SME Exposure since
inception;
 IBBL always keeps a signification portion of allocation (about 20% to 30%) of
its total investment portfolio in its 5 years perspective plan.
 SME exposure of IBBL is the highest in the Banking sector of Bangladesh
 Contributes in promoting entrepreneurship throughout the country through
organizing, participating and sponsoring SME fair, Road show, Workshop,
Seminar, Training etc.
 IBBL has been achieving the SME exposure target set by Bangladesh Bank in
the last few consecutive years
 IBBL uses its wide Branch network (266) branches (highest amongst private
sector Banks in Bangladesh) throughout the country including rural and remote
areas to ensure financial inclusion of the micro, small and medium enterprises of
the country.

Cluster

Strategies for cluster development:
 Identification of the cluster;
 Formation of committee for development
 Conduct baseline survey & diagnostic study
 Fixation of action plan
 Implementation of action plan
 Review & Monitoring

Eligibility of Clients
1. Physically capable Bangladeshi national;
2. Proprietorship/ Partnership/ Private Limited Company;
3. Valid licenses like Trade License, VAT Registration, TIN etc. NOC from Environment
Directorate (as applicable) from competent authority;
4. Source and capacity of repayment backed by positive cash flow;
5. Definite market and prospect of future expansion;
6. Clean CIB report;
7. Adequate infrastructure facility and manpower with required skill and experience;
8. The client must have clear idea about the business and required experience.
9. All other criteria laid down in the Instruction Circular, Manuals of relevant investment
product.

• Manufacturing:
Enterprise involved in production process viz. food & agro-
based, leather, textile, handicrafts, pharmaceuticals, electrical
accessories, recycling etc.
• Trading:
Enterprises involved in wholesale and retail trading, export
and import etc.
• Services:
Enterprise providing services to other persons, organizations,
viz. telecommunication, transport, information technology,
clinics, hotel, restaurants, workshops etc.
Sectors of SME

Salient features of regulations and
Guidelines of BB regarding SME
Financing

Sanctioning Authority
As per existing delegation of authority approved by
Head Office for different Nature, Modes and
Schemes of Investment
or
As per amendment made/to be made from time to
time by Head Office.

All the Branches and
SME/Krishi Branches of IBBL
Designated Branches

Rate of Return/Colateral
Rate of Return:
At present, the rate varies from 7% to 16.00% depending on the
nature, mode and sector of investment or the rate to be
determined by the Bank from time to time.
Collateral/Security:
Security depends on the nature of business, modes and
amount of investment. IBBL also finance up to Tk. 0.50
million to women entrepreneurs without collateral while it is
up to Tk. 0.10 million for all SME clients .

Investment Size
SE: From Tk. 50,000.00 up to Tk. 50.00 lac
ME: As per definition

Period of Investment
Nature of Investment Period of Investment
Term Investment Mid term: Maximusm 5
(five) years
Long term: Above 5 (five)
years
Working Capital/Trade
Financing
Maximum 1 (one) year on
revolving basis
Other Schemes/Investment
Products
As per existing Head Office
Circulars

a) Checking the assets, workforce and category of business of the entrepreneurs for proper identification
of enterprises whether those fall under SME or not. If falls under SME as per definition depicted in clause
no. 6.0.1, the proposal shall be treated as SME and shall be dealt with by SME Investment Division or by
the organs/Offices as per discretionary power set by the Bank.
b) Existing specific Application Form supplied from Head Office for HPSM (Project), Working Capital and
Special Schemes shall have to be practiced.
c) Application received by the branch from client. The annexed “Borrower’s Basic
Fact Sheet (Annexure-C)” and “Investment Presentation Form (Annexure-D)” shall
have to be practiced instead of the existing Forms 167-A (revised) & 167-B
(revised) for consideration of Small Enterprise Proposals only.
d) Duly filled in Contact Point Verification Format (Annexure-E)
shall have to be enclosed along with the proposal for SE proposals only.
e) Branch scrutinizes/verify the application.
Processing and appraisal of applications:

f) If application meets basic criteria, investment proposal be assessed by the Branch appraisal
team at branch level. For such Investment Assessment and Presentation, the annexed
Borrower’s Basic Fact Sheet (Annexure-C)”, “Investment Presentation Form (Annexure-II)” and
“Contact Point Verification Format (Annexure-III)” shall have to be practiced in lieu of the
prevailing Forms 167-A (revised) and 167-B (revised) for SE proposals only.
g) For proposals under medium category the prevailing 167-A and 167-B with the recent updates of the Bank shall have to
be used.
h) Sanctioned if within the sanctioning authority of the Branch.
I) If beyond Branch’s authority, investment proposal duly assessed and recommended by the Branch to be forwarded to
Zonal Office.
j) Zonal Office assesses and approve if within the sanctioning authority of Zonal Office.
k) If beyond authority of Zonal Office, investment proposal duly assessed and recommended by the Zonal Head to be
forwarded to the Head Office.
l) Assess and decision taken by the competent authority at Head Office level. Decision conveyed to the applicant by the
Branch.
m) Decision conveyed to the applicant by the Branch
Processing and appraisal of applications:

Monitoring & Supervision of SME

Monitoring & Supervision by BB
•Physical Monitoring
•Monitoring through reports/statements
•Computerized system for monitoring

Monitoring Activities in the Zonal Offices of the Bank:
Formation of SME Investment Monitoring Cell
Performing the role of co-ordination
Arranging meeting with the Branches

Activities to be performed at Branch Level:
• Evaluating demand and scope to invest in local potential sector
• Investing Small Women Entrepreneurs
• Identifying Small Entrepreneurs and investing them
• Publicity for motivating Small Entrepreneurs
• Investing in easy and transparent manner
• Monitoring and gearing up recovery

Risk Rating of SME
• According to Guidelines on Risk Based Capital Adequacy
& SME Credit Policy & Programmes of Bangladesh Bank:
• Exposure under Small Entperprise category will be risk
weighted by 75%, Exposure under Consumer Category
will be risk weighted by 100%.
• According to the Definition corporate clients as per
Guidelines on Risk Based Capital Adequacy exposure
under Medium Enterprise Category will be treated as
“Corporate”.
• Corporate clients are to be rated by External Credit
Assessment Institutions (ECAIs).

Risk Weight against Equivalent
ECAIs’ Scale of Bangladesh Bank:
Long
Term
BB
Rating 1
BB
Rating 2
BB
Rating 3,
4
BB
Rating
5, 6
Unrated
Short
Term
BB
Rating
S1
BB
Rating
S2, S3
BB
Rating
S4, S5
BB
Rating
S6
Risk
Weight
20% 50% 100% 150% 125%

Development of SME Market Segment/Competition:
Top ten Banks on the basis of disbursement amount
11399
4309
3559 3222 3087 2994
2435
1578 1479 1423
0
2000
4000
6000
8000
10000
12000
IBBL Exim
Bank
Brac
Bank
AB
Bank
DBBL Uttara
Bank
UCBL South
East
Al
Arafah
IFIC
Name of the Bank
Amount
in
Crore
Tk

Date IBBLs SME
Exposure
PBs SME
Exposure
% of IBBL to
PBs
Total National
Exposure
% of IBBL to Total SME
Exposure
31.12.2010 78456 390838.50 20% 695265.80 11.28%
31.12.2011 108670 484291.60 22.43% 810992.30 13.40%
S ME E xpos ure of IB B L Vs
National expos ure
National
expos ure
other than
IBBL ,
702322,
87%
IBBL ,
108670,
13%
S ME expos ure of IB B L Vs
P B s
Other PBs ,
375622,
78%
IBBL ,
108670,
22%

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