February 28, 2012

To
Md. Zillur Rahman
Asst. Professor
Department of Business Administration
Shahjalal University of Science & Technology
Sylhet
Submission of Internship Report on: Present Position of SME SECTOR in Bangladesh:
Problems and Prospects
Dear Sir:
I am taking this opportunity to submit the Internship Report on Present Position of SME
Sector in Bangladesh: Problems and Prospects as a requirement of my BBA program. I
have been working as a management trainee at the United Commercial Bank Limited during
my organizational attachment period for 12 weeks. In this period of time I have acquired
some working knowledge of the various operational and administrative procedures and
documents that exist in the corporate division of the organization. As such, I have chosen to
prepare my paper to submit the report on the performance and Prospects of SME Sectors in
Bangladesh from my active participation and shadowing the activities. In this paper, I have
tried to apply the knowledge and guidelines from my education span to find out the current
condition of the sector.
In spite of the various limitations faced while preparing the paper, I have tried to be as
thorough as possible. I sincerely hope that this report fulfils the objectives and requirements
of my report and that it finds your acceptance. I also thank you for your guidance, support
and time and should you require any elaboration on any issue, I shall be glad to oblige.
Sincerely yours,
Md . Atiqul Hakim Chowdhury
Reg: 2006731032
BBA 4th year 2nd semester

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Acknowledgement

Before making any other statements, I would like to thank Almighty Allah for giving me the
opportunity to successfully complete my internship report. I have completed my internship at
UCBL (Jubilee Road Branch) from October 1st, 2011 to January 28th ,2012. My internship
report wont be possible without contribution of few people.
For the making of this paper, I would like to convey my sincere thanks to Mr. Syed
Mosaddek Hossain, Head of Loans and Advances of The United Commercial Bank
Limited. He has given me his valuable time and full support while carrying out the steps that
were required to make this paper informative and meaningful. Also, he has given me the
permission of interviewing anyone from his department, and more than that, he has also given
me the authority to ask for any resources that I may require while preparing the report. Such
cooperation is very hard to come by.
Secondly, The topic has been approved by Mr. Didarul Islam, Senior Vice President of
United Commercial Bank Limited (Jubilee Road Branch) and by Mr. Miah. Qamrul Hasan
who has been appointed as my internal supervisor throughout the internship program.
I would like to thanks them for giving the permission and support that allowed me to go out
and gather relative information from other Organizations. They also shared their knowledge
and in-depth understanding of the topic which has helped me a lot to get a clearer picture
about their SME division.
Lastly and most importantly, I would like to thank my supervisor, Md. Zillur Rahman (Asst.
Professor, Department of Business Administration, and SUST) for giving me his valuable
insights into the project, as well as his time and continuous guidelines.

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Table of Contents
Chapter One: Introduction
1.1. Origin of the report
1.2. Scope of the report
1.3. Background
1.4 Problem Statement
1.5. Objectives of the report
1.6. Methodologies
1.6..1. Research Design & Procedure of
Analysis
1.6.2. Sources of Information
1.7. Limitations of the Study

Chapter Two: Literature Review

Chapter Three: An overview of

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06
07
07
07
08
08
08
08
09
09
10-11
12

the Present position of SME

Sector in Bangladesh
3.1 Definition
3.2 Small and Medium Enterprise sectors
3.3 Current Status of SMEs in the Economy
3.3.1 Brief Macro-economic Review
3.3.2 Sources of Financing in SME Sectors
3.4 New Prospects

Chapter Four: SME Financing

12
13
14
14
14-16
17-18
19

policy in Bangladesh: with

special reference of UCBL
4.1 SME financing policy of UCBL
4.2 Proposed SME lending Products by

19
20

UCBL
4.3 Eligibility of a Customer
4.4 Common documentation checklist for

21
22

SME loan
4.5 Credit approval authority/delegation

Chapter Five: SME Banking: Overview

5.1 Bangladesh Bank Regulation and Policy for
regulating SME Banking
5.2 SME Banking in Bangladesh
5.2.1. BRAC Bank
5.2.2. Eastern Bank Ltd
5.2.3. Standard Chartered bank
5.2.4. AB Bank
5.2.5. City bank

23
24
24
25
25
25
26
26
27
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5.2.6. United Commercial Bank Limited

5.2.6.1 Loans and Advances
5.2.6.2 Comparison with BRAC Bank
5.3 Current Position of SME Sector: A comparative

27
28
28
29-33

study of Disbursement of Loan in Bangladesh

5.4. A Brief Scenario of Distribution of Loans and

34

Recovery according to the Different Nature of

Banks

Chapter Six: Opportunities and

35

Challenges for SMEs

6.1 Key Advantages of starting Small Business
6.2 Key problems faced by SMEs

Chapter Seven: Findings

Chapter Eight:

35
36
37
38

Recommendation
Conclusion
List of Table

39

Table 4.1: SME definition followed by UCBL

19

Loan Delegation Authority

Table 4.2: Prudential Regulations for Small

20

Enterprises
Table 4.3: Eligibility of a Customer
Table 4.4: Common documentation checklist for

20
21

SME loan
Table 4.5: Delegation of business power for SME
customers
Table 5.1: Loans and advances of years 2006 to
2011
Table 5.2: The largest 4 sectors of loan outstanding
in 2011
Table 5.3: Client Portfolio of 2011 (UCBL Vs
BRAC Bank)
Table 5.4: Categorized Distribution and Volume of
Target for Banks in Sylhet Division
Table 5.5: Category of Loan Distribution Rate and

22
28
29
30
31
34

Recovery Ratio

List of Figures
Figure 5.1: Loans and advances of years 2006 to

28

2011
Figure 5.2: Sector wise Loans and advances of 2011
Figure 5.3: A graphical representation of industry

29
29
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wise client list of UCBL Corporate

Figure 5.4: Sector wise Rate of Distribution
Figure 5.5: Sector wise Rate of Distribution
Figure 5.6 and 5.7: Gender wise Distribution of

30
30
31

Loan
Appendices
Appendix A: References of Publications
Appendix B: Online Resources

39
40

Executive Summary
SMEs can be considered one of the vital instruments leading to rapid industrialization in the
context of Bangladesh. Moreover it assists in alleviation of poverty which enhances
improvement in the economic development. Not only in Bangladesh, SMEs worldwide are
recognized as an engine of economic growth, thus, we can say that introduction of SME has
been a blessing for a country. In a developing country like Bangladesh, SMEs are promoted
for their commonly perceived merit as they include their relatively high labor intensity,
dependence on indigenous skills and technology, contributions to entrepreneurship
development and innovativeness and growth of industrial linkages. In this paper the authors
have tried to identify the major constrains faced by SMEs in Bangladesh. It is a study on the
SME customers of UCBL (Jubilee Road Branch, Chittagong). Presented is an exploratory
research where primary data are collected through both questionnaire survey and personal
interview. Secondary data are collected while working in the Credit Department and also
from accessible records of the bank and through internet. Qualitative data analysis has been
conducted. The major limitation of the study is that in a country of about 170 million people,
and Over 52 enlisted Banks in Bangladesh a sample of just 5 Banks might not be sufficient
enough to reflect the actual form of constraints that SMEs truly face.

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Introduction
In recent days the Small and Medium Enterprise (SME) Financing has become an importance
for the Economy of Bangladesh. To align its Corporate policy with the regulation of Central
Banks, banks have become more concerned about SME and open windows to conduct
Business in this particular area. This study has been conducted to gain an insight about the
present condition of Small Medium Enterprise in the Economy of Bangladesh and their
Financing scenario in the light of Bangladesh Bank regulation. Small and medium-scale
enterprise (SME) is a heterogeneous group. They include a wide variety of firms village
handicraft makers, small machine shops, restaurants and computer software firms etc that
possess a wide range of sophistication and skills, and operate in a very different markets and
social environment. Their owners may or may not be poor. Some are dynamic, innovative and
growth-oriented whereas others are traditional lifestyle enterprises that are satisfied to
remain small. Governments in both industrialized and developing countries provide a wide
variety of programs to assist small and medium-scale enterprises (SMEs). Despite the success
of SME strategies in a few countries, the majority of the developing countries have found
that, the impact of their SME development programs on enterprise performance has less than
satisfactory. Small and medium enterprise sector development is one of the key issues in
external cooperation by developed countries to developing countries recently. Development
of SME sector is crucial for strengthening the leading industries as the assistance of SME
acts as support industry. In addition, the emergence of SME is alarming for other industry as
it is at the feet to be the leading industry as every leading enterprise has had the experience of
starting their business as a SME.
Moreover, SME sector did not limit to be the key issue of the industry development only,
further it contributed in the socio-economic development of the country. SME plays a vital
role in contributing the society as well the economic condition of the country by widening its
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pace by employing labor of various merits. It helps to reduce unemployment from various
group of section of the industry, as it is not concentrated with a single issue. It provides a
platform for individuals possessing different skills thus enhancing in the development of
various mechanism of the labor industry. Thus, we can conclude that the future of the
industry is also depended on the development of SME.

1.1.

Origin of the report

This paper has been prepared as partial fulfillment of the requirement of the BBA Program,
Department of Business Administration, Shahjalal University of Science & Technology. The
primary goal of the internship curriculum is to provide an on the job exposure to the student
and an opportunity for translation of theoretical conceptions in real life situation. Students are
placed in enterprises, organizations, research institutions as well as development projects.
The program covers an overall period of approximate 12 weeks of organizational attachment,
with report finalization work. United Commercial Bank Limited, one of the well-known
private banks in Bangladesh where I have been recruited as an intern to complete the
research. This report is the outcome of three-month internship program. This report entitled
Present Position of SME Sector in Bangladesh: Problems and Prospects -A study on
the SME Sectors and Its impact on the Economy of Bangladesh, is the output of my practical
knowledge and experience at The United Commercial Bank Ltd. This topic has been
authorized by the Faculty Advisor.

1.2

Scope of the report

The scope of the research covers the major constraints that SME owners usually face while
operating a business in Bangladesh. The constraints discussed in this report are the result of a
questionnaire survey among twenty five SME owners, who are running their business in
different sectors.

1.3

Background of the Study

After Liberation of Bangladesh, intensive efforts were undertaken to accelerate the rate of
industrialization in the country. At the beginning, import substitution and subsequently
export-led economic growth strategy was pursued for industrialization. In order to fulfill this
objective, large amount of industrial credit was funneled to the industrial sector. but the
whole exercise of industrialization came to a halt to massive diversion of resources to other
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non-priority sectors. From recent statistical data of Rupali Bank of Bangladesh, we see that
the credit recovery rate is 51.44% in this sector.

1.4Problem statements
1.5Objectives of the report
It is mandatory to have few objectives to make a work successful. These objectives work as
the guideline which leads the research to the proper direction. The objectives of the study are
as follows:
i.
To review the role of SMEs in the economy as well as current status of SMEs and
ii.

their financing by Banks in Bangladesh.

To review the present role of Regulatory Authorities in SME financing and

iii.
iv.

development.
To explain the unique brand image of SME.
To Find out some solution that may minimize the severity of the Current situation

1.6Methodologies:
1.6.1 Research Design & Procedure of Analysis
This is an analytical research where in Corporate Banking the industry exposure for all
performance of loan portfolio is analyzed. The loan portfolio of Corporate Banking has been
analyzed with the sector-wise & product-wise dimensions.

1.6.2 Sources of Information

Collecting data directly from the practical field is called primary source of data. In this case
samples were picked up on a judgmental basis. The methods that were used to collect the
primary data are as follows:
i.

Face to face conversations with the employees and opportunities were given by the
management to work in relevant fields in UCBL.

ii.

By personal interviewing and interacting customers at BBL and officials of other

competitive banks.

iii.

Observing various organizational procedures.

iv.

Various unstructured papers and weekly report of the bank

v. Interviewing other banks personnel

The secondary data has been collected from different publications of UCB Bank. To clarify
different conceptual matters, Internet and different articles published in the journals &
magazines have been used.
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The Secondary Sources are:

i.

from prior research report

ii.

from different books and periodicals related to the banking sector

iii.

From Newspapers and Internet.

iv.

Annual reports of Various Banks.

v.

Publication of Bangladesh bank

In processing the data and presenting these tables and graphs has been used. SWOT analysis
has been used as analytical tool. It is rarely involves structured questionnaire, large sample
and probability sampling plans. Observation method is used in some cases to complete the
paper.

1.7 Limitation of the Study:

Since this research is only for academic purpose, there were some limitations in this study.
These are mentioned below
i.

This research is based on Small & Medium Enterprise only. Furthermore the definition
incorporates a certain comprehension of SME represents. This means that other

ii.

entrepreneurs and other forms of enterprises might not have been a part of this study.
Discussion about the Small and Medium Enterprises is a vast subject, but only some

iii.
iv.

selected areas are covered in the research paper.

The study is basically based on secondary data.
Time was enough, but it was not possible to give full concentration in this regard due to

v.

continuous pressure from other courses.

Qualitative analysis is the foundation of this research. As a result, quantifying the
constraints in a hierarchy was not possible. However, if the constraints could be ranked
then analysis or comprehension could have been more precise.

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Chapter Two: Literature Review

For purpose of this research, a series of articles and journals were studied. Below a summary
of a couple of those writing are presented:
Small and medium enterprises are particularly suitable for densely populated
countries like Bangladesh where SME sector can provide employment with much lower
investment per job provided. Out of 11% employment of the civilian labor force provided by
the manufacturing sector, about two-thirds are estimated to be provided by the Small and
Medium Cottage Industry sector.
Again the development of Small Industries facilitates the effective mobilization of capital and
Labor resources. They also helps in raising standards of living people in rural areas.
Contribution of SME Sector in GDP remained above 4% during the period from 1985-86 to
1999-00. The first article that I went through was Performance Evaluation of SMEs of
Bangladesh written by Kashfia Ahmed and Tanbir Ahmed Chowdhury, (2009). Here the
authors tried to evaluate the performance of SMEs in Bangladesh. They tried to point out the
problems that SMEs in Bangladesh faced and how to alleviate those problems. Furthermore,
this article informs about the lack of government support towards SMEs. Moreover, the
present contribution of SME sector to GDP is approximately 5% and SME sector employs
25% of the total labor forces, thus this sector is the present available sector for creation of
jobs (Saha, Sujit R. 2007).Research papers developed by Bakht, Zaid (1998) and Ahmad,
Salahuddin. (1998) described that the policy environment within which SMEs in Bangladesh
operates accompanies legal, regulatory and administrative constraints to employment creation
by SMEs. Acting as financial intermediaries, banks exist by virtue of their abilities to
minimize transaction costs through enjoying economies of scope and scale and by
aggregating uncorrelated demand (see Williamson, 1973, 1985, 1996).Development banks
exist to supplement existing sources of finance, fund bankable economic development
projects, and promote and finance enterprises and industry (McGrath, 1959,p.74-76; Boskey,
1959,p.IX;).
The robustness of SME contributions to employment generation is a common phenomenon in
most developing countries in that the magnitude varies between 70% to 95% in Africa and
40% to 70% in the countries of the Asia-Pacific region (Tanvir Ahmed Chy 2009).
Liberalization of industrial and trade regimes along with globalization are likely to have had
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significant effects on SMEs (Hallberg ,Kristin et Al.1997).Various recent studies (Ahmed,

M.U. 2001, ADB 2001, USAID 2001) show that SMEs have undergone significant structural
changes in terms of product composition, degree of capitalization and market penetration in
order to adjust to changes in technology, market demand and market access brought by
globalization and market liberalization. The official data show that the share of private
investment in Bangladeshs GDP in the late1990s, which may be considered as the postreform era, has remained more of less constant at around 15% (Bhattacharya, 2002). This
may be interpreted as an evidence of stagnant private sector activities in the country. The
recent private sector survey estimates the contribution of the micro, small ,and medium
enterprises (MSMEs) is 20-25% of GDP(Daniels, 2003).While SMEs are characteristically
highly diverse and heterogeneous, their traditional dominance is in a few industrial subsectors such as food, textiles and light engineering and wood, cane and bamboo products.
According to SEDF sources quoted from ADB (2003), food and textile units including
garments account for over 60% of the registered SMEs.
Despite these contributions in the economy of the country, Banking sectors are not interested
in financing the Small and Medium enterprises; Rather there is a decline in the amount of
advances by the Banking sector. There are approximately 52 banks operating in our country
and all are serving large enterprises rather than SMEs though only the Small enterprises
contribution is 11.5% in GDP of Bangladesh in 2010
Another writing was SMEs in Bangladesh written by Abdul Awal Minto. This
writing informs about the emergence of SMEs in Bangladesh followed by a number
of statistics regarding SMEs in Bangladesh, their number, their success rates and failure. It
also pinpoints the reasons behind their problems and to overcome those. Furthermore, it
emphasizes on why SMEs should be given major considerations to benefit the aggregate
Bangladesh economy. Furthermore, it realizes the fact that a major portion of todays
large enterprises have started from being a SME themselves and so every SME
should be given the opportunity for this growth.

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Chapter Three: An overview of the Present

position of SME Sector in Bangladesh
3.1 Definition: According to the latest circular of Bangladesh Bank (Date -26/05/2008),
the definition of Small and Medium Enterprise is given below:

3.1.1 Small Enterprises

S m a l l e n t e r p r i s e s r e f e r t o t h o s e e n t e r p r i s e s w h i c h a r e n o t a n y Public
Limited Companies and which fulfill the following criteria.
Service Concern
Having an investment of Tk. 50,000 to Tk. 50,00,000 excluding land & building and/or
employing up to 25 workers.
Business Concern
Having an investment of Tk. 50,000 to Tk. 50,00,000 excluding land & building and/or
employing up to 25 workers.
Manufacturing Concern
Having an investment of Tk. 50,000 to Tk. 1,50,00,000 excluding land & building and/or
employing up to 50 workers.

3.1.2 Medium Enterprises

Medium enterprises refer to those enterprises which are not any Public Limited
Companies and which fulfill the following criteria
Service Concern
Having an investment of Tk. 50,00,000 to Tk.10,00,00,000 excluding land &
building and / oremployingupto50workers.
Business Concern
Having an investment of Tk. 50,00,000 to Tk. 10,00,00,000 excluding land &
building and / or employing up to 50 workers.
Manufacturing Concern
H a v i n g a n i n v e s t m e n t o f T k . 1 , 5 0 , 0 0 , 0 0 0 t o T k . 20,00,00,000 excluding land &
building and / or employing up to 150 workers.

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3.2 Small and Medium Enterprise sectors:

The SME sector has been declared by the government as one of the priority sectors in the
industrial policy 2005. Following is a list of thrust sectors:
1. Agro-based and agro-processing industry
2. Textiles industry
3. Jute goods and jute-mixed goods
4. Readymade garment industry
5. Computer software and ICT goods
6. Electronics
7. Light engineering including automobiles
8. Pharmaceutical goods
9. Leather and leather products
10. Ceramics
11. High fashion value added RMG
12. Artificial flower production
13. Technology Based: (Internet Service Provider, E-commerce & Social Media, Hardware
& Software Mobility Security, Mobile Servicing)
14. Franchising Based:
i.
ii.

Franchises for Sale

Franchise Directory

15. Industries such as:

i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.

SOHO & Home Businesses

Agriculture & Food
Arts, Entertainment, Media, Advertising & PR
Education
Energy, Mining & Utilities
Housing, Real Estate & Construction
Non-Profits & NGOs
Professional & Creative Services
Recreation, Sports & Leisure
Retail
Technology & Telecommunications
Transportation & Logistics
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xiii.

Free Newsletters etc

3.3 Current Status of SMEs in the Economy

3.3.1 Brief Macro-economic Review:
Bangladesh, mainly backed by the growth of manufacturing, construction and service sector
has achieved a year-upon-year GDP growth of 6.51% in 2006-07, as compared with the
6.63% in FY 2005-06, and 5.38% in 2004-05. Per capita GDP recently surpassed $500. From
1% during the 1970s, growth rate of GDP per capita has ramped up to over 3% since the early
1990s and, since 2003-04, even higher, to 4%. Growth has been more stable too; Bangladesh
among the handful of countries that sustained positive per capita growth in each year since
the early 1990s. This performance has been underpinned by rising agricultural and non-farm
rural output and a rapid expansion in export of readymade garments (RMG).Faster economic
growth has helped Bangladesh to reduce the poverty rate by about 1(one) percentage point
per year since 1990. Poverty fell from 60% in 1990 to 50% in2000. Although the latest
poverty data are still being collected, proxy indicators suggest that good progress on poverty
reduction and social development has continued in recent years. Many MDGs are also on
track for being met. ( World Bank 2005).

3.3.2 Sources of Financing in SME Sectors

SME draw financing from a variety of sources. Around 75-90% of SME in Bangladesh rely on
internal savings, retained earnings and borrowing from family, friends and money lenders
(collectively known as informal sector) as opposed to the 3-18% which have access to formal
sector finance (banks, capital markets, venture capitalists etc). For start-up companies, the rate
of funding from the formal bank sector is even lower. These figures generally compare poorly
against the SME contribution of 20-40% to total domestic output and 75-90% of the domestic
workforce.
Government Programs for SME Financing: The public sectors in Bangladesh have been
actively promoting SME development in the last two decades. Common commercial credit
programmes initiated by the public sector and implemented throughout Bangladesh include
interest subsidies, credit guarantees, insurance schemes, loan quotas, export financing, and
also promissory notes. These programmes are delivered to the SME either via private bank
and nonbank institutions such as cooperatives and associations and/or state-owned bank
institutions and government line agencies. Outcomes By and large, the general consensus is
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that the governments programmes and support measures have not been as successful as
originally intended, as indicated by the low penetration rate of less than 20% in formal
financing and the 20-30% contribution to value added. It has been argued that these
government measures have generated unfavorable trade-offs and negative externalities such
as crowding out of private sector banks and viable businesses, and the emergence of a
dependency syndrome and non-repayment culture, to more than off-set the massive subsidies
and resources committed to the sector. The most successful of financing program are the
ones funded by international agencies.
2. Banking Sector Financing: Notwithstanding the low rate of penetration, financing by
banking institutions form the most important source of external financing for SME. This is
due to the dominance of the banking sector as the main intermediary in the financial systems
of Bangladesh. The average share of bank financing for SME in Bangladesh about 32.73%.
For Bangladesh, indications suggest an average range of over 40% with steady improvements
made from year to year. There are also numerous non-bank financial institutions (NBFIs)
such as finance companies, credit & leasing companies, cooperatives and thrifts, credit
unions etc that are involved in SME financing. These banks and NBFIs also participate as
conduits for government funds for SME. Financing Programmes and Tools The banking
sector has a wide range of generic short, medium and to a lesser extent, long term credit and
various supplementary financing instruments including trade credit, export financing,
factoring and discounting..One such example is the Bangladesh EXIM Bank, which supports
export business in Bangladesh.
3. Capital Markets A move away from bank intermediation in favor of capital markets has
long been considered by some countries. This promising approach seems to address the
chronic lack of long-term credit available to SME. Nevertheless, given the onerous legal,
regulatory and administrative requirements on firms targeting the capital markets, the lack of
support from the investment community (brokers, dealers etc) and the generally nascent
capital markets in these countries with significant imperfections (e.g., high transaction costs,
lack of liquidity, and depth of instruments), this move has many challenging hurdles from an
implementation aspect.
Equity Market. Though not as advanced as the developed markets in terms of depth and
liquidity, equity market does exist to tap this source of funding for SME. The exchange in
Bangladesh is still evolving. Weak financial market sentiments, tightening of listing
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requirements and perhaps the lack of quality companies intending to list on the bourse may
have constrained growth since its establishment.
Bond Market. The bond market in these countries is not yet a viable avenue for SME
financing. Given the relatively high transaction and administrative cost involved, the appetite
for high-grade bonds (resulting in high premiums for lower-rated bonds), and the general
reticence of SME to open up their books to agency scrutiny, the bond market will remain the
domain of large and strong corporations in the near future.
4. Venture Capital: The availability of venture capital in these economies is limited. The
fund is co-financed by the Asian Development Bank (ADB), the European Union
Development Fund; It is set up to operate over 10 years, with 65% of its investments to be
made in Bangladesh. The Fund aims to invest in private export oriented businesses that are
well managed and with impressive track records. Unlike banks, the venture capitalists do not
require stringent documentation from the SME. Instead, they rely more on the evaluation of
the ideas and concepts of the SME.
5. Trade Financing: Trade financing in the form of trade credit, equipment leasing and to a
certain extent, factoring are popular with SME in Europe but not so popular in Bangladesh
and Bangladesh. In terms of the portfolio composition by facility type, term loan is the
dominant facility offered to SME in these countries comprising almost 50% of all facilities to
SME in Bangladesh and 65% of SME loans in Bangladesh Banks. Generally, factoring, and
leasing are less common facilities offered to SME.
6. Informal Sector Financing: The informal sector comprises lending between family and
friends, savings and credit associations, and moneylenders (alternatively known as grey or
black markets). The informal sector is the main channel of credit for SME in Bangladesh and
to a lesser extent, in Bangladesh. In Bangladesh, informal channels fund up to 70-80% of
SME needs compared to 20-30% funded by the formal channels (as estimated by Bangladesh
SME Foundation). SME are also known to pay a commission to third parties that are able
to obtain a bank loan on their behalf.

3.4 New Prospects:

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A new re-financing fund worth Tk 6.65 billion (US$95 million) has been formed aiming to
facilitate financing in small and medium enterprise across the country.
The central bank of Bangladesh will provide the re-financing facility through eligible
commercial banks and financial institutions at the existing bank rate, which is now 5.0 per
cent.
Under the new provision, the banks will be allowed to sanction loans of minimum Tk 50,000
instead of existing Tk 200,000 for SME financing. The upper limit for such loans, however,
will remain unchanged at Tk5.0million.Currently, the banks can sanction loans between Tk
200,000 and Tk 5.0 million, to any single SME to any subject to fulfillment of certain
conditions by the borrowers.Weve formed the fund aiming to develop the SME sectors
across the country through providing re-financial facility, a senior official of the Bangladesh
Bank (BB) told BBN in Dhaka, adding that its a new investment fund which will be used for
project financing.
The central bank will operate the fund under the 'Small and Medium sized Enterprise
Development Project (SMEDP)' to accelerate the development of the SMEs, especially the in
the rural and non-urban areas, by improving their access to medium and long-term credit
facility.
BB Governor Atiur Rahman announced the policy at a discussion with chief executive
officers and managing directors of the commercial banks held at Seagul Hotel in Coxs
Bazaar with BB Deputy Governor Murshid Kuli Khan in the chair. The new policy has
focused on encouraging more women entrepreneurs in business and investment across the
country. (BBN/SS/SI/AD-15Feburay10-10:55 am (BST)
Under the programmers, banks and non-banking financial institutions (NBFIs) will disburse
around BDT 240 billion to more than 60 SME sectors such as light engineering, handicraft,
flower, fish processing, handloom, rice-mill and biogas and compost fertilizer during the
ongoing calendar year.
The central bank will set up a three-tier monitoring system to ensure growth of the SME
sector in the South Asian country. Under the monitoring system, the BB headquarters, its 09
branch offices across the country and head offices of all commercial banks will review the
implementation of SME credit programs regularly.

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The Asian Development Bank (ADB) has provided worth $76 million as soft loan in the fund
and the remaining amount of $19 million has been contributed by the central bank on behalf
of the government.
The ADBs 32-year loan has an 8-year grace period carrying an interest charge of 1.0 percent
per annum, rising to 1.5 percent for the balance of the term. The Ministry of Finance is the
executing agency for the project, which is due for completion by September 2012, according
to the statement.
The central bank has issued a circular in this connection and asked the chief executives and
managing directors of all scheduled banks and non-banking financial institutions (NFBFIs) to
proceed for re-financing agreements. The interested banks and NBFIs will have to sign
partnership agreements with the central bank for disbursement of loans under the re-financing
scheme, the BB officials added.
A project, having maximum fixed asset of BDT 200 million, excluding land and building, and
number of employees highest 150 persons, will get the re-financing facility, according to the
BB circular. Under the new provisions, the banks and NBFIs will lend the funds to eligible
SMEs outside Dhaka and Chittagong metropolitan areas for minimum two-year term at
market-based interest rates. A minimum of 15 per cent of the SMEDP credit facility will be
earmarked for lending to women entrepreneurs with a view to promoting qualified female
entrepreneurs by ensuring access to enterprise finance. The banks and NBFIs will be allowed
to finance maximum BDT 7.0 million and minimum BDT 50,000 in a single SME unit under
the new provisions. Any commercial bank or NBFI, which will disburse the loan under the
scheme, will receive 75 per cent of the disbursed amount from the central bank as refinancing
facility, and the remaining 25 per cent will have to be met by the bank or NBFI and
entrepreneur 15 per cent and 10 per cent respectively.

Page | 18

Chapter Four: SME financing policy in

Bangladesh; with special reference of UCBL
4.1 SME financing policy of UCBL:
Small and medium enterprise (SME) is defined as under by UCBL:
Manufacturing Sector
Trading/Service Sector
Fixes
Cost
(
excluding
Land
Number of Manpower
Enterprise

Basis

and building)

Small Enterprise (SE)

Medium Enterprise (ME)
Financing Limit (Lac Tk.)

Less than Tk. 150 lac

Tk. 150-1000 lac
2 Limit 50

for SE
Financing Limit (Lac Tk.)

2 Limit 300

Less than 25
25-100

for ME
Source: UCB Annual Report (2010)
Table 4.1: SME definition followed by UCBL Loan Delegation Authority
However, please note that with regard to SE financing, there remains an additional
qualification from Bangladesh bank. That is, Bangladesh Bank has also defined small
enterprise (SE), which is slightly different from Banks definition shown above. The
definition that came into effect vide BRPD Circular No. 07 dated 03.11.04 provided under
Prudential Regulations for Small Enterprises

Category

Criteria
Total Asset (Exel. Land and

building) in Lac Tk.

Manufacturing
0.50-100.0
Trading
0.50-50.0
Service
0.50-30.0
Source: Circular of Bangladesh Bank (2008)

60
20
30

4.3 Eligibility of a Customer:

Page | 19

Eligibility

The entrepreneur

must be literate
is skilled in managing his/her business and has
experience of successfully managing the business

for at least two (2) years.

is between 21-60 years of age; and
has a creative mind and good reputation

2. In case of individual,

must be Bangladeshi by nationality. If the

borrower is a company/ firm or a joint venture, it
must be registered in Bangladesh and majority
owned by Bangladeshis.

3. The applicant must be 100 % privately owned and

operated
4. The principle place of the business must be in
Bangladesh
5. The project must be financially and economically
viable.
6. If the borrower is unable to offer collateral / security
but can manage at least one guarantor acceptable to bank,
collateral requirement may be relaxed.

4.4 Common documentation checklist for SME loan:

S Proprietorl

ship

Partner ship

Limited

Association/Club/Trus

Liabilities

t/

Company/Pr

Society etc

ivate
Page | 20

Company
1

i. Copy of trade i. Copy of partner- i. Certified copy

ship deed
of the
license
Memorandum of
ii. List of partners incorporation
with address
(MOI) and
ii.Photograph(s
Articles of
)of signatories iii. Copy of trade
Association
license
(AOA)
iv. Photo graph(s)
of signatories
For registered
partnership,follow
ing additional
documents
v. Certificate of
registration of the
firm (for
inspection and
return)
vi. Extract of the
resolution of the
partners of the
firm for opening
and operating the
account.

i.

Certified true copy of

the constitution/bylaws/
trust deed/MOI &
AOA.

ii.

Certificate of
registration of the

ii. Certificate

signatories

from the RJSC

that the
Company is

iii.

Association/club/charit
y/ trust/societyfor

entitled to

inspection and return

commence
business
iv.

Last of members of the

governing body/

iii. List of names

executive committee of

with

the association/

appointments

club/charity/trust/

and specimen

society with their

signatures of the

address.

person(s),
authorized to
open and operate
the account.

v.

Extract of the
resolution of the
association/club

iv. Extract of the

resolution of the
board/general
meeting for
opening and
operating the
account. v.

charity/trust/Society for
opening, the account
and authorization for its
operation duly certified
by the Chairman/
Secretary/Association
of the Club/Charity/
Page | 21

Photographs of

Trust/ Society etc.

the signatories
vi.
v. List of

Photographs of
signatories.

directors with
address vii.
Copy of trade
license

4.5 Credit approval authority/delegation:

The following table proposes the delegation parameter of funded credit facilities for SME
entrepreneurs:
15 lac

15-30 lac

30-50

50 upto

Upto any

lac

75 lac

deviatio
n

Page | 22

Collected

(i) At least

i) At least

As per CRM i) With or

Any degree

Security

0.5 times

0.75 times

manual

without

of security

security

security

security

coverage

covered

covered

coverage

(ii) May or

(ii) Covered

may not be

(ii) May or

under

placed

may not be

USAID

under

placed

Guarantee

Bangladesh

under

Scheme

Bank

Bangladesh

Refinance

bank

program

Refinance
Program

Table 4.5: Delegation of business power for SME customers

Chapter Five: SME Banking Overview

Page | 23

5.1 Bangladesh Bank Regulation and Policy for regulating SME Banking
Bangladesh Bank made it obligatory to all commercial Bank for maintaining SME Banking.
Bangladesh Bank has taken a decision in principle to accord permission for opening SME
Service Centers. These Service Centers will be allowed to perform the following functions:1. The SME Service Centers will render banking services only for receiving application,
Disbursement, monitoring and recovery of loan to SME sector.
2. The SME Service Centers will be allowed to receive foreign remittances and deliver
/hand over the same in domestic currency to the payees concerned.
3. The SME Service Centers will be allowed to open a separate desk in order to prioritize the
women entrepreneurs involved in the promotion of Small and Medium Enterprise
(SME) sectors.

Banking Regulation and Policy Department

Bangladesh Bank
Head Office
Dhaka

5.2 SME Banking in Bangladesh

Page | 24

SME banking division primarily provides loans to small and medium sized trading,
manufacturing, service, agriculture, non-farm activities and agro-based industries located
across the country. Recently Cyber Caf has been recognized by SME.
Most of the banks of Bangladesh are operating SME Banking. They establish separate SME
Sales & Service Centre for operating SME loan transactions. BRAC Bank is the pioneer of
SME Banking. Besides BRAC Bank, United Commercial bank, Standard Chartered bank,
City Bank, Bank Asia, Eastern Bank, One Bank, Mercantile Bank, Dhaka Bank, NCC Bank,
Rupali Bank, EXIM Bank, AB Bank and many other commercial banks operating SME
Banking.
5.2.1 BRAC Bank
BRAC Bank Limited becomes one of the country's fastest growing banks. With 70 branches,
59 SME Sales & Service Centers, over 195 ATM's, 429 SME Unit Offices and over 7,000
employees. These CROs work for the Bank to converge clients for getting the SME loan.
In 2010, BBL alone distributed loans to 67,047 Small and medium entrepreneurs amounting
to BDT. 32,188.26 million; in 2010, Bank also open 29 SME Service Centers.. SME division
maintains a portfolio of 259,799 small and medium Entrepreneurs with BDT 111,917.87
million. Last year disbursed BDT 32,188.26 million to 67,047 SME clients.
SME Loan Products and tenure:
Name of the Loan Products
ANONNO SME Loan

Nature of the Loan

A business loan to meet any
kind of business needs, which
starts from BDT 3 Lac to10
Lac.

APURBO SME Loan

APURBO is offering BDT

1 million to BDT 5 million
loan against registered
mortgages

DURJOY SME Loan

PROTHOMA SME Loan

DURJOY is offering BDT 3 up

to 2.5 million Loan without
any security.

Prothoma is a term loan for

Criteria of the Loan

I.
No security required
II.
Overdraft facility
III.
Easy installment
IV. Easy loan processing.
I.

Easy installment and

II.
III.
I.

overdraft facility
10 to 50 Lac Loan
Limited documents
Up to BDT 25 Lac loan

II.

in the name of business

Easy installment up to 5

III.
IV.
I.

years
Convenient interest rate
Overdraft facility
No security required
Page | 25

small scaled business operated

by Women entrepreneur, Max.
BDT 1 million is offered to
meet business needs.
SHOKTI SME Loan

SHOMRIDDHI SME Loan

Business loan availing BDT 1

million to BDT 7 million.

To meet import-export related

expenses, tax/duty payment,
local bill purchase and working
capital, This Loan offers BDT
1 Lac to BDT 10 million.

Letter of Credit (LC)/Loan against

trust receipt (LATR)

I.

II.

As low as 10% interest

III.
IV.
I.

rate
Tenure from 1 to 4 years
Easy loan processing
Loan against partial

II.

security or fixed deposit

At least 1 year bank

I.
II.
III.

statement.
LC and LATR facility
Revolving loan, overdraft
Local bill discounting
facility

LC opening facility: from BDT 1 Lac to

II.

BDT 10 million
Up to 90% loan against LC

Revolving Loan

I.
II.

Loan up to BDT 10 million

Import duty payment or goods purchase

Local Bill Purchase

I.
II.

facility
Loan up to BDT 10 million in export
Loan payment facility up to 180 days

SME Banking Division is a business division of BRAC Bank Limited that deals with Small
and Medium sized Entrepreneurs involved in different types of business. The SME loan
range is from BDT 3 lac to BDT 50 lac (Funded: BDT 3 lac to BDT 50 lac), Non Funded:
BDT (1 lac to BDT 30 lac). SME banking division offers Term loan, Continuous (Cash
covered) loan and Letter of Credit. Short Term: up to 9 months, Long Term: from 12 to 60
months. If the loan amount is more than BDT 50 lac and then SME Banking refers it to
Corporate Banking another business division of BRAC Bank.
5.2.2 Eastern Bank Ltd
EBL launched small and medium enterprises (SME) banking. The bank has categorized the
SME loan into two products--'Asha' and Puji. Asha' offers Tk two lakh to Tk 10 lakh loan,
which is repayable in three to 24 months in equal installments.
For 'Puji', the loan amount ranges from Tk five lakh to Tk 50 lakh, which is repayable in 12
to 36 months. The minimum operation period of the business organization to get this loan is
Page | 26

three years. The EBL's SME banking facility will be available at ten SME centers in Dhaka,
Chittagong, Sylhet, Bogra and Khulna.
5.2.3

Standard Chartered bank

In Bangladesh the number of women-owned company continues to grow, and Standard

Chartered Bank is dedicated in helping the women entrepreneurs to grow their business by
offering competitive Business Loans specially designed for women. Orjon, Business Priority
Account, Business Premium Account and Business plus Account are SME Account. Standard
Chartered has put together the custom-made Business plus Account especially designed to
support the ambitious growth of SMEs such as your-self.
5.2.4 AB Bank
Considering the volume, role and contribution of the SMEs, in the last two decades AB Bank
has been patronizing this sector by extending credit facilities of different types and tenor. As
of now 54% of the banks total loan portfolio is segmented to the SMEs which deserve all out
attention in our plans, projections and forecasting.
SME Sectors in which AB Bank has participated so far:

Agro machinery
Poultry
Animal Feed
Dairy Product
Fruit Preservation
Hotel & Restaurants
Garments Accessories
Leather products
Plastic product
Furniture : Wooden & Metal

5.2.5 City bank

SME business in Bangladesh mostly requires active financial / banking support for their
business to grow. The City Bank is going to introduce a complete tailor made package which
surely will meet specific financial needs and services.SME products offered by City Bank:

Page | 27

Name of
the Loan
City
Muldhan

Nature and Features

Loan amount ranging from Tk. 500,000 to Tk. 40,00,000
Competitive interest rate.
Flexible security arrangement.
Complete business solution.
Considerations of cash transactions besides bank statement.

City
Nokshi
City Sheba

City
Shulov

Quick approval process.

an exclusive SME financial facility for women entrepreneur
specially in handicrafts, boutique, agro based industry, beauty par
lour, readymade garments, creative works, interior design,
entertainment market etc
The City Bank is going to introduce a customized product naming
City Bank Sheba, to facilitate different concerns engaged in
service related industry.
(Loan amount ranging from Tk. 500,000 to Tk. 40,00,000)
A unique product to facilitate concerns engaged in manufacturing business. The
product will facilitate to meet up diversified needs to different manufacturing
concerns. (Loan amount ranging from Tk. 500,000 to Tk. 40,00,000)

5.2.6 United Commercial Bank Limited

United Commercial Bank Ltd at a glance:

Head Office

Plot- CWS(A)-1,Road No: 34,Gulshan Avenue,

Date of incorporation

Dhaka 1212
14th March, 1983

Formal Inauguration

27th March ,1983

Functions

All kind of banking activities

Company Status

Private Commercial Bank (PCB)

Stock Exchange Listing

Listed in DSE & CSE

Paid-up Capital

BDT 7,274,883,750 Tk

Number of Shares

11,880,000 shares of BDT 100 each

Shareholders Equity (30th September 2011)

BDT 13,748,997,827 Tk

Total Assets (30th September 2011)

BDT 152,450,028,549 Tk

Net Asset Value (NAV) Per Share

18.90

Page | 28

Total Branches

111

E-mail

info@ucbl.com

Web site

www.ucbl.com

5.2.6.1 Loans and Advances

Loans and advances of the bank as on December 31, 2010 stood at BDT 56,109 million
compared to BDT 43,486 million of the previous years reflecting a staggering growth of
31%. The growth was the result of strong drives undertaken by the banks corporate and
SME divisions with strong focus on good names, strong credit rating and good security
structure.

Loans and Advances

Years
2006

Amounts (BDT in Million.)

23,326

2007

30,789

2008

56,109

2009

26,788

2010

34,420

2011
43,486
Table 5.1: Loans and advances of years 2006 to 2011

Page | 29

Loans and Advances

60,000
50,000
40,000
30,000
20,000
10,000
0

2006

2007

2008

2009

2010

2011

Figure 5.1: Loans and advances of years 2006 to 2011

There seems to be a sudden drop in the overall asset of the bank e.g. a shortfall of 30,000
million in BDT. The reason for this is the overall shift in business as in 2008 UCBL
undergone a massive change in structure from decentralized banking to centralized banking.
After 2008 the business portfolio is on the increase. The aggressive operation of the business
units as per the management decision is the reason behind the increase.
Figure 5.2: Sector wise Loans and advances of 2011

Agriculture industries
52%
Small & Cottage Industries

Large & Medium Industrues

18%
Commerce and trade Industries

23%
Insurance, Real estate and service 1%
industries
1%
and communication Industries
2% 3% Transportation
Others

Page | 30

42

18
2 2

10

4 2 1 6 1

11

17
4

5 2 3 5
1 4

Figure 5.3: A graphical representation of industry wise client list of UCBL Corporate

Readymade Garments Factory

8.57%
Spinning Mills
12.24%
Importer
11.56%
Metallic Products Industry
8.34%
Table 5.2: The largest 4 sectors of loan outstanding in 2011

5.2.6.2 Comparison Between UCBL and BRAC Bank Limited

BRAC Bank Limited is a centralized bank in operation from the very inception of the bank..
Capital adequacy ratio improved in 2008 with Risk Weighted Capital Adequacy (RWCA)
ratio of 12.76%. The Banks loan portfolio was highly concentrated in SME loans followed
by Term loans. Total loans outstanding in SME sector stood at BDT 33,019.12 million
(62.68% of total portfolio) in 2008.

Client Portfolio of 2011 (UCBL Vs BRAC Bank)

UCBL
Industry Name

Percentage

BRAC Bank
Industry Name
Percentage

of total

of total

Outstanding

Outstandin
g
Page | 31

Agriculture Processing,

5.44%

Government

2.00%

6.80%

Agriculture, Fishing,

2.85%

47.62%

Forestry & Dairy

Industry (Jute,

15.00%

Poultry Farmers & Food

Process Industry
IT & Electric company
RMG, Textile & Spinning
Mills

textiles, garments,

Leather and Leather Product

2.72%

cement etc.)
Working Capital

4.00%

Manufacturing Industry
Industries (Pharmaceuticals,

19.05%

financing
Export Credit

0.15%

11.56%
4.08%

Commercial Credit
Small & Cottage

43.00%
4.00%

chemical, cement, ceramic,

steel engineering, assembling)
Importer
Entertainment (Hospital,
Cinema, Amusement Park,
Hotel & Restaurant Etc)
Others
Total

Industries
2.72%
100%

Miscellaneous
Total

29.00%
100%

Table 5.3: Client Portfolio of 2011 (UCBL Vs BRAC Bank)

From the figure above, it is seen that the client portfolio of UCBL is not in line with BRAC
Banks clientele.BBL focuses on SME banking where as UCBL focuses on corporate
banking. Since the overall data has a portion of the corporate data within it, it is possible to
make some comments about it. The industry head of BRAC incorporates Jute, Cement, RMG
industries which consists a significant percentage of the total portfolio. The miscellaneous
section has a huge percentage of 29%, the breakdown of which is not provided.

5.3. Current Position of SME Sector: A comparative study of Disbursement

of Loan in Bangladesh
SL.

Nature
Of
the
Bank

Annual

Annual

Achieved Rate

Target

Distribution

of Distribution
Compared to
Target (%)

1.

State Owned

158.30

57.73

Bank

(12.73%)

(4.80%)

36.47

Page | 32

2.
3.

4.
5.

Specialized

53.90

44.45

bank

(4.12%)

(3.70%)

Private

949.27

763.27

Commercial

(77.05%)

(63.52%)

Bank
Islamic Bank

129.66

322.53

(9.92%)

(26.84%)

15.60

13.55

(1.19%)

(1.13%)

1306.73

1201.53

Foreign Bank

Total=

82.47
80.41

248.75
86.86
91.95

Source: Supplement of Annual Bankers and Entrepreneurs Conference Sylhet-2011

Table 5.4: Categorized Distribution and Volume of Target for Banks in Sylhet Division

Distribution of Loan
Medium; 24%

Small; 76%

Figure 5.4: Sector wise Rate of Distribution

Industry
Service
Business

3.31%
1.11%
95.51%

Page | 33

Distribution of Loan
Industry; 3% Service; 1%

Busines; 96%

Figure 5.5: Sector wise Rate of Distribution

In Consideration of amount of Loan :

Women
Men

1.68%
98.32%

) Amount of Loan
Women; 2%

Men; 98%

Figure 5.6 : Gender wise Distribution of Loan

In Consideration of Numbers of Consumers :

Page | 34

Women
Men

5.35%
94.65%

2)Number of Customer
Women; 2%

Men; 98%

Figure 5.7: Gender wise Distribution of Loan

5.4. A Brief Scenario of Distribution of Loan and Recovery according to

the Different Nature of Bank:
(Amount in Crore Tk.)
SL.

Nature of Bank

No:

Amount

Amount

Ratio of

of

of

Distribution

Distribution

Recovery

and
Recovery

State Owned

57.73

5.56

11/1

2
3

Commercial Bank
Specialized bank
Private Commercial

44.45
763.27

4.90
127.02

9/1
6/1

4
5

Bank
Islamic Bank
Foreign Bank

322.53
13.55
1201.53

198.62
4.32
340.42

3/2
3/1
7/2

Total=

Source: Supplement of Annual Bankers and Entrepreneurs Conference, Sylhet-2011

Page | 35

Table 5.5: Category of Loan Distribution Rate and Recovery Ratio

Chapter Six: Opportunities and Challenges

for SMEs
6.1 Key Advantages of starting Small Business
The SME business opportunity can be seen in possibly every sector - financial services,
telecom, education, automobiles, media, food, real estate and so on that can be carried out
with a very minimum investment. This growing business segment is perfect for those who
want to do business without taking a lot of risks and have a limited amount of capital for
initial investment.

6.1.1 Key advantages:

i.

Low Investment: First to start a SME business, an entrepreneur needs to have a very
minimum amount to invest initially. In fact, Small business grants financial aid and
economic support is also readily available for entrepreneurs interested in owning a

ii.

small scale business.

Easy to manage: Secondly, in any SME business it is very easy for the owner to keep
track of business transactions. As the business is run on a small scale, it becomes
easier for the owner to maintain and update regularly the business dealings. This is
important for any business to be successful as it will help in making business reports

iii.

and financial statements for better management of a business.

Easy management of business assets: Another major advantage of a SME business
is easy management of assets and liabilities. As far as assets are concerned it includes
checking and savings accounts while liabilities mean the amount of money the owner
of the business owe to others. Additionally, keeping record of any cash transaction is

iv.

easy to maintain in a small growing business.

Tax benefits: In order to encourage investment in small businesses, many
Governments have authorized tax benefits for people who invest in certain small
Page | 36

businesses. This is one reason why entrepreneurs are finding that investing in a small
growing business is a good idea.

6.1.2 Key problems faced by SMEs

Small and Medium Enterprises (SMEs) are often confronted with problems that is uncommon
to the larger companies and multi-national corporations. These problems are as following:
i.

Common Problems/Impediments faced by Financial Providers. The main

impediments faced by banks in financing SME include lack of collateral, lack of
bankable business plan, lack of experience, poor financials, lack of track record of the
firm or owner, bad credit record, and lack of information on SME. Not surprisingly,
no one admitted to not being familiar or lacking the appropriate expertise to evaluate
SME. The impediments faced by banks are the same reasons why SME loans are

ii.

rejected.
High-Risk factor in SME financing. The banks that we interacted with, by and large,
opined that SME loans have higher risk. The common reasons for regarding SME loans
as higher risk include lack of capital, skills and professionalism, poor transparency and
limited market access. The main reason that some banks have started treating SME as
lower risk is due to the diversification and risk lowering effect of a large number of
small SME loans in the portfolio (the risk of small numbers). Moreover SME loans are

iii.

usually secured.
Lack of IT Literacy: Many of the employees in SMEs may not be IT literate and
often have high resistance to the changes in the working process that they are

iv.

comfortable with after many years

Uneven IT Awareness and Management Skill: Uneven skill among the managers

v.

often caused conflicts during the implementation.

Lack of Financial Resources: As a SME/SMI, financial resources are often limited.
This often forces company to select a solution, which appear to be cheap initially.
However, the hidden costs will start to emerge during implementation. This sometime
causes the project to be abandoned or sometime sent the company into further
financial crisis

Page | 37

vi.

Lack of Human Resources: Some SMEs are often in the stage of frequent fire
fighting and shortage of manpower. This makes it very difficult for them to allocate
time to carry out implementation. Furthermore, there is always a conflict between
getting the help to prevent pitfalls during the IT projects. However, most SMEs are
lacked of experience in working with consultants.

Chapter Seven: Findings

i.

SME loan is popular in rural area. But problem is management cost is very high, for

ii.

that reason people are discouraged on SME loan.

As a rural area base loan system, bank face huge problem to collect minimum

iii.

documentation against on loan.

Another problem are arise when CRO going to collect installment. Its really tough to

iv.
v.
vi.
vii.
viii.
ix.
x.

collect installment.
Maximum loan borrowers are not qualified for loan.
There are vast areas in agriculture to investment. But investment is very low.
There is no specific research institution for SME loan.
Loan processing time is 1 month or more. So it creates a problem.
Customer faces CRM harassment.
Customer want long term loan, now maximum time is 36 months.
Another big problem is online problem, because of that most of the unit office are in
rural area for that reason bank cant contract with unit office by online.

Page | 38

Chapter Eight: Recommendation

i.
ii.
iii.

First of all Bank should have to find those causes that increases cost. Then take right
action to minimize the cost.
Improve outreach of credit guarantee mechanism
Promote greater engagement of Non-Bank Financial Institutions (NBFI) in SME

iv.
v.
vi.
vii.
viii.
ix.
x.

lending
Develop alternative markets for SME financing
Apply appropriate evaluation techniques
Improve information access to SME
Conduct studies and publish information on SME
Promote informal debtor-creditor workout mechanism for SM
Identify the qualified person who is able to collect the loan.
Proper documentation collect is another main duty for banks. Because without

xi.
xii.

documentation loan recovery are difficult.

CRM harassment should be minimized.
CRO (Customer Relation Officer) needs to increase personal relationship with

xiii.

potential customer.
Bank should be launch motivational activities. Like Successful Entrepreneur of the

xiv.
xv.
xvi.

year award.
Bank should increase their nursery process after sanctioning their loan.
Time management should be minimized.
They have to use such kind of server by that every unit office can contract head office.

i.

Page | 39

Conclusion
A wide array of constraints faced by SMEs has been briefly discussed in this report. It is
apparent that problems related to power and credit are the two most significant ones. Legal
barriers, poor law and order conditions, are some of the other problems that have adverse
affect on SME development. There have been improvements in the sanctioning and other
administrative procedures. But the rate of development of SME is not up to the expectation.
Further simplification, transparency, and accountability are necessary to promote SME
development.

References Publications:
1. Semi-Annual report for June-July of The United Commercial Bank Limited for the 3rd
Quarter of Year 2010- 2011 (Unaudited.)
2. Internal newsletters of The United Commercial Bank Limited. (2011)
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