Internship Report

On

SME Financing and the Repayment Behavior of the Customers

A study on: Al- Arafah Islami Bank Limited

Submitted to

Md. Hasibul hassan

Assistant Professor, Dept. of Finance

Jagannath University

Submitted by

Md. Omer Faruk

ID: M150203540

Section: A

Batch: 5th

Date of Submission : 1st november,2016

 Background Information

The role of Small and Medium Enterprises (SMEs) is indispensable for overall
economic development of a country particularly for developing countries like
Bangladesh. Among SME enterprises in our country, small entrepreneurs have gain
more prospects for generating employment, reducing unemployment and achieving
economic growth. So to make the country more economically sound, we need to
focus on this sector. According to Bashir Ahmad Fida (2008), SMEs are the first step
towards development in economics towards industrialization. The dynamic role of
SMEs in developing countries positions SMEs as engines through which the growth
objective of developing countries can be achieved. Al-Arafah Islami Bank is one of
the scheduled commercial bank in Bangladesh. With the objective of achieving
success here & hereafter by pursuing the way directed by Allah and the path shown
by His Rasul (SM), Al-Arafah Islami Bank Ltd was established as a private limited
company on 18th June 1995 with the vision to be a pioneer in Islami Banking in
Bangladesh and Contribute significantly to the growth of the national economy. To
target on SMEs sector with huge potentiality AIBL introduced SME banking division
in the name MSME Banking in 2004. As SMEs are the key sector of Bangladesh for
the development of the country as we are developing country, SME financing is
important to contribute to the economy of the country. The new generations have
the potential to do business with inventing new products but they havent enough
resources to do so. From that need SME financing come. As I am doing internship in
AIBL as per requirement of the degree, I want to make internship report on SME
financing of AIBL and Loan Repayment Behavior of the Customers. As SME is one
of the key sectors of Bangladesh and banks are heavily concentrating in this sector,
I am interested to report on this topic to get the idea how the customers are
participating in this sector with connection of AIBL and also to know the loan
repayment behavior of the customers after getting the loan from the bank. This
report mainly covers the organizational overview, performance of the bank, credit
policy for SME financing, a process of application & granting the loan, and
repayment behavior of the customer who have borrowed loan from the bank. It is
expected that the report will highlight the task performed and experience gained
during the practical orientation program.

Objective of the Study:

The prime objective of the study is to gather practical knowledge regarding SME
financing of AIBL and the contribution of AIBL to SME sector as well as identifying
the variables that influence the repayment behavior of SME loan.

Other special objectives of this report include:

To get an overall idea about the SME financing of the bank.

To understand the banking procedures of AIBL for getting loan.
 To know the organizational structure, management, functions, vision &
mission of the bank.
To know the enterprise selection criteria for giving SME loan of AIBL .

Scope of the Study:

SME plays an important role to eliminate the poverty of our country. The study is
very relevant and significant for developing and understanding how AIBL plays a
significant role in the development of SME in our country. This report has been made
based on the personal observations and on the job experiences during the
internship period. This information is collected from various sources, which are
directly related with SME. The Bangladesh Bank is the main source of SME strategic
policy in Bangladesh. As SME sector is growing in Bangladesh day by day there
remains huge scope for studying on SME financing.

Methodology:

The report is prepared on the AIBLs contribution in SME financing and repayment
behavior of the customers. To conduct the overall study, at first I explored the
sources of primary and Secondary information and data.

Sources of Data

As mentioned earlier, primary and secondary sources of data has been used.

Primary Data

Official records of AIBL Limited

Face to-face conversation with the investment officers and the clients.
Direct observation.
Secondary Data

Annual Report of different banks.

Official Files.
Selected books.
Websites.
AIBL Investment Manual
 Newspaper reports in this concern.
Bangladesh Bank Circulars.

Data Processing and Analysis:

As the report topic is SME financing and loan repayment behavior of the customers,
the SME financing related information will be collected from the websites of AIBL
and BB and investment manual of AIBL. On the other hand, to understand the loan
repayment behavior of customers, I want to hypothetically find out this by using chi-
square method. Loan repayment behavior may vary from person to person
depending on the personality of the customers. There are some factors that can
determine this. They are-

Age of the borrowers.

Nature of the business.
Experienced of the borrowers related to the business.
Personal assets of the borrowers
Income level of the borrowers
Amount of loan taken
Loan term

The hypothesis tested with Chi-square is whether or not two different samples are
different enough in some characteristics or aspects of their behavior that one can
generate from ones samples that the populations from which ones samples are
drawn also different in the behavior or characteristics. The chi-square test is used to
test a distribution observed in the field against another distribution determined by a
null hypothesis. In order to determine whether there is any relationship between
repayment frequencies and these variables contingency table and Chi-square test
have been used since these data are categorical in nature. To depict the real
scenario I used information of 50 customers whose loan have already been paid or
classified in the recent years as total sample size should not be less than 50.

Limitation of Study

To provide current information and to make the report read-worthy, support from
various sources is a must. Though I have tried my best to collect sufficient and
appropriate information, I could not collect some information required at the time of
the study. So this study is not free from the following limitation:

Unavailability of required published documents.

Unable to dedicate sufficient time to make an in-depth study on such an
important issue. It is quite difficult to write about any organization within 2
months.
Another limitation of this study was bank's policy of not disclosing some data
and information for various reasons, which could be very much useful.
Lack of previous experience to conduct such type of this type of report and it
is totally new to me as an intern.
Updated information of the topic is not available. So the report contains old
data about some topic.
To protect the organizational confidentiality some parts of the study are not in
depth.

Timeline of making the report

Month Completion of work

November (1st -5th ) Introduction, overview of Bank, SWOT
Analysis
th
November (5 -10 ) th
SME in Bangladesh , SME in AIBL,&
Case study
November (11 -20 )th th
Research part, finding&
recommendation ,conclusion
 Questionnaire

Name: age:

What type of business you are operating?

a) Retail b) Wholesales c) services

What is the educational level of yours?

a) Primary b) Secondary c) higher- Secondary d) Graduation

How long do you operating your business?

a) 2-6 year b) 7-12 year c) 13 and above

How much money you take as loan?

a) 2 -4 lac b) 4.5-7.5 lac c) 8 to 10 lac d) 10.5 to above

What is the repayment loan term of your loan?

a) 12-24 months b)24-36 months c) 36-48 months

What is the monthly profit level from your business?

a) 10,000-50,000 b) 50,001- 1, 00,000 c) 1, 00,001 to above

What is the personal asset of yours in terms of money?

a) 1-5 lac b) 5- 10 lac c) 10-20 lac d) 20 to above

Bibliography
Retrieved from www.bb.org.bd/sme/smepolicye.pdf access on: 26/10/2016
Retrieved from www.al-arafahbank.com/profile.php access on:24/10/2016
Retrieved from www.al-arafahbank.com/sme.php access on: 20/10/2016
Kothari,C.R. 2016-2017: Research Methodology Methods & Techniques, New
Age International Publisher, New Delhi, ISBN: 978-81-224-1522-3 Page # 1-
400.
Annual report from 2011-2015