Processing Proposal for SME Retail HBL Personal Loan

1. PRESENTATION
ON
“Processing of proposal for SME, Retail, House
Building Loan and Personal Loan, Consumer Loan with
Practical demonstration”
Vice President
Credit Division, Head Office
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2. Objective in Financing CMSMEs & Retail Customers :
Identify untapped borrower & Analyze Risk elements
Provide loan to them through
Maximizing Profit through controlling delinquency
Retaining profitable customers
Operating in a cost effective manner
Objective
“Policy, Borrower selection, Approval Process,
Securitization, Scrutiny of Documentation, Charge
Documents, Follow up, Recovery Monitoring”
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3. CMSMEs Banking
What is CMSMEs Banking?
CMSME Banking is the funding of Cottage, Micro, small and medium-sized enterprises, and
represents a major function of the general business finance market – in which capital for
different types of firms are supplied, acquired, and cost or priced. Capital is supplied through
the business finance market in the form of bank loans and overdrafts; leasing and hire-
purchase arrangements and asset-based finance such as factoring and invoice discounting
etc.
• The economic and banking importance of the CMSMEs sector is acknowledged that these
actors in the economy may be under-served, especially in terms of finance.
Collateral based lending offered by traditional banks and finance companies is usually
made up of a combination of asset-based finance, contribution based finance, and
factoring based finance, using reliable debtors or contracts.
• Information based lending usually incorporates financial statement lending, credit scoring,
and relationship lending.
• Reliable for all the small ticket loan.
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4. ASPECTS OF CMSME IN BANGLADESH
CMSME Reduction of
Urban Migration
Creation of a class of
low/medium
Entrepreneurs
Economic growth by
contributing to the GDP
Enhancement of
living standard
Poverty reduction –
Increased
Cash flow in rural/
semi urban areas
Employment of medium
To low
skilled manpower
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5. Character of
CMSME in
Bangladesh
Low
capitalization
and limited
assets
Geographical
diversity and
high mortality
Poor Credit
knowledge
Very Limited
access to
formal source
of credit
Cash intensity in
transactions
Very limited
record
keeping habit
Poor financial
disclosure on
account of tax
issues
High risk
perception
has led to high
borrowing
costs
Character of CMSME in Bangladesh
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6. “Borrower Selection: Model “Six Cs” of lending are
considered to determine creditworthiness of a borrower
Not Easily
realizable
C-2
Capability
C-1
Character
C-3
Capital
C-4
Conditions
C-6
Certifications
C-5
Collateral
Willingness to
Repay
Financial
Capacity
Management
Capacity
Formal
Education
Personal
History
Integrity
Easily
Realizabl
Status of
Collateral
Institution
Business
Community
Local
Community
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7. 7
Type
Cottage Industry /
Enterprise
Micro Industry /
Enterprise
Criteria Manufacturing Service Trading Manufacturing
Investment size (excl.
land & factory
building)
Less than
10 lac
>10 lac >10 lac 10 lac-75 lac
Manpower
Less than 15
Including Family
Member
15 (Max)
15 (Max)
Turnover:
Tk.2 Cr Max
16 to 30 (Max)
Loan Size 15 Lac (Max) 25 lac (Max) 50 lac (Max) 1 Cr (Max)
SME Banking Definition
SME be defined in following ways, as shown below. It has segments: (a) Small
enterprise (“SE”) and (b) Medium enterprise (“ME”) along with Cottage &
Micro enterprise. This definition has come into effect vide Bangladesh Bank
SMESPD Circular No. 02 dated 05.09.2019
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8. 8
SME Banking Definition
Type
Small Enterprise (“SE”) Medium Enterprise (“ME”)
Criteria Service Trading
Manufacturin
g
Service Trading
Manufacturi
ng
Investment size
(excl. land &
factory building)
10 lac - >2
Cr
10 lac -2 Cr 75 lac- >15 Cr 2 Cr-30 Cr - 15 Cr-50 Cr
Manpower 16 to 50
16 to 50
31 to 120 51 to 120 -
121 to 300
Garments:
1000
Turnover:
2 Cr+ but >20
Cr
Loan Size 5 Cr (Max) 5 Cr (Max) 20 Cr (Max) 50 Cr (Max) 75 Cr (Max)
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9. According to Master Circular on SME Financing Bangladesh Bank SMESPD Circular
No. 02 dated 05.09.2019:
SME Banking SME Loan Portfolio
SME Target:
(% of Total Loan
& Advance)
2022: 23%
2023: 24%
2024: 25%
Portfolio Mix:
(% of Total SME
Loan)
CMS: 50%
M: 50%
Portfolio Mix:
(Sector wise)
Trading: 35%
Service: 25%
Manfac.:40%
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10. SME Banking Directives for unsecured loan
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According to Master Circular on SME Financing Bangladesh Bank SMESPD Circular
No. 02 dated 05.09.2019:
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11. 11
SME Banking Directives for Re-finance Scheme
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12. 12
SME Banking Directives for Re-finance Scheme
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13. 13
SME Banking Re-finance for Women Entrepreneur
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14. 14
According to Bangladesh Bank SMESPD Circular No. 4 dated 19 07 22:
SME Banking
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15. 15
SME Banking
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16. 16
SME Banking
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17. 17
CMSME Products:
• Product Description: Working Capital Financing to augment working
capital base of these customers to help finance day to day business.
• Mode of Financing: SME CC(H), SME SOD(GEN), SME-SOD (FO), SME
SOD (FDR), SME SOD (Scheme), SME SOD (Other Bank FO), SME SOD
(Work Order Finance), SME Overdraft etc.
• Business concern’s constitution: Proprietorship, Partnership and
Limited Company
• Nature of Business: Trading, Service, Manufacturing etc.
• Purpose: To meet any admissible working capital requirement.
• Entrepreneur’s Age limit: From 21 years up to 60 years (the
borrower’s age must not exceed 65 at the expiry of loan tenure)
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18. • Borrower’s eligibility:
• Preferably having two (2) years successful experience in the existing
business (with justified document such as business specific license /
old rental agreement / possession deed/ utility bill /bank statement/
TIN certificate, certificate from local government etc.
• The borrower’s age is between 21-60 years and good reputation
• 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.
• The principal place of business must be in Bangladesh.
• The project must be financially and economically viable.
• Successful track record and good credit history will be given
advantage
• Clean CIB report
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CMSME Products:
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19. • Loan size: According to Bangladesh Bank SMESPD Circular No. 02 dated
05.09.2019
• NB: Single party exposure will be determined by the management time to time
• Scrutiny of Documents:
• Hypothecation on inventory, receivables, advance payments, plant and machineries, vehicles etc
• Personal guarantee(s) of partner(s) / director(s)
• Personal guarantee(s) of spouse/parent/brother/sister/son/daughter for the below cases only:
• In case the business is owned by the father/mother/brother but operated/managed by son/another person, in that case
person(s) who operation the business will provide the personal guarantee(s)
• In case the land on which the business is located in owned by the father/mother of the borrower, the father/mother will
provide guarantee against the loan or execute a rental agreement.
• In case of legal successor’s guarantee, if married, spouse and any adult child is legal successor, if unmarried, father,
mother, brother, unmarried sister could stand as guarantor. In absence of qualified family guarantor, any person with
adequate personal net worth will be acceptable.
• Registered mortgage with Irrevocable General Power of Attorney of the property/ownership of the space/possession right
purchased
• Lien of cash collateral (FDR) and other en-cashable financial instrument;
• In case of proprietorship concern, PG of borrower and spouse;
• In case of private ltd. co., or partnership company, PG of all the directors/partners and their spouses to be obtained;
• One signed undated cheque valuing 10% above the entire facility amount favouring SBAC bank Ltd.
• Usual charge documents;
• Others as applicable.
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20. • Valid trade license of the applicant (in case of market owned by government
bodies such as DCC, KDA etc rental deed in lieu of trade license)
• Registered partnership deed (in case of partnership firm)
• In case of private limited company, copy of memorandum and articles of
association, certificate of incorporation duly certified by Registrar of Joint stock
Company & Firms (RJSC & Firms), Board resolution, up to date list of directors
certified by RJSC.
• Copy of at least 2 year old trade license;
• Passport/national voter ID/Photocopy of ward commissioner/UP chairman
certificate of the proprietor/partner;
• Photograph o the proprietor /partners /directors and signatory (ies) of the
account duly attested by the applicant and verified by the Head of
Branch/Operation Manager/Credit In Charge
• Last 6 months bank statement of transactional account;
• Statement of all active bank loans;
• Latest clean/standard CIB report;
• Net worth statement of all borrowers and guarantors.
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Scrutiny of Documents
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21. Check list of action to be taken by the Branch Managers/ Second officer / Credit
officer before disbursement of Credit facilities
1. Acceptance of Customers to be obtained of the Terms
& Conditions on the duplicate copy of sanction
advice
2. They will thoroughly examine and ensure that the
subject credit facility does not contradict to any law,
rules and regulation of the country, Bangladesh Bank
and other bank
3. They will obtain NOC from bank where the
customer has existing liability
4. CIB report (Clean & Up to date) on the borrower
through Head Office
Disbursement Job responsibilities of Branch Officials
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22. 5. ICRR for Loans & Advances
6. Regulatory Requirement to be ful-filled for
extending Large Loan to the customer/ Group
7. Regularization / Adjustment of classified / Overdue
credit of the customer / Their sister / Allied
concerns with our Bank / other Banks, if any
Disbursement Job responsibilities of Branch Officials
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23. Disbursement Documents Checking
8. Documents
A) Original Title Deed
B) Bia deed
C) Khatian
D) Mutation Parcha
E) Up to date rent receipt
F) Municipal Tax receipt
G) Mouza Map
H) Plan approved by RAJUK/ Municipality
I) Power of attorney
J) Relay certificate about the actual physical possession of the
mortgage property
K) Valuation Certificate
L) Photographs (3 Copies) of the mortgage property with detail
particulars on the back
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24. 9. Non -encumbrance certificate (NEC) from the registration
department on the mortgage property.
10. Deed of Mortgage and power of attorney to be drafted and
executed under supervision of Bank’s Panel Lawyer ( BLA)
11. Lawyers certificate to the effect that proper registered/
Equitable Mortgage ( as the case my be ) has been created on
the land and building in favour of the bank & the bank has
acquired effective title on the property.
Disbursement Documents Checking
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25. Disbursement Documents Checking
12. For Work Order Finance :
A) Registered Power of attorney/Notarized IGPA to be obtained from
the borrower ( contractor) as per Head Office’s approved specimen
assigning the work order favouring the bank
B) The power of attorney to be accepted with the work order giving
Agency. A consent letter (Assignment) to be obtained from them
that they will issue all cheques in payment of bills against the work
order favouring the bank A/C the customer as per power of
attorney
13. For Cash Credit (Pledge ) finance: Obtain of pledge goods in
Banks Godown (as the case may be) duly secured and insured.
14. For Transport Finance: Obtain certified copies of Blue Book/
Registration Certificate , Route Permit, Tax Token, Fitness
Certificate, Insurance policy in respect of Vehicles Finance
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26. Disbursement Documents Checking
15. Execution of 2 (two) sets of charge documents - one set duly filled in
and the other set blank signed
16. Insurance Policies covering risks as per sanction terms & conditions
17. Obtain post dated cheques
18. Satisfaction certificate of the lawyer in respect of all documentation
both banking & legal. The branch Manager s should show all the legal
& Charge documents to their lawyer & obtain their certificate that
documents have been completed as per sanction terms & are in order
for extending the facility.
19. Entry has been made in the Safe -in and Safe -out Register and the
documents are preserved.
20. Preparation of Documents Completion Certificate & its copy to be sent
to head Office CAD for disbursement authority
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27. Retail Banking Definition Consumer
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28. 






Retail Banking Definition Retail Retail Banking
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29. An effective Monitoring, Follow up & Recovery is the most critical function of the
credit cycle. It establishes a consistent approach to problem recognition, remedial
action and the initiation of credit write-offs. The recovery process starts when the
account holder failed to meet one or more contractual payment (Installment). It
therefore becomes the duty of the Recovery Unit to minimize the outstanding
delinquent receivable and credit losses
Objective of the recovery phase is to contribute to profit through:
Minimizing net losses
Controlling delinquency (and hence provisions) in line with profit
objectives
Retaining profitable customers
Operating in a cost effective manner
Monitoring Process
“Maximize Profit”
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30. Monitoring, follow up, reasons for overdue
Supervision and Monitoring Mechanism:
•Regular checking the balance of clients SB/CD/Loan Accounts
•Regular communication with the defaulting customers and guarantors - physically / over
telephone.
•Issuance of letter to customers immediately after dishonor of cheque.
•Issuance of letter to defaulting customers and respective guarantors.
•Contact the employers of the defaulting customers
•Issuance of legal notice to the customers and guarantors prior to the classification of the
loans.
•Issuance of Appreciation/Greeting letter to the regular customers.
•Periodical visit to the customer to maintain relationship and supervision of supplied articles.
•Legal actions to be taken after all possible efforts to recover the Bank’s dues have gone in
vain
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31. Recovery
Tools
External
Recovery
Agency
Facility
Call up
Letter
Liquidation
of Security
Deposit
Legal
Notice
Reporting
to CIB of
BB
Legal
Action &
Reposses
sion
Write-off
&
Recover
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32. Monitoring & Follow up
DPD 1-14
• Soft Phone Call / SMS
• Follow up & Persuasion over Phone
• First Reminder (SMS / Calls etc)
DPD 15-29
• 1st Reminder letter issuance and
• Follow DPD 1-14
• Single Visit from Recovery
DBD 30-44
• 2nd Reminder Letter
• Calling guarantor for assistance
DPD 45-59
• 3rd Reminder Letter
• Letter of Assistance to Employer, Facility Call up letter
• Warning on legal action by next 15 days
• Vigorous Phone Calls
• Group Visit to office / business & Home
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33. Monitoring & Follow up
DPD 60-89
• Call up loan facility
• Final Reminder & Serve Legal Notice
• Case proceedings (NI ACT)
• GD with Police Station & letter to BRTA not to renew car
fitness / tax token
DPD 90 and Above
• Case Proceedings
• Pursue police Station for Arresting the defaulter
• Simultaneously out of court settlement
Written off accounts
• Simultaneously out of court settlement / Alternate dispute
resolution
• Action of recovery agent to continue
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34. Thank You
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