Idlc

Performance Analysis of SME: A Study on IDLC Finance Limited
Performance Analysis of Small & Medium Enterprises (SME):

A Study on IDLC Finance Limited
Performance Analysis of Small & Medium Enterprises (SME):

A Study on IDLC Finance Limited
Prepared For: Ms. Samia Sultana Tani Assistant Professor Department of Finance Leading University
Prepared By: Md. Sajjad ossain !oll no" #$#%#1##&' ((A 1)t* (atc* Department of Finance Leading University
Date of Submission: 20th May, 2011
Supervisors Certificate
This is to certify that the internship report on Performance Analysis of Small Medium Enterprises (SME): A Study on IDL !inance Limited" is the #ona fide record at the report is done #y Md$ Sa%%ad &ossain as a partial fulfillment of the re'uirement of (achelors of (usiness Administration (((A) de)ree from the Department of !inance* Leadin) +ni,ersity$
The report has #een prepared under my )uidance and is a record of the #ona fide -or. carried out successfully$
//////////////////////////////// Si)nature of the super,isor Date:
Declaration
I do here#y solemnly declare that the -or. presented in this internship report has #een carried out #y me and has not #een pre,iously su#mitted to any other uni,ersity0colle)e0or)ani1ation for an academic 'ualification0certificate0diploma or de)ree$ The -or. I ha,e presented does not #reach any e2istin) copyri)ht and no portion of this report is copied from any -or. done earlier for a de)ree or other-ise$ I further underta.e to indemnify the department a)ainst loss or dama)e arisin) from #reach of the fore)oin) o#li)ations$
/////////////////////////// (Md$ Sa%%ad &ossain) 3oll 4o: 565758559: (((A) 8;th (atch
Date: <<<<<$$$$
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Letter of Transmittal
May %#, %#11 Ms. Samia Sultana Tani Assistant Professor Department of Finance Leading University Su !ect" Su-mission of interns*ip report on "#is$ Mana%ement of Small &usiness Financin% (S&F): A Study on IDLC Finance Limited'
Dear Madam, .t gave me an immense pleasure in presenting t*is interns*ip report titled /!is0 Management of Small (usiness Financing 1S(F2" A Study on .DL3 Finance Limited4 5*ic* 5as assigned to me as partial fulfillment of my (ac*elors of (usiness Administration (((A2 degree re6uirement. .n t*is paper, . *ave tried my level -est to ma0e t*is report as effective as possi-le. . *ope t*at t*e report serves t*e purpose t*at it 5as assigned for. . s*all -e pleased to ans5er any sort of 6uery you t*in0 is necessary, as no5 and 5*en needed. Sincerely Md. Sajjad ossain !oll 7o" #$#%#1##&' 1((A2 ((A 1)t* (atc* Department of Finance
Ackno !ed"ement
8
. 5ould li0e to e9press my deepest gratitude to my .nterns*ip Supervisor Ms. Samia Sultana Tani, Assistant Professor, Department of Finance, Leading University, for *er *eartfelt supervision, co:operation and advices. . also li0e pay my appreciation to our c*airman sir for arranging our interns*ip program. . also t*an0 all t*e staffs of t*is department for t*eir sincere support. T*is interns*ip report mig*t never *ave -een completed 5it*out t*e necessary practical 0no5ledge, assistance of many -oo0s, articles, 5e-sites, and primary data. .t en*anced my 0no5ledge on SM; activities as 5ell as -an0ing -usiness. T*an0s to all t*ose persons, 5*o *ave assisted me, providing me co:operation, -oo0s and articles. T*e mem-ers of .DL3 Finance Ltd. management 5ere very co:operative and *elpful. T*ey *elped me t*roug* providing various data, guidance and direction. . am grateful to Mr. <a=i Ma*mood ossain, ead of Small (usiness Financing 1S(F2 of .DL3 Finance Ltd. for *is cooperation and necessary support. Finally . 5ant to e9press my special t*an0s to Mr. ;nayetur !a*man, >unior ?fficer of 3!M of S(F, under 5*om . *ave completed interns*ip report. . am also grateful to all ot*er employees of Syl*et (ranc* ?ffice for t*eir support and assistance.
#ab!e of $ontent
C(apter )o* + .*/
Particulars E,ecuti-e Summary Introduction 1.1 ?rigin of t*e report 1.% ?-jectives of t*e report 1.+ Scope of t*e report 1.& Met*odology of t*e report 1.8 Limitations of t*e report
Page 7o. viii ?1 ?1 #% #% #+ #& #8 #) #$ #A #A 11 1% 1+ 1$ 1A %# %1 %% %% %+ %& %& %8
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1r%ani2ational 1-er-ie3 %.1 T*e pioneer %.% S*are*olding Structure %.+ @uiding Principle %.& Product and Service %.8 Su-sidiaries %.) Financial Performance %.$ ?perational performance %.' !atio Analysis %.A SB?T analysis
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SME in &an%lades( +.1 3urrent 3onditions of SM;s in (anglades* +.% 3onstraints on SM; gro5t* +.+ @overnments role to5ards SM; +.& Levels of employment +.8 3ontri-ution of SM; to @DP -y sector +.) Major -an0sCF.s financing SM; sector +.$ Performance of -an0s and 7(F.s
5*/
SME in IDLC &.1 SM; financing of .DL3 &.% !ationale for SM; financing at .DL3 &.+ (anglades* -an0 refinancing
Performance Analysis of SME: A Study on IDLC Finance Limited &.& 3ustomer segment &.8 Products offered under SM; financing &.) .DL3 D commitment to SM; sector 6*/ Mana%in% Credit #is$ in SME 8.1 Principles of sound lending 8.% S(F financing sc*emes 8.+ Mandatory and discretionary verification of information for S(F proposals 8.& 3redit approval and service delivery process 8.8 Aut*ority delegation under SM; 8.) 3redit terms and conditions 8.$ Appraisal procedure of SM; client 8.' Sectoral e9posure 7*/ )on Performin% Loan & 1-erdue Analysis ).1 !egression Analysis" ?verdue versus Total Portfolio of Loan ).% !egression Analysis" ?verdue Loan versus 7PL ).+ Trend Analysis for ?D 8*/ Findin%s & Conclusion $.1 Findings $.% 3onclusion + Appendi, )1 )% 8% 8) )# ++ +& +) +' +A &# &' 8# %' +# +1
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%ist of #ab!es
#ab!e &o' 1'0 2'0 ('0 )'0 *'0 +'0 ,'0 -'0 .'0 10 11 Particu!ars Shareholdin) Structure of IDL 755> IDL ?s apital Structure as of Decem#er =8* 755> @ro-th of the company?s different sectors Sources of re,enue Aperational re,enues 3atios Stoc. Information S(! !inancin) Scheme Sectoral E2posure A,erdue and Total Portfolio of loan A,erdue Loan ,ersus 4PL 5B 5> 85 88 87 87 =9 B5 B= B6 as of Decem#er =8* Pa)e 4o$ 5B
%ist of /raphs
A
Fi"ure &o' 1'0 2'0 ('0 )'0 *'0 +'0 ,'0 -'0 .'0
Particu!ars SME loans as percenta)e of total loans Distri#ution of Employment Institutional share of SME loan dis#ursement Sectoral E2posure of SME !inancin) of IDL Scatter Dia)ram !itted Line Plot Scatter Dia)ram !itted Line Plot Trend Analysis Plot
Pa)e 4o$ 8: 78 7= B8 B= B= B6 B6 ;5
Executive Summary
.DL3 Finance Ltd. is t*e leading non:-an0ing financial institution of (anglades*. .t offers 5ide range of financial services 5it* four major departments named 12 3orporate services, %2 3apital Mar0et services, +2 Personal Financial services and &2 Small E Medium ;nterprise 1SM;2 financing. .t *as -een providing loan facilities to small and medium trading, manufacturing and service oriented enterprises all over t*e country for more t*an 8 years. .DL3 is playing a very commenda-le role in developing economic condition of t*e country 5it* e9cellent financial e9pertise. So it provides loan facility of (DT #.+ million to (DT $.8 million to t*at small and medium enterprise 5*o *as no easy access to -an0sCfinancial institutes. T*e success of SM; largely depends on t*e selection of a -usiness and man -e*ind t*e -usiness. .DL3 provides t*is facility to t*ose 5*ose -usiness operation is minimum one year and environment friendly -usiness. T*e -usiness s*ould -e legally registered and must *ave valid trade license. T*e entrepreneur s*ould -e p*ysically a-le, prefera-ly -et5een 3ustomer relation officers searc* ne5 potential customer -y providing door:to: door service. T*ey tal0 5it* clients and monitor t*eir manners, activities of t*eir -usiness and provide t*e loan to t*e potential customers. SM;, .DL3 may provide 1##F of net
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Performance Analysis of SME: A Study on IDLC Finance Limited re6uired 5or0ing capital -ut not e9ceeding $8F of t*e aggregate value of t*e inventory and account receiva-le. 7ormally, organi=ations meet t*eir 5or0ing capital from over draft loan -ut .DL3 designed t*e loan to meet 5or0ing capital -ut as term loan 5*ic* is repaid in installment. T*e customer relation officers also monitor t*e -orro5ersG activities after t*e loan dis-ursement. Monitoring also facilitates t*e -uild up of an information -ase for future reference. SM; loan can -e repaid in t5o 5ays, 12 .n e6ual mont*ly loan installment 1;M.2 5it* mont*ly interest payment. %2 (y one single payment at maturity, 5it* interest repaya-le a 6uarter: ends residual on maturity. 3ustomer relation officers searc* ne5 potential customer -y providing door to door service. 7ormally, organi=ations meet t*eir 5or0ing capital from over draft loan -ut .DL3 designed t*e loan to meet 5or0ing capital -ut as term loan 5*ic* is repaid in installment. T*e customer relation officers also monitor t*e -orro5ersG activities after t*e loan dis-ursement. .DL3 is very muc* conservative in providing loan facilities to its client in order to ensure 6uality of t*e loans. For t*is reason it emp*asi=es on t*e 3redit !is0 Management 13!M2 : t*e team responsi-le for ensuring 6uality of t*e loan and minimi=ing t*e num-er of 7PL or 7on:Performing Loan. (asically t*e officers of 3!M analy=e t*e different aspects of potential clients using -ot* o-jective and su-jective judgment. T*e core competence of t*e .DL3 is to provide t*e fastest and 6uality loans to t*e clients in t*is country. To retain t*is competitive advantage .DL3 5ould provide all sorts of facilities 5*et*er t*ey can give fastest services to clients t*an ot*er -an0s. Also to convey t*e customer focus, .DL3 is trying to reduce collateral securities t*an its competitors. !egarding t*e services -y t*e 3!? and 3!M officers, almost all clients are satisfied -y getting t*ese 6uic0 facilities from t*em. T*oug* it is pioneer division of t*is institute, . tried to give an in:dept* analysis for every factor, 5*ic* relates t*e credit ris0 management of SM; division. Finally, regression analysis and trend analysis *as done. T*e data of 1' mont*s 1from >anuary %##A to >une %#1#2 is used to analy=e t*e overdue and 7PL position of .DL3. (y
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Performance Analysis of SME: A Study on IDLC Finance Limited analy=ing t*e varia-le overdue loan and total portfolio of loan a significant negative relations*ip is found using simple regression analysis. Again analy=ing t*e varia-le overdue loan and non:performing loan no relations*ip *as found. (y trend analysis it *as found t*at overdue loan 5ill -e lo5er in t*e follo5ing mont*s.
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Chapter - 01
1+
Introduction
.*/ I)9#1D:C9I1)
.*. 1ri%in of t(e #eport
1&
Performance Analysis of SME: A Study on IDLC Finance Limited T*e interns*ip paper is a re6uirement to complete t*e ((A program of Department of Finance, Leading University. . *ave joined t*e Small (usiness Finance 1S(F2 Team of .DL3 Finance Limited, Syl*et (ranc*, in Fe-ruary, %#11. T*en . decided to do my project paper on /!is0 Management of Small (usiness Financing 1S(F2. As a part of t*e interns*ip program, t*e interns*ip supervisor *as assigned me to assess t*e credit and to evaluate t*e loan and lease finance at .DL3 Finance Limited. ?rgani=ational supervisor <a=i Ma*mood ossain, Senior Manager of 3redit !is0 Management Division of .DL3 Finance Limited also approved t*e proposal. My *onora-le academic supervisor Ms. Samia Sultana Tani *as also approved t*e project proposal. As a financial institution .DL3 Finance Limited is very muc* loo0ing for5ard to ta0ing su-stantial e9posure on t*e Small and Medium ;nterprises 1SM;2. .n t*is connection, t*is report *as -een designed to analy=e t*e current credit assessment procedure to5ards SM; financing and also term loan and lease finance opportunities to t*e end clients.
.*0 1&;EC9I<ES 1F 9=E #EP1#9
T*e eventual purpose of t*e study is to increase real life e9perience in any 0ind of service sector and to get a clear idea a-out t*e importance of training programs 5*ic* consumes valua-le time and resources. T*e report encompasses a -rief rundo5n on t*e various functions and operations of t*e 3redit !is0 Management of Small (usiness Finance of .DL3. Apart from t*is, t*e report contains some specific o-jectives " To 0no5 a-out t*e current practice of t*e assessing credit ris0 management of small -usiness financing of .DL3. To construct a tentative suggestion to t*e SM; a-out t*e loan and lease financing advantages. To focus on overdue loan, non:performing loan and total portfolio loan, to measure t*e relations*ip -et5een t*ese varia-les using regression analysis.
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Performance Analysis of SME: A Study on IDLC Finance Limited .*4 SC1PE 1F 9=E #EP1#9
. *ave -een 5or0ing at t*e 3!M of S(F of .DL3 Finance Ltd and t*us give me t*e 5ay to get myself familiari=ed 5it* t*e non:-an0ing environment for t*e first time indeed. . *ave *ad an opportunity to gat*er e9perience -y 5or0ing in t*e different des0s of t*e department. SM; financing is a relatively ne5 concept to t*e financial institutions of (anglades*. Most of t*e (an0s and Financial .nstitutions are involved in financing t*is segment no5 a day. T*is segment is *ig*ly encouraged to -e financed -y t*e central -an0 -ecause t*e development of t*e country is indulged in t*e development of SM;s. !eaders can get *elp from t*is report -ecause 5*ole section is a-out SM; financing. Lease and loan are t*e core products of SM; financing of .DL3 Finance Limited. !eaders 5ill -e 0no5n a-out t*e alternatives -et5een t*ese t5o products. T*e area of concentration of t*is report is confined in investigating different aspects of credit ris0 management of small -usiness financing, pro-lems, prospects.
.*5 Met(odolo%y T*e su-ject matter of t*is report is -ased on primary and secondary sources of data and information. ere t*e regression and trend analysis is done to access t*e current position of overdue and 7PL of .DL3 in S(F financing.
A. Primary Sources: Face:to:face conversation 5it* t*e respective officers and staffs of .DL3. t*e -ranc*. Study of t*e relevant files as instructed -y t*e officers concerned. Some opinions and ideas *ave -een incorporated in t*e paper t*roug* interactive sessions and intervie5s 5it* t*e top management and mid level e9ecutives of t*e organi=ation B. Secondary Sources:
Practical 5or0 e9posure from t*e different des0s of t*e t*ree departments of
1)
Performance Analysis of SME: A Study on IDLC Finance Limited Annual reports of .DL3 Finance Ltd. Total overdue and 7PL record in S(F System Be-site of .DL3 Finance Ltd. Harious -oo0s, Training articles, compilations etc. regarding credit ris0 and ris0 management. Prospectus Different sites related to SM; Financing.
.*6 Limitation During my orientation . 5as a-le to learn a lot of t*ings -ut still it 5as not enoug*. T*ere are some limitations t*at . canGt ignore. Data unavaila-ility 5as t*e constraint. ?fficial documents on t*e detail activities of t*e department 5ere not availa-le. T*is report is -ased on t*e 5*ole process of credit assessment and evaluation of t*e term loan and lease finance. SM; (an0ing is a relatively ne5 concept to t*e financial institutions of (anglades*. Most of t*e (an0s involved in SM; (an0ing are still in its rudimentary stage. As a result, secondary data 5as fairly unavaila-le in t*is connection due to insufficient researc* 5or0 conducted in t*is sector. Furt*er it is added t*at t*e collection of e9act information is difficult -ecause ma9imum information is confidential and t*ose information are modified -efore presenting in t*is report
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Chapter - 02
Organizational Review
1A
0*. 9=E PI1)EE#
IDLC Finance Ltd commenced its journey, in 1A'8, as t*e first leasing company of t*e country 5it* multinational colla-oration and t*e lead sponsors*ip of t*e .nternational Finance 3orporation 1.F32 of T*e Borld (an0 @roup. Tec*nical assistance 5as provided -y <orea Development Leasing 3orporation 1<DL32, t*e largest leasing company of t*e !epu-lic of Sout* <orea. .DL3, as a multi:product financial institution, offers a diverse array of financial services and solutions to institutional and individual clients to meet t*eir diverse and uni6ue re6uirements. T*e product offerings include Lease Finance, Term Finance, !eal ;state Finance, S*ort Term Finance, 3orporate Finance, Merc*ant (an0ing, Term Deposit Sc*emes, De-entures and 3orporate Advisory Services. .DL3Is vision is to -e (anglades*Gs -est multi:product financial institution. .n ac*ieving t*is vision and goal, 5e reali=e t*e importance of ta0ing due care of all of our constituents, particularly t*e s*are:*olders, customers and 5or0force. .DL3Gs uni6ue institutional s*are*olding structure, compromising mostly of financial institutions, *elps t*e company to constantly develop t*roug* s*aring of e9perience and professional approac* at t*e *ig*est policy ma0ing level. T*e company *as aut*ori=ed capital of Ta0a 1,###,###,### 11#,###,### s*ares of Ta0a 1## eac*2 and paid up capital of Ta0a +##,###,### 1+,###,### ordinary s*ares of Ta0a 1## eac*2. .DL3 *as also esta-lis*ed t5o 5*olly o5ned su-sidiaries, .DL3 Securities Limited and ., 3ons Limited to provide customers 5it* security -ro0erage solutions and .T solutions, respectively.
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0*0 S=A#E=1LDI)> S9#:C9:#E & CAPI9AL S9#:C9:#E

.DL3 5as incorporated as a joint venture pu-lic limited company in t*e year 1A'8. Among t5o foreign and t5o local financial institutions foreign institution *olds +#F of .DL3 s*ares. Local sponsors and general pu-lic *old t*e rest $#F of t*e s*ares. .nstitutional s*are *olding comprising of financial institution *elps development t*roug* s*aring of e9perience and professional approac* at t*e *ig*est policy ma0ing level. (rief profile of s*are *olding institutions is given -elo5"
9a le: S(are(oldin% Structure of IDLC as of Decem er 4.? 0//@
Sponsors Forei%n Sponsors <orea Development Financing 3orporation 1<DF32, Sout* <orea <oo0min (an0, Sout* <orea Domestic Sponsors T*e 3ity (an0 Limited Sad*aran (ima 3oporation >eneral Pu lic Mercantile (an0 Ltd. ;s0ayef (anglades* Ltd. !eliance .nsurance Ltd. ?t*er institutions .ndividuals
Source: Annual Report of 2009, IDLC
58*4A 4/*//A %#.##F 1#.##F .8*4A A.$#F $.)%F 60*8A $.8#F '.##F $.##F 1&.%#F 1).##F
9a le: IDLCBs Capital Structure as of Decem er 4.? 0//@
Aut(ori2ed Capital Paid+up Capital (includin% s(are premium)

&D9 .?///*// Million &D9 4//*// Million
0*4 >:IDI)> P#I)CIPLES
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Performance Analysis of SME: A Study on IDLC Finance Limited .DL3 is a multi:product financial institution offering an array of diverse financial services and solutions to institutional and individual clients to meet t*eir diverse and uni6ue re6uirements. Follo5ing are t*e guiding principles t*at s*ape t*e organi=ational practice of .DL3 Customer first: .DL3 *as gro5n 5it* its customers, 5*o are -elieved to -e t*e center of all actions. As t*e cru9 of .DL3Gs corporate p*ilosop*y, customer service gets t*e *ig*est priority. Inno-ation: .DL3 *as continuously introduced ne5 financial products for meeting t*e needs of t*e entrepreneurs in a comple9 E c*allenging -usiness environment. T*e concept of innovation is in:-uilt into t*e 5or0ing culture. Professional Cno3led%e: .DL3 is staffed 5it* 6ualified professionals and innovative minds in t*e country. Jears of operational e9perience, large industrial data-ase and competent 5or0force *ave gives t*em unparalleled advantages. Professional et(ics: T*e professional at .DL3 maintain t*e *ig*est degree of financial and -usiness et*ics in all transactions 5it* t*e clients. ?ver t*e last t5o decades, .DL3 *ave put in -ets efforts to meet t*e e9pectations of t*e clients and investors. 1ne stop solution: Bor0 at .DL3 -egins 5it* t*e idea generation, and t*en goes on into t*e feasi-ility study follo5ed -y arrangement of financing to implement t*e project. .DL3 advises t*e clients, finance t*em and even arrange financing for t*em via different financing modes, namely" lease financing, term loan, -ridge loan, syndication, -ridge loan, syndication, ordinary s*ares, preferred s*ares and de-entures. <ision: (ecome t*e -est performing and most innovative financial solutions provider in t*e country
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Performance Analysis of SME: A Study on IDLC Finance Limited Mission: 3reate ma9imum possi-le values for all t*e sta0e*olders -y ad*ering to t*e *ig*est et*ical standards For t(e Company: !elentless pursuit of customer satisfaction t*roug* delivery of top 6uality services. For t(e S(are(olders: Ma9imi=e s*are*oldersG 5ealt* t*roug* a sustained return on t*e investment. For t(e employees: Provide jo- satisfaction -y ma0ing .DL3 a center of e9cellence 5it* opportunity of career development. For t(e society: 3ontri-ute to t*e 5ell:-eing of t*e society, in general, -y acting as a responsi-le corporate citi=en. >oal: Long term ma9imi=ation of Sta0e*oldersG value.
Corporate P(ilosop(y: Disc*arge t*e functions 5it* proper accounta-ility for all actions and results and -ind to t*e *ig*est et*ical standards
0*5 P#1D:C9S A)D SE#<ICES
)ame of Product Line

Structured Financin%
Product )ame
Syndication Advisory Services Merger and Ac6uisition Securiti=ation Local ;nterprise .nvestment 3enter !eal ;state Finance ome Loan !eal ;state Developer Finance ome Loans 5it* ome Loan S*ield ome ;6uity Loans Mac*inery Loan Factoring of Accounts !eceiva-le
#eal Estate Financin%
Lease Financin% S(ort 9erm Financin%
%+

Bor0 ?rder Finance Deposit Sc(emes 3umulative Term Deposit Annual Profit Term Deposit Mont*ly ;arner Deposit Dou-le Money Deposit .nter 3orporate Deposit .ssue Management Under5riting Private Placement Portfolio Management Trustees*ip Management (ridge Loan Financing .nvestment Advisory Placement of ;6uity, De-entures and (onds 3ar Loan Personal Loan Festival Loan Lease Finance E Term Finance Professional supports to SM;s
Merc(ant &an$in% Ser-ices
Personal Loan
SME Loan
0*6 S:&SIDIA#IES
.DL3 Securities Limited, a fully o5ned su-sidiary of .DL3, offers full:fledged international standard -ro0erage service for retail and institutional clients. .t *as seats on -ot* t*e D*a0a and 3*ittagong Stoc0 ;9c*anges. .t is also a Depository Participant 1DP2 of 3entral Depository (anglades* Limited 13D(L2. ..3ons Limited, a fully o5ned su-sidiary of .DL3 provides 5orld class .T solutions starting from financial applications to .T infrastructure development and consultancy services.
0*7 FI)A)CIAL PE#F1#MA)CE
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During t*e last five years .DL3 major financial performance are presented *ere. T*is information is collected form t*e annual reports of t*e company. 9a le: >ro3t( of t(e companyBs different sectors
1T0. in Million2 Lease and term loans e,ecuted =ousin% finance dis ursement S(ort 9erm finance portfolio Lease Finance portfolio =ousin% finance assets 5D*609otal assets Lon% term lia ilities 9erm deposit alance )et current assets S(are(oldersE eFuity 0//6 %,8)& 'A' +88 &,$11 1,)&+ ','## ),)#8 &,&'$ 1%+$2 '81 0//7 %,'$8 1,%#8 +%) 8,##1 %,&&1 11,)'# ',#AA 8,)1# 1A8A2 A8# 0//8 %,A$$ 1,%88 %1+ &,8$1 +,#)8 18,#8) 11,1#+ ',%8$ 1,&#1 1,%&$ 0//D +,&1% 1,)1% ++) &,$+& +,A18 1$,&&% 1%,118 ',%&A 1,88A 1,)11 0//@ +$8# 1'+A +1$ &+'+ &$'A %%)' 1 1'$A % A$'# 1##+ %+A+ >ro3t( A.AF 1&.#'F :8.)8F :$.&1F %%.+%F +#.$AF 88.11F 1'.8)F :++.))F &'.8%F
T*is data s*o5s sta-le gro5t* of t*e companyGs different sectors. ?nly t*e s*ort term financing portfolio decreased during t*is time due to diversifying into ot*er product line. .t started personal loan, car loan sc*eme and SM; loan separately. From t*e very -eginning of its operation, .DL3 s*o5s gro5ing trends. Last fe5 years its assets i.e. investment on different sectors increased a lot. Alt*oug* its s*are*oldersG e6uity do not increased significantly, it *as a sta-le gro5t* rate. Anot*er important point to -e noted *ere is t*at in recent years t*e difference -et5een t*e asset and de-t increased. T*is indicates t*e financial strengt* of t*e company. Since t*e capital mar0et if gro5ing for t*e last t5o decades, eac* product line of .DL3 s*o5s increasing trend. !evenues from eac* product line are separately presented *ere.
9a le: Sources of re-enue
1T0. in Million2 Lease Finance 0//5 &,1$& 0//6 &,$11 0//7 8,##1 0//8 &,8$1 0//D &,$+& >ro3t( +.8$F
%8

9erm Loan #eal Estate Finance %,#+# 81A %,8)& 'A' %,'$8 1,%#8 %,A$$ 1,%88 +,&1% 1,)1% 1&.)1F %'.&8F
T*e revenue gro5t* for lease financing significantly increased in last one year. Same is for real estate finance, term loan, and merc*ant -an0ing. T*is indicates t*at .DL3 is no5 more investing t*ese products as t*ese are comparatively more profita-le. ?n t*e ot*er side, structured finance decreased a little due to *uge competition and introduction of separate product line i.e. personal loan respectively.
%)
0*8 1PE#A9I1)AL PE#F1#MA)CE
At t*e end of t*e day t*e final result depends on *o5 muc* profit t*e company is generating t*roug* investment in different sectors. T*us li0e any financial institution, .DL3 sincerely evaluate its operational performance to find t*e profita-ility of eac* segment and products .
9a le: 1perational re-enues

1T0. in Million2 1perational re-enue 1perational e,penses Financial e,penses >eneral and administrati-e e,penses Profit + efore ta, )et profit+ after ta, 0//5 '8A )1% &1' A8 %&$ .45 0//6 1,##' $&$ 8+) 1+8 %)8 .64 0//7 1,%A1 1,#8A '18 1)$ %+& .66 0//8 %,#%+ 1,)88 1,%&) %%8 &$8 4/4 0//D %,)1 ' %,#% % 1,88 % %A& $#' 5/7 >ro3t( %A.&1F %%.1$F %&.8)F +#.)$F &A.#8F 44*@@A

During t*e last five years its operational revenues almost dou-led. Alt*oug* during t*e same time period its operational e9penses increased a lot, -ut t*is is mainly due to e9pansion of activities, diversifying product line and investment in ne5 fields. T*us t*e return is e9pected to -e multiplied in upcoming years. Particularly in %##' t*e reason for increase of financial e9penses is li6uidity crisis during t*e first *alf year t*at resulted in t*e *ig* rate in t*e call mar0et. T*is grap* s*o5s t*e comparative gro5t* of operational revenue and net income after ta9. Since t*e company invested in ne5 fields for last fe5 years, its income 5as not increased li0e its revenues. .n %##' its revenue increased -y %A.&1F -ut e9penses increase -y %%.1$F. As a result net income increased ++.AAF.
%$
0*D #A9I1 A)ALGSIS

!atio analysis used for actual performance analysis of t*e company. To evaluate .DL3Gs performance last five years data are used *ere to find out some important ratios. 9a le: #atios
0//6 1.) '.# 1.8 +&# 1A.#F 0//7 #.A) A.+ 1.+ +'1 1$.1F 0//8 1.% A.8& 1.&+ &AA %$.8AF 0//D 1.% '.+% 1.8) )&8 %'.&+F 0//@ 1.#& '.&' 1.$8 $A$ &1.#8F
>ro3t( :1&.#8F 1.A%F %#.8+F &'.8%F &&.+AF
Current ratio De t eFuity ratio Financial e,penses co-era%e ratio )et asset -alue per s(are (9$) #eturn on s(are(oldersE eFuity
.ncreasing trend in current ratio indicates company *as less current lia-ility t*an current assets, 5*ic* is not good. Decreasing de-t e6uity tells t*at de-t is decreasing compared to t*e investment. Financial e9penses coverage ratio is 6uite sta-le, 5*ic* is a good sign. .ncreasing net asset value per s*are directing strong confidence of s*are*olders alt*oug* return on e6uity increased a -it during t*is time period. T*is is mainly -ecause of re:investment and -usiness e9pansion. 9a le: Stoc$ Information
0//5 8+.8A 0//8 1%1.+ + 1+.A A.A $.) 1#.#% +8 +$.8 +'.++ &# 1,%&8 1,##$ $'& 1%%# %.'1F +.$%F &.'AF %.)+ 0//6 )1.%# 0//7 )%.'# 0//D 1)%.8 8 1&.#' +8 %%'' 1.8+
>ro3t( ++.A$F &#.8%F :1%.8F 1'$F :&1.'F
Earnin%s per s(are Price earnin%s ratio Di-idend per s(are (A) Mar$et price (9$) per s(are (Gear end) Di-idend yield H return
All t*e mar0et ratios sign good position of s*ares of t*e company in t*e mar0et. 3ompany gives increased dividend, -ot* cas* and s*are, eac* year e9cept %##' -ecause it re:invests a lot. All t*ese ultimately increased t*e s*are price in t*e mar0et.
%'
Performance Analysis of SME: A Study on IDLC Finance Limited .ncrease earnings per s*are also resulted due to proper and regular dividend. .ncreased price earnings ratio also supports t*e trend. T*e last year it too0 a *i0e due to year end mar0et price rise. At t*at time s*are mar0et 5as suffering -ecause of political violence and uncertainty. All t*e a-ove calculations and information provide e9planation to t*e financial strengt* of t*e company. Still t*e company *as various fields to e9plore in t*e capital mar0et of (anglades*.
0*@ SI19 Analysis

T*e SB?T analysis for .DL3 can -e descri-ed as follo5s"
Stren%t(s
Iea$ness
I. II. III. I$. %ig) Co#t of fund *ore +ocu# on $olume ,oo *uc) Di-er#ification Le## eople in Liabilit" *ar.eting
I. II. III. I$. $. $I.
Reputation and brand image roduct portfolio !ualit" Cu#tomer ortfolio %uman Re#ource# &perational efficienc" 'mplo"ee 'mpo(erment
1pportunity
9(reats
0. ,)reat from ban.# 2. 1umber of +I2# 3. Regularit" control of go-ernment
I. Continuit" of Liberali/ation II. +oreign In-e#tment in ro#pecti-e Sector# III. Local ban.# inefficienc"
%A
Chapter - 03
SME in Bangladesh
+#
3.0. SME in Bangladesh
T*ere are so many definitions of SM;s in (anglades*. .ndustrial Policy document from t*e Ministry of .ndustries defines a small enterprise as a registered enterprise 5it* less t*an 8# 5or0ers, e9cluding t*e cottage units, and 5it* a fi9ed capital investment of less t*an Ta0a 1## million. A medium enterprise is defined as a registered enterprise 5it* -et5een 8# and AA 5or0ers, andCor 5it* a fi9ed capital investment -et5een Ta0a 1## million and Ta0a +## million 1-et5een USD 1.' million and USD 8.& million2. Under yet anot*er definition t*e Borld (an0 estimates t*at (anglades* *as appro9imately %$.### medium:scaled enterprises 1*ere defined -y t*e @overnment of (anglades* as registered enterprises 5it* assets larger t*an USD )##.### e6uivalent2 and 18#.### small:scale enterprises 1registered enterprises 5it* assets of less t*an USD )##.### e6uivalent2. T*e small and medium scale enterprises 1SM;s2 are mainly found 5it*in t*e industry and services sector. .n %### t*e service sector represented a-out 81F of (anglades* @DP, 5*ile t*e industry sector represented %&.&F. SM;s represent roug*ly '%F of t*e total industrial la-or force and %+F of t*e total la-or force. Agriculture accounted for %&.)F of @DP in %###, do5n from &#F in t*e 1A'#Gs. Still, agriculture is t*e primary occupation of a-out $#F of t*e population. T*ese figures are, li0e most ot*er (anglades*i statistics *ig*ly uncertain. Furt*ermore t*ey reflect t*e fact t*at most economic activities in t*e rural areas ta0e place in t*e informal sector. Agriculture t*erefore *as a muc* larger s*are of t*e countryGs /real4 economy t*an is reflected in t*e @DP figures.
SM;s are a very *eterogeneous group in (anglades*, comprising a 5ide variety of firms of village *andicraft ma0ers, small mac*ine s*ops, restaurants, printing presses, -icycle ric0s*a5 assem-ly, cart5*eels, electrical goods, engineering 5or0s*ops, foot5ear, plastic products, plastic spectacle frames, print s*ops, speciali=ed sil0 5eaving, tailoring s*ops o5ned -y 5omen, -uilding material supply, food preparation, small grocery stores,
+1
Performance Analysis of SME: A Study on IDLC Finance Limited 5aste paper collection, etc. .n t*e conte9t of (anglades*, a portion of readymade garments manufacturing enterprises also falls under SM; sector. A typical SM; in (anglades* re6uires on average investment of only Ta0a +),### compared to Ta0a 1,++',### re6uired -y a large:scale industry in generating one unit of employment.
Small E Medium ;nterprise 1SM;2 plays a pivotal role in t*e economic gro5t* and development of a country. Actually, SM; 5or0s as t*e platform for jocreation, income generation, development of for5ard and -ac05ard industrial lin0ages and fulfillment of local social needs. SM;s occupy a uni6ue position in t*e economy of (anglades*. Mainly private sector development depends on t*em.
T*e researc* findings of /7ational Private Sector Survey ?f ;nterprises .n (anglades*: %##+4 1a study conducted -y USA.D, DF.D and 3.DA2 indicates t*at SM;s contri-ute to t*e e9tent of %8F of t*e @DP in (anglades*, a-out &#F of t*e @ross Manufacturing ?utput, '#F of .ndustrial >o-s and around %8F of t*e total La-or Force and t*e total num-er of SM; ;ntrepreneur is a-out #) Million. Among ot*er findings, t*e study concludes t*at SM; sector is significantly a rapid gro5t* oriented sector to flouris* in (anglades*.
9a le 4*.: Definition of SME .ndustry Manufacturing 1-ased on valueCreplacement cost of Service E Trading 3lassification dura-le resources ot*er t*an land and factory 1-ased on num-er -uildings2 of 5or0ers2 Large Medium Small 3ottage K (DT 1## mln 1USL 1.8 mln2 (DT 18:1## mln 1USL #.%%+:1.8 mln2 M(DT 18 mln 1USL #.%%+ mln2 K 1## %8:1## M%8
.ndustry in 5*ic* mem-ers of a family are engaged part:time or full: time in production and service:oriented activities
Source: ,)e definition i# a# per t)e Indu#trial olic" 2004 of t)e *ini#tr" of +inance
+%

(anglades* (an0 1((2 *as set a ne5 definition of t*e Small E Medium ;nterprise 1SM;s2 for commercial -an0s and financial institutions 1non -an02 to follo5 in case of sanctioning loan or ot*er -an0ing services. Under t*e ne5 definition, t*e small and medium enterprises are in principle, not pu-lic limited companies and fulfill t*e follo5ing criteria 9a le 4*0: Definition of SME Sector Ser-ice and 9radin% SMALL 9otal Fi,ed Assets 3ort( &D9
/*/6 mln to &<D 6 mln e,cludin% land and uildin% and or )o* of employees not more t(an 06* Manufacturin% 9otal Fi,ed Assets 3ort( &D9 /*/6 mln to &D9 .6 mln e,cludin% land and uildin% andHor )o* of employees not more t(an 6/
Department of IDLC +inance Ltd
MEDI:M 9otal Fi,ed Assets 3ort(

&D9 6 mln to &D9 ./ mln e,cludin% land and uildin% andHor )o* of employees not more t(an 6/ 9otal Fi,ed Assets 3ort( &D9 .6 mln to &D9 0/ mln e,cludin% land and uildin% andHor )o* of employees not more t(an .6/
Source: *ont)l" 5u#ine## Re-ie( $ol: 6 I##ue : 4, publi#)ed b" Indu#tr" and '7uit" Anal"#i# ,eam, CR*
.n spite of t*eir employment generating role SM;s in (anglades*, as in t*e rest of Sout* Asia, do not reali=e t*eir potential as significant contri-utors to sustaina-le gro5t* and jocreation : -ot* of 5*ic* are particularly needed in t*is region to offset deep persistent poverty levels. @lo-al trade li-erali=ation, per*aps a-ove all ot*er forces, is res*aping t*e economies, -ringing ne5 possi-ilities, -ut also presenting ne5 c*allenges. T*is applies to (anglades* SM;s as 5ell.
4*. Current Conditions of SMEs in &an%lades(

++
T*is 5as revealed in t*e released (anglades* (an0 annual report for fiscal %##):#$. T*e report said, t*e 0ey reasons -e*ind t*e SM;s are not entering into manufacturing are financial constrains, dismal state of utilities, tec*nology and policy discriminations. ?n t*e ot*ers *and, (an0 and ot*ers financial institutions generally prefer large enterprise clients -ecause of lo5er transition costs, and greater availa-ility of collateral. T*e SM;s also fall outside t*e reac* of micro finance sc*emes, and t*us compelled to depend on formal sources of funds at muc* *ig*er interest rates, t*e (anglades* (an0 report said. T*e (( report, *o5ever, said t*at ot*er interrelated pro-lems li0e s*ortage of s*ort and long term finance, lac0 of modern tec*nology and lac0 of promotional support services are major o-stacles in t*e 5ay of development of t*e SM;s sector. ig*er gro5t* of t*e Small and Medium ;nterprises 1SM;s2 can *elp cut poverty to a satisfactory level -y eliminating various prejudices against la-our intensive and creating jo-s for t*e s0illed manpo5er in t*e SM; sector. 3onsidering t*ese o-stacles, t*e report said, (anglades* (an0 *as adopted a preferential lending policy to promote t*e SM; sector in line 5it* t*e government development policies. An amount of Ta0a %.%$ -illion 5as refinanced t*roug* different -an0s and financial institutions under some sc*emes during t*e fiscal %##):#$. .n t*e country, t*e annual report said, financing small and medium enterprises 1SM;s2 from -an0ing sector is a long:standing demand t*at *as -een *ig* on t*e agenda of t*e economists and t*e policyma0ers. .n (anglades* t*e SM;s account for a-out &8F of manufacturing value addition. T*ey account for a-out '#Fof industrial employment, a-out A#F of total industrial units and a-out %8F of total la-our force. T*eir total contri-ution to e9port earnings varies from $8: '#F -ased on t*e ;conomic 3ensus %##1:%##+.
+&
Performance Analysis of SME: A Study on IDLC Finance Limited T*e total num-er of SM;s is estimated at $A$8& esta-lis*ments, of 5*ic* A+.)F are small and ).&F are medium. SME Scenario Decem er 0//D Decem er 0//@ 81,1&$,8A,##,## # 1A.A1F +& F 1) F 18 F 1# F C(an%e 1N2 1' F 1N2 .#$ F 1N2 & F 1:2 %F 1N2 + F 1N2 %F
.nvestment in SM; &+,&+A,8+,##,## -y (an0s 1T0.2 # F of SM; in Total 1A.'& F .nv. (y (an0s F of SM; in Total +# F .nv of S?( F of SM; in Total 1' F .nv of P3( F of SM; in Total 1% F .nv of 7(F. F of SM; in Total ) F .nv of F3(
SME loans as percenta%e of total loans
4*0* C1)S9#AI)9S 1) SME >#1I9=
+8

T*e lac0 of gro5t* of SM;s in (anglades* can -e attri-uted to several factors, including" Persistent lo5 levels of national income t*at *ave precluded construction of efficient p*ysical infrastructure needed to gro5 competitive -usinessesO istorical governance structures t*at *ave allo5ed t*e fe5 5ell:connected to *arvest and 0eep t*e majority of economic resources, and restricted access for t*e majorityO Fairly long *istories of government o5ners*ipCcontrol of most productive, non:farm resources, control t*at is only no5 -eing transferred partially to private sector. ;volving -ut still *ig*ly fragmented policyCregulatory frame5or0s t*at *ave yet to create t*e lo5:level -arriers to -usiness entry, operations, and trade t*at support SM; gro5t*O Underdevelopment of core mar0et support institutions t*at supply essential pu-lic and private services, including many government, financial and education servicesO Unduly restricted access for private SM;s to credit services of -an0s, due in large part to government:dominated financial sectors and politically motivated credit policies, 5*et*er lending targets or directed su-sidiesO .mmature -usiness development services 1(DS2 suc* as information, training, and consulting services. T*is is due to general constraints to private sector development, to government dominance of t*e mar0etplace. .n some places it is also due to large donor flo5s of su-sidi=ed funds t*at *ave distorted mar0ets and cro5ded out sustaina-le private sector provision of (DS.
+)
4*4*>1<E#)ME)9S #1LE 91IA#DS SME

.ndustrial development *as -een attempted in t*e past under 5idely divergent policy regimes. T*e early p*ase of industriali=ation 5as c*aracteri=ed -y an import su-stitution strategy and a strong regulatory role of t*e @overnment. Later t*e governments *ave turned, alt*oug* not al5ays 5*ole*eartedly, to mar0et oriented deregulation. Significant ac*ievements in population control, food production, infrastructure development and sta-ili=ation of t*e macro:economy *ave not -een accompanied -y sufficiently faster economic gro5t* and t*e employment generation needed to alleviate poverty -y en*ancing t*e role of t*e private, i.e. SM; sector.
T*e @overnment *as recogni=ed in t*e .ndustrial Policy document adopted in 1AAA, t*at t*e industrial policy s*ould -e updated to ac*ieve t*e o-jective of accelerating industrial gro5t* and to gain a greater industry s*are of t*e @DP. Support of small and medium enterprises is part of t*is policy.
T*e Borld (an0 states in its (anglades* 3ountry Strategy document t*at t*e @overnmentGs first priority must -e to raise investment -y giving t*e private sector t*e reform confidence necessary to invest in e9port oriented manufacturing activities and -y urgently and su-stantially improving implementation of pu-lic investment in infrastructure and *uman resource development. T*e @overnmentGs second priority s*ould -e to ma0e t*e deregulation of t*e private sector muc* more effective, 5*ile t*ird priority s*ould -e to enter into long term arrangements 5it* domestic and overseas investors. T*e Borld (an0 emp*asi=es completion of t*e long delayed privati=ation program.
+$
4*5 Le-els of Employment

T*ere are some $',&&# private:sector esta-lis*ments of various si=es in (anglades* 5it* some +.8 million 5or0ers employed in t*e sector. T*e si=e of t*e private:sector SM;sG num-er 5*ic* is -ased on t*is ta-le. Ur-an (anglades* accounts for some )#F of units and $)F of employment overall in t*e private:sector enterprise sector, 5it* rural (anglades* accounting for t*e rest. 7inety:t*ree point t*ree 1A+.)F2 of all units in (anglades* -elong in t*e SM; categoryO *ave -et5een %# and AA employees. o5ever SM; Account for only &&F of total employment of t*e enterprise sector. Contri ution of SME to Employment Distri-ution of employment of SM;s E large industries, %##$C%##' 1F of total employed2
Distribution of 0mp!oyment
=;C
BBC >C
small
medium
lar)e
+'
4*6 Contri ution of SME to >DP y sector
4*7* MA;1# &A)CSHFIs FI)A)CI)> SME SEC91#

9a le 4*4: Ma!or &an$s and FIBs in SME Sector
.DL3 (!A3 (an0 Prime (an0 ;astern (an0 D*a0a (an0 United Leasing 3ompany Limited
Focusing strongly in t*e SM; sector since %##8 Most aggressive -an0 in t*e SM; sector and leading financial intermediary in terms of asset -oo0ing T*e leading private sector -an0 in t*e country ?pening SM; 0ios0s in various parts of t*e country for e9tending finance to t*e SM; sector ave recently started focusing in t*is sector as -een concentrating mainly in t*e SM; sector since inception in 1A'A
Source: *ont)l" 5u#ine## Re-ie( $ol: 6 I##ue : 8, publi#)ed b" Indu#tr" and '7uit" Anal"#i# ,eam, CR* Department of IDLC +inance Ltd
+A
4*8 Performance of &an$s and )&FIs

(ot* -an0s and 7(F.s are increasingly coming for5ard to provide finance to t*e SM; sector in order to up*old financial strengt* and increase tec*nical capacity, productivity, and contri-ution to industrial performance. At t*e end of Septem-er %##', speciali=ed -an0s 1S(s2 distri-uted &'.1 percent of t*eir total dis-ursed loan to t*e SM; sector -ut its s*are 5as only + percent of t*e total SM; loan ?n t*e ot*er *and, 1'.1 percent of t*e total dis-ursed loan of private commercial -an0s 1P3(s2 5ent to SM; financing t*at constituted &' percent of t*e total institutional loan to SM;s. T*ere e9ist, *o5ever, considera-le variations among t*e -an0s and 7(F.s in terms of t*eir performance in SM; financing. Among t*e P3(s, D*a0a (an0 Limited and (!A3 (an0 Limited distri-uted '+.A percent and $8.% percent respectively of t*eir total loans to SM;s 5*ereas t*e (AS.3 (an0 Limited 5as t*e leading performer among t*e S(s 1''.) percent2. T*e 7(F.s are also emerging as important players in en*ancing t*e accessi-ility of formal financial services to t*e SM; sector. T*e M.DAS, Prime Finance and .nvestment Limited and .DL3 are pioneers in t*is respect.
1nstitutiona! Share of SM0 %oan Disbursement
98C
9:C
9C
=C
9C
P (
! (
S(
4(!I
SA(
&#
Chapter - 04
IDLC in SME
&1
5*.*SME FI)A)CI)> 1F IDLC
Small E Medium ;nterprise 1SM;2 plays a pivotal role in t*e economic gro5t* and development of a country. Actually, SM; 5or0s as t*e platform for jocreation, income generation, and development of for5ard and -ac05ard industrial lin0ages and fulfillment of local social needs. SM;s occupy a uni6ue position in t*e economy of (anglades*. Mainly private sector development depends on t*em. T*ere are many small and medium entrepreneurs in t*e country t*at *ave innovative idea, spirit and potentiality to do somet*ing productive for local consumers as 5ell as e9port a-road. T*ey can generate income and contri-ute to t*e @DP. T*ey may also provide employment to ot*er people also. Development and gro5t* of Small and Medium ;nterprise is vital for national development. Suc* type of -eneficial enterprising -orro5er can not go a long 5ay for 5ant of financial support -ecause t*ey *ave no access to institutional credit facilities, as t*ey cannot provide collateral security as demanded for suc* credit facility. .DL3 Finance Limited is committed to play positive role in t*e overall socioeconomic development of t*e country.
5*0*
#A9I1)ALE F1# SME FI)A)CI)> A9 IDLC
a2
T*e scope of investment of 7(F. is gradually going to -e limited due to stiff competition and small economy compared to large num-ers of Financial .nstitution. (ut t*e SM; segment is still almost virgin, untapped and uncovered -y institutional finance and as suc* t*ere is ample scope and good opportunity for investment so as to ta0e t*e advantage to increase t*e portfolio providing a via-le and vast lending outlet for .DL3. (!A3 (an0 t*e leading player in SM; Financing claims t*at t*ere are almost ) mln SM; clients all over t*e country and t*ey *ave financed #.1 mln clients so far and dis-ursed only (DT 8,### crore since its inception. (Source: 1e(# at ,)e Dail" Star).
&%
-2
;ffective rate of return on SM; Financing is comparatively *ig*er over t*e large loan -ecause of lo5er -argaining strengt* of t*e customers. T*e large customers are generally price sensitive and *ard -argainers. As suc* t*e earning rate from SM; Financing is *ig*er.
c)
Large customers do not usually offer tangi-le securities and if given, very insignificant compared to t*e credit volume to cover t*e ris0. T*us t*e credit ris0 is very *ig* in case of Large Loan -ecause of t*e -ig e9posure 5it*out any tangi-le security. ence, .DL3 is put into serious trou-le in case of default ma0ing recovery of t*e loan. (ut in case of SM;, t*e ris0 is comparatively lo5 as t*e loan amount is small C moderate and in most cases is covered -y security. A-ove all, lending ris0 of .DL3 is minimi=ed, as t*e portfolio is diversified 5it* small credit si=e.
d2
Under SM; it is easier to recover .DL3Gs money -y selling C foreclosing t*e security as t*e customers *ave not t*at muc* strengt* to face court case unli0e -ig customers.
e2
@overnment and (anglades* (an0 provide very *ig* incentives in financing SM; 3lients. (anglades* (an0 provides refinancing to t*e F.s 5*o finance in compliance 5it* t*e refinancing guidelines of (anglades* (an0. (( provides refinancing P 8F.
5*4* &A)>LADES= &A)C #EFI)A)CI)>
;arlier vide a circular dated May #%, %##&, (anglades* (an0 1((2 launc*ed Small ;nterprise !efinancing Sc*eme to promote SM; sector 5it* financial assistance from .DA. After t*e complete use of t*is ((:.DA fund -y participating (an0s and Financial .nstitutions, 5it* financial assistance from AD(, (( *as reintroduced t*e Small ;nterprise !efinancing Sc*eme vide a circular dated >uly 1A, %##8. Bit* t*e goal of flouris*ing small and medium enterprises, in t*e second p*ase, under t*e Small ;nterprise !efinancing Sc*eme, (( 5ill provide refinance facility to participating (an0s and F.s against t*eir lending to small and medium enterprises. T*e Agricultural 3redit E &+
Performance Analysis of SME: A Study on IDLC Finance Limited Special Programs Department 1A3SPD2 of (( is implementing t*e sc*eme on -e*alf of (( li0e t*e first p*ase. T*e refinancing interest rate to -e c*arged -y (( is prevailing (an0 rate, 5*ic* is ).##F at present. Eligibility to Participate:
T*e follo5ing criteria are to -e met -y t*e participating F. for refinancing: Percentage of classified loan against dis-ursed loan amount 5it*in t*e range of T0. 8,###,###.## *as to -e -elo5 1#.##F. Ade6uate capital as per (( guideline *as to -e maintained. Ade6uate provisioning against classified loan as per (( guideline *as to -e maintained. Maintenance of Proper ris0 management and Anti:money Laundering rules and regulations *as to -e ensured. !ules and regulations as regards ma9imum e9posure limits to any single or group -orro5er *ave to -e maintained. Eli%i ility of Pro!ects: Participating F. can su-mit only t*ose projects to (( for refinancing, 5*ic* *ave fi,ed assets not e,ceedin% 9$* ./*// million. !efinancing 5ill -e provided against leaseCloan 5it*in t*e range of 9$* /*0/ million to 9$* 6*// million to small and medium enterprises in individual case. LeaseCloan for (M!; to small enterprises engaged in manufacturing or service 5ill -e eligi-le for refinancing. LeaseCloan for crop E fis* production, consumer loan and personal loan 5ill not -e eligi-le for refinancing. LeaseCloan to small enterprises engaged in manufacturing, distri-uting and servicing of alco*olic -everages, to-acco processing, radioactive and &&
Performance Analysis of SME: A Study on IDLC Finance Limited associate materials, nuclear reactors, goods intended for military or paramilitary purpose and ot*er environmentally *a=ardous goods 5ill not -e eligi-le for refinancing. To encourage 5omen entrepreneurs*ip, 1#.##F of total fund is 0ept aside -y (( for refinancing against leaseCloan to enterprises run -y 5omen. #efinancin% Scope: !efinancing 5ill -e availa-le for 5or0ing capital and term finances *aving follo5ing maturity: S*ort:term 15or0ing capital2" Up to and including 1% mont*s Medium Term" More t*an 1% mont*s and up to and including +) mont*s. Long Term" More t*an +) mont*s and up to and including )# mont*s. Loan #epayment: !efinanced loan 5ill -e repaid in accordance 5it* fi9ed repayment sc*edule prepared -y ((. !epayment sc*edule for refinanced loans of different maturity are as under: S(ort 9erm (3or$in% capital): !epaya-le 5it*in one year from t*e date of dis-ursement -y (( in t5o e6ual *alf yearly installments 5it* interest. Medium 9erm: !epaya-le 5it*in t*ree years including si9 1)2 mont*s grace period from t*e date of dis-ursement -y (( in five e6ual *alf yearly installments 5it* interest. Lon% 9erm: !epaya-le 5it*in five years including one year grace period from t*e date of dis-ursement -y (( in eig*t e6ual *alf yearly installments 5it* interest.
5*5* C:S91ME# SE>ME)9
&8
Performance Analysis of SME: A Study on IDLC Finance Limited .nitially, small entrepreneurs located 5it*in t*e accessi-le area of our -ranc*es 5ill -e t*e targeted areas under t*is program. T*e entrepreneurs s*ould *ave an e9isting profita-le -usiness or a via-le -usiness plan. 3urrently .DL3 Finance is running its SM; operation in D*a0a, 3*ittagong, Syl*et, 7arayangonj, Savar and (ogra. .n %#1# .DL3 5ill e9pand its operation in some ot*er districts li0e 3omilla and 7ars*ingdi -y inaugurating unit office in t*e vicinity. 5*5*. i2 &orro3ers Selection Small ;nterprise financing, li0e ot*er credit facilities must -e su-ject to t*e (an0Is ris0 management process setup for t*is particular -usiness. T*e process may include, identifying source of repayment and assessing customerI a-ility to repay, e9pected future cas* flo5s, *isC*er past dealings 5it* t*e -an0, t*e net 5ort* and information o-tained from a 3redit .nformation (ureau of (anglades* (an0. T*e -an0 must -e a-le to identify t*e 0ey drivers of t*eir -orro5ers -usinesses, t*e 0ey ris0s to t*eir -usinesses and t*eir ris0 mitigates. ii2 At t*e time of granting facility under various modes of Small ;nterprise financing, a 5ritten declaration s*all -e o-tained from t*e -orro5er divulging details of various facilities already o-tained from ot*er institutions to ensure t*at t*e total e9posure in relation to t*e repayment capacity of t*e customer does not e9ceed t*e reasona-le limits as laid do5n in t*e approved policies of t*e -an0 as 5ell as to *elp avoid e9posure *aving multiple facilities. iii2 T*e -orro5ing companyCfirm must -e registered in (anglades* and s*ares o5ned -y (anglades*is. T*e applicant must -e 1##F privately o5ned, controlled and operated. T*e applicantGs principal place of -usiness must -e in (anglades*. iv2 T*e age of t*e proprietor C partners C directors must range -et5een %1 years to 88 years. Age limit is fle9i-le 5*en succession proposition is strong or t*e -usiness is a partners*ip or Private Limited 3ompany. 5*5*0 Purpose
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S;s *ave vast jurisdiction covering food, leat*er, electronic, lig*t engineering, agro: -ased industries, garment industries, trading, service industries etc. T*e S;s also do a good deal of su-contracting jo-s for large and medium scale industries, especially in t*e garments sector. .t simultaneously covers t*e areas of manufacturing, trading and services. .DL3 Finance Ltd dis-urses loan in t*e S;s to meet t*e follo5ing re6uirements" i2 Bor0ing capital, ii2 Purc*asing of capital mac*ineryO iii2 Delivery Han C Transport for -usiness purpose, iv2 !efur-is*ing officeC(usiness premises, v2 ?t*er eligi-le portfolio of t*e -an0, vi2 Purc*ase of commercial land, possession for ne5 venture.
5*5*4* Mode of Financin% 3redit facilities availa-le at .DL3 for t*e SM; clients are" .2 5*5*5 Any type of Term Loan ..2 Lease Facility.
Per Party E,posure Limit
T*e minimum and ma9imum e9posure of .DL3 Finance Limited on a single Small ;nterprise s*all remain 5it*in t*e range of T< %.## lac and T< 8#.## lac respectively. T*e minimum and ma9imum e9posure of .DL3 of (anglades* Limited on a single Medium ;nterprise s*all vary on case:to:case -asis depending on t*e si=e of -usiness, nature of -usiness, gro5t* potentiality, repayment capacity etc. (ut, all Small and Medium ;nterprise 1SM;2 financing must comply t*e follo5ings"
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Performance Analysis of SME: A Study on IDLC Finance Limited a2 In case of 3or$in% capital finance D Ma9imum up to 1##F of t*e net re6uired 5or0ing capital or $8F of t*e sum total of inventory and receiva-les 5*ic*ever is lo5er. -2 In case of fi,ed assets purc(ase D Ma9imum up to '#F of t*e purc*ase price. c2 In case of total e,posure: Total e9posure 5ill not e9ceed 8#F of t*e total assets.
&.8. P!?DU3TS offered Under SM; Financing

Small (usiness is a loan facility designed to finance small scale trading, manufacturing and service ventures, especially to *elp small and medium entrepreneurs to meet t*eir s*ort:term cas* flo5 s*ortages and -ridge t*e fund:flo5 gaps. Eli%i ility ;ntrepreneurs 5it* minimum % years e9perience in t*e same line of -usiness (usiness must -e a going concern 5it* at least % years in operation
Loan Limit: From (DT + lac to (DT $8 lac
Cey Features Loan 5it*out any collateral up to (DT 18 lac For partly cas* security loan up to (DT +8 lac Loan for Bor0ing 3apital Finance andCor Lease finance for -usiness (orro5er *aving loan 5it* ot*er financial institute can also avail Small (usiness 3onvenient repayment options of ;6uated Mont*ly .nstalment and 3ustomi=ed !epayment Sc*edule Quic0, 6uality door step customer service
A&AS=A) Loan
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Performance Analysis of SME: A Study on IDLC Finance Limited RA(AS A7R is loan facility for small -usiness t*at 5ill construct or already *ave permanent structure for commercial rent 1popularly 0no5n as mess rent2 located surrounding t*e industrial areas and ;PSs across t*e country. Eli%i ility ;ntrepreneurs 5it* minimum 1 year e9perience in t*e same line of -usiness (usiness must -e a going concern 5it* at least 1 year in operation Mont*ly income from rental and ot*er sources must -e minimum T<. 8#,###
Loan Limit: From (DT + lac to (DT %# lac
Cey Features Loan 5it*out any collateral up to (DT 18 lac (orro5er *aving loan 5it* ot*er financial institute can also avail A-as*an Loan 3onvenient ;6uated Mont*ly .nstalment repayment system Quic0, 6uality door step customer service
&.). .DL3 D 3?MM.TM;7T T? SM; S;3T?!
A separate SM; Division is in operation since early %##8 for e9tending finance and support to SM;s Around $'F of .DL3Gs clients -elong to t*e SM; segment, -ased on fi9ed capital investment si=e SM; clients s*are around )8F of our total loan portfolio SM; operations playing an increasingly important role in overall .DL3 operations" Total team mem-ers of SM; Division *as gro5n from ) in %##8 to )# at present 1 .ncluding %) contractual employees2
&A
Performance Analysis of SME: A Study on IDLC Finance Limited Dis-ursement target of (DT +.# -illion for %#1# up from (DT 1.A# -illion in %##8 .n ?cto-er %##8, .DL3 launc*ed t*ree SM; Small (usiness Finance sc*emes ranging -et5een (DT #.+ : $.8 mln 1USL &,###:1%,###2 for facilitating t*e gro5t* of small -usinesses" (usiness Loan Mac*inery Loan Dou-le Loan
(usiness Loan is collateral free up to (DT 1mln 1USL 18,###2 .f a -usiness is feasi-le, no collateral may -e necessary ?pened a dedicated SM; (ranc* in (ogra, at t*e -eginning of %##), to accommodate t*e SM; clients in t*e 7ort*ern region of t*e country .ntroduced Festival Loan product for financing seasonal increase of inventory of SM; -usinesses during t*e pea0 season !ecently launc*ed a loan product for 5omen entrepreneurs Apart from t*e SM; Finance sc*emes, .DL3 offers Lease finance and Factoring to t*e SM; sector Be *ave plans to open a num-er of SM; -ranc*es in ot*er parts of t*e country in t*e near future Average credit si=e for small clients is around (DT 1,###,### 1USL 18,###2
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Chapter - 05
Managing Credit Risk in SME at IDLC
81
6* C#EDI9 #ISC MA)A>EME)9 I) SME

.nstitutions involved in lending, including SM; Financing, carefully assess credit ris0, 5*ic* is t*e possi-ility t*at -orro5ers 5ill fail to pay t*eir loan o-ligations as sc*eduled. T*e judgments of t*ese institutions affect t*e incidence of delin6uency and default, t5o important factors influencing profita-ility. To assess credit ris0, lenders gat*er information on a range of factors, including t*e current and past financial circumstances of t*e prospective -orro5er and t*e nature and value of t*e property serving as loan collateral. T*e precision 5it* 5*ic* credit ris0 can -e evaluated affects not only t*e profita-ility of loans t*at are originated -ut also t*e e9tent to 5*ic* applications for mortgages t*at 5ould *ave -een profita-le is rejected. For t*ese reasons, lenders continually searc* for -etter 5ays to assess credit ris0. T*is discussion focuses mainly on t*e role of credit ris$ assessment in t(e appro-al process rat*er t*an on its effects on pricing. Alt*oug* t*e mar0et for SM; Financing is c*aracteri=ed -y some pricing of credit ris0 1acceptance of -elo5:standard ris0 6uality in e9c*ange for a *ig*er interest rate or *ig*er fees2, applicants in general are eit*er accepted or rejected on t*e -asis of 5*et*er t*ey meet a lenderGs under5riting standards.
6*.* P#I)CIPLES 1F S1:)D LE)DI)>
T*e principle of sound lending t*at is follo5ed in t*e -an0ing industry and in .DL3 is common to all conventional and unconventional interest free -an0ing system. Some of t*e principles are given as follo5s" .* Safety: (y safety is meant t*at t*e -orro5er is in a position to repay t*e loan, along 5it* interest, according to t*e terms of t*e loan contract. T*e repayment of t*e loan is depends on t*e -orro5erGs capacity to pay and 5illingness to pay. T*e former depends on
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Performance Analysis of SME: A Study on IDLC Finance Limited *is tangi-le assets and t*e success of t*e -usiness. T*e 5illingness to pay depends upon t*e *onesty and c*aracter of t*e -orro5er. 0* Profita ility: 3ommercial -an0s are profit:earning institution. So t*ey must invest t*eir fund in profita-le sectors. 4* LiFuidity: (an0ers are essentially financial intermediaries for s*ort:term funds. T*e -an0er must ensure t*at t*e -orro5er is a-le to repay t*e loan on demand or 5it*in t*e s*ort period of time. 5* 9(e principle of Di-ersification of #is$s: A prudent -an0er al5ays tries to select t*e -orro5er very carefully and ta0es tangi-le assets as security to safeguard *is interest. 6* 9(e purpose of t(e loan: B*ile lending *is funds, t*e -an0er en6uires from t*e -orro5er t*e purpose for 5*ic* *e see0s t*e loan.
6*0 S&F FI)A)CI)> SC=EMES
T*e follo5ing are t*e 0ey features of .DL3 S(F sc*eme 9a le : S&F financin% sc(emes
Particulars Minimum loan tenure Ma9imum loan tenure Minimum Trac0 !ecord of (usiness Halidity of sanction Processing Fees 1F of finance amount2 3*e6ue dis*onoring c*arge HAT on processing fees 7e5 financing to a client 5*en a loan is already outstanding 1!epeat Financing2 Limiting criteria >eneral Product Feature .4 mont(s 5D mont(s 0 years 0 mont(s from date of sanction To -e fi9ed at .*//A of loan amount &D9 06/ per dis*onoring To -e collected from client1.6*//A of Processing fees2 Minimum of si, (7) mont(s -et5een consecutive financing su-ject to satisfactory repayment -e*avior and fulfilling ma9imum e9posure and cumulative DS3! criteria. 7o government employee is eligi-le for loan. ;mployees of private organi=ations are eligi-le. o5ever, employment must -e verified.
8+

Particulars Ma9imum financingCe9posure criteria Ma9imum e9posure limit 5it* a particular concern1amt. in (DT2 7o. of t*ird party personal guarantors 1ot*er t*an proprietor and spouse2 Limiting 3riteria of guarantors >eneral Product Feature 6/A of e9isting total asset or .//A of e9isting e6uity, 5*ic*ever is lo5er &D9 8?6//?///
T5o 1%2 out of 5*ic* one 112 *as to -e a non relative.
T*e ma9imum num-er of loans against 5*ic* an e9isting -orro5er can provide personal guarantee s*ould -e limited to one 112. Similarly a personal guarantor of an e9isting loan 5it* .DL3 can *imself avail a loan from .DL3 provided t*at *e *as not provided personal guarantee against more t*an one112 loan 5it* .DL3 !egistered mortgage !e6uired for loans a-ove &D9 .*6/ mln on a net e9posure -asis !e6uirement of reporting S*ould -e reported to t*e CI& t*ird party guarantors to t*e 3.( Fi9ed Asset 3riteria Any client 5it* more t*an &D9 ./*// mln of fi9ed assets1land, -uilding and mac*inery2 5ill not -e eligi-le for availing financing under t*e Small (usiness Financing sc*eme Interest rate to e pro-ided (at present rates usually decline 3it( increase in a%ainst cas( security : tenure)
Source: .DL3 Product Program @uide
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Performance Analysis of SME: A Study on IDLC Finance Limited 6*4 MA)DA91#G A)D DISC#E9I1)A#G <E#IFICA9I1) 1F I)F1#MA9I1) F1# S&F P#1P1SALS
Under t*e Small (usiness Financing Sc*eme 5e provide lease and term loans amounting from (DT #.+# mln to (DT $.8# mln to small -usiness *ouses t*at are eit*er in Trading, Manufacturing or t*e Service sector. As part of t*e due diligence process t*e credit team visits t*e client premises in order to assess E verify t*e applying clientGs usiness information t*at is provided -y t*e mar0eting team. o5ever, due to practical constraints it 5as not al5ays possi-le to verify t*e personal information of t*e client as 5ell as t*e t*ird party guarantors
.n order to complement, as 5ell as strengt*en, t*e due diligence process re6uired for performing credit investigation t*e Management approved t*e appointment of Prime Asset Mana%ement Consultants (PAMC) for verifying t*e personal information of all personal guarantors namely t*e client, spouse and t5o t*ird party guarantors. 3lient and t*ird:party guarantor information t*at needs to -e verified includes, -ut is not limited to, t*e follo5ing"
matc*ing of p*otograp* and signature verifying residential address, -usiness address and p*one num-ers verification of -an0 statement Be started outsourcing t*e guarantor information verification services t*oroug* PAM3 from Marc* #1, %##$. From analy=ing t*e feed-ac0 report su-mitted -y PAM3 as 5ell as from discussions 5it* t*em it -ecame clear t*at in cases 5*ere t*e t(ird party guarantors are usinessmen it is 6uite difficult and time consuming to o-tain t*e -usiness related information li0e valuation of in-entory & mac(inery , verification of recei-a les and paya les, and ot*er assets.
88
Mandatory Information <erification #eFuirement t(rou%( PAMC For Applying (usiness 3oncern" Herification of (an0 Statement For 3lient E spouse" Herification of residential address Herification of status of residence 1rented or o5ned2 Herification of p*one num-er 1fi9ed p*one or mo-ile2 P*otograp* and 7ational .D matc*ing, Signature matc*ing For T*ird party guarantor 1-usinessman2" Herification of -usiness name, -usiness address and nature of -usiness Herification of p*one num-er 1fi9ed p*one or mo-ile2 Signature matc*ing P*otograp* and 7ational .D matc*ing For T*ird party guarantor 1non:-usinessman2" Herification of residential address Herification of status of residence 1rented or o5ned2 Herification of p*one num-er 1fi9ed p*one or mo-ile2 P*otograp* and 7ational .D matc*ing, Signature matc*ing.
)ote: .t needs to -e mentioned t*at .tems under t*e mandatory information verification re6uirement is necessary for all cases and any deviation t*ereof needs to -e approved -y t*e Management.
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Performance Analysis of SME: A Study on IDLC Finance Limited 6*5* C#EDI9 APP#1<AL A)D SE#<ICE DELI<E#G P#1CESS :)DE# SME DI<ISI1)
T*e Mar0eting Manager:!etail Products and *is team of 3!;s are responsi-le for (usiness Development, !elations*ip Management, Service Delivery, 3ollection and Follo5:up.
T*e Mar0eting Manager:!etail Products does t*e initial screening of t*e Financing Proposals generated -y t*e 3!;s and send t*e Appraisal Form along 5it* t*e terms and conditions for financing and ot*er necessary documents to t*e 3redit !is0 Manager:!etail Products.
T*e 3redit !is0 Manager:!etail Products, upon *is satisfaction t*at t*e Financing Proposal complies 5it* all t*e lending policies of .DL3, initiates t*e credit appraisal of t*e Financing Proposal. o5ever, if t*e Financing Proposal does not comply 5it* t*e .DL3 lending policies t*e Mar0eting Manager:!etail Products 5ill -e informed of t*e non:compliance and t*e reason t*ereof.
T*e sanction of any financing proposal is given to t*e client 5it*in se-en (8) 3or$in% days of t*e receipt of any compliant proposal -y t*e 3redit !is0 Manager: !etail Products. T*e 3redit !is0 Manager:!etail Products revie5 t*e 3ompliant Proposal and underta0e t*e ris0 assessment, client visit and credit investigation. Upon finding of satisfactory -usiness standing of t*e prospect a 3redit Appraisal !eport is prepared and placed online -efore t*e Approving Aut*ority.
Upon online approval of t*e Proposal t*e 3redit !is0 Manager:!etail Products signs t*e Appraisal !eport and send it for signing -y t*e respective Sanctioning Aut*ority as delineated a-ove.
After t*e ?perations Division *as received a copy of t*e signed Appraisal !eport prepares t*e Sanction Letter and all necessary Documents and for5ards t*e documents to t*e Mar0eting Manager:!etail Products for signing -y t*e client. T*e sanction letter is issued jointly -y t*e 3redit !is0 Manager:!etail Products and any of
8$
Performance Analysis of SME: A Study on IDLC Finance Limited t*e follo5ing persons" t*e Mar0eting Manager:!etail Products, t*e Senior Manager: SM; Division or t*e ead of SM; Division. T*e completed Documents along 5it* t*e 3lient File is maintained -y t*e ?perations Division at t*e 3orporate ead ?ffice.
T*e 3redit !is0 Manager:!etail Products prepares and sign t*e Dis-ursement Memo and send t*e Memo for approval -y t*e ead of SM; Division. T*e original approved Memo is sent to t*e ?perations Division for 0eeping in t*e 3lient File. T*e Dis-ursement Houc*er is prepared -y t*e ?perations Division and sent to t*e Accounts Department for 3*e6ue preparation.
T*e ?perations Division is t*e custodian of all t*e Documents and 3lient Files.
6*6 A:9=1#I9G DELE>A9I1) :)DE# SME
Ta-le 8.)." Aut*ority Delegation under t*e SM; Division
9as$s
Proposed dele%ation 9ier I: Up to 8 lacs, approval from o3!M 9ier II: A-ove (DT 8 lacs D up to (DT 1# lacs, joint approval from oSM; and o3!M 9ier III: A-ove (DT 1# lacs approval from 3;? E MD, after clearance from 3;3
Appro-in% aut(ority
Appraisal #eport
:p to 6 lacs? report to -e signed -y 3redit ?fficer, ead of 3redit : Small (usiness Finance 1under 3!M2, and o3!M. :p to &D9 ./ lacs, report to -e signed -y 3redit ?fficer, ead of 3redit : Small (usiness Finance 1under 3!M2, oSM; and o3!M A o-e &D9 ./ lacs? report to -e signed -y 3redit ?fficer, ead of 3redit : Small (usiness Finance 1under 3!M2, o3!M, oSM;, DMD, and 3;? E MD.
Sanction Letter Dis ursement Appro-al
To -e signed -y ead of 3redit : Small (usiness Finance 1under 3!M2 E oSM; As e9isting, to -e approved -y t*e ead of SM;, in case of no deviation. T*e Deputy Managing Director may approve any
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deviation, ot*er t*an security and regulatory related deviation1s2. 1Ref: Directi-e Director" 20089002, :Delegation of po#t;appro-al di#bur#ement2 dated *a" 8, 20082
6*7 C#EDI9 9E#MS A)D C1)DI9I1)S
6*7*.* Medium and S(ort 9erm Medium and S*ort:Term facilities mean facilities 5it* maturities of more t*an one year -ut not e9ceeding ten years and S*ort Term Facilities mean 5it* maturities up to one year. .n %##$ .DL3 started itGs s*ort term facility in t*e form of Festival Loans. T*e loans are provided for tenure of + to 8 mont*s meet up t*e seasonal demand.
6*7*0
Per Party E,posure Limit
T*e minimum and ma9imum e9posure of t*e -an0 on single S; s*all remain 5it*in t*e range of 9C 4 lac and 9C 86 lac respecti-ely su !ect to t(e follo3in%: d2 In case of 3or$in% capital finance D Ma9imum up to $#F of t*e net re6uired 5or0ing capital or $8F of t*e sum total of inventory and receiva-les 5*ic*ever is lo5er. -2 In case of fi,ed assets purc(ase D Ma9imum up to '#F of t*e purc*ase price.
6*7*4* Security #eFuirement Limit on Clean Facility for 9$* 4 lac to 9$ ./ lac: .n order to facilitate gro5t* of smaller loans clients are allo5ed 3ollateral free loan up to (DT 1# lac. (ut security and documentation procedures remain as per standard. For loan amountin% 9C* ./ lac to 9C 6/ lac
8A
Performance Analysis of SME: A Study on IDLC Finance Limited 1n case+to+case asis dependin% on &an$er+customer relations(ip* i. ypot*ecation on t*e inventory, receiva-les, advance payments, plants E mac*ineriesO ii. !egistered mortgage over immova-le properties 5it* registered po5er of Attorney and Disclaimer from t*e mortgagor1s2O iii. Personal @uarantee of Spouse C parents C ot*er family mem-ersO iv. ?ne t*ird party guarantee from a person accepta-le to t*e (an0O v. Post dated c*e6ues for eac* installment and one post dated c*e6ue for full loan value including full interest. 6*7*5 Common Information C(ec$list
For all facilities, -an0s must o-tain 1as applica-le2 and not limiting to follo5ing common documents -efore dis-ursement of loan can -e made" Loan Application Form duly signed -y t*e customer. Loan Application From s*ould -e accompanied -y a T(orro5erGs (asic Fact S*eetG under t*e seal and signature of t*e -orro5er. A 5ritten declaration s*all -e o-tained from t*e -orro5er divulging details of various facilities already o-tained from ot*er institutions. Acceptance of t*e terms and conditions of ?ffer Letter. Up to date Trade License P*otograp*s E p*otocopy of passportCany ot*er .D of t*e proprietor Cpartners Cdirectors duly attested. Personal net 5ort* statement of t*e proprietor Cpartners C directors. 3opy of T.7 3ertificate. S*ort description of t*e products of t*e enterprise. Project Profile 1if ne5 project2. QuotationC.ntent C Pro:forma .nvoice etc 1as applica-le2. Mar0eting distri-ution system of t*e company.
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Performance Analysis of SME: A Study on IDLC Finance Limited S*ort profile of t*e proprietor C partners C directors mentioning t*eir -usiness e9perienceCeducation etc. (rief description of t*e management of t*e company mentioning t*eir educational E professional e9periences. 7ame and address of t*e sisterCallied concerns. @roup (roc*ure 7ame and address of present -an0ers A latest lia-ility statement of all t*e ot*er -usiness concerns of t*e @roup 5it* ot*er (an0sCFinancial .nstitutions 1Mentioning D name of -usiness concern, name of -an0 and -ranc*, nature of facility, limit amount, outstanding. overdue if any etc.2 3redit .nformation (ureau 13.(2 report from (anglades* (an0 B*erever practical, insurance policy for 11#F of t*e stoc0 value covering potential ris0s 5it* .DL3Gs mortgage clause in joint name of t*e -an0 and client.
ADDI9I1)AL I)F1#MA9I1) C=ECCLIS9 F1# P#1P#IE91#S=IP FI#M: 3opy of financial statements for at least #1 year for analysis and record. secured -y li6uid assets. ADDI9I1)AL I)F1#MA9I1) C=ECCLIS9 F1# PA#9)E#S=IP FI#M" a2 3opy of !egistered Partners*ip Deed duly certified as true copy or a Partners*ip Deed on non:judicial stamp of T<. 18# denomination duly notari=ed. -2 3opy of financial statements for at least #1 year, for analysis and record. o5ever, financial statements signed -y t*e -orro5er 5ill suffice 5*ere t*e e9posure is fully secured -y li6uid assets. o5ever,
financial statements signed -y t*e -orro5er 5ill suffice 5*ere t*e e9posure is fully
)1
ADDI9I1)AL I)F1#MA9I1) C=ECCLIS9 F1# LIMI9ED C1MPA)G: 3opy of Memorandum E Articles of Association of t*e company including 3ertificate of .ncorporation duly certified -y !egistrar >oint Stoc0 3ompanies 1!>S32 and attested -y t*e Managing Director accompanied -y an up:to:date list of Directors 1Form:U..2. 3opy of (oard !esolution of t*e company for availing credit facilities and aut*ori=ing Managing Director C 3*airman C Director for e9ecution of documents and operation of t*e accounts. An Underta0ing not to c*ange t*e management of t*e company and t*e memorandum and articles of t*e company 5it*out prior permission of t*e .DL3. 3opy of financial statements for at least #1 year for analysis and record. o5ever, financial statements singed -y t*e -orro5er 5ill suffice 5*ere t*e e9posure is fully secured -y li6uid assets.
6*7*6
Common C(ar%e Documents applica le for Proprietors(ipH Partners(ipHLimited Company Demand Promissory 7ote. Letter of ypot*ecation on stoc0:in:trade, ra5 materials, 5or0 in process
and finis*ed goods. Letter of ypot*ecation on plant, mac*ineries, e6uipments, ve*icles etc. Assignment of receiva-les, lease rentals, contract receiva-les etc. Assignment of security money, advance rent, if any Personal Letter of @uarantee from t*e Proprietor C Partners C Directors Personal @uarantee from any ot*er persons accepta-le to t*e (an0.
)%
Performance Analysis of SME: A Study on IDLC Finance Limited Post dated c*e6ues for eac* installment and one undated c*e6ue for full loan value including full interest. Lien on depositsCfinancial instruments 1FD!, s*ares of companies listed in stoc0 e9c*ange, .3( Unit certificates etc 5it* perfected lien2 o-serving necessary formalities. Any ot*er documents as e9pedientC deemed necessary -y t*e -ranc*C-an0 depending on t*e nature of security suc* as, :.nsurance @uarantee, 3ross 3orporate @uarantee, Assignment of 3ontract, Security Money etc. All security documents pertinent to t*e mortgage of properties to -e e9amined -y t*e Panel La5yer of t*e -an0 along 5it* legal opinion. 6*7*7 Credit Information &ureau (CI&) Clearance B*ile considering a proposal, -an0s s*ould give 5eig*t age to t*e 3redit .nformation (ureau 13.(2 !eport of (anglades* (an0 relating to t*e -orro5er E *is group. For financing 3.( is a must and t*e 3.( report must not -e older t*an + mont*s from t*e date of dis-ursement. 6*7*8* Mode of #epayment a. For continuous loan credit turnover must -e e6ual to t*e limit amount in a 6uarter and full and final adjustment 5it*in t*e validity period. -. For term loan, repayment to -e made -y mont*ly installments and full and final adjustment 5it*in t*e validity period. 6*7*D* Minimum conditions for ta$in% e,posure i. .t is recogni=ed t*at a large num-er of enterprises ot*er t*an limited companies 1i.e., sole proprietors*ipCpartners*ip firms etc2 may not *ave proper -oo0s of accounts including -alance s*eet, profit E loss account and t*ey may not -e a-le to prepare current and future cas* flo5s due to lac0 of sop*istication and e9pertise.
)+
ii.
.t is e9pected t*at in suc* cases, -an0s s*all assist t*e -orro5ers in o-tainingCdeveloping suc* -oo0s of accounts as per formsCformats prescri-ed -y eac* -an0 and no SE s(all e declined access to credit merely on t(is %round* T*e rationale and parameters used to project t*e future cas* flo5s s*all -e documented and anne9ed 5it* t*e cas* flo5 analysis underta0en -y t*e -ranc*.
iii.
(an0CF.Gs s*all not approve andCor provide any e9posure 1including rene5al, en*ancement and resc*eduling2 until and unless t*e prescri-ed Loan Application From is accompanied -y a T(orro5erGs (asic Fact S*eet 1refer Appendi9 U...2 under t*e seal and signature of t*e -orro5er.
6*7*@
#estriction on facilities (an0s s*all not ta0e any e9posure on a S; 1Small ;nterprise2 in 5*ic* any of its directors, s*are*olders, employees or t*eir immediate family mem-ers are *olding 8F or more of t*e s*are capital of t*e S;.
6*7*./* Dele%ation for sanction of loan under SE Sc(eme i2 T*e ead of (ranc*es s*all e9ercise t*eir e9isting financial delegation
aut*ori=ed -y ead ?ffice for sanction of credit facilities under small enterprise fulfilling lending and security criteria i.e., 1.%8 times collateral security in t*e form of !egistered Mortgage. 3redit limit -eyond delegation of t*e -ranc* to -e sent to ead ?ffice. ii2 ead of -ranc*es may also -e aut*ori=ed to sanction S; Loan 1Term Loan2 o-taining security in t*e form of FD! up to 8#F of t*e loan amount and doing due diligence. iii2 SM; 3redit Unit at ead ?ffice s*all also directly *andle t*e S; portfolio.
6*7*..* Sales team T*e sales team C -ranc* staff responsi-le for loan sales and s*ould -e t*e o5ner of t*e customer relations*ip, and must -e *eld responsi-le to ensure t*e accuracy of
)&
Performance Analysis of SME: A Study on IDLC Finance Limited t*e loan application su-mitted for approval. T*ey must -e familiar 5it* t*e -an0Gs Lending @uidelines and s*ould conduct due diligence on ne5 -orro5ers, purpose of t*e loans and guarantors. 6*7*.0 Appro-in% of credits J y Credit :nit Applications are received at 3redit Approval unit as per delegation of po5er. T*e credit approval team 5ill -e independent from t*e sales team 5*o 5ill evaluate and approve t*e loan. ?n receipt of t*e Applications it 5ill -e evaluated C assessed -y 3redit Analysts C Managers on t*e -asis of a fully documented Loan Presentation Forms 1LPF2.
6*7*.4 Dis ursement J y Credit Administration After approval, 3redit Team 5ill send C for5ard t*e Sanction Advice to t*e operation unit for completion of documentation and dis-ursement of t*e loans *aving dis-ursement aut*ority from 3redit Administration Unit. T*is 5ill ensure t*e -etter control of t*e -an0 asset and mitigate t*e ris0 of compromise of t*e duties. 6*7*.5* Classification and pro-isionin% Provision s*ould -e made on t*e -asis of credit 5ort*iness of t*e -orro5er, its cas* flo5, operation of t*e account, ade6uacy of t*e security, inclusive of its reali=a-le value and documentation covering t*e advances for different categories of Loans provision to -e made as under" Special Mention Account 1SMA:overdue A# days2, no provision is re6uired ii2 Unsatisfactory 1overdue 1%# days2, provision 1#F, iii2 Su-standard 1overdue 1'# days2, provision %#F, iv2 Dou-tful 1overdue %$# days2, provision 8#F, iv2 Loss 1overdue -y 1% mont*s or a-ove2, provision 1##F.
)8
Performance Analysis of SME: A Study on IDLC Finance Limited (ranc*es s*all o-serve t*e prudential guidelines given at Appendi9 U in t*e matter of classification of t*eir SM; asset portfolio and provisioning t*ere:against 1enclosed2. Apart from specific provisioning -ranc*es 5ill create ade6uate general provision over t*e entire credit portfolio of Small ;nterprise -usiness. T*erefore, t*ey s*ould maintain at all times a general provision of 8F of S; assets outstanding in its -oo0s. 9imin% of creatin% pro-isions (ranc*es s*all revie5, at least on a 6uarterly -asis, t*e collecti-ility of t*eir loans Cadvances portfolio and s*all properly document t*e evaluations so made. S*ortfall in provisioning, if any, determined, as a result of 6uarterly assessment s*all -e provided for immediately in t*eir -oo0s of accounts -y t*e -ranc* on 6uarterly -asis. #e-ersal of pro-ision T*e provision *eld against classified assets 5ill only -e released 5*en cas* reali=ation starts e9ceeding: a2 .n case of loss category t*e net -oo0 value of t*e assetsO -2 .n case of dou-tful category 8#F of t*e net -oo0 value of t*e assetsO and c2 .n case of su-:standard category %8F of t*e net -oo0 value of t*e assets. Furt*er, t*e provision made on t*e advice of (anglades* (an0 5ill not -e reversed 5it*out prior approval of (anglades* (an0. 9ransfer of files to Special Asset Mana%ement (SAM) Any S(F contract t*at *as accumulated more t*an si9 1)2 overdue instalments 5ill automatically -e transferred to t*e Special Asset Management team for furt*er follo5:up and recovery"
))
Performance Analysis of SME: A Study on IDLC Finance Limited / Approval, as per t*e e9isting tier of sanctioning aut*ority of S(F loans, 5ill -e re6uired for transfer of client accounts t*at *as accumulated more t*an si9 1)2 overdue instalments to SAM"
9a le 6*7*: Aut(ority Dele%ation under t(e SME Di-ision Finance Amount Upto (DT 8##,### From (DT 8##,##1 to (DT 1,8##,### From (DT 1,8##,##1 to (DT +,8##,### A-ove (DT +,8##,### Appro-al aut(ority o S(F o3!M E oS(F o3!M, oSM; oSM; E DMD
T*e approval memo s*ould contain details e9plaining t*e financing rationale, t*e reasons for default, t*e actions adopted so far to regulari=e t*e account as 5ell as t*e proposed course of action.
/ /
A 6uarterly report regarding t*e transfer of S(F accounts to SAM 5ill -e prepared and circulated for t*e revie5 of t*e top Management. Any pro-lematic contract t*at is yet to accumulate more t*an si9 1)2 overdue installments may also -e transferred to t*e Special Asset Management upon approval if it is deemed necessary.
6*8 APP#AISAL P#1CED:#E 1F SME CLIE)9
After t*e mar0eting stage, appraisal procedure starts. .n appraising, a compre*ensive report *as -een prepared on t*e -usiness performance of t*e client. T*e 5*ole procedure is carried out t*roug* t*e follo5ing step -y step procedure" 3ollecting preliminary information regarding t*e client" to collect t*e preliminary information, .DL3 maintain a standard formatted c*ec0list. T*is c*ec0list is
)$
Performance Analysis of SME: A Study on IDLC Finance Limited designed to collect t*e information regarding t*e necessary legal documents of t*e company, o5ners lia-ility position, financials of t*e -usiness and its sister organi=ation and ot*er necessary information. A sample c*ec0list format is attac*ed at t*e Appendi9:1for -etter understanding 3ollecting 3.( report of (anglades* (an0 to 0no5 t*e lia-ility status of t*e client" -efore any loan dis-ursement, Availing report from 3redit .nformation (ureau 13.(2 of (anglades* (an0 regarding t*e lia-ility status of t*e client is mandatory. Briting t*e main report" ;3D follo5s a standard format to 5rite t*e appraisal report on its client. T*is report format contains t*e follo5ing part to investigate t*e credit 5ort*iness of t*e client" 3lientGs name, address, -usiness type and ot*er preliminary information .n case of an e9isting client, t*e e9posure status of t*e client 5it* .DL3 Description of t*e financing proposal in details and clientGs previous trac0 record 1in case of an e9isting client2 Financing rationales on client from different aspects li0e"
-usiness
(ac0ground of t*e -usiness and t*e main sponsors of t*e Analy=ing t*e mar0et potentials of t*e product client deals 5it* Analy=ing t*e s*are*olding structure of t*e company to reveal 5*et*er any pro-lem lies 5it* it. <eenly analy=ing t*e previous + to & years financials of t*e client and ma0e different comments on t*e c*anges *e faced over t*e years Analy=ing t*e -usiness and financial condition of t*e sister concerns, if any and its impact on t*e said concern.
)'
Performance Analysis of SME: A Study on IDLC Finance Limited !atio. .n case of lease, -rief description of t*e leased e6uipment and its price verification Detail lia-ility position of t*e client Projection regarding t*e income statement and cas* flo5 of t*e client at post financing period and calculating t*e De-t Service 3overage
6*D*
SEC91#AL EKP1S:#E
Sector 5ise distri-ution of t*e SM; portfolio of .DL3 is given -elo5. T*is distri-ution s*o5s t*e distri-ution pattern of some of t*e important sector.
9a le: Sectoral E,posure
)ame of Sector
E,posure
Agro (ased .ndustries Apparels E Accessories Automo-ile Spare Parts (uilding E 3onstruction Materials DHD, H3D E 3D ;ducation ;ngineering Food E (everage Furniture E !elated Products ealt*care Service1P*armacy2 ealt*care Service1Diagnostic 3entre2 ome Appliances and ouse old .tems .nformation Tec*nology Mo-ile andset E S.M, Accessories Pac0aging Paint E ard5are Printing Po5er E ;nergy Professional Services
+,###,###.## '1,%&8,###.## 1$,&##,###.## +1,88#,###.## 1,A##,###.## 1,%##,###.## %1,$8#,###.## &,18#,###.## +,$$8,###.## 1%,1##,###.## 1%,$##,###.## %A,&##,###.## 1+,###,###.## +,'8#,###.## A,%18,###.## $,A8#,###.## &,+$8,###.## '##,###.## +,)##,###.##
A E,posure Decem er 4.? 0//@ #.A%F %8.#&F 8.+)F ).)&F #.8AF #.+$F +.)%F 1.%'F 1.1)F %.8#F +.A1F 8.A'F &.#1F 1.1AF %.'&F 1.%%F 1.+8F #.%8F 1.11F
)A
Performance Analysis of SME: A Study on IDLC Finance Limited Service ?t*ers Bas*ing Plant Te9tile : Local Leat*er E Leat*er Products Paper E Paper Products P*armaceutical E ealt*care Products .ron E Steel 3*emicals Telecommunication (oo0s E Stationery 9otal E,posure +&,88#,###.## 1,1$#,###.## )A,%##,###.## %,&##,###.## &,'##,###.## '##,###.## %,8##,###.## '##,###.## %,###,###.## 1,+##,###.## 76?5D/?///*// 1#.)8F #.+)F 18.1)F #.$&F 1.&'F #.%8F #.$$F #.%8F #.)%F #.&#F .//*//A
Source: .DL3 Data-ase, %##A
Fi%: Sectoral E,posure of SME Financin% of IDLC

5$6C 5$:C 8$BC 8B$7C 7B$5C 5$>C 5$7C 5$9C 5$5C 5$;C 5$7C
Sectora! 02posure
4ame of Sector A)ro (ased Industries Apparels D Accessories Automo#ile Spare Parts (uildin) D onstruction Materials DED* E D D D Education En)ineerin) !ood D (e,era)e !urniture D 3elated Products &ealthcare Ser,ice(Pharmacy) &ealthcare Ser,ice(Dia)nostic entre) &ome Appliances and &ouse &old Items Information Technolo)y Mo#ile &andset D SIM* Accessories Pac.a)in) Paint D &ard- are Printin) Po- er D Ener)y Professional Ser,ices Ser,ice Athers Fashin) Plant Te2tile / Local Leather D Leather Products Paper D Paper Products Pharmaceutical D &ealthcare Products Iron D Steel hemicals Telecommunication (oo.s D Stationery
5$9C
85$;C B$9C 8$8C 5$7C 8$=C 8$7C 7$:C 8$7C 9$5C ;$5C =$>C 7$BC 5$;C =$;C 5$9C 8$=C 8$7C
;$;C
Source: .DL3 Data-ase, %##A
$#
Chapter - 06
Non Performing Loan (NPL) & Overdue Analysis
$1
7*. #e%ression Analysis: 1-erdue <ersus 9otal Portfolio of Loan

9a le: 1-erdue and 9otal portfolio of loan Date >an:#A Fe-:#A Mar:#A Apr:#A May:#A >un:#A >ul:#A Aug:#A Sep:#A ?ct:#A 7ov:#A Dec:#A >an:1# Fe-:1# Mar:1# Apr:1# May:1# >un:1# ?D1J2 8))1#++% 8$8#'#1+ 8+A1$+#1 &'$%'+'# 8&$+$)A# +$&+)$+$ &+&8+11% 8&11$$)+ )8'81&#% 8''88A%# )#&&$1#$ 8&11$$)+ &A1+$1#' &$$A%%+' +&$$+%81 +A8'AA+% +8A)8A&& +1+))+&+ Total Portfolio1U2 11+)&%+81' 11#A&$+$1) 11%8)+&)$A 118AAA1$+) 1#A$8)'$'' 11'))+8A%# 11%$%%'%1' 11$$'1A8%A 11$1&A1+8& 1#$8))#%8# 11+&%A1$A$ 11'$$&'#&+ 1%1)&A1$'% 1%%)1##&&& 1%1''%%%)% 1%')%1'#+# 1+%+++%%)+ 1+'%)'+'#&
From t*e ta-le it appears t*at J and U *ave a definite relations*ip. As U rises, J tends to decrease. (y o-serving t*e data, it mig*t -e tempting to conclude t*at as t*e total portfolio increases, lo5er 5ill -e t*e ?D. T*ese 1' data points are plotted on t*e follo5ing t5o dimensional scales, 5it* values of U along t*e *ori=ontal a9is and values of J along t*e vertical a9is.
$%

3e"ression Ana!ysis: 4D 5ersus #ota! Portfo!io
T*e regression e6uation is ?D V 18'8'+$81.8 : #.#A%+ Total Portfolio
Scatterp!ot of 4D 5s #ota! Portfo!io

65555555
;5555555
4D
B5555555
95555555
=5555555
5 55 55 5 5 5 55 55 5 B5 88 5 5 5 55 55 55 55 55 55 5 5 5 55 B5 55 87 87 8= #ot a! Port fo!io 5 55 55 5 B5 8= 5 55 55 5 55 89
5 88
Fi"ure * Figure 8 illustrates an imperfect negative linear relations*ip. As U increases in t*ese scatter diagrams, J decreases -ut not in a perfectly predicta-le 5ay. T*us, J mig*t -e slig*tly *ig*er or lo5er t*an e9pected. T*at is, t*e U:J points do not lie on a straig*t line.
Fitted %ine P!ot
AD G 8B:B:=6B8$B / 5$5>7=5 Total Portfolio 65555555
S 3/S' 3/S'(ad%) ;:96=5= BB$;C B7$:C
;5555555
4D
B5555555
95555555
=5555555
5 5 5 5 5 5 5 55 55 55 55 55 55 55 55 55 55 55 55 55 55 5 5 5 5 5 5 5 55 B5 55 B5 55 B5 55 88 88 87 87 8= 8= 89 #ot a! Port fo!io
Fi"ure +
$+
Performance Analysis of SME: A Study on IDLC Finance Limited SUMMA!J ?UTPUT Regre##ion Stati#tic# Multiple ! ! S6uare Adjusted ! S6uare Standard ;rror ?-servations A7?HA df !egression !esidual Total Coefficient# .ntercept Total Portfolio 1U2 18'8'+$81.8 :#.#A%+# 1 1) 1$ SS A.+A%8+;N1& $.8#1)A;N1& 1.)'A&%;N18 Standard 'rror %&8#)'''.$8 #.#%#)%%'8A *S A.+A%8+;N1& &.)''8);N1+ + %#.#+ #.###+ #.$&8)%$A$) #.88) #.8%' )'&$+#%.8&) 1'
t Stat ).&$#A')$1$ :&.&$)
;-alue $.$%;:#) #.###+
Lo(er 94< 1#))+1&)'.) :#.1+)#
Interpretation of t(e result: 1. !egression coefficient 13oef2 V:#.#A%+#. T*is value is t*e c*ange in J 5*en U increases -y 1. .t means 5*en t*e total portfolio amount increases -y T<. 1 t*e overdue amount decreases -y T<.#A%+. %. 3omputed t valueV :&.&$).T*e computed t value is used to test 5*et*er t*e regression coefficient Wi is significantly different from =ero. +. 3onstant V 18'8'+$81.8 .T*is value is t*e J intercept. &. T*e p value in t*e analysis of variance ta-le 1#.###+2 indicates t*at t*e relations*ip -et5een ?D and Total portfolio is statistically significant as p value is too small. T*is is
$&
Performance Analysis of SME: A Study on IDLC Finance Limited also s*o5n -y t*e p:value for t*e estimated coefficient of total portfolio, 5*ic* is #.###+. 8. ! s6uared V .88). T*e fitted regression line e9plains 88.)F of t*e variance in ?D indicating t*at t*e model fits t*e data 5ell. $. =ypot(esis testin%: o" Wi V# 1no linear relation2 Hs i" Wi X # 1 a linear relation2 F V MS!CMS; 5it* df V 1, n:%. !ejection region V FK FY Analysis of F ratio: T*e F ratio is %#.#+ in t*is A7?HA ta-le tests t*e null *ypot*esis t*at t*e regression is not significant, t*at is, F value 1df V 1, 1) Y V .#12 is '.8+. T*us t*e *ypot*esis of no significant regression is rejected at t*e 1F significance level since F V %#.#+ K '.8+. o" Wi V#. A large F value 5ill allo5 rejection of t*is *ypot*esis, suggesting a significant regression. .n t*is case t*e ta-ulated
$8
7*0 #e%ression Analysis: 1-erdue Loan -ersus )PL 9a le: 1-erdue Loan -ersus )PL
Date Han/5> !e#/5> Mar/5> Apr/5> May/5> Hun/5> Hul/5> Au)/5> Sep/5> Act/5> 4o,/5> Dec/5> Han/85 !e#/85 Mar/85 Apr/85 May/85 Hun/85 &P% 8$77C 5$>BC 5$66C 5$>>C 8$59C 8$57C 7$;6C 7$58C 8$>6C 7$58C 8$8=C 8$5>C 8$6=C 8$67C 8$78C 8$87C 8$89C 8$8=C 4D B;;85==7 B6B5:58= B=>86=58 9:67:=:5 B96=6;>5 =69=;6=6 9=9B=887 B98866;= ;B:B8957 B::BB>75 ;5996856 B98866;= 9>8=685: 966>77=: =966=7B8 =>B:>>=7 =B>;B>99 =8=;;=9=
From t*e ta-le it appears t*at J and U *ave a definite relations*ip. As U rises, J tends to rise also. (y o-serving t*e data, it mig*t -e tempting to conclude t*at as t*e ?D increases, more 5ill -e t*e 7PL. T*ese 1' data points are plotted on t*e follo5ing t5o dimensional scales, 5it* values of U along t*e *ori=ontal a9is and values of J along t*e vertical a9is.
3e"ression Ana!ysis: &P% 5ersus 4D
T*e regression e6uation is 7PL V #.##A)$ N #.#####1 ?D
$)
Scatterp!ot of &P% 5s 4D
7$B5C
7$55C &P%
8$B5C
8$55C
5$B5C =5555555
95555555
B5555555 4D
;5555555
65555555
Fi%ure 4 Figure + illustrates an imperfect positive linear relations*ip. As U increases in t*ese scatter diagrams, J increases -ut not in a perfectly predicta-le 5ay. T*us, J mig*t -e slig*tly *ig*er or lo5er t*an e9pected. T*at is, t*e U:J points do not lie on a straig*t line.
Fitted %ine P!ot

4PL G 5$55>;67 I 5$555558 AD
S 3/S' 3/S'(ad%) 5$55B8;=5 7$:C 5$5C
7$B5C
7$55C &P%
8$B5C
8$55C
5$B5C =5555555
95555555
B5555555 4D
;5555555
65555555
Fi"ure )
$$
S6MMA37 46#P6#
Regression Statistics Mu!tip!e 3 0'1++02,2+, 3 S8uare 0'02,Ad%usted 3 S'uare /5$5==7878=8 Standard Error 5$55B8;9=89 A#ser,ations 8:
A)1<A df !egression !esidual Total 1 1) 1$ Coefficient# #.##A)$% '.&)1)1;:11 SS 1.%#A);:#8 #.###&%)$%% #.###&+''1' Standard 'rror #.##)%A%%&1 1.%8)&8;:1# *S 1.%#A);:#8 %.))$#1;:#8 + #.&8) #.81#
.ntercept ?D 1U2
t Stat 1.8+'1'%#'8 #.)$
;-alue #.1&+8&&+$% #.81#
Interpretation of t(e result: 1. !egression coefficient 13oef2 V.#####1.T*is value is t*e c*ange in J 5*en U increases -y 1. %. 3omputed t valueV #.)$.T*e computed t value is used to test 5*et*er t*e regression coefficient Wi is significantly different from =ero. +. 3onstant V .##A)$%. T*is value is t*e J intercept &. T*e p value in t*e analysis of variance ta-le 1#.81#2 indicates t*at t*e relations*ip -et5een 7PL and Total portfolio is not statistically significant as p value is not too small. T*is is also s*o5n -y t*e p:value for t*e estimated coefficient of ?D, 5*ic* is #.81#.
$'
Performance Analysis of SME: A Study on IDLC Finance Limited 8. ! s6uared V .#%$'. T*e fitted regression line e9plains %.'F of t*e variance in 7PL indicating t*at t*e model does not fits t*e data 5ell. $. =ypot(esis testin%: o" Wi V# 1no linear relation2 Hs i"Wi X # 1 a linear relation2 F V MS!CMS; 5it* df V 1, n:%. !ejection region V FK FY Analysis of F ratio: T*e F ratio is #.&8) in t*is A7?HA ta-le tests t*e null *ypot*esis t*at t*e regression is not significant, t*at is, F value 1df V 1, 1) Y V .#12 is '.8+. T*us t*e *ypot*esis of no significant regression can not -e rejected at t*e 1F significance level since F V .&8) M '.8+. o" Wi V#. A large F value 5ill allo5 rejection of t*is *ypot*esis, suggesting a significant regression. .n t*is case t*e ta-ulated
+'(' #rend Ana!ysis for 4D
$A
Performance Analysis of SME: A Study on IDLC Finance Limited Using t*e data of t*e overdue loan 1?D2 of .DL3 Finance ltd. from t*e mont* >anuary %##A to >une %#1# a forecast is made for t*e ne9t five mont*s. T*e forecasted ?D is s*o5n -elo5"
Mont( 1-erdue Loan (G)
;uly 0/./ +A%8$''&
Au%ust 0/./ +'%1'+%)
Septem er 0/./ +$1$'$)'
1cto er 0/./ +)1+A%1#
)o-em er 0/./ +8#AA)8%
Fitted 9rend EFuation Jt V 8A##A&'$ : 1#+A88'Zt From t*e trend e6uation it is clear t*at, as time passes t*e overdue amount 5ill decrease it ot*er t*ings remain unc*anged. .t is e9pected, ne9t mont* t*e overdue loan amount 5ill decrease -y T<. 1#+A88'.
#rend Ana!ysis P!ot for 4D
Linear Trend Model Jt G B>55>9:6 / 85=>BB:K t 65555555
Earia#le Actual !its !orecasts Accuracy Measures MAPE 8$989:9EI 58 MAD ;$B==;8EI 5; MSD ;$96;:9EI 8=
;5555555
4D
B5555555
95555555
=5555555 7 9 ; : 85 87 89 Mont h 8; 8: 75 77
Fi%ure 6: 9rend Analysis Plot
'#
Chapter - 07
Findings & Conclusion

'1
,'1 Findin"s
T*e core competence of t*e .DL3 is to provide t*e fastest and 6uality loans to t*e clients in t*is country. To retain t*is competitive advantage .DL3 5ould provide all sorts of facilities 5*et*er t*ey can give fastest services to clients t*an ot*er -an0s. Also to convey t*e customer focus, .DL3 is trying to reduce collateral securities t*an its competitors. Moreover t*e 7on:performing Loan 17PL2 of .DL3 compare to ot*er financial institution is very lo5. T*e 7PL of .DL3:SM; varies from 1.8 to %.8 on an average over t*e mont*s. B*ereas t*e 7PL of (!A3 (an0 t*e major player of SM; loan is almost A. Finally, regression analysis and trend analysis of overdue analysis *as done. (y analy=ing t*e varia-le overdue loan and total portfolio of loan a significant negative relations*ip is found using simple regression analysis. Again analy=ing t*e varia-le overdue loan and non:performing loan no relations*ip *as found. (y trend analysis it *as found t*at overdue loan 5ill -e lo5er in t*e follo5ing mont*s.
'%
,'2 $onc!usion
.DL3 Finance Ltd. promotes -road:-ased participation in t*e (anglades* economy t*roug* t*e provision of *ig* 6uality and modern services. .DL3 is proving itself as t*e fastest gro5ing non:-an0ing financial institution and s*o5ing remar0a-le progress of its financial position 5it* t*e mission of -eing countries leading financial solution provider in a cost effective manner. SM; loan is one of suc* 6uality product t*roug* 5*ic* t*ey offer t*e small and mediocre entrepreneurs 6uality financial services and earn t*e ma9imum profit as 5ell. T*e recovery rate of t*is loan is A'F 1appro9.2 5*ic* is e9tremely good in comparison to any ot*er F.Gs recovery rate. .DL3 *as made it possi-le as t*e loan is given to e9perienced, small and mediocre entrepreneurs most of 5*om are middle aged, slig*tly educated and *aving moderate income and t*is class of people is very loyal. (ut t*ey can serve t*is class of customers 5it* more commitment and loyalty and t*ey can turn t*e recovery rate to 1##F. 3redit ris0 management practice in t*is organi=ation is really a role model for ot*er players in t*e SM; sector of (anglades*. T*e government is very muc* positive to provide all sorts of facilities for ensuring t*e gro5t* of t*is sector. So potential of t*is sector from -usiness perspective for t*e speciali=ed financial institutions is very *ig*. To gra- t*e opportunity in stepping furt*er depends on ensuring 6uality service 5it* 6uality portfolio and .DL3 is in a leading position in t*is perspective. So ensuring t*e efficiency and smoot* gro5t* of over all SM; sector needs more prudential players li0e .DL3.
'+
3eferences
Annual report %##' of .DL3 Finance Ltd. 7$ Data-ase of .DL3 Finance Ltd. =$ *ttp"CC555.idlc.com 9$ Different -oo0lets and papers of .DL3 Finance Ltd. B$ Borld (an0 (oard Paper #8.#'.%##1:MA. (anglades*, 3ountry 3ommercial @uide %##1:%##%O US ;m-assyO D*a0aO ?cto-er %##1.
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Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of Small & Medium Enterprises (SME):

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of Small & Medium Enterprises (SME):

Date of Submission: 20th May, 2011

Performance Analysis of SME: A Study on IDLC Finance Limited

//////////////////////////////// Si)nature of the super,isor Date:

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

C(apter )o* + .*/

Page 7o. viii ?1 ?1 #% #% #+ #& #8 #) #$ #A #A 11 1% 1+ 1$ 1A %# %1 %% %% %+ %& %& %8

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

.*. 1ri%in of t(e #eport

.*0 1&;EC9I<ES 1F 9=E #EP1#9

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

0*. 9=E PI1)EE#

Performance Analysis of SME: A Study on IDLC Finance Limited

0*0 S=A#E=1LDI)> S9#:C9:#E & CAPI9AL S9#:C9:#E

9a le: IDLCBs Capital Structure as of Decem er 4.? 0//@

Aut(ori2ed Capital Paid+up Capital (includin% s(are premium)

&D9 .?///*// Million &D9 4//*// Million

0*4 >:IDI)> P#I)CIPLES

0*5 P#1D:C9S A)D SE#<ICES

)ame of Product Line

#eal Estate Financin%

Lease Financin% S(ort 9erm Financin%

Performance Analysis of SME: A Study on IDLC Finance Limited

Merc(ant &an$in% Ser-ices

0*7 FI)A)CIAL PE#F1#MA)CE

Performance Analysis of SME: A Study on IDLC Finance Limited

Source: Annual Report of 2009, IDLC

Performance Analysis of SME: A Study on IDLC Finance Limited

Source: Annual Report of 2008, IDLC

Performance Analysis of SME: A Study on IDLC Finance Limited

0*8 1PE#A9I1)AL PE#F1#MA)CE

9a le: 1perational re-enues

Source: Annual Report of 2008, IDLC

Performance Analysis of SME: A Study on IDLC Finance Limited

0*D #A9I1 A)ALGSIS

Source: Annual Report of 2008, IDLC

Source: Annual Report of 2008, IDLC

0*@ SI19 Analysis

I. II. III. I$. $. $I.

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

3.0. SME in Bangladesh

Performance Analysis of SME: A Study on IDLC Finance Limited

MEDI:M 9otal Fi,ed Assets 3ort(

4*. Current Conditions of SMEs in &an%lades(

Performance Analysis of SME: A Study on IDLC Finance Limited

SME loans as percenta%e of total loans

4*0* C1)S9#AI)9S 1) SME >#1I9=

Performance Analysis of SME: A Study on IDLC Finance Limited

Performance Analysis of SME: A Study on IDLC Finance Limited

4*4*>1<E#)ME)9S #1LE 91IA#DS SME

&D9 .?///// Million &D9 4//// Million

40 C1)S9#AI)9S 1) SME >#1I9=

44>1<E#)ME)9S #1LE 91IA#DS SME

47 MA;1# &A)CSHFIs FI)A)CI)> SME SEC91#

5.SME FI)A)CI)> 1F IDLC

54 &A)>LADES= &A)C #EFI)A)CI)>

55 C:S91ME# SE>ME)9

6. P#I)CIPLES 1F S1:)D LE)DI)>

T5o 1%2 out of 5ic one 112 *as to -e a non relative.

Ta-le 8.)." Autority Delegation under te SM; Division