Islamic Finance and Investment Limited

Non Bank Financial Institution &

Lease Process
Submitted by
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Non-Bank Financial Institutions (NBFIs) play a significant role in meeting the
diverse financial needs of various sectors of an economy and thus contribute to
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the economic development of the country as well as to the deepening of the
countrys financial system !s the development process proceeds" NBFIs
become prominent alongside the banking sector Both can play significant roles
in influencing and mobili#ing savings for investment $heir involvement in the
process generally makes them competitors as they try to cater to the same
needs %owever" they are also complementary to each other as each can
develop its own niche" and thus may venture into an area where the other may
not" which ultimately strengthens the financial mobility of both
In relatively advanced economies there are different types of non-bank financial
institutions namely insurance companies" finance companies" investment banks
and those dealing with pension and mutual funds" though financial innovation is
blurring the distinction between different institutions In some countries financial
institutions have adopted both banking and non-banking financial service
packages to meet the changing re&uirements of the customers In the
Bangladesh conte't" NBFIs are those institutions that are licensed and controlled
by the Financial Institutions !ct of ())* (FI! )*) NBFIs give loans and
advances for industry" commerce" agriculture" housing and real estate" carry on
underwriting or ac&uisition business or the investment and re-investment in
shares" stocks" bonds" debentures or debenture stock or securities issued by the
government or any local authority+ carry on the business of hire purchase
transactions including leasing of machinery or e&uipment" and use their capital to
invest in companies
$he importance of NBFIs can be emphasi#ed from the structure of the
financial system In the financial system of Bangladesh" commercial banks
have emerged in a dominant role in mobili#ing funds and using these
resources for investment ,ue to their structural limitations and rigidity of
different regulations" banks could not e'pand their operations in all
e'pected areas and were confined to a relatively limited sphere of
financial services -oreover" their efforts to meet long term financing with
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short term resources may result in asset-liability mismatch" which can
create pressure on their financial base $hey also could not broaden their
operational hori#on appreciably by offering new and innovative financial
products $hese drawbacks led to the emergence of NBFIs in Bangladesh
for supporting industriali#ation and economic growth of the country
( .b/ectives of the study0
.b/ectives are to highlight different features and product base of Islamic
Finance and Investment Limited" the effects of banks entry into the
non-bank financing area" identifying the challenges faced by NBFIs in
Bangladesh
1 2ationale of choosing the topic0
Non-bank financial institutions usually lease out capital machinery to
various economic sectors" allows home loans to individuals" etc .btaining
loans from such NBFIs is easy and &uicker than banks $here is no hassle
and less time consuming in obtaining such loans 3ecurity and loan
documentation process are also easy !ll of above helped a lot in
industriali#ation of Bangladesh as well as making the dream of individuals
true having own property under home loans 3uch home loans in turn help
growth of another economic sector !s such we have chosen this topic to
highlight few issues 4 most strong positioning of NBFIs in Bangladesh
* -ethods 0
a 3ource of data
$he analyses have been conducted on the basis of the secondary
data obtained from different sources like 2eview of Banking and
Financial Institution .f Bangladesh" Bangladesh Bank !nnual
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2eport" Bangladesh 5easing and Finance 6ompanies !ssociation
(B5F6!) 7ear Book !nd Bangladesh Bank (1889)" :Financial
3ector 2eview; Bangladesh Bank<s NBFIs =uide 5ine !nd IFI5
company rules and frame work
b Basic parameters
$he basic >arameter of the Non Banking Financial Institution is
annual growth rate" their types and sector of investments and target
market against each type of investment or finance Financing
process
c !nalytical techni&ues ? tools
,irect observe vision and work with related activities and Focus
=roup ,iscussion
Basic institution(s) / issue / industry
Initially" NBFIs were incorporated in Bangladesh under the 6ompanies !ct" ()(*
and were regulated by the provision relating to Non-Banking Institutions as
contained in 6hapter @ of the Bangladesh Bank .rder" ()A1 But this regulatory
framework was not ade&uate and NBFIs had the scope of carrying out their
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business in the line of banking 5ater" Bangladesh Bank promulgated an order
titled <Non Banking Financial Institutions .rder" ()9) to promote better
regulation and also to remove the ambiguity relating to the permissible areas of
operation of NBFIs But the order did not cover the whole range of NBFI
activities It also did not mention anything about the statutory li&uidity
re&uirement to be maintained with the central bank $o remove the regulatory
deficiency and also to define a wide range of activities to be covered by NBFIs" a
new act titled <Financial Institution !ct" ())* was enacted in ())* (Barai et al
()))) Industrial >romotion and ,evelopment 6ompany (I>,6) was the first
private sector NBFI in Bangladesh" which started its operation in ()9( 3ince
then the number has been increasing and n ,ecember 188B it reached 1)
(
.f
these" one is government owned" (C are local (private) and the other (* are
established under /oint venture with foreign participation
$he ma/or business of most NBFIs in Bangladesh is leasing" though some are
also diversifying into other lines of business like term lending" housing finance"
merchant banking" e&uity financing" venture capital financing etc 5ease
financing" term lending and housing finance constituted )D percent of the total
financing activities of all NBFIs up to Eune 188B ! break-up of their financing
activities reveals that the share of leasing and housing finance in the total
investment portfolio of NBFIs has gradually decreased from C) and (C percent"
respectively" in 1881 to DB and (D percent in Eune 188B $he share of term loans"
on the other hand" has increased from 18 percent to *D percent during the same
period implying increased focus on the former $he evolvement of NBFI business
activity is observed in Figure ( It can also be seen from the figure that the
portfolio mi' of NBFIs has become &uite stable from 188D
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NBFIs offer services to various sectors such as te'tile" chemicals" services"
pharmaceuticals" transport" food and beverage" leather products" construction
and engineering etc $he percentage of the sector-wise distribution of NBFIs
investment in 188C is given in Figure 1 !lthough an individual NBFI may have a
different portfolio as per its business strategy" the aggregated data shows that
NBFIs mainly focus on real estate 4 housing ((*F)" power 4 energy ((1F)"
te'tile (((F) and transport sector ()F) 3ervice (finance and business) is
another area of importance for NBFIs From the perspective of broad economic
sectors" investment in the industrial sector (D1F) dominated that in the service
sector (**F) in 188C NBFIs are also e'ploring other sectors namely
<pharmaceuticals 4 chemicals" <iron" steel 4 engineering" <garments 4
accessories" <food 4 beverage and <agro industries 4 e&uipment $he weight of
these sectors is 1* percent of the total portfolio
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Figure 2: Sector-wise Distribution of Outstanding Investments of 2005
3ource0 B5F6! 7ear Book-188C
Products and Services Offered by NBFIs
Non-Bank Financial Institutions play a key role in fulfilling the gap of financial
services that are not generally provided by the banking sector $he competition
among NBFIs is increasing over the years" which is forcing them to diversify to a
wider range of products and services and to provide innovative investment
solutions NBFIs appear to offer fle'ible options and highly competitive products
to help customers meet their operational and financial goals $he table below
provides a summary of the product range offered by e'isting NBFIs of
Bangladesh
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Different Products and Services of !FIs
"#$e of Activit# %e# Features "arget
&ar'et (ease Financing
Finance/Capital
Lease
Operational Lease
Hire !rc"ase
Levera#ed Leases
rovide a lon#$term sol!tion
t"at allo%s c!stomers to &ree !p
%or'in# capital
(n operational lease entails t"e
client rentin# an asset over a
time period t"at is s!)stantiall*
less t"an t"e asset+s economic
li&e, It o&&ers s"ort$term
&le-i)ilit*. %"ic" ma* allo% t"e
c!stomer to ta'e advanta#e o&
o&&$)alance s"eet acco!ntin#
treatment,
( "ire p!rc"ase is an alternative
to a lendin# transaction &or t"e
e/!ipment p!rc"ase, It is
!s!all* emplo*ed &or retail or
individ!al &inancin# o& smaller
items. s!c" as cons!mer
prod!cts, Ho%ever. "ire
p!rc"ase option is also s!ita)le
&or )!siness "o!ses dependin#
on ta- practices,
Leases #enerall* &or lar#e
transactions involvin# t"ree
parties0 a lessee. a lessor and a
&!ndin# so!rce, 1"ese leases
in&!se t"ird$part* non$reco!rse
de)t !nder%ritten )* t"e
c!stomer2s a)ilit* to raise capital
in t"e p!)lic and private capital
mar'ets &or a si#ni&icant portion
o& t"e cost,
Corporate. 345s .
Individ!al )!siness
enterprises,
Corporate. 345s.
individ!al )!siness
enterprises,
Clients t"at "ave an
esta)lis"ed credit "istor*
%it" t"e instit!tion can
mana#e t"e do%n
pa*ment and ass!me a
sta'e in t"e leasin#
a#reement,
Securities Services
6ro'era#e 3ervices
C76L 3ervices as &!ll
service 7epositor*
articipant 879 4ostl*
corporate "o!ses
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"#$e of Activit# %e# Features "arget &ar'et
3*nt"etic Leases
3ale/Lease)ac's
3*nt"etic lease str!ct!re is
#enerall* provided &or propert*
t"at retains val!e over an e-tended
period o& time s!c" as aircra&t.
railroad rollin# stoc'.
man!&act!rin# e/!ipment and
certain t*pes o& real estate,
Ideal &or c!stomers loo'in# to
#enerate li/!idit* &rom t"eir
e-istin# e/!ipment and reinvest
t"e proceeds )ac' into t"e
)!siness,
4ostl* corporate "o!ses
Corporate. 345s .
individ!al )!siness
enterprises
)ome (oan and *ea+
,state Financing
Ho!se loan and real estate
&inancin# is e-tended &or p!rc"ase
o& apartment and "o!se.
constr!ction o& residential "o!se.
p!rc"ase o& c"am)er and o&&ice
space &or pro&essionals. p!rc"ase
o& o&&ice space and displa* center.
p!rc"ase and constr!ction o&
commercial )!ildin#. real estate
developer &or constr!ction o&
apartment pro;ect, 4ostl* mid to
lon# term in nat!re,
Individ!als. ro&essionals.
< Corporate 6odies
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S-ort "erm (oans
Factorin# o&
(cco!nts >eceiva)les
?or' Order
Financin#
Financin# a#ainst invoices raised
)* t"e s!pplier a&ter ma'in# t"e
deliver* s!ccess&!ll*, 4a;or
Feat!res are >evolvin# 3"ort
1erm Facilit*. ermanent
(ssi#nment o& a*ment.
Financin# a#ainst invoices. ost$
deliver* Financin#
Finance a#ainst t"e assi#nment o&
)ill arisin# o!t o& %or' orders on a
revolvin# )asis, 1"e compan*
s"all ta'e assi#nment o& s!ita)le
%or' orders and / or invoices and
&inance t"e client a#ainst t"ose,
3mall and medi!m si@e
companies "avin# re#!lar
s!pplies to corporate
)odies
4edi!m and lar#e clients
%it" contin!o!s &lo% o&
%or' orders &rom
c!stomers
.or$orate Finance
6rid#e Finance
3*ndication o& Lar#e
Loans
(dvisor* 3ervices
6rid#e Finance is a 'ind o& 3"ort
1erm Finance e-tended in
anticipation o& immediate lon#
term &inancin# s!c" as p!)lic
iss!e. private placement. loan
s*ndication. lease s*ndication.
loan. lease < de)ent!re,
4a'in# availa)le a lar#e &inancin#
&or a corporate client, (rran#e
s*ndicated &inancin# in t"e mode
o& loan. lease. e/!it*. %or'in#
capital. or an* com)ination
t"ereo&, artic!larl* !se&!l &or
lar#e pro;ects re/!irin# lar#e scale
investment and no sin#le &inancier
%ants to ta'e t"e %"ole ris',
5-ample0 Areen&ield pro;ect,
(dvisor* services are
Compan* #oin# &or an
IO or e-pectin# to avail a
lon# term loan or ?or'in#
Capital %it"in one *ear or
so,,
Financin# ne% lar#e
pro;ectB Financin# 64>5
86alancin#.
4oderni@ation.
>eplacement and
5-pansion9B >e&inancin# a
lar#e pro;ect,
(ll lar#e corporate "o!ses
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4er#er and
(c/!isition
3ec!riti@ation
compre"ensive &inancial.
economic and strate#ic advice to
companies &or #ro%t".
pro&ita)ilit*. and s!staina)ilit*,
1"is incl!des providin# %ide
ran#e o& services. s!c" as
corporate co!nselin#. pro;ect
co!nselin#. capital restr!ct!rin#.
&inancial en#ineerin#. dia#nosin#
&inancial pro)lems,
Help &ind appropriate or#ani@ation
&or )est possi)le s*ner#*. cond!ct
val!ation o& companies and select
s!ita)le mer#er and ac/!isition
met"ods. ne#otiate and e-ec!te
deal )ene&icial &or all t"e parties
involved,
3ec!riti@ation is t"e iss!ance o&
&inancial instr!ments )ac'ed )*
assets and/or cas" &lo%s, 1"is is
one o& t"e modern &inancial
services. %"ic" solves speci&ic
t*pe o& &inancial needs o& )!siness
or#ani@ations,
4edi!m and lar#e
corporate )odies
(ll corporate )odies
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"#$e of Activit# %e# Features "arget &ar'et
&erc-ant !an'ing
Iss!e 4ana#ement
Dnder%ritin#
ort&olio
4ana#ement
Corporate (dvisin#
1"e Iss!e 4ana#ement #ro!p is
capa)le o& devisin# innovative
sol!tion &or raisin# capital E de)t
e,#, placement o& )onds and
de)ent!res. and raisin# e/!it*
t"ro!#" private and p!)lic
placement E &rom t"e mar'et
s!itin# t"e !ni/!e needs and
constraints o& t"e corporate clients,
Dnder%ritin# re&ers to t"e
#!arantee )* t"e !nder%riters t"at
in t"e event o& !nder$s!)scription.
t"e !nder%riter %ill ta'e !p t"e
!nder$s!)scri)ed amo!nt on pro$
rata )asis !pon pa*ment o& price o&
t"at option

4erc"ant )an's allo% small
investors to open investor acco!nt
%it" merc"ant )an's and provide
s!pport &or t"e p!rc"ase and sales
o& s"ares , Clients s"all "ave
a)sol!te discretionar* po%er to
ma'e investment decisions,
1"ro!#" corporate advisin#. t"e
merc"ant )an' "elps t"e iss!er
anal*@e its &inancin# needs and
s!##est vario!s %a*s to raise
needed &!nds,
(ll corporate )odies
(ll corporate )odies
Individ!als. ro&essionals.
< Corporate 6odies
(ll corporate )odies
Securities Services
6ro'era#e 3ervices
C76L 3ervices as
&!ll service 7epositor*
articipant 879
rovide services &or 1rade
5-ec!tion 87"a'a and C"itta#on#
3toc' 5-c"an#es9. re $IO private
placement. (sset allocation advice.
Opport!nities &or tradin# in
di&&erent &inancial instr!ments,
(part &rom t"e )ro'era#e services.
sec!rities services also provide t"e
services li'e 6O 86ene&icial
O%ner9 acco!nts openin# and
maintenance. 7emateriali@ation.
>e$materiali@ation. 1rans&ers and
m!ltiple acco!nts movement.
Lendin# and )orro%in# etc,
(ll corporate )odies
Individ!als. ro&essionals.
< Corporate 6odies
12
Company Profile and Bac!round
$he government of Bangladesh in ())( decided to allow private capital
investment to take initiative concerning the formation of new and dynamic
financial institution $his company is a public limited company within the meaning
of clause of section 1(() of companies act" ())D in Bangladesh fully owned by
Bangladeshi nationals
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Islamic Finance and Investment 5imited (IFI5) was incorporated on February 1A"
188( as a >ublic 5imited 6ompany with the 2egistrar of Eoint 3tock 6ompanies
(2E36) under the 6ompanies !ct ())D with the following 6apital 3tructure0-
!uthori#ed 6apital 0 $k(88 .fficerre
3hare %olders G&uity 0 $k*B8CC .fficerre
>aid Hp - $k1ADA9 .fficerre
3tatutory 2eserve - $k*A))C .fficerre
2etained Garnings - $kDAAAB .fficerre
$he Bangladesh Bank (BB) issued license to IFI5 to operate as NBFI on !pril (1"
188( IFI5 started its commercial operation (Investment) on !pril ()" 188( with
establishment of its registered at Noakhali $ower" CC" >urana >altan" ,haka-
(888" Bangladesh by 1* Bangladeshi businessman In !ugust 188( IFI5 shifted
its registered .ffice to the present address at 6hand -ansion" BB" ,ilkusha 6?!"
,haka-(888 From the very beginning of its operation" IFI5 is playing an
important role in private sector leasing and real estate business !s a full fledged
financial institution it receives deposits and e'tend Investments through better
counseling and effective services to the client for the socio-economic
development of the country $he company continued to be a ma/or financier to
Industrial sector and has also supported sectors like 2eal Gstate" $rading and
other sectors
IFIL Investment Products"
!s the market and client demand may dictate" IFI5s principal activities remain
focused on the followings0
Lease Finance
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5easing is the core business of the IFI5 $he IFI5 is carrying on business of lease
financing transactions of capital goods" plants and e&uipment" etc for large to
3mall and -edium si#ed industries both corporate and retail in nature 3ome of
the preferred terms and conditions are as follows0-
2unning pro/ects having business prospect and profitability for at least last
1 years
Investment amount - !s per credit worthiness of the customer
$enure - D9 to B8 months
>rofit rate - (AF-()F depending upon the inherent risk of the pro/ect
#eal $state Financin! (%ire Purc&ase S&iratul 'el(%PS')
%>3- is the another core product of the IFI5IFI5 provides real estate financing
under %>3- to its customers which includes %ouse building construction"
finishing and renovation" Flat purchase" Factory construction" 6ommercial space
and shops purchase 3ome of the preferred terms and conditions are as follows0-
>ro/ects at development stage+ for Flats and 3hops" we prefer ready
flat?shop financing
Investment amount - !s per credit worthiness of the customer
$enure - -a'imum B8 months
>rofit rate - (AF-()F depending upon the cash flow of the customer
Bai 'ua))al Financin! (B*I')"
IFI5 provides Bai -ua//al Financing ($rade Finance) by way of purchasing
products for its clients for the ultimate sale by the client to their customers In
nature it is $rading finance which buying of cloths" 2aw -aterials" >apers"
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=eneral items for shops etc 3ome of the preferred terms and conditions are as
follows0-
Business having good prospects and cash flow as well as profitability
Investment amount - !s per credit worthiness of the customer
$enure - -a'imum *B months
>rofit rate - (AF-()F depending upon the cash flow of the customer
S'$ Finance"
IFI5 e'tends 3mall and -edium Gnterprise (3-G) Financing to cater their
business needs 3-G is an investment scheme for the purpose of raw
materials?goods?commodities and?or fi'ed asset purchase to the small and
medium si#ed trading" manufacturing" service" agriculture" non-farm activities"
agro based industries etc 3ome of the preferred terms and conditions are as
follows0-
Business having good prospects and cash flow as well as profitability
Investment amount - !s per credit worthiness of the customer
$enure - -a'imum D9 months
>rofit rate - (9F-()F depending upon the cash flow of the customer
Pro)ect Finance"
$he 6ompany provides" or arrange financing" for specific pro/ects of any si#e It
assist its clients" also" in the planning and implementation of such pro/ects
IFIL +eposit Products"
IFI5 being a licensed Financial Institution operating under Bangladesh Bank is
also authori#ed to take deposits from =eneral >ublic" 6orporate bodies"
=overnments and 3emi-=overnments institutions $he Board of ,irectors in its
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9Dth meeting approved actual profit rate of (8()F for ( weightage.n the basis
of this actual rate provisional rates of profit on different dispost products are
determined to be as follows0
Product Name"
,-'.+
(-udaraba $erm ,eposit)!t maturity
/-'.+
(-udaraba $erm ,eposit) -onthly
Basic rules for -$,
-udaraba $erm ,eposits can be opened by che&ue" pay order or bank
draft from individuals (single and /oint)" firms (propietorship?partnership)"
limited companies" autonomous bodies" charitable institutions"
association" educational institution" local bodies" trusts" etc
$he account holder is not allowed to withdraw the amount before maturity
date But on obtaining the IFI5Is prior consent the depositor(s) may
withdraw the deposit before maturity without any profit ie no profit no loss
basis
If the profit amount is not withdrawn it will automatically be added to the
principal amount annually and the entire amount will earn profit?loss
-atured deposit if not encashed within one month of maturity" the deposit
shall automatically be renewed for the period one year
,epositors can avail Juard up to A8F of their deposit amount for -$,(!t
maturity) ( year"1 years"* years 4 above
$he IFI5 retains the right of refusing to accept any deposit from any
person in -$, account without assigning any reason
$he IFI5 reserves the right to add or alter any or all the rules
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Sc&emes"
,-'udaraba Pension +eposit Sc&eme

/-'udaraba %ouse O0nin! +eposit Sc&eme
1-'udaraba %a)) +eposit Sc&eme

2-'udaraba %i!&er $ducation 3 'arria!e +eposit Sc&eme
Ot&er attractive sc&emes"
'udaraba Special +eposit Sc&eme
'udaraba 'arria!e Savin! Sc&eme
'udaraba 'o&or +eposit Sc&eme
'udaraba $ducation Savin! Sc&eme
Basic rules for Sc&emes"
!ny desirous person may open the !?6" deposited on monthly basis
-onthly installments have to be deposited by (Cth of each month
!ny depositor may open one or more account in the same name in the
same branch
$!K" @!$" G'cise ,uty as applicable by =overnment will have to be borne
by the depositor
IFI5 has the authority to change?amend the rules and regulations
regarding the scheme as and when re&uired and the depositor must abide
by the rules
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In case of ,eath of the depositor the amount payable will be paid to the
nominee If there is no nominee by submitting 3uccession certificate the
amount will be paid to legal successor of the depositor
A$$rova+ Process of (ease /)PS&/!AI&/S&,
Basic *ppraisal of lease/%PS'/BI*'/S'$
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Business or pro/ect appraisal is a techni&ue of evaluating and analy#ing
Business from various aspects" primarily the risks associated with that business
enterprise !t the time of appraisal of any manufacturing" trading or service
related organi#ation" factory or industry+ one has to perform a feasibility study on
the different aspects $hese are0
a -anagement and >ersonal !spects
b $echnical !spects
c -arketing !spects
d Financial !spects
e 3ocial Gconomic !spects
f 3ecurity !spect
a- 'ana!ement and personal aspects" ,uring the appraisal prosecute the
.fficer should endeavor to obtain details about the prospective borrowers" some
of which are0
i Business related information
ii 6redit %istory
iii 5i&uidity Information
iv -anagement Background
In considering the above" one should look at the business is managed $he
.fficer should also consider clients previous credit history like facilitates sought
and availed" loan repayment an overdue record" if any
.ne should also check the client bank account and amount of balance
maintained -anagements &ualification" e'perience" successor and
maintenance of records should provided insight in to the business
b- .ec&nical *spects" From a business perspective" this aspects deals with
design of the system in place" the operation of the business" the different type of
physical resources used" the technology used" the capacity to handle business
and all other inputs (labor" raw materials" utilities etc)
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!mong the technical factors to be investigated during an appraisal are0
$he si#e of pro/ect
$he process" materials" e&uipment" and reliability of technical systems to
be used
5ocation of pro/ects
3ustainability of the plans" layout and design used
$otal &uantity of the goods ?3ervice produced?$raded monthly
Gnvironment of the business and its surrounding areas
!vailability to various factors of production" both physical and human
2aw materials availability" price level and its variation to be considered
c- 'aretin! *spects" ! Investment .fficer should consider the following
factors of a business before making any loan commitment with a customer0
$otal demand and supply of the products in the market that the business
operates in growth of sales and ma/or marketing threats that the business
may face
d- Financial *spects" $his aspects allows us to check the financial health of a
business" $hrough an analysis of the profit and loss account" balance sheet"
cash flows" ratios and re&uirement of working capital If the collection of the
financial data can be done properly" then it may be able to make a somewhat
realistic picture of the business financial position %ow ever" all the data collected
must be .fficerss-checked as much as possible with the physical features of
business
$he following things are to be considered and determined at the time of verifying
the financial feasibility of the business0
6urrent years profit?5oss of the business and probable profitability of
business after taking the loan
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,etermination of assets" liabilities and net worth of the manufacturing?
trading ? service institution before and after taking loan
>resent net cash flow of the business after disbursement of loan should
be determined"
$o know the cash position of the institution
$o know the source of income" production and other e'penditure of the
business probable financial risks of the business
e- Socio $conomic *spects" %ere the analyst like to observe the contribution of
the business to the countrys =,>" the employment generated" the sort of
adverse impact of the business on the environment" if an other benefit to the
country
f- Security *spects" !long with observation of different aspects and views of the
pro/ects" the .fficer should also see closely the aspects of the pro/ects and
ensure about the reliability to the mortgaged property?assets Gnsure proper
survey or verification of the security offered Gnsure attachment of survey report
Or!ani4ational layout of IFIL S'$ loan
( !ccount ,ivision
1 Investment ,ivision
* I$ ,ivision

#eason of S'$ pro!ram from t&e vie0 point of IFIL
$he main focus of IFIL is to develop human and economic position of a country
Its function is not limited only to providing and recovering of loan But also try to
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develop economy of a country 3o reason for this program from the viewpoint of
IFIL are0
a Support Small $nterprise" $he small enterprise which re&uires 1 to *8
lacks taka loan" but these has no easy access to the banks?financial
institutions For e'ample0 In the of * to 9 lacs amount of loans is provided
without any kind of mortgage
b $conomic +evelopment" Gconomic development of a country largely
depends on the small and medium seal enterprises 3uch as" if we
analy#e the development history of Eapan" the development of small 4
medium scale enterprises e'pedite the development of that country
c $mployment 5eneration" $he bank gearing employment opportunities
by two ways0
Firstly" by providing loan to the small enterprises e'panding" these
business re&uires more workers
3econdly" 3mall 4 -edium Gnterprise (3-G) program re&uires
educated and energetic people to provide savories to entrepreneurs
d Profit 'arin!" 3-G program is a new dimensional banking system in
the banking world -ost of the .fficers are providing door to door services
to the entrepreneurs $he entrepreneurs are satisfied by the service of this
bank and the bank also makes more profit
e $ncoura!e 'anufacturin!" ! focus of IFI5 is to encourage
manufacturing by the entrepreneurs who are producing by purchasing
various types of materials .fficers try to educate them to produce
material if possible because if they can produce in line of purchase profits
will be high
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f Spread t&e e6perience" !nother reason of IFI5 is to spread the
knowledge of regarding various businesses $he customer services officer
get knowledge from various businesses is and try to help the
entrepreneurs who have shortage of the gathered knowledge by .fficers
$he .fficers who are the driving force of Investment division of IFI5 also gather
knowledge about various businesses and make stronger knowledge base
Security and +ocumentation *!ainst Lease/BI*'/SPS'/ S'$
! document is a written statement of facts and a proof or evidence of particular
transaction between parties involved Lhile allowing any disbursements against
credit facilities to borrowers" it should be ensured that prior to any disbursements+
security documentation is fully and properly completed
Purpose of +ecorate +ocumentation and its Importance
,ocumentation is necessary for the acknowledgement of a debt and its terms
and conditions by the borrower and the creation of charge on the securities in
favor of the IFI5 by the borrower 6orrect and proper documentation allows a
bank to take legal measures against the borrowers in the of non-payment of the
debt
If filing a suit with the courts against a default borrower becomes necessary" the
court will first review all documents If any of the documents is found to be defect
or incomplete" the very purpose of security documentation will be defeated and a
court ruling in favor the bank can not e'pected >roper care should" therefore" be
taken while completing security documentation
.ype of Securities
$he following listed securities may be obtained from borrower against loan to
enterprises" either individually or in a combination It is really up to the bank what
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they would like to accept as security from the borrower as not all the securities
stated below are suitable0
-ortgage of loan and other immovable property with power of attorney to
sell
5ien of Fi'ed ,eposits receipts with banks and other non-banking financial
institutions" lined" these have to confirmed by the issuer ( Now these are
rarely accepted)
5ien of >ratirakshay sanchay patra" Bangladesh sanchay patra" I6B unit
certificates and wage earner development bond" all considered Juasi or
Near cash items !ll these instruments" one liend" have to be confirm by
the
5ien of shares &uoted in the stock e'change ( $his is rarely accepted)
>ledge of goods (Banks are akin to stay away from such securities now a
days)
%ypothecation of =oods" Book ,ebt 4 2eceivables" >lant 4 -achineries
6harge on fi'ed assets of a manufacturing enterprise
5ien of che&ue" ,rafts and order
5ien of work orders" payment to be routed through the bank and confirmed
by the issuer
3hipping documents of imported goods
Land related securities documentation process
Gach 3-G unit office will lilies with at least two local lawyers who will work on
behalf of the bank $hese always will be employed whenever a loan sanction is
accepted by a borrower and where the security will be landed and immovable
property
!ny one of the lawyers will be provided with photocopies of all the relevant land
related documents and while handing over show the original documents to them"
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$he lawyers will carry out checks of the originals and if satisfied returned to the
borrower $he documents generally provided are0
$itle ,eeds or ,eed of conveyance otherwise known as <Eomeer ,alil
which signifies ownership of a particular land
Baya ,alil or 6hain of ,ocuments which signifies that the conveyance of
titles has been proper and legal
-utation 6ertificate if Mhatian which signifies that the title if the land has
been duly registered in the =overnment?3ub-registerars records
,uplicate 6arbon 2eceipt or ,62
5atest Mha/na or land rent receipt
>urchase such as 63 Mhatian" 3! Mhatian and B3 Mhatian
-ou/a -ap
-unicipal rent receipts if the land falls within a municipal area
$he lawyer will then carry out a search at the 3ub-registrar of lands office to
check if the proffered land is actually registered in the name of the proposed
mortgagor and whether the said land is free from any encumbrances $he 3ub-
registers office" which means that the land or immovable property can be
mortgaged to the bank" then the lower" will provide his own opinion on the
acceptability of the property" whether it is legally held and e'plain the chain of
ownership
If all is acceptable" the lawyer will draw up the -ortgage ,eed that will be
registered" the irrevocable power if attorney to sell the land and the
-emorandum of ,eposit of $itle ,eed
$he lawyer will have the borrower or the -ortgagor" if different or *
rd
party" sign
the documents in front of the 3ub-registrar of land to register the mortgage" $he
.fficer must ensure that the receipt for the original -ortgage deed must be
signed off (,ischarged) at the back of the receipt so that the bank may obtain the
originals in the future $he borrower will bear all the charges and will pay directly
at the 3ub-2egistrars office including the cost of the stamp paper re&uired
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$he cost of the lawyer will also be reali#ed from the borrower be an account
payee che&ue in favor of the lawyer and handed over to the lawyer straight away
$he charges related to the creation of mortgagee and other associated costs are
incorporated in a separated sheet and are attached herewith
$he .fficer will have all other security documents" as sent by 3-G %." signed by
the borrower and hand carry all the security documents including all the original
land documents and deliver those to the credit administration officer who will
check the list of documents and receive those through a check list in writing $he
credit administration officer once satisfied will prepare the disbursement memo to
disburse the loan
.&ere are t0o type of mort!a!ee7s t&at are popular and usually accepted in
Ban!lades& :
i) $8uitable 'ort!a!e or 'emorandum of +eposit of .itle +eeds
It is created by a simple deposit of title deeds supported by a -emorandum of
,eposit of $itle ,eeds along with all the relevant land documents !ll the
searches and verification of documents as stated above must be carried out to
validate the correct ownership of the property $his deed also provides the bank
power to register the property in favor of the bank for further security" if needed
ii) #e!istered 'ort!a!e
It is created by an e'ecution of a -ortgage ,eed registered irrevocably in favor
of the bank at the 3ub-2egistrar of lands office $his virtually gives the bank the
right to posses and self if accompanied with a registered irrevocable power of
attorney to sell the property e'ecuted by the owner of the property" in case of
default
Basic C&ar!e +ocuments
Sanction Letter
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.nce a loan is approved" the borrower is advised by a <3anction or offer letter
which states the terms and condition s under which all credit facilities are offered
and which forms an integral part of there security documentation If the borrower
accepts" then a contract between the IFI5 and the borrower is formed and which
both party are obligated to perform !ccordingly" all other charge documents and
securities are drawn up and obtained ! standard sanction letter is attached
herewith
!ll documents shall be stamped correctly and ade&uately before or at the time of
e'ecution !n un-stamped or insufficiently stamped document will not form basis
of suit 3tamps are of D (Four) kinds $hese are Eudicial" Non /udicial" !dhesive
and Gmbossed impressed
,ocuments to be e'ecuted (3igned) by the borrowers concerned must be
competent to do so in official capacity Following precautions should be taken at
the time of e'ecution of the security documents0
$he signature on the documents should be made in the presence of the
.fficer $he .fficer should sign as witness on all charge documents
$he document are to be filled in with permanent ink or typed
If the document consist more than I page" the borrower should sign on
each page
If the signature of any third party is re&uired to be obtained whose
specimen signature is not available" then the main applicant should verity
the specimen signature of the third party
No document or column in any document should remain blank
!s far as possible there should be no erasure" cancellation or alternation
in the document If" however" there is any correction" overwriting or
alteration" then that must be authenticated by a full signature of the
signatory
!fter stamping and e'ecution of documents" the &uestion of registration comes
up %owever" not all documents are re&uired to be registered
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For the e'tension of any type of credit?loan facility" the following loan documents"
which are considered basic" should be obtained from all borrowers0
,emand >romissory Note
5etter of 6ontinuity ( $his is not always taken if there is only loan
disbursement)
5etter of !rrangement
=eneral 5ease? %>3-?B!I- ?3-G 5oan !greement
5etter of ,isbursement
=eneral 5oan !greement
5etter of ,isbursement+ Basically a letter re&uesting disbursement of the
loan
5etter of Installment" in case the facility is to be repaid in installment
Ot&er Basic C&ar!e +ocuments
i) +emand Promissory Note (+P Note)
It is a written promise by a borrower to pay the whole amount of e'isting or future
loans?credit facilities on demand It also gives the banks power to ask the
borrower to repay the loan amount with interest without any prior notice
3ection D of the Negotiable Instrument !ct (99( defines a promissory note as an
instrument in writing" signed by the maker" to pay a certain sum of money only to"
or the order of" a certain person" or to the bearer of the instrument" following
precautions are to be taken while preparing a promissory note
$ype the amount of the credit facility?loan in words and in figures
$ype the rate of interest for the loan which the borrower will sub/ect to verify the
signature of the borrower
ii) Letter of Continuity
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$his instrument is used in con/unction with the demand promissory note $his is
to secure rights of recovery for e'isting and future credit facility" which are
advanced in parts or on a recovery basis 5oan accounts may from time to time
be reduced or even the balance in the said loan account may be in credit so this
instrument" validates the said ,> Note" for making further drawings under the
facility continuously possible
iii) Letter of *rran!ement
$his is a right given by the borrower to the bank to cancel the facility at any time
without having to assign any reason $his is also an acknowledgement by the
borrower that the credit facility has been approved in his favor and the borrower
has to e'ecute all necessary documents to avail credit facility
I9) 5eneral Lease *!reement
! loan agreement is an agreement of contract stating the general terms for the
e'tension of a loan or credit facilities $he =eneral loan agreement sets out the
general standard terms and conditions governing the e'isting or future e'tension
of loan or erudite facilities to the borrower
v) Letter of +isbursement
$his is simple a letter re&uesting disbursement of the loan?credit facilities at the
agreed rate of interest
Ot&er Security +ocuments
i) Letter of :ndertain!
$his is a ,eed of agreement e'ecuted by the borrower agreeing to commit to
carry out any or a particular obligation to avail of loan?credit facility
ii) Letter of %ypot&ecation of 5oods 3 Stocs and Boo +ebt and
#eceivable"
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$hese letters %ypothecation are actually two different sets of documents but
because of their similarity" these are being e'plained together $hese documents
create an e&uitable or floating charge in favor of the bank over the goods and
services and? or book debts and receivables that are being financed where
neither the ownership nor the possession is passed to the bank Hnder this
agreement" the borrower undertakes to keep the percent stock of goods and that
which may increase from time to time in future in good condition $his
hypothecation gives the bank the power to possesses and sell the mentioned
goods and stocks or claims the book debts directly from the debars in order to
settle the borrowers dues to the bank
iii) Letter of %ypot&ecation of Plant 3 'ac&inery
Hnder this agreement" the Borrower undertakes to keep the present plant and
machinery at the present location in good condition and which gives the bank the
power to posses and sell the mentioned plant and machinery to meet the
borrowers dues to the bank
In case of limited company" both private and public" these 5etters of
%ypothecation with schedules are usually registered with the 2egistrar of Eoint
3tock of 6ompanies (2E36) which provide more security to the banks
lv)Letter of Lien
! lien the right of one person to retain property in his hands belonging to another
until certain legal demands against the owner of the property by the person in
possession are satisfied $hus a bank or a creditor who has in its possession a
lien over the goods in respect of the money due by the borrower" as a general
rule has the right to e'ercise certain powers to hold on to the security In addition"
if the bank has right to set off the value of the said goods or instrument in its
possession" then the bank can sell the goods or encase the instrument to
li&uidate the dues by the borrower
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v) #i!&t of Set Off
$his deed of agreement gives the bank the right to offset the value of the goods
or financial instrument in its possession and which has been discharged by the
owner of that asset" against dues owned by the borrower
vi) Letter of +isbursement
$his agreement gives the bank the right to possess goods and other assets in a
rented or leased premises of the borrower despite the fact that owner or the
premises may be unable to reali#e dues from the borrower himself
vii) Personal 5uarantees
$his is a guarantee of a person or third who is not the direct beneficiary of the
loan?credit facility" but is e&ually liable for the loan $he involvement of a *
rd
party
creates additional pressure on the borrower to minimi#e the risk $he guarantor is
the has to pay the entire outstanding loan and interest if the borrower fails to pay
for any reason
Selection of Potential $nterprise for S'$
$nterprise Selection Criteria
$he success of 3-G will largely depend on the selection of a business and man
behind it In terms of the business (Gnterprise)" the following attributes should be
sought0
( $he business must be in operation for at least one year
1 $he business should be environment friendly" no narcotics or tobacco
business
* $he business should be legally registered" ie" valid trade license" income
ta' or @!$ registration" wherever applicable
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D $he business should be in legal trade" ie+ smuggling will not be allowed
or socially unacceptable business will not be entertained
C $he business must have a defined market with a clear potential growth
B $he business must be located ideally close to the market and the source
of its raw materials?suppliers It should have access to all the utilities"
skilled manpowers that are re&uired
A !ny risk assessed by the management in turn will become a credit risk for
the bank 3o effort should make to understand the risk faced by the
business
$ntrepreneur Selection Criteria
In order to understand the capability of the management behind the business" the
following should be assessed0
( $he entrepreneur should be physically able and in good health" preferably
between the age of 1C-C8 If he?she is an elderly person closer to C8" it
should be seen what the succession process will be and whether it is
clearly defined or not
1 $he entrepreneur must have the necessary technical skill to run the
business" ie academic background or vocational training" relevant work
e'perience in another institution or years of e'perience in this line of
business
* $he entrepreneur must have and acceptable social standing in the
community (>eople should speak highly of him)" he should possess a high
level of integrity (,oes not cheat anyone" generally helps people)" and
morally sound (>articipates in community building)
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D $he entrepreneur must possess a high level of enthusiasm and should
demonstrate that he is in control of his business ( 6onfidently replies to all
&ueries ) and has the ability to take up new and fresh challenges to take
the business forward
C 3uppliers or creditors should corroborate that he pays on time and is
general in nature
B 6lear-cut indication of source of income and reasonable ability to save
5uarantor Selection Criteria
G&ually important is the selection of a guarantor $he same attribute applicable
for an entrepreneur is applicable to a guarantor In addition he should posses the
followings0
( $he guarantor must have the ability to repay the entire loan and is
economically solvent ( 6heck his net worth)
1 $he guarantor should be aware about all the aspect of 3G,F loan and his
responsibility
* =ovt and semi-govt officials can be selected as a =uarantor such as
schoolteacher" college teacher" doctor etc
D >olice" B,2 and !rmy persons" political leaders and workers" and Imam
of mos&ue can not be selected as a guarantor
C $he guarantor should know the entrepreneur reasonable well and should
preferably live in the same community
.erms and Conditions of Lease ;%PS'; B*I'/S'$ Loan
$he 3-G department of IFIL will provide small loans to potential borrower under
the following terms and condition0
$he potential borrowers and enterprises have to fulfill the selection criteria
$he 5ease?3>3-?B!I-?3-G amount is between tk ( lac to (888 lacs
3-G will impose loan processing fees for evaluation ? processing a loan
proposal as following+
( 3ervice fee is 81CF of total
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1 ,ocumentation fee is 8C8F of total
Lease; B*I';%PS' and S'$ can be repaid in t0o 0ays"
a) In e&ual monthly loan installment with monthly interest payment"
or
b) By one single payment at maturity" with interest repayable a
&uarter end residual on maturity
5ease? 3>3-?3-G 5oan may have various validates" such as" *
months" D months" B months" ) months" (1 months" (C months" (9
months" 1D months" *8 months and *B months
$he borrower must open a bank account with the same bank and
branch where the 3-G has its account
5oan that approved will be disbursed to the client through that account
by account payee che&ue in the following manner0 Borrower name"
!ccount name" Banks name and Branchs name
$he loan will be reali#ed by (
st
every months" starting from the very
ne't months whatever the date of disbursement" through account
payee che&ue in favor of IFIL !?6 Lith Banks named and branches
name
$he borrower has to issue an account payable blank che&ue in favor of
IFIL before any loan disbursement along with all other security
$he borrower will install a signboard in a visible place of business of
manufacturing unit mentioned that financed by :IFIL;
$he borrower has to give necessary and ade&uate collateral and
other securities as per banks re&uirement and procedures
3-G" IFIL may provide (88F of the Net 2e&uired Lorking 6apital but
not e'ceeding ACF of the aggregate value of the Inventory and
!ccount 2eceivables 3uch loan may be given for periods not
e'ceeding D9 months 5oan could also be considered for shorter
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periods including one time principal repayment facility" as stated in
loan product sheet
In case of fi'ed asset Financing C8F of the ac&uisition cost of the fi'ed
asset may be considered Lhile evaluating loans against fi'ed asset"
ade&uate grace period may be considered depending on the cash
generation after the installation of the fi'ed assets -a'imum period to
be considered including grace period may be for *B months
'onitorin!
-onitoring is a system by which a bank can keep track of its clients and their
operations 3o monitoring is an essential task for a .fficer to know the borrowers
activities after the loan disbursement $hese also facilitate the build up of an
information base for future reference
Important of 'onitorin!
$hrough monitoring a .fficer can see whether the enterprise invested the
sanctioned amount in the pre-specified area of his business" how well the
business is running" the attitude of the entrepreneur" cash credit sales and
purchase" inventory position" work in process and finished goods etc" $his
information will help the .fficer?IFI5 to recover the loan accruing to the schedule
and to take the necessary decisions for repeat loans -oreover" monitoring will
also help to reduce delin&uency 6onstant visit over the client ?borrower ensures
fidelity between the bank and the borrower and tends to foster a report between
them
*rea of 'onitorin!
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$he purpose is to know the entire business condition and all aspects of the
borrowers so that mishap can be avoided
a- Business Condition"
$he most important task of the .fficer to monitor the business fre&uently" it will
help him to understand whether the business is running well or not" and
accordingly advice the borrower" whenever necessary $he fre&uency of
monitoring should be at least once month if all things are in order
b- Production"
$he .fficer will monitor the production activities of the business and if there is
any problem in the production process" the .FFI6G2 will try to help the
entrepreneur to solve the problem .n the other hand the .FFI6G2 can also
stop the misuse of the loan other than for the purpose for which the loan was
disbursed
c- Sales"
-onitoring sales proceed is another important task of the .FFI6G2 it will help
him to forecast the monthly sales revenue" credit sales etc which will ensure the
recovery of the monthly loan repayments from the enterprise as well as to take
necessary steps for future loans
d- Investment"
It is very important to ensure that the entire loan has been invested in the manner
invented If the money is utili#ed in other areas" than it may not be possible to
recover the loan
e- 'ana!ement of ra0 materials"
In case of a manufacturing enterprise" management of raw materials is another
important area for monitoring If more money is blocked in raw materials then
necessary" then the enterprise may face a fund crisis .n the other hand the
production will suffer if there is not enough raw materials
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'onitorin! System
a- .&e Officer can consider t&e follo0in! t&in!s for monitorin!"
$he .fficer will monitor each business at least once a month %e will make a
monitoring plan? schedule at beginning of the month
,uring monitoring the .ffice must use the prescribed monitoring from and
preserve in the client file and forward a copy of the report to the head office
immediately
b- * branc& 0ill maintain t&e follo0in! files"
$he file will contain
>urchase 2eceipt"
,elivery -emos"
Juotations and !ll other papers related to furniture and fi'ture procurement
c- Ot&er fi6ed assets and refurbis&ment
!ll fi'ed assets and refurbishment related papers such as purchase
receipt" ,elivery memos" Juotation" =uarantee and Larrantee papers"
3ervicing related papers and any other paper related to fi'ed assets are
refurbishment will be in this file
d- Lease a!reement file
$his file will contain all papers related to lease agreement between the office and
owners of the leased premises
e- Individual client file
Individual files are to be maintained for each borrower and will hold loan
application" 5oan >roposal" 6opies of 5oan 3anction 5etter" ,isbursement
-emo" -onitoring 2eport" 6IB application and 2eport" 6redit report from
other bank and all other correspondents including bank receipt
f- Statement file
!ll types of statement sent to %ead office will be kept in this file
chronologically
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!- Office instruction file
!ll kind of office instruction regarding administration should be kept in this
file
&- Operatin! instruction and !uideline files
!ll kind office instruction and guidelines related to operating should be
kept in this file
i- Ne0 forms introduction file
!ll minutes of meeting" whenever held" should be kept in this file
)- Security documents and le!al aspect file
.ne set of security documents and lawyers opinions and suggestions
regarding issue will be kept in this file $he original should be send to 3-G
head office on a weekly basis
- Survey form file
!fter conducting survey" all survey will be kept in this file chronological
Customer %andlin!
In our country there are about C1 banks and 1) financial institutions working
with the people with varieties of their attractive products and services and
there is a high level amongst competition each other For sustaining" they
offering various types of innovation for better service for the clients" so" to
reach the closer best to the clients direct marketing gaining momentum in the
country In terms of 5ease" %>3-" B!I- and 3-G its targeted entrepreneurs
are the sub/ect of dealings to achieve the ob/ectives of IFI5 and its policy is to
contact with clients directly with a confident manner 3ome key activities of a
.fficer0
6onducting 3urvey >roperly
Individual contact with entrepreneur for selecting potential borrower
,eliver IFI5s products and other services
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Meeping in close touch with clients to develop mutually beneficial long
term relationship
$here are two types of dealings which customer services officer do as follows0
#e!ular " $he main duty of a .fficer is to search new potential customer by
providing door to door services $hey talk with clients and monitor their manners"
activities of their business and then provide the loan of the potential customers
:ni8ue" $hey also handle some uni&ue customers who come to their unit offices
to get the loan Gspecially these clients demand (8-18 lacs for their business In
this case" clients have to provide collateral securities in favor of IFI5 $he
securities may be land or fi'ed deposits It takes little bit of time to disburse the
loan for an .fficer
C&allen!in! Issues for NBFIs in Ban!lades&
(a) Sources of u!ds
NBFIs collect funds from a wide range of sources including financial instruments"
loans from banks" financial institutions" insurance companies and international
agencies as well as deposits from institutions and the public 5ine of credit from
banks constitutes the ma/or portion of total funds for NBFIs ,eposit from public
is another important source of fund for NBFIs" which has been increasing over
the years NBFIs are allowed to take deposits directly from the public as well as
institutions !ccording to the central bank regulation" NBFIs has the restriction to
collect public deposits for less than one year" which creates uneven competition
with banks as banks are also e'ploring the business opportunities created by
NBFIs with their lower cost of fund !lthough recent reduction of the minimum
tenure of the term deposit from one year to si' months for institutional investor
has had a positive impact on their deposit mobili#ation capacity NBFIs can
develop attractive term deposit products of different maturities to have access to
public deposits as these are one significant source of their funds
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(b) Cost of u!d
$he structure of cost of fund for NBFIs does not follow any uni&ue trend
Baner/ee and -amun (188*) showed that weighted average cost of fund for the
leasing companies is always positioned much higher than that of banks
!ccording to their study" cost of funds for leasing companies varied between (1C
to (CC percent while that of banks was between 9C to )C percent 6houdhury
(188() mentioned that about (C percent of the deposit of the banking sector was
reported to be demand deposits" which are interest free while *C percent
constituted low cost saving deposits having an average of D to C percent interest
rate and the rest were fi'ed deposits bearing an average of ) percent interest
rate $hus the weighted average cost of fund for banks would be at best A to 9
percent" which is almost half of that of IFI5
(c) Asset"#iabi$ity Mismatc%
!sset-liability mismatch is another cause of concern for NBFIs ,emand for funds
to meet the increasing lending re&uirements has increased many times But the
availability of funds has become inade&uate as NBFIs are mostly dependent on
loan from commercial banks International Finance 6orporation (())B) observed
that leasing companies are in a great dilemma while managing the mismatch
between their asset and liability !ccording to IF6" the average weighted life of
the companys business portfolio should be less than the average weighted life of
its deposits and borrowing in its operating guidelines for a leasing company .nly
one company in Bangladesh was successful in maintaining the above guideline
(Baner/ee and -amun (188*)) $herefore" NBFIs have to e'plore alternative
ways for raising funds
(d) I!&estme!t i! 'i(% )is* Portfo$io
It is already mentioned that cost of funds for NBFIs are higher than that of banks
In order to sustain the high cost of borrowing" NBFIs may be inclined to invest in
the high return segments" which can e'pose them to commensurately higher
risks -oreover" fierce competition among competitors may also force many
NBFIs to reduce the margin at the e'pense of &uality of the asset portfolio $his
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41
strategy may eventually create the possibility of an increase in the non-
performing accounts Hnless ade&uate risk management capabilities are
developed" the growth prospects of NBFIs would not only be hindered but it
might also be misapprehended (3arker" 188D)
(e) Product +i&ersificatio!
NBFIs emerged primarily to fill in the gaps in the supply of financial services
which were not generally provided by the banking sector" and also to
complement the banking sector in meeting the financing re&uirements of the
evolving economy Lith regard to deployment of funds" the total outstanding
lease" loan and investment by NBFIs stood over B,$ *D billion" B,$ 1B billion
and B,$ *billion respectively by the end of 3eptember" 188B NBFIs are
permitted to undertake a wide array of activities and should therefore not confine
themselves to a limited number of products only 5easing" no doubt" presents a
good alternative form of term financing Gven in leasing" investments were not
always made in the real sector and non-conventional manufacturing sector
!lmost all the leasing companies concentrated on e&uipment leases to B-2G
(Balancing" -oderni#ation" 2eplacement and G'pansion) units only New
industrial units were hardly brought under the purview of leasing facilities $his
implies that the new customer base has not been created and the growth of
industrial entrepreneurship could not be facilitated through NBFI financing
packages ,iversifying the product range is a strategic challenge for NBFIs in
order to become competitive in the rapidly growing market
(f) Com,etitio! -it% .a!*s
Lith the advent of new NBFIs" the market share is being spread over the
competing firms and the demand facing each firm is becoming more elastic
!ctive participation of commercial banks in the non-bank financing activities has
further increased the level of competition in the industry 5easing was considered
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as a non-bank financing activity until recently But a large number of banks has
also shown their interest in the leasing business and has already penetrated the
market For banks" public deposit is one ma/or source of funds which they can
collect with relatively lower cost $hus the business environment for NBFIs has
become more challenging as they have to face uneven competition with banks in
terms of collecting funds
(() #ac* of 'uma! )esource
3killed and trained human resource is considered as an important component for
the development of any institution ,ue to the recent growth of NBFIs" availability
of e'perienced manpower is a challenge for this industry $he supply shortage of
efficient resource personnel has been leading to a significant increase in the
compensation package" which is also a cause of concern for NBFIs $he industry
e'perts believe that although there e'ist enormous growth opportunity the market
is still &uite small and scope of work for skilled personnel is very limited
compared to that of banks $his makes the competent personnel to switch from
NBFIs to other institutions after a certain period implying low retention rate of
skilled human resource
(%) Wea* #e(a$ System
!lthough the default culture has not yet infected NBFIs to any ma/or e'tent" they
face difficulties in recovering the leased assets in case of a default -oreover
delays in court procedures create another cause of concern $he situation cannot
be improved only by making the legal system stronger through enactment of new
laws rather ensuring proper implementation e'isting ones is more of concern
(i) #ac* of a Seco!dary Mar*et
Gven in cases when the defaulted asset is recovered" the disposal of the same
becomes difficult because of lack of an established secondary market For the
promotion of a secondary market" NBFIs may consider initiating the concept of
operating lease instead of the prevalent mode of finance lease incase of these
recovered assets to create a demand for second hand or used machinery and
e&uipment
Su!!ested *lternatives
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(a) E/,$ori!( A$ter!ati&e Sources of u!ds
$he finance and leasing companies a.fficerss the world are using different
sources for collecting funds NBFIs in Bangladesh may also e'plore the
possibilities of gaining access to new sources of funds like issuance of
commercial paper and discounting or sale of lease receivables %owever" in
releasing such new products" some regulatory changes have to be made
!nother innovative and promising source of funds may be the securiti#ation of
assets In this connection" I>,6 launched first asset backed securities in 188D as
an alternative source of funding $his new instrument emerged as an important
tool and added a new dimension in the financial market $he core attraction of
this scheme was the ta' benefit made available to investors at the rate of (8
percent at the time of credit of such interest or at the time of payment thereof"
whichever is earlier" and this deduction was deemed to be final
,ischarge of ta' liability (6howdhury" 188C) But changes in ta'ation policy in
188C by the government have made the future of this instrument less attractive
for the concerned financial institutions
(b) Com,etitio! a!d Product +i&ersificatio!
NBFIs in Bangladesh are operating in a highly competitive environment $he
competition for NBFIs is even more challenging as they have to compete with
banks =iven the changes in the business environment" the need for product
diversification is very important !t present" lease financing constitutes CC
percent of the total long term assets of NBFIs $he remaining part concentrates
mainly on term financing and housing finance 3ome of NBFIs are primarily
engaged in leasing" some are also diversifying into other lines of business like
merchant banking" e&uity financing etc 6urrently" 11 NBFIs (out of 1)) speciali#e
in lease financing NBFIs are permitted to undertake a wide array of activities and
therefore should not confine themselves to one or two types of product only
5easing" no doubt" presents a good alternative form of term financing but NBFIs
should also venture into diversified use of their funds such as merchant banking"
venture capital financing" factoring" etc for a healthy growth of the capital market
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(c) E!%a!ci!( Ca,ita$ Mar*et Acti&ities
NBFIs around the world carry out a significant role in the development of the
capital market 3trong institutional support is necessary for a vibrant capital
market which is the core of economic development in any market based
economic system NBFIs through their merchant banking wing can act in this
regard ! total of *8 companies are now listed as merchant banks in Bangladesh"
of which 1* are full-fledged" B are issue managers" and only one is a portfolio
manager .nly nine NBFIs have registered with 3G6 for performing merchant
banking activities But their activities in the capital market are rather limited
(Financial Sector Review" Bangladesh Bank" 188B) !ctive participation of
merchant banks is essential to accelerate the capital market activities which can
e'pedite the economic growth of the country $he success of merchant banking
operations is largely linked to the development of the security market 3o NBFIs
should concentrate more on their opportunities in the capital market
(d) Issues of Ta/atio!
$he financing mode of lending and leasing are totally different from one another
$he concept and procedure particularly the accounting and ta'ation system are
also &uite different 3o it is advisable not to mi' up the two different operations"
otherwise it might distort the basic financial norms !s the ta' treatment is totally
different in leasing business" mi'ing up of lending and leasing in the same
business portfolio might create the possibility of ta' evasion (3arker" 188D)
(e) Mar*et Se(me!tatio!
It has been discussed earlier that though banks and NBFIs compete with each
other they can also perform complementary functions !s suggested by Eamal
(188D) and 3arker (188D)" to function as complementary institutions both banks
and NBFIs should follow some ethical and technical norms Banks wishing to
enter in the leasing business" which is essentially a core operation of NBFIs"
should do so through opening subsidiaries so that a level playing field for NBFIs
can be maintained $his is needed as banks have access to lower cost funds
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45
compared to NBFIs" which puts the former in an advantageous position
!lternatively" banks can go for /oint financing under syndication arrangements
with leasing companies on any pro/ect proposal !gain" banks can concentrate
on working capital finance and foreign e'change operations" which matches
more with their asset-liability management
5ong term investment like financing capital machineries can be done by NBFIs
and in the event when banks want to engage in such activities they can place
their funds with an NBFI to e'tend lease facility for those machineries Eamal
(188D) mentioned that this is important for two reasons0 :first" in case of lease
facility" the machineries will remain under the ownership of leasing companies"
who will have absolute authority and control on their assets 3econd"
machineries will be imported in the name of a leasing company and letter of
credit will be opened against its name 3o" over invoicing or under invoicing may
be averted and thereby more transparency will be ensured and ta' evasion may
be plugged;
Conclusion
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Banks and Non-Bank Financial Institutions are both key elements of a sound and
stable financial system Banks usually dominate the financial system in most
countries because businesses" households and the public sector all rely on the
banking system for a wide range of financial products to meet their financial
needs %owever" by providing additional and alternative financial services" NBFIs
have already gained considerable popularity both in developed and developing
countries In one hand these institutions help to facilitate long-term investment
and financing" which is often a challenge to the banking sector and on the other"
the growth of NBFIs widens the range of products available for individuals and
institutions with resources to invest $hrough their operation NBFIs can mobili#e
long-term funds necessary for the development of e&uity and corporate debt
markets" leasing" factoring and venture capital !nother important role which
NBFIs play in an economy is to act as a buffer" especially in the moments of
economic distress !n efficient NBFI sector also acts as a systemic risk mitigator
and contributes to the overall goal of financial stability in the economy NBFIs of
Bangladesh have already passed more than two and a half decades of operation
,espite several constraints" the industry has performed notably well and their
role in the economy should be duly recogni#ed It is important to view NBFIs as a
catalyst for economic growth and to provide necessary support for their
development ! long term approach by all concerned for the development of
NBFIs is necessary =iven appropriate support" NBFIs will be able to play a more
significant role in the economic development of the country
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3tock in Bangladesh has been developing over the passage of time respect to
the base" scope product" member and investors $his has two stock e'changes"
good number of brokers" sub brokers" listed companies"( depository institution"
depository participants"*Dmerchant bankers" underwriters" ,ebenture trustees"(B
portfolio managers" banker to Issues" 1 credit rating agencies " and @enture
capitalist firm" Number of investors in the stock market has also been increasing
$he market is e'periencing increased number of I>.s the primary market and
record volume of transaction of securities in the organi#ed stock e'changes
6orporate firms are becoming aware of opportunities for rising from the stock
market Besides" they are also coming to know the different alternatives to the
collection of funds from the stock market the opportunity of stock market is
attracting to huge number institutional investors and individual investors !part
from this" this has invited other parties Ne'isting and potential to the stock market
for e'ploiting emerging opportunities $his e'pansion of stock markets in
Bangladesh e'perienced many ups and down in the stock market in the past
Investor lost capital to the market and conse&uently" lost confidence in the stock
market Hnder these circumstances" ade&uate and effective risk management
system in the stock market is essential in order to protect the interest of all
parties involved and thereby ensuring the integrity of the stock market in
Bangladesh 3ecurity and G'change 6ommission and stock e'changes have
already taken both regulatory and administrative measures for stabling effective
risk management system
3tock market in Bangladesh has undergone sea change in technology in order to
the make the market modern and thereby giving apace to the risk management
system $echnological change in modus operandi of stock market has brought it
at par of international stock market community $his change also caused and
une'pected degree of systematic risk which calls for effective regulatory and
administrative measures in place $ransparent" vibrant and efficient stock market
to provide avenue for developments of saving for capital formation and economic
growth
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4:
Investment decisions both are an art and science $o succeed in investing" we
must think in term of what is e'pected to happen Le know what has happened"
but the past may or may not repeat itself !lthough future is uncertain" it is
manageable" and a through understanding of the basic principles of investing will
allow investors to cope intelligently
Basically share price depends upon0
( Gconomic ? -arket Factor
1 Industrial Factor
* 6ompany Factor
$conomic / 'aret Factor" $here are many sub factors are in the economic
factor
$hese are"
( =lobal Gconomy
1 -acro Gconomic factor of a country
* Investment 2ules and 2egulation
D G'port import >olicy
C >olitical 6ondition
B G'change rate
A Interest rate

Industrial Factor" In industrial factor
$hese are0 ( Business life cycle


Company Factor" 6ompany related ( -anagement
1 New Investment
* New >roduct ,evelopment
D New -arket ,evelopment
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4=
Ob)ective of t&e study" Find out time period when the share price go up and go
down
#eason for c&oosin! t&e topic" It will help the investor to buy or sell share of
3hariah based 6ompany and renowned >harma and 6ement 6ompany
Scope of t&e #eport" 6ompanys Financial !nalysis ad
'et&odolo!y" Hsing F=, and trend analysis
Source of +ata" ,haka 3tock G'change 5ibrary 5ast C years ,aily and -onthly
,ata
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5C
Is+ami !an' !ang+ades- (imited
<ear $PS N*9
Net Profit
(million)B+. P/$ +ividend
/==2 C(9C) *898(A (8(*BC )9B 18FB
/==> D9ACA 1)A(CC ((1C91 )*1 1CF
/==? D9C)D 1))CB( (D88C) AC) (C88" 1CFB
/==@ *ACC *((D9 (D1A*B 1189 1CF
/==A (A*D
Islami Bank Bangladesh 5imited is pioneer bank of Islamic mode in Bangladesh
It is ! category share
Comments on S&are Price
-ost of the year we see that Islami Banks share value increase in before !=-
But its not regular 2umor also affect in share value sometime But the elasticity
of share price of Islamic Bank is medium 3o investor can invest in Islami Bank
for good return $he dividend policy of Islami Bank is capital rising so they prefer
to give bonus share as dividend !nd protect their share value by increase
number of share
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51
8
1888
D888
B888
9888
(8888
3ep-81 Ean-8D -ay-8C .ct-8B Feb-89 Eul-8)
Price of S&are
<ear
Islami Ban Ban!lades& Ltd-
IBB5
Socia+ Investment !an' (imited
<ear $PS N*9
Net Profit
(million)B+. P/$ +ividend
/==2 (D**C (CBD)B 9*9B (*B1
/==> 1D88 (CAA9) (*)D BD)D
/==? )9C1 1C)81 CAB* (98)
/==@ (AB8 (BCAC (C88D 19A) (AF B
/==A N?!
3ocial Investment Bank 5imited is an ! category share in market It listed in
1888
Comments on S&are Price
Le see that every year its share price increase before !=- 3IB5s >?G ratio
are not very good to attract long term investor But Eanuary effect work for this
share
In Eanuary month 3IB5 3hare price always up on turn
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Social Investment Ban Limited
8
188
D88
B88
E
a
n
-
8
D
E
a
n
-
8
C
E
a
n
-
8
B
E
a
n
-
8
A
E
a
n
-
8
9
<ear
P
r
i
c
e

o
f

S
&
a
r
e
3IB5
Is+amic Finance and Investment (imited
Islamic Finance and Investment
Limited
-188
8
188
D88
B88
3ep-
81
Ean-
8D
-ay-
8C
.ct-
8B
Feb-
89
Eul-
8)
<ear
P
r
i
c
e

o
f

S
&
a
r
e
IFI5
<ear $PS N*9
Net Profit
(million)B+. P/$ +ividend
/==2 (1DD ((C9) (919
/==> 1A9D ((11B D)C) BC9 (8 "CF B
/==? (99D ((1CA D))A (8C* (1C8
/==@ (9BC (*(1( C(1D ((1( (C88
/==A (B)*
Islamic finance and Investment 5imited listed in market in 188C It is an !
category share
Comments on S&are Price
Basically the 3hare price of IFI5 increases before !=- >?G ratio is very good to
attract Investor Eanuary effect works for the share price increase,
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A+- Arafa- Is+ami !an'
!l- !rafah Islami Bank
8
188
D88
B88
!pr-8( Ean-8D .ct-8B Eul-8)
<ear
P
r
i
c
e

o
f

S
&
a
r
e
!l- !rafah
Islami Bank
<ear $PS N*9
Net Profit
(million)B+. P/$ +ividend
/==2 1B*BA (A9C99 (CDAB ((B( (CCFB
/==> *9A98 18C)91 1B1)8 CAB 1BFB
/==? CC81D 1*1B* DA881 D99 *CFB
/==@ *8(1 ()BB) *DA*( (DB1 18FB
/==A (BBB
!l-!rafah Islami Bank listed in ())9 It is an ! category company
>?G ratio is low ,ividend policy is high stable
Comment on S&are Price" !l !rafah Islami Banks share price increase in
November to Eanuary
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,0I& !an' (td
$BI' B*NC
-C88
8
C88
(888
3ep-
81
Ean-
8D
-ay-
8C
.ct-
8B
Feb-
89
Eul-8)
<ear
P
r
i
c
e

o
f

S
&
a
r
e
GKI- B!NM
<ear $PS N*9
Net Profit
(million)B+. P/$ +ividend
188D B891 11*81 *9(98 B1C D8FB
188C B*() 1(AB( CCC*D 989 *8FB"(201
188B D*D9 (9(CA BC81) AAD 1CFB
188A D*DC 1(*A8 )*89D )88 A88"1CFB
1889 9B*
GKI- Bank listed in 188D It is an ! category 3hare It follows regular dividend
policy Its >?G ratio is low
Comment on S&are Price" GKI- Bank share price high in November and
,ecember month

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S-a-1a+a+ Is+ami !an' (imited
S&a&)alal Islami Ban Limited
8
(88
188
*88
D88
-
o
n
t
h
E
u
l
-
8
D
F
e
b
-
3
e
p
-
!
p
r
-
N
o
v
-
E
u
n
-
E
a
n
-
!
u
g
-
<ear
P
r
i
c
e

o
f

S
&
a
r
e
3eries(
3eries1
<ear $PS N*9
Net Profit
(million)B+. P/$ +ividend
/==2 -18D)( CAC8 *9(98
/==> **B* A)1B CCC*D
/==? D)C8 (19AC BC81)
/==@ *DCA 1(*A8 )*89D (8C9 18FB
/==A ))1
3hah/alal Islami Bank 5imited is an ! category share It listed in 188A
>?G ratio is low
Comment on S&are Price " 3table share price we can not comment on it
3hare price due to low volume of historical ,ata
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S2uare P-arma (td
3&uare >harma
8
1888
D888
B888
3ep-
81
Ean-8D -ay-
8C
.ct-
8B
Feb-
89
Eul-8)
<ear
P
r
i
c
e

o
f

S
&
a
r
e
3&uare
>harma
<ear $PS N*9
Net Profit
(million)B+. P/$ +ividend
/==2 1B)DB (1)C8D )A88D (BDC A8"18FB
/==> 1)8A( (*8D8A (1CC9C (8)A AA"(CFB
/==? 1*DBA (199BC ((BC9B )*1 AC"18FB
/==@ 1(9B( (19889 (*8*1D ((18 C8"C8FB
/==A (*9(9B *C)8 D8"*CFB
3&uare pharma listed in ())C It is * category share
>?G ratio is low and dividend policy is constant
Comment on s&are price0 Basically the share price increase in before !=-,
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&eg-na .ement
-eghna 6ement
8
188
D88
B88
988
3ep-
81
Ean-
8D
-ay-
8C
.ct-
8B
Feb-
89
Eul-
8)
<ear
P
r
i
c
e

o
f

S
&
a
r
e
-eghna
6ement
<ear $PS N*9
Net Profit
(million)B+. P/$ +ividend
/==2 (C1C 1AA(A *D*( 18B( 1C88
/==> ***9 1)9(C AC(( ABD 1C88
/==? DBA( *18D1 (8C(8 C)1 1C88
/==@ BC9B 1AC18 (D9(9 C*C *888
/==A B(
-eghna 6ement listed in ())C It is an ! category share -eghna 6ement
usually follow high fi'ed dividend policy Its >?G ratio is low
Comment on S&are price0 Basically the share price high on every -ay and
Eune due to !=-
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5: