Final Topic

Table of contents
Chapter 1
1.1
1.2
3.1
3.2
1.3
3.3
3.4
1.4
3.5
1.5
3.6
1.6
3.7
3.8
3.9
Introduction
Chapter 3
Origin of the
Report of SME (Small and Medium Enterprise
Definition
Target segments for SME Financing
Objective of the Report
Purposes of SME Financing:
Financing in Bangladesh and the Role Played by MBL
Scope of theSME
Report
Standard steps in the SME lending process
Limitations
Credit Analysis of SME Loan:
Methodology
Creditworthiness of SME Loan:
Properly structured and documented proposal On SME:
Credit Risk Evaluation on SME Loan:
5
5
69
69
6
7170
71
7
73
8
74
974
76
76
3.10
Collateral Security against SME Loan
77
3.11
3.12
Standard loan review process of SME

Limit for SME Loan
77
78
3.13
3.14
3.15
3.16
Eligibility of the client:

Valuation
Insurance:
Repayment arrangement
Chapter 2
79
79
79
81
2.1
Mercantile Bank Limited: An Overview
11
2.2
Historical Background
12
2.3
History- Key Milestones
13
2.4
Corporate Information at a Glance
15
2.5
Nature of Business
16
2.6
Paid up Capital
16
2.7
Subsidiaries
17
2.8
Capital Base
18
2.9
Credit Rating
18
2.10
Mission Chapter 4
20
2.11
4.1
Vision
20
87
4.2
2.12
88
21
2.14
4.5
ObjectivesProject Time Line

Gantt chart of project time Allocation
Core Values
Budget Information
Way Forward
Objectives of the Study
4.6
2.15
Methodology
Business Ethics
90
23
2.16
Hypothesis Development
Mercantile Bank Limited Product
25
2.17
Division & Department of MBL
2.18
Internal Environment Analysis of MBL
4.3
2.13
4.4
4.7
Problem Statements
89
22
89
23
90
94
30
34
4.8
Hypothesis Testing
94
4.9
Research Findings
110
4.10
Recommendations
112
Chapter 5
5.1
Finding and observation
114
5.2
Lack of computerized facilities
115
5.3
Lack of ATM facilities:
115
5.4
Lack of on line facilities
115
5.5
Conditions for repayment of loan in other branches:
116
Chapter 6 Recommendation
118
Chapter7 Conclusion
122
Chapter-1
Introduction
1.1 Introduction__________________________________
Banks are the blood of economy; banking system plays very important role in the economic
life of the nation. The total money circulation of the economy is done through the banks. In a
developing country like Bangladesh banks perform key role to make equal distribution of
fund in all sectors of the economy. Side-by-side the banks also need to maintain profitability
to ensure their continuity. But the intense competition between the banks exposes the banks
to more risk and requires them to make innovation to sustain in the economy. SME financing
is a new innovation in banking industry of Bangladesh. SME contributes more to the
development of a developing country.
National income and employment opportunity of the country. In Bangladesh, SME sector
performing great job for poverty alleviation and reducing gender discrimination. Now SME
viewed as employment generating machinew reduce unequal distribution and poverty
alleviation.
Banking sector has a vital role to play in the economic activities and development of any
country. The whole scenario of the economy of a country can be ascertained by examining
the condition of the banking sector. To develop SME sector, the contributions of banks and
financial institutions are enormous. According to the guidelines of Bangladesh Bank,
the commercial banks provide SME financing to the people at flexible terms and conditions
to boost this sector. Beside profit motive the commercial banks also perform corporate social
responsibility by enhancing SME financing. Not only finance the banks are also providing
guidelines and training to the people to enrich their small and medium enterprises.
1.2 Origin of the Report______________________________

I have prepared this report as a part of fulfillment of my practicum which is an integral part of
the BBA program under the department of Finance and BankingthefacultyofCollege of
Business Administration of International University of Business Agriculture and Technology.
This subject is 9 credit hours course and duration is four months. This report is prepared for
Prof. Dr. M Alimullah Miyan, Chair in CBA, IUBAT. The main objective to do internship is
gathering practical knowledge before joining a professional field. As an intern, I worked in
Mercantile Bank Limited for 3 months. And during my internship period I got the opportunity
to perform different task related with MBL and these broaden my own perception about the
operation of the other company also.
I was assigned in the Ashulia Branch Mercantile Bank Limited. I started the internship there
th
th
from 17 May, 2015 to17 August, 2014. I have worked in General Banking department under
the Operations. The report attempts to analyze the Function & Process Involved in SME
Banking in Mercantile Bank Limited.
1.3 Objective of the Report__________________________

The crucial Objective of the study is to development an understanding about the practical
banking activities and to relate them with the theoretical knowledge acquired from the banks
1.3.1 Broad objective

The main objective of the study is to highlight the present SME financing involved in
5
Mercantile Bank Limited and to suggest measures to make SME financing more purposeful and
effective.
1.3.2 Specific objective:
However, the specific objectives of the study are as follows:
To become familiar with the SME product policy guidelines maintained by

Mercantile Bank.
To analysis the SME Lending procedures maintained by Mercantile Bank.

To observe SME Lending activities of Mercantile Bank Limited.
To state the present condition of SME financing of Mercantile Bank

To analyze the overall performance of Mercantile Bank over the years.
To give some suggestions to overcome the problem of SME.
To examine the overall performance of MBL in the SME sector in terms of loans
disbursement and recovery.
To point out the positive aspects and problems encountered by the SME Financing Unit
of MBL and the ways to overcome the problems.
To examine the recent strategies and initiatives taken by MBL for further development
of its SME Financing Program.
1.4 Scope of the Report ______________________________

6
I was sent to Mercantile Bank Limited, Ashulia Branch, the scope of the study was only
limited to this branch. I worked in the Mercantile Bank Limited, Ashulia Branch; I got the
opportunity to learn different part of banking system. The supervisor divided the whole
banking system in many parts; as a result I got the opportunity to work in different divisions
(General Banking Division, Daily clean cash, Credit Department, SME Department and
Accounts).
My main concern was about SME financing Procedure of under Mercantile Bank Limited. It
also covers over view of the how the bank defines SME, what are the different SME products
offered how and why they are different from other products, what are the constraints to obtain
required finance by the SME, and what is the overall performance of the bank in the SME
sector in terms of loans disbursement and recovery. From this report banker, banking clients as
well as students, teacher, and researchers will be benefited
1.5 Limitations _____________________________________

On the way of the study, I have faced the problems that are given below that may be terms as
the limitation or shortcoming of the study-
Short Time Period
The first obstruct is time itself. Due to the time limit, the scope and dimension of the study has
been curtailed. For an analytical purpose adequate time is required. But I got a short time
period for prepare the report.
Data Insufficiency
It was very difficult to collect data, because the branch of Mercantile Bank Limited is very
large. All of the employees of this branch are very busy. For the time limitation they could not
able to supply my topic related data.
Lack of records
7
Sufficient books, publications, facts and figures narrowed the scope of accurate analysis. If
this limitation were not been there, the report would have been more useful and attractive.
Poor Library Facility
Most of the commercial banks have its own modern, rich and wealthy collection of huge and
various types of banking related books, journals, magazine, papers, case studies, term papers,
assignment etc. But the library of Mercantile Bank Limited is not well ornamented and
decorated.
Lesser Experience
Experience makes a man efficient. I do such why inexperience creates obstacle to follow the systematic and
logical research methodology.
1.6 Methodology _____________________________________

Analysis has been made on the basis of the objectives mentioned before in the context of
Function & Process Involved in SME Banking of Mercantile Bank Limited The paper
will be written on the basis of information collected from primary and secondary sources.
1.6.1 Major Sources of Primary Data:
Informal interview with the officers of SME department of Mercantile Bank, Ashulia
Branch.
Direct participatory observation: This technique of data collection is the main technique
for the study. It was done by maintaining daily office hours strictly and
recording daily activities in a diary book.
Information conversation with the SME clients of Mercantile Bank Limited.
1.6.2 Major Sources of Secondary Data:
Annual report.
Mercantile Banks Web site.
Books, journals & magazines.
Bangladesh Bank website.
Brochures and leaflets of the bank
Head office circulars
Different reports and journals on related topic
Books and articles from library study.
Chapter-2
Overview of the Mercantile
Bank Limited
2.1 Mercantile Bank Limited: An Overview_________________
Mercantile Bank Limited emerged as a new commercial bank to provide efficient banking
services with a view to improving the socio-economic development of the country. The
philosophy of Mercantile Bank Ltd istarget isnot to to make credits available to the poor people and their
activities are aimed at comprehensive
10
growth where people from all economic strata will enjoy the benefits of better living
standard, dignity of labor and self worth.
The Bank determined to build a long-term customer relationship with its corporate & general
clients. As a part of this, Mercantile Bank ltd. is trying to expand their business with the
market leaders of each sector of business. Mercantile Bank ltd. emphasizes not only on
customer satisfaction but also emphasizes general banking and credit management system. So
that customer can get better service from every side of overall banking.
Mercantile Bank Ltd is always ready to maintain the highest quality services by upgrading
Banking technology, well management system and applying high standard of business ethics
through its established commitment and heritage and is representing itself with true concept
as Banglar Bank.
19
11
2.2 Historical Background _____________________________
Mercantile Bank Limited was incorporated in Bangladesh as a public limited company under
the Bank Company Act, 1991, on May 20, 1999. After obtaining license from Bangladesh
Bank to carry on banking business, the bank commenced its operation on June 2, 1999 with an
authorized capital of Tk. 800 million divided into 8 million ordinary shares of Tk. 100 each.
On 31 December 2001, its paid up capital was Tk. 596.5 million.
Mercantile Bank Limited went for public issue of shares on October 21, 2003. Mercantile
Bank Limited has been incorporated on May 20th, 1999 in Dhaka, Bangladesh as a public
limited company with the permission of the Bangladesh Bank; MBL commenced commercial
banking operation from the June 02, 1999. The bank stood 60 branches all over the country up
to 2011.
The sponsors happen to be members of different professional groups among whom are also
renowned banking professionals having vast range of banking knowledge. There are also
members who are associated with other financial institutions insurance Companies, leasing
companies etc.
The bank provides a broad range of financial services to its customers and corporate clients.
The Board of Directors consists of eminent personalities from the realm of commerce and
industries of the country.
The Bank is manned and managed by qualified and efficient professionals. Mr.Shah and Md.
Nurul Alam is holding charge of Managing Director upon expiry of term of Mr. M.
Taheruddin as Managing Director on 14.04.2004. Mr. Lutfar Rahman Sarker, the former
Governor of the central bank of Bangladesh was the Chief Advisor of the bank. He brings with
him a wealth of experience of managing both public and private sector banks.
12
2.3 History- Key Milestones_____________________________
May 20, 1999
Incorporation of the Bank
June 02, 1999
Commencement of Business
October 29, 2000
Opening of 10th Branch
July 03, 2002
June 30, 2003
Publication of Prospectus for IPO
October 21-22, 2003
Subscription for Shares
December 24, 2003
February 16, 2004
Listed in Dhaka Stock Exchange
February 26, 2004
Listed in Chittagong Stock Exchange
December 29, 2004
December 05, 2006
December 17, 2007
November 24, 2008
Opening of 42nd Branch
June 06, 2009
Mercantile Bank Brokerage House Operation
October 22, 2009
December 30, 2009
August 02, 2010
December 30, 2010
September 14, 2011
Separate Operation of Mercantile Bank Securities Ltd. (MBSL)
December 06, 2011
Mercantile Exchange House (UK) Limited
December 29, 2011
September 20, 2012
Opening of Mercantile Exchange House (UK) Limited, London

Branch
December 27, 2012
December 29, 2013
December 29, 2014

Table 01: History of MBL
13
21
14
2.4 Corporate Information at a Glance____________________
Name of the Bank
Mercantile Bank Limited
Status
Public Limited Company
Date of Incorporation
May20, 1999
Date of Commencement
June 02, 1999.
Subscription for Shares
October 21-22, 2003
Listed in Dhaka Stock Exchange
February 16, 2004
Listed in Citation Stock Exchange
February 26, 2004
Head Office
61, Dilukhusha Commercial Area, Dhaka- 1000
Phone
+880-2-9559333, 01711-535960
E-mail
[email protected]
Website
www.mblbd.com
Chairman
Morshed Alam MP
Managing Director
A.K.M. Shaheed Reza
Number of Employees
1900
Number of Branches
101
Table 02: General Information of MBL
2.5 Nature of Business

15
Mercantile Bank Limited offer services for all banking needs of the customers, which include
deposits, making loans and advances, discounting bills, conducting money transfer and
foreign exchange transactions and performing other related services such as safe keeping,
collections, issuing guarantees, acceptances and letters of credit.
2.6 Paid up Capital

Paid-up Capital of the bank was BDT 739.16 Crore of 7,391,567,010 ordinary shares of BDT
100 each as of December 31, 2014.
Year
Taka(BDT in Crore)
2014
739.16
2013
659.96
2012
611.08
Table 03: Paid up Capital of MBL
2.7 Subsidiaries
MBL has 2 (Two) subsidiaries namely Merca Mercantile Exchange House (UK) Limited. MB stock
dealing and broking. MBSL started its commercial operation on September 14, 2011
through obtaining stock dealer and broker license from concerned authorities. Mercantile
16
Exchange House (UK) Limited, another subsidiary company of MBL incorporated as private
limited company on December 01, 2010. It commenced its business operation on December
06, 2011. Currently, it is operating with one branch in London with a view to providing faster,
easier and safer remittance services to the Bangladeshi expatriate living and working in UK.
23
17
2.8 Capital Base

MBL is maintaining strong capital adequacy ratio as per new risk based capital adequacy
framework i.e. Basel II. Capital adequacy ratio of the Bank remained far above compared to
minimum requirement as on December 31, 2014. The Bank has taken numerous initiatives
including issuance of bonus shares, right share, retention of profit rating etc. in a bid to attain strong capital
adequacy ratio. To further raise the capital fund and
therefore capital adequacy ratio MBL issued subordinated bond worth BDT 3,000.00 million
in the year 2014.
December
Capital Adequacy
Minimum Capital
2014
Ratio (CAR)
Requirement (MCR)
Solo
12.95%
10%
Consolidate
12.96%
10%
Table 04: Capital Base of MBL
2.9 Credit Rating

MBL has strong and stable credit rating over the last couple of years. Credit Rating
Information and Services Limited (CRISL) has reaffirmed the long term rating of MBL to
AA- and short term-2basedratingon toitsSTfinancialand up other qualitative and quantitative
information up to the date of rating. CRISL also placed the
Bank with Stable Outlook.
18
Basis of
Date of
Rating
Rating
Information
Rating
Long Term
Short Term
Long Company
2013
18 June, 2014
AA-
ST-2
CRISL
2014
06 May, 2015
AA-
ST-2
CRISL
Table 05: Credit Rating of MBL in 2014
24
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2.10 Mission_____________________________
Will
become most caring, focused for equ
deployment of resources and nevertheless would remain healthy and gainfully

profitable
bank.
Mercantile Bank Limited aims to become one of the leading banks in Bangladesh by
prudence, flair and quality of operations in their banking sector. The bank has some mission
to achieve the organizational goals.
2.11 Vision_____________________________
Would make finest corporate citiz
MBL dreams to become the bank of choice of the general public that includes both the
consumer and the corporate clients. They want to build such an image that whenever people
will think of a bank, they will think of Mercantile Bank Limited. MBL have created a cadre
of young professionals (YP) in banking profession. This has helped boosting productivity in
the bank.
20
2.12 Objectives_____________________________
2.12.1 Strategic Objectives
To achieve positive Economic Value Added (EVA) each year.
To be market leader in product innovation.
To be one of the top three financial institutions in Bangladesh in terms of cost efficiency.
To be one of the top five financial institutions in Bangladesh in terms of market share in
all significant market segment they serve.
2.12.2 Financial Objective
To achieve 20% return on shareholders eq
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2.13 Core Values_____________________________
Customer satisfaction pervades all our activities. MBL appreciates that Custome
satisfaction is critical for success.
Spurring
innovation
for
reinforcement
of
our
business.
Origination
and
materialization of change management for attainment of perfection and we believe
change is always constan.t
We continue to be responsible, ethical, sincere and transparent in our thoughts and

actions.
We always keep high on the agenda our commitment towards valued depositors as
their trustworthy custodian and to maintain the same spirit for all other stakeholders.
Constant endeavor to act and respond in a socially responsible manner keeping in

mind society and our country to care for our environment.
Creation and Maximization of values for our shareholders.
22
4 Way Forward_____________________________
MBL look forward to consolidate its position focusing on the followings:
More emphasis on SME financing
Achievement of agriculture credit target
All out efforts to improve deposits mix by procuring low cost and no cost deposits
Innovation of need based deposits and loans products and services
Incorporate technology based advanced products and solutions
To hire and retain qualified human resources according to need of the Bank
2.15 Business Ethics_____________________________
MBL believes that business ethics practices provides a foundation for the stability and sustainable growth of
the bank, and support goals. The bank therefore encourages all parties to conduct business and perform their
duties
in accordance with business ethics practices.
23
The bank conducts its business in accordance with the law and regulations set by the
central bank and other regulatory authorities. The bank does not finance in any project,
detrimental to the community or country and thus prohibited by the credit policy of the
bank.
The bank complies with various standards which are generally acceptable for conducting
the banking business and always refrain from doing aggressive business while extending
credit facilities.
The bank offers quality services to its customers with the principles of warm friendship
and mutual support. The bank applies only those charges/fees that are disclosed by the
schedule of charges of the bank.
To continue and increase CSR activities.
To remain compliant in the spirit of law and industry practice.
27
24
2.16 Mercantile Bank Limiteds Produ

Commercial banking is the core activities of Mercantile bank Limited. The bank serves all types of
customer ranging from individual to corporate entities, both private and public. The Standard Service
offered by Mercantile Bank Limited Includes-
One counter service for all banking needs of the customer.

Customer counseling.
Personalized services and relationship banking.
Deposit banking.
Loan and advances.
Export and import financing.
Inland and foreign remittance facilities.
The Bank launched several financial products since its inception. Among them are:
1. Current Deposit Account
2. Savings Bank Account
3. Special Noticed Deposit Account
4. Fixed Deposit Account
5. Double Benefit Deposit Scheme (DBDS)
Transactional
Accounts
And
Deposit Products
6. Family Maintenance Deposit (FMD)

7. Quarterly Benefit Deposit Scheme
8. Times Benefit Deposit Scheme
9. Advance Benefit Deposit Scheme (ABDS)
10. Special Savings Scheme (SSS)
11. School Banking
25
12. Super Benefit Deposit Scheme (SBDS)
1. Auto Loan
2. Consumer Durable Loan
Consumer Finance
3. Unsecured Personal Loan

4. House Finance
5. Loan for Professional
6. Senior Citizen Support
1. Term Loan
2. Overdraft
3. Demand Loan
4. Time Loan
5. Packing Credit
6. Letter of Credit
7. Loan against Trust Receipt
Corporate Banking
8. Loan Syndication & Structured Finance

9. Trade Finance
10. Working Capital Finance
11. Bill Discounting
12. Letter of Guarantee
Small & Medium

Enterprise
(SME)
1. CHAKA (Term Loan).

2. ANANNYA (Women Entrepreneurs.
3. SAMRIDDHI (Continuous Loan).
4. MOUSUMI (Short Term Single Payment Seasonal Loan).
Treasury &
Foreign Exchange
Money Market
1. Overnight call
2. Repo
3. Swap
4. Term placement
26
5. Reverse Repo
29
27
FX market
1. Spot transaction
2. Forward transaction
1. Dual Card (Two in One)

2. Debit Card
3. Pre-Paid Card
4. Advance against Credit card
Card
5. Visa Local Currency Card
Facilities
6. Visa Dual Currency Card

7. Visa International Card
8. MBL Visa Hajj Card
9. MBL Visa Prepaid travel Card
10. MBL Visa dual gold Credit Card
11. MBL Green Debit Card
12. MBL Visa Debit Cards
13. MBL Visa Prepaid travel Card
1. ATM Services
2. Remittance Service
3. Locker Service
4. Online Banking
Services
5. Internet Banking
6. SMS Services
7. Mobile Banking
8. SWIFT
9. BACH & EFTN
10. Student File
11. Travelers Cheque
28
Table 06: Products and Services of MBL
30
29
2.17 Division & Department of MBL____________________
The organization includes divisions which mainly deal with the products and services and
departments which support in the operating activities
A. General Banking & Deposit Management:
1. Account opening and KYC procedures.

2. Issuance of DD/TT/PO/FDR.
3. Interbank Transaction, OBC/IBC.
4. Account section.
5. Clearing Section.
6. IT Section.
7. Transaction Profile Issuing.
B. Credit Department:
1. Credit Proposals Processing Procedures.

2. Documentation and Loan Disbursement Procedures.
30
3. Overview on all returns.
C. Foreign Exchange Department:
I. Cash L/C
1. Opening of L/C.
2. Lodgment of Import Bill.
3. Payment against Import Bill.
4. B/E Matching.
5. IMP Reporting.
31
31
II. BTB L/C

1. Export L/C Checking
2. Opening of BTB L/C (Local/ Foreign/ EDF/ EPZ).
3. Lodgment and confirmation of maturity date.
4. Allowing of PC.
5. Payment against realization of Export Proceeds/ Forced Loan.
6. B/E Matching.
7. Reporting.
III. Export
1. Scrutinizing/ Negotiation/ Send on Collection.
2. Follow-up.
3. Realization.
4. Reporting.
IV. Foreign Remittance

Inward
1. FDD.
32
2. FTT.
3. Others.
Outward
1. Endorsement of Traveling.
2. Education/ Treatment/ Others.
3. Cash Rebate.
4. FC Issuing.
5. FDD/ FTT etc.
33
2.18 Internal Environment Analysis of

MBL________
2.18.1 Corporate Structure____________________
Board of Directors
Audit Committee
Morshed Alam, M.P, Chairman
S. M. Feroz Alam, Vice Chairman
MBA, FCMA, Chairman
M. S. Ahsan, Vice Chairman

Alhaj Akram Hossain (Humayun)
Md. Shahabuddin Alam
Md. Anwarul Haque
M. Amanullah
Md. Abdul Hannan
Md. Shahabuddin Alam, Chairman

S. M. Feroz Alam
Mohd. Selim
A.K.M. Shaheed Reza
Alhaj Mosharref Hossain
Mohd. Selim
A.K.M. Shaheed Reza
Managing Director & CEO
Alhaj Mosharref Hossain
M. Ehsanul Haque
Dr. Md. Rahmat Ullah,

Independent Director
Mohd. Selim
Risk Management Committee
Director
Md. Shahabuddin Alam
Dr. Mahmood Osman Imam,

MBA, FCMA, Independent
Dr. Mahmood Osman Imam,
Chief Financial Officer (CFO)
M. Ehsanul Haque
Monindra Kumar Nath
Auditors
Executive Committee
34
Khan Wahab Shafique Rahman &
Alhaj Akram Hossain (Humayun),
Co.
Chairman
S. M. Feroz Alam
Chartered Accountants Qasem &

Co.
M. S. Ahsan
Chartered Accountants
M. Amanullah
Md. Anwarul Haque
Tax Advisor
Md. Abdul Hannan
A.K.M. Shaheed Reza
K. M. Hasan & Co.

Chartered Accountants
2.18.2 Board of Directors____________________
Chairman
Vice Chairman
35
Director
Morshed Alam,
M.P
A. S. M. Feroz
Alam
M. S. Ahsan
Alhaj Akram
Hossain
(Humayun)
Dr. Mahmood
Osman Imam,
MBA, FCMA
Md. Shahabuddin
Alam
Md. Anwarul
Haque
M. Amanullah
Md. Abdul
Hannan
Mohd. Selim
A.K.M. Shaheed
Reza
Alhaj Mosharref
Hossain
Dr. Md. Rahmat
Ulla
36
Managing Director & CEO
M. Ehsanul Haque
2.18.3 Organ gram of Mercantile Bank Limited

Chairman
Board of
Directors
Chief
Adviser
Executive
Policy
Committ
Audit
Committ
Committee
ee
ee
Consultant
Managing Director HRD

Deputy
Add.
Deputy Managing
Directo
Managing
Direct
or
Managing
Director
ID, IT,
GSD, CAD, A&I, GB,

D&M
CREDIT, R&P
Senior Executive Vice

President
Senior Vice
Executive Vice
Senior Vice
President
President
President
Senior Vice President

Vice President
Senior Asst. Vice President

Asst. Vice President
Senior Principle Officer

Principle Officer
Senior Officer
Officer
Junior Officer
Asst. Officer
Figure 01: Organogram of Mercantile Bank Limited
Source: Human Resource Division of MBL Corporate Structure
2.18.4 Corporate Culture____________________
Employees of MBL share certain common values, which helps to create a MBL Culture
The client comes first.
Search for professional excellence.
Openness to new ideas & new methods to encourage creativity.
Quick decision-making.
Flexibility and prompt response.
A sense of professional ethics.
2.18.5 Corporate Resources____________________
2.18.5.1 Marketing
The bank offers a wide range of conventional financial products and services compared to its
competitors. Under conventional deposit schemes it renders savings account, current account,
fixed deposit, short-term deposit account, etc. Shop Finance and Women Loans Scheme are
the two new products of the bank. MBL also offers a wide range of financial products and
services through its branches. MBL finances in project loan, working capital loan, trade
financing, house building financing, contractors financing, cash credit, overdraft, packing
credit, trust receipt, guarantee, letter of Credit, etc. Recently The Bank has signed a contract
with ETN for providing ATM services.
The Bank has an array of tailor-made financial products and services. Such products are Monthly
Savings Scheme, Monthly Profit Payable Scheme, Double Benefit Deposit Scheme, Triple Benefit
Deposit Scheme Consumer Credit Scheme, Lease Finance, Shop Finance, and Personal Loan for
Women. Mercantile Bank Limited has already introduced My-Cash
ATM cards for its customers, giving them 24 hours banking services through Debit/Credit
cards.
2.18.5.2 Finance
Mercantile Bank limited has a conviction of maintaining a strong capital base in carrying on
operating. The operating profit of the Bank stood at BDT 4,410.57 million in 2014 as against
BDT 4,255.70 million in 2013. Net Interest Income of the Bank stood at BDT 5,372.82
million in 2014 as against BDT 4,794.61million in 2013. Total income of the Bank stood at
BDT 19,381.41 million in 2014 from BDT 19,090.71 million in 2013. Interest income
accounted for 86.46%, exchange gains 4.00%, commission 4.02% and other income 5.52% to
total income in 2014 as against 86.90%, 3.53%, 4.11% and 5.46% respectively in 2013.
Interest income of the Bank stood at BDT 16,758.20 million in 2014 from BDT 16,590.37
million in 2013. Interest on loans and advances accounted for 82.60%, interest on Treasury
bill and Bond 16.55% and Other Interest Income 0.85% in 2014. The Board of Directors
recommended 10% cash dividend for the year 2014. The Bank paid out 20% dividend (8%
cash & 12% stock) to the shareholders in 2013.
Financial Year
Particulars
Year-2014
Year -2013
Year -2012
Year -2011
Year -2010
Authorized
Capital
1,910.39
1,370.97
1,207.87
1,070.09
868.43
Paid-Up Capital
868.43
659.96
739.16
611.08
407.22
Capital
Surplus/deficit
435.55
171.02
75.34
60.57
12.00
Total Deposit
13,499.65
12,085.79
9,405.42
7,562.91
11,810.69
Total Loans and

Advances
11,706.00
9,768.85
9,361.09
7,972.80
6,637.77
Income from
Investment
279.60
326.69
166.88
167.13
91.95
Earnings Per
Share (Tk.)
1.61
3.00
2.09
2.84
2.87
Net Income Per

Share (Tk)
1.61
3.00
2.09
2.84
2.87
Table 07: Key Financial performance

Source: Annual Report 2014 of MBL
37
In 2015, the Bank will be more focused on strengthening/consolidation of position by

expansion of its core business portfolios with specific importance to diversify the credit
portfolio across the borrowers and business emphasizing on qualitative asset growth and
thereby, attaining acceptable level of risk and return trade-off. With respect to liability
management, we shall prioritize to buildup sustainable deposit base with more importance on
retail deposits and gradual reduction of reliance on corporate deposits
2.18.5.3 Research &Development
The Bank has started the process of formulating a long-term strategic plan so as to maintain
the momentum of overall growth and strong performance in its core business. The following
special features can be attributed to the Bank.
Though Mercantile Bank is engaged in conventional commercial banking it also

considers the inherent desire of the Modern banking and has launched Temenos T24
online system and established latest online software in the year-2015. The Bank is
committed to continuous research and development so as to keep pace with modern
banking.
The operations of the Bank are computerized to ensure prompt and efficient services
to the customers.
The Bank has introduced camera surveillance system (CCTV) to strengthen the
security services inside the Bank premises.
The Bank has introduced customer relations management system to assess the needs
of various customers and resolve any problem on the spot.
The Bank has also introduced full Online Banking facility to the customer.
2.18.5.4 Human Resource Management
Being a service industry, the success of the banking sector is dependent on techno human
resources. Although the sector is now absorbing substantial number of young post graduate
professionals with comparatively good compensation packages with the objective of training
them appropriately, large number of private banks is dependent on less number of
experienced banking professionals at the top tier. As a result, there is large turnover of
professionals within the sector. In order to keep the professionals in service for long, MBL
follows a structured service rules and compensation package.
The Bank launched long term benefits for the employees like gratuity, contributory
provident fund, house building loan scheme, car loan scheme etc.
The employee turnover in MBL is acceptable.
MBL follows a structured recruitment policy for fresh and experienced officers.
The bank recruited 40 probationary officers through competitive selection process.
So far, the bank has a training institute. It has been using the service of training
institutes of Human Resource Department to train its professionals.
2.18.5.5 Information Technology (IT)

The implementation and use of information technology in MBL, as a third generation bank, is
notable as compared to the industry. The bank has been using Temenos T24 Bank Online
Banking Software since its inception. The branches of MBL are connected through VSAT and
fiber optic cable link. At present, the bank uses in-house developed software such as
Personnel Management Information System (PMIS), CIB, Foreign Exchange Returns
software, etc. Existing system generates a number of basic reports for internal and external
consumption. The bank started online banking facilities on. 5th June 2015. However, the
existing software has limitations and need updating to accommodate the requirement of a
modern banking institution. The architecture of the software has inherent limitations to
handle large volume of transactions and interactivity between different branches and head
office. The bank is required to enhance the security standard of the software to face the global
challenge. Moreover the software needs to be tuned to the production of reports to assist the
management in day-to-day management.
39
2.19 External Environment Analysis of Mercantile Bank Limited
2.19.1 Task Environment

Porters 5 Forces analysis of MBL:
Threat of new Entrants
Threat of substitute products or services
Bargaining power of customers (buyers)

Bargaining power of suppliers
Intensity of competitive rivalry
Criteria
Bargaining
Power of
Buyer
Range
Low
Facilities
Opportunities
Situation
favorable
Information
i. Customers have not power to
change the rules.
ii. Regulation Interest rate and
Charges are always set by the
Bank
i. Bangladesh Bank imposes
the
regulation Branches do not
gather
all access power.
Bargaining
Power of
Suppliers
Medium
Threat
ii. Head office controls the

Unfavorable branches.
iii. Clearing house is
depending
the payment and clears the bill
as
per otherpaymentpartShare
Market Fall down.
i. There are now some new

banks
authorized by Bangladesh
Threat of
New
Entrants
Medium
Opportunities
Favorable
bank.
ii. The new banks are creating
new demand that is a challenge
for MBL.
i. The bank have the huge
Threats of
Moderately
Substitutes
Low
Threat of
High
Opportunities
Unfavorable
demand
for customer to fulfill the
demand
Threats
Unfavorable
i. The competitors are strong

enough to catch the new
customer
with suitable area.
Rivals
ii. Branches are not enough.

Table 08: Porters 5 Forces analysis o
2.19.2 SWOT Analysis of MBL____________________
In the competitive area of marketing are SWOT analysis is based on product, price, place and
promotion of a financial institution like private Bank. By doing the SWOT analysis it is
possible to find out the strengths, Weaknesses, opportunities, and threats of MBL. From the
SWOT analysis it can figure out on going scenario of the Bank.
Strengths
Good asset quality.
Weaknesses
Depends on fixed deposit.
Satisfactory business
growth.
Limited delegation of
power.
Diversified product line.
Good profitability.
Experienced top
compliances.
management.
MIS at primary stage.

Weak in shariah
Limited branch network.
Threats
Increased compliance in
Good operating efficiency.
Opportunities
SME business.
Real time online banking.
the
market.
Market pressure for Dollar crisis.
Market pressure for increasing the

SLR.
In SWOT analysis two factors act as prime movers:
Internal factors which are prevailing inside the concern which include Strength and
Weakness.
On the other hand another factor is external factors which act as opportunity and threat.
2.19.2.1 Strengths____________________
MBL offers a wide variety of loans for the SMEs to meet specific needs of the
customers. The products include Overdraft, Term Loan, Work Order Finance, Lease
Finance, Trade Finance, etc. It offers even some non-funded facility that can meet the
whole range of a particular need like Bank Guarantee with Work Order Finance, L/C
facility with Loan against Trust Receipt (LTR).
The bank is very flexible in terms of security against the facilities it offers to the client.
It comprises various cash flow of the business as security against loan like
assignment of bill in the work order finance, account receivables etc.
The pricing of the products is comparatively lower than other financial institutions. This
becomes possible because the value of non-performing loan is very low and that
leads a small amount for provisioning.
The bank provides the loans aiming at different clusters of the country .The bank fixed
different strategy to finance a specific business community in a cluster around
the branches.
MBL has the reputation of being the provider of good quality services too its potential
customers.
2.19.2.2 Weaknesses____________________
There is no fixed sales force in the Bank for the marketing of SME finance.
Many people who are now working in SME financing in the branch level have lack of
in-depth knowledge in this line.
At Dhaka most of the branches are corporate customer oriented and there is no sufficient
number of SME booths in the city. So marketing and expanding the SME
loan products in the city area has become very difficult.
MBL is avoiding the marketing campaign for their new services. This is why the
customers do not know about them fully what they are offering.
2.19.2.3 Opportunities____________________
MBL has many rural and semi urban branches where there are many business
communities which are yet to be penetrated by the formal financial institutions. So
there is a huge scope for expanding the business in these areas.
It has good relation with various multinational organizations like South-Asia Enterprise
Development Facility (SEDF), USAID, World Bank, etc. that can provide
assistance for developing and expanding this sector.
Emergence of E-banking will open more scope for MBL to reach the clients not only in
Bangladesh in Bangladesh but also in global banking arena. Introducing any branch
banking through online is great opportunity to them
Since MBL deals mostly with credit commerce related business, Credit card division
would allow them to make a huge profit in near future.
2.19.2.4 Threats____________________
Other commercial banks like BRAC Bank Limited, Eastern Bank Limited and foreign
Bank like Standard Chartered Bank are aggressively marketing the SME
financing products and services.
Nationalized banks very often offer the loans at lower cost in the form of corporate loan
without properly distinguishing the loan type and business aspect.
Most of the SMEs are proprietorship concerns and in many cases they lack in ready
successors. So in the case of the death of the proprietor the recovery of the loan will
be in jeopardy.
Sometimes these business firms borrow excessively without properly analyzing the
business scenario and need. For this reason the highly leveraged firms may collapse
at any time.
2.20 Corporate Social Responsibility____________________
As Mercantile Bank Limited is a non-profit subsidiary, Mercantile Bank Limited Foundation has a
unique role to play, providing leadership and making a difference for CSR in the country. For us, it is
all about meeting some of the basic needs of unprivileged class of the society. They have always
focused on providing or making need based services available for our priority target population. Now
they are expanding their field of vision to include the challenging realities of our countrys huge
unmetunderstandingneedsoftherelationshipsand amongtheireconomic, national and human systems.
Getting these basic needs also requires them to think beyond the usual boundaries of work. During its
birth to till date the Foundation undertook different CSR activities. Since the outset of the Mercantile
Bank Limited Foundation it undertook good number of CSR activities.
The following CSR activities are done by Mercantile Bank Limited Foundation:
Scholarship for the unprivileged &disabled but meritorious students
Blood donation by the employees of the Bank
Free eye camps
Relief for the disaster affected people
Distribution of blankets among the cold prone destitute
Sewing machine training centers for assisting unprivileged women of the society
Launching anti-drug movement by arranging seminar, rally, publishing stickers and

established an anti-drug care center
Old Home for the neglected old aged persons
Arranging Art competition for the children
Holding seminar on Holy Ramadan & Qirat competition
Donation of tk. 50.00 lac to the National Liberation Museum
Medical Team at Biswa Ejtema (Tongi)
Solar Village at Kishoregonj
Donation to Bangladesh Olympic Association Tk.50.00 lac Mobile medical Team
Relief for AILA affected Peoples
Donation to the prime Ministers fund for
Donation to SK. Jamal Dhanmondi Club Ltd.
Presenting a new car to the Cricketers.
2.21 Current Performance____________________

2.21.1 Distribution of Market Share
Total 739,156,701 ordinary shares of the Bank were outstanding as on December 31, 2014.
Share holding position as on same date is as under:
Ownership
Composition
Number of
Shares 2014
Number of
Shares 2013
Sponsors/Directors
291,182,043
260,213,640
Government
Financial Institution
49,676,957
48,294,500
6.72%
7.00%
Foreign
General Public
398,297,701
351,453,201
53.89%
54.00%
100.00%
100.00%
Total
739,156,701
% of total shares % of total shares
659,961,341
Table 09: Market share of MBL
Figure 02: Distribution of Share
2014
39.39%
2013
39.00%
2.21.2 Return on Investment (ROI)

The return on Investment (ROI), which is often calledInvestment, the f measures the overall Gain from
investment from the Cost. The higher the ratio is better.
ROI = (Gain from Investment Cost of Investment) / (Cost of investment)
Calculation:
Year
2014
2013
2012
2011
2010
G I C I
1,093.71
2,464.53
4,131.41
3,009.06
3,218.40
Year
Return On Investment
CI
57,262.76
1.04,429.23
3,15,374.81
3,23,554.83
3,83,105.95
2014
1.91%
2013
2.36%
2012
1.31%
Ratio
1.91%
2.36%
1.31%
0.93%
0.84%
2011
0.93%
2010
0.84%
Graphical Presentation:
ROI
2.50
%
2.00
%
1.50
%
1.00
%
0.50
%
0.00
%
Ratio
2014
2013
2012
2011
1.91%
2.36%
1.31%
0.93%
Figure 03: Return on Investment
2010
0.84%
Interpretation:
Return on Investment is an indicator of how profitable a company is on Investment. This ratio
is used annually to compare the business performance to its norms. MBL ROI is moving
from 0.84% to 1.91% in the preceding 5 years. It can be said that MBL increasing year by year. This is good
sign for the Bank.
2.21.3 Return on Asset (ROA)

The return on asset (ROA), which is often c the overall effectiveness of management in generating profits
with its available assets. The
higher the ratio is better.
Return on Asset (ROA) =Net Profit after tax/Total Asset

Calculation:
Net Profit After

Year
2014
2013
2012
2011
2010
Tax
118.85
197.87
138.15
175.57
142.53
Total Assets
16,847.41
14,484.19
15,323.18
11,665.53
8,471.01
Ratio
0.76%
1.33%
1.03%
1.70%
1.86%
Year
Return On Asset
2014
0.76%
2013
1.33%
2012
1.03%
2011
1.70%
2010
1.86%
ROA
3.00
%
2.00
%
1.00
%
0.00
%
2010
2011
2012
2013
2014
Ratio 1.91%
2.36%
1.31%
0.93%
0.84%
Figure 03: Return on Assets
Interpretation:
Return on Assets is an indicator of how profitable a company is. This ratio is used annually to
compare the business performance to its norms. The banksROA is moving from 1.86% to
.76% in the preceding 5 years. Itis decreasingcan beyear said by year. This is not enough good sign for the
Bank.
47
2.21.4 Return on Equity (ROE)
The Return on Equity measures the return ea higher return is the better off the owners.
Return on Equity=Net Profit after Tax/ Shareholders equity
Calculation:
Year
2014
2013
2012
2011
2010
Net Profit After Tax

118.85
197.87
138.15
175.57
142.53
Year
Return on Equity
2014
9.11%
Shareholde
1350.94
1257.98
1029.43
852.69
574.02
2013
16.84%
Ratio
9.11%
16.84%
13.42%
20.59%
24.83%
2012
13.42%
2011
20.59%
2010
24.83%
ROE
30.00
%
25.00
%
20.00
%
15.00
%
10.00
%
5.00%
0.00%
Ratio
2010
24.83%
2011
20.59%
2012
2013
13.42%
16.84%
2014
9.11%
Figure 04: Return on Equity

Interpretation:
The return on equity ratio was decreasing from 2010 to 2014. That was decreased from
24.83% to 9.11%. This is not desirable. So, the management should work hard to increase the
return associated with equity. Though return on equity has slightly increased in 2013 from
preceding year, still it is significantly deviated from that of in 2013.
48
2.21.5 Earnings per Share (EPS)

The firms Earning peryof interestsharetopresent(EPS)stockholders areand gen management. The EPS
represents the number of dollars earned on behalf of each outstanding
share of common stock. The earnings per share are calculated as follows:
Earnings per Share =Earnings available for common stock holder/No of shares of
common stock outstanding
Calculation:
Year
2014
2013
Earnings available CSH

739.16
659.96
2012
2011
2010
Year
EPS (BDT)
611.08
496.81
407.22
2014
1.61
No of shares CSO
459.10
219.98
292.38
174.93
141.89
2012
2.09
2013
3.00
Amount
1.61 Tk.
3.00 Tk.
2.09 Tk.
2.84 Tk.
2.87 Tk.
2011
2010
2.84
2.87
EPS
3.5
3
2.5
2
1.5
1
0.5
0
BDT
2010
2011
2012
2013
2014
2.87
2.84
2.09
1.61
Figure 05: Earnings per Share

Interpretation:
The graph shows that, EPS is highest in 2013 and there is a downward trend in EPS from
year 2013 to 2014. But MBL has tried to increase its EPS as shown by the upward trend in
EPS.
49
2.21.6 Price Earnings Ratio

The price or earning (P/E) ratio is commonly used to assess the investor appraisal of share
value. The price Earning (P/E) ratio is calculated as follows
Price Earnings Ratio=Market price per share of common stock/Earning per share
Calculation:
Year
2014
2013
2012
2011
2010
Market price per share

22.76 Tk.
38.64 Tk.
25.52 Tk.
39.28 Tk.
24.73 Tk.
Year
EPS (Times)
2014
14.14
Earnings per share

1.61 Tk.
3.00 Tk.
2.09 Tk.
2.84 Tk.
2.87 Tk.
2013
12.88
2012
12.21
Times
14.14
12.88
12.21
13.83
8.62
2011
13.83
2010
8.62
P/E
Ratio
16
14
12
10
8
6
4
2
0
Times
2010
8.62
2011
2012
2013
2014
13.83
12.21
12.88
14.14
Figure 06: P/E Ratio

Interpretation:
It measures the level of price that the investors are paying for per taka of earnings offered by
the bank. From the graph I have seen that in year 2014 the investors has paid maximum
amount of price for per unit of earnings in which the bank issued its share in the market. This
indicates the investors are paying more and willing to invest in MBL.
50
2.21.7 Debt Ratio

The
debt ratio measures the preparation of t
Debt ratio= Total Liabilities/Total Assets

Calculation:
Year
2014
2013
2012
2011
2010
Total Liabilities
15,553.87
13,246.99
14,337.98
10,965.59
8,016.88
Year
Debt Ratio
2014
0.92
Total Assets
16,847.41
14,484.19
15,253.18
11,665.53
8,714.01
2013
0.91
2012
0.94
Scale
0.92
0.91
0.94
0.94
0.92
2011
0.94
2010
0.92
Debt Ratio
0.945
0.94
0.935
0.93
0.925
0.92
0.915
0.91
0.905
0.9
0.895
2010
2011
2012
2013
2014
0.92
0.94
0.94
0.91
0.92
Debt
Ratio
Figure 07: Debt Ratio

Interpretation:
The graph shows that debt ratio of MBL is fluctuating. The MBL has reduced its debt ratio
and thereby it has reduced financial leverage and financial risk.
51
2.22 Financial Highlights of Mercantile Bank Limited________
(Taka in Crore)
Particulars
Year- 2014
Year- 2013
Year- 2012
Year- 2011
Year- 2010
739.16
659.96
611.08
496.81
407.22
1,910.39
1,370.97
1,207.87
1,070.09
868.43
435.55
171.02
75.34
60.57
12.00
Total Assets
16,847.41
14,484.19
15,253.18
11,665.53
8,714.01
Total Deposits
13,499.65
12,805.79
11,810.69
9,405.42
7,562.91
Total Loans and

Advances
Total Contingent
Liabilities
Credit Deposit Ratio
11,706.00
9,768.85
9,361.09
7,972.80
6,637.77
6,079.86
5,175.36
5,175.36
4,194.84
3,798.95
86.71%
80.83%
79.26%
81.68%
87.77%
Percentage of Total
Loans and Advances
Profit after Tax and
Provisions
Amount of Classified
Loans during the Year
Provisions against
Classified Loans
Provision Surplus
4.13%
4.77%
4.37%
2.61%
1.77%
118.85
197.87
138.15
175.57
142.53
483.16
465.98
409.09
89.68
(7.25)
240.52
242.51
93.29
71.82
61.75
0.27
5.91
0.99
0.75
0.83
Cost of Fund
7.90%
8.93%
10.02%
9.63%
7.94%
Interest Earning Assets
13,971.20
11,983.34
12,593.67
10,307.69
7,896.45
Non Interest Earning

Assets
Return on Equity
2,876.22
2,500.87
2,695.51
1.357.84
925.30
9.11%
16.84%
13.42%
20.59%
24.83%
Return on Assets
0.76%
1.33%
1.03%
1.70%
1.86%
Income From
Investments
Earnings Per Share
279.60
326.69
166.88
167.13
91.95
1.61
3.00
2.09
2.84
2.87
Net Income per Share
1.61
3.00
2.09
2.84
2.87
Price Earnings Ratio
9 Times
6 Times
9 Times
10 Times
14 Times
Paid up Capital
Total Capital Fund
Capital Surplus
Table 10: Financial Highlights of MBL
Chapter-3
Brief Overview on SME

Financing policy of MBL
3.1. Definition of SME (Small and Medium Enterprise):
An SME (Small & Medium Enterprise) is defined in the economics textbook as, A firm managed
in a personalized way by its owners or partners, which has only a small share of its market and is
not sufficiently large to have access to the stock exchange for raising capital. SMEs ordinarily
have few accesses to Formal channels of finance and depend primarily upon savings of their
owners, their families & friends. Consequently, most SMEs are sole proprietorships & partnerships.
As with all definitions, this one is not perfect. Depending on context therefore definition of an SME
will vary.
Small Enterprise:
Manufacturing: organizations having less than 60 employees/workforce and total

assets of Tk. 50.00 thousand to Tk. 1.00 crore (excluding land and buildings)
Trading: organizations having less than 20 employees/workforce and total assets of Tk.
50.00 thousand to Tk. 50.00 lac (excluding land and buildings)
Service: organizations having less than 30 employees/workforce and total assets of Tk.
50.00 thousand to Tk. 1.00 crore (excluding land and buildings)
Medium Enterprise:
Manufacturing: organizations having less than 100 employees/workforce and total

assets of Tk.1.00 crore to Tk. 5.00 crore (excluding land and buildings)
Trading: organizations having less than 50 employees/workforce and total assets of Tk.
50.00 lac to Tk. 02.00 crore (excluding land and buildings)
Service: organizations having less than 50 employees/workforce and total assets of Tk.
30.00 lac to Tk. 1.00 crore (excluding land and buildings)
3.2 Target segments for SME Financing:

1. Hospitals and Clinics
2. It related business like Medicine shops
3. Agricultural and Agricultural Development items
4. Fishing and fishing business promotions
5. Telecommunication
6. Transportation and communication
7. Forestry and furniture
8. Construction business and housing development
9. Leather marketing and leather goods
10. Knitwear and readymade garments
11. Plastics and other synthetics
12. Entertainment
13. Photography
14. Hotel and tourism
15. Ware house and container services
16. Printing and packaging
17. Gunning and bailing
18. Pathological laboratories
19. Cold storage
20. Horticulture-flower growing and marketing
21. Food and oil processing plants
22. Higher education and expertise knowledge society
3.3 Purposes of SME Financing:
1. Working capital
2. Purchase of capital machinery
3. Delivery van/transport for business purposes
4. Refurnishing office/ business premises
5. Other eligible portfolio of the bank
6. Extension of Business
7. Purchase goods for Business
8. Decoration for shop and office
9. Enhance current capital
10. Introduce new product line
11. Increase the value-added service for product

12. Purchase share for another business
13. Purchase of goodwill
3.4 SME Financing in Bangladesh and the Role Played by MBL

The growth of small and medium enterprises (SMEs) in terms of size and number has a
multiplier effect on the national economy, specifically on employment, GDP growth, and
poverty reduction in Bangladesh. In the past, the government attempted to provide SMEs with
access to finance by targeted lending; such as through directives that a certain share (e.g. 5
percent) of a bank's loan portfolio was to be set aside for small and cottage industry financing.
The Bank of Small and Cottage Industries (BASIC) were set up in 1988 with the objective of
financing small and cottage industries. Afterwards, several commercial banks have come
forward with special packages for SME development. One such initiative is the 'Gharoa' project
of the Janata Bank Limited. The Bangladesh Bank is also providing refinance facilities by using
its own fund as well as channeling funds from IDA and ADB.
SMEs play a very important role in the wider economy and, significantly create a larger than
proportionate share of new employment. They are highly dynamic. Some SMEs grow to challenge
existing big firms. Many of todays giants e.g. Honda, Samsung, Tata, Birla etc. started small. Who
is not aware of the birth of Microsoft in the Gates family garage! The unique characteristic of an
SME as an impressive creator of new jobs, underscores its importance in capital & technology poor
but abundantly labor rich economy as that of Bangladesh.
SME (Small & Medium Enterprise) Banking act as a vital Banking roles in today Bangladesh
Economy. Significant number of small and Medium Enterprise now today depend on it. Most of
the businesses now in Bangladesh are nearly all funded by SME loan. Most of the cases it found
that 87% of the business in Bangladesh are Small and Medium Enterprise. In most of the cases
economy of Bangladesh depends on it. More than 30 million of people in Bangladesh are now
depend on it. Observes all of these small and medium enterprise activities Bangladesh bank
offered the privileges to the Small and Medium Enterprise sector.
For Small and Medium Enterprise Bangladesh bank offered the reasonable bank rate through all
the commercial banks. Today SME banking is a profitable sector for all commercial banks. MBL
(Mercantile Bank Limited) as well as provide this Banking service to its customer also.
Mercantile Bank Limited provided SME (Small & Medium Enterprise) since year 2004 which
was one of the glorious parts for Mercantile Bank Limited. Mercantile Bank Limited has
provided a very satisfactory SME (Small & Medium Enterprise) loan in various sectors since it
has started the journey towards SME. Now in present Mercantile Bank Limited has provided
nearly 34.25 million taka in SME (Small & Medium Enterprise) loan which is re-financed by
Bangladesh Bank. Number of beneficiary institute is nearly 127 and amount re-financed for
every institution is 0.27 million taka. The SMEs worldwide are recognized as engines of
economic growth. The commonly perceived merits often emphasized for their promotion
especially in the developing countries like Bangladesh include their relatively high labor
intensity,
While the SMEs are characteristically highly diverse and heterogeneous, their traditional
dominance is in a few industrial sub-sectors such as food, textiles and light engineering and
wood, care and bamboo products. According to SEDF sources quoted from ADB (2003), food
and textile units including garments account for over 60% of the registered SMEs. However, as
identified by various recent studies, the SMEs have undergone significant structural changes in
terms of product composition, degree of capitalization and market perpetration in order to adjust
to changes in technology, market demand and market access brought by globalization and
market liberalization. In terms of number of establishment, the SME sub-sector has exhibited
notable dynamism, registering reasonably high growth rates over the decades of 1980s and
1990s. This numerical expansion of the SMEs has contributed towards substantial new business
creation in the industrial economy of Bangladesh. Available evidence suggests that the SMEs
were responsible for giving birth to 60 percent of the new industrial enterprises during 1980s.
3.5 Standard steps in the SME lending process:

Most bank loans to individuals arise from a direct request from a customer who approaches a
member of the banks staff and asks to fill out a loan application. Business loan requests, on the
other hand, often arise from contacts the banks loan officers and sales representatives make area.
Once a customer decides to request a loan, an interview with a loan officer usually follows right
away, giving the customer the opportunity to explain his or her credit needs. That interviews is
particular important because it provides an opportunity for the banks loan officer to assess the
customers character and sincerity of purpose.
If a business or mortgagee loan is applied for a site visit is usually made by an officer of the
bank to assess the customer location and the condition of the property and to ask clarifying
questions. The loan officer may contact other creditors who have previously loaned money to
this customer to see what their experience has been. Did the customer fully adhere to previous
loan agreements and keep satisfactory deposit balances?
If all is favorable to this point, the customer is asked to submit several crucial documents the
bank needs in order to fully evaluate the loan request, in cluing complete financial statements
and in the case of a corporation, board of directors resolutions authorizing the negotiation of a
loan with the bank. Once all documents are on file the credit analysis division of the bank
conducts a thorough financial analysis of them aimed at determining whether the customer has
sufficient cash flows and backup assets to repay the loan. The credit analysis division they
prepare a brief summary and recommendation, which goes to the loan committee for approval.
On large loans, members of the credit analysis and the loan committee over strong and weak
points of a loan request.
If the loan committee approves the customers request, the loan offices or the credit committee
will usually cheek on the property other assets to be pledged as collateral in order to ensure that
the bank has immediate access to the collateral or can acquire title to the property involved if the
loan agreement is defaulted. This is often referred to as perfecting the banks claim to collateral.
Once the loan officer and the banks loan committee are satisfied that both the loan and the
proposed collateral are sound the note and other documents that make up a loan agreement are
prepared and are signed by all parties to the agreement.
3.6 Credit Analysis of SME Loan:
The division of bank responsible for analyzing and making recommendations on the facts of
most loan applications in the credit department. Experience has shown that this department must
satisfactorily answer three major questions regarding each loan application:
Is the borrower creditworthy? How do you know?
Can the loan agreement be properly structured and documented so that the bank and its
depositors are adequately protected and the customer has a high probability of being able
to service the loan without excessive strain?
Can the bank perfect its claim against the assets or earnings of the customer so that in the
event of default, bank funds can be recovered rapidly at low cost with low risk?
Lets look in turn at each of these three issues in the yes or No decision a bank must make on
every loan request.
3.7 Creditworthiness of SME Loan:

The question that must be dealt with before any other is whether or not the customer can service
the loans-that is pay out the credit when due, with a comfortable margin for error.
a. Character: The loan officer must be convinced that the customer has a well defined purpose
for requesting bank credit and a serious intention to repay. If the officer is not sure exactly why
the customer is requesting a loan, this purpose must be clarified to the banks satisfaction. Once
the purpose is known, the loan officer must determine if is consistent with the banks current loan
policy. Even with a good purpose, how ever, the loan the officer must determine that the
borrower has a responsible attitude to ward using borrowed funds.
b. Capital: The loan officer must be sure that the customer requesting credit has the authority to
request a loan and the legal standing to sign a binding loan agreement. This customer
characteristic is knows as the capacity to borrow money. The loan officer must be sure that the
representative from a corporation asking for credit has proper authority from the company board
of directors to negotiate a loan and sign a credit agreement binding the corporation. Usually this
can be determined by obtaining a copy of the resolution passed by a corporate customers board
of directors, authorizing the company to borrow money.
c. Cash: This key feature of any loan application centers on the question: Does the borrower
have the ability to generate enough cash, in the form of cash flow, to repay the loan? In general,
borrowing customers have only three sources to draw upon to repay their loans:
Cash flows generated from sales or income.
The sale or liquidation of assets or
Funds raised by issuing debt or equity securities.
Any of these sources may provide sufficient cash to repay a bank loan.
d. Collateral: In assessing the collateral aspect of a loan request, the loan officer must ask, does
the borrower posses adequate net worth or own enough quality assets to provide adequate
support for the loan? The loan officer is particularly sensitive to such feature as the age,
condition and degree of specialization of the borrower assets.
e. Condition: The loan officer and credit analyst must be aware of recent trends in the borrower
line of work or industry and how changing economic conditions might affect the loan. A loan
can look very good or paper only to have its value eroded by declining sales or income is a
recession is a recession or by the high interest rates occasioned by inflation.
f. Control: The last factor in assessing a borrower creditworthy status in control which center on
such question as whether changes in law and regulation could adversely affect the borrower and
whether the loan request meets the banks and the regulatory authoritys standard for loan quality.
3.8 Properly structured and documented proposal On SME:
The loan officer is responsible to both the customer and the banks depositors and stockholders
and must seek to satisfy the demands of all. This requires, first the drafting of a loan agreement
that meets the borrowers need for funds with a comfortable repayment schedule. The borrower
must be able to comfortable handle any required loan payments, because the banks success
depends fundamentally on the success of its customers. If a major borrower gets in to trouble
because it is unable to service a loan, the bank may find itself in serious trouble ass well. Proper
accommodation of a customer may involve lending more or less money than asked for over a
longer or shorter period than requested. Thus, the banks loan officer must be a financial
counselor to customers as well as a conduit for their loan application. A property structured loan
agreement must also protect the bank and those it represent-principally its depositors and
stockholders- by imposing certain restrictions on the borrowers activities when these activities
could threaten the recovery of bank funds. The process of recovering the banks funds-when and
where the bank can take action to get its funds returned- also must be carefully spelled out in a
loan agreement.
3.9 Credit Risk Evaluation on SME Loan:
An accurate appraisal of risk any credit exposure is highly subjective matter involving
quantitative and quantitative judgments, where Quantitative factors refer to the analysis of
financial statement rations. Quantitative factors refer to the assessment of management, industry
position, customer/supplier relations, account performance and reputation. Advances
accommodate the medium and long term financing for capital machinery and equipment of new
industries and of the existing units who are engaged in manufacturing goods and services. Bank
usually analyzes both quantitative and qualitative factors in a combined way for assessing
borrowers financial position. In evaluating any credit proposal, the analyst uses the following
distinct and logical steps:
Evaluating the past performance of the borrower
Assessing the risk of failure by identifying factors in the borrowers present condition
and past performances which indicates likelihood of success to repay the loan.
Forecasting the probable future condition of the borrower and deciding whether to accept
or reject a loan proposal
Setting terms and condition of credit facilities
Obtaining the sanction documents and disbursing the loan
Monitoring performance and ensuring repayment/ recovery
The most pertinent and prime part of the process is assessment of risk of failure to repay deals
with the overall lending risk combining
Business risks
Financial risks
Management risk
Security risks
Environmental risks
The following basic aspects are taken into consideration while conducting business risks,
financial risks management risks security risks and environmental risks.
3.10 Collateral Security against SME Loan:
While large corporations and other borrowers with impeccable credit ratings often borrow unsecured. With
no specific collateral pledged behind their loans except their reputations and ability to generate earnings.
Most borrowers at one time or another will be asked to pledge some of their assets or to personally guarantee
the repayment of their loans. Getting a pledge of certain borrower assets as collateral behind loans. Really
serves two purposes for a lender. If the borrower cant pay, the pledge of collateral gives the lender the right
to seize and sell those assets designated as loan collateral, using the proceeds of the sale to cover what the
borrower did not pay back. Secondly, collateralization of a loan gives the lender a psychological advantage
over the borrower. The goal of a bank taking collateral is to precisely define which borrower assets are
subject to seizure and sale and to document for all other creditors to see that the bank has a legal claim to
those assets in the event of nonperformance on a loan. Collateral security will be required for the loan
amounting more than Tk.5.00 lac. However two personal guarantees acceptable to the bank should be taken
for all SME loans.
3.11 Standard loan review process of SME:

Carrying out review of all types of loans on a periodic basis for example, every 30, 60, or 90 days the largest
loan outstanding may be
routinely examined, along with a random sample of smaller loans. Structuring
the loan review process carefully to make sure the most important features of each loan cheeked including:
The record of borrower payments. To ensure that the customer is not falling behind the planned repayment
schedule. The quality and condition of any collateral pledge behind the loan. The completeness of loan
documentation to make sure the bank has access to any collateral pledge and possesses the full legal authority
to take action against the borrower in the courts if necessary. Mercantile Bank Limited generally gives shortterm fund to various sector of the country like industrial loan, agricultural loan, consumer credit and so on.
Short-term loan is generally payable on demand or at short notice. . In practice however banks allow midterm
and also some long-term loan. Bank's credit creates deposit in the country .It means that the borrower of the
credit spends that money in making payment to his other creditors, Those people deposit that money partly or
wholly to their accounts on their respective banks.
3.12 Limit for SME Loan:
Maximum limit for Small enterprises is Tk. 20.00 lac (Term loan and Working capital) and Medium
Enterprise is Tk. 50.00 lac (Term loan and Working capital)
3.13 Eligibility of the client:

Different banks have set up different criteria to get the loan. Among them the commons are:
Age 21 to 60 years
Reputed businessman, Service holder in government, semi government organization,
autonomous
bodies, corporations, multinational corporations, local renowned companies, teachers of educational

institution, officers of armed forces, members of professional bodies, and relatives of banker will get
privileged. The applicant must have a credible reputation..
The rules for the businessmen to get credit from are that monthly disposable income should not be less
than taka 10,000/- or three times of the monthly installment. Credit not available for minors and classified
loan borrower by CIB report.
3.14 Valuation:
Valuation of property, provided as security, should be done by a survey firm enlisted with the bank prior to
sanction/ disbursement of loans.
3.15 Insurance:
Fire insurance and other insurance should be done at the cost of the customer. In Case in SME loan bank will
must prefer the assets which is less risky. In case of risky project bank avoid financing the loan. It is well for
both borrower and bank it ensure the property.
3.16 Repayment of loan:

For term loan maximum 36 installment and for working capital maximum 12 installment. 40% of the loan
should be recovered within 1st 6 months and remaining 60% should be recovered within next 6 months. At
maturity the loan will be fully adjusted. After repayment of 75% of the loan the customer may apply for new
credit facility.
3.17 Application Procedure:
Application procedures include the following steps:
Prescribed application from dully filled in and signed by the clients.
Submission of the application along with supporting documents.
3.18 Selection of Borrower:
A. Small and Medium enterprise financing, like other credit facilities must be subject to the bank.
Management process set up for this particular business. The process may include, identify source
of repayment and assign customers ability to repay, expected future cash flows, his/her past
dealing with the bank, the net worth and information from CIB. The bank must identify the key
diverse of their borrowers business, the key risk to their businesses.
B. At the time of sanctioning facility under various modes of SME financing, a written declaration
shall be obtain from the other institution to ensure that the total exposure in relation to the
repayment capacity of the customer does not except the reasonable limits as laid down in the
approved policies of the ban k as well as to help avoid espousers having multiple facilities.
C. Age limit: the age of the proprietor/ partners/ directors must range between 21 years to 60 years.
3.19 Repayment arrangement:

Consumer will repay the loan 24/36 monthly installment, In case of loan over taka I, 00,000 the 36
installments will be allowed,
a. The borrower will have to submit the post-dated account payee cheques (one for each installment) in
favor of the Bank before the disbursement of the loan.
b. The installment will be payable within the first week of every month starting from the following
month of disbursement of the loan.
c. Penalty for delay payment will be charged @ taka 50 if the loan installment is not paid within 15 days
from the 8th day of each month and @ taka 75 for further delay of each 15 days.
SME Products of Mercantile Bank at a glance
Then head office will evaluate the proposal and upon due approval send the proposal to the branch.
3.4.2.2 Approval Process

to the documentation. It is a very important part of credit activities. Failure of proper documentation may
lead to a loss of bank in case of clients failure to repay it. If all the charge documents are not maintained
properly then bank may fail to take any legal action against the defaulter.
Legal Documents
1)
Sanction Letter Accepted by Entrepreneur
2)
Demand Promissory Note
3)
General Loan & Collateral Agreement
4)
Hypothecation of Debts and Assets
5)
Letter of Hypothecation
6)
Continuing Guarantee/Personal Guarantee
7)
Letter of Installment
8)
Letter of Disbursement
9)
Letter of Disclaimer
10) Memorandum of Deposit of Cheque

11) Hypothecation of Fixed Assets (for the manufacturing and fixed asset financing)
12) Letter of charge/ Lien and set off (for FDR)
13) Legal opinion for Registered Mortgage (if required)
14) Registered Mortgage Deed Vetted by Lower
15) Registered Mortgage Receipt
16) Irrevocable General Power of Attorney (IGPA)
17) Insurance of Covering Risk

18) Other usual charge documents
5.4.2.4 Disbursement
Proper documentation and approval are necessary prior to the disbursement of loan facilities. Security
documents are prepared in accordance with approval terms are legally enforceable. Standard loan facility
documentation that has been reviewed by legal counsel is used in all cases. Disbursements under loan
facilities are only made when all security documentation is in place. CIB report reflects or includes the name
of all lenders with facility, limit and outstanding. All formalities regarding SME loans are guided by
Bangladesh Bank circulars and related section of Banking Companies Act.
After disbursement tasks
End use of funds to be certified by branch/unit recommending the facilities:
In case of fixed assets purchase financing, the respective branch/unit/center will
Obtain minimum 3 price guarantee/indents/pro-forma invoices and upon verification of same and
Issue a certificate confirming the purchase of the fixed assets as per prescribed format
The respective branch/unit/center will obtain stock reports as per BAs prescribed format of the borrowers on
1st time after 2 months and next quarterly basis and upon review of same for drawing power send to SME
Loan administration department at corporate office.
3.4.2.5 Credit Monitoring
To minimize credit losses monitoring procedure and systems are in place that provides an early indication of
the deteriorating financial health of a borrower. At a minimum, systems are in place to report the following
exceptions to relevant executives to relevant in CRM and RM team.
v Past due principal or interest payment, past due trade bills, account excesses and breach of loan covenants.
v Loan terms and conditions are monitored financial statement are received on a regular basis, and any
covenants breaches or exceptions are referred to CRM and the RM team for timely follow up.
v Timely corrective action is taken to address findings of any internal, external or regular inspection or audit.
v All borrower relationship or loan facilities are reviewed and approved through the submission of a credit
Application at least annually.
v Early alert account is one that has risk or potential weakness of material nature requiring monitoring,
supervision, or close attention by management.
After disbursement the most vital task of back is to ensure timely collection of the loan repayment. And for
this proper monitoring is required.
5.4.2.6 Classification/Credit Risk Grading
The loan administration division/credit division will have full authority to assign Credit Risk Grading and to
classify any loan as default i.e., SUP, GD, ACCPT, MG/WL, SMA, SS, DF, BL on qualitative judgment
criteria. And we also prepare report on classified loan each month and send it to Bangladesh Bank through
Corporate office. The classified listing and provision are as follows:
Loan Status
Overdue Installments
Provision percentage
Unclassified
Less than 6
1%
Specially
Mentioned 3 installments
2%
Account (SMA)
Substandard
6 installments
20%
Doubtful
12 installments
50%
Bad Debt
18 installments
Table 5: SME Loan Classification/Credit Risk Grading
100%
Classified loans are non-performing assets of bank and are a matter of great concern. Monetary authority also
is cautious about these loans.
5.4.2.7 Credit Recovery
Days Past Due (DPD) Collection Action
1-14
Letter, Follow up &Persuasion over phone
15-29
1st Reminder letter & Serial. No. 1 follows
30-44
2nd reminder letter + Single visit
45-59
3rd reminder letter

Group visit by team member
Follow up over phone
Letters to Guarantor, Employer, reference all above effort follows
Warning on legal action by next 15 days
60-89
Call up loan
Final Reminder & serve legal notice
Legal proceedings begin
Repossession starts
90 and above
Telephone calls/ Legal proceedings continue

Collection effort continues by officer & agent
Letter to different banks/Association

Table 6: SME Loan Recovery Steps
4.5 Risk Avenues & Preventive Measures of Mercantile Bank
Risk Avenues
Preventive Measures
Fund Diversion Get in writing from the client the list of goods to be purchased for working
capital & write in credit file

Take phone no. contract with supplier to confirm
Call the vendor/supplier and recheck if he is actually planning to purchase
from him
Inform the client about consequences of fund diversion & default
Monitor/visit after one week and check inventory, sales records & invoice. Put
this in the credit file
Over financing
Loan size should be justified

Reduce this percentage if too many assumptions are made while calculating
profit
Reduce loan tenor & loan size especially in case of working capital finance.
Assess Sales turnover
Wrong selection Assess & select customer based on the 5Cs

Absconding
Regular monitoring
Client
Check if inventory is decreasing

Ask customer how he will repay
Watch out for warning signs
Ask the client why stock is decreasing & tell him to correct the position
Business
stops Fire, unfavorable change in govt. policy, natural disaster etc. these are cases
operating
where owners character is most important

These are situations over we have little control
Poor Character House visits tell a lot about customer

If he has a family them it is comparatively safer
If single then risk of closing business & absconding is higher
Seasonal Affect
Assess and double check market conditions

Whether seasonality is there or not
Determine the peak sales month & worst sales month
Monitor closely during dull months and remind customer to cushion or save
prior to dull months
Competition
This is why shorter the tenor the safer we are
Increases for the Because it takes some time before competitive activities can have an impact
customer
High
If the customers receivables are high maybe he is not doing a good job in
Receivables
handling his clients

This can be considered as a negative for the customer
Change
in Make sure the business location is legal
Business
Check the rental deed.(Call the owner of the land)
Location
Check for how long he is in that location, if he is here for less than one year
then its risky
Chapter: 4
Project Part
4.1 Problem Statements
During my internship I am working with the SME Financing Department of Mercantile Bank
Limited. From my observation and experience I have found MBL faces some problem in
SME Loan procedure. ndThatsthereasonsbehindwhytheproblemIwantedandtryto to give some suggestions.
For this reason I am doing this research on Problems and Pro
of SME Loan Management: A Study on Mercantile Bank Limited,Ashulia Branch
4.2 Project Time Line

This study will require 30 days. The following table shows the time requirement in each step
of the study.
Description of Activities
Days
Develop Research Methodology
5 Days
Making the research plan
5 Days
Developed the hypothesis
6 Days
Conduct survey research
7 Days
Data analysis and Findings with Interpretation
7 Days
Total Duration
30 Days
Table 27: Description of project activities in days
4.3 Gantt chart of project time Allocation
JULY 2015
Description of Activities
Week1
Develop Research Methodology

Making the research plan
Developed the hypothesis
Conduct survey research
Data analysis and Findings
Week 2
Week 3
Week 4
Week 5
Table 28: Gantt chart
4.4 Budget Information

The total expenditure to prepare this project as followed
Particulars
Amount (tk)
Transportation
1200
Printing, Photocopy & Binding
1100
Cell phone & Internet Bill
400
Others Expenses
200
Total
2900
Table 29: Budget Information
4.5 Objectives of the Study

The main objective of the study is to find out the major problems and prospects of SME loan
management of Mercantile Bank Ltd,. However, the specific objectives are as follows:
1.
To find out the banks reasonstotheSMEs. for reluct
2. To find out the banks problems and prospects in designing proper financial products for the
SMEs.
3. To suggest recommendations to overcome the problems related to SME loan management
4.6 Methodology
The process of designing a research study involves many inter-related decisions. The most
significant decision is the choice of research approach as it determines how the information is
obtained.
Selecting particular tool for data collection; the research has adopted the Descriptive Research
method. This method focus in seeking insights into the general nature of the problem and to
focus on the relevant variables that needs to be considered to carry on the research. Through
exploratory research the researcher can establish priorities among the research questions for the
learning about the practical problems of carrying out the research.
4.6.1 Data Source

Information collected to furnish this report is both Primary and Secondary Sources.
Primary Data:
Questionnaires with Structure question by the survey of SME Loan Receivers.
Secondary Data:
Website of Mercantile Bank Limited.
Practicum Report
Course lecture Sheet
Annual report
Hand note provided by Mercantile Bank Limited
Internet
Type of research:
Exploratory
Research Approach:
Survey
Instrument of Research:
Questionnaires with Structure question
Likert Scale Question
Microsoft Word, Microsoft Excel etc.
Sampling Plan
Sampling Unit:
Customer of Selected branch ( Ashulia Branch)
Sample Frame:
The sample frame of this study consists of approximately 100 Customers of Mercantile Bank
Limited.
Sample Size:
36 Customers
Sampling Procedure:
Probability Sampling
Simple Random Sampling
Contact Method:
Questionnaire Survey
Population
The population for the survey was approximately 100 Customers of Mercantile Bank Limited
in Ashuia Branch.
Analysis and Presentation of Data
After collecting all the data I had analyzed all the data individually. I present the data through
graph, chart, table etc.
Based on my analysis I made findings, recommendation and conclusion.
4.7 Hypothesis Development______________________
1. HA: MBL follows the strict procedure to Borr

2. HA: MBL ensures less time consumption for sanctioning SME loan.
3. HA: The interest rates of SME Loan of the bank are higher compared to other banks.
4. HA: Women Entrepreneurslewithoutcollateralloan. is availab
5. HA: Loan repayment period is reasonable to repay for the SMEs loan by the
Borrowers.
6. HA: MBL Recovery procedures are effective to recovery the SME loan
7. HA: SME loan facilities of the bank are standard for getting loan to the borrowers.
4.8
Hypothesis Testing______________________
H1
H2
H3
H4
H5
H6
H7
1.Strongly disagree
10
12
2.Disagree
13
14
12
3.Neither agree nor disagree
4.Agree
14
11
18
11
5.Strongly Agree
10
10
Total
124
93
128
135
87
123
87
Average ( )
3.44
2.58
3.56
3.75
2.42
3.42
2.42
Standard Deviation ()
1.32
1.38
1.23
1.16
1.32
1.69
1.18
Z-TEST VALUE
4.27
0.35
5.16
6.47
0.36
3.25
0.41
Table 30: Summary of the responses Sources: Questionnaire Survey
104
01. H0: MBL does not follow the strict procedure
HA: MBL follows the strict procedure to Borr
We want to test the

null hypothesis, Ho:
= 2.5'
cal =
HA: > 2.5

Since the sample size n> 30 so, we
may use Z - test. Here,
N = 36
= 3.44
= 1.32
( )//n)(
= 4.27
At 5%level of significance follows Z distribution Z0.05 = 1.645
Since Zcal Ztab the null hypothesis in not accepted. So at 5% level of significance it can be
say that the bank follows the strict procedure. to Borro
H1
22%
14%
11%
Strongtly disagree
Disagree
14%
39%
Neither agree or Disagree

Agree
Strongly agree
Fig-9: Respondents view towards follow the strict procedure t

61% respondents think that Mercantile Bank Limited follows the strict procedure to
Borrowers assessment.14%respondentsinSMEloandont have this issue. 25%
respondents disagree with the statement they think that the Bank does not follow the strict
procedure to Borrowers
02. H0: MBL does not ensure less time consumption for sanctioning of SME loan.
HA: MBL ensures less time consumption for sanctioning of SME loan.
We want to test the null hypothesis

Ho: = 2.5'
HA: > 2.5

Since the sample size n> 30 so, we may use Z - test.
Here,
N = 36
= 2.58
= 1.38
Zcal = ( -)/ )(/
= 0.35
Since Zcal Ztab the null hypothesis is accepted. So at 5% level of significance it can be said
that MBL does not ensure less time consumption for sanctioning loan.
H2
12%
19%
Strongly Disagree
19%
9%
Disagree
41%
Neither agree or disagree

Agree
Strongly agree
Fig-10: Respondents view towards less time consumption for sanctioning of SME loan
19% respondents think that the bank ensures less time consumption for sanctioning of SME
loan.. 9% respondents doesnt have 41%anyrespondentsstatemen disagree with the statement directly.
106
03. H0: The interest rates of SME Loan of the bank is not higher compared to other
Banks.
HA: The interest rates of SME Loan of the bank is higher compared to other Banks.

Ho: = 2.5'
HA: > 2.5
Here,
N = 36
= 3.56
= 1.32
Zcal = ( -)/ )(/
= 5.17
At 5% level of significance, follows Z distribution Z0.05 = 1.645
Since Zcal Z tab the null hypothesis is not accepted. So at 5% level of significance, it can be
said that The interest rate of SME Loan in the bank is high in comparison with others.
H3
Strongly Disagree
5%
28%
Disagree
19%
17%
31%
Neither agree or
disagree
Agree
Strongly Agree
Fig 11: Respondents View towards high interest rate of SME Loan in the bank
31% respondents strongly agree with the statement. 28% respondents agree with the
statement they think that The interest rate of SME Loan in the bank is high in comparison
with others. 19 % respondents disagree and 5% respondents strongly disagree with the
statement .
107
4.
H0: Women Entrepreneurs loan is not availab
HA: Women Entrepreneurs loan is available w

Ho: = 2.5'
HA: > 2.5
Here,
N = 36
= 3.75
= 1.16
Z cal = ( )//n)(
= 6.47
At 5% level of significance, follows Z distribution Z 0.05=1.645
Since Z cal. > Z tab, the null hypothesis is not accepted. So at 5% level of significance, it can
be said that Women Entrepreneurs loan is. available
H4
1.Strongly
disagree
9%
25%
2.Disagree
8%
3.Neither agree
8%
nor
disagree
4.Agree
50%
5.Strongly Agree
Fig 12: Respondents view towards availability WE Loan without collateral.

9% respondents strongly disagree with the statement. 8% respondents disagree with the
statement that Women Entrepreneurs loan is. 50%availab respondents agree and 25% respondents strongly
agree with the statement SME investment
maintains proper licensing.
108
05. H0: Loan repayment period is not reasonable to repay the SMEs loan by the
Borrowers.
HA: Loan repayment period is reasonable to repay the SMEs loan by the
Borrowers.
Ho: = 2.5'
HA: > 2.5
Here,
N = 36
= 2.42
= 1.32
Zcal = ( -)/ )(/
= 0.36
Since Zcal Ztab the null hypothesis is accepted. So at 5% level of significance, it can be said
thatLoan repayment period is not reasonable to repay the SMEs loan by the Borrowers.
H5
11%
14%
Strongly disagree
Disagree
28%
Ntheeir Agree or
Disagree
8%
39%
Agree
Strongly agree
Fig 13: Respondents view towards repayment period is reasonable to repay the loans.
28% respondents strongly disagree with the statement. 39% respondents disagree with the
statement they think that Loan repayment period is reasonable to repay the SMEs loan. 14%
respondents agree and 11% respondents strongly agree to the Statement.
109
06. H0: MBL Recovery procedures are not effective to recovery the SME loan.
HA: MBL Recovery procedures are effective to recovery the SME loan.

Ho: = 2.5'
HA: > 2.5
Here,
N = 36
= 3.41
=69 1.
Zcal = ( -)/ )(/
= 3.25
Since Zcal Ztab, the null hypothesis is not accepted. So at 5% level of significance, it can be
said that MBL Recovery procedures are effective to recovery the SME loan.
H6
28%
17%
11%
14%
30%
Strongly Disagree
Disagree
Neither Agree or
Disagree
Agree
Strongly Agree
Fig146: Respondents View towards effectiveness of Recovery Procedures

28% respondents strongly agree and 30% respondents agree with the statement they think
that MBL Recovery procedures are effective to recovery the SME loan. 11 % respondents
disagree and 17% respondents strongly disagree with the statement.
110
07. H0: SME loan facilities of the bank are not standard for getting loan to the
borrowers.
HA: SME loan facilities of the bank are standard for getting loan to borrowers.
We want to test the null hypothesis,

Ho: = 2.5'
HA: > 2.5
Here,
N = 36
= 2.42
= 1.18 Z cal = (
)//n)(
= 0.41
Since Zcal Ztab , the null hypothesis is accepted. So at 5% level of significance it can be said
that SME loan facilities of the bank are not standard for getting loan to the borrowers.
H7
14%
33%
14%
Strongly Disagree
Disagree
Neither Agree or
Disagree
6%
33%
Agree
Strongly Agree
Fig-15: Respondents view towards SME loan facilities to the Borrowers

66% respondents think that MBL does not provide standard facilities to the SME loan
Borrowers. 14% respondents dont have any statemen disagree with the statement they think that SME loan
facilities of the bank are standard for
getting loan to borrowers.
111
4.9 Research Findings______________________

There are various problems and prospects that are associated with SME loan management.
The findings of the analysis and interpretations are as follows:
Mercantile Bank Limited follows the strict procedu

H 1.
loan. They have done different survey time to time before of giving loan. They research
on the customer and collect some valuable information to judge examine the customer
MBL does not ensure less time consumption for sanctioning of SME loan. The Bank
H 2.
collects some information unofficially about the customer for sanction loan. To collect
that types of information bank consumes little bit more time.
The interest rates of SME Loan in the bank is high in comparison with others.MBL
H 3.
imposes 12%-14% interest rate with 2% extra utilization fee imposes where another
banks only take 11% interest rate. The bank charges different high interest rate
comparison with other Commercial Bank.
Women Entrepreneurs loan is. Mercantileavailabank
H 4.
limited gives too much priority on t

as dependent and easy to access, The bank does not want any collateral security.
The Loan repayment period is not reasonable to repay the SMEs loan by the Borrowers.
H 5.
The period of loan of the bank is Up to 1 year. Borrowers do not get enough time to
repay the loan.
MBL Recovery procedures are successful. They have visited to the borrowers
H 6.
organization often. If they see some fault, they directly talk with the borrowers. If the
Borrowers are absent, they talk with the gaurantator.
SME loan facilities of the bank are not standard. Because They do not believe in profit
H 7:
from SME. They feel it is burden on them, So they do not put emphasize on it. Borrowers
also face some ordinary problem because of it.
112
4.10 Recommendations______________________
1. As the SMEs in Bangladesh are habituated to operating in a semiformal manner and banks are probably one of the most formalized
institutions in our country, a big gap has opened up. The first step for
Mercantile Bank Limited would be to minimize this gap by relaxing
bank some strict procedures or with given some more opportunities.
2. The bank should ensure less time consumption for sanctioning of SME
loan in easier way, even if in a limited manner, as soon as possible so
that they should provides the loan within a short time to the SME
clients.
3. There is some unhealthy competition among the private banks

regarding SME loans. In the mean time, MBL is continuing their SME
with a higher interest rate. To collect more customers MBL needs to
reduce the interest rate comparison with others.
4. As mentioned earlier, the banks consider the credit rating system vital
to their dealing with the broader SMEs. As bank like MBL already has
that structure and other banks have the same clients dealing in other
types of loans, the banks can greatly benefit
themselves if they provide the collateral security relaxation not entrepreneur loan but
also other SMEsloan.
111
5. Mercantile bank ltd. needs to increase more period of time to repay the
loans. If they give the opportunity, there will be more loyal SME loans
borrowers who get more initiation to borrow the money.
6. MBL needs to improve more effective procedures by which they

successfully recover the SMEs Loan.
7. Currently, MBL is not eager about the SME loan. They need to improve
their SME Division and provide more loan loyally towards the
borrowers.
112
Chapter-5
Findings and Observations
113
As MBL is running its business with local banking status, so it is not possible to serve the
nation right now like the multicultural bank.
Total corporate banking services are not still available in the branch since it is a new branch.
The branch is yet to be started in fully foreign exchange facilities to the customer though
demand for this is increasing rapidly to them.
Lack of computerized facilities
Fully equipped and computerized banking facilities are very much vital issues especially for
these types of business, which are not completely achieving till today at MBL. In some cases
they are using manual system which ARE time consuming.
Customer always looks for easy and hassle free banking but the only because of inadequate
ATM services MBLs customers are not enjoying these services.
Lack of on line facilities
Todays general banking is highly related to online transaction. It reduces time and cost of
business transactions. In the general banking, clearing house is crucial part of any banking
system. But MBL operate its clearing house without online facilities, which make lots of time
for each clearing transaction. For this the customers are opening another account in other
banks whose are providing on line clearing house facilities. As a result the bank is loosing his
customer.
114
Lack of competitive salary structure:

Employees remuneration policy of the bank is poor than the other banks as a result
employees are feeling neglected by the Management. And, only because of this employee of
the bank are not as much as loyal what they have to and it makes them de-motivated to
perform their responsibilities perfectly.
One of the drawbacks of the loans and advances procedure of the bank is that the client has to
repay the money in the particular branch from where he/she has got the loan. So, when a
client wants to repay the installment, communication problem sometimes force him/her to
become a defaulter.
Extra burden of service charge for loan:
Bank takes 1% Service Charge from the customer while providing the loan to the customers.
As bank gets profits out of its interest, the bank should not take other charges as the
mentioned Bank is also taking high stamp charge.
Some observations regarding the credit policy in SME loan and guidelines of Mercantile
Bank are as follows:
It is a strange thing that despite five year banking operation, Mercantile Bank is yet to
develop a well-organized, coordinated and documented credit policy of its own. Most of the
policy guidelines disseminated by the Head Office are merely copied from the write-ups of
bankers working in other institutions. But what is good for other banks may not be
appropriate for Mercantile Bank. And as there are no organized credit policy branch officials
has to contact to Head-Office for mere Problems.
According to Bangladesh Bank rules, lending should not cross 84% of total deposit of
the Bank. But it is frequently observed that total lending and advances crossed 90% of total
deposit. This may create liquidity problem for the bank for SME loan.
115
Some observations regarding project appraisal methods used by Mercantile Bank Ltd are as
follows:
The bank relies heavily on information supplied by the loan applicant without
adequate verification of it. This may well lead to inaccurate project appraisal.
In the absence of credit rating agencies in the country, exhaustive investigation is
required for assessing the credit standing of the loan applicant. Mercantile Bank does not take
proper care of it; rather it is overly reliant on CIB report by Bangladesh Bank. CIB report is
published quarterly (Dec, April, Aug, Dec) and if a loan is classified on February one will not
be able to properly analyze the credit worthiness of a client.
Another major Problem is that, the Board of Directors takes all decisions and in that
stage proper emphasis is not given on project appraisal, as they are not professional Bankers.
This may create bad loan in future.
At Mercantile Bank, the average loan processing time is relatively long. This is
particularly true for project loan, which usually takes over 1 month to complete the
processing. At the branch level, this is due to the shortage of efficient loan officers.
Bureaucratic structure and nature of credit committees at the Head Office level of Premier
Bank is another contributing factor.
At Mercantile Bank, final approval for any type or amount of project loan must come
from the Head Office. Even if a small project loan is applied for at a branch far away from
Dhaka, it is the Head Office, which gives the final approval. Such tight control is required for
large project loans, but not justifiable for small amount of project loans.
116
Chapter-6
Recommendations
117
To compete with local and multinational banks MBL should have remarkable improvisations
on different aspects of services. Few of them which I found needs to be done immediately are
as follows
Increase computerized facilities
Fully equipped and computerized banking facilities are very much vital issues especially for
these types of business, which are not completely achieving till today at MBL. So this facility
should increase by MBL as soon as possible.
Increase ATM facilities:
As customers are depositing their money in to the bank for easily withdrawing facilities, but
lack of availability of adequate ATM facilities, customers are not enjoying these services at
MBL. To modernize the bank this service has to be provided by MBL to its customer
immediately.
Provide on line facilities
Todays general banking is highly related to online transaction. It reduces time and cost of
business transactions. In the general banking, clearing house is crucial part of any banking
system. But MBL operate its clearing house without online facilities, which make lots of time
for each clearing transaction. For this the customers are opening another account in other
banks that provide on line clearing house facilities, So the bank should setup online clearing
house facilities immediately.
118
Increases number of employees:

To provide better service to the customers and run the organization smoothly need sufficient
number of employees. Without sufficient employees it is not possible to provide better
service to the customers. So the authority should pay attention to increase number of
employees of the branch.
Increases salary structure:
To motivate employees the authority of the bank should pay immediate attention to the
employees salary structure and allowances.
Allowing the client to repay in other branches:
Mercantile Bank should give the opportunity to their clients to repay the money (monthly
installment) at any branches he/she finds convenient, thus the defalcation rate may become
lower. However, it requires a high level of co-ordination between the branches of MBL
Service Charge should be excluded:
Bank takes 1% Service Charge from the customer while providing this Scheme to the
customers. As bank gets profits out of its interest, it should not take other charges as the
mentioned Bank is also taking high stamp charge. That is too high and unnecessary. This
charge can be reduced.
The bank should develop a well-organized, coordinated and documented credit policy
for its own. And, the branch office should have the flexibility to grant at least small amount
of loan applications.
The bank relies heavily on information supplied by the loan applicant without
adequate verification of it. This may well lead to inaccurate project appraisal. So, the bank
should have their own intelligent and adequate investigation team to verify the details which
are given by the customers.
119
At Mercantile Bank, the average loan processing time is relatively long. This is
particularly true for project loan, which usually takes over 1 month to complete the
processing. At the branch level, this is due to the shortage of efficient loan officers.
Bureaucratic structure and nature of credit committees at the Head Office level are another
factor.
120
Chapter -7
Conclusion
121
As mentioned at the very outset, the main objective of this report is to analyze the general
banking performance of mercantile Bank Ltd. We take attempts to explain the overall
activities of the MBL under corporate environment. It may be mentioned here that for
maintaining the secrecy of bank all types of data were not open to disclose in this report.
However, I tried my best for the greatest output. Besides this, in every bank there are some
common formats for general banking, credit facilities etc., which is rare possible to rearrange
the format again and again. So in most of the cases financial institutions and banks have to
analyze the crucial factors on the basis of their subjective judgment.
Another important point is to be noted that MBL like other banks usually follow the
traditional evaluation process. Most of the theoretical and latest rating approaches described
in our text is not followed at all. It is easy to comment on performance of the bank on the
basis of efficiency / performance. Because specific i.e. case to case analyze is not easy within
the shortest time.
Upon discussion on the above, it is require to mention that in the present competitive
environment, banking business is more competitive. A lot of bank and financial institution are
developing their services day by day with minimum service charges.
MBL, which is a rising bank with public banking status, has been serving the nation since its
inception. To see its up growing performance, it is my assumption that the MBL will be the
leader local bank in the upcoming days.
122
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Table of contents

Collateral Security against SME Loan

Standard loan review process of SME

Eligibility of the client:

Mercantile Bank Limited: An Overview

History- Key Milestones

Corporate Information at a Glance

ObjectivesProject Time Line

Division & Department of MBL

Internal Environment Analysis of MBL

Finding and observation

Lack of computerized facilities

Lack of ATM facilities:

Lack of on line facilities

Conditions for repayment of loan in other branches:

1.2 Origin of the Report______________________________

1.3 Objective of the Report__________________________

1.3.1 Broad objective

1.3.2 Specific objective:

However, the specific objectives of the study are as follows:

To become familiar with the SME product policy guidelines maintained by

To analysis the SME Lending procedures maintained by Mercantile Bank.

To state the present condition of SME financing of Mercantile Bank

1.4 Scope of the Report ______________________________

1.5 Limitations _____________________________________

Short Time Period

Poor Library Facility

1.6 Methodology _____________________________________

1.6.1 Major Sources of Primary Data:

Information conversation with the SME clients of Mercantile Bank Limited.

1.6.2 Major Sources of Secondary Data:

Books, journals & magazines.

Bangladesh Bank website.

Brochures and leaflets of the bank

Head office circulars

Different reports and journals on related topic

Books and articles from library study.

2.1 Mercantile Bank Limited: An Overview_________________

2.2 Historical Background _____________________________

2.3 History- Key Milestones_____________________________

May 20, 1999

Incorporation of the Bank

June 02, 1999

October 29, 2000

Opening of 10th Branch

July 03, 2002

Opening of 15th Branch

June 30, 2003

Publication of Prospectus for IPO

October 21-22, 2003

Subscription for Shares

December 24, 2003

Opening of 20th Branch

February 16, 2004

Listed in Dhaka Stock Exchange

February 26, 2004

Listed in Chittagong Stock Exchange

December 29, 2004

Opening of 25th Branch