SME, MICROFINANCE & AGRICULTUR

Resource Person

Sir Ahsan Naveed

Group Members:

Date: 20th Dec, 2013

M.Nawaz Sadiq Rehman Touqeer Hayyat Abdul Wahab Fawad khalid

100645-002

University of Management & Technology1 | P a g e

Acknowledgement
Our first and foremost humble and gratitude to ALLAH the almighty for giving us the valor to remain dedicated to make this report. Apart from it we take the opportunity to acknowledge the real efforts of: First, we would like to thank SIR AHSAN NAVEED, for his valuable support, guidance and encouragement which he has offered from the initial to the final level enabled us to develop an understanding of the project.

Dedications
We wish to place on record our indebtedness to our parents for the continuous support and encouragement we received during our academic career. We would like to express our gratitude to those people who personally help us through out in studying.

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EXECUTIVE SUMMARY
The purpose of this report is to fulfill partial requirements of our course SME, MICROFINANCE & AGRISULTURE. We have carried out our project in keeping with our text and have applied the basic concepts and regulation studied. This project is related with the functions operations and lending products of the SME Bank Ltd.

Scope of Our Project

We have done limited work in this project regarding the lending products of the SME Bank Ltd to the small businesses. And some focus on the rules and regulation of the sme financing.

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History
The SME Bank was formed and incorporated as a public limited company under the Companies Ordinance 1984. The Government of Pakistan is the major Shareholder of the bank. As part of financial sector restructuring program of Government of Pakistan, Regional Development Finance Corporation (RDFC) and small Business Finance Corporation (SBFC) were amalgamated into SME Bank Ltd effective January 1, 2002. SME bank Ltd was established to exclusively cater to the needs of the SME sector. It was created to address the needs of this niche market with specialized financial products and services that will help stimulate SME development and pro poor growth in the country.

Corporate Vision
We will be the leading institution for providing financial assistance for the development and support of Small and Medium Enterprises (SMEs) in Pakistan. We will respond to the needs of Small and Medium Enterprises by providing them with the necessary financial assistance and business support services in the form of medium to long term funds. We will, through support of the SME sector, contribute to the growth of local entrepreneurs, develop export markets and provide employment opportunities in the country.

Mission Statement
To support and develop the sme sector by providing necessary financial and technical assistance on a sustainable basis. To enable the sme sector to contribute to economic development through value addition and exports. Promote entrepreneurship and create employment opportunities.

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Corporate Objectives
The objectives of the SME Bank are as follow:

To support, develop and promote Small & Medium Enterprises (SMEs) by providing them the necessary technical and financial assistance. To concentrate on value addition and export oriented SMEs To enable SMEs to play a vital role in stimulating GDP growth, create job opportunities and reduce poverty.

Functions and Operations

SME Bank Ltd performs different types of functions and operations which are followings, Basic Functions and Services Other Functions and Services

1) BASIC FUNCTIONS and SERVICES:

Basic functions are further divided into two types, I. Extending loan facilities:-

SME Bank provides loan facility to any commercially viable business proposal merits SME Banks support. It is Banks effort to assist and support enterprises that use indigenous raw material, add value and are export oriented. Such enterprises are vital to our economy since these are labor intensive and thus create employment opportunities. II. Accepting deposits:-

SME Bank Ltd also provides deposit facilities to enhance the banking services (already provided by the bank to its customers through its network of 13 branches) and also for generation of cash for lending.

2) OTHER FUNCTIONS and SERVICES:SME Bank also perform some other functions for the their valuable customers which are followings,

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Online Branch Banking:SME Bank is offering following online banking facilitates to its customers free of cost

Cash Deposit Cash Withdrawal Fund Transfer Transfer Delivery

SME ATM Card Facility Utility Bills Collection Recovery of Loans

PRODUCTS OFFERED BY SME BANK

There are two types of products offered by SME bank:

1. SME Lending Products

SME Bank Ltd provides different kinds of lending facilities which are followings, i. RUNNING FINANCE SME Bank provides running finance facility for working capital requirements e.g. purchase of stocks, raw material etc. To the existing Business for minimum of 2 years Running Finance (RFF) Facility credit lines for 1 year.

Repayment monthly mark-up to be repaid or adjustable at the end of year or renewed. Loan amount from 0.5 M to 75.0 for MEs and Loan amount from 0.5 to 15 million for SEs Mark-up; 1 year KIBOR + 6% to be reviewed annually. Security; mortgage of urban property (Max. financing of 70% of Forced Sale Value of the security & collateral}. Cash/Near Cash Security with 10 to 20% margin, Hypothecation of movable assets.

NOTE * Amount benchmarked for SMEs, corporate clients may go beyond the set limit.

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ii.

MEDIUM TERM RUNNING FINANCE Medium Term Running Finance (MTRFF) Facility credit line for 3 years. TERM LOAN FOR WORKING CAPITAL TLWC credit line for 3 5 years Repayment monthly installments / quarterly to be repaid. Mark-up; 1 year KIBOR + 5% to be reviewed annually. TERM LOAN FOR FIXED ASSETS

iii. iv.

For fixed assets investment e.g. plant and machinery/equipment, purchase & construction of land & building Existing Business for minimum of 2 years TLFA credit line from 1 year to 5 years Repayment 12 to 60 flexible installments Grace period; 3 12 months. Mark-up; 1 year KIBOR + 5% to be reviewed annually FINANCING FACILITY FOR STORAGE OF AGRICULTURAL PRODUCE

v.

For establishment, expansion, modernization and replacement of Steel/Metal/Concrete Silos, Warehouses and Cold Storage facilities for storing agricultural produce. FFSAP scheme period from 3 year to 7 years Mark-up; 8% 10%. vi. LEASING THROUGH ITS SUBSIDIARY

SM E Leasing is a Subsidiary of SME Bank Ltd which is providing following products to small and medium size businesses. o Leasing o Syndication Arrangement We also started to provide the advisory services for SMEs for smooth operations of their businesses, syndication & funds arrangement to fulfill their financial requirements. o SME Auto Plus A product for transport sector, does not cover only Buses / Coaches or Trolleys or Oil Tanker but also smaller vehicles like Bolan / Ravi / Shahzore Pickups or most of the light carrier vehicles. o SME Medi Plus : A tailored product for doctors / hospitals for the medical equipments o Working Capital It's a cash financing facility for purchasing of raw materials, running & expansion of your business. The name of this product in SME Leasing is SME Cash Plus
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o SME Cash Plus Ideally for small business entities in need of cash for its working capital requirements. Maximum limit of this facility is Rs. 3 Million for a single client.

2. Commercial Banking
SME Bank also accepting the deposits from public which includes followings QATRA QATRA DARYA (Daily product basis: for Individuals and Business Concerns) SME Rozana Izafa Aur Mahana Munafa PLS Saving Account Current Account Mahaana Aamdan Account Term Deposit Regular Fixed Term Deposit Profit Payable on Maturity

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Customers prospective
Mr. Ali has running a pesticides & seeds shop from last three years in Pattoki. The total worth of the business at present is Rs.3 million. Mr. Ali on the bases of last year sales of the maize season realized that he needs Rs.1 million more to invest in his business for the purpose of earning more profit, he has Rs0.4 million, but need Rs.0.6 million more for the purchase of further stock (for the seed of maize and pesticides season is coming) only for one year. He wants to avail the Running Finance facility for working capital from the SME bank. And he submitted the following Documents along the loan application fee and form to the Ravi Branch of SME Bank For initial assessment and documentary evidence verification for loan approval. Bank also obtains a BBFS fill by Mr. Ali. Documents Submitted

Completely filled Loan application form. Copy of CNIC, photograph & his bank statement Tax Returns & property documents offered as security Detail & valuation of stock, plant & Machinery Personal Guarantees* Final accounts ( maintained on a registered)

COLLATERAL / SECURITY OFFERED FOR LOAN

Mortgages (Urban property) Hypothecation of stocks

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Evaluation by the SME Bank Ltd

First of bank will evaluate Mr. Ali can he apply for loan on following bases,

Who can apply?

Sole proprietors, partnership firms and all other legal entities The business must exist for two years except for Financing Facility for Storage of Agricultural Produce.

If you are (SE)

a business entity not employed more than 20 persons. having annual sales turnover up to Rs.75 million, Having assets not more than 20 million( excluding the cost of land and building)

If you are (ME)

Not a public limited company and does not employ more than 250 persons (in case of manufacturing concern) and 50 persons (in case of trading / services concern)

A trading concern with total assets excluding land & building up to Rs. 50,000,000/A manufacturing concern with original value of total assets excluding land & building up to Rs. 100,000,0000/-

A concern (trading services, manufacturing) with net sales not exceeding Rs. 300,000,000/- as per latest financial statements.

If you

are not maintaining accounts or record of your business have fear of talking to bankers
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think that you can not avail finance facility think you cannot manage finance facility

Evaluation by the SME Bank Ltd

SME Bank also evaluate Mr. Ali on the following bases, RUNNING FINANCE LIMIT

In case of Running Finance working capital maximum Loan limit from 0.5 M to 75.0 M is provided by the bank. Amount benchmarked for SMEs, corporate clients may go beyond the set limit.

Borrower's Eligibility

The borrower should have a commercially viable business. The business concern should generate monthly revenue sufficient enough to pay out monthly mark up after meeting its expenses / operational expenditures or disclose any other sources of income for paying its monthly markup.

Bank investigate the borrowers business worth their Investment, Reserves and liabilities Adequate Debt Equity ratio. The business concern should fulfill the requirements of S.E.C.P regulations.

Collateral / Security

Hypothecation of stocks / additional security of Land and Building in case of working capital.

Mortgage of urban property (Max. financing of 70% of Forced Sale Value of the security & collateral}. Cash/Near Cash Security with 10 to 20% margin, Hypothecation of movable assets.

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Loan Approval or Disapproval after Evaluation

After evaluating Mr. Alis loan Application on the above bases SME Bank Extend the Loan to the Mr. Ali. Because Mr. Alis Application is complete in all aspects and he also fulfills other requirements like collateral / security, application for loan is also within the financing limits, BBFS and e-CIB report is also satisfactory. Question & Answers SME bank is a private or Government bank? SME is commercial bank. What are the function and operation of SME bank? Commercial, leading and mobilizing deposits. Clean exposure/ loan limit? Clean facility Rs. 500,000 What is the documentation fee of loan application or is it refundable or not? Up to Rs. Two million will be 0.05% and above two million would be Rs. 15000 and it would be non refundable. What is the procedure of obtaining the loan? First of all, they should be a business man, then bank verify their business worth, and if satisfied with the worth then the Bank take their property registry or mortgage. In case of rejection of loan application, and why? After 90 days of submission of documentation or provide incomplete or inappropriate documents.
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 What is the procedure of customer complaints, how it can be resolved by the bank? Managers officially itself investigate the case and verify that who is liable for this negligence, if it would be branch end then they take the corrective measures and if in case of customer end they reconcile the case.

Suggestions and recommendations

Cooperation Although still, there is cooperative environment but there is a need to further boost it up. And cooperation among staff members, management, customer and other shareholder. Promotion of Products SME Bank promoted its launching of its ATM Card. But still there is need for continues advertisement so that people unconsciously think about the bank. New Schemes The bank already has good schemes for both deposits and borrowers. But there is a need to launch some more and attractive schemes for the people. Low Employees turnover Efforts should be made to reduce the employee turnover rate. Rewards and promotion More rewards and bonus schemes should be for management as well as for employees and promotion should be based on performance of employees and no on favoritism. Reduction in expenses The bank has developed a policy for expenditure control policy, but it needs to be implemented to reduce the expenses and increase the profitability of the bank. Service Charges should be minimized.
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CONCLUSION
SME bank is a Organization which under control of Government and provided loans to the small borrowers and the industries which are need financial support and this organization provided loans to the borrows and industries on easy terms and conditions as compare to the others financial institutions working in the private sectors. This organization has a unique culture and it is committed to provide customer satisfaction. They have created a very friendly and cooperative atmosphere so that customers feel comfortable and deal freely with the bank. Bank has the policies, which motivates the employees; the management of the bank is efficient. SME bank Ltd, although is facing some problems at the moment. Some of them are its internal managerial problems and other external factors, which are all outcome of the present economic scenario of the country, which has seen its worse in last few years. Second due to the privatization process and non surety of the job of employees is very discouraging factors for the success of the organization. Turnover of employees is very high due to the contractual job in this organization. Trained staff after joining leaves this organization to private sectors and they are very helpful for the private sector. If they provide permanent jobs to the staff members this problem is solved. Another thing is due to low salary to the staff as compare to private sector the turnover is high. If bank come to solve these problems this will become very successful.

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