CHAPTER FOUR

PROJECT APPRAISAL PROCEDURE FOR LENDING AND

IMPLEMENTING
4.1. Introduction
A project is a proposal for an investment to create, expand and to
develop certain facilities in order to increase the productions of goods
and services in a society during a certain period of time. BSB refers a
project as a scheme for capital investment to develop facilities to
provide goods and services. BSB's main function is to extend financial
assistance to industrial project. It basically needs to be satisfied about
the overall viability of a project to be financed. For this purpose, an
objective assessment of the viability of the project is required to be
examined by BSB from various points of view. This is what can be
called project appraisal.
The aim of project appraisal is to examine and evaluate the need, for
which a project is designed to meet and to judge whether the project
is likely to meet the need in an efficient way. Project appraisal provides
a rational basis for decision-making. In case of short-tern lending, it is
not usually necessary to make expensive study of the customer's
future

potential.

Examination

of

general

creditworthiness

of

customer and current financial position is adequate regarding this fact.

There can be no fixed or standardized approach to project appraisal.
Numerous and diverse elements enter into the process of appraisal. It
is difficult to have a cut and dried formula with the help of which a
proposal for financial assistance can be adjusted straightway as
acceptable or unacceptable. While broadly the same set of factors is
taken into consideration in the scrutiny of individual applications, the
weight age give to the factors varies from project to project. In
practice, project appraisal covers five different aspects of a project
and these are orderly followed by the bank as the way, viz.
(1) Management and
Organization
(2) Technical
(3) Market
(4) Economic, and
32

(5) Financial.

33

4.2 Management Aspects of BSB

An assessment of the promoters in respect of their integrity,
experience and capabilities to implement and run the project is of
prime importance before extending credit facilities to them. There are
no set rules to find out if the borrowers or promoters are the men of
integrity. It is to be done by direct and indirect investigation. The
'borrower's experience and capabilities can, on the other hand, be
assessed

in

terms

of

his

educational

background,

spatial

qualifications, practical business experience, receptiveness to new

ideas, or good advice, the general reputation and above all his
potentiality to learn new things and adaptability to new and changing
situation.
The extent of investigation with regard to these aspects may be
necessary depends on the nature of the project and the background of
promoters. If, a project incorporating a relatively complex technique
and process is promoted by an entrepreneur with proven abilities and
experience, the crucial areas to be probed may be, among others, the
competence of the managerial and technical executives likely to be in
charge of the project. But if such as the competence and previous
experience of the promoter, their collaboration tie-up arrangement,
the technical and managerial backing he has already line up, their
financial resource, etc. may have to be thoroughly scrutinized.
4.3 Organizational Aspects of BSB
Closely related to the management is the type of organizational
structure necessary to carry out and operate the project successfully.
So far as organization is concerned there are two basic queries; what
organization is needed to bring the project to the operating stage and
what organization will be needed thereafter. In the operating' phase,
one of the most common questions is the extent to which
responsibility and authority should be centralized or delegated. The
answer depends on the scale of operation, its geographical dispersion,
34

the degree of specialization of personnel, and the number of persons

to whom responsibility can be delegated. Internal controls should also
be

reviewed.

These

are

basic

to

sound

organization.

For

management to function efficiently, the organization should be able to

provide prompt reports on current performance that can be checked
against both past performance and previous, projections of future
trends so as to bring problems to light as they arise. It is equally
important that the organization should be able to put the decisions of
management into effect without delay. Besides, sound budget and
inventory control are needed.

4.3.1. Credit Investigation

Appraisal of management and organization of project cannot be dined
adequately without undertaking regular credit investigation. The
following two broad objectives are intended to be realized through the
credit investigation.
(1)

Proper identification of the application, and

(2)

Degeneration of their ability and willingness to abide by their

agreement with the Baric. In order words, whether they can and
will live up to their commitments in a nominal way. Through an
organized credit investigation answers to the following specific
questions are sought:

(a)

Who are the applicants?

(b)

What are their present professions or vocations?

(c)

Are they persons of proven honesty and recognized integrity?

(d)

What is the extent of their financial worth?

(e)

How much they can and are willing to invest from their own

resources?
(f)

How far they are capable of implementing and running the

project.
4.3.2. Sources of Credit Data

35

For the purpose of evaluating the credit worthiness of the applicants,

particulars and information are necessary about their character
(honesty and integrity), capital (properties and possessions), capacity
(entrepreneurial and managerial ability), liquidity (cash and near cash
assets), etc. Information necessary for evaluating these traits and
qualities can be obtained from a number of Sources. There are several
methods like written requests, telephone conversation, meeting
information at social gatherings etc, which may be jointly or severally
adopted to obtain the required information. The usual sources of
information can be broadly divided into internal sources and external
sources. The external sources can again be sub-divided into personal
contacts and indirect investigation.
4.3.3. Internal Sources
The dealing with the existing borrowers of the Bank, the internal
records and behavior of respective loan accounts will reveal great deal
of information about their bank-ability, their nature of dealing. Details
of past borrowings, equity-support such as amount, date of sanction,
amount repaid, amount outstanding and overdue, together with
comments on aspects like replacements, moratorium, etc, if any,
should be incorporated in the credit report. This will help in avoiding
any unexpected situation that is not likely.
4.3.4. External Sources
For the new applicants, the credit investigator has to depend
primarily on the external source to verify the statements and
declarations made in the loan application. The main external
sources are.
(a) Credit Information Bureau (CIB) Report. If the report indicates that
the proposed sponsors are defaulters to any Bank/OFI, their
proposal should be turned down as per decision of the GOB,
(b) Interview with the applicants,
(c) Financial statements, deed and statutory documents, etc.
(d) Inspection of the apple incants, place of business and
properties, and
(e) Other sources like commercial bankers of the applicants, business
firms, trade circle, friends and associates, Registrar of join Stock
Companies/Firms, District Registrar Sub-registrar, Local periodicals,
36

Government Publications, etc.

4.3.5. Honesty and Integrity of the Applicants
The main task of the credit investigator is to ascertain the real identity
of the applicants with regard to their honesty, integrity and their legal
authority to borrow or to raise institutional equity. The starting point
for him is the loan application and specifically the declaration of the
personal assets of the applicants. On this basis, he should have a
threadbare discussion with the applications.
The credit investigator should keep it in mind that the applicants
should not only be citizens of Bangladesh, but they must also not be
minors, bankrupts or persons of unsound mind. He should also be well
aware of the legal status of proprietorship concerns, partnership firms
and limited liability companies with regard to membership, capital,
objectives, borrowing capacity and tax obligations.
4.3.6. Properties and Possessions of the Applicants
The financial standing of the applicants is judged by means, of direct
reference to their movable and immovable properties. The value' of
total assets minus corresponding borrowings, if any, would indicate the
net worth. Although the assets free from encumbrances should from
the basis of assessing the financial standing, the details of the existing
borrowings from different sources should be stated in the credit report
to throw light on the borrowings from different sources should be
stated in the credit report to throw light on the borrowings habits of
the applicants. There are compelling reasons for which the credit
investigator has to be satisfied about the ownership and real value of
the declared assets.
4.3.7. Liquidity Status of the Applicants
The credit investigator must be satisfied that the applicants are
financially capable of undertaking a project of the contemplated size.
This calls for determination of the sources and the extent of funds that
the applicants are capable of mobilizing and also the extent they are
ready to invest. The liquid funds necessary for investment in the
project may be mobilized by the applicants from one or more
conventional sources.
37

4.3.8. Capacity of the Applicants

Because of the complexity involved in setting up and ensuring
profitable operations of an industrial project, the most important prerequisite that the Bank expects the applicants to possess is the
capability to manage and supervise. The success of a project depends
primarily on this trait of the sponsors. Its presence blooms a project
and its absence dooms the same. Unfortunately this is most difficult to
judge. As indicated in the proceeding paragraph, the entire credit
analysis is directed to point up this qualitative characteristic of the
sponsors. Individual, capability is reflected in the conglomeration of
skill and resourcefulness, education and. experience, age and
personal health, etc.
The first consideration is to judge whether they are financially and
managerially competent to undertake implementation of the project.
The thing consideration is to forecast ability to run the project
successfully upon implementation. Analysis of the past operations,
opinion of the commercial bankers, independent opinion from outside
sources, etc. would be useful in assessing the capability of the
applicants.
4.4 Technological Aspects
The technical aspects of industrial project are appraised to determine
whether the project is sound with regard to every engineering and
technological consideration, including product specification, process,
size, internal balance, suitability and availability of physical facilities,
designs and layouts of equipment and buildings etc. In a developing
country like Bangladesh, where there is hardly and indigenous
technological base to support the industrialization process the
industrial undertakings have to be conceived on the basis of know or
borrowed technology until such time as the development of local
technology is sufficient.
The second important aspect of technical study includes evaluation of
38

resources to be used for setting up the project as well as operating it

subsequently. The physical resources to be used are to be transformed
into financial tens. Hence, the task of the engineer is to evaluate
quantitatively the resources such as project land, building materials,
machinery, equipment, stores and spares, raw materials, labor, power,
fuel, etc. Then he is to work out the cost of these resources. In
monetary tens to determine the capital cost of the project and also it's
operating cost after implementation. While evaluating the capital
outlay and physical facilities, the engineer will have to determine the
production cycle and also the time schedule for implementing the
project.
In the case of a project involving technical collaboration or borrowed
technology, the project engineer has to examine various facets of
technology transplant and its adoption to suit the local conditions
including the terms and conditions of technology transfer and financial
and economic implications of such transfer of technology. Although
basically, technology transfer takes place between two systems,
namely, the domestic acquisition system (the sponsors) and the
delivery system (foreign collaborations), the development bank which
acts as a gate-keeper between the two systems has a vital role to play
in determining the suitability of the borrowed technology, the terms
and conditions of technology transfer and its impact on the project as
a whole. The ultimate aim of project appraisal by a Development bank
is to determine the profitability of the project both from commercial
and social points of view.
The technical studies and cost analysis provides the basis both for the
initial estimates of the profitability of an investment during the initial
stages and for the final decision to implement the project or not. The
technical appraisal, therefore, constitutes the foundation of the entire
super-structure of project appraisal.
A development financial institution usually need to consult or contact
with specialized engineering services from outside for specialized
matters, particulars relating to projects to be based on complex
39

technology. However good an engineer of Development financial

institution may be in studies or specific operations, he cannot be
expected to be expert in all fields of specialization. This point is of
great practical significance while dealing with a project in which the
country has no previous experience. In such a situation, particularly in
the case of a project involving large capital outlay, it is advisable to
find out best advisors (consultants) from outside. For because any
defect in the project design and formulation will eventually affect the
enterprise adversely. And hence it is dine very carefully.

4.4.1. Basic Aspects of Technical Appraisal

The basic aspects to be analyzed in the course of technical
appraisal are
4.4.1 (A) Preliminary investigation
(a) Products! Service;
(b) Raw materials;
(c) Skills and technology required for production;
service; and (d) Testing and analytical report.
4.4.1 (B). Selection of production process
(a) Choice of alternative and selection criteria;
(b) Wastage in manufacturing process;
(d) Disposal of wastes and effluents and
(e) Environment and pollution control.
I.
II.
III.

Machinery and equipment for production/service

Production capacity and efficiency.
Site selection
(a) Technical factors;
(b) Cost factors of production;
(c) Marketing factors;
(d) Administrative and housing factors; and
(e) Transportation factors.

IV.

Layout plan
(a) Site;
(b) Building;
(c) Plant and Machinery; and
40

(d) Supplementary Installations.

V.

Analysis and evaluation of utilities and supplies

(a) Raw materials;
(b) Stores and spares;
(c) Technical Know-how;
(d) Transfer of technology;
(e) Power, Fuel, Water, Steam ere;
(f) Labor; and
(g) Transporting.

VI.

Work Schedule

VII.

Estimation and evaluation of cost

The relative importance of these aspects will, however, vary from

project to project.

4.5. Marketing Appraisal

An industrial project is to bring in some goods 'or services for a society.
The society does not need them infinitely. Their demand is of course
finite and at given prices.

And marketeering personnel work for

determining and evaluating the demand for goods and services of the
proposed project.

4.5.1. Concept of Market

Ordinarily, the market means a precise place where commercial
transactions occur. In a broader sense, however, it is termed as the
sum of contacts between buyers and sellers of a product or service,
the price and quantity exchanged of which are detonated by the
forces of demand and supply. Market, in this sense, may be formally
organized and geographically centered or it may. be either. The
market includes the whole environment in which the enterprise is to
live and to which it must adapt itself: consumers, suppliers,
competitors and all kinds of technical, material, political, legal and
41

administrative restrictions. Market analysis is the first "screening"

stage in the project appraisal, at which projects that cannot expect
satisfactory market acceptance shall be rejected.

4.5.2. Marketing Plan

A: Marketing Objective:
Marketing plan, as in' the case of production and financial plan,
should have objective in the backdrop; and the objective is what is
wanted to be achieved. The objective may be more than one and
quantifiable. For appropriate marketing objective, it is necessary to
look at depth into the
(a) Macro/micro demand/ supply situation for specific products
in the market.
(b) Existing and expected competition in local and foreign
markets,
(c) Market share, etc.
While appraising industrial projects, the Bank is required to analyze
these factors and to bring out the objective in quantitative terms.
(a) Product identification:
The study of the environment should begin with proper identification
of the goods or services to be exposed to the environment. One way
of

identifying

them is

in terms

of their

complementary and

Competitiveness in the market. Complementary goods are used

together a single consumption activity, cameras, films and developing
instruments and chemicals constitute a set of such complements.
Complementary goods may be sold together or separately.
Another way of distinguishing goods and services is in terms of their
consumers.

These

are:

Final

goods,

Intermediate

goods

and

Investment Goods. Lastly, the goods and services may be either new
42

or existing in the market.

(b) Nature of Demand:
(I) There are various types of demand for the product or
services

in

question.

These

are

direct,

derived,

new,

replacement demand, etc. The market analyst should identify

the type of demand be created for the product(s) or services.
(II)

Size and Composition of Present Demand:

Market Size: nature and character of demand

along with its consumer.
5.5.3. Methodology
The initial objective of demand analysis is the determination of current
effective demand. Effective demand represents the total quantity of a
specific product purchased at a given price in a particular market over
a given period. The base for estimation is the actual consumption
figure during the relevant period.
The equation of apparent consumption's as
follows:
C=P+ (M-X) + S
Where,
C

Consumption

Domestic production

Imports

Exports

Changes in Stock

Once current demand has been estimated for the entire market, it
becomes

necessary to

segment the market to make future

projections.
Effective market segmentation will therefore:
43

- help to understand better market behavior and

responses,
- enable the concentration of efforts on promising market
segments,
- enable the fine tuning of marketing strategy to the needs of
target segments,
- increase total sales, reduce costs and step up profits.
The most typical variables, by which markets can by segmented arc as
follows:
A: Consumer Markets
(1) Geographic:
- Administrative regions
- Geographic regions
- Climate
- City-size
- Rural-district cut-size.
(2) Socio-economic:
- Income (level, dynamics, distribution)
- Age
- Sex
- Occupation - education
- Family size
- Religion
- Income elasticity of demand
- Prices and availability of complimentary
goods
- Gov"- policies - nationality
- Social class
- Culture
(3) Personality and behavior:
- Life style
- Leadership
- Ambition
- Conservatism
- Buying motive - loyalty
- Extroversion and introversion
- Service sensitivity arid introversion - service
sensitivity
- Promotional sensitivity
B: Industrial Markets:
44

(1) Number and types of industrial

users:
- Size
- Ownership
- Age of equipment
- Regional concentration
- Vertical vs. horizontal markets- technological
progress.
(2) Buying power:
- Number of employees Number of employees Value-added.
The market analyst should collect and analyses the following data for
export market:
(i) World Trade:
- Names of the countries to which the product will be exported
- How these countries are at present meeting their demand. If
through import, what are the countries of their origin?
- Time series data regarding export and import.

45

(ii) Characteristics of Specific Intermediaries (Exporter',

Importer'):
- General description of types available
- Margins
- Effectiveness
- Regulation
- Contacts in export market
- Marketing tasks they are able and prepare to carry
(iii) Transport and Insurance:
- Traditional transportation means
- Costs of freight and insurance - timing of delivery
- Delivery terms, DIF, FOB, etc.
(iv) Market Accessibility:
-Tariffs and fees
- Non-tariff barriers
- Quality standards
- Health, medical and safety requirements - Package standards
- Import quotas
- Customs regulations
- Political and administrative barriers:
- Trading habit
- Comparative advantage
(v) Terms and conditions of sales and distribution
arrangement
(vi) Export incentive available
(vii) Past export trend/ performance of the product(s)

5.5.4. Supply Analysis

Local producer's past and present output, together with capacity
utilization review provides a convenient departure point for an analysis
of supply situation and outlook, which combined with demand
46

estimates, will determine the project's position in the market and thus
expected.
Compared with the variety of methods applicable for demand
forecasting, projecting the future supply position in the market is a
rather unassuming task. Availability of the production in the-market is
a function of:
- domestic producers present and projected capacities
- new projects being under construction present and projected
export volume
- foreign manufacturer' capacities, marketing strategies and
development plans,
- Government policies.
5.5.5. Supply Gap
It is very important to identify to find out position of supply gap.
Considering the future demand for the product and total potential
supply of the same, the analyst should, estimate the projected supply
gap. It is to be examined how the supply gap justifies the setting up of
the project under consideration.
5.5.6. Market Share
After the estimation of the supply gap, the market analyst should
calculate the project's contribution towards the reduction of this gap.
In fact, market share is the marketing objective by which it expects to
grab the share in the market and determines its position.
5.5.7. Marketing Information
The procedure of market analysis, outlined above, call for systematic
collection of information about the market for the goods and services
to be considered. Some of this information is quantitative while other
is qualitative.
47

48

5.5.8. Quantitative Information

The following quantitative information is to be collected in physical on
a national basis:
Consumption Data:
1. Production
2. Imports
3. Exports
For international comparison, such data for comparable foreign
countries are also to be collected.
Industrial census:
1. Number of productive units
2. Distribution of productive units by
location.
3. Installed production capacity.
Demographic Data:
1. Distribution of population by age, sex, marital status, religion,
literacy, income, occupation and region.
2. Average size of a family
3. Rate of population growth
4. Rate of organization.
The following quantitative data, express in terms of value, are also be
collected on a national basis:
:

Prices
1. F. G. B. price of exports
2. C.L.F. price of imports.
3. Ex-factory price of products and
services.
4. Wholesale price annual average.
5. Consumers price index
6. Cost of living

The requirement information relating to tax expressed in rates/ values

age:
1. Customs duty.
2. VAT.
3. Import license fee.
4. Others.
The above quantitative data should be collected for several years in
49

the past so as to constitute historical series helps towards the

judgment.
5.5.9. Qualitative Information
The qualitative information, which may be required for market
analysis, is:
1. Location information-Transport and communication facilities, water
and power facilities, nearness to the market, etc.
2. Possibilities of continued supply of inputs.
3. Attitude of customers.
4. Climatic characteristics.
5. Methods of distribution-market and non-market
6. Government policies:
(a) Economic Development objectives.
(b) Health and safety standards.
(c) Investment/International policy.
(d) Taxation policy.
(e) Export policy.
(f) Monetary policy.
(g) Labor policy.
(h) Others, if any

4.6 Economic Appraisal

In economic appraisal, the project is viewed from the national or social
perspective and the economic cash flow is constituted on the basis of
"true or real prices", commonly known as accounting or shadow prices
or it is the social cost benefit analysis.
Economic analysis of a project aims at determining whether that
project is consistent with overall national and sector- wise objectives
and whether the investment proposed is the best way of achieving the
planned objectives. It involves a systematic evaluation of a range of
options for achieving the intended objectives. It involves a systematic
evaluation of a range of options for achieving a state set of objectives.
Allocating resources to a sector or specific purposes reduces the
resources available for other sectors and purposes. Therefore, it is
essential that the allocation of investment resources be efficient
50

among

sectors.

Economic

appraisal

is

the

primary

means

of

determining whether a proposed investment is worthwhile. It should

determine whether a project is acceptable and, if it is, whether it is the
best alternative. Economic appraisal should cover both quantifiable
and non-quantifiable benefits (where applicable). Such benefits are
described ad-seriatim.
4.6.1.

Quantifiable Benefits

Following are the quantifiable benefits of economic appraisal:

(a) Economic Rate of Return (ERR),
(b) Bruno Ratio/ Domestic Resource Cost,
(c) Contribution of Gross Domestic
Product, and
(d) Employment Generation and Cost per employment.
(a)

Economic Rate of Return (ERR):

ERR measures the potential earning power of the social resources used
in the project and thus help the assessment of investment proposal. It
is done at which the present value of costs becomes equal to the
present value of benefits. Net present value (NPV) is the net value or
net benefit of a project when all costs have been discounted to the
present at the accounting rate of interest.
Finding the ERR; it should be compared with the Accounting Rate of
Interest (ARI). The ARI is nothing but the opportunity cost of capital
which is supposed to maximize the use and productivity of invest-able
resources. The broad decision criterion is that, other things being
equal, the project whose ERR is less than the ARI should ordinarily be
rejected unless other unquantifiable benefits are adequate or the
project can be qualitatively justified. Determining the opportunity cost
of capital for a society is difficult, but economists generally consider it
to be 15 percent in most developing countries. The planning
Commission of Bangladesh has estimated the ARI at O.15 (or 15
percent).
(b) Bruno Ratio Domestic Resource Cost (DRC)
51

An industrial project will either import substitute or export oriented or

combination of both in nature. In developing country, development of
industrial projects, normally involves substantial amount of scarce
foreign exchange. On the basis of more absolute amount of saving
and/or earning of foreign exchange of an investment proposal, the
optimal allocation of scarce resources (both domestic and external)
may not be achieved, the' implicit foreign exchange. In other words it
indicates the domestic resource cost involved in foreign exchange to
be saved earned by a project.
The domestic resource cost (DRC) involved in saving, earning foreign
exchange by a project is normally worked out by dividing the real
domestic cost in Taka by real net foreign exchange to be saved!
earned. It is normally expressed as Taka cost per unit of foreign
exchange (i.e. $ or) saved earned i.e. the amount of Taka required to
save, earn a Dollar or Pound Sterling. If domestic resources are
expressed in domestic Currency and foreign exchange is expressed in
dollars, an DRC of less than the (Shadow) exchange rate is considered
quite acceptable.
(c) Contribution to Gross Domestic Product (GDP)
Contribution to GDP of a project is estimated from sales value and
inter-firm transactions. Data regarding sales value is taken from the
calculation of sales estimate of the financial appraisal. Sales value of
fourth year is taken. Similarly data estimate of the financial appraisal.
Sales value of fourth year is taken. Similarly, data relating to inter-firm
transaction of fourth year is collected from the calculation sheet of
cost of goods sold and General Administration and selling expenses of
the financial appraisal.

Detailed calculation of contribution of GDP of a project may be

worked out as per the following format:

52

A.

Sales

B.

Less:
- inter-firm transaction
- Raw and packing materials
- Stores and spares
- Water, power and Fuel-Repair and maintenance
- Stationery and printing
- Traveling and conveyance
- Advertisement
- Contribution to GDP (A-B)

BSB has meaningful contribution to GDP. In the year 1994-1995 GDP

was 8.6% which is higher than that previous year 1 observed that in
the year 1996-1997 was too lower than last two years. But in the years
1997-1998 GDP contribution was 8.1% which is 4.6% greater than that
of last year. Another depression was come in the industrial sector in
the year 1998-99; only contribution was 2.5%, which is lower
contribution after liberation to date. After the year 1999 GDP
contribution is more or less equivalent over the years. In the year
1999-2000, 2000-01, and 2001-02 were 57%, 6.7% and 5.0%
respectively. In recent last two year 2003-2004, 2004-05 GDP
contribution of the economy is 7.10% and 8.43% respectively. The
growth rate of gross domestics product of Bangladesh increased
5.38% in 2004-2005 as against 4.8% in the previous year. The overall
growth in the sector of agriculture and forestry declined 4.38% in
2003-04 from 5.50% during the preceding year. On the other hand the
rate of growth in the industrial (manufacturing) sector during the year
under report declared to 8.43% from 7.10% in previous year. The rate
of domestics savings percentage of GDP in 2003-04 slightly increased
to 18.3 percent from 18.2% in FY 2002-03. Similarly domestic
investment percentage of GDP rose from 23.40 to 23.60 during the
corresponding period.

53

54

Table 1
GDP contribution of Industrial Sector
on Overall GDP of the economy
Year
1994-1995
1995-1996
1996-1997
1997-1998
1999-2000
2000-2001
2001-2002
2003-2004
2004-2005

GDP (%)
8.60
5.30
3.50
8.10
5.70
6.70
5.00
7.10
8.43

So from the above discussion we could easily say that the

rehabilitation

department

is

not

successful

enough

but

this

department is necessary.

D) Employment Generation and Cost per Employment

The number of full-time and part-time jobs measured in man-years
expected to be created both during construction and during operation
of the project should be estimated separately. If data are available,
these estimates should be related to regional, sectoral and national
levels of unemployment and under employment. Where possible, the
degree of labor intensiveness (i.e. the number of workers employed
per unit of investment) of the project should also be estimated.
5.6.2 Non-quantifiable / Intangible Benefits/ Externalities
The term non-quantifiable refers both (1) to effects that are known to
arise but which cannot be measured in physical terms and (2) to
effects, which cannot be valued. Difficulties in quantification and
valuation will often go together. Quantification problems often are
data problem a certain effect could not be measured.
4.7. Financial Appraisal
55

The main purpose of financial appraisal is to assess whether the

proposed project is viable in terms of its operation in the future years
and its financial soundness. The financial analyst should have a clear
idea as to what is intended to be achieved through the financial
appraisal. The financial appraisal is directed to examine mainly the
following two aspects:
(a) Fund requirement to bring the project in to existence and the
probable sources from which the required funds will be mobilized;
and
(b) Prospects of adequate revenue generation by the project when it
goes into operation and the likely position of the concern with
regard to its actual cash generation (liquidity) and its probable
impact upon the financial condition (solvency).
The first aspect deals with the estimation of total of the project (fixed
cost + net working capital) and a suitable financial arrangement
(debt-equity relation). The second aspect relates to the analysis of
production-cost profit at different volume of production carried up to
the year the project attains its normal capacity operation.
4.7.1. Cost of the Project
The cost of a project represents all capital expenditure to be incurred
for acquisition of its fixed assets plus the net contribution of long-term
resources in the proposed current assents. In other words, the fixed
cost of the project plus the net (or permanent) working capital
requirement to run the project will comprise its total cost.

56

4.7.2. Fixed cost of the Project

The requirement of physical assets for a project is essentially an
engineering estimate. The analyst should, however, recheck the
various cost items detailed in the fixed cost statement given in the
technical report. The idea is to see that all costs are included and the
cost estimates are realistic. The analyst should go through item by
item and also look into their ramification. Individual item of tangible
assents will have a required quantity (Q) and a price (P). The Q
indicates any quantity in area, number, volume, or any other suitable
unit of measurement. The P indicates the price for a specific unit of Q.
The fixed cost of a project is the aggregate of cost of land, building
construction, plant, and machinery and equipments preliminary and
are expenses (capitalized) and a margin for contingencies (any or may
not be considered).
4.7.3. Working Capital
Every firm maintains an amount to run the day to day operation of the
business smoothly and that is named as working capital. Sometimes it
is also called the life blood of the firm. In addition to investment in
fixed assets, liquid funds are necessary for some current assets like
stock of ram materials, goods-in-process, finished goods, stores and
spares, debtors, etc. The portion of fund that remains invested in
current assets of an operation is called its working capital. Such assets
are characterized by their tangibility and short term maturity and that
is usually one year. It is important to note here that Bangladesh Bank
issues some policy guidelines from time to time as to what will be the
tied up period while calculating working capital requirement pending
on the nature of the project which should be followed during appraisal
time.
4.7.4. Means of Finance

57

A project may be financed in the subsequent two ways:

The total financing may be meet up by the sponsors; or

Part of the finance may be provided by the sponsors and the

rest by the Creditors.

Some usual sources of funds:

(I) Equity Capital
(a) Paid-up share capital;
(b) Retained Earnings (for an existing concern);
(c) Reserves and surplus (for an existing concern); and
(d) Other sources such as loans from Directors, friends, relatives,
associates, etc.
(II) Loan/Borrowed Capital:
(a) Long-term borrowings (both secured and unsecured); and
(b) Interest During Construction Period (IDCP).

4.7.5. Analysis of Financial Statement

Appropriate analysis of data presented by financial statements helps
in;
(I) Identification of profitability of operation during the past
years;
(ii) Find the trends which may reveal future probabilities;
(iii) Determining the financial condition at a specified date
(iv)Predicting

the

future

ability

to

meet

the

existing

or

anticipated credit obligations;

(v) Assessing the capability of the management in meeting the
changing conditions arising out of implementation of the
proposed project or on-set of a

bad business time.

After estimating the cost of the project, means of finance, sales and
cost of sale, the financial statements of an existing project should be
analyzed calculating a number of financial ratios.

4.7.6. Ratio Analysis

58

There are a lot of various approaches to financial analysis, for our

analysis I have used four fundamental categories:
(i) Liquidity Ratios (These are also called Loan Safety Ratios);
(ii) Activity Ratios (Management Efficiency Ratios);
(iii) Profitability Ratios; and
(iv) Leverage Ratios.
Liquidity Ratios are assessed to measure the ability of the concern
to meet its current and long term debt obligations.
Leverage Ratios measure the extent of funds contributed by the
owners of the project as capital compared to the funds provided by its
long-term creditors.
Activity

Ratios

measure

how

effectively

the

project

is

employing its economic resources.

Profitability Ratios show the management's overall effectiveness as
revealed by the returns generated on sales and investment.

4.7.7. Economic Forecasting

Economic forecasting is final stage of plan for a project in monetary
terms. In other words, forecasting anticipates in concrete terms the
anticipation

of

the

analyst

regarding

the

future

income

and

expenditure and their probable effect upon the assets, liabilities and
equity of a proposed project. Through economic forecasting the
following questions are answered:
(i)

Determination of cost of production and

selling price;

(ii)

and

What it should sell for?

4.7.8. Presentation
The third basic requirement of economic forecasting is a suitable
59

technique for calculation and presentation. The analyst will have to

utilize his knowledge of accounting. The economic forecasting are
prepared and presented within the accounting framework. The quality
of the forecasting would, therefore, depend upon the analyst's
knowledge of accounting. The economic forecasting involve working
out the following three interrelated statements for a number of years
in respect of a project:
(i)

Forecast of earnings this will measure the cost of production and

profitability;

(ii)

Cash flow statement which will indicate major fund inflows and
outflows;

(iii)

Forecasted Balance Sheets that will depict the capital structure

and assets at the end of the periods used in (i) and (ii) above.

4.7.9. Cost of Production

Doing the job of estimating the future sales, then relevant cost of
sales is determined. This process involves encompasses some sort of
expenses budgets for the relevant years for which sales have been
calculated. The related expenses can be broadly divided into the
following three categories:
(i) Cost of goods sold;
(ii) General, Administrative and selling expenses; and
(iii) Financial expenses.

60

CHAPTER FIVE
PROJECT

IMPLEMENTATION PRACTICE
BANGLADESH SHILPA BANK

AND

POLICIES

OF

5.1 INTRODUCTION:
BSB is a prime financing institution and specialized bank. The major
objective of this bank is to provide equity capital, financial & technical
support to medium &large industries. To achieve objective BSB
performs

some

tasks

through

many

departments.

Project

implementation is one of the most important tasks conducted by BSB.

When the loan operation department sanctions the loan it is forwarded
to

project

implementation

department.

Project

implementation

department conduct their duty according to loan sanctioning letter.

And loan-sanctioning letter is made on the basis of project appraisal
report. According to terms and conditions mentioned in the loan
sanctioning

letter

project

implementation

department

try

to

implement project successfully. Providing consultancy services and

other necessary assistance implementation process is going on. They
inspect and monitor project ground actually whether the project is
implementing according to given terms and condition or not. If not
project implementation department report it to the concern authority
to take necessary action project implementation work is going on up to
the commercial production started. When a project started commercial
production implementation process is completed and it refers to
central recovery department to recovery installment money.
5.2

PRE-REQUISITES

FOR

SUCCESSFUL

PROJECT

IMPLEMENTATION:
For proper project implementation, there are some requirements which
must be taken into deep consideration. These are as follows:
5.2.1 Adequate Formulation:

61

Often project formulation is inadequate because of one for more of the

following limitations.
1

Under urgency to get started.

Calculate over estimation of benefits and under estimation of

cost.

Outside field investigation

Brief measurement of input necessity.

Elimination of project linkage.

Advance judgments because of lack of knowledge and expertise.

Care must be taken to avoid the above deficiency so that the appraisal
and formulation of the project is thorough adequate and meaningful.
5.2.2 Sound Project Organization:
Suitable organization for implementing the project is critical to its
success. The uniqueness of such an organization is:
1

Systems and methods are clearly defined.

Rewards and penalties to individuals are related to performance.

It is by a competent leader who is accountable for the project

performance.

Adequate attention is paid to the human side of the project.

5.2.3 Proper Implementation Planning:

Once the investment decision is taken and often even while the
formulation and appraisal are being done it is necessary to do detailed
implementation

planning

before

commencing

the

actual

implementation. Such planning should include:

1

Identify properly the inter linkages between various activities of

the project.

Identify cost standards.

62

Build up a complete time plan for various activities like land

acquisitions,

tender

evaluation,

recruitment

of

personnel,

construction of buildings, erectors of plant, arrangement for

utilities, trial production run etc.
4

Calculate approximately to resource requirements (manpower,

materials, money etc.). For each period to realize the time plan.

5.2.4 Advance Actions:

When the project appears to be a viable and desirable, advance action
on the following activities may be conducted:
1

Assigning for communications facilities

Opening design and engineering and

Calling of tenders.

Possession of land

Securing essential clearances.

Identifying technical collaborators/consultants

5.2.5 Timely availability of funds:

Once a project is acknowledged, enough funds must be made
available to fulfill its necessities as per the plan of implementation-it
would be highly attractive if funds are provided to start advance
actins. Progressively, and miserably allocations, with undue rigidities,
can impair to maneuverability of the project team. It is a common
observation that farms, which have comfortable liquidity position, are
in general, able to implement projects expeditiously and economically.
5.2.6 Judicious Equipment Tendering and Procurement:
To reduce time over runs, it may appear that a turnkey contract ahs
obvious advantages. As these contracts are likely to be bagged by
foreign suppliers. When global tenders are floated, a very important
question rises. How much should we rely on foreign suppliers and how
63

much should we depend on indigenous suppliers? Over dependence on

alien suppliers, even though seemingly beneficial from the point of
view of time and costs, may mean considerable out flow of foreign
exchange and insufficient incentive for the development of local
technology and capability. Over dependence on local suppliers may
mean delays and higher insecurity about the technical performance of
the project. A judicious stability must be sought which moderates the
outflow of foreign exchange and provides logical fill up to the
development of indigenous technology.
5.2.7 Better Contact Management:
Since a significant portion of a project is typically executed through
contracts, the proper management of contracts is critical to the
successful implementation of the project. In this context the following
should be done:
1

The capability and aptitude of all the contractors must be

ensured-one weak can describe the timely performance of the
contract.

Proper regulation must be incorporated among contractors and

suppliers by insisting that they should develop realistic and full
resource and time plans which are matching with the project
plan.

Penalties-which may be graduated, must be forced for failure to

met contractual obligations. Likewise, motivation may be offered
for good performance. Help should be comprehensive to
contractors and suppliers when they have real troubles they
should be regarded as partners in a common pursuit.

5.2.8 Effective Monitoring:

In order to keep a tab on the progress of the project a system of
monitoring must be established. This helps in:
1

Anticipating departure from the implementation plan.

64

Analyze rising problems

Taking remedial action.

In developing a system of monitoring the following points must be

bear in mind.
1

It should focus sharply on the dangerous aspects of project

implementation.

It must place more importance on physical milestones and not on

monetary targets.

It must be taken quite simple. If made over problematical, it may

lead to redundant paper work and diversion of resources. Even
worse, monitoring may be viewed as an end in itself rather than as
a means to implement the project profitably.

5.3 PROJECT IMPLEMENTATION POLICIES AND PROCEDURE OF

BSB:
Process and action taken by BSB to put into practice a project
productively are given below:
1. Revaluation and linking of sanction letter on the basis of
different up to date information.
2. Up dating the endorse letter according to the necessity of the
foreign lender.
3. Rearrangement the construction period, taking permission from
the concerned authority and taking obligatory action relation to
this.
4. And performing different activities given by department.
5. Undertaking necessary program after granting loan in favor of
the project.
6. Creating necessary modification in case of change of the project
place, change of board of directors and change/extension
product mix etc.
65

7. Authentication of new material process of project ensuring the

cash capital according to the loan terms and condition and
providing necessary backing in this matter.
8. Assessment and monitoring tentative production and expansion
of loan period.
9. Making the Final Construction Report (FCR) and transferring it o
Central Recovery Department (CRD) concerned department
/authorities.
10. Determination of the construction period of the project preparing
loan repayment schedule and taking after necessary action
regarding this.
11. Monitoring and inspection the project to see whether the project
is implementing according to time schedule and
necessary initiatives to

trading

solve any kind of problem arising out

there from and providing necessary advice to the entrepreneur.

12. Receiving insurance letter against the predetermined risk of the
implementing project assets and ensuring its deposit to the
Bank.
13. Inspection of the utility of the principles regarding the project
implementation and presiding up to date principles.
14. Sending the file of the project to Central Recovery Department
(CRD) from Project Implementation Department after receiving
at least two installments from the borrower after the Final
Construction Report (FCR).
15. Sending the file to law department to take legal action if they
borrower fails to repayment at east two installment.
16. Converting the foreign currency into local currency and vice
versa if it is necessary.
17. Revaluation and connecting of sanction letter on the basis of
different up to date information.
18. Up dating the sanction letter according to the necessity of the
foreign lender.

66

19. Rescheduling the construction period, taking authorization from

the concerned authority and taking necessary action relation to
this.
20. Performing different activities given by department.
21. Making crucial attempt to give the loan a stage by stage after
the loan granting.
22. Make sure that necessary funds have been supplied by the
entrepreneur and to ensure it proper operation.
23. To give necessary support in the case of Bridge loan from any
financial institution.
24. Taking necessary initiatives to construct the lay out of the
project according to construction cycle.
25. Monitoring the machinery of the project, inspection and taking
any kind of advice regarding to any machine related problem
from machinery department.
26. Verification of new material process of project ensuring the cash
capital according to the loan terms and condition and providing
necessary assistance in this matter.
27. Inspection

and

monitoring

experimental

production

and

extension of loan period.

28. Making the Final Construction Report (FCR) and transferring it o
Central Recovery Department (CRD) concerned department
/authorities.
29. Determination of the construction period of the project preparing
loan repayment schedule and taking after necessary action
regarding this.
30. Monitoring and inspection the project to see whether the project
is implementing according to time schedule and
necessary initiatives to

trading

solve any kind of problem arising out

there from and providing necessary advice to the entrepreneur.

31. Receiving insurance letter against the predetermined risk of the
implementing project assets and ensuring its deposit to the
Bank.

67

32. Inspection of the utility of the principles regarding the project

implementation and presiding up to date principles.
33. Sending the file of the project to Central Recovery Department
(CRD) from Project Implementation Department after getting at
least two installments from the borrower after the Final
Construction Report (FCR).
34. Transferring the file to law department to take lawful action if
they borrower fails to reimbursement at least two installment.
35. Converting the foreign money into local cash and vice versa if it
is necessary.

5.4 STAGES OF IMPLEMENTATION OF PROJECTS OF BSB:

The bank intensively monitors and supervises completion of its
financed projects. During FY 2003-2004, the following conditions are
shown.

Table: Stages of Implementation of Projects of BSB

Position

of

projects

under 2002-2003

implementation
6
13
4
7

Under construction
Documentation Completed
Awaiting Documentation

2003-

2004-

2004

2005

3
8
5
6

3
7
9
25

5.5 PROJECT IMPLEMENTATION GUIDELINES OF PARTICULAR

FARM: [A study of Bexin Bohumukhe Farm (Pvt.) Ltd.]
1. NAME OF THE PROJECT:
68

M/S Rupsha Bohumukhe Farm (Pvt.) Limited (Proposed)

2. LOCATION OF THE PROJECT:
(a) Factory : Uzilab, Sreepur, Gazipur
(b) Office : 21,Mirpur Road, Dhaka
3. PRODUCT-MIX& PRODUCTION CAPACITY:
The yearly production ability of the project on 365 working days in a
year is given below:

69

SI.NO

Items of production

Unit

Quantity

.
1
2
3

Eggs
Culled Birds
Fertilizer

Pcs.
Kgs.
M. Ton

1,27,75,000
67,200
1000

4. COST OF THE PROJECT:

(Tk. in lac.)
Items
Total Fixed cost
Working Capital (net)
Total Cost:

L/C
451.70
6.71
458.41

Total
451.70
6.71
451.41

5. MEANS OF FINANCE:
(Tk. in lac.)
Items
Term Loan
L/c Loan
Deferred payment of interest
Total Loan
Equity
Sponsors Investment
Total Loan and Equity
Debt-equity ratio
Fixed assets coverage ratio(times)

L/C

Total

241.55
10.57
252.12
206.29
458.41
55.45
1.57

6. CAPITAL STRUCTURE:
(a) Authorized Capital:
Tk. 600.00 lac divided into lac ordinary shares of Taka 100.00 each.
(b) Paid up Capital:
Tk 206.29 lac be divided into 2,06,290 ordinary shares of Tk.
100.00 each.
7. AMOUNT OF LOAN:
(a) Taka 241.55(Taka two crore forty one lac fifty five thousand only.
70

(b) Deferred payment of IDCP:

Tk. 10.57 lacs (Taka ten lac &fifty five thousand) only.

8. PURPOSE OF LOAN:
Local currency loan:
To meet the partial cost of construction procurement of capital
machinery and equipment and re- imbursement of net working capital
to the project.
9. PERIOD OF LOAN:
a. Local currency loan: 9 years
b. Late payment of IDCP: 5 years

10. RATE OF INTEREST AND OTHER CHARGES:

(a) Local Currency Loan:
i.As a small industry under thrust sector specified in the
Industrial Policy, 1999 interest on the local currency loan will be
charged at the rate of 10.50% per annum at quarterly rest. The
actual interest rate to be charged to the Borrower Company
shall be the rate prevailing on the date of signing the loan
agreement and the same will continue till liquidation of the
loan.
ii.

In case of default in payment of loan installment and

interest etc. On due date, interest will also be charged at the

same rate on compound basis on the amount defaulted

71

(b) Deferred payment of interest due:

Interest accruing on the loans disbursed during the period of
construction of project will be calculated and shown separately and
will be realized at a simple rate of interest in five annual installments
after the usual grace period to be determined by the Bank.
(c) Other charges as per rates in force from time to time.
(d) In no case, the interest on BSB loans will be exempted and or
reduced.

11. DISBURSEMENT SCHEDULE:

Local currency loan of taka 241.55 (Tk two crore forty one lac fifty five
thousand) only to be disbursed in four installments as stated
hereinafter:
Fist Installment of Taka 160.68l lac (One crore sixty eight lac
only)
Taka 160.68 lacs only will be disbursed for the following purpose:

(TK. IN LAC)
Completion of 100% construction of six storied building: 106.68
Total 106.68
Subject to companies:
(1) Investment of Taka 152.21 mobilizing equity for the following
purposes
(Tk, in Lac)
Purchase & transfer of the project land in the name of the Company:

Land

: 36.29
72

Land development

: 9.40

Survey plan and drawing

Promotional and legal expenses
Evaluation fees (Already deposited)
Documentation fees

: 0.75
: 0.50
: 0.75
: 0.25

100% completion of 9Nos layer house and other

Construction

104.27

Total

152.21

(2) Deposit Tk 54.08 lac (fifty four lac and eight thousand) with the
BSB for the following purposes:

(TK in lac)
Procurement of safety equipment:

1.00

Procurement of office equipment

1.70

Procurement of vehicle

8.00

Procurement of feed material

42.00

Construction period insurance

1.38

Total
54.08

(3) Raising the paid-up capital of the company to the tune of Tk.
206.09 lac and producing documentary evidence to that effect:
(4) Ability to mobilize working capital loan required for commercial
operation of the project.
(5) Float tender for procurement of local machinery following Banks
standard procurement procedure.
2nd Installment of Taka 160 .68 lac (one crore sixty eight lac)
only)
73

Taka 60.00 lac only will be disbursed for

(Tk in lac)
Payment of local machinery direct to the supplier 60.00
Total
60.00
Subject to companies:
(a) Proper utilization of 1st installment of loans and producing
documentary evidence thereof:
(b) Submission

of

necessary

papers

(such

as

invoice,

manufacturers, warranty etc.) required for procurement of local

machinery and equipment to BSB for scrutiny and approval.

3rd Installment of Taka 14.16 lac (Taka fourteen lac sixteen

thousand) only
(Taka 14.16 lacs only will be disbursed towards following purpose)

(Tk. In lac)
Procurement day old chicks
Installation of machinery
Total

12.16
2.00
14.16

Subject to companies:
Proper

utilization

of

2nd

installment

of

loans

and

producing

documentary evidence thereof:

Note: The deposit of Tk. 33.08 lac out Tk. 54.08 lac as mentioned
earlier will be released will be released after disbursement of 3 rd
installment for the following purpose:

(Tk. In lac)
74

Procurement of safety equipment

Procurement of office equipment
Procurement of vehicle
Procurement of feed materials (3 months)
Construction period insurance
Total

1.00
1.70
8.00
21.00
1.38
33.08

4th Installment of taka 6.71 lac (Taka six lac seventy one
thousand) only
Taka 6.71 lacs will be disbursed towards following purpose:

(Tk. In lac)
Reimbursement of working capital
Total

6.71
6.71

Subject to companies:
Proper

utilization

of

3rd

installment

of

loans

and

producing

documentary evidence thereof:

Note: Balance deposit of Tk 21.00 lac will be released after
disbursement of 4th installment.

75

12. REPAYMENT SCHEDULE:

(a) Local currency loan (Principal):
To be repaid in 32 quarterly installments. Reimbursement shall start
after fourteen months from the date of 1 st payment or six months after
the project goes into public operation whichever is earlier; provided
that the bands decision based on truthful evidence as to whether the
project has gone into profitable operation or not from a particular date
shall be final and conclusive and shall be binding on the borrowers:

(b) Deferred payment of interest on BSB loans that will be

accrued during the construct period of the project:
Interest to be accrued on BSB loans during the period of construction
of the project will be realized from the borrowers in five equal yearly
installments after the expiry of the construction period and usual
refinement period. The banks decision concerning construction period
of the project and refinement period thereof shall be final and
conclusive and shall be binding on the borrowers.
(c) Interest on loan outstanding:
The interest to be accrued on the outstanding loan amount after the
expiry of the period shall be charged as usual on quarterly basis.
13. SECURITY OF LOAN:
BSB loans will be secured by
I. Mortgage/ hypothecation by way of first charge on the physical fixed
resources of the company, both existing and future, value estimated at
TK 394.66 lac as under.
(Tk. in lac)
Land
Building including consultant fee
Machinery
Other assets etc.
Total

45.69
256.70
60.00
23.27
394.66
76

Valid mortgage will be created by the borrowers after installment of

machinery.

II. Personal guarantee of the following sponsoring directors and

shareholders (if any) of the company in their individual capacity, which
will be vacated after liquidation of loans
SI Name

of

fathers Present

Permane

Status

and mothers name Address

No
01

of the sponsors
Address
Mr. Abdul Kuddus 8/Ka Satmosjid Vill
and Managin

holdin

Mohammad Fathers Road

post

name:

Sojanagar

Director

Ali

akbar Dhanmondi

Mothers name: Mrs. Dhaka

02

nt

Amena khatun
Mr.
Md
Sahidul 335/

Share
g
50%

Pabna
a. Sarail Do

Director

45%

Director

5%

Total

100%

Islam Fathers name : B,Baria

Late

Mamin

Ahmed

Mothers name: Mrs.

03

Rokea Begum
Mrs.
Khadeja 1/E Dhaka

Kanchanp

Fathers name: Late

Nagar

Khaleq Mia

Sylhet

name

Mrs.

Mothers
JUlaka

Nahar

III. Deposit of 100% share certificate of all the sponsoring directors of

the company with BSB as collateral security, along with blank share
transfer deeds duly verified, signed and sealed and the same will be
retained by the bank till such time BSB loans are liquidated. BSB will
be at liberty to use this towards liquidation of the in case of defaults.
14. SPECIAL CONDITION:
77

Project Deposit:
Before payment of 1st installment, the sponsor shall(a) Make deposit and outlay should be made within three months from
the date of section of loan. Otherwise the sanction will be treated
as cancelled without human intervention.
(b) Submit the merchant title papers of the project land for properly
inspected by the lawyers of the Bank. The loan shall be entitled for
disbursement subject to the complete title of the sponsor on project
land such title shall have to be transferred in the name of the
company.
(c) Submit no protestation certificate from local authority regarding
establishment of project on the planned project land.
(d) Build needed amendment in the Memorandum of Association and
Articles of Association of the company incorporating therein the
terms and conditions of the sanction of BSB for approval of the
Bank. Get it approved by the Registrar of Joint stock companies and
submit a copy of Memorandum of Association and Article of
Association of the company to the Bank.
(e) Present an undertaking assuring that they will meet any shortfall in
the cost of plans and machinery for the proposed project.
(f) Undertake to execute all the documents with BSB creating charge in
favor of the bank on the tangible fixed assets of the project value
estimated at Taka 394.66 lac.
(g) Submit an proclamation to the effect that they have no liability with
any other Bank & Development financial institution beyond the
announcement already made
(h) Submit consent letter from RBS/PBS regarding supply of squired
power as and when necessary.
(i) Propose NOC form the Department of Environment Pollution control
(j) Submit building layout plan ( approved) by the concerned/ local
authority with soil report details structural and architectural
78

drawings final machinery layout plan etc for the final approval of
the bank and
(k) Submit the undertaking to the effect that they will take all sorts of
risk and responsibilities for marketing of products and operation of
the project in setting up of this project.
15. In addition to the supervision and monitoring of the project by the
banks officers, professional expert will be deputed by the bank to the
project for a particular period of time. The sponsors shall undertake to
the effect that the salaries & allowances for the deputed professional
expert will be borne by them.
16. The company shall submit undertaking from the machinery
supplier manufacturers assuring that the performance of their
machinery shall be an acceptable standard.

17. The company shall obtain necessary permission from the

appropriate authority Security Exchange Commission for raising the
authorized and paid up capital of the company and also for the other
purposes as are necessary.
18. The company shall make proper and adequate arrangement for
training the project personnel. The cost of training will be borne by the
sponsors from their own sources.
19. If the price of machinery decreases at the time of final
procurement the loan amount from the bank will be reduced
proportionately without affecting the debt equity ratio of the project.
20. The company shall undertake procure the machinery and
equipment as he specifications and the list thereof enclosed subject to
further changes/ amendments as may be determined/ approved by
BSB.
21. The sanction of loan (S) is subject to the accessibility of local
currency resources with the bank

79

22. Under no conditions, shall this sanction of loan be sold or

management transferred to any other individual, party or organization
without the BSBs prior approval in writing.
23. The manuscript of loan shall be fulfilled within three months from
the date of statement of the sanction thereof otherwise the sanction is
liable to the withdrawn.
24. The okay of loan will be treated to have been withdrawn if the
sponsors of the project fail to meet the requirements for disbursement
fulfilling all related terms and conditions of loans within six months
from the date of issue sanction letter.

25. INSURANCE:
i.The company shall insure the project assets during implementation
period with the Sadharan Bima Corporation in the joint name of the
bank and company covering the following risks:
a. Fire (with re- instatement clause);
b. Riot;
c. Strike;
d. Damage;
e. Cyclone; and
f. Flood.
ii. After booming profit-making operation, the company shall assure
with the Sadharan Bima Corporation or any Bangladesh Insurance
Company, enlisted with BSB, in the joint names of the bank and the
company as mortgage and mortgagor respectively, all fixed property
of the project, both existing and future, jacketing the following risks:
(a) Fire (with instatement clauses);
(b) Riot;
(c) Strike;
80

(d) Damages;
(e) Cyclone; and
(f) Flood.

26. PROJECTED CONSTRUCTION TIME (IN MONTHS)

Land acquisition
Documentation completed
Site development
50% construction completed
Placement of work order of local machinery
100% construction completed
Arrival of machinery at site
Machinery installation completed
Erection and installation completed
Trill run
Normal operation
Construction started

1st month
2nd month
2nd month
4th month
8th month
8th month
9th month
10th month
10th month
10th month
10th month
4th month

CHAPTER SIX
6.0 CONCLUSION:
6. 1 INTRODUCTION:
During my internship phase I have worked with eight department of
BSB. But report has been prepared importance given on Loan
Operation Department and Project Implementation Department. Loan
Accounting Department, Documentation and Machineries Procurement
81

Department, and Law Department are also related to this report. The
main job of loan operation department is to evaluate projects from
different aspects, like management & organizational, economic,
technical, fiscal and marketing. Each of the aspects has been
described in this report. And on the other hand, main task of project
implementation department is to execute project successfully and to
do this BSB provides technical, financial and managerial support to the
sponsors.

have

faced

some

problems

lending

and

implementation polices and practices, which are stated in the

below:

6.2 PROBLEMS REGARDING LENDING AND IMPLEMENTATION

POLICIES AND PRACTICES OF BSB:
There are some limitations involved in the lending and implementation
policies and practices of BSB. Some of these are related to BSBs own
institutional drawbacks & weaknesses and some of the related to the
borrowers. During my internship program the following problems have
been fund regarding lending and implementing procedure:
Sometime unacceptable feasibility reports are submitted by
sponsors which do not contain enough and dependable
information.
Lack of business skill of the entrepreneurs.
Prolonged process and long time involved in the evaluation of
project.
Too

little

concentration

is

given

to

examine

risk

and

uncertainties related with the projects means only sensitivity

analysis is done to analyze risk.
There is no system of

liability of the assessment team if the

approved project fails due to their indecent appraisal.

82

 Not have of financial assurance on the part of the borrower, the

outcome being the stoppage of mobilization of equity by them
is future means they switch their equity in other purpose after
getting the loan amount.
Lack of harmonization among various financial institutions in
exchange of information.

Some suffer that lack of an up-to-date project appraisal

instruction booklet.

Poor attentions to social cost and benefits analysis (SCBA).

Unbalanced tariff and monetary policy, political unsteadiness of
the country resulting in poor project appraisal especially from
the economic viewpoint.

Lack of sufficient, updated and precise information in the

country. Both primary and secondary data are not readily
obtainable.

Lack of helpful monitoring and inspection systems.

Lack

of

imposing

good

control

over

the

project

in

implementation stage.
Ineffective resource distribution some times abstract project
implementation process.
Sometimes sponsors fail to invest from his equity portion which
setback the project implementation process.
Management inconsistency is one of another vital problem of
successful project implementation.
Lack of right preparation in projected work.
Bangladesh is a crowded country of South Asia. It occupies of natural
resources. But the economic situation is very poor and unemployment
rate of population is another problem for developing the country.
Bangladesh Shilpa Bank is renowned special bank of our
country. We cannot think industrialization in our country without
meaningful contribution of Bangladesh Shilpa Bank. Although
there are some drawbacks of BSB activities nevertheless it plays
83

an important role in the industrial sector of Bangladesh. Creating

new employment opportunity in our country by investing large capital
must be needed. Bangladesh Shilpa Bank is playing a vital role by
investing huge amount in industrialization in our country. In the
process of industrialization by lending and implementing a new
project, selection of right and viable project is crucial matter. If

the

selection is wrong then whole process may be foil. So, to select right
project proper appraisal should be maintain. If the project appraisal is
done on the basis of wrong information the lending may be
unsuccessful. So the project appraisal is most noteworthy to select
right project.
On the other hand, project implementation is conducted on the basis
of appraisal report and loan sanctioning letter. The implementation
processes is going on until the project started commercial production.
So vigil sight should be kept in both the project appraisal
And implementation process to realize investment effective and
constructive. Because countrys industrial development is immensely
depends on effective capital investment and realization of this
investment.
The present situation of lending and implementation policies and
practices of BSB is not sufficient. They cannot assess a new project on
practicing modern economic, market, financial and technological
theory. It is also another problem of not succeed a new project. The
projects those are already produce products commercially and existing
in the market have different kinds of problems (shortage of working
capital, shortage of current amount of money for payment interest of
loan, and unable to install new machinery). Where commercial banks
are playing a vital role in the economic development experience of
banking and economic development in East Asian counties or even
Indian experience will advise that our banking sector has to go a long
way to play a successful role in economic development and social
change
84

7.0 RECOMMENDATIONS TO OVERCOME PROBLEMS INVOLVED

IN THE LENDING AND IMPLEMENTING POLICIES AND
PRACTICES OF BSB:
Considering the above problems I advocate some suggestions for
overcoming

these

problems.

If

BSB

follows

the

below

recommendations & suggestions and reforms their actions of lending

and implementing policies and practices, I expect and wait for that it
will be provides encouraging result. Side by side, it is formed as a
favorable situation for lending and implementing polices and practices.
1. An organize cell should be established for sharing information
among various institutions.
2. An apt and prompts co-ordination and collaboration environment
should be launched so that they work as a team and make the
assessment report promptly to stop the project to be obsolete.
3. The predetermined time of three months for processing of
project application should be severely followed. Sometimes it
takes more that then month to appraise a project.
4. More stress on the consequence of a project to measure socioeconomic cost and profit analysis should be taken into concern.
5. Steps should be taken for developing industrial skill and talent of
the sponsors.
6. Some more technicians and professional engineer should be
there to reviewer project feasibility correctly.
7. A market study institution should be established for accurate
market study and the assumptions should be more practical.
8. The project assessment manual should be modernized.
9. Risk

adjusted

discount

rate

method;

certainty

equivalent

method, Program Evaluation and Review Technique (PERT) and

probability analysis etc. should be introduced to assess risk and
uncertainties involved in the projects.
10. Ensuring appropriate viability study. The accountability of
feasibility report should be imposed, to some extent on the
entrepreneurs.
85

11. Both primary and secondary database of the country should be

strengthened and enhanced.
12. Steps should be taken to

strengthen the existing feed back

system, so that the problem of getting information about

technology can overcome.
13. Physical field study should be maintained to ensure any
misdeed.
14. Adequate concentration should be given to the human side of
the project.
15. It is needed to do detailed implementation planning before
beginning the actual implementation.

86

Bibliography
1. Bangladesh Shilpa Bank. Annual Report 2003-2004. Dhaka
2. Bangladesh Shilpa Bank. Annual Report 2004-2005. Dhaka
3. Bangladesh Shilpa Bank. Various Project Appraisal Reports.
Dhaka
4. Bangladesh Shilpa Bank. Loan sanction letters. Dhaka
5. Bangladesh Shilpa Bank. Bangladesh Shilpa Bank Ordinance
1972. Dhaka
6. Bangladesh Shilpa Bank. Departmental Manuals. Dhaka
7. Bangladesh Shilpa Bank. BSB web site www.shilpabank.gov.bd

87

Appendix
A form on details of the applicant:
SI Name

of

fathers Present

Permane

Status

and mothers name Address

No
01

of the sponsors
Address
Mr. Abdul Kuddus 8/Ka Satmosjid Vill
and Managin

holdin

Mohammad Fathers Road

post

name:

Sojanagar

Director

Ali

akbar Dhanmondi

Mothers name: Mrs. Dhaka

02

nt

Amena khatun
Mr.
Md
Sahidul 335/

Share
g
50%

Pabna
a. Sarail Do

Director

45%

Director

5%

Total

100%

Islam Fathers name : B,Baria

Late

Mamin

Ahmed

Mothers name: Mrs.

03

Rokea Begum
Mrs.
Khadeja 1/E Dhaka

Kanchanp

Fathers name: Late

Nagar

Khaleq Mia

Sylhet

name

Mrs.

Mothers
JUlaka

Nahar

GDP contribution of Industrial Sector

on Overall GDP of the economy
88

Year
1994-1995
1995-1996
1996-1997
1997-1998
1999-2000
2000-2001
2001-2002
2003-2004
2004-2005

GDP (%)
8.60
5.30
3.50
8.10
5.70
6.70
5.00
7.10
8.43

Table: Stages of Implementation of Projects of BSB

Position

of

projects

under 2002-2003

implementation
6
13
4
7

Under construction
Documentation Completed
Awaiting Documentation

Thank You

89

2003-

2004-

2004

2005

3
8
5
6

3
7
9
25