April , 2009


Best Financial Institution of the Year
Banker to SMEs

Sajjadur Rahman

Best Financial Institution of the Year
Chairman of BRAC BANK

Ambia Begum is a small businesswoman. In a few years, she could make her fortune. But it was a long hurdle she had to win. She knocked the doors of many banks for funds, which went all in vain. She left no stone unturned to get financial help to expand her handicraft business after its inception in 1998; even she bribed many officials, went for newspaper ads, but failed to get it.

The lady luck smiles at last to draw a curtain down on her days of despair. An amount of Tk 3 lakh loan was offered from BRAC Bank in 2007.

The bank has been continuing its noble efforts in lending to small and medium businesses since the start of its journey in 2001.

“A couple of years ago, I got a business card of a BRAC Bank official. Sensing my business potential, the bank lent me Tk 3 lakh without any collateral in 2007,” Begum expressed her delight, who owns Antora Boutique in Banasree, Rampura.

She paid the loan back and took another loan of Tk 4 lakh in January 2009 from the same bank. Now she imports, exports and sells garments locally by adding value.

Antora Boutique's business turnover crossed a whooping Tk one crore in 2008.

Another beneficiary of BRAC Bank loans for small and medium entrepreneurship is Shah Md Sekander Sohel, a wholesale trader of jeans pants at Nur Super Market in Keraniganj.

“I started my business six years ago with the earnings I saved during my stay in South Korea for job pupose,” says Sohel at his shop.

Considering bank mortgage or security against sanctioning any loan as a limitation, Sohel found no alternative to borrowing an amount of Tk 1,00000 loan from an informal channel at Tk 3,000 interest a month, when he was strongly in need of money to run his business in 2005.

“But I had been able to have an access to BRAC Bank collateral-free loan of Tk 5 lakh in 2006,” Sohel said, pointing to the bank's speciality: “I had to give two guarantors' names, nothing more.”

These are how the small borrowers expressed their delights about BRAC Bank.

The Bangladesh Business Awards 2008 goes to the bank this year in recognition of its outstanding contribution to small and medium enterprises (SMEs). Sponsored jointly by The Daily Star and DHL, the award was handed over to the bank at a gala event at Pan Pacific Sonargaon hotel.

AEA Muhaimen, the bank's managing director, was delighted for his bank's being the best financial institution for 2008. He said this award would reaffirm its dominance in the banking industry.

BRAC Bank is a bank that recognises and understands the fund requirements of some underserved and overlooked but most potential and promising segments like women entrepreneurs and manufacturing businesses in SME category.

SME loan portfolio accounts for 65 percent of the bank's total loan, something unparallel in the industry.

The bank's lion's share is owned by microcredit giant Brac. BRAC Bank, with a difference from conventional banking that focuses on corporate lending, employs around 6,000 people.

The bank has so far disbursed about Tk 8,000 crore collateral-free loans to 1.5 lakh SME customers. Over 90 percent of these loans are unsecured (collateral-free). The bank adds about 8,000 new customers every month.

Despite this huge unsecured portfolio, the non-performing loans with the SMEs is still below five percent. Even when the local economy is faced with the ongoing global recession, BRAC Bank has posted Tk 105 crore profit after tax, while the figure was only Tk 64.6 crore in 2007.

Currently, the bank has 56 branches, 30 SME Service Centres and 429 SME unit offices to have a wide coverage of services to the SMEs.

“Through these huge delivery channels, the bank has disbursed Tk 3,700 crore to the SMEs in 2008,” the bank's MD said. Only Tk nine crore was disbursed in 2001 as SME loan.

“Now 80 percent of our customers are old customers,” said Muhaimen. “It has a unique feature of gathering deposits from urban areas and distribution of those to rural areas,” he noted.

The bank has helped create about six lakh employments so far, claimed Muhaimen.

Another feature of the bank is it renders an additional service to educate the borrowing small and medium entrepreneurs about banking knowledge and to build relationship with these drivers of the economy by going to their doorsteps. A dedicated SME Division and a Women Entrepreneur Cell in the bank are working constantly to provide the services to its clients.

Some 2,500 officers are engaged at field level to help and communicate with clients.

According to a global research conducted by the Council of Microfinance Equity Funds, USA, BRAC Bank has been rated as one of the four most successful and sustainable SME banks in the world.

The country's banking industry comprising 30 private banks, nine foreign banks and nine state-run banks, was least interested to lend to SMEs before BRAC Bank entered the industry, let alone any collateral-free credit. Now many banks are following in the footsteps of BRAC Bank.

Besides SME funding, the bank has developed modern and tech-savvy services for retail and corporate banking. It has also developed modern alternative delivery channels, such as 24-hour phone banking, internet and SMS banking.

It has set up 125 automated teller machines (ATM), the highest for a single bank after Dutch-Bangla Bank. Setting up of another 100 ATM booths this year is now under the bank's plan, according to officials.

In the retail-banking segment, the bank has pioneered many new products. The bank offers secured lending products like home loan, car loan, various deposit products like transactional accounts and monthly deposit schemes.

Personal loan, salary loan and credit cards are some unsecured portfolios in its retail banking.

There are also some products the bank offers to students and travellers.

On the remittance services, BRAC Bank has an edge over other banks as it can benefit from the wide network of its mother concern Brac, the largest nongovernmental organisation in the world. Brac, which has thousands of field offices across the country, provides the backbone of the bank's remittance network to ensure quicker services even to the remotest area in Bangladesh.

BRAC Bank has also been honoured by the Western Union as one of its three largest agents in whole South Asia in 2008.

When the bank's MD's attention was drawn to its high interest rates and charges on collateral-free credit, he said collateral-free loan is much costlier than collateral-based loan.

“Our distribution cost is very high as the average loan size is only Tk five lakh,” he said. “You can't take the risk at the rate of 13-14 percent,” he added.

BRAC Bank charges 16-18 percent interest rates for its collateral-free loans.

However, Sohel, the beneficiary of BRAC Bank loans, expressed differently, as he put in words: “I have to pay around Tk 1,600 as interest for Tk 100,000 loan from BRAC Bank, while the interest is at least Tk 3,000 for informal channel credit.”

Big advantage is that the bank does not want any security for lending, said Sohel, who has applied to the bank for loans for the fourth time.

“I can easily pay back the instalment of the loan from my profit,” Begum said. “I had to pay Tk 500 everyday as interest for an informal loan worth only Tk 20,000,” she said.

The bank also bagged the ICMAB Best Corporate Award 2007 as a financial institution. It received a national award as the highest VAT payer for the financial year 2007-08.