[pic][pic][pic]

Chapter - I

Introductory Part

1.1 Rationale of the report
SME financing has been identified as a major bottleneck for Bangladeshi SME’s growth. Unfortunately the issue seems to be as unresolved as it always has been. Though the majority of the issues are with the SMEs themselves, the banks and non-banking financial institutions (NBFI) also have major issues in designing financial products for the SMEs. Banks and NBFIs always play a major role in our country’s economy. The number of branches of private bank and NBFI is increasing day by day. As the number is increasing, the competitive environment is making the firms to be more aggressive, innovative and diversified. As a NBFI, United Leasing Company (ULC) was established in 1989 by reputed foreign and local institutions in collaboration with IDA. The objective was to create an Institution that will cater to the investment needs of our economy. As the competition is rising in the market, so ULC is also going through some changes of processes. They have introduced a department for analyzing clients before financing named Credit Department for all types of financing including small, medium and corporate enterprise financing. This internship report is about the credit approval process for Small Enterprise Financing in ULC.

1.2 Origin of the report
Now a day, education is not just limited to books and classrooms. In today’s world, education is the tool to understand the real world and apply knowledge for the betterment of the society as well as business. From education the theoretical knowledge is obtained from courses of study, which is only the half way of the subject matter. Practical knowledge has no alternative. The perfect coordination between theory and practice is of paramount importance in the context of the modern business world in order to resolve the dichotomy between these two areas. Therefore, an opportunity is offered by Faculty of Business Administration, ASA University Bangladesh, for its potential Business Graduates to get three months practical experience, which is known as “Internship Program”. Internship Program brings a student closer to the real life situation and thereby helps to launch a career with some prior experience. For the internship program, each student is attached with an organization. I was placed in United Leasing Company.

This paper is entitled “Credit Approval Process of Small Enterprise Financing Department in United Leasing Company Limited” originated from the fulfillment of the internship program. During my internship, I had to prepare a report under the supervision of Ms. Rubina Afroze, Lecturer, Faculty of Business Administration, ASA University Bangladesh.

1.3 Objectives of the study

1.3.1 Broad Objectives

← To analyze the credit approval process of Small Enterprise Financing in United Leasing Company Limited.

1.3.2 Specific Objectives

← To explain the current credit approval process of Small Enterprise Financing. ← To identify the shortcomings in credit approval process. ← To identify and analyze the major reasons for the shortcomings of that process. ← To recommend suggestions for overcoming those shortcomings.

1.4 Methodology

1.4.1 Sources of Data collection

This report solely deals with United Leasing Company and the primary emphasis has given to the credit approval process of Small Enterprise Financing. The report is based on both primary and secondary data.

Primary Data Sources:

← Credit officers of Credit Department (SEF) of ULC. ← First hand knowledge gathered from practically dealing with the different steps of the process.
Secondary Data Sources:

← Annual Reports of ULC. ← Brochures of ULC. ← Official website of ULC. ← National Foot Print (official database of ULC). ← IISAF software of ULC.

1.4.2 Process of data collection

The following methods were used to collect the required information for the study:

← Documents: Documentary information for the study is collected from annual reports, websites and official database.

← Interviews: The primary data collected through informal interviews with company’s personnel. The interviews performed in a conversational manner and the respondents will answer in their own words.

← Observation: Information is also collected by the observation of the office works and different activities of the officials during my internship period.

1.4.3 Analysis of Data

The collected data is analyzed in a descriptive way and also presented by graphs, tabulation if necessary.

1.4.4 Population Size

A population of 65 clients was selected who were given sanction from ULC for the month September, 2011 to November, 2011.

1.5 Scope of the study
This report has been prepared through extensive discussion with the employees of ULC. While preparing this report; I had a great opportunity to have depth knowledge of all the financing and credit activities practiced by the ULC. It also helped me to acquire a firsthand perspective of a leading non-bank financial institution (NBFI) in Bangladesh.

The scope of this report is limited to the overall description of the company, its services and credit approval process of Credit Department (SEF).

1.6 Limitations of the study
Despite the diligent efforts given in preparing the report, it succeeded only to skim through the surface of the ocean on this subject. Therefore the views expressed in this report are likely to be restricted by limitations. A number of limitations are associated while preparing the report. They are summarized below:-

← Time Constraint: The duration of the study was only three months. So it was not possible to reflect all problems of the process in the report in such a short period of time. ← Representation of data: The sample was selected from the client files of September, 2011 to December, 2011. Hence there is a chance of not depicting complete picture or situation of Credit Approval Process of Small Enterprise Financing. ← Limited Knowledge: Limited knowledge on the subject may hamper the understanding of the process within the given time frame.

So, please you are requested to consider these limitations while reading and justifying any part of my report.

[pic][pic][pic]

Chapter II

Organization Part

2.1 History of the Organization

United Leasing Company Limited (ULC), an associate company of Duncan Group, commenced business in 1989 as a first generation lease financing company in Bangladesh. The company incorporated as a public limited company under the Companies Act 1913, ULC was also granted license under the Financial Institutions Act, 1993. The shares of the company are quoted on the Dhaka Stock Exchange since 1994.

Considering the importance of the venture, organizations like Asian Development Bank (ADB), Commonwealth Development Corporation (CDC) joined Lawrie Group Plc and Duncan Brothers (Bangladesh) Ltd. to participate as sponsor shareholders. Since inception ULC has maintained prudent investment policies and has successfully positioned itself among the frontrunners in an increasingly competitive financial service sector. Building a diversified pool of assets spread across almost all sectors of the economy and serving a wide spectrum of customers in the process. The Company’s customers include most of the top corporate groups in the country including some of the multinationals. However, the Company’s major and most profitable business segments are leases to the small and medium enterprises. Continuing its journey, ULC will invest its resources to expand their customer base and better serve their existing customers by diversifying their asset and liability portfolios. ULC has the financial strength, management capability and committed human resources to ensure sustainable growth.
|Name of the organization |United Leasing Company Limited |
|Form of organization |Public limited company |
|Nature of business |Non bank financial institution |
|Commencement of business |September 12, 1989 |
|Number of branches |11 |
|Chairman |Mr. Imran Ahmed |
|Managing Director |Mr. Syed Ehsan Quadir |
|Registered office |Camellia House, 22 Kazi Najrul Islam Avenue, |
| |Dhaka-1000.PABX: (880-2) 9669006,Fax: (880-2) 9662596 |
|Website and E-mail |Website: www.ulc.com.bd |
| |E-mail: webmail@ulc.com.bd |

2.2 Objectives of the Organization

The main objectives of the company are to assist the development of productive private sector industries particularly in their balancing and modernizing programs. The company mainly extends lease financing for machinery, equipment to the industries & vehicles for commercial purpose. In addition it also provides project finance for expansion of business. The primary activity of the company is to provide leases to different commercial organizations. It provides lease for all sorts of manufacturing equipment and for vehicles.

2.3 Mission of the Organization

← Devote continuous effort to improve products and services for sustaining competitive edge.

← Ensure service excellence by leveraging motivated human resource and technology.

← Manage risks and costs to ensure sound financial performance and adequate return on all investments.

2.4 Vision of the Organization

To be the leading high quality service provider in the markets we serve.

2.5 Milestones

ULC was established in 1989 as a public limited company, to cater the investment needs of our economy.

|Milestones |Date |
|Incorporation of the Company |April 27, 1989 |
|Commencement of operation |September 12, 1989 |
|Public Issue of shares |March 28, 1994 |
|Trading of shares on Dhaka Stock Exchange |June 23, 1994 |
|First dividend declared |April 20, 1995 |
|Authorized capital increased |May 18, 2000 |
|Launch of Fixed Investment Products |September 01, 2005 |
|Commencement of Factoring Operation |October 03, 2005 |
|Commencement of Extended Head Office (Noor Tower) |June 13, 2008 |
|Commencement of Training Centre (Northern S.R.Tower) |May 15,2010 |
|Commencement of Booth Office (Belkuchi, Sirajgong) |September 19, 2010 |

2.6 Organ gram of the Organization

Here, organizational structure of United Leasing Company Limited has been illustrated.

Figure 1: Organizational Structure of ULC

2.7 Products & Services

1. Investment Services

a. Sanchay Scheme

Sanchay scheme allows one to deposit on monthly basis and at the maturity one will get a substantial amount of return with interest.

b. Term Deposits

Under this scheme, money is deposited for a fixed period of time and interest is capitalized with the principal at each year.

c. Earner Scheme

One will receive a fixed monthly or quarterly return against your deposit. This is an ideal scheme for senior citizens who wish to preserve their retirement funds and at the same time want to earn interest to meet recurring expenses.

d. Insured Deposits Scheme

It is an unique monthly savings scheme that gives the depositor an opportunity to save money for the future as well as obtain peace of mind that the scheme benefit will be paid even in case of sudden demise of the depositor.
The monthly installments have built-in life insurance coverage that assures the receipt of the maturity value of the deposit by the nominee of the depositor, in case of depositor’s death due to any cause (excluding pre-existing illness/disability, AIDS, suicide, murder or assault, war or warlike operations etc. details of which will be available in the original Group Insurance Policy Contract).

2. Secured Finance

a. Lease Finance

ULC provides lease financing facilities to all market segment of customers, Small & Medium Enterprises, Commercial Houses, Large Corporate organizations.

b. Home Loan

ULC offers the most convenient home loans to suit the needs. With so many attractive benefits, the home one always wanted is no longer a dream.

c. Term Finance

Term finance is designed for the longer term business purposes where main theme is to meet up the purpose of working capital finance, generate profitability and consolidation of the customer’s expansion objectives.

3. Channel Finance

a. Credit Sales Financing

Credit Sales Financing of Accounts Receivable is a mode of financing receivables arising out of supply of goods or delivery of services on credit. This revolving short term financing facility enables the suppliers/ service providers to realize the maximum portion of the payment soon after the delivery is made to the buyer.

b. Work-Order Finance

Under this arrangement STF is provided against Work Order, helping one in receiving a significant portion of order amount before the delivery of goods or services. Thereby ensures schedule implementation of the project.

c. Distributor Finance

This arrangement ensures better flexibility through sales expansion or sales retention without trade credit facility. Also allows one to impose limits on cash discount, bad-debt losses, and opportunity costs.

d. Assignment Discounting

This arrangement allows midterm financing against some fixed irrevocable assignments. Alleviate problems of working capital requirement and provides an opportunity to repay periodically.

e. Revolving Loan

Revolving loan is a tailor-made credit facility, specifically designed for the companies with seasonal activity, which need to cover their temporary liquidity gaps, until the collection of the commercial receivables.

4. Corporate Finance

a. Syndication Loan

For project requiring large-scale investment, ULC brings other financial institutions to raise funds through syndication where ULC acts as the lead arranger for the financing. The job in this area is to find the right consortium partners and negotiate acceptable terms and conditions for one.

2.8 Financial Highlights

| |(Taka in Million) |
|.. Operating Result |2010 |2009 |2008 |2007 |
|.. Net operating income |590 |447 |419 |387 |
|.. Profit before tax |578 |213 |203 |200 |
|.. Provision for tax |200 |51 |50 |57 |
|.. Profit after tax |378 |162 |153 |143 |
| |
|.. Balance Sheet |2010 |2009 |2008 |2007 |
|.. Total lease / loan portfolio |7556 |7,212 |7,264 |7,175 |
|.. Total assets |9260 |8,718 |8,752 |7,894 |
|.. Financial liabilities |5396 |5,531 |5,773 |5,488 |
|.. Total liabilities |7639 |7,456 |7,606 |6,859 |
|.. Shareholders' equity |1621 |1,262 |1,146 |1,035 |
|.. No. of shares outstanding |5.28 |2.64 |2.31 |2.10 |
| |
|.. Financial Ratios |2010 |2009 |2008 |2007 |
|.. Debt equity ratio |4.7 |5.9 |6.6 |6.6 |
|.. Return on equity (%) |26.2 |13.5 |14.0 |14.5 |
|.. Financial exp coverage (times) |1.6 |1.3 |1.3 |1.4 |
|.. Net asset value per share Taka) |307 |478 |434 |392 |
|.. Earning per share (Taka) |71.64 |61 |58 |55 |
|.. Cash dividend (Taka/ share) |7.5 |7.5 |17.5 |15.9 |
|.. Stock dividend (Bonus share) |4:3 |1:1 |7:1 |10:1 |

Table 1: Financial Highlights of ULC
2.9 SWOT Analysis of ULC

Strengths:

← It was among the first in this industry and therefore enjoys first mover advantages. ← At the moment they are the market leader as they are paying 20% Dividend and giving 10:1 Bonus Share to its shareholders this year, which is more than any other leasing company in the country. ← ULC has very high skilled, energetic, hard working and motivated human resources. ← ULC believes and practices participative management. ← ULC is engaged in product diversification, this year they are expanding the SME division and also introduced Home Loan to their product portfolio. They are also planning to go into Merchant Banking. ← ULC has a very strong client base among the leasing companies; most of which are the giant local and multinational organization such as, British American Tobacco Bangladesh, HSBC, Square, Navana, Transcom etc. ← ULC do not comply undue political influence. ← With its diversified business, ULC is better equipped to compete in an ever changing and challenging business environment.

Weaknesses:

← One thing might be their lack of commitment to one big huge investment project since they do not want to put all their eggs in one basket. ← Another major weakness of ULC is lack of marketing and advertising activities comparing to other leasing firms.

Opportunities:

← With growth in our corporate sector, the demand for lease financing is also growing and consequently, the lease financing industry. ← Among visible non-functioning of development financial institutions, ailing capital market and lack of interest of commercial banks in term financing, the leasing industry remains the only vibrant financial intermediaries for the medium term financing with less than 5 % non-performing loans. ← By introducing new products such as house loan and Small Financing, ULC can expand its market.

Threats:

← Continuously increasing deflation rate result into less disbursement of fund. ← There is a clear trend of increasing competition in the lease market with the entry of more leasing companies and leasing by commercial banks. ← Among the NBFIs doing business in Bangladesh, United Leasing Company is the second largest in terms of Credit portfolio. But the list of financial services ULC is offering is shorter compared to other NBFIs.

[pic][pic][pic]

Chapter - III

Project Part

3.1 Small Enterprise Financing of ULC

United Leasing Company (ULC) Ltd., a financial Institution, has a strong position in the financial sector of Bangladesh in terms of services provided. Development in the Small Enterprise Financing field has forced the top echelon of ULC management to think away from traditional financial products and concentrate more in the Small Enterprise Financing products. Looking at the prospect of Small Enterprise Financing, ULC established a separate department for Small Enterprise at the end of 2005. Before the formation of this department, there was no special attention given to Small Enterprise Financing. ULC defines small and medium enterprise to differentiate each of them.

Small enterprises are those enterprises which are not public and they must fulfill following criteria:

| No. |Nature of Business |Asset in BDT(without land & building) |Employee |
| | | |( maximum) |
|1 |Service |50,000-50,00,000 |25 |
|2 |Trading |50,000-50,00,000 |25 |
|3 |Manufacturing |50,000-150,00,000 |50 |

Medium enterprises are those enterprises which are not public and they must fulfill following criteria:

| No. |Nature of Business |Asset in BDT(without land & building) |Employee |
| | | |( maximum) |
|1 |Service |50,00,000-10,00,00,000 |50 |
|2 |Trading |50,00,000-10,00,00,000 |50 |
|3 |Manufacturing |150,00,000-20,00,00,000 |150 |

Above market scenario clearly depicts the fact that there are abundance scope for ULC to develop in this sector. Current market position and business strategy recognizes ULC as one of the major market player and competitor in following areas:

← ULC’s business strategy is to cover the entire nation. At present out of 64 districts ULC financed around 35 districts. ULC focuses mainly on rural and semi urban areas particularly on small segment of manufacturing, trading and service sector industries.

← ULC financed their client through traditional lease method which constitutes majority of the portfolio. Financing Small client through lease method is still not honored by the banking sector. Besides ULC developed different term loan product scheme in line with bank and other FIs to support working capital requirement of the client.

← ULC developed a nation wide territory network for its small enterprise operation. As part of that, ULC opened branches across the country. New branches in Noakhali and Barisal have started operation recently. These branches are located in different business hub to cover the whole country.

← ULC has developed a fully separate credit team independently review all loan proposals of small enterprise across the country. Credit visits all new clients and provides feedback to management & relationship manager (RM). In ULC credit prepares all proposals on behalf of RM and submits before the management for approval.

3.2 Products of SEF: At A Glance

SEF department of ULC offers different products for different clients:

|Product Name |Nokshi |Mousumee |
|Focus Group |Woman Entrepreneurs |SME |
|Loan Amount(up to) |TK 5 lacs |TK 5 lacs |
|Repayment Term |24 months |18 months |
|Repayment Method |EMI |Can be structured |
|Age Limit |25-55 years |30-55 years |
|Applicant’s Income (min) |Taka 3.50 lacs |Taka 2.50 lacs |
|Product Name |Agrani |Briddhi |
|Focus Group |SME |SME |
|Loan Amount(up to) |TK 6 lacs |TK 12 lacs |
|Repayment Term |18-24 months |18-24 months |
|Repayment Method |EMI |EMI |
|Age Limit |30-55 years |30-55 years |
|Applicant’s Income (min) |Taka 2.50 lacs |Taka 2.50 lacs |
|Product Name |Bunon |Chaka |
|Focus Group |Woman Entrepreneurs |Woman Entrepreneurs |
|Loan Tenor |12-36 months |3 months |
|Repayment Method |EMI |Quarterly interest payment |
|Product Name |Sristi |Dhara |
|Focus Group |Woman Entrepreneurs |Woman Entrepreneurs |
|Loan Tenor |12-36 months |12-48 months |
|Repayment Method |EMI |EMI |

Table 2: Products of SEF

3.3 Credit Department of SEF

Objectives of Credit Department (SEF) is to ensure effective credit principles are in place and exercised while maintaining best credit approval processing time for all small enterprise clients at the time of credit origination so that risks are acknowledged and mitigated to minimize credit losses and collection costs. Responsibilities of Credit Department (SEF) are: ▪ Visit all prospective clients before preparing the credit appraisal report. ▪ Prepare credit appraisal report of all proposals of Small Enterprise (SE). ▪ Verify whether the client’s finance requirement is justified. ▪ Verify whether client has the repayment capability. ▪ Verify whether the client meets all credit criteria of ULC.

3.4 Credit Approval Process of SEF Department

Credit approval process of SEF Department includes different steps (figure: 2). These steps are tried to discuss in brief. But it is mentioned that this process (figure: 2) is not followed in all of the cases (for example: for the sanction of Otobi Limited (annexure: 1), no credit visit has been done as it is a big client of ULC).

i. Preparing & Approving CIR (Client Inspection Report)

This is the first step of credit approval process. The relationship manager (RM) completes a client inspection report (CIR) for a prospective client. To prepare CIR required documents are following:

← Application for proposal and quotation of the proposed asset. ← Memorandum and articles of association of the applicant/ partnership deed and board resolution. ← Copy of trade license ← National ID photocopy/ Passport photocopy. ← Copy of TIN (Tax Identification Number)certificate ← Bio-data and photograph of directors ← Net worth statement of the guarantors ← Bank statement for 1(one) year. ← Accounts for last 3 (three) years. ← Company profile. ← Sanction letters of others loan. ← Corporate guaranty.

After preparing, RM uploads that CIR in the National Foot Print (NFP), database of ULC. After reviewing that report, head of Small Enterprise Financing (SEF) accepts or rejects that proposal.

Credit Approval process: At a glance

|[pic] |

Figure 2: Credit Approval Process

ii. Collecting CIB (Credit Information Bureau) Report

In order to strengthen credit discipline and improve the recovery position of loans and advances, a financial institution needs to have strong control on the overall operation of credit. Like others, all types of leases and loans of ULC falls into following four scales as prescribed by Bangladesh Bank:

Unclassified: Repayment is regular. This includes standard and special mention account (SMA).

← Standard: Duration of due is 1-89 days or three months. ← Special Mention Account: Duration of due is 90-179 days or three to six months. Classified: Repayment is not regular. This includes substandard

← Substandard: If it is a continuous or demand loan, and if it is irregular for more than 6 months but less than 9 months then it will be classified as substandard. If it is a term loan, and if it is irregular for more than 6 months but less than 12 months then it will be classified as substandard. But if the loan is a short term agriculture loan and micro credit and if it is irregular for more than 12 moths then it will be classified as substandard. ← Doubtful: If it is a continuous or demand loan, if it is irregular for more than 9 months but less than 12 months then it will be classified as doubtful. If it is a term loan, and if it is irregular for more than 12 months but less than 18 months then it will be classified as doubtful. But if the loan is a short term agricultural loan and micro credit and if it is irregular for more than 36 months then it will be classified as doubtful. ← Bad & Loss: If it is a continuous or demand loan and if it is irregular for more than 12 months then it will be classified as bad & loss. If it is a term loan and if it is irregular for more than 24 months then it will be classified as bad & loss. But if the loan is a short term agricultural loan or micro credit and if it is irregular for more than 60 months then it will be classified as bad & loss. If the CIB report is mentioned as classified (substandard, doubtful or bad & loss) by Bangladesh Bank, the client will not be financed. iii. Receiving CIR & Credit Visit Request

After the acceptance of CIR by head of SEF, RM sends a mail request for credit visit to Credit department. Credit department receives an automatic Generated mail in case of every accepted CIR. After getting the mail, credit person review that report. There are two parts in a CIR. One part contains general information about the client and the business. Another part contains three years accounts of the client. In case of existing clients, credit person checks the present condition of payment behavior of that client and find out the purpose of previous finance. On the other hand, if the client is new then credit person makes a brief list of matters that must be checked to analyze the client depending on the information regarding client’s business and personal details. Client person also tries to get an overview of sales, assets, inventory etc from the provided accounts.

iv. Credit Visit

Credit visit is an important part to accomplish the targeted task of the department. After reviewing the CIR, credit person goes to visit with a brief idea about the client and his/her business. Credit person tries to match that information and also seek for new information that can affect the finance decision. Sometimes credit visit becomes a great challenge. Suppose, a credit person got the information that the client had sales revenue of BDT 1000000 at the end of last year. So, during visit the credit person will try to get prove of the amount. But many times it was observed that there is no evidence of the amount because as a SME businessman, client did not maintain proper accounts. Credit person tries to know about the client’s background, family, reason for coming in the business, future plans for the business. He also observes the location of the business, current capacity of the picture of the business premises, factory premise, proposed machineries (if lease) etc. after the visit, credit person prepares a visit report and send to the head of credit. Head of credit discusses issues regarding the client and takes decision about the amount and tenure of the proposed finance facility. Credit visit helps the credit person to fill up the CRG (Credit Risk Grading) form.

v. Preparing the Appraisal

After credit visit, credit person makes the appraisal for the client. The appraisal consists of 8 different parts. The first part of the appraisal contains:

|Name of the client, |Description of proposed assets, |
|Relationship status with ULC, |Purpose of finance, |
|Location of business, |Loan tenure, |
|Brief history of the business, |Interest amount, |
|Proposed nature of finance (loan/lease), |Mode of payment, |
|Description of proposed assets, |Installment amount, |
|Purpose of finance, |Penalty interest amount and |
| |Proposed security description. |

In the second part of the appraisal there are information about the nature of business, date of registration and commencement of the business, brief description of the main activity of the concern, information about the main sponsor (name, age , education, home district, percentage of ownership), brief history of the sponsor, successor information of the sponsor, CIB (Credit Information Bureau) status, current liability status with other financial institutions, current production capacity, major customer information, major supplier information and other business details. The CIB status is very important. Credit officer has to be sure about the current status of client in CIB. Client’s information regarding his/her loan portfolio should match with the information of CIB.

Third part of the appraisal consists of the possible effects of proposed finance amount. The effect on profit and sales generation, employment generation and environment are highlighted in this portion. Besides, the total calculation of exposure is also done in this portion of appraisal. While calculation of total exposure, the resale value of the financed asset is calculated by using a special value calculation parameter. CRG (Credit Risk Grading) form is also filled in this part. This grading form combines management risk, financial risk and industry risk. This grading model is developed by the CRA (Credit Risk Administration) department.

The fourth part of the appraisal represents important components of the accounts of client. This part is a brief scenario of three years accounts of the client. Different financial analyses (ratio analysis) are done in the next part of appraisal based upon the data of accounts. These ratios include current ratio, quick ratio, profit margin, return on asset, return on equity, average collection period, average payment period and inventory turnover, average cash conversion cycle and DSCR (Debt Service Coverage Ratio). Another two parts of the appraisal contain description of associated companies or business entities of the concern (if any) and present liability status of those bodies with any financial institution. Last part of the appraisal shows cash flow of the business.

vi. Appraisal Review & Approval of Proposal

The appraisal is reviewed by head of credit department. Then it goes to DMD (Deputy Managing Director) for another review. At the end MD (Managing Director) gives the final approval. But MD has an authority to approve proposal limited to BDT 30 lac for existing clients and BDT 25 lac for new clients. Proposals of over this amount go to executive committee meeting with recommendation from MD and DMD. DMD has an authority to approve up to BDT 20 lac for only existing clients.

So all proposals are approved as per following approval limits:

| Clients |Requires Approval by DMD |Requires Approval by MD |Requires Approval by EC |
| | | | |
|Authority | | | |
|New clients |- |2.5 million taka |Above 2.5 million taka |
|Existing clients |2.0 million taka |3.0 million taka |Above 3.0 million taka |

The Board of Directors comprising the Managing Director and three other directors nominated by the Board appoints the Executive Committee (EC). The Committee is authorized to approve all financing proposals with the recommendation of DMD and MD above the limit of their signing authority.

3.5 Credit Approving Authority: At A Glance

| |

Figure 3: Approving Authority

3.6 Shortcomings of the Credit Approval Process

The main weakness of credit approval process is consumption of time as the process is working in a so-called step by step manner. As mentioned earlier I took 65 appraisals (from January to March, 2011) as population (annexure: 1) and calculated the branch-wise average lead time for the whole approval process.

The average duration of the process is shown graphically and branch-wise to better understand the problem in a quick view. This task has been done in four different pie charts:

|DHAKA BRANCH | |
|[pic] |Average Duration |
| |(Day) |
|CIR Preparation to CIB Collection 29(Max)* |29 |
|CIR Preparation to CIR Approved 20 | |
|CIR Approved to Credit Visit Request |04 |
|Credit Visit Request to Credit Visit |13 |
|Credit Visit to Credit Feedback |06 |
|Credit Feedback to Appraisal Review |03 |
|Appraisal Review to Approval |06 |
|TOTAL |61 |

Table 3: Lead time of Dhaka Branch

|JESSORE BRANCH | |
|[pic] |Average Duration |
| |(Day) |
|CIR Preparation to CIB Collection 16(Max)* |16 |
|CIR Preparation to CIR Approved |07 |
|CIR Approved to Credit Visit Request |00 |
|Credit Visit Request to Credit Visit |13 |
|Credit Visit to Credit Feedback |06 |
|Credit Feedback to Appraisal Review |08 |
|Appraisal Review to Approval |04 |
|TOTAL |47 |

Table 4: Lead time of Jessore Branch

|BOGRA BRANCH | |
|[pic] |Average Duration |
| |(Day) |
|CIR Preparation to CIB Collection 25(Max)* |25 |
|CIR Preparation to CIR Approved 08 | |
|CIR Approved to Credit Visit Request |00 |
|Credit Visit Request to Credit Visit |15 |
|Credit Visit to Credit Feedback |08 |
|Credit Feedback to Appraisal Review |05 |
|Appraisal Review to Approval |02 |
|TOTAL |55 |

Table 5: Lead time of Bogra Branch

|OTHER BRANCHES | |
|[pic] |Average Duration |
| |(Day) |
|CIR Preparation to CIB Collection 23(Max)* |23 |
|CIR Preparation to CIR Approved 19 | |
|CIR Approved to Credit Visit Request |02 |
|Credit Visit Request to Credit Visit |09 |
|Credit Visit to Credit Feedback |07 |
|Credit Feedback to Appraisal Review |06 |
|Appraisal Review to Approval |02 |
|TOTAL |49 |

Table 6: Lead time of Other Branches

* As CIB Collection and CIR Approval both are connected to CIR Preparation date, the maximum duration is counted among these two rather counting both of them.

Branch |No of Clients |GAP 1 |GAP 2 |GAP 3 |GAP 4 |GAP 5 |GAP 6 |GAP 7 | |Dhaka |22 |29 |20 |4 |13 |7 |3 |6 | |Jessore |19 |16 |7 |0 |13 |6 |8 |4 | |Bogra |08 |25 |8 |0 |15 |8 |5 |2 | |Other |16 |23 |19 |2 |9 |7 |6 |2 | |Table 7: Average GAP (1-7) in Approval Process

Note:

GAP-1: CIR Preparation to CIB Collection

GAP-2: CIR Preparation to CIR Approved

GAP-3: CIR Approved to Credit Visit Request

GAP-4: Credit Visit Request to Credit Visit

GAP-5: Credit Visit to Credit Feedback

GAP-6: Credit Feedback to Appraisal Review

GAP-7: Appraisal Review to Approval

3.7 Causes of Shortcomings of the Process

It is very much apparent that the main weakness of credit approval process is consumption of time as the process is working in a so-called step by step manner. The main reasons of GAP in different steps of the process are described below:

GAP-1: CIR Preparation to CIB Collection

← After filling up of CIB form, it is sent to Bangladesh Bank. But at an average it has taken 20 days or more to return back. Without a positive CIB report CIR can not be approved. For this reason the rest of the process being stopped.

GAP-2: CIR Preparation to CIR Approved

← It takes a long time to collect all the required documents from prospective clients. This is because most of the cases entrepreneurs of small enterprise can not keep accounts like medium or corporate entrepreneurs. So it takes comparatively longer period to upload CIR on National Foot Print (NFP). ← Sometimes recording error by relationship manger may happen. As a result the input will provide wrong CIR preparation date. ← Besides these reasons in some particular cases negligence or carelessness of relationship manager lengthens the duration.
GAP-3: CIR Approved to Credit Visit Request

← The main reason of this type of delay is the convenience of prospective clients. Because after the approval of CIR, relationship manager communicates with client for fixing the probable date of credit visit. Without client’s consent or convenience, credit visit request can not be done.

GAP-4: Credit Visit Request to Credit Visit

← Right now ULC has a central credit department only for small enterprise at main branch to cover all the territories. But ULC has recently commenced its operation on Noakhali and Barisal. This company has further plan of expansion. But with this limited human resource on a central basis, it is more than difficult to meet the credit visit request from all territories on time.

GAP-5: Credit Visit to Credit Feedback

← At present ULC has a central credit department only for small enterprise at main branch to cover all the territories. But ULC has recently commenced its operation on Noakhali and Barisal. This company has further plan of expansion. But with this limited human resource on a central basis, it is more than difficult to meet the pressure from all territories and provide credit feedback on time. ← Credit officer has to check and match all the related documents. Mistakes and mismatches in various documents are very common. So credit officer has to communicate with the relationship manager regarding those issues and can not forward the appraisal for approval before all discrepancies solved. ← Besides these reasons, sometimes credit officer requires some documents to relationship manger as he knows that relationship manager takes some days to collect those necessary but not essential documents. By following this strategy credit officer tries to meet the pressure from all the territories. But for that reason unnecessary delay has been occurred on a regular basis which creates negative impact on the image of ULC.

GAP-6: Credit Feedback to Appraisal Review &

GAP-7: Appraisal Review to Approval

← In most of the cases the delay occurred due to finance amount. When the appraisal is reviewed by DMD, the finance amount decides on the basis of appraisal or credit feedback provided by credit department. After the review this decision is communicated with the client. So it takes some duration. ← Besides this reason sometimes CIB can be pending or CIR can not be uploaded by relationship manager. Sometimes the essential documents are on the process of collection even after appraisal review. So in these situations approval can not be done and being delayed.

3.8 Conclusion

The financial environment has become hyper competitive as the number of non banking financial institutions are increasing. Competition among the leasing companies has grown stronger with the growth of the NBFIs, besides entrance of commercial banks in the lease financing market who have the advantage of lower costs of fund compared to the NBFIs. The study found that the performance of United Leasing Company is satisfactory. But, in order to maintain and attract more depositors and borrowers ULC should improve their strategy and service quality; it should also concentrate in minimizing the credit approval process time which in turn will give more quick service to its clients. The market still offers huge opportunities for the leasing business. Those NBFIs that can set objectives in order to gain access to the opportunities by using vision and back-up resources might be able to survive and will becoming the best operator in the market. So, we hope that United Leasing Company will be the one of them.

3.9 Recommendations

Since the banking and non-banking financial institutions are doing a good business, so it is clear that the modern people are more concerned about securing their valuable assets and get high-quality and timely services. For this reason these organizations have made this sector very competitive. This sector no more depends on the traditional method. In this competitive world this sector has trenched its wings wide enough to cover any kind of financial services anywhere in this world. So, United Leasing Company has to organize credit approval process according to the need of the market. There are some external factors responsible for the unexpected delays which are not under control of the organization (for example: delay due to CIB collection). But there are so many internal factors as well which are under control of the organization. To improve the existing process, United Leasing Company should adopt some of the practices that are not practiced currently -

← First of all an uninterrupted network system should be ensured. It will save the officials from much hassle and will save time. It is mentioned that the network systems of the branches are not up to the mark.

← Relationship manager (RM) should be more sincere and careful in collecting and uploading the data in Client Inspection Report (CIR).

← RM should be provided more flexibility in required documents collection so that the process is not stopped on that point due to required documents. Rather documents collection and internal process of ULC should carry on simultaneously.

← The credit approval procedure should be made quicker since competition is very hard in today's business world. Clients do not want to wait for three to four weeks on an average to get a lease or loan which is even protected by security. In this regard lead time for an approval should be minimized to compete in the market. This can be ensured by establishing a standard timeline and making all the steps of the approval process in online.

← As mentioned earlier ULC has recently commenced its operation on Noakhali and Barisal. This company has further plan of expansion. But ULC has a central credit department only for small enterprise at main branch to cover all the territories. So ULC should establish separate credit department for each territory. It should be mentioned that credit department for Jessore territory has recently established.

← For the smooth credit operation existing employees should be trained properly to carry out this job more efficiently. Besides, some experienced and skilled people can be recruited.

← Decision making process should be made more decentralized to gain prompt and effective result.

Bibliography

← ULC (2011). History of the Organization, Milestones, Vision, Mission, Objective, of ULC. Retrieved from

< http://www.ulc.com.bd/caboutus.htm >

← ULC (2011). Products & Services. Retrieved from

< http://www.ulc.com.bd/binvt.htm >

< http://www.ulc.com.bd/bsecuredf.htm >

< http://www.ulc.com.bd/bchannelf.htm > and

< http://www.ulc.com.bd/bcorporatef.htm>

← ULC (2011). Financial Highlights. Retrieved from

< http://www.ulc.com.bd/cfinancials.htm >

← ULC (2011). Annual Report 2010. Retrieved from

< http://www.ulc.com.bd/cfinancials.htm >

← ULC (2011). ULC corporate presentations and company brochures (unpublished).

← ULC (2011). National Foot Print (official database of ULC).

-----------------------
ICT

Audit

Human Resource

Marketing Services

Credit Sales Financing

Small Enterprise

Medium Enterprise

Corporate & Syndicate Financing

CRA

Credit

Collection

Marketing

Administration

Treasury

Accounts

Operation

General Manager

Deputy Managing Director

Managing Director

United Leasing Company

Executive Committee
- Above 25 lac for new client

- Above 30 lac for existing client

MD
- 25 lac for new client
- 30 lac for existing client

DMD for review

Reviewed by Head of SEF

Credit Department

Head of SEF

Branch Manager

-----------------------
35