“SME Loan disbursement, recovery process and finding of few problems in SME unit office(BRAC Bank Limited)”

Abstract

SME plays a vital role in the economic growth of Bangladesh and has significant impact in our national GDP escalation. SME generate a huge employment opportunity and increases the productive capacity which helps to achieve our social and economic objectives. But access to credit is a major problem for SME flourish in Bangladesh. BRAC Bank is the pioneer in providing the SME loan in Bangladesh and nowadays most of the commercial banks are providing SME loans and introduces SME Service Center concept. Presently BRAC bank has more than 0.15 million SME loans and covered all the upazillas. More than 90% of SME loans in BBL are providing without any collateral and most of the loans are approved in field level so it’s a huge credit risk for the bank. But in BBL SME business generates more than 55% of total profit compare to other segments of BBL and the growth of the bank is remarkable. Repayment behavior of SME clients are dependent on lots of factor like loan size, exercise, interest rate, nature of business, age, education, experience, number of installment, and willingness of clients. In this report I try to find out the determinants of repayment behavior of clients through regression analysis. In regression analysis I found that there is a positive relationship between recovery arte and number of installment, if number of installment increases than recovery rate is also increases. Also there is a negative relationship between recovery rate and loan size, recovery rate is lower for bigger loans. Education has a positive impact in timely repayment though the result is not statistically significant. For better/smooth repayment and minimize the risk, BBL should increase the installments of SME loans, carefully assessing the bigger loans and also should consider the education and experience of the SME clients.