final shilpabank-farhad[1].doc

8/9/2019 Final Shilpabank-Farhad[1].doc

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CHAPTER ONE

INTRODUCTION

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1.1 Background of the Study:

Industries play a pivotal role in the economic development of every country. This is

why industrialization has been adopted as a vital instrument of economic developmentin many developing countries. Realizing this, Govt. of Bangladesh has a evelopment

!inancing Institution "!I# named Bangladesh $hilpa Ban% "B$B# on &1st ecember

1'() under the president *rder +o. 1)' of1'() with a mission of accelerating the

process of industrialization of the country by providing financial assistance and

equity support.”

1.2 Probe! State!ent:

!or a developing country li%e Bangladesh a huge amount of capital investment is very

much needed both in private and public sectors. In order to get ma-imum benefits

from such capital investment the proect appraisal is very important. /ny error in

appraisal will have an adverse impact on capital structure of the country.

0roect appraisal means the e-amination of proect before the proect is underta%en. It

refers to the evaluation of proects and selection between alternatives. 0roect

appraisal report is prepared by oan *peration epartment. The proect has been

appraised by an appraisal team consisting of engineer, economist and financial

analyst. This report critically evaluates the proposed proect through technical

analysis, economic analysis and financial evaluation. 2hen the proect is found to be

technically feasible, financially rewarding and economically 3 commercially viable

only then that proect is financed by B$B. This study will ma%e an attempt to the

proect /ppraisal 0ractice of B$B "a case study of 45$ 6TT/6 0/$TI7 T.#.

1." Ob#ect$%e& to the Study

This report e-amines the proect appraisal procedure of B$B. To do this it e-amines

how B$B appraises proect what information it deeds from the entrepreneur 3 what

aspects of a proect need to scrutinize 3 evaluate of its particular proect 45$ 6ttade

0lastic imited 3 $olaiman Te-tile 4ills imited.

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The obectives are summarized as follows8

To get an overall idea about the e-isting proects appraisal procedure9

6valuate the particular proect regarding the appraisal9

To determine the limitations or problems "if any# of the proect appraisal9

To recommend necessary steps to over come such limitations.

1.' Sco(e of the Study:

This report will mainly focus on the proect appraisal of Bangladesh $hilpa Ban%. The

proposed study will cover the appraisal practice, procedures and techni:ue followed

by the oan *peration department "*# in the preparation of appraisal report.

4oreover the evaluation of its procedure to a particular proect named 45$ 6TT/6

0/$TI7 I4IT6.

1.) *ethodoogy of the Study:

7orrect and smooth completion of research wor% re:uires adherence to some rules

and methodologies. Rules were followed to ease the data collection procedure.

/ccuracy of study depends on the information and data analysis.

1.).1 STUD+ ,R-,:

The area of my study has been encompassed the operation area of Bangladesh $hilpa

Ban% ;ead office and the ha%a 7ommercial Branch of $hilpa Ban%.

1.).2 T,R-T ROUP

To accumulate the re:uired data I have contacted with each departmental head along

with other concerned e-ecutive of Bangladesh $hilpa Ban%. In case of industry

diagnosis I have got in close with the responsible personnel of 0roect Implementation

epartment of B$B to collect the information.

1.)." T+P-S O/ R-S-,RC0

In this study the descriptive type of research has underta%en to gain insights and

understanding about overall operation of B$B and the sic% industry.

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1.).' SOURC- O/ IN/OR*,TION.

The data will be collect from both primary and secondary sources.

Source& of Pr$!ary Data

The sources of primary data are8

!ace to face interview.

*fficial records 3 documents of B$B.

7ommunication with other respective personnel of B$B.

6-pert opinion.

Secondary &ource&

The sources of secondary data are8

/nnual report 3 appraisal manual of B$B

0roect appraisal report of 45$ 6ttade 0lastic imited 3 $olaiman Te-tile 4ills

imited


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0ractical performance in the formal stages become difficult. $o in performing this

report our lac% of proper %nowledge greatly influenced in this performance.

Besides above, have to face some other limitations are8

1. ac% of availability of data

). 4any personnel of B$B were reluctant to provide useful information.

&. Improper combination among various departments

>. They are in government employee so have no eagerness to supply more because

of e-tra hardness.

?. @pAtoAdate information were not available

. $ufficient records, publications, facts and figures are not available. These

constraints narrowed the scope of the real analysis.

(. !or the reason of confidentiality, some useful information cannot be e-pressed

in this report.

C. Time is a limitation that would mostly with stands a comprehensive study on the

topic selected.

'. !inally this is my first ob 6-perience. $o my %nowledge especially in such a

research study is limited.

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CHAPTER TWO

4IT-R,TUR- R-5I-6


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4IT-R,TUR- R-5I-6

/ proect is a proposal for an investment to create, e-pand and5or develops certain

facilities in order to increase the productions of goods and5or services in a community

during a certain period of time. !or the purpose of B$B, proect means a scheme for

capital investment to develop facilities to provide goods and services. B$BDs main

function is to e-tend financial assistance to industrial proect. It basically needs to be

satisfied about the overall viability of a proect to be financed. !or this purpose, an

obective assessment of the viability of the proect is re:uired to be e-amined by B$B

from various points of view. 0roect appraisal coyer five different aspects of a

proect8 4anagement and *rganization, Technical, 4ar%et, 6conomic, and !inancial.

/n assessment of the promoters in respect of their integrity, e-perience and

capabi1ities to implement and run the proect is of prime importance before e-tending

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 borrowerDs e-perience .and capabilities can, on the other hand, be assessed in

terms of his educational bac%ground, spatial :ualifications, practical business

e-perience, 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.

7losely related to the management is the type of organizational structure necessary to

carry out and operate the proect successfully. $o far as organization is concerned,

there are two basic :ueries9 hat organization is needed to bring the proect to the

operating stage and what organization will be needed thereafter. In the operating

phase, one of the most common :uestions is the e-tent to which responsibility and

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authority should be centralized or delegated. The answer depends on the scale of

operation, its geographical dispersion, the degree of specialization of personnel, and

the number of persons to whom responsibility can be delegated. Internal controls

should also be reviewed.

The technical aspects of in industrial proect are appraised to determine whether the

proect 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 e:uipment and buildings etc.

In a developing country li%e Bangladesh, where there is hardly and indigenous

technological base to support the industrialization process the industr1al underta%ings

have to be conceived on the basis of %now or borrowed technology until such time as

the development of local technology is sufficient. The basic aspects to be analyzed in

the course of technical appraisal are E 0roducts5 $ervice9 Raw materials9 $%ills and

technology re:uired for manufacture5 service9 Testing and analytical report9 abor9

Transporting9 2or% $chedule9 6stimation and evaluation of cost. The relative

importance of these aspects will, however, vary from proect to proect.

/n industrial proect is to bring in some goods Dor services for a community. But the

community does not need them infinitely. Their demand is of course finite and at

given prices. !or appropriate mar%eting obective, it is necessary to loo% at depth into

the A macro5micro demand5 supply situation for specific products in the mar%et9

6-isting and e-pected competition in local and foreign mar%ets9 the mar%et share, etc.2hile appraising industrial proects, the Ban% is re:uired to analyze these factors and

to bring out the obective in :uantitative termsA0roduct identification9 +ature of

emand9 Type of emand8 there are various types of demand for the product5service in

:uestion. These are direct, derived, new, replacement demand, $ize and 7omposition of

the 0resent emand etc.

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In economic appraisal, the proect is loo%ed at from the national or social point of

view and the economic cash flow is constructed on the basis of Ftrue or real pricesF,

commonly %nown as accounting or shadow prices. 6conomic appraisal should cover

both :uantifiable and nonA:uantifiable benefits "where applicable#. $uch benefits are

6conomic Rate of Return "6RR#, Bruno Ration omestic Resource 7ost,

7ontribution of Gross omestic 0roduct, and 6mployment Generation and 7ost per

employment. The term nonA:uantifiable refers both "1# to effects that are %nown to

arise but which cannot be measured in physical terms and ")# to effects, which cannot

be valued. ifficulties in :uantification and valuation will often go together.

Huantification problems often are data problem a certain effect could not be

measured, but has not been.

The main purpose of financial appraisal is to assess if the proposed proect is viable in

term 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 e-amine mainly the

following two aspects8 !und re:uirement to bring the proect in to e-istence and the

probable sources from which the re:uired funds will be mobilized9 and 0rospects of

ade:uate revenue generation by the proect when it goes into operation and the li%ely

position of the concern with regard to its actual cash generation "li:uidity# and its

probable impact upon the financial condition "solvency# The first aspect deals with

the estimation of total of the proect "fi-ed cost net wor%ing capital# and a suitable

financial arrangement "debtAe:uity relation#. The second aspect relates to the analysis

of productionAcost profit at different volume of production carried up to the year the

proect attains its normal capacity operation.

$ources of Information8

Bangladesh $hilpa ban%, )JJ& annual report )JJ)A)JJ&8 )A1C.

Bangladesh $hilpa ban% august 1'C>.manual of, proect appraisal

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0roect 4anagementAThe managerial process

A7lifford !. Gray

A6ri% 2. arson

CHAPTER THREE

O5-R5I-6 O/ B,N4,D-S0

S0I4P, B,N7

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".1 Introduct$on

Bangladesh $hilpa Ban% "B$B#, once a leading developed financing institutional

"!I# established in 1'() with a mission of accelerating the process of

industrialization of the country by providing financial assistance and e:uity support.

/fter getting liberation a newly born country re:uired rapid financial assistance and

advisory services to industrialize the nation and B$B supposed to bolster in thisregard. It has been e-tending long and medium term loan facilities in local and

foreign currencies to industrialize proects "both new and B4R6# in the private and

public sectors. 2ith the passage of time due to mismanagement of loan distribution

and ill motive of borrower left he sector derelict.

".2 In&t$tut$ona o%er%$e8 of BSB

-&tab$&hed October "19 132

*rganization ;ead office ha%a

ivision ?

epartment )1

Konal *ffice &

Branch *ffice 1?

0ersonnel C?

"." Ca($ta &tructure and &ource& of fund

/uthorized capital 8 T% )JJJmillion

0aid up capital 8 T%1&)J million

*ther sources of ban%Ds fund are the government, Bangladesh Ban%, 7ommercialBan%, ocal5*verseas financial institutional and suppliersD credit.

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O8ner&h$( of BSB

/t least ?1 percent of the /uthorized capital of B$B be subscribed by Bangladesh

government and remaining >' percent be subscribed by Bangladesh nationals or by

financial institutions local or foreign. 0resently, 1JJ percent ownership of the Ban%

belongs to the government.

".' *$&&$on

/ccelerating the process of industrialization of the country by providing financial

assistance and e:uity support.

".) *anage!ent

The overall policy formulation and the general direction of Ban%s operation vest on a

board of directors appointed by the government. The board of irectors consists of

nine "'# members including the chairman and the 4anaging director. +on government

shareholder subscribing to the capital of the Ban% shall eventually elect four ">#

irectors from amongst themselves. The 4anaging irector is the chief conducting

the overall Ban%ing business.

". /unct$on of BSB

B$B e-tends long and medium term loan facilities in local and foreign currencies to

industrial proects "both new and B4R6# in the private and public sectors Besides the

Ban% also performs the following activities.

0rovide wor%ing capital loans to industrial proect. /ssist in the form of underwriting

and bridge finance to public limited companies as e:uity support. Issues guarantees

for repayment of loan on behalf of borrowers, 6-tends commercial Ban%ing services

along with deposit mobilization. 0urchases and sells shares 5 securities for B$B and

on behalf of customers as a member of ha%a $toc% 6-change "$6# td. and

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7itation $toc% 6-change "7$6# td. for capital mar%et development and 7onduct

proect promotional activities with preparation of various subAsect oral study reports.

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".3 O(erat$ona ,ct$%$t$e& of the Bank

Bangladesh $hilpa Ban% being the prime development financing institutional

continued its effort to ma%e on effective contribution towards e-pansion of

industrialization process of the country. It emphasized on long term lending to theviable new proects having comparative advantages, e-port prospects, forward and

bac%ward lin%age and local technology as well as raw materials based proects. Top

priority has been given for realization of its loans towards augmenting and recycling

of the invertible funds and maintaining satisfactory loan portfolio for increasing

profitability. 2ith this end in view the Ban% has underta%en some realistic steps

towards replacement. Rescheduling and li:uidating of loan accounts of sic% 5 closed 5

stuc%Aup proects with waiver facilities where deemed appropriate.

".; Strength of BSB

B$ is a development finance institution. It plays significant role in the industrial

development of Bangladesh. Its untiring endeavor is remar%able. As a finance

institution it has both strength and wea%ness. /ll the contribution of B$B is the

conse:uences due to its strength. *n the other hand failure ness of B$B is for

unconsciousness and unauthorized e-ercise of power. It is indeed that the

contribution of B$B is below the e-pectation. It fails to achieve the target because

a great portion of loss is compensated against its contribution. 4any e-perts tell

B$B fails to use his resources successfully as a result it is a loosing concern. It is

true but some e-ternal interfere also responsible for unfortunate losses. /lthough

there are some drawbac%s, B$B has some strong side that may ensure future

achievements. These are the following8

B$B has some s%ill manpower such as 6ngineer, 6conomist, Business

e-ecutives, lower and so forth. Their capabilities are deteriorating for lac% of

proper wor%ing environment and une-pected political pressure. In some cases

they are not able to wor% independently. If B$B can use his personnel

sufficiently, it will be profitable in future.

B$B has greater capacity to collect money from foreign countries. It may

come through loan aid, grant etc. and B$B has many potential sectors where it

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CHAPTER FOUR

,CTI5ITI-S O/ B,N4,D-S0

S0I4P, B,N7

'.< ,CTI5ITI-S O/ B,N4,D-S0 S0I4P, B,N7

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Bangladesh $hilpa Ban% encompasses various department and zonal offices to

discharge its activities. To perform efficient and effectively B$B in its board meeting

has determined the schedule activities of various departments and zonal offices and

they supposed to perform the tas% accordingly and the respective employee have to

repot according to organizational hierarchy.

/ctivities of some important department are enumerated below.

'.1 4oan O(erat$on de(art!ent

Bangladesh $hilpa Ban% "B$B# grants loan on the basis of certain criteria. The first

/ctivities of loan granting are done by the loan operation department. /ny

entrepreneur who wants to borrow money, from B$B must fulfill at first ban%

standard :uestionnaire from "B$H!# terms of T% 1JJJ.These processes are as follows8

/t first an application form is supplies to the entrepreneur.

/fter filling up the application from it is submitted by the 6ntrepreneur.

/ proect appraisal letter is supplied by the entrepreneur.

/fter analyzing the proect appraisal, the board decides the loan should be

sanctioned or not.

If the loan is sanctioned it is forwarded to the proect implementation department.

'.2 Docu!entat$on and *ach$nery Procure!ent De(art!ent

/fter sanctioning loan by loan operation department, it issues a letter to

documentation department, parties and after concerned departments. The

documentation department issues a letter to the parties to produce necessary

documents. Those documents are8

4emorandum of /ssociation /rticles of /ssociation

The land upon which the proect will be established, document of this land must

be produced.

Receipts of rent

ocumentation fee

4oua 4ap

The document that reveal that the land were not sold within preceding two

years.

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Then a form is filled up. These documents are sent to lawyer. It every thing is o% it is

transferred to proect implementation department.

In the documentation process the borrowers are re:uired to submit a copy of memorandum of association and articles of association. It is returned after the

conflation that in has been submitted according to the rules the borrower company

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Lerification of new material process of proect ensuring the cash capital

according to the loan terms and condition and providing necessary

assistance in this matter.

Inspection and monitoring e-perimental production and e-tension of loan period.

4a%ing the final construction report "!7R# and transferring it to central

recovery department "7R# and concerned department5 authorities.

etermination of the construction period of the proect preparing loan

repayment schedule and ta%ing after necessary action regarding this.

4onitoring and inspecting the proect to see whether the proect is

implementing according to time schedule and ta%ing necessary initiatives tosolve any %ind of problem arising out there from and providing necessary

advice to the entrepreneur.

Receiving insurance letter against the predetermined ris% implementation

priest assets and ensuring its deposit to ban

'.' Centra reco%ery de(art!ent

0roect implementation department ma%es a repayment schedule and given itA to the

borrower. +ominally the interval is months. This department inspects the proect

after every months to see whether there is any lea%age. If the borrower fails to repay

the loan as the application of the borrower it is rescheduled. $ometimes a portion or

interest is e-empted. If the borrower fails to repay the loan, than it is transfer to law

department to ta%e legal action. *n the application of the borrower sometime the

proect is transferred to proect rehabilitation department to restore the proect.

'.) 4oan ,ccount$ng De(art!ent

oan accounting department is the department which centrally maintains all loan

accounts of the ban%. There are > sections which performs the activities of the

department.

1. +ot due section.

). /mount due section overdue section

&. Replacement section

>. General and policy section

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De&cr$(t$on:

I. +ot due is the installment not yet due for payment in schedule time fi-ed by the

0roect department5 Branch officer.II. The payment of installment and interest in not paid cleared in time is overdue.

The functions of this section are8

a# /ccurately list of balance preparation.

b# /dvice sending to borrower.

c# Huarter5 half year by interest charge.

Ill. 2hen the overdue is rephrased or waived then the replacement section will do the

needful activities.

IL. General and policy section do the following8

a# To prepare the monthly Trial Balance.

b# 4onthly recovery statement.

c# 4onthly disbursement schedule

d# To ma%e entry all the transaction as per daily statement received

from the branch officer.

e# /ll list of balances of not due send to the ;ead *ffice and Branch

*ffice.

f# To prepare distribution of wor% among the officers and staff as

specific guidelines of the authorities.

Not Due Sect$on:

I# Huarterly5 half yearly installment and interest charge and transferred it to

amount due section.

)# The rate of interest is fi-ed by the prevailing interest at the time of

e-ecution of loan document.

!oreign currency installment and interest will full as foreign currency loan

agreement as per contract of overseas donor agency.

'. Pro#ect Rehab$$tat$on de(art!ent =PRD>

The obective of B$B is to ma%e industrialization of the country. But many of the

proects, which are loaned by B$B, become sic% and cannot carry on their proects.

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There are many reasons, so government tries to revive the proposed proect for greater

advancement of the country.

The main activities and responsibility of 0roect Rehabilitation department are as

follows8

1> 2hen files are transferred to 0roect Rehabilitation department, it traces the

cause of sic%ness and Recommend to ta%e initiative to rehabilitate a proect . The

rehabilitation process starts after the recommendation of the advisory committee

formed by the General 4anagers.

2> The files of the proects are transferred to aw epartment to ta%e necessary

actions, which are deemed not rehabilitate. /gain if there is no opportunity to

rehabilitate any it also reected.

"> Lerification of the proposal regarding rehabilitation recommendation preparing

the implementation schedule and ta%ing necessary initiatives to ta%e care the proect

and deciding the single or oint management of the ban% over the proect if necessary.

'> Ta%ing rehabilitation program controlling proects management and monitoring

and ensuring the management system ta%en over by ban% and performing other

activities regarding these.

)> 0roduction of the rehabilitated proect, ma%ing of the products analyzing the

targeted loan recovery and actual situation and ta%ing necessary initiates regarding

these.

> Retraction of ban% participation stage by stage from the proect, which is

profitable

'.3 4a8 De(art!ent

In the $hilpa Ban% fails to recover its loan in the normal way, it must under ta%en

alternative action and file case in the court. The causes which $hilpa Ban% tiles cases

are8

I. Recovery case 8 A $ection &&

II. !inancial oan 7ase 8 A $ection ?"a#

III. 7ertificate 7ase 8 A $ection &?

IL. Ban%ruptcy 7ase 8 A $ection '"1#

L. 7ase if chec% is not cashed 8 A $ection 1'C

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"0etition case#

LI. 7ase if machinery of proect

is transferred from the proect

without permission 8 A $ection &(

LII. 7ase if false properties are

mortgaged 8 A $ection >J

I. Reco%ery Ca&e:

7ase is filed with the court of istrict

'.; 0u!an Re&ource *anage!ent De(art!ent =0RD>

The department of human resource management was not same name as now.

4odernizing the structure of the administration of the ban% and evelopment the s%ill

of the human resources and reducing operating cost of the organization. The directorMs)>>th meeting was conducted on )&rd /pril 1''. In this meeting, rename of the

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/dministration department as F/dministration and ;uman Resource epartmentF and

epartment of labor as Ddepartment of ;uman resources 4anagementD.

Sections of this department:

There are five sections in this department

$ection /ctivities

1. General administrative

3 policy section,

A !i-ing principles relating to human

Resource activities5position,

A !i-ing principles relating to

organization.

A!i-ing principles relating to delegation

of power,

A/ctivities relating to trade union,

A$end statements relating to delegation of

power.

). 4anagement section A0rovide employment policy,

A0rovide transfer policy,

A0rovide promotion policy,

A!i-ing pay scale.

A!i-ing annual increment policy.

&. isciplinary section A4itigates the complaint against

personnel.

>. 2elfare section A0rovide scholarship policy,

A/ssist the helpless personnel,

A0rovide retirement benefit.

?. eave 3 medical section A0rovide medical facility 3 allowances.A0rovide vacation opportunities,

A0rovide conveyance facility 3

allowances9

A0rovide house rent allowances.

A0rovide cloths benefits.

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Function of the Human Resources Manaement !epartment

1. To give medical facilities to the stuff.

). To maintain relationship with retired or dead stuffs and their families to %now

their condition.

&. To maintain and grant leaves without regular leave.

>. To coordinate and evaluate the branch and regional stuff activities.

?. To step and implement for opening new branch office.

. To maintain relationship with government and other institution

(. To prepare and implement policy about human resources and related activities.

C. To control the activities the staff of the ban%s and ta%e proper. $tep to

implement computer technology.

'. To perform the activities assigned by the departmental head.

1J. To control the administration of human resources of the ban%.

11. To give loan for house building, by cycle. 4otorcycle, and ensure their proper

utilization.

1). To assess and collect compatible personnel who will be perfect for the ban%.

1&. To ta%e program and implement for developing human resources.

1>. To ma%e appointment, promotion and appraising s%ill of officer and stuff.

1?. To ma%e service rules, correction, e-pansion, administration rules, sub rules,

orders, notice etc for controlling and stuff.

1. To give scholarship to the brilliant student of the university for appointing and

finding s%illed officer.

1(. To give general scholarship to the brilliant and daughter of stuff.

1C. To communicate with trade union scrutinizing their demands, open discuss

eveloping the relationship with administration proper implementation of labor

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law.

CHAPTER F"#E

PRO-CT ,PPR,IS,4 PROC-DUR-

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PRO-CT ,PPR,IS,4

).1. INTRODUCTION

/ proect is a proposal for an investment to create, e-pand and5or develops certain

facilities in order to increase the productions of goods and5or services in a community

during a certain period of time. !or the purpose of B$B, proect means a scheme for

capital investment to develop facilities to provide goods and services. B$BDs main

function is to e-tend financial assistance to industrial proect. It basically needs to be

satisfied about the overall viability of a proect to be financed. !or this purpose, an

obective assessment of the viability of the proect is re:uired to be e-amined by B$B

from various points of view. This is what can be called proect appraisal.

The aim of proect appraisal is to e-amine the need, which a proect is designed to

meet and to DF udge whether the proect is li%ely to meet this need in an efficient way.

0roect appraisal provides a rational basis for decisionAma%ing. In case of shortAterm

lending, it is not usually necessary to ma%e e-pensive study of the customerDs future

potential 6-amination of general creditworthiness of a customer and his current

financial position is ade:uate.

There can be no fi-ed or standardized approach to proect appraisal. +umerous 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

adusted straightway as acceptable or unacceptable. 2hile broadly the same set of

factors is ta%en into consideration in the scrutiny of individual applications, the

weight age given to the factors varies from proect to proect. In practice, proectappraisal coyer five different aspects of a proect, viz.

"1# 4anagement and *rganization

")# Technical

" 4ar%et

"># 6conomic, and

"?# !inancial.

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).2 *,N,-*-NT ,SP-CTS

/n assessment of the promoters in respect of their integrity, e-perience and

capabi1ities to implement and run the proect is of prime importance before e-tending

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 borrowerDs e-perience .and capabilities can, on the other hand, be assessed in

terms of his educational bac%ground, spatial :ualifications, practical business

e-perience, 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 e-tent to which crucial probing with regard to these aspects may be necessary

depends on the type of the proect and the bac%ground of promoters. If, for e-ample, a

proect incorporating a relatively comple- techni:ue and process is promoted by an

entrepreneur with proven abilities and e-perience, the crucial areas to be probed may

be, among others, the competence of the managerial and technical e-ecutives li%ely to

be in charge of the proect. But if such as the competence and previous e-perience of

the promoter, their collaboration tieAup arrangement, the technical and managerial

bac%ing he has already line up, their financial resource, etc. may have to be

thoroughly scrutinized.

)." OR,NI?,TION,4 ,SP-CTS

7losely related to the management is the type of organizational structure necessary to

carry out and operate the proect successfully. $o far as organization is concerned,there are two basic :ueries9 what organization is needed to bring the proect to the

operating stage and what organization will be needed thereafter. In the operating

phase, one of the most common :uestions is the e-tent to which responsibility and

authority should be centralized or delegated. The answer depends on the scale of

operation, its geographical dispersion, 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. !or a management tofunction efficiently, the organization should be able to provide prompt reports on

)C


29/98

current performance that can be chec%ed against both past performance and previous

proections of future trends so as to bring problems to light as they arise. It is e:ually

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

?.&.1. 7R6IT I+L6$TIG/TI*+

/ppraisal of management and organization of proect cannot be dined ade:uately

without underta%ing methodical credit investigation. The following two broad

obectives are intended to be realized through the credit investigation.

"1# 0roper identification of the application, and

")# egeneration 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 :uestions are sought8

"a# 2ho are the applicantsN

"b# 2hat are their present professions or vocationsN

"c# /re they persons of proven honesty and recognizedintegrityN "d# /re they persons of proven honesty and

recognized integrityN

"e# 2hat is the e-tent of their financial worthN

"f# ;ow much they can and are willing to invest from their own

resourcesN

"g# ;ow far they are capable of implementing and running the

proect.

?.&.). $*@R76 *! 7R6IT /T/

!or 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#,

li:uidity "cash and nar% cash assets#, etc. Information necessary for evaluating these

traits and :ualities can be obtained from a number of $ources. There are several methods

li%e written re:uests, telephone conversation, meeting information at social gatherings, etc.

)'


30/98

which may be ointly or severally adopted to obtain the re:uired information. The usual

sources of information can be broadly divided into internal sources and e-ternal

sources. The e-ternal sources can again be subAdivided into personal contacts and

indirect investigation

?.&.&. I+T6R+/ $*@R76$

In case the applicants are e-iting borrowers of the Ban%, the internal records and

behavior of respective loan accounts will reveal great deal of information about their

ban%Aability. etails of past borrowings5e:uityAsupport such as amount, date of

sanction, amount repaid, amount outstanding and overdue, together with comments on

aspects li%e replacements, moratorium, etc, if any, should be incorporated in the credit

report.

?.&.>. 6OT6R+/ $*@R76$

!or the new applicants, the credit investigator has to depend primarily on the e-ternal

source to verify the statements and declarations made in the loan application. The

main e-ternal sources are.

"a# 7redit Information Bureau "7IB# Report. If the corn report indicates that

the proposed sponsors are defaulters to any Ban%5*!I, their proposal should

be turned down as per decision of the G*B,

"b# Interview with the applicants,

"c# !inancial statements, deed and statutory documents, etc.

"d# Inspection of the apple incants, place of business and properties, and

"e# *ther sources li%e commercial ban%ers of the applicants, business firms,

trade circle, friends and associates, Registrar of oin $toc% 7ompanies5!irms,

istrict Registrar $ubAregistrar, ocal periodicals, Government 0ublications,

etc.

?.&.?. /00I7/+T$AT;6IR ;*+6$TP /+ I+T6GRITP

The main tas% 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 e:uity. The starting point for him is the loan application and

&J


31/98

specifically the declaration of the personal assets of the applicants. *n this basis, he

should have a threadbare discussion with the applications.

The credit investigator should %eep it in mind that the applicants should not only be

citizens of Bangladesh, but they must also not be minors, ban%rupts or persons of

unsound mind. ;e should also be well aware of the legal status of proprietorship

concerns, partnership firms and limited liability companies with regard to

membership, capital, obectives, borrowing capacity and ta- obligations.

?.&.. 0R*06RTI6$ /+ 0*$$6$$I*+$ *! T;6 /00I7/+T$

The financial standing of the applicants is udged by means, of direct reference to

their movable and immovable properties. The valueD of total assets minus

corresponding borrowings, if any, would indicate the net worth. /lthough the assets

free from encumbrances should from the basis of assessing the financial standing, the

details of the e-isting 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.

?.&.(. IH@IITP $T/T@$ *! T;6 /00I7/+T$

The credit investigator must be satisfied that the applicants are financially capable of

underta%ing a proect of the contemplated size. This calls for determination of the

sources and the e-tent of funds that the applicants are capable of mobilizing and also

the e-tent they are ready to invest. The li:uid funds necessary for investment in the

proect may be mobilized by the applicants from one or more conventional sources.

?.&.C. 7/0/7ITP *! T;6 /00I7/+T$

Because of the comple-ity involved in setting up and ensuring profitable operations of

an industrial proect, the most important preAre:uisite that the Ban% e-pects the

applicants to possess is the capability to manage and supervise. The success of a

proect depends primarily on this trait of the sponsors. Its presence blooms a proect

and its absence dooms the same. @nfortunately this is most difficult to udge. /s

indicated in the proceeding paragraph, the entire credit analysis is directed to point up

&1


32/98

this :ualitative characteristic of the sponsors. Individual, capability is reflected in the

conglomeration of s%ill and resourcefulness, education and. e-perience, age and

personal health, etc. The first consideration for the credit investigator is to ascertain

how successful the applicants are in their present trade and profession. The second

consideration is to udge whether they are financially and managerially competent to

underta%e implementation of the proect. The thing consideration is to forecast ability

to run the proect successfully upon implementation. /nalysis of the past operations,

opinion of the commercial ban%ers, independent opinion from outside sources, etc.

would be useful in assessing the capability of the applicants. It may be mentioned

here that while Fassessing the sponsorMs capability, the following point should be

e-amined.

Q 0ast repayment performance of e-isting loans.

).'. T-C0NO4OIC,4 ,SP-CTS

The technical aspects of in industrial proect are appraised to determine whether the

proect 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 e:uipment and buildings etc.

In a developing country li%e Bangladesh, where there is hardly and indigenous

technological base to support the industrialization process the industr1al underta%ings

have to be conceived on the basis of %now or borrowed technology until such time as

the development of local technology is sufficient.

The second important aspect of technical study includes evaluation of resources to be

used for setting up the proect as well as operating it subse:uently. The physical

resources to be used are to be transformed into financial tens. ;ence, the tas% of the

engineer is to evaluate :uantitatively the resources such as proect land, building

materials, machinery, e:uipment, stores and spares, raw materials, labor, power, fuel,

etc. Then he is to wor% out the cost of, these resources. In monetary tens to determine

the capital cost of the proect and also itMs operating cost after implementation. 2hile

evaluating the capital outlay and physical facilities, the engineer will have to

determine the production cycle and also the time schedule for implementing the

proect.

&)


33/98

In the case of a proect involving technical collaboration or borrowed technology, the

proect engineer has to e-amine 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.

/lthough basically, technology transfer ta%es place between two systems, namely, the

domestic ac:uisition system "the sponsors# and the delivery system "foreign

collaborations#, the development ban% which acts as a gateA%eeper 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 proect as a

whole. The ultimate aim of proect appraisal by a evelopment ban% is to determine the

profitability of the proect both from commercial and social points of view.

This cannot be underta%en unless through technical studies and cost analysis have

been made a related technical problems solved. Thus, the technical studies and cost

analysis provided 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 proect

or not. The technical appraisal, therefore, constitutes the foundation of the entire

superAstructure of proect appraisal.

/ development Ban% may need to consult or contact with specialized engineering

services from outside for specialized matters, particulars relating to proects to be

based on comple- technology. ;owever good an engineer of evelopment Ban% may

be in studies or specific operations, he cannot be e-pected to be e-pert in all fields of

specialization. This point is of great practical significance while dealing with a proect

in which the country has no previous e-perience. In such a situation, particularly in

the case of a proect involving large capital outlay, it is advisable to find out best

advisors "consultants# from outside. !or because any defect in the proect design and

formulation will eventually affect the enterprise adversely.

?.>.1. B/$I7 /$067T$ *! T67;+I7/ /00R/I$/

The basic aspects to be analyzed in the course of technical appraisal are E

).'.1 =,> Pre$!$nary $n%e&t$gat$on

"a# 0roducts5 $ervice9

&&


34/98

"b# Raw materials9

"c# $%ills and technology re:uired for manufacture5 service9 and

"d# Testing and analytical report.

).'.1=B>. Seect$on of (roduct$on (roce&&"a# 7hoice of alternative and selection criteria9

"b# 2astage in manufacturing process9

"d# isposal of wastes and effluents and

"e# 6nvironment and pollution control.

I 4achinery and e:uipment for production5service

II. 0roductive capacity and efficiency. $ite selection

III. $ite selectionA

"a# Technical factors9

"b# 7ost factors of production9

"c# 4ar%eting factors9

"d# /dministrative and housing factors9 and

"e# Transportation factors.

IL. ayout planA

"a# $ite9

"b# Building9

"c# 0lant and 4achinery9 and

"d# $upplementary Installations.

L. /nalysis and evaluation of utilities and supplies

"a# Raw materials9

"b# $tores and spares9

"c# Technical nowAhow9

"d# Transfer of technology9

"e# 0ower, !uel, 2ater, $team ere9

"f# abor9 and

"g# Transporting.

LI. 2or% $chedule.

LII. 6stimation and evaluation of cost.

The relative importance of these aspects will, however, vary from proect to proect.

&>


35/98

).). *,R7-TIN ,PPR,IS,4

/n industrial proect is to bring in some goods Dor services for a community. But the

community does not need them infinitely. Their demand is of course finite and at

given prices.

?.?.1. 7*+760T *! 4/R6T

*rdinarily, the mar%et 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 :uantity e-changed of which are

detonated by the forces of demand and supply. 4ar%et, in this sense, may be formally

organized and geographically centered or it may, be either. The mar%et includes the

whole environment in which the enterprise is to live and to which it must adapt

itself8 consumers, suppliers, competitors and all %inds of technical, material, political,

legal and administrative restrictions. 4ar%et analysis is the first FscreeningF stage in

the proect appraisal, at which proects that cannot e-pect satisfactory mar%et

acceptance shall be reected.

?.?.). 4/R6TI+G 0/+

,: *arket$ng Ob#ect$%e:

4ar%eting plan, as inD the case of production and financial plan, should have obective

in the bac%drop9 and the obective is what is wanted to be achieved. The obective

may be more than one and :uantifiable. !or appropriate mar%eting obective, it is

necessary to loo% at depth into the E

"a# macro5micro demand5 supply situation for specific products in the mar%et.

"b# e-isting and e-pected competition in local and foreign mar%ets,

"c# mar%et share, etc.

2hile appraising industrial proects, the Ban% is re:uired to analyze these factors and

to bring out the obective in :uantitative terms.

=a> Product $dent$f$cat$on:

&?


36/98

The study of this environment should begin with proper identification of the goods or

services to be e-posed to the environment. *ne way of identifying them is in term of

their complementarily and 7ompetitiveness. 7omplementary goods are used together

in a single consumption activity. 7ameras, films and developing instruments and

chemicals constitute a set of such complements. 7omplementary goods may be sold

together or separately.

/nother way of distinguishing goods and services is in terms of their

consumers. These are8 !inal goods, Intermediate goods and Investment Goods.

astly, the goods and services may be either new or e-isting in the mar%et.

=b> Nature of De!and.

=c> Ty(e of De!and:"I# There are various types of demand for the product5service in :uestion. These are

direct, derived, new, replacement demand, etc. The mar%et analyst should

identify the type of demand be created for the product"s#5 services.

, "II# $ize and 7omposition of 0resent emand8 4ar%et $ize8

).).". *-T0ODO4O+:

The initial obective of demand analysis is the determination of current effectivedemand. 6ffective demand represents the total :uantity of a specific product

purchased at a given price in a particular mar%et over a given period. The base for

estimation is the actual consumption figure during the relevant period.

The e:uation of apparent consumption is as follows8

7S0 "4AO# O

2here,

7 S 7onsumption

0 S omestic production

4 S Imports

O S 6-ports

$ S 7hanges in $toc%

&


37/98

*nce current demand has been estimated foe the entire mar%et, it becomes necessary

to segment the mar%et to ma%e future proections.

6ffective mar%et segmentation will therefore8

A help to understand better mar%et behavior and responses,

A enable the concentration of efforts on promising mar%et segments,

A enable the fine tuning of mar%eting strategy to the needs of target segments,

A increase total sales, reduce costs and step up profits.The most typical variables, by which mar%ets can by segmented are as followsF

,: Con&u!er *arket&

=1> Geographic8

A /dministrative regions

A Geographic regions

A 7limate

A 7ityAsize

A RuralAdistrict cutAsize.

=2> Soc$o@econo!$c:

A Income "level, dynamics, distribution#

A /ge

A $e-

A *ccupation A education

A !amily size

A Religion

A Income elasticity of demand

A 0rices and availability of complimentary goods

A Govt. policies A nationality

A $ocial class

A 7ulture

="> Per&ona$ty and beha%$or:

&(


38/98

A ife style

A eadership

A /mbition

A 7onservatism

A Buying motive A loyalty

A 6-troversion and introversion

A $ervice sensitivity and introversion A service sensitivity

A 0romotional sensitivity

B: Indu&tr$a *arket&:

=1> Nu!ber and ty(e& of $ndu&tr$a u&er&:

A $ize

A *wnership

A /ge of e:uipment

A Regional concentration

A Lertical vs. horizontal mar%etsA technological progress.=2> Buy$ng (o8er:

A +umber of employees

A +umber of employees

A LalueAadded.

The mar%et analyst should collect and analyses the following data for e-port mar%et8

=I> 6ord Trade:

A +ames of the countries to which the product will be e-ported

A ;ow these countries are at present meeting their demand. If through import,what are the countries of their originN

A Time series data regarding e-port and import.

=$$>. Character$&t$c& of S(ec$f$c Inter!ed$ar$e& =-A(orter9 I!(orter>:

A General description of types available

A 4arginsA 6ffectiveness

&C


39/98

A Regulation

A 7ontacts in e-port mar%et

A 4ar%eting tas%s they are able and prepare to carry.

=$$$> Tran&(ort and In&urance:A Traditional transportation means

A 7osts of freight and insurance A timing of delivery

A elivery terms, I!, !*B, etc.

=$%> *arket ,cce&&$b$$ty:

A Tariffs and fees

A +onAtariff barriers

A Huality standards

A ;ealth, medical and safety re:uirements

A 0ac%age standards

A Import :uotas

A 7ustoms regulations

A 0olitical and administrative barriers8

A Trading habit

A 7omparative advantage

=%> Ter!& and cond$t$on& of &ae& and d$&tr$but$on arrange!ent

=%$> -A(ort $ncent$%e a%a$abe

=%$$> Pa&t eA(ort trend (erfor!ance of the (roduct=&>

).).'. SUPP4+ ,N,4+SIS:

ocal producerDs past and present output, together with capacity utilization review

provides a convenient departure point for an analysis of supply situation and outloo%,which combined with combined with demand estimates, will determine the proectDs

position in the mar%et and thus e-pected.

7ompared with the variety of methods applicable for demand forecasting, proecting

the future supply position in the mar%et is a rather unassuming tas%. /vailability of the

production in the mar%et is a function of8

Adomestic producers present and proected capacities

Anew proects being under construction present and proected e-port volume

Aforeign manufacturerD capacities, mar%eting strategies and development plans,

&'


40/98

A Government policies.

).).). SUPP4+ ,P:

7onsidering the future demand for the product and total potential supply of the same,

the analyst should, estimate the proected supply gap. It is to be e-amined how the

supply gap ustifies the setting up of the proect under consideration.

).).. *,R7-T S0,R-:

;aving estimated the supply hap, the mar%et analyst should calculate the proectDs

contribution towards the reduction of this gap. In fact, mar%et share is the mar%eting

obective.

).).3. *,R7-TIN IN/OR*,TION

The procedure of mar%et analysis, outlined above, call for systematic collection of

information about the mar%et for the goods and services to be considered. $ome of

this information is :uantitative while other is :ualitative.

).).;. U,NTIT,TI5- IN/OR*,TION

The following :uantitative information is to be collected in physical on a national

basis8

Con&u!(t$on Data:

1. 0roduction

). Imports

&. 6-ports

!or international comparison, such data for comparable foreign countries are also to

be collected.

Indu&tr$a cen&u&:

1. +umber of productive units

). istribution of productive units by location.

&. Installed production capacity.

De!ogra(h$c Data:

>J


41/98

1. istribution of population by age, se-, marital status, religion, literacy,

income, occupation and region.

). /verage size of a family

&. Rate of population growth

>. Rate of organization.

The following :uantitative data, e-press in terms of value, are also be collected on a

national basis8

Pr$ce&:

1. !.G.B. price of e-ports

). 7.!. price of imports.

&. 6-Afactory price of products and services.

>. 2holesale price annual average.

?. 7onsumerDs price inde-

. 7ost of living

The re:uirement information relating to ta- e-pressed in rates5 values age8

1. 7ustoms duty.

). L / T.

&. Import license fee.

>. *thers.

The above :uantitative data should be collected for several for several years in the

past so as to constitute historical series.

).).. U,4IT,TI5- IN/OR*,TION:

The :ualitative information, which may be re:uired for mar%et analysis, is8

1. ocation informationATransport and communication facilities, water and

power facilities, nearness to the mar%et, etc.

). 0ossibilities of continued supply of inputs.

&. /ttitude of customers.

>. 7limatic characteristics.

?. 4ethods of distributionAmar%et and nonAmar%et

. Government policies8

>1


42/98

"a# 6conomic evelopment obectives.

"b# ;ealth and safety standards.

"c# Investment5International policy.

"d# Ta-ation policy.

"e# 6-port policy.

"f# 4onetary policy.

"g# abor policy.

"h# *thers, if any

).. -CONO*IC ,PPR,IS,4

In economic appraisal, the proect is loo%ed at from the national or social point of

view and the economic cash flow is constructed on the basis of Ftrue or real pricesF,

commonly %nown as accounting or shadow prices.

6conomic analysis of a proect aims at determining whether that proect is consistent

with overall national and sectorA wise obectives aridD whether the investment

proposed is the best means of achieving the intended obectives. It involves a

systematic evaluation of a range of options for achieving the intended obectives. It

involves a systematic evaluation of a range of options for achieving a state set of

obectives. /llocating resources to a sector or specific purposes reduce reduces the

resources available for other sectors and purposes. Therefore, it is essential that the

allocation of investment resources be efficient among sectors. 6conomic appraisal is

the primary means of determining whether a proposed investment is worthwhile. It

should determine whether a proect is acceptable and, if it is, whether it is the best

alternative.

6conomic appraisal should cover both :uantifiable and nonA:uantifiable benefits

"where applicable#. $uch benefits are described adAseriatim.

)..1. U,NTI/I,B4- B-N-/ITS:

!ollowing are the :uantifiable benefits of economic appraisal8

"a# 6conomic Rate of Return "6RR#,

"b# Bruno Ratio5 omestic Resource 7ost,"c# 7ontribution of Gross omestic 0roduct, and

>)


43/98

"d# 6mployment Generation and 7ost per employment.

=a> -CONO*IC R,T- O/ R-TURN =-RR>:

6RR measures the potential earning power of the social resources used in the proect

and thus help the assessment of investment proposal. It is wor%ed out at which the

present value of costs becomes e:ual to the present value of benefits. +et present

value "+0L# is the net value or net benefit of a proect when all costs have been

discounted to the present at the accounting rate of interest.

/fter wor%ing out the 6RR, it should be compared with the /ccounting Rate of

Interest "/RI#.The /RI is nothing but the opportunity cost of capital which is

supposed to ma-imize the use and productivity of investAable resources in the country.

The broad decision criterion is that, other things being e:ual, the proect whose 6RR

is les than the /RI should ordinarily be reected unless other un:uantifiable benefits

are ade:uate or the proect can be :ualitatively ustified8 etern1ining the opportunity

cost of capital for a society is difficult, but economists generally consider it to be 1?

percent in most developing countries. The planning 7ommission of Bangladesh has

estimated the /RI at *. 1? "or 1? percent#.

=b> BRUNO R,TIO DO*-STIC R-SOURC- COST =DRC>:

/n industrial proect will either be import substitute or e-port oriented or combination

of both in nature. In developing country, development of industrial proects, normally

involves substantial amount of scarce foreign e-change. *n the basis of more absolute

amount of saving and5or earning of foreign e-change of an investment proposal, the

optimal allocation of scarce resources "both domestic and e-ternal# may not be

achieved, the implicit foreign e-change. In other words it indicates the domestic

resource cost involved in foreign e-change to be saved5 earned by a proect.

The domestic resource cost "R7# involved in saving5 earning foreign e-change by a

proect is normally wor%ed out by dividing the real domestic cost in Ta%a by real net

foreign e-change to be saved5 earned. It is normally e-pressed as Ta%a cost per unit

off foreign e-change "i.e. U or# saved5 earned i.e. the amount of Ta%a re:uired to save

earn a ollar or 0ound $terling. If domestic resources are e-pressed in domestic

currency and foreign e-change is e-pressed in dollars, a R7 of less than the

"$hadow# e-change rate is considered :uite acceptable.

>&


44/98

=c> CONTRIBUTION TO ROSS DO*-STIC PRODUCT =DP>

7ontribution to G0 of a proect is estimated from sales value and interAfirm

transactions. ata regarding sales value is ta%en from the calculation of sales estimate

of the financial appraisal. $ales value of fourth year is ta%en. $imilarly data estimate

of the financial appraisal. $ales value of fourth year is ta%en. $imilarly, data relating

to interAfirm transaction of fourth year is collected from the calculation sheet of cost

of goods sold and General /dministration and selling e-penses of the financial

appraisal

.etail calculation of contribution to G0 of a proect may be wor%ed out as per the following

format8

/. $ales ">th year#

B ess8 A InterAfirm Transaction ">th year#

A Raw and pac%ing materials

A $tores and spares

A 2ater, 0ower and !uel A Repair and maintenance

A Rent, Ta- and insurance A postage, telephone, fa- etc.A $tationery and printing

A Traveling and conveyance

A /dvertisement.

A 7ontribution to G0 "/AB#

B$ has meaningful contribution to G0. In the year 1''>A1''? G0 was C.V,

which is higher than that of previous yea. I observed that in the year 1''A'( was too

lower than last two years. But in the year 1''(A'C G0 contributions was C.1V,

which is >.V greater than that of last year. /nother depression was come in the

industrial sector in the year 1''CA''9 only contribution was ).?V, which is lower

contribution after liberation to date. /fter the year 1''' G0 contribution is more or

less e:uivalent over the years. In the year 1'''A)JJJ, )JJJAJ1 and )JJ1AJ) were

?.(V and ?.JV respectively. The growth rate of gross domestic product of Bangladesh

decreased to >.CJV in )JJ1AJ) as against ?.&JV in the previous year. The overall

growth in the sector of agriculture and forestry declined to &.JJV in )JJ1AJ) from

?.?JV during the preceding year. *n the other hand the rate of growth in the

>>


45/98

industrial "manufacturing# sector during the year under report declared to ?.JJV from

.(JV in the previous year. The rate of domestic savings as percentage of G0 in

)JJ1AJ) reminded at 1C percent as in financial year )JJJAJ1. The rate of total

investment to G0 increased marginally from )&.J' percent in the preceding year to

)&.1 percent during in the under report.

Tabe 1 @ DP contr$but$on of Indu&tr$a Sector on O%era DP of the econo!y

Pear G0 "V#

1''>A1''? C.J

1''?A1'' ?.&J

1''A1''( &.?J

1''(A1''C C.1J

1''CA1''' ).?J

1 '''A)JJJ ?.(J

)JJJA)JJ1 .(J

)JJ1A)JJ) ?.JJ

$o from the above discussion we could easily say that the rehabilitation department isnot successful enough.

=d> -*P4O+*-NT -N-R,TION ,ND COST P-R -*P4O+*-NT:

The number of fullAtime and partAtime obs measured in manAyears e-pected to be

created both during construction and during operation of the proect should be

estimated separately. If data are available, these estimates should be related to

Regional, sectoral and national levels of unemployment and under employment and

under employment. 2here possible, the degree of labor intensiveness "i.e. the number

of wor%ers employed per unit of investment# of the proect should also be estimated.

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)..2. Non@uant$f$abe Intang$be Benef$t& -Aterna$t$e&:

The term nonA:uantifiable refers both "1# to effects that are %nown to arise but which

cannot be measured in physical terms and ")# to effects, which cannot be valued.

ifficulties in :uantification and valuation will often go together. Huantification

problems often are data problem a certain effect could not be measured, but has not

been.

).3. /IN,NCI,4 ,PPR,IS,4

The main purpose of financial appraisal is to assess if the proposed proect is viable in

term 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 e-amine mainly the

following two aspects8

"a# !und re:uirement to bring the proect in to e-istence and the probable

sources from which the re:uired funds will be mobilized9 and

"b# 0rospects of ade:uate revenue generation by the proect when it goes into

operation and the li%ely position of the concern with regard to its actual

cash generation "li:uidity# and its probable impact upon the financial

condition "solvency#.

The first aspect deals with the estimation of total of the proect "fi-ed cost net

wor%ing capital# and a suitable financial arrangement "debtAe:uity relation#. The

second aspect relates to the analysis of productionAcost profit at different volume of

production carried up to the year the proect attains its normal capacity operation.

).3.1. COST O/ T0- PRO-CT

The cost of a proect represents all capital e-penditure to be incurred for ac:uisition of

its fi-ed assets plus the nit contribution of longAterm resources in the proposed current

assents. In other words, the fi-ed cost of the proect plus the net "or permanent#

wor%ing capital re:uirement to run the proect will comprise its total cost.

).3.2. /IE-D COST O/ T0- PRO-CT

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The re:uirement of physical assets for a proect is essentially an engineering estimate.

The analyst should, however, rechec% the various cost items detailed in the fi-ed 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 loo% in to their ramification. Individual item of tangible assents will have a

re:uired :uantity "H# and a price "0#. The H indicates any :uantity in area, number,

volume, or any other suitable unit of measurement. The 0 indicates the price for a

specific unit of H. The fi-ed cost of a proect is the aggregate of cost of land, building

construction, plant, and machinery and e:uipments preliminary and are e-penses

"capitalized# and a margin for contingencies "any or may not be considered#.

).3.". 6OR7IN C,PIT,4

/part from investment in the fi-ed assets, li:uid funds are, necessary for investment

in current assets li%e stoc%s of ram materials, goodAinAprocess, finished goods, Dstores

and spares, debtors, etc. The portion of fund, which remains invested in current assets

of a concern, is called its wor%ing capital. $uch assets are characterized by their

tangibility and shortAliveliness. It is worthwhile to mention here that Bangladesh Ban%

issues some policy guidelines from time to time as to what will be the tied up period

while calculating wor%ing capital re:uirement pending on the nature of the proect,

which should be followed during appraisal.

).3.'. *-,NS O/ /IN,NC-

/ proect may be financed in the following two ways8

The entire finance may be provided by the sponsors9 or

0art of the finance may be provided by the sponsors and the rest by the

7reditors.

The following are the usual sources of funds8

=I> -u$ty Ca($ta

"a# 0aidAup share capital9

"b# Reserves and surplus "for an e-isting concern#9 ,

"c# Retained 6arnings "for an e-isting concern#9 and

"d# *ther sources such as loans from irectors, friends, relatives, associates,

etc.

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=II> 4oan Ca($ta:

"a# ongAterm borrowings "both secured and unsecured#9 and

"b# Interest uring 7onstruction 0eriod "I70#.

).3.). ,N,4+SIS O/ /IN,NCI,4 ST,T-*-NT

0roper interpretation of data presented by financial statements helps in9

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0rofitability Ratios show the managementDs overall effectiveness as revealed by the

returns generated on sales and investment.

).3.3. /IN,NCI,4 PRO-CTIONS

!inancial proections are final translation of plan for a proect in monetary terms. In

other words, proections reflect in concrete terms the anticipation of the analyst

regarding the future income and e-penditure and their probable impact upon the

assets, liabilities and e:uity of a proposed proect. Through financial proections,

answers are sought to the following :uestions8

"i# 2hat it should cost to produce and sell the productN and

"ii# 2hat it should sell forN

).3.;. PR-S-NT,TION

The third basic re:uirement of financial proections is a suitable techni:ue for

calculation and presentation. The analyst will have to utilize his %nowledge of

accounting. The financial proections are prepared and presented within the

accounting framewor%. The :uality of the proections would, therefore, depend upon

the analystDs %nowledge of accounting. The financial proections involve wor%ing out

the following three interrelated statements for a number of years in respect of a

proect8

"i# !orecast of earnings this will measure the cost of production and profitability9

"ii# !und flow statement which will indicate maor or prominent fund inflows and

outflows9

"iii# proected Balance $heets which will depict the capital structure and assets spread

at the and of periods used in "i# and "ii# above.

).3.. COST O/ PRODUCTION

*nce the computation of future sales is completed, the ne-t step .is to calculate the

relevant cost of sales. This process involves preparation of some sort of e-penses

budgets for the relevant years for which sales have been calculated. /ll the e-penses

can be broadly divided into the following three categories8

"i# 7ost of goods sold9"ii# General, /dministrative and selling e-penses9 and

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"iii# !inancial e-penses.

CHAPTAR S"$

PRO-CT *ONITORIN PR,CTIC-

O/ BSB

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Pro#ect *on$tor$ng Pract$ce of BSB

"/ 7ase $tudy#

!or illustrating the monitoring practices of B$B I choose a case named 45$ 6ttade

0lastic td. which dictates the actual performance of 0roect 4onitoring

department of B$B.

.1 N,*- O/ T0- PRO-CT:

45$ 6ttade 0lastic td.

4ocat$on8 7har Raman, 4eghnaghat, $onargaon, +arayangon.

.2C,P,CIT+ O/ T0- PRO-CT:

The annul rated capacity of the proect has been estimated on the basis of three shifts

operations of eight hours per day and three hundred wor%ing days in a year.

oan operation department issues a sanction letters pointing out the total mount of

loan, which sanctioned in favor from of the 45$ 6ttade 0lastic td.

In the sanction letter, * offers brief description about the followingA

7ost of the proect,

4eans of finance,

7apital structure,

/mount of loan,

0urpose of loan,

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period of loan,

Rate of interest and other charges,

isbursement schedule,

Repayment schedule,

$ecurity of loan,

$pecial conditions, /nd so on

." I*P4-*-NT,TION

/ sum of the 'CCJJJJJ and C&JJJ sanctioned in favor of 45$ 6ttade 0lastic td. to

be repaid )> "Twenty four# :uarterly installments, Repayment shall commence after

commence after eighteen months from the date of opening of letter of credit "57# or

si- months after the proect goes into commercial operation, whichever is earlier. The

interest is to be accrued on the outstanding loans amount after the e-piry of the grace

period shall be charged as usual on :uarterly basis.

.' 4O,N S,NCTION F -EP-NDITUR-

Tas% of the main proect Implementation department of B$B is to disburse the

sanctioned loan in accordance with oan *peration epartment .The disbursement

schedule of total loan amount is given below8A

1st

Installment S(>&.1C lac

)nd Installment S1'?.? lac

&rd Installment S?J.JJ lac

Total S'CC.C& lac

!irst installment money will allow for importing machinery and e:uipment, CJV of

machinery cost will be paid out of B$B loan, )JV machinery cost will be paid out of

sponsorMs e:uity.

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*S -ttade Pa&t$c 4td.

4$&t of I!(orted *ach$nery

Tabe@2

$ +o. +ame of 4achinery

/. 0lastic e-truding tape stretching @nit

Huantity

1 0lastic 6-truding 4achine ) set

) Tape 2inder ) set

& ;ot *ven > set

> ThreeAroller shaping unit ) set

? 0ressAroller $tretching unit ) set

$litting @nit ) set

( 2ater Tan% ) set

1

B. 7ircular oom 2or%shop

7ircular oom ?J set

) 7rane with single trac% ) set

& ;and Borrow set

7. Bag 4a%ing 2or%shop

1 aminating machine 1 set

) aminating machine "middle $ean# 1 set

& Bag mar%ing machine &J set

> $ewing machine ) set

? Bounding machine ) set

7rane with single trac%

( /ir compressor & set

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Other& $!(ort !ach$nery

aboratory e:uipment, power supplies and control system, water supply system.

)nd installment was to be disbursed for the constructions were opening of letter of

credit for import of machinery and e:uipment through B$6.

&rd installment was to be disbursed towards reimbursement of net wor%ing capital.

Third installment was allotted on basis of utilization of second installment of loans

and producing documentary evidence other than availing of re:uired wor%ing capital

from sponsorDs designated commercial ban%.

The 0roect Implementation epartment of B$B inspects the 45$ 6ttade 0lastic td .

before final production time to time. The principal obective of such types of

inspection is to avoid fraudulent activity and to maintain proper distribution of loan.

B$B provides !inal 7onstruction Report "!7R# in inspection formAII in regular

interval basis. It contains an inspection team. The report to the higher authority of

B$B on inspection formAI provide the construction and engineering timetable and

progress made.

*n )Jth /ugust )JJ&, inspection was made on reconstruction of land and building.

7ompanyDs engineers, site engineer and other e-ecutives were presented at that time.

Inspection team compared the actual activity with the master layout plan. /ccording

to s%etch construction wor% was for 7ircular loan $ection "party#. Parn ma%ing

section and raw material store. Total investment for reconstruction became T%A&(.'(

lac%.

/fter completion of inspection wor%, inspection term provided some suggestions on

basis of improvement of reconstruction wor% ayout plan of machinery.

*n )'th +ovember )JJ), another inspection was made on imported machinery. /t that

time, another construction wor% "main gate establish# was ongoing. !oreign e-porter

4r. 0eter Khou was set up machinery within three months. Result of this inspection

shows8 at total investment e T &CJ.') lac% on reconstruction proect.

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.) INSP-CTION T-,* SU-STIONS

In&(ect$on tea! &ugge&t$on&A !or reconstruction wor% TA 1??.) lac

was distributed on th


56/98

"?J.JJ lac# of &rd installment will be distributed on basis of fulfillment of net wor%ing

capital.

0roect implementation department disbursed the loan to 45$ 6ttade 0lastic td .

according to different installments. *n other hand it can be said that loan disbursed on

basis for wor%s completed. But some tas%s were performed 5 completed slowly by

company. It is tolerable because many hindrances came out due to the construction

period. 0ractically it is not possessive to complete 1JJV wor% according to s%etch.

0roect Implementation epartment of B$B regularly monitors the specific proect

and disburses the total loan amount through different installments.

The entrepreneurs provided its information about the re:uirement of bridge loan. The

proects maintained strictly its annual capacity of production. The authority of B$B

disbursed the total loan amount by installment, which is also precondition of

disbursing oan amount. I thin% 45$ 6ttade 0lastic td. completely fulfilled most of

the re:uirements. /s a result, they received the sanctioned amount on due date.

The company shared so for product diversification commercially by producing and

selling high :uality of bag. 4onitoring epartment has to ta%e creative actions to use

loan in full volume. B$B shared diversify its service and add new features is to

service so that it can attract new entrepreneurs how all of people. 6$B can use internet

for both local and international correspondence. 6Amail can reduce the tele- cost

substantially. Ban% should ta%e intelligent decision to create own web page in Internet

so that it can communicate with entrepreneurs a branches very :uic%ly. B$B should

increase its number of monitoring team to investigate very :uic%ly.

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3.1 Precaut$on& about S$ck Indu&try:

$ic% situation arises in an industry in some abnormal period. But if the rate of

sic%ness is overwhelming then it becomes a matter of fact. $o before providing loan

importance must be given on evaluation. If the evaluation procedure is correct, sic%

industry situation may avoid :uite easily. $o at preAinvestment stage the following

things must be consideredA

6-amine the proect is done appropriately.

The proect cost is calculated in a proper way.

The proper place is selected.

efect machineries must not be purchased.

6nsure that s%illed and e-perienced personnel are easily found.

0roper stapes are ta%en to protect uneven brea%down of electricity.

6nsure that proper people are involved in the managing committee.

6nsure the financial capability of the initiator.

6nsure the procedure of ma%eup the preliminary cost and the doubtful loss.

6nsure the :uality of the produced product.

6nsure the proper way to mar%eting the produced products.

7onsider the change of test of customer.

0roper plan is ta%en to implement the proect.

$teps are ta%en to avoid the potential conflict

3.2 The Sy!(to!& of S$ck Indu&try:

The symptoms of sic% industry are as followsA

The initiator is unable to pay sufficient money at the implementation stage.

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The delay of implementation increases the proect cost. It also creates many

problems and the burden of loan interest is increased.

ac% of full production or fre:uent obstruction of industry.

The initiator is unable to pay the loan installment and other liability.

The failure in payment of loan installment in time increases the burden of loan.

Inability to submit the financial statement in time.

Increase the tendency of underta%ing unfair means in preparing the papers of stoc%

materials.

0rofit from investment is decrease gradually.

The proect faces loss gradually.

The production level decreases gradually.

Ta%ing loan from various sources at a high rate.

/pplied for a large amount of loan.

+onAcooperating tendency with the loan providing ban%ers.

ac%ing of perfection in the mar%et.

3." S$ck Indu&try Ca&&$f$cat$on:G

The 4inistry of !inance and the 4inistry of Industries coAoperate to provide debt

relief and other financing assistance to bail out failing firms in a specific industry that

has been identified by the government as a F$ic% IndustryF. /ssistance may include

waiver of interest, reduction in principal, repeated rescheduling of overdue loans, of

combinations of these. / F$ic% IndustryF classification may be purchased with a

suitable bribe to the appropriate ministry, 4inistries, the 04*, and the $tanding

committee of 0arliament on !inance may be lobbied and bribed to obtain such a

classification. Billions of BT of +7B loans are written down using this techni:ue.

3.' Cau&e& of S$ckne&&:

Bangladesh $hilpa Ban% underta%es various proects by providing finance, machinery

and other aids, some proects are implemented and successful and some proects are

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failed to attain the goal and these firms are called sic% firm. There are various reasons

of sic% firm. But to discuss it easily I classify it in two classes. They areA

The reasons that are beyond die control of the proect owner9 and

The reasons that arc under control of the proect owner

The above causes are further divided into seven "(# causes. The causes are discussed below according to their importance though all of the causes are important.

3.'.1/$nanc$a Probe!&Shortage of 6ork$ng Ca($ta

The shortage of wor%ing capital is the most acute problem for maority of the sic%

industries. 2or%ing capital is re:uired to finance purchase of re:uired raw materials

and other short term needs of a proect after it is implemented. / survey shows that

1(V of the proects suffered due to shortage of capital. The problems, which lead an

industry towards sic%, are as followsA

4easurement of investment outlay and cost of the proect are not appropriate.

2hen the means of financing is not available.

2hen the proect is not profitable.

2hen the production is not reached at the brea%Aeven point.

oan application with insufficient amount of money that would not meet fi-ed

and operation cost.

2hen they canDt calculate appropriate ris% level of sic%.

7ash flow of the proect is not available.

If actual cost of the proect is more than the budgeted cost.

$hortage of wor%ing capital, i.e. if they do not manage the sufficient

wor%ing capital.

If mar%et interest rate increase, cost of wor%ing capital increase as a result the

proect may become in sic%.

ac% of operating capital.

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;igher fi-ed cost, i.e. increase fi-ed cost as a result of increasing of the price

of machinery, land or any other fi-ed items.

2hen variable cost increase.

oes not ensure sufficient mortgage.

Improper inspection of Ban% financed proect.

Insufficient insurance facility.

6conomic problem comes from the social cost benefit analyses.

3.'.2 *arket$ng Probe!:

4ar%eting problems are the ne-t serious problem. This problem occurs due to a large

number of similar industries and the availability of the products in the secondary

mar%et by unauthorized import of such products. / survey reveals that )&g

final shilpabank-farhad[1].doc

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