Chapter One: Introduction

1.1 Statement of the Problem

SMEs stand for Small and Medium Enterprises and comprise of companies whose number of

employees or fixed asset falls below certain limits. There is no universal definition of SME.

The definition of SME varies over time and country to country and between times in the

same country. Different countries have used various criteria to define SME. To determine the

size of an enterprise some countries use turnover of the company, whereas some use fixed

investment or the number of employees (Lokhande, 2011), sales volume, and worth of assets

(Rahman, 2001). In Bangladesh the existing definition of SME is recommended by Better

Business Forum; formed by the 2007-2008 interim government amid a drastic erosion of

business confidence and accepted as a uniform one by Ministry of Industry and Bangladesh

Bank. On 26 May 2008, the Agricultural Credit and Special Programs Department (ACSPD)

of Bangladesh Bank in a circular (No.8) defined small enterprise as shown in Table 1 and

medium enterprise in Table 2 respectively. Later on, the SME division of Ministry of

Industry, the Government of the Peoples’ Republic of Bangladesh with discussion with

Bangladesh Bank, Statistical Bureau, Board of Investment, and other agencies, corroborating

the definition of SMEs given by Bangladesh Bank, issued a circular on 12 June 2008. All

banks and financial institutions are asked to follow this definition. In the present study, the

researcher also followed the same.

Table1: Definition of Small Enterprise given by Bangladesh Bank and Ministry of

Industry

1
Types of Enterprise Criteria
Fixed Asset (excluding land and building) No. of Employees
(full time)
Trading Tk. 0.05 million to Tk. 5 million Maximum 25
Manufacturing Tk. 0.05 million to Tk. 15 million Maximum 50
Service Tk. 0.05 million to Tk. 5 million Maximum 25
Source: Bangladesh Bank Circular No.8, May 26, 2008

Table2: Definition of Medium Enterprise given by Bangladesh Bank and Ministry of

Industry

Types of Enterprise Criteria

Fixed Asset (excluding land and building) No. of Employees
(full time)
Trading Tk. 5 million to Tk. 100 million Maximum 50
Manufacturing Tk. 15 million to Tk. 200 million Maximum 150
Service Tk. 5 million to Tk. 100 million Maximum 50
Source: Bangladesh Bank Circular No.8, May 26, 2008

SME finance is the funding of small and medium-sized enterprises, and represents a major

function of the general business finance market. Capital is supplied through the business

finance market in the form of bank loans and overdrafts; leasing and hire-purchase

arrangements; equity/corporate bond issues; venture capital or private equity; and asset-based

finance such as factoring and invoice discounting (Fauld & Carl, 2015). In the present study

the researcher took into account the bank loans only.

Growth has various connotations. It can be defined in terms of revenue generation, value

addition, and expansion in terms of volume of the business. It can also be measured in the

form of qualitative features like market position, quality of product, and goodwill of the

customers (Krugar, 2009). Growth refers to the gradual development of enterprises. Growth

is an increase in size, amount or degree of something (Oxford Advanced Learner’s

Dictionary, 2007).

2
Garnsey et al. (2006) stated that a firm’s growth can be measured in terms of inputs

(investment funds, employees), in terms of the value of the firm (assets, market

capitalization, economic value added) or outputs (sales revenues). In empirical literature the

possible indicators for measuring growth are: assets, employment, market share, physical

output, profit and sales (Ardishvili et al. 1998; Delmar, 1997). Delmar (1997) and Davidsson

(2000) used employment and sales as growth indicator. In Bennett and Robson (1999) for

example the relative employee and turnover growth measures are investigated. Baum et al.

(2001) measure growth in terms of employees, but also in annual sales and profit. Beal

(2000) focuses on the growth of sales and profits only. Chandler and Hanks (1994) examine

the growth of market share, cash flow and sales. To assess the growth and development of

small and medium enterprises in Philippines, Tecson et al. (1990) used some quantitative

measures as growth in sales, employment, capital productivity, and profitability of the

enterprises. Sarder (2000) adopted growth in sales, growth in job, sales per job, and value

added per job as measures in assessing the growth performance of small enterprises. Islam

(2012) in his study used growth in equity capital employed, growth in production, growth in

size of employment, growth in sales turnover, and growth in profit as the business growth

measurement determinants.

In the present study, the quantitative criteria used in measuring the business growth are:

growth in (i) used equity capital; (ii) production; (iii) number of employment; (iv) sales; and

(v) profit.

1.2 Rationale of the Study

3
In developing countries like Bangladesh the Small and Medium Enterprises (SMEs) play a

vital role in overall economic development of the country. Since this sector is labor intensive

with short gestation period, it is capable of increasing national income as well as rapid

employment generation; achieving Millennium Development Goals (MDGs) especially

eradication of extreme poverty and hunger, gender equality and women empowerment. Our

neighboring countries have also given due importance on SME. Terming SME as

‘employment generating machine’ they stressed on SME development for higher economic

growth, narrowing the gap of income inequality and poverty alleviation. The recent available

estimates obtained by International Consulting Group (ICG) study and South Asia Enterprise

Development Facility (SEDF) survey suggest the SME contribution to manufacturing value

added to be in the range of 20 to 25 percent (Ahmed, 2008; Bahar and Uddin, 2007). Rahman

(2009) found that micro, small and medium enterprises together employ a total of 31 million

people, equivalent to about 40 per cent of the population of Bangladesh, aged 15 years and

above.

Based on literature review and subject to the objectives of the study the dependent variable of

the study will be SME business growth and independent variable shall be extent of SME

financing and entrepreneur’s demographic variables (Age, family background, education,

marital status, and experience)

Though all these studies simply assessed the positive impact on economic growth but there is

no specific studies found about business growth by DBBL SME financing specially in

Gazipur district. Taking clues from this gap and realizing the importance of the topic to the

researcher, the present study was designed. This study is therefore, a guide to the readers

4
(policy makers, entrepreneurs, financers, and academics) to have an understanding of various

matters of DBBL SME financing, impact on and constraints of business growth.

1.3 Objectives of the Study

The study was carried out mainly to analyze the business growth of some selected enterprises

of Gazipur district financed by Dutch-Bangla Bank Ltd. However, to achieve the main

objective it covered the following specific objectives:

i. To explore the profile of selected entrepreneurs and their business enterprises;

ii. To evaluate the effect of entrepreneurs’ profile on SME growth;

iii. To assess the impact of SME financing on business growth;

iv. To sort-out the problems faced by both the selected entrepreneurs and the officials of

DBBL; and

v. To put forward some recommendations to solve the problems of business growth.

1.4 Scope of the Study

The study was conducted in Gazipur district especially on small and medium enterprises

financed by Dutch-Bangla Bank Ltd. Respondents were branch level and head office level

officials (up-to AVP) directly related with SME financing. Field level entrepreneurs having

at least 21 years of age and have used the bank’s finance over 01 year were also respondents.

Information regarding the growth determinants (growth in equity capital employed, growth in

production, growth in size of employment, growth in sales turnover, and growth in profit)

were collected in relation to SME financing. Only live and unclassified loans were in

consideration for the study.

5
1.5 Limitations of the Study

Like any other study, the study also suffered from several limitations. Due to time and

resource constraints all the entrepreneurs were not included. Dutch-Bangla Bank is financing

in the country through 146 branches, the study was limited to the evaluation of SME growth

at Gazipur district only. To overcome the limitations, appropriate methodology, proper

research design, and appropriate statistical tools were used in the present study.

1.6 Structure of the Report

Dutch-Bangla Bank Ltd financed SME growth at Gazipur district was analyzed in the present

study. To highlight the main issue, the whole research work is divided into the following

chapters:

Chapter One: Introduction

This chapter covers the statement of the problems, rationale, objectives, scope, limitations,

and structure of the report.

Chapter Two: Review of Related Literature

The other researchers’ contributions in analyzing the effect of SME financing in business

growth is reviewed in this chapter. The research hypotheses based on the objectives are also

framed into this chapter.

Chapter Three: An Overview of Dutch-Bangla Bank Ltd.

This chapter gives an overview of Dutch-Bangla Bank Ltd. and SME financing procedures

(Sanction, Disbursement and Recovery).

6
Chapter Four: Methodology of the Study

This chapter covers the research design, types and sources of data, sample design, methods of

data collection, data processing and statistical analysis.

Chapter Five: Analyses and Interpretations

Evaluation of the effects of SME financing on business growth especially on growth factors

of business is the highlighted issue of this chapter. The problems faced by both the

entrepreneurs and officers of DBBL are also revealed in this chapter.

Chapter Six: Summary, Conclusions, and Recommendations

The last chapter summarizes the major findings, draws conclusion and thereby makes some

recommendations to overcome the problems of SME growth.

Chapter Two: Review of Related Literature

7
A number of empirical studies had been carried out by various scholars in various aspects of

SME financing and development at home and abroad. Some of the notable works relating to

present issue are reviewed below:

2.1 Entrepreneurs’ and their Enterprises’ Demographic Variables

and SME Growth

To assess the growth and development of small and medium enterprises in Philippines,

Tecson et al. (1990) used some quantitative measures as growth in sales, employment, capital

productivity, and profitability of the enterprises.

In empirical literature the possible indicators for measuring growth are: assets, employment,

market share, physical output, profit and sales (Ardishvili et al. 1998).

Using accounts data for a sample of 38 small manufacturing firms located in Tayside Region,

Glancey (1998) investigated the relationship between company characteristics including size,

age, location and industry group, and profitability and growth. It is argued that a firm size

measure based on employment is more appropriate than one based on sales or assets which

previous studies have used. Firm characteristics are found to be of limited value in explaining

profitability. However, larger firms are found to grow faster than smaller, and younger firms

are found to grow faster than older. This is also some evidence that growth is stronger in

urban than in suburban or rural locations.

Basu and Goswami (1999) suggested that entrepreneurial growth depends positively on

educational attainment, personal savings invested at start‐up, hard work in the initial stages,

8
and the delegation of responsibilities to non‐family members. The pursuit of technological

improvement and employee training also influenced growth.

Sarder (2000) adopted growth in sales, growth in job, sales per job, and value added per job

as measures in assessing the growth performance of small enterprises.

Garnsey et al. (2006) stated that a firm’s growth can be measured in terms of inputs

(investment funds, employees), in terms of the value of the firm (assets, market

capitalization, economic value added) or outputs (sales revenues).

Gebru (2009) investigated the determinants of financing preferences of micro and small

enterprises (MSEs) owners in Tigray regional state of Ethiopia. Structured questionnaires

were used to collect data from 120 MSEs in six zonal towns of Tigray regional state. Logistic

regression model was used to empirically test the literature‐driven hypotheses. Furthermore,

factors such as ownership type, acquisition type, level of education of the owner/s and reason

for business startups were found the major determinants of MSE owners' financing

preferences. In this paper, data were collected from one regional state of Ethiopia that limits

the generalization power of the conclusions reached. A need for more in‐depth qualitative

investigation is further pointed out.

In another study Hossain et al. (2009) examined the factors that affect the development of

women entrepreneurships such as: age, education, socio‐culture, motivation, market

information, business idea, enterprise creation, advocacy and decision making, enabling

environment, and financing. The analyses revealed that women face problems in establishing

their own businesses in every step that they take. The desire for financial independence and

9
decision making, market and informational network, availability of a start‐up capital,

knowledge and skills, and responsibility towards children are the main factors that impact

women's decision to become self‐entrepreneurs. Yet, the results indicated that religion does

not influence women's entrepreneurship development.

Kirkwood (2009) explored growth in sales turnover and employee numbers, as well as

entrepreneurs' perspectives of how they achieved growth (or why they did not) in New

Zealand. Twenty‐one entrepreneurs aspired growth in terms of either sales or employees

(most aspired growth in both). The majority achieved growth in sales through having a good

reputation, attention to customer service, diversification and employing good staff. Findings

support prior research that show if an entrepreneur chooses to grow his or her business it is

likely that growth will actually occur.

Irwin and Scott (2010) investigated barriers to raising bank finance faced by UK small and

medium‐sized enterprises (SMEs), specifically the impact of personal characteristics

(ethnicity, gender and education). The survey was based on a large stratified random sample

drawn from the Bank's entire SME population. They have found that education made little

difference to sources of finance, except that those educated to A‐level more frequently used

friends and family and remortgaged their homes. However, graduates had the least

difficulties raising finance. Though statistically insignificant, women respondents found it

easier to raise finance than men in UK.

Hashi and Krasniqi (2011) seek to examine the impact of firms' technological capability and

other firm and environmental characteristics on the growth of small and medium‐sized

10
enterprises (SMEs) in six transition countries at different stages of transition. The framework

was based on three groups of factors influencing SME growth: innovative and

entrepreneurial features of the firm, characteristics of the firm, and those related to the

institutional/business environment. The two groups of countries have similarities and

differences: both display similar trends with respect to the growth process; both are affected

by entrepreneurship activities positively; but the institutional barriers affecting the two

groups are somewhat different. It was also found that, despite the growing importance of

SMEs in all transition economies, they still face many institutional barriers – which have

prevented them from making a greater contribution. It is important for future research to

complement this line of research with panel data.

Xheneti and Bartlett (2012) investigated business growth in Albania. The analysis offered

important insights into the nature of entrepreneurship. The analysis was based on firm‐level

data collected through a survey questionnaire in April‐July 2004. The paper used principal

components analysis and a regression model to explain the factors that determine the pace of

business growth of small firms. The age of the firm, the age, education, qualifications and

work orientation of the entrepreneur, insufficient information and corruption, explained the

differential growth of firms. Older entrepreneurs grow faster suggesting unfulfilled

aspirations as well as their access to wider professional, social and possibly also political

connections.

Islam (2012) in his study aimed at exploring factors and analyzing their effects on the growth

of small enterprises in Bangladesh. The entrepreneurs selected randomly for the study as

sample respondents using multi-stage sampling technique constitute 400 and had been

11
interviewed personally used growth in equity capital employed, growth in production, growth

in size of employment, growth in sales turnover, and growth in profit as the business growth

measurement determinants. The study revealed that relatively higher educated and married

male entrepreneurs, having business experience of less than ten years, were significant group

to enter the business. The majority of the sample entrepreneurs had hailed from non-business

family and had started their business at young and middle age. Results also claimed that

entrepreneurs’ biographic characteristics except family background and marital status play a

significant role in the growth of small enterprises’ equity capital, production, employment,

sales, and profit.

Mitchelmore and Rowley (2013) explored the number of employees and annual sales as

measures of business performance. In order to gather data for this exploratory study, a

questionnaire was sent by e‐mail to members of networks of female entrepreneurs. Data

were entered into SPSS to generate descriptive statistics, and conducted hypothesis testing.

Cash flow and investment in infrastructure showed a correlation with number of employees,

whilst new product development, and expenditure showed a correlation with annual sales.

In the study Panda (2015) aimed to study the growth determinants of small-sized agro-based

firms in the Indian agro-industry. The stratified random sampling method was used to collect

information from sample agro-firms. A structured pretested questionnaire was designed to

collect required data. Descriptive statistics and multivariate technique were used to analyze

the data. He found the major determinants of firm growth as firm size, managerial

networking intensity, skill development of employees, product diversification and market

integration. Employee skill development was found to be a significant predictor of firm

12
growth in slow-growing firms, but held as a weak predictor of growth in fast-growing firms;

whereas, use of information technology was a significant growth predictor in fast-growing

firms and an insignificant growth predictor in slow-growing firms.

2.2 SME Financing and SME Growth

Sandesara (1982) examined the efficacy of long term finance on the performance of small

businesses, using economic and financial indicators. Comparing the performance between

assisted and similar non-assisted units, the study revealed different results that the non-

assisted businesses did better than the enterprises that received long-term financial support.

This was so because of the high interest burden, non-receipt of long term finance in time, and

failure to properly assessing the financial needs and utilizing the same, etc.

Smallbone, Leig, and North (1995) showed that high growth can be achieved by firms with a

variety of size, sector and age characteristics; such firms are distinguished more by the

strategies and actions of managers than by their profile characteristics. Job generation was

particularly concentrated in the high growth firms which also demonstrated an ability to

increase labour productivity at the same time as they were increasing employment.

In the study of Sarder, Imam, and Khan (1998) it was evident that majority of the small

entrepreneurs, after receiving support services, started or restarted their businesses, increased

production, increased working capital, purchased machinery, and thereby expanded their

businesses . However, they failed to examine the relationship between the level, extent, type,

and intensity of the assistance received and changes in the assisted small business

performance.

13
Rahman and Hossain (1999) in their study found that the utilization of Grameen Bank loan

had a positive impact on the earnings by the member of a family.

Carey and Flynn (2005) examined the implications of new banking regulations for the Irish

SME sector and data were collected through a survey of Irish SMEs and semi‐structured

interviews of five major banks, all serving the Irish SME sector. They showed in their study

that a high degree of Irish SME dependence on banks as a source of funding. And it

highlights the need for Irish SMEs to proactively manage their potential funding sources. As

part of the development of the necessary management skills, various training

recommendations were made for Irish SMEs facing a more sophisticated global financial

regulatory environment.

Pedro and Pedro (2007) presented empirical evidence on the effects of working capital

management on the profitability of a sample of small and medium‐sized Spanish firms. The

authors have collected a panel of 8,872 small to medium‐sized enterprises (SMEs) covering

the period 1996‐2002. The authors tested the effects of working capital management on SME

profitability using the panel data methodology and the results are robust to the presence of

endogeneity, demonstrate that managers can create value by reducing their inventories and

the number of days for which their accounts are outstanding. Moreover, shortening the cash

conversion cycle also improves the firm's profitability.

Federico, Rabetino, and Kantis, (2012) aimed to advance the understanding of firm growth

determinants by comparing the factors influencing young firms' growth in 13 countries

corresponding to three contrasting regions. This model was tested using three OLS

14
regressions, one corresponding to each region. The results showed that less favorable

business conditions verified in Latin American countries emphasize the relevance of

entrepreneurs' human capital endowments in determining business development and its

further growth. On the contrary, market‐related issues and the availability of financial

resources were more important in South‐East Asia and Mediterranean Europe. Team size and

particularly its growth were positively associated with firm growth in all the studied regions.

Yazdanfar and Öhman (2015) examined the relationship between debt level and performance

among small and medium-sized enterprises (SMEs). This study used three-stage least squares

(3SLS) and fixed-effects models to analyse a comprehensive, cross-sectoral sample of 15,897

Swedish SMEs operating in five industry sectors during the 2009-2012 period. This study

confirms that debt ratios, in terms of trade credit, short-term debt and long-term debt,

negatively affect firm performance in terms of profitability. As a high debt ratio seems to

increase the agency costs and the risk of losing control of the firm, SME owners and

managers tend to finance their businesses with equity capital to a fairly high degree.

2.3 Constraints to SME Growth

Sharma (1979) investigated the impact of support services on small business development in

six Asian countries including Bangladesh. He found that support services had a very low or

insignificant effect in four countries- Bangladesh, Malaysia, Thailand, and South Korea but

were effective in two countries, India and Philippines on small business development. Lack

of integration, organization and exclusiveness were the main cause of this defectiveness. In

some cases, the policy formulations were not clear and they needed constant revision.

Though the findings of his study were somewhat outdated, they might be an important

15
indication of the effect of support services in the context of developing countries particularly

in South East Asian regions including Bangladesh.

Tecson et al. (1990) identified a low but positive relationship among total sales, productivity,

and support services received from government supporting institutions.

Page and Jones (1990) illustrated that successful fast‐growth companies were found to be

anti‐bureaucratic and task‐focused. The keys to their success were size flexibility and

opportunism. The companies studied were bold in their strategy but unsophisticated in

developing and implementing strategic plans. The main weakness of the companies was a

lack of attention to managing transitions – i.e. controlling the evolution of the company as it

grew.

Page and Jones (1990) reviewed the barriers to growth. Ways of measuring growth are

discussed, and five routes to business growth are outlined – market development, product and

service innovation, investment in “capability”, business organisation and control, and

acquisition, considering the aims, advantages, disadvantages and tools needed for each.

The results of the study made by Rosa (1997) showed that the businesses received support

services experienced significantly higher growth in sales, employment, and productivity. The

better performance of the supported businesses might well be attributable to the supports

received by those businesses because the groups compared were matched in terms of

employment size, nature of business, ownership type, and production processes employed.

The study revealed an overall significant difference between the performance of small

businesses receiving limited support services and small businesses receiving extensive

16
support services. The study, however, failed to conclude that the better performance of the

supported businesses is the result of support services only.

Mondal (2000) found that the non‐availability of long‐term capital, the poor state of the

economy, and excessive government regulation are the three most important explanatory

variables for lack of growth of entrepreneurship.

Islam (2009) stated that money earning for family, self‐employment, relief from the curse of

unemployment, family business tradition, previous experience of the similar or different line

of business, lack of higher formal education, etc. are the broad general reasons for start‐up of

new business. Shortage of fixed and working capital, lack of training and business skill, lack

of collateral free institutional support, lack of experienced and reliable employees, etc. are

the common factors that inhibit the entrepreneurs to start and run their business smoothly.

Kirkwood (2009) found that the fewer entrepreneurs achieved their aspired growth in

employee numbers, due to difficulties in employing and managing staff, skill shortages and a

tight labour market.

Mbonyane and Ladzani (2011) found that the slow growth rate is attributed partly to the lack

of support that small, medium and micro‐enterprises receive from support institutions, and

partly to their own internal weaknesses. The findings furthermore revealed that the most

common causes impeding business growth are a lack of legal knowledge, a lack of funding

and a general lack of business acumen in South Africa.

17
Gill and Biger (2012) extend that lack of financing, market challenges, and regulatory issues

are perceived as barriers to small business growth in Canada. The study utilized survey

research (a non‐experimental field study design). To test the hypotheses, p < 0.05

significance level was used to accept or reject a null hypothesis. The results showed that sales

level of small firms (“past success”) has positive impact on small business growth in Canada.

Daskalakis, Jarvis, and Schizas (2013) carried out a three folded study in Greece: first, to

analyse how small and micro firms finance themselves; second, to investigate what their

financing preferences are; and third, to explore their opinions on how they evaluate the

financing sources and the various obstacles they face in accessing those sources. The data are

derived from the answers in a structured questionnaire. They found the following findings:

regarding equity financing, firms rely heavily on their own funds and would not raise new

equity from sources outside the family; thus, there is a reluctance to use new outside equity

(venture capital, business angels, etc.). Regarding debt financing, firms denoted that they

would use more debt, specifically long‐term debt, than they currently do. Thus, there are

limitations in accessing long‐term debt financing. Regarding grant financing, micro and

small firms should be better informed and encouraged more to participate in state grants and

co‐financed programs; thus, there is an informational gap in grant financing. It incorporates

distinct sources of funds that are very important for small firms (family funds, grants

provided by the state and micro‐loans).

Though all these studies simply assessed the positive impact on economic growth but there is

no specific studies found about business growth by DBBL SME financing specially in

Gazipur district. Taking clues from this gap and realizing the importance of the topic to the

18
researcher, the present study will be designed. This report will help guide the reader (policy

makers, entrepreneurs, financers, and academics) to have an understanding of various matters

of DBBL SME financing, impact and constraints of business growth.

2.4 Research Hypotheses

Based on literature review and subject to the objectives of the study, the following null

hypotheses were designed and tested.

Hypothesis 1: Entrepreneurs’ demographic variables (age, education, family background,

marital status, and previous experience) have no significant effects on SME growth.

Hypothesis 2: There is no difference between the growth of the SMEs that received banks’

financial support and that of the SMEs received no financial support.

Chapter Three: An Overview of Dutch-Bangla Bank Limited

3.1 DBBL at a Glance

19
Dutch-Bangla Bank Limited (DBBL) is a scheduled joint venture private commercial bank in

Bangladesh. The bank is established jointly by local Bangladeshi parties spearheaded by M

Sahabuddin Ahmed (Founder & Chairman) and the Dutch company FMO. DBBL was

established under the Bank Companies Act 1991 and incorporated as a public limited

company under the Companies Act 1994 in Bangladesh with the primary objective to carry

on all kinds of banking business in Bangladesh. In June 1996, DBBL started its formal

operation in banking sector (Annual report of DBBL, 2014).

The Bank is listed with Dhaka Stock Exchange Limited and Chittagong Stock Exchange

Limited. DBBL is operating its activities with an authorized capital of Tk.4000.00 million

and paid up capital of Tk.2000.00 million having 5,426 shareholders as on 30 June 2015

(Half-Yearly report of DBBL, 2015).

3.2 Mission of DBBL

Dutch-Bangla Bank engineers enterprise and creativity in business and industry with a

commitment to social cause. "Profits alone" do not hold a central focus in the Bank's

operation; because "man does not live by bread and butter alone".

3.3 Vision of DBBL

20
Dutch-Bangla Bank dreams of better Bangladesh, where arts and letters, sports and athletics,

music and entertainment, science and education, health and hygiene, clean and pollution free

environment and above all a society based on morality and ethics make all our lives worth

living. DBBL’s essence and ethos rest on a cosmos of creativity and the marvel-magic of a

charmed life that abounds with spirit of life and adventures that contributes towards human

development (Annual report of DBBL, 2014).

.3.4 Values of DBBL

 Customer Focus

 Integrity

 Quality

 Teamwork

 Respect for the individual

 Harmony

 Fairness

 Courtesy

 Respectable Citizenship

 Business Ethics

 Unique Culture

3.5 Strategic Objectives of DBBL

21
  To struggle for customer satisfaction through quality control and delivery of timely

services.

 To identify customers credit and other banking needs and monitor their perception

towards our performance in meeting those requirements.

 To promote organizational effectiveness by openly communicating company plans,

policies, practices and procedures to employees in a timely fashion.

 To cultivate a working environment that advanced positive motivation for improved

performance.

 To manage and operate the Bank in the most efficient manner to enhance financial

performance and to control cost of fund.

 To train and develop all employees and provide them adequate resources so that

customers need be reasonably addressed.

 To review and update policies, procedures and practices to enhance the ability to

extend better service to customers.

3.6 Small and Medium Enterprise (SME)

SME means Small & Medium Enterprise. SME are recognized as engine of economic growth

and employment generation for sustainable industrialization in both developed and

developing countries of the world. In circumstance of Bangladesh, there is no alternative of

small and medium enterprises for rapid industrialization and national economic growth

through lower capital investment and employment. The SME Foundation is playing its role in

helping the SME entrepreneurs including the women entrepreneurs by conducting various

programs with an aim to develop the SMEs of Bangladesh. DBBL has taken up SME

22
financing in 1996 to develop the economy through financing the small and medium

enterprise (Annual report of DBBL, 2014).

The objective of the program is to improve SME access to finance and business development

services, thereby fostering SME growth, competitiveness and employment creation, which

are the overall objectives of economic growth and poverty reduction.

3.6.1 Types of SME Finance

DBBL finance in the form of:

 DBBL Smart Term Loan

 DBBL Smart Cash Credit

 DBBL Smart Festival Loan

 DBBL Smart Women Entrepreneurs Financing (Cash Credit and Term Loan)

 DBBL Smart Distribution Financing

 DBBL Small Shop Financing Scheme

Banks charge a higher interest for loans than the deposit rate given to customers. The

difference in rates is the profit for a bank. 80% of a banks profit comes from the interests.

Loans and advances comprise a large portion of banks assets and this is the backbone of a

bank’s structure. The strength of a bank is primarily judged by the soundness of its loans and

advances. So, the loan and loan department is a very important department of a bank. Loan

policy is very important. If a bank takes very strict loan policy, then the amount of loan will

be less. If the loan policy is flexible, then the amount of loan will be much (Annual report of

DBBL, 2014).

23
3.6.2 SME Finance Policy
DBBL SME Loan Policy contains the views of total macro-economic development of the

country. As a whole by way of providing financial support to the trade, commerce and

industry throughout its loan operation DBBL goes to every possible corners of the society.

They are financing large and medium scale business house and industry. At the same time

they also take cares entrepreneur through its operation of lease finance and some micro loan,

small loan scheme etc. The bank has come up with a scheme where women will be given

financial support for their self-employment and development.

3.6.3 Objectives of SME Banking

Dutch-Bangla Bank Limited has set the following aims and objectives in SME Lending
Program:
• To enter into new customer segment with structured and terminating risk lending products.

• To diversify the Bank’s overall credit risks.

• To impart quick response to SME entrepreneur's funding requirements.

• To promote the under-served entrepreneurs who cannot go a long way due to lack of

financial support.

• To increase Bank's interest margin.

• To avail the benefits of special Small Enterprise funds/refinance from Bangladesh Bank.

• To contribute to the socio-economic development of the country as well as enhance our

market share in the economy of Bangladesh through deploying credit towards Small and

Medium Enterprises having potential productivity.

• To increase contribution of SME sector to Gross Domestic Product (GDP).

24
• To offset potential losses from consumer loans and corporate exposure by prospective gains

of SME Lending in the majority of productive economy.

• To make a shift in the overall credit policy of the bank towards the deprived but promising

segment of the economy on the backdrop of global economy and national urgency for

enhancing domestic productivity (Annual report of DBBL, 2014).

3.6.4 SME Finance Sanctioning Authority of DBBL

The following guidelines are laid down before the executives of DBBL for exercising the
delegated power
 The borrower must be a man of integrity and must enjoy good reputation in the

market.

 The borrower must have the capacity and capability for utilizing loan properly and

profitably.

 The enterprise of the borrower must be practical and profitable. Proposal of the

borrower must be evaluated properly and carefully so that determine of profitability.

The enterprise must generate sufficient fund for debt and servicing.

 A customer to whom, loan is to be allowed should be far as possible within the

command area.

 No sanctioning officer can sanction any credit to any of his near relatives and to any

company where his relatives have financial interest.

3.6.5 Documents for SME Loan

Some Common documents applicable for Proprietorship/Partnership/Limited Company:

25
  Loan Application from duly signed by the customer. Loan Application form should

be accompanied by a ‘Borrower’s Basic Fact Sheet’ under the seal and signature of

the borrower.

 A written declaration shall be obtained from the borrower exposing details of various

facilities already obtained from other institutions.

 Trade License.

 Photographs of the proprietor / partners / directors duly attested.

 Personal net worth statement of the proprietor / partners / directors.

 Copy of TIN Certificate.

 Short description of the products of the enterprise.

 Project Profile (if new project).

 Marketing / distribution system of the company.

 Short profile of the proprietor / partners / directors mentioning their business

experience / education etc.

 Brief description of the management of the company mentioning their educational

professional experiences.

 Name and address of the related concerns.

 Name and address of present bankers.

 A latest liability statement of all the business concerns of the Group with other

Bank/Financial Institutions.

 Loan information Bureau (CIB) report from Bangladesh Bank (Annual report of

DBBL, 2014).

3.6.6 Product Program Guideline (PPG) for SME Loan

26
Criteria Description

Target Group Small and medium sized trading, manufacturing and service
industries spread in the surrounding areas of our Branches and
SME Centers across the country.
Product Type The product offers term loan/ lease finance/ hire purchase
facilities under equal monthly installment loan facility or
structured repayment method.
Purpose i ) Working capital,
ii) Purchasing of capital machinery;
iii) Delivery Van /Transport for business purpose,
iv) Business premises,
v) Purchase of commercial land, possession for new venture,
Business Location The business should be located in the surrounding areas of our
Branches or SME Centers across the country.
Business Type Sole proprietorship/ Partnership/ Private Limited Company
Experience in Business The customer must have minimum 02 (Two) years experience
in the same line of business
Age of Proprietor/ 20 Years to 60 Years at the time of loan application
Partners/Key person(s) of
Limited Company
Age of Business and i) Minimum 02 (Two) years of continuous business operation.
eligibility to avail loan ii) No Govt. employee is eligible to avail financing.
Employees of private organizations running own business are
eligible subject to written consent of their current employer

Loan ceiling Product wise exposure limit (for Small Enterprise):

Unsecured Loan:

 For 1 Time Customer: Minimum BDT-5.00 Lac & Maximum

st

BDT-10.00 Lac;
 For Repeat Customer: Maximum up to BDT-20.00 Lac
Partially Secured Loan:
Loan partially secured by cash security (at least 25%)in the form of
FDR. For client with prior Bank Repayment Track Record should get
minimum BDT-12.00 Lac and Maximum BDT-50.00 Lac (on net
exposure basis). In addition to that the Branch/SME Center must take

27
 for one to three loan deposit/lease deposit (non-interest bearing cash
deposit.
Secured Loan:
Minimum BDT-20.00 Lac and Maximum BDT-50.00 Lac

Determination of In case of Working Capital Finance:

required loan Maximum up to 70% of the net required working capital or 75% of the
amount
Sum total inventory.
In case of Fixed Asset Purchase or Lease:
Maximum up to 90% of the purchase price or acquisition cost of fixed
assets or lease equipment’s (including registration cost).
In case of total exposure-
Total exposure will not exceed 50% of the total assets.

Disbursement  Loan amount will be disbursed through account transfer from our
amount and Concerned Branch or SME Center or through account payee
Mode cheque where we have no branch premises.
 Lease financing amount will be disbursed through an account
payee cheque in favor of the lessee/supplier as per lease terms
and conditions.
 All loan/lease must be disbursed subject to adjustment of all fees,
charges, applicable VAT, insurance amount and advanced
installment.
 In case of top up financing, previous loan balance will be
deducted from the disbursed amount.
Mode of Through Post Dated A/C Payee Cheque in favor of Dutch Bangla Bank
Repayment Limited.

Rate of Interest For Small Enterprise:

(True Rate) For unsecured Loan : 15.00% p.a.
For partially or fully secured Loan: 14.00% p.a.
For Medium Enterprise:
Interest rate is varies from 14.00% p.a.
(Interest rate may be changed from time to time according to Bangladesh
Bank Guideline)

28
Loan Processing For Small Enterprise:
Fee
For unsecured Loan : Nill
For partially or fully secured Loan : Nill
For Medium Enterprise: Not applicable.
Other Fees,
Charges &
Commission a) Documentation : BDT-2000.00
Charge
b) Cheque Dishonoring : BDT- 200.00
Charge
c) Security : BDT-2000.00(including Guarantor)
Replacement Fee
d) Legal : At actual plus VAT
Fee
e) Asset Valuation : At actual plus VAT
Fee
f) Early Settlement : 1st quarter of loan tenor: 5%, 2 nd

Fee quarter of loan tenor: 4%, 3 quarter

rd

of loan tenor: 3% but for repeat

financing it may come up to 1%.
g) Reminder : BDT-200.00 per reminder letter
Fee
h) CIB Collection : BDT-50.00/CIB Report
Fee
i) Reschedule : BDT-2000.00
Fee
j) Transfer : BDT-1.00 to 2.00% (for lease)
Price
k) L/C Commission : 0.25% to 0.50%
We may relax the charges for medium segment client.

Validity of Up to 45 (Forty five) days from the date of sanction.

Sanction

29
Debt-equity Debt-equity ratio must be less or equal to 1 (after availing the loan).
Ratio
Repayment Date 10 / 20 of each month on the basis of loan disbursement.
th th

Security  Hypothecation on stock/receivables/machineries & equipment.

 One Personal Guarantee(s) of immediate family member
(As applicable) (Parents/Brother(s)/Sister(s)/Son(s)/Daughter(s).
 Personal guarantee of the proprietor/partners/directors of limited
company.
 Personal guarantee of at least one third party guarantor acceptable
to the bank.
 Post dated cheque for each installment and undated cheque for full
loan value.
 Any other security as deemed fit on a case-to-case basis.
 Other usual charge documents.
Environment DBBL will raise and recommend compliance with local
Policy environmental laws to all its borrowing relationships. Any kind of
adverse environmental impact will be minimal or will be avoided
altogether.
Legal  Dully filled in Loan Application along with Terms and Conditions
Documents Signed
 Acceptance of the Terms & Conditions of Sanction Advice on
duplicate copy
 Demand Promissory Note
 General Loan Agreement
 Letter of arrangement
 Letter of Installment
 Letter of Disbursement
 Letter of Disclaimer (if required)
 Letter of Personal Guarantee
Letter of Hypothecation of Present and Future Assets
Documents  Valid Trade License
needed for Loan  Sales Statement of last 01 Year
Processing  List of Receivables and Payables
 List of Major Suppliers with Address, Telephone number
 List of Machineries with purchase price, model, country of origin,
date of purchase etc.
 Bank Statement of all accounts for last 01 year (Transaction must
reflect at least 25% of last year’s business revenues)
 Photo ID (Valid Passport/Voter ID) of the Proprietor/
Partners/Directors/Guarantor(s)

30
Rejection of The CRM, SME Division will have full authority to classify any
Proposal loan as default or reject any proposal on qualitative judgment
without assigning any further reason.

Source: Annual Report of DBBL, 2014

3.6.7 Disbursement
[Link] Pre- Disbursement
Disbursement of the approved facilities is made only after all security documents are in place

and complies with all the terms and conditions of the Sanction Advice issued by SME

Division, Head Office. All SME loans are disbursed centrally from Head Office.

Sanction Advice duly accepted by the client to be obtained within 30 days and disbursement

id made within 60 days from the date of issuing of Sanction Advice.

Satisfactory CIB report of the client must be obtained before disbursement. Vetting on the

documents of the offered collateral security must be done by one of panel lawyers of Bank.

The panel lawyer through vetting the property documents provides his opinion regarding

safeguard of the interest of the bank against collateral security. Adequate insurance policy is

taken as appropriate. Phase by phase disbursement is strictly followed where it is a condition

of disbursement.

Branch sent copy of Disbursement Kit along with Security Compliance Check List and Loan

Disbursement /Limit Loading Request in compliance with all terms and conditions of the

sanctioned advice to SME Division, Head Office before disbursement. Letter of Satisfaction

issued by one of panel lawyers of the Bank regarding safeguard of the interest of the Bank on

loan documents and mortgage formalities (if any) to be attached with the Disbursement Kit.

31
If any deviation is created from Sanction Advice, it must refer to SME Division, Head Office

for further approval. After completing all documentation formalities, Head Office can

disburse the approved facilities and the disbursed amount must posted in the System under

appropriate SME products and the accounts must reflected as SME Loans in all reporting.

[Link] Post Disbursement: Maintenance of Documents

The SME Loan Application Processing Kit (LAPK) and copy of all other documents related

to SME loan under single credit file for each client is held in safe custody by SME Credit

Administration Team, Head Office. All original copy of security documents is held at the

Branch’s safe custody inside fire-proof cabinet under dual custodianship and recorded in the

branch safe-in safe-out register for security placement and retrieval.

3.6.8 Recovery
Recovery measures are taken when a facility is detected under “Early Warning”. If a client

fails to adjust SME loan or to repay installments within validity period, Branch arranges for

adjustment of the overdue amount from the client’s Savings/Current Account if there is

adequate Credit Balance. A client can be default for many reasons such as immorality of the

client, diversion of fund in a non income generating sector, huge family expense etc. In these

cases, Branch takes immediate and strict action for recovery of overdue amount. Default or

delinquent of loan can also happen for the cause of natural disasters, Fire and other incidents

etc. In these cases, Branch takes recovery measures maintaining good relation with the client

and by providing high standard of service. After due verification of the situation, Branch can

send proposal for rescheduling to SME Division of Head Office.

[Link] Recovery Process

32
Recovery process of default loan can proceed as follow:

Days Past Due Collection Action

(DPD)
1-14 Follow up & Persuasion over phone for repayment

15-29 1 Reminder Letter & follow-up

st

30-44 2 Reminder Letter & Single visit

nd

45-59 Final Reminder Letter

Group visit by Branch recovery team members Continuous follow-up
over phone
Letters to Guarantors and Reference, if any
Warning on legal action by next 15 days
60-89 Call up loan
Final Reminder & Serve legal notice
Legal proceedings will begin at this stage
Repossession starts
90 and above Telephone calls/Legal proceedings continue
Collection effort continues by Officers
Letter to different Banks/Associations

Source: Annual Report of DBBL, 2014

The above process is continued until a delinquent account becomes regularized by means of

payment or closed with full payment amount. The Credit Administration Division, Head

Office have full authority to classify any loan as default under qualitative basis.

[Link] Agency Management

All delinquent accounts may be placed into a dedicated recovery management team if the

Bank enters into agreement with any agency(ies). The recovery portfolio has sub divided into

various collectible and non-collectible pools of accounts. Depending upon the size of the

account balance, Branch internal recovery efforts may continue while rest of the portfolio

33
that would be assigned to external agencies including legal agencies to ensure expected

recovery.

On every month the responsible officer related to collections, ensures the allocation of the

provided accounts to the individual collectors as well as to the external agencies depending

on the prospect of recovery to maximize the recovery.

Figure 1: Process Flow Chart of SME Lending

34
 Source: Annual Report of DBBL, 2014

Chapter Four: Methodology of the Study

35
Descriptive type of research was carried out in this study. This chapter mentions the

methodology and procedure used in conducting the study. It is subdivided into the following

sections: (i) types and sources of data; (ii) sample design; (iii) variables investigated; (iv)

data collection methods and data processing; and (v) statistical tools used.

4.1 Types and Sources of Data

Both Primary and secondary data were used in the study.

4.2.1 Sources of Primary Data

The primary data were collected from the owners, partners, or managing directors of the

selected sample enterprises and finance officers from SME division and respective branches

of Gazipur district.

4.1.2 Sources of Secondary Data

The sources of secondary data included various published and unpublished documents. These

data were amassed by desk research using different libraries and websites. For desk research

purpose, the secondary data were collected from the following sources:

i). Related books

ii). Bank branch information
iii). Journals of home and abroad
iv). Articles
v). Magazines
vi). Newspapers
vii). Annual reports
viii). Website
ix). Other publications
4.2 Sample Design

36
DBBL has launched SME financing program in 1996. Presently, the program is being

implemented by 146 branches through-out the country (Annual report of DBBL, 2014). The

researcher selected only Gazipur district for the study due to time and cost constraints. 75

small and medium enterprises financed through 10 branches of DBBL of Gazipur district

were the population of the study (Index Register of SME Clients of the branches, 2014).

Among the target SME financed clients 40 business enterprises of Gazipur district were

randomly selected as sample respondents. In addition, 20 finance officers from SME division

and 10 branches of Gazipur district were selected as sample respondents to omit sampling

and frame error.

4.3 Variables Investigated

This section deals with both the independent and dependent variables of the study, which are

as follows:

4.3.1 Independent Variables

Entrepreneur’s Demographic Variables:

(i) Age (ii) Sex (iii) Education

(iv) Marital status (v) Fathers’ occupation (vi) Year of Establishment of
Business vii) Previous Business Experience

4.3.2 Dependent Variables

SME Business Growth Variables:

(i) Capital (ii) Production (iii) Employment (iv) Sale (v) Profit

4.4 Data Collection Procedures

This part includes the procedures that the researcher used to collect data and information, and

how these collected data were processed for analysis.

37
4.4.1 Collection of Data and Information
With a view to collecting primary data and information from the selected SME entrepreneurs

of Gazipur district face-to face interview was used and mailed questionnaire method was

used for the bank officials of respective branches and SME divisions. Secondary data were

amassed by desk research. The researcher himself collected the secondary data from earlier

explained sources.

4.4.2 Development of Primary Data Collection Instrument

An interview schedule and a questionnaire were prepared respectively to collect primary data

from the sample entrepreneurs and officers of DBBL. The interview schedule deals with

background information about entrepreneurs such as their age, sex, educational level, marital

status, types of business, previous business experience etc. The interview schedule consists

of multiple choice and open-ended questions. Questionnaire, on the other hand, contained

respondents’ background information and multiple choice and open-ended questions. Both

the interview schedule and questionnaire were given final shape by reviewing related

literature extensively, taking views of expert and interview with prospective respondents to

the extent possible.

4.4.3 Pilot Survey

To increase validity and reliability, a pilot survey was also conducted to pre-test the

questionnaire. As mentioned above, before finalization of the interview schedule and

questionnaire, in the study, a pilot survey was conducted with the objective of ascertaining

the workability and face validity of the questions. In view of these objectives, a total of 10

respondents were purposively selected for the pilot survey. Some options were amended by

38
adding. Based on the experience of the pilot survey, the approach of asking question, contact

time, the recording, processing and reporting of data were finalized with amendment. The

respondents selected for the pilot survey, however, were not finally included in the sample of

entrepreneurs and officers of DBBL.

4.4.4 Primary Data Collection Methods

The existing literature on primary data collection provides a number of data collection

methods such as observations, postal survey, telephone survey, computer control telephone

interview, face-to-face interview, and group participating research, etc. In the study, based on

the research objectives and some practical issues such as less education and non-cooperative

attitude of the prospective respondents, and other resource constraints, the most effective

face-to-face interview, telephone interview and mailed questionnaire methods were used.

Face-to-Face (Personal) Interview

Prior to final collection of data, the potential respondents were contacted or informed through

the concerned officers to determine their willingness to participate in the study. During this

pre-interview or initial contact, the researcher introduced himself and explained the purpose,

format and required time of interview and gave the pledge of confidentiality in the reporting

of interview data. With the help of interview schedule consisting of several types of question,

the researcher himself conducted face to face interview with the selected entrepreneurs

promptly without hampering the normal business operations of the entrepreneurs. There were

some respondents who did not want to disclose their socio-economic condition. So, at first, a

friendly environment was created by ensuring them that there would be no problem in

39
providing the information. The researcher himself visited the clients’ business place and

asked the respondents the questions in Bengali, the native language and filled in the

questionnaire of the schedule.

Mailed Questionnaire

The questionnaire was mailed to the respective officers of DBBL who are directly engaged

with SME financing and they themselves filled-up it and returned the same back to the

researcher through mail.

4.5 Duration of the Field Study

The field investigation was carried out from July to August 2015. For some respondents,

sparring time for face-to-face interview with the researcher during their work hour was really

very difficult. Consequently, they were called in telephone at their convenient time. Each of

the sample respondents was asked separately and on an average a period of 20 minutes was

required for recording the replies in the space meant for the same in the schedule.

4.6 Data Processing and Analysis

The data, after collecting from the selected respondents were processed. The task of data

processing consisted of editing, coding, classification, and tabulation to make them amenable

to analysis. To analyze the processed data both the descriptive statistical tools including

percentage, mean, rank order and the inferential statistical tools consisting of chi-square test

and t-tests were used.

40
 Chapter Five: Analyses and Interpretations
The study was intended to explore the real picture of business growth through DBBL SME

financing in the Gazipur district. The major findings and the analyses are discussed below:

5.1 Demographic Profiles of the Selected Entrepreneurs

5.1.1 Entrepreneurs’ Age
The age of an entrepreneur is very important because it plays a significant role in business

growth. For innovative sprit, foresight, determination to succeed, positive thinking, ability to

take risks, and the like, so very necessary for an entrepreneur are intimately associated with

his or her age (Kumar, 1995: 128). It was found that SME finance had been enjoyed by only

12.5 percent to the fresh blood below the age of 30 years.

Table 3: Entrepreneurs’ Age

Profile of the Sample Entrepreneurs No. of Entrepreneurs Percentage

Up to 30 5 12.5
31-40 13 32.5
41 or above 22 55.00
Total 40 100.0
Mean 37.48 Years
Source: Field Survey

The Table 3 and Figure 2 show that majority of the sample entrepreneurs (55.0 percent)

belonged to the age group of 41 years or above, while only 32.5 percent were more than 30

41
years. The average age of the entrepreneurs, while they took financial support, was 37.48

years. These figures indicate that the older entrepreneurs were enjoying more financial

facility from DBBL as they had the ability to give proper mortgage/security to the bank

against their investments.

Figure 2

Entrepreneurs’ Age

Source: Field Survey

DBBL takes sufficient collateral securities before disbursing investments to ensure recovery

of the same in time, but the young entrepreneurs become unable to provide such type of

securities. Consequently, their number is poor in the sample. Besides, those in the age range

of 41 years or above are mentally matured enough to assume certain risky ventures facing

unfavorable situations with perseverance.

42
5.1.2 Entrepreneurs’ Sex
The number of women entrepreneurs supported by DBBL particularly by the branches of

Gazipur district is very poor.

Table 4: Entrepreneurs’ Sex

Profile of the Sample Entrepreneurs No. of Entrepreneurs Percentage

Male 40 100

Female 0 00

Total 40 100

Source: Field Survey

In the present study, all of the randomly selected entrepreneurs were male. This finding is

relatively consistent with the business environment of Bangladesh.

Figure 3

Sex of the Entrepreneurs

43
Source: Field Survey

The studies of Rahman et al. (1979:79); Khan (1987:96); Kumar (1995:146); Islam &

Mamun (2000:223); Mia (2000:159); Carter et al. (2000); and Hashim et al. (2007:55) were

also carried out on male dominating sample respondents. In the present study, the reasons for

this obvious imbalance in the sex issue of the entrepreneurs might be conservative traditional

attitude, risk adverse tendency of women, non-cooperation of family members and

supporting institutions, etc. that reflects the real picture of our male dominated business

society.

5.1.3 Entrepreneurs’ Family Background

In a patriarchal society like Bangladesh, the father is the head of a family. In the present

study, father’s occupation implies the family background.

Table 5: Entrepreneurs’ Family Background

Profile of the Sample Entrepreneurs No. of Entrepreneurs Percentage

Agriculture 15 37.5
Business 21 52.5
Service 4 10.0
Total 40 100.0
Source: Field Survey

The findings of the survey in this regard are presented in Table 5, which reveal that more

than 50 percent of the entrepreneurs that hailed from the business families, followed by

agriculture families which constituted 37.5 percent. 10 percent of the total entrepreneurs

came from families of employees in private and /or government organizations. The results

became so because of inheritance, business profitability, economic freedom, etc.

44
 Figure 4

Entrepreneurs’ Family Background

Source: Field Survey

Due to low or no profit in the agricultural sector, the farmers encouraged their sons to go into

other businesses instead of their profession i.e. agriculture. In Bangladesh, in the studies of

Rahman et al. (1979:87); Khan (1987:96); Islam and Mamun (2000:226); Rahman

(2002:168); Kabir (2004:131); Shamim (2008:17); Islam (2011); and Islam (2012), it was

found that trade or business was the parental occupation of the major entrepreneurs. This

reflects occupational mobility from service or agriculture to business.

5.1.4 Entrepreneurs’ Educational Qualifications

Formal education has always been considered as an important capital of an individual in

building his occupational career (Lipset & Bandix, 1989:197).

45
Table 6: Educational Qualifications of the Entrepreneurs

Profile of the Sample Entrepreneurs No. of Entrepreneurs Percentage

Below SSC 4 10.0

SSC 14 35.0
HSC 6 15.0
Bachelor 13 32.5
Masters/Above 3 7.5
Total 40 100.0
Source: Field Survey

With regard to the educational level of the sample entrepreneurs as shown in Table 6 and

Figure 5, the present study found that more than one third of the entrepreneurs (35 percent)

could not cross the higher secondary level and 32.5 percent completed the graduation level.

Figure 5

Educational Qualifications of the Entrepreneurs

Source: Field Survey

A certain level of education is a must for any entrepreneur. Further, education and training

can contribute towards innovations, risk-taking, and acquisition of managerial and conceptual

46
skills and in marshalling resources for non-traditional activities (Lim, 1994:187). The study

witnessed that the higher educated youths of Bangladesh were gradually undertaking risky

ventures instead of running after the traditional job market for employment. The results of

the present study also help to conclude that educated people are engaging in business than

before which help them to operate the business efficiently.

5.1.5 Entrepreneurs’ Marital Status

Marital status is an important social characteristic of an entrepreneur.

Table 7: Marital Status of the Entrepreneurs

Profile of the Sample Entrepreneurs No. of Entrepreneurs Percentage

Married 38 95.0
Unmarried 2 5.0
Total 40 100.0
Source: Field Survey

It is evident from Table 7 that overwhelming majority of the supported entrepreneurs (95.0

percent) was married while a small portion (5.0 percent) was unmarried. Rahman (1999:106);

Mia (2000:161); Karim (2001:19); Shamim (2008:16); Islam (2011); and Islam (2012), also

carried out their studies mostly on the married entrepreneurs.

Figure 6
Marital Status of the Entrepreneurs

47
Source: Field Survey

Thus, it can be said that the responsibilities towards spouses and children influenced the

maximum entrepreneurs under study to start and run their business.

5.1.6 Entrepreneurs’ Previous Business Experience

Entrepreneurs with vast experiences in managing business are more capable of running

business smoothly. Previous experience in the respective line of business enables the

entrepreneurs to acquire practical knowledge in the decision making process.

Table 8: Previous Business Experience of the Entrepreneurs

Profile of the Sample Entrepreneurs No. of Entrepreneurs Percentage

Below 10 years 36 90.0

10 years or Above 4 10.0
Total 40 100.0
Mean 4.68 years
Source: Field Survey

Previous experience in the respective line of business enables the entrepreneurs to acquire

practical knowledge in the decision making process. To have financial suppoer, the

48
entrepreneurs must have business experience of a minimum number of year(s). As shown in

Table 8, when taking financial support, the highest percent of the entrepreneurs interviewed

had below 10 years experience of homogeneous or different lines of business which

accounted for 90 percent.

Figure 7

Previous Business Experience of the Entrepreneurs

Source: Field Survey

The percent of more than 10 years experienced entrepreneurs was only 10 percent. The

average business experience of the entrepreneurs was more than 4.68 years. From the

distribution of experience, it can be said that comparatively the new entrepreneurs were in

the best position to have DBBL’s financial supports.

5.2 Impact of Entrepreneurs’ Demographic Variables on SME

Growth

49
Every business strives to achieve an outstanding growth. Without superior performance of

any business a firm cannot survive. Thus it is very essential to investigate the impact of

factors that contribute towards success of a firm. Entrepreneurs play more vital role for the

success of any business. Thus the impact of their demographic characteristics is important to

examine for the superior firm’s growth.

With regard to testing the formulated hypothesis one, chi-square statistic was used. Table 9

reveals the association between entrepreneurs’ demographic characteristics (age, sex, family

background, educational qualification, marital status, and previous business experience) and

SME growth measures (growth in equity capital, production, employment, sales, and profit)

by using chi-square statistic. The value of chi-square statistic and p value provide support for

the hypothesis that entrepreneurs’ age had a significant positive impact on all growth

measures except growth in sales.

Table 9: Demographic Variables of Entrepreneurs and SME Growth

Entrepreneurs’ Growth in Growth in Growth in Growth in Growth in

Demographic Equity Production Employee Sales Profit
Variables χ2 p χ2 p χ
2 p χ
2 p χ2 p
value value value value value value value value value value
Age of 18.764 <.01 37.782 <.01 6.674 <.05 1.152 NS 19.379 <.01
Entrepreneurs
Educational 1.875 <.10 12.985 <.01 1.009 NS 3.353 <.05 0.374 NS
Qualifications
Marital Status 2.456 <.05 9.54 <.05 1.27 NS 3.293 <.05 1.14 NS
Family Background 2.854 <.05 6.744 <.05 1.42 NS 3.463 <.05 1.636 <.10
Previous 0.835 NS 6.539 <.05 0.609 NS 3.206 <.05 0.706 NS
Experience
Note: N.S means not significant
Source: Field Survey

As shown in Table 9, the p value indicates that among the demographic variables

entrepreneurs’ educational qualification had significant positive impacts on average growth

in equity, production and sales only as indicated by p value at the 10 percent, 1 percent and 5

50
percent level of significance respectively. Statistically, entrepreneurs’ marital status and

family background particularly the fathers’ occupation had positive significant effects on

average growth in equity, production and sales only as indicated by p value at the and 5

percent level of significance except 10 percent level of significant for family background on

growth in profit. Entrepreneurs’ experience had significant effect on growth in production

and sales at 5 percent level of significance. The reasons for low growth of the highly

experienced entrepreneurs might be diversion of their financial supports to other projects,

arrival of higher educated and affluent entrepreneurs, low demand for their products or

services, outdated machineries and equipments, etc. From the analysis, the hypothesis that

entrepreneurs’ demographic variables have significant effects on SME growth is, therefore,

partially rejected.

5.3 Impact of Finance Intensity on SME Growth

Finance intensity has been found to work as a signal about future business growth (Lev &

Thiagarajan, 1993). A number of studies have identified positive correlation between the

level of growth of business firm and finance intensity. It is evident that the businesses that

received high intensive finance (higher amounts of FSSs) generated significantly higher

growth in equity and profit than the businesses that received low intensive finance (lower

amounts of FSSs).

Table 10: Test for Significance of Differences between the Growths of Businesses
Received High Intensive Finance and Businesses Received Low Intensive Finance

Indicators Mean Value of t- statistic d.f p Value

HIF 1 LIF
2

51
Growth in Equity (million Tk.) 0.0815 0.0655 1.677 39 0.101
Growth in Production (million unit) 0.05 0.0275 2.443 39 0.019
Growth in Employee (unit) 0.1512 0.1398 2.067 39 0.045
Growth in Profit (million Tk.) 0.855 0.5925 10.967 39 0.000
Growth in Sales (million Tk.) 0.6125 0.5175 4.307 39 0.000
Note: Businesses received high intensive
1 finance; 2 Businesses received low intensive
finance.
Source: Field Survey

Looking at the results of Table 10, it reveals that the businesses which received high

intensive finance achieved a higher growth in production, employment, and sales, compared

to those of the businesses which got low intensive finance. The finding above has significant

policy implication for the SME business sector. It can be said that by offering higher amounts

of finance, profit could be increased in the SME business sector as significant difference was

evident in profit growth in the above analysis. Thus, the hypothesis that there is no difference

between the growth of SMEs that received high intensive finance and SMEs that received

low intensive finance was rejected. That is, the intensity of finance has significant positive

effects on SME growth. In his study, Sarder (2000:233); Islam (2011); and Islam (2012),

found almost similar results.

5.4 Major Problems Encountered by the Selected Entrepreneurs

From field investigation it is clear that selected entrepreneurs also faced many problems

during getting SME finance and after that running the business smoothly. The problem faced

by SME entrepreneurs are mentioned in the following from their view point:

Table 11: Major Problems Encountered by the Selected Entrepreneurs (N=40)

Problems Faced by the Entrepreneurs No. of Entrepreneurs (Multiple Percentage to Rank-

Responses) Total order
Insufficient working capital 33 82.5 1

52
High rate of profit charged on
29 72.5 2
investments
High competition 27 67.5 3
No investments without collateral 27 67.5 3
Lack of efficient and reliable employee 22 55 4
Increased price of raw
17 42.5 5
materials/finished goods
Source: Field Survey

Table 11 exhibits the major problems the entrepreneurs encountered in their business.

Wherein, it is shown that 82.5 percent businesses lacked sufficient working capital, which

ranked first. 72.5 percent entrepreneurs with the problem of high rate of profit and 67.5

percent faces the challenge of high competition and no financing without collateral could not

make their expected business growth. According to 55 percent entrepreneurs and 42.5

percent entrepreneurs, with the problem of efficient and reliable employee and increased

prices of raw materials or finished goods were the fourth and fifth ranked problem

respectively.

5.5 Major Problems Faced by the Bank’s Officials with the

Entrepreneurs

SME financing is not an easy job. In SME loan sanctioning, documentation, disbursement

and recovery process the respective officials’ faces different problems with the entrepreneurs.

The following table shows various problems faced by DBBL officers from entrepreneurs and

the number of officers who consider those as problem:

Table 12: Major Problems Faced by the Bank’s Officials (N=20) with the
Entrepreneurs

Problems Faced by the Entrepreneurs No. of Entrepreneurs (Multiple Percentage to Rank-

Responses) Total order

53
Don’t keep proper records of
transactions
20 100 1
Not readily available of trade license,
NID, TIN, 17 85 2
VAT certificate, etc.
Tendency to make overdue by fund
diversification
15 75 3
Desire for very quick service than
reasonable time
12 60 4
Reluctance to sign office documents 11 55 5
Lack of proper training 9 45 6
Source: Field Survey

Table 12 reveals that all of the selected bank officials made complaints against the

entrepreneurs that they did not keep proper accounts of their capital, production, sales,

inventory, and income. Almost all officials (85 percent) stated that the entrepreneurs when

taking finance could not produce the proper documents in the required formats. In his study,

Islam (2011); and Islam (2012), found almost similar results. Utilization of investments in

other projects not specified in the application was third ranked problems to the bank officials.

Entrepreneurs’ desire for prompt services, reluctance to put their signatures on official

documents and lack of proper training were rated as fourth, fifth and sixth problems for bank

officials respectively.

Chapter Six: Summary, Conclusions and

Recommendations
6.1 Summary of Major Findings

54
SME finance is the funding of small and medium-sized enterprises, and represents a major

function of the general business finance market. Capital is supplied through the business

finance market in the form of bank loans and overdrafts; leasing and hire-purchase

arrangements; equity/corporate bond issues; venture capital or private equity; and asset-based

finance such as factoring and invoice discounting. In the present study the researcher has

taken into account the bank loans only. In developing countries like Bangladesh the Small

and Medium Enterprises (SMEs) plays a vital role in overall economic development of the

country. SME as ‘employment generating machine’ has stressed on SME development for

higher economic growth, narrowing the gap of income inequality and poverty alleviation.

The growth of any business enterprise depends on different factors including its

entrepreneur’s biographic characteristics. The present paper explores these characteristics

and analyses their effects on the growth of SMEs of Bangladesh. Growth has various

connotations. In the present study the quantitative criteria, growth in equity capital;

production; number of employment; sales; and profit are used in measuring the business

growth.

To assess the impact of SME financing on business growth is the main purpose of the study

and this may help to overcome the constraints of business growth. Based on subject to the

objectives of the study the dependent variable of the study is SME business growth and

independent variables are SME financing and entrepreneur’s demographic variables (Age,

sex, family background, education, marital status and experience).

With a view to collecting data and information from the sampled 40 small and medium

entrepreneurs of Gazipur district and 20 bank officials of SME divisions and the selected

55
branches of DBBL, both the interview schedule and the mailed questionnaire were used

respectively. To analyze the processed data the Statistical Package for Social Science (SPSS)

and MS Word were used.

Findings of the study claimed among others that higher amounts of banking support services

had significant positive effects on SME’s performance measures, growth in equity and profit

in particular. Results also claim that entrepreneurs’ biographic characteristics except marital

status play a significant role in the growth of SMEs’ equity capital, production, employment,

sales, and profit.

The DBBL is, therefore, recommended to assess the enterprises’ financial needs properly and

disburse accordingly to overcome the problem of insufficient working capital in expanding

their business. To reduce the rate of interest the DBBL may compare the market rate of

interest and set the single digit interest rate to hold the entrepreneurs on for a long period.

The bank should take initiatives for liberal finance policy, moveable assets (say receivable)

instead of plant assets as collateral, etc. A good number of entrepreneurs lacked efficient and

reliable employees to start and run their business. To overcome the problem, the main

entrepreneurs may try to make their employees professionally trained, give them different

incentives, be punctual and friendly at their enterprises, and monitor the employee activities

frequently to hold them on for a long period. The present study recommends the

entrepreneurs to take part in training programs on business management, accountancy,

entrepreneurship development, etc. Training for the officials of DBBL is also recommended

to enhance their efficiency and expertise on SME financing.

6.2 Conclusions
56
The growth of SME is affected by different factors including entrepreneurs’ demographic

characteristics, start-up capital, age of the enterprise, type of business, extent and type of

support services, business environment, government policy, etc. It depends not only on the

financial services but also on the proper utilization of the financial services for which the

entrepreneurs should have some qualities as business education, previous experience,

hardworking, and risk-taking ability etc.

Based on the overall findings of the present study, it can be concluded that entrepreneurs’

demographic variables particularly the age, the educational qualification, marital status and

family background played a significant positive role in SME business growth. Depending on

the biographic characteristics revealed in the present study, it is observed that majority of the

sample entrepreneurs are older, male, educated, and married who have business experience

of less than ten years. Most of the entrepreneurs have hailed from business families reflecting

occupational mobility from service or agriculture to business. Entrepreneurs’ biographic

characteristics as age, education, family background and marital status have an overall

significant positive impact on SME growth.

Higher amounts of financial support seem to have a significant positive impact on the growth

of capital, employment, sales, and profit of SMEs that received such support services than

those who have received low amount of financial support.

Shortage of capital, skilled and reliable employees, keen competition, increased price of raw

materials (for manufacturing business) and finished goods (for trading business), too much

collateral, high profit charged by DBBL, etc. as perceived by the sample entrepreneurs,

mainly constrained the smooth running of SMEs in Bangladesh.

57
Entrepreneurs’ disinclination to keep proper records of transactions, maintaining and

producing required documents, using the financial support in the project not specified in the

application form, waiting for the sanction and disbursement of investment, and putting

signature on DBBL’s official documents, was marked as the major obstacle by the bank

officials.

6.3 Recommendations
To overcome the existing problems and for better performance, the following

recommendations may be considered:

 All categories of entrepreneurs had been suffering from shortage of capital in

expanding their business activities. The amount of finance, according to them, given

by the bank was not sufficient to meet their needs. Sometimes the entrepreneurs’

demand for financial support is more than their actual requirements. The DBBL is,

therefore, recommended to assess the enterprises’ financial needs properly and

disburse accordingly.

 A good number of entrepreneurs acclaimed for high rate of interest charged by the

DBBL. To overcome the problem, the bank may: (i) reduce the overhead cost so that

they can reduce interest rate; (ii) compare the market rate of interest and set the single

digit interest rate to hold the entrepreneurs on for a long period.

 Since too much collateral or guarantee etc. discourage the prospective entrepreneurs

to get financial support, the bank should take initiatives for liberal finance policy,

moveable assets (say receivable) instead of plant assets as collateral, etc.

 A good number of entrepreneurs lacked efficient and reliable employees to start and

run their business. To overcome the problem, the main entrepreneurs may try to make

58
 their employees professionally trained, give them different incentives, be punctual

and friendly at their enterprises, and monitor the employee activities frequently to

hold them on for a long period.

 A good number of entrepreneurs acclaimed for high tax burden. To overcome this

problem policy maker may rebate tax on raw materials.

 The entrepreneurs as testified by most of the officials of DBBL, due to lack of

education and business knowledge and skills could not maintain and produce the

proper accounts and other documents in the required formats and failed to utilize the

financial support properly. The present study recommends them to take part in

training programs on business management, accountancy, entrepreneurship

development, etc.

 Before sanctioning finance, the bank requires some documents like National Identity

Card, Trade License, TIN Certificate, VAT Certificate, etc. The entrepreneurs are,

therefore, recommended to preserve and update these documents and to produce the

same at the time of receiving financial supports.

 The entrepreneurs have a tendency to make overdue by fund diversification and to

overcome this problem fortnightly visit at the business site of the entrepreneurs and

monthly stock report may collect from the entrepreneurs.

 Entrepreneurs’ disinclination to putting signature on DBBL’s official documents and

waiting for the sanction and disbursement of finance were marked as the major

obstacle by the bank officials. A training program on financing procedure may

arrange to inform the actual time require for disbursement the loan. Furthermore a

59
 training program may arrange for the officials of the DBBL to enhance their

efficiency and expertise on SME financing.

However, from the study it may be concluded that the SME financing of DBBL has been

establishing an important impact in the form of increasing the income and alleviating

poverty among the beneficiaries living at Gazipur in Bangladesh.

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66
 Appendix 1

Interview Schedule
(For the Entrepreneurs)

Part I: Biographic Characteristics of the Entrepreneurs

1. Age of Entrepreneurs: ___________ Years.

2. Sex of the Entrepreneurs: Male Female

3. Educational Qualification of the Entrepreneurs:

Below SSC Diploma/HSC Bachelor Masters or
SSC above
4. Marital Status of the Married Unmarried
Entrepreneurs:

5. If married then number of children of the Entrepreneur: _________

6. Fathers’ occupations of the Entrepreneurs:
Busine Service Agriculture Others(Specify)_______
ss ___
7. Year of Establishment of the Business:

8. Types Tradin Manufacturi Service

of g ng Renderin
Busines g
s:

9. Year
of
Financin
g of the
Busines
s:
10. Amount of Loan Received from DBBL: ____________ million
11. Previous Business Experience of the Entrepreneurs: ________ Years.
Part II: Growth Performances of Businesses

67
Here are some measures related to growth of business enterprises. Please input the figures (in
respective box) in the year of financing and at the end of December 2014.

Sl.. Growth Measures In the year of Financing At 31 Dec 2014

st

1. Capital (million Tk.)

1. Production (million unit)

1. No. of full time employee (unit)

1. Sales (million Tk.)

1. Profit (million Tk.)

Part III: Problems Faced by Selected Entrepreneurs:

1. Please tell five acute problems you face in SME financing and business growth? Please
rank the problems in respect of majority according to your opinion.

Problems Rank
In Case of SME Financing

No working capital without collateral

High rate of bank interest

Want of huge documents for loan by bank officials

More time required to disburse the loan

In Case of Business Growth

Lack of sufficient working capital

High competition

High Tax burden

Increased price of raw materials (In case of manufacturing concern)

68
Increased price of finished goods (In case of trading concern)

Lack of efficient and reliable employee

Cheating and lack of trust

Technological backwardness

Poor infra-structure

Inadequate business training

Lac of modern machineries

2. What are your suggestions to resolve the problems?

a._________________________________________________________________________
b._________________________________________________________________________
c._________________________________________________________________________

Appendix 2

Questionnaire
(For the Officials)

Part I: Biographic Characteristics of the Bank Officials

Please put tick (√) mark and fill in the gap were applicable.
1. Designation: ___________
2. Educational Qualification: Graduate Post Graduate PhD

3. Working department in SME Division: Sanction Disbursement Recovery

69
 4. Total year of experience on SME financing: ___________ Years.
Part II: Problems Faced by Bank Officials:

1. Please tell five acute problems you face in SME financing? Please rank the problems in
respect of majority according to your opinion. (If you think there is other problems please
insert into the blank row and rank)

Problems Rank
Before Disbursement

Entrepreneur don’t keep proper records of transactions

Not readily available of trade license, national identity card, TIN, VAT certificate,
etc from clients
Shortage of documents of collateral

Entrepreneurs desire very quick service than reasonable time to disburse the loan

Bureaucratic procedure to disburse the loan

After Disbursement

Entrepreneurs don’t know how to make proper utilization of investments

Tendency of entrepreneurs to make overdue by fund diversification

Entrepreneur’s reluctance to sign office documents

Lack of proper training

2. What are your suggestions to resolve the problems?

a._________________________________________________________________________
b._________________________________________________________________________
c._________________________________________________________________________

70