Chicki Chick is a medium sized poultry farm based in Gazipur. They have suffered badly during the last avian influenza outbreak. They have failed to repay their past three loan installments, but the management is confident they can make a come back but they need fresh loans.
Recently the Bangladesh Government is thinking about the need for efficient waste management in poultry farms. The thinking is that no waste should leave the farm without proper treatment. The local people have complained many times to the relevant authority about the small problem Chicki Chick is causing.
Chicki Chick has an existing credit line with SME Bank Ltd. (SBL). SBL is an SME-focused bank. Until recently, Chicki Chick has always been a premier client of SBL. Chicki Chick is now approaching the bank for fresh loans.
Discuss and answer the following:
1. Why should SBL finance Chicki Chick?
2. What are the issues SBL needs to consider in order to make sure Chicki Chick is not going to be a defaulter?
3. In the long run what sort of environmental and social benefit can Chicki Chick ensure for Bangladesh?
Study Result:
Positive Findings:
- Premier client of SME Bank Ltd. (SBL).
- Previous transaction with SBL is good.
- A growing concern productive poultry firm.
- Chicki Chick use modern technology in its poultry firm.
- Poultry is high demanded product in the market.
- The firm has strong management.
- IRR is over 20%.
Negative Findings:
1. Failed to repay their past three loan installments.
2. There is no security offered by Chicki Chick as a guarantee to the SBL.
3. There is no collateral security provided for the loan by Chicki Chick.
4. Has no efficient waste management treatment plant.
5. The local people have complained many times to the relevant authority.
6. Their product is poultry and they have suffered badly during the last avian influenza outbreak.
7. Chicki Chick has an existing credit with SME Bank Ltd.
Comment:
Requirement:-1
Chicki Chick is a promising poultry firm. It is a growing up productive poultry firm. Previous transaction with SBL is good and always been a premier client. Its IRR is good. According to the banking low and practice a bank can provide loan to their trusty client with out any security in high rate of interest. Now in Bangladesh this practice started. So if SBL provide loan to Chicki Chick without security, SBL earn a high rate of interest. Because the bank is more at risk with an unsecured loan, the interest rates tend to be higher than with a secured loan.
Still Chicki Chick does not pay fully its previous loan. If SBL does not provide new fresh loan the firm can not run its organizational activity. If the firm does not run its organizational activity it will be insolvent and not be able to pay previous loan. For recover previous loan SBL should rescheduled the previous loan amount and provide new fresh loan to Chicki Chick.
Unsecured advance are granted with caution and within certain limits only because in case of defaults by the borrower bank will fall in a difficulty to recover the loan amount. For that the credit must negotiate credit amount with Chicki Chick at 50% to 60% or below on total demand of Chicki Chick’s authority to reduce the bank’s credit risk.
Requirement:-2
SME Bank Ltd. (SBL) is an SME-focused bank. From positive and negative findings and judgments SBL interested to provide loan to Chicki Chick poultry firm. For that some issues SBL needs to consider in order to make sure Chicki Chick Poultry Firm is not going to be a defaulter. The issues are classified into two categories.
- Before the loan disbursement
- After the loan disbursement.
Before the loan disbursement:
Client: Chicki Chick poultry firm is a good client and has an existing credit line with SME Bank Ltd (SBL). It has always been a premier client of SBL.
Business: Chicki Chick poultry firm is an egg and poultry producing firm. The firm supplies eggs and poultry to the local market. Their product is in high demand due to the local customers. As a result there is huge possibility to earn more profit.
Product Demand: SME Bank Ltd (SBL) need to be ensure that Chicki Chick’s product is highly demanded to the market. Because if the product is not demanded in the market Chicki Chick will not make profit and fall in a difficulty to pay the loan’s installment.
Security: Chicki Chick poultry firm offered no security as a guarantee to the SBL for their present loan. But in their previous loan they provide necessary security which is existing now.
Act as contract: SME Bank Ltd. (SBL) knows that the Chicki Chick poultry firm is capable to act as contact i.e. timely pay installment because Chicki Chick already proved them self as premier client. As a result bank can make sure in the matter of returning loan.
Previous credit: Chicki Chick poultry firm has a previous credit with SME Bank Ltd (SBL). On the other hand crisis situations are passing by them. But the management body trust if they get fresh loan they overcome this crisis period. As a result they will be able to pay previous and present loan.
Vaccine: Chicki Chick poultry firm’s management must ensure that they must use vaccine for the chicken to prevent next avian influenza.
Effluent Treatment Plant (ETP): Chicki Chick poultry firm must ensure the SBL that they will use Effluent Treatment Plant (ETP) to manage their poultry waste after getting the loan.
Management System: SME Bank Ltd (SBL) need to ensure that Chicki Chick poultry firm will take necessary spate to make strong their management body.
After the loan disbursement:
a) Follow-up:
A bank must aware about the unsecured disbursed loan because in case of default by the borrower the bank will fall in a difficulty to recover the advance. SBL’s credit officer must take necessary steps to follow up the loan from the next day of the disbursement.
b) Supervision:
There are two types of supervision. On side supervision and off side supervision. When Chicki Chick’s owner or responsible representative comes to the bank physically credit officer talk with him/her about the present condition of the mill and loan amount and encourage him/her to pay the loan timely. When firm’s owner or responsible representative does not come to the bank, credit officer remained them about the loan and time of payment sending mail or formal letter.
c) Monitoring:
To avoid the Chicki Chick poultry firm are as defaulter the SBL must send a credit officer to Chicki Chick poultry firm who visit and monitor Chicki Chick’s activities and remained the authority on the time and amount of loan.
From this above discussion it is said that SME Bank Ltd (SBL) needs to consider the above mentioned issues to make sure Chicki Chick poultry firm is not going to be a defaulter.
Requirement:-3
Chicki Chick is poultry firm. It product is poultry. It supplies eggs and poultry to the market. This firm can obtain some environmental and social benefits for Bangladesh. Discussions are given below:
Environmental benefits will be obtained by Chicki Chick:
Environment make free from pollution: Poultry wastes is a thing which is bad for environment. It makes land infertile. Chicki Chick is poultry firm aids to mitigate the pollution by using scrap metal as a row material.
Reduce water pollution: By using Effluent Treatment Plant (ETP) Chicki Chick is poultry firm can manage their poultry wastes which is harmful to the pure water.
Social benefits will be obtained by Chicki Chick:
Create new job opportunity: Chicki Chick poultry firm can create new job opportunity for many people.
Supply product according demand: Chicki Chick poultry firm can supplies eggs and poultry to the local retailer.
Helps bank to run its business: Chicki Chick poultry firm borrows money for its business from the bank. As a result it directly helps bank to run its business.
Provide quality product: Chicki Chick poultry firm produce quality full product. People of Bangladesh can enhance their living standard by using this quality product.
Earn foreign revenue: Chicki Chick poultry firm can earn foreign revenue indirectly by supplies eggs and poultry to the local buyers whose has an agreement with foreign buyers.
Help related business: Chicki Chick poultry firm helps related business to buying poultry foods from them and selling eggs and poultry to another dealer and retailer.
Support restaurant sector: Chicki Chick poultry firm can support local restructure to supply their eggs and poultry.
From the above discussion, it can say that Chicki Chick poultry firm can ensure environmental and social benefits for Bangladesh by taking such kinds of steps.
Limitations:
1. Previous loan amount and due part of the loan have not given.
2. Present demand of the loan has not given.
3. SME Bank Ltd. (SBL) banking credit policy has not given.
4. Rate of interest of SME Bank Ltd. (SBL) has not given.
5. Assuming here there is no security and collateral security offered by Chicki Chick as a guarantee to the SBL.
6. A credit officer can only recommend for sanctioning the loan but he/she has no ability to sanction and disbursement the loan.
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