Case Study: 2 (PPP Washing and Dyeing Plant):

PPP is a washing and dyeing plant based in Narayangonj. PPP supplies to a garment’s factory whose has an agreement with GAP and Nike. Recently the Bangladesh Government published a notification that an Effluent Treatment Plant (ETP) for such activity is compulsory. This washing and dyeing plant has an existing credit line with SME Bank Limited(SBL). SBL is a SME-focused Bank. PPP has always been a premier client of SBL. PPP is now approaching the bank for fresh loans.

Discuss and answer the following:

1.    Why should SBL finance PPP Washing and Dyeing?

2.    What are the issues SBL needs to consider in order to make sure PPP Washing and Dyeing is not going to be a defaulter?

3.    In the long run what sort of environmental and social benefits can PPP Washing and Dyeing ensure for Bangladesh?

Study Result:

Positive Findings:

1.     PPP has always been a premier client of SME Bank Limited (SBL).

2.     Previous transaction with SME Bank Limited (SBL) is good.

3.     PPP is a washing and dyeing plant.

4.     PPP is a growing concern productive washing and dyeing plant.

5.     PPP use modern technology in its washing and dyeing plant.

6.     Dyeing product is high demanded in the foreign market.

7.     PPP supplies to a garment’s factory whose has an agreement with GAP and Nike.

8.     The firm has strong management.

9.     IRR is over 20%.

Negative Findings:

1.     There is no security offered by PPP as a guarantee to the SBL.

2.     Has no Effluent Treatment Plant (ETP) for such activity is compulsory.

3.     There is no collateral security provided for the loan by PPP.

4.     PPP has an existing credit with SME Bank Limited (SBL).

Comment:

Requirement:-1

PPP is a growing up productive dyeing plant. Previous transaction with SBL is good and always been a premier client.  Its IRR is good. PPP supplies to a garment’s factory whose has an agreement with GAP and Nike. 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 PPP 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.

PPP does not pay fully its previous loan. If SBL do 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 PPP.

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 PPP at 50% to 60% or below on total demand of PPP’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 PPP a washing and dyeing plant. For that some issues SBL needs to consider in order to make sure Tough PPP Dyeing Plant is not going to be a defaulter. The issues are classified into two categories.

1.     Before loan disbursement.

2.     After loan disbursement.

Before the loan disbursement:

Client: PPP Washing and Dyeing Plant 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: PPP is a  washing and dyeing plant which use cotton and color as their raw materials. The firm supplies cloths 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  PPP’s product is highly demanded to the market. Because if the product is not demanded in the market PPP will not make profit and fall in a difficulty to pay the loan’s installment.

Security: PPP Washing and Dyeing Plant 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 PPP Washing and Dyeing Plant is capable to act as contact i.e. timely pay installment because PPP already proved them self as premier client. As a result bank can make sure in the matter of returning loan.

Previous credit: PPP Washing and Dyeing Plant 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.

Effluent Treatment Plant (ETP): PPP Washing and Dyeing Plant 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 PPP Washing and Dyeing Plant 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 PPP’s owner or responsible representative comes to the bank physically credit officer talk with him/her about the present condition of the plant and loan amount and encourage him/her to pay the loan timely. When plant’s owner or responsible representative does not come to the bank, credit officer remained them about the loan and time of payment by sending mail or formal letter.

b)    Monitoring:

To avoid the PPP Washing and Dyeing are as  defaulter the SBL must send a credit officer to PPP Washing and Dyeing plant who visit and monitor PPP’s activities and remained the authority about 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 PPP Washing and Dyeing Plant is not going to be a defaulter.

Requirement:-3

PPP is a washing and dyeing plant. It uses cloths and chemical color as its row materials. This mill can obtain some environmental and social benefits for Bangladesh. Discussions are given below:

Environmental benefits will be obtained by PPP Washing and Dyeing Plant:

Environment make free from pollution: Chemical is a thing which is bad for environment. It makes land infertile. PPP Washing and Dyeing plant aids to mitigate the pollution by using scrap metal as a row material.

Reduce water pollution: By using Effluent Treatment Plant (ETP) PPP Washing and Dyeing plant can manage their chemical wastes is harmful to the pure water.

Social benefits will be obtained by PPP Washing and Dyeing Plant:

Creat new job opportunity:  PPP Washing and Dyeing plant can create new job opportunity for many people.

Supply product according demand:  PPP Washing and Dyeing plant can supplies cloths to the local garment’s factory whose has an agreement with foreign buyers.

Helps bank to run its business: PPP Washing and Dyeing plant borrows money for its business from the bank. As a result it directly helps bank to run its business.

Provide quality product: PPP Washing and Dyeing plant produce quality full product. People of Bangladesh can enhance their living standard by using this quality product.

Earn foreign revenue: PPP Washing and Dyeing plant can earn foreign revenue indirectly by supplies goods to the local garment’s factory whose has an agreement with foreign buyers.

Help related business: PPP Washing and Dyeing plant helps related business to buying raw materials from them and selling product to them.

Support garment’s sector: PPP Washing and Dyeing plant can support local garment’s to supply their raw materials.

From the above discussion, it can say that PPP Washing and Dyeing plant 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 here.

2.     Present demand of the loan has not given.

3.     SME Bank Ltd.’s (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 PPP 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.