Tough Re-rolling Mill is a producing mill using scrap metal. Tough re-rolling mill supplies rods to the local construction industries. Their product is in high demand due to the current boom in the construction industry.
Last week, a worker lost a leg in melted iron and the company had to pay for his treatment. As there is no electricity during the day, the workers sleep during the day and only work at night. Every month the electricity bills are increasing. Overhead costs are going up. Recently the Bangladesh Government informed the company that they will have to vacate the premises as it was built on a canal. Government now wants to re-excavate the canal.
This re-rolling mill has an existing credit line with SME Bank Ltd (SBL). SBL is an SME-focused Bank. Tough Re-rolling Mill has always been a premier client of SBL. Tough Re-rolling Mill is now approaching the bank for fresh loans.
Discuss and answer the following:
1. Why should SBL finance Tough Re-rolling Mill?
2. What are the SBL needs to consider in order to make sure tough re-rolling mill is not going to be a defaulter?
3. In the long run what sort of environmental and social benefits can Tough Re-rolling Mill ensure for Bangladesh?
Study Result:
Positive Findings:
1. Tough Re-rolling Mill has always been a premier client of SBL.
2. Tough Re-rolling Mill is a productive mill.
3. A growing concern productive re-rolling mill.
4. Tough Re-rolling Mill use modern technology in its re-rolling mill.
5. This mill supplies rods to the local construction industries.
6. Their product is in high demand due to the current boom in the construction industry.
7. IRR is over 20%
Negative Findings:
- Tough Re-rolling Mill built their re-rolling mill on a canal.
- They have no land for built their re-rolling mill.
- They need fresh loans for switch their re-rolling mill in new place.
- There is no security offered by Tough Re-rolling Mill as a guarantee to the SBL.
- There is no collateral security provided for the loan by Tough Re-rolling Mill.
- Tough Re-rolling Mill has an existing credit with SME Bank Limited (SBL).
- Management is not strong.
- There is no electricity during the day.
- Workers sleep during the day and only work at night.
- Every month the electricity bills are increasing.
- Overhead cost are going up in day by day.
Comment:
Requirement:-1
Tough Re-rolling Mill is a growing up productive re-rolling mill. Previous transaction with SBL is good and always been a premier client. Their product is in high demand due to the current boom in the construction industry. Its IRR is good. This mill supplies rods to the local construction industries. 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 SBL should provide loan. If SBL provide loan to Tough Re-rolling Mill 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.
Tough Re-rolling Mill 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 Tough Re-rolling Mill.
Unsecured advance are granted with caution and within certain limits only because in-case of default by the borrower bank will fall in a difficulty to recover the loan amount. For that the credit must negotiate credit amount with Tough Re-rolling Mill at 50% to 60% or below on total demand of Tough Re-rolling Mill’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 Tough Re-rolling Mill. For that some issues SBL needs to consider in order to make sure Tough Re-rolling Mill is not going to be a defaulter. The issues are classified into two categories.
1. Before the loan disbursement.
2. After the loan disbursement.
Before the loan disbursement:
Client: Tough Re-rolling Mill 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: Re-rolling Mill is a road producing mill which use scrap metal as a road materials. The mill supplies rods to the local construction industries. Their product is in high demand due to the current boom in the construction industry. They can also supply their additional or surplus product to the local market. As a result there is huge possibility to earn more profit.
Product Demand: SME Bank Ltd (SBL) need to be ensure that Re-rolling Mill’s product is highly demanded to the market. Because if the product is not demanded in the market Re-rolling Mill will not make profit and fall in a difficulty to pay the loan’s installment.
Security: Re-rolling Mill 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.
Effluent Treatment Plant (ETP): Re-rolling Mill 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 Re-rolling Mill will take necessary stapes to make strong their management body.
Act as contract: SME Bank Ltd. (SBL) knows that the mill is capable to act as contact i.e. timely pay installment because Re-rolling Mill already proved them self as premier client. As a result bank can make sure in the matter of returning loan.
Responsibility: Re-rolling Mill is responsible to the worker. Last week, a worker lost a leg in melted iron and the company had to pay for his treatment. That’s a good sign of responsibility. From that it is understood the mail will be responsible enough to return the loan.
Previous credit: Re-rolling Mill 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.
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 Tough Re-rolling Mill’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 Mill’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 Tough Re-rolling Mill are as defaulter the SBL must send a credit officer to Tough Re-rolling Mill who visit and monitor Mill’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 Tough Re-rolling Mill is not going to be a defaulter.
Requirement:-3
Tough Re-rolling Mill is a rod processing mill. It use scrap metal 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 Tough Re-rolling Mill:
Environment make free from pollution: Scrap metal is a thing which is bad for environment. It makes land infertile. Tough Re-rolling Mill aids to mitigate the pollution by using scrap metal as a row material.
Reduce air pollution: Tough Re-rolling Mill use modern technology which creates a little smoke. Other organization can encourage by it’s and can use modern technology.
Reduce water pollution: By using Effluent Treatment Plant (ETP) Tough Re-rolling Mill can manage its waste which can reduce water pollution.
Social benefits will be obtained by Tough Re-rolling Mill:
New job opportunity: Tough Re-rolling Mill can create new job opportunity for many people.
Supply product according demand: Tough Re-rolling Mill supplies rods to the local construction industries.
Helps bank to run its business: Tough Re-rolling Mill borrows money for its business from the bank. As a result it directly helps bank to run its business.
Provide quality product: Tough Re-rolling Mill produce quality full product. People of Bangladesh can enhance their living standard by using this quality product.
From the above discussion, it can say that Tough Re-rolling Mill 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 Tough Re-rolling Mill 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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