Functional differences between a bank and non-bank financial institution part 2

Chapter 1

Introduction

The financial system facilitates transfer of funds, through financial institutions, financial markets, financial instruments and services. Financial institutions act as mobilisers and depositories of savings, and as purveyors of credit or finance. They also provide various financial services to the community. They act as intermediaries between savers and investors. All banks and many non-banking institutions also act as intermediaries, and are called as non-banking financial intermediaries (NBFI). Financial institutions are divided into the banking and non-banking ones.

1.1 Background of the study

For a small area with a large population country like Bangladesh, ensuring financial access to fuel growth and entrepreneurship is a critical priority. Banking penetration continues to be low, and even as the coverage is sought to be aggressively increased through different programs, the quality of coverage and ability to access comprehensive financial services for households as well as small businesses is still far from satisfactory.

In this scenario, the Non-Banking Finance Companies (NBFC) sector has scripted a story that is remarkable. It speaks to the truly diverse and entrepreneurial spirit of Bangladesh. From large infrastructure financing to small microfinance, the sector has innovated over time and found ways to address the debt requirements of every segment of the economy. To it’s credit, the industry has also responded positively to regulatory efforts to better understand risks and to address such risks through regulations. Over time, the sector has evolved from being fragmented and informally governed to being well regulated and in many instances, adopted best practices in technology, innovation and risk management as well as governance.

1.2 Objectives of the study

In Bangladesh now different commercial banks and the non-banking financial organizations are operating there business. And every organization now involved attracting the retail customers that means the middle income group people of the country. To draw their attention the sells persons of different organization try to knock every possible door. These activities of different organization increase the interest about this sector. As both commercial banks and the non-financial institutes are in the market, so it makes confusion to the general people about the activities of these organizations. This report helps the customers to makes differentiate between these.

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1.2.1 Broad Objective

Broad objectives of the study is to make it clear what is the functional difference between a bank and a non-bank financial institution.

1.2.2 Specific objective

Specific objective of the study is to know about the functional activities of a bank and non-bank financial institution. By this study we try to find the answer of the question, ‘what functions are played by a bank and a non-bank financial institution?’

1.3 Scope of the study

In Bangladesh there is lot of scope of the study on bank and non-bank financial institution. The banking system is composed of four state-owned commercial banks, five specialized banks, thirty eight private commercial banks, one land development bank and nine foreign commercial banks. There are 30 non-bank financial institutions in our country. So it’s very easy to collect the information on bank and non-bank financial institution.

1.4 Methodology of the study

The study uses both primary data and secondary data. The information of the report was collected from secondary sources like books, published reports and web site of the Bank and financial institution. For general concept development about the bank and financial institution short interviews and discussion session were taken as primary source.

1.4.1 Sample size

Here sample size is two. One is bank and another is financial institution.

1.4.2 Sources of data

All the necessary information to prepare this report is collected from both primary and secondary sources of data.

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1.4.2.1 Primary sources

It includes the fresh or completely new data sources collected for a specified purpose, such as:

Focus group meetings

Direct observation

Informal discussion

Relevant file study as provided by the officers concerned.

Face to face conversation with the customers.

On the job observation of the researcher.

Personal interviews with the employees. Self-developed questionnaire has been used for interview.

1.4.2.2 Secondary sources

Different manual and synopsis.

Various books, articles, compilation etc.

Annual Report of DBBL

Annual Report of REFL

Internal Publications of DBBL

Internal Publications of REFL

Bangladesh Bank web site (https://www.bb.org.bd/)

Dutch Bangla bank website (http://www.dutchbanglabank.com/)

Reliance Finance website (http://www.reflbd.com/)

Articles published on magazines and newspapers

Annual Reports of different banks and non-bank financial institutions

Bangladesh Bank Reports and several websites

Prior Research Reports

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1.4.3 Data analysis

Quantitative and qualitative data were collected and analyzed according to acceptable standards of practice. Different excel, tables and graphs were used to make the data meaningful and comparable. Qualitative data were analyzed rationally and in comparison with current market condition. Necessary percentages and averages were calculated and the analyzed results were described step by step.

1.5 Limitation of the study

The study has suffered from a number of barriers-

Data from the two institution is highly confidential for the outside people and I had no authority to use the core institutional software.

All the employees are very busy with their work, sometimes I had to wait more than one hour for a piece of information.

Time is also a big constraint for my research. I have to submit a broader deal in a shorter form of outcome. If I could get few more time to spend in collecting data for preparing my report

Constrain of resources.

Non availability of up to date data.

Sufficient books, publications, facts & figures were unavailable

1.6 Budget of the study

Printing---300

Travelling-100

Lunch------480

Telephone-50

Total------- 930/-

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1.7 Gantt chart:

Description of the project

Time

WeekOne

WeekTwo

WeekThree

1.Assigning the report

2.Data Collection

3.Data analysis

4.Report Submission

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Chapter 2 Organizational profile

2.1 Bank

2.1.1 History of DBBL

Dutch-Bangla bank limited is a Bangladesh-European joint venture commercial bank incorporated in 1995. With the permission of Bangladesh Bank Limited, commenced formal commercial banking operation from the 3rd June 1996.

The Netherlands Development Finance Company (FMO) of the Netherlands is the international sponsors of the bank. The FMO is the Dutch development bank of the Netherlands specialized in the financing of private enterprises in Asia, Africa, Latin America and Eastern Europe.

Under a technical assistance grant from the FMO, ABN-AMRO bank of the Netherlands provided technical assistance to Dutch-Bangla Bank Limited during the first year of operation of the bank (1996-97.)

Dutch-Bangla bank limited (DBBL), primarily is a public company limited by shares, incorporated in Bangladesh under company act 1994. It is also guided by the bank company act 1991 (and its subsequent amendment) and Bangladesh Bank Ordinance 1972, so as to enable the company for doing banking business. The word DUTCH implies that this is a joint venture company and Dutch involvement is there.

During the formation stage several studies including preparation of per-investment feasibility study, strategic plan, business plan, which inter-alia covers setting goals and objectives, formulating strategic plan, forecasting financial profitability, analyzing SWOT etc. The investors required to be convinced and satisfied with the goals, objectives, profitability and risk involvement before making investment.

The strategies, objectives, goals etc. set for the bank before launching it.

2.1.2 Strategies:

1. Synchronized and steady growth of the bank.

2. Utilize all available resources to develop various plans, policies and procedures in each of the objective and goal areas.

3. Implement plans policies and procedures.

4. Draw upon the connections, advice etc. of the foreign partners.

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5. Utilize a team of professional employees.

6. Search for a total customized solution of I.T. for the purpose of full automation step.

2.1.3 Vision and Mission of DBBL Bank

To provide excellent quality Customer service

To maintain Corporate and business ethics.

To become a trusted repository of customers' money and their financial advisor.

To make our stock superior and rewarding to the customers/shareholders.

To display team spirit and professionalism.

To have a Sound Capital Base.

This bank is one of the most disciplined Banks with a distinctive corporate culture. Here we believe in shared meaning, shared understanding and shared sense making. Our people can see and understand events, activities, objects and situation in a distinctive way. They mould their manners and etiquette, character individually to suit the purpose of the Bank and the needs of the customers who are of paramount importance to us. The people in the Bank see themselves as a tight knit team/family that believes in working together for growth. The corporate culture we belong has not been imposed; it has rather been achieved through our corporate conduct.

2.1.4 Business Objectives

1. Build up a low cost fund base.

2. Make sound loans and investments.

3. Meet capital adequacy requirement at all the time.

4. Ensure 100% recovery of all advances.

5. Ensure a satisfied work force.

6. Focus on fee-based income.

7. Adopt an appropriate management technology.

8. Install a scientific MIS to monitor bank’s activities.

All these were set during formation stage mainly for planning purpose. As you know planning is a continuous process. All these need to be updated and reset commensuration the need of the time.

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2.1.5 Branches

Dutch –Bangla bank limited have 146 branches around the country.

2.1.6 Social Partnership

With the focus of providing one counter service to clients, Dutch Bangla Bank Limited (DBBL) has its journey. Dutch-Bangla Bank is a second generation commercial private Bank. Dutch Bangla Bank supports social work extensively and is one of the largest private donors in Bangladesh.

Under the vision of M Sahabuddin Ahmed, the bank contributes extensively through its foundation Dutch Bangla Bank Foundation. This has been one of the biggest priority for the bank since its inception. As a result the organization has been granted numerous national and international awards for its role in the development of Bangladesh. The Dutch-Bangla Bank Foundation was established under the vision of its founder chairman, M Sahabuddin Ahmed, in order to help the people of Bangladesh. However, the continuous improvement of the services will certainly place the bank in the best position in one decade.

In continuation of social cause program, Dutch-Bangla Bank awarded scholarship to 4,100 students as the 10th phase who passed H.S.C/ equivalent examination in 2014. Including this 10th phase 20,495 students are receiving DBBL scholarship at a ceremony held at Shaheed Shohrawardi Indoor Stadium,

Mirpur, Dhaka on May 16, 2015

Dutch-Bangla Bank donates Tk. 100.0 million to Faridpur Diabetic Association to meet up the cost of construction of 5 floors (11th to 15th floor) of the Diabetic Association Medical College & Hospital Building at Jhiltuly, Faridpur. In this regard an MOU (Memorandum of Understanding) was signed between Faridpur Diabetic Association and Dutch-Bangla Bank on 6th May, 2015 at Bank’s Head Office.

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The Closing and Prize Distribution ceremony of 5th Dutch-Bangla Bank Golf Tournament-2015 was held on February 28, 2015 at Shaheen Golf and Country Club Patenga, Chittagong. The program was organized by Shaheen Golf and Country Club, Patenga, Chittagong and sponsored by Dutch-Bangla Bank.

Dutch-Bangla Bank donated 10,000 blankets to earthquake victims of Nepal which caused death

of thousands of people besides colossal damage to infrastructure. Mr. K.S. Tabrez, Managing Director of Dutch-Bangla Bank handed over a sample of the blankets to His Excellency Hari Kumar Shrestha, the ambassador of Nepal in Bangladesh at a function held at a hotel in Gulshan, Dhaka on 1st June, 2015. Dr. Atiur Rahman, Governor of Bangladesh Bank was present at the function organized by Green Banking & CSR Department of Bangladesh Bank.

2.1.7 Prospects

You have already been informed that Dutch-Bangla bank limited is maintaining an upward trend and increase of Deposit, loans and advances, import & export business and other banking business activities. Following are brief features of new products for the customers.

a. Commission free remittance: Dutch Bangla bank limited has abolished commission on pay orders, demand drafts & telegraphic transfers, which obviously maximizes customer benefit by saving cost.

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b. Small Scale Credit Facility for Shop Owners: For small shop owners loan facility without security for want of which they could not get banking support and compelled to avail the informal source with unusually high rate of interest. Dutch-Bangla bank limited brought them under the umbrella of banking service.

c. Small Scale Taxi and Transport Scheme: To have a hassle and pollution free, environment friendly city ride and to ease the traffic congestion and modernize the transport system, Dutch-Bangla bank limited has introduced comfort taxi cab, duranta and rider schemes. Duranta and rider are urban minibus service.

d. Monthly Term Deposit: Depositing minimum of Tk. 50000.00 will allow an attractive monthly earning and instant loan facility against the deposit.

e. Consumer Credit Scheme: You will be happy to know that DBBL has already introduce Consumer Credit Company of USA has executed a contract with one of our local clients for marketing their product through Dutch-Bangla bank limited under this scheme. We are actively thinking to open the items as well as selling house for the clients.

f. Student Transport Scheme: DBBL is one of the pioneers in commercial vehicle financing such as DURANTA, DIGANTA, RIDER, COMFORT TAXICAB etc. These schemes reflect the bank’s policy to respond with the Government’s effort to make pollution and traffic jam free Dhaka City. In line with the above success the bank has undertaken a new scheme entitled a ‘Student Transport Scheme’ with an objective of financing transports at a lower cost for the educational institutions. The financing scheme will provide loans to educational institution covering government and private schools, colleges and universities for transport of the student.

g. Rescue Transport Scheme: As a part social commitment and with a view to take the medical facility to the doors of the common people, DBBL has introduced transport scheme for hospital and clinic entitle as ‘Rescue Transport Scheme’ and offered vehicles for First Aid Station, Mobile Clinic and Ambulance at a lower cost.

h. Interest on Current Account: DBBL started paying interest on deposits on current account. This is also a unique product of the bank.

Apart from the above the bank is always keen in developing the banking section, in general and the DBBL, in particular with the help of its trained and efficient work force.

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2.2 Non-Bank Finance org.

2.2.1 History of REFL

Corporate History and Milestones

Reliance Finance Limited (REFL), began its journey in March 1996 as a Public Limited Company under license from Bangladesh Bank to provide innovative financial services. Since inception, REFL Company has been rendering prompt and cost effective financial services with distinctive customer service. The Company has diversified its business and the growth has been steady and satisfactory.

Key Milestone

4th March 1996 : Incorporation of the Company

11th April 1996 : Certificate of Commencement of Business

15th May 1996 : License from Bangladesh Bank as Non-Bank Financial Institute under the Financial Institutions Act, 1993

8th September 1996 : Approval of Bangladesh Bank to open a Branch at Globe Chamber, 5thfloor, 104, Motijheel C/A, Dhaka

01st August 2001 : Change of the name of the company from Bahrain Bangladesh Finance & Investment Company Limited to Oman Bangladesh Leasing & Finance Ltd.

18th January 2007 : Relocation of Company's Registered and Corporate Head Office at 11/A, Toyenbee Circular Road, Motijheel, Dhaka.

12th January 2010 : Change of the name of the company from Oman Bangladesh Leasing & Finance Ltd. to Reliance Finance Limited.

2.2.2 Strategies:

Strategic direction based on broad priorities and developed to build momentum

Cherish a sense of ownership

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Be customer centric

Grow as a team

Act with integrity & professionalism

Deal with respect

2.2.3 Vision and Mission of REFL

Vision

To lead the industry while generating value to the stakeholders, be the pioneer in setting ethical standard and be everyone's investor.

Mission

To lead the industry by providing innovative financial products and services

To value to the shareholders with total satisfaction

To establish "customer-first" business strategy

To be a social responsible investor by making investment only in desirable industry

Provide employees with motivating work environment, opportunities for learning and career development, competitive compensations and equal opportunities.

2.2.4 Business Objectives

Create synergetic effect by creating high quality and diversified portfolio

Provide diversified financial services with focused people

Appreciate uniqueness of each customer's requirements and serve the customers with product flexibility

Diversification of sources of fund

Enhance corporate value through sustained growth.

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2.2.5 Branches

Reliance Finance have 5 branches

Head Offices

Sara Tower (5th Floor), 11/A, Toyenbee Circular Road, Motijheel, Dhaka-1000. Phone : 88-02-9563371, 9570509, 7124773, 7118411, Fax : 88-02-9563370,

E-mail : [email protected], [email protected]

Website : www.reflbd.com

Agrabad Branch (Chittagong)

Ajmal Arcade (2nd Floor), 1806, Sk. Mujib Road, Pathantooly, Chittagong. Phone : +88-031-714451-52, Fax : 88-031-710452,

E-mail : [email protected], [email protected]

Dhanmondi Branch

Green Akshay Plaza (4'th Floor), Satmashjid Road, Jigatola Bus-stand (Near Rifles Square), Dhanmondi, Dhaka 1205,

Phone : +88-02-9661875, 9661789, Fax: +88-02-9661843

E-mail : [email protected]

GEC Branch (Chittagong)

Equity Centrium (Mezzanine Floor), O.R. Nizam Road, Near GEC Circle, Chittagong

Phone : +88-031-2558263, Fax: +88-031-2558264


Uttara Branch

Tropical Rafa Tower (1st Floor), House #02, Road #12, Sector #06,

Uttara, Dhaka

Phone : +88-02-7911403, +88-02-7911027


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2.2.6 Corporate Social Responsibility

Corporate Social Responsibility has always been an integral part of REFL culture and the cornerstone of our core values of good corporate citizenship. We believe our business financing is to not only tie with the business progress but also with the development of the overall economic growth that drives the development of the national at large. We believe our success lies in the stewardship in ‘Triple Bottom Line’ for sustainability. This believes is reflected on our Mission and our day to day business operation. In this document on Corporate Social Responsibility Report - we are proud to share how actions support our mission to encompass economic, social and ecological value to our stakeholders.

2.2.7 Prospects:

In quest of sustainable business, Reliance Finance Limited is positioning itself to provide enduring value to our people, customers, shareholders, and the community. Our strategic priorities remain to diversify portfolio with key focus on core product portfolio, manage balance sheet prudently, simplify processes to reduce cost, create a sustainable brand, nurture our human resources to deliver the best and uphold the livelihood of our community. We believe that clustering strategic priorities in this manner will enable flawless execution of the medium term strategic plan. Going forward, Retail and SME financial services would be our prime focus in the leading portfolio. Recognizing SME segment’s value addition and employment generation capabilities, we are keen to finance various initiatives especially start-up enterprises as well as ones looking to scale up. We are planning to expand our business horizon in major cities/ township of the country. While we engage in doing business, we will be maintaining strict compliance and good governance in norms and regulations to ensure long term sustainability of the company. We will be engaging more on social ventures and community development. Putting priority in ecological balance of the environment, we plan to grow together with our stakeholders.

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Chapter 3 Literature Review

3.1 About banking sector

A commercial bank is- A type of financial institution & intermediary provides transactional Savings Money market accounts and that accepts time deposits

List of Top Commercial banks in Bangladesh

United Commercial Bank Limited

Mutual Trust Bank Limited

BRAC Bank Limited

Eastern Bank Limited

Dutch Bangla Bank Limited

Dhaka Bank Limited

Islamic Bank Bangladesh Ltd

Uttara Bank Limited

Pubali Bank Limited

IFIC Bank Limited

National Bank Limited

The City Bank Limited

NCC Bank Limited

Prime Bank Limited

Southeast Bank Limited

Al-Arafah Islami Bank Limited

Social Islami Bank Limited

Standard Bank Limited

One Bank Limited

Exim Bank Limited

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Bangladesh Commerce Bank Limited

First Security Islami Bank Limited

The Premier Bank Limited

Bank Asia Limited

Trust Bank Limited

Shahjalal Islami Bank Limited

Jamuna Bank Limited

ICB Islami Bank

AB Bank

Marcantile Bank Limited

Citi bank

HSBC

Standard Chartered Bank

Commercial Bank of Ceylon

State Bank of India

Habib Bank Limited

National Bank of Pakistan

Woori Bank

Bank Al falah

ICICI Bank

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3.2 About Non-banking sector

Initially, NBFIs were incorporated in Bangladesh under the Companies Act, 1913 and were regulated by the provision relating to Non-Banking Institutions as contained in Chapter V of the Bangladesh Bank Order, 1972. But this regulatory framework was not adequate and NBFIs had the scope of carrying out their business in the line of banking. Later, Bangladesh Bank promulgated an order titled ‘Non-Banking Financial Institutions Order, 1989’ to promote better regulation and also to remove the ambiguity relating to the permissible areas of operation of NBFIs. But the order did not cover the whole range of NBFI activities. It also did not mention anything about the statutory liquidity requirement to be maintained with the central bank. To remove the regulatory deficiency and also to define a wide range of activities to be covered by NBFIs, a new act titled ‘Financial Institution Act, 1993’ was enacted in 1993 (Barai et al. 1999). Industrial Promotion and Development Company (IPDC) was the first private sector NBFI in Bangladesh, which started its operation in 1981. Since then the number has been increasing and in December 2006 it reached 29. Of these, one is government owned, 15 are local (private) and the other 13 are established under joint venture with foreign participation.

The major business of most NBFIs in Bangladesh is leasing, though some are also diversifying into other lines of business like term lending, housing finance, merchant banking, equity financing, venture capital financing etc. Lease financing, term lending and housing finance constituted 94 percent of the total financing activities of all NBFIs up to June 2006. A break-up of their financing activities reveals that the share of leasing and housing finance in the total investment portfolio of NBFIs has gradually decreased from 59 and 15 percent, respectively, in 2002 to 46 and 14 percent in June 2006. The share of term loans, on the other hand, has increased from 20 percent to 34 percent during the same period implying increased focus on the former. The evolvement of NBFI business activity is observed in Figure 1. It can also be

Seen from the figure that the portfolio mix of NBFIs has become quite stable from 2004.

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NBFIs offer services to various sectors such as textile, chemicals, services, pharmaceuticals, transport, food and beverage, leather products, construction and engineering etc. The percentage of the sector-wise distribution of NBFIs investment in 2005 is given in Figure 2. Although an individual NBFI may have a different portfolio as per its business strategy, the aggregated data shows that NBFIs mainly focus on real estate & housing (13%), power & energy (12%), textile (11%) and transport sector (9%). Service (finance and business) is another area of importance for NBFIs. From the perspective of broad economic sectors, investment in the

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industrial sector (42%) dominated that in the service sector (33%) in 2005. NBFIs are also exploring other sectors namely ‘pharmaceuticals & chemicals’, ‘iron, steel & engineering’, ‘garments & accessories’, ‘food & beverage’ and ‘agro industries & equipment’. The weight of these sectors is 23 percent of the total portfolio

Products and Services Offered by NBFIs

Non-Bank Financial Institutions play a key role in fulfilling the gap of financial services that are not generally provided by the banking sector. The competition among NBFIs is increasing over the years, which is forcing them to diversify to a wider range of products and services and to provide innovative investment solutions. NBFIs appear to offer flexible options and highly competitive products to help customers meet their operational and financial goals. The table below provides a summary of the product range offered by existing NBFIs of Bangladesh.

Different Products and Services of NBFIs

Type of Activity Key Features Target

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Market Lease Financing

• Finance/Capital Lease

Operational Lease

Hire Purchase

Leveraged Leases

Provide a long-term solution that allows customers to free up working capital

An operational lease entails the client renting an asset over a time period that is substantially less than the asset’s economic life. It offers short-term flexibility, which may allow the customer to take advantage of off-balance sheet accounting treatment.

A hire purchase is an alternative to a lending transaction for the equipment purchase. It is usually employed for retail or individual financing of smaller items, such as consumer products. However, hire purchase option is also suitable for business houses depending on tax practices.

Leases generally for large transactions involving three parties: a lessee, a lessor and a funding source. These leases infuse third-party non-recourse debt underwritten by the customer’s ability to raise capital in the public and private capital markets for a significant portion of the cost.

Corporate, SMEs , Individual business enterprises.

Corporate, SMEs, individual business enterprises.

Clients that have an established credit history with the institution can manage the down payment and assume a stake in the leasing agreement.

Securities ServicesBrokerage Services CDBL Services as full service Depository Participant (DP) Mostly corporate houses

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Type of Activity Key Features Target Market

Synthetic Leases

Sale/Leasebacks

Synthetic lease structure is generally provided for property that retains value over an extended period of time such as aircraft, railroad rolling stock, manufacturing equipment and certain types of real estate.

Ideal for customers looking to generate liquidity from their existing equipment and reinvest the proceeds back into the business.

Mostly corporate houses

Corporate, SMEs , individual business enterprises

Home Loan and Real Estate Financing

House loan and real estate financing is extended for purchase of apartment and house, construction of residential house, purchase of chamber and office space for professionals, purchase of office space and display center, purchase and construction of commercial building, real estate developer for construction of apartment project. Mostly mid to long term in nature.

Individuals, Professionals, & Corporate Bodies

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Short Term Loans

Factoring of Accounts Receivables

Work Order Financing

Financing against invoices raised by the supplier after making the delivery successfully. Major Features are Revolving Short Term Facility, Permanent Assignment of Payment, Financing against invoices, Post-delivery Financing

Finance against the assignment of bill arising out of work orders on a revolving basis. The company shall take assignment of suitable work orders and / or invoices and finance the client against those.

Small and medium size companies having regular supplies to corporate bodies

Medium and large clients with continuous flow of work orders from customers

Corporate Finance

Bridge Finance

Syndication of Large Loans

Bridge Finance is a kind of Short Term Finance extended in anticipation of immediate long term financing such as public issue, private placement, loan syndication, lease syndication, loan, lease & debenture.

Making available a large financing for a corporate client. Arrange syndicated financing in the mode of loan, lease, equity, working capital, or any combination thereof. Particularly useful for large projects requiring large scale investment and no single financier wants to take the whole risk. Example: Greenfield project.

Company going for an IPO or expecting to avail a long term loan or Working Capital within one year or so..

Financing new large project; Financing BMRE (Balancing, Modernization, Replacement and Expansion); Refinancing a large project.

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Advisory Services

Merger and Acquisition

Securitization

Advisory services are comprehensive financial, economic and strategic advice to companies for growth, profitability, and sustainability. This includes providing wide range of services, such as corporate counseling, project counseling, capital restructuring, financial engineering, diagnosing financial problems.

Help find appropriate organization for best possible synergy, conduct valuation of companies and select suitable merger and acquisition methods, negotiate and execute deal beneficial for all the parties involved.

Securitization is the issuance of financial instruments backed by assets and/or cash flows. This is one of the modern financial services, which solves specific type of financial needs of business organizations.

All large corporate houses

Medium and large corporate bodies

All corporate bodies

Type of Activity Key Features Target Market

Merchant Banking

Issue Management

Underwriting

The Issue Management group is capable of devising innovative solution for raising capital – debt e.g. placement of bonds and debentures, and raising equity through private and public placement – from the market suiting the unique needs and constraints of the corporate clients.



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Portfolio Management

Corporate Advising

Underwriting refers to the guarantee by the underwriters that in the event of under-subscription, the underwriter will take up the under-subscribed amount on pro-rata basis upon payment of price of that option

Merchant banks allow small investors to open investor account with merchant banks and provide support for the purchase and sales of shares . Clients shall have absolute discretionary power to make investment decisions.

Through corporate advising, the merchant bank helps the issuer analyze its financing needs and suggest various ways to raise needed funds.



Securities Services

Brokerage Services

CDBL Services as full service Depository Participant (DP)

Provide services for Trade Execution (Dhaka and Chittagong Stock Exchanges), Pre -IPO private placement, Asset allocation advice, Opportunities for trading in different financial instruments.

Apart from the brokerage services, securities services also provide the services like BO (Beneficial Owner) accounts opening and maintenance,



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Dematerialization, Re-materialization, Transfers and multiple accounts movement, Lending and borrowing etc.

Chapter – 4

4.1 About function of Dutch Bangla Bank

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DBBL is offering Products and Services in three main forms:

Deposit

Term Deposit

Loan and Advances

1. DEPOSIT

Under Deposit the following products are available:

Savings Deposit Account

Current Deposit Account

Short Term Deposit Account

Resident Foreign Currency Deposit

Foreign Currency Deposit xi

Convertible Taka Account

Non-Convertible Taka Account

Exporter's FC Deposit (FBPAR)

Current Deposit Account-Bank

Short Term Deposit Account-Bank

2. TERM DEPOSIT

Under Term Deposit the following products are offered:

Monthly Term Deposit

Term Deposit 3 Months




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Term Deposit 24 Months 1 Year Payout


Term Deposit 36 Months 6 Months Payout

Term Deposit 36 Months 1 Year Payout

Term Deposit above 36 Months

Monthly Term Deposit Banks

Term Deposit 3 Months Banks



1 Month TD NFCD

Months TD NFCD

6 Months TD NFCD

3. LOAN AND ADVANCE

The followings are known as Loan and Advances products:

Loan against Trust Receipt

Transport Loan

Consumer Credit Scheme

Real Estate Loan (Res. & Comm.)

Loan against Accepted Bill

Industrial Term Loan

Agricultural Term Loan

Lease Finance

Other Term Loan

FMO Local Currency Loan for SME

FMO Foreign Currency Loan

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Cash Credit (Hypothecation)

Small Shop Financing Scheme

Overdraft

Automation

DBBL'S IT INFRASTRUCTURE: PRESENT AND FUTURE

Since the start of its operation, under the vision of Mr. M. Sahabuddin Ahmed -the founder chairman of the Bank, Dutch-Bangla Bank has been continuously striving towards bringing world-class technology driven banking services, and conveniences to its customers. As a result, DBBL is the first and only Bank in Bangladesh to invest more than Taka 2 billion in developing the largest ICT infrastructure in the banking sector of the Country.

OVERVIEW

DBBL owns and operates the largest ATM network of the Country comprising of 2705 ATMs as of August 2015. The Bank is also the leader in POS terminal and internet banking services. As a technology driven Bank, DBBL has implemented world reputed online banking software at all its 79 branches and 10 SME centers. DBBL also provides the following ancillary services:

Any Branch banking;

Online ATM/POS service;

Internet banking service; and

SMS and Alert banking service.

The Bank also implemented Online Synchronous Disaster Recovery Site (DRS) to provide uninterrupted and reliable banking convenience to the valued customers. DBBL's Synchronous DRS is the first of its kind in Bangladesh. This makes DBBL the only Bank in the Country that can

best responds to natural disaster recovery.

MOBILE BANKING

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Dutch Bangla Bank pioneered Mobile Banking in Bangladesh. It was the first bank to offer banking facilities through a wide range of mobile phones. Mobile Banking is a Banking process without bank branch which provides financial services to unbanked communities efficiently and at affordable cost. To provide banking and financial services, such as cash-in, cash out, merchant payment, utility payment, salary disbursement, foreign remittance, government allowance disbursement, ATM money withdrawal through mobile technology devices, i.e. Mobile Phone, is called Mobile Banking.

BANGLADESH AUTOMATED CLEARING HOUSE (BACH)

Bangladesh Bank is going to introduce first paperless Automated Clearing House in the Country which is called as Bangladesh Automated Cheque Processing System (BACPS) and Bangladesh Electronic Fund Transfer Network (BEFTN). Both the systems will be implemented under Bangladesh Automated Clearing House (BACH) project. These projects are being implemented under several reform measures taken by Bangladesh Bank to improve the safety and efficiency in the payment system. DBBL has always been a leader in complying to the requirements of the projects, like, Cheque personalization, Magnetic Ink Character Recognition (MICR) encoded Cheque book issue, System Integration Test (SIT) with Bangladesh Bank's live & DR sites. DBBL was the first Bank to conduct a successful live test with Bangladesh Bank. The project is progressing smoothly and expected start full-fledged operation soon.

NEXT-GENERATION CARDS

All the distribution channels are EMV-compliant. The EMV security policy has been introduced by Europay, MasterCard and VISA jointly to protect capturing card data and duplication of a card. DBBL is the first Bank in Bangladesh to ensure such security for our valued customers. DBBL has also introduced EMV compliant chip based Credit Cards for the first time in Bangladesh -which is the most secure card in the world. The ATM / POS

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network of the DBBL accepts the following cards: EMV compliant chip cards of all the banks in the world; Non-EMV Visa & MasterCard cards of all the banks in the world; DBBL's proprietary cards (Nexus); and Proprietary cards of all the partner banks in Bangladesh.

ATM

DBBL has put its level of innovation and standard of customer support to a new height by setting another milestone in the history of banking sector by adding two units of Mobile ATM booths to its existing ATM network. DBBL has become the first Bank in the Country to provide such unique service and convenience to the customers. The DBBL Mobile ATM Booth, which is outfitted in a custom-made van provides free anywhere anytime banking services in short notice. DBBL has allowed other banks to join its ATM/POS network. Partner banks are charged a subsidized Tk.10 by DBBL (but partner banks may levy

additional charges for end-consumer). Customers of the following partner banks in Bangladesh are enjoying access to the DBBL ATM/POS network:

-Mutual Trust Bank Limited

- Commercial Bank of Ceylon

- Standard Chartered Bank

- Bank Asia Limited

- National Credit & Commerce Bank Limited

- United Commercial Bank Limited

- South East Bank Limited

- The Prime Bank Limited

- The City Bank Limited

- First Security Bank Limited

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- Mercantile Bank Limited

- Trust Bank Limited

- Jamuna Bank Limited

- Shahjalal Islami Bank Limited

- Janata Bank Limited

- Sonali Bank Limited

- National Bank Limited

GREEN IT

Dutch-Bangla Bank has always been careful about environment. DBBL has taken initiatives to make its IT infrastructure a "Green IT". Environment friendly options like virtualization, power management and proper recycling habits towards certifying our data centers as "Green" are under process.

CALL CENTER

Considering the growing number of customers, card holders & transactions, DBBL has taken steps to setup a Call Center. It will be a world renowned Cisco hardware-based call center comprising of all the services a call center can provide, e.g, Interactive Voice Response (IVR) by virtue of which the customer will be able to choose his options using the keypads of a touch or cell phone and listen to the responses related to his account or card or transactions from the system. The hardware has already been setup. At present, the integration with the existing systems are in progress.

UP GRADATION OF CORE BANKING SYSTEMS & ATM SWITCHING SYSTEMS

The number of branches of DBBL is growing steadily every year. The customer base is growing every day. To cope with the huge volume of transaction and provide the customers the best services using latest technology the Bank has decided to upgrade its core banking system and other related software & hardware. The Board of Directors has already approved required budget and international tender has already been floated. The evaluation of the submitted proposals are under process.

DBBL'S FUTURE IT PROJECTS

ATM EXPANSION

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Dutch-Bangla Bank has planned to install another thousands more ATMs by the end of 2015 mainly to cover rural areas.

REORGANIZATION AND REDESIGN OF DELIVERY CHANNELS

Dutch-Bangla Bank is redesigning the delivery channels to make the entire system more efficient and faster for the end consumers. After the redesign, clients will experience faster and more personalized service.

E-PAYMENT GATEWAY

A payment gateway is an essential part of an Online Payment System. It is necessary in order to process all of the following inter-bank on-line transactions:

1. Account-to-account transfer transactions or debit / credit card transactions on the web for

On-line merchant payment against purchase of goods and services;

2. Inter-bank ATM/POS transactions using debit / credit cards; and

3. Inter-bank Internet or SMS banking transactions for fund transfer (instant remittance) and utility bill payment. Since there is no such system in Bangladesh, Dutch-Bangla Bank is actively considering to implement a payment gateway to facilitate the above e-commerce transactions. This will be the first payment gateway setup in the Country to drive e-commerce transactions.

IMPLEMENTATION OF MULTI-FACTOR AUTHENTICATION FOR INTERNET BANKING

Internet banking has never taken off in Bangladesh due to an absence of identity verification. DBBL's EMV compliant system allows accurate identity verification to allow full-fledged internet banking services. DBBL will shortly implement this solution. DBBL's IT infrastructure is working like the arteries of a human body. The effective, robust and reliable IT infrastructure is ensuring the strong health for the Bank. DBBL is working round the clock without any downtime, offering its customers the enjoyment of banking services. Banking has never been so easy, comfortable, enjoyable, and yet secure. DBBL is relentlessly striving every moment to facilitate its customers with the most advanced and secure technological environment. DBBL is undertaking new projects in the field of automation to help meet customers’ needs.

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4.2 About function of Reliance Finance

LEASE FINANCE

The leasing provides financial flexibility to enterprises for procurement of capital assets without blocking their own funds. Lease Financing is the principal fund based activity of Reliance Finance Limited (REFL). Until now the company concentrated only on full payout financial lease transaction for financing a wide range of capital machinery, equipment and vehicles. We offer leasing as a modern financial instrument for managing corporate investments in movable equipment. Our customers represent different segments of local markets. We provide services

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to developing companies, stable middle-class enterprises and market-leading concerns. Now, REFL provides the following two types lease facilities:

Asset Backed Lease Financing

Asset backed financing against industrial machineries, commercial equipments, office equipments, generators, vehicles, vessels, engines, etc.

Sale & Lease Back

Financing against any of the existing (already procured/in-use) industrial machineries, commercial equipments, office equipments, generators, vehicles, vessels, engines, etc.

WHOM DO WE FINANCE?

REFL offers mid and longer term financial solutions to a wide range of clienteles who are in their journey to emerge as promising corporate houses in near future. Our portfolio comprises of various private limited companies, partnership and proprietorship concerns with promising business opportunities. We offer different financial products to the potential clients considering the sponsors' credential, management strength, sales growth, technical soundness, cost efficiency, future prospect and last but not the least their transaction behavior with other lenders and associates, if any.

TERMS AND CONDITIONS

The General Terms and Conditions are as follows:

Tenure

Generally 3-5 years

Maximum loan limit

Maximum limit depends on

Requirement and equity participation

Merit of the proposal

Mode of repayment

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Equal monthly / quarterly Installment

Structured repayment as per requirement to match the cash flow.

Security

Collateral is to secure the finance is not mandatory in REFL. Rather the type and mode of security depends on (i) the nature, experience and performance of the business (ii) past track record of the sponsor(s) and (iii) the amount of financial facility to be enjoyed.

ADVANTAGES

Financial flexibility

Rather than having your capital tied in one purchase, leasing allows you to utilize that capital elsewhere to general higher profits; it also reduces your cash outflow.

Off balance sheet financing

Since Prime Finance owns the equipment the leased equipment does not appear on your balance sheet, your financial ratios improve.

No need to raise new capital

Raising new equity or debt for capital expenditure has many constraints which can be avoided when you opt for leasing.

Avoid budgetary constraints

When your budget does not allow you to buy equipment, leasing can make the acquisition possible. Since rental payments are decided in advance, budgeting becomes easier.

Tax benefits

Lease rentals are treated as revenue expenditure and are entirely deductible for tax purposes. This provides a greater tax benefit for you in comparison to borrowing.

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In addition, Lease finance of REFL also provides-

Simple and quick processing

Competitive rate of interest

Continuous support

No Charges or Fees before approval

No hidden cost

Prompt service

TERM LOAN

The term loan facility will support the long-term growth of businesses. This type of loan is primarily used for fixed asset financing, such as the acquisition of capital machinery, equipment and vehicles. Reliance Finance Limited (REFL) provides both short term and long term loans for

capital expenditure. The longer maturity loans can reduce the size of installment payments and help improve the cash flow of the enterprises. Fully amortized equal payment or decreasing payment schedule can also be arranged to ease repayment of debt obligations. REFL also provides loan facilities to meet working capital requirements.

WHOM DO WE FINANCE?

REFL offers mid and longer term financial solutions to a wide range of clienteles who are in their journey to emerge as promising corporate houses in near future. Our portfolio comprises of various private limited companies, partnership and proprietorship concerns with promising business opportunities. We offer different financial products to the potential clients considering the sponsors' credential, management strength, sales growth, technical soundness, cost efficiency, future prospect and last but not the least their transaction behavior with other lenders and associates, if any.

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Tenure

3-5 years for term finance

1-2 years for Short Term Finance

Maximum loan limit




Mode of repayment



Security


ADVANTAGES



Continuous support


No hidden cost

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Prompt service

SME LOAN

Small Business is a loan facility designed to finance small scale trading, manufacturing and service ventures, especially to help small and medium entrepreneurs to meet their short-term cash flow shortages and bridge the fund-flow gaps. Reliance Finance Limited (REFL) promotes small and medium entrepreneurs through its SME Finance Scheme. The aim is to provide quality service to the entrepreneurs with potential and innovative ideas.

WHOM DO WE FINANCE?

Small and Medium Enterprises involved in business with a proven track record are primarily eligible for the scheme. We offer different financial products to the potential clients considering the sponsors' credential, management strength, sales growth, technical soundness, cost efficiency, future prospect and last but not the least their transaction behavior with other lenders and associates, if any.



TENURE

3-5 years for lease and term finance


MAXIMUM LOAN LIMIT



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MODE OF PAYMENT



INSURANCE COVERAGE

Leased assets are to be duly insured covering all possible risk and premiums are to be paid by the lessee.

SECURITY

Collateral is to secure the finance is not mandatory in REFL. Rather the type and mode of security depends on (i) the nature, experience and performance of the

business (ii) past track record of the sponsor(s) and (iii) the amount of financial facility to be enjoyed.

ADVANTAGES



Continuous support


No hidden cost

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Prompt service

LOAN OF WOMEN ENTREPRENEUR

Women Entrepreneur Loan is a loan facility for small and medium sized business, which are operated by women entrepreneurs. The product offers terminating loan facilities for the purpose of working capital finance and/or fixed assets purchase.

Eligibility

* Entrepreneurs with minimum 2 years’ experience in the same line of business * Business must be a going concern with at least 2 years in operation

Loan Limit: * From BDT 3 lac to BDT 50 lac

Interest Rate * @ 10% Lowest interest rate in the market

Key Features * Loan without any collateral up to BDT 15 lac. * Loan for Working Capital Finance and/or Lease finance for business * Borrower having loan with other financial institute can also avail Loan * Convenient repayment options of Equated Monthly Installment and Customized Repayment Schedule * Quick, quality door step customer service

CORPORATE FINANCE

This Corporate Finance Division has been accommodating the financing needs of different corporate bodies (both local and multi-national), social organizations, government

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organizations and other institutions. Its products and services range from term lending for business expansion to short term working capital facilities for regular operational needs of the client. These are tailored to meet the specific requirements of the client based on the needs of the industry or business.

WHOM DO WE FINANCE?

REFL offers mid and longer term financial solutions to a wide range of clienteles to local corporate houses and multinational companies operating in Bangladesh to cater mid and longer term financial needs in order to meet diversified requirements. We offer a range of financial services which includes, but not limited to:

A Lease Financing

Asset backed financing against industrial machineries, commercial equipments, office equipments, generators, vehicles, vessels, engines, etc.

Sale & Lease Back

Financing against any of the existing (already procured/in-use) industrial machineries, commercial equipments, office equipments, generators, vehicles, vessels, engines, etc.

Term Loan

For meeting various regular capital/fixed expenditures like balancing of production line, modernization of manufacturing process, expansion of capacity and space, etc.

Project financing - Fixed cost

For setting up of a new unit as addition to the existing product line and capacity, a new concern of an existing group, a new Joint Venture project of an existing company, etc. Financial solution for the entire project may be provided through mix of different financial tools from wide range of services offered by REFL.

Preferred Equity Investments

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If clients raise funds through preferred share, REFL corporate division makes financing by purchasing the shares. REFL gets payments usually through redemption of the preferred shares over the tenure

Bridge Financing

For meeting the funding requirements of the borrower for any interim period REFL corporate division makes financing usually for shorter term period.

Refinancing of existing liabilities

For matching the repayments with cash flows, allowing some more time for repayment, releasing working capital limits (which got exhausted due to meeting capital expenditures using short term credit lines) refinancing of existing good quality liabilities is made.

Specialized product: arrange special funds

Financing is also arranged for large corporate houses through special funds from Local and International Development Agencies, Central Banks, Government agencies, etc. based on its availability and eligibility criterion of the project/financing. REFL uses its strategic alliances and local and international associations for arranging such funds

General Terms and Conditions


Tenure

Tenor will vary on the characteristics of the financial products. Generally

3-5 years for Lease and term finance


Maximum loan limit

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Mode of repayment



Security


Advantages



Continuous support


No hidden cost


Prompt service

STRUCTURED AND SYNDICATION FINANCE

A syndicated facility is a lending facility, defined by a single loan arrangement, in which several or many banks and institutional investors participate to diversify the total risk of financing large scale projects. For financial ventures requiring large-scale investment, the Structured and Syndicate Finance Division caters to this segment of the financial industry taking part at different times as lead arrangers, co-arrangers, participant lender and facility manager or agent. It has successfully implemented various projects by providing financial services, consultation and loan documentation.

What We Do

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Conducting due diligence of the client

Find the right consortium partners and negotiate acceptable terms and conditions

Preparing Information Memorandum (IM)

Distributing IM to the targeted financial institutions

Preparing legal documents and coordinating disbursement

Required Time:

The entire process is usually completed within 3-6 months. However, this may vary based on the complexity of the deal.

TERM DEPOSIT

Deposit Schemes:

1. Short Term Deposit

2. Semi Annual & Annual Term Deposit

3. Double Money Deposit

4. Monthly Benefit Scheme

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5. Quarterly Benefit Scheme

Deposit Rates:

Term Deposit

Term Interest rate

1 Year 11.50%

6 Months 11.00%

3 Months 10.50%

Double Money Deposit

Term

6 Years

Benefit Scheme

Particular With E-tin Without E-tin

Monthly Benefit Scheme BDT 860/- BDT 815/-

Quarterly Benefit Scheme BDT 2580/- BDT 2445/-

* The Interest rate will be subject to Income TAX & Excise Duties as per Govt. rules & regulations.

**This rate will be effective from 15 July, 2015 and will continue until further notice.

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Chapter 5

The functional differences of Bank and Non-bank finance organization based on Dutch Bangla Bank Limited and Reliance Finance Limited:

1. DBBL issue Debit and credit card but REFL can not do so.

2. DBBL can issue current account but REFL can not do so.

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3. DBBL provides internet banking service but REFL can not do so.

4. REFL provides more interest than DBBL on Deposit.

5. DBBL provides mobile banking but REFL can not do so.

6. According to Bangladesh Bank’s new law REFL cannot provide any kind of deposit less than 3 months,

But there is no such rule for DBBL.

7. DBBL can invest in call money market but REFL don’t have such permission.

8. REFL can lend money to business within shortest possible time but DBBL can not do so.

9. For loan purpose from DBBL the lender must have a bank account but there is no such obligation from REFL

10. DBBL loan procedures are more complicated than REFL

11. DBBL have student policies but REFL don’t have so.

12. DBBL have children policies but REFL don’t have so.

13. DBBL is interested with general people more where REFL prefer business institution.

14. In financial sector DBBL have lot of experience than REFL

15. REFL personals are more efficient than DBBL.

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Chapter 6

Recommendation

DBBL:

The bank should higher export who can understand the future economic situation and can take initiative based on the forecast. Again the bank can achieve success from the economy if they can handle the situation efficiently.

Bank should improve their research Centre and training Centre to enrich the knowledge regarding Uniform Customs and Practice for Documentary Credit (UCPDC).

I recommend that the bank improve its management of international division who are responsible for handling their foreign exchange related risk.

Again the bank should maintain correspondence relationship with the bank that will them to settle payment and receipt regarding foreign exchange transaction.

The bank should aware about their customer to meet up their demand to maintain their goodwill.

Bangladesh is a developing country. Many people of our country live in many countries. So, it is important to maintain foreign exchange department in every banks.

Foreign exchange department of DBBL should enrich by new technology to make a good competition among the banks.

REFL:

It was very difficult to find out any significant negative sides of Reliance Finance Limited among its numerous positive sides in term of profitability. However there are few problems need to be corrected by the management of the institution. Some necessary steps are recommended below on the basis of collected data, observation, expert staffs’ opinion and my knowledge and judgment:

Net profit was in a sharp rise in the recent past. The company should try to keep the momentum going.

Operating revenue has significant effect on net profit. So the company should look to maximize operating revenue as much as possible.

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Operating expense has significant effect on net profit. So the company should look to minimize operating expense as much as possible.

Term deposit also has significant effect on net profit. So the company should attract more depositors to deposit with attractive deposit scheme

Total Equity directly affect the NAV of the company and investors pays a huge attention on NAV so company should always try to increase the Total Equity.

REFL should try to expand their financial services widely,

Conclusion:

The findings of the paper cannot be taken as conclusion and it will be wrong to end here with such a result. Because this study gives a simple picture and leaves room for further study in different areas of Bank and Non-Bank Financial Institutions functions like different kind of loan and deposit and other related financial activities .The impact of government policy in the performance of Dutch Bangla Bank limited is also not studied in this study which must have significant impact on the performance of Reliance Finance Limited. Further study also can be concluded on post and performs of both sector.

However, the study provides managers with understanding of activities that would improve their financial performance. The result of this study imply that it might be necessary for the management of Reliance Finance Limited and Dutch Bangla Bank Limited to take all the required recommendation to enhance their financial position and provide better services for their clients.

References & Appendix

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References:

1. Dutch Bangla Bank Shat masjid Branch

2. Reliance Finance Dhanmondi Branch

3. Bangladesh Bank web site (https://www.bb.org.bd/)

4. Dutch Bangla bank website (http://www.dutchbanglabank.com/)

5. Reliance Finance website (http://www.reflbd.com/)

6. Financial Market and Institutions book by Jeff Madura

7. https://www.wikipedia.org/

8. https://www.google.com.bd/

9. Annual report of DBBL

10. Annual report of REFL

Appendix:

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https://www.google.com.bd/

https://www.wikipedia.org/

http://www.reflbd.com/

http://www.dutchbanglabank.com/

https://www.bb.org.bd/

Q-1: What is the functional differences of a bank with non-bank finance institution?

Q-2: What is non-bank finance institution?

Q-3: What are the deposit screams provided by bank?

Q-4: What are the deposit screams provided by non-bank finance?

Q-5: What are the loan screams provided by bank?

Q-6: What are the loan screams provided by non-bank finance?

Q-7: How non-bank finance institutions can attract deposit?

Q-8: How can non-bank finance institutions loan screams are more attractive than bank?

Q-9: What are the prospects of Bank?

Q-10: What are the prospects of non-bank finance institution in Bangladesh?

Q-11: What are the new projects taken by DBBL?

Q-12: What are the new projects taken by REFL?

Q-13: What are the default rate of DBBL?

Q-14: What are the default rate of REFL?

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Functional differences between a bank and non-bank financial institution part 2

Education