Research project on

Functions of Housing Loan program in non Banking Financial institutions (NBFi) in Bangladesh A study on BHBFC, DBH, NHFIL, IDLC, MIDAS Finance Limited Course Code: MBA 700 Course Title: Research Project

Submitted to: MD Nazmul Hasan Head of MBA program School of Business University of information technology & science (UITS)

Submitted By: Chotan Chandra chowdhury ID-10315030

[A Research Submitted in partial Fulfillment of the MBA Program in the University of Information Technology and Sciences (UITS)]

Date of Submission: April, 2012

UNIVERSITY OF INFORMATION TECHNOLOGY & SCIENCE (UITS)

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Letter of Transmittal_______________________
april, 2012 MD Nazmul Hasan Head of MBA program University of information technology & science (UITS)

Subject: Submission of Research project Report of MBA Programme

Dear Sir, It is my great pleasure to submit the Research project report on "Functions of Housing Loan program in Non Banking Financial Institutions (NBFI) in Bangladesh, A study on BHBFC,DBH,NHFIL,IDLC,MIDAS Finance Ltd " which is a part of MBA Programme to you for your consideration. I made sincere efforts to study related materials, documents, observe operations performed in BHBFC, DBH, NHFIL, IDLC, MIDAS and examine relevant records for preparation of the report. Within the time limit, I have tried my best to compile the pertinent information as comprehensively as possible and if you need any further information, I will be glad to assist you.

Thanking you, Chotan chandra chowdhury ID-10315030 University of information technology & science (UITS)

Acknowledgement ____________________________

First of all I would like to express my gratitude to Omnipresent and Almighty God, whose invisible guidance helps me to complete this report.

I have incurred many debts of gratitude over the last three months, the time taken to prepare the report. This report would not have been done without the sincere and utmost cooperation of some individuals to whom I am grateful and thank them from the very deep of my heart.

Very Especially I like to express my deep gratitude to honorable Mr.Nazmul Hasan, Supervisor of Research Paper, MBA-700 whose dynamic guidance and effective directions stimulated me to prepare the Project. Without His help & directions we havent been able to make this Project

I would like to thank to UITS allow me for the research paper for MBA program in this organization. I would like to express my deep gratitude all those people who has helped me from time to time in preparing this report.

Executive Summary____________________________
The non-bank financial institutions (NBFIs) constitute a rapidly growing segment of the financial system in Bangladesh. The NBFIs have been contributing toward increasing both the quality and quantity of financial services and thus mitigating the lapses of existing financial intermediation to meet the growing needs of different types of investment in the country. Today all NBFIs are playing a vital role for the growth of the nations economy with the best of their ability. During the world recession period NBFIs in Bangladesh act in a stringent manner so that their financial systems as well as the economy do not collapse. 29 NBFIs are now contributing to the growth of national economy. The NBFI sector as well as contributing to the prosper of economic development. Their success in this industry has inspired others to invest their capital in a profitable way. As major business of all NBFIs are providing lease facilities to the business along with various types of loan to individual and organizations therefore risk is associated with each and every product they are offering.

This report is emphasizes House Loan program in NBFIs in Bangladesh. In this regard BHBFC, DBH, NHFIL, IDLC, MIDAS Finance Limited has been taken as the sample organization, its, services, rules and regulation, corporate governance is also taken into consideration.

Index
Sr.No
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29.

Subject

page

Introduction... 6 Purpose of the study.. 7 Scope of the study.. 7 Objectives of the study . 7-8 Limitations of the study. 8 Methodology of Information Collection-. 9 Significant Recent Events of the Industry.. 10-14 NBFI background.. 15-16 Economic context in Bangladesh..17-18 Company profile 19-21 Housing Demand22 Housing supply.. 23-24 Products and Services Offered by NBFI. 25-28 House loans on a roll & functions of NBFI..29-32 Product & service.................................................................................. 33-41 Types of loans 42 Loan interest & duration.. 43-44 Industry Analysis.. 44-48 Loan Recovery process. 48-50 Loan Portfolio 51-53 Housing conditions and supply 54-55 Current state of housing... 55-56 Current trends in housing finance56-58 Risk management.. 58-66 Security Ratio.66-67 Financial performance.. 68-84 Recommendation... 85 Conclusion.. 86 Bibliography87

1. Introduction The development of financial market has been receiving heightened attention from the policy-makers in recent years. One explanation lies in the fundamental shift of development strategy reflected in the nearly universal embrace of the private sector as an engine of economic growth. The governments in both developed and developing countries, the international financial institutions which exert tremendous influence on the policymaking apparatus of developing countries and, to a great extent, the intelligentsia have all joined together as ardent advocates of private entrepreneurship. A new breed of financial institutions known in the banking era as non-banking financial institutions (NBFI) is imperceptibly taking on an increasing important role in the field of financial intermediation in Bangladesh. Significantly, leasing Industry represents one of the most important segments of the financial system of Bangladesh and plays a very important role in mobilizing and channeling resources. In the present day socio-economic scenario, the leasing companies have been continuously playing an important role in financing industry, trade and commerce and housing, thereby contributing significantly to the economic development of the country. The leasing sector has contributed significantly over the years, despite several constraints. With the challenges of time, the overall growth of the leasing business achieved through diversification of products and services and aggressive marketing with special focus on the SME sector, is indicative of the industrys contribution to our national economy.

The company's wide array of products and services range from retail products, such as home and car loans, corporate and sme products including lease and term loans, structured finance services ranging from syndications to capital restructuring and capital market services.

The company also strengthened its presence in the country's growing stock market with launching a subsidiary Securities .which is offering full-fledged brokerage service for retail and institutional clients.

2. Purpose of the study The main purpose of the study in hand is together relevant information to compile Research project report on Five (BHBFC, DBH, NHFIL, IDLC, MIDAS) Non Banking financial institution (NBFI). To observe analyze and interpret the relevant data competently and in a useful manner. To collect by the organization. To collect the internet. To develop interpersonal communication.

3. Scope of the study The report mainly analyzes the existing services of Bangladesh house balding finance corporation (BHBFC) and four other leading NBFI. The companies are, Delta brack Housing finance Company (DBH), National housing finance investment investment Limited (NHFIL), Industrial Development Leasing Company of Bangladesh Limited (IDLC), Micro industries development assistances society (MIDAS). The report also analyzes the Housing Loan program and financial performance of the above four companies and evaluates the performance of BHBFC with them and also with the industry average.

4. Objectives of the study The main objective of the study is to get a definite idea about how Loan program plays a vital role in managing the Loan associated with each and every product and services of Five NBFI. Furthermore, the orientation is very useful to detect whether the theoretical knowledge matches with real life scenario or not. Though the title " Housing Loan program in Non Banking Financial Institutions (NBFI) in Bangladesh, A comparative

study on BHBFC, DBH, NHFIL, IDLC, MIDAS Finance Ltd very lengthy area, the specific objectives are as follows: 1 To make an introduction of the ground of NBFI in Bangladesh and its Product service offering. To know the necessity of Housing loan offer. To learn about the whole Loan program. Evaluating financial performance. To bring out the position of the industry. To know the decision making process of CRM.

5. Limitations of the study To make a report various aspects and experiences are needed. But I have faced some barriers for making a complete and perfect report. There exist some limitations in making the report. These are stated below: 1 There were some restrictions in disclosing some information as it was assumed to be confidential. Therefore I could not include those in my report. 2 Some of the information that I got from secondary sources were not arranged consistently. 3 As some companies do not update their web site, therefore it was difficult to get the most recent data. Since Annual report of 2010 yet to be published almost of all companies so I was in trouble to select time period for financial data analysis. Difficulty in accessing data of its internal operations Some information was withheld to retain the confidentiality of the organization

6. Methodology of Information Collection1In order to make the report as perfect as possible I here used data collection procedures which articulate the way that I have followed in my report. 2Data Collection Procedures: Data were collected in two ways. 0 1 Primary ways. Secondary ways

Primary ways of collecting data: The primary data are those which are collected for the first time and thus happen to be original in character. These types of data were collected from personal conversation and from the various financial documents which were not publicly published by performing my research report program there. These are shown below Discussion with the respective organization Conversation with personnels.

Secondary ways of collecting data: The secondary data are those which have already been collected by someone else and which have already been passed through the statistical process. From my report purpose, secondary data were collected mainly from internet to collect annual reports as well as financial highlights of the company. Another important source was the annual reports of the companies and also from the Year book of Leasing finance association which publishes NBFIs financial data. So it has been shown below-

Annual Report of BHBFC, DBH.NHFIL, IDLC, MIDAS Finance Limited. Website of I BHBFC, DBH.NHFIL, IDLC, MIDAS Finance Limited. Data from published reports of SEC, DSE Different Books, Journals, Periodicals, News Papers etc.

7. Significant Recent Events of the Industry Recent information concerning investment in the housing sector shows steady growth both in absolute terms and as a percentage of total private investment and GDP. Private investment in housing and construction has more than doubled during the Fourth Five Year Plan period, from Tk 900 crore in 1994-1995 to Tk 1589 crore in 2001-2005. During the first three years of the Fifth Five Year Plan period the average investment in housing and construction was Tk 7,642 crore. As a share of total private investment, private investment in housing and construction in the 2006-2007 to 2008- 2009 period accounted for 47.3 per cent which far exceeded the target of 16.35 per cent for this period. The proportion of investment in housing and construction in the national GDP increased from 3.4 percent in FY 2008 to 4.1 per cent in 2009.

Present Performance REHAB: REHAB is the only trade organization of Real Estate Developers with a current membership of 260 Developers. All major institutionalized Developers are members of this organization. REHAB is also the "A Class" member of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI). In the recent years REHAB has played a very significant role in nation building through Real Estate Development by its members. The members of REHAB contribute a large amount of revenue to the Government exchequer in terms of Registration Cost, Income Tax and Utility Service Charges.

REHAB organizes its most colorful annual event REHAB Housing Fair each year in Bangladesh for the member developers, financial institutions and building material providers. It has already successfully completed three Housing Fairs during 2001, 2002, 2003, 2004 & 2005 at Dhaka Sheraton Hotel Complex. To foster the growth of Real Estate Sector REHAB plans to organize Housing Fair abroad for the Bangladeshi individuals who are living different countries of the World to buy apartment, land and commercial spaces in their home country. Accordingly, the first - ever Housing Fair abroad organized by REHAB on

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 2009. A break-up of their financing activities reveals that the share of leasing and 10

housing finance in the total investment portfolio of NBFIs has gradually decreased from 59 and 15 percent, respectively, in 2006 to 46 and 14 percent in June 2009. 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.

Figure: Share of Lease, Loan and House Financing in Total Investment (outstanding)

2007

2008

2009

2010

2011

Recent 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 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 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.

Upcoming events:Event Period Location

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Bangladesh Travel and TourimFair (BTTF) 200901-03 October2009Dhaka,BangladeshMade in Bangladesh TradeShow02-06 October2009New York, USAInternational Conference on"Ideas and Innovations for the Development of Bangladesh:the Next Decade"09-10 October2009Dhaka,BangladeshFirst Bangladesh Office Fair-200921-23 October2009Dhaka,Bangladesh2nd Bangladesh Buildtech andHousing Expo 200921-23 October2009Dhaka,BangladeshBangladesh Single CountryTrade Fair22-24 October2009Copenhagen,DenmarkBangladesh Single CountryTrade Fair23-25 October2009Kuala Lumpur,MalaysiaSME Financing Fair29-31 October2009Dhaka,Bangladeshinternational solar andrenewable energy trade shows29 October -01 November2009Dhaka,BangladeshExpo Bangladesh 20090103November 2009London5 the Knitexpo-0902-04November 2009Dhaka,Bangladesh

Important events Incorporation of the Company Issuance of Bangladesh Bank License as NBFI Certificate of Commencement of Business Signing of First Mortgage Loan Opening of Motijheel Branch Signing of First Lease Finance Opening of Chittagong Branch Opening of Gulshan Branch Secured First ICMAB Best Corporate Award 2007 Signing with CDBL Lottery for Allotmant of IPO Shares Listing in DSE for trading public shares Opening of Bogra Branch 18-Aug-1998 29-Dec-1998 18-Aug-1998 16-Jun-1999 18-Aug-2001 22-Feb-2004 06-Apr-2004 01-Jun-2004 15-Dec-2007 22-Sep-2008 12-Nov-2008 01-Jan-2009 19-Apr-2009

National Housing recent new offers house loan Purchase of Apartment/House Self-construction Renovation of existing house/apartment Purchase of Housing Plots Purchase of commercial space and chamber for professionals DBH recent article:DBH Rated Highest Triple A for the 6th Consecutive Year

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Delta Brac Housing Finance Corporation Ltd., known as DBH, was awarded highest level credit rating AAA (Triple A) for the sixth consecutive year. DBH is, to date, the only local Financial Institution licensed by Bangladesh Bank to be rated Triple A for the last 6 consecutive years. DBH Board recommends 100 percent stock dividend The Board of Delta Brac Housing Finance Corporation Ltd. (DBH) has recommended 100 percent stock dividend i.e. one bonus for each share held. The Board meeting held at its head office on Thursday (15 September) also declared earning per share (EPS) Tk. 98 for 2010-11 which was Tk. 59 in the previous year, an increase of 66%. Trading of DBH First Mutual Fund starts Transaction of the DBH First Mutual Fund unit starts from February 07, 2010 in both the Stock Exchanges of the country. DBH the leading home loan provider Financial Institution sponsored the DBH First Mutual Fund to extend its role to the capital DBH employees volunteer building low cost homes Employees of Delta Brac Housing Finance Corporation Ltd. known as DBH took part in the volunteers-sponsorship home building activities launched by Habitat for Humanity International Bangladesh (HFHIB) at Savar in Dhaka on Friday (5 February 2010). DBH Rated Highest 'AAA' for the 4th Consecutive Year Delta Brac Housing Finance Corporation Ltd., known as DBH was rated 'AAA' (Triple A), top to the rating scale for long term and ST-1 for short term for the fourth consecutive year. DBH Launches Property Services Delta Brac Housing Finance Corporation Ltd. (DBH), the countrys sole home loan specialist, has recently launched DBH Property Services (DBHPS) with the intent of providing professional and risk free service for individuals interested in selling or buying properties. At present DBHPS is operating in Dhaka city only. Prospective buyers will also be eligible for home loans subject to DBH guidelines. IDLC recent events:IDLC opens its second SME booth at Imamganj IDLC Finance Limited on September 09, 2009 inaugurated its 2nd SME booth at Imamganj in Dhaka, one of the major wholesale trading hubs of the country. The booth is located at 75 MitfordRoad (2nd Floor), Imamganj, Dhaka-1100. This SME booth will cater to the financing needs of many small and medium entrepreneurs of Imamganj by providing business solutions through financial products like business loan, machinery loan, lease finance and women entrepreneur loan etc

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Recent offering house loan:Home Loan As one of the leading Home Loan providers in the country, we offer you the most convenient Home Loan facility to suit your needs. With so many attractive benefits, the home you always wanted is no longer a dream.

Availability of Home Loans For purchase of apartment/house/commercial space/approved housing plots For construction of residential/commercial buildings For renovation or extension of residential complex As Home Equity loan against mortgage of property Home Loan Shield Through our Home Loan Shield facility, we now provide complete protection to our Home Loan borrowers through life insurance coverage equivalent to the outstanding home loan amount. Home Loan Shield is a special Group Life Insurance Scheme, designed to protect your family in the event of your unfortunate death. The shield takes over the outstanding principal amount of your home loan with IDLC, thus protecting your beloved family from the burden of repayment. Lease Finance is available for

Capital Machinery Factory Equipment Vehicle & other Transports Construction Equipment Medical Equipment Lifts/ Escalator Generator Water Transport Other Equipments & Appliances.

8. NBFI background Non-Bank Financial Institutions (NBFIs) are those institutions that are licensed and controlled by the Financial Institutions Act of 1993 (FIA 93). NBFIs give loans and

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advances for industry, commerce, agriculture or housing; carries on business of hire purchase transactions including leasing of machinery or equipment; involves in business of the underwriting or acquisition of, or the investment or re-investment in shares, stocks, bonds, debentures or debenture stock or securities issued by the government or any local authority; finances venture capital; gives loan for house building and property purchases and uses its capital to invest in companies. The major differences of NBFIs with commercial banks are that the former cannot accept any deposit which is payable on demand by cheques, drafts or orders drawn by the depositor and cannot deal in foreign exchange. Starting from the IPDC in 1981, a total of 29 NBFIs are now working in the country as of November 2008.

The lease financing practices in Bangladesh have grown significantly within the last 10 years. Competition among the leasing companies has grown stronger with the growth of the NBFIs, besides entrance of commercial banks in the lease financing market who have the advantage of lower costs of fund compared to the NBFIs. Currently, out of 29 NBFI, 22 specialize in lease financing. As per central bank data released in May 2007, lease financing constituted 54.5% of total long term assets, with the rest consisting mainly of term financing.

For NBFIs the prime sources of funding are loans from commercial banks and other financial institutions, term deposits from the public, funds from capital market by issuing shares, debentures, bonds etc. and loan facilities from the international agencies like ADB, IDA, IFC etc. NBFIs are mostly dependent on funds from the credit lines of the commercial banks at a relatively higher rate of interest ranging up to 15%. Moreover, they have to provide high and expensive collateral securities like fixed deposits at the time of borrowing fund from the commercial banks. Raising fund from capital market is a prospective way to reduce dependency on borrowed funds and boost up the activities of NBFIs in an efficient manner. A modern and dynamic regulatory framework is required for the rapid and effective development of NBFIs. The NBFIs are now regulated by the Financial Institutions Act 1993 and Financial Institutions Regulations 1994. Some weaknesses of these regulations have been identified. NBFI regulations should be the classification into deposit and nondeposit takers. Those NBFIs activities are involved with the capital market that is those obtain funds through public offering of securities should be under the regulatory jurisdiction of the Security and Exchange Commission. Bangladesh Bank has formulated and declared policies for classifying and provisioning of investment resources of NBFIs in June 2000. The classification rule has been formulated with a view to judging quality of investment funds, strengthening discipline in lending and recovery, securing peoples deposit, having provisions for the loss of unrecoverable invested funds and imposing interest against bad investment. This classification procedure will definitely improve and

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promote the activities of NBFIs, but the procedure is always subject to improvement with the diversification of products of NBFIs.

Figure: Sector-Wise Distribution of Outstanding Investments

9. Economic context in Bangladesh

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Bangladesh is one of the poorest countries in the world with a per capita GNP of $260. It faces continuous challenges in maintaining economic stability, improving public sector efficiency and inducing economic growth sufficient to alleviate the desperate poverty of a large segment of the population. This section briefly reviews current trends in the economic and financial environment with a particular view to the housing sector. A. Structure and Growth of the Economy Since the 1980s Bangladesh has moved towards establishing a liberal market-based and private sector driven economy. Prudent macro-economic and fiscal policies have resulted in the highest foreign reserve in decades, increased contribution in GDP and a boost to the value of the Taka compared to other currencies in the region. It appears as if the economic turmoil in East Asia has had only a small impact on Bangladesh. B. Employment and Household Income Distribution Bangladesh has a population of approximately 124 million people. Population growth decreased over the past decades and was 1.6 percent per year during the 1990 -1996 period. The labor force grew with an average of 2.1 percent during that time, due to an increasing number of female participants. Over that same period, GNP at constant market prices increased at an average rate of 4.8 percent and economic growth for 1998 was estimated at 5.5 percent. Data on household incomes are notoriously difficult to compile since most households and individuals have several sources of income, both formal and informal. Remittances from relatives overseas are part of many households income, but are difficult to trace.

Bangladesh economy attained real GDP growth rate of 5.9 percent in 2008-2009 against 6.2 percent in FY 08. The fall is attributed to the global downturn which started impacting export growth and investment momentum. Agriculture sector performed strongly, supported by favorable weather and optimistic price expectations, overcoming adversities of the preceding year, but growth in industry and services weakened, mainly due to weakening of export demand. The impact of global economic recession on the real economy has also thus far remained moderate. Though the export growth has slowed somewhat in 2008-2009, The major contributor to the countrys export sector Ready Made Garments (RMG) export surpassed USD 12 billion in the fiscal year 2008-09, marking a growth of 15.4 percent over the same period last fiscal. Competitiveness of the apparels sector sustained overall export growth while imports slowed down faster with good domestic food grain output and lower import prices of major commodities in the downturn of global prices including fuel oil imports. Import of most

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essential commodities fell, both in terms of value and quantity, in 2008-2009 because of the declining trend in prices in the global market and record food production in the country. The import of some essential items including rice, milk food, edible oils and pulses declined in terms of value with the falling trend in the prices of the commodities in the international market. Workers remittance inflows increased despite decline in new recruitments in host markets abroad. Bangladeshi expatriates remitted a record $9.68b in the just concluded fiscal year, marking a 22.32% growth over the same period of earlier fiscal year. As a result of the increased level of remittances the foreign exchange reserve reached $7.42b as of July 05, 2009. In contrast, migration of workers to job markets abroad has slowed in face of the global economic crisis, and there are sporadic episodes of return of laid off migrant workers. In preparedness for facing a prolonging of the global downturn the government has announced (in Q4 FY 09) a modest support package mainly targeted at export sectors already hurt in the downturn. The government and Bangladesh Bank has also placed special emphasis on the agriculture sector and SMEs, which are typically less capital intensive and short gestation options in generating new employment and output for revival of the economic activities. The expected impact of the global slowdown till mid 2010 may have the potential to affect the growth momentum in our export manufacturing and investment activities also. As per the latest monetary policy announced by the Bangladesh Bank for the period July to December 2009, it is projected conservatively that in 2009-2010 real GDP growth will be around 5.5, likely to be outperformed if global economy recovers faster and if the various initiatives proposed in the FY10 national budget including the innovative public private partnership (PPP) for infrastructural development can be implemented in right earnest. Economy will be impacted significantly in FY 10 if the global recession persists. Export growth may weaken and even swing to negative, with redundancies in the export production sectors. Return of migrant workers laid off in recession-ridden host countries may increase significantly; workers remittance inflows and investment momentum may weaken; dampening domestic demand and output.

On the external front, export earnings was US$15,583 million showing a slower growth of 10.1%, while the growth of import payments stood lower at 4.2% in FY 2009. Total import was US$20,291 million. Remittances from abroad, on the other hand, increased substantially by 22.4% during the year. The current account of external balance showed a significant surplus which coupled with a surplus in the capital account led to a sizeable surplus in the overall balance. This helped improve the countrys foreign exchange reserves. Foreign exchange reserves which had stood at US$ 6,149 million at the end of June, 2008 increased to US$ 7,471 million at the end of June 2009. 10. Company profile

I. BHBFC
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The BHBFC was established in 1952 to stimulate middle income house construction for civil servants in urban areas and Bangladesh BHBFC was recognized in 1973 after independence. While the majority of its clients are still civil servants, its mandate has broadened to include all eligible private citizens or citizen groups. It does not lend to developers or builders. In 1995/96 BHBFCs total assets were Tk.26,218 million of which Tk.22,201 were outstanding loans and advances. Authorized capital is Tk.1,100 million with Tk.973 million paid up. BHBFCs main sources of funds are dedicated government bond issues specifically floated for their programs. Additional transfers directly from the government budget are occasionally provided on a limited scale. The interest rate on the debentures differs and the most recent ones were 8 percent for 7 to 8 years. Previous bond issues BHBFC operates presently only in carefully targeted, higher quality housing sub-markets in Dhaka, and on a very limited scale in Chittagong and Rajshahi (which received 9.4 percent and 3.1 percent of disbursed funds in 1995/96 respectively). Poor repayment experience in other urban areas was the reason to concentrate on Dhaka. It has financed 125.000 units since its inception, of which more than 30,000 since 1992, mostly for higher income households.

II. DBH
Delta Brac Housing Finance Corporation Limited (DBH) started its operation in 1996 to meet the growing demand for housing sector finance in Bangladesh. DBH was the first company in the private sector to operate in specialized housing finance in Bangladesh. At the time of its inception, DBH very efficiently captured the housing finance market that was insufficiently serviced by the government owned House Building Finance Corporation. DBH has managed impressive growth in loan portfolio, deposit collection, earnings growth and total assets, asset quality, sound management and profitability. DBH has achieved 35% loan growth in the last two years. The company achieved average ROE and ROA of 24.49% and 1.79% respectively in the last financial year, which is impressive in the industry. DBH also managed to efficiently address a challenge faced by all non-banking financial institutions, namely to keep the cost of capital low. DBH has made efficient use of deposits and subsidized credit provided by the central bank. DBH is managed by an innovative and ambitious management team. It has internationally reputed institutions as shareholders. These shareholders, especially HDFC of India bring valuable lessons and knowledge of the housing finance business. A board representing

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these institutions ensures best practices in housing finance. It also ensures excellent corporate governance and minority investor protection.

III. NHFIL

NHFIL started operations in 1998 and was registered under the Companies Act 1993 as an NBFI, regulated by Bangladesh Bank. It has two licenses (as a housing finance company and as a lease finance company), with the requirement to maintain housing finance as its core business (more than 51 percent). Its geographic focus is 80 percent in Dhaka and 20 percent in Chittagong.NHFIL funds its lending operations mainly from deposits, which results in a term mismatch of assets and liabilities. Its cumulative housing finance portfolio is Tk 4,380 million to 3,081 borrowers, resulting in an average loan size of Tk 1.4 million per borrower. The size of its outstanding portfolio is Tk 1,840 million, with 1,744 borrowers. The corporations typical lending terms are presented Clients are charged a prepayment penalty of 2 percent. The income is assessed on the basis of present and future income, including rental income. The loan-to-value ratio is 5070 percent. The value is based on construction cost only, excluding the cost of land. NHFIL also finances land up to 50 percent of the cost, with a condition that the house will be built within five years. In case of default, it has the right to repossess the property and recover its cost with penalties/profits.

NHFIL has a very effective loan surveillance system. It takes postdated checks for the subsequent 12 monthly installments, along with one undated blank check. The checks are deposited on the 1st, 10th, and 15th of every month, and encashment/default is closely monitored. A borrower must have a cell phone for effective personal contact. Computergenerated standard messaging system reminders also are sent to the borrower. If a default persists, the entire outstanding balance is called back through the earlier deposited blank check. Legal action against a defaulter is initiated within six months of default. The corporations nonperforming loans are stated to be less than 2 percent in 2009.

IV. IDLC
IDLC Finance Ltd, a leading financial institution of the country achieved significant growth in all areas of business up to 3rd quarter of the year 2009. IDLC began its operation

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in 1985 as the first leasing company in Bangladesh. In 1995, IDLC was licensed as a Financial Institution by the country's central bank and during the last two decades, the company has grown in tandem with the country's growing economy. The company's wide array of products and services range from retail products, such as home and car loans, corporate and SME products including lease and term loans, structured finance services ranging from syndications to capital restructuring and capital market services. The company also strengthened its presence in the country's growing stock market with launching a subsidiary-IDLC Securities Limited-which is offering full-fledged brokerage service for retail and institutional clients.

V. MIDAS
MIDAS (Micro Industries Development Assistance and Services) a private limited company established in 1982 with the objective of promoting development of small enterprises and creating new employment opportunities in them. The organization provides managerial, technical and financial assistance as well as non-financial services such as information, counseling, training, study, and research. MIDAS was established with the help of the financial and technical assistance of the USAID. In 15 years after establishment, the organization gained self-sufficiency in funding but it continues to have partners from abroad. The list of Non-Banking Financial Institution (NBFI), incorporated on May 16, 1995 as a Public Limited Company (PLC) under Companies Act 1994. MFL is an initiative of Micro Industries Development Assistance and Services (MIDAS), a non-government organization engaged in providing technical and financial assistance to micro and small enterprises with the main objective of creating employment on a self-sustainable basis. The main objective of forming a financing company by MIDAS was to bring its financing activities under the fold of a finance company for better management and regulation. The company (MFL) obtained licence from Bangladesh Bank as NBFI under Financial Institution Act, 1993 on October 11, 1999 and commenced commercial operation on January 01, 2000 with a paid up capital of Tk. 55.40 million. The operating activities of the company are dividend into five broad divisions- Lease Finance, Small Enterprise Development (SED), Micro Industries Development Initiatives (MIDI), House Finance and Consumer Credit Scheme. The company was initially doing the same pattern of business as MIDAS did in the areas of micro and SME finance. 11. Housing Demand Bangladeshs housing Demand is characterized by a surplus of upper-echelon housing stock and an acute shortage of affordable housing for the great majority of midland lowerincome population groups. Estimates suggest a shortage of about 5 million houses in

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Bangladesh in 2009. In urban areas, the annual estimated demand amounts to 300,000 500,000 houses. In rural areas, with an assumed 2 percent new household formation annually, the new demand could be as much as 3.5 million a year. Of the larger cities and towns in Bangladesh, Dhaka is the hardest pressed in terms of unsatisfied housing demand (according to data from the BHBFC). The housing needs of lower- and lower-middle-income groups are considerable and remain largely unfulfilled. The BHBFC reports that there is great demand for houses priced moderately between Tk 600,000 and Tk 1,000,000; but the supply of such dwellings is almost nonexistent because of high land prices in downtown areas of metropolitan cities, particularly in Dhaka City. In areas on the city periphery, land prices are lower; however, there is no practical transportation method for dwellers in farther outskirts to get to the city and to their workplaces on a regular basis. Careful market-based demand studies are not available, and there is a need for further research on the housing demand of lower- and medium-income groups. Paradoxically, housing supply caters to upper-income groups, and the market is glutted with new luxury housing units. There are around 800 developers in Bangladesh, and the market is active and relatively competitive. According to the Real Estate and Housing Association of Bangladesh, private developers (focused Mostly on Dhaka City) typically engage in the building of dwelling units covering 1,000 1,500 square feet. New formal construction accounts for about 3 percent of all housing (permanent and temporary) being built formally or informally in the country. Such development is exclusively limited to the upper-income urban groups, and it is undertaken mostly for investment and rental purposes, not for use as primary residences. B Approximately one third of all houses in urban areas were constructed outside of the formal regulatory system, mostly on land to which the homeowner does not have a formal title. A 1991 Bangladesh national census counted 2,100 slums in Greater Dhaka. Currently, more than 2 million people in the capital city live either in slums or are without any proper shelter.

12. Housing supply Bangladesh has a high population densityabout 1,200 people per square kilometer and a limited area of 134,000 square kilometers, which is frequently flooded during the summer months. In such difficult conditions, only 23 percent of housing in urban areas and merely

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2 percent in rural areas is permanent housing. Close to half of all housing units in the country (approximately 3.3 million) are made of temporary materials. This nondurable housing requires replacement within one to five years after construction. Even among the housing defined as permanent, there are many types of dwellings with only some degree of permanency, ranging from construction with brick masonry and reinforced concrete construction pillars to tin-roofed and tin-walled houses. The heterogeneity of housing makes it difficult to estimate construction and housing materials costs, and complicates the measurement of real estate price indexes. Table B.1 shows some characteristics of the housing sector. The higher- and middle-income groups are housed in either low-rise, single-family houses or, increasingly, in multifamily apartment buildings (table B.2). The lower income households (approximately 70 percent of the urban households) are housed in a variety of house types. Approximately half of the low-income housing units are in (slums), informal settlement areas that include both private rental and private ownership housing built either on privately owned land or on illegally occupied public land. Conventional tenement slums (rental and owner occupied) take up another quarter of the low-income sector. These multiunit buildings originally were built in compliance with the building code, but now are seriously overcrowded and poorly maintained. Overcrowding in these buildings has increased during the last several years because of an influx of rural migrants coming to work in the expanding garment industry. Other categories of low-income housing include government provided squatter resettlement camps, plots of land with basic services that are given on a leasehold basis; employee housing that consists mostly of small apartments in high-rise complexes provided by the government; makeshift houses built by squatters on illegally occupied public or private land; and pavement dwellings.

Several organizations and rural innovators in Bangladesh developed and modified various designs of rural low-cost housing after the devastating flood of 1987, and are doing the same for the people affected by cyclone SIDR in 2007. The houses vary in appearance throughout the country, but have similar basic structural components. The supply of housing is greatly affected by the land development process in Bangladesh. The process for the entire country is centrally controlled from Dhaka, with little autonomy at the local level. The housing development process is slow and costly because of the poor preparation of master plans; the dearth of planning professionals in the public sector; and inadequate infrastructure provision, land acquisition, development and construction financing, and mortgage financing. All of these challenges raise development costs and make affordability increasingly elusive for a large portion of the population. The problem is most acute in Dhaka, where the city development authority, Rajdhani Unnayan Kartripakkha (RAJUK), suffers from administrative inadequacies, impeding more than 23

enabling the city planning process. But other regional planning authorities (such as those for Chittagong, Khulna, and Rajshahi) have even fewer resources and less power to implement planning and development, and they are barely functional. The matter is further aggravated by the scarcity of information on housing supply and shortages for urban areas other than Dhaka, thus preventing adequate policy-making attention to these areas. A second but no less pressing issue is the high level of land prices for residential construction. Land prices have been particularly high in Dhaka, where the need for middle- and lowerincome housing is the most severe. Town planning is difficult, given dense population, saturation of constructed areas, scarce city land, and a poor transportation network to the farther outskirts (where housing infrastructure is also poor). According to the Bangladesh Institute of Planners in 2003, residential land in Dhanmondithe most expensive area in Dhakacosts Tk 3,500 per square foot (roughly $60). Prices have grown 1516 percent in upscale areas such as Dhanmondi and Motijheel, much above the general cost of living. Prices are much more affordable on the periphery of the cityPallabi, Shyamali, and Uttarabut those areas involve a long and expensive commute to employment centers. The provision of planned, efficient, and inexpensive transportation facilities from Dhakas outskirts to the heart of the city could shift the burden of housing needs from the center to the more affordable periphery. The Bangladesh University of Engineering and Technology planning faculty estimates that land costs in Khulna are similar to those in Dhaka; in Chittagong, they are about 15 percent lower (although the most expensive areas there match Dhaka), and are 3040 percent lower in other cities. Even in the lowest-cost areas, however, prices are inordinately high, relative to GDP. For example, again according to the Bangladesh Institute of Planners, the least-expensive residential land in Dhaka costs approximately Tk 1,600 per square foot (about $27) (table B.3). If the density/price relationship were linear, this would mean that even with a floor-area ratio of 10 (which is extraordinarily high), the land cost of housing development in Dhaka would be at least $2.70 per square foot.

Note. Dhaka Urban Area Housing Subsystems, by Income Group and Land Coverage Income Group and Housing Proportion of City Coverage of City Subsystem Population (%) Residential Land (%) Upper-income group 2 15 Middle-income group 28 65

13. Products and Services Offered by NBFI 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

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financial goals. The table below provides a summary of the product range offered by existing NBFIs of Bangladesh. Under this scheme, money is deposited for a fixed period of time and interest is capitalized with the principal at each year. Term deposit products are: 1. Annual Profit Term Deposit 2. A fixed return investment allowing you to withdraw or reinvest profit or principal at maturity. 3. Earn Ahead Term Deposit 4. This scheme offers you an opportunity to benefit from your investment at the time of opening account. Also allows you to reinvest withdrawal amount for further benefit. 5. Cumulative Term Deposit Under this scheme profit from your invested amount has been capitalized at the end of each year (after AIT deduction), creating a new principal. Profit for next year will then be calculated on the full amount Double money return Due to attractive profit, your investment becomes double at maturity.

Benefits of Deposit product: 1. Safe investment 2.High Return 3.Flexible and diversified products tailored to your needs 4.No incidental costs 5.Premature encashment allowed after completion of minimum duration 6.Any individual or Firm or Corporate Houses are eligible to participate in the Deposit 7. Best consumer service 8.Loan facility up to 80%-90% of investment amount.

Different Products and Services of NBFIs

Type of Activity

Key Features

Target Market

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Lease Financing Finance/ Capital Lease Operational Lease

Provide a long-term solution that allows Corporate, customers to free up working capital SMEs,Individual Business enterprises. An operational lease entails the client renting Corporate, SMEs, an asset over a time period that is substantially individual less than the Assets economic life. It offers Business enterprises. short-term flexibility, Which may allow the customer to take advantage of Off-balance sheet accounting treatment?

Hire Purchase

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.

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

Leveraged Leases

Leases generally for large transactions involving three Parties: a lessee, a lesser 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

Mostly corporate houses

Type of Activity
Synthetic Leases

Key Features
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.

Target Market
Mostly corporate houses

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Sale/Leasebacks

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

Corporate, SMEs, individual business enterprises Individuals, Professionals, & Corporate Bodies

Home Loan and Real Estate Financing

Short Term Loans Factoring of Accounts Receivables

Small and medium size companies having regular supplies to corporate bodies Medium and large clients with continuous flow of work orders from customers 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. All large corporate houses

Work Order Financing

Corporate Finance Bridge Finance

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.

Syndication of Large Loans

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.

Advisory Services

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.

Merger and Acquisition

Medium and large corporate bodies

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Securitization

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. 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. 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 rays e needed funds. 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, Dematerialization, Re-materialization, Transfers and multiple accounts movement, Lending and borrowing etc.

All corporate bodies

Merchant Banking Issue Management

All corporate bodies

Underwriting

All corporate bodies

Portfolio Management

Individuals, Professionals, & Corporate Bodies

Corporate Advising

All corporate bodies

Securities Services Brokerage Services

All corporate bodies

CDBL Services as full service Depository Participant (DP)

Individuals, Professionals, & Corporate Bodies

14. House loans on a roll & functions of NBFI

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Housing finance by specialized private providers has been rising rapidly in the past few years, fuelled by growing demand from the urban middle-class, statistics show.

In the past three years -- from fiscal 2006-07 to fiscal 2008-09 -- average housing loans provided by the private sector rose by nearly 26 percent a year.

The highest growth -- 39 percent -- was witnessed in fiscal 2006-07, while the following two years achieved 17.6 percent and 21 percent growth, despite the impacts of global recession on real estate, according to Bangladesh Bank data. There are several specialized private housing finance companies offering loans for construction, renovation and purchase of residential accommodation, mainly in Dhaka. Of them, Delta-Brac Housing Finance Corporation (DBH), IDLC Finance and National Housing Finance and Investments Ltd are the market leaders. The outstanding loan figure of Delta-Brac Housing Finance stood at Tk 1,220 core or nearly 70 percent of the total loans provided by specialized private housing financiers on June 30, 2009.

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Home loans by IDLC and National Housing Finance reached Tk 390 core and Tk 170 core respectively at the same time.

Earlier, Bangladesh House Building Finance Corporation (BHBFC), the lone state-owned house loan provider, enjoyed monopoly. But its market share is shrinking by the day, BB data shows.

BHBFC's housing loans stood at Tk 2,490 core at the end of 2008-09, which was Tk 2,630 core and Tk 2,520 core in 2005-06 and 2006-07 respectively.

On the other hand, total housing loans grew for all, including specialized public and private organizations, public and private banks, other financial institutions and microfinance institution Grameen Bank, by a whooping 80 percent to Tk 18,180 core in fiscal 2008-09 from Tk 10,090 core three years ago.

Recently, banks, particularly the private ones, have aggressively come up with home loans. These banks are seen as significant competitors to housing financers. At the end of June 2009, private banks' market share crossed 41 percent, up from 35 percent three years ago.

Private loan providers said prompt and hassle-free services helped them attract customers. The terms of housing loans are generally between 1 year and 20 years and the interest rate varies from 14 percent to 17 percent a year, differing from organization to organization.

ROLE &Function of NBFI

The role and importance of non-bank financial intermediaries is clear from the various functions performed by these institutions. Major functions of the NBFIs are as follows:

1. Financial Intermediation:
The most important function of the non-bank financial intermediaries is the transfer of funds from the savers to the investors.

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Financial intermediation is economical and less expensive to both small businesses and small savers, (a) It provides funds to small businesses for which it is difficult to sell stocks and bonds because of high transaction costs, (b) It also benefits the small savers by pooling their funds and diversifying their investments.

2. Economic Basis of Financial Intermediation:

Handling of funds by financial intermediaries is more economical and more efficient than that by the individual wealth owners because of the fact that financial intermediation is based on (a) the law of large numbers, and (b) Economies of scale in portfolio management. (i) Law of Large Numbers: Financial intermediaries operate on the basis of the statistical law of large numbers. According to this law not all the creditors will withdraw their funds from these institutions. Moreover, if some creditors are withdrawing cash, some others may be depositing cash. Again, the financial intermediaries also receive regular interest payments on loans or investments made by them. All these factors enable the financial intermediaries to keep in cash only a small fraction of the funds provided by the creditors and lend or invest the rest. (ii) Economies of Scale: Large size of the asset portfolios enables the financial intermediaries to reap various economies of scale in portfolio management. The main economies are: (a) Reduction of risk through portfolio diversification: (b) Employment of efficient and professional managers; and (c) low administrative cost of large loans and (d) low costs of establishment, information and transactions.

3. Inducement to Save:
Non-bank financial intermediaries play an important role in promoting savings in the country. Savers need stores of value to hold their savings in. These institutions provide a wide range of financial assets as store of value and make available expert financial services

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to the savers. As stores of value, the financial assets have certain special advantages over the tangible assets (such as, physical capital, inventories of goods, etc.). They are easily storable, more liquid, more easily divisible, and less risky. In fact, saving- income ratio is positively related to both financial institutions and financial assets; financial progress. induces larger savings out of the same level of real income.

4. Mobilization of Saving:
Mobilization of savings takes place when the savers hold savings in the form of currency, bank deposits, post office savings deposits, life insurance policies, bills, bond's equity shares, etc. NBFI provides highly efficient mechanism for mobilizing savings. There are two types of NBFIs involved in the mobilization of savings; (a) Depository Intermediaries, such as savings and loan associations, credit unions, mutual saving banks etc. These institutions mobilize small savings and provide high liquidity of funds. (b) Contractual Intermediaries, such as life insurance companies, public provident funds, pension funds, etc. These institutions enter into contract with savers and provide them various types of benefits over the long periods.

5. Investment of Funds:
The main objective of NBFIs is to earn profits by investing the mobilized savings. For this purpose, these institutions follow different investment policies. For example, savings and loan associations, mutual saving banks invest in mortgages, while insurance companies invest in bonds and securities.

15. Product & service Comparative study of product & service:BHBFC

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The company has to provide several products to compete solely with the competitors and has to launch all the products that are being provided by the companies. Some of the products that are now being provided by the BHBFC are below:i. Loans BHBFC extend short to mid term Loans in the following line: Working capital Loan Bridge loan Personal loan Home loan ii. iii. iv. v. vi. vii. Documentary credit Term financing Merchant banking Term deposit Small and medium enterprises Zero down payment scheme.

DBH DBH offers loans for buying or constructing a home, for extending or improving existing home or for buying a housing plot from approved land developers or Government. One can acquire a self-contained flat in an existing or proposed complex or building or construct an independent single family house. The maximum loan offered presently by DBH is 80% of the construction cost or 70% of the purchase price, depending on the conformity of the criteria set by the Company. Loans are repayable by easy Equated Monthly Installments spread up to tenor of the loan maximum of 20 years. The primary security will be the property financed. Presently DBH offers both fixed rate and adjustable rate loans. Interest rate on adjustable (variable) rate loan is determined on cost of fund plus profit margin basis. Cost of fund is calculated by DBH on quarterly basis and 3% profit margin is added to arrive at the base rate. Usually 1% is added or subtracted from the base rate depending on the creditworthiness of the borrower. DBH also offers home equity loan namely Family Loan which can be availed for any of the following purposes: Consumer Spending: home improvement/interior decoration, purchase of consumer durable items, e.g. car, electrical gazettes, home appliances, furniture, computer & accessories, etc. Children's Education & others: education in Bangladesh and abroad, traveling, marriage and related expenditures etc. DBH has several deposit products offered for individuals and corporate customers to raise fund. Presently the company has several products in the market under the following broad heads: Profit First Deposit, Cumulative Deposit, Annual Income Deposit, Children Deposit,

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Easy Way Deposit, Easy Home Deposit and Monthly Income Deposit. DBH employs some Deposit Associates (DA) on commission basis to market and promote these products. The company has launched three variable rate deposit products in April 2005. Interest rates on VRMID (variable rate monthly income deposit) & VRCD (variable rate cumulative deposit) are revised on July each year while rate revision on VRAID (variable rate annual income deposit) is done annually.

DBH investment and financing products include term deposit scheme, cumulative deposit, triple money deposit, double money deposit, annual income deposit, quarterly income deposit, easy way deposit, profit first deposit etc. i. ii. iii. iv. v. DBH Housing Loan Family Loan Deposits Loan Protection Insurance Property Services

i.

DBH Housing Loan

The core product of DBH is the Housing Loan for individual and corporate clients. DBH extends housing loan for the following purposes: 1 2 Purchasing apartment 3 Constructing own house 4 Purchasing approved plots 5 Extending/renovating existing dwelling 6 Purchasing professional chambers The main category of borrowers is employed category where people are employed in government organizations, NGOs, local large corporate bodies, multinational banks etc. The other category includes expatriates, independent professionals like doctors, engineers, accountants etc. and businessmen. DBH has organized its loan portfolio in such a way so as to keep the average loan size small and diversify the types of borrowers in the portfolio.

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ii.

DBH Family Loan

This is an Any Purpose Consumer Loan option for the discerning Customers, which is secured by Registered Mortgage of the owners Property.

iii.

DBH Deposits

Besides the fast and easy housing loans for individuals and institutions, DBH has very attractive Fixed and Variable Rate Deposit Schemes for individual and corporate depositors, which yields to high Rate of Return on their investment coupled with prompt customer services and security. DBH Deposits now consist of monthly income deposits, annual income deposits and cumulative income deposits, which are available, both in fixed and variable rate options. Apart from that new products like profit first deposit (PFD), Childrens Deposit and Easy Way Deposit are introduced to cater to the needs of small and medium savers and provide depositors the opportunity to earn a competitive rate of return. PFD depositors get the return or profit in advance i.e., immediately after placing the deposit with DBH. Childrens deposit and Easy way deposit are the latest addition to the DBH Deposit product line. Both of these products facilitate accumulation of small savings conforming to customer convenience. A saver can procure a Childrens Deposit or Easy way Deposit by placing a minimum of BDT 5,000/= and continue to save flexible amounts for a period of maximum 12 years at a competitive rate of return. Easy Home Deposit is another newcomer in the deposit products of the company where a saver can start depositing money with Taka 50,000 and continue saving 5000 per month up to maximum maturity of 12 years. The distinctive benefit of this product is depositor can have the housing loan at a competitive rate at the end of the maturity.

iv.

DBH Loan Protection Insurance

DBH Loan Protection Insurance is a distinctive type of Life Insurance Policy aimed at safeguarding the bereaved heirs of a borrower from the burden of loan repayment during harsh financial crisis following his/her death.

v.

DBH Property Services

Another unique service provided by DBH is Property Counseling Service. DBH maintains a large database of apartments/plots that are being developed by various developers. Customers can choose a plot or an apartment from this database that meets his or her

35

requirements. Apart from this DBH people also help the client on purchasing apartments and plots by providing property and documentation related services. Relative contribution to income (as per audited accounts) Particulars Amount Taka (%) Interest income 1,169,068,170 96.471 Fees and other charges on housing loans 42,740,430 3.527 Other income 30,000 0.002 Total 1,211,838,600 100.000 Associate, subsidiary/related holding company

NHFIL National Housing Finance And Investments Limited has already launched various products and services since inception. The products and services of the Company are mentioned below: Home Mortgage Loan Self Construction of Own Home Purchase of Apartment or House Renovation of Existing House/Apartment Housing Plots Purchase Commercial Space and Chamber for Professionals 9% Housing Loan for Small Apartments (1250sft)/Houses ii. Project Mortgage Loan Project Mortgage Loan for Property Development iii. Lease Finance Acquisition of Industrial Machineries, Equipments, Generator, Power Plant etc. Car Loan for Individual and Transport Company Medical/Hospital Equipments iv. Term Loan for Industries Work Order Finance Factoring v. Deposit Schemes with Attractive Return Term Deposit Account Double Money Account Income Account Monthly Savings Scheme (MSS) Millionaire Savings Account vi. SME Loan Refinancing Scheme by Bangladesh Bank to support entrepreneurs of Small and Medium Enterprises Refinancing Scheme by Bangladesh Bank to support women of Small and Medium Enterprises i.

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i. Mortgage Loan: The Company offers mortgage financing for construction, development and purchase of houses, plots, apartments, real estates, commercial spaces etc. Repayment occurs in the form of Equated Monthly Installments (EMI) comprising of principal and interest. The Company offers mortgage financing for a Maximum of 15 years and the interest rate for the EMIs are reviewed based on the prevailing market interest rate. ii. Lease Finance: The Company has recently begun its lease financing services for Industrial Equipment, Office Equipment, and Corporate Vehicle etc. at attractive terms and installments. iii. Term Loan: The Company also offers term loans of different tenures at competitive rates to the satisfaction of its clients iv. Working Capital and Work Order Finance: The Company offers working capital and work order finance to various borrowers to grow their businesses. v. Deposit Schemes: The Company offers various deposit schemes in accordance with its clients' suitability and needs effective from 1st April 2005. Income Account, Term Deposit Account and Double Money Account are the lucrative deposit schemes of The Company as described below: a) Income Account: This scheme offers a fixed monthly, quarterly, or half-yearly income on the deposit for a period of two years with a minimum deposit requirement of Tk. 100,000/-. The depositors are offered to enjoy a regular cash flow during the term keeping their deposit intact, which is receivable at the end of the term. b) Term Deposit Account: It offers attractive return to the depositors on a minimum deposit of Tk. 50,000/- The principal along with interest are paid at the end of maturity which ranges from 1 to 3 years. This scheme is attractive to the depositors as they can earn higher return due to the interest compounded over the periods till maturity. c) Double Money Account: Depositors are offered to double their deposit in 96 months with a minimum deposit of Tk. 50,000/- in this scheme of The Company. d) Monthly Savings Scheme: It allows people to save in affordable installments and enjoy an attractive return at the end of the tenure. The savings tenure are of 3 and 5 years.

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e) Millionaire Savings Scheme: It offers the depositors to save in equal installments in every month until seven or ten years. At the end of the savings tenure, the depositor becomes millionaire. IDLC To ensure steady and long term growth as well as to sharpen its competitive edge in a changing and challenging business environment, IDLC always endeavors to diversify into other financial services which have long term prospects. In 1997, it expanded its range of services by introducing Housing Finance and Short Term Finance, which have broadened its customer base and have contributed significantly to IDLC growth and profitability. In early 1999, after getting license of Merchant Banking from Securities and Exchange Commission, IDLC started its operation of underwriting, issue management, corporate financing and other investment banking related services. The products and service to ensure steady and long term growth as well as to sharpen its competitive edge in a changing and challenging business environment, IDLC always endeavors to diversify into other financial services which have long term prospects. In 1997, it expanded its range of services by introducing Housing Finance and Short Term Finance, which have broadened its customer base and have contributed significantly to IDLC growth and profitability. In early 1999, after getting license of Merchant Banking from Securities and Exchange Commission, IDLC started its operation of underwriting, issue management, corporate financing and other investment banking related services. The products and services are as follows

1. LEASING Assets are leased to clients on predetermined rental basis for a fixed term with a purchase option at the end. 2. TERM LOAN The customers are offered loan facilities for a determined term at a negotiated rate. 3. EQUITY FINANCING IDLC invests money into equity of both publicly traded and non-traded companies for dividends and capital gain. 4. INTER CORPORATE DEPOSIT (ICD) This disbursement scheme is offered to clients under two variations: a) Non- Revolving ICD which consists of single disbursement of funds b) Revolving ICD where multiple disbursements and collections take place

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5. WORK ORDER/ PURCHASE ORDER FINANCING the clients are financed against their work order or purchase order on a revolving basis. 6. FACTORING Under this scheme, IDLC finances receivables of supply of goods or delivery of services on credit to help the clients realize the maximum portion of their payment soon after they have made the delivery to the buyer. The payment is collected from the customers and the balanced amount is re-reimbursed to the clients. 7. SYNDICATION IDLC helps to raise fund for clients with huge financial requirement through syndication and also help them with the documentation, execution and administration of the syndicated finance. 8. SECURITIZATION IDLC sell financial instruments of organizations in local financial market backed by their asset/cash flows such as loan, lease etc. 9. BRIDGE FINANCE: This refers to short-term finance (maturity of not more than 12 months) in anticipation of immediate long term financing such as public issue, private placement, syndication, loan, lease, debenture, etc. 10. CAP INVEST IDLC maintains a non-discretionary portfolio account for clients where they have absolute power to make investment decisions. the portfolio manager provides margin loan to clients and also prepares the list of securities in which they can invest.

11. DEPOSIT SCHEMES IDLC offer different variety of deposit schemes for clients. 1 Cumulative Term Deposit 2 Annual Profit Term Deposit

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3 Monthly Earner Deposit 4 Double Money Deposit

12. CAR LOAN Term loan are offered to clients for acquiring car, brand new or reconditioned, for their personal use and the ownership is transferred on loan repayment. 13. HOME LOAN IDLC offers loans to purchase apartment to individuals for their personal use 14. REAL ESTATE FINANCE IDLC finances clients to construct house, renovate and extend house, for office chamber/space for professionals etc. under two different schemes: o Developers Finance Scheme o o Corporate Finance Scheme 15. PRIVATE PLACEMENT IDLC places the shares/debenture with both domestic and overseas investors (institutions or individuals) on private placement basis. 16. UNDERWRITING IDLC makes a univocal and irrevocable commitment with an issuing company to subscribe to the securities of that company when the existing shareholders or the general public do not subscribe to the securities offered to them. The different types of underwriting offered are: o Initial Public offering (IPO) of common stock, preferred stock, debentures etc. o Right Issue o o Underwriting of public securities-loan, lease, debenture 17. ISSUE MANAGEMENT Under this activity, IDLC plan, coordinate and control the entire issue activity of clients and direct other agencies for successful marketing of securities. 18. FINANCIAL ADVISORY SERVICE IDLC help the existing venture or a new venture by providing various advisory services such as corporate counseling, project counseling, capital restructuring, financial engineering etc. 19. MERGERS AND ACQUISITIO IDLC help clients to search for the right organization, evaluate the concern based on different types of analysis and select the method of m & a to make it a profitable deal.

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20. TRUSTEESHIP MANAGEMENT We act as trustee for the debenture holders by accepting security created by the company and take action to safeguard their interest and enforce their rights.

MIDAS The company has to provide several products to compete solely with the competitors and has to launch all the products that are being provided by companies. Products: Loans Leasing Training and Consulting Looking for (Investment Types): Loans in Local Currency Donations Equity investments Loan & other scheme: Housing Loan Call Money CCS Program Lease Financing MIDI Program SED Program LLS Deposit & scheme: Triple Money Deposit Scheme Monthly Deposit Scheme Term Deposit Scheme Monthly/Quarterly Income Deposit Scheme Double Money Deposit Scheme 16. Types of loans Comparative Types of Loan:BHBFC DBH NHFIL IDLC MIDAS

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Six types of loans are by BHBFC: 1. General loan

Five types of Six types of Six types of Seven types of Loans are by loans are by Loans are by loans are by DBH: NHFIL: IDLC: MIDAS: 1.Housing Loan 1.Home Mortgage Loan 1. Home Loans with Home Loan Shield 2. Home Equity Loans 1.Housing Loan

2. Group loan 3. Flat/ Apartment loan 4. Additional loan 5. Short term (5 years) special loan 6. Special loan scheme for middle class and lower middle class (per unit 550 sft to 1000 sft)

2.Family Loan 3.Deposits & shame loan 4.Loan Protection Insurance 5.Property Services Loan

2.Project Mortgage Loan

2.Call Loan

Money

3.Lease Finance 3. Car Loans for Loan Individuals 4.Term Loan 4. Personal for Industries Loan 5.Deposit 5. Machinery Schemes with Loan Attractive Loan 6.SME Loan 6. Business Loan

3.CCS Program loan 4.Lease Financing loan 5.Programming loan 6.SED Program loan

7.LLS loan

17. Loan interest & duration Comparative Loan interest & duration:-

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BHBFC Interest duration For Dhaka & Chittagong Metropolitan area : per annum 12% per annum Other divisional, district & Upazila head quarters : 10%

Amount 40 lack 20-30 lack, other 15 lack

Loan repayment period : General, Additional and group loan the repayment period: - 15 years. Flat/Apartment loan the range of repayment period: - 5 to 15 years. Special scheme the loan repayment period: - 20 years.

Interest The rate of interest 9%

DBH duration The maximum 20 Years home loan is 15 years

Amount 20 lack

NHFIL Interest Interest Rate 16.25% duration Amount The maximum 25Years 20 lack For commercial space or plot 10 years IDLC Interest duration Amount

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The rate of interest 9%

Professional & Service Holders20Years 20-40 lack Businessmen 15 years

MIDAS Interest The rate of interest 12.50% duration Amount

installments period from 3 to 15 Years 3-50 lack commercial space maximum 8 years

18. Industry Analysis Any financial institution finances projects in various industries. The firms belonging to any industry in a country that need financing for any of their purpose may come to financial institution and if approved, avail funds from the financial institutions. Housing and housing finance sector is a powerful engine of economic growth having a multiplier impact in the form of backward linkage with construction and building material industries i.e. cement, steel, ceramic, sanitary-wares, paints, PVC pipes, etc. Having a long history of remaining long years as a developed economy, the economy of the USA is still dependent on this sector to a great extent for its overall development. The housing sector of Bangladesh has been experiencing huge growth during the last few years in Bangladesh. However, the housing finance market is so far concentrated mainly in Dhaka, having share of 80% to 90% of total house financing. With the increase in population in the metropolis of Dhaka and Chittagong, many real estate companies came into existence and are operating successfully. Total housing loans from banks and financial institutions as of end

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June 2007 amounted to Taka 124.6 billion, which was 7.3 percent of total credit to the private sector Any financial institution finances projects in various industries. The firms belonging to any industry in a country that need financing for any of their purpose may come to financial institution and if approved, avail funds from the financial institutions.

IDLC has existing financing facility to the following eighteen industrial sectors. The table includes the total volume of financing to the sectors and percentage of default of the total volume of financing in each sector.

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The table above shows that the two sectors have defaulted a high portion of financing in those sectors. One sector is Information Technology. The defaulters in this sector were mainly IT education firms. There was a fad in our country about IT education and a large number of firms mushroomed for this purpose. Some of them availed financing from IDLC. As the fad fades away they eventually fell in trouble and started defaulting. The other highly defaulting sector, apparel, is a rather confusing one. This sector defaults mainly for management deficiencies. The sector is in most cases operating profitably. But their management is reluctant to pay off the debt.

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The other sectors that need much care at the time of financing are Transport, Food, Agro based products and Iron and Steel sector. The Transport sector defaulters are mainly taxi cab importers who sublease the vehicles to individuals. The low quality of the vehicles was the main reason of their business failure and default. The Food and Agro Based products are subject to high volatility in sales volume. The Iron and Steel sector has the problem of unavailability of quality raw materials. The minimum defaulting sectors are Education, Telecommunication, and Financial Services.

MIDAS conducts industrial project feasibility studies making in-depth analysis of the following aspects:

Management Marketing 47

Technical Financial Socio-economic

Financial and socio-economic analyses are carried out with the help of a computerized program package developed by MIDAS in-house professionals. These services are provided on a fee basis. So far, MIDAS conducted more than 750 feasibility studies.The major clients for this service are: Sonali bank, Pubali Bank, Agrani Bank, Janata Bank, National Bank, BASIC Bank, Bangladesh Small and Cottage Industries Corporation (BSCIC),

19. Loan Recovery process Usually BHBFC and the FIs extend loan for 15 to 20 years. BHBFC realizes repayment of the loan through deposit into designated bank account whereas the FIs realize payment other through post dated cheque. Issues relating to creditors rights freehold or lease hold can be registered in favor of the lender. Bank insufficient returning cheques for fund should facilitate legal action against the defaulter. Defaulters scope to hinder legal process should be minimized handing over the vacant possession must be quick q In case of leasehold properties banks and FIs may be waived from obtaining mortgage permission from the lesser

DBH maintains 100% provision against loans, which are overdue for more than 6 months and any other accounts that are considered by Management as doubtful of recovery. According to DBHs provisioning policy, non performing loan (NPL) stood at 0.11% in FY 2009-10. According to Bangladesh Bank categorization for non savers, corporate bodies, banks & financial institutions. The deposit portfolio of the company has grown by more than 27% over last financial year and crossed Taka 13,000 million marks. As of June 30, 2010 the DBH deposit basket stands at Taka 13,454 million. DBH also receives long-term loans from local banks and foreign development financial institutions. During the FY 2009-10 DBH has received long-term funds worth 2,594.35 million of which Taka 2,494.35 million came from the refinance scheme of the Central

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Bank. As of June 30, 2010 the Bangladesh Bank Housing Loan Refinance portfolio of DBH stands at Taka 4,099.03 million. The healthy growth in profit stability has marked signify cant increase in the net worth of the company. The shareholders fund has increased by more than 22% over last financial year and comprises of around 7% of the resources portfolio. The company is searching for new avenues of funding to meet up the increased appetite of its home loan wing and marketable securities investment operations. The funding status of DBH as of June 30, 2010 is presented below:

Loan fees comprise application fee and administration fee computed on sanctioned loan amount. Lease rental receivables are recognized as operational revenue while depreciation on leased assets along with financial expenses incurred on loan funds are accounted for as operational expenses. As per policy, no income is accrued for installments that are due for more than six months. the NHFIL will avail refinancing from the BB for confessional lending to housing sector at 10 per cent interest.

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An intending applicant may avail loan up to Tk 1.5 million (15 lakh) for purchase of house/apartment within the size of 1250 square feet in the metropolitan areas of Dhaka, Chittagong, Khulna, Rajshahi, Sylhet and Barisal and municipal areas of Narayanganj, Savar, Gazipur and Tongi. An applicant should have regular income below Tk 30,000 per month and should not have any house/apartment in the above areas in his or her own name or in the name family members. Special asset management takes various recovery actions to reduce the overdue amount, thus reducing the infection ratio. These actions differ on the basis of investment classification as follows. Call immediate ext working day after 1st default installment to remind about overdue. Try to get specific commitments from client. Committed date should not exceed seven days. In case of no response from client within seven days, call the client again in order to ascertain reasons for delay and obtain another specific date for payment. In case of failure to reach client through phone calls within seven days from the due date of payment, send reminder letter and visit clients office. To create pressure; try to bring client to IDLC office for discussion over solution of default situation. Age of Overdue: Four to Five months 1 Try to get specific payment date through phone calls, e-mails and repeated visits. 2 Try to get written commitments along with instruments (if required) 3 Send reminder letters within three working days of default of fourth installment. If required, the reminder letter contains a clause indicating that legal actions may follow. 4 Try to bring client to IDLC office for discussion over solution of default situation. 5 If deemed necessary, arrange meetings between higher management of IDLC and the owners/ directors, etc of the chronic organizations. Application A non-refundable amount @ 0.50% of the loan applied for (minimum Tk. 2,000/= and maximum Tk. 5,000/=) is payable at the time of submission of application. Appraisal Appraisal expenses @ 1% of the loan sanctioned is payable while accepting the sanction letter

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20. Loan Portfolio

Category Total outstanding portfolio Principal Interest

Amount (Tk millions) 25,163 14,336 10,827a

a. Of this amount, Tk 931 million is suspended, Tk 2,436 million is deferred, and Tk 7,460 million is due or due but not received. They were 12 percent for Dhaka and Chittagong, and 10 percent elsewhere [effective rate 9.6 percent)]), which averages 14.5 percent. The maturity of BHBFC loans is 1520 years, compared with approximately 10 years for market-offered mortgages. The BHBFC suffers from misaligned operational incentives. In view of its lower income developmental focus, the institution has enjoyed various privileges regarding taxation, prudential obligations, and capital raisingchief among them, government support for its funding. Traditionally, the main source of funding has been subsidized debentures with government guarantees and statutory liquidity ratio eligibility, although the government has been reluctant to allow BHBFC recent issues (since 1998). Outstanding debentures amount to Tk 12.2 billion, at an average cost of capital of approximately 6 percent. They are 75 percent subsidized by Bangladesh Bank and 25 percent subsidized by financial institutions. There is no active secondary market for these debentures. The BHBFC would rather benefit from aligning its funding and performance with the market; and receiving instead an explicit, transparent, and well-targeted subsidy for each low-income mortgage financed. The BHBFC traditionally has shown a poor ability to maintain payment discipline among its borrowers. Its poor performance in this field, added to the negative legacy of past government programs in rural areas, has deeply affected the quality of its portfolio. Nonperforming loans amount to 18 percent of its gross loan portfolioall the more worrisome in view of the Ministry of Finances more lenient classification of loan arrears, compared with the standards used by Bangladesh Bank for commercial banks.4 The current recovery rate remains below 50 percent. What is worth mentioning, however, is the emphasis that management now puts on collection efforts. The BHBFC does enforce security rights: it grants only registered mortgages. Part of the low recovery rate reflects the length of court procedures; and the nonperforming loan rate has been decreasing in the past five years. The corporation is raising loan-loss provisions to the Bangladesh Banks regulatory level. But the provisioning capacity can be seen in a globally negative way, as a diversion of subsidies that enables the institution to afford the

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consequences of its former permissive policy at the expense of the borrowers to whom the subsidy should be passed. Because of the restrictions imposed on its funding by the government, the BHBFC (which is not allowed to take deposits) has been forced to limit its new lendingessentially based on recoveries. New loan sanctions have been small: Tk 839 million in fiscal 2007/08 and Tk 2,366 million in fiscal 2008/09. BHBFC is the channel for a nontransparent and ill-targeted government subsidization mechanism. The rates charged on loans are significantly below those of all other lenders: 10 percent, 13 percent, or 15 percent nominally. The effective rates are even lower because of interest computation methods, rescheduling, and rewards to regular payers. The combination of these administrative rates with below-market refinancing makes measuring the precise subsidy volume almost impossible. According to its charter, the BHBFC should focus on lower-income groups; however, despite a lending limit of Tk 250,000, it tends to lend to higher-income house buyers. n spite of its shortcomings, the BHBFC has many positive aspects to harness. Traditionally the oldest mortgage finance provider, it has accumulated institutional knowledge and experience; and it is well versed in housing, mortgage lending, titling, and documenting issues. As housing needs spiral upward, the shortfall in mass, bulk housing funding can be better addressed by this organization. It is, by far, the largest specialized financial institution, having widespread geographic presence and a very large borrower base. Because of its geographic spread, it is well placed to further any government programs aimed at providing housing solutions for lower-income groups.

Installments (EMI) which consists of principal and interest. Interest is calculated annually on the outstanding balance at the beginning of the year. EMI commences after disbursement of loan in full. EMI and Pre-EMI interests are recoverable every month from the borrowers, interest on loan due for payment for more than six months are not taken into account.

Loan fees comprise application fee and administration fee computed on sanctioned loan amount. Lease rental receivables are recognized as operational revenue while depreciation on leased assets along with financial expenses incurred on loan funds are accounted for as operational expenses. As per policy, no income is accrued for installments that are due for more than six months. General provision @ 1% on unclassified loans is made as per policy prescribed by the Bangladesh Bank. In addition to Bangladesh Bank's policy for provision against nonperforming loans, the Company follows a stringent policy to make provision against its non-performing loans.

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21. Housing conditions and supply Before we turn our attention to the housing finance system, we analyze briefly the present housing conditions and requirements for Bangladesh and the ways housing is produced and supplied. Many studies have been carried out of the urban and rural housing and services situation and housing delivery systems, in particular by the Center for Urban Studies in Dhaka. Here we provide only a summary of pertinent findings important for an understanding of housing finance issues

The poor economic situation and income inequality in the country is reflected in the quality of the housing stock. It was estimated that close to half of all housing units in the country were made of temporary materials and needed replacement within a one- to five-year period. Approximately one third of all houses in urban areas were constructed outside of the formal regulatory system, mostly on land to which the homeowner does not have a formal title. Table I shows some characteristics of the housing sector compiled from different studies conducted by the Centre for Urban Studies. Tragically, the recent floods have destroyed more than 900,000 houses, mostly in rural areas, and another 1.3 million houses were seriously damaged. Of course, most of the houses affected were in the lowincome category. The only detailed figures on the type of housing in urban areas are available for Dhaka. Although the data are old, the situation has not changed much for the better and it is, therefore, still relevant to provide a broad picture of the urban housing conditions. The higher and middle-income groups are housed in either low-rise singlefamily houses, or, increasingly, in multifamily apartment buildings. The lower-income households, approximately 70% of the urban households, are housed in a variety of house types that can be described as follows

pproximately half of the low-income housing units are in bustees, informal Settlements A areas that include both private rental and private ownership housing, Built on either privately owned land or illegally occupied public land.

Conventional tenement slums (rental and owner occupied) take up another quarter of the low-income sector. Overcrowding in these buildings has increased over the last years due to an influx of rural migrants to work in the expanding garment industry. Other categories of low-income housing include: government-provided squatter Resettlement camps, plots of land with basic services that are provided on a leasehold basis; employee housing consisting mostly of small apartments in high-rise complexes provided by the government; squatters who have built makeshift houses on illegally occupied public or private land; and pavement dwellers.

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Housing sector characteristics of Bangladesh 2009 Total number of dwelling units: Bangladesh Rural Urban Per capita floor space: Bangladesh Rural Urban Occupancy level in 2009 Access to clean water Rural Urban 25,020,489 18,474,566 6,545,923 54.9 square feet 53.3 square feet 62.3 square feet 5.48 people 78% 42%

22. Current state of housing Bangladesh has a high population densityabout 1,200 people per square kilometer and a limited area of 134,000 square kilometers, which is frequently flooded during the summer months. In such difficult conditions, only 23 percent of housing in urban areas and merely 2 percent in rural areas is permanent housing. Close to half of all housing units in the country (approximately 3.3 million) are made of temporary materials. This nondurable housing requires replacement within one to five years after construction. Even among the housing defined as permanent, there are many types of dwellings with only some degree of permanency, ranging from construction with brick masonry and reinforced concrete construction pillars to tin-roofed and tin-walled houses. The heterogeneity of housing makes it difficult to estimate construction and housing materials costs, and complicates the measurement of real estate price indexes. The higher- and middle-income groups are housed in either low-rise, single-family houses or, increasingly, in multifamily apartment buildings (table B.2). The lower income households (approximately 70 percent of the urban households) are housed in a variety of house types. Approximately half of the low-income housing units are in bustees (slums), informal settlement areas that include both private rental and private ownership housing built either on privately owned land or on illegally occupied public land. Conventional tenement slums (rental and owner occupied) take up another quarter of the low-income sector. These multiunit buildings originally were:

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Table 1.Housing sector characteristics Characteristic Total number of dwelling units Per capita floor space (sq. ft.) Occupancy level (people per dwelling unit) Proportion of permanent structures (%) Proportion of rental units (%) Access to clean water (% of population) Bangladesh Overall 19,020,489 54.9 5.48 (Dhaka 65) Rural Areas 15,474,566 53.5 21 5 78 Urban Areas 3,545,923 62.3 46 40 42

23. Current trends in housing finance Over the last few decades, comprehensive studies of housing markets and housing finance systems across the world have created a shared body of knowledge on what constitute effective and non-effective housing policies and housing market regulations. In particular, programs to finance social housing are perceived differently today than a few decades ago, both in developing countries and advanced economies. The focus is on creating wellfunctioning housing markets and the expansion of a safe and sound housing finance system. Housing finance systems in many developing and emerging economies share several characteristics. First, most housing finance systems are, in Regards words, institutional patchworks that comprise private sector lenders as well as several government-managed housing finance institutions or programs (Renaud, 1997), in the form of special government housing banks or special housing funds capitalized by payroll taxes. These institutions stifle competition in the financial system because of their access to low-cost government funds and prevent innovations in the way housing finance is provided. In most countries these programs are dominated by special interests, and allocation of funds to either private borrowers or construction firms no longer focuses on disadvantaged groups. The private banks do not consider long-term lending for housing a priority because of the associated risks in non- integrated financial systems and the predominance of government finance

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programs catering to the same professional middle class to which the financial sector might want to extend their service.

Second, many government programs use interest-rate subsidies on fixed-rate long-term mortgages which have some negative characteristics: 1) the funding and cost of special government lending programs to the economy is non-transparent, i.e., it is not on the budget and increases with inflation; 2) the subsidized interest-rate programs stimulate debt acquisition rather than savings, in other words the more one borrows, the higher ones subsidy (see Renaud, 1984, 1997; Diamond, 1997; Hoek-Smit, Diamond and Bovet, 1997; Hoek-Smit, 1998 for analyses of housing finance systems in Latin America, Asia and Africa).

As a consequence, the formal housing finance system only provides mortgage loans for a small proportion of newly constructed houses and home purchases. A much larger proportion of households than necessary have to finance housing from savings or build incrementally and at a low standard because upfront finance that would allow them to purchase a higher quality home and pay for it over a longer period is not affordable or inaccessible. Of course, formal finance is inaccessible for many households in developing countries for other reasons. These include insecure and undocumented incomes, a lack of land and housing options for middle and low income households that are acceptable as collateral to banks, and the high costs and related lack of interest by the banks to work with small clients, to name just a few.

Increasingly, developing countries move towards a more integrated modern housing finance system. First, there is a trend to increasingly rely on capital markets as sources of funds for primary housing finance lenders rather than on depository institutions alone. Second, it has been shown that, if assistance to low and moderate income households is necessary, subsidy programs are best designed to allow households to participate in the housing market, rather than provide public housing. Third, support to moderate income borrowers to acquire loans through the private financial sector has proven to be most efficient if it is provided as a direct demand subsidy in combination with other facilitating measures and incentives to the banks rather than as interest-rate subsidies through segregated government lending programs and institutions. This way, mixing subsidized finance with market-based lending is avoided in order not to distort prices and create disincentives for expansion of the private finance sector (e.g., preventing access to capital 57

markets). Fourth, for those households who cannot use the private sector for their housing finance needs, even with incentive programs, special social housing funds or lending mechanisms are used that provide shorter-term and smaller loans, at concessionary rates if necessary, but which are clearly separated from the rest of the housing finance system. Both types of finance subsidies are set up to be efficient, transparent and well targeted to those who cannot participate in the formal housing finance sector without such support. Many Latin American countries (e.g. Chili, Costa Rica) and several South Asian countries (e.g. Malaysia, Thailand, India) have initiated a fundamental restructuring of their housing finance systems according to these principles. Even though all countries have a different history in the development of their housing and housing finance system, it is important to make use of the experiences of other countries with a similar economic and financial background. The analysis of the Bangladesh housing finance system is undertaken against the background of these international developments.

24. Risk management Credit risk management process should cover the entire credit cycle starting from the origination of the credit in a financial institutions books to the point the credit is extinguished from the books. It should provide for sound practices in: 1 21. Credit processing/appraisal; 2. Credit approval/sanction; 33. Credit documentation; 44. Credit administration; 55. Disbursement; 66. Monitoring and control of individual credits; 77. Monitoring the overall credit portfolio (stress testing) 88. Credit classification; and 99. Managing problem credits/recovery

Credit Processing/Appraisal
Credit processing is the stage where all required information on credit is gathered and applications are screened. Credit application forms should be sufficiently detailed to permit gathering of all information needed for credit assessment at the outset. In this connection, NBFIs should have a checklist to ensure that all required information is, in fact, collected.

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NBFIs should set out pre-qualification screening criteria, which would act as a guide for their officers to determine the types of credit that are acceptable. For instance, the criteria may include rejecting applications from blacklisted customers. These criteria would help institutions avoid processing and screening applications that would be later rejected. Moreover, all credits should be for legitimate purposes and adequate processes should be established to ensure that financial institutions are not used for fraudulent activities or activities that are prohibited by law or are of such nature that if permitted would contravene the provisions of law. Institutions must not expose themselves to reputation risk associated with granting credit to customers of questionable repute and integrity. The next stage to credit screening is credit appraisal where the financial institution assesses the customers ability to meet his obligations. Institutions should establish well designed credit appraisal criteria to ensure that facilities are granted only to creditworthy customers who can make repayments from reasonably determinable sources of cash flow on a timely basis. Financial institutions usually require collateral or guarantees in support of a credit in order to mitigate risk. It must be recognized that collateral and guarantees are merely instruments of risk mitigation. They are, by no means, substitutes for a customers ability to generate sufficient cash flows to honor his contractual repayment obligations. Collateral and guarantees cannot obviate or minimize the need for a comprehensive assessment of the customers ability to observe repayment schedule nor should they be allowed to compensate for insufficient information from the customer. Care should be taken that working capital financing is not based entirely on the existence of collateral or guarantees. Such financing must be supported by a proper analysis of projected levels of sales and cost of sales, prudential working capital ratio, past experience of working capital financing, and contributions to such capital by the borrower itself. Financial institutions must have a policy for valuing collateral, taking into account the requirements of the Bangladesh Bank guidelines dealing with the matter. Such a policy shall, among other things, provide for acceptability of various forms of collateral, their periodic valuation, process for ensuring their continuing legal enforceability and realization value. In the case of loan syndication, a participating financial institution should have a policy to ensure that it does not place undue reliance on the credit risk analysis carried out by the lead underwriter. The institution must carry out its own due diligence, including credit risk analysis, and an assessment of the terms and conditions of the syndication. The appraisal criteria will of necessity vary between corporate credit applicants and personal

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credit customers. Corporate credit applicants must provide audited financial statements in support of their applications. As a general rule, the appraisal criteria will focus on: 1 2 Amount and purpose of facilities and sources of repayment; 3 Integrity and reputation of the applicant as well as his legal capacity to assume the credit obligation; 4 Risk profile of the borrower and the sensitivity of the applicable industry sector to economic fluctuations; 5 Performance of the borrower in any credit previously granted by the financial institution, and other institutions, in which case a credit report should be sought from them; 6 The borrowers capacity to repay based on his business plan, if relevant, and projected cash flows using different scenarios; Cumulative exposure of the borrower to different institutions; Physical inspection of the borrowers business premises as well as the facility that is the subject of the proposed financing; Borrowers business expertise; Adequacy and enforceability of collateral or guarantees, taking into account the existence of any previous charges of other institutions on the collateral; Current and forecast operating environment of the borrower; Background information on shareholders, directors and beneficial owners for corporate customers; and Management capacity of corporate customers.

Credit Approval /Sanction

A financial institution must have some written guidelines on the credit approval process and the approval authorities of individuals or committees as well as the basis of those decisions. Approval authorities should be sanctioned by the board of directors. Approval authorities will cover new credit approvals, renewals of existing credits, and changes in terms and conditions of previously approved credits, particularly credit restructuring, all of which should be fully documented and recorded. Prudent credit practice requires that persons empowered with the credit approval authority should not also have the customer relationship responsibility. Approval authorities of individuals should be commensurate to their positions within management ranks as well as their expertise. Depending on the nature and size of credit, it would be prudent to require approval of two officers on a credit application, in accordance with the Boards policy. The approval process should be based on a system of checks and balances. Some approval authorities will be reserved for the credit committee in view of the size and complexity of the credit transaction.

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Credit Documentation
Documentation is an essential part of the credit process and is required for each phase of the credit cycle, including credit application, credit analysis, credit approval, credit monitoring, and collateral valuation, and impairment recognition, foreclosure of impaired loan and realization of security. The format of credit files must be standardized and files neatly maintained with an appropriate system of cross-indexing to facilitate review and follow-up. Documentation establishes the relationship between the financial institution and the borrower and forms the basis for any legal action in a court of law. Institutions must ensure that contractual agreements with their borrowers are vetted by their legal advisers. Credit applications must be documented regardless of their approval or rejection. For security reasons, financial institutions need to consider keeping the copies of critical documents (i.e., those of legal value, facility letters, and signed loan agreements) in credit files while retaining the originals in more secure custody. Credit files should also be stored in fire-proof cabinets and should not be removed from the institution's premises.

Credit Administration
Financial institutions must ensure that their credit portfolio is properly administered, that is, loan agreements are duly prepared, renewal notices are sent systematically and credit files are regularly updated. An institution may allocate its credit administration function to a separate department or to designated individuals in credit operations, depending on the size and complexity of its credit portfolio. A financial institutions credit administration function should, as a minimum, ensure that: Credit files are neatly organized, cross-indexed, and their removal from the premises is not permitted; The borrower has registered the required insurance policy in favor of the bank and is regularly paying the premiums; The borrower is making timely repayments of lease rents in respect of charged leasehold properties; Credit facilities are disbursed only after all the contractual terms and conditions have been met and all the required documents have been received; Collateral value is regularly monitored; 61

 The borrower is making timely repayments on interest, principal and any agreed to fees and commissions; Information provided to management is both accurate and timely; Funds disbursed under the credit agreement are, in fact, used for the purpose for which they were granted; Back office operations are properly controlled; The established policies and procedures as well as relevant laws and regulations are complied with; and On-site inspection visits of the borrowers business are regularly conducted and assessments documented.

Disbursement
Once the credit is approved, the customer should be advised of the terms and conditions of the credit by way of a letter of offer. The duplicate of this letter should be duly signed and returned to the institution by the customer. The facility disbursement process should start only upon receipt of this letter and should involve, inter alia, the completion of formalities regarding documentation, the registration of collateral, insurance cover in the institutions favor and the vetting of documents by a legal expert. Under no circumstances shall funds be released prior to compliance with pre-disbursement conditions and approval by the relevant authorities in the financial institution.

Monitoring & Control of Individual Credit

To safeguard financial institutions against potential losses, problem facilities need to be identified early. A proper credit monitoring system will provide the basis for taking prompt corrective actions when warning signs point to deterioration in the financial health of the borrower. Examples of such warning signs include unauthorized drawings, arrears in capital and interest and deterioration in the borrowers operating environment. Financial institutions must have a system in place to formally review the status of the credit and the financial health of the borrower at least once a year. More frequent reviews (e.g. at least quarterly) should be carried out of large credits, problem credits or when the operating environment of the customer is undergoing significant changes. Funds advanced are used only for the purpose stated in the customers credit application; 1 Financial condition of a borrower is regularly tracked and management advised in a timely fashion; 2 Borrowers are complying with contractual covenants; 3 Collateral coverage is regularly assessed and related to the borrowers financial 4The institutions internal risk ratings reflect the current condition of the customer; 1 Contractual payment delinquencies are identified and emerging problem credits are classified on a timely basis; and 2 Problem credits are promptly directed to management for remedial actions. 62

3 More specifically, the above monitoring will include a review of up-to-date information on the borrower, encompassing: 4 Opinions from other financial institutions with whom the customer deals; 5 Findings of site visits; 6 Audited financial statements and latest management accounts; 7 Details of customers' business plans; 8 Financial budgets and cash flow projections; and 9 Any relevant board resolutions for corporate customers.

Maintaining the overall Credit Portfolio

An important element of sound credit risk management is analyzing what could potentially go wrong with individual credits and the overall credit portfolio if conditions/environment in which borrowers operate change significantly. The results of this analysis should then be factored into the assessment of the adequacy of provisioning and capital of the institution. Such stress analysis can reveal previously undetected areas of potential credit risk exposure that could arise in times of crisis. Possible scenarios that financial institutions should consider in carrying out stress testing include: 1 2 Significant economic or industry sector downturns; Adverse market-risk events; and 1 Unfavorable liquidity conditions. Financial institutions should have industry profiles in respect of all industries where they have significant exposures. Such profiles must be reviewed /updated every year.

Risk is the inherent element of any institutions like banks and financial institutions involved in providing financial services. To retain the risk at manageable level to optimize the return the Board of your Company has created Sub Committee on ALM and Risk Management to assist the Board on financial risk related issues. The committee is engaged in properly addressing the risk related issues on timely manner and formulate policy to mitigate those to safeguard its assets and its shareholders. Asset Liability Management Committee (ALCO) and Credit Committee (CC) are basically responsible for the management of risk that the Company is to face. ALCO is responsible for managing Market Risk and Balance Sheet Management. It has the delegated authority and responsibility of managing deposit rates, lending rates, spreads, transfer pricing, etc in line with the guidelines of the central bank. Credit Committee (CC) on the other Social Responsibility is a concept with a growing prevalence in Bangladesh and around the globe. It means taking responsible attitude going beyond the legal requirements towards society.

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CSR is the platform where any corporate has the opportunity to cut across almost all stakeholders by addressing the issues, like; deal responsibly with customers and suppliers, work with the local community for its betterment, understand environmental impact. As part of its CSR effort, DBH patronizes number of programmers to have greater involvement with the local community.

Habitat for Humanity International Bangladesh (HFHIB), an internationally reputed nongovernment organization (NGO) with the financial assistance of DBH constructed low cost houses for the low-income families in Savar. DBH is the first among the countrys financial institutions, which is supporting to build low cost houses for low-income families.

Classification of Credit
Credit classification process grades individual credits in terms of the expected degree of recoverability. Financial institutions must have in place the processes and controls to implement the board approved policies, which will, in turn, be in accord with the proposed guideline. This guideline may also be called as Credit Risk Grading (CRG), is a collective is a collective definition based on the pre-specified scale and reflects the underlying creditrisk for a given exposure. A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit exposure. Credit Risk Grading is the basic module for developing a Credit Risk Management system. Credit risk grading is an important tool for credit risk management as it helps the Financial Institutions to understand various dimensions of risk involved in different credit transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the quality of credit portfolio of a FI. The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction stage. Two- types of factors play vital role in modeling the CRG, they are, 1. Quantitative factors 2. Qualitative factors The chart is given in the following page;

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Managing Problem Credits/Recovery

A financial institutions credit risk policy should clearly set out how problem credits are to be managed. The positioning of this responsibility in the credit department of an institution may depend on the size and complexity of credit operations. It may form part of the credit monitoring section of the credit department or located as an independent unit, called the credit workout unit, within the department. Often it is more prudent and indeed preferable to segregate the workout activity from the area that originated the credit in order to achieve a more detached review of problem credits. The workout unit will follow all aspects of the problem credit, including rehabilitation of the borrower, restructuring of credit, monitoring the value of applicable collateral, scrutiny of legal documents, and dealing with receiver/manager until the recovery matters are finalized. Financial institutions will put in place systems to ensure that management is kept advised on a regular basis on all developments in the recovery process, may that emanate from the credit workout unit or other parts of the credit department. There should be clear evidence on file of the steps that have been taken by the financial institution in pursuing its claims against a delinquent customer, including any legal steps initiated to realize on the collateral. Where there is a delay in the liquidation of collateral or other credit recovery processes, the rationale should be properly documented and anticipated actions recorded, taking into account any revised plans submitted by the borrower. The accountability of individuals/committees who sanctioned the credit as well as those who subsequently monitored the credit should be revisited and responsibilities ascribed. Lessons learned from the post mortem should be duly recorded on file.

25.

Security Ratio

Security Ratio is the ratio of the monetary amount of the security kept by a financer to the amount financed. The security amount is deposited by the borrower to the financer as cash deposit, security deposit, etc. This amount is readily available to the financial institution in case the borrower defaults in making its payments.

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The security ratio demonstrates the portion of the borrowed amount that the lender can recover from the client without facing any difficulty. This means that the higher the security ratio for a client, the greater amount of money the borrower has to lose immediately if it defaults in repayment of the facility it availed. The figure above shows a negative relationship between the security ratio and default volume, that is, the higher the security ratio, the lower is the default volume. Further, the relationship is quite strong. This indicates that the security ratio acts as safeguard against defaults and at the same time discourages the borrowers from defaulting.

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26. Financial performance BHBFC Profit & loss account For the year ended 31, December, 2011 Particulars 2010(taka) 2011(taka) 681,866,184 653,966,684 357,480,810 133,640,068 162,845,806

Interest of banking.. 682,562,750 Debenture 609,663,250 Bangladesh bank 337,449,259 Other schedule bank 109,368,185 Government of Bangladesh liabilities 162,845,806 Interest on Government of Bangladesh deposit & Capital.. Fixed deposit Refundable deposit Paid up capital.. Government loan. Donation and subscription.. Expense for corporate social responsibilities .

72,899,500 2,700,000 3,199,500 22,000,000 45,000,000 362,000 10,000,000

27,899,500 2,700,000 3,199,500 22,000,000 200,000 ---------994,581,279 1,050,075,585 12,080,987 1,062,156,572 18,657,826 1,050,814,398 (449,818,186) 630,996,212 -----------2,000,000 2,000,000 626,996,212 630,996,212

Total expenditure before Bad debt provision. 1,029,964,521 Profit & Losses for the year 1,119,499,069 Add: prior year adjustment .. 136,486 Net profit before bad debt provision.. 1,119,635,555 Add: excess bad debt provision. 103,827,523 Net profit before taxation 1,223,463,078 Less provision for taxation.. 465,005,426 Profit loss available for distribution 758,457,652 Distribution of post tax profit Special reserve . ---------------General reserve. 2,000,000 Building reserve 2,000,000 Debenture redemption fund. 754,448,842 Total distribution of profit. 758,457,652

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BHBFC Balance sheet For the year ended 31, December .2011 Assets & Liabilities Assets Loan & advances. Less: diapered interest on unclassified Loan .. Loans & advanced classified... Loans & advanced unclassified Fixed asset at cost less defecation .... Current assets Stock. Advance Advance income tax. Other assets. Sundry loan.. Pier year adjustment.. Sundry debtors.. Other. Investment at cost 2010(taka) 2011(taka)

25 11, 23, 49,540 ( 224,62,46,600) 2296,61,02,940 372, 23,46,110 2924, 3756,830 6, 51, 61,418 6,51,61,418 475,52,82,188 7,26,987 72,72,14,012 402,73,41,189 58,63,37,477 ----------------2,62,210 2,64,56,900 55,96,18,367 301,11,55,038

2499, 69, 97,783 (223,82,25,857) 2275,87,71,926 333,57,59,817 1942, 30, 12,109 6, 07, 80,759 6,07,80,759 407,63,06,039 6,40,748 68,78,49,507 338,78,16,284 65,17,98,771 2,96,600 2,62,210 4,57,19,244 60,55,20,718 233,93,22,083 83,74,16,474 79,29,92,954 4,44,23,520 3072,42,96,051

Cash & bank balance.. 66,66,64,354 Cash at bank. 60,18,49,911 Cash at bank collection account. 6,48,14,443 Total property & assets... 3205,07,03,415

Liabilities Authorized capital Issued subscribed & paid up capital.. Reserve fund. Credit reserve. Building reserve.. Tax free reserve Reserve for bad & doubtful debts. 69 110,00,00,000 110,00,00,000 10,92,77,581 5,34,15,911 5,58,61,670 121,43,90,257 127,44,16,684 110,00,00,000 110,00,00,000 10,52,77,581 5,14,15,911 5,38,61,670 121,43,90,257 129,30,74,510

Loans: Readable debenture .. Bangladesh bank.. Other sea dual bank. Advance & deposit. Fixed deposit.. Refundable deposit. Denature redemption fund Other liabilities. Govt liabilities Govt loan... Provision for income tax

967,74,99,992 722,99,99,992 244,75,00,000 12,71,32,000 7,50,00,000 5,21,32,000 1098,03,55,179 618,60,37,365 35,80,34,168 150,00,00,000 432,80,03,197

1049,08,33,326 758,08,33,326 291,00,00,000 12,71,32,000 7,50,00,000 5,21,32,000 1035,33,58,967 459,42,53,346 71,60,68,335 -------------387,81,85,011 144,60,76,064 2,55,73,588 1,67,70,123 8,35,50,319 34,84,0279 74,35,84,963 53,14,89,332 3,94,57,753 15,96,772 5,68,935 3072,43,96,051

Current liabilities 138,15,94,397 Sundry creditor 3,89,00,590 Adjustment account unpaid expanse 1,55,01,953 Adjustment account pension fund -------------------Sundry loan..... 30,81,360 Interest suspend .. 81,03,45,350 Interest departs 47,20,21,167 Compantensary fund 3,95,78,230 Provision for unrealized rest receivable. 15,96,772 Provision for unrealized bank balance 5,68,935 Total capital & liabilities 3205,07.03,415

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DBH Profit & loss account For the year ended 31, December, 2011 Account title 2007 2008 2009 2010 2011

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DBH Cash flow statement For the year ended 31, December .2011 Account title 2007 2008 2009 2010 2011

DBH Balance sheet For the year ended 31, December .2011 Account title 2007 2008 2009 2010 2011

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73

NHFIL
Profit and Loss Account For the year ended December 31, 2009

Particular

note

2010

2011

74

NHFIL Balance sheet For the year ended 31, December .2011 Assets & liabilities note 2010 2011

75

NHFIL Cash Flow Statement For the year ended December 31, 2011 particular 2010 2011

76

IDLC Profit and Loss Account For the year ended December 31, 2011
Particular note 2010 2011

77

IDLC Cash Flow Statement for the year ended December 31, 2011 Particulars A) Cash flows from operating activities 2010 2011

78

79

[[[

80

IDLC Balance sheet For the year ended 31, December .2011 note 2010 2011

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MIDAS
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31, DECEMBER 2011 Particular Interest Income
Less: Interest paid on Deposits & Borrowings etc. Net Interest Income Income from Investment in Securities Commission, Exchange and Brokerage Other Operating Income

2010 (taka)
493,963,215 406,490,715 87,472,501 3,100,752 1,500,000 13,068,818 17,669,570

2011(taka)
310,863,571 163,318,592 147,544,979 52,380,001 21,725,000 15,288,164 89,393,165 236,938,144 27,860,352 3,223,734 1,218,004 1,160,676 2,340,838 625,000 523,250 3,624,409 8,219,131 48,795,394 188,142,749 15,926,172 (4,440,348) 17,183,775 28,669,599 159,473,150

Total Operating Income Salaries and Allowances Rent, Taxes, Insurances, Electricity etc. Legal Expenses Postage, Stamps, Telecommunication etc. Stationery, Printings, Advertisements etc. Managing Director's Salary and Allowances Directors' Fees Auditors' Fees -Depreciation & Repairs of NBFI's Assets Other Expenses Total Operating Expenses Profit before Provision General Provisions for Unclassified Investment Specific provisions for Classified Investment Provisions for Investment in Securities Total Provision Total Profit before Provisions for Taxation

105,142,071 38,183,356 5,287,166 546,119 1,864,493 2,498,016 1,635,000 667,000 4,873,083 5,728,829 61,283,062 43,859,009 18,226,090 21,314,722 18,821,568 58,362,380 (14,503,371)

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Deferred Tax Expenses Current Tax Expenses

18,454,121 18,454,121

50,100,100 50,100,100 109,373,050

Net Profit after Taxation

(32,957,492)

Earning Per Share (Re-stated) Diluted Earning Per Share

(0.60) (0.55)

2.00 --

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MIDAS BALANCE SHEET FOR THE YEAR ENDED ON 31, DECEMBER 2011 Assets & Liabilities
PROPERTY AND ASSETS Cash Cash in hand Balance with Bangladesh Bank

2010(taka)

2011(taka)

16,575,968 35,961,348 52,537,316

11,193,054 29,124,527 40,317,581 203,585,710 ---203,585,710

Balance with other Banks and Financial Institutions Inside Bangladesh Outside Bangladesh

196,360,624 --196,360,624

Money at call and short notice

Investments in Securities Government Others

190,000,000
----533,042,191 533,042,191

---- ------497,340,165 497,340,165

Lease, Loans and Advances In Bangladesh Outside Bangladesh Fixed Assets including Premises, Furniture and Fixtures Other Assets Non Banking Assets Total Assets

6,251,263,704 -------6,251,263,704 186,920,201 372,435,258 -------------7,782,559,295

5,676,589,990 --------5,676,589,990 153,278,204 268,523,169 ----------6,839,634,819

LIABILITIES AND CAPITAL Liabilities Borrowings from other Banks, Financial Institutions and Agents Deposits and Other Accounts Term Deposits Other Deposits Bills Payable

4,638,669,512 1,664,554,193 37,561,493 ------------1,702,115,686

4,254,931,698 1,194,393,134 35,268,459 ---------- - 1,229,661,594 631,365,129

Other Liabilities

751,055,189

Total Liabilities Capital/Shareholders' Equity

7,091,840,388

6,115,958,420

Paid-up Capital Statutory Reserve

Retained Earnings Total Shareholders' Equity Total Liabilities & Shareholders' Equity

546,675,800 118,490,854
25,552,253 690,718,907 7,782,559,295

546,675,800 118,490,854
58,509,745 723,676,399 6,839,634,819

MIDAS CASH FLOW STATEMENT FOR THE YEAR ENDED ON 31, DECEMBER 2011 Particulars
Cash Flow from Operating Activities Collection from Operating Activities Payments for Operating activities Cash Flow from Investing Activities Acquisition/Adjustment of Fixed Assets Investment in Lease/Loan Purchase/Sale of Marketable Securities Cash Flow from Financing Activities Term Loans Received/(Payment) Term Deposits Received/(Payment) Company income Tax Paid Other Finance and Advance

2010(taka)
66,103,123 509,726,511 (443,623,388) (647,506,381) (37,130,640) (574,673,714) (35,702,026) 586,397,907 193,737,814 472,454,092 (9,776,588) (70,017,411)

2011(taka)
186,762,982 399,023,403 ( 212,260,421) (1,722,224,233) (25,860,207) (1,540,000,169) (156,363,857) 1,549,382,322 1,341,762,470 212,456,486 (4,929,546) 92,912

Net Cash Flows from Operating, Investing and Financing Activities: Add Opening Cash and Bank Balance Closing Cash and Bank Balances

4,994,649 243,903,291 248,897,940

13,921,071 109,233,183 123,154,254

27. Recommendation As a pioneer and leading NBFI in Bangladesh have been maintaining its quality in a smooth way. Their experience in the field of lease and other loan product make them very much cautious about the risk. A very skillful and technically enriched department always working in their full capacity to analyze the housing loan program ,risk of the their product and services, So far they proof them as a successful organization in assessing risk and thus take care off it. Undoubtedly NBFI sector therefore findings are general and recommendation is not that much necessary for the organization in the overall housing loan program and Credit Risk Management Procedure. Still the following can be mentioned, 1 2 3 4 More detail information shall be tried to find out so that assessment can be made more accurately. 5 6 As market is very much flexible so special concentration should be given in assessing the individual industry risk. 7 8 In case of individual client assessment should be made in more details. 9 10 There shall be an extra caution in making provisions against all defaults so that unwanted risk can be absorbed more easily.

28. Conclusion

To conclude the report, it is imperative to mention that default clients have been a major problem for the Non Banking Financial Institutions for long and the financial institutions have been trying to minimize the default problem all along. The central bank of Bangladesh has been striving to assist the financial institutions to get out of the default problem and formulating policies for that purpose. As a continuance to this, Bangladesh Bank has been providing directives when and where it seems to be necessary. In Bangladesh many business organizations are still facing problems in the functioning of smooth business operations and moreover they concentrate on making profit more than their safety as a result of this they sometime get out of safety caution to absorb the industry sock. Therefore fall in to loss and sometimes get liquidated. The consequence of this is that NBFIs do not get their due amount in time which is a big and foremost risk to the organizations. To overcome this, a very important factor to which risk weights have to be raised is the past default behavior of the borrowers. the most important factors that can be used to predict the future payment performance of the borrower is his character regarding repayment of his borrowed fund. Another critical matter is that the financial statements of the business organization in fact contain manipulated data. So the analysis of such statements leads to wrong and faulty conclusion. This problem can be solved by judging the financial statement by individual amount specially which will provide information for the beneficiary of the NBFIs. Also, law enforcement needs to be stronger and faster so that the willful defaulters can be punished for their defaults promptly. This will also cause the genuine business people to be more cautious when availing finance from financial institutions. The CIB database is a good start in this respect and has served to improve the overall loan repayment situation by the borrower. In the end, it can be remarked that the central financial authority as well as all the financial institutions have to continuously analyze the overall environment, economic, social, business, cultural and so on. Depending on this, they have to improve the evaluating procedure.

29. Bibliography 1. BHBFC annual report 2. Their website 3. Their regular circulars 4. Bangladesh Bank Credit Policy 5. Working papers 6. www.bhbfc.com 7. Annual Reports of other finance 8. CSE and DSE Listings 9. Audited Annual Report of NHFIL 10. Year Ended December 31, 2008 11. Year Ended December 31, 2007 12. Year Ended December 31, 2006 13. Audited Annual Report of DBHL Company Ltd. 14. Audited Annual Report of MIDAS Finance 15. Annual report, 2005, 2006, 2007, 2008- IDLC Finance Limited. 16. Bangladesh Bank Guideline and Circulars Regarding NBFIs 17. Bangladesh Bank, (2008), Available: http:// www.bangladesh-bank.org / [6th June, 2008] 18. Business Information and Service Line (2008), Price Graph of IDLC, Available:http://www.biasl.net/CompanyInfo.aspx, [2008, 30th May]