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Effectiveness of Sme Loan Provided by Rupali Bank Limited in Mirpur Area of Dhaka North City Corporation

M S A Talha
Department of Agricultural Finance, Bangladesh Agricultural University, Mymensingh-2202, Bangladesh

M R U Mian
Department of Agricultural Finance, Bangladesh Agricultural University, Mymensingh-2202, Bangladesh

I T Jarin
Department of Agricultural Finance, Bangladesh Agricultural University, Mymensingh-2202, Bangladesh

M R Ahmed*
Department of Agricultural Finance and Banking, Sylhet Agricultural University, Sylhet-3100, Bangladesh

Abstract/ Executive Summary:

This study is an effort to examine the effectiveness of SME loan of Rupali Bank Limited (RBL) through the adequacy, utilization and repayment of credit, profitability of SMEs and impact of loan among the borrowers. One hundred SME borrowers of the RBL in Mirpur area of Dhaka North City Corporation were randomly selected out of which 25 were from each of hotel and restaurant, beauty parlor, readymade garments and construction shop. Both tabular and econometric techniques were used to analyze the collected data. The study revealed that the construction shop owners’ saving were more satisfactory compared to other SMEs because of good earning capability. The adequacy and time requirement for getting loan were satisfactory which reflected RBL’s urge and sincerity to work in favor of small and medium entrepreneurs of the country. SME borrowers were found conscious about purposive utilization of loan money and their repayment performance was more or less satisfactory. Considering all SMEs together, impact of SME loan on family income was ranked the highest. Readymade garments’ cost was largest while it was lowest for the construction shop to obtain loan from the bank. Profitability of SMEs was moderate and the relationship between credit and profitability reflected the valuable contribution of credit in SME business. Corruption at loan sanctioning, lower productivity and contraction of market demand for the product were the major problems of SME financing. The RBL needs to apply flexible formalities and lower rate of interest for SME loans in order to bring effective impact among the borrowers.

Keywords: SME loan, Loan adequacy, Utilization, Repayment, Profitability, Effectiveness.

Location: Mirpur area of Dhaka North City Corporation

Start Date: 00-00-2014

End Date:

Program Area: Socio-economic and Policy

Non-commodity: Performance

Objectives:

The overall objective of the study is to investigate the SME loans of Rupali Bank Limited in Mirpur area. The specific objectives of the study are to examine the adequacy, utilization and repayment of SME loans by the borrowers, to determine the profitability of SMEs and to analyze the effectiveness of SME loans provided by the Rupali Bank Limited among the borrowers.

Methodology:

Mirpur area of Dhaka North City Corporation was selected purposively for this study. Data were collected randomly from 25 entrepreneurs out of selected 100 samples from Rupali Bank Limited close to the selected area from where borrowers had contracted SME loan in 2014. The respondents were selected from four enterprises namely hotel and restaurant, beauty parlor, construction shop and readymade garments under Mirpur area of Dhaka metropolitan city. Both tabular and econometric techniques were applied for the analysis of collected data to achieve the objectives of the study. Multiple regression technique: To assess the effects of key variables in SME loan repayment process, the multiple regression technique was used in the study. The specification of the technique is as followsYi = a X1β1 X2β2 X3β3 X4β4 X5β5 X6β6 X7β7 X8β8 ei u Alternatively in log-linear form the technique can be expressed aslnYi = lna+β1lnX1+ β2lnX2+ β3lnX3+ β4lnX4+ β5lnX5+ β6lnX6+ β7lnX7+ β8lnX8+ui Where, Yi = amount of repayment (Tk) X1= received amount of loan (Tk) X2= respondent income (Tk) X3= purposive utilization of loan (Tk) X4= unreported use of loan (Tk) X5= respondent age (years) X6= profit from SME (Tk) X7= education of the respondent (years of schooling) X8= savings of the respondent (Tk) a = Intercept β1, β2, β3, β4, β5, β6, β7, β8 = co-efficient of the respective variables to be estimated and ui= error term.

Source of Information: J. Sylhet Agril. Univ. 3(2):245-252, 2016 ISSN: 2308-1597

Article Link (Online Journal): www.jsau.com.bd

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The study empirically examines the utilization pattern of SME loan and repayment behavior of the entrepreneurs of Mirpur area of Dhaka North City Corporation. It is observed that most of the loaned money has been utilized for reported purposes and SMEs consciousness towards productive utilization of SME loan in the study area. On the other hand, overall loan recovery during the study period is also satisfactory. Family income and education expenditure are the major factors of timely loan repayment. Received amount of loan, purposive utilization of loan, profit from SME, respondent income are the significant factors contributing loan repayment process of the SMEs. SMEs of the study area has showed positive attitude to repay the SME loan. More attention should be given for extending timely RBL SME loan to the SMEs under proper supervision. However, family income and educational expenditure should be on top priority target which in turn ensure timely loan repayment.

Knowledge Management: Journal