Non Banking Financial Institutions in Bangladesh: Initially, NBFIs were incorporated in Bangladesh under the Companies Act, 1913 and were regulated by the provision relating to Non-Banking Institutions as contained in Chapter V of the Bangladesh Bank Order, 1972. But this regulatory framework was not adequate and NBFIs had the scope of carrying out their business in the line of banking. Later, Bangladesh Bank promulgated an order titled ‘Non Banking Financial Institutions Order, 1989’ to promote better regulation and also to remove the ambiguity relating to the permissible areas of operation of NBFIs.

But the order did not cover the whole range of NBFI activities. It also did not mention anything about the statutory liquidity requirement to be maintained with the central bank. To remove the regulatory deficiency and also to define a wide range of activities to be covered by NBFIs, a new act titled ‘Financial Institution Act, 1993’ was enacted in 1993 (Barai et al. 1999). Industrial Promotion and Development Company (IPDC) was the first private sector NBFI in Bangladesh, which started its operation in 1981. Since then the number has been increasing and in December 2006 it reached 29.

Of these, one is government owned, 15 are local (private) and the other 13 are established under joint venture with foreign participation. 1. 1 Recent Development & Activities of NBFIs The major business of most NBFIs in Bangladesh is leasing, though some are also diversifying into other lines of business like term lending, housing finance, merchant banking, equity financing, venture capital financing etc. Lease financing, term lending and housing finance constituted 94 percent of the total financing activities of all NBFIs up to June 2006.

A break-up of their financing activities reveals that the share of leasing and housing finance in the total investment portfolio of NBFIs has gradually decreased from 59 and 15 percent, respectively, in 2002 to 46 and 14 percent in June 2006. The share of term loans, on the other hand, has increased from 20 percent to 34 percent during the same period implying increased focus on the former. The evolvement of NBFI business activity is observed in Figure- 1. 1. It can also be seen from the figure that the portfolio mix of NBFIs has become quite stable from 2004.

NBFIs offer services to various sectors such as textile, chemicals, services, pharmaceuticals, transport, food and beverage, leather products, construction and engineering etc. The percentage of the sector wise distribution of NBFIs investment in 2005 is given in Figure- 1. 2. Although an individual NBFI may have a different portfolio as per its business strategy, the aggregated data shows that NBFIs mainly focus on real estate & housing (13%), power & energy (12%), textile (11%) and transport sector (9%). Service (finance and business) is another area of importance for NBFIs.

From the perspective off 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. Sector wise distribution of outstanding investment of NBFI The contribution of NBFIs’ financing activities (lease, loan, housing, investment etc. to the overall economy persistently increased over the years as can be seen in Figure -1. 3. In 2001, the share of NBFIs’ financing to total GDP had been only 0. 84 percent, which was more than doubled within 5 years and became 1. 83 percent in 2005. The comparative figures for the banking sector were 34. 55 and 41. 32 percent in 2001 and 2005, respectively. The average yearly growth of NBFIs’ contribution to GDP was about 22 percent during this period as compared to 4. 7 percent of that by the banking sector. Even in the regional context, performance of NBFI sector is quite robust.

2. IPDC at a Glance . 1 – IPDC as an NBFI IPDC, the pioneer of the leasing industry in Bangladesh was first convinced as a result of an IBRD/IFC Industrial sector mission to Bangladesh in 1978. Subsequently a detailed feasibility study and strategic policy dialogue among the Government, IFC and other International in the establishment of IPDC as an alternative development finance institutions in the private sector. The company in 1981 became the first private sector Development Finance Institution (DFI) in Bangladesh. Now it becomes the most relevant and sophisticated Non Banking Financial Institution in the country. . 2. – IPDC at a Glance For the last two and a half decades the name IPDC has been synonymous with excellence, quality, integrity, innovation and pioneering spirit. There are the traits that IPDC continuously aspire to live up. As a company that has inherited a rich legacy of technical know how, engineering expertise, managerial and financial acumen, and, above al, the goodwill and loyalty of employees, shareholders, business associates and hundreds of customers.

IPDC is continuing to build business on the ethics and values in IPDC. Milestones: Incorporation of the Company |: 1981 | |Sponsoring the establishment of the first leasing company of Bangladesh (IDLC) |: 1984 | |First institutional funding to private sector education (Scholastica School) |: 1998 | |Financing the first private sector cellular telecom company in Bangladesh (Citycell) |: 1998 | |Issuance of Cumulative Redeemable Preference Share pioneer among the Financial Institutions |: 2001 | |Issuance of Zero Coupon Bond through Asset Backed Securitization |: 2004 | |Public Issuance of Shares |: 2006 | |Trading of shares on DSE and CSE |: 2006 | 2. 3 Capital and Shareholding Structure of IPDC: At beginning IPDC was first established by I distinguished multilateral team of shareholders. The founder shareholders of IPDC are: – The Government of Peoples’ Republic of Bangladesh (GOB) – 30. 0% – Commonwealth Development Corporation (CDC), of the UK – 17. 5% – German Investment & Development Company (DEG), of Germany – 17. 5% – International Finance Corporation (IFC), an affiliated of the World Bank – 17. 5% – The Aga Khan Foundation for Economic Development (AKFED) – 17. 5%

Presently AKFED is the majority shareholder with 66% ownership of IPDC and Government of Bangladesh holds 28%. The present share holding structure (an on 31 December, 2007) of IPDC represents the following scenario: |Shareholder |No. of Shares |Paid Up Capital |Percentage | |Government of the People’s Republic of Bangladesh (GOB) |1,350,000 |135,000,000 |22% | |Aga khan Foundation of Economic Development (AKFED) |3,149,992 |314,999,200 |51% | |Summit Industrial ; Mercantile Corp. (Pvt. Limited |140,070 |14,007,000 |2% | |Alliance Holdings Limited |140,070 |14,007,000 |2% | |General Public |1,390,000 |139,000,000 |23% | |Others |8 |800 |0% | |Total |6,170,140 |617,014,000 |100% | Table 2. 1 – Shareholding structure of IPDC 2. 4 Present and Future Outlook of IPDC: IPDC has very well defined and elaborate statements crystallizing the management’s view about the organization’s current and long term path. 2. 4. 1 Vision: To be the most respected and innovative financial institution of the country 2. 4. 2 Mission: To be the brand of quality and integrity for delivering innovative and tailored financial solutions to a diverse client base Figure- 2. 1 – Shareholding structure of IPDC 2. 4. 3 Objectives: To ensure maximum returns on investment Profitability is key to achieving superior returns, building our capital and motivating and retaining our best people. ( To ensure steady sustainable growth in business Our increasing corporate profits since inspection have been manifestations of our steady growth. Amidst a competitive environment, our goal is now to take the organization forward with excellence in all our operations. We shall harness and use our distinctive competencies to ensure a long term competitive advantage. ( To improve the quality of service Our strength is not in the volume but in the quality of service that we provide. Our clients’ interests always come first.

We relentlessly strive to anticipate the needs of changing needs of our clients and to develop better solution to those needs. Our experience tells that if we serve our clients to the best of our ability, our own success follows. ( To crate innovative product and services Creativeness and imagination is encouraged in everything we undertake. We pride ourselves in having pioneered many products and services that have become standard in the industry ( To maintain highest level of ethical standard We are dedicated to comply fully with the spirit of laws, rules and ethical principles that govern us. Our continued success depends upon unwavering adherence to these standards. Core Values: ( We address clients’ need promptly, impartially and with utmost importance. We take great pride in our dedicated teams of staffs members and will continue to develop potentials and skills at all levels within our organization by rewarding outstanding performance and promoting from within to develop a climate of high expectation and achievements. ( We remain quality-minded and devoted to uphold our corporate culture. ( We will retain our position of leadership in this field through our commitment to quality, compliances, services and values. ( We will continue personal and corporate involvement in activities benefiting the society and nation. (

We uphold the values of the communities we are privileged to serve by honoring their traditions and preserving the environment. We pledge to remain alert to economic changes which affect our businesses and to respond to ever-changing market demand. ( We will continue to confront all challenges through planning, balanced, diversification and orderly growth. 3. Organizational Structure of IPDC The organizational structure of IPDC is well structured and well defined. A saturated hierarchical work flow is developed for maintaining the chain of command properly. IPDC have six core departments in where every head of each department is liable for the activities of that department and responsible for reporting to the Managing Detector ; CEO. Exception is existed in the case of company secretary and internal audit department.

Head of internal audit and company secretary is responsible for their reporting directly to the Board of Directors. On the following pages the detail organogram of IPDC is presented. The roles and activities of these departments are very fragmented and well established. Moreover every department enjoys the rights to reorganize their tasks according to their work load. On the following we are describing some core activities of different important departments in IPDC. 4. Product line of IPDC IPDC specialized in project financing and provides innovative investment solutions. This includes investing in projects that add value and contribute to the country’s overall economic development. IPDC has also special focus in infrastructure and social sector projects.

IPDC has also been proving innovative investment solutions and project advisory service to its clients in industrial and social sector like education and health care. The positive image of IPDC has been established through more than two decade of consistent commitment towards excellence in providing financial service. With a conscious effort to anticipate influence in the domestic and foreign environment, IPDC has the ability to adapt to the changing needs of time. IPDC envisages continuing and expanding its role as a catalyst in inspiring, strengthening and enhancing the financial sector development of the country. IPDC has pioneered the concept of lease financing in Bangladesh. It was one of the Industrial Development Leasing Company of Bangladesh Limited (IDLC).

Another IPDC initiative has been developing the concept of house mortgage finance in the country. IPDC was also promoter shareholder of National Housing and Finance Company Ltd. (NHFL). IPDC has been credited with pioneering subscription of cumulative Redeemable Preference Share and issuance of Zero Coupon Bond through asset backed securitization as an alternate means of finance. The product pattern of IPDC can be presented as below 4. 1 – Corporate IPDC is specialized in corporate and project financing. Financial engineering and investment solution prescribed by IPDC are based on project needs. Various segment of the Corporate and project finance include 4. 1 Investment product: Corporate Service: Lease Finance Project Finance Appraisal • Term Loan Project Loan Syndication • Short Term Loan Working Capital Arrangement • Work Order Finance Syndication Service • Quasi Equity Investment Corporate Financial Advisory service • Equity Investment Securitization of Receivables Features, terms and conditions of corporate products are highly customized and negotiable. 4. 2 IPDC Retail Product With the commencement of retail business in July 2006, IPDC provides the wealth creation opportunity for individuals and investment prospects for institutions. This segment offer wide ranging liability products for all quality of people. Within a very short span of time IPDC was able to attract a broad range of individual and institutional clients.

The lifeblood of the retail segment is its customer and IPDC offer personal and individual services to its clients. IPDC continuously strives to recognize the clients by anticipating and responding to client needs. 4. 3 Liability Products IPDC has possessed a wide liability product line in retail segment. The products are designed with the consideration of different targeted and niche market. 4. 4 Profit based Schemes: Under this schemes profit or return is paid to the investors after a certain time period. Products details are given below. Annual Profit Schemes (APS), Quarter Profit Schemes (APS), Monthly Profit Schemes (MPS) are given below Return paid of yearly

APS QPS MPS |Term |1-3 Year | |Term |5Years 11 Months | |Maturity Amount |BDT 1,000,000. 00 | 4. 7 Millionaire Deposit Schemes (MDS): Under this scheme depositor initially have to deposit an initial amount then s/he has to continue a monthly installment till maturity. The products are as follows: |Initial Deposit |BDT 100,000. 00 |BDT 50,000. 00 | |Monthly Installment |BDT 10,000. 00 |BDT 10,000. 0 | |Term |5Year 7 Months |6 Years | |Maturity Amount |BDT 1,000,000. 00 |BDT 1,000,000. 00 | 4. 8 Deposit Premium Scheme (DPS): Under this scheme depositors have to make a monthly installment and at the maturity s/he will receive a fixed amount. Product details are as follows: |Monthly Installment |BDT 10,000. 00 | |Term |3 Years | |Maturity Amount |BDT 430,000. 0 | 4. 9 Fixed Deposit – Institutional IPDC is very much sincere to provide the highest value to the corporate fund. This scheme provides institutions the secured investment option with a maximum value of corporate fund. The terms, conditions, product features are highly customized and negotiable. 4. 10Asset Product In parallel to expanding our range of liability product, IPDC also plans to introduce various asset based retail products to serve the client needs with maximum possible effort and sincerity. This products are- 4. 10. 1 Auto Loan IPDC recently launched (January 2008) their auto loan product with a huge market campaign.

The target markets of this product are salaried executives, business person, and self employed professional. Loan amount have to be repay over 60 months for reconditioned car and over 72 months for brand new car. Int. Rate and loan processing fees are very competitive. 4. 12 Commercial Innovativeness of IPDC IPDC is renowned for their innovative and smart commercial policy. They not only limit their commercial policy to go through the common policy and fantasy but also try to understand the client need, style, taste, aptitude. Accordingly they design their commercial policy to attract the consumers and increase their client base. On the following some real scenario is given. 5.

Functions of IPDC 5. 1 Investment activities: Since 1981 IPDC is playing a major role in corporate financing for that reason IPDC become the market leader in corporate financing. For making the corporate financing more efficient and viable taking proper and correct investment decision is the vital important topic for IPDC, that’s why investment department is treated as the most important department in IPDC and investment activities is treated as the most distinctive competencies for IPDC. This part of this project report will completely focus the investing activities of Industrial Promotion and Development Company (IPDC) of Bangladesh Limited.

Analyzing the current investment pattern of IPDC we can observe that IPDC make investment through following pattern: On the following we are trying to analyze the invest activities of IPDC with different aptitude. 5. 1. 1 Year wise Investment Activities Analysis On the initial stages of my analysis I would like to make a scenario view of IPDC’s investment activity analysis based on year to year. With this analysis we can get a clear view of the growth of IPDC’s investment activities over the year. | |2007 |2006 |2005 | |Gross Lease Receivable |478,205,708. 00 |1,294,301,161. 0 |1,772,506,869. 00 | |Less Unearned Income |160,404,858. 00 |207,939,772. 00 |368,344,630. 00 | |Net Lease Receivables |317,800,850. 00 |1,086,361,389. 00 |1,404,162,239. 00 | 5. 1. 2. 4 Short Term Financing This sort of financing represents disbursement of financing to different parties (local and foreign) for a maximum period of twelve months. Risk assessment plays a vital important role in this sort of financing. On the following the present scenario of short term financing of IPDC is given below. Balance at 1-Jan-07 |1,145,737,437. 00 | |Add: Addition |168,902,611. 00 | | |1,314,640,048. 00 | |Less: Recovery |637,376,570. 00 | |Balance at 31- Dec-07 |677,263,478. 00 | 5. 1. 2. 5 Advance against Lease Finance This represents disbursement made for procurement of leased asset which are yet to be executed.

On the execution of lease, advances will be transferred to gross lease receivables. On the following pages the detail position of IPDC’s advance against lease position is presented. |Balance at 1-Jan-07 |29,200,000 | | Add: Addition |467,076,493 | | |496,276,493 | | Less: Recovery |428,276,493 | | Balance at 31- Dec-07 |68,000,000 | 5. 1. 3 Industry Sector Wise Investment Activities and Portfolio Analysis of IPDC

Deciding the industry sector and the proportion of investment portfolio to be invested in each industry sector is one of the most important roles of IPDC’s investment activities. Because these activities can reduce the total volatility of the firm’s investment and achieve the maximum diversification of the investment. From the pie chart it is seen that “Miscellaneous Industry” and “Engendering and IT” industry is the most prominent and dominating sector of IPDC investment. The main reason behind it is that, IPDC always prefer collateral. Projects, which have fixed property (e. g. land, building and any other permanent development on the land), will always be in the lucrative option to IPDC. |Industry | No. f company |Amount Invested |Percentage (%) | | Bank ; FI |21 |283,566,860 |5. 36% | |Communication |3 |49471427 |0. 94% | |Engineering ; IT |48 |1157314877 |21. 89% | |Food ; Alliances |19 |505087855. 3 |9. 55% | |Textile |32 |724845158. 4 |13. 1% | |Medicine ; Chemistry |13 |449553993. 1 |8. 50% | |Service |29 |943016741. 3 |17. 83% | |Miscellaneous |74 |1174880760 |22. 22% | | | | | | |Total |239 |5,287,737,672 |100% |

Lease finance is one of the distinctive competencies of IPDC and most of the leases financing facilities lead to the instrument, machinery, transports. For that reason “Engendering and IT” sector is being the prominent sector for IPDC investment. IPDC diversified its industry related risk through investment. In Bangladesh perspective industry influence on a particular company is insignificant. 5. 2 Financing Activities: Financing activities is a crucial part of any financial institution. Determination of source of financing, use of financing, matching the financial obligations’ maturity with the investment inflows, determination of the optimum cost of fund are some integral part of financing activities. |2003 | |Share Premium | 167,014,000 | |Statutory Reserve | 105,659,472 | |Revaluation Reserve | 23,627,792 | |Proposed Cash Dividend | 32,393,235 | |Proposed Stock Dividend | 64,786,470 | |Retained Earnings | 632,509,108 | |Total Shareholders’ Equity | 1,673,854,777 | IPDC is authorized to issue 10,000,000 shares @ BDT 100 each. Up to 31 December, 2007 total 6,487,647 shares is issued.

At present the authorized share capital is (6,487,647 ? 100) BDT 647,864,700. 00. On the following share holding structure of IPDC is given- |Foreign |Tk |% | |Aga Khan Fund For Economic Development |330,749,100. 0 |51% | |Others |500. 00 |0% | |Domestic | | | |Government of the Peoples’ Republic of Bangladesh |141,750,000. 00 |22% | |Alliance Holdings Limited |14,707,300. 00 |2% | |Summit Industrial & Mercantile Corporation |14,707,300. 00 |2% | |General Shareholders |145,950,200. 0 |23% | |Others |300 |0% | |Total |647,864,700. 00 |100% | Regulatory Capital: In accordance with the Financial Institutions Regulations, 1994 and Bangladesh Bank guidelines as stipulated in FID circular no. 02 of June 29, 2003, every Nan Banking Financial Institution which is registered in Bangladesh as a company has to increase its capital up to BDT 250 million within June 2006 or 6% of total liabilities which ever is higher. As at December 31, 2007, total capital of IPDC is BDT 1,688 million which is 30. 57% of its total liabilities.

For the purpose of the minimum capital standards, a NBFI is considered adequately capitalized if core capital equals or exceeds the minimum capital. Core capital is defined as the stated value of ordinary shares, retained earnings plus statutory reserve and current year’s profit/ (loss). Core capital does not include any unrealized gain on securities held for trading and revaluation reserve of fixed assets. Total capital base of IPDC is used to meet all requirements. Total capital is defined as the sum of core capital plus provision for future losses equivalent to 1% of unclassified loans/leases. Following table shows core capital and total capital at December 31, 2007 and 2006.

Core capital grew to BDT 1,650 million at December 31, 2007 from BDT 1,578 million at December 31, 2006. Total capital grew to BDT 1,688 million at the end of 2007 from BDT 1,619 million at year end 2006. |Total Shareholders’ Equity | 1,673,854,777. 00 | |Less Revaluation Reserve | 23,627,792. 00 | |Core Capital | 1,650,226,985. 00 | |Required Minimum Capital (6% of total liabilities) | 331,288,154. 0 | |Excess of Core Capital Over Minimum Capital | 1,318,938,831. 00 | |Core Capital | 1,650,226,985. 00 | |Add: Provision for Further Losses (1% of unclassified loans) | 37,598,028. 00 | |Total Capital | 1,687,825,013. 00 | |Required Minimum Capital (6% of total liabilities) | 331,288,154. 0 | |Excess of total Capital Over Required Capital | 1,356,536,859. 00 | 5. 2. 3 Debt Capital Structure of IPDC

IPDC maintained the both local currency (LC) borrowing and foreign currency (FC) borrowing. The motivation that stimulate the foreign borrowing is the cost effectiveness and for the advantage for exchange rate fluctuation. On the following the detail breakdown of debt financing is given below. |In Foreign Currency |Amount |(%) | |German Investment ; Development Company( DEG) 122,427,387 |17% | |International Finance Corporation – IFC |84,875,000 |12% | |The OPEC Fund for International Development |61,727,551 |9% | |Total Foreign Currency Borrowing |269,029,938 |37% | |In Local Currency | | | |Credit Bridge Stand by Facility – CBSF |237,522,497 |33% | |International Development Association – IDA |17,607,673 |2% | |Commercial Bank of Ceylon |50,000,001 |7% | |Pubali Bank Limited |55,177,317 |8% | |Uttara Bank Limited |95,351,182 |13% | |Total Local Currency Borrowing |455,658,670 |63% | |Total Debt Financing |724,688,608 |100% |

Here, it seen see that 37% of total IPDC’s borrowing is foreign borrowing and remaining is Local currency borrowing. 5. 2. 4 – Other Source of Financing of IPDC Beside the capital structure, IPDC often have to rely on some other source of financing for conducting their day to day operation. On the following some of sources are described. Short term borrowing is one of the important sources of financing of IPDC. Among the short term loan bank overdraft and call loan is always preferable to IPDC. On the following the detail position of IPDC’s short term borrowing is given: |Bank Overdraft |Amount |(%) | |Citi Bank N. A. |185,571,750. 0 |38% | |Standard Chartered Bank |61,977,585. 00 |13% | |Total Bank OD |247,549,335 |51% | |Call Loan | | | |The Premier Bank Ltd |150,000,000 |31% | |Eastern Bank Ltd |40,000,000 |8% | |Prime Bank Ltd. 50,000,000 |10% | |Total Call Loan borrowing | |49% | | | | | |Total Debt Financing |724,688,608 |100% |

6. SWOT analysis of IPDC SWOT analysis is a very important part for organizational perspective. Through this analysis, a company identifies the strength and weakness of its product, operation and services. In addition, opportunities and threats are also pointed out form the market analysis which is eventually reflected in the company’s current and future plan. Strength: (Strong capital base Experienced management team (Coordination between the departments (Strong investment and retail team to increase client base (Good relationship with present and prospectus client (Diversified funding sources (Outstanding market share (Corporate shareholding structure (Diversified business exposure Weaknesses: (Significantly deterioration in Asset Quality having adequate provisions (High ownership concentration (Declining financial performance (Weak treasury management (More percentage of special assets than major competitors (Risk management (MIS should be more developed in treasury management (High turnover rate in top and mid tier management

Opportunities: (Business expansion opportunity (Market demand for diversified financial product (SME financing (Fund raising opportunity through new financial products (Capital market operation (Scope of more product diversification (Scope of doing merchant banking, fund management operation Threats: (Commercial banks’ portfolio (Commercial banks’ opportunity to enter in the operations (Increasing local and foreign cost of fund (New entrants into the market (Low entry barrier in the industry Contents: Executive summary1 Objectives of the report2 NBFI in Bangladesh2 IPDC at a glance5 Organizational structure8 IPDC product line10 Functions of IPDC13

SWOT analysis25 ———————– ORGANOGRAM OF IPDC Managing Director & CEO Board Board Audit Committee DMD Executive- HR & Corporate Communication Senior Manager- Legal Affairs & Company Secretary Mgt. Associate- Legal Department Executive Board Secretariat Senior Manager- Internal Audit – Manager – Sr. Executives – Executives Head of Operations Head of Retail Business CFO Head of Risk Management Head of Special Asset Management Head of Investment – Manager – Sr. Executives – Ass. Executives – Manager – Executives – Mgt. Trainee – Sr. Manager – Manager – Executives – Executive Employee on Contract GSS IT Deposit & Treasury Credit Admin Executives – Manager – Executives – Sr. Executives – Executives – Ass. Executive – Sr. Manager – Asst. Manager – Sr. Executives – Executives Non Managerial Employees Figure: Organogram of IPDC [pic] Product Line Retail Product Corporate and Project Finance Figure- 2. 4 – IPDC Product line Asset Product Liability Product Corporate Service Investment Product Figure- 3. 2 – Product Segment Wise (Portfolio) Investment Activities Analysis Figure- 3. 3 – Industry Wise Investment Analysis of IPDC Table 3. 1 – Industry Wise Investment Analysis of IPDC Source: Annual Report, Economic Trend & FID, BB Figure- 1. 3 – Banks & NBFIs activities on GDP share

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