What is SME Finance & Agricultural Finance Or, Define SME Credit with reference to BB’s given Definition

 SME Financing: SME finance is the funding of small and medium sized enterprises, and represents a major function of the general business finance market – in which capital for different types of firms are supplied, acquired, and priced. Capital is supplied  through the business finance market in  the form  of  bank  loans and overdrafts; leasing and hire-purchase arrangements; equity/corporate bond issues; venture capital or private equity; and asset-based finance such as factoring and invoice discounting.

 

SMEs are vital for economic growth and development in both industrialized and developing countries, by playing a key role in creating new jobs. Small businesses are particularly important for bringing innovative products or techniques to the market.

 

 

Criteria       Sectors Fixed assets excluding land & building (Tk. in crore)   No. of manpower Medium Small Micro Medium Small Micro Manufacturing 10-30 0.5-10 0.05-0.5 100-250 25-99 10-24 Trade 1-15 0.05-1 <0.05 50-100 10-25 <10 Service 1-15 0.05-1 <0.05 50-100 10-25 <10   Cottage Industry <0.05 <10

[According to Bangladesh Bank (SMESPD Circular No.1 dated 19 June, 2011), the cottage, micro & SME is newly defined the industry/enterprise:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

An  industry  or  enterprise  can  be  treated  as  that  category  one  following  a benchmark but the same can fall under higher category if another benchmark is considered. In that case it will be treated as higher category industry.

A woman, who owns a private firm or she holds minimum 51% stake in firm run jointly or registered, will be treated as women entrepreneur.]

 

Agricultural Finance: Agricultural credit is a financial term that refers to loans and other types of credit extended for agricultural purposes. Agricultural credit systems promote  the  expansion  and  continued survival  of  farm  and  livestock

operations, covering the entire agricultural value chain - input supply, production and distribution, wholesaling, processing and marketing.

Banks lend to farmers for a variety of purposes, including (1) short-term credit to cover operating expenses; (2) intermediate credit for investment in farm equipment and real estate improvements; (3) long-term credit for acquisition of farm real estate and construction financing; and (4) debt repayment and refinancing.

Distinguish between term credit and short-term credit

 

Particulars	Term Credit	Short Term Credit
1. Definition	A form of finance that have a small, mid or long repayment schedule	A form of finance that have a short repayment schedule
2. Maturity period	1 to 5 years, in some cases it may be 20 years	1 or less than 1 year
3. Competitive interest rate	competitively marginal or low rate	competitively high rate
4. Lending complexity	Some complex to lending except short-term lending	Easy to lending
5. Profitability	Marginal profit	High margin of profit
6. Risk	Marginal or high risk	Low risk
7. Loan limit	Loan limit is more	Small Loan limit

Distinguish between mortgage, pledge & hypothecation

 Mortgage:  Mortgage  is  a  type  of  charge  related  to  immovable  property. Immovable property shall include land, benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth. It does not include standing timber, growing crops or grass.

Pledge: Pledge arises when the lender (pledgee) takes possession of either the goods or bearer securities for extending a credit facility to the borrower (pledgor). The pledgee can retain the possession of the goods until the pledgor repays the entire debt amount and in case of a default, the pledgee has the right to sell the goods in his possession and adjust its proceeds towards the amount due.(example Jewel loan)

Hypothecation: Hypothecation is a way of creating a charge against the security of movable assets, which is much similar to pledge. (example purchasing a bike from bank loan). The possession and the ownership remain with the borrower. Since the possession remains with the borrower, he may, at any time either create a subsequent charge by way of pledge over same goods or may sell them. In such cases, the rights of the pledgee usually super cedes the rights of the person in whose favor the goods were hypothecated, if the fact of existence of such a charge is not known to the subsequent pledgee.