Distintive Capabilities of IDLC

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Distinctive Capabilities of IDLC Finance Ltd.

By

Sk. Sabbir Ahmed

ID 1028018

Submitted to the name of the Independent University,

Bangladesh (IUB) as a partial fulfillment of the

requirement for the Course Strategic Marketing

Supervisor:

Prof: Dr. Serajul Haque

School of Business

Independent University, Bangladesh (IUB)

Submission Date: September 16, 2011

DECLARATION


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I, do hereby declare that the report titled: Distinctive Capabilities of IDLC

Finance Ltd. submitted to the Independent University, Bangladesh (IUB) forthe course Strategic Marketing. This is an original work of both of us. No part

of it, in any form, has been submitted to any University or Institute for any

degree, diploma or for other similar purposes.

Sk. Sabbir Ahmed

ID No. 1028018

Independent University, Bangladesh


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September 16, 2011

CERTIFICATE

I have the pleasure to certify that the dissertation titled Distinctive

Capabilities of IDLC Finance Ltd has been prepared under my supervision

and guidance. To the best of my knowledge, it is the researchers original

work.

I also certify that I have gone through the draft and final hand-written

version of the dissertation and now I approve it for submission to the

Independent University, Bangladesh as a partial fulfillment of the

requirements for the course Strategic Marketing.

Prof: Dr. Serajul Haque

School of Business

Independent University, Bangladesh

Basundhra R/A, Dhaka.


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Acknowledgement

At first, I would like to express our gratitude to almighty Allah for enabling

me the strength and opportunity to complete the report within the scheduletime successfully.

At the very first we wish to tender our sincere gratitude deep indebtedness

to Mr. Prof: Dr. Serajul Haque, faculty of Business, Independent

University, Bangladesh, for his valuable advice and guidance. Without his

support it would have been very difficult for us to complete this report.

I would also like to thank all people who helped us for our report & their

dedication who had been given us their valuable time to fill up our

requirement.

Finally, we are grateful to our University. Independent University Bangladesh

department of EMBA for given us an opportunity of prepared report on the

topic of Distinctive Capabilities of IDLC Finance Ltd


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Introduction

History

IDLC was initially established in Bangladesh in 1985 through thecollaboration of International Finance Corporation (IFC) of the World Bank,

German Investment and Development Company (DEG), Kookmin Bank and

Korean Development Leasing Corporation of South Korea, the Aga Khan Fund

for Economic Development, the City Bank Limited, IPDC of Bangladesh

Limited, and Sadharan Bima Corporation. As the company evolved, initial

foreign shareholding of 49% was gradually withdrawn and the last foreign

shareholding was bought out by local sponsors in 2009.

Although IDLC initially started with Lease Financing as our core product, IDLC

has grown to become the largest multi-product Non-Bank Financial

Institution of Bangladesh, with almost equal focus in Corporate, Retail and

SME sectors. Moreover , IDLC has a significant presence in the Capital

Markets through our Merchant Banking Division, the activities of which will

be carried out in future by our wholly-owned subsidiary, IDLC Investments

Limited, subject to approval from the Securities and Exchange Commission.

Our Brokerage Services are carried out by IDLC Securities Limited, another

wholly-owned subsidiary of IDLC.

Over the years, IDLC has become a significant presence in the corporate

sector of Bangladesh. IDLC is highly respected by our clients, peers,

employees and regulators for our strong corporate governance, statutory

compliance, high ethical standards, a progressive and enabling working

environment, and strong commitment to environmental and social

development.

IDLC continues to play a pioneering role in introducing and popularizing a

variety of financial instruments suiting ever-changing requirements of its

fast-growing clients. IDLC are continuously expanding our presence to ensure

the best quality of service to our clients at all times.


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Corporate Governance of IDLC

Corporate governance is the system by which companies are directed and

controlled by the management in the best interest of all the stakeholders,

thereby ensuring greater transparency and better and timely financial

reporting.

The platform on which corporate governance principles are structured is that

the Board of Directors is responsible for proper governance, which includes

setting out Companys strategic aims, providing the necessary leadership to

implement such aims, supervising the management of the business and

reporting to the shareholders on their stetwardship.

IDLC is committed to continually reviewing all corporate governance policies

and practices to ensure the ongoing transparency of the companys practices

and the delivery of high standards and quality information to stakeholders.

The maintenance of effective corporate governance remains a key priority of

the Board of IDLC Finance Limited. To exercise clarity about directors

responsibilities towards the shareholders, corporate governance must be

dynamic and remain focused on the business objectives of the Company and

create a culture of openness and accountability. Keeping this in mind, clear

structure and accountabilities supported by well understood policies and

procedures to guide the activities of the Companys management have been

instituted.

IDLC considers that its corporate governance practices comply with all the

aspects of the SEC Notification No. SEC/CMMRRCD/2006-158/Admin/02-08dated February 20, 2006 and all aspects of Bangladesh Banks DFIM Circular

No. 7 dated September 25, 2007. In addition, to establishing high standards

of corporate governance, IDLC also considers best governance practices in

its activities. The independent role of Board of Directors, separate and

independent role of Chairman and Chief Executive Officer, distinct role of the


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Company Secretary & Chief Financial Officer and Chief Compliance Officer

and different Board committees allows IDLC to achieve excellence in best

corporate governance practices.

As a listed Company, IDLC Finance Limited must comply with the SEC Listing

Rules, which require the Company to provide a statement in the Annual

Report disclosing the extent to which the Company has complied with the

SEC Corporate Governance circulars.

Vision, Mission and Values

IDLC Vision

IDLC will be the most preferred financial institution in the country by

exceeding stakeholders expectations.

IDLC Mission

IDLC will be one of the top three financial institutions in terms of profitability

and brand image through quality growth and superior client services.

IDLC Corporate Philosophy

Discharge functions with proper accountability for actions and results and

bind ourselves to the highest ethical standards.

Strategic Objectives

Create high quality and strategically balanced portfolios;

Provide a range of financial products and services to our customers

under one roof;

Strengthening our position in capital market operation;

Balanced diversification of funding sources;

Maximize corporate value through sustained high quality growth;

Strengthening corporate governance practices;

IDLC Core Values

Integrity


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Walk the talk, no hidden agenda, never compromise own code of

conduct

Customer Focus

IDLC live for customers

Trust & Respect

IDLC keep promises; IDLC are honest, transparent & compliant

Environment Friendly

IDLC respect the environment and own culture

Simplicity

Be direct, simple & consistent, no jargons, transparent

Passion

One team one goal, exceed customer expectation, deep understanding

of market.

Equal Opportunity

Gender/age/racial/religious equality and meritocracy

Objectives of the Report

The report is prepared for the purpose of acquainting the general functions

of the company, IDLC. As well as I here tried to articulate extensively the

financial distinctive capabilities of IDLC.

The broad objectives of IDLC are as follows:

To make an introduction of the ground of NBFI in Bangladesh and

specifically IDLC and its service offering.

To introduce the functional departments of IDLC as well as functions of

each department and brief idea about lease operational procedure.

Specifically to articulate the nature of Job and different aspects of Job

performance in IDLC.

Evaluating financial distinctive capabilities of IDLC

To bring out the position of IDLC in the industry.


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Scope of the Report

The report mainly analyzes the existing services of IDLC and four other

leading NBFIs. The report also analyzes the financial performance of the

above four companies over three years and evaluates the distinctive

capabilities of IDLC with them and also with the industry average.

Methodology

In 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.

Data Collection Procedures: Data were collected in two ways.

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 with the personnels

of IDLC and from the various financial documents which were not publicly

published by performing my internship program there. These are shown

below in diagram-

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

Primaryways

Conversationwith

Personnels ofIDLC

Financialdocuments

( not publiclypublished)


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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 in diagram below-

Limitations

There exist some limitations in making the report. These are stated

below:

There were some restrictions in disclosing some information as it was

assumed to be confidential. Therefore I could not include those in my

report.

Some of the information that I got from secondary sources were not

arranged consistently.

As some companies do not update their web site, therefore it was

difficult to get the most recent data.


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Since Annual report of 2011 yet to be published almost of all

companies so I was in trouble to select time period for financial data

analysis.

Literature Review

The distinctive capabilities

The literature on strategic management suggests distinctive capabilities

or competencies as an important part of an organizations resources and

competitive advantage. Mintzberg and Quinn (1991) noted that the

theoretical relevance of distinctive capabilities as a source of competitive

advantage can be traced back to the early work by Selznick (1957).

Aaker (1989) noted that the assets and skills of the firm, which are the

basis for competition, provide the foundation for sustainable competitive

advantage. Furthermore, Aaker pointed out that it is the essence of

strategic management to develop and maintain these assets and skills as

well as to choose these strategies so that they can be turned into

sustainable competitive advantages.

Basically, resources can be grouped into tangible and intangible assets.

Ansoff (1965), Wheellen and Hunger (1995), and Price (1996) classier

business functional areas into general administration, operations/

production, marketing, finance, human resource management,engineering and r&d and public relations. Hitt and Ireland (1985)

developed a distinctive capabilities instrument comprising 55 capabilities

grouped according to seven functional areas; (a) general administration,

(b) production/operations, (c) engineering, research and development, (d)


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marketing, (e) finance, (f) personnel, and (g) public and governmental

relations. The distinctive capabilities variables used in this study are

adopted from this literature review.

Organizational Processes:

Devision, Product & Service:

Corporate:

IDLC have extensive knowledge, expertise and experience to offer a range of

financial solutions in response to the needs of a broad spectrum of clientele,

comprising of local and multinational corporate houses in Bangladesh.

1. Lease Financing

Asset backed financing against industrial machinery, commercial

equipments, office equipments, generators, vehicles, vessels,

engines, etc.

Financing may be extended up to 100% of the cost

Usually for a tenure of 3 to 5 years

Repayment through monthly or quarterly rentals

Rentals may be equal or structured (step-up, step-down, bullet, etc.)

Legal ownership remains in the name of IDLC throughout lease

period

Ownership is transferred to the client at the end of term

Sale & Lease Back

Financing against any of the existing (already procured/in-use)

industrial machinery, commercial equipments, office equipments,

generators, vehicles, vessels, engines, etc.


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The ownership of the asset comes to IDLC at the of financing

Financing may be extended up to 100% of the written down value

(cost net of depreciation) depending on the condition of the

machine

Usually for a tenure of 3 to 5 years depending on original date of

purchase and current condition of the asset

Repayment through monthly or quarterly rentals

Rentals may be equal or structured (step-up, step-down, bullet, etc.)

Ownership is transferred to IDLC at the time of financing and

remains in the name of IDLC throughout lease period

Ownership is re-transferred to the client at the end of term

2. Term Loan Financing

Term Loan

For meeting various regular capital/fixed expenditures like balancing of

production line, modernization of manufacturing process, expansion of

capacity and space, etc.

Usually for a tenure of 1 to 5 years Repayment through monthly or quarterly installments

Installments may be equal or structured (step-up, step-down, bullet,

etc.)

Bridge Financing

For meeting the funding requirements of the borrower for any interim

period

Usually for shorter term Generally through bullet payments

Loan to Corporate Houses to Procure Commercial Space

Financing to corporate clients for procuring office/commercial space

Loan term may be up to 7 years or so


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Repayment can be made every quarter or month through equal or

structured installments

Long Term Finance for Real Estate Developers

Financing to developers for meeting the capital

expenditures/construction costs of any specific real estate project,

both residential and commercial

A debt-equity ratio is maintained

Disbursements are usually made in phases with progress of

construction work

Tenure of loan can be up to 7 years depending on nature of the project

Repayment can be made every quarter or month through equal or

structured installments

3. Working Capital Financing

IDLC offering working capital financing to assist companies in carrying

out day-to-day business operations

The financing modes include time loan, STL, work-order financing and

many other forms of short-term loan facilities IDLC offers its clients competitive interest rates at simple terms

against these facilities

4. Project Financing

Project Financing - Fixed Cost

For setting up of a new unit as addition to the existing

product line and capacity, a new concern of an existing group, a

new Joint Venture project of an existing company, etc.

Required debt-equity ratio is maintained


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Financial solution for the entire project may be provided

through mix of different financial tools from wide range of services

offered by IDLC.

Loan tenure varies based on product type. For fixed portion

loan period may be up to 7 years

Different repayment structure is available depending on

financial product

Club Financing for Relatively Larger Projects

For relatively larger amount of financing IDLC, given its

long track record, position and reputation in the financial industry,

arranges funds in partnership with other FIs/Banks for the client.

Type of facilities range from simple lease financing to a

mix of lease and traditional banking products.

Preferred Equity Investments

If clients raise funds through preferred share, IDLC corporate

division makes financing by purchasing the shares

IDLC gets payments usually through redemption of the preferred

shares over the tenure

5. Structured Finance

Fund-Raising

Asset backed financing against industrial machinery, commercial

equipments, office equipments, generators, vehicles, vessels,

engines, etc.

Advisory Services

For meeting various regular capital/fixed expenditures like

balancing of production line, modernization of manufacturing

process, expansion of capacity and space, etc.

Securitization of Assets


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IDLC offering working capital financing to assist companies

in carrying out day-to-day business operations

Personal Finance:

1. Deposit

IDLC offer various attractive Deposit Schemes

Cumulative Term Deposit

Annual Profit Term Deposit

Monthly/Quarterly Earner Deposit

Double / Triple Money Deposit

Millionaire/Multimillionaire Scheme

Term Deposit

2. Home Loan

As one of the leading Home Loan providers in the country, IDLC 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.

Key Benefits

IDLC consider all applications equally, irrespective of any profession

IDLC provide a dedicated and supportive service both before and after

the disbursement

Customer have the option to choose either Fixed or Variable rate of

interest

IDLC sanction the loan within the shortest possible time, and also

before starting construction of the building or purchase of the

apartment

Customer can have early pre-payment option, either in part or full, with

convenient conditions


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Customer can avail Income Tax Rebate on annual interest payment on

Home Loan up to Taka 20 Lacs

Customer can avail Municipality Holding Tax rebate

IDLC offer maximum loan facility to Non-resident Bangladeshi (NRB) Customer can enjoy competitive interest rate and lower fees

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 property3. Personal Loan

Product Features

IDLC understand all out efforts to improve the quality of life, but

necessities no longer wait for your savings to accumulate. Sometimes, it

gets harder to meet ever changing needs. IDLC Finance Limited, the

largest financial institution of the country, can help customer achieve

aspirations with a Personal Loan that is suitable for customer. IDLCPersonal Loan - financing for all need!

4. Car Loan

Product Features

In todays age, owing car is no longer considered a luxury; rather it has

become a vital part of our everyday life. A car is now a useful investment

that improves your quality of life. With our Car Loan facility, you can own

your dream car and add more excitement to your life.

SME Finance

1. Small Business


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Small Business is a loan facility designed to finance small scale trading,

manufacturing and service ventures, especially to help small and medium

entrepreneurs to meet their short-term cash flow shortages and bridge

the fund-flow gaps.

2. Medium Business

SME-Mid segment offers mid and longer term financial solutions to a wide

range of clienteles who are in their journey to emerge as promising

corporate houses in near future.

3. Supplier Finance

Factoring of Accounts Receivable is a mode of financing receivables

arising out of supply of goods or delivery of services on credit.

4. Women Entrepreneur Loan

Women Entrepreneur Loan is a loan facility for small and medium sized

business, which are operated by women entrepreneurs. The product

offers terminating loan facilities for the purpose of working capital finance

and/or fixed assets purchase.

Capital Market:1. Portfolio Management

MAXCAP is a personalized discretionary investment account designed for

high net worth clients, both individuals and institutions.

2. Investment Banking

With a rich experience in Investment Banking, we assist our clients to our

best throughout the IPO process, along with sustained market support.

3. Brokerage Services

Trade Execution in Dhaka and Chittagong Stock Exchange Limited

Appointment of dedicated and skilled sales representative

Opportunities for trading through different financial instruments

Custodial Services


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Safe keeping of securities

Exclusive arrangement for clients to keep their shares in safe custody

in our vaults

Some Special Issues

There are some issues which are inherently related with the lease proposal.

These particulars should be assessed carefull by IDLC as well as aplicants.

The issues are started as below:

CIB (Credit Information Bureau) Report: A request has to send to Credit

Information bureau of Bangladesh bank for the credit worthiness of the

applicant. After getting CIB report IDLC could get assurances about the credit

worthiness of the applicant.

Inspection Report: After getting the application of the client IDLC send its

personnel for inspecting the details of the client. If the inspection report is

find satisfactory then further procedure are taken.

Documentations Fees: The applicants need to pay the required

documentation fees to IDLC. This fess varies 1% to 1.25% on loan amount &

type of the client etc.

Delinquent Charge: If the client will not pay the rental as specified date

the he is charged a delinquent charge as a penalty. The charge is 20% of the

overdue rentals and is charged for the deferred days.

Management Transfer: If the client is unable to continue the lease facility

then he may transfer the asset to another persone. Therefore the new client

gives an assurance that he

will pay the remaining rentals to IDLC and the previous client give the

assurance that he will have no claim over the asset.


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Transfer of the Asset: After paying all the liabilities to IDLC by the client,

the lessor (IDLC) transfer the asset to the client by charging 1% of the

acquisition cost of the asset as a transfer price.

Repossess of Asset: If the client could not pay the rental regularly, then

IDLC repossess the lease asset by employing repossess representative.

Repossess Representative: IDLC assigns a representative to repossess

the leased asset. This representative repossesses the assets on behalf of

IDLC as the assets title owns to IDLC.

IDLCs Business Activities

From a business perspective, both existing businesses and new projects in

the country suffered from serious energy shortages in 2010. Not surprisingly,

new and viable investment opportunities were relatively scarce. With

everybody running after the same clients, the smaller Non-Banking-Financial-

Institution sector faced even more competition from the much larger

Commercial Banking sector than in previous years. The investment climate

was further impacted newer challenges e.g. increases in global food prices,

shortages of important raw materials such as oil and cotton, slow-down of

overseas remittances, etc.

Traditional term-lending and leasing businesses, particularly in the corporate

clients segment, struggled to grow. However, an expanded sale and credit

team and seven new branches helped the SME segment to grow customer

assets signifi cantly while retail home-loans also grew very well for most of

2010. IDLCs Treasury took advantage of inter-bank liquidity and was

successful in managing down the cost of funds. The Capital Market segment

leveraged off the massive stock market growth and has generated record

revenues.


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IDLCs consolidated assets, at 2010 year-end, stood at BDT 26.9 billion a

19% growth over 2009. An aggressive deposit program was initiated in the

second half of 2010 and by year end, customer deposits had reached the

BDT 12.4 billion mark - 27% higher than the previous year. IDLC earned a

consolidated net profi t of BDT 1,327 million in 2010 - a 61% growth over the

previous year.

Consolidated earnings per share grew by 61% to BDT 221.18 - compared to

previous years BDT 136.98. As at December 31, 2010, the Companys equity

had increased by 54% to BDT 3.7 billion over the previous year.

At IDLC, we believe that superior service delivery, diversifi cation of client

segments and businesses, defi nitive sales and performance focus, strong

risk-management and growth, development and empowerment of staff are

all key to ensuring sustained fi nancial performance. In 2010, the Company

continued to invest in each of these areas.

IDLC Finance Limited opened six new branches at Narayanganj, Savar,

Nandan Kanan(Chittagong), Comilla, Narshingdi and Keraniganj while IDLC

Finances Merchant Banking Division moved to large new premises at Eunoos

Tower in Motijheel. IDLC Securities Limited also opened 6 new branches

during 2010 at Gazipur,

Narayanganj, Khatunganj (Chittagong), Uttara, Banani and Dhanmondi. 109

staff, including 13 of manager and above ranks, were recruited in 2010. In

addition, 50 new sales staff were also recruited. During the year, 606

employees were participated in 91 categories of training programs which is

349% higher than previous year.

The ratio of Non-performing Loans has been further reduced from 4.5% in

2008 and 3.62% in 2009 to 3.07% in 2010 mainly through strengthening of

the credit & collections teams and relevant processes. IDLC has continued

with its prudential policy of building adequate provisions for doubtful

accounts and future losses. It must be mentioned that this provisioning

policy is signifi cantly more conservative than the minimum required by

regulators and followed by almost all competitors. The Companys tax


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policies are also extremely conservative with full provisions having been

made for all conceivable contingencies.

Over the years IDLC has built a merit-based working environment which is

free of discrimination and is focused on maintaining the highest standard of

corporate governance and ethics. IDLC has always sought to differentiate

itself through its human resources and, in 2010, the Company continued to

invest heavily in the development and growth of staff. The Company has

always tried to implement international best-practice employee

compensation policies - aiming at attracting, retaining and rewarding best

talent. In 2010, under the mandate of the Board of Directors, the Companys

employee compensation policies were made even more performance

oriented than in earlier years.

Conclusion:

The more acute phase of the latest financial crisis appears to have passed

and a global economic recovery is under way. The global economic recovery

is broadly proceeding as expected. Most advanced and a few emerging

economies still face major adjustments, including the need to strengthen

household balance sheets, stabilize and subsequently reduce high public

debt, and repair and reform their fi nancial sectors. In many of these

economies, the fi nancial sector is still vulnerable to shocks, and growth

appears to be slowing as policy stimulus wanes. By contrast, in emerging

and developing economies prudent policies, implemented partly in response

to earlier crises, have contributed to a signifi cantly improved medium-term

growth outlook relative to the aftermath of previous global recessions.

However, activity in these economies, particularly those inemerging Asia, remains dependent on demand in advanced economies.

IDLC achieved its remarkable performance because it steadfastly built a

coherent and self-reinforcing system of capabilities based on superior


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intellectual capital and an optimized operating model from front and middle

offices to back office.

Perhaps IDLCs experience offers another lesson as well: In financial services,

apabilities-driven strategies will increasingly be best articulated around client

segments rather than particular products or technologies, with an emphasis

on front and middle office functions. Products are easily copied and

technology can be outsourced in other words, both have become

commodities. As in the case of IDLC, intellectual capital about client

behaviors and needs will often be the glue to a winning capabilities system.

Simply put, a capabilities-driven strategy should be viewed as a way to

establish and sustain competitive advantage. A steadfast commitment by

senior management, with a continuity of vision, and a methodical plan to

build a coherent system of capabilities throughout the value chain are

essential to the successful execution of these strategies.

Documents

Distintive Capabilities of IDLC