Loan Approval Process of Butwal Finance Limited, Ghorahi Branch

Executive Summary

This summer project is done on the topic of “Loan Approval Process Of Butwal Finance Limited in Ghorahi”. The data composed for this project are from many sources that are primary as well as secondary. In this project, I have started the organization named Butwal Finance Limited and have divided into three chapters. The first phase is about the background information, objective of study problem statement, important of the study, limitation of the study, Research methodology, Research design, Sources of data, Hypothesis, Data collection procedures, Data processing, Data Analysis, Literature Review and organization of the study. In second phase, I have presented about the Data presentation and analysis. In third phase, I have described the summary, conclusion, and Recommendation.

Butwal Finance Limited came into existance in the year 2055 B.S. with the view to acclerate the peace of economic development through active participation in socio-economic activities.. Generally, Butwal Finance Limited gives loan in commercial sectors. Most of the people depend upon commercial sector due to maintain their economic condition. People of commercial sector need economic as well as technical information for better performances in the economy Butwal Finance Limited, after its incorporation, makes little effort for development of commercial sector by providing such as short term as development.

This bank provides loan for purpose of commerce charging specific rate of interest and capital requirement in industries which was established of production of goods and services. , Butwal Finance Limited uplifts the economic status of poor people through short-term as well as long term loan and provides a simple and available banking service to people who are under poverty line. These loans are provided to existing old groups to develop and increase their capacity of earning.

Chapter 1

Introduction to Butwal Finance Limited

1.1Introduction to the term 'Bank'

'Bank' can be defined as the financial intermediary between depositors and entrepreneurs. The intermediation takes place when bands accepts deposit from general public, corporate bodies & private originations & deploys that deposit for profitable purposes in the from of loan and advance. Bank is a financial service institution. Therefore, in between these intermediations, bank gets some earning.

By these definitions bank can be easily defined as the custodian of deposit. The transaction in the financial market heavily depends upon the banking system of the country. Without bank it would be quite impossible for the industrialists & entrepreneurs to go directly to general public for getting their saving for investments. So the simplest definition is the, bank takes the saving of the public by providing them with certain rate of interest and earns some profit by doing this intermediation. This is the broadest form of banking but in this age banking such a vague them. It does a lot more then deposits and credits. Remitting of money, letter of credit, guarantee, issue of money, controlling monetary activities of country, etc are also major functions of a bank.

Bank as an institution originated form Italy. The bank of Venice, established in 1157 A.D. was the first bank in the world. Therefore, the World Bank also cameform Italian word "ban co" which means accumulation of money or stock. The second bank was the bank of Barcelona of Spain established in 1401 A.D. The first central Bank was the Bank of England established in 1844 A.D.

According to US Law, "Any institution offering deposits subject to withdrawal on demand and making loans of a commercial or business nature is a bank."

According to G. Crowther,"A bank is an institution which collect money form those who have it spare or who are saving it out of their income and lends this out to those who required it."

According to R.S. Sayers," I believe in that fact the bank is not merely purveyors of money, but also, in an important sense manufacture of money."

According to Horance white, "Bank is a manufacturer of credit and machine for facilitating exchange."

According to Kent," A bank is an organization whose principal operations are concerned with the accumulation of the temporarily idle money of the general public for the purpose of advancing to other for expenditure."

Thus, in short, bank may be defined as financial institution that offer the widest range of financial services especially credit, savings and payments services and perform the widest range of financial functions of the any business firm in the economy. There are different kinds of bank targeted to various people of the society.

1.1.2Types of Bank

Central bank

Commercial bank

Industrial bank

Agriculture development bank

Exchange bank

Rural bank

Saving bank

Cooperative bank

Miscellaneous bank

Labor bank

Students bank

Regional bank

Indigenous bankers

Banks are grouped under different categories as per the function they perform. The following banks exist in Nepal

Central Bank

Commercial Bank

Development Bank

1.1.3Need and Importance of Bank

a)Capital Formation:

Capital formations is the act of optimum utilizations of limited capital for the development country bank accepts the deposits of the unutilized money remained with the public and mobilizes it in the productive sector of country finding out the investment areas.

b)Provides Loan:

It provides loan to the persons and organizations with or without security deposit of assets. Various banks have launched various procedures for providing loan.

c)Promotes saving:

Bank provides various types of facilities to the public who have deposited their money into the bank. So it promotes saving. It also provides interest on deposits.

d)Mobilization of Capital

It mobilizes the capital in the industrial, commercial, agricultural and service organizations which was collected under different accounts. It also performs the function of transferring currency from one place to another.

e)Performs exchange function:

Banks issues coins, paper notes and credit instruments as per the need of country for the exchange purpose. It also exchanges foreign currency as per the need and demand of country.

f)Payment of amount:

Bank should pay the amount of deposit through electronic devices, cheques, draft, postal service and telecommunication. Bank promotes to the depositors to pay amount from one account to another account.

g)Role of agent

It provides financial and technical assistance to the industries and trade, being an agent between those organizations and other related parties.

h)Helps in the establishment of new industries:

Bank underwrites the share and debenture of existing and newly established companies. It provides capital by selling shares debentures which helps to establish new industries.

1.2Introduction of Butwal Finance Limited (BFL)

Ever since the government of Nepal adopted the market oriented liberal economics policy for sustainable development, poverty alleviation, regional balance and resolving unemployment problem of the country, the involvement of private sectors in economic activities have increased substantially. The private companies play significant role to the economic progress of the country.

Consequently, Butwal Finance Company came into existence in the year 2055 B.S. with the view to accelerate the pace of economic development through active participation in socio-economic activities. Since its inception, BFL has made its earnest efforts to contribute to the country by undertaking various integrated economic projects. Hence we feel proud to announce to our valued customers that BFL has completed five years of its successful operation so far.

 BFL aims to achieve excellence in financial sectors by rendering services to all levels of people for their individual as well as the overall development of the nation. However, the accomplishment of this esteemed gold depends entirely on the dedication, devotion, skills and experience of our highly motivated staff members who are the assets of the company. BFL strives to provide its professional financial services know how to prosper in today's competitive environment. To achieve its goal, BFL has assembled the team of young and dynamic professional to look after the day to day operation. This company is fully equipped with sophisticated modern equipment including computers and other necessary office equipment in order to serve people according to their interest at much faster and reliable way. In order to cope with the present difficult situation of the country, we are planning to introduce security programmes to ensure security provisions for our customers. These security programmes will include - insurance policy, recruitment of security guards, extension of communication services, visual aids system etc.

The process of forwarding the nation in the path of development by economic liberation and market oriented policies, Butwal Finance LTD has been established Butwal, the heart of Lumbini Zone, with the purpose t o make the country financially strong and empowered and also to turn the nation into modernization.

We are grateful to inform that Butwal Finance LTD has stepped into its third year of success. By realizing the nation’s unutilized capital, Butwal Finance LTD has been established with the purpose of managing the static capital into an organized form in order of developing the nation in the economic field. The Company has been working from 25th of Asadh 2055 with the permission from Nepal Rastra Bank on 7th Asadh 2055.

     By the purpose of providing the privileges and facility to the people of Lumbini Zone, Butwal Finance LTD has hired the highly skilled experienced employee and full-computerized system in order to serve the peoples of Lumbini Zone in a simple, reliable and scientific way.

1.3OBJECTIVES OF BUTWAL FINANCE LIMITED (BFL)

Every company and organization has some objectives and goals. These objectives are already determined at the time of establishment of the company. Objectives are the desired out come which an organization wants to achieve.

The objectives determined by Butwal finance limited are

To collect the deposit from society and to use it in productive sector.

To increase the living standard of people in this area by providing various financial supports to built their financial wellbeing.

To deal with stocks and bonds issued by the government and non governmental companies as well as brokerage and order writing securities.

To provide the facility of fixed deposits with attractive interest rates for specific time period: 3 months, 6 months, 9 months, 1 year, 2 years, 4 years, 5 years, and 6 years.

To provide the facility of different saving schemes like home banking, daily/weekly saving schemes and so on.

To provide the facility of provident fund schemes.

To manage the demand and supply of money.

This helps to increase saving habits of people. Not only this, its objectives are also to maintain the goodwill of the company in the society. It also aims to increase the skills and knowledge of the employees. It also gives good working environment to the employees. It also maintains discipline and system in the office.

1.4FUTURE PLANS OF BUTWAL FINANCE LIMITED (BFL)

To meet the increasing needs and demands of the society, Butwal finance limited the following activities for the future as future plans:

Foreign exchange facilities.

Leasing facilities.

Merchant finance.

Sales and purchase of the share.

Establishing development bank and cooperative organization.

Newspaper publishing.

Constructing its own buildings in Butwal and Bardghat.

Upgrading two contract officers into branch offices.

1.5RISK TAKEN BY BUTWAL FINANCE LIMITED (BFL)

Every organization has to face some short of risks. There is a saying ‘’no risk no profit.” So Butwal finance has also taken some risks of following types:

Risk may occur if the debtor becomes bankrupted.

Entrance of new companies in the industry also increases the risk of taking its customers away.

Change in the government and central bank policies.

Change in interest rates in deposit and loans in the market.

Change in the situation of the capital market.

Change in the economic environment of the country.

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1.6CAPITAL SHARE STRUCTURE OF THE BFL

This information is of those share holders who own share of the Butwal finance limited

Table no. 1.1

Name share holder	percentage	Share capital
Other authorized companies	0.08	47,100
Other organizations	15.01	8,630,100
Chartered investment and Development	14.55	8,364,500
Devendra Prasad Dhoju	22.00	12,650,000
RajendraPradsadDhoju	14.00	8,050,000
IndraLalShrestha	8.00	4,600.000
Chitra Kumar Shrestha	6.00	3,450,000
Chop Narayan Shrestha	6.29	3,617,900
Rajesh KiranShrestha	4.00	2,300,000
NirmalaSuwal	4.00	2,300,000
Ram Thapa	0.56	320,800
Krishna Tamrakar	0.64	368,000
ChiranjiviGhimire	1.03	589,900
KhemLalKharel	0.81	466,900
Kumar Shrestha	2.00	1,150,000
GauriShrestha	1.00	576,100

1.7WORKING ENVIRONMENT IN BUTWAL FINANCE LIMITED

Working environment in Butwal finance limited is perfect. Every staffs of the organization are is well mannered and well behaved. They have created a good relation among the staffs and with their clients. Relation with management is management is also good. Every staff has well understanding about the organization and perfect in their field. Every staffs are specialized in their field. So there is coordination between the departments in their day to day activities. BFL has its own rules and regulations for its members which they have to follow. No one is allowed to break the rule.

The problem with in BFL is that it has limited no of employees so one staff have to do many works with in their department. So it created the burden with in them and increases the frustration within them in the working environment. Another problem is the space problem. The office is more conjunct. This lack of space has created the customers and the employees to move up and down stair for a small work. For the solution of this problem they are building their own building in Milanchwok—Butwal.

1.8FUNCTION OF VARIOUS DEPARTMENT OF BUTWAL FINANCE LIMITED

RECEPTION:

Reception is a place where the customers come in direct contact and get necessary information about the company. So the function of the reception is to keep the constant contact with customers and staffs with the help of telephone and other means of communication. It also keeps the record of incoming and outgoing letters in the book.

CASH SECTION:

Cash section is a place where the real transaction happens. The function of cash section is to receive the installments of loans, receive interest of the loan, and refund the cheque and so on. The cash section is most important section for any financial organizations. It also maintains the cash book.

ACCOUNT SECTION:

Account section is also the other important section where very important function of preparing and maintaining the account book is done. Here the ledgers of the loan holder and preparation of voucher is held. Three kinds of vouchers are made i.e. credit voucher, debit voucher and journal voucher. Account section is also responsible for the recording the accounts in the computer. It is also responsible for the repayment schedules and maintains subsidiary books. It even keeps the full details of store.

LOAN SECTION:

Loan section is also the other important section where very important function of any financial institutions. So, the function of loan section is to permit the loan after collecting all the important papers. Loan is permitted after the supervision and valuation of collateral. Credit information’s are received and send from this section. Loan recovery is another function of this department. This sub-section is related to the managing and controlling of misuse of loan takes or mispayment of borrower. It takes certain actions on the basis of law to recover from them who has failed to pay their principal with interest.

DEPOSIT SECTION:

The ledger of every depositor is maintained in this section. The interested customers can deposit their cash in this section. The voucher of cash receipt and payment to deposit are made in this section.

LEGAL SECTION

This section is related with rule, law, and regulation of the company. It helps to grow and manage the company or organization lawfully.

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1.9Organizational Structure of Butwal Finance

Share holders

Board of Directors

Executive Director

Finance Director

Legal Advisor

Internal Auditor

Company Secretary

General Administration

Loan Department

Account Department

Cash Department

Deposit Department

Store Dep.

Remittance

Recovery

Security Guards

Drivers

Peon

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1.10Definition of Loan:

In general, tem loan can be defined as 'the sum of amount of money that is lent to the borrower to be returned after certain period of time under certain terms and condition.' Whereas in banking, the term loan can be expressed as 'The status of lending money to that customer who is in need of financial assistance to met his/her purpose and has the financial capability to repay the loan back'

1.11Types of Loan

Hire Purchase

Hire purchase (HP) financing is one of the most common ways for people to buy private vehicles. If you take on HP financing, you become the hirer while the financier financing the vehicle is the owner. As the hirer, you will have to pay installments to the financier based on an agreed duration while you will have possession of the vehicle. When all installments are paid up, ownership is then transferred to you, the hirer

Description of motor vehicle

Calculation of total sum payable

Minimum Deposit

Terms Charge and annual percentage rate

Late Payment Charges

Date on which hiring commences

Number of installment repayments

Amount of each installment repayment

Person to whom repayments are to be made, time and place of repayments

Address where the motor vehicle is to be kept

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Business Loan

While money is a large part of keeping a business intact, there are many other important aspects such as knowledge, experience, and organization. Keeping a business plan and following a schedule can be the difference between failure and success. When loaning your funds, take a second and think of how much you will need and why. The cost of borrowing money can be very high in the end. Some things to think about include:

How badly do you need the money? Will it be to startup or expand your business? Or is it just to ensure things go smoothly?
Are you in great risk if you don't receive the loan? Will your company fall without this boost in funding?
What state is your business currently in? Growing, stable, falling? Businesses that are not fairing as well will not have as good funding terms.
How capable is your leading management? Without a key focus on what you are willing to do with the money can lead to not getting a loan. Loaners are very keen on knowing what is going to be done with the money, and how you plan on repaying it.

Study Loan

International education is expensive, and many students struggle to fund their international studies. Scholarships and grants are available, but they are very competitive and rarely cover all of your expenses. That is where an International Student Loan can help. Students at eligible schools can apply for up to the total cost of attendance, as determined by yours school, minus any other aid received

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Agriculture Loan

Based on the viability of the agriculture project/proposal, Agriculture Loan to finance the short/long-term financing need of an individual/firm/company may be made available to purchase tractor, seeds, fertilizers, insecticides etc.

Entities Like:

Individual farmers,
Small/Medium Agro Business.

1.12Documents requirement for loan

Personal Loan

Provided to fulfill the personal needs of an individual

Provided against the land and building

Eligibility:

Parameters

Criteria	Parameter
BFL Term Loan
Interest rate
Loan amount	Minimum: Rs. 500,000 Maximum: Rs. 5,000,000
Loan portion	50% of value amount estimated by valuator acceptable to the bank
Tenure	Maximum: 10 years
First payment date	From the end of the subsequent month of initial drawn down.
Prepayment charge	No prepayment fee will be charged if paid after maturity.

Processing fee 1% of the financed amount at the time of approve of loan application. Documents

Documents	Salaried	Self employed
Identification documents
2 Passport size photo of applicant and one passport size photo of guarantor	Required	Required
Photocopy of citizenship certificate of applicant and guarantor	Required	Required
Photocopy of Tax/PAN/VAT certificate and registration certificate	required	Required
Proof of Income related documents
Original Salary Certificate not more than 10 days old	Required	Not required
Photocopy of contract agreement between applicant and his/her employer	Required	Required
Photocopy of Rent Contract, if any	Required	Required
Original/photocopy of Bank Statement (Past 6 months)	Optional	Optional
Photocopy of audited/management prepared financial statements for past 3 years	Not required	Required
Land and/or building related documents
Original letter stating coparcener from local authority (Ward)	Required	Required
Original Blue Print of the trace map land	Required	Required
Original copy of restraint letter from Land Revenue Office	Required	Required
Original construction completion certificate from Municipality/VDC in case of purchasing already built house	Required	Required
Original/photocopy of detailed break down of cost estimation from the applicant’s consultant	Required	Required
Original land ownership certificate	Required	Required
Original latest land revenue receipt	Required	Required
Photocopy of blue print of building approved from Municipality/VDC	Required	Required
Photocopy of land Transfer Deed	Required	Required
Original four Boundary Disclosure from ward office/municipality	Required	Required
Legal/Other documents
Debit authority note	Required	Required
Photocopy of Memorandum and Articles of Association/partnership deed	required	Required
Credit information of borrowers and guarantors from CIC and branch	Required	Required
Current account of the borrower	Required	Required
Promissory Note	Required	Required
Original copy of loan deed	Required	Required
Insurance of the building	Required	Required
Original copy of mortgage deed	Required	Required
Restraint letter from concerned Land Revenue Office	Required	Required

Consumer Loans Auto Loans This loan is provided for:

Purchase of new vehicles
Purchase of old / used vehicles (For Private use only)
Swapping (For Private and Commercialuse use)

Eligibility: The criterion for taking auto-loans is as follows.

The loan is provided to Nepalese Citizens &License holder only.
This is provided to any salaried and self-employed individuals and companies.
The loan is provided to any salaried and self-employed individuals and companies having regular and stable source of income.
All borrowers and guarantors should not be enlisted in “Black List” of NRB.
In case of individuals, the borrower must be at least 21years and should not exceed 60 years at the time of maturity. The retirement age must be more than the tenure of the loan.
The company / firm should be in operation since last three years.
The person taking loan for the company / firm is to be authorized by the company / firm as appropriate.
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Computer Engineering & Management Notes

Loan Approval Process of Butwal Finance Limited, Ghorahi Branch

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