A Walk to Remember by Nicholas Sparks

Life has always been filled with different challenges. Sometimes, these challenges were enough to change the way we deal with life in general. There were people who get disappointed and depressed, making their lives more miserable.And there were others, who despite of their hardships and challenges, manage to live them most of their lives striving to be the best person they can be.The novel, â€Å"A Walk to Remember†, tells the story of a seventeen year-old teenager, Landon Carter. He was one of the popular students, armed with charm and good looks, and adored by many. He lived his life by playing pranks on others, bullying them and taking people for granted. He was aimless, and was contented with the kind of life his parents could provide him with. Everything changed when he met Jamie Sullivan.Jamie was the daughter of a Baptist minister in Beaufort. She was the complete opposite of Landon. People often had a notion that Jamie was weird, for she was always quiet , holding a B ible wherever she went. Her father was strict, and never allowed her to mingle much with the people around her. Unknown to many, Jamie had cancer.The time came when Jamie and Landon had to work together in the annual Christmas play written by Jamie's father, Hegbert Sullivan. At first, both were uncomfortable working together, primarily because they had different views in life. Jamie's life was simple, and filled with dreams she wished she could accomplish someday. Landon, on the other hand, was just contented with the kind of life that he had, and aimless in life.The two were always together, making them learn more about life. Their differences have somehow bridged the gap that was placed long before they had the chance to exchange ideas. Soon after, they were in love.Landon was left in awe upon learning that Jamie was dying of Leukemia. He was desolated at first, but faced the life changing trial by fulfilling Jamie's wish list. He made Jamie feel loved and special, making her hap py all the time.In the end, Landon and Jamie were married in the church where Jamie's deceased mother was married. Jamie was initially on a wheel chair, for she was very weak. She stood up and walked towards the altar to meet Landon, and his father Hegbert, who was to officiate the wedding.The story of the novel was astounding. It made viewers feel that regardless of life's challenges, one can still find that blissful ending. The novel also showed us that regardless of our statures in life, love will prevail. In Landon and Jamie's case, both were from the opposite ends of the social strata.Landon was part of the popular kids, who played pranks on others for fun, aimless, and cared less for their education. Jamie, on the other hand,   was branded to be one of those who cared much for her academics, career driven, and timid towards others.I particular admire the part wherein Jamie told Landon not to fall in love with her. It was an awkward statement to be given by Jamie, knowing her status in school. Landon, on the other hand, took it effortlessly, knowing that he would not fall in love with a girl like Jamie. He was surprised in the end, knowing that he had done the things that he did not normally do in life. Jamie was an influential force in Landon's sudden maturity.The story itself had a typical story set for a novel-†the boy meets girl then falls in love, despising the belief of others† type. But the novel goes further than that.   With the simple plot, the author was able to incorporate to the novel the magic and lessons in life that may be learned by teenagers. He was able to take into consideration the differences in perceptions, and how people, from all walks of life can come together for one purpose.In this case, those who used to despise Jamie helped give her the best summer she can have in her lifetime. They made her feel that regardless of her illness, she can still fulfill her dreams. At the same time, she was able to live her life l ike a normal teenager, not being given the special treatment given to dying patients.

Term Paper on Idlc

Term paper on Functions oF credit risk management in non Banking Financial institutions (nBFi) in Bangladesh A study on IDLC Finance Limited Submitted to: Submitted By: Date of Submission: Letter of Transmittal_______________________ 23rd December 2013 Sh University Subject: Submission of term paper of BBA Programme Dear Madam, It is my great pleasure to submit the term paper on â€Å"Functions of Credit Risk management in Non Banking Financial Institutions (NBFI) in Bangladesh, A study on IDLC Finance Ltd † which is a part of BBA Programme to you for your consideration.I made sincere efforts to study related materials, documents, observe operations performed in IDLC Finance Limited and examine relevant records for preparation of the report. Within the time limit, I have tried my best to compile the pertinent information as comprehensively as possible and if you need any further information, I will be glad to assist you. Your most obident pupil, Acknowledgement _______________ _____________At first I would like to thank my honorable internship supervisor from BRAC Business School (BBS), BRAC University, SharminShabnam Rahman for providing me such an opportunity to prepare an Internship Report on â€Å"Functions of Credit Risk management in Non Banking Financial Institutions (NBFI) in Bangladesh, A study on IDLC Finance Ltd â€Å". Without her helpful guidance, the completion of this project was unthinkable. I would like to place my gratitude to the HR of IDLC Finance Limited to enable me to complete my internship in their esteemed organization. Very special thanks goes to Mr.M. Jamal Uddin, Deputy General Manager & Head of Corporate and Structured Finance Division, IDLC Finance Limited & Mr. AlamIftekhar Chowdhury, Manager Corporate Division, IDLC Finance Limited, for helping me in all phase of the internship process. Their overwhelming support for my internship gave me the inspiration to do a better report. During my preparation of the project work I h ave come to very supportive touch of different individuals (respondents from IDLC Finance Limited) & friends who lend their ideas, time & caring guidance to amplify the report’s contents.I want to convey my heartiest gratitude to them for their valuable responses. Executive Summary_______________________ The non-bank financial institutions (NBFIs) constitute a rapidly growing segment of the financial system in Bangladesh. The NBFIs have been contributing toward increasing both the quality and quantity of financial services and thus mitigating the lapses of existing financial intermediation to meet the growing needs of different types of investment in the country. Today all NBFIs are playing a vital role for the growth of the nation’s economy with the best of their ability.During the world recession period NBFIs in Bangladesh act in a stringent manner so that their financial systems as well as the economy do not collapse. 29 NBFIs are now contributing to the growth of n ational economy. IDLC Finance Ltd as a leading and pioneer NBFI started their operation in 1986 and still they are dominating the NBFI sector as well as contributing to the prosper of economic development. Their success in this industry has inspired others to invest their capital in a profitable way.As major business of all NBFIs are providing lease facilities to the business along with various types of loan to individual and organizations therefore risk is associated with each and every product they are offering. To minimize this risk every institution has its own risk management policies. A number of actions are taken so that risk associated to their investment can be minimized. This report is emphasizes credit risk management in NBFIs in Bangladesh. In this regard IDLC Finance Limited has been taken as the sample organization, its, services, rules and regulation, corporate governance is also taken into consideration.Table of Contents_____________________________ Letter of Transmi ttal Acknowledgement Executive Summary 1. 0 Introduction 1. 1 Introduction | | | | | 01 | 1. 2 Origin of the Report | | | | | 02 | 1. 3 Objectives of the Report | | | | | 02 | 1. 4 Methodology | | | | | 03 | 1. 5 Limitations | | | | | 04 | 1. 6 Structure of the Report 2. 0 The Company | | | | | 04 2. 1 IDLC Finance limited | | | | | 06 | 2. 2 Shareholding Structure | | | | | 07-08 | 2. 3 Company chronicle | | | | | 09-10 | 2. 4 Guidance principle | | | | | 11-12 | 2. 5 Organogram | | | | | 13-14 | 2. 6 Products & Service | | | | | 14-19 | 2. 7 Divisions & Department | | | | | 20 | 2. 8 SWOT analysis | | | | | 21-23 | 2. 9 Performance of IDLC Finance Ltd | | | | | 24-25 | 2. 9. 1 CAMEL Rating 3. 0 Credit Risk Management | | | | | 25 | 3. 1 What is Risk? | | | | 27 | 3. Credit Risk | | | | 27-28 | 3. 3 Credit Risk Management Process | | | | 29-38 | 3. 3. 1 Credit Processing/Appraisal | | | | 29-31 | 3. 3. 2 Credit Approval /Sanction | | | | 32 | 3. 3. 3 Credit Documentation | | | | 3 2 | 3. 3. 4 Credit Administration | | | | 33 | 3. 3. 5 Disbursement | | 34 | 3. 3. 6 Monitoring & Control of Individual Credit | | 34-35 | 3. 3. 7 Maintaining the overall Credit Portfolio | | 35 | 3. 3. 8 Classification of Credit | | 36-37 | 3. 3. 9 Managing Problem Credits/Recovery | | 38 | 4. 0 Findings and Analysis— Credit Risk Management by IDLC Finance Ltd. 4. Procedural Work Flow of Lease Marketing 41-44 4. 2 Factors Scrutinized during Appraisal Procedure 45-46 4. 3 Weight assigned to each Risk Factor 47-48 4. 4 Measures Taken for restoration of Default Client 49 4. 5 Functions of Special Asset Management (SAM) 49- 4. 5. 1 Recovery Action Plan by SAM | 50-52 | 4. 5. 1. 1 Regular Accounts | | | 50-51 | 4. 5. 1. 2 Special Accounts | | | 51-52 | 4. 6 Impact of Overdue on Profit Performance of NBFI | | | 52 | 4. 6. 1 Provisioning Policy of Bangladesh Bank | | | 53 | 4. 6. 2 Provisioning Policy of IDLC Finance Ltd. | | 54 | 4. 7 Trend in Provisioning Volume | | | 54 | 4. 8 D efault Client Characteristics Analysis | | | | 55- | 4. 8. 1 Industry Analysis | | | | 57-59 | 4. 8. 2 Cost of projects to sales volume | | | | 60 | 4. 8. 3 Asset size of the Borrower | | | | 61 | 4. 8. 4 Debt/Equity ratio | | | | 62 | 4. 8. 5 Interest rate charge | | | | 63 | 4. 8. 6 Sponsors Business Experience | | | | 64 | 4. 8. 7 Security Ratio | | | | 65 | 4. 8. 8 Relationship with the Client | | | | 66 | 4. 8. 9 Sponsor’s Past Performance 5. 0 Recommendation & Conclusion | | | | 66-68 | 5. 1 Recommendation | | | | 70 | 5. Conclusion | | | | 71 | 1. 1INTRODUCTION The development of financial market has been receiving heightened attention from the policy-makers in recent years. One explanation lies in the fundamental shift of development strategy reflected in the nearly universal embrace of the private sector as an engine of economic growth. The governments in both developed and developing countries, the international financial institutions which exert tremendous influenc e on the policy-making apparatus of developing countries and, to a great extent, the intelligentsia have all joined together as ardent advocates of private entrepreneurship.IDLC Finance Ltd, a leading financial institution of the country achieved significant growth in all areas of business up to 3rd quarter of the year 2009. IDLC began its operation in 1985 as the first leasing company in Bangladesh. In 1995, IDLC was licensed as a Financial Institution by the country's central bank and during the last two decades, the company has grown in tandem with the country's growing economy. The company's wide array of products and services range from retail products, such as home and ar loans, corporate and SME products including lease and term loans, structured finance services ranging from syndications to capital restructuring and capital market services. The company also strengthened its presence in the country's growing stock market with launching a subsidiary-IDLC Securities Limited-whi ch is offering full-fledged brokerage service for retail and institutional clients. . 1. 3 OBJECTIVES OF THE REPORT The main objective of the study is to get a definite idea about how CRM plays a vital role in managing the risk associated with each and every product and services of IDLC Finance Limited.Furthermore, the orientation is very useful to detect whether the theoretical knowledge matches with real life scenario or not. Though the title â€Å"Functions of Credit Risk management in Non Banking Financial Institutions (NBFI) in Bangladesh, A study on IDLC Finance Ltd† very lengthy area, the specific objectives are as follows: 1. To know the necessity of Credit Risk Management. 2. To learn about the whole CRM procedure. 3. To know the decision making process of CRM. 4. To know the functions of Special Asset Management part of CRM 5.To know about the probable modification can be done in the whole CRM process 6. 1. 4 METHODOLOGY OF THE STU Analysis has been made on the basi s of the objectives mentioned before in the context of â€Å"Functions of Credit Risk management in Non Banking Financial Institutions (NBFI) in Bangladesh, A study on IDLC Finance Ltd† The paper will be written on the basis of information collected from primary and secondary sources. (i) Primary Data; Discussion with the respective organization's officials. (ii) For the completion of the present study, secondary data has been collected.The main sources of secondary data are: * Annual Report of IDLC Finance Limited. ? Website of IDLC Finance Limited. * Data from published reports of SEC, DSE * Different Books, Journals, Periodicals, News Papers etc. To make a report various aspects and experiences are needed. But I have faced some barriers for making a complete and perfect report. These barriers or limitations, which hinder my work, are as follows: * Difficulty in accessing data of its internal operations. * Non-Availability of some preceding and latest data. * Some informati on was withheld to retain the confidentiality of the organization.I was placed for only around 3 months of time ; working like a regular employee hindered the opportunity to put the effort for the study. The time span was not sufficient enough to learn all the activities of the organization properly. Therefore, it was very difficult to carry out the whole analysis. 1. 6 STRUCTURE OF THE REPORT The report has two main parts: Part One: This is basically introductory part, the objective and scope of the study, limitations, and research methodology has been highlighted. Brief Introduction of IDLC Finance Limited, its product and service, organizational structure, performance, etc are presented.Part Two: Products of NBFIs for which Credit Risk Management has become a key operational tool, how it performs its overall risk analysis and on the basis of the analysis identification of the ways of reducing the risk, thus maintains the core interest of the business. This part also contains the conclusion, reference ; appendix of the report. 2. 0 The Company 2. 1 ILDC FINANCE LIMITED IDLC Finance Ltd commenced its journey, in 1985, as the first leasing company of the country with multinational collaboration and the lead sponsorship of the International Finance Corporation (IFC) of The World Bank Group.Technical assistance was provided by Korean Development Leasing Corporation (KDLC), the largest leasing company of the Republic of South Korea. The unique institutional shareholding structure comprising mostly of financial institutions helps the company to constantly develop through sharing of experience and professional approach at the highest policy making level. IDLC offers a diverse array of financial services and solutions to institutional and individual clients to meet their diverse and unique requirements.The product offerings include Lease Finance, Term Finance, Real Estate Finance, Short Term Finance, Corporate Finance, Merchant Banking, Term Deposit Schemes, Debentu res and Corporate Advisory Services. The company has authorized capital of Taka 1,000,000,000 (10,000,000 shares of Taka 100 each) and paid up capital of Taka 250,000,000 (2,500,000 ordinary shares of Taka 100 each). IDLC has also established two wholly owned subsidiaries, IDLC Securities Limited and I, Cons Limited to provide customers with security brokerage solutions and IT solutions, respectively. 2. SHAREHOLDING STRUCTURE IDLC was incorporated in the year 1985 as a joint venture public limited company among five foreign and three local financial institutions. Now there are no foreign investors the present Shareholding Structure of IDLC Finance Ltd is given bellow: SL. NO. | NAME OF SHAREHOLDERS | % | | Sponsors/Directors:| | 1 | The City Bank Ltd. | 29. 70 | 2 | SadharanBima Corporation | 7. 62 | 3 | IPDC of Bangladesh Ltd. | 0. 0002 | | Sub-Total | 37. 33 | | GENERAL| | 4 | Institutions : | | | Mercantile Bank Ltd. 7. 50 | | Reliance Insurance Co. Ltd. | 7. 00 | | Eskayef Bang ladesh Ltd. | 8. 00 | | BD Lamps | 1. 32 | | Transcraft Ltd. | 4. 01 | | Eastern Bank Limited | 6. 00 | | Phonix Finance | 1. 00 | | PartexBaverage| 0. 86 | | Marina Apparels | 1. 00 | | ICB | 2. 32 | | Dhaka Stock Exchange Ltd. | 0. 95 | | One Bank Ltd. | 0. 5 | | Star Particle Board | 0. 60 | | Bangladesh Finance ; Invest. | 0. 88 | | Other institutions | 6. 92 | | Sub total | 49. 21 | 5 | Individuals : | | | General Public(Individuals) | 13. 45 | | Mr. A. K. M. Shaheed Reza, Director nominated by | | | Mercantile Bank Ltd. | 0. 017 | | Sub total | 13. 47 | | Total Holdings | 100. 00 | 2. 3 COMPANY CHRONICLE May 23,1985 | Incorporation of the Company | February 22,1986 | Commencement of leasing business |October 1, 1990 | Establishment of branch in Chittagong, the main port city | March 20,1993 | Listed in Dhaka Stock Exchange | February 7, 1995 | Licensed as a Non- Banking Financial Institutions under the Financial Institutions Act, 1993 | November 25, 1996 | Listed on the Chitta gong Stock Exchange | May 27, 1997 | Commencement of Home Finance and Short Term Finance Operations | January 22, 1998 | Licensed as a Merchant Banker by the Securities and Exchange Commission | January 15, 1999 | Commencement of Corporate Finance and Merchant Banking Operation | January 29, 2004 | Opening of Gulshan Branch |November 22, 2004 | Launching of Investment Management Services â€Å"Cap Invest† | February 7, 2005 | Issuance of Securitized Zero Coupon Bonds by IDLC Securitization Trust 2005 | September 18, 2005 | Launching of Local Enterprise Investment Centre(LEIC), a centre established for the development of SMEs with the contribution of the | | Canadian International Development Agency (CIDA) of the Government of Canada | January 2, 2006 | Opening of SME focused branch at Bogra| April 6, 2006 | Opening of Branch at Uttara|May18, 2006 | Opening Merchant Banking branch in the port city if Chittagong | July 1, 2006 | Relocation of Company’s Registered and Cor porate Head Office at own premises at 57, Gulshan Avenue | September 18, 2006 | Commencement of operation of IDLC Securities Limited, a wholly owned subsidiary of IDLC | March 14, 2007 | Launching of Discretionary Portfolio Management Services â€Å"Managed Cap Invest† | August 5, 2007 | Company name changed to IDLC Finance Limited, from Industrial Development Leasing Company of Bangladesh Limited | December 3, 2007 | IDLC Securities Limited Chittagong Branch commenced operation | December 18, 2007 | IDLC Securities Limited DOHS Dhaka Branch opened. | January 6, 2009 | IDLC Finance Limited and IDLC Securities Limited open Sylhet branches | August 09, 2009 | Opening of IDLC Securities Limited, Gulshan Branch | August 26, 2009 | Opening of Gazipur SME Booth | September 09, 2009 | Opening of Imamgonj SME Booth | December 2009 | Opening of Narayangonj Branch | December 2009 | Opening of Savar Branch | 2. 4 GUIDING PRINCIPLESIDLC is a multi-product financial institution offering a n array of diverse financial services and solutions to institutional and individual clients to meet their diverse and unique requirements. Following are the guiding principles that shape the organizational practice of IDLC Customer first: IDLC has grown with its customers, who are believed to be the center of all actions. As the crux of IDLC’s corporate philosophy, customer service gets the highest priority. Innovation: IDLC has continuously introduced new financial products for meeting the needs of the entrepreneurs in a complex ; challenging business environment. The concept of innovation is in-built into the working culture.Professional Knowledge: IDLC is staffed with qualified professionals and innovative minds in the country. Years of operational experience, large industrial database and competent workforce have gives them unparalleled advantages. Professional ethics: The professional at IDLC maintain the highest degree of financial and business ethics in all transaction s with the clients. Over the last two decades, IDLC have put in bets efforts to meet the expectations of the clients and investors. One stop solution: Work at IDLC begins with the idea generation, and then goes on into the feasibility study followed by arrangement of financing to implement the project.IDLC advises the clients, finance them and even arrange financing for them via different financing modes, namely: lease financing, term loan, bridge loan, syndication, bridge loan, syndication, ordinary shares, preferred shares and debentures. Vision: Become the best performing and most innovative financial solutions provider in the country Mission: Create maximum possible value of all the stakeholders by adhering to the highest ethical standards For the Company: Relentless pursuit of customer satisfaction through delivery of top quality services For the Shareholders: Maximize shareholders’ wealth through a sustained return on the investment. For the employees: Provide job satis faction by making IDLC a center of excellence with opportunity of career development.For the society: Contribute to the well-being of the society, in general, by acting as a responsible corporate citizen. Goal: Long term maximization of Stakeholders’ value Corporate Philosophy: Discharge the functions with proper accountability for all actions and results and bind to the highest ethical standards 2. 5 ORGANOGRAM THE APEX OF THE ORGANIZATION IS THE BOARD OF DIRECTORS, WITH THE MANAGEMENT COMMITTEE AND MANAGING DIRECTOR IN THE FOLLOWING TIERS. THE BOARD CONSISTS OF THE FOLLOWING DIRECTORS: * Chairman from Reliance Insurance Ltd * Five Directors nominated by The City Bank Limited * One from SadharanBima Corporation (SBC) * One from Transcom Group One From Mercantile Bank Limited * One Independent Director from Monowar Associates ACTIVITIES OF THE BO ARD The Board appoints the Executive Committee (EC), which takes day-to-day decisions on behalf of the company. Every credit propos al has to be approved by the EC for sanction and disbursement. EC is also authorized to observe and review other major day-to-day operational functions including corporate plans, budgets and borrowing activities. The composition of the EC is as follows: a) Four Directors b) Managing Director / Chief Executive Officer and The Company Secretary shall be the Secretary of the Committee ACTIVITIES OF THE MA NAGING DIRECTORThe Managing Director (MD), appointed by Board, manages the overall organizational activities and also plays the role of the figurehead. ACTIVITIES OF THE DEPUTY MANAGING DIRECTOR The DMD establishes the company’s policies and reviews the operational performance of the company including approval of large credit proposals, major fund procurements, budget and planning and diversification decisions. Diagram: Organ gram of IDLC Finance Limited 2. 6 PRODUCTS AND SERVICES To ensure steady and long term growth as well as to sharpen its competitive edge in a changing and challenging business environment, IDLC always endeavors to diversify into other financial services which have long term prospects.In 1997, it expanded its range of services by introducing Housing Finance and Short Term Finance, which have broadened its customer base and have contributed significantly to IDLC’s growth and profitability. In early 1999, after getting license of Merchant Banking from Securities and Exchange Commission, IDLC started its operation of underwriting, issue management, corporate financing and other investment banking related services. The products and services are as follows 1. LEASING Assets are leased to clients on predetermined rental basis for a fixed term with a purchase option at the end. 2. TERM LOAN The customers are offered loan facilities for a determined term at a negotiated rate. 3. EQUITY FINANCINGIDLC invests money into equity of both publicly traded and non-traded companies for dividends and capital gain. 4. INTER CORPORATE DEPO SIT ( I CD ) This disbursement scheme is offered to clients under two variations: a) Non- Revolving ICD which consists of single disbursement of funds b) Revolving ICD where multiple disbursements and collections take place 5. WORK ORDER/ PURCHASE ORDER FINANCING The clients are financed against their work order or purchase order on a revolving basis. 6. FACTORING Under this scheme, IDLC finances receivables of supply of goods or delivery of services on credit to help the clients realize the maximum portion of their payment soon after they have made the delivery to the buyer.The payment is collected from the customers and the balanced amount is re-reimbursed to the clients. 7. SYNDICATION IDLC helps to raise fund for clients with huge financial requirement through syndication and also help them with the documentation, execution and administration of the syndicated finance. 8. SECURITIZATION IDLC sell financial instruments of organizations in local financial market backed by their asset/cash flows such as loan, lease etc. 9. BRIDGE FINANCE: This refers to short-term finance (maturity of not more than 12 months) in anticipation of immediate long term financing such as public issue, private placement, syndication, loan, lease, debenture, etc. 10. CAP INVESTIDLC maintains a non-discretionary portfolio account for clients where they have absolute power to make investment decisions. the portfolio manager provides margin loan to clients and also prepares the list of securities in which they can invest. 11. DEPOSIT SCHEMES IDLC offer different variety of deposit schemes for clients. * Cumulative Term Deposit * Annual Profit Term Deposit * Monthly Earner Deposit * Double Money Deposit 12. CAR LOAN Term loan are offered to clients for acquiring car, brand new or reconditioned, for their personal use and the ownership is transferred on loan repayment. 13. HOME LOAN IDLC offers loans to purchase apartment to individuals for their personal use 14. REAL ESTATE FINANCEIDLC finances clients to construct house, renovate and extend house, for office chamber/space for professionals etc. under two different schemes: * Developer’s Finance Scheme oCorporate Finance Scheme 15. PRIVATE PLA CEMENT IDLC places the shares/debenture with both domestic and overseas investors (institutions or individuals) on private placement basis. 16. UNDERWRITING IDLC makes a univocal and irrevocable commitment with an issuing company to subscribe to the securities of that company when the existing shareholders or the general public do not subscribe to the securities offered to them. The different types of underwriting offered are: * Initial Public offering (IPO) of common stock, preferred stock, debentures etc. Right Issue oUnderwriting of public securities-loan, lease, debenture 17. ISSUE MANAGEMENT Under this activity, IDLC plan, coordinate and control the entire issue activity of clients and direct other agencies for successful marketing of securities. 18. FINANCIAL A DVISORY S ERVICE IDLC help the existing venture or a new venture by providing various advisory services such as corporate counseling, project counseling, capital restructuring, financial engineering etc. 19. MERGERS AND ACQUISIT IO IDLC help clients to search for the right organization, evaluate the concern based on different types of analysis and select the method of m ;a to make it a profitable deal. 20. TRUSTEESHIP MANAGEME NTWe act as trustee for the debenture holders by accepting security created by the company and take action to safeguard their interest and enforce their rights. Table: Product ; Services offered by IDLC Finance Limited 2. 7 DIVISIONS AND DEPARTMENTS The organization includes divisions which mainly deal with the products and services and departments which support in the operating activities. The divisions are the * Corporate * SME * Merchant Banking * Personal Investment * Factoring * Structured Finance * Operations The departments include * Credit Risk Management (CRM) * Treasury * Human Resource * Accounts and Taxation * Administration and PR Operational Risk Management (ORM)/Internal Control Compliance(ICC) * Special Asset Management(SAM) 2. 8 SWOT ANALYSIS The SWOT analysis for IDLC can be described as follows: Strengths 1. Reputation and brand image: IDLC is well-reputed company and has developed a brand image that is recognized by the customers. IDLC is an international joint-venture company and its shareholders have long records of sustainability and reliability in their respective fields. IDLC is one of the esteemed names in financial market of Bangladesh. Since 1985, IDLC has marked its journey through introduction of various innovative products and thus meeting the needs of large corporate clients. 2 .Product portfolio: IDLC has diverse product portfolio for customers which made them second to none in Non-Banking Financial Industry. 3. Quality Customer Portfolio: IDLC has a Credit Risk Management department of Multinational standard which enables the company to maintain a quality customer portfolio. 4. Human Resources: The Company has competent management team. The over all work force of the company is considered as key resources for the organization. IDLC personnel are motivated, competent, energetic and creative. The company provides utmost support in terms of both technical and moral. 5. Operational efficiency: IDLC provides customized solution to their customers to adjust their need.The company processes the loan applications quickly and smoothly. The sanction and disbursement of the loans are hassle-free. 6. Employee Empowerment: At IDLC decision-making is free flowing and transparent. Every appraiser is given ample opportunity to exercise his/her creativity in accommodating a customer. Approvers are open for any discussion and sanction is largely based upon recommendation of the appraisers. The open and free flow of communication ensures clarification of any queries in no time–from any level of hierarch y. Reasonable suggestions are not only welcome but are highly appreciated. Effective suggestions by the employees are immediately set for action.This flexibility has helped IDLC a lot in shaping up its operations into a level of efficiency and to be an excellent performer in case of loan recovery. Weaknesses 1. High Cost of fund: IDLC as any other NBFIs have high cost of fund in comparison to banks. As NBFIs can take deposit for less than one year from any individuals as banks can do, the deposit base of IDLC is not strong enough to reduce the average cost of fund. 2. More Focus on Volume: Although IDLC has department called Credit Risk Management to monitor the asset quality of the company, still the company sometimes for the sake of profit and past relationship provide loans to customers who at the end hamper the portfolio quality of IDLC. 3.Too Much Diversification: Too much diversification of product and services offering hamper the focus on the core services of the organization . 4. Less People in Liability Marketing: IDLC still employs lesser number of workforces for the aggressive liability marketing in comparison to banks and NBFI like DBH. Opportunities 1. Continuity of Liberalization: Government has continued to liberalize the economy towards more market orientation. This encouraged both local and foreign investors to invest in potential sectors. The privatization plan of government is likely to have positive impact on industrialization. 2. Foreign Investment in Prospective Sectors: In recent days foreign investment in the various prospective sectors has increased phenomenally.This creates a good opportunity for all financial institutions to enter in the booming new sector. 3. Local banks inefficiency: One of the major reasons for thriving of leasing company in Bangladesh is local banks inefficiency of providing project loan. This phenomenon still persists. Threats 1. Threat from banks: In recent times banks are also entering into leasing business whi ch is generally considered as functions of Non-Banking Financial Institutions. 2. Regularity control of government: The legal framework of Bangladesh is relatively weak. Lack of effective foreclosure laws and manual land recording system creates possibility of forgery and disputes.This may hinder the loan recovery from the defaulters. 2. 9 PERFORMANCE OF IDLC FINANCE LIMITED 2. 9. 1 CAMEL RATING Rating type | Base | At 31. 12. 08 | Rating | 1. Capital sufficiency C | Reserve should be 25. 00 crore by the end of 30. 06. 06 | 16. 113 Crore| 1(Strong) | 2. Asset Quality A | (Classified loan/lease and other assets)/overdue amount*100 | 6089. 04/153384. 93*100=3. 97% | 2(Satisfactory) | 3. Management M | Average of C,A,E ; L ratios | (1+2+1+1)/4=1. 25 | 1(Strong) | 4. Earning Ratio E | (NPAT/TA)*100% (NPAT/TE)*100% | (4063. 72/167085. 65)*100%=2. 43% (4063. 72/16113. 12)*100%=25. 22% | 1(Strong) | 5. Liquidity Ratio L | 1. CRR ; SLR reserve 2.Interbank dependency 3. Profit | -Reserved -L ess dependent -Strong | 1(Strong) | CAMEL | Sum of 5 Ratios/5 | (1+2+1+1+1)/5=1. 20 | 1(Strong) | CAMEL rating has improved to 1 comparing to the last year 2(Satisfactory) 3. 0 Credit Risk Management 3. 1 WHAT IS RISK? In general Risk can be define as the â€Å" Probability or threat of a damage, injury, liability, loss, or other negative occurrence, caused by external or internal vulnerabilities, and which may be neutralized through pre-mediated action. † But in Finance risk is defined concerning some special factors of market and other externalities which can affect an individual or organization’s decision.In Finance risk is defined as â€Å"Probability that an actual return on an investment will be lower than the expected return. † Financial risk is divided into the following general categories: (1) Basis risk: Changes in interest rates will cause interest-bearing liabilities (deposits) to re-price at a rate higher than that of the interest-bearing assets (lo ans). (2) Capital risk: Losses from unrecovered loans will affect the financial institution's capital base and may necessitate floating of a new stock (share) issue. Therefore to reduce this risk Banks, NBFIs, and other organizations take various types of measures so that it can be reduced in a minimal affordable limit. In Banks and NBFIs the core risk is credit risk.As Banks, NBFIs performs there major operations on providing loan, lease (for NBFIs) therefore there is a chance of default at time of repayment. So to reduce this default risk so that number of default payment does not increase and to forecast this probability with appropriate tools Banks, NBFIs always work on managing their Credit Risk. Several Guideline and standards are prepared so that Credit Risk for individual banks and NBFIs can be reduced. 3. 2 CREDIT RISK Credit risk is the possibility that a borrower or counter party will fail to meet agreed obligations. Globally, more than 50% of total risk elements in banks and FIs are Credit Risk alone. Thus managing credit risk for efficient management of a FI has gradually become the most crucial task.Credit risk may take the following forms: * In direct lease/term finance: rentals/principal/and or interest amount may not be repaid * In issuance of guarantees: applicant may fail to build up fund for settling claim, if any; * In documentary credits: applicant may fail to retire import documents and many others * In factoring: the bills receivables against which payments were made, may fail to be paid * In treasury operations: the payment or series of payments due from the counter parties under the respective contracts may not be forthcoming or ceases * In securities trading businesses: funds/ securities settlement may not be effected * In cross-border exposure: the availability and free transfer of foreign currency funds may either cease or restrictions may be imposed by the sovereign Credit risk management encompasses identification, measurement, m atching mitigations, monitoring and control of the credit risk exposures to ensure hat: * The individuals who take or manage risks clearly understand it * The organization’s Risk exposure is within the limits established by Board of Risk taking Decisions are in line with the business strategy and objectives set by BOD * The expected payoffs compensate the risks taken * Risk taking decisions are explicit and clear * Sufficient capital as a buffer is available to take risk * Directors with respect to sector, group and country’s prevailing situation * Risk taking Decisions are in line with the business strategy and objectives set by BOD 3. 3 CREDIT RISK MANAGEMENT PROCESS Credit risk management process should cover the entire credit cycle starting from the origination of the credit in a financial institution’s books to the point the credit is extinguished from the books. It should provide for sound practices in: 1. Credit processing/appraisal; 2. Credit approval/sa nction; 3.Credit documentation; 4. Credit administration; 5. Disbursement; 6. Monitoring and control of individual credits; 7. Monitoring the overall credit portfolio (stress testing) 8. Credit classification; and 9. Managing problem credits/recovery 3. 3. 1 . CREDIT PORCES SING/APPRAISAL : Credit processing is the stage where all required information on credit is gathered and applications are screened. Credit application forms should be sufficiently detailed to permit gathering of all information needed for credit assessment at the outset. In this connection, NBFIs should have a checklist to ensure that all required information is, in fact, collected.NBFIs should set out pre-qualification screening criteria, which would act as a guide for their officers to determine the types of credit that are acceptable. For instance, the criteria may include rejecting applications from blacklisted customers. These criteria would help institutions avoid processing and screening applications that would be later rejected. Moreover, all credits should be for legitimate purposes and adequate processes should be established to ensure that financial institutions are not used for fraudulent activities or activities that are prohibited by law or are of such nature that if permitted would contravene the provisions of law. Institutions must not expose themselves to reputational risk associated with granting credit to customers of questionable repute and integrity.The next stage to credit screening is credit appraisal where the financial institution assesses the customer’s ability to meet his obligations. Institutions should establish well designed credit appraisal criteria to ensure that facilities are granted only to creditworthy customers who can make repayments from reasonably determinable sources of cash flow on a timely basis. Financial institutions usually require collateral or guarantees in support of a credit in order to mitigate risk. It must be recognized that collat eral and guarantees are merely instruments of risk mitigation. They are, by no means, substitutes for a customer’s ability to generate sufficient cash flows to honor his contractual repayment obligations.Collateral and guarantees cannot obviate or minimize the need for a comprehensive assessment of the customer’s ability to observe repayment schedule nor should they be allowed to compensate for insufficient information from the customer. Care should be taken that working capital financing is not based entirely on the existence of collateral or guarantees. Such financing must be supported by a proper analysis of projected levels of sales and cost of sales, prudential working capital ratio, past experience of working capital financing, and contributions to such capital by the borrower itself. Financial institutions must have a policy for valuing collateral, taking into account the requirements of the Bangladesh Bank guidelinesdealing with the matter. Such a policy shall, mong other things, provide for acceptability of various forms of collateral, their periodic valuation, process for ensuring their continuing legal enforceability and realization value. In the case of loan syndication, a participating financial institution should have a policy to ensure that it does not place undue reliance on the credit risk analysis carried out by the lead underwriter. The institution must carry out its own due diligence, including credit risk analysis, and an assessment of the terms and conditions of the syndication. The appraisal criteria will of necessity vary between corporate credit applicants and personal credit customers. Corporate credit applicants must provide audited financial statements in support of their applications.As a general rule, the appraisal criteria will focus on: * Amount and purpose of facilities and sources of repayment; * Integrity and reputation of the applicant as well as his legal capacity to assume the credit obligation; * Risk profil e of the borrower and the sensitivity of the applicable industry sector to economic fluctuations; * Performance of the borrower in any credit previously granted by the financial institution, and other institutions, in which case a credit report should be sought from them; * The borrower’s capacity to repay based on his business plan, if relevant, and projected cash flows using different scenarios; * Cumulative exposure of the borrower to different institutions; * Physical inspection of the borrower’s business premises as well as the facility that is the subject of the proposed financing; * Borrower’s business expertise; Adequacy and enforceability of collateral or guarantees, taking into account the existence of any previous charges of other institutions on the collateral; * Current and forecast operating environment of the borrower; * Background information on shareholders, directors and beneficial owners for corporate customers; and * Management capacity of co rporate customers. 3. 3. 2 . CREDIT – APPROVAL/SANCTION A financial institution must have some written guidelines on the credit approval process and the approval authorities of individuals or committees as well as the basis of those decisions. Approval authorities should be sanctioned by the board of directors. Approval authorities will cover new credit approvals, renewals of existing credits, and changes in terms and conditions of previously approved credits, particularly credit restructuring, all of which should be fully documented and recorded.Prudent credit practice requires that persons empowered with the credit approval authority should not also have the customer relationship responsibility. Approval authorities of individuals should be commensurate to their positions within management ranks as well as their expertise. Depending on the nature and size of credit, it would be prudent to require approval of two officers on a credit application, in accordance with the Board ’s policy. The approval process should be based on a system of checks and balances. Some approval authorities will be reserved for the credit committee in view of the size and complexity of the credit transaction. 3. 3. 3 CREDIT DOCUMEN TATIONDocumentation is an essential part of the credit process and is required for each phase of the credit cycle, including credit application, credit analysis, credit approval, credit monitoring, and collateral valuation, and impairment recognition, foreclosure of impaired loan and realization of security. The format of credit files must be standardized and files neatly maintained with an appropriate system of cross-indexing to facilitate review and follow-up. Documentation establishes the relationship between the financial institution and the borrower and forms the basis for any legal action in a court of law. Institutions must ensure that contractual agreements with their borrowers are vetted by their legal advisers.Credit applications mus t be documented regardless of their approval or rejection. For security reasons, financial institutions need to consider keeping the copies of critical documents (i. e. , those of legal value, facility letters, and signed loan agreements) in credit files while retaining the originals in more secure custody. Credit files should also be stored in fire-proof cabinets and should not be removed from the institution's premises. 3. 3. 4 CREDIT ADMINIS TRATION Financial institutions must ensure that their credit portfolio is properly administered, that is, loan agreements are duly prepared, renewal notices are sent systematically and credit files are regularly updated.An institution may allocate its credit administration function to a separate department or to designated individuals in credit operations, depending on the size and complexity of its credit portfolio. A financial institution’s credit administration function should, as a minimum, ensure that: * Credit files are neatly or ganized, cross-indexed, and their removal from the premises is not permitted; * The borrower has registered the required insurance policy in favour of the bank and is regularly paying the premiums; * The borrower is making timely repayments of lease rents in respect of charged leasehold properties; * Credit facilities are disbursed only after all the contractual terms and conditions have been met and all the required documents have been received; * Collateral value is regularly monitored; The borrower is making timely repayments on interest, principal and any agreed to fees and commissions; * Information provided to management is both accurate and timely; * Funds disbursed under the credit agreement are, in fact, used for the purpose for which they were granted; * â€Å"Back office† operations are properly controlled; * The established policies and procedures as well as relevant laws and regulations are complied with; and On-site inspection visits of the borrower’s bus iness are regularly conducted and assessments documented 3. 3. 5 DISBURSEMENT Once the credit is approved, the customer should be advised of the terms and conditions of the credit by way of a letter of offer. The duplicate of this letter should be duly signed and returned to the institution by the customer.The facility disbursement process should start only upon receipt of this letter and should involve, inter alia, the completion of formalities regarding documentation, the registration of collateral, insurance cover in the institution’s favor and the vetting of documents by a legal expert. Under no circumstances shall funds be released prior to compliance with pre-disbursement conditions and approval by the relevant authorities in the financial institution. 3. 3. 6 MONITORING ; CONTROL OF INDIVIDUAL CREDITS To safeguard financial institutions against potential losses, problem facilities need to be identified early. A proper credit monitoring system will provide the basis for taking prompt corrective actions when warning signs point to deterioration in the financial health of the borrower.Examples of such warning signs include unauthorized drawings, arrears in capital and interest and deterioration in the borrower’s operating environment. Financial institutions must have a system in place to formally review the status of the credit and the financial health of the borrower at least once a year. More frequent reviews (e. g. at least quarterly) should be carried out of large credits, problem credits or when the operating environment of the customer is undergoing significant changes. * Funds advanced are used only for the purpose stated in the customer’s credit application; * Financial condition of a borrower is regularly tracked and management advised in a timely fashion; * Borrowers are complying with contractual covenants; Collateral coverage is regularly assessed and related to the borrower’s financial health; * The institution†™s internal risk ratings reflect the current condition of the customer; * Contractual payment delinquencies are identified and emerging problem credits are classified on a timely basis; and * Problem credits are promptly directed to management for remedial actions. * More specifically, the above monitoring will include a review of up-to-date information on the borrower, encompassing: * Opinions from other financial institutions with whom the customer deals; * Findings of site visits; * Audited financial statements and latest management accounts; * Details of customers' business plans; * Financial budgets and cash flow projections; and * Any relevant board resolutions for corporate customers. 3. 3. 7 MAINTAINING THE OVERALL CREDIT PORTFOLIOAn important element of sound credit risk management is analyzing what could potentially go wrong with individual credits and the overall credit portfolio if conditions/environment in which borrowers operate change significantly. The results of t his analysis should then be factored into the assessment of the adequacy of provisioning and capital of the institution. Such stress analysis can reveal previously undetected areas of potential credit risk exposure that could arise in times of crisis. Possible scenarios that financial institutions should consider in carrying out stress testing include: * Significant economic or industry sector downturns; Adverse market-risk events; and * Unfavorable liquidity conditions. Financial institutions should have industry profiles in respect of all industries where they have significant exposures. Such profiles must be reviewed /updated every year. 3. 3. 8 CLASSIFICATION OF CREDIT Credit classification process grades individual credits in terms of the expected degree of recoverability. Financial institutions must have in place the processes and controls to implement the board approved policies, which will, in turn, be in accord with the proposed guideline. This guideline may also be called as Credit Risk Grading (CRG), is a collective is a collective efinition based on the pre-specified scale and reflects the underlying credit-risk for a given exposure. A Credit Risk Grading deploys a number/ alphabet/ symbol as a primary summary indicator of risks associated with a credit exposure. Credit Risk Grading is the basic module for developing a Credit Risk Management system. Credit risk grading is an important tool for credit risk management as it helps the Financial Institutions to understand various dimensions of risk involved in different credit transactions. The aggregation of such grading across the borrowers, activities and the lines of business can provide better assessment of the quality of credit portfolio of a FI.The credit risk grading system is vital to take decisions both at the pre-sanction stage as well as post-sanction stage. Two- types of factors play vital role in modeling the CRG, they are, 1. Quantitative factors 2. Qualitative factors The chart is given in the following page; Quantitative Financial Ratios Loan Repayment performance Credit Ratings Expected Default Frequencies Qualitative Management Quality Tenure in Business Operations Industry/Niche At the pre-sanction stage, credit grading helps the sanctioning authority to decide whether to lend or not to lend, what should be the lending price, what should be the extent of exposure, what should be the appropriate credit facility, what are the various facilities, on the basis of the above factors.At the post-sanction stage, the FI can decide about the depth of the review or renewal, frequency of review, periodicity of the grading, and other precautions to be taken. Risk grading should be assigned at the inception of lending, and updated at least annually. 3. 3. 9 MANAGING PROBL EM CREDITS/RECOVERY A financial institution’s credit risk policy should clearly set out how problem credits are to be managed. The positioning of this responsibility in the credit department of an i nstitution may depend on the size and complexity of credit operations. It may form part of the credit monitoring section of the credit department or located as an independent unit, called the credit workout unit, within the department.Often it is more prudent and indeed preferable to segregate the workout activity from the area that originated the credit in order to achieve a more detached review of problem credits. The workout unit will follow all aspects of the problem credit, including rehabilitation of the borrower, restructuring of credit, monitoring the value of applicable collateral, scrutiny of legal documents, and dealing with receiver/manager until the recovery matters are finalized. Financial institutions will put in place systems to ensure that management is kept advised on a regular basis on all developments in the recovery process, may that emanate from the credit workout unit or other parts of the credit department.There should be clear evidence on file of the steps t hat have been taken by the financial institution in pursuing its claims against a delinquent customer, including any legal steps initiated to realize on the collateral. Where there is a delay in the liquidation of collateral or other credit recovery processes, the rationale should be properly documented and anticipated actions recorded, taking into account any revised plans submitted by the borrower. The accountability of individuals/committees who sanctioned the credit as well as those who subsequently monitored the credit should be revisited and responsibilities ascribed. Lessons learned from the post mortem should be duly recorded on file. 4. 0 Findings and Analysis — Credit Risk Management by IDLC Finance Ltd To perform the overall CRM process 3 departments are working together at IDLC Finance Ltd.As a leading NBFI in Bangladesh IDLC has always tried to maintain the quality they achieve through 24th year business tenure. These three departments are- Collection of Client i nformation and preparing Appraisal Report CRM Department After getting the approval from the respective authority Internal Control Internal and Compliance (ICC) do all the Control &documentation processes Compliance Collection of installment and managing the overdue rentals as well Special Asset as dealing with the client’s default is Management done by Special Asset Management (SAM) (SAM) * . 4. 1 PROCEDURAL WORK FLOW OF LEASE MARKETING At the initial stage, IDLC concentrated to establish a market and then enlarge the market.The criteria based on which the market for lease financing has been established are as follows: * Diversification of portfolio * Selecting top industrial unit in the respective industry * Financing for Balancing, Modernization, Replacement and Expansion (BMRE) of existing unit * Priority of existing leases * Set up priority based on sector wise performance Primary focus of IDLC till now is in the area of financial leasing of industrial and professional e quipment and vehicles for three to five years term with particular emphasis on BMRE of existing units. Instead of lending funds to purchase equipment, IDLC provides the equipment and extends the exclusive right to its use against specified rental payments at periodic intervals.There are two types of client for which the procedural work flow would be different though the basic part would be the same. The different types of clients are * Existing Clients – with whom IDLC has already been working * New Clients – with whom IDLC has no business yet The basic procedural work flow is given below: The above procedures are briefly described below: Collect Client & Loan data Compute Credit Risk on the basis of Risk Grade Preparing the appraisal report on the basis of risk Approval by the appropriate authority Documentation Lease/Loan payment collection Creating Provision for default Function of SAM Expiry of Agreement The client applies for required facility through letter. Thes e required facility can vary from different sort of equipments for BMRE to vehicles or expansion projects. The letter generally consists of brief description about the asset to be procured, its price and reason for procurement along with its lease period. * IDLC studies the proposal and sends an offer letter to the client. The offer letter contains acquisition cost, lease period, per month rental and other terms & conditions to be applied if the agreement is done. It is to be noted here that the offer letter is a mere offer and by no means an agreement between the two parties.Thus, the terms & conditions may change upon final agreement. However, it seldom changes as that will hamper the goodwill of the company. * The client accepts the offer and submits an accepted offer letter. If the client agrees to the terms & conditions of the offer letter, they sign & seal the offer letter as accepted and send it back to IDLC. * IDLC collects initial information about the client. The initial i nformation are * CIB Undertaking & Form XII (if a limited company) for that client to be sent to Bangladesh Bank for CIB Report of the applying client (as per rule of Bangladesh Bank) * IDLC looks for banks opinion for that client The designated Relationship Manager prepares the appraisal report and evaluated the client’s proposal. The appraisal report consists of * Background analysis of the company * Management and organization * Cost estimate of equipment/vehicle * Technical and marketing analysis, both from macro and micro level * Financial analysis of the company. i. e. profitability projection, credit report, year wise performance * The appraisal report seeks approval from the appropriate authority. First of all the Relationship Manager places the report to Credit Evaluation Committee (CEC), which consists of representative from Credit Risk Management, Operational Risk Management, General Manager and Deputy Managing Director.After CEC consent, the report is sent to appr oving authority. * After approval, the documentation process starts. A sanction ledger is prepared and a sanction letter is issued in the client’s name. However, depending on the nature of negotiation, the documentation procedure varies. * The client collects the asset. * Proper insurance coverage is done depending upon the asset and procurement of asset from a selected pool of insurance companies. * The lease operation starts i. e. a formal agreement is signed by both IDLC and lessee. The lessee starts to pay the rental and the lease continues. * Generally, just after the last rental is paid on a regular basis, the transfer of ownership takes place.Depending upon the negotiated transfer price at the beginning, IDLC transfers the asset’s ownership to the client and lease expires. However, the lease operation can also be expired early through partial termination or foreclosure. For new clients the following few steps are added: * Identification of client – the id entification of new client is done through relationship management. The main sources of information about new clients are: * Existing client * Word of Mouth * Internal Connection * Client call * Walk-in Client * Prepare extensive appraisal report and seek formal bank & FI opinion. The documentation procedure can differ depending upon the modes of acquisition of asset.According to the guideline provided by Bangladesh Bank, IDLC considers the following factors while appraising a client and its finance proposal: 1. Business Risk Factors: * Industry * Size * Maturity * Production * Distribution * Vulnerability * Competition * Demand- supply situation * Strategic importance for the group and for the country * Concentration * Market reputation 2. Financial Risk Factors: * Profitability * Liquidity * Debt management * Post Balance sheet events * Projections * Sensitivity Analysis * Peer Group Analysis * Other Bank Lines 3. Management Risk Factors: * Experience/relevant background * Track r ecord of management in see through economic cycles * Succession * Reputation 4. Structural Risk Factors: * Identify working capital requirement Relate the requirement with asset conversion cycle * Purpose of the facilities should be clear and thus mode of disbursement should be preferably structured in a manner to make direct payment to the third party through LC, pay order, Bangladesh Bank cheques etc. 5. Security Risk Factors: * Perishablilty * Enforceability /Legal structure * Forced Sale Value (calculations of force sale value should be at least guided by Bangladesh Bank guidelines) ————————————————- 4. 3 WEIGHTS ASSIGNED TO EACH RISK FACTOR CRITERIA WEIGHT | LEVERAGING 20% The ratio of a borrower’s total debt to tangible net worth. LIQUIDITY 20% The ratio of a borrower’s Current Assets to Current Liabilities. | PROFITABILITY 20% The ratio of a borrowerà ¢â‚¬â„¢s Operating Profit to Sales. | ACCOUNT CONDUCT 10% Time length of relationship with the client | BUSINESS OUTLOOK 10% A critical assessment of the medium term prospects of the borrower, taking into account the industry, market share and economic factors. | CRITERIA WEIGHT | MANAGEMENT 5% The quality of management based on the aggregate number of years that the Senior Management Team (top 5 executives) has been in the industry. PERSONAL DEPOSITS 5% The extent to which the bank maintains a personal banking relationship with the key business sponsors/principals. | AGE OF BUSINESS 5% The number of years the borrower has been engaged in the primary line of business. | SIZE OF BUSINESS 5% The size of the borrower’s business measured by the most recent year’s total sales. Preferably based on audited financial statements. | ————————————————- 4. 4 MEASURES TA KEN FOR RESTORATION OF DEFAULT CLIENTS The Special Asset Management Department of IDLC is responsible for mending and improving the repayment pattern of the default clients.Principal Objectives of the SAM department is keeping overdue situation at possible lowest level so that provision for dues can be minimized so that the negative impact of defaults on the reported profit of IDLC can be kept at minimum level. For this the department goes through the following procedures: 1. Monitoring the overdue situation of the financed projects 2. Initiating procedures as appropriate for each case Some clients fail to make payments of rentals/ installments to the lender/ lessor institution. In several cases, the failure is temporary, which is eventually paid within a short time. But in other cases, the client continues to default and the situation worsens since it deteriorates the profitability condition of IDLC, just like any other Financial Institution.So, critical measures are taken on the p art of IDLC and these measures are mainly undertaken by Special Asset Management Department. 4. 5 FUNCTIONS OF SPECIAL ASSET MANAGEMENT (SAM) The Special Asset Management Department performs a number of activities to keep the overdue situation of IDLC within minimum level. These are: 1. Overdue Monitoring- Corporate, SME, Syndication 2. Overdue follow Up- Corporate, SME, Syndication(Phone, Visit, letter) 3. SAM Client Follow Up- (Regular, Difficult, Block, Litigated)- Phone, Visit, Letter, Negotiation 4. Termination, Block & Litigation- Initialization, Follow up, Court Attendance 5. Appointment of Lawyers for different Legal Procedures 6.Recovery Agent Appointment & Follow up 7. Rescheduling- Negotiation, Approval, Follow up 8. Routine works: Receivable Calculation, Closure, Waiver Approval, Adjustments, Reconciliation. 9. Letter Issue- Overdue Clients SAM departmental Targets: 1. Collection of Overdue Rentals 2. Reduction of Non- performing Loans (NPL) 3. Reduction of Infection rat io 4. Bad/Loss Provision Management- Incremental Provision Control 4. 5. 1. RECOVERY ACTION PLAN BY SAM Special asset management takes various recovery actions to reduce the overdue amount, thus reducing the infection ratio. These actions differ on the basis of investment classification as follows; 4. 5. 1. 1 REGULAR ACCOUNTS (RGACC) Age of overdue: One to Three months * Call immediate ext working day after 1st default installment to remind about overdue. * Try to get specific commitments from client. Committed date should not exceed seven days. * In case of no response from client within seven days, call the client again in order to ascertain reasons for delay and obtain another specific

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European Central Bank - Essay Example In fact, it seems that the bank has been fashioned along the lines of Bundesbank. The bank was the result of the Treaty on European Union, which is also referred to as Treaty of Maastricht. Despite the fact that the bank was established on June 1998, it started operating six months later on 1 January 1999. This was when the euro was introduced as the bank had been set up with the euro in mind. The euro, as indicated above, came after the establishment of the European central bank. It is the official currency that has been adopted by a total of 16 members of the European Union, out of the twenty seven that are members. The states which have adopted this currency as their official currency belong to what is referred to as the Eurozone. The countries are Austria, Belgium, and Cyprus among others. There have also been cases where the currency is used by non-member countries since its inception in 2004. This is with or without formal agreements with the member states of the European Union. It is estimated that about 237 million Europeans are currently using this currency. About 175 million people have adopted euro or currencies that are pegged to this. This is especially so in Africa, where the bank has a following of over 150 million presence. For the few years that the euro and the European central bank have been in operation, their performance can only be described as a success story. When the euro was introduced, many people had the impression that it is going to increase the rate of inflation. That maybe explains the reason why some of the states were initially reluctant to adopt it. But the opposite has been achieved. The central bank, which is mandated to manage the euro for the nations that share this currency, has been able to control the rate of inflation and maintain it at a point below but close to two percent. The success story that is the euro and the European central bank is attributable to several factors. Some of them are prudent financial management and successful control of the inflation rate. Objectives of the Study Throughout this study, the writer will be guided by one major objective. That is the analysis of the factors that have led to the success of the European central bank and the euro in general. To achieve this, the writer will be guided by various specific objectives. It is through the address of these specific objectives that the writer will effectively address the major objective of the study. The specific objectives are as outlined below: 1. successes of the European central bank 2. factors leading to this success 3. challenges facing the European central bank 4. successes of the euro 5. factors leading to this success 6. challenges faced by the euro 7. performance of the economy of the Eurozone Performance of the Eurozone's Economy Some of the successes of both the euro and the European central bank can be reflected in the successes of the economies of the Eurozones. Tumpel (2009) is of the view that there have been palpable changes in the economy of these nations as soon as they adopt the euro and come under the jurisdiction of the European central bank. One of the areas that these economies have excelled in is the creation of employment (Noyer, 2007). Over the course of the past ten years, the employment rates at these economies have increased. The improvement may be conceptualised as a reflection of the progress that has been made as far

Confucianism Essay Example | Topics and Well Written Essays - 500 words - 3

Confucianism - Essay Example According to Confucius, a good governance system should have high respect for traditions and age, encourage group efforts, and appreciate hierarchy of control and morality. He acknowledged the need for social harmony and orderliness of social activities. This would only be achieved if every person acknowledges his social rank and behaves according to his rank. This is based on his phrase â€Å"A place for everyone and everyone in his place†. In this regard, Confucius developed an interdependent relationship structure that had lower rank individuals give obedience to their colleagues in the higher ranks. In addition, he also introduced a horizontal relationship system characterized by great trust between family members and friends. This led to great regard of age and authority in the society (Yong, 18). Integration of the Confucianism in the education system would ensure that students highly respect age and authority, strengthen their family and friendship ties; ensure politeness within the society (Yong, 18). Secondly, Confucianism advocates for â€Å"collectivism† that is evidenced in the modern Chinese society today, compared to â€Å"individualism† of the western society. Group membership and collective operation of individuals is usually in terms of their families, their community, clan and ultimately their nation. This ensures modesty and humility. If integrated in the U.S. education system it ensures that students learn the importance of humility and social responsibility resulting to the well being of the entire society (Yong, 18). Confucianism additionally holds high regards scholarship knowledge, integrity and education. The meritocracy resulted to introduction of written imperial examination system. Anyone who proved worth and passed this examination was allowed to be a government official. Confucius’ philosophy on education was that social harmony would be achieved if availed to all people irrespective of

Ancient and MEdieval Political Theory Essay Example | Topics and Well Written Essays - 5000 words

Ancient and MEdieval Political Theory - Essay Example Furthermore, it is evident that the US, possesses negative relation with certain countries that has led towards ineffective foreign policy and decision-making. On the other hand, there are also many nations having positive relation with the US and hence, lead to effective development of foreign policies and decision making regarding the elimination of terrorism from the world. Thus, from the evidences and the arguments of the research, it is asserted that the states’ identity in foreign policy and decision-making has led to limited efficiency in demolishing terrorism from the world. The objective of the research emphasizes identifying the identity of the US with regard to its active participation in the fight against terrorism. More elaborately, it intends to discover the role of the US in combating terrorism. The report also focuses on discovering the importance of foreign policies and decision making along with the international relationship in soliciting global power for combating terrorism. It is expected that by accomplishing these objectives, the report would lead to the development of a comprehensive understanding regarding the role of the US and correspondingly, its identity in designing foreign policies and decision-making. Hence, the discussion would lead towards soliciting global support, which would be further effective in combating terrorism. Several studies have been conducted with regard to the research topic, as elaborated in the following sections of the paper. These studies were highly successful with regard to the identification of state identity in fighting against terror groups. Research studies have also been concentrated on extensively considering the foreign policies and decision-making in soliciting global support to combat terrorism from the world. However, there are very little evidences of research studies that consider both these aspects. Therefore, the rationale behind the study is to grasp the opportunity of

Economics Essay Example | Topics and Well Written Essays - 750 words - 14

Economics - Essay Example pends on government regulations and zoning authorities which may mark land as being in industrial, commercial or residential zones which may reduce the varieties in which land could be used. For example, prime property sites in the middle of a bustling city may be zoned for parks or public recreational areas and no matter how much developers want to use that land for create high rise apartments or offices, the land remains free of buildings (Cem.ac.uk, 2008). In fact, even when demand changes to seek more industrial land in or around a city or more residential sites, government policy may be slow to react to the demand which could significantly increase the price of land currently zoned to be industrial or residential. The problem of zoning or rezoning is only multiplied when we consider how existing buildings no rezoned land may create problems for developers especially if the buildings are in congested areas or have significant historical or cultural importance (Cem.ac.uk, 2008). At the same time, there is no cost of production associated with land itself. This is because the primary determinant of what value can be derived from land comes from the best use land can be put to. However, owning a piece of land in a certain area gives the landowners the power of monopoly since they are the single owners of the site. New production of land with the same specifications in the same space is impossible therefore they can charge monopoly prices if they so desire (Cem.ac.uk, 2008). The monopoly ownership makes land an appreciating asset of course things such as an oil spill near a beach can significantly decrease the value of beachfront property but there is little chance of new land being created in significant numbers. This also encourages land hoarding as speculative ownership of land may lead to profits when properly zoned land becomes scarce in a given region (Cem.ac.uk, 2008). In this manner, speculators and those who are hoarding land may be quick to offer the

Professional Project - Rehearsal Studio Literature review

Professional Project - Rehearsal Studio - Literature review Example Using Space for Artistic Needs The main use of a rehearsal studio is to help to stimulate an environment and create a space for musicians and other performers. If there aren’t spaces available, then it becomes difficult to prepare for performances, recording and other alternatives that are needed to be a growing musician. In a specific study, (Fewster, Wood, 2009), there was an examination of whether musicians and artists required spaces for performance. The comparison made was to virtual environments that led to a hybrid experience with technology as well as other alternative environments which were available for rehearsing. Through this study, it was found that the change in environment also led to direct changes in the formation of music. When the rehearsal space was used through a 3D alternative or virtual collaboration space, for instance, the environment changed to create a hybrid effect. This combined higher amounts of technology with the music, as opposed to having the needed performance options. The environment with the space was able to offer a different sense of experimentation, specifically with interactions between the members that allowed for collaboration to move forward in a different alternative (Fewster, Wood, 2009). The concept of changing the environment and the mood with collaboration is important for various reasons. For those collaborating with several individuals is the ability to interact differently and to allow creativity to move into a different set of alternatives. This offers new levels of professionalism and enhances the creativity needed through the use of space. The environment is combined with the concept of using creative space. When the creativity is in the surrounding environment, it becomes easier for musicians and other artists to collaborate and work toward enhanced materials. The development of the creative space provides more opportunities to find unique aspects to a band or group while offering an outside area i n which musicians and others can perform. The important aspect to consider is based on investing in the creation of space that enhances creativity and which is conducive to the needs of artists, specifically because this changes the reactions and opportunities available through a given area (Martin, 2010). It should be noted that the ability to offer a rehearsal space isn’t only dependent on musicians with specific needs. Rehearsal space is also changing shape and form because of the emerging technologies and the need to have collaborative areas for those interested in music. The concept of body space activity is one which is now being used among musicians and other performers. However, the ability to produce these activities is also dependent on having other applications and technologies within the space. For instance, recording equipment, materials and other applications which can form specific roles can be used for creative needs. The most common alternatives which are now in the UK are based on the use of creative spaces in urban regions, which has expanded the idea of rehearsal spaces. This is one which is now inclusive of an environment for creativity as well as materials that provide physical access to those who wouldn’t have the options available in another given arena (Tandt, 2006). Socio-cultural Changes

Element of Drama Essay Example for Free

Element of Drama Essay Accordingly, elements of drama consist of literary, technical and performance elements. In Hamlet, it can be said that the elements of drama for each category are quite obvious. The first element to consider is the characters. It can be said that most dramas composes of the major and minor characters and in line with Hamlet, The major characters include Hamlet and Claudius and the minor include Marcellus which serves a specific purpose of informing the lead character of the appearance of the his father’s ghost. There is also protagonist antagonist and in the case of Hamlet, the protagonist is Hamlet and the antagonist. Another type of character is the stereotype and the role of Hamlet also shows how such s stereotype has been modified. The theme of Hamlet is commonly stated as the failure’s of the youth of poetic temperament to adjust with different situations which demand action. The plot lies on the struggles of Hamlet and how she cope or not cope with the situation that challenges her. It can be said that Hamlet has been able to achieve artistic maturity through the opposing struggles of the people in the drama the moral integrity that it implies with the audiences. In terms of technical side, it can be said that drama plays have been able to produce a sense of hatred and revenge to the audience with how they perform the drama. For instance, the settings show a heavy feeling in the part of Hamlet because of the death of his father. The musical scores alike provide revengeful music as they try to make the people feel the tension among characters. The actors and actresses of the play has been very effective in making the audience feels the wrath of Hamlet because of what happened to his father (Bradley, 51). It can be said that Hamlet was written with poetic diction that uses eloquent words as well as phrases and the performance have shown in their actions how this drama has been able to create and keep tensions and suspense throughout the play. All in all, it can be said that this drama has been able to use different elements integrated to establish a tragedy. Reference Bradley, A. C. Shakespearean Tragedy: Lectures on Hamlet, Othello, King Lear Macbeth. New York: Penguin, 1991.

The Three Major Enterprise Applications

The Three Major Enterprise Applications Enterprise systems, customer relationship management, and supply chain management are three enterprise applications. Enterprise systems are based on a suite of integrated software modules and a common central database. Enterprise systems utilize enterprise software to support financial and accounting, human resources, manufacturing and production, and sales and marketing processes. Enterprise systems provide many benefits including an enterprise-enabled organization, improved management reporting and decision making, a unified information systems technology platform, and more efficient operations and customer-driven business processes. Supply chain management systems help an organization better manage its supply chain, including planning, sourcing, making, delivering, and returning items. Supply chain management software can be categorized as a supply chain planning system or as a supply chain execution system. A supply chain planning system enables a firm to generate demand forecasts for a product and to develop sourcing and manufacturing plans for that product. A supply chain execution system manages the flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner. Supply chain management benefits include improved customer service and responsiveness, cost reduction, and cash utilization. Customer relationship management systems help firms maximize the benefits of their customer assets. These systems capture and consolidate data from all over the organization and then distribute the results to various systems and customer touch points across the enterprise. Customer relationship management systems can be classified as operational or as analytical. Operational CRM refers to customer-facing applications, such as sales force automation, call center and customer service support, and marketing automation. Analytical CRM refers to customer relationship management applications dealing with the analysis of customer data to provide information for improving business performance. Benefits include increased customer satisfaction, reduced direct marketing costs, more effective marketing, and lower costs for customer acquisition and retention. Exercise 2 (2 points): What are the benefits of enterprise systems? What are the challenges of enterprise systems? Benefits include creating an enterprise-enabled organization, providing firmware knowledge-based management processes, providing a unified information system technology platform and environment, and enabling more efficient operations and customer-driven business processes. Challenges include a daunting implementation process, surviving a cost-benefit analysis, inflexibility, and realizing strategic value. Exercise 3 (2 points): Search, list and describe five open source ERP Software Systems. Apache OFBix/opentaps: The Apache Open for Business Project is an open source enterprise automation software project licensed under the Apache License Version 2.0. By open source enterprise automation we mean: Open Source ERP, Open Source CRM, Open Source E-Business / E-Commerce, Open Source SCM, Open Source MRP, Open Source CMMS/EAM, and so on. Apache OFBiz is a foundation and starting point for reliable, secure and scalable enterprise solutions. Use it out-of-the-box (OOTB) or customize to suit even your most challenging business needs. With OFBiz in place, you can get started right away and then grow your operations as your business grows, without the huge deployment and maintenance costs of traditional enterprise automation systems. Apache OFBiz offers a great deal of functionality, including: Advanced e-commerce Catalog management Promotion pricing management Order management (sales purchase) Customer management (part of general party management) Warehouse management Fulfillment (auto stock moves, batched pick, pack ship) Accounting (invoice, payment billing accounts, fixed assets) Manufacturing management General work effort management (events, tasks, projects, requests, etc) Content management (for product content, websites, general content, blogging, forum, etc) A maturing Point Of Sales (POS) module using XUI as rich client interface And much more all in an open source package Compiere : Compiere (pronounced KOM-pyeh-reh, to accomplish, complete, fulfill in Italian) is an open source ERP and CRM business solution for the Small and Medium-sized Enterprise (SME) in distribution, retail, service and manufacturing. Compiere is distributed by Compiere, Inc. and through the Compiere Partner Network, a collection of trained and authorized business partners. Compiere was founded in 1999 by Jorg Janke and was a top 10 project in Sourceforge from 2002 for 4 years reaching one million downloads and 100 partners in 2006. The application and source code is provided on the basis of the GNU General Public License version 2; this comprises the Community Edition. Also available for a fee is a Professional Edition with more features, a commercial license, and documentation and support contracts. Compiere encompasses ERP functionality, but in order to avoid the duplication of information and the need for synchronization, its organized in a different way. Compiere modules are: Quote to Cash, Requisition-to-Pay, Customer relationship management, Partner Relations Management, Supply Chain Management, Performance Analysis, Warehouse, Double-entry Book-keeping, Work-flow-Management and Web Store. A manufacturing module is being developed within an independent project CMPCS ERP5 : ERP5 has been recognized, since the beginning as an innovative and outstanding ERP solution. Hence, the first deployment of ERP5 for Coramy, a European leader in the apparel industry, was awarded best ERP implementation project in the special edition of DÃ ©cision Informatique in June 2004. ERP5 is an Enterprise Resource Planning Solution published as Open Source which means transparency, flexibility and evolutivity for customers. It also means no risks of forced upgrades, guaranteed lifetime maintainability and of course no license fee and no requirement to stay with the same vendor or Service Company forever ERP5 covers accounting, customer relationship management, trade, warehouse management, shipping, invoicing, human resource management, product design, production and project management. All ERP5 business processes are implemented based on Zope transactional Workflows. Workflows directly describe the business process of the customer. ERP5 workflows can be customized through the Web and extended to fit each customer specific needs. All resources in ERP5 can be variated in any number of dimensions, providing built-in configuration for products and reduced design cost for bill of materials (BOM) and bill of operations (BOO) as well as structured rule-based approaches to complex pricing. ERP5 CRM provides an extensible solution to track customers, their career history, their relation to organizations and all related events. It includes a flexible workflow based ticket management system to support sales opportunities, support requests and non conformance reports. It can act as a consolidation solution for all contact information in an organization with full multidimensional classification and built-in LDAP interfacing. Open MFG : OpenMFG (usually abbreviated OMFG) is an open source based, fully-integrated accounting, ERP, and CRM enterprise software solution, from xTuple. Built with the open source PostgreSQL database, and the open source Qt framework from Trolltech for C++, it provides functionality for a range of businesses and industries. It includes the following modules: Accounting (multi-company, general ledger, accounts receivable and payable, bank reconciliation, financial reporting) Sales (quotes, order entry, sales reporting, shipping) CRM (universal address book, incident management, opportunity management, to-do lists, project management) Purchasing (purchase orders, receiving, vendor reporting) Product Definition (items, infinite-level bills of material, bills of operations, breeder bills of material, costing) Inventory (multiple facility, multiple locations, other advanced warehouse features) Manufacturing (work orders, support for make-to-order, make-to-stock, repetitive) Planning (Manufacturing Requirements Planning-MRP, Master Production Scheduling-MPS, Buffer Management-TOC) OpenRPT open source report writer OpenMFG runs on Windows, Linux, and Mac and is internationalized (multi-currency, support for multiple tax structures, and multilingual translation packs maintained by a global community). OpenMFG is licensed under the xTuple Commercial End User License. OpenMFG is a manufacturing-centric enterprise resource planning solution which includes functionality to cover business processes for multiple manufacturing segments, customer relationship management, and accounting. The company utilizes open source technologies, and an open source development philosophy to offer its customers a hybrid open source/proprietary solution. The OpenMFG Community (customers, VARs, development partners), all get the source code and have the ability to contribute back to the base application Open Pro : OpenPro offers business software solutions for every company looking for more value and more features from their ERP solutions. Since 1998 we have been delivering Web-based ERP software solutions to small and mid-sized companies, and international enterprises. OpenPro supports most industries with a complete ERP software solution. As a provider of manufacturing ERP software, OpenPro excels in providing a full suite of applications within six modules: distribution, financials, manufacturing, customer relation management, e-commerce and systems. With its modular design, customers can select the software capabilities that meet their needs, confident in the ability to expand in the future within the ERP software suite. The enterprise distribution software module provides features including sales order processing, warehouse management, inventory control, and purchasing, plus other features; The financial module includes General Ledger, job cost, AP and AR, check reconciliation, fixed assets, payroll HRS, and budgets; The manufacturing module includes MRP II, capacity requirement planning g, bill of materials, product routing, master production scheduling, shop floor control and bar coding; The Customer relationship management module provides CRM capabilities to support sales; The e-commerce module supports customer-to-business transactions, business-to-business transactions, and credit card processing. The system module provides a wide variety of capabilities to make the system as user-friendly and useful as possible, including workflow management; document imaging; communications; information management system; CMM; knowledge base; and report writer, with a multi-language and multi-currency capability. Exercise 4 (2 points): Describe the balanced scorecard model and its role in ESS? In 1992, Dr. Robert Kaplan and Dr. David Norton developed the Balanced Scorecard as a financial and non-financial performance measurement technique that combines several factors to give management a balanced view of their company. The Balanced Scorecard Institute defines a balanced scorecard as, a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. Why balanced scorecard become necessary with many organisations? According to Kaplan and Norton, companies are using the balanced scorecard to drive strategy execution, clarify and identify strategic initiatives, and conduct strategy performance reviews to better understand their company. The decision to use a balanced scorecard should not be made lightly, and the addition of the balanced scorecard to a company is not just a one-time process, it is an evolution and continuous monitoring of company performance and should be considered a long-term investment. In particular, the Balanced Scorecard Institute includes a nine step process that has been developed for building and implementing a balanced scorecard. They are: Assessment Strategy Objectives Strategy Map Performance Measures Initiatives Automation Cascade Evaluation Nowadays, use of technology through automation is becoming a necessity for companys who want an effective scorecard process implemented. In step seven, automation, performance measurement software is applied so that managers and knowledge workers get the information they need when they need it. The addition of automation to the balance scorecard implementation assists in transferring information into knowledge and pushes the information through the system. It helps make better decisions more quickly. Meanwhile, executive support systems (ESS) can be built into many different specific software systems. The balanced scorecard is a specific ESS software program built to help organizations thrive in the economy. The balanced scorecard is an analysis tool to predict outcomes using current raw data. The balanced scorecard is a financial picture of the organization that can be analyzed and used to enhance the future. The balances scorecard also enables organizations to translate a companys vision and strategy into implementation working from perspectives: Financial perspective Customer perspective Business process perspective Learning and growth perspective A balanced scorecard is a framework that not only provides performance measurements, but also helps business planners identify what should be done and what should be measured. It also provides a clear vision as to what a business should measure in order to balance the organizations financial perspective. The balanced scorecard is an executive support management system that enables organizations to clarify their business or organizational visions and strategies and then translate them into an action plan. In addition, the balanced scorecard is known as a specific executive support system that is used to enable an organization to better manage its parts to make a more congruent and successful whole. Balanced scorecards use existing data assess performance, to predicts future trends and supplement future business decisions, much like ES Systems. The inventors of the balanced scorecard Kaplan Norton use this balanced scorecard system model to guide and evaluate businesses through the information age; Exercise 5 (2 point): What is a digital certificate? How does it work? A digital certificate is an electronic credit card that establishes your credentials when doing business or other transactions on the Web. It is issued by a certification authority( CA ). It contains your name, a serial number, expiration dates, a copy of the certificate holders public key (used for encrypting messages and digital signature s), and the digital signature of the certificate-issuing authority so that a recipient can verify that the certificate is real. Some digital certificates conform to a standard, X.509. Digital certificates can be kept in registries so that authenticating users can look up other users public keys. One widely-used tool for privacy protection is what cryptographers call symmetric or secret key encryption, called that way because one encryption key is used to both encrypt and to decrypt information. This key should obviously be kept secret from anyone not authorised to decrypt the information. Your log-on password, your cash card PIN, and the information you type in to enter your online bank accounts are all examples of secret keys. You share these secret keys only with the parties you want to communicate with, such as the bank or credit card company. Your private information is then encrypted with this secret key, and it can only be decrypted by one of the parties holding that same key. Despite its widespread use, this secret-key system has some serious limitations. As network communications proliferate, it becomes very cumbersome for users to create and remember different passwords for each situation. Moreover, the sharing of a secret key involves inherent risks. When you give your mothers maiden name over the telephone, how do you know you can trust the party on the other end of the line? Can you be sure it is really the credit card company you are talking to? Can you be sure nobody is maliciously listening in? If you give somebody your mothers maiden name and that person abuses it for their own gain, how can you prove you did not authorise their use? Digital Certificate technology addresses these issues because it does not rely on the sharing of secret keys. Rather than using the same key to both encrypt and decrypt data, a Digital Certificate uses a matched pair of keys which complement one another. In other words, what is done by one key can only be undone by the other key in the pair. In this type of key-pair system, a user holds onto a private key and never gives it to anyone, while widely disseminating a public key. Any information locked with the public key can only be unlocked by the corresponding private key, and vice versa. Since the public key alone does not provide access to communications, users do not need to worry about who gets hold of this key. For example, for the purposes of securing e-mail, key pairs can work in the following two ways. You can digitally sign your e-mail by enclosing an electronic stamp constructed by using your private key. When your recipient gets your message, their computer checks this stamp to see if it can be decrypted using your public key. If successful, the recipient knows that the message can only have come from the holder of the private key. Someone who wants to send you private e-mail can use your public key to encrypt the message. When you get the e-mail, your computer checks to see if the public key used to encrypt the e-mail is a valid match with your private key. If the match is successful, the message gets decrypted and you can read it. Anyone who receives your e-mail but does not hold your private key will be unable to decrypt and read the message. A Digital Certificate makes it possible to verify someones claim that they are the rightful owner of a given key, helping to prevent people from using counterfeit or stolen keys to impersonate other users. Used in conjunction with encryption, Digital Certificates provide a more complete security solution, assuring the identity of all parties involved in a transaction. Because a Digital Certificate uses and supplies us with the tools of cryptographic technology, it provides us with the ability to digitally sign documents or transactions, or to verify the signatures of others. It enables us to make documents or transactions only readable by those that we designate. Because Digital Certificates bind a public key to an individual or organisation, in a trusted manner, we can be sure of the identities behind these operations.