Role of Feasibility Study for Disbursing Loan
Bangladesh’s banking sector has expanded considerably since its independence in 1971.
There are currently over 60 scheduled banks operating in the country including state-owned commercial banks, private commercial banks, and foreign banks.
Mobile and agent banking have also made impressive progress in bringing financial services to rural and underbanked populations, contributing to greater financial inclusion.
The banking sector in Bangladesh is currently facing significant challenges, including a high volume of non-performing loans (NPLs), a liquidity crisis, and concerns about financial mismanagement and corruption.
Despite efforts to address these issues, the sector continues to grapple with these problems, impacting overall stability and confidence.
One of the most pressing issues in the Bangladeshi banking system is the high rate of non-performing loans.
As of recent data, NPLs in the banking sector exceed 9% of total loans, with some banks facing even higher rates. This affects bank profitability and limits their ability to lend to productive sectors.
Political influence, weak regulatory enforcement, and corruption have contributed to the rise of willful defaulters who often escape with impunity.
Many state-owned banks are particularly vulnerable to such abuse due to poor risk management and lack of autonomy.
The Bangladesh Bank, as the central regulatory authority, has initiated various reforms to improve banking practices.
These include tightening loan classification rules, encouraging mergers among weak banks, and strengthening oversight.
However, the effectiveness of these reforms often gets diluted due to political interference and slow implementation. Despite the challenges, Bangladesh’s banking sector has vast potential.
A growing economy, large population, increasing remittance inflow, and the expansion of digital finance provide promising opportunities.
Fintech integration, sustainable banking practices, and improved regulatory compliance can transform the sector into a more resilient and efficient pillar of the economy.
The banking situation in Bangladesh is at a crossroads. While there has been notable progress in access and financial services, the sector’s stability is threatened by governance issues, loan defaults, and capital weaknesses.
Timely reforms, stronger oversight, and political will are essential to restore confidence and unlock the full potential of the banking industry for national development.
Among other things, a feasibility study plays a crucial role in the loan disbursement process of financial institutions.
It is a comprehensive analysis conducted to determine the viability, profitability, and risks of a proposed project or business venture.
For financial institutions such as banks, non-bank financial institutions (NBFIs), and development finance institutions, the feasibility study serves as a critical tool in evaluating whether to approve and disburse a loan. It ensures that resources are allocated wisely, and risks are minimized.
One of the primary purposes of a feasibility study is to assess the risks associated with the proposed project.
It evaluates market conditions, competition, financial projections, operational requirements, and potential obstacles.
Financial institutions rely on this information to judge whether the project has a reasonable chance of success and if the borrower will be able to repay the loan.
Feasibility studies provide detailed financial forecasts including projected income statements, cash flow analysis, and balance sheets.
This helps financial institutions understand the financial structure of the project, the return on investment (ROI), and the break-even point.
These projections are vital in determining whether the proposed venture can generate sufficient revenue to cover loan repayments.
A well-prepared feasibility study reflects the borrower’s seriousness, preparedness, and understanding of the business.
Financial institutions consider this a positive indicator of the borrower’s commitment and capability.
It also gives insights into the borrower’s planning and management skills, enhancing theircredibility. Financial institutions use feasibility studies as a key decision-making tool.
They compare the findings of the study with their internal lending policies, risk appetite, and regulatory requirements.
This ensures that loan decisions are made based on facts and informed projections rather than assumptions or emotions.
In many countries, regulatory bodies require financial institutions to conduct due diligence and assess project feasibility before granting loans.
A feasibility study helps institutions meet these legal obligations and avoid lending to high-risk or fraudulent ventures.
Post-loan disbursement, the feasibility study serves as a benchmark for monitoring the project’s performance.
It helps in evaluating whether the borrower is following the original plan and achieving the projected outcomes. Any deviation from the study can prompt timely intervention by the lender.
In conclusion, the feasibility study is an indispensable part of the loan disbursement process for financial institutions.
It provides a structured framework for evaluating the technical, financial, and operational aspects of a project.
By reducing uncertainty and identifying potential challenges in advance, feasibility studies help financial institutions make informed decisions, minimize non-performing loans, and support sustainable economic development.
Therefore, both borrowers and lenders must recognize the value of a thorough feasibility study in ensuring the success of any financed venture.
(The writer is a columnist, can be reached
at: E-mail: creativewritermuzibur@gmail.com)
