SME credit grows 18% in 2013

The commercial banks and financial institutions have disbursed loans of Tk85,323 crore to the small and medium enterprises (SMEs) in 2013.

According to Bangladesh Bank figures released yesterday, the disbursement was 16% higher than the year’s target and 18% higher than the previous year, despite slow growth in overall private sector credit in year 2013 due to the political turmoil.

Of the total SME loan disbursed last year to 744,228 entrepreneurs, small enterprises shared about 52%, thanks to initiatives by the government and Bangladesh Bank taken with assistance from the development partners to boost SMEs that contribute 25% of the country’s GDP.

Sub-sector wise, 67% went to the trading, followed by manufacturing 28% and services 5%.

Former adviser to the past caretaker government Mirza Azizul Islam said the loan should have been invested more in the manufacturing sector to get better outcome.

“The soft loan went to trading sector as entrepreneurs were reluctant to invest in manufacturing due to political turmoil in last several months,” he told the Dhaka Tribune yesterday.

He said businessmen are interested to take SME loan as it requires simple condition while they have taken advantage of the easy-term loan to make quick profit through trading.

In Bangladesh, 90% of the private sector enterprises are SMEs while 70% to 80% of the non-agricultural workforce working in the sector or around 25% of the country’s total labour force. It contributes about 40% of gross manufacturing output, making a significant contribution to exports.

Banks in Bangladesh are being supported in SME financing initiatives at subsidised interest rate with refinance line from Bangladesh Bank, which is being funded by Bangladesh Bank, government of Bangladesh and development partners like IDA, ADB and JICA.

“The SME loan disbursement increased as Bangladesh Bank encouraged new entrepreneurs,” said a senior executive of Bangladesh Bank.

For this year, the central bank had earlier set a SME loan target of Tk88,753 crore, which is about 20% higher than the Tk74,187 crore target of last year.

The release said Bangladesh Bank has taken several development measures last year to create new entrepreneurs, including the Dhaka Chamber plan to create 2,000 new entrepreneurs. A decision has also been taken to arrange a women entrepreneur fair with the support of all banks and non-bank financial institutions to be arranged soon.

The banks and FIs disbursed SME loans of Tk3,346 crore to woman entrepreneurs last year, which is over 50% higher from Tk2,224 crore in the previous year.

It was Tk13,197 crore for 65,504 new entrepreneurs last year against 26,687 new entrepreneurs received Tk4,835 crore in the previous year.

Of the total SME loan last year, 23% went to the rural areas while the loan to rural areas increased by 9% to Tk19,850 crore in 2013 from Tk18,158 crore in 2012.

SME initiatives in the country typically begin with small, often insufficient equity from entrepreneurs’ own personal or family savings.

Absence of track record in business and lack of real assets to offer as collateral makes it difficult for SMEs to access debt finance on affordable terms.

Banks and financial institutions primarily geared towards serving larger urban businesses are in general neither well motivated nor well equipped to serve SMEs in dispersed locations far off from branches.

Besides higher risks in SME lending, they also find SME loan administration costlier. In these circumstances, SMEs find it hard to get credit for inputs procurement and other expenses. SMEs often have also to sell their produces on credit, further burdening their precarious finances.