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Most SMEs remain out of bank finance: Study

Small businesses going to informal sector to manage fund at high interest rates

  • Staff Correspondent
  • 15 August, 2022 12:00 AM
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Most SMEs remain out of bank finance: Study

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Most of the small and medium enterprises (SMEs) struggle to find credit facilities as the banks and financial institutions are unwilling to provide loans to them.

Of total 7.8 million SMEs, around 91 percent remains out of credit coverage from conventional banking system, according to a research findings placed at a FBCCI seminar on Sunday.

In his presentation, Centre for Policy Dialogue (CPD) Research Director Dr. Khondaker Golam Moazzem said the small businesses are going to informal sector to manage fund at high interest rates.

“The SMEs are facing trouble to manage funds from banks. Around 41 percent of them managed money from informal sources while 20 percent avails support from family. Sometimes, the entrepreneurs (4 percent) pay informal interest to source fund from family members,” he said.

Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) organised the seminar on the eve of National Mourning Day focusing on Bangabandhu’s thought on SME development and present perspective at its head office in the capital.

Industries Minister Nurul Majid Mahmud Humayun was the chief guest while SME Foundation Chairman Masudur Rahman was special guest at the seminar. FBCCI President Md Jashim Uddin chaired the session.

During the presentation, Khondaker Golam Moazzem said Bangabandhu Sheikh Mujibur Rahman aimed to reduce economic disparity through the development SME sector.

 “Our Father of the Nation Bangabandhu Sheikh Mujibur Rahman laid emphasis on development of SMEs during his short tenure after independence of the country. He provided waivers for the small businesses in different ways,” Dr. Moazzem said.

The researcher said that commercial banks distribute 18 percent of their total disbursed loans to SMEs.

“The proportion of SME loans has declined in recent years, which puts the development sustainability at risk,” he added.

Citing the World Bank report, the economist noted that the country’s SMEs have a potential loan demand worth Tk 26,600 crore. He said the SMEs are neglected in the bank's loan structure and bankers are reluctant to give importance on the huge untapped potentials of thee sector.

In his speech, Industries Minister Nurul Majid Mahmud Humayun expressed his dissatisfaction regarding bank financing to small and medium enterprises.

“The government approved bank licences with a condition to commitment to the nation. They should not increase the disparity between rural and urban areas by financing only large conglomerates. Banks must play a role to ensure a balanced development,” he said.

About dollar market, FBCCI President Md Jashim Uddin thinks Bangladesh Bank should introduce a ceiling on the profit margin on dollar sales.

“There are some banks made upto 425 percent profit in dollar selling. If this trend continues, the country will face a deep crisis soon, the president feared,” he said.

SME Foundation Managing Director Mafizur Rahman, FBCCI Senior Vice President Mostofa Azad Chowdhury, Vice Presidents Md. Amin Helaly, Md. Habib Ullah Dawn and Bengal Commercial Bank Managing Director Tarik Morshed were also present on the occasion. FBCCI Secretary General Mohammad Mahfuzul Hoque moderated the seminar.