Loan disbursement by banks and non-bank financial institutions (NBFI) to small and medium entrepreneurs (SME) decreased in 2018 by at least 5 percent over the previous year and indications suggest there is no change in the trend so far.
As per Bangladesh Bank figure banks and NBFI gave Tk 2,02410 crore loan to SMEs which constitute the bulk of the industries in manufacturing and service sectors in 2017. But loan to this sector declined to Tk 1,88245 crore in 2018.
The net decline in loan disbursement thus appears to be at Tk 14165 crore which is quite a big amount to slow down growth, said a central bank official. SME loan reportedly constitute over 7 percent of total loans made by banks and NBFIs last year.
Experts said the high growth rate in the country’s economy mainly resulting from big manufacturing and service sectors while the contribution of SMEs is not closer to potentials of this sector in Bangladesh economy.
It is expected to spread economic activities and create jobs at local levels but the concentration of loans to big businesses and industrial groups is overshadowing the growth of the SME sector leaving the potentials under-utilized. The central bank official said they are pushing banks to fulfill their SME loan targets but they lack enough interest in this regard.
Banking sector’s total loan amounted to Tk 10,87163 crore by early 2019. Out of this Tk 970348 crore was made by private sector banks while the remaining come from state owned banks. Default loans by this time soared to Tk 93911 crore.
Loan to SMEs by banks and NBFI must grow faster and should achieve targets to make the country’s economy broad based at a time when big industries are slowly switching to high tech machines to replace manual labors, another banker said.
It is only the SMEs which can create more jobs and diversify business. But banks’ focus on big loans is largely defeating the policy priorities in one hand and spilling up default loans on the other. Big business houses are in fact slowly capturing banks and turning to control funds using their influence, experts working with the SME sector said.
Executive Director of Bangladesh Bank Serajul Islam told The daily Observer that most banks are not taking serious interest to run massive SME loans because they argue that the lower interest rate is not enough to cover cost of capital, it lacks enough profitable, loan recovery is hazardous and loan processing is time consuming.
On the other hand, small and medium investors often fail to fulfill the terms and conditions, they blame they don’t get enough attention when they make loan petition. There is a lot of reason for such lackluster attitude of banks as reflected in 5 percent decrease in loan disbursement over a year.
Sayd Mahbubur Rahman, Chairman of Association of Bankers Bangladesh (ABB) and Managing Director of Dhaka Bank told The Daily Observer that major reason for the fall in SME loan disbursement is liquidity crises in most banks throughout 2018.