Published at: The Financial Express, March 07, 2019
Women entrepreneurship or ‘a woman in businesses’ is a recent phenomenon in Bangladesh. Women entrepreneurs are mostly involved in small and medium enterprises (SMEs). Supports to the SMEs and making them more women friendly, could go a long way towards overall development of the country. According to the Economic Census of 2013, there are 7.80 million enterprises (economic activities) in Bangladesh of which 7.30 million are male-headed and 0.60 million are female-headed. Thus only 7.2 per cent of the total enterprises are female headed. Though these enterprises include large enterprises, the picture is true for SMEs as 99 per cent of the enterprises are micro, small or medium in size.
Various studies have shown that the constraints faced by women entrepreneurs include inadequate access to finance, lack of start-up capital, small size of capital, inadequate training facilities, lack of information and managerial experience, complexities in accessing formal credit, and legal and regulatory framework, various family and social taboos, barriers to market access, women-unfriendly transport and working conditions etc.
Among all these constraints, access to finance — to start a business or to expand an existing business — appears to be a dominant one. In the last couple of years, various public and private initiatives have been undertaken to solve the problems faced by women entrepreneurs including the constraints related to their access to finance. Various organisations have also commenced programmes to assist women entrepreneurs to prepare documents to register business, apply for formal credit, find guarantors etc. This article is based on discussions with women entrepreneurs in connection with a study led by me at the Bangladesh Institute of Development Studies (BIDS) in 2018.
The Bangladesh Bank (BB) has a refinancing scheme to support the development of SME sector under which commercial banks receive funds at a very low interest rate so that they can offer low cost credit to SME entrepreneurs. The SME development policy of Bangladesh Bank aims to ensure easy financing of SMEs in general and even greater facilities for SMEs owned by women. The Policy gives some facilities to women entrepreneurs. The facilities in the BB policy include: upscaling credit limit range from Tk 50,000 to Tk 5.0 million for small entrepreneurs; highest priority to the credit applications from women entrepreneurs and a reasonable time frame to settle the credit; separate women entrepreneurs’ dedicated desk with necessary and suitable manpower in the commercial banks; and sanctioning up to Tk. 2.50 million to women entrepreneurs without collateral rather than against personal guarantee by banks and financial institutions.
Moreover, according to the policy, interest rate for women entrepreneurs will be the bank rate (which is at present 5.0 per cent) plus maximum 5 per cent but not more than 10 per cent in total per annum. The policy also stressed on allocating at least 15 per cent of total BB’s SME fund to women entrepreneurs. Moreover, adequate support will be given for trade fares of the SME products, matching buyers with suppliers, improving the quality of products and package design, workshops and training on technology and design development, and training on entrepreneurship development.
Since 2009, SME Foundation (SMEF) of Bangladesh has been undertaking the Credit Wholesaling (CWS) Programme to facilitate access to finance for the SME entrepreneurs by providing collateral free loans with a single digit rate of interest (9.0 per cent) to the target clusters/sectors/clientele (such as technology based potential SME manufacturing industries, agro-based industries).
In the absence of these initiatives women entrepreneurs face a number of obstacles and challenges to access finance. For start-up capital, banks and other financial organisations provide loans to an established business, which are registered for at least three years. However, arranging start-up capital is a major concern for both male and female entrepreneurs. This problem is even more stringent for women, especially for unmarried women. Parents tend to provide financial support to their sons for business but not to the daughters as many of them consider that the business will go under the control of future son-in-law and there is no benefit for them (the parents). Most of the women SME entrepreneurs in Bangladesh start business with their own savings (from a job or by saving money from daily expenses) or by selling ornaments. Some of them get financial support from their husbands.
Arranging guarantors for bank borrowing is a big challenge for women. According to the rules set by the BB, any person who asks for a collateral-free loan needs two guarantors. One is from the family members and the other from outside the family, preferably a well off person with good reputation. If the applicant is married, in majority of the cases, the spouse needs to be the guarantor. It becomes difficult for a separated woman to get guarantee from the husband. Majority of the women entrepreneurs face problems in getting a guarantor outside the family.
Again, there is a big information gap between loan applicants and banks. Different commercial banks set their own rules and regulations along with the rules of the Bangladesh Bank in terms of service charge, requirements of additional documents, time for processing etc. Sometime banks do not provide proper explanation of rejecting a loan application to the applicant. There appears to be information gap between the bank officials and women entrepreneurs regarding the rules of lending in different banks and the loan settlement process.
Some women entrepreneurs also find it difficult to understand and complete the loan application. They also do not maintain proper books of accounts or tax information.
Although women entrepreneurs are supposed to receive collateral-free loan for loan up to Tk 2.50 million, majority of the banks ask for mortgage documents for loans amounting to Tk 500 thousand or more. Banks are also reluctant to process small loans despite having a desk to attend SME entrepreneurs. Women entrepreneurs feel neglected to ask for small loans.
Moreover, commercial banks usually give a grace period for one to three months for loans granted for productive activities. This grace period is too short for mall entrepreneurs.
To addressing the constraints, a number of steps need to be taken by the authorities and banks. Bank officials need to be more patient with small borrowers. The borrowers need to know the possible risks of borrowing. They should also be properly informed about the additional rules and regulations of the banks. It has been noted by women entrepreneurs that corruption in loan sanctioning for SMEs has gone down in last five years. However, non-financial issues are still prominent in accessing loans.
More training sessions on basic and advance entrepreneurship development, business and accounts management, bank readiness etc are needed to increase knowledge and skills of women entrepreneurs as well as the rules and regulations of conducting a formal business. Women entrepreneurs should be given more information to understand the documents required for bank loan.
It is also observed that women chambers play an important role in assisting women entrepreneurs to get access to bank officials in organising their papers, managing loan, receiving guarantee etc. Support should be given to expand activities of women chambers who are actually working with women at the grassroots
Arranging documents is a big concern for business. Moreover, transactions in papers make it difficult to maintain transparency in business. So, women chambers could start different activities to make businesses of their members paperless, easy and transparent. Some easy business apps may be developed in Bangla to inform entrepreneurs regarding formal business.
These challenges and concerns of women entrepreneurs and the priority services needed by them should be raised before the policy makers for implementation of the existing policies as well as for developing new policies to support smooth and effective engagement of women entrepreneurs in their businesses.
Every year government allocates some fund (in the national budget) for the development of women entrepreneurs. This fund is often not properly used and a significant amount remains unutilised. A yearly plan should be developed with the help of women chambers for utilising this fund. A significant part of this fund should be utilised for training programmes and those training programmes should include topics on formal business practices.
SME foundation may strengthen their programmes in the following areas: (i) organising vocational training; (ii) providing information on SME loan policy of the Bangladesh Bank; (iii) providing a business platform for women; (iv) assisting development of business leadership among women; (v) boosting their strength and self-confidence through trainings and seminars; (vi) helping women entrepreneurs to manage loans; (vii) helping women to promote business through SME fairs.
Nazneen Ahmed is Senior Research Fellow, BIDS. [email protected]