Shahinur Parvej, who owns a grocery shop in the capital’s Mirpur area, never thought he would require a loan from any bank or non-banking financial institution (NBFI) to expand his business. However, his stance has now changed.
“My total investment is about Tk 25 lakh. I dream of widening my business but it will not be possible without financing from banks or NBFIs,” said Parvej, whose grocery shop is located at a kitchen market in Mirpur-6.
Typically, for businesspeople to get a loan from the formal sector, they have to provide statements from their bank or NBFI that show transactions amounting to three or four times the value of the loan amount being sought along with their trade licence.
Such documentation and transaction records are not possible for Parvej given the rudimentary nature of his business.
Nevertheless his dreams became a reality as IDLC Finance, a multi-product NBFI based in Dhaka, handed out loans to small and underprivileged kitchen market businesspeople under its ‘IDLC Nano-financing for Micro Business’ programme.
And, all he had to furnish to get the loan amounting to Tk 1.5 lakh was his national identity card. The loan will have to be repaid over a six-month tenure.
“I got the loan just three days after submitting my application. I will pay all the instalments on time as another loan will be needed soon to further widen my business,” Parvej said.
The programme, which was rolled out on a pilot basis in October last year, aimed at facilitating funding for small kitchen market businesses, which are normally shut out from the formal loan market. The pilot will end in March.
Thus far, 25 kitchen market businesses have taken loans and all of them are paying their instalments regularly, said Arif Khan, managing director of IDLC Finance.
Small as well as seasonal businesses will be allowed to take loans ranging from Tk 50,000 to Tk 2 lakh with an interest rate of 14 to 15 per cent once full-fledged lending under the programme begins in March.
“This is a tough job as many of the kitchen market businesses are mobile. But we have a strong belief that the initiative will be a success because of our previous experiences,” Khan said.
His confidence is not without reason.
Like Parvej, Md Abdullah, who has a small kitchen market business in Gulshan, took a Tk 2 lakh loan under the programme to expand his buying capacity. He has paid all his instalments on time.
“I am purchasing Indian capsicum from a third party. I dream of importing the item directly from the neighbouring country, which will help me enjoy more profit.”
Abdullah believes that IDLC will continue to lend support to help materialise his plans given his good track record.
IDLC, Bangladesh’s leading NBI in terms of business volume and profitability, plan to take the credit facility to all over the country within the year.
Its target is to disburse loans to at least 2,000 kitchen market businesses.
So far, IDLC has recovered 99.5 per cent of their total disbursed loans, which in turn helped them manage the credit facility for underprivileged businesses, Khan said.
IDLC’s initiative comes at a time when the country’s NBFI sector is struggling to survive in the wake of rising default loans, which stems from a lack of corporate business.
A fair number of NBFIs recently became defaulters as they failed to pay back bank loans taken to run their businesses. However, IDLC has set an example by containing its default loans while maintaining profitability.
As of September last year, default loans at IDLC stood at 2.94 per cent of its total outstanding loans -- far below the industry average of 10 per cent.