SMEs constrained by limited access to credit: study

The micro, small and medium enterprises sector (MSMEs) in Bangladesh is constrained by limited access to credit, leaving them with a financing need of Tk 23,700 crore, according to a study.

The access to finance for MSMEs is limited in Bangladesh compared to the average in South Asia, said a study prepared by the World Bank Group and the Policy Research Institute of Bangladesh (PRI). 

The report was unveiled at an event -- Financing Solutions for Micro, Small and Medium Enterprises (MSMEs) in Bangladesh: Findings and Perspectives – organized by the PRI at its conference room in Dhaka yesterday.

Some 27.5 percent of the small firms have access to credit compared to 44 percent of large firms because of the constraints in access to formal finance, according to the report.

As of June 2016, the number of microcredit borrowers stood at 3.77 crore.

The majority of the MSMEs are not included in the list of the Credit Information Bureau (CIB) of the central bank that led to difficulties in accessing funds.

The CIB report should include all commercial loans, regardless of value, to benefit MSMEs, it said.

There are significant financial infrastructure weaknesses that need to be addressed to encourage financial inclusion, it said. Small firms and firms at the low-end of medium-sized enterprises have the most difficulty in accessing bank finance, according to the report.

The report recommended a number of short- and medium-term initiatives, including promotion of the use of a unified definition at the policy level and improvement of data collection and analysis of data.

Undertaking an evaluation of past schemes and the Bangladesh Bank’s guidelines will help formulate a better MSME finance policy, the report suggested.

The loan process is very complicated for MSMEs, said Md Ashadul Islam, senior secretary of the Financial Institutions Division at the finance ministry.

There is an increasing demand of loans in the MSMEs sector but complicated process is driving them away, he said, adding that bank staff and loan aspirants need some kind of education to simplify the process.

A new law on movable property will be enacted to create a legal platform for the MSMEs to get more finance, said M Moniruzzaman, deputy governor of the central bank.

PRI Chairman Zaidi Sattar moderated the session. Syed Abdul Momen, head of SME banking at Brac Bank, also spoke.