Plugging the loopholes in SME financing
Globally, the financial crisis has halved the economic growth potential. Many investment plans, talents and ideas are not being utilised because of uncertainty, sluggish demand and a lack of funding. The impact on real economic activity could be more pronounced everywhere because small and medium enterprises (SMEs), being today's engine of growth, rely more on bank loans than their counterparts in some other economies. It is, therefore, crucial that banks resume their normal role of providing liquidity and supporting investment in the real economy, and Bangladesh is no exception.
SME financing is the funding of small and medium sized enterprises, and represents a major function of the general business finance market and is truly the device of success that will continue to contribute to the country's economy at large. Considering the slogan of Small Industries and Development Bank of India (SIDBI) -- Good things in life begin small -- we reciprocate as we notice that the wind of change has commenced in the finance sector and general and banking in particular. Such a panorama suggests that now is the time of cooperation rather than a competition; now it is a time of convergence rather than cutting each other's neck over customers and markets; now it is a time of consolidation for attaining a sustainable growth to ensure a healthy and acceptable economy.
In recent times, Bangladesh Bank under the leadership of Dr Atiur Rahman continues to play a proactive role in providing necessary refinancing or seed money under its SME financing and Equity and Entrepreneurship Fund initiatives. Governor Dr Rahman said: "Institutions like the SME Foundation and banks can play a major role in minimising disincentives and promoting entrepreneurship in the country by ensuring adequate finance and maintaining basic discipline." We believe such assurance will increase the cause and appoint uninterrupted growth in the economic sector at large. It is pertinent to mention that Bangladesh has achieved landmark results in the domain of SME financing and fulfilling their credit requirements time to time in various forms such as long-term project finance, working capital finance, etc by encouraging and directing financial institutions so far. However, considering the level of requirement for credit facilities of the SMEs, the financial institutions need to work out a unique and innovative model of financing to this vital sector (SME) of Bangladesh economy and that is “stretch and reach beyond urban areas”.
In today's changing world, SME financing/credit is the major growth driver for the banking industry. The scene has changed since the adoption of Basel II and the applicable risk grading methods. Simultaneous need for rating SME portfolios have emerged alongside to determine and monitor risk in the same.
Recently, BB Governor Dr Atiur Rahman laid emphasis on expediting investment in agriculture and SMEs to turn the country self-reliant and self-sufficient. According to him, “Commercial banks have been playing a tremendous role in this regard through the timely guidelines from the BB.”
The role of the BB in the format of SME financing has been overwhelming, as the central bank continues to motivate/advise all financial institutions to expedite SME sector disbursement and uphold the tempo of continuous growth. In this regard, the BB in letters issued to divisional, regional and branch managers of all commercial banks said that the monitoring system would be enhanced for selecting the real SME entrepreneurs by the field-level officials of the banks for SME credit facilities.
The regional managers have also been instructed to properly follow the loan disbursement rules and regulations for agro-processing industries and women entrepreneurs under the BB's revolving scheme.
SME entrepreneurs can take credit support at 10 percent interest under the BB refinance schemes, the BB letter said.
To commensurate with the model and initiatives of the BB, the Asian Development Bank (ADB) continues to extend its support to expand the country's economically vital non-urban SME sector. In addition, JICA along the BB memo rates the financing in full swing under the discipline of BB lending rules as per sources prioritising the sector of SME in Bangladesh.
The contribution of the SME sector to employment generation is next only to agriculture. The SMEs account high in internal trading, service and in the manufacturing sector nowadays. Development of the SME sector has the potential for achieving a lot which surely will define the country's economical diagram in the very near future. However, SMEs have always faced severe constraints and the challenging global economic landscape has made matters worse. By all accounts, financing is the most serious problem for the growth of SMEs in Bangladesh.
The prospects of financing and the applied models of banks and non-bank financial institutions under the supervision of the BB have improved miraculously in recent days. However, improving access to finance for enterprises, especially SMEs, needs further monitoring and strategic planning. Introduction of more banks and steep competition hence shall determine sustainability of all including the fundamentals of economy at large. In this regard, it shall become imperative for all participants to ensure monitoring of new and existing SME portfolios to grow and diversify, and identify thrust sectors based on demography and ensure periodic health checks to guarantee timely recovery and thus motivate financial institutions to participate more and more.
The role of the BB requires fortifications of enhanced guidelines to ensure quality and quantity based lending. The rating phenomena should include small by the side of medium to ensure a minimal risk on the financiers. A system based online matrix to be introduced to assure sector-based lending growth, which eventually shall define and measure data. By virtue of that, financiers may be guided along precisely and meticulously to achieve certain stipulated numbers as may be suggested by the central bank.
Our vision, belief, future and sustainability shall then become reality and Bangladesh will overcome all financial problems inherited from the past and shall continue to prosper to a favorable economic climate which will ensure a reduced inflation, higher GDP growth and sustainable development at large.