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IN Bangladesh, bank's lending rate is higher compared to other developing countries. As per World Bank website, lending interest rate in Bangladesh is 11.7 per cent, whereas it is below 10 per cent in India, 7.0 per cent in Sri Lanka and only 4.3 per cent in China. Corporate borrowers frequently enjoy extra privilege from banks due to their lower risk, brand image, economies of scale, bargaining capacity etc. But small retailers do not have these advantages and have to pay higher risk premium.
For example, the grocery shop owners never make their Balance Sheets and Income Statements. They do not analyse financial performance in terms of actual rate of return. They just do their day to day operations, make some lump sum profits, withdraw from cash counters (equity portion) frequently, and calculate their total sales and credits every day. But they run their businesses successfully and repay bank credits (with highly charged interest).
To uncover the hidden power of a grocery business, a carton of soap is taken as an example. A soap is sold at Tk.15, at a profit margin of Tk.2.50. A simple grocery shopper can easily sell a carton in 3 days.
Hence a carton containing 12 soaps costs Tk.180 and returns a profit of Tk.30 which means an annual rate of return at [(30x100x360)/(180x3)]= 2000 per cent (at simple rate of calculation) which is never possible for the corporate clients of the Banks. After every three days, the capital of a grocer is re-invested with profit. But a retailer has to pay 11 to 15 per cent interest against CC loans. Though the interest rate is higher, but he can adopt it due to that uncovered hidden power of small retail business.
Tariqul Islam
Textile Engineer (B.Sc.) and Assistant officer- IBBL, Shyampur Branch;