Banks and non-bank financial institutions (NBFIs) increased lending to cottage, micro, small and medium enterprises (CMSMEs) by more than 12 per cent year-on-year in the second quarter of FY2025-26.
The credit growth was driven largely by private commercial banks, although weaker loan recovery highlighted continued financial stress among small businesses.
The banking sector disbursed Tk 701.70 billion in CMSME loans during the October-December quarter of FY2025-26, marking a 12.13-percent increase from the corresponding period a year earlier, according to the latest Bangladesh Bank (BB) data.
The amount was also 45.75 per cent higher than the Tk 481.44 billion disbursed during the July-September quarter of the same fiscal year, indicating a rebound in lending after a weak first quarter.
Private commercial banks continued to dominate CMSME financing, accounting for Tk 579.90 billion, or 82.6 per cent, of total disbursements during the quarter under review.
State-owned commercial banks disbursed Tk 58.84 billion, followed by specialised banks with Tk 23.82 billion, foreign commercial banks with Tk 18.25 billion and finance companies with Tk 20.89 billion.
The BB data also showed that outstanding CMSME loans stood at Tk 3.14 trillion at the end of December 2025, up 0.35 per cent from a year earlier.
CMSME loans accounted for 16.76 per cent of the country's total outstanding loans, which reached Tk 18.75 trillion at the end of December 2025.
Despite the improvement in loan disbursement, recovery performance deteriorated during the quarter.
Banks and finance companies recovered Tk 554.98 billion in CMSME loans during the October-December period, down from Tk 572.34 billion recovered in the corresponding quarter of FY2024-25.
The decline followed a sharper deterioration in the previous quarter, when CMSME loan recovery fell 31.5 per cent year-on-year to Tk 358.64 billion during July-September FY2025-26.
Private commercial banks remained the largest financiers of the sector, holding a 73.38 per cent share of outstanding CMSME loans.
The latest quarterly improvement follows an overall slowdown in CMSME financing in FY2024-25.
Total CMSME loan disbursement declined to Tk 2.05 trillion in FY2024-25 from Tk 2.25 trillion in FY2023-24, reflecting subdued lending to small businesses amid economic uncertainty.
Meanwhile, outstanding CMSME loans increased from Tk 3.06 trillion in FY2023-24 to Tk 3.11 trillion in FY2024-25 before reaching Tk 3.14 trillion by the end of December 2025.
Economists say sustaining the recovery in CMSME lending will require stronger business confidence, improved access to affordable finance and enhanced risk management by lenders, particularly as the repayment capacity of small enterprises remains under pressure.
Dr Masrur Reaz, Chairman of Policy Exchange Bangladesh, said the rebound in CMSME loan disbursement was encouraging, as the sector plays a vital role in employment generation and economic growth.
However, the decline in loan recovery suggests that many small businesses are still struggling with weak demand, high financing costs and cash-flow constraints.
"The priority should be to improve both access to finance and the quality of lending so that productive enterprises can grow without creating future repayment risks," he said.
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