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Credit flow to new SMEs dries up

Lending slips by 15pc in H1


Siddique Islam | Published: September 17, 2019 10:52:34 | Updated: September 19, 2019 10:51:58


Photo collected from internet has been used for representational purpose only

Credit flowing to new small entrepreneurs fell significantly in the first-half of the year as risk-averse bankers were unwilling to offer such loans.

The total lending to the fresh small and medium enterprises sector decreased by more than 15 per cent to Tk 112.93 billion in the January-June period of the year from Tk 132.90 billion in the same period of 2018, according to the central bank latest statistics.

All banks and non-banking financial institutions together disbursed the loans to new enterprises in the SME sector.

Meanwhile, the number of new enterprises slipped by more than 17 per cent to 65, 350 in the first half of 2019 from 78,822 in the same period last year.

Most banks prefer to avoid investing in the new enterprises considering the lack of experience, documents and transactions, banking sector people said.

Indeed, the banks do not take risk in providing loans to new entrepreneurs, they added.

Terming SMEs future of Bangladesh, Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), said the banks should extend their credit facilities to new enterprises as part of their inclusive banking.

"We should do it," said Mr. Rahman, managing director (MD) and chief executive officer of Dhaka Bank Limited, said while highlighting the importance of developing new entrepreneurship in Bangladesh.

The government has already formed a high-powered committee to formulate a guideline for facilitating new entrepreneurs along with freelancers of Bangladesh.

The committee has been formed recently comprising senior officials from the central bank of Bangladesh, the National Board of Revenue and commercial banks, a senior private banker told the FE.

"The new guideline is expected to be introduced by January 2020," said the banker, who attended a recent meeting held at the Bangladesh Investment Development Authority (BIDA) in the capital.

Separately, the central bank is now working on developing new enterprises across the country by boosting credit flow to the SME sector.

"We've issued a master circular recently aiming to gear up financing by the banks and NBFIs in the SME sector," a senior official of the Bangladesh Bank told the FE on Monday.

The central banker also hoped that the disbursement of loans to the new enterprises would increase in the near future following the implementation of the new policies.

More than 130 SME sub-sectors such as light engineering, handicraft, flower, fish processing, handloom, rice-mill, jamdani, Rajshahi silk, khadi, biogas, and compost fertiliser received the credit line.

Talking to the FE, Muhammad Mahboob Ali, professor of Dhaka School of Economics, said the capacity of the bankers should be improved and their mindset should be changed in financing new entrepreneurs.

"The banks are normally unwilling to offer fresh credit to new enterprises fearing about loans getting non-performing loans," explained Dr. Ali, who coordinates the entrepreneurship programme of the school.

siddique.islam@gmail.com

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