Small firms thrive on collateral-free bank loans

Some banks and non-banking financial institutions (NBFIs) are providing collateral-free loans to small entrepreneurs during the coronavirus pandemic when getting loans is more challenging than regular times.

According to Bangladesh Bank, 57,261 small entrepreneurs got Tk 6,255.75 crore collateral-free loans until March 31 this year.

Five state-owned banks disbursed loans worth Tk 99.64 crore to 3,836 small entrepreneurs, while 30 private commercial banks gave out loans worth Tk 4,247.84 crore to 31,312 entrepreneurs. Among private banks, the NRB Commercial Bank distributed Tk 776.50 core, BRAC Bank Tk 719.56 crore, Jamuna Bank Tk 709.48 core, City bank Tk 461.14 crore and Prime Bank Tk 195.28 crore.

“We launched a micro-credit unit to help small entrepreneurs. We have several packages to finance cottage, micro and small entrepreneurs,” Golam Awlia, the managing director and CEO of NRBC Bank, told The Business Post.

He said they instructed their branch managers to provide collateral-free loans to small entrepreneurs.  

“We have introduced microcredit at a single-digit interest rate for the rural people,” he added. 

Emranul Huq, the managing director and CEO of Dhaka Bank, said they provided collateral-free loans considering the business type and condition. “We provide loans without collateral if we deem the applicant a ‘good entrepreneur’ (someone who regularly pays back the loan),” he told The Business Post.

Huq noted that small entrepreneurs who take loans with collateral are reluctant to pay them back in most cases. “So, in many cases, collateral-free loans are better,” he said.

Sohail RK Hussain, the managing director and CEO of Meghna Bank, said banks face various problems reaching out to borrowers due to Covid restrictions and documentation issues.

According to BB report, eight Shariah-based Islamic banks have disbursed Tk 394.35 core among 2,946 small entrepreneurs. Out of which, Shahjalal Islami Bank distributed Tk 224.99 core and Islami Bank Tk 127.10 crore. Foreign banks have lent Tk 285.61 crore to 11,855 small entrepreneurs. Scheduled banks operating in Bangladesh have given out Tk 5,040.88 crore collateral-free loans to 50,306 small entrepreneurs.

NBFIs disbursed loans worth Tk 1,214.7 crore to 5,985 small entrepreneurs without collateral. Of the amount, United Finance provided Tk 327.75 crore, IPDC Finance Tk 26.31 crore and Lanka Bangla Finance Tk 148.3 crore.

Former Bangladesh Bank governor Salehuddin Ahmed suggested ensuring access to funds and urged the bank to provide increased loans to the small entrepreneurs to help them recover from the pandemic shock. 

The small entrepreneurs are the largest job providers, he said. 

“Cottage, micro and small entrepreneurs always suffer the most during any disaster. Banks should provide more funds to help them recover. We have to save them at any cost,” Salehuddin told the Business Post.