Rural entrepreneurs deprived of SME loans

The majority of small and medium rural entrepreneurs cannot turn their dream ventures into reality due to the scarcity of bank loans, and the complexities of getting the loan.

According to central bank data, in June 2022, nearly 88.7 per cent of the SME loans were disbursed to urban entrepreneurs while rural entrepreneurs got only 11.3 per cent.

The scenario was almost the same during the whole last decade, as per central bank data.

“Most of the banks are not interested in providing loans to rural entrepreneurs, which is a major obstacle to the creation of entrepreneurs countrywide,” said National Association of Small and Cottage Industries of Bangladesh President Mirza Nurul Ghani Shovon.

“Most of the time, new SME entrepreneurs do not get a loan because most of the banks provide loans to those who already have money,” he said.

According to the Bangladesh Bank data, nearly 86.9 per cent of the total SME loan disbursed in June 2022 for the cottage, micro small, and medium enterprises has been provided to entrepreneurs from Dhaka and Chattogram divisions while only 13.1 per cent has been disbursed in Mymensingh, Khulna, Rajshahi, Barisal Sylhet, and Rangpur divisions.

Of the total loan disbursed for the SME sector in June 2021, nearly 86.5 per cent were disbursed in Dhaka and Chattogram divisions while entrepreneurs from Mymensingh, Khulna, Rajshahi, Barisal Sylhet, and Rangpur divisions got only 13.5 per cent of the SME loans.

Private commercial banks disbursed nearly 69.3 per cent of their loans in the Dhaka division while state-owned commercial banks disbursed nearly 66.2 per cent in the Dhaka division.

“We are distributing nearly Tk 300 crore loans across the country and we are trying to disburse proportionately among all the divisions,” said SME Foundation Managing Director Dr Md Mofizur Rahman. Bangladesh Bank Executive Director Md Mezbaul Haque said most of the rural entrepreneurs do not properly maintain their trade license, TIN certificate, and other necessary documents needed for getting a loan.

According to sources concerned, BRAC Bank disburses the highest amount of loan for SME entrepreneurs.

In reply to the query why most of the banks are reluctant to provide SME loans outside Dhaka and Chattogram divisions, BRAC Bank’s Head of SME Syed Abdul Momen said, “It depends on the bank authorities whether they would disburse the loan in the rural areas or not. If the Bangladesh Bank forces the commercial banks, SME loans might be disbursed proportionately all across the country.”

“Nearly 25 per cent of our SME loans are disbursed in Dhaka and around 15 per cent in Chattogram while the rest 60 per cent is disbursed outside Dhaka and Chattogram divisions,” he added.

In the SME sector, total outstanding loans in the SME sector are Tk 252,028 crore while total loan disbursement till 2021 was Tk 185,428 crore.

According to the Institute of Chartered  Accountants of Bangladesh, the SME sector constitutes over 90 per cent of business enterprises in Bangladesh while 97.60 per cent in India, 99 per cent in China, 99.70 per cent in Japan, and 60 per cent in Pakistan.

Small and medium entrepreneurs contribute 20.25 per cent to Bangladesh’s GDP which is very low in comparison to other emerging economies. Bangladesh has 17,384 micro-enterprises out of which 15,666 are small, 6,103 medium, and 3,639 large-scale enterprises.