The challenges in financing female SME entrepreneurs

Bangladesh is a development miracle to the rest of the world. For the last 12-13 years, the country has shown prudent development with an average 7.5 per cent GDP growth.

Even when most countries struggled with negative or tinny growth during the Covid-19 pandemic, Bangladesh achieved 3.45 per cent GDP growth in the financial year of 2019-20 and 6.94 per cent during FY2020-21, and it was expected that the growth will be more than 7.20 per cent in FY2021-22.

Bangladesh is a potential and steadily rising economy in South Asia leaving behind India and Pakistan. Currently, Bangladesh is going through a transitional period of transforming from an agro-based economy into an industrial economy. The contribution of three major sectors namely agriculture, industry and service in GDP was 16.50 per cent, 29.55 per cent and 53.62 per cent, respectively, in FY2014-15, which is now about 13 per cent, 36 per cent and 51 per cent.

It is indicating that the industry sector’s contribution is growing. The number of entrepreneurs is increasing tremendously. The number of women entrepreneurs has increased by 126 per cent in the last decade.

The Bangladesh government considers the Cottage, Micro, Small and Medium Enterprises (CMSME) as the driving force for employment creation, income generation, economic growth, poverty alleviation, and social progress. Under the leadership of Prime Minister Sheikh Hasina, the country is moving fast towards achieving the milestone target of being a rich and developed country by 2041.

It is considered one of the Next 11 (N-11) and Frontier Five countries respectively by Goldman Sachs and JP Morgan. In this journey of Bangladesh, the Industries Ministry is playing a pivotal role in industrial development and particularly through the development of CMSMEs. BSCIC and SME Foundation are the two institutions working for CMSMEs’ development through different mechanisms.

The government has taken a lot of initiatives under the Industrial Policy 2016 (revised 2022), SME policy 2019, the 8th Five-Year Plan and other documents. CMSMEs have played a pivotal role in achieving “Vision-2021” to become a middle-income country, LDC graduation by 2024 and achieving SDGs by 2030 and being a rich and developed country by 2041. CMSMEs are also playing a significant role in achieving the goals and targets of the Government Election Manifesto 2018.

According to the 2013 economic census, the total number of the industrial unit is 78,18,565 and out of which, 68,42,884 are cottage enterprises, 1,04,007 micro, 8,59,318 are small, 7,106 medium and only 5,250 are large. Of them, 5,63,368 are female-led enterprises and 37,349 are female-led SMEs. Another economic census will be conducted in 2023 and it is expected that the number of industrial units will be much more now.

The contribution of SMEs to GDP is over 25 per cent (total industrial contribution is about 36 per cent). Total employment in SMEs is about 80 per cent of total industrial employment (24 million). SMEs are providing job opportunities to about 70–80 per cent of the non-agricultural labour force. SMEs’ contribution to national export is significant through different industries such as ready-made garments, jute and leather and leather products and handicrafts etc. There are so many small and medium industries developed under the health sector especially during the Covid-19 pandemic to produce health safety items like masks, handwash, etc.

The government has allocated more than Tk 1,35,000 crore as a stimulus package for CMSMEs to combat the pandemic’s impacts. The central bank of Bangladesh is also supporting CMSMEs with refinancing schemes to combat the pandemic’s impacts. Recently, Bangladesh Bank (BB) announced Tk 25,000 crore refinancing scheme with 7 per cent interest.

BB is also trying to ensure as much as possible higher level financing for CMSMEs since 2019 in line with its circular no SMESPD 2. According to that circular, the cottage industry will have the scope of financing up to Tk 15 lakh, micro-industry (manufacturing) Tk 1 crore, micro-industry (service) and (trading) both categories Tk 50 lakh, small entrepreneur (manufacturing) Tk 20 crore, service and trading both category Tk 5 crore. For medium enterprises (manufacturing) Tk 75 crore and for service in both categories maximum financing can be done at Tk 50 crore.

It was stated in the BB circular that the net loans and advances of each bank and NBFI financing the CMSMEs entrepreneurs need to increase by 1 per cent each year to reach the 25 per cent threshold by 2024 as well as 15 per cent for female entrepreneurs. Now it is almost of end of 2022 and only two years left. However, the fact remains that the present scenario is far behind the target.

The loans and advances distributed Tk 1,53,496 crore and out of which Tk 5,390 crore was given among female entrepreneurs in FY2019-20, which is 3.51 per cent, and Tk 1,85,428 crore out of which Tk 6,696 crore was given to female entrepreneurs, which is 4.61 per cent in FY2020-21.

From the stimulus packages to combat the pandemic, all the banks and NBFIs have distributed Tk 15,376.72 crore among CMSMEs, out of which, only Tk 759.75 crore (4.94 per cent) was for female-led entrepreneurs. In FY2020-21, the total distribution was Tk 15,374.68 crore, out of which only Tk 735.25 crore (4.78 per cent) was distributed among female entrepreneurs.

In FY2021-22, women entrepreneurs received only 4.94 per cent of the BB’s refinancing scheme. So, the figures indicate that female-led entrepreneurs are far behind the target level of financing set by the central bank.

BB has issued another circular, SMESPD 2 of 2020, which said if female entrepreneurs made their repayment on time, they will have a 1 per cent stimulus benefit. Even then the situation was not improving.

To encourage the bankers, BB has introduced a 1 per cent stimulus benefit for the bankers who will finance women entrepreneurs. Altogether 2 per cent stimulus benefit is given to both women entrepreneurs and bankers to encourage more entrepreneurs. However, the situation is not improving as expected.

There is also an exception in the case of the SME Foundation. This organisation distributed Tk 300 crore in two financial years as the stimulus package, of which, Tk 78.92 crore was distributed to female entrepreneurs (26.29 per cent). A total of 3,145 SMEs received this stimulus package, out of which in terms of number, women entrepreneurs’ percentage is more than 33 per cent.

So, SME Foundation has ensured much more than the central bank’s target of financing female-led enterprises. SME Foundation succeeds because of extending its support throughout the country involving local government institutions, district chambers, trade bodies and SME associations, women chambers, commercial banks and NBFIs.

The challenges in financing are manifold for female enterprises. Lack of information, shortage of proper documents, guarantor and unwillingness of the bankers are among the main challenges. No financial/business transaction records, no showroom or storage, and the absence of strong relationships with banks are also among the shortcomings of female-led enterprise financing. Much female entrepreneurship came forward as online businesses amid the Covid pandemic and most of them even do not have trade licences, TIN/BIN, etc. Therefore, financing this type of female enterprise is even more difficult.

It is expected that all banks and NBFIs will come forward with a positive note on female entrepreneurs that they are not usual non-performing loanees. NID and Digital Business Identification (DBID) numbers can be considered as the main document and group guarantee can be accepted. Own living space can be considered as a business compound in case of online business. Husband, parents, brother and other relatives can help their female member by taking the responsibility of a guarantor to support her as an entrepreneur.

Dr Md Mafizur Rahman was an additional secretary (retd) and is now the managing director of the SME Foundation