Disbursement of loans to the SME (Small and Medium Enterprises) sector has significantly gone up lately. The central bank data claims that this growth is consistent with its earlier promises. But on examination of the data one finds that the major share of such loans has not gone to those who deserve it most - the manufacturers. According to the Bangladesh Bank (BB) data, the disbursement of SME loan increased by 12.62 per cent during the January-June period of the last fiscal over that of the corresponding period of the previous fiscal. A contemporary, quoting the BB data, reports that the banks and non-banking financial institutions (NBFIs) had disbursed a total of Tk 471.31 billion in SME loans during the first six months of 2014 as against Tk 418.50 billion during the same period of 2013. Of the amount lent out, around 65 per cent went to the trading sector.
The concerned quarters find the nature of such credit flows to be too ill-balanced and not really directed towards promoting the manufacturing segment of the SMEs. It is true, SME sector includes trading as one of its components but by its very essence SMEs predominantly point to manufacturing as its key constituent. Denying the manufacturers, the major share of loans to the SME sector goes to negate the central bank's objective of facilitating manufacturers in the small and medium scale bracket. If the "directed" credit facilities do not go in the way of promoting industrialisation, the rise in loan disbursement figures makes little sense. Traders, for reasons understandable, can avail themselves of loans from commercial banks on various counts to run their business. But this is not the case with the manufacturers unless, of course, they are big enough to assure the bankers of quick repayment.
One of the factors underlying the less-than-expected level of loan disbursement to the manufactures is that most commercial banks and NBFIs do not consider small manufactures credit-worthy; they tend to prefer traders as more reliable debtors. But the reality remains, as pointed out by noted economists, such sense of security in dishing out excessive loans to the traders makes little or no economic sense. It does not contribute much to productivity nor does it help create job opportunities and generate incomes. Besides, one feels there might be chances of fund diversion to other sectors as well.
All concerned quarters feel that the SME loan policy should be better directed in that the focus should clearly be on how best to ease out capital constraints of small and medium manufacturers. There is thus the need for specific guidelines in respect of SME loan disbursement which, among others, should provide for strong monitoring, besides setting out disbursement ratio between traders and manufacturers. At a time when there is a noticeable inertia in the manufacturing sector, it is highly important to motivate investors in productive manufacturing. It is here that SME loans can build the much needed base for the economy.
SME loans to be better directed
FE Team | Published: August 27, 2014 00:00:00 | Updated: November 30, 2026 06:01:00
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