Small unsecured loans, including nano loans, record lower default rates than collateral-backed lending despite widespread perceptions to the contrary, speakers said at a roundtable on Monday.
They urged banks to adopt cash flow-based lending and strengthen digital financial data sharing to improve access to finance for underserved businesses.
The observations were made at the roundtable titled "Financing Opportunities in Bangladesh: Building a More Enabling Financial System for the Private Sector".
The Metropolitan Chamber of Commerce and Industry (MCCI) and Policy Exchange Bangladesh jointly organised the event in the city.
Policy Exchange Bangladesh Chairman Dr M. Masrur Reaz presented the keynote paper, with MCCI President Kamran T. Rahman in the chair.
The panel discussion featured Bangladesh Krishi Bank Chairman Mohammad Nurul Amin, American Chamber of Commerce in Bangladesh (AmCham) President Syed Mohammad Kamal, PwC Bangladesh Country Managing Partner Shams Zaman, Bangladesh Thai Chamber of Commerce President Shams Mahmud, BRAC Bank Additional Managing Director and Head of SME Banking Syed Abdul Momen, and HSBC Bangladesh Head of Multinational Wholesale Banking Andaleeb Mirza.
Drawing on BRAC Bank's experience, Syed Abdul Momen said the bank's total assets stand at around Tk 1.0 trillion, of which nearly half-Tk 500 billion-has been disbursed as SME loans.
Of the SME portfolio, around Tk 400 billion is unsecured, while the remaining Tk 100 billion is backed by collateral.
"The default rate on the Tk 400 billion unsecured portfolio is only 2 per cent, compared with 7 per cent for the collateral-backed portfolio," he said.
Although SME lending accounts for around half of the bank's loan portfolio, it contributes only about 17 per cent of the bank's total profit, reflecting the higher cost of serving the segment, he added.
Mr Momen argued that banks tend to overestimate the value of collateral.
"Bankers often assume that collateral shields them from risk. In reality, it offers little real protection. It merely provides psychological comfort," he said.
Bangladesh Krishi Bank Chairman Mohammad Nurul Amin said the country's credit distribution remains heavily skewed towards large corporate borrowers.
"More than 80 per cent of total bank credit goes to large corporates, while small, marginal and low-income entrepreneurs continue to struggle to obtain financing," he said.
Former DCCI President Shams Mahmud said entrepreneurs need to improve financial transparency to enhance their access to bank credit. "Many business owners assume they will obtain a loan simply by approaching a bank. In reality, poor bookkeeping often makes it difficult for banks to assess their creditworthiness and approve financing," he said.
AmCham President Syed Mohammad Kamal said Bangladesh's emerging creative economy would require easier access to finance for regional entrepreneurs engaged in traditional crafts, such as Jamalpur handicrafts and Nakshi Kantha.
He also noted that around 72 per cent of transactions in the country are still cash-based.
"Digital payment providers are not each other's main competitors. Their biggest competitor is cash," he said.
PwC Bangladesh Country Managing Partner Shams Zaman said rising non-performing loans have prompted many private commercial banks to regard investments in government treasury bonds as safer than lending to productive sectors.
He said government securities now account for nearly two-thirds of the income of some private banks.
He also noted that bank lending in Bangladesh remains overwhelmingly dependent on immovable assets, particularly land, as collateral.
Although the legal framework allows movable assets to be pledged, the absence of a comprehensive collateral registry continues to deprive many entrepreneurs without land or property of access to formal bank financing.
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