Terming current bank interest rate 'atrocious', Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI) President Syed Nasim Manzur said Thursday such interest rate discourages businesses from taking loans.
"The existing high cost of bank interest rate is atrocious, it deters businesses from taking loans even if they need credit," he said while speaking as the chief guest at a programme.
The University of Liberal Arts Bangladesh's Centre for Enterprise and Society (CES), in collaboration with MRB Bangladesh, organised the programme on the occasion of publishing a report on the strategies that entrepreneurs use to overcome the obstacles faced in setting up businesses in Bangladesh.
The report was based on the Overcoming Business Challenges Survey (OBCS) and it explores effective strategies leading to positive outcomes in the respective sectors.
The OBCS is a survey of 536 CEOs and Managing Directors from small, medium, and large firms across three established industries - real estate development, information technology (IT), and furniture manufacturing in Dhaka and Chittagong.
CES former director Daniel M Sabet headed the research team comprising ULAB assistant professor Ahmed S Ishtiaque, Mehdi Rajeb and research consultant of CES Afsana Tazreen.
Daniel M Sabet presented the highlights of the research findings while ULAB vice chancellor Imran Rahman delivered the welcome speech.
The report found that personal funds of the firms in the information technology, real estate and furniture sectors were reportedly used by 93.8 per cent of the entrepreneurs and made up an estimated 78.8 per cent of the average firm's funding portfolio. Support from family members made up only 7.8 per cent of the average estimated funding portfolio.
"After the first year, entrepreneurs continued to remain internally dependent. Some 72.9 per cent of the samples still reported are continuing to invest personal funds in their businesses and on an average they estimated that this amounted to 46 per cent of their ongoing financing. The next largest portion, 36 per cent, came from retained earnings reinvested in the company, as 61.4 per cent of firms reported re-investing earnings in the company."
Bank loans were very uncommon in the first year of operations.
The report finds 52.2 per cent of the total sample had not attempted to apply for a loan from financial institutions, although applications were somewhat more common in furniture industry and among large firms.
Speaking on the research report, Syed Nasim Manzur said the unwillingness of going to banks for credit is not that they do not have collateral or capacity to obtain a loan, but higher interest rate is the main obstacle.
Mr. Manzur, a leading businessperson in the leather and footwear industry, said self-financing is a major obstacle for the businesses to grow.
"The businesses must have access to the external credit apart from self-financing to expand the business," he said.
He identified big amounts of non-performing loans and the high yield rates of savings instruments as some of the major reasons behind the high interest rates.
Mentioning that large amounts of non-performing loans lie with the state-owned commercial banks (SoCBs), he suggested merger of the SoCBs.
However, he expressed the hope that the high interest rate would come down soon as government initiated a cut in interest rate in savings certificates.
Syed Nasim Manzur urged the businessmen to take help of alternative dispute resolution (ADR) to solve any problem relating to the businesses.
"We have a world class arbitration centre in the country, we should go there," he said.
Mr Manzur said light engineering industry in the country has a potential to grow.
"Almost 6.5 million workers are engaged in the industry which is much higher than those in the much-talked-about readymade garment industry," he said.
The study, a joint project of the Centre for Enterprise and Society at the University of Liberal Arts and Sirius Marketing and Social Research Ltd. was completed in early 2013 fully funded by ULAB.
Through the survey, the report explores entrepreneurial responses to four types of challenges: (1) obtaining financing, (2) developing reliable forward and backward linkages, (3) obtaining government permissions and services, and (4) hiring and developing effective human resources.
Provided these obstacles, the report focuses on three broad categories of strategies that entrepreneurs might take to overcome the challenges they are faced with.
These include strengthening the business as an institution, using personal and professional networks, or simply working hard and relying more on one's entrepreneurial skills.
Findings from the survey indicate that employers express greater satisfaction with their employees than expected and rely less on family and friend networks than anticipated.
Nonetheless, only a minority of firms has adopted more formal approaches to human resource management and there is considerable reliance on head-hunting firms. Concluding the presentation, Daniel M Sabet said the challenges facing businesses in Bangladesh are enormous.
"Perhaps the greatest concern identified in the survey is entrepreneurs' overwhelming reliance on their own resources for start-up businesses and their growth. The good news, however, is that many of the firms surveyed have and are overcoming these challenges."
"For example, businesses are largely able to find trustworthy suppliers despite a court system that appears unable to provide institutional protections, and they are largely able to find employees that they are satisfied with despite the limits of the education system and jobs training programmes."
He said the survey did not include those entrepreneurs who have failed or those potential entrepreneurs who have decided not to attempt to form their own businesses.
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