Poor collateral, documentation create hurdles for MSMEs

The MSMEs (micro, small and medium enterprises) in Bangladesh are subject to a number of financing constraints, like - poor quality of collateral, inadequate documentation, and ill-defined business plans etc, according to a report.

The report, titled 'Financing Solutions for Micro, Small and Medium Enterprises in Bangladesh', was prepared by the World Bank Group (WB) and the Policy Research Institute of Bangladesh (PRI). It was made public at a programme at PRI office in the city on Wednesday.

The report mentioned that the MSMEs' access to formal finance is limited in Bangladesh compared to the average in the South Asian region, with an estimated financing gap of Tk 237 billion.

Some 27.5 per cent of small firms have bank loans/lines of credit, compared to 44 per cent of large firms, due to constraints in access to formal finance by the MSMEs, the report found.

The report identified that majority of the MSMEs are not in the Credit Information Bureau (CIB) list that led to facing difficulties in their access to finance.

It also said there are significant financial infrastructure weaknesses that need to be addressed to encourage market-driven MSME financial inclusion.

The report recommended a number of short- and medium-term initiatives, including promoting the use of a unified definition at policy level as well as improving data collection and analysis procedure.

It urged the authorities concerned to refocus on the most constrained section among the MSMEs that is the 'missing middle', as small firms and firms at low-end of the medium-sized enterprises face the utmost difficulties in accessing bank finance.

An evaluation of the relevant schemes of the past and the Bangladesh Bank's (BB) guidelines will help formulate better policies for financing the MSMEs in future, the report opined.

It observed that the CIB report should include information of all commercial loans, regardless of value, to benefit the MSMEs.

Allowing private firms and individuals to access credit information will also be a positive step towards ensuring access to finance, the report recommended.

Speaking as the chief guest at the programme, Md Ashadul Islam, Senior Secretary of the Financial Institutions Division, said loan obtaining process is very complicated for the MSMEs.

He said there is an increasing demand of loans among the MSMEs, but the complicated process of getting loan is driving them away.

"Both bank staffs and loan aspirants need some kind of education to ease the complicated process of getting loan."

He also stressed on the need of quality financing in the MSMEs.

Speaking as the guest of honour, S M Moniruzzaman, Deputy Governor of the BB, said the MSMEs face major challenges in accessing finance with simple terms and conditions. It happens, mainly because there is an asymmetric information problem between suppliers and seekers of funds.

He said a new act on secured transaction (movable property) will be enacted, which will create a legal platform for the MSMEs to avail more finance.

The BB deputy governor said the central bank is going to publish a new master circular-based review on the past policies of MSMEs.

Syed Abdul Momen, Head of SME Banking of the BRAC Bank Limited, said policy support from the regulatory authorities concerned should be based on field-level studies rather than 'copy-paste' of success stories from other countries.

He also said the bank is going to expand overall financial services in next two years by using its 5,000 agents.

Arif Khan, CEO and Managing Director (MD) of the IDLC Finance Limited, said if banks and financial institutions do not get enough credit information from the CIB, there should be other ways to get the information.

He said mobile operators have huge data of customers. The banks should have access to those data to get information of their clients.

Zaidi Sattar, Chairman of the PRI, delivered welcome address at the programme.

Rahel Ahmed, MD of the Prime Bank Limited, and Sivarao Aparahu, Senior Manager of Policy Monitoring and Inclusive Development Division of the SME Corporation of Malaysia, among others, also spoke on the occasion.

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