A small fraction of the trade finance provided by banks reached Small and Medium-sized Enterprises (SMEs), indicating limited accessibility for these vital economic contributors.
Although the contributions of SMEs to the country's GDP and employment generation are widely recognized, data regarding these are scarcely available.
A study conducted by the International Cooperation Organization for Small and Medium Enterprises in Asia (ICOSA), Japan, estimated the contribution of SMEs to the GDP at 20.25 per cent in Bangladesh.
In 2022, it was claimed that SMEs constituted 25 to 27 per cent of the GDP, and the sector created 80 per cent of total industrial jobs. The SME Foundation aims to raise the SME sector's contribution to the country's GDP to more than 35 per cent by 2030, as part of the government's endeavour to achieve the global agenda of sustainable development goals (SDGs).
However, a mere 9.0 per cent of the total trade finance extended by banks found its way into the hands of Small and Medium Enterprises (SMEs), according to the Bangladesh Institute of Bank Management (BIBM).
This marked a notable decline from the 10 per cent allocated in the preceding year, 2021.
This is relatively lower than the country's overall proportion of CMSME loan figures.
According to the BB published data, total CMSME loans for March 2023 were around 19 per cent of the total outstanding loans.
According to the available published information, around 80 per cent of cross-border trade transactions depend on some form of financing, and adequate financing for SME traders in particular is an important part of the resilience equation of the trading partners, according to the ADB report released in 2023.
Unmet demand for trade finance-the trade finance gap-remains persistently large. The trade finance shortage is even more acute for small and medium enterprises (SMEs), which comprise more than 90 per cent of firms and the bulk of employment in developing Asia. Strengthening their participation in trade is thus crucial for inclusive trade and economic growth as per the ADB report published in 2022.
Economists and stakeholders said despite consistent policy efforts, 'inadequate access to finance' remained a recognized challenge of the SMEs of the country, and the 'SME trade-finance gap' as a separate agenda appeared to be out of the expected attention and policy focus.
Rejection of applications is a very big challenge, especially for SMEs in all developing economies including Bangladesh, and this is particularly true in the case of trade finance, the BIBM survey stated.
According to the survey data, the high cost of funds for the given business, inflexible payment terms, high monitoring costs, asymmetric information and so on are considered key supply-side challenges from the bankers' perspective.
These indicate banks' lower level of confidence in SMEs over their financial capabilities and greater uncertainty of repayment, according to the survey.
Professor Shah Md Ahsan Habib, Professor, BIBM, said limited access to finance had been a recognised challenge for SMEs, and national policy documents and Bangladesh Bank's financing policies and programmes had been addressing the issue for long.
"It is visible that when SME or CMSME financing is the issue, it is mostly about the financing needs that fall within the national boundary. The gross approach does not distinctively point to the trade financing that is inherently different in terms of risks, regulations, and documentation", he said.
Banks generally have CMSME desks to address the special needs of SME clients in response to the BB's policy instructions, however, this is not generally the case with the trade financing, the survey found.
Banks usually have special desks for smaller businesses (CMSME) to meet their needs, following policy instructions by the central bank. However, the same focus is not common for trade financing services, the study stated.
Mesbaul Haque, Executive Director and Spokesperson of Bangladesh Bank, acknowledged the insufficient financing provided to SMEs.
He mentioned that he could not pinpoint the exact reasons for this inadequacy and would require consultations with the relevant department to provide a definitive answer.
According to the current policy guidelines of the central bank, the SME desks of the banks have the flexibility to prioritize this issue and establish targets to enhance SME financing, as stated by the spokesperson from Bangladesh Bank.
Zafar Alam, Managing Director & CEO of Social Islami Bank Limited, expressed his bank's readyness to boost trade finance for Small and Medium-sized Enterprises (SMEs).
Despite their endeavours, he acknowledged that these initiatives had not reached the expected levels due to various barriers hindering the process.
Addressing the issue of inadequate trade finance for SMEs, Alam emphasised the need for increased supervision and monitoring by the relevant bank authorities.
He suggested that with enhanced oversight, the volume of trade finance allocated to SMEs could rise, potentially alleviating the challenges faced by these vital economic contributors.
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