Pvt lenders outshine state banks as small firms cry out for credit

Banks provided a minuscule 2.0 per cent of outstanding credits flowing to small and medium enterprises--or less than Tk 20 billion the SME zones, including light engineering received, a study revealed Saturday.
The study, conducted by the Bangladesh Institute of Bank Management, also showed the state-owned commercial banks provide only 9.0 per cent of the total credit outstanding of the SME clusters and top five banks provide 53 per cent of the total cluster credit.
SME cluster approach got inadequate attention of the policy makers till now and the involvement of additional cost discourages banks in undertaking SME financing, which is done mainly in rural areas. In most clusters, middlemen are taking the advantage of the product sales, it pointed out.  
The findings were disseminated at a national seminar on 'SME Cluster Development: Implication for Banks' at BIBM in the city. BIBM organised the event with its director general Toufic Ahmad Choudhury in the chair.
Dhaka University economics department Professor Momtaz Uddin Ahmed, Bank Asia president and managing director Mehmood Husain and SME Foundation managing director Ihsanul Karim were present as the discussants.
BIBM Director Professor Shah Md Ahsan Habib presented the research findings during the seminar.
In his presentation, Ahsan Habib said in the context of Bangladesh, most of the SME clusters face a number of inherent challenges including inadequate access to finance, a lack of institutional support, insufficient skilled workers, high trade cost, a lack of knowledge of technology, and unfavourable business environment etc.
"In the country, banks have traditionally been reluctant to lend to the SMEs and have failed to provide sufficient support for the highly potential clusters," he said.
In the report, total outstanding of SME financing of the banking sector stood at about Tk 91 billion until June 2013, of which only two per cent or less than Tk 20 billion exposure was with SME clusters (geographically concentrated SME units).
Most of the SME clusters are located in rural areas for which smaller manufacturing units are getting lower proportion of loans from banks and Non Bank Financial Institutions, the report said.
All the private commercial banks collectively play dominant role in SME financing, which is about 22 per cent, all banks 15 per cent, SOCBs 5.36 per cent and Islami banks 8.2 per cent. Of the total outstanding credit to the SME clusters, PCBs' exposure is three-fourth or 3.35 per cent, all banks 2.2 per cent, SOCBs 0.82 per cent and Islami banks 1.27 per cent.
The research findings showed that 77 per cent of SMEs of the clusters were financed by PCBs. Banks do not follow cluster approach to finance SMEs, said the report.
According to 2014 data of the Bangladesh Bank, top five banks accounted for about 52 per cent of the total SME credit (outstanding) and top five banks accounted for about 72 per cent of the total SME credit to the clusters. With regard to credit outstanding, top five banks collectively have over 53 per cent of the total credit exposures of banks to SME clusters.
Top five banks and their share in SME credit disbursement are: Islami Bank 30.05 per cent, City Bank 6.70 per cent, Exim Bank 5.78 per cent, AB Bank 5.36 per cent and Uttara Bank 4.80 per cent.
Top five banks and their share in SME cluster financing are: United Commercial Bank 38.02 per cent, Islami Bank 17.11 peer cent, City Bank 6.07 per cent, AB Bank 5.98 per cent and Jamuna Bank 4.14 per cent.
While there are 177 SME clusters across the country, the research covered seven clusters namely rice mill in Phulhat of Dinajpur, handicraft in Jamalpur Sadar, light engineering in old Dhaka, Jamdani cluster in Sarulia of Narayanganj, Satranji in Nishbetganj in Rangpur, shoe cluster in Bhairab in Kishoreganj and plastic in Lalbagh of Dhaka. These seven clusters constitute 73 per cent of the total SME manufacturing units.
Several observations and recommendations were made in the research report, which include: SME cluster approach received inadequate attention from the policy makers and a generic SME strategy will not work for sustainable cluster development.
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