Small and medium enterprises struggling for credit
Wednesday, 4 November 2009
Ahmed Showkat Masud
The small and medium enterprises (SMEs) are facing credit crunch despite the central bank's policy directive to commercial banks to increase lending to the productive sector. The government also attaches priority to financing the SME sector. About 80 per cent of Bangladesh's industrial employment has been generated by small and medium enterprises. The sector employs approximately 25 per cent of the total labour force.
Yet this potential sector faces problems in getting credit because the financial institutions and banks prefer to lend to traders for quick returns. The slow growth of SMEs can be attributed to credit shortage.
Small and medium enterprises made it possible for South Korea, Singapore, Taiwan, Hong Kong and Malaysia to achieve phenomenal economic development. Why should not Bangladesh follow their examples? Such enterprises can thrive producing fruit juice, jam, jelly, dairy products, footwear, processing of spices, plastic goods, pharmaceuticals, computer software, knitwear, automobile battery, IPS and the like.
But the financial institutions have to be more customer-friendly to small and medium entrepreneurs.
Import of capital machinery needs term loans. The financial institutions offer three-year term loans though the entrepreneurs need five-year term loans. Complex procedures discourage the entrepreneurs to look for the credit. The financial institutions must change their loan product features to make it easier for the entrepreneurs to repay.
For working capital, most of the financial institutions ask for collateral, which is another obstacle for the small and medium entrepreneurs. Not many of the entrepreneurs can provide the collateral. The multinationals provide the credit without collateral. They judge the customer's cash generation capacity by analysing their bank statements. But the costs of the finance from the multinationals are high.
Both the government and the financial institutions have to do more for the growth of the small and medium enterprises.
(The writer works with AB Bank Ltd, Anderkilla Branch, Chittagong)
The small and medium enterprises (SMEs) are facing credit crunch despite the central bank's policy directive to commercial banks to increase lending to the productive sector. The government also attaches priority to financing the SME sector. About 80 per cent of Bangladesh's industrial employment has been generated by small and medium enterprises. The sector employs approximately 25 per cent of the total labour force.
Yet this potential sector faces problems in getting credit because the financial institutions and banks prefer to lend to traders for quick returns. The slow growth of SMEs can be attributed to credit shortage.
Small and medium enterprises made it possible for South Korea, Singapore, Taiwan, Hong Kong and Malaysia to achieve phenomenal economic development. Why should not Bangladesh follow their examples? Such enterprises can thrive producing fruit juice, jam, jelly, dairy products, footwear, processing of spices, plastic goods, pharmaceuticals, computer software, knitwear, automobile battery, IPS and the like.
But the financial institutions have to be more customer-friendly to small and medium entrepreneurs.
Import of capital machinery needs term loans. The financial institutions offer three-year term loans though the entrepreneurs need five-year term loans. Complex procedures discourage the entrepreneurs to look for the credit. The financial institutions must change their loan product features to make it easier for the entrepreneurs to repay.
For working capital, most of the financial institutions ask for collateral, which is another obstacle for the small and medium entrepreneurs. Not many of the entrepreneurs can provide the collateral. The multinationals provide the credit without collateral. They judge the customer's cash generation capacity by analysing their bank statements. But the costs of the finance from the multinationals are high.
Both the government and the financial institutions have to do more for the growth of the small and medium enterprises.
(The writer works with AB Bank Ltd, Anderkilla Branch, Chittagong)