With around 8.0 million (80 lakh) CMSMEs contributing nearly 90% of Bangladesh's business landscape, banks are increasingly focusing on this vital segment. As exposure to corporate and institutional lending reaches saturation, many banks are turning to CMSME financing to diversify portfolios and reduce concentration risk, says M. Nazeem A. Choudhury, Deputy Managing Director, Prime Bank PLC, in an interview with The Financial Express. The full text of the interview is as follows:
Q. The observance of the World MSME Day for Micro, Small and Medium Enterprises (MSMEs) by the United Nations signifies importance of these enterprises in any economy. Do you feel the MSMEs are getting the due importance in Bangladesh?
The Bangladeshi economy has made remarkable progress in recognizing the vital role of CMSMEs in employment generation, poverty reduction, grassroots development, and women's empowerment. CMSMEs are increasingly gaining attention in national policy documents, including the Five-Year Plans, Industrial Policy, SME Policy, and through observance of World MSME Day. Initiatives like financial inclusion, literacy programs, national SME fairs, Women Entrepreneurs' fairs, and enhanced digital access reflect the growing focus on CMSME development. While efforts are ongoing, further opportunities exist to enhance collaboration between CMSMEs and financial institutions by strengthening access to finance, easing compliance processes, and expanding skill development and information access.
Q. One particular issue -- access to institutional finance -- is often highlighted as the one and only deterrent to the healthy growth of MSMEs. Do you subscribe to such a view?
Access to formal finance remains a key consideration for the growth of Informal/Marginal, Cottage, Micro, Small, and Medium Enterprises (I/MCMSMEs) in Bangladesh. While collateral-based lending can be a hurdle due to limited fixed assets, it is one of several important factors influencing CMSME development. Other aspects such as rising interest rates, formal documentation practices, and bookkeeping standards also shape access to financial services. Additionally, opportunities exist to further strengthen skill development, enhance market linkages, expand access to technology, and promote inclusivity across regions and genders- ensuring a more supportive environment for CMSMEs to thrive and contribute to national growth.
Q. Why are not banks willing to lend to MSMEs? Is it that difficult to remove barriers to financing the MSMEs?
The notion that banks are unwilling to lend to CMSMEs is not accurate. With around 8.0 million (80 lakh) CMSMEs contributing nearly 90% of Bangladesh's business landscape, banks are increasingly focusing on this vital segment. As exposure to corporate and institutional lending reaches saturation, many banks are turning to CMSME financing to diversify portfolios and reduce concentration risk. While CMSME lending involves tailored approaches in documentation and monitoring, banks are actively adapting. Bangladesh Bank has introduced supportive initiatives such as refinance schemes, credit guarantee schemes for collateral-free loans, and training programmes, all aimed at enhancing access to finance and fostering CMSME growth.
Q. As in the case of the country's export trade limited to one item -- RMG, the involvement of MSMEs is also in the manufacture of only a few items. How can their production base be diversified?
Bangladesh's economy, particularly its export sector, has seen significant success in RMG, while CMSMEs remain largely focused on trading and traditional sectors like agro-processing, light engineering, handicrafts, and basic textiles. To ensure long-term economic sustainability, employment growth and export diversification, expanding the CMSME product base is essential. Opportunities exist to strengthen innovation, enhance access to technology, foster industry-academia collaboration and support market expansion. With the right policy support, product diversification and broader export development can be accelerated. Key initiatives may include promoting sector-specific and regional CMSME clusters, boosting R&D, skill development, MSME incubation, digital access and value-added manufacturing.
Q. The number of MSMEs is quite big in the country. But the fact remains that a considerable number of MSMEs goes out of business every year. Why is so?
In our economy around 8.0 million (80 lakh) CMSMEs exist. However, out of this 8.0 million, around 10%-15% are enjoying loans/investments from banks/NBFIs. Therefore, this concern is to the point.
Again, we have to revisit the issue of our access to finance. Major reasons for such failure in extending formal finance for SMEs are informal record keeping, documentations gap, collateral requirement of the banks, high cost of underwriting SME loans, higher monitoring cost, limited capacity of banks, etc.
Q. Do you think prospective MSME entrepreneurs should get some basic management training?
Basic management training for prospective CMSME entrepreneurs is not just important, it is essential for the survival, growth, and long-term sustainability of their businesses. They need training on marketing, accounting, taxation, bankability, etc. to bridge the knowledge gap, condense business failure rates, increase innovation, build confidence and leadership quality, financial management, digital skills, etc.
Q. Should government and relevant institutions in the private sector provide voluntary guidance to MSME operators in the matters of selecting potential areas of operation?
Government and private sector institutions should categorically offer voluntary guidance to CMSME entrepreneurs, particularly in selecting potential and viable areas of operation. This kind of structured, forward-looking support can make a significant difference in the quality, sustainability and diversification of CMSMEs in Bangladesh. This is inevitable because entrepreneurs often choose businesses blindly, to reduce waste of time and capital, build confidence and leadership, adopt technology, diversify product lines, etc.
Q. Should bank introduce supervisory credit for MSMEs?
CMSME finance is a supervisory credit as this involves a large number of borrowers across the country. Our experience in CMSME finance has demonstrated that fund diversion of the businesses is the root cause of business failures and non-performing loans. In fact, all the banks facing same problems with their portfolio in terms of NPL.
Hence, supervisory credit is essential due to the high risk of misuse of loans, low financial literacy, first-time borrowers, increase in bankability of the entrepreneurs, business grow etc.
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