BRAC Bank: The largest collateral-free CMSME financier in Bangladesh

Banks should adopt a clear agenda to serve the CMSME segment by tailoring products for meet their specific banking needs, said Mr Tareq Refat Ullah Khan, managing director and CEO of BRAC Bank, while explaining the important role the BRAC Bank has been playing since long to help the entrepreneurs at the grassroots during an interview with The Financial Express

Question (Q): How does your bank currently support small and medium-sized enterprises (SMEs)?

Answer (A): Since cottage, micro, small, and medium enterprises (CMSMEs) lack collateral, most banks usually feel discouraged from providing them with financing support in view of the risks involved in unsecured credit. Against this stark reality, BRAC Bank, the country's only SME-focused bank, remains true to its strong commitment to easy access to credit to grassroots entrepreneurs.

Today, BRAC Bank is the largest collateral-free CMSME financier in Bangladesh, with more than 85% of our small business loans without any mortgage. Since our inception in 2001, we have served around 20 lac CMSMEs and disbursed BDT 200,000 crore loans. But our goal is bigger than being a lender; we want to be the complete financial partner of the grassroots entrepreneurs.

We provide transactional and cash management services, foreign trade financing facilities, and a wide range of products and services to cater to every financial need of CMSMEs. We help in giving market access by bridging CMSMEs with each others to facilitate their supply and value chain, broadening their market opportunities. BRAC Bank provides comprehensive banking and financing support to women CMSMEs under its women banking proposition 'TARA'. We go beyond traditional banking by organizing networking events and capacity development workshops to equip SME owners especially women with the skillsets they need for entrepreneurial success. Our extensive network of branches boasts specialized SME desks with staff trained to understand the unique challenges faced by small businesses. To expedite further development of CMSME sectors and promote entrepreneurship through innovation, as the first bank in Bangladesh, we are in the process of introducing "SME Innovation Lab".

Q: How does your bank reach SMEs in rural and hard-to-reach areas?

A: BRAC Bank runs 446 SME Unit Offices, 191 branches, 80 sub-branches, 1,123 Agent Banking Outlets and 330 ATMs across the country to cater to the everyday banking needs of CMSME customers. This pervasive network allows us to have a physical presence in many rural and remote areas, bringing banking services closer to the doorsteps of SMEs. We have 3,000+ dedicated ROs engaged in SME banking services, creating relationships and catering to all the banking needs of CMSMEs. Sixty per cent of our total SME loans are disbursed in rural areas, which have the highest rural penetration among local private banks.

Our 1,123Agent Banking Outlets, strategically covering every district and most of the upazillas, are a testament to our commitment to bringing banking services to the doorstep of CMSMEs. These outlets, equipped with mobile technology, offer a range of basic banking services like account opening, cash deposits and withdrawals, utility payments, and loan repayments. This not only extends our reach significantly, making financial services accessible to SMEs in even the most hard-to-reach locations, but also ensures that these services are available at their convenience. Our rural branches and agents employ local staff who can communicate effectively with the community and understand the specific needs of rural SMEs, further enhancing the convenience and accessibility of our services.

Q: What additional measures can banks take to better support SMEs, and what plans does your bank have in this regard?

A: Banks should adopt a clear agenda to serve the CMSME (Cottage, Micro, Small, and Medium Enterprise) segment by tailoring products to meet their specific banking needs. Beyond financing, they can invest in capacity building, networking opportunities, and market access facilitation to support the long-term sustainability of smallholder businesses. CMSMEs often require a hands-on, relationship-driven approach, which demands significant investment and ecosystem development through skilled human resources-a model that BRAC Bank has embraced and one that can serve as an example for others in the industry.

BRAC Bank is in ongoing dialogue with Bangladesh Bank to promote more inclusive banking services. Drawing from our extensive experience in serving the CMSME sector, we recognize the need for specific policy reforms to ensure that CMSMEs have access to convenient, tailored banking solutions. At the same time, such reforms would encourage greater participation from banks in financing this vital segment, creating a more supportive and sustainable ecosystem for small businesses across the country.

We are looking at a more simplified and convenient onboarding process for easy access to banking financial services for CMSMEs by leveraging technology. BRAC Bank is actively investing in digitization to get rid of manual interventions as much as possible within the current regulatory framework. For servicing CMSMEs banking needs, we have introduced Digital Loan Origination Solution (eLAP) for CMSMEs, facilitating ASTHA & Corpnet for convenient B2B transactions. Such digital capabilities have ensured faster, cheaper, more convenient, and easily accessible banking services to CMSMEs. However, we believe that building CMSME friendly policy reforms by the central bank and different government agencies would boost the CMSMEs for getting convenient banking services and ensure ease of doing business. Such reforms will also help banks to reach deep-tier CMSME in a cost-efficient manner. In my opinion, the key policy reform agenda which can be immediately addressed by the Government and Bangladesh Bank would be:

• Simplification of required legal documentation for CMSME loans which can be loan ceiling based.

• Immediately introduce e-KYC for CMSMEs which are proprietorship-basedbusiness entities to make faster onboarding into bankig system.

• Enable Credit Guarantee Scheme for all CMSMEs and simplification of the enrolment process.

• Online issuance of Trade License for a 5-year tenor and such platform should be API driven for the usage of banks & Financial Institutions

• Bangladesh Bank's CIB records should be open for instant access to banks through API connectivity and establishment of Credit Bureau for MFI customer base.

• Implementation of paperless digital signatures instead of Wet Signature.

Q: What kind of support do you need from the government to facilitate your efforts in assisting SMEs?

A: The Government, Bangladesh Bank, and SME Foundation have already undertaken several initiatives to help CMSMEs flourish. However, there is still a long way to go to have a vibrant CMSMEs sector.

As mentioned earlier, the CMSME sector requires a few reforms that different government agencies should implement. Such reforms will boost CMSMEs and their access to banking services, which are included but not limited to:

• Ensuring a one-stop online service portal for trade license & other business-specific license issuance for business establishment,

• Digitization of account opening process & digital signature,

• Simplification of Credit Guarantee Scheme,

• Opening API of Credit Information Bureau,

• Incentivizing the banks on Tax rebate for the income earned from CMSME financing,

• Separating tax slab for CMSME business, provide tax rebate for transaction through banking channel to promote cashless transaction,

• Considering Electronic Fund Transfer instructions as a Negotiable Instrument and

• Avoiding preservation of paper-based documents through digital storage of customer's information can boost CMSMEs and their access to banking channel.