Syed Mahbubur Rahman
BRAC Bank has vowed to create entrepreneurial ecosystem supported by all the stakeholders to take the growing SME businesses in new height.
"BRAC Bank Limited is giving emphasis on creation of an entrepreneurial ecosystem through providing collateral-free loan for strengthening the SME businesses," Syed Mahbubur Rahman, managing director and chief executive officer of BRAC Bank told the FE in an exclusive interview recently.
As part of the strategy, the leading private commercial bank (PCB) has contributed more than 46 per cent of total collateral-free loan in the small and medium enterprises (SMEs), according to the top executive of the PCB.
The top executive said the BRAC Bank provides collateral-free loan to help the SME entrepreneurs to expand their businesses.
"Collateral-free SME loan is the terra incognita in Bangladesh's growing financial market and we explored the area," Syed Mahbubur Rahman said.
"We take great pride at the achievement and feel good to have served the real SMEs who cannot provide collateral against their loans," Syed Mahbubur Rahman said cogently.
He also said: "Our collateral-free loan arrangement ranges from Tk 0.02 million to Tk 1.5 million. We've set a trend in inclusive banking. With our resounding success in the segment, now other banks are moving to provide SME credit."
The BRAC Bank was founded with a mission of taking financial services to the unbanked 'missing middle' for achieving sustainable economic growth in Bangladesh, Mr. Rahman explained.
The PCB disbursed more than Tk 290 billion loan to more than 0.5 million SME entrepreneurs across the country in last 14 years.
The CEO also said BRAC Bank now has a market share of 46 per cent in total non-collateralised loans in SMEs generating more than 2.0 million direct employments in Bangladesh.
The real SME belongs to 'small' segment who do not have capacity to provide collateral for availing such loan, the CEO explained.
"For benefit of grassroots SMEs, We're now leader to provide loan without collateral. That is a big risk which no other banks dared to do until they saw our success," he noted.
Besides, rural penetration of the BRAC Bank's SMEs finance in 70 per cent which is higher than the central bank requirement.
The SMEs are one of the key drivers for the growth of Bangladesh. Particularly, contribution towards employment generation and poverty reduction puts a premium on SMEs in the very process of economic growth.
"Our CROs (Customer Relations Officers) go door to door to find prospective borrowers. The CROs also provide in book keeping and preparing requiring credit documents of the entrepreneurs required for sanction," Mr. Rahman noted.
He said it is often heard that the SME customers are being charged higher interests rates. What is not understood is that SMEs are unsecured loans of small ticket sizes and are supervised credits.
"As part of the supervision, we incur higher operational costs, have 460 SME Unit Offices across the country that are operated through a big pool of people," the CEO added.
He said since SME loans have higher chances of going bad because of factors like single stream income sources, greater vulnerability to political, climatic and macroeconomic factors, these portfolios are naturally riskier.
"Therefore, we cannot only look at the interest rate spread. We need to look at the risk we consider in providing access to finance to this segment of the economy. Also there are other costs, operational and staff costs and credit costs. So these need to be looked into," Mr. Rahman explained.
The leading PCB has also introduced 'bKash' as a subsidiary on July 21, 2011 aiming to bring more people into the formal economy. The company has been rendering mobile financial services for both the banked and un-banked populations of Bangladesh.
The senior banker also said as a bank of values, the BRAC Bank has also continued making sustainable and lasting impact on society with its corporate social responsibility (CSR) activates.
"We've brought following focuses in our CSR agenda: education, health, environment, social welfare, arts and culture," he added.
The CEO also said the BRAC Bank is a value based bank; it does not operate solely for profit. The bank prioritizes people and planet on top of the profit.
"Our credit had notable impact on sustainability of the borrowers. It created financial, economic, environmental and social values to the entrepreneurs," Mr. Rahman said quoting a study, conducted by the Centre for Corporate Governance and Finance Studies of the University of Dhaka.
He also said the BRAC Bank helps enterprises become gradually sustainable through its financing programmes. "Borrowers perceived this bank as a customer-friendly financer."
The BRAC Bank has consistently created considerable values to the entrepreneurs, according to the study.
The study also said: "SME financing of the bank has been able to create positive financial, economic, environmental and social impacts; thus, it is contributing towards sustainable development of the broader economy."
"Overall employment at the enterprise level should increase as borrowers' sustainability progresses. This could make their contribution more fruitful towards socio-economic development," it noted.
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