Banks go SME-focused

The banking industry has increased focus on loans to small and medium enterprises (SMEs), which have been remained ignored for years despite the sector's huge contribution to the economy, as banks would set up 139 SME service centres by this year.

Bankers believe the move would help banks cope with the declining demand from big corporate clients mainly due to the global financial turmoil.

Besides four state-owned commercial banks, nearly half a dozen private banks have planned to boost lending to the SMEs this year through setting up separate divisions, officials said.

These private banks are Prime, The City, Eastern, United Commercial and Pubali banks. BRAC Bank is the pioneer and by far the market leader in SME lending in the country.

“Prime Bank has decided to develop a quality and dedicated team this year to serve the SME clients,” said the bank's Managing Director M Ehsanul Haque.

Prime Bank has planned to more than double its SME loan portfolio to Tk 1,000 crore this year from around Tk 400 crore in 2008.

“SME financing can give a thrust to the banks at the moment when there is a declining demand from big investors,” said Helal Ahmed Chowdhury, managing director of Pubali Bank.

United Commercial Bank is also considering setting up a separate division for SME credit.

Officials said other banks including AB, Bank Asia, Dhaka, Dutch-Bangla, Islami, National and Standard banks would also boost SME credit this year.

Bangladesh's banking industry has long been ignoring the much-needed credit to the SMEs despite the sector's enormous contribution to the national economy.

Data show that industrial sector contributed around one-fourth of the country's gross domestic product worth $80 billion. Of the industrial contribution, SMEs alone account for around 90 percent.

Banks disregarded lending to the SMEs terming it an informal sector that is even unable to maintain the books of account. Higher management cost and risk have also discouraged the banks not to lend to the SMEs.

But the global financial crisis and its impacts on the local economy have made the banking industry think about giving large loans.

“SMEs are the future of Bangladesh. Although there is a high risk there, the return is better than other areas,” said AEA Muhaimen, managing director of BRAC Bank that has lent nearly Tk 8,000 crore to the SMEs since its inception in 2001.

The bankers however said the lending rate for SMEs must be higher than the corporate ones.

“Lending to SMEs at 10-12 percent is not viable,” the Prime Bank boss said.
On an average BRAC Bank lends some 8,000 SME customers annually.

“Over 90 percent of our SME loans are collateral-free. We cannot take the risk at 13 percent,” said AEA Muhaimen.

The Bangladesh Bank (BB) has recently made a highest limit of lending rate at 13 percent to help businesses survive following the impacts of the global financial crisis.

“SME loan is predominantly supervisory credit and requires more manpower to conduct supervision, monitoring and recovery works,” Helal Ahmed Chowdhury said.

Meanwhile, the BB has approved opening of 139 SME service centres by the banking sector in 2009. Last year some 88 centres were opened by different banks to help the SMEs with easy disbursement, recovery of loan and quicker delivery of remittances.

The BB also launched an SME Refinancing Scheme worth Tk 100 crore in 2004. In 2008-09 fiscal year, the fund was increased to Tk 500 crore to help the sector, which contributes more to employment generation.

Source: The Daily Star, April 16, 2009