A significant portion of bank loans in Bangladesh predominantly caters to large corporate entities, leaving SMEs and other underserved businesses struggling to secure financial support, experts highlighted during a recent roundtable discussion.
Mohammed Nurul Amin, chairman of Bangladesh Krishi Bank, pointed out that the financial system of Bangladesh heavily favors large corporate borrowers, resulting in limited financial accessibility for SMEs, rural entrepreneurs, and other marginalized groups. Amin mentioned that approximately 75 to 80 percent of bank loans are directed towards the corporate sector, perpetuating a long-standing structural imbalance.
The discussion, themed “Access to Finance in Bangladesh: Building a More Conducive Financial System for the Private Sector,” was jointly organized by Policy Exchange Bangladesh (PEB) and the Metropolitan Chamber of Commerce and Industry (MCCI) at the MCCI office in Gulshan, Dhaka.
While established enterprises find it easier to access credit, small entrepreneurs, traders, and informal businesses encounter challenges when attempting to enter the formal banking system, Amin emphasized.
To enhance financial inclusivity, Amin suggested that banks should expand invoice financing, enabling suppliers to secure financing against confirmed purchase orders or invoices without the need for traditional collateral. He also proposed the establishment of a national collateral registry to assist banks in verifying pledged assets, thereby reducing fraud and enhancing lending efficiency.
Furthermore, Amin advocated for the increased utilization of movable assets as collateral and extending the validity of trade licenses to streamline administrative processes for small businesses.
Syed Abdul Momen, head of SME at BRAC Bank, highlighted that the banking sector’s historical focus on large corporations, rather than SMEs, underlies many of its current challenges. Momen emphasized that over 75 percent of bank financing has historically favored corporates since independence, leaving SMEs with limited credit access.
Momen argued that banks overly prioritize collateral, despite BRAC Bank’s findings suggesting that collateral does not necessarily mitigate risks. He shared that nearly half of BRAC Bank’s assets, amounting to approximately Tk 1 lakh crore, are allocated to SME loans. Of these loans, around Tk 40,000 crore have minimal or no collateral and maintain a nonperforming loan (NPL) ratio of just 2 percent, contrasting with a 7 percent NPL ratio for the collateral-backed SME portfolio of Tk 10,000 crore.
According to Momen, collateral provides a false sense of security to banks and urged lenders to evaluate borrowers based on cash flow rather than pledged assets. He emphasized that expanding SME finance necessitates a robust digital ecosystem, enhanced data sharing, and the establishment of a private credit bureau.
Shams Mahmud, managing director of Shasha Denims Ltd, expressed concerns about the mounting pressures facing exporters due to escalating production costs amid stagnant export prices caused by intense global competition. Mahmud highlighted the adverse impact of the recent gas price hike, alongside increased electricity tariffs, wages, and taxes, which significantly inflated production expenses.
Moreover, Mahmud criticized policy inconsistencies and challenges in securing bank guarantees and offshore financing, citing regulatory uncertainties and banking delays as factors that can disrupt business operations and push viable companies towards default.
Syed Mohammad Kamal, president of the American Chamber of Commerce in Bangladesh (AmCham), emphasized the lack of institutional support available to SMEs compared to large firms, underscoring the necessity for coordinated efforts by the central bank, the judiciary, and other stakeholders.
Andalib Mirza, head of multinational wholesale banking at HSBC Bangladesh, identified limited digital data and weak financial verification as prominent obstacles, particularly for non-garment companies lacking export records.
During the event, Shams Zaman, country managing partner of PricewaterhouseCoopers Bangladesh Pvt Ltd (PwC), stressed the critical importance of effectively resolving distressed assets to restore confidence and stimulate credit growth. Zaman proposed transforming the Guarantee Window into an independent, professionally managed institution to diversify the country’s financial landscape and develop long-term capital sources beyond the banking sector.
Moderated by M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, the discussion highlighted that the Bangladesh Business Climate Index consistently identifies access to finance as a primary challenge in the country’s business environment. The roundtable aimed to address practical reforms to enhance financing opportunities for businesses.
Farooq Ahmed, secretary-general and CEO of MCCI, also delivered remarks at the event.
