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The SME loan conundrum

Where are SME loans going?

Ahsan Habib
Small- and medium-sized enterprises continue to complain about not getting access to bank credit but the banks' loan disbursement data paints a different picture.
At the end of 2016, banks' total outstanding loans stood at Tk 673,920 crore and the amount went up to Tk 798,196 crore the following year, meaning that that Tk 124,276 crore were added to the outstanding amount in the course of 12 months.
In 2016, loan disbursement to SMEs was Tk 141,935 crore, which shot up to Tk 161,811 crore the following year, according to data from the Bangladesh Bank.
In the first nine months of 2018, SME loan disbursement was Tk 114,461 crore.
The statistics have left many, including bankers, scratching their heads: how can total loan disbursement be lower than SME loan disbursement when SMEs claim they do not get any bank loans?
"Banks have disbursed thousands of crores of taka as SME loans every year, but the SME entrepreneurs say only a few of them got loans from the banks," said KM Habib Ullah, chairman of SME Foundation.
Most of the bona-fide SME entrepreneurs do not get loans, he said, adding that many of the borrowers who are
getting loans are not real SMEs.
Banks show their other loans as SMEs to meet the target set by the Bangladesh Bank and also enjoy benefits that come with lending to SMEs, according to Habib Ullah.
As per BB's instructions, 20 percent of all bank loans must go to SMEs.
And one of the benefits extended to banks for lending to SMEs is lower provisioning requirement against SME loans: 0.25 percent as opposed to 1 percent for other sectors and 2 percent for credit cards.
So, if a bank disburses Tk 100 crore in the name of SMEs it has to keep provisioning of Tk 25 lakh only. The amount would have been Tk 1 crore for other loans.
The puzzling scenario about SME loans came to the fore at a discussion yesterday at the premises of SME Foundation, a government institute
for the sector's development, to announce the seven-day SME fair starting from tomorrow at the Bangabandhu International Conference Centre.
Mirza Nurul Ghani Shovon, president of the National Association of Small and Cottage Industries
Bangladesh, echoed the same.
"Cash credit, car loan and home loan have all been included in the SME loans and traders are also getting SME loans."
The central bank and the government should take initiatives so that the targeted amount actually goes to the SME entrepreneurs.
Bankers also admitted that given the wide definition of SME many can lump in their other loans to the SME category as well.
Some 280 SME entrepreneurs will show their products at the fair.