Emphasis on structural reforms for easy CMSME loan disbursement

Experts suggested on Tuesday that structural reforms of loan disbursement process, less documentation process, establishing a specialised SME bank, and a comprehensive SME database will help flourish the cottage, micro, small and medium enterprise (CMSME) in the country.

They said policy reforms, bank-SME good relations, cash flow based loan sanction, considering working capital loan as term-loan and considering large and small investors equally will pave the way for CMSMEs to grow as the sector is the lifeline of the country’s economy.

The suggestions came in a virtual discussion meeting titled ‘Procedures of availing loan from SME stimulus package’.

The event was arranged by SME Foundation and Dhaka Chamber of Commerce and Industry (DCCI).

Professor Dr Md Masudur Rahman, chairperson of SME Foundation, joined as the chief guest at the event while Dr Md Mafizur Rahman, managing director of SME Foundation, joined as a special guest. 

DCCI President Rizwan Rahman, in his opening remarks, said that the contribution of CMSME to the GDP (gross domestic product) is only 25 per cent whereas it is 35-60 per cent in Philippines, Vietnam, Sri Lanka and China.

According to a local study, overall income from the CMSME sector reduced to 66 per cent in 2020 and 76 per cent products remained unsold, he said.

He said according to a DCCI study, it was found that due to the pandemic 62 per cent CMSMEs had to cut their workforce and 90 per cent are continuing their businesses with less capacity.

“Some 73 per cent of the stimulus packages have been distributed but most of the CMSMEs are still deprived of that fund,” he said. 

He also said that medium enterprises have good relations with banks compared to small entrepreneurs because of a lack of documentation and confidence.

A CMSME-friendly fund and easy access to the loan management system is the demand of time now, he added.

He said if Bangladesh Bank can give guidelines to the banks that they have to disburse a specific amount of loan to the CMSMEs then banks will have to comply with that. 

Professor Dr Md Masudur Rahman, chairperson of SME Foundation, said SMEs are the lifeline of our economy and during the pandemic, we were able to uphold this image to the policymakers.

According to the data of 2013, there are 7.8 million SMEs in the country,  but at present this number is more than 10 million.

He said India and China’s 60 per cent GDP share come from SMEs.

He said SME entrepreneurs’ capacity building is more important for financial inclusion.

The situation of entrepreneurs outside Dhaka is comparatively severe, he said.

“Framework reforms for loans, ease of doing business need reforms as early as possible.”

He said there is no lack of political will but implementation needs to be faster.

Dr Md Mafizur Rahman, managing director of SME Foundation, said they have disbursed about Tk 1.22 billion within one and a half months which went to SMEs.

“We cannot handle the money, SME Foundation does not have that mandate,” he said.

He reiterated establishing a specialised SME bank.

“Tk 2.0 billion is not enough for the rest of the SMEs but by December 31 this year we will complete the disbursement of this fund,” he said.

 He said the return rate of small entrepreneurs is quite satisfactory but we need to ensure easy access to loans.

We requested all banks to give their 50 per cent loan to the women entrepreneurs, he added.

Suman Chandra Saha, assistant general manager of SME Foundation, presented the keynote paper.

He said that the SME Foundation from its own fund under credit wholesaling programme already disbursed Tk 1.22 billion through the existing banking channel.

Some 2,186 entrepreneurs from 40 districts got loans from this fund, out of which 524 were women entrepreneurs.

The Finance Division has already allocated a fund of another Tk 2.0 billion to SME Foundation at a rate of 4.0 per cent interest which is under process of disbursement, he added.

“This fund will aim to SME sub-sector and cluster based small entrepreneurs and 30 per cent will go to women entrepreneurs,” he said. 

He also said that if an entrepreneur fails to get a loan from the bank, he or she will be clarified the reason for not getting the loan from that bank.

NKA Mobin, senior vice president of DCCI, said SME Foundation and Bangladesh Bank need to work jointly on policy reforms issues.

He also said that cash flow based loans should be introduced as a term loan especially for the service sector, he said.

Rashedul Karim Munna, director of DCCI, requested to redefine the definition of SME.

Banks should consider less documentation process for the SMEs, he added.

He also urged for a specialised SME bank to safeguard the SMEs.

“A database for the SME sector should be prepared by this year and a 3-5 year strategy paper needs to be prepared,” he said.

 Khairul Majid Mahmud, director of DCCI, said CMSMEs sometimes cannot gather all necessary documents for getting loans due to lack of capacity.

Large businesses can manage funds from the banks easily but small businesses cannot get that easily, he added.

He mentioned that women and men should be evaluated in an equal manner in terms of loan approval.

Saifuddowla Shamim, head of SME of IDLC Finance Limited, urged financial literacy for the CMSME sector.

They have already trained 700 women entrepreneurs, he informed.

SMEs are the pay master, they are good in refund, so they should get priority, he added. 

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