Loans elude growing women entrepreneurs

The number of women entrepreneurs coming under the financial sector grew by nearly three times from 21,400 to 57,732 in the span of six months from March to September last year, says the Bangladesh Bank.

The trend shows how fast women entrepreneurship has been growing in the country and this is the first time the Bangladesh Bank has included the data in its quarterly statistics report on scheduled banks for July-September 2021.

There has been an impressive growth in the number of new female entrepreneurs as well. The central bank's data show that 8,812 fresh entrepreneurs came under the financial sector in September last year, which is 34% higher when compared to the statistics of March that year.

In contrast to the significant rise in the number of female entrepreneurs even amid a serious pandemic crisis, the number of male entrepreneurs declined by 27% during the same period, according to the Bangladesh Bank.

The number of new male entrepreneurs stood at 32,900 in September last, which was 45,292 six months earlier.

The loan repayment behaviour of businesswomen is also impressive as the rate of loan default by women is between 1% and 2% in most financial institutions.

In spite of the fast growth in female entrepreneurship and their good payment behaviour, the share of women in total loan distribution did not improve over the last decade, which makes it obvious that access to finance remains a challenge for women entrepreneurs in the country.

The share of women in total SME (small and medium enterprise) loans stood at 3.54% at the end of September last year, according to the Bangladesh Bank data.

Banks' total outstanding loans in the SME sector stood at Tk1.28 lakh crore at the end of September last, of which women entrepreneurs accounted for merely Tk4,543 crore, central bank data shows.

The share of women in SME loans has remained below 4% since the year 2010 when the national policy set the target to improve financial institutions' loan disbursement rate to women-run SMEs to 15% by 2024 as part of the country's goal to become a developing country by that year.

In line with the national policy, the Bangladesh Bank had issued a circular, instructing banks and non-bank financial institutions to finance at least one new female entrepreneur every year from every branch.

According to the circular, every bank branch would find at least three fresh women entrepreneurs who did not take out loans from banks or financial institutions previously and select one from them for final lending.

Moreover, banks would have to set up a dedicated desk to support women entrepreneurs in every branch.

Those instructions are not being followed by banks and non-bank financial institutions, which is reflected in the data as the share of the loan to women entrepreneurs has been falling instead.

The Bangladesh Bank has a dedicated desk for following up on the development of women entrepreneurs, which was set up by former governor Atiur Rahman, but that department also appears to be inactive.

Selim RF Hussain, managing director (MD) of Brac Bank and chairman of the Association of Bankers, Bangladesh (ABB), said loan disbursement ratio to women entrepreneurs is small because the number of women entrepreneurs is low in our country.

He also said it is not the case that all new women entrepreneurs applying for loans would be given loans, as banks have to scrutinise whether the loan seekers understand the business and whether they are capable of repaying the loan.

Many people would wonder why banks do not give out loans, but no one stands by a lender when the borrowers default on loans, he added.

The seasoned banker held the conservative social-cultural outlook as the major reason for women lagging behind men in entrepreneurship. The number of female entrepreneurs is higher in the Western countries as there is no cultural barrier there.

Selim further said that the type of business varies from bank to bank.

Some banks attach importance to the SME sector, he said, adding his bank also is providing huge loans to create women entrepreneurs.

He also told TBS that the female clients they have are very good at repaying loans.
 
Policy for women entrepreneurs

The Bangladesh Bank has introduced the "Small Enterprise Refinancing Scheme" to provide loans to women entrepreneurs at a maximum interest rate of 5%. Under this scheme, the central bank will finance banks and non-bank financial institutions at a 0.5% interest rate and then banks will lend the money at the highest 5% interest.

Under the refinancing scheme, financial institutions can provide a women entrepreneur with a maximum of Tk25 lakh in loan by considering a third-party personal guarantee as alternative collateral.

Banks and financial institutions have been instructed to provide at least 10% of the credit guarantee scheme to women entrepreneurs.

The central bank has also asked commercial banks to set up separate dedicated desks for women entrepreneurs in the CMSME sector in each branch.

In addition, the Bangladesh Bank asked financial institutions to provide a minimum of 8% loans to women entrepreneurs under the Tk20,000 crore incentive package, announced for the CMSME sector.

Experience still sour

Tahmina Akter, owner of Saraah Fashion at Banasree in the capital, told The Business Standard that like all other small entrepreneurs, she suffered losses during the Covid pandemic.

She said she had approached several public and private banks for loans but they were asking for different types of documents, making the loan harder. Disgruntled, she later went to the non-bank financial institution IPDC and availed a loan easily, said Tahmina, adding, "Now my business condition has improved and I am paying loan instalments regularly."

"Women entrepreneurs in the country are still lagging behind because banks are willing to lend only to those who have money," she said, adding women usually start from scratch and many institutions think that they will not be able to repay loans.

Women should be given easier and better access to credit, she said.

Another female entrepreneur named Miriam Sarkar, owner of Designer House, told TBS, "I founded this business while still a student in the university. All kinds of women's clothes and men's panjabi are sold here. I had business dealings with a few banks. I have now taken a loan from the IPDC. My organisation is doing well and the loan repayment is also regular."

In fact, it is much easier for men to become entrepreneurs than for women, she observed.

"First of all, the family is concerned about how successful the business will be. And secondly, collateral emerges as a big issue in getting a loan. Therefore, loan facilities for women need to be made easier and interest rates on loans should be reduced."

Asked about this, a senior official of the Bangladesh Bank told TBS that the financial institutions are showing reluctance to provide loans to women entrepreneurs, even though there are instructions from the Bangladesh Bank to improve their lending ratio to women.

The central bank will soon sit with the banks and non-bank financial institutions to discuss the issue, the official added.