Ministry sits with banks Thursday over dismal small loan disbursement

Nine private and foreign banks – which are supposed to loan Tk180 crore – have not yet begun disbursements from the Tk20,000 crore stimulus package announced for the pandemic-affected cottage, micro, small and medium enterprise (CMSME) sector.

As of 15 September, Brac Bank has disbursed only Tk92.90 crore against its target of Tk1,100 crore; First Security Bank distributed only Tk40 lakh against Tk300 crore, and Southeast disbursed Tk32.22 crore out of its target of Tk1,000 crore.

The performance of the state-owned Janata Bank appears to be worse as they have given only Tk8.37 crore out of Tk1,037 crore to 21 entrepreneurs, which is 0.81% of the target.

Md Asadul Islam, secretary to the Financial Institutions Division, will meet with the top executives of the state-owned banks on Thursday to expedite the disbursement of loans in the CMSME sector.

Last month, Bangladesh Bank Governor Fazle Kabir in a meeting with the managing directors and chief executive officers of 22 banks that have targets to disburse more loans to speed up disbursements. Apparently, it did not work.

Loan disbursements from the stimulus package started 13 April. In the last five months, 22 out of 56 local and foreign banks have disbursed only 10% of their targets while 22 others could distribute less than 5% of their targeted amounts.

The loan disbursements for the CMSME sector have been running on a slow track from the beginning.

In the last five months till 15 September, all the banks could distribute only Tk3,330 crore from the Tk20,000 crore bailout package, which is 16.65% of the total fund.

Some 14,302 out of over two crore CMSME enterprises have so far have got loans – the rate is 0.07%.

The banks were asked to disburse the Tk20,000 crore in loans among the small ventures, which reeled under the coronavirus pandemic, by 31 August. The government will subsidise 4.5% interest on the loans at the 9% rate. The borrowers will pay the remaining 4.5%.

Many banks did not even start disbursements within the stipulated time. Only two banks – Bangladesh Islami Bank and the state-owned Rajshahi Krishi Unnayan Bank (Rakub) have disbursed more than half of their targets. Islami Bank has distributed about 61% or Tk1,212 crore of its targeted Tk2,000 crore and Rakub had a target of Tk36 crore and distributed Tk22 crore.

Bangladesh Krishi Bank (BKB) has disbursed the largest amount of loans among the state-owned commercial and specialised banks. It has distributed more than Tk65 crore out of its target of Tk134 crore. The disbursement rate is 48%.

Generally, state-owned banks place more importance on the implementation of various government programmes. But their effort to implement the stimulus package for the virus-affected CMSME sector is disappointing. The disbursement rates of the government banks is much lower than those of the private sector banks.

Among the state-owned commercial banks, Janata Bank has the highest loan disbursement target of Tk1,037 crore, and the bank has loaned 21 clients only Tk8.31 crore till mid-September, which is less than 1%.

The largest state-owned commercial bank, Sonali, has disbursed only Tk10.81 crore against its target of Tk537 crore. Rupali Bank has distributed Tk7.90 crore out of the target of Tk263 crore.

BASIC Bank, which was set up to finance the SME sector, has disbursed just Tk3.60 crore against a target of Tk270 crore, which is only 1.16% of the target.

Agrani Bank has disbursed the highest amount of loans amounting to Tk65 crore among the state-owned commercial banks. The bank's disbursement target from the stimulus fund is Tk846 crore.

Md Sirajul Islam, Bangladesh Bank executive director and spokesperson, told The Business Standard on Wednesday that they have stepped up efforts to ensure that banks complete disbursement of loans within the stipulated timeframe.

They have been asked to send information to the central bank on how many customers they are disbursing loans to in five working days each week, he said, adding that the governor also held meetings with the managing directors of the banks. The Bangladesh Bank is regularly asking them to disburse loans quickly.

When asked if the deadline would be extended after 31 October, he said, "I do not know anything about it till now."

Ataur Rahman Prodhan, managing director and chief executive officer (CEO) of Sonali Bank, said a lack of information database for small, cottage and medium enterprises has hampered the disbursement of loans in the CMSME sector.

Janata Bank Managing Director and CEO Md Abdus Salam Azad said they could not go door-to-door at the grassroots level and rural CMSME customers during the early days of the pandemic.

However, Janata Bank will meet its loan disbursement target in the CMSME sector by the deadline of 31 October, he said.

Analysing information of the loans disbursed by the banks, it was found that the loans have mostly gone to medium-sized industries so far.

Cottage, micro and small business owners, who suffered huge losses due to the pandemic effects, are getting very little from the stimulus package to recover their businesses.

According to the Bangladesh Palli Karma Sahayak Foundation (PKSF), the average loan demand of micro and cottage industries stands at Tk1.60 lakh on an average.

When asked about this, the central bank spokesperson, Sirajul Islam said, "In order to get a loan from a bank, the interested businesses have to submit a minimum number of documents. But micro and cottage industries are not able to even do that. As a result, it is not possible for the banks to give them loans."

Experts, including the PKSF, had earlier notified the government that small, cottage and micro entrepreneurs would not get loans if disbursements are down through banks. Although they suggested distributing a portion of the funds through private microfinance institutions, the finance ministry and the Bangladesh Bank did not accept the proposal.

According to the PKSF, there are 1.16 crore small and medium enterprises (SMEs) and 1.07 crore cottage and micro entrepreneurs in the country. The number of workforce engaged in the CMSME sector is 3.17 crore, of them, 2.06 crore people are in the cottage and micro industries.

An analysis of the Bangladesh Bank's data shows that eight state-owned commercial and specialised banks have so far disbursed Tk183 crore, which is only 5.83% of the loan disbursement target of Tk3143 crore.

Meanwhile, separate reviews of the credit disbursement data of domestic private commercial banks (PCBs) and Islamic commercial banks (ICBs) reveal that 31 PCBs have disbursed Tk1,290 crore against the target of Tk10,579 crore, which is 12.19% of the target. On the other hand, six ICBs have disbursed Tk1,692 crore against the target of Tk5,500 crore, which is 30.76% of the target.

Among the PCBs, UCBL has the highest target of disbursing Tk1,250 crore in loans, but so far the bank has disbursed Tk219 crore. Brac Bank has disbursed Tk93 crore against the target of Tk1,100 crore.

The IFIC Bank is among the PCBs that disbursed lowest amounts of loans. Although the bank has a loan disbursement target of Tk280 crore, it has so far disbursed only Tk2.41 crore, which is 0.7% of the target.

The Border Guard Bangladesh--managed Shimanta Bank has not disbursed any loan so far. The distribution target of the new bank is only Tk50 lakh.

Among the ICBs, Islami Bank Bangladesh Limited has disbursed the highest amount of loans. Shahjalal Islami Bank Limited is in the next position, having disbursed about Tk178 crore against the target of Tk700 crore, which is 25.41% of the target.

The ICB Islamic Bank is the worst performer among the Islamic banks. It has a target of disbursing Tk20 crore, but it has not disbursed any loan so far.

Rahel Ahmed, managing director and CEO of Prime Bank Ltd and general secretary of the Association of Bankers, Bangladesh, said it is difficult to get documents required for approving loans for the CMSME.

"Most CMSMEs take term loans but the central bank has directed banks to provide them with working capital," he pointed out.

Many small ventures are involved in trading. But there is no rule to loan them more than the fixed amounts. That is why, the loan disbursement pace was slow at the beginning. Now, the disbursement has picked up pace, Rahel added.

It will not be possible to make the full disbursements under the stimulus package by October. The target can be met in January-February, Rahel Ahmed said.  

For nine foreign banks, the loan disbursement target is Tk194 crore. Of them, the Commercial Bank of Ceylon and the State Bank of India started disbursing loans but the remaining seven banks have not yet lent a single penny. These include Bank Al-Falah, Citibank NA, Habib Bank, HSBC, National Bank of Pakistan, Standard Chartered Bank and Woori Bank.