Access to finance, land still difficult for businesses: Report

Businesses, especially those in the small and medium enterprise (SME) segment, are facing more difficulties in gaining access to finance as banks are less inclined to lend them money amid the 9% lending rate cap, according to Bangladesh Business Climate Index (BBX) 2022-23.

Access to land also has become complicated due to delays in mutation, difficulties in verifying accurate ownership, and correcting documents, and informal payment, says the report.

The BBX report mentions that Bangladesh last year made insignificant progress in its home grown business climate index compared to 2021.

This year, the country achieved a composite score of 61.95 out of 100 while last year's figure was 61, said Policy Exchange Bangladesh Chairperson Dr Masrur Reaz while presenting the keynote speech.

The Metropolitan Chamber of Commerce and Industries and the Policy Exchange Bangladesh jointly prepared the report and disclosed the findings during an event held at the MCCI auditorium in Dhaka on Thursday.

The report has been made for the second time for the sake of Bangladesh's business environment improvement in place of the World Bank flagship report "Ease of Doing Business".

The 10 pillars

The BBX is based on 10 pillars – starting a business, access to land, availability of regulatory information, infrastructure, labour regulation, dispute resolution, trade facilitation, paying taxes, technology adoption, and access to finance.

Each of these contains sub-indicators and a total of 35 sub-indicators have been used to calculate the index.

For this report, 518 qualified responses were surveyed between July and September 2022.

Performance dips on three pillars

According to the BBX, the country's performance dipped in three pillars – access to finance, paying tax, and access to land to do business – while the others registered a slight bump.

According to the index, access to land dropped by 9.90% scoring 53.07 in 2022 and 58.91 in 2021. Meanwhile, paying taxes declined by 19.66% scoring 55.21 in 2022 and 68.72 in 2021.

Access to finance also came down 30.65% in 2022 compared to 2021. The score was 50.78 in 2021 which is 35.22 in 2022, according to the BBX.

Speaking with journalists on the sideline of the event, Dr Masrur Reaz said this index reflects the perception of businesspeople based on their experiences with regulatory enforcement and getting services. This index also gives a blueprint of business environment checks at a broad level with its false level.

"Tax payment compliance unpleasable"

Explaining the "paying tax" pillar, Masrur Reaz said, "It's not on tax collection, it's on tax compliance and taxpayers experience how easily they paid tax in 2020."

During the survey, respondents mentioned that tax payment compliance and document compliance were very unpleasable and a few of them also complained about the tax rates, he added.

A businessman makes such a complaint when they face harassment beyond the law, added Masrur.

Access to finance difficult

Access to finance is the least well-performing pillar on the Bangladesh Business Climate Index 2022. About 87% of the respondents mentioned that they found significant challenges in accessing bank loans and financing.

Even though the survey revealed that it was relatively easier to receive loans from non-bank financial institutions, firms still faced significant bottlenecks in terms of credit appraisal, documentary, and collateral requirements. These challenges were more exacerbated for micro, small, and medium enterprises, said the BBX report.

Businessmen are facing problems in accessing finance due to two reasons – problems in LC opening since June last year, and trade finance has almost gone dry, he said.

SMEs are not getting access due to the 9% lending rate cap, he said, adding that the minimum bank loan service charge was 9.2% four years ago for finance to small enterprises in Bangladesh. That is why banks are just complying with the minimum loan disbursement limit set by the Bangladesh Bank for SMEs for window dressing, said Dr Masrur. 

85% of the respondents mentioned that they were not getting finance after the phase-out Covid stimulus package, said the report.

Even though the 6-9% interest rate band was initiated in 2020, its effects were felt in the past year as business operations resumed in a full-fledged manner post-Covid.

According to a World Bank report, access to formal finance by MSMEs is limited compared to the average for the South Asian region with an estimated financing gap of $2.8 billion.

The report mentioned that some of the supply-side constraints included market imperfections, lack of credit appraisal policies, lack of strong credit registry, while demand-side constraints included the lack of financial capabilities and lack of documentation, and lack of credit rating from formal sources.

According to MSMEs, these challenges got aggravated after the 6%-9% interest rate band as many banks would require the same type of credit appraisals, documentary, and collateral requirements from MSMEs as large firms.

Many respondents said they were required to get several bank drafts since land transactions had to be done through bank drafts which was time-consuming.

Land procurement not easy either

On the other hand, about 86 % of respondents mentioned that they experienced bottlenecks in dealing with government agencies while procuring land in Bangladesh.

Dhaka, Mymensingh, and Rajshahi performed relatively better in access to land than Khulna, Rangpur and Chattogram. It was found that the electronics and light engineering sectors found it most difficult to obtain land or register property compared to the wholesale and retail trade sectors, reads the report.

Respondents mentioned verifying accurate ownership of property, and delays in the mutation of land/property are two of the biggest bottlenecks faced by them while procuring land in Bangladesh, said the BBX report.

Business climate in different divisions

Mymensingh and Sylhet offer the best business climate among all divisions in the country with a score of 65.23 and 65.0, respectively, on a scale of 100, according to the BBX report. On the other hand, Rangpur scored the least, 55.76, in this regard, following Khulna at 57.97.

Meanwhile, the Chattogram division with a score of 60.81 continues to outperform Dhaka at 58.61.

What stakeholders say

Addressing the event, MCCI President Md Saiful Islam said, "There are many things going on simultaneously around us, like the dollar crisis, globally soaring energy prices, the overall inflation, a pandemic, and the Russia-Ukraine war. This makes the prevailing situation quite tricky. 

"However, we know for certain that the government will leave no stone unturned to reverse this and set the country back on its growth and development path. We are also committed to the development and growth of our economy." 

By laying out a detailed picture of the current business landscape, MCCI would, as always, pursue the enabling environment businesses that Bangladesh needs, he added. 

Commerce Minister Tipu Munshi was present at the event as the chief guest, while Foreign Secretary Masud Bin Momen, and Bangladesh Investment Development Authority (Bida) Executive Chairman Lokman Hossain Miah were present as special guests. 

The commerce minister said, "We are very smart in our words but there are many problems in keeping our promises."

The government wants to reach the $100-billion exports mark in 2030 but the performance of the leather sector remained underutilised due to the lack of effluent treatment plants, he mentioned.

"We have been talking about the ETP for three years but the issue remains unresolved," the minister said and emphasised concerted efforts by all stakeholders to realise the dream of a developed Bangladesh by 2041.