LankaBangla gives SME entrepreneurs non-collateral loans

LankaBangla Finance is one of the top non-banking financial institutions lending to entrepreneurs in the small and medium enterprise (SME) sector. It has started its SME lending operations on easy terms since 2014. It provided loans for 750 entrepreneurs from the incentive package during the Covid-19 pandemic.

Its Head of SME, Md Kamruzzaman Khan, talked to The Business Standard about the SME industry's overall condition in the country and the lending activities of his company.

What is the current state of Bangladesh's SME industry? What are the opportunities your company has to work in this sector?

SMEs have played a central role in developed countries' economic development. These businesses account for more than 40% of India's Gross Domestic Product (GDP). The contribution of SMEs to the Chinese economy is 45%.

SMEs are flourishing in our country too. At present, they account for 22-25% of the GDP. According to official figures, there are 78 lakh entrepreneurs in this sector, but the real number will exceed one crore. The country's banks and non-bank financial institutions have so far been able to bring only 15-16 lakh entrepreneurs under banking services.

On the one hand, a large number of entrepreneurs have not received banking services. On the other hand, considering the size of the economy, there are opportunities to create many more entrepreneurs. SMEs have a huge potential in Bangladesh and there are also lots of opportunities to work with entrepreneurs.

The government has plans to develop SMEs. What kind of work are you doing in that regard?

LankaBangla is working with the government and the Bangladesh Bank. We have a separate SME department. At present, 300 people are working to distribute loans in this sector.

We are disbursing 28% of our loans in the SME sector. LankaBangla is also working to help female entrepreneurs. We have 5,200 clients now.

Tell us about LankaBangla's SME loan distribution.

LankaBangla has been working with SMEs since 2014. We pioneered this. In the first year, we lent Tk49 crore to 200 entrepreneurs. Now we have 27 branches after seven years.

Our debt balance in the SME sector now stands at Tk1,800 crore. At present, there are 10 special products for entrepreneurs including Ahana, Durbar, Samparka, Biswas, and Astha. One product is especially tailor-made for female entrepreneurs' name SHIKHA Anannya under the SHIKHA platform. These are offered on easy terms depending on the type of business. We will provide loans for any business that entrepreneurs want to do.

Collateral and documentation are the main problems small entrepreneurs face. What are you doing to solve this?

We also hear from SME entrepreneurs that they face problems with collateral, but this is not the problem. Some people come for loans, but they cannot even explain why they want the loan. They do not maintain the minimum documentation needed for getting loans.

This creates a problem. No real entrepreneur fails in securing a loan. We have a scheme to provide non-collateral loans. We provide this loan only if there is a personal guarantee, a trade licence, and a tenant agreement.

No one even needs a bank account or a statement if they have even the minimum documents to become an entrepreneur. 70% of our portfolio is unsecured. We provide this loan through the Ahana package. Under this, we lend up to Tk35 lakh without collateral.

There are allegations that SME entrepreneurs cannot repay loans. What is your company's experience?

If someone does a business with a loan, he is not a defaulter. But if he uses the money for other purposes, he becomes a defaulter. If this can be controlled, there will be no problem in giving small entrepreneurs loans.

Real entrepreneurs repay loans. Our SME loan repayment rate is 38-39%. All our investors are repaying loans. Female entrepreneurs are more successful in this regard.

The Covid-19 pandemic hit the SME sector the hardest. What role did you play there?

Our investors were also affected during the pandemic. We eased loan repayments for them. We took initiative to give non-collateral loans to entrepreneurs affected by the health crisis.

LankaBangla took Tk150 crore from the Tk20,000 crore stimulus package announced by the government to help the SME sector. We diligently distributed the loan among 750 entrepreneurs.

What is LankaBangla's future plan?

LankaBangla runs SME loan operations through 27 branches in 19 districts. We have our presence in 37 districts and our delegates are there. We plan to expand this to every district gradually.

According to the plan, we will have a representative in each thana by 2025 and will distribute loans there. But this will be done online.