Loan disbursement to small entrepreneurs rises 28% in Q2

Infographic: TBS

Loan disbursements to cottage, micro, small, and medium enterprises (CMSMEs) increased by Tk13,679 crore, marking a 28% rise in the April-June quarter compared to the previous quarter, thanks to increased interest of banks in the sector and the central bank's Tk20,000 crore refinance scheme.

Banks and financial institutions disbursed loans amounting to Tk62,747 crore among 3,29,594 customers in the second quarter of the year, which was Tk49,068 crore in the previous January-March quarter, according to Bangladesh Bank data.

The central bank announced the Tk20,000 crore refinance scheme for three years in 2020 for the CMSME sector. Banks have disbursed loans from there. The central bank announced another three-year pre-finance scheme of Tk25,000 crore for the CMSME sector in July last year in a bid to curb inflation and provide liquidity to banks.

Besides, refinance schemes of Tk3,000 crore for women entrepreneurs and Tk1,400 crore for agriculture-based entrepreneurs have also been announced. Banks are increasing loans in this sector due to easy lending from these schemes.

Stating that CMSME entrepreneurs are not able to develop themselves in many areas due to large corporate organisations, a higher official of the central bank told The Business Standard that CMSME entrepreneurs usually invest in many industries, including bakery. "Now that the corporates have entered these industries, the small entrepreneurs are not able to do very well in those sectors."

This central bank official commented that the banks are increasing these loans due to the central bank's instructions to give 25% of the total loan portfolio to the CMSME sector by 2024 and the target for disbursement of CMSME loans.

"Banks are now focusing more on loans to small entrepreneurs. One of the reasons for this is that the risk in such loans is much less and more customers can be connected with banks." [Syed Mahbubur Rahman MD and CEO, Mutual Trust Bank]

Bangladesh Bank data shows loan disbursement to entrepreneurs increased by Tk8,578 crore year-on-year in the second quarter. In the same quarter of last year, banks disbursed Tk54,169 crore as loans to 2,89,033 entrepreneurs.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, told TBS that banks are now focusing more on loans to small entrepreneurs. One of the reasons for this is that the risk in such loans is much less and more customers can be connected with banks, he said.

"Also, there is less impact on the liquidity of the banks due to the availability of loans from the refinance and pre-finance schemes of the central bank."

At present, loan disbursing organisations can take funds from the central bank scheme at a rate of 2%, which they can disburse to the customer at a maximum rate of 7%.

However, the bankers say that the operating cost is very high in disbursing CMSME loans. As a result, the cost of banks that are paying more attention to this type of loan increases a lot. Banks can now charge a maximum of 11.22% interest on these loans due to central bank policy. However, banks can impose an additional 1% interest charge as CMSME operating cost.