Local businesses struggle to secure loans from financial institutions, Policy Exchange survey finds

Highlights:

• Most local firms rely heavily on personal savings for business growth
• Businesses have limited access to diversified financial instruments
• Financing gap as a major constraint to business growth

Many local businesses in Bangladesh face significant obstacles when seeking loans from formal financial institutions, according to findings in a Policy Exchange Bangladesh survey.

The findings, drawn from advisory firm's Municipality Competitiveness Index (MCI), was presented today at a high-level roundtable in Dhaka titled "Unlocking Business Opportunities and Access to Finance: Insights from the Municipal Competitiveness Index (MCI)". 

The event was convened by Policy Exchange Bangladesh in collaboration with the PRABRIDDHI project of Swisscontact.

The MCI is Bangladesh's first business environment index designed specifically for municipalities, reflecting the needs and perceptions of the private sector. 

The index is a collaborative effort between Policy Exchange Bangladesh and PRABRIDDHI and is supported by the Bangladesh Investment Development Authority (Bida).

Under Pillar 5 of the index "Economic Potential and Sectors", the survey found that many local businesses face substantial difficulties in availing loans from formal financial institutions. 

Most rely heavily on personal savings and have limited access to diversified financial instruments, creating a financing gap that significantly constrains growth and expansion, according to the survey.

Presenting the findings, Policy Exchange Bangladesh Chairman and CEO Dr M Masrur Reaz and Senior Policy Analyst Md Ziaur Rahman highlighted MCI's evidence-based insights and their implications for local-level reform agendas.

Bangladesh Investment Development Authority (Bida) Director General Jibon Krishna Saha Roy emphasised MCI as "a vital data-driven tool" for the Access to Finance programme, as it covers seven municipalities and provides insights into their advantages, challenges, and opportunities. 

He also stressed the need for concrete recommendations and policy reforms to address existing gaps and enhance local economic potential. 

Syed Abdul Momen, additional managing director and head of SME Banking at BRAC Bank, stated that many SMEs lack basic understanding of how to obtain a loan, the required documents, and the steps involved in securing financing from banks.

"Entrepreneurs often need to visit 10-15 different offices to collect the documents required for loan applications, creating unnecessary delays and burdens," he said.

Helal Hussain, country director of Swisscontact Bangladesh, noted that the MCI is a globally recognised practice, previously implemented in countries such as Honduras, and was introduced in Bangladesh to promote private sector growth.

He highlighted that the index serves as a valuable data-driven policy tool to address constraints in developing sectors, while also providing a deeper understanding of local business environments.

At the roundtable, Nahin Ferdous, senior manager of Swisscontact's Local Economic Development (LED) Project, gave a presentation on how municipalities can strengthen their economic base through improved financial access and targeted interventions.

The event brought together senior officials from government agencies, banks, NBFIs, development partners, and municipal business representatives to address one of the most pressing challenges facing local enterprises – limited access to finance.

The event began with welcome remarks from Markus Ehmann, team leader of Swisscontact's LED Project.