Sharp rise in CMSME loans on growing economic activities

Infographic: TBS

The financial sector posted over 40% year-on-year growth in loan disbursement to cottage, micro, small and medium enterprises (CMSMEs) in 2021, thanks to an increased demand for credits amid growing economic activities following an improvement in Covid situation in the latter part of the year.

According to the Bangladesh Bank's data, banks and non-bank financial institutions (NBFIs) in the country disbursed Tk2,15,786 crore in loans to CMSMEs last year, up from Tk1,53,496 crore a year ago. In 2019, the amount was Tk1,67,970 crore.

The central bank's data show that financial institutions disbursed a total of Tk11,58,786 crore in loans last year.

Despite this significant rise in the volume of lending to CMSMEs, the financial sector could achieve a little over 85% of its loan disbursement target of Tk2,52,760 crore set for the sector last year.

The central bank asked the financial institutions to disburse 22% of their total loans to the CMSME sector in 2021. But during the period, 59 banks and 31 NBFIs disbursed 18.63% of their total loans to the CMSME sector, although the rate was 19.13% in the July-September quarter. The lending information of one bank, however, is not included here.    

However, according to a central bank's circular, the target for banks and financial institutions is to raise the ratio of CMSME loans against the total amount of loans to 25% by 2024.

Selim RF Hussain, managing director of Brac Bank Limited and chairman of the Association of Bankers Bangladesh Limited (ABB), told The Business Standard that the volume of loans disbursed to CMSME sector last year is quite good. He, however, said many banks are still less interested in increasing their CMSME loan portfolio.

The banks think CMSME loans are not profitable at a single-digit interest rate, which is why they are more inclined towards larger industries, he explained.  

In addition, supervising SME loans is another big challenge for them as it requires a lot of manpower, he added.

Selim said his bank has attached importance to SME loans and accordingly they disbursed a lot of loans to the sector last year. But, not all banks have the same plans and guidelines, he mentioned, adding, "They may have different plans from the board to the management."

An analysis of the Bangladesh Bank's data show that financial institution's defaulted loans in the CMSME sector stood at Tk36,295 crore at the end of December last, which is 14.4% of the total outstanding loans in the sector.  

Meanwhile, the financial sector has a target of raising the ratio of CMSME loans to women entrepreneurs against the total CMSME loans to 15% by 2024, but only 4.08% of the total CMSME loans were disbursed among women last year.

In 2021, women-run CMSMEs received Tk8,801 crore in loans, which is 6.76% higher than Tk8,244 crore received in the previous year.

In this regard, Ali Reza Iftekhar, managing director and CEO of Eastern Bank Ltd, said they recently held a dialogue to find out the issues and obstacles in disbursing loans to women.

Many weak points came to light in the discussions, he mentioned, adding collateral and weakness in paperwork are the two major ones among them.

He further said they will arrange several more programmes in the future to find out ways to solve the problems.

He also emphasised the need for increasing the amount of large loans to capable women entrepreneurs to achieve the central bank-set target of disbursing loans to women by 2024.

According to the central bank, small entrepreneurs got the highest 55.22% share of CMSME loans in 2021, followed by medium enterprises with a 33.41% share. The loan disbursement ratio was the lowest, 0.82%, for cottage industries.

Even though loan disbursement to the CMSME sector increased last year, the picture of implementing the Covid-induced incentive package is a bit different.

The government declared a Tk20,000 crore stimulus loans package to help the CMSMEs overcome the financial shock due to the Covid-19 pandemic.

In the first phase, the loan disbursement rate was 77% of the target in eight months (July-February) in the last fiscal year.

In the second phase, the banks disbursed Tk71.17 billion loans among businesses in CMSME sector in the first eight months of the current financial year (July-February) which is 36.80% of the target.

The central bank's data show private sector credit growth has been on an upward trend since the beginning of the current FY22.

Private sector credit growth in Bangladesh surged 11.07% in January compared to the corresponding period last year, the highest in 29 months as a supercharged demand pushed up both import and export, shaking off the Covid fallout.

In January this year, private sector credit growth stood at around Tk12.66 lakh crore – still 3.73% short of the central bank's 14.8% target – that was at Tk11.40 lakh crore in January last year, showed the Bangladesh Bank data.