Dhaka Bank leading the charge to empower SMEs

Bangladesh's SMEs stand at a critical juncture. As the backbone of our economy, they account for the majority of industrial employment and contribute significantly to GDP. However, access to affordable finance remains a long-standing challenge—one that is growing even more acute as interest rates climb.

To ensure more inclusive access to credit for SMEs in this new environment, our financial ecosystem must evolve into one that is more efficiency-driven and innovation-oriented. At the heart of this transformation are four key enablers.

First, we need to strengthen and expand credit guarantee schemes to de-risk SME lending. Banks are often constrained by regulatory capital requirements and the perceived risks associated with lending to smaller businesses. A robust credit guarantee mechanism would reduce the risk burden on financial institutions and incentivise lending to this underserved segment.

Second, the regulatory framework must be simplified to lower the transaction costs for small borrowers. Overly complex compliance procedures often dissuade SMEs from seeking formal finance. By streamlining these requirements, we can create a more SME-friendly lending environment.

Third, refinance lines with flexible terms and subsidised interest rates—particularly for productive and export-oriented sectors—should be promoted more aggressively. These facilities can act as a buffer against rising interest rates and make long-term capital more accessible for SMEs looking to scale up.

Finally, fintech solutions and alternative credit scoring models offer a promising path to reach unbanked or underbanked SMEs. By leveraging digital footprints and transactional data, we can build a more accurate picture of an enterprise's creditworthiness, far beyond what traditional models allow.

At Dhaka Bank PLC, we are already embracing this new paradigm. We are modernising our SME lending framework with digital onboarding tools such as our e-Rin platform. We've simplified documentation requirements and incorporated tech-driven credit scoring into our assessments. Furthermore, we support policies that promote blended finance, especially to provide long-term capital for rural and growth-stage SMEs.

However, financing alone is not enough. One of the persistent challenges in the SME ecosystem is the reluctance of small businesses to formalise. This reluctance stems from a mix of complex regulatory requirements, perceived tax burdens, and limited understanding of the benefits of formalisation. The registration, licensing, and compliance procedures can be overwhelming for small entrepreneurs with limited resources.

To counter this, policy interventions should aim to simplify these processes. Tangible incentives—such as tax breaks, eligibility for subsidised loans, and access to public procurement opportunities—can offer a strong motivation for SMEs to enter the formal economy. Additionally, creating a unified, digital SME identity system would streamline access to both government and financial services.

At Dhaka Bank PLC, we have aligned our approach to reflect this philosophy. We offer preferential loan products and capacity-building initiatives to newly formalised SMEs. Moreover, we are advocating for the creation of a one-stop SME service portal under a public-private partnership model to make the formalisation journey more accessible and rewarding.

The Covid-19 pandemic further altered the SME landscape in profound and irreversible ways. Consumer behaviour has shifted dramatically, with greater emphasis now placed on convenience, speed, and digital interactions. Supply chains, once driven by cost-efficiency, are now being redesigned for flexibility, localisation, and resilience.

These shifts carry major implications for SMEs. Maintaining a digital presence is no longer optional; it's a necessity. Agile inventory systems, flexible logistics, and diversified supply sources have become critical. Additionally, the adoption of digital payments has become mainstream, pushing businesses to adapt or risk falling behind.

Recognising these shifts, Dhaka Bank PLC has upgraded its SME offerings to include instant digital payment solutions, remote onboarding capabilities, and embedded financing for B2B transactions. We are working closely with supply chain actors to ensure that financing is available across distributor and supplier networks, thereby enhancing overall resilience.

Digitalisation, in general, is a game-changer for SME competitiveness, particularly in sectors like light engineering, retail, and agro-processing. In engineering and agro-processing, technology improves quality, productivity, and compliance. In retail, it enables real-time inventory tracking, digital payments, and customer relationship management.

Yet, several barriers hinder the widespread adoption of digital tools. These include low digital literacy—particularly in rural regions—high upfront investment costs, unreliable internet connectivity, and fear of increased tax scrutiny.

To address these challenges, we at Dhaka Bank PLC are investing in mobile-first banking solutions, app-based lending, and strategic partnerships with fintech firms and aggregators. These partnerships aim to digitise value chains, lower costs, and make digital tools more accessible. We are also conducting financial literacy campaigns and piloting embedded credit solutions within digitally enabled trade ecosystems.

While government support schemes have offered valuable liquidity relief, especially during the pandemic, most interventions have focused on short-term survival rather than long-term growth. For meaningful development, these schemes must be reoriented towards productivity, innovation, and employment generation.

That means investing in skills development, enabling access to technology, linking SMEs with domestic and global value chains, and improving monitoring mechanisms to ensure effective fund utilisation.

We believe that coordinated action between the government and the private sector can significantly enhance the impact of these programmes. At Dhaka Bank PLC, we are prepared to co-finance initiatives that drive productivity, particularly those that focus on green technologies, export diversification, and cluster-based enterprise development.

Lastly, the issue of risk perception in SME lending still looms large. Traditional financial institutions often consider SMEs high-risk borrowers due to inconsistent cash flows, lack of collateral, and insufficient documentation. However, decades of evidence show that SMEs are not only resilient but are also vital contributors to employment and local economic stability.

To serve them better, banks must abandon legacy risk models and adopt more nuanced, data-driven approaches. This includes using behavioural analytics, transaction data, and cash-flow-based credit assessments. Developing sector-specific credit scoring models and introducing risk-sharing mechanisms can also help to de-risk lending.

At Dhaka Bank PLC, we are actively revisiting our SME risk models. We are investing in alternative credit evaluation tools and advocating for the establishment of an SME-specific credit bureau. Additionally, we support cluster-risk mapping as a means to evaluate and price SME lending more accurately.

In summary, redesigning Bangladesh's financial ecosystem to empower SMEs requires a multi-pronged approach. We must simplify regulatory processes, embrace digital transformation, reform risk assessment models, and foster stronger public-private collaboration. At Dhaka Bank PLC, we are committed to being at the forefront of this transformation, helping SMEs not only survive but thrive in the evolving economic landscape.