Why CMEs continue to be neglected when it comes to credit

In our country, the formal journey of SME or CMSME banking began more than two decades ago, initiated by a third-generation private commercial bank whose sponsor organisation was one of the pioneers of microcredit in the country. 

Subsequently, as a result of the strong leadership, incentives, supervision, and intervention of the central bank and the supportive role of various international organisations and the SME Foundation, the reach of bank credit to the Cottage, Micro, Small, and Medium Enterprises (CMSMEs) sector in the country is seen to have increased in line with the country's overall credit growth. 

Despite this fact, CMSME loans have never exceeded 20% of the total loans outstanding in the country, although more than 95% of the country's businesses fall within this category.

Our experiences suggest that bank lending to CMSMEs was prevalent in the country even before the formal introduction of the CMSME loans, especially in the small and medium enterprises sector given the current definition of CMSMEs. 

But that was not reported as SME or CMSME loans, or such reporting practices were not prevalent at that time. 

Even after the formal introduction of SME loans, a significant portion of these were not reported as SME loans. However, a different scenario of this situation is now being experienced. Recent newspaper reports state that, in addition to CMSME loans, many retail loans are also being presented as CMSME loans.

The emphasis on expansion of bank credit to the CMSME sector is a significant programme of the government's development plan. The main objective of this programme is to reduce poverty and accelerate economic development by involving the disadvantaged and backward communities of the country in the development process. 

However, if we analyse the total portfolio of bank loans to the CMSME sector, we could see that the bulk of them are received by the members of the small and medium enterprises segment. 

Credit inflows to the cottage and micro enterprises (CMEs) sector are seen as negligible, which is contrary to the spirit of the policy initiatives for increasing credit inflows to the CMSME sector. Because members of the medium and small enterprises sector cannot be treated as underprivileged ones given their asset position and allowable loan limit. 

This interpretation can best be understood from the current official definition of the CMSME sector and the allowable loan limits against them, as seen in the table.

A close look at the table reveals that except for cottage industries and microenterprises, members in the small and medium enterprise sector are by no means tiny capital owners and underprivileged units. And it goes without saying that these types of enterprises were covered by bank loans long ago, as far as their asset position and capacity are concerned.

In more than two decades since the formal introduction of bank credit to the CMSME sector, there has been little change in access to bank credit for the cottage and micro enterprises (CMEs) segment in the broader CMSME sector. 

Most of the CMEs are still dependent on high-interest loans from microfinance institutions and money lenders (mahajan), which results in a significant portion of their profits going to loan interest payments. 

Also, there is exploitation of agents like middlemen (brokers, contractors, commission agents, wholesalers, etc), government offices, syndicates, large companies, etc. Due to these reasons, these entrepreneurs cannot be the true profit sharers of their businesses, just like farmers, who, in most cases, do not have any profit on the sale of their harvests after meeting all expenses. 

If anything remains as surplus, it is basically the wages of their labour. They get nothing in return for the risk they take, the capital they invest, and the oversight they undertake.

On the other hand, those who work as labourers in factories and businesses of others do not get a share of the profits made in the said businesses, nor do they even get a fair wage. 

From this point of view, workers of factories or businesses and agricultural farms, owners of small agricultural farms who employ labour themselves and hire some labourers to cultivate, and owners of cottage and micro enterprises all belong to the same category, at least in the context of their upper classes, who exploit them in various ways.

Sometimes, a few workers may also become the owners of businesses, but the number is extremely small, and they first appear as the owners of cottage or microenterprises, whose status is no better than that of workers but rather worse. 

Many workers in the export-oriented ready-made garments industry of our country, however, have emerged as owners. This is mainly due to the capitalists of the developed world becoming part of the exploitation of the cheap labour in this country. 

Due to such opportunities not being available in any other sectors, the number of workers becoming owners in those sectors is negligible. The purpose of saying these is not to demean anyone; this discussion is meant to understand the evils of the existing capitalist economic system of the country, which is part of the international imperialist system. 

It is a matter of concern that, owing to the widespread exploitation, cottage and microenterprises are gradually disappearing and their owners are turning into the working class.

However, until an alternative economic system is found to stop this exploitation of the majority by a few people in the capitalist system, we must try to reduce the level of exploitation as much as possible from within this capitalist structure, and that is the demand of the majority of the population that actually votes for and brings a political party to power. 

Nevertheless, such efforts can be seen in many European countries and in Canada, and support in this favour is growing day by day around the world. Governments in developing countries like ours, however, act as facilitators of the exploitative system of the middlemen, brokers, government offices, money lenders, syndicates, big companies, etc.

Sketch: TBS

Md Tauhidul Alam is senior faculty and head of the Learning Facilitation Wing, Mutual Trust Bank Training Institute