Brac Bank looks to double SME portfolio in next 2 years

Syed Abdul Momen.

With 53% of its total loans to SMEs, Brac Bank is a leading lender to small businesses in the country. Currently, their total loan portfolio to the SME sector is Tk22,000 crore, which they want to double in the next two years. 

In a discussion with TBS Staff Correspondent Sakhawat Prince, the bank's Deputy Managing Director and Head of SME, Syed Abdul Momen, highlighted various issues in SME financing, the bank's future goals for the sector, and the reasons behind the success of the institution.

What are Brac Bank's goals in regards to SME financing? 

Recently, we reached a milestone for giving loans worth Tk15 lakh crore to 15 lakh customers in the SME sector. This is a cumulative calculation. Although you see that the total loan amount in the banking sector is about Tk15 lakh crores. So, I would say that Brac Bank is one of the significant contributors to the country's SME sector. 

We currently have NPLs below 3%. Brac is lending to SMEs through banks and various MFIs. Brac has been able to contribute only 3% to 4% to the market demand of our country. We still have the opportunity to tap into about 95% percent of the market.

So far, the total SME portfolio of Brac Bank is Tk22,000 crores. Among them, Tk16,000 crore worth of loans are collateral-free. Our aim is to double the current portfolio in two years. At present 53% of our bank's chest is with SMEs.

We work with four sectors in our SME loan activities, which includes small finance and emerging corporate (loans worth Tk75 lakh to Tk1 crore). Apart from ourselves, we also break loans through MFIs. Currently we have about 22 NGO customers.

How did Brac Bank formulate its SME loan plan? 

The visionary of our SME loan plan was Sir Fazle Hasan Abed. He went to a UN program in 1999, where two main problems of Bangladesh came up in an analysis. One of those was small business's access to finance.

The second one was that most people in Bangladesh work in urban areas. But their families continue to live in rural areas. There is no mechanism to easily send the money earned in the cities to the villages. 

He created two institutions to solve these two problems — Brac Bank to solve the first and bKash to solve the second.

There have been many changes to the business model in our 22-year journey. We realised that it will take money to disburse the loans, but where will the deposits come from? The deposits are in the cities. From that thought, we started retail banking and branch banking. Our model was that we would take cash deposits from these customers from urban areas and then distribute this money in rural areas.

What are your plans regarding corporate banking?

As time progressed, we saw that corporate banking was also an option. Corporate banking offers large deposits with other benefits. And if we want to disburse SME loans, we need deposits. Since deposits from the SME sector are small, we also expanded our corporate loan portfolio. We are now a complete bank.

There is only one problem with SME lending — the cost is high. Our next plan is to bring SMEs fully into the banking system within the next two years. The amount of deposits will also increase as the number of accounts increases.

How risky is it to distribute loans at the marginal level?

We have been learning through trial and error. We too were in a bad situation once. In 2013, we started a new business model, which is still in place, albeit with some changes. But the basics remain the same; experience is the biggest thing here.

We have a long experience of 22 years. And Brac as an NGO has 40 years of experience. Our credit managers are spread across the country. There are over 200 credit managers. 

Only credit managers can approve loans. You might think of a credit manager as a head office. Brac Bank is able to disburse loans within three days of application. This time is also taken to bring the signature of the guarantor, to bring the CIB of the central bank and to collect some other documents.

What is the role of Brac Bank's digital platform in disbursing SME loans?

We currently have 80 offices running on the digital platform. We have created an app for customers through which they can apply for small loans of Tk20,000-Tk50,000, for which no CIB is required.

Why is Brac Bank so popular among SME borrowers? 

One of the reasons behind our milestone SME lending is that when we go to the customer, the customer does not have to come to us. We have 3,000 field workers, whose target it is to reach 3,000 people. They go to the customers by going around the market. They then convince the customers to take loans. This is the main reason.