Originally posted in The Financial Express on 28 August 2022
Banks and financial institutions should introduce innovative instruments to convince small-and-medium enterprises (SMEs) to integrate into formal banking channels, says Dr Khondakar Golam Moazzem.
“Banks think that SMEs aren’t bankable, but it’s not hard to observe that these small businesses are functioning, in fact, quite well,” he asserts.
Dr Moazzem, research director at the Centre for Policy Dialogue (CPD), says, “It’s not their (SMEs) weakness, it’s their characteristics, that’s how they function…”
“It’s the financial sector that needs to develop a befitting model for the financial inclusion of SMEs.”
Dr Moazzem was addressing the third plenary session ‘Macro-financial Environment and Financial Sector’ at the Ninth Annual Banking Conference-2022 hosted by the Bangladesh Institute of Bank Management (BIBM) on Saturday.
Dhaka University finance professor Dr Mahmood Osman Imam, BIBM professor Md Mohiuddin Siddique and associate professor Dr Md Shahid Ullah also speak at the session with former Bangladesh Bank deputy governor Ziaul Hasan Siddiqui in the chair.
Emphasising making finance more accessible for SMEs, Dr Moazzem says foreign direct investment is mostly concentrated in big businesses while SMEs are even deprived of getting funds from formal channels.
He suggests that policy-makers create an ecosystem to channel FDI into small businesses too to contribute largely to the financial inclusion of this informal sector.
Despite having a liberal FDI regime in Bangladesh, he notes, FDI inflow is not that satisfactory due to policy inconsistencies, bureaucratic hassles, lack of proper infrastructure and complex tax system.
Dr Moazzem suggests that banks and financial institutions partner with NGOs and organisations like SME Foundation to find a way to disburse funds to small businesses.
Meanwhile, Dr Imam says banks and financial institutions are less interested in disbursing funds to SMEs via other entities due to higher transaction costs.
There is a bar of 9.0-per cent interest rate on loans which makes it hard further for the banks to disburse loans to SMEs though third party, he adds.
Besides, the state-run banks are burdened with excessive liquidity while many private banks have been dealing with irregularities in outstanding loans.
Two research papers ‘Foreign Direct Investment, Financial Development and Economic Growth: Empirical Evidence from Developing Countries’ and ‘The Unconventional Monetary Policy Measures and the Covid-19 Pandemic: Lessons from Global Perspective’ were presented at the session.