Published in The Daily Star on Wednesday, 7 May 2014.
Tap into potential of SMEs: experts
Star Business Report
Bank and non-bank financial institutions should set up separate subsidiaries or centres exclusively dedicated to small and medium enterprises, to cater to their need for funds, experts said yesterday.
Relationship managers or the SME desks at banks are not enough to understand the needs of the highly untapped market, they added.
“Banks should form subsidiaries to better serve the SMEs, as banking for SMEs is different from other banking services,” said Khondkar Ibrahim Khaled, a former deputy governor of Bangladesh Bank.
“There should be SME banking centres at the regional hubs to cater to this segment, instead of leaving them in the hands of relationship managers,” said Leif Andersen, commercial bank training expert at the Bangladesh Institute of Bank Management. “It will help banks generate more profit.”
They were speaking at a national seminar organised by the SME Foundation on sustainable business model for SME banking, at Bangladesh Bank Training Academy in Dhaka.
According to National Private Sector Enterprise Survey 2003, there are an estimated 6 million micro- and SME enterprises in Bangladesh.
Some 31 million people or 25 percent of the total workforce are involved in the sector.
SME’s contribution to GDP is 25 percent, 40 percent to manufacturing output, 85 percent to industrial jobs, 25 percent of the labour force, 89 percent of exports and make up 95 percent of all enterprises, according to Bangladesh Engineering Industry Owners Association.
“Bangladesh’s future lies with SMEs. They are the growth engine of the economy,” said Bangladesh Bank Governor Atiur Rahman.
SMEs are not only important in driving the economy forward, but also for distribution of wealth, he said.
When large borrowers cause high non-performing loans (NPL), there is not enough criticism, he said. “Our only focus is on the small NPLs of the SMEs.”
He said investment in SMEs went up 20 percent last year in the face of turbulent times. He urged foreign banks operating in the country to lend more to the SMEs.
Higher interest rates, complexities in documentation, and mandatory collateral guarantee deter SMEs from obtaining loans from banks, said Fahmida Khatun, research director of the Centre for Policy Dialogue (CPD).
While presenting a paper, Ali Reza Iftekhar, managing director of Eastern Bank Ltd, said: “SMEs can offer opportunities to banks to grow further. We can’t ignore them if we want to grow.”
He said SME is an area where banks can collect money cheaply and earn higher profitability. “The sector gives the highest profitability to banks, compared to retail and corporate clients. The sector also has low NPLs.”
SMEs account for 30 percent of clientele, but banks are not serious about them, said Iftekhar.
SMEs face many other challenges in areas such as marketing, sourcing, distribution and accounting but most talks are aimed at access to finance, he added.
The noted banker called for bold steps from the banks, regulators and entrepreneurs to form a synergy that makes it easier for the enterprises to obtain funds.
Selim RF Hussain, managing director of IDLC Finance Ltd, who presented another paper, said the sector is immensely rewarding and sustainable.
“But financial institutions have missed out on the segment. But at IDLC Finance, we have made a lot out of this.”
Sukamal Sinha Choudhury, consultant of SME faculty at BIBM, said banks should open their eyes and see what SMEs are doing and how their products are meeting customers’ standards.
Momtaz Uddin Ahmed, a former professor of Dhaka University; Syed Ihsanul Karim, managing diretor of SME Foundation; Ataur Rahman, executive director of Bangladesh Bank Training Academy; and Syed Mahbubur Rahman, managing director of Brac Bank, also spoke.