Banks keep injecting SME loans into unproductive sectors

63pc of SME loans go to trading sector in Q1

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Some 63 per cent of the Tk 26,140.62 crore SME loans disbursed in the first three months of 2015 went to trading sectors as banks continued to neglect the manufacturing zone, according to Bangladesh Bank data to be released next week.

BB officials, while talking to New Age on Monday, said the major financial goal of small and medium enterprises could not be fulfilled due to the higher loan disbursement to the trading sector than the manufacturing zone.

The higher loan disbursement to the trading sector usually puts a somewhat negative impact on the country’s overall economy as such trends fail to expand the industrial sector and make little contribution to employment generation, they said.

The BB data, however, showed that overall SME loan disbursement had increased by 19.33 per cent in January-March of 2015 compared with of the corresponding period of 2014.

All scheduled banks and non-bank financial institutions disbursed Tk 26,140.62 crore in SME loans in the first three months of 2015 against Tk 21,905.88 crore during the same period of 2014.

The SME loan disbursement by the banks and the NBFIs had increased by 18.11 per cent to Tk 16,472.37 crore in the trading sector in the first quarter of 2015 against Tk 13,946.13 crore in the same period of 2014.

The trading sector got 63.20 per cent of the total SME loan disbursement in the first quarter of this year.

The trend indicates that the banks were more interested in the trading sector, a BB official said.
The banks and the NBFIs disbursed Tk 6,737.98 crore and Tk 3,158.51 crore in loans to manufacturing and service sector respectively in the first three months of 2015 against Tk 6,357.07 crore and Tk 1,602.08 crore during the same period of 2014.

The manufacturing sector got 25.77 per cent of the total SME loan disbursement in the first three months of 2015 while the service sector received 12.08 per cent.

The BB official said that the SME loan disbursement had increased significantly in the first nine months of 2015 but it created little impact on the country’s industrialisation.

He said that the banks and NBFIs had disbursed significant amount of SME loans during the period as the large corporate groups had showed a little interest in receiving loans due to political unrest in the quarter.

The businesspeople have further adopted a go-slow policy to expand their business since early January of 2015 due to an unfavorable business situation which ultimately pushed up the overall SME loan disbursement.
But the banks and NBFIs disbursed major portion of SME loans to the trading sector as they thought that the sector was more secure for loan distribution than that of manufacturing zone.

The central bank has been requesting the banks and NBFIs for a long time to increase the loan disbursement to the manufacturing sector, the official said.
But the banks and NBFIs were yet to take proper measures to do so in absence of loan disbursement guidelines for the SME sector, he said.

The higher authorities of the central bank should impose an embargo on disbursement of excessive loans to the trading sector as such type of credits fail to play a major role in employment generation, he said.

‘The BB should set a specific rule about the SME loan disbursement ratio between the manufacturing and the trading sectors. The central bank should go for a higher loan disbursement in the manufacturing sector than the trading zone’, the official said.