Corporate-focused lending leaves SMEs short of credit

More than three-quarters of bank lending in Bangladesh continues to flow to large corporate borrowers, leaving SMEs and other underserved businesses with limited access to finance, experts said at a roundtable yesterday.

“Bangladesh’s financial system remains heavily skewed towards large corporate borrowers, limiting access to finance for SMEs, rural entrepreneurs, and other underserved groups,” said Mohammed Nurul Amin, chairman of Bangladesh Krishi Bank.

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He said that 75 to 80 percent of bank lending continues to flow to the corporate sector, creating a structural imbalance that has persisted for years.

He made the comment at the event on “Access to Finance in Bangladesh: Building a More Conducive Financial System for the Private Sector”, organised by Policy Exchange Bangladesh (PEB) and the Metropolitan Chamber of Commerce and Industry (MCCI) at the chamber’s Gulshan office in Dhaka.

While large businesses enjoy easier access to credit, many small entrepreneurs, traders and informal businesses struggle to enter the formal banking system, he said.

To improve financial inclusion, Amin urged banks to expand invoice financing, or factoring, allowing suppliers to obtain financing against confirmed purchase orders or invoices without relying on traditional collateral.

He also proposed establishing a national collateral registry to help banks verify pledged assets, reducing fraud and improving lending efficiency.

In addition, he called for greater use of movable assets as collateral and for extending the validity of trade licences to reduce administrative hurdles for small businesses.

Syed Abdul Momen, head of SME at BRAC Bank, said the banking sector’s long-standing focus on large corporates rather than SMEs lies at the root of many of its current problems.

Since independence, around 75 percent of bank financing has gone to corporates, leaving SMEs with limited access to credit, he said.

Momen argued that banks place excessive emphasis on collateral even though BRAC Bank’s experience suggests that it does not necessarily reduce risk.

Of the bank’s roughly Tk 1 lakh crore in assets, about half is in SME loans. Around Tk 40,000 crore of those loans carry little or no collateral and have a nonperforming loan (NPL) ratio of just 2 percent, compared with 7 percent for the Tk 10,000 crore collateral-backed SME portfolio.

“Collateral gives banks a sense of comfort, but it does not necessarily reduce risk,” he said, urging lenders to assess borrowers based on cash flow rather than pledged assets.

He added that expanding SME finance requires a stronger digital ecosystem, wider data sharing and a private credit bureau.

He also highlighted BRAC Bank’s fully digital loan product for bKash merchants, offering loans of up to Tk 5 lakh with approvals in about a minute.

Shams Mahmud, managing director of Shasha Denims Ltd, said exporters are under growing pressure as production costs continue to rise while export prices remain largely stagnant because of intense global competition.

The doubling of gas prices on January 30, coupled with higher electricity tariffs, wages and taxes, has sharply increased production costs, he said.

“Our energy bill has almost doubled, and we have to bear an additional Tk 36 crore. Where will that money come from?” Mahmud said.

He also criticised policy misalignment and difficulties in obtaining bank guarantees and offshore financing, saying regulatory uncertainty and banking delays can disrupt business operations and push otherwise viable companies towards default.

Syed Mohammad Kamal, president of the American Chamber of Commerce in Bangladesh (AmCham), said SMEs lack the institutional support available to large firms, requiring coordinated action by the central bank, the judiciary and other stakeholders.

Andalib Mirza, head of multinational wholesale banking at HSBC Bangladesh, said limited digital data and weak financial verification remain major obstacles, particularly for non-garment companies without export records.

Delivering the keynote address, Shams Zaman, country managing partner of PricewaterhouseCoopers Bangladesh Pvt Ltd (PwC), said credible resolution of distressed assets is essential to restoring confidence and reviving credit growth.

He also stressed the need to develop long-term sources of capital beyond the banking sector, proposing that the Guarantee Window be transformed into an autonomous, professionally managed institution to help diversify the country’s financial system.

Moderating the discussion, M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh, said the Bangladesh Business Climate Index has consistently identified access to finance as the weakest aspect of the country’s business environment, prompting the roundtable to focus on practical reforms to improve financing for businesses.

Farooq Ahmed, secretary-general and CEO of MCCI, also addressed the event.