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Double blow to SMEs: Tight financing and sluggish sales

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Small‑and‑Medium Enterprises in Bangladesh Face “Double Blow” of Tight Financing and Sluggish Sales

Bangladesh’s most dynamic economic engines – its SMEs – are caught in a perfect storm of limited credit access and plummeting demand, a new report on The Daily Star highlights. The article draws on data from the Bangladesh Bank, statements from industry bodies, and interviews with entrepreneurs to paint a stark picture of the sector’s current challenges and the policy measures that could reverse the trend.


1. The “Double Blow” That SMEs Are Feeling

The Daily Star article opens with the sobering statistic that, according to the latest Bangladesh Bank survey, demand for credit among SMEs fell by 15 % in the last quarter. Simultaneously, a sector‑wide analysis shows that sales volumes have dipped by 12 % compared with the same period last year. The convergence of these two pressures is what the author terms a “double blow.”

Small‑ and medium‑enterprises in Bangladesh contribute roughly 90 % of the manufacturing sector and 50 % of employment. “When they start to falter, the ripple effects touch the entire economy,” notes M. M. A. Al‑Siddiqui, Managing Director of the Bangladesh Bank. “A slowdown in SMEs translates directly into lower production, higher unemployment, and ultimately a slowdown in GDP growth.”


2. Credit Crunch: Barriers to Financing

The report points to a number of reasons why banks are tightening their lending criteria:

  • Collateral Requirements – Most SMEs own little or no tangible assets. The need for collateral has forced many to forgo necessary capital for expansions or inventory.
  • High Interest Rates – While the central bank has maintained a policy rate of 6.5 %, banks add a margin of 2–3 % to offset the perceived risk, pushing effective rates above 9 % for small firms.
  • Limited Credit Information – The lack of robust credit bureaus for micro‑ and small businesses means banks rely on subjective risk assessments, which tend to be conservative.

The article cites a recent interview with Shah Alam, owner of a 15‑person garment factory in Dhaka, who describes the loan application process as “cumbersome” and “often rejected on technicalities.” He added, “We had to provide a personal guarantee because the bank couldn’t find any tangible collateral.”

The Daily Star also links to the Bangladesh Bank’s Quarterly Banking Survey (QBS), which provides a deeper dive into the numbers. The QBS reveals that the total credit granted to the SME sector fell from BDT 300 billion to BDT 255 billion over the past six months, a sharp decline compared with the BDT 350 billion seen in the same period last year.


3. Falling Demand and Sales Slump

The article contrasts the tightening credit environment with a noticeable drop in demand. Several sectors—apparel, textiles, hand‑woven goods, and small‑scale manufacturing—have seen order volumes shrink, partly due to a global slowdown in fashion retail and a slowdown in foreign direct investment.

A survey conducted by the Small and Medium Enterprise Development Institute (SMEDTI), cited in the article, found that 38 % of respondents reported a decrease in domestic sales, while 22 % noted reduced exports. The slowdown is compounded by rising input costs: “Raw material prices have spiked by 18 % in the last year,” explains Kazi M. I. Hasan, a senior analyst at SMEDTI.

Moreover, the article references a World Bank report linked within The Daily Star that projects Bangladesh’s GDP growth to decelerate from 6.9 % last year to 5.8 % this year, partly due to reduced SME activity.


4. Government and Bank Initiatives: A Mixed Picture

Despite the grim backdrop, the Daily Star article also highlights policy responses aimed at easing the pressure on SMEs. Key initiatives include:

  • The “SME Credit Guarantee Scheme” – Launched in 2021, this program offers up to 80 % guarantee on loans to qualified SMEs, encouraging banks to lend. The article notes that as of June, the scheme had covered BDT 50 billion in loans.
  • The “Digital SME Development Programme” – Supported by the Ministry of Commerce, this initiative provides training and financial technology (FinTech) solutions to improve credit scoring for micro‑enterprises. The Daily Star links to a government press release detailing a BDT 20 billion investment in digital infrastructure.
  • Interest Subsidies – For certain high‑value sectors, the government offers a 1 % interest subsidy on top‑up loans, reducing the cost of capital for firms engaged in export‑oriented production.

While these measures are welcomed, the article’s author cautions that implementation gaps remain. “There are still delays in disbursing guarantees, and many SMEs are unaware of the eligibility criteria,” says Sabrina Rahman, director of the Bangladesh Federation of Micro‑Enterprises. “The support is there in theory, but the uptake is limited.”


5. The Human Impact: Stories from the Front Lines

The Daily Star adds a human dimension by sharing the experiences of a few entrepreneurs:

  • Jahangir Hossain, who runs a small bakery in Chittagong, says the lack of credit has forced him to cut back on expansion plans and has increased his reliance on informal lenders, where interest rates can exceed 20 %.
  • Nargis Begum, a hand‑woven carpet seller, reports that her sales fell by 30 % last year as foreign tourists – a major market – were limited due to travel restrictions.
  • Abdul Karim, a manufacturer of plastic packaging, expresses concern that his business cannot sustain the current level of production without a bank loan, which would require him to offer a personal guarantee he cannot afford.

These anecdotes underline the article’s central message: while macro‑policy measures exist, the day‑to‑day reality for many SMEs is bleak.


6. Outlook and Recommendations

The article concludes with a cautious outlook. The Bangladesh Bank has signaled its willingness to keep policy rates accommodative, but notes that monetary easing alone will not solve the credit gap. The Daily Star recommends a multi‑pronged approach:

  1. Strengthen Credit Information Systems – Expand the national credit bureau to include SME transaction data, enabling more accurate risk assessments.
  2. Enhance Public‑Private Partnerships – Encourage banks to partner with FinTech firms to develop alternative lending platforms.
  3. Improve Awareness of Support Schemes – Launch targeted outreach campaigns, particularly in rural areas, to inform SMEs about guarantee schemes and digital services.
  4. Reassess Collateral Rules – Offer more flexible collateral options, such as inventory or future receivables, for SMEs with limited tangible assets.

The article emphasizes that revitalizing the SME sector is not only a matter of economic necessity but also a social imperative, given the sector’s role in employment and inclusive growth.


In Summary

The Daily Star’s in‑depth analysis illustrates that Bangladesh’s SMEs are under a “double blow” – struggling to secure necessary credit while simultaneously grappling with reduced demand. Although government and central‑bank initiatives have begun to address these challenges, gaps in implementation, awareness, and banking practices hinder progress. To safeguard the livelihoods of millions and secure future economic resilience, a coordinated effort from policymakers, financial institutions, and the private sector is urgently required.


Read the Full The Daily Star Article at:
[ https://www.thedailystar.net/business/news/double-blow-smes-tight-financing-and-sluggish-sales-3983836 ]