Abstract:

At present small and medium enterprises (SMEs) have become an important sector that is
supposed to play a vital role in boosting the economy of bangladesh. Access to finance is
important for SMEs because the growth and survival of SMEs are highly depend on their
ability to invest in restructuring, innovation etc. Banks are the key role players in funding
SMEs. This paper investigates the contribution of private commercial banks (PCBs) to the
growth of SMEs in bangladesh between the periods of 2010 to 2014.Descriptive methods of
analysis were employed. Secondary data were used and simple statistical tools such as
ratio,trend,charts etc were used to match the approach. Therefore, discussed the
contribution of private commercial banks (PCBs) to providing funds to SMEs as revealed
from these data. It was found that PCBs contribute to financing SMEs but the proportion of
contribution varies among the banks. Continuous effort from Bangladesh Bank and
Government, PCBs also reluctant to finance SMEs due to avoid high risk, lack of collateral,
proper documentation and monitoring etc. Along with other recommendations, the paper
recommend that PCBs should decrease it interest rate, increase SME loan product and
increase monitoring so that SMEs can benefit by using bank loan as large scale organizations
do. The total number of SMEs in Bangladesh is estimated to be 79,00,000 establishments. Of
them, 93.6 percent are small and 6.4 percent are medium.
Keywords: Private Commercial Bank, SME, Ratio and Bangladesh
 Chapter1

Introduction
People in Bangladesh have a strong sense of entrepreneurship. According to Asian
Development Bank, there are more than 6 million SMEs in Bangladesh. When we compare it
with Japan, with 3.85 million, we can see significant difference. SMEs have an important
role as the backbone of the economy in almost all developing countries. In Bangladesh SME
contributes to 25% of GDP, employs 75% to 85% of the labor force in the industrial sectors.
SMEs need money to start-up, expansion, material purchase, purchase of equipment and
machineries and maintain sound working capital requirements.SMEs in Bangladesh collect
their fund from various sources like personal savings, family, friends and close relative,
loans from financial institutions and NGOs.All the above mentions sources PCBs provide a
vital role in financing SMEs as well as non financial services. Previous study on SME showed
that, on an average banks provide near about 20% percent loan in SMEs sector from their
total loan disbursement each year. Continuous effort from Government and central Bank to
promote SMEs finance, the number of loans products and loans balance for SMEs finance in
banks is increasing substantially. The banking systems of Bangladesh comprised of
bangladesh bank is the central bank of Bangladesh, four state-owned commercial banks
(SCB), five specialized banks (SB), thirty nine private commercial banks (PCB), one land
development bank and nine foreign banks (FB). As we can see private commercial bank
holds a major rules of banking systems, which are main players in the financial systems have
the potential to pull financial resources together to meet the credit needs of SMEs. Banks
loan portfolio includes commercial loan, industrial loan, consumer loan and SME loan. All of
these loans have significant impact on the banks performance and profitability, now-a day’s
SMEs financing is getting more importance because it is the way of boosting our economy
and creating employment opportunities. The aim of the study is to access the contributions
of the PCBs to financing the SMEs in Bangladesh for the period 2010-2014 and also highlight
the problems encounter by banks in this regards.
Objectives Of The Study
In this paper i have tried to assess the overall contribution of PCBs in the growth and
development of SMEs. Thus the specific objectives of the study are as follows:

 To highlight the SMEs financing status in bangladesh.

 To analyze the proportion of SME loan of the sample bank to their total deposits and
total advances between the periods of 2010 to 2014.
 To find out the problems of SMEs financing in Bangladesh.
 To recommend solution to flourish the SMEs smooth operation in Bangladesh.
 Chapter:2

Methodology
The study is based on secondary data. Secondary data derive from the publications
of Bangladesh Bank; published statistical data from reliable and recognized sources were
used in this regard. Several books, articles and some news papers have been reviewed to
get clear idea about the topic of the study with the respect to objectives mentioned above.
The data is for five years covering 2010 to 2014. Among 39 PCBs of Bangladesh 8 banks
selected and presented here.

Literature Review
Suleiman (2005) observed that the 50.53 percent of SMEs had no access to formal
source of finance. Only 35.79 percent of SMEs enjoy unrestricted access to the formal
credit. Of the rest 13.68 percent have restricted access to formal credit. Bank credit is used
by small percentage of entrepreneurs and provides financing of generally less than 20
percent of their total outlay. Majority of the SMEs (59.6%) seek finance for their working
capital needs from banks, although only a half-of them get loan from banks [2].
Islam et. al (2005) observed that bank is the most widely used source (accessed by
54% of the SMEs) whiles self- finance is the source for 46% of the SMEs and family and
friends’ sources are accessed by 21% of them [3].
Hasan and Islam (2008) identifies that banks usually do not express interest towards SME
financing.
The reason behind this conservativeness is higher operational cost, less return and high risk
associated with the SME financing. Due to small loan size the operational cost is higher and
they require intensive monitoring and supervision. The main reason for higher risk is that
the small and medium entrepreneurs are highly unlikely to comply with the collateral
requirements as typically they do not have immovable properties. With the excuse of
collateral sometimes banks and non-bank financial institutions are reluctant to finance
SMEs [4].
Chowdhury et. al (2013) has made a study on “Problems and Prospects of SME Financing in
Bangladesh”. The study found that SMEs contributes significantly in poverty reduction
programs and potential contribution to the overall industrial and economic growth and
suggested Venture Capital, Bank Syndication Scheme, HRD in Financial institutions and in
Government offices, Training and Development etc as potential tools of eliminating the
constrains of SMEs financing [5].
Akterrujjaman (2010) conducted a study “problems and prospects of SMEs loan
management: A study on Mercantile Bank Limited, Khulna Branch” where major findings
are related to the high interest and loan duration rates, reasons for SMEs relatively informal
way of doing business in contrast to bank’s formal procedures and prerequisites, bank’s
relative inexperience in this field].Chowdhury and Ahmed (2011) have made a working
paper on “An Appraisal of the Problems and Prospects of Small and Medium Enterprises
(SMEs) Financing in Bangladesh: A Study on Selected Districts”. They observed that non
availability of adequate credit, complex loan granting procedure, inadequate infrastructure
facilities, problems of collateral requirements, paucity of working capital, non availability of
skilled work force; poor salary structure, lack of coordination among SME related
organizations, lack of appropriate marketing strategies etc. are the major hindrances to the
development of the SMEs in Bangladesh. They recommended easy loan application and
disbursement procedures; fix the minimum salary, adequate finance for modernization,
expansion and technological advancement of SMEs etc for the development of SMEs
A number of studies have been conducted by various research scholars on a number
of issues pertaining to SME financing such as financing SMEs in Bangladesh-challenges &
issues, problems & prospects of SME financing in Bangladesh, the landscape of SME
financing in Bangladesh, SME financing in Bangladesh: Comparative analysis of conventional
and Islamic banks and so on. However none of these studies highlighted the contribution of
PCBs in SME financing. So in this study the authors’ attempt to show the contribution of
PCBs to the growth and development of SMEs in Bangladesh.
 Chapter:3

Concept of Commercial Bank

Commercial banks primarily raise funds by issuing checkable deposits, savings

deposits and time deposits. They then use these funds to make commercial,
consumer and mortgage loans, and to buy government and private securities and
bonds. Yet there are important differences from one commercial bank to another.

All commercial banks perform two general functions:

1. Acceptance of deposits from different sources.

2. Lending (direct lending to borrowers and indirect lending through investment in

open-market securities.) They are always involved in trade finance activities,
including providing short-term credit, which is often their most profitable business.

Local banks often have a wide local network and handle both small and large
transactions. Local commercial banks (nationalized and private) in bangladesh are
no less competent than international banks and are more suitable for SMEs.Small
local commercial banks, with few or no branches, often specialize in short-term credit
for trading activities and refinance these from the deposits they take from their
customers. Being smaller and more flexible, their level of service is sometimes more
attractive.

Foreign commercial banks, are part of (or are managed by) an international group,
which may be beneficial to you as a tracer and borrower. There are now 12 foreign
commercial banks in Bangladesh
Definition Of SME
A business may be categorized as either large, medium or small scale depending on
capital investment, number of employees and production volume and so on. The World
Bank defines SMEs as those enterprises with a maximum of 300 employees, $15 million in
annual revenue and $15 million in assets.
Definition of Small Enterprise
Under Bangladesh Bank’s regulations Small Enterprise refers to the firm/business which is
not a public limited company and meets the following criteria:

Table-1, definition of small enterprise

Seria Sector Fixed Asset other Employed
l No. than Land and Manpower
Building (Tk.) (not above)
1 Service 50,000-50,00,000 25
2 Business 50,000-50,00,000 25
3 Industrial 50,000-150,00,000 50
Source: Bangladesh Bank

Definition of Medium Enterprise

Medium Enterprise refers to the establishment/firm which is not a public limited company
and meets the following criteria:

Table: 2, Definition of Medium Enterprise

Serial Sector Fixed Asset other than Employed
No. Land and Manpower (not
Building (Tk.) above)
1 Service 50,00,000- 50
10,00,00,000
2 Business 50,00,000- 50
10,00,00,000
3 Industrial 150,00,000- 150
20,00,00,000
Source: Bangladesh Bank

Small & Medium Enterprise Foundation

Prejean Bhaban, Level:6,7
E-5, C/1West Agargaon, Sher-e-Bangla Nagar Administrative Area,
Dhaka 1207
Email: info@smef.gov.bd
URL : www.smef.gov.bd
Tele. No.: 41024108, 41024109, 41024110
 Institute of SME Foundation
 Chapter:4

Contribution of SMEs in the Economy of Bangladesh

SMEs is a integral part of the total economy of Bangladesh. SME can contribute to
archive national income and rapid employment creation in the goal of reduction
extreme property and women empowerment.
 To fulfill internal demand

SMEs plays a vital role to fulfill the demand of internal goods and services. New
production, expansion of traditional goods and for the diversification. SME have a
special opportunity to contribution.
 Increase Export and Decrease Import

Using of internal resource and increasing local product a structural and multi SME
sector can reduce import. SME sector work for the backward and forward linkage.
 Innovation

SMEs contain innovation of new product and services. Where expansion of

technology can contribute for the expansion of consumer.
 Poverty Reduction

SMEs can contribute millennium development including poverty reduction increasing

national income, employment generation and verity of production.
 Women Empowerment

Women participation in micro credit and garment plays important role in building up
industrialization. So, ensure women participation in every sector of economy.
 Other contribution

Access to Finance
 Credit Wholesaling Program
 Check list For bank Loan
 SME Related Bangladesh Bank Circulars
 Seminar Papers
Women Entrepreneurship Development (WED)
 SME Women Entrepreneurs Directory
 SME Women Award
Business Support Service (BSS)
 About Business Support Services (BSS)
 SME Advisory Service Center
 SME Business Guide
 SME Business Plan Template
 Market Profile

Policy Advocacy (PA)

 About Policy Advocacy
 Budget Recommendations for SME Friendly Tax/VAT Regime
 SME Friendly Recommendations for different National Policies
 Workshop & Seminars

Training
 Training Form
 Training Calendar

Access to Technology
 About Technology Wing
 Expert Consultation Meeting
 HS Code Document
 Technology Based Business Services

ICT for SMEs

 E-commerce
 Training
 Support For SME Association

Cluster Development

 Concept of Cluster and Its Characteristics

 Definition of Clusters in Bangladesh Economic Context
 Cluster Needs Assessment Program
 Cluster Development Action Plan
Research
 Research Activities
 Research Publication
Public Relations (PR)
 SME News Link
 Press Release
 Newsletter
Strategies for the Development of SME Financing

For the first time, Bangladesh Bank has made a comprehensive policy and programs
on SMEs which has got much appreciation of all the stakeholders in Bangladesh.
After commencement of the present Government, Bangladesh Bank has taken a lot
of action plans and programs on SMEs under the leadership of present Governor Dr.
Atiur Rahman. Bangladesh Bank feels proud of its excellent policy, right leadership
and available dedicated workforce. Some of the strategies for SME financing are
outlined below-
 Setting up an   indicative target for SME loan disbursement,
 Following the “Area Approach Method3“
 Cluster development Policy
 Priority  to  the   small   entrepreneurs,   women entrepreneurs,
 Special emphasis for manufacturing and service sectors,
 Monitoring SME activities in the Head Office of Bangladesh Bank
 Following    separate    business    strategies    in financing SME
 Speedy loan sanction and disbursement.

SME Financing Status In Bangladesh

Banks and NBFIs play major role for SMEs financing in Bangladesh under supervision
and regulations of Bangladesh Bank. Considering SME development as one of the important
development agenda of the country, Bangladesh Bank has been set the target of SME loan
disbursement for financial sector for the first time in 2010. According to the target SMEs
loan shall be disbursed to the small, medium and women entrepreneurs. Following table
shows the SMEs loan disbursement target and achievement during the years 2010 to 2014.
 Table: 3, Sector wise SME Loan Target (BDT in Crore), Disbursement (BDT in Crore), &
Achievement (%).

SME Sector Tot

al
Service Tra Manufacturi
Y
de ng
e
Targ Disbu Achie Targ Disbu Achie Targ Disbu Achie Targ Disbu Achi
a
e rse ve e rse ve e rse ve e rse e
r
t ment ment t ment ment t ment ment t ment vem
en
t
2 464 3355. 72.27 220 3504 158.9 121 1514 124.4 388 5354 137.
0 3. 68 % 42 0.5 7 72 7.7 5 58 3.9 7
1 32 .59 3 % .21 2 % .12 3 9%
0
2 748 3530. 47.14 303 3438 113.4 191 1580 82.58 569 5371 94.3
0 9. 85 % 10 2.6 4 40 5.9 % 40 9.4 4
1 78 .23 4 % .12 5 .13 4 %
1
2 797 3630. 45.55 304 4422 145.1 205 2189 106.4 590 6975 118.
0 1. 90 % 63 5.1 7 77 7.3 1 12 3.4 2
1 44 .81 9 % .53 3 % .78 2 0%
2
2 862 4602. 53.38 396 5670 142.9 258 2401 92.79 741 8532 115.
0 3. 89 % 81 3.7 0 82 6.6 % 86 3.2 0
1 42 .06 2 % .39 4 .87 5 1%
3
2 117 7896. 67.45 464 6276 135.1 308 3024 97.94 890 1009 113.
0 06 77 % 42 7.1 5 81 6.2 % 30 10. 3
1 .85 .81 8 % .29 0 .95 15 4%
4
Source: SME and Special Program Department (SPD), Bangladesh Bank [8].

Table-3 reveals that in 2010 total target of SMEs loan disbursement was Tk.
38858.12 (crore) and corresponding disbursement was Tk. 53543.93 (crore), of which Tk.
3355.68 crore in service sector, Tk. 35040.53 crore in trade sector and Tk. 15147.72 crore in
manufacturing sector respectively. During 2014 total target of SME loan was Tk. 89030.95
(crore) and corresponding disbursement was Tk. 100910.15 crore of which Tk. 7896.77
crore in service sector, Tk. 62767.18 crore in trade and Tk. 30246.20 crore in manufacturing
sector. Table-3 also reveals that disbursement of SMEs loan gradually increased from year
to year. Following figure shows the total target and disbursement trend of SMEs loan of
total financial sector for the year 20102014.
 Figure-1: SMEs loan target and disbursement trend during the year 2010 to 2014.

Fig.1 shows that the trend of SMEs loan disbursement were beyond the target in the year
2010, 12, 13 & 14 except 2011.

Since the year 2010 an indicative target for SME loan disbursement has been set by
Bangladesh Bank for financial sectors. According to the target, SME loan were disbursed by
SCBs, SBs, PCBs, FBs and NBFIs. Following table shows the SMEs loan target and
disbursement total of financial sectors during the years 2010 to 2014.

Table: 4, Total SMEs loan target and disbursement of financial sectors

during the years 2010 to 2014 (BDT in Crore).
Financial
Sector Tota
Y Banks NBFIs l
e SCBs SBs PCBs FBs NBFIs
a Tar Disbur Tar Disbur Disbur Tar Disbur Tar Disbur Disbu
r g se g se Targ se g se g se Targ r
et ment et ment et ment et ment et ment et seme
nt
2 508 7523. 121 2694. 301 40494. 731 1133. 168 1696. 388 5354
0 3. 98 0. 66 44 57 .6 93 8. 79 58 3.
1 10 00 .67 9 66 .12 93
0
2 766 4154. 336 2563. 423 44109. 119 1241. 240 1645. 569 5371
0 8. 88 5. 55 03 72 7. 35 5. 94 40 9.
1 00 00 .90 43 80 .13 44
1
2 512 3941. 406 3671. 459 59070. 121 1579. 268 1490. 590 6975
0 0 28 5 79 28 13 6. 26 3. 96 12 3.
1 .47 30 01 .78 42
2
2 582 5147. 556 3690. 589 73411. 135 1187. 247 1886. 741 8532
0 0. 92 5. 36 73 89 6. 04 1. 04 86 3.
1 02 00 .72 46 67 .87 25
 3
2 568 5961. 580 3065. 720 88097. 133 909.6 419 2877. 890 1009
0 3. 01 0. 12 20 20 4. 2 1. 20 30 10
1 56 00 .81 64 94 .95 .15
4
Source: SME and Special Program Department (SPD), Bangladesh Bank [8].

Table-4 reveals that PCBs are the major suppliers of SMEs loan. In year 2010 PCBs
disbursed Tk. 40494.57 crore which was 75.63% of the total loan disbursement in SME
sector. During year 2014, PCBs disbursed Tk. 88097.20 crore which was 87.30% of the total
loan disbursement. Table- 4 also reveals that loan disbursement in SME sector by PCBs is
gradually increasing.

Private Commercial Banks (PCBs) As Fund Providers To SMEs

In response to the policy guidelines of Bangladesh Bank, some positive changes have
taken place in the area of bank financing to SMEs of the country. The total SMEs loan
increased for around 20% to 25% of their total credit portfolio in between 2010 to 2014. Of
the broad bank groups, performance of PCBs, is relatively better. The contribution of PCBs
to SMEs was analyzed on the basis of SMEs loan proportion to their total deposit and loan
and advances of each of the five years. From these it is exposed to what extent PCBs
provide fund to SMEs in Bangladesh with a specific interest rate such as 13% to 18%, except
10% for women entrepreneurs.

SMEs loan disbursement to total deposit of the sample banks

Bank is the financial intermediaries that collects fund from surplus unit and provide
the same to the deficit unit. In each year the PCBs provide fund to SME entrepreneurs from
their total deposit. Following table shows the SMEs loan disbursement to total deposit of
the respective banks for the year 2010-2014.
 Table: 5, SMEs loan disbursement to total deposit during year 2010 to 2014.
Name of Deposits in BDT. Million & % of SMEs loan to total deposits
No the 2010 2011 2012 2013 2014
Bank
Total Deposit 291935.00 341854.00 417844.00 473141.00 560696.00
01 IBBL Total SME Loan 78456.00 108670.00 149214.00 170356.00 201127.00
Percentage (%) 26.87 31.79 35.71 36.00 35.87
Total Deposit 88158.00 103797.00 134686.00 127892.00 148464.00
BRAC
02 Total SME Loan 37400.00 35590.00 39000.00 33676.00 43500.00
Bank
Percentage (%) 42.42 34.29 28.96 26.33 29.30
Total Deposit 124518.00 159816.00 182053.00 201907.00 204838.00
Prime
03 Total SME Loan 3593.00 9429.00 12230.00 19532.00 20054.00
Bank
Percentage (%) 2.89 5.90 6.70 9.67 9.80
Total Deposit 54660.00 73106.00 93433.00 110778.00 129746.00
IFIC
04 Total SME Loan 10841.00 14225.00 15464.00 16795.00 19629.00
Bank
Percentage (%) 19.83 19.46 16.73 15.16 15.13
Total Deposit 107253.00 127178.00 152901.00 177519.00 189473.00
05 SEBL Total SME Loan 13061.00 14430.00 18126.00 26501.00 30878.00
Percentage (%) 12.18 11.35 11.85 14.93 16.30
Total Deposit 95702.00 116152.00 140026.00 161846.00 198189.00
06 AB Bank Total SME Loan 2720.00 3102.00 3229.00 3755.00 4283.00
Percentage (%) 2.84 2.67 2.31 2.32 2.16
Total Deposit 44850.77 66852.55 93594.29 102104.48 124535.01
07 SIBL Total SME Loan 1703.50 4370.00 6868.80 7164.30 21349.30
Percentage (%) 3.80 6.54 7.34 7.02 17.14
Total Deposit 86365.64 95131.10 110061.78 133489.37 140869.29
Bank
08 Total SME Loan 2199.00 2257.00 2487.00 2606.00 2675.00
Asia
Percentage (%) 2.55 2.37 2.26 1.95 1.90
Source: Authors’ arrangement based on annual reports of sample banks [9].

Table-5 reveals that the disbursements of SMEs loan against total deposit were increased
year to year.
Average ratio of five years SMEs loan to deposit of the respective banks are as follows: IBBL
33.25%, BBL
32.26%, Prime Bank 6.99%, IFIC Bank 17.26%, SEBL 13.32%, AB Bank 2.46%, SIBL 8.37% and
Bank Asia 2.21%. From the above table we also clear that on an average SMEs loan to
deposit ratio of the sample banks is
14.51%.
Following figure shows the proportion of SME loan to total deposit of the banks for year
2010-2014.
 45.00%
40.00%
35.00%
30.00%
2010
25.00%
2011
20.00%
2012
15.00% 2013
10.00% 2014
5.00%
0.00%
IBBL BBL Prime IFIC Bank SEBL AB Bank SIBL Bank Asia
Bank

Figure 2: Proportions of SMEs loan to total deposit.

From fig.2 illustrate that disbursement of SMEs loan to total deposit of the banks
were fluctuate between the periods 2010 to 2014. It was varies 42.42% to 1.90%. It is also
illustrate that SME disbursement of AB bank, Bank Asia, Prime bank were below 10% of
total deposit.

SMEs loan disbursement to total loan and advances of sample banks

Since the year 2010 an indicative target for SME loan disbursement has been set by
Bangladesh Bank for all schedule banks and financial institution considering SME
development as one of the most important agenda of the country. According to the target
SME loan shall be disbursed by PCBs to promoting the development of SMEs of the country.
Following table shows the disbursement of SMEs loan to total loan and advances of the
sample banks for the year 2010-2014.
 Table: 06, SMEs loan disbursement to total loan and advances/investment during year
2010 to 2014.
Sl No Name Loan and Advances/Investment in BDT. Million & % of SME Loan to Total
of Loan and Advances/ Investment
the 2010 2011 2012 2013 2014
Bank
Total Loan & 263225.00 305841.00 406817.00 403195.00 463475.00
Advances/Investment
01 IBBL s
Total SME Loan 78456.00 108670.00 149214.00 170356.00 201127.00
Percentage (%) 29.81 35.53 36.67 42.25 43.40
Total Loan & 84303.00 95167.00 111875.00 117111.00 121941.00
Advances/Investment
BRAC
02 s
Bank
Total SME Loan 37400.00 35590.00 39000.00 33676.00 43500.00
Percentage (%) 44.36 37.40 34.86 28.76 35.67
Total Loan & 116057.00 138848.00 160890.00 153589.00 147367.00
Advances/Investment
Prime
03 s
Bank
Total SME Loan 3593.00 9429.00 12230.00 19532.00 20054.00
Percentage (%) 4.00 6.79 7.60 12.72 13.61
Total Loan & 47563.00 64641.00 77160.00 84110.00 102282.00
Advances/Investment
IFIC
04 s
Bank
Total SME Loan 10841.00 14225.00 15464.00 16795.00 19629.00
Percentage (%) 22.80 22.01 20.04 19.97 19.19
Total Loan & 93981.20 107288.58 126968.97 134863.82 147070.81
Advances/Investment
05 SEBL s
Total SME Loan 13061.00 14430.00 18126.00 26501.00 30878.00
Percentage (%) 13.90 13.45 14.28 19.65 21.00
Total Loan & 88002.00 94638.00 106066.00 140121.00 177571.00
Advances/Investment
AB
06 s
Bank
Total SME Loan 2720.00 3102.00 3229.00 3755.00 4283.00
Percentage (%) 3.09 3.28 3.04 2.68 2.41
Total Loan & 36680.28 53908.58 76024.97 85922.33 107899.96
Advances/Investment
07 SIBL s
Total SME Loan 1703.50 4370.00 6868.80 7164.30 21349.30
Percentage (%) 4.64 8.11 9.03 8.34 19.79
Total Loan & 79504.23 82819.97 92328.82 104911.26 116808.85
Advances/Investment
Bank
08 s
Asia
Total SME Loan 2199.00 2257.00 2487.00 2606.00 2675.00
Percentage (%) 2.77 2.73 2.69 2.48 2.29
Source: Authors’ arrangement based on annual reports of sample banks [9].

Table- 6 reveals that the disbursements of SMEs loan to total loan and advances
were increased year to year. Average ratios of five years SMEs loan to total loan of the
respective banks are: IBBL 37.53%, BBL
36.21%, Prime Bank 8.94%, IFIC Bank 20.80%, SEBL 16.46%, AB Bank 2.90%, SIBL 10.02%
and Bank Asia 2.60%. From the above table it is also clear that on an average SMEs loan to
total loan and advances ratio of the sample banks was 27.09%.
Following figure shows the proportion of SMEs loan to total loan and advances of the banks
for 2010-2014

50.00%
45.00%
40.00%
35.00%
30.00% 2010
25.00% 2011
20.00% 2012
2013
15.00%
2014
10.00%
5.00%
0.00%
IBBL BBL Prime IFIC Bank SEBL AB Bank SIBL Bank Asia
Bank

Figure 3: Proportions of SMEs loan to total loan and advances.

Chapter:5

Monitoring of SME Credit:

Like monitoring of agricultural credit, three tier monitoring systems (BB Head Office, BB
Branch Offices
and Banks) will be established in case of SME credit.
Purpose of the Monitoring of SME Credit:
 To achieve the overall target of SME loan disbursement;
 To achieve sector wise industrialization; such as higher growth of industry and
service
 sector, increasing the number of women entrepreneurs and their development,
district
 wise employment generation and poverty reduction;
 To provide required credit to the small entrepreneurs without any harassment;
 Special monitoring of the banks performance in providing credit to the women
entrepreneurs;
 To ensure area approach and cluster-based credit disbursement.
 To ensure satisfactory recovery of the disbursed credit in this sector to address any
liquidity crisis.
Methods of Monitoring of SME Credit:
Monitoring in the Head Office of the Central Bank:
Comprehensive monitoring strategies/procedures are being adopted by Bangladesh Bank to
monitor the SME policy implementation more effectively. Meanwhile, an ‘SME Loan
Monitoring Cell’ has been set up in the ‘SME and Special Programmers Department’. To
achieve the objectives of SME credit policy, the Monitoring Cell will comprehensively
monitor the SME credit management at the field level. In addition to the off-site & on-site
supervision of SME loan, the respective Cell will take necessary steps against any complain
regarding SME credit subject to investigation.
Submission of Information/Statements:
To review the annual implementation progress of SME credit programmers, the respective
banks/financial institutions will submit accurate information/statements as per format at
Annexure-D & E regarding SME credit on quarterly basis to Bangladesh Bank within 15 days
of the next month following the quarter under reporting. Besides, the existing statements
will be required to be continued as usual.
Monitoring in the Branch Offices of the Central Bank:
SME Credit Monitoring Cell will be established in the branch offices of Bangladesh Bank like
Head Office. This Cell will take effective steps to monitor the SME credit disbursement and
recovery activities by the banks/financial institutions of their respective areas intensively.
Monitoring in the Banks Level:
The respective banks have to ensure effective monitoring system so that real entrepreneurs
can get the SME credit in time according to the SME credit policy and credit norms. They will
also ensure that the entrepreneurs do not face any harassment and the indicative target of
SME credit is achieved. For this, respective banks will set up ‘Monitoring Unit’ and inform
the same to Bangladesh Bank.
Monitoring by the Head Offices of the Banks:
 As part of their business strategy, higher authorities of banks must have clear vision
and
 direction about disbursing SME credit.
 Usually, credit disbursement is the affairs of the credit disbursing bank. The banks
sanction
 credit in favor of the customers after considering their credit worthiness and other
relevant matters. In addition to comply with the existing credit norms, the banks will
take the following steps to ensure sincerity, efficiency and speed in sanctioning and
disbursement of SME loans.
Simplifying of the SME credit Application Form;
Guidance for filling up the application form and all other requirement should be advised
at the time of supplying the application form to avoid delay;
All supplementary queries shall be made to the applicant in one instance;
Rationalizing the time line for credit processing and disbursement;
The letter requesting the Credit Information Bureau (CIB) of Banglaledesh Bank to verify
loan classification status of the applicant shall marked “SME, the priority” and CIB will
provide the same on priority basis (within minimum time
Quick settlement of borrower’s complain;
 Core Group or Cell has to be established to monitor SME credit disbursement
activities, to
 Take new steps and solve problems surfaced at the field level rapidly.
 SME credit related item may be included in the agenda of annual/half yearly
managers’ conference.
 The officials in the regional/branch level may be rewarded on the basis of
performance of SME credit disbursement and recovery.
 Required training may be arranged for the officials related to SME for their capacity
building.
 Modern information technology especially Mobile Phone, E-mail etc. may be used in
order to monitor the activities of the regional offices and branches intensively.
Monitoring Activities in Regional Offices of the Banks:
 The smooth implementation of the SME programme shall be monitored at regional
offices level of the banks. For the purpose, SME Credit Monitoring Unit may be
established in the regional offices. The members of the Monitoring Unit will visit
their respective areas from time to time to monitor that the disbursement is
progressing in line with the target.
 The role of Regional Offices will perform the role of coordinator between higher
authority of the bank and the branches.
 As a part of regular monitoring, the officers of Regional Offices/Monitoring Unit will
arrange
 Meeting with the officers of their respective branches and visit the branches from
time to
 Time to ensure that the potential entrepreneurs do not face any harassment. They
will address complain related to SME credit instantly’ provide required directions to
the branches and assist them to solve the problems existed in the branches.
Activities to be performed at the Bank Branches:
The success of SME credit disbursement programmers mostly depends on the performance
of
the bank branches. Therefore, the bank branches have to perform dynamic role in
sanctioning
and disbursing SME credit. Bank branches will perform the following activities to disburse
and recover SME loan
The branch manager will evaluate/decide the demand for and scope of SME loan
disbursement. In this context, arrangement should be made to disburse SME loan in the
local
potential sectors.
 Special initiative should be taken by every bank branch to disburse SME loan to the
small women entrepreneurs
 Identifying the courageous and successful small entrepreneurs and bring them
under loan activities/programme;
 Motivating the entrepreneurs through necessary and comprehensive publicity;
 Arranging SME loan to interested eligible and benefited entrepreneurs through easy
transparent process and in a timely manner;
 Monitoring of the proper utilization of disbursed loan;
 Gearing up monitoring of SME loan recovery activities.
 Chapter:6

Target given by bangladesh bank:

Banks have disbursed Tk300 crore financial assistance to cottage, micro, small and
medium enterprises (CMSMEs) in July and August under the government's second
phase loan incentives to the sectors, said Bangladesh Bank sources

The government under its second phase incentive package, has allotted Tk20,000
crore to Covid-19 affected CMSMEs in FY22.

The FBCCI President Md Jasim Uddin demanded the proper implementation of the
incentive package declared for the CMSME sector to tackle the impact of the
ongoing pandemic.He said 37% of Covid incentives in India, 33% in Thailand and
24% in Malaysia have been allocated to CMSME sector. But the allocation in
Bangladesh is only 22%.Although the implementation of incentive package in
export and large sector is satisfactory, the implementation rate in CMSME sector is
only 77% in the last financial year. In such a situation, quick disbursement of
incentive loans among the cottage, small and medium entrepreneurs has become a
crying need to sustain their business.

Bangladesh Bank, in its new directive, said, necessary instructions were given
earlier for the implementation of the financial assistance package of Tk20,000
crore for the CMSME sector announced by the Prime Minister.To make the
disbursement process easier, the central bank has added some new instructions in
its new circular. According to the circular, at least 70% of the total disbursement
target allocated under this package has to be provided to the cottage, micro and
small scale enterprises (CMSEs) while the rest 30% will go to the medium scale
industries.Of the 70% given to the CMSEs, 65% has to be disbursed to
manufacturing and services sub-sectors and the remaining to trading sub-sector. On
the other hand, the 30% allotted to the medium scale industries, has to be disbursed
to production and services sub-sectors. Also,at least 8% of the total disbursed loan
has to be provided to women entrepreneurs. Loans under the incentive package
have to be disbursed within 30 June, 2022.Under the incentive package, both
working capital and term loans will be provided to cottage, micro and small sector
entrepreneurs. Only medium sector entrepreneurs will be eligible for working
capital loans.

An entrepreneurial organization will get a subsidy from the government under this
package for a maximum of one year after taking the loan. Defaulted borrowers will
The interest or profit rate of this loan will be maximum 9%. The borrower will pay
a maximum of 4% of the interest on the loan. The remaining 5% will be subsidized
by the government. be eligible for this package.

Problems Faced By PCB In SMEs Financing

Reviewing previous literature, it was found that several problems hinder the SMEs
financing of PCBs in Bangladesh.

 Lack of proper collateral

Institutional loan provided to SMEs sector is inadequate due to proper collateral. Banks
tend to less flexible about the collateral requirements in case of SMEs as they perceive
SMEs to be more risky.

 Confusion with borrowing terms and conditions

Most of the SMEs entrepreneurs have little or no knowledge in banking rules and
requirements of SMEs loan. So they often confused with the borrowing terms and
conditions regarding SMEs loan policy.

 Inaccurate information regarding the borrower

Credit Information Bureau (CIB) is the base for the information about the prospective
clients of the bank. Currently the bankers are facing constant challenges due to
inaccuracy in the CIB report of the borrowers.

 Risks with documentation

Applying SME’s loans from the banks with fake or faulty documents is a common
phenomenon for the borrowers.

 Monitoring activity
In most of the cases, lack of proper monitoring and supervision SME’s loans causes
default loans.

 Project preparation and evaluation

In spite of directives from the central bank to follow standardized procedure, the loan
application process has still remained lengthy and cumbersome. The entrepreneurs
often unable to formulate a proper project proposal. There is no guarantee that the
proposal will be considered properly by the financial institutions.

 Non-maintenance of proper accounting records

At the time of granting SME’s loan banks faced problems because of most of the SMEs
are not maintaining book of accounts and other related trade documents properly. It
creates barrier for assessing borrowers’ financial position at the time of evaluating
SME’s credit proposals.

 Lack of skilled manpower

Due to lack of skilled manpower banks do not give attention to SME lending and invest
only in high-yielding corporate sectors.
 Chapter:7

Findings & Recommendation

Findings of the study

 From the data analysis it is reveal that PCBs have contributed to financing SMEs in
Bangladesh but the proportion of SMEs loan to total deposit as well as SMEs loan to
total loan and advances were varies among the banks from year to year. Other
findings are:
 The main focus of PCBs on trade sector which has more than 70%-80% portfolio
shared.
 PCBs encounter several problems in financing SMEs.
 PCBs play significant role in financing SMEs.

Recommendation
The study recommends the following suggestions:
 To minimize risk, PCBs need to diversify into other sector. More focus should be put
on the other sectors like manufacturing and service.
 Banks should be flexible in case of collateral requirements. The limit of collateral
free loan should be increased.
 Banks should follow simple lending procedure as much as possible. Low documents
loan program, which may allows SME to use a simple application for loans.
 Information gap about loan financing should be lessening through organizing seminar
and workshop.
 Different training programs, seminar, symposium, workshop should be arranged
frequently by Government, SME Foundation, Bangladesh Bank and Chamber of
Commerce & Industries to increase the knowledge base regarding SME financing and
development of SME sector.
 Bindings should be given by Bangladesh Bank to PCBs about loan disbursement on
10% or single digit interest rate. It is must to make easy entrance SME financing.
 PCBs should consider SME financing as their corporate social responsibility (CSR).
So here consideration will not be profit maximization only rather social wellbeing.
 Bangladesh Bank imposes a minimum percentage of total deposit and loan &
advances should be disbursed as SMEs loan by PCBs in every year.
 Chapter:8

Conclusion
The SMEs are undoubtedly a dominant sector in the industrial structure of
Bangladesh. The total number of SMEs is estimated at 79754 establishments, of which
93.6% are small and 6.4% are medium. In Bangladesh, SMEs account for about 45%
manufacturing value edition, 80% of industrial employment about 90% of total industrial
unit and 25% of total labor force. It plays a vital role in the socio-economic development of
the country. It has bright prospects because labor is much cheaper here and huge market
demand of SME product both at home and abroad. Bank is the crucial member of any
nation’s financial institution. The economic and commercial activities of a nation’s are
highly depend on the banking institutions. In line with other financial institutions, banks
help the government in its fiscal policies and direct economic activity. The banking sector
especially private commercial banks have various ways to get involved in SMEs financing
from the creation or participation in SMEs investment funds, to the creation of a special
unit for financing SME’s within the bank. PCBs should considered SME sector as large scale
industry they do which helps them to contribute more in SME sector as well as economic
development of the country now and onwards.

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