SME financing for small and middle entrepreneurs in Bangladesh: reviewing from the perspective of BRAC Bank Ltd.

Abstract

Higher growth of the Small and Medium Enterprises (SMEs) can help cut poverty to a satisfactory level by eliminating various prejudices against labor intensive and creating jobs for the skilled manpower in the SME sector. However, the access to financing is still recognized as the leading obstacle to SME growth in Bangladesh, alike most other developing and under-developed countries. Small and medium entrepreneurship have a tremendous potential in empowering potential entrepreneurs and transforming society. To target this sector with huge potentiality BRAC Bank Ltd introduced SME Banking Unit in 2001. BRAC bank was established in 2001 to work on “double bottom line approach” and currently it is operating all over the country having 46 SME/Agro Branches, 22 SMESCs, 152 branches, 313 ATMs, 399 SME Unit offices. This fastest growing bank works on people, planet and profit; ensures sustainable growth and largely focuses on SME financing sector. BRAC Bank SME division was set up to capture “missing middle” and to create socio-economical impacts in the country. Within 10 years of establishing it has proved its success through becoming country‟s largest SME finance provider and 4th large SME provider in the world in terms of lending volume. However BRAC Bank has the country‟s largest defaulter rate (in number). Even though strict loan approval system is maintained due to some unavoidable reason “bad-losses” sometimes occur. In order to reduce credit risk BRAC Bank follows consistent monitoring system upon borrower‟s activities. Again if someone turns in to defaulter special wing called SAM works to enforce law. For the inheriting business risk, SME sector is facing several constrains in terms of growth. Policy level complexity, financial constrains, legal bindings and industry structure are hindering financial institutions to support SME sector. Lack of SME supporters, poor infrastructure of the country, lack of entrepreneur‟s skills, lender-borrower gap, huge market competitions are the major drawbacks for both borrowers and lenders. Again SME sector has tremendously contributed in the economy. Today it has been considered as the engine of country‟s economy. Being country‟s largest SME provider, BRAC Bank is facing several challenges which are identified in analytical part of the report. Business risk, high interest rate, high defaulter rate, certain government policy change ETC are the major challenges facing by BRAC Bank. The recommendation part of the report tried to find out some steps could be initiated by BRAC Bank in order to overcome existing weakness. Lowering interest rate, more effective loan approval system, strong monitoring activities, and entrepreneurs meeting arrangement could improve BRAC bank‟s performance.