BYPASSING Bangladesh Bank directives, many scheduled banks and non-bank financial institutions (NBFIs) disbursed a major portion of the loan amounts designated for Small and Medium Enterprises (SMEs) to the trading sector during the last half of FY 2013-14. SMEs are engines of economic growth which usually generate employment in the domestic semi formal sectors and this fact prompted Bangladesh Bank (BB) to frame a SME Policy in 2010. But the BB data released last week uncovered a bitter truth that around 65 percent of the Tk 47,130 crore earmarked for SME loans was disbursed to the trading sector bypassing this domestic manufacturing zone. If the investment tendency of banks and NBFIs continues, there will be no need to keep SME loan schemes alive as it would not create any employment opportunity, a major focus of SME loans.
A National English daily carried the report disclosing that all banks and NBFIs had disbursed a total of Tk 47,130.38 crore or 64.74 percent of the total amount earmarked as SME loans to the trading sector in the first half of 2014. The manufacturing sector got only Tk 3,664.05 crore loans or 27.49 percent of the total loan disbursement in the first half of 2014. Experts warned that the higher SME loan disbursement to the trading sector instead of the manufacturing zone has a lower impact on the country’s overall economy as such a trend fails to expand the industrial sector and thus does not contribute to employment generation.
The role of SMEs is indispensable for overall economic development of a country particularly for developing countries like Bangladesh, but the guiding principle of putting aside a certain amount during loan disbursement creates no actual impact in the industrialization process of the country, particularly in the domestic utility/product area. Since this sector is a labour intensive one with a short growth period, it is capable of increasing national income as well as rapid employment generation as well as achieving the Millennium Development Goals, especially of extreme poverty and hunger, gender equality and women empowerment. As the SME loan concept arises to shore up enterprises to create huge employment, and empowering women and youth; giving the trading sector SME loans will surely beat the very purpose of enlarging local productivity and expanding smaller or medium scale units of production. In this context, researchers suggested that the central bank set a ceiling on SME loan disbursement to the trading sector as it fails to play a role in increasing employment generation.
The banks and the NBFIs tend to give the maximum amount of SME loans to the trading sector as this type of credit is less risky than the loan given to the manufacturing sector. Former Finance Adviser to the caretaker government AB Mirza Azizul Islam said the central bank should emphasize on increasing the loan disbursement in the manufacturing sector avoiding the trading sector.
We urge the central bank to strengthen their monitoring system on SME loan disbursement and see whether the loan is being diverted to capital markets or the real-estate sector. To sustain the flourishing economic growth and sustainable economic development we have to generate more employment and SME is a better option for it.
