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Thursday | July 30, 2026 | Dhaka

Trade financing by SME loans not a right step

 New Nation
 Published: 12:00 AM, 05 December 2015

NEWS reports on Tuesday said that banks and non-bank financial institutions (NBFIs) disbursed around 64 percent of the SMEs loans for funding trade and unproductive activities in the first nine months of this year. Usually, industrial loans to manufacturing and service sectors contribute to employment creation and income generation to boost economic growth. While investment in big industries has drastically fallen in past years due to political impasse and risky business environment, productive investment to small and medium enterprises (SMEs) could have been a better way to overcome the sluggish economic growth. But as it appears most of the SME loans were shifted to financing trade away from funding manufacturing activities and its setback was enormous on economic growth.

Many pointed out that most banks don’t want to handle SME loans because the loan operation is troublesome, interest rates are lower and profit is marginal. They have to handle host of clients who are not properly trained and the loan recovery is also problematic from many risks. On the other hand trade loan fetch higher interest and is easier to recover. In this backdrop, they believe that the Central Bank and Finance Ministry should come forward to strict monitor the SME loan disbursement policy so that most money goes to productive work and not to trade financing. Its failing will result in slower growth of the SME sector which makes the biggest contribution to the economy.
Bangladesh Bank data showed that scheduled banks and NBFIs disbursed Tk 81,953.98 crore SME loan from January to September 2015. Of the amount, the biggest amount of Tk 52,427.63 crore went to financing trade while only Tk 21,445.08 crore went to manufacturing and Tk 8,081.26 crore to service sector. Experts believe that the key goal of supporting SMEs could not be materialized if maximum loan goes to the trade financing. As the country’s private sector credit growth this year has been posted at 14.50 percent for July-December period down from a higher percentage in the preceding period, banks and NBFIs should have more focused SMEs loan targets for financing production based activities including financing agro-based projects.
What is noticeable is that most SME entrepreneurs are reluctant now to take loans to start a fresh business as the economy is going dull and business is facing stagnation. When most big loans to corporate sector remained stalled and SME loans are also shrinking in risky climate many fear rightly that the economic stagnation may further accelerate if the political climate and business outlooks don’t improve. In our view much of this setback may be overcome by focused use of SME loans to support manufacturing and not trade.