Banks hit SMEs with double digit lending rates

In an effort to let large businesses off the hook, banks are now increasing their grip on small businesses, decreasing lending rates for the former and increasing it for the latter.

While 21 banks in the country have managed to bring their interest rates down to single digits on long term loans, most of the banks’ small and medium enterprise (SME) loan interest rates have spiked by 1-2%.

According to Bangladesh Bank statistics, the concerned banks have decreased lending rates to single digits, but still charge 11 to 18% interest on SME loans.

Golam Kibria, an SME customer of Mutual Trust Bank, said his borrowing rate was 14.5% even in February, but from March 1 it rose to 16%, with a single letter from the bank.

When contacted, Mutual Trust Bank officials said the increase was decided at a recent board meeting.

The central bank’s report also shows that other than Rupali Bank, all  other state-owned banks and at least a dozen private commercial banks, have single digit lending rates.

Agrani Bank has started to distribute single digit interest rates from January this year, for large long and short term loans. 

Bangladesh Bank sources said Sonali Bank, Janata Bank, and Bangladesh Development Bank Ltd (BDBL), have also followed suit for long term loans.

But for SME loans, the said banks are still charging double digit lending rates.

Addressing fellow members of parliament to reform the loan default culture, Finance Minister AHM Mustafa Kamal on February 17 said twenty-one banks have already decided to lower lending rates to single digits after a meeting with Prime Minister Sheikh Hasina last year.

"They have decreased their lending rates to 9% now," he added.

Ali Zaman, president of SME Owners Association, said despite generating 45-48% employment through their sector, banks are still charging them double digit interest rates. How they are providing long term loans to large industries at single digit interest rates is inconceivable.

“SME industries contribute52-55% of GDP,” he added, and they “also engage backward and forward linkage industries in the economy.”

Bangladesh Bank officials also acknowledged SME contributions to the national economy, adding that 99.93% of established industries are registered as SMEs.

They also added the central bank is currently working on initiatives to attract more women entrepreneurs.

According to their statistics, women entrepreneurs took out SME loans worth Tk3,742 crore in the January-September 2018 period, which was Tk3,460 crore for the same period in the previous year.

SME loan disbursement and quality have also gone up significantly, thanks to the collective efforts of banks and Bangladesh Bank, they observed. More initiatives are being considered to attract root level entrepreneurs across the country.

Total SME loan disbursement for 2018 between January-September was Tk1,103 billion, which was Tk1,230 billion in 2017.

In a survey on SMEs conducted by Bangladesh Bank, it was found that 77.38% of SME related transactions were conducted by private banks.

Of SME transactions at private banks, 82% were short term loans.

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