CMSME loan disbursement drops 19% in Q1 amid liquidity crunch

Infographic: TBS

Loan disbursements to the cottage, micro, small, and medium enterprises (CMSMEs) have declined by Tk11,543 crore or 19.04% in the January-March quarter owing to the ongoing economic slowdown and liquidity crisis in the banking sector.

Banks and financial institutions disbursed loans amounting to Tk49,068 crore in the first quarter of this year, which was Tk60,611 crore in the previous October-December quarter, according to Bangladesh Bank data. 

Bankers said the country's overall imports have been consistently declining which has forced banks to focus more on sectors that are under pressure. Hence, loan disbursement to CMSMEs has dropped.

They hope to fulfil the loan disbursement target in the remaining two quarters of this year.

Bangladesh Bank data shows that year-on-year, loan disbursement to entrepreneurs decreased by Tk2,648 crore in the first quarter. In the first quarter of last year, banks disbursed Tk51,716 crore as loans to 2,89,347 entrepreneurs.

Shahadat Hossain, an Old Dhaka-based hardware trader in the capital, told The Business Standard that he has been struggling to get a loan from banks he has a long history of doing business with. 

He said, "Our products are in high demand among buyers. But our business has not been going well for the past three months due to low supply of products. Even banks that I have been doing business with for a long time are refusing to give loans despite our reputation.

"I sought a Tk1 crore loan from them multiple times but they are only coming up with various excuses."

Syed Mahbubur Rahman, managing director & CEO of Mutual Trust Bank Limited, told TBS that currently the whole world, including Bangladesh, is experiencing an economic slowdown, which has led to the low CMSME loan disbursement. 

"The amount of non-performing CMSME loans is gradually increasing which is putting banks under pressure. Besides, several banks are facing liquidity crises, which has also reduced loan disbursement rate.

The central bank had announced the formation of a three-year refinance scheme of Tk25,000 crore for the CMSME sector in July last year in a bid to curb inflation and provide liquidity to banks.

In condition of anonymity, an official of the central bank's SME-related department said, "Till 10 July, banks and financial institutions have disbursed Tk14,000 crores as loans. But our target was to disburse more loans. We expect to fulfil the target by December."

At present, loan disbursing organisations can take funds from the central bank scheme at a rate of 2%, which they can disburse to the customer at a maximum rate of 7%.

"Another reason banks were less interested in disbursing SME loans is that the interest rate was low and operating cost was high," the central bank official said.

"However, from this month, banks will be able to charge an additional 1% interest as CMSME operating cost, which is expected to increase loan disbursement rate."