SMEs unhappy with bankers’ move to exclude them from single digit interest

Small and medium enterprises (SMEs) are not happy about an attempt by bankers to exclude them from availing single digit interest rates.

"We thought SMEs would benefit from the government move to slash the lending rate to a single digit, but the bankers' position is making things very difficult for us," Abdul Kader Khan, president of Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association, told The Business Standard. 

About 50 percent members of his association are SMEs, said Abdul Kader, and most of them are paying 12-13 percent interest.  However, they were hoping for a lower rate after the government's announcement.

After asking to exclude all SMEs, the bankers on Tuesday fell back from their earlier position of not granting single digit interest rates at a meeting with the Bangladesh Bank. 

They agreed to allow single digit interest rate to the medium-sized enterprises but not to the small ones and on retail loans.

Disagreeing with their position, the Bangladesh Bank Governor Fazle Kabir sought support from bankers to implement the single digit rate for all sectors from April 1.   

Earlier on Monday, the Association of Bankers, Bangladesh said they did not want the single digit rate for the SMEs and urged Finance Minister AHM Mustafa Kamal to consider their request.

"In Bangladesh, the SME entrepreneurs are struggling to get bank loans, but they are very serious about repaying it," refuted Abdul Kader.

"The scenario is different for big companies. Though most of the loans are being classified by big companies, they get bank loans very easily."

However, former central bank governor Salehuddin Ahmed said fixing interest rates is not logical as it depends on operating costs.

"The government may ask banks to slash their spread, which should not be more than 3 percent. The rate of 6 to 9 percent is not implementable. The authority may ask the banks to cut interest rates where the cost of fund is low," he added.

SME entrepreneur Rezbin Hafiz, owner of the Peoples Footwear & Leather Goods, told The Business Standard, "If banks stop giving single digit loans to the SMEs, it will have a damaging effect on the industry. Even 9 percent interest rate is high for startups."

According to central bank sources, as of September last year, the banks gave loans of about Tk10 lakh crore to all sectors. Of them, Tk205,490 crore were SME loans.   

At present, the interest rate in different banks is 11-14 percent for production sector, 9-16.5 percent for trading sector, 9-16 percent for small enterprises, 10-14 percent for house loans, 12-18 percent for a personal loan and 15-25 percent for credit cards, according to sources.

The latest research of the Bangladesh Bureau of Statistics found there are 78 lakh SMEs in Bangladesh, creating employment for around 2.50 crore people.

"SMEs contribute to one-fourth of the total industrial contribution to the GDP every year," said a senior official of the SME Foundation.