Banks and financial institutions should introduce innovative instruments to convince small and medium enterprises (SMEs) to integrate them into formal banking channels, said Khondakar Golam Moazzem, research director at the Centre for Policy Dialogue (CPD) on Saturday.
Banks think that SMEs are not bankable, but it is not hard to observe that these small businesses are functioning, in fact, quite well, he asserted.
Moazzem also said that it was not their (SMEs) weakness, but rather their characteristic, and that was how they functioned.
"It is the financial sector that needs to develop a befitting model for the financial inclusion of SMEs."
He was addressing the third plenary session “Macro-financial Environment and Financial Sector” at the Ninth Annual Banking Conference-2022 hosted by the Bangladesh Institute of Bank Management (BIBM) on Saturday.
Dhaka University Finance Professor Mahmood Osman Imam, BIBM Professor Md Mohiuddin Siddique and Associate Professor Md Shahid Ullah also spoke at the session with former Bangladesh Bank deputy governor Ziaul Hasan Siddiqui in the chair.
Emphasizing making finance more accessible for SMEs, Moazzem said foreign direct investment was mostly concentrated in big businesses while SMEs were even deprived of getting funds from formal channels.
He suggested that policy-makers create an ecosystem to channel FDI into small businesses to contribute largely to the financial inclusion of this informal sector.
Despite having a liberal FDI regime in Bangladesh, he notes, FDI inflow is not that satisfactory due to policy inconsistencies, bureaucratic hassles, lack of proper infrastructure and complex tax system.
Moazzem suggested that banks and financial institutions partner with NGOs and organizations like SME Foundation to find a way to disburse funds to small businesses.
Prof Mahmood Osman Imam said that banks and financial institutions were less interested in disbursing funds to SMEs via other entities due to higher transaction costs.
There was a bar of 9% interest rate on loans which made it harder for the banks to disburse loans to SMEs through third parties, he added.
Besides, the state-run banks are burdened with excessive liquidity while many private banks have been dealing with irregularities in outstanding loans.
Two research papers “Foreign Direct Investment, Financial Development and Economic Growth: Empirical Evidence from Developing Countries” and “The Unconventional Monetary Policy Measures and the Covid-19 Pandemic: Lessons from Global Perspective” were presented at the session.
