Only a small fraction of trade finance provided by banks reached small and medium enterprises (SMEs).
Although the contributions of SMEs to the country's GDP and employment generation are widely recognized, data regarding these are scarcely available.
A study conducted by the International Cooperation Organization for Small and Medium Enterprises in Asia (Icosa), Japan, estimated the contribution of SMEs to the GDP at 20.25% in Bangladesh.
In 2022, it was claimed that SMEs constituted 25%-27% of the GDP, and the sector created 80% of total industrial jobs.
The SME Foundation aims to raise the SME sector's contribution to the country's GDP to more than 35% by 2030, as part of the government's endeavour to achieve the global agenda of sustainable development goals (SDGs).
However, a mere 9% of the total trade finance extended by banks found its way into the hands of SMEs, according to the Bangladesh Institute of Bank Management (BIBM).
This marked a notable decline from the 10% allocated in 2021.
This is relatively lower than the country's overall proportion of CMSME loan figures.
According to Bangladesh Bank data, total CMSME loans for March 2023 were around 19% of the total outstanding loans.
According to the available published information, around 80% of cross-border trade transactions depend on some form of financing, and adequate financing for SME traders in particular is an important part of the resilience equation of the trading partners, according to the ADB report released in 2023.
Unmet demand for trade finance -- the trade finance gap -- remains persistently large.
The trade finance shortage is even more acute for SMEs, which comprise more than 90% of firms and the bulk of employment in developing Asia. Strengthening their participation in trade is thus crucial for inclusive trade and economic growth as per the ADB report published in 2022.
Rejection of applications is a very big challenge, especially for SMEs in all developing economies including Bangladesh, and this is particularly true in the case of trade finance, the BIBM survey stated.
According to the survey data, the high cost of funds for the given business, inflexible payment terms, high monitoring costs, asymmetric information and so on are considered key supply-side challenges from the bankers' perspective.
These indicate banks' lower level of confidence in SMEs over their financial capabilities and greater uncertainty of repayment, according to the survey.
Banks generally have CMSME desks to address the special needs of SME clients in response to the BB's policy instructions, however, this is not generally the case with the trade financing, the survey found.
Banks usually have special desks for small businesses (CMSME) to meet their needs, following policy instructions by the central bank. However, the same focus is not common for trade financing services, the study stated.
According to the current policy guidelines of the central bank, the SME desks of the banks have the flexibility to prioritize this issue and establish targets to enhance SME financing.
