Today,electronic banking has almost reached every household.
However, banks are yet to capitalize on the dimension of opportunities that wait among all the consumers of the country at large.
Though banking has graduated to new levels, the added convenience and value to customers across the country are yet to reach the desired levels.
Research shows till date, 50-53% of SMEs have no access to formal sources of finance. About 35% enjoys unrestricted finance and the rest have restricted access to formal credit. The reasons for such deficit in SME lending are multiple:
- Banks are more focused on urban-based lending
- Banks are at times reluctant to delegate to rural branch levels
- Lack of interest among skilled bankers to relocate to rural areas
- Uncertainties of the small industries due to lack of skills and knowledge of the borrower
- Economic fluctuations
- Financing cost
- Double digit interest rates in SME
The above are mostly the formidable deterrents for lending to smaller businesses. Also, there is a distinct institutional bias on the part of the banks towards lending to the larger corporate sector. In many cases, there are links with directors and other affluent clients of the industry, which induces finances towards their preferred borrowers.
However, the financiers should carry an open mind to accommodate the set of changes to relate to the potential avenues of economical growth streams in a fashion of flexibility with a tone of corporate governance in the emerging new dimension of change.
The speculations of further crisis could lay scars on the economy of the country, so one must adopt diversity to prevail in the thoughts, discipline, and practice.
Though challenges are multi-dimensional, SMEs are required to add more value to their products to stay ahead and compete with lower cost rivals. Consumer demand is changing rapidly as incomes rise and choices increase, when imported products become easily available in domestic markets.
Technological advances create new products and transform almost every stage of business, from production to marketing, sourcing, and logistics. New rules introduced through the multilateral trade system and foreign buyers require SMEs to comply with higher technical capability.
BPO or Business Process Outsourcing has recently become a matter of great curiosity and interest, especially among the youth in Bangladesh.
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The architect of Digital Bangladesh, Sajeeb Wazed, adviser of ICT affairs to the honourable Prime Minster of Bangladesh, has emphasized towards growing the BPO sector in Bangladesh. Today, the Bangladesh BPO sector employs over 40,000 employees.
Such growth in the sector is surely an indicator of growth in the SME field of the country, as multinational enterprises are seeking out new markets and investments to offer capable SMEs the opportunity to insert themselves into global value chains, while those that are unable to do so increasingly face the danger of losing their existing markets.
Competition within the developing world for export markets, foreign investment, and resources is also intensifying.
Against this backdrop of increased global competition, SMEs, SME associations, support institutions, and developing countries should adjust and adopt new approaches and invent new ways of working together to foster SME competitiveness.
While we have some promising starts like BPO, we need more and more initiatives on financing for small and medium enterprises (SMEs), especially now.
It is essential to ratify the nature of lending and to create a whole new cycle of entrepreneurs. By this only, the definition of sustainable growth can be completed for robust financial industry.
A lot of work has been done on access to finance at the SME level, but we should continue to build on these efforts and experiences.
Enterprises need more and diverse kinds of local financial services, and more quantity of all of them. They also need of non-financial support, such as technical assistance and capacity building, labour laws, access to markets, enabling legal regimes, and many more.
We are counting on the commitment of the entire banking industry and government authorities to make a meaningful difference in access to SME development and growth. We wish to maintain the enthusiasm and energy of the ongoing progress and look forward to the continued support and collaboration of all local and international stake-holders.
Tarique Afzal is a banker.
