Introduction:
The role of Small and Medium Enterprises (SMEs) is indispensable for overall economic development
of a country particularly for developing countries like Bangladesh. Since this sector is labor intensive
with short gestation period, it is capable of increasing national income as well as rapid employment
generation; achieving Millennium Development Goals (MDGs) especially eradication of extreme
poverty and hunger, gender equality and women empowerment. SME sector has played a vital role in
economic development of some prosperous countries of Asia. Our neighbouring countries have also
given due importance on SME. Terming SME as ‘employment generating machine’ they stressed on
SME development for higher economic growth, narrowing the gap of income inequality and poverty
alleviation. The present government has also put much emphasis on the development of SME sector
considering it as ‘the driving force for industrialization’.
2. Steps/Measures taken by Bangladesh Bank for SME Development:
Bangladesh Bank has already introduced several schemes and programmes to flourish and expand
SME Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been facilitated
for the development of SME Sector. Besides, to ensure institutional financial facilities under easy
conditions Bangladesh Bank has taken diverse steps; like opening of ‘Dedicated Desk’ for SME and
‘SME Service Centre’ in the banks and special facilities for the women entrepreneurs. But reality is
that expected outcome has not been achieved so far in this sector.
In the back drop of recent global recession and changed circumstances, it has become essential to
include all segments of people in the growth process through facilitating credit to the sectors where
less attention has been given due to present market mechanism, specially, in agriculture and SME
sector. Reasonably, a new department namely ‘SME and Special Programmes Department’ has
been established in Bangladesh Bank recently which will be solely responsible for policy formulation,
facilitating fund, monitoring and development of entrepreneurship in the SME sector.
The guidelines formulated by the newly created department for compliance of the banks and financial
institutions for the development of SME sector are enumerated below:
For the first time in Bangladesh, an indicative target for SME loan disbursement has been set
for 2010 by the banks and financial institutions considering SME development as one of the
most important development agenda of the country. According to the target, SME loan shall be
disbursed to the small, medium and women entrepreneurs.
Following the 'Area Approach Method' banks/financial institutions will try to attain their
indicative targets separately by dividing it as branch wise, region wise & sector wise.
Each bank/financial institution shall follow a separate business strategy in financing SME loan
with least formalities in executing documentation to ensure easy and speedy loan sanction and
disbursement process.
Priority shall be given to small entrepreneurs.
For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand) to Tk.
50,00,000 (Fifty lac).
For more participation of women entrepreneurs in industrial development of the country and
for conducting business activities by women entrepreneurs in large number, priority shall have
to be given to potential women entrepreneurs in respect of SME credit disbursement.
Banks & Financial Institutions shall put highest priority in receiving loan application from small
and medium women entrepreneurs and settle the loan disbursement process within very
reasonable time from the date of acceptance of the application.
Each bank and financial institution shall establish a separate ‘Women Entrepreneurs’
Dedicated Desk’ with necessary and suitable manpower, provide them training on SME
financing and suiltably appoint a lady officer as chief of dedicated desk. Branch wise list of
‘ Women Entrepreneurs’ Dedicated Desk ‘ should be sent to SME and Special Programmes
Department of Bangladesh Bank within two months from the date of declaration of this policy
and programme.
Banks and financial institutions may sanction up to Tk. 25,00,000 to women entrepreneurs
against personal guarantee. In that case, group security/social security may be considered.
The success in SME loan disbursement will be considered as yardstick for further approval of
new branches of the concerned bank. License for New Branches will be issued for financing the
priority sectors like SME and agriculture from 2010 in the name of ‘SME/Agriculture Branch’
instead of ‘SME Service Centre; in order to involve banks in financing priority sector like
SME and Agriculture’.
Each bank/financial institution shall fix the interest rate on SME loan sector/subsectorwise.
However, bank/financial institution will inform Bangladesh Bank sector/sub-sector wise rate
of interest immediately and ensure disbursement of refinanced fund to the clients (women
entrepreneurs) at Bank rate +5% interest.
Training programs shall be arranged for the entrepreneurs.
3. Definition of SME:
Existing definition of SME is recommended by Better Business Forum and accepted as a uniform one
by Ministry of Industry and Bangladesh Bank. Criteria of the definition of SME are given below:
3.1. Definition of Small Enterprise:
Small Enterprise refers to the firm/business which is not a public limited company and complies
the following criteria:
Serial No. Sector Fixed Asset other than
Land and Building (Tk.)
Employed Manpower
(not above)
01. Service 50,000-50,00,000 25
02. Business 50,000-50,00,000 25
03. Industrial 50,000-1,50,00,000 50
3.2. Definition of Medium Enterprise:
Medium Enterprise refers to the establishment/firm which is not a public limited company and
complies the following criteria:
Serial
No. Sector Fixed Asset other than
Land and Building (Tk.)
Employed Manpower
(not above)
01. Service 50,00,000-10,00,00,000 50
02. Business 50,00,000-10,00,00,000 50
03. Industrial 1,50,00,000-20,00,00,000 150
4. Target for SME Credit:
A total target of SME credit worth Tk. 23,995(Twenty three thousand nine hundred ninety five)
crore has been set by the banks and financial institutions for the first time in 2010 considering
SME development as one of the important development agenda of the country. According to
the target, SME loan shall be disbursed to the small, medium and women entrepreneurs. In
future, banks/financial institutions will send their target to the SME and Special Programmes
Department as well as branch offices of Bangladesh Bank fixing their target of SME loan sector
wise, region wise and branch wise.
The SME credit target as fixed by the banks and financial institutions has been summarised at
Annexure-’A’ attached herewith.
5. Area Approach Method:
‘Area Approach method’ shall be applied for SME sector like agricultural credit. Territorial industrial
production, type of industrial products i.e. areas famous for industrial production or important due
to geographical location will be taken into consideration while disbursing SME loan. Besides, clusterbased
approach will be helpful for the bank’s risk analysis and intensive monitoring of SME financing.
For this purpose, light engineering clusters (Annexure-B), identified by IFC-SEDF and Upazila-wise
lists of potential SME sectors identified by Branch Offices of BB (after discussion with the local bankers)
are attached herewith (Annexure-C).
6. Cluster Development Policy:
Banks/financial institutions will inform BB after adopting cluster development policy to flourish SME
sector. Cluster development policy can be formulated in co-operation with banks, financial institutions
and NGOs. The objectives of this policy are to strengthen the existing cluster, development of new
clusters in special sector, development & expansion of sustainable and competitive technology, skill
development of entrepreneurs, development of marketing channels, reduce credit risk and enhance
overall product development.
Strategies for cluster development :
- Identification of the cluster;
- Formation of committee for cluster development;
- Conduct baseline survey & diagnostic study;
- Fixation of action plan;
- Implementation of action plan;
- Review & monitoring.
7. Financing SME Sector:
Access to finance is vital for SME sector development. In many instances, entrepreneurs raise complain
regarding high rate of interest. Indeed, higher rate of interest is a major hindrance, but availability of
adequate fund is very much important. That is why, Bangladesh Bank is committed to facilitate SME
credit through refinance window.
To develop SME sector, the fund of BB, IDA and ADB is being channelised through refinance scheme.
So far a total of Tk.1,432 crore has been refinanced (up to December 2009) to 14,122 enterprises using
the revolving fund (Tk.918 crore) of BB, IDA & ADB. Moreover, Bangladesh Bank is going to launch an
extended refinance scheme of Tk. 660 crore very soon with the newly arranged ADB fund.
8. Priority to the Small Entrepreneurs:
Among SME enterprises/entrepreneurs in our country, small entrepreneurs have more prospects for
generating employment, reducing unemployment and achieving economic growth. Keeping this
in view, at least 40% of the total disbursement target of SME credit should be reserved for small
entrepreneurs and the rest will be allocated to medium entrepreneurs.
9. Priority to Refinance in Industry (Manufacturing) and Service Sector:
Industry and service sectors are given priority over the business sector under refinance scheme by
Bangladesh Bank. 100% claims in industry and service sector is being refinanced. This policy will be
continued to create a friendly environment for employment generation and higher production.
10. Special arrangement for Women Entrepreneurs:
About half of the population of Bangladesh is women. Therefore, women participation in the
mainstream of economy is crucial for attaining sustainable economic growth & poverty reduction.
But women participation in institutional economic sector is inadequate & the rate of women
entrepreneurs is very low compared to that of male counterparts. In fact, there exist many obstacles
in women participation in the mainstream of economy although the degree of integrity, devotion,
creativity and expertise of women society make us surprised. Especially women participation in
micro credit programmes and readymade garments industry is contributing significantly to the
country’s industrialization. Similarly, participation of women entrepreneurs in SME sector is vital for
the flourishing of Bangladesh economy.
Meantime, Bangladesh Bank has taken some steps and formulated a guideline for the banks & financial
institutions to ensure more institutional financial facilities for women entrepreneurs in SME sector.
a. With a view to organizing and making uniform industrial development and to ensure institutional
credit facilities, at least 15% of total BB refinance fund for SME sector has been allocated for
women entrepreneurs.
b. Interest rate for women entrepreneurs will be Bank rate (which is at present 5%) plus maximum
5%; i.e. not more than 10% per annum.
c. Banks/Financial Institutions will accept and settle all types of loan applications of SME women
entrepreneurs with the highest priority.
d. Banks and financial institutions shall take initiative to advertise all the facilities for women
entrepreneurs in both electronic & print media.
e. Banks and Financial Institutions may provide a maximum loan facility of Tk.25, 00,000/- against
personal guarantee if borrower is woman or majority of the owners of the enterprise are
women.
f. Banks/Financial Institutions shall establish special advice and service centre for women
entrepreneurs in selected branches and ensure service friendly approach towards women
entrepreneurs.
10.1. Identification of the Real Women Entrepreneurs:
To identify the real women entrepreneurs, assistance can be sought from Bangladesh Small and
Cottage Industries Corporation(BSCIC), SME Foundation & professional organizations, such as,
Handloom/Handicrafts Association, Mahila Samity, different Women Entrepreneurs’ Association,
such as, Bangladesh Women Chamber of Commerce & Industries (BWCCI), Women Entrepreneurs
Association of Bangladesh (WEAB), Bangladesh Homeworkers’ Women Association (BHWA), National
Association of Small & Cottage Industries of Bangladesh ( NASCIB) etc.
11. Collateral:
Lack of collateral of small entrepreneurs is deemed as a major hindrance to the expansion of SME credit.
Collateral free credit for the share-croppers in agricultural sector is being disbursed. Banks/financial
institutions may provide collateral free credit facilities up to Tk. 25,00,000 against Personal Guarantee
in SME sector especially for small and women entrepreneurs. Credit can also be provided against
hypothecation of products and machineries, if needed. However, banks and financial institutions shall
follow their own rules and banker-customer relationship to determine collateral for credit facilities
more than Tk.25,00,000. Banks and financial institutions shall apply their own due diligence method
in selecting clients/entrepreneurs. In this connection, banks/financial institutions shall formulate their
own credit policy following the guidelines of the Central Bank as minimum benchmark and inform
SME and Special Programmes Department of Bangladesh Bank. Group security or social security
can also be considered in formulating such policy.
12. Acceptance and Consideration of Application:
Respective bank branch will sanction the SME loan limit considering the annual requirement and
following the existing credit norms. For this purpose, respective branches will accept the application
of the small and medium entrepreneurs with their annual production plan. If necessary, entrepreneurs
will be allowed to modify their production plan on reasonable ground.
13. Grace Period:
The entrepreneurs often raise complaints regarding short duration of grace period for repayment of
SME loan. Therefore, banks and financial institutions will consider the reasonable grace/moratorium
period at the time of formulating credit policy for SME sector.
14. Eligibility of the Borrower:
Real entrepreneurs who are directly involved in SME sector will be considered eligible for SME credit.
Generally loan defaulters will not be entitled to get new loan.
15. Interest Rate on SME Credit:
Banks/financial institutions shall fix up the interest rate on small and medium loan for the respective
sector/sub-sector. The operating cost of the banks is high for the small entrepreneurs. Reasonably, the
rate of interest in this sector is somewhat higher. Banks are being given directions to keep the interest
rate within a tolerable limit. Bangladesh Bank is providing refinance facility to banks and financial
institutions at bank rate (at present 5%) in SME sector. The fund obtained at bank rate through BB
refinance window should be disbursed at bank rate + not more than 5% interest to the client level (in
case of women entrepreneurs).
16. Outsourcing of Credit Disbursement:
Banks/financial institutions may seek assistance from private organizations/Non-Government
Organizations (NGO)/self-help group for selecting borrower, monitoring of credit disbursement,
recovery, motivation of the borrowers, training for them etc.
17. Training Programmes:
The SME sector in Bangladesh faces problems both from supply side and demand side. However,
to address the supply side problems, three refinance schemes of Bangladesh Bank are already in
place. Besides, the banks/financial institutions have fixed target for disbursement in the current
year. The existing main problem of the demand side, on the other hand, includes: marketing of
products, lac of skill and knowledge of the entrepreneurs to improve quality of products, absence of
SME information data base etc. In order to develop genuine small and medium entrepreneurs, it is
essential to arrange trade faires of the SME products matching buyer-supplyer improving the quality
of product and package design, workshop and training on technology and design development. For
the purpose, the commercial banks and international donor agencies will be requested to arrange
training on entrepreneurship development where Bangladesh Bank will play the supporting role.
Besides, institutions like BBTA, BIBM, DCCI, FBCCI, NASCIB, BWCCI, SME Foundation will be requested
to arrange training programmes on the development of technology, skill and marketing of SME
products. The banks and financial institutions will incorporate the implementation status of such
training programmes in their annual report.
18. Monitoring of SME Credit:
Like monitoring of agricultural credit, three tier monitoring systems (BB Head Office, BB Branch Offices
and Banks) will be established in case of SME credit.
18.1. Purpose of the Monitoring of SME Credit:
a. To achieve the overall target of SME loan disbursement;
b. To achieve sector wise industrialization; such as higher growth of industry and service
sector, increasing the number of women entrepreneurs and their development, district
wise employment generation and poverty reduction;
c. To provide required credit to the small entrepreneurs without any harassment;
d. Special monitoring of the banks performance in providing credit to the women
entrepreneurs;
e. To ensure area approach and cluster-based credit disbursement.
f. To ensure satisfactory recovery of the disbursed credit in this sector to address any liquidity crisis;
g. And so on.
18.2. Methods of Monitoring of SME Credit:
Monitoring in the Head Office of the Central Bank:
Comprehensive monitoring strategies/procedures are being adopted by Bangladesh Bank to monitor
the SME policy implementation more effectively. Meanwhile, an ‘SME Loan Monitoring Cell’ has
been set up in the ‘SME and Special Programmes Department’. To achieve the objectives of SME
credit policy, the Monitoring Cell will comprehensively monitor the SME credit management at the
field level. In addition to the off-site & on-site supervision of SME loan, the respective Cell will take
necessary steps against any complain regarding SME credit subject to investigation.
Submission of Information/Statements:
To review the annual implementation progress of SME credit programmes, the respective banks/
financial institutions will submit accurate information/statements as per format at Annexure-D & E
regarding SME credit on quarterly basis to Bangladesh Bank within 15 days of the next month following
the quarter under reporting. Besides, the existing statements will be required to be continued as usual.
Monitoring in the Branch Offices of the Central Bank:
SME Credit Monitoring Cell will be established in the branch offices of Bangladesh Bank like Head
Office. This Cell will take effective steps to monitor the SME credit disbursement and recovery activities
by the banks/financial institutions of their respective areas intensively.
Monitoring in the Banks Level:
The respective banks have to ensure effective monitoring system so that real entrepreneurs can get
the SME credit in time according to the SME credit policy and credit norms. They will also ensure that
the entrepreneurs do not face any harassment and the indicative target of SME credit is achieved. For
this, respective banks will set up ‘Monitoring Unit’ and inform the same to Bangladesh Bank.
Monitoring by the Head Offices of the Banks:
a. As part of their business strategy, higher authorities of banks must have clear vision and
direction about disbursing SME credit.
b. Usually, credit disbursement is the affairs of the credit disbursing bank. The banks sanction
credit in favour of the customers after considering their credit worthiness and other relevant
matters. In addition to comply with the existing credit norms, the banks will take the following
steps to ensure sincerity, efficiency and speed in sanctioning and disbursement of SME loans.
Simplifying of the SME credit Application Form;
Guidance for filling up the application form and all other requirement should be advised
at the time of supplying the application form to avoid delay;
All supplementary queries shall be made to the applicant in one instance;
Rationalizing the time line for credit processing and disbursement;
The letter requesting the Credit Information Bureau (CIB) of Banglaledesh Bank to verify
loan classification status of the applicant shall marked “SME, the priority” and CIB will
provide the same on priority basis (within minimum time);
Quick settlement of borrower’s complain;
c. Core Group or Cell has to be established to monitor SME credit disbursement activities, to
take new steps and solve problems surfaced at the field level rapidly.
d. SME credit related item may be included in the agenda of annual/half yearly managers’
conference.
e. The officials in the regional/branch level may be rewarded on the basis of performance of
SME credit disbursement and recovery.
f. Required training may be arranged for the officials related to SME for their capacity
building.
g. Modern information technology especially Mobile Phone, E-mail etc. may be used in order to
monitor the activities of the regional offices and branches intensively.
Monitoring Activities in Regional Offices of the Banks:
a. The smooth implenmentation of the SME programme shall be monitored at regional offices
level of the banks. For the purpose, SME Credit Monitoring Unit may be established in the
regional offices. The members of the Monitoring Unit will visit their respective areas from
time to time to monitor that the disbursement is progressing in line with the target.
b. The role of Regional Offices will perform the role of coordinator between higher authority of
the bank and the branches.
c. As a part of regular monitoring, the officers of Regional Offices/Monitoring Unit will arrange
meeting with the officers of their respective branches and visit the branches from time to
time to ensure that the potential entrepreneurs do not face any harassment. They will address
complain related to SME credit instantly’ provide required directions to the branches and
assist them to solve the problems existed in the branches.
Activities to be performed at the Bank Branches:
The success of SME credit disbursement programmes mostly depends on the performance of
the bank branches. Therefore, the bank branches have to perform dynamic role in sanctioning
and disbursing SME credit. Bank branches will perform the following activities to disburse
and recover SME loan:
a. The branch manager will evaluate/decide the demand for and scope of SME loan
disbursement. In this context, arrangement should be made to disburse SME loan in the local
potential sectors.
b. Special initiative should be taken by every bank branch to disburse SME loan to the small
women entrepreneurs;
c. Identifying the curageous and successful small entrepreneurs and bring them under loan
activities/programme;
d. Motivating the entrepreneurs through necessary and comprehensive publicity;
e. Arranging SME loan to interested eligible and bonafied entrepreneurs through easy
transparent process and in a timely manner;
f. Monitoring of the proper utilization of disbursed loan;
g. Gearing up monitoring of SME loan recovery activities.
19. Preservation of Mobile Phone number of the Clients:
To facilitate easy communication for proper monitoring of SME credit disbursement at field level mobile
phone number of each borrower should be preserved at branches (mobile number of neighbour or
close relative may be preserved marking ‘on request’, in case the borrower don’t have his own mobile).
A mobile/telephone directory of the SME borrowers may also be maintained at branch level.
20. Availability of Information:
Banks will display the detailed information regarding SME credit facilities in their website and also
in each of their branches at a common and easily noticeable place. Banks will maintain sectorwise
(industry/product) information of credit flow, rate of default, employment creation etc. This information
will help in evaluating the effectiveness of existing guidelines adopted by the government and will
assist in formulating SME guidelines in the future.
21. Incentives:
SME loan should be extended to rural areas instead of centralizing at urban areas. The overall success
in SME target achievement will be considered as an important criteria for allowing the respective
banks to open new branch, Authorized Dealer (AD) branch and exchange houses abroad.
22. SME Service Centre:
The banks (Private and Foreign) have so far opened 210 SME service centres (listed Annexure-F) to
provide more facilities to SME clients. Notably, in order to involve the banks in financing SME and
Agriculture sector, licences for SME/Agriculture branch are being issued instead of SME Service Centre
from this year (2010).
23. Potential Sectors/Clusters of SME:
A list of important sectors/clusters of SME is enclosed herewith (Annexure-G).
24. Explanation of Few Terms:
Cluster:
A cluster may be defined as a local agglomeration of enterprises (mainly SMEs but often also including
some large enterprises) which are producing and selling a range of related and complementary
products/services. For example, leather and leather products manufacturing enterprises at Hazaribag
of Dhaka is treated as the cluster of leather goods. Clusters are identified considering various factors
such as-geographical area, product or service etc.
Social Security/Collateral:
Social security/collateral refers to the guarantee given by any social institution/social community
(acceptable to both parties) to secure the loan. For example, when any business organization
(Chamber of Commerce and Industry/Association) gives guarantee/assets as security against the
loan taken by a person associated with the organization can be called social security.
Group Security/ Collateral:
Group security means the security given by the group jointly against the loan taken by a group
member. Ideologically, this security includes both assets/guarantee. In reality, guarantee given by
the group is mostly used as Group Security for the repayment of the loan. In such case, if any member
becomes defaulter, whole group will be considered as defaulter and will be deprived of further loan.
As a result, defaulter member will be bound to pay the loan under the pressure of group members.
Women Entrepreneur:
An woman engaged in business in her own name will be treated as women entrepreneur. The women
entrepreneurs should be given priority for SME loan and special facility (low rate of interest) will be
entitled under special consideration. It may be mentioned that if a woman entrepreneur owns/
possesses more than 50% shares of a business, it will be deemed as a business conducted by woman
entrepreneur and will be entitled for facilities under special consideration.
Loan/Investments:
Islamic banks operating in our country term ‘SME financing’ as ‘Investment’ instead of ‘Loan’. For this
reason, the term ‘investment’ used by Islamic banks is interchangeable with the word ‘loan/credit’ in
SME financing.
Published by
Dr. Md. Golam Mustafa, General Manager
Department of Printing and Publications
Bangladesh Bank, Head Office, Dhaka.
Phone : 7110211, 7120951
E-mail : golam.mustafa@bb.org.bd
Website : www.bangladeshbank.org.bd
www.bangladesh-bank.org
Designed & Printed by Srout Advertising
Tel : 8356741, 01819251898
DPP-06-2010-1000
(Full policy paper is available at Bangladesh Bank web site)
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