Problems and Prospects of SMEs Loan
Management: A Study on Mercantile
Bank Limited, Khulna Branch
S. M. AKTERUJJAMAN
SMEs all over the world have b een playing a crucial role in promoting economic development as well as industrial production. SME financing has been identified as a major obstacle to S ME growth. Unfortunately, the issue seems to be as unresolved as it always has been. Though the majority of the issues are with the SME themselves, the banks also have major issues in designing financial products for the SMEs. This study tries to find out the underlying problems from the bank’s perspective. The major findings are related to the high interest and loan duration rates, reasons for SMEs relatively informal way of doing business in contrast to bank’s formal procedures and prerequisites, bank’s relative inexperience in this field. They are also related to the bank’s lack of perspective, the viability and benefits of cluster unity, approach to informal loan takers and non-usage of modern technology and accounting procedures. The recommendations were provided based on the analysis and findings.
Key words: Small and Medium Enterprises (SMEs), Financing, Loan, Technology, Cluster.
Small and medium enterprises (SMEs) all over the world have been playing a crucial role in promoting economic development as well as industrial production. In particular, SMEs provide the necessary foundations for sustained growth and rising income in the less developed and transitional economies. SME financing is a topic of significant research interest to academics and an issue of great importance to the policymakers of Bangladesh and around the world. Economic as well as technical and social arguments warrant the promotion of SMEs as they create large scale, low-cost employment opportunities, use locally available inputs and technologies, mobilize small and scattered private savings, develop entrepreneurship, and correct the regional imbalance in development that exists in developing countries. Despite 1
Senior Lecturer, Department of Business Administration, Northern University Bangladesh, E-mail: email@example.com
Akterrujjaman: Problems and Prospects of SMEs Loan Management
all these potentials, SMEs are disappearing, abandoning the potential role they could have played in economic development. Several studies have identified the major obstacles that include, but not limited to financing, infrastructure facilities, taxes and regulations, and stability in policies. Access to financing continues to be one of the most significant challenges for the growth and survival of SMEs especially innovative ones.
This paper focuses on the financial constraints that SMEs face in Bangladesh. In Bangladesh, commercial banks are not interested to finance SMEs because of the high risk and high supervision cost associated with this type of financing. Absence of sound collateral puts SMEs at a relative disadvantage. However, this study has found that some of the commercial banks have some “innovative” products or services targeting at SMEs only, while others have “repackaged” some of their existing products as SME products. It is generally recognized that SMEs have a significant role in employment generation, poverty reduction and overall economic growth, especially for a developing economy like Bangladesh. SMEs are typically labor-intensive industries with relatively low capital intensity. As such, for a country like Bangladesh, which is labor abundant and capital scarce, SMEs have a natural comparative advantage.
1.1 Objectives of the Study
The main objective of the study is to find out the major problems and prospects of SME loan management of Mercantile Bank Ltd., Khulna Branch. However, the specific objectives are as follows:
1. To find out the bank’s reasons for reluctance t o p roviding loans to the SMEs.
2. To find out the banks...