Abstract

The study has been conducted how the bank operate SME Banking activities with their
regular customer. In view of present economic development effort in Bangladesh the SME
sector plays an important role. SME sector employs 25% of the total labor force. As a
result, this sector is the present available sector for creation jobs. SME sector requires lower
energy supply, lower infrastructure facilities and this sector imposes less environmental
risk. SME financing is now constructing the economy building of the country with the
major key role players of banking industry which will appear advanced in near future.
Analyzing the performance of SME financing by the banking industry this study identifies
the major SME investors among banking industry. Disbursement of SME Loan by all
selected conventional banks shows about 1.5 times growth from Year 20015-2018. The
most important is that, BRAC bank is the leading SME loan providers among the
conventional banks and it captured 5.87% market share within SME banking arena of
Bangladesh. Moreover, collected data were analyzed more precisely through different
financial ratios and different statistical tools. Although SME financing seems very
promising, it has various problems such as risk profile, lack of collaterals, lack of uniform
definition of SME, participation of women and complexity in distribution.

Keywords: SME, SME Financing, Banks, Bangladesh, Performance.

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1.1 Background of the study

SME means Small and Medium Enterprises. It is now increasingly renowned that the Small
and Medium Enterprises play an important role around the world. Small and medium-sized
enterprises are measured to be one of the principal driving forces in economic
development. They encourage private ownership and entrepreneurial skills, the greater
likelihood that SMEs will utilize labor intensive technologies and thus have an immediate
force on employment generation, they can usually be established rapidly and put into
operation to produce quick returns, SME development can encourage the process of both
inter and intra-regional decentralization and they may well become a countervailing force
against the economic power of larger enterprises. More generally the development of SMEs
is seen as accelerating the achievement of socio-economic objectives, including poverty
alleviation and help in diversification of economic activities

SMEs occupy a unique position in the economy of Bangladesh. Mainly private sector
development depends on them. In Bangladesh the SMEs explanation for about 45% of
manufacturing value addition. They account for about 80%of industrial employment, about
90% of total industrial units and about 25% of total labor force. Their total contribution to
export earnings varies from 75-80%.The total number of SMEs is estimated at 79754
establishments, of which 93.6% are small and 6.4% are medium which contributed around
20-25% of GDP. Small and medium enterprises (SMEs) make up the largest portion of the
employment base in many developing countries and, indeed, are often the foundation of
the local private sector. Now the SMEs are not only determined to low-tech, traditional,
and agro-based economic activities; these are spread over other non-traditional
manufacturing and service sector as well.

The entrepreneurs behind should play a much larger role in development, but too often are
held back by a lack of ready access to financing from local formal sector financial
institutions. Here lies the scope of commercial banks to offer banking facilities to this
missing middle by offering different products that are specially featured for this segment.
On a long term perspective these commercial banks expect to gradually develop the
creation of an entrepreneurial class across Bangladesh through proper financing and
training. Commercial banks are also developing their procedure and operational guideline

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supported by structured recruitment process and subsequent training with a view to
mitigating credit risks and 10 other risks for a smooth flow of SME financing. Most
businesses in Bangladesh are in need of small short-term loans to help finance their
working capital needs or purchase of fixed assets.

Acknowledging the importance of SMEs and entrepreneurship, the Government of

Bangladesh reaffirming their commitment takes initiative to design SME policies and
strategies for its coherent growth .After the birth of Bangladesh, intensive efforts were
undertaken to accelerate the rate of industrialization in the country. In order to attain this
objective, large amount of industrial credit was funneled to the industrial sector. But the
whole exercise of industrialization came to a close down with the massive diversion of
resources to other non priority sectors. Policy makers, of late, have come to recognize the
contribution of SME sector towards economic development in the country.

As a developing country our country are facing a large number of problems such as high
population growth and lack of rural industrialization, unemployment and
underemployment of human and materials resources, unbalanced regional development
etc. The contribution of small and medium enterprises in the solution of these problems is
beyond doubt. If small and medium enterprises are through organized and scientific way it
will bring the desire outcome like the blessing for the densely populated country
Bangladesh. SME can play a great role by providing the employment facility of the major
part of our civilization and easily can remove the curse of unemployment problems.

1.2 Origin of the report:

This report is a part of MBA (Professional) program of the Department of Finance and
Banking in Begum Rokeya University, Rangpur. I have done my report on “SME
Financing in Bangladesh: A Comparative Analysis of Banking Sectors in Rangpur
Division.” I choose the topic as per consultation with my academic supervisor Khairul
Kabir Sumon, Assistant Professor, Department of Finance and Banking, Begum Rokeya
University, Rangpur.

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1.3 Problem statement

Small and Medium Enterprise contributes significantly in the field of Bangladesh’s GDP
and export earnings. They have always been short of business support and regulatory and
financial assistance. The financial sector has been given that only 10 percent of their overall
credit to SMEs. The commercial banks provide credit only to their well established and
large scale trading and manufacturing customers, because it is easy to handle and expedient
to support for them. The main objective of our report is to find out the contribution of banks
on SME sector in Bangladesh.

1.4 Objectives of the Study

General research objective: The broad objective of the study is to assess the role of
Commercial Banks on the success of Small and Medium Enterprises in Bangladesh.

Specific research objectives:

 To identify the role of public commercial banks in small and medium enterprises;
 To examine the role of private commercial banks in small and medium enterprises;
 To identify the factors that influence operations of small and medium enterprises;
 To find out the problems of commercial banks in contributing in SMEs sector;
 Finally, to make some recommendations towards the policy makers of private and
public commercial bank for the development of SMEs in Bangladesh.

1.5 Scope of the Study

To make a standard report, relevant documents and papers are collected from the various
commercial banks. Government and private banks helped us to prepare a constructed report
by providing relevant papers, annual reports and access to files which makes the report
enriched. The study focused on Rangpur region because it is one of the largest sector of
small and medium enterprises in Bangladesh. Furthermore the study is confined to these
selected areas because of time and financial constraints. Data are collected from different
bank’s annual report form 2015 to 2018.

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1.6 Limitations of the Study

The following factors were acted as obstacles to prepare this report:

 The main Limitation of this report is that it’s not possible to disclose all data and
information for the reason of confidentiality.
 Update information is not available in the official websites and the journal of
Bangladesh Bank which facilitates to prepare of the report.
 There was significant lack of information from secondary reports. As a result,
primary data had to be collected from our survey, as well as face to face interviews
with different bank officials and entrepreneurs.
 Interview may consist with biasness because many of the interviewees were
reluctant to state whether they had a major problem in any specific category.
 Discussion about the Small and Medium Enterprises is a vast subject, but only some
selected areas are covered in the research paper.
 Bankers did not provide sufficient information during interview because bankers
were busy with their job and fell bore to give us enough time.
 Many interviewees doubted about the outcome of research work.

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 Literature review

This chapter specifically reviews the literature on SMEs, Contribution of financial

institutions, Present Scenario of SMEs.

Aminul. (2011) reported that the characteristic of entrepreneur is found to be a significant

factor for business success of SMEs in Bangladesh. He found that the study is based on
survey methodology through a questionnaire administered on the owners and employees
of small firms. He described these things on his article, “Effect of Entrepreneur and Firm
Characteristics on the Business Success of Small and Medium Enterprises (SMEs) in
Bangladesh”. Aminul. (2011)

Ayyagari describes a new cross-country database on the definition of SMEs across

different countries, allowing importance of small and medium enterprises (SMEs). It
extends construction of the different indicators, presents coverage to a broader set of
developing and industrial descriptive statistics, and explores correlations with other
economies. It provides information on the socioeconomic variables in contribution of the
SME sector using a uniform. Meghana Ayyagari describe these in the name of articles,
“Small and Medium Enterprises across the Globe”. Ayyagari (2003). Journal of Business
Ethics reported that the impact of smaller firm size on corporate social responsibility (CSR)
is ambiguous. Some contend that small businesses are socially responsible by nature, while
others argue that a smaller firm size imposes barriers on small firms that constrain their
ability to take responsible action. This paper critically analyses recent theoretical and
empirical contributions on the size–social responsibility relationship among small
businesses. More specifically, it reviews the impact of firm size on four antecedents of
business behavior: issue characteristics, personal. A survey of “Investigating the Impact of
Firm Size on Small Business Social Responsibility: A Critical Review”. Journal of
Business Ethics (2006).

With respect to the SME sector of Bangladesh, foreign and national experts undertook
some studies. Some of the notable ones are; Uddin (2008), Chowdhury (2007), Miah
(2007), Ahmed (2006), MIDAS (2004), ICG (2003), Hallberg (2002).

6
Uddin (2008) has stated that the economic efficiency and overall performance of the SMEs
especially in the developing countries are considerably dependent upon macroeconomic
policy environment and specific promotion policies pursued for their benefit.Chowdhury
(2007) highlighted that in context of Bangladesh SME is characterized by Low
capitalization and limited assets, geographical diversity and high mortality, poor credit
knowledge, very limited access to formal source of credit, cash intensity in transactions,
very limited record keeping habit, poor financial disclosure on account of tax issues, high
risk perception has led to high borrowing costs.

In a study about SME sector of Bangladesh Miah (2007) stated that the major constraints
for SMEs are lack of adequate investment, lack of modern technology, high rate of interest
on bank loans, irregular/inadequate supply of power, poor physical infrastructure and high
transportation cost, poor information about market opportunities and requirements,
inadequate availability of raw materials, lack of skilled technicians and workers, lack of
research & development facilities, fierce competition, absence of effective and transparent
legal system, difficulties in accessing technology, credit constraints, low access to business
services, constraint of quality of human resources, low awareness, low lobbying capacity,
rapid changes in policy environment.

Ahmed (2006) observed that availability of finance is a major constraint to formation and
growth of SMEs in Bangladesh. Banks are reluctant to expand their SME credit portfolio
because they do not consider SME lending an attractive and profitable undertaking. This
is so because SMEs are regarded as high risk borrowers because of their low capitalization,
insufficient assets and their inability to comply with collateral requirements of the banks.

In a study in Australia, McMahon (2001) discovered that greater dependence upon external
finance associated with better business growth. In a more recent study, in Indonesia,
Kristiansen, Furuholt, & Wahid (2003) found that financial flexibility was significantly
correlated to business success. The SMEs that took advantage of family and third-party
investment experienced higher level of success.

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Size of enterprise reflects how large an enterprise in employment terms. McMahon (2001)
found that enterprise size significantly linked to better business performance. Larger
enterprises were found to have a higher level of success.

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3.1 Methodology

Methodology is the most important component in any study proposal since it explains the
procedures and methods through which a particulars study carried out. The study is based
on secondary data mainly Secondary data derive from publications of Bangladesh bank
and statistical data from reliable and organized sources, In this regard several books,
articles and some newspapers have been reviewed to get idea about the topic. This chapter
includes discussion are data requirements, Sample size selection/determination, data
analysis, limitations etc.

3.2 Research Design

Research design is the blueprint for conducting the research. The details of the procedures
necessary for obtaining the information needed to structure or solve research problem. so
for conducting this research we draw a design by following way:

Data is the first and foremost for any study. Relevant data were collected from both
secondary and primary sources. Secondary data were collected from the annual reports
(2018) of the selected Government & non-government banks and from Bangladesh banks
reports on SME and SME organizations in Bangladesh.

These data were reviewed and analyzed after collection. Primary data is mainly in 2(two)
types-Quantitative and Qualitative data. Qualitative Data mainly collected by conducting
some interviews with SME Bankers and selected SME Entrepreneurs. Quantitative data
were get through conducting survey through selected Questionnaire.

Interview technique approach has used in the questionnaire. The questionnaire prepared
for the interviews was structured and easy to understand.

3.3 Study Area

The SME firms comprises whole over the country. Due to short period of time and
convenient of the study, Rangpur region has been selected for the study. This area is the
concentration of Banks and some portion of SME firms.

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3.4 Sample size selection/determination

Out of 54 commercial banks, 39 banks are Private commercial banks, 6 banks are state
owned commercial banks and 9 banks are foreign commercial banks. In our study, 4 banks
have been selected purposively. Among these 2 Government Banks are Sonali Bank
Limited and Janata Bank Limited and 2 Private commercial banks are Jamuna Bank
Limited and Pubali Bank Limited. These banks have been selected because these banks
contribute comparatively more than the other commercial banks in the SMEs sector. To
select the sample, convenience sampling method was used in order to minimize bias.
According to SME and Special Program Department SPD, Bangladesh Bank, at present,
the total number of SMEs is estimated at 79754 establishments, of which 93.6% are small
and 6.4% are medium. For conducting research we have purposively chosen 24 SME
entrepreneurs.

3.5 Tools and technique of data collection

3.5.1 The Secondary Sources

Data collected by someone other than the user in various sources is called secondary data.
In this Study the following secondary data sources have been used.

 Annual report and periodical publications.

 Different publications, Newspapers.
 The internet will also be used as a theoretical source of information.
 Bangladesh Bank annual Report.
 Annual report of Sonali Bank Limited.
 Annual report of Janata Bank Limited.
 Annual report of Pubali Bank Limited.
 Annual report of Jamuna Bank Limited.
 The Banking journals, BIBM, Bank bd.org
 Bank economic reviews (Like; Bangladesh Bank, World Bank).
 University research reports.
 Journals and articles are all useful sources to contact.

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  Bank progress reports etc.

3.6 Data Analysis Tools

Some diagrams and tables were used in this report for analyzing the collected data and to
explain certain concepts and findings more clearly. Moreover, collected data were analyzed
more precisely through different financial ratios and different statistical tools. The collected
data were analyzed well and were pointed out and shown as findings at the end.

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4.1 Introduction

This chapter presents conceptual definitions of small and medium enterprises (SMEs) and
Public and private commercial banks. Literature review is also done on the development
of Public and private commercial on the success of SMEs. The chapter proposes a
conceptual frame work SMEs conditions in our country Bangladesh.

4.2. Definition of Small Enterprise

Small Enterprises are independently owned and operated business, whose owner(s)
exercises close control over operations and decisions. The equity is not publicly traded and
business anally guaranteed by the owner(s). Typically small businesses are those who
employ less manpower and whose asset size is also not big. In most cases these are not
dominant player in respective fields of business. Small Enterprise refers to the
firm/business which is not a public limited company and complies the following criteria:

Serial Sector Fixed Asset other than Employed

No. Land and Building (Tk.) Manpower
(not above)
1 Service 50,000-50,00,000 25
2 Business 50,000-50,00,000 25
3 Industrial 50,000-1,50,00,000 50
Table 01: Criteria for Small Enterprise (Source: Bangladesh bank)

4.3. Definition of Medium Enterprise

Medium Enterprises are those, whose asset size and manpower is higher than Small
enterprises but less than local corporate .The Maximum limit of asset and manpower differs
among countries. Local manufacturing units often fall under Medium Enterprises.
According to the Industrial policy 2005, SME definition has been in terms of fixed assets
and no. of employees of three major sectors: service, manufacturing and trading but the
present definition which was recommended by Better Business Forum and accepted as a
uniform one by Ministry of Industry and Bangladesh Bank included Cottage and micro

12
industry as SME in Bangladesh. 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 Employed

Land and Building (Tk.) Manpower
(not above)

1 Service 50,00,000-10,00,00,000 50

2 Business 50,00,000-10,00,00,000 50

3 Industrial 1,50,00,000-20,00,00,000 150

Table 02: Criteria for Medium Enterprise (Source: Bangladesh bank)

4.4 Current Status of SME Financing by Banks in Bangladesh

Janata Bank Ltd. are disbursing significant amount of credit under various programs like
Small Enterprise Development Project, Self-help Credit Program and Project for Small
Entrepreneurs, Special Investment Program and Agro-based Supervisory Industrial Credit
etc. for the promotion and development of SMEs. The investment of private sector banks
in financing SMEs remains insignificant in Bangladesh. Of all the private sector banks like
Pubali Bank Ltd., Standard Chartered Bank Ltd., Agrani Bank, BRAC Bank, Eastern Bank
Ltd.(EBL), Prime Bank Ltd, Dhaka Bank Ltd, Mercantile Bank Ltd, Dutch-Bangla Bank
Ltd, Islami Bank Bangladesh Ltd, IFIC Bank Ltd. have the leading role in SME for Small
Industries and Commerce Bangladesh Ltd.(BASIC) and other government and private
banks are entrusted with the responsibility of providing medium and long-term loans for
promotion and development of small-scale industries.

The memorandum and Articles of Association of the bank stipulates that 50% of loan able
funds shall be used for financing small scale and cottage industries. The outstanding credit
of BASIC stood at 1505.06 crore at the end of June 2016 for small and cottage industries
sector.

4.5 Factors that influence operations of SMEs.

The factors that influence operations of SMEs are as follows.

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Enterprise Density

Enterprise density affect largely on the on the SMEs operations. Enterprise density is
defined as the number of firms in a given population at a given time and refers to the
percentage of existing and possible entrepreneurs.

Inflation

Highly changeable inflation rate is another major hindrance to operate SMEs operations
easily. Interest rates high interest rate is another problem to the required finance in our
country.

Unemployment

Unemployment impacts on the entrepreneurship process. Where there is high

unemployment a lot of people are pushed into entrepreneurship for survival; at the same
time because of this high unemployment and limited earnings, markets are naturally
limited.

Exchange rates

Exchange rates are a major factor in entrepreneurship. That there is more opportunities in
the export market but that there is less capital for investing in local SMEs.

Public support

The government’s SME support programmes could ensure that SMEs get ongoing support
in the form of knowledge and expertise to ensure growth of the business beyond the initial
incubation and early survival. Lack of public sector support has a negative impact on
entrepreneurship development in a country.

Access to labour

Access to labour markets is a key factor of production crucial for entrepreneurship as it

allows for appropriate expertise that enables ventures to explore identified opportunities.
While the available semi-skilled and skilled labour is expensive.

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Location

Geographic location has its implications for access to markets and other resources like
finance, skilled labour, subcontractors; infrastructure, distribution and transport logistics
and other facilities. SME success also depends on neighborhood appearance and
continued/maintained future business operations in that location.

In testimony of this fact, share of Agriculture, Manufacturing industry & Service Sector in
GDP over the period from 2017 to 2018 is shown in the following table:

Type of Industry Target during 2015-2016 Achievement during 2017 -2018

No. Total Employment No. Total Employment
of Investment of Investment
unit unit
Small New 2200 875 75000 5090 432.07 28225
Industry Existing 1600 240 29200 4234 449.79 15240
Total 3800 1115 104200 9324 881.86 43465
Cottage New 6100 14.35 10800 4362 82.41 12230
Industry Existing 4600 4.60 3500 2375 45.69 5174
Total 1070 18.95 14500 6737 128.10 17404
Total Industries 14500 1133.9 118500 16061 1009.9 60869
Table 03: Industrial Origin Sector in million Tk. (Source: Bangladesh Bank Website)

4.6 Loan documents needed for SME financing by banks

Criteria for loan selection are similar among financial institutions, most frequently
requested documents by financial institutions as a part of the loan application include:

 Personal guarantee
 Business plan
 Appraisal of assets to be financed
 Purchase agreement Cash flow projection
 Personal financial statement
 Formal application for financing

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  Business financial statement
 Tin certificate
 Citizenship certificate

4.7 Commercial Bank

A commercial bank is a financial institution that provides various financial service, such
as accepting deposits and issuing loans. Commercial bank customers can take advantage
of a range of investment products that commercial banks offer like savings accounts and
certificates of deposit.

4.8 List of banks in Bangladesh

i. State Owned Commercial Banks: There are eight State Owned Commercial
Banks.
ii. Private Commercial Banks: There are thirty two Private Commercial Banks.
iii. Foreign Commercial Banks: There are nine Foreign Commercial Banks.
iv. Islamic Shariah based Commercial Banks: There are eight Islamic Shariah based
Commercial Banks.

4.9 About the Sample Banks:

4.9.1 Sonali Bank Ltd

Soon after independence of the country Sonali Bank Ltd. emerged as the largest and leading
Nationalized Commercial Bank by proclamation of the Banks' Nationalization Order1972
(Presidential Order-26) liquidating the then National Bank of Pakistan, Premier Bank and
Bank of Bahawalpur. As a fully state owned institution, the bank had been discharging its
nation-building responsibilities by undertaking government entrusted different socio-
economic schemes as well as money market activities of its own volition, covering all
spheres of the economy. After the emergence of Bangladesh, the banking system has
expanded a lot in the last three decades. Though many private commercial banks have
established, the major portion of Banking, Business is covered by the four nationalized
commercial Banks such as; Sonali, Janata, Agrani and Rupali Bank Ltd. In the area of

16
Mughal and East India Company in India, banking got organized. The bank of India
Namely the Hindustan Bank was established in 1948. The State Bank of Pakistan was
established after partition of India into two India and Pakistan. Then on March 26th 1971
Pakistan has partitioned into two, Pakistan and Bangladesh. In Bangladesh, “Bangladesh
Bank” has established 1971 in the area of Bangladesh. “The Eastern Mercantile Bank” has
established in 1949 as first one. The national Bank of Pakistan, The Bank of Bahawalpur
LTD, The Premier bank LTD. Were jointly declared as Sonali Bank Ltd. by the presidential
order in 1972. Now Sonali Bank Ltd. continues its operations with 1187 branches. Its head
office situated at Matijhel, Dhaka. Sonali Bank Ltd.

4.9.2 SME (Small & Medium Enterprise) Loan provided by Sonali Bank

Sonali Bank Limited emphasizes highest priority on SME financing for eliminating
poverty by increasing SME loan flow at economically underdeveloped area and peoples.
Setting up priority base SME credit Policy for Women and underprivileged entrepreneurs,
Sonali bank working for the improvement of their socio-economic condition.

Lending Policy:

i. Loan Limit: BDT 50,000/-(Fifty thousand) to BDT 500,000,00/-(Five crore)

ii. Criteria of Borrower:

 Bangladeshi Citizen minimum 18 (eighteen) years old;

 Loan defaulter, Bankrupt, Mentally wreaked person cannot apply for loan;
 Women Entrepreneurs highly encourage to apply.

iii. Nature of Project/Enterprise:

 Proprietorship Enterprise;
 Registered Partnership Enterprise;
 Private Limited Company;
 Joint Venture Company except Public Limited Company.

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iv. Security:

 The collateral security free loan limit for male entrepreneurs is upto Tk. 5 lac.
 The collateral security free loan limit for women entrepreneurs is upto Tk. 10 lac.

v. Period:

 Project/Term Loan: Maximum 5 years (project period may flexible according to

Project nature)
 Working capital/Trading Loan: 1 year, renewable at the end of period.

vi. Repayment procedure:

 Project/Term Loan: monthly/quarterly basis repayable within loan period.

 Working capital/Trading Loan: Daily basis or fully repayment within loan period.

4.10 Janata Bank Ltd

Janata Bank Ltd. is a nationalized commercial Bank. It was established under the
Bangladesh Bank nationalization order 1972. Turning created the Bank over the branches
of two abandoned Pakistani Bank. This functioned the East Pakistan with its head office
Dhaka. The Bank started its operation with an initial authorized capital of TK. 50 millions
of paid up capital of TK. 10.5 millions. Authorized capital was raised to Tk. 30 millions in
1973. Since then the authorized and paid up capital remain unchanged till December 1983.
Letters both were increased from time to time and their amount stood at TK. 8 billions and
TK. 2.594 billion respectively on 31st December 2000. The reserve funds of the Bank that
date were TK. 367 millions. The management of the Bank is vested in a 7 number board
of directors appointed by the government. The managing director is the chief executive and
a deputy-managing director; six numbers of general managers and other senior executives.
The general managers are in-charge of the Bank branches in six administrative divisions
of the country; namely Dhaka, Chittagong, Rajshahi, Khulna, Sylhet and Barisal. At the
head office the Bank has 27 departments including a training institute. On 30th June 2000,
the Bank had a total number of 17138 employees. Up to 31st December 2005the Bank had

18
853 domestic and 5 oversees branches (In the Middle East). Among the domestic branches,
335 were in the urban areas and 518 in the rural areas.

4.10.1 Functions of Janata Bank Ltd

The function of Janata Bank Ltd. may differ from country to country. The prime functions
of Janata Bank Ltd. are as follows:

1. Receiving of money of deposit;

2. Issuing of notes;
3. Lending of money;
4. Transferring money from place to place;
5. Acting as executors and trustees for customers.
6. Furnishing guarantees on behalf of the customers, etc.

4.10.2 SME loan of Janata Bank

Janata Bank Limited has been financing Small and Medium Enterprises with a view to
developing a balanced and dynamic industrial sector having a strong base of SMEs
throughout the country. Besides normal financing special tailor-made programs are
undertaken by the Bank. Under this program a credit line has been extended to MIDAS
while another program is under way.

4.10.3 Financing in SME Sector

From the very inception of Industrial credit financing of Janata Bank (Currently Janata
Bank Limited) SME division has sanctioned term loan in small and medium industries
sector in 4535 projects of taka 941.36 crore. Among which taka 548.69 crore has been
disbursed against 4310 projects. Outstanding as 31.12.2007 is taka 446.12 crore and
recovery of loan is 70%.

4.11 Jamuna Bank Ltd.

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Jamuna Bank Limited (JBL) is a Banking Company registered under the Companies Act,
1994 of Bangladesh with its Head Office currently at Hadi Mansion, 2, Dilkusha C/A,
Dhaka-1000, Bangladesh. The Bank started its operation from 3rd June 2001. The Bank
provides all types of support to trade, commerce, industry and overall business of the
country. JBL's finances are also available for the entrepreneurs to set up promising new
ventures and BMRE of existing industrial units. The bank was established by a group of
local entrepreneurs who are well reputed in the field of trade, commerce, industry and
business of the country. The Bank offers both conventional and Islamic banking through
designated branches. The Bank is being managed and operated by a group of highly
educated and professional team with diversified experience in finance and banking. The
Management of the bank constantly focuses on understanding and anticipating customers'
needs. Since the need of customers is changing day by day with the changes of time, the
bank endeavors its best to devise strategies and introduce new products to cope with the
change. Jamuna Bank Ltd. has already achieved tremendous progress since its beginning.
The bank has already built up reputation as one of quality service providers of the country.

At present the Bank has real-time Online banking branches (of both Urban and Rural areas)
network throughout the country having smart IT-backbone. Besides traditional delivery
points, the bank has ATMs of its own, sharing with other partner banks and consortium
throughout the country.

4.11.1 Types of SMEs loan provided by jamuna Bank

A. Jamuna Swabolombi
B. Jamuna Chalantika
C. Jamuna Green

Jamuna Swabolombi

As an entrepreneur, definitely you need working capital to run your business smoothly. To
get this working capital generally you need to keep some collateral security like land as
mortgage to the Bank. But you do not have any landed property or any cash security of
your own. So? Would it be the end of your dream? Never. Jamuna Bank will never let you
stop because your business is our responsibility. Jamuna Bank Ltd. has “Jamuna

20
Swabolombi” Collateral free Term Loan in its basket. Just come with proper documents &
get it.

Purpose

 Any justifiable business purpose.

Key Features

 Loan Amount: BDT 5.00 lac to BDT 25.00 lac.

 Tenure: For Trading & Service Industry 30 months. For manufacturing industry 36
months.
 Interest Rate: Competitive interest rate.
 Fast and quality service.
 No hidden charge.
 Up to BDT 25.00 lac is collateral Free.

Eligibility

 Having business for at least 2 years in the same line.

 Age Limit: 20 years to 60 years.

Required Documents

 Last twelve month’s sales statement.

 Last twelve month’s bank statement.
 Valid Trade License of last two years.
 National Voter ID/ Passport of the borrower.
 Photographs of the borrower and the guarantors.
 Utility bills of the concerned business.

B) Jamuna Chalantika

To operate your business with extra ease, term loan is not always the only solution. Keeping
this capital requirement for your business, Jamuna Bank is offering a package of working

21
capital solution [50% term loan & 50% revolving credit (cash credit) facility] to run the
business smoothly.

Purpose

To meet up working capital requirement of the business.

Key Features

 Loan Amount: BDT 5.00 lac to BDT 50.00 lac.

 Tenure: For revolving loan- Maximum 01 year (Renewable).
 For Term Loan- Maximum 36 months. Interest Rate: Competitive interest rate. Fast
and quality service.
 No hidden charge.
 Registered Mortgage of Property is required.

Eligibility

 Having business at least 2 years in the same line.

 Age Limit of the Borrower: 20 years to 60 years.

Required Documents

 Last twelve month’s sales statement.

 Last twelve month’s bank statement.
 Valid Trade License of last two years.
 National Voter ID/ Passport of the borrower.
 Photographs of the borrower and the guarantors.
 Utility bills of business.

C) Jamuna Green

22
To save our beloved earth from the disaster of Green House Effect, Jamuna Bank is offering
ECO friendly product „Jamuna Green‟. Under this product, you can get finance for ETP
plants in different sectors, Eco friendly vehicles, Eco friendly fields (reduce CO2
emission), Bio Fertilizer, Bio gas plants, Solar plants and Eco friendly any other business.
Mode of finance shall be Term Loan mainly.

Purpose:

To facilitate establishment of eco friendly projects.

Key Features:

 Loan Amount: Max. 300 lac.

 Tenure: Max. 60 months.
 Interest Rate: Competitive interest rate.
 Fast and quality service.
 No hidden charge.

Eligibility:

 Having business for at least 2 years in the same line.

 Age Limit: 20 years to 60 years.

Required Documents:

 Last twelve month’s sales statement.

 Last twelve month’s bank statement.
 Valid Trade License of last two years.
 National Voter ID/ Passport of the borrower.
 Photographs of the borrower and the guarantors.
 Utility bills of the concerned business.

4.12 Pubali Bank Limited

23
The Bank was initially emerged in the Banking scenario of the then East Pakistan as
Eastern Mercantile Bank Limited at the initiative of some Bangalee entrepreneurs in the
year 1959 under Bank Companies Act 1913 for providing credit to the Bangalee
entrepreneurs who had limited access to the credit in those days from other financial
institutions. After independence of Bangladesh in 1972 this Bank was nationalized as per
policy of the Government and renamed as Pubali Bank. Subsequently due to changed
circumstances this Bank was denationalized in the year 1983 as a private bank and renamed
as Pubali Bank Limited. Since inception this Bank has been playing a vital role in socio-
economic, industrial and agricultural development as well as in the overall economic
development of the country through savings mobilization and investment of funds.

At Present, Pubali Bank is the largest private commercial bank having 455 branches and it
has the largest real time centralized online banking network.

4.13 Types of SMEs loan provided by the Pubali Bank Limited

A. Pubali Prochesta.
B. Pubali Sujan.
C. Pubali Subarna.
D. Pubali Karma Uddog.

A) Pubali Prochesta:

The SMEs worldwide are recognized as engines of economic growth. The important role
of SMEs in the national economy of Bangladesh for creating over 90 per cent of industrial
enterprises, generating employment to 4 out of 5 industrial workers and contributing to
over one-third of industrial value-added to gross domestic product (GDP) emphasizes its
promotion by providing access to finance. The relative SMEs share in manufacturing
value-added is much higher and estimated to vary between 45 to 50 per cent of totaling
value-added generated by the manufacturing industries sector. With these perceived merits
of SMEs, Bangladesh Bank has emphasized for their promotion especially in the area of
access to finance and has given several directions to the scheduled Banks. For compliance
to central bank’s instructions and prospects of SMEs in Bangladesh economy, Pubali Bank
Limited introduced three products namely Pubali Subarna, Pubali Karmo Uddyog and

24
Pubali Sujan. All these products are demand loan by nature. But we do not have any product
for SMEs to ensure continuous finance for fulfilling the needs of working capital. Research
and Development Division in consultation with the Credit Division has designed a product
named “Pubali Prochesta” to augment working capital base in SMEs for uninterrupted day
to day operations. The features of the products are given below:

Product Object: Small and medium enterprise ('SME”) borrowers may need to ensure
source of continuous finance for uninterrupted operation. Pubali Prochesta will help SMEs
to augment working capital base to meet the day to day financial needs.

Loan size: Tk. 2 lac to Tk 10 lac for SE customers. Tk 5 lac to 10 lac for ME customers.

Customer segment: Any SME entrepreneur.

B) Pubali Sujon:

Product Objective/Purpose: To purchase capital Machinery, Office equipment, Covered

Van, Pick up Van etc.

Loan Ceiling: Tk. 2.00-lac to Tk. 10.00-lac.

Rate of Interest: @15.00% P.A. subject to change at Bank's discretion.

C) Pubali Subarna:

Product Objective/Purpose: To meet up working capital requirement.

Loan Ceiling: Tk. 2.00-lac to Tk. 10.00-lac.

Rate of Interest: @15.00% P.A. subject to change at Bank's discretion.

D) Pubali Karma Uddog:

Product Objective/Purpose: To meet up short term fund requirement of SME's and SME's
run by women entrepreneurs

Loan Ceiling: Tk. 2.00-lac to Tk. 10.00-lac

25
Rate of Interest: @15.00% P.A. and 10.00% P.A. for woman entrepreneurs subject to
change at Bank's discretion.

26
5.1 Contribution of Commercial Banks by Providing SMEs loan

In Bangladesh several banks are financing in the SME sector but as mentioned earlier,
many of them do not have good experience regarding the loan servicing in this sector.
Many banks are facing problem to recover the loan amount provided in SME sector. For
this reason still many banks are not willing to invest in this sector. However, Bangladesh
Bank gives the target to both the government bank and private commercial bank to provide
the SMEs loan in easy way with a little interest rate by which the SMEs entrepreneur can
get their required money to operate the SMEs enterprise and they can play a vital role in
the economic development of the country.

BUSINESS TYPE
Manufacturing Trading Services

4%

16%

80%

Figure 01: Business Type & Business Sector

27
 Business Sector

13%
3% Plastic &Retail Products
Paper & Book

56% Textile
28%
Fabrics

Figure 02: Business Type & Business Sector (Source: Bangladesh Bank)

5.2 Contribution of two Government Banks towards SMEs Sector

Bangladesh Bank gives target to take part in contribution in SMEs sector by providing
loan. The Scenery of providing SME loan by Sonali and Janata Bank limited in 2014, 2015,
and 2016 are following:

Sonali Bank Limited Janata Bank Limited

Year Loan Total Loan Achievem Loan Total Achieve

Disburse Disbursement ent Rate Disbursement Loan ment
ment (%) Target Disburse Rate
Target ment (%)
2016 3850 1459 37.89 3500 1293 36.95

2017 4250 1487 34.99 3850 1500 38.86

2018 4540 1351 29.76 4450 1750 39.32

Table 04: Contribution of Government Banks towards SME Financing in Year (Sources:
Financial statement of Bangladesh Bank)

28
 Yearly Achievement of Target Given by Bangladeh Bank
5000

4000

3000

2000

1000

0
2016 2017 2018

Loan Disbursement Target of SBL Total Loan Disbursement o SBL

Loan Disbursement Target of JBL Total Loan Disbursement

Figure 03: Achievement of Target Given by Bangladesh Bank in (2016, 2017, 2018)

Comment

Sonali Bank Limited and Janata Bank Limited provides major portion of loans in the SMEs
sector for the economic development of the country. Bangladesh Bank has fixed up a target
to Sonali Bank Limited to disburse SMEs loan 3850, 4250, 4540 (tk in crore) in the year
of 2016, 2017, 2018 respectively. Bangladesh Bank has also fixed up a target to Janata
Bank Limited to disburse SMEs loan 3500, 3860, 4450 (tk in crore) in the year of 2016,
2017, 2018 respectively. Sonali Bank Limited has achieved to disburse SMEs loan 1459,
1487, 1351 (tk in crore) in the year of 2016, 2017, 2018 respectively. Janata Bank Limited
has achieved to disburse SMEs loan 1293, 1500, 1750 (tk in crore) in the year of 2016,
2017, 2018 respectively. The achievement rate of Sonali Bank Limited is 37.89%, 34.99%,
29.76% in year of 2016, 2017, 2018 respectively. The achievement rate of Janata Bank
Limited is 36.95%, 38.86%, 39.32% in year of 2016, 2017, 2018 respectively.

From the above table, it is cleared that achievement rate of Janata Bank Limited is
comparatively higher than the Sonali Bank Limited.

29
5.3 Contribution of two Private Banks towards SMEs Sector

Bangladesh Bank gives the target of providing loan in SMEs sector like the government
bank. The Scenery of providing in SME loan by Jamuna and Pubali Bank limited in 2016,
2017, 2018 are as following:

Jamuna Bank Limited Pubali Bank Limited

Year Loan Total Loan Achievem Loan Total Achieve

Disburse Disbursement ent Rate Disbursement Loan ment
ment (%) Target Disburse Rate
Target ment (%)

2016 700 424 60.57 840 671 79.89

2017 850 538 63.29 1150 887 77.13

2018 1020 803 78.73 1360 1031 75.81

Table 05: Contribution of Private Banks towards SME Financing in Year (2016, 2017,
2018) (Taka in crore) (Sources: Financial statement of Bangladesh Bank (2016, 2017,
2018)

30
 Yearly Achievement of Target Given by Bangladeh Bank
1600
1400
1200 1360
1000 1150
1020 1031
800 887
840 850 803
600 700 671
400 538
424
200
0
2016 2017 2018

Loan Disbursement Target of Jamuna bank Total Loan Disbursement o Jamuna Bank
Loan Disbursement Target of Pubali bank Total Loan Disbursement of Pubali bank

Figure 04: Yearly Achievement of Target Given by Bangladesh in Year (2016, 2017, 2018)

Comment:

Like other Commercial Banks Jamuna Bank Limited and Pubali Bank Limited provides
major portion of loans in the SMEs sector for the economic development of the country.
Bangladesh Bank has fixed up a target to Jamuna Bank Limited to disburse SMEs loan
700, 850, 1020 (tk in crore) in the year of 2016, 2017, 2018 respectively. Bangladesh Bank
has also fixed up a target to Pubali Bank Limited to disburse SMEs loan 840, 1150, 1360 (
tk in crore) in the year of 2016, 2017, 2018 respectively. Jamuna Bank Limited has
achieved to disburse SMEs loan 424, 538, 803 (tk in crore) in the year of 2016, 2017, 2018
respectively. Pubali Bank Limited has achieved to disburse SMEs loan 671, 887, 1031 (tk
in crore) in the year of 2016, 2017, 2018 respectively. The achievement rate of Jamuna
Bank Limited is 60.57%, 63.29%, 78.73% in year of 2016, 2017, 2018 respectively. The
achievement rate of Pubali Bank Limited is 79.89%, 77.13%, 75.81% in year of 2016,
2017, 2018 respectively.

From the above table, it is clearly observed that the achievement rate of Jamuna Bank
Limited is comparatively higher than the Pubali Bank Limited.

31
5.4 Comparison Between government banks and private banks

Both the Government banks and private banks contribute in SMEs sector by providing the
required finance by loan with a low interest rate. SME sector is becoming the lucrative
target point by both of the government and private bank. There exist some differences
between the government and private bank in scale of providing loan or financial assistance.
These differences are following:

Government Banks Private Banks

(Sonali and Janata Bank Limited) (Jamuna and Pubali Bank Limited)
Year Loan Total Loan Achievem Loan Total Achieve
Disburse Disbursement ent Rate Disbursement Loan ment
ment (%) Target Disburse Rate
Target ment (%)

2016 7350 2793 38 1540 1095 71.10

2017 8110 2987 36.84 2000 1425 71.25

2018 8990 3101 34.49 2380 1834 77.05

Table 06: Comparison between Government and Private Banks

Comparison Between Two Government Banks and Two

Private Banks
10000
8000
6000
4000
2000
0
2016 2017 2018

Loan Disbursement Target of govt. bank Total Loan Disbursement of govt. bank
Loan Disbursement Target of privet bank Total Loan Disbursement of privet bank

Figure 05: Comparison between Two Government Banks and Two Private Banks of
distributing SME loan in Year (2016, 2017, 2018)

32
Comment

Total loan disbursement target of two government banks, Sonali and Janata Bank Limited
is 7350, 8110, 8990 (tk in crore) in the year of 2016, 2017, 2018 respectively. Besides, the
total loan disbursement target of two private banks, Jamuna and Pubali Bank Limited is
1540, 2000, 2380 (tk in crore) in the year of 2016, 2017, 2018 respectively. Two
government banks, Sonali and Janata Bank Limited have achieved to disburse SMEs loan
2793, 2987, 3101 (tk in crore) in the year of 2016, 2017, 2018respectively. Besides, Two
private banks, Jamuna and Pubali Bank Limited have achieved 1095, 1425, 1834 (tk in
crore) in the year of 2016, 2017, 2018 respectively. The achievement rate of two
government banks, Sonali and Janata Bank Limited is 38%, 36.84%, and 34.49% in the
year of 2016, 2017, 2018 respectively. The achievement rate of two Private banks, Jamuna
and Pubali Bank Limited is 71.10%, 71.25%, and 77.05% in the year of 2016, 2017, 2018
respectively. From the above table it is clearly observed that the achievement rate of two
private banks is comparatively higher than the government bank.

5.5 SME entrepreneur who take or not take SME loan

According to BB 66.67% of SME entrepreneurs take bank loan to operate their SME
business which is very remarkable. However about 3 out of 10 do not take bank loan to run
their business.

Whether or not they take Bank loan to

operate their SME

33% Yes
No
67%

Figure 06: whether or not they take Bank loan to operate their SME

33
5.6 Sector wise contribution of SME in GDP of Bangladesh

The following table provides the information regarding sector wise contribution of SMEs
to GDP. It is reflected from the table that manufacturing sector contributes the highest
contribution in GDP i.e., 38%. It is also observed from the table that agriculture and
wholesale and retail sector contribute more than 22 percent each in the GDP of Bangladesh.

Table 07: Sector wise contribution of SME in GDP of Bangladesh (Tk.)

Sector Total Contribution to % of Total

GDP (Tk.) Contribution

Agriculture 177729637637 24

Fishing 32872674464 4

Manufacturing 282344700575 38

Construction 7196460200 1

Wholesale and Retail trade and Repairs 171335861390 23

Hotels and Restaurants 28599263975 3

Transport, Storage and Communication 8950171356 1

Real state, Renting and Business activities 13771436794 2

Education 151 808 506 1

Health and Social Work 2 743 049 893 1

Other Service activities 15 632 094 785 2

Total 741 327 159 609 100

Source: Bangladesh Bank

Now showing this information into the following figure so that we can easily find that
which sectors is gotten much contribution.

34
 Sector wise contribution of SME
38
40
35
30
24 23
25
20
15
10
4 3
5 1 1 2 1 1 2
0

Figure 07: Sector wise contribution of SME (Source: BB)

Now it is clear that, other than agriculture, manufacturing and wholesale and retail trading
business, other sectors have minimal contribution. Thus, there are lots of opportunities to
develop other sectors in SMEs.

5.7 Growth Pattern of SME

Table 08: Growth Pattern of SME

Year Growth Percentage of Small Enterprises

2012-2013 7.69
2013-2014 7.21
2014-2015 7.45
2015-2016 7.93
2016-2017 9.21
2017-2018 10.28
Source: BB’s Annual Report

The above table shows the growth pattern of SME. It is observed that during 2012-2013 to
2015-2016 in every financial year the growth rate of SME is about 7%. In 2016-2017 the
growth rate was 9.21%. The highest growth was in 2017-2018 i.e., 10.28%.

35
5.8 Growth Pattern of Manufacturing Sector

Table 09: Growth Pattern of Manufacturing Sector

Year Growth Percentage of Manufacturing Sector

1972-2010 6.4
2011-12 5.88
2012-13 6.75
2013-14 7.10
2014-15 8.19
2015-16 10.77
2016-17 11.99
2017-18 14.67
Source: Bangladesh Economic Review 2017-2018

The above table shows the growth pattern of manufacturing sector. It is observed that the
average growth during 1972 to 2005 was 6.4%. During 2011- 2012 to 2016-2017 the
highest growth was in year 2016-17 i.e., 11.19%. It is also observed that during 2012-2013
to 2015-2016 in every financial year the growth of manufacturing sector was more than
6%.

36
 Findings

 In year 2016 2017, 2018, we have found that the achievement rate of providing
SME loan of Sonali Bank Ltd. and Janata Bank Ltd is 37.89%, 34.99%, 29.76%
and 36.95%, 38.86%, 39.32% respectively. So we can say that the achievement rate
of Janata Bank Limited is comparatively higher than the Sonali Bank Limited.
(Table 04)
 In year 2016 2017, 2018, we have found that the achievement rate of providing
SME loan of, Jamuna Bank Ltd. and Pubali Bank Ltd is 60.57%, 60.57%, 78.73%
and 79.89%, 77.13%, 75.81% respectively. So we can say that the achievement rate
of Pubali Bank Limited is comparatively higher than the Jamuna Bank Limited.
(Table 05)
 In year 2016, 2017, 2018, we have found that the achievement rate of providing
SME loan of two government banks, Sonali Bank Ltd. and Janata Bank Ltd is 38%,
36.84%, 34.49% respectively. Besides the achievement rate of providing SME loan
of two private banks, Jamuna Bank Ltd. and Pubali Bank Ltd is 71%, 71.25%,
77.05% in year 2016, 2017, and 2018 respectively. So we can say that the
achievement rate of private commercial banks is comparatively higher than the
government Banks. (Table 06)
 In Table 07, It has found that 66.67% that means a large number of SME
entrepreneurs take bank loan to operate their SME business which is very
remarkable. However about 3 out of 10 do not take bank loan to run their business.
A large number of entrepreneur’s responses neither satisfied not dissatisfied.
However there are one out of 3 are satisfied. A sizable number of respondent are
dissatisfied.

Others Findings

 Bangladesh Bank and SME foundation claim that no collateral securities are needed
for getting SME loan. But without collateral securities very few banks sanction
SME loan to entrepreneurs.

37
 SME foundation claims that they disburse SME loan on single digit .Bangladesh
Bank gives target to commercial bank to disburse loan on 10 Percent interest rates.
But in reality Public banks give loan on about 14 to15 percent and private banks
give loan on about 18 to 19 percent.
 Bankers are not much interested on providing SME loan. As it requires continuous
monitoring, much attention and more investment on less return than industrial loan.
There is greater chance of SME loan to become bad loan than others.
 Many banks are facing problem to recover the loan amount provided in this SME
sector.
 Bangladesh Bank gives target to government banks and private banks to disburse
loan in SME sector. Since then it has got momentum .So Bangladesh Bank is
playing a key role on SME loan disbursement.
 The target of government banks given by the Bangladesh Bank to provide loans in
SME sector is normally more than the private sector.

38
7.1 Recommendations

Bindings should be given by Bangladesh Bank to other commercial banks about loan
disbursement on 10 percent or single digit interest rate. Otherwise, they have to face lawful
action.

 Banks can be inspired by giving award at the national level by the government as
they provide more loans on SME sector.
 More non-financial facilities on SMEs sector can make the entrepreneurs greatly
benefitted.
 Small & Medium Enterprise (SME) plays a pivotal role in the economic growth
and development of a country. Actually, SME works as the platform for job
creation, income generation, and development of forward and backward industrial
linkages and fulfillment of local social needs. So SME loan disbursement should
be given more emphasis at the context of Bangladesh.
 SME foundation can play more vital and proactive role by disbursing their loan
through certain bank which will conform to their provision of single loan
disbursement.
 More rural people should be brought under SME loan facility coverage though it
has the risk.
 Awards should be given at the individual level that that will have contribution on
SME loan and disbursement and other activities of SME.AS we can get a man like
Nobel Laureate Dr. Muhammad Younus of Grameen bank.

39
7.2 Conclusion

SMEs are considered to be the seedbed for the development of entrepreneurial skills and
innovation. Small capital requirement makes easy entry and exit possible and private sector
entrepreneurial activities have many important spill over and positive externality effects.
However, liberalization of the economy along with rapid globalization has posed several
challenges to SMEs not only international market but also in the domestic economy. Since
SMEs are based on relatively small investment, their survival depends on readily available
markets with easy access. In today’s world, market development is a much more
challenging task, which requires coordinated efforts by individual business enterprises and
the Government. Bangladesh as failed to maximize the benefits derived from the SME
sector which promises and needs to play a pivotal role in promoting and sustaining the
industrial as wells overall economic growth. Banks are the major source of financing for
SME sector. Many of the banks are not interstate to provide more loans in SMEs sector.
SMEs are the growth sector in Bangladesh and here is a great possibility to develop the
sector in Bangladesh of social economic condition through development of SME.

40
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