Women’s share in loans to SMEs still scanty

FT ONLINE

Women-led enterprises received a tiny 3.1 percent of the small loans disbursed by financial institutions and banks in 2018, reveals a survey of the Bangladesh Institute of Bank Management (BIBM).

The majority of the surveyed women entrepreneurs identified collateral and lack of guarantee as to the main problems for obtaining loans from the formal sector.

The BIBM conducted a sample survey on 344 women-owned small enterprises. Of them, 45.93 percent were from the manufacturing sector, 38.66 percent from trading and the remaining 15.41 percent from the services sector.

The survey findings were disclosed at a seminar on Wednesday in the city. The seminar on 'Financial Literacy and Management Capacity of Women Entrepreneurs in Small Firms and Access to Formal Sources of Finance' was organised by the BIBM at its auditorium.

BIBM Executive Committee chairman and Bangladesh Bank deputy governor SM Moniruzzaman was present at the seminar as the chief guest while BIBM director-general Dr. Md Akhtaruzzaman chaired the event.

Banks and financial institutions disbursed a total of Tk 561.16 billion in loans to small enterprises in 2016. Of that amount, women-owned enterprises got only Tk 20.79 billion or 3.71 percent, BIBM assistant professor Mosharref Hossain said while presenting the survey findings.

The percentage declined to 3.01 percent in 2018 as Tk 27.99 billion was disbursed to women-run enterprises out of a total of Tk 929.94 billion disbursed to the small enterprise category, the co-author of the study said.

Though the volumes of loans to small businesses and women entrepreneurs had increased since 2016, women's share in terms of the percentage did not increase in the next two consecutive years, he said.

"It is observed that a very tiny portion of small enterprise loans goes to women-owned entities," Mr. Hossain said.

Lack of guarantor, low repayment capacity and failure to meet loan conditions were the main reasons behind the rejection of loan applications from women entrepreneurs, according to the survey findings.

"It is noteworthy that 75 percent of the women did not apply for loans due to their inability to manage loan guarantors while 66.67 percent did not apply because of the high bank costs of obtaining loans," the survey said.

Complicated loan procedures, many conditions imposed by banks, lack of collateral, easy availability of funds from other sources and the mindset of viewing borrowing as disgraceful have also been identified in the study as barriers that discouraged women to apply for loans.

The study suggested introducing cost-free or low-cost literacy programmes by the central bank and the SME (Small and Medium Enterprise) Foundation as the financial literacy among women entrepreneurs was found very low.

"Managerial capability is an important predictor for financial access of women entrepreneurs and their managerial capacity was near average," it found.

Bangladesh Bank general manager of SME and Special Programmes Department, Lila Rashid, said branches of banks were more interested to collect deposits than lending money to SMEs.

"SMEs are neglected and they are not on their (bank branches') priority list," she said adding that collateral proved a big problem for women entrepreneurs.

The BB formed the SME and Special Program Division for women entrepreneurs and took an initiative to establish a Women Entrepreneur Development Unit in each bank and financial institution. It also asked banks to lend to women entrepreneurs at a 9.0 percent interest rate under the small enterprise refinance scheme.

Some 6,372 and 2,023 women-led small enterprises received collateral-free loans in 2016 from the financial institutions and banks respectively, the survey said.

The number of enterprises getting collateral-free loans from financial institutions and banks dropped to 2,827 and 1,976 respectively in 2018, it added.

Despite low disbursement of funds to women-led small enterprises, the loan recovery rate was good, it revealed.

Terming banking forms cumbersome, BIBM Supernumerary Professor Helal Ahmed Chowdhury suggested making them easy.

He also said banks should be given a target for SME loan disbursement. According to the study, banks can consider reducing the rate by searching for low-cost funds.

In this case, the central bank, government or any other donor agency can provide low-cost funds to the commercial banks.

In addition, banks can offer a lower interest rate to the borrowers who have the willingness to accept collateralized loan contracts relative to unsecured loans, it added.