Abstract:
Small and Medium Enterprise (SME) Financing is a topic of significant research
interest to academics and an issue of great importance to the policy makers 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 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.
This paper focuses on the financial constraints in Bangladesh. In Bangladesh, among the
formal sources, commercial banks are not interested 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, we have 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. The contribution of commercial banks is
meager except BASIC Bank Ltd. and BRAC Bank Ltd. It has been observed in the study that
commercial banks disburse loans to this sector only when government introduces ‘credit
guarantee scheme’ in different capacity. ‘Relationship lending technologies’ should be
introduced in case of the existing ‘transaction lending technologies’.
