Bridging the Gap Enhancing Financial Services for SMEs

The SME sector currently contributes approximately 30-32% to Bangladesh's GDP, showcasing substantial potential to emerge as a leading driver of economic growth in the country in the foreseeable future. However, several challenges impede its further development and enhancement. Chief among these challenges is the limited access to formal finance, posing a significant barrier to the growth and expansion of SMEs. Banks and non-banking financial institutions have adopted various solutions to address this gap and extend support to small businesses in the country's most remote areas.

"BRAC Bank operates 457 SME Unit Offices, 45 sub-branches, 1,080 Agent Banking Outlets, and 330 ATMs nationwide to cater to the daily banking needs of CMSME customers. This extensive network ensures a physical presence in many rural and remote areas, bringing banking services closer to the doorsteps of SMEs. With over 3000 dedicated Relationship Officers (ROs) engaged in SME banking services, we build relationships and cater to all banking requirements of CMSMEs. Sixty per cent of our total SME loans are disbursed in rural areas, achieving the highest rural penetration among local private banks," shares Selim R. F. Hussain, Managing Director & CEO at BRAC Bank.

"We provide branch-less banking services using mobile banking units, agents, and kiosks to access remote areas. These mobile units deliver essential banking services and educate rural customers about financial products," informs ANM Mahfuz, AMD & Chief Business Officer at Bank Asia.

"City Bank has taken steps to enhance financial access for CMSMEs in rural and remote areas. With over 500 agent banking outlets in suburban and rural regions, the bank targets traditionally underserved segments. Our Citytouch platform offers digital banking solutions, reducing reliance on physical branches and enabling easier access to banking services for SMEs remotely. We've set up 34 dedicated SME unit offices and deployed over 1000 business staff, including field officers and credit analysts, to support CMSMEs at the grassroots. Our extensive distribution network now spans more than 85% of the country," stated Kamrul Mehedi, Head of Small Business at City Bank.

"Our numerous physical channels, particularly agent outlets in remote areas, enhance our coverage. We have launched the 'MTB Instant e-Loan' under a digital financing platform for small-scale merchants. Additionally, we are facilitating online account openings through e-KYC to extend financial services to underserved communities," explained Md Khalid Mahmood Khan, Additional Managing Director and CBO of MTB.

"We are implementing different cluster financing strategies to onboard potential CMSMEs in areas where we currently lack physical presence. We are the first bank to provide financial support to small-scale manufacturers of imitation jewellery in Savar's Vakurta," he added.

"Dhaka Bank has already financed 8 clusters and 156 customers individually, amounting to Tk 37.63 million, and has collaborated with the SME Foundation to utilise their refinancing schemes," said Md Mahbubur Rahman Palash, Executive Vice-President and Head of MSME and Emerging Business Division at Dhaka Bank.

Midland Bank have adopted a unique approach to reach clients in remote areas by partnering with NGOs. "We are also setting up SME Centers in Nababpur and Gazipur to support small traders, which will be launched soon," said Md Ahsan Jamil Hossain, Head of SME and Agri at Midland Bank.

Meanwhile, LankaBangla Finance deploys Mobile Lending Officers (MLOs) to assist clients and businesses in remote areas, aiming to reduce operational costs. "Our MLOs are equipped with motorbikes and laptops, allowing them to operate flexibly and reach clients in the most marginalised areas. This approach enables us to expedite loan processing while minimising the expenses associated with establishing new branches," said AKM Kamruzzaman, Acting Managing Director of LankaBangla Finance.

Financial institutions are also leveraging mobile financial service (MFS) platforms to disburse and collect repayments on SME loans. Many small businesses do not hold bank accounts but maintain accounts with various MFS platforms like bKash, Rocket, and Nagad, streamlining the loan processing procedure.

"LankaBangla has established connectivity with all MFS platforms operating in the country, enabling direct loan disbursements to and repayments from our clients. We have also integrated with different payment service providers such as iPay," added AKM Kamruzzaman.

Meanwhile, City Bank has integrated its digital solutions with bKash through a tri-party agreement involving their clientele to simplify loan processing. "Through our tri-party agreement with bKash, we access annual sales data from our clients. This allows us to set an overdraft limit for each business. Traders can request loans via the City Bank app, and the process takes approximately 17 seconds," said Kamrul Mehedi.

Dhaka Bank also signed an agreement with bKash in March this year to provide 24/7 cash management services to bKash distributors, agents, and merchants. "Through the Dhaka 24/7 project with bKash, distributors, agents, and merchants can add or transfer e-money in real-time. They can generate and transfer e-money using their Dhaka Bank accounts," said Md Mahbubur Rahman Palash, Head of MSME at Dhaka Bank.

Another major issue concerns the accessibility of financial data. There is a screening process before approving a client's loan, which includes verifying their identities, assessing credit risks, and evaluating the condition of their existing business. In these cases, digital solutions prove invaluable.

"To enhance SME support, banks should adopt advanced technology. Prime Bank is leading this effort with "Digital Account Opening Procedures" and digital lending facilities tailored for small-ticket SMEs, offering a streamlined, automated experience," shares Md. Nazeem A. Choudhury, Deputy Managing Director of Prime Bank.

"We have implemented credit scoring software to assess the credit risks associated with specific businesses and expedite loan processing. This software automatically updates and generates data on the business in question, facilitating faster loan approvals," said AKM Kamruzzaman, Acting Managing Director of LankaBangla Finance.

"Digital solutions have been a key focus for our bank in SME services. We have already approved plans for our Entrepreneur Nano Loan scheme, which integrates digital solutions into the credit approval process," said Kamrul Mehedi from City Bank.

"Our next objective is to integrate digital thumb impressions for instant loan approvals and reduce the current 3-4 day processing gap. If we can consolidate all identification and verification systems into one digital platform, it could significantly reduce costs and processing times for monitoring loans," said AKM Kamruzzaman from LankaBangla Finance.

LankaBangla also serves as a financial consultant for businesses seeking loan assistance. In addition to regular customer awareness training at branch level, they have launched a chatbot and an app called "FinSmart" to assist their clients in this regard.