Outstanding loan growth in CMSME sector doubles in a year

The amount of outstanding loans in the Cottage, Micro, Small, and Medium Enterprise (CMSME) sector in 2022 grew at twice the pace compared to the same period of the previous year.

According to the latest data of the Bangladesh Bank, in 2022, outstanding loan growth in this sector was around Tk31,000 crore with a rate of 12.22%. A year earlier, the growth rate was only 6.1% with an amount of Tk14,000 crore.

However, analysing data from 2015 to 2022 reveals that the growth rate of outstanding loans in the sector was higher before the Covid-19 pandemic. In 2017, it exceeded 17%.

In 2020, the growth of outstanding loans declined due to lower loan disbursements amid the pandemic. However, in 2022, there was a significant increase in growth compared to the previous two years.

A senior central bank official told The Business Standard on condition of anonymity that banks are getting less interested in disbursing CMSME loans due to the interest rate cap. According to the current rules, a maximum of 9% interest can be charged for any loan.

However, due to the high operating costs associated with lending to this sector, banks find it challenging to make a profit, making them less interested in lending to CMSMEs, he said.

Stating that the Covid-19 pandemic has severely impacted the sector, the official noted that many borrowers have been unable to recover from its shock. While large loan borrowers have the financial capacity to recover, small ones do not.

The CMSME sector has a non-performing loan (NPL) ratio of over 14%, as they do not receive sufficient opportunities for loan rescheduling, unlike larger borrowers.

Selim RF Hussain, managing director and CEO of Brac Bank, a leading loan provider to the CMSME sector, believes that NPLs can be kept under control if management is good.

He said, "The NPL in this sector in our bank is a little over 2%, which is much lower than other general loans. Basically, most of the banks have not mastered the loan disbursement business properly in the CMSME sector. The Brac Bank has invested at least 7-8 years to establish itself in this business."

Loan disbursement to CMSMEs up by 18.91% YoY

Banks and NBFIs increased loan disbursement to the CMSME sector by 18.91% in 2022 compared to the previous year.

According to the central bank data, Tk2.20 lakh crore was disbursed in this sector in 2022, which was Tk1.85 lakh crore in the previous year.

However, the disbursement of loans in this sector increased by 17.29% in the October-December quarter in 2022 compared to the previous quarter, said the Bangladesh Bank.

In the last quarter of 2022, Tk60,611 crore was disbursed, which was Tk51,677 crore during the July-September quarter.

The senior BB official said that loan disbursement increased in 2022 than the previous year as many small and medium businessmen refrained from making new investments during the Covid-19 period. Now that the situation has normalised, businessmen are also increasing investment.