LankaBangla Finance, one of the top NBFIs in the country, has had focus on corporate lending since its inception. But in the past decade, it has brought about an incredible transformation in SME loans. Currently, the company is disbursing loans of more than Tk150 crore per month through 10 popular SME loan products.
At present, the institute allows loans of Tk5 lakh through its digital platform. But it has created a new 'platform', which will start from August, through which loans of up to Tk5 lakh can be availed digitally. Kamruzzaman Khan, executive vice president and head of CMSME LankaBangla Finance Limited, spoke to TBS Staff Correspondent Sakhawat Prince about the company's future plans for the SME sector.
How has LankaBangla been performing in the SME sector?
Our journey in the SME sector started in 2014. And I too started my journey in this institution at the beginning of the year. At that time, the SME portfolio was worth only Tk29 crore or Tk30 crore. At present, the loans in this sector are about Tk2,200 crore, which is 33% of the total debt. We have a loan portfolio of Tk6,200 crore, where SME loans make up one-third the amount.
What was the reason behind LankaBangla shifting its focus to SME loans from corporate ones?
Lankabangla has had a corporate finance focus since its inception. However, the board decided on increasing the SME loan after giving it a lot of thought. At present, there are about 300 employees, including me, in this sector who only look after SME loans. Last year, we disbursed loans of around Tk1,600 crore. There was some slowdown in business in 2020-21 due to Covid-19. However, from 2017 to 2019, a huge amount of our loans were distributed to SMEs.
We are disbursing an average of Tk150 crore in loans every month. The reason for venturing into SMEs is that Bangladesh's economy has changed. The more you invest in one sector, in this case the corporate sector, the more risk you have to incur. Since 2010, the government, the Bangladesh Bank, and economists have encouraged businesses to give special importance to SMEs.
About 70% of Japan's economy is made up of SMEs. And these businesses contribute 87% to its national GDP. Besides, developed countries are also focusing on SMEs. Bangladesh is also thinking the same. The management of our organisation thought that when corporate lending is becoming risky, there is a need to diversify the investments in different directions, and hence the importance being given to SMEs.
Another big advantage for SMEs is employment generation. A refinance scheme is available from the Bangladesh Bank. And if you think about the GDP, contributing a little to it is also one of the reasons why LankaBangla is focused on this sector.
What challenges do you have to face in disbursing SME loans?
SME loans require a lot of monitoring. A corporate loan of Tk100 crore can be given to one person, but when it comes to SMEs, Tk100 crore must be paid to at least a thousand customers. In that case, you need to monitor more. As a result, you will need more employees, and digitisation will also increase your costs. Recently, the Bangladesh Bank has increased the SME loan interest rate by 1% as a supervisory charge. But SME loan interest rates should have been much higher.
How challenging is it to collect SME loan payments?
The business model for SME loans is different compared to other sectors. If you want to do business with them, it has to be relationship-based. What is the best relationship? There must be good communication between loan disbursers and the customers.
There is a high level of non-performing loans in our sector because one person is giving the loan, while someone else is monitoring. And there are problems in the lending process as well. If the loan is to be collected, there will be a supervisor who will do the monitoring. The proposal will be verified from the start, it may be through a third party. Although we see that one lends the money, another person monitors, while someone else collects the money. This process needs to be streamlined.
Your performance in SME loans is better than the target set by the central bank. So, what is your future target?
We want SME loans to make up close to 50% of our loan portfolio, which is currently 33% of total loans. At present, we have Tk2,200 crore in loans to 10,000 SME customers. By the year 2026, the loans will go up to Tk3,000 crore to 15,000 customers. Our target is that by 2026, we will have 35-37% total SME lending.
What is LankaBangla's role in facilitating women SME entrepreneurs?
There is a separate platform for LankaBangla's women entrepreneurs called Shikha. Through this platform, we are not only giving them loans, but also encouraging them to become entrepreneurs.
Training on financial literacy and digitalisation are also being offered to them. Recently, many online-based entrepreneurs have been created who have Facebook-based businesses. The central bank has a target of 15%loans to women entrepreneurs, but we currently have around 7%. We have given loans to around 800 women entrepreneurs in the last year.
How have you eased the process of availing SME loans from LankaBangla?
We are moving towards digital application forms for lending so that a customer can go online and apply easily. For that, some basic documents are required: entrepreneurs must have a trade licence and NID. There is no need to provide TIN certificates for loans up to Tk5 lakh. We do not ask for too many documents.
How many digital loan products do you have for SMEs?
We have started digital services of our own accord. We have a digital platform called 'Druto Loan', for which you have to apply online. We provide loans of up to Tk5 lakh. Besides, we are giving loans through MFS providers as well.
We have developed a new software through which entrepreneurs can apply for a loan of up to Tk35 lakh online. But for this some business documents will need to be uploaded online. This software is ready, which will be launched in the first week of August. A customer will be informed within three days whether they will get the loan or not. But gradually, that will be brought down to within 24 hours of application.