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Outweighing consumer loan

SME is neglected, manufacturing overlooked

Published : Friday, 19 January, 2018 at 12:00 AM  Count : 456
Haradhan Ganguly
Undaunted policy of Bangladesh Bank to channel more money to productive sectors is supposed to be facing challenge. You believe or not a strongly grown up middle class are now using consumer- financing schemes launched by commercial banks to whet their appetite for cars, motorbikes, air-conditioners, refrigerators and televisions. Even they are going abroad as tourists on bank's financing.
The drying up of financing that is needed for small and medium enterprises (SME) and manufacturing sectors has become evident as their fallout. We don't understand if productive sector gets stuck in paucity of sufficient financing, how to have an expected sustainable growth with its inclusiveness.
That is a growth that will ensure a wide range of employment opportunity with a rein in disparity we are dreaming for. So the very diligent efforts of BB to transfer more funds to productive sectors echoes empty. We might have an argument that up to last growth we achieved was being attributed to rising consumer expenditures. That means private demand for goods and services are the driver of growth. But would they be sustainable and are in right way to take us to our cherished goal of 2021-- a country of middle income earner.
You believe or not, as much as 63 per cent of the SME loans disbursed in the first nine months of the year went to the consumer and trading sectors neglecting the manufacturing zone in the process. In the first nine months of the year, TK77,718 crore of SME loans was disbursed to the trade sectors and to whet the appetite of consumers.
It is up 20.28 per cent year on year. The manufacturing sector accounted for 24.02 per cent of the total SME loans disbursed during the period and the service sector 12.81 per cent. Between the months of January and September, banks and non-bank financial institutions managed to disburse 92 per cent of their SME target for the year.
The target was TK 133,853 crore. We propose the BB should investigate whether the disbursed loans had actually gone to SME sector. The banks might have showed other disbursed credit particularly consumer loans as SME loans as clients are allowed to take about TK10 crore from banks In the name of investment in small and medium enterprises.
Banks prefer trade sector and consumer loans as it is relatively less risky than the manufacturing sector. But bumping up loan disbursement in manufacturing sector will give a boost to the generation of employment opportunity.
Vitalization of consumer loans will not benefit the economy, just to show the bubbles of growth. We are seeing the financing of for consumption recipes surged by more than 35 per cent or TK101.65 billion during the first nine months of last calendar year following comparatively lower interest rates offered by the banks to attract more clients.
Experts termed it overexposed for the country's banking sector that happened at a time when Bangladesh needs increasing investment in productive sectors for achieving inclusive economic growth through creating employment across the country.
Scheduled banks all together lent TK 386.66 billion, which accounts for 5.14 per cent of the total outstanding loans for consumer goods during the period under review against TK 285.01 billion of 2016. It is the confidential report of BB, termed by media sources. On the other hand, the overall outstanding loans grew by 18.30 per cent to TK 7524.84 billion a year before.
BB found at least 10 banks had increased their consumer financing significantly ranging between 10 per cent and 24 per cent during the period in excess of the limit set the BB earlier. It is learnt, BB is now realizing the situation.
It is planned to impose a limit on the bank exposures against total consumer financing to discourage banks from disbursing such loans. Under the proposed limit, the exposure under consumer financing facilities must not exceed 15 per cent of their total loan portfolios.
Besides, loan exposure under housing finance and consumer finance categories will not cross 10 per cent and 5.0 per cent respectively of a bank's total loan portfolio. Senior bankers however said, lower interest rates on consumer loans and relaxation of policies by the central bank spurred the growth in such loans in recent months.
Rising trend in use of social media like face book also played its part in pushing up the financing for consumption spurred financial activities. To us there is another cause that is consumer loan has increased following rising trend in purchasing power of people.
The banks lent to the consumers at interest rates ranging between 8.25 per cent and 18 per cent in December 2017 against 9.0 --18 per cent in January last calendar year, the BB data showed.
But we are not sure about how much BB would be able to rein in consumer credit. Since banks are eager to run for less risk areas where security and profitability both the issues would be protected. Consumer loan will ensure both.
On the other side, local demand and consumption remains a key driver of the country's economic growth. Rather we suggest that bank should provide consumer finance such a way that in any case the growth rate in total loans under "consumer financing" must not exceed the growth rate of banks' total loans. Consumer finances cover personal loans, flat- purchase loans, professional loans, loans against salary, loans through credit cards, marriage loans and travelling or holiday loans.

The writer is a freelance contributor and can be reached at gharadhan@gmail.com





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