The challenges faced by women-led SMEs and the way forward

The Asia Foundation in association with The Daily Star organised a roundtable titled “Bangladesh Bank’s SME policy: Access to finance for women SMEs” on December 18, 2019.

The SMEs operating in Bangladesh are important contributors to the economy’s booming sectors including industry, service and manufacturing. These SMEs are also vital to attaining the SDGs, particularly for eradication of poverty, and achieving zero hunger, gender equality, economic growth, employment generation, etc. The advancement of the SME sector has been at the forefront of national priorities as highlighted in the 7th Five Year Plan.

Women-led SMEs in Bangladesh comprise around 22 percent. They have been going through a transitional phase and facing some challenges. To motivate them, the Government of Bangladesh (GoB) along with the help of Bangladesh Bank (BB), introduced various supportive programmes and initiatives. A guideline has been provided for banks and non-bank financial institutions (NBFIs) for lending credit facilities to women entrepreneurs. This has certainly been helping women overcome some of the challenges they are still facing in accessing credit from banks and NBFIs. This analysis has been supported jointly by The Asia Foundation and iDE to assess the effectiveness of the BB policy, considering the current situation of women entrepreneurs in Bangladesh.

The analysis reviewed existing policies and their current state of implementation based on consultations with selected women entrepreneurs, BB officials and concerned banking and non-banking representatives. The analysis aimed to identify the policy gaps and demand and supply side barriers of access to finance for women entrepreneurs. In the end, a set of policy recommendations have been made to ease the problems of women entrepreneurs’ access to credit needed to run their businesses smoothly.

Bangladesh has made some strides towards policy formulation to facilitate SMEs. This includes establishment of the SME & Special Programmes Department in BB. Bangladesh is also a member of Alliance for Financial Inclusion (AFI) whose goals are to improve financial integrity and stability by empowering and transforming the lives of disadvantaged groups.

Though BB policies and programmatic interventions have helped women entrepreneurs in gaining better access to finance, there are still some limitations which need to be addressed. These policy initiatives have not yet addressed some key barriers faced by women entrepreneurs, especially those related with guarantors or collateral. Another key concern is, whereas the government has introduced these initiatives, up to this point in time, no mechanism has been developed to bind the activities of the commercial banks (CBs)/ NBFIs and no effort has been made to evaluate the performance of these banks in terms of ensuring access to finance, except reporting to BB.

In effect, an ‘accountability deficit’ has emerged which is making the implementation of these policies challenging. Whereas the policies clearly state that different organisational bodies should be involved in identifying the ‘real’ women entrepreneurs and assisting them, their specific roles have not been defined and it is also not clear how these organisational entities will work together with different government organisations and CBs. This has made the tasks of these entities quite difficult as due to a lack of proper jurisdiction, they cannot help the women entrepreneurs in an effective way.

The analysis includes a detailed assessment of SME portfolio financing and explores selected private CBs in Bangladesh, providing women entrepreneurs’ access to finance. According to BB’s quarterly statement of SME loan disbursement 2019 (first quarter), the cumulative CMSME (cottage, micro, small and medium enterprises) loan disbursement of the financial sector from January to June 2019 is Tk 79,984.25 crore, which was given to 4,02,008 CMSMEs throughout the country. Out of these total enterprises, the number of women-owned enterprises is 29,587 and it comprises around 7.35 percent of total CMSME loans. Correspondingly, the number of new enterprises is 65,350, of which 10.45 percent are new women entrepreneurs. The amount of credit received by new women entrepreneurs is only 4.07 percent of the total loan disbursement. This implies that women are receiving less credit compared to male entrepreneurs. 

This analysis concentrated on both the demand-side factors (i.e. issues related to the capacity and understanding of women entrepreneurs that may hinder their access to credit) and the supply-side factors (i.e. the impact of policies developed by GoB and BB on women’s entrepreneurship, as well as the capacity, willingness and commitment of CBs to support women entrepreneurs). Factors like age, marital status, education, ownership pattern and family attitude restrict women from being present in the mainstream. It shows that the problems faced by women entrepreneurs can be categorised into two groups: socio-cultural barriers (issues not directly related with access to finance) and the problems directly related with access to finance. Socio-cultural stigma often prevents them from getting involved with business activities. In fact, without support from their husbands or other male members of the household, women do not feel comfortable to engage in business ventures.

Though overall knowledge about women entrepreneurs, business opportunities and credit facilities have improved over the years, the pace of this improvement is not satisfactory. It is observed that the credit-seeking women entrepreneurs listed loan interest rate, rigidness about loan-related analysis and collateral as the key hindrances towards access to finance. At the same time, they lack knowledge and information regarding where they should go to receive assistance from the CBs to get loans. For instance, the government has introduced dedicated desks in the CBs to help the women entrepreneurs but many women entrepreneurs have never heard about this desk. Similarly, BB has introduced a helpline (16236) to support the women entrepreneurs but only few women entrepreneurs that we interviewed know about this. Besides, lack of experience of women entrepreneurs has also hindered their progress and they mainly focus on some specific business ventures (e.g. beauty parlour, boutique, etc.) instead of more innovative business initiatives.

The unavailability of guarantors as required by the CBs often creates a problem. Some women entrepreneurs reported that husbands who are reluctant to see the women as entrepreneurs are also unwilling to be the guarantors. For unmarried women entrepreneurs, the bank policy requires their father, brother or any of their relatives to be the guarantors. In a patriarchal society, the siblings or parents are hardly interested to act as the guarantor of unmarried women entrepreneurs. Furthermore, for the women entrepreneurs, the decision of the CBs to not lend money without collateral creates another problem as majority of the women entrepreneurs opine that collateral requirement is one of the major constraints towards access to finance. 

There is a mixed perception of the lending institutions about women entrepreneurs. Many banks have the impression that many women entrepreneurs are not ‘real entrepreneurs’ and in most cases, despite having license in their names, the businesses are operated by other family members such as their husband, son, and others. At the same time, they are of the opinion that as the business initiatives explored by the women entrepreneurs are less diversified, they have a very limited clientele and henceforth, it is not prudent for the CBs to support their business venture.

Based on the overall findings and analysis, it can be argued that in the case of promoting inclusive finance for women in Bangladesh, three broad types of problems can be found.

Capacity-related problems

As women entrepreneurs still lack access to information, they do not have adequate capacity to devise a business plan, and their financial and business expertise is not necessarily satisfactory. The capacity of individual entrepreneurs needs to be strengthened significantly.

Policy-related problems

We have pointed out in the analysis that there are some areas where further integrated policy interventions are necessary. In effect, such policy interventions should exist which would allow women entrepreneurs to deal with problems related with guarantors and collateral.

Implementation-related problems

Our analysis also indicates that developing a ‘good’ policy is never enough unless the implementing partners and agencies understand their duties and responsibilities properly.

To address these problems/limitations, we propose the following measures:

Especially with regard to the demand-side challenges, efforts to build the capacity of women entrepreneurs should continue to get priority. The women chambers should play a pivotal role here. Instead of conducting all kinds of training programmes, the chambers should conduct a needs assessment of their members to determine the types of training programmes to be provided. The chambers should also organise regular exchange-sharing meetings where it can interview representatives from the BB, different CBs, NGOs and other financial institutions. These meetings will help the women entrepreneurs understand the loan-getting procedure, expose them to different institutions, and connect them with organisations which can in future fund their business initiatives.

Though the BB has directed the CBs to take certain actions to help women entrepreneurs, they have not yet set a binding target for these banks. BB can take the initiative to introduce a binding and target-based approach, where targets will be set for the CBs each month, i.e. each month they will be required to approve a certain number of loans, assist a certain number of women entrepreneurs, or provide information to a specific number of entrepreneurs. This target should not be set arbitrarily. Rather, after due consultation with the CBs, BB will set the targets. Besides, BB can also mandate CBs to provide clearance and appreciation certificates for successful repayment of loans taken by the women-led SMEs to accentuate social and financial recognition and encourage repayments in their forthcoming loans. CBs should take initiatives such as a special programme to identify a certain number of real women entrepreneurs each year, provide them capacity development training, help them get necessary finance including market access for the products of women-led businesses. If necessary, CBs could implement such special programmes under their CSR activities. CBs can organise bank fairs at the local level to familiarise potential loan takers with loan facilities through various edutainment activities which will also contribute in enhancing financial literacy among the community.

BB may consider creating a special fund to be utilised for real women entrepreneurs with subsidised interest rate, preferably at bank rate. BB should make compulsory the provision of grace period for loans though the current policy has a provision for grace period of three to six months against term loan of one year to maximum five years based on banker-client relationship. BB can also open online-based complaint systems.

At the local level (possibly at the district or sub-district level), a separate institutional arrangement can be established which will include members from CBs working within that locality, representatives from women chambers, women entrepreneurs, BB, local level administration (DC, UNO), Department of Women Affairs, SME foundation, women elected representatives (ZP chair, Mayor or UZP Chair). These entities monitor the activities of the CBs and evaluate whether these banks have managed to reach the agreed upon target and if not, why. This organisation will then report to the national level and may suggest actions that would enhance women’s access to credit.

As a whole, collateral requirements and guarantee, lack of implementation of the provision of grace period, trade license and rigidity of loan procedures, reluctance and negligence towards women entrepreneurs and practical problems like family members misusing women entrepreneurs as a ‘front’ to collect loans from banks, are some of the constraints on the supply side. Socio-cultural constraints, barriers to market access, financial and business literacy, lack of knowledge on e-marketing, etc., are some constraining factors on the demand side. Banks and financial institutions can arrange provisional trade certificate for new women entrepreneurs, reform the rate of interest structure, introduce credit guarantee scheme, organise training for existing SMEs, support them to build networks, and monitor banks and non-banking financial institutions. Female entrepreneurs themselves need to shift gears as well by participating in trainings and workshops to enhance their capacity.

Dr Mohammad Abu Eusuf is Professor, Department of Development Studies and Director, Centre on Budget and Policy, University of Dhaka, and Executive Director, Research and Policy Integration for Development (RAPID). This article was prepared with research assistance from Tunaggina Sumaia Khan and Dalia Rahman.