Secured Finance for SMEs in Bangladesh

Publication Date: 1 Oct 1998
Published by: IRIS Center at the University of Maryland
Document Type: Paper

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Overcoming hurdles – A look at small and medium enterprise financing in Bangladesh

This report presents a series of options to the “Job Opportunities and Business Support (JOBS) Project” for activities aimed to improve the access of small and medium enterprises (SMEs) to secured finance – a constraint that the paper identifies as critical to the enterprises.

The paper explores the credit constraints to SMEs in Bangladesh and finds that:

• Formal credit comes on very difficult terms for SMEs, since the use of security in credit agreements is highly inefficient, and non-real estate security is largely ineffective;
• Systems for security registration and credit information are complex, time consuming and incomplete;
• Financial market distortions undermine efficient pricing and allocation of credit.

The authors recommend that the project focus on expanding access to working and expansion capital for SMEs through advocacy and technical assistance (TA), particularly in the areas of:

• Legislative reform to expand and simplify the use of non-real estate security,
• Efficient and functional systems for security registration and credit information,
• Improved enforcement of loan and security agreements.

The paper concludes that such an approach should be supplemented by support for complementary governance reforms, and follow-on TA and training in the use of secured finance instruments.