Contribution of Islamic Banks in SME sector of Bangladesh

Submitted to:

Sabiha Farzana Moonmoon

Lecturer

Department of Banking & Insurance

University of Dhaka

Submitted by:

Solaiman Islam

ID: 741

MBA 17th Batch (Banking)

Department of Bankging & Insurance

University of Dhaka

Department of Banking & Insurance

University of Dhaka

August 31, 2016

i|Page
 Letter of Transmittal

August 31, 2016

Sabiha Farzana Moonmoon

Lecturer

Department of Banking and Insurance

University of Dhaka

Dear Madam, this is to inform you that I have completed the thesis paper titled “Contribution of Islamic
Banks in SME sector of Bangladesh” which has been prepared as a requirement for the completion of the
MBA Program of the Department of Banking and Insurance, University of Dhaka.

This report particularly focuses on the SME banking practices and relative profitability of the banking
industry of Bangladesh. Using both qualitative and quantitative analytical process, the significance of SME
banking is enlightened to the highest extent. This report also includes the SME development and policy
issues and current state of implementation from Bangladeshi context.

Sincerely Yours,

---------------------------

Solaiman Islam

MBA 17th Batch (Banking)

ID: 741

Department of Banking and Insurance

University of Dhaka

ii | P a g e
 Certificate of Supervisor

This is to certify that Solaiman Islam, a student of Master of Business Administration (MBA), 17th Batch
(Banking), ID: 741, Department of Banking and Insurance, University of Dhaka, successfully completed
his thesis paper entitled “Contribution of Islamic Banks in SME sector of Bangladesh” under my
supervision as the partial fulfillment for the award of MBA degree.

He has done his job according to my supervision and guidance. He has tried his best to do this report
successfully. I wish his success and prosperity.

--------------------------------------

Sabiha Farzana Moonmoon

Lecturer

Department of Banking & Insurance

University of Dhaka

iii | P a g e
 Declaration

I do hereby declare that the work presented in this thesis paper titled “Contribution of Islamic Banks in
SME sector of Bangladesh” is an original work done by me under the supervision of Sabiha Farzana
Moonmoon, Lecturer, Department of Banking and Insurance, University of Dhaka, for partial fulfillment
of Master of Business Administration degree; as a part of academic curriculum.

No part of this report has been previously submitted to any other University/
College/Institution/Organization for any academic certificate/degree/diploma/qualification.

---------------------------

Solaiman Islam

MBA 17th Batch (Banking)

ID: 741

Department of Banking and Insurance

University of Dhaka

iv | P a g e
 Acknowledgement

First of all, I would like to express my infinite gratitude towards Almighty Allah for helping me to finish
this paper. I would also like to cordially thank my supervisor, Sabiha Farzana Moonmoon, Lecturer,
Department of banking & Insurance, University of Dhaka for guiding me throughout the course of my
research. I would like to extend my gratitude to my classmate, Md. Faruk Hossain, for providing me
valuable information required for this report.

Last but not the least, I wish to extend my appreciation towards my family for their spontaneous support
which was very much necessary for me to complete this report.

v|Page
 Executive Summary

This paper focuses on the SME banking practices of Islamic Banks in Banladesh and contribution of those
banks in total SME financing in Bangladesh. There is no doubt that access to finance is of crucial
importance for the ongoing and sustainable growth and profitability of small and medium enterprises sector
(SMEs) through its role in facilitating the creation of new businesses and nurturing the innovation process
as well as promoting the growth and development of existing businesses, which in turn, boost national
economic growth. Although SME has been recognised as a priority sector for the economic development
of Bangladesh, Banks are less interested to finance SME initiatives as because of facing problems related
with profitability, borrower selection and loan recovery.

The reserach analysis has been done through finding out the current place of SME in the ecomomy of
Bangladesh and the SME development activities done by BB in respect of ensuring smooth SME financing.
The major objective of this report is to identify the current status of Islamic Banks in the SME investment
portfolio of Bangladesh and six out of eight Islamic Banks operating in Bangladesh have been selected for
this purpose and necessary data of these Banks were collected. Notably, data regarding SME banking
allocation, disbursement, profit after tax, total asset, total investment and green banking score were derived
from the annual report of these banks.

To understandand the topic, some relevant ratios have been calculated based on the last ten years data of
the selected banks and a thorough analysis has been done based on those ratios. A trend analysis has also
been conducted with the help of graphs/charts developed from the calculted ratios.

This paper is also intended to analyze the effect of SME financing on profitablity of a Bank. A regression
model has been developed for this purpose. In the regression model SME investment and Other investment
have been taken as the independent variables and Profit after tax has been taken as the dependent variable.
The underlying objective of the regression analysis is to find whether there is a significant positive
relationship between SME investment and the dependent variable profit after tax. For this, F-test and t-test
were held. It has been found that there is a significant positive realtionhip between SME investment and
Profit after tax and the independent variable altogether can explain the dependent variable.

Finally, some issues regarding the overall SME banking scenario and constraints for SME financing have
been identified and some considerable recommendations have been profided to address the issues.

SME has been identified as a vast topic for research works and many more studies can be conducted to find
some greater positive impacts of this promising sector.

vi | P a g e
 Table of Contents
Executive Summary...................................................................................................................................... vi
Chapter 1 : Introduction ........................................................................................................................ 2
1.1. Prelude............................................................................................................................................ 3
1.2. Origin of the report......................................................................................................................... 4
1.3. Statement of the problem .............................................................................................................. 4
1.4. Rationale of the study .................................................................................................................... 4
1.5. Objectives ....................................................................................................................................... 4
1.6. Methodology .................................................................................................................................. 5
1.7. Scope of the study .......................................................................................................................... 5
1.8. Limitations of the report ................................................................................................................ 6
Chapter 2: Literature Review ................................................................................................................... 7
2.1. Contribution of SME ....................................................................................................................... 8
2.2. Problems and Prospects of SME financing ..................................................................................... 9
Chapter-3: Overview of SME in Bangladesh .......................................................................................... 12
3.1. Place of SME in the national economy of Bangladesh ................................................................. 13
3.2. SME Development in Bangladesh ................................................................................................. 13
3.3. Policy Issues .................................................................................................................................. 14
3.3.1. Public Development Outlay ................................................................................................ 14
3.3.2. Fiscal Policy ......................................................................................................................... 15
3.4. Steps/Measures taken by Bangladesh Bank for SME Development ............................................ 16
3.5. SME Financing: present status & Contribution to our Economy .................................................. 17
3.5.1. Definition of SME ................................................................................................................ 17
3.5.2. Present Scenario of SMEs in Bangladesh ............................................................................ 18
3.6. Brief Overview of SME Financing.................................................................................................. 19
3.6.1. Current Status of SME Financing by Banks in Bangladesh: ................................................. 19
3.6.2. SME financing target for 2016 ............................................................................................ 21
3.7. SMEs Contribution to GDP............................................................................................................ 22
Chapter 4: Contribution of Islamic Banks in SME financing .................................................................. 23
4.1. Islami Bank Bangladesh Limited ................................................................................................... 24
4.2. Export Import Bank of Bangladesh Limited .................................................................................. 26
4.3. Social Islami Bank Ltd. .................................................................................................................. 29
4.4. Al-Arafah Islami Bank Ltd.............................................................................................................. 32

vii | P a g e
 4.5. Shahjalal Islami Bank Ltd. ............................................................................................................. 35
4.6. ICB Islami Bank Ltd........................................................................................................................ 36
Chapter 5: Analysis and Discussion........................................................................................................ 39
5.1. Ratio Analysis ................................................................................................................................ 40
5.2. Regression Analysis: ..................................................................................................................... 44
Chapter 6: Findings and Inferences ....................................................................................................... 49

Chapter 7: Conclusion and Recommendations ..................................................................................... 52

7.1. Conclusion .................................................................................................................................... 52
7.2. Recommendations ........................................................................................................................ 53
References .................................................................................................................................................. 54
Appendices.................................................................................................................................................. 56

List of Tables

viii | P a g e
Table 1: Definition of Small Enterprise ....................................................................................................... 18
Table 2: Definition of Medium Enterprise .................................................................................................. 18
Table 3: Volume and Growth rate of Manufacturing sector ..................................................................... 18
Table 4: Outstanding position of SME loans ............................................................................................... 19
Table 5: Contribution of Large and Small Industries to the GDP (%) at constant price base year 2005-0622
Table 6: Small Business Investment Scheme .............................................................................................. 24
Table 7: yearwise SME disbursement of IBBL ............................................................................................. 26
Table 8: SME schemes of Exim Bank ........................................................................................................... 27
Table 9: Yearwise SME disbursement of EXIM Bank ltd. ............................................................................ 28
Table 10: SME products of SIBL .................................................................................................................. 30
Table 11: Yearwise SME disbursement of SIBL ........................................................................................... 32
Table 12: CMSME products of AIBL ............................................................................................................ 33
Table 13: Yearwise SME investment of AIBL............................................................................................... 34
Table 14: SME products of SJIBL ................................................................................................................. 35
Table 15: Yearwise SME disbursement of SJIBL .......................................................................................... 35
Table 16 : SME products of ICBIBL .............................................................................................................. 37
Table 17: Yearwise SME investment of ICBIBL............................................................................................ 37
Table 18: SME investment to Total Asset ratio:.......................................................................................... 40
Table 19:SME investment to Total investment ratio: ................................................................................. 41
Table 20: SME investment to Total deposit ratio: ...................................................................................... 42

List of Figures

Figure 1: Category-wise MSE loans (outstanding)SME financing target for 2016 ..................................... 21
Figure 2: IBBL’s Market share in SME investment. ..................................................................................... 25
Figure 3 : SME investment in the last 10 years. .......................................................................................... 26
Figure 4: Year-wise CMSME investment of Exim Bank ............................................................................... 28
Figure 5: SME investment in last 8 years .................................................................................................... 29
Figure 6: SME investment in last 10 years .................................................................................................. 32
Figure 7: SME investment of AIBL in last 10 years ...................................................................................... 34
Figure 8: SME investment of SJIBL in last 10 years ..................................................................................... 36
Figure 9: SME investment of ICBIBL in last 9 years ..................................................................................... 38

ix | P a g e
Acronyms

SME Small and Medium Enterprises

BB Bangladesh Bank

HPSM Hire Purchase Shirkatul Melk (HPSM),

IBBL Islami Bank Bangladesh Limited

AIBL Al-Arafa Islami Bank Limited

SIBL Social Islami Bank Limited

SJIBL Shahjalal Islami Bank Limited

ICB IBL ICB Islami Bank Limited

GDP Gross Domestic Product

VAT Value Added Tax

NGO Non-Government Organization

ADB Asian Development Bank

IDA International Development Association

FY Fiscal Year

BBS Bangladesh Bureau of Statistics

NBFI Non-Bank Financial Institutions

PCB Private Commercial Banks

CMSME Cottag, Micro,Small and Medium Enterprises

ANOVA Analysis of Variance

1|Page
Chapter 1 : Introduction

2|Page
1.1. Prelude

Bank is committed to provide high quality financial services/products to contribute to the growth of the
country through stimulating trade and commerce, accelerating the pace of industrialization, boosting up
export, creating employment opportunity for the youth, poverty alleviation, raising standards of living of
limited income group and overall sustainable socio-economic development of the country.

In achieving the aforesaid objectives of the Bank, Credit Operation of the Bank is of paramount importance
as the greatest share of total revenue of the Bank is generated from it, maximum risk is centered in it and
even the very existence of Bank depends on prudent management of its credit portfolios. The failure of a
commercial Bank is usually associated with the problem in credit portfolio and it’s less often the result of
shrinkage in the value of other assets. As such, credit portfolio not only features dominant in the assets
structure of the Bank, it is crucially importantt to the success of the Bank also.

Banks loan portfolios include commercial loan, industrial loan, consumer loan and SME loan. All of these
loans have significant impact on the banks profitability. So their treatment is different, require different
procedure, documents and so on. Now-a-days SME financing is getting more important because it is the
way of boosting our economy and also creating employment opportunities.

However, most of the banks are facing great difficulties in SME lending, loan management, monitoring,
finding creditworthy and convincing borrowers and most importantly in loan recovery. Consequently some
of those banks are losing their interest in this sector that will be a great impediment in boosting up SME
industry. In respect of the scenario many more supporting initiative are being taken by the government and
BB has been providing constant guidelines for increasing SME banking services as well. Now, commercial
banks are regaining their confidence in SME lending and that results in increased amount of SME lending
in the overall loan portfolio of the Banks.

Small and Medium Enterprises (SMEs) all over the world have been playing a crucial role in promoting
economic development as well as industrial production. In particular, SMEs provide the necessary
foundations for sustained growth and rising income in the less developed and transitional economies. SME
financing is a topic of significant research interest to academics and an issue of great importance to the
policymakers of Bangladesh and around the world. However, this study attempts to analyze and compare
the SME financing scenarios of Islamic banks of Bangladesh.

3|Page
1.2. Origin of the report

This report has been prepared as a requirement of the thesis program after completion of MBA program
based upon the topic-“Contribution of Islamic Banks in SME sector of Bangladesh”. My institute supervisor
duly approved the topic decided for doing the report.

1.3. Statement of the problem

Despite the role of SMEs in the economy of Bangladesh, the financial constraints they face in their
operations are daunting and this has a negative impact on their development and also limited their potential
to drive the national economy as expected. This is worrying for a developing economy without the requisite
infrastructure and technology to attract big businesses in large numbers. If these problems can be solved,
the economy of Bangladesh will develop.

1.4. Rationale of the study

Large industry set-up requires a huge amount of capital. But Bangladesh is a poor country. It is very difficult
for a developing country like Bangladesh to finance large-scale industries. It is easier to finance small and
medium business enterprise rather than large industries. If the small and medium business enterprises are
upgraded, the economy must be developed. Japan is the best example for this sector. The economic miracle
of Japan has attracted great attention in all the developing countries of the world for possible emulation of
Japanese experience for their own rapid economic development. This is particularly so, in the case of
economic planners in developing countries concerned with development of small and medium business
enterprise.

1.5. Objectives

Broad Objective

The broad objective of the report is to have an overview on the SME Banking in banking sector.

Specific Objectives

 To know SME position of Islamic banks and their performance in this sector.
 To know about the SME banking products and services of Islamic Banks.
 To evaluate the contribution of SME financing towards profitability of the banks.
 To identify the problems associated with SME financing of the bank.

4|Page
1.6. Methodology

Sample Size:

As the research work is based on the Islamic Banks only, this paper focuses only on the SME Banking
activities of those banks. Although currently there are eight sheduled commercial Islamic banks operating
in Bangladesh, Six of them have been selected for the research purpose. Amongst the eight banks “The
Union Bank” has been into operation for two years. The bank couldn’t`be selected for the research purpose
as at least 10 years of data is required to conduct a comprehensive analysis. First Security Islami Bank Ltd.
has also been excluded from the research because of the unavailablity of data.

Sources of data:

The study was conducted mainly based on secondary information.The sources of data include various
newspapers, magazines, internet and Islamic Banks websites, Bangladesh Bank websites and reviews etc.
However, annual reports of the selected banks are the key sources of data.

Data analysis techniques:

After collecting data those were analyzed by arranging in tables, doing necessary calculations, ratios etc
and showing bar charts, line charts and pie charts on them. Microsoft office and Excel Software have been
used to arrange data. The necessary calculations for regression analysis have been done through using SPSS
software. Tables, charts and Regression Equation were critically analyzed for the readers.

Period of the study:

The study was started in the end of the June. Data collection required one week. Analysis began in the first
of the August. The study took about two months to be completed ending in 31st August, 2016.

1.7. Scope of the study

The study has focused on the place of SME investment in the investment portfolio of Islamic Banks. The
research also discusses about the relationship between profitability and SME finacing of those banks. The
study analyzes the overall contribution of Islamic Banks in the total outstanding SME financing and SME
development. The topic also covers the policy and development issues required to ensure a convenient
environment for SME industry. The readers will have a comprehensibe view about the practice of SME
financing, SME banking issues and profitability of SME banking from the perspective of Bangladesh.

5|Page
1.8. Limitations of the report

Since this research is only for academic purpose, there were some limitations in this study. These are
mentioned below:
 Discussion about the Small and Medium Enterprises is a vast subject, but only some
selected areas are covered in the research paper.
 The study is basically based on secondary data.
 Lack of Information’s source.
 Lack of sufficient data for categorical disbursement of SME

6|Page
Chapter 2: Literature Review

7|Page
SME finance is the funding of small and medium sized enterprises, and represents a major function of the
general business finance market – in which capital for different types of firms are supplied, acquired, and
coasted or priced.

SME finance is very much related to the funding of small and medium sized enterprises in their
establishment and operation of business. Capital is supplied through the business finance market in the form
of bank loans and overdrafts; leasing and hire purchase arrangements; equity/corporate bond issues; venture
capital or private equity and asset based finance such as factoring and invoice discounting.

2.1. Contribution of SME

At present SME is one of the most important issues of the development of a country. Many researchers and
policymakers have been working on the identification and understanding the role of SME in the sustainable
economic growth of a country. Some of the notable ones are- Uddin (2008), Chowdhury (2007), Miah
(2007), Ahmed (2006), MIDAS (2004), ICG (2003), Hallberg (2002).

Now-a-days, small and medium enterprises (SMEs) have come to the forefront of development agenda due
to the recognition of their contribution in fostering economic growth, sustaining global economic recovery,
generating employment and reducing poverty (OECD, 2004).

In any country, the statistics show that even during the years of economic crisis and recession, the SMEs
have ensured economic growth, productivity and employment (WIPO, 2006). Duarte (2004) stated that the
role of SMEs in any society is without doubt important, for example, in Portugal, about 98% of the material
is composed of industry SMEs. The same author describes the role of SMEs as the engine of economic
growth and the high proportion of their industry. Shumpeter (1934) emphasizes the role of SMEs as a major
cause of economic development.
Growth of SMEs in developing countries is certainly a desirable goal in view of their perceived contribution
to decentralized job creation and generation of output (Chen, 2011). In developing economy like
Bangladesh, SMEs play a significant role in the development of the economy by creating employment
opportunities and producing useful machine substitutes and machinery parts saving huge amount of foreign
currency for our country (Chowdhury, 2008).

About 6.0 million SMEs are actively performing in Bangladesh which were contributing 25% of the total
GDP, employing about 31 million people and providing 75% of household income. Various categories of
SMEs together contribute between 80 to 85% of industrial employment and 23% of total employment in
Bangladesh (Chowdhury, 2008).

8|Page
In spite of her heavy dependence on agriculture, other sectors growing significantly. It has been observed
that share of agriculture in GDP of Bangladesh are declining, while services sectors are becoming the
drivers of growth. Manufacturing sector in Bangladesh has been contributing at a consistent rate over the
last decade to around 15%. SMEs in manufacturing and services combined have 19% of GDP. These
enterprises are providing employment more than 30 million people aged 15 years and above. Therefore,
SME sector deserves more attention and focus to foster growth and generate employment.

About 60 to 65% of SMEs are located outside the metropolitan areas of Dhaka and Chittagong. SMEs are
providing job opportunities to about 70 to 80% of the non-agricultural labor force (Ahmed, 2009). The
SME share in manufacturing value added to GDP varies at 28%- 30% (Ahmed, 1999).

2.2. Problems and Prospects of SME financing

Several studies have been done with a view to evaluating the problems and prospects of SME loan etc.

Khalid and Kalsom (2014) determined the factors of apply for SME loan to bank. The study was based on
quantitative type primary data gathered from survey with the help of questionnaires. Results indicate that
business plans of firms and start up relationship with bankers were positively related to the applying bank
loans of firms.

Akoja and Hasret (2010) addressed the financing of industrial development in Nigeria’s SME sector. It
examined the ownership structure, entrepreneur’s capacity development and sub sector type of the SME,
source of startup capital, business information and membership of business termed the core indices. The
method of analyses was descriptive type statistical tools and chi square. It is concluded that ownership
structure, capacity development of entrepreneur, SME sub sector type, source of seed capital are few among
those which have significant effect in financing of SME in Kwara State.

Uddin (2008) has stated that the overall performance of the SMEs especially in the developing countries is
considerably dependent upon the macroeconomic, environment and specific promotion policies pursued for
their benefit. The promotional aspects contained in the annual budget, the policy taken by the Government
in order to promote SMEs and Central bank’s actions toward channeling funds to SMEs through banking
system would play a complementary role in accelerating the growth of SMEs as well as the economy
altogether.

Chowdhury identified some correlated issues that have a direct impact on the development of the SME
sector. According to him in the context of Bangladesh SME is characterized by geographical diversity, very
limited access to formal source of credit, cash intensity in transactions, poor credit knowledge, low
capitalization and limited assets, poor financial disclosure on account of tax issues, high risk perception has

9|Page
led to high borrowing cost. The smooth operation of SMEs cannot be ensured regardless of the policies
taken by the government or Central Bank until these risk factors are well treated.

Raihan (2001) observes that the 50.53 percent of SMEs have no access to formal source of finance. Only
35.79 percent of SMEs enjoy unrestricted access to the formal credit. The rest (13.68 percent) of them have
restricted access to the formal credit. Bank credit is used by small percentage of entrepreneurs and provides
financing of generally less than 20 percent of their total outlay. Majority of the SMEs (59.6 percent) seek
finance for their working capital needs from banks, although only a half-of them get loan from banks.

Rahman and Mahmood (2007) mentions that Small and Medium Enterprises are the backbone of the
economy in countries like Bangladesh. SMEs suffer from common constraints such as lack of capital,
difficulties in procuring raw materials, lack of access to relevant business information, low technological
capabilities, problems caused by cumbersome and costly bureaucratic procedures, and policies and
regulations that generate market distortions. However, with proper domestic policy support from the
government, and an eye towards global market trends, SMEs can build capacity and reap the rewards of
globalization.

Miah (2007) highlighted some constraints for SMEs especially found in Bangladesh that include lack of
modern technology, poor information about market opportunities and requirements, inadequate availability
of raw materials, lack of adequate investment, inadequate supply of power, lack of skilled technicians and
workers, high rate of interest on bank loans, poor physical infrastructure, low lobbying capacity, rapid
changes in policy environment, credit constraints, fierce competition, difficulties in assessing technology,
low access to business services, low awareness, lack of research & technology, absence of effective and
transparent legal system and high transportation cost.

Among all the constraints lack of availability of finance has been appeared to be the major constraint to
formation and growth of SMEs in Bangladesh (Ahmed, 2006). Entrepreneurs have to rely more on informal
sectors and family members in order get venture capital as because of not getting access to formal sectors
including banks and other non-bank financial institutions. Banks are reluctant to expand their SME credit
portfolio because they do not consider SME lending an attractive and profitable undertaking. This is so
because SMEs are regarded as high risk borrowers because of their low capitalization, insufficient assets
and their inability to comply with collateral requirements of the banks. Administrative costs are also higher
because close monitoring and supervision becomes necessary.

A study by Micro Industries Development Assistance and Services (MIDAS) revealed that SME financing
generally comes from informal sector (41%), Family members (24%), NGO (17%) and Bank (18%). The
study shows banks are the least fund provider while most of the funds are coming from informal sector.

10 | P a g e
Entrepreneurs are getting more dependent on informal sector as they have limited access to the bank loans
and thereby are being trapped by the unusual or high interest charged by the moneylenders. This will never
be able to create a favorable credit environment.

According to Hallberg (2002), a stable macro-economy, an open trade and investment regime and a
competitive financial sector are argued to be most essential ingredients for a vibrant private sector. But
Bangladesh Government is far away from ensuring this environment. Here law and order situation remains
below the optimum level, corruption is well above the level of acceptance and political situation often
remains unstable. The domestic environment of Bangladesh does not come to any help rather hinders the
prosperity of SME in this country.

Sulaiman (2005) also observed that SME sectors are being neglected from the formal source of finance.
The study conducted by him found that still 50.53% of SMEs has no access to formal source of finance.
Only 35.79 % of SMEs can enjoy unrestricted access to the formal credit. Of the rest 13.68 % have restricted
access to formal credit. Bank credit is used by small percentage of entrepreneurs and provides financing of
generally less than 20 % of their total outlay. Majority of the SMEs (59.6 %) seek finance for their working
capital needs from banks, although only a half-of them get loan from banks.

From the above studies it is evident that despite having a lot of potentials, SME sector is being neglected
by providing inadequate financing. Researchers also found out the reasons behind the scenario. However if
this situation continues and banks are getting less interested in SME lending, investors will not be
encouraged in SME establishments.

The above studies also pointed out the problem areas we should work on. This research paper will focus on
the possible motivating factors banks can improve in order to extend their lending facilities to the SMEs.

As many of the studies are found on problems and prospects of SME financing in Bangladesh, this study
will try to figure out the actual contribution of banks to the SME sector especially by Islamic banks. The
impact of SME lending on the profit of the banks will also be analyzed through this study.

11 | P a g e
Chapter-3: Overview of SME in Bangladesh

12 | P a g e
3.1. Place of SME in the national economy of Bangladesh

In Bangladesh, Small and Medium Enterprises (SMEs) play a pivotal role in national industrialization and
economic growth. SMEs are large in aggregate size, and thus have significant capacity for employment
generation and technological innovation & development. The latter promotes inter-sectoral linkages,
backward and forward linkages in the value chain, raising exports and developing entrepreneurial skills.
Indeed, experience gathered from multilateral, bilateral and national institutions shows that supporting
SMEs possesses immense potential as an engine of GDP growth and employment creation. The sector also
plays an important role in building socio-economic harmony and minimizes social injustice. Their
locational flexibility is also an important advantage in reducing regional imbalances. The future of SMEs
is of major policy and imperative concern given their strategic and operational importance in any effort of
reshaping industrial sector performance. SMEs in Bangladesh have established their distinct position in
different types of production systems and have been getting immense recognition in the country. It is a
proven fact that a dynamic SMEs sector is a guarantee for more social cohesion and a better wealth
distribution in the country. In Bangladesh, SMEs absorb 70 to 80 percent of industrial workers and
constitute over 95 percent of business, while the capital intensive industry just three to four percent.

3.2. SME Development in Bangladesh

Historically, Bangladesh followed a development strategy in which private investment was controlled
through a host of regulations involving investment sanctioning, credit disbursement, import licensing,
foreign exchange allocation, etc. While these regulatory barriers discouraged private investment in general,
the impact fell unevenly on SMEs. This was because of the relative inability of the SMEs to cope with the
regulations compared to their large-scale counterparts. Thus, the policy regime was largely biased against
the SMEs although, paradoxically, promoting SME development was a stated objective of successive
governments. In a bid to render its industrial sector internationally competitive and to move towards greater
efficiency in its production structure, Bangladesh implemented a number of economic reforms during the
1980's, underwritten by the familiar structural adjustment policy. These included deregulation of
sanctioning procedure and relaxation of other regulatory barriers, easing of import procedure, reducing
trade barriers, following a market oriented exchange rate policy, and implementation of fiscal, monetary
and public enterprise reforms. These reforms helped remove a large part of the policy bias against SMEs
that prevailed earlier. Recent studies confirm that these reforms had positive impacts reflected in a fairly
rapid growth of the sector during the past decade. However, because of their structural weaknesses, the
SMEs may need more pro-active policies for their development in addition to the further removal of the
policy biases.

13 | P a g e
3.3. Policy Issues

3.3.1. Public Development Outlay

Although successive five-year plan documents have mentioned development of small, medium and cottage
enterprises as priority area, public development expenditure in this sector has not been commensurate with
this declared policy. Thus, in the Fourth Five Year Plan, the revised public allocation to this sector was
Taka 2,016 million which was a meager 0.58 per cent of the total public development outlay in the plan.
What is even worse, only about 69 per cent of this small allocation were actually invested during the plan
period. In the current Fifth Five-Year Plan, the share of the sector in total public development expenditure
has gone down even further. If the sector has to make much headway, there is need for substantial increase
in public investment in the sector particularly in the area of training, extension, research, market promotion,
etc. A collaborative effort of the government with business associations, non-governmental organizations
NGOs and other development partners is recommended in such public outlays.

Trade Policy:

During the past decade, substantial reforms have been carried out in the external trade regime of
Bangladesh. The import procedure has been greatly eased and deregulated. Import tariffs have been lowered
and quantitative restrictions virtually eliminated. All these have facilitated greater access of domestic
producers to imported raw materials. This has particularly benefited SMEs as they were affected more
adversely by the regulated trade regime.

Prior Announcement of Policy Changes:

To enable domestic producers, particularly the SMEs, to prepare themselves to face external competition
there is need for adequate forewarning about impending policy direction. This is particularly true of trade
policy measures. If the government makes prior announcements of its impending trade policy changes,
particularly with respect to tariff schedules, investors will be aware of the degree of competition they will
be facing with the changes and will make adjustments in their investment and production plans accordingly.

Tariff Rationalization:

To encourage domestic production, there should be adequate gap between duty on raw materials and duty
on finished products. In fixing duty on finished products, possible under-invoicing and dumping should be
taken into account, as otherwise, effective duty rates on finished goods will turn out to be lower than that
on raw materials in spite of the higher statutory rate on the finished item.

Appropriate Tariff Valuation:

14 | P a g e
To avert the problem of under-invoicing, a system of tariff value has been put in place for certain categories
of imports. There are complaints that these tariff values are often not in line with the going world price of
these items which sometimes puts domestic producers at a relatively disadvantaged position.

3.3.2. Fiscal Policy

Value Added Tax:

The main components of indirect tax in Bangladesh are Value Added Tax (VAT), Supplementary Duty and
Excise Duty. VAT is imposed on producer, manufacturer, importer, exporter or service renderer under the
Value Added Tax Act, 1991, on goods or specified services, at the rate of 15% at every stage of transfer.
VAT paid against the input is adjustable against the VAT on output to be collected from the buyers and the
net sum stands payable on delivery of goods or specified services to the VAT authority. Exemption is
allowed to certain goods or service or certain taxpayers.

All cottage industries, except those producing particular products, are exempted from VAT. But,
manufacturer, producer or service renderer (other than cottage entrepreneurs), whose annual turnover does
not exceed Taka 1.5 million are required to pay Turnover Tax at the rate of 2.5 per cent in lieu of 15 per
cent VAT. This limit is too low for small industries. As a result, small industries are subjected to the same
15 per cent VAT as their large-scale counterparts. In addition, supplementary duty is imposed at variable
rates on certain categories of consumption goods across all size categories. Finally, excise duty applies to
a limited number of items irrespective of size classification.

Thus, in terms of indirect taxes, there is virtually no differentiation between SMEs and their large-scale
counterparts, which is considered inequitable by most SMEs.

Tax Holiday:

Similarly, there are no differentiated treatments of SMEs either with respect to duty on capital machinery
or direct taxes. There are provisions of tax holidays for enterprises of all size categories subject to rules and
procedures set by the National Board of Revenue. To avail themselves of tax holiday, enterprises
recommended by the relevant sponsoring agencies have to get the approval of the National Board of
Revenue which is a cumbersome and lengthy process. The tax holiday, however, is not available to sole
proprietorship enterprises which are the usual form of small and cottage industries in Bangladesh.

Wealth Tax:

Wealth tax is payable by an individual if his net wealth exceeds Taka 2.5 million. As per existing law, no
wealth tax is payable by a company, the usual legal form of a large industry. On the other hand, the legal

15 | P a g e
form of small industries is usually sole proprietorship, and hence these enterprises have to pay wealth tax
on their business capital.

Thus, fiscal policy in Bangladesh is not particularly tailored to provide support to SMEs, which is pointed
out by most SME entrepreneurs as a critical policy constraint hindering SME growth.

3.4. Steps/Measures taken by Bangladesh Bank for SME Development

Bangladesh Bank has already introduced several schemes and programs to flourish and expand SME
Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been facilitated for the
development of SME Sector. Besides, to ensure institutional financial facilities under easy conditions
Bangladesh Bank has taken diverse steps; like opening of ‘Dedicated Desk’ for SME and ‘SME Service
Centre’ in the banks and special facilities for the women entrepreneurs. But reality is that expected outcome
has not been achieved so far in this sector.
In the back drop of recent global recession and changed circumstances, it has become essential to include
all segments of people in the growth process through facilitating credit to the sectors where less attention
has been given due to present market mechanism, specially, in agriculture and SME sector. Reasonably, a
new department namely ‘SME and Special Programs Department’ has been established in Bangladesh
Bank recently which will be solely responsible for policy formulation, facilitating fund, monitoring and
development of entrepreneurship in the SME sector.
The guidelines formulated by the newly created department for compliance of the banks and financial
institutions for the development of SME sector are enumerated below:

 For the first time in Bangladesh, an indicative target for SME loan disbursement has been set for
2010 by the banks and financial institutions considering SME development as one of the most
important development agenda of the country. According to the target, SME loan shall be disbursed
to the small, medium and women entrepreneurs.
 Following the 'Area Approach Method' banks/financial institutions will try to attain their indicative
targets separately by dividing it as branch wise, region wise & sector wise.
 Each bank/financial institution shall follow a separate business strategy in financing SME loan with
least formalities in executing documentation to ensure easy and speedy loan sanction and
disbursement process.
 Priority shall be given to small entrepreneurs.
 For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand) to
Tk.50,00,000 (Fifty lac).

16 | P a g e
  For more participation of women entrepreneurs in industrial development of the country and for
conducting business activities by women entrepreneurs in large number, priority shall have to be
given to potential women entrepreneurs in respect of SME credit disbursement.
 Banks & Financial Institutions shall put highest priority in receiving loan application from small
and medium women entrepreneurs and settle the loan disbursement process within very reasonable
time from the date of acceptance of the application.
 Each bank and financial institution shall establish a separate ‘Women Entrepreneurs’ Dedicated
Desk’ with necessary and suitable manpower, provide them training on SME financing and suitably
appoint a lady officer as chief of dedicated desk.
 Branch wise list of ‘Women Entrepreneurs’ Dedicated Desk ‘ should be sent to SME and Special
Programmes, Department of Bangladesh Bank within two months from the date of declaration of
this policy and programme.
 Banks and financial institutions may sanction up to Tk. 25,00,000 to women entrepreneurs against
personal guarantee. In that case, group security/social security may be considered.
 The success in SME loan disbursement will be considered as yardstick for further approval of new
branches of the concerned bank. License for New Branches will be issued for financing the priority
sectors like SME and agriculture from 2010 in the name of ‘SME/Agriculture Branch’ instead of
‘SME Service Centre; in order to involve banks in financing priority sector like SME and
Agriculture’.
 Each bank/financial institution shall fix the interest rate on SME loan sector/sub-sectorwise.
 However, bank/financial institution will inform Bangladesh Bank sector/sub-sector wise rate of
interest immediately and ensure disbursement of refinanced fund to the clients (women
entrepreneurs) at Bank rate +5% interest.
 Training programs shall be arranged for the entrepreneurs.

3.5. SME Financing: present status & Contribution to our Economy

3.5.1. Definition of SME

According to the latest circular of BANGLADESH BANK (Date – 26/05/2008), the definition of Small &
Medium Enterprise sector is given below:

17 | P a g e
Table 1: Definition of Small Enterprise

Serial No. Sector Fixed Assets other Employed Manpower

than Land and (Not Above)
Building (tk)
01. Service 50,000-50,00,000 25
02. Business 50,000-500,00,000 25
03. Industrial 50,000-1,50,00,000 50

Table 2: Definition of Medium Enterprise

Serial No. Sector Fixed Assets other than Employed Manpower

Land and Building (tk) (Not Above)
01. Service 50,00,000-10,00,00,000 50
02. Business 50,00,000-10,00,00,000 50
03. Industrial 1,50,00,000- 150
20,00,00,000

3.5.2. Present Scenario of SMEs in Bangladesh

The Industry sector plays an important role in the socio-economic development of Bangladesh. According
to BBS estimates (base year: 2005-06), the contribution of the broad industry sector to real GDP stood at
29 percent in FY 2012-13, which increased to 29.61 percent in FY 2013-14. Among the fifteen sectors of
GDP, the broad industry sector includes four sectors namely mining and quarrying, manufacturing,
electricity and gas and water supply; and construction. The contribution of the manufacturing sector is the
highest in GDP. In FY 2012-13, the contribution of manufacturing sector in GDP was 19 percent which
reached to 19.45 percent in FY 2013-14. The volume and growth performance of the manufacturing sector
from FY 2006-07 to FY 2013-14 is shown in the table below according to the base year 2005-06:

Table 3: Volume and Growth rate of Manufacturing sector (At constant prices of 2005-06)(In Crore Tk.)

Type of 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Industry
Small & 16112.9 17264.6 18525.3 20039.5 21176.0 22569.1 24557.9 26179.8
Cottage (9.48) (7.15) (7.30) (8.17) (5.67) (6.58) (8.81) (6.60)

18 | P a g e
 Medium- 65499.6 70331.2 74933.6 79631.4 88475.3 97998.3 108436.2 118364.0
Large (10.80) (7.38) (6.54) (6.27) (11.11) (10.76) (10.65) (9.16)
Total 81612.5 97595.8 93458.9 99670.9 109651.4 120567.4 132994.1 144543.8
(10.54) (7.33) (6.69) (6.65) (10.01) (9.96) (10.31) (8.68)

3.6. Brief Overview of SME Financing

There is wide recognition that small and medium enterprises (SMEs) play a critical role in the economic
growth and industrial development of developing countries worldwide. The importance and role of micro
and small enterprises for overall economic development of Bangladesh is inevitable too. SMEs contribute
substantially to the economy both in terms of number of enterprises and workers. SMEs could provide non-
farm opportunities particularly through manufacturing activities making use of locally available inputs;
thus strengthening the country's industrial structure.

SMEs are accounting for 20.0 to-25.0 percent of GDP, 40 percent of employment, 80 percent of industrial
jobs and 25 percent of the total labor force in Bangladesh. As such SME is considered a priority sector as
announced by present Government of Bangladesh. Through Bangladesh Bank and the government of
Bangladesh has taken a number of policy initiatives so that banks and other financial institutions might
come up with mind setup for financing in that thrust sector. Bangladesh Bank launched a new department
in 2011 to administer and develop a congenial environment for SME.

Bangladesh Bank has given much emphasis on the issue of financial inclusion of large number of
prospective entrepreneurs and borrowers. Financial inclusion may be possible through the development of
SMEs; particularly extending the domain of SME policies.

3.6.1. Current Status of SME Financing by Banks in Bangladesh:

Table 4: Outstanding position of SME loans

19 | P a g e
 Types of State Private Foreign Specialised Non-Bank Total
Banks/NBFI Loans Owned Banks Banks Banks Fin. Ins.
Banks
December, Total Loans 102392.55 369934.52 23384.70 22125.69 36797.80 554635.26
2014 SME Loans 27215.48 101978.15 1814.57 760.27 4380.03 136148.50
March, 2015 Total Loans 100737.39 378555.59 22305.04 22166.73 39335.25 563100.00
SME Loans 22241.00 102868.39 1857.15 917.36 4522.73 132406.63
June, 2015 Total Loans 103775.51 394356.63 23528.18 21424.75 40884.24 583969.31
SME Loans 25477.47 103688.19 1861.62 834.73 5045.95 136907.96
September, Total Loans 112465.72 408056.18 23943.04 21111.88 42613.19 608190.01
2015 SME Loans 24518.29 105881.68 1911.97 846.25 5172.55 138330.74
December, Total Loans 110629.20 428209.81 24398.99 21377.47 44847.83 629463.30
2015 SME Loans 29048.70 111428.54 1887.37 974.84 5452.61 148792.06
% change of SME loans at the 6.74 9.27 4.01 28.22 24.49 9.29
end of Decemner, 2015 over
December, 2014

The total SME loans by banks and non-bank financial institutions increased by Tk.12643.56 crore or 9.29
percent and stood at Tk.148792.06 crore at the end of December, 2015 as compared with Tk.136148.50
crore at the end of December, 2014. The increase of institution-wise SME loans at the end of December,
2015 are 6.74 percent in state-owned banks, 9.27 percent in private banks, 4.01 percent in foreign banks,
28.22 percent in specialized banks and 24.49 percent in nonbank financial institutions as compared to that
of December, 2014. The low growth of outstanding SME loans from state owned and private banks can be
attributed to fall in disbursement of industrial term credit and increase in disbursement of Cash Credit.

SME loans as percentage of total loans stood at 23.64 percent at the end of December, 2015 compared with
the 24.55 percent of the same period of the previous year.

20 | P a g e
The percentage share of SME loans from different categories of financial institutions to total SME loan as
of end December, 2015 is shown in the pie chart.

Category-wise SME loans as percentage of total SME loan (December, 2015)

Non-Bank Financial
Foreign Banks Specalised Banks
Institurions
1% 1%
4%

State Owned Banks

19%

Private Banks
75%

Figure 1: Category-wise MSE loans (outstanding)

3.6.2. SME financing target for 2016

The central bank has set the target of small and medium enterprise (SME) credit disbursement at Tk 1.13
trillion for this calendar year, up by 8.53 per cent than that of the previous year. Of the total, six state-owned
commercial banks (SoCBs) and two specialised banks will disburse Tk 142.49 billion in 2016, according
to the central bank's latest statistics.

Thirty-nine private commercial banks (PCBs) will distribute Tk 917.80 billion while nine foreign
commercial banks (FCBs) will lend Tk 20.16 billion to the entrepreneurs. Besides, 31 non-banking financial
institutions (NBFIs) have made commitment to disburse Tk 54.59 billion as SME loans in the current
calendar year.

The loans will be given to more than 60 SME sectors such as light engineering, handicraft, flower, fish
processing, handloom, rice mill, jamdani, Rajshahi silk, khadi, biogas and compost fertiliser.

21 | P a g e
3.7. SMEs Contribution to GDP

Table 5: Contribution of Large and Small Industries to the GDP (%) at constant price base year 2005-06

2006- 2007- 2008- 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-
07 08 09 16
Large and 12.10 13.55 13.71 13.74 14.32 14.86 15.49 15.95 16.58 17.19
Medum
scale
Small 3.30 3.33 3.39 3.46 3.43 3.42 3.51 3.51 3.58 3.58
scale
15.40 16.87 17.10 17.20 17.75 18.28 19.00 19.47 20.16 20.77
Source: Economic Review, Ministry of Finance, GOB, 2015-2016

Bangladesh experienced a steady rise in GDP growth during last ten years (2003-2012) growing at an
average annual rate of more than 9 percent compared with 7.5 percent over the previous five years. Higher
growth, together with a fall in population growth to less than 1.5 percent in recent years, led to a rapid
growth in per capita GDP. From the table it is clear that SME sector significantly contributes to GDP and
rate is improving over time. It is also obvious that the major contribution comes from larger and medium
scale industries contributing about 20.77% in fiscal year 2015-16.

22 | P a g e
Chapter 4: Contribution of Islamic Banks in
SME financing

23 | P a g e
4.1. Islami Bank Bangladesh Limited

Islami Bank Bangladesh has been working since 1983 with a view to establishing a welfare oriented islami
banking system and achieve balanced growth through diversified investment operations. In order to
encourage socio-economic uplift and financial services to the low income community the bank has been
the bank has been giving priority to finance SME since the inception of the bank.

The bank has a separate financial division to ensure prompt and efficient SME services. IBBL has been
financing SMEs through the following special schemes under SME-

 Women Entrepreneurs’ Investment Scheme (WEIS)

 NRB Entrepreneurs’ Investment Scheme (NEIS)
 Micro Industries Investment Scheme (MIIS)
 Small Business Investment Scheme (SBIS)
 Transport Investment Scheme (TIS)
 Micro Entrepreneurs Investment Scheme (MEIS)

Table 6: Small Business Investment Scheme

Objective i. To help the educated unemployed youths of rural and urban areas for self-
employment.
ii. To provide investment to small businessmen and entrepreneurs.
Target Group Jobless young people / small traders / small & cottage industries / service sector with a
valid trade license.
Nature of Goods/Items Dairy, beef fattening, fishery, poultry & duckery, livestock farming, workshop, tailoring,
garments sweetmeat, grocery, stationery, electrical and electronics, shoes, cloths, laundry,
small restaurant etc.
Mode of Investment Bai-Muajjal / HPSM (item wise).
Period of Investment Maximum 1-year in Bai-Muajjal & Maximum 2-years in HPSM.
Rate of Return 15.00% or rate to be determined by the Bank from time to time.
Amount of Investment  For All Metropolitan Cities : Tk.0.50 million
 For Districts & Municipalities : Tk.0.30 million
 Others : Tk.0.20 million
Bank’s participation 80% of the cost price.
Security Hypothecation on goods, Personal Guarantee(s) of the client, Immovable properties above
Tk.0.10 million, MSS / TDR for equivalent amount.

24 | P a g e
SME investment

IBBL has put a greater emphasis on the previously neglected Small and Medium Enterprises(SME). Today
having developed 63 thousand successful SME entrepreneurs by SME investment that generated
employment opportunities for 9 lakh people, the bank has a contribution of 27% market share in SME
investment distributed nationally.

232080, 31%

IBBL
Other PCB's

518950, 69%

Figure 2: IBBL’s Market share in SME investment.

By way of illustration, in 2015, IBBL disbursed SME investment of Tk. 232080 million, 15.38% more than
the previous year. During the year, approximately 9,500 new SME borrowers were added to the portfolio.
IBBL is holding highest position in financing SMEs among the Banks/FIs in the country having 15% market
share (on the basis of outstanding position). Among the private commercial banks the bank has 31%
contribution towards SME financing. To expand the unexplored SME Market, IBBL is continuously
improving efficiency standards.

For developing women entrepreneurs IBBL has increased the ceiling of Women Entrepreneurs Investment
Scheme up to Tk.4.00 million with low rate of return i.e. only 10% and they are enjoying collateral free
investment facility up to Tk.0.50 million. Present outstanding under women entrepreneurs investment is Tk
1,630 million among nearly 2 (two) thousand clients. In 2015, IBBL has disbursed investment of Tk 928
million to the Women Entrepreneurs achieving 92% of annual target of Tk1,010 million.

IBBL has given importance in Cluster Approach Method for developing SMEs and has disbursed Tk.
1,830million in 40 clusters among 3,670 clients in the year 2015.Besides, IBBL provides various Non-
Financial Services (NFS) to the SMEs.

25 | P a g e
 Table 7: Yearwise SME disbursement of IBBL

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Amount (in 19831 22614 34154 49537 78456 108670 149214 173660 201127 232080
million)
% to total 17.50% 15.60% 19% 23.10% 29.80% 35.50% 40% 43.10% 43.40% 43.80%
investment
Growth in _ 14.03% 51.03% 45.04% 58.37% 28.51% 37.31% 16.38% 15.81% 15.38%
investment

YEAR WISE SME INVESTMENT

Year wise SME Investment Linear (Year wise SME Investment)

250000 232080

201127
200000
173660
149214
150000
108670
In Million

100000 78456
49337
50000 34154
19831 22614

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-50000

Figure 3 : SME investment in the last 10 years. Source: Annual report of IBBL

During the last 10 years the bank has put much importance on creating an investment portfolio that will
have a substantial space for SME sector. The above chart is simply the picturization of that. The trend line
also depicts the constant growth of SME investment of IBBL. SME holds a major portion of total investment
portfolio and has been above 35% of total investment during the last five consecutive years. As a result the
bank got the prestigious award- “The best Small Entrepreneur friendly bank of the year 2014”.

4.2. Export Import Bank of Bangladesh Limited

26 | P a g e
EXIM bank has extended its investment wing to SME sector by SME service to this sector from the year
2008. At present the bank is trying to promote this sector whole heartedly as the pioneer by keeping them
beside the government sector with its 103 branches throughout the country.

Table 8: SME schemes of Exim Bank

Product Features Mode of Investment Minimum Maximu Profit Rate Tenor

Name Investment m
Investme
nt
EXIM  Investment facilities for 1-3 years
Uddyog BMRE of existing  For fixed capital: Tk 2.00 lac. Tk 10.00
poultry/dairy/fisheries farm. Izara Bill Bia (IBB) lac.
 Disbursement of investment
single or multiple phases  For working
according to the nature & capital: Bai- #For
requirement of business. Muajjal (BIAM) / fixed/working/cap
 Facility of repayment through Bai-Murabaha ital rent/ profit rate
single or multiple installments will be simple and
according to the return of to be fixed by the
business. bank time to time.

 In case of working capital,

opportunity of renewal of the
limit on expiry. #Other charges

EXIM  Investment facilities for (for fixed

Abalmban operating and extending small investment)

and medium level business & - Risk fund to be

industries.  For fixed capital : As per As per fixed by the bank 1-3 years
 In case of working capital/ Izara Bil Bia (IBB) customers customer time to time

trading, opportunity of renewal requirement s - Supervision/

of the limit on expiry.  For working capital s requirem management fees

 Opportunity of enhanced : Bai- Muajjal ents

investment on the basis of (BAIM)/ Bai-
satisfactory business Murabaha
transaction and business
requirement.

Initiatives for promoting Women Entrepreneurs of the country:

27 | P a g e
EXIM bank has come forward to providing financial support to women entrepreneurs welcoming the
intensive financial inclusion program of the government under the guidance of Bangladesh Bank. The bank
has initiated a separate women entrepreneur development unit at its head office under the guidance of a
female Unit Head.
Statistics of new women Entrepreneur Investment during 2015:
Total Number of Number of Branch to Total Number of New Total Sanctiones
Branch make disbursement women Entrepreneurs Amount (tk in Lakh)
103 56 103 1392.90
SME Investment:

Total CMSME investment of EXIM

Statistics of yearwise CMSME bank, 2015
investment
548.39,
8482.59 8396.29 6.53%
9000 8.54,
8000 .10%
7000
5471.77
6000 Micro
4685.36
5000 4309.39 2440.89,
4000 3066 29.07% Cottage
2657 2904
3000 2440 2457 Small
5398.47,
2000 Medium
64.30%
1000
0
2011 2012 2013 2014 2015

N0. of Customers Amount Dusbursed

Figure 4: Year-wise CMSME investment of Exim Bank

Exim bank has extended its investment schemes to Micro and Cottage industry and had a considerable
invesment in those industries. From the left chart in the figures above, we can get the information about the
amount of investment disbursed in Cottage, Micro, Small and Medium Industries in last five years and the
number of custmores benefited from the investment from. It clearly visible that the amount of investment
increased double from the year 2011 to 2015 and an increased number of beneficiaries have added to the
investment schemes. The right chart shows the total as well as the percentage of investment that goes to
each of the industries in 2015. It is evident that the bank has major portion(64.30%) of its total CSME
investment portfolio in Medium industry. This is so because of the investment size the industy requires.
Small industry holds 29.07% of total CMSME portfoio. The bank has comparatively lower investment in
Micro and Cottage industry.
Table 9: Yearwise SME disbursement of EXIM Bank ltd.

28 | P a g e
 Year 2008 2009 2010 2011 2012 2013 2014 2015
SME 847 1356 1703.50 4309.39 4685.36 6471.77 8482.59 8396.29
outstanding
(In million)
% of total 2.6% 3.10% 1.8% 4.3% 4% 4.5% 4.8% 4.3%
investment
Growth in _ 60% 25.62% 152.43% 8.72% 38.12% 31.07% -1.01%
investment

YEAR WISE SME INVESTMENT

Amount Disbursed Linear (Amount Disbursed)

10000
9000
8000 8482.59 8396.29
7000
6000 6471.77
5000
4000 4685.36
4309.39
3000
2000
1000 1703.5
847 1356
0
2008 2009 2010 2011 2012 2013 2014 2015

Figure 5: SME investment in last 8 years Source: Annual report of Exim Bank Ltd.

The above table and chart shows the year-wise total SME disbursement of Exim Bank Ltd during the last
10 years. In first four years the bank had a very negligible investment in SME sector. And slowly the time
passes the bank had put emphasis on SME banking and eventually the bank invested a considerable amount
from 2013-2015. However, SME holds a very low portion of investment portfolio of Exim Bank. The
growth rate was well enough till 2014 but could not meet the industry requirements.

4.3. Social Islami Bank Ltd.

29 | P a g e
Like many other Commercial banks Social Islami Bank Limited (SIBL) has been successfully operating
Small and Medium Enterprise (SME) investment with a view to unlocking the potentials of the
umderpriviledged people.

SME is considered as one ofe the focus areas of operation in SIBL. Total investment portfolio of the bank
has been segregated into three major aspects e.g. Corporate, SME and Retail. Total investment portfolio of
the bank has been segregated into 3 major aspects e.g. Corporate, SME & Retail. SME operation of the
Bank is in progress in a structured manner. Three separate units including Approcal unit, MIS unit and
Monitoring & Recovery unit work for managing the SME portfolio and SME banking services.

In line with Bangladesh Bank’s guidelines, Women Entrepreneurship Development Unit (WEDU) has
recently been started functioning to deal with the affairs of women entrepreneurs. These Units have been
performing with specific Terms of Reference (TOR).SME division is also intending to start Islamic
Renance operations soon by forming another Unit titled, “Islamic Renance & Special Program Unit
(IRSPU)”.

SIBL offers both revolving and term investment facilities to the SME clients. Small entrepreneurs,
agricultural clients and women entrepreneurs are properly addressed by SIBL with the diversified products
designed for this purpose.

Products of SME

SIBL has an array of SME/Agri products- designed to satisfy the diversified financial needs of SME/Agri.
clients. The bank offer both Revolving & Term Investment facilities to the SME/Agri. clients. Small
Entrepreneurs, Agri. Clients and Women Entrepreneurs are properly addressed by the diversified products
designed for this purpose. Following six SME products are

PPG-1: Baim- SME (Revolving) PPG-2: HPSM- SME (Com.)

PPG-3: HPSM- SME (Transport.) PPG-4: Baim- ME (Micro-Enterprise)
PPG-5: Baim- SME (Installment) PPG-6: Murabaha- SME

Table 10: SME products of SIBL

Small Medium
SL No Features Enterprise Enterprise Profit Rate Tenor

30 | P a g e
 Product Investment Investmetnt
Name Amount Amount
PPG- Baim- SME Continuous Investment to Maximum Maximum 1 year
1 (Revolving) meet up working capital Tk 50.00 lac. Tk 5.00 crore.
requirement.
(Revolving basis)
PPG- HPSM- SME Term Investment to Maximum Maximum 2-5 years
2 (Com.) purchase fixed asset. Tk 50.00 lac. Tk 5.00 crore.
(Equal Monthly Installment-
EMI basis)
PPG- HPSM- SME Term Investment to Maximum Maximum 2-5 years
3 (Transport) purchase transport for Tk 50.00 lac. Tk 5.00 crore.
business purpose. Market based
(Equal Monthly Installment- and
EMI basis) Competitive
PPG- Baim- ME Term Investment to Maximum Maximum 3
4 (Micro- purchase raw Tk 5.00 lac. years
Enterprise) materials/goods. ------------
(Equal Monthly Installment-
EMI basis)
PPG- Bai- Muajjal Term Investment to meet up Maximum Maximum
5 Com working capital Tk 50.00 lac. Tk 5.00 crore.
Installment requirement.
(SME) (Equal Monthly Installment-
EMI basis)
PPG- Murabaha- Continuous Investment to Maximum Maximum 1 year
6 SME meet up working capital Tk 50.00 lac Tk 5.00 crore.
requirement.
(Revolving basis)

SME investment of SIBL:

SIBL has been achieving a continuous and upward growth in SME portfolio over the last several years. As
of 31st December 2015, SME portfolio holds 22% share of the investment portfolio of the Bank amounting
to Tk. 2,9198.70 million against Taka 21,399.80 million in 2014 whereas the outstanding balance in the
year 2006 was only 635 million. Such tremendous growth has been possible due to proper and timely
guidance of prudent members of the Board of Directors of SIBL and initiatives of the Management along
with team effort.
SME portfolio of the bank has been increasing significantly, which is shown in the following table and

31 | P a g e
Graph.
Table 11: Yearwise SME disbursement of SIBL

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SME 635 744.80 1102.4 1193.6 1703.50 4370.00 6868.80 7164.30 21399.80 29198.70
outstanding
(In million)
% of total 4.15% 4.53% 5.53% 4.49% 4.64% 8.10% 9.03% 8.34% 20% 21.77%
investment
Growth in _ 17.29% 48.01% 8.27% 42.72% 156.53% 57.18% 4.30% 198.70% 36.44%
investment

YEAR WISE SME INVESTMENT

SME outstanding Linear (SME outstanding)

35000
29198.7
30000

25000
21399.8
20000

15000

10000 6868.8 7164.3

4370
5000 1703.5
635 744.8 1102.4 1193.6
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-5000

-10000

Figure 6: SME investment in last 10 years Source: Annual report of SIBL

4.4. Al-Arafah Islami Bank Ltd.

Cottage, Micro, Small and Medium Enterprises (CMSME), works as the platform for job creation, income
generation, and development of forward and backward industrial linkages and fulfillment of local social

32 | P a g e
needs. In Bangladesh, the CMSMEs account for about 45% of manufacturing value addition. They account
for about 80% of industrial employment, about 90% of total industrial units and about 25% of total labour
force.
As CMSME has emerged as a thrust sector Al-Arafah bank considers it important to extend and enhance
and finance for the same. In the light of the definition by Bangladesh Bank, Al-Arafah Islami bank Ltd. is
giving a priority over CMSME financing to three categories of enterprises viz. Industry, Trade & Services.

Table 12: CMSME products of AIBL

Product Name Features Mode of Minimum Maximum Profit Rate Tenor

Investment Investment Investment

AL-ARAFA  Start-up  Bai 1-3 years

UDDOG Financing Muajjal Tk 50.00 Tk 5.00 lac.
 Collateral free  HPSM thousand.

AL-ARAFAH  Working
UTHSOB capital finance
 Religion based
festival Bai Muajjal Tk 50.00 Tk 5.00 lac. 4 months
oriented thousand.
products and
services
AL-ARAFAH  Group and
UNNAYAN Samity based  Bai Tk 5.00 Tk 50.00
investment Muajjal thousand. thousand. 50 week
scheme  HPSM
Stipulated
 Collateral free
by the Bank
AL-ARAFAH  Working
PUNJI capital finance  Bai Tk 50.00 2 years
 Collateral free Muajjal thousand. Tk 1.00 lac
 HPSM
AL-ARFAH  Agricultural
SONIRBHAR Products  Bai Tk 5.00 Tk 5.00 lac. 2 years
 Only for Muajjal thousand.
marginal  HPSM
farmers

33 | P a g e
 AL-ARAFA  Group and
KHAMERBARI Samity based Bai Muajjal Tk 50.00 Tk 1.00 lac.
Investment thousand. 1 year
Scheme
 Collateral free

SME investment
Table 13: Yearwise SME investment of AIBL.

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SME 7462 8450 9870 11360 12750 15886 24096 68913 86277 89184
outstanding
(In million)
% of total 42.80% 36.90% 35.60% 31.40% 23.80% 20.60% 22.60% 54.80% 58.80% 54.90%
investment
Growth in _ 13.24% 16.80% 15.09% 12.23% 24.59% 51.68% 185% 25.19% 3.69%
investment

YEAR WISE SME INVESTMENT

SME outstanding Linear (SME outstanding)

100000
86277 89184

80000
68913

60000

40000
24096
20000 15886
9870 11360 12750
7462 8450

0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-20000

Figure 7: SME investment of AIBL in last 10 years Source: Annual report of AIBL

AIBL has an outstanding contribution towards SME financing. SME holds the major portion of its
investment portfolio in SME during the last couple of years. Although the percentage of investment
declined during the year 2010 to 2012, the bank immediately extended SME investment in the following
years including more than half of its total investment in this sector. The growth rate of SME investment

34 | P a g e
was also outstanding. There was a 185% growth in SME financing in 2013 only that clearly reveals the
emphasis given on this sector by AIBL. SME holds almost 55% of total investment portfolio of AIBL in
2015.

4.5. Shahjalal Islami Bank Ltd.

Shahjalal Islami Bank Limited (SJIBL) has undertaken initiatives for investment in SME sector by
introducing a number of SME products in the market gradually with a view to patronizing the trade,
commerce and industrial entities with equity & justice and to make effective contribution for creating
employment opportunities, which will ultimately help the nation for poverty alleviation from the society.
Table 14: SME products of SJIBL

SME Banking
Produuct name Prottasha for Small Enterprises Prottasha for Women Entrepreneur
Target Group  Small sized Trading, Manufacturing  Small sized Trading,
and Service oriented business Manufacturing and Service
 Small Agro-based industries and non- oriented business
firm business  Small Agro-based industries and
non-firm business
Purpose  To meet Working Capital requirements  To meet Working Capital
of an existing business requirements of an existing
 To purchase fixed assets for an existing business
business except land and building  To purchase fixed assets for an
existing business except land and
building
Investment Ceiling Minimum Tk. 2.00 lac and maximum Tk. Minimum Tk. 2.00 lac and maximum
30.00 lac Tk. 15.00 lac
Tenor Minimum 12 months and maximum 36 Minimum 12 months and maximum 36
months months
Repayment By easy monthly installment By easy monthly installment
Profit Rate Most competitive in the market Most competitive in the market
Security  Personal guarantee  Personal guarantee
 Collateral security (case to case)  Collateral security (case to case)

Table 15: Yearwise SME disbursement of SJIBL

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total SME 3.30 368 4090 4996 7569 14019 14637 18232 20603
Portfolio

35 | P a g e
 % to total .02% 1.12% 9.30% 8.13% 9.39% 14.58% 17.08% 21.69% 21.28%
portfolio
Growth in _ 11021.51% 1011.41% 22.15% 51.50% 85.21% 4.40% 24.56% 12.89%
investment

YEAR WISE SME INVSTMENT

Total SME portfolio Linear (Total SME portfolio)

25000
20603
20000 18232

14019 14637
15000

10000
7569
4996
5000 4090

3.3 368
0
2007 2008 2009 2010 2011 2012 2013 2014 2015
-5000

Figure 8: SME investment of SJIBL in last 10 years Source: Annual report of SJIBL

Shahjalal Islami Bank has started its SME operation from 2007 and from the year 2009 the bank has been
disbursing a considerable portion of its total investment portfolio in SME financing. The growth rate of
SME investment is also remarkable. In the year 2014 and 2015 the investment portfolio of SJIBL disbursed
almost 22% of its investment portfolio in SME sector.

4.6. ICB Islami Bank Ltd.

ICBIBL has been focusing on SME business with the 33 branches across the country. The bank provides
following SME facilities to its customers:

36 | P a g e
Table 16 : SME products of ICBIBL

Product Name Target Sector Purpose Minimum Maximum Tenure

Investment Investment
Bai-Muajjal Manufacturing To purchase raw BDT 1 lac BDT 35 crore 1 year
(Hypo) and Trading materials and
stock
IAP-Investment Manufacturing, To purchase BDT 10 lac BDT 35 crore 1 year
against Property Service and Capital
(Term finance) Trading machineries,
Commercial space
and Inventories
Murabaha under Manufacturing To purchase raw BDT 1 lac BDT 50 crore 1 year
secured Guarantee and Trading materials and
(MUSG) stock
Ijhara Hire Manufacturing To purchase BDT 1 lac BDT 50 crore 10 years
purchase and Service Capital
machineries,
space and
Inventories
Criteria
Murabaha post Non funded facility
import finance Letter of Credit: Cash or Back to Back
(MPI) Sight L/C, Satructured L/C, Performance Guarantee, Advance Payment Guarantee

SME investment:

Table 17: Yearwise SME investment of ICBIBL

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total SME 650 250 77.01 79.80 162.75 400.38 376.69 388.54 465.29
Portfolio
% to total 4.20% 1.70% .06% .06% 1.10% 3.60% 3.80% 4.20% 5.10%
portfolio
Growth in _ -61.53% -69.19% 3.5% 103.94 146% 5.8% 3.14% 19.75%
investment %

37 | P a g e
 YEAR WISE SME INVESTMENT
700 650

600

500 465.29
400.38 388.54
400 376.69

300 250

200 162.75

100 77.01 79.8

0
2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 9: SME investment of ICBIBL in last 9 years Source: Annual report of ICBIBL

There has been a lot of ups and downs in SME investment of ICBIBL for last 9 years. It is difficult to
identify a distinct pattern of investment for the Bank. The started with quite a promising investment 650
million BDT in SME sector in 2007. But later on, the investment has gone down quickly to 77.01 million
BDT in just two years. Although the bank has been trying to focus on this sector in the following years the
investment has not been significant up to the year 2015.

During the 10 years the bank has been a losing concern and has not been able to make enough impact to
attract more depositors and investors. Thus its investment portfolio has decreased significantly that has
direct impact on SME investment.

38 | P a g e
Chapter 5: Analysis and Discussion

39 | P a g e
5.1. Ratio Analysis

Table 18: SME investment to Total Asset ratio:

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
IBBL .132 .118 .148 .178 .237 .279 .309 .359 .308 .319

SIBL .0032 .0030 .0036 .002 .031 .052 .059 .0566 .139 .106

AIBL .349 .279 .252 .234 .172 .148 .161 .397 .409 .389

SJIBL .00011 .008 .069 .063 .070 .105 .113 .143 .149
ICB .037 .012 .004 .004 .009 .026 .026 .027 .036
EXIM .019 .023 .015 .033 .028 .033 .036 .032

SME TO TOTAL ASSET RATIO

IBBL SIBL AIBL SJIBL ICB IBL EXIM

0.450

0.400

0.350

0.300

0.250

0.200

0.150

0.100

0.050

0.000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

SME investment to Total asset ratio means the portion of total asset in SME investment. The ratio provides
a picture of the portion of income generating assets invested in this particular sector.

The above chart shows that IBBL has been consistent in its SME investment till 2013 when the investment
has gone up to 35.90% of its total assets from 132.20% in 2006. In case of SIBL the ratio was very much

SME to Total Asset ratio than that of ICB Bank Ltd. As it started its SME banking in 2008, the ratio has
negligible till 2011 when the ratio had risen up to 5.20% from .32% in 2006.

40 | P a g e
From 2006 to 2011, AIBL has been lowering its investment in SME sector resulting a decrease in SME to
total asset ratio. The ratio was 34.90% in 2006 that was lowered to 14.80% in 2011. However the ratio has
been increased in the following year and reached up to 40.90% in 2014. And in 2015 the ratio has again
gone down to 38.90%

For SJIBL the ratio was very much low from the year in 2007 and 2008. Then it started to rise and the ratio
has grown up to 14.90% in 2015. The case of ICB is totally different from that of SJIBL. ICB Bank has
never focused too much to SME sector. So, the ratio remained low from 2007 to 2015.

EXIM bank has a comparatively better been found from that year. Starting from 1.09% of total asset the
Bank has increased the ratio to 3.2% from the year 2008 to 2015, although there was ups and downs of the
ratio between these years.

Table 19: SME investment to Total investment ratio:

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
IBBL .174 .157 .189 .230 .298 .355 .400 .430 .433 .437
SIBL .0041 .0045 .0055 .0044 .0042 .0016 .085 .083 .198 .143
AIBL .428 .368 .355 .314 .237 .205 .225 .548 .587 .549
SJIBL .00016 .011 .093 .081 .093 .145 .170 .216 .212
ICB .042 .016 .005 .005 .011 .036 .038 .042 .050
EXIM .025 .030 .018 .043 .039 .044 .047 .042

SME TO TOTAL INVESTMENT RATIO

IBBL SIBL AIBL SJIBL ICB IBL EXIM

0.700

0.600

0.500

0.400

0.300

0.200

0.100

0.000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

41 | P a g e
SME investment to Total investment ratio means that how much SME investment is financed by total
investment. Here, investments in shares and securities are excluded in order to do more accurate analysis.
It is visible from the table that IBBL has a considerable percentage of investment portfolio in SME sector.
The bank has maintained consistency in its investment to the SME financing. Although the ratio has gone
down from 17.40% to 15.70% in 2007, the ratio has gone up continuously afterwards. And from the year
2011, the bank has been investing a major portion of its portfolio in SME investment. By the year 2015, the
ratio has gone up to 43.70%.

In case of SIBL the ratio is very much negligible. The Bank has not been that much concerned in SME
investment before the year 2014 when 19.80% of total investment consists of SME investment. But the
ratio has gone down in the very next year to 14.30%.

In comparison to other islami banks, AIBL has higher investment in SME sector in 2006 with the
disbursement of 43.80% of total investment to SME’s. But latter on the investment has been decreasing
gradually until the year of 2011 and the ratio had gone down to 20.50% in that year. The investment has
gone up again in 2012 and the ratio had increased dramatically in 2013 doubling the ratio from 22.50% to
54.80 %. Till 2015 the bank disbursed more than half of its total investment portfolio to the SME sector.

In the year 2007, when commencing its SME financing schemes, SJIBL had a very little portion of its
investment in SME sector. Although the investment was not up to the mark in the latter years, the bank has
increased its SME investment to a considerable percentage (21.20%) of total investment in 2015.

ICB has been maintaining a consistent rate of investment in SME sector although the rate very poor
comparatively some other islami banks. The ratio has been around 4-5% for the last nine years.

There is not much difference regarding the SME disbursement ratio between ICB and EXIM Bank. Starting
from 2.5% of its total investment the bank’s SME consists 4.2% of total investment portfolio in 2015.

Table 20: SME investment to Total deposit ratio:

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
IBBL .149 .136 .168 .202 .268 .314 .357 .367 .359 .377
SIBL .0039 .0037 .00045 .0037 .0035 .0013 .069 .070 .171 .128
AIBL .37 .300 .332 .296 .235 .192 .203 .488 .517 .534
SJIBL .00014 .010 .086 .079 .090 .137 .151 .184 .188
ICB .037 .019 .0059 .0058 .012 .032 .031 .032 .041
EXIM .024 .028 .017 .040 .033 .039 .042 .037

42 | P a g e
 SME TO TOTAL DEPOSIT RATIO
IBBL SIBL AIBL SJIBL ICB EXIM

0.600

0.500

0.400

0.300

0.200

0.100

0.000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

SME investment to total deposit ratio means that out of total deposit how much SME investment is
provided. It explains the use of deposited money in SME finance other than funds coming from many other
sources.

IBBL didn’t have to use much of the amount of the deposit for finaning SME project in the past. Only
14.90% of its deposit was used for SME investment in 2006. In 2007 the ratio decreased to 13.60%. Then
the following years IBBL started to depend more on deposit to finnance SME schemes as SME had a major
contribution in investment portfolio of IBBL. WIth a continious increase in the use of SME financing for
SME financing the ratio has increased to 37.75% in 2015.

SIBL didn’t have to that much fund from the deposit to finance SME schemes till 2011. From 2012 the
bank started to use more deposited fund for SME investment. The SME investment to total deposit ratio
was higher in 2014 when the ratio increased to 17.10%. In 2015 the ratio has again come down to 12.80%.

For AIBL the scenario is different. There are a lot of ups and downs of the ratio throughout the last 10
years. In 2006 the bank used a major portion of its deposit for SME investment. Gradually the ratio came
down to 19.20% in 2012. Then understanding the demand of the sector and directions of Bangladesh Bank
the bank increased its use of deposit funds to SME investment. The ratio now has gone up to 53.40% in
2015. In 2007, SJIBL had a little investment in SME. So the bank didn’t have to use a considerable portion
of deposit funds to finance SME .The ratio was very much low in 2007 and 2008. Then the use of deposit
fund to invest in SME has increased and the ratio has gone up to 18.80% in 2015.

43 | P a g e
SME investment of ICB bank has never been up to the mark during the last 10 years. So, the use of deposit
in SME financing was negligible in these years. Like ICB islami bank, EXIM bank also used a very
insignificant portion of deposit to finance SME schemes. The bank had used 2.4% of its deposit for SME
investment in 2008 where the ratio has increased up to just 3.7% in 2015.

5.2. Regression Analysis:

The primary objective of regression analysis is to find out the relationship among independent and
dependent variables (Lind and Marchal et al., 2011). As, we’re going to analyze the relationship between
the profitability of banking industry and prevailing SME banking practice, our independent variables are
SME Investment and Other Investments. And the dependent variable is Profit after Tax. It should be noted
here, we’ve used the information of 5 banks for each of the variables. The input data table is provided in
the previous section.

Fundamental analysis for all models:

Each regression model will contain 4 tables:

Table 1: Variables Entered

Table 2: Model Summary

Table 3: ANOVA Table

Table 4: Coefficients Table

Here is a brief description of each table components:

Table 1: Variable Entered

44 | P a g e
This table includes the name of independent variables

Table 2: Model Summary

This table contains these components:

R: R defines the relationship between the dependent variable and the independent variables.

R Square: The term R square is the multiple coefficient of determination interpreted as the proportion of
variability in the dependent variable that can be explained by the estimated multiple regression equation.
Adj-R Square: Adjusted R square indicates the real multiple coefficient of determination interpreted as the
proportion of variability in the dependent variable that can be explained by the estimated multiple regression
equation if one more independent variable is added.

Std. Error of the Estimate: It expresses the total amount of error or variability in the dependent variable
that cannot be explained by the liner effect of the two independent variables in the multiple regression
equation.

Table 3: ANOVA table

ANOVA table shows total variation (SST) which includes the variation can be explained by regression
model (SSR) and the variation can’t be explained due to sampling error (SSE). Moreover, this table contains
F value and Degree of Freedom (DF) which will be needed in F test as test statistics.

Coefficients Table

This table provides the coefficients for regression equation. Moreover, test statistics for t test is provided in
this table (T value).

Regression Model

Dependent variable: Profit after tax

Independent variable: SME investment and Other Investments.

Analysis

Regression Equation Analysis:

Regression Model Unstandardized Coefficients

B Std. Error

45 | P a g e
 Constant 515.743 167.119
SME investment .005 .003
Other_invest ment .012 .002

The regression equation here:

Profit after tax = 515.743 + .005 SME investment + .012 Other Investments

From the above equation, it is found that

 515.743 is constant – the value of dependent variable (Profit after tax) without the presence of any
independent variable. Here, the positive figure states that Profit after tax will remain to that amount
without the contribution of independent variables. The underlying reason of this amount is that the
profit after tax doesn’t rely on only these two independent variables; rather there are a lot of
different variables that affect/contribute to profit after tax.
 Independent Variables – Both SME investment and Other investments have positive directional
effect on Dependent variable. e.g. One unit change in SME investment (increase) will create .005
unit on average change (Increase) in Profit after tax to the same direction. In case of Other
investments, one unit change on Other investments (Increase) will create .012 change (Increase) in
Profit after tax to the same direction.

Model summary and ANOVA table analysis:

Model Summary
Mo R R Adjusted R Std. Error Change Statistics
del Square Square of the R Square F df1 df2 Sig. F
Estimate Change Change Change
a
1 .868 .754 .743 649.02952 .754 67.521 2 44 .000
a. Predictors: (Constant), Other_investments, SME_investment

ANOVAb
Model Sum of Squares df Mean Square F Sig.
1 Regression 5.689E7 2 2.844E7 67.521 .000a
Residual 1.853E7 44 421239.316
Total 7.542E7 46

46 | P a g e
 a. Predictors: (Constant), Other_investment, SME_investment
b. Dependent Variable: Profit_after_tax

 Here, R= .868 shows significant level of positive relationship between dependent and independent
variables.
 R square = .754 means that 75.40% of changes in dependent variable can be explained by
independent variables. This moderate percentage may cause due to the small number of
independent variables (only two).
 Adjusted R Square = .743 means that the inclusion of one more independent variable will cause
74.30% explanation of the dependent variable on the basis of independent variables.
 Standard error of estimate =649.02952 means that this portion of dependent variable can’t be
explained by independent variables.
 In ANOVA table, SST = 7.542E7 is the total variation on which SSR = 5.689E7 can be explained
and the rest SSE= 1.853E7 is due to sampling error.

Global test (F - Test)

In order to test whether a significant relationship exists between the dependent variable and the set of all
independent variables here now F-test will be conducted.
 Null hypothesis: H0: B1 = B2 = B3 = 0
Alternate hypothesis: Not all betas are zero
 Level of significance is 5% here.
 Test Statistics is 67.521 (according to ANOVA table)
 Critical value = 4.016. [using the F distribution table and 5% significant level]
 Decision rule: H0 is to be rejected if test statistic is > 4.016
 Decision: H0 is rejected as test statistic is > 4.016. So all of the betas are not zero.
Result: So, it is proved that Independent variables all together CAN define/explain the dependent
variable.

T – test
Now we will evaluate the individual beta to test their significance on the dependent variable using t-test.
 For variables SME investment and Other Investments, null hypothesis, H0: Bn = 0
Alternate Hypothesis, H1: Bn ≠ 0 (n= 1, 2, 3)
 Level of significance is 5%
 Test statistics: t1 = 1.926, t2=5.561 (From the coefficients table)

47 | P a g e
  Critical value = +/- 4.302 (according to the two tailed, 5% T-distribution value)
 Decision rule: H0 is to be rejected if test statistics is > + 4.302 or < - 4.302

Decision: According to the decision rule H0: B2 (Total Asset) = 0 and H0: B3 (Investment) = 0. Null
hypothesis for the other variable (Green Banking Disbursements) will be rejected. So, SME Investment
doesn’t have significant influence on Dependent variable (Profit after Tax). Other independent variable
(Other investments) has significant positive influence on Dependent variable (Profit after Tax).

48 | P a g e
 Chapter 6: Findings and Inferences

6.1. Findings and Inferences:

SME financing has been emerged as an urge to accelerate economic growth of a country. This paper has
been very mcuh focused on identifying the quantitative and qualitative issues of SME financing by
Commercial Banks in Bangladesh particularly by Islamic Banks.
The research from this paper shows that although there are huge potentialities of SME Banking in SME
sector, SME activities are not so emphasized in Islamic Banks and most of them are not that much
encouraged to invest in SME sector. It has been found that risk management complexity, borrower selection

49 | P a g e
problem, low recovery rate, lack of collateral, lack of information and documentations etc. are the
demotivating factors for these banks to invest in this particular sector. Moreover, most of the Entrepreneurs
are found to have no training in terms of preparing a sound business plan for taking credits. Under the
circumstances, the risk of running business increases and Banks cannot provide funds to them.

Interest rate is also higher in SME Banking as the handling of SME financing is an expensive business. The
cost of appraising a loan application—or of conducting a due diligence exercise in view of a possible equity
investment—is largely independent from the size of the financing under consideration. High interest rate is
another cause of less SME lending.

However, most of the Islamic Banks have not focused on the target SME disbursement set by Bangladesh
except Islami Bank Bangladesh Ltd and Al Arafa Islami Bank Ltd. They have been found to invest in SME
sector in their convenient way. Some of those banks require high collateral and long and tedious paperwork
for loan processing for different SME products and services. Although the target SME disbursement has
been found shocking for most of the Banks, IBBL has the largest share in SME lending in Bangladesh. It
reveals that SME lending can be a promising investment for other Islami banks also.

From categorical perspective it is found that Small, Cottage and Micro industries have lesser access to SME
financing than that of Medium Industries. The reason behind this can be identified as most of the SME
services are being provided in the City areas where Medium industries are mostly found. The issues of
collateral, lack of personal guarantee and documents like previous cash flow statements and other financial
reports have been bringing constraints for financing in Small, Cottage and Micro industries.

Moreover, Institutional limitations, such as an underdeveloped and inefficient legal and regulatory
framework pose significant barriers to effective financing. Banks face a number of issues in lending to
SMEs, the most pronounced being information asymmetry and granularity, the level of detail available on
which to base business decisions. Banks do not have the requisite information and systems in place to
quantify risk and differentiate between SMEs. This has resulted in tightened credit terms and in the
inefficient allocation of resources. Another factor is the issue of moral hazard, wherein SMEs are perceived
to take higher risks than larger companies with funds borrowed from banks. All these factors are responsible
for the decreased SME lending.

Despite having key risk factors and lending constraints most of the Islami Banks are finding SME as a
promising investment as the SME has growing fast in our country with a major contribution in the economy
and have started extending loans to this sector. Recently, most of the Banks have brought different SME
schemes and services for providing all sorts of financing support to the Entrepreneurs. Some of which are
totally collateral free and require less security and personal guarantee. Most of the Islamic banks have been

50 | P a g e
developing strategic plan for creating SME investment portfolio and targeting different SME
sectors/goods/Items and groups of people including jobless people, small traders, women entrepreneurs etc.
For managing SME investment more efficiently some of the banks are following different approaches like
cluster based financing and providing necessary supports to use the fund efficiently.

Nowadays, women have more access to SME lending as most of the banks are providing convenient SME
services to the women entrepreneurs as per guidance of Bangladesh Bank and as such promoting women
entrepreneurship in Bangladesh.

From Regression analysis it is found that there is a positive relation between the SME lending and
profitability of Banks. So, the inference about SME lending that SME lending will reduce profitability is
not right given the SME banking practice ensures accountability, efficiency and risk minimization. This has
just happened as because Islamic Banks have been able to strengthen the monitoring system of SME
investment, creating separate units and taking strategies for SME lending as per guidance of Bangladesh
Bank.

Considering the other factors SME lending can have a significant impact on Loan/Investment portfolio of
a Bank as SME has been identified as a thrust sector for the economic growth of Bangladesh. SME
development and improved mechanism for SME lending like financing based on Cluster method would
certainly ensure greater volume of outstanding SME lending and investment recovery management for
Islamic Banks.

51 | P a g e
 Chapter 7: Conclusion and Recommendations

7.1. Conclusion

The SME sector in Bangladesh has been creating enormous opportunities to contribute to economic growth,
generate employment and reduce poverty. In order to get the best output from this sector the expansion of
this sector is a must. For that purpose this sector has to be brought under smooth financing facilities. But in
our country the sector has a very limited access to finance through the institutional sources. Although some
NGOs and Micro credit institutions are contributing to this sector to some extent most of the Banks in
Bangladesh are showing negligence in this sector. For boosting the development of the SME sector,
Banking institutions are needed along with financing mechanisms to provide access to appropriate finance

52 | P a g e
and meet up the diversified needs of financial services of this potential sector. Banks should come forward
to lending the SME with fewer formalities.

Now, SME financing is explored as a potential sector of investment in banking industry. To keep pace with
recent changes the bank needs to develop different products for SME financing and analyze the performance
of SME financing on regular basis.

Conventional banks provided most of the SME loans to the entrepreneur. But in recent time Islamic banks
are investing SME sectors to develop the economy in halal way. SME investment is mainly concentrated
in Dhaka division, but out Dhaka there are many potential areas where raw materials for Small and Medium
Enterprise are easily available to set up SME organization. Moreover, in recent time banking industry is
focusing on SME financing as a profitable business segment. Thus Bangladesh is expected to flourish
thorough these SME enterprises in the near future.

7.2. Recommendations

The problems associated smooth SME lending not only for Islami Banks but also for all the Commercial
Banks operating in Bangladesh can be addressed through following ways:

 As an alternative to collateral based financing, loan should be provided to potential SMEs based
on previous years cash flow statements (i.e., like project financing)
 Venture capital formation for SME financing should be highly encouraged through enforcement of
proper rules and regulations by the Stock Exchange Commission (SEC) and other key players
including the Bangladesh Bank and private support organizations

53 | P a g e
  Forming bank syndication between micro finance institutions and commercial banks for SMEs
financing. Micro finance institutions should provide recommendation and credit history to
commercial banks for SME development
 Government should provide Human Resource development and training program for financial
institution employees and related government officials to smooth out the SMEs financing process
 Relevant associations of Chamber of Commerce and Industries should take the leadership role in
promoting SMEs training and development
 Many more SME branches should be opened particularly in the rural area
 Interest rate should be reasonable
 Real Entrepreneurs ahould be identified in order to increase recovery rate
 Declaration of area base SME cluster, SME sector for information of Bankers and entrepreneurs
 The government should also come up with pragmatic policies and take appropriate measures to
support and patronize SME financing as a thrust sector with more incentive package.

References
 Islam, S. (2016). BB sets SME loan disbursement target at Tk 1.13t for 2016. The Financial
Express Online Version. Retrieved 17 August 2016, from http://www.thefinancialexpress-
bd.com/2016/02/05/14048
 Ahmed, M.U. (1999). The Small and Medium Enterprises (SME) in Bangladesh: An Overview of
the Current Status. [Working Paper]. State University of Bangladesh, Dhaka, 4.
 Chowdhury, M. S. A., Azam, M. K. G., & Islam, S. (2015). Problems and Prospects of SME
Financing in Bangladesh. Asian Business Review, 2(2), 51-58.

54 | P a g e
 Duarte N., 2004, The role of SMEs for development: a literature review, Paper submitted to
ERSA 2004 Congress: "Regions and Fiscal Federalism"
 Schumpeter, J.A. (1934), The Theory of Economic Development, Harvard UP.
 Ahmed, M. U. (1999). "Small and Cottage Industries Development Policies in Bangladesh: An
Analysis of Effectiveness in the Context of Industrial Policy-1991." Bank Parikrama, Volume
XXIV, No 1
 Islam, M.A., Mian, E., & Ali, M.H. (2008). Determinants of Business Success of Small and
Medium Enterprises (SMEs) in Bangladesh. Business Review, 4(2), 45-57.
 Ahmed, K., & Chowdhury, T.A. (2009). Performance Evaluation of SMEs of Bangladesh.
International Journal of Business and Management, 4(7), 126-133.
 Chowdhury, M. S. (2007b). Overcoming entrepreneurship development constraints: the case of
Bangladesh. Journal of Enterprising Communities: People and Places in the Global Economy,
1(3), 240-251.
 Islam, A., Khan, M. A., Obaidullah, A. Z. M., & Alam, M. S. (2011). Effect of Entrepreneur and
Firm Characteristics on the Business Success of Small and Medium Enterprises (SMEs) in
Bangladesh. International Journal of Business & Management, 6(3), 289-299.
 Miah, M.A. (2006). Key Success Factors for National SME Development Program; Lessons for
OIC Member Countries from Bangladesh Experience. SME Foundation, Dhaka, Bangladesh.
 Ahmed, K. and Chowdhury, T.A. (2009). “Performance Evaluation of SMEs of Bangladesh”.
International Journal of Business Management, Vol. 4, No. 7.
 Ahmed, M.U. (2008). “Report of the PRSP-2 Thematic Study on Small and Medium Enterprise
Development in Bangladesh”, Final Report, March.
 Ahmed, M U. (1999). “Financing Small-scale and cottage Industries in Bangladesh”. Journal of
Finance and Banking, Vol. 5, No. 1 and 2.
 Ahmed, Q. M. (1999). “Selected Issues in Small and Cottage Industries Sector: Bangladesh and
Some Asian Countries’ Context”. Bank Parikrama, Vol. XVIII, No. 3 and 4.
 Bahar, H., Uddin, M.J., (2007). “Financing Small and Medium Enterprises in Bangladesh”.
Proshkhyan, Vol.15, No.1, January-June, Dhaka.
 Bangladesh Bank (2008). “A Note on the Contribution of Small and Medium Enterprises to GDP
in Bangladesh”, Policy Paper 0806, Policy Analysis Unit, Bangladesh Bank.
 Bangladesh Bank (2007). “Institutional Lending and Financing Policy for SMEs in Bangladesh”,
Policy Note Series PN 0804, Policy Analysis Unit, Bangladesh Bank.

55 | P a g e
  Bangladesh Bank (2004). “Prudential Regulations for Small Enterprises Financing”, Bangladesh
Bank, 1st Edition.

Appendices
A. Calculation of Ratios:

Columns A B C D E F G
Name of Year SME Total Ratio Total Ratio Total Ratio
Banks Investment Assets (A/B) Deposit (A/D) Investment (A/F)
IBBL 2006 19831 150252 0.132 132419 0.150 113575 0.175
2007 22614 191362 0.118 166325 0.136 144920 0.156
2008 34154 230879 0.148 202115 0.169 180053 0.190
2009 49537 278302 0.178 244292 0.203 214615 0.231

56 | P a g e
 2010 78456 330785 0.237 291937 0.269 263225 0.298
2011 108670 389375 0.279 345811 0.314 305840 0.355
2012 149214 482649 0.309 417845 0.357 372920 0.400
2013 173660 482664 0.360 472121 0.368 403194 0.431
2014 201127 651579 0.309 559713 0.359 463475 0.434
2015 232080 725768 0.320 614877 0.377 530194 0.438
EXIM 2008 847 44110 0.019 34280 0.025 32919 0.026
2009 1356 58921 0.023 47459 0.029 43958 0.031
2010 1703.5 113047 0.015 94855 0.018 93296 0.018
2011 4309.39 129709 0.033 107515 0.040 99699 0.043
2012 4685.36 166997 0.028 140025 0.033 118219 0.040
2013 6471.77 195542 0.033 165391 0.039 143847 0.045
2014 8482.59 232833 0.036 200009 0.042 177936 0.048
2015 8396.29 265148 0.032 224770 0.037 196311 0.043
SIBL 2006 635 19691 0.0322 16170 0.0393 15312 0.0415
2007 744.8 24546 0.0303 19753 0.0377 16440 0.0453
2008 1102.4 29808 0.0370 24099 0.0457 19951 0.0553
2009 1193.6 39980 0.0299 31588 0.0378 26580 0.0449
2010 1703.5 55168 0.0309 44850 0.0380 36680 0.0464
2011 4370 84406 0.0518 66852 0.0654 53908 0.0811
2012 6868.8 115165 0.0596 93594 0.0734 76024 0.0904
2013 7164.3 126616 0.0566 102104 0.0702 85922 0.0834
2014 21399.8 153585 0.1393 124535 0.1718 107899 0.1983
2015 29198.7 180008 0.1622 149773 0.1950 134116 0.2177
AAIBL 2006 7462 21368 0.349 19677 0.379 17423 0.428
2007 8450 30182 0.280 28144 0.300 22906 0.369
2008 9870 39158 0.252 29690 0.332 27742 0.356
2009 11360 48515 0.234 38355 0.296 36134 0.314
2010 12750 74005 0.172 54093 0.236 53582 0.238
2011 15886 106768 0.149 82447 0.193 77174 0.206
2012 24096 149320 0.161 118683 0.203 106650 0.226
2013 68913 173161 0.398 140980 0.489 125715 0.548
2014 86277 210439 0.410 166851 0.517 146740 0.588
2015 89184 229106 0.389 166897 0.534 162503 0.549
SJIBL 2007 3.3 28346 0.0001 22618 0.0001 20617 0.0002
2008 368 45216 0.0081 34280 0.0107 32919 0.0112
2009 4090 58920 0.0694 47459 0.0862 43958 0.0930
2010 4996 78800 0.0634 62965 0.0793 61440 0.0813
2011 7569 107229 0.0706 83350 0.0908 80592 0.0939
2012 14019 132823 0.1055 102177 0.1372 96185 0.1458

57 | P a g e
 2013 14637 128554 0.1139 96481 0.1517 85707 0.1708
2014 18232 126758 0.1438 98601 0.1849 84062 0.2169
2015 20603 137870 0.1494 109259 0.1886 96835 0.2128
ICB 2007 650 17484 0.037 17201 0.038 15320 0.042
2008 250 19744 0.013 13014 0.019 14756 0.017
2009 77.01 19000 0.004 13046 0.006 13419 0.006
2010 79.8 18641 0.004 13594 0.006 13904 0.006
2011 162.75 18015 0.009 12619 0.013 14222 0.011
2012 400.38 15118 0.026 12381 0.032 11009 0.036
2013 376.69 14302 0.026 11970 0.031 9788 0.038
2014 388.54 14022 0.028 12015 0.032 9230 0.042
2015 465.29 12752 0.036 11107 0.042 9188 0.051

B. Important Sectors of SME

Serial Serial
Name of Sectors Name of Sectors
No. No.
1 Agro-based and agro-processing industry; 33 Electronics;
Agro-based activities such as fishing, fish
2 34 Artificial flower making;
preservation and marketing;
3 Agro-tools making and marketing; 35 Optical frame manufacturing;
4 Fishing boat building; 36 Silkworm and silk industry;
5 Nakshi Kanta and handloom; 37 Stuffed toys;
6 Food seed preservation and marketing; 38 Ice mill;
7 Bakery; 39 Iodized salt production;
Flattened and fried rice production
8 Hatchery; 40
by machine;
9 Dry fish processing; 41 Rice mill/Auto rice mill;

10 IT-based activities; 42 Wholesale and retail shop;

11 Computer software and ICT goods; 43 Drug house/Pharmacy;
12 Cyber cafe; 44 Phone-Fax;
Entertainment such as, documentary film,
13 45 Local transport;
cinema and DVD production;

58 | P a g e
 14 Forestry and furniture; 46 Cinema hall;
15 Horticulture, floriculture & flower 47 Chatal business;
marketing;
16 Cold storage; 48 Trading;

Construction business such as,

17 49 Old Iron goods;
construction industry and housing;

Mobile set and accessories

18 Hospital and clinic; 50
business;
19 Hotel, restaurant and tourism; 51 Electronics business;
20 Telecommunication; 52 Various small business;

21 Mobile phone accessories, 53 Agro machinery/tools business;

22 Printing and packaging; 54 Fertilizer business;
Renewable energy such as, solar power,
23 55 Jute trading;
windmill;
24 Light engineering industry; 56 Clothing and shoe business;
25 Plastic industry; 57 Rod and cement trading;

26 Cosmetics and toiletries; 58 Hardware business;

27 Handicrafts; 59 Crockery business;
28 Herbal medicine industry; 60 Grocery and chaff goods business;
29 Jute goods and jute mixed goods; 61 LP gas businesses;
30 Stationery goods industry; 62 Warehouse and container service;
31 Frozen food; 63 Commercial plantation;
32 Leather and leather products; 64 Photography;

Serial Serial
Name of Sectors Name of Sectors
No. No.
65 Transport and communication; 99 Oil and pulse mill;
66 Laboratory; 100 GI pipe producing industry;
67 Jewellery; 101 Manufacturing of cement pillar;
68 Ginning and baling; 102 Mini sugar mill;

59 | P a g e
 Knowledge society with high quality merit
69 103 Molasses production;
and efficiency;
70 Tailoring; 104 Catechu production;
71 Saloon and beauty parlour, gymnasium; 105 Hosiery;
72 Community centre; 106 Welding industry;

73 Call centre; 107 Bronze & brass industry;

74 Diagnostic centre; 108 Partex industry;
75 Digital color lab; 109 Biogas plant;
76 Cable operators; 110 Production of juvelile fish (Reno
pona);
Electricity distribution produced by Seed production through tissue
77 111
generator; culture;
78 Small amusement park; 112 Sand & stone business;
79 Bamboo and cane goods production; 113 Wood & steel goods business;
80 Boutiques; 114 Paddy-rice business;
81 Mushroom; 115 Marketing of khadi goods;
82 Computer training school; 116 Nakshi Kanta and handloom;
83 Interior and exterior decoration; 117 Cane matt (Shital pati);
84 Light engineering workshop; 118 Nursery;
85 IPS production; 119 Sweetmeat production;
Tribal handloom and specialized handloom Fish cultivation (shrimp, telapia,
86 120
(Komor tant); pangas);
87 Saw mill; 121 Battery manufacturing;

Boat industry such as, passenger carrying

88 122 Railway slipper manufacturing;
small boat building;
Environment friendly transport
89 (batteryoperated) such as, easy bike 123 Sanitary goods manufacturing;
(Jessore);
90 Dairy and fish feed production; 124 Production of lime from oyster;

91 Brick field; 125 Pottery;

60 | P a g e
92 Khadi industry; 126 Tea industry;
Fruit processing industry such as,
93 Agor and candle light production; 127
mango juice, lichi, lotcon etc;
94 Spice grinding; 128 Charcoal production;
95 Biscuit factory; 129 Storage for potato seeds;

Semai, lachha & chanachur

96 Exportable soiled tali production; 130
production;
97 Food processing; 131 Potato tissue culture;
98 Bus/Trauck body building; 132 Solar electricity plant.

61 | P a g e
 C. Bank categorywise quarterly SME loan Statement As on 31.12.2015

From
Outstanding as on
Disbursement Disbursement without January Rural
Name end of the Quarter
Target Current Quarter (as per CL)
Collateral to Disbursement
of the Category Sub-Sector December
of 2015
Bank
Number Amount Total CMSME Number Amount Outstanding Recovery Number Amount
Loans

Total Service 1434.87 2400 484.98 2,215.25 2355 182.16 147.42 1537.00 2601 339.71
of
Small Trade 11662.80 34066 5195.68 24,460.67 59525 4526.56 4113.22 13110.38 50143 4672.08
Private
Banks Manufacturing 6133.70 4519 1065.02 4,635.94 5719 625.26 416.77 2929.07 4922 795.49

Service 6523.01 1110 806.18 4,392.04 186 197.01 253.99 2901.59 465 233.84

Medium Trade 9723.00 4863 3784.10 13,615.11 1903 1623.57 875.76 8193.71 2706 1197.45

Manufacturing 7608.49 3442 2366.51 8,975.23 1823 1058.05 547.23 5643.15 1337 1149.87

Service 309.88 327 42.57 315.70 333 54.38 21.56 172.51 219 13.18

Woman Trade 1029.93 1225 169.58 945.77 1539 191.45 139.11 467.86 1079 152.77

Manufacturing 717.97 565 135.15 285.20 428 45.12 27.01 754.44 149 18.54

Cottage Man 595.11 67 6.94 92.36 117 3.79 6.86 49.31 61 4.30

Woman 38.91 25 1.05 18.46 174 4.03 4.60 30.08 34 0.61

Micro Man 1893.62 4752 665.20 3,460.82 5802 386.90 453.65 1399.64 6188 781.69

Woman 146.89 1190 117.66 178.96 778 56.16 65.19 97.74 461 49.54

Small Man 18235.62 40208 6590.11 30,672.55 66306 5173.52 4592.75 17123.06 56773 5708.06

Woman 995.75 777 155.57 639.32 1293 160.46 88.33 453.40 893 99.23

Medium Man 22978.27 9290 6883.77 26,272.46 3857 2808.33 1647.42 15924.86 4449 2546.05

Woman 876.23 125 73.01 709.91 55 70.30 29.56 813.59 59 35.11

Total CMSME Man 43702.62 54317 14146.01 60,498.19 76081 8372.55 6700.68 34496.87 67471 9040.10
(Financial
Woman 2057.78 2117 347.29 1,546.66 2300 290.95 187.67 1394.81 1447 184.49
Sector)

62 | P a g e
 Grand Total of 45760.40 56434 14493.31 294853.28 62,044.85 78382 8663.50 6888.35 35891.67 68918 9224.59
CMSME

Cottage es 634.02 92 7.99 110.82 291 7.82 11.45 79.39 95 4.91

Enterpris

% of Cottage to 1.39% 0.16% 0.06% 0.18% 0.37% 0.09% 0.17% 0.22% 0.14% 0.05 %
CMSME

Micro Enterprise s 2040.51 5942 782.86 3,639.79 6580 443.06 518.84 1497.37 6649 831.23

% of Micro to 4.46% 10.53% 5.40% 5.87% 8.39% 5.11% 7.53% 4.17% 9.65% 9.01 %
CMSME

Small Enterprise 19231.37 40985 6745.68 31,311.87 67599 5333.98 4681.08 17576.46 57666 5807.29

% of Small to 42.03% 72.62% 46.54% 50.47% 86.24% 61.57% 67.96% 48.97% 83.67% 62.95 %
CMSME

Service 2881.30 4952 1953.79 6,333.50 1619 249.81 114.91 6307.60 5725 1438.38

CMSME Trade 12504.75 57210 8614.44 29,540.44 23442 1534.86 1007.42 36361.54 69742 11090.52

Manufacturing 25357.39 4195 3784.78 13,509.75 37589 687.86 198.60 15529.83 162482 2055.21

Service 1737.00 9 0.16 0.76 25 0.21 0.14 80.22 59 22.07

Cottage Trade 0.00 103 25.33 3,755.26 84 2.04 3.52 323.82 237 23.85

Manufacturing 298.44 637 575.48 1,575.42 36869 565.90 153.19 2134.95 158413 701.09

Service 0.80 1838 408.89 1,124.27 1026 137.48 57.89 1426.73 2228 339.73
Total
of Micro Trade 4846.25 25496 1555.84 3,620.56 16117 792.58 593.71 6006.00 25393 2004.64

Islamic Manufacturing 2.45 696 140.87 424.83 162 11.45 10.03 364.91 987 115.14
Banks
Service 532.50 2198 352.06 1,141.56 495 48.80 15.87 1173.05 2788 423.58

Small Trade 2662.50 26600 2919.73 8,287.14 6642 443.78 268.64 14006.06 38570 4814.71

Manufacturing 10566.50 1941 1416.18 4,374.66 516 68.50 19.38 3922.49 2672 729.14

Service 611.00 907 1192.67 4,066.91 73 63.32 41.00 3627.59 650 653.00

Medium Trade 4996.00 5011 4113.54 13,877.49 599 296.46 141.55 16025.66 5542 4247.33

Manufacturing 14490.00 921 1652.25 7,134.84 42 42.01 16.00 9107.49 410 509.84

Woman Service 26.20 128 78.55 233.59 88 2.25 2.83 115.77 181 18.18

63 | P a g e
 Trade 489.25 1507 682.07 1,463.76 447 22.19 16.60 1029.26 1111 361.57

Manufacturing 1430.95 258 214.81 582.67 35766 373.35 31.01 1482.39 154224 557.39

Cottage Man 1962.94 641 592.42 5,231.97 1253 196.92 126.62 2026.36 4565 212.62

Woman 72.50 108 8.55 99.48 35725 371.23 30.23 512.63 154144 534.38

Micro Man 4563.10 27771 1985.18 4,845.32 16954 930.51 651.22 7592.10 28205 2436.47

Woman 286.40 259 120.42 324.34 351 11.01 10.42 205.53 403 23.04

Small Man 12886.00 29544 4467.05 13,310.60 7437 548.99 295.32 18622.24 43180 5870.41

Woman 875.50 1195 220.92 492.74 216 12.09 8.58 479.36 850 97.02

Medium Man 19385.00 6508 6332.92 23,715.79 705 398.33 197.33 27330.85 6483 5127.48

Woman 712.00 331 625.54 1,363.45 9 3.46 1.22 1429.90 119 282.69

Total CMSME Man 38797.04 64464 13377.57 47,103.68 26349 2074.74 1270.48 55571.54 82433 13646.97
(Financial
Woman 1946.40 1893 975.44 2,280.01 36301 397.79 50.44 2627.42 155516 937.14
Sector)

Grand Total of CMSME 40743.44 66357 14353.00 133356.53 49,383.69 62650 2472.53 1320.93 58198.96 237949 14584.11

Cottage Enterprises 2035.44 749 600.97 5,331.45 36978 568.15 156.85 2538.99 158709 747.01

% of Cottage to 5.00% 1.13% 4.19% 10.80% 59.02% 22.98% 11.87% 4.36% 66.70% 5.12 %
CMSME

Micro Enterprises 4849.50 28030 2105.60 5,169.66 17305 941.52 661.64 7797.64 28608 2459.51

% of Micro to CMSME 11.90% 42.24% 14.67% 10.47% 27.62% 38.08% 50.09% 13.40% 12.02% 16.86 %

Small Enterprise 13761.50 30739 4687.97 13,803.35 7653 561.07 303.89 19101.59 44030 5967.43

% of Small to CMSME 33.78% 46.32% 32.66% 27.95% 12.22% 22.69% 23.01% 32.82% 18.50% 40.92 %

From
Outstanding as on
Disbursement Disbursement without January Rural
Name end of the Quarter
Target Current Quarter (as per CL)
Collateral to Disbursement
of the Category Sub-Sector December
of 2015
Bank
Number Amount Total CMSME Number Amount Outstanding Recovery Number Amount
Loans

Service 1097.11 1099 224.82 1,127.10 2158 276.87 240.36 1239.71 894 62.27
CMSME
Trade 1080.50 3915 484.41 2,363.26 9506 763.57 565.83 2376.45 2135 184.35

64 | P a g e
Total Manufacturing 1448.00 2027 272.71 1,962.24 1754 303.69 326.05 1647.19 1835 114.67
of
Service 350.00 121 0.80 1.50 1 0.05 0.12 19.73 121 0.80
NBFIs
Cottage Trade 88.50 329 2.39 2.85 17 1.16 0.00 6.31 335 2.76

Manufacturing 22.50 769 5.76 9.69 9 2.53 4.51 2.91 773 5.95

Service 331.11 150 10.25 47.96 85 9.86 5.65 44.62 113 1.66

Micro Trade 81.00 820 76.32 353.36 1637 190.58 70.67 294.38 554 44.67

Manufacturing 40.00 514 28.19 151.84 414 45.84 22.76 77.43 519 25.31

Service 412.00 638 107.10 509.26 1934 180.06 124.70 501.74 530 31.93

Small Trade 483.00 2495 193.14 1,195.56 7546 452.80 378.03 1502.39 1138 109.39

Manufacturing 543.00 641 87.35 708.94 1180 138.84 125.12 667.65 446 33.29

Service 4.00 190 106.67 568.38 138 86.90 109.89 673.62 130 27.88

Medium Trade 428.00 271 212.56 811.49 306 119.03 117.12 573.37 108 27.53

Manufacturing 842.50 103 151.43 1,091.78 151 116.48 173.66 899.20 97 50.12

Service 385.90 398 28.17 107.74 263 31.75 22.45 100.20 456 37.74

Woman Trade 142.60 882 33.60 253.82 704 49.06 19.98 155.79 909 28.16

Manufacturing 168.00 1298 40.19 203.16 453 47.49 31.21 240.01 1251 32.52

Cottage Man 311.00 241 2.39 5.98 25 3.33 3.50 27.26 248 2.72

Woman 150.00 978 6.56 8.06 2 0.41 1.13 1.69 981 6.79

Micro Man 217.11 763 93.01 416.14 1982 222.63 88.30 372.54 515 58.44

Woman 235.00 721 21.74 137.02 154 23.65 10.78 43.89 671 13.21

Small Man 1206.80 3090 340.73 2,150.77 9450 687.76 577.16 2425.29 1416 137.36

Woman 231.20 684 46.86 262.99 1210 83.94 50.70 246.49 698 37.26

Medium Man 1194.20 370 444.78 2,315.00 541 302.10 389.64 1942.27 69 64.35

Woman 80.30 195 26.80 156.66 54 20.31 11.03 203.92 266 41.18

Total CMSME Man 2929.11 4464 880.90 4,887.89 11998 1215.81 1058.60 4767.36 2248 262.87
(Financial
Woman 696.50 2578 101.97 564.72 1420 128.31 73.64 495.99 2616 98.43
Sector)

65 | P a g e
Grand Total of CMSME 3625.61 7042 982.87 44847.83 5,452.61 13418 1344.12 1132.24 5263.35 4864 361.29

Cottage Enterprises 461.00 1219 8.95 14.04 27 3.74 4.63 28.95 1229 9.51

% of Cottage to 12.72% 17.31% 0.91% 0.26% 0.20% 0.28% 0.41% 0.55% 25.27% 2.63 %
CMSME

Micro Enterprises 452.11 1484 114.75 553.16 2136 246.28 99.08 416.43 1186 71.65

% of Micro to CMSME 12.47% 21.07% 11.68% 10.14% 15.92% 18.32% 8.75% 7.91% 24.38% 19.83 %

Small Enterprise 1438.00 3774 387.59 2,413.76 10660 771.70 627.86 2671.78 2114 174.62

% of Small to CMSME 39.66% 53.59% 39.43% 44.27% 79.45% 57.41% 55.45% 50.76% 43.46% 48.33 %

66 | P a g e
D. Target of SME credit disbursement, 2016.

SL No. Banks & Financial Institutions Target (In

Crore)
1 State-Owned Commercial Banks 3,897
2 Specialized Banks 600
3 Private Commercial Banks 17,478
4 Foreign Commercial Banks 707
5 Non-Bank Financial Institutions 1,313
Total 23,995

E. The SPSS output for Regression analysis:

Descriptive Statistics
Mean Std. Deviation N
Profit_after_tax 1804.2660 1280.45135 47
SME_investment 33604.4815 55180.65773 47
Other_investment 90889.8377 70777.46479 47

F. Correlation Table:

Correlations
Profit_after_tax SME_investment Other_investment
Pearson Correlation Profit_after_tax 1.000 .763 .856
SME_investment .763 1.000 .787
Other_investment .856 .787 1.000
Sig. (1-tailed) Profit_after_tax . .000 .000
SME_investment .000 . .000
Other_investment .000 .000 .
N Profit_after_tax 47 47 47
SME_investment 47 47 47
Other_investment 47 47 47

61 | P a g e
G. Table of Coefficients:

Coefficientsa

Model Unstandardized Standardiz t Sig. Correlations Collinearity

Coefficients ed Statistics
Coefficien
ts
B Std. Error Beta Zero- Partial Part Toleran VIF
order ce
1 (Constant) 515.743 167.119 3.086 .004
SME_invest .005 .003 .233 1.926 .061 .763 .279 .144 .381 2.623
ment
Other_invest .012 .002 .673 5.561 .000 .856 .642 .416 .381 2.623
ment

62 | P a g e