Loans escape the growth of women entrepreneurs

The number of female entrepreneurs in the financial sector nearly tripled from 21,400 to 57,732 in the six months from March to September last year, according to the Bangladesh Bank.

The trend shows how fast female entrepreneurship has been growing in the country and this is the first time that Bangladesh Bank has included the data in its quarterly banking statistics report scheduled for July-September 2021.

There has also been impressive growth in the number of new female entrepreneurs. Central bank data shows that 8,812 new entrepreneurs entered the financial sector in September last year, up 34% from statistics in March this year.

Contrary to the significant increase in the number of female entrepreneurs even amid a severe pandemic crisis, the number of male entrepreneurs decreased by 27% during the same period, according to Bangladesh Bank.

The number of new male entrepreneurs stood at 32,900 last September, up from 45,292 six months earlier.

The loan repayment behavior of businesswomen is also impressive since the default rate for women is between 1% and 2% in most financial institutions.

Despite the rapid growth of women’s entrepreneurship and their good payment behavior, the share of women in total loan distribution has not improved over the past decade, which clearly shows that access to finance remains a challenge for women entrepreneurs in the country.

Women’s share of total loans to SMEs (small and medium-sized enterprises) stood at 3.54% at the end of September last year, according to Bangladesh Bank data.

The total outstanding loans of banks in the SME sector stood at Tk 1.28 crore at the end of last September, of which female entrepreneurs accounted for only Tk 4,543 crore, according to data from the central bank.

The share of women in loans to SMEs has remained below 4% since 2010, when the national policy set the target of improving the disbursement rate of loans from financial institutions to women-led SMEs to 15% by 2024 as part of the country’s goal of becoming a developing country by that year.

In line with the national policy, Bangladesh Bank has issued a circular requesting banks and non-bank financial institutions to finance at least one new female entrepreneur every year in each branch.

According to the circular, each bank branch would find at least three new female entrepreneurs who have not taken loans from banks or financial institutions before and select one for the final loan.

In addition, banks should set up a dedicated office to support women entrepreneurs in each branch.

These instructions are not followed by banks and non-banking financial institutions, which is reflected in the data as the share of lending to women entrepreneurs has rather decreased.

The Bangladesh Bank has an office dedicated to monitoring the development of women entrepreneurs, set up by former governor Atiur Rahman, but this department also appears to be inactive.

Selim RF Hussain, Managing Director (MD) of Brac Bank and Chairman of Bangladesh Bankers Association (BBA), said that the disbursement ratio of loans to female entrepreneurs is low as the number of female entrepreneurs is low in our country.

He also said it was not true that all new female entrepreneurs applying for loans would receive loans, as banks need to check whether loan seekers understand the business and are able to repay the loan.

Many people would wonder why banks don’t give loans, but nobody backs a lender when borrowers don’t repay their loans, he added.

The seasoned banker saw conservative socio-cultural perspectives as the main reason why women lag behind men in entrepreneurship. The number of women entrepreneurs is higher in Western countries because there is no cultural barrier.

Selim added that the type of business varies from bank to bank.

Some banks attach importance to the SME sector, he said, adding that his bank also provides huge loans to create women entrepreneurs.

He also told TBS that their female clients are very good at repaying their loans.

Policy for Women Entrepreneurs

The Bangladesh Bank has introduced the “Small Enterprise Refinancing Scheme” to provide loans to women entrepreneurs at a maximum interest rate of 5%. Under this program, the central bank will finance banks and non-bank financial institutions at an interest rate of 0.5%, and then banks will lend the money at the highest interest rate of 5%.

Under the refinancing scheme, financial institutions can provide a female entrepreneur with a loan of up to Tk 25 lakh considering a third party personal guarantee as an alternative collateral.

Banks and financial institutions have been instructed to provide at least 10% of the credit guarantee program to women entrepreneurs.

The central bank has also asked commercial banks to set up dedicated windows for women entrepreneurs in the CMME sector in each branch.

In addition, Bangladesh Bank has requested financial institutions to provide a minimum of 8% loans to women entrepreneurs under the announced Tk 20,000,000,000 incentive scheme for the CMME sector.

Still sour experience

Tahmina Akter, owner of Saraah Fashion in Banasree in the capital, told The Business Standard that like all other small entrepreneurs, she suffered losses during the Covid pandemic.

She said she had contacted several public and private banks for loans, but they asked for different types of documents, which made the loan more difficult. Dissatisfied, she then went to the non-banking financial institution IPDC and easily got a loan, Tahmina said, adding, “Now my business situation has improved and I am regularly repaying the monthly installments of the loan.

“Women entrepreneurs in the country are always lagging behind because banks are only willing to lend to those who have money,” she said, adding that women usually start from scratch and many institutions think they will not be able to repay the loans.

Women should have easier and better access to credit, she said.

Another female entrepreneur named Miriam Sarkar, owner of Designer House, told TBS: “I started this business when I was still a university student. All kinds of women’s clothes and men’s panjabi are sold here. I had business relations with a few banks. I have now taken a loan from IPDC. My organization is doing well and the repayment of the loan is also regular.

In fact, it is much easier for men to become entrepreneurs than for women, she observed.

“Firstly, the family is concerned about the success of the business. And secondly, collateral appears to be a big problem in obtaining a loan. Therefore, loan facilities for women should be facilitated and loan rates interest on loans must be reduced.

Asked about this, a senior Bangladesh Bank official told TBS that financial institutions are hesitant to lend to female entrepreneurs even though Bangladesh Bank is instructed to improve their female lending ratio.

The central bank will soon meet with banks and non-bank financial institutions to discuss the issue, the official added.

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