B Mirror Desk : The impact of political change has also affected the country’s small and medium enterprise (SME) sector. Following the political transition in August last year, business activities in the cottage, micro, small, and medium enterprise (CMSME) sector alongside large businesses have contracted. As a result, SME loan disbursement in the banking sector has declined significantly. Due to rising business operating costs, Bangladesh Bank has increased the maximum loan limits for the CMSME sector.

According to Bangladesh Bank data, as of the end of June this year, only 17.06 percent of total bank lending went to the CMSME sector the lowest level in the past two years. This share was 18.40 percent at the end of 2024 and 19.11 percent in 2023. In other words, the proportion of lending to this sector has been declining consistently.

In this situation, Bangladesh Bank has instructed banks to increase loan disbursement to the CMSME sector during a meeting with managing directors of banks. At the same time, the central bank has introduced several incentives to encourage lending.

A central bank official said that the provisioning requirement (security reserve) for banks against CMSME loans has been reduced. Typically, banks must maintain provisions of 1 percent and 5 percent against Standard and Special Mention Account (SMA) loans, respectively.
However, until 31 December 2026, for all unclassified short-term agricultural loans and industrial enterprise loans under the CMSME category, banks will be allowed to maintain provisions of 0.50 percent instead of 1 percent. Bangladesh Bank expects this move to encourage banks to lend more to the sector.

Bangladesh Bank has set a target for banks to disburse at least 25 percent of their total loans to the CMSME sector within this year. There is also a plan to raise this share to 27 percent by 2029.

As of last June, the total amount of loans by banks and financial institutions stood at Tk 18.22 trillion, of which Tk 3.11 trillion was disbursed to the CMSME sector.

According to policy guidelines, at least 40 percent of total CMSME loans should be allocated to the manufacturing sub-sector, but by the end of June, only 36 percent had been disbursed. In the service sub-sector, 19 percent was disbursed against a target of 20 percent. On the other hand, in the trade or business sub-sector, 44.76 percent was disbursed against a target of 40 percent.

Due to rising business operating costs, Bangladesh Bank has increased the maximum loan limits for the CMSME sector. Under the new limits:

• Cottage enterprises can receive loans up to Tk 20 lakh
• Micro enterprises up to Tk 2 crore
• Small enterprises up to Tk 25 crore
• Medium enterprises up to Tk 100 crore

In addition, collateral-free loans of up to Tk 25 lakh are available for women entrepreneurs and up to Tk 5 lakh for other entrepreneurs. Even without a Tax Identification Number (TIN), entrepreneurs can obtain SME loans of up to Tk 5 lakh using alternative business documentation.

Sector insiders say that banks find corporate loans more profitable than SME loans, which is why they show greater interest in large loans. Moreover, following political changes, the replacement of boards in 14 banks, the merger process of five banks, and liquidity shortages have slowed overall lending activities. Political instability has also led many small and medium entrepreneurs to shut down their businesses, reducing demand for loans.

According to Bangladesh Bank data, the share of CMSME loans has declined to 17.47 percent in state-owned banks, 6.28 percent in foreign banks, 17.68 percent in private banks, and 16.11 percent in Islamic banks. However, as an exception, CMSME lending by specialized banks has increased to 21.54 percent.