Banks concerned over single digit interest for SME

The country’s banks are unwilling to provide single digit loan to small and medium entrepreneurs (SMEs) though single digit interest rate on all loans except credit card is supposed to be implemented from April next.

Leaders of Association of Bankers, Bangladesh (ABB) expressed their concern over single digit loan for SMEs to Bangladesh Bank (BB) governor Fazle Kabir.

The demand to exclude SMEs from single digit loan policy was raised at a meeting after an ABB delegation led by its chairman Ali Reza Iftekhar met the governor at the latter’s office in the capital on Sunday.

In response, the central bank governor asked the ABB leaders to place their demand in black and white.
Bangladesh Bank sources said, at the meeting, the managing directors of different banks told the governor “The banks are getting prepared to implement single digit loan from April 1. But in the present context, it is impossible to implement single digit loan in SME sector, because, expense of banks in distributing low amount loans is much higher. Taking nine percent interest from SMEs would put the future of the banks at stake.”

If the government forcibly applies the interest rate then many of the banks will try not to give loan in that sector. Again, the loan will bring loss for the banks. To compensate the loss, many of the bankers will be at the risk of losing job. In such situation, proposal has been given for keeping SME sector outside the single digit interest rate. Earlier on 13 January, the bankers also made the same demand at a meeting with the governor of the central bank.

Many economists and bankers are expressing their reservations about the decision of fixing interest rate in such a way. They think that it’s logical to reduce interest rate for the sake of expanding business. But they also think that reducing high default loan and excess expenditure through ensuring good governance is more important than fixing interest rate for deposit.

The interest rate will come down automatically if the said process is followed, and as a result, both the depositors and lenders will be benefitted. But if interest rate is reduced to six percent all on a sudden, many will be interested in investing in unspecified sectors for getting high interest which can be harmful for the economy, they opine.