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Australian Finance & Banking Review 

Vol. 1, No. 1; 2017 

ISSN 2576-1196   E-ISSN 2576-120X 

Published by Centre for Research on Islamic Banking & Finance and Business 

 

78 

 

Development of Bangladesh through SMEs Financing: A Case 

Study on IDLC Finance Limited 

 

K. M. Anwarul Islam1 

 

1Department of Business Administration, The Millennium University, Dhaka, Bangladesh 
 

Correspondence: Department of Business Administration, The Millennium University, Dhaka, Bangladesh, 

E-mail: ai419bankingdu@gmail.com 

 

Received: October 09, 2017          Accepted: October 19, 2017      Online Published: October 30, 2017   

 

Abstract 

SMEs (Small and Medium Enterprises) are very much crucial for the overall development of the economy. 

Several banks and other non-banking financial institutions are now concentrating on this sector very actively. 

Industrial Development Leasing Company (IDLC) of Bangladesh Limited started its operation in the year 1985 

as the pioneer leasing company to facilitate lease-financing and capital investment in the industrial sector. Over 

the years, the company has evolved itself as a multi-product non-banking financial institution providing a wide 

range of products and services. Over the last two decades, IDLC has contributed relentlessly to the country’s 

transition into a developing country and has emerged as Bangladesh’s leading multi-product financial institution. 

The company now offers a multitude of diverse financial services and solutions to both institutional and 

individual clients to cater to their unique requirements. In this research paper, I have tried to focus on various 

roles and aspects of SMEs banking. The product and service offered for the SMEs clients, portfolio structure of 

the SMEs banking, marketing strategy for the SMEs clients, and the total credit operation of the SMEs banking 

by IDLC Finance are covered through this research. 

 

Keywords: Development of Bangladesh, SMEs Financing, IDLC Finance Limited 

 

1. Introduction 

The development of small and medium enterprises (SMEs) in developing countries is generally believed to be a 

desirable end in view of their perceived contribution to decentralized job creation and generation of output.  In 

Bangladesh, SMEs playing a significant role for the development of our economy by creating employment 

opportunity and producing important alternative machines and machinery parts for saving huge foreign currency 

for our country. So as a part of our development strategy, we should intensify our efforts to develop this sector to 

grow industrial base and volume of foreign trade. As we know that in this age of globalization, it is impossible to 

stop the flow of foreign goods to any country. Only quality products can meet the challenges in global market. For 

meeting this situation SMEs need to upgrade their technological capabilities and production facilities in order to 

produce quality products at a competitive price. 

With the changing world economic condition Least Developed Countries (LDCs) and developing countries have 



 

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been moving to the rapid industrialization. In this industrialization Small and Medium industries are contributing 

much along with the large industries. Small and medium enterprises (SMEs) occupy unique position in most of the 

countries especially in a developing country. There is a primary target for many countries desiring to stimulate 

economic growth and development as they are fueling the economic growth. SMEs require fewer amounts of 

resources but they can be managed more efficiently. How SMEs can be used to change the economic horizon of a 

country can be seen from the case of The Asian Tigers. The Asian Tigers such as Singapore, Taiwan, South Korea, 

Honk Kong and Malaysia were economically like Bangladesh in few decades ago. But by ensuring the enormous 

development in the small and medium industries they have become able to bring them out of the developing class. 

Due to the changing global economic horizon after the world recession an enormous opportunity has come to 

Bangladesh to increase its export. That can be ensured by nurturing its small and medium industries carefully. 

 

2. Literature Review  

Alam and Ullah (2006) in their study “SMEs in Bangladesh and Their Financing : An Analysis and Some 

Recommendations” found that lack of medium to long-term credit, limited access to market opportunities, 

technology, and expertise and business information. Lack of suitable incentives, inefficient and limited services 

from relevant government agencies as well as poor capacity of entrepreneurs are other reasons for the slow 

growth of SMEs. Study recommend that flourish, SMEs will create new entrepreneurs, generate more jobs and 

contribute to a great extent to the national economy. 

In Philippines, Hapitan (2005) recognized the access of SMEs to credit divided by two: those banks who are 

obliged to set aside a portion of their loan portfolios, and those institutions that have actively pursued direct 

financing program for SMEs. She studied thirty SMEs in Philippines to analyze whether credit access due to 

competition has indeed increased, furthermore, its impact on SME lending in terms of the number of credit 

facilities availability and quite possibly lower interest rates. Some worth noted from the observation are banks 

and other financial institutions should realize that many SMEs are not aimed to achieve stability in terms of 

operations and earnings rather opportunity taking. The situation occurred due to most of the SMEs are 

entrepreneurial-driven which had to enrich their product line or even change it from the original product. To fuel 

these opportunities, financial assistance and loans are needed. However, some SMEs do not realize that financial 

statement is not only a requirement but also as part of good governance. The non-provision of audited financial 

statements is one of the main reasons why many SMEs are unable to benefit financial assistance from banks and 

other institutions. 

Difficulty in obtaining funding for businesses is still considered as the major problem of SMEs’ operation as 

quoted by Joubert (1998). She conducted a case study to analyze the problems faced by SMEs in Swaziland. 

The result indicated that generally, the SMEs’ owners believed that their successful business is mainly because 

they can manage to sustain them. However, the term success here differs from the widely used measurement of 

successful business, such as productivity level, profitability ratio, and rate of return. 

In order to optimize their capital structure, Moro, Lucas, Grimm, & Grassi (2010) suggested that SMEs should 

only focus on bank financing. Keasey and McGuinness (1990) argued that in spite of the fact that bank 

financing is more expensive in comparison to other sources of finance, it generates a higher rate of return for 

SMEs. They further conclude that bank finance can help SMEs accomplish better performance levels than other 

financing sources can do. The explanation given by them is that SMEs employ the funds more efficiently when 

they are monitored by, and answerable to banks. 



 

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The empirical literature on bank financing to SMEs emphasises some mechanisms, techniques and models 

developed and adopted by banks to lend to SMEs such as relationship lending (e.g., Petersen & Rajan, 1994), 

factoring (e.g., Soufani, 2002) and scoring (e.g., Frame, Srinivasan, &Woosley,2001) just to mention some 

relationship lending is a powerful mechanism used to reduce problems related to opaqueness in firms especially 

SMEs. Under relationship lending, “soft” information is gathered by a financial institution (usually small local 

bank) through continuous contact with the firm (usually SME) in the provision of financial services (Berger & 

Udell, 1998, p. 645). The information will be then used to evaluate the creditworthiness of the entrepreneur as a 

part of the loan process to ensure that the potential loan will be repaid. The strength of the relationship lending, 

measured by its duration or the breadth of the relationship, was found positively correlated to the availability of 

funds for SMEs (Petersen & Rajan, 1994). In addition to this, the literature reports other benefits including; 

lower cost of credit, protection against credit crunches and the provision of implicit interest rate or credit risk 

insurance (Berger & Udell, 1998). Other study suggested that in order to increase credit supply for SMEs 

trust-based relationship lending is more effective than the establishment of longer or more concentrated 

bank-borrower relationship (Hernández-Cánovas & Martínez-Solano, 2010). 

Akterrujjaman (2010) conducted a study “problems and prospects of SMEs loan management: A study on 

Mercantile Bank Limited, Khulna Brach” where major findings are related to the high interest and loan duration 

rates, reasons for SMEs relatively informal way of doing business in contrast to bank’s formal procedures and 

prerequisites, bank’s relative inexperience in this field. 

Uz Zaman and Islam (2011) in their article “Small and Medium Enterprises Development in Bangladesh: 

Problems and Prospects” considered smooth and sustainable development of SMEs all over the country will be 

one of the vehicles for poverty alleviation, and generation of more employment. They found Lack of Investment 

Finance and Working Capital Finance, Inability to Market SME Product, Lack of Skilled Technicians and 

Workers, Non-Tariff Barriers (NTB) and Changes in World Trade Regimes are the major financing constraints 

faced by SMEs in Bangladesh. And suggested Enhancing Access to SME Finance, Development of SME 

Infrastructure, Quality of SME Products, and Training Facilities for SME workers and Entrepreneurship etc are 

as some policy measures to overcome those constraints.  

Chowdhury and Ahmed (2011) have made a working paper on “An Appraisal of the Problems and Prospects of 

Small and Medium Enterprises (SMEs) Financing in Bangladesh: A Study on Selected Districts”. They observed 

that non availability of adequate credit, complex loan granting procedure, inadequate infrastructure facilities, 

problems of collateral requirements, paucity of working capital, non availability of skilled work force; poor 

salary structure, lack of coordination among SME related organizations, lack of appropriate marketing strategies 

etc. are the major hindrances to the development of the SMEs in Bangladesh. They recommended easy loan 

application and disbursement procedure, fix the minimum salary, adequate finance for modernization, expansion 

and technological advancement of SMEs etc for the development of SMEs. 

Chowdhury, Azam and Islam (2013) have made a study on “Problems and Prospects of SME Financing in 

Bangladesh”. The study found that SMEs contributes significantly in poverty reduction programs and potential 

contribution to the overall industrial and economic growth and suggested Venture Capital, Bank Syndication 

Scheme, HRD in Financial institutions and in Government offices, Training and Development etc as potential 

tools of eliminating the constrains of SMEs financing. 

 

 



 

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3. Objectives of the Research 

 To study is to measure and analyse the functional, operational and financial performance of Small and 

Medium Industries (SMEs) in Bangladesh. 

 To find out the practices of Small and medium Industries in Bangladesh 

 To propose some policy recommendations to mitigate the problems surrounding with SMEs 

 

4. Research Methodology of the Research 

4.1 Sources of Data  

The information has gathered by two sources of data. Majority of the information were collected from the 

secondary sources, which include books, publications, reading materials and various circulars and reports 

published by Different financial and non-financial institutions. 

4.1.1 Primary Sources 

Interviews of executives, officers and employees of IDLC, Writer’s observation of the approval process, Study of 

relevant documents, Monitoring techniques of small and medium industries, Discussion with the supervisor  

4.1.2 Secondary Sources 

Annual report of IDLC Finance (5 Years), Websites of IDLC Finance, Newspapers, journals, etc., SME guideline 

provided by Bangladesh Bank, Different books and periodicals related to the SME.  

 

5. The Way Small and Medium Industrialization Helps to Develop an LDC’s Economy  

SMEs are very important to almost all economies in the world, but especially to the LDCs. LDCs have a great 

challenge in increasing employment and distribution of income. SMEs help LDCs to overcome these challenges. 

The ways how Small and Medium Industrialization helps an LDC to overcome its economic challenges and 

develop its overall economy are discussed below:  

 

5.1 Helping LDC Economies 

5.1.1 Technology Choice by SMEs 

Part of the contribution of the SME sector both to the overall total factor productivity (efficiency, as usually 

defined) of an economy and to employment generation and distributional equality comes by virtue of its pattern of 

technology choice. SME technology tends to be intermediate between the highly labor intensive technologies of 

micro enterprise, which as a result achieve only low average labor productivity, and the highly capital intensive 

technologies of large firms which thereby achieve high labor productivity, but use more capital per worker than is 

available for the economy as a whole.  

5.1.2 Increasing Employment 

Its intermediate technology characteristic is what gives the SME sector a special role (together with small-scale 

agriculture) in the generation of adequate or decent employment. When most jobs are in the micro enterprise 

sector, too many of them are destined to be low productivity and hence low income in character. SME firms can be 

substantially more productive, so in terms of the potential to generate “decent” jobs this sector competes with 

large private firms and the government, but it has the advantage of being able to generate many more such jobs for 

a modest input of capital. The key mechanism in generating decent employment in most developing countries 

involves the expansion of this sector fast enough to absorb people previously unemployed (a few) or engaged in 

low productivity informal sector jobs (the bulk). 



 

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5.1.3 Reducing Income Inequality 

A larger SME sector is best thought of as the alternative to a highly dualistic economy with most of the capital in 

the large scale sector and most of the workers in the very small-scale sector. An economy which is dominated by 

SMEs, as Taiwan’s has been, can generate a low level of inequality in the distribution of primary income (before 

tax and transfer) whereas the dualistic economy characterized by the combination of much large enterprise and 

much micro enterprise typically generates a high level of primary inequality. SMEs can help in decreasing income 

inequality in Bangladesh as it is rising gradually. 

5.1.4 Generation of Economic Growth 

Apart from being the sector to which one would like to see a high share of resources allocated at a given point of 

time, for the above reasons, the SME sector also plays a key dynamic role in generating growth, especially 

pro-poor growth. 

5.1.5 Creating Base for Large Industries 

At the other end of the size spectrum, most large firms have grown out of the SME sector, so its health helps to 

determine the future supply of large firms. Possibly those large firms with an SME background will be more likely 

to engage in subcontracting with other SMEs, an additional benefit to overall economic efficiency.  

5.1.6 Creating Dynamism in the Economy 

SMEs tend to dominate a country’s new and fast growing industries. Economies which discourage SMEs in any 

general sense are therefore likely to discourage some newer dynamic industries from putting down the roots they 

might otherwise do. In this respect, and in others, SMEs are associated with dynamism. 

5.1.7 Building Market Competition 

Economists emphasize, with the good reason, the importance of competition for efficiency. Except in large 

markets (whether defined by country, by region/ metropolitan area or whatever) there is not enough "space" for 

many large firms, perhaps only for a couple or perhaps only for one. In such cases the large firm or firms can 

exercise monopoly or oligopoly power. If there is to be price-lowering and quality-improving competition, it will 

come from SMEs.  

5.1.8 Providing Backup for Large Industries 

The importance of an efficient collaboration between large firms and SMEs through subcontracting is at its peak in 

outward oriented countries especially those competing in international markets in products involving a good deal 

of labour. Being able to rely on efficient low-cost subcontractors can substantially increase the competitiveness of 

the large exporters, and has been an important factor underpinning the successes of Japan, Taiwan and Korea. It 

can also increase the efficacy of Bangladeshi large companies. 

 

6. Reasons of SMEs’ Efficiency in Developing Countries 

The technical efficiency of SMEs is central to the debate about the role of small scale industries in economic 

development.  SMEs are unlikely to be an important source of growth and employment generation if they turn out 

to be relatively inefficient, with limited ability to compete, survive and grow into larger firms.  Some studies find 

SMEs to be more efficient than large firms in some industrial sectors but not in others, while other studies find 

them to be less efficient overall.  There are some inherent reasons which make SMEs more efficient than large 

scale industrialization in developing countries like Bangladesh. The reasons are- 

 Lower Capital Investment 

 Moderate Infrastructure and Technology Requirement 



 

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 Labor intensiveness 

 Shorter Start up period 

 Lower cost per employment  

 Lower capital output ratio 

 Lower energy cost 

 More environmentally friendly 

 Easy value addition 

 Promotion of agro-industrial linkage etc. 

Our results, based on large samples of firms from six developing economies, suggest a possible explanation for the 

mixed findings in these earlier studies.  Because SMEs are so heterogeneous, simple comparisons of the mean 

efficiencies of different size firms can be very misleading. Thus, while we find that SMEs are less efficient on 

average than their larger counterparts in all five economies, we also find a significant number of highly-efficient 

SMEs that are more productive than many large firms.  For policy makers, the latter is the more important finding 

since it indicates that SMEs are not inherently inefficient as compared to their larger counterparts. 

Highly-efficient firms, both large and small, have several technological, work force, and organizational 

characteristics that can, in principle, be emulated by other less-efficient SMEs. Efficient firms have better access 

to new technology through know-how licensing agreements, joint-ventures with foreign partners, and export 

contacts with foreign buyers and suppliers. They have a more educated work force, and are more likely to provide 

formal structured training to their workers.  Their work organization is characterized by greater automation and 

quality control in production, and by human resource management and compensation practices that emphasize job 

stability and skill acquisition.  The wide dissemination and adoption of these best practices will have 

productivity-enhancing benefits to less efficient firms, SMEs in particular. 

 

7. Contribution of SMEs in the Economy 

In view of present economic development effort in Bangladesh the SME sector plays an important role. These are 

reflected in the following performance /activities of this sector: 

 During the Fourth Five year plan, a total of 0.35 million jobs were created against the target of 0.4 

million. 

 Contribution of SME sector to GDP remained above 4.5% during the period from 2000-01 to 2004-2005 

despite decline in the amount of advances by the banking sector to this sector and it’s growing day by 

day. 

 SME sector employs 25% of the total labour force. As a result, this sector is the present available sector 

for creation jobs. 

 SME sector help alleviate poverty, increase income level of rural people and promote agro-industrial 

linkage in Bangladesh. 

 SME sector requires lower energy supply, lower infrastructure facilities and this sector imposes less 

environmental risk. They contribute towards better utilization of local resources and skills that might 

otherwise remain unutilized. 

 Small industries being labour oriented are capable of generating more employment. 

 They are necessary to maintain and retain traditional skills and handicrafts. 



 

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 They are the only medium for diversification of rural economy and for peaceful and concurrent 

socio-economic development of all classes of people. From the above discussion, we can say that SMEs 

are playing an important role in our economy in various ways. 

In Bangladesh, SMEs playing a significant role for the development of our economy by creating employment 

opportunity and producing important alternative machines and machinery parts for saving huge foreign currency 

for our country. So as a part of our development strategy, we should intensify our efforts to develop this sector to 

grow industrial base and volume of foreign trade. SMEs in Bangladesh produce a multitude of labour intensive 

goods including, consumer items, toys small tools and paper products for the domestic market. Further 

development of these industries offers various investment opportunities. Export-oriented production in SMEs has 

gained momentum in the past few years. Entrepreneurs from Hong Kong, Japan and Korea have taken advantage 

of Bangladesh’s cheap and easily trainable labour and its infrastructure facilities to manufacture products for the 

export market. 

 

8. Approaches of SME Financing by IDLC 

Successful SME financing strategy is a key success factor for IDLC. For facilitating SME financing, IDLC had 

earlier established a separate division, namely ‘Emerging Corporate Division’, in early 2003. Basically under this 

division, IDLC has mainly financed smaller corporate clients. In 2006, this division was renamed to SME 

Division to reach out to really small segment of the market.  

In order to tap the lower segment of the market and strengthen the SME financing, IDLC has launched Retail SME 

Finance Products. In this niche, IDLC has been able to do business with a higher spread, and the availability of 

cheap source of funds in the form of refinancing from Bangladesh Bank has contributed to greater profitability. 

Around 78% of IDLC’s clients belong to SME segment based on fixed capital investment size, and SME client 

share 56% of IDLC’s total loan portfolio. Moreover, in late 2005, IDLC established branches at Bogra, Gazipur, 

Narshigdi, Imamgonj, Keraniganj, and Narayanganj, specially focused to SME financing. 

 

9. Retail SME Finance Products of IDLC 

At present, IDLC is selling five Retail SME Schemes, besides its regular SME lease financing facility, Machinery 

Loan. 

 Business Loan 

Business loan is provided in the form of term loan or working capital loan. This loan is ranged from BDT 

500,000/- to BDT 7,500,000/-. Track record of at least one year of successful operation is a must for availing this 

financing facility. This loan has been provided for the tenure of 12 to 36 months with repayment mode of monthly 

installments. This facility is devised to groom small entrepreneurs to future leaders in the industry. Upto BDT 

1,500,000/- financing can be provided with no collateral under this scheme. Hypothecation of Inventory and 

machineries, and personal guarantee from two acceptable persons and any other security as deemed fit is taken as 

security under this scheme.  

 Business Loan (Cash security backed) 

Under this product, loan facility is provided with 30% FDR of the loan amount if the business is found to be 

feasible, that further security may not be insisted on. This loan is also provided in the form of term financing, and 

the range of financing is same as business loan. The scheme provide financing for the maximum tenure of 48 

months, and generally two years of successful business operation is required to be eligible to attain it. The security 



 

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requirement is same as business loan. 

 Women Entrepreneurs Loan 

This scheme is specially devised to finance the successful businesses of women entrepreneurs, and to contribute in 

the emancipation of women in the society. Any woman entrepreneur with al least two years of successful business 

operation can avail this loan, where no collateral is needed upto BDT 1,500,000/-. All the specification of this 

scheme is the same as business loan. Bangladesh Bank provides special refinancing facility for this scheme, 

making the borrowing rate significantly low. 

 Machinery Loan (Lease) 

This is actually lease financing facility for SME clients. IDLC offers the most competitive and flexible lease 

financing for all types of manufacturing and service equipment. In Machinery Loan, the client has the full liberty 

to select the equipment and supplier and also to fix terms and conditions, including price. Lease rental is 

determined on the basis of acquisition cost and lease term. Lease term usually ranges from 1 to 4 years. Other 

conditions are same as business loan. Client is required to arrange for the insurance coverage on the leased 

equipment for the entire lease period. He is required to maintain the leased equipment in good operating condition, 

though insurance shall cover most of the abnormal risks. 

 Commercial Vehicle Loan 

IDLC offers Commercial Vehicle Loan as a lease facility for the purpose of purchasing new or reconditioned 

vehicles for your business use. This is a lease financing facility for SME clients. Both new and recondition 

vehicles can be financed under this scheme. Loan limit starts from BDT 500,000 to BDT 1 crore. Truck, Trailer, 

Pickup Van, Covered Van, Microbus, Sedan etc. that are required for commercial purposes of businesses are 

financed under the scheme.  

 Supplier Finance 

Supplier Finance is a revolving financing facility offered against receivables created due to supply of goods or 

delivery of services on credit. This short-term facility enables the suppliers/service providers to realize the 

maximum portion of the payment soon after the delivery has been made to the buyer.  

 Abashan Term Loan 

ABASHAN is a loan facility extended to small businesses that will construct or already have permanent structure 

for commercial rent (popularly known as mess rent), that are located in places surrounding the industrial areas and 

EPZs across the country. 

 

10. Appraisal Procedure of SME Client 

After the marketing stage, appraisal procedure starts. In appraising, a comprehensive report has been prepared on 

the business performance of the client. The whole procedure is carried out through the following step by step 

procedure:  

 Collecting preliminary information regarding the client: to collect the preliminary information, IDLC 

maintain a standard formatted checklist. This checklist is designed to collect the information regarding 

the necessary legal documents of the company, owners liability position, financials of the business and its 

sister organization and other necessary information. A sample checklist format is attached at the 

Appendix-1for better understanding 



 

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 Collecting CIB report of Bangladesh Bank to know the liability status of the client: before any loan 

disbursement, Availing report from Credit Information Bureau (CIB) of Bangladesh Bank regarding the 

liability status of the client is mandatory.  

 Writing the main report: ECD follows a standard format to write the appraisal report on its client. This 

report format contains the following part to investigate the credit worthiness of the client: 

 Client’s name, address, business type and other preliminary information 

 In case of an existing client, the exposure status of the client with IDLC 

 Description of the financing proposal in details and client’s previous track record (in case of an 

existing client) 

 Financing rationales on client from different aspects like: 

 Background of the business and the main sponsors of the business 

 Analyzing the market potentials of the product client deals with 

 Analyzing the shareholding structure of the company to reveal whether any problem lies with it. 

 Keenly analyzing the previous 3 to 4 years financials of the client and make different comments 

on the changes he faced over the years 

 Analyzing the business and financial condition of the sister concerns, if any and its impact on 

the said concern. 

 Detail liability position of the client  

 Projection regarding the income statement and cash flow of the client at post financing period 

and calculating the Debt Service Coverage Ratio. 

 In case of lease, brief description of the leased equipment and its price verification 

 

11. Credit Control Procedure 

After the completion of appraisal procedure, the report is sent to the Credit Risk Management Committee to assess 

the risky ness of the investment. The risk of the investment is measured from different point of view. The major 

headline along with major risk parameters under which the riskiness of an investment is measured is described 

below: 

 Industry risk: Demand and supply condition, availability of the raw material, availability of the 

technology, extent of the competition, the growth pattern of the market, etc. 

 Company Risk: company’s position in the market, strength of the company in the market, market 

coverage of the company’s product, etc. 

 Management risk: Years of operation, Management structure, Experience of the key persons, status of 

any legal proceedings against the company, etc. 

 

12. Loan Approval Procedure 

After the appraisal is done, the appraisal report is submitted to the Credit Evaluation Committee (CEC). The 

member of this committee is the management people of Credit Risk Management and General Manager. After 

their approval, it goes to Deputy Managing Director (DMD) and to Managing Director (MD). 

  

13. Use of Decision Models 

IDLC Finance Ltd. uses several Decision Models to make the decision easy and more objective. Though there is a 



 

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rule that IDLC SME Div won’t finance any client more than BDT 1,000,000/- without having any Registered 

Mortgage sometimes management has to do contrary to that. Market is highly competitive and there are lots of 

players in the market. Moreover collateral is not always available. So sometimes financing is made without 

collateral. A Decision Model is used in that case to measure the strength of the client. A 10 point scale is used to 

measure the strengths. Any client scoring more than 7.25 is eligible for getting finance for more than BDT 1 

million without Registered Mortgage. 

 

14. Sector Exposure 

Sector wise distribution of the SME portfolio of IDLC in 2013 is given below. This distribution shows the 

distribution pattern of some of the important sector.  

   

   Table 1. Top-10 Sector Exposure of SME Financing of IDLC 

                                                                                       Taka in million 

 Name of Sector Exposure (BDT) % Exposure December 31, 2013 

 Apparels & Accessories 2,346 9.25% 

Food and Beverage  2,314 9.12% 

Transport 1,946 7.67% 

Building & Construction Materials 1,792 7.07% 

Service 1,728 6.81% 

Textiles 1,582 6.24% 

Agro – Based Industries 1,521 6.00% 

Household Products 1,452 5.72% 

Housing and real estate 1,431 5.64% 

Iron and steel 1,311 5.17% 

Source: Primary 

 

Figure 1. Top 10 sector exposure 

                                          Source: Primary 

15. Current Status of SME Division 

As of January 01, 2013 we had around 340 live contracts in the Small Business Financing-Dhaka portfolio. If the 

budgeted disbursement target of BDT 450 mln (for Dhaka) is to be achieved about another 500 contracts 



 

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(considering average loan size of BDT 0.85 mln) need to be executed. So, the number of live contracts is expected 

to be around 790 at the end of 2013. 

 

16. Recommendations  

In order to overcome the above mentioned problems the following suggestions are recommended 

 Government must have to take adequate measures to ensure the uninterrupted supply of raw materials for 

SME.  

 Government needs to take appropriate measures to fix the minimum salary/wages of the employees of 

SME. That will help to minimize the employee turnover.  

 Government and financial institution may provide adequate finance for modernization and technological 

advancement. 

 Development of infrastructure is essential for the optimum growth of SME. So government of 

Bangladesh needs to take appropriate policy strategy for the infrastructure development of Bangladesh.  

 Government, financial institutions and Non-Government Organizations (NGOs) may take necessary 

steps to ensure uninterrupted financial support to the prospective SMEs in Bangladesh.  

 Due to the absence of uniform definition the policy formulation and implementations are not possible. 

Government should take initiative to develop a uniform definition of each category of SMEs.  

 Govt. of Bangladesh should take the initiative to develop web pages exclusively for SME and an 

integrated SME database. It will reduce the barriers to SME access to global market.  

 In order to ensure the retention of skilled workforce the government should make the entrepreneurial 

career attractive by minimizing the uncertainty.  

 In order to encourage women entrepreneurship govt. may; involve women entrepreneurs in policy 

formulation and implementation and arrangement of funds for women entrepreneur, providing necessary 

training to women entrepreneurs in rural and urban area of Bangladesh.  

 SME foundation may take appropriate marketing tools to popularize their products.   

 For minimizing red tapes and accelerating the growth of SME government may provide one roof service 

under the SME foundation.  

 Appropriate legal framework is necessary to ensure the development of SME of Bangladesh.  

 In this era of intense competition continuous planning and quality improvement act as a prerequisite for 

the survival of SMEs. In order to improve the quality SMEs can follow the Just in Time (JIT) philosophy 

and use Total Quality Management (TQM) and can ensure the improvement of quality and productivity 

at a time.  

 Government should establish a credible certification authority especially for SMEs. So that this sector 

can obtain a technical evaluation of the quality of their products within a shortest possible time. The 

certification of the authority should be worldwide accepted. Govt. may also provide assistance to SMEs 

during the certification process and promote the importance of product certification for international 

acceptance among the SMEs.  

 Research and Development (R&D) is must for the development and growth of SME. So government 

must have to invest in R&D for ensuring the intensification of SME of Bangladesh.  

 Restriction may be imposed on import of SMEs’ products which are available in Bangladesh. 

 



 

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17. Conclusion  

In Bangladesh, SMEs consist of almost 90% of the total industrial setup. SME contributes almost 80% to 85% 

industrial employment, which is the 25% of the total employment of Bangladesh. SME accounts for 25% to 30% 

of total GDP. In terms of value addition, SME contributes 45% to 50% of the total value addition of a year’s total 

production. (Source: IDLC database).  

The banking system which constitutes the core of the financial sector of any country plays a critical role in 

transmitting monetary policy impulses to the entire economic system. Banking is a business built on risk. Yet, it is 

essential to manage and minimize that risk. 

From the view point of SMEs’ importance to the overall economic growth and the opportunities that the financial 

institutions have in developing this segment, our central bank, other regulator as well as the policy makers should 

review the whole process in holistic approach as it is closely correlated with the economic emancipation of the 

general people of the country. 

Besides the regulators, financiers should also understand the potential this sector has in terms of profitable 

business generation and building customer base. With proper and efficient credit risk management and right 

business model, SMEs can surely fast track a financial institution into a major player in the market and contribute 

towards its growth. The astronomic development of BRAC Bank Ltd., since its inception in 2001, is a prime 

example in this regard. Commitment to the economic development, attitude to treat credit risk in holistic 

perspective, proper control mechanism and regional or cluster base business model can go a long way in 

developing a healthy and profitable SME portfolio for any financial institution.  

 

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Copyright for this article is retained by the author(s), with first publication rights granted to the journal. This is 

an open-access article distributed under the terms and conditions of the Creative Commons Attribution license 

(http://creativecommons.org/licenses/by/4.0). 

 


