Urban-Biased SME Finance in Bangladesh: Way to Solve the Puzzle

Abstract

Small and Medium Enterprises (SMEs) play a vital role in the economic progress of developing countries such as Bangladesh. SMEs have earned special significance for their role in poverty reduction programs and potential contribution to general economic and industrial growth. SMEs are considered one of the motivating forces of Inclusive Growth, which has become the national policy of Bangladesh Bank in the past few years. Nevertheless, it can be questioned whether SMEs in Bangladesh are making any contribution to the inclusive growth. There is evidence which indicates that SME credits are concentrated in the urban regions than in rural areas by a notable margin, although Bangladesh Bank has achieved its targeted SME credit disbursement in recent years. Therefore the study aims to discover the reason for this urban concentration of financial institutions in Bangladesh. We have collected data from Bangladesh Bank's own data bank. In addition, the study looks at the potential role of Bangladesh Bank, as well as examining what policy measures can be undertaken to improve access to SME credit by rural entrepreneurs, in order to achieve inclusive growth in Bangladesh.

Keywords: SME, Inclusive Growth, Bangladesh, Credit, Bangladesh bank.