Constraints in accessing bank finance for SMEs In Bangladesh

Abstract

This qualitative study extends to outline the investigation concerning the key constraints associated with bank financing for small and medium enterprises (SMEs), and the challenging factors in SME credit appraisal for the banks in Bangladesh. This study intends to fill the previous literature gap on SMEs' external financing through a comprehensive impediment view from both demand (SMEs) and supply (bank) perspectives and the common factors that are faced by both sides. Grounded in the agency theory and information asymmetry theory, it investigates how information opacity influences or restricts the SME's financing behavior. Semi-structured interviews with 25 SMEs, and 15 SME bank loan officers were carried out and content analysis was used for analyzing the interviews. The findings highlight the factors like reliable financial and asset analysis, good bank-customer relationship, corruption and bureaucratic complexity, higher interest rates, etc. affect bank financing for SMEs while factors like effective credit scoring assembling the hard and soft information, sufficient collateral requirement, and regulatory environment, etc. create challenges on the SMEs credit assessment that restricts SMEs in bank financing. Among them, the common factors that are faced by both SMEs and banks are reliable financial analysis, a history that contributes to enhancing the confidence of the bank, guarantee or collateral requirement, and corrupt behavior of banks on sanctioning loans.  The finding signifies the development of the SME industry with the implication of innovative tools that can reduce the existing financing gap and ensure the effective implication of the regulation or law that can ensure the growth of SME bank financing in Bangladesh.

DOI: 10.7176/RJFA/17-2-04

Publication date: April 30^th 2026