Impact of SME loan on the livelihood of the beneficiary household

A study on SME loan takers of BRAC bank in Barisal

By A. R. Khan, BBA, Patuakhali Science and Technology University
Abstract The Least Developed Countries (LDCs) in the east have started
refocusing their attention on SMEs to enhance their role in bringing about
structural changes in their economies. For Bangladesh SMEs have assumed
special significance for poverty reduction programs and potential
contribution to the overall industrial and economic growth. The present
study is confined to a staple SME loan. The main objective of the study is
to identify the socio-economic status of loan SME takers of BRAC bank in
Barisal Metropolitan City. The study further point outs the problems of
SME loan and finally provides some suggestion regarding it.
Key Words: SME, BRAC bank SME loan, SME loan taker, SME loan
procedure.

1. Introduction
The most valuable natural resource of Bangladesh is its people. As a nation we
struggled for our independence and now the attainment of economic uplift is the main
goal. Micro lenders are working here in the financial field, providing very small
amount and on the other hand regular commercial banks have been providing bigger
amount of loans to larger industries and trading organizations. But the small and
medium entrepreneurs were overlooked. This missing middle group is the small but
striving entrepreneurs, who because of lack of fund cannot pursue their financial
uplift, as they have no property to provide as equity to the commercial banks.

The present study is confined to a staple SME loan. The aim of the study is to analyze
the socio-economic condition of SME loan takers of BRAC bank in Barisal
Metropolitan City area. The study covers 50 SME loan taker of BARC bank.

2. Statement of the Problem

The Industrial Policy of Bangladesh 1999 describes small industries as those
employing less than 50 persons and having a fixed capital investment of BDT 100
million ($1.69 million).m Medium industries were defined as those employing
between 50 and 99workers and requiring investment between BDT 100 and 300
million ($ 1.69-5.07 million).

The economy of Bangladesh is at the crossroads. Rapid liberalization has put most
existing industries under severe strain because of their inability to compete with
consumer goods being freely imported after the withdrawal of quantitative restrictions
and the drastic reduction of import tariffs. For the fiscal year 2004-2005, the erstwhile
4-tier duty structure of 7.5, 15, 22.5 and 30 percent has been cut down to 3 tiers, 7.5,
15 and 25 per cent, the weighted average being 16.44 percent. According to the
budget speech of the Finance Minister, this would cause an estimated Bangladesh taka
(BDT) 11 billion (USS 186 million) loss of revenue to the government; but there are
no estimates yet about likely losses to the domestic trade and economy of the country
from the flood of imported consumer and industrial products - cosmetics and
toiletries, food and beverages, textiles and apparels, footwear and leather goods,
chemicals and pharmaceuticals, light engineering products, machine tools, hand tools
and so on. All these products are under the SME category, and the rate at which the
glittering multistoried shopping malls are springing up in Dhaka and other major

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cities of the country is perhaps a good indicator of the rate of displacement of
domestic products by imported merchandise. Although some producers have been
successful in improving their products and significantly increasing external market
access, most are languishing (Mintoo Abdul Awal, SMEs in Bangladesh, CACCI Journal, Vol. 1, 2006).

The various categories of SMEs are reported to contribute between 80% to 85% of
industrial employment and 23% of total civilian employment (SEDF, 2003).
However, serious controversies surround their relative contribution to Bangladesh’s
industrial output due to paucity of reliable information and different methods used to
estimate the magnitude. The most commonly quoted figure by different sources
(ADB, World Bank, Planning Commission and BIDS) relating to value added
contributions of the SMEs is seen to vary between 45% to 50% of the total
manufacturing value added (AHMED DR. MOMTAZ UDDIN, THE SMALL AND MEDIUM ENTERPRISES
(SME) IN BANGLADESH: AN OVERVIEW OF THE CURRENT STATUS).

So finally it can be said that the importance of SME’s in the economy is beyond any
words. So acknowledging this importance we have decided to evaluate the actual
effect of the SME loan. To evaluate this we have selected BRAC bank limited one of
the country’s greatest SME loan provider. This report is Impact of SME loan on the
livelihood of the beneficiary household a study on SME loan takers of BRAC bank in
Barisal.

3. Objective of the Study

The main objective of the study is to identify the socio-economic status of loan SME
takers of BRAC bank in Barisal Metropolitan City. Based on this specific objective,
the following complementary objectives will be high lighted:

 To identify the loan utilization pattern of loan taker.

 To examine the impact of SME on the livelihood of the loan taker.

 To know the SME loan procedure of BRAC Bank ltd.

 To identify the problem and possible solutions regarding SME loan.

4. Scope of the Study

The study area has been confined to Barisal Metropolitan area. The study was
conducted on October 2009 with 50 SME loan taker of BRAC Bank Ltd. of Barisal
Metropolitan Area.

5. Methodology of the Study

The present study has been designed in the following way:
Research Approach
For the convenience of the study, we took the descriptive research approach to
conduct the study.
Source of Data
Both primary and secondary data were used in this study. Mostly we collected the
data from primary sources. The primary data were collected from sample surveyed
and secondary data were collected from various reports, periodicals and research
articles. For collecting primary data the two approaches were used -

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1. Discussion with the manager of BRAC Bank and
2. Personal interview with the SME loan takers.

Sampling Plan
The Barisal Metropolitan City area constitutes the study area, because of convenience
of the field work. In the absence of any up-to-date list of SME loan takers of BRAC
bank BMC, it was decided to select, the primary sampling unit through two stages-
first, by obtaining a detailed list of 70 SME loan takers in the city by managing a brief
interview with the manager of the bank’s Barisal branch. In the second stage, 50 SME
loan takers were randomly selected from the list to ensure that the selection is free
from personal bias of the investigator. So total numbers of samples were 50 SME loan
takers.
Research Instrument
The survey was conducted by a structured questionnaire for SME loan takers as
research instrument to collect the primary data for the samples. Hybrid questions were
used to design the questionnaire. Data and information thus collected both from the
primary and secondary sources were assessed and analyzed by the researcher using
simple statistical tools like percentage (%).

6. Limitation of the study

The study is associated with some limitation as under:
1. A limitation of this study is that we have collected the sample units from a list
provided by the BRAC bank this may have caused some bias in selection.
2. The study provides information from a general point of view.
3. The study has been conducted by the researchers own funds, which inhibited in an
intensive study in the sample area.

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7. Findings of the Study
After analyzing the primary data the following facts were highlighted

7.1. Age effects of loan takers

Fig1: Age wise analysis effects of loan
It has been highlighted that takers
46% of respondents were aged 26%
between 36 to 45 years, 28%
between 25 to 35 years and
26% between 46 to 55. This 28%
means that the majority of the
loan takers are aged between
36-45 years.
46%
7.2. Gender influence over
25-35yrs 36-45yrs 46-55
SME loan
As stated by the management
there is no gender
discrimination of any type by
the bank but still due to social limitation and point of view the number of female
entrepreneurs is low.
Fig3: Income level of loan Fig2: Gender of loantaker
takers(Thousand Tk)

4% 26%
12% 20%

18% Male
Female

46%

10 to 20 20 to 30 30 to 40 40 to 50 50+
74%

Fig 4: Response over interest rate

7.3. Range of Income level

We have found that in our survey 20% of the

respondent’s income level is 10-20 thousand,
Yes
No
46% respondent’s income level is 20-30
thousand, 18% of the respondent’s income
level is 30-40 thousand, 12% of the
respondent’s income level is 40-50 thousand
and 4% of the respondent’s income level is
above 50 thousand. So it can be said that the
majority of loan takers fall in the income group of 20 – 30 thousand Taka.

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7.4. Response over interest rate

We have found that the majority of the respondent think that the interest rate of SME
loan of BRAC Bank is nor high. That is 62% respondent says interest rate is
reasonable and 38% Respondent says the interest rate is high.

Fig5: Expenditure ratio 7.5. Nature of Expenditure

34
In our study we have found that
respondents spend 66% in nonfood
item and 34% in food item.
66
7.6. Social Asset
Fooditem
NonFooditem After analyzing our study we have
found that social mobility is unchanged
to 34% and changed positively in 66%,

Fig6: Social Asset Stable

Change

100.00
80.00
60.00
40.00
20.00
0.00
Mobility Status Participation dicition
Making

social status is stable 38% respondent and changed positively in 62%. Again we see
that , social participation is unchanged about 30% respondent and changed positively
70% and decision making is stable about 24% and 76% respondent take decision
positively.

7.7. Response on deferent packages of loan

Fig7: Response ondeferent packages of loan

8%
Anonno Rin 2% 18%
6%
ProthomaRin
PathshalaRin
DigoonRin 12%
CashSecuredloan
BusinessLoan 24%
TreadPluss 6%
Aroggo Rin
Apurbo Rin 8% 16%

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The study shows that the business loan is the most popular type of SME loan
provided(24%). The Anno Rin is the next favorite (18%) and the most that prothoma
after all it’s social restriction is still in the race with 12% coverage.

7.8. Problems
The following are some problems that we have observed from our study

 Delay in providing loan

The 1st and for most complaint of the responds were that the bank takes too
long to execute the loan giving procedure.

 Complexity in procedure
The next complaint that we received from the field is that the whole procedure
of loan is very complex. As a result it is some time very confusing for the loan
taker to understand.

 Social rigidness and women entrepreneurs

Even at the dawn of 21st century today’s society can’t accept women working
or doing business. This is discouraging women entrepreneurs from emerging.

8. Conclusion and recommendation

After observing all respondents we have concluded that BRAC bank is doing a great
job in the SME sector but still it needs some adjustments. So we would like to suggest
the following for their consideration;
1. Usage more easy loan procedure
Though it is difficult but the bank needs to make a simpler loan procedure.
Because if the loan taker is harassed by the procedure, he/she will be
diversified to other sources.
2. Speeding up the procedure
If a person don’t doesn’t receive the cash at the time of his/her need it is
worthless. We suggest the bank to seriously see upon the fact of speeding the
loan disbursement procedure.
3. Encourage women entrepreneurs
After all the limitations women are stepping up. This indicated a profitable
loan market. So we say do anything to encourage them and capture the market.
4. More flexible installments
Finally the installment of the loan may be a bit more flexible if possible.

Finally in a developing country like Bangladesh SME has a great importance. So

providing a steady finance to it and keeping it alive, may restructure the economy of
the country in a better way. So far BRAC bank has done a pity good job and we hope
that they will make things even better.

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