Accessibility of Small and Medium Enterprises to Institutional Credit in Emerging Economies—Bangladesh Setting

Abstract

Though SMEs have low accessibility to institutional credit, this accessibility may reduce the cost of capital. Therefore, this study explores field level status of accessibility of SMEs to institutional credit along with finding out the causes of low accessibility. Descriptive statistics, accounting and financial techniques, and a logistic regression model are applied to analyse the data. This study finds a demand and supply gap of SME credit. Moreover, SMEs have to bear some additional costs besides the interest of institutional credit. Banks are more conscious regarding their loan’s safety and security in the SME sector. Therefore, SMEs are facing difficulties in getting access to institutional credit. Again, SME entrepreneurs are not concerned regarding the interest rate of institutional credit, which ensures that the entrepreneurs are capable enough to earn more than the cost of institutional credit. By the study’s findings, respective government authorities, Bangladesh Bank, banks, other financial institutions and SME entrepreneurs can get a guideline to enhance the credit flow in the SME sector.

Rise of inflation and formation of interest rate on loans in industrial sector: A VECM approach to assess the impact on total industrial production from evidence of Bangladesh

“…A rapid increase in the interest rate on SME loans impedes the output of SMEs, which in turn results in a reduction in the SMEs' overall revenue. This is because SMEs must contend with limited production capacity while still generating revenue for their businesses and also endure some other expenses [ 18 ]. But the result becomes inconclusive for large industries in the short run.…”

“…According to Qamruzzaman and Jianguo [ 17 ] SME financing innovation is positively related to both long-run and short-run growth in Bangladesh. Ali et al [ 18 ] had pointed out a gap between the demand and supply of SME lending. They found that in addition to the interest on institutional credit, SMEs have to endure some other expenses besides the interest on institutional credit.…”