Funding the unfundable: What Bangladesh's banks still cannot see

Access to finance has long been unequal in Bangladesh. In Jobra, near Chittagong University, an early microcredit experiment began with a practical observation: women making bamboo products had viable work but no lender willing to treat it as bankable. That experiment became part of Bangladesh's best-known development story.

Today, the same problem appears in a different kind of business. In 2009, The Daily Star profiled Sanowar Hossen, whose Gazipur sweater unit had four machines, 18 workers, daily capacity of 250 pieces, and subcontracting orders from larger factories. The private bank that held his account still declined to finance expansion without land as collateral. More recently, Tahmina Akter of Saraah Fashion approached several public and private banks after pandemic losses. Their documentary requirements differed, making borrowing difficult. She eventually secured finance from IPDC and said she was repaying regularly. While both were operating businesses, neither fitted the file a conventional lender wanted.

The FY27 budget has now been presented, but businesses are still contending with weak investment and fragile confidence. Private-sector credit growth stood at 4.75% in April 2026, staying below 5% for a second consecutive month amid weak investment, the global fuel crisis, and sluggish exports. Banks are also under pressure to repair their balance sheets. By the end of March, official defaulted loans had reached Tk5.88 trillion, or 32.26% of outstanding loans.

In response, Bangladesh Bank has announced a Tk600 billion stimulus package to reopen distressed factories and support businesses as growth slows. The scheme prioritises export-oriented industries, particularly garments, while Tk100 billion is earmarked for agriculture and the rural economy. These measures may ease liquidity, but they do not alter how banks assess smaller firms with limited formal records. Banks keep favouring the familiar "good borrower" profile. At this moment, that is too narrow a view.

Workshops, agri-processors, and small suppliers make up much of Bangladesh's business base. The final report of the BBS Economic Census 2024 recorded 11.70 million economic units, with micro and cottage enterprises representing 95.41% of all units. Yet 85.89% reported insufficient capital, while 34.42% identified difficulty accessing bank loans as a major constraint.

Bangladesh Bank's 2025 master circular sets a minimum Cottage, Micro, Small, and Medium Enterprises (CMSME) lending target of 27% of total loans by 2029. It also extends limited eligibility to f-commerce and e-commerce operators and to small traders without trade licences. Yet, even though more firms can now apply, much of the CMSME sector remains hidden to Bangladesh's banking institutions.

That is the branch manager's dilemma. In a stressed banking system, the safest decision is often to reject an active business whose file is thin. The workshop may be rented, but its machine, work order, receivable, and repayment record are real. They sustain the business, yet may still fail a credit process built around land and formal paperwork.

The Tk 600 billion stimulus package announced by BB to reopen distressed factories and support business growth may ease liquidity, but they will not alter how banks assess smaller firms with limited formal records. The scheme prioritises export-oriented industries, particularly garments, while Tk100 billion is earmarked for agriculture and the rural economy. 

Collateral rules reinforce this status quo. Preliminary findings from the 2019 Agriculture Census reported 4.02 million absolutely landless households, with urban landlessness at 28.79%. For firms operating from rented rooms or shared premises, there may be productive assets but no mortgageable property. Women are squeezed even harder by these rules. World Bank research found that among rural households owning agricultural land, only 13% of women had sole or joint ownership, compared with 70% of men. This ownership gap makes it harder for women to meet collateral requirements.

Md Sheikh Saadi's factory in Darshana shows where the current system falls short. The factory produced paddy reapers and grass cutters, but buyers owed him Tk1 crore for goods sold on credit. Despite a functioning business and a substantial receivable, stringent conditions kept him from accessing stimulus finance.

The Secured Transactions (Movable Property) Act, 2023 allows assets such as work orders, raw materials, machinery, receivables, and software to support borrowing. That expands the field for firms with productive assets but no land. It will not solve the problem for every service, digital, or home-based business, particularly those with few registrable assets.

The Act will matter only when the envisioned asset registry becomes part of ordinary credit work. Banks need reliable valuation, a clear view of prior claims, and confidence that enforcement will hold. Lien searches should be automated and available to regulated lenders through a secure, permissioned system, so movable collateral becomes routine rather than another paper-heavy exception.

Bank records can already reveal much of what lenders need to know. Sales, digital payments, utility bills, and repayment histories can help verify turnover and repayment behaviour when audited statements are absent. Hasina Mukta began producing handicrafts and clothing at home with four workers. When growing orders created a need for space and capital, a collateral-free SME loan helped her expand to 18 employees; she later reported almost full repayment.

The current lending mix shows how far there is to go: in the first quarter of 2025, trading absorbed 59% of CMSME credit while manufacturing received just 24%.

The next step is to widen the evidence banks are prepared to trust. A machine, work order, receivable, repayment record, or digital transaction trail should carry weight even when land is absent. Credit guarantees can then be used more deliberately — for women-led firms, manufacturers, backward-linkage suppliers, climate-smart enterprises, and technology upgrades — rather than as a box-ticking route to a portfolio target.

The UN Committee for Development Policy has recommended that the UN General Assembly approve extending Bangladesh's LDC preparatory period to 2029. Once implemented, the India-EU trade agreement would eliminate EU tariffs on 99.5% of goods imported from India over seven years. To compete, smaller Bangladeshi suppliers will need better machinery, lower waste, cleaner records, stronger traceability, and more reliable production systems. All of that will require transitional finance that many would not be able to secure.

Jobra's lesson was that viable enterprise can be invisible to a conventional lender. Decades later, the credit file still misses functioning businesses and cashflows. Bangladesh cannot use the years to 2029 only to preserve trade preferences. It must also make movable collateral workable, widen the evidence banks trust, and finance the upgrades smaller suppliers are already being asked to make. Otherwise, too many firms will remain unfundable on paper.

Saba El Kabir is the founder of Cultivera and institutional sustainability adviser at PPRC. 

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.