Financing SMEs and Its Effect on Employment Generation: A Study of BRAC Bank’s SME Lending

Financial and development assistance designed especially for small and medium enterprises in Bangladesh is a new and upcoming trend. After the surge of micro-finance in the last two decades, small and medium enterprises have come to the limelight in the financial sector on account of their contribution to the economy and yet limited access to finance. Both micro-finance institutions and banks are beginning to realize the potential of this market and designing new financial products for it. BRAC Bank started providing credit to small and medium enterprises in 2002 in recognition of their special needs. This paper looks at the performance of small and medium enterprises that have received loans from BRAC Bank with a focus on employment generation. The analysis reveals that employment generation is higher in enterprises with a long association with the Bank, enterprises in the manufacturing sectors and enterprises with a high initial labour force. Moreover, employment generated after repeat loans has a greater positive impact on the wage bill when compared to employment generated after first loans. The report concludes that future challenges of BRAC Bank’s SME lending operations would be to develop the right types of products to lend to manufacturing enterprises and support fixed capital investments of SMEs. Such diversification would have a greater potential of supporting growth and generating sustainable employment opportunities.

Authors: Rabbani, Mehnaz; Sulaiman, Munshi
Type: Report
Year: 2005