Survey on the MsMEs of Dhamura, Barisal, Bangladesh

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Dhamura is a small village of Barisal District. It is around 256 km from
the capital Dhaka and 24 km from Barisal. The centre of its economy is the
local market. The position of the market has made it a profitable one. It is at
the bank of Dhamura River and this market is a transition point for most other
nearby locality for communication with the district or any other part of the

Dhamura Bazaar

Road to Dhaka

Road to Barisal

Picture 1: The geographic positioning has made this
area a centre of economic activities

Apart from the century old market, this area has many
other signs of development. The literacy rate is around 60 percent and almost
95 percent children go to school, though the dropout rate is also high, as one
in twenty children drops out before sixth grade.Many of them start participating
in the rural economy and those who drop out before university level, usually
start small business in the locality.

The remittance inflow in the economy is also high as
many families have members staying abroad and sending money. These people help
start up and run business and when they return permanently from abroad they
start their own business.

The Economy

Most of earnings come from farming but small and
medium businesses are growing as well. The participation of woman in economy is
also significant. Though, the main activities remain within farming and cottage
industry but gradually woman are participating in rural SMEs as some of the
shops are run by woman entrepreneurs in the market.

Picture 2: The Economy is still agriculture based

There is a government bank (Sonali Bank) in the market
and most of the well known MFIs have activities in this locality, but here
cooperative societies are playing a dominant role in rural financing in recent
days. There are also individual lenders who meet short term financing needs but
they charge very high interest rate.


The study is based on a survey conducted on the MSMEs
of Dhamura, Barisal, Bangladesh. The centre of the economy in this village is
the local market which is locally known as ‘bazaar’. Almost all of the MSMEs
were included in the survey. All of them were asked same questions. To find the
true picture, local support was taken so that respondents feel free to answer
the questions. 

The survey covered mainly the capital sources at the
beginning of the business, use of loan financing at present, purpose of using
the loan financing, amount of loan, the reasons for not taking loan, if they
feel more capital is needed and finally what can be done to make them take loan
financing and expand their business.

It is observed that most of the businesses are
profitable and the growth rate is also steady but most of them lack recourses
for which they cannot grow at a desired level. Their responses were then
evaluated with other parts of Bangladesh and we found a great deal of similarities.
It could be concluded that this local market and the economy of Dhamura depict
the overall scenario of Bangladesh.

Capital Sources at the Beginning of the Business

The main sources of capital for initial investment is
still own recourses. In Dhamura, people start business mainly, when they can
save and gather adequate resources by their own.

Figure 3:
Sources of Capital

Here, 58 MSEMs responded that they have started their
business with their own capital. Another 13 percent people started the business
with the help of their relatives. Those who have family members abroad, mostly
in Saudi Arabia, Dubai, and Malaysia have had this support. The important
findings is only 29 percent of the MSEMs started their business with the help
of loan, which indicates the access to finance is limited to start-up a
business in the locality.

This scenario remains almost same in the following
stages of the business. During the growth stage of the business, these MSMEs
seek for loan finance to facilitate additional sales. The MFIs and cooperatives
play a vital role here. Most of the MSMEs are at the growth stage of the
business life cycle and it is high time they get access to finance.  

Usage of
loan in running the business

After observing the sales and revenue growth of the
MSMEs in recent years; it can be assumed that most of them are running at their
full capacity with the internal resources. The average monthly earnings from
the business of the medium to large enterprises are about BDT 20,000 and BDT
6,000 for micro and small enterprises. This surely indicates the profitability
of the enterprises.

Figure 4:
Use of loan

At this stage, 55 percent of the MSEMs have loans at
present from one or more sources among the Government Banks, Private Banks,
MFIs, Cooperatives, or other informal sources such as individual lenders
lending at a high rate or relatives.

But, noteworthy thing is that 45 percent MSMEs have no
loan financing. As, it is already mentioned that the economy is at growth
stage, lack of financing is causing those enterprises unable to get finance lag

We would find details about usage of loan and the
reasons behind not taking any loan in following pages. Still, with almost half
of the enterprises out of loan finance it is very difficult to strive forward.

of Loan

A significant portion of the enterprises do not have
access to loan finance. Though, there are sources available for loan financing
in Dhamura; which depicts the scenario of most other parts of Bangladesh. These
sources provide inadequate amount of fund or the products are not suitable for
the MSMEs.

Figure 5:
Sources of loan

There are mainly five types of sources available for
the MSMEs in Dhamura. These five types of sources are also available across the

The most desired service provider is government
institutions and the people in rural areas still prefer government services.
They feel the commercial banks or other institutions have goal of profit
maximization and they do not consider the economic condition. Whereas,
government institutions’ main purpose is economic development; as a result,
they feel government institutions would provide loans with lower interest rate.
This perception also creates a barrier for non government organizations in
terms of fair competition. 

Unfortunately only 9 percent MSMEs could get fund from
Government Banks. In Dhamura, the only source of government finance for MSMES
is Sonali Bank and in a few cases Bangladesh Krishi Bank. There is a huge
demand and supply gap for government funding here. MSMEs consider government
services would match with their benefit but access to it is minimal.

The main sources of private banking services come from
BRAC Bank and National Bank mainly for two reasons. One, these banks have
branches near to Dhamura and secondly, it is easier for the entrepreneurs to
get loans from these two banks than government banks.  Though, the MSMEs believe the interest rate
is too high, but 20 percent enterprises have loan from private commercial

MFIs provide 17 percent of the financing but this rate
was higher in earlier years. The products provided by the MFIs are not suitable
for the MSMEs of Dhamura. Again, the amount of loan is also important here.
Where most of the small enterprises have access to MFIs but most of the medium
and large enterprise are interested in other sources than MFIs.

Cooperatives in Dhamura are in boom state. There are
many cooperatives here and most of the MSMEs have or had used it as a source
mainly because the source is readily available and the fund is easy to collect.
AT present 31 percent MSMEs have loans from these Cooperatives which are
locally known as “Multipurpose’. The repayment procedure is troublesome for the
enterprises, as most of the cooperatives collect fund on daily basis and sometime
weekly basis.

Other informal sources are individual lenders,
relatives etc who provide fund mainly for short term financing at a high
interest rate, sometime as high as 200 percent. Those MSEMs needed funds for
emergency or for a short period take this loan. And the fund is used mainly for
working capital purposes and times before occasions, for instances before EID or

Purposes of using loan

The primary purpose of using loan is for expansion.
When the MSMEs want to grow their business they seek for financing. Another use
is working capital in where enterprises use the fund to meet day to day expenses
or meet short term liabilities. New venture is considered as enterprises
expanding beyond current business, i.e. starting another business.  

Figure 6:
Purpose of using loan

AT the growth stage the MSMEs go for expansion, try to
capture more market share or generate more sales. As a result, 53.33 percent
MSMEs in Dhamura use loan for expansion.

On the other hand, 40 percent MSMEs of Dhamura, use
loan as working capital which help them keep running their enterprises in tough
times. Some of the entrepreneurs mentioned that they do not take loan until
they have no other options.

Majority of the MSMEs, 93.33 percent use fund for
these two purposes, where only 6.67 percent MSMEs use loan financing for new
venture. This concludes why the economy in Dhamura is growing at a slow rate. Hardly
any new business opportunities are created in recent days. Existing businesses
are growing but new opportunities are not added to the existing one. But, if
along with expansion of current businesses, enough new businesses had started,
the growth rate would have been much higher.

for not taking loan

Forty five percent MSMEs in Dhamura do not have loan
finance at present. So, indentifying the problems is crucial. These MSMEs
required loan financing for growth but there are some issues for which they are
reluctant to take loan. If these issues are resolved then they would take

Figure 7:
Reasons for not taking the loan

Rigid procedure includes all the processes required to
get a loan. For example, one of the respondents informed us there are more than
100 documents needed to be submitted to get a CC loan from Government Bank. Another
entrepreneur told that he was waiting for a loan for more than two years after
his application. The rigid procedure mainly applies for the government banks as
the cooperatives require minimum documents and it is also true for MFIs. But
private commercial banks’ process is not too encouraging for the MSMEs. 12
percent MSMEs did not take any kind of loan because they felt the procedure is
too rigid for them and they may not get the loan in time.

High interest rate is also a major drawback. Among the
MSMEs of Dhamura 24 percent think the interest is too high to have loan
financing. One of the entrepreneurs provided us with an example that though the
written interest rate is 12 percent but he had to pay more than 70 percent. So,
the MSMEs are well aware of the real interest rates and thus they are not
taking any loan. The interest is high for private commercial banks that provide
long term financing whereas cooperatives provide short term financing and the
interest rate is very high. The interest rates of MFIs are also high as the
repayment is made on daily or weekly basis. Though, the interest rate is low of
government banks but because of other reasons MSMEs are not encouraged to take
support from them.

Most of the commercial banks require collateral such
as land, property etc. Cooperatives are based on local trustworthiness and MFIs
are based on group activities. The collateral has to be immovable property
which the rural MSMEs lack.  And
entrepreneurs do not have good perception about collateral as from previous
experiences with local individual lenders. But it is not a major concern as
only 4 percent MSMEs consider this as the reason for not having loan financing.

One of the interesting findings is MSMEs who did not
considered loan financing as a source of capital would have considered it, if
they had found government services available. Still only 4 percent considered
this but those who have taken loan also informed that they would rather prefer
government services. One may think it is mainly because of a tendency of
default, but surprisingly there are only a few cases of defaults in recent

The MSMEs of Dhamura like most other parts of
Bangladesh has unique demand. Most of them informed that the repayment system
is not desired. Sometime they need to pay high amount of principal in early
periods. MFIs and cooperatives have a repayment policy based on daily or weekly
basis which MSMEs feel troublesome. Twenty percent MSMEs feel if there were
products which fulfilled their demand they would have considered loan financing
as an option.

Surprisingly, highest number of MSEMs responded that
they are not interested in loan financing at all. And the main reason behind
this is the general perception of people about loan and the prior experiences.
They would rather have current profitability than take loan and improve their
condition. This is the area where a number of awareness programs need to be targeted.

more capital

The MSMEs are performing well in terms of
profitability and growth, but most of them lack adequate capital.

Figure 8:
Needed more capital

Eighty seven percent MSMEs of Dhamura needed more
capital and they are aware of the inadequacy. They feel that with additional
amount of financing they could grow further as there is scope for expansion.

Thirteen percent of the respondents consider that they
do not need more capital. These MSMEs have businesses which have few market
demands, for example CD/VVD rental services, or there is no scope for growth. In
general, most of the businesses are running at their growth stage, so they need
more capital.


We tried to find out what needs to be done to meet the
MSMEs’ demand as we are concerned with demand side constraints. The result is
not surprising; the entrepreneurs of Dhamura have expressed what we have observed
all over the country. These MSMEs are willing to take loan financing if they
have their demands fulfilled.

Figure 9:
Expectation from the loan

This question was asked all to the MSMEs who have
taken loan financing and who have not. The objective was to find out possible
guidelines as they are the people who would take the loan and what they think
matters most.

Twelve percent MSMEs think the procedure to get loan
need to be a simple one. The times required to collect the fund should not be
long. And preparing documents includes high amount of transaction costs for
them, as most of them never had the documents like chairman certificates or
reference before. This cost need to be minimized to serve them as well as the

It is already mentioned that the interest rate is too
high for MSMEs when we consider cooperatives, commercial banks or even MFIs.
And it is the area where most of the MSMEs are concerned about. Those who have
taken loan from one of the sources are unwilling to have further loan until
they have sources providing loan at a lower interest rate. 36 percent MSMEs
considered interest rate needs to be lowered.

As, most of the enterprises have no collateral
suitable for the loan financing from commercial banks and government banks for
long term financing, they think either the types of collateral need to be
changed or the requirement of collateral need to be removed. 12 percent MSMEs
consider collateral is the barriers for the expansion they seek with the help
of loan financing.

Another 12 percent MSMEs feel government service could be the solution.
They feel commercial banks and other non government institutions are concerned
with generating profit. The interest of government is public welfare and the
MSMEs think only the government service could help meeting their demand.

Specific products need to be developed for the needs
of rural MSMEs. Both the government and non government institutions need to be
well aware of this fact and try to serve them with their desired product. In
Dhamura the cooperatives are filling the gap and the entrepreneurs are paying
the price with high interest rate. 20 percent MSMEs of Dhamura consider that
they are underserved with desired products in terms of loan financing.

Though, most of the respondent who did not considered
loan financing as a source of capital because they did not have any interest in
loan at all, but in general the rate is only 8 percent. But this portion of the
market segment needs to be evaluated as well. There is lack of information to
them and the perception about loan financing need to be changed.

As we all know, with the limited amount of internal
resources they cannot grow further. To move further these MSMEs should have
access to financial services. Another important thing is that, the
participation of woman entrepreneurs need to be ensured because they cannot
overcome the barriers to get access to finance.  Most of the MSMEs, irrespective of gender feel
the road for expansion is not encouraging for them. A number of things can be done for that. But
for now, access to finance is still limited in rural areas of Bangladesh
leading to slow economic development.