Defaulted loans in Bangladesh’s Cottage, Micro, Small And Medium Enterprise sector climbed sharply to 26 per cent at the end of March, while total outstanding loans declined, according to a Bangladesh Bank report.

The Quarterly Report on CMSME Financing for January-March 2026 showed that the classified loan ratio rose from 24.03 per cent or Tk 72,600 crore in December 2025 to 26.04 per cent or Tk 77,503 crore.

At the same time, total CMSME outstanding fell by 5.15 per cent to Tk 2,98,088.83 crore from Tk 3,14,273.17 crore at the end of December 2025 and was 1.35 per cent lower than a year earlier.

The report said banks and finance companies disbursed Tk 52,107.72 crore in fresh CMSME loans during the January-March quarter to 3,86,453 enterprises, up 8.98 per cent from Tk 47,813.01 crore in the same period last year.

The number of enterprises receiving loans also increased by 19.37 per cent from 3,23,734.

Despite the higher disbursement, the decline in outstanding loans indicates that repayments, write-offs and loan classifications outpaced fresh lending during the quarter.

The central bank also acknowledged that the first quarter is usually slower for portfolio growth but said continued lending, timely recovery and close portfolio monitoring would be essential to strengthen CMSME financing in line with regulatory targets.

The sector also fell further behind Bangladesh Bank’s lending targets.

CMSME loans accounted for only 15.87 per cent of total outstanding bank loan by March, 2026. The share declined from 16.76 per cent in December and 16.84 per cent a year earlier.

Several other policy targets also remained unmet.

Loans to women entrepreneurs accounted for 7.28 per cent of the CMSME portfolio, less than half of the 15 per cent target.

Cluster financing fell to 5.44 per cent against the required 10 per cent, while manufacturing represented 34.96 per cent of the portfolio, below the minimum target of 40 per cent.

Trade continued to dominate CMSME financing, accounting for 44.93 per cent of outstanding loans, exceeding the regulatory ceiling of 40 per cent.

Private commercial banks remained the largest source of CMSME financing, accounting for 51.95 per cent of outstanding loans, followed by Islamic commercial banks with 20.08 per cent and state-owned commercial banks with 18.88 per cent.

Asset quality varied significantly across banks.

Islamic commercial banks recorded the highest classified loan ratio at 43.97 per cent, followed by state-owned commercial banks at 42.73 per cent, private commercial banks 14.15 per cent, while foreign banks maintained the lowest ratio at 4.60 per cent.

The report showed some improvement in financial inclusion.

Lending to women entrepreneurs increased to Tk 21,692.58 crore, representing 7.28 per cent of the portfolio, while rural enterprises accounted for Tk 71,803.64 crore or 24.09 per cent.

Outstanding collateral-free loans reached Tk 47,013.26 crore, equivalent to 15.77 per cent of total CMSME financing.

Bangladesh Bank also reported that the recovery rate stood at 55.48 per cent during the January-March quarter, with Tk 65,291 crore recovered against recoverable loans of Tk 1,17,691 crore.