Access to credit for cottage, micro, small, and medium enterprises (CMSMEs) in Bangladesh is facing new obstacles after a regulatory change raised the general provision requirement for banks.

Since April, commercial banks have been required to maintain a general provision of 1% against loans to CMSMEs, up from 0.25% previously. The move, linked to conditions set by the International Monetary Fund under its $5.5 billion support program, is aimed at strengthening the banking sector.

Bankers and regulators, however, warn that the measure could reduce lending to a sector that employs the bulk of the country’s workforce. A Bangladesh Bank official, speaking on condition of anonymity, said the “unexpected change” may discourage banks from prioritising CMSMEs.

Data from the central bank show the share of CMSME loans in total banking sector credit has been shrinking steadily, from 21% in 2020 to 16.84% in March 2025.

The Association of Bankers, Bangladesh (ABB) has written to Central Bank Governor Ahsan H. Mansur to express its concern. ABB Chairman Mashrur Arefin, also Managing Director of City Bank, told The Financial Express that the new requirement “would badly impact loan disbursement” to the sector.

He suggested that the regulator revert to the earlier provisioning levels and align them with those of non-bank financial institutions, warning that the current policy risks further restricting funds to a critical part of the economy.