Who Benefits from SME Credit? Evidence from Bank Lending in Bangladesh

Small and medium-sized enterprises (SMEs) face persistent barriers to formal credit, and while expanding loan access improves firm performance on average, less is known about which firms benefit most. This paper provides new evidence from Bangladesh, in collaboration with a commercial bank, combining administrative records on the universe of SME loan applicants in 2021–2022 with original survey data on roughly 2,000 firms. The identification strategy compares accepted and rejected applicants who passed an initial screening, using coarsened exact matching. On average, receiving a loan increased sales by 18 percent, profits by 20 percent, and employment by 8 percent. But the employment gains are uneven: the average effect is driven entirely by firms with at least five employees, which saw a 14-percent increase in employment. Expanding credit to smaller firms can raise their owners’ incomes, but only larger SMEs create jobs for others.