TITLE:
How Do Suppliers to FDI Companies Finance Their Business Despite Facing Unique Challenges? A Case Insight from Bangladesh’s SMEs Sector
AUTHORS:
Amitavo Bairagi
KEYWORDS:
SME Financing, FDI Suppliers, Alternative Finance, Bangladesh, Credit Constraints, Policy Impact
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.15 No.5,
May
31,
2025
ABSTRACT: Bangladeshi small and medium enterprises (SMEs) supplying to Foreign Direct Investment (FDI) firms face a financing paradox: while FDI partnerships enhance their credibility and access to markets; these businesses remain financially constrained due to high interest rates, rigid collateral demands, and limited credit histories. Drawing on a mixed-methods approach, by utilising both surveys and interviews with SME owners and financial professionals from lending institutions, this study reveals that access to traditional bank loans remains limited, pushing firms toward high-cost alternatives, such as—microfinance and informal lending. Although FDI relationships improve creditworthiness by reducing information asymmetry, benefits are partially offset by delayed payments that strain cash flows. Government efforts, like—the Bangladesh Bank’s SME Financing Policy, yield moderate improvements, but poor outreach and low awareness, especially among rural and women-led firms, limit the impact. Framed through a Resource-Based View, Transaction Cost Economics, and Signaling Theory, the study finds that SMEs adopt hybrid financial strategies to remain operational, yet these are often unsustainable. To enable transformative change, the study calls for policy reforms focused on flexible collateral, contract-based financing, and improved institutional coordination. These measures are vital to strengthening the financial resilience of Bangladesh’s FDI-integrated SMEs and advancing inclusive, export-driven growth.