Loan scam

SMEs might be tempted to take dubious loan offers, when desperate.

Risk type: Practice

Risk driver: External


SMEs often rely on credits when the company is created, to expand the business or to invest in new equipment. However, it might be difficult for SMEs to present the necessary guarantees to receive a loan from a reliable institution. This might make it necessary for SMEs to respond to dubious credit offers.

A ‘loan scam’ usually occurs when a person or enterprise replies to an advert for a fast loan and has their application approved regardless of their credit history. Before they receive the loan, they are told they must pay an upfront fee to cover insurance for the loan. Once this fee is paid, the victim does not hear from the company again and the loan is never received.

Loan scams can also consist of obstacles that need to be overcome to receive a loan, such as large amounts of documentation, unaffordable interest rates, or requested bribes.


  • The lender is not interested in the business’s credit history.
  • Fees are not disclosed clearly or prominently.
  • The lender is not registered.
  • The account into which the expired loan or interest rates are to be paid is not a company account but an individual account.
  • There are excessive requirements to obtain a loan.
  • There are excessive interest rates or a very short-term loan duration.




Small businesses affected by the largest loan scam in Bangladesh1

Target group: SMEs

Location: Bangladesh

As money floods into the city, many small businessmen in Bangladesh cannot secure bank loans. They face what they say are unreasonable demands from the state-owned banks for huge amounts of collateral, masses of documentation, interest rates as high as 19 percent, and finally “speed money” – a bribe for the bank official worth 10 percent of the loan value.

Meanwhile, corrupt bankers are funnelling loans worth billions of taka to businessmen backed by the country’s political bosses, accepting forged documents and waiving the collateral rules. In August the central bank unearthed a 36 billion taka ($43 million) loan scam at the country’s largest bank, Sonali Bank Ltd, where loans were granted to a little-known business house without the minimum collateral required as security. […]

Loan scandals like this rob banks of the profits and capital needed to back fresh lending, and it is SME that pay the price. As of June 30 unpaid or non-performing loans in the banking system, called “classified loans” in Bangladesh, totalled 290 billion taka ($3.4 billion), and thousands of cases involving billions of taka were tied up in the courts as the banking authority tried to recover money from loans gone bad. […]

Shahin said [SMEs] hardly ever default on loans, yet they become the victims in the banking scandal. “Had the money (given to Hallmark Group) been granted as loans to the SME, they could have flourished as businesses and generated more employment. Corruption is really undermining the future of the country,” he said.


  1. Islam, S., 2012, Small businesses pay price in Bangladesh’s biggest loan scam, Thomas Reuter Foundation, http://www.trust.org/item/20121002145200-hrwzm/, accessed 19.10.2015
Last updated 19 February 2019

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