Bangladesh's inclusive growth strategy views SMEs (small and medium enterprises) as crucially important drivers of sustained broad-based output, employment and income generation. Government and civil society organisations are active in supporting and promoting SME initiatives, working for removal of the financial and nonfinancial impediments to their commercial sustenance in the supply chains of the goods and services they produce.
Bangladesh Bank (BB), the country's central bank, is guiding facilitation and promotion of access to finance for SMEs, identifying the challenges and trying out policy solutions, where necessary in collaboration with the government, the private sector and external development partners.
SME initiatives typically begin with small, often insufficient equity from entrepreneurs' own personal or family savings. Absence of track record in business and lack of real assets to offer as collateral make it difficult for SMEs to access debt finance on affordable terms. Banks and financial institutions primarily geared towards serving larger urban businesses are in general neither well motivated nor well equipped to serve SMEs in dispersed locations far off from branches.
Besides, higher risks in SME lending, they also find SME loan administration costlier. In these circumstances SMEs find it hard to get credit for inputs procurement and other expenses. SMEs often have also to sell their produces on credit, further burdening their precarious finances.
BB has adopted a comprehensive approach in trying to address the multifarious SME financing impediments and disincentives, covering all areas from attitudinal orientation of the lending institutions onward, itemised below:
* For some years now, BB's Corporate Social Responsibility (CSR) initiative has been guiding institutionalising socially and environmentally responsible financing in corporate ethos and objectives of lending institutions. This has successfully motivated and enthused the entire financial sector in financial inclusion initiatives of reaching out to all productive undertakings of all population segments including the SMEs.
* Multi-pronged BB initiatives for bringing down lender's costs in financing of SMEs and other clientele in dispersed locations include:
(i) Promotion of smart card/mobile phone based off branch financial service delivery through MFIs and other locally active area agents. To this end, BB has steered major modernisation of the financial sector's IT infrastructure, introducing inter alia online inter-bank clearing and settlement of payments through diverse platforms interconnected by a national payments switch and online access to credit information on borrowers including SMEs.
(ii) Low cost refinance for lenders from BB against their SME financing funded largely by development partners like IDA, ADB and JAICA has a women's entrepreneurship promotion element. Lenders with at least fifteen per cent of their SME loans to women entrepreneurs qualify for the refinance facility. Besides these externally supported refinance windows, another refinance line funded by BB itself supports lending to renewable energy and other environmentally benign projects including those of the SMEs.
(iii) Preliminary work is in progress for setting up an official Registry of moveable assets to facilitate use of these assets as collaterals for institutional borrowing by SMEs and others.
(iv) To help bring down borrowing costs for SMEs, setting up of a partial risk guarantee scheme for SME loans with fund support from an external development partner is at the final stage.
(v) BB is promoting a 'clustering' approach of lending institutions in their SME financing, seeking to draw large number of SMEs in the same or linked sectors into suitable regional clusters where they can be supported conveniently with various financial and non-financial services by lenders and other concerned government and civil society organisations. (Such clustering also facilitates useful networking between the SMEs themselves, as well as between their value chain involving backward and forward linkages).
(vi) BB is catalysing partnerships between lending institutions and diverse public and private sector entities (such as BSCIC, DNet, EDCL, DCCI etc.) in integrated initiatives for training, grooming up and financing SME entrepreneurs in innovative undertakings like biomass based energy generation, IT services etc.
* Direct SME financing facilitation is being supplemented by 'factoring' or discounting of their receivables against credit sales to buyers of good credit standing, easing pressure on their finances.
* Access to equity finance support for SME entrepreneurs is widening. For over a decade now, a government financed Equity and Entrepreneurship Fund (EEF) is extending up to forty nine per cent in equity support to agro based and IT sector enterprises, including those of SMEs (the EEF contributions are to be bought back by entrepreneurs within eight years, otherwise these get converted into debt). More recently, two similar venture equity support initiatives have also emerged in the private sector.
* BB's SME financing and other financial inclusion initiatives are conducted within the overall monetary growth envelop of a cautious monetary stance. The promotion initiatives aim at easing out the impediments to maintaining SME financing on adequate growth path (7.6 per cent y-o-y in first three quarters of FY13) rather than creating any undue surge in SME lending. End use surveys reveal satisfactory utilisation; overdues (under 15 per cent of outstanding) are lower than in farm credit.
Bangladesh's macroeconomic stability with a decade-long annual average real GDP (gross domestic product) growth of more than 6.0 per cent amply testifies that BB's SME financing promotion and other inclusive financing policy approaches have served the economy and financial sector well during and following the global financial crisis, protecting credit flows for productive activities and aiding stability both on the demand and supply sides amid global growth slowdown.
