Dr. Atiur RahmanBangladesh’s inclusive growth strategy views SMEs as crucially important drivers of sustained broad based output, employment and income generation. Government and civil society organizations 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, itemized below.
· For some years now, BB’s Corporate Social Responsibility (CSR) mainstreaming initiative has been guiding institutionalization of 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 thru MFIs and other locally active area agents. To this end BB has steered major modernization of the financial sector IT infrastructure, introducing inter alia online interbank clearing and settlement of payments thru 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. This facility funded largely by development partners like IDA, ADB and JAICA has a women’s entrepreneurship promotion element, as only lenders with at least fifteen percent 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 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 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 organizations. (Such clustering also facilitates useful networking between the SMEs themselves, as well as with their value chain backward and forward linkages).
(vi) BB is catalyzing 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. Growing use of external credit ratings of businesses in financing decisions of lenders is helping factoring practices catch on.
· Access to equity finance support for SME entrepreneurs is also widening. For over a decade now, a government financed Equity and Entrepreneurship Fund (EEF) is extending up to forty nine percent 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 to 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 smoothing out the impediments to maintaining SME financing on adequate growth path (7.6 percent y-o-y in first three quarters of FY13)rather than at creating any undue surge in SME lending. End use surveys reveal satisfactory utilization; overdues (under 15 percent of outstanding) are lower than in farm credit.
Bangladesh’s macroeconomic stability with decade-long above six percent annual average real GDP growth amply evidences that our 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. We intend to pursue the promotional policy approaches further forward, also taking lessons from experiences elsewhere in global dialogue sessions such as this.
(BB Governor Dr. Atiur Rahman’s opening statement as panelist in AFI session)
