Access to Finance-SME

7/28/2019 Access to Finance-SME

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Access to Finance:

SME & Agriculture Finance by Banks

Syed Nazrul IslamDeputy Director & Project Manager

SMESPD, BB, H.O, Dhaka

Bangladesh Bank [The Central Bank of Bangladesh]



Defining Access to Finance

Financial inclusion can be defined as a ―state in which all people of working age haveaccess to a full suite of quality financial services, provided at affordable prices, in a

convenient manner, and with dignity for the clients‖ (Accion International, 2009). Financial inclusion encompasses the range, quality, and availability of financial

services to the underserved and the financially excluded (IFC, WBG-2011)

Financial inclusion implies that both unbanked and under banked households and firms are part of the target market.

Source: IFC, WBG-2011



Access to Finance-Institutional

Dimension

Financial Access & InstitutionalDimensions

Source: World Bank,2005





Measuring Access: Institutions,

Services/Products

Access to Institutions-Banks, MFIs, Insurance Companies

Access to Functions or Service-Payments, savings, credits Access to use of specific financial products- Debit/Credit cards, insurance

Some Important Statistics

Around 2.7 billion adults—almost 70% of the population in developingcountries—have no access to formal financial services (IFC, WBG-2011); Share of populations with accounts in formal and semi-formal FIs ( Demirgüç-Kunt et al,2007) -

Western Europe and North America- More than 80%

Central Asia and Eastern Europe -60% to 80% percentLatin America –< 20% (Nicaragua )to >60%(Chile).Asian countries- Ranges from 40% to 60%.



Measuring Access: In Bangladesh

Outreach Dimension

Ref: Islam & Mamun, 2011-WP1101 (BB)



Measuring Access: In Bangladesh

Actual Usage Dimension

The number of loans per 100,000 people in Bangladesh, for example, is 54.73 and thenumber of deposits for 1,000 people is 228.75 placing it at the 31st and 43rd spotrespectively in a World Bank survey of 53 developed and developing countries (Beck, etal., 2006). Without the spread of microfinance institutions, Bangladesh would have ranked

considerably worse.

Ref: Islam & Mamun, 2011-WP1101 (BB)



Nature and factors affecting FI

• The financially excluded sections largely comprise – Marginal farmers – Landless laborers – Self employed and unorganized sector enterprises – Urban slum dwellers – Migrants – Ethnic minorities and socially excluded groups

– Senior citizens – Women

• Factors affecting access to financial services – Legal identity – Limited literacy

– Level of income. – 'Terms and conditions. – Complicated procedures – Psychological and cultural barriers – Place of living

– Lack of awareness



Consequences of exclusion and benefits

of inclusion

• Consequences Of Financial Exclusion

– Losing opportunities to grow – Country's growth will retard – Business loss to banks – Exclusion from mainstream society – Loss of opportunities to thrift and borrow

– Employment barriers

• Benefits Of Inclusive Financial Growth – Growth with equity – Get rid of poverty – Financial Transactions Made Easy – Safe savings along with financial services – Inflating National Income – Becoming Global Player



Paradigm Shift

―Access to Finance‖ is shifting to embrace

the idea of providing banking services(credit, savings, and insurance) ratherthan primarily delivering microcredit forsmall scale business.



BB’s Initiatives-BRPD

• Bank A/C for Farmers

– Depositing Tk. 10

– SCBs & Specialized Banks

– 96,04,757 Accounts (28/03/2013)

• Bank A/C for Unemployed Youths


– Any scheduled Bank under National Service Program• Bank A/C for Hardcore Poor

– Depositing Tk. 10 – SCBs & Specialized Banks

• Bank A/C for Freedom Fighters


– SCBs & Specialized Banks – 1,09,909 Accounts (28/03/2013)

• Bank A/C for Aila Affected People


– Kaira & Dakup Upazill Branches of Sonali, Agrani, Rupali & BKB.



BB’s Initiative-BRPD

• Bank A/C for Beneficiaries under Social Security Programs


– SCBs & Specialized Banks

– 26,46,453 Accounts (28/03/2013) • Bank A/C for Small Insurance Policy Holders

– Depositing Tk. 100 – SCBs & Specialized Banks

– 8,663 Accounts (28/03/2013) • Mobile Phone Banking

– Inward foreign remittance disbursement

– Cash in /out using m-wallet account through agents/ Bank branches/ ATM’s/ MobileOperator’s outlet

– Person to Business Payment (e.g. utility bill payment)

– Business to person Payment (e.g. salary disbursement )

– Government to Person Payment

• School Banking



BB’s Initiative-ACFID

• Banks were instructed, from FY 2011-2012,mandatorily to set – annual agri./rural credit disbursement target at a 2.5% of their total

loans and advances

• Loans to Farmers for Spice Cultivation – Production of Pulse, Oil-seed, Spices and Maize

– 4% interest rate concessional credit

• Refinance Scheme for neglected Sharecroppers (2009) – BDT 5oo Crores

– Until 2012: 4,81,000 Beneficiaries- BDT 577 crores



BB’s Initiative

SME & Special Programs Department



Bangladesh SME sector-A Brief

SMEs comprise about 99% of private industrial establishments

Total workforce employed in SMEs over 3.5 million

About 65% SMEs are located outside Dhaka and Chittagong Metropolitan

areas [rural & sub urban enterprises]

Of the total share of manufacturing value added to GDP, SMEs contributionis estimated at 28-30%

SMEs jobs are about 80% of total industrial labor force

Large demand supply gap for SME credit

Current SME credit is pronounced in the metropolitan areas.



Goals and Objectives of SMESPD

• Goals

– Achieving enhanced economic growth; women empowerment;poverty alleviation and realizing the full potential of SME sector indevelopment;

• Objectives – Bringing SME banking under prudential regulation

– Ensure proper use of SME loan through strong monitoring andcontrol;

– Enhancing access to finance for the marginal, small and financiallyexcluded women entrepreneurs there by broadening FinancialInclusion among the formal and non formal entrepreneurs;

– Supporting banks/Non Bank Financial Institutions in SME Bankingcapacity building ; and



Functions of the department

• Regulation of SME banking activities of the banking sector;

• Policy related issues on SME banking;• Monitoring of industrial loan ;• Managing refinance schemes for SMEs;

– BB

– ADB

– JICA

• Women entrepreneurs development;

• Monitoring of SME lending in the banking sector;• Refinance scheme for agro based industries;• Affordable housing financing • Others

BB’ i iti ti f SME t



BB’s initiatives for SME sector

development

• There has been a paradigm shift in the Bangladesh

Bank’s policy regime in recent years.

• The policy has skewed in favor of the financiallyexcluded and unbanked mass of the country

specially towards the – SME entrepreneurs with particular emphasis given to

small entrepreneurs and women entrepreneurs

– More emphasis on manufacturing and service sector thatare more capable of generating employment equitableand enhanced economic development; and

– Traditionally developed industry clusters.



BB strategies for SME development

•Bangladesh Bank has issued SME creditpolicy and programs where following anumber of new measures have been taken: – Targeted Credit Initiative(TCI)

– Cluster Based Lending(CBL) – Women Entrepreneurship Development(WED) – Promotion of SME issues

– Training [for bankers and entrepreneurs] – Incentives for bankers – Hand Holding with other stakeholders



Our approach



Financial Inclusion-Broadening SMES

• Definition of SMEs [SMESPD Circular #01/2011]Criteria ¯Fixed Asset excluding land and Building (million

BDT) # of Manpower employed

Size Manufacturing Service Trade Manufacturing Service Trade Cottage < 0.5 ≤10 [including family members]

Micro > 0.5 - ≤ 5.0 < 0.50 < 0.50 10-24 < 10 < 10

Small > 5.0- ≤ 100.00 > 0.50 - ≤ 10.0 > 0.50 - ≤ 10.00 25- 99 10-25 10-25

Medium >100.00-≤300.00 >10.00- ≤ 150.00 >10.00-≤150.00 100-250 26-100 26-100

Cottage & Micro Industries are also included in SME

financing[ even eligible for Refinance from BB]



Refinance Window

Name of Fund Allocation

(BDT in Crore)

Category Refinance (BDT in Crore)

Number of Ent Amount

BB Fund(SE & WE)

600General 11632 1128.15

WE 7002 508.24

Subtotal 18634 1636.39

IDA 118 3160 312.61

ADB-1(SMEs outsideDhaka & Ctg)

202General 3134 318.49

WE 130 16.45

Subtotal 3264 334.94

ADB-2(SMEs outsideDhaka & Ctg)

720General 9562 482.90

WE 57 6.90

Subtotal 9619 489.80

JICA (MT & LT) 450 32 21.14

Gross Total 34709 2794.88

As on 31 December, 2012



Cluster Based Lend ing (CBL )

– cluster is a geographic concentration of interconnected

businesses, suppliers, and associated institutions in aparticular field.

– Clusters are considered to increase the productivity withwhich companies can compete, nationally and globally.

– Benefits of Clusters• increasing productivity,

• driving innovation, and

• building new business

– Bangladesh Bank, SMESPD has so far identified more

than 100 clusters around the country. We have assignedindividual banks to each of the clusters

– Cluster based targets are also taken – Active support is being given to banks in financing on a

cluster based approach



Women Entrepreneurship Development

• Women entrepreneurship development (WED)

initiatives – 15% of all refinance window to be specified for WE – A 10% target for WE lending of total SME – Interest rate cap for WE loan under BB refinance

Window (bank rate + 5%); currently ‘bank rate ‘ is 5% – WE loan application to be given priority – WE facilities provided by banks to be broadcasted in

mass media –

Group based lending allowed to WE – Up to Tk. 2.5 million clean exposure limit for WE[without any collateral].

– WE dedicated help desk to be opened by the banks &FIs



Disbursement Status

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2010 2011 2012

13831

1669617362

1805 2048 2224

No. of Ent Amount

308950 319340

462513

53544 5371969753

0

50000

100000

150000200000

250000

300000

350000

400000

450000

500000

2010 2011 2012

No. of Ent Amount

Disbursement -Overall Disbursement to Women Ent.



Broadening FI & SMESPD

• Creation of a new department for focused and comprehensivelyaddressing the need for increasing financial inclusion of small andwomen entrepreneurs.

• Targeted SME lending program for the first time

• Inclusion of all the banks and FIs in the SME lending program.

• Special emphasis on small enterprise (40% of SM E portfolio to be SEs)

• Refinance window at bank rate for the SMEs

• SME help desk in banks and financial institutions to provide informationand BDS to prospective SME clients.



Broadening FI

• Decreasing the lower limit of SE loan from Tk.

200,000 to Tk. 50,000

• Banks & FIs to take separate business strategyfor SME segment

• To reach the currently unbanked entrepreneursi.e. to spatially broaden Financial Inclusion

banks and FIs to distribute yearly targeted SME

portfolio division, district and branch wise



Broadening of FI…

• Areas and cluster approach in financing to betaken by the banks & FIs with cluster/sectorspecific products and range of financial servicesalong with other value added services for theentrepreneurs.

• Banks & FIs to take steps for imparting financialeducation to entrepreneurs through trainingprograms, booklets, posters and using othermass communication media.

• Emphasis on women entrepreneurship

development



Other Measures

• Stakeholders meeting with Chambers of Commerce &Industries, SME promotion agency of the government

• Meeting SME help desk at the BB head office

• Mobile monitoring

• Handling of complaints by the entrepreneurs.• Mobile/phone helpline for the entrepreneurs

• Training for the bankers for awareness building andcapacity development

• Cooperation with international organization (IFC, ADB)for capacity building of the BB’s staff members and forthe commercial bankers





Questions?

Documents

Access to Finance-SME