Bangladesh Bank

[The Central Bank of Bangladesh]

Access to Finance:
SME & Agriculture Finance by Banks

Syed Nazrul Islam Deputy Director & Project Manager SMESPD, BB, H.O, Dhaka

Defining Access to Finance

Financial inclusion can be defined as a state in which all people of working age have access 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 & Institutional Dimensions

Source: World Bank,2005

Defining Access to Finance-BD

Rahman (2009) defines financial inclusion in Bangladesh as access to financial services from officially regulated and supervised entities banks and financial institutions are licensed by the Bangladesh Bank, MFIs by the Microcredit Regulatory Authority (MRA), registered cooperatives by the Department of Cooperatives; and official entities themselves including post offices and National Savings Directorate.

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 adultsalmost 70% of the population in developing countrieshave no access to formal financial services (IFC, WBG-2011);
Share of populations with accounts in formal and semi-formal FIs ( Demirg-Kunt et al,
2007) -

Western Europe and North America- More than 80% Central Asia and Eastern Europe -60% to 80% percent Latin 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

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

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

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) rather than primarily delivering microcredit for small scale business.

BBs 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 Depositing Tk. 50 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 Depositing Tk. 10 SCBs & Specialized Banks 1,09,909 Accounts (28/03/2013) Bank A/C for Aila Affected People Depositing Tk. 10 Kaira & Dakup Upazill Branches of Sonali, Agrani, Rupali & BKB.

BBs Initiative-BRPD
Bank A/C for Beneficiaries under Social Security Programs

Bank A/C for Small Insurance Policy Holders

Depositing Tk. 10 SCBs & Specialized Banks 26,46,453 Accounts (28/03/2013) 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/ ATMs/ Mobile Operators outlet Person to Business Payment (e.g. utility bill payment) Business to person Payment (e.g. salary disbursement ) Government to Person Payment

School Banking

BBs 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

BBs 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 contribution is 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 in development;

Objectives

Bringing SME banking under prudential regulation Ensure proper use of SME loan through strong monitoring and control; Enhancing access to finance for the marginal, small and financially excluded women entrepreneurs there by broadening Financial Inclusion among the formal and non formal entrepreneurs; Supporting banks/Non Bank Financial Institutions in SME Banking capacity 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

BBs initiatives for SME sector development

There has been a paradigm shift in the Bangladesh Banks policy regime in recent years. The policy has skewed in favor of the financially excluded 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 that are more capable of generating employment equitable and enhanced economic development; and Traditionally developed industry clusters.

BB strategies for SME development

Bangladesh Bank has issued SME credit policy and programs where following a number 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
Size Cottage Fixed Asset excluding land and Building (million # of Manpower employed BDT) Manufacturing < 0.5 Service Trade Manufacturing Service Trade

10 [including family members]

Micro

> 0.5 - 5.0

< 0.50

< 0.50

10-24

< 10

< 10

Small Medium

> 5.0- 100.00 >100.00-300.00

> 0.50 - 10.0

> 0.50 - 10.00

25- 99 100-250

10-25 26-100

10-25 26-100

>10.00- 150.00 >10.00-150.00

Cottage & Micro Industries are also included in SME financing[ even eligible for Refinance from BB]

Refinance Window
Name of Fund Allocation Category (BDT in Crore) 600 General WE Subtotal Refinance (BDT in Crore) Number of Ent 11632 7002 18634 Amount 1128.15 508.24 1636.39

BB Fund (SE & WE)

IDA
ADB-1

118
202

3160 General
WE Subtotal General WE Subtotal

312.61 318.49
16.45 334.94 482.90 6.90 489.80 21.14 2794.88
As on 31 December, 2012

3134
130 3264 9562 57 9619 32

(SMEs outside Dhaka & Ctg)

ADB-2

(SMEs outside Dhaka & Ctg)

720 450

JICA (MT & LT)

Gross Total 34709

Cluster Based Lending (CBL)

cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which 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 assigned individual 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

500000 450000 400000 350000 300000 250000 200000 150000 100000 50000 0 2010 No. of Ent 2011 Amount 53544 53719 308950 319340

462513 18000 16000 14000 12000 10000 8000 6000 69753 4000 2000 0 2012 2010 2011 No. of Ent Amount 2012 1805 2224 13831 16696 17362

2048

Disbursement -Overall

Disbursement to Women Ent.

Broadening FI & SMESPD

Creation of a new department for focused and comprehensively addressing the need for increasing financial inclusion of small and women 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 information and 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 strategy for SME segment To reach the currently unbanked entrepreneurs i.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 be taken by the banks & FIs with cluster/sector specific products and range of financial services along with other value added services for the entrepreneurs. Banks & FIs to take steps for imparting financial education to entrepreneurs through training programs, booklets, posters and using other mass communication media. Emphasis on development women entrepreneurship

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 and capacity development

Cooperation with international organization (IFC, ADB) for capacity building of the BBs staff members and for the commercial bankers

Questions?