PROMOTING INNOVATIVE FINANCING MODELS FOR SMES: THE BANGLADESH EXPERIENCE

Transcription

1 PROMOTING INNOVATIVE FINANCING MODELS FOR SMES: THE BANGLADESH EXPERIENCE Dr. Atiur Rahman Former Governor, Bangladesh Bank & Dr. M. Abu Eusuf Chairman, Department of Development Studies Director, Centre on Budget and Policy University of Dhaka Presented at the Workshop on small and medium enterprises access to finance and the role of development banks in Asia and the Pacific and Latin America on 27 September 2017 at United Nations Conference Center, Bangkok, Thailand Research Collaboration with Centre on Budget and Policy, University of Dhaka

2 TALKING POINTS Developmental Role of Banks Financing SMEs in Bangladesh The Shared Role of the Central Bank and the Commercial Banks in Promoting Women Entrepreneurship: Summary of Survey Findings Way Forward

3 DEVELOPMENTAL ROLE OF BANKS

4 DEVELOPMENTAL BANKING: OUR PHILOSOPHY Diversifying delivery channels Bangladesh is being praised for its innovative financial inclusion strategy Channelizing funds to the ground Sustainable & inclusive development Innovative & inclusive financial products The central bank of the country has been leading in bringing motivational changes amongst bankers and others involved in the financial sector.

5 SME FINANCING: A CORE COMPONENT OF DEVELOPMENTAL BANKING Ensures access to finance for new entrepreneurs Creates employment opportunities for many Results in resilience (to financial shocks) Contributes in achieving macroeconomic targets.

6 FINANCING SMES IN BANGLADESH

7 CHARACTERISTICS OF SME FINANCING IN BANGLADESH 20% of the total credit for MSME 10% of MSME credit for women Dedicated help desk for women Area approach & cluster based financing Dedicated refinance scheme

8 CURRENT STATUS OF OVERALL SME FINANCING 160, , , ,000 80,000 60,000 40,000 20,000 Year wise cumulative disbursed amount of CMSME credit (figures in crore BDT) Up to 2016, cumulative amount disbursed is around 142 thousand crore BDT and no. of accounts is over 630 thousand Source : Bangladesh Bank

9 CURRENT STATUS OF WOMEN SME FINANCING 6,000 5,000 4,000 3,000 2,000 1,000 Year wise cumulative disbursed amount of women CMSME credit (figures in crore BDT) Source : Bangladesh Bank Up to 2016, cumulative amount disbursed is over 5 thousand crore BDT and no. of accounts is over 40 thousand

10 BANK MFI PARTNERSHIP FOR INNOVATIVE SERVICE DELIVERY

11 BANK MFI LINKAGE: THE CONTEXT There are still substantial segments of potential clients who are beyond the reach of MFIs. Inadequate funding is regarded to be the most important reason behind this. Conversely, formal financial service providers are not in the position to directly reach the micro credit clients. Hence, linking MFIs with scarce fund and Banks with excess liquidity appeared as a prudent solution.

12 BANK MFI LINKAGE: CURRENT STATUS Loan of MFIs from local banks Share of external sources in total fund (%) Sl. Name of the Organisation Billion Tk. 1. BRAC, Dhaka BURO Bangladesh TMSS BEES UDDIPAN PMUK RDF SFDW RRF ECB 0.69 Others Total Source: CDF (2002, 2016) Local Bank Int'l Donor INGO Local 2002 NGO PKSF Others

13 LOAN TO SHARECROPPERS: A GOOD EXAMPLE OFBANK MFI PARTNERSHIP BB channels BDT 6 billion to BRAC for credit program for sharecroppers (cumulative 3,000+ crore BDT between ). 319 thousand sharecroppers from 46 districts to be covered (59% borrowers are women) BRAC borrows from BB at 5 percent interest rate, delivers collateral free loan to sharecroppers at 10 percent interest rate Reduced dependence on informal money lenders; higher extent of positive change reported compared to MFI clients Source : Bangladesh Bank

14 AGENT BANKING: THE NEW WAY OF BANKING

15 AGENT BANKING: COST SAVING APPROACH TO REACH THE UNBANKED No. of Accounts Total Outstanding (in crore BDT) 544, , , Source : Bangladesh Bank Agent banking in Bangladesh is flourishing as banks have accepted it as a cost saving approach to reach the unbanked. This is also a bank led model that relies heavily on use of technology including core banking solutions.

16 AGENT BANKING: COST SAVING APPROACH TO REACH THE UNBANKED Agent banking suits most the customers not eligible for microcredit, but also not big enough for mainstream finance. Example: 4.5 million RMG workers (only 5% of them save through formal channels). Combination of e commerce with biometric identification has created this unique scope Those usually afraid of going to a bank branch now have the service at their door steps. Positive change in savings behavior (creating scope of future entrepreneurship). Agents themselves are also earning. Source: The Wall Street Journal [ of change/]

17 THE SHARED ROLE OF THE CENTRAL BANK AND THE COMMERCIAL BANKS IN PROMOTING WOMEN ENTREPRENEURSHIP: SUMMARY OF SURVEY FINDINGS

18 CENTRAL BANK COMMERCIAL BANK LINKAGE: THE CONTEXT The Central Bank has taken a number of policy and programmatic interventions to support and promote the women entrepreneurs. A key focus has been to create incentives for the commercial bank so that they can facilitate women s access to credit. An enabling environment has also been promoted Effort has been taken to develop a sense of shared responsibility where both the entities will work in collaboration to promote women entrepreneurship

19 THE FOCUS OF THE STUDY The study has been carried out by the Centre on Budget and Policy at the University of Dhaka with the support from the Asia Foundation. The major focus of the study is to explore whether this collaborative effort (between the Central Bank and the Commercial Banks) has positively affected women entrepreneurs To that end, emphasis has been placed on finding answers to the following three questions What are the key barriers faced by the women entrepreneurs in gaining access to market and becoming engaged in different business ventures? How effective is the collaborative effort in addressing these barriers? What more can be done?

20 THE FOCUS OF THE STUDY The study, therefore, focuses both on the demand (women entrepreneurs) and the supply side s (commercial banks) perspective Try to find out the equilibrium Explore the role of District Women Business forums in generating the equilibrium

21 METHODOLOGY A mixed method approach To understand the demand side s perspective 300 women entrepreneurs have been randomly selected and surveyed The participants have been selected from six divisional districts of Bangladesh To understand the supply side s perspective Key Informant Interviews and FGDs have been done with the Central Bank and the Commercial Bank officials (from six divisional districts) National level Central Bank officials have also been interviewed To explore the role and performance of District Women Business Forums Key Informant Interviews and FGDs have been conducted in five districts Barisal, Khulna, Rajshahi, Rangpur and Sylhet Both the leaders (Presidents, Vice Presidents) and the General Members have been interviewed

22 CHARACTERISTICS OF WOMEN ENTREPRENEURS Young women are getting interested in SMEs. Educated women are getting involved in SMEs. Over 85% of women enterprises are sole enterprises. The thrust for economic solvency has engaged women in SMEs. About 81% women entrepreneurs have bank account. Source : CBP The Asia Foundation Survey, 2016

23 DEMAND SIDE PROBLEMS Improved overall knowledge though the pace of this improvement is not satisfactory 19% of the women entrepreneurs have not opened any bank account lack of financial capital as the key barrier lack of knowledge and information (33% never heard about help desk and only 18% knew about helpline support) Hesitant in getting loan from banks, only 48% have applied for loan Lack of experiences, focus on some specific business ventures Source : CBP The Asia Foundation Survey, 2016

24 SUPPLY SIDE PROBLEMS Inadequate policy framework Requirement of guarantors Absence of monitoring framework High interest rate Issues related with collateral Negative attitude of commercial banks about women entrepreneurs Source : CBP The Asia Foundation Survey, 2016

25 CAN DISTRICT WOMEN BUSINESS CHAMBERS BRIDGE THE GAP: AN ANALYSIS OF THEIR PERFORMANCE The district women chambers have adequate knowledge about government services and initiatives and provide the women entrepreneurs with necessary information Have limited success in connecting the women entrepreneurs with banks Capacity to influence policy and programs is quite limited Limited interaction with national level policy making bodies

26 Summary of the Problems Three Broad Types Capacity related problems: capacity of the individual entrepreneurs needs to be strengthened significantly. Policy related problems: Policy interventions should be there which would allow women entrepreneurs to deal with problems related with guarantors and collateral. Implementation related problems: Our study also indicates that developing a good policy is never enough unless and until the implementing partners and agencies understand their duties and responsibilities properly.

27 WAY FORWARD: RECOMMENDATIONS

28 PROBLEM SPECIFIC RECOMMENDATIONS Capacity Development Efforts to build the capacity of the women entrepreneurs should continue where the women chambers can take the lead The chambers should also organize regular view exchange meetings to help the women entrepreneurs understand the loan getting procedure, to introduce them with different institutions, and to connect them with organizations which can in future fund their business initiatives. Policy Issues The women chambers can take the lead and they may analyze the current initiatives to identify the limitations, suggest specific policy measures and lobby the government agencies to initiate policy changes.

29 PROBLEM SPECIFIC RECOMMENDATIONS Implementation related Problems The central bank can take the initiative to introduce a target based approach, where targets will be set for the commercial banks for each month (i.e. target can be related with number of loans approved, number of women entrepreneurs assisted etc.); At the local level (possibly at the district or sub district level), a separate institutional arrangement can be established to monitor the activities of the commercial banks To evaluate whether these banks have managed to reach the agreed upon target and if not, why. This organization will then report to the national level and may suggest actions that would enhance women s access to credit.

30 CREDIT GUARANTEE SCHEMES: MITIGATING THE RISKS Credit guarantee schemes need to be in place to address the risks. There should be allocations in the national budget. The Central Bank can lead the endeavor. Experience from Malaysia (Credit Guarantee Corporation, CGC) can help other countries like Bangladesh. Multilateral organizations like World Bank, ADB can provide necessary support

31 PROMOTING INNOVATION & LEARNING BY DOING Surely, Bangladesh has come a long way in promoting SMEs: SME foundation also complementing in promoting SME development, regular women entrepreneurship fair, regular road shows by the Central Bank We have followed the learning by doing. Now it is time to scale up and to collaborate with a view to maximize the benefits. Dialogue between stakeholders from and beyond the country must continue because learning is a never ending process.

32 INTEGRATING LOCAL INSTITUTIONS The role of local institutions in promoting women entrepreneurs is well acknowledged. The association of women entrepreneurs can play important role in building network with the financial, regulatory, and other supportive institutions. During policy preparation, the engagement of local institutions should be ensured.