Bangladesh Bank

[The Central Bank of Bangladesh]

Financial Inclusion for MSMEs

Syed Nazrul Islam

Deputy Director
SME & Special Programs Department
Bangladesh Bank
Bangladesh

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, WBG2011)
Financial inclusion implies that both unbanked and under banked households
and firms are part of the target market.

Source: IFC, WBG2011

Defining Access to FinanceBD

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.
Insurance Companies regulated by IDRA

Basic Criteria to Measure FI

FI is measured in three different Viewpoints 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

The status of FI in an economy is also measured [ UN, 2006] in Outreach Dimension:

number of bank branches or ATMs per 1000 square kilometers
number of bank branches or ATMs per 100000 people
Actual Usage Dimension:
number of deposit accounts per 1000 people
number of loan accounts per 1000 people
Deposit-GDP ratio
Credit-GDP ratio.

Status of FI in Bangladesh
Outreach Dimension
Yea
r

200
9

Number of
Number of
Number of
bank
ATMs per
bank branches
branches per 1000 sq. km per 100000
1000 sq. km
people
48.08
7.96
5.08

number of
ATMs per
100000
people
0.81

201
0

51.89

14.43

5.28

1.44

201
1

53.95

20.04

5.31

1.97

201
2

56.39

29.36

5.46

2.84

201
3

57.11

35.45

5.49

3.41

Status of FI in Bangladesh
Actual Usage Dimension
Yea
r

Number of
deposit
accounts per
1000 people

200
9

267.29

201
0

329.58

201
1

Number of
loan
accounts
per 1000
people
60.24

Deposit-GDP
ratio

Credit-GDP
ratio

0.49

0.38

62.60

0.53

0.43

368.33

63.94

0.56

0.44

201
2

385.33

62.94

0.58

0.45

201
3

398.52

62.91

0.55

0.41

Financial Inclusion and MSMEs

Rationale: Why BB is
Emphasizing SME Financing
Positive association between importance of SMEs and GDP per
capita Growth.(*)
Small firms exhibit higher net job creation rates than large ones
[OECD-2002]
Advanced Economies succeeded in achieving sustainable
economic growth because SMEs form a fundamental part of
their economies. In advanced economies-

SMEs comprise 98% of total establishments

Contribute 65% of Employment
Contribute 50% to GDP (**)
SMEs recognized as the backbone of economy.
Therefore, Promoting a viable SME sector is essential.
* Beck & Kunt, 2005 (WB) ** DailyFT 28 June, 2013

Bangladesh SME sector

SMEs comprise
establishments

about

99%

of

private

industrial

Total workforce employed in SMEs over 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 30-35%

Bangladesh SME sector

SMEs jobs are about 80% of total industrial labor force

Large demand supply gap for SME credit

SMEs are struggling with many problems in their way to

growth

Current SME credit is pronounced in the metropolitan

areas.

BBs Philosophy in FI through

SMEs

Banks &
NBFIs

Financial
Inclusion

XYZ

SME
Deposit
s
New
Ent.
Depos
it

SME
Lendin
g

Genera
te Emp.
Ent.
In
Bus.

Payment Channel

Consu
me

Cards

Policy Interventions for

SMEs
The Policy Framework SMEs access to
finance should address Proper financial and legal infrastructure for SMEs:
CIB
BD

Collateral
Registry

Innovative financing instruments that facilitate

SMEs access to banks
Refinanc
Regulatory & Supervisory Env. For
e
Banks
BB
Window
Credit Instruments- Loans, Leases
Sustainable schemes for mitigating SME credits
risks.
B
Ratings of SMEs

Policy Interventions Towards Sustainable

SME Development- BBs Initiative.

Institutional Building
The United Nations (UN) committee on building
inclusive financial sector, however, recently urged
central bank to add the goal of financial inclusion
to the traditional goals of prudential regulation and
stability of the financial system- UN (2006)*
A paradigm shift in the BBs policy regime in recent
years.
The policy is skewed to the financially excluded and
unbanked mass of the country especially
- small Entrepreneurs and women entrepreneurs.

* Building inclusive financial sector for development; UN

2006

Policy Interventions Towards Sustainable

SME Development- BBs Initiative.

Institutional Building
A

milestone
decision
December,2009

was

taken

in

A new department named SME & Special Programs

Department (SMESPD) was created in BB to
regulate and supervise SME financing activities of
the whole country

The objectives of the formation

department
alleviating poverty and hunger,
ensuring gender equality,
empowering women,
generating employment,

of

this

Functions of the department

Policy related issues on SME banking
Industrial loan and its policy

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
Housing refinance
Others- e.g. Promotional programs

Policy Interventions Towards Sustainable

SME Development- BBs Initiative.

Regulatory Improvements & Policy Interventions

Important regulatory and policy interventions
includes Launching SME credit policies and Programmes,
Defining SMEs,
Implementing three-tier monitoring system
Targeting broader inclusion of smaller segment of SMEs in
the formal financial system.
Helping SMEs through refinance schemes being
implemented by SMESPD, BB.
BBs Own Fund
EGBMP (IDA) Fund
ADB Fund
JICA Fund

Policy Interventions Towards Sustainable

SME Development- BBs Initiative.

SME Credit Policies & Programmes, 2010

With a view to streamlining SME financing and
activities of Banks and NBFIs in a very systematic
manner BB has made a comprehensive policies and
programs in 2010. Special features include

Setting up an indicative target for SME loan disbursement,

Following the Area Approach Method,
Cluster development Policy
Priority to the small entrepreneurs, women entrepreneurs,
Special emphasis for manufacturing and service sectors,
Monitoring SME activities in the Head Office of Bangladesh
Bank,
Following separate business strategies in financing SME,
Speedy loan sanction and disbursement.

Policy Interventions Towards Sustainable

SME Development- BBs Initiative.

Definition of
SMEs
In Bangladesh, SMEs are defined on the basis of fixed

assets excluding

land & building and/or number of persons employed.

SME comprises of Cottage, Micro, Small and Medium Enterprises.
Criteria

Fixed Asset excluding land and Building

(million BDT)

Size

Manufacturing Service

Cottage

< 0.5

Micro

> 0.5 - 5.0

Small

>
5.0100.00

> 0.50 -
10.0

Medium

>100.00300.00

>10.00-
150.00

1 USD= BDT
78.00

Trade

# of Manpower employed
Manufacturing

Servic
e

Trade

10 [including family members]

< 0.50

< 0.50

10-24

< 10

< 10

> 0.50 -
25- 99
10.00

10-25

10-25

>10.00150.00

26100

26-100

100-250

Policy Interventions Towards Sustainable

SME Development- BBs Initiative.

Cluster
Development

Bangladesh Bank (the Central of Bangladesh) has taken over

the responsibility for the development of clusters with Engaging all Banks and NBFIs in cluster financing
Advising all banks and NBFIs to take at least one cluster
countrywide for their development
Frequent field level visit to the clusters
Strategies for cluster development :
Identification of the cluster;
Formation of committee for cluster development;
Conduct baseline survey & diagnostic study;
Fixation of action plan;
Implementation of action plan;
Review & monitoring.

SMESPD, BB directly contributed to develop around 50

clusters countrywide with the help of 30 banks.

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

Banks & FIs to take steps for imparting

financial education to entrepreneurs
through training programs, booklets,
posters
and using other mass
communication media.
Emphasis on women entrepreneurship
development

FI through 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

Policy Interventions Towards Sustainable

SME Development- BBs Initiative.

Other Policy
Interventions
Amendment of policy of the small enterprise sector
re-finance scheme Bangladesh Bank Fund for
inclusion of publication and marketing of knowledge
based books & creative writings as an eligible sector
for financing.
Amendment of policy of the small enterprise sector
re-finance scheme Bangladesh Bank Fund for
inclusion of blind and other disable entrepreneurs as
eligible for financing.
Creation of a fund for new entrepreneurs.

Target based lendingAchievement

90000
80000
70000
60000
50000
40000
30000
20000
10000
0

85323
69753
53544

5694053719

59012

38858

2010

115
%

Tk. In Crore

All Banks and NBFIs started Self Indicative Target Based Lending
Activities since 2010.

2011
Target

2012

74187

2013

Achievement

The SME Credit Disbursement Target for 2014 was fixed at Tk. 88,753
Crores.
The Target for 2014 is higher by Tk. 14,566 Crores

Changes in the Desired DirectionSectoral Composition

The goal of BB is to increase continuously the

share of credit towards the manufacturing sector
28.2%

2013

66.4%

31.4%

2012

0%

63.4%

5.2%

29.4%

64.0%

6.6%

28.3%

65.4%

6.3%

2011

2010

5.4%

10%

20%

30%

40%
Service

50%

60%

Trading

Mfg

70%

80%

90%

Due to the supervision and monitoring of SMESPD, BB

More and more credit goes to the manufacturing sector.

100%

Changes in the Desired Direction-Small

Enterprise Financing
SMESPD, BB instructed Banks and NBFIs to disburse
at least 40% to Small segments
60%

57%

52%
48%

50%

54%
46%

43%

52%
48%

40%
30%
20%
10%
0%
2010

2011

2012

Small

2013

Medium

Due to the persuasion of BB, credit disbursement to small

segment increased from 43% in 2010 to 52% in 2013.

Women Entrepreneurs
Financing
WE Financing (BDT in Million)

41,695

45,000
40,000

33,466

35,000
30,000
25,000
20,000
15,000

18,050

20,485

22,440

16,696

17,362

2011

2012

13,831

10,000
5,000
0

2010

Number

Amount

2013

Refinance Window
Name of
Fund

Allocation
(BDT in
Crore)

Category

Number of
Ent
General

BB Fund
(SE & WE)
IDA

600

1,220.24

9,029

708.48

21,713

1,928.72

3,160

312.61

3,134

318.49

130

16.45

Subtotal

3,264

334.94

General

13,192

717.63

453

29.32

13,645

746.95

170

132.45

41,952

3,455.67

WE
Subtotal
General

202

(SMEs outside
Dhaka & Ctg)

ADB-2

720

(SMEs outside
Dhaka & Ctg)

JICA

(MT & LT)

Amount

12,684

118

ADB-1

Refinance (BDT in Crore)

WE

WE
Subtotal

450
Gross Total

Refinance Window
Until 31 December 20139,612 Women Entrepreneurs got refinance of Tk. 754.25 Crores

At present-SMESPD is providing refinance &/or pre-finance

from two funds BB Own Fund
JICA FSPDSME Fund

Additionally, SMESPD recently creates a fund worth BDT

100 crores for refinancing to Shariah based Islamic banks.
SMESPD, BB also maintains a fund for Agro-based Product
Processing Fund

Other Measures
BB has been always supportive to other
stakeholders in the field of SME development
SME Foundation is closely working with BB. BB
has extended and will continue to support SMEF
initiatives in SME development
BB have organized programs with many other
public sector and private sector organizations like
Export Promotion Bureau, Women
affairs
Directorate, Youth Development Directorate,
Jute Diversified Product Centre and others

Other Measures
Handholding with other organization in SME
development
Stakeholders meeting
Chambers of Commerce & Industries, Trade
bodies, SME promotion agencies
of the
government and Other stakeholders
Joint workshop/seminar
Marketing support to bankers and Entrepreneurs
Financing fair for entrepreneur and bankers
SME products fair for supporting and developing
marketing channel for the SMEs
Joint program with other public & private sector
stakeholders in SME development

Thank
you