Grassroots entrepreneurship helps alleviate poverty

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Atiur Rahman
Bangladesh has positioned itself in global community as a forward-looking nation, with firm footprint on path of steady, accelerating growth and development towards rapid poverty elimination and eventual prosperity. Bangladesh has achieved fairly steep decline in poverty over the past two decades from 57.0 per cent in the 1990s to 31.5 per cent in 2011. According to the latest projections of the Planning Commission, poverty will come down further to 26.4 per cent in FY 2012-13. The dynamism of Bangladesh's developing economy has by now attracted notice and attention of global markets and development institutions, and is expected to touch the middle income country group per capita GNI (gross national income) threshold in the near term. Besides lowering income poverty, Bangladesh has made remarkable progress towards attaining the Millennium Development Goals (MDGs), particularly in the area of education and health.
This sharp decline in poverty in Bangladesh stems largely from buoyant employment growth in farm and non-farm micro and small enterprises at grassroots level, underpinned by steady GDP (gross development product) growth, averaging around 6.0 per cent annually in real terms. Around 6 million micro and small and medium enterprises (SMEs) accounting for 75 per cent of the domestic economy now account for 90 per cent of industrial employment in Bangladesh. Grassroots-level entrepreneurship in newer areas of non-cereal agricultural farming including horticulture, floriculture, spices, oil seed and lentils are providing further new employment opportunities in rural areas. Credit facilities at subsidised interest rate of only 4.0 per cent is available for production of maize, oil seeds, spices and lentils from Bangladesh Bank refinance line. The government and central bank in Bangladesh have been proactively promoting farm and non-farm micro and small enterprises in the country, with financing and marketing/technical support delivered through different agencies. Civil society initiatives in the form of microfinance institutions and non-financial NGOs (non-governmental organizations) have also been active in these areas. As outcome of such initiatives, rural Bangladesh is now abuzz with output activities catering to export demands as well as buoyant domestic demand.
Central banks can play catalytic role in this reorientation of goals and objectives of financial institutions and markets towards socially responsible inclusive lending practices ensuring adequate credit flows to small businesses and other underserved or financially excluded economic sectors and population segments. Bangladesh Bank (BB) has taken this approach. Results thus far are very heartening. Deepening, widening financial inclusion has helped Bangladesh economy uphold domestic output and demand amid global economic slowdown. Rising real wages, particularly strongly for the rural workforce, evidence rise in employment. BB has initiated guiding Bangladesh's financial sector towards socially and environmentally responsible financing by sensitising banks and financial institutions about their Corporate Social Responsibilities (CSR), with a guidance circular for mainstreaming of CSR obligations in their corporate goals and objectives. The financial sector has responded with warm enthusiasm in steadily increasing engagement in CSR initiatives.
The present government of Bangladesh in its Sixth Five Year Plan (FY 2011-15) and Perspective Plan (2010-21) stresses on promotion of inclusive economic and social growth offering equal advancement opportunities for all population segments. Accordingly Bangladesh Bank has been campaigning on financial inclusion offering basic financial services at the doorstep of all people and channelling adequate credit flows to the productive pursuits like agriculture, SME and renewable energy.
Bangladesh Bank has undertaken a good number of programmes to ensure adequate credit flows to the SME sector including formation of a Taka 7.0-billion fund with financial assistance from ADB (Asian Development Bank), establishment of a 'SME and Special Programmes Department' dedicated to facilitate funds and promote entrepreneurship opportunities, organising countrywide road-show to introduce SME products, creating linkages between bankers and customers, introducing policies and programmes to promote institutional and financial opportunities for women entrepreneurs and so on. SMEs are benefitting from fast and secure payments and transfers now enabled by a modernised fully automated system for online clearing and settlement of paper based and electronic interbank payments and transfers. Mobile phone banking and e-commerce, and upgraded credit information bureau with online access are recent BB initiatives further facilitating financial transactions and business promotion of SMEs.
SME financing is a major thrust area of BB's ongoing financial inclusion campaign participated enthusiastically by all banks, on their own as well as in innovative partnerships with Micro Finance Institutions (MFIs) and mobile phone/smart card-based IT platforms for cost-effective service delivery. Besides the government, external development partners like ADB and JAICA (Japan International Cooperation Agency) have come forward in aiding the SME financing initiatives with refinance support lines for lending banks. BB has been providing necessary regulatory support in developing this SME-friendly refinancing platform where women entrepreneurs are getting preferential access.
In 2011, the banking sector of Bangladesh disbursed Taka 538.0 billion SME credit to 0.3 million small and medium entrepreneurs generating new employment for 0.24 million people. Of this, Taka 20.5 billion was disbursed to 16,697 women entrepreneurs. Bangladesh Bank has guided all the scheduled banks to sanction loans up to 0.25 million to a potential woman entrepreneur without asking for any collateral but only against a personal guarantee. Loans to small entrepreneurs increased by Taka 28.23 billion in 2011, 12.5 per cent higher than that in 2010. Share of loans to small entrepreneurs is around 50.0 per cent of the total SME credit. SME Loans in service and manufacturing sector increased by Taka 1.75 billion and 6.6 billion respectively in 2011 over 2010. Thousands of new entrepreneurs in agro-processing, poultry, and agricultural sector have emerged in rural Bangladesh with regulatory and financing support from the government and central bank.
Recently, an agreement has been signed between a commercial bank and a development organisation to extend credit facilities to a project titled 'Infolady' with the refinance line of Taka 100.0 million from Bangladesh Bank. 'Infolady' is a grassroots service delivery system under which a woman equipped with modern technology such as laptop, internet, mobile phone, camera etc provides door to door services like filling up of application forms, providing information on government, financial and health services, using internet and so on. The 'infoladies' helped around 50,000 people directly or indirectly and definitely it is a win-win initiative.
Public authorities, banks, business chambers and civil society support groups need to engage effectively with the SMEs in understanding their needs and prospects. It has been observed in BB's financial inclusion drive that this is easier with targeting SMEs clustered in specific areas of concentration than with SMEs in widely dispersed locations. A number of SME clusters have already been developed in various parts of the country, particularly focused on home-based textiles, light engineering, renewable energy and agro-processing SMEs. Formation of SME business associations for collective voicing of needs, mutual cooperation networking, and linking with other value chain partners become easier with such clustering; extending of training/technical assistance, marketing support etc. likewise becomes easier.
The Bangladesh Bank will continue its financial inclusion drive in promotion of inclusive economic growth and encouraging socially responsible business practices in the country. It is hoped that thousands of new entrepreneurs will emerge in the days ahead and will contribute significantly to poverty alleviation in Bangladesh.
(This is adapted from a speech Dr Atiur Rahman, Governor of Bangladesh Bank, gave at the South Asia Growth Conference, organised jointly by the International Growth Centre (IGC) and the Economic Research Group (ERG) in Dhaka on July 16, 2012)