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Aiding pandemic recovery

ADB to give $250m loan for Bangladesh CMSMEs

Deal signing likely by month-end

FHM HUAMAYN KABIR | September 21, 2021 00:00:00

The Asian Development Bank (ADB) would provide US$ 250 million policy-based loan to Bangladesh for facilitating economic recovery of the CMSMEs amid the Covid-19 pandemic, officials said on Monday.

The board of directors of the Manila-based lender is likely to approve the loan for Bangladesh on Friday, a senior official of the Economic Relations Division (ERD) told the FE.

He said the ERD had taken preparations to sign a loan deal within the last week of the current month.

Under the Sustainable Economic Recovery Programme, the ADB would help the CMSMEs (Cottage, Micro, Small and Medium Enterprises) to get enhanced access to finance, and the government to strengthen public financial management systems.

It would also help rapid economic and social recovery from Covid-19 by increasing the tax-GDP ratio to 12.3 per cent in fiscal year (FY) 2025 from 8.9 per cent in FY 2019, increasing the public investment-GDP ratio to 9.24 per cent in FY 2025 from 8.03 per cent in FY 2019, and reforming the state-owned enterprises (SoEs) to minimise subsidies that drain the public exchequer.

The ERD official said since Bangladesh's economy was severely affected by the coronavirus pandemic, the ADB's $250 million policy-based loan would help the country to recover from the massive losses.

"We have already completed our preparations for signing the loan. When the ADB board will approve the loan in its next meeting, we will sign the deal within next 2-3 days," he added.

Bangladesh's CMSMEs had been hit hard by the pandemic, as most of those firms had low access to fund.

According to the ADB, limited access to affordable finance is one of the critical constraints to the CMSMEs' growth in Bangladesh. Many of the CMSMEs lack access to credit from the formal banking system, and are compelled to borrow at higher costs from micro-finance institutions or informal non-banking channels.

The banks are reluctant to lend them because of higher administrative costs, lack of risk management tools such as credit guarantees, lower credit quality, weak collateral, and poor-quality business plans.

The challenges in accessing formal credit are compounded for the businesses run by women.

The CMSMEs with weak access to formal credit, including those run by women, are facing increased liquidity problem with loan disbursements declining by 27.60 per cent in the third quarter of 2020 compared to the same period in 2019.

About 7.8 million CMSMEs in the country account for around 25 per cent of the GDP as well as two thirds of the employment in the private sector, and they support the livelihoods of 31.2 million people.

With more than 70 per cent of the establishments in rural areas, the CMSMEs strongly support rural development and poverty reduction, the ADB said.

"If we can support the CMSMEs through help from the ADB, the country's affected small and cottage industries will get an opportunity to recover from the economic shocks of the Covid pandemic," the ERD official opined.

Earlier, the ADB had confirmed another $250 million policy-based loan to Bangladesh for facilitating reforms in improving social safety-net programmes amid the Covid-19.

Besides, the Manila-based lender had also provided $940 million loans for procuring vaccines and for some health safety programmes in response to the pandemic.

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