Speakers at an online discussion on Wednesday suggested forming a separate set of policy guidelines for performing SME (small and medium enterprises) cluster to develop small businesses in shared and coordinated manner.
They said the banks are now engaged with SMEs discretely, and despite making disbursement of SME loans mandatory for banks and non-bank financial institutions (NBFIs), the existing financing models could not make sufficient impact.
The bankers and academicians said if the central bank does not give a separate policy for the cluster financing of SMEs, the banks and NBFIs should formulate their own SME cluster financing policy.
They said cluster financing of SMEs will overcome the existing problem of SME financing.
The speakers came up with the suggestions at a webinar, organised by the Bangladesh Institute of Bank Management (BIBM).
The webinar was the first episode of online banking research series styled "Are Banks Engaged in SME Cluster Financing?"
The research was conducted by a team of bankers and academicians, led by BIBM Professor Dr. Shah Md. Ahsan Habib.
Other members of the team were Professor and Director (DSBM) - BIBM Md. Nehal Ahmed, Assistant Professor - BIBM Rexona Yesmin, Faculty Member - BIBM ATM Rawshan Zadeed, General Manager - the Bangladesh Bank (BB) Husne Ara Shikha, General Manager - SME Foundation Farzana Khan, and Deputy Director - BB Jannatul Firdaus Tania.
Speaking at the webinar, central bank deputy governor S M Moniruzzaman said it is evident that SMEs get comparative advantage by sharing and cooperating among themselves.
He also said banks and NBFIs should come forward for cluster-based SME financing, which is also beneficial for the financial institutions.
If banks cannot come up with cluster financing for SMEs, policy support alone will not work.
Mentioning low rate of loan disbursement to SMEs under stimulus packages, he said cluster financing may help solve the problem.
CEO and Managing Director of IDLC Finance Limited Arif Khan said SME loans are costly, but banks and NBFIs charge higher rates for SMEs.
He further said for IDLC, financing SMEs is the most profitable among all kinds of financing.
Taking SME financing is fashionable, but it is not easy, because SME financing requires special, designed and targeted products.
Banks and NBFIs need to design unique loan products for SME cluster, he added.
Managing Director of Bangladesh Krishi Bank (BKB) Md. Ali Hossain Prodhania said second largest focus of BKB should be SMEs.
"We have 9.0 per cent SME loans now, we will reach 20 per cent SME financing by next year," he noted.
Dr. Muzaffer Ahmad Chair Professor of BIBM Barkat-e-Khuda opined that banks and NBFIs should work on SME cluster financing by following success stories, rather than waiting for policies.
He said SME financing proves to be not risky for some banks and financial institutions, rather it is more profitable. The research paper recommended that a generic SME strategy may not work for performing cluster development.
It said SME Foundation, other relevant government agencies, BB SME and Special Programmes Department (SMESPD), specialists, and experts of areas concerned are required to coordinate for formulating and adopting appropriate strategies to perform the special policy guidelines for SMEs.
SMESPD may think of allocating special attention to supporting and incentivizing cluster financing by banks and NBFIs by opening a separate cell to handle this special type of SME financing model.
The paper suggested banks and NBFIs should formulate bank-specific SME cluster financing policy and strategy to effectively implement their SME cluster financing targets, and ensure regular reporting with data on their cluster financing, business models, and financial performance for better monitoring and support.
"A minimum portion of SME cluster financing targets may be imposed by the central bank with a tagged incentive structure."
The paper also said identification of the status, performance, and level of SME should be the primary job to lend to a particular cluster.
"Based on the given criteria, banks and NBFIs may assign a score and standardize the assessment model for selection of the performing cluster in the process of financing."
The paper mentioned that a provision or model in line with the 'priority sector lending certificate' might be contributory, both for the banks/NBFIs and the country's policymakers.
Cluster development and associated financing is a multi-stakeholder approach, where policy and operational coordination would help to stimulate innovations, manage resources efficiently, and can help environmental and social challenges, it added.
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