The foreign aid will be provided to the Palli Karma Sahayak Foundation (PKSF), in a bid to increase the liquidity of its partner microfinance institutions (MFIs).
In this regard, Sharifa Khan, secretary of the Economic Relations Division, and Edimon Ginting, country director of ADB, signed an agreement in Dhaka.
Under the Microenterprise Financing and Credit Enhancement Project, the PKSF will increase the liquidity of its partner MFIs, which are key lenders to microenterprises.
The project will develop a business plan update and digitalisation roadmap for PKSF as well as a diagnostic review of its partner MFIs' operational costs to enhance their viabilities.
Eligible MFIs to receive financing through PKSF will dedicate at least 10 per cent of their lending portfolio to microenterprises coming from regions facing adverse climate risks, such as floods, cyclones, and drought.
The PKSF is a state-owned microfinance and development organisation that on-lends to partner MFIs.
ADB Country Director Mr Ginting said: "Microenterprises are effective tools to generate employment, cut rural poverty, and reduce urban-rural economic disparities."
"Strengthening microfinance is critical for socio-economic recovery from the Covid-19 pandemic and revitalizing the economy."
"This initiative builds on previous ADB support to PKSF to further boost available funding for MFIs as well as encourage commercial bank funding by reducing perceived credit risks," added Mr Ginting.
To encourage commercial bank funding, the project will help pilot a credit guarantee fund at PKSF that will cover the credit risk for small and medium-sized MFIs, an ADB statement said.
This complements ADB's ongoing Microfinance Risk Participation and Guarantee Program under its private sector operations.
Due to small-sized operations, lack of collaterals, and weak operational capacity and information systems, MFIs find it difficult to secure commercial bank financing to on-lend to microenterprises.
A technical assistance (TA) amounting to $1.0 million will help develop the credit guarantee fund as well as partner MFIs' capacity to enhance women's entrepreneurship skills.
The TA will help promote environmentally responsible microenterprise financing through advisory services for those affected by climate risks.
kabirhumayan10@gmail.com