BB encourages banks, financial institutions to lend to SMEs
Wednesday, 27 June 2007
FE Report
In a Focus Group Discussion held Monday with the financial sector, the central bank urged the banks and financial institutions to lend money to SMEs. The discussion was jointly coordinated by Bangladesh Bank (BB) and IFC-SEDF, said a press release.
The central bank sought feedback from the participants based on their experiences with the SME refinancing scheme. The initiative was taken to improve and expand the scope of the scheme so that the financial sector players could increase their portfolio in the SME market.
The banks and FIs welcomed the initiative and gave suggestions about definition of SMEs, and called for more frequent disbursements from the Fund.
"Bangladesh Bank does not directly lend money to any entrepreneur. It can, therefore, only reach SMEs through banks and non-banking financial institutions. Keeping the goal in view, Bangladesh Bank has introduced four schemes for refinancing the SME sector and to give incentives to banks to lend to SMEs" said Abul Quasem, executive director of Bangladesh Bank.
Karma Karma, IFC senior financial markets specialist, said, "Banks will engage in SME banking only if they see it as a profitable venture. Through initiatives such as these, IFC aims to hold open discussions between the central bank and the financial institutions to address issues related to SME financing. The central bank has been instrumental in facilitating SME financing"
The SME Rrefinancing scheme is designed to help sectors which contribute more to employment generation. While banks are not able to reduce overall interest rates for their entire SMEs portfolio because not all SMEs fall under this scheme, this fund appears to have been successful in giving incentive loans to the target sector SMEs. So far this fund has facilitated total financing of Tk. 4.55 billion to 6086 SMEs.
The central bank believes that for expansion of credit flow to SME sector, banks and financial institutions should come forward to reduce the cost of SME loan. They may introduce user-friendly loan products for the SME sector, simplify loan documentation and sanction process, go for collateral substitution and offer counselling services to new entrepreneurs and skill development of SME lending banks' manpower. Banks should also allocate fixed funds for SME Lending.
This Focus Group Discussion was a customer responsive initiative and one of several steps that the central bank had taken to increase access to finance for SMEs. Other steps include special fund allocation for women entrepreneurs, introducing Prudential Guidelines for Small Enterprise Financing, allowing banks to provide loans upto Tk one million without collateral.
IFC-SEDF has also worked in the sector for enabling SME financing through initiatives such as introducing Domestic Factoring Guidelines with the central bank, conducting awareness building programmes for bankers on assessing SME risks, and training SME entrepreneurs on "Access to Finance" issues.
In a Focus Group Discussion held Monday with the financial sector, the central bank urged the banks and financial institutions to lend money to SMEs. The discussion was jointly coordinated by Bangladesh Bank (BB) and IFC-SEDF, said a press release.
The central bank sought feedback from the participants based on their experiences with the SME refinancing scheme. The initiative was taken to improve and expand the scope of the scheme so that the financial sector players could increase their portfolio in the SME market.
The banks and FIs welcomed the initiative and gave suggestions about definition of SMEs, and called for more frequent disbursements from the Fund.
"Bangladesh Bank does not directly lend money to any entrepreneur. It can, therefore, only reach SMEs through banks and non-banking financial institutions. Keeping the goal in view, Bangladesh Bank has introduced four schemes for refinancing the SME sector and to give incentives to banks to lend to SMEs" said Abul Quasem, executive director of Bangladesh Bank.
Karma Karma, IFC senior financial markets specialist, said, "Banks will engage in SME banking only if they see it as a profitable venture. Through initiatives such as these, IFC aims to hold open discussions between the central bank and the financial institutions to address issues related to SME financing. The central bank has been instrumental in facilitating SME financing"
The SME Rrefinancing scheme is designed to help sectors which contribute more to employment generation. While banks are not able to reduce overall interest rates for their entire SMEs portfolio because not all SMEs fall under this scheme, this fund appears to have been successful in giving incentive loans to the target sector SMEs. So far this fund has facilitated total financing of Tk. 4.55 billion to 6086 SMEs.
The central bank believes that for expansion of credit flow to SME sector, banks and financial institutions should come forward to reduce the cost of SME loan. They may introduce user-friendly loan products for the SME sector, simplify loan documentation and sanction process, go for collateral substitution and offer counselling services to new entrepreneurs and skill development of SME lending banks' manpower. Banks should also allocate fixed funds for SME Lending.
This Focus Group Discussion was a customer responsive initiative and one of several steps that the central bank had taken to increase access to finance for SMEs. Other steps include special fund allocation for women entrepreneurs, introducing Prudential Guidelines for Small Enterprise Financing, allowing banks to provide loans upto Tk one million without collateral.
IFC-SEDF has also worked in the sector for enabling SME financing through initiatives such as introducing Domestic Factoring Guidelines with the central bank, conducting awareness building programmes for bankers on assessing SME risks, and training SME entrepreneurs on "Access to Finance" issues.