D&B and BRAC Bank to establish rating agency for SMEs in Bangladesh
Sunday, 4 November 2007
GLOBALLY, rating companies provide independent and objective assessments of the credit worthiness of business entities. They assist investors / financiers to decide on how risky it is to invest in or grant credit to a certain entity. A company with a good credit rating enables it to secure external funding with greater ease and possibly at a lower cost. The favourable ratings could also enhance its profile and facilitate in attracting greater trading and investment opportunities. Before taking a decision on whether to extend financing or credit terms to a company, it is prudent to determine if the prospective entity will be able to meet its obligations. The rating helps differentiate between one that is credit worthy and one that is not. It also helps in ascertaining an existing customer's credit standing and alerts if its credit quality were to subsequently deteriorate.
Small and Medium Enterprises(SMEs) are lifeblood of economies around the world and they form an important source of investment, employment, entrepreneurship and innovation and hence a vibrant SME sector leads to a vibrant economy. Reality is that in developing countries, they find it difficult to attract talent, get international visibility, suffer from lack of transparency and trust and all this leads to poor access and high cost of finance. Viewed in this context, Dun & Bradstreet(D&B) signed recently a Memorandum of Understanding(MOU) to set up a rating agency for SMEs in Bangladesh. In this connection, Mr. Saikat Poddar, Regional Sales Director -- South Asia, Dun & Bradstreet, said: "Banks and other financiers need tools to better assess credit risk for SMEs in a scientific manner. In the developing world, doling out subsidies and concessions in areas of interest rate and tax have not succeeded in building a strong and transparent SME sector. By setting-up the rating agency dedicated to SMEs in Bangladesh, Dun & Bradstreet proposes to enhance transparency by infusing globally recognised research and benchmarks, supporting financial innovation and deepening credit culture and risk management amongst them".
Emphasising the significance of SMEs in country's economy, Mr. Imran Rahman, Managing Director & CEO said: "The latest Bangladesh: Small & Cottage Industries Corporation (BSCIC) estimates suggest that there are currently 55,916 small industries and 511,612 cottage industries excluding handlooms. Including handlooms, the number of cottage units shoots up to 600,000 units, indicating the sheer abundance of SMEs in Bangladesh. Thus, the SMEs are undoubtedly quite predominant in the industrial structure of Bangladesh comprising over 90% of all industrial units. Together, the various categories of SMEs are reported to contribute between 80 to 85% of industrial employment and 23% of total civilian employment. These Micro, Small and Medium Enterprises (MSMEs) employ a total of 31 million people, equivalent to 40% of the population of Bangladesh, aged 15 years and above. About three quarters or more of the household income in both urban and rural areas is provided by the MSMEs. The contribution of the SMEs is seen to vary between 45 to 50% of the total manufacturing value added".
A credit rating agency for SMEs will enable banks to reduce the evaluation cost and delivery time, thereby reducing transaction costs for Lending based upon the established credibility of the SME rather than the collateral offered or subjective market reputation. It will avoid lending to the defaulters of another bank, reduce non-performing loan(NPL) and default probability level in the economy, fully exploit the potential of SMEs based upon the availability of reliable data from a third neutral party, enforce greater discipline among the borrower and avoid lending them beyond their repayment capacity and accurately measure their credit risk out of the availability of reliable and comprehensive information. SMEs, on the other hand, stand to gain by being able to seek a better bargain based upon established creditability evidenced from the rating of a neutral third party, avoid questions of the bankers to establish creditability, seek facilities without collaterals based upon repayment history and future cash flows and reduce the lead time between filing an application and availing credit facilities. Credit ratings can also help to ensure due compliance with the relevant legal regulatory provisions.
Established in 1841 in America, Dun & Bradstreet(D&B) has had extensive world wide experience in conducting credit ratings for small businesses. This experience has helped D&B attain the leadership position as the most trusted source of small business information. D&B is currently the global leader in small business information, and small business risk evaluation, scoring and monitoring.
D&B has been responsible for generating risk assessment models exclusively customised for SME businesses. In India, it has entered in partnerships with national government bodies, banks and financial institutions to exclusively build up assets devoted towards assessing credit risk of SMEs. These engagements have gone a long way in addressing issues pertaining to information asymmetry with respect to SME businesses. The last two years have seen an exponential growth and acceptance of SME ratings. This success has been possible due to the active and important role that has been played by the Government of India.
BRAC Bank is the pioneer in SME financing in Bangladesh. It has the largest SME loan portfolio in the country. Till date, it has financed over 100,000 SME borrowers through their 400 SME Unit offices across the country. Over 90% of BRAC Bank's SME credit portfolio is free from collateral security. The unique distribution model of BRAC Bank has enabled this 'missing middle' SMEs of the country to access financing facility at their doorstep.
Mentioning the need for government's support for the development of SMEs: Mr. Poddar said "It is imperative that key learnings from SME focused initiatives undertaken in other countries be imbibed in Bangladesh. The proposed Rating agency for SMEs in Bangladesh will benefit from D&B's experience in similar nation-building initiatives. As observed by D&B, the key success drivers that contribute directly towards addressing key issues and enhancing competitiveness of the SME sector are Government support and wide participation".
Source: News release
Small and Medium Enterprises(SMEs) are lifeblood of economies around the world and they form an important source of investment, employment, entrepreneurship and innovation and hence a vibrant SME sector leads to a vibrant economy. Reality is that in developing countries, they find it difficult to attract talent, get international visibility, suffer from lack of transparency and trust and all this leads to poor access and high cost of finance. Viewed in this context, Dun & Bradstreet(D&B) signed recently a Memorandum of Understanding(MOU) to set up a rating agency for SMEs in Bangladesh. In this connection, Mr. Saikat Poddar, Regional Sales Director -- South Asia, Dun & Bradstreet, said: "Banks and other financiers need tools to better assess credit risk for SMEs in a scientific manner. In the developing world, doling out subsidies and concessions in areas of interest rate and tax have not succeeded in building a strong and transparent SME sector. By setting-up the rating agency dedicated to SMEs in Bangladesh, Dun & Bradstreet proposes to enhance transparency by infusing globally recognised research and benchmarks, supporting financial innovation and deepening credit culture and risk management amongst them".
Emphasising the significance of SMEs in country's economy, Mr. Imran Rahman, Managing Director & CEO said: "The latest Bangladesh: Small & Cottage Industries Corporation (BSCIC) estimates suggest that there are currently 55,916 small industries and 511,612 cottage industries excluding handlooms. Including handlooms, the number of cottage units shoots up to 600,000 units, indicating the sheer abundance of SMEs in Bangladesh. Thus, the SMEs are undoubtedly quite predominant in the industrial structure of Bangladesh comprising over 90% of all industrial units. Together, the various categories of SMEs are reported to contribute between 80 to 85% of industrial employment and 23% of total civilian employment. These Micro, Small and Medium Enterprises (MSMEs) employ a total of 31 million people, equivalent to 40% of the population of Bangladesh, aged 15 years and above. About three quarters or more of the household income in both urban and rural areas is provided by the MSMEs. The contribution of the SMEs is seen to vary between 45 to 50% of the total manufacturing value added".
A credit rating agency for SMEs will enable banks to reduce the evaluation cost and delivery time, thereby reducing transaction costs for Lending based upon the established credibility of the SME rather than the collateral offered or subjective market reputation. It will avoid lending to the defaulters of another bank, reduce non-performing loan(NPL) and default probability level in the economy, fully exploit the potential of SMEs based upon the availability of reliable data from a third neutral party, enforce greater discipline among the borrower and avoid lending them beyond their repayment capacity and accurately measure their credit risk out of the availability of reliable and comprehensive information. SMEs, on the other hand, stand to gain by being able to seek a better bargain based upon established creditability evidenced from the rating of a neutral third party, avoid questions of the bankers to establish creditability, seek facilities without collaterals based upon repayment history and future cash flows and reduce the lead time between filing an application and availing credit facilities. Credit ratings can also help to ensure due compliance with the relevant legal regulatory provisions.
Established in 1841 in America, Dun & Bradstreet(D&B) has had extensive world wide experience in conducting credit ratings for small businesses. This experience has helped D&B attain the leadership position as the most trusted source of small business information. D&B is currently the global leader in small business information, and small business risk evaluation, scoring and monitoring.
D&B has been responsible for generating risk assessment models exclusively customised for SME businesses. In India, it has entered in partnerships with national government bodies, banks and financial institutions to exclusively build up assets devoted towards assessing credit risk of SMEs. These engagements have gone a long way in addressing issues pertaining to information asymmetry with respect to SME businesses. The last two years have seen an exponential growth and acceptance of SME ratings. This success has been possible due to the active and important role that has been played by the Government of India.
BRAC Bank is the pioneer in SME financing in Bangladesh. It has the largest SME loan portfolio in the country. Till date, it has financed over 100,000 SME borrowers through their 400 SME Unit offices across the country. Over 90% of BRAC Bank's SME credit portfolio is free from collateral security. The unique distribution model of BRAC Bank has enabled this 'missing middle' SMEs of the country to access financing facility at their doorstep.
Mentioning the need for government's support for the development of SMEs: Mr. Poddar said "It is imperative that key learnings from SME focused initiatives undertaken in other countries be imbibed in Bangladesh. The proposed Rating agency for SMEs in Bangladesh will benefit from D&B's experience in similar nation-building initiatives. As observed by D&B, the key success drivers that contribute directly towards addressing key issues and enhancing competitiveness of the SME sector are Government support and wide participation".
Source: News release