IFC, BB sign deal on Credit Guarantee Scheme

To support small businesses facing financing challenges due to the impacts of COVID-19, IFC has signed an agreement with Bangladesh Bank to implement a Credit Guarantee Scheme (CGS) for Cottage, Micro, Small and Medium Enterprises (CMSMEs).

By offering a risk-sharing arrangement for participating financial institutions (PFIs), the scheme will allow the PFIs to provide better access to finance for CMSMEs that are often deprived due to their high-risk profile, says the Bangladesh Bank (BB) in a statement.

Deputy Governor of Bangladesh Bank Abu Farah Md. Nasser, British High Commissioner to Bangladesh Robert Chatterton Dickson, IFC's Acting Country Manager for Bangladesh, Bhutan and Nepal Nuzhat Anwar, and IFC's Regional Manager for Financial Institution Group (Asia & Pacific) Qamar Saleem along with other distinguished members from Bangladesh Bank and IFC's global team were present at the agreement signing ceremony.

With about 7.8 million units employing more than 20 million people, cottage, micro, small, and medium enterprises (CMSMEs) account for almost 25 per cent of gross domestic product and 30 per cent of total industrial employment in Bangladesh. However, limited access to finance has been an impediment in sustaining this labour-intensive sector that is critical for the country's sustained growth.

Emphasising that CMSMEs play a vital role in employment generation, maintaining a solid supply chain, poverty alleviation, women's empowerment and other critical issues, Deputy Governor of Bangladesh Bank Abu Farah Md. Nasser said, "Being a monetary authority as well as the regulator of the banking sector of the country, Bangladesh Bank has been working relentlessly to modernise the financial industry and introduce new financial tools such as this credit guarantee scheme." He added that the CMSME's left behind due to collateral shortfall would benefit from the credit guarantee scheme.

Risk profiles of small businesses have also worsened in the ongoing pandemic, with 94 per cent of micro, small, and medium enterprises (MSMEs) reporting lower sales in a 2020 IFC Covid-19 Impact Study. Heightened risk concerns and lower margins have also made it more challenging for financial institutions to lend to this sector.

"Bangladesh Bank's new credit guarantee scheme will enable small and medium sized businesses to access the loans they need to cope with the economic impact of Covid-19. These businesses are crucial for the economy, but they have been disproportionately affected by the pandemic. I congratulate Bangladesh Bank for launching an extraordinary set of policy measures to support the economy during these extraordinary times," said British High Commissioner to Bangladesh Robert Chatterton Dickson.

"The UK Government is very pleased to be able to provide technical assistance to Bangladesh Bank to support the economic recovery and to help develop a financial sector that can serve Bangladesh's needs as it graduates from LDC status," he added.

Supported by the UK Government's Foreign, Commonwealth & Development Office, successful implementation and utilisation of the credit guarantee scheme under this new project will provide a platform for creating a more sustainable and inclusive financial market.

The project will also help local financial institutions, including several IFC clients, increase their exposure to the CMSME sector with a provision for risk sharing and help build private sector investor confidence.

"Financial inclusion and enhanced access to finance for MSME has been the center of the IFC country strategy for Bangladesh," said Nuzhat Anwar, IFC's Acting Country Manager for Bangladesh, Bhutan and Nepal. "Successful implementation of the scheme will eventually pave the way of independent institutionalization of a credit guarantee scheme in Bangladesh that can attract more private sector investment," she added.

To help its clients and private companies to sustain business and preserve jobs during the pandemic, IFC has increased its COVID-19 global support fund to USD 8 billion to fast-track financial support in developing countries. This project will leverage IFC's international expertise to design and implement a better CGS facility in the country. It will also help financial institutions adjust their risk exposure to micro and small enterprises and enhance access to finance for small businesses and help build investor confidence.

The government of Bangladesh will allocate funding for the CGS facility, while IFC will provide technical assistance to implement the project. Loans worth $100 million are expected to be disbursed by financial institutions to CMSMEs by the end of June 30, 2025. At present, Cottage, Micro & Small category loans ranging from Tk 200,000-5,000,000 (BDT 2 Lac to BDT 50 Lac) are eligible for the Credit Guarantee Scheme. A total of 31 banks and Non-Bank Financial Institutions have signed up for the CGS facility.

The agreement was signed by Qamar Saleem, IFC Regional Manager for Financial Institution Group (Asia & Pacific) and S.M. Mohsin Hossain, General Manager of CGS Unit, Bangladesh Bank on behalf of their respective institutions.

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