SME Development in Bangladesh

Bangladesh has achieved a high growth rate during recent years. The main engines for the high economic growth are the agriculture sector and the service sector, especially the wholesale and retail trade sector. The economy is characterized with the increasing amount of foreign remittances, which has led the private consumption growth. Government has reorganized the SME Task Force in 2010 in order to draw up a realistic strategy for promoting rapid growth and vigorous competitiveness among SMEs in the interest of accelerating the growth of the economy and the reduction of poverty in the country. SME related policies and strategies consider the smooth and sustainable development of SMEs all over the country as one of the vehicles for accelerating national economic growth, including poverty alleviation, the reduction of unemployment, and the generation of more employment. This is in line with core principles and parameters set by the Poverty Reduction Strategy Paper (PRSP) of 2004 as well as targets set under the Millennium Development Goal (MGD). Given the strategic importance of the industry sector, it is considered that financial assistance to SMEs especially in the manufacturing sector is highly expected. However, as described earlier, SMEs in need of loans of more than Tk 3.0-4.0 million are likely to have been underserved. In general, SMEs have limited access, as compared to large enterprises which have better access to finance. While the statistics are limited, it is widely recognized that this is due to the stringent collateral requirements, high level of interest rates, shorter loan maturity periods, and complicated application procedures on the demand side. On the supply side, the limitedprovision of financial services are likely to be resulted from asset selection of financial institutions, specifically the large amount of investments in government securities and the shortage of medium- to long-term funds due to the competition with National Saving Deposit Certificate. As a result, whereas micro-enterprises are considered to be relatively well-positioned to access to micro-credits provided by MFIs, SMEs that have graduated from that segment and have not grown far to become large enterprises are placed in the middle with limited access to finance, especially medium- to long-term loans. The tasks of the Loan Appraisal Specialist are To assist BB-PIU in carrying out the capacity development for BB-PIU and PFIs as mentioned above, particularly with respect to the following: Scaling down of collateral requirement; Loan appraisal and supervision of long-term investment projects; Lending practices based on movable assets or cash-flow; Credit Scoring and its uses for SME lending by PFIs To assist the Team Leader in carrying out the other parts of the capacity development and conducting the study on the improvement of access to finance