Developing Small & Medium Business for Greater Wealth Creation : Forward looking activities of Bangladesh Bank

1. Bangladesh Bank [The Central Bank of Bangladesh] Developing Small & Medium Business for Greater Wealth Creation : Forward looking activities of Bangladesh Bank SukamalSinhaChoudhury General Manager SME & Special Programs Department Bangladesh Bank, H.O, Dhaka Commonwealth Business Forum 2013 11-14 November, 2013 Srilanka

2. Contents • Why SMEs are so important? • SMEs and Wealth Creation • Overview of SME sector in Bangladesh • Policy Interventions for SMEs • BB’s Initiatives • Access to Finance of SMEs • Bangladesh Perspective • Internationalization of SMEs

3. Why SMEs are Important? • Positive association between SMEs and GDP per capita Growth.* • Small firms exhibit higher net job creation rates than large ones [OECD-2002] • Advanced Economies succeeded in achieving sustainable economic growth because SMEs form a fundamental part of their economies. In advanced economies- • SMEs comprise 98% of total establishments • Contribute 65% of Employment • Contribute 50% to GDP ** • SMEs recognized as the backbone of economy. • Therefore, Promoting a viable SME sector is essential. * Beck & Kunt, 2005 (WB) ** DailyFT 28 June, 2013

4. Bangladesh SME sector-A Brief

5. Policy Interventions Towards Sustainable SME Development- BB’s Initiative. Institutional Building “The United Nations (UN) committee on building inclusive financial sector, however, recently urged central bank to add the goal of “financial inclusion” to the traditional goals of prudential regulation and stability of the financial system”- UN (2006) • A paradigm shift in the BB’s policy regime in recent • years. • The policy is skewed to the financially excluded and • unbanked mass of the country especially • - small Entrepreneurs and women entrepreneurs.

6. Policy Interventions Towards Sustainable SME Development- BB’s Initiative. Institutional Building A milestone decision was taken in December,2009 • A new department named “ SME & Special Programs Department (SMESPD)” was created in BB to regulate and supervise SME financing activities of the whole country The objectives of the formation of this department • alleviating poverty and hunger, • ensuring gender equality, • empowering women, • generating employment, • the overall economic development of the country.

7. Policy Interventions Towards Sustainable SME Development- BB’s Initiative. Regulatory Improvements & Policy Interventions Important regulatory and policy interventions includes- • Launching SME credit policies and Programmes, • Defining SMEs, • Implementing three-tier monitoring system • Targeting broader inclusion of smaller segment of SMEs in the formal financial system. • Helping SMEs through refinance schemes being implemented by SMESPD, BB. • BB’s Own Fund • EGBMP (IDA) Fund • ADB Fund • JICA Fund

8. Policy Interventions Towards Sustainable SME Development- BB’s Initiative. SME Credit Policies & Programmes, 2010 With a view to streamlining SME financing and activities of Banks and NBFIs in a very systematic manner BB has made a comprehensive policies and programs in 2010. Special features include- • Setting up an indicative target for SME loan disbursement, • Following the “Area Approach Method”, • Cluster development Policy’ • Priority to the small entrepreneurs, women entrepreneurs, • Special emphasis for manufacturing and service sectors, • Monitoring SME activities in the Head Office of Bangladesh Bank, • Following separate business strategies in financing SME, • Speedy loan sanction and disbursement.

9. Policy Interventions Towards Sustainable SME Development- BB’s Initiative. Definition of SMEs • In Bangladesh, SMEs are defined on the basis of fixed assets excluding land & building and/or number of persons employed. • SME comprises of Cottage, Micro, Small and Medium Enterprises. 1 USD= BDT 78.00

10. Policy Interventions Towards Sustainable SME Development- BB’s Initiative. Monitoring • Strong monitoring of SME Financing and SME promotion at three levels • BB Head office • BB branch offices • Banks/FIs Head offices • Key Monitoring Area (KMA) • Target achievement • Distribution by Sectors • SE –ME ratio • Women Entrepreneurs financing • Geographical distribution • Cluster financing • NPL • Non Financial Services

11. Policy Interventions Towards Sustainable SME Development- BB’s Initiative. Cluster Development • Bangladesh Bank (the Central of Bangladesh) has taken over the responsibility for the development of clusters with- • Engaging all Banks and NBFIs in cluster financing • Advising all banks and NBFIs to take at least one cluster countrywide for their development • Frequent field level visit to the clusters • Strategies for cluster development : • Identification of the cluster; • Formation of committee for cluster development; • Conduct baseline survey & diagnostic study; • Fixation of action plan; • Implementation of action plan; • Review & monitoring. SMESPD, BB directly contributed in developing 50 clusters countrywide with the help of 30 banks.

12. Policy Interventions Towards Sustainable SME Development- BB’s Initiative. Other Policy Interventions • Opening of a separate “Women Entrepreneur’s Dedicated Desk” and “SME Help Desk” in all Banks and NBFIs. • Allocating 15% of BB refinance fund for women entrepreneurs. Instructions were given to Banks and NBFIs to charge reduced interest rate at 10% (Bank rate+5%) to women entrepreneurs on refinance schemes. • Every bank and NBFI appoints a focal person to receive and solve the complaint of entrepreneurs and views his name open to all. • Communication cooperation and Joint Initiatives at national and international levels • BB communicates with international donor agencies like The World Bank, IFC, ADB, JICA, EU for development of SMEs • With international agencies like CIRDAP, CIDA, UNIDO, USAID, VITA, FAO etc. for technical cooperation • With embassies for bilateral cooperation • Bangladesh Bank communicates and cooperates with local Chambers, Ministries and other agencies working for SME development • Organizing training and capacity building training for officials of Banks & NBFIs

13. Overall Approach of BB for SME Development

14. Future Initiatives • BB is now intensively working for launching- • Credit Guarantee Scheme (CGS) for SMEs • Start-up Financing • Financing to New Entrepreneurs • Venture Capital Financing • Ratings of SMEs

15. Access to Finance-BB’s Initiatives • Bank A/C for Farmers • Bank A/C for Unemployed Youths • Bank A/C for Hardcore Poor • Bank A/C for Freedom Fighters • Bank A/C for Aila Affected People • Bank A/C for Beneficiaries under Social Security Programs • Bank A/C for Small Insurance Policy Holders • Mobile Phone Banking • Inward foreign remittance disbursement • Cash in /out using m-wallet account through agents/ Bank branches/ ATM’s/ Mobile Operator’s outlet • Person to Business Payment (e.g. utility bill payment) • Business to person Payment (e.g. salary disbursement ) • Government to Person Payment • School Banking

16. Access to Finance for SMEs • Incorporating cottage and micro enterprises under the purview of SMEs • Decreasing Lower limit of SME loan to BDT 50,000 • Financing about 60% to cottage, micro and small enterprises • Emphasis on women entrepreneurship development • Group based lending to micro, cottage and small enterprises and to women entrepreneurs • Creating massive awareness through print and electronic media

17. Access to Finance for SMEs • Emphasis is given to disburse credit towards rural SMEs. • Financing to all disable SME entrepreneurs including blind people-with preferable interest rate. • Financing to Creative writers under SME portfolio-with preferable interest rate.

18. Internationalization of SMEs • Internationalization of SMEs – • Expanding Business in Overseas • Exporting Goods/Services • Overseas Expansion • SMEs in Bangladesh have limited scope • SMEs are rather small in expanding overseas • Capital Account is not convertible • Through Export- • SMEs are exposed to international market now-a-days • Web based marketing- BB and Banks & NBFIs help SMEs • Cash Incentives for traditional items • Communication, Interaction and Cooperation with all leading International Organizations for sharing knowledge and exchange of views.