Dr. Atiur Rahman
Governor, Bangladesh Bank :
MSMEs have been globally considered as an engine of economic growth and as key instruments for promoting equitable development. The major advantage of the sector is its employment potential at low capital cost. The labour intensity of the MSME sector is much higher than that of large enterprises. Bangladesh is facing the challenge of attaining sustainable economic growth by dealing with high population growth, high rates of unemployment and poverty reduction. In the face of the declining capacity of the public sector as a viable employer of last resort, many countries in the world are turning to promoting self employment and Small and Medium Enterprises (SMEs) as a potential lifeline to generate jobs and promote inclusive economic development. I am pleased to see that today’s seminar has been organized in this backdrop.
The themes of today’s seminar are particularly relevant to Bangladesh given the challenges Bangladesh is facing currently. Our country experienced steady growth over the decades and we are steadily advancing towards achieving middle income country status. The recent growth story of Bangladesh economy is a puzzle to many international analysts. Indeed this seems to be a well kept secret. Despite this development puzzle of Bangladesh we still need to worry about more than two million young people joining the labour force every year. Creating jobs for them is no doubt a formidable challenge for us. Sustained inclusive economic growth is key to job creation, poverty reduction and journey towards achieving the goal of middle income country by this decade. As we are not a highly industrialized country we need to rely on our capacity to create employment and self-employment at the lower end of our economy. To achieve this objective we should focus on MSMEs who happen to be backbone of our economy. We in Bangladesh have selected SME development as a strategic priority for industrial and economic growth.
Exploring the full potential of MSMSEs require a sustainable development framework. Access to financing represents a major driver for growth of SME’s in Bangladesh. Appropriate regulatory environment and government interventions in the area of business environment improvement are key to sustainable SME development in any country. We in Bangladesh Bank have taken a number of initiatives for the development of SMEs with special emphasis on women entrepreneurship development. Broadening financial inclusion and enhancing access to broader financial services including access to credit and capacity building of both MSMEs and bankers is our key target.
Removing the supply-side constraints only would not be effective unless demand-side limitations are addressed properly. Moreover creating some public goods like information dissemination, business development services, provision of and access to broad range of financial services are also essential for making the development of SME a sustainable agenda. Bangladesh Bank has taken various initiatives to promote sustainable SME development including regulatory interventions and incentives for both bankers and entrepreneurs. Of course other stakeholders including SME Foundation, various chambers of commerce and industries have also been playing complimentary role.
During the last 5 years a number of ground breaking initiatives were taken by Bangladesh Bank for sustainable development of MSME sector which includes:
Target based lending to SME sector;
Area approach and cluster based lending whereby under developed geographical regions and clusters were given special emphasis for enhancing access;
Focusing on socially vulnerable groups targeted for enhancing their credit access like women entrepreneurs, entrepreneurs of the ethnic origin and physically challenged people;
Prioritizing Cottage, Micro and Small entrepreneurs;
Strong monitoring system ; and
Prioritizing productive and labor intensive sectors and businesses (manufacturing and service concerns).
We are also providing incentives for the bankers for increasing lending to the MSMEs like:
Provision of low cost fund from our refinance windows. We are operating a number of refinance window both from our own and donor supported sources to refinance banks and NBFIs claims against financing to MSMEs at only bank rate
Regulatory easing of provision requirements for enhanced lending to MSMEs
MSME financing performance are being weighted in the CAMELS of banks
Provision of capacity building for SME banking through international donor support like EU supported INSPIRED has one component for capacity building of bankers on SME Banking in terms of training and exchange visits.
As a result of these policy interventions and provisions of incentives and capacity building efforts, positive changes are already evident in the financial sector on MSME financing. MSME lending portfolio of banks are steadily growing while lending to productive and labor intensive businesses, to Cottage, micro and small segment and to women entrepreneurs are on the increasing trend. In 2010 when BB started this focused SME financing initiative SME loan portfolio in the banking sector was 21% of the total loan where as at the end of 2013 the portfolio increased to 24%.
Lending to priority segment (small) increased by 9% at the same time period. Total lending to SME sector increased by 59% from 2010 to 2013. Lending to productive sectors (manufacturing and service) increased by 55% for the same period. Financing to women entrepreneurs increased from 3% of the total SME lending to 4%. During 2013 BDT 13,198 crore has been disbursed to 65,504 new businesses. More and more banks and NBFIs are entering into the MSME business segment with tailor made products and services.
Another aspect of our interventions is that we are not working alone. We have engaged other public and private sector institutions in our journey. SME Foundation, BSCIC, Women Affairs Directorate have joined hands with us. We have also engaged DCCI, FBCCI, BWCCI, WEAB, CWCCI and many other private sector organizations and business associations in our initiatives. We are also actively engaging our international and bilateral donors in the sustainable development of MSME sectors. World Bank, ADB, IFC, CIRDAP, DFID, EU and JICA are actively supporting our initiatives.
