From the Governor’s chamber at the Central Bank, through the conference halls of development seminars, to the boardrooms of commercial banks, there is a great deal of talk on MSME access to finance. Yet we are struggling to reach to the point where access to finance is affordable for MSEs and makes business sense for the service provider. In overcoming this shortfall, Business Finance for the Poor (BFP-B) partners with various private sector initiatives to provide sustainable last mile financial solutions to MSEs.
Two of such projects are ‘i-SME’ and ‘Diganta’ which have recently collaborated in Durgapur Rajshahi to provide a comprehensive business solution and banking service to the unbanked MSEs of the region. i-SME is an initiative by a consortium led by Bangladesh SME Corporation offering business development services to MSEs, whilst Diganta is a project of Bank Asia which aims to extend its agent networks into rural areas for MSEs. Together in December 11,2017 they inaugurated the first agent outlet of Bank Asia which will be operated by Bangladesh SME Corporation Limited in Durgapur, Rajshahi. Through the center, rural unbanked MSEs will be able to get a one stop solution to their business and banking needs.
The i-SME Project came about after recognizing the challenges faced by MSEs in applying for formal loans. In deciding to give out loans, Banks and other financial institutions (FI) require a basic level of preparedness from their MSE customers including organised financial data, legal documents, proof of ability to repay loan, etc. Beyond fulfilling basic KYC (Know Your Customer) requirements, the FI uses this information to make complex analyses of the borrowers’ MSE credit worthiness. MSEs are discouraged from applying for loans through this formal process due to a lack of the required documentation, and a large percentage of those that do apply have their application rejected. MSEs therefore turn to informal financing sector where such preparedness is not necessary, but the loan amounts and tenors available are often inadequate and the rates prohibitively high. The i-SME platform at its most basic, is a services platform that 1) help the FI to identify the right set of MSE borrowers and 2) helps the MSE prepare for and navigate the complex loan process. This is achieved through a portfolio of support services in the following areas:
- Credit scoring
- Incorporation and documentation
- Financing product selection
- Loan processing
- Borrower identification service
Together, the portfolio of services aids the MSE to choose the right FI and the right product, then prepare the necessary material and submit a complete loan application. This reduces the time at the Bank’s end and the successful application rate increase.
The concept of Project ‘Diganata’ is based on a recognition that MSEs are good investment for the long term. Under the prevailing banking context where banks have historically been focussed on corporate based lending for revenue generation and growth, promoting MSE financing is a difficult proposition. Particularly, in the traditional branch banking operational system, branches tend to focus on profitability of the branch apart from any other attributes. ‘Diganta’ is an extension of Bank Asia’s agent banking network to connect the geographically dispersed populations through the Bank’s authorized agent which is a more cost effective and efficient set up compared to branch banking. Under the project the local Bank Asia agent points are channeling the loan propositions by providing greater automation of the loan approval process which drastically reduced the time take to assess and approve proposals.
Business Finance for the Poor in Bangladesh (BFP-B) is a £25 million programme funded by DFID. Its overall objective is to increase access to finance for micro and small enterprises in Bangladesh (MSEs), with a particular focus on rural and women-owned businesses. BFP-B is a multi-pronged programme that specifically targets MSEs that are currently underserved by the formal financial sector, but are credible borrowers with solid business ideas and activities. The programme incentivises commercial banks, microfinance institutions (MFIs), and other non-bank financial institution to reach out to financially excluded clients using innovative channels, such as mobile phones, whilst foregoing traditional collateral, such as land and cash. Coupled to this, BFP-B works with regulators to make sure the overall climate for MSE lending is conducive. The programme is managed by Nathan Associates London Ltd, the implementing agency is Bangladesh Bank, and the executing agency is the Bank and Financial Institutions Division of Bangladesh’s Ministry of Finance.