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.
Recent studies point to the significant role that MSEs, predominantly informal and based in the rural sector, play to the Bangladeshi economy by providing self-employment and regular paid employment for roughly 80% of the labour force of the country. It is important that they continue to play this role given that 1.8 million people enter the labour force every year, a number that is far beyond what the formal sector is able to absorb at present.
Despite its importance, MSE financing is severely constrained because of a variety of reasons. Banks do not lend to this segment because of high transaction costs of making small-sized loans. Conversely, microfinance organisations usually lend out very small sums of money to individuals, and lack the skill-sets and business model to assess and monitor microenterprise loans.
BFP-B is a multi-pronged programme that will specifically target the MSEs that are currently unserved 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, while foregoing traditional collateral, such as land and cash. It also works with the MSEs themselves to ensure financial education and business planning techniques make them better borrowers. Coupled to this, BFP-B works with regulators to make sure the overall climate for MSE lending is conducive.
The BFP-B 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.