Dr. Atiur Rahman
SMEs have been globally considered as engines of economic growth as well 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 SME 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 persistent poverty. In the face of the declining capacity of the public sector as a viable employer of the last resort, many countries in the world are turning to promoting self-employment, mostly through 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 it is facing currently. Undoubtedly, 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 be concerned 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 that happen to be the backbone of our economy. Most of the value addition of our economy really comes from this sector. We in Bangladesh, therefore, 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 also 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 roles.
Over the last 5 years a number of ground breaking initiatives were taken by Bangladesh Bank for sustainable development of MSME sector. Let me share a few with you now.
• 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 to finance;
• Focusing on socially vulnerable groups targeted for enhancing their credit access like women entrepreneurs, entrepreneurs of the ethnic origin and physically challenged ones;
• Prioritizing Cottage, Micro and Small entrepreneurs;
• Strong monitoring system ; and
• Prioritizing productive and labor intensive sectors and businesses (manufacturing and service concerns) .
• Encouraging partnership between financial institutions, e-commerce promotes ICT entrepreneurs.
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 windows both from our own and donor supported sources to refinance banks and NBFIs 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 rating of banks and other financial institutions
• Provision of capacity building for SME banking through international donor support like EU supported INSPIRED project.
As a result of all these policy interventions and provisions of incentives and capacity building efforts, positive changes are already evident in the performance financial sector in 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, this 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% during 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 now 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 been able to attract other public and private sector institutions as partners 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 development partners in the sustainable development of MSME sector. World Bank, ADB, IFC, CIRDAP, DFID, EU and JICA are actively supporting our initiatives.
We are actively engaged in sharing knowledge of the best practices in this area with international public and private sector organizations. We have joined in Alliance for Financial Inclusion (AFI) network. This organization is working as a network of central banks and financial regulators for broadening financial inclusion among the excluded segments of the society. We have been playing strategic role in global standard setting bodies for financial inclusion, actively participate in the six thematic working groups and also playing key role in the global policy forum of AFI. As part of our international cooperation we arranged a number of seminars and workshops, participated in various International forums for sharing best practices and knowledge on SME development models, tools and techniques in different countries. I gladly remember a seminar with Indian leading MSME organizations like NSIC, SIDBI and “I am SME of India” and it is this venue where that seminar was held with the cooperation of CIRDAP. I convey my thanks to Director General of CIRDAP for supporting BB initiatives for SME development.
I am really impressed by the presentations of two distinguished seminar leaders Mr. Sippitt and Mr. Shankar. Two important aspects of sustainable development of SMEs have been discussed at length in their presentations. Important insights and discussions have been shared by the learned panelists. I would like to thank the theme presenters for sharing their knowledge and insights on the topics with us and the distinguished discussants for critical analysis of the topics. I would like to request the organizers of today’s seminar to take note of discussions and recommendations so that these can be guiding principles in our policy interventions in the days to come, as these are still unfolding.
(Adapted from a speech made by the Bangladesh Bank Governor at an International seminar on Sustainable SME Development held at Cirdap auditorium in Dhaka on Wednesday)
Dr. Atiur Rahman