Why Bank Prefer SME Financing?

Posted by Muhammad Jakirul Haque Talukder on Sunday, December 7, 2014 | 0 comments | Leave a comment...

SME is becoming the driving force of the economy in our country.  Now a day’s SME is considered as the employment generating machine which is fostering economic growth and development of our country.
Ø Refinancing Facilities from Bangladesh Bank;
Ø Risk diversification to large number of borrower;
Ø Low cost of fund than other sources of fund;
Ø Flexible repayment schedule;
Ø SME financing is respectively less complicated than general  term loan.
Ø Easy to communicate with borrower;
Ø Short processing time;
Ø SME Database and Market Segmentation Reporting; and
Ø Decentralization of delegation of power.

Discuss the existing sources & areas of SME Financing

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The main sources of SME Financing are basically personal funds, family and friends, banks and NBFIs. Some refinance Schemes from different organization are also available. These are discussing below:

SME Financing by Banks & NBFI:  
An important element of SME finance is not directly provided by banks through traditional loans but rather by leasing or factoring companies. Bank loans and overdrafts are the most widespread debt financing tools for SMEs, but also those alternative sources like leasing and factoring are of high relevance. 

The EEF:  
The Government had instituted the Equity Entrepreneurship Fund (EEF) in early 2002 in an effort to make funding more widely available for agro-processing and information technology businesses in the country. 

Small Enterprise Fund (SEF): 
Small Enterprise Fund (SEF), a scheme to refinance banks and other financing institutions that lend to the SME sector create a capacity to specifically channel needed debt-finance.  Disbursements made by financial institutions and leasing companies into small-enterprises will be refinanced from the proceeds of the SEF. 

ADB Fund: 
The Small and Medium Enterprise Sector Development Program (SMESDP), which is financially assisted by The Asian Development Bank, Manila and implemented by the Ministry of Industries, Govt. of Bangladesh introduce a fund for SME entrepreneurs by Banks & NBFI.

Other Refinance Scheme:
1. Bangladesh Bank Fund:
2. EGBMP (IDA) Fund:
3. Japan International Cooperation Agency (JICA) Fund

SME is considered as Employment Generating Machine-Explain

Posted by Muhammad Jakirul Haque Talukder on | 0 comments | Leave a comment...

SME is considered as employment Generating Machine for the following reason: 

 1.    SME sector is the largest provider of employment in most countries, especially of new jobs.

2.   SMEs tend to employ poor and low -income Workers.

3.   SMEs are sometimes the only source of employment in poor regions and rural areas.

4.   There are approximately six million SMEs in Bangladesh, which include enterprises with up to 100 workers employing a total of 31 million people – equivalent to 40 per cent of the population of Bangladesh aged 15 years and above.

5.     SME has huge Employment generation potential due to labor intensive nature of most of the SME activities. Between 1986 and 2006, the labor force grew by nearly 3 percent while employment grew by 2.6 percent. In the small enterprises, employment grew by 4.8 percent during 1978-1991 and by 5.5 percent during 1991-2001.

Steps/ Measures taken by Bangladesh Bank for SME Development

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Bangladesh Bank has already introduced several schemes and programs to flourish and expand SME Enterprises. Refinance scheme funded by Bangladesh Bank, IDA and ADB has been facilitated for the development of SME Sector. Besides, to ensure institutional financial facilities under easy conditions Bangladesh Bank has taken diverse steps; like opening of ‘Dedicated Desk’ for SME and ‘SME Service Centre’ in the banks and special facilities for the women entrepreneurs. But reality is that expected outcome has not been achieved so far in this sector.

Reasonably, a new department namely ‘SME and Special Programmes Department’ has been established in Bangladesh Bank recently which will be solely responsible for policy formulation, facilitating fund, monitoring and development of entrepreneurship in the SME sector.

The guidelines formulated by the newly created department for compliance of the banks and financial institutions for the development of SME sector are enumerated below:
1.     For the first time in Bangladesh, an indicative target for SME loan disbursement has been set for 2010 by the banks and financial institutions considering SME development as one of the most important development agenda of the country. According to the target, SME loan shall be disbursed to the small, medium and women entrepreneurs.

2.    Following the 'Area Approach Method' banks/financial institutions will try to attain their indicative targets separately by dividing it as branch wise, region wise & sector wise.

3.    Each bank/financial institution shall follow a separate business strategy in financing SME loan with least formalities in executing documentation to ensure easy and speedy loan sanction and disbursement process.

4.    Priority shall be given to small entrepreneurs.

5.    For small entrepreneurs credit limit will be ranged from Tk. 50,000 (Fifty thousand) to Tk. 50,00,000 (Fifty lac).

6.    For more participation of women entrepreneurs in industrial development of the country and for conducting business activities by women entrepreneurs in large number, priority shall have to be given to potential women entrepreneurs in respect of SME credit disbursement.

7.    Banks & Financial Institutions shall put highest priority in receiving loan application from small and medium women entrepreneurs and settle the loan disbursement process within very reasonable time from the date of acceptance of the application.

8.    Each bank and financial institution shall establish a separate ‘Women Entrepreneurs’ Dedicated Desk’ with necessary and suitable manpower, provide them training on SME financing and suiltably appoint a lady officer as chief of dedicated desk. Branch wise list of ‘Women Entrepreneurs’ Dedicated Desk ‘should be sent to SME and Special Programs Department of Bangladesh Bank within two months from the date of declaration of this policy and programme.

9.    Banks and financial institutions may sanction up to Tk. 25,00,000 to women entrepreneurs against personal guarantee. In that case, group security/social security may be considered.

10.  The success in SME loan disbursement will be considered as yardstick for further approval of new branches of the concerned bank. License for New Branches will be issued for financing the priority sectors like SME and agriculture from 2010 in the name of ‘SME/Agriculture Branch’ instead of ‘SME Service Centre; in order to involve banks in financing priority sector like SME and Agriculture’.

11. Each bank/financial institution shall fix the interest rate on SME loan sector/subsectorwise. However, bank/financial institution will inform Bangladesh Bank sector/sub-sector wise rate of interest immediately and ensure disbursement of refinanced fund to the clients (women entrepreneurs) at Bank rate +5% interests.

12. Training programs shall be arranged for the entrepreneurs.

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