The Asian Development Bank (ADB) has approved $50 million loan to promote microenterprise development in Bangladesh.
The ADB approved the loan through a credit line to Palli Karma Sahayak Foundation (PKSF), a development finance organisation, and its partner microfinance institutions, reports BSS.
The ADB project will help fill the funding gap in the short term. The loan will be provided to PKSF to on-lend to partner organisations and to sub-lend to about 40,000 microenterprises, of whose 70 per cent are female, said an ADB press release received in Dhaka on Tuesday.
To address medium-term challenges, the release said, the project will help PKSF develop a financing strategy and carry out institutional strengthening.
For the longer term, the project will develop microenterprise finance operational guidelines for microfinance institutions, including piloting for some partner organisations a mobile-based financing application.
It will also assist in clustering microenterprises for business expansion and up-scaling with quality control, branding, packaging, and marketing.
The total cost of the project, which is due for completion at the end of 2020, is $62.5 million, of which the microenterprises will contribute $12.5 million.
“Microenterprises in Bangladesh tend to lack access to finance since they are often too small for bank financing but too large for traditional microcredit,” said ADB Senior Portfolio Management Specialist Mayumi Ozaki.
“Boosting financing through microfinance institutions to microenterprises will promote rural growth and income and job opportunities.” added the ADB official.
Today, the Bangladesh microfinance industry comprises 758 microfinance institutions servicing 30 million clients.
Microfinance traditionally provides savings and credit to finance cottage-size enterprises in rural areas run by poor or low-income people who have no access to formal financial services.
However, as Bangladesh’s economy grows, there is an unmet demand for larger loans for nonfarm microenterprises.
Microenterprises are financed largely by informal sources such as individual savings or family loans and face other constraints, including lack of facilities and inflexible regulations.
The ADB release said women face additional hurdles in setting up microenterprises, lacking not only finance but business management, entrepreneurial and technical skills, and information and networking support.
The government set up PKSF in 1990 as an apex development finance and capacity building organization that provides loans to partner organisations. It has become an important funding source for small and medium-sized microfinance institutions.
But, at current funding levels, PKSF and its partner organizations can meet only part of their existing members’ demand.
The project is accompanied by an ADB technical assistance grant of $500,000 to enhance the capacity of PKSF and its partner organizations in microenterprise lending and promoting sustainable operations.
The grant is from ADB’s Financial Sector Development Partnership Special Fund, financed in partnership with the Government of Luxembourg.