The Asian Development Bank approved $50 million loan to promote microenterprise development in Bangladesh through a credit line to Palli Karma Sahayak Foundation, a development finance organization, and its partner microfinance institutions.
The ADB project would help fill the funding gap in the short-term, said an ADB press release received on Tuesday.
The loan would be provided to the PKSF to on-lend to partner organisations and to sub-lend to about 40,000 microenterprises, 70 per cent of which were owned by women.
To address medium-term challenges, the release said, the project would help the PKSF develop a financing strategy and carry out institutional strengthening.
For the longer term, the project would develop microenterprise finance operational guidelines for microfinance institutions, including piloting for some partner organisations and a mobile-based financing application.
It would 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 was due for completion at the end of 2020, was $62.5 million, of which the microenterprises would 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 the 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.
The Bangladesh microfinance industry at present comprised 758 microfinance institutions servicing 30 million clients.
Microfinance traditionally provided savings and credit to finance cottage-size enterprises in rural areas run by poor or low-income people who had no access to formal financial services.
As Bangladesh’s economy would grow, there would be unmet demand for larger loans for non-farm microenterprises.
Microenterprises were 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 faced 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 the PKSF in 1990 as an apex development finance and capacity building organisation that provided loans to partner organisations.
It had become an important funding source for small and medium-sized microfinance institutions.
At current funding levels, the PKSF and its partner organisations could meet only part of their existing members’ demand.
The project was accompanied by an ADB technical assistance grant of $500,000 to enhance the capacity of the PKSF and its partner organisations in microenterprise lending and promoting sustainable operations.
The grant was from the ADB’s Financial Sector Development Partnership Special Fund, financed in partnership with the government of Luxembourg.
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