WWW.ABSTRACT.DISLIB.INFO
FREE ELECTRONIC LIBRARY - Abstracts, online materials
 
<< HOME
CONTACTS



Pages:     | 1 |   ...   | 4 | 5 || 7 |

«The landscape of SME finance in Bangladesh An analysis of providers, products, requirements and constraints What is this resource? This report ...»

-- [ Page 6 ] --

 Title to property to allow for collateralisation  If collateral cannot be provided, the capacity to provide alternatives, such as security over assets liens, guarantees, and post-dated cheques  The ability to meet lenders’ minimum client criteria, especially years of business operation  Physical access to financial services through visiting the bank branch or lending officer  An ability to prepare the loan application, given the complexity of some of the banks’ forms Preparing for the detailed reporting required as part of the lender’s loan monitoring Improving Business Attributes Thirdly, the IB or SME should look to its own house. Some of the key operating aspects that

would bear attention include:

 Business skills, egg planning, product development, quality control, HR, cash/debt management  Improved access to markets, through better marketing, transportation and distribution  Better oversight, whether through a Board of Directors or another form of governance  Maintaining transparent and proper accounts, which can range from basic book-keeping to (where necessary) external auditing  Seeking to comply with the business licensing regime, no matter how difficult and tedious  Remedying low levels of productivity, any lack of skilled technicians and workers, inadequate market research and (where needed) R&D facilities At a more general level, the most important attribute of the SME will be a capacity to grow.

Apart from the above matters, this can require elements such as sound internal controls, risk analysis and other risk management tools.

Whilst these requirements may seem rather overwhelming when taken as a whole, not every bank will demand all of them. In any event, most of the changes are such that they would be of benefit to the SME regardless of whether they are seeking any funding. Therefore, SMEs should consider making such alterations to their operating and financial systems over time.

8.2 Other Steps The SME does not need to be alone in confronting the above issues in the attempt to improve its operations and gain access to finance in the right quantum and on appropriate terms.

External advice can be very helpful. Some of the banks mentioned in section 4.1 do provide assistance to SMEs. Therefore building an ongoing relationship with finance providers can make sense for more reasons than simply accessing credit. However, banks do not generally regard it as part of their role to “train potential clients”. One obstacle is the cost of doing so, that eats into a bank’s (sometimes already capped) profit margin. A novel suggestion made by one bank was that the cost of such training could be regarded as part of a bank’s CSR obligations.

The alternative, or a parallel strategy, may be to partner with social programmes and NGOs.

MFIs may be focussed on smaller loans but they do often have a more genuine understanding of IBs and other SMEs.

Finally, there are government institutions which can provide assistance to SMEs: see section 6.2.

9. Conclusion

9.1 How SMEs Should Proceed

Key steps for successful financing that have been outlined in this report can be summarised as:

 Seek the best financing product, most suitable for the business, on the best interest rate and other terms  There are also a range of steps that can be taken to improve the prospects of securing funding through building a relationship with the lender and the application process itself  Finally, gaining access to finance should not be seen as only an end in itself, because changing the business operation to satisfy the needs of lenders can also be in the interests of the SME (IB) Being “credit ready” should be seen as a long term process, extending beyond securing the actual loan agreement. There is a long preparatory period and then also the term of the loan with the agreed repayment, operating and reporting obligations.

Answering the question of which banks are best for IBs and SMEs is not easy. In section 4 we have highlighted those with a high volume of SME lending (Islami Bank and BRAC), as well as other banks which appear genuinely well disposed towards the sector (Sonali, Mutual Trust Bank and Eastern Bank).

We would also suggest that SMEs consider whether it makes sense to seek a loan from an MFI, at least initially. Their NGO background makes MFIs more aligned with the concept of an IB.

Whilst their level of real SME lending is limited, some MFIs also offer business development services, which could serve as a platform for adapting a business to be more suitable for bank financing.

Advice on finance can be obtained in Bangladesh from other sources. Apart from facilities such as BIF, potential borrowers can make use of available assistance, such as from the BB website comparing interest rates being charged by banks: see www.bb.org.bd/econdata/index.php.

There is also the SME Foundation although it tends to be more focussed on industry research rather than practical advice. Other donor agencies working in the field of advice and assistance to SMEs include KfW/DEG, USAID, the Swiss development agency and the Gates Foundation.

Finally, IBs and SMEs should consider relaxing self-imposed constraints on ownership to utilise other sources of funds, such as equity. In this field, the fund manager SEAF is the clear leader.





9.2 Some Possible Changes In conclusion, it should be mentioned that the market for the funding of SMEs will continue to evolve over time. At present, the government and donors have indicated a strong commitment to the sector, with many initiatives on the funding and advisory side. Moreover, other changes are likely, such as the introduction of guarantee schemes, more equity investment funds and better data publication.

However, there is more that could be done to encourage SMEs. Two examples are:

 Fiscal policy: In Bangladesh, the tax environment is not particularly adapted to provide support to SMEs, e.g. they are subject to taxes such as wealth and VAT that micro businesses do not pay, which is pointed out by most SME entrepreneurs as a critical policy constraint hindering SME growth: Rahman (2010). Levelling the playing field in this area would be one possible initiative.

 SME Rating Agency: Another step would be to set up an SME rating agency to deliver detailed credit reports with scoring/rating, research assistance on SME cluster, training and overall sectoral studies, all of which would encourage banks to lend to SMEs. In India, the SME Rating Agency (SMERA) has been adjudged a key component to SME development. However, such ratings can be expensive for SMEs and, therefore, are often funded by an agency. Furthermore, in order to play a key role in strengthening the SME sector in Bangladesh, the government and its undertakings, the banking and financial fraternity, the apex associations of the SMEs and the SME units themselves must appreciate and recognise the importance of such an initiative.

From the government perspective, the economy, the budget and the upcoming election are all limiting factors to additional actions or policies. Donors remain focussed on the sector and more imminent action is likely to come from institutions such as IFC/SEDF, ADB and KfW.

The key factor is the need for the banks as a whole to embrace the SME sector more completely and to modify their lending processes, products and reporting requirements to cater better for such clients.

APPENDIX I Highlights from Banking Sector Interviews

SME FOCUS:

All Banks retain specialist ‘SME Units’ the exact configurations differ from institution to institution. This reflects the importance that is placed on the SME sector and a widely held view that if developed properly then this market is a valued source of growth and profitability.

CENTRAL GUIDANCE:

The Central Bank’s (BB) policies and targets are often quoted by interviewees and are a significant influence on lenders activities.

 Emphasis on women entrepreneurs is one result  Lending volume targets is another area where central direction is in evidence  The concept of lending to ‘thrust sectors’ arose in some interviews indicating an awareness of the authorities priorities in directing funding available

FAVOURED SECTORS FOR LENDING:

Priority lending sectors do vary from bank to bank therefore it is clear those SME entrepreneurs

seeking funds:

 Should investigate the best matches to their business  Then identify and understand what the most likely lenders loan requirements are Some of the lenders interviewed where quite specific about the sectors that were of greatest interest. Others stated that they were interested in all types of SME enterprises.

LENDING REQUIREMENTS:

These seem relatively uniform although it is difficult to be precise since the level of detail supplied by respondents was variable. Central Bank guidance and technical assistance and / or training received from International Agencies and NGOs will continue to improve standards.

What is not so clear is how individual banks and their SME lending units apply or interpret lending requirements.

For newly established businesses the clear message is that they will find sources of finance very limited. Thus a step-by-step approach graduating up from Micro Finance is a common route to SME status and larger facilities. Here a record of borrowings and repayments plus family guarantee support is a combination that lenders favour.

Banks do point to borrower’s knowledge of lending requirements and their general attitude (e.g.

failure to attend to details) as a recurring problem. However there are signs that there is room for improvement on the part of both borrowers and lenders.

LENDING DECISION-MAKING:

Almost all lenders report decisions being made within 10 to 30 days. This time-frame that betters western banking standards is surprising given the range of constraints / market difficulties quoted. More general market feedback indicates some level of frustration from businesses on the speed of decision-making, This is a contradiction that would be worth investigating further.

INTERNATIONAL SUPPORT:

The picture in terms of working with International Agencies / NGOs is mixed with some lenders being more engaged than others. International Finance Corporation is mentioned most by those interviewed but a wider selection of Agencies and various degrees of involvement was noted.

 Overall there looks to be scope for much greater co-operation  The depth of International Agencies / NGO engagement in the market was not entirely clear to some of the respondents  Some lenders appear to be reluctant to engage with International Agencies / NGOs and this is not limited to the Islamic Banking sub-sector. Here, mention was made of seeking to avoid engagement in ‘grant aid culture’ that may prove less creditworthy  Building lenders skills / capacity was mentioned as one of the clearer International Agencies / NGO benefits and there is good scope to extend this

SUPPORTING SME CAPACITY:

Awareness / basic training efforts to improve SME understanding of lenders requirements and good company governance is mixed. Resource constraints are undoubtedly one factor,

however:

 Organisation of these activities does not appear strong across the board  Responses reflect an opinion that this is the responsibility of others;

o Notably BB was quoted as supplying much of the required guidance o Some banks acknowledge that International Agencies / NGOs have applied education efforts with some success, IFC being singled-out In contrast, the local institution’s approach to developing capacity in this area appears more passive.

 Most respondents appear to understand that additional effort would bring benefits to both borrowers and lenders.

Additional capacity building efforts across a range of local lenders who then act as a conduit for proportionate, well designed guidance to their existing and prospective SME customers appears an attractive concept to market participants who may lack the necessary resources.

APPENDIX II Highlights From NGO / Impact Investor Interviews

SAMPLE:

There was a mixed sample that encompassed (i) intermediate funders and investors in MFI lenders; (ii) agricultural specialists engaged in lending and some limited investing and, (iii) pure equity and ‘softer equity’ investors (which includes feedback obtained via research in Singapore).

BUSINESS FOCUS:

Findings were diverse and very few themes emerged.

 True examples of direct equity investments in emerging SME businesses appear rare in Bangladesh – only one pure equity investment was directly quoted from the group of respondents  Some respondents were primarily debt suppliers – with only an ancillary interest in direct equity participation. Therefore feedback on the use of equity or quasi-equity proved sketchy / uncertain  The ranges for potential direct equity provision was wide – varying from a few US$000s to up to US$10ml (in theory at least)  Additional work would be required to properly assess the equity investment activities by IFC and other International Agencies / NGOs in the Bangladesh market.

INVESTMENT CRITERIA:

Themes here included  Character of business owner(s) – not surprisingly this was deemed of the upmost importance  A well established track record for all but the smallest of equity investments. There was very limited appetite for start-up businesses - reflecting attitudes of almost all lenders to the SME sector  Information quality including on-going management information based on reliable IT systems and well-constructed initial and annual business plans  Board representation is required with prescribed elements of control over decisionmaking  Some equity investors mention specific investment returns targets, but most respondents did not. Social objectives were quoted reflecting the broader objectives set by many domestic and international institutions.

CONCLUSION:



Pages:     | 1 |   ...   | 4 | 5 || 7 |


Similar works:

«Estimating the Determinants of Capital Flows to Emerging Market Economies: A maximum-likelihood disequilibrium approach DRAFT – Do not quote. Guillermo Felices* and Bjorn Orskaug** October 2005 Abstract This paper studies the determinants of capital flows defined as external bond and syndicated loan issuance to 10 emerging economies (EMEs) since 1992. We follow Mody and Taylor (2004) by estimating an explicit disequilibrium system of demand and supply of capital flows using maximum likelihood...»

«TYPOLOGIES REPORT ON LAUNDERING THE PROCEEDS OF ORGANISED CRIME MONEYVAL Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism COMMITTEE OF EXPERTS ON THE EVALUATION OF ANTI-MONEY LAUNDERING MEASURES AND THE FINANCING OF TERRORISM (MONEYVAL) MONEYVAL (2015)20 Typologies Report on Laundering the Proceeds of Organised Crime 17 April 2015 Ref. MONEYVAL(2015)20, dated 17 April 2015, adopted by MONEYVAL at its 47th plenary meeting (14-17 April 2015)...»

«The Financial Framework of the European Union, 2007-2013: New Policies? New Money? Alan Mayhew Sussex European Institute A.Mayhew@sussex.ac.uk SEI Working Paper No 78 The Sussex European Institute publishes Working Papers (ISSN 1350-4649) to make research results, accounts of work-in-progress and background information available to those concerned with contemporary European issues. The Institute does not express opinions of its own; the views expressed in this publication are the responsibility...»

«SENATE EDUCA)lON BUDGET1DifVI&I~N K~12 2005.SE.SSION TABLE OF CONTENTS 1. January 11, 2005 Education Finance Review Eric Nauman January 12, 2005 2.MN. Finance Presenta,tion by former Finance Commissioners: Jay Kie4rowski t.tnd John Gunyou · 3. January 19, 2005 PreseJ}tation by Rjc Dressen, Chair~ ~ducation.Finance Reform Task Force 4. Janqary 25, 2005Presentationby John Myers~ J.L. Myers Group~ Education Finance Reform Task Force January. 26, 2005 5. Continuing discussion~ Education Fin_ance...»

«American Economic Journal: Macroeconomics 2015, 7(2): 1–39 http://dx.doi.org/10.1257/mac.20130322 Sharing High Growth across Generations: Pensions and Demographic Transition in China † By Zheng Song, Kjetil Storesletten, Yikai Wang, and Fabrizio Zilibotti * We analyze intergenerational redistribution in emerging economies with the aid of an overlapping generations model with endogenous labor supply. Growth is initially high but declines over time. A version of the model calibrated to China...»

«Development Dichotomies Paul P. Streeten Economists consistof two groups: those who don't know, and those who don't know that they don't know. -WIDELY ACCEPTED SAYING into two groups of people: those who divide the THE WORLD IS DIVIDED world into two groups of people, and those who don't. As I evidently belong to the former, I believe that the nature of various divisions can throw light on what has come to be known as the rise and decline of development economics. Albert Hirschman, in his...»

«100% E-TICKETING FREQUENTLY ASKED QUESTIONS 100% e-Ticketing Frequently Asked Questions 1. The 100% electronic ticketing initiative 1.1 Where is the ‘deadline’ coming from? 100% electronic ticketing is one of the five focus areas in the IATA ‘Simplifying the Business’ initiative.1.2 To whom does it apply? It applies to any IATA Travel Agencies, in all BSP markets.1.3 When is the deadline? 31 May 2008, 00:00 LOCAL TIME (Midnight) 1.4 Will the deadline be extended? IATA is firm that there...»

«Journal of Business & Economics Research – April 2005 Volume 3, Number 4 Is The Indian Stock Market A Casino? Ted Azarmi, (E-mail: tazarmi@csulb.edu), Albstadt-Sigmaringen University, Germany Daniel Lazar, (E-mail: daniel_lazar@postmark.net), Loyola College, India Joseph Jeyapaul, (E-mail: j_joseph@postmark.net), Sherubtse College, Bhutan Abstract This paper examines the empirical association between stock market development and economic growth for a period of ten years around the Indian...»

«Lectures on Empirical Public Finance Kevin Milligan Associate Professor Department of Economics University of British Columbia Preliminary Course Syllabus Course particulars Place: Parsberg, Germany Dates: August 3-7, 2009 Organizer: Bavarian Graduate Program in Economics Instructor: Prof. Kevin Milligan Course website: http://www.econ.ubc.ca/kevinmil/teaching/empirical-public.htm Overview This course consists of lectures on empirical public finance. The course will focus both on empirical...»

«REPORT OF THE WORKING GROUP TO REVIEW THE BUSINESS CORRESPONDENT MODEL RESERVE BANK OF INDIA AUGUST 2009 LETTER OF TRANSMITTAL Chairman Working Group to Review the Business Correspondent Model Reserve Bank of India Central Office Mumbai August 18, 2009 Smt. Usha Thorat Deputy Governor Reserve Bank of India Mumbai Madam, I have great pleasure in submitting the Report of the Working Group to Review the Business Correspondent Model. The report, inter alia, examines the ways for improving the BC...»

«The relationship between abnormal inventory growth and future earnings for U.S. public retailers Saravanan Kesavan1, Vidya Mani2 Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599. Email: 1skesavan@unc.edu, 2vidya_mani@unc.edu In this paper we examine the relationship between inventory levels and one-year ahead earnings of retailers using publicly available financial data. We use benchmarking metrics obtained from operations management literature...»

«     Temilola Ajibulu Taajibul@ncsu.edu 2105 Glassville Ct. Raleigh, NC 27604 (919) 802-7103 www.linkedin.com/in/TemilolaAjibulu Energetic and creative global luxury management professional 4+ years of experience in event design and marketing. Known for ability to execute and manage projects efficiently from conceptualization to realization. Seeking an internship in the experiential sector of luxury marketing. EDUCATION North Carolina State University, Jenkins Graduate School of...»





 
<<  HOME   |    CONTACTS
2017 www.abstract.dislib.info - Abstracts, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.