Compassionate financial policies for small women entrepreneurs

Women Entrepreneurs (WE) have established a new epoch in e-commerce, f-commerce since the pandemic. Updated statistics are not available; however, it is true that in the coming census of 2023, the number of WE in business will increase a lot. As per 2013 economic census, WE is only 0.56 million or 7.21 per cent of the total 7.8 million which is low as we compare with other countries, such as; Malaysia (20.6 per cent), Singapore (27 per cent), India(14 per cent), Finland (30 per cent), Norway (30 per cent), USA (40 per cent) and Sweden (23 per cent) etc. Financial constraints have been identified as the number one constraint for developing new entrepreneurship.

BUILD had undertaken a survey on the challenges of trading across borders facing WE (March-April, 2019); most of the entrepreneurs informed that access to finance is the number one constraint they are facing. Similar findings were derived from the fourteen (14) virtual programmes on trade procedures for key members of different women’s chambers in all eight (8) divisions (August 2021-January 2022) followed by a dissemination seminar on June 06, 2022. About 27,000 WEs joined through different media. In all of these events access to finance, access to information regarding export, import, different business registration processes, and online services are the main identified constraints.

Based on the findings of the surveys, dialogues, and follow-up discussion, BUILD tried to review several financial schemes, and circulars announced by the Bangladesh Bank for supporting the financial constraints of small women entrepreneurs. It was found that documentation requirements, the limit of announced funding, information, complex process and some unclear banking terms are, among others, responsible for getting financial support, especially by the cottage and micro-entrepreneurs.

From Bangladesh Bank sources, the total disbursed loan is 9142.46 crore taka to 40507 women entrepreneurs-(From January 2022 to March 2022), it seems, a notable amount, however, details of this information are difficult to collect so the loan disbursed to a very small and micro-entrepreneurs is clear.

BUILD analyzed some important circulars, refinancing schemes, credit guarantee schemes and related policies, including some recent policies for digital funding. As per the SMESPD circular, no 2 of September-5, 2019, the trading and service sector target has not been mentioned for cottage industries while trading is one of the important businesses for the sector. Group of companies as a category is included, in that respect, it is mentioned that Bangladesh Bank will provide directives, which is not aware by the WE. Loans without collateral, personal guarantees, social guarantees, and group guarantees are mentioned; however, for small entrepreneurs these are difficult.

Targets of sectorial credit of CMSME loans for Banks and Financial Institutions are set for at least 25 per cent by 2024 with an increase of at least 1 per cent per annum. Women enterprises will get 15 per cent of CMSME loan which would be difficult to implement. Loan applicant decision is supposed to take 10 working days, and will be disbursed as soon as possible after the loan is sanctioned; information on rejection also needs to be informed, in practice most small entrepreneurs have to wait for a long to get a small amount of loan.

Regarding the schedule of charges, interest rates and extension of the grace period (6.3), which will be done through banker-customer relations, it is difficult for a small entrepreneur for establishing a good relationship with banks, as their transaction is very low.

As per the SMESPD circular (clause 10.3), there is a mention of a Non-Funded Loan (NFL), which will not be reportable in case of CMSME financing, however, if the NFL is transferred to a funded loan then it will be reported and in that respect, CMSME categorization (No 2 of the circular) will be followed as per classification of Industrial Policy.

We are aware that banks do not always provide real cash, but rather the commitment to the third party stating that if the customer fails to discharge the obligations, the bank will do the same. NFLs are for L/C, accepted bills for payment(ABP), bank guarantees of different types such as; bid bond (BB), performance guarantee (PG), advance payment guarantee(APG), retention money guarantee /retention bond/ warrantee guarantee), payment guarantee/suppliers credit guarantee, counter guarantee etc. Small, micro-entrepreneurs usually cannot utilize the benefits of the NFL because of their scale of operation.

In the case of the refinancing scheme for processing agricultural products in rural areas, it is mentioned in the policy that industry should be outside of divisional Sadar--Narayanganj, Dhaka and Chittagong city. In the divisional Sadar, there could be some agro-entrepreneurs, nowadays such as; rooftop gardening, packaging and distribution of agro-processed products, herbal, cut-flower, flower for decoration and some services are getting popular. The amount higher limit of the term loan and working capital loan is so high it seems that this investment is not aforethought for cottage and micro-entrepreneurs.

For refinancing schemes for small enterprises, a group-based loan can be provided (11.2). The allowable limit has been mentioned for the cottage, micro and small entrepreneurs, however, manufacturing sectors are fixed (11+others), similar is the case of service sectors (10+ others). From practical experiences, it is seen that in the manufacturing sector some new products into the product basket such as; wooden toys, cookeries, and decoration pieces made of brass, aluminum, potteries, etc., yoga care, health care, event management, bridal makeover etc. in the service sector are getting popularity, there could be some flexibility in listing sectors.

A refinancing scheme for the new entrepreneur in the cottage, micro, and small sector for supporting self-employment and facilitating the financing of new ventures to create new entrepreneurs has been announced, it is a collateral-free loan and the highest amount from the scheme is 10 lac taka, however definition of a new entrepreneur is unclear and 20 per cent project cost would be difficult for a new entrepreneur. For new potential and innovative items, some preferential limits can be given.

A digital micro Loan of 100 crore taka has been announced recently (BRPD circular no. - 11, Date- June 02, 2022). Financing banks can provide loan facilities from a minimum of five hundred takas to a maximum of fifty thousand takas to a single customer subject to eligibility verification using internet banking, mobile banking apps, mobile financial services (MFS), e-wallet etc. The documentation procedures for all amounts of loans are the same, which should be different for small and micro-entrepreneurs.

Another refinancing against term loans of 25,000 crore taka in the CMSME Sector (SMESPD circular no.- 04, Date- July 19, 2022) for the period is 3 years has been announced. Cluster-based CMSME entrepreneurs will be prioritized in this scheme, a definition of cluster-based CMSME is included in the circular and in the industrial policy, and there could be a definition of cluster-based small industries.

Taka 500 crore refinancing facilities as a “Start-up Fund” (SMESPD Circular No- 04; March 29, 2021) has been announced, Banks will reserve 1 per cent of their operating profit (according to audited financial statements) every year for the next 05 (five) years from 2021 as a fund for distribution in favour of ‘start-up’ entrepreneurs, 10 per cent fund will be reserved for WEs. For a single borrower loan/ investment limit will be 1 crore taka which is an appreciated step, conditionality would need as simple as possible.

Manual of Credit Guarantee Scheme(CGS) for the cottage, micro, and small enterprises (SMESPD Circular no.- 03, February 01, 2021) was announced initially as working capital, later through several circulars, CGS has been made more entrepreneurs friendly so that collateral free loan can be availed by the small entrepreneurs.

A CGS unit has been established in the Bangladesh Bank which is a much appreciable step. However, documentation requirements, such as an on-site visit report, various financial statements, credit analysis report (credit rating, evaluation of previous business performance etc.), CIB report, TIN etc, for a very small amount of loan of Tk 25,000 criterion can be a bit relaxed.

For cottage, micro, and small entrepreneur different types of collaterals are mentioned in the circulars, such as supporting Collateral/individual Collateral/Third Party Collateral/Social Collateral –which needs to be explained clearly as CMS have small additional wealth to show as Collateral. Agent Banking is getting popular in rural areas benefits of which could go to the sector who are looking for a small amount of finance. Documentation (19 documents required), for small entrepreneurs such as; a certificate, trade license, 12 months business account statement etc. could be difficult.

To avail of loans from banks/financial institutes, they must submit their financial statements in a particular format so they need to have a clear picture of their financial condition.

There could be specific guidelines to submit their financial statements in the bank’s acceptable format while taking loans.

Digital credit is getting popular especially in financing a small amount, however, new and innovative merchant payment services needs to be developed. Savings or credit products by mobile financial service (MFI) providers can be introduced. Small and micro-entrepreneurs need a separate treatment which should be different from that of medium enterprises; policies would need to be framed accordingly.

The writer is CEO of BUILD a Public Private Dialogue Platform. She can be contacted at [email protected]