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‘Fintech, cluster financing key to MSME growth’

Hamimur Rahman Waliullah
07 Jun 2022 00:00:00 | Update: 07 Jun 2022 00:34:06
‘Fintech, cluster financing key to MSME growth’

Bangladesh should ensure digital financing, fintech-based solutions and employ the concept of cluster financing to help reduce inadequate access to finance, and increase financial inclusion with sustainability.

The country has around 81 lakh Micro, Small & Medium Enterprises (MSMEs), and 70 per cent or 58 lakh of these businesses are located in rural areas. Despite this fact, nearly 81 per cent of the SME loans are going to urban entrepreneurs.

The disbursement of MSME loans is meeting only 33 per cent demand of entrepreneurs. Of the total loans, only around 7 per cent are going to women entrepreneurs, said Dr Md Mosharref Hossain, an associate professor of the Bangladesh Institute of Bank Management (BIBM).

Dr Mosharref and two other experts made these points while presenting a keynote at a conference titled “Rethinking MSME Finance: A Post-Crisis Policy Agenda,” organised by the SME Foundation and UNESCAP in Dhaka’s Parjatan Bhaban on Monday.

Mosharref spoke about the cluster finance approach in MSME for boosting the development of this sector and increasing its contribution to the country’s economy.

“Clustering approach in MSME will simplify the industrialisation process, generate employment, reduce poverty to a greater extent, increase export earnings, and even reduce regional disparity of Bangladesh,” Mosharref said.

A cluster is a concentration of enterprises (50 and above) producing similar products or services and is situated within an adjoining geographical location around 5km radius, having common strengths, weaknesses, opportunities and threats.

“Cluster financing will help MSMEs under the same industrial sector collaborate closely with each other, and allow the sharing of production orders and subcontracts,” he added.

“Digitalisation unlocks the MSME finance. AI and Big Data can reduce information asymmetry, streamline loan applications and increase the number of loans granted,” said Michael Troilo, Chapman Chair and Professor of International Business and Finance, The University of Tulsa.

Prof Troilo added, “Fintech may provide solutions to many problems regarding MSME access to finance, and mobile banking needs to be pursued with greater vigor among the female unbanked.

“China enables the function of fintech like Lufax, P2P lending platform and decreases its gender gap in finance by using the raw data.”

Independent Development Consultant Nick J Freeman said, “Not a bank branch in every town, but a virtual branch inside every MSME, to address information asymmetry and permit cash-flow based lending.

“Digital-induced revolution opens up new opportunities to dovetail MSME finance, sustain development and ensure inclusive economic growth.”

The pace of change makes it very hard to keep-up, and effective enforcement also becomes much more onerous, said Freeman while pointing this issue as the main challenge for regulators.

“MSMEs will play a leading role in LDC graduation, achieve SDGs and Bangladesh’s journey towards becoming a developed country in 2041,” said Industries Secretary Zakia Sultana while speaking as the event’s chief guest.

Dr Md Mafizur Rahman, managing director of SME Foundation, “We are on the right track to boost MSME contribution to 40 per cent – 50 per cent of the GDP from around 25 per cent within 10 years, and touch the ultimate milestone of LDC, SDGs and Vision-2041.

“We are working in collaboration with the public and private entities to enhance this contribution.”

Chairing the event, SME Foundation’s Chairperson Masudur Rahman, said, “Banks are not financing MSMEs, and many small and medium entrepreneurs are at the bottom of the country’s economy.

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