ADB Extends $76 Million to Support SME-Led Growth in Bangladesh

News Release | 21 September 2009

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending a $76 million equivalent loan to Bangladesh to expand the country's economically vital non-urban small and medium-sized enterprises (SME) sector.

The loan, from ADB's concessional Asian Development Fund, is designed to help cut poverty and create jobs outside the major urban centers. SMEs are the lifeblood of the rural economy, generating nonfarm activities that provide more than 50% of the rural population's employment and income. But they lack access to medium to long-term credit and the need to help the sector has been heightened by the global economic crisis which is threatening Bangladesh's exports, remittance income, and employment generation.

"A vibrant SME sector is critical for investment, growth and employment creation and the project will boost the number and size of commercially viable enterprises," said Syed Ali-Mumtaz H. Shah, Financial Sector Specialist in ADB's South Asia Department.

At present, the country's underdeveloped equity and long-term debt markets limit the availability of finance for lending to SMEs, while limited credit information and infrastructure constraints also hamper the sector. The loan funds will be made available through participating financial institutions to eligible SMEs located outside the metropolitan areas of Dhaka and Chittagong. Bangladesh suffers from a major disparity in poverty levels and economic activity between its eastern region, which includes the largest cities, and the west, where the incidence of poverty is over 50% in some places.

The project will provide rural employment and business opportunities, as well as support an increase in female-led SMEs. A linked technical assistance grant of $500,000, funded by the Australia-ADB South Asia Development Partnership Facility, will be used to improve the financial skills and capacities of women entrepreneurs.

Other contributors to the project are the Government with $19 million, participating financial institutions $19 million, and SMEs about $12.7 million, for a total cost of $126.7 million. ADB's 32-year loan has an 8-year grace period carrying an interest charge of 1% per annum, rising to 1.5% for the balance of the term. The Ministry of Finance is the executing agency for the project, which is due for completion by September 2012.