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ADB Promoting Microenterprise Finance in Bangladesh with $50 Million Loan

News from Country Offices | 27 November 2018

MANILA, PHILIPPINES (27 November 2018) — The Asian Development Bank (ADB) has approved a $50 million loan to promote microenterprise development in Bangladesh through a credit line to Palli Karma Sahayak Foundation (PKSF), a development finance organization, and its partner microfinance institutions.

“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 ADB Senior Portfolio Management Specialist Ms. Mayumi Ozaki. “Boosting financing through microfinance institutions to microenterprises will promote rural growth and income and job opportunities.”

Today, the Bangladesh microfinance industry comprises 758 microfinance institutions servicing 30 million clients. Microfinance traditionally provides savings and credit to finance cottage-size enterprises in rural areas run by poor or low-income people who have no access to formal financial services. However, as Bangladesh’s economy grows, there is an unmet demand for larger loans for nonfarm microenterprises. 

Microenterprises are financed largely by informal sources such as individual savings or family loans and face other constraints, including lack of facilities and inflexible regulations. Women face 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 PKSF in 1990 as an apex development finance and capacity building organization that provides loans to partner organizations. It has become an important funding source for small and medium-sized microfinance institutions. But at current funding levels, PKSF and its partner organizations can meet only part of their existing members’ demand.

The ADB project will help fill the funding gap in the short term. The loan will be provided to PKSF to onlend to partner organizations to sub-lend to about 40,000 microenterprises, of whom 70% are female. To address medium-term challenges, the project will help PKSF develop a financing strategy and carry out institutional strengthening. For the longer term, the project will develop microenterprise finance operational guidelines for microfinance institutions, including piloting for some partner organizations a mobile-based financing application. It will also assist in clustering microenterprises for business expansion and upscaling with quality control, branding, packaging, and marketing.

The total cost of the project, which is due for completion at the end of 2020, is $62.5 million, of which the microenterprises will contribute $12.5 million. 

The project is accompanied by an ADB technical assistance grant of $500,000 to enhance the capacity of PKSF and its partner organizations in microenterprise lending and promoting sustainable operations. The grant is from ADB’s Financial Sector Development Partnership Special Fund, financed in partnership with the Government of Luxembourg.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 67 members—48 from the region. In 2017, ADB operations totaled $32.2 billion, including $11.9 billion in cofinancing.