ADB provides Bangladesh $76 million to set up rural SMEs

Microfinance Focus, Sept. 21, 2009: The Asian Development Bank (ADB) is extending a $76 million worth loan to Bangladesh to expand the country’s 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, said a statement from the bank.

“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.

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 is expected to 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.

The Bangladesh government will provide $19 million for the project, 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 to be completed by Sept. 2012.

© 2009, Microfinance News. All rights reserved. 2008-09