Policy review needs for alternative financing for SME sector: Experts
Business Report :
The small and medium enterprises (SME) sector is the lifeblood of Bangladesh’s economy. This sector’s contribution to employment generation, development of local industries, import substitution production and maintaining the balance of the regional economy is immense.
Yet the reality is that the SME sector is still plagued by a financing crisis. While bank loans are the mainstay, high interest rates, strict collateral requirements and lengthy terms have become major obstacles for entrepreneurs.
As a result, it is time to go beyond the conventional bank-dependent structure and bring alternative financing methods- especially venture debt and cluster funds-into the mainstream in principle.
In this context, policymakers and experts expressed their views while talking to journalists over SME financing issues.
They said venture debt and cluster funds can open new possibilities in SME financing. According to them, these instruments can bring about revolutionary changes in providing capital to small and medium entrepreneurs by overcoming the limitations of traditional bank loans.
Recently, in this perspective, the newly appointed Finance Minister Amir Khasru Mahmud Chowdhury emphasized on creating a business-friendly environment and said that it is important to reduce business costs and create alternative sources of financing to increase investment and employment.
According to him, if innovative financing systems are introduced in the SME sector, young entrepreneurs will benefit more and the economy will gain new momentum.
He said that guidelines will be given in the next budget on the development of the SME sector and easy financing in this sector.
Not only that, the government will give importance to building an investment-driven economy, and reducing business costs and increasing investment and employment will be its priority-which will help the SME sector.
Meanwhile, business leader and Managing Director of LabAid Cancer Hospital and Super Specialty Center Sakif Shamim (FACHE, FLMY) said, there are many promising startups in Bangladesh, but they cannot scale-up quickly due to lack of adequate and flexible financing.
He said, if venture debt is introduced, entrepreneurs will get capital without equity, which will increase their capacity in the long run.
Sakif Shamim also said, if cluster funds are established, businesses in the same sector will have the opportunity to jointly develop technology, brand and enter the export market, which is not possible individually.
Bankers believe that this makes it easier to share risks and increases production, technology, marketing and export capacity together.
Sakif Shamim further said that the backbone of the Bangladesh economy is the small and medium enterprise (SME) sector.
The contribution of this sector to industrialization, employment generation, local production growth and regional economic balance is undeniable.
SMEs are working as a fundamental driving force in everything from the dynamism of the rural economy to the supply chain of export-oriented industries. But the reality is that SMEs are still almost completely dependent on bank loans for financing.
High interest rates, collateral-dependent evaluation methods and long approval processes are marginalizing many potential entrepreneurs.
He said many of those who have markets, orders and capacity do not have adequate collateral. As a result, potential businesses stop midway or cannot expand as desired.
In this context, the question is very relevant: is it possible to develop an alternative financing structure beyond bank loans? In particular, can venture debt and cluster funds be effective components of that structure? Venture debt is a financing method that focuses on the growth potential, cash flow, and strength of the business model of the company, rather than traditional collateral.
It is mainly used for fast-growing startups or scale-up companies that do not want to give up equity completely, and for which banks are also reluctant to take risks.
Besides, Masrur Arefin, Managing Director of City Bank, said that in terms of financing the SME sector, we need to think outside the conventional model.
He said if digital financing, data-based loan evaluation and alternative investment structures can be implemented together, SME financing will gain momentum.
He believes that venture debt and cluster-based financing can build a bridge of trust between banks and entrepreneurs.
The expert said government should create a framework for policy support, tax incentives, and risk-sharing, and banks and the private sector come forward in a coordinated manner, venture debt and cluster funds can usher in a new chapter in the SME sector in Bangladesh.
