BB moves to ensure finance for small business clusters

With an aim to facilitate increased access to finance for micro, small and medium enterprises operating in clusters, Bangladesh Bank yesterday asked banks to lend to 19 types of clusters giving the highest priority to agricultural processing, manufacture of agricultural machinery, garments and ICT. 

It also directed banks to give the highest priority to clusters of leather and leather goods makers, light engineering and jute and jute goods, according to a circular.

The Bangladesh Bank move comes as small and medium firms operating in clusters are not getting adequate attention of bankers although the firms need the finance to grow and compete in the domestic and export markets.

And the gap in lending to small businesses prevails as there is no definite definition of clusters of the SMEs.

In its circular yesterday, Bangladesh Bank said an area would be considered a cluster if there are 50 or more firms producing homogenous or related products and services in a 5-kilometre radius.

The central bank categorised clusters in two types -- most priority clusters and priority clusters -- and directed banks and financial institutions to fix targets to lend at least 10 per cent of their total net loans to the SMEs of the clusters in 2022.

BB also directed banks to give the highest priority to clusters of leather and leather goods makers, light engineering and jute and jute goods

The ratio of financing to SME clusters has to be increased by one percentage point every year to take the total to 12 per cent by 2024, it said.

Of that half of the loans must go for priority clusters that also include plastic and other synthetic industry, tourism, home textile, solar power system, automobiles, handloom and handicraft, energy saving products, jewellery, toy, cosmetics and toiletries, agar, furniture making, mobile, computer and television servicing.

"We are giving importance to cluster-based financing so that the firms in the area can develop and cater to the export market," said a senior official of the BB.

Of the total loans and advances provided by banks and financial institutions, cottage, micro and SMEs accounts for around 20 per cent, said the BB official.

Bangladesh Bank said cluster-based financing was popular across the world and the proper support to the clusters would enhance capacity of micro and small firms to compete in domestic and international markets. This will bring about significant benefit to the economy, it said.

The central bank asked banks to frame a credit policy by including cluster financing in the policy.