Better skills to make blended finance work: experts
Blended finance could be a remedy for job-seeking climate migrants but they need to be trained up first for skills development, while the financing should be provided to selective sectors, experts said at a dialogue held yesterday.
The event, styled " Establishing a blended finance mechanism involving climate funds in Bangladesh: Opportunities and Challenges", was organised by the Centre for Policy Dialogue in partnership with Promoting Knowledge for Accountable Systems.
Blended finance is an evolving concept that involves development finance, a combination of public and private financing that includes official development assistance as well.
"The funds should have a specific goal, such as which sector will get it since small-and-medium enterprises (SMEs) are a vast sector," said Md Mahbub ur Rahman, chief executive officer of HSBC Bangladesh.
"So, the fund might be given to three or five sectors," he added.
The cost of funds is not a big issue at the moment but instead, how it would be channeled and repaid, should be clear.
"Besides, climate vulnerable people have small skill sets so they should be trained before being given finance," Rahman said, adding that the project should be commercially viable as well as it will be tough to sustain otherwise.
Financing is not the sole solution for climate migrants though, as shown by BASIC Bank, according to AK Enamul Haque, a professor of economics at East West University.
BASIC Bank was formed with the purpose of giving loans to cottage, micro, small and medium enterprises (CMSMEs) but it did not work.
So, climate migrants should be well trained as their skill sets are very poor," he said.
The risk of lending to marginal people should be assessed and microfinance institutions could work to this end.
"These people are generally involved in agriculture, food processing, and the transport sector so these sectors can be the focus," Haque added.
The cost of financing CMSMEs is still too high despite the country's lower interest rate regime, said Mominul Islam, managing director and chief executive officer of IPDC Finance.
Interest rates in the banking sector have been down to single digits since April 1 last year.
"To get finance, the enterprises should have trade licenses but it's not easy to have and even costly," he said.
So, the process should be digitised and easy.
"They should not need CIB reports either because it also adds to their costs," he added.
The benefits of the government's incentive package for Covid-19 were secured by large companies in most cases while small companies struggled, said Asif Ibrahim, former president of the Dhaka Chamber of Commerce and Industries.
This is because of the stringent regulatory framework.
So, the regulatory policy should be easy for CMSMEs so that they can avail the benefits of blended finance.
Using technology in disbursing loans, innovation and improving skill sets among climate vulnerable people should be focused on, said Ibrahim, also chairman of the Chattogram Stock Exchange.
If the business clusters and local associations can get engaged in the financing then it would be more effective and repayment ratio would also be better, said Md Mofizur Rahman, managing director of the SME Foundation.
"Train them at first and then give them the funds," he added.
Wasel Bin Shadat, visiting senior research fellow of the CPD, presented a paper at the event.
Climate displacement leading to urban slum migration has emerged as a major development challenge for Bangladesh, Shadat said.
Women entrepreneurs should be prioritized, operational and transaction cost of financial institutions should be minimized, application procedures should be quicker, easier, and user friendly, he added.
Fahmida Khatun, executive director of the CPD, moderated the event.