The contribution of alternative investment funds in providing finances to micro, small and medium enterprises is very low in Bangladesh because of regulatory barriers, weak infrastructure and a lack of financers, analysts said yesterday.
They said institutional investors lack determination to invest in the alternative investment funds. On the other hand, foreign investors term the fund repatriation system complex.
An alternative investment is a financial asset that does not fall into one of the conventional investment categories. It includes private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts.
“There is ample demand for funds in the MSMEs but they don’t know about alternative investment funds,” said Sharawwat Islam, managing director of Truvalu.enterprises.
“So, they run for banks loans.”
She said the MSMEs lack understanding about private equity, while business environment and legal framework are not conducive for small businesses.
“Enough influence and support is not available to encourage local institutional investors to invest in an impact fund,” said Azad Chowdhury, CEO of the Alternative Investment Management of Social Transformation Enabling Projects.
“So, they don’t want to invest in the segment.”
The debt market-driven investments are paying double-digit returns because of liquidity pressure in the financial market which ultimately creates difficulties in getting investment in the equity markets, he said.
“On the other hand, people also don’t have knowledge on the potential of investments in the MSMEs,” he added.
They spoke at a roundtable styled “Creating Blended Finance Architecture for Catalysing Impact Investment in Bangladesh” at Brac Centre Inn in Dhaka.
The event was jointly organised by the Business Finance for the Poor in Bangladesh (BFP-B), ACACIA Socially Responsible Investment Management, Venture Investment Partners Bangladesh, and Truvalu.enterprises.
Hasan Imam, chairman of Bangladesh SME Corporation Ltd, said the MSME sector faces many problems: the number of MSMEs is large, they are geographically dispersed, and there is no national database on their financial transaction.
“Banks don’t have branch presence, workforce or technology to process and monitor the huge micro and small enterprises loans.”
“But, the sector needs funds. The alternative investment funds should be promoted.”
Tina Jabeen, investment adviser of Startup Bangladesh of the ICT Division, said people lack knowledge about alternative investment funds, so many of them do not want to invest in the segment.
“However, high net worth individuals have money. So, fund managers should go to them to mobilise resources for the funds.”
She said alternative investment funds should not only go to the SMEs but also to startups.
Afsana Islam, private sector development adviser of the Department for International Development of the UK, said a platform is needed to discuss and find solutions for the alternative investments for the MSMEs and to raise issues with regulators collectively to solve them.
If there is any major challenge, the donors can help find the solution, she added. Md Mahmoodul Hoque, a director of the Bangladesh Securities and Exchange Commission, said there are 17 fund managers but only two alternative funds are registered.
“The reason is high net worth individuals are reluctant to invest in private equity funds and venture capitals. They should come forward.”
Higher stamp duty on the fund is another barrier, he added.
Feisal Hussain, team leader of the BFP-B, said local investors should come forward to invest in alternative investment funds as foreign investors do not want to be the first ones to do so.
“Foreigners want to see the commitment of local investors.”
Repatriation process is not easy for investors and there is limited financial instruments, Sharawwat Islam said.
Amirul Islam, a joint director of Bangladesh Bank, however, said the central bank has clear guidelines on repatriation of funds, so there is no barrier to getting the money back.
Zia Uddin Ahmed, chairman of VIPB Asset Management, also spoke.