New ADB project to groom SMEs

The Asian Development Bank (ADB) is promoting the growth and development of the small and medium enterprises (SMEs) sector of four South Asian countries, including Bangladesh, with the help of a regional technical assistance (RETA) grant of 750,000 US dollars.

The project will improve access of SMEs in Bangladesh, Bhutan, Nepal, and Northeast India (BBNNI) to financial support and business development services.

"The aim is to create an environment that will nurture the growth and development of viable, sustainable, and competitive SMEs," says ADB Senior Financial Economist Virgilio Velasco.

A mix of historical and geographic factors has hampered SME growth in the region, including fragmented policy and regulatory frameworks, high costs of doing business, and underdeveloped market support, which limits access to credit and business development services.

Compounding these problems are formidable mountain terrain, border tensions, and ethnic heterogeneity, which contribute to the perception of political instability and high business risk in the South Asian region.

The project will tap into the region's network of financial institutions and business service providers, and the organizational and governance structure of the executive agency, the Dhaka-based Southeast Enterprise Development Facility (SEDF).

The SEDF was established in April 2002 to address constraints in SME development in the four countries and to promote cross-border trade.

With a primary focus on Bangladesh, the SEDF is managed on behalf of the contributing donors by the Small and Medium Enterprises Department of the World Bank Group, a joint department of the International Finance Corporation and the World Bank.

The ADB will be a member of SEDF's Donor Oversight Committee that will set its strategic directions and programme of activities.

The project will help the SEDF to evaluate and prepare SME projects for financing, strengthen local providers of business development support services, and carry out studies and provide advice on issues and reform areas related to SMEs.

Projects and studies to be funded from the RETA will be subject to mutually agreed eligibility criteria.

The project will also support reform measures and improvements in the regulatory processes.

The ADB is also undertaking in Bangladesh a related technical assistance project to prepare a sector development programme for SME development and export expansion (SMEDEEP) to foster the growth and competitiveness of SMEs.

The main linkages between SEDE and SMEDEEP will be to formulate joint projects, adopt a user-friendly rating system for potential SME borrowers, share information, and build a pipeline of subprojects for financial institutions participating under SMEDEEP.

In the business development and services area, both SEDF and SMEDEEP will interface with the UK Department for International Development's project on Developing Business Development Services Markets for Business Development Services in Bangladesh.

At a meeting held at the Bangladesh Resident Mission of ADB, Toru Shibuichi, Country Director, apprised Thomas Davenport, Manager, SME Department of the World Bank Group and Anil Sinha, General Manager, SEDF, about the approval of the RETA by ADB President.

Sinha explained that rather than providing financing, SEDF will work to build access to local business advisory for SMEs and also to improve the local business climate, where smaller businesses are constrained by weak corporate governance, and other legal and regulatory issues.