Why target financing at industrial clusters and value chains?

 

On Sunday 11 March in Dhaka, we launched our findings from a major study into the opportunities presented by strategic financing of specific industrial clusters and value chains in Bangladesh. This blog post summarises the main findings from the report.

Cluster and value chain financing offers a powerful approach for financial service providers to identify creditworthy clients.

It also helps financial institutions to approve and disburse loans more quickly, and at lower rates than traditional methods.

A cluster focuses on a geographic or sectoral concentration of interconnected enterprises. Bangladesh has 177 such clusters.

A value chain, meanwhile, is an entire system of production, processing, and marketing of a product until that product reaches a customer.

BFP-B clusters and value chains.png

Unmet opportunity

Although these 177 clusters comprise 70,000 small businesses with an annual turnover of 300 billion taka, the market is not responding aggressively to the potential of a cluster and value chain approach to financing small businesses.

A more focused strategy could provide access to finance for more than 100,000 MSEs in different clusters and value chains.

The policy study recommends four actions to encourage the market:

  • Introduce cluster­ and value chain development as a key objective under the Industrial Policy 2016
  • Develop a 5-Year National Cluster and Value Chain Development and Financing Strategy Plan
  • Amend the Bangladesh Bank’s master circular on MSME financing with operational definitions for clusters and value chains
  • Make refinancing available from Bangladesh Bank to financial service providers for cluster and value chain-based lending

Special thanks to partner Innovision Consulting for valuable contributions to this research.

Visit the Knowledge Hub of our website to see the full report and brief

 
Sajid Chowdhury