Introducing 10 ventures to enhance the country’s financial landscape
In this blog post, Business Finance for the Poor in Bangladesh Challenge Fund Manager Arafat Hossain highlights 10 exciting new ventures that are now receiving Challenge Fund co-investment support. These ventures are set to enhance the financial landscape for small businesses in Bangladesh.
Globally, across many sectors such as health, education, and access to finance, challenge funds are sparking innovations and new ventures that lead to social change. Within challenge funds, donors such as governments and foundations launch competitions that invite organisations to pitch innovations with great potential to improve lives.
Successful pitches receive funding for innovative ventures, technologies, and business models that might otherwise be too costly or risky without support. These become pioneers that test industry-changing innovations and inspire other organisations to ‘crowd in’, leading to systemic change.
Business Finance for the Poor in Bangladesh Challenge Fund
With funding support from the UK government, the Business Finance for the Poor in Bangladesh (BFP-B) programme manages a challenge fund to co-invest in ventures that improve financing opportunities for the country’s 8 million small businesses. These small businesses are vastly under-served by the formal financial system.
So far, ventures supported by the BFP-B Challenge Fund include mobile financial services, agent banking services, agricultural insurance, credit scoring, alternative investments and more. Many of the ventures funded by the Challenge Fund are now in operation, bringing convenience, speed, reach, and transparency of financial services to boost small businesses and financing institutions nationwide.
3 themes of financial products/services
When deciding whether to provide financial services, banks and other financial institutions require a basic level of preparedness from their clients. Organised financial data, legal documents, such as incorporation certificates and trade license, and proof of ability to repay loan are often mandatory. Beyond fulfilling basic Know-Your-Customer requirements, the financial insitutions need information to make a constructive evaluation of a borrower’s credit worthiness.
In Bangladesh, an overwhelming majority of small businesses lack this preparedness. This discourages them from applying for financing through the formal process. The large percentage of those that do often have their applications rejected. Consequently, they resort to the informal financing sector, where preparedness is not necessary, despite the high interest rates.
The BFP-B project is working with private sector partners to prepare these small businesses for getting access to formal financial institutions and becoming investment ready. We are doing so by investing in projects that provide simplified business solutions and work on creating data enabled investment readiness.
Last mile distribution
Formal financial service providers are often unable to extend services to small businesses due to geographical limitations, poor infrastructure and complex institutional processes. A majority of these small businesses in Bangladesh are based in rural areas or have limited access to relevant information, so they are disconnected from formal financial institutions.
BFP-B is partnering with private sector actors to overcome these barriers. By establishing alternative delivery channels, and by developing digital finance applications, these initiatives supported by the BFP-B Challenge Fund are reaching un(der)served customer nationwide.
Alternative financial platforms and instruments
The alternative investment market (which includes private equity, impact investments, hedge funds and more) is at a nascent stage in Bangladesh. The few private equity deals that have taken place have been mainly for large companies. Similarly, insurance product coverage, which helps businesses to de-risk from potential financial loss, has also been limited to large companies.
Service providers have not extended such products to small businesses due to challenges relating to pipeline development, investment management, product development, customer awareness, and perceived low returns/high risks.
BFP-B is partnering with private sector actors to address these challenges by bringing solutions through alternative financial platforms and instruments.
Third round of BFP-B challenge funding now complete
For the third round of the BFP-B Challenge Fund, run in 2017-2018, we received more than 100 concept notes, many with brilliant ideas for transforming financing opportunities for small businesses. Our Investment Committee, comprising some of the most renowned names in the finance sector, selected 10 concepts with the greatest potential to be trendsetters in Bangladesh’s financial landscape.
With funding support from the UK government, the BFP-B programme has selected 10 new projects, with a total grant commitment of £5.3m. These ventures will provide business development services and finance to more than 160,000 small businesses, and they are expected to facilitate disbursement of £94 million worth of financing to these small businesses.
The 10 new BFP-B Challenge Fund partnerships
‘ShopUp’ by Shopfront
There are over 290,000 small businesses in Bangladesh that sell on Facebook, and this number is rapidly growing. However, when it comes to scaling, these small businesses do not have access to the required amount of financing, given that all their orders are received through informal channels (Facebook Messenger), and payments are received in cash.
ShopUp is a self-learning credit appraisal platform that assesses these Facebook small businesses by utilising data from 25 different sources. ShopUp's shop management tool collects the necessary information, and the algorithm prepares a loan offer based on the business’ working capital requirements and repayment capacity. The loan offer is then forwarded to formal financial institutions, which then have the appropriate data to finance the business. ShopUp has partnered with BRAC, which will finance their online business based on system-generated transaction history. ShopUp aims to disburse £1m to over 1,000 women entrepreneurs.
‘SHETU’ by S11 IT Limited
Small businesses often do not get the right price for their products due to unoptimised market functions and linkages. Furthermore, lack of visibility of transactions limits the small businesses’ ability to avail financing from formal financial institutions. To address the issue, S11 IT Limited is developing a platform to provide a centralised marketplace for commodity exchange among value chain actors in sectors such as readymade garments, agriculture, and automobile parts.
On the platform, producers can register and upload products following standardised guidelines and pricing systems. Wholesalers then buy products from merchants directly. S11 is partnered with Trust Bank, and based on transaction data obtained from the platform, Trust Bank will finance small businesses that are registered on the platform and have regular transactions. S11 anticipates financing at least 50 small businesses and facilitating at least 200 thousand transactions on the platform. If successful, this product will be a first of its kind in Bangladesh.
‘Smart Capital’ by Venture Investment Partners Bangladesh, LightCastle Partners, and Syngenta Foundation for Sustainable Agriculture
Agriculture contributes 20% to Bangladesh's GDP, but employs 45% of the workforce. Approximately 80% of the working population involved in agriculture are employed by small businesses. However, the overall support ecosystem for small businesses is underdeveloped, with a handful of services and misaligned incentives. As a result, agricultural small businesses receive little market-relevant business development support, practical opportunities to accelerate growth, and opportunities to link with growth-orientated funding opportunities.
VIPB has partnered with LightCastle Partners and Syngenta Foundation to create farmers hubs, provide mentorship, and run accelerator programmes and boot camps that helps the agriculture businesses to become fully bankable businesses. VIPB will then invest in the most promising ventures. VIPB anticipates supply chain development of at least 12,000 farmers, with 60 small businesses receiving equity financing.
‘Last Mile Agent’ by Dutch-Bangla Bank Limited
Affordable financial services that meet the requirement of MSEs often do not reach millions of small businesses due to geographical dispersion, poor infrastructure, and complex institutional processes. The ‘Last Mile Agent’ project tests a model to further extend the benefits of agent-banking by deploying active door-to-door services.
This is expected to increase customer traffic to pre-existing business of the agents, especially deposit sales, and improve community standing through bank-brand affiliation. For customers, the expected benefits are greater convenience and cheaper transaction cost. ‘Last Mile Agent’ anticipates 10,000 small businesses with new banking services, with 250 small businesses selected for initial financing of GBP 1 million.
‘Swosti-mfi247’ by Swosti Limited
BDjobs.com subsidiary Swosti is launching Bangladesh’s first mobile application-based microfinance and savings management software system. This paperless service enables NGOs, microfinance institutions and credit to transparently, efficiently, and quickly manage their microfinance operations. The digitisation of loan applications, sending notifications to borrowers’ mobile phones in Bengali, and database management make microfinance and savings management much easier. ‘Swosti-mfi247’ aims to facilitate loans to 10,000 new small businesses, with a total of 28,000 disbursements of GBP 12.8 million in loans.
‘CVCFL Agricultural Finance Scheme’ by CAPM Venture Capital and Finance Limited, and Agromach and Farming Services
CAPM Venture Capital & Finance Limited (CVCFL) is a non-bank financial institution partnered with Agromach Farming Services to launch two products - Motsho Chaas and Krishir Chaka - in Naogaon to provide micro-leasing and access to finance to farmers (crop and fish) in rural areas. Fish farmers and agricultural farmers without appropriate collateral for loans are assisted to form groups so they can apply for as cooperatives from CVCFL.
Loans are processed through a mobile application developed by this initiative, and repayments are structured based on farmer’s cash-flow. ‘CVCFL Agricultural Finance Scheme’ anticipates funding for 1,400 fish farmers/small businesses, and micro-leasing for 200 farmers.
‘IPDC-Orjon’ by IPDC
Small-scale suppliers in Bangladesh do not have the capacity to take on multiple orders at the same time. Meanwhile, a lack of digital records limits their access to supply chain financing products. IPDC is aiming to disrupt this manually served £200m+ supply chain financing market by establishing an end-to-end supply chain management platform using Blockchain technology.
Bringing corporates, its primary and secondary suppliers, and IPDC together on single platform will increase visibility of all business transactions and enable IPDC to extend easy low-cost credit to 25,000 small businesses in the next five years. In the next two years, this project aims to disburse £70m to 2,500 small businesses.
‘Business Access’ by bKash
bKash is aiming to ease the mobile financial service transaction experience by equipping its entire merchant and agent network with QR codes. Additionally, the initiative will develop agent and merchant mobile apps which will be used to support and promote MFS transactions.
The app will be a useful tool to access business information whereas the financial transaction data from the app can be used for credit scoring. The credit scores can be used by commercial banks to extend financing to bKash agent/merchants. 15,000 merchants are expected to be equipped with the application by 2020.
‘Growing Together’ by Bank Asia, Voluntary Service Overseas (VSO), and Syngenta Bangladesh
Farmers in Bangladesh rely on dispersed channel for agro inputs (input retailers), financing (microfinance institutions, savings) and crop advisory services (fellow farmers). Bank Asia and its consortium partners are creating a network through farmer centres, which will integrate all three channels and act as a one-stop solution for farmers.
The consortium, along with local entrepreneurs, will set up 20 farmer centers across the country. The farmer centers will be equipped with agent banking services and create a detail database of 100,000 farmers. NFC cards will be distributed to these farmers who will be able to access flexible loan products from Bank Asia. A total of GBP 2.74 million will be disbursed to 15,000 farming entities in the next two years.
‘Creating Cattle Insurance Market by Radio-Frequency Identification (RFID) Tracking in Bangladesh’ by Phoenix Insurance Company, and shurjoMukhi
Cattle rearing is a key source of income for millions of farmers in Bangladesh. However, farmers currently do not have access to any financial instrument to protect themselves from financial loss due to death or disablement of their cattle. Phoenix Insurance in partnership with shurjoMukhi is aiming to create a cattle insurance market using radio-frequency identification (RFID) rumen bolus-based technology. The technology will provide tracking and health related data on the insured cattle heads to both the insurance service provider as well as the farmer. Phoenix insurance is aiming to provide the services to 580 small businesses with a total sum insured of £5.71m.
What’s next after this round of challenge funding
With support from the Bangladesh and UK governments, we will continue ‘rolling rounds’ of challenge funding through 2018. We will also launch ‘bootcamps’, which will focus on behaviour design thinking mentorship and funding for prototyping early-stage companies. The overall goal is to create a continued pipeline of projects that have significant potential to bring in new innovative ideas and services that can transform the financial landscape of Bangladesh.
For more information about our rolling rounds, visit our Challenge Fund Application page
About Business Finance for the Poor in Bangladesh
Business Finance for the Poor in Bangladesh (BFP-B) is a six-year programme funded by UKaid from the UK government to create new economic opportunities for small businesses that are underserved by the formal financial sector. We are improving the policy and regulatory environment for financial institutions, inducing private sector investment in innovative financing ventures, and enhancing the credit worthiness of small businesses. Nathan Associates London Ltd, in consortium with Oxford Policy Management, are the management agency for the program. Bangladesh Bank is the implementing agency, and the Financial Institutions Division of the Ministry of Finance, Government of Bangladesh is the executing agency.
Website -> http://www.bfp-b.org
Twitter -> https://twitter.com/bfpborg
LinkedIn -> https://www.linkedin.com/company/bfpborg/
Facebook -> http://www.facebook.com/bfpborg
BFP-B email newsletter -> http://eepurl.com/dkzHCX