BFP-B’s Action Framing Conference
Leaving a legacy in market facilitation within the financial sector
Bangladesh is a development success story. In 20 years, it has reduced poverty, improved healthcare services, and achieved strong economic growth.
It is now the second fastest growing economy in Asia, with GDP growth expected to hit 8.13% this year. The growth of small and medium enterprises (SMEs) has contributed to the growth of the GDP.
The Bangladesh Bank has thus focussed in the financial inclusion of small and medium enterprises. The sector needed more innovation, changing practices, and the involvement of the formal and informal financial sectors to increase its contribution to GDP.
Role of SMEs in Bangladesh
Reducing poverty
Employment generation
Inclusive economic development
Income equality
Resource utilisation
Empowerment of women
Export product diversification
BFP-B has been working since 2015 to promote this agenda, and improve financial inclusion. The programme hosted an Action Framing Conference on 26 February 2020 to share lessons learnt from the past 5 years. BFP-B's partners from the Government of Bangladesh, regulators, commercial financial institutions, and technology companies joined the conference. Participants discussed successful elements of the programme, and lessons learnt, both good and bad. There is still a long way to go and much to do to ensure greater financial inclusion for all.
BFP-B Highlights
￡207 worth of financing disbursed for every ￡1 spent by the BFP-B challenge fund
Only ￡1.5 (৳ 150) required to extend business development and financial services to each MSE
Public sector financing worth ৳ 25 triggered ৳ 125 private sector financing
Moving the needle on financial inclusion
The focus of the Bangladeshi economy in 2015 was shifting from agriculture to the production of other goods and services. In spite of this rapid growth, there was still much to do for the growth of small businesses. The financial sector is vital to drive sustainable economic growth, and in the reduction of poverty.
BFP-B invested in three principles to expand financing for Bangladesh’s 8 million small businesses :
Innovation in finance product and service development and delivery
Develop policies and regulations to form and operate businesses easily. BFP-B focussed on three ways to ensure this:
Development of enabling policies
Triggering private sector innovation in the country
Establishment of a credit information bureau (Microfinance Credit Information Bureau, MF-CIB)
Share lessons learnt to support the adoption of new business models, policy reports, and procedures
The BFP-B programme launched in 2015, with the support of the UKAid Department for International Development, and the Government of Bangladesh. The programme worked to expand financial inclusion activities. This was to ensure fair opportunities for all. The programme has since provided business development services to 1.2 million businesses, and introduced new business models. These models included agent banking, weather-index based insurance, blockchain technology, and alternative credit-scoring tools.
Digitisation of processes: reduction of costs of doing business and ensuring improved customer service
Businesses typically only use 5% of their data. The first session of the conference discussed ways in which businesses can serve more customers. Business can harness their information for this, and reduce costs in the process. BFP-B promoted the usage of this data, in a non-competitive way through different financial technology tools. Financial institutions could then learn from their mistake to reach more customers.
These tools will be very important for the economic growth of Bangladesh in the coming years. It will be an ambitious push, but worth the development of small businesses, entrepreneurs, and the country as a whole.
There is a need for collaboration of information systems for this transformation. Transparency of transaction-based financing is as vital as digital privacy and security. Blockchain technology, focussed on gaps in the market, and developed products to fill those gaps. Each technology fits the different needs of financial institutions and their clients. Trade risks, procurement, and financing costs, reduced with the incorporation of these technologies.
The session shared ways for targeted and sequential digital transformation to reduce the costs of customer acquisition. This will also reduce risk underwriting for financial institutions.
The panel was moderated by Buddhikha Samarasinghe, Head of Global Practices, Nathan Associates. There were four speakers at the panel:
Mominul Islam, CEO of IPDC Finance Ltd
Arfan Ali, Managing Director of Bank Asia Ltd
Shyamol B Das, Chief Digital Officer of BRAC Bank Ltd
Vince Paar, General Manager, Asia Pacific Tiaxa
Adoption of omni channel distribution model
The second session of the day was moderated by BFP-B team leader Feisal Hussain. Panelists discussed how businesses can operate better with improved understanding of customer behaviour. The different distribution and execution channels can be both physical or digital. Called omnichannel, they enhance customer experience. Personalisation of customer experiences improves loyalty and ensures high retention rates.
But it isn't all good. Panelists also noted the gender disparity in the usage of fintech services. Some solutions are not based on actual customer behaviour. Fintech solutions should focus on unique customer experiences. Awareness raising activities promoting the usage of these services must follow. The speakers on the panel were:
Kamal Quadir, CEO of bKash Limited
Farzana Chowdhury, Managing Director and CEO of Green Delta Insurance Company Ltd
Dr Hasan Imam, Chairman of Bangladesh SME Corporation Ltd
Creating a blended finance architecture in Bangladesh
The third session of the conference focussed on ways to attract more impact investment. This needs non-debt based financial instruments. Impact investment was, and still is to a large extent, an unfamiliar concept, which BFP-B sought to change.
While the concept might be new, shifting demographics in Bangladesh has appealed to more and more investors over the years. This is evident in:
Sharp increase in FDI inflows in the past decade
FDIs are responsible for large amounts of impact capital through investments in enterprises
Institutional investors operate on a commercial basis as lenders
70% of the total impact capital currently deployed has been through debt
Sectors that received most of the impact investment have been high-growth sectors
Results of impact investment activities under BFP-B include:
Over 200 MSEs received business development support
£1.7 million in investments
Over 60,000 smallholder farmers given access to forward market linkages
17 sole proprietorship businesses graduated to private limited companies
Moderated by Challenge Fund Manager Arafat Hossain, speakers at the panel included:
Arif Khan, CEO and Manager of IDLC Finance Limited
Azad Chowdhury, CEO of AIIM Steps Limited
Sharawwat Islam, Managing Director of Truvalu Group
Nirjhor Rahman, CEO of Bangladesh Angels
Role of market facilitators
Panelists at the fourth, and final session discussed the need for private sector investments in meeting BFP-B's goals. These investments expand the financing potential for small businesses. Speakers at the session discussed ways to promote the MFI sector to take increased interest in financial inclusion. These incentives can also come from regulatory bodies.
Financing startups can be risky, and blended financing reduces these risks. This support can be both financial and technical. Investors need incentives to increase the scale and of finance in Bangladesh.
Speakers at the panel, moderated by Eamon Cassidy, Director of Nathan London, included:
Manfred Fernholz, Team Leader at the European Commission
Anir Chowdhury, Policy Advisor of a2i
Dongdong Zhang, Principal Financial Sector Specialist at the Asian Development Bank
Afsana Islam, Deputy Team Leader, Growth and Private Sector Development at DFID, Bangladesh
The expansion of the SME sector in Bangladesh has led to, in a large way, to the development of the entire economy. The country has jumped almost ten positions in the ease of doing business. There is still much to improve, and there is a need for focus on groups left behind. This includes inclusivity, or the lack thereof, of digitisation of processes. Digital solutions are still gendered, and requires awareness building solutions and comprehensive reforms.
Solutions need to emphasise on connectivity to tap the full potential of digitisation of the financial sector. This will bring in both investors and consumers. The public sector needs to build the capacity of users and service providers to maximise the use of these products.
The public sector also needs to support blended and innovative financing. It needs support from the private sector in rolling out blended financing plans to support startup capital. The European Union, for example, is now focussing more on blended financing, and has committed to supporting such in the next 7-year plan.
Changes brought about by BFP-B interventions
BFP-B’s multifaceted approach has addressed a series of supply and demand side and regulatory issues. All programmatic interventions have contributed to the rapidly transforming financial market. But there’s more to be done. Sustaining the progress supported by BFP-B to take innovative business models and new policies forward is critical to the success of inclusive finance activities.
Investments by BFP-B have resulted in the development of five new regulations. These regulations made 7 million small businesses attractive to banks, financial technology companies, microfinance institutions, impact investors, and capital market exchanges.
Additionally, 15 new business models have generated from 36 investments. These models have reduced risks, cut acquisition costs, and shows how small business clients are valuable. They showcase the commercial business case of serving the small business scale.
By the end of 2019, the programme:
Mobilised savings worth over ￡200 million
Supported over￡135 million worth of private sector innovations
Invested in 36 kinds of business models
Reached 1.4 millions MSEs
Reduced loan processing costs of MFIs
Innovations in regulations and business models have generated big changes by:
Reducing time to approve loans from 45 days to 2 days
Reducing time to disburse loans from 15 days to 2 days
Incorporating the use of psychometric, social media and mobile usage data sets in the risk underwriting process
Releasing additional ￡100 million financing to small businesses
Triggering ￡19 million worth of investment by the private sector
Policy recommendations
The programme produced, and supported the implementation of several policy recommendations. It worked with the Microfinance Regulatory Authority (MRA), Bangladesh Bank, and MF-CIB for these policies. Third party advisors assessed the scope of these recommendations.
Way forward
The business models established by the programme are replicable, and sustainable. The lessons learnt and results encourage others to reach out to unbanked populations in Bangladesh
Green Delta Insurance Company has been a forerunner in micro insurance. It has established a pathway for the microinsurance industry to grow
Since 2015, BFP-B has worked with the Government of Bangladesh, regulators, commercial financial institutions, and technology companies. It established a commercial business case to expand finance for small business in Bangladesh. In partnership with the Sustainable Finance Department (SFD) of the Bangladesh Bank, it reformed policies, supported the development of the National Inclusion Strategy, and scaled SME financing focussed business models.
Over the last five years, the programme has worked to expand financing for small businesses in Bangladesh. The programme has catalysed £19m to deliver innovative financial services. The most crucial contribution of the programme is the National Financial Inclusion Strategy. The strategy is a roadmap to support the unbanked population have access to financial services. The Microfinance Credit Information Bureau (MF-CIB) is supporting BFP-B to develop this strategy.