• CHALLENGE FUND • CREDIT GUARANTEE FUND • POLICY COMPONENT

Business Finance for the Poor in Bangladesh

www.bfp-b.orgContact: BFP-B, Level 5, House 13, Road 34, Gulshan 2, Dhaka 1212, Bangladesh. Website: www.bfp-b.org

BFP-B Partners

Bangladesh Bank

Bangladesh Bank is the central bank of Bangladesh, responsible for the regulation and supervision of commercial banks and NBFIs, banking and monetary policies, foreign exchange management and Government treasury functions.

www.bangladesh-bank.org

UK aid

This project is funded with UK aid from the UK government. A total of £22.5 million has been approved for the development of the financial sector under the Business Finance for the Poor in Bangladesh (BFP-B) project. The UK government is currently among the largest bilateral donors to Bangladesh.

www.gov.uk/world/bangladesh

Nathan Associates (London)

Nathan Associates London specialises in innovative programmes to reduce poverty, offering expertise in private sector development, trade policy, rural development, agriculture, and economic and financial sector development. Nathan London has been awarded the contract by DFID to deliver technical and financial assistance under the BFP-B Project. www.nathaninc.com/london

Oxford Policy Management

Oxford Policy Management offers sustainable solutions for reducing social and economic disadvantage worldwide. With nine permanent offices in Asia, Africa and Europe, OPM has completed more than 1,500 projects in 100 countries.www.opml.co.uk

Executing Agency: Implemented by: Managed by: Funded by:

MoF BFID

Business Finance for the Poor in Bangladesh is a five-year £ 22.5 million project aimed at increasing financial inclusion in neglected market sectors by encouraging additional outreach on the part of commercial banks and non-bank financial institutions (NBFIs) to

• Rural areas• Women-headed enterprises• Green enterprises

BFP-B is funded with UK aid from the UK government, and implemented by Nathan Associates (London) and Oxford Policy Management, well-known international consulting firms and research institutions. Bangladesh Bank is the implementing agency and the Ministry of Finance (BFID) the executing agency.

The project specifically targets new micro- and small enterprises. Beneficiaries of project activities must be previously unbanked. This notion of additionality is a theme that runs throughout BFP-B’s planned activities and is central to the achievement of project goals.

Programme ComponentsThe programme is composed of three components, a Challenge Fund, a Credit Guarantee Fund, and a Policy Component. These three components are designed to work together in a mutually-supportive fashion to further financial system outreach and expand financial inclusion throughout Bangladesh.

Challenge FundThe Challenge Fund is a match-funding mechanism designed to spur innovation in the following critical areas:

1. Commercial bank product development for micro- and small enterprises2. Commercial bank delivery channel innovation for MSEs3. Improving and optimising business development services for MSEs4. Other innovations in the financial sphere which further spurs financial inclusion

Challenge Fund grants will cover a maximum of 50% of development costs, “match-funding” or equalling, the contribution made by the grantees to their project. Projects awarded grants must be innovative yet sustainable on a commercial basis, and must achieve commercial viability over the course of the grant period. Grants are one-time injections of funding spread over the developmental period: they are not “equity” meaning the Fund does not take ownership in the project, and they will not be “renewed” or augmented in future periods.

CF awards will be made in a two-stage process. The Advisory Committee will review Concept Notes and make initial selections of concepts. These concepts will be further developed and presented to the Committee again for final consideration.

Application materials and further information are available from the Challenge Fund managers or through the website www. bfp-b.org.

Credit Guarantee FundThe Credit Guarantee Fund is designed to catalyse private commercial bank lending to target areas/beneficiaries by

guaranteeing up to 80% of loan principal to eligible borrowers. Eligible borrowers are enterprises registered in the Republic of Bangladesh, and owned and operated by Bangladeshi citizens. The key requirement for guarantee extension is borrower additionality. Loan guarantees will only be provided to new borrowers on the banks’ books.

Banks will be subjected to a due diligence review in order to qualify for participation in the scheme. Eligible banks will be assigned a portfolio limit and charged a nominal fee on the amount of this portfolio. As guarantees are issued, a further transaction fee will be assessed on each guarantee.

Coverage ratios are anticipated to be: 50% for trade sector loans; 70% for manufacturing and services sector loans; 80% for “target sector” loans – rural areas, women-headed firms, and green businesses.

The maximum amount of loan principal to be guaranteed is BDT 10,000,000. The minimum amount of principal eligible for guarantees is BDT 50,000. The tenor of working capital loans may not exceed 360 days, and fixed asset loan guarantees may not exceed seven years.

Prohibited loan purposes include manufacture and distribution of munitions and alcohol, crop finance, real estate (purchase of land or buildings), speculation in goods including stockpiling of unnecessary levels of inventory, acquisition of other firms, purchase of stocks and bonds.

Eligible loan purposes include working capital (finance of accounts receivable and inventory), fixed asset acquisition, and refurbishment of plant or premises.

The Credit Guarantee Fund will begin operations with several pilot banks. Upon completion of the successful pilot period, CGF facilities will be extended to other qualifying banks.

Policy ComponentThe BFP-B Policy Component will support CF and CGF operations by working with stakeholders and regulators to streamline and optimise lending conditions throughout the country. Specific obstacles or “choke points” will be identified where policy interventions can help simplify MSE lending guidelines and protocols. In addition, streamlining regulatory practices to benefit borrowers will be a major focus.

An Advisory Committee composed of representatives of lending organisations, regulators, and other stakeholders will review research proposals on topics vital to improving and enhancing the flow of finance to creditworthy borrowers throughout the country. Policy component focus will be on concerns raised by participants in CF awards and CGF guarantees.