Asian Development Bank has taken a decision to increase its private sector exposure in Bangladesh as it considers the sector is “the driver of change.”
“Our [private sector] operation in Bangladesh is fairly modest but we want to grow it,” ADB Vice-President Lakshmi Venkatachalam said in an exclusive interview with Dhaka Tribune.
Agro-business, financial sector, small and medium enterprises support through financial intermediaries, skill development and other related areas where ADB wants to have involvement, said Lakshmi who is in-charge of private sector and co-financing operations at the bank.
ADB has, so far, invested $300m directly in Bangladesh’s private sector and last year supported $1.7bn trade financing transaction in partnership with 13 banks.
“The support is very important as Bangladesh is an export-oriented economy,” she said.
Strategy 2020
ADB has adopted Strategy 2020 under which it will increase its private sector exposure to 50% of the total operation of the ADB.
This involves two dimensions – one is direct operations which will be 25%, and the other is activity in the public sector for private sector development making another 25%, Lakshmi Venkatachalam said.
“That’s how we get the 50%.”
She said the bank provided about $10bn worth of ordinary capital resources and out of that, $1.8bn went to private sector operation.
Challenges
ADB vice-president feels that the real challenge for the bank is to bring timely support for a project.
“The project is a combination of many things - good sponsors, strong development impact while the risk level must be acceptable and bankable,” Lakhsmi said. “Don’t forget, this is non-sovereign operation,” she added.
The bank has limitation to fund 25% of the project costs and that’s why it collaborates with other development partners when it directly invests in the private sector, the senior official of the Asian lender said.
“The real challenge of co-financing is to come together at an early stage of project planning,” she said.
According to her, ADB has no intention to displace market forces, but it operates to offer more than what the market forces can offer.
“We are not here just to make money. But the funding must have strong developmental impact. That money must be translated into a transaction that will generate development at the ground level.”
ADB has a co-financing arrangement with European Investment Bank, Islamic Development Bank, German development bank KfW and other development partners.
New development partners
The ADB official is of the view that Asian Infrastructure Investment Bank (AIIB) and BRICS Bank can be new avenues for co-financing arrangement.
“This is recognised that Asia needs infrastructures while we do need to augment the resources,” Lakhsmi Venkatachalam said.
She said ADB needs more co-financing for sustainable infrastructure development in the region.
“These banks which are now in the making will provide avenue for getting additional resources for the development.”
The idea of AIIB and BRICS Bank has been floated recently with Bangladesh expressing its intention to join the AIIB as a founder member.
