Bangladesh Bank to simplify finance for MSME clusters

It also directed banks to give the highest priority to clusters of leather and leather goods makers, light engineering and jute and jute goods

The Bangladesh Bank on Sunday asked banks to lend to 19 types of micro, small and medium enterprises (MSMEs) operating in clusters, giving the highest priority to agricultural processing, manufacture of agricultural machinery, garments and ICT. 

It also directed banks to give the highest priority to clusters of leather and leather goods makers, light engineering and jute and jute goods, according to a circular.

The Bangladesh Bank move comes as small and medium firms operating in clusters are not getting adequate attention from bankers although the firms need the finance to grow and compete in the domestic and export markets.

And the gap in lending to small businesses prevails as there is no definite definition of clusters of the SMEs.

In its circular, the central bank said an area would be considered a cluster if there are 50 or more firms producing homogeneous or related products and services in a 5-kilometre radius.

The central bank categorized clusters in two types -- most priority clusters and priority clusters -- and directed banks and financial institutions to fix targets to lend at least 10% of their total net loans to the SMEs of the clusters in 2022.

The ratio of financing to SME clusters has to be increased by one percentage point every year to take the total to 12% by 2024, it said.

Of that half of the loans must go for priority clusters that also include plastic and other synthetic industry, tourism, home textile, solar power system, automobiles, handloom and handicraft, energy saving products, jewellery, toy, cosmetics and toiletries, agar, furniture making, mobile, computer and television servicing.

Bangladesh Bank said cluster-based financing was popular across the world and the proper support to the clusters would enhance the capacity of micro and small firms to compete in domestic and international markets.

This will bring about significant benefits to the economy, it said.

The central bank also asked banks to frame a credit policy by including cluster financing in the policy. 

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