36200-013: Project Completion Report · SSPD TA – – SME and ... Project Completion Report...

Completion Report

Project Number: 36200-013 Loan Number: 2549 August 2015

Bangladesh: Small and Medium-Sized Enterprise Development Project This document is being disclosed to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS

Currency Unit – taka (Tk)

At Appraisal At Project Completion 25 August 2009 31 December 2013

Tk1.00 = $0.0144812 $0.012874 $1.00 = Tk69.05500 Tk77.675

ABBREVIATIONS

ACSPD – Agricultural Credit and Special Programmes Department ADB – Asian Development Bank BB – Bangladesh Bank BFID

BWCCI – –

Bank and Financial Institutions Division Bangladesh Women Chamber of Commerce and Industry

DMF FAPAD

– –

design and monitoring framework Foreign Aided Project Audit Directorate

GAP GDP

– –

gender action plan gross domestic product

MOF NBFI

– –

Ministry of Finance nonbank financial institution

NPL – non-performing loan PFI – participating financial institution RRP

SDR – –

report and recommendation of the President special drawing right

SME – small and medium-sized enterprise SMEDP

SMESDP – –

Small and Medium-Sized Enterprise Development Project Small and Medium Enterprise Sector Development Program

SSPD TA

– –

SME and Special Programmes Department technical assistance

NOTES (i) The fiscal year (FY) of the Government of Bangladesh ends on 30 June. FY before a

calendar year denotes the year in which the fiscal year ends, e.g., FY2015 ends on 30 June 2015.

(ii) In this report, "$" refers to US dollars. Vice-President W. Zhang, Vice President, Operations 1 Director General H. Kim, South Asia Department (SARD) Director K. Higuchi, Bangladesh Resident Mission (BRM), SARD Team leader B. Saha, Senior Project Officer, SARD Team members N. Alam, Associate Project Officer, SARD

N. Aziz, Operations Assistant, SARD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1

A. Relevance of Design and Formulation 1

B. Project Outputs 3

C. Project Costs 5

D. Disbursements 6

E. Project Schedule 6

F. Implementation Arrangements 6

G. Conditions and Covenants 7

H. Related Technical Assistance 7

I. Consultant Recruitment and Procurement 7

J. Performance of Consultants, Contractors, and Suppliers 7

K. Performance of the Borrower and the Executing Agency 8

L. Performance of the Asian Development Bank 8

III. EVALUATION OF PERFORMANCE 8

A. Relevance 8

B. Effectiveness in Achieving Outcome 9

C. Efficiency in Achieving Outcome and Outputs 10

D. Preliminary Assessment of Sustainability 11

E. Impact 11

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 12

A. Overall Assessment 12

B. Lessons 12

C. Recommendations 13 APPENDIXES 1. Design and Monitoring Framework 16 2. Analysis of Achievements of Gender Action Plan 20 3. Refinancing Operations in the SME Sector in Bangladesh (February 2015) 24 4. Performance of Participating Financial Institutions 25 5. Characteristics of Subloans 27 6. Performance of Participating Financial Institutions in Terms of Disbursement 29 7. Implementation Schedule and Disbursement 30 8. Status of Compliance with Loan Covenants 31 9. FAPAD Observations and Comments 37 10. Technical Assistance Completion Report 38 11. Definition of Cottage, Micro, Small, and Medium-Sized Enterprises 41

BASIC DATA A. Loan Identification 1. Country 2. Loan Number 3. Loan Title 4. Borrower 5. Executing Agency 6. Amount of Loan 7. Project Completion Report Number

Bangladesh 2549-BAN(SF) Small and Medium-Sized Enterprise Development Project People’s Republic of Bangladesh Bank and Financial Institutions Division, Ministry of Finance SDR48,927,000 BAN 1525

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Revised – Number of Extensions 6. Closing Date – In Loan Agreement – Revised – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity (number of years) – Grace Period (number of years)

20 July 2009 22 July 2009 17 August 2009 18 August 2009 17 September 2009 12 October 2009 10 Jan 2010 3 May 2010 3 30 March 2013 31 December 2013 1 1% per annum during grace period 1.5% per annum thereafter 32 8

8. Disbursements a. Dates Initial Disbursement

28 February 2011

Final Disbursement

9 April 2014

Time Interval

37.9 months

Effective Date

3 May 2010

Original Closing Date

30 March 2013

Time Interval

35.4 months

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b. Amount (SDR)

Category No. (1)

Category or

Subloan (2)

Original Allocation

(3)

Partial Cancellations

(4 = 3 – 5)

Last Revised Allocation

(5)

Amount Disbursed

(6)

Undisbur-sed

Balance

(7 = 5 – 6)

01 Subloan 48,927,000 0 48,927,000 48,927,000 0 Total (local

currency)

48,927,000 48,927,000

0 0

48,927,000 48,927,000

48,927,000 48,927,000

0 0

Total ($ equivalent)

48,927,000 76,000,000

a

0 0

48,927,000 74,973,161

b

48,927,000 74,973,161

0 0

a US dollar equivalent as per the report and recommendation of the President.

b US dollar equivalent as of date of closing the loan account. Amount varies due to exchange rate fluctuation from SDR to $, and from $ to Tk.

SDR = special drawing right. Source: The Asian Development Bank’s Loan Financial Information System.

C. Project Data

1. Project Cost ($ million)

Cost Appraisal Estimate Actual

ADB Project Loan 76.00 74.97 Government (BB) Contribution 19.00 19.00 PFI Contribution 19.00 19.00 SME Contribution Contingencies Financing Charges during Implementation

12.67 0.00 0.00

12.60 0.00 0.00

Total 126.67 125.57 ADB = Asian Development Bank; BB = Bangladesh Bank, PFI = participating financial institution, SME = small and medium-sized enterprises. Source: BB, SME and Special Programmes Department. 2013. Project Monitoring Report (PMR). Dhaka.

2. Financing Plan ($ million) Source Appraisal Estimate Actual

ADB 76.00 74.97 Government (BB) 19.00 19.00 PFIs 19.00 19.00 SMEs 12.67 12.60 Total 126.67 125.57

ADB = Asian Development Bank, BB = Bangladesh Bank, PFI = participating financial institution, SME = small and medium-sized enterprises. Sources: BB, SME and Special Programmes Department. 2013. Project Monitoring Report (PMR). Dhaka; ADB’s Loan Financial Information System.

3. Breakdown of Subloans ($ million) Component Projected

a Actual

Banks 38.91 Non-banking Financial Institutions 36.06 Total 74.97 a No projection in the report and recommendation of the President.

Source: Bangladesh Bank, SME and Special Programmes Department. 2013. Project Monitoring Report (PMR). Dhaka.

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4. Project Schedule Item Appraisal Estimate Actual

First Year: $26 million appraised, $14.17 million actual Oct 2009 – Sep. 2010 Jan – Dec 2011 Second Year: $25 million appraised, $37.49 million actual Oct 2010 – Sep 2011 Jan – Dec 2012 Third Year: $25 million appraised, $22.67 million actual Oct 2011 – Sep 2012 Jan – Dec 2013 Fourth Year: $0 appraised, $0.64 million actual Jan – Jun 2014

5. Project Performance Report Ratings Implementation Period

Ratings

Development Objectives

Implementation Progress

November 2009 to June 2011 Satisfactory Satisfactory July 2011 to September 2011 Satisfactory Partially Satisfactory October 2011 to December 2011 Satisfactory Satisfactory January 2012 to March 2012 Satisfactory Unsatisfactory April 2012 to June 2012 Satisfactory Partially Satisfactory July 2012 to December 2012 Satisfactory Satisfactory January 2013 to September 2013 Satisfactory Partially Satisfactory October 2013 to March 2014 Satisfactory Satisfactory Source: eOps of the Asian Development Bank.

D. Data on Asian Development Bank Missions

Name of Mission

Date

No. of Persons

No. of Person-Days

Specialization of Members

Fact-finding 3–13 May 2009 5 65 a, b, c, d Appraisal 20–22 Jul 2009 4 12 a, b, d, e Inception 9–10 Nov 2009 3 6 a, b, f Review 1 12–19 Jul 2011 4 32 b, d, g, h Review 2 10–17 May 2012 3 24 b, d, h Special Project Administration Review 3

10–12 Jul 2012 19–27 Nov 2012

2 4

6 36

b, h b, d, h, i

Review 4 29 Aug–8 Sep 2013 3 33 b, d, h Note: a = financial sector specialist, b = project manager, c = infrastructure finance specialist, d = gender specialist, e = counsel, f = assistant project analyst, g = project officer (Environment), h = project analyst, i = senior social development officer.

I. PROJECT DESCRIPTION 1. On 17 September 2009, the Asian Development Bank (ADB) approved a $76 million equivalent loan to Bangladesh from ADB’s Special Funds to implement a Small and Medium-sized Enterprise Development Project (SMEDP).1 The credit facility aimed to accelerate the development of small and medium-sized enterprises (SMEs)—especially in rural and nonurban areas outside the metropolitan areas of Dhaka and Chittagong, Bangladesh’s two largest cities—by improving their access to medium- and long-term credit through participating financial institutions (PFIs), which would reduce regional disparities. The project also particularly emphasized the development of women’s entrepreneurship by allocating a minimum amount of funds for financing women-led SMEs. The project was executed by the Bank and Financial Institutions Division (BFID) and implemented by the SME and Special Programmes Department (SSPD) of the Bangladesh Bank (BB), the country’s central bank. The project closing date was extended by nine months to 31 December 2013. The design and monitoring framework (DMF) containing the impact, outcome, and output parameters along with the status of achievements is in Appendix 1. 2. To enhance the sustainability of the project, an associated technical assistance (TA) grant of $500,000 was approved through regional TA 6337 (Development Partnership Program for South Asia), funded under the Australia–ADB South Asia Development Partnership Facility, and administered by ADB.2 The objective of this TA subproject was to enhance the capacity of women entrepreneurs to have full access to the financial resources and services earmarked for women-led SMEs under the project. The TA was implemented by the Bangladesh Women Chamber of Commerce and Industry (BWCCI), and the Finance Division, Ministry of Finance (MOF) acted as the executing agency. The subproject was closed on 31 August 2013. The gender action plan (GAP) along with the status of achievements is in Appendix 2.

II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. SMEs as the backbone of the economy. Bangladesh’s economy is driven by the private sector, which comprised 93% of domestic consumption and 83% of investment in FY2009.3 SMEs are the backbone of the private sector, accounting for approximately 99% of private enterprises and employing about 70%–80% of the nonagricultural labor force. Nonmetropolitan SMEs comprise 60%–65% of the country’s 1.5 million SMEs and account for most of the private sector in rural and nonurban areas. These SMEs are a key means of reducing poverty in the country since they generate nonfarm activities that provide more than 50% of the rural population’s employment and income.4 4. Strengthening of SMEs as a key development agenda. Considering the role of SMEs in sustained growth, poverty reduction, and employment generation, the Government of

1 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of Bangladesh for the Small and Medium-Sized Enterprise Development Project. Manila (Loan 2549-BAN).

2 ADB. 2006. Proposed Technical Assistance for the Development Partnership Program for South Asia. Manila. (RETA 6337).

3 MOF, Government of Bangladesh. 2015. Bangladesh Economic Review 2015. Dhaka.

4 ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the People’s Republic of Bangladesh for the Small and Medium-Sized Enterprise Development Project. Manila. (Loan 2549-BAN) (para. 5).

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Bangladesh has accepted SME development as an integral part of its development strategy. The government recognizes the private sector as the engine of economic growth and emphasizes supporting SMEs as a dynamic sector with a pivotal role to play in achieving the national goal of accelerated pro-poor growth, sustained poverty reduction, and faster economic development and social progress.5 The Industrial Policy 2010 clearly states that SME development will be one of the cornerstones of the government’s industrialization strategy. 5. Access to financing as a main constraint. An investment climate assessment conducted by the World Bank in 2008 indicated that the scarcity of certain resources (energy, financing, land, and labor skills) is starting to strain Bangladesh’s growth and productivity gains. The demand–supply gap for SMEs was estimated at Tk165 billion against an estimated demand of Tk255 billion at project appraisal.6 The demand–supply gap for SME credit was more pronounced in nonmetropolitan areas where only 6% of SMEs had been able to access formal financing as compared with 51% in metropolitan areas. SMEs were also hindered from obtaining the right type of financing, i.e., medium- and long-term credit, because of the relatively small equity market, virtually non-existent debt market, and asset-liability mismatch in the banking sector. The Sixth Five-Year Plan also recognized the availability of credit as one of the most important factors for SME development and included comprehensive measures addressing the credit needs of SMEs.7 In addition to all the barriers encountered by SMEs, women entrepreneurs are disadvantaged further as they are more frequently poorly educated. 6. Project design. Designed broadly at appraisal, the project addressed one key constraint—access to financing—by making a $76 million credit line available to PFIs for on-lending to eligible SMEs. To address financing discrimination, the project focused on SMEs located in nonmetropolitan areas and ambitiously allocated 15% of total facility for women entrepreneurs. However, the DMF framework could have defined, set, and monitored performance metrics more specifically. The TA design was appropriate as it complemented the loan facility by supporting women’s entrepreneurship. The project was aligned with the development partners' extensive TA activities. The landscape of SME refinancing schemes is in Appendix 3. 7. Alignment with ADB’s country strategy. ADB’s country strategy and program for Bangladesh during 2006–2010 identified the finance sector in general, and the SME sector in particular as key assistance priorities.8 Apart from recognizing a lack of large and long maturity loans, especially in the rural market, the country partnership strategy midterm review also identified the failure to consider women a distinct target group as a major constraint on the SMEs.9 Although the project attained its key objectives, SMEs must maintain development momentum to achieve accelerated investment, growth, and employment in the economy. In a recent survey, 60.2% of the respondents cited lack of access to financing as a major constraint faced by the SMEs.10 In this context the project is as relevant as it was at appraisal. 5 Government of Bangladesh. 2008. Moving Ahead: National Strategy for Accelerated Poverty Reduction II. Dhaka.

6 Ferrari, A. 2008. Increasing Access to Rural Finance in Bangladesh: The Forgotten “Missing Middle.” Washington,

DC. 7 Government of Bangladesh, Planning Commission, Ministry of Planning. 2011. Sixth Five-Year Plan: FY2011–

FY2015. Dhaka. 8 ADB. 2005. Country Strategy and Program (2006–2010): Bangladesh. Manila.

9 ADB. 2009. Country Partnership Strategy Midterm Review: Bangladesh, 2006–2010. Manila.

10 Bangladesh Integrated Support to Poverty and Inequality Reduction through Enterprise Development (INSPIRED).

2013. The State of the SME Sector – the Manufacturing SME Sector in Bangladesh – Working Paper #3. Dhaka.

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B. Project Outputs

1. Output 1: Expansion of medium- to long-term credit by PFIs to SMEs located outside the metropolitan areas of Dhaka and Chittagong, with emphasis on women-led SMEs.

8. From May 2010 to December 2013, the project disbursed the full credit facility of $74.97 million equivalent, accounting for foreign exchange fluctuation, to 13,645 SMEs located in nonmetropolitan areas outside Dhaka and Chittagong.11 The project played a catalytic role in expanding access to medium- to long-term financing for SMEs in nonurban and rural areas. The total SME credit portfolio of banks and nonbank financial institutions (NBFIs) was Tk695 billion in 2010; this increased to Tk1,361 billion in 2014 yielding a cumulative average growth rate of 18.3% per year against the total annual portfolio growth rate of 13.9%.12 This higher growth rate reflects the rate at which financial institutions invested in SMEs compared with their investments in other sectors. 9. SME credit growth. The SME credit to total credit ratio of PFIs—the performance indicator noted in the DMF—increased from 16.9% in 2010 to 21.4% in 2014,13 resulting in a growth rate of 26.5% against the target of 5.0%. At the national level, the SME credit to total credit ratio increased from 21.1% in 2010 to 24.5% in 2014, yielding a cumulative average growth rate of 16.1%. Furthermore, the SME loan to GDP ratio also increased from 6.7% in 2010 to 8.6% in 2014, yielding a growth rate of 28.3%.14 The trend of SME credit as compared with the total credit portfolio of banks and NBFIs is presented in Table 1.

Table 1: Trend of SME Credit and Total Outstanding Credit, 2010–2014

10. Credit to women entrepreneurs. The project earmarked 15.0% of the total credit facility for women entrepreneurs in keeping with the provisions of the Refinance Scheme for Women Entrepreneurs of SME. The project disbursed Tk479 million to 439 women-led SMEs; this accounted for 6.4% of total disbursement and fell short of the 15.0% target. This is not surprising as women’s entrepreneurship is a comparatively new phenomenon in Bangladesh. Women are traditionally more disadvantaged than men in Bangladesh; therefore, it will take several years to create a robust base of women entrepreneurs. Disbursement to women entrepreneurs grew 49.0% in 2013 compared with 9.0% in 2012 and 13.0% in 2011.15 The target was apparently ambitious considering the fact that the proportion of credit disbursed to women entrepreneurs was only 3.9% in 2013 at the national level. In this light, the project has done reasonably well by disbursing 6.4% of credit facility to women-led SMEs. 11

There was no target at appraisal. 12

BB. SME and Special Programmes Department. 13


ADB. 2015. Asia SME Finance Monitor 2014 (Draft). Manila. 15

BB. 2014. Women Entrepreneurs’ Conference and Product Display 2014. Dhaka.

Item 2010 2011 2012 2013 2014

Outstanding total credit (Tkmillion) 3,299,503 3,907,281 4,510,967 4,858,846 5,546,353

SME Credit (Tkmillion) 695,266 810,992 1,008,132 1,158,849 1,361,485

SME credit as % of outstanding total c 21.10% 20.80% 22.30% 23.90% 24.50%

SME = small and medium-sized enterprises.

Source: Bangladesh Bank.

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11. Regional disparities. The project emphasized the importance of enhancing rural SMEs’ access to finance by allocating the entire fund for nonmetropolitan SMEs. During 2011–2014, SME financing in the urban sector increased at an average rate of 24.3% per annum, compared with 20.9% for rural SMEs.16 According to the Asia SME Finance Monitor database, in 2014, 74.8% of all SME loans in Bangladesh were disbursed in urban areas while only 25.2% were disbursed in rural areas. This indicates the geographical gap in SME finance and the need for further assistance in the country.

12. Subloan characteristics. The SMEDP provided subloans to 13,645 SMEs, of which 6,589 (48%) were new companies. Of the total credit line, 48.9% was disbursed to the trading sector, 32.8% to the manufacturing sector, and 18.3% to the service sector. Trading enterprises have fewer difficulties in securing financing from commercial banks. The repayment performance of subloans was good with an aggregate overdue of 5.8% against the national non-performing loan (NPL) ratio of 11.6% in 2014.17 Interest rates were market-based, excluding loans for women entrepreneurs, which were capped at 10% by the central bank. The pricing of subloans does not have any obvious correlation with industrial sectors and location. The majority of disbursed subloans (76.1%) were mid-term loans with a tenor of 2–3 years, while 23.9% were long-term with a tenor of 3 years or more. Subloan performance with regard to the banks is detailed in Appendix 4, and some important characteristics of the subloan portfolio are provided in Appendix 5. 13. Performance of PFIs. The BB selected 32 banks and NBFIs as the PFIs according to eligibility criteria provided by ADB. Of the total disbursed amount of Tk7,470 million, the banks disbursed Tk3,877 million (52%) while the NBFIs disbursed Tk3,592 million (48%). This disbursement structure represents a significant shift from the previous $30 million Small and Medium-sized Enterprise Sector Development Program (SMESDP) through which banks disbursed 80% of the total credit facility and NBFIs 20%, indicating the increased focus of NBFIs on SME financing. NBFIs find refinancing schemes particularly useful because of their higher cost of deposits and lack of fee-based income as compared with banks. The disbursement performance of banks and NBFIs is shown in Table 2.

Table 2: Disbursement Performance of Banks and NBFIs

14. IDLC Finance Ltd., an NBFI, emerged as the leading financial institution in terms of disbursements, followed by Eastern Bank Ltd. The top 11 financial institutions disbursed 80% of the total credit facility while 21 financial institutions disbursed the remaining 20%, indicating the 16


BB. SME and Special Programmes Department.

Item

Amount in Tk

million

% of Total

Facility

Amount in Tk

million

% of Total

Facility

Banks 2,694 80% 3,877 52%

NBFIs 655 20% 3,592 48%

Total 3,349 100% 7,470 100%

SMESDP (2010) SMEDP (2013)

SMESDP = Small and Medium Enterprise Sector Development Program, SMEDP = Small and Medium-Sized

Enterprise Development Program, NBFIs = nonbank financial institutions.

Source: Bangladesh Bank.

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extent to which financial institutions’ capability for and/or interest in utilizing the project facility are skewed. The league table according to rate of disbursement is provided in Appendix 6.

2. Output 2: Enhanced capacity of women entrepreneurs and associations to fully access the financial resources earmarked for women-led SMEs under the project.

15. The SMEDP developed the capacity of women entrepreneurs to access financial resources from the formal lending sector. The TA (i) identified 900 women entrepreneurs in six districts; (ii) trained 771 women entrepreneurs in business improvement, expansion, and preparing business plans; and (iii) familiarized them with the procedures to access institutional finance. Of the 900 entrepreneurs identified, 293 women received bank loans and 91 received loans through the ADB-supported refinancing scheme.18 Some of the challenges faced by women entrepreneurs are related to difficulties in understanding documents and procedures, and bank officials’ lack of awareness of the needs of women entrepreneurs. According to data collected by the BB, the PFIs under the SMEDP established 45 women’s desks in the six target districts. Another significant contribution of the BB is a series of policy reform directives supporting women entrepreneurs’ access to credit. The stories of women entrepreneurs have been captured in a case study conducted by ADB.19 16. The number of successful women entrepreneurs applying for loans at banks and NBFIs was 13,831 in 2010; this increased to 42,730 in 2014 yielding a cumulative average growth rate of 32.6% per annum, which significantly surpassed the target of 20.0% noted in the DMF. The increasing number of women-led SME borrowers is presented in Table 3, which shows a significant upward growth trend during 2010–2014. While the decline in the growth rate in 2014 coincides with the closure of the SMEDP, this may be better explained by political unrest in 2014.

Table 3: Trend of Growth of Women-led SME Borrowers, 2010–2014

17. Gender Action Plan. As part of Output 2 stipulated in the DMF, a comprehensive GAP has been introduced and completed successfully, as detailed in Appendix 2. The GAP agenda has been achieved regarding (i) advocating the enforcement of gender-responsive regulations and policy reform, and (ii) strengthening the technical capacity of selected women entrepreneurs and associations. The TA subproject realized GAP outreach in six districts and six divisions. C. Project Costs 18. The project cost was estimated at $126.67 million equivalent at appraisal, of which ADB provided $76 million, the government (BB) $19 million, PFIs $19 million, and SMEs $12.67

18

The SMEDP financed 439 women entrepreneurs of which 91 received training under the TA program. 19

ADB. 2015. Gender Equality Results Case Study–Bangladesh: Small and Medium-Sized Enterprise Development Project. Manila.

Item 2010 2011 2012 2013 2014

Women-led SME borrowers 13,831 16,696 17,369 41,695 42,730

Growth rate 20.7% 4.0% 140.1% 2.5%

SME = small and medium-sized enterprises

Sources: Bangladesh Bank. 2014. Women Entrepreneurs' Conference and Product Display. Dhaka.

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million. The credit facility has been fully disbursed at $74.97 million (the difference from $76 million is due to exchange rate fluctuations between SDR and the US dollar). The BB disbursed $19 million as planned and ensured, by way of agreement, the contributions of the PFIs and SMEs. D. Disbursements 19. The SMEDP was designed to be disbursed in three equal annual installments in three successive years. However, actual disbursement was 19%, 50%, and 30% in the first three years with the remaining 1% disbursed in the fourth year. The first disbursement was delayed by 14 months due to an administrative changeover in the implementing agency by which implementation responsibilities were switched to a new department. At appraisal, the Agricultural Credit and Special Programmes Department (ACSPD) was selected as the implementing agency; however, the BB created a new division, the SSPD, for this role in December 2010. Although this changeover required lengthy administrative procedures that delayed the first disbursement of the project, the project gained momentum quickly and disbursed 50% of the funds in the second year. Despite these initial delays, the total fund was almost fully disbursed in the three years projected. The implementation and disbursement schedule is in Appendix 7. E. Project Schedule 20. As estimated at appraisal, the project began in July 2009; however due to procedural delays involving legal vetting of the project documents, the effectiveness of the project was delayed by four months with three extensions. The first disbursement was delayed by 14 months from the date estimated at appraisal. The estimate was highly optimistic as it did not account for the fact that the selection of PFIs is a time-consuming process. The changeover of responsibilities to a new implementing team was also a major reason for this delay. The project closed in December 2013, nine months after the projected date at appraisal with only one extension. The project schedule is provided in Appendix 7. F. Implementation Arrangements 21. The implementation arrangements, as mentioned in the report and recommendation of the President (RRP) (para. 49) were followed by minor changes to improve them. As per the RRP, the ACSPD was the planned implementing agency. After the signing of the loan agreement, the BB created a new SME-focused department, the SSPD, intended to focus specifically on SME development in the country. The administration of the new department was linked with the BFID of the MOF, which therefore acquired the role of executing agency. The implementation arrangement was found to be adequate and effective as a result of these changes, which had no effect on the covenants. A high-level project steering committee was formed with the BFID Secretary as the chairperson. The committee met as and when necessary to guide the project and resolve any issues that required a decision from high-level government officials. An ADB representative sat on the committee as an observer. The project implementation arrangements were appropriate. ADB contracted the BWCCI to implement the TA subproject, and the Finance Division of the MOF had overall responsibility of supervision as the executing agency.

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G. Conditions and Covenants 22. The loan agreement contained 25 conditions and covenants under 12 broad categories: implementation arrangements, PFI eligibility criteria, qualified enterprise, qualified subproject, subloan, safeguards, GAP, anticorruption, project performance monitoring and evaluation, reporting, and project review. A minor change was made to the implementation arrangements reassigning the implementation and execution responsibilities to the newly established SSPD and the BFID. The loan covenants were relevant to the project design and implementation. All major loan covenants were generally complied with as outlined in Appendix 8; however, the Foreign Aided Project Audit Directorate (FAPAD) made four minor observations that were addressed by the implementing agency and are expected to be resolved. The list of FAPAD audit observations and responses of the implementing agency is in Appendix 9. The BB reported no issues with regard to the PFIs’ compliance with the environmental management system framework under the credit line. In keeping with the loan agreement, the implementing agency did not provide an annual environmental compliance monitoring report, and this topic was not raised by the ADB review missions as reported by the implementing agency. The implementing agency requested project management support for better implementation and compliance with all covenants in the future. H. Related Technical Assistance 23. The TA subproject was developed to address challenges faced by women entrepreneurs in accessing financial resources and refinancing schemes. The TA completion report rated the project highly successful as the subproject achieved its intended impact by developing women’s entrepreneurship in six selected districts and achieved its outcome by enhancing the capacity of women entrepreneurs and associations to access the financial resources and services earmarked for women-led SMEs under the project. The subproject outputs were achieved by identifying constraints on women entrepreneurship, creating advocacy initiatives, building capacity, and disseminating findings to relevant stakeholders. The TA completion report of the subproject is in Appendix 10.

I. Consultant Recruitment and Procurement 24. There was no recruitment of consultants or procurement of any items (goods or works) under the loan component. To implement the TA subproject, ADB recruited the BWCCI following the Guidelines on the Use of Consultants by ADB and its Borrowers and using single source selection. The team of consultants included the team leader, training coordinator, advocacy coordinator, and accounts officer (each for 36 months); and the monitoring consultant (intermittent for six months over 36 months). J. Performance of Consultants, Contractors, and Suppliers 25. There was no recruitment of consultants in the loan component. The consultants’ performance under the TA subproject was rated satisfactory. The BWCCI project office in Dhaka and women chamber members in the six districts implemented the project in a timely and professional fashion. The team generally performed well. As agreed with ADB, after the closing of the TA the consultants retained the office equipment that they procured under the contract. The suppliers’ performance was also satisfactory in that they supplied the equipment according to the required specifications and in a timely manner.

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K. Performance of the Borrower and the Executing Agency 26. The performance of the borrower (the government), executing agency, and implementing agency is rated satisfactory. Developing SMEs and women’s entrepreneurship is a priority of the government, which has demonstrated its commitment to this goal by availing the full facility amount in a structured manner. The executing agency, the BFID, guided the implementation of the major outputs, while the BB as the implementing agency implemented the project proactively throughout its duration. The quality of execution and implementation has been satisfactory. L. Performance of the Asian Development Bank 27. ADB’s performance is rated satisfactory. It fielded the inception mission, four review missions, and one special project administration mission. ADB consistently maintained a good relationship with the executing and implementing agencies ensuring the timely implementation of project activities. Due to good progress in the project implementation stage, a semi-annual review mission was not required.

III. EVALUATION OF PERFORMANCE A. Relevance 28. The project was rated relevant at appraisal as it contributed to poverty reduction, remained consistent with government priorities, and aligned with ADB policies and timing. The private sector is the driving force of Bangladesh’s economy, accounting for 93% of consumption and 83% of investment in 2008–2009. SMEs constitute almost all (up to 99%) of private sector enterprises, employing the vast majority (70%–80%) of the non-agrarian workforce and accounting for a quarter of the country's GDP. Nonmetropolitan SMEs are a key means of reducing poverty by generating rural nonfarm activities that provide more than 50% of the rural population’s employment and income. The demand-supply gap for SME credit was more pronounced in nonmetropolitan areas where only 6% of SMEs had access to formal financing as compared with 51% in metropolitan areas. The SMEDP provided nonmetropolitan SMEs with much-needed long-term financing, thus helping to reduce income disparity between the rural and urban population. It also placed special emphasis on women’s entrepreneurship by allocating a designated fund for women entrepreneurs, who are more likely to be disadvantaged than men. The SMEDP not only addressed one of the most pressing problems faced by SMEs, it also focused its resources on the most disadvantaged areas—nonmetropolitan SMEs and women-led SMEs—to achieve greater and more equitable development impact. 29. The SMEDP is highly consistent with government strategies that consider SME development an integral driver of sustained growth, poverty reduction, and employment generation. The National Strategy for Accelerated Poverty Reduction II emphasized the pivotal role of SMEs in achieving the national goal of accelerated pro-poor growth, and the Industrial Policy 2010 clearly states that SME development will be one of the cornerstones of the government’s industrialization strategy. The project also conforms closely to ADB's country strategy for Bangladesh, which identified the SME sector as a key assistance priority. The country partnership strategy midterm review identified the failure to consider women a distinct target group as a major limitation of the SMEs. Moreover, the timing of the project was appropriate in the aftermath of the global financial crisis of 2009–2010, which threatened to

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destabilize the domestic economy. The credit facility also aligned with the development partners' extensive TA activities.

B. Effectiveness in Achieving Outcome

30. The SMEDP was effective in achieving its envisaged outcome as noted in the DMF. The RRP (para. 5) placed the number of SMEs in Bangladesh at nearly 1.5 million at appraisal (August 2009). The Economic Census 2013 conducted by the Bangladesh Bureau of Statistics calculated the total economic units in the country to be 7.9 million, and ADB’s draft Asia SME Finance Monitor 2014 estimated the number of SMEs in 2013 at 7.2 million, comprising 90% of total economic units. Assuming that the RRP data were applicable for the year 2007, the number of SMEs in the country grew from 1.5 million to 7.2 million during 2007–2013, yielding a cumulative average growth rate of 30% per annum, which exceeds the 8% growth target noted in the DMF. Acquiring reliable data in the SME sector is a significant challenge; thus, inferential methods and proxy estimates have been used to measure performance as appropriate. 31. The growth in the number of SMEs has also been calculated using a separate method. Assuming that 90% of total economic units are SMEs,20 the number of SMEs in the country is estimated to be 3.3 million in 2003 and 7.2 million in 2013 as per economic censuses conducted by the Bangladesh Bureau of Statistics.21 This increase in the number of SMEs during 2003–2013 yields a cumulative average growth rate of 8% per annum, which meets the growth target stipulated in the DMF. As per BB statistics, the number of SME borrowers has increased from 308,950 in 2010 to 541,656 in 2014, yielding an average annual growth rate of 15% during this period.22 The number of SME borrowers rose considerably in 2013 as the Islami Bank started reporting its cottage and micro investments as SME investments. The growth trend of SME borrowers is presented in Table 4.

Table 4: Trend of SME Borrowers, 2010–2014

32. The SME sector employs around 70%–80% of the nonagricultural workforce.23 A labor force survey estimated the size of the nonagricultural workforce at 24.6 million persons in 2005–2006 and 28.4 million in 2010.24 Assuming that the SME sector employs 70.0% of the workforce, the SME workforce is estimated at 17.2 million in 2006 and 19.9 million in 2010 (yielding a growth rate of 15.4%); and at around 22.2 million in 2013,25 yielding a growth rate of

20


Bangladesh Bureau of Statistics. 2013. Preliminary Report on Economic Census 2013. Dhaka. 22

BB, SME and Special Programmes Department. 2014. 23


Bangladesh Bureau of Statistics. 2011. Report on Labor Force Survey 2010. Dhaka. 25

PCR mission estimate.

Item 2010 2011 2012 2013 2014

Small borrowers (number) 201,403 225,170 350,689 621,442 438,216

Medium borrowers (number) 107,547 94,170 111,824 125,168 103,440

SME borrowers (number) 308,950 319,340 462,513 746,610 541,656

Year-on-year growth rate 3.4% 44.8% 61.4% -27.5%


Sources: Bangladesh Bank.

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12.5% for 2010–2013, which exceeds the DMF target rate of 8.0%. The SMEDP created 8,933 direct jobs during a period of three years with a growth rate of 10.2% as compared with the pre-finance period. This further demonstrates employment growth. 33. The RRP envisaged a 10.0% growth in women-led SMEs at three pilot sites. In a case study conducted by ADB, the number of women-owned SMEs increased by over 10.0% in specific pilot districts.26 The case study captured the stories of women entrepreneurs who directly benefited from the project. According to BB statistics, the number of women-led SME borrowers increased from 13,831 in 2010 to 42,730 in 2014, yielding a simple growth rate of 208.9% and a cumulative average growth rate of 32.6% per annum, which exceeds the 10.0% target at a national level.27

34. Furthermore, the number of women-led SMEs financed by refinancing schemes increased from 1,314 in 2010 to 2,423 in 2014, a cumulative average growth of 22.6% per annum, which exceeded the target rate of 10.0%. The growth of SME refinancing credit issued to women-led SMEs also increased at an average annual rate of 30.5% during 2010–2013. The growth in the number of women-led SME borrowers and credit amount under refinancing schemes administered by the BB is provided in Table 5. Table 5: Growth in Number of Women-led SME Borrowers and Credit under Refinancing

Schemes, 2010–2013

C. Efficiency in Achieving Outcome and Outputs 35. The SMEDP is rated efficient for its optimal utilization of its allocated resources despite an acceptable delay of nine months in closing the project. At appraisal, the SMEDP was designed to be disbursed in three equal annual installments over 36 months. The actual disbursement was made in 10 equal installments over 37 months despite an initial delay of 14 months from the planned date stated in the RRP for largely justified reasons. The primary reasons for this delay were a change of the implementation department and slightly ambitious scheduling. 36. The loan agreement, planned loan effectiveness date, and planned disbursement timeframe were 12 October 2009, 10 January 2010, and fourth quarter 2009, respectively. The planned timeframe appears to have not factored in the time-consuming process of legal vetting of the loan agreement and administrative agreement, and the due diligence process of selecting the PFIs. In light of these factors, it can be reasonably concluded that the project achieved its outputs and outcome efficiently with only one nine-month extension to close the project.

26

ADB. 2015. Gender Equality Results Case Study–Bangladesh: Small and Medium-Sized Enterprise Development Project. Manila. 27

BB. 2014. Women Entrepreneurs’ Conference and Products Display 2014. Dhaka.

Item 2011 2012 2013 2014

Women-led SME borrowers (number) 1,314 2,749 2,498 2,423

Loan to women-led SMEs (Tk million) 1,160 1,712 1,574 2,579


Source: Bangladesh Bank. 2014. Women Entrepreneurs' Conference and Product Display. Dhaka.

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D. Preliminary Assessment of Sustainability 37. The sustainability of the SMEDP is rated likely. The project was a catalyst for enhancing sustainable access to financing. Banks and NBFIs have largely accepted SME financing as commercially feasible, and have introduced SME divisions and desks dedicated to women entrepreneurs. As a result, the country’s SME financing portfolio increased 98% during 2010–2014 against the total portfolio growth of 68% during the same period.28 Annual financing of women-led enterprises also increased 122% during 2011–2014.29 It is encouraging that a few financial institutions have begun to make SME financing their core business proposition and to provide value-added services, such as insurance, networking, and capacity development, for women entrepreneurs in addition to loans.30 The government introduced an adequate policy and institutional framework for pursing the sustainable development of SMEs in the SME Policy Strategy 2005 and the National Industrial Policy 2010. Complementing the government’s efforts, the BB introduced a number of SME-friendly regulations including the SME Credit Rating Guidelines 2013, SME Credit Program and Policy 2010, and Prudential Regulation for Small Enterprises Financing 2004. The BB is also closely monitoring disbursements by banks and NBFIs’ to SMEs and women entrepreneurs on a periodic basis. 38. Over the years, SME development has been institutionalized in Bangladesh. The government considers SME development a priority and has continuously strengthened the institutional framework supporting this. The government established an SME Cell under the Ministry of Industries responsible for SME policy formulation and strategic SME planning. The SME Foundation, established in 2006, is the primary institution for SME development and is tasked with implementing SME related policies. The BB has established a separate department, the SSPD, to formulate policies on SME development and manage refinancing schemes; it has also set up a new unit named the Women Entrepreneurs Development Unit under the SSPD that focuses on the development of women-led enterprises. In light of the government and stakeholders’ commitment and increasing interest of financial institutions in SME finance, it can reasonably be stated that the SMEDP’s sustainability is quite high. E. Impact 39. The project’s overall impact is significant. The project’s intended impact was to ensure sustained economic growth in the context of the global financial crisis of 2009–2010, which threatened Bangladesh’s economy. A vibrant SME sector was viewed as critical for investment, growth, and jobs creation in the face of a projected economic slowdown, and the project has successfully exerted its desired impact. Bangladesh’s economy continued to grow at an average rate of 6.12% during FY2010–FY2014 against the target of 5.50% noted in the DMF. The average growth of GDP during FY2010–FY2014 was slightly higher than the average growth rate during FY2006–FY2010 (6.07%). In FY2015, GDP growth increased to 6.51% compared with 6.06% in the previous financial year.31 In line with economic growth, the national poverty incidence rate also declined significantly by 5.3 percentage points from 2010 to 2013. In 2010, the percentage of the population below the national poverty line was 31.5%, declining to 26.2% in 2013, which marked significant progress in surpassing the millennium development target of

28

BB, SME and Special Programmes Department. 29

BB. 2014. Women Entrepreneurs' Conference and Product Display. Dhaka. 30

IDLC Finance Ltd. 2015. IDLC Purnota Loan. Dhaka. http://www.idlc.com/Women-Entrepreneur-Loan.php 31

Ministry of Finance. 2015. Bangladesh Economic Review, 2014. Dhaka.

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29.0%.32 According to official estimates, the poverty incidence rate is expected to decline further to 22.7% in 2015. The project further strengthened the SME sector, which contributed to maintaining the momentum of economic growth despite a challenging global economic climate.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 40. The SMEDP is rated successful. It was relevant, accomplished the intended impact, and achieved the outcome and outputs substantially in an effective, efficient, and sustained manner. SMEs constitute more than 90% of all economic units and provide employment to at least 70% of the nonagricultural workforce. However, the growth of SMEs, specifically nonmetropolitan SMEs, has been stunted by a lack of access to medium- and long-term financing, which negatively affects economic development, employment generation, and poverty reduction. The project was relevant as it made available much-needed medium- to long-term financing for SMEs in nonmetropolitan areas with a particular focus on women entrepreneurs who are additionally disadvantaged. It was even more relevant in the context of the global financial crisis threatening the domestic economy. 41. The SMEDP was effective in achieving the primary outputs and outcome by increasing the SME credit to total credit ratio by 16.1% during 2010–2014 (target 5.0%), which was further supplemented by an increase in the SME loans to GDP ratio from 6.7% in 2010 to 8.6% in 2014. This growth in SME credit also contributed to increasing the number of SMEs and SME employment by 30% during 2007–2013 (target 8.0%) and 12.5% during 2010–2013 (target 8.0%), respectively. However, the project only disbursed 6.4% of its total credit facility to women entrepreneurs, which falls short of the allocation of 15.0%. This is not unusual as the development of entrepreneurship is a time-consuming process, and the project has built a foundation for reaping benefits in the future. The SMEDP achieved its intended results efficiently because of strong ownership by the government, implementing agency, and other stakeholders despite a nine-month delay for acceptable reasons. The impact of the SMEDP has been significant as the country maintained an average GDP growth rate of 6.1% during FY2010–FY2014 (target 5.5%), and poverty has been reduced significantly as reflected in the reduction of the national poverty index by 16.8% during 2010–2013 (target 2.0%). The project is likely sustainable as the government has been continuously improving the institutional and regulatory framework to accelerate the development of SMEs and women entrepreneurship. At project closure, SME development is still relevant to elevate economic units to the next level of excellence. B. Lessons

42. Definition of SME. The Ministry of Industries defines enterprises as cottage, micro, small, medium, and large enterprises, on the basis of ‘employment’ and ‘fixed investment’.33 As SMEs, by definition, refers to small and medium-sized enterprises, the nomenclature is frequently misunderstood and used inappropriately to address cottage and micro enterprises as well. Surveys show that cottage and micro enterprises constitute 97% of all industries by

32

General Economic Division, Bangladesh Planning Commission. 2013. Millennium Development Goals: Bangladesh Country Report, 2013. Dhaka. 33

Ministry of Industries. 2010. National Industrial Policy 2010. Dhaka.

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number and employ 41% of the nonagricultural workforce.34 The SMEDP financed 13,645 enterprises having on average 6.4 employees per enterprise, indicating that a vast majority of beneficiaries are cottage and micro enterprises.35 The classification of industries, as per industrial policy, is provided in Appendix 11. 43. Data availability. There is no comprehensive, standardized, and updated database on the SME sector that also includes cottage and micro enterprises. It is challenging to acquire reliable basic statistics, such as the number of SMEs and SME employment. The Sixth Five-Year Plan, 2011–2015 recognized the lack of data as a barrier to understanding the role of SMEs. In the absence of reliable key statistics, alternative inferential methods have been used extensively to assess the SMEDP’s performance parameters. The change in the definition of SMEs, incompatible presentations of data by various agencies, and complex definitions have complicated the understanding of the SME sector and its contribution to the national economy.

44. NBFIs find the refinancing scheme more valuable. The funds disbursed through NBFIs increased to 48% of total facility for the SMEDP compared to 20% for the previous SMESDP. At the national level, banks and NBFIs disbursed SME loans at a rate of 87.8% and 2.2% in 2013.36 This disproportionate performance can be explained by the higher cost of NBFI funds as compared with banks, as the refinancing scheme provided them an opportunity to reduce their weighted average cost of capital. This indicates that NBFIs would be more interested than banks in any innovative interventions in the financial market. 45. Women entrepreneurs. The SMEDP disbursed 6.4% of the total facility to women-led SMEs, falling short of the target of 15.0%. Initial disbursements under this component were slow due to a lack of market awareness among women entrepreneurs. The target was also overly optimistic to comply with the provisions set out in the Refinance Scheme for Women Entrepreneurs of SME, given that the percentage of SME loans disbursed to women entrepreneurs was 3.4%–3.9% during 2010–2013.37 The interest rate cap at 10.0% on loans to women-led SMEs might have also eroded PFI’s motivation for such lending, as PFIs usually lend to general SMEs at a much higher rate.

46. Subloan database. The reimbursement applications made by the PFIs to the implementing agency were not standardized; the PFIs used different spellings in fields and the fields were different as well. This made analyzing the subloans for all 13,465 SMEs ( on the basis of location, industry, etc.) virtually impossible. The database would have been more effective if a standard reporting template with all required fields and their probable values had been prefixed.

C. Recommendations 1. Project–related 47. Future monitoring. The SMEDP provided refinancing facilities to 13,645 SMEs, of which 11,809 (86.5%) are in operation, 300 (2.2%) enterprises are sick, and 1,536 (11.3%) are

34

Bangladesh Bureau of Statistics. 2013. Cottage Industry Survey 2011. Dhaka; Bangladesh Bureau of Statistics. 2013. Survey of Manufacturing Industries 2012. Dhaka.

35 BB, SME and Special Programmes Department.

36 BB. SME and Special Programmes Department.

37 BB. 2014. Women Entrepreneurs’ Conference and Product Display 2014. Dhaka.

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closed. Although the aggregate overdue of subloans under the SMEDP is only 5.8% compared to the national NPL rate of 11.8% (2014), the number of closed enterprises appears to be high. While political unrest has been cited as the primary reason for the closure of micro and small enterprises, a formal monitoring system should be introduced by the implementing agency for potential future projects to ascertain the specific reasons for this. 48. Covenants. The SMEDP complied with all loan covenants as stipulated in the loan agreement. The FAPAD made four minor audit observations, for which the BB provided answers and is expecting their resolution. This should be followed up with the implementing agency. 49. Recycling request. The tenor of the SMEDP loan was 40 years and there was no provision for the implementing agency to recycle repayment proceeds. This created a buildup of approximately Tk7,000 million at the BB as the typical tenor of subloans was less than five years. The implementing agency has requested the consent of the executing agency to recycle the repayment proceeds. If the proposal is approved it will increase the supply of refinancing facility by approximately $90 million. 50. Additional assistance. Although the SMEDP achievements are significant, the SME credit to total credit ratio is still low at 24.6%. As SMEs constitute more than 90% of all private sector enterprises and 70%–80% of the nonagricultural workforce, there is a pressing requirement for follow-on projects to accelerate the pace of SME development further in Bangladesh to achieve desired economic growth, employment generation, gender empowerment, and poverty reduction. 51. Timing of the project performance evaluation report. ADB could prepare the project performance evaluation report in 2017 as there are no outstanding issues that would necessitate postponement.

52. SME database. It is highly recommended for any future project to assist in developing a comprehensive SME database at the appropriate agency or agencies so that the government and stakeholders can obtain a fair view of the sector, design interventions appropriately, measure performance accurately, and take corrective actions. It is also recommended that this database should be updated and published periodically.

2. General 53. Non-performing loans. The volume of NPLs in Bangladesh’s financial sector has been growing at an alarming rate; it increased from 7.1% in 2010 to 11.6% in 2014 while the number of SME NPLs increased from 3.6% to 11.8% during the same period.38 This is a worrying development as the number of SME NPLs increased by approximately 4 percentage points in 2014 from the previous year. It is recommended that the PFIs selection criteria for any potential future assistance in the financial sector be revisited. 54. Design and Monitoring Framework. The DMF notes an 8.0% increase in SME numbers “over three years” without mentioning a base year or the SME number for this year. Similarly, benchmark numbers of women-led SMEs, the SME credit to total credit ratio, and successful applications by women entrepreneurs have not been mentioned for the base years.

38

BB, SME and Special Programmes Department.

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The implementing agency called for more clarity on targets and baselines. It is recommended that the DMF should mention baseline figures specifically and set targets in line with project objectives.

55. Data sources. The RRP placed the number of SMEs in the country at 1.5 million; however, the report did not mention the year or the source of this data. It also mentions other key indicators without specifically noting any source or calculation methodology, such as “18.26 million people currently employed in the SME sector in nonmetropolitan areas,” “current total of 830,000 nonmetropolitan SMEs,” and “43% of the total SME lending portfolio of the country currently in nonmetropolitan areas” (RRP, p. 23). It is recommended that the RRP for any project should mention the data sources or calculation methodology more precisely, as far as is practical. 56. Targeted intervention. Trading enterprises have fewer difficulties in securing financing from commercial banks, which are less interested in manufacturing enterprises and longer-term credit. For any potential future assistance in the financial sector, an increased focus on the manufacturing sector and the development of industrial clusters and agro-processing industries, with a particular focus on cottage, micro, and small enterprises due to their huge contribution to employment generation and economic growth, is recommended.

57. Project management support. The implementing agency was not able to provide the required environmental monitoring report, and the performance monitoring reports did not contain the important indicators noted in the DMF. The implementing agency suggested that for any future project a dedicated project management unit should be clearly specified in the project agreement. It also suggested that funds should be allocated specifically for project management software and capacity development. A robust project management framework for implementing agencies should be established at the onset of project implementation in order to verify all reporting formats in keeping with the DMF framework, and to install appropriate systems along with a mechanism to monitor compliance with all covenants.

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DESIGN AND MONITORING FRAMEWORK

Design Summary

Performance Targets/Indicators

Data Sources/Reporting

Mechanism Assumptions

and Risks Current Status/Remarks/Achievements

Impact Contributing to continued economic growth and poverty reduction through development and growth of the SME sector.

Real GDP growth sustained at an average of more than 5.5% during 2009–2012. National poverty incidence reduced by 2% during 2009–2012.

Economic reports and official statistics of the government and other international development agencies. Periodic reports from the BB.

Assumptions Continued strong commitment to reforms. The global economy recovers from financial crisis. Risks Weak Implementation of reforms.

Achieved. During FY2010–FY2014, the average real GDP growth in Bangladesh has been 6.12%, which is 0.6 percentage points higher than the target performance. The GDP growth during this period was also higher than the average growth rate during FY2006–FY2010 (6.07%). In FY2015, GDP growth increased to 6.51% as compared with 6.06% in the previous financial year.

39

Achieved. The national poverty incidence was reduced by 5.3 percentage points, or 16.8%, during 2010–2013. In 2010, the proportion of the population below the national poverty line was 31.5%, which declined to 26.2% in 2013,

40

marking significant progress towards surpassing the millennium development target of 29.0% two years early.

Outcome Enhanced growth in the number and size of commercially viable SMEs, especially SMEs in rural and nonurban areas with emphasis on women-led SMEs

An 8% increase in the number of SMEs established throughout the country including nonurban and rural areas over the next three years (current total of 830,000

Economic reports and official statistics of the government and other international development agencies. Periodic reports from

Assumption Macroeconomic stability. Commitment to reforms. Project design is

Achieved. It has been estimated that the number of SMEs in the country has increased by an average of 30% per annum during 2007–2013.

41

By an alternative methodology, it has also been estimated that the cumulative average growth rate of SMEs during this period has been 8% per annum.

42 The significant growth of SMEs is also

supplemented by the fact that the number of SME

39

Ministry of Finance. 2015. Bangladesh Economic Review, 2014. Dhaka. 40

General Economic Division, Bangladesh Planning Commission. 2013. Millennium Development Goals: Bangladesh Country Report, 2013. Dhaka. 41

On the basis of data provided in the RRP and Preliminary Report on Economic Census 2013 published by Bangladesh Bureau of Statistics. Dhaka. 42

Calculated on the basis of data provided in Preliminary Report on Economic Census 2013 – published by Bangladesh Bureau of Statistics. Dhaka; and ADB’s draft Asia SME Finance 2014.

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Design Summary





as well as increased employment in the SME sector.

nonmetropolitan SMEs) An 8% increase in SME sector employment over the next three years (18.26 million people currently employed in the SME sector in nonmetropolitan areas) A 10% increase in women-led SMEs at three pilot sites (2009 baseline)

the BB Periodic reports from BWCCI.

able to be implemented. Risk Deteriorating security situation. Political instability.

borrowers has increased by an average rate of 15% every year during 2010–2014.

43 The

methodology has been discussed in detail in the project completion report body. Achieved. The SME sector employs around 70.0%–80.0% of the nonagricultural workforce.

44 A

labor force survey conducted by the Bangladesh Bureau of Statistics estimated the size of the nonagricultural workforce at 28.4 million in 2010.

45

Assuming that 70.0% of the workforce was employed in the SME sector, the SME workforce was estimated at 19.9 million in 2010. Pending the publication of a new survey report, SME employment has been estimated, by the same methodology, at 22.2 million in 2013, yielding a growth rate of 12.5% in three years, which exceeds the envisaged growth rate of 8.0%. The SMEDP has created 8,933 direct jobs over a period of three years with a growth rate of 10.2% as compared with the pre-finance period. Achieved. In specific pilot districts, the number of women-owned SMEs increased by over 10%.

46

During 2010–2014, the number of women-led SMEs increased by 209%, yielding a cumulative average growth rate of 33%. Additionally, the number of women-led SMEs financed by refinancing schemes has increased by 84%, yielding a cumulative average growth of 23% during 2010–2013.

43



Bangladesh Bureau of Statistics. 2011. Report on Labor Force Survey 2010. Dhaka. 46

ADB. 2015. Gender Equality Results Case Study–Bangladesh–Small and Medium-Sized Enterprise Development Project. Manila.

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Design Summary





Output 1. Expansion of medium- to long-term credit by PFIs to SMEs located outside the metropolitan areas of Dhaka and Chittagong, with emphasis on women-led SMEs.

The SME credit to total credit ratio of PFIs increased by 5% from 2009 to 2012 (43% of the total SME lending portfolio of the country is currently in nonmetropolitan areas). A minimum of 15% of the credit facility is disbursed to women entrepreneurs in 2009–2012.

PFI compliance reports to the BB. PFI Annual Reports. BB annual reports. Information and data collected.

Assumptions. Effective functioning of SME departments of PFIs. Risks PFI lending to SMEs leads to higher nonperforming loans because of operational risks.

Achieved. The SME credit to total credit ratio of the PFIs increased from 16.9% in 2010 to 21.4% in 2014, yielding a growth rate of 26.5%.

47 At a

national level, the SME credit to total credit ratio of banks and financial institutions increased from 21.1% in 2010 to 24.5% in 2014. The growth rate was 16.1% during this period. Furthermore, the SME loans to GDP ratio also increased from 6.7% in 2010 to 8.6% in 2014, yielding a growth rate of 28.3%. Not Achieved. The SMEDP disbursed 6.4% of its total credit facility to women entrepreneurs, falling short of the target of 15.0%. On a national level, credit facility to women-led enterprises increased from 3.4% in 2010 to 3.9% in 2014. In light of this, the SMEDP has been relatively successful; however, it has not met the stipulated target. One major reason for this is that the target was very high. Prior to disbursement, development of women’s entrepreneurship is required, which is a time-consuming process. Another reason could be the capping of interest rates for subloans for women-led enterprises at 10.0% per annum by the central bank. PFIs generally charge interest rates higher than 15.0% per annum for general SMEs. The associated TA has been successful in developing women entrepreneurship, and the trend of financing women entrepreneurs will likely accelerate in the future. This is demonstrated by the fact that the growth rate of credit facility to women entrepreneurs increased by 9.0% in 2012 and by 49.0% in 2013.

48

47

BB, SME and Special Programmes Department. 48

BB. 2014. Women Entrepreneurs’ Conference and Products Display 2014. Dhaka.

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2. Enhanced capacity of women entrepreneurs and associations to fully access the financial resources earmarked for women-led SMEs under the project.

Number of successful applications by women entrepreneurs at scheduled commercial banks increased (a 20% annual increase compared with the 2009 baseline).

Proceedings from regional consultations. TA final report. .

Assumptions Commitment of the BB and PFIs to implement gender responsive regulations. .

Achieved. In 2010, 13,831 women entrepreneurs obtained loans from commercial banks and financial institutions; this number increased to 42,730 in 2014, yielding a cumulative average growth of 32.6% per annum.

49 With regard to

commercial banks, the annual average growth rate has also been 32.6% during 2010–2014.

50

ADB = Asian Development Bank, BB = Bangladesh Bank, BWCCI = Bangladesh Women Chamber of Commerce and Industry, GDP = gross domestic product, PFI = participating financial institution, Q = Quarter, RRP = report and recommendation of the President, SME = small and medium-sized enterprise, TA = technical assistance.

49

BB. 2015. Quarterly SME Loan Statements. https://www.bb.org.bd/aboutus/dept/sme/sme_factsnfigure.php. 50

BB. 2015. Quarterly SME Loan Statements. https://www.bb.org.bd/aboutus/dept/sme/sme_factsnfigure.php.

20 Appendix 2

ANALYSIS OF ACHIEVEMENTS OF GENDER ACTION PLAN (GAP)

1. Women in Bangladesh are a significant entrepreneurial force, contributing to the development of local, national, and global economies. Women-run businesses—mostly micro and small enterprises—are found in the production and marketing of agricultural and consumer goods, as well as the provision of services for local, national, and multinational markets. Enterprises owned by women feature certain interesting characteristics regarding ownership, management, sources of capital, technology, and market orientation. Within the SME sector, rural women are involved in cattle and poultry rearing, rice husking, spice making, imitation ornament trading, pickle making, and other micro businesses. Urban women are mostly involved in block printing and boutiques, bakeries and fast food, doll making, tailoring, painting fabric, interior decoration, etc. They also own beauty parlors, computer training centers, leather goods, fish farms, etc., which are non-traditional activities for women. 2. The SMEDP aimed to increase the number of SMEs in the country along with generating employment for the poor in the SME sector. Promoting women’s entrepreneurship is one of the key agendas and a gender action plan (GAP) was implemented to address this. The GAP supports promoting women’s entrepreneurship by facilitating their access to institutional finance. The GAP implementation is supported by the attached technical assistance subproject “Promoting Women's Entrepreneurship in Bangladesh” implemented by the Bangladesh Women Chamber of Commerce and Industry (BWCCI). The achievements of the project as a whole include increased awareness among banks and nonbank financial institutions about women entrepreneurs, capacity building of the women themselves, and an increased number of women taking loans from banks and PFIs. It has also had a long-term impact in the intervention areas. The project has had a ripple effect in the community as women entrepreneurs who were not part of the project also benefitted from access to information and were encouraged to take out an SME loan under the refinancing scheme. Since the project intervention, women entrepreneurs who were involved directly and indirectly with the project have benefited through enhancing their skills and capacity. Women entrepreneurs are now more likely to register trade licenses and thus have greater ownership over their businesses. Women entrepreneurs are now members of local market committees and can advocate effectively in local markets.

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Table A2.1 Gender Action Plan

Activities Indications and Targets Achievements Output 1: Constraints on and Opportunities for Women’s Entrepreneurship Identified

(i) Earmark a minimum of 15% of the project credit line for women entrepreneurs.

a

Project progress report. Project completion report.

Tk479,748,000; 6% of the total SMEDP disbursement of Tk7,469,531,460.

(ii) Collect baseline information and data on women’s entrepreneurship in selected districts on factors that enable women to, or constrain them from, becoming effective entrepreneurs in selected industries known for women’s involvement.

Baseline information and data collected in six selected districts. Six training and capacity development needs assessments carried out in selected districts.

Of the 900 women entrepreneurs identified in the selected districts, 293 women entrepreneurs received loans from banks in six different districts (Khulna, Barisal, Sylhet, Gazipur, Rajshahi, and Rangamati). Need Assessment Study (NAS) report completed in six districts (Khulna, Barisal, Sylhet, Gazipur, Rajshahi, and Rangamati). The NAS identified that 48% of women entrepreneurs encountered problems in starting up a business: 20% had difficulty obtaining bank credit, 15% lacked proper marketing skills, and 27% suffered from stereotypical social and family attitudes and obstacles. The outcome of the study concluded that 49% of women desired training relevant to their trades, while 20% of women entrepreneurs identified business skills as necessary for being an entrepreneur.

(iii) Carry out training and capacity development needs assessments in selected districts to inform the advocacy, training, and capacity development initiatives supported under outputs 2 and 3

(iv) Identify capacity needs and knowledge gaps.

Output 2: Advocacy Initiatives for the Enforcement of Gender-Responsive Regulations and Policy Reform Implemented

Advocacy for the enforcement of gender-responsive regulations (i) Assess the current status of enforcement of gender-relevant provisions

in the BB’s regulatory frameworks Gender-responsive practices adopted by 15 participating financial institutions (PFIs) (scheduled commercial banks and financial institutions) documented. 12 advocacy sessions carried out in PFIs.

A study on gender-responsive regulations was conducted by the BWCCI in which relevant policies of selected banks and PFIs were identified and reviewed to understand their potential for contributing to the promotion of women entrepreneurship. 12 advocacy sessions (PFI staff orientations) organized, with 343 participants (109 women and 234 men).

(ii) Document practices adopted by scheduled commercial banks and nonbank financial institutions.

(iii) Ensure the adequate dissemination of information on these facilities and simplify procedures by (i) identifying potential women borrowers through a promotional and awareness-building campaign; (ii) attracting women borrowers; and (iii) providing assistance in processing women’s applications, from filling out applications and other required forms to a step-by-step listing of compliance requirements.

(iv) Establish dedicated women entrepreneurs’ desks in PFIs. (v) [Newly Added to the RRP GAP] Advocate with PFIs (scheduled

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Activities Indications and Targets Achievements

commercial banks and nonfinancial institutions) to simplify procedures to encourage women applicants.

35 dedicated women entrepreneurs’ desks open at PFIs. 6 training sessions carried out. 600 PFI desk officers trained, including BB desk officials. 36 legal, literacy, and aid initiatives carried out. 360 women entrepreneurs benefited from legal, literacy, and aid initiatives. Effective participation of women entrepreneurs (a 90% participation rate).

45 dedicated women entrepreneurs’ desks were established in six districts. The establishment of the women's desks in the PFIs was key to simplifying the process and procedure of loan applications for women entrepreneurs. The assigned PFI staff at the women's desks facilitated the processing of their loan applications. 12 training orientation sessions were organized for 343 PFI officials. 703 officials from 39 PFIs including the BB were trained to understand the issues and challenges of women entrepreneurs better. 36 legal, literacy, and aid initiatives were carried out. The project carried out advocacy meetings for 1,212 participants of whom 1,120 were women and 92 were men. Effective participation of women entrepreneurs in training and advocacy meetings (a 92% participation rate).

(vi) Ensure that PFIs (scheduled commercial banks and nonbank financial institutions) review their overall credit lending procedures and adopt simplified procedures to encourage women applicants.

(vii) Design, develop, and deliver orientation and training programs targeting PFI officials.

(viii) Women entrepreneurs commit to participate actively in training activities to be conducted under the project prior to and after disbursement.

(ix) Provide legal aid and literacy services to women entrepreneurs and associations.

Advocacy for gender-responsive policy reform (i) Support ongoing efforts to engage relevant government entities and local

government bodies, and advocate for gender-responsive policy, legal, and regulatory reforms to ensure women’s greater representation in the small and medium-sized enterprise (SME) decision-making process and structures.

(ii) Ensure women entrepreneurs’ equal access to financial resources, business opportunities, infrastructure, and services.

Three gender-responsive policy, legal, and regulatory reform initiatives supported.

The study “Gender Responsive Policies: Reform Needs” completed. The following three initiatives were supported: A recommendation for a 30% provision for women in industrial parks and economic zones submitted to the Prime Minister (industrial policy). Regarding advocacy, the National Board of Revenue issued a letter assigning a focal point for women entrepreneurs at district NBR offices (tax policy). The BWCCI advocated for a 30% quota for women entrepreneurs in international

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Activities Indications and Targets Achievements

trade fairs, exhibitions, and other market promotion activities (export policy). Furthermore, the BWCCI proposed a credit guarantee scheme for women entrepreneurs to the Ministry of Finance. Capacity building initiatives for women entrepreneurs have been supported by the Ministry of Finance.

Output 3: Technical capacity of Selected Women Entrepreneurs and Associations Strengthened

(i) Training programs designed, pilot-tested, and conducted on women’s entrepreneurship development under private partnership between the BWCCI and Ministry of Industry.

(ii) Gender issues integrated in the content of all training modules developed

and used in loan-supporting training programs (iii) Exposure visits and lateral learning organized. (iv) Support provided to operationalize SME helplines in selected areas.

900 women entrepreneurs trained. Five exposure visits, five trade fairs, and five lateral learning events carried out. Five SME helplines supported in selected districts.

Based on a developed and tested training module that integrated gender issues, 540 women entrepreneurs’ were trained in 18 batches on entrepreneurship development and business management. Three exposure visits conducted with 47 persons: (i) seven members (three women entrepreneurs and four project personnel participated in an exposure visit to India (Kolkata and Delhi) in September 2012 and (ii) 403 members from six districts visited Dhaka in two batches. Five trade fairs were conducted in which 133 women entrepreneurs participated. Five SME helpline centers supported in selected districts.

Output 4: Dissemination of Findings and Identification of Follow-Up Initiatives

(i) Assess the results of the activities in outputs 2 and 3. (ii) Disseminate findings and lessons from TA activities at national

workshops, divisional seminars, advocacy meetings, exposure visits, and trade fairs.

(iii) Plan follow-up activities

Relevant TA finding disseminated through relevant government, civil society and private sector networks. Two national workshops, six divisional seminars, 60 advocacy meetings organized; three exposure visits and three trade fairs attended.

One national workshop organized in Dhaka, in which 87 SME heads from 44 PFIs participated (19 women and 68 men). One national seminar with 205 participants conducted to share achievements and lessons in July 2013. Six division-level seminars held with 308 participants (192 women and 116 men). Advocacy meetings and exposure visits completed as mentioned above in output 3.

ADB = Asian Development Bank, BB = Bangladesh Bank, SME = small and medium-sized enterprises, PFI = participating financial institutions, TA = technical assistance. Source: ADB estimates.

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REFINANCING OPERATIONS IN THE SME SECTOR IN BANGLADESH (FEBRUARY 2015)

Working

Capital

Mid-term

Loan

Long

Term

Loan Total loan Industry Trade Service Total

1 Bangladesh Bank Fund 60,000 02-May-04 On going 3,849 5,948 2,423 12,219 50,180 59,130 17,610 126,920

2 IDA Fund 1,180 2004 Jun-11 803 1,325 998 3,126 13,680 13,060 4,860 31,600

3 ADB SMESDP 2,020 26-Jan-05 31-Dec-10 1,445 1,323 582 3,349 8,000 20,960 3,680 32,640

4 ADB SMEDP 7,200 12-Oct-09 31-Dec-13 - 5,684 1,786 7,470 37,650 74,350 24,450 136,450

5 JICA Fund 4,500 18-May-11 31-Mar-16 131 492 2,154 2,777 2,710 90 1,010 3,810

Total 6,228 14,771 7,942 28,941 112,220 167,590 51,610 331,420

ADB = Asian Development Bank, BB = Bangladesh Bank, IDA = International Development Association, JICA = Japan International Cooperation Agency, SMEDP = Small and Medium-Sized Enterprise

Development Project, SMESDP = Small and Medium Enterprise Sector Development Program.

Source: BB.

Number of Refinanced Enterprises Amount Refinanced (Tk million)

Sl. Name of Fund

Fund Size (Tk

million) Start Date

Close

Date

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25

PERFORMANCE OF PARTICIPATING FINANCIAL INSTITUTIONS

New Existing New Existing

Banks:

1 Eastern Bank Ltd. 775 318 1,093 362 714 17 975 265 56 68 1,364 390 958 16 1,223 48 93 7,328 8,962 1,634

2 Mercantile Bank Ltd. 590 17 607 152 310 145 146 2,165 13 39 2,363 558 1,208 597 2,363 - - 4,550 5,350 800

3 Jamuna Bank Ltd. 229 68 298 64 205 28 284 45 29 13 371 69 282 20 336 - 35 2,448 2,494 46

4 The City Bank Ltd. 234 32 266 43 215 7 46 338 5 26 415 62 348 5 225 94 96 846 1,073 227

5 Mutual Trust Bank Ltd. 190 31 221 65 122 34 389 183 13 32 617 150 378 89 589 8 20 1,277 2,263 986

6 Basic Bank Ltd. 12 136 148 107 14 27 42 17 28 23 110 85 11 14 83 - 27 5,025 5,258 233

7 Dhaka Bank Ltd. 60 87 147 65 36 47 67 14 42 7 130 79 21 30 130 - - 132 134 2

8 Trust Bank Ltd. 117 23 140 74 60 6 89 256 8 19 372 142 208 22 287 - 85 1,464 1,599 135

9 Prime Bank Ltd. 130 6 136 34 95 8 - 360 - 6 366 76 266 24 94 - 272 660 681 21

10 Dutch-Bangla Bank Ltd. 119 16 135 20 106 9 - 406 - 26 432 63 242 127 432 - - 1,396 1,670 274

11 Bank Asia Ltd. 91 31 122 47 66 8 178 4 37 - 219 83 114 22 141 36 42 1,342 1,468 126

12 First Security Islami Bank Ltd. 113 2 116 19 81 16 925 326 - - 1,251 323 788 140 1,251 - - 1,253 1,405 152

13 One Bank Ltd. 92 6 98 22 72 5 - 167 - 11 178 22 147 9 115 - 63 273 301 28

14 Bangladesh Development Bank Ltd. 37 57 94 52 15 27 88 - 59 - 147 68 42 37 127 - 20 146 296 150

15 Premier Bank Ltd. 45 32 77 24 30 23 36 10 19 3 68 22 34 12 68 - - 257 269 12

16 IFIC Bank Ltd 66 0 66 6 49 11 22 257 - - 279 28 198 53 274 2 3 853 1,023 170

17 Bangladesh Commerce Bank Ltd. 66 0 66 19 44 2 55 - - - 55 13 34 8 47 - 8 262 329 67

18 AB Bank Ltd. 40 7 47 12 27 9 25 25 3 - 53 13 35 5 52 - 1 717 838 121

19 Agrani Bank Ltd. 0 1 1 0 1 0 - - - 5 5 - 5 - 5 - - - 5 5

Sub total 3,009 868 3,877 1,188 2,258 431 3,367 4,838 312 278 8,795 2,246 5,319 1,230 7,842 188 765 30,229 35,418 5,189

NBFIs:

20 IDLC Finance Ltd. 1,178 173 1,351 504 734 113 903 293 25 35 1,256 353 833 70 645 - 611 30,887 33,364 2,477

21 MIDAS Financing Ltd. 812 165 977 351 421 205 1,822 444 125 58 2,449 829 1,070 550 2,438 11 - 8,246 8,812 566

22 ULC Finance Ltd. 361 117 478 264 131 82 231 137 13 34 415 235 99 81 246 96 73 14,274 14,524 250

23 Uttara Finance & Investment Ltd. 120 305 426 0 0 426 208 4 204 - 416 - - 416 378 - 38 2,434 2,656 222

24 Islamic Finance & Investment Ltd. 105 28 134 66 62 6 - 93 3 16 112 34 64 14 79 3 30 966 978 12

25 FAS Finance & Investment Ltd. 48 41 90 0 0 89 34 - 4 34 72 - 1 71 71 1 - 60 66 6

26 National Housing Finance & Inv. Ltd. 3 36 39 30 7 2 - - - 25 25 21 3 1 20 - 5 366 421 55

27 Lanka Bangla Finance Ltd. 5 29 34 10 22 2 - 8 - 18 26 6 18 2 19 1 6 99 120 21

28 Premier Leasing & Finance Ltd. 29 0 29 14 6 8 8 36 - - 44 25 10 9 36 - 8 156 250 94

29 Bangladesh Industrial Finance Co. L 6 17 22 19 3 0 4 3 1 11 19 13 6 - 19 - - 149 190 41

30 Prime Finance & Investment Ltd. 7 1 8 2 6 0 12 2 - - 14 2 12 - 14 - - 79 79 -

31 Bay Leasing & Investment Ltd. 0 5 5 0 0 5 - - 1 - 1 - - 1 1 - -

32 BD Finance and Investment Ltd. 1 0 1 1 0 0 - 1 - - 1 1 - - 1 - - - - -

Sub total 2,675 917 3,592 1,261 1,393 938 3,222 1,021 376 231 4,850 1,519 2,116 1,215 3,967 112 771 57,716 61,460 3,744

Grand total 5,684 1,786 7,470 2,449 3,652 1,369 6,589 5,859 688 509 13,645 3,765 7,435 2,445 11,809 300 1,536 87,945 96,878 8,933

Source: Bangladesh Bank

Present Status of the

Enterprises Refinanced

Employment Generation

(Persons)

Long-term

Loan Total Loan Industry Trade Sl. No.

Name of Participating Financial

Institution

Refinancing Amount

(Tk million)

Sector-wise Refinancing

(Tk million)

Sector-wise Refinancing

(Number)

Mid-term

Loan

Mid-term Loan

Number of Enterprises Refinanced

Service Increase

Long-term Loan

Industry Trade Service Running SickTotal Closed

Pre-

Finanace

Post-

Finance

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PERFORMANCE OF PARTICIPATING FINANCIAL INSTITUTIONS

Unit

(Number)

Overdue

(Tk million)

Outstandin

g

(Tk million)

Unit

(Number)

Overdue

(Tk million)

Outstandin

g

(Tk million)

Unit

(Number)

Overdue

(Tk million)

Outstandin

g

(Tk million)

Unit

(Number)

Overdue

(Tk million)

Outstandin

g

(Tk million)

Unit

(Number)

Overdue

(Tk million)

Outstandin

g

(Tk million)

Overdue to

Outstandin

g

(%)

Banks:

1 Eastern Bank Ltd. 628 0 0 542 0 314 95 12 54 96 49 63 1,361 61 368 16.5%

2 Mercantile Bank Ltd. 62 0 0 2,287 0 504 13 1 2 0 0 0 2,362 1 506 0.2%

3 Jamuna Bank Ltd. 34 0 0 337 0 63 - 0 0 0 0 0 371 0 63 0.0%

4 The City Bank Ltd. 110 0 0 222 0 97 123 13 55 0 0 0 455 13 152 8.7%

5 Mutual Trust Bank Ltd. - 0 0 1,251 0 77 - 0 0 0 0 0 1,251 0 77 0.0%

6 Basic Bank Ltd. 10 0 0 100 16 179 - 0 0 0 0 0 110 0 179 0.0%

7 Dhaka Bank Ltd. - 0 0 130 0 127 - 0 0 0 0 0 130 0 127 0.0%

8 Trust Bank Ltd. 90 0 0 283 0 113 - 0 0 0 0 0 373 0 113 0.0%

9 Prime Bank Ltd. 287 0 0 63 0 23 16 3 1 0 0 0 366 3 23 11.2%

10 Dutch-Bangla Bank Ltd. 36 0 0 292 0 79 102 6 17 0 0 0 430 6 96 6.0%

11 Bank Asia Ltd. 49 0 41 144 0 70 22 3 9 4 1 2 219 4 80 5.1%

12 First Security Islami Bank Ltd. 16 0 0 587 0 172 14 10 11 0 0 0 617 10 183 5.4%

13 One Bank Ltd. 71 0 0 68 0 32 38 4 7 0 0 0 177 4 39 11.4%

14 Bangladesh Development Bank Ltd. 8 0 0 137 4 100 2 2 4 0 0 0 147 2 103 1.5%

15 Premier Bank Ltd. - 0 0 63 0 51 - 0 0 0 0 0 63 0 51 0.0%

16 IFIC Bank Ltd 67 0 0 186 0 26 27 1 6 2 1 1 282 2 32 5.3%

17 Bangladesh Commerce Bank Ltd. - 0 0 46 1 56 - 0 0 0 0 0 46 0 56 0.0%

18 AB Bank Ltd. 17 0 0 23 0 12 13 1 4 0 0 0 53 1 16 8.9%

19 Agrani Bank Ltd. - 0 0 - 0 0 - 0 0 0 0 0 - 0 0 0.0%

Sub total 1,485 0 41 6,761 21 2,094 465 57 170 102 50 65 8,813 107 2,264 4.7%

Non-banking Financial Institutions:

20 IDLC Finance Ltd. 695 0 0 503 0 615 108 21 105 0 0 0 1,306 21 720 2.9%

21 MIDAS Financing Ltd. 549 0 0 1,160 0 367 658 96 233 62 24 28 2,429 120 600 20.0%

22 ULC Finance Ltd. 77 0 0 236 0 206 73 10 82 0 0 0 386 10 288 3.3%

23 Uttara Finance & Investment Ltd. 1 0 0 1 0 1 - 0 0 0 0 0 2 0 1 0.0%

24 Islamic Finance & Investment Ltd. 31 0 0 77 3 101 4 0 8 0 0 0 112 0 109 0.3%

25 FAS Finance & Investment Ltd. - 0 0 71 2 87 1 0 0 0 0 0 72 0 88 0.3%

26 National Housing Finance & Inv. Ltd. 4 0 0 14 0 20 6 1 7 0 0 0 24 1 27 2.9%

27 Lanka Bangla Finance Ltd. 2 0 0 5 0 8 17 6 23 0 0 0 24 6 32 19.2%

28 Premier Leasing & Finance Ltd. 7 0 0 33 0 12 - 0 0 0 0 0 40 0 12 0.0%

29 Bangladesh Industrial Finance Co. Ltd. - 0 0 17 0 15 2 2 7 0 0 0 19 2 22 8.2%

30 Prime Finance & Investment Ltd. 42 0 0 322 0 416 48 3 53 0 0 0 412 3 469 0.6%

31 Bay Leasing & Investment Ltd. - 0 0 1 0 4 - 0 0 0 0 0 1 0 4 0.0%

32 BD Finance and Investment Ltd. - 0 0 2 0 1 1 0 0 0 0 0 3 0 1 40.2%

Sub total 1,408 0 0 2,442 5 1,853 918 139 519 62 24 28 4,830 163 2,373 6.9%

Grand total 2,893 0 41 9,203 26 3,948 1,383 196 689 164 74 93 13,643 270 4,637 5.8%

Source: Bangladesh Bank

Sl No. Participating Financial Institutions

TotalFully Recovered Regularly Recovered Irregular Repayment Repayment Stopped

Appendix 5 27

.

CHARACTERISTICS OF SUBLOANS

28 Appendix 5

Appendix 6 29

.

PERFORMANCE OF PARTICIPATING FINANCIAL INSTITUTIONS IN TERMS OF

DISBURSEMENT

Rank Financial Institution

Bank or

NBFI

Disbursement

under SMEDP

Tk million

% of Total

Disbursed

Facility

Cumulative

Disbursement

1 IDLC Finance Ltd. NBFI 1,351 18% 18%

2 Eastern Bank Ltd. Bank 1,093 15% 33%

3 MIDAS Financing Ltd. NBFI 977 13% 46%

4 Mercantile Bank Ltd. Bank 607 8% 54%

5 ULC Finance Ltd. NBFI 478 6% 60%

6 Uttara Finance & Investment Ltd. NBFI 426 6% 66%

7 Jamuna Bank Ltd. Bank 298 4% 70%

8 The City Bank Ltd. Bank 266 4% 74%

9 Mutual Trust Bank Ltd. Bank 221 3% 77%

10 Basic Bank Ltd. Bank 148 2% 79%

11 Dhaka Bank Ltd. Bank 147 2% 80%

12 Trust Bank Ltd. Bank 140 2% 82%

13 Prime Bank Ltd. Bank 136 2% 84%

14 Dutch-Bangla Bank Ltd. Bank 135 2% 86%

15 Islamic Finance & Investment Ltd. NBFI 134 2% 88%

16 Bank Asia Ltd. Bank 122 2% 89%

17 First Security Islami Bank Ltd. Bank 116 2% 91%

18 One Bank Ltd. Bank 98 1% 92%

19 Bangladesh Development Bank Ltd. Bank 94 1% 94%

20 FAS Finance & Investment Ltd. NBFI 90 1% 95%

21 Premier Bank Ltd. Bank 77 1% 96%

22 IFIC Bank Ltd Bank 66 1% 97%

23 Bangladesh Commerce Bank Ltd. Bank 66 1% 98%

24 AB Bank Ltd. Bank 47 1% 98%

25 National Housing Finance & Inv. Ltd. NBFI 39 1% 99%

26 Lanka Bangla Finance Ltd. NBFI 34 0% 99%

27 Premier Leasing & Finance Ltd. NBFI 29 0% 100%

28 Bangladesh Industrial Finance Co. Ltd. NBFI 22 0% 100%

29 Prime Finance & Investment Ltd. NBFI 8 0% 100%

30 Bay Leasing & Investment Ltd. NBFI 5 0% 100%

31 Agrani Bank Ltd. Bank 1 0% 100%

32 BD Finance and Investment Ltd. NBFI 1 0% 100%

Grand total 7,470 100%

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IMPLEMENTATION SCHEDULE AND DISBURSEMENT

Figure A7.1: Implementation Schedule

Sources: ADB’s Loan Financial Information System; Report and Recommendation of the President.

Table A7.1: Annual Disbursement Schedule

Source: ADB’s Loan Financial Information System.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Loan Effectiveness

At Appraisal

Actual

Project Loan

First Year Disbursement:

At Appraisal ($26.0 million)

Actual ($14.17 million)

Second Year Disbursement:



Third Year Disbursement:



ADB Review Missions

ADB Review Missions

2009 2010 2011 2012 2013

Year

Disbursement

$ million

Utilization

%

Cumulative Utilization

%

2011 14.17 19% 19%

2012 37.49 50% 69%

2013 22.67 30% 99%

2014 0.64 1% 100%

Total 74.97 100% 100%

Appendix 8 31

.

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenants Reference in Loan Agreement

Status of Compliance

Particular Covenants in Loan Agreement (Section IV) In the carrying out of the Project, the Borrower shall perform, of cause to be performed, all obligations set forth in Schedule 3 of Loan Agreement.

Section 4.01 (a) Complied with.

The Borrower shall take all actions which shall be necessary on its part to enable the Bangladesh Bank to perform its obligation under this Loan Agreement, the Project Agreement, the Administration Agreement and each Participation Agreement, and shall not take or permit any action which would interfere with the performance of such obligations.

Section 4.01 (b) Complied with.

The Borrower shall comply with and cause the Bangladesh Bank to comply with section 6.08 of Loan Regulations.

Section 4.01 (c) Complied with.

In addition to the reports and information set forth in Section 6.05 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as ADB shall reasonably request concerning (i) the Qualified Enterprises, the Qualified Subprojects and the Subloans; and (ii) the administration, operations and financial condition of the PFIs.

Section 4.02 Complied with.

The Borrower shall enable ADB’s representatives to inspect any Qualified Enterprise, Qualified Subproject, the Goods and Works financed out of the proceeds of the Loan, and any relevant records and documents maintained by the Bangladesh Bank and the PFIs.


The Borrower shall promptly take all actions set forth in Section 6.06 of the Loan Regulations, and such actions as necessary to enable the PFIs to perform their obligations under Participation Agreements. The Borrower shall not take or permit any action which would interfere with performance by the PFIs of such obligations.


The Borrower shall exercise its rights under the Administration Agreement, and cause the Bangladesh Bank to exercise its rights under each Participation Agreement, in such a manner as to protect the interests of the Borrower and ADB and to accomplish the purposes of the Loan.


No rights or obligations under the Administration Agreement, or any of the Participation Agreements, shall be assigned, amended, or waived without the concurrence of ADB.


Particular Covenants in Project Agreement (Section IV) BB shall carry out the Project with due diligence and efficiency, and in conformity with sound banking, administrative, financial, engineering, environmental and business practices


In the carrying out the Project, BB shall (i) perform all its obligations set forth in the Loan Agreement; and (ii) cause the PFIs to perform all their obligations under the Participation Agreements.


Upon request of the Borrower, BB shall make adequate provisions to protect against any loss resulting from changes in the rate of exchange between Taka and the currency or currencies in which the Borrower’s outstanding money obligations have to be met.


BB shall not make a Subloan to any Qualified Enterprise unless such Qualified Enterprise has at its disposal, or has made appropriate arrangements to obtain as and when required, all local currency funds, including adequate working capital, and other resources which are required by such Qualified Enterprise for the carrying out its Qualified Subproject in respect of which the Subloan is to be met.


BB shall maintain records and accounts adequate to record its progress othe the Project and of each Qualified Subporject (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, the operation and financial condition of BB.


BB shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the Loan and expenditure of the proceeds thereof; (ii) the Project; (iii) the Qualified Enterprises, the Qualified Subprojects and the Subloans; (iv) the administration, operations and financial condition of BB and the PFIs; and (v) any other matters


32 Appendix 8



relating to the purposes of the Loan. Without limiting the generality of the foregoing, BB shall furnish to ADB quarterly report on the execution of the Project. Such reports shall be submitted in such form and in such detail and within such a period as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the period under review, steps taken or proposed to be taken to remedy these problems, and proposed program of activities and expected progress during the following three months.


Promptly after the closing date for withdrawals from the Loan Account, but in any event not later than 3 months after the said closing date or such later date as ADB may agree for this purpose, BB shall prepare and furnish through the Borrwer to ADB a report, in such form and in such detail as ADB shall reasonably request, on the utiliazation of the Loan, the execution of the Qualified Subprojects, their costs, the performance by the PFIs under the Participation Agreements, and the accomplishment of the purposes of the Loan.


ADB and BB shall cooperate fully to ensure that the purposes of the Loan will be accomplished.


BB shall promptly inform ADB of any condition which interferes with, or threatens to interfere with, the progress of the Project, the performance of its obligations under this Project Agreement or the Participation Agreements, or the accomplishment of the purposes of the Loan.


ADB and BB shall form time to time, at the request of either party, exchange views through their representatives with regard to any matters relating the project, BB and the Loan.


BB shall (i) maintain separate accounts for the Project; (ii) have such accounts and related financial statements (balance sheet, statement of income and expenses, and related statement) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualifications, experience and terms or reference are acceptable to ADB; and (iii) furnish to ADB promptly after their preparation but in any event not later than 6 months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto (including the auditors’ opinion on the use of the Loan proceeds and compliance with the financial covenants of the Loan Agreement as well as on the use of the procedures for imprest account and statement of expenditures), all in the English language. BB shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as ADB shall from time to time reasonably request.

Section 4.07 (a) Complied with. APFS submitted

for the entire project period

(2010–2014) within the

stipulated dates. The APFSs were

unqualified.

BB shall enable ADB, upon ADB’s request, to discuss BB’s financial statements and its financial affairs from time to time with the auditors, appointed by BB pursuant to Section 4.07(a) hereabove, and shall authorize and require any representative of such discussion shall be conducted only in the presence of an authorized officer of BB unless BB shall otherwise agree.


BB shall enable, and cause each PFI to enable, ADB’s representative to inspect any Qualified Enterprise, any Qualified Subproject, the Goods and Works financed out of the proceeds of the Loan, and any relevant records and documents.


BB shall, promptly as required, take all action within its powers to maintain its statutory existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, powers, privileges and franchises which are necessary in the carrying out of the Project or in the conduct of its business.


BB shall at all times conduct its business in accordance with sound banking, administrative, financial, environmental, and business practices, and under supervision of competent and experienced management and personnel.


Except as ADB may otherwise agree, BB shall not sell, lease, transfer or otherwise dispose of any of its assets, except in the ordinary course of its business.


Appendix 8 33

.



BB shall cause each of its divisions or departments to observe and perform the obligations of BB under this Project Agreement to the extent to which such obligations may be applicable thereto, as though such obligations were binding upon each of such subsidiaries.


Except as ADB may othersise agree, BB shall duly perform all its obligations under the Administration Agreement and shall not take, or concur in, any action which would have the effect of assigning, amending, abrogating or waiving any rights or obligations of the parties under the Administration Agreement.


Implementation Arrangements in Loan Agreement The Finance Division of the MOF, acting in its capacity as the Project Executing Agency, shall be responsible for overall execution, coordination, and supervision of the Project.

Schedule(Sc) 3, para. 1

Complied with. Executing

agency was changed to Bank

and Financial Institutions Division.

The Bangladesh Bank shall implement and administer the Project through its Agriculture Credit and Special Programs Department, and shall be responsible for (i) submitting information to ADB on potential PFIs, including its assessment on their eligibility under the Project; (ii) screening and selecting subprojects submitted by the PFIs; (iii) preparing disbursement projections, collecting supporting documents, preparing withdrawal applications, and submitting them to ADB; (iv) regularly monitoring PFIs' continued eligibility under the Project, and disqualifying any PFI that becomes ineligible based on a semiannual review; (v) monitoring disbursements against estimated PFI targets, and reviewing utilization and repayments of Sub loans; (vi) maintaining proper accounts, procedures, and records to monitor the progress of Qualified Subprojects every 6 months; (vii) reviewing and reporting to ADB the utilization of the Loan proceeds through quarterly progress reports; and (viii) monitoring the socioeconomic and environmental benefits of the Project.

Sc 3, para. 2. Complied with. The concerned department of implementing

agency (Bangladesh Bank) was

changed to SME and Special Programmes Department.

Except as ADB may otherwise agree, the Loan proceeds shall be disbursed in accordance with the Loan Disbursement Handbook.

Sc 3, para. 3 Complied with.

Except as ADB may otherwise agree, the Borrower shall establish immediately after the Effective Date, an imprest account with the Bangladesh Bank. The imprest account shall be established, managed, replenished and liquidated in accordance with the Loan Disbursement Handbook and detailed arrangements agreed upon between the Borrower and ADB. The currency of the imprest account shall be the Dollar. The initial amount to be deposited into the imprest account shall not exceed the lower of (i) the estimated expenditure to be financed from the imprest account for the first 6 months of Project implementation, or (ii) the equivalent of 10% of the Loan amount.

Sc 3, para. 4 (a) Complied with.

The statement of expenditures procedure may be used for reimbursement of eligible expenditures and to liquidate advances provided into the imprest account, in accordance with Loan Disbursement Handbook and detailed arrangements agreed upon between the Borrower and ADB. Any individual payment to be reimbursed or liquidated under the statement of expenditure procedure shall not exceed the equivalent of $200,000.

Sc 3, para. 4 (b) Complied with.

No withdrawals shall made from the Loan Account until the Bangladesh Bank has ensured compliance with the eligibility criteria for the PFIs, Qualified Enterprises, and Qualified Subprojects, as described in paragraphs 6, 7, and 8 of this Schedule 3 to the Loan Agreement. Notwithstanding the foregoing, ADB reserves the right to disallow disbursements to any PFI for not conforming to any of the eligibility criteria until such time as the PFI, Qualified Enterprise, or Qualified Subproject achieves compliance with such criteria.


PFI Eligibility Criteria

The Bangladesh Bank shall ensure that each PFI shall fulfill at all times the following eligibility criteria: (i) Each PFI shall have a strategy, lending

Sc 3, para. 6. Complied with.

34 Appendix 8



policy, and a track record of performance in respect of SME sector lending; (ii) Each PFI shall be in compliance with applicable prudential regulations and guidelines of the Bangladesh Bank, including but not limited to those relating to minimum risk weighted capital; recognition of income; loan classification; loss provisioning; ratio of nonperforming overall loans to nonperforming SME loans; and anti-money laundering; (iii) Each PFI shall have, and maintain for the duration of the Project, a credit rating of at least BBB- (moderate degree of safety for timely repayment of financial obligations) as per the Bangladesh long term national rating scale of Credit Rating Information and Services Limited, or an equivalent rating by a credit rating agency acceptable to ADB; (iv) Each PFI shall be in compliance with applicable corporate governance regulations and guidelines of the Bangladesh Bank, including but not limited to those relating to establishing corporate governance objectives, strategies, structures and techniques to promote effective identification, monitoring, management of material business risks, enhancing disclosure, and ensuring compliance with regulatory requirements; (v) Each PFI shall have demonstrated capability for lending to SMEs outside Dhaka and Chittagong metropolitan areas, which shall be evidenced by branch operations, lending data, as well as plans or availability for providing credit and advisory services in such areas; (vi) Each PFI shall have demonstrated capability for proper risk management with adequate processes and procedures covering, among others, credit risk, asset liability risk, and operational risk; (vii) Each PFI shall have environmental and social safeguards management systems and trained personnel to identify, remedy, and monitor compliance with national and ADB's environmental and social safeguard policies; and (viii) Each PFI shall be financially sound, and shall conduct its operations in accordance with sound financial principles and practices; and maintain a lending and investment policy acceptable to ADB and the Bangladesh Bank to effectively appraise the financial, technical, environmental, and economic feasibility of a subproject, and supervise and monitor the implementation of the Qualified Subprojects. Qualified Enterprise Each Qualified Enterprise shall either be a start-up SME or an existing SME undertaking expansion or modernization, and shall either have (i) fixed assets not exceeding Tk200 million (excluding land and building), or (ii) a workforce not exceeding 150 employees.


Qualified Subproject A Qualified Subproject shall: (i) be located outside Dhaka and Chittagong metropolitan areas; (ii) be economically and financially viable; (iii) be for start-up, expansion, or modernization activities in any of the eligible subsectors as agreed between the Borrower and ADB; (iv) comply with the Borrower’s and ADB’s environmental and social safeguard policies; (v) not involve financing of items or activities on ADB’s list of Prohibited Investment Activities List, as set out in Supplementary Appendix E to the RRP; and (vi) not involve financing of items or activities pursuant-to paragraph 14 of Schedule 3 to this Loan Agreement.


Subloan

The Bangladesh Bank shall ensure that any Subloan, along with its own contribution, shall not finance more than 75% of the cost of the Qualified Subproject; and that the PFI shall finance at least 15%, and the Qualified Enterprise shall finance at least 10%, of the cost of the Qualified Subproject.


Subject to the provisions of paragraph 9 of this Schedule 3 to the Loan Agreement, the Bangladesh Bank shall not approve any Subloan which exceeds Tk7 million for a single borrower, or has a term of less than 2 years.


The Bangladesh Bank shall cause the PFIs to charge interest on Subloans at rates that reflect their cost of funds plus a spread that covers transaction, costs and risk adjusted returns.


The Bangladesh Bank shall ensure that qualified female entrepreneurs are given preference in accessing financing under the Project by causing PFIs

Sc 3, para. 12. Complied with. The project

Appendix 8 35

.



to earmark a minimum of 15% of the Subloans for lending to women entrepreneurs; and in the event these funds are not utilized within a period of 2 years from the Effective Date, such funds shall revert to the general pool.

could achieve only 6.45 and residual fund

was transferred to general pool

as per agreement.

The Bangladesh Bank shall cause the PFIs to ensure a wide geographical and sectoral dispersion of the Subloans and give preference to underdeveloped areas and priority sectors as outlined in the Industrial Policy of the Borrower.


Safeguards The Borrower shall ensure that no subproject is financed that could have a significant adverse environmental impact, and which can be classified as a Category A subproject pursuant to ADB’s Environment Policy (2002), or which could have any resettlement impact under ADB’s Involuntary Resettlement Policy (1995), or affect indigenous peoples under ADB’s Policy on Indigenous Peoples (1998).


The Bangladesh Bank shall ensure that prior to its approval of any Subloan, each PFI shall have (i) established or updated its EMS; (ii) an environmental safeguard specialist as staff consultant; and (iii) trained and deployed adequate number of its staff to conduct environmental due diligence, review, monitoring, and reporting in accordance with the EMS in respect of Qualified Subprojects.


The Bangladesh Bank shall ensure that each PFI monitors compliance with the EMS and submits its annual environmental compliance monitoring report, in form and substance satisfactory to ADB, through the Borrower to ADB.

Sc 3, para. 16. Not complied with.

Gender Action Plan The Borrower shall ensure that (i) the gender action plan for the Project, prepared in consultation with the Borrower and approved by ADB, is implemented in accordance with its terms; (ii) adequate resources are allocated for the implementation of such gender action plan; and (iii) key gender outcome and output targets are monitored regularly and achieved.


Anticorruption All contracts financed by ADB in connection with the Project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the Bangladesh Bank and the PFIs, and other service providers as they relate to the Project.


The Borrower shall continue to implement the mitigation measures described in the governance and anticorruption risk assessment as set out in Appendix 13 to the RRP.


During the midterm Project review, the Borrower and ADB shall update the financial management, and governance and anticorruption risk assessments.


Institutional The Borrower shall ensure that legal and institutional reforms initiated for SME development in Bangladesh are sustained, and capacity development of the key SME agencies and financial institutions continues during the Project implementation period and thereafter.


Project Performance Monitoring and Evaluation Within 3 months of the Effective Date, the Bangladesh Bank shall (i) Develop a Project performance monitoring and evaluation system acceptable to ADB and the Borrower; (ii) adopt key performance indicators based on the design and monitoring framework for the Project; (iii) establish a baseline for each indicator. The Bangladesh Bank shall make available to ADB such information for Project review, and to the Borrower for future impact assessment surveys.

Sc 3, para. 22. Generally complied with.

Key performance

indicators were not properly addressed.

Reporting The Borrower shall ensure that the Bangladesh Bank –submits quarterly monitoring reports based on inputs from the PFIs to ADB. The monitoring

Sc 3, para. 23. Generally complied with.

36 Appendix 8



reports shall include: description of progress made during the period; changes to the implementation schedule, if any; problems and difficulties encountered and the remedial actions taken; social, environmental, and economic impacts; work to be carried out in the next period; and summary financial account for the Project with expenditures to date. Within 3 months of the completion of the Project, the Borrower shall furnish to ADB a Project completion report containing a detailed evaluation of Project design, costs, PFI performance, social and economic impacts, and other details as may be requested by ADB.

Sc 3, para. 24. Complied with. Delayed

submission.

Project Review

The Borrower and ADB shall undertake review missions in accordance with the Project implementation schedule mutually agreed upon, which shall include annual performance reviews, and a comprehensive midterm review approximately 18 months after the Effective Date. The midterm review shall evaluate the scope, design, and implementation arrangements; assess implementation performance against Project indicators; review compliance with Loan covenants; and identify problems and constraints and, if necessary, recommend changes in the design or implementation arrangements.

Sc 3, para. 25. Complied with. Mid-year review

was not undertaken as there were no

major issues to address.

ADB = Asian Development Bank, APFS = annual project financial statement, BB = Bangladesh Bank, EMS = environmental and monitoring safeguard, MOF = Ministry of Finance, PFI = participating financial institutions, RRP = report and recommendation of the President, SME = small and medium-sized enterprise.

Appendix 9 37

.

FAPAD OBSERVATIONS AND COMMENTS

Sl FAPAD Observations Response of the Implementing Agency

1 Tk3,543.73 million in recovered funds had been lying idle in the BB.

The administrative agreement does not mandate that the funds must be used on a revolving basis. After the close of the project, the BB corresponded regularly with the MOF, which had already formed a steering committee to utilize the unused funds. The BB can proceed after the committee makes a decision.

2 The SMEDP did not follow the refinanced criteria in the case of women entrepreneurs.

Initially, women entrepreneurs were not offered special rates of interest. As a result, women entrepreneurs were not encouraged to access the fund. However, the BB SMESPD took the initiative to fix the interest rate at 10% (bank rate +5%) on subloans for women entrepreneurs, which tremendously increased the amount of disbursement towards them. Furthermore, in the loan agreement Schedule 3, Condition-Subloan No.12 clearly states that the BB shall ensure that qualified female entrepreneurs are given preference in accessing financing under the project by causing PFIs to earmark a minimum of 15% of the Subloans for lending to women entrepreneurs; and in the event these funds are not utilized in a period of two years from the Effective Date, such funds shall revert to the general pool. The BB followed ADB guidelines and the contract does not enumerate any violation of conditions. The BB requests that the objection be considered resolved.

3 The amount refinanced, Tk3,825,000, had been within the Dhaka Metropolitan area.

Annexure 2 of the final audit report mentions that seven entrepreneurs’ businesses are located in the Dhaka metropolitan area. The BB verified the issue and found that among the 7 SMEs, two (Tania Garments & Fashion House and Chowdhury Enterprise) were not refinanced. The BB sought opinions from the beneficiary PFIs, which have accordingly submitted trade licenses for the five refinanced SMEs (copy attached) revealing that all five firms’ businesses are located outside the Dhaka City Corporation area. The PFIs opinion is acceptable as their opinion is supported by documentary evidence. The BB asks that the objection be considered resolved.

4 Abnormally higher rates of interest on subloans administered by the PFIs.

In a market based economy, the interest rate or price of a loan product is determined on the basis of the banker-customer relationship. The PFIs were at liberty to select their customers on the basis of their business policy keeping in view the risk of each individual client. The BB cannot impose any restriction on the interest rate. As the regulatory authority of the country’s banking and financial system, the BB has taken steps to persuade the banks and NBFIs to keep interest rates as low as possible to avoid hampering the growth and interests of the entrepreneurs. The BB requests that the objection be considered resolved.

BB = Bangladesh Bank, FAPAD = Foreign Aided Project Audit Directorate, MOF = Ministry of Finance, PFI = participating financial institutions, SMEDP = Small and Medium-Sized Enterprise Development Project.

38 Appendix 10

TECHNICAL ASSISTANCE COMPLETION REPORT

Division: Bangladesh Resident Mission

TA No., Country and Name: Amount Approved: US$500,000

TA 6337-REG: Development Partnership Program for South Asia—Subproject 12: Promoting Women’s Entrepreneurship in Bangladesh

Revised Amount: N/A

Executing Agency: Ministry of Finance (Finance Division)

Source of Funding: Australia–ADB South Asia Development Partnership Facility

Amount Undisbursed: US$23,417.00

Amount Utilized: US$464,724.44

TA Approval Date: 18 August 2006

TA Signing Date: 2 September 2010

Fielding of First Consultant: 2 September 2010

TA Completion Date Original: 31 August 2013

Actual: 31 August 2013

Account Closing Date Original: 31 August 2013

Actual: 24 November 2014

Description

Department of Foreign Affairs and Trade (DFAT) and ADB research suggests that South Asia—notwithstanding its

significant growth prospects as one of the fastest growing regions after East Asia—faces major development challenges.

The region is considered to be one of the poorest in the world, with 40% of its population living below the poverty line of

US$1/day, a statistic accompanied by high maternal and child mortality rates, stunted growth among children aged 5–8,

energy and food insecurity, and gender disparity. Based on the above, DFAT and ADB identified five areas where

cooperation is needed (i) governance; (ii) the promotion of inclusive growth; (iii) resolution of challenges associated with

rapid urbanization and the rise of megacities; (iv) human resource development, particularly improved delivery of social services (e.g. education, health, water, and sanitation); and (v) regional cooperation and integration.

TA Subproject 12: Promoting Women’s Entrepreneurship in Bangladesh was designed and implemented in close

association with Loan 2549-BAN: Small and Medium-sized Enterprise Development Project (SMEDP). The loan’s specific and immediate outcome was enhanced growth in the number and size of commercially viable SMEs, especially SMEs in

rural and peri-urban areas, with an emphasis on women-led SMEs, as well as increased employment in the SME sector. In

this context, the TA Subproject 12 (hereafter, Subproject) was developed to address challenges faced by women

entrepreneurs in accessing financial resources and refinancing schemes. The outcome of the TA was the enhanced

capacity of women entrepreneurs and associations to fully access the financial resources and services earmarked for women-led SMEs under the project.

Expected Impact, Outcome and Outputs

The impact of the sub-project was to develop women’s micro and small entrepreneurship in selected project areas. The outcome of the subproject was the enhanced capacity of women entrepreneurs and associations to fully access the

financial resources and services earmarked for women-led SMEs under the ADB loan. The outputs of the subproject were

based on the scope of work within the selected project areas where the need to increase women’s access to financial resources and overcome market constraints was crucial. The outputs of the subproject were:

Output 1: Constraints on and opportunities for women’s entrepreneurship identified; Output 2: Advocacy initiatives for enforcement of gender-responsive regulations and policy reform implemented; Output 3: Technical capacity of selected women entrepreneurs and associations strengthened; and Output 4: Dissemination of findings and identification of follow-up initiatives.

Delivery of Inputs and Conduct of Activities

The consulting firm Bangladesh Women Chamber of Commerce and Industry (BWCCI) was selected to implement all

Subproject activities. The proposal submitted by the BWCCI to ADB was in line with the TORs. Most of the deliverables

that were agreed upon have been delivered in a timely and effective manner, particular due to the timely collection of data

on women entrepreneurs in the project area, which contributed to the baseline setting, capacity needs assessment,

capacity development plan, development of training modules, and identification of knowledge gaps. The firm submitted an

inception report on 3 October 2010. The report detailed how and when the required activities will be conducted, the

composition of the implementation team and their deliverables, and the budget for each of the activities to be

implemented. The consulting firm has provided regular quarterly progress reports to the Bangladesh Resident Mission to

keep track of activities accomplished along with costs incurred. On 30 September 2011, the firm submitted an initial draft

of the interim report on which ADB commented; shortly afterward, the final interim report was submitted in which the firm noted the milestones they achieved through the activities outlined in their inception report.

Modules were designed accordingly, and the BWCCI conducted training on existing Government of Bangladesh financial

facilities, provisions, and opportunities for bankable women entrepreneurs. Other achievements included women having

greater access to financial resources (of the 900 women entrepreneurs identified, 293 received SME loans). Access to

Appendix 10 39

.

information was provided through five SME helpline centers in five districts at the project sites. By the end of the project

period, the capacities of 540 women were enhanced in managerial, marketing, and technical skills through women’s entrepreneurship development and business management training. 422 women entrepreneurs received support in

processing applications for SME loans. The final report detailed improvement in sensitizing women entrepreneurs to SME

loans, and in encouraging banks to take initiatives to introduce women-centric policies in financial management. Banks

and other participating financial institutions got 100% refinancing for women entrepreneurs under the BB fund. Lower

interest rates encouraged women to apply for SME loans. The subproject also had a ripple effect in the wider community

by indirectly promoting access to information by women (non-beneficiaries) who were encouraged to take out SME loans

under the refinancing scheme. As women entrepreneurs were both directly and indirectly involved with the project, their

skills and capacity to do business were enhanced as they were more inclined to register trade licenses and thus had

greater ownership over their businesses. Women entrepreneurs have now become members of a number of local market committees and are able to advocate for the establishment of women’s corners in local markets.

Evaluation of Outputs and Achievement of Outcome

Output 1: Constraints on and Opportunities for Women’s Entrepreneurship Identified

The Subproject was developed to promote women’s entrepreneurship by providing access to technology, financial resources and services, and market information and business services (backward and forward linkage opportunities). A

baseline survey found that 48% of women entrepreneurs encountered problems in starting a business: 20% had difficulty

obtaining bank credit, 15% lacked proper marketing skills, and 27% suffered from stereotypical social and family attitudes

and obstacles. The baseline survey concluded that 49% of women desired training relevant to their trades while 20% of

women entrepreneurs identified business skills as necessary for being an entrepreneur. More than 93% of women

entrepreneurs suggested various training schemes, similar to those mapped out by the BWCCI and ADB during project

planning. These included training on entrepreneurship development, business management, marketing planning and

strategies, technical and financial management, and production and business expansion. Based on this survey, the firm

undertook measures to conduct training and capacity building needs assessments. Similarly, 65% of the women whose

problems stemmed from high production costs, operational inefficiency due to lack of proper raw materials, or even low

demand for their products in a competitive market also identified such training as necessary. Furthermore, it was

highlighted that, if women were provided with technical and vocational skills and were able to improve their technological knowledge, women would be able to grow their own investments.

Output 2: Advocacy Initiatives for the Enforcement of Gender-Responsive Regulations and Policy Reform Implemented

The BWCCI has taken measures to assess the current status of enforcement of the BB’s regulatory framework, inc luding

practices adopted by PFIs and local banks. It was identified that the BB undertook various initiatives and adopted policies

to support women entrepreneurs, but these were not all properly implemented. While some limitations stemmed from the

attitude of officials of different minor financial institutions towards providing loans to women entrepreneurs, the study

showed that these attitudes are changing for the better. Some of these officials were not aware of the refinancing schemes

introduced for women entrepreneurs, and women entrepreneurs frequently were not qualified to access the loans due to a

lack of entrepreneurial skill, insufficient documents, lack of information, lack of planning, and lack of readiness. Some

banks set up desks dedicated to women but these were still not functional. As women had difficulty following loan

procedures, information on existing financing facilities, interest rates, lending criteria, and the documentation required by

different banks and financial institutions was collected and complied in a single flyer. This flyer allowed women to pick from

multiple institutions when applying for a loan of their choice. A study on gender-responsive policies based on which

reforms will be set was recommended at this time. As a follow up, the BWCCI conducted the study, identified relevant

policies of selected banks and PFIs, and reviewed those policies to understand their potential to contribute to the

promotion of women’s entrepreneurship. One of these policy reforms was the appointment of a focal person for women’s entrepreneurship in each district in the National Board of Revenue’s Office (In keeping with the tax policy for SME loans). The subproject also developed orientation guidelines for the bank and PFI officials. Twelve orientation sessions were

organized for 343 PFI officials (109 women and 234 men). Based on the training sessions, a module was also developed

for future use and reference. The firm also held advocacy meetings for 1,212 participants (1,120 women and 92 men). The

result of these advocacy meetings and training sessions was the introduction of a uniform loan application for all women entrepreneurs in Bengali.

Output 3: Technical Capacity of Selected Women entrepreneurs and Associations Strengthened

The BWCCI completed an assessment of existing training institutes and programs targeting women entrepreneurs and

associations in 2011. The assessment’s key findings included the re-conceptualization of entrepreneurial core skills as a

result of emerging societal pressures (such as deregulation, privatization, and environmental protection) and global

pressures (such as new trade and investment mechanisms, standards, and quality requirements) at the individual and

40 Appendix 10

organizational level. Existing training institutions also needed to develop the capacity to analyze and assess the needs of

women entrepreneurs in order to develop the capacity of women entrepreneurs to implement effective and appropriate

programs. Based on the needs assessment, a training module, Entrepreneurship Development and Business

Management, was developed by the subproject and tested in all 56 working districts with 540 women entrepreneurs taking

part. One impact of this training was that the women were able to identify and synthesize their own entrepreneurial

competencies and overcome challenges. Women were now able to explain the need for each business document and

legal paper required to run an enterprise, and to create a complete business profile with the necessary legal documents.

The firm organized both national and local seminars to share and discuss the achievements, challenges, and lessons of

the project, as well as a way forward. The firm also supported five SME helplines across five project areas and increased

women’s marketing knowledge and techniques by enabling them to visit trade fairs and five lateral learning events, attend exposure visits, and join campaigns.

Output 4: Dissemination of Findings and Identification of Follow-up initiatives

The firm organized a follow-up workshop on the sustainability of the project output on 24 July 2013, which was attended by

various representatives from ADB, BB, project staff, board members of the firm, and women entrepreneurs from different

districts. The seminar demonstrated the challenges faced by the project as well as its achievements and success; it also

discussed a way forward to keep up with noted impacts. The firm also organized two national level workshops in which

certain issues were highlighted including the bankers’ positive attitude towards women creditors, the massive training

program needed for women entrepreneurs to make them ready and eligible for bank financing, the granting of a credit scheme by the BB, and an increase of the grace period for that scheme.

Overall Assessment and Rating

Highly Successful.

Major Lessons

As ADB encourages new national NGOs to step up and take on development projects such as the TA mentioned here, more attention must be given to building the NGOs’ capacity especially in facilitating administrative and financial tasks. A dedicated financial officer should be appointed from ADB to work with the national NGO to ensure that the procurement process is transparent and smooth, implementation of the TA is efficient, and administrative tasks are handled effectively.

National NGOs must learn ADB procurement and financial policies and procedures. Any necessary training should be provided to the national NGOs and consultants.

TA subprojects that are attached to a loan must be fully harmonized, and all stakeholders including the loan team leader must take responsibility for the TA implementation and monitoring. The team leader should own the TA project and have strong governance on the overall TA activity.

There is a need for a dedicated TA analyst to oversee all programing and operational activities of the TA. The responsible person will need to liaise with all parties involved in the TA and ensure that the outcomes of the project are achieved.

Recommendations and Follow-Up Actions

Need to institutionalize the best practices of women entrepreneurs accessing SME loans Scaling of similar projects to keep up the women’s work as a self-starter Identifying a suitable approach to ensure that PFIs or bank officials are sensitized to the women entrepreneurs

and their needs. ADB = Asian Development Bank, BB = Bangladesh Bank, BWCCI = Bangladesh Women Chamber of Commerce and

Industry, DFAT = Department of Foreign Affairs and Trade, NGO = nongovernmental organization, PFI = participating

financial institution, SME = small to medium-sized enterprise, SMEDP = Small and Medium-sized Enterprise Development Project, TA = technical assistance, TOR = terms of reference.

Prepared by: Nasheeba Selim Designation: Social Development Officer (Gender)

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a

particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

Appendix 11 41

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DEFINITION OF COTTAGE, MICRO, SMALL, AND MEDIUM-SIZED ENTERPRISES

Name of Sector Total Fixed Assets Excluding

Land and Building (Tk) Employment (Number)

Cottage Enterprise:

Manufacturing < 500,000 < 10 (Inc. family members)

Service / Trading < 500,000 < 10 (Inc. family members)

Micro Enterprise:

Manufacturing 500,000–5,000,000 10 – 24

Service / Trading < 500,000 < 10

Small Enterprise:

Manufacturing 5,000,000–100,000,000 25 – 99

Service / Trading 500,000–10,000,000 10 – 25

Medium Enterprise:

Manufacturing 100,000,000–300,000,000 100 – 250

Service / Trading 10,000,000–150,000,000 50 – 100

Source: Bangladesh Bank, SMESPD Circular No -01 dated 19 June 2011.

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