PCR: Bangladesh: Small and Medium Enterprise Sector Development Program · 2014-09-29 · SMESDP – Small and Medium Enterprise Sector Development Program TA – technical assistance

Completion Report

Project Number: 35225 Loan Numbers: 2148, 2149, 2150 August 2011

Bangladesh: Small and Medium Enterprise Sector Development Program

CURRENCY EQUIVALENTS Currency Unit – taka (Tk)

At Appraisal At Program Completion (15 November 2004) (21 June 2010)

Tk1.00 = $0.0168 $0.0140 $1.00 = Tk59.375 Tk71.584

ABBREVIATIONS

ADB – Asian Development Bank BSCIC – Bangladesh Small and Cottage Industries Corporation BSTI – Bangladesh Standards and Testing Institution HOC – helpline outreach center IDLC – Industrial Development Leasing Company MOF-FD – Ministry of Finance-Finance Division MOF – Ministry of Finance MOI – Ministry of Industries NASCIB – National Association of Small and Cottage Industries of Bangladesh NBFI – nonbank financial institution PCR – program completion report PFI – participating financial institution RRP – report and recommendation of the President SCITI – Small and Cottage Industries Training Institute SEF – Small Enterprise Fund SMEs – small and medium-sized enterprises SMEDP – Small and Medium-Sized Enterprise Development Project SMEF Small and Medium Enterprise Foundation SMESDP – Small and Medium Enterprise Sector Development Program TA – technical assistance TPP – technical assistance project proposal

NOTES

(i) The fiscal year (FY) of the government and its agencies ends on 30 June. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2010 ends on 30 June 2010.

(ii) In this report, “$” refers to US dollars. Vice-President X. Zhao, Operations 1 Director General S. H. Rahman, South Asia Department (SARD) Country Director T. Kandiah, Bangladesh Resident Mission (BRM), SARD Team leader

M.M. Zillur Rahman, Senior Financial Sector Officer, BRM

Team member Md. L.A. Khan, Project Analyst, BRM

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 BASIC DATA i

I. PROGRAM DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Program Outputs 2 C. Program Costs 8 D. Procurement, Disbursements and Environmental Aspects 8 E. Program Schedule 9 F. Implementation Arrangements 10 G. Conditions and Covenants 10 H. Associated Technical Assistance Grant 10 I. Consultant Recruitment and Procurement 11 J. Performance of Consultants, Contractors, and Suppliers 11 K. Performance of the Borrower and the Executing Agency 12 L. Performance of the Asian Development Bank 12

III. EVALUATION OF PERFORMANCE 12

A. Relevance 12 B. Effectiveness in Achieving Outcome 13 C. Efficiency in Achieving Outcome and Output 13 D. Preliminary Assessment of Sustainability 13 E. Institutional Development 14 F. Impact 14

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 15 A. Overall Assessment 15 B. Lessons 15 C. Recommendations 15

APPENDICES 1 Program Framework 17 2 Policy Matrix 23 3. Implementation Status of Technical Assistance Loan 27 4. Status of Compliance with Covenants 29 5. Characteristics of Subloans or Subprojects 37 6. Due Diligence Summary of Main Participating Financial Institutions 38 7. Base-Level Survey of a Cross Section of Assisted Subprojects 40 8. Activities of the Bangladesh Small and Cottage Industries Corporation, Small

and Cottage Industries Training Institute, and Bangladesh Standards Testing Institution 43

9. Gender Equity and Women’s Empowerment 46

BASIC DATA

I. PROGRAM LOAN

A. Loan Identification

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

Bangladesh 2148-BAN(SF) Small and Medium Enterprise Sector Development Program (SMESDP) People’s Republic of Bangladesh Ministry of Finance SDR9,954,000 ($15.00 million equivalent) PCR: BAN 1255

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 – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate (during grace period) – Interest Rate (after grace period) – Maturity (number of years) – Grace Period (number of years)

7 September 2004 22 September 2004 20 November 2004 21 November 2004 20 December 2004 26 January 2005 27 April 2005 20 June 2005 1 31 December 2007 21 June 2010 1 1.00% per annum 1.50% per annum 32 8

8. Disbursements a. Dates Initial Disbursement

27 December 2005 Final Disbursement 22 July 2008

Time Interval 31 months

Effective Date 20 June 2005

Original Closing Date 31 December 2007


b. Amount ($ million)

No. Category (1) (2)

Original Allocation

(3)

Last Revised* Allocation

(4)

Net Amount Available

(5)

Amount Disbursed

(6)

Undisbursed Balance (7=5-6)

01 SME Sector

Dev.Program

15.00 15.64

15.64

15.64

0

Total 15.00 15.64 15.64 15.64 0 * Loan proceeds increased due to fluctuation of SDR to US dollar.

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9. Local Costs (Financed) Appraisal Actual

- Amount ($) 0 0 - Percent of Local Cost 0 0 - Percent of Total Cost 0 0

Project (Program) Data

1. Project (Program) Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 15.00 15.64 Local Currency Cost 0.00 0.00 Total 15.00 15.64

2. Financing Plan ($ million)

Cost Appraisal Estimate Actual

Foreign Local Total Foreign Local Total Implementation Costs ADB Financed - ADF 15.00 0 15.00 15.64 0 15.64 Total 15.00 0 15.00 15.64 0 15.64

ADB = Asian Development Bank, ADF= Asian Development Fund. * Loan proceeds increased due to fluctuation of SDR to US dollar. 3. Cost Breakdown by Program Component ($ million)

Component Appraisal Estimate Actual Foreign Local Total Foreign Local Total

SME Sector Dev. Program 15.00 0 15.00 15.64 0 15.64

Total Cost 15.00 0 15.00 15.64 0 15.64 4. Project Schedule

Item Appraisal Estimate Actual C. Financing and Tranching

Release of the first tranche of $5.00 million

Upon effectivity of the loan

$4.78 million was released on 27 December 2005

Release of the second tranche of $10.00 million

End June 2007

$10.86 million was released on 22 July 2008

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

Bangladesh 2149-BAN Small and Medium Enterprise Sector Development Program (Project Loan) People’s Republic of Bangladesh Ministry of Finance SDR19,908,000 ($30.00 million equivalent) PCR: BAN 1255

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 – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate (during grace period) – Interest Rate (after grace period) – Maturity (number of years) – Grace Period (number of years)

07 September 2004 22 September 2004 20 November 2004 21 November 2004 20 December 2004 26 January 2005 27 April 2005 20 June 2005 1 31 December 2010 21 June 2010 0 1.00% per annum 1.50% 32 8

8. Disbursements a. Dates Initial Disbursement

16 February 2006 Final Disbursement

15 March 2010 Time Interval

49 months

Effective Date 20 June 2005

Original Closing Date 31 December 2010


b. Amount ($ million)

No. Category (1) (2)

Original Allocation

(3)

Last Revised

Allocationa (4)


(5)

Amount Disbursed

(6)

Undisbursed Balanceb

(7)

01 Small Enterprise Fund 28.80 29.66 29.66 29.49 0.17

02 Interest Charge 1.20 0.74 0.74 0.74 0 Total 30.00 30.40 30.40 30.23 0.17a Loan proceeds increased due to fluctuation of SDR to US dollar. b Undisbursed loan balance cancelled on closure of the loan account.

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9. Local Costs (Financed) Appraisal Actual - Amount (SDR million) 14.563 0 - Amount ($ million) 21.980 0 - Percent of Local Cost 0 0 - Percent of Total Cost 0 0

C. Project Data

1. Project Cost ($ million)


Foreign Exchange Cost 30.00 30.23 Local Currency Cost 0 0

Total 30.00 30.23


Cost Appraisal Estimate Actual* Foreign Local Total Foreign Local Total

A. Small Enterprise Fund ADB Financed- ADF 28.80 0 28.80 29.49 0 29.49

Total 28.80 0 28.80 29.49 0 29.49

B. IDC Costs (ADB Financed (Interestand Front End Fee)

1.20 0 1.20 0.74 0 0.74

Total 30.00 0 30.00 30.23 0 30.23 ADB = Asian Development Bank, IDC = interest during construction, ADF = Asian Development Fund * Loan proceeds increased due to fluctuation of SDR to US dollar.

3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual Foreign Local Total Foreign Local Total A. Base Cost 1. Small Enterprise Fund 28.80 0.00 28.80 29.49 0.00 29.49

2. Government Management 0 0 0 0 0 0 Subtotal (A) 28.80 0 28.80 29.49 0 29.49

B. Contingencies 1. Physical 0 0 0 0 0 0 2. Price 0 0 0 0 0 0 Subtotal (B) 0 0 0 0 0 0 C. Service Charge during Construction 1.20 0 1.20 0.74 0.00 0.74

Total Cost (A)+(B)+(C) 30.00 0 30.00 30.23 0 30.23 4. Project Schedule Item Appraisal Estimate Actual

A. Small Enterprise Funds Disbursement 1. Start of disbursement of funds to

participating financial institutions 1 January 2005 6 June 2006

2. Completion of disbursement of funds 30 June 2010 15 March 2010 Other Milestones:

Loan account closed on 21 June 2010 with the cancellation of $171,023.85 on closure of the loan account

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III. TECHNICAL ASSISTANCE LOAN

A. Loan Identification

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

People’s Republic of Bangladesh 2150-BAN Small and Medium Enterprise Sector Development Program (TA Loan) People’s Republic of Bangladesh Ministry of Finance SDR 3,318,000 ($5.00 million equivalent) PCR: BAN 1255

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 – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate (during grace period) – Interest Rate (after grace period) – Maturity (number of years) – Grace Period (number of years)

07 September 2004 22 September 2004 20 November 2004 21 November 2004 20 December 2004 26 January 2005 27 April 2005 20 June 2005 1 30 June 2008 29 November 2010 2 1.00% per annum 1.50% 32 8

8. Disbursements

a. Dates Initial Disbursement

29 December 2005 Final Disbursement 29 November 2010


Effective Date

20 June 2005 Original Closing Date

30 June 2008 Time Interval

36 months b. Amount ($)

Category Original

Allocation Last Revised Allocationa


Amount Disbursed

Undisbursed Balanceb

01A Equipment(Domestic) 141,652 180,357 180,357 252,985 (-) 72,62801B Equipment(Foreign) 388,788 458,536 458,536 312,552 145,98402 Vehicles 147,679 110,049 110,049 91,189 18,86003 Training/Seminar 170,283 981,266 981,266 977,532 3,73404A Consultant(Domestic) 767,028 948,405 948,405 51,162 897,24304B Consultant(Foreign) 2,496,986 1,601,054 1,601,054 1,346,369 254,68505 Report and Communication 247,137 473,820 473,820 149,696 324,1246 Interest Charge 79,867 81,008 81,008 43,243 37,76507 Unallocated 560,579 236,910 236,910 0 236,910 Total 5,000,000 5,071,405 5,071,405 3,224,728 1,846,677

a Loan proceed increased for currency fluctuation. b Undisbursed loan balance cancelled on closure of the loan account.

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9. Local Costs (Financed) Appraisal Actual

- Amount (SDR million) 1.08 1.02 - Amount ($ million) 1.63 1.52 - Percent of Local Cost 32.5% 53% - Percent of Total Cost 19% 33%

C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual

Foreign Exchange Cost 3.36 1.70 Local Currency Cost 1.64 1.52 Total 5.00 3.22



Foreign Local Total Foreign Local Total ADB Financed 3.28 1.64 4.92 1.70 1.52 3.22 Government Financed* 0 3.46 3.46 0 1.30 1.30* Total 3.28 5.10 8.38 1.70 2.82 4.52 IDC Costs ADB Financed (Interest and Front End Fee)

0.08 0 0.08 0.04 0 0.04

Total 3.36 5.10 8.46 1.74 2.82 4.56 ADB = Asian Development Bank, IDC = interest during construction. * Government contributions were in kind, i.e., staff, office accommodation, electricity, gas, etc. 3. Cost Breakdown by Project Component ($ million)

Component Appraisal Estimate Actual Foreign Local Total Foreign Local TotalA. Base Cost ADB Financed 3.28 1.64 4.92 1.70 1.52 3.22 Government Financed* 0 3.46 3.46 0 1.30 1.30* Subtotal (A) 3.28 5.10 8.38 1.70 2.82 4.52 B. Contingencies 1. Physical 0 0 0 0 0 0 2. Price 0 0 0 0 0 0 Subtotal (B) 0 0 0 0 0 0 C. Service Charge during Implementation 0.08 0 0.08 0.04 0.00 0.04

Total Cost (A)+(B)+(C) 3.36 5.10 8.46 1.74 2.82 4.56 * Government contributions were in kind, i.e., staff, office accommodation, electricity, gas, etc.

4. Project Schedule Item Appraisal Estimate Actual

SME Web Portal/Virtual Front Office Development 1 Apr 2005–31 Dec 2007 Jul 2006

Establishment and Operation of SME Helpline Outreach Centers 1 Jul 2005–31 Dec 2007 Nov 2006–Jun 2010

Rural-Based Enterprise Training 1 Jul 2005–30 Jun 2007 Aug 2006–Oct 2010

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D. Other Basic Data on Program, Project, and TA Loans: a. Project Milestones: 1. 15 July 2004: First Management Review Meeting held. 2. 5 November 2004: Second Management Review Meeting held. 3. 16 December 2005: Inaugural ceremony of the Small and Medium Enterprise Sector

Development Program (SMESDP) held in Dhaka. 4. 30 April 2006: National Task Force on SME Development meeting held. 5. 6 June 2006: Disbursement of funds to participating financial institutions commenced. 6. 30 July 2006: 11th meeting of the SME Advisory Panel held in Dhaka. 7. 7 August 2006: ADB approved shortlist for the domestic consultants. 8. 9 October 2006: Administration of the Project delegated to the Bangladesh Resident

Mission. 9. A workshop on Credit Wholesaling and SME Access to Finance in Bangladesh held on

14 August 2007. 10. 3 December 2007: Program loan closing date extended by one year from 31 December

2007 to 31 December 2008. 11. 20 May 2008: Program loan closing date was extended from 31 December 2008 to

31 December 2009. 12. 21 June 2010: Program loan account closed.

b. Other Milestones:

13. 17–24 May 2006 an eight-member government delegation (members of Parliament)

conducted study tour to the People’s Republic of China, the Republic of Korea, and Thailand.

14. 15 September 2006: ADB approved minor changes in implementation arrangements. 15. 13 May 2007 ADB approved minor change in project scope. 16. 20 May 2008: Loan closing date was extended by 12 months from 30 June 2008 to

30 June 2009. 17. 15 June 2009: Loan closing date was extended by 12 months from 30 June 2009 to

30 June 2010. 18. 15 June 2009: Loan closing date extended by 12 months from 30 June 2009 to 30 June

2010. 19. 22 March 2010: Reallocation of loan proceeds approved. 20. 15 April 2010: ADB approved two teams of government officials to visit Japan and the

Republic of Korea from 19–28 April 2010. 21. 16–20 May 2010: Project implementation and administration seminar held in Dhaka. 22. 21 June 2010: Loan account closed with cancellation of $1,846,676.75 on closure of the

loan account.

E. Project (Program) Performance Report Ratings

Implementation Period

Ratings Development Objectives

Implementation Progress

From 20 Jun 2005 to 31 Dec 2005

Satisfactory

Satisfactory

From 1 Jan 2006 to 31 Dec 2006 Satisfactory Satisfactory From 1 Jan 2007 to 31 Dec 2007 Satisfactory Satisfactory From 1 Jan 2008 to 31 Dec 2008 Satisfactory Satisfactory From 1 Jan 2009 to 31 Dec 2009 From 1 Jan 2010 to 21 Jun 2010

Satisfactory Satisfactory

Satisfactory Satisfactory

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F. Data on Asian Development Bank Missions

Name of Missiona Date No. of

Persons

No. of Person-

Days Specialization of Membersb

Fact-finding (first phase) 14−27 Jul 2003 7 98 a,b,c d,e Fact-finding (second phase) 20 Sep−4 Oct 2003 4 56 a, c,d, Fact-finding 29 Feb–10 Mar 2004 5 55 a,c,d,e Consultation/confirmation 16–19 May 2004 3 12 a,d,f Pre-appraisal 7–22 Sep 2004 3 12 a,d,f Inception 12–20 Sep 2005 2 18 a,i Loan review 29 Mar–25 Apr 2006 3 24 d,f,h Loan review 4–12 Mar 2007 2 22 j,k Mid-term review 9–14 Jun 2007 2 12 a,k Loan review 10–20 Feb 2008 4 40 J,k,l Loan review 27Jul–6 Aug 2008 3 30 k,l,m Loan review 1–12 Mar 2009 2 24 k,i Loan review 11–21 Dec 2009 2 20 k,I Project completion review 14 Mar–23 Apr 2011 3 123 l,k,n

a = financial economist/lead financial sector specialist, b = cofinancing specialist, c = young professional, d = economist, e = director/country director, f = deputy country director, g = project specialist, h = financial/capital market specialist, i = associate operations analyst, j = head governance unit, k = project analyst, l = financial management officer, m = social development and gender officer, n = staff consultant The project completion report was prepared by M. M. Zillur Rahman, senior financial sector officer/mission leader, Md. Liaquat Ali Khan, associate project analyst and mission member, and a project evaluation specialist (staff consultant).

I. PROGRAM DESCRIPTION 1. On 20 December 2004, the Asian Development Bank (ADB) approved a $50 million equivalent loan from the Asian Development Fund to the Government of Bangladesh to implement the Small and Medium Enterprise Sector Development Program (SMESDP).1 The program had four parts: (i) a program loan for SDR9.954 million ($15 million equivalent) to support policy reforms, (ii) a project loan for SDR19.908 million ($30 million equivalent) to extend credit to small entrepreneurs, (iii) a technical assistance (TA) loan for SDR3.318 million ($5 million equivalent) to improve the effectiveness of government assistance for the small and medium-sized enterprise (SME) sector and facilitate SMEs’ access to various support services including capacity building and infrastructure development, and (iv) a TA grant for $600,000 to support program implementation and coordination to ensure timely compliance with ADB policies and government regulations. The program loan of $15 million equivalent was to be released in two tranches: $5 million and $10 million. Its expected closing date was 31 December 2007, but this was extended to 31 December 2008 at the request of the government. The report and recommendation of the President (RRP) outlined the project framework and policy matrix (Appendixes 1 and 2).

II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 2. The rationale for the SMESDP was that the promotion and development of SMEs would allow the sector to play a pivotal role in raising the country’s pro-poor economic growth. Being generally labor-intensive industries, SMEs have utilized Bangladesh’s factor endowments to their competitive advantage in the local and global markets. The rapid growth of the economy in the 1990s was accompanied by a faster rate of poverty reduction compared to the 1980s. Significantly, this growth could be traced to non-tradable activities (services, construction, and small-scale industry) that accounted for about 70% of the incremental growth of during the 1980s to 1990s compared to the earlier 1970s to 1980s period. Thus, it was of critical importance to the poverty reduction effort to build on this growth momentum by developing an enabling environment conducive to the accelerated growth of the SME sector by adopting policies that enabled the poor to find gainful employment in this sector. 3. The SMESDP underpinned the government’s agenda for developing the country’s private sector, particularly the SME sector, which was accorded high priority to serve as the engine of pro-poor economic growth. The interventions under the SMESDP were targeted toward removing obstacles to SME growth and facilitating the flow of private investments into the SME sector. They also complemented existing government reform measures and other ADB and development agency assistance programs in private and financial sector development. Moreover, the SMESDP was fully consistent with ADB’s country strategy and was complementary to ADB’s interventions in Bangladesh in rural and microfinance and in financial market development, which helped improve resource mobilization and access to credit for SMEs. 4. A minor change in the scope of the TA loan allowed some members of Parliament and government officials to participate in SME-related study tours to the People’s Republic of China, the Republic of Korea, and Thailand). The PCR mission appreciated the quality of the program

1 ADB. 2004. Report and Recommendation of the President to the Board of Directors: Proposed Loans and

Technical Assistance Grant to the People’s Republic of Bangladesh for the Small and Medium Enterprise Sector Development Program. Manila (Loans 2148-BAN, 2149-BAN, 2150-BAN, TA 4507-BAN).

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preparatory TA but believes that the SMESDP could have been designed better to ensure greater government commitment to the proposed reform program and to facilitate its implementation without delay. As designed, the TA and program loans were to be implemented concurrently, with the TA loan expected to produce outputs considered essential for implementing the program loan e.g., the restructuring of Bangladesh Small and Cottage Industries Corporation (BSCIC) and Small and Cottage Industries Training Institute (SCITI). Consequently, delays in producing these outputs (as encountered in restructuring BSCIC and SCITI) held up implementation of the program loan. Instead of trying to do both at the same time, the better option would have been to implement the SMESDP in two steps, i.e., put the TA loan in place first, and then, make the recommendations of that TA as conditions for SMESDP effectiveness. That approach would have had two positive features: first, it would have provided a well-processed and acceptable set of recommendations for implementation; and second, it would have committed the government to proceed in implementing those recommendations once the program loan was approved. B. Program Outputs

1. Program Loan

5. Progress toward achieving program outputs and outcomes is generally satisfactory, albeit with some delay. The SMESDP was designed to achieve three policy outcomes. They, in turn, were to be achieved by adopting 23 policy conditions by the government (Appendix 2). The TA associated with the SMESDP, facilitated SMESDP implementation (para. 29)2. Ten of the 23 policy conditions were adopted on time, and the related first loan tranche of $4.8 million equivalent disbursed, more or less, on schedule on 27 December 2005 against the revised target of 31 December 2005 (originally 30 October 2005).3 However, the adoption of the remaining 13 policy conditions was delayed by about a year. After protracted discussions between the government and ADB, the second tranche of $10.8 million equivalent was finally disbursed on 22 July 2008 (originally 30 June 2007)4 with 10 policy conditions fully complied with, two partially complied with, and one partially complied with but waived by ADB at the request of the government. 6. The three conditions with partial compliance were subsequently fully complied with after disbursement of the second tranche in July 2008. One of these policy conditions related to the institutional reform measure to establish the SMEF with at least 50% private sector representation on the board and a chief executive officer recruited from the private sector. This was one of the key reform measures as the SMEF was to assume the responsibilities of implementing the SME policy from the SME cell of the Ministry of Industries (MOI) and to take over, in a phased manner, management of SME credit facilities that were administered directly by the government. The SMEF was set up, but the private sector participation had not been achieved by the time the second tranche was released. This condition has now been fully met. The second condition that was only partially achieved related to MOI and the Bangladesh Bureau of Statistics preparing a registry of enterprises (non-agricultural) and conducting a nationwide survey of SMEs to establish an integrated SME database to monitor SME performance and development, and to target assistance for SMEs. This condition has also now been fully met with the Bangladesh Bureau of Statistics completing the needed registry and 2 TA 4507-BAN: Support Program Implementation and Coordination of the Small and Medium Enterprise Sector

Development Program (attached to loan discussion footnote 1). 3 ADB. 2005. Progress Report on Tranche Release: Small and Medium Enterprise Sector Development Program in

Bangladesh (first tranche; Loan 2148-BAN; December). 4 ADB. 2008. Progress Report on Tranche Release: Small and Medium Enterprise Sector Development Program in

Bangladesh (second tranche; Loan 2148-BAN; June).

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SME survey. The condition that was partially met but waived by ADB related to providing tax incentives for SME promotion. The tax incentives, as prescribed in the RRP, had not been approved by the government at the time of the second tranche release because of lack of support for them from the National Board of Revenue and the International Monetary Fund. This condition has now been fully met on a different basis (3.2 in Table 1). About 6 years have passed since the SMESDP became effective in June 2005. During this period, satisfactory progress has been made in achieving the policy outcomes and outputs (Table 1).

Table 1: Policy Outcomes and Outputs Planned and Achieved Planned Achieved Policy Outcome 1: Establish SME Policy and Development Framework 1.1 Declare SMEs as a priority

sector under government policy SMEs were declared a priority sector in the government’s Industrial Policy, 2005; the need for rapid expansion and growth of SMEs was highlighted in the national poverty reduction strategy for sustainable industrial development and poverty reduction; and the industrial policy provided a single uniform definition of SMEsa

1.2 Formulate an SME policy and development strategy

SME Policy Strategies document was prepared in 2005. It includes the government’s policy, guidelines, strategies, implementation mechanism, and action plans for the development of SMEs. It was prepared on recommendations made by a government-appointed SME task force, based on a national workshop, and an SME advisory panel.b The document has been published in both Bangla and English.

Policy Outcome 2: Establish an Institutional Structure and Mechanisms to Support SME Development 2.1 Set up an institutional structure

and mechanisms to implement the SME policy and development framework

The government established the SME Foundation in November 2006, as an independent apex body for SME promotion, under the Companies Act, 1994.c It is now implementing the SME policy strategies with close links with the SME cell of MOI.

Policy Outcome 3: Define Government Support to SMEs, and Improve SME Access to Various Services 3.1 Rationalize government

assistance to the SME sector including restructuring Bangladesh Small and Cottage Industries Corporation (BSCIC) and other concerned agencies (e.g., Small and Cottage industries Training Institute [SCITI]) under MOI involved in the sector, and rationalize credit assistance provided to SMEs directly by governmentd

BSCIC is now restructured, albeit with delay, with its staff cadre reduced from 2,200 to 1,500 including 300 vacancies now being filled to meet expansion in activities. SCITI was also restructured based on recommendations of an independent committee appointed by MOI in July 2005, with SCITI’s status upgraded as an agency under BSCIC (instead of a development project); new staff have been recruited, including new principal and vice-principal; and SME capacity building training courses have been redesigned. MOI confirmed that Bangladesh Bank will hand over directed credit programs to the SME Foundation in a phased manner.

3.2 Rationalize the incentive and tax structure for SMEs as outlined earlier

This condition was waived but could now be considered fully achieved. Instead of the RRP requirements for a 75% tax rebate for SMEs and accelerated depreciation rates on plants and machinery, the government gave other incentives for SMEs i.e. filing threshold for tax purposes increased from Tk120,000 to Tk150,000 in the 2007–2008 budget, and declared a special tax benefit for SMEs in the 2008–2009 budget.e

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Planned Achieved 3.3 Enhance SME access to market

and government services MOI launched a web portal in January 2007 to provide information on various government services available for SMEs and market information; implemented an e-government project to introduce IT systems, website, internet, and networking within MOI including online registration of SMEs; and set up helpline outreach centers in all 64 district offices of BSCIC and in another seven business chambers in cooperation with the Federation of Bangladesh Chambers of Commerce and Industry, and other district chambers. SMEs found these services useful and are using them extensively.

3.4 Enhance SME access to capacity building

Based on a needs assessment done by MOI, 11, 000 (including women) trained in entrepreneurship and skills, and these programs are continuing in association with business chambers, the Women Entrepreneurs Association, and the National Association of Small and Cottage Industries of Bangladesh. SCITI has designed new training curriculums and has sent 30 persons to India to receive professional training. Staff members of participating financial institutions were also trained in credit risk assessment of SMEs and in environmental impact assessments.

3.5 Enhance SME access to product certification and upgrade product certification system to international standards

The Accreditation Act was approved in 2006, and an autonomous Accreditation Board with organization and staff was set up. Bangladesh Standards and Testing Institution (BSTI) started fixing standards for various products, providing testing facilities, and issuing product certificates to SME products. It also started examining standards of products in the open market on a random basis. BSTI obtained in the Asia-Pacific Laboratory Accreditation Cooperation in 2007 and in the International Accreditation Board in 2010.

3.6 Develop an integrated SME database

The Bangladesh Bureau of Statistics completed the business registry. Also, an integrated SME database was published in June 2009. This was prepared by an international consulting firm using a sample method to update statistics of the national census 2003–2004.

a Manufacturing enterprise: fixed assets (excluding land and buildings) up to Tk15 million (small), and up to Tk100 million

(medium-sized); non-manufacturing activities (e.g., trading or services): less than 25 employees (small), and 25–100 employees (medium-sized), both on full-time basis. All institutions (e.g., MOI, Bangladesh Bank, and the Bangladesh Bureau of Statistics) follow this definition.

b The SME task force comprised 16 members from the government, academia, and private sector and was chaired by the principal secretary, the Prime Minister’s office. The task force submitted its report on the development of SMEs to the Prime Minister in 2004.

c The SME Foundation board has a majority of private sector members and has recruited a managing director from the private sector. It has 56 staff and an endowment fund of about Tk2.0 billion (about $28.5 million) for operational expenses and SME training as approved in May 2007 by a cabinet committee on economic affairs.

d The government ensured that performance of SME credit facilities administered directly by government agencies and public sector financial institutions would be reviewed and measures taken to improve the targeting and efficiency of utilization of such facilities. The government also ensured that, in a phased manner, management of SME credit facilities directly administered by the government would be transferred to the SME Foundation to be established under the SMESDP [RRP, para. 115 (iv) and (v)].

e Income derived from any SME engaged in the production of any goods and having an annual turnover of not more than T2.4 million will be excluded from paying tax.

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7. Achievement of outcome 3, a key outcome to facilitate SME promotion, was considerably delayed due to problems associated with the implementation of the necessary output, i.e., rationalization of government assistance to SMEs including the restructuring of BSCIC and SCITI. This, in turn, led to the delay in releasing the second loan tranche on time. Firstly, both those institutions were long-standing, entrenched government agencies and the proposed downsizing of their staff proved time consuming in the Bangladesh situation with relatively high unemployment rates, lack of adequate safety nets, and limited opportunities for retraining for alternative employment opportunities. Under the circumstances, the proposed downsizing did not appear to have full political or bureaucratic support. In addition, recruiting the needed consultants, preparing their proposals for restructuring, and thereafter obtaining government acceptance of their recommendations for restructuring took considerable time. All this led to a delay in implementation and meeting the second tranche release conditions. Ultimately, during this long delay, downsizing took place but more due to staff retirements than conscious efforts to restructure. 8. In hindsight, it appears that the sequencing of the program loan and the TA loan could have been better designed to bring about greater government commitment to reforms and make the reforms more implementable in practice. The restructuring component of the TA loan was expected to help realize outcome 3 of the program loan. But, the implementation of the TA loan and program loan, as designed, were to take place at the same time. Therefore, the delay in implementing the TA loan (for example, the restructuring component) led to the delay in the realization of outcome 3. A two-step approach in implementing both probably would have been more effective and efficient (paras. 37–38).

2. Project Loan

9. The project loan comprised a loan of SDR19.908 million ($30 million equivalent) for extending credit to small businesses referred to in Bangladesh as the “missing middle.” These enterprises were too large to qualify for the government’s microcredit assistance programs but too small for ADB’s direct lending modality. The loan proceeds were contributed to the Small Enterprise Fund (SEF), which was set up by Bangladesh Bank as a credit facility available to small enterprises with fixed assets of less than Tk10 million. The World Bank also contributed to the SEF. The SEF is administered by Bangladesh Bank for channeling credit through participating financial institutions (PFIs) to these small enterprises. The project loan was provided in foreign exchange but re-lent by Bangladesh Bank to PFIs in local currency at the Bangladesh Bank rate.5 The PFIs, in turn, were expected to onlend in taka as subloans to their SME clients at their prevailing market price. 10. It was estimated that about 10,000 subloans, selected by PFIs on the basis of criteria outlined in para. 64 of the RRP, would be made out of the SEF. A minimum of 10% of the SEF was expected to be earmarked for lending to women entrepreneurs and any funds not utilized for this purpose, within a period of 1.5 years, was to be reverted to the general pool (RRP, para. 115 [ii]). Also, activities under subloans were to be carried out in accordance with applicable ADB procurement, environment, involuntary resettlement, and other guidelines and policies (RRP, para. 115 [iii]). The commitment period for the project loan was 5 years with an expected project completion date of 30 June 2010 and loan closing date of 31 December 2010. Subsequently, Bangladesh Bank was expected to recycle the funds repaid by PFIs giving new subloans.

5 The rate published on its website (http://www.bangladesh-bank.org) in accordance with Article 21 of the

Bangladesh Bank order, 1972, being the weighted average 6-month yield on the treasury bills of the government.

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a. Project Loan Utilization 11. Nine commercial banks and seven nonbank financial institutions (NBFIs) met the eligibility criteria outlined in para. 66 of the RRP and used the loan proceeds.6 They were successful in disbursing almost the full loan amount of $30 million equivalent ahead of schedule and the loan was closed in June 2010 (appraisal target date was December 2010). At loan closing, $29.50 million had been disbursed net of interest during construction (IDC) for 3,264 million. The average size of SME subloans came to about $14,500. Repayments under the subloans have been recycled under the revolving fund facility up to 1.4 times the size of the original loan amount for further financing of SMEs. However, total arrears stood at 16.73% on the outstanding loan amount of $11.2 million as of 31 December 2010, of which 12.82% is outstanding for periods over 3 months (Appendix 5). This was a matter of concern and, therefore, the PFIs, Bangladesh Bank, and ADB need to monitor this closely.

b. Characteristics of Subloans

12. The characteristics of subloans are given in Appendix 5 and summarized in terms of the total amount disbursed ($29.5 million) as follows: (i) banks disbursed the largest amount accounting for 80% while the NBFIs accounted for 20%; (ii) of the banks, the six major domestic private banks (Eastern Bank, Dhaka Bank, Prime Bank, One Bank, City Bank, and Bank Asia) accounted for 77% of the disbursements, while the Industrial Development Leasing Company (IDLC), an NBFI, accounted for another 9% of the disbursements; (iii) in terms of sector, trading accounted for 58%, industry 27%, and services 15%; in terms of loan repayment terms, short-term subloans accounted for 43%, medium-term (39%) and long-term (18%); and in terms of geographical distribution, the two major cities (Dhaka and Chittagong) accounted for 56%, while semi-urban and rural areas accounted for 44%. In making credit assessments on these subloans or subprojects, PFIs ensured that they did not cause any adverse environmental impacts.7 Another characteristic was that women entrepreneurs used only about 130 subloans (about 4% of subloans) and about 5% of the total disbursement. This fell short of the appraisal estimate of 10% of the loan amount due to the dearth of women entrepreneurs and lack of collateral as properties in Bangladesh were mainly owned by men. The banks and NBFIs were making special efforts to promote women entrepreneurs, such as dedicating SME booths to them and recruiting and training women staff. The follow-up Small and Medium-Sized Enterprise Development Project (SMEDP) expects 15% of the loan amount to be taken by women entrepreneurs;8 a TA was given in conjunction with the project loan to help overcome constraints on women entrepreneurship development and to conduct awareness programs to promote women entrepreneurs. 13. Bangladesh Bank mandated that women sub-borrowers be given a reduced interest rate of 10% per annum against their normal market-based lending rates to promote women entrepreneurship. This appeared to be a questionable incentive, as PFIs reported that it was subject to abuse with the subloan proceeds being reinvested in term deposits earning 12.5%–13.5% interest rates per annum and earning a spread of about 2.5%–3.5% per annum. It was difficult for PFIs to monitor the use of subloan proceeds, especially subloans given for working 6 Twelve commercial banks and 15 NBFIs applied to become PFIs after meeting the eligibility criteria, but only eight

banks and seven NBFIs proceeded to utilize the loan. 7 Environmental impact assessment is a normal part of their credit assessments and made in accordance with

government guidelines which, in turn, are in accordance with ADB guidelines on environmental impact assessment.

8 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).

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capital, and men converting their trade licenses into women’s names to avail of that incentive. Instead of giving this concessionary interest rate of 10% for women, the better option for the Bangladesh Bank would have been to aggressively promote women entrepreneurship and skills development programs to prepare them to undertake new SME business ventures. However, onlending and relending from ADB’s project loan to women entrepreneurs were offered at the prevailing market rate.

14. The 3,264 subloans provided additional employment for about 4,300 persons (about 30% or 1,300 estimated as women) or about 1.3 persons per subloan. On an estimated total capital investment of about $38.30 million under the project,9 this works out to a capital investment of about $8,900 to create one additional job, which appears reasonable. Additional employment creation would have been larger had more of the ADB loan gone into financing the manufacturing industry. Characteristics of subloans or subprojects show that only 27% went for industry, while 73% went for trading and services. Bangladesh Bank, being aware of the issue, has informed PFIs to give priority for promoting new manufacturing enterprises to help create additional employment. Also, most of the subloans were given for expansion of existing enterprises rather than for creating new ones, mainly because of the risk factor. The World Bank had funded the Equity Entrepreneurship Fund, being operated by the Investment Corporation of Bangladesh, to finance new entrepreneurs.

c. Performance of Participating Financial Institutions 15. The PCR mission visited the six banks (Eastern Bank, Dhaka Bank, Prime Bank, One Bank, City Bank, and Bank Asia), IDLC, and some of their district branch operations as well as subprojects financed by them in both Dhaka and other outlying districts. As stated earlier, together they disbursed about 86% of the total loan proceeds. Their operational and financial performance was satisfactory with significant portfolio growths, and maintaining strong financial positions and profitability. Based on 2010 results, most of them declared attractive bonus shares and cash dividends for shareholders as well as bonuses for staff. All of them had corporate governance procedures in place (e.g., internal audit and management committees, credit risk management, asset–liability management, and external audits done by reputed and private audit firms). Audited financial statements were prepared within a few months of closing their financial year on 31 December, enabling them to have their annual shareholders’ meetings also within a few months of closing their financial year. Bangladesh Bank appeared to have a strong oversight on them in terms of meeting banking and prudential regulations, and giving them support especially for promoting SMEs. The satisfactory operational and financial performance of these six banks and IDLC is further confirmed by good credit ratings given by credit rating agencies and a due diligence done by the PCR mission (Appendix 6). The PCR mission also conducted a base-level survey of some subprojects assisted by these PFIs that showed satisfactory performance (Appendix 7).

3. Technical Assistance Loan 16. The TA loan for $5 million was designed to achieve the outputs considered necessary to achieve the envisaged outcomes and objectives of the program loan. Its implementation and loan closing date was delayed by about 2 years (closed on 30 June 2010 against the original scheduled date of 30 June 2008). This was mainly due to the time taken for recruiting consultants and for rationalizing the operations of BSCIC and SCITI. However, during the intervening period between the closing date and this PCR (about 9 months), further progress

9 Based on the ADB loan investment of $29.5 million and estimated additional equity contribution of 20% by the

entrepreneurs, PFIs, and other creditors contributing another 10%.

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had been made in rationalizing the operations of BSCIC and SCITI, and the TA loan had now been substantially implemented and achieved its objectives as outlined in Table 1. Those outputs were a result of the work done by national and international consultants engaged under the TA loan (Appendix 3). The needs of women entrepreneurs were also addressed through the intervention of some of the components of the TA loan. Details on gender equity and women’s empowerment are in Appendix 9. C. Program Costs

1. Program Loan

17. The total adjustment costs were estimated at $33.4 million equivalent (RRP, Table 1, para. 59)10 and to be financed by an ADB program loan of $15 million equivalent and government contribution of $18.4 million equivalent. Most of these costs have been incurred with the satisfactory completion of the SMESDP.

2. Project Loan 18. The project cost was estimated at $257.8 million ($62.4 million in foreign currency and $195.4 million in local currency), to be financed by loans of $30 million from ADB, $10 million from the World Bank, and $16.7 million from the government, $30.9 million from PFIs, $85 million in credit from other sources, and an SME beneficiary contribution of $85.21 million. Details of the project cost and financing plan were given in the RRP, para. 79 and Table 2. ADB and the World Bank made their contributions up to the expected amounts. The expected contributions were also made by government, PFIs, other creditors, and SME beneficiaries, but they could not be precisely quantified due to the lack of reliable data.

3. Technical Assistance Loan 19. The TA was estimated to cost $8.46 million ($3.36 million in foreign currency and $5.10 million in local currency), to be financed by an ADB TA loan of $5.0 million ($3.36 million in foreign currency and a portion of the local currency cost amounting to $1.64 million), and by the government (local currency cost of $3.46 million). Details of the TA cost and financing plan were given in the RRP, para. 91 and Table 3. D. Procurement, Disbursements and Environmental Aspects

1. Program Loan 20. The first tranche of $5 million equivalent was disbursed on 27 December 2005 upon effectiveness of the loan and fulfillment of the first tranche release conditions. The second tranche of $10 million equivalent was expected to be released by the end of June 2007 (RRP, para. 60), but because of the delay of about a year in fulfilling the related tranche release conditions, it was disbursed on 22 July 2008. At appraisal, an environmental assessment was carried out and no specific environmental mitigation or monitoring requirement was identified (RRP, Supplementary Appendix 2).

10 The adjustment costs included (i) development of SME policy and development framework and institutional setup;

(ii) loss of revenue from tax incentives to small enterprises; (iii) establishment and operation of SME support infrastructure; and (iv) rationalizing and improving government assistance to SMEs including restructuring BSCIC SCITI, and upgrading facilities and capacity of BSTI.

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2. Project Loan 21. The project loan of $30 million equivalent was available for 5 years from the effectiveness of the SMESDP. It was expected to be completed by 30 June 2010 and closed on 31 December 2010. As stated in para. 11, the project loan was committed and disbursed earlier than expected with the final loan closing date of 21 June 2010. The loan was committed and disbursed to the extent of $29.492 million.11 Disbursements were in accordance with the guidelines outlined in RRP, paras. 80–81.

3. Technical Assistance Loan 22. The TA loan of $5 million equivalent was revised up to $5.07 million based on exchange rate variation during the implementation period. It was expected to be implemented over 2.5 years and closed on 30 June 2008. Because of delays in selecting the needed consultants and equipment, disbursements took longer than expected with the first disbursement taking place in December 2005 and the final one in November 2010, i.e., spread over about 59 months. The TA loan was closed on 29 November 2010, after two extensions, against the original scheduled date of 30 June 2008. At the date of loan closing, $3.22 million had been disbursed and $1.84 million (36%) had been cancelled. Disbursements mainly related to the costs of foreign consultants (27%), training and seminars (19%), imported equipment (6%), and the balance of 48% for domestic equipment and consultants, vehicles, reports, and communications. Disbursements were in accordance with ADB’s Loan Disbursement Handbook 2001 (RRP, para. 95). Of the $3.46 million expected from the government, contributions in kind were estimated at about $1.30 million. An environmental assessment was carried out and no specific environmental mitigation or monitoring requirement was identified (RRP, Supplementary Appendix 2). E. Program Schedule

1. Program Loan 23. The first tranche of $5 million equivalent was released on 27 December 2005 against the revised target date of 31 December 2005 (original target date was 30 October 2005) on the satisfactory completion of the required 10 policy conditions. The second tranche of $10 million equivalent was expected to be released on 30 June 2007, but due to the nearly year-long delay of the satisfactory completion of the required 13 policy conditions, the target date for release was revised for 30 June 2008 and the second tranche was finally released on 22 July 2008 with satisfactory compliance of 10 conditions, partial compliance of two conditions, and a waiver of one condition with partial compliance. The delay in implementing the TA loan (para. 16) led to delays realizing outcome 3 of the program loan (define government support to SMEs and improve SME access to various services, including the restructuring of BSCIC and SCITI). The original closing date of the program loan (31 December 2007) was extended to 31 December 2008, and the program loan account finally closed on 21 June 2010.

2. Project Loan

24. As stated earlier, the commitment and disbursement procedures under the project loan of $30 million equivalent were ahead of schedule. The project loan was closed on 21 June 2010 against the original scheduled date of 31 December 2010.

11 The actual disbursement at loan closing on 21 June 2010 came to $30.235 million including interest during

construction.

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3. Technical Assistance Loan 25. The TA loan of $5 million equivalent was expected to be implemented over 2.5 years and closed on 30 June 2008. Its implementation, however, was delayed by about 2.5 years mainly due to delays in recruiting consultants. Following two extensions, it was closed on 29 November 2010 against the original scheduled date of 30 June 2008. F. Implementation Arrangements 26. The implementation arrangements (RRP, paras. 96–99) for the SMESDP were followed during implementation. The Finance Division under the Ministry of Finance, as the executing agency, took overall responsibility for SMESDP implementation. MOI implemented the TA and program loans, while Bangladesh Bank implemented the project loan. These arrangements were found adequate and effective for satisfactory implementation of the SMESDP. G. Conditions and Covenants 27. There were 23 program loan conditions and covenants for the release of the two tranches of the program loan (paras. 5–6). All 10 conditions related to the release of the first loan tranche were fully met on time. Of the 13 conditions related to the release of the second tranche, 10 were fully met, two were partially met, and one was waived although it was also partially met. These three conditions were relevant to achieving the envisaged outcomes of the program loan, and substantial progress was being made to achieve them but they were waived to facilitate disbursement of the second loan tranche. However, due to the continuing efforts of MOI and the ADB Bangladesh Resident Mission, the three waived conditions have now been fully complied with within the loan closing date of 21 June 2010. 28. Covenants on the project and TA loans ( Appendix 4) have also been fully met except for one under the project loan, i.e., Bangladesh Bank is required to submit a report to ADB on the execution and initial operation of the project loan within 3 months of completing the project loan. Based on the original closing date of the project loan (31 December 2010), the report was due on 31 March 2011. However, since the closing of the project loan was advanced by about 5 months to 21 June 2010, the report became due by 21 September 2010. The report has been submitted by Bangladesh Bank to ADB on 14 July 2011. H. Associated Technical Assistance Grant 29. The TA grant for $600,000 was given in conjunction with the SMESDP to provide the technical advice and resources needed for capacity building and assist SMEDP implementation. The TA completion report prepared on the TA grant rated it partly successful as some activities were not fully delivered and not all targets and outputs were met. The TA contributed substantially to monitoring and providing guidance to the executing agency, implementing agency, and ADB review missions for implementing SMESDP activities. Major outputs of the TA were (i) a SME action program for implementation, (ii) operational guidelines and an organizational plan for the SME cell, (iii) documentation for establishing the SMEF, (iv) detailed activities to be implemented under the gender action plan, and (v) a women’s entrepreneurial forum concept note. The activities that were not delivered by the consultant team were: (i) securing feedback and recommending appropriate improvements and corrective actions to ensure the effective administration of training programs, (ii) the timely monitoring of tranche release conditions and (iii) the implementation of the benefit monitoring system. The TA closing

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date needed extension by about 1.5 years from the original target date of 31 December 2007 to 30 June 2009 to submit the TA final report and to settle outstanding bills, among other things12. I. Consultant Recruitment and Procurement 30. Procedures to be followed for recruiting consultants to assist with the TA loan implementation were outlined in the RRP, paras. 93–94, and a summary of consulting services and the selection method to be employed were given in the RRP, Table 4. A total of 95 person-months of international consultants and 160 person-months of domestic consultants were estimated to be required for proper implementation of the TA loan’s seven components. However, implementation of the TA loan was delayed considerably because of problems associated with the recruitment of consultants that were caused by both MOI and ADB. However, major delays occurred in the negotiation and signing of the contracts by the executing agency. 31. Generally, there appeared to be no political or bureaucratic will, for example, to restructure BSCIC, a priority institutional reform area of both the TA and program loans (para. 7). Probably due to this reason, the government did not come up, in a timely manner, with a restructuring plan or concept which ADB thought was necessary as the first step to reflect their commitment to restructure, prior to proceeding with recruiting the international consultant (the recruitment of the government identified international consultant was put on hold by ADB awaiting this plan). The technical assistance project proposal (TPP)13 that was prepared by MOI and approved by the government was not in line with RRP requirements and intended outputs. This was because it included new consulting positions14 and deleted some other positions included in the RRP.15 Therefore, it needed to be amended and this caused considerable delay in TA loan procurement and implementation.16 Also, MOI and ADB took time in placing the required advertisements, in the newspapers and in the ADB website, for the needed consultants which needed to be done prior to beginning the recruitment process. MOI also thought that ADB’s responses to their requests for approving the short lists of consultants were slow. As a result of these issues, the consultants could only start their work in the latter part of 2008 around the time the TA loan was originally expected to be closed, i.e., on 30 June 2008. Procurement under subloans given under the project loan followed ADB guidelines as outlined in RRP, para. 92. J. Performance of Consultants, Contractors, and Suppliers 32. The performance of the consultants under the TA loan is rated generally satisfactory. Once the consultants were employed, the expected outputs were more or less produced helping to achieve the envisaged outputs, outcomes and objectives. Subprojects financed under the project loan did not encounter any problems with associated contractors and suppliers of goods and services. 12 See ADB. 2009. Technical Assistance Completion Report on Support for Program Implementation and

Coordination of the Small and Medium Enterprise Sector Development Program in Bangladesh. Manila (IN.177-09 dated 10 July)for details.

13 Document prepared by a ministry to seek overall government approval for a TA project. 14 The new positions included were (i) national restructuring expert, (ii) international estate development expert,

(iii) national industrial development expert, and (iv) international SME development policy interface expert. ADB thought that these new positions were unnecessary as their terms of reference overlapped with those in the RRP.

15 RRP, Table 4 stipulated that components 4, 5, and 6 of the TA loan be undertaken by firms and the other four components (1–3, and 7) by individual consultants. However, the original TPP provided for recruiting only individuals for all seven components; hence, the TPP needed to be amended.

16 See also the report prepared on the SMESDP including the TA loan for MOI by Farook Chaudhury, international consultant and team leader, TA Grant (4507-BAN) dated May 2009.

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K. Performance of the Borrower and the Executing Agency 33. The performance of the borrower, executing agency and implementing agencies is rated generally satisfactory. Most of the outputs necessary for meeting the SMESDP objectives were implemented. However, the borrower could have performed better had the TA loan been implemented without a 2-year delay which was well within MOI’s control to avoid, and compliance with release of second tranche conditions could have been achieved earlier. Also, delays in restructuring of BSCIC and SCITI could have been minimized. The earlier the SMESDP could have been implemented, the earlier it could have contributed to SME development, accelerated economic growth, and poverty reduction. L. Performance of the Asian Development Bank 34. ADB performance is rated generally satisfactory. The SMESDP was a comprehensive intervention (involving policy and institutional reforms, and facilitating access to credit) aimed at accelerating SME development to contribute to rapid economic development and poverty reduction. However, as discussed earlier, the SMESDP could have been better designed (para. 8). 35. ADB fielded eight review missions including an inception mission in September 2005 and a midterm review mission in June 2007 from both headquarters and the resident mission. These missions, the project administration memorandum (PAM), and the close support and monitoring done by the resident mission facilitated SMESDP implementation. It would have been helpful, however, had the inception mission indicated to MOI at the beginning of TA loan implementation the need to prepare the TPP strictly in accordance with RRP and loan agreements. That would have helped to avoid the delay that was encountered in getting MOI to make frequent changes to the TPP. Also, transferring the administration of SMESDP implementation to the resident mission from the inception stage would have in all probability facilitated a smoother and quicker implementation. As it worked out, there were gaps in communication between MOI and ADB headquarters that contributed to some of the delays in implementation.

III. EVALUATION OF PERFORMANCE A. Relevance 36. The SMESDP was highly relevant at appraisal as reflected by the strong rationale for establishing it. The government placed a high priority for SME development as a vehicle for rapid economic development and poverty reduction. However, its relevance could be enhanced if the delay in implementation could be avoided by the borrower to have the SMESDP implemented timely and have the needed outputs produced to achieve the envisaged outcomes and objectives. The delays during implementation were well within the government’s control. The fact that the delays were not avoided indicated that government ownership of the SMESDP did not continue to be as strong as at the time of the appraisal. However the government formulated the SME strategy and policy on time and the Industrial policy 2005 earmarked and identified SMEs as target sector for sustainable industrial development in the country. In addition the rapid expansion and growth of SMEs have been highlighted significantly in the poverty reduction strategy paper of the government. Under the circumstances, the SMESDP could now only be rated relevant.

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B. Effectiveness in Achieving Outcome The SMESDP was effective in achieving its envisaged outcome. The needed outputs were produced, such as the rationalization of government assistance for SME development, a web portal and virtual front office, an e-government program, helpline outreach centers (HOCs), capacity building (rural enterprise training, women entrepreneur training, and SME lending capability of PFIs), an upgraded product certification system, and an integrated SME database. These outputs together helped achieve the envisaged outcomes and objectives of the SMESDP. Bangladesh now has a policy strategy and institutional framework for further promotion and development of SMEs. Also, the SMEF is now operational; it is in the form of a public–private partnership and is performing as a dedicated agency responsible for SME development on a sustainable basis. It was estimated in the RRP (para 106) that about 10,000 subloans/ subleases would be financed through PFIs though the DMF did not include this target. This could not be achieved because the disbursed average loan size was approximately $15,000 (allowable size range was $3,368 to $84,211 using exchange rate at appraisal). To achieve the above mentioned target for subloans the required average loan size would have to be only $3000, which means that the size of the majority of the loans would be below the lowest targeted loan size. C. Efficiency in Achieving Outcome and Output 37. There was considerable delay in implementing the SMESDP. As indicated earlier, there was about a year delay in meeting the conditions necessary for releasing the second loan tranche. Altogether, the program loan was closed after a delay of about 2.5 years in June 2010 against the appraisal targeted date of December 2007. Similarly, TA loan implementation was also delayed by about 2 years with the TA loan being closed in November 2010 against the appraisal target date of June 2008. Also, some activities under the TA loan were still being implemented at the time of the PCR, i.e., about 9 months after TA loan closing. However, the major outputs produced helped achieve the envisaged outcomes and objectives of the program. The project loan, however, was implemented ahead of schedule with the actual loan closing in June 2010 against the appraisal targeted date of December 2010. Since two of the three SMESDP projects were delayed, the SMESDP is rated less efficient in achieving its targeted outcome and output. D. Preliminary Assessment of Sustainability 38. Since 2005, a considerable amount of work had been done by the government to establish an environment that was conducive for SME and private sector promotion. The government put in place the necessary policy (Industrial Policy, 2005 and SME Policy Strategy, 2005) and the institutional framework (rationalized SME service agencies such as the BSCIC, SMITI, and BSTI; web portal and virtual front office in MOI; HOCs; and e-government system). Other supporting arrangements made were: privately owned and experienced PFIs providing access to credit for SMEs; tax incentives; and setting up of the SMEF on a public–private partnership basis to promote SMEs and private sector development. These efforts reflected the government’s ownership and commitment to promoting SME development, and it could be reasonably assumed that such commitment would continue in the future and that the necessary budget resources would continue to be given to SME service providers, such as BSCIC, SMITI, and BSTI, to carry out their activities effectively and efficiently. Also, the government has set up the SMEF to bring about a private sector orientation in promoting SMEs which was a positive development. The PFIs and subprojects assisted by the project loan appeared to be operating on a viable basis albeit with loan arrear concerns on some subloans. ADB’s follow up SMEDP

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provides support for continuation of the work done under this project loan. Under the circumstances, sustainability of the SMESDP objectives is rated likely. E. Institutional Development 39. The government’s achievement in institutional development for the growth and expansion of SMEs is significant. The government has established the SMEF, an apex body for SME promotion, in 2006, and SMEF has assumed the responsibility of implementing SME related policies. Before that, the government approved the SME policy strategy 2005 and Industrial policy 200517; including taking appropriate measures to strengthen the institutional framework for rationalizing SME service agencies (e.g. BSTI, SCITI). F. Impact 40. The RRP, paras. 104–108 outlined the expected benefits and impacts of the SMESDP. Although the immediate impact had not been as significant as that estimated by the appraisal, the impact so far had been positive and was expected to increase further in the long term as the policy and institutional reforms introduced become more established and were operating properly and efficiently with more effective enforcement. The SMESDP assisted about 3,300 subprojects and created about 4,300 additional jobs (about 30% of whom could be considered to be women). During the program period (2006–2010), BSCIC provided skills training to about 3,500 persons, and SCITI provided entrepreneurship development training to about 7,500 persons for a total of 11,000 persons. Also, BSTI carried out about 52,500 product testing and obtained accreditation for about 76 products (Appendix 8). Entrepreneurs were increasingly using services being provided by HOCs. Apart from the skills and entrepreneurship training, the SMESDP also made substantial contributions to institutional development and capacity enhancement. This was in terms of rationalizing the operations of BSCIC, SCITI (giving it more autonomy in its operations), and BSTI. SMESDP also helped to establish and operate the SMEF, HOCs, and e-government systems. The other contributions made by SMESDP are: establishing an integrated SME database and enabling PFIs to establish and operate a wide network of branches and SME centers and booths. The initiative of promoting women SME entrepreneurs was also undertaken by the government, BB, PFIs as an outcome of the program. The SMESDP had minimal impact on the environment, involuntary resettlement, and indigenous people. 41. The SMESDP helped ease some of the constraints on SME development. These were in terms of strengthening the policy and institutional framework, establishing entrepreneurship and skills development programs, providing access to information on government services available and on markets for local products, simplifying procedures for business registration, providing facilities to improve product quality, giving tax incentives, and expanding access to finance. The SMEF was set up on a private–public partnership basis and was mandated to promote SME development by supporting advocacy on behalf of SMEs, training, and bringing about policy and procedural improvements. All this should facilitate further SME development to help create additional jobs, accelerate economic growth rates, and reduce poverty levels. Of course, other prevailing constraints would also need to be simultaneously eased such as infrastructure bottlenecks, particularly a reliable supply of electricity and gas, to fully realize the intended benefits and outcome of the SMESDP.

17 Industrial Policy 2005 earmarked and identified SMEs as target sector for sustainable industrial development in the

country.

15

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 42. The SMESDP is rated successful. It continued to be relevant, achieved its outcome effectively (although it was less efficient in achieving outcomes and outputs due to the delays in implementing the TA and program loans), and the sustainability of its objectives is likely. A strong foundation had been laid for promoting SMEs: a policy strategy and appropriate institutions (SME Foundation, BSCIC, SMITI, BSTI), web portal and virtual window within MOI for SME use, and a well spread network of HOCs. Access to finance was also being provided by a vast network of about 50 banks (including the four nationalized commercial banks) and another 30 NBFIs with branches and SME booths and centers in regional areas. The banks and NBFIs were supportive of the SME sector as that sector provided them with the best prospects for growth and profitability. B. Lessons 43. Proper sequencing and program readiness. Proper sequencing of program activities is essential to ensure success. In the case of the SMESDP, gaps in program readiness led to delays in its implementation. As discussed in para. 8, adoption of a two-step approach would have been more appropriate; first, the TA loan to prepare the outputs needed and recommendations for implementation, followed by a second step of putting the SMESDP in place to implement the recommendations of the TA loan. The two-step approach might have taken a slightly longer time to implement, but it would have facilitated a smoother implementation of the program and ensured greater efficiency in achieving the program’s outcome and outputs. In addition, a project readiness filter could have been put in place to ensure readiness to implement the SMESDP the moment it became effective. 44. Compliance with RRP recruitments. The requirements for goods and services as incorporated in the RRP and loan agreement need to be strictly followed while preparing the TPP to ensure smooth TA implementation. Due to misunderstandings by the executing agency, the TPP prepared by the government was not able to meet the requirements; causing two problems. The first problem relates to the recruitment of consultants whose expertise did not match as mentioned in the RRP e.g., recruitment of two domestic consultants for rationalization of government assistance for SMEs when the RRP specified that two international experts namely restructuring expert and SME strategic development specialist, were needed for that purpose. The selection of two domestic consultants instead probably compromised the quality of output and caused considerable delay in processing the rationalization measures for BSCIC and SCITI. The second problem relates to the need for making amendments to the TPP that involved time-consuming procedures and caused delays in the recruitment of the needed consultants. All these led to an overall delay of about 2.5 years in closing the TA and program loans, thus caused delay in releasing the second tranche of the program loan. C. Recommendations

1. SMESDP-Related Recommendations a. Future Monitoring

45. A basic framework has now been set up in the country for accelerated promotion and development of SMEs. Steps would now need to be taken to build on this foundation in the following areas.

16

46. Expanding SME activities into regional areas. The SMEF is now in full operation and based in Dhaka. The seed money given to it by the government appears just enough, after meeting overhead and operational expenses, to conduct some advocacy and training. An increase in its budget resources by the government would need to be considered to spread its activities to the outlying regions by setting up operations, to start with, in the seven district headquarters. This would be another way to expand SME and economic development away from the major cities and into the less-developed areas of the country. Alternatively, the SMEF can coordinate and utilize the existing networks of BSCIC to reach the SMEs in rural areas. 47. Sustainability of SME development initiative. On the question of sustainability, the SMEF, which has been given the mandate for the aggressive promotion of SMEs, would need adequate resources to continue to carry out its mandate effectively and expand its operations into the districts along with other initiatives of Bangladesh Bank and MOI. 48. High loan arrears position. As indicated earlier, the loan arrears position is on the high side and, therefore, a matter for concern. The PFIs, Bangladesh Bank, and ADB would need to monitor this closely with the view to reduce it as early as possible.

b. Further Action or Follow-Up 49. Market-based interest rate on subloans for women entrepreneurs. It may be prudent to use market-based interest rates on subloans for women entrepreneurs instead of the reduced interest rate of 10% per annum mandated by Bangladesh Bank. This appears to be a misplaced incentive as opportunities for misuse could arise. There are other more viable options to promote women entrepreneurs, such as programs to raise awareness and to develop their entrepreneurial and technical skills. 50. Self-reliance of PFIs in resource mobilization. In 2009 ADB approved the second follow-up SMESDP project comprising a line of credit for PFIs to sublend to SMEs. Instead of continuing to provide lines of credit to these PFIs, the next step for ADB would be to make these PFIs self-reliant in raising the resources they need. In this regard, there were opportunities for the ADB Private Sector Operations Department to consider taking equity stakes, helping issue corporate bonds, and extending the trade facility to a selected number of viable PFIs. This would be a way to develop and expand private sector-owned financial institutions and to reduce the dominance of the nationalized commercial banks in deposit mobilization and allocation of funds for economic development.

c. Timing of the Program Performance Evaluation Report

51. It is recommended that a program performance evaluation report be prepared on the SMESDP within the next 12–18 months, i.e., around April–October 2012.

Appendix 1 17

PROGRAM FRAMEWORK

Design Summary Performance Indicators/Targets Monitoring Mechanisms Assumptions and Risks a Actual Achievement of Outputs

Goals Accelerate development of SME sector and enable SMEs to attain their full potential for contributing to sustainable economic growth and poverty reduction

• Income poverty reduced to 43% in 2006, 35% in 2010, and 25% in 2015 from 50% in the base year 2000

• GDP growth increased to meet the targets for FY2005-FY2007 under the PRGF of IMF

• Government macroeconomic and social statistics

• IMF review on the PRGF • BB’s annual reports

Purpose Enhanced growth of commercially viable SMEs and increased employment in the SME sector

• Employment in the SME sector increased by at least 8% p.a. during FY2005– FY2007

• SME loan portfolio of PFIs under the SEF increased to at least 15.8% p.a. on average, during FY2005–FY2007

• Government SME statistics • Report on development contributions of SMEs, including employment to be generated from SME database

• Surveys on SMEs • Report on loan portfolios of PFIs

with breakdown by size of enterprises

• Government’s commitment to reforms under the PRSP despite changes in Administration

• Reforms will continue to create a more conducive environment for private sector development

• Macro economy remains stable • Political stability is assured

Outputs 1. SME policy and development framework

• Government to approve the SME policy and development framework by December 2005

• Government’s announcement • Summary SME policy

disseminated to the public in Bangla and English in at least three newspapers of nationwide circulation

• Relevant agencies effectively implement SME development strategy and action program

SME policy and strategy, and Industrial policy 2005 were approved by the Cabinet in January 2005.

2. Institutional structure and mechanisms to implement the SME development strategy

• SME Advisory Panel constituted by December 2005

• SME Foundation established by June 2007

• Government’s announcement • Minutes of meetings of the SME

Advisory Panel and the Board of the SME Foundation

• Effective public-private partnership and active participation by private sector representatives in the SME Advisory Panel and SME Foundation

The government has established the SME Foundation, an apex body for SME promotion, in 2006, and SMEF has assumed the responsibility of implementing SME related policies.

3. Action program to support SME development strategy

• SME Cell organized at Ministry of Industries by December 2004

• SME development strategy and action program prepared by June 2006

• Progress reports of SME Cell • Government providing the needed resources for the SME Cell and SME Advisory Panel

Industrial policy 2005 earmarked and identified SMEs as a target sector and a single uniform definition of SMEs has been incorporated.

18 Appendix 1


4. Rationalized government assistance to SMEs

• MOI to complete human resource restructuring of BSCIC field and head offices by September 2006

• Initiate restructuring of BSCIC by June 2007 • Credit facilities administered by the Government rationalized by December 2006

• BSCIC’s human resource restructuring plan and profile of BSCIC’s staff

• Annual reports of BSCIC and other concerned agencies under MOI involved in the SME sector

• Quarterly progress reports of MOF CPCU and MOI

• Government committed to improve effectiveness of support for SMEs

• MOI has leadership to implement the study result without being politicized

Government took appropriate measures to strengthen the institutional framework for rationalizing SME service agencies (e.g. BSTI, SCITI).

5. Tax and Incentives • Government to provide tax incentives to small enterprises that have fixed investment (excluding land and buildings) less than Tk3 million to take effect from FY2006 (starting June 2005)

• Finance Act 2005 and Budget FY2005/06

• Tax regulations

• Government committed to give financial relief to small enterprises

The present tax law provides special tax treatment for SMEs including higher filing threshold.

6. Improved SME access to business support services and government assistance

• Integrated SME database to be developed fully by December 2006

• SME web portal operationalized by March 2006

• Helpline outreach centers operating in Dhaka and Chittagong by June 2006 and in at least half of the districts by December 2007

• Targeted SME training programs operationalized by June 2006

• BSTI’s special window for certifying SME products opened and operational by June 2005 • Accreditation Law introduced in Parliament by June 2006

• Accreditation Board established by December 2006

• Accreditation Board to apply for membership in the International Accreditation Forum by June 2007

• Government’s announcement for formation and operation of SME database, SME web portal, and helpline outreach centers

• Quarterly progress reports of MOF CPCU and MOI and BSTI’s annual reports

• Reports on SMEs to be generated from the SME database

• Operational plan and budget of helpline outreach centers

• Statistics of SME visitors to SME web site and helpline outreach centers

• Feedback from training participants

• Accreditation Law • Registration document,

business plan, organizational and board structure, and budget of the Accreditation Board

• Application for membership in the International Accreditation Forum

• IT capacity is internalized and sustainable

• Each system is continuously updated and upgraded by a dedicated unit

• A cost recovery system is established for sustainable implementation of the training programs

• Active participation by targeted training participants

• Active collaboration from private sector stakeholders

• Government’s commitment to reform and upgrade the product certification system

• Accreditation is effectively decentralized and properly monitored

• Recruitment of qualified staff and adequate budget for relevant agencies

Web-portal for SMEs has been developed, SME database is created and HOCs have been established in district towns. SME service booth at BSTI has been opened and is operational. Accreditation Board has also been established.

Appendix 1 19


7. Greater access to sustainable credit by SMEs

• SEF to be fully operational and head of unit in BB responsible for facility management to be designated prior to effectiveness of project loan

• SEF to be fully utilized by December 2010

• 10% of SEF earmarked for women entrepreneurs fully disbursed by December 2006

• PFI training programs established and PFIs’ staff undergo training programs by December 2006

• PFIs to set up formal SME units to provide advisory services by June 2007

• Report of BB on utilization of SEF including the proportion disbursed for women entrepreneurs, and on progress of subprojects financed by PFIs out of the subsidiary loans

• Certified copies of the audited accounts and financial statements on SEF within 6 months of the end of each fiscal year

• Feedback from PFI training participants and PFI clients

• Organizational structure of PFIs to indicate SME unit and staff

• PFIs find it cost effective to lend to small borrowers and actively engage in SME financing operations and expand their SME loan portfolios

• PFIs establish appropriate systems and procedures for SME lending operations

• Productive utilization of the loan by small enterprises

The project loan was disbursed approx 5 months ahead of the loan closing date. However, only approximately 5% loan money was disbursed among women entrepreneurs. PFIs established special window for serving the SMEs and women entrepreneurs.

Activities 1. SME Policy and Development Framework SME policy and action program for implementation of policy measures issued and disseminated to the public

• MOI to draft SME policy based on the Government’s policy directions, and the SME Task Force Report in consultation with stakeholders by June 2005

• MOI to prepare an action program for implementation of the SME development strategy under guidance of SME Advisory Panel by June 2006

• Documentation of consultation process including seminars, and roundtable discussions among stakeholders


• Government’s commitment to promote SME development

• Stakeholders will participate actively in the preparation and implementation of the SME policy and action program

Necessary measures were taken by the EA/IA.

2. Institutional Structure and Mechanisms to Support SME Development Establishment of institutional structure and mechanisms to implement and operationalize SME policy

• NCID to be designated as the body to be responsible for the promotion, growth, and development of SMEs

• SME Cell to be organized within MOI and adequately staffed for implementing the action program by June 2005

• Memorandum and articles of association of SME Foundation to be set up with at least 50% private sector representation on the board approved by December 2006

• MOI’s budget to provide for the operations of the SME Cell and subsequently the SME Foundation

• Memorandum and articles of association of the SME Foundation

• Budgetary support for SME Cell and SME Foundation

• Availability of qualified staff in the SME Cell and SME Foundation

• Effective implementation of the TA grant to support the SME Cell and assist in establishing the SME Foundation

SME foundation was established in 2006 incorporated under the companies’ act 1994 as a nonprofit organization.

20 Appendix 1


3. Rationalized Government Assistance to SMEs Rationalized incentive and tax structure for SMEs

• Tax amendments to allow 75% income tax rebate passed by June 2005

• Use of accelerated depreciation method for SMEs allowed by June 2005

• Finance Act 2005 and Budget FY2006

• Tax regulations

• Government’s commitment to provide tax incentives to small enterprises

Initiative has been taken by the government to provide some tax incentives to the SMEs though not fully in compliance of the RRP requirements.

More effective and streamlined operations of concerned agencies under MOI that interface with and provide services to SMEs including BSCIC

• Diagnostic studies on concerned agencies under MOI involved in the SME sector including BSCIC by December 2005

• Government to prepare restructuring plan, with TA loan assistance to enhance effectiveness of the concerned agencies by June 2006

• Restructuring plan for the concerned agencies approved by December 2006

• Review of credit facilities administered by the Government and preparation of rationalization plan for such facilities completed by December 2005

• Rationalization plan for credit facilities approved by June 2006

• Draft report and diagnostic analysis of the concerned agencies

• Restructuring or phase out plan including time-bound monitorable targets and progress reports on its implementation

• Business plan, organizational structure, staffing plan, budget, and audited financial statements of concerned agencies under the study of the TA loan

• Rationalization plan for credit facilities

• Government’s commitment to pursue restructuring of the concerned agencies

• Cooperation from employees of the concerned agencies to implement the restructuring plan and no politicization

• Private sector participation in the management of the restructured organizations

• Recruitment of professionals for the restructured organizations

The performance of the government in accomplishing the activity was not fully satisfactory, due to not recruiting the appropriate international consultant ( para 44).

4. Improved SME Access to Business Support Services and Government Assistance Support infrastructure to improve SME access to market information and government services

• SME sampling frame completed by September 2005

• Nationwide survey of SMEs for establishment of SME database completed by March 2006

• Database updated with survey data by June 2006

• TA loan to assist in developing SME web site to commence by June 2005

• TA loan to assist in establishing helpline outreach centers to commence by June 2005


• TA loan progress reports • SME sampling frame and

registry of SMEs • Survey results

• Adequate budget and qualified staff.

• Timely implementation of the TA loan.

• Upgraded telecommunication facilities for nation-wide and global Internet linkages.

• No bureaucratic or technical problems.

• Collaboration and deployment of resources by chambers and associations.

Appropriate actions were taken to accomplish the activity. Conducted survey and a database is developed.

Appendix 1 21


Enhanced access to capacity-building assistance

• Training needs assessment to commence by June 2005

• TA loan to assist in developing and implementing targeted SME training programs for SMEs in rural areas, women entrepreneurs, and displaced workers in the RMG industries to commence by June 2005

• First meeting of the forum for women labor and women entrepreneurs to express their training and capacity-building needs as well as other constraints in operating their businesses to be held by July 2005. Subsequent meetings to be held at least semiannually.

• Quarterly progress reports of MOF CPCU and MOI/SCITI

• TA loan progress reports • Workshop syllabus and reports • Feedback from training

participants • Progress report on gender

action plan for women entrepreneurs targeted training programs and retraining of RMG workers

• Minutes of meetings of the forum for women labor and women entrepreneurs

• Availability of qualified staff of SCITI, FBCCI, women entrepreneurs’ associations, and district chambers and line associations of FBCCI • Active collaboration of SCITI and the above chambers and associations

Completed the training needs assessments and training were provided.

Product certification system upgraded to international standard

• Cabinet to approve draft Accreditation Law by June 2005

• Implementation of TA loan for improving product certification system to commence by June 2005


• TA loan progress reports

• Recruitment of qualified experts and timely implementation of the TA loan.

• Availability of qualified technical staff and facilities of BSTI

Completed.

5. Greater Access to Sustainable Credit by SMEs SEF for small enterprises in the “missing middle”

• Loan to become effective by June 2005

• SMESDP loan effectivity • SEF progress reports of BB

SEF was established

Capacity building of PFIs and training of SME finance staff for SME lending

• Consultants to identify PFIs that need capacity-building assistance by July 2005 and to commence capacity-building activities by September 2005

• TA loan to assist in developing and implementing training programs to commence by June 2005

• Quarterly progress reports of MOF CPCU and MOI/SCITI

• TA loan progress reports • Workshop syllabus and

consultant reports

• PFIs’ commitment to set up or strengthen their SME finance units

• Availability of qualified SME finance staff in PFIs

Achieved.

22 Appendix 1

Inputs

• Program loan ($15

million equivalent) • Project loan for SEF

($30 million equivalent) • TA loan ($5 million

equivalent) • Advisory TA ($600,000

equivalent) • Staffing and budget of

CPCU and implementing agencies

• Program loan to be released in two tranches, the first tranche of $5 million equivalent by June 2005, and the second tranche of $10 million equivalent by June 2007

• Project loan to contribute to SEF • TA Loan to provide for consulting

services, seminars and workshops, reports and surveys, and equipment. It will engage 95 person-months of international and 160 person-months of domestic consultants.

• TA grant to facilitate program coordination. It will engage 10 person-months of international and 48 person-months of domestic consultants.

• Quarterly progress reports of MOF CPCU and IAs

• ADB review missions • Annual budget allocations for

agencies/institutions that are mandated to provide support to SMEs

• Government meets effectiveness conditions and complies with loan covenants

• Counterpart budget is available when required

• Counterpart staff and facilities are available

• Competent consultants are timely mobilized

Both the tranches of the Program loan were disbursed amounting to $15.64 million. $ 30.23 million Project loan was disbursed. TA loan was disbursed for $ 3.23 million

ADB = Asian Development Bank, BB = Bangladesh Bank, BSCIC = Bangladesh Small and Cottage Industries Corporation, BSTI = Bangladesh Standards and Testing Institution, CPCU = central program coordination unit, EA= Executing Agency, FBCCI = Federation of Bangladesh Chambers of Commerce and Industry, GDP = Gross Domestic Product, IA =implementing agency, IMF = International Monetary Fund, IT = information technology, MOF = Ministry of Finance, MOI = Ministry of Industries, NCID = National Council for Industrial Development, PFI = participating financial institution, PRGF = Poverty Reduction and Growth Facility, PRSP = Poverty Reduction Strategy Paper, RMG =readymade garment, RRP= Report and Recommendation of the President, SCITI = Small and Cottage Industries Training Institute, SME = small and medium enterprise, SMEF= Small and Medium Enterprise Foundation, SMESDP = Small and Medium Enterprise Sector Development Program, SEF = Small Enterprise Fund, TA = technical assistance. a

Factors listed are assumptions. No risk factors.

Appendix 2 23

POLICY MATRIX

Component Actions Taken Prior to Board

Consideration First Tranche Second Tranche Progress / Achievement Policy Outcome 1: Establish Small and Medium Enterprise (SME) Policy and Development Framework 1.1 Declare SMEs as a priority sector under Government Policy

Government to state the development of SMEs as a priority under the Industrial Policy and the Poverty Reduction Strategy Paper.a

Complied with.

1.2 Formulate an SME Policy and development framework

Government to establish a Task Force for SME Policy Development. Government to hold a national workshop with the participation of various stakeholders, including the Government, private sector, financial institutions, donors, nongovernment organizations, and research and academic institutions, in order to identify problems, constraints, opportunities and issues regarding the development of SMEs in the country. Government Task Force to prepare and submit its recommendations for SME development, based on the results of the national workshop, to the Prime Minister.

Government to adopt a single, uniform definition of SMEs and incorporate such definition under the Industrial Policy.a National Task Force on Development of SMEs to finalize and submit the Report on Development of SMEs to the Government for the formulation of the SME Policy.a

Government to approve the SME Policy and disseminate the summary SME Policy to the public in the Bangla and English languages in at least three newspapers of nationwide circulation.a

Complied with.

Policy Outcome 2: Establish Institutional Framework and Mechanisms to Support SME Development 2.1 Set up an structure and mechanism to implement the SME Policy and development framework

National Council for Industrial Development (NCID) to be responsible for the promotion, growth, and development of SMEs, in addition to its other responsibilities under the Industrial Policy.a Ministry of Industries (MOI) designated to implement SME Policy.a SME Cell organized within the MOI to implement the SME development action program.a

SME Advisory Panel to be constituted and mandated to develop an action program to implement the SME Policy. The Panel will consist of representatives from the MOI and other concerned ministries, industry associations, and representatives from the private sector and academia, and report to the Guidance Committee set up under the Industrial Policy.a Government to approve Memorandum and Articles of Association for setting up SME

Complied with.

24 Appendix 2


Consideration First Tranche Second Tranche Progress / Achievement Foundation, with at least 50% private sector representation on the Board and a Chief Executive Officer recruited from the private sector, to be set up to assume the responsibilities of implementing the SME Policy from the SME Cell and to take over, in a phased manner, management of SME credit facilities currently directly administered by the Government.a

Policy Outcome 3: Define Government Support to SMEs, and Improve SME Access to Various Services 3.1 Rationalize Government assistance to the SME sector including the restructuring of Bangladesh Small and Cottage Industries Corporation (BSCIC) and other concerned agencies under MOI involved in the sector and rationalization of direct credit assistance currently provided

Government to take policy decision regarding human resource restructuring of BSCIC field offices.

MOI to commission a study to be financed by the Technical Assistance (TA) loan to determine effective approaches for delivering assistance to SMEs, including possible restructuring options for BSCIC. Government to take policy decision regarding human resource restructuring of BSCIC head office. MOI to commence review of individual cases under restructuring plan for BSCIC field offices.

MOI to implement recommendations from the study funded by the TA Loan, including the submission of a time-bound monitorable plan, commencement of implementation of recommended actions, and possible overall restructuring of BSCIC.a MOI to complete human resource restructuring of BSCIC field offices and head office.a

Complied with.

3.2 Rationalize incentive and tax structure for SMEs

As part of the recommendations of the National Task Force on Development of SMEs, Government to review the current fiscal incentives being provided to SMEs with the end in view of enhancing fiscal support to SMEs.

Government to provide tax incentives to SMEs to take effect from assessment year FY2005/6; by then, for SMEs with fixed investment (excluding land and buildings) less than Tk3 million, provide, as a minimum, (i) a 75% income tax rebate, and (ii) accelerated depreciation rates for, inter alia, plant and machinery. Such tax incentives to apply for a

Partially complied with and a waiver was approved by the Board.

Appendix 2 25


Consideration First Tranche Second Tranche Progress / Achievement minimum period of 5 years for SMEs located in Dhaka, Chittagong, and other major cities, and for a longer period to SMEs located in underdeveloped and undeveloped areas. Such tax incentives will not apply to SMEs availing of tax incentives under existing export incentive schemes.a

3.3 Enhance SME access to market and Government services

MOI to constitute committee for implementation of e-governance that will include (i) the development of an SME web portal/virtual front office, and (ii) the establishment of SME helpline outreach centers to provide coordination and assistance for facilitating access to Government services by SMEs.a

MOI to operationalize the SME web portal/ virtual front office to provide information on market opportunities regarding SMEs and to facilitate access to Government services by SMEs, including start-up assistance.a MOI/BSCIC, in partnership with the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), and district chambers and line associations of FBCCI, to establish SME helpline outreach centers at the district offices of BSCIC to assist SMEs in their organizational and expansion activities.a

Complied with.

3.4 Enhance SME access to capacity building

Government to upgrade Small and Cottage Industries Training Institute (SCITI) from a development project to a regular revenue budget agency of BSCIC.

MOI to recruit experienced professionals and faculty members for SCITI.a SCITI in collaboration with FBCCI, district chambers and line associations of FBCCI, accredited women entrepreneurs’ associations, and National Association of Small and Cottage Industries of Bangladesh (NASCIB) to commence a training needs assessment for SMEs, for the development of suitable and affordable training programs to reach out to SMEs, particularly those located in rural areas,

SCITI in collaboration with FBCCI, district chambers and line associations of FBCCI, accredited women entrepreneurs’ associations, and NASCIB to offer training programs in accordance with the results of the training needs assessment.a

Complied with.

26 Appendix 2


Consideration First Tranche Second Tranche Progress / Achievement participating financial institutions under the Small Enterprise Fund (SEF), women entrepreneurs, and displaced workers in the readymade garment industry.a

3.5 Enhance SME access to product certification and upgrade product certification system to international standard

MOI to draft Accreditation Law. Bangladesh Standards and Testing Institution to set up a special window for certifying SME products.a Cabinet to approve draft Accreditation Law.

Government to introduce Accreditation Bill before Parliament.a Government to set up an autonomous Accreditation Board.a Accreditation Board to apply for membership in International Accreditation Forum.a

Complied with.

3.6 Develop an integrated SME database

Bangladesh Bureau of Statistics (BBS) to publish report on the Census of Non-Farm Economic Activities (urban and non-urban, 2001–2003).

MOI and BBS to prepare a registry of enterprises (nonagricultural) and conduct a nationwide survey of SMEs for establishment of an integrated SME database that will serve as the basis for monitoring SME performance and development and for targeting assistance.a

Complied with the requirement of the first tranche release and Partly complied with the requirement of the second tranche release ( however, fully complied with later on)

a Tranche release condition.

Appendix 3 27

IMPLEMENTATION STATUS OF TECHNICAL ASSISTANCE LOAN Component Achieved 1. Rationalization of

government assistance BSCIC. Restructuring now completed satisfactorily with previous 2,200 staff cadre reduced (through retirement and staff rationalization measures) to the needed cadre of about 1,500, including 300 vacancies now being filled to meet its mandated purposes. BSCIC also now becoming more self-sustainable with government meeting only staff salaries, and other operational expenses being met from fees collected (consulting, training and subcontracting). SCITI. Rationalized with recruitment of new staff expertise, revising curriculum to introduce new courses more appropriate to the present requirements of SMEs, sending staff (about 30) to India to get professional training, undertaking training of ministries (e.g., agriculture, fisheries), and now playing an important role in human resource development. BSTI. Now rationalized (see component 5 below). Directed credit. The SME Foundation mandate provides credit wholesaling (not direct lending) to financial institutions, operations of ADB project loan ($30 million equivalent) under the SMESDP to be turned over by Bangladesh Bank to the SME Foundation in a phased manner, and portion of the SME Foundation accumulated fund being used for credit wholesaling to financial institutions (e.g., Mutual Trust Bank and MIDAS) for cluster financing of cluster SMEs and for SME training.

2. Development of web portal and virtual front office

A web portal and or virtual front office, designed by an international consultant, now in operation. It provides information on various government services available for SMEs, two-way information on market opportunities to SMEs and foreign buyers on SME products and services, and links for SMEs to foreign markets. Also, the e-governance project, being implemented by MOI, set up IT systems, website, internet, and networking within MOI, including online registration of SMEs. These services are now being used by SMEs.

3. Establishment of helpline outreach centers

As planned, helpline outreach centers have been set up in cooperation with the Federation of Bangladesh Chambers of Commerce and Industry and other district chambers in all 64 districts of BSCIC, plus an additional seven in business chambers, trade bodies, and women entrepreneur associations. They are now operational and assist SMEs in their organizational and operational activities. SMEs found these services useful and they are being used extensively.

4. Targeted SME capacity building

4.1 Rural enterprise training 4.2 Women entrepreneurs

training 4.3 Retraining of displaced

ready-made garment workers

4.4 Development of SME lending capability of PFIs

Considerable amount of training has taken place: Rural enterprise training. Target was to provide training to about 16,000 persons in various fields (example, entrepreneurship and skills development). So far, 11,000 have been trained by BSCIC and SCITI, and this work is continuing under other projects (example, under the SME Foundation); Women entrepreneurs training. Same training as under Rural Enterprise Training, i.e., in development of entrepreneurship and skills for women done in cooperation with the Federation of Women Chambers of Commerce, Chittagong Women Chambers of Commerce, NASCIB, Bangladesh Industrial and Technical Assistance Center (BITAC), and the Women Entrepreneur Association of Bangladesh; Retraining of displaced ready-made garment workers. Since any displaced person could find employment in the growing ready-made garment industry, funds allocated for this purpose were used to address the key constraint of SME access to finance on the recommendation of the ADB midterm review mission in June 2007; and

28 Appendix 3

Component Achieved Development of SME lending capability of PFIs. Banking expert that was hired prepared guidelines for such lending and conducted a workshop for bankers on SME financing. Now all 80 financial institutions in the country (private and government-owned) have specialized SME lending windows, and are coming up with innovative products to compete in the growing SME market.

5. Upgrading of product certification system

Accreditation Act approved in 2006, and an autonomous Accreditation Board with appropriate organization and staff set up. BSTI started fixing standards for various products, providing testing facilities, issuing product certificates to SME products, and also started examining standards of products in the open market on a random basis. Membership in the Asia-Pacific Laboratory Accreditation Cooperation was obtained in 2007, and membership in the International Accreditation Board was obtained in 2010.

6. Integrated SME database development

The Bangladesh Bureau of Statistics has completed the Business Registry. Also an integrated SME database was published in June 2009. This was prepared by an international consulting firm using a sample method to update statistics of the national census 2003–2004.

7. Environmental assessment and monitoring

ADB midterm review mission in June 2007 recommended integrating this component with component 4 to reduce complexity and to focus on establishing the proper environment and social safeguard management systems in PFI lending and monitoring processes. PFIs have set up environmental impact assessment procedures and were following them in their due-diligence exercises with respect to their lending and supervision work.

BSCIC = Bangladesh Small and Cottage Industries Corporation, BSTI = Bangladesh Standards and Testing Institution, MOF = Ministry of Finance, NASCIB = National Association of Small and Cottage Industries of Bangladesh, SCITI = Small and Cottage Industries Training Institute, and SME = small and medium-sized enterprise.

Appendix 4 29

STATUS OF COMPLIANCE WITH COVENANTS

Table A4.1: Program Loan

Covenant

Reference in Program

Loan Agreement Timing Status

1. Program Implementation Program Executing Agency 1. The Finance Division of MOF (MOF-FD) shall be the Program Executing Agency. MOF-FD shall organize a Central Program Coordination Unit (CPCU), which will coordinate activities between the various entities in delivering outputs of the Program. CPCU shall be in charge of supporting and overseeing the implementation of policy actions including compliance with tranche release conditions and related Project loan components under the SME Sector Development Program and related TA loan components. The CPCU shall liaise with the implementing agencies for the Program loan, the Project loan and the TA loan to ensure effective management, close monitoring and timely reporting of the SME Sector Development Program. The CPCU shall ensure timely submission by each implementing agency of reports for consolidation and submission to ADB. The CPCU shall be the focal point for coordination of the SME Sector Development Program and communication with private sector stakeholders and external agencies regarding the Program. The CPCU shall be headed by the SME Sector Development Program Coordinator at the level of Joint Secretary directly reporting to the Secretary, MOF-FD (such coordinator shall also function as the Project Director), shall be assisted by the consultants to be engaged under the TA.

Schedule 5, para. 1

Program commence-ment

Complied with. CPCU established and headed by a project director.

Program Implementing Agency

2. MOI shall be the Program implementing agency. The SME Cell established in MOI shall provide secretariat support initially to the SME Task Force, and subsequently to the SME Advisory Panel in drafting the SME Policy and Development Framework and Action Program, and shall be responsible for implementing the SME Development Strategy and Action Program. The SME Cell shall also undertake policy research and prepare reports for consideration by the Guidance Committee. MOI shall prepare quarterly reports on the Program Loan and submit such reports to MOF-FD for submission to ADB.

Schedule 5, para. 2

Program commence-ment and during implementation

Complied with. SME cell established within MOI and provided the services outlined.

II. Other Matters Use of Counterpart Funds 3. The Borrower shall ensure that the Counterpart Funds shall be used to finance the Program expenditures and associated costs of reform.

Schedule 5, para. 3

During implementation

Complied with. Counterpart funds used as stipulated.

30 Appendix 4

Covenant



Implementation of the Policy Letter 4. The Borrower shall (a) ensure that the policies adopted and actions taken as described in the Policy Letter prior to the date of this Loan Agreement continue in effect for the duration of the Program and subsequently, and (b) promptly adopt the other policies and take the other actions indicated in the Program as specified the Development Policy Letter, including the Policy Matrix, and ensure that such policies and actions continue in effect during and after the Program period.

Schedule 5, para. 4


Complied with. Policy conditions as outlined in the policy letter and policy matrix adopted and tranche releases made. They continued to be adopted at program completion.

Policy Dialogue 5. The Borrower shall keep ADB informed of, and the Borrower and ADB shall from time to time exchange views on, the progress made in carrying out the Program. The Borrower shall consult with ADB in preparing and finalizing the SME Policy and Development Framework, including the inclusion as appropriate of internationally accepted market-based principles regarding SME development in such Policy and Development Framework. The Borrower shall ensure, through an active consultation process, the participation of various stakeholders including the private sector, financial institutions, development partners, nongovernment organizations (NGOs), and research and academic institutions in the finalization and implementation of the SME Policy and Development Framework and the components under such policy, as detailed in the Policy Matrix.

Schedule 5, para. 5


Complied with. Such consultations took place and are taking place in the development of the SME policy and development framework.

6. The Borrower shall continue timely policy dialogue with ADB on problems and constraints encountered during implementation of the Program and on appropriate measures to overcome or mitigate such problems and constraints.

Schedule 5, para. 6


Complied with. Policy dialogue conducted.

7. The Borrower shall keep ADB informed of policy discussions with other multilateral and bilateral agencies that have implications for implementation of the Program, and shall provide ADB with an opportunity to comment on any resulting policy proposals. The Borrower shall take ADB’s views into consideration before finalizing and implementing any such proposals.

Schedule 5, para. 7


Complied with. ADB kept informed of any such discussions.

SME Credit Facilities 8. The Borrower shall ensure that the performance of credit facilities currently administered directly by various Government agencies and public sector financial institutions are reviewed and measures are taken to improve the targeting and efficiency of utilization of such facilities. The Borrower shall also ensure that, in a phased manner, management of the SME credit facilities

Schedule 5, para. 8


Complied with. Ministry of Industries confirmed that Bangladesh Bank will transfer the SME credit

Appendix 4 31

Covenant



currently directly administered by the Government shall be transferred to the SME Foundation to be established under the Program.

facilities administered by it, in a phased manner, to the SME Foundation that has already been set up.

Gender-related Issues 9. The Borrower shall ensure that (i) women entrepreneurs are represented in the preparation of the SME Policy and Development Framework, and (ii) women entrepreneurs are represented on the National Council for Industrial Development through the president of a national women entrepreneur association. The Borrower shall also ensure that the SME database has gender-disaggregated data on matters including the number of women entrepreneurs and women employees, as well as their position in the organization structure (operational or management level).

Schedule 5, para. 9


Complied with. Women actively participated in the preparation of the SME policy and development framework. SME database includes data on women entrepreneurs.

Program Performance Management System 10. The Borrower shall establish a program performance management system as agreed with ADB, within six (6) months of the Effective Date, and cause it to be operated throughout the Program period. Under the Program performance management system, the Borrower shall also undertake periodic review of the Program to assess and evaluate the scope, implementation arrangements, monitoring, progress and achievement of the Program.

Schedule 5, para. 10


Complied with.

Project Loan, TA Loan and TA 11. The Borrower shall ensure the timely implementation of the Project under the Project Loan Agreement , the TA Loan under the TA Loan Agreement and the TA under the TA Letter Agreement

Schedule 5, para. 11


Complied with but with delay.

32 Appendix 4

Table A4.2: Project Loan

Covenant

Reference in Project Loan Agreement Timing Status

1. Central Program Coordination Unit (CPCU). The Finance Division of the Ministry of Finance (MOF-FD) shall be the Project Executing Agency. MOF-FD shall organize a CPCU that will coordinate activities between the various entities involved in the Project. The CPCU shall be the focal point for coordination of the Project and communication with private sector stakeholders and external agencies regarding the Project. The CPCU shall be headed by the SME Sector Development Program Coordinator at the level of Joint Secretary directly reporting to the Secretary, MOF-FD, (such Coordinator shall also function as the Program Director) and shall be assisted by the consultants to be engaged under the TA.

Schedule 5, para.1

Project commencement


2. Bangladesh Bank. Bangladesh Bank, as Project implementing agency, shall, inter alia, (i) provide information to ADB on candidate PFIs including its assessment of their eligibility for SEF; (ii) disqualify any PFI that has become ineligible based on a semi-annual review; and (iii) administer the review, utilization and repayments of sub-loans/sub-leases of PFIs. In accordance with the Administrative Agreement, Bangladesh Bank shall maintain proper accounts, procedures, and records adequate to monitor, and record the progress of subprojects financed by PFIs out of subsidiary loans every six months. Bangladesh Bank shall review and report to ADB on the utilization of SEF through progress reports every three months, The terms and conditions of SEF shall be amended as necessary based on the outcome of the review in coordination with ADB to increase utilization of SEF and respond to market needs. Bangladesh Bank shall also monitor the socioeconomic and environmental benefits of the subprojects

Schedule 5, para. 2


Complied with.

Appendix 4 33

Table A4.3: Technical Assistance Loan

Covenant

Reference in TA Loan

Agreement Timing Status Project Executing Agency 1. The Finance Division of MOF (MOF-FD) shall be the Project Executing Agency. MOF-FD shall organize a Central Program Coordination Unit (CPCU) that will coordinate activities between the various entities involved in delivering outputs of the project. The CPCU shall be responsible for supporting and overseeing the implementation of TA loan components under the SME Sector Development Program. The CPTU shall be headed the SME Sector Development Program. The CPCU shall be headed by the SME Sector Development Program Coordinator at the level of Joint Secretary directly reporting to the Secretary, MOF-FD, and shall be assisted by the consultants to be engaged under the TA.

Schedule 6, para.1

Project commencement


Project Implementing Agency 2. MOI shall be the Project Implementing Agency. Within MOI, the SME Cell shall oversee the implementation of the TA loan to ensure the timely recruitment and effective supervision of consultants. The SME cell shall closely coordinate with and submit required reports to the CPCU.

Schedule 6, para. 2

Project commencement and during implementation

Complied with. SME cell set up but, TA loan implementation delayed.

Gender-Related Issues 3. The Borrower shall ensure that (i) targeted training programs for women entrepreneurs are developed under the TA loan to address their specific needs; and (ii) a forum is organized to allow women labor employees to discuss their training and capacity building needs, as well as other constraints in operating their business. Such needs shall be taken into consideration in the training programs designed under the TA loan.

Schedule 6, para. 3


Complied with. Training for women undertaken as specified and the women’s entrepreneur associations functioned as focal points to discuss their training needs and constraints.

34 Appendix 4

Table A4.4: Project Agreement (Between ADB and Bangladesh Bank)

Particular Covenants

Reference in Project

Agreement Timing Status Project Implementation Agency

(a)Bangladesh Bank shall carry out the project with due diligence and efficiency, and in conformity with sound administrative, financial, and environmental and SME development and professional management practices.

(b)In carrying out the project and operation of the project facilities, Bangladesh Bank shall set forth all obligations in the Loan Agreement to the extent that they are applicable to Bangladesh Bank and all obligations set forth in the schedule to this Project Agreement.

Section 2.01


Complied with

Bangladesh Bank shall make available, promptly as needed, the funds, facilities, services and other resources which are required, in addition to the proceeds of the loan, for the carrying out of the project.

Section 2.02


Complied with

Expect ADB may otherwise agree, all goods and services to be financed out the proceeds of the loan shall be procured in accordance with the provision of Schedule 4 and Schedule 5 of the loan agreement. ADB may refuse to finance a contract where goods or services have not been procured under procedure sustainability in accordance with those agreed between the borrower and where terms and conditions of the contract are not satisfactory to ADB.

Section 2.03


Complied with

Bangladesh Bank shall carry out the project in accordance with plans and work schedules acceptable to ADB. Bangladesh Bank shall furnish, or cause to be furnished, to ADB, promptly after their preparation, such plans and work schedules, and any material modifications subsequently made therein, in such details as ADB shall reasonably request.

Section 2.04


Complied with

(a)Bangladesh Bank shall cause the PFIs to ensure that sub borrowers make arrangements satisfactory to ADB for insurance of project facilities, to such extent and against such risks and in such amounts as shall be consistent with sound practice.

(b) Without limiting the generality of the forgoing, Bangladesh Bank shall cause the PFIs to ensure that goods to be imported for the project and to be financed out of the proceeds of the loan are insured by sub borrowers against hazards incidents to the acquisition, transportation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in currency freely usable to replace or repair such goods.

Section 2.05


Complied with

Appendix 4 35



Agreement Timing Status Bangladesh Bank shall maintain, or cause to be maintained, record and accounts adequate to identify the goods and services and other items of expenditures financed out of the proceeds of the loan, to disclose the use thereof in the project, to record the progress of the (including the cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.

Section 2.06


Complied with

(a) ADB and Bangladesh Bank shall cooperate fully to ensure that the purposes of the loan will be accomplished.

(b) Bangladesh Bank 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, the Administrative Agreement, or any Participation Agreement with a PFI, or the accomplishment of the purpose of the loan.

(c) ADB and the Bangladesh Bank shall from time to time, at the request of either party, exchange views through their representatives with regard to any matters relating to the project, Bangladesh Bank and the loan.

Section 2.07


Complied with

(through review missions)

(a) Bangladesh Bank shall furnish to ADB all such reports and information as ADB shall reasonably request concerning (i) the loan and expenditures of proceeds thereof; (ii) the goods and services and other items of expenditures financed out of such proceeds; (iii) the project; (iv) the administration, operations and financial condition of Bangladesh Bank to the extent relevant to the loan; and (v) any other matters relating to the purpose of the loan.

(b) Without limiting the generality of the forgoing, Bangladesh Bank shall furnish ADB with quarterly reports on the execution of the project and semi-annual reports on the operation and management of the project facilities. Such reports shall be submitted in such form and in such detail and within such period as ADB shall reasonably encounter during the quarter or 6 months under review, steps taken or proposed to be taken to remedy these problems, and a proposed program of activities and expected progress during the following quarter or 6 months.

(c) Promptly after completion of the project, but in any event not later than 3 months thereafter or such later date as ADB may agree for this purpose, Bangladesh Bank shall prepare and furnish to ADB a report, in such and in such detail as ADB shall reasonably request, on the execution and initial operation of the project, including its cost, the performance by Bangladesh Bank of its obligations under this project, including its cost, the performance by Bangladesh Bank of its obligations under this Project Agreement and accomplishment of the purpose of the loan.

Section 2.08

As required Complied with

36 Appendix 4



Agreement Timing Status (a) Bangladesh Bank 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 statements) audited annually, in accordance with appropriate auditing standards consistently applied, by independent auditors whose qualification, experience and the terms of reference are acceptable 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 procedures for imprest account/statement of expenditures), all in the English language. Bangladesh Bank 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.

(b) Bangladesh Bank shall enable ADB, upon ADB’s request, to discuss its financial statements and its financial affairs, to the extent pertaining to the utilization of the loan proceeds from time to time with its auditors, and shall authorize and require any representative of such auditors to participate in any such discussions requested by ADB, provided that any such discussion shall be conducted only in the presence of an authorized officer of Bangladesh Bank unless Bangladesh shall otherwise agree.

Section 2.09

As required

Complied with

(Tripartite meetings held among ADB, Bangladesh Bank, and Foreign Aided Audit Department)

Bangladesh Bank shall enable ADB’s representatives to inspect the project and the subproject, the goods financed out of the proceeds of the loan and subloans, and any relevant records and documents.

Section 2.10


Complied with

(a) Bangladesh Bank shall, promptly as required, take all action within its power to maintain its legal existence, to carry on its operations, and to acquire, maintain and renew all rights, properties, power, privileges and franchises which are necessary in the carrying out of the project or in the conduct of its business.

(b) Bangladesh Bank shall at all times conduct its business in accordance with sound administrative, financial, environmental practices, and under the supervision of competent and experienced management and personnel.

(c) Bangladesh Bank shall at all times operate and maintain its offices, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering ,environmental, and maintenance and operational practices.

Section 2.11


Complied with

Appendix 5 37

CHARACTERISTICS OF SUBLOANS/SUBPROJECTS (as of 31 December 2010)

No. Amount (Tk‘000) % of Loan Amount

Banks 1. One Bank Ltd. 393,146 2. Eastern Bank Ltd. 699,878 3. Prime Bank Ltd. 444,530 4. Dhaka Bank Ltd. 646,222 5. National Credit & Commerce Bank Ltd. 5,700 6. City Bank Ltd. 263,062 7. Bank Asia Ltd. 122,100 8. Trust Bank Ltd. 68,500 9. AB Bank Ltd. 51,250

Subtotal 2,694,388 80.44Nonbank Financial Institutions 1. Uttara Finance & Investment Co. Ltd. 106,261 2. Islamic Finance & Investment Ltd. 62,540 3. Midas Financing Ltd. 45,300 4.Industrial Development Leasing Co. Ltd. 307,789 5. Peoples Leasing and Financial Services Ltd. 83,670 6. International Leasing and Financial Services Ltd. 37,082 7. Premier Leasing International Ltd. 12,365

Subtotal 655,007 19.56Total 3,264 3,349,395 100.00

Sector Industry/manufacturing 800 900,884 27.00 Trade 2,096 1,953,522 58.00 Services 368 494,989 15.00

Total 3,264 3,349,395 100.00Dhaka Division 1,470 1,782,140 53.21 Chittagong Division 557 577,160 17.23 Barisal Division 28 15,900 0.47 Sylhet Division 320 246,090 7.35 Khulna Division 334 249,590 7.45 Rajshahi Division 555 478,415 14.29

Total 3,264 3,349,395 100.00Women enterprises 130 164,546 4.91 Other enterprises 3,134 3,184,849 95.09

Total 3,264 3,349,395 100.00Short-term 1,444,759 43.00 Medium-term 1,332,741 39.00 Long-term 581,894 18.00

Total 3,264 2,584,737 100.00Arrears Below 1 month 139,420,000 1.74a Above 1 to 3 months 174,290,000 2.17 Above 3 months 1,029,060,000 12.82

Total 3,264 1,342,770,000 16.73 Employment Provided-Persons 4,300 a Arrears calculated on the basis of the outstanding loan amount of Tk8,026,000,000. Source: Bangladesh Bank

38 Appendix 6

DUE DILIGENCE SUMMARY OF MAIN PARTICIPATING INSTITUTIONS A. Banks

1. Prime Bank. The operational and financial performance of the bank was satisfactory. The last credit rating done by Credit Rating and Information Services Limited on 10 May 2010 reported satisfactory results. Subloan repayments to Prime Bank and subsequent repayments to Bangladesh Bank were satisfactory. The credit rating included the assessment of environmental impact of subprojects based on national environmental regulations. SME dedicated branches of the bank increased from 5 in 2009 to 15 in 2010, while the number of branches (which also provided assistance for SMEs) increased from 84 in 2009 to 94 in 2010. The Corporate governance of the bank was strong. Prime Bank’s shares were listed on the Dhaka Stock Exchange and it paid regular and attractive dividends to shareholders, and yearly bonuses to staff.

2. Dhaka Bank. Its operational and financial performance was satisfactory. The last credit rating done by Credit Rating Agency of Bangladesh (CRAB) Ltd. on 31 October 2010 reported satisfactory results. Subloan repayments to Dhaka Bank and Dhaka Bank’s repayments to Bangladesh Bank were satisfactory. The credit rating included assessment of environmental impact of subprojects based on national environmental regulations. SME-dedicated branches increased from 5 in 2009 to 7 in 2010. Corporate governance was strong. Dhaka Bank’s shares were listed on the Dhaka Stock Exchange. Dhaka Bank paid regular and attractive dividends to shareholders, and yearly bonuses to staff.

3. One Bank. Its operational and financial performance was satisfactory. The last credit rating done by CRAB Ltd. in 2009 reported satisfactory results. Subloan repayments to One Bank and One Bank’s repayments to Bangladesh Bank were satisfactory. The credit rating included assessment of environmental impact of subprojects based on national environmental regulations. The number of branches (which also provided assistance for SMEs) increased from 50 in 2009 to 56 in 2010. Corporate governance was strong. Shares listed on the Dhaka Stock Exchange. One Bank paid regular and attractive dividends to shareholders, and yearly bonuses to staff.

4. Asia Bank. Its operational and financial performance was satisfactory. The last credit rating done by CRAB Ltd. on 31 December 2010 reported satisfactory results. Subloan repayments to Asia Bank and Asia Bank’s repayments to Bangladesh Bank were satisfactory. The credit rating included assessment of environmental impact of subprojects based on national environmental regulations. SME-dedicated centers came to 12 in 2010, while their present network of 51 branches also assisted SMEs. Corporate governance was strong. Asia Bank’s Shares were listed on the Dhaka Stock Exchange. Asia Bank paid regular and attractive dividends to shareholders, and yearly bonuses to staff.

5. Eastern Bank. Its operational and financial performance was satisfactory. The last credit rating done by Credit Rating and Information Services Limited on 31 December 2010 reported satisfactory results. Subloan repayments to Eastern Bank and Eastern Bank’s repayments to Bangladesh Bank were satisfactory. The credit rating included assessment of environmental impact of subprojects based on national environmental regulations. SME-dedicated centers increased from 21 in 2009 to 33 in 2010, while their branch network (which also provided SME assistance) increased from 39 in 2009 to 42 in 2010. Corporate governance was strong. Eastern Bank’s shares were listed on the Dhaka Stock Exchange. Eastern Bank paid regular and attractive dividends to shareholders, and yearly bonuses to staff.

Appendix 6 39

B. Nonbank Financial Institutions 6. Industrial Development and Leasing Company. Its operational and financial performance was satisfactory. The last credit rating done by CRAB Ltd. on 31 December 2009 reported satisfactory results. The credit rating for FY ended 31 December 2010 was under preparation and expected to be available any time soon. Subloan repayments to IDLC and IDLC’s repayments to Bangladesh Bank were satisfactory. The credit rating included assessment of environmental impact of subprojects based on national environmental regulations. SME-dedicated centers increased from 7 in 2009 to 15 in 2010, while their present network of 51 branches also assisted SMEs. Corporate governance was strong. IDLC’s Shares were listed on the Dhaka Stock Exchange. IDLC paid regular and attractive dividends to shareholders, and yearly bonuses to staff.

40 Appendix 7

BASE-LEVEL SURVEY OF A CROSS SECTION OF ASSISTED SUBPROJECTS A. Dhaka City and Outskirts 1. S&D Embroidery. Customer of Prime Bank and engaged in embroidery work for export-oriented garment manufacturers. Entrepreneur was a first generation entrepreneur previously an employee of a textile manufacturing company. Subloan was taken for working capital and expansion. The enterprise employed 40 additional persons including about 5 women because of the subproject. Repayment of the subloan was satisfactory, and profitability attractive.

2. Baba Corporation. Customer of Dhaka Bank and engaged in stone crushing for construction material. Industry promoted by Rehana Perveen (woman entrepreneur) who functions as the managing partner. Family engaged her in other businesses as well. Subloan was taken for working capital, and the corporation employed about 55 persons including 10–12 women employees, and 10 of whom were employed as a result of the subloan. Profitability and repayment records were satisfactory.

3. Khan Motors. Customer of Dhaka Bank and engaged in trading of spare parts for buses and trucks. The entrepreneur is off from first generation. Subloan was taken for working capital as a result of which three people were employed. Turnover, profitability, and subloan repayment record were satisfactory. The entrepreneur planned to expand operations by engaging in direct imports from manufacturers.

4. Sham Metal. Customer of One Bank and engaged in light engineering work of manufacturing bathroom fittings for import substitution. The subloan was taken for working capital and expansion of project, which created additional employment for about 40 people including four women employees. Project was very profitable and subloan was repaid in full.

5. Armin Metal Works. Customer of Bank Asia and engaged in light engineering work, i.e. manufacturing steel kitchenware for import substitution. As a result of subloan, taken for working capital, additional employment was created for 55 new persons including 20 women. Profitability and repayment record were satisfactory.

6. A.R. Metalex. Customer of Industrial Development Leasing Company and engaged in light engineering work i.e. manufacturing of stainless steel household utensils for import substitution. The subloan was taken for working capital and for business expansion, and as result additional employment was created for 10 new persons including three women. Profitability and subloan repayment record were satisfactory and further expansion was being planned by the entrepreneur.

7. Al Islamiyah Sweets and Bakery. Customer of Industrial Development Leasing Company and engaged in making food products. Subloan was taken for working capital. Profitability and subloan repayment record were satisfactory. As a result of subloan, 35 additional persons were employed but no woman was employed as traditionally men found to be more suitable for bakery operations. Expansion planned to build own factory premises and for business expansion purposes.

Appendix 7 41

B. Regional—Sylhet Division

8. The PCR mission, accompanied by an official of the Bangladesh Bank and officials of Bank Asia, visited the Sylhet Division during 17–19 April 2011. It visited a helpline outreach center (HOC) set up in the district office in Moulvibazar(BSCIC), some subprojects financed by Bank Asia and Eastern Bank, their main branch offices, and SME centers in the Sylhet Division. Details are given below: 9. Helpline outreach center in Moulvibazar. It came into operation on 1 March 2009. It provides various types of assistance for SME promotion (training programs; information on procedures involved in getting the necessary licenses—trade, product certification, tax, VAT; SME loans provided by financial institutions; industrial project profiles; and market advice). People are interested in these services and about 15–20 persons per month visit the HOC to seek this information based on publicity campaigns carried out by the SME Division of Bangladesh Bank. BSCIC carried out entrepreneurship development programs at the HOC, e.g., one in March 2010 and another in February 2011. HOC also carries out extension work by visiting ongoing industries and providing help to improve their operations. PCR mission inspected the equipment provided under the TA loan and found them operating satisfactorily (i.e., desktop, CPU, UPS, photocopier, scanner, furniture, and filing cabinet). However, it needs additional budget to meet operational and maintenance expenses. 10. Bank Asia, Sylhet Division, SME Center. Specifically set up as a separate center to serve SME clients. It received a license from Bangladesh Bank to operate an SME lending program and sends quarterly reports to Bangladesh Bank on SME operations. Four types of SME loans are given at an interest of 16% per annum: trading (buying and selling of goods); services (restaurants, beauty parlors, printing presses); manufacturing (light engineering, repair works, packaging, charcoal); and women entrepreneur loans for above purposes at 10% interest rate per annum. About 3–4 prospective customers drop in for SME enquiries, and about 6–7 applications are approved per month. The risk analysis and documentation is done at the SME center taking about 3–4 days for processing each application, and sent by courier to the head office (SME cell) in Dhaka (i.e., application form, analysis, and copies of documentation, title deeds, etc.) for approval. The SME cell takes another about 3–4 days for approval by a committee consisting of three members, which is held once in 2 days. At each sitting, the committee approves about 25 SME proposals. The approved application is then sent back to the SME center for disbursement and implementation. As per the SME refinancing policy, the loan size to be between a minimum of Tk50,000 and maximum of Tk5 million (about $70,000); overdraft facility requires land and buildings as security and no plant and machinery taken as collateral; term loans given on cash flow analysis, credit worthiness checks, and two guarantors with good net worth of at least twice the loan amount, and good professional and reputation record who can function as the principal debtor. The government has set up special courts to facilitate SME debt collection and they are very cooperative in debt collection and gives protection to banks. In the Sylhet Division, other than this SME center, their other five branches are also engaged in SME lending as above. 11. A.K. Charcoal. SME customer of Bank Asia. Makes compressed charcoal for household cooking purposes using rice husks. Has six machines and produces about 9 tons per day. Bank Asia gave a loan of Tk800,000 for working capital over 24 months repayment, project profitable, and repayment excellent with loan now fully repaid. It is an environment-friendly project as no trees are cut for firewood purposes to the extent of the project’s production. Employs about 30 persons including about 10 women workers.

42 Appendix 7

12. Forring Bootics. Kushi Moni Devi (woman entrepreneur and proprietor); customer of Asia Bank. Makes and sells women garments—sarees, sharwar-kameez, urna. Bank Asia gave a loan of Tk300,000 for working capital over 24 months on monthly repayment at 10% per annum, project profitable, good repayment record, and employs about 25 persons, mostly women. 13. B.G. Industries. Manufacturer of rubber spare parts for three-wheelers. Bank Asia gave a loan of Tk1.5 million for working capital, over 12 months on monthly repayment basis, and repayments satisfactory. Employs about 10 persons including two women workers. 14. Jhona Packaging. Makes paper cartons for packing food products—sweets, biscuits, cakes. Asia Bank gave a loan of Tk300,000 for working capital over 2 years on monthly repayment basis, and repayments regular. Employs about 10 people including about three women workers. 15. Bank Asia, Main Branch, Sylhet Division. Provides a range of services (deposits, loans, trading facilities) and supervises the work of their SME center and their five branches. Bank Asia, Sylhet is a deposit-oriented bank with deposits far exceeding the loans and overdrafts given (e.g., in 2010, total deposits came to Taka 1200 million while total lending came to Taka 250 million, giving an excess of Taka 950 million, which was sent to their head office in Dhaka for lending. The deposits are mainly from foreign remittances by Sylhet businessmen operating in the UK. In 2010, deposits increased by about 30%. Interest rates paid on deposits are 13.5% (3 months), 13% (6 months–1 year), and the average lending rate is about 15% per annum. 16. FA Color Solution. Shaheen Alam (woman proprietor); SME customer of Eastern Bank, Sylhet. They are engaged in wholesale and retail trading in decorative paints. Eastern Bank gave a loan of Tk2.5 million for working capital to increase stocks, and repayments satisfactory. This is the second loan with the first one having been repaid in full. They buy paint from the manufacturers and mix them to meet the specific color required by the customer. The mixing machines are from Italy and India. They employ about five persons including two women. 17. Ripon Plastic Factory., Abdul Hasem (proprietor); an SME customer of Eastern Bank. The business is engaged in recycling plastic bottles into plastic granules for export to the People’s Republic of China via Chittagong. He has 14 units costing about 1.8 million for recycling different colors of bottles. Eastern Bank gave a loan of Tk1.0 million for working capital to make advance payments to collectors of used bottles. Loan repayments are satisfactory.

Appendix 8 43

ACTIVITIES OF BANGLADESH SMALL AND COTTAGE INDUSTRIES CORPORATION, SMALL AND COTTAGE INDUSTRIES TRAINING INSTITUTE, AND BANGLADESH

STANDARDS AND TESTING INSTITUTION A. Bangladesh Small and Cottage Industries Corporation (based on discussions with

Mahbubur Rahman, General Manager, Technology, 7 April 2011)

1. Activities 1. Total staff, after rationalization, to about 1,185, officers and administration staff, both in the headquarters and districts.

2. BSCIC has five main activities: (i) training—general skills development; (ii) skills development for artisans; (iii) industrial estates management; (iv) consulting; and (v) arrangement of trade fairs, as detailed below:

(i) Skills training. Conducts skills development programs (example, machine shop practice, electrical works, house-wiring, radio and TV repair, tailoring etc.) in about 15 skills development centers established in the 1980s with United Nations Development Programme (UNDP) assistance. About 70 courses on different skills are conducted for about 1,000 persons per annum. During the last 5 years, about 3,500 persons were trained.

(ii) Skills development for artisans. Training classes conducted for artisans at their design centers, example, pottery, leather products, screen printing, toy-making.

(iii) Industrial estates management. At present, about 78 industrial estates are

being managed. These are spread around the country of which about 85% is occupied by various types of industries. The Bangladesh Small and Cottage Industries Corporation (BSCIC) is responsible for their management and operation. The irregular supply of electricity is the main problem faced at present.

(iv) Consulting. Fee-based consulting is done mainly for the private sector on

various subjects such as market studies and feasibility studies for establishing or expanding industries.

(v) Trade fairs. Trade fairs are arranged all over the country for cottage industries to

display their products to the general public and prospective buyers.

2. Constraints 3. There is demand for increased training courses from the present training of about 700 persons per annum to about 2,000 persons per annum but constrained by lack of sufficient budget to modernize facilities, upgrade curriculum and equipment, and for general operations and maintain facilities. 4. Training activities are also restricted by lack of skilled instructors.

44 Appendix 8

B. Small and Cottage Industries Training Institute (based on discussions with Md. Abdul

Wadud, Principal, 7 April 2011) 1. Activities

1. Total staff, after rationalization came to about 85 (27 faculty staff, of whom only 16 are presently available due to retirement, and 58 administration staff).

2. SCITI conducts training courses in Dhaka in the Small and Cottage Industries Training Institute (SCITI) premises, and in the 64 district offices of BSCIC.

3. Target of SCITI is to conduct about 50 training courses (30 in Dhaka and 20 in the districts) per annum. Five types of training courses are conducted mainly for entrepreneurship development: marketing management, industrial management, entrepreneurship development, financial management, and general management. Also has a separate faculty for research and consulting. The training courses are backed up by workshops and seminars.

4. Since 1985 to 2010, about 1,250 courses had been conducted (843 in SCITI premises and 407 in BSCIC district offices) for about 31,375 participants. During the last 5 years (2006–2010), about 5,000 persons (about 25% women) have been trained in various aspects of entrepreneurship.

2. Constraints

5. Demand for increased training courses is constrained by lack of budget for additional faculty staff, upgraded facilities, and for maintenance of existing facilities.

6. The present depleted faculty cadre could handle only about 600 participants per annum against the target of about 1,000 participants per annum. 7. PCR mission interviewed some participants who were of the opinion that the courses were useful to prepare them to become successful entrepreneurs. Participants from Dhaka paid for their courses, while those in the districts paid only the registration fees.

Appendix 8 45

C. Bangladesh Standards and Testing Institution (based on discussions with A.K. Fajilul Ahad, Director-General, and Md. Akhtaruzzaman, Director [Chemical], 7 April 2011)

1. Activities

5. Total staff strength of BSTI is about 578 (300 technical) and of whom about 10% women.

2. Activities of BSTI are (i) testing—physical testing of about 5,000 per annum (electrical and electronics, mechanical items, cement, bricks, textiles), and chemical testing, about 5,500 per annum (food items, chemicals including cosmetics, fertilizer); (ii) mandatory testing—153 items, both local and foreign, as required by government (59 food items; 39 chemicals—cosmetic, toothpaste, fertilizer; 11 textile; 25 electric and electronic; and 40 engineering—GI pipes, appliances, safety requirements) and these to be done before sales and distribution commence and quality certificate obtained; (iii) accreditation given by India for 2 years, which facilitates exports to any part of the world and this accreditation given so far for 76 items including chemical and other products; (iv) testing done for others—e.g., police, tender department, other government departments and ministries; and (v) products in the market are also tested by for quality on a random basis.

3. Accreditation received for about 76 parameters: 46 chemical, 3 physical (cement), and others 27.

6. About 10,500 testing done per annum, and about 23,500 testing done over the last 5 years (2006–2010).

4. Testing expected to increase by about 10%–15% per annum, and accreditation work by another about 20%–25% per annum.

2. Constraints

5. Need trained technical staff and specialized equipment to cope with the large volume of business growth and about 25 new sciences and engineering background graduates were recruited every year and trained in different disciplines. 6. PCR mission inspected the premises—building expansion under way and ADB-funded equipment in operation. BSTI requires additional budget for staff training, purchase of modern equipment, and for operational expenses.

46 Appendix 9

GENDER EQUALITY AND WOMEN’S EMPOWERMENT 1. The SME and other stakeholders addressed some of the crucial needs of women entrepreneurs through advocacy and other relevant activities.

A. Preparation and Implementation of a Gender Action Plan

2. The government formed a committee on women entrepreneurs to formulate recommendations and an action plan for women entrepreneurship development. The government approved a gender action plan (GAP), developed by the committee based on the project and program components. The GAP identified action areas for the different actors covering important aspects of women entrepreneurship development and declared that support will be provided to women to establish or expand their business through (i) advocacy for increasing access to institutional credit systems by special measures, such as special provisions of quota for women, credit guarantee and matching grants for women; (ii) capacity development of women through training on various areas of enterprise management; (iii) facilitating increased access to markets by making it easier to participate in trade fairs and developing market links; (iv) providing information by creating helpline business information centers in collaboration with various stakeholders and through information campaigns; and (v) advocacy for simplifying legal and regulatory requirements considering women’s needs. The relevant stakeholders were oriented with the GAP; working groups on different thematic areas were formed for implementation and activities were implemented. The SMEF prepared a revised GAP and presented at the women entrepreneurs’ conference in 2010 for continuing the initiatives beyond the project period.

B. Influencing Policy

3. The SMEF and women entrepreneurs did advocacy in collaboration with chambers and business associations to make the Industrial Policy 2010 consistent with the provisions of the SME policy of the government. The SME policy focused on strengthening the efforts to accelerate the retention and promotion of women entrepreneurs. The Industrial Policy declared that women entrepreneurs would be given priority in the SME sector and proposed that various incentives and financial support be considered to allow women entrepreneurs to become established in small and cottage industries, as well as medium-sized enterprises. Special measures to develop women entrepreneurship were included, such as ensuring access to land and finance; business support services; reserve quota for the women entrepreneurs in the existing Export Processing Zones. The Industrial Policy also stated that at least 15% of total SME lending would be reserved for women entrepreneurs and at 10% interest rate. The National Council for Industrial Development was established with representative from Women Entrepreneurs’ Association as per the provision of the Industrial Policy.

4. Identification of needs and GAPs. Two studies were undertaken regarding women entrepreneurship and for the identification of their needs.

(i) A study paper was prepared by the SMEF to identify the major obstacles in the development of women entrepreneurship in the country's small and medium-sized enterprises. The obstacles to women entrepreneurship development were identified, which included the family-oriented mentality of women; the government's unfriendly attitude toward women entrepreneurs; the lack of market information and marketing strategies; the unavailability of business development services to women entrepreneurs; the unavailability of loans at lower interest rates; and the lack of opportunities for women to develop skills in business management. Some of these concerns were addressed, such as SMEF conducted skills and entrepreneurship development training in collaboration with

Appendix 9 47

training institutions and Bangladesh Bank issued circular related to women’s share of SME lending.

(ii) A profile of women entrepreneurs in Bangladesh was prepared based on a sample survey, which was based on specific criteria and carried out at the grassroots level, of women entrepreneurs from various sectors in six districts of Barisal, Chittagong, Khulna, Narsingdi, Rajshahi, and Sylhet. The report included the profile of women in business, the needs and gaps and possible areas for intervention, and recommendations for appropriate needs-based training to create a congenial atmosphere and a better capacity for women in business. The majority of women entrepreneurs were found to rely on loans, which mostly came from non-institutional sources. The businesses had trade licenses but many entrepreneurs were unaware of other legal requirements, such as a partnership deed, company registration, and tax identification. The report recommended training and orientation on legal requirements, entrepreneurship development, business planning, marketing strategies, financial planning, product development, and Information and Communication Technology.

C. Facilitating Access to Finance 5. As a result of the continued advocacy of the SMEF, women entrepreneurs and chambers, the Bangladesh Bank issued a circular to all banks involved in refinancing schemes to raise the minimum ceiling to 15% from 10% of SME lending on soft terms for women entrepreneurs. Bangladesh Bank also took a number of nonfinancial measures to promote SME financing and advised all scheduled banks to comply with these directives. These directives include, among others, setting up women’s dedicated desks in all banks to help women entrepreneurs interested in borrowing; reporting to Bangladesh Bank with disaggregated borrower statistics i.e. by small borrowers and women borrowers; encouragement to collaborate with NGOs for borrower selection, loan distribution and realization; and increasing the current 3-year medium-term loan period for women to 4-years.

6. However, despite Bangladesh Bank’s circular, the information has yet to reach bank branches in the field level and to women entrepreneurs. Efforts are under way by chambers and associations to make women entrepreneurs aware of the provisions so that they are able to access institutional finance. Bangladesh Bank initiated monitoring on a sex-disaggregated basis. The participating banks are to ensure that the earmarked finance is accessed by women entrepreneurs in the field level. Some banks (such as Eastern Bank) have opened a window at the head office level in Dhaka, with all female staff, which is noteworthy. The women chambers and associations are actively disseminating information to their members about the Bangladesh Bank guidelines for lending to women entrepreneurs. They are also encouraging other banks to open such facilities and expand them to the bank branch level. The study carried out by the SMEF recommended a review of lending procedures of the banks with the aim of simplifying them and ensuring women entrepreneurs are able to access them.

D. Helpline Outreach Center 7. A total of 32 helpline outreach centers were established on the premises of BSCIC, NASCIB, chambers of commerce and business associations, where both women and men entrepreneurs could seek information and support. One helpline center was established in Chittagong Women Chamber of Commerce and Industry to cater to the needs of the city’s women entrepreneurs. The information (legal requirements, government services, lists of available PFI business development services, market opportunities, etc.) is supposed to be instantly available at the helpline centers. Considering the limited staff capacity to download information, uploading data etc. training was imparted to the responsible persons. The hosting

48 Appendix 9

organization has allocated staff time and resources for survey, data entry and compilation and backup materials to ensure providing specified services and information to the entrepreneurs. The available services need to be publicized through various media. The host organizations, BSCIC and other partner agencies, have been advised to develop strategies to continue strengthening the facility.

8. Training. The SMEF, in partnership with BSCIC, SCITI and NASCIB, designed and organized training for women entrepreneurs in the areas of entrepreneurship development, financial management, and various vocational skills. A total of 4,000 women entrepreneurs were trained.

9. SME survey. A sample SME survey was conducted that provided an analysis of gender-based information about entrepreneurs and labors.

10. National Conference of Women Entrepreneurs. The SMEF organized the National Conference of Women Entrepreneurs in 2006, 2008, and 2010. The participants of the conferences reviewed and the SMEF approved the gender action plan. The Conference of 2010 reviewed the revised plan and the terms of reference to establish a Women Entrepreneurs Forum. These conferences were used for raising awareness amongst women entrepreneurs and also to recognize successful women entrepreneurs by giving awards.

11. Women Entrepreneurs Forum. A constitution of the Women Entrepreneurs Forum was drafted. The SMEF initiated a study on women entrepreneurship in Bangladesh.

Documents

PCR: Bangladesh: Small and Medium Enterprise Sector Development Program · 2014-09-29 · SMESDP – Small and Medium Enterprise Sector Development Program TA – technical assistance