To support Covid-hit small businesses, the International Finance Corporation (IFC) has signed an agreement with the Bangladesh Bank to implement a credit guarantee scheme for the cottage, micro, small and medium enterprises (CMSMEs).

The scheme will allow the participating financial institutions to provide better access to finance for CMSMEs that are often deprived due to their high-risk profile.

Bangladesh Bank Deputy Governor Abu Farah Md Nasser, British High Commissioner to Bangladesh Robert Chatterton Dickson; IFC Acting Country Manager for Bangladesh, Bhutan and Nepal Nuzhat Anwar, Regional Manager for Financial Institution Group (Asia and Pacific) Qamar Saleem were present at the agreement-signing ceremony.

With about 7.8 million units employing more than 20 million people, CMSMEs account for almost 25 per cent of gross domestic product and 30 per cent of total industrial employment in Bangladesh.

However, limited access to finance has been an impediment in sustaining the labour-intensive sector, which is critical for the country's sustained growth.

Emphasising that CMSMEs play a vital role in generating employment, maintaining a solid supply chain, cutting poverty, empowering women and other critical areas, Nasser said: "Being a monetary authority as well as the regulator of the banking sector of the country, the Bangladesh Bank has been working relentlessly to modernise the financial industry and introduce new financial tools such as this credit guarantee scheme.

"The CMSME's who are being left behind due to collateral shortfall will be benefitted from the credit guarantee scheme."

Risk profiles of small businesses also worsened during the ongoing pandemic, with 94 per cent of micro, small, and medium enterprises (MSMEs) reporting lower sales in a 2020 IFC Covid-19 Impact Study.

Heightened risk concerns and lower margins have also made it more challenging for financial institutions to lend to this sector.

"The Bangladesh Bank's new credit guarantee scheme will enable small and medium-sized businesses to access the loans they need to cope with the economic impact of Covid-19. These businesses are crucial for the economy, but they have been disproportionately affected by the pandemic," said Robert Chatterton.

Supported by the UK government's Foreign, Commonwealth and Development Office, successful implementation and use of the credit guarantee scheme under this new project can provide a platform for creating a more sustainable and inclusive financial market.

The project can also help local financial institutions, including several IFC clients, increase their exposure to the CMSME sector with a provision for risk-sharing and help build private sector investor confidence.