Published in The Financial Express on Saturday, 25 June 2015.
Ferdaus Ara Begum
Economic status of women is now accepted as an indicator of the stage of development in a country. Women entrepreneurs are coming up with different ventures but are facing several problems, particularly in the field of access to finance. Happily, the government has announced a number of policies/incentives for them, but implementation of the same has been slow and almost unnoticeable.
It is now time for defining Women Entrepreneurship (WE) to work out priorities in financing. The Industrial Policy 2010 defines a woman entrepreneur as the following: “A woman will be termed as a woman entrepreneur if she is the ‘owner or proprietor of a private or proprietary enterprise’ or ‘is the director of a private company’ registered with the ‘joint stock companies’ or ‘shareholding enterprise’ or owning at least 51.0 per cent shares among the shareholders.”
The Bangladesh Bank (BB) has defined women entrepreneur for SMEs as one who is the sole proprietor of an enterprise or has majority shares in the enterprise. This is interpreted as those who are sole proprietors, or have more than half the shares in partnership/private limited companies. On the other hand, the financial institutions define women entrepreneurs as those who are sole proprietors only. As the Industrial Policy 2015 is in process, a suitable definition should also be spelt out in the new policy and there should be a clear instruction to maintain a single definition by all related financial institutions.
To explore constraints and challenges of women entrepreneurs in getting bank finance from the banking sector, Business Initiative Leading Development (BUILD) undertook a small study in May 2015 and presented the report in its 4th SME Development Working Committee recently in the Ministry of Industries. The study attempted to make recommendations to overcome financing constraints of women entrepreneurs and simplification of policies for women entrepreneurship in manufacturing industries development to encourage more women entrepreneurs to come forward to initiate new businesses.
Women entrepreneurs constitute less than 10.0 per cent of the total business entrepreneurs in Bangladesh whereas women in advanced market economies account for more than 25.0 per cent of all businesses. In India, the percentage is about 31.5 per cent.
The Bangladesh Economic Association (BEA) estimated that women’s paid and unpaid works contribute between 20-48 per cent of GDP. The CPD has recently also assessed a higher percentage of their contribution to GDP. While we analyse the types of women entrepreneurship, it is seen that a significant portion of such entrepreneurs are engaged in manufacturing (54.0 per cent), remaining in retailing, wholesaling and in service sectors.
Since Bangladesh has opted for a manufacturing-based economy to reach its plan targets, women entrepreneurship development can be an area to create employment and expand manufacturing base.
In different policies, preferential treatment have been extended to women entrepreneurship. The National Action Plan (NAP) has mentioned adoption of a comprehensive sustainable industrial policy that will promote equity for women. The Women Development Policy (WPD) 2011, SME Policy Strategy 2005, National Skill Development Policy 2011, National Education Policy 2010 and Bangladesh Bank Policy highlighted the importance of women entrepreneurship development.
Refinancing facilities from the Bangladesh Bank through 22 banks and 23 non-banks have been continuing since 2004. SME and Special Programme Department (SMESPD) provides policies for credit facility to enhance medium to long-term financing to eligible SMEs. With a view to organising and making uniform industrial development and to ensure institutional credit facilities, at least 15.0 per cent of total BB refinance fund for SME sector has been allocated to women entrepreneurs. Interest rate for women entrepreneurs will be Bank Rate (which is at present 5.0 per cent) plus maximum 5.0 per cent, i.e., not more than 10.0 per cent per annum. Banks and financial institutions may provide a maximum loan of Tk.2.5 million against personal guarantee if borrower is a woman or majority of the owners of the enterprise are women. In that case, group security/social security may be considered. An amount of Tk.10.42 billion has been refinanced to women entrepreneurs until the end of April 2015 against about 11,600 enterprises. A significant number of women entrepreneurs have benefited, but there are less information about the types of business and nature of these entrepreneurs benefiting from this scheme.
Besides ADB Fund-1, ‘Small and Medium Enterprise Sector Development Project’ was launched in 2005 and disbursement from this fund was completed in September, 2009. The BB has been implementing the ‘Financial Sector Project for the Development of Small and Medium-Sized Enterprise (FSPDSME)-BD-P67’ under the loan agreement between JICA, Japan and the government of Bangladesh. The objective of the project is to create a medium to long term financing market for SMEs, especially for the productive investments.
The Bangladesh Rural Advancement Committee (BRAC) extended collateral-free financing up to Tk.2.5 million. Grameen Bank is providing collateral-free fund but the rate is high. Bank of Small Industries and Commerce (BD) Ltd. (BASIC), SME Foundation are also extending financing facilities for SMEs and women entrepreneurs. Besides some innovating financing schemes are in the process. Scheduled banks as usual are providing funds at prevailing interest rates of 11-16.0 per cent.
In this backdrop, it is pertinent that SME women entrepreneurs are availing funding facilities from banks and financial institutions, but the ground reality is different. Branch offices of local banks are not willing to give loans to women entrepreneurs, because they are afraid of recovery of such loans on time. Banks are reluctant to allow loans to women entrepreneurs without securities of Tk.2.5 million. Huge documentation requirements varying from bank to bank are making the funding process more difficult. Other than refinancing scheme, interest rate is double digit while maximum limit of refinancing loan is Tk.5.0 million. Guarantor is a problem as the BB guidelines are not always followed by the scheduled Banks. In the refinancing scheme, small women entrepreneurs are allowed to use domestic factoring, but the women entrepreneurs can not avail this opportunity as banks do not have confidence on them. Factoring has not yet been identified as a popular system to pay to the third party. Large companies mostly have their contacts with their suppliers and not directly with the women entrepreneurs.
In order to consider the third party payment, there is absence of a Sub-contracting Act. So payment for any contract on supplying products on time is not obligatory. Internationally factoring has been used as a substitute for Letter of Credit.
The typical documentation requirement for small loans is difficult, among them being mortgage registration. In preparing project profile, women entrepreneurs need special support. The BB circular indicated that personal guarantee could be provided for loan up to Tk.1.5 million for women entrepreneurs. The amount was raised to Tk.2.5 million in 2009. Banks usually need 2 personal guarantees. The guarantor could be spouse/ parents/ brother(s) /sister(s)/other family members. In case of women, they prefer husbands to be one of the guarantors. Some banks also need a third party guarantor other than family members. Women entrepreneurs usually have problems in providing guarantors and have to depend on persons other than family members.
Banks should maintain the BB guidelines and should not request for additional guarantors. The BB should also make it clear that guarantor should not be restricted to husband only. The BB should provide a directive to all banks so that their practices are gender neutral and extra requirements are not imposed on women entrepreneurs seeking loans.
A marketing policy can be framed for women entrepreneurs as they are the worst sufferers in terms of marketing their products. Women are presently involved in manufacturing sector, but financing facilities are mostly available in the service and trading sectors. Manufacturing sector needs to be encouraged through policy support. In the refinancing scheme, a significant percentage of loans should be earmarked for financing in the manufacturing sector.
Entrepreneurship development curriculum should be included in educational institutions. Information desks of different banks and financial institutions should be updated with information on incentives available for women entrepreneurs. A dedicated Women Entrepreneurship Section should be established in the Ministry of Industries with multi-dimensional research and skill development support. In the Women Development Policy 2011 in para 29.3, it has been mentioned that for the interest of the women, necessary laws, rules and regulations would be enacted to extend technology support for the women. However, there is limited investment for women’s greater access to technology in the manufacturing sector. In the ‘Small and Medium Enterprise (SME) Credit Policies & Programmes’ by the BB, technology support should be included in SME policies and programmes.
The writer is CEO, Business Initiative Leading Development (BUILD).