Supporting Access to Finance for MSMEs Recovery and Growth

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The project will support the authorities of Bangladesh with creation, capitalization and institutional development of a partialcredit guarantee scheme (PCGS) for micro, small and medium enterprises (MSMEs). The project will contribute to the ongoing programof support provided by the Ministry of Finance (MoF) and Bangladesh Bank (BB) for MSMEs post-COVID-19 recovery, jobs retention andgrowth. The project will comprise three main components, namely: (i) Component 1.Creating sustainable MSME PCGS , (ii) Component 2.Strengthening MSME PCGS institutional capacity and supporting financial market infrastructure; (iii) Component 3. ProjectImplementation and Monitoring Support. Component 1 will support development of a portfolio based guarantee scheme for eligibleparticipating financial institutions (PFIs) that will lend to MSMEs. As access to finance is one of the top three constraints forbusiness growth in Bangladesh, a PCGS will provide additional risk coverage to lenders, thus reducing their potential losses incase of an MSMEs default. This will help incentivize banks to lend to MSMEs even in the environment of higher risks anddisruptions caused by the pandemic. The risk coverage will be limited to 70 percent of an individual loan (working capital andinvestment finance). It is expected that the MSME PCGS will operate on the basis of additionality, transparency and sustainability,and by the end of the project a viable, independent credit guarantee institution will be established, capitalized, become fullyoperational and well governed. The project under Component 2 will support strengthening of the MSME PCGS institutional capacity andfinancial sector infrastructure. The project will also support capacity building for PFIs and MSMEs to strengthen their capabilityfor environment and social risks assessment and promote investments for climate change mitigation and adaptation.