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Digital supply chain finance
The industrial MSME (Micro, Small and Medium Enterprise) is not just a noteworthy economic organ of Bangladesh, but a vital one. They are the key role players of employment generation for populous economies, like Bangladesh and perform as the backbone of the backwards linkage merchants of large cor
Digital supply chain finance
Risk sharing facilities for industrial MSMEs
Sanjoy Pal
Published :
Aug 12, 2025 22:54
Updated :
Aug 12, 2025 22:54
The industrial MSME (Micro, Small and Medium Enterprise) is not just a noteworthy economic organ of Bangladesh, but a vital one. They are the key role players of employment generation for populous economies, like Bangladesh and perform as the backbone of the backwards linkage merchants of large corporations. They are also stepping up to innovate new products and processes nowadays. According to a report of the Planning Division, Bangladesh, 90per cent of industrial units represent CMSMEs, with 80per cent of industrial employment contributing 45 per cent of the manufacturing value added to the GDP of Bangladesh. Their importance to the economy of Bangladesh cannot be overstated. However, despite their potential, most of them suffer from a lack of capital support from financial institutions to establish industries. They need to inject their own funds or funds from informal sources to be established. The World Bank, in its publication on "Financing Solution for Micro, Small and Medium Enterprises in Bangladesh", revealed the presence of significant financial infrastructure weaknesses that impede the financial inclusion of MSMEs. The report also recorded a 159th ranking for Bangladesh (out of 190 countries) for the 'Getting Credit' indicator. Due to a lack of awareness about and financial literacy, MSMEs lack financing support from the formal sector. They typically expect to manage the regular cash cycle because they have funding constraints. When they receive a bigger supply order at a time, they fail to get the work done. To meet their emergency working capital or sometimes fixed asset-related requirements, they seek funds from informal sources, bearing huge interest that is burdensome for them to bear. To address the financing gap between both parties and ensure access to finance from the formal sector by Industrial MSMEs, digital supply chain finance to support their cash cycle, and a risk-sharing facility concept should be introduced as advanced financing solutions.
Many industries have been affected by the idiosyncratic negative shocks of the COVID-19 disease since 2019. Some unstable economic and political situations that arise from time to time also make the marginal MSMEs suffer. Furthermore, the US tariff for Bangladesh has led some industries to initiate a refurbished drive as the tariff may cause unexpected changes in market demand for some exported items or may create supply chain disruptions in production. MSMEs are considered the most vulnerable participants in terms of their size, capacity and limited resources. All they need to absorb these shocks is to expand the sources of funding. Here, financing from formal sources, specifically from financial institutions, can create an opportunity for them to sustain in the long run. MSMEs mostly require funds on an urgent basis, where the lead time matters. But due to the process and documentation gap constraints, most of them are apathetic to borrow from Banks and Non-Banking Financial Institutions. They are seeking funds from Micro Finance Institutions, rather than having a 24 per cent interest rate, unlike banks that charge 4 per cent to 15 per cent interest annually. Hence, the banks are not getting access to lend to the marginal MSMEs, and the MSMEs are not getting access to borrow from banks in the expected large amount. The leading economies of the world are mitigating this gap by embracing the digital finance module in their process. What most of the financial institutions in Bangladesh can do is to introduce financing solutions through digital means in their process.
The industrial enterprises seek funding for capital machinery, working capital support, import financing and export financing as well. Most of them are usually MSMEs who play the pivotal role in the supply chain ecosystem. In that case, to roll out the regular operations, they frequently need supply chain financing support from Banks or NBFIs. The manual intervention of the supply chain finance has lost its tradition worldwide. The industries have been utilising the Letter of Credit, Documentary Acceptance and Collection method of supply chain financing in Bangladesh for a long time. To meet the local demand, these methods are considered costly. To alleviate the cost burden, invoice financing, a widely known method of digital supply chain finance, should be made more accessible. Many of the renowned banks of the world, such as Standard Chartered Bank, Bank of America, Lloyds Bank, Arab Bank, DBS Bank, ICICI Bank, etc., have already embraced advanced technologies and implemented digital supply chain finance strategies to create more operating cash flow for industrial MSMEs. The suppliers benefit from the digital chain of financing in several ways. They have zero risk in their relationships, receive online payments that are disbursed quickly and securely, and can upload invoices at any time, either individually or in bulk, through various access points, including computers, mobile devices, and tablets. The buyer can enjoy a one-stop invoice financing opportunity, including fast approval and disbursement through online, automate the payables, track upcoming payment schedules, obtain leverage with suppliers and vendors, etc. In addition to the benefits of suppliers and buyers, the financial institutions will also offer program-based solutions, seamless onboarding of marginal MSMEs, and paperless and hassle-free processing of services to both parties. The potential of digital supply chain finance to meet the working capital requirements by cash flow generation for MSMEs is immense. Proper financing can be a game changer for MSME in Bangladesh, as the Fintech is revolutionising it.
Furthermore, to support the MSMEs in meeting their financing requirements, either for working capital or fixed assets, the central bank, along with some leading financial institutions in Bangladesh, have been encouraging Risk Sharing Facilities (RSFs) for a long time. Bangladesh Bank, having a pilot project funded by the United Nations Capital Development Fund (UNCDF), introduced a risk-sharing facility, a bilateral loss-sharing agreement in the name of the Credit Guarantee Scheme during 2016-2019. Later on, Credit Guarantee was introduced for the pre-financing and refinancing schemes only, which are being continued. Many MSME entrepreneurs have the ability to take calculated risks, but also face funding constraints to mitigate the risks. They want to establish an industry, expand it to enlarge the business scope, but they don't have sufficient collateral to secure financing from the financiers. As a result, many lenders are reluctant to take the risk of financing them. The central bank should consider introducing the facility for collateral-free or unsecured portions of financing for productive MSME industries, irrespective of pre-financing or refinancing schemes. Thus, the funding will be inclusive for the industrial manufacturers, leading to intensified local production. To encourage the MSMEs in Bangladesh, International Finance Corporation (IFC) in cooperation with financial institutions operated in Bangladesh like with HSBC Bangladesh, IDCOL, Brac Bank PLC, Eastern Bank PLC has also invested funds in the form of Risk Sharing Facilities (RSFs) to support agribusiness, renewable energy, solar rooftop projects and trade and working capital solutions for MSME commercial and industrial users and exporters in Bangladesh. It's undoubtedly broadening the MSME financing scope and encouraging financial inclusion. Finally, to boost the local industries and to reduce the financing gap, it is now an exigency to promote digital supply chain finance as well as risk-sharing facilities for the MSMEs in Bangladesh.
Sanjoy Pal is a seasoned banker and certified Financial Modeling & Valuation Analyst (FMVA®).
Risk sharing facilities for industrial MSMEs
Sanjoy Pal
Published :
Aug 12, 2025 22:54
Updated :
Aug 12, 2025 22:54
The industrial MSME (Micro, Small and Medium Enterprise) is not just a noteworthy economic organ of Bangladesh, but a vital one. They are the key role players of employment generation for populous economies, like Bangladesh and perform as the backbone of the backwards linkage merchants of large corporations. They are also stepping up to innovate new products and processes nowadays. According to a report of the Planning Division, Bangladesh, 90per cent of industrial units represent CMSMEs, with 80per cent of industrial employment contributing 45 per cent of the manufacturing value added to the GDP of Bangladesh. Their importance to the economy of Bangladesh cannot be overstated. However, despite their potential, most of them suffer from a lack of capital support from financial institutions to establish industries. They need to inject their own funds or funds from informal sources to be established. The World Bank, in its publication on "Financing Solution for Micro, Small and Medium Enterprises in Bangladesh", revealed the presence of significant financial infrastructure weaknesses that impede the financial inclusion of MSMEs. The report also recorded a 159th ranking for Bangladesh (out of 190 countries) for the 'Getting Credit' indicator. Due to a lack of awareness about and financial literacy, MSMEs lack financing support from the formal sector. They typically expect to manage the regular cash cycle because they have funding constraints. When they receive a bigger supply order at a time, they fail to get the work done. To meet their emergency working capital or sometimes fixed asset-related requirements, they seek funds from informal sources, bearing huge interest that is burdensome for them to bear. To address the financing gap between both parties and ensure access to finance from the formal sector by Industrial MSMEs, digital supply chain finance to support their cash cycle, and a risk-sharing facility concept should be introduced as advanced financing solutions.
Many industries have been affected by the idiosyncratic negative shocks of the COVID-19 disease since 2019. Some unstable economic and political situations that arise from time to time also make the marginal MSMEs suffer. Furthermore, the US tariff for Bangladesh has led some industries to initiate a refurbished drive as the tariff may cause unexpected changes in market demand for some exported items or may create supply chain disruptions in production. MSMEs are considered the most vulnerable participants in terms of their size, capacity and limited resources. All they need to absorb these shocks is to expand the sources of funding. Here, financing from formal sources, specifically from financial institutions, can create an opportunity for them to sustain in the long run. MSMEs mostly require funds on an urgent basis, where the lead time matters. But due to the process and documentation gap constraints, most of them are apathetic to borrow from Banks and Non-Banking Financial Institutions. They are seeking funds from Micro Finance Institutions, rather than having a 24 per cent interest rate, unlike banks that charge 4 per cent to 15 per cent interest annually. Hence, the banks are not getting access to lend to the marginal MSMEs, and the MSMEs are not getting access to borrow from banks in the expected large amount. The leading economies of the world are mitigating this gap by embracing the digital finance module in their process. What most of the financial institutions in Bangladesh can do is to introduce financing solutions through digital means in their process.
The industrial enterprises seek funding for capital machinery, working capital support, import financing and export financing as well. Most of them are usually MSMEs who play the pivotal role in the supply chain ecosystem. In that case, to roll out the regular operations, they frequently need supply chain financing support from Banks or NBFIs. The manual intervention of the supply chain finance has lost its tradition worldwide. The industries have been utilising the Letter of Credit, Documentary Acceptance and Collection method of supply chain financing in Bangladesh for a long time. To meet the local demand, these methods are considered costly. To alleviate the cost burden, invoice financing, a widely known method of digital supply chain finance, should be made more accessible. Many of the renowned banks of the world, such as Standard Chartered Bank, Bank of America, Lloyds Bank, Arab Bank, DBS Bank, ICICI Bank, etc., have already embraced advanced technologies and implemented digital supply chain finance strategies to create more operating cash flow for industrial MSMEs. The suppliers benefit from the digital chain of financing in several ways. They have zero risk in their relationships, receive online payments that are disbursed quickly and securely, and can upload invoices at any time, either individually or in bulk, through various access points, including computers, mobile devices, and tablets. The buyer can enjoy a one-stop invoice financing opportunity, including fast approval and disbursement through online, automate the payables, track upcoming payment schedules, obtain leverage with suppliers and vendors, etc. In addition to the benefits of suppliers and buyers, the financial institutions will also offer program-based solutions, seamless onboarding of marginal MSMEs, and paperless and hassle-free processing of services to both parties. The potential of digital supply chain finance to meet the working capital requirements by cash flow generation for MSMEs is immense. Proper financing can be a game changer for MSME in Bangladesh, as the Fintech is revolutionising it.
Furthermore, to support the MSMEs in meeting their financing requirements, either for working capital or fixed assets, the central bank, along with some leading financial institutions in Bangladesh, have been encouraging Risk Sharing Facilities (RSFs) for a long time. Bangladesh Bank, having a pilot project funded by the United Nations Capital Development Fund (UNCDF), introduced a risk-sharing facility, a bilateral loss-sharing agreement in the name of the Credit Guarantee Scheme during 2016-2019. Later on, Credit Guarantee was introduced for the pre-financing and refinancing schemes only, which are being continued. Many MSME entrepreneurs have the ability to take calculated risks, but also face funding constraints to mitigate the risks. They want to establish an industry, expand it to enlarge the business scope, but they don't have sufficient collateral to secure financing from the financiers. As a result, many lenders are reluctant to take the risk of financing them. The central bank should consider introducing the facility for collateral-free or unsecured portions of financing for productive MSME industries, irrespective of pre-financing or refinancing schemes. Thus, the funding will be inclusive for the industrial manufacturers, leading to intensified local production. To encourage the MSMEs in Bangladesh, International Finance Corporation (IFC) in cooperation with financial institutions operated in Bangladesh like with HSBC Bangladesh, IDCOL, Brac Bank PLC, Eastern Bank PLC has also invested funds in the form of Risk Sharing Facilities (RSFs) to support agribusiness, renewable energy, solar rooftop projects and trade and working capital solutions for MSME commercial and industrial users and exporters in Bangladesh. It's undoubtedly broadening the MSME financing scope and encouraging financial inclusion. Finally, to boost the local industries and to reduce the financing gap, it is now an exigency to promote digital supply chain finance as well as risk-sharing facilities for the MSMEs in Bangladesh.
Sanjoy Pal is a seasoned banker and certified Financial Modeling & Valuation Analyst (FMVA®).
