Supply chain portfolio in Bangladesh have so far received only Tk 870 crore in financing, 90 percent of which came from non-bank financial institutions (NBFIs) and the rest are from banks.
To develop the under-performing portfolio, bankers and experts asked for framing a comprehensive policy guideline for supply chain financing, saying it could help develop smaller firms. They suggested banks and financial institutions should increasingly concentrate on reverse factoring mechanism of the financing where credit risk will be lower.
They also asked Bangladesh Bank (BB) to form a committee comprising representatives from the banks and non-bank financial institutions (NBFIs) for the policy formulation.
The suggestions came at a roundtable discussion on “Supply Chain Finance in Bangladesh,” hosted by the Bangladesh Institute of Bank Management (BIBM) at its Mirpur office in the capital. Dr Barkat-e-Khuda, Dr. Muzaffer Ahmed Chair Professor of BIBM, moderated the function where officials of the country’s various banks were present.
Presenting a keynote paper, BIBM professor and director (research, development and consultancy) Dr Prashanta Kumar Banerjee said reverse factoring is considered one of the safest modes of financing. Buyers will sign a contract with the banks or financial institutions under the reverse factoring and buyers will send invoice to the lenders concerned for financing the suppliers, he suggested.
According to a BIBM research, traditional factoring captures 57.44 per cent of the total supply chain financing, followed by distributor finance (21.96 percent) and reverse factoring (5.70 per cent).
Speaking as the chief guest, BB deputy governor S.M. Moniruzzaman said the size of SCF portfolio by banks and NBFIs is about Tk 870 crore. Of the total portfolio, around 90 percent of the market share is captured by NBFIs and the remaining portion goes to banks’ portfolio.
BIBM supernumerary professor Helal Ahmed Chowdhury said the coverage of SCF needs to be enhanced for the sake of the rapid growth of small and medium enterprises.
He suggested going for tier-2 and tier-3 groups instead of the large ones as the volume of bad loans increased because of the failure of the large companies to repay the loans.
M. Mostafiduzzaman, Head of Supply Chain Financing of Eastern Bank, said they have launched the system a year ago and experienced phenomenal growth in the SCF.
Dong Gong Zhang, principal financial sector specialist of Asian Development Bank, also spoke among others at the event.
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