SMESPD Circular No. 05: Cluster financing in CMSME sector

Bangladesh Bank
Head Office
Motijheel, Dhaka-1000
Bangladesh. www.bb.org.bd

SMESPD Circular No.-05
Date: Shraban 30, 1429
August 14, 2022

SME & Special Programs Department

Managing Director/Chief Executive Officer
All Scheduled Banks and Financial Institutions operating in Bangladesh.

Dear Sir,

Context of Cluster Financing in the CMSME Sector.

The importance of the CMSME sector in the country's economic progress is immense. Cluster financing is a popular concept globally to advance this important sector. It is expected that if Bangladesh's potential clusters receive adequate support, they will make significant contributions to the country's economic progress. In this consideration, necessary instructions are provided to banks and financial institutions to consider cluster financing in the CMSME sector through Paragraph 4.2 of SMESPD Circular No.-02/2019. Recent analysis of financing information in the CMSME sector indicates the need to formulate specific guidelines for cluster financing. In this context, the following guidelines are issued to ensure accessible bank loans/investments for cluster financing in the CMSME sector:

1. Definition of Cluster:
   A group of 50 (fifty) or more enterprises engaged in similar/homogeneous/related product production or service provision located within a specific geographical boundary of a maximum 5 (five) kilometer radius shall be considered as a single cluster. In this regard, the business strengths, weaknesses, opportunities, and threats of the enterprises under the cluster will be of the same nature. If the definition of cluster is provided differently in the 'National Industrial Policy' in the future, necessary instructions will be provided accordingly.

2. Identification of Cluster:
   a) Identified clusters according to the definition provided in Paragraph 1 of this circular shall be considered for cluster financing. Additionally, if a list of clusters is provided in the 'National Industrial Policy' in the future, they will fall under the cluster category.

b) Considering the type of products/services of institutions under the cluster, clusters shall be classified into High Priority and Priority clusters according to the table below.

	High Priority Clusters
1	Agro/Food processing and Agri Machinery Manufacturing Industries
2	Ready Made Garments Industry, Knitwear, Design & Personal Wear
3	ICT
4	Leather & Leather goods Industry
5	Light Engineering
6	Jute & Jute products Industry

	Priority Clusters
1	Plastic & Other Synthetics Industries
2	Tourism Industry
3	Home Textile Products
4	Renewable Energy (Solar Power)
5	Automobile Manufacturing & Repairing Industries
6	Tant, Hand & Craft Industries
7	Energy efficient equipment (LED, CFL bulb production)/Electronic equipment manufacturing industry/Electronic material development industry
8	Jewelry Industry
9	Toy Industry
10	Cosmetics & Toiletries Industry
11	Agar Industry
12	Furniture Industry
13	Mobile/Computer/Television Servicing

If banks and financial institutions identify any other type of cluster outside the above list, it will be considered as Other Clusters.

3. Targets for Cluster Financing:
   a) Each bank and financial institution shall determine targets for cluster financing while determining their annual targets for CMSME sector net loan/investment position according to SMESPD Circular No.-02/2019. Notably, for the year 2022, a minimum of 10% of the CMSME net loan/investment position as of December 31, 2022, must be achieved as the target for cluster net loan/investment position. Subsequently, this target amount must be increased by at least 1% per year to reach a minimum of 12% by mid-2024. Bangladesh Bank may change/re-determine the said target if necessary.

b) Until further instructions are issued, at least 50% (fifty percent) of the annual cluster financing target of banks and financial institutions must be distributed among the clusters described in Paragraph 2(b) and a maximum of 50% (fifty percent) among other clusters.

4. Own Guidelines for Cluster Financing:
   Each bank and financial institution shall formulate its own guidelines for cluster financing; which must be approved by the Board of Directors of the respective bank. A copy of the said guidelines shall be published on the website of each bank, and an approved copy of the guidelines shall be sent to the SME & Special Programs Department.

5. Eligibility for Loan/Investment at Customer Level:
   (a) The enterprise must be part of the CMSME sector; (b) The enterprise must be engaged in the production or service sector; (c) It must be ensured that the enterprise is under a specific cluster; (d) If there is an organization of entrepreneurs under the cluster, the entrepreneur must be a member of the relevant organization; (e) According to the CIB report, the enterprise must be free from loan/investment default; (f) Enterprises that have received relevant training for a minimum period of 01 (one) month from government institutions or well-known private institutions will be given priority for loan/investment; and (g) Women entrepreneurs and entrepreneurs with special needs under the cluster will be given priority for loan/investment facilities.

6. Amount of Loan/Investment and Customer Level Loan/Investment Limit:
   (a) Both working capital and term loan/investment facilities may be provided according to the nature and demand of the enterprise.
   (b) The following loan/investment limits mentioned in Paragraph 2.6 of SMESPD Circular No.-02/2019 will apply:

Loan/Investment Limit	Cottage Industry	Micro Enterprise	Small Enterprise	Medium Enterprise
	Production Industry	Production Industry	Service Industry	Production Industry	Service Industry	Production Industry	Service Industry
Maximum Loan/Investment Limit	15 Lac Taka	1 Crore Taka	25 Lac Taka	20 Crore Taka	5 Crore Taka	75 Crore Taka	50 Crore Taka

(c) The same customer may take loan/investment facilities from multiple banks/financial institutions as needed. However, the overall loan/investment limit shall not exceed the limit described in Paragraph 6(b). This must be ensured by checking the loan/investment information of CIB.

7. Interest/Profit Rate for Loan/Investment at Customer Level:
   According to the guidelines issued by the Banking Regulation and Policy Department for the banking sector and the Financial Institutions and Market Department for financial institutions, the Schedule of Charges and the interest/profit rate against distributed loans/investments will apply. However, in the case of providing loans/investments under the re-financing schemes/funds announced by Bangladesh Bank, the interest/profit rate determined for the said schemes/funds will apply.

8. Tenor of Loan/Investment at Customer Level:
   In the case of term loans/investments, the tenor of the loan/investment at the customer level will be a maximum of 05 (five) years. A grace period may be determined considering the bank-customer relationship and the type of enterprise/business; however, it shall not exceed 06 (six) months. Installments may be determined on a monthly/quarterly/half-yearly basis for the repayment of term loans/investments. In the case of working capital loans/investments, the relevant applicable guidelines will be followed.

9. Guarantee:
   Personal, social, or group guarantees may be considered as collateral in the case of loans/investments. In this regard, personal, social, or group guarantees will apply according to Paragraphs 9.1, 9.2, and 9.3 of SMESPD Circular No.-02/2019. Additionally, loan/investment facilities may be provided under the Credit Guarantee Scheme issued by Bangladesh Bank from time to time.

10. Loan/Investment Approval Process:
    (a) After the application is submitted to the bank/financial institution by the suitable/eligible entrepreneur for the purpose of receiving loan/investment, the relevant bank/financial institution shall ensure whether the enterprise falls under the determined cluster by evaluating the said proposal according to its own guidelines. After evaluating the entrepreneur's cluster determination and the loan/investment proposal, the bank/financial institution shall provide loan/investment to the relevant enterprise; (b) The loan/investment proposal will be approved according to the bank/financial institution's own loan/investment guidelines.

11. Reporting and Monitoring:
    (a) At the head office and branch levels of banks and financial institutions, cluster-related loans/investments shall be shown separately in the Statement of Affairs; (b) Each bank and financial institution shall submit its report on cluster financing to the SME & Special Programs Department by the 15th of the following month every quarter according to the determined format; (c) To ensure the proper use of loans/investments, the relevant bank/financial institution must have its own specific action plan and monitoring method. Bangladesh Bank may evaluate the proper use of loans/investments through field visits and verification of information from time to time; (d) Considering the importance of cluster-based loans/investments in the overall socio-economic development of the country, banks and financial institutions may take awareness-raising programs based on funds for cluster development.

12. Other Conditions:
    (a) If the customer fails to repay the loan/investment on time, it shall be classified under the relevant existing guidelines of the Banking Regulation and Policy Department of Bangladesh Bank, and necessary steps shall be taken; (b) In the distribution of loans/investments at the customer level, in addition to complying with the mentioned conditions, other matters such as the time period for receiving and processing applications, distribution of loans/investments, proper use, supervision, and recovery process shall be followed according to the existing guidelines for financing in the CMSME sector; (c) Banks and financial institutions shall provide necessary information and documents to Bangladesh Bank as required by Bangladesh Bank; (d) For the information of stakeholders, banks and financial institutions shall show specific information related to cluster financing separately in the notes to the financial statements; (e) In the distribution and recovery activities of cluster-based loans/investments, banks and financial institutions may use information technology and mobile financial services/digital banking where applicable; (f) To achieve the socio-economic development of the country, priority shall be given to the issue of loans/investments to cluster-eligible enterprises from the low-interest/profit re-financing schemes/funds operated by Bangladesh Bank from time to time; (g) Additionally, other instructions of SMESPD Circular No.-02/2019 will apply.

13. Bangladesh Bank reserves the right to change or amend any type of this guideline.

14. These instructions are issued under the powers granted by Section 45 of the Bank Company Act, 1991 and Section 18 of the Financial Institutions Act, 1993.

15. These instructions will come into force immediately.

Yours faithfully,
(Signature)
(Md. Zakir Hossain)
Director (SMESPD)
Phone: 9530502

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Quarterly Statement on CMSME Cluster Financing (Amount in Lac BDT)

Priority Selection	Cluster's Category	Serial	Specific Cluster's Information	Number of Enterprises Financed in the Cluster (This Quarter)	Disbursement in the Cluster (This Quarter)	Recoverable (This Quarter)	Recovery (This Quarter)	Classified (Quarter End)	Total Outstanding in the Cluster (Quarter End)
			Cluster's Product/Service	Cluster's Address (District, Upazilla, Area/Union/Road/Village)
High Priority	Agro/Food processing and Agri Machinery Manufacturing Clusters	1-5
	Ready Made Garments (RMG), Knitwear, Designe & Personal Wear Clusters	1-5
	ICT Clusters	1-5
	Leather & Leather goods Clusters	1-5
	Light Engineering Clusters	1-5
	Jute & Jute products Cluster	1-5

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Quarterly Statement on CMSME Cluster Financing (Amount in Lac BDT)

Priority Selection	Cluster's Category	Serial	Specific Cluster's Information	Number of Enterprises Financed in the Cluster (This Quarter)	Disbursement in the Cluster (This Quarter)	Recoverable (This Quarter)	Recovery (This Quarter)	Classified (Quarter End)	Total Outstanding in the Cluster (Quarter End)
			Cluster's Product/Service	Cluster's Address (District, Upazilla, Area/Union/Road/Village)
Priority	Plastic Industry & Other Synthetics Clusters	1-3
	Tours & Travel Clusters	1-3
	Home Textile Clusters	1-3
	Renewable Energy (Solar Power) Clusters	1-3
	Automobile manufacturing & Repairing Clusters	1-3
	Tant & Handicrafts Clusters	1-3
	Energy efficient equipment production Clusters	1-3
	Jewelry Clusters	1-3
	Toys Clusters	1-3
	Cosmetics & Toiletries Clusters	1-3
	Agar Industry Clusters	1-3
	Furniture Clusters	1-3
	Mobile/Computer/Television Srvicing	1-3
Others		1-5