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Best Bank Awards

Bangladesh's best bank for SMEs 2020: IDLC Finance

IDLC Finance

Once again this year, Bangladesh’s leading non-bank financial institution is a shoo-in for top lender in the small and medium-sized enterprises sector.

Starting with its first dedicated SME branch in the northern Bogura district back in 2006, IDLC has been doing its bit to strengthen the Bangladesh economy’s foundations from the ground up.

All too often, developing-nation governments give outsized importance to the top-down economy – to corporate giants that make headlines abroad. It is SMEs, though, that drive the lion’s share of growth and create jobs – and Arif Khan, who has run IDLC since March 2016, is well aware of this.

Khan’s raison d’être is “financing happiness,” he says.

Yet his team is financing inclusion even at a time of declining private-sector credit growth, as seen over the last year. Despite the global trade war, IDLC in 2019 delivered an impressive 8.3% year-on-year jump in portfolio growth. Its total SME portfolio rose to $448 million, from $410 million in 2018. In fact, November 2019 saw the highest-ever monthly disbursement of $27.6 million. Overall last year, the client base grew 10.3%.

Arif Khan, CEO & MD, IDLC Finance.jpg
Arif Khan, IDLC Finance

“To us,” Khan says, “these numbers present a fascinating tale of success and inspire us to achieve greater heights. We are committed to expanding our presence across the country and provide impeccable service” by “establishing ourselves as a data-driven and efficiently run organization.”

Mohammad Jobayer Alam, head of the SME division, is particularly bullish on thinking small to reap big rewards.

“It’s the very small segment that we are targeting,” he explains, whereas most other financial institutions in Bangladesh are turning elsewhere.

One deterrent: credit risk management requirements can be quite onerous and resource intensive, so IDLC built its own credit-scoring system in conjunction with the IFC and Crisil, an Indian analytics firm.

It allows IDLC to push into the under-served market for loans of between $2,500 and $17,000. This range is too high for traditional microfinance operations, but too low for conventional banks. In 2019, IDLC disbursed $15.1 million in very small enterprise (VSE) financing.

IDLC’s Purnota unit, which targets female entrepreneurs, is growing and drawing rave reviews around the industry. Along with various lending offerings, including unsecured loans, the service offers training on book-keeping and advice on securing operating licences in assorted industries.

What’s more, IDLC is managing to expand into under-served businesses with minimal blowback. Its non-performing loan ratio is 2.9%, well below the industry average of 11.9%, and it boasts a 1.4% return on assets, versus the industry average of 0.7%. Not bad for an operation that thinks small.

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