Signing the maiden Peer Lending Agreement: A handshake for a million handshakes

There is a particular kind of entrepreneur I have encountered across the districts of this country over the past decades: the woman running a handloom unit in Sirajganj, who knows her market better than any MBA graduate; the fresh graduate in Tangail, who has built his agro-processing business from the ground up by watching YouTube tutorials; or the hardware trader in Chattogram, who needs fresh working capital every quarter but whose paperwork never quite satisfies the checklist at the bank counter.

They are intelligent, resilient, and commercially astute, yet they remain underserved by the very system that should be their greatest enabler. Bangladesh's Cottage, Micro, Small, and Medium Enterprises (CMSME) sector comprises nearly 11 million enterprises, contributing about 28% of the national GDP. CMSMEs make up 90% of industrial units and account for over 80% of industrial employment. Yet the sector's access to formal credit remains inadequate.

Only 28 out of every 100 CMSMEs currently have access to formal credit, leaving a financing gap of approximately $2.8 billion. According to Bangladesh Bank data up to December 2024, only about 18% of total outstanding loans, amounting to BDT 17,02,036 crore, went to CMSMEs. Even within that modest share, the distribution remains skewed, with less than 6% reaching women-led enterprises.

Against this backdrop, Bangladesh Bank's SMESPD Master Circular on CMSME Financing last year represented a genuinely thoughtful piece of regulatory architecture. The circular introduced the concept of peer organisations—finance companies that can support one another within a defined regulatory framework. This structural innovation effectively opened up a new channel through which certain banks in Bangladesh, with excess liquidity but limited last-mile reach and CMSME loan management expertise, can partner with specialised banks and NBFIs to push credit further into the real economy.

Bangladesh Bank deserves recognition for enabling a framework that marks a structural shift in how capital can—and should—be mobilised. Foreign banks operating in Bangladesh have historically maintained a limited presence in the CMSME segment because of the unit economics of last-mile delivery.

Rather than leaving that capital on the sidelines, the peer lending opportunity now creates a structured pathway for it to flow through institutions that possess the operational depth, branch networks, and, most importantly, borrower relationships grounded in local knowledge. The model is efficient because it avoids duplication, with each participant operating within its comparative advantage. It also introduces a level of risk-sharing and diversification that can improve the overall resilience of CMSME financing.

The circular set an ambitious CMSME credit disbursement target of 25% by end-2025, and 27% by 2029. Meeting that target will require more than policy goodwill, since a framework, however well designed, is only as effective as the partnerships it enables. For peer lending to meaningfully reduce the financing gap, the conduit institution must have demonstrable reach, credible risk management, and a genuine understanding of CMSME borrowers.

IDLC Finance PLC signed the country's first Peer Lending Agreement with Citibank N.A. Bangladesh on 7 April 2026. Under this structure, we will deploy the proceeds of Citibank's loan facility exclusively for on-lending to eligible CMSME borrowers.

Twenty years of robust CMSME operations across Bangladesh, a multi-product model that allows us to serve borrowers at different stages of their life cycles, and a portfolio spanning manufacturing clusters, trading enterprises, and service-based businesses across both urban and rural geographies—this is what trust looks like when it is built steadily and with purpose.

Our extensive presence across the districts is the result of sustained engagement with entrepreneurs from diverse backgrounds, a deep understanding of local cash-flow cycles, sectoral nuances, and the informal dynamics that often shape credit behaviour. What this peer lending partnership enables us to do is scale that reach by leveraging our lenders' liquidity, channelling global capital towards local entrepreneurs who, by all means, deserve access.

The regulator's decision to introduce peer lending is consistent with global trends, where central banks are increasingly enabling partnerships to address credit gaps in underserved segments. The expectation now is that the market will respond with similar discipline, prioritising transparency, consistent underwriting standards, and long-term sustainability over short-term expansion.

At IDLC, we believe that this maiden agreement will demonstrate the model's viability and encourage similar arrangements across the sector. More foreign banks should explore this structure. More banks and NBFIs with credible CMSME operations should position themselves to participate. More such policies need to be developed—rooted in market realities and designed with the underserved entrepreneur at the centre, rather than as an afterthought.

The entrepreneurs in Sirajganj, Tangail, and Chattogram have been waiting long enough. We owe them better than we have managed so far. And for the first time in a while, we have a credible prototype to begin delivering on that promise.

Syed Javed Noor is the Additional Managing Director at IDLC Finance PLC

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.