[Dhaka, 5 December, 2019]- IPDC Finance Limited, the first private financial institution of Bangladesh established in 1981, has launched ‘Orjon’, the first digital supply chain finance platform in Bangladesh. ‘Orjon’ started its journey with a grand event on Thursday, December 5, at the Radisson Blu Water Garden Dhaka Hotel.
Junaid Ahmed Palak, State Minister for Information and Communications was present as the Chief Guest at the inauguration ceremony of ‘Orjon’ alongside Shah Alam, Executive Director, Bangladesh Bank; Judith Herbertson, Country Representative of DFID in Bangladesh; Paul Buren Hutchison, VP Blockchain GIU, Asia Pacific, IBM Global Business Services; and Syed Almas Kabir, President of BASIS (Bangladesh Association of Software and Information Services) as special guests. Tina Jabeen, Investment Advisor Startup Bangladesh ICT Division Ministry of Post, Telecommunications and Information Technology; Salahuddin Mahmud, Nominated Director of IPDC, GOB & Additional Secretary of Ministry of Industries; Mominul Islam, MD and CEO of IPDC Finance Limited; Rizwan Dawood Shams, Deputy Managing Director and Head of Business Finance and many others senior IPDC officials were present.
As ‘Bangladesh’s first blockchain-based digital supply chain finance platform ‘”Orjon” is a comprehensive supply chain financing solution that provides financial facilities to corporate organizations, micro and small enterprises (MSEs) in one single chain through factoring, reverse factoring, work order, and distributor financing. Easy, Fast & Collateral Free are the three pillars of Orjon. Under the ‘Orjon’ blockchain technology, the development of the digital supply chain platform will provide lending facilities to small enterprises in the country easily and at a low cost. The goal of ‘Orjon’ is to create a holistic supply chain financing eco-system in the country and this is the first of its kind in Bangladesh.
Speaking as the chief guest, Junaid Ahmed Palak said, “It’s a historic day for digital Bangladesh. I warmly thank IPDC for taking excellent and co-operative initiatives and utilizing block chain technology in business activities to reach the goal of building Digital Bangladesh. Person to person financial services can be ensured by block chain technology like Orjon. I would like to welcome companies like IBM to collaborate more with platforms like Orjon”.
Mominul Islam, MD, and CEO of IPDC Finance Limited said, “Today is a historical day for the Supply Chain Finance sector of Bangladesh. IPDC has launched the first ever digital supply chain platform ‘Orjon’ to boost digital transformation of NBFI sector to achieve the Vision 2021 of digital Bangladesh. The platform will provide easy and low-cost credit facilities and support to develop over 25,000 small enterprises and businesses over the next five years for the improved supply chain management. As a result, I am confident that better business environment, market expansion and more than 200,000 new jobs will be created with greater financial progress than ever before. ”
Shah Alam, Executive Director of Bangladesh Bank said, ‘’It is commendable that IPDC has successfully launched the first ever Blockchain based digital supply chain platform in Bangladesh. Bangladesh Bank welcomes such initiative and wish Orjon to be more functional in coming days”
ORJON: SPREADING UNBOUND SMILES: A SUCCESS STORY OF FINANCING MSMEs THROUGH TECHNOLOGY
ORJON is a Digital Supply Chain Platform developed by IPDC Finance Limited (IPDC) in technological partnership with IBM by using blockchain technology. It is designed and implemented by IPDC for promotion of financial inclusion of MSMEs by providing easy access to low-cost credit in the form of Supply Chain Finance in collaboration with corporate bodies through creating an ecosystem first ever in Bangladesh for end-to-end supply chain management.
Supply Chain Financing (SCF) execution involves a lot of manual process that includes collection of bill/invoices, lifting orders, work orders etc. verification and authentication of the same and ensuring collection of repayments. Often SCF are of high cost, inappropriately structured, complex in process and does not adequately support the growth aspiration on MSMEs. It requires significant operational resources of the financing Banks/FIs to effectively mitigate the operational risk involved in the process resulting in slow penetration in Bangladesh market in absence of a digital ecosystem.
As such, IPDC took the initiative to digitalize the processes which eliminates the physical movement of the documents required for SCF execution and collection of repayments. The process involves development of a secured system which involves the borrower, its debtors and the financier be in the same digital platform. This system is coined as the Digital Supply Chain Platform, and for it to be secured, IPDC in partnership with IBM, introduced blockchain technology, first ever in Bangladesh.
MSMEs are playing a vital role for the country’s accelerated industrialization, economic growth, employment generation and reducing poverty. They account for about 45% of manufacturing value addition, about 80% of industrial employment, about 90% of total industrial units and about 25% of the labor force. Their total contribution to export earnings varies from 75% to 80%. The industrial sector makes up 31% of the country’s gross domestic product (GDP), most of which is coming from MSMEs.
The 2003 Private Sector Survey estimated that there are about 6 million micro, small and medium enterprises, with fewer than 100 employees. About 60% to 65% of all MSMEs are located outside the metropolitan areas of Dhaka and Chittagong. The country’s MSME sector has created 15 lakh jobs between 2009 and 2014.
MSMEs often complain that the lack of finance stops them from growing and fully exploiting profitable investment opportunities. This gap between the finance available to MSMEs and the finance that they could productively use is often known as the ‘funding or financing gap’. The MSME sector tends to suffer because MSMEs are viewed as a less attractive investment opportunity than many others due to the high levels of uncertainty and risk they are perceived to have. This perception of risk is due to several reasons including MSMEs often have:
- Limited transaction record
- Non-existent or very limited internal controls
- Few external controls. For instance, they are unlikely to be abiding by the rules of any stock exchange
- One dominant owner-manager whose decisions may face little questioning
- Few tangible assets to offer as collateral
As a result of the above, financiers are less confident investing in MSMEs as they are concerned with how their funds might be used and the returns that they might get. Hence, the easiest thing for financiers is to decline any opportunity to invest in a MSME. Counterbalancing these uncertainties of utilization of funds, credit risks and absence of collateral, IPDC Finance Limited (IPDC) for the first time in Bangladesh implemented ORJON: integrated digital platform developed by using block chain technology for supply chain management including financing module, made available to the MSMEs and Corporates thus building an ecosystem.
The use of the block chain technology enables all parties in a supply chain to act on a single shared ledger. A supplier (MSME) and buyer (Corporate), along with every other participant will solely update their parts of the transaction, enabling efficiency and an unprecedented level of trust and transparency on a ledger record that is immutable. The ecosystem ensures MSMEs get direct access to Corporates for their product/service delivery eliminating the mid-tier(s). This will foster faster growth for MSMEs and hence generate employment.
Products offered through ORJON:
This source of finance effectively let MSME to raise finance against the security of their outstanding receivables. As MSME grows, their outstanding receivables grows and the amount they can borrow from invoice discounting also grows. Hence, factoring limit grows automatically as the business grows.
Work Order Financing:
MSMEs who supply goods and/or services to large corporate entities on a recurring basis, often find their working capital trapped, limiting the volume of new work orders. Under the circumstances, MSMEs can avail financing against multiple work orders from multiple buyers simultaneously through the platform.
Distributor Finance is the provision of financing for a distributor of a large manufacturer to cover the holding of goods for re-sale and to bridge the liquidity gap until the receipt of funds from receivables following the sale of goods to a retailer or end-customer.
IPDC aims to eventually open up the platform for other Banks/FIs to use for the supply chain finance with a revenue sharing model, which has the potential to be a ‘game changer’ in fostering the MSME finance in Bangladesh.
SPREADING UNBOUND SMILES THROUGH ORJON:
a. SMILES THROUGH CREATION OF EMPLOYMENT: Every year about 2 million young people join the country’s workforce. Bangladesh has not yet displayed adequate performance in large-scale industries that are predominantly owned and operated by public bodies, the country can solve its unemployment situation by encouraging MSMEs. Seasonal and disguised unemployment can also be solved to a substantial extent by MSMEs. ORJON ensures liquidity and financing opportunities in a secured, fast and collateral free manner that create jobs and thus creates entrepreneurs.
b. UNBOUND SMILES IN EVERY CORNER OF THE COUNTRY: Through creation of employment and entrepreneurs, ORJON reduces the urban migration in the capital and other major cities. ORJON supports increased cash flow in the rural areas and thereby enhance the standard of living of the rural people. MSMEs are widely distributed all over the country which means ORJON plays a major role in bridging the urban-rural income gap.
c. ENSURING INCLUSIVE GROWTH: The target of achieving double-digit GDP growth rate hinges largely on the performance of the micro, small and medium enterprises. In a labor surplus country like Bangladesh, MSMEs play a substantial role in providing the impetus to the development of the modern manufacturing sector and the job creation outside the agriculture and informal sectors and contribute towards inclusive growth.
d. PARTNERS OF EFFICIENCY: One of the major benefits of ORJON include the ability to manage cash flow more effectively as invoices may be paid on time through the platform by IPDC. Reconciliation and management information can also be enhanced since ORJON provides consistent information on funds being credited creating efficiency for the corporate bodies and MSMEs.
e. EVERYBODY IS A WINNER: ORJON ensures a “win-win” scenario as there are opportunities for corporate bodies/anchor to achieving better commercial terms without negatively impacting on buyer-supplier relationships and ensuring they remain financially viable.
f. FRIEND IN NEED: ORJON assures timely supply of required goods/services to manufactures by ensuring liquidity to its suppliers (MSMEs). As such, during uncertain times ORJON is a friend in need. This is particularly important when buying from only one source.
g. ORJON CREATES VALUE: ORJON through streamlined end to end supply chain management provided operational improvements leading to lower supplier queries and associated costs.
AIMING TO CREATE SUCCESS STORIES
As per research report of Bangladesh Institute of Bank Management (BIBM), current SCF market size in Bangladesh is approximately USD 100 million and 89% of it are held by Non-Bank Financial Institutions (NBFIs) while Banks contribute to only 11% approximately. IPDC is already the market leader in SCF financing in Bangladesh holding approx. 32% of the total market pie. However, a lot of the MSMEs are still outside of SCF opportunities due to not having the required documentation required by traditional banking system.
With the implementation of the ecosystem, whereby credit line would be easily determined through examining the transaction history recorded in the platform, IPDC is confident to reach a larger number of MSMEs through easy access to finance with no collateral.
IPDC has already onboarded 2,000 plus MSMEs and 11 plus corporates/enterprises within the first year of launching the system. ORJON is helping the MSMEs acquire new businesses as well as leverage their existing strength. It’s helping the market to shift from traditional supply chain finance to highly secured automated environment. This innovation made it possible to minimize the geographic barriers. All the parties from different locations can have the access to the ecosystem. This minimizes the data or clerical issues usually encountered in manual processes. The technology, via automation of processes and protocols will remove middlemen. Companies and businesses will be benefited with lower cost fund and reduced transaction costs.
IPDC envisions onboarding 5,000 MSMEs over the next two years through ORJON. Because of the necessity, demand, and inbuilt features of ORJON, IPDC is targeting to serve at-least 25,000 MSMEs over the next 5 years with more than USD 50 billion of disbursement through this platform. IPDC also plans to develop a consortium of Banks
and financial institutions through ORJON to serve larger number of MSMEs. Other Banks and Financial institutions will be able to use ORJON to serve their clients, creating a secured ecosystem. IPDC also envisions spreading smiles by creating 200,000 employment within the year 2024.
ORJON is in the verge of creating a revolution by development of an eco-system than not only will ensure financial inclusion but also will make a secured, transparent, reliable marketplace and create collaboration of all the value chains connecting all the dots required for efficient, optimized, sustainable economic growth.
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About IPDC Finance Limited
IPDC Finance Limited (previously known as “Industrial Promotion and Development Company of Bangladesh Limited”) was founded and established by a distinguished group of shareholders namely Government of Bangladesh (Ministry of Industries and Ministry of Finance), International Finance Corporation (IFC), USA, German Investment and Development Company (DEG), Germany, The Aga Khan Fund for Economic Development (AKFED), Switzerland, and Commonwealth Development Corporation (CDC), UK. From the very inception, IPDC on record has been playing an instrumental role in building up the nation when it was in the phase of dire need. Yet again IPDC emerged to rise to the latent demands of the people, when the nation witnesses an era of exponential growth, which were least expected from any financial institution so far. It’s acting as a catalyst for expansion of industrial, commercial and educational sectors’. BRAC, the largest non-governmental organization of the world came in the picture as the major shareholder of IPDC Finance Limited. Subsequently, IPDC formulated a long-term strategy considering the challenges and opportunities posed by the Bangladesh economy in next few years. IPDC has realigned their focus on nationwide spread with diversified services to steer up its next phase of growth. To become the most passionate financial brand in the country with special focus on youth, women and underserved areas. IPDC Finance Limited has setup a new road map considering the implementation of a set of new strategies for the upcoming years. These strategies include ‘A Home for Every Family’, ‘Empowering Women’, ‘Creating Entrepreneurs’, ‘Beyond Mega Cities’ and ‘Bring Convenience at Home’. In line with its vision to be the most passionate financial brand in the country, it has embraced a new logo and a pay off line “Jaago Ucchashe” that speaks loud of its perception behind the revamp of IPDC. IPDC not only promotes its offerings rather provide financial assistance by guiding the customers to reach the best fit for them in any FIs or banks. This way IPDC serves its customers to reach their goals conveniently and live their life unbound.
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