Deal focus: CDC gets comfortable in Bangladesh

CDC Group has invested in most of the core industrial and infrastructural sectors redefining Bangladesh as the fastest-growing economy in South Asia, including manufacturing, mobile communications, and low-cost energy production. But there’s never been any mistake about the linchpin holding all these interests together. 

“Investing in the banking sector allows us to understand the economy much better,” says Srini Nagarajan, head of Asia at CDC. “Through the lens of a bank, you can see a variety of companies and opportunities, which allows you to deliver much deeper development impact.”

The UK-based development finance institution made its first investment in the country in 1981 by helping set up IPDC, a non-banking finance company that has gone on to become the biggest player of its kind locally. Its latest investment returns to the lending space, with a $30 million commitment to BRAC Bank.

BRAC specializes in unsecured loans for small to medium-sized enterprises (SME) that have difficulty sourcing collateral and is said to have the highest net profit of any private lender in Bangladesh. The bank boasts a network of 187 branches, 460 ATMs, 456 SME unit offices and a workforce of more than 8,000 people. It has over 1.2 million customers.

The deal coincides with the establishment of a CDC office in Dhaka and the appointment of Rehan Rashid, a veteran investor in Bangladesh and Nepal, as country director. CDC first entered South Asia with an Indian office in 2013 and has fanned out with bases in Pakistan and Myanmar in recent years. A Nepal office is on the agenda for next year.

Bangladesh, along with India and Pakistan, is a core priority, however. Indeed, CDC’s entire global board attended the ribbon-cutting in Dhaka this week to reinforce the point. It now has about $200 million of commitments in Bangladesh and expects to reach $500 million within 2-3 years. This will be realized in a mix of debt, equity and fund commitments. Historically, CDC allocates about 70-80% of its capital to equity, either directly or indirectly. 

The BRAC investment, which will be made in the form of a loan to support the bank’s lending capacity for export-focused businesses, has been designed to maximize the bang for CDC’s buck. Buttressing the local SME sector, growing the job market, and thereby reinforcing the macro outlook is only the short game. CDC is looking to tie Bangladesh into a cross-border economic bloc of developing economies across the Indian Ocean Rim.  

“The equity culture in Bangladesh is still substantially underpenetrated, so we can play a very big role there helping companies prepare themselves to tap overseas capital markets,” Nagarajan says. “We want to do that through a South-South cooperation strategy between South Asia and Africa. We’re looking at a value-add thesis not only from sectorial and impact standpoints but also in terms of accessing international markets.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• South Asia
• Expansion
• Financials
• Bangladesh
• CDC Group
• Growth capital