Table Of Contents

1 Acronyms 03

2 Executive Summary 04

3 MSME Landscape in Bangladesh - At a Glance 05

4 Access to Finance: A Huge Pain Point for Sustainable 06

MSME Ecosystem Development

LightCastle Partners Ⓒ 2022 | Blended Finance

5 Blended Finance Programs Open Up New Growth 10
Opportunities for MSMEs

6 What is LightCastle Doing in Blended Finance? 17

→ Overview
→ Project Deep-dives
→ Lessons Learned

7 Special Feature 34

2
Acronyms
BDS Business Development Services MSME Micro, Small and Medium Sized Enterprises

BNPL Buy Now Pay Later NBFI Non-Bank Financial Institution

CAGR Compound Annual Growth Rate NPO Non Profit Organization

CBO Community Building Organization PPDP Public-Private Development Partnership

LightCastle Partners Ⓒ 2022 | Blended Finance

DFI Development Financial Institution ROI Return On Investment

GFF Global Financing Facility for Women, Children and Adolescents SAFE Simple Agreement for Future Equity

FnF Friends and Family SDG Sustainable Development Goals

IRMF Impact Ready Matching Fund SIINC Social Impact Incentives

MFI Micro-Finance Institution USAID United States Agency for International Development

3
MNCH Maternal, Neonatal and Child Health
Executive Summary

In Bangladesh, access to finance is a major impediment to MSME growth.

As a result, MSMEs are frequently forced to operate in an ecosystem that is distinct from that of other types of businesses.
Despite the fact that Bangladesh has nearly 60 banks, 34 NBFIs, 760 MFIs, and 17 alternative investment companies, MSMEs
face significant challenges in attracting capital that aligns with their needs and characteristics, and they are quite often
prevented from developing to their full potential.

Currently, early-stage enterprises, such as MSMEs, require patient or risk capital given the status of the ecosystem.
Unfortunately, these possibilities are currently limited. Institutional frameworks are not aligned in terms of patient or risk
capital, hence the range of financing options is mostly limited to leverage choices.

Blended Finance can play a pivotal role in addressing this major gap in the market.

LightCastle Partners Ⓒ 2022 | Blended Finance

By utilizing market-correcting strategies and cutting-edge financial tools to persuade capital providers to take on greater
risks and achieving sustainable development through private investment, blended finance is poised to be the future of global
development. Blended finance allows organizations with different objectives to invest alongside one another while achieving
their own goals (whether financial return, social impact, or a blend of both).

At LightCastle Partners, we have been working to strengthen the MSME ecosystem through Blended Finance.
Through our projects, we have mobilized over BDT 5.68 Mn+ in investments for 45+ enterprises across 17+ sectors.
Together, with our development and financial partners, we have strived to achieve significant advancements. We have sought
to offer unique equity and impact-linked instruments and effectively implemented 6+ investment models in our investment
deals so far, in an effort to address the issue of MSMEs' lack of access to finance. Our efforts have aided businesses in growing
and have produced eight or more instances for further capital raising. Our work has been anchored around creating
sustainable growth for enterprises through lasting financial and social impact.

4
There are more than 7.5 Million MSMEs in Bangladesh
Contributing over 27% towards overall GDP

LightCastle Partners Ⓒ 2022 | Blended Finance

5
Source: BBS, ADB, LightCastle Partners, DATABD.co, World Bank
Bangladesh’s MSMEs
are failing to realize their full potential due to inadequate financing

LightCastle Partners Ⓒ 2022 | Blended Finance

01| Many MSMEs appear to be either too small/risky for commercial lenders or too large for MFIs

02| Collateralized lending and/or high interest rates come off as typical barriers for growth

03| Insufficient knowledge and ability to document financials render them more vulnerable to availing finance

6
Access to finance is one of the most challenging factors for MSMEs
The need for alternative financing solutions is immediate and pressing
Context and Purpose

In Bangladesh, access to finance is a major impediment to MSME growth. MSMEs

typically face greater uncertainty due to: (i) potential instability, ii) cater to more
difficult target client groups, and (iii) are forced to overcome infrastructure barriers
that stifle their growth. As a result, MSMEs are frequently forced to operate in an
ecosystem that is distinct from that of other types of businesses.

Despite the fact that Bangladesh has nearly 60 banks, 34 NBFIs, 760 MFIs, and 17
alternative investment companies, MSMEs face significant challenges in attracting
capital that aligns with their needs and characteristics, and they are quite often
prevented from developing to their full potential. Characterized with inadequate

LightCastle Partners Ⓒ 2022 | Blended Finance

revenue generation and high lending risks, the vast majority of MSMEs are deemed
unabankable by financial institutions and as a consequence are excluded from traditional
financing even though this is the only form of financing these MSMEs are qualified for.
Additionally, the MSMEs that do have access to funding are mainly restricted to
microfinance and leverage.

Such financing options expose businesses to a slew of operational risks. Assets

purchased with such financing options may lose value quickly, and financial losses may
increase as financial leverage grows. Furthermore, such funds have very high associated
costs and necessitate frequent cash payments, which may not correspond to the cash
cycle of the enterprise. Agent banks are also currently more focused on deposit
mobilization than credit disbursement.
Source: LightCastle Partners

Given the current state of the ecosystem, early-stage businesses such as MSMEs
require patient or risk capital; however, such options are scarce at the moment. 7
Key factors hindering financing growth of MSMEs
Leading to a widening gap of the “Missing Middle” of finance

Lending Interest Rate Cap Collateral Requirements

MSMEs are the most vulnerable to default risk when compared to When providing enterprise financing, Bangladesh's banking system
other types of businesses. With the Bangladesh Bank capping places high importance on collateral. While this measure is
lending interest rates at 9%, banks avoid lending to MSMEs with intended to reduce default risk, heavy reliance on collateral often
risk profiles that exceed the cap. However, possibility of the lending creates a scarcity of high-quality collateral. MSMEs are often
cap being revoked is on the cards. denied financing as they are unable to satisfy the collateral
requirements imposed by banks.

LightCastle Partners Ⓒ 2022 | Blended Finance

Supply-Demand Parity of Financial Instruments Poor Knowledge and Documentation

While there are many financing options available for economic An overwhelming majority of MSMEs lack technical education. Due
enterprises, the majority of these products do not meet the desired to a lack of knowledge of the financial system, MSMEs frequently
financing requirements of MSMEs. This supply-demand parity has provide woefully inadequate documentation. As a consequence,
resulted in a significant financing gap in the market. many MSMEs fail credit assessments and are unable to obtain
funding from financial institutions.

8
Available financing opportunities are mostly leverage
As a result, MSMEs struggle to move up the ladder

Institutional structures are not

aligned in terms of patient/risk
capital investment.

It is difficult to go downstream
and invest in early-stage
companies due to infrastructure

LightCastle Partners Ⓒ 2022 | Blended Finance

constraints.

Absence of interoperability
between a variety of financial
institutions.

Financing opportunities for

MSMEs are mostly leverage and
have high cost of funds

9
Blended Finance
Can be pivotal in addressing the key gap in the market

LightCastle Partners Ⓒ 2022 | Blended Finance

01| Applying market correcting & innovative tools to incentivize capital providers take on additional risks

02| Working within the spectrum of different types of financing options

03| Mobilizing private investment for sustainable development

10
Blended finance is a structuring approach
Enabling organizations with diverse goals to invest together

Introduction to Blended Finance 3 Main Characteristics of Blended Finance

Blended finance is the future of global development. It addresses the two main barriers that
investors face when investing in developing countries: high risk and a low return relative to
risk. The presence of a blended instrument helps curtail the associated risk for investors by
improving the risk-return ratio. Financial Returns Impact Oriented Catalytic Funding

While different people define it differently, at its core, blended finance is a structuring approach
that allows organizations with different objectives to invest alongside one another while Conceptualization of Blended Finance
achieving their own goals (whether financial return, social impact, or a blend of both).

LightCastle Partners Ⓒ 2022 | Blended Finance

Simply put, Blended Finance is a combination of government/non-profit grants, equity
instruments, and debt instruments infused in a business. If executed properly and to the extent
it matches an enterprise’s desired requirements, this can work as a powerful tool to pave the way
for the next wave of sustainable development of the entrepreneurship ecosystem in Bangladesh
and beyond.

However, it is important to note that the concept of Blended Finance is not an investment
strategy, instrument, or solution in and of itself. Blended finance and impact investing are two
different things. Impact investing is a type of investment strategy, and impact investors often
adopt blended finance structures.

While the potential of blended finance is rousing, such instruments could turn out to be quite
complex in nature. Several guiding principles need to be considered while structuring any deals,
including, but not limited to, anchoring blended finance to development rationale, mobilizing
private capital, tailoring market correcting tools in line with the local context, forming
effective partnerships, and ensuring deal's relevance and transparency. 11
Source: Convergence, 2020
Blended finance is a structuring approach
Enabling organizations with diverse goals to invest together

In Bangladesh, private capital could be in the form of

new funding, or in-kind investments from one or
multiple sources of banks, NBFIs, MFIs, impact
investors, high net-worth individuals or private
actors.

LightCastle Partners Ⓒ 2022 | Blended Finance

12
Source: USAID Investing for Impact, Lightcastle Partners, BIISAP Footnotes: (1) Results Based Finance To learn more about Blended Finance, please click here.
Blended finance is a structuring approach
Enabling organizations with diverse goals to invest together

LightCastle Partners Ⓒ 2022 | Blended Finance

13
Source: LightCastle Partners
Various types of innovative blended finance instruments
Can be applied depending on relevant context and investor expectations
Catalytic
Equity Alternatives Other Impact Linked Other Catalytic Results-Based
Impact-Linked
and Convertibles Finance Instruments Funding Instruments Finance Instruments
Finance Instruments

For Private and For Institutional Investors, For Institutional Investors,

For DFIs* or Donors For DFIs* or Donors
Institutional Investors DFIs* or Donors DFIs*, NPOs** or Donors

I. SAFE (Simple I. SIINC (Social I. Impact-Linked I. (Partial) I. Social/Develop-

Agreement for Impact Incentives) Loan Guarantee ment Impact Bond

LightCastle Partners Ⓒ 2022 | Blended Finance

Future Equity II. Reimbursable and II. Impact-Linked II. Subordinated II. Performance-
II. Convertible Note Convertible SIINC Convertible Note Loans (acting as Based Contract
III. Revenue Share III. IRMF (Impact Catalytic
Agreement Ready Matching First-Loss Capital
(Debt-Based) Fund) with Equity)
IV. Revenue Share
Agreement
(Equity Based)
V. Asset-Based
Financing

* Development Finance Institutions or Donor i.e. Development Bank/Agency 14

** Non-Profit Organisation
Various types of innovative blended finance instruments
Can be applied depending on relevant context and investor expectations
Very early stage (seed) Early stage Growth stage Later stage

LightCastle Partners Ⓒ 2022 | Blended Finance

15
Source: Scaling Impact Enterprises in Bangladesh (Biniyog Briddhi), LightCastle Partners
Various types of innovative blended finance instruments
Can be applied depending on relevant context and investor expectations

Impact Only Impact First Finance First

Philanthropic Organizations and Impact Investor: Traditional Investor:
Foundations: → Social impact incentives (SIINC)
→ Donations → The impact ready matching fund (IRMF) Debt-Based Financing
→ Grants
→ Revenue sharing agreement →Installment loans
→ Revolving loans
Angel Investor: → Cash flow loans.

LightCastle Partners Ⓒ 2022 | Blended Finance

→ SAFE (very popular recently)
→ Equity Equity-Based Financing
→ Convertible → Angel investment
→ Venture capital
Venture Capital: → Corporate venture capital
→ Convertible (SAFE, ACE, etc) → Private equity
→ Equity → Equity crowdfunding
→ Equity-linked instrument → Initial public offering (IPO)
→ Venture debt → Expansion capital
→ Equity/convertible with impact KPI/performance link

Development Financial Institution:

→ Grants
→ Fund of funds (often as Limited Partner) 16
Source: Social Finance Academy
Our Work in Blended Finance
Aiming to break the barriers, promoting sustainable MSME ecosystem

LightCastle Partners Ⓒ 2022 | Blended Finance

01| Collaborating with development and capital partners to create transformative changes

02| Introducing innovative equity-linked instruments, adapting to the local contexts

03| Generating both financial and social impact

17
LightCastle’s blended finance programs
Are attempting to create a sustainable growth trajectory for the MSME ecosystem

Introduction of tailor-made
equity-linked instruments and/or
impact linked instruments can
serve as a powerful tool to aid the
MSMEs move up the ladder

Blending both equity and debt

LightCastle Partners Ⓒ 2022 | Blended Finance

finance can diversify the risk for
investors and financial
institutions.

With the right proportion of

capital allocation, sustainable
growth can be achieved in the
entrepreneurship ecosystem.

18
Project statistics
By the numbers

LightCastle Partners Ⓒ 2022 | Blended Finance

* Exclusive of grants invested in enterprises 19
** Exclusive of any undisclosed deals
Project statistics
By the numbers

Industry-Wise Breakdown of Investees

● 45+ investments
● 17+ sectors
● 24% female-led enterprises

Gender-Wise Breakdown of Investees

LightCastle Partners Ⓒ 2022 | Blended Finance

20
Source: LightCastle Partners
Blended finance initiatives
Experimenting with contextualized market-driven initiatives
Project Name Client Blended Finance Instrument Sector

→ Quasi Equity
Empower Youth for Work
→ Revenue Share Agreement
Agriculture Services Construction

Setting Oxfam's Footprint in → Asset-Backed Equity Financing

the Bangladesh Ecosystem → Profit Share Agreement
Cattle Rearing & Dairy

LightCastle Partners Ⓒ 2022 | Blended Finance

Income, Diets and
→ Grants
Empowerment through
→ Revenue Share Agreement
Aquaculture
Fisheries

Building Skills for → Asset-Backed Equity Financing

Unemployed and → Patient Capital
Underemployed Labor → Social Impact Incentive (SIINC) Leather Goods Furniture Light Engineering

→ Impact Ready Matching Fund

Biniyog-Briddhi (IRMF)
→ Social Impact Incentive (SIINC)
Fintech Healthcare Agri-tech 21
Empower Youth for Work
Empowering youth entrepreneurs through micro equity financing
The Opportunity:
Investments Deployed Total Investees
As part of Oxfam's Empower Youth for Work project, we collaborated to identify key sectors that
BDT 1.5 Mn 15 were most conducive to empowering the youth in Khulna and Rajshahi through economic
possibilities and supporting practices that were climate resilient. While doing so, we discovered a
substantial gap in the availability of financing for MSMEs that were plaguing their growth. Realizing
an enormous potential for leveraging impact-linked quasi-equity instruments, we formed a
Investment Tenure Expected ROI partnership to create the first Oxfam-LightCastle SME Impact Fund, a pioneering impact investment
2-3 years 30% fund for MSMEs, aiming to positively affect Oxfam’s impact indicators and SDG targets, while
empowering youth-led MSMEs to fulfil their entrepreneurial dreams.

Approach Highlights:
● Collaborated with local partners in Khulna and Rajshahi for sourcing solid, viable

LightCastle Partners Ⓒ 2022 | Blended Finance

youth-led enterprises, resulting in 50 applications
● Screened the applications based on our proprietary weighted scoring rating model,
factoring both quantitative and qualitative metrics, arriving at 15 investees
● Provided patient capital of BDT 1 lacs to each enterprise and calculated return
projections based on last three years’ of CAGR
Rajshahi ● Enterprises didn’t need to start repaying until the first six months; the fund was aimed at
helping the entrepreneurs catalyze revenue collection from their clients
● Revenues were expected to arrive by six months, after which they would pay us back a %
of the investments across a 3 year period, capped at 1.5x the initial investment
● Deployed a proprietary mobile application, Soluta, to track current financial data and
inventory records of MSMEs, improving transparency throughout the investment period
Khulna

Impact Generated:
Till date, 25% of the fund's overall investment portfolio has been recovered
22
Empower Youth for Work
Case Study: Jhorbhanga Vermicompost
However, she was unable to produce on a sustainable scale because
she lacked sufficient knowledge as well as capital. Her efforts to
market her products had been futile.

LightCastle was first introduced to Tanwi while working on another

Tanwi Golder project, however when the Empower Youth for Work project came
along, we felt that this would be a tremendous opportunity for us to
Age: 26 help Tanwi overcome the challenges she was facing. And so, we
encouraged Tanwi to join the program. Through the program, She was
Location: Khulna able to learn how she could efficiently set up her business. She
realized the significance of maintaining financial records, developing
proper packaging methods, and learned how to effectively market her

LightCastle Partners Ⓒ 2022 | Blended Finance

products.
BDT 1 Lac 2 Years RSA Debt Based
Additionally, LightCastle invested BDT 1 Lac to finance her working
Investment Tenure Instrument capital needs. The use of a micro equity instrument allowed us to
structure the deal in a way that ensured flexible terms for Tanwi. This
At the age of just 22, Tanwi Golder founded her composting facility, aided in increasing production, which increased her profitability.
which produces high-quality compost that boosts crop health and
productivity. She made the decision to start producing vermicompost Currently, she maintains a network of 150 female vermicompost
with the encouragement and cooperation of the Assistant Secretary of suppliers. All her products are sold directly to farmers and local shops
the Department of Agricultural Extension in the Khulna district. around the region.

Tanwi's vermicompost received a lot of criticism in the early days of her “Blended Finance met my most pressing needs by providing me with
business. People had a negative attitude toward vermicompost because financial assistance which I wouldn’t have been able to obtain from
the primary component is multiple kinds of worms. Her goal was to show traditional financial institutions. It assisted me and my business by
farmers that her vermicompost could be a safer and more sustainable combining financial assistance with capacity-building services.” 23
alternative to the current market alternatives.
Setting Oxfam’s Footprint in the Bangladesh Ecosystem
Patient capital through asset-based equity financing
The Opportunity:
Investments Deployed Total Investees
As a part of Oxfam’s project titled, “Building Oxfam’s Footprint in Bangladesh Entrepreneur
BDT 0.5 Mn 5 Ecosystem,” we collaborated to manage an innovative fund, in addition to providing advisory and
capacity development support towards MSMEs in Oxfam's Community Building Organizations (CBO)
network. The ultimate aim was to improve the productivity and competitiveness of the MSMEs.
Investment Tenure Expected ROI
3-12 Months 30% Approach Highlights:
● Collaborated with Oxfam’s local offices to source high-performing MSMEs within their CBO
network
● Conducted needs analysis with select groups of entrepreneurs to identify growth areas
● Ran an accelerator program to develop business capacity, provide market development and

LightCastle Partners Ⓒ 2022 | Blended Finance

facilitate linkages with different financial institutions such as local banks and MFIs
Rangpur ● Deployed BDT 5 lacs (timeline: 3-12 months) under the program; financing agreements
were designed to provide financing to 5 MSMEs in the form of patient capital
● Purchased the assets (cattle) on behalf of the MSMEs and monitored maintenance of the
asset; profit-sharing agreements were made between the entrepreneurs and us - 2/3rd
Rajshahi profits to be retained with the investees; 1/3rd profit to be shared with LightCastle.
● Kept the return rates market-driven and variable, allowing for the MSMEs to reap the
maximum return under the present market conditions

Impact Generated:

40% success rate within 3 months of initial investment 24

 Setting Oxfam’s Footprint in the Bangladesh Ecosystem
Case Study: Zorina Begum
animal husbandry at a small scale within her house. She wanted to
expand her cow farm and slowly move to a commercial scale, but this
was quite challenging for her due to the scarcity of capital.

Zorina participated in LightCastle’s MSME business incubation

Zorina Begum program (SMARTCAP) with the hopes of finding a solution to the
Age: 38 problems she was facing. The program covered critical business
concepts such as business model canvas (BMC), management,
Location: Rangpur accounting & bookkeeping, and financial management along with
investment raising.

After the capacity development phase, LightCastle invested BDT 1 lac

LightCastle Partners Ⓒ 2022 | Blended Finance

into her business through an asset-based equity financing model. The
deal was structured as a profit-sharing scheme, whereby Zorina will
BDT 1 Lac 3 Months Asset-Backed Equity retain 2/3rd of the net gain, and repay LightCastle the remaining 1/3rd.
She received her choice of cattle from the local haat (cattle market)
Investment Tenure Instrument upon investment. The purchased cattle were then taken by her to
their cattle shed; she bore all associated costs of raising the cattle for
Zorina Begum hails from Kaunia, Rangpur; a remote village in the northwest the investment duration.
region of Bangladesh that still has not seen signs of significant development
apart from electrification and road connectivity. A self-dependent widow At the end of the investment period, upon striking a good deal with
who has held the reins of her family single-handedly after the demise of her price verification from the market, the cattle was sold - enabling her
husband, Zorina is an ordinary Bangladeshi villager dependent on to make a 25% net profit from the trade.
agriculture for her family’s sustenance.
“Blended finance goes beyond financial interventions to provide
Experienced in chili and corn cultivation with over a decade of involvement
financial and non-financial support for entrepreneurs like me. I look
in this field and like most other village households, Zorina is also involved in
forward to partnering with LightCastle again in the future.” 25
Income, Diets and Empowerment Through Aquaculture
Growth financing through seed investments
The Opportunity:
Investments Deployed Total Investees
As part of WorldFish: SmartCap Accelerator Program, LightCastle was tasked to provide scale up
BDT 0.1 Mn 2 growth-oriented aquaculture MSMEs capacity development, market linkages, and access to finance.

SMARTCAP business incubator combines three critical components that are designed in
Investment Tenure Expected ROI conjunction to help propel the growth trajectory of the aquaculture entrepreneurs in Bangladesh.

1 Year 30%
Approach Highlights:

● Collaborated with WorldFish to identify growth-oriented MSMEs in their network

LightCastle Partners Ⓒ 2022 | Blended Finance

● Conducted needs analysis with select groups of entrepreneurs to identify growth
Rangpur areas
● Ran an accelerator program to develop business capacity, provide market
development and facilitate linkages with different financial institutions such as local
banks and MFIs
Rajshahi ● Deployed BDT 1 lac (timeline: 1 year) under the program; investments worth BDT 50
thousand were provided to 2 MSMEs in the form of growth capital
● The fund acted as an incentive for the entrepreneurs to focus on long-term growth
● Apart from the 2 investees, 14 other participants from the accelerator were able to
secure financing from banks and MFIs

Impact Generated:
2 of the investees were able to lease additional ponds which helped improve
their production capacity

26
Income, Diets and Empowerment Through Aquaculture
Case Study - Shilpi Motsho Farm
Furthermore, she felt that the repayment structures of the financial
products that were available for her were more of a barrier to
progress than an enabler.
Shilpi Akter It was around this time Shilpi decided to participate in the Income,
Diets and Empowerment through Aquaculture program by WorldFish
and LightCastle. Through the program, she gained business skills and
Age: 37 support for market expansion. She was also able to establish
Location: Gaibanda connections with several financial institutions through the program,
including local banks and MFIs.

Shilpi was chosen to receive a BDT 50,000 seed investment from

LightCastle Partners Ⓒ 2022 | Blended Finance

LightCastle as a result of her business acumen and tenacity. With the
funds, she was able to lease additional ponds, boosting her capacity
BDT 50 Thousand 2 Years Seed Funding for production.

Investment Tenure Instrument Now, she has been able to expand her business to the degree where
she could secure institutional financing at highly advantageous terms
Aquaculture has always been a male-dominated industry, and more often by utilizing the funds and information she had acquired from
than not, farmers are unwilling to allow women to oversee fish farms. Shilpi LightCastle. She now has aspirations to expand her company even
Akter's tale, however, dispels myths and paves the way for progress. She more. She is a source of inspiration in her community, where she has
has demonstrated that, despite the most difficult circumstances, anyone contributed to the growth of aquaculture. To emulate Shilpi's success,
can become a successful entrepreneur with true grit and determination. other women have started their own fish farms in her region.

Shilpi, however, had to overcome several challenges in order to get to “With the help of LightCastle's blended finance instrument, periodic
where she is now. The biggest of which being insufficient business consultations, and market linkage assistance, entrepreneurs such as
understanding and growth cash post COVID-19. myself are able grow sustainably.” 27
Building Skills for Unemployed and Underemployed Labor
SMART blended finance program for propelling MSMEs
The Opportunity:
Investments Deployed Total Investees LightCastle was mandated with increasing the productivity and competitiveness of MSMEs across
BDT 3.55 Mn 10 three high-value sectors (Leather Goods, Light Engineering and Furniture Making) through business
development support (BDS) services as part of Swisscontact's B-SkillFUL Programme, supported by
the Embassy of Switzerland. With the goal of improving access to finance and access to market
opportunities of MSMEs while positively needling social impact metrics, we developed a SMART
Investment Tenure Expected ROI blended finance program that not only aimed at addressing financial challenges, but also provided
them with additional BDS.
2-3 Years 23.33%
Approach Highlights:
● Sourced 100+ MSMEs in 2 phases across 5 regions. Ran detailed needs analysis and
credit scoring to determine financing and market-related support services
Saidpur ● Ran accelerator programs to provide tools and mentorship to make 100 enterprises

LightCastle Partners Ⓒ 2022 | Blended Finance

investment ready. Developed 10+ market partnerships and 1 digital marketplace to
Rangpur drive sales for selected MSMEs
● Shortlisted 10 enterprises viable for investment following a four-step rigorous due
Bogura diligence process
● Created an impact fund of BDT 60.5 lacs, combining BDT 30 lacs (micro equity and asset
Kishoreganj backed equity investments) from LightCastle, BDT 5.5 lacs from Dana Fintech (buy now
pay later against a flat service fee of 6%), and BDT 25.05 lacs from MSMEs (collated from
various sources including FnF, self finance, other financial institutions)
Dhaka ● Deployed various instruments including micro-equity, asset backed equity financing
through the lens of a social impact incentive scheme
● Tied investments with ensuring application of transversal themes in enterprises such as
decent working conditions and gender inclusion
● Linked other potential non-investees with NBFIs, banks and impact investors for
ensuring deeper financial inclusion

Impact Generated:
Reports from the first month indicate a 75% success rate 28
Building Skills for Unemployed and Underemployed Labor
Case Study - Pure Wood Furniture
However, the COVID-19 pandemic threatened to destroy everything
Faruque had built in a single stroke. He hadn’t received a single order for
months and as a consequence, he was compelled to close both his production
and his showroom as a measure of cost containment.
Faruque Hossain
At this juncture, Faruque made the decision to approach Swisscontact and
Lintu LightCastle for assistance through the B-SkillFUL Program.
Through LightCastle’s SMART Blended Finance program, Pure Wood
Furniture has been able to boost their revenue by establishing a forward
Age: 40 market partnership with Savoir BD in which Pure Wood Furniture will
Location: Rangpur become an enlisted supplier for Savoir. LightCastle also guided Pure Wood
Furniture in developing digital marketing strategies that allowed for
increasing revenues through additional marketing channels.

LightCastle Partners Ⓒ 2022 | Blended Finance

BDT 5.5 Lacs 2 Years Growth Financing & BNPL LightCastle has also offered consultation services on how to optimize the
layout of his factory for maximum productivity. Additionally, LightCastle and
Dana Fintech have together invested BDT 5.5 lacs under a customized
Investment Tenure Instrument framework incorporating both asset-backed equity investment and BNPL
model. The deal was structured as a mixture between debt and micro equity
Faruque Hossain Lintu is a native of Rangpur, Bangladesh, a small region in the so that he can have more breathing space for the business to grow. With the
country's northwest. 10 years ago, he started his entrepreneurial journey by selling right amount of investment, Pure Wood Furniture plans to set up a treatment
timber and other similar raw materials, but he soon realized that he would always plant that will aid in reducing raw material wastage and increase efficiency..
have supplies on hand that he couldn't sell. That’s when he had the notion to start
making furniture with the resources he was being left with, and thus Pure Wood Faruque now hopes to grow his business and become one of the leading
Furniture was formed. furniture manufacturers across the region and beyond.

Since its inception, Pure Wood Furniture grew at least 4 to 5 times. Even though his “Getting associated with LightCastle Partners through the B-SkillFUL
revenues were not all that high, the business was able to achieve remarkable growth. project was truly a blessing for me. With the help of their investment and
From production to operations, every aspect of the enterprise grew by leaps and their consultation support, I have been able to speed up the post-pandemic
bounds. recovery of my business.” 29
Biniyog Briddhi (B-Briddhi)
Scaling impact enterprises in Bangladesh
The Opportunity:
Biniyog Briddhi (B-Briddhi) is a multi-year programme dedicated to supporting a
thriving ecosystem where impact enterprises of Bangladesh can grow and scale their
impact. Set up as a public private development partnership (PPDP) between the
Embassy of Switzerland in Bangladesh, Roots of Impact and LightCastle Partners, the
programme strives to improve the financial, social and environmental performance of
impact enterprises by helping them to master investment readiness and impact For Entrepreneurs For Incubators For Investors
management and get ready to access innovative finance to scale. The programme
united many important stakeholders such as investors, private sector organizations,
incubators, accelerators, support organizations and advocated for impact enterprises.
B-Briddhi addresses the most critical elements of the supply and
demand side of the ecosystem:
● Supply: build a healthy pipeline of investment-ready impact

LightCastle Partners Ⓒ 2022 | Blended Finance

enterprises
● Demand: facilitate impact investing with the introduction of
catalytic funding instruments and create growth-conducive
investment environment

Approach Highlights:
● Capacity Building to incubators, accelerators and service providers to Impact Generated:
promote investment readiness and strengthen impact monitoring ● Completed Capacity Building for three cohorts of incubators and
mechanisms accelerators since 2020 (Bangladesh Angels Network, Truvalu,
● Provide Impact Ready Matching Fund (IRMF) to business angel Turtle Ventures, BRAC SIL, BetterStories Ltd)
investments in impact enterprises ● Provided catalytic financing to 4 tech-enabled impact enterprises
● Provide Social Impact Incentives (SIINC) to enable high-tech impact through Social Impact Incentives (SIINC) deals
enterprises attract impact investments ● Deployed grants to 9 tech-enabled impact enterprises through an
● Advocacy for impact investing in Bangladesh Impact Ready Matching Fund (IRMF)
● Mobilized investments for 13+ tech-enabled impact enterprises in
Bangladesh
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Biniyog Briddhi (B-Briddhi)
Scaling impact enterprises in Bangladesh

Social Impact Incentives (SIINC):

Social Impact Incentives (SIINC) reward

high-impact enterprises with premium
payments based on the social outcomes
that they generate. In this way, impact is
incentivized and increases the enterprise’s
profitability and attractiveness for
investors.

LightCastle Partners Ⓒ 2022 | Blended Finance

Impact Ready Matching Funds (IRMF):

The Impact Ready Matching Fund (IRMF) is

non-repayable funding that will match seed
investment 1:1. The B-Briddhi IRMF
rewards early stage impact enterprises for
building up their impact management
systems and match a seed investment.

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Source: Scaling Impact Enterprises in Bangladesh (Biniyog Briddhi)
Biniyog Briddhi (B-Briddhi)
Scaling impact enterprises in Bangladesh

LightCastle Partners Ⓒ 2022 | Blended Finance

To view the full B-Briddhi Dealbook: Click Here 32
Source: Scaling Impact Enterprises in Bangladesh (Biniyog Briddhi)
The future looks promising with blended finance
However, certain steps must be taken to ensure impactful growth

● Asset-based investments are safer for MSME financing:

We have discovered that asset-based deals are significantly safer than other instruments when investing in MSMEs after experimenting
with various structures for our investments. Asset-based transactions are structured to secure the investment with the asset because they
depend on the investor buying an asset for the investee as the form of investment. This reduces the risk of non-repayment because the
investor has the option of reclaiming the asset in the event of non-repayment. The investor's risk of loss is greatly decreased by this.

● Constantly evolving lens for MSME selection:

We have discovered that we cannot solely rely on objective criteria like the company's financials when deciding whether to invest in an
MSME. We must take into account subjective indicators while assessing the MSMEs in order to take into account the varied sectoral and
regional contexts. In addition to the conventional due diligence, evaluating an MSME requires us to use a subjective lens that is continuously
changing.

LightCastle Partners Ⓒ 2022 | Blended Finance

● Agriculture based investments need to be long-term:
Through our investments, we have observed that deals primarily focused on the agriculture industry must be structured for longer time
periods than deals in other industries. Agriculture businesses have a lengthier business cycle, thus it takes longer for these MSMEs to see a
return on their investments. Investments should therefore be structured to account for the disparity.

● More emphasis should be given to investment readiness and digital inclusion:

Our monitoring reports have showed that since MSMEs frequently fail to maintain accurate financial records, there is a need for stronger
investment readiness initiatives for them. We have observed that while introducing Soluta as a tool for MSMEs to track financial data and
inventories, MSMEs have struggled to use the application effectively. Transparency during the investment period deteriorates as a result.
We also think that more work has to be done to increase digital literacy alongside investment readiness in order to ensure effective use of
such technologies.

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Special Feature
LCMA Ventures joins 10 Minute School on its mission

With more than 4.2 million app users and more than
31 million social media subscribers, 10 Minute
School has grown to be one of Bangladesh's largest
education technology enterprises over the past
eight years. They work with more than 250
educators and instructors and teach millions of
students every day across all of their platforms.

Through LCMA Ventures, LightCastle Partners

recently invested in 10 Minute School, one of the
leading edtech platforms in Bangladesh.

LightCastle Partners Ⓒ 2022 | Blended Finance

LCMA Ventures comprises credible partners,
including Mr. Sajid Rahman, Managing Partner of
MyAsiaVC, The Legal Circle, LightCastle Partners,
and Bangladesh Youth Leadership Center (BYLC).

“10 Minutes School has established itself as a premier

Edtech in Bangladesh, having a tangible impact on the
education landscape. LightCastle’s investment reflects
our belief in 10 Minute School’s ability to generate value
by transforming the way people learn.”

Zahedul Amin, Director, Finance, Strategy and

Consulting Services, LightCastle Partners

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Source: LightCastle Partners
Authors

Author | Mrinmoy T. Sobhan Editor | Ivdad Ahmed Khan Mojlish

Business Consultant Managing Director
[email protected] [email protected]

Author | Ilham Hasan Chowdhury Advisor | Bijon Islam

LightCastle Partners Ⓒ 2022 | Blended Finance

Business Consultant Chief Executive Officer
[email protected] [email protected]

Design | Asif Imran Advisor | Zahedul Amin

Data Visualization Expert Director, Finance, Strategy & Consulting Services
[email protected] [email protected]

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At LightCastle, we take a data-driven approach to create opportunities for growth and impact. We consult and
collaborate with development partners, public sector and private organizations to promote inclusive economic growth
that positively changes the lives of people at scale.

LightCastle Partners Ⓒ 2022 | Blended Finance

Till date, we have consulted for 150+ development partners & private organizations on 250+ projects, collaborated
with 650+ SMEs & startups, mobilized USD 150 million+ in investments and supported 40+ accelerator/ incubator
programs across Bangladesh. LightCastle also hosts the largest market and industry datasets in Bangladesh across 30+
industries.

Learn more @ www.lightcastlebd.com

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THANK YOU!

LightCastle Partners
Level 5, House 10/12, Road 1, Block B, Niketan,
Gulshan 1, Dhaka – 1212, Bangladesh

Email: [email protected]
Mobile: +88 01747 353 438, +88 01711 385 988
Web: www.lightcastlebd.com
Data on Demand Platform: www.databd.co

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