The Bangladesh Bank has decided to increase the scope of credit guarantee against loans to the entrepreneurs of the cottage, micro, small and medium enterprises (CMSME) sectors.
According to the new decision, the central bank will give a credit guarantee for a minimum amount of Tk25,000 and a maximum of Tk1 crore.
Earlier, under this scheme, there was a guarantee facility for a minimum loan of Tk2 lakh and a maximum loan of Tk50 lakh.
The central bank has taken this decision to bring more Covid-19 hit CMSMEs under the guarantee scheme.
On Thursday, the SME and Special Programs Department of Bangladesh Bank issued a circular in this regard.
The circular said that, under the credit guarantee scheme, to ensure 100% implementation of the second phase loan disbursement of Tk20,000 crore in the CMSME sector announced by the Prime Minister, there is a need to redefine the credit limit of the scheme in order to further increase the credit flow in this sector.
In order to expedite the recovery of the country's economy by expediting the implementation of special credit facilities in the CMSME sector, the credit limit has been re-fixed at a minimum of Tk25,000 and a maximum of Tk1 crore instead of Tk2 lakh and Tk50 lakh, the circular also said.
According to the latest report of the central bank, Bangladesh Bank set a target to disburse Tk20,000 crore among the Covid-hit small entrepreneurs during the current fiscal year (2021-22).
But the banks could achieve much less of the target, estimated 21%, during the first five months of the current fiscal year.
They disbursed only Tk4,001 crore from July to December period of the current fiscal year and only three banks and one non-bank financial institution could achieve the target, said the report.
The government announced the first stimulus package of Tk20,000 crore for the CMSME entrepreneurs in April of 2020 to recover from the Covid-19 losses.
Of which, 77% target was achieved after the end of the fiscal year.
The central bank will be the guarantor of this mortgage-free loan for the small entrepreneurs and the concerned banks would receive 80% of the default loans from Bangladesh Bank.
Meanwhile, IFC has signed an agreement with Bangladesh Bank (BB) to implement a Credit Guarantee Scheme (CGS) for CMSMEs to support small businesses facing financing challenges due to the impacts of Covid-19 on December 26 of last year.
By offering a risk-sharing arrangement for participating financial institutions (PFIs), the scheme will allow the PFIs to provide better access to finance for CMSMEs that are often deprived due to their high-risk profile, said a press release.