Merchant bankers have demanded to relax the credit conditions under the capital market refinance scheme for facilitating disbursement among the investors affected by the share market debacle in late 2010.
The Bangladesh Merchant Bankers Association (BMBA) recently wrote to Bangladesh Securities and Exchange Commission about the difficulties and complexities they are facing while applying on behalf of the investors.
One of the conditions is directors of merchant banks need to issue personal guarantee to avail the loans, making the procedure harder, said the letter. The condition was a new one tagged after the agreement among the regulator, merchant banks and brokerage firms.
“The regulator should relax the conditions for the interest of the affected investors as well as for the market,” said Akter H Sannamat, BMBA vice president.
He said it is very difficult to meet the conditions as directors of the merchant banks, which are subsidiaries of commercial or foreign banks, even need not to submit their directors’ personal guarantee to the Bangladesh Bank for taking loan from any banks. Because most of the directors are nominated or independent.
He said more tough conditions particularly on instalment and cheque dealing have made the procedure more complex.
Despite extending deadline twice, response from the affected stock investors for credit from the Tk900 crore refinance scheme was lukewarm. The deadline was extended till January 31 this year after its expiry first in November 30 and second in December 15 last.
So far 35 institutions, including merchant banks and brokerage houses, on behalf of the affected investors applied for the credit worth Tk346 crore.
Of which, applications of seven institutions on behalf of 2,131 investors for Tk66.4 crore has already been approved but it remained to be released due to the new condition.
So far only 1% of the total around 10 lakh investors affected sought credit, sources in the Investment Corporation of Bangladesh (ICB) said.
Most investors and institutions showed no interest to avail of the credit due to the complex procedure and tough conditions. For sanctioning loan, the regulator set 18 conditions, including clearance from credit information bureau for all sponsor-director of a merchant bank or a brokerage house.
“Affected investors were in doubt whether they will be benefitted after taking credit under the present situation,” said Sannamat.
As per the loan distribution guideline, the state-run Investment Corporation of Bangladesh will lend to merchant banks and stockbrokers at 7% rate.
ICB already received Tk300 crore from the central bank as first instalment of the Tk900 crore fund at 5% interest rate from the central bank. The merchant banks and stockbrokers will then disburse the fund to the retail investors at 9% rate.
Later, the borrowers will have to repay the loans in three-month instalments to ICB which will subsequently deposit the received amount to the refinance fund.
The affected retail investors, who had investment up to Tk10 lakh from January 2009 to November 2011, are eligible to receive loan from the specialised fund.
The BSEC identified 954,000 affected small investors to bring under the facility of refinance scheme.
As a step to heal the wounds of debacle, the government in March 2012 announced a compensation package that included an interest waiver on margin loans to the investors.