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Dhaka Tribune

Experts for a Credit Guarantee Scheme to promote SMEs

The speakers were addressing a roundtable discussion on 'Credit Guarantee Scheme for Promoting Access to Finance for SMEs'

Update : 15 Nov 2018, 10:17 PM

A Credit Guarantee Scheme (CGS) is of paramount importance to steer the country’s small and medium enterprises (SMEs), experts at the banking sector said on Thursday.

The speakers were addressing a roundtable discussion on “Credit Guarantee Scheme for Promoting Access to Finance for SMEs”, held at the Bangladesh Institute of Bank Management (BIBM), Mirpur, Dhaka.

Deputy Governor of Bangladesh Bank(BB) & Chairman of BIBM Executive committee S. M. Moniruzzaman was the chief guest at the Discussion, chaired by Director General of BIBM Dr Toufic Ahmad Choudhury. BIBM assistant professor Dr. Md. Mosharref Hossain & his team members presented a keynote paper on the topic.

The keynote paper said the BB has taken several initiatives for promoting access to finance for SMEs. Besides, the SME Foundation (SMEF) has started Credit Wholesaling Program (CWP) from 2010 with the objective of greater financial inclusion especially for the small enterprises.

“Under the program, SMEF provides low cost funds to the financial institutions along with other necessary supports like training, policy advocacy etc. In order to fulfill government commitment of providing single digit interest bearing credit at free collateral to the targeted SMEs.” The paper said.

Explaining, the paper said the total amount of funds is very negligible compared to the larger demand of such credit. On the other hand, it is apparent that most of the financial institutions are not interested to provide loan at single digit interest rate and without collateral but interested if they are provided low cost fund and their credit risk is shared by SMEF.

BB Deputy Governor said a Credit Guarantee Scheme (CGS) may help banks to share the risk of loan default for a specific type or market of customers and help enterprises getting loans at their expected level with insufficient collateral.

“The paper refers that many of the developed and developing countries are offering Credit Guarantee Schemes (CGS) especially for the development of the SME sector. There are more than 2000 CGSs over 100 countries in the world,” Moniruzzaman said further.

“It is worthy to mention that recently BB, in collaboration with UNCDF(United Nations Capital Development Fund), has started a CGS with 2 lacs USD grant provided by UNCDF for women entrepreneurs for a period of October 2016 to June 2019.”

Furthermore, Moniruzzaman said a total number of 12 guarantees have been issued against Tk.1.11 crore in 12 different clusters of 8 districts in Bangladesh. Since the scheme is designed especially for women entrepreneurs, a different CGS may be established for fostering overall SME sector of the country, he added. 

The paper further said there are different types of credit guarantee schemes around the glove. The ownership pattern also varies country to country. For example, the Korean Credit Guarantee Fund (KODIT) is owned 60% by the national government and 40% by the financial institutions.

“In Taiwan, the government owns 99% stake in the small & Medium Enterprise Credit Fund (SMEG) and the remaining 1% is owned by the financial institutions,” the keynote paper said further.

“In Philippines, however, the Small Business Guarantee & Finance Corp (national fund) is owned 45% by the National Government and other 55% by 5 state banks & insurance company. In Uk ths Small Firms Loan Guarantee Scheme (SFLG) is financed 100% by UK Govt,” according to the paper. 

Supernumerary Professor of BIBM MD Yasin Ali said the potential aspects of the economy have to be fully utilized. Recently, some financial institutions and banks have scaled down SME financing, he added.

BIBM Supernumerary professor Helal Ahmed Chowdhury, BIBM professor and Director Dr. Prashanta Kumar Banerjee, Assistant professor Dr. Md. Mahabbat Hossain were present at the discussion, among others.

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