What reinstating late payment fees means for the middle class

As the country is still reeling from the effects of the economic shocks caused by the Covid-19 pandemic, many are shutting down their businesses, including individual borrowers who are selling their assets to pay off debts.

One such individual, Palash Kanti Das (pseudonym), bought a motorcycle with equated monthly instalment (EMI) facilities in November last year. 

His purpose was to run the household with the earnings from ridesharing platforms, as well as repay the installments on a monthly basis. 

However, ridesharing services were frequently shut down in the last 1.5 years due to lockdowns. This start-and-stop dilemma made it difficult for him to make ends meet, let alone repay the EMI.

As the banks were instructed to reinstate late payment fees from late August earlier this year, something which was suspended due to the pandemic, it made things difficult for Das, who was eventually left with no choice but to sell the bike and pay off the remainder of his debt with that money.

Left with no other choice, he returned to his old profession of a street vendor.

This was a result of the central bank partially resuming pre-pandemic provisions regarding loan repayment.

Md Shobuj is a shopkeeper, whose shop sells stationeries and is located at Madhubazar area of Dhanmondi in the capital.

He took a loan of Tk3 lakh in mid-2019 to renovate his shop. But dismal sales during the pandemic forced him to sell his store simply to pay off the debt.

Scores of other instances are being reported related to post-lockdown repayments.

At the same time, with the recent rise in commodity prices, the number of people suffering is steadily rising.

In this situation, small businesses and private borrowers have pleaded with the government to show leniency.

Economists, however, speak of a mixed role in this situation.

AB Mirza Azizul Islam, economist and former financial adviser to the caretaker government, told Dhaka Tribune: "We have seen how big businessmen took advantages from the government in the name of Covid-19. They have used their influence to ensure various benefits in repaying loans worth crores and the trend is still continuing. 

“On the other hand, small businesses and individual borrowers are not able to influence the government’s decision-making process, since they do not have any organization powerful enough to deal with the government. 

“The only voice they have is the media. I think the government needs to think more about them. It has to be considered from both the perspectives of microeconomics and macroeconomics,” he added.

Meanwhile, the economist also remarked that the people might not be getting the benefits of various packages and activities announced by the government and Bangladesh Bank (BB).

Even after seeing the disbursement of the stimulus package announced by the government, the same picture comes up. 

In this context, Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank (MTB), told the media that the cost of disbursing micro loans is much higher. 

“This may well be the reason why the banks are not showing much interest. However, MTB is well ahead in disbursing microloans,” he added.

Seeking anonymity, another banker told Dhaka Tribune: “The cost of disbursing small loans and its recovery is much higher than other loans. That is why the banks were not interested.” 

But now, the slow pace to get the subsidy will make them less enthusiastic. Apart from this, there are no good customers for the disbursement of loans in this sector. All in all, banks are losing interest in disbursing these cottage, micro, small and medium enterprise (CMSME) loans, they added.

According to the Ministry of Finance, the banks will get a subsidy of Tk5 crore on interest rates if loans of Tk100 crore are disbursed under the incentive program in the CMSME industries. 

Banks disbursed loans worth Tk15,000 crore in the last fiscal year. Of this, six months of subsidy has been given to the banks till December 2020.

Meanwhile, despite the recommendation from Bangladesh Bank to release the money by March ‘21, the Ministry of Finance gave the condition of checking whether the stimulus packages were provided in the right manner.

In this situation, BB has started an investigation by releasing the remaining amount of subsidy. 

Serajul Islam, spokesperson of Bangladesh Bank earlier said that those investigations are being carried out in the big branches, where the subsidy money was initially distributed.

Credit card dilemma

Meanwhile, according to Bangladesh Bank sources, the “extra time” for repaying credit card loans, which was given during last year’s Covid-19 period, has ended. 

However, the repayment period of other loans has been extended till December 31 this year.

As per the BB decision, borrowers will be able to avoid default zones by repaying 25% of their loan instalments until December 31, 2021. 

Before the end of June 30, this instalment payment benefits were 20%. In other words, borrowers have to pay only 5% more than before.

In addition, the central bank, on October 28, took an important decision regarding the disbursement of loans to low-income professionals, farmers and marginal small traders. 

Bangladesh Bank raised this fund to Tk3,000 crore.

The fund is now being implemented through banks via microfinance institutions (MFIs) in order to salvage the pandemic-hit clients. 

As per the new rules, banks will avail funds from the central bank at 0.5% interest rate in contrast to the previous 1%. 

MFIs will get the fund at 3% interest rate against the previous 3.5%, according to a BB notice. 

But the borrowers can get this fund at 7% interest rate.

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