BB governor Fazle Kabir presided over the board meeting where the board approved the credit guarantee scheme
The Bangladesh Bank board on Thursday approved formation of a credit guarantee scheme of Tk2,000 crore to support cottage, micro, small, and medium enterprises (CMSMEs) which lack adequate collateral to apply for bank loans.
The scheme would issue guarantees against working capital loans amounting to Tk8,320 crore that would be issued to such entrepreneurs, BB executive director and spokesperson Md Serajul Islam told Dhaka Tribune after the meeting.
BB governor Fazle Kabir presided over the board meeting where the board approved the credit guarantee scheme.
"The board approved the scheme so that the banks do not feel discomfort in disbursing loans to the CMSME sector due to lack of collateral," the BB spokesperson said.
Mentioning the initiative as a milestone in the country’s banking sector, Serajul said the banks will have to sign agreements with the central bank’s CGS unit under the SME department, to enjoy the guarantee facility from the central bank.
Banks with less than 10% non-performing loans (NPLs) will be eligible to avail the guarantee from the central bank against the loans that the banks would disburse to the sector.
There would be no such conditionality for state-owned banks to avail the guarantee facility.
The banks would be exempt from having to provision any loan loss reserves against the loans that would be guaranteed by the scheme, even if those turn into classified loans.
To get access to the scheme, the banks will have to pay fees at the rate of 1% on the loans for the first year of loan issuance.
The dismal state of loan disbursement to the CMSMEs prompted the central bank to significantly relax loan classification rules for the CMSMEs, so that banks feel encouraged and feel free to issue credit to them.