As of October, banks have disbursed just 42 per cent of the sum among the CMSMEs despite a repeated push from the central bank
There are green shoots everywhere save for the cottage, micro, small and medium enterprise (CMSME) sector, which has been walloped the hardest by the pandemic.
To haul them up, the government in April announced a Tk 20,000 crore bailout package.But seven months on, making sure the funds are in the hands of the parties that need them the most has turned out to be quite the challenge for all.
As of October, banks have disbursed just 42 per cent of the sum among the CMSMEs despite a repeated push from the central bank to complete disbursement at the earliest.
One such push was the announcement in July of a credit guarantee scheme (CGS) worth Tk 2,000 crore for the micro and small enterprises for funds disbursed from the stimulus package.
A CGS provides a third-party credit risk mitigation to lenders through the absorption of a portion of the lender's losses on the loans made to SMEs in case of default, typically in return for a fee.
Banks will get 80 per cent coverage of a credit given to an individual or a company.
The scheme is yet to become functional, meaning banks are continuing to drag their feet in channelling funds to the sector.
But the revival of the sector, which contributes about 25 per cent to Bangladesh’s gross domestic product, is imperative if the economy is to fire on all cylinders, as it was before the coronavirus arrived on these shores in March.
Now, experts and bankers have suggested that the government and the central bank top up the stimulus for the CMSME sector by lifting parts of the Indian government’s new emergency credit line announced last week.
Called the Emergency Credit Line Guarantee Scheme-2.0 (ECLGS-2.0), the package allows pandemic-hit businesses to take collateral-free loans with five years repayment tenure including one-year moratorium facilities.
The original ECLGS had one year of a moratorium and four years of repayment; the new scheme will have a year’s moratorium and five years of repayment.
“India announced a fresh credit guarantee scheme to stressed sectors as the credit scheme that the country initially announced was not enough,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
The most important aspect of India’s package is that its central bank promised to provide fully guaranteed and collateral-free credit to eligible entities.
“But we have no functional credit guarantee scheme that we can speak of,” he said, while calling for the CGS for the CMSMEs to be rolled out as soon as possible.
The central bank should also extend the tenure of loan repayment like in India because borrowers cannot repay the working capital loans within a year given that the second wave of the deadly virus is knocking at the door.
Mansur, also a former economist of the International Monetary Fund, suggested that the loan repayment tenure should be extended to at least four or five years so that the stressed businesses can get a breathing space to recover.
Dhaka Bank Managing Director EmranulHaq called for a CGS with long-term repayment period like in India for the adversely affected industries such as hotel, tourism and aviation sector by the pandemic virus.
“The hospitality sector was badly affected by the pandemic and it has not returned to any version of normalcy yet. So a CGS with four to five years’ repayment period is needed for the hospitality as well as the small and medium enterprises sector,” he added.
However, the former BB Governor Salehuddin Ahmed said it would not be right to compare the extent of Bangladesh’s stimulus package with India’s because its economy did not tailspin in the manner the neighbouring country’s has.
India’s initial 66-day lockdown had a major negative impact on its economy.
“It is not the right time to announce a new stimulus scheme or extend the current one in our country. The efficacy of the existing packages should be evaluated in December and then a decision can be made.”
Banks should emphasise on the implementation of the existing stimulus schemes, especially the stimulus funds for the CMSMEs, Ahmed added.
Another former BB Governor Atiur Rahman echoed the same.
“Bangladesh is on the right path in case of stimulus disbursement but banks should be more active in disbursing the funds to the stressed industries for economic revival,” he said while suggesting a wait-and-watch policy for the next six months.
Rahman also said that the rules and regulations of the CGS should be simplified.
Contacted, the BB declined to provide a comment for the report, but a high official of the central bank upon the condition of anonymity said the size of the credit guarantee scheme can be increased as per the demand.
WHY THE SLOW DISBURSEMENT?
The 9 per cent ceiling for lending is the major reason behind the slow disbursement the sector, said Mansur, also the chairman of BRAC Bank, whose main focus is the SME sector.
“Where the interest rate for lending is up to 25 per cent in microfinance it is only 9 per cent in the case of banks, which is not profitable for banks. The operating cost of a bank especially for SME loan disbursement is much higher. So the lenders do not want to take the risk by lending at the 9 per cent rate.”
Brac Bank has already disbursed 66 per cent of the bank’s total target for the CMSME sector from the stimulus package.
“Hopefully, we will complete the disbursement process from the stimulus fund by this month,” Mansur added.
The stimulus guidelines need to be reformed to ramp up loan disbursement to the CMSME sector, said Syed Abdul Momen, Brac Bank’s head of SME business.
According to the BB guidelines, up to 30 per cent of the SME loans can be disbursed in the trading sector, whereas this sector has the most demand.
“This is a big barrier for SME lending,” he added.
Dhaka Bank has disbursed 65 per cent of the stimulus funds for the CMSMEs sector, Huq said.
“It takes more time to scrutinise the documents of the SMEs and that’s the reason behind the slow disbursement to the CMSME sector from the stimulus funds,” he added.
SME ENTREPRENEURS CALL FOR SIMPLER FINANCING TERMS
Esrat Jahan Chowdhury, an SME entrepreneur, is making various products from jute for both the local and international markets.
“Due to the pandemic, our sales in the local market fell drastically and the export trade has also been hampered. As a result, we are not able to pay our employees fully,” Chowdhury told Dhaka Tribune.
Bank loans are much needed now but it is not so easy to get one, said Chowdhury, owner of Tulika.
“When I went to a bank branch to get loans, they wanted me to submit various papers including three years’ audit report of my business, which is not so easy to provide for small entrepreneurs like us. Getting SME loans should be less complex.”