Loans from the fund can be sought at 4% interest, while its term is for three years
A fresh round of refinancing fund worth Tk2,520 crore has been announced for cottage, micro, small, and medium enterprises (CMSMEs) by Bangladesh Bank (BB.)
Loans from the fund can be sought at 4% interest, while its term is for three years, created with support from the Asian Infrastructure Investment Bank (AIIB).
Earlier in February this year, AIIB had signed a deal with the Bangladesh government to assist in creating the fund.
According to BB, the refinancing fund will help CMSMEs recover from induced due to the Covid-19 pandemic fallout.
The refinance fund would be disbursed to banks and non-banking financial institutions (NBFIs), which will have to sign agreements with the central bank, who will manage the fund.
The fund will provide loans to businesses under the CMSME sector in the form of working capital.
Banks and NBFIs implementing the financing fund must meet three years of experience and be profitable in the last two calendar years, according to a circular published by the central bank last week.
Additionally, the concerned financial institutions should not have a loan portfolio that exceeds 10% of the non performing loan (NPL) as per BB instructions.
They have also been asked to disburse loans after scrutinizing necessary documents.
The financial institutions will be liable for discrepancies. A penalty of 2% will be imposed if there is a delay in disbursing loans due to insufficient balance, and another 2% if a client uses loans for a different purpose.
Although the previous stimulus package announced by the government had sustained the pandemic shock to some extent, the tools surrounding its implementation need much more focus, specifically in the context of disbursement, according to experts.
Speaking to Dhaka Tribune, Rizwan Rahman, president of Dhaka Chamber of Commerce and Industries (DCCI), underscored the need for a database to efficiently disburse government support to the CMSME sector.
“No matter how many or how friendly policies we come up with, the implementation and disbursement of support will be a problem without a database. Moreover, collateral-based methods are not effective. A merit-based method needs to be explored instead,” said Rahman.
Several factors — gaps in required documentations, discretionary behavior of officials, collateral and guarantor requirements — limit the access of stimulus for the CMSME sector, said the DCCI president.
CMSMEs segment enterprises are unable to meet banking criteria in terms of documentation and procedural complexities. If the government really wants to help them then that must come out of the existing banking channel with soft modalities, he added.
According to a study by Business Initiative Leading Development (BUILD) and Policy Exchange Bangladesh (PEB), 83% CMSMEs reported that they have not received stimulus relief from the government.
Furthermore, with the credit risk still being borne by banks and NBFIs financial institutions will be less encouraged in disbursing support.
There has been a liquidity crisis among NBFIs with the cost-of-fund being very high at 9%. With the liquidity challenge, there is uncertainty in implementation, said Md Kyser Hamid, managing director and CEO of BD Finance.
The fund is more of refinancing in contrast to pre-financing. Existing books will be able to access the fund at ease than first-time borrowers, added Hamid.
The policy on the fund's management, published by the SME and Special Programs Department of the central bank on Wednesday, states that half of the Tk20,000 crore stimulus package announced for the CMSME sector last year will be used for refinancing.
Hamid also pointed out only a few NBFIs have been able to truly support SMEs going out of the conventional ways of depending on collaterals for assessing risk and disbursing funds.
He mentioned that some NBFIs depended on sales ledger of small businesses as qualitative analysis in terms of credit risk to disburse funds.
Other studies have also found uneven and slow progress in stimulus utilization.
According to a study by SANEM, about 69% of businesses did not get funds from the stimulus package announced by the government to tackle the effects of Covid-19, while 9% were not aware of the packages.
However, BB said that about 83% of the 12 stimulus packages had already been implemented. A recent BB statement claimed that about 1.24 crore people received benefits out of the 12 stimulus packages, which were implemented through the country’s banking system.
Along with the stimulus packages for CMSMEs and the Tk30,000 crore for the large export-oriented industries, 10 other stimulus packages have so far been announced by the central bank to support businesses amid the coronavirus-induced economic fallout.
Including the 12 stimulus packages, the government has so far floated 23 stimulus packages worth Tk123,303 crore to support the businesses amid the coronavirus outbreak.