Bangladesh Bank has formed a new refinancing fund of Tk5,000 crore for entrepreneurs in the cottage, micro, small and medium enterprises (CMSME) sector of the country. Under this initiative, taken with the aim of accelerating trade and commerce, increasing production and creating employment, entrepreneurs will get working capital loans at a maximum interest rate of 9 percent.
The SME and Special Programs Department of Bangladesh Bank issued a notification in this regard on Monday.
The directive, issued under the powers conferred by Section 45 of the Bank Companies Act, 1991, has been sent to the managing directors and chief executives of all scheduled banks in the country.
The notification said that the name of this new fund is ‘CMSME Sector Working Capital Refinancing Fund’. Initially, the term of the fund has been set for three years.
According to the latest data from the Bangladesh Bureau of Statistics (BBS), there are currently about 11.8 million CMSME institutions in the country.
Many of these institutions are unable to operate production, services or business activities at full capacity due to lack of sufficient working capital. The central bank said that the fund has been formed considering this reality.
Under the new fund, commercial banks will receive money from Bangladesh Bank at 4% interest.
After that, they will be able to distribute loans to entrepreneurs at a maximum interest rate of 9%. The banks will have to pay interest to Bangladesh Bank every three months.
In addition to conventional banks, Sharia-based banks and Islamic windows of general banks will also be able to provide this facility in the form of investment by following their own policies.
According to the instructions of Bangladesh Bank, active cottage, micro, small and medium enterprises that are unable to operate production or business at their full capacity due to working capital crisis will be eligible for loans under this fund.
In addition, entrepreneurs who are currently taking working capital loans under any other refinancing or pre-financing scheme of Bangladesh Bank will also be able to take new loans from this fund, considering their needs and capabilities.
However, defaulters or institutions listed in the Credit Information Bureau (CIB) of the central bank will not receive any loan facilities under this fund.
To give entrepreneurs an opportunity to organize their businesses, a grace period of 3 to 6 months has been set for loans. That is, no installments will have to be paid for the first three to six months after taking the loan.
In addition, banks will not be able to collect any additional fees, commissions or service charges from entrepreneurs beyond the charges prescribed by Bangladesh Bank.
The entire risk and responsibility for the collection of loans distributed at the customer level will lie with the concerned bank. To ensure the security of the loan, banks will be able to accept collateral or co-collateral as required.
The notification states that all scheduled banks in the country will be able to take money from this fund and distribute loans to entrepreneurs. However, banks whose loan-deposit ratio (ADR) is more than 70% will get priority in allocating funds.
However, no bank will be able to exceed the maximum ADR limit prescribed by Bangladesh Bank.
The central bank said that it will closely monitor whether the fund is being used properly. If necessary, any documents will be called for before or after the loan approval.
In addition, Bangladesh Bank will verify whether the loan money is being used in the specified sector through on-site inspections and audits.
