Some 278 cottage, micro and small enterprises (CMSEs) mired in financial difficulty owing to the ongoing pandemic applied to the central bank through 25 banks and NBFIs to get collateral-free loans under the credit guarantee scheme (CGS).
The Bangladesh Bank launched the CGS of Tk 2,000 crore on July 27 to support the pandemic-hit CMSEs.
Thanks to the scheme, CMSEs that lack adequate collateral would be able to get bank loans.
The scheme will give coverage to the loans disbursed from the Tk 20,000 aid package for the sector.
The applications are now being vetted, said a high official of the central bank working on the scheme.
As of February 3, 19 banks and six NBFIs including Sonali, Janata, Rupali, Agrani, Exim, Mutual Trust, Prime, National, Islami and IDLC signed participation agreements with the central bank to provide loans under the scheme, as per latest data from the BB.
Another 20 to 30 banks and NBFIs will sign participation agreements with the BB by this month.
One such lender waiting in the wings is City Bank.
“We have not signed the participation agreement as it is not fully functional yet,” said Kamrul Mehedi, the bank’s head of SME lending.
Until now, the central bank has sought an opinion from banks on rolling out the scheme on a full-fledged basis.
Firstly, the BB allowed banks to provide the facility only for working capital finance of the CMSEs sector. Then on February 1, the central bank allowed banks to enhance the facility for term loans to the sector.
The guarantees against loans to small businesses ranging from Tk 2 lakh to Tk 50 lakh would be covered under the scheme.
The lenders would get up to 80 per cent of the loan principal from the central bank’s scheme if the borrower fails to repay.
For the first year, the charge will be 1 per cent to the banks of the loans that would be guaranteed by the central bank.
Banks with up to 5 per cent of default loans will be charged 0.5 per cent of outstanding loans after the first year, while the rate will be 0.75 per cent for banks that have default loan ratios between 5 per cent and 10 per cent.
Banks with more than 10 per cent default loans will not get access to the credit guarantee scheme.
State-owned banks are exempted from the default loan-related conditions.
The stimulus package disbursement to the CMSME sector is still lacklustre despite the central bank move to boost the sector hit hard by the pandemic.
As of December last year, banks disbursed at Tk 10,825.28 crore or 54 per cent to the CMSME sector from the Tk 20,000crore stimulus fund, as per the central bank data.
The BB extended the deadline for the execution of the stimulus funds to March this year owing to the slow disbursement.
The 9 per cent ceiling for lending is the major reason behind the slow disbursement of the sector, said Ahsan H Mansur, 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, he said, adding that the lenders do not want to take the risk by lending at the 9 per cent rate.
He welcomed the central bank initiative and called for the CGS for the CMSMEs to be rolled out in full swing as soon as possible.
