SMEs are not getting incentive loans

Banks are reluctant to lend money to small and medium enterprises (SMEs) from the government-announced incentive packages due to a lack of guarantors and a transactional relationship with the banks.

Entrepreneurs in the sector are most-affected by Covid-19, but they are not getting loans mainly due to the high costs involved in lending to the SME sector and the fear of non-repayment.

The government is going to formulate a credit guarantee scheme of Tk5,000 crore to allay the fears regarding non-repayment.

According to the central bank, the banks have so far disbursed only Tk206 crore to SMEs whereas SME entrepreneurs have applied for loans worth Tk518 crore. The government is going to form a steering committee in each district under the leadership of the deputy commissioners so that the district-level bank officials are interested in giving loans to SMEs.

Industries Secretary KM Ali Azam will soon issue demi official letters in this regard to the deputy commissioners.

The Bangladesh Bank issued a circular on April 13 announcing an incentive package of Tk20,000 crore to ensure working capital supply to SMEs affected by Covid-19. The government will subsidise 5 percent of the 9 percent interest on SME loans. The remaining 4 percent will be paid by the borrower.

The traders are expressing their displeasure over the unsatisfactory disbursement of loans in the SME sector even after three months.

Sheikh Fazle Fahim, president of the Federation of Bangladesh Chambers of Commerce and Industries, expressed displeasure over the reluctance of banks to lend to SME entrepreneurs on Thursday in a meeting chaired by Commerce Minister Tipu Munshi.

A separate meeting was held at the Ministry of Industries on the same day, with the Additional Secretary of the ministry Helal Uddin at the chair, to review the implementation situation of the SME sector incentive package. All but the central bank representative who took part in the meeting expressed frustration and anger.

Referring to the SME sector as the backbone of the economy, Salman F Rahman, private industry and investment adviser to the prime minister, said banks were reluctant to lend as there were no guarantors for SME loans. To solve this problem, a credit guarantee scheme of Tk5,000 crore is being implemented. Work is going on in this regard. If any SME entrepreneur is unable to repay the bank loan, the bank will be repaid from this scheme.

In the credit guarantee scheme, the government will provide Tk1,000 crore from its funds and the World Bank will provide Tk4,000 crore. Discussions are underway with the World Bank in this regard.

Salman F Rahman said that he had spoken to the governor of the Bangladesh Bank about this.

When asked, a finance ministry official told The Business Standard that it is not possible to say how big the scheme will be.

Helal Uddin, also head of the steering committee on SMEs, told The Business Standard, "The Bangladesh Bank has said that the disbursement of loans to SMEs will increase in July and August this year. Neither the Ministry of Finance nor the central bank has yet said anything about the formation of the credit guarantee scheme."

Meanwhile, the Bangladesh Small and Cottage Industries Corporation (BSCIC) and SME Foundation have sought Tk1,100 crore for disbursement of loans to the SME sector from the government's funds outside the announced incentive package.

The two organisations said many micro-entrepreneurs cannot afford to borrow from banks. And the banks are not interested in giving loans below Tk10 lakhs but many small entrepreneurs need a loan of Tk2-3 lakhs. The two companies will provide loans to such marginal entrepreneurs.

SME Foundation Managing Director Shafiqul Islam told The Business Standard the incentive package would be implemented through the bank. As a result, small entrepreneurs in backward areas where there are no banks will be deprived. Many entrepreneurs have contacted the bank and found they will give priority to the affected old borrowers. And in the case of newcomers, the bank will impose conditions on collateral.

"Currently, 15 percent of SME entrepreneurs get loans from banks. The remaining 85 percent of entrepreneurs are not covered by bank loans. I have asked the government for funds to lend to them on a cluster basis, which is still under consideration by the ministry of finance," he said.

Export pay at 2% interest till September

In a meeting chaired by commerce minister, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Rubana Haque and former president Siddiqur Rahman said workers in the export sector, including ready-made garments, would have to be financed at a 2 percent service charge from July to September to ensure a three-month salary-allowance.

At the time, Salman F Rahman said Tk2,500 crore had been taken from the Tk30,000 crore fund announced for the industrial sector after the government-funded Tk5,000 crore for the payment of workers' salaries and allowances ended in April-June. 

In the next three months, the same can be done from the funds of the industrial sector to pay the salaries and allowances of the export sector. "However, the Eid-ul-Azha bonus of the workers has to be paid by the owners from their income," he said.