Banks to lend start-up funds from net profits instead of operating profits

In addition to the central bank's Tk500 crore start-up fund to create entrepreneurs, banks will now have to set up their own start-up funds by setting aside 1% of their annual net profits instead of operating profits.

The central bank's SME and Special Programmes Department said in a circular on Monday that banks would have to provide start-up funds from 1% of their net profits (as per audited financial statements) for the next five years from 2021.

It also said other aspects of the policy would remain in force.

Earlier, the start-up fund policy published on 29 March asked banks to set up start-up funds from 1% of their operating profits.

Asked about the change in policy, Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh, said this will give some degree of relief to banks.

He said a bank's net profit is usually less than its operating profit.

Now that banks have to set aside 1% of their net profits, they will have some extra money that can be distributed to shareholders, explained Mahbubur, also the manager director of Mutual Trust Bank.   

The 29 March policy said banks would be able to lend from both the central bank fund and their own funds this year. But they would have to provide loans from their own funds first from next year before lending from the central bank fund of Tk500 crore.

Innovative entrepreneurs between the ages of 21 and 45 may borrow up to Tk1 crore for a project from both the central bank fund and a bank's own funds. 10% of start-up funds will be allocated for women entrepreneurs.

These loans will be simple interest loans and the annual interest rate will be 4%. The term of the loan will be five years and loan instalments will have to be repaid every three to six months. The maximum grace period for repayment will be one year.

If an entrepreneur shares an idea with a bank seeking a loan, the bank will not be able to disclose the idea to anyone whether it is financed or not.

The policy defined a start-up as the innovation and advancement of new products, services, technologies, or processes for marketing. Technologically innovated solutions need to be expandable, commercially sustainable and successful in creating employment, and should increase internal resources.

The project proposed by an entrepreneur must be completely new and creative. Moreover, an applicant must have a certificate of training as a new entrepreneur from the government or an appropriate authority.

In the absence of formal technical education, the applicant must have appropriate practical knowledge, experience, and the ability to manage new ventures.