BB asks for faster disbursal of SME loans

The Bangladesh Bank has ordered financial institutions not to delay in providing collateral-free loans to small enterprises affected by Covid-19.

It has also clarified the ownership complexity over setting up agro-product processing factories in peri-urban areas.

To this end, the central bank's SME and Special Programmes Department issued a circular on Wednesday.

In April this year, the central bank formed a Tk10,000 crore refinancing scheme to provide assistance to the cottage, micro, small and medium enterprise (CMSME) sector hit by the pandemic.

The government announced Tk20,000 as stimulus loans for the SME sector, with half the amount coming from the central bank's refinancing scheme. But banks have been slow in disbursing the small loans, prompting the central bank to repeat its call for a faster disbursement. Small businesses so far received about Tk 5,882 crore from the stimulus package announced in April.

Under the scheme, the CMSMEs are supposed to get collateral-free loans as per law. However, some financial institutions are not abiding by the law, hampering the implementation of the scheme designed for these ventures.

Besides, from now on, an agro-product processing factory will be set up with funding from the refinancing scheme under a "single initiative" instead of "single entrepreneur", according to another directive in the circular.

The mention of "single entrepreneur" in a previous circular had created ambiguity over the ownership of such a factory. This is also hampering the enterprises' receipt of assistance from the refinancing scheme.

The term "single initiative" has now replaced "single entrepreneur" to overcome this barrier. The central bank thinks that it will be easier to get a loan for them with the removal of the ownership complexity.

In this context, Professor Muhammad Mahboob Ali, chief coordinator of Dhaka School of Economics, said this directive will help small and medium enterprises get loans.

However, referring to 80% small and medium enterprises in rural areas, he said loan assistance under the scheme should be released more in those areas.