CMSEs with NIDs, 2 guarantors eligible for loan

Owners of cottage, micro, and small enterprises (CMSEs) will get working capital loan from micro finance institutions (MFIs) if they have two guarantors and national identity cards (NIDs) or birth registration certificates.

Those who do not have NIDs can also take loans by submitting a certificate from the local municipal councillor or the union parishad chairman along with loan applications.

The MFIs will not be allowed to ask for any additional documents to disburse loans.

CMS entrepreneurs as well as new ones returning from abroad or cities and those trained by various agencies, including the Department of Youth Development, will be prioritised for loans.

The Bangladesh Bank is setting up a refinancing fund to lend to CMSEs, which will include the aforesaid provisions.

The Financial Institutions Division has formulated a guideline with the representatives of the Bangladesh Bank, the Microcredit Regulatory Authority (MRA) and non-governmental organisations to manage the fund.

The guideline was sent to the Cabinet Division on Thursday for approval. 

According to the guideline, a single client can borrow a maximum of Tk50 lakh. At the client level, the interest rate will be a maximum of 12%, of which the government will subsidise 5% and the remaining 7% will be repaid by the client.

Md Serajul Islam, executive director and spokesperson for the Bangladesh Bank, told The Business Standard the central bank would make the guideline effective by issuing a circular after receiving the cabinet's approval.   

Under the guideline, a new fund of Tk5,000 crore for a period of three years is being set up initially to provide loan facilities to CMSEs.

However, the government will provide an interest subsidy to clients for a year. Whether the subsidy will continue in the subsequent years will be decided during the next budget.

Earlier, the Bangladesh Bank announced a package of Tk3,000 crore for disbursing loans among CMSEs through MFIs. So far, one-third of the package has been implemented.

This package will also be implemented under the new guideline. This means a Tk8,000 crore package will be implemented through MFIs. If the implementation is satisfactory, the size of the fund will be increased later.

In May, the government announced a Tk20,000 crore package to give loans to owners of cottage, micro, small and medium enterprises (CMSMEs) affected by the Covid-19 pandemic. But small entrepreneurs are not getting loans from the package through banking channels.

The MRA-certified MFIs will disburse the loan at the client level. 45% of the loan will be disbursed in trading, and 55% in manufacturing and services. No other loan can be adjusted or repaid with the loan taken from this package.

By forming the refinancing fund, the Bangladesh Bank will finance scheduled banks and financial institutions at an interest rate of 1%. Banks and financial institutions will finance MFIs at 3.5% interest.

Banks and financial institutions can lend or finance between 2% and 5% of the existing debt balance of an MFI.

Tushar Bhowmik, chief financial officer of Brac, told The Business Standard it would be possible to implement the guideline.

"However, large MFIs, including Brac, have already taken loans from banks in line with the single client loan limit and have disbursed that at the client level. In this case, the condition for the single client loan limit has to be relaxed," he explained.

"At present, Brac's microcredit balance is Tk28,000 crore. Under the new package, if Brac gets the chance to disburse 5%, it will amount to Tk1,400 crore.

"It will not be possible to get this amount of loan from Brac Bank unless the condition for single client loan limit is relaxed. This is the case with most of the large MFIs," he added.

As for the importance of the new package, the guideline states that it is not possible to ensure the desired level of financial inclusion of CMSEs through banking channels alone. That is why the government is formulating the guideline to finance these enterprises affected by the pandemic through MRA-certified MFIs.

According to the draft guideline, banks and financial institutions will send financing applications to the MRA after receiving those from MFIs. The MRA will certify the applications within three days after receiving them and determining MFIs' borrowing capacity.

Banks and financial institutions will lend to MFIs within a maximum of one week after receiving the certification. MFIs will ensure distribution of the loans at the client level as soon as the money is received.

The guideline says banks and financial institutions will provide loans to MFIs for a minimum period of two years. A small venture can borrow from a maximum of three banks.

However, the sum of all loans taken from banks should be within the maximum limit of MFI borrowing. When taking loans from banks, the boards of MFIs will only keep the loan repayment declaration and the existing loan balance as collaterals.

Various activities, including client selection, expenses related to loan disbursement, grace period, instalment and loan collection, and monitoring of loan classification, will be carried out in accordance with the existing policies of the MRA and microfinance institutions.

MFIs will conduct regular monitoring at the client level in line with their own management systems to ensure proper utilisation of disbursed loans.

MRA Director Mohammad Yakub Hossain told The Business Standard there are 756 MRA-certified MFIs and they have around 20,000 branches across the country.

"As a result, MFIs will be able to easily disburse loans among CMSEs at the marginal level."            

According to the guideline, financing banks, financial institutions and the MRA will be able to conduct regular inspections at the MFI and client level while the Bangladesh Bank and the Financial Institutions Division will be able to do so at the MFI and client level in collaboration with commercial banks and the MRA. 

If necessary, assistance from local administrations may be taken, it added.