The Palli Karma Sahayak Foundation (PKSF) – a state-owned financial institution – will disburse an additional Tk5,000 crore in microcredits to support small entrepreneurs impacted by the Covid-19 pandemic.
The World Bank and Asian Development Bank will fund the lion's share of this initiative.
The PKSF, through its partner microfinance institutions (MFIs), will disburse the loans to around two lakh small entrepreneurs across the country, which in turn will provide employment opportunities to about six lakh people, said its Deputy Managing Director Md Fazlul Kader.
The World Bank will provide $150 million to increase the employability and productivity of low-income urban youths affected by the Covid-19 crisis. The international lending agency has already confirmed the loan, said Kader.
Under the "Recovery and Advancement of Informal Sector Employment Project," the PKSF will disburse $100 million as microcredits to small entrepreneurs and spend the remaining $50 million to provide them with training.
The World Bank, in a project statement on its website, said the main beneficiaries will be youths (aged 15-34) who are poor, less-educated, in highly urbanised districts, and in the labour market.
These segments of the youth labour force, which face constraints to productive economic activity, are not currently addressed by any major programmes.
The statement further read that there would also be special outreach to workers displaced by the Covid-19 crisis from jobs in both domestic and foreign labour markets, with special support for returning international migrants.
Geographically, the programme would focus on urban and peri-urban areas, where substantial segments of urban informal workers and self-employed have experienced loss or reductions of livelihoods.
Responding to query, PKSF officials said a project titled "Sustainable Enterprise Project" is already being implemented with funding from the World Bank. Under this project, the lending agency had agreed to provide $110 million in loans for small entrepreneurs.
Forty percent of the money has been distributed in the last two years. Considering the Covid-19 impact, the World Bank promised to provide an additional $105 million in loans under this project.
The PKSF is hopeful that the additional fund will get approval in the next few months.
Meanwhile, the Asian Development Bank (ADB) will provide an additional $150 million to the PKSF under the "Micro Enterprise Development Project" for providing microcredits to small entrepreneurs affected by the pandemic.
There are several clusters of small enterprises across the country, and the PKSF plans to disburse loans under the project in those areas. One such example is the shoe industry in Bhairab, which has around 5,000 entrepreneurs.
Besides, the PKSF is considering some clusters of dairy industry entrepreneurs in Sirajganj, Chattogram and Satkhira to provide them with microcredits.
Before the Covid-19 became a pandemic, the ADB had disbursed $50 million for this project, which was distributed as loans. The ADP is set to approve the additional $150 million loan in its board meeting in the next September.
The International Fund for Agricultural Development (IFAD) will provide additional financing worth $19 million under the "Promotion of Agricultural Commercialisation and Enterprises" project, to counter the impacts of the pandemic.
Under this project, the PKSF will disburse loans to small and marginal farmers, and agricultural entrepreneurs. The IFAD has already provided $40 million as part of the project, which has been disbursed as loans.
IFAD will provide another $80 million to support the "Rural Entrepreneurs Project."
Tk1,000cr disbursed in June
Meanwhile, under the budget for Fiscal Year 2020-21, the government will provide Tk500 crore to the PKSF for supporting production and services related to agriculture, small businesses, and small and cottage industries.
Sources from the PKSF said the organisation has disbursed Tk800 crore as microcredits through MFIs in June. PKSF's partner organisations disbursed an additional Tk200 crore from their own sources during that month.
With this, the total amount of disbursed microcredits reached Tk1,000 crore in June.
PKSF's Deputy Managing Director Md Fazlul Kader said, "In the previous year, we – with the help of partner organisations – disbursed loans amounting to Tk5,000 crore on average every month in the grassroots level.
"Due to the ongoing pandemic situation, all PKSF projects have been oriented towards tackling the Covid-19 crisis. Our goal and focus is to ensure sustainable employment in the agriculture and small entrepreneurs sector."
Providing further details, he said, "The PKSF has taken up another $400 million project funded by the World Bank to ensure nutrition, sanitation and potable water in rural areas.
"Of the fund, the PKSF will get $134 million to disburse as loans. Those with good health will not be affected by the Covid-19 as severely. This is why this project is also being considered as a Covid-19-centred project."
MFIs face cash crunch amid pandemic
Presently, 758 MFIs certified by the Microcredit Regulatory Authority (MRA) are operating across the country. The MFIs are suffering from a cash flow crunch amid the coronavirus pandemic.
Coast Trust, a moderately sized MFI working in the coastal areas of Bangladesh, took out 40 percent of their loan from the PKSF with 7.5 percent interest and the rest from different banks.
Rezaul Karim Chowdhury, executive director of Coast Trust, said, "We have a credit flow of Tk250 crore. Of the money, around Tk200 crore has been credited to clients,"
"We can operate only in 50 percent of the areas especially in the Barishal division, because of the lockdown and restrictions of local administrations in other areas. Around sixty percent of our clients are paying only 80 percent of their loan installments.
"People have a demand for loans, but we cannot fulfill it. We are witnessing an imbalance of loan disbursement and collection processes, and it is preventing us from disbursing more loans."
The MRA has asked microcredit institutions not to classify loans until September 30 even if borrowers fail to pay them back as per the schedule.
During this time, the micro lenders cannot force the borrowers to pay installments, according to a recent circular.
The NGOs are also demanding the same facility from the regulatory authority so that banks or the PKSF cannot classify loans until September 30, even if they fail to pay them back as per the schedule.
Addressing the matter, PKSF's Deputy Managing Director Md Fazlul Kader said, "If NGOs fail to collect loan installments from the grassroots level, how would they pay back the money to the PKSF and commercial banks.
"If the money is not paid back, no new loans can be disbursed. The situation would force people to borrow money at high interest rates from other lenders."
He continued, "Many businesses have been impacted and income of small entrepreneurs have decreased due to businesses not performing well. So, MFIs have been instructed not to put pressure on their clients.
"The purpose of disbursing loans is to protect these people from the clutches of poverty. At least two lakh people work in these MFIs. These organisations will not be able to pay salaries to their employees if they cannot collect loan installments from the grassroots level."
Kader added that the loan installment collection must be carried out through mutual understating.