The Financial Institutions Division of the finance ministry has embarked on an initiative to create a new Tk10,000-crore fund to assist micro and marginal entrepreneurships that did not get loans from the previous incentive package announced by the government amid the Covid-19 pandemic.
The Bangladesh Bank will provide the fund, which will be distributed through microfinance institutions (MFIs) at 8% interest. Half of the interest will be subsidised by the government while borrowers will bear the remaining half.
A meeting was held between the top executives of the Bangladesh Bank and the Financial Institutions Division on 15 March this year to discuss the draft policy. Ahmad Kaikaus, principal secretary to the prime minister, chaired the meeting.
According to sources, the meeting decided to finalise the fund as soon as possible after taking opinions of the Finance Division. The draft was sent to the Finance Division on 31 March for its opinion.
The government created a fund of Tk20,000 crore in April last year to help cottage, micro, small and medium enterprises (CMSMEs) in the pandemic situation. The fund is being distributed through banks at 9% interest. The government is giving 5% interest as subsidy, while borrowers have to pay the remaining 4%.
Businessmen and economists have been saying since then that many micro and marginal entrepreneurs could not avail loans under the package by complying with various conditions set by banks.
In this context, the Prime Minister's Office directed the Financial Institutions Division to create a new fund to increase the disbursement of loans among such entrepreneurs through MFSs on easy terms.
After finalising an initiative to form a Tk10,000 crore fund, the Financial Institutions Division in November last year sent a proposal to the Finance Division seeking allocation of the money.
The Finance Division returned the proposal, saying it was not possible to allocate this sum from the budget.
Later, a fresh draft policy was formulated following the Bangladesh Bank's consent to setting up a refinancing fund of Tk10,000 crore on its own initiative.
Mrityunjoy Saha, joint secretary of the Financial Institutions Division, told The Business Standard that once the Finance Division gives a positive feedback on the draft policy, the central bank will issue a circular for the creation of the fund.
An additional secretary of the Finance Division, wishing not to be named, on Tuesday told TBS that the division will come up with a decision in this regard soon.
According to the Bangladesh Bank, 91,434 entrepreneurs received loans amounting to Tk14,465 crore from the existing CMSME package till 30 March this year. Businessmen and economists think that a large portion of the borrowers are medium industries.
According to the draft policy for the proposed refinancing fund, scheduled banks will finance MFIs from the Microcredit Regulatory Authority (MRA) under the scheme. In this case, the Bangladesh Bank will not charge any fee from the banks for providing funds nor will the banks demand any charge on MFIs.
The government will pay interest or profit to the Bangladesh Bank at the rate of 0.5% and to the banks at the rate of 1% as subsidy.
From this fund, cottage industries can borrow up to Tk10 lakh, micro enterprises or businesses up to Tk30 lakh and small industries or businesses up to Tk50 lakh.
The two-year term loan will have a grace period of six months. Customers will be able to take a one-time loan in any one category – cottage, micro or small.
At least 60% of the fund will be provided as loans to manufacturing and services sectors and the remaining 40% will go to the trading sector.
In customer selection, priority will be given to women entrepreneurs, backward groups and migrant returnees who have come back home after losing jobs abroad, and local entrepreneurs who have returned from urban centres and industrial and port areas of the country during the Covid-19 pandemic.
Entrepreneurs in the cottage and micro industries will also be able to take group loans.
In this case, the minimum number of members of a group should be five. Selected customers will have to attach their photographs, national identity cards or birth registration certificates, trade licences, if applicable, or certificates from the municipal councillor or union parishad chairman or head teacher of a local government primary school, and two persons as guarantors to get a loan under the package.