Staff Reporter :
The World Bank (WB) is expected to join the government Credit Guarantee Scheme (CGS) from next fiscal year for small local trade and businesses.
As a result, the government will introduce its 14th incentive package for Covid-19 pandemic which will be more than 4,500 crore taka CGS, an official of finance ministry said.
The official said Bangladesh Bank (BB) already introduced CGS of Tk 2,000 core for SMEs but its real function will come into effect from next fiscal with WB amount. Negotiation is going on between WB and the government.
WB is expected to add $300 million or Tk 2,520 crore to the CGS fund making it Tk 4,500 crore, the official said.
It has been alleged that big businesses have received loan from the bank under Prime Minister’s announced incentives
package but SME businesses are not getting working capital loan from Tk 20,000 crore package.
Nurul Islam, owner of a small shoe factory in old Dhaka said the banks are reluctant to provide loan to small businesses from incentives package as they fear those loans may not be returned.
“As result, we have taken loan from NGOs with 25% interest rate,” he continued.
On the matter, Finance Minister AHM Mustafa Kamal on Wednesday said SMEs with bank accounts will get loans from the Prime Minister declared incentives package.
“The government wants cash transfer. We cannot recognise those who do not have bank accounts who do small businesses.”
“Those who are real businessmen and have bank accounts, no matter how small entrepreneurs they are, will get loans. If they apply to any bank for a loan, BB and the finance ministry will help them in ensuring the loan,” he said.
The finance minister said he did not see any more problems disbursing loans from stimulus packages.
“I used to see that a farmer would have to spend 4,000 taka to get a loan of 5,000 taka. That is not happening now,” he said.
BB introduced Credit Guarantee Scheme (CGS) to facilitate financing for Cottage, Micro and Small (CMS) entrepreneurs from next fiscal year under The Central Bank’s SME and Special Programs Department (SMESPD) issued a circular on July 26.
The credit guarantee scheme will act as a third party to alleviate the credit risk of banks or non-bank financial institutions (NBFIs).
In this case, the scheme will bear a portion of the losses arising out of loans disbursed to CMS entrepreneurs. This credit guarantee scheme will be used instead of collateral for CMS entrepreneurs. CMS entrepreneurs have been in collateral-related problems for a long time.
Initially, the scheme is applicable for an incentive package of 20,000 crore taka. Collateral-free working capital loans will be disbursed to assist entrepreneurs in the cottage, micro, small and medium enterprise (CMSME) sector.
A BB circular said most commercial banks have shown reluctance to lend from incentive packages due to the 9 percent interest rate limit on all types of bank loans.
Banks have been reluctant to lend to the CMSME sector, especially due to high operating costs. Under the CGS, a portfolio guarantee cap of up to a maximum of 30 per cent of the prescribed portfolio limit for working capital loans or investments in the CMS sector will be provided to each bank and financial institution.
Under this portfolio guarantee cap, up to 80 percent guarantee coverage will be provided to any single entrepreneur or organization.
Therefore, under the agreement, the banks are to get funds from the credit guarantee scheme if any borrower fails to repay his loan. As a result, banks will now be interested in disbursing working capital loans from incentive packages.
The CMSME will cover 30 per cent of the loan portfolio, 70 per cent for the manufacturing and services sectors and the remaining 30 per cent for the trading sector.
This limitation could hurt the implementation of the credit guarantee scheme. Because a large part of CMSMEs are conducting business in the trading sector.
On the other hand, CMSME Master Circular identified seven high priority sectors, 24 priority sectors and 32 service industries but did not identify the trading sector.
According to BB sources, five banks sanctioned loans worth 200 crore taka in this sector under the Prime Minister announced incentive package. The five banks are Shahjalal, Agrani, Bangladesh Krishi Bank, Mercantile and The City Bank.
Islami Bank will be able to give the most loans to the CMSME sector under the incentive package. The bank will be able to lend 2,065 crore taka.
According to BB, the total amount of loans in the SME sector in the country at present is 2,19,293 crore taka. An entrepreneur can take a SME loan up to a maximum of 75 crore taka.
According to a survey by the Bangladesh Institute of Development Studies (BIDS), there are a total of 13 lakh units in the country’s SME sector.
25 percent of the total domestic production or GDP comes from this sector. Again, 86% of the employment in the industrial sector is in this sector, which is about 1 crore in number.
The sector produces goods worth about Tk 40,000 crore a month and pays around Tk 6,000 crore as salaries for workers. However, only 38 percent of the companies in this sector get bank loans.
The World Bank (WB) is expected to join the government Credit Guarantee Scheme (CGS) from next fiscal year for small local trade and businesses.
As a result, the government will introduce its 14th incentive package for Covid-19 pandemic which will be more than 4,500 crore taka CGS, an official of finance ministry said.
The official said Bangladesh Bank (BB) already introduced CGS of Tk 2,000 core for SMEs but its real function will come into effect from next fiscal with WB amount. Negotiation is going on between WB and the government.
WB is expected to add $300 million or Tk 2,520 crore to the CGS fund making it Tk 4,500 crore, the official said.
It has been alleged that big businesses have received loan from the bank under Prime Minister’s announced incentives
package but SME businesses are not getting working capital loan from Tk 20,000 crore package.
Nurul Islam, owner of a small shoe factory in old Dhaka said the banks are reluctant to provide loan to small businesses from incentives package as they fear those loans may not be returned.
“As result, we have taken loan from NGOs with 25% interest rate,” he continued.
On the matter, Finance Minister AHM Mustafa Kamal on Wednesday said SMEs with bank accounts will get loans from the Prime Minister declared incentives package.
“The government wants cash transfer. We cannot recognise those who do not have bank accounts who do small businesses.”
“Those who are real businessmen and have bank accounts, no matter how small entrepreneurs they are, will get loans. If they apply to any bank for a loan, BB and the finance ministry will help them in ensuring the loan,” he said.
The finance minister said he did not see any more problems disbursing loans from stimulus packages.
“I used to see that a farmer would have to spend 4,000 taka to get a loan of 5,000 taka. That is not happening now,” he said.
BB introduced Credit Guarantee Scheme (CGS) to facilitate financing for Cottage, Micro and Small (CMS) entrepreneurs from next fiscal year under The Central Bank’s SME and Special Programs Department (SMESPD) issued a circular on July 26.
The credit guarantee scheme will act as a third party to alleviate the credit risk of banks or non-bank financial institutions (NBFIs).
In this case, the scheme will bear a portion of the losses arising out of loans disbursed to CMS entrepreneurs. This credit guarantee scheme will be used instead of collateral for CMS entrepreneurs. CMS entrepreneurs have been in collateral-related problems for a long time.
Initially, the scheme is applicable for an incentive package of 20,000 crore taka. Collateral-free working capital loans will be disbursed to assist entrepreneurs in the cottage, micro, small and medium enterprise (CMSME) sector.
A BB circular said most commercial banks have shown reluctance to lend from incentive packages due to the 9 percent interest rate limit on all types of bank loans.
Banks have been reluctant to lend to the CMSME sector, especially due to high operating costs. Under the CGS, a portfolio guarantee cap of up to a maximum of 30 per cent of the prescribed portfolio limit for working capital loans or investments in the CMS sector will be provided to each bank and financial institution.
Under this portfolio guarantee cap, up to 80 percent guarantee coverage will be provided to any single entrepreneur or organization.
Therefore, under the agreement, the banks are to get funds from the credit guarantee scheme if any borrower fails to repay his loan. As a result, banks will now be interested in disbursing working capital loans from incentive packages.
The CMSME will cover 30 per cent of the loan portfolio, 70 per cent for the manufacturing and services sectors and the remaining 30 per cent for the trading sector.
This limitation could hurt the implementation of the credit guarantee scheme. Because a large part of CMSMEs are conducting business in the trading sector.
On the other hand, CMSME Master Circular identified seven high priority sectors, 24 priority sectors and 32 service industries but did not identify the trading sector.
According to BB sources, five banks sanctioned loans worth 200 crore taka in this sector under the Prime Minister announced incentive package. The five banks are Shahjalal, Agrani, Bangladesh Krishi Bank, Mercantile and The City Bank.
Islami Bank will be able to give the most loans to the CMSME sector under the incentive package. The bank will be able to lend 2,065 crore taka.
According to BB, the total amount of loans in the SME sector in the country at present is 2,19,293 crore taka. An entrepreneur can take a SME loan up to a maximum of 75 crore taka.
According to a survey by the Bangladesh Institute of Development Studies (BIDS), there are a total of 13 lakh units in the country’s SME sector.
25 percent of the total domestic production or GDP comes from this sector. Again, 86% of the employment in the industrial sector is in this sector, which is about 1 crore in number.
The sector produces goods worth about Tk 40,000 crore a month and pays around Tk 6,000 crore as salaries for workers. However, only 38 percent of the companies in this sector get bank loans.
