278 small borrowers apply for unsecured loans under CGS

Bangladesh Bank launched Tk 2,000 crore CGS on July 27 to support CMSEs affected by pandemic

Some 278 small enterprises, micro and small enterprises (CMSE) mired in financial difficulties due to the ongoing pandemic have asked the central bank through 25 banks and NBFIs to obtain unsecured loans under the credit guarantee system (CGS).

The Bangladesh Bank launched the Tk 2,000 crore CGS on July 27 to support CMSEs affected by the pandemic.

Thanks to this mechanism, CMSEs that do not have adequate guarantees could obtain bank loans.

The program will cover loans disbursed under the 20,000 Tk aid plan for the sector.

The applications are currently under review, said a senior central bank official working on the project.

As of February 3, 19 banks and six NBFIs, including Sonali, Janata, Rupali, Agrani, Exim, Mutual Trust, Prime, National, Islami and IDLC have signed participation agreements with the central bank to provide loans under the program. , according to the latest data from the BB.

Another 20-30 banks and NBFI will sign participation agreements with BB by this month.

One of these pending lenders is City Bank.

“We have not signed the participation agreement because it is not yet fully functional,” said Kamrul Mehedi, head of SME loans at the bank.

So far, the central bank has sought advice from banks on the full deployment of the device.

First, the BB allowed banks to provide the facility only for financing the working capital of the CMSE sector. Then, on February 1, the central bank authorized the banks to increase the facility for term loans to the sector.

Guarantees against small business loans ranging from Tk 2 lakh to Tk 50 lakh would be covered by the program.

Lenders would get up to 80 percent of the loan principal from the central bank program if the borrower does not repay.

For the first year, the charge will be 1% for banks on loans that would be guaranteed by the central bank.

Banks with up to 5 percent of loans in default will be charged 0.5 percent of outstanding loans after the first year, while the rate will be 0.75 percent for banks with debt ratios. Defaulted loans are between 5 and 10 percent.

Banks with more than 10 percent loans in default will not have access to the credit guarantee system.

State banks are exempt from the conditions attached to default loans.

The disbursement of the stimulus plan to the CMSME sector is still lackluster despite the central bank’s decision to stimulate the sector hard hit by the pandemic.

As of December last year, banks had disbursed Tk 10,825.28 crore or 54% to the CMSME sector from the Tk 20,000 crore stimulus fund, according to central bank data.

The BB extended the deadline for executing stimulus funds to March of this year due to slow disbursements.

The 9 percent loan limit is the main reason for the sector’s slow disbursement, said Ahsan H Mansur, chairman of BRAC Bank, whose main focus is the SME sector.

“Where the loan interest rate can reach 25% in microfinance, it is only 9% in the case of banks, which is not profitable for banks. ”

The cost of running a bank, especially for disbursing loans to SMEs, is much higher, he said, adding that lenders don’t want to take the risk of lending at the 9% rate.

He welcomed the initiative of the central bank and called for the CGS for CMSMEs to be fully deployed as soon as possible.

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