Small businesses to get term

The Bangladesh Bank yesterday said cottage, micro and small enterprises would receive term loans under its refinance scheme funded by the Asian Infrastructure Investment Bank (AIIB). 

The central bank introduced the refinance scheme in June 2021 in order to help the cottage, micro, small and medium enterprises tackle the business slowdown emanating from the coronavirus pandemic.

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The size of the loan of the AIIB was $300 million, equivalent to Tk 3,210 crore.

The central bank initially said that clients would be allowed to receive working capital, whose repayment tenure is a maximum of one year, from the refinance scheme.

But the latest move will allow cottage, micro and small enterprises to take term loans, which must be paid within three years.

The soft loan is being given at a 9 per cent interest rate. Of the interest rate, 4 per cent is being borne by borrowers and the rest by the government.

Commercial banks usually disburse loans to the CMSME sector at a 9 per cent interest rate. This means borrowers will get the loans at a cheaper rate under the refinance scheme.

Under a refinance scheme, banks first disburse loans to clients. Afterwards, they are reimbursed by the central bank's scheme.

Some 19 banks and seven non-bank financial institutions have signed agreements with the central bank to take funds from the refinance scheme.

The central bank, in its circular yesterday, said that more banks would be allowed to sign the participation agreements.

Lenders will have to meet conditions to qualify.

The lenders that were profitable at least in the last two years will be eligible. The lenders whose default loans are more than 10 per cent can't apply.

A BB official says that a majority of banks and NBFIs in Bangladesh have been facing an acute liquidity crisis for months. As a result, their capacity to give out loans has shrunk.

"So, the refinance scheme will help banks and NBFIs disburse funds to borrowers smoothly," he said.

The government signed the loan agreement with the AIIB on February 26, 2021.

The multilateral lender will disburse the fund at a 2 per cent interest rate. The repayment period is five years.