SMEs to get Tk 398cr from Islamic Development Bank

The Islamic Development Bank (IsDB) will finance Tk 398 crore for the country's cottage, micro, small and medium enterprises (CMSMEs) with a view to propping up the businesses hit hard by the pandemic.

All Islamic banks, non-bank financial institutions (NBFIs) and shariah-based windows of conventional lenders will get the fund through Bangladesh Bank.

The government signed an agreement with the IsDB, a multilateral development bank headquartered in Jeddah, in June last year to manage the fund in order to bolster the country's CMSME sector.

The project will contribute to the economic stimulus packages launched by the government for combating the Covid-19 crisis, according to a central bank notice.

As per the agreement signed between IsDB and the government, Bangladesh Bank is designated as the "executing agency" of the project.

The IsDB will provide the entire fund of $47 million, which is equivalent to Tk 398 crore ($1 = Tk 84.80 on June 24 last year).

Lenders will take the fund from the project at a maximum profit rate of 4 per cent while the highest rate for end users will not surpass 7.18 per cent.

Banks and NBFIs will have to submit the list of qualified borrowers to the IsDB through the central bank, after which the funds will be released to them.

This means the fund disbursement will be carried out like a pre-finance scheme, a model that is followed by conventional banks.

Entrepreneurs of the CMSME sector will get working capital and mid to long-term loans from the fund.

The repayment tenure for working capital will be a maximum of one year while the tenure will be three years for mid-term loans and five years for long-term loans.

Entrepreneurs who are qualified for mid to long-term loans will be allowed to enjoy a six-month grace period before starting to pay instalments.

Entrepreneurs will have to pay instalments either in a quarterly or half-yearly basis for mid and long-term loans.

All three sectors of the CMSME sector -- manufacturing, service and trading -- will be considered to get funds from the scheme.

Entrepreneurs having cottage industries will be able to take below Tk 10 lakh from the scheme. An industry is considered as a cottage one when its number of employees is not above 15.

Medium enterprises can avail funds of between Tk 2 crore and Tk 3 crore from the project. The number of employees of a medium enterprise is set between 51 and 200.

Fixed assets, equipment machinery, raw materials and other tangible assets will have to be purchased with the fund.

Interested lenders will have to sign a participation agreement with the central bank within the next three months to disburse the fund to businesses.

The financing facility will be provided to lenders on a "first come, first served" basis.

The lenders, whose non-performing loans are more than 10 per cent, cannot participate in the project.

They also have to maintain the minimum capital requirement, cash reserve ratio and statutory liquidity ratio as stipulated by Bangladesh Bank.

Lenders which remained profitable for the last two years will be permitted to join the project.

A central bank official said that the project would give a boost to the country's CMSME sector as the businesses will get funds at a lower cost than the existing lending rate of 9 per cent.