The government has planned to create a Tk 10,000 crore fund for micro, small, and cottage industries and microfinance institutions to power them to fight back the Covid-19 pandemic.
The government has taken an initiative earlier this year to provide low-interest loans to small traders affected by the pandemic.
It is likely that the fund would be distributed through the micro lenders (MFIs) or non-governmental organizations (NGOs) at only 4% interest.
As the idea of creation of the fund was ping-ponged by various government agencies, it was decided last month to create this fund with Bangladesh Bank money.
According to a source at the finance ministry, small entrepreneurs will get loans ranging from Tk 10 to 50 lakh under the package.
The Principle Secretary to the Prime Minister, Ahmad Kaikaus, on March 15 chaired a meeting that decided to announce the package as soon accessory policies are ready.
Meanwhile, Bangladesh Bank has sent a draft policy to this end to the Financial Institutions Division of the Ministry of Finance. Mrityunjay Saha, joint secretary of the FID told The NewsTimes that they had finalized the draft policy of Bangladesh Bank and sent it to the senior secretary of the finance department on March 31. Bangladesh Bank will issue this incentive package in the form of notification as soon as the Finance Division approves it.
According to the draft policy, cottage, micro and small (CMS) industries have been playing an important role in creating entrepreneurship, generation of jobs, rapid poverty alleviation and growth of economic activities at the marginal level. In addition, microfinance institutions or NGOs are providing various social services, including financing, to the underprivileged people in remote areas of the country, which is important in increasing financial inclusion and empowering of the women folks.
The policy said the prevalence of Novel Coronavirus (Cavid-19) has created an enhanced demand for financing of cottage, micro and small industry entrepreneurs and fund for microfinance customers in the rural areas. In such a context, a revolving refinancing scheme of Tk 10,000 crore has been formulated from Bangladesh Bank own funds to provide necessary financing to the entrepreneurs of cottage, micro and small scale industries via various financial and Micro Credit Institutions.
All banks and financial institutions operating in Bangladesh will receive refinancing benefits from this package of Tk 10,000 crore. However, banks or financial institutions with non-performing loans of more than 10 per cent, other than state-owned banks, will not be considered eligible for distributing this fund among the beneficiaries.
Funds received by banks and financial institutions will be distributed by NGOs. However, in this case, the NGOs that are certified by the microfinance regulatory body will provide loans to entrepreneurs in the cottage, micro and micro industries. Therefore, scheduled banks and financial institutions will have to enter into a participatory agreement with the Financial Inclusion Department of Bangladesh Bank to finance the NGOs.
The draft policy says NGOs will provide loans to customers at a maximum annual interest rate of 6 percent. The customer will pay 4 percent. The remaining 2 percent will be subsidized by the government. Banks or financial institutions will not be able to charge any interest or service charges in return for financing the NGOs. However, the government will subsidize them at the rate of 1%interest. Bangladesh Bank will not charge any interest or service charge against refinancing to the banks or financial institutions. In this case, the government will also pay zero point five percent interest (subsidy) to the Bangladesh Bank.
Under this incentive package, the terms of loan eligibilities will be determined by the types of businesses and turnovers of the customers. However, at the customer level, the maximum repayment period will be two years with a grace period of six months. At the consumer level, the maximum loan amount will be Tk10 lakh for cottage industries, Tk30 lakh for micro industries and Tk50 lakh for small scale industries or businesses. A customer will get loan facility only in one of these three categories. Group-based businesses will also be able to take loans from this package. In case of group based financing, the number of members of the group will be minimum five.
At the customer level, 40 per cent of the package should be distributed in the trading sector and 60 per cent in the manufacturing and services sectors. Microfinance institutions will not be able to charge any other charges against the loan from the selected customers except the cost of application fee, pass book, loan form and non-judicial stamp undertaking.
According to the draft, microfinance institutions or NGOs will be able to borrow up to a maximum of 10 per cent of their existing loan or investment status from banks or financial institutions on the basis of a financial capacity certificate issued by a microfinance regulator.
Meanwhile, the government had announced loans, cash and food aid worth Tk 1,24,053crore through 23 packages last year to revive the economy.
