The Bangladesh Institute of Bank Management (BIBM) yesterday proposed the government launch a Tk 200 crore credit guarantee scheme to encourage banks to lend more to small and medium enterprises.
The BIBM came up with the idea after studying such schemes in different countries. There are over 2,000 such schemes in over 100 countries around the world aimed at giving a boost to the SME sector, it said.
Md Mosharref Hossain, an assistant professor of the BIBM, disclosed this at a roundtable on “Credit guarantee scheme for promoting access to finance for SMEs” at the institute in Dhaka.
SM Moniruzzaman, deputy governor of Bangladesh Bank, also supported the idea.
Credit guarantee schemes will help banks share the risk of loan default for a specific type or market of customers and help enterprises get loans, said Moniruzzaman.
“It is a harsh reality that SMEs face innumerable difficulties in getting finance from formal sources,” he said.
He said most of the financial institutions show little interest in offering credit due to a perception of high risk and lack of sufficient collateral. The credit guarantee scheme will minimise the risks for financial institutions, he said.
He assured that central bank would think about the proposed scheme model.
SMEs in Bangladesh have to pay 14-18 percent as interest, which is much higher than the 10-12 percent interest for other businesses. According to the proposed model, the guarantee will cover 50 percent of the total loan. The loan limit will be Tk 3 lakh to Tk 20 lakh.
In turn, the lender will pay a guarantee fee to the government, which can range from 1.5 percent-2.5 percent of the loan amount based on the risk and maturity of a borrower. The guarantee period will be for three to five years. The guarantee fee has to be paid within 30 days of the first disbursement and special attention would have to be paid to ensure that the lender does not pass on this cost to the borrower.
Borrowers will get loans depending on their credit worthiness and payment behaviour. The rate of interest will not exceed 5 percent of the bank rate at that time.
The government should first formulate a credit guarantee scheme independently or jointly with a significant guarantee fund, according to the proposed model.