Lenders are failing to implement the second phase of the stimulus package for the CMSME sector as clients struggle to repay the loans secured under the first round.

The majority of clients in the cottage, micro, small and medium enterprises (CMSME) sector have recently asked lenders to renew loans as their businesses are still struggling to recover and return to pre-pandemic levels even though the crisis has waned, bankers and businesspeople say.

In April last year, Bangladesh Bank unveiled a stimulus package worth Tk 20,000 crore for the CMSME sector to protect it from the impacts of the coronavirus pandemic. Of the sum, 77 per cent was disbursed.

As per rules, the funds, which are given in the form of working capital, have to be paid back within a year from the disbursement date.

The tenure of the first round of the stimulus loans expired in June. The central bank has allocated another Tk 20,000 crore for the current fiscal year as the economy is yet to return to normalcy from the slowdown. The stimulus programme will continue for three years.

Sixty-three banks and non-bank financial institutions signed a participation agreement with the central bank to give the loans.

They lent out only Tk 1,555 crore between July 1 and October 23 under the second round.

Fifty-nine lenders have failed to hit at least 25 per cent of their disbursement target in the first quarter of the current fiscal year.

Twenty-five lenders disbursed less than 5 per cent of their target, according to data from the BB.

The dismal lending performance prompted a majority of lenders to inform the central bank at a meeting in the first week of October that it was difficult for them to disburse the new loans as many clients are not paying back their previous loans.

On October 20, the central bank ordered the lenders to lift the disbursement rate to at least 50 per cent by December.

Md Al Amin, focal person of the CMSME stimulus package at United Commercial Bank, said the sector had missed several businesses opportunities during cultural and religious festivals in recent months due to the restrictions on movement.

"So, they have failed to make their businesses vibrant. Most of the clients are requesting banks to renew loans to avoid falling into the default zone," he said.

The loans are provided at a 9 per cent interest rate. Of the cost of the fund, 4 per cent are borne by the borrowers and 5 per cent by the government.

Clients do not qualify for the interest subsidy facility after the renewal of loans.

"Given the existing situation, it is challenging for lenders to disburse the loans efficiently as finding new and capable clients is a difficult task," Amin said.

Emranul Huq, managing director of Dhaka Bank, said that a good number of clients had recently informed the bank that they were now in a difficult condition in ensuring the desired return from their businesses.

"Dhaka Bank now disburses new loans to the clients if they repay the previous loans. Some clients are repaying the old loans to manage a new one."

Because of the higher non-repayment, non-performing loans (NPLs) in the SME sector may increase a bit in the coming months. The ratio of bad loans in the CMSME sector is already higher than in other areas.

CMSMEs are the worst-affected sector due to the coronavirus pandemic.

The higher NPL of the stimulus loans would put lenders in a difficult situation because the central bank deducts the money from the current accounts of the lenders maintained with the BB if clients fail to pay back.

The stimulus fund is operated as a refinance scheme. Under the package, banks initially disburse loans among borrowers, and the BB reimburses the lenders.

"Both banks and businesses are afraid of the pandemic as the infection has started to rise in some countries. And the vaccination programme in Bangladesh has not completed to a large extent," said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.

"Both parties are closely observing the situation."

The loan recovery from the stimulus package is not satisfactory, but it is logical considering the current situation, said Rahman.

The maximum repayment tenure of the loan is one year, but the scars of the pandemic have run so deep that CMSMEs are struggling to pay back.

So, Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, thinks that it is not possible for borrowers to repay the loans within the stipulated time.

He called for an extension of the repayment period to two to three years and the continuation of the interest subsidy.