BB cuts credit risk for banks to speed up stimulus fund disbursement

Microfinance institutions will take loans from three banks to ensure that the government's Tk 3,000 crore stimulus package smoothly reaches marginal businesses farmers and low-income professionals.

The Bangladesh Bank, however, has not increased the loan ceiling for microfinance institutions (MFIs) from the stimulus package, according to a notice issued by the banking regulator yesterday.

The initiative will help banks reduce the risks in the implementation of the packages, said a central bank official.

On April 20, the central bank unveiled the fund in the form of a refinance scheme for low-income professionals, marginal farmers and micro-enterprises to keep them afloat.

As per the rule, the central bank had said a bank could lend up to Tk 150 crore or 30 per cent of its last three years' average loan to an MFI, or whichever was lower.

If a bank channels the whole fund to a single MFI, the lender's loan may enter into a risky zone, said the central bank official.

Three banks, instead of one as per previous rules, will now be allowed to give out the loans to an MFI, meaning that the three will share the credit risk.

Under the package, the BB will initially provide the fund to banks at 1 per cent interest, which they will lend to the MFIs at 3.5 per cent interest.

The MFIs will be allowed to charge borrowers a maximum of 9 per cent as interest.

Small businesses like roadside tea stalls can get this loan, the highest amount of which would be Tk 75,000, given that each shop is owned by a single person.

If a small business is owned by more than five persons, the loan ceiling would go up to Tk 3 lakh.

The loan must be paid back within a year.

MFIs are allowed to disburse loans ranging from Tk 10 lakh to Tk 30 lakh to microenterprises and their repayment duration would be two years.

The duration of the revolving scheme is three years and the volume of the fund will be widened if required, said the BB notice in April.

But the stimulus package has yet to gain the expected momentum as some banks have not taken the initiatives required to give out loans to underprivileged groups.

As much as 42 lenders, which have signed participation agreements with the central bank to implement the package, have so far disbursed 23.41 per cent of the Tk 3,000 crore loan.

The central bank earlier set a roadmap to disburse the fund within December this year.

Yesterday, it issued show-cause notices on two banks for failing to disburse anything from the package, said the central bank official.