A fillip for small businesses

Banks and non-bank financial institutions can receive 100 per cent liquidity support to lend to cottage, micro, small and medium enterprises under a project funded by the Asian Infrastructure Investment Bank (AIIB).

In April last year, the central bank rolled out a stimulus package of Tk 20,000 crore for the CMSME sector, which has been affected by the coronavirus pandemic.

Of the sum, the central bank has provided Tk 10,000 crore so that banks and non-banks do not face any liquidity crisis while lending to the sector during the business slowdown.

Banks get the fund against their disbursed loan in the form of a refinancing scheme.

Now, because of the AIIB's $300 million, or Tk 2,520 crore, soft loans, the lenders will get full liquidity support instead of the existing 50 per cent.

A new initiative for the CMSME sector -- the Emergency and Crisis Response Facility Project -- will support the credit expansion and reduce the liquidity constraints of CMSMEs, according to a central bank notice yesterday.

Under the support, half of the amount will come from the central bank's package and the rest from the AIIB's fund.

The loan from the stimulus package is being given at a 9 per cent interest rate. Of the interest rate, 4 per cent is being borne by the borrowers and 5 per cent by the government.

The interest rate remains unchanged under the project.

Some 94,445 CMSMEs received loans amounting to Tk 14,840 crore from the stimulus fund as of June 10, data from the central bank showed.

A central banker said banks were not using the refinance scheme much as they were sitting on cash.

Banks and NBFIs have so far used about 30 per cent of the Tk 10,000-crore refinance scheme. But, the demand for the fund will go up once the economy starts to pick up.

The refinance facility under the project will be given on a "first come, first served" basis. This means lenders that apply first would enjoy the support first.

Banks and NBFIs will have to apply to the central bank by July 15 for the fund, and have to sign a participation agreement.

Lenders will have to meet conditions to qualify for the fund.

The lenders that were profitable at least in the last two years will be eligible. The lenders whose default loans are more than 10 per cent can't apply.

The government will take $100 million from the AIIB initially. The rest of the fund will be secured in phases depending on the liquidity situation in the banking sector, the central banker said.

The government signed the loan agreement with the AIIB on February 26.

The multilateral lender will disburse the fund at a 2 per cent interest rate. The repayment tenure is five years.

Despite being the hardest hit, most CMSMEs have not received loans during the pandemic.