Small firms to get stimulus funds at 4pc interest

Small traders, entrepreneurs and farmers who had no access to finance from banking channels will now be able to avail loans at 4 per cent interest from a fresh Tk 1,500 crore stimulus package.

The government approved a few new packages involving Tk 2,700 crore on January 17 with an aim to improve the living standards of marginalised people living in rural areas.

The finance ministry has already prepared a policy regarding the fund for small traders and businesses, which has been forwarded to the cabinet for approval.

Earlier, the Palli Karma-Sahayak Foundation (PKSF) had received Tk 500 crore under a stimulus package at 18 per cent interest.

Ministry officials said that the fund will be disbursed to small traders, entrepreneurs and farmers who also lack financing from banks.

The lenders can only take 4 per cent interest from the borrowers under the package, they added.

The lenders will take this interest as a cost of transaction and it cannot be more than 4 per cent, Finance Minister AHM Mustafa Kamal told The Daily Star yesterday.

Only government organisations will get funds from the package free of additional costs.

Micro businesses that cannot take loans from banks since they fail to provide the necessary documents will get funds under this package.

For example, a number of entrepreneurs who run their businesses under the Bangladesh

Small and Cottage Industries Corporation (BSCIC) do not get loans from banks due to lack of necessary documentation.  

Farmers will also get loans from this fund as they cannot get bank loans for the same reason as micro businesses.

Each representative organisation will prepare a list according to the rules to disburse the loans, Kamal said.

It is a good initiative to reach out to those who do not have access to credit support, said Zahid Hussain, former lead economist at the World Bank Dhaka office.

"We hope the institutions, such as the SME Foundation, with demonstrated ability to efficiently reach the unbanked population will get preference over institutions such as the BSCIC, where governance has been challenging," Hussain said.

However, these poor and distressed entrepreneurs will still have to pay 4 per cent interest and many of them are currently not in a position to take on additional debt as business is still dull.

"It is perhaps better than in the first half of 2020 though," he added.

Hussain recalled that the garment industry got emergency financial support at 2 per cent interest and from this perspective, the 4 per cent for micro and cottage entrepreneurs is too high.

He suggested that the entire package could be disbursed as grants for micro and cottage enterprises that are facing existential threats but are fundamentally viable. 

A one shot infusion of grant money would help recapitalise, and thereby keep these enterprises afloat, he said.

PKSF disbursed Tk 250 crore of a Tk 500 crore stimulus package for its beneficiaries.

Of the total disbursement, 77 per cent was loaned to marginalised and small farmers, 16 per cent to the micro industry and the remaining 7 per cent went to the youth and unemployed.  

PKSF provided this loan at 18 per cent interest while its usual loan interest rate is 24 per cent. The loans were refundable within one year but borrowers were allowed to make early settlements within a month at 1.5 per cent interest.

Under the first package of Tk 1,500 crore, the government will give loans to micro and cottage entrepreneurs through various government and semi-government agencies like the SME Foundation, BSCIC and Bangladesh NGO Foundation to infuse dynamism into the rural economy amid the ongoing coronavirus pandemic.

Of the amount, Tk 300 crore will be provided to the SME Foundation for expanding its operations for the cottage industry and SMEs alongside helping female entrepreneurs.

The SME Foundation will disburse loans among small businesses and entrepreneurs hit hard due to the economic downturn caused by the pandemic, ministry officials said.

Besides, the BSCIC will get Tk 100 crore under the package.

The state-run corporation, established to support small initiatives across the country, will provide loans to small entrepreneurs and industrial units set up in the BSCIC estates under its existing credit programmes.

The package also includes financial support for business initiatives by women who suffered due to the economic slowdown.

Joyeeta Foundation, a government initiative to support women's ventures and empower women financially, will get Tk 50 crore. Apart from the loans, the foundation will provide training to women entrepreneurs.

The NGO Foundation will get Tk 50 crore for providing small loans through NGOs.

Besides, the Social Development Foundation, Palli Daridro Bimochon Foundation and Bangladesh Palli Development Board will get Tk 300 crore each while the Small Farmers Development Foundation will get Tk 100 crore.