Breather for small borrowers
Bangladesh Bank yesterday cut the interest rate of a refinance scheme for the CMSME sector, which is one of the worst-affected sectors during the coronavirus pandemic, allowing borrowers to get term loans at 6 per cent instead of 9 per cent.
The new rate is the lowest among all lending rates charged by banks for term loans.
Cottage, micro, small and medium enterprises (CMSMEs) can now get more than Tk 1,000 crore at the lower interest rate, a Bangladesh Bank official said.
The central bank took the initiative to strengthen the sector's business capabilities amid the economic hardship caused by the ongoing coronavirus pandemic, according to a central bank notice.
CMSME clients that reside outside of the Dhaka and Chattogram city corporations will be eligible to enjoy the lending facility from the project.
In addition, the manufacturing sector and women entrepreneurs will be given priorities to get funds from the scheme.
Clients are allowed to take working capital or term loans from the refinance scheme. The maximum repayment tenure of a working capital loan is one year while it is more than one year for term loans.
The central bank rolled out the refinance scheme styled, 'Second Small and Medium-Sized Enterprise Development Project', in 2017 with financial support from the government and the Asian Development Bank.
The ADB provided $200 million, and the government chipped in with $40 million to form the project aimed at making the rural economy vibrant.
The project has created a room for loan disbursements to the tune of Tk 2,000 crore.
As many as 21 banks and 12 non-banking financial institutions have signed a participation agreement with the Bangladesh Bank to disburse the fund to clients.
Lenders can manage funds from the central bank at two per cent interest rate. They can disburse the fund at a maximum rate of 6 per cent.
This means they will enjoy four per cent interest by providing funds to clients.
As of this October, the central bank disbursed Tk 1,000 crore to 3,300 clients under the refinance scheme.
Bangladesh Bank will give priority to women entrepreneurs and the manufacturing sector when making disbursements from the fund, said AKM Fazlur Rahman, project director of the refinance scheme.
"This will give a boost to the entire economy as well," added Rahman, also the executive director of the central bank.
Lenders are usually obliged to disburse SME loans at an interest rate of 9 per cent as instructed by the central bank.
The latest rate cut for the refinance scheme will provide breathing space to the rural businesses in their fight against the economic slowdown, another central bank official said.
Under the refinance scheme, clients are permitted to avail a maximum of Tk 3 crore with a maximum repayment tenure of 5 years.
The BB also introduced a Tk 20,000 crore stimulus package for the CMSME sector in April to help small borrowers tackle the Covid-19 fallout.
As per the guidelines of the stimulus package, CMSMEs can take working capital at 9 per cent interest. Of this interest, 4 per cent will be borne by the borrowers and 5 per cent by the government.
As of November, lenders disbursed 35 per cent of the stimulus package.
Clients are permitted to receive 50 per cent of their outstanding loans for previous investments in the manufacturing or service sectors. It is 30 per cent for trading activities.
There is no ceiling for loans availed from the refinance scheme.
"The central bank's initiative will give a big boost to the country's CMSME sector," said Syed Abdul Momen, head of SME at Brac Bank.
"The rural economy will gain a momentum due to this rate cut as well," he added.
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