Young start-ups to get collateral-free loans at low interest

New entrepreneurs can take up to Tk 10 lakh as collateral-free loans at maximum 10 percent interest rate under a new initiative by the central bank.

The opportunity for young entrepreneurs came yesterday after Bangladesh Bank signed a deal at its office in the city with 32 banks and financial institutions to disburse money from its Tk 100 crore refinancing fund.

The fund will be used to lend up to Tk 10 lakh against only personal guarantee and on easy terms to entrepreneurs trained and selected through programmes launched by public or private organisations like Dhaka Chamber of Commerce and Industry (DCCI).

However, with collateral an entrepreneur can avail up to Tk 25 lakh as loan from banks under the fund.

The fund will extend loans to entrepreneurs who have not taken any loan from a financial institution in the past.

Under the deal, banks and other financial institutions will get refinancing loans from the central bank at an interest rate of 5 percent.

However, the banks and financial institutions must have their default loans below 10 percent to be eligible for the refinancing facility.

“Under the current banking system, adequate collateral is an important part of availing financing. But the lack of adequate collateral poses challenges to the entrepreneurs at the beginning of business," Bangladesh Bank Governor Atiur Rahman said at the event.

Rahman said every year about 20 lakh new faces enter the workforce, with only half of them finding jobs at home and abroad.

“The initiative from the central bank has been taken as part of the policy efforts to create additional employment opportunities."

Rahman said banks cannot limit themselves to signing the participatory agreement only; they will have to be active in finding out new entrepreneurs.

"Bankers have to lose sleep over realising money from large borrowers. But that is not normally seen in case of small entrepreneurs. So, I hope banks will be interested to invest in this segment of clientele even if the profit margin is a bit low."

The governor also praised DCCI whose initiative to create 2,000 new entrepreneurs has acted as a catalyst behind the central bank initiative.

He said more initiatives would be taken if this one succeeds.

Abul Kashem, a deputy governor of Bangladesh Bank, said DCCI would make a list of small entrepreneurs after providing them training.

"Banks and other financial institutions will lend as per the list. However, the lenders will still follow their due diligence in lending money to the entrepreneurs."

Ali Reza Iftekhar, chairman of the Association of Bankers, Bangladesh; Helal Ahmed Chowdhury, vice chairman of ABBD; Selim RF Hussain, vice chairman of Bangladesh Leasing and Finance Companies Association; and Shahjahan Khan, president of DCCI, were also present.