BB eases stimulus for small ventures

The Bangladesh Bank has made it easier for microfinance institutions to receive money from banks under a scheme for low-income professionals, farmers, and marginal or small traders affected by the coronavirus pandemic.

Where Micro-Finance Institutions (MFI) had previously received financing from only one bank (for disbursement of loans) under the scheme, they will now receive financing from three banks.

However, if availing financing from the third bank, MFIs must ensure that loans have been taken within the specific limit. At the same time, information on loans from the first two banks must be submitted to the third bank.

The central bank's Financial Inclusion Department issued a circular in this regard on Monday. 

The interest rate on this loan is 9%. Since it is under the umbrella of the incentive package, the government will pay 4.5% percent interest as subsidy, while the client must pay the remaining 4.5%.

Under the scheme, MFIs use the bank loans to lend to their members, e.g., low-income professionals, farmers, and marginal or small traders.

A client will receive a maximum loan of Tk75,000, while the maximum amount will be Tk3 lakh for a group of five members.

Individual, small entrepreneurs will receive a maximum loan of Tk10 lakh, and for a joint venture of five members, the maximum amount will be Tk30 lakh.

Palli Karma-Sahayak Foundation (PKSF) Chairman, Dr Qazi Kholiquzzaman Ahmad told The Business Standard that the new circular of the central bank will make it easier for non-governmental organisations (NGOs) or MFIs to take money from banks and subsequently lend it to clients. 

But the NGOs have objections to the 9% interest rate on loans, he said.   

The renowned economist said that the Microcredit Regulatory Authority (MRA), a government agency, had itself remarked on the low interest rate, when compared to microfinance expenses.   

The central bank should discuss the matter with the MRA, he said. 

Kholiquzzaman said there was uncertainty surrounding the willingness MFIs to lend under this scheme if the issue of interest is not resolved.

The refinancing scheme 2020 for low-income professionals, farmers, and marginal or small traders was launched on April 20 under the incentive packages announced by the government to shore up the economy.

The total amount of the three-year scheme, sourced from the central bank's own funds, is Tk3,000 crore, with a provision to increase the amount, if necessary.  

In case of individual and group-based microcredit clients, the loan term will be one year from the date of disbursement, with a grace period.

For small (both individual and group-based) entrepreneurs, the loan term will be a maximum of two years, with a grace period.

Borrowers identified as defaulters will not be entitled to any benefits under this scheme.

Also, clients must prove that the loan is being spent on productive activities.