Entrepreneurship fund moves too slow to live up to expectations 

Illustration: TBS

The Entrepreneurship Support Fund (ESF), a government initiative aimed at creating entrepreneurs through easy loan facilities, has financed only 11 projects in the past five years, that too only partially, amid a lack of interest of the banks citing complex rules and risk as the main hurdles.

In five years, loans from the fund have been disbursed to only 11 projects, of which eight projects received the first tranche and the rest three the second.

The fund provides 49% of the total investment of a project at only 2% interest rate with a tenure of 8 years, of which 4 years falls within the grace period. The entrepreneurs, on their part, are responsible for the remaining 51% including land and equity.

The loan facility being that lucrative, aspiring entrepreneurs have naturally shown high interest in availing the ESF loan to turn their entrepreneurial dreams into reality. In the last five years 4,835 applications poured in seeking loans from this fund.   

After interviewing the applicants 1,568 applications were shortlisted but the lien banks and financial institutions have been rather reluctant in okaying the projects.

In this situation, the Bangladesh Bank wrote a letter to the Financial Institutions Division of the Ministry of Finance last December, asking for a decision on whether to continue the initiative or not.

Meanwhile, the central bank has advised the Investment Corporation of Bangladesh (ICB), which manages the fund on behalf of the Bangladesh Bank as a sub-agent, to keep the overall operation of the ESF fund operational till the ministry sends its decision.

The government believes this fund will play a role in the socio-economic development of the country by creating new entrepreneurs in various sectors including food processing and agriculture-based industries as well as the ICT sector. The initiative, the government hoped, would encourage educated unemployed and working youth to increase investment in these sectors and create employment.

The Entrepreneurship and Equity Fund (EEF), which was set up in 2001 to provide interest-free loans to new entrepreneurs in various sectors was subject to widespread irregularities in the disbursement of loans and after failing to collect the disbursed funds. The limitations of that fund were removed in 2018 and ESF Fund was formed by the central bank.

Some 37 banks and financial institutions are in agreement with the Bangladesh Bank to work as a lien bank and distribute loans from this fund along with project proposal evaluation of applicants. After evaluation of shortlisted projects, lien banks and financial institutions forward the project proposals to ICB, which then grants the loans to the applicants.

In a report sent to the Bangladesh Bank on ESF, the ICB said, out of 1,568 shortlisted projects, only 157 projects in agriculture and ICT sectors have been sent to the ICB after evaluation which is 10.01% of the total shortlisted projects.

Of these 157 projects, the ICB Capital Management Limited, an ICB subsidiary, approved 150 projects. Of the remaining seven projects, Bangladesh Development Bank Limited approved two projects, Bangladesh Krishi Bank one project, NRBC one project, Mercantile Bank one project, Agrani Bank one project and IFIC Bank one project.

Rest of the banks and financial institutions are yet to okay any project that has sought loans from the ESF.

Of the 157 projects cleared so far, 104 projects have been granted Tk203.29 crore. Of the rest, 13 projects were deemed not eligible for the loan as they failed to meet ESF regulations.  Project people of 21 projects ended up not responding to their lien banks' query on fixing CIB data.

Authorities of seven projects have said that they will change the sub-sector and re-apply as the establishment of projects in turkey rearing, turkey hatchery and semi-intensive aquaculture sectors is not considered profitable at present.

On 5 March, a report signed by ICB General Manager (EEF) Taleb Hossain, said, "Of the 104 approved projects, people linked with 93 projects have applied for documentation as per the terms of the approval letter. Entrepreneurs of 18 projects have completed 51% investment and applied for ESF loan disbursement as of last February.

As it stands, Tk13.58 crore from the Tk100 crore fund has been disbursed to only 11 projects. Meanwhile seven projects are awaiting the disbursement of loans.

Highlighting the obstacles in disbursing loans to entrepreneurs from the ESF Fund, ICB said, although a sufficient number of project proposals have been selected and shortlisted, the number of evaluation reports is rather less.

Satisfactory achievement of ESF has not happened as the number of projects that get final clearance are low, they said.

Also citing lack of interest of entrepreneurs, ignorance of various issues, delay in updating land documents, project implementation delay, the ICB said, Bangladesh Bank has agreed to accept project proposals from entrepreneurs as a lien bank of 21 banks and 12 financial institutions to speed up the project evaluation process. The evaluation process of the shortlisted projects has not been expedited despite the issuance of public notices.

When asked about the reasons for the reluctance of banks to disburse loans from the ESF fund, Chairman of ABB, Managing Directors Association of Private Banks and Managing Director of BRAC Bank, Salim RF Hossain told The Business Standard that bankers are showing relatively little interest due to the change in the type and management rules of the fund.

"Because the new system includes the stipulation that if the borrower fails commercially, the bank concerned will have to take its responsibility," he said.

The president of Bangladesh Leasing and Finance Companies Association and Managing Director of IPDC Finance, Mominul Islam told TBS that when there was EEF, the rules and regulations were very simple and Bangladesh Bank took all the risks. Banks and financial institutions acted as intermediaries there.

These rules have been changed in the ESF. Regulations have been tightened. The process is now also complex. And the biggest problem is that the financing that is done now is considered as a loan while the funding under the EEF was considered capital. As a result, as small entrepreneurs are losing interest, banks and financial institutions are also not showing concern.

He said banks and financial institutions and customers are more interested in the refinance scheme of Bangladesh Bank compared to this fund.

"Because these funds are disbursed easily. Interest rates are also low. However, banks and financial institutions do not use their own funds," added Mominul Islam.