SME Foundation extends low-cost funds to small and medium entrepreneurs

Infographics: TBS

The SME Foundation plans to offer low-cost funds at 6% interest – much lower than the current bank rate of over 13% – to small and medium enterprises facing multifaceted challenges in accessing loans to expand their businesses.

For the revival of SMEs, which were the worst affected by Covid, the state-run institution will provide Tk450 crore from a revolving fund created under a government stimulus package and its own sources to help navigate the challenges of the pandemic.

Under the plan, small and medium entrepreneurs can receive a minimum loan of Tk1 lakh and a maximum of Tk25 lakh. However, for the purchase of capital machinery, entrepreneurs can receive a maximum loan of Tk50 lakh.

Loans of up to Tk10 lakh will be disbursed without collateral.

The loans will be distributed through 19 private and state-owned banks and four non-bank financial institutions. The loan repayment period is fixed at 48 months, including a six-month grace period.

To this end, the foundation signed agreements with 23 banks and financial institutions on Tuesday at a hotel in the capital.

Salahuddin Mahmud, managing director (additional charge) of the SME Foundation, and the CEOs of 19 partner banks and four financial institutions signed the agreements.

Professor Md Masudur Rahman, chairman of the Small and Medium Enterprise Foundation, presided over the agreement signing ceremony, while Senior Industries Secretary Zakia Sultana, and Financial Institutions Division Secretary Md Abdur Rahman Khan were present on the occasion.

Nazim Hasan Sattar, general manager of the SME Foundation, provided a detailed overview of the loan distribution policy.

30% loans allotted for women, 70% for men

The foundation will monitor the loan disbursement and collection activities carried out by banks and financial institutions. It will also verify that the loans are disbursed according to the agreements and to the appropriate entrepreneurs by conducting site visits through its own procedures and personnel.

Small and medium female entrepreneurs can access 30% of the total loan fund, while their male counterparts will receive 70%. Additionally, 10% of the loans from these two categories (male and female entrepreneurs) have been allocated to SME Foundation cluster entrepreneurs.

Of the loans distributed to women entrepreneurs, 50% will go to industries in the manufacturing and service sectors, while the remaining 50% will be allocated to industries in the value chain and other sectors.

For male entrepreneurs, 50% of the total loan amount will be distributed to the manufacturing sector, 25% to the service sector, and 25% to the value chain and other sectors.

The foundation will not disburse any loans to non-productive sectors such as grocery stores, drug dealers, hardware dealers, or any businesses that cause environmental pollution.

Eligibility for availing of loan

The foundation will prioritise lending to several key SME sub-sectors, cluster entrepreneurs, and value chain participants. This includes entrepreneurs engaged in manufacturing exportable goods, producing import substitutes, and those involved in ICT and technology-based creative industries who have not yet secured loans from banks.

Additionally, loans will be extended to entrepreneurs operating in underdeveloped and tribal regions, as well as to physically challenged individuals and third-gender entrepreneurs.

Recommendations from upazila and district administrations, trade bodies, associations, women's entrepreneurship organisations, and national bodies like the National Association of Small and Cottage Industries will also guide loan allocations.

Designated banks and financial institutions 

Sonali Bank, Bangladesh Agricultural Bank, Rajshahi Krishi Unnayan Bank, Karmasangsthan Bank, BRAC Bank, Bank Asia, Dhaka Bank, Eastern Bank, Mutual Trust Bank, NRB Commercial Bank, Mercantile Bank, Prime Bank, Premier Bank, City Bank, Southeast Bank, Shahjalal Islami Bank, Bengal Commercial Bank, United Commercial Bank, Trust Bank, IDLC Finance, IPDC Finance, LankaBangla Finance, and United Finance were involved in the distribution of loans.

Previously, the SME Foundation disbursed Tk300 crore in loans to small and medium entrepreneurs as part of the government's incentive package to mitigate the adverse effects of the coronavirus pandemic.

A total of 3,108 entrepreneurs benefited from this initiative. Among them, 26.29% were female entrepreneurs, while 73.71% were male entrepreneurs.

Of the loan, 38% was allocated to the manufacturing sector, 17% to the service sector, and 45% to entrepreneurs in the business sector.

Furthermore, from 2009 to 2020, approximately Tk122 crore was distributed to 2,186 small and medium entrepreneurs through 10 banks and financial institutions under the credit wholesale programme. Of these loans, 25% were granted to women and 75% to men.