Interest rate cut on loans from CMSME refinancing fund

The Bangladesh Bank has reduced the interest rate on loans disbursed from the refinancing fund set up to support cottage, micro, small and medium enterprises (CMSMEs) increase the flow of term loans and working capital.

Based on the new decision, the interest rate on loans disbursed at the individual level will be a maximum of 6%.

Previously, the interest rate was the same as the existing interest rate on the market; 10% was the maximum rate for women entrepreneurs.

Banks and financial institutions disbursing loans from the fund will pay 2% interest to the central bank. Previously, the rate was 4%.

In a circular on Monday, the central bank said the facility had been provided to help industrial entrepreneurs in this sector overcome losses caused by the Covid-19 pandemic and retain jobs.

It said the new rate came into effect on 18 November.

The Asian Development Bank (ADB) and the government set up a refinancing fund worth $24 crore in 2017 to support the CMSME sector.

It was decided that the CMSME sector located outside the Dhaka and Chattogram metropolitan areas would be given support through the fund.

In November 2017, the refinancing fund policy stated that loans up to a maximum of 90% of the project cost could be given to eligible projects or businesses.

Under the fund, loan facilities of up to a maximum of Tk1 crore can be given to CMSMEs, and up to a maximum of Tk3 crore to medium-sized industries.

The term of this loan will be two to five years and 30% of the disbursed loan must be used as working capital.

Two-thirds of the loans from the fund must be disbursed for cottage, micro and small industries while 15% of the loans should be allocated for women entrepreneurs.

As the fund is formed with assistance from the ADB, the key condition for obtaining a loan from the fund is that the project or business not harm the environment and that it include measures for ensuring social security.