Small venture refinance scheme worth Tk25,000cr converted into pre-finance fund

The central bank has converted the Tk25,000 crore refinance scheme for the cottage, micro, small and medium enterprise (CMSME) sector into a pre-finance scheme, according to a circular, as it is expected to boost the credit flow for small businesses.

The central bank formed the Tk25,000 crore refinance scheme in July last year to support small-scale entrepreneurs for the next three years. The fund will now be called as the pre-finance scheme, according to the Bangladesh Bank circular issued on Tuesday.

Generally under a refinance scheme, a bank collects the amount from the central bank after lending to the customer. On the other hand, under the pre-finance scheme, a bank sets a target for loan disbursement and collects it in advance from the central bank. Later that money is distributed among the customers.

That means the conversion will help banks get funding from the central bank as per their needs.

According to the central bank, liquidity in the banking sector has decreased thanks to dollar sales from the reserve. Therefore, the scheme has been converted into a pre-finance scheme for loan disbursement to the CMSME sector.

A senior official of the central bank said that due to the conversion of the scheme, even if there is a liquidity stress in the banking sector, credit disbursement to small ventures will remain uninterrupted. Besides, banks will not require separate liquidity stock to disburse loans to this sector.

According to the circular, advance payments will be made on quarterly basis to banks under the scheme considering the progress of loan disbursement. Banks have to apply to the central bank by 28 February to avail the facility.

Another senior official of the central bank said that banks will inform the central bank of the loans they think they can distribute within the next three months. The central bank then will give that amount to the bank at the beginning of the quarter.

However, the official commented that if a bank fails to distribute loans as per the target with financing under the pre-finance scheme from the central bank, the bank will not be given any more financing.

Banks and financial institutions are getting funds under the scheme at 2% interest and lend CMSMEs at up to 7% rate. Banks can provide up to 40% of their disbursed loans to CMSMEs as working capital.

Some 35% of the total disbursed CMSME sector loans can be given for trading by increasing the amount of lending to the business sector. Also, it can give 65% of the loan for manufacturing and service.