Allotment for traders under CMSME package increasing by 10%

Traders will be given 10% more loans from the Tk20,000-crore stimulus package announced by the government for entrepreneurs of small and medium-sized enterprises.

The central bank has decided to distribute 30% of the package among traders as their demand for loans is higher while the distribution in the manufacturing and services sectors is not at the desired level. Previously, this rate was 20%.

Economists, however, have opposed the government's move, saying poor cottage and micro-industry entrepreneurs are the worst affected by the Covid-19 pandemic and they need the credit support more than traders do.

The Bangladesh Bank sent a letter to the finance ministry on Sunday for consent to the proposal. After the ministry approval, the central bank will soon issue a circular in this regard. The implementation period may be extended once again.

The letter, signed by Husne Ara Shikha, general manager of the Bangladesh Bank's SME and Special Programmes Department, said Covid-19-affected entrepreneurs and various business organisations in the trading sector requested the ceiling be increased.

Meanwhile, only 29.41% of the Tk20,000-crore package has been disbursed till 30 September this year, according to the central bank's data.

The term for loan distribution may be extended yet again as bankers reckon it will not be possible for them to disburse the whole package even within the initially extended period of 31 October, said a joint secretary of the Financial Institutions Division.

The Bangladesh Bank issued a circular in April this year, announcing low-cost working capital for the cottage, micro, small and medium enterprises (CMSMEs), to revive the economy by coping with the losses caused by the pandemic.

The circular mentioned the central bank's stipulation that 50% of the stimulus package be provided to the manufacturing sector, 30% to services and 20% to trading. The package would be lent at a 9% interest rate of which the government would subsidise 5% and the borrowers the rest.

The Bangladesh Bank on Sunday sent the letter to Md Ashadul Islam, senior secretary of the Financial Institutions Division, seeking his consent to increase the credit limit for the trading sector in the CMSME package.

Earlier, the secretary himself verbally instructed the central bank, at a meeting on 8 October with the Bangladesh Bank governor and top executives of state-owned banks, to rationally increase the ceiling for the sector and issue a circular.

When asked about it, Bangladesh Bank Executive Director and Spokesperson Sirajul Islam told The Business Standard that the finance ministry and the central bank are taking various steps to implement the CMSME package rapidly.

"It would not be appropriate to comment before issuing a circular on extending the credit limit in the trading sector or the deadline for implementation of the package," he said.

In the circular issued on 13 April this year, the Bangladesh Bank announced 30 August as the deadline to complete the disbursement of the stimulus package for CMSMEs. Later, the deadline was extended to 31 October as the loan disbursement situation was not satisfactory.

A joint secretary of the Financial Institutions Division told The Business Standard that attempts to disburse loans through microfinance organisations were unsuccessful.

This is because banks were not willing to finance non-governmental organisations (NGOs) at low interest while NGOs would not have been able to distribute the costly loans at a 9% interest rate, he explained.

Opposing the government's proposal for extra funding for trading, Saima Haque Bidisha, a professor of Economics at the Dhaka University, told The Business Standard that the medium-sized industries and traders have already received a large portion of the loans from the package because their capacity is high.

"Instead of raising the credit limit for traders, it is more important to find effective alternative means to reach out to the cottage and micro-industry entrepreneurs with the loan. Because they need it the most."