Banks allowed to loan working capital to CMSME from refinance scheme

Banks will be able to provide loans to cottage, micro, small, and medium enterprises (CMSME) for their working capital from the refinance scheme of Tk25,000 crore.

Earlier, banks could not give loans for this, but now banks can provide up to 40% of their disbursed loans to CMSMEs as working capital.

In a circular issued by the Bangladesh Bank's SME and Special Programs Department on Tuesday, it said due to the current ongoing Russia-Ukraine war and rising global inflation, the entrepreneurs of the CMSME sector in Bangladesh are also facing huge losses.

In order to continue the pace of the country's economy, there is an increasing demand for term loan/investment as well as current capital loan/investment by entrepreneurs , for which the sector was added.

Earlier, banks could give loans for manufacturing, service and trading.

The circular also mentions that the loan shall not be used for the purpose of stocking of goods in any way.

In addition, the circular also said 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.

It is noted that this limit has been increased in the context of massive increase in credit/investment demand in the manufacturing as well as in the trading.

Earlier, it was directed that at least 70% of these loans can be disbursed to the manufacturing and services sector and a maximum of 30% to the business sector.

A senior official of the central bank said as a result of this, businessmen will now be able to invest by taking loans from banks for their working capital, including buying raw materials.

In July this year, the central bank set up a Tk25,000 crore refinance scheme under the title "Refinancing Scheme against Term Loans in CMSME Sector".

It was informed then that this money will be given from Bangladesh Bank's own funds. Besides, it was also mentioned that the three-year period of this fund will be extended if necessary.

Under this scheme, banks and financial institutions can charge a maximum of 7% interest from customers. Besides, they will get 2% interest refinance from the Bangladesh Bank.

The central bank will collect the refinancing amount along with interest from the banks and financial institutions on a quarterly basis. The grace period at customer level will be a maximum of six months. Loan tenure including grace period shall not exceed five years.

Agriculture/food processing and agricultural machinery manufacturing industries, ready-made garments industries, knitwear, design and decoration, ICT, leather and leather goods industries, light engineering and jute and jute industries will get high priority.

Also plastics and other synthetics, tourism, home textiles, renewables, automobile manufacturing and repairing, handlooms, handicrafts and handicrafts, energy saving appliances (LED, CFL Bulbs Manufacturing)/ electronic appliances, construction, electronic material development, jewelery industry, toy, cosmetics and toiletries, furniture industries and mobile/computer/television servicing will be preferred.

Apart from this, women entrepreneurs, entrepreneurs with special needs and entrepreneurs affected by any disaster will also get loans under this scheme on priority basis.

The loans can be disbursed by government banks. However, to give loans to private and foreign banks and financial institutions, their classified loans should be less than 10% and they should have a minimum of three years of business experience.