Cenbank relaxes loan classification, provisioning rules for CMSMEs

The Bangladesh Bank has relaxed the rules of loan classification and provisioning for the Cottage, Micro, Small and Medium Enterprises (CMSME) sector to create more employment opportunities through increasing investment.

According to a master circular issued by the central bank today (4 December), if any CMSME loan of a financial institution is classified as sub-standard, a 5% provisioning must be made. If it is classified as doubtful, a 20% provisioning will be required. Similarly, for loans classified as bad or loss, a 50% provisioning must be made.

For non-CMSME loans, financial institutions must maintain provisioning at existing rates — 20% for sub-standard loans, 50% for doubtful loans, and 100% for loans classified as bad or loss.

Additionally, for loans classified as "Special Mention Account," a 5% provisioning must be maintained on the outstanding balance after deducting suspended interest from the overdue amount. However, for CMSME loans, the provisioning rate will be 0.25%.

The Bangladesh Bank in the circular said the provisioning rates for loans provided in the CMSME sector have been revised to encourage investment in this sector and to boost loans and investments. 

The initiative aims to increase employment opportunities through enhanced financial support from finance companies, the central bank said.