Just 274 avail credit guarantee facility in nearly a year

Highlights:

• Bangladesh Bank set up a Tk2,000 crore credit guarantee scheme in July 2020
• Its aim was to ensure collateral-free loan facility for badly hit small businesses
• Only Tk29 crore has been issued to 3 banks and 3 non-bank financial institutions against 274 applications
• Bankers say they lack skills and capacity to lend and manage small loans
• Also, banks do not have the network to reach out to small entrepreneurs

Small entrepreneurs affected by the pandemic are not aware of a credit guarantee scheme even nearly one year after the facility was introduced for businesses unable to provide collateral against loans under the stimulus package.

In July last year, the Bangladesh Bank set up the Tk2,000 crore scheme to ensure the loan facility for the badly hit small businesses.

The credit guarantee scheme unit set up to manage the fund has so far issued Tk29 crore in favour of three banks and three non-bank financial institutions against just 274 applications.

The unit has no application pending approval.

Asked about the reasons behind such a low interest in the scheme despite the guarantee scheme, Arfan Ali, managing director of Bank Asia, told The Business Standard that banks lacked the skills and capacity to lend and manage small loans.

"Besides, banks do not have the kind of network to reach out to small entrepreneurs. Again, the risk is higher. For these reasons, banks are not showing much interest in this scheme," he added.

Nazim Hasan Sattar, general manager of SME Foundation, an organisation working with small and medium entrepreneurs, believes banks need to come forward to make the scheme popular.

The central bank will have to play a big role in this case, he added.

Mentioning that the SME Foundation has spoken to its partner banks about the credit guarantee scheme facility, he said it is up to the banks to decide whether to avail this facility or not.

According to sources in the CGS unit, this type of guarantee scheme has been running for many years in different countries of the world but it is new in Bangladesh.

Small entrepreneurs do not know about the scheme as there is no publicity due to Covid-19, they added.

On the other hand, bankers were supposed to be trained on fund management but it was not possible due to the pandemic. As a result, a small amount of money has been issued as a guarantee from the scheme.

The central bank believes that the amount of guarantee is not less considering the entrepreneur selection, interest of banks, and the obstacles of Covid-19.

Sirajul Islam, a spokesman and executive director of the central bank, told TBS a potential entrepreneur has to be selected for the loan. In that case, the desired entrepreneur is not available.

He said, on the other hand, the scheme is new and its information has not reached everyone yet. Besides, although the policy was formed in July last year, the issuance of the guarantee started in November.

The official is hopeful that the amount of credit guarantee issues will increase in the days to come.

A stimulus package of Tk20,000 crore for the cottage, micro, small and medium enterprises (CMSMEs) was announced in April last year.

The credit guarantee scheme was introduced to guarantee loans to the banks so that the potential small entrepreneurs would not be deprived of loans from this package on the pretext of not having collateral.

In case of non-recovery of loans disbursed to the cottage, micro, and small scale industries from the incentive package, the central bank will repay the banks up to a maximum of 80% of the original loan from the credit guarantee scheme.

Till date, 19 banks, and six non-bank financial institutions have entered into agreements with the CGS unit to avail the guarantee from this scheme.

Any small entrepreneur who wants to avail of the benefits of this scheme has to apply to banks. Banks scrutinise applications and send those to the CGS unit of the central bank for final approval.

From this scheme till now credit guarantee has been issued against the loan given as working capital.

Although it was decided to give this facility in the case of term loan in February last year, it is learned that credit guarantee has not been issued against term loan yet.

Meanwhile, out of the Tk20,000 crore stimulus package announced for the CMSME sector, Tk14,000 crore has been implemented till April 24.

Due to non-implementation of the scheme, the central bank has extended the deadline for several times. Now banks have until 30 June to implement the scheme.