PKSF's Tk240cr scheme to guarantee bank loans for micro-financiers
Under the scheme, the PKSF will guarantee loans taken by its partner MFIs from banks, backed by a Tk240 crore reserve fund. In return, a one-time commission of 0.5% will be charged on the loan amount
The Palli Karma-Sahayak Foundation (PKSF) is expected to launch the country's first-ever Credit Enhancement Scheme (CES) today to facilitate the flow of microcredit from banks, through microfinance institutions (MFIs), to small businesses struggling for funds.
Under the scheme, the PKSF will guarantee loans taken by its partner MFIs from banks, backed by a Tk240 crore reserve fund. In return, a one-time commission of 0.5% will be charged on the loan amount.
According to PKSF sources, this is expected to make it easier for MFIs to access loan funds, thereby enhancing their lending capacity.
The scheme is scheduled to be inaugurated at an event today at the PKSF office, with PKSF Chairman Zakir Ahmed Khan presiding, according to a press release.
Keep updated, follow The Business Standard's Google news channel
Bangladesh Bank Governor Ahsan H Mansur will attend as the chief guest, accompanied by Nazma Mobarek, secretary of the Financial Institutions Division, and Hoe Yun Jeong, country director of the Asian Development Bank (ADB) Bangladesh Mission, as special guests.
The PKSF is also expected to sign agreements with five commercial banks and one non-bank financial institution (NBFI) at the event for this pilot initiative, supported by the government and the ADB.
The banks and NBFI are BRAC Bank, Mutual Trust Bank, The City Bank, Prime Bank, Southeast Bank, and UAE-Bangladesh Investment Company Limited (UBICO).
Initially, 55 partner organisations have been selected for the scheme. Interest rates for the loans will be determined based on the bank-client relationship.
However, MFIs will be allowed to charge borrowers a maximum annual interest rate of 24%, although they may charge less if they choose.
PKSF Managing Director Md Fazlul Kader told TBS, "Bangladesh has nearly 1 crore micro-entrepreneurs with an estimated funding demand of around Tk60 lakh crore. However, all current sources combined – MFIs, banks, and others – are meeting only 7% to 8% of this demand. To bridge this gap, we have taken the initiative to launch the scheme."
"We are hoping that more banks will join the intuitive," he said, adding that PKSF will not only guarantee the loans but also monitor whether the loans are used for their intended purposes.
Commenting on the initiative, Selim RF Hussain, managing director of BRAC Bank, said: "It's a commendable initiative. While BRAC Bank has already been actively lending to micro-entrepreneurs, many other banks have not ventured into this segment due to network limitations and risk concerns. PKSF's scheme will reduce those risks and encourage more funding to MFIs."
PKSF sources said about 20 more banks have shown interest in joining the scheme. If implemented at full scale, the initiative could inject around Tk 2,000 crore into the microfinance market, significantly expanding access to finance for small entrepreneurs.
The PKSF will assess the creditworthiness of its partner MFIs and issue loan eligibility certificates, along with internal ratings, to partner banks. This will help banks better evaluate the financial and institutional strength of the MFIs.
It will also monitor how and where bank loans are used at the field level. Priority will be given to small enterprises in manufacturing, services, and trading, as well as to areas vulnerable to poverty, climate change, and disasters.
Why PKSF took this initiative
PKSF's partner organisations, MFIs, currently face various obstacles in securing loans from banks. Banks often demand large fixed deposits (FDRs) or immovable assets as collateral — something most MFIs lack. As a result, these organisations struggle to disburse sufficient loans at the grassroots level.
Banks are also reluctant to lend to MFIs operating in climate-vulnerable and disaster-prone areas due to higher risks. In such regions, borrowers are often displaced and lack stable income sources.
About 214 MFIs operate as PKSF's partner organisations across the country. An MFI becomes a PKSF partner only after meeting specific criteria. PKSF provides these organisations with funding for loan disbursement.
In FY2023-24, PKSF financed its partner organisations with Tk7,553 crore. However, their funding needs are significantly higher, and due to limited resources, PKSF cannot fully meet the demand. These 214 partner organisations collectively serve around 2 crore members.
