Separate stimulus coming to bail out small ventures

The government is going to come up with a new stimulus package to reach working capital to pandemic-hit small entrepreneurs through microfinance institutions (MFI).

The size of the proposed bailout package might amount to Tk5,000-Tk10,000 crore.

The microcredit lenders will disburse loans directly under the package to cottage, micro, small and medium enterprises (CMSME). In this case, lending might be at 12-13%. However, there will be no government subsidy on the interest rate.

Last week, the finance ministry's Financial Institutions Division, the Bangladesh Bank, Brac, ASA, and Buro Bangladesh sat with their regulator, the Microcredit Regulatory Authority (MRA), in this connection.

In the meeting, they have decided to set up a separate fund aside from the existing package of Tk20,000 crore for providing working capital to the CMSME sector.

On Sunday, the Financial Institutions Division again held a meeting to discuss the policy of creating the fund and its management.

The Bangladesh Bank will finance MRA-certified microfinance institutions only through a bank guarantee without any interest from the possible Tk5,000 to Tk10,000 crore fund, officials from the division and the MRA told The Business Standard.

Mohammad Yakub Hossain, director at the MRA, told TBS that the government is now subsidising 5% interest on the current stimulus package for CMSMEs, being implemented by banks.

"We have proposed providing funds under the next package free of interest to MFIs instead of a subsidy. From the funds, large MFIs will lend at 12% and small and medium ones at 13% to cottage and micro entrepreneurs," he added.

Tushar Bhowmik, chief financial officer at Brac, told TBS, "Our operational cost is around 9-10%. Besides, it is not possible to realise some loans because of various reasons. For this, we need to set aside a loan loss reserve and its rate is about 2-3%. In all, our cost is about 13-14%."

"If the central bank or the government gives us funds without interest, we will be able to disburse them at 13%," he said adding that in this case, the size of the fund needs to be bigger.

Tushar Bhowmik thinks that if these funds are given to the MFIs through banks, the interest rate will go up a lot and this will thwart the government's objective.

The Bangladesh Bank has a Tk3,000 crore fund for disbursements in the CMSME sector, which is not being implemented properly. Because the banks have given the fund to banks at 1% interest. And, the banks have asked MFIs to disburse loans at 9% providing them at 4%, which is not possible.

Tarik Sayed Harun, director at COAST Trust, said, "If we get interest-free funds, we are ready to give fresh loans even at a lower profit to help small ventures restart their businesses. Otherwise, our old loans will not be recovered."

In May, the government announced a Tk20,000 crore package to provide working capital to the CMSMEs hit hardest by the pandemic. The government has been disbursing loans from this package through banks.

Banks have so far failed to disburse even half of their targeted loans despite extending the package implementation deadline for a couple of times. A large part of the distributed loans has gone to medium entrepreneurs. The micro, cottage and small enterprises affected by the Covid-19 pandemic have not got much benefit from this package.

The finance ministry has taken the initiative to include non-government organisations in disbursing loans to CMSMEs in the face of criticism over the failure of banks in this regard.

The state-owned Palli Karma Sahayak Foundation or PKSF proposed setting up a separate fund of Tk20,000 crore for microfinance institutions alone.

Last week, a meeting with NGO representatives, chaired by Additional Secretary to Financial Institutions Division Zakia Sultana, decided to set up a separate fund for MFIs. The ministry wants a written proposal from the MRA on the size of the fund and the interest rate.

More than 90% of MFIs' clients are cottage and micro women entrepreneurs, MRA officials said.  The MRA-licensed MFIs cover three-fourths of CMSME initiatives.

Meanwhile, the Finance Division on Sunday held separate meetings with officials of five government agencies working with MFIs – PKSF, SME Foundation, the MRA, Bangladesh NGO Foundation and Social Development Foundation.

The meeting discussed the activities of these organisations in the current fiscal year and plans for the next financial year in the CMSME sector. After reviewing these, the finance ministry will finalise the size of the new package for the CMSME sector.

Azizul Alam, additional secretary to Finance Division (Macroeconomic), told TBS, "We have taken information on various programmes of MFIs. By reviewing these, we will decide on how to provide more support to CMSMEs through these organisations. CMSMEs will be assisted through these MFIs from a separate fund apart from the existing package being implemented by the government through banks."