Finance minister unveils new scheme for loan defaulters to pay off debt

The government has unveiled a new proposition to allow loan defaulters to pay off their debts.

Those who are unable to pay, but can give ‘adequate justification’ for their situation, will be allowed to pay off the loans with a 2 percent down payment on the loan amount and 7 percent interest over 12 years, Finance Minister AHM Mustafa Kamal told the media after a meeting at his offices in Sher-e-Bangla Nagar on Monday.

The decision was taken based on the recommendations of the committee formed by former Finance Minister AMA Muhith to fix major issues in the banking sector.

The alternative will soon be available to defaulters, Kamal said.

Bangladesh Bank Governor Fazle Kabir, Secretary of Finance Abdur Rouf Talukder and other senior officials of the Ministry of Finance were also present at the meeting.

“We sat today to discuss our banking sector. Our brother and former finance minister Muhith had formed a committee led by the governor to research how we could resolve the problems in our banking sector. It is on the recommendation of this committee that we are allowing another option for people to pay back their loans and another opportunity for them to get out of debt.”

The finance minister gave assurances that only ‘honest loan defaulters’ would be allowed to use the option.

“The borrowing in our banking sector is of two types – honest and dishonest. We are giving special opportunities to our honest loan defaulters.”

Strict measures will be taken to retrieve the money from ‘dishonest’ defaulters, or those who had intentionally defaulted on their loans, Kamal warned.

An audit committee would be formed to separate the ‘honest’ and ‘dishonest’ defaulters, he said.

Loan defaulters would be able to make use of this special opportunity if that committee recommended they be allowed to do so, he added.

The amount of bad loans totalled around Tk 1.32 trillion, including Tk 380 billion in default loans written off, in December last year, according to latest Bangladesh Bank data.

After taking charge in January, Kamal vowed to cap the rise in default loans.

The central bank in February came up with an easy way to show the mounting default debt issue look less bad than what it is now by relaxing the policy for loan write-off.

Banks can write off debts that have been marked bad for three years from their balance sheet. They had to wait for five years to write off bad debts until the new decision was announced.