Bangladesh Bank irked by slow lending to pandemic-hit small businesses

Slow loan distribution from the government’s Tk 200 billion package to help offset losses in the CMSME sector hit by the coronavirus pandemic has left Bangladesh Bank frustrated.

The central bank has directed the banks and other financial institutions to distribute these loans more effectively.

“It can be seen that the banks and other financial institutions have failed to produce the expected pace of credit disbursement in the CMSME sector. Therefore, constant supervision is needed to effectively distribute loans in this sector,” the central bank said in a statement.

On Apr 5, Prime Minister Sheikh Hasina announced a Tk 727.5 billion stimulus package, from which Tk 200 billion was reserved for lending working capital to the cottage, micro, small and medium enterprises, or CMSMEs.

The stimulus package is designed to cushion the impact of the novel coronavirus outbreak on the economy.

The Bangladesh Bank, which will finance half of the CMSME package, published a policy on Apr 13 laying out how the loan would be distributed among banks and financial institutions. It also formed a refinancing fund worth Tk 100 billion.

It stipulates that the banks take a loan at a rate of 4 percent interest from this fund and lend it to CMSME entrepreneurs at 9 percent interest.       

The beneficiary entity will pay half of this interest - 4.5 percent - while the government would pay the other half to the bank delivering the loan and the institution in subsidy.

According to the policy, each bank and financial institution will provide the required information on the disbursement of working loans under the package to the ‘SME and Special Programs Department’ through a table provided by the Bangladesh Bank by the 10th of every month.

It has now been decided that the details of CMSME loan disbursed under the package in question should be submitted within the next five days to the ‘SME and Special Programmes Department’ on a fortnightly basis instead of every month, the circular added.

The other instructions in the policy remained unchanged.

“There is no alternative to distributing the aid packages soon to salvage the economy during the pandemic. For this everyone must come forward. The faster the banks disburse these loans, the more swiftly the crisis would be resolved,” Sheikh Fazle Fahim, the president of Federation of Bangladesh Chambers of Commerce and Industry or FBCCI told bdnews24.com in a reaction.

“We must remember that turning the economy around would not be possible if the CMSME sector does not recover. So we must focus on it first.”

Fahim added that FBCCI was working with the central bank and established a help desk to provide information regarding the loans.