The central bank has introduced a credit guarantee scheme to help support cottage, micro and small (CMS) industries get access to the government allocated loans. Bangladesh Bank identified that many CMS which are able to repay the loans often cannot access the financial support due to not having credit guarantee.
Under the scheme the lender bank will get a credit guarantee of up to 80% from the government and the central bank. The lender bank will apply for the guarantee and they will also get the cash support to disburse the loan to the CMS’s.
CMS which are involved in the manufacturing and service sector will get up to 70% guarantee against the loan and those in trading will get up to 30%.
Borrowers will get the guarantee on loans of minimum Taka 2 lac to maximum Taka 50 lac borrowings. Institutions as well as new and personal borrowers are also eligible for the scheme.
This bodes well for the CMS entrepreneurs as it will help them to get the much needed working capital during the pandemic. These supports are crucial for CMS as they are a key component of a sustainable economy.
The size of the scheme is Taka 2,000 crore and it will provide coverage (where necessary) to the funds distributed from the CMSME stimulus package of Tk 20,000 crore.
Experts are highly optimistic about the scheme and believe that this will provide significant boost for the sector.
The scheme may accelerate the disbursement of the loan support allocated for CMS. Previously, Banks have been reluctant to distribute the loan to CMS for interest rate being low and being without collateral in nature.
India adopted this approach before Bangladesh. They provided a credit guarantee of 3 lakh crore rupees for the SME sector.
Small businesses have been hit hard by coronavirus pandemic. The sector is crucial for the national economy as it employs 40 per cent of the labour force and contributes 25 percent of GDP.