Incentives with higher interest loans on the cards

The government is going to announce another new incentive package despite the disappointing distribution of loan incentives announced earlier for the Cottage, Micro, Small and Medium Enterprises (CMSMEs) affected by the coronavirus pandemic. Under the new package, the loan amount will be 10,000 crore taka and it will be provided to Cottage, Micro and Small (CMSE) Entrepreneurs but not to the medium entrepreneurs.

A fund of 20,000 crore taka was announced before providing working capital facility to the CMSME sector. From this fund, the loan facility has been provided to the customers at 9 per cent interest rate. The government is subsidizing at a rate of 5 per cent. The package has been extended up to December.

On the other hand, the government is going to announce a loan incentive for the CMSE sector. Under this incentive the customers will have to pay a maximum of 14 per cent interest and the government will provide 5 per cent subsidy.

Economists have called the decision to announce a new package without implementing the previous incentive package as “irrational”. They said that the old one should be implemented first and due to the interest rates, small entrepreneurs may turn into defaulters.

Earlier, the government had announced incentive packages worth 1,21,353 crore taka in 21 sectors to tackle coronavirus pandemic and revive the economy. From there, 20,000 crore taka was allocated as working capital for the CMSME sector. If a new incentive package of 10,000 crore taka is announced for the CMSE sector, the total amount of incentive packages in 22 sectors will be 1,31,353 crore taka. Under the new incentive, the government will have to incur an expenditure of 500 crore taka on subsidies.

A responsible official of the Ministry of Finance said on condition of anonymity that the government will announce this incentive considering the small scale industries. This will speed up the economy and create employment.

Asit Varun Das, Associate Director of Finance and Accounts at BRAC, a private development agency, said, “We will not make any profit from the new incentive package announced by the government.” He also said, “We want to act in the public interest of the state. The challenge here is whether commercial banks can provide the money we need”.

However, he also said “We think that even if the banks failed to reach the small industries in the previous packages, we will be able to do so. This will benefit these industries.

According to the concerned sources, the CMSME sector has been receiving loan incentives of 20,000 crore taka as working capital for a period of three years. Therefore, the government feels that there is no need for any new incentives for this sector. Rather, the rest of the sector needs more help. Under the 22nd incentive package, loan assistance of 10,000 crore taka will be given to the CMSE sector for five years. The package will be implemented by Bangladesh Bank, Micro Credit Regulatory Authority (MRA), commercial banks, financial institutions and Microfinance Institutions (MFIs). It will be financed by all scheduled banks and financial institutions. MRA certified microfinance institutions will finance at the customer level. The new package may be placed in the next cabinet for approval. The finance ministry sent it to the cabinet division on last Thursday.

According to the finance ministry, 45 per cent of the new incentive package will be provided for the unproductive sector (business) and the remaining 55 per cent will be disbursed for the manufacturing and service sectors.

The maximum loan limit at the customer level will be 50 lakh taka. However, the cottage industry will get 5 lakh taka. Very small industries will get 10 lakh taka, and small industries will get a maximum loan up to 20 lakh taka. Under the package, Bangladesh Bank will finance banks and financial institutions at the rate of 0.5 per cent. Banks and financial institutions will finance microfinance institutions at an interest rate of 2.5 per cent. Microfinance institutions will charge a maximum interest rate of 14 per cent on consumer-level financing. The customer has to pay 9 per cent. The remaining 5 per cent will be paid by the government as subsidy. The government will repay the money to microfinance institutions. Borrower entrepreneurs will get a maximum subsidy of one year. Banks or financial institutions will be able to lend/invest up to 2-5 per cent of the existing loan balance to microfinance institutions.

Separate policies for disbursement of loans: The government has formulated a separate policy for disbursement of loans to the affected CMSE sector with new incentives.

Regarding the purpose of the policy, the proposal sent by the Finance Ministry to the Cabinet Division said that the role of the incentive package is important in creating small entrepreneurs at the marginal level, creating employment and above all increasing economic activities. The policy states that applicants from the MRA must obtain a certificate of eligibility for a loan from a microfinance institution. The MRA will issue a certificate of creditworthiness to the microfinance institution within three working days of receiving the request from the financing bank. Banks or financial institutions will complete the disbursement of loans at the MFI level within a maximum of one week upon receiving the certificate from the microfinance institution. Upon receipt of the loan, MFI will ensure disbursement of the loan at the customer level.

ask/wi