CMSME sector to get maximum Tk 50 lakh loan

Country's Cottage, Micro, Small and Medium Entrepreneurs (CMSME) affected by the coronavirus pandemic are expected to get a maximum loan of Tk 50 lakh and a minimum loan of Tk 10 lakh. Loans will be provided from the new Covid-19 incentive package. However, client of the banks will not be able to adjust or repay any of his previous loan/s with the loan amount, according to a finance ministry official.

The draft policy has been finalized with these provisions to provide quick loans to Cottage, Micro, Small and Medium scale entrepreneurs to combat the effects of novel coronavirus. It will come into effect soon after the approval of the Finance Minister according to the relevant sources from Macro-Economic Wing of the Finance Division.

Sources further said that CMSME incentive package has to be created for lending to the affected entrepreneurs of the sector. The funds of incentive package will be collected by Bangladesh Bank or the Ministry of Finance.

The fund from the incentive package will be used by Bangladesh Bank to lend to banks and financial institutions at 0.50 percent interest. Banks and financial institutions will again distribute it to microfinance institutions (MFIs) and other lending institutions at an interest rate of 2.5 per cent. These companies will pay the money to the customers at 14 percent interest. However, the customers will pay 9 percent interest.  The term of this fund will be for 5 years.

Former adviser of International Monetary Fund (IMF) Dr. Reza Kibria, said “There is a big problem in getting loans for entrepreneurs of CMSME sector at normal times. This has become even more evident in the Coronavirus situation. So they need help”.

He also continued "But they have been discriminated in the last incentive package. Earlier, interest rates were lower on package loans announced for other sectors, including large industries. As the interest rate is higher for the CMSME sector, it would be contrary to justice. Smaller sectors need to be given more opportunities, he added.

Because the CMSME sector is playing an important role in employment and economy. This may make the government to think more. It is learnt that the Prime Minister has announced an incentive package of Tk 1.21,000 crore to counter the effects of Coronavirus pandemic. Of this, Tk 20,000 crore is for the SME sector. However, loans worth Tk 10,000 crore were disbursed in the SME sector till December. The Ministry of Finance has recently organized a series of meetings with various professionals including economists, industrialists and businessmen to identify the problems in the implementation of these packages.

There are recommendations by experts to provide more importance to the SME sector in the country. In view of this, the Financial Institutions Department of the Ministry of Finance has drafted a policy to include the CMSME sector to accelerate the implementation of incentive package for the SME sector.

According to the draft policy, working capital loans will be provided to the affected Cottage, Micro, Small and Medium entrepreneurs during the pandemic to continue their activities. For availing this loan, priority will be given to entrepreneurs who have been trained by the government and the Non-Government Organizations, Department of Youth Development Training, BCIC and those returning to the city or abroad.

The financing activities from the loan fund will be implemented by the Bangladesh Bank, Microcredit Regulatory Authority (MRA), specialized banks and financial institutions of the government and Micro Finance Institute (MFI). Of the incentive funds to be disbursed at different client levels, 40 per cent will have to be financed in the trading sector and 60 per cent in the manufacturing and service oriented organizations.

The draft policy further states that customers will get a maximum loan of Tk 50 lakh at individual or group level, cottage entrepreneurs maximum of Tk 10 lakh, micro entrepreneurs maximum of Tk 30 lakh and small entrepreneurs Tk 50 lakh. While availing a loan, the selected customer has to provide a copy of his National Identity Card or birth certificate or passport or photocopy of trade license along with the loan application as a guarantee. In addition, the certificate of the concerned city corporation or municipal councillor or the chairman of the union council or the headmaster of the local government primary school or other conditions apply.

The rationale for the drafting of the policy is that the role of the incentive package is important in creating small entrepreneurs at marginal level thereby creating employment and increasing economic activity. The CMSME sector plays a key role in the overall economic development of the country, especially in job creation and rapid poverty alleviation. The largest financiers in this sector are Micro-Finance Institutions (MFIs) and specialized banks.

As a result, in addition to the banking system, MFIs and specialized banks are involved to ensure the desired level of financial inclusion of this category of entrepreneurs. In view of this, the policy has been formulated to involve MFIs certified by banks and financial institutions, MRAs, to finance the CMSME sector.

Study of Japan’s International Co-operation Organisation for Small and Medium Enterprises in Asia (ICOSA) on SME sectors of the country revealed that the sector accounts for 35.49 percent of the total employment in Bangladesh.

The share of SMEs in all enterprises is 80 percent in Bangladesh, according to the study. It stands at 97.60 percent in India, 99 percent in China and 99.70 percent in Japan, the study revealed.

The study found that Bangladesh has 17,384 micro enterprises, 15,666 small ones, 6,103 medium and 3,639 large scale enterprises, with a total engagement of 5.02 million people.

The SMEs constitute 50.91 percent of the total number of micro-economic units in Bangladesh, the ICOSA study also found.

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