3rd phase stimulus loan disbursement at snail's pace

Infographic: TBS

The third phase of disbursement of loans from the stimulus package aimed at helping out the Covid-affected industrial and service sector companies is moving at a snail's pace, with only 7.19% of the target amount disbursed in the nine months of the current fiscal year.

Bankers believe that the disbursement dwindled over the phases because the central bank is taking action against borrowers who are using the loan, granted to be used as working capital, for fulfilling other obligations such as paying off debts. 

Another reason they mentioned is that the loan ceiling under this fund is fixed (30% of the working capital loan). So, a borrower exceeding the limit cannot apply for fresh loans. 

Besides, banks having less interest in disbursing loans to small borrowers is another big reason for the low disbursement of stimulus loans.

According to the central bank report, the disbursement target of the third phase stimulus loan as working capital for the affected industrial and service sector enterprises was Tk30,000 crore. But only Tk2,157 crore was disbursed from July 2022 to 13 March 2023 of the fiscal year 2022-23.

Loan disbursement from the stimulus fund gradually decreased from the first phase to the third phase. 

In the first phase (May 2020 to June 2021), a total of Tk32,703 crore was disbursed, which is 81.76% of the target for that period, and in the second phase (July 2021 to June 2022), Tk12,703 crore was disbursed, which is 38.50% of the target. Larger borrowers received more loans than smaller ones in the second phase.

On 23 April 2020, the Bangladesh Bank announced a Tk30,000 crore refinancing scheme to provide working capital loan facilities to industrial and service sector firms affected by the pandemic.

According to the central bank circular, the affected companies of any industry and service sector can take a maximum of 30% of their total working capital loan from banks under this scheme at a 4.5% subsidised interest rate.  

For instance, if a company is allowed to get a Tk100 loan from banks as working capital, then Tk30, if sought, will be given from the stimulus funds at the subsidised interest rate.

Besides, if a company does not have any outstanding loans in a bank and wants to take out a loan under this scheme, the working capital loan limit will be determined under the existing policies of the bank. Such a company will also not be allowed to take more than 30% of its working capital loan limit under this scheme.

Why disbursement is on the decline

A senior official of the central bank, on condition of anonymity, told The Business Standard (TBS), "Loan disbursement is decreasing in the third stage due to some reasons. For example, if a company availed the allowed 30% of its working capital loan limit from the stimulus fund in the first phase of disbursement, then there is no scope for it to get a fresh loan in the second and third phases. That is why many borrowers are not getting loans despite their wishes."

"After taking the stimulus loan facility from a bank, a number of companies tried to get this facility from another bank and some of them have even succeeded in doing so. But after the central bank's Special Monitoring Unit found it out, credit facilities to these companies have been suspended," he said.

The central bank also observed that some borrowers paid off other loans through using stimulus loans, which is a complete violation of the central bank's policy. After an investigation, the central bank cancelled the interest subsidy given to the companies at fault. That is why many companies are not able to take loans, which has also reduced the overall disbursement, the official added.

Regarding the issue of small entrepreneurs getting fewer loans from the stimulus fund, officials of the SME departments of several banks told TBS that small entrepreneurs often fail to repay loans. Besides, in many cases, they do not seek loans because they are not in a position to provide collateral. That is why small entrepreneurs are getting fewer loans than big entrepreneurs.

Stimulus loans to SMEs are also on the decline

The third phase of stimulus loan disbursement to the Covid-hit small and medium enterprises (SMEs) sector is also decreasing. 

The target of disbursement in nine months of the current financial year 2022-23 (July-March) is Tk20,000 crores. But only Tk3,174 crore was disbursed to some 27,434 entrepreneurs, which is 15.87% of the target.  

Around 76.93% of the target amount (Tk20,000) was disbursed in the first phase of this stimulus package disbursement, and 75.77% of the target was disbursed in the second phase, benefiting 1,82,896 entrepreneurial organisations in these two phases.

Kamrul Mehedi, head of the Small Business Department at the City Bank, told the TBS, "The CMSME loans of the Covid stimulus package had to be distributed among the regular customers of the banks as it was difficult to lend to any new customers. The affected companies (small and medium industries) had the opportunity to take loan facilities for one time only. They could not get loans for a second time despite demand."

"Despite the slow pace of loan disbursement of this stimulus package, the amount of general loan disbursement to the CMSME sector is on the rise," he added.

Regular loans to CMSME see growth

The central bank's regular report on CMSME loans showed a sharp rise in loan disbursements throughout 2022.

The amount of outstanding loans in the CMSME sector in 2022 grew at twice the pace compared to the same period of the previous year.

According to the latest data of the Bangladesh Bank, in 2022, outstanding loan growth in this sector was around Tk31,000 crore with a rate of 12.22%. A year earlier, the growth rate was only 6.1% with an amount of Tk14,000 crore.

However, an analysis of data from 2015 to 2022 reveals that the growth rate of outstanding loans in the sector was higher before the Covid-19 pandemic. In 2017, it exceeded 17%.

In 2020, the growth of outstanding loans declined due to lower loan disbursements amid the pandemic. However, in 2022, there was a significant increase in growth compared to the previous two years.

Former president of Dhaka Chamber of Commerce and Industry (DCCI) Rizwan Rahman told TBS that there are still some complications behind the CMSME loan disbursement. 

"Banks require various types of documents to give loans to small entrepreneurs which is not possible for most of the businessmen. If procedural complexity in the disbursement of loans to CMSME can be reduced, this sector will grow exponentially," he said.

"There is no central database of CMSMEs in the country, which is making the disbursement process more complex," Rizwan Rahman said.

"The CMSME sector of our country is contributing 20-25% of GDP. But in other countries, this sector is contributing 50-60% of the total GDP," the DCCI president added.