Banks with more than 10 percent or above non-performing loans (NPLs) will not be considered for the scheme
The Bangladesh Bank on Thursday approved formation of a Tk2,000 crore credit guarantee scheme to support cottage, micro and small enterprises that lack adequate assets to pledge for bank loans.
Governor Fazle Kabir presided over the meeting where the board of the bank approved the Credit Guarantee Scheme (CGS) Manual that allows launching the scheme.
This scheme will be adequate to issue guarantee against working capital loans amounting to Tk8,320 crore, central bank Executive Director and Spokesperson Md Serajul Islam told The Business Standard after the meeting.
He added that the board had approved the scheme so that the banks do not feel uncomfortable while disbursing loans to the cottage, micro and small and medium enterprise (CMSME) sector due to a lack of collateral.
Terming the initiative a "milestone" in the country's banking sector, Serajul said banks will have to sign agreements with the CGS unit under the SME department of the central bank to enjoy the guarantee facility.
However, banks with more than 10 percent or above non-performing loans (NPLs) will not be considered for the scheme. Those with less than 10 percent NPLs will be eligible to avail the guarantee from the central bank against the loans.
However, there will be no condition for state-owned banks to avail the guarantee facility.
The banks will be exempted from keeping any provision against loans that will be guaranteed by the scheme, even if those turn classified.
For loans that will be classified as bad or loss despite the required measures taken by the banks, the central bank will pay up to 30 percent of the portfolio value, while the payment ratio will be highest 80 percent for individual loans.
Liability of the remaining 70 percent of portfolio loans and 20 percent of the individual loans willfall on banks' shoulders.
To get access to the scheme, banks will have to pay fees at the rate of 1 percent of the loans for the first year of loan issuance.
For the next years, fees will be determined based on the risk of the banks, starting from 0.5 percent, the Bangladesh Bank spokesperson said.
Central bank officials said the scheme will help to expedite loan disbursement to small businesses from the government announced Tk20,000 crore stimulus package.
The dismal state of loan disbursement to CMSMEs prompted the central bank to relax loan classification rules for these enterprises significantly so that the banks are encouraged to issue credit to them.
Besides, the central bank has also issued a simple loan application form for small businesses as the loan disbursement under the scheme remained below Tk250 crore till June 30, even though the government launched the package in April.