Md Fazlur Rahman

The central bank plans to step up its efforts to provide the much-needed financial services to the small and medium entrepreneurs (SME) across the country, officials said.

NEW GUIDELINES
Bangladesh Bank (BB) plans to update its guidelines on SME sector, prioritising a number of areas for the benefit of the entrepreneurs. BB has already published a guideline for the banks in this sector and a number of new areas will be added this year, officials said.

“In the updated guidelines, we will ask banks to keep a minimum grace period of six months to one year in case of term loans, as it takes time for the borrower-entrepreneur to generate money using the loan,” said an official.

He said a section of the entrepreneurs in the sector, like fashion houses, are keen to take loans and use them, but their business is mainly seasonal. “We will ask the banks to devise products so that such entrepreneurs can take loans three months ahead of the season e.g. the Eid, and can repay the loan at the end of the season.”

The updated version of the guidelines is due to be ready for dissemination by end February. Last year, the central bank prepared area-based plans and asked the banks grant loans in areas where a particular crop grows in abundance.

This year, BB will ask the banks to inform the central bank about their plans, the areas they want to cover and the amount of money they want to disburse, the official said.

“This will help us monitor the credit programme of the central bank.”

The new additions in the guideline will also require the banks to devise special products to cater to the needs of the growing number of women entrepreneurs.

BB also plans to look at the geographical distribution of the loans in the SME sector. “We will identify areas that receive more credits or less. It will help us broaden the credit coverage and help areas that do not get enough attention usually,” the official told the Daily Star.

CREDIT GUARANTEE SCHEME
The central bank is also planning to introduce credit guarantee scheme so that banks do not have to worry about reaching the SMEs.

Banks usually take into account the possible number of default loans while setting interest rates, which keeps the lending rates at high levels.

“If we can decrease the number of default loans through credit guarantee scheme then the banks will be eager to lend to more SMEs. But the government has to come forward to make this happen,” said a BB official.

In the past, the government introduced special schemes for small entrepreneurs. But officials said their experience was not satisfactory, as borrowers did not bother much to repay the loans, as they thought that they had taken money from the government.

On the other hand, banks also did not make efforts to recover the loans as they could easily recoup the loans from the scheme, eventually compelling the government to cancel the scheme as many borrowers defaulted on the loans.

Due to the prior unsavoury experiences, the central bank will not, this time, provide any guarantee; rather it is planning to set up a separate institution to handle the issue, the official said.

“The institution will run as a separate entity and will get premium to remain in the business. The central bank will provide the initial capital,” the BB official said.

News: The Daily Star /Bangladesh/17 Jan 2011