Bangladesh Bank Forms Tk 1,500 Crore Fund for Small Entrepreneurs, Loans Without Collateral Up to Tk 5 Lakh

Bangladesh Bank has formed a new refinancing fund of Tk 1,500 crore to increase the financial inclusion of small entrepreneurs, students and low-income marginal professionals who are deprived of bank loans for lack of collateral and necessary documents.

A circular in this regard was issued on Thursday (12 November) from Bangladesh Bank's Financial Inclusion Department. It was sent to the managing directors (MDs) and chief executive officers (CEOs) of all scheduled banks in the country.

Under the new fund, loans of up to Tk 10 lakh will be available at the individual level and up to Tk 40 lakh at the group level. Banks will take refinancing facilities from the central bank at 1 percent interest and distribute loans at the customer level at a maximum of 7 percent interest. Shariah-based banks will also be able to give loans under this scheme at a maximum annual profit of 7 percent. Under this special initiative, no collateral will be required for loans of up to Tk 5 lakh.

The main goal of the fund is to improve the living standards of marginal and disadvantaged populations by involving them in income-generating activities. The directive specifies in detail the eligibility for loans, the amount, the interest rate and the distribution process.

A maximum of five years, or 60 months, will be given to repay the loan. Within that, there will be a maximum grace period of six months, or a break in instalment payments. There is scope to set customer-level loan instalments on a monthly, quarterly, half-yearly or annual basis. In addition, for loans of up to Tk 3 lakh, no fee can be taken from the customer for collecting a CIB (Credit Information Bureau) report.

Under the fund, priority has been given to various backward professionals and classes of society. Among them are rickshaw pullers, van drivers, fishermen, leather workers, goldsmiths, hawkers, blacksmiths, potters, tailors, carpenters, masons, painters, plumbers, electric and electronics equipment repairers, small weavers and tea workers.

In addition, grocery shopkeepers, mobile cloth and food sellers, tea and paan sellers, flower, fruit and vegetable sellers, poultry and livestock rearers, mobile banking agents, and people involved in innovative activities such as freelancing, nurseries, cottage industries and handicrafts will also receive these loans.

Among farmers, smart-card-holding marginal and landless farmers will get priority. However, banks have been told to be proactive so that genuine marginal farmers are not deprived even if they do not have a smart card.

People affected by disasters such as river erosion, cyclones, floods or fires, residents of coastal and haor areas, expatriate workers and remittance-beneficiary families, and people with special needs and members of the third gender will also get priority under this facility. To make women financially self-reliant, it has been made mandatory to keep at least 25 percent of the fund's total loans allocated for them.

A special opportunity has also been kept in this scheme for students. Disadvantaged and insolvent student banking account holders up to the age of 25, including students who have dropped out of education, will be able to take loans for various training including vocational, technical and information technology training. In addition, loans will be given to meet the cost of higher education including MBBS, BDS and engineering, and to buy necessary educational materials. In both cases, however, there must be a guardian's guarantee of repayment.

Regarding the loan process, the central bank has said a single entrepreneur will get a maximum loan of Tk 10 lakh. However, by forming a group of two to five members, a group loan of up to Tk 40 lakh can be taken. In this case, the members will be liable individually and jointly.

To get a loan, the customer must have a bank account of Tk 10, Tk 50 or Tk 100. Banks will be able to distribute these loans through their branches, sub-branches, agent banking, mobile financial services (MFS) and online banking. However, no additional money can be taken from the customer as a processing fee beyond the prescribed charges. In addition, a loan monitoring report must be submitted to Bangladesh Bank every three months.