Another moral enclosure and the upcoming advantages for start-ups

This is really a great initiative that Bangladesh Bank has decided on March 29 this year to form a Tk 500 crore fund in order to help new entrepreneurs aged 21-45 years and start businesses.

The precise age group full of youth and energy will definitely supplement the economic migration of the nation.

Most importantly this beginner segment in entrepreneurship profession was deprived in our economic system and lending opportunity in the early stage of business was not available for them.

However, a financial support at the initial stage is badly needed to chase an entrepreneur's dream.  The good part is this start-up fund will be constituted in the form of a refinance scheme. New entrepreneurs will be allowed to manage funds from the refinance scheme at a maximum interest rate of only 4 per cent and banks will get funds at 0.5 per cent from the central bank.

As a matter of fact, both bank and entrepreneur will be in a win-win situation because for both parties the cost of fund in exceptionally low.

All scheduled banks will come under the eligibility to provide financing under this scheme but interested banks have to enter a participation agreement with the SME Special Programme Division of the Bangladesh Bank (BB).

Here scheduled banks have to create their own start-up fund constituting 1 per cent of their annual operating profit. This is obviously a good feature for any respective bank to grow fund for the start-ups on a phase by phase basis.

The refinance scheme limit may be increased depending on future necessity and performance.

Now the important part is who will be defined as a start-up?

As per the given guideline the start-up target market for this scheme will be defined as businesses involved in innovation and development of new products, services, operations or technology.

So, not all start-up businesses will be entertained here.

Innovation is the key. Obviously scheduled banks will follow their own loan assessment criteria in approving loans from this fund. As a matter of confidentiality, the start-up ideas with innovation and creativity of any entrepreneur cannot be disclosed to any other parties irrespective of loans being sanctioned or not.

This will help the entrepreneur to reserve the intellectual right of his business idea until it is in operation.

There are certain specific features in this guideline as well. Maximum loan limit at the customer level can be Tk 1 crore.

A single customer will be allowed only one loan under this scheme. If any customer avails loan below Tk 1 crore, then the limit may be enhanced after proper investigation of customer requirement.

As stated earlier the maximum interest rate at customer level can be 4 per cent (0.5 per cent + 3.5 per cent).

Scheduled banks will get refinance at 0.5 per cent interest rate from BB.

However, if the banking regulator finds any evidence of fund diversion, misappropriation or defilement of conditions then they may charge an extra 2 per cent one-time from the responsible bank. This penalty clause will certainly help us to make sure about the end use of fund properly.

Although the fund's maximum repayment tenor is five years at customer level, unlike monthly equated monthly instalment (EMI) based loans, this start-up loans' repayment will have to be allowed on quarterly or half-yearly basis.

Grace or moratorium period may be allowed based on banker-customer relationship and the type of start-up.

Allowable moratorium period must not be greater than one year. If moratorium period is allowed to the customer, then moratorium period will also be applicable for the refinance period.

Refinance has to be claimed on quarterly or half-yearly basis from BB after the completion of moratorium period.

Now the most important part here is for the readers who want to see themselves as entrepreneurs in the coming future, who want to make their dream come true by availing this facility.

Primarily the entrepreneur's project has to be completely new and unique. The applicant must have a successful completion of training certificate in entrepreneurship, business operations, market analysis etc. or other certifications such as in production, repair and maintenance etc. from any government or authorised private training institution.

If the applicant does not have any institutional training then he or she must display sufficient real-life knowledge, experience and capacity to run a new initiative in the proposed project.

Age of the entrepreneur must be minimum 21 years and maximum 45 years.

The entrepreneur must be involved or fully invested in the proposed project at all times.

The entrepreneur must not be a defaulter with any bank or non-bank financial institution as per reports of the Credit Investigation Bureau.

The disbursement of the loan cannot be done at a time. The loan has to be disbursed in minimum three phases depending on the progress of the project.

The same customer is not eligible for loans for two or more different projects. Personal guarantee, education or degree certificates or training certificates will be considered as guarantee to the loan.

Bank can ask for a maximum of two personal guaranties here.

Original education, degree certificates or training certificates have to be kept as guarantee at the bank.

This start-up lending inclusion in the banking system will definitely generate entrepreneurs, create job opportunity in the society, and move our gross domestic product further, which will support us for our desired national migration in the coming days.

The writer is a senior banker.