More funds made available for small traders

Trade-based cottage, micro, small and medium enterprises (CMSMEs) would be able to borrow more from the government's stimulus package after the central bank yesterday raised the ceiling by five percentage points.

While unveiling the Tk 20,000 crore stimulus package for the CMSME sector in April, the central bank included trade-based micro and cottage firms as a vast number of people are employed in the sector.

At the time, lenders were allowed to disburse 20 per cent of their total annual loans to trade-based CMSMEs. On October 28, the central bank said lenders could set aside 30 per cent of the loans for the sub-sector.

Yesterday, the central bank raised the ceiling by five percentage points. Now, banks and other financial institutions can channel up to 35 per cent of the stimulus package to the sub-sector.

If the amount of the loans goes past 30 per cent, the share of the funds for the manufacturing and service sub-sectors will go down proportionately. However, it would not be below 65 per cent combined for the two sub-sectors, the BB said in a circular yesterday.

The central bank move came after it found that banks and non-banks have put a significant portion of their investment in the trading sub-sector.

"If the investment ratio for the sub-sector increases, it would be possible to bring in more firms affected by the pandemic under the stimulus package," said the BB.

The central bank brought in another change to make more funds available for the clients in the manufacturing, service and trading sub-sectors.

As of yesterday, lenders could lend to a borrower from the stimulus package up to 50 per cent of last year's credit ceiling. Now, the ceiling would depend on the bank-client relationship.

"All of the changes are a good move," said Syed Abdul Monem, head of SME of Brac Bank.

"Now, we would be able to provide up 100 per cent of last year's working capital to existing borrowers."

The disbursement target of the loans from the package has been extended to December 31 this year, after the BB found that some banks and financial institutions have not been able to lend to the desired level.

As of November, lenders disbursed 35 per cent of the stimulus package.

The CMSMEs can take the working capital loan at 9 per cent interest. Of the interest, 4 per cent will be borne by the borrowers and 5 per cent by the government.

The CMSME sector represents 13 million business entities in Bangladesh, contributing 25 per cent to the GDP, 35.5 per cent to total employment and 80 per cent to export earnings, according to the Dhaka Chamber of Commerce and Industry.