The Bangladesh Bank (BB) has relaxed the eligibility criteria for commercial banks and financial institutions to participate in Tk25,000 crore refinance schemes for the cottage, micro, small, and medium enterprise (CMSME) sector.
The move is a direct response to the banking sector’s escalating rate of non-performing loans (NPLs).
The new directive issued by the SME and Special Programs Department said that banks and financial institutions can now access the funds even if their total classified (default) loans up to 20 per cent of their portfolio.
This is a significant change from previous conditions, which required institutions to maintain a classified loan ratio of less than 10 per cent to be eligible for the scheme. The central bank’s decision to raise the NPL ceiling comes after the government change last year, which led to the disclosure of a large volume of previously unpublicized defaulted loans across the banking sector.
While the NPL limit has been adjusted, other key guidelines of the original circular remain unchanged. The central bank emphasizes the need to prioritize lending to women entrepreneurs, entrepreneurs with special needs, and entrepreneurs affected by disasters (such as river erosion, cyclones, floods, fire, or pandemics like COVID-19).
The distribution limits are also strictly defined as production and service sector at least 70 per cent, business and trading sector maximum 30 per cent, cottage, micro and small entrepreneurs at least 75 per cent, medium entrepreneurs maximum 25 per cent.
The CMSME Term Loan Refinance Scheme was launched by the Bangladesh Bank in July 2022. The fund, established entirely by the central bank, allows banks and financial institutions to borrow money at a 2 per cent interest rate. They are then permitted to lend this money to CMSME entrepreneurs at a maximum interest rate of 7 per cent.
The scheme has an announced duration of three years, but loans to customers can have a term of up to five years, including a grace period. The central bank has also noted that the size of the fund may be increased if necessary.
