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Big borrowers gain, SMEs still in pain
Fund disbursement from stimulus packages for small businesses, farmers has been slow; packages for corporate groups have higher success rate
AKM Zamir Uddin
They were the hardest hit when the coronavirus pandemic struck the country in March, but the implementation of the stimulus packages the government unveiled for small and medium enterprises (SMEs), farmers and low-income groups more than six months ago has been slow because of the reluctance of banks.
In contrast, disbursement from the stimulus package meant for large industries and the service sector was faster.
Both the central bank and the government have taken initiatives recently to speed up disbursement from the packages for small enterprises and low-income people but lenders are yet to pay any heed.
Soon after the deadly virus arrived on the shores of the country, the government and the central bank rolled out 19 stimulus packages worth Tk 106,117 crore to tackle the economic fallout brought on by the pandemic.
Banks have been given the responsibility to distribute more than Tk 80,000 crore from the stimulus packages in the form of soft loans.
The packages dedicated to corporate groups have a higher success rate as such entities operate in an organised manner.
For instance, 81.87 per cent of the Tk 33,000-crore package for large industries and the service sector was approved by lenders as of October 6. The whole fund of the package may be disbursed by this month, a Bangladesh Bank official said.
Similarly, as much as 84 per cent of the Export Development Fund, which rose to $5 billion from $3.5 billion, was disbursed since October 5.
“Big businesses are highly organised and they have submitted the required documents to banks in the quickest possible time that helped implement the two stimulus packages easily,” said Emranul Huq, managing director of Dhaka Bank.
Large businesses have also submitted their business continuity plan to banks on time, helping lenders make a decision quickly, he said.
But the stimulus packages for the SME and farm sectors have seen sluggish implementation as lenders are reluctant to promote the packages, a central bank official said.
Banks disbursed about Tk 5,882 crore among 26,664 borrowers since September under the stimulus package worth Tk 20,000 crore dedicated for the SME sector, which is considered the backbone of the economy.
The central bank unveiled the package on April 13 and it later said half of the package’s amount would be provided from the BB in the form of the refinance scheme.
The loan will be given at 9 per cent interest. Of the interest rate, 4 per cent will be borne by the borrowers and 5 per cent by the government.
The SME sector was hit hard by the ongoing economic fallout than the large businesses.
SMEs usually make a large portion of profit ahead of Eid-ul-Fitr and Eid-ul-Azha, the largest religious festivals for Muslims. But they failed to do so in the last two festivals due to the pandemic.
“SMEs are yet to get rid of the crisis. Many SMEs are still feeling shy to take loans from banks,” Huq said.
In some cases, banks are also taking a cautious stance to disburse loans due to the fragile health of the SMEs.
“We have to speed up the loan disbursement to the SME sector at any cost in the greater interest of the economy,” Huq said.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said the central bank could not avoid its responsibility as it is yet to notify the credit guarantee scheme for the SME sector.
Although the scheme has already been designed by the central bank, this has yet not been introduced, he said.
On July 23, the central bank decided to introduce the Tk 2,000 crore scheme to give coverage to the stimulus fund.
A credit guarantee scheme provides a third-party credit risk mitigation to lenders through the absorption of a portion of the lender’s losses on the loans made to SMEs in case of default, typically in return for a fee.
The stimulus package for the SME sector should be raised to Tk 40,000 crore to Tk 50,000 crore given the volume of the economy, said Mansur, also a former high official of the International Monetary Fund.
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