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SMEs yet to benefit from BB's refinance scheme

Interest rates range from 20pc to 24pc

Sajjadur Rahman
Bangladesh Bank’s move to provide small and medium enterprises with easy access to loans is yet to benefit the SMEs because of high interest charged by financial insti uncs
According to the central bank sources, banks and nonbank financial institutes charge as much as 24 percent interest rates for the loans provided under the BB's SME refinance scheme, introduced in 2004 to provide an easy access to bank finance for the sector.
“We have found in our monitoring that banks charge highest 24 percent and lowest 20 percent interest rates for the loans under the scheme," a senior BB official told The Daily
Star yesterday.
He said: "No financial institute takes less than 20 percent rate."
Although the BB has fixed 10 percent interest rate for two other similar schemes -- housing and women entrepreneurs it has failed to do so with the SME scheme.
Banks are cashing in on the situation and imposing as much as 24 percent rate due to absence of any BB directive in this regard, the sources said.
To promote the SMEs, the government has taken several measures that include estab-1 ishment of the SME Foundation. An SME help line centre will be set up in every district soon, which aims, among other things, at promoting women entrepreneurship.
As part of the government's moves, the central bank in 2004 introduced a SME refinance scheme (revolving) withTk 100 crore to increase SMEs' access to bank finance at lower rate. Later the fund was increased to Tk 300 crore in fiscal year (FY) 2007-08 and Tk 500 crore for FY 2008-09.
Initially, the BB imposed 4 percent interest rates, which was raised to 6 percent. But no financial institute followed the rate. Sources said later BB was compelled to withdraw the directive on interest rate in May 2004 and allowed financial institutes to fix a rate as per its business strategies.
"Banks lend with the BB money and earn huge profit by charging up to 24 percent interest rates, thus depriving the SME borrowers badly,” the
central bank official said.
When contacted, Muhammad A Rumee Ali, an experienced banker and a former deputy governor of the BB, viewed different on the issue.
"BB should not impose any rate on the banks," said Ali, chairman of the country's largest SME financier BRAC Bank Limited. “No bank had disbursed any SME loan under the BB refinance scheme after the rate was fixed," he said, adding that the BRAC Bank withdrew itself from the BB refinance scheme due to the latter's intervention in the bank's interest rate.
Pointing to the fact that his bank disburses Tk 300 crore loan a month on an average among the SMEs, Ali said, "The bank cannot put its business at stake by lending a few crore taka to few borrowers at lower rate.”
The BRAC Bank chairman however hailed the BB for the move and said it would encourage banks to give more access to the SME sector.
BB statistics showed that it had refinanced a total of about
Tk 60 crore in the first quarter (January-March) of 2008. The refinanced amount would be around Tk 70 crore in the second quarter till June 30, sources said.
Of the Tk 300 crore revolving fund for the fiscal 2007-08, Tk 214 crore is now in the BB’s balance sheet.
BB has SME refinance agreements with 16 banks and 22 non-bank financial institutions. Of them, Eastern Bank, Dhaka Bank and Mercantile Bank have so far disbursed the highest amount of SME loan under the scheme this year.
sajjad@thedailystar.net