The Bangladesh Bank has drafted a Credit Guarantee Scheme Manual to support small and medium enterprises which lack adequate assets to pledge for bank loans.
The CGS would also facilitate getting banks loans by the SMEs at an affordable interest rate, said the draft manual sent to economists, and chief executives of banks and non-bank financial institutions, seeking their opinions on it.
The small- and medium-scale businesses, which would fail to comply with the collateral requirements of the banks and NBFIs, would be provided with the support from the credit guarantee scheme.
According to the draft manual, whether an SME would get the facility would depend on the banks’ and NBFIs’ participation in this programme.
However, the banks and NBFIs which have more than 10 per cent defaulted loans would not be considered for the CGS.
The Scheme has been designed as a Hybrid Portfolio Partial Credit Guarantee Scheme where all parties including CGS, participating banks and NBFIs and SMEs will share part of the risks.
Besides, the loan sanction procedure would depend on the credit policies of the banks and NBFIs.
By allowing loans to the borrowers, which otherwise would have been excluded from the lending market, the CGS will help them to establish a repayment reputation that itself can act as type of collateral in future, the draft said.
It said that a single loan within the portfolio guarantee limit of CGS would cover up to 80 per cent of the principal outstanding during the tenure of the loan.
For instance, a bank or NBFI would get Tk 80 out of outstanding Tk 100 of any bad loan and the liability of the rest Tk 20 would be on the bank or NBFI concerned.
For bearing the risk, the participating banks and NBFIs would have to pay 2 per cent of the outstanding principal loan amount each year.
Loans amounting between Tk 5 lakh and Tk 30 lakh would only be considered for the CGS facility while the tenure of loans must be limited to five years.
The facility, however, would not be open for the start-up ventures as there are other facilities providing them this support, the manual said.
Businesses with profitability in last two years would be considered for getting the guarantee.
Besides, the borrower must contribute at least 20 per cent of the total project cost as equity capital.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Banking