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6 years ago

Now loan, not equity, under EEF!  

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The government has learnt the hard way. It has tried to promote small-scale entrepreneurship in agriculture and information and communication (ICT) technology sectors through equity financing. But it has burnt its fingers, for most part of the funds given to the so-called entrepreneurs as 49 per cent equity of each enterprise is now lost.

The government is supposed to get profit on a regular basis along with paying back of its equity in instalments from the entrepreneurs. But, in many cases, it has neither got profit on account of equity investment nor refund of equity.

Field investigation by a credible research entity had found a number of equity recipients missing from their designated locations. Some others reported their inability to pay profit and refund equity money to the government because of the loss they were incurring.

Since the launching of the fund, titled, Equity and Entrepreneurship Fund (EEF) in the fiscal year 2000-2001, the government has made available allocations worth Tk 20 billion (2000 crore). Of the amount, more than Tk 15 billion went to projects in the agriculture sector and the rest to the ICT sector until March last year.

The Bangladesh Bank (BB) maintained the fund, selected entrepreneurs and disbursed equity money among the selected entrepreneurs until 2009.  Later the operational function was vested in the Investment Corporation of Bangladesh (ICB) and the BB has been formulating fund management policies and monitoring the investment activities of the EEF.

The EEF is a well-conceived entrepreneurship promotional move on the part of the government. But given the mindset of many entrepreneurs, both at macro and micro levels, in relation to the repayment of bank loans and government funds, it is hard to expect the desired results.

The hard truth is that default culture in Bangladesh is as pervasive as corruption is. Unless the lending agencies are in possession of the tools or means to twist the tail of the errant borrowers, there is every chance that the former would lose their money. Even lawsuits against defaulting borrowers are proving to be ineffective. The current situation with classified loans in the country's banking sector is a glaring instance. The share of soured assets of banks varies from 10 per cent 40 per cent of their outstanding loans. The basic problem here lies with the selection of borrowers.

In the case of EEF the problem has been with selection of entrepreneurs. The lack of proper monitoring of the use of fund and operations of enterprises has been yet another shortcoming. The government as a partner in business has failed to look after its own interest. In such a situation, the other partner, in most cases, eats up funds given by the absentee equity holder/s, in this case, the government.

The BB, which was in-charge of the scheme, initially, did not have the requisite manpower and logistics to monitor the operations of the relevant entrepreneurs. The same is the case with the ICB. It, too, does not have the requisite strength to look into the activities of the relevant enterprises on a regular basis.

The BB is certainly disappointed by the dismal outcome of the EEF initiative. However, the bank, apparently, is not in favour of discontinuation of the support provided to the small-scale entrepreneurship across the country.  The BB, reportedly, has more than Tk 3.0 billion worth of undisbursed fund and it has recently sought Tk 6.0 billion more from the government under a revised policy.

The BB has suggested providing support to entrepreneurs in the form of loans, not equity since there remains a risk of losing the money given as equity to the so-called entrepreneurs. However, one cannot dismiss irregularities in the selection of entrepreneurs also.

The central bank in the revised policy, which will be examined and approved by the finance ministry, has suggested taking collateral against the loans to be disbursed among entrepreneurs in the agriculture and ICT sectors. Here also, the quality of collateral would matter. Banks have been encountering serious problems while dealing with property given as collaterals against loans. In a number of cases, the banks find themselves in deep water as they fail to take over or dispose of mortgaged property because of fraudulent practices indulged in by the borrowers concerned. Often a section of unscrupulous bank officials extend their cooperation to such fraudulence.

The government has already wasted a good amount of taxpayers' money on the EEF scheme. If the finance ministry is really interested to pursue the scheme further under a revised policy, there should be a strong mechanism in place to sanction loans to genuine entrepreneurs, ensure genuineness of the property mortgaged by them and introduce a system to monitor the use of funds by borrowers. Otherwise, the scheme should be discontinued.

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