The central bank now suggests providing loan instead of equity from the Equity and Entrepreneurship Fund (EEF) so the money can be recovered in the event of project failure, officials said.
Such a recommendation comes from the Bangladesh Bank (BB) as a large number of so-called entrepreneurs got away with the public money from the Fund.
Presently, the 'equity model' is followed in case of EEF enterprises where the government is a party with 49 per cent share while entrepreneurs own 51 per cent of the stakes.
In this case, the entrepreneurs who run the businesses do not feel responsible for making the enterprises profitable or returning the money to the government exchequer.
The BB favours following 'loan model', charging 3.0 per cent simple interest on the money to be lent out from the Fund to those who want to run enterprises with the capital support.
As the EEF policy is under a recast, the BB also suggests making mortgage of properties mandatory against loans so that the money could be recovered by selling those off.
Presently, for agriculture-sector enterprises it is mandatory to have landed property in favour of the enterprises but not keeping that under mortgage.
Having such property is not mandatory for ICT enterprises that want to borrow from the EEF, but the BB now proposes that the entrepreneurs should provide personal guarantee or third-party or-bank guarantee to get loan.
"If the mortgage is provided by entrepreneurs, the loan money is safe," general manager of EEF unit Bazlar Rahman Molla told the FE.
He said if the money is given in loan against their mortgaged properties, no entrepreneurs will dare to misappropriate it.
Mr Molla said the move is meant to strengthen agreemental commitments and hold the entrepreneurs to account so that they return the money.
The government created EEF in fiscal year 2000-2001 to extend support to promising sectors like agro-based food processing and software. A sum of Tk 1.0 billion was allocated to begin with.
The central bank was the implementing agency for the project until May 2009.
Later, the operational function of the fund was transferred to the Investment Corporation of Bangladesh (ICB). The central bank, since then, has been involved with formulating fund-management policies and monitoring the fund-investment activities.
According to officials, since its inception, the government has allocated Tk 20 billion in favour of the Fund until March last year. The money was apportioned into Tk 15.13 billion for agriculture and Tk 5.12 billion for information and communication technology (ICT).
They said since last year, providing money from the EEF remained suspended as some major weaknesses have been identified in its policy. The new expression of interest (EoI) from prospective entrepreneurs will be sought after the policy amendment.
A major weakness in the project operation is in the field of entrepreneur selection. Many entrepreneurs have fled after taking equity from the Fund. Many entrepreneurs have become defaulter and failed to take over government shares as per terms and conditions.
One official said the rules in case of entrepreneur selection have to be changed thoroughly to avoid misuse of funds.
A senior official at the central bank told the FE that nearly two dozen cases relating to EEF-money recovery remained pending with criminal courts as many entrepreneurs made free of the government money. No tangible progress is there in resolving the cases.
"If loan is given instead of equity, the government will be able to go to the Artha Rin Adalat to sue defaulters to recover the money," he said about the merit of the transformation of the equity fund.