The Bangladesh Bank's (BB's) emphasis as laid recently on completing disbursement of stimulus loans within the next two months giving highest priority to the Cottage, Micro, Small and Medium Enterprises (CMSMEs) as beneficiaries has been overdue. Actually, in view of the rather slow progress in the disbursement process for obvious reasons drawing a timeline to complete the task was necessary. This is for the simple reason that the CMSMEs, which constitute a big part of the national economy with their over 6.0 million units spread across the country and contributing positively to the GDP (about 25 per cent), have been hit hard by the pandemic in recent months. It is therefore only natural that the CMSMEs due to their immense employment generation potential well deserve the priority they have been given by the BB regarding provision of the stimulus loans.
It may be noted that in a similar vein the BB did earlier urge banks to advance the largest slice of the stimulus money to the pandemic-hit industries including the CMSMEs by the end of July. But so far the disbursement rate was too slow as only a small proportion (7.5 per cent) of the total stimulus money could reach the beneficiaries. Therefore, for cogent reasons the next two months' deadline has been set by the BB so that disbursement of the stimulus money to the CMSMEs could be done expeditiously. While appreciating logic of accelerating the stimulus loan implementation process, it is also important to fathom the underlying factors behind such low execution rates of the stimulus loans. It is worthwhile to note at this point that last April the central bank did impose a 9.0 per cent lending rate thereby markedly reducing the commercial banks' interest earnings on loans from their customers. Small wonder that thus left with little manoeuvring room for the banks to duly price their loans to cover risks involving lending such as to the CMSMEs, the progress in loan delivery has naturally been so slow. That was despite the government's subsidising 5.0 per cent of the interests on stimulus loans for the CMSMEs.
Against this rather lacklustre backdrop, the central bank's announcement of creating a Credit Guarantee Scheme (CGS) of Tk 20 billion as risk coverage for the lending banks and non-banking financial institutions (NBFIs) makes sense. In fact, such arrangement of risk absorption by the central bank should definitely encourage and enable the banks to expedite their loan disbursement activities within the stipulated deadline for the pandemic-affected CMSMEs to be placed on a recovery mode. However, the actual work of stimulus loan implementation would depend on how fast the BB is able to come up with its CGS, which would provide a third party credit risk mitigation facility to the lending banks by way of covering a portion of the losses in case of default.
But for the CGS to play its due role in implementing the government's stimulus package for recovery, even growth of the CMSMEs, it has to be viable, accessible and friendly towards both the lender banks and the customers, the CMSMEs. Given the prevailing pandemic-induced vulnerabilities affecting business in general, the Credit Guarantee Scheme should preferably offer a high guarantee coverage ratio to make it attractive to the participating banks.These are but the necessary conditions to fulfil before banks might meet the BB's deadline to implement the loans for the CMSMEs under the stimulus package.