Special financing window for the minnows

The central bank board of directors deserves appreciation for taking into cognizance the economic wellbeing of the minnows, identifying the latter as 'no-frills' account holders of banks and financial institutions (FIs). It has introduced a special financing window for the underprivileged group of people, including schoolchildren under 18 years and working children, who will be allowed to open bank accounts with an initial deposit as low as Tk. 10.

What is important here is that these people will be eligible to receive loans amounting to Tk. 0.3 million and above under an existing credit guarantee scheme (CGS) worth Tk.20 billion. The scheme is designed to financially help the cottage, micro and small businesses beyond the stimulus packages that the government had announced early last year for the Covid-hit industries and other business enterprises of various sizes. The basic goal of the scheme is also to help the micro-manufacturing, services and trading enterprises having no collateral to offer against bank loans.

The intention of the central bank sounds pious and pragmatic, but the success of the financing window for the have-nots would largely depend on the willingness of the banks and FIs to carry it forward. Implementation of special financing might not be that easy, it seems. Since the special financing window will operate under the CGS, it will require the banks and FIs to follow a set execution manual.

According to the manual, banks send loan applications from the CMSEs to the BB, which, after necessary scrutiny, gives its seal of approval. Besides, the participating financing institutions (PFIs) of the CGS are required to pay fees to the central bank for utilising the CGS money. Then again, the CGS essentially being a risk-sharing process guarantees a coverage ratio up to 80 per cent of the outstanding principal loan. In the event of default, the CGS unit of the BB bears only 30 per cent of the portfolio guarantee limit of any PFI.

Given the conditions set in the manual of CGS for CMSMEs, it is important to know the progress made so far in the disbursement of loans meant to help the pandemic-stricken micro, small and medium enterprises. Banks and FIs cannot dole out money, since their funds belong to their depositors. There is no denying that the poorer segments of the population need access to formal financing. The pandemic has only heightened their need.

The special financing window could be an effective instrument to help these people tide over their financial problems or start new and small businesses. In every lending, there are always certain elements of risks. Even large borrowers having sizeable assets default on loan repayments. The huge volume of classified loans---well over Tk. 1.0 trillion---that have been troubling the country's banking industry is a case in point. The slackness, deliberate or otherwise, on the part of the regulator concerned and banks are blamed for making the problem of non-performing loans a full-blown one. In such a situation, the so-called 'no-frills' borrowers can, surely, claim some sympathy from the banks and FIs.