Startups with novel ideas to grow  

Friday, 2 April 2021

The Bangladesh Bank (BB) has taken yet another initiative to support startups with low-interest, collateral-free loans. With this end in view, a TK 5.0 billion refinance scheme has been created from which commercial banks as well as other financial institutions will advance loans to those ventures at a maximum of 4.0 per cent interest. The initiative undoubtedly reflects the BB's earnest desire to help young entrepreneurs with new ideas, who are running their business on a shoestring budget. They often do not qualify for mainstream bank credit as they cannot provide the collateral security to access normal bank credit. It may be recalled at this point that previously the BB took similar initiatives to provide credit support to startups, but without much success. A decade back, an equity-based Entrepreneurial Equity Fund (EEF) was created with similar intentions. But after it failed due to wrong choice of clients for equity participation, another effort, the so-called Entrepreneurial Support Fund (ESF) was launched to provide very low-interest (at 2.0 per cent) funds to startups. This attempt too did not produce any noteworthy result as the loan was tied to collateral security which most of the interested entrepreneurs were unable to provide. Also, the long-drawn, complicated banking procedure was another barrier.

Now the central bank has come up with the very potent idea of zero-collateral bank loan for startups.  However, a similar move with a TK1.0 billion fund was also made by the BB some six years back. It, too, was a refinancing scheme as the commercial banks to extend the credits would get back their funds by way of reimbursement from the central bank. Moreover, to qualify for the credit, the prospective borrowers were required to have prior training in the trades they were supposed to invest the loan money in. The organisations to provide such training would be public or private entities such as apex business bodies. But the programme did not take off the way it was expected. Why the earlier approaches fell short of expectations is anybody's guess. But what is plain is that it was hard for such inexperienced entrepreneurs or startups with little or no other capital than their innovative business ideas to fulfil all the requirements as a borrower. Most importantly, the high interest rate (at 10 per cent) that the programme had fixed against the loans was perhaps the biggest hurdle.

Though the previous startup support programmes were initiated with the best of intentions by the BB, the efforts ultimately fell through. So, for the BB's present move of providing credit support to startups to succeed, it has to be foolproof. Especially, as before, the banks through which the loans are to be channelled will play a crucial part in the success of the present move. To be frank, a lot will depend on the bank officials who would process the loan papers for startups. They will have to be more proactive so that no application by a prospective loan-seeking startup is dismissed on a flimsy ground. What is more, they will have to bring about a big change in their traditional mindset about who can qualify as a loan client. Admittedly, the central bank's latest move is radically different from earlier efforts. Hopefully, this time, the young entrepreneurs with innovative ideas will be amply benefited by the central bank's new pro-startup credit programme.