Stimulus for CMS enterprises: BB launches credit guarantee scheme

The central bank has approved a policy on Credit Guarantee Scheme (CGS) for the first time aiming to expedite financing in the country's cottage, micro and small (CMS) enterprises, officials said.

The approval was given at a meeting of the Bangladesh Bank (BB)'s board of directors, held at its headquarters in Dhaka on Thursday, with BB Governor Fazle Kabir in the chair.

A credit guarantee scheme provides third-party credit risk mitigation to lenders through the absorption of a portion of the lender's losses on the loans made to CMS in case of default, typically in return for a fee.

"Our board has approved the policy on CGS to expedite financing for the CMS enterprises across the country," BB spokesperson and executive director (ED) Md. Serajul Islam told the FE after the meeting.

Mr. Islam also said the interested banks will have to sign agreements with the central bank for taking advantage of the CGS.

The CGS is expected to be used for encouraging banks to lend to comparatively risky segments such as the CMS.

The initial fund size under the CGS has been fixed at Tk 20 billion, according to Abu Farah Md. Naser, another ED of the central bank.

He also said the central bank is empowered to provide guarantee worth Tk 83.20 billion to the scheduled banks under the CGS.

"We'll announce the policy in this connection formally next week," Mr. Naser said while replying to a query.

He also said private commercial banks, which have more than 10 per cent non-performing loans, will not be eligible for the CGS.

"The CGS will help implementation of the government-announced Tk 200 billion working capital loans for the cottage, micro, small and medium enterprises (CMSME)," the central banker noted.

Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB), welcomed the BB's latest moves, saying that it would help increase financing in the CMS enterprises.

"Definitely, the CGS will help in implementation of the government- announced financial stimulus packages for the CMSME," Mr. Rahman, also managing director and chief executive officer of Mutual Trust Bank Limited, said.

Prime Minister Sheikh Hasina has so far announced a total of 19 stimulus packages worth Tk 1.03 trillion to offset the shock of novel coronavirus (COVID-19) pandemic on various sectors of the country.

The packages, which are 3.7 per cent of the country's gross domestic product (GDP), will be implemented under the supervision of the central bank and the ministry of finance.

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