Fast-tracking credit to performing businesses

In today's challenging economic landscape, access to timely and appropriate credit has become a critical factor for survival and growth. Yet, in Bangladesh, many fundamentally sound businesses are being denied financing due to a structural rigidity in our credit classification system, one that fails to distinguish between a failing company and its flourishing sister concerns within the same group.

Although Bangladesh Bank's BRPD Circular No. 07 (April 2024) was a welcome policy shift, permitting loans to performing concerns within a group even if another entity is classified, provided the default is not willful and certain conditions are met. The process it mandates remains cumbersome, lengthy, and underutilised. This bureaucratic complexity discourages banks from using the provision. As a result, banks hesitate to proceed, businesses are denied timely credit, and the country loses valuable momentum in industrial recovery and job creation.

THE REAL PROBLEM: ONE BLACK MARK, MANY VICTIMS: The current credit assessment model in Bangladesh still operates on a group-based classification, which means if one company in a corporate group becomes classified, all other sister concerns-regardless of their individual performance-are often treated as high-risk or ineligible for financing.

This system not only restricts liquidity to viable businesses but also creates a vicious cycle: promising enterprises are choked off from working capital, which ultimately pushes them toward distress-adding further to the country's ballooning non-performing loan (NPL) portfolio.

RECENT ICRR CHANGES MAY INTENSIFY PRESSURE: Bangladesh Bank has not extended the relaxed Internal Credit Risk Rating (ICRR) guidelines beyond December 2024. While these relaxed standards had helped businesses qualify for credit during tough times, the return to the stricter scoring model from January 2025 will further narrow borrower eligibility. This dual pressure-from group-based CIB constraints and tightened credit risk ratings-is likely to slow credit growth, increase rejection rates, and may raise NPLs as financially strained but viable firms are pushed into default. Bangladesh Bank should consider extending the ICRR flexibility until the economy gains momentum and stabilizes.

WHAT WE CAN LEARN FROM THE WORLD: Globally, countries like India, Malaysia, the Philippines, South Africa, Nigeria, and even Nepal are evolving towards entity-based credit assessment models. These allow banks to evaluate and lend to businesses based on their own financial strength, rather than group association alone-unless legal or financial guarantees directly tie them to a defaulter.

In contrast, Bangladesh remains one of the few countries where central bank approval is mandatory to lend to a performing concern within a group that has a defaulting member. While this ensures control, it causes serious delays and discourages lending-even when there is low risk.

A SMARTER FRAMEWORK: FASTER LENDING WITH ACCOUNTABILITY: What is needed now is a fast-track lending framework-one that allows banks to lend to low-risk, well-performing group concerns without waiting for BB approval, subject to strict safeguards:

• Risk-Based Segmentation: Classify performing group concerns as Green (low risk), Amber (moderate), or Red (high risk).
• Bank-Level Autonomy: Let banks approve Green-category loans up to a threshold (e.g., BDT 50 crore) with post-disclosure to BB, not prior approval.
• Enhanced Monitoring: Require banks to impose strict end-use covenants, utilize digital fund tracking, and conduct quarterly reviews.
• Digital Portal for BB-Bank Communication: Create an e-approval system for BB review and oversight, reducing paperwork and delay.
• Incentives and Penalties: Encourage ethical lending by rewarding compliant banks and penalizing misuse or negligence.

ETHICS AND REALITY: BRIDGING THE TRUST GAP: It is true that ethical business practices in Bangladesh are still evolving, and concerns over fund diversion are legitimate. But a blanket restriction on all group-linked financing does not solve the problem-it merely punishes genuine entrepreneurs while leaving loopholes for habitual defaulters.

If performing business owners-those who create jobs, export goods, and build industries-are not supported now, the long-term cost to the economy will be far greater than any single bad loan.

Bangladesh Bank must lead this transformation by adopting a balanced approach that enables trust, enforces discipline, and supports growth.

To reduce NPLs, accelerate industrial recovery, and rebuild credit confidence, Bangladesh must shift from bureaucratic control to smart regulation. A well-designed, risk-based fast-track lending framework-alongside thoughtful ICRR flexibility-can deliver both credit discipline and credit access.

Now is the time for reform that works in practice, not just on paper. Let us empower banks to lend responsibly and enable performing businesses to thrive again.

Dr. Md Ariful Islam is a banker and economic researcher. Dr. Syed Md Aminul Karim is a former Member of the National Board of Revenue (NBR) 

syedmakarim@gmail.com