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The government is announcing another new incentive package despite the disappointing distribution of credit incentives announced for small and medium-sized enterprises (CMSMEs) affected since the novel coronavirus outbreak. This amount will be 10 thousand crore rupees. Under this package, loans will be granted to home, micro and small entrepreneurs (CMSE). Medium-sized entrepreneurs have been left out.
A fund of Tk 20 billion rupees was announced before providing a working capital service to the CMSME sector. From this fund, the loan facility is granted to clients at an interest rate of 9%. The government is giving a 5 percent subsidy. The package has been extended until December.
On the other hand, in the new CMSE sector, the government is going to announce a credit incentive, where clients must pay a maximum interest of 14 percent. The government will provide a 5 percent subsidy.
Economists have called the decision to announce a new package without implementing the old incentive package “irrational.” They say that the above must be implemented first. With interest rates, they say, small entrepreneurs can become delinquent.
Previously, the government had announced incentive packages worth Tk 1,21,353 crore in 21 sectors to tackle the crown and revive the economy. From there, Rs 20 billion will be given to the CMSME sector as working capital. If a new incentive package of Tk 10,000 crore is announced in the CMSE sector, the total number of incentive packages in 22 sectors will be Tk 1,31,353 crore. In the new incentive sector, the government will have to calculate interest spending of Tk 500 crore on subsidies.
A responsible official from the Finance Ministry told Kaler Kanth, on condition of anonymity, that the government will bring this incentive after thinking about small-scale industries. This will boost the economy, there will be jobs.
Asit Varun Das, Associate Director of Finance and Accounts for BRAC, a private development agency, told Kaler Kantha: “We will not get any benefit from the new incentive package announced by the government. We want to be in the public interest of the state. The challenge here is whether commercial banks will be able to provide the money we need. However, we believe that even if banks do not reach out to small industries in the package above, we will be able to do so. This will benefit these industries.
According to interested sources, the CMSME sector has been receiving loan incentives of Rs 20 billion as working capital over a period of three years. Therefore, the government considers that there is no need for new incentives for this sector. On the contrary, the rest of the sector needs more help. As incentive package number 22, a credit assistance of Tk 10 billion will be granted to the hut, micro and micro sector (CMSE). The duration of this package will be five years. The package will be implemented by the Bangladesh Bank, the Microcredit Regulatory Authority (MRA), commercial banks, financial institutions and microfinance institutions (MFIs). It will be financed by all listed banks and financial institutions. And MRA-certified microfinance institutions will fund at the client level. The new package can be taken to the next cabinet for approval. The Finance Ministry sent it to the cabinet department last Thursday.
According to the Ministry of Finance, 45 percent of the loan from the new incentive package will go to the unproductive sector (companies). And 55 percent will be distributed in the manufacturing and services sectors.
Who receives the money at what interest: At the consumer level, the maximum loan limit will be Tk 50 lakh. However, the cottage industry will get five lakh rupees. Very small industrial loan will get 10 lakh rupees. And small industries will get a maximum of Rs 20 lakh. Under the package, the Bangladesh Bank will finance banks and financial institutions at a rate of 0.5 percent. Banks and financial institutions will finance microfinance institutions at an interest rate of 2.5 percent. Microfinance institutions will charge a maximum interest rate of 14 percent on financing at the consumer level. The customer must pay 9 percent. The remaining 5 percent will be paid by the government as a subsidy. The government will return the money to the microfinance institutions. Borrowing entrepreneurs will receive a maximum grant of one year. Banks or financial institutions may lend / invest up to 2-5% of the existing loan balance to microfinance institutions.
Independent Loan Disbursement Policies: The government has formulated a separate policy for the disbursement of loans to the affected CMSE sector with new incentives. Regarding the purpose of the policy, the proposal sent by the Ministry of Finance to the Cabinet Division said that the role of the incentive package is important in the creation of small entrepreneurs at the marginal level, the creation of employment and above all the increase of economic activities. The policy states that MRA applicants must obtain a certificate of eligibility for a loan from a microfinance institution. Within three business days of receiving the request from the financing bank, the MRA will issue a certificate of solvency to the microfinance institution. Banks or financial institutions will complete the disbursement of loans at the MFI level within one week after receiving the certificate from the microfinance institution. Once the loan is received, the MFI will guarantee the disbursement of the loan at the client level. A microfinance institution can borrow from a maximum of three banks. However, in this case, the sum of the loans taken from all the banks must be within the MFI’s maximum loan limit. The term of the loan granted by the bank or financial institution to the MFI will be two years. Under this policy, any existing loan cannot be adjusted or repaid.
According to sources, most of the Tk 20 billion rupee incentives previously announced by the government in the CMSME sector were not distributed due to paperwork and guarantees. In the new incentive, the government says that the client must have a copy of the national identity card / birth registration certificate / passport with the loan application. In addition, there must be a business license / certificate from the city corporation / municipal councilor / union council president in question. Confirmation of either one must be sent.
Old incentive money yet to be distributed: The loan disbursement began on April 13 under the package announced by the government as working capital for small entrepreneurs, that is, the CMSME sector. But banks are reluctant to disburse loans to small entrepreneurs due to various complications, including paperwork restrictions and uncertainty about loan repayment. Although the loan disbursement period was extended due to many compulsions, the expected results did not match.
According to the report of the Ministry of Finance, 8,217 crore of Tk have been distributed out of the 20,000 crore package of Tk as of November 30.
What economists say: Former interim government adviser AB Mirza. Azizul Islam told Kaler Kantha: “The government has made an irrational decision. While the previous incentive package for the CMSME sector was implemented at 40 percent, there are doubts about the effectiveness of the new incentives. You think it would be better to announce a new package after deploying the old package.
Economist Tawfiq Ahmed Chowdhury, former CEO of the Bangladesh Institute of Banking Management (BIBM), told Kaler Kanth: “If the new incentive is given through an MFI, it is likely to go to the root level. However, the above incentive has not yet been fully implemented. So we have to see that it is implemented.
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