The government is going to introduce an alternative loan support model soon replacing the existing equity fund, in an attempt to bring entrepreneurs under a legal framework, officials said.
The move comes as the government could neither properly monitor the Equity and Entrepreneurship Fund (EEF) activities nor make the fund receivers accountable to it due to legal loopholes, they added.
So, the Bangladesh Bank (BB) has made an alternative proposal to set up the 'Entrepreneurship Support Fund (ESF)'.
The central bank is expected to launch the loan model soon to help recover government funds in case of project failure.
The government created the EEF in the fiscal year 2000-2001 to extend support to the two promising sectors -- agro-based food processing and software for which Tk 1.0 billion was allocated.
Contacted, General Manger of the EEF Unit of the central bank Parimal Chandra Chakraborty said, "The final draft of the proposed ESF policy model has been sent to the finance ministry, seeking its opinion before getting approval from the law ministry."
"We have proposed bringing all entrepreneurs under legal framework. Currently, the EEF policy is share-based," he mentioned.
The initiative has been taken considering it necessary to recover disbursed funds properly and make a time-befitting policy and law for recovering the funds disbursed to EEF programmes, said a BB source.
According to the proposed structure of the loan model, a minimum of Tk 0.8 million and a maximum of Tk 50 million in loan support will be provided for agro-based industries.
And a maximum of Tk 120 million support fund will be given to machinery-dependent agro-based project, the proposal said.
IT-based projects will be entitled to get a minimum of Tk 0.5 million and a maximum of Tk 50 million in loan assistance.
The ESF funds will support up to 49 per cent of a project's cost while the entrepreneurs will invest the remaining 51 per cent.
The central bank has suggested that the loan tenure should be eight years and the interest rate 2.0 per cent.
After receiving the first instalment of the fund, entrepreneurs will have to implement the project fully within one and a half years, otherwise they will have to refund the loan with interest.
It is mandatory for the entrepreneurs to invest its equity within one year of receiving the ESF sanction letter.
Two sanction boards and two evaluation committees will be formed and the board and committee members will receive honorarium.
In the new policy, the BB also proposed making registered mortgage of company properties mandatory against loans so that the money could be recovered by selling them off.
The grace period for the loan will be four years instead of existing three years and the remaining loans will have to be repaid in eight six-monthly instalments, the proposed model mentioned.
Under the EEF, a major weakness in the project operation is proper selection of entrepreneurs, a high official of the BB said.
Many entrepreneurs have defaulted on loan repayment and failed to buy back government shares as per terms and conditions, he added.
According to an investment agreement of EEF, an entrepreneur needs to complete buyback within eight years. In case of failure, the entrepreneur concerned should face action. But the process is complex and legally ineffective.
No funds could be recovered as yet by filing cases.
Currently, a significant number of entrepreneurs have stopped making payments taking advantage of legal and policy limitations, a senior official of the central bank said.
The latest move has been taken to bring such entrepreneurs under the legal framework aiming to make the recovery of funds easier, an official of the Financial Institutions Division said.
The central bank was the implementing agency of the EEF project until May 2009. Later, the operational function of the fund was transferred to the ICB.
Since then, the central bank has been formulating fund management policies and monitoring the investment activities of the EEF.
According to officials, since its inception, the government has allocated Tk 20 billion in favour of the fund, of which Tk 15.13 billion went to the agriculture sector and Tk 5.12 billion went to information and communication technology (ICT) sector as of March last year.
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