The central bank has released the credit guarantee scheme manual that ensures covering maximum 30 per cent loss of selected loan portfolios of the cottage, micro and small enterprises (CMSEs) in case of default.
The participating financial institutions (PFIs), scheduled banks and non-banking financial institutions (NBFIs), will get 80 per cent coverage of a credit given to an individual or a company under the scheme.
The PFIs will take the remaining 20 per cent risk of the outstanding loan/investment, according to the manual, issued by the Bangladesh Bank (BB) on Tuesday.
"This guarantee scheme will cover potential CMSEs with viable business expansion plans which are suffering from lack of collateral," the manual reads.
The women-owned CMSEs will get the priority to obtain such facility, it added.
The credit guarantee scheme provides for third-party credit risk mitigation to lenders through the absorption of a portion of the lender's losses on the loans made to CMSEs in case of default, typically in return for a fee.
Earlier on July 23 this year, the board of directors of BB approved a policy on Credit Guarantee Scheme (CGS) for the first time, aiming to expedite financing in the country's CMSEs.
Existing cottage, micro, and small businesses in the manufacturing, services, and trading businesses can avail the guarantee facilities if they have no collateral or insufficient collateral for their required bank finance, according to the scheme.
"In case of insufficient collateral, the CGS Unit will provide guarantee for uncovered portion of the coverage ratio," it explained.
Under the scheme, the PFIs having default loans more than 10 per cent will not be allowed to enjoy the support from the scheme. The provision will not be applicable for the eight state-run banks.
The PFIs having default loans below 5.0 per cent will have to give 0.50 per cent commission to the central bank while the lenders with more than 5.0 per cent classified loans would have to pay 0.75 per cent.
The lenders will have to bear a 1.0 per cent charge as registration fee to the credit guarantee scheme.
The PFIs will not keep any provisioning against their loans covered by the scheme for CMSEs.
Talking to the FE, a BB senior official said the CGS will help implement the government announced Tk 200 billion working capital loans for the cottage, micro, small and medium enterprises (CMSMEs).
"It will facilitate good borrowers having no collateral providing capacity to banks or NBFIs for getting loans," the central banker said while explaining the main objective of the scheme.
He also said that the CGS can be an important tool to encourage lending to the potential CMSEs with no or insufficient collateral.
Talking to the FE, Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank Limited, said that it is a very good beginning.
"But we need to enhance the size of the fund considering the number of banks and NBFIs to encourage them to lend more in the CMSEs."
The initial fund size under the CGS has been fixed at Tk 20 billion.
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