A well-intended programme, the Equity Entrepreneurship Fund (EEF), of the government is now under threat of being wound up. The default culture that has been troubling the country's banking sector for long is also the main villain here.
After 16 years of the launch of the programme, introduced with the pious objective of creating a new band of young and talented entrepreneurial class in information technology (IT), food processing and agro-based industries, the Bangladesh Bank (BB) has suggested the government to wind it up.
The project director of EEF, who is also executive director of BB, has reportedly written to the ministry of finance (MoF) justifying the reasons for discontinuation of the EEF. The BB used to manage the Fund until June 2009. Later the management responsibility was transferred to the Investment Corporation of Bangladesh (ICB).
The reasons behind suggesting winding up the programme include failure of a large number of private EEF participants to buyback the government's shares as per terms and conditions and indulgence in corrupt and fraudulent practices by a section of so-called entrepreneurs to eat up money received from the EEF.
According to a report published in a contemporary a couple of days back, at least 229 projects have failed to buy back the government's equity worth over Tk. 3.48 billion, though the stipulated time to do that expired long ago. There is every possibility that some other recipients of the EEF money would also default on repayments to the government through share buy-back. And that was entirely an amount of money, given not as any interest-bearing loan, but as equity support.
The procedures of sanctioning money from the EEF in the form of government's equity and paying back the same in instalments are quite strict. Yet many have defaulted on the repayment.
The default on the part of the EEF participants had made the BB worried. In 2014, it employed the Bangladesh Institute of Development Studies (BIDS) to conduct a field survey to know the state of affairs with the projects that had received the government's equity money from the EEF.
The survey results were quite frustrating for the BB. The people engaged in the survey could not locate a large number of projects at the sites mentioned in the project documents. A good number of EEF recipients, whose offices could be located, deliberately avoided contacts with the BIDS survey teams. Some firms that are in operation spoke about a good number of operational problems they were facing. The BIDS survey described such entrepreneurs as 'distressed' ones.
The BB which operates the project finds it difficult to sue the entrepreneurs who have defaulted on buying back the equity part of the government in their firms. It is not that entrepreneurs have taken loans. Rather the funds they have got are in exchange for shares transferred to the government. In that case the legal battle, if there is any, would be between business partners, not between borrowers and a lender.
The unsavoury outcome of EEF, however, is nothing surprising. Borrowers from banks are, in most cases, required to give collaterals against the loans they receive. Yet a good number of them default on repayments, deliberately or otherwise. The valuation of mortgaged property remains a factor here. In the case of sanctioning EEF money to private entrepreneurs, the government does not have any collateral barring the share certificates. The certificates might prove to be useless pieces of paper, in a number of cases.
Political interference and corruption might have played a role in the approval of money from the EEF. When there is no built-in mechanism to regulate and supervise the financing under this kind of special fund, the scope of political interference and corruption remains high.
Getting money from the EEF, according to the laid-out procedures, is very tough. Prior to sending applications to sanctioning committee, the technical and financial sub-committee in the ICB remains responsible for doing necessary scrutiny. If necessary, its members are supposed to visit project sites. If that is so, why would the BIDS survey teams found many projects missing from the sites mentioned in the project documents.
There is no denying that innovative start-ups do need government supports. But in the name of such financial help the government cannot allow plunder of taxpayers' money. If the government wants to be an equity holder in the start-ups in IT, agro-based and food processing sectors, it will have to be an active partner until the expiry of the contract period. That seems to be an impossible task on the part of the government. So, the MoF might consider some other options. One could be in the form of low-interest loans for the start-ups under a refinancing scheme. But the scheme should be a properly supervised one.
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