The Financial Express

$300m funding likely to be available for CMSMEs

| Updated: October 24, 2020 10:49:23

Picture used for representational purpose. Photo courtesy: IDLC Finance Ltd Picture used for representational purpose. Photo courtesy: IDLC Finance Ltd

Bangladesh has sought US$300 million budgetary support from the Asian Infrastructure Investment Bank (AIIB) to facilitate providing working capital to its cottage, micro, small and medium enterprises (CMSMEs), affected by the Covid-19 pandemic, officials said.

The China-based multilateral lender is likely to provide the fund to the Bangladesh Bank (BB) for distributing among the struggling CMSMEs across the country, they added.

"We've already requested the AIIB for the budgetary support. Since the CMSMEs are struggling due to impact of the coronavirus outbreak, the foreign assistance is highly needed," said an official of the Economic Relations Division (ERD).

The AIIB has already assured of providing the loan, expected to be disbursed within this fiscal year, 2020-21, he told the FE.

According to the AIIB, the institution is expected to provide the fiscal support under its "COVID-19 Emergency and Crisis Response Facility" programme for facilitating businesses of the cottage, micro, small and medium business establishments.

The aim of the refinancing loan is to provide liquidity support to the commercial banks and non-bank financial institutions (NBFIs) that will lend working capital to sub-borrowers under the government-announced Tk 200-billion stimulus package for the CMSMEs.

The loan will only be used for working capital financing, comprising employee wages, inventory, payments on short-term debt, and other day-to-day operating expenses, the China-based lender said.

An official of the Ministry of Finance (MoF) told the FE that since the coronavirus pandemic has affected the economy severely, the pressure on the national budget as well as on the internal resources has mounted.

So, the government is searching for external funds for financing the budget as well as the stimulus packages in a bid to revitalise the economy, he added.

When asked, another official of the ERD said, "We have already discussed with the AIIB about the $300 million budgetary support. We are hopeful of getting the loan within this year."

The fund will be given to the BB and then the central bank will provide it to the commercial banks and FIs for disbursing among the struggling CMSMEs as working capital support, he added.

Bangladesh's CMSMEs have been hit hard by the Covid-19 pandemic, and the country's majority of jobs are created by this sector.

Besides, 85 per cent of the country's total jobs are in the informal sector, where the CMSMEs are playing the vital role.

The Bangladesh government in April 13 announced a Tk 200-billion stimulus package, under which the commercial banks and FIs will provide working capital loans from their own funds to the Covid-19-affected CMSMEs.

Interest rate of this loan is 9.0 per cent per annum, whose 4.0 per cent will be paid by the client(s), and the rest 5.0 per cent will be paid by the government directly to the banks and NBFIs as subsidy.

The central bank also formed a revolving refinancing scheme, amounting to Tk 100 billion, from its own resources, in order to provide liquidity support to the banks and FIs as well as to assist them in their working capital financing under the government's stimulus package.

Under the refinancing scheme, the BB will refinance up to 50 per cent of the loans, disbursed by the banks and FIs to the CMSMEs.

Meanwhile, the government has so far announced a set of stimulus packages worth around $11.90 billion (Tk 1.011 trillion) to offset the Covid-19 shock on various sectors of the country, and minimise sufferings of the people, hit hard by the nationwide shutdown enforced to fend off the pandemic.

A total of 18 economic sectors, including export-oriented industries; small, medium and cottage industries; agriculture; fish farming; poultry and livestock have been brought under these incentive packages.

Among the packages, the highest amount of Tk 300 billion has been allocated for providing working capital facility to the affected industries and service sector organisations, followed by Tk 200.00 billion stimulus package for supplying working capital to the CMSMEs.

The other stimulus packages, announced by the government, are Tk 50.00-billion special fund for the export-oriented industries; and expanding the facilities of Export Development Fund (EDF), introduced by the BB, with Tk 127.50 billion.

Besides, Tk 50 billion incentive package for the pre-Shipment Credit Refinance Scheme; Tk 1.0 billion for special honourarium to the doctors, nurses and health workers; Tk 7.50 billion for health insurance and life insurance; and Tk 25.03 billion for free distribution of food materials have been announced by the government.

In addition, agriculture subsidy amounting to Tk 95 billion, agriculture refinancing scheme of Tk 50 billion, Tk 30-billion refinancing scheme for the low-income professional farmers and small businessmen, selling rice at Tk 10 per kg programme with Tk 2.51 billion, and distributing Tk 12.58 billion cash among the target-based communities have been announced.

Moreover, incentive packages for expanding the coverage of allowance programme at Tk 8.15 billion, building houses for the homeless people at Tk 21.30 billion, Boro rice/paddy purchase operation (additional 200,000 metric tonnes) at Tk 8.60 billion, and mechanisation of agriculture works at Tk 2.00 billion have been declared to tame the coronavirus pandemic impact.

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