Complexities have engulfed stimulus loans for the cottage, micro, small and medium enterprises (CMSMEs) as many small businesses are deprived of the facility while banks are struggling to get the interest subsidies.
CMSMEs are seen as the main driver of economic recovery from the pandemic. Tk 200 billion low-cost stimulus loans with interest subsidies have been announced for CMSME for three years.
On the other hand, banks are supposed to get the additional 5 percent interest as a subsidy from the government after every three months. But they did not receive the subsidy for March, June, September and December quarters’ last year mainly for their alleged involvement in disbursement irregularities, banks officials said.
CMSMEs represent 90 percent of businesses. Formal SMEs contribute up to 40 per cent of national income (GDP) in emerging economies like Bangladesh.
80 percent of total employment in the industry sector comes from CMSMEs contributing about 45 percent value addition in the manufacturing sector, business leaders say.
In the last fiscal year, banks disbursed Tk 153.87 billion loans of 76.93 percent of the loan package.
The second phase loan disbursement in FY22 slowed down further Tk 62.17 billion or 31 percent as of February 09, according to Md Jaker Hossain, General Manager (SMESPD), Bangladesh Bank.
He also requested the loan seekers to maintain proper documents and cooperate with banks to get loan in a faster manner.
The rate of business recovery among the loan recipient CMSMEs is 71 percent against 58 percent business recovery for the non-recipients, finds the SANEM survey.
“Large and organised sectors are stronger than small businesses. So, they can bargain with the government and remain in a better position in getting any facility,” SANEM Executive Director Dr Selim Raihan said.
The CMSMEs lag behind in getting government facilities because they are less organised, he explained.
Meanwhile, the uncertainty surrounding the loan subsidy has put banks in a dilemma in showing their income in annual report for 2021, even though the government has assured them of resolving the issue after necessary scrutiny, some bankers informed.
The interest subsidy got stuck mainly because of banks’ irregularities in stimulus loan disbursement, the central bank officials said.
There is a provision for preparing a short inspection report by the central bank prior to finalising banks’ annual reports. Bangladesh Bank is yet to complete its inspection on the annual reports.
The central bank found irregularities in the loan disbursement in various inspections conducted earlier.
The inspection reports found evidences for the stimulus loans shifting to other areas or to large firms.
Some loans were encashed through pay orders or some big firms repaid their high-interest loans with the low-cost stimulus loans meant for CMSMEs by infringing rules, BB reports said.
Even, some loans were enchased for purchasing land or some firms utilised the loans for adjusting their previous loans.
Prior to releasing subsidies, the finance ministry verifies 10 percent of the loans. It stopped releasing the funds after finding the anomalies, official sources said.
Some bankers said the uncertainty surrounding subsidies may make banks more reluctant for providing loans to CMSMEs as they already take less interest in such loans.
The bankers also cited higher fund management cost and procedural hassles in disbursing small loans.
There is also ambiguity in CMSME definition for getting stimulus loans. For getting the loan, at first an entrepreneur needs to be categorised as CMSME businessman.
“In the field level there might have some misconceptions among the bankers and entrepreneurs that hinder slow disbursement process,” central bank official Jaker Hossain said
The BB official dealing with the SME sector also suggested the loan seekers to maintain proper documents and cooperate with banks to get loan in a faster manner.