BUILD hails BB for launching Credit Guarantee Scheme

Business Initiative Leading Development (BUILD) welcomed the Bangladesh Bank initiative for introducing a Credit Guarantee Scheme (CGS) for the first time aimed at easing financing  support for cottage, micro and small (CMS) enterprises through an SMESPD Circular no 3 issued on July 27 last.
BUILD hopes that the CGS will help expedite the implementation of the government-announced BDT 20000 crore working capital loans for the cottage, micro, small and medium enterprises (CMSME).
This initiative will ensure more competitiveness of the CMS enterprises in terms of access to finance and as a result, these COVID-19 affected enterprises will become more vibrant, but its full operation needs proper care so that it works for the CMS sector, BUILD said in a statement on Wednesday.
It said BUILD had raised this issue of introducing a credit guarantee scheme for the CMSMEs in several platforms and also in a recent virtual dialogue on June 23, emphasizing for formalization of the informal sector as the key to the SME sector's growth.
CGS would work as a  third-party credit risk mitigation to the banks/NBFIs through the absorption of a portion of the lender's losses on the loans disbursed   to the cottage, micro and small enterprises(CMS). CGS  will be used in replacement of collateral issues that CMS is facing for quite long. Initially, this scheme facilities will be applicable for Stimulus Packages(SP) of BDT 20000 crore as a form of collateral-free working capital loan for giving support to the CMSME sector.
Many of the commercial banks in the country so far have shown their unwillingness to distribute loans from the stimulus package because of the current 9 percent lending cap and specially  in financing CMSMEs because of the high operational cost for SME loans.
Upon the  introduction of the credit guarantee scheme, the bank can get up to 30% portfolio guarantee cap of their CMS working capital portfolio where an individual or a company will get 80 percent coverage of a credit given by the banks.
Therefore, banks will avail the fund from the scheme if loans get unpaid by the borrower as per the agreement. As a result, banks will be  interested in disbursing the working capital loans to the CMSMEs under the COVID-19 stimulus package.
Under this 30% portfolio of CMSME loan ,  70% will be covered by the manufacturing and service sector (Cottage, micro and small)  and rest 30% for trading sector. This bar can shrink the CGS operation as in the CMS sector there  is a large number of business in the trading sector.
On the other hand the sectors will be identified as per the CMSME Master circular where there are- manufacturing sector will be 7 high priority and 24 priority sector of Industrial policy and  Service  will be 33  sectors where the trading sector has not been defined.