Bangladesh Bank launches Tk 15 billion fund for small loans

Bangladesh Bank has launched a Tk 15 billion refinancing fund designed to bring small entrepreneurs, low-income professionals and marginalised groups into the formal banking sector. The Financial Inclusion Department of the central bank issued a circular on Thursday detailing the scheme, which provides collateral-free credit to those who often struggle to secure traditional financing due to a lack of documentation or assets.

Under the new policy, banks will access refinancing from the central bank at an annual interest rate of 1 per cent. They are permitted to lend these funds to customers at a maximum annual interest rate of 7 per cent. The initiative is intended to improve living standards by supporting income-generating activities in local communities and villages across the country.

Individual borrowers may apply for loans of up to Tk 10 lakh, while group loans are capped at Tk 40 lakh. For loans up to Tk 5 lakh, no collateral is required. The tenure for these loans is set at five years, with the possibility of a grace period of up to six months for repayment. For loans exceeding Tk 5 lakh, banks may request reasonable collateral based on their relationship with the customer.

The scheme prioritises a wide range of applicants, including small traders, farmers, women entrepreneurs, students, and people affected by natural disasters. Bangladesh Bank has mandated that at least 25 per cent of the total loan disbursement must be allocated to women. Shariah-based banks are also eligible to participate, provided their annual profit rate does not exceed the 7 per cent cap.

The list of eligible occupations is extensive, covering fishermen, cobblers, goldsmiths, hawkers, blacksmiths, potters, tailors, rickshaw and van drivers, carpenters, masons, plumbers and those in the repair sector. Small-scale food producers, weavers, tea workers, and various mobile vendors are also included. Beyond traditional trades, the scheme covers freelancers, nursery businesses, cottage industries and innovative ventures.

Special provisions are included for students, with those up to 25 years old eligible for loans to cover vocational or technical training. Higher education costs, including medical and engineering studies, are also covered, provided a guardian offers a repayment guarantee. For group loans, two to five people must form a group, with each member eligible for up to Tk 8 lakh, while all members remain jointly and individually liable for repayment.

To facilitate access, banks are authorised to distribute these loans through various channels, including branches, sub-branches, agent banking outlets, and mobile financial services. While banks must review a customer's Credit Information Bureau report before approval, they are prohibited from charging fees for such reports on loans up to Tk 3 lakh. Financial institutions are also required to conduct regular monitoring to ensure the funds are utilised for their intended purposes and must submit quarterly reports to the central bank.