SMEs need urgent help too

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The central bank should form financial package immediately for small and medium enterprises (SMEs) to tide them over during this time period of economic upheaval due to the coronavirus outbreak, according to experts.

"The SMEs represent 70 per cent of the complete economy -- GDP growth will nosedive otherwise," said Arif Khan, managing director of IDLC Finance, adding that central banks from all over the globe have already announced packages because of their SMEs.

One way would be to by way of refinance scheme, that the SME sector will get their desired funds to save lots of their businesses.

The Bangladesh Bank should slice the bank rate by at least 2.50 percentage points from the prevailing 5 per cent because of its refinance schemes, authorities said.

The bank rate is the rate at which the central bank gives funds to banks from its refinance scheme for disbursing to get rid of users.


Under the ongoing refinance schemes for different sectors, the central bank usually lends money at 5 per cent interest to banks, which in turn disburse the funds to businesses at 9 % interest rate.

There are about 10 refinance schemes operated by the BB for businesses, of which six are dedicated to the SME sector.

The six schemes' outstanding loans stood at Tk 1,429 crore at the end of last year.

Although the central bank's monetary policy committee slice the policy rate and reduced the money reserve ratio on March 23 to tackle the ongoing financial crisis stemming from the coronavirus pandemic, it had not reached a consensus on the bank rate.

"There is absolutely no scope to provide financial support to the SMEs without cutting the bank rate," Khan said, while calling for a brand new refinance scheme worth Tk 50,000 crore for the sector.

The scheme ought to be formed within the lockdown period in a way that financial institutions can begin offering the funds once regular activities resumes on April 4, he added.

Banks are facing liquidity crunch as clients are withdrawing adequate money to create ends meet through the existing crisis period, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank, echoed the same.

Against the setting, the central bank should complete the preparation of rolling out fresh refinance schemes, said Rahman, also an instantaneous past chairman of the Association of the Bankers, Bangladesh, a forum of banks' managing directors.

Lenders should be able to hand out loans at the rate of 7-8 % if the central bank cuts the bank rate.

But that is unlikely. Asked if the BB would roll out any refinance scheme, its Spokesperson Md Serajul Islam said that the mandatory preparation would start after the lockdown is lifted.

Cottage, micro and smaller businesses are feeling the most monetary pinch from the impact of the coronavirus pandemic, said Salehuddin Ahmed, a former governor of the central bank.

A large level of refinance scheme can help them restore their businesses, or else they'll be in a moribund state, he said.
Source: https://www.thedailystar.net

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