Collateral-free loans for SMEs at 9% interest

The Small and Medium Enterprise Foundation (SMEF) yesterday began disbursing collateral-free loans at an interest rate of 9 percent, the lowest in the country, to help promote small and medium entrepreneurs.

“The government sincerely wants to support the country's small and medium entrepreneurs. Therefore, we are constantly working to disburse loans to them at a low interest rate,” said Dilip Barua, industries minister and chairperson of SMEF.

“We are also trying to lower bank interest rates, the main obstacle to the country's industrial development. A lowered rate of interest would not only help the country's SME entrepreneurs but also the national economy,” he added.

He was speaking at a loan handover ceremony "Credit Wholesaling Pilot Programme" organised by SMEF at its office in Dhaka.

“The government has decided to disburse these loans for the manufacturing sector only, instead of the trading sector. We would like to encourage the manufacturing sector to develop the country's status as an industry-based economy,” he added.

Barua stressed modifying the Money Loan Court Act and said, “The act should have a balanced position, instead of favouring the lender. The major shortcoming of this act is that it does not favour the borrower."

In 2004, the government received a grant worth $50 million from the Asian Development Bank (ADB) to support the SME sector. Of the total grant, $30 million has been sanctioned as SME loans and $ 5 million spent on entrepreneur training programmes.

The Bangladesh Bank has sanctioned 78 percent of the Tk 500 crore Small Enterprise Fund (SEF) among the SME entrepreneurs, at a 10 percent rate of interest, said Barua.

Under the Credit Wholesaling Pilot Programme, SMEF would disburse Tk 2 crore to Midas Financing Limited and Shakti Foundation. Barua handed over a check for Tk 50 lakh to Rokia Afzal Rahman, chairman of Midas Financing Limited.

Rahman said the government should consider the SME sector as the backbone of the nation, to improve the country's economic condition.

“The SME sector should be the backbone of the country. It currently manufactures a wide range of essential products and recruits a large number of people,” she said.

“The government should have proper plans to nourish and support the sector with capital generation through collateral-free loans at lower interest rates and easy repayment conditions,” she suggested.

She emphasised raising the size of loans, which should be disbursed among a wide range of SME entrepreneurs, to encourage more people to get involved in such entrepreneurship.

She also stressed the need for professional training for the SME entrepreneurs, to make them more efficient.

Professor Momtaz Uddin Ahmed, acting managing director of SMEF, said the pilot programme would disburse the amounts as a pre-financing loan, which would help the entrepreneurs receive the loan in a short span of time.

SMEF was established in 2007 with an endowment of Tk 205 crore from the central bank.

Gazi Abdur Rashid, managing director of Midas Financing Limited, was also present.

Source: The Daily Star, April 16, 2009