Banks and financial institutions with classified loans of up to 20% will now be eligible to participate in managing the Tk 25,000 crore refinancing fund established for cottage, micro, small and medium enterprises (CMSMEs). Previously, any institution with more than 10% non-performing loans (NPLs) was disqualified from accessing the fund.

The SME and Special Programs Department of the Bangladesh Bank issued a directive to this effect on Wednesday (November 12), relaxing the previous conditions for participation in the scheme.

According to the new circular, the maximum allowable limit for classified loans or investments of participating banks and financial institutions under the refinancing and pre-financing schemes has been set at 20%. However, all other conditions mentioned in the previous circular will remain unchanged.

The central bank also stated that, considering the government’s priority sectors, the three-year, Tk 25,000 crore fund will continue to operate as a low-interest credit facility for entrepreneurs until further notice.

Formed in July 2022, the Bangladesh Bank introduced the fund titled “Refinancing Scheme against Term Loans in the CMSME Sector.” Under this scheme, banks and financial institutions can borrow funds from the central bank at 2% interest and lend to entrepreneurs at a maximum rate of 7%. Although the scheme’s tenure is three years, the repayment period for entrepreneurs, including the grace period, may extend up to five years. The size of the fund may be expanded if necessary.

The circular further instructed that priority should be given to women entrepreneurs, persons with disabilities, and those affected by natural disasters or pandemics. At least 70% of the distributed loans must go to manufacturing and service sectors, while a maximum of 30% can be allocated to trading activities. Of the total loans disbursed, a minimum of 75% must be provided to cottage, micro, and small enterprises, and the remaining 25% may go to medium enterprises.

According to the latest data from the Bangladesh Bank, the volume of non-performing loans has increased by around Tk 4 lakh crore in just one year, reaching a record Tk 6.67 lakh crore.