• Friday, Aug 19, 2022
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Financial institutions interested in CGS must declare credit portfolio

  • Published at 07:35 pm July 12th, 2021
Woman making Rangamati and Bandarban Handloom product at Heritage Handloom Festival at Khazana Gardenia in Gulshan-2, Dhaka on Friday, October 5, 2018 Dhaka Tribune

Interested financial institutions have to declare the portfolio based on 31st December of the previous year immediately

Bangladesh Bank on Monday said that financial institutions interested in lending to cottage, micro and small enterprises (CMSEs) under the credit guarantee scheme (CGS) will have to declare their credit portfolio on the basis of unsecured loan, investment and mortgages.

According to a circular issued by the central bank, interested financial institutions have to declare the portfolio based on 31st December of the previous year immediately.

The Bangladesh Bank launched the CGS of Tk2,000 crore on July 27 last year to support the pandemic-hit CMSEs.

Thanks to the scheme, CMSEs that lack adequate collateral would be able to get bank loans. 

The scheme will give coverage to the loans disbursed from the Tk20,000 crore stimulus aid package for the sector.

Also Read - 278 small borrowers seek collateral-free loans under CGS

As of February 3, 19 banks and six NBFIs including Sonali, Janata, Rupali, Agrani, Exim, Mutual Trust, Prime, National, Islami and IDLC signed participation agreements with the central bank to provide loans under the scheme, as per latest data from the BB.

The central bank also instructed financial institutions to enter into a specific letter of credit for a period of five years that  may be extended later as required, to avail the CGS.

According to the new circular, the participation agreement has to specify the amount of portfolio guarantee limit (PGL) for a year - the year when the agreement was signed.

A CGS provides a third-party credit risk mitigation to lenders through the absorption of a portion of the lender's losses on the loans made to SMEs in case of default, typically in return for a fee, explains the official of a private bank.

Under the CGS, banks will get coverage of a credit given to an individual or a company, availing funds from the stimulus package if loans get defaulted, the banker explained.

According to a World Bank report, such public CGSs are a common form of government intervention to unlock finance for SMEs, with more than 50% of countries having CGS for SMEs and the number growing.

The central bank implemented a CGS to help banks lend to the vulnerable CMSME sector, according to a central bank official.