Recovery fund: Loans run out of steam due to slow release of interest rate subsidies

Bangladesh’s economy may not benefit from the government’s timely rollout of stimulus packages for small, medium and large industries as banks have lost zeal to provide loans as interest rate subsidies n were not paid at the planned rate as initially planned.

The unwanted development came as banks and non-bank financial institutions disbursed only 34.3% of the Tk 33,000 crore funds allocated to major industries as of April 13 of the current fiscal year, according to data from the central bank.

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Similarly, lenders lent 45.7% of the Tk 20,000 crore set aside for Small, Small and Medium Enterprises (CMSME) between July and March.

Commercial bank and BB officials say lenders had not received any interest rate subsidies from the government after December 2020, so they are not encouraged to disburse the loans.

The lenders were supposed to receive interest rate subsidies of up to Tk 286 crore between April 2020 and June 2021 on their CMSME loans, but only got Tk 78.6 crore.

A central banker described the process of granting the interest rate subsidy as long.

In April 2020, the BB unveiled the stimulus package worth Tk 20,000 crore for the CMSME sector to shield it from the impacts of the coronavirus pandemic. Of this amount, 77% has been disbursed.

Banks are allowed to charge an interest rate of 9% on their disbursed loans. End users get the loan at an interest rate of 4%. The government grants 5% interest subsidy to lenders.

The term of the first round of the stimulus package expired in June last year, prompting the central bank to allocate an additional Tk 20,000 crore for the current fiscal year ending June 30.

The BB official said the central bank asked the finance ministry in February to release the subsidy for the period from January to June last year.

The ministry has handed it over to the Office of the Comptroller General (OCGA), the debiting authority for the fund, but has not yet released the amount, he said.

The Daily Star attempted to contact three senior OCGA officials, but they could not be reached for cellphone comment.

The BB recently held talks with lenders to expedite the disbursement of loans under the CMSME scheme. Lenders have asked the central bank to take swift action to release the interest subsidy.

The scenario is the same when it comes to the stimulus package for large industries, as lenders did not receive any subsidies after December 2020.

The central bank did not provide the finance ministry with subsidy data for 2021 and this year.

In line with the government’s decision, lenders are allowed to enjoy a 9% interest rate on loans under the stimulus package.

End users receive the fund at an interest rate of 4.5%. The rest of the interest will come from the government.

The first round of the stimulus package for major industries, involving Tk 40,000 crore, was unveiled in April 2020 and lenders collectively disbursed 82% of the fund by the end of the last fiscal year. The size of the fund is Tk 33,000 crore for this financial year.

When contacted, Mohammad Salauddin Tapadar, co-director of the central bank who played a major role in formulating the plans, said the stimulus packages had given the economy a boost at the height of the pandemic.

However, he declined to comment on the slow release of interest rate subsidies.

Md Serajul Islam, spokesman and chief executive of the BB, said the central bank should send recommendations to the finance ministry on the release of the subsidy after conducting inspections on the loans.

“We will disburse the fund immediately after obtaining approval from the Office of the Comptroller General.”

Another BB official says the economy will not rebound at the expected pace if the implementation of the packages remains slow.

Emranual Huq, Managing Director of Dhaka Bank, urged the authorities to release the grant as soon as possible to speed up the implementation of stimulus plans.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said lenders had selected borrowers capable of disbursing loans during the first round of packages.

“Finding effective borrowers is a bit difficult because many borrowers who had taken out loans did not repay on time.”

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