BB introduces credit guarantee facility for marginal groups

Bangladesh Bank has introduced a new credit guarantee facility to speed up loan disbursement to landless farmers, low-income professionals, school banking account holders, and small traders.

The SME and Special Programmes Department of the central bank issued a circular on Sunday titled "Financial Services Credit Guarantee Scheme" in imitation of the existing Credit Guarantee Unit (CGU) to ensure repayment of loans under the Financial Inclusion Department (FID) circular.

Under the new credit guarantee scheme, the marginal people can take a loan of Tk 25,000 to Tk 5 lakh in a single name while Tk 20 lakh can be borrowed as a five-member group.

Earlier, the central bank constructed a fund of Tk 500 crore from its own source for providing credit guarantee scheme to accelerate loan disbursement to the informal sector.

But the loan disbursement in the sector is not satisfactory despite enforcement of Bangladesh Bank. In order to vibrant rural economy, the central bank introduced the ‘Financial Services Credit Guarantee Scheme’ against the loans for marginal people.

The central bank stated that the adverse effects of the second wave of Covid-19 are hampering the recovery of the economy.

Under the restructured scheme, no security deposit can be taken in case of lending to marginal/landless farmers, low-income professionals, school banking account holders, and small traders with accounts of Tk 10/50/100, the circular said.

On the other hand, lending banks can take personal guarantee from not more than two individuals, including the borrower, to provide loan.

The lending bank will take advantage of the credit guarantee scheme against the loan payable/disbursed under the scheme. In this case, the central bank will provide credit guarantee support to the banks.

The lending banks have to sign a ‘Participation Agreement’ with the Bangladesh Bank to avail the credit guarantee facility.