FID Circular No. 01: Refinance Scheme for Low-Income Professionals, Farmers, and Micro-Businessmen Affected by COVID-19

Bangladesh Bank Head Office Motijheel, Dhaka-1000. www.bb.org.bd Financial Inclusion Department FID Circular No. 01/2020 Date: 07 Baishakh 1427 20 April 2020

Managing Director/Chief Executive All Scheduled Banks operating in Bangladesh

Dear Sir,

Refinance Scheme, 2020 for low-income professionals, farmers, and marginal/micro-businessmen affected by the novel coronavirus.

Due to the outbreak of the novel coronavirus (COVID-19), economic activities are being hampered in Bangladesh, as in various other countries of the world. As a result, low-income professionals, farmers, and marginal/micro-businessmen in the country are unable to conduct their income-generating activities. The contribution of low-income professionals, farmers, and marginal/micro-businessmen to the rural economy is undeniable. To keep the economic activities of the marginalized population affected by the coronavirus ongoing through financial inclusion programs and to ensure inclusive development, Bangladesh Bank has formed a revolving refinance scheme. The detailed policy regarding this refinance scheme is presented below:

1. Scheme Name: The name of this scheme will be "Refinance Scheme for Low-Income Professionals, Farmers, and Marginal/Micro-Businessmen, 2020".

2. Fund Source and Amount: Bangladesh Bank's own fund; BDT 3,000 (three thousand) crore. However, Bangladesh Bank may increase this fund amount based on necessity.

3. Scheme Duration: The duration of this scheme will be 3 (three) years.

4. Financing Banks: All scheduled banks operating in Bangladesh can avail refinance facilities under this scheme as financing banks. For this purpose, scheduled banks interested in financing microfinance institutions must sign a Participation Agreement with the Financial Inclusion Department of Bangladesh Bank.

5. Selection of Microfinance Institutions by Banks for Financing:

(a) Microfinance institutions (MFIs) will disburse loans/investments at the customer level under this scheme. Scheduled banks will select microfinance institutions and provide financing to them;

(b) Microfinance institutions certified by the Microcredit Regulatory Authority (MRA) will be considered eligible for disbursing loans/investments;

(c) Financing banks must obtain a certificate from the MRA regarding the capacity of applicant microfinance institutions to receive loans/investments;

(d) When issuing the certificate, the MRA will consider the following aspects of the institution in compliance with existing rules and regulations to certify its capacity:

• Regular submission of semi-annual/monthly reports;
• Formation of reserve fund with 10% of total surplus;
• Maintenance of 15% of total savings as liquidity;
• Maintenance of loan/investment loss provision;
• Financial capacity of the institution based on the ratio of liabilities (savings, received loans/investments) to assets (loan/investment balance) and the ratio of service charge income to salary/allowances;
• Number of microfinance institutions receiving financing under this loan/investment facility in the same region;
• Regular repayment of loans/investments received from banks and other sources;
• Good governance, etc.;

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(e) MRA will provide the capacity certificate of the microfinance institution within 3 (three) working days of receiving a request for certification from the financing bank;

(f) The financing bank, being satisfied with various information related to the microfinance institution such as repayment capacity, financial condition, etc., will sign a Memorandum of Understanding (MoU) with the microfinance institution regarding financing, loan/investment disbursement, supervision, and recovery under this scheme;

(g) An MFI can avail financing facility from only one bank under this scheme. In this case, the microfinance institution must submit a certificate to the financing bank stating that 'no financing has been received from any other bank under this scheme'.

6. Eligible Customers for Loan/Investment Facility under the Scheme:

(a) 'Low-income professionals, farmers, and marginal/micro-businessmen', i.e., local entrepreneurs and professional individuals or institutions of various classes/professions engaged in agriculture and various income-generating activities locally;

(b) Extremely poor, poor, or individuals belonging to any backward group and helpless/oppressed women members will receive priority in obtaining this loan/investment.

7. Terms and Conditions for Loan/Investment Disbursement by Microfinance Institutions:

(a) Microfinance institutions will disburse loans/investments under this scheme considering the customer's income-generating activities of the past one year, in addition to their own policies;

(b) This loan/investment can only be provided to a member affiliated with the microfinance institution's association;

(c) Customers affected by the spread and infection of the coronavirus will receive priority;

(d) Existing loans/investments of customers cannot be adjusted with the funds of loans/investments taken under this scheme;

(e) Loans/investments under this scheme cannot be renewed to provide opportunities for new micro-loan/investment recipients. However, if the borrower's transactions are satisfactory, the microfinance institution may renew it from its own funds under its own loan/investment policy;

(f) No individual/institution who is a defaulter of loans/investments of their own or any other institution can be provided with loans/investments under this scheme.

8. Loan/Investment Amount at Customer Level: The loan/investment limit payable to low-income professionals, farmers, and marginal/micro-businessmen under this scheme to operate/sustain their income-generating activities will be as follows:

(a) Micro-loan/investment: For a single customer, the loan/investment amount will be a maximum of BDT 75,000 (seventy-five thousand) and for group-based financing consisting of a group of persons involved in income-generating activities, for a group with a minimum of 05 (five) members, the loan/investment amount will be a maximum of BDT 300,000 (three lakh);

(b) Micro-entrepreneur loan/investment: Under micro-entrepreneur loan/investment, a maximum of BDT 1,000,000 (ten lakh) for a single individual and for group-based financing consisting of a group of persons in a joint project, for a group with a minimum of 05 (five) members, the loan/investment amount will be a maximum of BDT 3,000,000 (thirty lakh);

(c) If the number of group members is higher, the loan/investment amount will increase proportionally. There must be an agreement among all members regarding the formation and operation of the group;

(d) An individual will be considered eligible to receive either a micro-loan/investment or a micro-entrepreneur loan/investment, either individually or as part of a group.

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9. Financing Limit at MFI Level by Banks: The maximum financing amount by a bank to an MFI will be 30% of the average loans/investments disbursed by the respective MFI in the last three years or 2% of the total fund (BDT 3,000 crore) of the refinance scheme, whichever is lower. However, this financing limit may be changed by Bangladesh Bank based on the MFI's application, considering demand and necessity.

10. Sector-wise Allocation of Funds Received by MFIs: Under this scheme, 75% of the total funds received by an MFI from the respective financing bank must be disbursed in the micro-loan/investment sector and 25% in the micro-entrepreneur loan/investment sector.

11. Refinance Process:

(a) MFIs that have signed a Memorandum of Understanding will apply to interested scheduled banks for funds, stating their loan/investment demand. Banks will provide financing based on the demand of MFIs. After receiving financing, MFIs will disburse loans/investments at the customer level.

(b) To receive refinance, financing banks will apply to the General Manager, Financial Inclusion Department, by the 10th of each month in the prescribed manner (as per attached Form-1, with necessary information/documents). Refinance will be provided from this scheme based on the application of the financing bank. Refinance facility will be provided subject to fund availability.

12. Loan/Investment Duration at Customer Level:

The duration of loans/investments payable at the customer level under this scheme can be determined according to the customer's profession, business type, turnover, and crop calendar. The loan/investment duration at the customer level will be as follows:

(a) For micro-loans/investments (both individual and group-based), the loan/investment duration will be a maximum of 1 (one) year including the grace period from the date of disbursement;

(b) For micro-entrepreneur level (both individual and group-based), the loan/investment duration will be a maximum of 02 (two) years including the grace period. However, in this case, a single entrepreneur or a group will be eligible for a loan/investment under this scheme in only one category (micro-loan/investment or micro-entrepreneur).

13. Interest/Profit Rate at Bank and MFI Level:

(a) The interest/profit rate against refinance provided by Bangladesh Bank to financing banks will be 1% per annum;

(b) The interest/profit rate against financing provided by financing banks to MFIs will be 3.5% per annum.

14. Interest/Profit Rate and Other Fees/Charges at Customer Level:

(a) The annual interest/profit/service charge rate at the customer level will be a maximum of 9%; which must be calculated on a diminishing balance method;

(b) No other charges/fees can be collected except for admission fees, passbook, loan form, and non-judicial stamp affidavit costs as mentioned in MRA's Circular Letter No. Regu-23 dated May 04, 2014.

15. Recovery:

(a) MFIs will recover loan/investment funds from customers in weekly/monthly installments;

(b) Financing banks will provide a 03 (three) month grace period for the recovery of funds provided to MFIs;

(c) Financing banks will recover financed funds on a quarterly basis;

(d) Refinanced funds by Bangladesh Bank to financing banks will be recovered on a quarterly basis; which will be recovered/deducted from the respective bank's current account held at Bangladesh Bank, including interest/profit, on the specified date according to the repayment schedule;

(e) All liabilities and risks of recovering loans/investments disbursed at the customer level will be borne by the MFI and the financing bank concerned with the loan/investment. Bangladesh Bank's dues cannot be linked to the recovery of such loans/investments.

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16. Focal Point: MRA, financing banks, and MFIs will each nominate one focal point for matters related to this refinance scheme.

17. Others:

(a) MFIs will regularly monitor the customer's income-generating activities. With the customer's consent, they will cover it under insurance if necessary;

(b) MFIs will provide passbooks to customers in support of loan/investment disbursement and recovery;

(c) MFIs can introduce a loan/investment form of not more than 2 (two) pages for providing loans/investments under this scheme;

(d) MFIs will keep copies of national identity cards, attested photographs, and other documents with customer loan/investment applications; which will be provided by the MFI upon request during inspection/verification by Bangladesh Bank, MRA, or the financing bank;

(e) Bangladesh Bank, MRA at the request of Bangladesh Bank, or financing banks can conduct on-site inspection/verification of the necessary number of loans/investments. If any irregularity or misuse of disbursed loans/investments is found during inspection/verification, a penal interest/additional service charge at a rate of 2% will be imposed on the refinanced amount based on the percentage of such information found during inspection/verification; which will be deducted once from the financing bank's current account held at Bangladesh Bank. In that case, the financing bank can also recover similar penal interest/additional service charge from the MFI;

(f) Defaulter loan/investment recipients will not be eligible for any loan/investment under this scheme. MFIs will ensure this before providing loans/investments and will obtain an undertaking from the customer in this regard;

(g) If any customer fails to repay the loan/investment amount within the stipulated time, they must be identified as a defaulter according to the MFI's conventional rules;

(h) For the first application for refinance by a financing bank to the General Manager, Financial Inclusion Department, a copy of the Memorandum of Understanding signed with the MFI must be sent;

(i) Financing banks must submit a quarterly statement (Form-2) (soft copy) regarding financing under this scheme to the General Manager, Financial Inclusion Department, within 10 working days of the end of the quarter; and

(j) Bangladesh Bank reserves the right to make necessary additions, deletions, and refinements to the terms and conditions of the refinance scheme mentioned above from time to time.

This directive is issued in the public interest under the power conferred by Section 45 of the Bank Company Act, 1991.

This directive will be effective immediately.

Yours faithfully,

(Md. Anwarul Islam) General Manager Phone: 02-9530543 Email: anwar.islam@bb.org.bd

Attachment: As described.

(Form-1)

Sample Application for Refinance by Financing Bank

Ref: ----------------- Date: -------------

General Manager Financial Inclusion Department Bangladesh Bank Head Office Dhaka.

Dear Sir,

Application for Refinance from the Refinance Scheme, 2020 for Low-Income Professionals, Farmers, and Marginal/Micro-Businessmen Affected by the Novel Coronavirus.

Following the instructions of FID Circular No. 01/2020 issued on April 20, 2020, regarding the above subject, our bank has financed a total of ----------- Taka against a total of ---- loans/investments in --/2020 (month name) for selected customers through the contracted microfinance institution ----------------------- (Name of Microfinance Institution). All instructions mentioned in the circular have been duly followed in approving this financing and disbursing loans/investments. Detailed information is submitted herewith for obtaining refinance from the said refinance scheme against the mentioned financing.

Please oblige us by providing a total of ------------------- Taka (in words ---------------------------) as refinance to our bank.

Yours faithfully,

(---------------------------) Managing Director/Head of Division Address:---------------------- Phone: ---------------------- Email:--------------------------

Attachments:

1. Statement of loans/investments provided through microfinance institutions.
2. Copy of the agreement signed with the microfinance institution (for the first application).
3. DP Note.

Statement of loans/investments provided through microfinance institutions under the Refinance Scheme, 2020 for Low-Income Professionals, Farmers, and Marginal/Micro-Businessmen Affected by the Novel Coronavirus.

Name of Financing Bank:----------------------------------------------------- Name of Microfinance Institution providing loan/investment:-------------------------------- Month Name:-----------------------------

Serial No.	Customer Name	Gender (Male/Female/Third)	Mobile Number	National ID No.	Disbursed Loan/Investment Amount (Taka)	Disbursement Date	Interest/Profit Rate at Customer Level	Duration	Sector/Purpose	Estimated New Employment Created Against Loan
									Male	Female
Total

• A separate statement must be sent for each microfinance institution.

Signature and Seal of Authorized Officer Phone Number Email

(Form-2)

Quarterly Statement to be sent by Financing Bank

Name of Financing Bank:------------------------------ Reporting Period (Name of Quarter):-----------------------------

(In Lakh Taka)

Serial No.	Name of Microfinance Institution providing loan/investment	Current Quarter	Cumulative	Estimated New Employment Created Against Loan/Investment
		Disbursement	Recovery	Default
		Number	Amount	Number
Total

Signature and Seal of Authorized Officer Phone Number Email