SMEDP-2 Circular No. 01: Revolving Fund for CMSMEs under Second Small and Medium Sized Enterprise Development Project (SMEDP-2)

Bangladesh Bank (Central Bank of Bangladesh) Head Office Motijheel, Dhaka-1000 Bangladesh. Ref No: BBD.FID.SMEDP.2024 Second Small and Medium Sized Enterprise Development Project (SMEDP-2) SMEDP-2 Circular No. - 1 Date: To Managing Director / Chief Executive Officer All Scheduled Banks and Financial Institutions operating in Bangladesh

Dear Sir,

Regarding the Revolving Refinancing Fund established under the SMEDP-2 Project for the development of the Cottage, Micro, Small and Medium Industries sector.

To expand financial services for the development of the Cottage, Micro, Small and Medium Industries (CMSME) sector, a Revolving Refinancing Fund in Bangladeshi Taka has been formed using the 'principal' portion of the money received from banks and financial institutions that signed participation agreements against refinancing under the Second Small and Medium Sized Enterprise Development Project (SMEDP-2). Under this revolving fund, participating banks and financial institutions will be provided with refinancing facilities against loans granted to the Cottage, Micro, Small and Medium Industries sector.

The following guidelines will apply in providing the aforementioned refinancing facilities to banks and financial institutions:

1. 'Selection of Eligible Institutions', 'Selection of Eligible Banks and Financial Institutions' and 'Repayment Method': In the matter of 'Selection of Eligible Institutions', 'Selection of Eligible Banks and Financial Institutions' and 'Repayment Method', the guidelines issued by the Financial Inclusion Department in FID Circular No. 01/2017 dated November 15, 2017 and SMEDP-2 Circular Letter No. 2 dated January 13, 2021, as distributed therein, will apply to this Revolving Refinancing Fund.

2. Interest Rate: 2.1) A simple interest rate of 4% per annum will apply for refinancing by participating banks and financial institutions; 2.2) The interest rate on loans granted by participating banks and financial institutions to the Cottage, Micro, Small and Medium Industries sector under this fund shall not exceed 8% per annum. Furthermore, no additional supervision charge will be imposed in respect of the said refinancing; 2.3) Other guidelines of Bangladesh Bank regarding interest rates in the CMSME sector will apply to this fund.

3. General Instructions: 3.1) Participating banks and financial institutions must apply online for refinancing and submit the application, signed by the Chief Executive Officer, along with the online tracking number and supporting documents, to the Managing Director and Project Director, SMEDP-2, Bangladesh Bank, Head Office, Dhaka; 3.2) Banks/financial institutions interested in availing refinancing facilities under the said fund must collect the participation agreement, refinancing application form, etc., from the SMEDP-2 Project Implementation Unit, Bangladesh Bank, Head Office, Dhaka, for this purpose; 3.3) If an application is submitted under this refinancing scheme for a project that has already received refinancing facilities from any other source, it will not be considered; 3.4) PFIs will display information regarding refinancing at easily visible locations in their branches; 3.5) The SMEDP-2 Project Implementation Unit, Bangladesh Bank, reserves the right to make any additions, deletions, and modifications to the terms of the refinancing scheme or the fund.

4. Other Instructions: 4.1) The concerned banks and financial institutions must ensure that the borrowing institutions maintain accounts and records/information as directed; (See next page) 21 Bhadra 1431 5 September 2024

-2- (From previous page) 4.2) Applications for refinancing facilities against loans granted in favor of loan defaulting customers will not be considered. Before applying for refinancing facilities, the PFI must collect the updated EOW (Excessive Overdue) reports of the concerned customer and their interested institutions and ensure that the borrower is not a loan defaulter; 4.3) In the case of applications for refinancing against loans provided through multiple EOWs, the EOW against which the refinancing claim is made must be clearly stated in the application; 4.4) The lending banks and financial institutions must submit a report to Bangladesh Bank on a quarterly basis regarding the proper use of the refinancing taken; 4.5) To ensure the proper use of refinanced loans, the SMEDP-2 Project Management Unit may, at its discretion or as necessary, conduct surprise inspections at any time of the documents, accounts, transactions, project area, etc., related to the project for which refinancing was claimed, and the banks and financial institutions receiving the refinancing; 4.6) This fund will only apply to refinancing facilities for loans disbursed after the issuance of this circular. However, applications for refinancing received by PFIs for projects sanctioned within a maximum of 06 (six) months will be considered; 4.7) For the convenience of managing this fund, the banks and financial institutions that signed the participation agreement must submit an estimate to Bangladesh Bank on a half-yearly basis (June, December) regarding the potential loan distribution under this fund and the amount of necessary refinancing against it; 4.8) The repayment of the refinancing taken from Bangladesh Bank shall in no way be linked with the repayment of loans by customers. The installments payable on the refinanced money, along with interest, shall be recovered on the scheduled dates by debiting the current account of the concerned PFI kept with Bangladesh Bank. In this regard, the PFI must ensure that the necessary funds are available in the concerned account on the scheduled date; 4.9) The principal and interest of the loan shall be recoverable according to the specified repayment schedule of the customer's loan sanction letter. No kind of penalty/fee shall be charged from the customer for any adjustment of the loan by the customer before the maturity of the term; 4.10) If any loan is classified after providing this refinancing facility, the refinancing facility for such loan will be cancelled, and the refinanced money along with interest will be recovered in a lump sum by the SMEDP-2 Project Management Unit.

5. Disciplinary Instructions: 5.1) In the event of the following situations, the PFI must refund the refinanced money along with penalty interest (Bank Rate + 5%) in a lump sum according to the terms of the participation agreement: a) If the PFI avails refinancing facilities by intentionally providing false information; and b) If it is discovered during a surprise inspection by Bangladesh Bank that the refinanced loan was not used properly. 5.2) If the PFI fails to ensure that the installments payable on the refinanced money are available in the concerned account on the scheduled date according to the repayment schedule, appropriate punitive measures will be taken under the Companies Act, 1991 and the Financial Institutions Act, 1993, as applicable in their respective cases.

6. These instructions are issued under the powers conferred by Section 45 of the Companies Act, 1991 and Section 18 of the Financial Institutions Act, 1993, and will come into force immediately.

Yours faithfully, (Munira Islam) Director (SMEDP-2) Phone: +88-02- 47113322