Regulatory Alerts2019-12-19
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SMESPD Circular Letter No. 01: Compliance of the directions related to considering Personal Guarantee as Supplementary Collateral
The document instructs scheduled banks and financial institutions in Bangladesh to strictly comply with Master Circular No. 2 regarding the acceptance of personal guarantees as supplementary collateral for micro-enterprise loans. It explicitly prohibits these institutions from pressuring or forcing micro-entrepreneurs to provide guarantees from multiple or specific individuals, such as senior officials, wealthy relatives, or spouses. This directive aims to prevent barriers to credit access and hindered development in the micro-enterprise sector.
SMESPD Circular Letter No. 01 Date: Poush 04, 1426 December 19, 2019
Managing Director/Chief Executive All Scheduled Banks and Financial Institutions Operating in Bangladesh
Dear Sir,
Regarding compliance with directions on accepting 'Personal Guarantee' as Supplementary Collateral.
Reference is made to the Master Circular on Financing for Cottage, Micro, Small and Medium Enterprises (SMESPD Circular No. 2) issued on September 05, 2019, on the subject mentioned above.
- Paragraph 7.1 of the aforementioned Master Circular provides directions for considering personal guarantee as supplementary collateral in the case of providing collateral-free loans to micro-entrepreneurs. It also mentions that customers should not be forced to provide more than one personal guarantee.
However, it has been observed recently that in the case of considering personal guarantee as supplementary collateral, banks and financial institutions are applying pressure or forcing entrepreneurs to provide guarantees from more than one and specific individuals (e.g., senior officials, wealthy relatives, spouses, etc.). Consequently, obtaining loans for micro-entrepreneurs has become difficult, and the development of the CMSME sector is also being hindered, which is not desirable in any way.
- In this regard, you are advised to properly comply with the discussed directions regarding considering 'Personal Guarantee' as supplementary collateral in the case of providing loans, and not to apply any pressure or force micro-entrepreneurs to provide guarantees from specific individuals.
Yours faithfully,
(Lila Rashid) General Manager Phone: 9530502
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