SMESPD Circular No. 01: Regarding Credit Guarantee Facility for Marginal/Landless Farmers, Low Income Professionals, School Banking Account Holders and Small Traders who have accounts of TK.10/50/100

SMESPD Circular No. 01 dated 09 Magh, 1428 23 January, 2022

Managing Director / Chief Executive Officer All Scheduled Banks operating in Bangladesh

Dear Sir,

Context regarding Credit Guarantee Facility for Marginal/Landless Farmers, Low Income Professionals, School Banking Account Holders and Small Traders who have accounts of TK.10/50/100.

Attention is drawn to all concerned regarding the subject cited above, referencing FID Circular No. 01, dated: 05/09/2021 and FID Circular Letter No. 01, dated: 05/01/2022.

2. As a result of the outbreak of COVID-19, the income-generating activities of the country's marginal population are being hampered. Furthermore, the adverse effects of the second wave of COVID-19 are disrupting the government's revitalization programs. In this context, to revitalize/continue the financial transactions of "Marginal/Landless Farmers, Low Income Professionals and Small Traders who have accounts of 10 Taka" under the Financial Inclusion Program, and to increase the reach of loans and simplify loan regularization, the existing regularization scheme has been restructured with an enhancement of 500 Crore Taka through FID Circular No. 01, dated: 05/09/2021. Under the restructured scheme, no security/collateral will be required for providing loans to Marginal/Landless Farmers, Low Income Professionals, School Banking Account Holders, and Small Traders who have accounts of TK.10/50/100. However, personal guarantees from the borrower and up to two other individuals may be accepted. Additionally, to reduce the risk exposure of participating banks and increase loan accessibility for intended customers, through FID Circular Letter No. 01 dated 05/01/2022, banks may avail the benefit of the Credit Guarantee Scheme for loans of BDT 25,000 and above provided under the scheme at their own discretion. In this regard, banks are instructed to pay the guarantee fee from their own resources.

3. In this context, to ensure loan access for the customers mentioned in the aforementioned FID Circular under the regularization, a new Credit Guarantee Scheme named "Financial Inclusion Credit Guarantee Scheme" has been launched, modeled after the existing Credit Guarantee Scheme of the CGS Unit. The policy to be followed by banks for obtaining credit guarantee for customers under the aforementioned regularization scheme is as follows:

3.1. Banks must sign a Participation Agreement (Participation Agreement) with the CGS Unit to avail the Credit Guarantee facility. All Participating Financial Institutions (PFIs) that have already signed an agreement with the Financial Inclusion Department under the aforementioned FID Circular No. 01/2021 will be considered eligible to sign a Participation Agreement with the CGS Unit. This agreement may be signed at any time during the year, subject to the approval of the Governor, based on the application of the concerned banks.

3.2. All concerned must appropriately follow the General Guidelines on Credit Guarantee issued by the CGS Unit on 03/11/2020 and other instructions regarding any matter related to credit guarantee not mentioned in this circular.

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3.3. Under this scheme, portfolio guarantee cap (coverage) will be provided up to a maximum of thirty (30) percent of the total guarantee provided by this unit for loans/investments. Under the said portfolio guarantee cap, a maximum guarantee coverage of eighty (80) percent will be provided for any single entrepreneur or loan/investment recipient.

3.4. Entrepreneurs of the type mentioned in the aforementioned FID Circular No. 01/2021 will be considered eligible to avail the credit guarantee facility from this scheme against loans/investments under the regularization benefit of the scheme from FID. The stipulated period for the loan/investment will be the initial guarantee period under this scheme. If the loan/investment is fully repaid within the stipulated time, the guarantee period for the relevant loan/investment will expire. However, if any loan/investment is rescheduled/restructured, the said rescheduling/restructuring period will be considered as the guarantee period. In this regard, the concerned bank must obtain an extension of the guarantee period from the CGS Unit in case of extension of the loan/investment period and rescheduling/restructuring, and must pay the guarantee fee for the extended period.

3.5. Credit Guarantee Application Process and Method of Issuance of Guarantee Registration:

3.5.1. PFIs must declare the target (amount) on a calendar year basis at the beginning of the year and use it within the relevant year for availing credit guarantee facility against loans/investments provided under FID Circular No. 01/2021. The CGS Unit will record (register) the target declared by the PFIs after verification and considering the availability of the CGS Fund. If it is less/more than the declared target, the PFIs will be informed via letter.

3.5.2. For guarantee registration, the PFIs must submit the application in the prescribed format (Appendix 'A') to the CGS Unit by the 15th (fifteenth) of each month, along with the details of approved loans/investments from the immediately preceding month in which the application is made.

3.5.3. Along with the guarantee registration application, the concerned bank must submit a certificate confirming that the customer's loan/investment applications have been appropriately verified and initially approved under their approved loan policy.

3.5.4. After receiving the application, the CGS Unit will complete the necessary verification process and promptly provide guarantee registration to eligible entrepreneurs/individuals and inform the relevant PFI. The PFI must pay the guarantee fee to the CGS Unit within 15 (fifteen) days of registration. For subsequent ongoing guarantees, the guarantee fee must be paid in advance within 30 (thirty) days of the completion of the immediately preceding year. Otherwise, it may be deducted and recovered from their current account operated with Bangladesh Bank by the relevant PFI.

3.5.5. After obtaining registration from the CGS Unit, the concerned bank will complete the necessary documentation and distribute the loan/investment facility to the entrepreneur/customer in the shortest possible time.

3.5.6. If the participation agreement signed by any PFI with the Financial Inclusion Department is cancelled/suspended for any reason, the CGS Unit will not issue any new guarantee to such PFI. Furthermore, if any term of the agreement signed with the CGS Unit is violated, this unit may cancel/suspend the participation agreement with the PFI without assigning any reason.

3.6. Credit Guarantee Fee:

3.6.1. Under the bilateral participation agreement signed between the CGS Unit and the bank, each bank must pay the guarantee fee annually from its own resources. In this regard, it cannot be recovered from the relevant loan/investment recipient. No other fee/charge, however named, may be imposed on the customer under the name of providing the credit guarantee facility.

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3.6.2. Participating banks in the scheme must pay the guarantee fee at a rate of 1% for 01 (one) year on the loans/investments for which guarantee registration is obtained within the declared total target limit for the current year and for each subsequent year. Subject to the guarantee remaining active, after 01 (one) year has elapsed, the guarantee fee must be paid on a quarterly basis on the status of the guarantee-obtained loans/investments from the immediately preceding day. In this regard, for those banks whose classified loans/investments (NPL) ratio as of 31 December of the immediately preceding year is 5 percent or less, the quarterly guarantee fee rate will be 0.50%, and for those banks whose classified loans/investments ratio is more than 5 percent, the quarterly guarantee fee rate will be 0.75%.

3.7. Interest/Profit Rate on Loans/Investments against Credit Guarantee: Even if guarantee is provided against the loan/investment, there will be no change in the stipulated interest/profit rate for the customer.

3.8. Responsibilities of the Bank for Initiating Credit Guarantee Facility:

3.8.1. The sanctioning bank must approve/distribute/recover the loan/investment in accordance with its own regulations (By-laws). After distributing the loan/investment, it must supervise and monitor it through its own initiative. The concerned bank must provide appropriate services/assistance to entrepreneurs/customers for the proper use of the loan/investment.

3.8.2. There will be no direct contact between the CGS Unit and the customers/beneficiaries of the credit guarantee facility. However, the PFI will be obliged to provide necessary documents along with verified information to Bangladesh Bank for verifying the authenticity of the guarantee. Furthermore, the CGS Unit may inspect the business activities of the concerned customers at any time by informing the PFI, and the PFI must provide all kinds of cooperation to the Bangladesh Bank inspection team during the inspection.

3.9. Claim and Settlement Process of Credit Guarantee:

3.9.1. Any loan/investment guaranteed under this scheme may be rescheduled/restructured according to existing rules after being classified as sub-standard under the existing policy. If the loan/investment is again classified as sub-standard after rescheduling/restructuring (where applicable) and the principal is not repaid, an application for claim (Claim Application) against the guarantee may be made. However, before applying for a guarantee claim, the bank must make all efforts to recover the loan/investment, and ensure appropriate legal measures such as filing a case and other legal arrangements according to prevailing law. That is, only after the bank has taken all necessary measures to recover the loan/investment, and if the loan/investment account is still classified as sub-standard, can the legal process (filing a case) be started and a claim against the guarantee be raised, where applicable.

3.9.2. If the loan/investment against which the guarantee is provided is classified as sub-standard, in that case, the claim amount cannot exceed the guaranteed portion of the principal of the sub-standard loan/investment (Guaranteed Portion of Principal), which is a maximum of 80 percent for a single entrepreneur or loan/investment, or the unclaimed portion of the maximum 30 percent of the total guarantee registration provided to the PFI (whichever is less). No guarantee claim can be made for overdue interest/profit under any circumstances.

3.9.3. Even after the settlement of the guarantee claim, the concerned bank must continue all types of processes, including legal steps, for the recovery of the loan/investment. If any amount is recovered from the entrepreneur/customer against the loan/investment after the settlement of the guarantee claim, it must be returned to Bangladesh Bank in proportion to the guarantee coverage rate.

3.9.4. If any bank intentionally conceals any information that helps determine the risk under the guarantee or provides false information, Bangladesh Bank will take necessary measures under existing laws/rules/policies.

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3.9.5. If rescheduling of the guaranteed loan/investment is needed for any reason, it may be rescheduled under the existing (prevailing) policy and the CGS Unit must be informed.

3.9.6. Even if there is an instruction to appropriately maintain provision after classifying the loan/investment as non-performing under existing policy due to non-payment of the loan/investment, for loans/investments registered under the guarantee registration of this scheme, the obligation to maintain specific provision up to 30 (thirty) percent of the total registered loans/investments will remain exempt for the duration of the guarantee period.

4. Miscellaneous:

4.1. The guidelines issued by Bangladesh Bank from time to time regarding loan distribution and recovery must be appropriately followed.

4.2. In any matter not mentioned in this policy, or if clarification is needed on any matter mentioned in the policy, the decision of Bangladesh Bank will be considered final.

4.3. Bangladesh Bank reserves the right to change or amend any type of this policy.

4.4. Bangladesh Bank hereby reserves the right to cancel the guarantee provided against the relevant loan/investment if the appropriate procedure is not followed in providing the loan/investment, or if any term is violated, or if any information is concealed or false information is provided during the guarantee application, or if the guarantee fee is not paid.

5. These instructions are issued under the powers conferred by Section 45 of the Bank Company Act, 1991.

These instructions will come into force immediately.

Yours faithfully,

(S.M. Mohsin Hossain) General Manager Phone: 9530221

Bank Name and Address

(Guarantee Application Form)

Ref: Date: . ./. ./. . . .

General Manager Credit Guarantee Scheme Unit SMESPD Bangladesh Bank, Head Office, Dhaka.

Under the participation agreement signed with the CGS Unit on .../../...., the following loans/investment facilities have been approved for the issuance of guarantee. Upon issuance of the guarantee by the CGS Unit, the loans/investments will be distributed to the relevant customer. It is requested to issue guarantee against the following loans/investments:

Section-1: General Information

Sr. No.	Name of Loan/Investment Recipient (Customer)	Customer's Address and Mobile Number	Bank Branch Name	Customer's National ID (NID) Number	Customer Type (Farmer, Low Income Professional, Micro/Small Entrepreneur, School Banking, Others)	Type of Customer's Business (Production/Service/Trade)	Personal Guarantee Taken (Yes/No)	Final Payment Date of Loan/Investment	Amount of Loan/Investment (In Taka)	Expected Guarantee Coverage (Percentage)
1
2
3

Total Amount of Loans/Investments

Total Amount of Loans/Investments (In Words)

Section-2: Certification

We, the undersigned, hereby certify that the aforementioned loan/investment applications have been verified in compliance with the terms of the participation agreement. In accordance with the bank's own loan/investment policy and by properly following regulations and accepting necessary documents (list attached), the loan/investment facilities have been approved (copies of all approval letters are attached with verification). According to SMESPD Circular No. .... dated ../../.... and subsequent amendments (if any), we will pay the guarantee fee for the aforementioned loans/investments and will avail the regularization benefit under FID Circular No. 01 dated 05/9/2021.

We hereby inform that if we are unable to provide relevant/necessary documents against the aforementioned loans/investments during the claim of guarantee amount/inspection by Bangladesh Bank in the future, or if we fail to comply with the terms of the guarantee, the guarantee will be considered cancelled.

Focal Point Officer Name and Designation: Mobile Number and E-mail Address: Signature:

Managing Director/Authorized Signatory Name and Designation: Mobile Number and E-mail Address: Seal:

Appendix-A