SMESPD Circular No. 03: Formation of Financial Sector Fund for the Development of Micro, Small and Medium Enterprises (FSFDMSME)

1 Bangladesh Bank Head Office Motijheel, Dhaka-1000 Bangladesh. Ref. No. SMESPD SMESPD Circular No. 03 Date: 05 February 2026 22 Magh 1432

Managing Director / Chief Executive Officers All Scheduled Banks and Finance Companies Operating in Bangladesh

Dear Sir,

Regarding the formation of the "Financial Sector Fund for the Development of Micro, Small and Medium Enterprises (FSFDMSME)".

The role of the Micro, Small and Medium Enterprises (MSME) sector in accelerating sustainable economic growth, industrialization, and the creation of employment opportunities is extremely significant. However, the desired investment expansion of MSME entrepreneurs is being hindered due to interest rates, collateral constraints, and lack of adequate financing. In this context, to ensure easy financing in the MSME sector, increase productive investment, and support sustainable development, a dedicated refinancing fund named "Financial Sector Fund for the Development of Micro, Small and Medium Enterprises (FSFDMSME)" has been established with Bangladesh Bank's own funds amounting to 1,500 (One Thousand Five Hundred) Crore Taka.

The following guidelines shall be followed in providing refinancing facilities from the said fund to banks and finance companies:

1. Selection of Eligible Institutions: Refinancing facilities from this fund shall be provided to eligible Micro, Small and Medium Enterprises in accordance with Bangladesh Bank's SMESPD Circular No. 01, dated: 17 March 2025. Banks and finance companies that have signed a participatory agreement with Bangladesh Bank must fulfill the following criteria for selecting Micro, Small and Medium Institutions to receive refinancing facilities from this fund:

1.1 Refinancing facilities shall be considered for loans provided by banks and finance companies to customers for the expansion and modernization (excluding Annex-A) of financially viable and economically suitable (Viable) Micro, Small and Medium Enterprises (excluding Annex-B);

1.2 Entrepreneurs seeking refinancing from this fund must finance at least 10% of the total project cost from their own sources. Banks and finance companies may provide loans up to a maximum of 90% of the total project cost;

1.3 Refinancing from this fund shall be provided up to a maximum of 1.00 Crore Taka for Micro enterprises and up to a maximum of 5.00 Crore Taka for Small and Medium enterprises for loans provided to enterprises;

1.4 Working capital loans (up to a maximum tenure of 1 year) and term loans (more than 1 year up to a maximum tenure of 7 years) provided to enterprises shall be eligible for refinancing from this fund;

1.5 The lending bank and finance company must ensure the preservation of administrative, financial, and business information and data of the borrowing institution prior to granting the loan.

2. Selection of Eligible Banks and Finance Companies: Banks and finance companies seeking refinancing facilities from the "Financial Sector Fund for the Development of Micro, Small and Medium Enterprises (FSFDMSME)" must enter into an agreement with the SMES Department in accordance with the instructions of SMESPD Circular No. 01, dated: 17 March 2025, as Participating Refinancing Banks (PRBs).

3. Fund Management System:

3.1 Under this fund, the maximum customer-facing interest rate shall be 7%, and in the case of Shariah-based financing, the customer-facing profit rate shall be determined in accordance with the approved Shariah investment guidelines, but shall not exceed 7%. The interest/profit charged by Bangladesh Bank on refinancing provided to banks and finance companies shall be 2%;

3.2 Other guidelines of Bangladesh Bank regarding interest/profit rates in the MSME sector shall apply to this fund;

3.3 Instructions of SMESPD Circular No. 01, dated: 17 March 2025 shall be followed for the repayment of refinanced funds;

3.4 Repayable installments of the refinanced amount, including interest/profit, shall be collected on the specified dates according to the repayment schedule through the debit of the current account of the concerned PRB maintained with Bangladesh Bank. In this regard, the repayment of loans to customers is not related to the repayment of refinancing taken from this fund;

3.5 To ensure the proper use of refinanced loans, the department may conduct surprise inspections of relevant projects and offices of banks/finance companies, with necessary documentation, before or after the approval of applications selected on a need basis;

3.6 If misuse of refinanced loans is detected/observed during surprise inspections by Bangladesh Bank, the refinanced amount along with penalty interest (Interest/Profit rate imposed by Bangladesh Bank + 2%) shall be recovered immediately from the concerned PRB;

3.7 For refinancing, applications must be made online (via e-MSME) within the specified time in accordance with the instructions of paragraph 14.4.4 of SMESPD Circular No. 01, dated: 17 March 2025, and applications along with necessary information/documents must be submitted by PRBs to the Director, SMES and Special Programs Department, Head Office, Bangladesh Bank;

3.8 If any customer availing refinancing facilities avails an additional loan, the concerned participating institution must inform the SMESPD Department within 01 (one) month and request the adjustment of the amount taken for refinancing.

4. Other Instructions:

4.1 In accordance with the instructions of paragraph 14.4.10 of SMESPD Circular No. 01, dated: 17 March 2025, participating banks and finance companies must submit a Status Confirmation Certificate (Status Report) to this department on a semi-annual basis (June and December) using the specified format sent from the SMES and Special Programs Department;

4.2 Information and data must be submitted to Bangladesh Bank in accordance with the instructions of paragraph 13 of SMESPD Circular No. 01, dated: 17 March 2025.

5. All other applicable instructions issued by Bangladesh Bank to banks and finance companies must be complied with properly.

6. These instructions are issued under the powers conferred by Section 45 of the Bank Company Act, 1991 and Section 41 of the Finance Company Act, 2023.

These instructions shall take effect immediately.

Yours faithfully,

(Nawshad Mostafa) Director (SMESPD) Phone: 9530502

dir.smespd@bb.org.bd

4 Annex-A Uneligible Sectors for Financing: (1) Activities related to crop and fish production; (2) Real estate development and related activities; (3) Activities related to financial services and insurance; (4) Purchase, sale, and trade of precious metals; (5) Operation of bars, pubs, and similar establishments; (6) Entertainment and amusement activities (excluding amusement parks, tourism, film production, and television broadcasting activities); (7) Production, storage, or trade of weapons, ammunition, and military equipment; and (8) Any activity contrary to or detrimental to social discipline, morality, and stability.

5 Annex-B Uneligible Purposes for Loans:

1. Purchase of land or acquisition of rights to use land;
2. Payment of taxes, duties, or import duties;
3. Activities related to trade finance;
4. Consumer loans or personal loans;
5. Production, distribution, and marketing of petrochemicals and petrochemical products;
6. Projects or activities harmful to the environment or inconsistent with applicable environmental standards;
7. Production or purchase and sale of intoxicating drinks; and
8. Production or purchase and sale of tobacco products.