SMESPD Circular No. 04: Introducing Refinance Scheme against financing to Cottage, Micro, Small and Medium (CMSME) Enterprises

1 Bangladesh Bank Head Office Motijheel, Dhaka-1000 Bangladesh. SMESPD Circular No. 04 Date: 04 Shrabon, 1429 July 19, 2022 Managing Director/Chief Executive All Scheduled Banks and Financial Institutions operating in Bangladesh Dear Sir, Context: Introducing Refinance Scheme against financing to Cottage, Micro, Small and Medium (CMSME) Enterprises.

1. Cottage, Micro, Small and Medium Industries (CMSME) have been making a significant contribution to the economic development of the country. This sector, being labor-intensive and capital-light, and having short production cycles, is capable of making positive contributions to national income growth and job creation, including the production of import-substitute services/goods. Like other developing countries, there is immense potential for the development and advancement of the CMSME sector in Bangladesh. The CMSME sector plays a crucial role in transforming Bangladesh into a job-oriented and industry-based country.

2. If opportunities for easy access to finance can be created among the entrepreneurs invested in the CMSME sector of the country, it will accelerate the national economic development agenda. To this end, Bangladesh Bank has formulated a refinance scheme to ensure relatively low interest/profit and easy access to credit/investment facilities for CMSME entrepreneurs through banks and financial institutions. The following guidelines are to be followed in the operation of the said scheme:

2.1. Naming: The scheme will be named "CMSME Sector Term Loan Refinance Scheme".

2.2. Source of Funds: Own funds of Bangladesh Bank.

2.3. Amount and Tenure of Funds: Tk 25,000 (Twenty-Five Thousand) Crore, which will be operated on a revolving basis. The amount of funds will be increased if necessary. The initial tenure of the scheme will be 3 (three) years.

2.4. Nature and Scope of Refinance: a. Term loans granted to Cottage, Micro, Small and Medium entrepreneurs defined under SMESPD Circular No. 02/2019 will be considered eligible for refinance under this scheme;

b. Cluster-based CMSME entrepreneurs (as per Annex-A) must be given highest priority for refinance. In addition, women entrepreneurs, entrepreneurs with special needs, and entrepreneurs affected by any disaster (such as river erosion, flood, cyclone, flood, drought, famine, fire, earthquake, building collapse, COVID-19, etc.) will receive refinance facilities under this scheme on a priority basis;

c. Banks and financial institutions must distribute at least 75 (seventy-five) percent of the total loans distributed under this scheme overall among Cottage, Micro and Small entrepreneurs, and at most 25 (twenty-five) percent among Medium entrepreneurs;

d. Banks and financial institutions may provide at least 70 (seventy) percent of the total loans distributed under this scheme in the Production and Service sectors, and at most 30 (thirty) percent in the Business sector;

e. Banks and financial institutions will distribute loans for their medium enterprises, subject to ensuring that the funds formed under this scheme are available for distribution;

f. Slush fund borrowers will not be eligible for refinance facilities under this scheme. The bank must ensure the classification of the borrower's loan from CIB.

2.5. Interest Rate against Refinance: The annual interest rate against the refinanced funds under this scheme, in favor of the lending banks and financial institutions, will be 2% (two percent).

2.6. Customer-facing Interest Rate: a. The annual interest rate imposed by banks and financial institutions on customers under this scheme will be at most 7% (seven percent); b. Interest must be imposed on the reducing balance of the customer's loan.

2.7. Loan Tenure, Grace Period and Repayment Schedule: a. The customer-facing grace period for loans granted under this scheme will be at most 6 months. The loan tenure will be determined by banks and financial institutions depending on the type of industry/service/business. However, the loan tenure including the grace period will not exceed 5 (five) years. The tenure of refinance will be determined in coordination with the loan tenure; b. Bangladesh Bank will collect the refinanced funds from banks and financial institutions along with interest on a quarterly basis; c. Banks and financial institutions will collect installments along with interest from the customer on a monthly/quarterly/semi-annual basis excluding the grace period. If the distributed loan is repaid/coordinated before the determined tenure, the entire amount of funds discounted in favor of the bank and financial institutions along with interest must be paid to Bangladesh Bank. Otherwise, the said unpaid amount will be payable in a lump sum along with interest at the Bank Rate.

2.8. Eligibility for Refinance and Application Process: a. Scheduled banks and financial institutions under the discussion scheme must enter into a Participation Agreement with the Director (SMESPD), SME & Special Programs Department, Bangladesh Bank, Head Office, Dhaka; b. All state-owned banks can provide loans under the said refinance facility; c. Private and foreign banks and financial institutions can participate as PFIs subject to fulfilling the following criteria:

1. The rate of classified loans/investments must be less than 10%; and
2. Must have at least 03 (three) years of commercial experience. In addition, Bangladesh Bank will verify the loan-deposit ratio, liquidity position, and other indicators of the concerned institution while providing refinance facilities.

d. Banks and financial institutions must submit the application for refinance against loans distributed under this scheme in the prescribed format (Annex-B and C) to Bangladesh Bank on a half-yearly basis on the 15th of every month and the last working day of the half-year, within 10 days after the aforementioned dates have passed. However, banks and financial institutions may apply for refinance on a monthly basis if they wish. In that case, the application form can be submitted by the 10th of the following month after the month for which refinance is sought; and e. The installment payable for refinance along with interest will be collected from the current account of the concerned bank kept with Bangladesh Bank on the date determined according to the repayment schedule. If the refinanced amount along with interest cannot be collected from the current account of banks and financial institutions kept with Bangladesh Bank due to lack of funds/position, the payable amount will be collected along with additional interest at a rate 2% (two percent) higher than the interest rate imposed during the refinance period.

2.9. Loan Distribution Mechanism: Banks and financial institutions under this scheme can provide loans through their own branches/sub-branches/agent banking/mobile financial services (MFS).

2.10. Schedule of Charges: In determining fees/charges against loans granted under this scheme, the guidelines issued by the Banking Regulation and Policy Department of Bangladesh Bank for scheduled banks regarding "Schedule of Charges" and the guidelines issued by the Financial Institutions and Market Department of Bangladesh Bank for financial institutions must be followed.

2.11. Shariah-based Banking: Shariah-based banks and financial institutions can finance customers under this scheme based on their approved investment methods without changing the appropriate percentage. However, the collected profit cannot exceed 7% (seven percent) annually.

2.12. Monitoring: Banks and financial institutions must ensure the distribution, collection, and proper use of customer-facing loans/investments through regular monitoring in the case of direct loan/investment distribution. Within 15 (fifteen) days immediately after every quarter, a report on this matter in the prescribed format (as per Annex-D) must be submitted to the Director (SMESPD), SME & Special Programs Department, Bangladesh Bank, Head Office, Dhaka. In addition, Bangladesh Bank may conduct inspection programs at any time on a case-by-case basis.

3. Other Terms:

3.1. All customer-facing loan/investment distribution under this scheme must ensure proper compliance with the guidelines distributed under SMESPD Circular No. 02/2019;

3.2. If the refinanced funds under this scheme are used in any other sector outside the scope of SMESPD Circular No. 02/2019, or if the distributed policies are not followed in providing loans/investments, or if any term is violated, or if any information is concealed or false information is provided, Bangladesh Bank will collect the refinanced amount along with interest/profit at the Bank Rate from the concerned bank/financial institution in a lump sum;

3.3. The applicable policies regarding the maximum limit (Single Customer or Group) of loan/investment facilities for a single customer or group must be followed [guidelines issued by the Banking Regulation and Policy Department for scheduled banks and guidelines distributed under the "Financial Institutions Act, 1993" for financial institutions];

3.4. Compliance with relevant rules and regulations regarding proper risk management and money laundering prevention must be ensured;

3.5. All liabilities for the collection of loans/investments distributed to customers will remain with the bank/financial institution distributing the loan/investment. Bangladesh Bank's claim cannot be associated with the collection of such loans/investments from customers; and

3.6. In each case of receiving refinance, the participating institution must provide a Letter of Commitment (Letter of Undertaking) for the same amount of funds received as refinance.

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

Yours faithfully, (Md. Zakir Hossain) Director (SMESPD) Phone: 9530502

"Annex-A" List of Clusters under CMSME Sector Highest Priority Clusters

1. Agriculture/Food Processing and Agricultural Machinery Manufacturing Industry
2. Ready-made Garment Industry, Knitwear, Design and Decoration
3. ICT
4. Leather and Leather Products Industry
5. Light Engineering
6. Jute and Jute Products Industry

Priority Clusters

1. Plastic and Other Synthetic Industries
2. Tourism Industry
3. Home Textile Products
4. Renewable Energy (Solar Power)
5. Automobile Manufacturing and Repair Industry
6. Handloom, Handicraft and Craft Industry
7. Energy-saving Machinery (LED, CFL bulb production)/Electronic Machinery Manufacturing Industry/Electronic Material Development Industry
8. Jewelry Industry
9. Toy Industry
10. Cosmetics and Toiletries Industry
11. Incense Industry
12. Furniture Industry
13. Mobile/Computer/Television Services

"Annex-B" Source: ----------------- Date:------------- To, The Director (SMESPD) SME & Special Programs Department Bangladesh Bank Head Office Dhaka. Sir, Context: Application for Refinance from "CMSME Sector Term Loan/Investment Refinance Scheme".

Following the guidelines of SMESPD Circular No. 04 issued on July 19, 2022, on the subject mentioned above, a total of Tk ----------- has been distributed as term loans/investments in favor of ----------- CMSME entrepreneurs from ----------- date to ----------- date. Proper compliance with the distributed guidelines has been ensured in the distribution of the said loans/investments. Detailed information (Annex-C) is submitted herewith for the purpose of obtaining refinance from the aforementioned refinance scheme against the said financing.

In this regard, you are requested to provide a total of Tk ----------- (in words: --------------) as refinance according to the attached details.

Yours faithfully, (---------------------------) Managing Director/Divisional Head ---------------------- Bank/Financial Institution Phone: ---------------------- E-mail: -------------------------- Enclosure:

1. Information regarding loan/investment (Annex-C).

"Annex-C" Information regarding loan/investment for obtaining refinance under "CMSME Sector Term Loan/Investment Refinance Scheme"

Yours faithfully, (---------------------------) Managing Director/Divisional Head ---------------------- Bank/Financial Institution Phone: ---------------------- E-mail: -------------------------- Name of Bank/Financial Institution: Financing Period:

Serial No. Description of Loan/Investment Recipient/Enterprise Information regarding Loan/Investment and Refinance Remarks (if any)

Name of Enterprise Address of Enterprise Nature of Ownership (Proprietorship/Joint Ownership/Company) Type/Description of Business/Program Type of Enterprise (Cottage/Micro/Small/Medium) Nature of Enterprise (Production/Service/Business) Trade License No. Name of Entrepreneur/Entrepreneurs NID No. Loan Account No. Date of Loan/Investment Distribution Purpose of Loan Amount of Distributed Loan/Investment (Tk) Customer-facing Interest/Profit Rate (%) Grace Period (Months) Tenure of Loan/Investment including Grace Period (Months) Claimed Refinance Amount (Tk)

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19) 1 2 3 Total - - - - - - - - - - - - -

"Annex-D" Quarterly Progress Report on "CMSME Sector Term Loan/Investment Refinance Scheme"

Name of Bank/Financial Institution: Period/Quarter: March/June/September/December, 20....

Serial No. Loan/Investment Sector Distribution of Loans/Investments in CMSME Sector in the Current Quarter Capitalized Loans/Investments Distributed in CMSME Sector from the Beginning of the Current Year to the Current Quarter Total Distributed Capitalized Loans under the Scheme up to the Reporting Quarter Status of Distributed Loans under the Scheme up to the Reporting Quarter (Customer-facing) Total Distributed Capitalized Loans in Priority Sectors under the Scheme up to the Reporting Quarter Cluster-based Entrepreneurs Women Entrepreneurs Entrepreneurs with Special Needs Disaster-Affected Entrepreneurs

Amount Number of Entrepreneurs Amount Number of Entrepreneurs Amount Number of Entrepreneurs Male Female Male Female Male Female 1 Productive 2 Service 3 Business 4 Cottage 5 Micro 6 Small 7 Medium

Signature of Report Preparing Officer: Name: Designation: Mobile: E-mail:

Signature of Report Approving Officer: Name: Designation: Mobile: E-mail: