Students, rickshaw pullers, tea sellers masons and others can get Tk 10 lakh loan

Looking to start a business but lacking capital? Securing a bank loan typically requires collateral. Also, small entrepreneurs and low-income professionals often fail to qualify because they lack the necessary documents and financial capacity.

Bangladesh Bank has set up a Tk 15 billion refinancing fund to bring small entrepreneurs, low-income professionals and other marginalised groups without collateral or adequate financial documents under the formal banking system.

Under the scheme, banks will receive refinancing facilities from the central bank at an annual interest rate of 1 per cent and lend to customers at a maximum rate of 7 per cent.

Individuals can borrow up to Tk 10 lakh, while group loans can go up to Tk 40 lakh. No collateral will be required for loans of up to Tk 5 lakh. The loan tenure will be five years.

The Financial Inclusion Department of Bangladesh Bank issued a circular on Thursday outlining the scheme.

According to the circular, farmers, small traders, low-income professionals, women entrepreneurs, students, members of expatriate families and people affected by disasters will receive priority. Persons with disabilities and members of the third gender will also be eligible. At least 25 per cent of the total loan disbursement under the fund must be allocated to women.

The directive, sent to the managing directors and chief executive officers of all scheduled banks, sets out the eligibility criteria, loan amounts, interest rates, collateral requirements and disbursement procedures.

Bangladesh Bank said the initiative aims to improve the living standards of marginalised and disadvantaged groups by involving them in income-generating activities and expanding financial inclusion. A new policy has been formulated for the scheme.

Priority will be given to micro and small entrepreneurs operating in neighbourhoods, local communities and villages. Eligible occupations include fishermen, cobblers, goldsmiths, hawkers, blacksmiths, potters, tailors, rickshaw and van drivers, carpenters, masons, painters and plumbers. People involved in repairing electrical and electronic appliances, making pickles and traditional cakes, as well as small-scale weavers and tea workers, will also be eligible.

Grocery and general store owners, mobile clothing vendors, mobile recharge and mobile financial service agents, information and internet service providers, street food vendors, tea and betel leaf sellers, book and newspaper vendors, flower, fruit and vegetable sellers, and people rearing poultry and livestock can also apply.

Beyond traditional businesses, the scheme will cover people involved in freelancing, nursery businesses, tree planting, embroidery, block printing and batik, cottage industries, handicrafts, food production and promising innovative ventures. Trained members of the Village Defence Party (VDP) will also be eligible for loans to undertake various income-generating activities.

Among farmers, marginal and landless farmers holding a Farmer Smart Card will receive priority. They must have a bank account opened with Tk 10. However, banks have been instructed to ensure that marginal and landless farmers without smart cards are not excluded from the scheme.

Small traders and low-income professionals affected by river erosion, tidal surges, cyclones, floods, drought, monga, fires, earthquakes, building collapses and pandemics such as Covid-19 will also receive priority. Low-income people living in coastal areas, chars and haor regions, as well as members of ethnic minority and disadvantaged communities, will be eligible.

Family members of expatriates who receive remittances, migrant workers who have returned from abroad and their family members will also receive priority. People with special needs, persons with disabilities and third-gender customers will be prioritised for loans to engage in any income-generating activity.

The scheme also includes special provisions for students. Underprivileged, insolvent, or dropout students up to the age of 25 who hold student banking accounts may receive loans for vocational, technical, information technology and other training programmes. In such cases, a guardian must provide a repayment guarantee.

Loans may also be provided to cover the costs of higher education, including MBBS, BDS and engineering studies, as well as the purchase of necessary educational materials. A guardian's repayment guarantee will also be required for these loans.

An individual customer or micro and small entrepreneur can borrow up to Tk 10 lakh. The maximum amount for a group loan is four times that amount, or Tk 40 lakh.

To get a group loan, two to five people must form a group. Each member can borrow up to Tk 8 lakh. All members will be individually and jointly liable to the bank for repayment.

Applicants must have a bank account with Tk 10, Tk 50 or Tk 100 as the opening deposit. Those without an account will have to open one. The approved loan amount will be deposited into that account.

According to the Bangladesh Bank directive, loans of up to Tk 5 lakh will not require collateral. For loans exceeding Tk 5 lakh, reasonable collateral may be required depending on the relationship between the bank and the customer.

For loans of Tk 25,000 or more, banks may, at their discretion, use the Bangladesh Bank Credit Guarantee Scheme. The guarantee fee must be paid by the bank from its own funds.

Shariah-based banks will also be able to provide loans under the scheme. However, their annual profit rate cannot exceed 7 per cent.

According to the Bangladesh Bank directive, borrowers will have up to five years or 60 months to repay loans. A grace period of up to six months may be allowed during which instalment payments can be deferred.

Excluding the grace period, banks will have to repay the principal, interest or profit, and service charges to Bangladesh Bank in quarterly instalments. At the customer level, banks may set repayment schedules on a monthly, quarterly, half-yearly or annual basis.

Before approving a loan, banks must obtain the customer's Credit Information Bureau (CIB) report. However, no charge or fee can be collected from customers for obtaining a CIB report for loans or investments of up to Tk 3 lakh.

Bangladesh Bank said banks can distribute loans under the scheme through their branches, sub-branches, agent banking outlets, mobile financial services, online banking and internet banking.

Banks may charge service fees approved by their boards for disbursing and collecting loans through agent banking or mobile financial services.

However, they cannot collect any additional processing fee from customers for loans or investments beyond the charges permitted under Bangladesh Bank's Schedule of Charges guidelines.

Banks will have to conduct regular monitoring to ensure proper loan disbursement, recovery and use of funds by customers. They must submit reports to Bangladesh Bank by the 15th of the month following each three-month period.