Bangladesh Bank relaxes SME loan rules amid rising defaults

Bangladesh Bank (BB) has eased eligibility criteria for commercial banks and financial institutions to access its Tk 25,000 crore refinance fund for Cottage, Micro, Small and Medium Enterprise (CMSME) sector, responding to rising non-performing loans (NPLs) in banking sector.

Under the revised rules, banks and financial institutions can now participate in the fund even if their classified loans constitute up to 20 percent of their portfolio. 

Previously, institutions were required to maintain an NPL ratio below 10 percent to be eligible. The change follows government reforms last year, which revealed previously undisclosed defaulted loans across the banking system.


While the NPL ceiling has been raised, other guidelines remain unchanged. Priority lending is still directed toward women entrepreneurs, entrepreneurs with special needs and those affected by disasters such as river erosion, cyclones, floods, fires or pandemics like COVID-19. 

Distribution limits are defined so that at least 70 percent of the fund goes to production and service sectors, a maximum of 30 percent to business and trading sectors, at least 75 percent to cottage, micro and small enterprises and a maximum of 25 percent to medium enterprises.

The CMSME Term Loan Refinance Scheme, launched in July 2022, allows banks and financial institutions to borrow money from the central bank at a 2 percent interest rate and lend it to CMSME entrepreneurs at a maximum rate of 7 percent.

The scheme has a three-year duration, although loans to customers can have terms of up to five years, including a grace period. 

The central bank has also noted that the fund size may be increased if necessary.

SH