Disburse credit to micro-businesses at low interest rate to survive
COTTAGE and micro-industry entrepreneurs are not getting loans from the government's Tk 20,000 crore stimulus package, while banks are disbursing most of the loans to medium industries. As a result, many cottage and micro-industries are on the verge of permanently shutting down as they have no working capital to survive. Micro-entrepreneurs have been exhausted due to their lack of capacity to survive a global calamity like Covid-19. If they are not provided with stimulus the earnings of around 2.06 crore families will decrease significantly and many enterprises could be shut down.
Amid the situation, Palli Karma Sahayak Foundation (PKSF) recently recommended the Finance Ministry to disburse loan from the allocation for cottage and micro-enterprises of the stimulus package through micro-finance institutions. It recommended that banks will get 5 per cent interest subsidies from the government on these 9 per cent interest loans. The banks would provide funds for the MFIs at six per cent interest and the MFIs would then disburse the money to the cottage and micro-enterprises at a 9 per cent interest rate.
As banks are not able to disburse loans to these entrepreneurs fast, so some parts of the disbursement should be implemented through MFIs and NGOs. Otherwise, the cottage and micro-industry entrepreneurs will not get the benefits of this stimulus package. It is not profitable for the banks to provide such small loans and not possible as they have limited network in rural areas. So, disbursing loans through MFIs and increasing incentives for the cottage and micro-enterprises could be better alternatives.
We know, cottage, micro and small industry entrepreneurs mainly depend on NGOs for loans. Banks are reluctant to provide loans in this sector as there is a risk of loans defaulting. On the other hand, large NGOs have dedicated manpower to monitor, disburse and collection of instalment. NGOs are eager to disburse a part of the SME package to the cottage and micro-industry entrepreneurs, but disburse loans at a nine per cent interest rate after taking them at a six per cent interest rate is not feasible for them. The government must lower the interest rate and employ national commission to monitor the proper disbursement and development of the borrowers.