On 11th March (Thursday), the Bangladesh Bank (BB) decided to establish a startup refinancing scheme worth Tk 5.0 billion (Tk 500 crore) with a view to developing entrepreneurship in the country.
New entrepreneurs will be availed to smooth banking, through the implementation of the scheme.
Loans will be available at 4 per cent interest for starting new ventures. The credit repayment period will be a maximum of five years, under this refinancing scheme.
However, a startup is a newly formed venture with particular momentum behind it based on perceived demand for its products or services. The intention of a startup is to grow rapidly as a result of offering something that addresses a particular market gap.
As per the decision, the concerned department of the BB will issue a notification mentioning different terms and conditions of the refinancing fund, according to the Bangladesh Bank.
“The board has given final approval to form the fund to help develop entrepreneurship in Bangladesh,” BB’s spokesperson and executive director Serajul Islam said.
Another senior official at the BB said the central bank will announce a policy on formation of another Tk 5.0 billion startup fund to be mobilised by all the scheduled banks from their own resources on the same ground.
“The scheduled banks will have to keep 1.0 per cent from their annual profit to form the refinancing fund,” the central banker explained.
“Access to finance has been a big challenge for startups over the last couple of years. This will help address that challenge,” he said.
“The startups will also get mentorship. Expected outcome may not come if the finance is disbursed through government agencies,” he said. Bangladesh Bank is yet to draw up a detailed policy to this end, said another central bank official.
However, a draft Bangladesh Bank guideline says it would be distributed using a refinance scheme, meaning banks would first distribute loans among clients and the central bank would later repay the fund to banks.
Eligibility criteria require entrepreneurs of age 21 years and above for a maximum of Tk 1 crore from the fund paying a maximum 4 per cent interest rate while banks will get it from the central bank at 0.50 per cent interest rate. The repayment tenure will be up to 5 years.
Entrepreneurs with innovative ideas will get top priority while their educational qualification, technical expertise, experience and social acceptance will be taken into consideration in the same way collateral would.
Notable, an entrepreneur will not be allowed to borrow from the startup fund more than once for a particular venture. The entrepreneur’s educational qualifications, technical experience, personal, and social and group guarantee can be taken as security for the loan.
Banks will be allowed to keep lower provisioning against the loans compared to that required for regular loans.
Syed Almas Kabir, president of the Bangladesh Association of Software and Information Services (BASIS) said, an entrepreneurship Support Fund formed earlier by the central bank is yet to become popular.
It is not possible for many IT entrepreneurs to comply with its collateral conditions, such as land and flats, added Kabir.
“We expect that the learnings of the fund should be taken into account during policy formulation related to the fund. Our asset is intellectual property and there is no guideline for valuation of intellectual property such as software,” he said.
“If a guideline on valuation of intellectual property is developed, entrepreneurs will be able to get finance against their software. This will encourage startups and growth of a culture of innovation,” he said.
Shameem Ahsan, president of the Venture Capital and Private Equity Association of Bangladesh, also welcomed the decision.
“We think the fund should be channeled through venture capital firms in order to ensure proper compliance with the regulation,” he said.
Currently, 20 per cent of a classified loan of sub-standard category has to be kept as provisioning.
But lenders will be allowed to keep 5 per cent in provisioning against the start-up loans.
Banks will have to keep 30 per cent provision for doubtful loans and 50 per cent for bad loans under the start-up fund whereas it is 50 per cent and 100 per cent for the two types of general loans.
Keeping lower provision against the start-up fund will encourage banks to disburse loans to new entrepreneurs.
In addition, every bank will have to form separate start-up funds by way of taking money from their own sources, said the central bank official.