To address this problem, Bangladesh Bank has established a Tk 1,500 crore refinancing fund aimed at bringing disadvantaged communities and small entrepreneurs into the formal banking system.
Under the scheme, commercial banks will receive funds from the central bank at an annual interest rate of 1 per cent and will be able to lend the money to customers at a maximum rate of 7 per cent. Individuals will be eligible to borrow up to Tk 10 lakh, while loans of up to Tk 5 lakh will be available without collateral. Group borrowers will be able to access loans of up to Tk 40 lakh, with a repayment period of up to five years.
The Financial Inclusion Department of Bangladesh Bank issued a circular on Thursday, 12 November, outlining the eligibility criteria, loan limits, interest rates, collateral requirements and disbursement procedures.
The directive was sent to the managing directors and chief executive officers of all scheduled banks in the country.
The central bank aims to improve the living standards of disadvantaged people by helping them engage in income-generating activities. The initiative is also intended to expand financial inclusion, support small-scale entrepreneurship and create opportunities for self-employment.
Who will be eligible for the loans?
The scheme covers a wide range of occupational groups and vulnerable communities. Farmers, small traders, low-income professionals, women entrepreneurs, students, members of expatriate families and people affected by natural disasters will receive priority.
People with disabilities and members of the third-gender community will also be eligible. Bangladesh Bank has instructed participating banks to ensure that women receive at least 25 per cent of the total loans distributed under the programme.
The eligible groups include micro and small entrepreneurs operating in neighbourhoods, local communities and villages. Fishermen, leather workers, goldsmiths, street vendors, blacksmiths, potters, tailors, rickshaw pullers, van drivers, carpenters, masons, painters and plumbers are also among those who can apply.
The scheme extends to people involved in repairing electrical and electronic equipment, preparing pickles and traditional cakes, small-scale weaving and tea plantation work.
Small grocery and general store owners, mobile clothing vendors, mobile phone recharge businesses, mobile financial service agents, information service providers and internet service operators will also be eligible.
Other beneficiaries may include street food sellers, tea and betel leaf vendors, book and newspaper sellers, flower traders, fruit and vegetable sellers, as well as people involved in poultry and livestock farming.
The initiative is not limited to traditional occupations. Freelancers, nursery operators, tree planters, embroidery workers, block-printing and batik artisans, cottage industry entrepreneurs and handicraft producers can also seek financing.
People engaged in food preparation and promising innovative ventures will be considered as well. Trained members of the Village Defence Party (VDP) involved in income-generating activities will also have access to the scheme.
Priority for marginal and landless farmers
Marginal and landless farmers holding the Farmer Smart Card will receive priority under the programme. They must have a bank account with a balance of Tk 10.
However, Bangladesh Bank has instructed commercial banks to ensure that farmers without a Smart Card are not excluded simply because they do not possess one. Banks are expected to make arrangements so that eligible marginal and landless farmers can also benefit.
Small traders and low-income professionals affected by river erosion, tidal surges, cyclones, floods, droughts, seasonal hardship, fires, earthquakes, building collapses and pandemics such as Covid-19 will also receive priority.
The scheme specifically recognises the financial difficulties faced by people living in coastal areas, river islands and haor regions. Members of small ethnic communities and other disadvantaged groups are also included.
Families receiving remittances from expatriate workers, people who have returned from overseas employment and their family members will be prioritised.
People with special needs, individuals with disabilities and members of the third-gender community will be eligible for preferential financing to help them undertake income-generating activities.
Students can also apply for loans
One notable feature of the refinancing scheme is that it extends financial support to students.
Students up to the age of 25 who hold Student Banking accounts will be eligible for loans to pursue vocational, technical and information technology training. The provision particularly targets financially disadvantaged students, including those who have dropped out of education.
However, a parent or legal guardian must provide an assurance of repayment.
The scheme will also support higher education expenses, including the costs of studying medicine (MBBS), dental surgery (BDS) and engineering. Loans may also be used to purchase necessary educational materials.
In these cases, too, repayment assurance from a guardian will be required.
Individual loans up to Tk 10 lakh, group financing up to Tk 40 lakh
Under the guidelines, an individual borrower or micro and small entrepreneur can receive a maximum loan of Tk 10 lakh.
For group financing, the maximum limit is Tk 40 lakh. Applicants must form a group consisting of between two and five members. Each member can borrow up to Tk 8 lakh.
Group members will remain individually and jointly liable to the bank for repayment. This means that the group will share responsibility for meeting its financial obligations.
Borrowers must maintain a bank account with an initial deposit of Tk 10, Tk 50 or Tk 100. Those without an eligible account will have to open one before receiving the loan. Once approved, the loan amount will be deposited directly into the designated account.
A key provision is that loans of up to Tk 5 lakh must be provided without collateral. For amounts exceeding this threshold, banks may seek reasonable additional security, taking into account their relationship with the borrower and the circumstances of the loan.
For loans of Tk 25,000 or more, banks may also use Bangladesh Bank’s Credit Guarantee Scheme at their discretion. However, the guarantee fee must be paid by the bank from its own resources rather than charged to the borrower.
Interest capped at 7 per cent, with five years for repayment
The maximum annual interest rate for loans under the scheme has been set at 7 per cent. Shariah-based banks will also be allowed to participate, provided that the annual profit rate charged to customers does not exceed the same limit.
The maximum repayment period is five years, or 60 months. Borrowers may receive a grace period of up to six months during which instalment payments can be deferred, subject to the bank’s approval and applicable conditions.
At the institutional level, participating banks will have to repay the principal, interest or profit, and service charges to Bangladesh Bank in quarterly instalments, excluding the grace period.
At the customer level, banks can determine repayment schedules on a monthly, quarterly, half-yearly or annual basis, depending on the nature of the loan and the borrower’s circumstances.
Before approving a loan, banks must obtain the applicant’s Credit Information Bureau (CIB) report to assess their existing credit obligations and borrowing history.
However, borrowers seeking loans or investments of up to Tk 3 lakh will not have to pay any fee or charge for obtaining the CIB report.
Loans to be distributed through digital and traditional banking channels
Bangladesh Bank has allowed participating institutions to distribute loans through multiple channels to make the facility more accessible.
Banks can use their regular branches and sub-branches, as well as agent banking outlets, mobile financial services, online banking and internet banking platforms.
For loan disbursement and recovery through agent banking or mobile financial services, banks may impose service charges approved by their respective boards.
However, they will not be allowed to collect additional processing fees from customers beyond the charges specified in Bangladesh Bank’s official Schedule of Charges.
Participating banks will also be responsible for ensuring that borrowers use the money for the approved income-generating purposes. They must regularly monitor both loan disbursement and recovery to prevent misuse of funds.
In addition, banks will have to submit quarterly reports to Bangladesh Bank by the 15th day of the month following each reporting quarter.
The Tk 1,500 crore refinancing initiative represents a significant effort to expand access to institutional finance among people who have traditionally struggled to obtain bank loans. By including a broad range of occupations, students, women entrepreneurs, farmers and disadvantaged communities, the scheme seeks to make formal credit more accessible beyond conventional business sectors.
The collateral-free facility for loans of up to Tk 5 lakh could be particularly important for small traders and low-income workers who lack property or other assets to offer as security. Its success, however, will depend on how effectively banks implement the guidelines, simplify access to credit and ensure that financial assistance reaches the people it is intended to support.
