Startups with new ideas to grow



| Update:
04 April 2021 21:41:08


The Bangladesh Bank (BB) has taken another initiative to support startups with low interest, unsecured loans. To this end, a TK 5.0 billion refinancing program has been established from which commercial banks as well as other financial institutions will provide loans to these companies at a maximum interest rate of 4.0 percent. . The initiative undoubtedly reflects BB’s sincere desire to help young entrepreneurs with new ideas, who run their businesses on a shoestring budget. Often they are not eligible for traditional bank credit because they cannot provide the guarantee of accessing normal bank credit. We can recall at this stage that previously, the BB had taken similar initiatives to provide credit support to startups, but without much success. Ten years ago, an Entrepreneurial Equity Fund (EEF) was created with similar intentions. But after failing due to poor choice of clients for equity participation, another effort, the so-called Entrepreneurship Support Fund (ESF) was launched to provide funds at very low interest rates. interest (at 2.0%) in startups. This attempt did not produce any significant result either, as the loan was tied to a collateral guarantee that most of the interested entrepreneurs were unable to provide. In addition, the long and complicated banking procedure was another obstacle.

Now the central bank has come up with the very powerful idea of ​​an unsecured bank loan for startups. However, a similar move with a TK 1.0 billion fund was also made by BB about six years ago. It was also a refinancing plan, as the commercial banks responsible for extending credit would recover their funds in the form of repayment from the central bank. In addition, to qualify for credit, potential borrowers had to have prior training in the trades in which they were expected to invest the loan money. The organizations that would provide such training would be public or private entities such as umbrella trade bodies. But the program did not take off as planned. Why previous approaches have failed to meet expectations is an enigma. But what is clear is that it was difficult for these inexperienced entrepreneurs or those startups with little or no capital other than their innovative business ideas to meet all the requirements as a borrower. More importantly, the high interest rate (at 10 percent) that the program had set on the loans was perhaps the biggest obstacle.

While previous startup support programs were launched with BB’s best intentions, efforts ultimately failed. So, for BB’s current decision to provide credit support to startups to be successful, it must be foolproof. Importantly, as before, the banks through which loans are to be channeled will play a crucial role in the success of the current movement. To be frank, a lot will depend on the bank officials who would process loan documents for startups. They will have to be more proactive so that no application from a future startup looking for a loan is rejected for a fragile reason. In addition, they will need to make a big change in their traditional mindset about who can be considered a loan client. Admittedly, the latest central bank move is radically different from earlier efforts. Hopefully, this time, young entrepreneurs with innovative ideas will greatly benefit from the central bank’s new pro-startup credit program.

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