Tk500cr fund approved to provide low interest loans for startups

New funds for startups:

• The Bangladesh Bank approved Tk500 crore fund
• The commercial banks will set up their own startup funds
• Interest rate on loans: 4%
• Term of the loan: maximum 5 years.
• Maximum amount of loan: Tk1 crore
• An entrepreneur over the age of 21 will be eligible for loan
• Security for the loan
• entrepreneur's educational qualifications
• technical experience
• personal, and social and group guarantee

The Bangladesh Bank's board of directors have approved a Tk500 crore fund to provide low-interest loans for startups to create new entrepreneurs.

Under this refinancing fund, loans will be available at 4% interest for starting new ventures. The term of the loan will be maximum five years.

In addition to the central bank's fund, commercial banks have to set up their own startup funds with 1% of their operating profit, the central bank decided at its 412th board meeting on Thursday.

Officials at the Bangladesh Bank said commercial banks have to consider the year 2020 as the starting year for the formation of these funds. The banks will operate their funds for the next five years and the interest rate of the loans given from this fund will also be 4%.

A guideline for the funds will be published in a circular later.

An entrepreneur aged above 21 will be eligible for borrowing up to Tk1 crore from the fund for new and innovative ventures.

An entrepreneur will not be able 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.

Entrepreneurs can repay the loan on a monthly or quarterly basis. On the other hand, failure to repay the loan on time will be a violation of the existing rules.

For these loans, the banks have to keep less provision than usual.

Asked about the new fund, Bangladesh Association of Software and Information Services President Almas Kabir told The Business Standard that such a fund would encourage the innovation culture. Startups have been emerging in the country for the last seven or eight years, but they have been successful for only four or five years.

He said many foreign investments are coming for the startups. So far, $300 million foreign investments have come for the startups. In such a reality, the funds created with our own money will make new and young entrepreneurs more enthusiastic.

However, he urged the central bank to be careful not to create complications in obtaining the loans.

He said, "There is already a fund called Entrepreneur Support Fund (ESF) that provides loans at 2% interest, but new entrepreneurs are not keen to take loans from this fund due to various complications."

Almas Kabir also pointed out that there is no intellectual property guideline in the country and suggested creating a guideline in addition to raising new funds.

Illustrating the benefit of such a guideline, he said a startup entrepreneur's resource is his talent. But after creating a software, he finds out that there is no guideline to determine its value.

If a guideline exists, then the entrepreneur can determine their software's value and get a loan by depositing the source code of his software in the bank. This will act as collateral against the debt, said Almas Kabir.

Towfiqul Islam Khan, a senior research fellow at Centre for Policy Dialogue, told TBS that getting loans is not as easy for an entrepreneur with new ideas or innovations as it is for an ordinary entrepreneur. New funds will cover this deficit.

"It will create new entrepreneurs as well as increase employment. Although the loan from this fund is somewhat risky, the overall benefits will be reaped," said Towfiqul Islam Khan.

He also suggested setting up guidelines for easy disbursement of loans, involving good banks in the process and close monitoring of loan disbursement and utilisation.