Bangladesh: COVID-19 Emergency and Crisis Response Facility

approved

The project, financed by a sovereign-backed loan to the People's Republic of Bangladesh (Bangladesh), will be implemented by Bangladesh's central bank, Bangladesh Bank, which will on-lend the proceeds of the AIIB loan for short-term refinancing loans (up to 12 months) to participating financial institutions (PFIs). The aim of the refinancing loan is to provide liquidity support to commercial banks and non-bank financial institutions that will lend working capital financing to sub-borrowers under the government's BDT200 billion stimulus package for Cottage, Micro, Small & Medium Enterprises (CMSMEs). The loan will only be used for working capital financing comprising employee wages, inventory, payments on short-term debt and other day-to-day operating expenses. Government programs and AIIB financing The Government of Bangladesh announced a BDT200 billion stimulus package for CMSMEs on April 13th, 2020, where PFIs will provide working capital loans from their own funds to COVID-19 affected CMSMEs (SMESPD Circular-1 dated 13 April 2020). Interest rate of these loan is 9% per annum, 4% of which will be paid by the client(s) and the rest 5% will be given by the government directly to the banks/ non-bank financial institutions as subsidy. Bangladesh Bank further formed a Revolving Refinancing Scheme (“the Refinance Scheme”) amounting to BDT100 billion from its own resources, in order to provide liquidity support to PFIs and assist them in their working capital financing under the government's stimulus package. Under the Refinance Scheme, Bangladesh Bank will refinance up to 50% of loans disbursed by PFIs to CMSMEs (SMESPD Circular-2 dated 26 April 2020). Bangladesh Bank has proposed to use AIIB loan proceeds to provide additional liquidity support to the PFIs, over and above the Refinance Scheme. The PFIs may avail additional refinancing (over 50%, to 100%) from this project. This proposed project will be processed under AIIB's COVID-19 Crisis Recovery Facility.