Bangladesh Bank creates money worth over Tk70,000cr to revive economy. Banks get little response from affected industries because of strict conditions and demand shortage.
"We approved a loan to Biman after getting government sovereign guarantee," said Md Ataur Rahman Prodhan, managing director of Sonali Bank.
He said the bank has received few proposals from the private sector so far under the stimulus package. They provided loans to some government organisations, including Biman, after the package was announced.
Like Biman, private organisations are also facing difficulties to meet loan approval requirements.
US-Bangla, a private carrier, needs loans of Tk250 crore as running capital for a year, but a loan limit of 30 percent of its existing capital under the Tk30,000 crore stimulus package allows it to only borrow Tk15 to Tk20 crore, said Sikder Mezbahuddin Ahmed, adviser to the carrier.
Moreover, depressed consumption amid a countrywide lockdown is also responsible for the lacklustre response for loans from businesses, said bankers.
"We did not get any loan proposals under the stimulus packages yet," said Syed Mahbubur Rahman, former chairman of the Association of Bankers, Bangladesh (ABB), and the managing director of Mutual Trust Bank.
"Actually, industries need no money for business operations now – they need money only for paying salaries," he explained.
"Stimulus packages were announced for business entities, but at this moment, money needs to flow to people's hands for stimulating consumption," said Mamun Rashid, managing partner of PricewaterhouseCoopers Bangladesh, a global consultancy firm.
For instance, disbursing loans for garment workers has been delayed due to a task the banks are not ready to handle. Instead of the RMG factories, Banks were given the responsibility to verify the RMG workers' names and national identification numbers – a job difficult for the banks to carry out.
"How can banks ensure that the workers are actually employed by the factories?" Mamun questioned. "Garment factories should verify it.
Further complicating the process is something beyond the bank's responsibility. For instance, there are many errors in the spellings of workers' names and their national identification cards. This also is delaying the release of the money.
Then there are global market factors in force that are affecting the banks' decisions. Frequent order cancellation by buyers in the garment sector have made banks shy away from import financing.
In case of contract export and import, importers are finding it difficult to get acceptance from banks because of order cancellation fears.
"As a result, opening letters of credit (LCs) dropped drastically in April," Mamun further said.
Loans under the stimulus package will be given based on the bank-client relationship. In this case, banks will not give loans to the vulnerable small and rural businesses.
"NGOs and microfinance organisations should be included under the stimulus package for ensuring flow of money to the rural poor so that demand is stimulated," he suggested.
If only banks remain responsible for disbursing the money, 50 percent of the stimulus package funds will not be disbursed, Mamun stated.
1. What problem with the policy is being talked about here? Explain your answer with an AD-SRAS-LRAS diagram.
“On the other hand, complex processes for applying and getting funds from the stimulus package has slowed down releasing of the money.
For instance, disbursing loans for garment workers has been delayed due to a task the banks are not ready to handle. Instead of the RMG factories, Banks were given the responsibility to verify the RMG workers' names and national identification numbers – a job difficult for the banks to carry out.
"How can banks ensure that the workers are actually employed by the factories?" Mamun questioned. "Garment factories should verify it.”
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