Bangladesh: COVID-19 Emergency and Crisis Response Facility

OBJECTIVE

To reduce liquidity constraints brought on by the COVID-19 pandemic to SMEs and cottage industries in Bangladesh.

DESCRIPTION

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.

ENVIRONMENTAL AND SOCIAL INFORMATION

AIIB’s Environmental and Social Policy (ESP) including the Environmental and Social Exclusion List (ESEL) and relevant Environmental and Social Standards (ESSs) applies to this Financial Intermediary (FI) Project. The Project has been placed in Category FI. The Bangladesh Bank has established “Guidelines on Environmental & Social Risk Management (ESRM) for Banks and Financial Institutions in Bangladesh” (ESRM Guidelines), which are equivalent to an Environmental and Social Management System (ESMS). The ESRM Guidelines have been implemented for several projects with other international financial institutions and have been assessed to be consistent with the ESP. The ESRM will be applicable for this Project and will be reflected in the Operations Manual of this Project. A team of environmental and social (ES) experts in Bangladesh Bank’s Sustainable Financial Unit will be formed to implement the ESRM Guidelines for this Project, through appropriate screening, approval and monitoring procedures. Each PFI will, as a condition of eligibility for financing under the AIIB loan, be required to adopt an ESMS in accordance with the ESRM Guidelines. The ESRM Guidelines and ESMSs will exclude Category A and high-risk Category B subprojects and activities listed in the ESEL and the Exclusion List of ESRM Guidelines from eligibility for financing under the Loan.

AIIB’s team will monitor the implementation of the ESRM Guidelines and PFIs’ ESMSs under this Project and conduct post review of ES performance of the sub-borrowers on a sample basis.

The PFIs will conduct stakeholder consultations and establish a line of communication with the affected people in order to understand and monitor potential impacts as specified in each of their ESMSs. The ESRM Guidelines have been disclosed on Bangladesh Bank’s and AIIB’s websites.