Non-availability of long-term credit at an affordable cost for large manufacturing units has long been reported to be a major hurdle to spurring investment in the private sector. Private investments have been sluggish for quite sometime, though the private sector is now rightly considered a key engine of the country's economic growth. This is a disconcerting situation. On its part, the government has been making its endeavours for strengthening infrastructural facilities and the provision of public goods, beside making strategic investments with its limited resources. But the private sector activities in the economy are constrained by various adverse factors, undermining its growth performance. High cost of setting up diversified manufacturing units and limitations to competitiveness have, as the reports said, been negatively impacting the economy's productivity.
Large manufacturing units need long-term funds at an affordable cost to produce goods at competitive prices. Industry insiders hold the view that the availability of long-term financing to the private sector, particularly in the priority areas, will help promote competitiveness, investment, and growth. Credit facilities on easier terms will particularly incentivise entrepreneurs to stay competitive in their businesses and not to fall behind their competitors, while making efforts to diversify the country's manufacturing base. Overdependence on a few export products is no sign of an economy's strength. In the perspective of export performance of Bangladesh, the country is still dependent on ready-made garment (RMG) sector with its contribution at about three-fourths of its aggregate annual export receipts. The country has otherwise vast untapped potential for product diversification in areas such as pharmaceuticals, leather and leather goods, footwear, ceramics, plastic products, furniture, bicycle and a few more.
In its supportive actions to help the country remove the impediment to providing long-term credit at an affordable cost to productive sectors, the World Bank (WB) has launched a $300 million scheme. The money is being provided by the WB for improving financial market's infrastructure and regulatory as well as oversight capacity of the Bangladesh Bank (BB). It seeks to guarantee private firms' access to long-term finance at a maximum lending rate of six per cent. Commercial banks will reportedly start disbursing loans under the WB-supported scheme from September this year. The BB, now holding consultations with bankers, will thereafter instruct the participating financial institutions to disburse long-term funds to manufacturing and export-intensive firms.
Availability of long-term financing has long been constricted because of the country's supply-side constraints. Its commercial banks are hamstrung by their relatively high cost of funds, in addition to their being risk-averse in nature and also their capacity-related constraints. As the WB now looks to reach out to the mid-sized firms through the intended benefits of its programme, the BB will certainly be better placed to facilitate disbursement of such long-term funds through the banks on relatively easier terms. When such disbursements start, this is likely to have a positive impact on the overall growth of firms, acceleration of economic growth rate, new employment generation and further reduction of poverty. In the process, a good number of new entrepreneurs, as it happened in case of Export Development Fund, are expected to be attracted to taking advantage of the long-term financing scheme at an affordable cost. The BB however will need to set proper guidelines, after consultations with different stakeholders, for dispersal of its benefits among a larger number of potential clients, particularly in productive sectors.
