Long-term dollar financing to export industries will continue even though a World Bank scheme expired, the central bank reassured Sunday as it sees huge demand for the facility to stimulate the trade.
The Bangladesh Bank (BB) had a project on long-term financing facility (LTFF) under World Bank funding worth $500 million. This project period was over recently--amid yet greater needs for the greenback for the import of costly capital goods and raw materials.
The LTFF programme under Financial Sector Support Project (FSSP) helped bridge much of these gaps by allowing access to long-term financing in foreign currency for the capital-intensive manufacturing firms in Bangladesh.
This way it also helped generate employment and growth and fostering real throughput in the economy through "inclusive socially responsible banking ethos and environmental and social (E&S) compliances".
The central bank in a circular issued on the day announced that a borrower involved in manufacturing sector, especially the export-oriented industries, will be able to take foreign- exchange funds for a period of up to ten years.
The objective of the facility is to provide foreign-currency soft loan--lower interest rate with long tenure--to the exporters, enterprises and other private-sector firms (small, medium and large-scale as per relevant BB circulars).
The fund support is also for purchase of oceangoing vessels and specialised transport vehicles supporting transportation of goods manufactured in the country.
The PFIs or participating financial institutions (here banks) will determine their own loan interest rates to the borrowers by considering their cost of borrowing and operational expenses, plus a reasonable risk-adjusted spread and profit margin to be in the range of 1.00 per cent to 2.00 per cent above the cost of funds.
An individual borrower can apply for BB-LTFF for any amount not exceeding a maximum threshold limit of USD 5.0 million through a single PFI and for any amount not exceeding a maximum threshold of USD 10 million under syndicated financing through two or more PFIs.
The central bank said, "Financing of businesses for shorter-than-actually-needed tenors is creating required funding mismatch for which the banking sector is experiencing lack of adequate methods and instruments to mitigate such long-term funding gap in both local and foreign currencies."
There have been reports that productive sectors face dollar constraints in importing capital goods like machinery and raw materials for which manufacturing throughput contracts to the domino effect on consumer prices and exports.
Apparel-sector leaders, who run the country's up-till-now main export industry, welcome the move which they say will help many enterprises to survive.
But they feel that the rules and regulations to avail of such loans usually remain very tough to comply with.
Md Nazrul Islam, first vice president of their apex-trade-body BGMEA told the FE that the rules and requirements set by the central bank should be made easy so that export-oriented enterprises can avail of the funds.
"There are many genuine enterprises in the RMG sector who need such type of dollar-denominated loans to survive through procuring machinery but may not avail it due to the tight rules."
Economists say this is a welcoming move as it will open another window for entrepreneurs at this hour of forex crunch.
Dr M Masrur Reaz, chairman of the Policy Exchange of Bangladesh, told the FE that this is needed as Bangladesh lack long-term financing facility as the capital markets can't provide such funds to the enterprises.
"To my mind, this is very good step for reducing the gap of long-term financing."
He says this is useful as it is dollar-denominated loan and long-term one. "The timing is very much important as Bangladesh is now facing dollar shortages."
jaismharoon@yahoo.com
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