Six NBFIs seek govt nod to access foreign credit

Naim-Ul-Karim | Published: August 02, 2008 00:00:00 | Updated: February 01, 2018 00:00:00

At least six non-banking financial institutions (NBFIs) have sought government approval to access loan from international long-term development lenders to diversify their credit source and lower their interest rates, officials said Friday.

The NBFIs-- better known as leasing companies-- usually source their loans from local banks, as the central bank and the Board of Investment (BoI) are loath to approve any funding from foreign lenders.

But a squeeze in domestic credit source coupled with higher interest rates charged by the local banks have hit the leasing companies in the recent months, prompting the NBFIs to seek borrowing from the international development lenders.

IDLC Finance Limited, the country's leading NBFI, has already signed two such funding deals worth US$25 million with International Finance Company (IFC) and the FMO as they lend money for a long period and charge lower interest rates.

But the Bangladesh Bank and the BoI have yet to approve the deals, chief executive officer and managing director of IDLC Anis A Khan said.

"The authorities should okay the deals as quickly as possible we need the fund badly to finance our clients. The local banks are reluctant to lend us money because of liquidity crisis. They also charge higher interest rates," Khan said.

The NBFIs borrow money at 13.5-16 percent rates from the local banks while the long-term lenders usually charge no more than 10 percent. They also lend their fund for 15-20 years while local banks loan their funds for a maximum five years.

Long term credits from lenders such as FMO and IFC could ease the credit crunch the leasing companies are facing at the moment and also it will diversify the borrowing sources for the country's 29 NBFIs, Khan said.

Another leasing official said long term lending from foreign development lenders would also alleviate the mismatch between their asset and liability, caused by borrowing money at short term-highest two years-- from local depositors while lending the same to the clients for a long term.

"The central bank has recently relaxed the regulations for borrowing money from foreign development lenders. But it is still reluctant to approve any foreign lending by the NBFIs," said an official.

Khan, also chairman of the Bangladesh Leasing and Finance Companies Association, said the NBFIs could lower their interest rate by at least one percent from their existing rate if they are allowed to borrow fund from development lenders.

When contacted, a BoI official said they have so far received applications from at least six NBFIs for sourcing funds from foreign development lenders.

"They told us that they are facing credit crunch at home. But we have to be careful in giving approval to indiscriminate borrowing from abroad," the official said, speaking on condition of anonymity.

The government's Foreign Loan Approval Committee headed by the Bangladesh Bank governor will sit this month to decide the fate of the applications, he said.