$300m WB fund ready for lending to productive sectors

The central bank prepares to start disbursing loans from World Bank's US$300-million scheme approved to facilitate long-term financing, particularly in productive sectors.
Bangladesh Bank's disclosure came Sunday following approval for the soft loan under Financial Sector Support Project (FSSP) by the WB board of directors. The approval was given on June 05.
The Washington-based global development partner approved the loan aiming to improve financial market's infrastructure, regulatory and oversight capacity of the BB and the access of Bangladesh's private firms to long-term financing.
"We're now working to start disbursement of loan through the commercial banks by September 2015," a senior BB official told the FE after the announcement.
He said the central bank had already discussed with senior bankers the operational manual and operational guidelines on the fund.
"The effective interest rate on such lending will be fixed at maximum 6.0 per cent," he said in reply to a query.
The bank interest rates on lending may fall after the start of fund disbursement, he hinted.
"We expect that the fund will also help in increasing investment in the country's productive sector," the BB official observed.
Any manufacturers would be allowed to receive low-cost fund under the project, according to the official.
Currently, the central bank has a short-term Export Development Fund (EDF) worth $2.0 billion for the country's exporters.
The EDF loans from the BB are payable by the banks upon receipt of export proceeds within 180 days from the date of disbursement, extendable by the central bank up to 270 days in case of a longer period for repatriation of export proceeds.
"To ease scarcity of long-term lending, the central bank is now working with the WB for creation of a longer-term lending window for capital investment by manufacturers," the central banker explained.
The 2013 Doing Business report identified access to affordable finances among the top four obstacles to doing business in Bangladesh, the WB said in a statement Sunday.
It also said the project will enable the participating financial institutions to provide long-term finances to manufacturing and export-intensive firms.
"The availability of long-term financing of up to five years to the private sector, and in particular to the readymade garment, footwear and light engineering sectors, will spur competitiveness, investment, and growth," the WB noted.  
The financing institutions will lend at commercially determined rates and also offer Shariah-compliant financial products, it added.
"By providing access to long-term finance, the project will help to build a market for long-term lending in Bangladesh. The project will also provide technical assistance for capacity building of the financial institutions and industry associations," said Shah Nur Quayyum, Task Team Leader, Financial Sector Support Project of the WB.
The FSSP will help strengthen the BB's supervisory and oversight functions to mitigate financial-sector risks, the WB said while approving the lending scheme.
It will also support the strengthening of the financial infrastructure, including the payments system, credit- reporting systems, and other areas.
The credits are from the International Development Association (IDA), WB's concessional lending arm. They have 38 years to maturity with a six-year grace period and carry a service charge of 0.75 per cent.
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