Cheaper credit lures textile producers to look overseas

Local textile producers and garment exporters are increasingly turning to foreign loans, compelled by high interest rate regime credit at home, which makes them uncompetitive in the world market, a central bank official said.
A top government panel, headed by Bangladesh Bank governor, gave its stamp of approval to 42 companies to secure US$291 million in foreign loans in its meetings held in March and April, a BB official told the FE Sunday.
The official, who is not authorised to speak to the media, said of the companies, 26 were from the garment and textile sector.
In the last six months alone, the panel has approved overseas loans in favour of 131 garment and 16 textile companies, he added.
The 10-member foreign loan scrutiny committee consisting of representatives from the prime minister's office, ministry of finance, ministry of commerce, ministry of industries and those from the board of investment sit once or twice a month to review and okay overseas loans proposals.
The committee endorses foreign loans only against import of capital machinery.
"A good number of similar companies are also in line seeking approval for foreign loans. We will again sit this month for further consideration of the new applications," the official said.
Abu Zobaid, a finance and accounts director of Saiham Cotton Mills Ltd, said high bank interest in the local market has forced them to opt for overseas credit.
"We are competing with the international rivals, but higher interest in local banks makes us less-competitive in the world market. So we've decided to secure loan from overseas sources," said the company executive, whose mill has got approval for $11.08 million foreign loans.
"In most cases, we can't make five per cent profit against our exports, whereas interest of loans from local sources is 10-­12 per cent higher than those of foreign loan."
He wondered how a company can compete with its international rivals at such a high interest.
Dr Akbar Ali Khan, a former advisor to caretaker government, agreed that low-cost foreign loan will make the export-oriented companies competitive in the international market, helping them to boost export income.
But he said availing the same loan by companies that sell their goods in the local market might give them added advantage and create an uneven competition among their fellow businessmen as all these companies cannot qualify to get cheaper loan.
"If the loan goes to the export-oriented sectors, then it will bring a positive result for the country but if a section of the local market players get the foreign loan, then it might harm their rivals," he added.   
Local companies get foreign loans at an interest rate of 5.0 to 6.0 per cent, while local banks' interest rate may go up to 18 per cent or more.
The companies usually receive loans on two categories-short-term loan as running capital and long-term credit against import of capital machinery.
According to the central bank data, the total loan amount stood at around $4.5 billion in March, 2015, of which short-term loan is around $2.2 billion and the rest is of long-term.
The foreign financiers consider certain standards for working conditions, financial status and managerial capability of a company while sanctioning loans.
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