Leather industry faces financial crunch

Syed Jamaluddin Loan defaults have increased in the leather industry. Recovery of loans has declined side by side. Risk in this sector has, therefore, increased. The Bangladesh Bank (BB) has advised the commercial banks to move with caution in sanctioning loans in this sector. The leather business may come under strain this year. If enough loans are not available for tanneries from banking channels, export of leather products may lag behind. But liberal bank financing are no longer available. According to the Bangladesh Bank, four state-owned commercial banks (SoBs) have provided loans to 135 leather factories until July this year. Total loan amounts to about Tk 15.05 billion (1505 crores and 63 lakhs). During the same period, their loan defaults stood at about Tk 10.05 billion (1005 crores and 54 lakhs). The banks have lost interest in extending loans to tanneries because of mounting defaults in this sector. Leather products are facing difficulties because of global downturn. Businessmen had to buy raw leather from the market incurring losses. They can not preserve rawhides for want of financial resources. The Rupali Bank had a target of disbursing Tk 75 million (75 crores) last year. They may fix a similar target this year. The Agrani Bank will provide loans to leather industry. The amount may vary from Tk 750 to 800 million (70 to 80 crores). The Sonali Bank, the largest public sector bank, may disburse about Tk 1.0 billion (100 crores). The Janata Bank may disburse Tk 400 million (40 crores). If all the commercial banks come forward to disburse loans leniently, this may create a positive impact. Demand for Bangladesh footwear and other leather products is increasing in the international market because of good quality, excellent design and relatively low prices. The footwear companies are trying to keep their position high in the overseas markets. The exportable items of leather are shoes, money bags, belt, vanity bag, key bag, make-up box, jacket, etc. The global demand for these products is huge. Our market share has to be preserved. Procurement of raw hides must be increased and its quality maintained. Tanners have sought Tk 4.5 billion from banks to facilitate the procurement of rawhides and skin of sacrificial animals during the ensuing Eid-ul Azha. Last year they received Tk 3.85 billion for seasonal procurement. The tanners want more loans this year as the prices of hides have increased. They also have a plan to collect more rawhides this year. Although the amount to be disbursed is yet to be fixed, the state-owned commercial banks are ready to provide Tk 4.26 billion in loans to the tannery owners to purchase rawhides. The banks will fix the amount soon. But new loans would be given to those who have repaid last year's loan. The Tannery Association and the Leather Goods and Footwear Association will hold a joint meeting to set the prices of hides. Tanners expect the supply of sacrificial animals will increase by over 20 per cent this year as the politicians tend to sacrifice more animals before election to satisfy the voters by distributing meat among them. Annually, about 50 to 60 per cent of hides of the country are procured during the Eid-ul Azha. About five years back, the Bangladesh Bank formulated guidelines for giving loans to the leather sector. Banks are now following this policy in giving loans. The livestock ministry sources said about 18 million square feet of rawhide would be procured during the ensuing Eid. Tanners have predicted that the prices of rawhides and skin would be higher this year than those of last year. This prediction is based on higher global prices. There is growing demand for Bangladesh leather products. The leather industry does not have carry-over stocks. This means that more rawhides have to be procured by tanners who have set up a target of collecting 130 million square feet of rawhides with a view to meeting increased global demand. This estimate is much higher than the estimate of livestock ministry. Increasing production cost of leather goods in China and India has become an advantage for Bangladesh. A large number of players are competing with each other to gain the global market share. With changing fashion trend and lifestyle, consumer demand has been shifting toward new designs and innovative leather products. Bangladesh exporters are aiming at higher export target. The government has set a target of earning $670 million from leather and leather goods export during the current fiscal year. The earning was $561 million last year posting a 23 per cent growth over the previous year. The cattle market is gathering momentum at Gabtali. Truck loads of cattle are coming from border areas. There is a huge supply of Indian cattle. Unlike other occasions, the Indian Border Security Force (BSF) is quite liberal in facilitating cross-border cattle trade on the eve of the Eid-ul Azha for commercial reasons. The leather industry is labour-intensive and there is 100 per cent value addition. Therefore, this sector deserves to be supported. The writer is an economist and columnist. [email protected]