BB to launch $350m loan scheme for manufacturers

AKM Zamir Uddin
A file photo shows an employee working in a textile factory in Dhaka. Bangladesh Bank is likely to introduce a refinance and pre-finance scheme worth $350 million for new manufacturing units.— New Age photo

A file photo shows an employee working in a textile factory in Dhaka. Bangladesh Bank is likely to introduce a refinance and pre-finance scheme worth $350 million for new manufacturing units.— New Age photo

Bangladesh Bank is likely to introduce a refinance and pre-finance scheme worth $350 million in September this year, under which clients will get loans in dollars from banks and non-bank financial institutions on long-term basis to set up new manufacturing units or expand the existing ones.
The central bank will introduce the scheme by taking assistance of $300 million from the International Development Association, a concern of the World Bank, a BB official told New Age on Wednesday.
The BB will provide $50 million to build the fund. The scheme’s name will be financial sector support project.
The BB official said that the WB board might approve the fund on June 5 at a meeting and then the central bank would take required measures to introduce the project.
The country will have to pay 0.75 per cent rate of interest annually to the WB against the fund with a 40-year tenure, he said.
The key objective of the fund is to create a long-term financing source for the manufacturing sectors in foreign currency with a view to facilitate outputs in the country, according to a central bank report.
The financing will be available to exporters, small and medium enterprises and other productive units in the country, which will purchase capital machinery, the report said.
The entrepreneurs, who will set up plant and equipments, ocean-going vessels and plant components for the purpose of upgradation and expansion, will be allowed to receive loans from the scheme.
The service-related entrepreneurs will also take loans to procure machinery.
Banks and NBFIs will have to sign participation agreements separately with the central bank to use the fund
and the BB will impose rate of interest on them (banks and NBFIs) between LIBOR (London interbank offered rate) plus 3 per cent and LIBOR plus 4 per cent considering their CAMELS rating.
Banks will set their own interest rates for their clients covering their cost of borrowing, operational expenses and a reasonable risk-adjusted spread and profit margin.
The BB report said that banks would have to impose maximum 2 per cent to 4 per cent interest rate above their cost of funds to their clients, the BB official said.
The maturity of the loans for the clients will be 5-year, 7-year and 10-year.
The BB report said that the banks having CAMELS rating of 1 would be allowed to take loan from the central bank with an interest rate of LIBOR plus 3 per cent for 5-year maturity tenure.
The banks having CAMELS rating 2 and 3 will be allowed to take loan with an interest rate of LIBOR plus 3.35 per cent and LIBOR plus 3.50 per cent for the same maturity tenure.
The banks which earned the CAMELS rating 4 and 5 will not be allowed to use the fund.
The banks and NBFIs which suffer provision and capital shortfall will not be qualified to use the fund, the BB report said.
Under the refinance scheme, banks and NBFIs firstly will have to disburse the loans to their clients and then they will demand the amount from the central bank.
Banks and NBFIs will take loans from the fund and then they will disburse the amount to their clients under the pre-finance scheme.
Currently, the central bank has a short-term export development fund of $150 crore for the country’s exporters.
The EDF loans from the central bank are payable by banks upon receipt of exports proceeds within 180 days from the date of disbursement, extendable by the BB up to 270 days in case of a longer period for repatriation of export proceeds.

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