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Loans under the refinancing scheme will be provided for this purpose in 11 sectors, including production, energy saving, waste, air, water and heat management, work environment, human resource development and management, and accounting, purchasing, sales and security management

The Bangladesh Bank has introduced a refinancing fund amounting to Tk1,000 crore for the modernisation and technological development of export-oriented industries, in an effort to increase their competitive advantages.

Technological development and modernisation is required to increase eco-friendly production processes, increase energy efficiency, improve working environment and increase production, said a circular issued by the central bank's sustainable finance department on Sunday.

Loans under the refinancing scheme will be provided for this purpose in 11 sectors, including production, energy saving, waste, air, water and heat management, work environment, human resource development and management, and accounting, purchasing, sales and security management.

Only machinery can be procured with loans from the fund. This money cannot be spent on repairs, maintenance costs, and project consultancy costs or as working capital.

The Bangladesh Bank will provide the revolving fund, meaning money availability will be maintained till the scheme deadline, which is 3 to 10 years.

There will be a one-year grace period based on the customer-bank relationship. The interest rates have been fixed for three credit terms.

The interest rate will be 1% lower than the bank rate in the case of a loan with a tenure of less than 5 years, and the Participating Financial Institution's (PFI) 2% margin will be added to it.

Bank rate is the interest rate at which banks borrow from the central bank. This rate varies from time to time. At present, the bank rate is 4%. As such, the interest rate on loans taken from the fund will be 5%.

On the other hand, for a loan with a tenure of 5 years or above but less than 8 years, the interest rate will be 5.5% if the current bank rate stays at 4%, plus the PFI's margin of 2.5%.

In the case of loans with a period of 8 years or above but less than 10 years, the interest rate will be 6% – the PFI's margin 3% plus 1% less than the bank rate of 4%.

If the bank rate changes, so will the interest rates on the loans.

No hidden charges can be imposed against the loans. However, charges as per the central bank's directive may be levied.

The government has so far provided Tk30,000 crore in working capital support and Tk5,000 crore for paying workers' wages to export-oriented industries.

Readymade garments account for 80% of Bangladesh's export earnings. Normally, it is expected that businesses in this sector will take more loans from the refinance fund.

Asked about the refinancing fund, Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said, "The refinancing scheme for technology upgradation for the export oriented sectors is one of our demands placed in the last two budgets. Similar fund was created in India long ago.

"We appreciate our government for this timely step."

In response to a question, she said, "Covid will leave when the vaccine arrives. We will not waste time even if there is uncertainty. Now, factory owners have no choice but to make technological advances."

In the coming days, green production, green supply chain will be very important. Foreign buyers will want to buy eco-friendly products in the post-Covid period. So, it is necessary to pay more attention to this, Rubana also said.

When asked, Faruque Hassan, managing director of Giant Group, said the government has taken a very good and timely initiative, to move the apparel industry one step forward making it sustainable and environment-friendly.

For example, the re-financing scheme will help some factories, which are in need of upgrading their machineries to acquire more efficiency, Faruque, also a former senior vice-president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA), added.

He urged all banks to make disbursement from the refinance fund as soon as possible.

The export-oriented industries will be able to avail the fund for making much-needed investments for increasing their competitive advantage, said Asif Ibrahim, vice-chairman of Newage Group and a Director of BGMEA.

However, the commercial banks must make the fund available at a very attractive interest rate to interested exporters, Asif Ibrahim added.

Khondaker Golam Moazzem, research director to the Centre for Policy Dialogue (CPD), told TBS that Bangladesh will lose facilities over export access to many markets once it completely comes out of the least developed country club.

"Productivity, working environment and environmental issues will then be the major topics for international market access.

"Keeping these in mind, we have to increase our competitiveness. In this case, modernisation and technological development is necessary. As competitiveness increases, so will new investments. If new investment spirals, new employment will also be generated," he noted

He said this cycle will create a new skilled workforce apart from making the existing workforce more efficient. "This process will continue minimizing the risk of many people to lose jobs at a time."

Eligibility for borrowers

Defaulted clients will not qualify for the loan. Besides, customers who previously had interest waiver or loan write-off will not be able to take loans from the fund.

Banks will have to collect the latest credit information bureau (CIB) report of the applicant to ensure that he or she is not already a defaulter.

If the client had already received any refinancing scheme from the Bangladesh Bank, development partners or other sources, the individual will also not qualify for the loan.

On top of this, the refinancing facility will not be available if the client's export income is not returned to the country before availing the loan.

PFI eligibility for banks and financial institutions

The Participating Financial Institution whose non-performing loans are not more than 10% and maintain the Bangladesh Bank fixed capital adequacy, cash reserve ratio (CRR), provisioning and statutory liquidity ratio (SLR) will be eligible for the refinancing.

Besides, the banks will have to have a minimum CAMELS 3 rating. They will have to ensure all the instructions regarding risks management issued from time to time by the Bangladesh Bank.

Syed Mahbubur Rahman, former chairman of the Association of Bankers and managing director of the Mutual Trust Bank, said such a refinancing fund was much needed.

He said many private and public banks, and financial institutions do not seem to be eligible for loan disbursement due to so many conditions.

Because many banks will not qualify for credit disbursement, loans will reach a small number of customers, added Mahbubur Rahman.

He thinks only a few private banks that are in a good position will qualify to provide loans.