Bangladesh Bank is forming a Tk 1,000 crore fund to provide cheap loans to export-oriented industries to upgrade technologies they currently use. The eligible industries are of 32 types, all falling under top-priority and special development sectors.
They include ready-made garment factories making high-value additions in production, pharmaceuticals, software and IT-enabled services, jute goods and footwear and leather goods.
The fund will run under a refinancing scheme, meaning banks will first give out the loans before being reimbursed by the central bank.
The interest rate will range between 5 per cent and 6 per cent, according to a central bank document.
The central bank will issue a notice within a week or two to this end. The fund will help make the export-oriented industries more vibrant in keeping with global trends.
The transformation can be brought about in 11 types of existing industrial production-related operations to replace outdated technologies with the latest ones such that industrial production gains momentum.
Replacement of outdated machinery, adoption of technology for renewable energy and upgradation of machinery used in business operations and waste management will get priority.
Interested banks and non-bank financial institutions will have to sign a participation agreement with the central bank.
They can then avail the fund at one percentage point less than the bank rate that happens to prevail at that time.
A bank rate is the interest rate at which a central bank lends money to banks.
Managing the bank rate is a method by which central banks influence economic activity. Lower bank rates can help expand the economy by lowering the cost of funds for borrowers.
Currently, the rate is 4 per cent. If a bank happened to have availed the fund now, it would have been charged 3 per cent.
Banks will be allowed to charge borrowers a maximum three percentage points higher than the rate at which they avail the fund.
The tenures would range from three years to 10 years.
The interest rate for a borrower will depend on the time within which it makes the repayment.
It is 5 per cent for less than five years, 5.5 per cent for between five years and less than eight years, and 6 per cent for eight years to 10 years.
Clients will also enjoy a maximum of one year’s grace period before they start paying the installments.
A 7:3 debt to equity ratio will have to be maintained, which means that a borrower can avail 70 per cent of the upgradation cost from the lender while the remaining 30 per cent has to come from its pocket.
Banks that have non-performing loans of more than 10 per cent of their outstanding loans will not be allowed to avail the fund.