The Bangladesh Bank has cut interest rate by 1% to 5% for borrowers who take out loans under the Tk5,000 crore pre-shipment refinance scheme launched, aiming at assisting pandemic-affected export-oriented industries.
The directive will come into effect immediately, according to a circular issued by the central bank's Banking Regulation and Policy Department on Monday.
Pre-shipment finance helps exporters meet the packaging and overhead costs before shipping products.
When asked about the interest rate cut, Faruque Hassan, newly-elected president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Business Standard, such a loan offers an insurance coverage like benefit for exporters. Many garment factory owners were reluctant to take out a loan at 6% interest as their businesses are going through a lean phase because of Covid-19.
The cost of borrowing has come down a bit with the interest now coming down to 5%, he said adding that it would have been better if the rate was reduced further.
BGMEA members will now be more interested in taking out loans under the scheme, he said.
Mohammad Hatem, first vice-president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told TBS that exports are under a threat because of the pandemic. In this situation, a reduction in the interest rate will give some kind of benefit to exporters.
He suggested increasing the extent of loans.
On 13 April 2020, the central bank launched the Tk5,000 crore pre-shipment refinance scheme at a 6% interest rate for export-oriented industries amid a slowdown in external trade after the pandemic hit. The duration of the fund will be three years and it will revolve.
As per the latest instruction, the interest rate under the scheme will be 5% for borrowers, while banks will keep 3% with them as a profit and pay the remaining 2% to the central bank. Banks will be barred from imposing any charge or fee on customers out of the Bangladesh Bank's existing policy regarding the schedule of charges.
Any export-oriented company is eligible for the fund but the approval of loans completely depends on the respective banks, based on the bank-customer relationship.
Defaulters and companies that are yet to receive their export earnings are not eligible for the fund.
The banks are allowed to apply for the fund against each confirmed export order or letter of credit (LC). And the credit issuable will be fixed after the exclusion of back-to-back LC value, financing for accessories and other relevant costs.
However, exporters will not get more than a 10% loan, of any consignment or commercial invoice value, from the scheme.
The scheme will also not apply to the export order of any shell company or LC issued by any shell bank.
While issuing credit for pre-shipment, the banks need to follow the single borrower limit and they are fully liable for the repayment.