New export support fund yet to pick up pace

Loan disbursement from the newly formed Export Facilitation Pre-finance Fund (EFPF) of the Bangladesh Bank to support export-oriented industries with loans in taka is yet to get momentum as exporters are still inclined towards the foreign-currency EDF loans.

Generally, exporters make foreign back-to-back LC (letter of credit) payments with funds taken out from the Export Development Fund, so the demand for foreign-currency EDF loans is higher than the local-currency EFPF.

The EDF is a revolving fund, where loans taken by exporters are repaid every day after the expiry of the loan tenure, and other exporters take fresh funds. An average of more than $100 million in EDF loans is disbursed every day – meaning more than $2 billion (around Tk20,000 crore) in EDF loans are disbursed on twenty working days every month, a central bank official said.

But, data from the central bank show that only Tk2,000 crore in loans have been disbursed from the Tk10,000 crore fund since it was formed in January this year as an alternative to the Export Development Fund (EDF) where exporters get loans in foreign currency to facilitate the imports of capital machinery and raw materials for export-oriented sectors.

The central bank official said the demand for EFPF loans – provided in the taka – would naturally be lower compared to EDF. This is because, he said, exporters will be able to pay the wages and allowances of workers and meet the costs of goods purchased from domestic sources by taking loans from the EFPF. But, to make foreign back-to-back LC payments, exporters have to buy dollars from the market. 

The EFPF was established to reduce the pressure on the EDF amid the current dollar crisis. However, most exporters continue to prefer the EDF.

The central bank official, however, observed that a further reduction in the size of the EDF may cause an increase in loan disbursement from the EFPF.

According to central bank sources, the size of the EDF at the beginning of January this year was more than $7 billion, which was reduced to around $5.5 billion by the fourth week of March.

The Bangladesh Bank official said if the demand for loans from the EFPF increases, the central bank will further increase the size of this fund while reducing the size of the EDF.

The official also pointed out some issues that are hindering the uptake of the EFPF.

While one can directly apply online to take a loan from the EDF, online-based services have not yet been launched for the EFPF. Moreover, many banks have not appointed officers for the EFPF as yet, although 51 banks have signed participation agreements with the central bank to deal with the fund.

Only a few private Islamic banks are performing better in terms of loan disbursement from the EFPF while Janata Bank has distributed the highest amount of loans from the fund among the state-run banks.

A Bangladesh Bank source told TBS that the central bank has been more aggressive in recovering outstanding EDF loans than disbursing new loans from the fund to reduce the strain on its reserves. If the central bank recovers Tk10 worth of EDF loans, it lends a maximum of Tk8 from it while the remaining Tk2 is being reconciled with the forex reserves, he added.

The Bangladesh Bank has also introduced a 4% "penal interest" for banks that fail to repay EDF loans on time. The central bank made this decision as several banks have been delaying the repayment of EDF loans for a long time, officials told TBS.

Recently a state-owned bank was removed from the EDF facility for being overdue with the loans.

Speaking to TBS, Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), blamed the sluggishness in EFPF loan disbursement on "reluctance" on part of banks.

Banks are trying to lend to exporters from their own sources instead of giving out money from the EFPF, he alleged.

"The interest rate is higher on loans from banks' own funds. If banks borrow from the EFPF as per the demand of exporters, the utilisation of the fund will increase manifold," Hatem maintained.

He also stressed the need for foreign currency loans, and said, "The International Monetary Fund [IMF] has asked for downsizing the EDF. I would say the size of the EDF should be at least $4 billion through which foreign back-to-back LCs can be repaid.

"At the same time, the size of the EFPF should be raised to Tk30,000 crore, from which loans will be given to pay back-to-back LC payments within the country."

Several exporters, wishing anonymity, also spoke against an overnight reduction in the size of the EDF, adding that the central bank should take at least one or one and a half years to downsize the EDF. At the same time, the size of the EFPF should be increased while reducing the EDF, they added.

Speaking about the problem they are facing following the downsizing of the EDF, one of the exporters said, "We used to get loans in dollars and pay the cost of imports in dollars. There was no problem. But now if we get a loan from a bank in taka and then we have to buy dollars from another bank that is currently not easily available. If we buy dollars in this way, we have to bear a cost of an additional 6% to 7%."

According to the Bangladesh Bank's guideline, all scheduled banks in the country will be able to borrow money from the EFPF at an interest rate of only 1.5%, but exporters will be able to avail of loans from the banks at 4% interest. The tenure of the loan will be 180 days, which can be extended by another 90 days subject to permission from the Bangladesh Bank.

The size of a loan under the EFPF may range from Tk5 crore to Tk200 crore depending on the borrower.

The IMF delegation that visited Dhaka in December last to discuss the terms and conditions for a prospective $4.5 billion loan also suggested that the central bank exclude the existing EDF loans from its reserve calculation, sources at the central banks told TBS.

At present, the gross foreign currency reserves of the country stand at $31.28 billion, but if the IMF calculation is taken into account, the figure will be nearly $24 billion, according to central bank sources.