Despite a rise in investments after the relocation of tanneries from Hazaribagh to Savar, earnings from leather and leather goods have been witnessing a slump for the last three years with non-compliance in environmental issues holding back buyers.
Furthermore, exports to China and Europe, two main markets, have come to a standstill because of the coronavirus pandemic.
Many tanners have defaulted on loans amid the pressure of rising costs coupled with a decline in exports.
In this situation, the government has come up with a special loan rescheduling facility to give them a lifeline.
Defaulter tanners will be allowed to reschedule their classified loans by making a downpayment of 2 percent, and take fresh loans to purchase rawhides of sacrificial animals in the upcoming Eid-ul-Adha. The payback tenure is six-eight years.
Although businesses had earlier applied for Tk600 crore in loans, banks responded in the negative.
On June 29, managing directors and chief executive officers of state-owned banks in a meeting, chaired by Asadul Islam, senior secretary at Financial Institution Division, also took a tough stance against providing tanners with loans.
Consequently, the government decided to secure loans for them with this special loan rescheduling facility.
In a circular issued on Sunday, the Bangladesh Bank said banks would be able to decide on their own based on banker-customer relations over the loan rescheduling of leather traders subject to a minimum downpayment of 2 percent of default loans as of June 30.
As a result of the central bank's decision, apart from rescheduling their existing default loans, tannery owners will be able to borrow at 5 percent interest from a package of Tk30,000 crore announced for industry and service sectors.
Ahmed Jamal, deputy governor at the Bangladesh Bank, told The Business Standard that tanners need loans at this time to buy rawhides. But 40 percent of them have defaulted on loans.
So, they cannot get bank loans. And their financial condition do not allow them to reschedule the default loans by making a downpayment at the prescribed rate. The decision has been taken so that the tannery traders can easily reschedule their loans and take fresh ones to buy rawhides, he added.
Janata Bank has given Tk4,500 crore in loans to 78 organisations in the sector, of them, 45 are now defaulters. The amount of default loans stands at Tk2,600 crore.
Businessmen demanded that an opportunity be given to repay the loans in 16 years by keeping them in interest-free block accounts.
Shahin Ahmed, president of Bangladesh Tanners' Association, told The Business Standard, "This year, we need Tk600 crore in loans for buying rawhides. In the last three years, 80 percent of us have defaulted, and it was not possible for them to get loans. In this context, the government giving this facility will ease our financial crisis."
Every year before Eid-ul-Adha, tannery owners get loans for a tenure of 180 days. Again, they can only take the amount they repay the following year.
The central bank has informed the banks that the conditions of accepting compromised amounts for giving new loans can be relaxed so that they can get more this year.
The government has set a target to rake in $5 billion in export earnings from the leather sector by 2022.
The traders think that it would be possible to meet that target if the Central Effluent Treatment Plant comes into operation in the Savar Tannery Estate.
However, the markets in China and Europe have collapsed owing to the Covid-19 pandemic.
Shaheen Ahmed said demand for leathers has also declined in China, the leading export destination, after the Covid-19 hit. It is not possible to say when exports will return to normal.
Engineer Abu Taher, former president of Bangladesh Finished Leather, Leathergoods and Footwear Exporters' Association, said tanners now cannot afford to regularise default loans even by repaying two percent. Besides, even if all these loans are regularised, all will turn into default again. It is necessary to take a long-term plan to overcome this situation.
The Bangladesh Trade and Tariff Commission has suggested that the commerce ministry allow the export of rawhides, taking into consideration the domestic and international situation.
On June 2, the commission sent a report to the ministry, stating that the tanners had a large stockpile of leather. Traders have lost interest in buying rawhides with prices of and demand for leathers and leather goods falling in the international market.
Last year, a huge number of rawhides got damaged. This year, the export of rawhides can be allowed by fixing a minimum export price to stop them from being damaged.
In the international market, the salted wet blue hide price is $0.50 to $1.5 (Tk43.13) per square feet.
The commission has proposed fixing the prices of cow rawhides at Tk30-Tk40 per square feet and those of goat at Tk15-25 per square feet. Last year, the prices of rawhides of cow and goat were Tk45-50 and Tk18-20 respectively.