BB forms $500m fund to spur investment

Borrowers will get foreign currency loans at around 4 percent interest as Bangladesh Bank moves to create a $500 million special fund to boost the stagnant investment situation.

At present, customers get loans from local banks at interest rates upwards of 10 percent.

Earlier, the World Bank announced a $300 million fund for BB to give loans to private companies, including those from garment, footwear and light engineering sectors.

The central bank has prepared the guideline about the rate of interest on the loans, its tenure and through whom the fund will be disbursed.

A high official of BB said the loans will be distributed among private firms through three types of banks based on CAMEL rating.

If the CAMEL rating is 1, the bank will fall in A category; if it is 2, the bank will be in B category; and if the rating is 3, the bank will be C category.

The rate of interest at the customer level on the loans distributed through A category banks will be LIBOR plus 3 percent, for B category banks LIBOR plus 3.5 percent and C category LIBOR plus 3.75 percent. The LIBOR rate is less than 1 percent at present.

The loan from this fund will be for medium to long terms of 5, 7 and 10 years.

Besides, the central bank is going to form another $200 million fund from its own reserves to give loans to industries from the 'green financing' category.

Bangladesh Bank Governor Atiur Rahman told The Daily Star the rate of interest on this fund will be similar to the WB-financed one.

At a meeting with reporters yesterday on the upcoming monetary policy, Rahman said the BB will take some new steps to facilitate investment including setting up the $500 million foreign currency fund.

The $200 million fund will be used to lend to export-oriented textiles, apparel and leather manufacturing sectors including upgrading of water usage, effluent treatment and waste management efficiency, according to Rahman.

The new BB lending windows are expected to go a long way in easing the scarcity of medium term funds in the domestic financial market, he added.

The country is in want of long-term financing that is critical for investment and growth -- and the gap needs to be filled, according to the WB.

At present, there is a “significant demand” for long-term financing by eligible and bankable firms, the supply for which has not been matched by the market.

Market analysis and discussions with stakeholders indicated that one of the major impediments to expansion of long-term financing is the absence of supply of such financing.

For instance, last year, only 30-35 of the 6,000 such firms managed dollar-based long-term financing, the lender said.

While those firms were large in size, the multilateral lender is looking to reach out to mid-sized firms through the programme.