Due to dwindling foreign exchange reserves and dollar crisis, manufacturing industries are facing problems in importing necessary raw materials and capital equipment. In this situation, Bangladesh Bank has arranged to take long-term loans in dollars for the country's export-oriented manufacturing industry. Loan repayment period is maximum 10 years including grace period.

The central bank has issued a notification letter to the managing directors and chief executive officers (CEOs) of all the scheduled banks of the country on July 16.

According to related sources, under the new scheme of Bangladesh Bank i.e. Long Term Financing Facility (BB-LTFF), a single borrower can borrow up to $5 million from one bank and a maximum of $10 million from multiple banks. And the repayment period of this loan will be available up to 10 years.

                      Figure: Bangladesh Bank arranges long-term loans in dollars for export-oriented manufacturing industry

However, against this fund, the interest rate at the customer level will be determined by considering the rate provided by Bangladesh Bank and the banks will determine the interest rate of their own loans by considering their loan-costs and management costs. A reasonable risk adjusted spread and profit margin in this case would be between 1-2 percent.

According to the central bank stakeholders, the long-term financing facility under the previous Financial Sector Support Project (FSSP) with the cooperation of the World Bank has been successfully completed. Almost all of the projects for which loans were waived have been repaid. In this context, the new decision has been made to keep the LTFF running for the private sector mainly export-oriented manufacturing industries from the previous fund.

In the letter, Bangladesh Bank said that BB-LTFF will be given in dollars for refinancing of authorized dealers (ADs) of foreign exchange in the country. Exporters and other private sector organizations will get this facility through AD branch of the bank.

As per the BB-LTFF operational guidelines, from January 1, 2021, banks that have given loans to their customers will also be eligible for BB-LTFF for refinancing. Banks interested in participating in this financing facility have to apply to the Central Bank's Financial Sector Support and Strategic Planning Department (FSSSPD).

Bangladesh Bank Spokesperson Executive Director Md. Mejbaul Haque told the media, "We want to encourage export-oriented industries. The income of these industries is in dollars. If we can do long-term financing in dollars, then we can be free from currency exchange rate risk. Therefore, an initiative has been taken to give such a fund benefit to the related industries."

"The current facilities have a maximum tenure of five years, which take eight to 10 years to pay off. Several years ago there was an initiative funded by the World Bank, under which several successful projects have already been developed. Building on that success, a new financing facility has now been introduced. The aim of this program is to ensure the expansion of the export-oriented industrial sector by encouraging real production and creating employment,"he added.

Garment manufacturers and exporters association BGMEA has shown great interest in the central bank's new scheme. In the meantime, the organization has drawn attention to its members to avail this facility. The letter dated July 16, signed by BGMEA President Faruque Hassan, states that Bangladesh Bank has provided loans to the manufacturing sector, especially for export-oriented industries through circulars. There is an opportunity to import capital equipment and raw materials with loans from that fund. We hope that the garment exporters will benefit from the loan during the foreign exchange crisis.

The existing exporters of the country are also seeing this initiative of Bangladesh Bank as very positive. They feel that the central bank's initiative will actually benefit the exporters. It will also greatly encourage new ventures in export oriented industries.