Badrul Ahsan :
Compelled by higher interest rate at home and its scarcity, local textile producers and garment exporters are increasingly making foray to the foreign financiers, sources at the Board of Investment (BoI) said.
According to the data available with the central bank, interest of loans in the local sources varies between 12 per cent and 20 per cent or more whereas the foreign loans providers charge up to six per cent of interest on their funds that lures many local companies to avail the overseas fund.
The central bank data showed that as many as 57 local companies got stamp of approval from a government panel headed by Bangladesh Bank (BB) Governor on September last to avail $321 million of low cost foreign loans.
Ten-member foreign loan scrutiny committee consisting of representatives from the prime minister’s office, ministry of finance, ministry of commerce, ministry of industries and those from the board of investment sit once or twice a month to review and okay overseas loans proposals.
Of the fortunate companies, some 36 were from the garment and textile sectors, a high official at the BB said preferring anonymity.
The committee endorsed foreign loans only against import of capital machinery.
However, the sources at the BoI said, a good number of similar companies are also in line to avail the low cost foreign funds.
“Interest rate of local fund is very high comparing with that of foreign one. Besides, availing local fund is also very troublesome, as local financiers demand to complete a lot of formalities before approving loan. On the other hand, foreign companies give us loan on a simple condition,” Abu Haider, Executive Director of Bangla Nice Fashion, an export-oriented garment told The New Nation on Sunday.
“High bank interest in local sources compels us to opt for foreign funds. Scarcity of fund in the local banks and other non-banking financial institutes are also another reason behind the situation,” he said.
“We are competing with the international rivals, but higher interest in local banks makes us less competitive in the world market. So we have decided to secure loan from overseas sources,” said Hasan Shahriar, Managing Director of Simla Cotton Mills that got approval for $13.9 million foreign loans.
“In most cases, we can’t make five per cent profit against our exports, whereas interest of loans from local sources is 10-12 per cent higher than those of foreign loan.”
He wondered how could a company compete with its international rivals at such a high interest?
However, many of the local companies which could not comply with the formalities of foreign loans or are already involved with local sources said, the inflow of the low cost foreign fund would create uneven competition among the local companies.
“Although the foreign fund providers do not demand co-lateral but, their formalities are very tough for the mid and the lower capital based companies of the country. So, if the big players can avail the low cost foreign fund, then the others might be smashed,” Iftekhar Mahmud, Chief Executive Officer of Narayanganj Steel Mills said.
However, a number of financial analysts said availing the same loan by companies that sell their goods in the local market might give them added advantage and create an uneven competition among their fellow businessmen as all these companies cannot qualify to get cheaper loan.
“If the loan goes to the export-oriented sectors, then it will bring a positive result for the country, but if a section of the local market players get the foreign loan, then it might harm their rivals,” former advisor to the caretaker government, Dr Akbar Ali Khan told the New Nation recently.
The companies usually receive two categories of short term loan as running capital and long-term credit against import of capital machinery.
According to the central bank data, the total loan amount stood at nearly $4.6 billion in September 2015, of which short-term loan was around $2.27 billion and the rest was of long-term.
The foreign financiers consider certain standards for working conditions, financial status and managerial capability of a company while sanctioning loans.
