BANGLADESH BANK has taken an initiative to set up a special investment fund of US$ 500 million to advance loan in foreign currency to the country’s prospective business houses to set up new projects. Borrowers will get foreign currency loans at around 4 percent interest on long term basis and it aims at boosting the country’s stagnant investment situation by allowing industrial houses to start working on new business plans. The central bank’s initiative, as we see, has come at the right time to fill up the gap of supplying investment capital at low cost on long-term basis. It is known to all that big investment is risky for higher lending rates in Bangladesh. The special fund would allow such borrowing largely risk free at lower cost of capital. It is going to be good news to many local investors and we believe sooner it starts working the better.
The problem of long-term investment in Bangladesh is that lending rates by commercial banks are quite high here over 10 percent of interest and the risk factor so far is causing the prolonged stagnation to investment. Reports said in 2014-15 only 30 to 35 business houses out of over 6,000 such firms in the country were able to manage dollar-based long-term financing. Most big businesses of Bangladesh are now moving out to international banks and financial institutions for investment capital as the local interest rates are highly prohibitive for long-term investment projects. These are however big firms with loan worthiness but mid-size business firms have many problems to arrange foreign currency loans. The proposed special fund is expected to reach out to those firms through the new funding window.
Bangladesh Bank governor Dr Atiur Rahman made the disclosure on Thursday saying World Bank is giving a $300 million fund to Bangladesh Bank to give loans to private companies, including those from garment, footwear and light engineering sectors. The central bank will administer the fund through other commercial banks. The loan from this fund will be for medium to long-terms for 5 to 10 years duration.
Along with it, the central bank is going to form another $200 million fund from its own reserves for ‘green financing’ category that may include lending to export-oriented textiles, apparel and leather manufacturing sectors including upgrading of water usage, effluent treatment and waste management efficiency.
The country is in want of long-term financing which is critical for investment and growth and the gap to be filled up now from this special foreign currency fund. At present, there is a “significant demand” for long-term financing by eligible and bankable firms, but the absence of supply of such financing is the major impediment to the expansion of long-term financing. We hope that the new fund would be able to fill up such gap and help to accelerate investment and growth.
