Dhaka, Bangladesh (BBN)– The central bank of Bangladesh has slashed interest rates on loans under the Export Development Fund (EDF) scheme by 1.0 percentage point to facilitate exporters.
Under the revised policy, exporters will now get such loans from the commercial banks at six-month US Dollar (USD) London Inter-bank Offered Rate (LIBOR) plus 1.50 per cent instead of six-month USD LIBOR plus 2.50 per cent.
The new interest rates on EDF loans will be applicable until June 30, 2020 from November 19, according to a notification issued by the Bangladesh Bank (BB) on Tuesday.
“To facilitate export trade, it has been decided that interest rates on EDF loans to ADs will be charged by the BB at six-month USD LIBOR plus 0.50 per cent, while ADs will charge interest to manufacturer-exporters at six-month USD LIBOR plus 1.50 per cent; for disbursements until June 30, 2020 from the date of this circular,” the central bank said in its notification.
Earlier, the interest rates on EDF loan disbursements to authorised dealer (AD) banks were charged by the central bank at six-month USD LIBOR plus 1.0 per cent while the ADs charged the rate at six-month USD LIBOR plus 2.50 per cent on their USD loan disbursements to manufacturer-exporters.
The central bank’s latest move came against the backdrop of falling trend in export earnings in recent months.
Bangladesh’s export earnings dropped by nearly 7.0 per cent to $12.72 billion during the July-October period of fiscal year (FY) 2019-20 from $13.65 billion in the same period a year earlier, according to Export Promotion Bureau (EPB) data.
Talking to the BBN, a BB senior official said the central bank has reduced the interest rates on EDF loans to boost the country’s export earnings.
The central bank has already allocated a $3.5 billion fund for the exporters under the EDF scheme.
Welcoming the BB’s latest move, exporters said this would help increase export earnings in the coming months.
“It’s a timely positive decision of the central bank that will help improve competitiveness of the exporters in the global market,” Abdus Salam Murshedy MP, president of the Bangladesh Exporters Association, said.
The EDF was launched in 2005 with an initial amount of $100 million; it was gradually increased to $3.50 billion.
Exporters from six sectors can get loans from the EDF and the central bank may set a separate credit ceiling for them.
Under the existing provisions, the EDF financing is allowed for input procurement against back-to-back import letters of credit (LCs) or inland back-to-back LCs in foreign exchange, by manufactures producing final output for direct export and also by producers of local deliveries to manufacturers of the final export.
The EDF loans from the central bank are payable by the banks upon receipt of exports proceeds within 180 days from the date of disbursement, extendable by the BB up to 270 days in case of a longer period for repatriation of export proceeds.