Dhaka, Bangladesh
Industrial sector to get single-digit lending rate

Industrial sector to get single-digit lending rate

News Report Industrial manufacturing sectors like ready-made garment (RMG), textile, ship-building and ship-breaking, agro-based industry and other similar sectors will get funds at single-digit lending rate. A seven-member committee of Bangladesh Bank recommended that only industrial manufacturing sectors will be eligible for availing such benefit. Deputy Governor of the central bank S M Moniruzzaman headed the committee, formed on December 01 to find out ways for bringing down the industrial lending rate to single-digit. It was asked to submit the report within seven working days. “The governor will take the next course of actions for implementation of the recommendations of the report,” Moniruzzaman said on Thursday. The committee submitted its report on Thursday. Loan defaulters will not be entitled to get the single-digit interest rate benefit, according to a committee member. “Only unclassified and regular borrowers will be eligible for availing the benefit,” he told the FE. According to the committee’s recommendations, the interest rates of large industrial (manufacturing) loans along with cottage, micro, small and medium industrial (manufacturing) loans will be lowered to single-digit from the existing level. Besides, large industrial (manufacturing) loans will include credit provided to the ready-made garment (RMG), textile, ship-building and ship-breaking, agro-based industry and similar other sectors. The borrowers of such industrial manufacturing sectors will get loans at 9.0 per cent interest rate instead of the existing level of around 12.00 per cent interest rate. “Trading and service sectors will not be entitled to get the low interest rate on loans,” he added. The committee finalised its recommendations highlighting creating employment opportunities across the country through boosting industrial manufacturing sectors. “We’ve recommended bringing down the loan interest rate of the industrial manufacturing sectors to single-digit, which will contribute directly to achieving higher economic growth,” he added. After a meeting with the chairmen and MDs of public and private sector banks recently Finance Minister A H M Mustafa Kamal said that the single-digit interest rate on industrial lending will come into effect from January 01, 2020. Meanwhile, the volume of the country’s hard-term loan is likely to go up in the coming days as the government has amended the foreign borrowing terms, officials said. The government has recently relaxed its foreign borrowing terms to help execution of development projects successfully, officials said. It will now be able to take more costly loans like the suppliers’ credit after relaxation of the relevant terms. However, analysts have criticised the sudden move of the government, saying that it might make Bangladesh’s foreign debt burden difficult. In a gazette on December 01, the Economic Relations Division (ERD) said the loans having less than 25 per cent of grant element will be treated as non-concessional loans. Earlier, the per centage was 35. The hard loan proposals are approved by the “standing committee on non-concessional loan (SCNCL)”. The finance minister is the chief of SCNCL. Considering the country’s macroeconomic scenario, financial health, debt sustainability and the degree of necessity of loans, the committee endorses the loans. The government usually takes concessional loans from different bilateral and multilateral lenders like World Bank, Asian Development Bank (ADB), Japan, Islamic Development Bank, United Nations Development Programme, China and India. It also takes some non-concessional loans from them on comparatively harder terms and conditions due to constraints of internal resources. According to Organisation for Economic Co-operation and Development (OECD), the grant element means it reflects financial terms of a transaction including interest rate, maturity (interval to final repayment) and grace period (interval to first repayment of capital). It is a measure of concessionality (softness) of a loan. It is calculated as the difference between the face value of a loan and the discounted present value of service payments the borrower will make over the lifetime of the loan, expressed as a per centage of the face value. An ERD official said International Monetary Fund (IMF) has had a “grant element” calculation method which they follow to measure it. “If we find any foreign loan with less than 35 per cent grant element, we send it to the finance minister-headed SCNCL for getting approval. If the committee approves the loan, then we go for signing the loan deal with respective lending agency,” he added. Most of mid-and long-term loans Bangladesh takes are concessional while part of loans is non-concessional. In most cases, he said, Chinese loans, Export Credit Agency (ECA) loans and some loans from IDB are non-concessional. Another official said Bangladesh signed an agreement with IMF in 2012 for getting $987 million Extended Credit Facility (ECF) loan as budgetary support where the government made commitment that it would consider the loans as non-concessional having less than 35 per cent grant element.

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