The Bangladesh Bank – in January this year – formed a Tk 10,000 crore export facilitation fund to aid industries that have been facing difficulties with raw material imports due to the ongoing foreign exchange crisis, but fund disbursement is yet to pick up steam.
Fifty-one banks signed an agreement with the central bank to participate in the Export Facilitation Pre-finance Fund (EFPF). So far, six banks have taken Tk 3,900 crore from the fund and disbursed among 306 exporters, show latest data from the central bank.
One of these banks is the state-run Janata Bank, while the rest are sharia-based private commercial banks – Islami Bank Bangladesh, Social Islami Bank Ltd, First Security Islami Bank Limited, Union Bank Ltd and Global Islami Bank Ltd.
All six of these banks are currently facing a liquidity shortage.
The central bank introduced the EFPF for exporters at a time when it had already started to phase out the Export Development Fund (EDF), as per International Monetary Fund (IMF) prescription.
At the end of June 8 this year, the EDF stood at $4.6 billion, a drop from $7 billion recorded in December 2022.
‘Because of exchange losses’
Speaking to The Business Post on condition of anonymity, a central bank senior official said, “The Bangladesh Bank is readjusting the EDF mainly to tackle the declining trend of the country's forex reserves, which stood at $29.77 billion on June 7.
“The EFPF was created as a replacement for the EDF to facilitate the exporters. The fund is yet to get momentum because exporters still are unaware about this facility.”
Bankers however provided a different explanation, pointing out that the EFPF is a Taka fund, and exporters need a USD fund. This is why they are not interested in taking up the EFPF facility.
Dhaka Bank had signed an agreement with the central bank to participate in the EFPF, but the bank is yet to take any money from the fund.
The bank’s Managing Director and CEO Emranul Huq said, “Exporters have no demand for Taka funds because of exchange losses. We did not receive any proposal for this fund yet. The exchange rate for buying and selling USD is different.
“As a result, exporters will face exchange losses if they take a Taka fund for opening back to back letters of credit (LCs). The regulator should take initiatives to resolve this particular issue. Otherwise exporters would not be interested in this fund.”
Echoing the same, Pubali Bank Managing Director and CEO Mohammad Ali said, “The country is facing a USD crisis, so exporters are paying attention to greenback funds, not Taka funds.”
Pubali Bank also did not take the fund from the regulator despite signing an agreement with them. Ali is optimistic that the EFPF will get momentum when the forex crisis ends.
On the issue, Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem said, “Some borrowers took loans from the EFPF to pay off their previous loans.
“Banks are not willing to take money from the fund because of the small margin, as the interest rate is relatively.”
According to the EFPF guidelines, banks can avail the fund from the central bank at 1.5 per cent interest rate, and the end users will have to pay 4 per cent to the banks.”
Mohammad Hatem, also the managing director of MB Knit Fashion Ltd, said “Banks want to create forced loans from back to back LCs as the interest rate for such debt is higher than loans from the EFPF. This is why the banks are showing disinterest in this scheme.”
Why did 6 banks show interest?
The six banks, which have been facing liquidity shortage, are now taking support from the fund, industry insiders say. Of the six banks, five are controlled by a Chattogram-based business group.
Islami Bank Bangladesh took the highest Tk 2,000 crore from the pre-finance fund. The bank faces a huge liquidity crisis due to deposit withdrawal pressure, after their huge loan irregularities came under spotlight.
The largest private bank recently took huge liquidity support from the central bank as well.
Social Islami Bank Ltd (SIBL), another Islamic bank, took Tk 850 crore from the EFPF. The bank recently faced criticism over their approval of large amounts of loans to an obscure business conglomerate Nabil Group, violating banking norms.
State-run Janata Bank took at Tk 132 crore from the fund. This bank is also facing a tight liquidity situation mainly due to the forex crisis. The remaining Tk 918 crore was taken by the First Security Islami Bank Ltd, Union Bank Ltd and Global Islami Bank Ltd.
These three banks recently took liquidity support from the central bank, as they too are facing deposit withdrawal pressure over loan irregularities.
When contacted for comments, Bangladesh Bank Executive Director and spokesperson (in charge) Md Abul Bashar said, “The central bank releases funds from the EFPF scheme after getting proposals from exporters.
“Not only Islamic banks, but state run banks also are taking funds from this scheme. If any banks or exporters misuse this fund, the regulator will take action against them.”
Eligibility for EFPF?
Members of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Textile Mills Association, BKMEA, and B and C types industries of the export processing zones (EPZs) can avail support from the fund.
An exporter will be allowed to take a maximum loan of Tk 200 crore from the fund, and will have to use the fund to import raw materials. Banks will have to repay the fund within six months, but they can extend or reduce the repayment tenure for their clients.
Clients will not be allowed to enjoy new funds from the scheme if they have overdue export bills, says the scheme guidelines. Besides, clients already enjoying loans from other funds of the central bank to import raw materials will not be allowed to take loans from the fund.
Central bank officials say defaulters will not be able to take loans from the EFPF.
