Home ›› 14 Feb 2023 ›› Editorial
Export Development Fund (EDF) established in 1989 intending to facilitate financing in foreign currency for input procurements by manufacturer cum exporters.
The central bank has been disbursing the fund through authorized dealer (AD) banks. The present size of the EDF stands at $7 billion which helped exporters of different sector to buy raw materials from importing countries using loan in US dollar and the conditions are not that much stringent. However recently it has been downsized to take some pressure off fast-depleting foreign exchange reserve.
According to Bangladesh Bank, the present form of EDF cannot be continued so it will be redesigned. In order to give some relief to the foreign exchange reserve, the EDF can be trimmed by USD2 billion making it equivalent to the amount of post-pandemic period as it has been appeared in several press reports.
In order to offset the loss of getting loan from EDF, on January 1, 2023 Bangladesh Bank rolled out an export facilitation fund of Tk 10,000 crore namely Export Facilitation Pre-Finance fund (EFPF) to help exporters gear up their businesses. Under the pre-finance scheme, the central bank will finance businesses through AD banks in response to their applications; exporters will have to use the fund to import raw materials for their export.
In the meantime, a number of AD banks have signed agreement with Bangladesh Bank to distribute the fund for the exporters. Conditionalities of availing the fund, interest rate, single individual limit for the relevant sectors are almost same, only basic difference is the denomination type. If we compare between Export Development Fund (EDF) and Export facilitation pre-finance fund (EFPF), it is seen that present amount of EDF is USD 7 billion supposed to be trimmed to USD 5 billion, against that EFPF is only USD one billion which is much less than the requirement and targets of the government to facilitate export-led growth.
Eligibility of EDF is to provide short-term finance in foreign currency for the import of raw materials by opening L/C at sight by the export-oriented industries. EFPF also aimed at supporting export-oriented entities as a revolving fund. However, basic differences of these two schemes is EDF in foreign currency while EFPF in local currency. Exporters will definitely face some constraints because of foreign exchange issue, fixed rate of dollar for exporter is Taka 103 and most of the banks are in severe foreign exchange scarcity.
Interest rate for EDF on ADs is at 2.50% pa, while ADs will charge interest to manufacturer-exporters at 4.00% (FE circular no.-30; Date: 08/11/22) while for EFPF, ADs will be charged by Bangladesh Bank at 1.50% pa, and ADs will charge interest to manufacturer-exporters at 4.00%. In that respect interest rate is suitable for EFPF.
Repayable by the ADs upon receipt of export proceeds in all cases is within 180 days from dates of disbursement, extendable by Bangladesh Bank up to 270 days upon application to BB explaining the necessity of longer period for repatriation of export proceeds. During the Covid-19 under EDF the repayable duration has been extended was extended to 270 days (FE Circular No. 36; Date: August 27, 2020). In case of EFPF maximum repayable period is 180 days (six months), however, if the repatriation of export value is delayed due to logical reasons, a proposal can be sent to Bangladesh Bank to extend the above period by more than 90 days. It seems conditions are a bit stringent in case of EFPF which was much liberal for EDF.
Exporters including BGMEA/BKMEA member mills and type C industries(Local Industries engaged in Export) of EPZs/EZs other than member mills of eligible associations making bulk import, an EDF loan to an AD was equal to the limit of input imports permissible against an export or USD 15 million, whichever is lower. The limit of USD 15 million is the maximum single-borrower limit. This limit is USD 20 million for BGMEA member mills. (FE Circular no.-45; Date-31/12/2017).
The revised and enhanced to USD 30 million (FE circular no.-05, 27/01/2021) for disbursements until June 30, 2021, to member mills of BGMEA and BTMA. Type B industries in EPZs producing RMG for export were also included (FE circular no.-09, Date-22/03/2021)
In case of EFPF it is different for different Association Members. BGMEA, BKMEA, BTMA excluding yarn-producing BTMA member mills and EPZs (Type-B and Type- C) industries, for the import of raw materials for production by the financing bank subject to compliance, value addition mentioned in the Import Policy Order(IPO).
Against export prospectus/guaranteed export contract for the import of raw materials equivalent to the value of raw materials of production or Tk 200 crore (whichever is less) under the fund subject to submission of necessary information/documents in accordance with existing regulations Bangladesh Bank can take the pre-financing facility from banks. In case of import of cotton and other fibers for member mills of BTMA for export, this benefit will not exceed Tk 200 crore. In that case individual limit amount has been reduced.
Bangladesh Dyed Yarn Exporters Association (BDYEA) making bulk imports of unprocessed yarn and chemicals for processing yarn for local deliveries to manufacturer-exporters against inland back-to-back LCs in foreign exchange, an EDF loan to an AD shall not exceed to the amount in foreign exchange realized against inland back-to-back LCs over the past twelve months, or USD 15 million, whichever is lower.
In case of EFPF, for import of unprocessed yarn and chemical products of the member companies of BDYEA for export, pre-financing facility will not exceed Tk 150 crore. In that respect loan amount is almost same.
For member mills of Bangladesh Garment Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA) making bulk import of raw materials for local deliveries of garment accessories to manufacturer-exporters against inland back-to-back LCs in foreign exchange, an EDF loan to an AD against their foreign currency financing of input imports for BGAPMEA member mills, shall not exceed the value realized in foreign exchange against inland back-to-back LCs over the past twelve months, or USD 2 million, whichever is lower. For EFPF in the case of import of raw materials of accessories of the member organizations of (BGAPMEA) for the purpose of export Pre-financing facility will not exceed Tk 20 crores which is also close to EDF.
EDF loans will be available to BPGMEA making bulk import of raw materials for local deliveries of garment accessories to manufacturer-exporters against inland back-to-back LCs in foreign exchange. An EDF loan to an AD against their foreign currency financing of input imports for a BPGMEA member mill shall not exceed (i) the value realized in foreign exchange against inland back-to-back LCs and export LCs/Contracts over the past twelve months, or (ii) USD 1 million, whichever is lower. In the case of EFPF, import of raw materials to produce plastic products of the member institutions of BPGMEA for the purpose of export Pre-financing facility will not exceed Tk 10 crores.
LFMEAB and BCWMA member institutions will receive the pre-financing facility also, but under no circumstances this benefit will exceed Tk 7 crore. It seems for Leather sector and Ceramics are getting less even though leather has been the 2nd largest export sector EFPF facilities is relatively less for the sector.
There is no mention of other final exporter except above mentioned institutions and exporters in the Master Circular who can enjoy the Export Development Fund facilities. However, apart from the mentioned institutions, the final exporters of any other sector will get pre-financing facility of maximum Tk 5 crore for the import of raw materials based on their export value of the last 12 months. In that respect the scope of EFPF is wider than EDF while the amount is much less than EDF.
Export is facing a number of slump because of different difficult reasons, EDF has been treated as one of the export-friendly scheme, continuation of which was required, however, in case of EFPF the amount can be increased and for certain sector individual limit can be increased based on the need of the sector, only them EFPF can support exporters cum manufacturers equally.
The writer is CEO of BUILD a Public Private Dialogue Platform. She can be contacted at ceo@buildbd.org
