EDF loan interest rate increased further to 4.5%

The Bangladesh Bank has again increased the Export Development Fund (EDF) loan interest rate, raising it to 4.5 per cent this time.

The new rate came into effect on Wednesday in a bid to tackle the steady decline in foreign exchange reserves by discouraging borrowers from taking loans from the fund.

The Foreign Exchange Policy Department of the central bank issued a circular in this regard on Wednesday.

Earlier on November 13 last year, the central bank had increased the EDF loan interest rate from 3 per cent to 4 per cent. Before that, on July 20, the regulator had raised the rate from 2 per cent to 3 per cent.

In 1989, the central bank established a $300 million EDF to facilitate financing in foreign currency to support purchases by manufacturers and exporters. The fund gradually became bigger, reaching $5 billion on April 7, 2020.

The fund size later grew to $6 billion, and the interest rate was cut to 2 per cent. Exporters can borrow in foreign currency from the EDF to buy raw materials and other components. The fund is aimed at facilitating export growth.

The fund size was increased to $7 billion in March last year to meet the growing demand among exporters. However, due to the USD crisis, the central bank recently moved to cut the fund from $7 billion to $6 billion. It also plans to reduce the fund by another $1 billion.

Amid this situation, the banking regulator launched an export facilitation fund of Tk 10,000 crore in January this year to support export-oriented firms.

Under the fund, an exporter will be allowed to borrow a maximum of Tk 200 crore, which is a pre-finance scheme by nature.

Banks will avail the fund at an interest rate of 1.5 per cent from the central bank. Borrowers, on the other hand, will pay 4 per cent to avail funds from banks.

The fund would help exporters tackle challenges in external trade stemming from Bangladesh’s journey towards becoming a developing nation from a least developed one, the central bank said in a circular.

It will also help exporters address the challenges created by the ongoing Russia-Ukraine war, the circular added.