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BB hikes EDF loan interest rate

Staff Correspondent 
20 Jul 2022 16:43:02 | Update: 20 Jul 2022 16:52:44
BB hikes EDF loan interest rate
— File Photo

The Bangladesh Bank has raised Export Development Fund (EDF) loan interest rate to 3 per cent from 2 per cent for exporters and also charges Authorized Dealers (ADs) 1.5 per cent up from 1 per cent earlier.

In a circular issued on Wednesday, the Foreign Exchange Policy Department of the central bank also noted that the order will be in effect until further instructions.

Exporters believe that the central bank took the decision to discourage borrowing from the EDF fund. The move might also reduce the use of foreign currencies; however, the pressure will remain on the exporters.

ALSO READ- BB further extends usance period for import payments

"Already our cost of production has gone up due to increase import costs, fuel prices, and source tax. Now if the cost of loans taken from this EDR increases, many factories may close altogether,” Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Executive President Mohammad Hatem told The Business Post.

In this context,  Serajul Islam said, as the policy rate rises, naturally other interest rates also follow.

“But, it is also true that right now Bangladesh Bank wants to keep its dollar reserve. Increasing interest rates will reduce demand for loans and also save dollars.”

EDF limit increased during the pandemic for individual member mills of Bangladesh Textile Mills Association (BTMA) and Bangladesh Garment Manufacturers and Exporters Association (BGMEA) was enhanced to $30 million from $25 million.  

The disbursement time frame of EDF loans was June 30, 2022, but the central bank has decided to extend the period of the same facility till December 31, 2022.

Exporters can take foreign currency loans for the procurement of raw materials and components for export products from EDF. The role of this fund is increasing in export development.

The demand for this fund has increased especially to fight the impact of the Covid-19 pandemic. Therefore, in August 2020 Bangladesh Bank relaxed the many conditions for obtaining loans from EDF.

The size of the Export Development Fund (EDF) has been increased to $7 billion from $6 billion in March this year to meet the growing demand among exporters.

EDF was launched in 1989 to support the export sector. Prime Minister Sheikh Hasina ordered 2020 to increase the size of this fund while announcing the incentive package keeping in mind the impact of the pandemic.

On April 7 of 2020, the size of EDF increased from $3.5 billion to $5 billion dollars. Later it increased to $6 billion. Along with this, the interest rate of this fund has also been brought down to two per cent.

Besides the central bank has extended the usance period to 360 days from 180 days for imports of industrial raw materials including back-to-back imports, imports of agricultural implements and chemical fertilisers under supplier’s or buyer’s credit.

In a circular issued Wednesday, the central bank's Foreign Exchange Policy Department also said that the extension would be effective till December 31, 2022.

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