Bangladesh Bank further cuts lending rate from EDF

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The Bangladesh Bank on Wednesday further slashed the interest rate on loans from the export development fund (EDF) from 2% to 1.75% to help exporters to fight the devastating impact of the Covid-19 pandemic. On April 7, the central bank reduced the interest rate for loans under the EDF to 2%.

“Given the ongoing situation due to Covid-19, it has been decided to reduce interest rate on EDF loans at 1.75% chargeable to eligible borrowers; for disbursements until March 31, 2021. The new rate will be effective immediately,” said a BB circular issued on the day.

In accordance with the decision, authorized dealers (Ads) shall make interest payments to Bangladesh Bank at 0.75%; the remainder 1% as before will be retained by ADs as their interest income, said the circular. Other relevant instructions on EDF shall remain unchanged, it added.

According to data from the Export Promotion Bureau (EPB), during the April-June period (Q4 of FY20) of 2020, Bangladesh’s exports earnings declined by 51.20%, or $4.93 billion, to $4.7 billion against $9.63 billion in the same period last year. Later, the export earnings recovered in July and rose by 44% to $3.91 billion.

Keeping the momentum of July, Bangladesh’s export earnings increased by 4.32% to $2.97 billion in August and increased by 3.53% to $3.01 billion in September. “Global retailers have reduced prices of apparel products due to the pandemic. In the given context, the reduced interest rate on loans from the EDF will help manufacturers to retain the competitiveness,” SM Khaled, managing director of Snowtex, told.

The cut in interest rate will reduce the cost of opening a back-to-back letter of credit (LC) and it will increase the profit margin, said Khalid. Though the rate is very small, it means a lot for manufacturers as an apparel exporter has to take a huge amount of money from EDF to pay the suppliers of raw materials as they buyers pays bills within 90 days, he added. The amount of loans from the EDF depends on the value of exports of an exporter.

Under the existing provisions, the EDF financing is allowed for input procurements against back-to-back import letters of credit (LCs) or inland back-to-back LCs in foreign exchange, by manufacturers producing final output for direct export and also by producers of local deliveries to manufacturers of the final export. The EDF loans from the central bank are payable by the banks upon proceeding of export receipts.