Experts call for creating access also for SMEs
Disbursement of Export Development Fund (EDF), aimed at providing low cost finance to local entrepreneurs for export promotion, has been limited to influential and big companies while small ones are getting less access to the fund, experts have found.
They have called for expanding the fund and creating access of micro, cottage and small enterprises involved in manufacturing of export goods and associated products to it.
They have also lauded the Bangladesh Bank's (BB) initiative of cutting interest rate on financing from EDF, saying that it will help local manufacturers and exporters to be resilient and competitive in the global market.
"Only big ones (large manufacturers and exporters and influentials) are benefiting from this fund in turns while small, micro and cottage industries are being deprived as the fund management system appears to be complicated. The authorities should create access of small exporters to this fund for better outcome," Manzur Ahmed, a former trade policy advisor to Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), has told Dhaka Tribune.
Manzur suggests that the fund management needs to be simplified through policy restructure in order to create access of the target groups so that export basket can be diversified using low cost financing facility.
The BB last week lowered the rate of interest by 1% from LIBOR (London Inter Bank Offered Rate) Plus 2.50% to LIBOR Plus 1.50% on lending from EDF to manufacturers and exporters. The central bank has also asked all the authorized dealers (ADs) to follow the instruction with immediate effect.
Against this backdrop, Dhaka Tribune has talked to the sector experts including trade body leaders over the rate cut and its possible impact on local manufacturers and exporters.
Currently, the BB is operating a revolving EDF of $3.5 billion. Established in 1989, the EDF is intended to facilitate access to financing in foreign exchange for input procurements by local manufacturer and exporters. The size of the fund grew over the years.
Lauding the rate cut, key trade body leaders have said the BB's decision came at a time when local manufacturers and exporters are passing a critical time due to a series of facts including rise in input cost in international market, squeezing of export demand amid price fall and in a state of lack of access to low cost finance.
According to Export Promotion Bureau (EPB), Bangladesh's export income fell drastically amid growing global competition and lack of competitiveness of local manufacturers and exporters.
The country's export income fell by 6.82% during July-October of current fiscal year compared to the total export value of corresponding period of previous fiscal. Against the target, the shortfall was 11.21%, the EPB data shows.
In October 2019 alone, the country fetched only $3073.23 million, a shortfall of 11.71% against the target for the month of 3481.00 million. The decline was 17.19% compared to previous October's export income of $3711.18million.
Bangladesh Garment Manufacturers and Exporters Association President and Mohammadi Group Managing Director Rubana Huq finds the BB's decision timely and says it will help manufacturers and exporters a lot.
"Lowering interest rate for credit from EDF was our demand. I welcome the BB's step. It will help keeping stability in export and import trade," Huq adds.
Mohammad Hatem, senior vice president of Exporters Association of Bangladesh (EAB), also lauds the interest rate cut on financing from EDF.
"It will help local manufacturers and exporters to remain competitive. Manufacturers and exporters will be benefited. We welcome the BB's decision considering the 'ongoing crisis'," he says.
The EAB vice president underscores the need for expansion of the size of EDF to entertain more firms engaged in manufacturing and export.
According to BB circular, members of BGMEA and BKMEA, having mills, would get up to $25 million in loans. The EDF's single borrowing exposure limit was prescribed by the central bank $15 million and $20 million for different sectors.
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 within 180 days from the date of disbursement.
The timeframe is extendable by the BB up to 270 days in case of a longer period taken for repatriation of export proceeds.