Bangladesh Bank has taken the initiative to form a special refinancing fund of Tk 20,000 crore to bring back production to industrial and service sector institutions that have closed due to a crisis of working capital.
According to a central bank circular issued on Thursday, many industrial institutions in the country have closed down or are operating on a limited scale due to lack of working capital despite having production capacity.
The main goal of this initiative is to revive these institutions by providing low-interest financing.
A revolving fund will be formed for a period of three years under the ‘Closed Industry and Service Sector Facilitation Refinance Scheme’ proposed by Bangladesh Bank.
The size of the fund will be Tk20,000 crore.
Using this money, working capital will be provided to closed or semi-functional industrial and service institutions so that they can resume production activities.
According to Bangladesh Bank's analysis, the working capital crisis is currently the biggest challenge for many organizations.
Due to cash shortage, organizations cannot pay salaries to workers, cannot purchase raw materials and fail to pay necessary bills including electricity and gas.
As a result, production decreases, factories close down and at some point, employment is threatened.
According to the central bank, in many cases, even though the machinery and production capacity of factories are intact, the organizations are closed only due to lack of money. As a result, a temporary liquidity crisis is turning into a long-term industrial and employment crisis. This new fund is a targeted initiative to resolve that crisis.
Under this scheme, large industrial organizations that have completely or partially closed down, organizations that cannot produce at full capacity due to lack of working capital and service sector organizations covered by the National Industrial Policy will receive loan facilities.
However, priority will be given to export-oriented industrial organizations, deemed exporters and investors interested in re-opening closed factories through acquisition or lease.
Through this, Bangladesh Bank also wants to strengthen the path to increasing export earnings and earning foreign exchange.
Loan conditions
The interest rate on loans from this fund has been set at a maximum of 7%. On the other hand, participating banks will pay interest at a rate of 4% to Bangladesh Bank.
A borrower or a group can take a loan of up to Tk200 crore. The loan tenure will be one year. However, if the business progress is satisfactory, it will be renewed.
In addition, a grace period of six months has been kept, so that there will be no pressure to pay installments immediately after taking the loan.
Bangladesh Bank has clearly mentioned that this money can only be used for production and business restoration.
The loan money can be used to pay salaries and allowances of workers and employees for a maximum of four months, purchase of raw materials, payment of electricity-gas and other utility bills, implementation of export orders and other production-related expenses.
However, this money cannot be used for repayment, rescheduling or adjustment of any existing loan. At the same time, defaulting institutions or CIB-listed customers will be excluded from this facility.
One of the features of the scheme is priority in paying salaries to workers. A maximum of four months' salary will be sent directly to the workers' bank accounts or Mobile Financial Services (MFS) accounts from the loan amount. There will be no opportunity to pay in cash.
Bangladesh Bank believes that this will immediately benefit workers in closed or distressed institutions and will play a positive role in protecting employment.
Learning from the experience of various past refinancing programs, strict monitoring arrangements have been put in place in this scheme.
Before approving the loan, the actual production capacity of the concerned institution, the reason for the closure and the ability to repay the loan will be verified. In addition, certification of production capacity will have to be obtained through FBCCI, BGMEA, BKMEA or relevant business organizations.
To ensure transparency in the use of loan funds, the flow of money will be monitored through escrow or special revenue accounts. The institutions will have to submit regular sales reports and Bangladesh Bank will be able to inspect directly if necessary. Legal action, including fines, will be taken if misuse of funds is proven.
