The government plans to develop the industrial sector by facilitating reduced interest rates on long-term loan disbursement funds.
In this phase, the average interest rate on loans will be reduced from 2 to 2.5 percent. This interest rate has been effective from June 30.
This initiative has been taken to increase the provision of credit to the private sector for infrastructure development.
A circular in this regard was issued by Bangladesh Bank on Sunday and sent to the chief executives of banks and financial institutions.
The circular has directed the banks to inform the concerned entrepreneurs about the reduction of interest rates.
A fund of Tk 3,280 crore ($420 million) was created for the construction of industrial infrastructure with the joint funding of the World Bank and the Government of Bangladesh. It’s term is from July 2018 to June 2022.
Entrepreneurs were given loans in dollars and Bangladeshi currency from this fund for a long period of time.
The interest rate of the loan was determined on the basis of the average interest rate of one-year term Treasury bill in Bangladesh Bank.
In other words, at present, the average interest rate on one-year Treasury bills is 7.44 percent to 7.57 percent.
Last month, the average interest rate on deposits stood at 5.24 percent.
This means that entrepreneurs will be able to borrow from that fund at the rate that is lower than the average interest rate on the deposit or the interest rate on a one-year term treasury bill.
According to the central bank report, the current one-year average interest rate on treasury bills ranges from 7.44 per cent to 7.57 percent.
The average deposit interest rate is 5.24 percent.
Entrepreneurs will be able to take loans from the fund at the rate whichever is less.
In other words, entrepreneurs will be able to take loans at an average interest rate of 2 to 2.5 percent lower.
In this context, Abdus Salam Murshedy, President of Bangladesh Exporters Association, said that the reduction in interest rates will increase the interest of investors in the fund.
The cost of building infrastructure will be reduced, he said adding that, competing with foreign companies in the market will help in gaining capability.
However, he demanded a further increase in the size of the fund.
Meanwhile, a division of Investment Promotion and Financing Facility (IPFF) Project Cell has been set up at the Central Bank to manage this fund. Bangladesh has given $60 million out of the $420 million fund. The World Bank has given the remaining 360 million dollars.
So far, a loan of Tk 3,000 crore has been disbursed from the fund.
As the fund is revolving, the loans that will be repaid with interest will be added to the fund and its size will increase.