BB to form €200m fund for green industrialisation

The central bank is set to create a €200 million fund to provide low-cost loans to environment-friendly industrial plants.

This is the first time the Bangladesh Bank has set up a euro fund. Previously, it formed three US dollar funds for the businesses. The BB board took the decision on March 12.

The fund will be set aside from the foreign exchange reserves, creating a win-win situation for both the central bank and the businesses given the negative interest rates in the eurozone.

The central bank has invested about 5 per cent of its total foreign exchange reserves of $32.45 billion in treasury bills and bonds of various nations in the euro area, said a BB official.

At present, the Euro Interbank Offered Rate ranges from 0.287 per cent to a negative 0.527 per cent.  The BB receives 0.10 per cent in interest in most cases if it invests in the long-term T-bonds.

So, the latest initiative will give a respite to the central bank from the negative return. Besides, the move will help manufacturers that set up industrial plants in line with environment-friendly rules and regulations get loans at 1.50 per cent to 2 per cent interest rate.

The interest rate of the fund, however, will be changed given the lending rate trend in the euro zone.

The manufacturers, who are producing goods for the local market, will also be eligible for the loans along with exporters.

Businesses will have to use the funds to make import payments for capital machinery and industrial raw materials and the repayment tenure may be set for 5 to 10 years.

Banks will initially disburse loans to businesses and they will be reimbursed through the fund. The BB may impose 0.50 per cent interest rate on the fund disbursed to the banks.

A detailed guideline will be drawn up soon. The Sustainable Finance Department of the central bank will monitor the fund.

Plants that will ensure water conservation and management, waste management and use own resources in an efficient and recycling manner, will be applicable for the fund. Industries run by renewable energies will also be eligible.

“This is a good initiative as it will help the economy grow further,” said Sheikh Fazle Fahim, president of the Federation of Bangladesh Chambers of Commerce and Industry.

The low-cost fund will also bring down the cost of production, he added.

Earlier, the central bank took a decision to set up a euro fund for local banks’ offshore banking units (OBU). It later ditched the plan because of lukewarm demand.

In most cases, OBUs take loans from their parent banks, so they did not show any interest in the fund, the central banker said.