The government has set the interest rate for loans from a Tk 276-crore JICA fund for remediation work of garment factories at 6 per cent, down 4 percentage points from the rate it imposed on previous such funds amid demands for the cut from the garment sector.
It also set interest rate at 7 per cent for two funds of France and Germany worth around Tk 720 crore, the agreements for which are yet to be signed, for the remediation work of the risky garment units.
The finance ministry in a letter on Wednesday gave directives to Bangladesh Bank, setting the rates of interest.
The governments of Bangladesh and Japan signed an agreement on December 13, 2015 to use the Japan International Cooperation Agency’s fund amounting to Tk 276.15 crore to strengthen the safety measures of the RMG sector.
The JICA has already released the first instalment of around Tk 38 crore on March 30 from the fund but the money is yet to be disbursed to any of the RMG factories.
Finance ministry officials said that as the interest rate for another JICA fund worth Tk 100 crore was around 10 per cent, only two garment factories took Tk 8.76 crore in loans from that fund.
Garment sector leaders approached the government high ups demanding cut in interest rate to make foreign fund available for the garment factories which were struggling to carry out remediation work as per the recommendations made by the global buyers because of fund shortage.
Almost all of the garment factories in the country need to go for remediation work to fulfil the recommendations the buyers made after the Rana Plaza disaster in 2013.
A host of development partners of the government and international lending agencies have come forward to give the funding for the remediation work.
Finance ministry officials hoped that the garment factory owners would now start taking loans from the latest
JICA fund following the cut in interest rate.
They said that the interest rates for the upcoming 50 million euro (Tk 450 crore) fund of French Development Agency (AFD) and 30 million euro (Tk 270 crore) of German development organisation KfW were slightly higher as the agencies would charge higher rates.
All the loans would be used to speed up the factory remediation for structural, electrical, and fire safety work in the RMG industries.
The factory owners earlier demanded that the government disburse loans at 5 per cent rate of interest against remediation financing.
A BB official told New Age on Thursday that the government would arrange a tripartite meeting with AFD and KfW on October 5 to finalise the terms of condition to get the soft loans.
The meeting will be held at the Economic Relation Division of the finance ministry where secretaries of commerce and finance ministries, BB governor and representatives of AFD and KfW will be present.
The credit programme of AFD and KfW is named Credit Facility Program to Finance Safety Retrofits and Environmental Upgrades in the Bangladesh RMG sector.
Under the latest JICA fund, the factory owners will have to give 0.10 per cent interest to the development organisation (JICA), 0.90 per cent to the government, 1 per cent to the BB and 4 per cent to the commercial bank concerned.
Under the AFD and KfW funds, the factory owners will have to pay 2 per cent interest to the foreign lenders, 0.75 per cent to the government, 0.75 per cent to the BB and 3.50 per cent to the commercial banks.
The BB official said that the central bank would issue a circular in one or two days regarding the JICA fund for the RMG sector.
The credit repayment tenure of the loan will be 15 years and the factory owners will also enjoy a grace period of two and three years.
According to a report of a study jointly conducted by IFC and ILO, the country’s garment sector has to count nearly $1 billion in costs to complete remediation of factories.
Source: New Age