Did You Know That The Export Development Fund EDF in Bangladesh is The Cheapest Loan Facility For Exporters?
The government of Bangladesh provides various facilities to exporters to promote export-oriented industries of the country. As part of the Export facilitation, it extends the cheapest export loan facility to the manufacturer exporters through the Central Bank of Bangladesh. Officially this loan is called EDF Loans.
History of Export Development Fund (EDF) and Its Objective:
The Government of Bangladesh Established the Export Development Fund (in short EDF) in 1989 with the support of the International Development Association (IDA). The primary size of this fund was USD31.2 million. The good news is, Bangladesh Government is increasing Export Development Fund to USD5.50 billion, The Daily Star, 28.03. 2021.
Though the government established EDF to promote non-traditional manufactured items export business of Bangladesh, it is now not limited to that concept. This EDF loan intends to ensure access to finance in Foreign Currencies/ Foreign Exchange for the manufacturer exporters.
What is the Export Development Fund?
Export Development Fund or EDF is a fund used to extend foreign currency loan facilities to manufacturer-exporters of Bangladesh for procuring inputs or raw materials.
In other words, EDF is the fund used to facilitate import settlement in foreign currency for procuring inputs by manufacturer exporters.
EDF Loan Meaning:
EDF loan means loans to manufacturer exporters from the Export Development Fund for settlement of input procurement. Authorized Dealer (AD) banks extend foreign currency loans in US Dollars against the Central Bank (Bangladesh Bank) refinancing facility under Export Development Fund.
Of course, AD banks in Bangladesh are allowed to lend their own foreign exchange up to fifty percent (50%) of their Non Resident Foreign Currency Deposits (NFCD) balances. However, ADs usually take refinance to keep minimum involvement of their funds.
The Management of EDF:
Foreign Exchange Reserve and Treasury Management Department (FRTMD) at Head Office of the Central Bank manages the EDF. Every AD has to borrow and repay the loans through their respective Head Offices.
The EDF loans are also available in the Islamic Mode of finance. It is operated under Shariah principles. The Islamic mode of finance needs the deal to deal Restricted Mudaraba Agreement with FRTMD.
Who Can Avail EDF Loans?
While we are writing this article, those terms and conditions are as follows.
1. AD must ensure full compliance of value addition requirement and other conditions as per concurrent Import Policy Order (IPO), foreign exchange regulations, and circulars from Bangladesh Bank.
2. Manufacturer exporter who has failed to repatriate export proceeds within 120 days from date of shipment will not get EDF facility.
Bangladesh Bank has allowed time for repatriation of export proceeds up to 210 days instead of 120 days from the date of shipment. This extension of the repatriation period will remain valid up to 30.06.2021 as per FE circular no. 08, 14.03.2021.
3. The loans must be within the single borrower exposure limit as per the Bangladesh Bank circular.
4. Manufacturers of final export products or intermediate products for final exporters will get EDF loans to pay imports against Foreign or Inland back-to-back import LCs in foreign exchange.
5. To avail of EDF loans, ADs will open foreign or inland back-to-back import LCs on foreign exchange At Sight basis. These LCs are called EDF LCs in Bangladesh.
However, up to 30.06.2021 EDF refinancing for 180 days is allowed to settle import payments against Back to Back LCs under Suppliers/ Buyers Credit as per FE Circular No.08 dated 14.03.2021.
Can Foreign Investors Get EDF Loans?
Foreign Investors can also enjoy the EDF Loan facility if they have invested in Joint Venture Ready Made Garments Industry for export in EPZs as per FE Circular No.09, 22.03.2021. These Joint ventures must be between foreign and Bangladesh entrepreneurs resident in Bangladesh (also called Type B industries).
What is the Present EDF Interest Rate in Bangladesh?
Presently Bangladesh Bank is offering the cheapest rate of interest. They are charging interest 1.50% p.a. to ADs in USD. ADs will charge 3.00% p.a. to manufacturer exporters as per FE circular No.17, dated 20.07.2022.
However, up to 20.07.2020 BB was charging 1% to ADs and ADs were charging 2% to exporter as per Circular no.18 dated 07.04.2021 and up to 31.03.2021, Bangladesh Bank was charging only 0.75% to ADs, and ADs were charging only 1.75% interest to the borrowers as per FE Circular No. 47, dated 28.10.2020. Bangladesh Bank is changing this rate rapidly during the Covid-19 Pandemic. So, you are requested to follow their latest circulars.
What is the Tenor of EDF Loans?
The tenor of EDF loans is 180 days and repayable from related export proceeds. It is extendable up to additional 90 days against the application to Bangladesh Bank explaining the valid ground. Eligible bulk importers can repay from their FC Margin Accounts.
Mentionable that EDF loans are extendable up to additional 180 days instead of additional 90 days, till 30.06.2021 as per FE circular No.08, dated 14.03.2021 and further extended up to 31.12.2021 by FE circular 19 dated 07.06.2021.
What are the Amounts of EDF Loans?
The loan amounts from EDF are different for different types of customers. This amount is changeable by the Central Bank by circulars from time to time. We are presenting here the prevailing offerings.
1. BGMEA (Bangladesh Garment Manufacturers and Exporters Association) member mills can enjoy up to USD25.00 million. Presently, they are enjoying USD30.00 million limits till 31.12.2022 by FE circular No.16, dated 19.07.2022.
2. BKMEA (Bangladesh Knitwear Manufacturers and Exporters Association) member mills can enjoy up to USD20.00 million. [FE circular No.09, dated 25.02.2020]
3. BTMA (Bangladesh Textile Mills Association) member mills can enjoy up to USD25.00 million. However, the loan limits for them will be the lowest of - total export proceeds of last year in foreign currency against inland back-to-back LC, or USD25.00 million.
However, they enjoy a maximum limit of USD30.00 million till 31.12.2022 as per FE circular No.16, dated 19.07.2022.
4. Type B industries of EPZ producing Ready Made Garment for Export and Type C industries of EPZs/EZs other than member mills of eligible associations can enjoy EDF loan for bulk import. The maximum limit of such a loan will not exceed USD15.00 million to an AD.
5. BDYEA (Bangladesh Dyed Yarn Exporters Association) member mills who earn foreign exchange against inland Back to Back LCs will enjoy EDF loans. They can get this loan for paying imports of unprocessed Yarn. Their loan limits are the lowest of - total export proceeds of last year in foreign currency against inland Back to Back LC, or USD15.00 million.
6. BGAPMEA (Bangladesh Garments Accessories & Packaging Manufacturers & Exporters Association) member mills making local deliveries of garment accessories to manufacturer-exporters against inland back-to-back LCs in foreign exchange gets EDF facility for payments of import of raw materials in bulk quantity. Their limit is lower of (i) earnings in foreign exchange for the last year against inland back-to-back LCs, or (ii) USD 2 million.
7. BPGMEA (Bangladesh Plastic Goods Manufacturers and Exporters Association) member mills making import of raw materials in bulk quantity for local deliveries of garment accessories to manufacturer-exporters against inland back-to-back LCs in foreign currency can enjoy EDF loans. Their limit is lower (i) total export proceeds of the last year in FC against inland back-to-back LCs and export LCs/ Contracts, or (ii) USD 1 million.
8. LFMEAB (Leather goods & Footwear Manufacturers & Exporters Association of Bangladesh) member industries can avail EDF loans. Their maximum loan limits up to USD20 million as per FE circular No.28, dated 11.07.2019.
9. BCWMA (Bangladesh Ceramic Wares Manufacturers’ Association) member industries can enjoy EDF finance for bulk imports against estimated requirements for one year, based on their last year’s export performance.
10. Moreover, manufacturer-exporters can avail EDF loans against eligible requirements for bulk imports irrespective of sectors. ADs can draw refinance against them for the limits based on their last twelve month’s export performance or USD 500,000, whichever is lower.
This entitlement is mutually exclusive with paragraphs from 5(b) to 5(f) of FE Circular No. 45/2017 and FE Circular No. 18, 05.05.2019.
How to Apply for EDF Loans from Bangladesh Bank?
Each AD shall apply for EDF loans to FRTMD, Bangladesh Bank through their Head offices or principal offices. AD Banks have to use Form – A for application as specified by the Central Bank. Two properly empowered officials will sign this application. This application will authorize Bangladesh Bank to realize the principal and interest for loans on expiry from the AD Banks’ Foreign Currency Clearing Accounts with the central bank if not repaid earlier.
How to Repay EDF Loans to Bangladesh Bank?
AD Bank's Head office or Principal office shall submit repayment advice and the calculation worksheets in Form-B specified by the Central Bank.
How to Report EDF Loans to Bangladesh Bank?
Head offices/Principal offices of the AD banks must submit the Monthly statements by the second week of the following month. This statement shows the outstanding USD Loans of ADs to their customers for which AD has availed refinance from Bangladesh Bank. The Central Bank has specified Form-C for this reporting.
Operational Procedure for the Export Development Fund (EDF) at the AD level:
ADs make payment for import of inputs or raw materials through Import LC/inland back-to-back LC for manufacturer exporter customer of their branch by creating a foreign currency loan account. It is called EDF Loan Account. This way, AD banks involve their own FC funds.
Then they forward the application for EDF refinance from the Central Bank through their Head Office/Principal Office. They apply duly filled in Form-A, customer approach letter, and other supporting documents (if required) declaring outstanding total EDF loan to the customer.
They preserve the foreign currency received as refinance from Bangladesh Bank and can use it.
On or before the expiry of the EDF loan, related AD repays the principal amount along with interest collecting it from the related customer’s FC Margin Account or Export Proceeds received. They also realize their portion of interest or commission from the manufacturer exporter.
To Wrap it Up:
We want to remind you that EDF refinancing procedures, interest rates, and limits will remain the same for always. They are often changed or modified by the Central Banks. We have prepared this article based on the Master Circular on Export Development Fund (FE Circular No. 45, Date: December 31, 2017, Foreign Exchange Policy Department, Bangladesh Bank) and subsequent circulars from the Central bank when we are writing this article.
We hope you will find this article helpful. Do not hesitate to write to us.
Your valuable comments and suggestions inspire us to keep on writing.
We assure you of providing you with updated information regarding the EDF facilities in Bangladesh.
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