Cenbank sets up Tk1,000cr special fund to drive green transition in local industries

Highlights:

• Bangladesh Bank has launched a Tk1,000 crore refinancing fund under the GTF to support sustainable local industries

• The fund will help local and rural entrepreneurs buy eco-friendly machinery at a maximum 5% interest rate

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• Entrepreneurs can receive loans of up to Tk5 crore, with projects required to use at least 10% renewable energy

• Strict monitoring and quarterly reporting have been made mandatory, with penalties for non-compliance

The Bangladesh Bank has formed a special refinancing fund worth Tk1,000 crore with the aim of building an environmentally friendly and sustainable industrial infrastructure within the country.

The initiative has been taken under the Green Transformation Fund (GTF) to encourage local and rural entrepreneurs to purchase environment-friendly machinery.

According to the central bank's circular today (11 May) for the loan scheme, Tk1,000 crore has now been allocated for the local industrial sector from the existing Tk5,000 crore GTF fund previously designated for export-oriented and manufacturing industries.

The fund will operate as a revolving fund – the money recovered from borrowers will be reinvested in the same sector.

The Bangladesh Bank said the fund will facilitate the purchase of modern and environmentally friendly machinery and equipment for rural and local industries. 

Under this facility, participating banks will be able to provide financing to entrepreneurs either as term loans or as a combination of term and working capital financing, known as a "product mix."

Depending on the nature of the project, the refinancing facility will have a tenure ranging from two to five years. 

However, based on the relationship between the bank and the customer, borrowers may receive a grace period of up to six months before beginning instalment payments.

The interest rate for customers will be capped at 5%, while banks will receive the funds from the central bank at an interest rate of 1%.

Additionally, based on the bank-customer relationship, borrowers may receive a grace period of up to six months for loan repayment.

Eligibility criteria

Certain conditions must be met to qualify for loans from the fund. Financing will be available against the purchase of imported or locally manufactured environmentally friendly capital machinery.

The debt-to-equity ratio will be capped at a ratio of 80:20. At the same time, a single entrepreneur will be eligible for a maximum loan amount of Tk5 crore.

At least 10% of the total electricity used in the relevant project must come from renewable energy sources. Loan defaulters will not be eligible for the facility. 

For private and foreign banks, the default loan ratio must remain below 20% to qualify for financing from the Bangladesh Bank.

The Bangladesh Bank will collect repayments from participating banks on a quarterly basis. 

Instalments, including principal and interest, will be automatically deducted from the respective bank's current account maintained with the Bangladesh Bank.

If any borrower is classified as a defaulter during the loan tenure, Bangladesh Bank will recover the entire outstanding amount from the concerned bank in a lump sum without prior notice. 

If there are insufficient funds in the bank's account at the scheduled time, an additional penalty interest rate of 3% will be imposed.

The circular stated that strict monitoring measures have been put in place to ensure transparency in the project. 

Participating banks will have to submit detailed reports to Bangladesh Bank's Sustainable Finance Department within 15 days after the end of each quarter.

Even if no loans are disbursed, banks will still have to submit a "nil report." Banks providing inaccurate information or failing to submit reports will face penalties.