Cenbank forms Tk2,000cr scheme at 7% interest to boost leather sector

The Bangladesh Bank has launched a Tk2,000 crore special pre-finance scheme to strengthen the country's leather and leather products sector by improving export competitiveness and supporting environmentally sustainable production.

In a circular issued today (30 July), the central bank said end-level borrowers will receive loans at a maximum interest rate of 7%, while participating banks will access the fund at 4%, allowing them a 3% lending margin.

The scheme aims to help local manufacturers expand in global markets while transforming the leather industry into an eco-friendly and compliant sector. All scheduled banks can participate after signing an agreement with Bangladesh Bank's SME and Special Programs Department.

The facility covers both capital investment and working capital across the leather value chain. Eligible activities include constructing infrastructure for tanneries and leather goods factories, procuring machinery, establishing cold storage facilities for raw and processed hides, and building Effluent Treatment Plants (ETPs), dumping yards and solid waste management systems using clean technologies.

Bangladesh Bank has capped the debt-to-equity ratio for borrower-level loans at 70:30. Lending limits include up to Tk30 crore for new tanneries or waste treatment infrastructure, Tk20 crore for new manufacturing units, Tk10 crore for upgrading existing facilities and Tk30 crore in working capital based on annual business turnover.

Term loans will have a repayment period of up to seven years, including a two-year grace period. Working capital loans will initially run for one year and may be renewed for up to three years, subject to satisfactory business performance and credit transactions.

The central bank has attached strict compliance conditions. Raw leather processors must submit proof of obtaining Leather Working Group (LWG) certification within two years of receiving the loan. 

Borrowers must also source at least 10% of their electricity from solar power and implement verifiable measures to minimise occupational health risks for workers. Type-B and Type-C companies operating in Export Processing Zones (EPZs) are also eligible.

Default borrowers, as well as businesses already receiving support under the Export Development Fund, the Export Facilitation Pre-finance Fund, the Green Transformation Fund or other specialised government financing schemes, will not qualify for the facility.