Low-cost loan for frozen food
Staff Reporter
With Bangladesh seeking to reduce its heavy dependence on ready-made garment exports, Bangladesh Bank (BB) has launched a Tk 2,000 crore revolving fund to revive and expand the country’s frozen food industry, particularly shrimp and fish exports.
The initiative aims to inject cheaper financing into one of the country’s key non-RMG export sectors, helping exporters overcome working-capital constraints, modernise production and cold-chain facilities, and generate higher foreign exchange earnings.
Under the scheme, exporters will be able to access financing at a maximum interest rate of 7 percent, while participating banks will receive the funds from Bangladesh Bank at 4 percent.
The three-year fund will operate on a revolving basis and is intended to ease some of the major financial constraints facing the export-oriented frozen food industry, including long cash-conversion cycles, high inventory costs, expensive
cold-chain operations and limited access to low-cost financing, according to a Bangladesh Bank circular issued today.
The central bank said the facility would support the production, collection, processing and export of frozen shrimp, fish and other frozen food products.
The financing is expected to help businesses increase production, reopen closed factories and invest in modern facilities, thereby strengthening the sector’s capacity to earn foreign exchange.
All scheduled banks operating in Bangladesh will be eligible to participate after signing a participation agreement with Bangladesh Bank’s Agricultural Credit Department-2.
Support for factories and exports
The fund can be used to purchase raw materials, expand or modernise factories, acquire machinery and establish cold-storage facilities.
It will also cover the reopening of closed or partially operational fish and food-processing factories, solar power projects and environmental remediation expenses, including soil reclamation.
For new factory projects, banks can provide term loans of up to Tk 30 crore, with a maximum tenure of seven years, including a grace period of up to one year.
Existing frozen-food processors can receive up to Tk 20 crore for renovation, expansion and modernisation. Such loans will have a maximum tenure of five years, including a one-year grace period.
Businesses can also obtain up to Tk 5 crore, or 30 percent of the main project loan, whichever is lower, for installing solar panels.
Working-capital loans for raw materials, production, wages and utility bills will be determined on the basis of annual turnover, subject to a maximum of Tk 20 crore.
Such loans can be provided for one year and renewed once, although a borrower can access the facility for a maximum of two years under the scheme.
Priority for struggling exporters
Bangladesh Bank has instructed participating banks to give priority to frozen-food exporters whose factories are fully or partly closed because of working-capital shortages.
However, companies already receiving financing under other Bangladesh Bank or government schemes for the same purpose will not qualify. Classified loan defaulters will also be excluded.
Although Bangladesh Bank will provide pre-financing to participating banks, lenders will bear the full credit risk and remain responsible for loan recovery.
Banks that fail to repay the pre-financed amount on time will face an additional 2 percent interest charge for the period of delay.
Participating banks must monitor the utilisation of loans and inspect borrowers’ factories or offices every quarter to ensure that the funds are being used for the approved purposes.
Solar requirement
The scheme also links financing to greater use of renewable energy. Beneficiaries must take steps to meet at least 15 percent of their electricity requirements from solar power within two years.
Failure to comply with the requirement may lead to suspension of further financing.
The inclusion of solar power and environmental remediation in the scheme reflects an attempt to make the expansion of the frozen food industry more sustainable while addressing some of the sector’s infrastructure constraints.
Scope for non-RMG export growth
The frozen food industry, particularly shrimp and fish, is one of Bangladesh’s established non-RMG export sectors and has significant potential to contribute to export diversification and foreign exchange earnings.
However, exporters have long faced financing and infrastructure constraints, particularly because frozen food businesses require substantial working capital and reliable cold-chain facilities from collection and processing through to shipment.
The new fund is therefore expected to provide financial support not only to existing exporters but also to businesses seeking to expand production, improve processing standards and develop modern cold-storage and other facilities.
By easing access to relatively cheaper credit, the central bank hopes to strengthen the sector’s export capacity, diversify Bangladesh’s export basket and increase foreign exchange earnings.
The scheme is also expected to support employment and expand economic activity in rural areas, where much of the country’s fish and shrimp production and collection take place.
