7% interest set for closed industry, service sector refinance

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Bangladesh Bank (BB) has fixed the maximum interest rate at 7 percent for loans under the Tk20,000 crore pre-refinance scheme aimed at reopening closed industrial and service sector enterprises.

The central bank also introduced a six-month grace period on loan disbursements, during which no interest can be collected from borrowers.

The directive was issued through a circular on Thursday (September 17). It specifies that the recovery of interest, including the accrued interest from the first two quarters, will commence only after the six-month grace period ends.

This circular follows two previous directives issued on June 4 and July 7, which established the "Closed Industrial and Service Sector Support Pre-Refinance Scheme" and laid down its policy framework.

Under the updated guidelines, the term "Large Industry" used in prior circulars has been replaced simply with "Industry." This adjustment widens the scope of financing under the scheme beyond large industries to include other eligible industrial enterprises.

According to Bangladesh Bank's instructions, participating commercial banks will receive pre-refinance facility from the central bank at an interest rate of 4 percent. However, banks will not have to pay any interest during the initial six-month grace period.

Following the grace period, banks must settle interest payments to Bangladesh Bank on a quarterly basis, including the accumulated interest from the first two quarters.

Similarly, at the end-user level, the maximum interest rate charged by banks to borrowers cannot exceed 7 percent. Borrowers will enjoy a complete exemption from interest payments during the six-month grace period, after which banks will collect regular interest along with the accrued balance from the initial two quarters.

Application Flexibility:

The central bank has eliminated rigid application deadlines for the scheme. Eligible enterprises can apply for pre-refinance facilities at any point during the scheme's three-year tenure, subject to fund availability.

This ensures that enterprises unable to apply at the onset of the scheme retain the opportunity to seek funding later if liquidity remains available.

Bangladesh Bank highlighted that the primary objective of the BDT 20,000 crore fund is to restore production and operational activities in long-closed industrial and service sector units. - UNB