Bangladesh Bank has established a new Tk 1,000 crore refinancing fund to encourage the creation of eco-friendly industries and increase investment in this sector. Under this fund, entrepreneurs can obtain term loans at a maximum interest rate of 5%.
A notification regarding this was issued on Monday by the Sustainable Finance Department of Bangladesh Bank. The directive has been sent to the managing directors and chief executives of all scheduled banks and financial institutions in the country.
The fund has been created in alignment with the government's long-term Delta Plan 2100, Sustainable Development Goals (SDGs), and the National Sustainable Finance Policy. Significant concessions have been provided in terms of interest rates and loan tenures under the new 'Green Fund'.
Bangladesh Bank has announced that the maximum interest rate for loans taken under this fund for constructing eco-friendly factories or buildings will be 5% at the customer level. No additional hidden costs or fees will be charged from the customer. Banks and finance companies, on the other hand, can obtain funds from Bangladesh Bank at an interest rate of only 2%.
The loan tenure will be between 3 to 10 years. Entrepreneurs will receive a 'grace period' of up to one year for temporary relief from installment payments while winding up their business. A single entrepreneur or institution can avail a maximum loan of Tk 100 crore under this fund.
According to the central bank's notification, only term loans will be available under this fund for creating eco-friendly industries and constructing eco-friendly factory buildings. However, defaulters will not be eligible for any loans from this fund. Banks must verify the updated CIB report of the customer before processing the application.
The ratio of loan to equity must be a minimum of 70:30 against the total project cost. This means that at least 30% of the project's total cost must be the entrepreneur's own capital. Before applying for this loan, an eco-friendly project certificate or pre-certificate must be obtained from an internationally and domestically recognized green rating agency.
Although all state-owned banks and finance companies can provide loans under this new fund, separate rules have been set for private and foreign banks. The notification states that only those private and foreign banks with a default loan rate of less than 10% can take money from this fund to provide loans. However, in special cases, Bangladesh Bank may relax this limit up to 15% considering good performance. Banks interested in providing loan facilities must sign a participation agreement with the Sustainable Finance Department of the central bank.
The notification further states that Bangladesh Bank can conduct on-site inspections at any time to verify whether the loan money is being used correctly. If misuse of the loan is detected during the inspection, the concerned bank will have to return the entire amount in one installment along with a penalty. In addition to conventional banks, Shariah-based banks can also provide investment facilities from this Green Fund to customers under their own rules.
