BB introduces new rules for export development fund

Bangladesh Bank (BB) has introduced a new master circular for the Export Development Fund (EDF), bringing all previous guidelines under a single set of rules.

The new circular, issued on Thursday, is expected to make the fund easier to manage while introducing stricter conditions to ensure that exporters and banks use the facility responsibly.

The EDF is an important source of low-cost foreign currency loans for exporters. It allows banks to borrow US dollars from BB and lend the money to manufacturers so they can import raw materials needed to produce goods for export. The scheme plays a key role in supporting Bangladesh's export sector, particularly the ready-made garment industry.

Although the main objective of the EDF remains unchanged, the latest circular introduces several important changes. One of the biggest is a clearer interest-rate structure. BB will lend to banks at an interest rate of six-month SOFR plus 0.5 percentage points, while banks can charge exporters six-month SOFR plus 1.5 percentage points. Banks may also charge up to an additional 1 percentage point for the short period between paying import bills from their own foreign currency funds and receiving refinancing from Bangladesh Bank.

Based on the current six-month SOFR of around 4.2 per cent, exporters are likely to pay an interest rate of about 5.7 per cent. Even with the additional temporary charge, the borrowing cost remains competitive compared with many commercial foreign currency loans, helping exporters keep production costs under control.

The circular also strengthens the conditions for receiving EDF support. Exporters who fail to repatriate export earnings within the legal period of 120 days will no longer be eligible for new EDF loans. If an exporter's previous EDF liability has been converted into another funded loan because export proceeds were not received, the exporter will also lose access to fresh EDF financing until the dues are settled or officially exempted.

Banks have also been brought under tighter supervision. If a bank fails to repay EDF loans to Bangladesh Bank on time, it will not be allowed to receive new EDF financing until the overdue amount is cleared.

In addition, the central bank may charge a penalty of four percentage points above the normal EDF interest rate for delayed repayments. This means that if the regular EDF rate is around 4.7 per cent, the penalty rate could rise to about 8.7 per cent a year on the overdue amount.

The repayment period for EDF loans remains 180 days, but Bangladesh Bank may extend it to a maximum of 270 days if there is a valid reason.

However, banks must now apply for an extension at least 10 days before the loan matures. The application must be signed by a deputy managing director or a higher official and supported by documents, including the Bill of Entry. If export proceeds have already been received, banks must repay the EDF immediately instead of requesting more time.

The circular also sets clear limits on how much exporters from different industries can borrow. Members of the Bangladesh Garment Manufacturers and Exporters Association can receive up to US$20 million, while knitwear and footwear exporters can borrow up to US$15 million. Furniture, bicycle and most other export sectors have limits ranging from US$5 million to US$10 million, depending on the industry.