Cenbank extends usance term for capital machinery imports

The Bangladesh Bank has extended the usage term for capital machinery imports to three years, a significant extension from the one-year limit.

In a circular issued today (1 December), the central bank directed all scheduled banks to allow their industrial importer clients to avail of this extended credit period under supplier's or buyer's credit.

The facility is applicable to capital machinery imports by industrial enterprises situated in Export Processing Zones, Private Export Processing Zones, Economic Zones, Hi-Tech Parks, and other specialised zones designated by the government.

Supplier's credit is a financing arrangement where the supplier extends credit to the buyer, allowing them to pay for goods or services at a later date.

Besides, buyer's credit is a financing arrangement where the buyer obtains a loan from a financial institution to finance the purchase of goods or services from a supplier.

Business insiders argue that the one-year payment term was not feasible for capital machinery purchases. The new policy will facilitate investment by streamlining the approval process, they say.

The circular noted that the Bangladesh Investment Development Authority (Bida) considers medium- and long-term external borrowing proposals of private sector industrial enterprises registered with them and the Department of Textiles.

The central bank said approvals for proposals are accorded by Bida based on the decisions of its scrutiny committee on foreign loan/supplier's credit chaired by the governor, Bangladesh Bank. 

As per the circular, the cost for usance period shall not exceed the rate permissible for short-term import finance under supplier's/buyer's credit. The present interest rate for short-term import finance is SOFR plus 4 percent per annum.