Small exporters caught in the cracks

General banking rules in giving stimulus package?

• Banks require mortgage or credit limit to lend funds
• Bank refuses applications though it delays in processing
• Ambiguity over 30-percent working capital limit
• Working capital in risky overdraft form will not help

Shamsul Azam, managing director of the Chattogram-based Renown Apparels, has been exporting garments since 2011. He has been doing it without bank loans as his buyers provide him with raw materials and he just prepares the products.

Buyers pay him through telegraphic transfer at Bank Asia's Agrabad Branch. He earns $2.5 million per year from foreign buyers in the form of making costs.

Like other businessmen, Azam also felt the pinch of the Covid-19 pandemic and therefore applied to the bank for low-cost funds offered by the government and the central bank.

But the bank told him he was not entitled to the funds under the general banking rules although that, according to a central bank spokesperson, should not apply in Azam's case in this particular instance.

"My bank is not willing to provide me loans as I do not have a credit limit or a mortgage with the bank," he told The Business Standard.

He applied for Tk66 lakh in loans to pay his 600 workers for three months.

In another case, the loan application of Nibir Sweater, a client of Al Arafa Islami Bank's Jatrabari branch, was also rejected on the ground that it was placed before the bank's relevant committee three days after the deadline, April 30, had passed.

However, the industry applied for loans with the bank's Konapara branch on April 26. The application reached the head office four days later.

On May 3, it was placed before the bank's investment proposal committee, which refused to forward the application to the central bank due to the delay.

Md Rafiqul Islam, managing director of the sweater maker, mentioned these issues in a letter to the managing director of Al Arafa Islami Bank and requested him to reconsider the loan application.

Renown Apparels and Nibir Sweater are only two of about 400 garments factories that are facing impediments in coming by loans from the government-declared Tk5,000-crore stimulus package, according to people associated with the industry.

Among other difficulties the exporters are facing are ambiguity over the issue of the working capital.

Businesses have said the working capital will not benefit them if it is given in the form of overdraft, which is a risky form of financing.

The question linked with the 30-percent limit of the working capital mentioned in an official circular has also been confusing for businessmen. They are not sure if it is the client's limit with the bank or the bank's limit with the central bank.

Mohammad Hatem, first vice president of Bangladesh Knitwear Manufacturers and Exporters Association, said: "Many commercial banks are not cooperating with garment owners on grounds of credit limits being exceeded."

If those garments fail to pay their workers on time, the banks will be responsible for the situation that could arise, he warned.

According to the apparel exporters, 2,132 garment factories have applied for Tk3,343 crore from the stimulus package. But around 1,000 factories could not apply for it.

Faisal Samad, senior vice president of the Bangladesh Garment Manufacturers and Exporters Association, said he received about 150 phone calls last week from member units of the association expressing their grievances about the various hassles they were facing from banks in getting the funds.

He also said the banks should act as partners of factories during the crisis.

If they want to follow general banking rules, it will be very difficult for owners to pay workers, Faisal added.

Jahangir Alam, manager of Bank Asia's Agrabad Brach, said Renown Apparels is considered as a new client by the bank's head office.

"We forwarded the application to the head office, which asked us to visit the factory to assess its capability and check if it had a mortgage. But it was not possible to physically visit the factory during the pandemic."

The factory owner agreed to mortgage a third-party FDR as per the bank's advice, the branch manager said, adding: "But the application deadline is already over." However, the apparel exporter applied for loans on April 27.

Serajul Islam, the Bangladesh Bank's spokesperson, said the stimulus package does not require any credit limit or an existing credit account because it is one kind of supporting loan to pay workers.