The central bank has started the process of disbursing loan for jute millers and traders from its refinance fund to help them purchase raw jute. The bank has already directed about two dozens of scheduled banks to start disbursement of the loan.
Bangladesh Bank set up a Tk 200 crore refinance fund last year to help jute growers to have fair prices and jute millers and traders in purchasing required amount of raw jute during the season to run their mills and business, reports the Financial Express.
A recent meeting of Bangladesh Bank took the decision to disburse the loan among the state-owned jute mills, private jute mills and raw jute traders. The BB also issued a circular to managing directors and chief executive officers of all scheduled banks saying that the board of directors of the central bank had recently approved the fresh refinance scheme to boost the country’s jute industry.
“We have started processing the loans and instructed the banks to disburse the credit among eligible clients on bank-client relationships, said BB general Manager Provash Chandra Mollik expecting that the whole process would be completed by this month.
According to a BB circular, state-owned jute mills, private jute mills and raw jute traders will get 40 per cent, 40 per cent and 20 per cent loans respectively from the refinance fund. The fund for the refinance scheme will come from the BB’s own treasury and the commercial banks would get loans from the refinance scheme at the interest rate of 5 per cent. The banks will disburse the loan among the businesspeople at the interest rate of 9 per cent. The repayment has to be made within a year with interests.
The banks have to sign participatory agreement with the central bank to disburse funds under a revolving re-financing scheme worth Tk 2.0 billion. The central bank expects to complete all the formalities within the current month to help expedite the jute purchasing process through providing loans to jute millers and traders.
‘The decision is good as it will help meet the urgent demand, but not enough considering the necessity of purchasing raw jute and paying off the farmers’ arrear bills,’ said Barik Khan, secretary, Bangladesh Jute Mills Association (BJMA).
Presently, the jute mills both under BJMA and BJMC (Bangladesh Jute Mills Association) were incurring heavy losses and passing crucial time due to acute shortage of fund. Many of the mills are also facing serious problems in procuring raw jute to run their industries mainly due to fund constraints.
The BJMA has set a target to procure about 1.1 million bales of raw jute for the FY( fiscal Year) 2014-15, according to sources. Usually mills under BJMA, BJMC and BJSA (Bangladesh Jute Spinners Association) use about 5.0 million bales of raw jute annually for their production. Presently, there are 238 jute manufacturing units in the country. Of these, 90 private spinning mills produce jute yarn while 18 state-owned mills under BJMC and 130 private jute mills under the BJMA manufacture hessian, sacks and bags.
Hit hard by export decline, most of the mills, industry sources said, are facing fund constraints for procurement of raw jute. Banks, in some cases, were reluctant to provide funds in advance since most jute mills had defaulted on earlier loans. Very often mills were found to be having a tough time repaying their debts because of lack of required net income from their current transactions. Because of the huge debt burden, majority of the mills became financially handicapped.
Export earnings from jute and jute goods declined drastically in last fiscal due to price cuts by buyers in the face of slackened demand, industry sources said. Exporters linked political turmoil in the Middle East, economic gloom in Europe and fears of global recession to sluggish demand for the natural fibre, the second biggest foreign currency earner after apparel.
The falling trend of jute demands in international markets also cast some adverse impact in local markets. In spite of good crops, jute growers are also not getting fair prices for their produce this season. It is because the cost of cultivation has gone up considerably, while there was a decline in world jute prices last year.