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Credit Facilities to Industries in Export Processing Zones

Credit Facilities to Industries in Export Processing Zones

TRANSACTIONS, Volume-1 Instructions as of 31 May 2009 issued to
Authorized Dealers and Money Changers in Foreign Exchange)
(A) 100% foreign-owned enterprises in the EPZs known as Type A industries
may obtain short-term foreign currency loan from overseas banks and financial
institutions subject to the following conditions:
(i) The loan shall be received through an AD in Bangladesh; and the loan
proceeds will be credited to the FC account maintained by the AD in the name
of the Type-A unit, to be used for financing import of capital machinery and
raw materials, payment of interest/service charges, repayment of loans and for
crediting Taka account for meeting local expenses;
(ii)  Only assets fully owned by the Type-A industry may be lodged as
collaterals for such loans;
(iii) Repayment of principal and interest on the loan shall be remitted out of the
balances available in the FC account without prior Bangladesh Bank approval.
No fund may be provided from the AD’s own resources for such repayment
except with prior approval of Bangladesh Bank;
(iv) In case the loan is called up by the creditor, the assets charged to foreign
lender will be allowed to be sold only in foreign exchange and proceeds, after
paying off all local liabilities in Bangladesh may be remitted abroad with
Bangladesh Bank’s approval;
(v) No Taka loan against repatriable short term foreign currency loan will be
allowed to a Type-A industry.

(B)    Type-B industries (joint venture projects) may also obtain such loans
subject to conditions applicable to Type-A industries as indicated above, except
that Type-B industries will not be permitted to mortgage / hypothecate their
fixed assets, raw materials in favor of any non-resident. The ADs may,
however, issue guarantee to overseas banks / financial institutions for short
term foreign currency loans brought into Bangladesh by Type-B industries,
subject to prior approval of the Bangladesh Bank.
Taka loan may be granted to a joint venture (Type-B) industrial unit in EPZ up
to 100% of short-term foreign currency loan brought in and encased to taka.
Loan in Taka for procurement of capital machineries for setting up a Type-B
industry, not exceeding the local partners’ share of ownership of the unit, may
be extended on normal banker-customer relationship. Prior Bangladesh Bank
approval should be obtained by the AD while providing foreign exchange for
import of the machineries out of the Taka loan. Repayments of the Taka loans
along with interests should be received out of the foreign exchange earnings of
the unit.
ADs may extend credit facilities to Type-C industries (100% locally owned) as
admissible to such industries outside EPZ.
In establishing import LCs on account of Type-A, B and C units in the EPZs
ADs shall bear in mind the position that the import payments may be made
only out of the foreign exchange earnings of the concerned units or out of their
borrowings abroad credited in their FC accounts, and that no funds from the
ADs own foreign exchange resources can be used for this purpose. Before
opening inputs import LC against an export LC or export order received by an
EPZ unit the AD should satisfy itself completely about the clarity of the
conditions in the export order / LC, the standing and credit of the foreign buyer
and the ability of the exporting unit for timely execution of the export order. In
opening inputs import LCs on account of Type-B and Type-C units, domestic
value addition requirements prescribed for the respective items by the Ministry
of Commerce should also be abided by.
Import payments against the LCs should be scheduled in a manner that
payment obligations do not fall due before receipt of export proceeds. In all
cases of opening inputs import LCs on accounts of units in the EPZ, ADs
should satisfy themselves that necessary arrangements have been made by the
opener that in case of shortfall or delay in export receipts, foreign exchange
would be made available form external sources.
In the case of joint venture (Type-B) projects in the EPZs, the foreign partners
will have to arrange their contributions in foreign exchange from own or
borrowed sources outside Bangladesh and the local partners shall contribute
their shares in local currency. In the event, however, the contributions as per
joint venture project agreements made by the foreign partners are not sufficient

to cover the cost of machinery and equipment, the shortfall may be made up,
with prior Bangladesh Bank approval, by conversion of Taka into foreign
currency up to an amount not exceeding the local partners’ shares /
contributions referred to above.
Bangladesh in NFCD accounts may be utilized for discounting ussance bills
drawn by Type-A and B units of EPZs for supplying raw materials under back
to back (B2B) arrangement and accepted by ADs operating outside EPZs.
However, utilization of NFCD fund for the above purpose including payment
for B2B sight LCs (as mentioned in Chapter 7) will not exceed 50% of total
NFCD balance of the concerned bank.
For working capital, in addition to pre-shipment non-funded facility through
B2B LC and post shipment finance through bill discounting as mentioned in
para 22 of this chapter, an AD may grant working capital loan from its own
source on banker customer relationship considering repayment capacity of the
B and C Type units up to the extent of value of inputs required for four months
production. However, loans so advanced should be adjusted form export
receivables within shortest possible time. The amount of importable is to be
determined on the basis of export performance of the concerned unit during the
previous year while for the new concern the AD should refer to the production
capacity as determined by BEPZA.
N. B.: To be read in conjunction with other instructions, subsequent
amendments and modifications from time to time.

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