Bangladesh Bank yesterday formed a Tk 1,000 crore fund to provide cheap loans to export-oriented industries to upgrade technologies they currently use.

The eligible industries are of 32 types, all falling under top-priority and special development sectors, according to a central bank notice.

The fund will run under a refinancing scheme, meaning banks will first give out the loans before being reimbursed by the central bank. Interested banks and non-bank financial institutions (NBFIs) will have to sign a participation agreement with the central bank.

Banks and the NBFIs can then avail the fund at one percentage point less than the bank rate that happens to prevail at that time.

The interest rate will range between 5 per cent and 6 per cent.

A bank rate is the interest rate at which the central bank lends money to banks.

Managing the bank rate is a method by which central banks influence economic activity. Lower bank rates can help expand the economy by lowering the cost of funds for borrowers.

Currently, the rate is 4 per cent. If a bank happened to have availed the fund now, it would have been charged 3 per cent.

Banks will be allowed to charge borrowers a maximum three percentage points higher than the rate at which they avail the fund.

The tenures would range from three years to 10 years.

The interest rate for a borrower will depend on the time within which it makes the repayment.

It is 5 per cent for less than five years, 5.5 per cent for between five years and less than eight years, and 6 per cent for eight years to 10 years.

A 7:3 debt to equity ratio will have to be maintained, which means that a borrower can avail 70 per cent of the upgradation cost from the lender while the remaining 30 per cent has to come from his/her own pockets.

Banks that have non-performing loans of more than 10 per cent of their outstanding loans will not be allowed to avail the fund.

Morshed Millat, general manager of the Sustainable Finance Department of the central bank, said the eligible banks and NBFIs as per conditions mentioned in the notice will be more comfortable to deal with a good potential number of borrowers.

The fund will help make the export-oriented industries more vibrant in keeping with global trends, he said.