Financial Institutions (FIs) Twenty-nine financial institutions are now operating in Bangladesh. Of these institutions, 1(one) is govt.

owned, 15 (fifteen) are local (private) and the other 13(thirteen) are established under joint venture with foreign participation. The total amount of loan & lease of these institutions is Tk.99,091.80 million as on 31 December, 2007. Bangladesh Bank has introduced a policy for loan & lease classification and provisioning for FIs from December 2000 on half-yearly basis. To enable the financial institutions to mobilize medium and long-term resources, Government of Bangladesh (GOB) signed a project loan with IDA, and a project known as 'Financial Institutions Development Project (FIDP)' has started its operation from February 2000. Bangladesh Bank is administering the project. The project has established 'Credit, Bridge and Standby Facility (CBSF)' to implement the financing program with a cost of US$ 57.00 million.

FE Report The local non-banking financial institutions (NBFI) are less interested this time to borrow from foreign sources as the advantages of borrowing from them have declined. Hard terms attached by the foreign lenders to such loans and the lower interest rates on loans back at home are the reasons behind the NBFIs' shyness to seek overseas funds, sources said. Last year the NBFIs were interested in taking loans from the foreign sources, as the interest rate in the domestic market was higher but they were faced with an acute shortage of fund, said IDLC's former chief executive officer Anis A Khan, who recently joined Mutual Trust Bank. "After I joined the bank, it lent Tk 2.0 billion to NBFIs at rates of 12 to 13 per cent against as high as 13 to 15 per cent of last year," he said. The total liquid assets of scheduled banks rose to Tk 645.93 billion in last March from Tk 483.82 billion at the end of June last year and the excess liquidity of the scheduled banks also rose to Tk 237.38 billion at the March-end from Tk 129.89 billion of June last, according to Bangladesh Bank data. "The NBFIs requested the central bank to formulate a guideline to procure funds from foreign sources in 2008 due to the gap in interest rates on domestic and foreign funds, but now it has come down," he explained. The foreign lenders charge higher rate as Bangladesh does not have any sovereign credit rating and many of the institutions do not have any company credit rating, he said.

"In Bangladesh there are many good companies with sound fundamentals but they will be charged higher than that of an Indian company with the same fundamentals as Bangladesh does not have any credit rating," he added. "When the credit risk is not assessed, the lenders put too many conditions, which make it difficult for the borrowers to continue the whole operations," Mr Anis said. A senior IDLC official said the foreign lenders attach conditions mainly relating to the debtequity ratio, the provision guideline and position, and the non-performing loan position. "They fix the operational indicators and the borrowers must comply with those to get loans," he said. The lenders make on-site inspection and assess financial strength, asset quality, risk management procedure, management capacity and other parameters, he added. About the interest rate, he said foreign lending is not that cheap. "Interest rate depends on credit rating of the borrower, results of due diligence, corporate governance practice, strength of management, tenure and amount," he added. "The main components of the interest rate on an overseas fund are LIBOR-plus premium, commitment fee, assessment fees and margin," he said. Even for the best company in Bangladesh the rate is over 11 per cent, he added. The IDLC official also said diversification of funding sources, interest rate gap and asset-liability mismatch are the main reasons behind borrowing from foreign sources. "The local lenders usually lend to the NBFIs for 3 to 5 years, but most of the loans are on longer terms," the official said, adding that it creates an asset-liability mismatch. The foreign lenders usually lend for 7 to 10 years. The potential sources of funding at lower costs are IFC of the World Bank Group, DEG of Germany, FMO of the Netherlands, etc. The central bank in April last issued a guideline allowing NBFIs to borrow from overseas sources to increase the flow of funds at lower interest rates. Under the new guideline, the NBFIs will be allowed to invest funds from any overseas borrowing only in the manufacturing and infrastructure sectors excepting the housing sector.

The repayment period for an overseas loan will be minimum five years with a grace period and they will receive the loan in the local currency from any local commercial bank against the borrowed overseas fund. Currently, 29 NBFIs are operating in the country.