BB plans Tk40,000cr refinance scheme to revive closed factories

Bangladesh Bank (BB) is set to roll out a Tk40,000 crore refinance scheme to revive closed and struggling industrial units, aiming to boost industrial production, support exports and create jobs.

The central bank’s proposed package will allocate Tk20,000 crore to large industries, Tk10,000 crore to cottage, micro, small and medium enterprises (CMSMEs), and another Tk10,000 crore to the agriculture sector. The initiative aims to bring idle factories back into operation and support the government’s target of generating 1 crore jobs within the first 18 months.

The move comes as Prime Minister Tarique Rahman held a high-level meeting on Monday with officials from the Ministry of Textiles and Jute and key stakeholders to discuss reopening closed factories in the textile and jute sector.

Following the meeting, Bangladesh Bank plans to introduce a tiered financing structure based on the condition of factories. Units with functioning gas and electricity connections but facing working capital shortages will receive short-term financing. Firms whose utility connections have been disconnected due to unpaid bills, and which also face damaged machinery or a lack of buyers, will be eligible for medium-term support. 

Long-term financing will be extended to enterprises that have remained closed for years and require fresh investment in machinery as well as restoration of utility connections.

Officials said Bangladesh Bank has already identified more than 1,200 closed or partially operational industrial units based on data from banks and trade bodies. Separate lists have been prepared for firms with outstanding loans above and below Tk100 crore, and discussions have been held with managing directors of several banks to assess financing needs and identify viable businesses.

Priority will be given to factories with strong market prospects. Defaulting firms may be allowed to reschedule their loans under relaxed conditions before accessing the new facility.

Bangladesh Bank spokesperson Arief Hossain Khan said the central bank is still assessing the nature of support required. “We are collecting lists of closed factories from each bank and identifying the reasons behind their closure, including management gaps, loss of export markets, lack of orders, or financial distress caused by high loan servicing costs,” he told The Daily Sun.

He added that some firms became defaulters after failing to repay even a single instalment, while others lost global competitiveness. “After reviewing these factors, we will consult with the government to determine the appropriate policy support needed to enable these factories to resume operations,” he said.

He further said that political affiliation would not influence decisions. “Many businessmen are involved in politics. However, when Bangladesh Bank deals with broader economic issues, there is no scope to consider political affiliation in its decisions or actions,” he added.

At a meeting held at Bangladesh Bank on Sunday, Chief Risk Officers (CROs) and Chief Business Officers (CBOs) of various banks expressed support for the initiative while stressing the need for risk-sharing mechanisms. The meeting, chaired by Deputy Governor Kabir Ahmed, was part of consultations ahead of finalising the policy framework.

Bankers called for a credit guarantee facility from the government or Bangladesh Bank, arguing that lenders should not bear the full burden if revived factories become non-performing again.

They also recommended stricter lending conditions, including additional collateral requirements and provisions allowing banks to appoint advisors to monitor factory operations and ensure proper use of funds.

They cautioned that extending credit to closed units could create legal complications, as many of these firms are already facing cases related to defaulted loans.

Bangladesh Bank clarified that businesses involved in fraud, money laundering, or those whose owners have fled abroad after siphoning funds will not be eligible for support. Priority will instead be given to firms that became inactive due to external or uncontrollable factors, including recent economic disruptions.

The initiative aligns with the government’s broader objective of generating 10 million jobs within 18 months.

Banks are expected to access funds from Bangladesh Bank at interest rates of around 5–6%, while lending rates to borrowers will be set slightly above inflation but below the policy rate.

Despite optimism, several structural challenges remain. Bankers pointed to experience with 23 pandemic-era stimulus packages worth Tk128,303 crore, a significant portion of which has since turned non-performing, making banks more cautious about new exposure.

They also cited weakened balance sheets due to past irregularities and capital flight, which have constrained lending capacity. Bangladesh Bank officials further noted that the International Monetary Fund (IMF) has discouraged new refinance schemes under its ongoing programme, recommending a gradual phase-out of such facilities.

Shams Mahmud, president of the Bangladesh Thai Chamber of Commerce and Industry (BTCCI), said the initiative is a positive signal for job creation and business confidence.

“This shows that the government is focusing on job creation and is business-friendly. Reopening and supporting closed factories is a major positive step, but uninterrupted energy supply and stable law and order are also essential,” he told The Daily Sun.

Anwar-Ul-Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries (BCI), said reviving closed factories was essential for economic recovery but stressed the importance of risk-sharing mechanisms.

“This initiative is encouraging, but success will depend on how effectively the refinancing scheme is structured and implemented,” he said. “Only viable enterprises with realistic recovery potential should receive support.”

Economists have cautiously welcomed the plan but warned of implementation risks.

Dr Mustafa K Mujeri, former chief economist of Bangladesh Bank, said closed factories must be properly categorised before financing decisions are made.

“Some units can be revived with proper management, while others have deteriorated beyond recovery due to prolonged mismanagement,” he said, warning against supporting non-viable firms.

He added that financing should focus on sustainable businesses that can generate employment, increase VAT and tax revenue, and help reduce the budget deficit.

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said the initiative could revive production and create jobs but raised concerns about funding sources.

“Many banks are facing liquidity shortages, and government revenue growth is under pressure. If the central bank directly finances the scheme, it could increase money supply and create inflationary pressure,” she said.

She recommended a mixed financing model combining stronger banks and budgetary allocations to reduce inflation risks.

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