The central bank is sceptical about the rise in opening of Letter of Credit (LC) for importing capital machinery even as industrialists view it as a positive development for Bangladesh’s economy.
It suspects money laundering or import of other goods could be taking place under the guise of such imports.
Bangladesh Bank also thinks private entrepreneurs are not using foreign loans in the sectors they are meant for.
To examine such anomalies, the central bank asked all banks that exchange foreign currencies to submit information on import of capital machinery from Jan 1, 2014 to Apr 30, 2015. They were asked to inform within May 29 which firms took how much foreign loans and through which banks and for what purpose.
The banks were also asked to inform whether the loans were properly utilised. The Department of Foreign Exchange Inspection sent the directives to the banks.
According to the Bangladesh Bank, capital machinery importers opened LC worth $2.93 billion from July to March in 2014-15 fiscal.
The amount was 5.66 percent more than that of the same period previous fiscal.
Settlement of LC also rose by 23 percent.
Bangladesh Bank Director Hannana Begum told that the board of directors ‘actually’ wanted to verify whether the capital machinery were ‘really’ imported.
“If they were really imported, it’s positive, very good. But if not, that is bad,” she said.
She said the Bangladesh Bank directors were of the view that industries did not expand in conformity with the rise in import of capital machinery.
An official of the Department of Foreign Exchange Inspection, requesting anonymity, told that the central bank found during inspection that some firms were repaying debts of local banks with the money they got from foreign banks as loans to import industrial raw materials or capital machinery.
“Some others have imported other goods in the name of importing capital machinery,” he said.
Central bank officials said Bangladeshi entrepreneurs were taking loan from foreign banks utmost at a rate of six percent, while the domestic banks charge 14 to 18 percent interest.
After the government had allowed foreign loans in 2011, private entrepreneurs in Bangladesh took loans of around $4 billion from foreign banks until now.
Besides, the entrepreneurs can take loans temporarily from a third party through ‘buyer’s credit’. The system was approved by the central bank in 2012. Of the total import, 15 percent is paid through this system.
Moreover, the government has withdrawn duty on import of capital machinery. There were instances of importing one material with the import documents of another material to evade duty and to launder money.
However, the central bank does not have the overall authority to stop such anomalies.
When an entrepreneur opens an LC to import capital machinery, the documents are forwarded to the central bank. The Bangladesh Bank also gets the documents once the LC is settled following the import.
Customs is liable to check whether the correct good is imported and the duty is paid. The central bank only gets the papers, increasing the possibility of irregularities.