Bangladesh is set to borrow 2.2 billion RMB (Tk 36.96 billion) from the Asian Infrastructure Investment Bank (AIIB) to support the Cottage, Micro, Small, and Medium Enterprises (CMSME) sector, officials said.

The funds, which must be repaid over 20 years, will be used by the Bangladesh Bank to implement the “Sustainable Development for CMSME” project. The government is currently assessing the most cost-effective currency for the loan before submitting a formal request to the AIIB.

The Economic Relations Division (ERD) has emphasized the importance of currency selection due to differences in AIIB’s interest rates. Other factors under review include foreign exchange reserves, exchange-rate volatility, and long-term repayment risks.

A Bangladesh Bank analysis compared borrowing costs in USD, RMB, and Euro over 20 years. The interest rate for RMB stands at 2.78%, significantly lower than USD (6.43%) and Euro (4.06%). The bank suggests borrowing in RMB could be cost-effective, given China’s tendency to keep its currency devalued for export competitiveness.

However, the central bank has cautioned about long-term risks related to economic policies and geopolitical factors. It also noted that diversifying loans across currencies could act as a hedge against fluctuations.

Meanwhile, Finance Adviser Dr. Salehuddin Ahmed has urged the central bank to expedite CMSME loan disbursements amid concerns over limited access to funds. According to the Bangladesh Economic Review 2024, CMSME loans stood at Tk 3.039 trillion as of March 2024, slightly down from Tk 3.042 trillion in December 2023.