The Bangladesh Bank (BB) has launched a Tk 20 billion pre-finance scheme to develop the country's leather and leather goods industry. Created from the central bank's own resources, the fund will remain in operation for three years on a revolving basis. Banks will receive BB funds at 4.0 per cent interest and lend those to eligible enterprises at a maximum rate of 7.0 per cent. It may finance new or expanded tanneries and leather goods factories, machinery, cold storage for hides and Effluent Treatment Plants (ETPs), Sewage Treatment Plants (STPs), dumping yards and solid-waste management systems. Loans will also cover modernisation and the cost of obtaining Leather Working Group (LWG) certification. It also promises employment. With costly bank credit stifling investment, the initiative is no doubt a welcome one. But will the availability of cheaper money by itself turn this old yet underperforming industry into a vibrant export sector?
Leather is not a new entrant to the country's industry. The first tannery emerged in Narayanganj in the 1940s before Hazaribagh became the tanning centre for half a century. Bangladesh also has a natural advantage many competitors lack: a large domestic supply of bovine as well as goat and sheep hides from its livestock sector. A recent policy study says the country produces more than 180 million square feet of raw hides and skins annually. Much is collected during Eid-ul-Azha. Yet bumper supply has often proved anything but a blessing for seasonal traders and small collectors. Inadequate preservation, scarcity of salt, unscientific flaying, rough transportation and manipulation by middlemen cause hides to lose value or rot. As the proverbial cup and lip may have many a slip, so does the journey from the slaughtering point to the tannery. The first task, therefore, is to preserve the quality and value of this locally available raw material.
Despite the advantages, leather has failed to grow like the Readymade Garment (RMG) industry. It earns around US$1.0 billion annually, a small fraction of merchandise exports, while garments continue to account for more than four-fifths of the export basket. Global demand for footwear, bags, belts, wallets and other leather goods is not lacking. On the contrary, Bangladesh has remained stuck in the lower rungs of the value chain, selling raw, wet-blue or crust leather at low prices while countries with better finishing, design and compliance facilities convert similar material into expensive branded products. The country produces the raw material, but others pocket the larger share of its value. The apparel industry received decades of policy continuity, bonded-warehouse facilities, export incentives, skilled workers and close links with international buyers. Leather has for years on end been promised roadmaps, targets and industrial estates, but their implementation has repeatedly fallen short.
The most glaring example is the Savar Tannery Industrial Estate. Relocating tanneries from Hazaribagh was to end Buriganga pollution and make the industry environmentally compliant. But Savar's Central Effluent Treatment Plant (CETP) and waste-disposal facilities have never met the required standard. Pollution was shifted from one river to another and most local tanneries remained unable to obtain Leather Working Group (LWG) certification, the passport to premium international markets. Without it, buyers either avoid Bangladeshi leather or offer lower prices. The fund rightly makes ETPs, clean technology, solid-waste management and certification eligible for finance. It also requires leather processors to secure LWG certification and meet at least 10 per cent of their electricity demand from solar power within two years. However, how can an individual small or medium unit meet global standards on its own premises when the common CETP and the estate's central infrastructure remain deficient? Private borrowing cannot repair a public failure.
But will the intended small and medium enterprises (SMEs) actually access the fund? All scheduled banks may participate, but they traditionally prefer established borrowers with collateral, audited accounts and environmental clearances. Many small leather goods makers, component producers, hide collectors and ancillary businesses operate informally and possess few of those credentials. The scheme's loan ceilings-up to Tk 30 crore for a new leather-processing facility, Tk 20 crore for a new leather-goods factory and Tk 10 crore for modernising an existing unit-are generous. Even so, unless the application process is simple and transparent, larger and better-connected businesses may make the smaller ones hard to access the fund while the truly credit-starved enterprises remain outside. In this connection, the BB should publish disbursement data by enterprise size, location, gender of ownership and purpose of loan. Participating banks should also be evaluated not merely by how much money they disburse, but by how many viable SMEs they help become compliant exporters.
The credit should support an integrated plan for the entire value chain. Cold storage and collection centres are needed in rawhide-producing districts. A scientific grading system and transparent auction mechanism would protect small traders and tanners from artificial price manipulation. Workers require training in flaying, preservation, tanning, cutting, finishing and modern product design. Domestic production of chemicals, moulds, accessories and packaging materials must be encouraged to reduce lead time and import costs. Universities and technical institutes should work with the industry on leather engineering, cleaner production and fashion development. Occupational health, fair wages and safe working conditions cannot be sacrificed in the name of competitiveness. Most importantly, the government has to make the Savar CETP fully functional and create common testing, certification and design facilities that SMEs cannot afford individually. Export promotion missions should then connect compliant manufacturers with established brands and buyers in Europe, North America and East Asia.
So, how far can this Tk 20 billion scheme take the leather industry? It can remove a major barrier-expensive and inadequate finance-and encourage investment in technology, preservation and environmental facilities. Its focus on domestic hides may also help seasonal traders receive better prices and reduce waste. But cheap credit is a means, not an industrial strategy. If the common infrastructure remains faulty, certification elusive, skills outdated and market links weak, concessional loans may add fresh liabilities to the balance sheets of struggling enterprises. The fund should, therefore, be implemented as part of a time-bound leather-sector action plan with measurable targets for LWG certification, value addition, SME participation, employment and export growth. That is the challenge before policymakers. Tk The Tk20-billion pre-finance scheme of the Bangladesh Bank will help the leather sector only if cheap credit goes hand in hand with environmental compliance, modern technology and the conversion of locally available hides into high-value products.
