Financing crunch hits agri-machinery imports, slowing mechanisation
With more funds tied up in LCs, traders with limited capital say they can no longer import the volumes they need
Highlights:
- Agri-machinery importers face financing pressures from high dollar rates
- Higher LC margins are forcing traders to reduce imports
- Capital machinery LC settlements fell 48% between FY23 and FY26
- Financing constraints could delay Bangladesh's agricultural modernisation efforts
- Economists urge easier financing alongside subsidies for farmers
- Stakeholders seek stronger domestic machinery production to reduce imports
Bangladesh's push to mechanise agriculture is facing a financing bottleneck as importers of farm machinery struggle with the high dollar rate and increased upfront margins on letters of credit (LCs).
With more funds tied up in LCs, traders with limited capital say they can no longer import the volumes they need.
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Bangladesh Bank data shows LC settlements for capital machinery falling from $3.48 billion in FY23 to $1.81 billion in FY26.
The impact of tighter financing is evident in the experience of Mohammad Zahir, owner of Zahir Enterprise, a mid-sized machinery trading firm.
Speaking to The Business Standard, Zahir said importers previously did not have to deposit the full value of goods against an LC, allowing them to import larger volumes with limited working capital.
"Earlier, if we imported goods worth Tk2 crore, we could do it by depositing just 30% or 40%. But now that facility is not available. Our margin requirement has gone up; in many cases we have to deposit the full amount," he said.
Zahir said the higher margins leave more working capital tied up, forcing businesses to scale down imports.
Md Nurul Islam, president of the Bangladesh Agricultural Machinery Merchants Association, said financing pressure has intensified with the appreciation of the dollar.
"On one hand, the dollar rate is high. On the other, new policies on LC margin requirements mean we are not getting adequate bank support, so we're having to import using our own funds," he said.
"I am not getting bank support, so I have to self-finance. Meanwhile, I have to sell my goods on credit," Nurul Islam said.
He said importers often manage several shipments simultaneously, making it difficult to maintain sufficient working capital when funds are tied up across consignments.
"Managing all this has become difficult. We are now having to cut back on our import volumes," he said.
However, Bangladesh Bank spokesperson and Executive Director Arif Hossain Khan said a 100% margin requirement for capital machinery imports does not apply universally. Margin requirements are generally set on a bank and client-specific basis, he said.
LC settlements down 41.95%
Bangladesh Bank data shows LC settlements for capital machinery imports stood at $3.48 billion in FY23, before falling to $2.66 billion in FY24 and $2.02 billion in FY25, a 41.95% decline over two years.
Settlements in FY26 stood at $1.81 billion, down nearly 48% from FY23.
Arif Hossain Khan said import volumes fluctuate with changes in tariffs and demand, making ups and downs in LC openings and settlements natural.
Import crunch may delay modernisation
Expanding machinery use in farming for land preparation, sowing, harvesting and threshing is a key part of agricultural modernisation and can reduce reliance on manual labour.
Agricultural economist Dr Jahangir Alam Khan said if agri-machinery imports decline because of the high dollar rate and LC-related complications, supply-side problems could follow.
"The decline in import volumes because of the high dollar rate and LC complications will, in effect, delay agricultural development through supply shortages," he said.
He said financing for machinery imports needed for agricultural modernisation should be made easier.
"Alongside providing subsidies to farmers, the government needs to focus on ensuring importers can bring in necessary machinery without difficulty," he said.
Long-term focus on local production
Nurul Islam stressed the need to reduce reliance on imported machinery by boosting domestic production.
He said there is scope to manufacture agri-machinery and parts, including power tillers, diesel engines, tractors and equipment used for sowing and harvesting.
However, higher production costs mean local products need policy support to remain competitive.
"If we stop the flow of imports for the goods we can manufacture here, domestic production will grow, and the country's money will remain within the country," he said.
He called for long-term planning and policy coordination to boost domestic agri-machinery manufacturing.
If financing pressure persists, the expansion of machinery supply could slow, affecting the broader push to mechanise agriculture.
Stakeholders say banking and financing facilities for machinery imports need to be eased, while domestic manufacturing capacity should be strengthened over the longer term to reduce import dependence.
