Bangladesh Bank eases rules for foreign-owned firms to take foreign loans

According to the new directive, 100% foreign-owned manufacturing and service sector enterprises located outside special economic zones can take loans with a tenure of less than one year from their parent company or foreign shareholders.

For interest-free loans for working capital (excluding input purchases), prior approval from Bangladesh Bank will not be required. Similarly, separate approval is not needed for repaying the principal amount of the loan.

However, for interest-bearing short-term loans, the maximum annual all-in-cost has been set at 3%. While such loans can be renewed, the total tenure cannot exceed three years, and they cannot be converted into medium or long-term loans.

Medium-term loans with a tenure of one to five years can be used for importing capital machinery, availing legitimate services, and infrastructure construction.

For this tenure, the maximum limit for interest-free loans has been set at USD 50 million. On the other hand, the limit for interest-bearing loans is USD 5 million, with a maximum annual interest rate of 3%.

Loans up to USD 5 million can be repaid in a lump sum (bullet payment). If necessary, medium-term loans can later be converted into long-term loans.

Funds from long-term loans with a tenure of more than five years must also be used for capital investment. In this case, interest-free loans have been given priority.

For interest-bearing long-term loans, the maximum annual interest rate has been set at 3%. However, lump-sum repayment is not allowed for this type of loan.

According to Bangladesh Bank's directive—

• The borrower must have a satisfactory record of repaying foreign loans.
• For interest-bearing loans, the debt-equity ratio must be a maximum of 80:20.
• Loan funds must be kept in foreign currency accounts.
• All transactions must be conducted through authorized dealer (AD) banks.
• Loan funds must be used only for the specified purpose.
• Bangladesh Bank must be informed within 14 days of loan disbursement and within 7 days of any contract amendment.
• If necessary, there will be an opportunity to convert outstanding loans into equity.

Bangladesh Bank stated that the main objective of this policy is to ease financing opportunities for foreign investors and increase the attraction of Foreign Direct Investment (FDI) in the country.

According to stakeholders, the new provisions will enable foreign-owned industrial enterprises to quickly secure working capital and investment financing. This could have a positive impact on increasing production, creating employment, and attracting new foreign investment.