Published: 11:45 PM, 10 September 2026
New External Borrowing Policy to Enhance Investment Climate in Bangladesh
In a major policy shift aimed at improving access to foreign financing and strengthening the investment climate, Bangladesh Bank has introduced a comprehensive framework allowing fully foreign-owned industrial enterprises to borrow from their parent companies, associates, and shareholders abroad. The circular extends across enterprises operating both within and outside specialized zones, signaling a more liberal and facilitative approach to cross-border financing while maintaining necessary regulatory safeguards.
The move builds on earlier provisions under FE Circular No. 34 dated September 2, 2025, but goes significantly further by granting general permission for such borrowings under clearly defined conditions. This eliminates the need for prior approvals in many cases, reducing administrative bottlenecks and enabling faster financial decision-making for foreign investors. The policy reflects Bangladesh Bank’s broader objective of making the country a more attractive destination for foreign direct investment while supporting industrial expansion and economic diversification.
A key feature of the framework is the liberalization of short-term borrowing, defined as loans with a tenor of less than one year. Fully foreign-owned industrial enterprises operating outside specialized zones are now permitted to access such financing from their parent companies, associates, or shareholders abroad for bona fide business purposes. These include manufacturing and service-related activities, although trading businesses remain excluded, consistent with the central bank’s emphasis on productive sectors.
The circular introduces flexibility by offering two types of short-term borrowing arrangements. Enterprises may access cost-free loans, meaning interest-free financing, for general working capital requirements, excluding input procurement. Notably, these loans do not require prior approval from Bangladesh Bank, and even repayment of the principal can be made without such approval. This provision is expected to significantly ease liquidity management for companies facing short-term operational funding needs.
Alternatively, enterprises may opt for cost-bearing loans in freely convertible foreign currencies. These loans come with a cap on the all-in-cost at 3 percent per annum, ensuring that borrowing costs remain manageable. Repayment is to be made on a bullet basis at maturity, meaning the entire principal and accrued cost are paid in a single installment. While such loans may be rolled over, the total duration, including any extensions, must not exceed three years from the initial disbursement. Importantly, these short-term borrowings cannot be converted into medium- or long-term loans, thereby preserving clarity in financial structuring.
The scope of these facilities has also been extended to foreign-controlled industrial enterprises, not just wholly owned subsidiaries, thereby widening the range of eligible entities. For companies operating within specialized zones such as Export Processing Zones, Economic Zones, and High-Tech Parks, the existing provisions allowing access to short-term foreign currency loans remain applicable, ensuring continuity and stability in policy.
The framework also addresses medium-term borrowing, defined as loans with a tenor between one and five years, primarily aimed at supporting capital expenditures. These include investments in machinery, capital goods, legitimate services, and civil construction. For cost-free borrowings, enterprises may access up to USD 50 million or its equivalent in other convertible currencies, a substantial limit that reflects the central bank’s intention to encourage large-scale industrial investments.
For cost-bearing medium-term loans, the ceiling is set at USD 5 million, with the same maximum interest rate of 3 percent per annum. Bullet repayment is allowed for loans up to this amount, providing flexibility for businesses during the investment phase when cash flows may be uneven. A particularly notable provision is the ability to convert medium-term loans into long-term borrowings at any time, subject to appropriate contractual adjustments. This offers companies the flexibility to realign their financial strategies in response to evolving business conditions.
Long-term borrowing, defined as loans with a tenor exceeding five years, is also permitted under the framework, with a strong emphasis on supporting capital-intensive projects. Enterprises are encouraged to utilize these funds for infrastructure development, machinery procurement, and other long-term investments. While cost-free borrowing is preferred, cost-bearing loans are allowed provided the interest rate does not exceed 3 percent per annum. Unlike short- and medium-term facilities, bullet repayment is not permitted for long-term loans, promoting more structured repayment schedules aligned with project cash flows.
To ensure financial discipline, Bangladesh Bank has incorporated several safeguards within the framework. Borrowing enterprises must maintain a satisfactory track record, with no history of default in servicing external obligations. This requirement is intended to ensure that only financially sound companies benefit from the liberalized borrowing regime. In addition, a debt-equity ratio of 80:20 is imposed on cost-bearing external borrowings, ensuring a balanced capital structure and limiting excessive reliance on debt. However, this ratio does not apply to cost-free loans, which further incentivizes interest-free financing arrangements.
The circular also places strong emphasis on reporting and compliance. Authorized Dealers are required to report short-term borrowing transactions to Bangladesh Bank within one week of execution, while details of medium- and long-term loan disbursements must be submitted within 14 days. Any amendments to borrowing agreements must also be reported promptly, ensuring that the central bank remains fully informed of changes in financial arrangements.
In addition to reporting requirements, strict compliance with anti-money laundering and counter-terrorism financing standards is mandatory. Enterprises and Authorized Dealers must also adhere to tax regulations and foreign exchange rules, as well as reporting requirements to the Statistics Department. These measures are designed to maintain transparency, prevent financial misconduct, and ensure that the liberalized borrowing framework does not compromise the integrity of the financial system. An important and forward-looking provision within the framework is the option to convert outstanding borrowings into equity. This allows enterprises to strengthen their balance sheets by reducing debt obligations and increasing equity participation from foreign investors. Such flexibility can be particularly valuable in times of financial stress or when companies seek to restructure their capital base for long-term sustainability.
Overall, the introduction of this framework represents a significant step forward in Bangladesh’s efforts to create a more investor-friendly financial environment. By simplifying access to external borrowing and reducing reliance on prior approvals, Bangladesh Bank has addressed a key concern for foreign investors. At the same time, the inclusion of clear guidelines and safeguards ensures that financial stability and regulatory compliance are not compromised.
The policy is expected to enhance the competitiveness of Bangladesh’s industrial sector by enabling companies to access cost-effective financing from their global networks. This, in turn, will support investment in technology, infrastructure, and production capacity, contributing to economic growth and job creation. As Bangladesh continues to position itself as a regional manufacturing hub, such reforms will play a crucial role in attracting and retaining foreign investment while fostering sustainable industrial development.
Mehdi Rahman writes on foreign trade
and monetary policies.
