Special Correspondent — In a major move to foster a more flexible financing environment and attract foreign capital, Bangladesh Bank has significantly relaxed foreign borrowing regulations for 100 percent foreign-owned industrial enterprises operating within the country.
Under the updated policy guidelines, eligible industrial units located both within specialized economic zones and outside them can now secure short-, medium-, and long-term loans from their overseas parent companies, associated firms, or shareholders under revised terms.
Central bank officials expect the policy adjustment to provide greater financial agility for foreign investors while streamlining capital inflow into the nation’s industrial sector.
Flexible Short-Term and Working Capital Financing
According to the central bank circular issued on Wednesday, the relaxed rules apply to fully foreign-owned companies across Export Processing Zones (EPZs), Private EPZs (PEPZs), Economic Zones, Hi-Tech Parks, and non-zone industrial sectors.
Manufacturing and service sector entities located outside specialized zones can now access short-term loans from their parent entities, affiliates, or shareholders to cover business and working capital needs.
Notably, interest-free loans designated for working capital will no longer require prior approval from Bangladesh Bank.
For interest-bearing short-term loans, the central bank has capped the annual all-in-cost rate at a maximum of 3 percent.
These short-term debts must be cleared via bullet repayment (a single lump-sum payment of principal and interest) and can be rolled over for up to three years.
However, converting short-term loans into medium- or long-term debt remains prohibited. Authorized Dealer (AD) banks are mandated to report all such transactions to Bangladesh Bank within one week of execution.
Framework for Medium and Long-Term Loans
The new policy also establishes clear parameters for medium-term foreign loans (spanning one to five years), allowing these funds to be utilized for capital machinery, industrial equipment, legitimate service imports, and infrastructure development.
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Interest-Free Limit: Capped at up to $50 million.
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Interest-Bearing Limit: Capped at up to $5 million, with the total borrowing cost constrained to a maximum of 3 percent annually.
Provided specific criteria are met, medium-term loans may be converted into long-term financing obligations.
Risk Management and Compliance Standards
To safeguard against systemic risks, Bangladesh Bank has embedded key regulatory oversight provisions into the new framework.
For interest-bearing foreign loans, borrowing entities must maintain a strict maximum debt-to-equity ratio of 80:20.
Furthermore, applicants must demonstrate a clean, satisfactory track record in settling prior foreign debt obligations to qualify for the relaxed borrowing terms.