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The Bangladesh Bank on Wednesday introduced a new master circular revising policies to streamline and accelerate financing for the burgeoning startup sector.
Recognising startups as crucial drivers of growth, job creation, and innovation, the central bank’s updated policy seeks to foster an innovative business environment and create new employment opportunities, aligning with sustainable development goals.
A major change has been made to increase the loan limit for startups from Tk 2 crore to Tk 8 crore, categorized by the startup’s operational stage. The loan was Tk 1 crore earlier.
Bangladesh Bank anticipates that these revisions will simplify access to financing for this high-potential sector and play a crucial role in its effective development.
The new master circular, developed through consultations with various stakeholders, introduces significant revisions to existing startup financing policies.
Key changes are:
Inclusive Definition of Startups: A more inclusive and comprehensive definition for startup ventures has been established.
Entrepreneur Eligibility: Entrepreneurs must be at least 21 years old to qualify for financing, with no upper age limit. Existing businesses operating as startups are eligible if they have been registered for no more than 12 years.
Expanded Financing Options: Previously, scheduled banks could only offer loan/investment facilities from their startup funds. The new circular allows for both loan/investment and equity financing for startups.
Dedicated Equity Investment: Each scheduled bank’s ‘Startup Fund’ will now exclusively provide equity investment facilities to startups.
New Venture Capital Company: Bangladesh Bank will initiate the formation of a venture capital company to facilitate equity investment in startup firms. Scheduled banks will invest all funds from their startup funds as equity in this new company, which will be reflected as equity investments in their financial statements. Detailed instructions on the formation and operation of this company will be provided in separate circulars or guidelines.
Bank and Financial Company Funding: Banks and financial companies will utilize their own loan/investment funds to provide loans and investments to startup entrepreneurs.
Refinancing Facility: Banks and financial companies can access refinancing facilities from a Tk 500 crore ‘Startup Fund’ established by Bangladesh Bank against disbursed loans/investments to startup entrepreneurs.
Transition Period: Following the issuance of this circular, no new loans or investments can be disbursed from a bank’s own ‘Startup Fund’ to startup entrepreneurs, although already sanctioned loans/investments can still be disbursed.
Increased Loan Limits: The loan limit for startups has been significantly increased from Tk 2 crore to Tk 8 crore, categorized by the startup’s operational stage. The loan was Tk 1 core in previous.
Reduced Interest Rates: The interest/profit rate for term and working capital loans/investments at the customer level will be a maximum of 4%, applied on a quarterly compounding basis.
Exemption from ICRRS: Banks and financial companies are exempted from the Internal Credit Risk Rating System (ICRRS) guidelines until June 30, 2030, when providing loans/investments to startups, considering their potential, risks, and capabilities.
General Provision: Banks and financial companies will maintain a 0.50% general provision against unclassified loans/investments disbursed to startup entrepreneurs from their own loan/investment funds.