The Bangladesh Bank on Wednesday issued a new master circular on startup financing, allowing banks to support startups through equity investments only from their own startup funds.
To facilitate this, the central bank will establish a venture capital company funded by one per cent of the annual net profits of scheduled banks.
Under the new framework, a startup, registered in Bangladesh and not older than 12 years, must meet specific innovation criteria to qualify for financing.
These include introducing new products, services, or processes using technology or intellectual property to meet domestic or global demand, demonstrating rapid scalability, and having the capacity to reshape or significantly improve existing markets through disruptive innovation.
Startups must also be capable of integrating stakeholder feedback to guide future development.
Entrepreneurs must be at least 21-year old and free from any loan default records.
Startups backed or recognised by accredited public or private startup hunting programmes will receive priority consideration. However, ventures initiated by large industrial groups will not be eligible under this scheme.
One of the most significant policy changes is the substantial increase in the loan ceiling for startups.
The maximum loan amount has been raised from Tk聽1 crore to Tk聽8 crore, with eligibility and disbursement tied to the venture鈥檚 operational maturity.
The revised limit is expected to make a meaningful impact on the capital needs of early-stage and growth-stage startups.
The central bank鈥檚 updated policy introduces both loan/investment and equity financing options, whereas, previously banks could only offer loans from their designated startup funds.
Now, banks and financial institutions can provide equity investments directly or through a newly proposed venture capital company that Bangladesh Bank plans to establish.
Each scheduled bank is required to invest its existing startup fund entirely as equity in this forthcoming venture capital firm. These investments will be reflected as equity holdings in their financial statements. The central bank will issue separate circulars detailing the structure, formation, and operations of the new venture capital entity.
Additionally, banks and non-bank financial institutions will be able to access refinancing facilities from a Tk聽500 crore refinance window set up by Bangladesh Bank, which will be used to support loans or investments made to startups from their own funds.
To make startup loans more affordable, the interest or profit rate for both term loans and working capital support has been capped at a maximum of 4 per cent, calculated on a quarterly compounding basis.
In a move to ease regulatory burden and encourage lending to this high-risk, high-reward sector, the central bank has exempted banks and financial institutions from following the Internal Credit Risk Rating System (ICRRS) when assessing loans to startups.
This exemption will remain in place until June 30, 2030.聽 In addition, institutions will be required to maintain a general provision of 0.50 per cent on unclassified loans disbursed to startups from their own lending portfolios.
