The central bank has relaxed its regulations, allowing foreign companies to avail short-term working capital loans for six years instead of three years from their parent companies or shareholders abroad.
Under the revised rules, such borrowing will also be admissible for industries engaged in service output activities along with manufacturing enterprises, according to a notification issued by the Bangladesh Bank (BB) on Tuesday.
However, the trading activities will not come under the purview of the relaxations, it added.
"We've doubled the period for such loans aiming to attract more foreign direct investment (FDI) particularly in economic zones across the country," a senior BB official told the FE while explaining the main objective of the notification.
He also said the central bank is updating its regulations continuously to facilitate the overall business activities.
The BB's latest move came against a backdrop of a falling trend in the FDI in recent months mainly due to the ongoing Covid-19 pandemic.
The net inflow of FDI dropped by more than 43 per cent to US$253 million during the July-November period of the current fiscal year (FY) 2020-21 from $445 million in the same period of FY '20, the BB data showed.
Foreign owned/controlled companies may avail such loans from their parent companies/shareholders abroad up to six years from the date of inception of manufacturing and service output activities instead of three years earlier.
The maximum rate of interest has been fixed at 3.00 per cent for the loans, received in convertible foreign currency, to run the businesses smoothly, officials said.
As per another notification, issued by the BB on August 22 in 2019, interest is payable on such loan proceeds in the local currency -Bangladesh Taka (BDT) - at three-month interest rate of term deposits applicable by authorised dealer bank on the date of encashment of credit.
Repayment of the loans is remittable after conversion of the BDT amount of principal and interest, the central bank had said in the notification.
Shah Muhammad Ashequr Rahman, head of finance and commercial at Bangladesh Honda Private Limited (BHL), welcomed the BB's latest move, saying that it will help boosting the inflow of FDI in Bangladesh in near future.
BHL operates in a single industry segment in Bangladesh under a joint venture between Honda Motor Company Limited, Japan and the state-run Bangladesh Steel and Engineering Corporation.
"It will also help meet short-term working capital requirements with low cost of funds of the foreign companies, which are running their businesses in Bangladesh," Mr. Rahman told the FE while explaining the impact of the relaxations.
"The foreign companies will be able to manage their funds easily within a short time."
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