In a bold move to energise youth entrepreneurship and job creation, the Bangladesh Bank (BB) has issued a master circular raising the maximum loan limit for startup initiatives to Tk 80 million, up from Tk 10 million previously.
The central bank's updated policy allows all scheduled banks and financial institutions to provide loans to startup entrepreneurs using BB's Tk 5.0b refinancing fund, at an interest rate capped at 4.0 per cent, according to the circular issued on Wednesday.
Additionally, banks are now authorised to invest the entirety of their 'Startup Fund' allocations as equity in a proposed venture capital company, which the central bank will initiate to facilitate equity financing for startups.
This new company will be jointly owned by the participating banks, officials said.
As per the circular, entrepreneurs must be at least 21 years old to qualify for financing, but there is no upper age limit. Existing businesses may also be eligible as startups if they have been officially registered for no more than 12 years.
With immediate effect, banks are no longer permitted to disburse new loans or investments from their own 'Startup Fund' to startups, though any already-sanctioned disbursements under previous arrangements may still proceed.
Furthermore, banks and financial institutions are exempted from following the Internal Credit Risk Rating System (ICRRS) guidelines until 30 June 2030 when assessing startup loans and investments, allowing greater flexibility based on the venture's potential, risks, and capabilities.
The circular also revises the required general provision against unclassified loans or investments to startups from 1.0 per cent down to 0.50 per cent, easing capital requirements for lenders.
"We've taken this latest initiative to support startups as vital drivers of growth, job creation, and innovation, in alignment with the Sustainable Development Goals (SDGs)," said Nawshad Mustafa, Director of the SME & Special Programme Department of the Bangladesh Bank, told The Financial Express.
UNB adds: 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.
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