A tool to boost reserves

Offshore banking until recently has not been an issue of importance in Bangladesh. Banks did not pay any notable attention to this particular aspect of their business operations.

But things have radically changed lately. Offshore banking is now getting special attention of the banking sector regulator and also banks. The reason behind this change in approach is the greenback crunch that has created a crippling impact on the economy.

To help banks attract an increase volume of foreign currencies, the government in March this year passed the Offshore Banking Act.

The Act allows non-resident individuals and foreign companies, including the ones operating in the designated economic zones, to open offshore bank accounts. The particular move makes available to foreign entities to invest and park their funds in Bangladesh. Policymakers concerned are hopeful of a positive impact of the move on the country's reserves.

The Act in question also eases the process of remittance and repatriation of funds held in offshore accounts. Moreover, offshore accounts make it easier for the clients concerned to transfer of funds back to their home countries.

The Act offers tax exemptions on interest earned and all other transactions made through offshore accounts. The provision is expected to motivate the foreign investors to come to make investment in offshore accounts in Bangladesh.

While the Offshore Banking Act offers incentives to foreign funds to come to Bangladesh, it does not do so without certain risks, such as money laundering and tax evasion. To mitigate such risks, it is important to put in place stringent regulatory measures. The central bank needs to be watchful to prevent the abuse of the facility and help build trust of the investors.