Govt to ease loan rules to help foreign firms expand in Bangladesh

The government has decided to relax the debt-to-equity ratio requirement for foreign and multinational companies operating in Bangladesh, allowing them easier access to local currency loans from domestic banks for business expansion and BMRE (balancing, modernisation, rehabilitation, and expansion) activities.

Under the revised policy, foreign companies will now be eligible to borrow in taka at the same ratio as domestic private firms, removing the previous restriction that capped their loans at 50% of their equity.

A Bangladesh Bank official told TBS that currently, there is no formal debt-to-equity cap for local companies. However, banks typically limit loans to around 80% of a company's equity, depending on the borrower's profile and project viability.

The official said with the new move, foreign and multinational companies will now be eligible to access loans from local banks under the same terms as their domestic counterparts.

The proposal to ease the debt-to-equity ratio requirement for foreign companies operating in Bangladesh was approved on 21 May at a meeting of the Scrutiny Committee on Foreign Loan/Supplier's Credit, chaired by Bangladesh Bank Governor Ahsan H Mansur.

At the meeting, the committee's member and Executive Chairman of the Bangladesh Investment Development Authority (Bida), Ashik Chowdhury, recommended relaxing the debt-to-equity ratio for foreign firms to bring it in line with what is offered to domestic companies.

T I M Nurul Kabir, executive director of the Foreign Investors' Chamber of Commerce & Industry (FICCI), told TBS that multinational companies have long raised concerns over the unequal treatment they face in accessing local bank loans.

He said relaxing the debt-to-equity ratio requirement for foreign and multinational firms would ease their business expansion and BMRE activities, and help attract more foreign investment to Bangladesh.

"This move will level the playing field and support the growth of multinational companies operating here," he added.

The debt-to-equity ratio compares a company's total borrowed funds with its shareholders' equity, indicating how much of the business is financed through debt versus owners' capital.

Under the existing 2018 Guidelines for Foreign Exchange Transactions, foreign-owned or controlled companies in the manufacturing and service sectors are allowed to borrow from local banks in taka for business expansion or BMRE, but only after operating for three years. Even then, the loan amount is capped at 50% of the company's equity.

A senior Bangladesh Bank official told TBS that Bida argued for amending this guideline based on the Foreign Private Investment (Promotion and Protection) Act, 1980, which guarantees fair and equitable treatment for both local and foreign private investments.

As per the committee's decision, Bida will now formally write to the central bank's Foreign Exchange Policy Department, requesting the guideline be revised. Once approved, the Bangladesh Bank will amend the existing foreign exchange rules, allowing foreign firms to access local currency loans under the same terms and conditions as domestic companies.

Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), welcomed the initiative, noting that foreign and multinational companies tend to have stronger compliance practices and lower default rates than many domestic firms.

"Removing such discriminatory barriers is a step in the right direction," she said.

She further noted that once Bangladesh graduates from Least Developed Country (LDC) status, there will be no scope to maintain discriminatory policies between local and foreign firms.

"Under the WTO's national treatment clause, member states are obligated to offer equal treatment to both domestic and foreign companies," she pointed out.