Bangladesh Bank has eased the rules for foreign borrowing for wholly foreign-owned industrial and service sector companies.
As a result of this new decision, these companies will be able to borrow foreign loans from their parent companies, affiliates and shareholders on easier terms.
The Bangladesh Bank issued a notification in this regard on Wednesday.
Those concerned say that as a result of this new initiative, foreign-owned companies will get the opportunity to borrow foreign financing at a comparatively lower cost.
At the same time, it will also play a positive role in attracting foreign direct investment (FDI) to Bangladesh.
The notification said that wholly foreign-owned companies operating in various specialized zones including export processing zones (EPZs), economic zones (EZs), and high-tech parks will get this facility.
In addition, 100% foreign-owned industrial companies in the manufacturing and service sectors outside these zones will also be able to borrow foreign loans under the new policy.
According to the new guidelines of Bangladesh Bank, for loans with a term of less than one year, institutions outside the specialized zones will be able to take interest-free foreign loans for working capital without prior approval from Bangladesh Bank.
In addition, there will be an opportunity to take interest-bearing loans at a maximum of 3% all-in-cost rate per annum for business needs, including procurement of raw materials.
These loans will have to be repaid in one lump sum at the end of the specified term. However, if necessary, the loan term can be renewed (rollover) for a maximum of three years.
For loans with a term of one to five years, a maximum interest-free loan of $50 million can be taken for capital expenditure—such as machinery, equipment and construction work.
In addition, an opportunity has been provided to take an interest-bearing loan of up to $5 million.
On the other hand, long-term foreign loans with a term of more than five years can also be taken.
In this case, if interest is applicable on the loan, the maximum annual interest rate will be limited to 3%.
The new policy also provides for the conversion of outstanding foreign debt into equity (capital).
This will allow foreign investors to further strengthen the capital structure of the organization by converting debt into share capital, if necessary.
According to those concerned, as this process of foreign financing becomes easier, the financing costs of foreign-owned industrial enterprises will decrease, new investments will increase, and the flow of foreign investment in the country's industrial and service sectors will become more dynamic.