Authored by Mosaddika Akter, Junior Associate at Mahbub & Company.
The global trend of start-up financing primarily leans towards equity financing alongside the loan or investment-based method provided by banks or financial institutions to start-up enterprises. In Bangladesh, amongst the key impediments experienced by start-ups, one of the major concerns is limited access to finance, such as want of venture capital, insufficient angel investors and scanty equity financing sources etc. Moreover, Bangladesh has not adopted any legal framework or single policy exhaustively covering various aspects of start-ups and start-up financing. Because of the absence of any solidified legal framework, it often gets difficult for both the entrepreneurs and the investors to navigate financing methods and process.
Background:
While alternative investment funds, such as impact fund, venture fund, private equity fund etc. are regulated by the Bangladesh Securities and Exchange Commission (Alternative Investment) Rules, 2015, there still exists a vacuum in regulating private investments in start-ups. However, with regard to governmental endeavors pertaining to start-up funds, in March 2021, the Central Bank of Bangladesh vide a circular by the SME and Special Programs Department established two start-up funds namely (i) Bangladesh Bank Refinancing Fund and (ii) Schedules Banks’ Own Start-up Funds. Since then, Bangladesh Bank maintains a refinancing fund equivalent of five hundred crore taka from its own source which is accessible by all schedule banks and financial institutions to avail refinance facilities against the loan or investments extended to start-up ventures from this fund. Other scheduled banks are also required to maintain a start-up fund by transmitting 1% of their annual net profit as per the audited financial report.
Current Framework:
Bangladesh Bank has lately introduced a Master Circular on start-up financing in July 2025 replacing the March 2021 circular, in order to distinctively prescribe the applicable policies for financing start-up enterprises equity investment facilities in addition to loan or investment methods.
The Master Circular has reinforced the Bangladesh Bank refinancing fund and schedules banks’ own start-up funds as constituted vide the March 2021 circular. The newer circular has extended the scope of start-up financing from issuing loans or investment to equity financing facilities. By establishing equity financing model for scheduled banks, the circular brings modernization of start-up financing.
As per the circular, Bangladesh Bank will constitute a venture capital company in order to facilitate the equity financing. Notably, the amount deposited in their start-up funds by scheduled banks will be invested in the venture capital company, which will be shown as the equity investment by the banks in their respective annual financial statements. Moreover, unlike the replaced circular, the Master Circular distinctly defines start-ups and specifies the characteristics of start-ups in order to itemize the eligibility criteria for accessing the start-up funds.
Definition of Start-ups:
The Master Circular has concocted a condensed definition of a start-up bringing together all ingredients that are required for consisting a start-up. The term “start-up”, as per the circular, refers to a technology-driven business or industrial enterprise, or a joint venture established or operated by domestic or foreign entities and which is founded by one or more entrepreneurs. A start-up must possess significant growth potential, which is scalable, and actively contributes to the production of innovative products or the provision of innovative services. Furthermore, an enterprise engaged in the innovation of new products, services, processes, or technologies, or the advancement of existing products, services, processes, or technologies, will also be considered a start-up. However, an enterprise formed through the restructuring or division of an existing business shall not be deemed a start-up.
Characteristics of Start-ups:
Four characteristics of a start-up have been pointed out which are as follows: (a) contributing to meet domestic and international demand through the innovation and commercialization of new products, services, or processes by integrating technology or utilizing intellectual property; (b) scalability and high potentiality; (c) replacing or bringing about significant improvements to existing or conventional markets through disruptive innovation; (d) having ability to collect and incorporate feedback from various stakeholders of the business initiative for future development purposes.
Pre-requisites for Accessing Funds:
Seven pre-requisites have been laid down which will have to be met in order to avail financing from the aforesaid two funds. The start-up enterprise must be registered in Bangladesh and comply with the conditions stipulated in the definition and characteristics of start-ups as discussed above. The enterprise cannot be operational for more than 12 years after obtaining the registration in order to access the funds. Any venture launched by a large group of industries cannot be eligible to be issued any investment from the funds.
The circular has also introduced the minimum age requirement of the entrepreneur/s which has been set at 21 years. If the entrepreneur or in case of multiple entrepreneurs, if any entrepreneur is found to be a loan defaulter, the start-up will not be issued with any finance. Most interestingly, entrepreneurs associated with start-up ventures that have been nominated or awarded through Start-up Hunting programs organized by government or private institutions, universities, or national or international organizations operating in Bangladesh will be given priority in loan sanctioning.
Modes of Financing:
The circular arranges two modes of financing which are equity financing and loan or investment. Scheduled banks are only allowed to extend equity finacing only, from their own start-up funds. Banks are strictly restricted from issuing loans or investments from their start-up funds. However, the scheduled banks and financial institutions will still be allowed to grant loans or investments at the maximum interest rate of 4% for start-up entrepreneurs only if they issue such loans or investments from their own lendable or investable funds that are separate from the start-up funds. Such loans or investments will be issued following the respective loan policies of such banks and financial institutions. It is to be noted that in cases where entrepreneurs share their start-up ideas in order to be granted loan amounts, such institutions must be committed to not disclosing the idea under any circumstances whatsoever.
Applicable Limits of Funds:
Within two years of registering an enterprise, maximum amount of BDT 2 crores may be sanctioned as loan or investment. However, the amount extends to BDT 5 crores if the loan is sought within two-six years of registration. Most excitingly, the amount grows into BDT 8 crores if the loan is sanctioned between six-tweve years of registration.
Similarly, in case of equity investment, a maximum amount of 2 crore may be invested at the seed stage, whereas at the growth stage and high growth and scalable stage the amount reaches to BDT 5 Crore and 8 Crore respectively.
Bangladesh Bank Refinancing Fund:
While banks and other financial institutions are restricted to extend loans or investments to start-up entrepreneurs from their own lendable or investable funds only, they are eligible to receive refinancing facilities from the Start-up Fund of BDT 5 billion established by Bangladesh Bank. Banks and financial institutions that intend to avail themselves of refinancing must execute a Participation Agreement with the SME and Special Programs Department, Head Office, Bangladesh Bank, Dhaka. Upon executing the agreement, the participating institutions will be deemed as ‘Participatory Financial Institution’. It has been made mandatory that a minimum of 10% of the loans or investments extended by each bank or financial institution under this fund must be allocated to women entrepreneurs.
It is pertinent to mention that Women Enterprise and Women Entrepreneur have been defined in SMESPD Circular No. 1 dated 17.03.2025. The circular states that a women enterprise is one where (i) in a sole proprietorship, a woman is the owner; (ii) in a partnership or private limited company, women hold at least 51% ownership; (iii) in a partnership or private limited company, women hold at least 20% ownership and a woman serves as Managing Director, Executive Director, Chief Executive Officer, Chairman of Board of Directors, or equivalent; or (4) in a partnership or private limited company, women hold at least 20% ownership and at least 51% of permanent employees are women. Female proprietor or female shareholders of a women enterprise is a woman entrepreneur.
Bangladesh Bank has been exempted from complying with the Internal Credit Rating System (ICSRRS) directives for the purpose of extending loans or investments to start-up enterprises up to 30 June 2030.
Conclusion:
This governmental financing model to start up entrepreneurs is not a novel introduction in Bangladesh. In 2020, the government formed the Startup Bangladesh Limited. The Bangladesh Bank refinancing fund and banks’ own start-up funds have been continuing since 2021. Despite these initiatives, the startup ecosystem still struggles at accessing finance. Therefore, while this is highly appreciable that the government has shown their goodwill to improve the start-up financing scenario, the skepticism will persist about the feasibility and sustainability of a government-governed start-up financing mechanism.
