How to Obtain a Foreign Loan in Bangladesh

 

Securing foreign loans is a crucial financing option for businesses looking to expand, invest in new projects, or enhance their production capacity in Bangladesh. However, obtaining foreign financing involves strict regulatory compliance and approval from the Bangladesh Investment Development Authority (BIDA) and Bangladesh Bank (BB). The process requires careful documentation, financial assessments, and adherence to government policies to ensure the stability of the country’s financial system.

At LegalSeba LLP, we specialize in providing comprehensive legal assistance for businesses and investors seeking foreign currency loans, including commercial loans, buyer’s credit, and supplier’s credit. Our expert legal team navigates the complexities of BIDA approvals, compliance requirements, loan structuring, and financial due diligence, ensuring a smooth and legally sound loan acquisition process.

In this guide, we outline the eligibility criteria, required documentation, approval process, and regulatory framework for securing a foreign loan in Bangladesh. Whether you are a local company, a foreign investor, or an enterprise operating in an Export Processing Zone (EPZ), our experienced lawyers can assist you in obtaining foreign financing in compliance with Bangladesh’s legal and financial regulations.

Foreign companies or investors seeking to obtain loans in foreign currency for business operations in Bangladesh must obtain prior approval from the Bangladesh Investment Development Authority (BIDA). This applies to various types of foreign borrowings, including commercial loans, buyer’s credit, and supplier’s credit, particularly for the import of capital goods for new projects, expansion, or replacement of existing production facilities.

However, foreign loans for working capital purposes are strictly prohibited and will not be approved. The Scrutiny Committee on Foreign Loan/Supplier’s Credit, chaired by the Governor of Bangladesh Bank (BB), is responsible for reviewing and approving applications for foreign loans.

Application Process for Foreign Loan Approval

To obtain approval from BIDA, companies must submit a formal application in the prescribed format, along with the following supporting documents:

 

 

  1. Company Incorporation and Registration Documents:

  • Certificate of Incorporation and Certificate of Commencement issued by the Registrar of Joint Stock Companies & Firms (RJSC).
  • A certified copy of the company’s Memorandum and Articles of Association.
  • A copy of the BIDA Registration Certificate confirming the company’s registration as an investor.

  1. Loan Agreement & Financial Details:

  • Term-Sheet, Memorandum of Understanding (MoU), or Loan Agreement between the lender and borrower, specifying repayment period, repayment schedule, grace period, and the effective interest rate calculation.
  • A Board Resolution from the borrowing company approving the proposed foreign loan.

  1. Investment Feasibility & Financial Assessment:

  • Feasibility Study Report of the investment project.
  • Comprehensive Financial Analysis, covering:
  • Internal Rate of Return (IRR)
  • Break-even Point Analysis
  • Debt-Equity Ratio
  • Debt-Service Coverage Ratio (DSCR) for both base and sensitive financial scenarios.

  1. Sponsor and Borrower Credentials:

  • Duly filled Equity Forms and an undertaking from the sponsors/directors for obtaining a Credit Information Bureau (CIB) report.
  • A Bank Certificate confirming the indebtedness or creditworthiness of the borrower and its sponsors, based on the latest CIB report.
  • Credentials of the sponsors, including financial strength, investment experience, and track record of handling foreign borrowings.

  1. Capital Machinery & Loan Utilization Documentation (For Supplier’s Credit Only):

  • A Certificate from BRTC or BUET validating the quality, price, and economic life of capital machinery to be imported.
  • Encashment Certificate, C-Form, and Bangladesh Bank Report, obtained from the authorized dealer bank.
  • Proof of Loan Utilization, supported by banking documents.
  • Equity Encashment Certificate, confirming the proper conversion and use of foreign equity in the project.

  1. Additional Documents for the Power Sector:

Companies operating in the power sector must submit additional documents, including:

  • Letter of Intent from relevant authorities.
  • Implementation Agreement outlining project execution plans.
  • Power Purchase Agreement (PPA) detailing the terms and conditions of electricity sales.

 

Application Submission & Review Process

  • The foreign loan application process is fully digitized and must be submitted through BIDA’s Online One-Stop Service (OSS) Platform at https://bidaquickserv.org/.
  • The application is evaluated based on:
  • Commercial viability of the project
  • Indebtedness and creditworthiness of the borrower
  • Repayment capacity and debt-equity ratio
  • Quality, price, and economic lifespan of the imported capital machinery/equipment
  • Priority is given to medium to long-term borrowing, rather than short-term financing.
  • Once BIDA completes its assessment, the Scrutiny Committee on Foreign Loan/Supplier’s Credit, chaired by the Governor of Bangladesh Bank, makes the final decision on loan approval.

 

Access to Short-Term Foreign Loans for Investors in Bangladesh

Foreign investors and businesses operating in Bangladesh can access short-term foreign loans under specific regulatory conditions set by Bangladesh Bank. These loans are particularly beneficial for companies needing immediate financial support for working capital or operational expenses. The regulatory framework has undergone revisions to accommodate foreign-owned manufacturing and service enterprises while ensuring financial stability and compliance with the country’s foreign exchange regulations.

 

Eligibility for Short-Term Foreign Loans

Previously, interest-free short-term borrowing from parent or affiliated companies was permitted. Under the current regulations, the following conditions apply:

1. Manufacturing Industries:

• Interest-free short-term loans (up to one year) are allowed from overseas parent or affiliate companies if deemed urgently necessary.

• Foreign-owned manufacturing enterprises can avail short-term foreign loans for working capital purposes for up to three years from the date of commencement of manufacturing operations.

• Interest on such loans is payable in Bangladeshi Taka (BDT) at the prevailing three-month Taka term deposit rate, as determined by the respective Authorized Dealer (AD) banks.

• Upon maturity, repayment of the principal amount and accrued interest shall be converted into the currency of the loan source country based on the prevailing exchange rate at the time of repayment.

2. Foreign-Owned Service Enterprises (Excluding Trading Businesses):

• As per Bangladesh Bank’s Foreign Exchange Circular, foreign-owned service sector companies (excluding trading businesses) are now also eligible for short-term borrowing.

• These entities may obtain convertible foreign currency loans for a maximum period of six years from the date of commencement of operations.

• Interest on such loans is capped at 3.0% per annum.

 

Regulatory Compliance and Approval Requirements

• Unlike long-term foreign loans, Bangladesh Bank’s prior approval is not required for obtaining or repaying short-term foreign loans.

• However, companies must report the acquisition and repayment of such loans to the relevant authorities to ensure transparency and regulatory compliance.

 

Exemptions for EPZ-Based Foreign-Owned Companies

Foreign-owned (100%) investment projects located within Export Processing Zones (EPZs) are permitted to secure foreign currency loans directly from overseas financial institutions without requiring prior approval from BIDA or Bangladesh Bank. This streamlined regulatory framework ensures a structured approach to foreign borrowing, safeguarding economic stability while facilitating international investment in Bangladesh.

 

To learn more about the Foreign Joint Venture Company Operation in Bangladesh, [visit here]

 

 

Conclusion

The revised regulations provide greater flexibility for foreign investors, particularly those engaged in manufacturing and service industries, to access short-term foreign financing. This initiative enhances Bangladesh’s attractiveness as a destination for foreign direct investment (FDI) while maintaining financial discipline. Companies planning to secure such loans should ensure compliance with reporting obligations and consult legal experts to navigate the regulatory requirements efficiently.

At LegalSeba, we provide comprehensive legal support to foreign investors seeking to secure foreign loans, ensuring full compliance with Bangladesh Bank and BIDA regulations. Our expert team can assist with loan structuring, regulatory approvals, documentation, and compliance reporting to facilitate a seamless borrowing process. Contact us today for professional guidance.

Contact Us

Choose LegalSeba LLP for a hassle-free Foreign Loan Processing. Contact us today to get started on your journey to working in Bangladesh.

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