On Monday this week, Bangladesh Bank announced a BDT 500 crore startup fund to finance startups in the country. The decision was made in a meeting of the board of directors of the central bank, with the Bangladesh Bank Governor Fazle Kabir in the chair, and came at a time when a lot has been happening in Dhaka’s startup scene.
The Government has taken several initiatives to support the nascent startup ecosystem in the country. This new refinancing scheme from the Bangladesh Bank adds to a growing support program for startups.
Details: Entrepreneurs aged between 21 to 45 will be able to borrow up to BDT 10 million with 4% interest from the fund.
Definition of startup and other requirements: The definition of a startup, according to the policy, is the innovation and advancement of new products, services, technologies, and processes for the purpose of marketing. The ideas must be unique and creative.
Non-disclosure agreement: If an entrepreneur shares his business idea with a bank to get a loan, the bank will be prohibited to disclose the idea regardless of whether they finance the business or not.
Installments: The banks will have to disburse the loans in at latest 3 installments.
Personal Guarantor: An entrepreneur can only borrow a loan from a bank for one project and a personal guarantor will be required. However, there can not be more than two guarantors.
NPL: If an entrepreneur fails to repay the loan, it will be classified under the existing policy, where banks have to keep 5% provision against classified loans, 20% against dubious loans, and 30% against bad loans.
Why this matters: Several scheduled banks have been testing waters in startup funding. But the nature of startup funding and the requirements for traditional bank loans often make it an incompatible match. Consequently, it did not produce any meaningful results.
The new scheme from the Bangladesh Bank means startups can now access an alternative funding source that is flexible and comes without equity commitment. Done right, this will help improve the overall funding environment in Dhaka’s startup scene.
Ruhul Kader contributed to this story.