Bangladesh Bank has thrown fresh money at the startup problem. The central bank's new master circular, issued on July 9th, 2025, has introduced significant revisions to its startup financing framework, dramatically expanding financing options for entrepreneurs. The updates aim to better support the country's promising startup sector, which is seen as important for growth, employment, and innovation.
While the changes are significant, they may not be sufficient. In this piece, we take a look at the good, the challenges, and what would have been better.
The new circular comes with several meaningful changes. Maximum loan ceilings have jumped from 1 crore to 8 crore taka. Interest rates have been slashed to just 4%. Age restrictions have been lifted entirely at the upper end and brought down at the lower end to 21. Banks can now make equity investments, not just loans.
It has also introduced a tiered approach that makes sense. Startups less than two years old can access up to 2 crore taka. Those aged 2-6 years qualify for 5 crore taka. Mature startups, up to 12 years old, can borrow the full 8 crore taka.
Banks get cheap money to lend. They can access funds from Bangladesh Bank at 0.5% interest. A new venture capital company will be formed, funded by 1% of banks' annual net profits. The 500 taka crore refinancing facility provides additional backstop support.
Here's a summary of the key changes and provisions:
Credit where it's due. The government recognizes startups matter. The sector creates jobs. It drives innovation. It attracts global investment when done right.
The regulatory tweaks help too. Banks are exempted from internal credit risk rating systems until 2030. Provision requirements are modest at 0.5%. These changes reduce bureaucratic friction.
Equity financing is also a breakthrough. Previously, banks could only lend. Now they can take stakes. This aligns incentives better. It gives startups patient capital, not just debt.
The scale is ambitious. 8 taka crore goes far in Bangladesh. It can fund serious ventures, not just mom-and-pop operations.
All in all, this sounds like a real effort to address access to capital challenges that many early-stage companies face in Bangladesh. Done right, it should alleviate some of these challenges and accelerate new entrepreneurship. It should also help produce more early-stage stable companies that can then try to get to the next level.
While some people rightly point out that loans may not be the right instrument for supporting startups in their early days, this seems to be a non-problem. First, the companies who think a loan will complicate their ability to raise external capital can simply not take this loan and keep their financial statement clean.
Contrarily, given the overall venture capital funding landscape in Bangladesh and the country’s market and cultural context, this access to capital can help many early-stage companies access capital to build a sustainable business of a certain scale that can then go for further fundraising. By all means, this is a good opportunity for companies across the aisle to access capital and build meaningful businesses.
However, while this is a good move on the part of the government and an overall positive outcome for startups, there are other problems.
One problem we see is on the side of execution—whether this will work and produce some meaningful outcome.
The other problem we see is a misplaced policy priority that can distract the policy markers from doing the real changes that can genuinely move the needle for startups and entrepreneurship in Bangladesh.
Every action has a cost. We might think doing some positive but ineffective policy change should be appreciated. Why not, something is better than nothing. But every policy decision not only has tradeoffs, it can also distract you from doing the real thing.
A third problem can arise from the misalignment of incentives among parties involved coupled with the common problem of innovator’s dilemma given the size of startup investing as an opportunity for banks.
Finally, when you mandate something it suffers from the limitations of Goodhart's Law—people try to take advantage of the mandate instead of trying to achieve the underlying goals. We have seen this happen with initiatives like the EEF fund of the Central Bank in the past.
More on these points in a moment.
Having said that, it is always better to do something than nothing. Doing something also allows you to get market feedback to learn and improve if you want to improve.
As I mentioned above, problems remain. Government-led financing has a mixed track record. Over the past decade, similar initiatives have produced modest to little results.
For instance, the government has tried this before. A previous version of this funding model existed. It didn't produce much results. The fundamental issue persists: banks are reluctant to lend to startups. There are gaps in incentives. It suffers from the innovator's dilemma. There is a real coordination problem and too many moving pieces.
Moreover, banks may lack the expertise to evaluate startups. Lending to established businesses with collateral is different from backing entrepreneurs with PowerPoint presentations. Risk assessment becomes guesswork. This creates a challenge of priority where banks occasionally take action.
The venture capital company structure is untested. Forcing banks to invest their startup funds in a single entity concentrates risk. It may reduce competition among capital providers. Similarly, it creates more questions than answers—who would run the venture capital firm, why and what are the incentives for the people involved other than doing social good, is social a good enough incentive to make real change in this context, who would make decisions, and so on. If BB runs the VC firm, the questions come about what is the purpose of such an initiative.
Age restrictions, while relaxed, still exist. Entrepreneurs under 21 are excluded. Some of the world's most successful startups were founded by younger innovators.
The government's heart is in the right place. These initiatives will help the startup ecosystem. But they address symptoms, not causes. And these ineffective initiatives can divert our attention from making real changes. What we need is more effective regulatory and policy thinking than mandated financing.
Think of it this way. In order to truly change the funding landscape in the country for startups, we need a vibrant venture capital ecosystem with both local and international VCs in it. While it is good that the government is taking these initiatives to facilitate the growth of startups, it would have been even better if it also created a better policy landscape for the private sector to operate and grow in the sector.
Government mandating this kind of financing will help the ecosystem, but it would not do much to move the needle as we have seen over the last decade. Instead, if the government creates a better regulatory and policy environment for the private sector to work in the sector, it can dramatically change things.
All these current government initiatives instead put the Govt in a quasi-role between the Govt and the private sector. In the end, what we have seen from previous experiences, not only fails to achieve the intended outcome, it also stifles the private sector progress.
To that end, instead of the government playing a quasi-private sector role, it should create conditions for private capital to flow to the sector and flourish. It should instead try to devise a strategy that will help create a vibrant private venture capital ecosystem instead of the Government running yet another venture capital firm.
More importantly, the real bottlenecks to entrepreneurship growth in Bangladesh are elsewhere. Normative challenges and complex bureaucracy stifle new business formation. Tax policies favor established players. Foreign investment rules limit access to global capital.
Private sector efficiency matters. Government-directed lending rarely matches market-driven allocation. We have seen this over the last decade. Well-meaning programs produced limited results and instead, created waste that we couldn’t afford.
Many discussions have explored what these changes could be. Streamlined business registration. Tax incentives for angel investors. Easier foreign exchange rules. Simplified exit procedures for failed ventures. Simplified and faster alternative investment rule. Maybe find a way to incentivize and work with private investors. These are some of the areas where the government has much more scope and power to make a change that can help the ecosystem.
The government could do much more good by creating a favorable playing field than trying to do everything itself while the private sector struggles.
Bangladesh Bank's new framework is in progress. It shows commitment to the startup sector. The higher loan limits and equity provisions are genuine improvements.
But sustainable growth needs private sector dynamism. Government money can prime the pump. It cannot replace market forces. The real test will be whether these measures complement broader reforms or substitute for them.
The startup ecosystem needs more than credit. It needs freedom to operate, compete, and fail. Bangladesh has the talent. It needs the right environment to unleash it. This initiative on the part of Bangladesh Bank is good and perhaps should remain in place in some form. But the Government should focus more on other pertinent changes that could truly make a change.
