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As the first half of 2025 concludes, Bangladesh Bank Startup Directives 2025 has been issued recently, aimed at supporting the country’s startup ecosystem. In July, the central bank introduced the Startup Finance Master Circular and the Share Swap Circular. These directives mark a turning point in how institutional capital reaches early-stage enterprises in the country.
For the first time, the central bank has structured a circular that recognises the unique risk-return dynamics of startups and has attempted to rewire the financial system to accommodate them. These measures aim to expand access to formal financing, establish structured pathways for equity investment, and enable legally compliant international expansion.
The Startup Finance Circular represents a foundational step toward institutionalizing domestic startup financing. Designed to address the longstanding exclusion of startups from mainstream credit and investment flows, the circular acknowledges startups as a distinct asset class.
Bangladesh Bank’s startup financing framework is structured to provide both low-cost debt and equity capital to support early-stage businesses. At its core is a BDT 500 Cr “Startup Fund” that serves as a refinancing facility.
Under this arrangement, Bangladesh Bank lends to scheduled banks and finance companies at a concessional rate of 0.5%, enabling these institutions to on-lend to startups at a capped customer rate of 4%. This mechanism lowers borrowing costs for startups while ensuring participating institutions can recover their capital at minimal risk.
Alongside this debt-focused channel, there is a mandated equity mechanism. Since 2021, every scheduled bank has been required to set aside 1% of its net profit into a dedicated “Startup Equity Investment Fund.”
This allocation, now recorded as equity rather than a liability, cannot be used for lending. Instead, the entire amount will be invested as equity into a central Venture Capital Company (VCC) that Bangladesh Bank is in the process of establishing and will manage. The VCC will then deploy these aggregated funds as equity investments directly into startups, creating a pooled investment vehicle backed by the banking sector.
In addition to refinancing and the VCC structure, banks and finance companies can also use their own general loan-eligible funds to provide direct loans or investments to startups, outside of the earmarked 1 percent equity fund. This multi-pronged structure aims to provide startups with both affordable financing and access to equity capital, while creating a formalised pathway for bank participation in the venture funding ecosystem.
For entrepreneurs, the circular provides access to formal financing beyond traditional grants or foreign VC rounds, enabling early-stage ventures to access both concessional debt and domestic equity. This is the first time a circular under the central bank has explicitly outlined eligibility criteria for startups, providing clarity for banks, investors, and entrepreneurs alike.
However, the process will require startups to improve internal systems, particularly financial documentation, audit readiness, and compliance reporting. Importantly, startups will now need to interact with banks and FIs as key capital partners, which may necessitate a shift in their fundraising approach and operational discipline.
The Share Swap Circular from Bangladesh Bank introduces a long-awaited mechanism that, while modest in size, has sweeping implications for startup founders navigating cross-border structuring.
By allowing general permission to establish a foreign entity with up to USD 10,000 and enabling share-for-share swaps between domestic and foreign companies, the circular directly addresses one of the most intractable problems faced by startups: clean cap table alignment at the foreign holding level.
This circular creates a formal legal pathway for Bangladeshi startups to build internationally investable structures. It directly addresses a long-standing bottleneck where founders were unable to consolidate cap tables or receive foreign investment due to restrictions on outward remittances and share transfers. Startups seeking funds from foreign investors can now legally incorporate abroad, execute clean share swaps, and meet international investor requirements.
The Share Swap Circular introduces two distinct but complementary instruments that reflect a broader regulatory shift aimed at enabling globally investable startup structures. The first mechanism, the outward remittance facility, formalizes the process for early-stage startups to establish foreign entities. Previously, this process existed in a legal gray area.
Founders who transferred personal funds abroad or incorporated with a nominal amount risked being under greater scrutiny by regulatory bodies. The circular addresses this ambiguity by explicitly allowing remittances of up to USD 10,000 through Authorized Dealers, thereby legitimizing foreign incorporation and reducing regulatory risk for founders at the early stages of growth.
The second mechanism, the share swap provision, resolves structural challenges that arise once a startup begins raising local capital while preparing for global investment. Because Bangladeshi investors cannot legally invest directly in a foreign entity, they are required to invest in a local company.
This often results in a fragmented ownership structure, with shares split between local and foreign entities. Such dual cap tables are typically viewed unfavorably by international investors, as they complicate ownership rights, governance, and future fundraising.
The share swap provision now allows founders to convert locally held shares into equity in the foreign entity, thereby consolidating ownership under a single, globally recognized cap table. This consolidation enhances transparency and significantly improves the attractiveness of Bangladeshi startups to global venture capital funds.
However, this also introduces new compliance obligations. Founders must submit detailed business documentation, undergo scrutiny by AD banks, and commit to regular reporting on the foreign entity’s structure and financial performance. Early-stage companies may face added costs from mandatory annual audits and legal reporting in both jurisdictions.
On the other hand, for foreign investors, particularly VCs, angels, and corporate funds, this circular offers greater structural clarity and legal comfort. It reduces friction by enabling alignment of shareholding at the foreign entity level and opens the door for investment in properly governed, cross-border startup vehicles. Additionally, it improves the legal enforceability of shareholder rights in jurisdictions with more investor-friendly frameworks.
While these directives represent commendable progress, several unresolved structural issues persist. Key gaps remain around repatriating exit proceeds, defining equity divestment mechanisms, and standardizing AD discretion and valuation practices. While these issues limit investor confidence, Bangladesh Bank has indicated that follow-on circulars will address fund governance and potential exit pathways.
With foundational directives now in place, founders must shift focus toward compliance readiness and operational discipline. This includes strengthening financial documentation, ensuring audit preparedness, and aligning ownership structures to meet regulatory expectations. As banks and ADs begin interpreting the circulars, startups will need to engage proactively, provide transparent disclosures, and adapt to formal due diligence processes.
As Bangladesh Bank prepares to issue follow-on circulars, greater clarity on fund operations, exit protocols, and valuation norms will play an important role in ensuring these reforms translate into practical outcomes for founders and investors alike.
To translate these regulatory shifts into tangible benefits, founders will need to take deliberate, well-sequenced steps that align with the new regulatory pathways. The recommendations above outline priority actions startups should consider under the 2025 directives, helping them prepare for concessional debt, equity participation through the Venture Capital Company, and cross-border structuring under the Share Swap framework.
These recommendations are designed to guide immediate readiness while building the operational discipline required for long-term compliance and investment attraction.
To read the original circulars, please click here.
This article is written by Ameera Fairooz, Senior Business Consultant at LightCastle Partners with a background in International Business from Dhaka University.
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