Stepping up startup funding strategies: Bolstering the framework behind Bangladesh's pioneering economic innovations
The Bangladesh Bank has issued a significant regulatory milestone, the SMESPD Circular No 02 - Master Circular on Start-up Financing, dated 09 July 2025. This circular aims to ease pressure on early-stage founders by capping the interest rate at 4% and offering a tiered financing structure linked to a startup's maturity.
However, challenges persist in implementing the circular. Limited awareness among entrepreneurs about the provisions, difficulties in accessing formal financing despite raised loan ceilings, and the lack of an established ecosystem for equity financing through bank-backed venture capital entities are key obstacles.
To address these issues, several steps can be taken. Increasing awareness and capacity-building among startups and entrepreneurs about the circular's offerings and application processes is crucial. Simplifying documentation and approval procedures, including providing guidance on preparing project profiles and loan applications, would also be beneficial. Developing the venture capital ecosystem linked to banks to make equity financing more accessible and operational is another vital step. Clarifying eligibility criteria for informal entrepreneurs would make refinancing schemes more inclusive and transparent.
The circular raises loan ceilings for startups to Tk8 crore and introduces equity financing via bank-backed venture capital entities. Commercial banks may lack the expertise to evaluate high-risk, tech-enabled ventures without the right governance structures and skill sets. A dedicated credit guarantee scheme for startup loans, modeled after India's CGTMSE or the UK's British Business Bank, could de-risk bank lending.
Key outcomes such as job creation, export generation, or technology adoption should be monitored. A data-driven monitoring and evaluation mechanism is essential to measure the impact of policies. Ecosystem services should be integrated through partnerships with accelerators, incubators, universities, and legal/IP firms.
The framework must actively engage licensed VCs and institutional investors to enhance both funding and credibility. The circular allows banks to invest in startups via venture capital companies, seeded from 1% of their annual net profits. Global best practices favour grants, convertible notes, or equity for early-stage startups, not loans.
The article emphasizes the importance of supporting the ambitions of Bangladesh's youth turning to entrepreneurship. Kimiwa Saddat, the Managing Director (Current Charge) of Community Bank PLC, is at the forefront of this movement. The circular establishes a refinancing fund of Tk 500 crore to ensure liquidity support to participating banks.
In conclusion, the SMESPD Circular No 02 - Master Circular on Start-up Financing is a significant step towards supporting Bangladesh's startup ecosystem. With the right measures in place, startups in Bangladesh can leverage its financial support more effectively, contributing to job creation, economic growth, and technological advancement.
- The SMESPD Circular No 02, a key policy-and-legislation development in Bangladesh's business sector, introduces equity financing via bank-backed venture capital entities and raises loan ceilings for startups to Tk8 crore.
- To make the most of this regulatory milestone, it's essential to increase awareness and capacity-building among startups and entrepreneurs, simplify documentation and approval procedures, develop the venture capital ecosystem, and clarify eligibility criteria for informal entrepreneurs.
- Policymakers should also consider implementing a dedicated credit guarantee scheme for startup loans, similar to India's CGTMSE or the UK's British Business Bank, to mitigate risks for commercial banks when lending to high-risk, tech-enabled ventures.
