The performance of the debt finance market in Bangladesh over the past year has been influenced by its political circumstances. Following the change of regime in August 2024, there has been a period of adjustment during which both foreign and local investors have taken a cautious approach. The Monthly Economic Trends of March 2025 issued by the Bangladesh Bank (BB), reports domestic credit growth to be narrowed to 9.14% at the end of January 2025 when compared to 11.86% growth at the end of January 2024. While this transitional phase has posed some challenges for the debt finance market in Bangladesh, there is growing confidence that investor interest will strengthen as the interim government’s policies and directions take shape, resulting in the debt finance market regaining momentum.

The market players in the debt finance market in Bangladesh include the following.

• Bangladesh Bank – the central Bank of Bangladesh, responsible for managing government debt through securities such as the Treasury Bill, Treasury Bonds and Savings Certificates.
• Public banks – there are six government-owned banks in Bangladesh, which provide financing through a range of products. Generally, any investment on part of the government (eg, public-private partnerships) are facilitated through one of the six public banks.
• Private banks – there are 43 private commercial banks providing the majority of the long-term financing for businesses in Bangladesh. The private banks primarily act as lenders offering a wide range of financial instruments such as bilateral term loans, syndicated loans, project financing, sukuk, etc.
• Foreign commercial banks – there are nine foreign commercials banks offering debt financing products primarily to businesses. Similar to private banks, the foreign commercial banks also offer a wide range of financial instruments. Their roles are especially important in cross-border transactions in case of financing between different branches of the same bank (across jurisdictions). However, it is worth mentioning that permission must be obtained from the Bangladesh bank prior to such financing.
• Non-banking financial institutions (NBFIs) – the latest record shows 35 NBFIS operating in Bangladesh, of which three are government owed, 13 are joint ventures with foreign participation and the remaining 19 are private companies. The NBFIs provide an alternative source of financing through various products commonly used for equipment leasing and asset financing.
• Microfinance institutions (MFIs) – there are 731 licensed MFIs in Bangladesh, providing financing for small, rural and agricultural businesses.
• Bangladesh Securities and Exchange Commission (BSCEC) – is the regulator of the capital market of Bangladesh. The BSEC is responsible for outlining rules over debt instruments such as bonds, mutual funds and alternative investment (to debt financing) such as private equity and venture capital investment funds.
• Merchant banks – BSEC has 66 listed merchant banks responsible for underwriting activities, assisting the issuers of debt securities with the process of the same, acting as an intermediary between the BSEC and the issuer, etc. 

In the past year, the effects of geopolitical events such as COVID-19 and the Ukraine war have seemingly been superseded by the current political scenario in Bangladesh. Various transactions were stalled due to the July 2024 uprising, leading to the change in regime in August 2024. This resulted in timelines of transactions and projects being adversely affected and costs of the same being inflated. These disruptions were in addition to the delays already caused by COVID-19 as well as the increase in cost of materials in several projects being affected by the Russia-Ukraine war and other conflicts.

Considering the effects of geopolitical considerations exclusively, disputes and litigation have been observed arising from the delays suffered by projects due to COVID-19, conflicts and wars – particularly in relation to variation in price clauses, especially in cases involving standard FIDIC contracts. However, it is hoped that greater preparedness and contractual clarity will lead to more effective resolution and mitigation in tackling such disputes in the coming days.

In Bangladesh, debt financing is provided by banks and financial institutions to businesses for capital expenditure, operational needs or expansion, usually secured by collateral and governed by contractual terms and conditions. The main types of debt finance transactions in the Bangladesh jurisdiction are as follows.

Acquisition Finance

Acquisition finance is used where debt-based funding is secured from local banks and NBFIs by companies for acquisition of other companies. Such financing transactions are evolving steadily in Bangladesh due to the increased demand for corporate consolidation.

Project Financing

This type of financing has seen significant growth in Bangladesh in recent years, particularly in large-scale projects in infrastructure, energy and industrial sectors. It involves securing long-term funding (such as syndicated loans) based on projected cash flows rather than asset value. Banks and financial institutions, both local and international, play key roles alongside public-private partnerships. The regulatory framework is evolving to attract foreign investment, with the government offering incentives and policy support.

Asset-Based Financing

This is a method where businesses secure funds using company assets as collateral. Types of assets securing loans include real estate, inventory, equipment and accounts receivable, etc. In Bangladesh, this form of financing is gaining traction, especially among small and medium-sized enterprises (SMEs) that may not have access to traditional credit due to limited credit history to manage working capital, expand operations, or bridge cash flow gaps.

Securitisation

Securitisation involves pooling various financial assets and converting them into tradeable securities. Bonds are one of the most common types of securities created through this process in Bangladesh, and come under the purview of Bangladesh Securities and Exchange Commission (Debt Securities) Rules, 2021. They are regulated by the BSEC.

Common Forms of Bank Loan Facilities

In Bangladesh, the commercial banks offer different types of bank loan facilities depending on the business requirements of a borrower. The most common forms of bank loan facilities are as follows.

Term loan

This is a type of loan that is provided by a commercial bank or NBFI to businesses for a fixed term in cash. Such loan is repaid in instalments over a set period. Depending on the business needs, term loans can be for a short or long period. The proceeds from term loans are usually used for financing capital expenditures, such as purchasing machinery, equipment, real estate or funding large business projects.

Working capital loan

Working capital loans are generally provided by the banks and NBFIs to business by way of cash credit or overdraft, etc, for assisting them to finance their day-to-day operations and manage short-term expenses. Such loan ensures a business has sufficient liquidity to continue its operation without any disruption. Repayment of working capital loans is flexible and may be paid monthly, quarterly or based on the business’s cash flow cycle.

Trade finance loans

Trade finance loans – ie, letters of credit, bank guarantees, etc – play a pivotal role in the commercial operation of businesses in Bangladesh to secure domestic and international trade. Such facilities are usually taken by borrowers to provide comfort to their international or domestic counterpart while trading a product or guaranteeing financial solvency.

Agricultural credit

A majority of the population of Bangladesh live in rural areas and are concentrated in the agricultural sector. To enhance productivity and sustain development in the agricultural sector, which contributes significantly to the country’s GDP, financing facilities are provided under the Agricultural and Rural Credit Policy and Program issued by the BB.

Syndicated Loans

Another growing method of raising large-scale funds through loans, typically for infrastructure, energy, or industrial projects in Bangladesh, is syndicated loans. This arrangement essentially grants the borrower access to large sums of financing while distributing the risks over a number of banks. Therefore, the banks are also comfortable in sanctioning a large loan through syndicated lending. Pertinently, BB, through BRPD Circular No 1 dated 16 January 2022, introduced a limit on single borrower and large loans based on the capital of the bank. Therefore, the banks, even if they are willing to provide a large loan, may not be able to sanction a large loan. In such scenario, syndicated lending assists borrowers to finance their large-scale projects and is increasingly used in public-private partnerships and foreign investment projects to drive economic growth. Some of the advantages and disadvantageous of syndicate loans are discussed below.

Advantages

Advantages of syndicated loans include the following:

• in foreign lending, usually lower borrowing costs compared to the prevailing domestic market and longer maturity period;
• sharing the risks among the group of banks which ultimately provides comfort to the banks;
• access to large amounts of loans from a pool of lenders while maintaining the permissible limit imposed by the BB;
• usually faster access to funds than the other debt financing options like bond issuance; and
• the borrower may have an advantage in negotiating the interest rate and the repayment schedule.

Disadvantages

Disadvantages of syndicated loans are as follows:

• they involve the execution of complex documentation for sanctioning the syndicate loan; and
• require more time in agreeing to the terms of the lending due to the participation of multiple banks.

Debt Securities

Business entities in Bangladesh are at liberty to make use of debt financing, the most common form of which is through the issuance of corporate bonds. However, the issuance of bonds, like any other debt instrument, is subject to obtaining regulatory approvals following different criteria set out by the BSEC. Pertinently, the BSEC has framed the Bangladesh Securities and Exchange Commission (Debt Securities) Rules, 2021, which in effect contain all the relevant steps required to be followed by a business entity in issuing any debt securities – ie, bonds, debentures and so on, other than the issuance of preference shares. Bangladesh provides flexibility to business entities to issue bonds or other securities with or without securities. The bonds are issued to subscribers and the trustees act for the interest of the subscribers. Businesses may also tailor their respective bonds by making them secured or unsecured, and fixed coupon rate or floating coupon rate. Bonds may be traded through private placement or through the secondary market depending on the needs of the businesses. Nonetheless, listing the debt securities on the stock exchange is also subject to regulatory approval from the BSEC and complying with the listing regulations of the concerned stock exchanges – ie, Dhaka Stock Exchange and Chittagong Stock Exchange. The advantages and disadvantages of debt securities are considered below.

Advantages

The advantages of debt securities include:

• they allow access to a broader investor pool like private individuals, banks, NBFIs, retail and foreign investors;
• they are freely tradeable in the secondary market, which addresses liquidity risks;
• they place fewer restrictions on the use of funds compared to lending facilities; and
• are useful for long-term financing.

Disadvantages

Debt securities are disadvantageous insofar as:

• there are complex regulatory compliance requirements to issue debt securities;
• issuers of bonds must meet a certain credit rating – ie, at least BBB, which incurs additional cost and reputational risk; and
• the debt securities market in Bangladesh is still developing; therefore, issuance of debt securities may not yield the expected result.

When considering investors, different entities, such as corporate entities, government and public sector entities, individual borrowers, etc, finance their business through obtaining loans from commercial banks and NBFIs. With respect to debt securities, the investor pool is slightly larger and includes commercial banks, NBFIs, merchant banks, corporate entities, asset management firms, institutional investors, high net worth individuals, foreign individuals, etc.

The documents requirement in connection to debt finance transactions depend on the type of debt financing in question. The standard documents with regards to the most common type of debt financing transactions are discussed below.

Bank Loan

Facility agreement

This is the primary agreement that contains the terms of the loan facility including, but not limited to, amount of loan, tenure, interest rate, repayment schedule, covenants and so on.

Security agreement

If the loan is secured then the borrower and lender shall execute a security agreement specifying the collateral for the loan which usually includes security over both movable and immovable assets. Typical forms of security documents consist of mortgages, pledges, assignments, charges and liens as detailed in 5.1 Guarantee and Security Packages.

Intercreditor agreement

This type of agreement is used in syndicated financing and governs the relationship among lenders, outlining their voting rights and decision-making processes. It also specifies how proceeds from the enforcement of security are to be distributed among the various finance parties.

Promissory note

The borrower executes the promissory note in favour of the lender agreeing to repay the loan within loan tenure.

Personal guarantee/corporate company

In addition, banks may ask for the personal guarantee of the individual shareholders or corporate guarantee of the parent company of a borrowing company to back the loan if the company fails to repay it.

Debt Securities (Bond)

Information memorandum or prospectus

This is the document highlighting the relevant information about a bond – ie, coupon rate, tenure, usage of fund, associated risks, credit rating, rights and obligations of the issuer, investors and trustees and so on. This document is submitted before the BSEC for approval of the issuance of a bond.

Trust deed

The pre-condition in offering a bond before the investor is that a trust shall be formed for the purpose of issuance of a bond under which the bondholder is the beneficiary.

Subscription agreement

A subscription agreement is executed between the bond issuer and the subscriber detailing salient features of the bond, the covenants, payment terms, etc.

Facility arranger agreement

This is an agreement between the bond issuer and lead arranger appointed to structure, arrange and facilitate the issuance of the bond who co-ordinates with regulators, investors, and other stakeholders to ensure successful placement and compliance with legal requirements.

Credit report

This report, prepared by a credit rating agency, is essential for the purpose of floating bonds or any other debt securities in the market.

Regulatory requirements for foreign lending differ from domestic lending in Bangladesh. Private commercial borrowing from foreign sources by the residents is subject to prior special permission from the BB as well as Bangladesh Investment Development Authority (BIDA) and such loan agreements may differ from local loan agreement terms. Private sector industrial enterprises incorporated under the Companies Act, 1994 (the “Companies Act”) and registered with the BIDA are eligible to access credit facilities from recognised lenders which include international banks, global capital markets, multilateral institutions (such as IFC, World Bank, ADB, and OPEC Fund), etc. Loan agreements are typically structured at competitive rates aligned with prevailing international borrowing costs. Eligible financing may include various types of commercial credit, such as financial loans, bank loans, buyer’s credit, and supplier’s credit from both institutions and individuals. The borrowing company must comply with reporting obligations pursuant to the directives of BB. These funds may be used for investments in industrial activities, including small and medium enterprises (SMEs), infrastructure, and other priority sectors as outlined in the Industrial Policy. However, they cannot be used for working capital or capital market investments.

Borrowing by public sector entities from foreign sources, on the other hand, requires approval from the government. All such borrowing on commercial (non-concessional) terms also requires specific approval of the Standing Committee on Non-Concessional Loan pursuant to Chapter 15 of the Guidelines for Foreign Exchange Transactions, 2018 (GFET).

While foreign lenders can lend to a Bangladeshi entity without the requirement of being registered or licensed in Bangladesh, foreign loans require prior authorisation from BIDA and BB pursuant to the GFET and Foreign Exchange Regulation Act, 1947 (FERA). As such, obtaining BIDA’s approval usually forms part of the conditions precedent of a cross-border lending, to be fulfilled by the borrower. Given the involvement of multiple parties across different jurisdictions in cross-border lending, it is prudent to clearly specify in the loan documentation the governing law applicable to the agreement and the dispute resolution mechanism, in order to mitigate potential complexities. Choice of foreign law agreed between parties to contracts is recognised under the law of Bangladesh.

Additionally, the enforcement of securities terms is also required to be tailored in a fashion addressing the local laws, to ensure the effectiveness of such terms in the local jurisdiction as the securities usually remain in the local jurisdiction. A few specified foreign lenders are allowed to enforce security without the intervention of a court under the Money Loan Court Act, 2003 (the “Money Loan Court Act”) as detailed in 7.1 Process for Enforcement of Security. Consequently, other foreign lenders not specified therein usually appoint local schedule banks as their security agents for holding and enforcing the security without court intervention, and such arrangement is reflected in the loan documentation.

Security interests can be taken over movable and immovable properties in debt financing transactions in Bangladesh. Immovable properties include land, buildings and rights accruing from land while movable properties consist of securities (shares, stocks and bonds, etc), bank accounts, plant and machinery, receivables under contractual rights (including insurance policy) and all other assets of a movable nature.

Typical guarantee and security packages provided in debt financing transactions in Bangladesh, along with the relevant formalities and perfection requirements are discussed below.

Mortgages

Mortgages are usually taken over immovable assets such as land, and are created by means of a mortgage deed which is governed by the Transfer of Property Act, 1882. In addition to the mortgage deed, the borrowers usually execute an irrevocable power of attorney in favour of the lenders entitling them to directly enforce the mortgage without court intervention in the event of default. As per Bangladeshi law, the creation of security interest in immovable properties by way of mortgage deed must be registered with the office of the concerned Sub-Registrar under Registration Act, 1908 (the “Registration Act”) and duly stamped pursuant to the Stamp Act, 1899 (the “Stamp Act”). The associated irrevocable power of attorney is required to be executed in the format as prescribed under the Power of Attorney Rules, 2015 and registered under the Registration Act. Moreover, as per Section 159 of the Companies Act, mortgages created by a company shall be void against the liquidator and creditors of a company unless particulars of the mortgage, along with the instrument, are filed with the Registrar of the Joint Stock Companies and Firms (RJSC) for registration within 21 days of its creation.

Pledges

Pledges are usually taken on shares of the shareholders of companies in favour of creditors by execution of a pledge agreement, and the standard terms of such agreements require the pledgor to deposit the original share certificates with the pledgee as security as well as signed undated share transfer forms along with an affidavit and a power of attorney entitling the pledgee to dispose of the pledged shares in the event of default. Dematerialised shares are pledged through execution of pledge request forms and having the pledge duly set up and accepted in the system of Central Depository Bangladesh Limited (CDBL) pursuant to its by-laws. In the event of default, the pledged shares can only be confiscated through the CDBL system.

Charges

Both fixed and floating charges can be created over assets in Bangladesh. A floating charge allows all the company’s present and future assets, such as stock in trade, plant and machinery, equipment, raw materials, inventory, bank accounts, receivables, etc, to be charged. The distinctive feature of a floating charge is that it allows the borrower to freely manage the charged assets in the normal course of business without reference to the holder of the charge — until the charge crystallises. In contrast, under a fixed charge, the asset is specifically assigned to the lender, and the borrower must obtain the lender’s permission before disposing of or dealing with it. A written agreement, usually known as a Letter of Hypothecation, is executed for the creation of a charge along with a power of attorney authorising the lender to dispose of the hypothecated items in case of a default without court intervention. Like a mortgage deed, a Letter of Hypothecation is required to be registered with the RJSC in accordance with Section 159 of the Companies Act.

Assignment

Assignment is usually taken over the borrower’s receivable rights under various contracts permitting assignment of such rights. This is a common form of security which is created by an assignment agreement along with a power of attorney, if required, and such agreement does not require to be registered or filed with any regulatory authority.

Lien

A lien refers to a specific security interest that arises by operation of law rather than through a contract, unlike a pledge or mortgage. A lien is recognised as a legal right, not merely a remedy. It typically applies to movable property, though certain statutory liens may also extend to immovable property. A lien grants the right to retain possession of the property until the underlying obligation is discharged but does not confer the right to sell the property.

Guarantees

Lenders can obtain guarantees as securities from the borrowers which may include bank guarantees, corporate, personal and third-party guarantees. Section 13 of the FERA prohibits the granting or creation of securities or guarantees in favour of a non-resident unless prior general or special permission has been obtained from BB. In a foreign lending: (i) banks furnishing guarantees to non-residents on behalf of residents must secure prior approval of BB; and (ii) resident borrowers will not require BB’s permission to provide guarantees, having no commitments by banks, like corporate guarantees, personal guarantees, third-party guarantees, etc, to foreign lenders as per stipulations for external loan duly approved by the BIDA according to Paragraph 9(a), Chapter 16 of the GFET. There is no registration or filing requirement for guarantees.

Applicable stamp duty on the creation of security is detailed in 9.1 Tax Considerations.

Security instruments need to be perfected in line with the requirements as discussed in 5.1 Guarantee and Security Packages. In case of a corporate security provider or guarantor, it is important to ensure that provision of security and guarantees is authorised under its Memorandum and Articles of Association. Additionally, the necessary approvals from the shareholders and the board of directors of the company (as applicable) must be obtained through appropriate resolutions.

Agent and Trust Concepts

The concepts of agency and trust are recognised in Bangladesh under the Contract Act, 1872 and the Trusts Act, 1882. These structures are commonly used in cross-border lending involving Bangladesh, where a security agent or trustee is appointed to hold security on behalf of individual or syndicated lenders or finance parties. To ensure effective and streamlined enforcement of security, foreign lenders typically appoint local scheduled banks as security agents or trustees. These local banks are permitted to enforce security without prior court intervention under the Money Loan Court Act, 2003. No separate approval from BB is required for local banks to act in this capacity. The legal instruments establishing such relationships are the Agency Agreement and Trust Deed, which define the roles, rights, and obligations of the security agent or trustee in the loan transaction.

Parallel Debt

Since the jurisdiction of Bangladesh recognises the concepts of agency and trust where it is possible to grant security to a security agent/trustee to secure debt owed to the lenders, the provision of parallel debt is not required in debt financings in Bangladesh.

Restrictions on Upstream Security

Pursuant to Section 121 of the Companies Act, the provision of upstream security/guarantee is not prohibited in Bangladesh, provided that the parent and subsidiary are not under the management of the same managing agent. Additionally, Section 103 of the Companies Act may be relevant where any director of the subsidiary is also a director or member of the parent company, as it imposes restrictions on the provision of loans, guarantees, or securities in favour of entities connected to such directors.

Financial Assistance

Section 58(2) of the Companies Act restricts companies limited by shares – excluding private companies and subsidiaries of public companies – from offering financial assistance, directly or indirectly, to any person for purchasing the company’s shares. This includes assistance through loans, guarantees, or securities. However, if the company is engaged in the business of lending money as part of its ordinary operations, such as a bank company, this restriction does not apply to loans granted in the normal course of that business.

Requirement for Guarantee Fees

In practice, financial institutions typically charge fees (including commission) for issuing guarantees to cover the associated risks and administrative costs. These fees are generally determined by the financial institutions based on their assessment of the borrower’s financial position and the nature of the guarantee.

Intercreditor arrangements play a key role in debt financing especially in cases of major project financing through syndicated lending. Since all banks and financial institutions are prescribed a loan limit by the BB, intercreditor arrangements primarily aid borrowers to access large amount of loans and help lenders remain within their permitted credit limits. Moreover, intercreditor arrangements help spread the risk of the loans between lenders themselves. Such intercreditor agreements help streamline the communication and co-ordination between lenders to address key issues including: (i) drawdown of funds, (ii) co-ordination of loan maturities, (ii) priority ranking among lenders, (iv) management of security rights, (v) exercise of voting power on key decisions, such as variations of lending agreements, enforcement of security, etc.

In intercreditor arrangements, the creditors may mutually agree to prioritise one over the other in case of pari passu lending. The same is enforceable under the Contract Act, 1972.

However, this does not override the concept of legal subordination. The Companies Act read with the Bankruptcy Act 1997 prioritises certain classes of creditors over others. In insolvency proceedings, the first priority is the secured creditors, followed by preferential creditors (such as government taxes, employee wages) and unsecured creditors (vendors or suppliers) which are detailed in 8.2 Main Insolvency Law Considerations. Subordinated creditors are in the fourth class in terms of priority and are only ahead of shareholders.

There is no embargo on foreign lenders lending to Bangladeshi entities and such lenders do not require any licence or registration in Bangladesh to do the same provided the borrower obtains approval from the BIDA. As such, foreign lenders can avail the benefit of security over assets provided by borrowers in Bangladesh. In the event of default, the lenders can enforce security for the purpose of liquidating the liabilities of the borrowers. Bangladesh’s legal framework for the speedy recovery of defaulted loans by financial institutions is regulated by the Money Loan Act. Usually, the lenders initiate claim proceedings before the District Court of Bangladesh for recovery of outstanding claims through enforcement of security, and having obtained a decree in its favour, the lender must file execution proceedings. This process tends to be time consuming. However, it is pertinent to note that Section 12 of the Money Loan Act empowers financial institutions, as specified in Section 2, having express legal rights to sell or vested with such right to sell the mortgaged or hypothecated properties, to enforce security without court intervention. As per Section 12, a financial institution that has been granted the authority to sell mortgaged immovable property or hypothecated movable property by means of security instruments (as discussed in 5.1 Guarantee and Security Packages) along with an irrevocable power of attorney must first exhaust all reasonable efforts to sell the secured property and apply the proceeds toward loan repayment before initiating legal proceedings in the Money Loan Court. Only if the institution is unable to sell the secured property despite such efforts may it proceed with filing a case. This requirement ensures that litigation is pursued as a last resort, prioritising the recovery of outstanding dues through asset liquidation.

Besides local banks and financial institutions, foreign lending institutions, namely, the International Finance Corporation, Islamic Finance Bank, Commonwealth Development Bank, Asian Development Bank, International Bank for Reconstruction and Development, and the International Development Association can also enforce the security without court intervention under the Money Loan Act.

Reciprocating Territories

In Bangladesh, the enforcement of foreign judgments and decrees is primarily governed by Section 44A of the Code of Civil Procedure, 1908 (CPC) which provides a mechanism for enforcing judgments and decrees passed by superior courts in reciprocating territories. A “reciprocating territory” is any country or territory that the government of Bangladesh declares as such through an official gazette notification. This section defines “decree” as a judgment requiring the payment of money but explicitly excludes amounts payable as taxes, fines, penalties, or arbitration awards. If a judgment is from a reciprocating territory, the decree-holder can file a certified copy of the judgment/decree, along with a certificate of satisfaction, before the relevant District Court for direct execution. This process eliminates the need for filing a fresh lawsuit based on the foreign judgment. Before allowing enforcement of the foreign judgment, the District Court must ensure that it does not fall under any of the exceptions in Section 13 of the CPC. Under Section 13, a foreign judgment shall be conclusive as to any matter directly adjudicated between the parties except where:

• it has not been pronounced by a court of competent jurisdiction;
• it has not been given on the merits of the case;
• it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of Bangladesh in cases in which such law is applicable;
• the proceedings in which the judgment was obtained are opposed to natural justice;
• it has been obtained by fraud; and
• it sustains a claim founded on a breach of any law in force in Bangladesh.

Non-Reciprocating Territories

If the foreign judgment originates from a non-reciprocating territory, it cannot be directly executed in Bangladesh. Instead, the decree-holder must file a fresh suit in Bangladesh based on the foreign judgment where it will serve as evidence in that suit. The court will then determine whether the judgment satisfies the conditions under Section 13 and 14 of the CPC, which outline grounds for refusing enforcement, such as fraud, lack of jurisdiction, or violation of natural justice, before granting relief. Thus, while Bangladesh provides a structured process for recognising and enforcing foreign judgments, the extent of enforceability depends on the reciprocating status of the issuing country and compliance with legal safeguards under domestic law.

Other than insolvency proceedings, there are several mechanisms available for corporate rescue and reorganization and restructuring in Bangladesh, including a scheme of arrangement under the Companies Act and restructuring of bank companies under the framework of BB.

Scheme of Arrangement Under the Companies Act, 1994

A Scheme of Arrangement (SoA) is a procedure that has the integrity of a contractual agreement between creditors and debtors. The arrangement, as defined under Section 228 of the Companies Act, envisages the right of a company to enter into a compromise or arrangement (i) between itself and its creditors or any class of them, and/or (ii) between itself and its members or any class of them. The SoA process begins with the board of directors of a debtor company or the creditors proposing a compromise or arrangement between itself and its creditors or shareholders. To give effect to such a compromise or arrangement, an application along with an SoA, delineating the proposed solution, needs to be submitted to and be sanctioned by the High Court Division of the Supreme Court of Bangladesh. If a majority in number representing three-fourths in value of the creditors or members (or the respective class) present and voting agree to the proposed compromise or arrangement, and the High Court subsequently sanctions it, the arrangement becomes binding on all creditors or members of that class, as well as on the debtor company itself.

An SoA serves as an effective tool in restructuring due to its expansive scope. Under the Companies Act, the expression “arrangement”, involves a wide range of restructuring measures. These may include reorganising a company’s finances, reorganisation of the share capital of a company by consolidation or division of shares, transferring parts of its business undertaking or assets to an entity, or merging with another entity. This broad spectrum of SoA enables debtor companies and their creditors to adopt flexible and tailored solutions through various restructuring and revival options.

Correction Measures for Banks Under PCA Framework

Section 77A of the Bank Companies Act, 1991 (the “1991 Act”) introduces provisions for prompt corrective action (PCA), recovery, and resolution through measures such as amalgamation and restructuring for stressed bank companies. Pursuant to Section 77A, BB introduced the PCA Framework via BRPD Circular No 17, dated 5 December 2023. Additionally, under BRPD Circular No 03, dated 24 February 2022, banks are required to submit a Recovery Plan to BB, duly approved by their respective boards of directors.

Under Sections 49(1)(c) and 77(16) of the 1991 Act, a bank company may voluntarily amalgamate with another bank or financial institution, subject to prior approval from BB. Furthermore, Section 77A provides a legal basis for BB to initiate compulsory or forced amalgamation, restructuring and other corrective measures. Exercising its powers under Section 77A, BB has issued a policy on the amalgamation of bank companies through BRPD Circular No 08, dated 4 April 2024. This policy outlines the procedures for both voluntary and mandatory amalgamations. Under this framework, BB has already granted in-principle approval for several voluntary amalgamations, which are currently underway.

Debt Restructuring as a Reconstruction Tool

BB, as the central bank of Bangladesh, has introduced and implemented restrictive guidelines and policies on loan rescheduling and restructuring for viable corporate entities affected by circumstances beyond their control. Issued through Master Circulars and Supplemental Circulars, these policies have been amended over time to establish an out-of-court mechanism enabling banks to restructure distressed debts under BB’s supervision. These circulars serve as a benchmark for inter-bank co-ordination and require banks to adopt rescheduling and restructuring policies that are stricter than those of BB. Most recently, in response to the prolonged effects of COVID-19, global geopolitical tensions, and growing economic instability, BB issued BRPD Circular No 16 dated 18 July 2022 to support financial stability and facilitate effective management of classified loans.

BRPD Circular No 16 outlines the instructions and conditions that banks must follow when processing loan rescheduling and restructuring applications from financially distressed borrowers. These include prudent application assessment, evaluation of repayment capacity, rescheduling tenure, minimum down payment requirements, approval procedures, loan classification, treatment of deferred interest, and reporting obligations, etc.

Substantial Share Acquisition

Pursuant to Bangladesh Securities & Exchange Commission (Substantial Share Acquisition, Takeover and Control) Rules, 2018 (the “2018 Rules”), a financial institution or bank or other person(s) or entities can rehabilitate a financially weak publicly listed company, as defined in the 2018 Rules, by acquisition of substantial shares. The lead institution, taking the initiative for the acquisition, is responsible for obtaining necessary approvals, assessing the company’s financial viability, and preparing a rehabilitation plan, which may include debt and capital restructuring, as well as policy solutions.

The Bankruptcy Act, 1997 (the “1997 Act”) is a special law governing insolvency/bankruptcy in Bangladesh which extends to both individual (natural persons) and corporate debtors. It aims to protect creditors by ensuring the equitable distribution of proceeds from the debtor’s assets. The key considerations for a lender under the framework of the 1997 Act include the following.

Initiation of Bankruptcy Proceedings

Under the 1997 Act, bankruptcy proceedings may be initiated by eligible creditors or by the debtor before the designated bankruptcy courts. When an order of adjudication is made, the court appoints a Receiver in whom the properties (movable, immovable and secured) of the bankrupt vests. The property so vested is known as the Estate which shall become divisible among the creditors. The bankrupt debtor must assist in the realisation of its property and the distribution of the proceeds of the Estate among the creditors in accordance with the provisions of the 1997 Act.

Right of Enforcement in Insolvency

Section 31 of the 1997 Act specifically states that an adjudication does not affect the rights of secured creditors to realise or otherwise deal with their security; ie, the secured creditors retain their ability to enforce their security interests independently of the bankruptcy proceedings. Where the secured creditors realise their security, they may prove for the balance due after deducting the net amount realised. If a secured creditor does not realise its security, whether partly or fully, before the order of adjudication, the unrealised security stands vested in the Receiver who immediately takes it over.

Upon the order of adjudication, the Receiver determines the realisable value of the property and if the same is sufficient to satisfy the secured creditors’ claims then the Receiver shall sell such property and pay such creditors in full subject to deduction of the Receiver’s fee and the expenses of such sale. The remaining amount forms part of the Estate. However, if the value of the property is not sufficient to fully satisfy the creditors’ claim, the Receiver, at the option of the secured creditor, must sell the same and pay the creditors duly (less the Receiver’s fee and the expenses of sale) or deliver such property to the creditor along proper document of title. The creditors must incur the costs of preparing and registration of such document of title.

Order of Payment

Upon settling the claim of the secured creditors, the administrative expenses and the Receiver’s fee, the following claims must be satisfied in the prescribed order of priority as enumerated in the 1997 Act:

• all taxes and other debts of a like nature due to the government;
• all wages or salaries due to any clerk, servant, labourer or workman in respect of services rendered to the debtor during the period of six months immediately before the date of filing the bankruptcy petition;
• all banks and financial institution debts;
• all unsecured claims; and
• any subordinated claim.

Claw-Back Risks

As per Section 60 of the 1997 Act, the bankruptcy court has the authority to claw-back property transferred by the debtor within the 15 years immediately preceding the date of the adjudication order if it is determined that the transfer was intended to defeat any debt owed by the debtor. When a transfer is nullified, the property in question becomes part of the Estate for distribution among creditors. However, the nullification does not apply to transfers made for proper value, including goods, or to property inherited. It also does not apply to transfers made within six years before the order of adjudication if the recipient proves the debtor was able to pay all claims without using the transferred property.

Withholding Tax

Interest paid to non-resident lenders is taxable as income arising in Bangladesh and is generally subject to withholding tax at a rate of 20% under the Income Tax Act, 2023 (ITA). However, Bangladesh has double taxation avoidance agreements with many countries, and these can reduce the effective withholding rate on interest, often significantly, to avoid double taxation for foreign lenders. However, this benefit is not automatic and to access such treaty benefits, the non-resident must obtain a tax exemption or reduced-rate certificate from the National Board of Revenue.

Offshore Banking Unit (OBU) Exemptions

Using an OBU can provide tax advantages. Interest on loans extended through OBUs (specialised offshore branches of local banks) has been exempted from withholding tax. This makes OBU-arranged foreign loans attractive, as the interest can be paid without the usual tax deduction at source.

Debt-to-Equity Ratio (Thin Capitalisation Proxy)

Bangladesh does not impose formal thin capitalisation rules limiting the amount of debt a company can take for tax purposes. In practice, though, the BIDA uses debt-to-equity guidelines when approving foreign loans. Most companies are expected to maintain a maximum debt-to-equity ratio of 70:30 (and up to 80:20 for power generation projects) to ensure a healthy capital structure.

Stamp Duty

Debt financing-related instruments attract ad valorem or fixed stamp duties under the Stamp Act. Stamp duty on the key instruments is discussed below.

Mortgages

Mortgages over immovable property in favour of a bank or financial institution attract stamp duty at the following rate: (i) BDT2,000 for loans up to BDT5 million, (ii) BDT5,000 for loans above BDT5 million but not exceeding BDT10 million, and (iii) for loans exceeding BDT10 million, the duty is BDT5,000 on the first BDT10 million plus 0.1% on the remainder, up to BDT50 million.

Pledges

Where security is created by depositing title documents or pledging movable property to secure repayment of a loan, stamp duty is payable at a rate of 0.5% of the loan amount, subject to a maximum of BDT30 million, or 0.3% of the loan amount, capped at BDT10 million, depending on the nature and terms of the pledge.

Assignments

The Stamp Act does not expressly mention deeds assigning contractual rights, but they are treated like conveyances, since both involve a transfer of property or rights. As such, an assignment attracts 1.5% of the consideration, subject to a maximum of BDT20 million in stamp duty.

Trust deeds

Trust instruments used in project finance or for debt security purposes attract 0.1% stamp duty on the declared value of the trust property, with a maximum of BDT1 million.

Irrevocable power of attorney

Stamp duty of BDT1,500 is applicable for POA over immovable property, authorising an attorney to sell, to make contract for sale or to execute a mortgage deed in favour of a bank or financial institution in respect of a loan.

Cross-Border Lending Approvals

All foreign loans by private sector industrial enterprises require prior authorisation from BIDA. Once approved by BIDA, a copy of the loan agreement must be sent by the authorised dealer (AD) bank to BB.

An exception was made by BB (in 2021) for short-term foreign credit facilities, such as supplier’s or buyer’s credit with a tenure of up to one year, which can be obtained under general authorisation without prior approval, subject to compliance with paragraph 1, Chapter 15 of the GFET and BIDA’s 1998 notification (Notification No BOI/R&IM1/4(39)/81(Part)/1209). However, where the tenure exceeds one year, prior approval from BIDA is required through a formal application process, typically reviewed by BIDA’s scrutiny committee.

BB monitors repayment terms, currency of borrowing, and remittance through AD banks. Once a foreign loan has been approved and disbursed through the AD bank, repayments of principal and interest can be made without requiring fresh approval from BB. However, the repayments must be routed through the same AD bank that originally handled the loan inflow. For loans received in convertible currency, the bank is required to report each outbound payment in its regular monthly returns, along with a certificate showing the date and amount of the original inflow. The bank must also submit a copy of the underlying loan agreement and the repayment schedule to ensure that the remittances are properly tracked. This process streamlines debt servicing while ensuring full regulatory oversight.

Industrial Borrowers in Export Processing Zones or Economic Zones

Businesses operating in special zones follow a slightly different pathway for foreign financing. Companies in Export Processing Zones (EPZs) co-ordinate through the Bangladesh Export Processing Zones Authority (BEPZA), and those in Economic Zones (EZs) work with the Bangladesh Economic Zones Authority (BEZA), rather than going through BIDA. This routing requirement applies to both medium and long-term external borrowings by industrial enterprises in the zones. Applications must be submitted via their AD bank, which forwards them through BEPZA or BEZA to BB. The proposal must include the pro forma application, project viability analysis, cost structure, earning capacity, and projected output. BEPZA/BEZA reviews and forwards the application to the Foreign Exchange Investment Department (FEID) of BB. Final decisions are communicated to both the borrower and the relevant zone authority. Companies in EZs/EPZs are also subject to BIDA’s debt-to-equity ratio requirements and all other general restrictions on use of proceeds.

Purpose and End-Use Restrictions

Foreign loans are generally approved only for legitimate business needs, such as capital expenditure or project finance.

Reporting Obligation

AD banks must submit a consolidated quarterly statement of all foreign loans received by their clients, detailing specific information and comments on the utilisation of each loan, within 15 days after each quarter ends.

Approval from BSEC for Debt Securities

The issuance of debt securities is subject to the approval by the BSEC which is detailed in 3.1 Debt Finance Transaction Structure.

Registration of Securities

Security interests in the form of mortgage or charges created by companies is required to be registered with the RJSC while dematerialised shares must be pledged and recorded in the CDBL system as detailed 5.1 Guarantee and Security Packages.

Signing Formalities

Execution of instruments typically requires wet-ink signatures. Using electronic and digital signatures are not standard practice, however, there is legal restriction on using the same for execution of indentures. Key formalities concerning execution of instruments are discussed in 4.1 Transaction Documentation and 5.1 Guarantee and Security Packages.

Verification

In addition to completing the perfection formalities of the securities, the lenders must verify the borrowers’ ownership of the assets and ensure that the secured assets are free from encumbrances. This is essential to confirm that the entire security package is effective and enforceable.

No Works Council or Labour Consent

There is no requirement in Bangladesh to obtain consent from employees or any works council for arranging debt financing or creating security. Companies can negotiate and enter into loan agreements and security documents without involving employee representatives, as Bangladeshi law does not mandate workforce consultation on these matters. Corporate approvals (board or shareholder resolutions where applicable) are sufficient, and no separate employee or local council approvals are necessary for financing transactions.

Other jurisdiction-specific features or cross-border issues in debt finance transactions have been discussed in 4.3 Jurisdiction-Specific Terms.