Structuring and financing Foreign Direct Investments (FDI) in Bangladesh

Published in: Asian Business Law Journal, May/June 2020 Issue

The Bangladesh economy continues to grow at an impressive scale, with a GDP growth rate of 8.1%, surpassing that of its neighbouring countries and making it one of Asia’s most remarkable success stories. The growth is being driven by manufacturing and construction on the supply side, and increasing private consumption backed by strong remittances and rural income growth on the demand side. The rapid growth of electricity generation has energized the economy, while export growth has also accelerated, benefiting from low-cost production facilities, export benefits, numerous investment incentive packages and miscellaneous other geopolitical factors.

While the covid-19 pandemic is expected to cause a decline in the country’s growth rate, Bangladesh has the potential to attract foreign direct investment (FDI) in the region as Japan, Korea, the US, UK and EU countries consider relocating their factories from China.

Chinese investment is also continuing to arrive in Bangladesh under the Belt and Road Initiative (BRI) and ensuing agreements on economic and technical cooperation between the two countries. Accordingly, the influx of FDI into Bangladesh will continue.

Regulatory framework

A World Bank report has judged Bangladesh to be the most liberal among South Asian FDI regimes, with no prior approval requirements or limits on equity participation, or on the repatriation of profits and incomes. Legislation aimed at promoting and protecting foreign investment provides for non-discriminatory treatment between foreign and local investment, protection of foreign investment from expropriation by the state, and repatriation guarantees of proceeds from the sale of shares and profit.

Foreign investment is allowed in almost all sectors, excluding a few reserved industries. Investment may be undertaken either independently or under joint ventures, either with the local private or public sector. The capital market is also open for portfolio investment.

Investment structures

Wholly owned subsidiaries.

Foreign investors can gain full access to the Bangladesh market by establishing wholly owned subsidiaries under the Companies Act, 1994. Such companies may be formed as a private limited or public limited company. Foreign equity ownership may be up to 100% in almost all the sectors, with very few exceptions. However, Bangladesh is yet to allow a “one-person company”. The shareholders or their representatives, as well as directors, including nominee directors, may all be foreign nationals.

The incorporation process is handled by the Registrar of Joint Stock Companies & Firms and begins with obtaining name clearance. The parent/investing company is then required to transfer the paid-up capital to a temporary bank account. There is no minimum investment requirement, except that companies willing to employ expatriates requiring work permits are required to invest a minimum of US$50,000.

On receipt of the investment fund, the concerned bank issues an encashment certificate, following which the company set-up process is completed. No prior approval from regulators is required for foreign investors to incorporate subsidiary companies in Bangladesh. There are some intimation formalities with the regulators, such as the Bangladesh Investment Development Authority (BIDA), Bangladesh Economic Zones Authority, etc., following the company formation, depending on the type and location of the business being set up.

The newly formed company shall obtain a trade licence, and income tax and VAT registrations. Additional permits, approvals or no-objection certificates (NOCs) and licences, including export-import licences, may be required depending on the nature of the business. Membership with a business chamber or relevant trade body is also often necessary.

Joint venture companies (JVCs)

Foreign companies can incorporate a JVC with a local investor, or with another foreign company, or its Bangladeshi subsidiary. The authors recommend investors to first enter into a joint venture agreement (JVA) with such partners before the incorporation of the JVC, which will address all other intricate details relevant to the context of the business. The memorandum and articles of association of the JVC are drafted in line with the JVA.

Acquisition of shares

Foreign investors can also invest via the acquisition of shares in existing Bangladeshi companies. A share purchase agreement (SPA) may be executed to address all aspects of the acquisition. The transaction is consummated and share transfer is effected at closing, in light of the SPA.

If a foreign investor is not acquiring all the shares of the company, it may either acquire a portion of existing shares of the target company from existing shareholders (also under an SPA) or inject capital into the target company in the form of a share money deposit for issuance of new shares. In both cases, the shareholders should enter into a shareholders’ agreement (SHA) and the articles of association of the target company may be amended in alignment with the SHA.

Special purpose vehicles (SPVs)

In many cases, a foreign investor may want to go for a joint venture with a local investor or company that already owns existing projects. The foreign investor may only want to invest in a particular project, and not be a stakeholder of other existing or prospective projects, their assets or liabilities. A suitable structuring solution in such an event would be to incorporate what is termed an SPV, or a project company, which will be a freshly incorporated company for the specific project in question.

Branch or liaison office

Foreign companies can also set up a limited presence in Bangladesh as a foreign entity through a branch office or liaison office on obtaining approval from the BIDA. Unlike subsidiary companies, the activities that a branch office or liaison office may undertake are relatively limited. Ordinarily, no outward remittances of any kind from Bangladesh through the branch or liaison offices are allowed unless specific exemptions are obtained from the BIDA, and the same is aligned with the central bank’s regulations. These offices are required to bring inward remittance of at least US$50,000 as establishment costs.

Branch offices usually represent the parent company and undertake specific activities such as the export or import of goods, rendering of professional or consultancy services. However, branch offices are generally not permitted to carry out manufacturing activities. Liaison offices, on the other hand, mainly act as the liaison and communication channel for the parent entity. It cannot engage in any income-generating activity in Bangladesh.

Financing in Bangladesh

Debt-based financing

Foreign investors, through their subsidiary companies in Bangladesh, may obtain debt-based financing from local banks and non-banking financial institutions (NBFIs). This includes loans for working capital and various funded credit facilities including cash credit, secured overdraft, various types of term loans and demand loans, loans against the central bank’s Export Development Fund, lease finance and hire purchase.

Syndication loans and other structured finance are also available in Bangladesh. Non-funded credit facilities such as letters of credit, accepted bills for payment and bank guarantees can also be availed of by companies incorporated in Bangladesh.

Private borrowings from foreign sources

Industrial enterprises in the private sector may obtain borrowings/credit from recognized lenders including international banks, international capital markets, multilateral financial institutions such as the International Finance Corporation, the World Bank, the Asian Development Bank, the Organization of the Petroleum Exporting Countries Fund, etc., as well as export credit agencies and suppliers of equipment.

Borrowing from foreign equity holders for bridge financing may also be availed. The range of loans covers commercial loans including financial loans, bank loans, buyer’s credit, supplier’s credit from institutions and individuals, and debt issues in the capital market abroad. Such loans can be utilized for investments to import capital machinery for new projects, or modernization or expansion of existing production units in industrial sectors, but not for working capital purposes or investment in capital markets.

Foreign borrowings will require prior approval from the BIDA, and the process also involves approval from the central bank’s scrutiny committee. The proposed rate of interest must be competitive, with prevailing lending rates in the international markets in the concerned currencies for the relevant tenure. Usually, the interest rate should be based on the prevailing government treasury bond rate in that currency for that tenure, plus a reasonably modest country risk premium.

Equity financing

Investors may also consider equity-based financing from Bangladesh’s capital market, which has two stock exchanges. Investors have to comply with the securities laws of Bangladesh, and are subject to prior approval from the Bangladesh Securities and Exchange Commission.


The corporate bond market in Bangladesh is still in its infancy, with very few publicly placed corporate bonds. The lack of demand for such debt instruments has, therefore, discouraged companies from floating the option.

Bangladesh offers various investment routes and financing modalities. It is worth mentioning that the most recent budget has immensely relied upon FDI, which is indicative of the fact that the Bangladesh government will continue to give further incentives to attract FDI. Now is, therefore, the time to invest in Bangladesh.