Central Bank Cuts Red Tape So Local Firms Can Raise Funds More Easily From Non-Resident Investors

Bangladesh Bank has taken a practical step to widen financing options for domestic companies by simplifying the rules that govern preference shares issued to non-resident Bangladeshis and other foreign investors. The change, set out in a circular issued by the Foreign Exchange Investment Department, removes an approval requirement that had previously slowed many routine transactions and is expected to make preference shares a more usable tool for raising longer-term capital from abroad.

Under the revised framework, manufacturing and service-sector companies can now issue preference shares to non-resident investors without first seeking Bangladesh Bank clearance, provided the fixed dividend does not exceed five percent of the shares' face value. Arrangements that involve higher rates, participating dividends, or adjustable returns still require prior permission and must be justified through an authorised dealer bank. The circular also clarifies the steps for redeeming the shares later and for converting them into ordinary equity, while spelling out how dividends and redemption proceeds are to be remitted overseas.

Preference shares under the new rules must be paid for with foreign currency that enters Bangladesh through official banking channels. Once the shares are issued, the company is required to submit a report to the central bank, preserving a record of the transaction without imposing an advance gate. Both the original investment and any subsequent outward payments of dividends or capital must pass through the same authorised dealer bank, giving regulators a clear trail while reducing the number of separate approvals that investors and companies previously had to navigate.

The timing of the measure is significant. Private-sector credit growth has remained unusually weak for months, reflecting high lending rates, cautious banks, and subdued investment appetite. At the same time, many firms continue to face constraints on long-term funding. Preference shares offer one route around these constraints: they can provide fixed returns to investors while ranking ahead of ordinary shareholders for dividends and, in many cases, for repayment of capital. By lowering the procedural barrier for non-resident holders, the central bank is effectively inviting more of the savings held by the large Bangladeshi diaspora, as well as other overseas capital, into the domestic corporate sector.

Bankers and company secretaries who have reviewed the circular note that the practical benefits will depend on how quickly authorised dealer banks update their internal processes and how confidently boards of directors treat preference shares as a standard financing option. The change does not rewrite company law or tax rules; it simply removes one layer of foreign-exchange control that had made the instrument less attractive. For non-resident investors, the clearer path for both entry and exit—especially the ability to receive dividends and redemption proceeds without repeated prior clearances—reduces uncertainty about getting money back out of the country.

There are still limits. Deals involving dividends above the five-percent threshold, complex conversion ratios, or any deviation from the standard terms will continue to require central-bank scrutiny. Companies must also remain fully compliant with the Companies Act and any relevant securities regulations. These safeguards are intended to prevent misuse while still opening a faster lane for straightforward transactions.

In the wider context of Bangladesh's effort to stabilise the financial system and attract external resources, the preference-share relaxation sits alongside other recent steps aimed at improving the business environment. Whether it produces a noticeable increase in foreign capital inflows will become clearer over the coming quarters, as companies test the new procedures and non-resident investors decide whether the simplified terms are sufficient to justify committing funds. For now, the circular represents a concrete reduction in administrative friction for a financing instrument that had long been underused by firms seeking money from outside the country.