Special Correspondent
Bangladesh’s business sector is under mounting financial strain as rising borrowing costs, stricter lending rules, and a depreciating taka combine to squeeze industrial activity, slow investment, and heighten fears of factory closures and job losses across the manufacturing economy.
Business leaders and economists warn that the current environment has turned survival itself into a challenge for many firms, particularly those dependent on imported raw materials and bank financing. With inflation still elevated and domestic demand weakening, companies are struggling to balance production costs against shrinking profit margins.
Borrowing Costs Rise Sharply Beyond Reported Rates: Official Bangladesh Bank data show that lending rates for industrial loans averaged around 12 percent by March 2026 - 12.16 percent for large industries and 12.54 percent for small and medium enterprises (SMEs).
However, business owners say the actual cost of borrowing is significantly higher once service charges, commissions, and banking fees are included, often reaching 15 to 17 percent.
The tightening credit environment reflects ongoing financial sector reforms linked to Bangladesh’s International Monetary Fund (IMF) programme, aimed at curbing inflation, stabilizing foreign exchange reserves, and addressing long-standing weaknesses in the banking system.
While these reforms are intended to improve macroeconomic stability, the immediate impact is being felt on production floors nationwide.
Industry Leaders Warn of Working Capital Crisis: Anwar-ul Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries, said manufacturers are already under severe strain from multiple cost pressures.
“The industrial sector has been facing a severe working capital crisis since the post-Covid period,” he told The Daily Industry, citing reduced gas supply, inflation, currency depreciation, and rising interest rates as overlapping shocks affecting production capacity and liquidity.
He added that many firms are now struggling simply to maintain day-to-day operations, let alone invest in expansion or modernization.
Currency Depreciation Adds to Import Burden: The depreciation of the taka has intensified the pressure on import-dependent industries. The currency has weakened from around Tk110 per US dollar to over Tk122.75 in recent years, following greater exchange rate flexibility introduced by Bangladesh Bank.
For industries reliant on imported machinery, fuel, and raw materials, this has translated into significantly higher production costs, further eroding competitiveness in both domestic and export markets.
Profitability Under Severe Strain: For many entrepreneurs, the combination of high interest rates and currency depreciation has created an unsustainable financial equation.
Robiul Islam, a medium-sized industrial entrepreneur, said the new lending environment has fundamentally changed business viability.
“Earlier we could borrow at 9% interest, but now we are paying nearly 15%. A large portion of our profits is consumed by interest payments,” he said, highlighting how debt servicing is increasingly eating into operational margins. Economic analyst Mamun Rashid warned that the current situation is creating structural risks in the financial system.
“In many cases, the burden of paying interest on bank loans is becoming higher than the income generated by businesses,” he said. “Once a business starts incurring losses, it becomes extremely difficult to repay loan instalments regularly. This is creating a new class of unintended loan defaulters.”
SMEs and Startups Face Credit Exclusion: Small and medium enterprises (SMEs) and startups are among the hardest hit by tightening credit conditions. Banks, increasingly cautious about risk exposure, are prioritizing large corporate borrowers with stronger collateral profiles.
Technology startups, in particular, face barriers due to the lack of physical assets required as loan security. “Even if the business idea is promising, banks first ask whether we have land or property,” said one startup entrepreneur. “This has become a major obstacle for new businesses.”
Even when eligible, businesses face a lengthy and complex documentation process involving trade licenses, VAT certificates, tax returns, company registration papers, bank statements, guarantor details, and Credit Information Bureau (CIB) reports. This process can delay financing for months, disrupting imports and production cycles.
Loan Classification Rules Add Pressure: The pressure has intensified further following Bangladesh Bank’s revised loan classification framework under IMF-backed reforms. Under the new rules, loans overdue by three to six months are classified as substandard, six to twelve months as doubtful, and beyond twelve months as bad or loss assets. Banks with non-performing loan ratios above 8 percent also lose access to central bank refinancing facilities.
Business leaders argue that the tighter timeline risks pushing temporarily distressed firms into default categories, even when their problems stem from liquidity shortages rather than structural failure. Shams Mahmud, president of the Thai Chamber of Commerce and Industry, said the policy approach needs greater flexibility. “Rescheduling alone is not enough. Refinancing must accompany restructuring. Otherwise, it will be difficult to keep industrial establishments alive,” he told The Daily Industry.
Factories Closing Over Cash Flow Stress: Industrial insiders warn that loan classification rules are having unintended consequences on viable businesses facing short-term financial stress. A textile entrepreneur said the impact of loan classification can be disproportionate, even in large-scale investments.
“A factory representing Tk1,000 crore in investment can be forced to shut down over classified loans of just Tk200-250 crore,” he said. “When factories shut down, banks themselves fail to recover the full amount. Keeping industries operational would allow gradual repayment over time.”
A former BGMEA director added that several factories worth hundreds of crores have already been closed due to relatively small outstanding debts, largely because of withdrawal of banking support at critical moments.
Government Considers Industrial Support Measures: In response to growing concerns, the government has signaled potential intervention to stabilize the industrial sector. Finance Minister Amir Khosru Mahmud Chowdhury recently said that factories closed after August 5, 2024, would be reopened as part of a broader industrial recovery initiative.
Bangladesh Bank is also considering a Tk40,000 crore refinancing package aimed at reviving closed industrial units. Commercial banks have been instructed to submit data on shuttered factories and outstanding loan exposures to assess the scale of intervention required.
Experts Warn of Long-Term Growth Risks: Former Bangladesh Bank chief economist Mustafa K Mujeri emphasized that sustainable economic growth will remain elusive unless credit access is made more equitable and efficient.
He noted that systemic imbalances in lending practices could undermine productive sectors if not addressed alongside ongoing reforms.
Economists argue that while financial discipline and banking reforms are necessary, they must be balanced with measures that ensure viable businesses are not pushed into failure due to temporary shocks.
Ripple Effects Across the Economy: Analysts warn that factory closures and production slowdowns have far-reaching consequences beyond individual firms. The manufacturing sector is closely linked to transport, logistics, raw material supply, and labor markets.
When factories shut down, the impact spreads across entire local economies - affecting workers, suppliers, small traders, and service providers. As Bangladesh navigates a difficult macroeconomic adjustment phase, the challenge for policymakers will be to stabilize the financial system without choking the productive capacity of the real economy.
