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Business sector in the country is caught in a deepening financial squeeze, as soaring borrowing costs, stricter lending rules and a weakening taka pile pressure on companies already battling inflation and sluggish domestic demand.
Business leaders and economists warn that high interest rates and limited access to financing are slowing industrial expansion, disrupting production and increasing the risk of factory closures and job losses in the country’s manufacturing-driven economy.
Lending rates for industrial loans averaged around 12% by end of March 2026 – 12.16% for large industries and 12.54% for small and medium enterprises, according to Bangladesh Bank data. But that headline figure understates the real burden.
Once service charges, commissions and assorted banking fees are factored in, effective borrowing costs routinely climb to 15%-17%, business owners say.
The squeeze is no accident. Bangladesh is implementing a package of reforms tied to its International Monetary Fund loan programme, designed to rein in inflation, shore up foreign exchange reserves and clean up a banking sector long plagued by defaults.
The cost is being felt on factory floors across the country.
Taka’s painful slide
The taka’s depreciation has compounded the pain. The currency has weakened sharply over the past two years – fro m roughly Tk110 to the dollar to above Tk122.75 – as Bangladesh Bank allowed the exchange rate to move more freely.
For import-dependent industries relying on foreign raw materials, machinery and fuel, that shift has meant a direct and unrelenting hit to production costs.
Anwar-ul Alam Chowdhury (Parvez), president of the Bangladesh Chamber of Industries, described the situation in blunt terms.
“The industrial sector has been facing a severe working capital crisis since the post-Covid period,” he said, citing reduced gas supply, inflation, currency depreciation and rising interest rates as compounding blows to manufacturers.
Interest rates eating into profits
For individual business owners, the numbers tell a stark story.
Robiul Islam, a medium-sized industrial entrepreneur, said the shift in borrowing conditions had rendered financing nearly untenable. “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.
Economic analyst Mamun Rashid warned the situation was manufacturing a new class of defaulters – not through recklessness, but through arithmetic.
“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 left behind
Small and medium enterprises and startups are taking the hardest hit. As lenders tighten collateral and documentation requirements, banks are effectively steering credit toward large corporate borrowers, leaving smaller firms out in the cold.
Technology startups face a particular bind – many lack the physical assets banks demand as 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 those who qualify face a bureaucratic obstacle course. Securing a loan requires trade licences,
VAT certificates, tax returns, bank statements, company registration papers and sector-specific approvals – along with land ownership records, guarantor information and Credit Information Bureau reports for larger borrowers.
Multi-layer verification processes can delay disbursements for months, stalling raw material imports and factory operations.
Default rules trap the struggling
Bangladesh Bank’s revised loan classification rules – part of the IMF reform package – have added fresh urgency.
Loans overdue by three to six months are now classified as substandard; six to twelve months as doubtful; beyond twelve months as bad or loss accounts. Banks whose default ratios exceed 8% lose access to central bank refinancing facilities.
Business leaders argue the tightened timeline is catching out firms suffering temporary liquidity problems, not chronic mismanagement.
Shams Mahmud, president of the Thai Chamber of Commerce and Industry, said restructuring without refinancing was a recipe for collapse. “Rescheduling alone is not enough. Refinancing must accompany restructuring. Otherwise, it will be difficult to keep industrial establishments alive.”
Factories paralysed by disproportionate action
The consequences of classification can be severe and disproportionate. A textile entrepreneur described how a factory representing Tk1,000 crore in investment could grind to a halt over classified loans of just Tk200-250 crore.
“When factories shut down, banks themselves fail to recover the full amount,” he said. “Keeping industries operational would allow gradual repayment over time.”
A former BGMEA director noted that some factories worth hundreds of crores had shuttered over comparatively small debts, simply because banks withdrew support at the worst possible moment.
Government eyes a lifeline
The government appears to be taking note.
Finance Minister Amir Khosru Mahmud Chowdhury recently said factories shuttered after August 5, 2024 would be reopened as part of an industrial recovery push.
Bangladesh Bank is also weighing a proposed Tk40,000 crore refinancing fund for closed industrial establishments, with commercial banks already asked to submit data on shuttered factories and outstanding loans.
Former Bangladesh Bank chief economist Mustafa K Mujeri put the stakes plainly: sustainable growth would remain out of reach so long as genuine entrepreneurs struggled for credit while politically connected borrowers continued to receive preferential treatment.
The factories that close, he and others stress, do not just hurt owners – they ripple outward to workers, suppliers, transporters and entire local economies.