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BB lowers weighted average risk against venture capital

Published : Tuesday, 20 October, 2020 at 12:00 AM  Count : 185

The Bangladesh Bank (BB) on Sunday relaxed its guidelines on risk-based capital adequacy for banks' investments in venture capital fund, lowering the weighted average risk against such investment tool to encourage banks' exposure to alternative investment tools and to help grow startups.
The BB issued a circular in this regard setting the validity of the relaxed timeline till September 2022 starting from September 2020.
Alternative investments fund are considered as major supportive instrument for the startup businesses, prompting the central bank to come up with the policy relaxation following request from the parties concerned.
The BB said that the relaxation was introduced with a view to supporting flourishing of market for alternative investments fund including private equity and impact fund. Under the earlier instruction issued by the central bank, all banks were instructed to calculate 150 per cent weighted average risk against their investments in venture capital funds.
Under the latest amendment in the rules, banks have been allowed to lower the weighted average risk against investments in venture capital funds to 100 per cent. The BB in its circular asked all banks to consider weighted average risks as per the revised instruction while calculating their capital adequacy report to BB.
A senior official of BB said the high weighted risk determined by BB usually works as a discouraging factor for banks to invest in a particular sector. The policy relaxation would help banks invest higher amount to alternative investment tools. It will also work as encouragement to all.
The government is encouraging venture capital as an alternative investment fund to finance technology-based startup entrepreneurs in the country.
In line with the move, the Internal Resources Division of ministry of finance cut the stamp duty on registration of trust deed of alternative investments fund, including venture capital fund, to 0.1 per cent from previous 2 per cent.
It also set the maximum stamp duty at Tk 10 lakh and the minimum duty at Tk 5,000 on total value of the deed, bringing a great relief to the issue mangers and promoters of venture capital funds.









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