The Bangladesh Bank has relaxed its capital requirement for banks against venture capital.
From now on, banks can maintain 100% risk-weighted capital, down from the existing 150%, against their investment in alternative investment tools.
As a result, banks will need to maintain less capital against such investments, the Bangladesh Bank said in a circular on Tuesday.
The notice will come into effect immediately and continue until September 30, 2022.
A venture capital fund is an alternative investment fund that is invested primarily in non-listed equity and equity-linked securities of startups with less than two years' operational history, or greenfield companies or emerging early-stage undertakings mainly involved in new products.
Such a policy relaxation will increase investment opportunities for banks in venture capital firms, a growing new investment platform in Bangladesh.
The lower capital maintenance will reduce the investment cost for banks, said a senior executive of the Bangladesh Bank.
Many fund managers have started to form venture capital funds but have not received an adequate response from institutional investors.
The ease in the capital requirement is expected to increase funding flows from banks, said industry insiders.