The central bank, instead of the finance ministry, will provide low-cost funds to the institutional investors so that they can invest more in the stock market.
The decision comes at a time when the market is going through a turbulent time for the last two years.
The central bank officials said, "Institutional investors including merchant banks, brokerage house, mutual funds can now avail the loan facility with a lower interest rate through banks and non-bank financial institutes.
Earlier on January 22, the central bank sent a proposal to the finance ministry asking to arrange a refinance scheme from the central bank's fund to provide concessional loan to the institutional investors, responding to a proposal of the finance ministry to support the stock market with Tk10,000 crore.
The finance ministry on Sunday gave a go-ahead signal to the central bank to provide this support, said sources.
The Bangladesh Bank, however, will impose some conditions such as the amount of loan, which will depend on the investors' paid-up capital, they said.
A central bank official told The Business Standard: "It could be a revolving fund of Tk2,000 crore."
The probable interest rate of the loan will be 5 to 7 percent, and the loan repayment period will be a maximum of five years.
If an institutional investor fails to repay the loan, the concerned bank will have to pay it. The Bangladesh Bank officials are expecting to issue a circular today.
Currently, there are 262 merchant banks and brokerage houses operating in the country.
To overcome the liquidity crunch of the stock market, the merchant banks and brokers' association made a proposal asking a Tk10,000 crore fund from the finance ministry as a soft loan.
On December 17, the finance ministry sent a letter to the central bank, seeking opinion on the fund disbursement process.