TDS Desk:

High interest rates and limited access to affordable financing and ongoing political instability are burdening start-ups, small businesses, and large corporations alike, limiting their capacity to invest in infrastructure, modernise technology, or scale up production.

This financial pressure undermines competitiveness, slows innovation, and hinders job creation, warn entrepreneurs and business leaders.

According to data from the Bangladesh Bank, the weighted average interest rate on loans stood at 7.11% in March 2022. This edged up to 7.31% by March 2023, surged into double digits at 10.36% in March 2024, and reached 12.04% by March 2025 – representing a 4.93 percentage point increase in just four years.

This figure reflects the average interest rate on loans. Banks typically impose additional charges on top, pushing rates in certain sectors above 16%-17%.

The steep rise in lending rates is dampening business expansion and investment, as many firms are reluctant to take on new credit amidst mounting financial strain. As a result, private sector credit growth has plunged to its lowest point in over a decade. In February, private sector loan growth dropped to 6.82% – the lowest level in 21 years.

Experts have noted that smaller industries are especially vulnerable, often unable to bear the burden of debt. Even larger companies are deferring capital expenditure under such financial pressure. As industries struggle to grow, overall economic progress falters.

Masrur Reaz, chairman of Policy Exchange Bangladesh, expressed concern about the sharp drop in capital machinery imports and private sector credit growth, describing it as alarming for a private sector-led economy.

He observed that many investors are delaying expansion and new ventures, largely due to high inflation eroding domestic demand and purchasing power.

Reaz also pointed to the effects of political instability, particularly following the ouster of the fascist Awami League regime in August last, which has left investors in a state of uncertainty.

The lack of clarity surrounding the transition to a democratic government is deterring long-term investment. Without political stability and economic certainty, he warned, investor confidence will remain subdued and industrial growth will continue to suffer.

Shams Mahmud, president of the Bangladesh Thai Chamber of Commerce and Industry, echoed these concerns, stressing that the dual impact of high interest rates and economic uncertainty is dissuading fresh investment.

“The sharp rise in interest rates is already hindering business expansion,” he noted. “As Bangladesh transitions towards developing country status, access to suitable financing will be crucial. However, with rates at their current levels, businesses are increasingly reluctant to take on loans.

Anwar-ul-Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries (BCI), attributed the fall in capital machinery imports to the ongoing uncertainty within the business environment.

“Law and order have not improved significantly, energy supply to factories remains unstable, and bank loan interest rates have jumped from 9% to 16%, all of which are discouraging investment,” he said.

Parvez emphasised that current conditions offer little comfort to entrepreneurs. “In such an environment, there is no incentive to invest. Business owners are struggling just to sustain their existing operations, let alone consider expansion,” he added.

AVERAGE LENDING RATES CONTINUE TO RISE ACROSS INDUSTRIES

Borrowing costs are impacting industries across the board, with average lending rates rising steadily over the past year.

According to Bangladesh Bank data, the weighted average interest rate (WAIR) on loans in large industries rose from 10.35% in March 2024 to 12.42% by March 2025.

The WAIR is calculated by averaging interest rates across different loan sizes, providing a clearer view of overall borrowing costs.

In the SME sector, WAIR increased from 10.51% in March 2024 to 12.43% a year later. The agriculture sector also faced pressure, with rates rising from 10.75% to 11.83% over the same period.

Banks often levy additional charges on top of base rates, pushing effective interest rates in some sectors beyond 16%-17%, adding further strain to businesses.

Among banks, the National Bank of Pakistan posted the highest lending rate at 16.60%, followed by Global Islami Bank at 16.36% and Padma Bank at 16.11%. Other banks with elevated WAIRs included Citizens Bank PLC (15.20%), National Bank (15.01%), ICB Islamic Bank (14.69%), Bengal Commercial Bank (14.48%), Community Bank (14.31%), NRB Bank (14.30%), and Modhumoti Bank (14.20%).

In April 2020, the Bangladesh Bank capped lending rates at 9%. To tackle the post-pandemic and geopolitical economic challenges, it introduced the SMART rate in June 2023, linking rates to treasury bill yields.

However, as rates continued to climb, the central bank, in May 2024, returned to a market-driven approach, allowing banks to set rates based on client relationships, loan demand, and fund availability.

CAPITAL MACHINERY IMPORTS FALL BY 26.02%

Data from the central bank shows a sharp decline in capital machinery imports, indicating reduced industrial investment.

In the July-March period of the current 2024-25 fiscal year, letters of credit (LCs) opened for capital machinery fell by 26.02% when compared the same period a year ago, while LC settlements dropped even further, by 28.68%.

In contrast, LC openings for consumer goods increased, fuelled by heightened demand in the lead-up to Eid.

Meanwhile, LC activity in other categories also declined. Openings for intermediate goods dipped by 1.61%, with settlements falling by 7.51%, while LC openings for petroleum products dropped by 3.83%.