DHAKA (AFP) - Bangladesh on Wednesday signed a loan deal with a Japanese development agency for construction of the country's first-ever metro rail system, costing US$2.8 billion (S$3.5 billion) and intended to ease Dhaka's traffic jams.

Traffic in Bangladesh capital, home to 15 million people, is among the slowest in the world with commuters spending three hours to four hours in jams daily.

A mix of 200,000 motor vehicles and another half-million cycle-rickshaws clog the roads.

Officials said the proposed 20.1km ground and elevated railway will stretch across Dhaka from north to south with 16 stations and will ferry four million commuters every day, easing the jams substantially.

The project will cost an estimated US$2.8 billion, Japan International Cooperation Agency (JICA) Bangladesh chief Takao Toda said, adding that his agency will finance 85 per cent of the cost at an interest rate of 0.01 per cent.

"The metro-rail will reduce travel time to 36 minutes (to cross from north to south Dhaka), which now takes hours," Dr Toda said at the signing of the first phase of the loan deal entailing US$116.3 million for consulting services.

The metro-rail construction will start in 2016 and end in 2021.

The government may seek investment from other donors for the remainder of the cost.

The metro will be the impoverished country's second-largest infrastructure project after a US$3 billion bridge project over the river Padma. The government says it plans to finance the bridge on its own.

Early this month, Bangladesh withdrew its request for World Bank financing for the high-profile bridge project which has been dogged by allegations of corruption involving top government officials.