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DHAKA, June 16 (Reuters) - The World Bank said it would lend Bangladesh $111.5 million to strengthen the country's network of about 4,500 local government councils.

The World Bank said the loan would help ensure there is a more equitable distribution of funds to local councils, or union parishads, the lowest tier of government.

''The emergence of effective local governments can create space for broader political participation and bring with it a chance for greater accountability of the state to citizens,'' Christine Wallich, World Bank country director for Bangladesh, said in a statement.

In addition to the World Bank credit, the United Nations Capital Development Fund, United Nations Development Program and the European Union will contribute $16 million to the local councils, rural infrastructure development and to help reduce poverty by linking local economies with markets.

The World Bank loan carries a 0.75 percent annual service charge and is repayable in 40 years, including a 10-year grace period.

Bangladesh received $815.81 million in foreign aid between July and March of fiscal 2005/06, down from $1.08 billion in the same period a year earlier, government officials said.

However, net foreign aid receipts were $473.81 million in the period because the country paid out $342 million to repay earlier debt.

($1=69.65 taka) REUTERS DKS SND1448