The recently passed “Finance Companies Act 2023” has set a limit on deposits where a non-banking financial institution (NBFI) cannot take deposits of more than Tk50 lakh from an individual. It may be as high as Tk1 crore, if the individual also deposits in a joint name. The owners of these institutions and their customers are concerned about the repercussions of this limit.
On November 14, chairmen and chief executive officers (CEOs) of the institutions held a meeting with Bangladesh Bank (BB) Governor Abdur Rouf Talukder. In the meeting, the central bank assured the NBFIs that it would implement the law in a way that did not disrupt their businesses. At the same time, the law will be relaxed for institutions that have kept default loans under control.
BB Deputy Governor Kazi Sayedur Rahman and Executive Director Md Mazbaul Haque were present at the meeting on behalf of the central bank.
There is an obligation to implement the law within two years of its enactment. The matter was also discussed in that meeting. The BB has assured that the timeframe can be extended by one more year. Apart from this, the central bank said that it will also consider whether concessions can be given to institutional investors in the case of holding shares of banks and financial institutions as an interim measure.
In this context, the chairman of the Bangladesh Association of Finance Companies (BAFC) and Meridian Finance and Investment Limited, Kazi M Aminul Islam, told Bangla Tribune that the law can be seen positively from an overall perspective. There is no provision in the new law that may create obstacles to the collection of deposits. The process of collecting deposits remains the same even after the law is enacted.
"However, we have highlighted the future effects of the limit of Tk50 lakh on deposit collection to the central bank," he said.
Kazi M Aminul Islam said: “The BB governor has assured us that the Finance Company Act will not create any hindrance in the NBFI sector. The purpose of the law is not to hurt good institutions but rather to enable relatively weaker institutions to turn around and contribute to the economy.”
He said that BB will soon issue a circular on how the institutions will implement the ceiling.
BB Executive Director and spokesperson Mazbaul Haque spoke to Bangla Tribune in this regard and said: "Laws are enacted after analyzing various aspects and effects. Therefore, there is no room to question it. However, the decision on how it will be executed will be taken after further analysis."
The official said that regulations will be created in a way that will not hurt the sector.
Industry insiders said that the country's economy cannot progress with a weak NBFI sector. In this regard, it is important to ensure the safety of depositors and adequate collateral or security against loans, while at the same time, it is important for the institutions to conduct their business operations well.
Besides imposing caps on deposits, collateral against loans, the tenure of directors, the maximum limit on the shareholding of stakeholders, and regulations for the directorship of banks and financial institutions were discussed in the meeting with the central bank. The representatives of NBFIs expressed their concerns and views on these issues at the meeting.
Regarding loans without collateral, the new law states that no finance company can give an individual loan exceeding Tk10 lakh or more than the amount specified by BB. However, in the case of Cottage, Micro, Small and Medium Enterprises (CMSMEs), the BB guidelines should be followed. Financial institutions have also raised this issue with the central bank. In this regard, the recently approved “Secured Transaction (Movable Asset) Act 2023” will be taken into consideration, the central bank has said. This will solve the problem faced by financial institutions in implementing the new law on unsecured loans.
The NBFIs play an important role in the country's economy. The role of NBFIs is commendable, especially in the case of CMSMEs. An NBFI is a type of financial institution that does not obtain a full banking licence or is not regulated by a national or international banking regulatory body. NBFIs collect term deposits and provide loans or investment services for various tenures. However, unlike banks, they cannot collect deposits on demand and return deposits to customers on demand. Because there is no cash or cash counter facility there. Therefore, these institutions repay the deposits on maturity or after a certain period.
Under a loan program for Bangladesh, the International Monetary Fund (IMF) has stipulated several steps to reform the country's financial sector. One of the steps was the implementation of the Finance Companies Act. The deadline for passing the law was set for September this year. However, it was passed on November 1 this year.