Nagad, the mobile financial arm of Bangladesh Post Office (BPO) that has been running under a temporary mobile financial service (MFS) license since 2019, through a service agreement with BPO, has been given the go-ahead of applying to the central bank in becoming a non-bank financial institution (NBFI).
The central bank gave the go-ahead through a Letter of Intent on Tuesday at a meeting between the regulator’s board of directors.
Nagad was given the go-ahead for an NBFI license as BPO was unable to comply with the central bank’s MFS rule of forming a company to get a full license for its operation as well as legalization.
However, the central bank gave Nagad certain conditions that it needs to fulfil before getting the final approval of becoming an NBFI.
According to a top central bank official, the major condition given to Nagad is that it has to bring in more than 90% of its investment from foreign sources to increase foreign currency inflow.
The central bank official, who attended the board meeting said the major investment will come from the United States and Singapore, according to Nagad Finance's proposal.
Nagad earlier applied to the national bank as Nagad Finance PLC to proceed as an NBFI as initially, it did not get approval from the central bank to operate as an MFS and only had provisional authorisation.
According to the regulations, an MFS company cannot exist on its own but has to be a subsidiary of another financial institution or government entity. For example, bKash is a subsidiary of the Brac Bank and Rocket of Dutch-Bangla Bank.
To get a full license, the BPO had to form a company to run Nagad as its subsidiary. Despite being given five extensions, the last of which is to end on September 30 this year, Nagad still could not become a subsidiary of the government institution.
According to the revised policy of the central bank, an MFS company, be it an enterprise of a government organization or a non-bank financial institution, can be formed provided that the central bank gives it the permission to do so.
Now, Nagad will have to form a subsidiary under the new NBFI to get a full license from the central bank, and following the formation of the subsidiary, Nagad will no longer be a government service and will be like other private MFS providers, such as bKash, according to central bank spokesperson Md Serajul Islam.
On top of that, an NBFI is required to have a paid-up capital of Tk100 crore as per the Finance Institution Act, which also needs to be fulfilled.
However, as per a statement shared with the media, Tanvir A Mishuk, founder and managing director of Nagad said: "The journalists informed us of the approval of Nagad Finance PLC by Bangladesh Bank's board of directors. However, we do not yet have any official documents in this regard."
"Subject to the final approval of our strategy, Nagad Finance PLC will operate as an independent financial institution. However, the existing partnership between the postal department and the mobile financial service provider Nagad Limited will remain unchanged. Nagad Limited will run as a Postal Department's mobile financial service whereas Nagad Finance PLC will thereafter operate similar to any other non-banking financial institution," he also said.
He added that as a mobile financial service, Nagad Limited is currently in partnership with several institutions. In this case, the relationship between Nagad Finance PLC and Nagad Limited will also remain the same.
However, Nagad Finance PLC will promote its products and services through Nagad Limited. Jointly, Nagad Finance PLC and Nagad Limited will work to bring the underserved into the fold of digital financial inclusion. It will also reduce the cost of services while improving the quality of service, he pointed out.
