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Bangladesh Bank moves to stop collateral fraud

  • Published at 09:31 pm September 4th, 2018
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The Bangladesh Bank building at Motijheel Mehedi Hasan/ Dhaka Tribune

Data repository to help lenders avoid risk from March 2019

Banks are not unfamiliar with unscrupulous borrowers who secure loans by offering the same piece of property as collateral to multiple lenders.

A tricky situation arises when a bank wants to seize collateral to recoup its losses from a defaulting borrower and suddenly finds that multiple lenders have a lien on the same asset. This happens mostly because of forgery by unscrupulous borrowers.

A simple way to get rid of such fraudulence can be by maintaining a repository of data on mortgaged land, so that debtors cannot use the same property over and over again to secure loans from multiple creditors. Bangladesh's central bank is now adopting the practice to check collateral fraud, said officials.

Bangladesh Bank is in the process of completing a data repository or “information bank,” which will act as deterrent if anyone tries to avail loans from different lenders using the same land.

Recently, Bangladesh Bank sent a letter to the Finance Ministry saying that the information bank will be ready for use by March, 2019.

In an earlier letter, the finance minister had asked Bangladesh Bank to inform his ministry on the development of the information bank.

According to the letter from Bangladesh Bank, the initial work on the software for the information bank has been completed, and the collection of information on collateral from various banks and financial institutions is ongoing.

After getting the necessary hardware, a software system will be installed and the performance of the information bank will be tested. The software for the collateral information system is likely to be delivered this month.

After getting the software, it will take six months to finish preparatory activities of the Credit Information Bureau (CIB).

Meanwhile, the central bank has also informed the Finance Ministry that the rules under Bangladesh Bank Order 1972 needed to be amended for the opening up of collateral-related information for the masses.

As per Sections 46 (1) and 46 (2) of the order, the central bank cannot disclose information to the public other than the names of banks and the names of borrowers.

As per Section 46 (3), this type of information can be delivered openly in parliament. No court, tribunal, or other authority can compel Bangladesh Bank to publish the information which is kept in the CIB database.