The recently passed “Finance Companies Act 2023” has set a limit on deposits for non-banking financial institutions (NBFIs). Owners of these institutions and their customers are still not clear of the repercussions of this limit. In the meantime, chairmen and chief executive officers (CEOs) of the institutions held a meeting with Bangladesh Bank Governor Abdur Rauf Talukder on November 14. Besides, a letter was also written to the governor on behalf of the owners, seeking necessary measures. Kazi M Aminul Islam, chairman of the Bangladesh Association of Finance Companies (BAFC) and Meridian Finance and Investment Limited, spoke to Bangla Tribune’s Golam Mowla about the issue.
How do you evaluate the recently passed Finance Company Act?
As a whole, we take the law seriously. This sector needs development. The new Act has been formulated in view of the obstacles that have come to light. I think it has been passed so that the NBFI sector can be run transparently and to ensure its progress. This Act is enacted so that the depositors do not suffer losses. Deposit-taking institutions also have a need for transparency and accountability—the Act seeks to ensure it.
Tell us about the impact of the Tk50 lakh limit on deposits under the law.
So far, it has not had any negative impact. The new law does not create any hurdles to collecting deposits. The way we have been collecting deposits is still being done the same way. However, the limit of Tk50 lakh has been fixed in a way that it does not have a negative impact in the future; we have sought cooperation from Bangladesh Bank in this regard. Bangladesh Bank's attitude is that this provision will not be the same for all institutions. This provision will be different for different financial institutions. The BB is thinking about how it will happen. We are assured that no harm will come to us. No loss to the customer, no loss to the organization.
If what you are saying is true, then why have the regulators set a ceiling of Tk50 lakh?
The reality of the past few years tells us that many people are not being able to return the customer's money. Many have complained to the Bangladesh Bank after failing to recover their money. That is why this provision has been put in place. We think that this Act has been enacted so that the NBIFs are better able to return the customers their money. Remember, the customer may want to withdraw their deposits at any time, and the financial institution should return the money whenever the customer demands it.
Is there a need for any reforms in the new law?
We have informed the central bank about it. Now they will guide us accordingly. Any law can have weaknesses. The weaknesses in the Finance Company Act will be corrected through amendments if necessary. It’s not that you cannot change a law after it is enacted. NBFIs should also be disciplined as part of bringing the entire economic sector, especially the banking sector, under the special supervision of the central bank. We have discussed ways to overcome the weaknesses in the sector and will continue to do so in the future as well. The BB has assured us that whatever is done will have a positive impact on public life.
Is there any effect of the new law already on the sector?
There is nothing to panic about among customers or owners of financial institutions because of this law. Because, after the law has been passed, there is now no hurry among customers to withdraw their deposits. Instead, interest in keeping deposits has increased.
Some say that due to the new law, even good institutions are losing customers. Is this really so?
The new law has not yet been implemented. A copy of the law has not yet reached the central bank. After receiving the necessary circular issued by the central bank, the NBFIs will act accordingly. The central bank will issue a separate circular on how the institutions will execute the deposit limit so that the common people do not have to withdraw money out of panic. That is, the central bank will take the necessary measures to protect the interests of ordinary customers.
What did the central bank tell you about deposit limits?
The 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 harm good institutions, but to enable relatively weaker institutions to turn around and play a role in the economy.
What was the necessity of the new law at a time like this?
Like other sectors of the economy, non-banking financial institutions, or NBFIs, need reform. As per the size of the country's economy, this sector has scope to expand further. In that case, it is very justifiable to pass the law.
How much of the money market does NBFI control?
NBFIs play an important role in the country's economy. The role of NBFIs is commendable, especially in the field of cottage, micro, small, and medium enterprises (CMSME). NBFIs collect term deposits and give loans for various tenures. Those who do not get financial services from banks come to NBFIs. NBFIs are basically there for investments. The BB has accepted the fact that NBFIs can play a greater role in the future in terms of investment. But they cannot collect deposits like banks and return them to customers quickly. There is no cash or cash counter facility here. Hence, these institutions repay the deposits on maturity or after a certain period of time.
What is the importance of NBFI compared to banks and the central bank?
The importance of NBFIs to the central bank is now greater than ever. Earlier, decisions were made by the deputy governor or other officials. Now the governor himself supervises everything. In a meeting with us, the governor listened to us very sincerely. He is now personally giving us time. He has taken initiatives to maintain order in this sector. We are very happy that the governor himself is looking after all the affairs of the financial institutions.
Compared to the Bangladesh Association of Banks, how organized are you?
An organization comprising the chairmen of NBFI institutions has already been formed. We have sat several times on various issues. Until now, we did not have such an organization. Therefore, we are talking among ourselves in the interests of the institutions. We are trying to play a role in the development of this sector. Financial institutions are also fulfilling certain responsibilities. We will work on the progress or find out the obstacles in this sector. We will do whatever it takes to earn people's trust. We can take our business forward depending on the situation of the market.
Can the institutions in bad shape turn around?
If we look at the last two to three years’ performances, some institutions have overcome their weaknesses even in difficult times, including the pandemic. The condition of several financial institutions has improved. As an example, they have brought down the non-performing loans from 25% to 10%. It is very important to support the positive initiatives of such institutions.
