TDS Desk:

Pushing to establish a new generation of entrepreneurs from the youth and marginalised communities, Dr. Muhammad Yunus emphasised the creation of a ‘microcredit bank’ last May. Acting on his directive, the government promptly launched an initiative to establish such an institution. The Financial Institutions Division (FID) of the finance ministry has now drafted the ‘Microcredit Bank Ordinance, 2025’ to that end.

This draft controversially proposes making the Microcredit Regulatory Authority (MRA), not Bangladesh Bank, the proposed bank’s chief regulator — a move most stakeholders firmly oppose. Analysts urge a decision grounded in practical realities, not sentiment.

STAKEHOLDER CONSULTATION AND TECHNICAL COMMITTEE

The FID published the draft on November 26, but the feedback period expired without a single submission. Consequently, a meeting chaired by the FID Secretary was convened on December 18 to gather opinions, where a clear consensus emerged: most participants argued for renaming it the ‘Microfinance Bank Ordinance’ and for appointing Bangladesh Bank, not the MRA, as the licensing authority.

The proposed ordinance allows for an unspecified number of microcredit banks, yet several stakeholders contended it should instead facilitate one large-scale institution. The meeting also decided to form a technical committee, drawing members from various stakeholders, to scrutinise the draft. Appointed as its convenor was Md Saeed Qutub, an additional secretary of the FID.

Committee members include Dr. Ahmed Ullah, director general of the Chief Adviser’s Office; SM Shafayet Hossain, joint secretary of the Legislative and Parliamentary Affairs Division; Dr. Md Rashedur Rahman Sardar, deputy secretary of the Finance Division; Golam Mostafa, joint director of Bangladesh Bank’s BRPD department; Mohammad Yakub Hossain, executive director of the MRA; Md Shazzad Hossain, executive director of the Credit and Development Forum; Zahirul Alam of the Integrated Development Foundation; Md Enamul Haq, senior adviser of Pally Mangal Samity; Dr. AKM Nuruzzaman, general manager of Palli Karma-Sahayak Foundation; and Mohammad Atul Mondal, deputy secretary of the FID. They were initially given ten days to submit their review.

Sources indicate the technical committee has so far held just one formal meeting and one informal gathering; it has yet to finalise its stance on the draft ordinance. Several more sessions may be required before it can submit recommendations. FID Secretary Nazma Mobarek told journalists, “We will finalise the draft through discussions with stakeholders after receiving the technical committee’s views. It will then go to the Cabinet Division’s vetting committee, and upon their approval, be presented to the advisory council.”

DEBATE OVER REGULATORY AUTHORITY

The most contentious issue within the proposed microcredit bank ordinance centres squarely on its regulator. The draft advocates appointing MRA, not Bangladesh Bank, as the licensing authority — a role which would be executed by a separate MRA department headed by a chief executive. Experts have questioned the MRA’s suitability for the role, citing its total lack of experience in the complex oversight required for banking operations.

Dr. Mustafa K Mujeri, former chief economist of Bangladesh Bank, told journalists, “Under the existing legal framework, the MRA has no power to license an entity bearing ‘bank’ in its name; that would require amending the law.” He highlighted the potential for further bureaucratic entanglement, stating, “State-owned banks are licensed by Bangladesh Bank yet remain accountable to the FID, creating coordination gaps that hamper their performance. Introducing the MRA as another regulator would make coordination between Bangladesh Bank, the FID, and the MRA even more difficult.”

Dr. Mujeri, who is also the executive director of the Institute for Inclusive Finance and Development (InM), further argued that the rationale remains opaque. “It is unclear what advantage the MRA’s licensing would bring, or what harm Bangladesh Bank’s oversight would cause,” he said. “This requires a dispassionate, evidence-based review to ensure the decision ultimately supports broader financial development.”

CAPITAL STRUCTURE AND GOVERNANCE

The draft ordinance sets the bank’s authorised capital at BDT 3 billion and its paid-up capital at BDT 1 billion. A minimum 60 percent shareholding must rest with loan recipients, while its board will comprise a chairperson, three borrower directors, three other directors, and a managing director. The bank will never list on the capital market, and its liquidation will not fall under the Bank Company Act — instead, dissolution requires direct instruction from the licensing authority.

While microcredit banks operate in many countries, including neighbouring India, their licensing and supervision invariably fall to the central bank. In Bangladesh, however, MRA officials contend their exclusive mandate over microfinance justifies their role as regulator for a dedicated bank.

Professor Dr. Mohammad Helal Uddin, executive vice chairman of the MRA, told journalists, “Bangladesh Bank has no experience with this specific microcredit model, whereas we do. Conventional banks are profit-driven. Microcredit banks instead operate on a social business model where investors only recoup their principal through dividends.”

He further pointed out, “Microcredit institutions currently operate under a tax-exempt status, whereas conventional banks are subject to mandatory fiscal obligations. Given this disparity, there is no clear rationale for a microcredit bank, established under the central bank’s purview, to be granted similar waivers. If the objective is to form a conventional scheduled bank, then oversight must logically fall to the Bangladesh Bank. But should the entity be designed for specialised micro-lending with broader deposit-mobilisation powers, the MRA remains the appropriate supervisor.”

He also said, “The draft proposal suggests a wholesale migration of microcredit assets and liabilities to the new microcredit bank. But when you factor in the sheer volume of those existing assets, capping the paid-up capital at BDT 1 billion is illogical.”

POWERS AND PERMITTED ACTIVITIES

Launching the MRA’s new headquarters last year, the chief adviser outlined a distinct vision for the proposed microcredit bank. It would not operate like a conventional lender, he said, but would function on trust and confidence, requiring no collateral. Its core mission would be to propagate social business.

Under the draft ordinance, this bank may extend loans — with or without security — in cash or through other means, aiming to foster new entrepreneurs, boost self-employment, alleviate poverty, and improve borrowers’ livelihoods. Subject to conditions set by the licensing authority, it may accept deposits from borrowers or others and may itself borrow against its own assets. It can also take mortgages, hypothecations, or title over property as security for loans or advances.

The ordinance permits venture capital investment in start-ups and small businesses, including their purchase or acquisition. It may invest in shares, bonds, or similar instruments of statutory bodies and hold valuables, such as savings certificates and deeds, in safe custody. Powers extend to financing the stockpiling of industrial or agricultural goods, livestock, and machinery, and acting as an agent for their sale.

Further functions include providing technical and managerial support to new entrepreneurs, handling domestic money transmission, and developing income-generating projects for borrowers. It may offer insurance services under existing law and establish or manage mutual funds. It may invest funds in government securities, and is empowered to sell and collect proceeds from movable and immovable property obtained in debt recovery. The bank may also acquire and manage rights, titles, or interests in assets held as collateral. Additionally, it may receive domestic or foreign grants and undertake any necessary activity consistent with the ordinance’s objectives, provided prevailing laws are followed.

When contacted for comment, technical committee member and Bangladesh Bank Joint Director Golam Mostafa told journalists, “Collecting deposits from the public is a banking activity, which cannot be conducted without Bangladesh Bank’s approval. The majority view on the committee is that if it is to be called a bank, the central bank must be the regulator.”