How do NBFIs collect deposits?

Farhad Chowdhury: In the recently passed ‘Finance Company Act-2023’, restrictions have been imposed on the collection of deposits from an individual up to a maximum of Tk 50 lakhs in a single name, a maximum of Tk 1 crore in a joint name, or sometimes more than the limit set by Bangladesh Bank. Many people are concerned about this section of the law. Owners of Non-Banking Financial Institutions (NBFIs) as well as customers are in the dark.
Chairman and Chief Executive Officers (CEO) of non-bank financial institutions held a meeting with Bangladesh Bank Governor Abdur Rauf Talukder on November 14. It has been assured by the central bank that the matter will be looked into so that the NBFI sector is not affected. At the same time, the institutions under control of defaulted loans will be exempted from the deposit limit.
There is an obligation to implement the Act within two years of its enactment. The matter was also discussed in that meeting. Bangladesh Bank has assured that one more year can be given in this case. Apart from this, the central bank said that it will also be considered whether concessions can be given to institutional investors as an interim measure in the case of holding shares of financial institutions and banks.
In this context, Chairman of Bangladesh Association of Finance Companies (BAFC) and Meridian Finance and Investment Limited, Kazi M Aminul Islam told, “Overall, we can see the law positively. The new law has not created any obstacles in the matter of collecting deposits.
He said, “However, the limit of Tk 50 lakh fixed in the law for accepting deposits, what can be the future effect, we have highlighted it to Bangladesh Bank.”
Kazi M Aminul Islam said, the Governor of Bangladesh Bank 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 rather to enable relatively weaker institutions to turn around and contribute to the economy.
He said that Bangladesh Bank will soon issue a circular on how the institutions will implement the limit of Tk 50 lakh.
In this context, Bangladesh Bank Executive Director and Spokesperson Majbaul Haque told, “Laws are made by analyzing various types of judgments. So, there is no room to question it. However, the decision will be taken after a trial and analysis on how the law will be implemented.” He said, “After getting the law in hand, a thorough trial and analysis, examination, what will be its effect – everything will be reviewed so that the NBFI sector is not affected and that Appropriate policies and rules will be formulated.
Those concerned say that the country’s economy cannot progress by keeping the NBFI sector weak. 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.
In the meeting with the Governor of the Central Bank, besides fixing the maximum deposit limit of NBFIs, collateral against loans, tenure of directors, maximum limit of shareholding of related parties, having directors of banks and financial institutions were discussed in the meeting. The representatives of NBFIs expressed their concerns and views on these issues to Bangladesh Bank.
Regarding unsecured loans, the new law states that no finance company can give an unsecured loan to an individual of Tk 10 lakh or more than the amount specified by Bangladesh Bank. However, in the case of Cottage, Micro, Small and Medium Enterprises (CMSMEs) Bangladesh Bank 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, Bangladesh Bank said. This will solve the problem faced by the financial institutions in implementing the new law on unsecured loans.
Sources of the Central Bank said that the gazette of the new Finance Company Act has not yet been officially handed over to Bangladesh Bank. After it comes, it will be reviewed to see what kind of impact the law will have on the sector if it is implemented.
Deputy Governor Kazi Saidur Rahman and Executive Director Majbaul Haque on behalf of Bangladesh Bank was present in the meeting.
Incidentally, Non-Banking Financial Institutions (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). A non-banking financial institution or NBFI is a type of financial institution that does not obtain a full banking license, 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 here. So, these institutions repay the deposits on maturity or after a certain period.
Under the International Monetary Fund (IMF) loan program, the organization has stipulated several steps to reform the country’s financial sector. Among these was the issue of enactment of the Finance Company Act. The deadline for passing the law was set by September this year. Although it was passed on November 1 last.