New Ordinance Transforms Microfinance into Social Business Banks

The interim government of Bangladesh has enacted a landmark legislative shift with the Microfinance Bank Ordinance, 2026. This ordinance paves the way for the establishment of “Microfinance Banks”—specialised social businesses designed to bridge the gap between traditional NGOs and formal commercial banking. By placing these entities under the rigorous oversight of Bangladesh Bank, the government aims to formalise the microcredit sector while safeguarding the interests of low-income depositors.

A Paradigm Shift in Regulation

For decades, Bangladesh’s microfinance landscape was dominated by NGOs regulated by the Microcredit Regulatory Authority (MRA), largely dependent on donor funding and wholesale borrowing. The new ordinance fundamentally alters this by allowing these banks to mobilise deposits not just from their borrowers, but from any individual or organisation.

This transition introduces a “social business” framework, a concept championed by Nobel Laureate Muhammad Yunus. Under this model, investors are entitled only to the return of their original principal; all surplus profits are reinvested into the bank’s social mission rather than being distributed as dividends.

Capital Requirements and Governance

The financial barriers to entry are significant, ensuring that only stable entities can operate. The ordinance mandates a robust capital structure to protect depositors and ensure liquidity.

A unique aspect of this governance model is the Borrower Shareholder system. While initial investors provide the seed capital, those who take loans eventually become shareholders by purchasing 100 BDT shares, ensuring that the bank remains owned primarily by the community it serves.

Ethical Debt Recovery and Social Sensitivity

The ordinance explicitly addresses the historical criticisms of aggressive microloan recovery. It mandates a 15-day notice period before any recovery proceedings can commence and encourages loan restructuring or Alternative Dispute Resolution (ADR).

Crucially, the law strictly prohibits coercive practices. Any recovery efforts must be conducted with “social sensitivity,” outlawing harassment, humiliation, or any actions that violate human dignity. If mediation fails, the banks are permitted to seek redress through the Money Loan Courts Act, but only after exhausting more empathetic avenues.

Market Consolidation Concerns

While the ordinance promises greater financial inclusion, it has sparked apprehension among smaller NGOs. The requirement for 200 crore BDT in paid-up capital and the shift toward Central Bank compliance may lead to a wave of consolidations. Smaller, grassroots organisations may find it impossible to meet these stringent standards, potentially leaving the market to be dominated by a few large-scale “mega-microfinance” banks.