Despite weak banks being sustained through liquidity support, nine non-banking financial institutions (NBFIs) in Bangladesh are now facing imminent closure due to mounting bad loans. Bangladesh Bank has assured that, as with banks, the liquidation process will ensure depositors can recover their funds. Nonetheless, economists have suggested revisiting whether a dedicated fund could be established to maintain the operational continuity of these institutions.
The plight of Saikat Das, a resident of Gazipur, exemplifies the seriousness of the crisis. He invested approximately 700,000 taka in Aviba Finance, drawn from his tuition fees, his father’s savings, and other family contributions. Following the announcement of the institution’s closure, Saikat repeatedly returned empty-handed when attempting to withdraw his money. He expressed that if his funds are not returned, he would have no other recourse.
Beyond Saikat, numerous other depositors face similar difficulties. Many have invested in non-banking financial institutions that collapsed due to bad loans, fraud, and mismanagement. These depositors report that while influential individuals are able to retrieve their deposits, ordinary investors often experience long delays or are unable to recover their funds altogether.
In response, Bangladesh Bank has decided to close these nine NBFIs in order to restore stability in the financial sector. According to central bank data, last year the total non-performing loans in 35 non-banking financial institutions reached 25,089 crore taka, of which 52 percent were attributable to these nine institutions.
Bangladesh Bank spokesperson Arif Hossain Khan stated that the institutions are so weak that recovery is impossible, hence the decision to place them under liquidation. The liquidation process will gradually return depositors’ money. He also clarified that employee layoffs are not applicable, as the institutions themselves will cease to exist.
Questions remain about the fate of the bad loans and the method by which depositors’ money will be returned. Drawing on prior experience of stabilising banks through liquidity support, economists have suggested that, under certain conditions, NBFIs could be offered an opportunity to restructure and recover.
Dr Taufiq Ahmed Chowdhury, former director general of BIBM, noted that the institutions could receive a final round of capital support, with a fixed timeframe to demonstrate whether they can regain stability. If they fail despite this opportunity, further remedial measures would be implemented.
For context, among fifteen relatively well-performing financial institutions, total loans of 49,643 crore taka included 3,627 crore taka as non-performing, while last year these institutions collectively made a profit of 1,465 crore taka.
This development underscores the urgent necessity for disciplined management, robust oversight, and responsible governance within Bangladesh’s non-banking financial sector.