The Bangladesh Bank’s recent move to merge five troubled Islamic banks into a single entity has been widely commended as a bold and necessary action to safeguard depositors and maintain financial stability. The objective is clear: to prevent contagion and preserve public confidence in the banking system. However, in a glaring contradiction, the central bank has opted to liquidate nine non-bank financial institutions (NBFIs), highlighting an inconsistent and inequitable approach to financial regulation.
While failing banks are being rescued through state-backed mergers, NBFIs facing similar distress are left to collapse, leaving their depositors vulnerable and without protection. This disparity raises serious concerns about fairness and the application of regulatory standards.
NBFIs, like banks, mobilise large sums from thousands of small investors — including teachers, retirees, and low-income savers — who were attracted by the promise of slightly higher returns. These individuals now face the real prospect of losing everything, while depositors in the banking sector are shielded by government intervention. Both types of institutions have faced similar issues: reckless lending, political interference, and weak oversight. Yet, the regulatory response appears to differ dramatically.
Both banks and NBFIs fall under the supervision of the Bangladesh Bank, and many of the affected NBFIs are also listed on the stock market and subject to oversight by the Bangladesh Securities and Exchange Commission (BSEC). These institutions underwent regular audits and received clean reports, with no warnings issued to depositors by regulators or auditors. If the watchdogs failed to act, how can the victims be blamed for placing their trust in the system?
It is important to remember that NBFIs once played a crucial role in advancing financial inclusion. They were pivotal in financing micro, small, and medium-sized enterprises (MSMEs) that traditional banks often overlooked. However, over time, many NBFIs shifted focus, chasing large corporate clients and politically connected conglomerates. With weak governance and even weaker oversight, they became susceptible to exploitation by powerful interests.
The collapse of these institutions is a tragic and familiar story. The S Alam Group, already linked to the ailing Islamic banks, extended its influence into several NBFIs. Others fell victim to fraudsters such as PK Haldar. The critical question remains: where was the Bangladesh Bank in all of this? Did it miss the warning signs, or did it choose to look the other way? Ordinary citizens are now paying the price for this negligence.
The rationale behind rescuing banks while liquidating NBFIs is both morally and financially flawed. Restructuring smaller NBFIs would have been far less costly than merging banks. With targeted interventions, such as governance reforms, asset recovery, and liquidity support, many NBFIs could have been revived at a fraction of the cost. Instead, liquidation not only wipes out small savers but also erodes public trust in non-bank financial institutions, which are vital for MSME financing. The message being sent is clear and concerning: in Bangladesh’s financial system, some depositors are valued more than others. As George Orwell wrote in Animal Farm, “All animals are equal, but some are more equal than others.”
This inequality runs deeper still. Bank depositors are protected by a statutory deposit protection scheme, which guarantees them a basic safety net. NBFI depositors, however, have no such protection. They must wait until July 2028 before they are covered by a new legal framework. Until then, they remain entirely exposed, treated as second-class savers in a financial system that purports to be unified.
If Bangladesh genuinely wants to restore confidence in its financial institutions, it must apply the same principles of fairness, consistency, and accountability across the board. Distressed NBFIs that remain viable should be rehabilitated, not liquidated. Regulators must be held accountable for their failures, and oversight mechanisms must be insulated from political and corporate influence.
Financial regulation cannot be a tale of two systems: one compassionate and interventionist for banks, and another callous and indifferent for NBFIs. Fairness, transparency, and consistency must be the foundation of any financial regulatory framework. Only then can the Bangladesh Bank rebuild the trust it has lost and reaffirm its commitment to justice, integrity, and the rule of law.