MFIs concerned over proposed microcredit bank law

The Microcredit Bank Ordinance 2025, drafted to establish a specialised microcredit bank to expand access to capital for small and emerging entrepreneurs under a social business framework, could undermine the sector's role in poverty alleviation and financial inclusion, warned leading microfinance institutions (MFIs).

"While MFIs are development-oriented, not-for-profit, and focused on serving low-income and marginalised populations, banks are inherently profit-driven," reads a joint statement issued by leaders of over a dozen prominent MFIs, including BRAC and the Association for Social Advancement (ASA), yesterday.

They acknowledged the government's initiative to introduce microcredit banks as a positive step in principle but stated that the proposed ordinance does not accurately reflect the realities of the microfinance sector or the needs of the communities it serves.

Leaders of prominent microfinance institutions (MFIs) said the draft ordinance lacks clarity on how existing MFIs could convert into microcredit banks

Asif Saleh, executive director of BRAC, and Md Ariful Haque Chowdhury, president of ASA, signed the statement among others. The two MFIs together accounted for about two-thirds of the Tk 176,650 crore disbursed as microcredit in the last fiscal year.

The statement comes as the interim government has taken an initiative to set up a new microcredit bank, aimed at helping small entrepreneurs secure capital on easier terms. The Financial Institutions Division (FID) has drafted the Microcredit Bank Ordinance to that end.

As per the draft, published on the FID website, the proposed bank will run as a social institution. Dividend payments to investors will not cross the amount they invest.

In yesterday's statement, leaders of prominent MFIs said the draft ordinance lacks clarity on how existing MFIs could convert into microcredit banks, and instead allows individuals, institutions and corporate investors to obtain microcredit bank licences.

According to Section 4 of the draft ordinance, licences to establish microcredit banks may be granted not only to existing microcredit organisations and registered non-profit entities, but also to organisations and multiple individuals using their own capital.

"This could encourage excessive profit-seeking, unethical practices, and governance risks within the sector," reads the statement. They argued that this promotes private ownership at the expense of the sector's principles of community ownership, social accountability and development-oriented values.

MFI leaders also expressed concern that longstanding problems in the broader financial sector, including defaulted loans, corruption and weak governance, could spill over into microcredit if the ordinance is enacted, potentially damaging the sector's credibility built over several decades.

They further said no consultation had been held with licensed MFIs prior to drafting the ordinance, despite the fact that many institutions could be directly affected by the proposed changes.

The leaders of the MFIs said they have already presented reform proposals for the microfinance sector aimed at enhancing efficiency, governance, and sustainability without compromising its social mission.

"Overall, we think the proposed Microcredit Bank Ordinance 2025 is not microcredit-friendly. It will not address existing challenges. Instead, it could create new and deeper crises," the statement said.

They urged the government to reconsider the drafting process and engage in meaningful dialogue with all relevant stakeholders before moving forward.

Among others, Zakir Hossain, executive director of Bureau Bangladesh; Hosne-Ara Begum, executive director of TMSS; Santosh Paul, acting executive director of the Society for Social Services (SSS); Md Alauddin Khan, executive director of the National Development Programme (NDP); Zahida Fizza Kabir, executive director of Sajida Foundation; Md Emdadul Haque Chowdhury, principal adviser of Inter Society for Development; Md Saleh Bin Sums, executive director of Padakkhep Manabik Unnayan Kendra; AKM Shirajul Islam, executive director of BASA Foundation; Aftabur Rahman Jafree, chief executive officer of Ghasful; Rezaul Karim Chowdhury, executive director of COAST Foundation; Khaleda Shams, executive director of Palli Bikash Kendra (PBK); Mifta Naim Huda, executive director at Centre for Development Innovation & Practice; Imrul Kayes Muniruzzaman, executive director of RDRS Bangladesh;  Khursid Alam, executive director of CODEC; and Md Abu Zaher Alam, executive director of FDS, Faridpur, signed the statement.