NBFIs, govt entities now allowed to run MFS operation

The Bangladesh Bank yesterday said that non-bank financial institutions and government entities, alongside banks, would be able to run mobile financial services (MFS).

So far in Bangladesh, only banks have been allowed to operate MFS.

The NBFIs and the government entities, however, will have to form a subsidiary to provide MFS, according to a BB guideline.

The parent banks, NBFIs and government entities will have to provide at least 51 per cent of the equity in the subsidiary. The parent entities will have to have a majority in the board.

The minimum paid-up capital requirement of a subsidiary model-based MFS has been set at Tk 45 crore.

The banks that are now running MFS operations with the approval of the BB will continue under their existing structure without forming a subsidiary company. But, they will also be allowed to form the subsidiary.

The latest central bank guidelines will help the Bangladesh Post Office (BPO), which is now running MFS under the brand name of Nagad, take licence for its subsidiary, a central bank official said.

The government has taken an initiative to amend relevant laws so that the BPO is permitted to take the licence from the central bank for the company, he said.

Contacted, four central bankers, who are working at the BB departments responsible for drawing up policies for NBFIs and MFS, said that more legal clarities would be needed before giving any comment on whether NBFIs could run MFS in line with existing laws.

As per the Financial Institutions Act, 1993, NBFIs are barred from taking demand deposits from clients.

Demand deposits mean a lender has to provide funds to the depositors instantly if they want to withdraw their money.

Clients have to keep fixed deposits at NBFIs for at least three months. If they want to withdraw the funds, prior approval from the central bank will have to be needed.

But funds kept at MFS are considered demand deposits, the BB officials said.

Existing regulations said that a subsidiary company that runs MFS is not permitted to take loans from banks or other entities against the funds kept at the trust-cum-settlement accounts (TCSAs).

The MFS providers' clients usually do not spend all of their money immediately after funds were deposited in the accounts. The unused funds are collectively large. Such accounts are considered as TCSAs.

The TCSAs would act as custody accounts where the legal tender is stored against the issuance of e-money by the MFS and e-money service providers.