Central Bank to Oversee Bangladesh’s New Microfinance Banks

In a landmark shift for the nation’s financial architecture, the interim government has finalised the framework for establishing specialised Microfinance Banks. Deviating from earlier proposals to create a separate wing under the Microcredit Regulatory Authority (MRA), the responsibility for licensing and supervising these new entities has been formally entrusted to Bangladesh Bank.

The move follows the vision of Chief Advisor and Nobel Laureate Professor Muhammad Yunus, who has long advocated for “social business” models in banking. Speaking at the inauguration of the MRA’s new headquarters, Professor Yunus asserted that microfinance represents the future of banking—built not on collateral, but on trust and social impact.

Capital Requirements and Ownership Structure

The “Microfinance Bank Ordinance 2025” outlines a more robust capital base than originally suggested. To ensure financial stability, the final draft has significantly increased the capital requirements. A unique feature of these banks is their ownership model, designed to empower the borrowers themselves.

Unlike conventional commercial banks, these institutions will operate as social businesses and will be barred from listing on the stock market to prevent speculative profit-seeking. The ownership is split to ensure that the people using the services have the largest voice in how the bank is run.

Governance and Regulatory Oversight

The ordinance stipulates that these banks will be governed by a 10-member Board of Directors. This board is carefully balanced between those who provide the capital and those who receive the loans:

• Four Directors elected by borrower-shareholders.

• Three Directors nominated by non-borrowing shareholders.

• Two Independent Directors appointed by Bangladesh Bank.

• One Managing Director (ex-officio, without voting rights).

While the banks must register under the Companies Act 1994, they will be strictly regulated under the Bank Company Act, ensuring they adhere to the same rigorous standards as commercial lenders.

Sector Reaction and Challenges

The microfinance sector in Bangladesh is vast, currently dominated by 683 NGOs serving over 3.23 crore members—91% of whom are women. As of June 2024, these institutions held a staggering 2.64 lakh crore BDT in total loans.

Despite the government’s optimism, major players like BRAC, ASA, and TMSS have expressed reservations. In a joint statement, seventeen leading microfinance institutions warned that the high capital requirement of 200 crore BDT might create a barrier to entry, suggesting that a 50 crore BDT threshold would have allowed more grassroots organisations to transition into banks.

The Path Forward

Financial Institutions Division Secretary Nazma Mobarek confirmed that the draft has been sent to the Cabinet Department for final approval. Once approved by the Advisory Council, the ordinance will be officially promulgated. Former Bangladesh Bank Chief Economist Mustafa K. Mujeri noted that while central bank oversight is positive, the government should initially issue a limited number of licences to monitor performance before a wider rollout.