While weak banks have been kept afloat through liquidity support, nine non-banking financial institutions (NBFIs) in Bangladesh are now facing imminent closure due to escalating bad loans. Bangladesh Bank has assured depositors that, similar to banks, the liquidation process will secure the return of their deposits. However, economists have recommended revisiting the idea of establishing a dedicated fund to keep these institutions operational, at least temporarily, to mitigate the impact on depositors.
The situation is starkly illustrated by the case of Saikat Das, a resident of Gazipur. He invested around 700,000 taka in Aviba Finance, sourced from his tuition fees, his father’s savings, and contributions from other family members. After the institution announced its closure, Saikat repeatedly returned empty-handed while attempting to withdraw his money. He stated that if his funds are not returned, he would have no alternative recourse, highlighting the human cost of these financial failures.
Beyond Saikat, numerous depositors face similar hardships. Many have invested in non-banking financial institutions that collapsed due to bad loans, mismanagement, and fraudulent practices. They claim that while influential individuals are able to recover their deposits, ordinary depositors encounter significant delays or, in some cases, are unable to retrieve their money altogether, exacerbating financial insecurity among the general public.
To restore stability in the financial sector, Bangladesh Bank has decided to close these nine institutions. According to central bank data, last year, non-performing loans across 35 non-banking financial institutions amounted to 25,089 crore taka, of which 52 percent were linked to these nine entities.
Bangladesh Bank spokesperson Arif Hossain Khan confirmed that these institutions are too weak to recover and therefore have been placed under liquidation. The liquidation process will gradually return depositors’ money. He also emphasised that employee layoffs are not applicable since the institutions themselves will cease to exist.
Questions remain regarding the fate of the bad loans and how exactly depositors’ money will be recovered. Drawing on experience from stabilising banks through liquidity support, economists have suggested that, under certain conditions, NBFIs could be given an opportunity to restructure and attempt recovery.
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 their ability to regain stability. Should they fail despite this chance, further measures would be implemented.
For comparison, among fifteen relatively well-performing financial institutions, total loans of 49,643 crore taka included 3,627 crore taka as non-performing, while these institutions reported profits of 1,465 crore taka last year.
This development underscores the urgent need for disciplined management, robust oversight, and responsible governance in Bangladesh’s non-banking financial sector to prevent future crises and protect ordinary depositors.