Experts urge NBFIs to ensure good governance to overcome image crisis

Non-bank financial institutions (NBFIs), which have been suffering from an image crisis due to various irregularities, have to regain people's trust by ensuring good governance if they want to grow further, said experts.

"We need to establish good governance in this industry. Many say our Financial Institutions Act is too old and it should be amended. We are working on that too," Ahmed Jamal, deputy governor of the Bangladesh Bank, said at a discussion titled "Possibilities and Challenges of Non-Bank Financial Institutions in Economic Development" Wednesday (18 May).

The discussion was held at the Pan Pacific Sonargaon Hotel in Dhaka on Wednesday as part of the day-long NBFI Fair '22.

State Minister for Planning Dr Shamsul Alam said, "The NBFI sector is very important but it has been lagging behind. We want it to expand. However, there is no reason to reduce the number of NBFIs, because the number of such institutions in our country is still low compared to many other countries."

Sheikh Shamsuddin Ahmed, a commissioner of the Bangladesh Securities and Exchange Commission, said, "If an organisation fails to make exposure, it should be given time to make corrections."

"In India, these institutions are given up to three years in such cases. If we put pressure on these institutions, then they will not be able to develop. We are working with the Bangladesh Bank to work on these issues," he added.

Mominul Islam, chairman of Bangladesh Leasing and Finance Companies Association and managing director and CEO of IDPC Finance Limited, presented the keynote paper at the programme.

He said loans provided by the NBFIs in India was 12.3% of total loans in that country in 2016, which rose to 19.7% in 2021.

Meanwhile, loans given by the NBFIs was 7.3% of the total loans in 2016 in Bangladesh, which came down to 5.3% in 2021.

"If we compare the country's top banks with NBFIs, we can see that NBFIs are ahead of the banks in most of the indices including rate of default loans, return on equity, and cost to income ratio," said Mominul Islam.

"Irregularities in a few NBFIs have had a negative impact on this sector. With the exception of the top NBFIs, most of these institutions are facing challenges in collecting customer deposits or deposits from banks," he added.

Inaugurating the fair, Industries Minister Nurul Majid Mahmud Humayun said the NBFIs have to overcome the image crisis that arose due to illegal activities of some individuals in the financial sector. The government will help the NBFIs in this regard.

"NBFIs are not getting the benefits that banks are currently enjoying. However, if you (NBFIs) can regain the people's trust, you will get the same facilities as the banks," he said.