Frozen investments shrink market share as Nagad stuck in ownership dispute

Infographics: TBS

Nagad, the country's second-largest mobile financial service (MFS) provider, has plunged into operational paralysis amid a prolonged ownership dispute between Nagad Limited and the Bangladesh Post Office (BPO), leaving the company unable to invest, innovate or compete.

For the past 18 months—since Bangladesh Bank placed Nagad under interim control in September last year—the fast-growing fintech has been unable to upgrade its technology or roll out new services, according to company officials. The consequences have been severe: Nagad's market share has slid below 20%, down from 30% two years ago, while rival bKash has expanded its dominance to 70% through continuous tech investment.

In an attempt to break the deadlock, the government-appointed independent board of Nagad has submitted a future roadmap to Bangladesh Bank recommending a restructuring of ownership. The proposal, seen by The Business Standard, outlines two paths: a forceful takeover or unilateral restructuring, and a negotiated settlement.

The board notes that a forceful takeover could trigger complex legal challenges, whereas negotiated restructuring appears smoother as the owners of Nagad Limited have shown interest in reaching a deal. Insiders warn that attracting strategic partners will be significantly harder if the takeover is forced.

Motasim Billah, the administrator of Nagad, confirmed that the proposal had been sent to Bangladesh Bank by the board. "The government may take a prompt decision for the sake of customers and the fintech ecosystem."

Who owns Nagad?

According to the proposal, Nagad currently operates under Bangladesh Bank's interim approval granted to BPO.

Nagad Limited—created by Third Wave Technologies Limited—acts as BPO's master agent, having built the entire technological and operational backbone of Nagad with its own investment.

Thus, BPO holds the interim MFS licence, customer data in Nagad's custody, and the customers' funds stored in the Trust Cum Settlement Account (TCSA).
Nagad Limited, however, owns the IT infrastructure, software, middleware, servers, databases, data centres, distribution channels, human resources, fixed assets and operational accounts.

A fresh dispute has emerged over Nagad's brand and logo, both registered under Nagad Limited. BPO has already petitioned the Department of Patents, Designs and Trademarks (DPDT) to transfer the logo registration to its name.

What Changed After the Regime Shift

In August, Bangladesh Bank Governor Ahsan H Mansur said the postal department did not have the capacity to operate Nagad and announced plans to privatise the MFS. He said new strategic investors would be brought in within three to four months.

Following the change of government, Bangladesh Bank appointed an administrator on 21 August and six "assistant officers" to directly manage the company. Officials from the central bank and BPO then took physical control of Nagad's offices.

Meanwhile, several former Nagad executives—including ex-MD and CEO Tanvir Ahmed Mishuk—are facing legal action for alleged fund embezzlement. Bangladesh Bank has also filed a case against former chairman Syed Mohammad Kamal and 22 others over the alleged fraudulent creation of Tk645 crore in e-money without backing reserves.

During this period, Nagad was excluded from the central bank's new interoperability system. Bangladesh Bank spokesperson Arif Hossain Khan said this was due to Nagad's lack of a formal licence. Nagad spokesperson Muhammad Zahidul Islam said the company applied for approval months ago but never received a response.

Because of the exclusion, Nagad has been unable to offer interoperability, slipping further behind rivals who continue to upgrade technology. With investment stalled for 18 months, Nagad has had to rely on legacy systems.

Forceful takeover strategies

The new board proposed two forceful takeover options: cancelling the BPO-Nagad contract and operating Nagad under a new company, or confiscating the assets of Nagad Limited and operating Nagad under a new company.

Under the restructuring process, Bangladesh Bank will need to appoint an advisory service firm to conduct a comprehensive valuation of Nagad and identify and reach out to prospective investors. 

A new company will need to be formed according to the ownership agreement, and it must apply for a fresh MFS licence.

The Bangladesh Investment Development Authority (Bida) issued a Request for Expression of Interest (REOI) on 31 August to appoint a financial advisory firm to sell Nagad.

Execution plan for cancelling BPO-Nagad

Under this execution plan, the new company will need to hire competent human resources, prepare IT infrastructure, establish a business distribution channel network, complete MFS data transfers such as customer KYC, balance, transaction history, biller and merchant integrations, and cancel the BPO-Nagad Limited contract.

Execution plan for Nagad under new company

Considering the TCSA gap and other irregularities, the government will confiscate all assets, including IT infrastructure of Nagad Limited, through legal procedures. 

Agreements with business partners such as distributors, vendors, merchants and billers, along with services of Nagad Limited, will be shifted to the new company.

Execution challenges

The board sees a very high risk of IT sabotage, including unrecoverable data deletion, permanent erasure of network configuration, forced customer PIN resets or voiding of core MFS software by Nagad Limited or its data centre partners.

Developing new IT infrastructure and an MFS solution will take at least one year. Data, middleware and PIN migration and service restoration may fail if Nagad does not cooperate.

There may be regular service disruptions during IT development and data migration due to non-cooperation by Nagad Limited. Customer trust in Nagad's MFS could be damaged due to service disruption and potential data loss during migration.

Nagad Limited may take the issue to court, which will prolong the process. A government body must also be nominated to hold company shares because BPO cannot legally hold shares, and this will require amendments to Bangladesh Bank's MFS regulations.

Negotiated restructuring

The board proposed two options for negotiated restructuring: tri-party ownership and two-party ownership.

Tri-party ownership would include the government, new strategic investors and Nagad Limited, while two-party ownership would include the government and new strategic investors.

Execution challenges

Currently, nine companies hold shares in Nagad Limited, with foreign shareholder Mieres Holdings Limited holding the majority stake of 70.54%. All shareholders may not agree to the restructuring.

Pending lawsuits against some directors of Nagad Limited over alleged misconduct may further complicate negotiations.

Nagad's Mishuk says restructuring proposal 'illegal'

Regarding the proposal, former Nagad Limited managing director Tanvir Ahmed Mishuk, told The Business Standard that there is no legal basis in Bangladesh for any forceful takeover of ownership – such an idea is outright illegal. 

"As for 'negotiated restructuring,' that is irrelevant because an illegally appointed board can't make legally valid proposals. In two months, when the elected government returns, every unlawful action taken against Nagad will be reversed, and those responsible will face full legal consequences," he added. 

"My stance is simple: Illegal boards can't make legal decisions. The rule of law will prevail,"