Microfinance Bank Ordinance: How new entities will serve borrowers, depositors?

The interim government has issued an ordinance allowing the establishment of microfinance banks, effectively social businesses, marking a major shift in how microcredit is provided, regulated and funded in the country.

Framed as a move to strengthen financial inclusion, the Microfinance Bank Ordinance, 2026 introduces deposit-taking microfinance banks, tougher governance rules and central bank oversight, fundamentally altering a sector long run outside the banking mainstream.

The ordinance creates a new category of institution – the microfinance bank – allowing licensed operators to mobilise deposits from low-income clients while bringing them under the prudential regulation of Bangladesh Bank. 

Until now, most microfinance institutions operated outside the formal banking system, relying on donor funds, wholesale borrowing and limited oversight by the Microcredit Regulatory Authority.

Infographics: TBS

However, the ordinance has raised concerns among smaller microfinance providers, who fear that higher capital requirements, stricter compliance rules and central bank supervision could accelerate consolidation in the sector, favouring large institutions while squeezing out NGO-run operations.

Under the ordinance issued by the Ministry of Law on Wednesday, the new banks will be allowed to collect deposits from borrowers as well as from any individual or organisation, marking a major departure from the current framework governing microcredit institutions.

Currently, Grameen Bank and other non-governmental organisations involved in microcredit are allowed to take deposits only from their borrower base. 

According to the Microfinance Bank Ordinance, the authorised capital of a microfinance bank will be Tk500 crore, divided into five crore shares with a face value of Tk100 each. The paid-up capital must be at least Tk200 crore, to be contributed jointly by borrower shareholders and other shareholders.

Borrower shareholders will hold at least 60% of the paid-up capital. Their share of the capital will be paid gradually after the bank is established. 

In practice, this means that individuals and institutions will initially invest to set up the bank, while those who later take loans from the bank will become borrower shareholders by purchasing Tk100 shares.

The social business model

As per the ordinance, new microcredit banks will operate primarily as "social businesses", a model which was globally popularised by Nobel laureate Muhammad Yunus, now the chief adviser of Bangladesh.  

The ordinance defines social business as a form of social enterprise aimed primarily at solving social problems, where investors are entitled only to the return of their principal investment and do not receive profits.

It also defines micro enterprises as businesses with a maximum of 25 employees and assets not exceeding Tk1.5 crore.

The new microfinance banks will aim to promote self-reliance among low-income individuals and small businesses outside the formal banking system by providing microloans, savings products and insurance-type financial services. 

The broader goal is to reduce poverty by enabling capital formation and supporting entrepreneurship at an early stage.

Rules on loan recovery

In the case of loan defaults, the bank will not be allowed to begin recovery proceedings without first issuing a 15-day notice to the borrower. 

For recovery of defaulted loans, the bank may, subject to Bangladesh Bank conditions, reschedule or restructure loans or use alternative dispute resolution mechanisms.

If these measures fail to produce satisfactory progress, the bank may take action under existing laws, including the Money Loan Courts Act.

However, the ordinance explicitly prohibits coercive practices in loan recovery. 

The ordinance states that recovery efforts must be carried out with transparency, social sensitivity and due consideration of the borrower's financial capacity, and that no action involving coercion, harassment, humiliation or violation of human dignity will be permitted.

Use of profits, board structure

As the bank will operate as a social business, investors will receive dividends only equal to their original investment. Any additional profits will be transferred to a reserve fund and used for social purposes.

The bank will be run by a 10-member board, including a managing director. Four directors will be selected from borrower shareholders, three from other shareholders, and two independent directors will be nominated by Bangladesh Bank. One of the directors will be elected as chair.

The managing director will sit on the board but will not have voting rights.