Nagad now gets NBFI licence to form subsidiary to legalise MFS operation

Nagad, a mobile financial service provider of Bangladesh Post Office, got consent for a licence of non-bank financial institution (NBFI) under which it will form a subsidiary to legitimate its operation.

The board of Bangladesh Bank has decided to give a letter of intent against "Nagad Finance PLC" at a meeting held on Tuesday at its headquarters. 

Muhammad Farid Khan, vice-chairman of Summit Group, will be the chairman of the proposed company. Tanvir A Mishuk, managing director of Nagad Ltd, is also the director of the proposed NBFI.

Md Serajul Islam, executive director and spokesperson of the Bangladesh Bank, said Nagad will get a full licence, subject to fulfilling some conditions. 

The major condition is that Nagad Finance has to bring in more than 90% of its investment from abroad to increase foreign currency inflow, said a top manager of the Bangladesh Bank, on the condition of anonymity. 

A NBFI is required to have a paid-up capital of Tk100 crore as per the Finance Institution Act.

The central bank official, who attended the board meeting, said major investment will come from the United States and Singapore, according to the Nagad Finance's proposal. 

The Bangladesh Bank gave its go-ahead for the NBFI licence as Bangladesh Post Office could not comply with the Bangladesh Bank's MFS (mobile financial service) rule of forming a company to get a full licence for Nagad operation, he said. 

Now, Nagad will form a subsidiary under the new NBFI to get a full licence from the Bangladesh Bank for its operation, he added.

After the formation of the subsidiary, Nagad will no longer be a government service, it will be like other private MFS providers, such as bKash, he noted. 

Tanvir A Mishuk, founder and managing director of Nagad, in a statement said, "The journalists informed us of the approval of Nagad Finance PLC by Bangladesh Bank's board of directors. However, we do not yet have any official documents in this regard." 

"Subject to the final approval of our strategy, Nagad Finance PLC will operate as an independent financial institution. However, the existing partnership between the postal department and the mobile financial service provider Nagad Limited will remain unchanged. Nagad Limited will run as a Postal Department's mobile financial service whereas Nagad Finance PLC will thereafter operate similar to any other non-banking financial institution," he also said.

He added that as a mobile financial service, Nagad Limited is currently in partnership with several institutions. In this case, the relationship between Nagad Finance PLC and Nagad Limited will also remain the same. 

However, Nagad Finance PLC will promote its products and services through Nagad Limited. Jointly, Nagad Finance PLC and Nagad Limited will work to bring the underserved into the fold of digital financial inclusion.  It will also reduce the cost of services while improving the quality of service, he pointed out.

Nagad has been running under temporary MFS licence since 2019 through service agreement with the Bangladesh Post Office.

The relation of Nagad with the Post Office is only revenue sharing under the service agreement. 

According to the regulations, an MFS company cannot exist on its own but has to be a subsidiary of another financial institution or government entity. For example, bKash is a subsidiary of Brac Bank and Rocket of Dutch-Bangla Bank.

To get a full licence, the Bangladesh Post Office has to form a company to run Nagad as its subsidiary. Despite being given five extensions, the last of which is to end on 30 September this year, Nagad could still not become a subsidiary of Bangladesh Post Office.

Under this situation, since Nagad as an MFS cannot operate alone, it has applied to the Bangladesh Bank to operate as a non-bank financial institution under which it will work as a subsidiary to legalise its operation.

The Bangladesh Bank has given consent for a new NBFI at a time when most of the existing NBFIs are struggling to survive in a saturated market. Of the 35 NBFIs, only 10 are running with good health, the rest are in severe financial crisis due to corruption. One such NBFI is People's Leasing and Financial Services Limited that was liquidated due to its inability to pay back depositors' money. 

IN this situation, Abdur Rouf Talukder, in his second board meeting after his joining the Bangladesh Bank as governor, issued a letter of intent for a new NBFI. 

Nagad is a fast-growing company that became the second largest MFS by achieving 53 million customers within just two years and a quarter after it started its journey. The daily transaction of the company is Tk700 crore, according to the MFS website.