Proposed Microcredit Bank Ordinance raises fears of mission drift, sector crisis

The government has taken an initiative to establish a microcredit bank to further streamline the country's microfinance activities and advance the goal of poverty alleviation. However, the sector leaders have expressed deep concern over the draft Microcredit Bank Ordinance, 2025, scripted to set up the bank.

They believe that if the ordinance is implemented, the microfinance sector may deviate from its core objectives and face the risk of "mission drift."

According to the draft, the bank will operate under a "social business" model with an authorised capital of Tk300 crore and an initial paid-up capital of Tk100 crore.

A key feature of the proposed bank is that at least 60% of the paid-up capital will be held by the bank's borrowers. Dividends will not be distributed for private gain but will instead be spent on public welfare and the creation of new entrepreneurs.

In a recent statement, leaders of the microfinance sector said the ordinance does not align with the realities of the sector. They argued that microfinance institutions are primarily run as development-oriented and not-for-profit entities. Transforming them into banks, they warned, could turn them into profit-driven institutions, potentially depriving poor communities of essential services.

The statement said, "Such a transformation creates the risk of the microfinance sector drifting away from its core mission. Existing problems – such as loan defaults and weak governance –could also spread to the microfinance sector."

Sources at the Chief Adviser's (CA) Office said the draft ordinance was prepared by the CA office and published on the Financial Institutions Division's website to seek public feedback. However, it was learned that no prior consultation was held with stakeholders before the draft was issued.

Sector leaders alleged that the provision in the draft to allow "multiple individuals to establish a bank with their own financing as entrepreneurs," would open the door for both local and foreign corporate investors, weakening the distinct identity and social accountability of microfinance.

They also claimed that the draft lacks a clear roadmap on how existing institutions would be converted into banks.

The statement noted, "No consultation was held with the Microcredit Regulatory Authority (MRA)-regulated institutions that may be interested in converting into banks. We believe this ordinance will not resolve existing problems but will instead create new crises."

A chief executive of a leading microcredit institution, speaking to TBS on condition of anonymity, described the draft ordinance as highly unrealistic, poorly planned and rushed.

He believes the ordinance mixes elements of social business and private enterprise in a way that would damage the investment climate. In particular, granting 60% ownership to customers and restricting dividend withdrawals would discourage investors.

He added that the core objective of microcredit is social development, but allowing profit-seeking commercial entities into the sector would undermine its fundamental purpose.

"The new law will increase bureaucratic complexity and the risk of political interference. The requirement that executive appointments or dismissals cannot be made without MRA approval will undermine institutional independence. Moreover, the MRA does not have the necessary manpower or technical capacity to supervise a bank," he said.

BRAC Executive Director Asif Saleh told TBS that within this week they plan to meet with stakeholders and Nazma Mobarek, secretary of the Financial Institutions Division of the Ministry of Finance, to highlight the problematic aspects of the draft ordinance.