How NBFIs charging extra interest on loans flouting agreements

Hasina Begum, a resident of Siddhirganj in Narayanganj, approached Islami Finance and Investment Ltd for a home loan in 2013. The institution sanctioned a loan of Tk80 lakh from its Naryanganj branch setting the term of the loan at 10 years and the amount of monthly installment at Tk1,52,000.

The loan sanction letter did not mention the rate of profit, but eight years later it has been found that the profit rate of the loan is 20% as Hasina is required to pay Tk1.82 crore, including the principal amount and profit, in 120 installments.

The financial institution has paid Tk55 lakh to the customer for house construction and repair work in a number of irregular installments since 22 December 2013. The remaining Tk25 lakh has been collected by the branch in loan installments, but the lender told the customer that she had been given this Tk25 lakh as well. Unable to get this Tk25 lakh in hands, the customer, however, could not complete the construction of her house and, therefore, was deprived of income from the house rents.

While speaking to The Business Standard, Hasina said the loan sanction letter was written in English, and as she is not enough educated, she did not understand the letter. Besides, officials of the financial institution did not properly inform her about the terms and conditions, she said, adding, "Had I been aware of the rate of the unwritten and confidential profit, I would not have taken the loan, and thus could have avoided this life and death crisis."

Hasina has paid the lender Tk97,81,029 in principal and profit payments in various monthly installments over the past eight years – meaning she has already paid Tk17,81,029 more than the actual loan amount. The interest rate charged from the beginning of the loan was 20%. Hasina said she had applied for a reduction in the interest rate, but the lender refused to do so.

A review of the interest rates of deposits and loans of non-bank financial institutions (NBFIs) in recent times shows that the financial expenditure of some NBFIs has been increasing unreasonably as they have been taking deposits at high interest rates. As a result, the NBFIs have to charge high interest rates on loans, leaving a negative impact on the overall economy by reducing the ability of consumers to repay their loans, increasing the amount and rate of defaulted loans and hampering productions. 

In this situation, the central bank in April this year set the maximum interest rate on deposits at NBFIs at 7% and the maximum lending rate at 11%, which will be effective from 1 July.

According to an inspection report by the Bangladesh Bank, four NBFIs have collected deposits at more than 12% interest in the last one year. 

Besides, six NBFIs accepted deposits at interest rates between 12% and 13% for the last three years. These institutions are Bangladesh Industrial Finance, Fareast Finance and Investment, First Finance, Hajj Finance, Peoples Leasing, and Union Capital.

Meanwhile, an analysis of loan disbursement shows that the lending rate of eight financial institutions has been in the range between 17% and 18%. 

This list of such NBFIs include Midas Financing, Phoenix Finance & Investments, and Premier Leasing apart from the aforementioned institutions.

A senior official of the Bangladesh Bank told TBS that some financial institutions are distributing loans at higher interest rates after taking deposits at higher rates. As a result, many of them are finding it hard to recover their loans and many borrowers are becoming defaulters, he added. 

In addition, some institutions are charging higher interest rates than the fixed rates without mentioning the interest rates of the loans in the loan sanction documents, as a result of which many customers have become hostages even to some reputed NBFIs.

Hasina Begum, the aggrieved customer of Islami Finance, said she had applied to the managing director of the company in 2017 and 2019 seeking a reduction in the rate of profit, but remained unheeded on both occasions. "If the rate of profit on my loan is calculated at the rate fixed by the government or at a reasonable rate, the amount I presently owe will come down to half the current figure."

Hasina further said the lender filed 10 cases against her and her husband after they failed to pay instalments for a few months during the Covid pandemic, which has forced them to leave their house and spend their nights in other people's houses. 

Infographic: TBS

"At present, the debt is like a noose around my neck. The costs of handling cases have made us helpless and incapable," said Hasina.

Besides, another customer of Islami Finance and Investment Limited, Nur Mohammad, told TBS that he was given a home loan of Tk1.5 crore at 15% interest.

Shihab Uddin in trouble after taking home loan from IDLC

Shihab Uddin from Moulvibazar took out a loan of Tk20 lakh from IDLC at 10% interest for 10 years on 20 October 2016. He has been repaying the loan regularly in monthly installments of Tk25,300. It was decided to charge 10% interest with the company.

After reviewing the account statement provided by the lender, Shihab on 18 July last came to know that he had been being charged 16.50% interest, which goes against the loan disbursement policy. Shihab said he had sought the Sanction Letter Agreement paper from IDLC but the institution refused to give it to him.

When contacted, IDLC spokesperson said, "Shihab Uddin availed home loan of Tk9 lakh from IDLC in 2015 at rate of interest of 16.50%, duly endorsed by customer putting his signature on the sanctioned letter which clearly indicates that he accepted the terms and conditions. IDLC disbursed 2nd loan in 2016 of Tk20.80 lakh in two phases on 24-Oct-16 of Tk1,694,500 and on 06-Dec-16 of Tk385,500 with interest rate of 12.25%. It is mentionable that 1st loan was closed with a portion of disbursement amount of 2nd loan.

Later on, the interest rate of 2nd contract was revised as follows: 11.5% on 29th January 2018, 13.5% on 24th April 2019, and 11.99% on 24th October 2020 due to movements in interest rate in the general money market.

Also to be noted that 2nd contract was restructured in September 2020. Since then customer has been demonstrating irregular repayment behavior. While following up for payment he always remained unresponsive and non-cooperative Therefore, we have already issued final reminder letter to customer for payment of overdue dated January 16, 2022 and are taking legal actions for delinquent repayment as per law."

National Housing Finance charging more interest flouting loan agreement

Hasibur Rahman, a resident of Gate No. 1 in the capital's Jatrabari, took out $2 crore in a home loan from National Housing and Investment Limited in 2017. 

"I took the loan at 11% interest rate. After paying a few installments and taking an account statement, I saw that the interest rate was actually 14%. In 2018, I applied for a reduction in the interest rate. But, since the issue was not resolved, I gave an application again in 2019 but did not receive a response this time either.

"Even then, I was paying the loan instalments regularly. In the meantime, all my businesses were shut down and even the tenants of the house were unable to pay the rent after the Covid pandemic broke out in early 2020. In addition, many of my tenants left the home. Although there was an instruction to stop the collection of installments in the Covid period, this institution kept depositing the cheques of installments and as the cheques were dishonored by the bank concerned, it showed the missed instalments in my account with compounded interest."