Banks in NGO hands: An untapped path to rescue Bangladesh’s financial sector

Sketch: TBS

As Bangladesh's banking sector continues to collapse under misgovernance, non-performing loans, and eroding public trust, it may be time to consider an unconventional yet promising alternative: allowing credible NGOs to take the reins of distressed banks and run them as mission-driven commercial institutions.

The banking system at breaking point
Bangladesh's banking sector is in a dire state. Official estimates place non-performing loans (NPLs) at over Tk160,000 crore, but many experts believe the actual figure exceeds Tk200,000 crore. 

At least nine banks are currently facing severe distress due to capital shortfalls and chronic governance failures. The sector's return on assets (ROA) stands at a dismal 0.4%, well below regional averages, while trust in banks continues to erode, particularly in the wake of scandals involving Islamic banks and major loan scams. Depositors have begun withdrawing funds en masse, further destabilising the system.

The BRAC example: A model of success
In stark contrast to this grim picture, BRAC Bank offers a compelling counter-narrative. Originating from a development NGO, BRAC Bank has evolved into a systemically important financial institution. It boasts a strong digital footprint, a robust SME lending portfolio, and a growing presence in the retail sector. BRAC's transition from a socially motivated initiative to a high-performing commercial bank demonstrates the potential of NGO-led banking.

BRAC's broader ecosystem has successfully financed thousands of SME loans and women-led enterprises. Its digital finance platforms are expanding rapidly in rural areas, and it has built a reputation rooted in trust, innovation, and profitability. This trajectory proves that NGOs can run banks not only ethically but also efficiently and inclusively.

The proposal: Let NGOs rescue distressed banks
This proposal calls for financially strong NGOs such as BURO, TMSS, SSS, Sajida Foundation, JCF, Padakhep, and ASA to acquire and transform struggling banks into mission-driven commercial institutions. 

These banks would operate under full commercial licenses but with certain restrictions. They would not issue new loans above Tk50 crore, thereby avoiding exposure to large, high-risk corporate borrowers. Instead, they would focus on sectors traditionally underserved by mainstream banks, including SMEs, agriculture, light manufacturing, rural logistics, and women-led enterprises. Existing large corporate exposures would be phased out gradually.

What will these banks do?
These proposed banks would not be limited-function lenders. They would provide a full range of services including treasury and capital market investments, digital and retail banking—especially mobile-based and agentless models—trade finance, and working capital support for SMEs. 

They would offer tailored financial products for migrant workers, skills training, cold storage, rural logistics, fishing, livestock, housing finance, and rural startups. Agri-finance, light industry, and vocational enterprise financing would become core components of their business models.

Transforming the rural economy
This model has the potential to transform rural Bangladesh. It would make cheaper, more accessible credit available in areas currently underserved by traditional banks. Women's empowerment would be bolstered through targeted retail and microenterprise lending. 

Agricultural productivity could increase through improved access to finance for irrigation, equipment, and livestock. Remittance earners would benefit from secure financial channels and structured saving schemes. Rural finance would be digitised, replacing the inefficient agent banking model. The initiative would also support housing, solar energy, and grameen transport through tailored loan schemes.

Most importantly, by financing skills development, self-employment, and vocational enterprises, these banks could generate employment and help build a skilled rural workforce. This would ease migration pressure on cities and contribute significantly to rural GDP.

A platform for global investment
The model could attract substantial international development finance. Institutions such as the International Finance Corporation (IFC), Germany's DEG, the Netherlands' FMO, and the World Bank's IDA could be invited to invest in equity or subordinated debt. Their participation would be contingent on a clear mandate focused on inclusive, mission-first banking.

Policy support to make it work
To support this transition, several policy measures should be considered. A 100% tax holiday for the first five years, conditional on profit retention, followed by a 50% tax rebate for the next five years, would incentivise reinvestment. 

Bangladesh Bank should facilitate the merger of NGO microfinance institutions with new banking licenses. The government should also enable Tier-2 capital instruments to attract funding from DFIs and multilaterals. Governance must be safeguarded through independent boards, performance-based KPIs, and high disclosure standards.

A clean break, a fresh start

Token reforms will not fix a fundamentally broken system. Bangladesh has the opportunity to lead by example and show that professionally run NGOs can restore trust and resilience to the financial sector. 

By letting our strongest social institutions take over our weakest banks, we can spark rural growth, generate employment, and redefine financial capitalism to serve the many, not just the few.

Mainul Hasan Faisal is an Investment Strategist.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.