According to Micrcredit Regulatory Authority (MRA) data, there are 683 microcredit institutions in the country. With the upcoming LDC graduation and pullback of donors, these institutions will face capital shortage. To face the challenge, NGOs can be structured in various ways, including NGOs with social business, government-owned entities, or private companies. Those structured as private or public companies necessarily have shareholders. These companies of social business can aim to maximize shareholder value while also pursuing social goals of poverty alleviation and financial inclusion.
Bangladesh is the role model of microfinance, which provides credit to poor people who are not considered by conventional bank as creditworthy. The success of the Grameen Bank of Dr Mohammad Yunus has developed the idea and popularized in the world.
Present interim government of Dr Yunus drafted the Microcredit Bank Ordinance 2025. It has been proposed that there be specialised microcredit banksextend capital for small and emerging entrepreneurs under a social business framework. It aims at helping small entrepreneurs withcapital on easier terms.
Microcredit banks also exist in Pakistan, Sri Lanka, Ghana, Nigeria, Kenya, Vietnam, the Philippines, Indonesia, Uganda, Ethiopia, Egypt, and other countries. ASA International wing of the Bangladeshi NGO,the Association for Social Advancement (ASA) operates microfinance institutions, some of which are licensed as microfinance banks in 13 countries. These banks operates across Asia and Africa, focusing on providing small business loans to low-income entrepreneurs.
Microfinance is vital in all the regions of the world, often leveraging technology for broader reach. They are playing a role of significant credit and savings institutions. These banks use varied models, from the group-lending approach of Grameen to technology-based solutions and formal commercial banking, to reach populations unserved by traditional banks. A US-based non-profit that operates a peer-to-peer (P2P) lending platform, connecting individual lenders to borrowers in over 70 countries.
The proposed microcredit bank will be able to collect deposits from the general public. At present, private microcredit institutions or NGOs can only take deposits from their members as savings, but they are not allowed to collect deposits from the general public in the way banks do. Dividend payments to investors will not cross the amount they invest.
A key feature of the proposed bank is that at least 60% of the paid-up capital will be held by the bank's borrowersand the remaining 40 per cent by entrepreneurs.The draft requires each microfinance bank to have at least Tk 100 crore in paid-up capital. However, it will not be allowed to be listed on the capital market, meaning shares of such banks will not be tradable on the stock exchange.
The proposed bank will run as a social institution and will operate as a social business institution aimed at job creation and poverty alleviation. In addition to providing loans, the microcredit bank will offer business management, marketing, technical, and administrative advice to entrepreneurs, according to the draft.
A separate division or office will be established under the MRA to issue licences for the bank. This new division will be managed by a chief executive.This bank will not operate like conventional banks. It will be based on trust and confidence, where loans may take collateral or not. At the same time, a major objective of the bank will be to expand social business.The microcredit bank has been planned to provide collateral-based and non-collateral based loans to small entrepreneurs.
In compliance with laws and regulations, the bank will be able to receive local or foreign assistance and grants. However, it will not be allowed to conduct transactions in foreign currency.
Leaders of prominent microfinance institutions (MFIs) said the draft ordinance lacks clarity on how existing MFIs could convert into microcredit banks. They mentioned that many microfinance institutions hold large asset bases but have no formal ownership structure but the proposed bank will have ownership partially likeGremeen Bank. They are concerned of ownership of individuals, institutions and corporate investors.
To meet the capital threshold (40% of the paid up capital), existing NGOs may be forced to sell stakes to individuals or corporate investors. Sector leaders fear this could shift control away from social objectives and expose the institutions to the same governance failures that have long plagued commercial banks.
The microcredit model of small loans is already practicing by conventional financial institutions.The existing microcredit organization fears that their monopoly over microcredit will face challenges as according to Section 4 of the draft ordinance, licences to establish microcredit banks may be granted not only to existing microcredit organisations and registered non-profit entities, but also to organisations and multiple individuals using their own capital.Leaders of prominent MFIs said the draft ordinance lacks clarity on how existing MFIs could convert into microcredit banks, and instead allows to obtain microcredit bank licences.
According to the draft ordinance, the proposed banks has given some additional legal option to recover their credits. Bank will be able to file a certificate case for debt recovery under the 'Public Demand Recovery Act 1931' with some limitation, which a general MFI cannot.The banks may take mortgage or hypothecation of immovable property.
NGOs further fear that the ordinance will encourage excessive profit-seeking, unethical practices, and governance risks within the sector. They argued that this promotes private ownership at the expense of the sector's principles of community ownership, social accountability and development-oriented values.
On the other hand, Bangladesh is going to graduate from LDC on 24th November 2026 and grants shall not be available and NGOs must reply upon own finance. They must go for social business models to earn profit and run the microcredit and other programs.
In many countries, microfinance institutions (MFIs) are structured as corporations (such as Non-Bank Financial Institutions - NBFIs, or even full banks) and, as such, have shareholders. These institutions are commercial entities with a focus on financial inclusion, aiming to reach the "Bottom of Pyramid" and "Missing Middle" customers.
Some MFIs in other countries increasing trend has been toward the proliferation of profit-seeking MFIs that seek solid returns for investors. Even major banks such as Citigroup Inc.have entered the business of microfinancing.Some commercial banks, like NPF Microfinance Bank Plc. in Nigeria, are publicly traded companies that have microfinance as a core part of their business.
Social banks now provide small businesses with capital, loans, and financial services, regardless of the business cycle a company is in. This includes both small startups and established companies.These microfinance companies differ from traditional non-profit MFIs, which rely more on grants. Time has come to invite investors, who are willing to invest in social business of microcredit and beyond. The microcredit bank will have 60% shareholders from the poor borrowers and beneficiaries of services. The other investors shall not have controlling shares.
The writer is CEO, Bangla Chemical
