The problem of non-performing loans (NPLs) exists all over the world, the extent of the problem is more severe in Bangladesh compared with other developing and developed countries.
The Alternative Dispute Resolutions (ADR)process,particularly mediation is widely regarded as an effective, flexible, and economical means of disposal of banking and financial disputes around the world because it provides unique opportunities for parties to consider all dimensions of the disputes, including legal, financial, and emotional aspects in a confidentialenvironment.The cost, delay, and uncertainty of litigation are reasons to consider ADR mechanisms as anobvious choice.
The new government has given emphasis on the effective use of Alternative Dispute Resolution (ADR),'pre-suit mediation' before filing a case.On March 11, 2026, Bangladesh Bank’s Banking Regulations and Policy Division-2 (BRPD) issued a circular in this regard. Bangladesh Bank has instructed banks to strengthen the process of resolving disputes outside the court to recover defaulted loans quickly. But the circular did not refer to any law or procedure to follow the pre-suit mediation.
Money Loan Court Act, 2003(MLCA) is loan recovery law of Bangladesh. ADR in this law (as amended in 2010), have a provision of pre-trial mediation under sections 21 and 22. By a legislative amendment in 2010, the statute introduced the use of a court-annexed mandatory mediation process before the initiation of trial and even after the conclusion of the trial to settle disputes over non-performing loans.
The main feature of the Money Loan Courts (Amendment) Act 2010 is that it takes compulsory recourse to mediation as a process of dispute resolution during proceedings in court. According to section 22(1) of the Act, after filing a case and upon submission of a written statement by the defendant(s), it is incumbent upon the court to refer the case to mediation. If mediation is unsuccessful at the pretrial stage, the chance for mediation is also available after the conclusion of the trial and before the delivery of the judgment, and upon joint prayers by the disputing parties.
There are two modes of ADRin the law. The settlement conference and arbitration are both at trial as well as the appeal for both the options. Section 21 defines the Settlement Conference as a conference comprising the parties with their lawyers and their representatives and presided over by the judge of Artha Rin Adalat for disposing of the suit in an informal, non-binding, confidential and non-adversarial manner on the basis ofmutual cooperation and understanding of all the parties.
In this connection, section 25 provides that a special authorization needs to be obtained from the managing director of the concerned financial institution before concluding a deal by way of ADR mechanisms under section 22. Moreover, ADR is not widely used in Bangladesh because the decision of ADR is subject to approval from Managing Director of FI (clause 23 Ga 4) and success rate of ADR is very low.The legaldecision part of the judicial process has been placed under administrative authority of the FI for approval. Interestingly FI is one of the parties in dispute.
This means the decision of mediation must be approved by the Chief Executive of the financial institution (FI) and the success of ADR is very low. The statistical report mentioned in a research paper on case disposal rate from 1st January 2022 to31st December 2022, collected from the Supreme Court of Bangladesh, shows thatonly 17 loan recovery disputes were disposed of through mediation by the MoneyLoan Courts of 64 districts in Bangladesh. In 2023, 13600 cases were settled inMoney Loan Courts compared to 12533 cases filed, but only 22 cases were settledthrough mediation.Most recently, in 2024, out of 12106 resolved cases, only 25 cases were resolved through ADR. 45 According to Bangladesh Bank datacollected until June 2023 has shown the number of cases pending with the MoneyLoan Courts is 72,540 against huge dues claimed by banks.
The loan recovery law is favorable for financial institutions. Naturally, FIs are notactively promoting or supporting mediation due to a preference for traditional debtrecovery methods.Banks are allowed to recover debts from not only the borrower but also third-party mortgagors or guarantors. The Artho Rin Adalat act provides banks with multiple methods for debt recovery, including the powerto seize and sell the debtor's assets. Borrowers may be reluctant to engage in mediation to resolve their cases because they perceive a lack of genuine willingness from banks to reach a mutually agreeable solution where both parties are required to make concessions to achieve a win-win outcome.
Mediation provides a resolution option in loan recovery disputes that: (1) allows an impartial mediator to facilitate parties distinguish the strengths and flaws of their case more clearly, (2) assists parties in thinking outside of an adversarial structure and fixed positions, (3) empowers parties to attain mutually agreeable solution through consensus-based resolution, (4) retains the relationship between the parties, (5) creates unique solutions that would not be otherwise attainable through adjudication. Unfortunately, the concept has been defeated in Bangladesh law by given the authority to the Chief Executive of the FI, who are also party in the dispute.
The absolute authorityof Chief of Financial Institutions to ‘approve’ the mediation agreement is against concept of Alternative Dispute Resolution. It has given advantageous position in the mediation and there are hardly any equal footings for borrowers to negotiate with Fis.The judicial process of mediation is subject to approval by one of the parties to the dispute.
In the prevalent legal framework of Bangladesh, there is no existing provision for ‘pre-suit mediation. The nation must come out of idea of recovery of debt and interest rather than dispute resolution. The primary promise to resolve loanrecovery via the pre-trial mediation process has not yet reached its expectedoutcome. Rather, the dispute settlement via mediation appears frustratinglyunsatisfactory. The central bank should evaluate the existing law of pre-trial mediationand the field level experience before introduction of pre-suit mediation.
The writer is CEO, Bangla Chemical
