New bank coming for small entrepreneurs

• Government drafts ordinance to establish microcredit bank
• Borrower-shareholders provide majority paid-up capital
• Bank prioritises entrepreneurs, poverty reduction goals
• Social business model limits investor profit

The government has taken an initiative to set up a new "Microcredit Bank" aimed at helping small entrepreneurs secure capital on easier terms.

To this end, the Financial Institutions Division (FID) under the finance ministry has drafted the Microcredit Bank Ordinance-2025 and published it on the division's website.

According to the draft, the proposed bank will run as a social institution. Dividend payments to investors will not cross the amount they invest, which indicates that profit will not be the main objective.

The bank is expected to have an authorised capital of Tk 300 crore. This is the maximum sum a company may raise by issuing shares.

The initial paid-up capital, which refers to money received from shareholders for shares issued, will be Tk 100 crore. Borrower-shareholders will provide at least 60 percent of this amount, with the rest coming from other shareholders.

Both individuals and institutions will be able to become shareholders if they meet the conditions.

The authorised capital will be divided into three crore ordinary shares with a face value of Tk 100 each, according to the draft.

It says that a separate division under the Microcredit Regulatory Authority (MRA) will issue licences and oversee operations. A chief executive will lead this division.

In May this year, Chief Adviser Prof Muhammad Yunus proposed the creation of a dedicated microcredit bank based on the social business model. He said it would differ from conventional banks.

Speaking at the inauguration of the MRA building in the capital's Agargaon, he called for a fresh approach to microfinance and said microcredit organisations should move away from NGO-style activities and develop into a full-fledged bank regulated by the MRA or another authority.

The chief adviser said the bank would operate as a social business and prevent owners from extracting profit. It would also provide venture capital loans to young entrepreneurs.

He referred to Grameen Bank, which he founded and for which he jointly received the 2006 Nobel Peace Prize, as an example. He said its microcredit model is built on trust rather than collateral.

The draft of the Microcredit Bank Ordinance proposes a board of directors with eight members. Borrower-shareholders will nominate three directors, and other shareholders will nominate another three. These six will elect a chairperson. The managing director will sit on the board as well.

A director may serve for up to three years and may serve two consecutive terms. A three-fourths majority of the full board may cancel any nomination.

In such cases, the managing director will not hold voting rights. The board may increase paid-up capital from time to time, provided it notifies the regulatory authority in advance.

Under the draft, the bank may offer loans with or without collateral, either in cash or other forms, for a wide range of economic activities. Priority will be given to new entrepreneurs.

The focus will be on self-employment, poverty reduction and helping people improve their quality of life. The bank will offer technical and administrative support to new entrepreneurs, sometimes for a fee, and will undertake income-generating projects on their behalf.

Borrowers will qualify for insurance benefits under existing laws. Support will include business management, marketing and technical guidance, along with help to start or expand ventures.

For operational purposes, the bank will accept deposits from borrowers and other individuals. It may also receive local or foreign assistance and grants if these comply with the law. The bank may take out loans using its assets or other collateral. It may buy shares of statutory organisations and invest in government securities.

The draft says the bank will invest part of its deposits in government-backed instruments, subject to approval from the licensing authority, to ensure financial stability.

It will conduct audits through the listed auditors in line with existing standards. The audited report must also state whether adequate measures were taken to protect the interests of borrowers, as required in the draft.