How our law holds loan defaulters accountable

By June 2025, Bangladesh had seen an exponential rise in defaulted loans, marking the highest level since 2000. During the general election this year, the surge gave birth to a public concern regarding the eligibility of election candidates with allegations of loan default. True that the Representation of the People Order, 1972 clearly states that a person cannot be elected as a Member of Parliament (MP) if he/she is a bank borrower (except for borrowing small agricultural loans) and has defaulted on repayment before submitting the nomination paper. Nevertheless, how the law treats loan defaulters is a question that always intrigues the public mind.

First of all, Bangladesh Bank has a specialised bureau, known as Credit Information Bureau (CIB), which is responsible for collecting, analysing, and maintaining credit information of individuals and entities. The Bureau was set up with the objective of reducing the volume of defaulted loans in the banking sector by disseminating such credit information to banks and non-bank financial institutions to assist them in making informed lending decisions and to prevent lending to default borrowers. The CIB reports enable lending institutions to assess credit risk by providing a comprehensive picture of a potential borrower’s financial position, including past repayment history. Moreover, the CIB provides information on defaulted bank loans of candidates participating in national and local elections to the Election Commission whenever such information is formally requested.

Credit Information Bureau (CIB) is responsible for collecting, analysing, and maintaining credit information of individuals and entities. The Bureau was set up with the objective of reducing the volume of defaulted loans in the banking sector by disseminating such credit information to banks and non-bank financial institutions. The CIB reports enable lending institutions to assess credit risk by providing a comprehensive picture of a potential borrower’s financial position, including past repayment history.

Apart from the CIB, the Bank Company Act 1991 is the key law that operates to hold the defaulters accountable. The Act classifies loan defaulters into two categories: (i) defaulter borrowers, and (ii) intentional defaulter borrowers. Under section 5(cc) of the Act, a ‘defaulter borrower’ refers to any individual, organisation, or company who has failed to repay, either in full or in part, an advance, loan, or any other financial facility—granted to them or to an affiliated entity—including the interest or profit on such facility, for a period of six months after it has become overdue, as defined by the regulations issued by Bangladesh Bank.

In contrast, section 5(aaaa) of the Act defines an ‘intentional defaulter borrower’ as a person, organisation, or company who takes a loan from a bank or financial institution, has the capacity to repay, but does not repay the loan or interest. The term also includes borrowers who obtain any loan or financial benefit through forgery, fraud, or by providing false information. An intentional defaulter borrower further includes any person or entity that uses the loan or financial facility for a purpose other than that for which it was sanctioned. Additionally, a borrower who disposes of the collateral or security without the prior consent of the concerned bank or financial institution falls within the scope of this definition. Bangladesh Bank is empowered to issue necessary directions from time to time for the application, interpretation, and enforcement of the provisions relating to intentional defaulter borrowers.

As per section 27AA of the Act, every bank company and financial institution is required to submit, from time to time, a list of its default loan borrowers to Bangladesh Bank in accordance with Articles 43 and 44 of the Bangladesh Bank Order 1972. Bangladesh Bank shall then, pursuant to Article 45 of the said Order, circulate the received list among all bank companies and financial institutions operating in the country. The object is to prevent banks and financial institutions from giving further loans to the listed persons.

On the other hand, under section 27B(11) of the Act, if banks and financial institutions fail to submit lists of intentional defaulter borrowers to Bangladesh Bank, they may be fined Tk. 50 lakh to Tk. 1 crore, and in the case of a continuing violation, an additional fine of up to Tk. 1 lakh for each day after the first day may be imposed. Thus, the law ensures that the banks and financial organisations comply with the provision. Notably, a circular from the Banking Regulation and Policy Department of Bangladesh Bank, dated 16 April 2025, all banks are now directed to submit detailed information on intentional defaulter borrowers in a special format.

However, before finalising the name of an intentional defaulter borrower, the concerned borrower must be given an opportunity to present their explanation. After the name is finalised, every bank company and financial institution shall inform the concerned borrower within seven working days. Any person or institution aggrieved by being identified as an intentional defaulter borrower may appeal to Bangladesh Bank within 30 days, and the decision of Bangladesh Bank shall be final. In conclusion, loan defaulting is an acute problem for Bangladesh. Our entire economy is getting crippled due to the greed and corruption of some business and political elites. However, despite having many safeguards in the law, we are unable to tackle this problem due to their non-implementation.

The writer is Advocate enrolled with the Bangladesh Bar Council.