New microfinance banking rules may centralize power in the hands of large institutions while marginalizing hundreds of smaller NGOs that have long served rural communities.

Bangladesh is on the verge of a significant transformation in its microfinance sector. The government’s proposed Microfinance Bank Ordinance 2025 seeks to convert parts of the well-established microcredit system into fully regulated microfinance banks under the supervision of Bangladesh Bank.

On the surface, this initiative appears to promise “modernisation” and “regulatory discipline.” Yet beneath this promise lies a disturbing reality: a policy that largely benefits large institutions while marginalizing the very grassroots NGOs that have empowered millions of poor families for decades.

Microfinance is not peripheral in Bangladesh—it is central to financial inclusion. Approximately 731 licensed MFIs operate across 25,000 branches, reaching over 45 million marginalized people. In FY23, these institutions disbursed roughly BDT 2,49,000 crore (≈USD 28 billion) in loans, with a remarkable 98% repayment rate, reflecting strong community engagement and financial responsibility.

Nearly 91% of borrowers are women, highlighting the sector’s role in women’s economic empowerment.

This scale of outreach has been crucial in reducing poverty, creating local employment, and fostering entrepreneurship. Microcredit has historically reached where formal banks could not—remote villages, small enterprises, and low-income households that lack collateral.

However, the ordinance imposes high capital requirements—BDT 500 crore authorized and BDT 200 crore paid-up—which most MFIs cannot meet. Practically, only a handful of large institutions, such as BRAC, ASA, BURO Bangladesh, and TMSS, will qualify. Smaller NGOs, despite their extensive local networks, will effectively be excluded from participation.

The core strength of microfinance has always been proximity, trust, and flexibility, enabling loans without conventional collateral and supporting the poorest households. Subjecting these institutions to strict commercial banking rules threatens to undermine this social mission.

A senior sector expert remarked: “Had the paid-up capital requirement been BDT 50–100 crore, many more organizations could have become microfinance banks. The current thresholds exclude most smaller NGOs.”

The consequences are alarming:

• Loss of diversity: Hundreds of small and medium MFIs, rooted in local communities, may disappear.

• Centralization of access: Financial services for vulnerable populations could become concentrated in fewer hands.

• Barriers to inclusion: Rural households and micro-entrepreneurs could face greater obstacles to obtaining credit.

Seventeen leading MFIs, including BRAC, ASA, and TMSS, have jointly warned that the ordinance is not sector-friendly and could create new problems rather than solving existing ones.

The Chairman of the Credit and Development Forum also noted: “A phased licensing system with lower capital requirements would have allowed more institutions to participate. The current draft does not provide this opportunity.”

While oversight by Bangladesh Bank is necessary, it must be inclusive and enabling, not exclusionary. A balanced approach—flexible capital thresholds, phased compliance, and pathways for small NGOs to transition gradually—is urgently needed.

If implemented in its current form, the ordinance risks gradually marginalizing hundreds of small and medium NGOs. Financial services for low-income households may become more centralized, rigid, and less accessible.

The central question is clear: Is this reform designed for poverty alleviation, or for consolidating the sector in the hands of a few large organizations?

Microfinance banks may open new doors—but only if those doors are wide enough for everyone. Otherwise, the reform risks becoming a silent death knell for Bangladesh’s small NGOs while delivering a bonanza for the largest institutions.

Mustafa Kamal Akanda is a Development Practitioner & Policy Analyst
References:
1. Daily Sun, Microfinance Institutions Reach 40 Million Borrowers in Bangladesh, 2023.
2. Manobkantha, Challenges of Formal Banking for Microfinance Clients, 2023.