The government is set to pass a new law mandating licences from the Bangladesh Bank to run financing businesses.
The Cabinet approved in principle the draft ‘Finance Company Act, 2021’ at a meeting presided over by Prime Minister Sheikh Hasina on Monday.
The council of ministers observed that efforts are required to look for and incorporate into the law an alternative resolution system in place of High Court declaring bankrupt companies sunk in debt.
There will be a system through which the Bangladesh Bank will repay the clients of a financing company if it goes broke, Cabinet Secretary Khandker Anwarul Islam said at a news conference.
He thinks creating a way of handling cases of bankruptcy outside the court will be “revolutionary”.
The new law has been drafted by changing the Financial Institutions Act of 1993, under which the non-bank financial institutions are being operated.
The financial institutions being operated under the old law will be considered as companies once the new law is passed. But that would not require new registration or any changes in their memorandum of association.
The new law specifies who the loan defaulters will be — no matter whether they deliberately default on repayments in collusion with others, the secretary said.
The new law stipulates a huge Tk 10 million fine along with criminal charges with a maximum seven-year jail term for the offenders.
The meeting also discussed capping the interests offered by the financial institutions, many of whom announce 15-16 percent interest to attract customers, Secretary Anwarul said.
“You surely remember Jubok. Many people lost everything there,” he recalled, pointing out the necessity of capping the rates so that people do not make investment based on speculations.
Some 300,000 investors across the country put in almost all their savings in the multilevel marketing or MLM company Jubok that promised a lucrative return of their investment but failed.
The government had intervened and assured appropriate measures against the company after it embezzled Tk 25 billion that sparked widespread protests among the investors.