Bangladesh Bank Issues Guidelines to Recover Defaulted Loans via Mediation

Bangladesh Bank has introduced an institutional framework to settle non-performing loan disputes through mediation, steering the financial sector away from protracted courtroom litigation. Under the initiative, the central bank will enlist qualified mediation firms to handle dispute resolution between lending institutions and defaulting borrowers, establishing a structured mechanism for Alternative Dispute Resolution (ADR) across the country’s banking landscape.

The guidelines, issued on Thursday by the Banking Regulation and Policy Department-2, aim to accelerate bad-debt recovery and drastically cut the volume of financial cases pending before the Money Loan Courts (Artha Rin Adalat). Central bank officials explained that both commercial lenders and borrowers may initiate out-of-court settlements through accredited mediation organisations prior to filing lawsuits, provided there is mutual consent. The framework also extends to disputes currently tangled in judicial proceedings, allowing contending parties to pause formal litigation and pursue mutually agreeable settlement terms.

Under the enlistment criteria, an applicant mediation firm must be legally registered under the Societies Registration Act 1860, the Partnership Act 1932, or the Companies Act 1994. The entity must possess an up-to-date trade licence, a valid Taxpayer Identification Number (TIN), and at least three years of active business or professional standing. In addition, the firm must provide three consecutive years of audited financial statements and route all its financial transactions through designated bank accounts.

Integrity requirements remain stringent. Any firm whose directors, board members, or chief executive officer have a history of bankruptcy, loan default, financial fraud, corruption, embezzlement, money laundering, or convictions for serious criminal offences will face immediate disqualification. Central bank assessors will evaluate applicants on a 100-point metric, requiring a minimum score of 70 to qualify for accreditation. Approved enlistments will remain valid for three years, with renewal applications required at least 90 days before expiry.

Enlisted firms are mandated to maintain mediation panels consisting of at least five qualified practitioners. Each panel must include at least one certified accountant and one legal expert. Mediators must possess a minimum of ten years of practical experience in banking, non-bank financial institutions, the legal sector, accountancy, auditing, or the judiciary. To safeguard impartiality, the policy strictly prohibits politically exposed or influential individuals from sitting on dispute panels, requiring strict adherence to confidentiality and conflict-of-interest rules.

Bangladesh Bank has retained supervisory powers to audit enlisted entities, review their physical infrastructure, inspect digital case management systems, and evaluate mediation records. Enlisted organisations must submit comprehensive annual reports within two months of each calendar year’s end. Any breach of professional ethics, concealment of conflicts of interest, submission of misleading documentation, or involvement in corrupt practices will result in warnings, monetary penalties, temporary suspension, or outright delisting.