New Ordinance Transforms Microfinance into Regulated Social Business

In a landmark shift for the nation’s financial landscape, the interim government has promulgated the Microfinance Bank Ordinance, 2026. This legislation paves the way for a new breed of financial institutions—Microfinance Banks (MFBs)—designed to bridge the gap between traditional non-governmental microcredit operations and formal commercial banking. Operating under the stringent oversight of the Bangladesh Bank, these entities are set to revolutionise financial inclusion for low-income populations.

A New Hybrid: The Social Business Model

At the heart of this ordinance is the “social business” concept, famously championed by Nobel Laureate and current Chief Adviser, Muhammad Yunus. Unlike traditional banks driven by shareholder dividends, these MFBs will operate with a primary mission of solving social problems.

Under the new rules, investors are entitled only to the return of their initial principal investment. Any surplus profits generated by the bank will be diverted into a dedicated reserve fund to be reinvested into social welfare projects and the expansion of the bank’s services.

Capital Requirements and Ownership

To ensure financial stability, the ordinance sets high entry barriers for these new institutions. The capital structure is specifically designed to give borrowers a majority stake in the bank’s future.

Initially, institutions and private investors will provide the seed capital to establish the bank. Over time, borrowers will become shareholders by purchasing Tk 100 shares as they engage with the bank’s services, ensuring that the institution remains truly community-owned.

Enhanced Regulation and Ethics

For decades, microfinance institutions (MFIs) operated under the Microcredit Regulatory Authority, often relying on donor funds and wholesale borrowing. The new ordinance brings these entities under the prudential regulation of the Central Bank, allowing them to mobilise deposits not just from their members, but from the general public and other organisations.

Furthermore, the ordinance introduces strict ethical guidelines for loan recovery. To prevent the “debt-trap” cycles often associated with informal lending, the following rules apply:

Mandatory Notice: A 15-day notice must be issued before any recovery proceedings begin.

Coercion Ban: The law explicitly prohibits harassment, humiliation, or any violation of human dignity during the recovery process.

Restructuring First: Banks are encouraged to reschedule or restructure loans and use alternative dispute resolution before resorting to the Money Loan Courts Act.

Governance and Oversight

The banks will be managed by a 10-member Board of Directors. To maintain a balance of power, the board will consist of:

Four directors representing borrower shareholders.

Three directors from other shareholders.

Two independent directors nominated by the Bangladesh Bank.

One Managing Director (non-voting member).

While the move is hailed as a step forward for transparency, smaller NGOs have expressed concerns that the high capital requirements and strict compliance costs may lead to a consolidation of the sector, potentially marginalising smaller, grassroots organisations in favour of larger, more capital-rich entities.