THE latest Bangladesh Bank data revealing that 37.11 per cent of loans in non-bank financial institutions have turned defaulted should alarm policymakers. With toxic loans increasing steadily quarter after quarter, with Tk 1,867 crore in toxic loans having increased in a quarter to Tk 29,408 crore in September 2025, the sector has slipped further into dysfunction. The central bank’s decision to shut down nine NBFIs that failed to return depositors’ money and collapsed under the weight of non-performing loans underscores the gravity of the crisis. Yet this action, while necessary, comes painfully late. For years, depositors, including many retirees, small traders and middle-class families, have watched their life savings remain trapped while they staged protests in front of company offices, demanding justice. Experts have pointed to irregularities, poor governance and weakened supervision as the main drivers of this collapse. The central bank data reveal that 20 out of 35 NBFIs now have default loan ratios exceeding 50 per cent and by the end of 2024, the sector had accumulated combined losses of Tk 3,555 crore, nearly double the previous year’s figure. The figures not only indicate mismanagement but also point to a systemic oversight and accountability failures.
The Financial Stability Report 2024 had already warned that only nine of the 35 NBFIs could be considered sound while 21 were categorised as weak. The report should have prompted decisive intervention long ago. Instead, the regulatory agency largely relied on show-cause notices and accepted turnaround plans that proved ineffective or insincere. Of the 20 institutions asked to explain why their licences should not be revoked, only 11 submitted plans and nine failed to give satisfactory responses. This prolonged tolerance has eroded public trust not only in NBFIs but in the financial system. NBFIs are meant to complement banks by financing sectors such as housing, infrastructure and small and medium enterprises, areas critical to inclusive economic growth, and, in many countries, they serve as engines of financial innovation by diversifying investment. They have, however, been hollowed out by irregular lending, insider abuse and regulatory capture, turning what should have been a pillar of development into a burden on the economy. Political patronage and impunity have for long shielded powerful defaulters and compromised regulators alike. Without breaking this nexus, reforms will remain cosmetic. Restoring trust will be difficult, but it is not impossible if there is will.
Piecemeal measures are unlikely to discipline the sector. What is now required is a comprehensive overhaul of the regulatory, governance and accountability framework. Given the size and importance of the NBFI sector, the authorities must regulate it effectively, ensuring that the institutions serve their intended purpose as facilitators of productive investment rather than as vehicles for plunder.
