Very often, the client wants to know how to set up a financial institution and Bank in Bangladesh. A financial institution in Bangladesh must be differentiated from general commercial institutions and banks in terms of different rules applied to their formation. The Financial Institutions Act deals with the requirement and procedures of setting up a financial institution. This paper shows the process of the formation of a financial institution in Bangladesh.

 

How to set up a financial institution and Bank in Bangladesh

 

Here are the main points to set up a financial institution in Bangladesh:

1. Obtain name clearance from Bangladesh Bank for the proposed institution’s name.
2. Provide personal details of shareholders or directors involved in the financial institution.
3. Form a Memorandum of Association and obtain approval from Bangladesh Bank.
4. Apply for a license directly to Bangladesh Bank, considering factors like financial condition, management characteristics, capital, future earnings prospects, and public interest.
5. Obtain a Tax Identification Number (TIN) certificate from the National Board of Revenue (NBR).
6. Apply for a trade license from the Ministry of Commerce.
7. After obtaining the license, provide a reserve fund of 100 Crore BDT as a security deposit to Bangladesh Bank and maintain a minimum capital of 100 Crore BDT at all times.
8. Comply with the “Code of Conduct for Banks & Non-Bank Financial Institutions” for day-to-day operations.
9. Bangladesh Bank can cancel the license under various circumstances, including deviation from intended business activities, liquidation, providing false information, detrimental conduct to depositors’ interests, insufficient assets, failure to maintain required capital, violation of license conditions, or conviction of offences under the Financial Institution Act.

 

Steps to set up a financial institution

 

The following steps must be satisfied before opening a financial institution in Bangladesh –

1. Name clearance from Bangladesh Bank.
2. Share Holder or Directors Personal Details
3. Formation of a Memorandum and take approval from Bangladesh Bank.
4. Obtaining a license from Bangladesh Bank
5. TIN Certificate from NBR
6. Trade License from Ministry of Commerce

 

Obtaining a license from Bangladesh Bank

 

In order to run a financial institution, one must first obtain a license to do so from Bangladesh Bank. The application must be made directly to Bangladesh Bank. Before issuing the license, Bangladesh Bank consider the following factors –

1. Financial condition
2. Management characteristics
3. Capital and future earnings prospects
4. Objectives specified in the Memorandum of Association
5. Whether the setting up of the financial institution has any public interest at large.

In addition, Bangladesh Bank may add new conditions depending on the applicant. Therefore, Bangladesh Bank has a sheer amount of discretion in deciding whether to grant a license.

 

Financial condition

 

To prove that an applicant has enough financial resources to start a financial institution, Bangladesh Bank will decide on an individual basis how much capital must be shown by the applicant. Therefore, there is no fixed amount of capital that every applicant must show. Bangladesh Bank will determine a minimum paid-up capital depending on the applicant’s risks, assets, future plans, financial history, and other factors. However, it must be noted that the paid-up capital cannot be any less than 100 Crore BDT even to be considered as an applicant.

 

After obtaining a license:

 

After obtaining a license from Bangladesh Bank, the financial institution must –

1. Provide Bangladesh Bank with a reserve fund of 100 Crore BDT as security deposit money.
2. At all times, maintain a minimum capital of 100 Crore BDT. However, depending on the particular licensee, Bangladesh Bank may require the financial institution to maintain a higher sum of money as capital.

 

Cancellation of license:

 

Bangladesh Bank has the discretion to cancel the license of a financial institution –

1. If it does not carry on the business for which it had been established;
2. If the financial institution goes into liquidation or if its business is closed;
3. If it furnishes false or misleading information or documents in order to receive a license;
4. If it carries on its business in a manner detrimental to the interests of the depositors;
5. If its assets are not sufficient to pay the claims of its depositors;
6. If it carries on business maintaining an amount of paid-up capital which is less than the amount of the minimum capital;
7. If the conditions of the licence are contravened;
8. If the financial institution or any of its directors is convicted of an offence under this Act.

 

The day-to-day running of financial institutions

For laws regulating the day-to-day running of the financial institution, please look at the “Code of Conduct for Banks & Non-Bank Financial Institutions”.

 

Financial institutions formation at CLP

 

The Barristers, Advocates, and lawyers at CLP in Gulshan, Dhaka, Bangladesh, are highly experienced in assisting clients through the entire process relating to the formation of financial institutions in Bangladesh. For queries or legal assistance, please reach us at:

E-mail: info@counselslaw.com
Phone: +8801700920980 | +8801947470606
Address: House 39, Road 126 (3rd Floor) Islam Mansion, Gulshan 1, Dhaka.