The Bangladesh Bank has directed managing directors and chief executive officers of non-bank financial institutions (NBFIs) to ensure proper utilisation of loans.
In a circular on Sunday, the Department of Financial Institutions and Markets of the central bank said NBFIs need to monitor regularly to see whether loans from one sector are being used in another.
The circular said the department should be informed immediately if any serious irregularity is detected during the monitoring.
If loans from one sector are used in another, immediate action should be taken after finding out the reasons. Loans cannot be used to repay or adjust other loans.
If a loan is disbursed in instalments, the next instalment has to be disbursed after ensuring that the previous instalment was used fully and in the right sector.
To ensure the utilisation of a loan, an internal inspection report should be prepared and it should be stored along with the loan documents.
The circular said if the proper use of credit in the financial sector is not ensured, it adversely affects the entire sector and hampers good governance.
Managing Director and Chief Executive Officer of BD Finance Md Kyser Hamid welcomed the central bank's directive, saying whether NBFIs are complying with the directive should be monitored regularly.
He said good organisations regularly monitor debts based on their relationships with clients, and organisations like BD Finance have their own monitoring system.
Kyser hoped that relatively weak organisations would strengthen their monitoring system in the wake of the central bank's directive, which would increase good governance in the financial sector.
According to the central bank, default loans at NBFIs stood at Tk10,245 crore at the end of September last year, which was 15.47% of the total loans disbursed.
People's Leasing was liquidated after the PK Halder scandal. Also, some NBFIs failed to return clients' money, which negatively impacted the entire industry.
At a recent meeting with the central bank, chief executives of NBFIs requested to create a separate fund to assist the weak institutions. At the meeting, the central bank gave them strict instructions to stop irregularities.