HC questions legality of Nagad’s mobile banking operation

The High Court on Wednesday asked the authorities concerned to explain why Nagad's mobile banking activities with a temporary licence from the Bangladesh Bank should not be declared illegal.

The secretary of the Financial Institutions Division, the Bangladesh Bank governor, the director general of the Payment System Department (PSD) of the central bank, the director general of Bangladesh Post Office, the managing director of Nagad Limited, and three others were asked to respond to the ruling within four weeks.

The bench of Justice Md Mozibur Rahman Miah and Justice Kazi Md Ejarul Haque Akondo passed the order after a primary hearing on a writ petition filed by Supreme Court lawyers Abu Bokkor Siddik and Hasan Uz Zaman. The petition was based on a report, "Nagad spells trouble for post office, customers", published in The Business Standard on 28 August this year.

Advocate Kamal Hossain Meahzi moved for the writ petition while Deputy Attorney General Arabindo Kumar Roy presented the state.

After the order, Advocate Kamal Hossain Meahzi told The Business Standard that the activities of Nagad since the inception of its business in 2019 as a mobile financial services (MFS) provider with temporary approval from the central bank have been unauthorised and illegal as per the provisions of the Bangladesh MFS Regulations, 2018 and 2022.

The court also asked the Bangladesh Bank why the licence of Nagad should not be cancelled.

The petition said according to the MFS Regulations of the Bangladesh Bank, only scheduled commercial banks are permitted to run the MFS either as a product of the bank or by opening a subsidiary company with at least 51% of the share held by the bank with control of its board. In compliance with the regulations, some commercial banks introduced MFS in Bangladesh from time to time, it added.

Since its inception Nagad had been continuing with MFS business, branding itself as an entity of the Bangladesh Post Office without the central bank's permission.

The central bank issued a directive in 2020 with instructions to all commercial banks not to provide services to any unauthorised MFS provider. In that situation, the Bangladesh Post Office obtained temporary approval from the Bangladesh Bank to allow Nagad to run the MFS business in the country.

Since Nagad was not any bank-led entity within the meaning of regulation of the MFS Regulations, the introduction of Nagad and continuation with the MFS business by Nagad Limited was unauthorised and illegal in view of the provisions of the said regulations, said the petition.

The subsequent approval by the Bangladesh Bank on a temporary basis pursuant to the request of Bangladesh Post Office to allow Nagad Limited to continue with its business is also illegal in the eye of the law because there is no scope in law as laid down in MFS Regulations to grant a temporary licence for MFS business upon request of a government entity, it added.

The petition said Nagad's MFS business is not regulated by the Bangladesh Bank and the central bank has no control over the affairs of Nagad.

What is more, the Bangladesh Bank in violation of the relevant guidelines and regulations has allowed Nagad to operate its MFS business and, thus, facilitated Nagad to continue with its business by extension of a temporary licence in its favour which is not permitted by regulations applicable to MFS business. Thus, the deposits of millions of people lying with the Nagad accounts are at grave risk of security, the writ petition added.