Very often 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 apply to their formation. The Financial Instuitution Act deals with the requirement and procedure of setting up a financial institution. This paper show the process of the formation of a financial institution in Bangladesh.
Steps to set up financial institution
The following steps must be satisfied before opening a financial institution in Bangladesh –
- Name clearance from Bangladesh Bank.
- Share Holder or Directors personal Details
- Formation of a Memorandum and take approval from Bangladesh Bank.
- Obtaining license from Bangladesh Bank
- TIN Certificate from NBR
- Trade License from Ministry of Commerce
Obtaining license from Bangladesh Bank
In order to run a financial institution, one must firstly obtain license to do so from Bangladesh Bank. The application must be made directly to Bangladesh Bank. Before issuing license, Bangladesh Bank consider the following factors –
- Financial condition
- Management characteristics
- Capital and future earnings prospects
- Objectives specified in the Memorandum of Association
- 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 particular applicant. Therefore, Bangladesh Bank has a sheer amount of discretion in deciding whether to grant license or not.
To prove that an applicant has enough financial resources to start a financial institution, Bangladesh Bank will decide on an individual basis about 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 various other factors. However, for reference, it must be noted that the paid-up capital cannot be any less that 100 Crore BDT to even be considered as an applicant.
After obtaining license:
After obtaining license from Bangladesh Bank, the financial institution must –
- Provide Bangladesh Bank a reserve fund of 100 Crore BDT as security deposit money.
- At all times maintain a minimum capital of 100 Crore BDT. However, Bangladesh Bank may, depending on the particular licensee, 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 –
- If it does not carry on the business for which it had been established;
- If the financial institution goes into liquidation or if its business is closed;
- If it furnishes false or misleading information or documents in order to receive a license;
- If it carries on its business in a manner detrimental to the interests of the depositors;
- If its assets are not sufficient to pay the claims of its depositors;
- If it carries on business maintaining an amount of paid-up capital which is less than the amount of the minimum capital;
- If the conditions of the licence are contravened;
- If the financial institution or any of its directors is convicted for an offence under this Act.
Day to day running of financial institutions
For laws that regulate the day to day running of the financial institution, please have a 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 at assisting clients through the entire process relating to formation of financial institutions in Bangladesh. For queries or legal assistance, please reach us at:
Phone: +8801700920980 | +8801947470606
Address: House 39, Road 126 (3rd Floor) Islam Mansion, Gulshan 1, Dhaka.