Overview

Non-Banking Financial Institutions (NBFIs) constitute a vital segment of Bangladesh’s financial ecosystem. Operating alongside traditional commercial banks, NBFIs act as crucial credit intermediaries—often described as the “heartbeat” of the credit ecosystem. They specialize in long-term funding rather than short-term working capital, providing financing for equipment leasing, SME working capital, structured trade finance, housing and consumer finance, green lending, and increasingly, digital credit.

Currently, 35 NBFIs are operating in the country. Unlike banks, they cannot collect demand deposits but rely heavily on fixed deposits. Their lending approach is typically more business-model and repayment-habit-centric rather than purely institution-centric, making them more accessible to small and medium enterprises (SMEs).

Regulatory Framework

The Bangladesh Bank (BB) is the primary regulator and supervisor of the NBFI sector. The foundation for establishing, operating, and licensing NBFIs is the Financial Institutions Act. Under this act, NBFIs are authorized to provide a wide range of financial services, including lease financing, term loans, consumer finance, housing finance, factoring, and securitization.

NBFIs are not permitted to accept demand deposits like banks. Their funding model relies heavily on fixed deposits, which constitute 96.92% of their total deposits. They also raise funds through bank borrowings and foreign lines of credit. Notably, the central bank has brought all NBFIs under the purview of the Bank Resolution Ordinance, subjecting them to similar resolution and disposal mechanisms as commercial banks.

Industry Size and Financial Condition

Deposits and Loans

As of the second quarter of FY2025 (October–December 2024), total deposits in the NBFI sector stood at BDT 48,025.2 crore, marking a 0.37% growth. During the same period, total loans and advances increased by 2.61% to BDT 76,077 crore. By July–September 2025, total loans and advances had further risen to BDT 77,734 crore.

A staggering 92.23% of total deposits originate from the private sector, with the remainder coming from the public sector.

Profitability

In 2025, several top-tier NBFIs posted positive financial performances, primarily driven by high yields from treasury bills and bonds.

• IPDC Finance saw a profit increase of over 25%, reaching BDT 45.5 crore in 2025.
• IDLC Finance achieved a 21% profit growth, recording its highest profit in four years.
• Bangladesh Finance returned to profitability in 2025 with BDT 24 crore in profit, after suffering a massive loss of BDT 794 crore in 2024.

However, the sector’s aggregate performance remains alarming. At the end of 2024, the collective net loss of the NBFI sector stood at BDT 3,555 crore—nearly double the BDT 1,803 crore loss recorded in 2023. In the first half of 2025 (January–June), 9 out of 15 listed NBFIs were operating in the red.

The Non-Performing Loan (NPL) Crisis – The Gravest Challenge

Soaring NPL Volumes

The NPL crisis in the NBFI sector has reached catastrophic levels. As of September 2025, total classified loans (NPLs) soared to BDT 29,408.66 crore, accounting for a staggering 37.11% of total outstanding loans. This rate is even higher than that of the banking sector (35.73%).

Just one year earlier (September 2024), this ratio was 35.52%. The deterioration has been rapid: NPLs rose from BDT 25,089 crore (33.25%) in December 2024 to BDT 27,189 crore (35.32%) in March 2025, and further to BDT 27,541 crore (35.72%) in June 2025.

The 50%+ Crisis – Extreme Distress

According to Bangladesh Bank data, 20 out of 35 NBFIs have NPL ratios exceeding 50%. Among these, 9 institutions have over 80% of their loans classified as bad. This means more than half of all NBFIs are in extreme financial distress.

Root Causes of the NPL Surge

• The PK Halder Scandal: The former Managing Director of NRB Global Bank, PK Halder, embezzled at least BDT 3,500 crore from four NBFIs (Peoples Leasing, International Leasing, FAS Finance, and BIFC). Over 90% of these four institutions’ loans are now classified.
• Weak Governance and Corruption: Political patronage in licensing, nepotism in management and ownership, and widespread corruption have pushed the sector to the brink of collapse.
• Loan Rescheduling: Long-term loan rescheduling has repeatedly failed, with restructured loans turning bad again.
• Regulatory Supervision: Industry stakeholders blame inadequate oversight and weak supervision by Bangladesh Bank.
• Economic Slowdown: A stagnant business environment has exacerbated legacy risk exposure.

Liquidity Crisis and Loss of Confidence

Due to the massive NPL overhang, the NBFI sector is suffering from a severe liquidity crunch. Many institutions are unable to repay depositors on demand. Consequently, depositor confidencehas been shattered—many have closed their accounts or withdrawn funds en masse.

The Bangladesh Bank’s Financial Stability Report 2024 painted a dire picture: out of the 35 NBFIs, only 9 are considered “healthy,” while 21 are classified as “weak” or distressed.

Reform Initiatives: Liquidation, Consolidation, and Show-Cause

Liquidation of 9 NBFIs

In November–December 2025, Bangladesh Bank approved the liquidation (closure) of nine failed NBFIs. These are:

1. FAS Finance and Investment
2. Bangladesh Industrial Finance Company (BIFC)
3. Peoples Leasing and Financial Services
4. International Leasing and Financial Services
5. Aviva Finance
6. Premier Leasing and Finance
7. Faireast Finance and Investment
8. GSP Finance Company
9. Prime Finance and Investment

Among these, four were directly implicated in the PK Halder scandal, while Aviva Finance was entangled in the S. Alam controversy.

These nine institutions hold total deposits of BDT 15,370 crore, of which BDT 3,525 crore belongs to individual (retail) depositors. The government has committed to allocating BDT 5,000 crore to refund these depositors. The Governor of Bangladesh Bank has assured that retail depositors will receive their full money back.

Consolidation of 20 Weak NBFIs

Bangladesh Bank is actively pursuing a plan to merge 20 financially distressed NBFIs into one or two well-structured, stronger entities. The average NPL ratio of these 20 institutions is a staggering 83.16%. Additionally, in May 2025, Bangladesh Bank issued show-cause notices to these 20 NBFIs, asking why their licenses should not be revoked.

The Bifurcation: Good vs. Bad Actors

The NBFI sector presents a tale of two distinct realities:

• Top 10–12 NBFIs hold 70% of the sector’s total investments and deposits. These well-governed, efficiently managed institutions (e.g., IPDC, IDLC, DBH Finance, United Finance) have maintained operational efficiency, low NPL ratios, and healthy returns on investments.
• Conversely, 10–12 distressed NBFIs are responsible for 80% of the sector’s total NPLs.

This bifurcation proves that the crisis is not a systemic failure of the entire industry, but rather the concentrated outcome of malfeasance, corruption, and weak governance within a specific cluster of institutions.

Challenges and Future Outlook

Primary Challenges

• NPL Recovery: The Bangladesh Bank Governor has warned that recovering from the current NPL crisis could take 5 to 10 years.
• Restoring Trust: Rebuilding depositor trust after massive irregularities and fraud (such as the PK Halder scam) is an immense challenge.
• Regulatory Neglect: Compared to the banking sector, NBFIs have been somewhat overlooked in the broader reform agenda. Experts warn that without swift reforms, the entire financial sector could face systemic collapse.
• Capital Erosion: Many institutions have completely depleted their capital base due to mandatory provisioning against bad loans.

Future Prospects and Silver Linings

Despite the gloom, there are positive indicators:

• Deposit Growth: Deposits grew by 0.37% in Q2 FY2025, signaling a slow but gradual return of confidence.
• Success of Top Performers: The strong profitability of leading NBFIs proves that with good governance and efficient management, the sector can be highly profitable.
• Institutional Reforms: The liquidation of 9 toxic entities and the consolidation of 20 weak ones, if executed properly, will cleanse the system.
• Government Support: The BDT 5,000 crore government allocation to protect retail depositors will help stabilize confidence.

Conclusion

The NBFI industry of Bangladesh is currently in the throes of an existential crisis. An NPL ratio exceeding 37%, over 20 institutions with NPLs above 50%, and a collective net loss of BDT 3,555 crore in 2024 paint a harrowing picture. Rampant corruption, weak governance, massive scandals (like the PK Halder embezzlement), and regulatory forbearance are the primary drivers of this distress.

Bangladesh Bank has taken the crucial first step by liquidating 9 failed institutions and planning the consolidation of 20 weak ones. However, this is merely the beginning. For a sustainable recovery, the sector urgently requires:

• A dedicated, comprehensive reform blueprint for NBFIs (parallel to banking reforms).
• Uncompromising enforcement of good governance and transparency.
• Stringent legal action against corrupt individuals and fraudsters.
• Robust protection of depositor interests.
• Strengthened regulatory supervision and on-site monitoring.

The fact that the top 10–12 NBFIs continue to thrive demonstrates that the model is viable. Success hinges on cleansing the bad actors while empowering the good ones. Nevertheless, recovery will take time—as the central bank governor has cautioned, resolving the NPL overhang could take 5 to 10 years. If the NBFI sector is neglected while banking reforms take center stage, the entire financial system’s stability will remain at grave risk. Immediate, sustained, and holistic reform is the only path forward.