BB appoints administrator at Nagad

The Bangladesh Bank yesterday appointed an administrator to Nagad after one too many allegations of irregularities in the mobile financial service provider's operations and dealings.

Muhammad Badiuzzaman Dider, who served as director of BB's Chattogram office, has been appointed as the administrator for a year, as per an internal order of the central bank. To support the overall operations of the administrator, six officers have been appointed.

Tanvir A Mishuk, the founder and managing director of Nagad, welcomed the move, saying it will put an end to the recent misinformation surrounding Nagad.

"In the last few days, we were discussing with Bangladesh Bank about all these issues of propaganda. Finally, they took a positive decision like appointing an administrator. We believe this will be a significant step forward in the country's cashless journey."

Earlier, the government had also appointed administrators to several major institutions of the country's financial sector, including some banks and top mobile operators, Mishuk said.

"We think that the decision of Bangladesh Bank will stop the conspiracy of a circle of people against Nagad. Nagad believes it will remain on top in providing service to customers as it was in the past five years," he added.

Nagad, which entered the market back in March 2019 as the digital financial services arm of the Bangladesh Post Office (BPO), is still running on a temporary licence from the BB.

In June, the central bank extended the tenure of its temporary licence for the seventh time. The licence will expire in June next year.

The post office, however, does not have any ownership of Nagad and only gets a share of Nagad's revenue, documents show.

"We used to know that Nagad is a digital financial service provider of the Bangladesh Post Office and the central bank issued an interim licence to the Directorate of Posts to run the MFS," said BB spokesman Md Mezbaul Haque.

The central bank extended the deadline for Nagad to transition into a company in accordance with regulatory requirements to operate as an MFS, Haque said.

"But it has not been able to do it yet despite getting the extended time. We heard that the Directorate of Posts has a profit-sharing agreement with a company named Third Wave Technologies. But they have yet to send the details of the agreement," he added.

Third Wave Technologies, which is owned by Mishuk, was later renamed as 'Nagad Ltd'.

Mishuk maintains that Nagad Ltd has a revenue-sharing agreement with BPO, under which BPO receives 51 percent of revenue. Nagad has provided Tk 14.60 crore as revenue share to BPO.

"This partnership has been instrumental in extending our services to a wider population across Bangladesh, particularly in remote and underserved areas," he added.

The central bank though has been accommodating to Nagad all along.

For instance, in February 2022, the central bank issued a new MFS regulation 'Bangladesh Mobile Financial Services Regulations, 2022' replacing the Bangladesh MFS Regulations, 2018 issued in July 2018.

The new regulation allowed non-bank financial institutions (NBFIs) and government entities, alongside banks, to run MFS. Previously, only banks could run MFS services, which made Nagad ineligible for a full-fledged licence.

A month later, Nagad Ltd applied to the BB for an NBFI licence. A year later, the BB issued an NBFI licence for Nagad Finance, removing any licensing ambiguities for Nagad's MFS operations.

However, Nagad surrendered the NBFI licence less than three months later as its backers manoeuvred to gain regulatory legitimacy by way of a digital bank licence.

In June last year, the central bank invited applications for digital bank licences.

The BB got 52 applications and but only two got the licence: Nagad and Kori.

Nagad also got preferential treatment from various other ministries during the Awami League regime, which helped boost its customer base.

For example, the government's stipend for secondary and higher secondary students was initially distributed through payment methods such as bKash, Nagad, Rocket and various banks chosen by the beneficiaries.

However, in January 2024, without following any tender or competitive process, the Secondary and Higher Education Division of the Education Ministry issued a directive granting Nagad exclusive rights to disburse the stipends.

At that time, 5.4 million beneficiaries were receiving stipends through their preferred channels, with Nagad serving only 20 lakhs. However, the division stated that the remaining 34 lakh beneficiaries would have to convert their MFS accounts to Nagad.

In the directive's headline, the division mentioned that it has approved the disbursal of stipends through Nagad, which had 'signed a deal' with BPO.

Despite this, Nagad failed to disburse the stipends properly and was given multiple time extensions until the end of June.

Eventually, the government directed that the stipends for 19 lakh beneficiaries be disbursed through other MFS providers out of the current 65 lakh beneficiaries.

Meanwhile, the Bangladesh Securities and Exchange Commission (BSEC) in 2021 found some anomalies when Nagad applied to raise capital through zero-coupon bonds.

The company's liability for digital money increased unexpectedly from Tk 447.1 crore in June 2020 to Tk 858 crore in April 2021. At that time, Nagad's losses stood at Tk 147.6 crore while its paid-up capital was Tk 3.5 crore, as per its audited financial statements as of April 30 that year.

The BSEC report said that the company's main function is providing mobile financial services but as per the submitted memorandum of articles and the articles of association, it is not clear whether the company can provide MFS or can act as a payment services provider.

"There were few clarifications requested by the BSEC and we have provided those clarifications and it was fully convinced with those clarifications," Mishuk said, adding that Nagad adheres strictly to all regulatory guidelines and maintains robust financial controls to ensure accuracy and compliance in all our operations.