First-ever guideline for non-banks’ independent directors

Bangladesh Bank has released the first ever guideline for the appointment of independent directors in non-banking financial institutions (NBFIs) in order to protect the interest of the depositors and general shareholders.

Prior to the guideline, publicly listed NBFIs had to appoint independent directors as per the corporate governance rule of the Bangladesh Securities and Exchange Commission, said Kanti Kumar Saha, CEO of Alliance Finance PLC.

"Now, all NBFIs – be it listed or unlisted – will have to appoint independent directors. This will be good for the sector as qualified people will be hired as independent directors," said Saha, who is also the vice chairman of Bangladesh Leasing and Finance Companies Association.

In a circular on the appointment of independent directors released today, the BB said an NBFI can appoint a maximum of two independent directors in its 15-member board.

It also fixed criteria – work experience, minimum and maximum age and other qualifications — which the NBFIs should comply with at the time of hiring independent directors.

The minimum age of an independent director must be 45 years and the person can never be over 75 years of age.

They have to have a graduation degree in economics, banking, finance, business administration, law and accounting, said the central bank.

Last month, the banking watchdog issued a guideline for hiring independent directors at banks.

Today's guideline for NBFI's independent directors has been issued in line with the Finance Company Act 2023 passed last year.

The individual who has attachment with a finance company cannot be nominated as an independent director of that specific NBFI, the guideline read.

The non-banks cannot appoint persons whose family members hold shares or hold remunerative posts in those NBFIs.

Persons convicted in criminal case or involved in forgery, financial crime or any other unlawful activities cannot be appointed as independent directors.

The banking regulator also barred loan defaulters, tax defaulters and bankrupts from becoming independent directors.

The central bank also fixed honorarium for independent directors, travel and accommodation expenses to curb excess spending.

In the notification, the BB highlighted the roles, responsibilities and accountabilities of independent directors.

The independent directors have to inform the BB if their opinions are not given due importance and in case of any violation of finance company law and other rules, according to the BB circular.