Bangladesh Bank Governor Ahsan H Mansur has reassured that the central bank will provide liquidity support to assist struggling banks, which is a positive step.

However, a critical issue is being overlooked: the state of the non-bank financial institutions (NBFIs). A significant portion of the population depends on NBFIs for their financial needs, yet this sector has been plagued by scandals and mismanagement.

NBFIs play a crucial role in the financial ecosystem, complementing traditional banks by serving segments that are often underserved by the latter. While commercial banks globally focus on short-term financing, NBFIs specialise in long-term funding, providing essential services like SME financing and microfinance.

One of the standout features of NBFIs is their proactive approach to client engagement, often reaching out directly to customers, visiting their offices and offering quicker decision-making processes compared to banks. In contrast, banks tend to be bureaucratic, requiring clients to visit branches and go through lengthy approval procedures that involve multiple layers of management.

In fact, while banks focus more on the company, NBFIs focus more on the borrower, especially their paying habits. NBFIs prioritise the business model of their clients over collateral, making them more accessible for smaller businesses.

Many well-established NBFIs have in-house legal and engineering teams, allowing them to handle verification and evaluation internally. This provides clients with a more seamless, hassle-free experience and quick decisions compared to traditional banks.

Unfortunately, the challenges facing NBFIs mirror those of the banking sector. While some NBFIs have flourished, others are struggling, burdened by high levels of non-performing loans (NPLs) and suffering from mismanagement. Fraudulent loans and fund embezzlement have severely weakened several institutions.

As of June 2023, the NPL ratio for NBFIs stood at 27.65 percent, but by January 2024 it had surged to a record high of 30 percent. This situation has been exacerbated by a lack of oversight from the Bangladesh Bank and complicity of top tiers in the central bank and NBFIs, which has allowed bad loans to spiral out of control and earned mistrust of the depositors, thereby hindering the progress of this important sector and the economy.

Given their importance, it is crucial for the central bank to extend the same level of oversight and support to NBFIs as it does to banks. This includes addressing governance issues by reconstituting the boards of troubled NBFIs and offering liquidity support to ensure their stability.

Protecting depositors' interests should be a top priority. By enforcing stricter regulations and providing financial assistance where needed, the central bank can help restore confidence in NBFIs, ensuring this vital sector remains healthy and capable of supporting the economy.

In summary, while the focus on assisting banks is necessary, the plight of NBFIs should not be ignored. Effective regulation, better governance and financial support are key to safeguarding the integrity of this crucial part of Bangladesh's financial system.

The author is chairman of Unilever Consumer Care Ltd and chief adviser of the board at Crown Cement Group