A single company can't have more than one representative director in the board of a non-bank financial institution (NBFI), said the Bangladesh Bank yesterday. 

Similarly, a company that already has a nominated director at a NBFI will not be permitted to appoint another director from its associated company, according to a circular.

In addition, if an individual has a stake in an NBFI, another person can't be appointed as his or her representative to the board.

The move comes as some individuals and entities that have directorship at non-banks are installing their representatives as directors to several NBFIs in order to control them, said a central banker yesterday.

This practice has put an adverse impact on the corporate governance of the NBFI sector, he said.

The NBFI sector has faced a wide range of scams in recent years, forcing the central bank to take several initiatives to strengthen rules and regulations governing non-banks.

During inspections, the central bank has found that a good number of directors of NBFIs had been involved in siphoning off funds. This led the BB to restructure and dissolve the boards of a number of NBFIs.

As of September 2022, defaulted loans in the NBFI sector stood at Tk 17,372 crore, accounting for 24.61 per cent of the total loans of Tk 70,416 crore, central bank data showed. Defaulted loans stood at around Tk 13,000 crore in 2021.

Talking to The Daily Star, Mominul Islam, managing director of IPDC, one of the largest NBFIs in Bangladesh, says a diversified board is good for ensuring corporate governance. But it is not common in Bangladesh.

Owing to the latest move from the central bank, IPDC would have to face some challenges, said Islam.

On the board of IPDC, there are three directors from Brac and two from the government. Now, two directors from Brac and one from the government will have to resign to comply with the order, he said.

"It will be good for us if we get more time to comply with the instruction."

The BB circular came into effect immediately.

According to Islam, IPDC would have to appoint four directors who don't sit on any other board of an NBFI.

"This will be difficult for us to find qualified directors now," he said, adding that they would talk to the central bank in this regard soon.

There are 35 NBFIs in Bangladesh. Of them, two are fully government-owned, one is the subsidiary of a state-run commercial bank, 19 are private, and 13 are joint ventures.