The microfinance bank ordinance: a blueprint for social ownership or tokenistic theater?

• by Zaki Haider
• Feb 18, 2026
• 3 min

MSC examines the 2026 Microfinance Bank Ordinance, which strengthens regulations and integrates microfinance into the formal banking system under Bangladesh Bank. While promoting borrower ownership, MSC highlights concerns about governance, financial literacy, and the risks of limited investor participation.

The transition from the draft “Microcredit Bank” to the final Microfinance Bank Ordinance of 2026 represents a significant hardening of the regulatory floor. While the previous draft felt like an experimental foray into parallel banking, the final ordinance anchors these new entities firmly within the central banking system, albeit with a rigid social cage that may redefine the very meaning of an “investor.”

This evolution marks a shift from a “regulatory island” to a bridge overseen by the Bangladesh Bank. By placing these entities under the prudential rigors of the Bank-Company Act, 1991 and the Bangladesh Bank Order, 1972, the state has effectively ended the era of microfinance as a separate, light-touch domain.

This regulatory tightening is accompanied by a steep escalation in financial requirements. The bar for entry has been raised significantly, with authorised capital now set at Tk 500 crore and minimum paid-up capital at Tk 200 crore—doubling the requirements of the original draft. Yet, the most radical pivot lies in how the law treats profit. In a move that prioritises borrower-centricity over market returns, general investors are capped at recovering only their initial investment, while borrower-shareholders are exempt from this limitation. This strategy is clearly designed to incentivise ownership among the poor rather than the private elite, but it creates what might be called the “uninvestable paradox.”

By doubling down on this “social business” mandate, the ordinance essentially shuts the door on traditional private capital. No rational entrepreneur will deploy risk capital into a Tk 200-crore venture where the potential upside is legally capped at zero. This creates a deliberate systemic push: by making the bank uninvestable for the general market, the law effectively forces these institutions toward a Grameen-style structure, where borrower-shareholders must become the true owners. Indeed, the law mandates that this group must hold at least 60 percent of the capital. However, this noble philosophy faces a historical and practical hurdle: the risk of ownership without power.

The precedent of Grameen Bank offers a sobering lesson in this regard. The bank’s governing “Sixteen Decisions” emerged not from a top-down mandate, but from intensive dialogues held by borrower-leaders in the early 1980s.

This grassroots codification of social policy—abolishing dowry and mandating child education—forced the bank to operate as a development agency. We see the fruits of this influence in the push for non-traditional products like housing loans, which saw Tk 280 crore disbursed for rural homes by 2022. Yet, researchers note a persistent “literacy chasm.” Because a vast majority of borrower-directors have historically lacked formal education, their influence often remains concentrated on social policy rather than financial auditing. While they “own” the bank, professional staff continue to operate the complex financial levers, leaving the owners to influence the soul of the institution but rarely its spreadsheets.

The 2026 Ordinance risks codifying this disparity. While it grants borrower-shareholders the right to elect four out of nine directors, it remains dangerously silent on mandated financial literacy. Without a rigorous framework to equip a rural borrower to oversee capital adequacy ratios or liquidity management, their 60 percent majority ownership risks becoming a legal fiction.

In the absence of true decision-imposing power, authority will inevitably consolidate in the hands of the managing director and nominee directors from the institutional side. The borrower-directors may find themselves reduced to “token” representatives—present for compliance, but silent during the complex maneuvers of fractional-reserve banking. Perhaps most concerning is the “capital squeeze” inherent in this model. If a liquidity crisis hits, the borrower-shareholders—the “true owners”—lack the personal wealth to provide emergency equity support.

By alienating general investors through the dividend cap, the bank loses its natural “lender of last resort” at the shareholder level, leaving it vulnerable to systemic shocks that the poor cannot buffer. Ultimately, the Microfinance Bank Ordinance is a bold attempt to institutionalize social equity, but it builds a boardroom where the majority owners are structurally positioned to be the least heard.

Unless forthcoming rules mandate aggressive governance training and simplified reporting, these banks will not be instruments of empowerment but sophisticated pieces of tokenistic theater.

This was first published in “The Daily Star” on 17th February 2026.