Govt approves 3 Nagad Digital Bank investors holding over 10% stake each

The Financial Institution Division of the finance ministry has approved a central bank request for exempting three aspiring Nagad Digital Bank investors/shareholders, each exceeding 10% ownership, from the Bank Companies Act ownership limit.

The finance ministry gave the approval on 27 March. 

After Nagad submitted its application for a digital bank licence, with information about its shareholders, the Bangladesh Bank on 10 March sent a letter to the finance ministry, requesting its approval for an exemption from ownership restrictions, specifically for three of Nagad Digital Bank's shareholders.

Section 14A (1) of the Bank Companies Act (1991) in Bangladesh prohibits any individual, company, or members of their families from acquiring more than 10% of a bank's shares, singly, jointly, or through combined ownership.

There is an exception, though. Section 121 of the Bank Companies Act empowers the Bangladesh Bank, with the government's approval, to grant exemptions from the ownership limit set in Section 14A(1). This exemption can apply to specific banks or all banks and is announced through an official notification published in the government gazette.

Nagad Digital Bank's total number of issued shares is 12.50 crore. Three companies hold ownership exceeding the typical 10% limit: Osiris Capital Partners LLC (US), Blue Haven Ventures LLC (US) and Finclusion Ventures Pte Ltd (Singapore).

The US-based company Osiris Capital Partners LLC owns the largest stake, at 6.225 crore shares, representing nearly half (49.80%) of the bank's total shares. Tanvir Ahamad Mishuk, the managing director of Nagad, serves as their representative.

Blue Haven Ventures LLC, another US company, holds 3.125 crore shares, equivalent to 24.90% ownership. Their representative is Muhammad Farid Khan, a director at Summit Group of Companies.

The Singapore-based firm Finclusion Ventures Pte Ltd owns 1.375 crore shares, translating to an 11% stake in Nagad Digital Bank. Nakib Chowdhury, a Nagad official, represents Finclusion Ventures.

The central bank letter, signed by Director Mohammad Shahriar Siddiqui, mentioned that at least 50% of the board members of a digital bank should have adequate knowledge and experience in technology-based banking, emerging technologies, cyber laws and regulations. The remaining members should have adequate knowledge and experience in banking, e-commerce and banking laws and regulations.

"The operational and managerial dynamics of branchless digital banks differ from those of traditional branch-based banks. Among the three companies seeking to hold more than 10% of the proposed Nagad Digital Bank's shares, Osiris Capital Partners and Blue Haven Ventures are entities established with a primary focus on investing in fintech ventures. Additionally, Finclusion Ventures Pte specialises in the telecommunications sector," reads the letter, seen by TBS.

On 25 October 2023, the Bangladesh Bank issued a Letter of Intent endorsing the proposed Nagad Digital Bank. The central bank instructed the bank to apply for a licence within six months from that date, meeting the specified criteria. 

Following this directive, the proposed bank submitted its memorandum and articles of association to the Bangladesh Bank, detailing the names of shareholders and their respective shareholdings.

As per the memorandum of association of Nagad Digital Bank PLC, the company's authorised Share Capital amounts to Tk500 crore, distributed into 50 crore ordinary shares of Tk10 each, each with their respective rights, privileges, and conditions.

The proposed digital bank will manage customer onboarding, evaluate loan proposals, disburse loans, and handle collection activities entirely digitally.

According to the Bangladesh Bank, digital banks will leverage online technologies like artificial intelligence, machine learning, blockchain, and other cutting-edge technologies from the fourth industrial revolution. This aims to enhance the financial inclusion program by offering marginalised populations cost-effective and innovative digital financial products and services.

Due diligence is imperative in granting licences

Salehuddin Ahmed, former governor of Bangladesh Bank, has emphasised the need for due diligence before approving any digital bank. 

"There could be potential repercussions if regulations are relaxed at the beginning, particularly regarding customer protection in cases of fraudulent activities by the banks," he told TBS.

Warning against regulatory exemptions, he told TBS, "Allowing a few shareholders to hold a majority stake could enable them to have undue control over the digital bank. The central bank should prioritise prudence in granting licences."

"I am not singling out Nagad here. Many entrepreneurs are now keen on launching digital banks. But why this sudden rush? Shouldn't we digitise the existing banks first? Sonali, Agrani, and Janata Bank have yet to be digitised. It would be more prudent to digitise these existing banks," said the former governor.