DFIM Circular Letter No. 01: Appointment of Independent Directors in a Finance Company

Bangladesh Bank
(Central Bank of Bangladesh)
Head Office
Motijheel, Dhaka-1000
Bangladesh.
Ref No.: DFIM.CD.CIR-01
DFIM Circular Letter No.-01
Managing Directors / Chief Executive Officers
All Finance Companies operating in Bangladesh.

Dear Sir,

Regarding the appointment of Independent Directors in Finance Companies.

2. We draw your attention to the Finance Companies Act, 2023, and DFIM Circular No.-02, dated: 13 March 2024, and DFIM Circular Letter No.-40, dated: 12 December 2024.

3. Under the provisions of Section 14 of the Finance Companies Act, 2023, the Board of Directors of Finance Companies is required to consist of a minimum of 2 (two) Independent Directors. This provision has been incorporated for the sake of good governance. However, although Independent Directors are free from holding shares in the Finance Company, they become loan defaulters due to loans taken by the Finance Company being converted into non-performing loans. Consequently, in many cases, capable individuals with a clean image are reluctant to be appointed as directors in Finance Companies, which necessitates a remedy.

4. The primary responsibility of Independent Directors is to provide impartial opinions for the protection of depositors and general shareholders. However, the Board of Directors does not reflect the independent and impartial opinions of the Independent Directors. In some cases, despite the Board of Directors taking decisions contrary to the interests of the institution and depositors, no dissenting opinion from the Independent Directors regarding such decisions is recorded. In most cases, the situation arises due to the Finance Company itself initiating the selection of Independent Directors.

5. In this context, the following decisions have been taken regarding the appointment of Independent Directors in Finance Companies:

(a) Bangladesh Bank will prepare a panel of Independent Directors based on the qualifications and suitability specified in Sections 15 and 17 of the Finance Companies Act, 2023, and DFIM Circular No.-2/2024. Finance Companies may periodically send the names and necessary information of eligible persons for Independent Director positions to the Regulatory Institutions and Markets Department of Bangladesh Bank. After verification and screening based on the prescribed criteria, Bangladesh Bank will include them in the panel;

(b) Finance Companies shall appoint Independent Directors from the said panel, subject to the prior approval of Bangladesh Bank; and

(c) In accordance with the provisions of Section 17 of the Finance Companies Act, 2023, if the position of any Independent Director becomes vacant, Finance Companies shall inform Bangladesh Bank within a maximum of 3 (three) months. Additionally, in the case of the expiration of the term of an Independent Director, Bangladesh Bank must be informed at least 30 (thirty) days prior to the end of the current term.

28 Poush 1431
Date:
12 January 2025

Regulatory Institutions and Markets Department

6. The Independent Directors appointed in Finance Companies shall independently perform the duties and responsibilities specified in DFIM Circular No.-2/2024. If any irregularity is observed, or if the provision of independent opinions is hindered, or if the opinions are not reflected in the minutes of the Board meeting, he shall immediately inform Bangladesh Bank in writing. If necessary, he shall directly inform Bangladesh Bank of a copy of his dissenting opinion regarding any decision of the Board of Directors.

7. If a Finance Company needs to take a loan, the Independent Directors shall not sign any guarantee letter on behalf of the Finance Company against such loan.

8. The provisions of Section 16(5) of the Finance Companies Act, 2023 shall apply to Independent Directors, meaning that the Independent Director shall not become a loan defaulter due to the concerned Finance Company becoming a loan defaulter.

9. Furthermore, all instructions of DFIM Circular No.-2, dated: 13 March 2024, and DFIM Circular Letter No.-40, dated: 12 December 2024, shall remain in force as before.

10. These instructions are issued under the powers conferred by Section 41(2)(d) of the Finance Companies Act, 2023, and shall come into force immediately.

Yours faithfully,

(Gautam Kumar Ghosh)
Director (DFIM)
Phone: 9530178
-02-