Regulatory Alerts2021-02-28
Added
DFIM Circular No. 02: Ensuring Proper Utilization of Loan/Lease/Advance
The circular mandates financial institutions to implement regular monitoring, verify the proper use of previous installments before releasing subsequent ones, and immediately investigate and prevent the diversion of funds to other sectors or the settlement of other debts. Institutions must incorporate these utilization safeguards into their internal credit policies, maintain inspection reports in loan files, and promptly report any serious irregularities to the Department of Financial Institutions and Markets. These instructions are issued under Section 18(6) of the Financial Institutions Act, 1993, and take immediate effect.
Department of Financial Institutions and Markets Bangladesh Bank Head Office Dhaka. Ref No.: DFIM-02
DFIM Circular No.-02
Managing Director/Chief Executive Officer All Financial Institutions Operating in Bangladesh
Dear Sir,
Regarding ensuring proper utilization of loans.
If loans in the financial sector are not utilized properly, it creates adverse effects on the entire financial sector and hinders good governance in this sector. In this regard, it is currently considered an essential compliance requirement that financial institutions do not utilize loan funds for purposes other than the intended sector, do not repay or settle any existing other loans/leases/investments of customers through the provided loans/leases/investments, and in the case of installment-based project loans/leases/investments, do not release the next installment without ensuring the correct use of the previous installment.
In this regard, the following guidelines are being instructed to be followed to ensure the proper utilization of loans/leases/investments:
- Conduct regular monitoring activities to ensure the proper utilization of loans/leases/investments for the purpose for which they were provided/will be provided;
- In the case of installment-based project loans, release the next installment only after ensuring the proper use of the previous installment;
- Take immediate action to uncover the reasons and prevent the use of loan funds in places other than the intended sector;
- Do not repay or settle the liability of any other loan/investment in any way using the funds of one loan;
- Include the issue of ensuring proper utilization of loans and monitoring in the institution's internal credit policy;
- Prepare internal inspection reports for the purpose of ensuring proper utilization of loans and preserve them in the relevant loan files; and
- If any serious irregularity is observed regarding the proper utilization of loans/leases/investments during spot inspections, inform the Department of Financial Institutions and Markets, Bangladesh Bank, immediately.
These instructions are issued under the authority granted under Section 18(6) of the Financial Institutions Act, 1993, and shall be implemented immediately.
Yours faithfully,
Date: 15 Falgun 1427 28 February 2021
(Md. Zulkar Nayeen) General Manager Phone- 9530178