DFIM Circular No. 05: Interest/Profit Rate of Deposit and Loan/Lease/Investment

Bank of Bangladesh (Central Bank of Bangladesh) Head Office Motijheel, Dhaka-1000 Bangladesh.

DFIM Circular No. 05

Managing Director / Chief Executive Officer All Finance Companies operating in Bangladesh.

Dear Sir,

Subject: Interest/Profit Rate of Deposit and Loan/Lease/Investment.

In the subject matter, instructions were issued to determine the maximum interest rate for loans by adding a margin to the Bangladesh Bank Reference Rate (BBRR) as an interim step towards introducing a market-based interest rate system through DFIM Circular No. 07 issued on June 20, 2023.

2. Now, to make the interest/profit rates of deposits and loans/leases/investments of finance companies completely market-based by following international best practices, the market-based interest rate system based on BBRR has been withdrawn. The interest/profit rates for loans/leases/investments and deposits will be determined based on the demand for loans and the supply of loanable funds.

3. The following instructions will apply in determining market-based interest rates:

(a) Finance companies will publish sector-specific interest rates for loans and deposit interest rates on their websites;

(b) Interest/profit rates may vary by up to 1% among customers within the limits determined considering risk;

(c) It must be ensured that interest/profit is not charged on loans/leases/investments at rates outside the market (above BBRR) and interest/profit is not paid on deposits at rates outside the market;

(d) The type of loan interest rate, i.e., whether it is fixed (Fixed Rate) or variable (Variable Rate), must be mentioned in the loan sanction letter;

(e) In the case of variable interest rates, the interest rate specified in the sanction letter cannot be increased within 6 (six) months of loan disbursement; thereafter, the interest rate may be re-determined every 6 (six) months based on market interest rates;

(f) If any loan or installment of a loan is identified as overdue (Overdue), a maximum penalty interest of 0.50% in addition to the regular interest rate may be charged on the said overdue installment for the period of the overdue. However, in the case of imposing penalty interest, approval of the concerned operational committee must be obtained;

(g) No service charge other than the declared interest rate may be charged/collected; and

(h) In determining the interest rate for loans provided under incentive packages/special funds/re-financing/pre-financing funds established by the Bank of Bangladesh or the Government, the policy guidelines prepared for the respective funds will apply.

Date: 21 Ashwin 1431 06 October 2024

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4. Finance companies operating on the basis of Islamic Shariah will take necessary measures to determine profit in accordance with the aforementioned instructions in respect of the investments they provide.

5. The instruction regarding uploading the details of declared interest rates of the respective month to the website of the Department of Financial Institutions and Markets (DFIM) using the User ID and Password of the respective month by the 7th of the respective month, in accordance with the instructions of DFIM Circular No. 09 dated November 29, 2012, will remain in force.

6. In this context, the instructions of DFIM Circular No. 07, dated June 20, 2023, regarding the BBRR Reference Rate, DFIM Circular Letter No. 21, dated October 08, 2023, DFIM Circular Letter No. 25, dated November 29, 2023, DFIM Circular Letter No. 08, dated March 05, 2024, and DFIM Circular Letter No. 13, dated April 03, 2024, are hereby repealed.

7. These instructions are issued under the powers conferred by Section 41(2)(d) of the Finance Companies Act, 2023, and will take immediate effect.

Yours faithfully,

(Ranjit Kumar Roy) Additional Director Phone: 9530249.