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How NBFIs charge extra interest on loans flouting agreements

Hasina Begum, a resident of Siddhirganj in Narayanganj, approached Islami Finance and Investment Ltd for a home loan in 2013. The institution sanctioned a Tk 80 lakh loan from its Naryanganj branch setting the term of the loan at 10 years and the monthly payment amount. at 1.52,000 Tk.

The loan sanction letter did not mention the profit rate but eight years later it was found that the loan profit rate is 20% as Hasina is required to pay Tk 1.82 crore including the principal amount and profit, in 120 installments.

The financial institution has paid Tk 55 lakh to the client for house construction and repair work in irregular installments since December 22, 2013. The remaining Tk 25 lakh was collected by the branch in loan installments, but the lender told the customer that she also received this Tk25 lakh. Unable to put this Tk25 lakh in her hands, however, the client was unable to complete the construction of her house and thus was deprived of the income from the rents of the house.

During an interview with The Business Standard, Hasina said that the loan sanction letter was written in English and that she was not well educated, she did not understand the letter. In addition, officials at the financial institution failed to properly inform her of the terms and conditions, she said, adding, “If I had been aware of the unwritten and confidential profit rate, I would not wouldn’t have taken out the loan, so I could have avoided this life-and-death crisis.”

Hasina has paid the lender Tk 97,81,029 in principal and profit in monthly installments over the last eight years, which means that she has already paid Tk 17,81,029 more than the actual loan amount. The interest rate applied from the start of the loan was 20%. Hasina said she asked for an interest rate reduction, but the lender refused to do so.

A review of deposit and loan interest rates of non-bank financial institutions (NBFIs) in recent times shows that the financial expenditures of some NBFIs have increased unreasonably as they accept deposits at high interest rates. As a result, NBFIs have to charge high interest rates on loans, which has a negative impact on the overall economy by reducing consumers’ ability to repay their loans, increasing the amount and rate of defaulted loans and hampering production.

In this situation, the central bank set in April this year the maximum interest rate on deposits with NBFIs at 7% and the maximum lending rate at 11%, which will be effective from July 1.

According to a Bangladesh Bank inspection report, four NBFIs have collected deposits at over 12% interest in the past year.

In addition, six NBFIs have accepted deposits at interest rates between 12% and 13% over the past three years. These institutions are Bangladesh Industrial Finance, Fareast Finance and Investment, First Finance, Hajj Finance, Peoples Leasing and Union Capital.

Meanwhile, an analysis of loan disbursements shows that the loan rate of eight financial institutions is between 17% and 18%.

This list of such NBFIs includes Midas Financing, Phoenix Finance & Investments and Premier Leasing apart from the aforementioned institutions.

A senior Bangladesh Bank official told TBS that some financial institutions distribute loans at higher interest rates after accepting deposits at higher rates. As a result, many are struggling to collect their loans and many borrowers are going into default, he added.

Also, some institutions charge interest rates higher than fixed rates without mentioning loan interest rates in loan sanctioning documents, as a result of which many clients have become hostages even to some NBFIs deemed.

Hasina Begum, the aggrieved client of Islami Finance, said she asked the company’s managing director in 2017 and 2019 for a cut in the profit rate, but was ignored each time. “If the rate of profit on my loan is calculated at the rate set by the government or at a reasonable rate, the amount I currently owe will be reduced to half of the current figure.”

Hasina further said that the lender filed 10 lawsuits against her and her husband after they failed to pay installments for a few months during the Covid pandemic, which forced them to leave their house and spend their nights at other people’s homes. other people.

Infographic: TBS

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Infographic: TBS

“Right now, the debt is like a noose around my neck. The costs of processing cases have made us helpless and incapable,” Hasina said.

Also, another client of Islami Finance and Investment Limited, Nur Mohammad, told TBS that he received a Tk 1.5 crore home loan at 15% interest.

On October 20, 2016, Shihab Uddin of Moulvibazar took a Tk 20 lakh loan from IDLC at 10% interest for 10 years. He regularly repays the loan in monthly installments of Tk 25,300. It was decided to charge 10% interest to the company.

After reviewing the account statement provided by the lender, Shihab learned on July 18 that he had been charged 16.50% interest, which is against the loan disbursement policy. Shihab said he requested the sanction letter agreement document from IDLC, but the institution refused to give it to him.

Hasibur Rahman, a resident of Gate No. 1 in the capital’s Jatrabari, took out a $2 million home loan from National Housing and Investment Limited in 2017.

“I took the loan at 11% interest. After paying a few installments and taking an account statement, I saw that the interest rate was actually 14%. In 2018, I asked a reduction in the interest rate.But, since the problem has not been solved, I applied again in 2019 but did not receive a response this time either.

“Even then, I was regularly paying the loan installments. In the meantime, all my businesses were closed and even the tenants of the house could not pay the rent after the outbreak of the Covid pandemic in early 2020. In addition, many of them my tenants have left the accommodation. Although there was an instruction to stop the collection of deposits during the Covid period, this establishment continued to deposit deposit checks and like checks were refused by the bank concerned, it displayed the missed installments on my account with compound interest.”