How a state-funded PPP lender wasted public money in wrong investments

Inforgraph: TBS

The government in 2011 formed Bangladesh Infrastructure Finance Fund Limited (BIFFL), a special non-bank financial institution, to bolster financing in public-private partnership (PPP) projects. 

However, the company wasted its funds by investing in Fixed Deposit Receipts (FDRs) with weak banks and financial institutions. It also provided loans to some companies unrelated to PPPs which went defaulted causing loss of public money of nearly Tk1,800 crore.

The finance ministry formed BIFFL, the largest non-bank financial institution in terms of paid-up capital, by allocating Tk1,600 crore. Of this, Tk650 crore was invested in fixed deposits with 13 poorly performing banks and NBFIs, which are now unable to repay the funds.

The company incurred a loss of nearly Tk300 crore for maintaining provision and interest suspense against the overdue investment, according to BIFFL internal report. 

Besides, loans of Tk500 crore lent to 12 companies including nine auto brick projects have become defaulted. 

It incurred additional loss above Tk300 crore for maintaining provision and interest suspense against the classified loans, according to the company statement as of August 2024. 

Moreover, BIFFL violated finance ministry guidelines for investments. According to a ministry circular issued in 2015, government, semi-government, autonomous and semi-autonomous institutions can keep a maximum 20% of funds allocated under Annual Development Programme (ADP) and maximum 25% of their own funds with private banks and financial institutions.

The circular also named only 13 NBFIs as eligible to get deposits.

Going against the guideline, BIFFL invested entire deposits with private banks and NBFIs in 2015-19 violating the rule. Besides, it selected all weak NBFIs beyond the prescribed relatively good 13 NBFIs.

Enter Formanul

All the investments were made during the period of Formanul Islam, then executive director and CEO of BIFFL who was forced to resign in July 2019 on the accusation of making unauthorised FDRs in violation of the ministry circular.

Formanul took the investment decisions on his own without taking approval from the board during his tenure in a joint signature of Nisarul Kabir Siddiqui, then senior principal officer (Treasury) of BIFFL. Later, Nisarul was also removed on the same accusation.

Later, in 2020, the Anti-Corruption Commission (ACC), filed a case against Formanul and Nisarul on charges of abuse of power and breach of trust.

Asked about violating the government circular, Formanul said, "After my forced resignation on 28 July 2019, BIFFL lodged a complaint with the ACC, accusing me of four offences – one of which involved unauthorised FDRs in breach of the government circular." 

The ACC dismissed all but the complaint related to the FDRs, he added.

Formanul claimed that BIFFL is not a government enterprise or state owned entity. "It is a company registered under the Companies Act, 1994, and licensed by Bangladesh Bank as an NBFI. It is a public limited company run by its board of directors."

Therefore, it is not subject to policies applicable to state-owned enterprises, he said.

He further said BIFFL operates with its own capital base and does not engage in implementing annual development projects. Besides, it is not an autonomous body; rather, managing deposits and investments is part of its routine operations, similar to other banks and NBFIs.

"If that circular was applicable to BIFFL, it should have been applicable to other government-owned banks and NBFIs who made lots of investments in those allegedly risky banks and NBFIs," added Formanul. 

When contacted, SM Anisuzzaman, the executive director and CEO of the company who joined after Formanul's resignation, however, said the circular must apply to BIFFL, as it is a fully government-owned organisation.

He said BIFFL's capital is provided by the finance ministry and it differs from other state banks and NBFIs in that it does not collect deposits from the public.

Regarding not taking investment approval from the board, Formanul claimed, "There was no FDR policy until I obtained approval for one in 2018. Until then, the CEO had the authority to make FDRs, and the board-approved Treasury Manual of 2018 also authorised the CEO to invest in the money market as well as FDRs."

In contrast, Hasan Khaled Foisal, director of BIFFL, said any substantial investment decisions must receive board approval.

Meanwhile, following the toppling of Sheikh Hasina's government, Formanul, who served at BIFFL for over four years since 2015, filed a criminal case in September against several high-profile individuals, including former finance secretary Abdur Rouf Talukder and Hasina's private industry and investment adviser Salman F Rahman. Also named in the case are former NBR chairman and BIFFL board member Abu Hena Rahmatul Muneem, along with nine others. 

In the case documents, Formanul claims he faced harassment and threats after refusing to approve loans for Salman. He alleges that Rouf pressured him for the loans in 2019, and after he declined, he was removed from his position.

The case has now reached court, with the Police Bureau of Investigation ordered to investigate the allegations.

How Formanul diverted deposit to weak banks, NBFIs

BIFFL had fixed deposits of Tk1,986 with 13 banks in 2014, of which 80% were with state banks. However, those FDRs were spread to 30 banks and NBFIs in 2015 soon after Formanul joined as the executive director and CEO, according to TBS' findings from annual report analysis.

In 2017, entire deposits were diverted to 51 private banks and NBFIs, withdrawing from state banks violating the finance ministry's regulation. Of the 51 banks and NBFIs, 13 were poorly performing and now Tk650 crore are stuck with them.

Abdur Rouf Talukder, who became chairman of BIFFL in 2018 while serving as finance secretary, raised concerns in 2019 after discovering the poor investments in weak NBFIs. 

In conversations with top officials at BIFFL, The Business Standard has learned that Rouf sought to take action against Formanul, ultimately pressuring him to resign.

An internal audit conducted after the resignation of Formanul found that deposits were invested in a joint signature of Nisarul Kabir Siddiqui, then senior principal officer (Treasury) of BIFFL. Later, Nisarul was also removed.

When BIFFL new management moved to recover deposits from the weak organisations, they came to know that those deposits were given in exchange of commission, said SM Anisuzzaman.

He said classified loans surged to above 15% from less than 2% after Formanul resigned as all investments made during his tenure turned defaulted.

He also said loans of Tk500 crore given to 12 companies given by Formanul were defaulted causing additional loss of Tk800 crore including suspense interest and provision maintained.

The central bank has also confirmed the authenticity of the claims regarding commission transactions associated with fixed deposit investments in BIFFL. In a letter to BIFFL dated 16 April 2023, the Bangladesh Bank said it learned from credible sources that some state-owned banks and NBFIs were investing in fixed deposits without conducting proper financial analyses or verifying the security of state funds.

In some cases, these investments were being influenced by individuals, according to the central bank. 

In light of this, the central bank instructed BIFFL to conduct thorough analyses of financial health before making fixed deposit investments in any NBFIs. It also recommended the formation of a separate investment committee to oversee such decisions.

When asked about the investments, Formanul explained, "FDRs were made in the latter part of 2015 and 2016, some in 2017, during a period when the country's market was incredibly over-liquid and banks were returning our FDRs. The company's profitability was declining significantly; therefore, we allocated a small portion of our FDR investments to NBFIs in search of higher yields."

How S Alam and PK Halder benefited from BIFFL's fixed deposits 

A significant portion of Tk200 crore was invested in four vulnerable NBFIs during Formanul's tenure which are linked to Saiful Alam Masud, chairman of the controversial business group S Alam and his associate loan scammer PK Halder.

For instance, BIFFL invested Tk56 crore as fixed deposit in People's Leasing and Financial Services in 2017 when weak financial health of the company was already revealed by the Bangladesh Bank.

The central bank removed five directors of People's Leasing in 2015 for their alleged involvement in the embezzlement of Tk358 crore and financial health of the NBFI was worsening since then.

In 2015, PK Halder's company Anan Chemical took control of People's Leasing. 

BIFFL also invested Tk138 crore in another three NBFIs in 2017 which are linked with Halder and S Alam.

Of the amount Tk71 crore was invested in International Leasing and Financial Services, Tk52 crore in FAS Finance, and Tk16 crore in Reliance Finance which was renamed Aviva Finance owned by S Alam.

All those NBFIs are now unable to pay back money to BIFFL.

PK Halder took control of the four companies – International Leasing and Financial Services, People's Leasing and Financial Services, FAS Finance, and Reliance Finance – by buying their shares from the stock market during 2015-16.

With only 10 years of banking experience, Halder was promoted to the post of the managing director of S Alam's Reliance Finance in 2009 which was the start of his loan scandal. In July 2015, he joined as the MD of S Alam's another bank NRB Global which was renamed Global Islami bank later.

In just a decade, Halder, who was arrested in India, used the four companies to raise Tk11,000 crore.

Instead of investing in government bonds and bills, Formanul invested deposits in those risky financial institutions aligning with the scamster putting BIFFL in loss.

However, Formanul claimed that "those banks and NBFIs were not risky at that time. You may please check their credit rating, CRR standing, price of shares etc of that time."

He also said, "Making FDRs in NBFIs is not illegal or an offence. Not monitoring their activities properly is a shortcoming of the Bangladesh Bank. Depositors should not be punished for the failings on the part of the central bank and alleged corruption of NBFIs owners.

"Moreover, in 2018, we at BIFFL, were under tremendous pressure from the central bank to make FDRs with NBFIs because banks cut-off their credit lines. The bank's high-ups including the governor assured us that after the 2018 election, the market will become normal, which did not work."

Tk110cr loan proposal for Beximco 

Formanul filed a criminal case recently against several high-profile figures, including Salman F Rahman where he claimed that Salman secured Tk100 crore for his RMG plan from BIFFL without any collateral, despite initially requesting Tk40 crore. 

This could not have happened without the involvement of Rouf Talukder, the then management, and the board of directors, Formanul Islam concluded, adding that an investigation is necessary. 

However, TBS found that Formanul initiated the loan proposal of Tk110 crore against RMG plant of Beximco in 2017. The letter signed by Formanul on 9 May 2017 shows that he sought no objection from Sustainable and Renewable Energy Development Authority (SREDA) for financing the project. 

He was the project director of Energy Efficiency and Conservation Promotion Financing (EECPF)-BIFFL which is funded by Japan. Any finance under the project requires no objection from SREDA. 

When asked about the issue, Formanul said he couldn't remember sending any request to SREDA for NOC involving an amount of Tk110 crore. 

"So far I recall, there was a request for Tk40 crore from Jica soft loan. Sending a request to SREDA for NOC is a precondition to start project appraisal, which is applicable for all such proposals. After receiving SREDA's NOC we used to conduct due diligence on the project. You will see that even though SREDA issued NOC, we didn't consider financing of the project due to their adverse CIB reports."

Formanul's lending to some companies does not go with the mandate of the formation of BIFFL to facilitate PPP projects.

For instance, despite being a specialised financial institution, BIFFL invested Tk25 crore in commercial paper against a trading company Computer Source in the year 2016 without any collateral which turned to default later. The new management after Formanul's resignation has written off the loans in the year 2022 as it remained bad consistently, according to BIFFL annual report of 2023. 

Formanul also lent Tk250 crore to nine auto brick projects during his tenure which also goes against the company's mandate. All loans turned to default after Formanul resigned.

However, describing the mandate, BIFFL's annual report for 2013 said that the main objective of the company is to provide predominantly long-term financing for PPP projects through issuance of bonds and debt instruments and equity offerings. BIFFL envisages attracting private investments from local and foreign investors and to invest in companies that are implementing infrastructure projects in Bangladesh.