Proposed MRC could open new avenue for long-term capital market funding

 

A World Bank Group delegation meets with the Bangladesh Securities and Exchange Commission (BSEC) in Dhaka yesterday (19 August). Photo: TBS

The World Bank Group has begun assessing the feasibility of establishing an MRC in Bangladesh following a formal request from the Financial Institutions Division (FID) of the Ministry of Finance.

The proposed establishment of a Mortgage Refinance Company (MRC) in Bangladesh could open a new avenue for raising long-term funds from the capital market and help expand access to long-term housing finance.

The institution could mobilise funds by issuing corporate bonds and mortgage-backed securities (MBS), which could then be used to provide long-term refinancing to banks and financial institutions.

The World Bank Group has begun assessing the feasibility of establishing an MRC in Bangladesh following a formal request from the Financial Institutions Division (FID) of the Ministry of Finance.

An MRC could help address a key constraint in Bangladesh's housing finance market, where banks and financial institutions largely rely on short-term deposits to finance long-term housing loans.

By providing a dedicated refinancing facility, the proposed institution could help lenders access longer-term funding and potentially support the development of a deeper market for housing-related securities.

The initiative could also create new investment instruments for institutional investors, including pension funds, insurance companies and other long-term investors, while broadening the country's capital market financing base

As part of the initiative, a World Bank Group delegation met with the Bangladesh Securities and Exchange Commission (BSEC) yesterday (19 August). BSEC Chairman Masud Khan chaired the meeting at the commission's office.

The meeting discussed the potential structure and operations of the proposed Mortgage Refinance Company (MRC), as well as its possible role in expanding housing finance and deepening the capital market.

An MRC can play an important role in providing long-term liquidity to the housing sector and developing the bond market. Commercial banks typically collect short-term deposits and provide long-term home loans, creating a maturity mismatch and liquidity risk.

An MRC can raise long-term funds through bonds and use the proceeds to refinance banks' mortgage portfolios. This would provide banks with liquidity and enable them to expand their capacity to issue new housing loans.

Similar mortgage refinancing structures are operating in countries such as India, Pakistan and Malaysia. Establishing an independent MRC in Bangladesh could also help expand access to affordable, long-term housing loans, particularly for middle- and lower-income households.

An earlier TBS report, citing a World Bank policy paper, said the proposed MRC could raise funds from the capital market by issuing corporate bonds and mortgage-backed securities. This could increase the supply of long-term fixed-income instruments and create new investment opportunities for institutional investors.

Bangladesh's mortgage market remains underdeveloped

Bangladesh's relatively small mortgage market highlights the need for a Mortgage Refinance Company (MRC).

According to World Bank data, total housing finance loans stood at Tk105,890 crore as of June 2022, equivalent to 7.8% of total private-sector credit and only 2.7% of GDP.

Compared with countries with similar per-capita GDP, Bangladesh's mortgage market remains significantly below its potential. Mortgage debt should be around 6.5% of GDP, according to the World Bank, indicating an additional lending opportunity of around Tk90,000 crore.

Bangladesh also needs around 432,000 new housing units annually, further increasing demand for affordable, long-term housing finance.

The World Bank's 2025 Country Private Sector Diagnostic identified housing for middle-income households as a promising investment sector and recommended developing the legal and regulatory framework for an MRC.

Bond market remains a key challenge

However, Bangladesh's underdeveloped corporate bond market could pose a major challenge to the MRC model.

Experts cited in an earlier TBS report warned that weak demand in the bond market could make MRC bond issuance difficult. Former World Bank economist Zahid Hussain said banks could become the main buyers if the bond market remains weak.

The feasibility study will therefore need to assess the MRC's capital structure, regulatory framework, refinancing model and ability to raise funds from the capital market.