Can Mediation Ease the Debt Recovery Crisis in Bangladesh? A Critical Evaluation

“An ounce of mediation is worth a pound of arbitration and a ton of litigation!” — Joseph Grynbaum

The banking sector in Bangladesh is under increasing strain as defaulted loans continue to surge. According to Bangladesh Bank, According to data from Bangladesh Bank, non-performing loans (NPLs) in Bangladesh’s banking sector soared by an alarming Tk74,570 crore during the January–March quarter of 2025, pushing the total amount beyond Tk4.20 lakh crore. Experts caution that this alarming trend may disrupt credit distribution and pose risks to overall economic stability. In order to facilitate prompt and expeditious loan recovery, the Government of Bangladesh enacted the Money Loan Court Act (MLCA), 2003. However, several legal shortcomings in the Act have hindered the achievement of its intended objectives.

Sections 22, 23, 24, 25, 38, and 44A of the MLCA address mediation as a means to resolve loan disputes. As per Section 89A of the Code of Civil Procedure, 1908, mediation refers to a flexible, informal, and confidential method of resolving disputes, where the process is non-binding and non-adversarial. In this process, the mediator assists the parties in reaching a mutually agreed settlement without imposing or prescribing the terms of the compromise.

As per Section 22, after the defendant submits the written statement in a money loan suit, the court shall refer the case to lawyers appointed for mediation, or, in the absence of such appointed lawyers, to the parties themselves for resolution of the dispute through mediation. The parties to the suit may appoint as a mediator a lawyer not involved in the suit, a retired judge, a retired bank or financial officer, or any other competent person whom they deem fit. When a case is referred for mediation, the court will not fix the lawyers’ or mediator’s fees or the mediation process; these will be decided by the parties, their lawyers, and the mediator by mutual agreement. Mediation must be completed within 60 days of the court’s order, unless the court extends the period by up to 30 days, either on joint written request by both parties or on its own with stated reasons.

According to Section 23, if mediation under Section 22 is unsuccessful, the parties may seek the court’s permission to try mediation again before the verdict is given. To implement mediation-based dispute resolution under this Act, financial institutions shall, by resolution of the Board or equivalent authority, authorize suitable officials at all levels through official orders or circulars (Section 24). Furthermore, before issuing a decree from a mediated settlement under this Act, the court must confirm it complies with section 24(2) limits and, if applicable, is approved by the financial institution’s Managing Director or CEO. Any mediation report for settling a financial institution’s case with claims over five crore taka must be approved by its Managing Director or CEO, irrespective of their official title. At any point after a decree in a money loan case under this Act, parties may resolve the case through mediation and notify the court (Section 38). Section 44A provides that parties may resolve the issues in an appeal or revision case through mediation at any point during the proceedings and notify the court of the settlement.

Mediation can be an effective tool for debt recovery. However, there are evident legal shortcomings in the Money Loan Court Act (MLCA), 2003 regarding mediation. The MLCA does not provide a specific procedural framework for conducting mediation proceedings; instead, it leaves the process to the discretion of the parties involved in the suit. This lack of structure may lead to unsuccessful mediation. Furthermore, the Act does not specify the qualifications required for a mediator. Although it allows the parties to appoint “any other competent person” as a mediator, this phrase is vague and may lead to confusion or disagreement between the parties. Another drawback is that, in cases where the claim by a financial institution exceeds five crore taka, prior approval from the competent authority of the concerned financial institution is mandatory. This legal requirement can act as a barrier, preventing the parties from resolving the matter amicably through mediation. While the MLCA permits mediation during the execution, appeal, or revision stages, it fails to provide any guidelines for conducting such proceedings at those stages.

To address the identified shortcomings in the mediation framework under the MLCA, 2003, several legal and procedural reforms are recommended. First, the Act should incorporate a comprehensive procedural framework for mediation, clearly outlining the steps and responsibilities involved in the mediation process. This would reduce inconsistencies and enhance the predictability of outcomes. Second, the qualifications and competencies of mediators must be explicitly defined to ensure neutrality, professionalism, and efficiency. Establishing minimum standards such as legal training or accreditation from a recognized mediation institution would help eliminate confusion stemming from the vague term “any other competent person.” Third, the requirement for prior approval by the top management of financial institutions in cases exceeding five crore taka should be reconsidered. Allowing delegated authority to senior officers through internal policy could eliminate bureaucratic delays and encourage swifter settlements. Moreover, the Act should provide clear procedural guidelines for mediation at the execution, appeal, and revision stages, ensuring that such proceedings are not left to subjective interpretation. Finally, institutional capacity-building initiatives, including the formation of a central mediation panel and the implementation of regular training programs, may further strengthen the practice of mediation in money loan disputes. These reforms would enhance the credibility, efficiency, and success rate of mediation under the MLCA, ultimately contributing to the timely recovery of defaulted loans and the stability of the financial sector.

To fulfill the objectives of the MLCA, 2003, Alternative Dispute Resolution (ADR), especially mediation, stands out as the most effective mechanism. Compared to conventional proceedings in the Money Loan Court, ADR offers a quicker resolution. However, to fully realize its potential, the existing limitations related to mediation must be addressed through necessary reforms. Equally important, active collaboration between the disputing parties is essential to ensure the success of the mediation process.


References

1. https://www.tbsnews.net/economy/banking/bad-loans-soar-tk74570cr-3-months-hit-tk42-lakh-crore-1165836

2. Money Loan Court Act, 2003 – Sections 22, 23, 24, 25, 38, and 44A

Md. Ala Uddin

Md. Ala Uddin serves as an Assistant Professor and Chairperson of the Department of Law at Primeasia University, Dhaka, Bangladesh. He teaches courses on Alternative Dispute Resolution and Legal Ethics. He completed both his LL.B. (Honours) and LL.M. from the International Islamic University Chittagong (IIUC). In 2022, he published a… MORE