Uttara Finance & Investments Ltd BDT 5,100cr scam: UTTARAFIN

1 crore =10 million & 1 EUR = BDT 102.67

Loan applications to financial institutions in Bangladesh require five layers of scrutiny before being approved, usually. The Uttara Finance and Investment Limited, a non-bank financial institution and publicly traded company in Bangladesh under the Dhaka Stock Exchange (DSE) trading code UTTARAFIN did not followed any of the procedures for disbursing a large amount of loans, reports The Daily Star newspaper of Bangladesh.

For example, it provided BDT 336 crore loans to Uttara Motors Limited (UML) and other concerns of Uttara Group of Companies (UGC) without any credit proposals, violating the banking rules.

The loans were not reported in the UTTARAFIN’s annual report and the financial balance sheet to dodge regulators, its stakeholders and Bangladesh Bank (BB), the central bank of the country, which was found by a central bank audit. Irregularities involving BDT 5,100 crore were committed by the board and management of UTTARAFIN in disbursement of loans and mobilisation of deposits, the BB audit found, carried out between October 7 and November 25, 2020. Most of the amount was not even reported in the UTTARAFIN’s financial statement made public in 2019 as a publicly traded company at the premier stock exchange of the country, the Dhaka Stock Exchange (DSE).

“The central bank is yet to find out the actual amount of money embezzled from the non-bank financial institution as its management did not cooperate with the audit teams, ignoring the banking rules,” the BB report said. The lender even turned-off it’s servers to prevent the investigators from gathering information, according to the report.

On December 1, 2020, the central bank asked UTTARAFIN to explain the irregularities. In response, UTTARAFIN sent two letters to the BB – one on December 15 2020 and the other on January 5 2021, admitting the irregularities . In the first letter, UTTARAFIN Managing Director Mr. SM Shamsul Arefin sought 30 business days extension of the deadline for explanations for the irregularities to the central bank.

Around three weeks later he replied to the central bank, “No explanation was sufficient in response to the queries about the irregularities found by the central bank investigation and audit. We are offering you apology with folded hands and state that such types of mistakes will not happen in the future. “We want your co-operation so that we can run our institution efficiently and smoothly.”

The bulk of the loans was disbursed to different concerns of UGC. The majority of directors of the UGC also hold directorship at UTTARAFIN. The BB found that Mr. Mujibur Rahman, a director of UTTARAFIN and Deputy Managing Director of different concerns of UGC, is the key person behind the financial scam. UTTARAFIN Chairman Mr. Rashidul Hasan and its Managing Director Mr. Shamsul Arefin have largely been involved in the scam, according to the report.

The lender also provided with BDT 248.68 crore in the form of margin loan to its subsidiary company Uttara Finance and Capital Management. The fund was supposed to be disbursed to clients to help them buy shares from the capital market, but UTTARAFIN failed to provide the BB with any such document, raising questions whether the loans were in deed used to do so.


Loan Disbursed Sans Credit Application

UTTARAFIN disbursed BDT 521 crore to a number of its directors to purchase shares from the stock market. But the loans were provided without credit applications and any scrutiny at UTTARAFIN board meetings, which “jeopardised the interests of the depositors to a great extent”, described the BB report.

Typically, upon receipt of a credit proposal from an individual or an entity, the branch manager of a lender has to verify the applicants credit worthiness i.e. whether the potential borrower has the capacity to repay the loan. The branch then submits the proposal to the credit committee. If the credit volume is larger than the manager’s approval limit set by the board, the proposal must be placed before the board of directors or the managing director as states the rule.

UTTARAFIN, however, did not follow any of the procedures while disbursing funds to the “borrowers” who happen to be it’s directors, said the BB report. Both the board and the UTTARAFIN management collectively committed the irregularities consistently since 2013, it added.


Question Over BDT 890 Crores

UTTARAFIN, which has been operating since 1995, provided with BDT 1,201 crore to different companies of it’s directors without UTTARAFIN board’s approval by creating two sections in its ledger — advance and prepayment and investment in shares — without authorisation to show the loan disbursements in it’s register.

The BB found that UTTARAFIN reported only BDT 311 crore in it’s 2019 financial statement without explaining the whereabouts of the remaining BDT 890 crore. Sources said, some UTTARAFIN directors, who hold directorships of both UTTARAFIN and Uttara Motors Limited, were found involved in the illegal practice.

Though the banking rules don’t allow a non-bank financial institution like UTTARAFIN to make cash transactions, large amount of funds was provided to the UTTARAFIN Chairman Mr. Rashidul Hasan “in cash” under the two unauthorised sections in the ledger, the BB report found. “UTTARAFIN also did not report in it’s financial statement the funds disbursed to it’s Chairman,” it said.

Contacted by The Daily Star, UTTARAFIN Chairman Mr. Rashidul Hasan said he had been unwell for the last 10 months and has not attended office during the period. “I am unaware of the central bank report on UTTARAFIN… I am not in a position to comment,” he said.


False Term Deposit

In August last year, the lender provided vouchers or receipts of term-deposit receipts (TDRs) over BDT 236 crore to Bluechip Securities Limited (BSL), which the UTTARAFIN Director Mr. Mujibur Rahman is the Managing Director of. But the vouchers of TDRs were forged. In reality, the firm did not deposit any money with UTTARAFIN, said the BB report.

The BB inspection teams were unable to find out how many false TDRs have so far been provided as the UTTARAFIN management declined to provide information. Besides, the teams are yet to know whether the BSL borrowed from other non-bank financial institutions or any banks through such forged TDRs.

UTTARAFIN will find itself in a precarious situation if the BSL fails to repay the loan, the report pointed out.


Embezzlement Through Call Money Market

UTTARAFIN also misused the funds it borrowed from the call money market. Though UTTARAFIN borrowed a total amount of BDT 397.59 crore from the market till December 2019, it reported only BDT 16 crore in its financial statement. The inter-bank call money market is a short-term money market, which allows banks and non-bank financial institutions, to borrow and lend money at inter-bank rates, which is usually much lower that than the commercial lending rates. Such loans are provided for a very short period, usually lasting no longer than a week, and are often used to help banks and non-bank financial institutions meet reserve requirement.

“Mujibur used the funds for personal purposes in gross violation of the banking rules,” the report said. Mujibur Rahman is a director of the UTTARAFIN and Managing Director of the BSL.


UTTARAFIN Managing Director’s Involvement

UTTARAFIN Managing Director Mr. Shamsul Arefin has been involved in siphoning off funds, eroding the interest of depositors and other stakeholders of the financial institution, according to the BB report.

He took BDT 24.22 crore from UTTARAFIN without approval from the management or the board. The amount was not reported in the UTTARAFIN’s financial statement, and he does not have any loan account with the lender, the BB report mentioned. He informed a BB inspection team that he had taken the funds from UTTARAFIN for his son’s treatment and returned a good amount from time to time.

In its document, UTTARAFIN recorded that it’s Managing Director Shamsul Arefin borrowed BDT 6.24 crore from it as of December 2019.

Contacted, Mr. Arefin told The Daily Star that UTTARAFIN failed to provide information to the BB audit team in time as he was diagnosed with Covid-19 in September, and Mr. Uttam Kumar Saha, the then Chief Financial Officer of UTTARAFIN, died from the virus the same month.

“I have adjusted almost all the funds I had taken between 2004 and 2019 from UTTARAFIN.” The outstanding amount is now a maximum of Tk 58 lakh, he claimed. He, however, declined to comment on the forged TDRs and other relevant issues.


Concealment of Credit, Deposit

UTTARAFIN also concealed the actual amount of term deposits mobilised from it’s clients reporting deposit amount BDT 1,877 crore as of December 2019 in it’s financial whereas the BB audit found the amount to be BDT 2,603.20 crore. The undisclosed funds of the term deposits of BDT 726 crore was diverted to other sectors as part of it’s effort to help scamsters plunder the funds, said the probe report.

The lender also used the same tactic in the calculation of the disbursed loans in its financial statement. For instance, the total loan or lease given by UTTARAFIN was BDT 1,877 crore till December 2019 as per its financial balance sheet. But the BB found that the actual amount was BDT 3,802 crore.

The inspection teams failed to detect the destination of the undisclosed amount of BDT 1,998 crore as the UTTARAFIN management refused to provide information. Mr. Md. Serajul Islam, spokesperson and an Executive Director of the BB, said the central bank is still carrying out investigation. If proof of involvement of any UTTARAFIN official or board member in the scam is found, punitive measures will be taken, he said. Asked what measures would be taken against the scamsters, Mr. Alam, another BB Executive Director responsible for monitoring and making policies for non-bank financial institutions, declined to comment.



Contacted by The Daily Star, Mr. Matiur Rahman, vice president of UTTARAFIN and Managing Director of the Uttara Group of Companies, claimed that the irregularities detected by the BB were “one-sided information”. “Irregularities of such magnitude can never happen in a financial institution. My younger brother Mujibur has already paid back BDT 308 crore to adjust his previous loans in compliance with the central bank’s instructions,” he told The Daily Star.

Mr. Matiur Rahman also claimed that UGC had not borrowed BDT 336 crore from UTTARAFIN as mentioned by the BB report. “This is not a loan. Uttara Motors Limited received the amount from UTTARAFIN upon the maturity of it’s term deposits with the financial institution.”

The BB should crosscheck it’s findings once again, and UTTARAFIN will certainly follow all the instructions from the banking regulator, he said. Asked why UTTARAFIN offered apology to the BB, he said the lender would run into further trouble if it did not use such words.

The Daily Star contacted Uttara Group several times to communicate with Mujibur, but he did not respond.