Micro-finance institutions (MFIs) can be criticised for charging high interest against small loans they provide to vulnerable sections of society. They may also be at fault for employing extortionist tactics for recovering loans. But it cannot be denied that Bangladesh has made considerable headway in reducing poverty, empowering women, freeing rural people from the clutches of loan sharks and giving a much-needed fillip to small and medium enterprises since MFIs came into operation.
Notably, most microcredit borrowers are rural women, small traders, street hawkers, and day labourers. For the majority of borrowers, microcredit proved very handy for their survival and support to their businesses. So, over the last few decades, the demand for microloans grew and the number of MFIs mushroomed all over the country. Compared to traditional banks, MFIs have been enjoying an enviable record of loan recovery. But the joy ride of the MFIs ended during the Covid-19 pandemic as it dealt a blow to the loan repayment capacity of microcredit borrowers. To safeguard the poor borrowers from the double whammy of loss of income due to lockdown and loan repayment, the government had instructed the MFIs to withhold collection of loan instalments from clients for a considerable period. It was an understandable move. But the same well-meaning gesture allegedly became a problem for the small and medium MFIs who rely mainly on big MFIs and banks for funds. Even though their loan recovery effort was seriously hampered due to Covid-19, big MFIs forced the smaller ones to repay their loans.
Now the Financial Express reports on a disquieting development concerning microcredit. Funds for small and medium MFIs have dried up significantly as larger institutions are not providing them adequate funds on charge of not repaying the previous loans. As a result, hundreds of small MFIs are not only struggling for survival, but also the microcredit operation is also being seriously hampered across the country. This observation was put forward during a recent meeting of the Microcredit Regulatory Authority (MRA), and it deserves to be looked into with due seriousness. According to the Financing of Microcredit Institutions-2022 policy, larger MFIs are to facilitate funding for smaller and medium-sized ones. Micro creditors categorically mentioned that the larger institutions were not complying with the provision because of wrong perceptions and unfounded fear that it would be difficult to recover loan money. But such a preconceived notion has no basis as the history of micro-credit operations suggests that borrowers of micro-credit are far more sincere in paying back their loans than the large bank borrowers. It is expected that the authorities will take note of this fact in order to address the problem that had surfaced during the pandemic time.
Considering the present socio-economic situation, keeping microfinance operations afloat is crucial. So, the MRA and commercial banks should change their attitude towards the micro-creditors and come forward with their knowledge and expertise to give a big boost to the sector's growth. Access to credit facilities is a fundamental right of the vulnerable segment of society. Depriving them of the credit facility is tantamount to denying them the sustenance of livelihood. Therefore, ensuring availability of funds for micro-lenders and borrowers should be clearly stipulated in the financial policy of the country.
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