Bangladesh Bank governor Atiur Rahman stressed Saturday on creating some norms in respect of succession in the microfinance institutions (MFIs) to establish good governance in the sector.
He said although a specific succession plan is necessary for establishing good governance in the microfinance sector, Bangladesh Bank on its part could not do it mainly due to strong criticism at home and abroad.
"There are governance problems in the microfinance sector. We could not formulate a succession plan," said Atiur Rahman.
Atiur Rahman was speaking as the guest of honour at the Dhaka Microfinance Conference 2014 at Bangladesh Bank Training Academy in the city. State minister for finance Abdul Mannan was present as the chief guest. Credit Development Forum (CDF) organised the event.
Atiur Rahman said the top executives of the MFIs have a propensity to hold on their posts for their lifetime.
"We know how to enjoy, not sacrifice," he added.
The central bank chief admitted that although the banking sector had been able to stand on a farm footing, the MFIs were yet to reach such a level. They are burdened with various problems like inadequate resources, high interest rate of the banks and hidden costs, various conditions for collateral imposed by the banks.
Atiur Rahman noted these problems could be solved through establishment of a linkage between the banks and the MFIs. He called upon the top executives of the commercial banks to provide fund to the MFIs at lower rate of interest considering it as their corporate social responsibility.
"The MFIs keep 10 per cent of their fund in the banks. Then why should not the banks provide the MFIs fund at a lower spread?" the governor asked.
He said although the credit flow to the microfinance sector from the commercial banks has increased, it should be more as the investment in this sector is secured.
"The loan repayment is much higher in microfinance sector and the investment of the commercial banks will not only be profitable but also risk free. As microfinance is a short-term loan, the banks can use the investment as a revolving fund," said Atiur Rahman.
BB governor said microfinance has a great contribution in poverty reduction efforts over the last two decades and the extended activities of the NGOs have brought a renaissance in the rural economy.
He also suggested the Microcredit Regulatory Authority (MRA) to relax the present rules on the savings condition of the MFIs as the rules were rigid in collecting savings from clients. The governor also asked the banks to diversify the portfolio of clients in providing loans and take care of all.
Representatives of MFIs said one of the major problems of MFIs is fund crisis. On the other hand, there is a liquidity overflow of Tk 920 billion in the commercial banks. They called upon the commercial banks to provide fund to the MFIs at single digit interest rate. Besides, they urged the MRA to revise their rules in the context of changing time.
Executive director of Coast Trust, Reazaul Karim said the MFIs usually conduct their monitoring and evaluation process manually which involves higher cost.
He urged the Bangladesh Bank and Palli Karma Shahayak Foundation (PKSF) to come forward to invest in information technology in microfinance sector to reduce monitoring and evaluation cost. He also urged the central bank to include other MFIs in the refinance scheme except for the big MFI like Brac.
Saiful Islam, executive director of BIZ said the tendency of embezzlement of client's fund by the MFI staffs has increased in recent times but there is hardly any legal procedure to follow for ensuring the punishment of the culprits.
"The thanas do not take the cases and the courts often send the cases to the anti-corruption commission. The offender takes the advantage of the cumbersome process and gets bail and joins another MFI to embezzle money," he said.
He urged the BB to maintain a database of the defaulting staff and track record, establish a CIB like the banks and instruction for the thanas to take cases.
CDF executive director Abdul Awal delivered the welcome speech while its chairman Mosharraf Hossain chaired the conference. MRA executive vice chairman Khandakar Muzharul Haque, Dutch-Bangla Bank executive committee chairman Sayem Ahmed were present as special guests at the programme.
