MFIs asked not to write off loans before 2-yr wait

The microcredit regulator has directed micro-finance institutions (MFIs) to wait two years before writing off a classified loan.

The Microcredit Regulatory Authority (MRA) recently issued a uniform guideline on writing off classified loans to remove confusion in this regard, said sources.

"The government issued the directive as there was no specific guideline for MFIs for writing off classified loans," Md. Shazzad Hossain, director-3 of the MRA told the FE Tuesday.

He said microcredit has a recovery record of more than 90 per cent since its introduction in Bangladesh. So the issue relating to writing off the same is not that important here, he added.

According to the circular, the classified loans should be written off as per time-bound programme. The oldest one should get priority over others while making decision on writing off classified loans.

"If any fake or unidentified loan is found, the relevant MFI must inform the regulator before writing it off," it said.

"The board of directors of a particular MFI is the right body to approve writing off of a loan and such writing off will have to be made  on June 30 and December 31 each year."

The circular said after writing off a loan, the MFI will still have the right to claim the loan and it will continuously try to get the money back. If the loan is realised, it has to be shown as earning.

The head office of an MFI must maintain a register of all details of the loans written off.

Md. Shazzad Hossain said the MRA has been trying to bring the sector back to the right track since its inception.

"The circular is a step forward in this regard," he said.  

The MRA is the central body to monitor and supervise microfinance operations of MFIs in the country.

Currently, 731 MFIs are registered with the MRA. These registered NGOs are serving around 40 million out of the country's 160 million people.

With a view to bringing the MFIs under a regulatory framework, the then government in July 2006 enacted the Microcredit Regulatory Authority Act, 2006 (Act No. 32 of 2006), which became effective from August 27, 2006.

The MRA is now in a process of granting licenses to more 300 MFIs.