Microcredit interest should be standardised: Yunus

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Amid mounting criticism over interest rate, Grameen Bank founder Muhammad Yunus has admitted that microcredit interest should be standardised, reports bdnews24.com.
"Tell us what the interest rate is, because people often say that it's high but don't know what the rate is," he told the closing session of a three-day conference in the city titled 'Microfinance Regulations: Who Benefits?" on Wednesday.
The microfinance pioneer's comment came two days after the finance minister spoke of complaints over high interest rate charged by micro-financing institutions (MFIs).
"There are many allegations against the microfinancing institutions including high interest rates that ensnare the borrowers in perpetual debt," AMA Muhith had said Monday at the opening session of the same conference.
Yunus said that the basic contribution that the microcredit regulatory authority (MRA) should make to the sector is "introducing a standardised interest rate" and defining the term microcredit.
"Many organisations take collateral against loans, some give loans to middle-income people, some even lend money to buy consumer items and say that it is microcredit."
He also said that insurance for the rural poor could be another avenue for the MFIs.
Disaster and health insurances can be introduced for the rural population using "microcredit as a platform", added Yunus.
The 2006 Nobel peace prize winner said that the newest challenge for MFIs now is to cater to the need of the second generation.
"We have to now think about the children of the borrowers, how they can break out from the cycle of sickness, poverty and uncertainty."
Touching on the issue of high interest rate, BRAC Chairman Sir Fazle Hasan Abed told the audience that in the past MFIs were heavily funded by development partners.
Now the scenario has changed and the high interest is charged for sustainability of the MFIs, he added.
"The MRA can consider awarding banking licences to MFIs," said Abed and emphasised capacity building of the MRA.
Our Staff Correspondent adds: Critics blame microcredit sector without understanding the sector well, Economic Adviser to the Prime Minister Dr Mashiur Rahman said.
"Without debating about high or low lending rate, it can be said that microfinance benefits the society," he said.
The microfinance institutions (MFIs) create opportunities for the borrowers to earn income in two ways - one as labourer and the other as entrepreneur, Dr Mashiur said.
Dr Mashiur said if any MFI charges a high interest rate, the amount paid more than the normal charge should be treated as deposit of the borrower.
The MFIs retain the profit they earn and reinvest it in their microfinance operation, he said.
"This is no charity and they recover the lent amount with interest," he added.
"A genuine problem faced by the MFIs is lack of information about the borrowers," he said.
Bangladesh Bank Governor and MRA Chairman Dr Atiur Rahman said a good number of recommendations were put forward in the conference by different participants to make the regulatory regime more effective.
Some of the recommendations are the regulatory approach should be dynamic not static, pricing of microcredit should be transparent and large MFIs should be regulated by the central bank.