Microfinance institutions (MFIs) have proposed that 12.75 per cent flat interest rate be fixed for small loans instead of the going rate of 24 per cent.
The proposal came as the government has made a move to slash the interest rate or service charge of microcredit operations from the current rate.
Now, the MFIs want interest rate at a flat method as it is simpler, efficient and operational cost-saving.
Credit and Development Forum (CDF) chairman Murshed Alam Sarkar told the FE that they have formally placed a proposal to the Microcredit Regulatory Authority (MRA).
"We also apprised the governor of Bangladesh Bank of the same thing in a recent meeting," he said.
A technical committee has recently submitted a report after reviewing the going rate of 24 per cent, suggesting that the current service charge not be cut.
Last month, the central bank governor met the committee and recommended further review of the current service charge to find if there is any scope to cut it.
Earlier in 2022, an 11-member committee, headed by Grameen Bank chairman Prof Dr AKM Saiful Majid, was formed to review and slash the charge.
MRA executive vice-chairman Md Fashiullah earlier told the FE that the committee would decide whether the service charge could be reduced or not.
It is a regular process, as there is a mandate to review the cost and service charges of the MFIs in every two years, he added.
In 2021, the MRA formed a 10-member committee, headed by Mr Fashiullah, to revise the service charge, but the body was dismantled without any decision.
Later, another technical committee, led by MRA director Mohammad Yakub Hossain, was formed to this end, but to no avail. It also ended without any fruition.
Mr Fashiullah said the MRA made the Grameen Bank chairman the head of the new committee, considering his experience in the sector.
In 2019, the regulator fixed the maximum interest rate for microcredit at 24 per cent after almost nine years.
It capped the interest rate at 27 per cent for the first time in 2010.
The MRA for the first time fixed 27-per cent rate for MFIs. Before that, there was no interest rate fixed, every MFI would set interest rate at its sweet will.
According to CDF chairman Sarkar, unlike commercial banks, MFIs' dealings with small loans and operations in remote areas lead to high operational costs.
The flat method as proposed by the CDF will reduce the cost if efficiently operated, he pointed out.
In 2019, the previous committee recommended reviewing the interest rate as per the declining balance method after every two years.
Experts on different occasions earlier said the interest rate or service charge of the MFIs was too high and intolerable for poor borrowers.
It is crucial to cut the charge to help alleviate poverty and ensure economic growth, according to them.
The government established the MRA under the Microcredit Regulatory Authority Act 2006 with an eye to monitoring microfinance operations and promoting the sustainable growth of the sector.
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