Ceiling on investment in fixed assets by MFIs set

The microcredit regulator has put a ceiling on investment by micro finance institutions (MFIs) in fixed assets at 35 per cent of their cumulative earning surplus.
The Microcredit Regulatory Authority (MRA) in a circular recently imposed the restriction on fixed asset purchases by banks in public interest and also to strengthen the sector.
The regulator also directed the country's MFIs to liquidate fixed assets above 35 per cent of cumulative earning surplus and readjust by one year from this circular.  
According to the circular, the outstanding loan of an MFI must be 90 per cent of total sum of 85 per cent of clients' savings, entire amount of loan from any source and 50 per cent of cumulative earning surplus.
MRA Director Shazzad Hossoin said though there was no certain directive on the cap of investment on fixed assets, the Micro Credit Regulatory Authority Act 2006 and MRA Rules 2010 stated many times how to spend funds of a MFI  and whether it can invest in fixed assets.  
According to 32(3) clause of the Micro Credit Regulatory Authority Act 2006, no microcredit institution, without prior approval of the Authority, shall use or invest the deposit in any head other than the heads decided by the MRA.
According to section 35 of MRA Rules 2010, no microcredit organisation will use the deposit fund for purchase of any moveable or immovable asset or to meet any expenses.
 "We have got concrete proof that some of MFIs took bank loans but did not use it for loan purpose. They invested the fund in making immovable assets by purchasing lands or erecting big buildings," said Mr Shazzad Hossoin.
However, Emranul Huq, Chairman of Credit and Development Forum (CDF), a national association of Bangladeshi MFIs, said the circular is not rational.
He said the cap of investment on fixed assets should be fixed at 50 per cent of cumulative earning surplus.
"The MFIs in Bangladesh cannot take away profit from a organisation. They have to reinvest the money. So investing on fixed assets will strengthen a MFI," Mr. Huq said.
According to industry insiders, some of the top MFIs have to liquidate their fixed assets as they have invested more than 35 per cent of their cumulative earning surplus.
Disagreeing on this, he said it is not true.
"The MRA should also extend one-year time for adjustment of assets if any MFI has fixed assets more than 35 per cent," he said adding that without liquidating the MFIs' fixed assets, they can also adjust by increasing outstanding loan.   
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