Inter-MFI interest rate capped at 10pc

The microcredit regulator directs the country's micro finance institutions (MFIs) not to charge interest at more than 10 per cent rate during inter-MFI transactions.  The Microcredit Regulatory Authority (MRA), in its recent guideline on the inter-MFI transaction, said the guideline was formulated to help the small MFIs having credit shortage.
"The big MFIs have been giving credit to the small ones at different rates, and in most of the cases their rate is more than 10 per cent," MRA member Monoj Kumar Bishwash told The Financial Express.
He said many small MFIs cannot operate daily operation due to credit shortage, whereas the big MFIs have credit overflow. The guideline will help both the parties.
According to the guideline, the MFIs' loan sources will be their own surplus fund and easy term loan of the government, private or any other approved domestic or legal sources.
"But loan can be provided to other MFIs, only if one has enough credit surplus after own operation."
The guideline says the primary term of loan will be one year. The bigger MFIs who will give loan to the small MFIs also have to give financial literacy training, training on rules and regulations of microcredit activities and skill developments. Both of the parties have to submit reports on such transactions to MRA.
When contacted, BRAC executive director Dr. Mahbub Hossain termed the initiative a good one. "But why would an MFI take loan at more than 10 per cent interest rate, while Palli Karma Sahayak Foundation (PKSF) is providing the same at 7 per cent?"
He said if any MFI takes loan at more than 10 per cent interest rate, it will not be a profitable venture, as microcredit is very much costly. It costs Tk 12-13 for allocation of Tk 100.
He also said BRAC does not give any loan to any MFI.  MRA has taken another initiative for establishment of a micro-finance credit information bureau (CIB) under the CIB of Bangladesh Bank (BB) to watch over such loan activities.
MRA was established in 2006 to ensure transparency and accountability of the MFIs in the country. Currently, 745 MFIs are registered with MRA. These registered NGOs are serving more than 40 million people out of the country's 160 million people.
Currently, the MFIs under MRA have Tk 300 million outstanding loans. The number of total clients of this sector is 35 million. MRA is now in a process of granting licenses to 350-400 more MFIs. The then government in July 2006 enacted the Microcredit Regulatory Authority Act, 2006 (Act No. 32 of 2006) to bring the MFIs under a regulatory framework, which became effective from August 27, 2006.
Alarmed by a loan default culture as a result of multiple borrowings, the MFIs have long been demanding a system that would provide them with the potential borrowers' credit history.