Interest rates on micro credits
Saturday, 15 December 2007
ONE main reason for the much less than the desired impact of micro credit on the poor is the relatively high rate of interest on such credits. Borrowers of micro credit in the first place should be the poor or the very poor. But according to various studies conducted by responsible developmental agencies from time to time, a notable number of the recipients of micro credits were found to be well above the poor category. The poor or extreme poor who take micro credit should be allowed to do so at bearable or nominal rate of interest. But even the interest rates charged on publicly run micro credit programmes continue to be rather too high for their poor receivers.
Disbursing credit to the poor to make big financial gains out of the same cannot be the aim of government which says it is truly committed to reducing poverty. The recommended lower rates of interest on micro credit should meet both the needs of viably running the official micro credit operations while also meeting the intended objectives of these programmes. The NGOs, in many cases, also charge high rate of interest on micro credits provided by them. They also need to be persuaded to significantly decrease the rate of interest they charge and ought to base their credit operations truly for the benefit and advantage of the poor and not for only making good profits out of such operations.
Notwithstanding the increase in opportunities for the poor to be the beneficiary of small credits from institutional sources, they remain still the victims of private money lenders or 'mahajans'. Studies on micro credit showed that mahajans continue to be a big factor in the micro credit scene exploiting the gaps in institutional availability of credits. This indicates the importance of increasing the networks of institutional credit both by the government and NGOs. But such expansion of networks by them needs to be accompanied also by effective coverage and lowering the rate of interest charged on the credits. It is also imperative to introduce laws and enforce them strictly to curb the activities of mahajans who in many cases take interest as high as 300 per cent or something near that figure.
Samiul Haque
Road no 4, Dhanmondi RA
Dhaka
Disbursing credit to the poor to make big financial gains out of the same cannot be the aim of government which says it is truly committed to reducing poverty. The recommended lower rates of interest on micro credit should meet both the needs of viably running the official micro credit operations while also meeting the intended objectives of these programmes. The NGOs, in many cases, also charge high rate of interest on micro credits provided by them. They also need to be persuaded to significantly decrease the rate of interest they charge and ought to base their credit operations truly for the benefit and advantage of the poor and not for only making good profits out of such operations.
Notwithstanding the increase in opportunities for the poor to be the beneficiary of small credits from institutional sources, they remain still the victims of private money lenders or 'mahajans'. Studies on micro credit showed that mahajans continue to be a big factor in the micro credit scene exploiting the gaps in institutional availability of credits. This indicates the importance of increasing the networks of institutional credit both by the government and NGOs. But such expansion of networks by them needs to be accompanied also by effective coverage and lowering the rate of interest charged on the credits. It is also imperative to introduce laws and enforce them strictly to curb the activities of mahajans who in many cases take interest as high as 300 per cent or something near that figure.
Samiul Haque
Road no 4, Dhanmondi RA
Dhaka