Microcredit firms reduce foreign aid dependence

Local microfinance institutions (MFIs) have been increasingly relying on clients' savings and their own surplus funds for operating expenses over the years, according to data, demonstrating an impressive shift from heavy foreign funding dependence.
In FY23, more than 70 per cent of MFI funds, totalling around Tk 1,620 billion, came from their income surpluses and the savings of their members, according to the Microcredit Regulatory Authority (MRA) annual report.
According to the report, the volume of members' savings and MFIs' accumulated surplus funds was Tk 620.55 billion and Tk 537.29 billion, respectively - which are 37.85 per cent and 32.77 per cent of the annual operating expenses.
The flow of domestic financing for microcredit organisations is increasing, say MRA sources, reducing their dependence on overseas funds.
The dominance of local funding might lead to the sector's expansion, said a senior official at the MRA -- the central body overseeing the microfinance operations of non-governmental organisation (NGO) MFIs.
As of January last, the number of MFIs registered with the MRA stood at 750. The microcredit disbursement by registered MFIs reached Tk 2,493 billion by the end of June 2023.
Experts said MFIs receive a negligible amount of donor funds annually for various selective socio-economic development and service-oriented programmes across the country. Therefore, the operations of MFIs are unlikely to be affected if the inflow of donor funds slows.
Bangladesh's MFIs received Tk 3.49 billion from donors by the end of June 2023, according to the MRA annual report.
They borrowed Tk 279.41 billion (17.04 per cent of the operating expenses) and Tk 106.44 billion (6.49 per cent of the operating expenses) from scheduled banks and the state-run Palli Karma-Sahayak Foundation (PKSF), respectively.
"The sector is broadly financed by clients' savings, cumulative surplus, concessional loans received from sources such as PKSF, local and foreign grants and bank borrowing," the report said.
NGOs registered under any of the following laws -- the Societies Registration Act, the Trust Act 1882, the Voluntary Social Welfare Agencies (Registration and Control) Ordinance 1961, and the Company Act 1994 -- can apply for a MFI license.
Currently, the registered MFIs serve more than 40 million of the country's 170 million people.

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