Microfinance tools drag only a few out of poverty: Muhith
Tuesday, 16 March 2010
FE Report
Only a few poor people have graduated from the poverty level by using the microfinance tools, Finance Minister Abul Maal Abdul Muhith Monday said.
He also blamed the microfinance institutions (MFIs) for encouraging the indigent borrowers to use low level technology.
The Microcredit Regulatory Authority (MRA) should ensure that microfinance rules benefit the poorer segment of society to get rid of poverty, he said at international conference in the city on "Microfinance Regulations: Who Benefit.'
The three-day conference organised by MRA is being participated by officials from 20 countries.
The minister said the MFIs receive various complaints including, charging high interest rates and pushing borrowers into a 'debt trap.'
The regulator needs to play an active role to channelise maximum benefit to the poor borrowers so that they can get out of poverty, he said.
"Microfinance is not only popular with the deprived and poor people in less developed countries but also in the rich nations," he added.
Bangladesh Bank governor Dr Atiur Rahman said relatively higher interest rates and charges of microfinance draw strong criticism.
"The larger MFIs accepting deposits from non-members can pose potential systemic risks," he said.
The regulator in particular and the government in general should encourage the MFIs to minimise supervision costs by having partnership with mobile phone companies and setting up modern IT platforms, he added.
Dr Atiur said the banking system serves the well-to-do but the NGOs are instrumental in introducing microfinance to the rural and urban poor.
"The poor will be benefited from microfinance regulations with reliable access to credit on fair and equitable terms," he said.
The governor said MFIs accounted for financial services to about 24 per cent of adults, while 44 per cent and 10 per cent served by banks and cooperatives respectively in 2008.
Palli Karma Sahayak Foundation chairman Dr Qazi Kholiquzzaman Ahmad said the number of MFIs increased sharply in the last couple of years.
He alleged that relatives of the managers of MFIs wring out loans from the institutions.
"The MFIs have less transparency in their operations and lower capacity," he added.
The PKSF chairman said the institutions charge exorbitant interest rates to their poor borrowers.
"If the nominal interest rate is 10 per cent, the effective interest rate is as high as 25 per cent," he reckoned.
Department for International Development country representative Chris Austin said appropriate regulations are necessary to ensure transparency of loan products and interest rates, so that the poor and illiterate clients can make informed choices.
"Sound regulation prevents the kind of irresponsible financial practices that we have witnessed in the recent past in developed markets," he said.
Innovative use of mobile phones have exponentially reached larger number of unattended clients and increased financial inclusion in society, he added.
Khandakar Muzharul Haque, executive vice-chairman of Microcredit Regulatory Authority, also spoke on the occasion.
Only a few poor people have graduated from the poverty level by using the microfinance tools, Finance Minister Abul Maal Abdul Muhith Monday said.
He also blamed the microfinance institutions (MFIs) for encouraging the indigent borrowers to use low level technology.
The Microcredit Regulatory Authority (MRA) should ensure that microfinance rules benefit the poorer segment of society to get rid of poverty, he said at international conference in the city on "Microfinance Regulations: Who Benefit.'
The three-day conference organised by MRA is being participated by officials from 20 countries.
The minister said the MFIs receive various complaints including, charging high interest rates and pushing borrowers into a 'debt trap.'
The regulator needs to play an active role to channelise maximum benefit to the poor borrowers so that they can get out of poverty, he said.
"Microfinance is not only popular with the deprived and poor people in less developed countries but also in the rich nations," he added.
Bangladesh Bank governor Dr Atiur Rahman said relatively higher interest rates and charges of microfinance draw strong criticism.
"The larger MFIs accepting deposits from non-members can pose potential systemic risks," he said.
The regulator in particular and the government in general should encourage the MFIs to minimise supervision costs by having partnership with mobile phone companies and setting up modern IT platforms, he added.
Dr Atiur said the banking system serves the well-to-do but the NGOs are instrumental in introducing microfinance to the rural and urban poor.
"The poor will be benefited from microfinance regulations with reliable access to credit on fair and equitable terms," he said.
The governor said MFIs accounted for financial services to about 24 per cent of adults, while 44 per cent and 10 per cent served by banks and cooperatives respectively in 2008.
Palli Karma Sahayak Foundation chairman Dr Qazi Kholiquzzaman Ahmad said the number of MFIs increased sharply in the last couple of years.
He alleged that relatives of the managers of MFIs wring out loans from the institutions.
"The MFIs have less transparency in their operations and lower capacity," he added.
The PKSF chairman said the institutions charge exorbitant interest rates to their poor borrowers.
"If the nominal interest rate is 10 per cent, the effective interest rate is as high as 25 per cent," he reckoned.
Department for International Development country representative Chris Austin said appropriate regulations are necessary to ensure transparency of loan products and interest rates, so that the poor and illiterate clients can make informed choices.
"Sound regulation prevents the kind of irresponsible financial practices that we have witnessed in the recent past in developed markets," he said.
Innovative use of mobile phones have exponentially reached larger number of unattended clients and increased financial inclusion in society, he added.
Khandakar Muzharul Haque, executive vice-chairman of Microcredit Regulatory Authority, also spoke on the occasion.