Move to reduce MFI charge stops again

A move to cut service charge imposed by the country's micro-finance institutions (MFIs) is halted again due to rising cost of funds in bank and other sources.
The review of MFI service charge has been dilly-dallied for more than four years, although it is mandatory to evaluate MFI charge every two years.
Currently, the service charge, which is not interest rate, of the MFIs is 24 per cent.
"We told the committee, which reviews service charge, that it's not time to cut charge," said Murshed Alam Sarkar, chairman of Credit and Development Forum (CDF), a platform of MFIs.
He said all banks, non-bank financial institutions and other sources of funds have increased interest rates.
"The cost of funds has also risen due to mounting inflation. So, any reduction in service charge will be detrimental to the sector at this moment."
Mr Sarkar said MFIs have also proposed that 12.75-per cent flat interest rate be fixed for small loans instead of the going rate of 24 per cent.
The MFIs seek interest rate at a flat method as it is simpler, efficient and operational cost-saving.
According to Mr Sarkar, they have formally placed a proposal to the Microcredit Regulatory Authority (MRA).
"We also apprised the governor of the Bangladesh Bank of the same thing in a recent meeting," he said.
A technical committee has recently submitted a report after reviewing the going rate of 24 per cent, suggesting that the current service charge not be cut.
This August, the central bank governor met the committee and recommended further review of the current service charge to find any scope to cut it.
"We held meetings after the governor's request but the process is now paused," he said.
The CDF chair said they could reduce the service charge or interest rate if banks provided loans to MFIs at lower rates.
Earlier in 2022, an 11-member committee, headed by Grameen Bank chairman Prof Dr AKM Saiful Majid, was formed to review and slash the charge.
MRA executive vice-chairman Md Fashiullah then told the FE that the committee would decide whether the service charge could be reduced or not.
It was a regular process, he said, as there was a mandate to review the cost and service charge of the MFIs every two years.
The government has moved to slash interest rate or service charge of microcredit operations from the current 24 per cent to give poor borrowers some relief.
The Majid-led committee first sat last year, and it formed a technical committee to analyse cost of MFI services and determine if there is any scope to reduce the charges.
In 2021, the MRA formed a 10-member committee, headed by its executive vice-chairman, to revise the charge, but the body was discarded without any decision.
Later, the MRA formed a technical committee, led by director Mohammad Yakub Hossain, to assess the potential service charge for microcredit.
The committee was also disbanded without any result.
"Now, this committee is also going to be unsuccessful," said an MRA director on condition of anonymity.
In 2019, the regulator fixed the maximum interest rate for microcredit at 24 per cent after almost nine years.
It capped the interest rate at 27 per cent for the first time in 2010.
Rationalising microcredit service charges is under the government's active consideration, according to the MRA director.
But the MFIs have long been opposing any move to reduce service charge, he added.
The previous committee in 2019 recommended reviewing the interest rate as per the declining balance method every two years.
Experts on different occasions said the interest rate or service charge of the MFIs was too high.
According to the experts, the existing microcredit service charge is intolerable for poor borrowers.
The government established the MRA under the Microcredit Regulatory Authority Act 2006 with intent to monitor microfinance operations and promote sustainable growth of the sector.

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