MRA warns errant MFIs of tough action

The microcredit regulator is going to take tough action against the micro finance institutions (MFIs) that did not comply with required reserve fund provision.
The Microcredit Regulatory Authority (MRA) directed recently non-compliant MFIs to form reserve fund by December 31, 2014 or face the music.
"If they do not form reserve fund by the deadline they will even face cancellation of registration, an MRA member told The Financial Express.  
According to an MRA source, as of December, 2013, some 89 out of 743 MFIs are following the MRA Rules-2010, but the rest of the MFIs are defying the regulator's mandatory rules to preserve their required 10 per cent reserve fund.
Section 20(1) of the MRA Rules-2010 says, "Every microcredit organisation will have to create a reserve fund using 10 per cent of its total income surplus."
"The reserve fund has to be maintained in a bank account of a specified scheduled bank under the supervision of the head office of the relevant microcredit organisation," according to the section 20(3) of the Rules.
The regulator introduced the Rules to ensure sustainability of the country's NGO-MFI sector in 2010. So, it may take time to comply with some areas including reserve fund. Meanwhile, most MFIs have started maintaining the required reserve fund provision.
In 2012, only 4.34 per cent of 645 MFIs fulfilled the required reserve fund as per MRA Rules and nearly 14 per cent MFIs preserved 10 per cent reserve fund accordingly in 2013. The situation is improving.
"It is mandatory for the MFIs to comply with and maintain the Act and Rules of the MRA. The MFIs failing to follow the rules would be penalised," the member said.
Section 37(1) of the MRA Act of 2006 says, "If any person violates this act or any rule framed under its purview or commit any offence under this act or in cases where administrative fine can be imposed, the authority in all those matters, instead of filing criminal cases, may impose fines up to an amount of Tk 0.5 million, considering the extent of the violation of the Act or the offence committed."
Currently, 743 MFIs are registered and 92 have got licences temporarily from the authority.
These registered NGOs are serving more than 40 million out of the country's 160 million people, according to latest data of the MRA.
MRA is going to issue licences to 400 more MFIs by next few years.