Streamlining micro-credit operations
Sunday, 3 May 2009
Micro-finance has been playing a major role in the life of preponderant numbers in Bangladesh. The financing of small enterprises, specially in the rural areas of the country where about ninety per cent of the population are still concentrated, was helped from the disbursement of such credits. But the increase in micro-credit activities and in the number of organizations dispensing such credits, has created even greater expectations. People in the rural areas used to be exploited awfully in the past by private money lenders. Money lenders and members of the local elite gave cash at extraordinary high lending rates to extremely distressed people and their lands and other assets were grabbed for the failure to clear their debts. The micro-finance organizations played a somewhat relieving role in this situation as their loans were extended without any securities in the first place. Besides, the lending rates charged by them proved to be less compared to what the borrowers suffered under the money lenders.
But having said this, it is also not irrelevant to say that different assessments made on micro-credit operations in Bangladesh, more or less converge on the point that there is scope for further improvement in such credit disbursement. The government itself maintains a sizeable micro-credit programme through its Pally Karma Sahayak Foundation (PKSF). The PKSF runs micro-credit operations directly among borrowers and it also finances non-government organisations (NGOs). But in both cases, it is considered to be charging interests rates which are probably capable of being pushed down further. The government should not be so much inspired by profit motives in the first place when it comes to running programmes with poverty alleviation in view. Even nominal profits or a break-even state should be considered enough by the government considering that it is operating in an area where social needs are being addressed. The NGOs have a stake in running their operations profitably. But they, too, can reduce substantially their current lending rates on borrowings and still remain reasonably profitable. Therefore, the NGOs need to be urged to consider such a rationalization of their lending rates on profits. Doing of this will only further enlarge their customer base.
The government had set up an authority to regulate micro-credit only from last year. This body needs to streamline further its operations and it should do this at the fastest. The Bangladesh Bank recently persuaded the nationalized commercial banks (NCBs) and the private commercial banks (PCBs) to push down to some extent the lending rate on credits charged on their borrowers. But this scaling down of interest rate by the banks will have limited effect on borrowers because the banks and their customers are concentrated mainly in the urban areas. For micro-credits to have the desired impact on the majority of people in the country who have a rural existence, the lending rates need to be readjusted significantly downwards. This would also do justice to the rural customers of credits who have been bypassed in the recent move for reducing the lending rate on credits by banks serving mainly urban areas.
But having said this, it is also not irrelevant to say that different assessments made on micro-credit operations in Bangladesh, more or less converge on the point that there is scope for further improvement in such credit disbursement. The government itself maintains a sizeable micro-credit programme through its Pally Karma Sahayak Foundation (PKSF). The PKSF runs micro-credit operations directly among borrowers and it also finances non-government organisations (NGOs). But in both cases, it is considered to be charging interests rates which are probably capable of being pushed down further. The government should not be so much inspired by profit motives in the first place when it comes to running programmes with poverty alleviation in view. Even nominal profits or a break-even state should be considered enough by the government considering that it is operating in an area where social needs are being addressed. The NGOs have a stake in running their operations profitably. But they, too, can reduce substantially their current lending rates on borrowings and still remain reasonably profitable. Therefore, the NGOs need to be urged to consider such a rationalization of their lending rates on profits. Doing of this will only further enlarge their customer base.
The government had set up an authority to regulate micro-credit only from last year. This body needs to streamline further its operations and it should do this at the fastest. The Bangladesh Bank recently persuaded the nationalized commercial banks (NCBs) and the private commercial banks (PCBs) to push down to some extent the lending rate on credits charged on their borrowers. But this scaling down of interest rate by the banks will have limited effect on borrowers because the banks and their customers are concentrated mainly in the urban areas. For micro-credits to have the desired impact on the majority of people in the country who have a rural existence, the lending rates need to be readjusted significantly downwards. This would also do justice to the rural customers of credits who have been bypassed in the recent move for reducing the lending rate on credits by banks serving mainly urban areas.