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Move on to cut MFI interest rates

Rezaul Karim | September 01, 2019 00:00:00

A move is well under way to slash existing service charges imposed by micro-finance institutions (MFIs) with intent to give poor borrowers some relief.

To this end, financial institutions division (FID) has recently sent a proposal to finance division.

It was made in line with the recommendations from an eight-man committee led by Palli Karma Sahayak Foundation chairman Dr Qazi Kholiquzzaman Ahmad.

The panel later formed a five-member cost-analysis subcommittee with the oversight of lending costs with Prof MM Akash as its convener.

The Dhaka University economics professor is also on the eight-member committee.

"We've sent the proposal to finance ministry regarding the proposed cuts in service charges for its consideration," a higher FID official said.

The panel proposed to reduce 23 per cent in a declining balance method from existing rate of 27 per cent, he added.

It also suggested a review of the proposed charge as per the declining balance method after two years.

An MFI with less than Tk 250-million outstanding loans should be treated as small and the one with more than Tk 250 million large as per the June 2017 baseline.

Beside, large MFIs will spend 15 per cent of their surplus funds for clients and family members as part of corporate social responsibility (CSR) annually.

When contacted, Microcredit Regulatory Authority (MRA) executive vice-chairman Amalendu Mukherjee said rationalising microcredit service charges is now under the government's active consideration.

Regarding reduction in service charges, he declined to make any comment further.

Experts said the interest rates MFIs charge is too high. It is very important to lower such charges to help develop economy and alleviate poverty.

When contacted, Prof Akash said, "We recommended a long ago to cut down MFI service charges in a declining balance method."

He believes existing microcredit service charges are intolerable for the poor borrowers.

"MFIs collect their loan instalments weekly as we have recommended reducing the charges declining method," he added.

As of last June, 724 MFIs have been registered with MRA and 68 got licences on a temporary basis.

The number of microcredit clients climbed to 29.9 million in 2016, according to an annual report available with MRA.

Microcredit disbursements by registered institutions stood at Tk 1.04578 trillion (Tk 1045.78 billion) at the end of June 2017.

The government established MRA under the 'Microcredit Regulatory Authority Act 2006' to promote and foster sustainable growth of microfinance sector.

MRA is the central body to monitor and supervise microfinance operations in the country.

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