The microcredit regulator has abolished disaster management fund (DMF) to utilise the reserved liquidity for expanding microfinance activities needed to reduce poverty.
Microcredit Regulatory Authority (MRA) sent letters to the microfinance institutions (MFIs) on Wednesday to phase out the fund and use it for further expanding microcredit activities instead.
The authority thinks MFIs do not need to reserve DMF anymore as it already has a 'reserve fund' using 10 per cent of its total income surplus and 15 per cent 'liquidity fund' of its entire compulsory, voluntary and term deposit, or whatever name assigned to the deposit funds, the MRA said in a circular.
The circular said some of the MFIs maintain a DMF despite having two separate funds, which create cash crunch and constrains further expansion of credit to improve the poor's lives.
MRA Director Shazzad Hossoin said the fund was created long ago when there were not other reserve funds with the MFIs. Now the MRA thinks this fund should cease to exist.
The DMF consists of 1.0 per cent of total interest income. But there was no MRA provision to maintain the fund. Â
According to industry insiders, no more than 200 MFIs keep such funds, who are partner organisations (POs) of Palli Karma Sahayak Foundation (PKSF).
The total amount of fund now stands at around Tk 2.0 billion, they said.
Deputy Managing Director of PKSF Dr Md Jashim Uddin said there is a need for the fund.
The PKSF created such a fund for its POs taking the country's natural disaster into account.
"We don't know why the MRA decided to abolish the fund. Bangladesh is a disaster-prone country. The fund proved to be useful in the past," he told FE.
Credit and Development Forum Chairman Emranul Huq Chowdhury said the MRA decision is controversial.
Some larger MFIs want the fund to keep it in fixed bank account, while smaller MFIs want to utilise the fund.
He also said UDDIPAN, where he serves as CEO, works in coastal areas where natural disaster is a regular issue. Â
"Available for instant-use fund is very much useful," he said.
He argued that the MRA should keep the provision and make the fund voluntary. So MFIs who need the fund may continue to maintain it as usual.
Currently, the number of MFIs stands at 906, including 208, which got licences for three years to prove themselves to be able to continue operation.
The sector at present has 20 million borrowers and 26 million members and its total outstanding loan is now Tk 350 billion.
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MRA abolishes disaster fund of microfinanciers
Ismail Hossain | Published: January 04, 2016 00:00:00 | Updated: February 01, 2018 00:00:00
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