The Microcredit Regulatory Authority (MRA) has warned microfinance institutions (MFIs) that they will face stern action if they run any profit-making enterprises other than microcredit operations.
In a recent circular, the MRA said it had come to its attention that some MFIs were selling goods under the guise of microcredit operations and making a profit from the sales.
The circular said that, according to clause 24(3) of the Microcredit Regulatory Authority Act 2006, no microcredit institution is allowed to undertake any programme or enter into any transaction that is contrary to the provisions or objectives of the act, or to run businesses or offer any other services without the approval of the MRA.
MRA Executive Vice Chairman Md Fashiullah said MFIs were awarded licences to run microcredit operations and that if they ran profit-making enterprises they would no longer be considered MFIs.
He said that the MRA Act clearly prohibits profit-making activities by any MFI.
"Despite the legal clause, some NGO-MFIs continue to sell goods and run profit-making enterprises," he said. "The MRA will take stern action against those organisations."
The warning notice has been sent to all NGO-MFIs that are subject to the MRA's regulatory purview.
When contacted, the country's largest NGO-MFI, BRAC, said it pays taxes on surplus-making enterprises and investment income.
"BRAC pays taxes on surplus-making enterprises and investment income at the applicable rate," the organisation mentioned in an official statement on the issue. "This has been BRAC's practice for many years."
However, BRAC declined to provide a detailed explanation of their indistinct statement.
Murshed Alam Sarkar, chairman of the Credit and Development Forum (CDF), a platform for the country's NGO-MFIs, clarified that the circular is intended for profit-making enterprises funded by microcredit funds.
"This circular is not for enterprises that were set up by some NGO-MFIs before MRA came into being with the approval from other regulators," he added.
"The circular was issued for the offender MFIs who sell goods from the microcredit funds and earn profits."
The MRA was established by the government under the Microcredit Regulatory Authority Act 2006. It serves as the central body to monitor and supervise the microfinance operations of non-governmental organisations in Bangladesh.
According to recent changes in the income tax law, MFIs will have to pay taxes equal to the tax rate of companies if they do not keep the income from service charges of microcredit operations in a revolving fund.
MFIs and non-government organisations (NGOs) have opposed the change, arguing that there is no need to add this provision to the law as they already pay income tax and value-added tax (VAT) during the acquisition of assets.
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