Microcredit interest rates likely to be lowered

The government has formed a high-level committee to rationalise the interest rates of non-governmental organisation (NGO) micro-finance institutions (MFIs) in Bangladesh.

Currently, the interest rate at NGO MFIs is as high as 24% while some institutions are charging even higher.

The government will take decisions about reducing the interest rates after the committee presents its report.

NGO MFIs offer microcredits to help the country’s poor engage in economic activities through initiatives such as self-employment.

But the high interest rates of such loans become a major hurdle for the borrowers. Considering the matter, the government decided to form a high-level committee and assess the interest rates.

This month, the committee will gather opinions about the interest rates. The government will make decisions based on the committee’s recommendations. Stakeholders suggest that interest rates could be reduced.

The Microcredit Regulatory Authority (MRA), which monitors and supervises microfinance operations of NGOs and micro financial institutions (MFIs), allows the lenders to charge the interest at a rate of below 24%.

The NGOs loan interest rate rationalisation committee of the MRA has also recommended that the rate can be below 24%.

The 10-member committee is headed by Prof Dr AKM Saiful Majid, Chairman of Grameen Bank and professor and former director of Institute of Business Administration (IBA) at University of Dhaka.

Meanwhile, the country’s microcredit lenders fear the move will negatively affect many NGO MFIs. MRA Executive Vice Chairman Md. Fashiullah said the interest rate on NGO loans at one time was very high.

“It (the rate) has been reduced in two phases. Now, efforts are underway to determine a rational interest rate.”

He said the report of the current committee is expected to be submitted this month. “Then, the implementation (of recommendations) will start after discussions so both parties are benefited.”

Credit and Development Forum is a networking organisation of microfinance institutions. Director of this forum Abdul Awal said that small and medium microfinance institutions now have a market share of nearly 90% in Bangladesh.

He said that these NGOs will be badly affected by any reduction of the interest rate.

“Small and medium MFIs are already grappling with the cash crunch. Due to the liquidity crisis, banks are not supplying credits as before,” Awal said

According to him, the average interest rate of the NGO loans in other countries is higher than Bangladesh.

“NGO activities are different from banks. In this case, it is not possible to deal with issues of NGOs like banks.”

The director emphasised the need to carry out a comprehensive assessment of all aspects when determining interest rates.

NGOs disburse loans to the local communities, where banks are inaccessible.

However, there has been prolonged criticism regarding NGO loan interests. It's said that the interest rate on NGO is at least 15% higher than that of banks.

As a result, ordinary people are not able to create any business with the money. In such a situation, the regulatory body, MRA, has formed a committee to find out how to bring down interest rates further.

No interest rates were fixed for the NGO sector after the country’s independence. The interest was charged as desired.

However, in order to ensure greater transparency in the operations of small loan management institutions, the MRA was established in 2006.

The interest rate was first set at 27% in 2012. Then in 2019, for the second time, the NGO interest rate was fixed. At that time, it was set at 24%.

At present, MRA registered 739 microfinance institutions disbursing loans through 23,543 branches.

More than 3.83 crore families are covered by micro credit services. Of this, 2.97 crore families were given loans.