Experts, microfinance operators and regulators have differences of opinion about the interest rate of microcredit which has now been fixed at 27 per cent by the regulatory authority.
Industry insiders, however, blamed the big microfinance institutions (MFIs) for taking steps to increase interest rate which goes totally against the interest of the poor for whom the loan is made. They argue the interest rate fixed by the Microcredit Regulatory Authority (MRA) is quite viable for the MFIs while some big MFIs find it small as they have high operating costs and other extra expenses not related to the benefits of the poor.
In July 2011, the MRA, for the first time since its inception in 2006, set the interest rate for the MFIs. Credit Development Forum executive director Abdul Awal said this is true that MFIs charge higher interest rate than the banks but they usually make the financial services available to the doorsteps of the poor on weekly basis which will not be done by the banks. The services include disbursing loan, collection of savings and installments. "These services at least need a transport and involve some costs. We think no MFI can provide these services below 30 per cent interest rate," he told the FE recently, adding: "We are supporting the MRA on this issue."
Mr Awal said the government itself charges 28 per cent interest rate which has been found in its study. The government runs some microcredit programmes through various ministries and banks. He said Bangladeshi MFIs charge the minimum interest rate in the world even if it is 30 per cent while the Grameen Bank charges the lowest which is 20 per cent.
"Latin America has 60 to 70 per cent interest rate because of their recession and inflation. The lower interest rate here hampers some of the priority programmes of the MFIs," said Mr Awal. Contradicting Mr Awal, executive vice-chairman of the MRA, Khandakar Muzharul Haque said there is no question of increasing the interest of microcredit. The interest rate of the MFIs is much higher than that of the banks. He said his organisation never received this kind of proposition by anyone.
"In India, doing microcredit business is not tax-free and the country has set the maximum rate of interest at up to 26 per cent against such loans while Bangladeshi MFIs do not pay any tax," he said. He said they were supposed to cut the interest rate in one year after it was fixed in 2011 but it was not done anyway. Institute of Microfinance (InM) executive director and expert on microfinance Professor MA Baqui Khalily said they have found after reviewing financial statements of the MFIs that 27 per cent declining rate is viable for running microcredit programmes except for a few programmes.
He observed that the MFIs are meant to be non-commercial organisations which cannot think of maximising their profit.
"Earlier the MFIs used to charge 40 per cent declining and 20 per cent flat rate of interest. So when this 27 per cent rate was fixed following the global standard it went against their interest. There is much scope to reduce the interest rate," he said. He suggested increase in efficiency level of the MFIs and discussion of their points on this issue with the MRA during the scheduled review of the present interest rate structure.
Development Organisation of the Rural Poor (DORP) secretary general A H M Noman said the present interest rate should be continued for another five years.
The DORP is one of the pioneers in running microcredit programme. Mr Nouman gave his arguments saying the MFIs should think from a poor man's point of view and not from that of the rich.
"Then an answer will come out on how much should be the interest rate," he said.
According to the MRA, a loan amounting to maximum Tk 50,000 is generally considered a microcredit and any loan above the amount is considered micro enterprise loan, though there is no exact definition of it.
The officials said there are around 719 licensed MFIs in the country while many have applied for license.
Source: The Financial Express
