The Microcredit Regulatory Authority (MRA) will announce next week a uniform interest rate for microfinance institutions, officials said.
“MRA will give a cap on lending rates and some slabs,” said Lila Rashid, a director of MRA. She, however, did not say what the maximum rate would be.
Currently, there is no cap on the interest rates. In 2009, Microfinance Transparency, a US-based agency, found the effective rate of interest in Bangladesh at 18.75 percent to 51.68 percent.
About 75 percent MFIs charge effective interest rates between 31 percent and 40 percent, while 4.5 percent charge over 40 percent, it said.
However, a committee to recommend on the rates found the effective rate of interest at a minimum of 24 percent and a maximum of 41 percent if payments on savings and insurance made during loan commissioning are not taken into account.
The rate is between 22 percent and 85 percent when payments on savings and insurance are considered, Lila Rashid said.
Some MFIs operate after borrowing from banks at different rates. Some receive donation where no cost is involved, while the others get fund from Palli Karma-Sahayak Foundation (PKSF), subsidised by the government, she said.
“The cost of borrowing is not same, but they almost charge the same rates.”
Leading MFIs, however, said less than 15 percent flat rate of interest would not be financially viable for most micro-lenders.
They said many MFIs have already voluntarily brought down the cost of borrowing to 12.5 percent to 15 percent flat rate, with effective interest rates ranging between 25 percent and 30 percent.
“Many will not be able to run their business with less than 15 percent cap,” said Md Shafiqual Haque Choudhury, president of ASA, a leading microlender.
Currently, around 800 MFIs now operate in Bangladesh, catering to over three crore clients. Most of them charge between 12.5 percent and 15 percent flat rate, or 28-30 percent effective rate, industry people said.
Shameran Abed, programme manager (microfinance) of Brac, said he does not think MRA should cap the interest rates.
“MRA should look at all costs including cost of fund, administrative cost and ‘loan-loss’ associated with running a venture before capping the interest rates,” he said.
Abed said the regulator should also take into account the current and future costs impacted by rising inflation, which was 7.31 percent in 2009-10.
Brac has 6.2 million borrowers and outstanding loans of over Tk 4,500 crore.
Abed said most of the MFIs borrow from banks at 11-12 percent interest. “Our interest rates are still low compared to costs.”
He said, if the cap is set at less than 15 percent, many lenders will focus on big loans to reduce their operation costs, and so small borrowers will face problems in finding loans.
Pranesh Chandra Banik, deputy director of BURO Bangladesh, another micro-lender, said although most of the MFIs started with a 20 percent flat rate, they have brought the rate down to around 12 percent now.
