Muhith decries high interest rate on microcredit

A three-day international conference on microfinance began in the capital yesterday with a call to rationalise the high interest rate on microcredit that puts the poor people into debt and low-level technology traps.
“We’ll have to think how to get out of these traps,” Finance Minister AMA Muhith told the inaugural session of the conference at a local hotel.
Microcredit Regulatory Authority (MRA) in association with UKaid jointly organised the conference titled “Microfinance Regulations: Who Benefits”?
Some 196 participants – 146 local and 50 foreign delegates – are attending the event.
Bangladesh Bank Governor and chairman Dr Atiur Rahman, PKSK chairman Dr Qazi Kholiquzzaman Ahmad, DFID country representative Chris Austin and MRA executive vice-chairman Khandakar Muzharul Haque also addressed the function.
Muhith said the high interest rates and charges were the main problems of microfinance institutions in the country. The borrowers were getting into the debt trap.
“Microfinance is also leading the people into the low level of technological trap,” he said, adding that the number of people coming out of poverty level through microfinance is not that much. “The benefit (of microfinance) has to go to the poor people.”
The Minister, however, recognised the need for microfinance for its role in reducing poverty and said that microfinance was helpful for the poor even in the developed countries.
Microfinance Institutions (MFIs) account for financial services to around 24 percent of the adult population in Bangladesh, against around 44 percent and 10 percent served by banks and cooperatives respectively in 2008.
PKSF chairman Dr. Kholiquzzaman estimated the annual interest rate on microfinance at a range between 25-48 percent, depending on which a huge number of microfinance institutions have grown up in the country over the last decade.
He pointed out a weakness of the MFIs-the relatives of the chief executives were controlling the institutions, making it a family affair.
He suggested establishing a microcredit bank to make the sector more transparent. He also recommended that microfinance should be given to cooperative, owned by the borrowers.
Bangladesh Bank Governor Dr. Atiur Rahman said the relatively higher interest rates, charges and fees remain a persistent, biting criticism of microfinance albeit more from populist political authorities rather than from the actual borrowers.
He said everybody was benefiting from micro-credit, but the MFIs were the foremost beneficiaries. He said the higher costs involved in the supervision of small loans to borrowers in dispersed locations could not be “wished away or regulated away”.
He said the regulators and the government authorities could encourage and support MFIs in minimising supervision costs to the extent possible for adopting remote loan delivery and
recovery mechanisms in partnership with mobile phone companies and IT platforms offering card-based financial service delivery.
“BB (Bangladesh Bank) is actively encouraging such partnerships,” said the Governor. “Apart from possible cost minimisation, consumer protection aspects of microfinance regulation will also help, with vigilance against unfair, extortionate charges or fees.”
DFID country representative Chris Austin appreciated that Bangladesh was going to approve the first ever set of microcredit regulations, governing the operations of individual organisations.
“Sound regulation prevents irresponsible financial practices that we have witnessed in the recent past in the developed markets,” he said, assuring UK’s support to the MRA in Bangladesh.

Courtesy of The Independent