Microfinance institutions borrowing more from banks in Bangladesh

Though the government is sceptical about the effectiveness of microcredit in alleviating poverty, the amount of bank borrowing by microfinance institutions (MFIs) is increasing every year.

Bank loans constituted 16.47 percent of the total fund of the country’s registered MFIs, according to the annual report of the Microcredit Regulatory Authority (MRA) for 2014.

MRA officials and economists blame the situation on the growing number of the MFIs.
 

The MRA report indicates that donor contributions in the MFIs have dropped over the past few years -- and so has the funding from the Palli Karma Sahayak Foundation.

This has forced the microcredit institutions to seek more bank loans.

The banks also feel it is safe to lend money to the microcredit institutions because they repay on time.

As of June 2014, a total of 676 MFIs were operating in the country with an aggregated fund of Tk 312.73 billion, of which Tk 51.5 billion came from bank borrowings.

A year back, the amount of MFI loans stood at Tk 42.7 billion, 15.43 percent of the total fund.

In 2012, the MFIs borrowed Tk 32.65 billion which constituted 12.84 percent of their aggregated fund.

“The microfinance institutions require a lot of funding. They work among the underprivileged people of remote areas," MRA Director Md Sazzad Hossain said.

"They do not have enough funds for such work. We are organising workshops so that commercial banks invest in the microcredit institutions. That is why the amount of loans is increasing.”

Another reason is that lending to the MFIs is a safe investment for the banks, says MK Mujeri, executive director of the Institute of Microfinance.

“They [MFIs] repay the loans on time. So, it is usual that the banks to invest more in a safe sector like this,” he told bdnews24.com.

He sees this increase in bank borrowings as a good sign for the country.

“The microfinance institutions lend to those whom the commercial banks stay away from. This will accelerate the country’s inclusive development,” said the former director general of Bangladesh Institute of Development Studies.

The government, however, feels microcredit cannot have much of a positive effect on poverty alleviation.

During a programme at the Gono Bhaban on Wednesday, Prime Minister Sheikh Hasina said high interest rates of microcredit do not let the poor save much and or help changed their lot.