Microfinance short on foreign funds, long on loans

Infographic: TBS

Microfinance Institutions (MFIs) in Bangladesh are experiencing a rise in foreign loans and a reduction in foreign funds, impacting their operations and growth.

As of the end of June 2023, the share of foreign funds in the sources of funds for MFIs in Bangladesh is 0.2%, amounting to Tk344 crore. Four years ago, in 2019, the fund's share was 0.62%, totalling Tk546 crore, according to Annual Statistics for Microfinance in Bangladesh, June 2023.

As of June 2023, the total amount of funds in MFIs was Tk1.62 lakh crore. In June 2019, the amount of fund was Tk88,467 crore.

A workshop on the June 2023 publications of Micro Credit Regulatory Authority (MRA) was held at CIRDAP Auditorium in the capital on Sunday. Sheikh Mohammad Salim Ullah, secretary of the finance ministry, was chief guest at the workshop presided over by Md Fashiullah, executive vice chairman of MRA.

Speaking at the event, the finance secretary emphasised the significance of highlighting positive stories within the MFI sector.

"We should showcase successful and impactful initiatives within the sector to inspire further positive developments," he stated.
Salim Ullah also stressed the need for alleviating the suffering of individuals involved in the sector to address the challenges and hardships they face, aiming to enhance the overall growth of the sector.

Yakub Hossain, executive director of the MRA, said, "In our country, at one time, the funds for small loan institutions were primarily sourced from foreign funds; these funds used to come as foreign aid. Now, our country is progressing from a least developed country to a middle-income country, which is why foreign funds are decreasing."

He further added, "Even though foreign funds are decreasing, overall, the audited amount of our small loan institutions is increasing. Currently, despite receiving less aid from foreign funds, the amount of foreign loans is increasing significantly."

The main sources of assets for microfinance institutions are clients' savings, loans from the Palli Karma-Sahayak Foundation (PKSF), loans from commercial banks, donor funds, cumulative surplus, and other funds, including government funds and foreign loans.

At the end of June 2023, other funds of MFIs amounted to Tk9,018 crore or 5.6% of the total funds, a part of these funds being foreign loans. However, during the same period in 2019, the fund amounted to Tk1,571 crore, constituting 1.78% of the total funds.

Md Fashiullah said, "Our efforts extend beyond financial services, as we actively work to raise awareness about crucial issues, including vaccination."

He emphasised that the MFI has played a pivotal role in social development and mentioned that the Microfinance Credit Information Bureau (MF-CIB) is set to be formed shortly.

Furthermore, he shared that the MRA is going to establish common operating software - IMS (Integrated Microfinance Solution) soon.

Loan disbursements and savings in MFIs rise in FY23

The MFIs registered an increase in loan disbursements by 30% in fiscal year 2022-23, while their savings increased by 25.11%.

According to the report, loan disbursements at the end of June of FY23 stood at Tk2.49 lakh crore as against Tk1.91 lakh crore in the previous fiscal year.

The amount of savings of the institutions at the end of June 2023 stood at Tk62,000 crore, as compared to Tk49,000 crore in the same period of the previous year.

MRA Executive Director Yakub Hossain told The Business Standard that although the growth of loans in the banking sector has decreased, the scenario in the microfinance institutions is different. Explaining the reason he said, "Our extensive publicity is making it easier for customers to get loans without collateral, meeting their demands more effectively."

He further said, "Currently, people are afraid to go to the bank. However, microfinance institutions are reaching customers more effectively."