Interest rates may go down for Microcredit

The government is likely to lower interest rates on microcredits disbursed by non-government organisations (NGOs) by three percentage points to help the poor become self-employed. 

The move comes in compliance with a major condition - making small loans available to the impoverished people - of the Sustainable Development Goals (SDGs).

The Microcredit Regulatory Authority (MRA), which monitors and supervises microfinance operations of NGOs and micro financial institutions (MFIs), allows the lenders to charge the interest at a rate of maximum 27 percent.  

Currently, the microcredit interest rate of BRAC, a Dhaka-based multinational NGO, is 25 percent while the rate may go as high as 27 percent for other NGOs. 

Amalendu Mukherjee, executive vice-chairman of the MRA, last week sent a proposal to Finance Minister AHM Mustafa Kamal seeking his approval to lower the interest rate.

“NGOs can reduce service charges and operating costs by increasing their efficiency,” he said

The authority has taken the decision to cut down the interest rate after analyzing the financial statements of 679 microcredit organizations across the country, he added.

The NGOs loan interest rate rationalization committee of the MRA has also recommended that the rate can be below 24 percent. The committee is headed by Dr. Qazi Kholiquzzaman Ahmad, Chairman of PKSF.

Meanwhile, microcredit lenders fear the move will negatively affect many NGOs. 

“Ninety percent of the small NGOs will be badly affected by the reduction of interest rate,” said Abdul Awal, director of the Credit and Development Forum, a platform of micro lenders. 

Economists have also questioned the rationality of such high interest rates. 

“The average interest rate of NGO loans in South Asian countries is now only 11 percent,” said Professor MM Akash, who teaches Economics at the Dhaka University.

He added that the interest rate is 15 percent in the African countries with lower population density. 

“There is no logic behind the high interest rate in Bangladesh,” said the economist calling for rationalizing the management cost of NGOs to reduce the loan interest rate.

Available data shows, the MRA certified NGOs and MFIs disbursed Tk 46,200 crore micro-credits in 2014-15, Tk 63,400 crore in 2015-16 and Tk 78,200 crore in 2016-2017.

According to the MRA analysis, the average expenditure of NGO loans is now 20.68 percent - financial cost at 13.13 percent, Limited Liability Partnership cost at 1.45 percent and administration and other costs at 6.10 percent.