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Prof Yunus for fixing MFIs’ interest rate
Noble laureate Prof Md Yunus and Sir Fazle Hasan Abed, two doyens of microfinance, have finally responded to public criticism about high interest rates on micro credit lending.
“Tell us what the interest rate is, because people often say that it’s high but don’t know what the rate is,” Dr Yunus said while addressing the closing session of the conference on “Micro-finance Regulations: Who Benefits?” on Wednesday.
He said that the major work of Micro-credit Regulatory Authority (MRA) should be to “introduce a standardised interest rate” and define the term micro-credit
Sir Abed on the other hand blamed lack of available foreign support for high interest rates.
Other than interest rate – determining ownership of micro-finance institutions (MFIs) and extending prudent policy support were the major issues of discussion at the three-day international conference.
Around 200 participants from across the globe shared their views and experiences on the issues at the three-day conference, organised by MRA.
The liveliest issue of discussion was on the rate of interest when most participants including policymakers, regulators and economists observed the rate was high.
Some representatives of MFIs expressed different opinions on the issues with the argument that the cost of fund and operation should be brought under consideration before making such comments.
A strong advocacy from the regulator including MRA was evident at the conference to press the MFIs fix their interest rate below 15 per cent
Addressing the jam-packed concluding session at Pan Pacific Sonargaon, Dr Yunus said so many things even the businesses on hire-purchases are running in the name of micro-finance.
“Many organisations take collateral against loans, some give loans to middle-income people, some even lend money to buy consumer items and say that it is micro-credit”
“The MRA should determine what should be called micro-finance and what should not be,” the professor said.
The Nobel laureate was also critical of people who blatantly made derogatory comments about micro-finance.
“Micro-finance is so far the only area where Bangladesh is well ahead of the rest of world. We should keep it up,” he said.
Fazle Hassan Abed, speaking on the issue prior to Prof. Yunus, recalled the contribution of micro-finance in the past three decades and hoped that it would do more in future.
Regarding the interest rate, he said the rate used to be lower when fund was available from ‘donations.’ But over the time, the flow of ‘donations’ declined that prompted MFIs to generate their own funds from different sources those are comparatively costly.
Economic Adviser to the Prime Minister Dr Mashiur Rahman, the chief guest at the concluding session, was also critical of the people who in general blamed MFIs for high rate of interest and engaged in negative criticism.
He said there were some occasional instances of misconduct, but we should see whether these types of behaviours have become institutional.
Similarly, he suggested considering the causes of the high interest rate. “Is it higher because of the officials of MFIs are geting faty salary or the institutions are running with larger administrative cost,” he said and promptly added that he had not yet seen any such instance in Bangladesh.
Moderating the last working session on the final day of the conference, Professor Rehman Sobhan observed the interest rate was high and believed that it is mostly because of the higher cost of fund.
He suggested the MFIs find the ways of reducing the cost of funding and operational expenditure so that people could have access to cheaper fund.
Regarding regulatory measures, the economist said the regulator should address the growth of the sector, keeping the interest of borrower in focus. Ownership of the MFIs was another major issue of discussion at the conference when many recommended that the borrowers should get the share of ownership.
Prof. Rehman Sobhan, however, cautioned the regulator to remain alert in determining this issue as the clients of commercial banks who apparently contribute 30 per cent to the banks’ fund would start the same argument
At the inaugural session on Monday, Finance Minister Abul Maal Abdul Muhith pointed to some contentious issues, including rate of interest and other service charges and suggested resolving the issues for effective financing to the needy poor people of the society.
Muhith suggested MFIs to rationalise the rate of interests and other service charges.
Referring to the rapid growth of MFIs in the last ten years, Dr Quazi Kholiquzzaman Ahmad told the inaugural session that most of the MFIs have become more or less “family businesses.” He suggested the MFIs should be owned by borrowers under corporate management
Bangladesh Bank Governor Dr Atiur Rahman, also the MRA chairman, presided over the inaugural and the concluding sessions.
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