Govt caps interest on micro-credit at 27pc

FE Report  (November 11, 2010)

The micro-credit regulatory authority (MRA) has capped the interest rate on micro finance at maximum 27 per cent initially, which would be slashed gradually through improving efficiency of the micro-finance institutions (MFIs).

Under the new measures, the MFIs will not be able to charge more than Tk 15 for loan processing and passbooks while the grace period between the issuance of a loan and the repayment of first instalment will be at least 15 days.

The state-run MRA issued a circular in this connection Wednesday and asked all MFIs to implement the instructions fully by June 30, 2011.

"We've fixed the interest rate for the MFIs to protect the interest of the country's millions of small borrowers," Executive Vice Chairman of the MRA Khandakar Mazharul Haque told the FE.

He also said the MFIs would be able to reduce the interest rate on such credit through slashing administrative costs.

"The MFIs can borrow from the Palli Karma Sahayak Foundation (PKSF) that will charge low interest which in turn will allow the MFIs to cut interest to be taken from the micro-credit receivers", Mazharul Haque said.

The number of instalments will not be more than 50, the circular said, adding that the MFIs would have to pay at least 6.0 per cent interest on the savings of small borrowers.

The MFIs will be allowed to use non-judicial stamp of Tk 50, instead of Tk 150, while issuing loans to a borrower.

The government earlier formed the eight-member MRA, headed by the Bangladesh Bank Governor, to issue licences to all private micro-finance institutions in the country.

An act was passed in Parliament in early 2006 for bringing all operating micro-finance institutions under a regulatory body for ensuring their transparency and accountability.