Bangladesh: 80 percent of micro-finance institutions found ineligible for licence

Feb 2008
Bangladesh, February, 09 2008 - Over 80 percent of micro-finance institutions (MFIs) that have applied for licence to run their business do not fulfil the criteria set by the Micro-credit Regulatory Authority, a top official said.

“About 600 MFIs, out of 4,000 applicants, meet the requirements set by the authority,” said Khandakar Muzharul Haque, executive vice-chairman of Micro-credit Regulatory Authority.

Haque said: “700 applications were cancelled in a primary selection.” The remaining 2,700 MFIs have been given time until June 2009 to fulfil the conditions for getting licence, he added.

The regulatory body was established in accordance with a new law, Micro-credit Regulatory Authority Act 2006, which has been in effect since August 27, 2006. The authority has a Board of Directors with Bangladesh Bank governor as its chairperson.

As per the new law, no MFI is allowed to do its business without any licence from the regulatory body. The authority is entitled to take punitive measures against any MFI found non-compliant with any provision of the new law.

In September 2006, the regulatory body invited applications from MFIs to award licences and received some 4,000 applications within the deadline of February 2007.

According to the regulatory body executive vice chairman, any micro-finance institution having outstanding loans of at least Tk40 lakh and 1000 borrowers is entitled to get a licence.

“Many MFIs that applied for licences have been found small and unsustainable,” Haque, who is also a Bangladesh Bank (BB) executive director, said, adding that most of the applicants failed to fulfil the criterion either for outstanding loans or the number of borrowers.

Motiur Rahman, executive director of a Meherpur-based NGO, Rural Reconstruction Society, said his NGO was not given licence for not meeting the criteria for outstanding loans and borrowers.

“I got a letter from the regulatory body in this regard last month,” Rahman added. “I hope our NGO will be able to meet the criteria by the deadline of June 2009.”

The executive vice-chairman of the regulatory body said some 150 MFIs, which have fulfilled the conditions, have been awarded licence to operate their micro-credit activities.

“Action will be taken against any NGO found continuing lending activities without a licence,” another senior official of the regulatory body said.

Bangladesh is known globally for pioneering micro-credit activities. Many countries later adopted the idea to bolster their poverty alleviation efforts.

Micro-credit is a nation-wide activity in Bangladesh. The issue of a regulatory framework came to the forefront a couple of years ago because MFIs had been providing credits to the poor defying the formal banking system.

Grameen Bank was the only formal micro-finance institution before the passage of the new law on August 27, 2006.

Grameen Bank and its founder Dr Muhammad Yunus shared Nobel peace prize in 2006.

Source : The Daily Star

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