Home ›› 26 Feb 2023 ›› Front
Registered microcredit institutions in Bangladesh are moving forward with big plans to expand their infrastructure, as there has been a significant boost in their loan activities, as well as in the number of borrowers.
The demand for microcredit has increased as more and more entrepreneurs are showing their interest in launching small businesses.
Moreover, people who became unemployed during the Covid-19 pandemic, and small businessmen who are trying to get a boost and overcome the crisis are availing more microcredit facilities.
Such a situation has prompted several companies in the country to invest in this sector anew.
The Microcredit Regulatory Authority (MRA) approved 222 new institutions last year, and most of these institutions have already started their operations.
For example, the business conglomerate PRAN-RFL Group has registered a microcredit institution with the name Agri Development Foundation.
According to the latest MRA data, at the end of December 2022, the outstanding loans of MRA-licensed microfinance institutions stood at Tk 1,40,272 crore. At the end of June 2022, this amount was Tk 1,24,150 crore.
In other words, the microcredit amount has increased by Tk 16,122 crore in just six months.
At the end of June 2021, the outstanding loans of MRA-licensed microfinance institutions were around Tk 95,000 crore. Therefore, the increase in outstanding loans on June 2022 year-on-year was Tk 29,150 or 30 per cent.
Within this period, the number of microcredit borrowers increased by 87 lakhs.
Experts in the sector said small entrepreneurs are facing the toughest time due to the Covid-19 pandemic and the consequent economic crisis. A lot of the businesses had to close down their shop.
Many such entrepreneurs have been trying to get back into business since last year.
The government announced a stimulus package for Cottage, Micro, Small and Medium (CMSME) businesses during the pandemic. As banks showed little interest in disbursing loans from the allotted fund, entrepreneurs of the sectors had to lean on microcredits.
On the other hand, the government had announced a refinancing scheme of Tk 45,000 crore for the CMSME sector, but the banks did not show much interest in disbursing loans under this scheme either.
Industry insiders say the banking sector incurs losses due to the disbursement of loans for the CMSME sector, management expenses, and interest income.
According to Bangladesh Bank data, a little over Tk 25,000 crore in loans have been disbursed under this scheme till December 2022. It should be noted that till September 2022, the outstanding loans of banks to the CMSME sector was Tk 2,73,906 crore.
The pandemic caused many people to lose their employment, and fall below the poverty line. A survey by the Power and Participation Research Centre (PPRC) and BRAC Institute of Governance and Development (BIGD) showed that the pandemic has plunged 2.45 crore people in the country into poverty.
A 2021 report by the private research institute South Asian Network on Economic Modeling (SANEM) mentions that the overall poverty rate in the country has increased to 42 per cent due to the impact of Covid-19.
Poverty has made people look for new sources of income, and many have taken loans from microcredit institutions to start small businesses, buying cattle, three-wheelers, and motorcycles.
Microcredit institutions have disbursed nearly Tk 46,000 crore to more than 38,67,000 such micro-enterprises in the last fiscal year. Thirty-two per cent of the total loans were disbursed to micro-enterprises and 68 per cent to small enterprises.
Among these microcredit institutions, BRAC, ASA, Jagorani Chakra Foundation, Padakhep Manabik Unnayan Kendra, United Development Initiative, SAJIDA Foundation, Palli Mongal Karmosuchi (PMK), Shakti Foundation, Gram Unnayan Karma (GUK), Rural Reconstruction Foundation, Research Integration Centre, RDRS Bangladesh, CSS are the most notable.
Apart from the institutions licensed by MRA, Grameen Bank and various agencies of the government also provide microcredit. Loan disbursement from those institutions has recently increased as well.
At the end of June 2022, the outstanding loans of Grameen Bank were Tk 14,594 crore, which was Tk 14,259 crore at the end of June 2021. On June 2022, the debt status of various government agencies was Tk 14,271 crore and in June 2021, it was Tk 2,858 crore.
According to Bangladesh Bank data from September 2022, nearly 11,000 branches of 61 banks, including government, private and foreign banks, are working in the microcredit sector in Bangladesh.
These banks have disbursed Tk 51,676 crore to 2,57,363 entrepreneurs till September of FY23. Compared year-on-year, 2,33,276 borrowers were given micro-loans of Tk 42,075 crore. Therefore, outstanding loans increased by 23 per cent year-on-year.
New 222 institutions get approval
In February 2021, for the third time overall, the Microcredit Regulatory Authority (MRA) invited applications from institutions seeking to operate such programmes. A total of 1,140 institutions submitted their applications, among them, 222 secured primary approval.
The provisional certified institutions were obliged to attain a credit disbursement status of Tk 1 crore and acquire 1,000 members within three years from the commencement of operations. Otherwise, they won’t get the final license.
To begin the operation primarily, institutions have to secure registration from the District Social Services Office, Department of Social Services or one of the Offices of the Registrar of Joint Stock Companies and Firms (RJSC).
Besides, after getting the primary certificates, the institutions will have to deposit Tk 30 lakh in the bank account and submit the receipt to MRA. Later, the companies will be able to operate loan activities with this deposited money.
A total of 738 microcredit institutions have been certified by the MRA so far. The first microcredit institution received approval in 2007. At that time, 4,241 organisations applied, and among them, 758 institutions were approved.
During that time, the institutions which had a credit status of Tk 40 lakh or 1000 members, were approved for microcredit activities. Later in 2012, MRA invited applications for microcredit activities for the second phase while 132 institutions were approved among the applications of 1,214 organisations.
Institute for Inclusive Finance and Development (InM) Executive Director Dr Mustafa K Mujeri said, “Like other industries, small businesses across the country were disrupted due to the Coronavirus pandemic in 2020. But now, CSME is trying to turn around.
“Private initiatives are working to boost this sector and a major component of this process is microcredit, as the banks are not interested to lend much in this sector. Banks assist those who are on their way to becoming bigger SMEs. These small enterprises are dependent on the loan of Microfinance Institutions (MFIs).”
“Currently, microcredit institutions don’t have enough funds. The government should take measures to supply adequate funds to these institutions,” he added.
Mujeri then said, “More than 200 new companies received MRA registration and about 750 institutions secured permanent certificates. Excluding them, there are also several thousand unregistered firms.
“The authorities should take necessary measures to develop the capacity to provide registration to all companies as per the standard of MRA. This will ensure transparency and accountability and initiate expansion of the sector.”
