Microcredit Regulatory Authority for reduced risk in microfinance

The Microcredit Regulatory Authority (MRA) has issued a legal framework for setting up Microfinance Credit Information Bureau (MF-CIB) to establish discipline and reduce risks in the country’s microfinance sector.

The framework was recently issued in the form of a gazette.

MRA will start activities of MF-CIB (Credit Information Bureau) by issuing circulars as required from time to time. The gazette gives MRA the power to issue various instructions to microfinance institutions.

According to the gazette, microfinance institutions will be required to provide all types of loan information to MF-CIB set up under the rules.

MRA will be able to take disciplinary action if regular information is not provided or concealed. If microfinance institutions provide any loan or other financial services to a customer or classified clients, they will have to send all the information to CIB (Credit Information Bureau). This includes information on loans taken, purpose of the loan, information before and after repayment of loan, type of conduct of economic activities of borrower, type of borrower's deposit or any other deposit, collateral taken from borrower, type of loan, collection situation etc.

If a loan is sanctioned in the name of a person, group or organization from a microfinance institution, even if the concerned entity does not take any money, their information should also be sent to the CIB.

Loan quality, instalment payment, interest and principal debt recovery, loan status and all other information will be updated from time to time.

More detailed guidance on these issues will be given later by MRA, the gazette said.

Mohammad Yaqub Hossain, Director of MRA and convener of the microfinance monitoring cell, said the legal framework for setting up a separate CIB for microfinance has been finalized.

“This is a big job. MF-CIB infrastructure work is underway. It was planned to be launched later this year. But work has been delayed due to the coronavirus epidemic. It will be partially launched by the first quarter of next year.”

According to sources, Bangladesh Bank (BB) currently has a Credit Information Bureau (CIB) with information on loans from banks and financial institutions. Apart from this, micro-credit institutions, cooperatives and other institutions are distributing loans.

However, BB has no credit information repository. As a result, the same clients are able to take loans from more than one institution by being a defaulter in one institution and taking a loan from another institution or taking a loan from one institution to repay loan of another institution.

As the discipline of the microfinance sector is deteriorating, so is the risk. To deal with this, an initiative was taken to form MF-CIB for microfinance.

The project was undertaken with the funding of, Foreign Development Cooperation Agency (DFID) of the UK government. The project is scheduled to be completed by February 2021.

Sources said, a software for MF-CIB is being developed according to BB requirements. Once fully developed, it will be handed over to MRA by the end of this year.

Additionally, MRA is taking forward the infrastructural preparation work of MF-CIB. As soon as they get the software from the central bank, they will start the experimental work.

All the information about borrowers will be taken from those who are conducting micro-credit activities in the country with registration from MRA.

In the first phase, information on big customers of micro-loans will be taken. Information of entrepreneurs in small and medium industries and other clients will be taken later.

At present, there are 769 MRA registered microcredit disbursements organizations across the country. Furthermore, these organizations have about 20,000 branches across the country with about 3 crore clients. They distribute loans of around 1,60,000 crore taka and recovers 1,45,000 crore taka annually.

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