Service charge

Reduction of service fees for uncertain microfinance institutions

| Update:
Sept. 20, 2021, 11:20 a.m.

A government decision to reduce service fees for microcredit operations remains in limbo, especially over the sector’s non-cooperation.

Seven months ago, the regulator began cutting the current interest rate or service charge by 24 percent, imposed by microfinance institutions (MFIs), to provide relief to poor borrowers.

The Microcredit Regulatory Authority (ARM) has formed a 10-member committee to review the current rate.

The executive vice president of the MRA heads the committee while representatives from the central bank, the Ministry of Finance, the Credit and Development Forum (CDF) and the Palli Karma-Sahayak Foundation sit on it.

But the committee has only held one meeting since then.

Later, the MRA formed another technical committee, headed by the director of the MRA, Mohammad Yakub Hossain, to assess the potential service charges for microcredit operations.

It has been two months since the technical committee could hold a meeting.

In 2019, the regulator set the maximum interest rate for microloans at 24% after nearly nine years.

It capped the interest rate at 27% for the first time in 2010.

Mr Hossain told FE that Covid-19 was the reason for the delay.

The rationalization of microcredit service fees is currently under consideration by the government, he said.

But, according to sources, MFIs strongly oppose the decision to reduce service fees.

Murshed Alam Sarkar, chairman of CDF, an association of MFIs, told FE earlier that it opposed any move to cut service charges.

“MFIs are already in crisis due to the pandemic. So any decision to reduce their service charges will affect micro-lenders,” he said.

BURO Director (Finance) Md Mosharraf Hossain said the cost of microcredit operations is much higher than that of commercial banks.

“Those who are trying to lower service charges are comparing themselves to interest rates in the banking industry. These two are not the same,” he told FE.

The previous committee recommended in 2019 to review the interest rate using the declining balance method after two years.

Experts on different occasions have said that the interest rates or service charges of MFIs are too high.

Reducing burdens is crucial to help reduce poverty and ensure economic growth, they added.

Existing microcredit service charges are intolerable for poor borrowers, experts say.

The government established the MRA under the Microcredit Regulatory Authority Act 2006 to oversee microfinance operations in the country and promote sustainable growth of the sector.

[email protected]