Plan for separate ‘Microcredit Bank’ threatens Bangladesh’s poorest, experts warn
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COAST Foundation, BDCSO Process, and EquityBD Saturday warned that the government’s plan to set up a separate microcredit bank could harm Bangladesh’s poorest people.
The proposal is being promoted as a “social innovation,” but the civil society organisations (CSOs) say it may weaken the country’s successful microfinance system and expose poor borrowers to serious financial risks, said a statement, sent by the organisations.
The groups represent a large network of grassroots organisations across Bangladesh. BDCSO Process works with 545 local NGOs, while EquityBD has 70 partner organisations. They say their concerns reflect real experiences and fears from communities at the grassroots level.
Development economists and international studies caution that when microfinance institutions are turned into banks, they often suffer from “mission drift.” Research by the World Bank and CGAP shows that such changes usually lead to bigger loans, less focus on social programmes at the field level, and reduced access for women and marginalised groups.
Although the draft ordinance describes the proposed bank as a social enterprise, banking laws mainly focus on profit and capital requirements. This leaves little space for social goals such as poverty reduction and community support.
The claim that poor members will own 60 per cent of the bank’s shares is mostly symbolic, the organisations say. In reality, decision-making power will remain with professional boards and regulators, which could put the savings and investments of poor people at risk.
Bangladesh’s microfinance sector, regulated by the Microcredit Regulatory Authority (MRA), is considered one of the largest and most stable in the world. The organisations warn that rushing to turn microfinance institutions into banks could create unnecessary financial risks in a system that is already working well.
“This is not real innovation. It is a risky regulatory experiment wrapped in social language, and the poorest people will suffer the most,” said development experts familiar with global microfinance practices.