MFIs' branches rise 38.5pc, borrowers reach 32.18m

Bangladesh's microfinance sector has seen a significant expansion over the past six years, with the microfinance institutions' (MFIs) total number of branches rising from 18,825 in fiscal year (FY) 2018-19 to 26,071 in FY 2023-24, showing a 38.5 per cent increase.

During the period, the number of microfinance borrowers grew from 25.76 million to 32.18 million, underscoring the sector's deepening role in serving the low-income and underserved communities, according to the Microcredit Regulatory Authority (MRA) data.

While the number of borrowers climbed steadily, loan disbursement patterns revealed sharp year-on-year fluctuations. Loan disbursement contracted by 3.16 per cent in FY 2020 amid the COVID-19 pandemic, but it rebounded strongly with double-digit growth in FY 2021 (10.96 per cent) and FY 2022 (26.90 per cent), peaking at 29.92 per cent in FY 2023. This surge highlights the sector's resilience and growing importance in supporting livelihoods and microenterprises during recovery periods.

However, loan disbursement growth eased to 4.90 per cent in FY 2024, indicating a possible stabilisation or tighter credit conditions.

As of December 2024, 724 licensed microfinance institutions (MFIs) operated 26,071 branches nationwide, serving over 41.56 million account-holders, of whom 90 per cent were women.

The institutions collectively supported 32.18 million borrowers, channelling credit into agriculture, livestock, handicrafts, and small trade - key drivers of rural livelihood diversification and economic resilience.

Experts, meanwhile, focused on stronger digital integration, interoperability with banks, and robust client protection to sustain MFIs' growth.

They called for wider financial literacy and capacity-building initiatives, alongside alignment with the Sustainable Development Goals (SDGs), to help the MFIs overcome climate and economic shocks while continuing to empower rural communities, women, and small-scale entrepreneurs across the country.

Talking to the FE, Mohammad Yakub Hossain, Executive Director of the MRA Licence, Policy and Law Department and the On-site Supervision Department, said the MFIs are now introducing innovative products, including migration-related loans and other tailored services, alongside providing larger loan amounts.

He pointed out that the MFIs have the unique ability to reach remote rural communities and effectively monitor borrowers, thereby playing a significant role in advancing financial inclusion in the country.

According to him, loan disbursement in FY 2023-24 experienced moderate growth, largely due to the adverse impacts of floods and the prevailing economic challenges.

He further noted that the MFIs have earned strong trust and confidence of people, which has contributed to their rapid expansion across the country.

Dr. M. Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh, said the country's microfinance sector has demonstrated remarkable growth over the past six years, from FY 19 to FY 24, with branch networks expanding by nearly 40 per cent and borrower base surpassing 32 million.

These underscore the sector's critical role in advancing financial inclusion, particularly for women, who account for 90 per cent of the account-holders. The sector's resilience during and after the Covid-19 shock highlights its importance in sustaining rural livelihoods and microenterprises, he noted.

Moving forward, deeper integration with digital financial services, robust client protection mechanisms, and alignment with the SDGs would be essential to ensure that the sector continues to drive both social and economic transformation across the country, Dr Reaz added.

Originating from grassroots poverty alleviation efforts in the 1970s, the MFIs have gradually evolved into a central pillar of Bangladesh's financial inclusion ecosystem. They offer microcredit, savings products, and socio-economic support to millions excluded from the formal banking sector, with a strong focus on empowering marginalised communities and promoting gender-responsive financial inclusion.

The MRA, established in 2006, has strengthened sector oversight through various initiatives like the National Microfinance Database, the Depositors' Safety Fund, and piloting of the Credit Information Bureau (CIB) for the MFIs. These measures aim to protect vulnerable clients and maintain stability during economic shocks.

The Bangladesh Bank has complemented these efforts by promoting integration among the MFIs, banks, and digital financial service providers, including agent banking and mobile financial services. By encouraging interoperability and expanding digital access, the central bank has even enabled remote populations to connect with formal financial services.

Aligned with the National Financial Inclusion Strategy (NFIS) and the SDGs, particularly the SDGs on poverty reduction (SDG-1), reducing inequality (SDG-10), and promoting gender equality (SDG-5), the MFIs have combined financial services with social intermediation, such as financial literacy training, health education, and skill development, thus making them a unique driver of both social and economic transformation.

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