The Financial Express

Govt moves to cut microcredit service charge

11-member body formed

| Updated: September 05, 2022 13:13:59

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The government has taken a move to slash the interest rate or service charge of microcredit operations from the existing 24 per cent, as imposed by the micro-finance institutions (MFIs), to give poor borrowers some relief.

To this effect, an 11-member committee, headed by Grameen Bank Chairman Prof Dr A K M Saiful Majid, has been formed.

The committee held its first meeting last week, and it formed a technical committee to analyse cost of the MFIs' services and to determine if there is any scope to reduce the charges.

Talking to FE, Md Fashiullah, Executive Vice Chairman of the Microcredit Regulatory Authority (MRA), said the committee would decide whether the service charge can be reduced or not.

It is a regular process, as there is a mandate to review the cost and service charges of the MFIs in every two years, he added.

The MRA last year formed a 10-member committee, headed by its executive vice-chairman, to revise the service charge, but the body was discarded without any decision.

Later, the MRA formed another technical committee, led by its director Mohammad Yakub Hossain, to assess the potential service charge for microcredit activities. The committee's operations also ended without any result.

Now the new committee is formed. It is headed by someone, who is not from the regulator - but from the microcredit sector.

Md Fashiullah said the MRA made the Grameen Bank chairman the new committee head, considering his experience in the sector.

"It doesn't mean that the decisions of the committee will be in favour of the MFIs. There are members from the regulator, the ministry, the sector and experts. The decisions will be based on real situation," he added.

In 2019, the regulator fixed the maximum interest rate for microcredit at 24 per cent after almost nine years. It capped the interest rate at 27 per cent for the first time in 2010.

An MRA director, seeking anonymity, said rationalising the microcredit service charges is under the government's active consideration.

But the MFIs are strongly opposing the move of reducing the service charge, he added.

The previous committee in 2019 recommended reviewing the interest rate as per the declining balance method after every two years.

Experts on different occasions said the interest rate or service charge of the MFIs are too high.

It is crucial to cut the charge to help alleviate poverty and ensure economic growth, they added.

According to the experts, the existing microcredit service charge is intolerable for poor borrowers.

The government established the MRA under the Microcredit Regulatory Authority Act 2006 - to monitor microfinance operations at home and to promote sustainable growth of the sector.

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