For all latest news, follow The Financial Express Google News channel.
Governor of the Bangladesh Bank (BB) Dr Ahsan H Mansur has assured clients of weak banks that their funds will be returned, albeit in stages, and urged patience as the process unfolds.
"You will get your money back, but it will take some time. The money will be returned in phases," he said at the launch of the Microcredit Regulatory Authority's (MRA) report on Bangladesh's microfinance sector, held at the CIRDAP Auditorium in Dhaka on Tuesday.
The event was presided over by MRA Executive Vice Chairman Dr Mohammed Helal Uddin and attended by Nazma Mobarek, secretary of the Financial Institutions Division (FID), and Md Fazlul Kader, Managing Director of Palli Karma-Sahayak Foundation (PKSF).
Responding to a question about depositors' concerns, Mansur said, "For the past 10 years, I have personally warned people not to deposit their money in S Alam's banks. However, many ignored the advice because they were lured by 2 per cent higher interest rates. Now you have been caught."
He further stated, "We will rescue you, but not immediately. The process will be gradual. Steps like implementing the Bank Resolution Act and consolidating some banks are under consideration. These measures may take effect within this year. You will get your money back, possibly in cash or bonds."
Mansur said the next five years would be increasingly challenging for microfinance institutions (MFIs).
"Currently, there are 24,000 branches of microfinance institutions across the country, while banks have around 16,000 agent banking outlets. In the next five years, banks are expected to increase their agent banking outlets to around 60,000," the central bank governor added.
He highlighted the growing competition faced by microcredit institutions, noting that mobile financial service (MFS) providers are now offering loans and collecting deposits. Additionally, the emergence of digital banks would pose a new challenge to microfinance institutions, he added.
Mansur said when there would be agent banking outlets in almost every village, MFIs would face challenges if they do not implement technological upgradation.
He emphasised the need to address customer harassment associated with cooperative societies, stating, "An unregulated market is emerging through these societies, leading to scams. In this context, we need to assess whether issuing licences to such entities is necessary, as they are fostering local loan-sharking."
Uddin said he stopped awarding new MFI licences after joining MRA. He also called for research to determine whether microfinance is genuinely contributing to poverty reduction.
"MFIs must prepare to face future challenges posed by digital and agent banking," he added.
FID Secretary Mobarek said the government and MRA should help smaller non-government organisations (NGOs) and MFIs as they are increasingly threatened by larger MFIs.
She also said smaller borrowers are much better in comparison to bank loan defaulters.
PKSF's Kader highlighted the need to reassess the sustainability of microfinance programmes, noting the actual number of small borrowers is likely far below the reported figure of 64 million.
"After adjusting for overlaps, I estimate the true number is closer to 30 million. We need to evaluate whether unsustainable debt is increasing," he said.
He also questioned the necessity of microfinance programmes run by 22 government institutions, calling for a review of their relevance.
Echoing this concern, the central bank governor stated, "It is important to assess whether the microfinance programmes operated by 22 government ministries are justified. In my view, the government does not need to continue such initiatives."
During the event, it was revealed that FY24 loan disbursement by MRA-certified MFIs rose by 5.26 per cent year on year.
According to the MRA report, MRA-certified MFIs disbursed Tk 2.61 trillion out of the total FY24 microloans. They also collected Tk 68 trillion in deposits from customers, contributing to the overall deposit collection of Tk 97 trillion in the sector.
The report further revealed that 724 MRA-certified institutions operate over 26,000 branches nationwide.