Bangladesh’s Microcredit Regulatory Authority (MRA) has enacted a new regulation capping microfinance institution (MFI) loan rates at 27 percent per year as of July 2011. In 2009, MRA temporarily fixed interest rates at a 15 percent flat rate or 30 percent effective rate. MRA has also asked lenders to embrace the declining-balance method of calculating rates in lieu of flat rates, which ignore payments made against principal during the loan term [1]. In addition, the new regulation will limit administration fees to unspecified levels, implement a 15-day mandatory grace period for repayment and ban unofficial deductions by lenders that impose “saving schemes” on clients.
Director of the Credit Development Forum in Bangladesh, Mosharraf Hossain, said he opposed the interest rate cap, arguing that it is expensive to lend to clients in remote areas after borrowing from private banks. According to MRA, one out of every five of Bangladesh’s 146 million citizens has borrowed money from one or more of the approximately 1,200 MFIs in the country. Interest rates are as high as 51 percent at some institutions. The move by MRA comes shortly after authorities in the Indian state of Andhra Pradesh cracked down on MFIs for harassing borrowers for repayment [1].
About the Microcredit Regulatory Authority (MRA): The Microcredit Regulatory Authority (MRA) is Bangladesh’s primary regulator over the microfinance activities of NGO micofinance institutions (MFIs). MRA has three primary functions: to license MFIs, to supervise MFIs for compliance with licensing requirements and to enforce sanctions against non-compliance. In addition, MRA monitors microfinance activity through audits and addresses customer complaints. The Board of Directors, which oversees the governance of MRA, consists of heads of executive levels of government, including the Governor of Bangladesh Bank, Dr Atiur Rahman who serves as Chairman.
By Diana Baide, Research Assistant
[1] Financial Express. “Micro lenders told to follow declining-balance method” 16 November 2010
[2] AFP. “Bangladesh caps microcredit interest rates”
http://news.ph.msn.com/business/article.aspx?cp-documentid=4447987
MicroCapital. “MICROCAPITAL BRIEF: Interest Rates Charged by Bangladeshi Microfinance Institutions (MFIs) to be Capped” by Trevor Kwong, 15 October 2010
MicroCapital. “MICROCAPITAL BRIEF: Payment Strike Hits India’s Andhra Pradesh State As Local Governments Urge Microfinance Borrowers Not to Repay” by John Howard-Smith 9 November 2010
MicroCapital. “MICROCAPITAL BRIEF: Microcredit Regulatory Authority of Bangladesh Will Soon Finalize Microfinance Lending Rates” by Jennifer Shevock, 11 August 2010
MicroCapital. “MICROCAPITAL BRIEF: Government of Bangladesh to Limit Interest Rates for Microfinance Institutions (MFIs)” by Stefanie Rubin, 13 April 2010
MicrCapital. “MICROCAPITAL STORY: Bangladesh Microcredit Regulatory Agency (MRA) Limits Interest Rates for Microfinance Institutions” by Laura Anderson, 6 May 2009:
MicroCapital’s Microfinance Universe profile: Microcredit Regulatory Authority
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