It is indeed a notable turn of events that some non-government micro-finance institutions (MFIs) have been for the first time looking to the capital market to raise their funds. No doubt, in a culture where banks play the central role as the provider of funds for most economic activities, it is a healthy sign that side by side with business houses, some non-profit entities like MFIs have decided to use capital market to source their funds. As such, the banks, which have been under overwhelming pressure from all sides to supply funds, should now feel relieved at the development. It is worthwhile to note at this point that the capital market is the major source of funds for firms, individuals as well as the government in the advanced as well as many better organised developing economies. Naturally, entities that operate in the capital market have to be transparent in their business transactions. Needless to say, this gives credibility to their operation in the eye of the stakeholders.
In the case of the MFIs, for instance, their sources of finance in the past had mostly been foreign charity or aid money. Later, it has been low interest loans from dedicated funds for poverty alleviation. But as under the pandemic-dominated environment, most MFIs are facing financial crunch for obvious reasons, they have as a matter of course opted for the capital market. As the report goes, three big non-government MFIs have applied to the Bangladesh Securities and Exchange Commission (BSEC) seeking permission to float bonds to raise fund. It could be further learnt that together they expect to raise Tk 16.5 billion through issuing bonds. Though the government's Microcredit Rules, 2010 allow MFIs to raise funds from the capital market, there was no guidelines so far for them to do so and thus benefit from the provision. Mercifully, a guideline has been expeditiously prepared by the government's Micro-credit Regulatory Agency (MRA) to enable the MFIs to move ahead with their mission. Notably, the entities that approached the BSEC with their fundraising plea from the stock market were very big operators in the country's MFI market. Obviously, it helped matters a lot as unlike less known MFIs they were highly reputed and as such more convincing so far as their case was concerned. Under the circumstances, the MRA's job will be to issue the necessary 'no objection certificates (NOC)' for the applicant MFIs at its earliest so they can proceed further with their next phase of work.
The MRA's criteria for an eligible MFI include having a reserve fund that is 10 per cent of the accumulated surplus fund and 15 per cent of the total deposit as liquidity reserve. Also, it should have a borrower-base worth Tk 10 billion and 200 branch offices in the field. Among other conditions are: 70 per cent of the MFI clients should be borrowers, a loan recovery rate of 90 per cent, a debt-equity ratio of 1:9 per cent after bond issuance and so on. Evidently, the criteria to qualify for the fund-raising bid from the stock market for a prospective MFI look rather tough. Except for the high-profile MFIs, smaller MFIs will find those criteria hard to fulfil. Since the MFIs in question are working for poverty-alleviation, their eligibility criteria to enter the capital market should be relaxed. In that case, smaller MFIs would also feel encouraged to follow suit.
