Golam Hossain, a handicraft trader ftom Katuli under Tangail Sadar upazila, borrowed Tk 20,000 from a microcredit lender. He was supposed to repay the loan in 46 equal weekly installments of Tk 550 each. He was doing well. But then came the Covid-19 pandemic and he was struggling to make the payment. The microcredit lender started charging interest on the defaulted amount, making the things worse.
"The microcredit lender was always rude with us," said the borrower, adding that despite the pandemic, they were charging the interest on the amount.
"During the disbursement they said they would stand by us in the bad time, but they did nothing to that end," he further said.
Kala Chan, another borrower from Tangail Sadar area, also faced the same fate. He was under pressure from his lender as he defaulted on the payment of his loan installments. He borrowed Tk 100,000 from another microcredit lender against his small business shown as collateral. The non-government organisation imposed a fine as he defaulted on the payment. And, Shahjalal, a small trader of Tangail, who borrowed from another microcredit institution, was also no exception. The scenes above clearly exemplify what is happening on the ground amid the Covid-19 pandemic.
There were 746 such micro-finance institutions (MFIs) in Bangladesh as of December, 2020. There is no denying the fact that the micro-finance institutions are playing an instrumental role in addressing the current demand for money from the needy people. But amid the Covid-19 pandemic, they need to be sympathetic towards the microcredit borrowers, who are the low-income people.
It is widely known that the government announced general holiday soon after outbreak of the Covid-19 pandemic in the country in early March last year. Later, the government announced pandemic-induced restrictions on different occasions. Those brought the wage earners, low-income people and small traders to their knees. They lost their earnings. Many small traders wound up their business. Many of the affected people could not manage three bare meals a day, let alone the payment of loan installments. But the people of a section of NGOs lending microcredit did not relent. They were charging every penny they could on the money they lent.
Microfinance Institutions' (MFIs) objectives are completely different from commercial banks. MFIs extend financing to the poverty-stricken people without collateral whereas commercial banks lend to the traders having security for availing loans. Briefly saying, MFIs work for poverty reduction only. MFIs give out loans in six categories such as general microcredit for small-scale self-employment activities, microenterprise loans, loans for ultra poor, agricultural loans, seasonal loans and loans for disaster management.
What should be noted that loans amounting up to Tk 50,000 are considered as microcredit while loans above Tk 50,000 are called microenterprise loans. Currently, NGOs, Grameen Bank and other commercial banks are broadly involved with microcredit programmes. Commercial banks have also ventured into the area of microcredit lending in view of the need of the poor people. Most banks have joined the race later.
Despite the hiccups amid the ongoing pandemic, the MFIs and NGOs are still contributing a lot to changing the people's fate alongside the banking industry. Their activities are expanding fast, no doubt. The Microcredit Regulatory Authority (MRA) sources said as of June, 2018 the total number of MFI borrowers stood at 25.40 million against only 19.42 million in June, 2014. As of June, 2018, loan disbursements totaled Tk 1201.91 billion, savings Tk 262.96 billion and the number of branches was 18,196 with 1,53,919 employees. In June, 2014 the loan disbursements amounted to Tk 462 billion, savings Tk 106.99 billion and the number of branches was 14,730 with 109,628 employees. In 2013-14, all the MFIs disbursed Tk 462 billion against Tk 634 billion in 2014-15. The disbursements increased by 37.23 per cent.
It also should be noted that, apart from the rising disbursements, the NGOs and MFIs are also getting funding support from different sources to a great extent. As of June, 2018 the total amount of fund was Tk 741,905.68 million against only Tk 312,731.96 million in June, 2014.
It is important to note that women are benefiting most from microcredit. Out of 25.40 million borrowers, 93 per cent are women covering 15.88 per cent of the total population in Bangladesh. In such a situation, it can be said that women are borrowing more from MFIs and NGOs than from banks in terms of their percentage. Since the beginning, MFIs and NGOs have been giving due importance to female borrowers in microcredit lending. The women in rural areas in the country are largely linked with MFIs and NGOs. The women get collateral-free loans from NGOs. But, they need to form a group for getting the loans.
However, the Microcredit Regulatory Authority (MRA) needs to play a more active role in turning the MFIs and NGOs into good financiers. The MRA should be more pro-active during this pandemic time. If we look at the central bank of Bangladesh, it did not make any delay to stand by borrowers with required policy supports and stimulus packages. Likewise, the MRA could come up with more need-based policy supports during the pandemic. For example, the MRA issued a circular on 14 January, 2016 regarding an amendment to the interest rate. The circular said that the interest rate on the customers should be kept within 25 per cent under the bank-MFI linkage programme. Afterwards, no circular was issued in respect of lowering the interest rate. In a circular issued on 09 September, 2019 the service charge was re-fixed at only 24 per cent. On the other hand, the MRA should think about how to meet timely the borrowers' demand for microcredit. There are also allegations that the MFIs and NGOs are charging high interest rates on the disbursed loans.
The Centre for Policy Dialogue (CPD) in its study said that the national poverty rate rose to 35 per cent in 2020 from 24.3 per cent in 2016 due to the Covid-19 pandemic. The second wave of the pandemic may make the situation worse this year. As MFIs and NGOs work in the area of poverty alleviation, they should scale up activities with support from the government in this crisis situation. Only MFIs have the opportunity to work for the poor people in remote areas where banks are hardly present. So, the government needs to provide policy support to the MFIs and NGOs through the MRA. Experts in the recent times favoured MFIs in providing stimulus packages. The MFIs working in a neglected area must be brought to the frontline in the battle against poverty. Otherwise, our frontier market is likely to miss out on the upcoming global opportunities.
Moreover, women will be more empowered in the economy, if MFIs are equipped with timely policy support. If NGOs' borrowers are connected on an e-commerce platform, they would be able to sell or do marketing of their products. The MRA might form a monitoring team to inspect how the microcredit is used. The MRA as a regulator of MFIs and NGOs has to be strict in its supervision. Otherwise, the volume of non-performing microcredit will rise the days to come.
Md. Mazadul Hoque is a banker & economic analyst.
E-mail: mazadul1985@gmail.com.
Dr. Md Nazmus Sadekin is Dean of Social Science Faculty and Chairman of Economics Department of Mawlana Bhashani Science and Technology University.
E-mail: sadekin08@gmail.com.