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Microfinance Institutions

Yunus calls for standardised interest rate

Nobel peace prize winner Prof Muhammad Yunus speaks at the concluding ceremony of an international conference on microcredit at Hotel Sonargaon in Dhaka yesterday. Photo: Star

Nobel Laureate Prof Muhammad Yunus yesterday called on the microcredit regulator to come up with standardised interest rates for microfinance institutions to clear suspicion and establish transparency.

"It's a sensitive point in Bangladesh and everywhere else. I think it will be a great service by the Microcredit Regulatory Authority if they can fix the interest rate," he said at the closing of an international conference on microcredit organised by MRA at Sonargaon Hotel.

Prime Minister's Adviser on Economic Affairs Mashiur Rahman and founder and Chairperson of BRAC Sir Fazle Hasan Abed also spoke at the programme attended by about 50 participants from 20 countries.

Yunus, the campaigner of microcredit, made the call as different quarters including policymakers, questioned transparency in interest rates charged by the microfinance institutions.

Despite MFIs' claims of charging 12-15 percent (flat) interest, there are criticisms that annual effective interest rate would be, according to an MRA publication, "at least double or more of this reported figure depending on the number of installments, grace period, other terms and conditions such as compulsory savings, upfront cut, processing fees, etc".

Yunus said it's good to tell everybody that this is the interest rate. "But to hide under many different ways would always generate tension, suspicion and so on."

"So this is one basic thing, I think, MRA's contribution would be to come up with the standardised interest rate," said the advocate of microloans, which is believed to be a tool of poverty alleviation.

Prof Yunus also put emphasis on transparency of the interest rate issue and placed a list of dos and don'ts for MRA.

The list includes giving a definition of microcredit to stop the use of "microcredit" by those he said are "loan sharks" and consumer goods sellers to sell their products.

The man with vision also came up with the idea of introducing insurance schemes into microfinance programme to protect the poor from disasters, and provide support to elderly poor women in helplessness.

Yunus also focused incorporating technologies such as mobile phone into microcredit sector to transfer money to the poor.

Another point, he shared, is how to make better the lives of the children of poor borrowers in freeing them from the old cycle of poverty, sickness and, above all, uncertainty.

"We can do that. We have the capacity nobody else has--as much capacity as microcredit has right now in changing the second generation. This is almost an exciting frontier that we have to work with."

He said Bangladesh being the most matured country in microfinance operations has a very special role to show the rest of the world about what it can do with microcredit.

"This is one area where Bangladesh is the leader of the world. So, that leadership role needs to be maintained not for the pride of it but for the sake of the people who are looking forward to receiving the services in other countries," he said.

Yunus said microcredit has to prove that it's a sound banking and there is nothing fishy about it.

"So this is the kind of challenge we all have to take… to strengthen it rather than the kind of creating confusion."

Sir Fazle Hasan Abed said microfinance has contributed to poverty alleviation in Bangladesh.

He also sought MRA intervention to recognise some large microfinance institutions with the microfinance banking licences.

"There is an opportunity to recognise large microfinance institutions as microfinance banks," he observed.

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The micro credit is a most delicate and sensative aspect of our economy. Millions of rural poor are involved. Therefore, whatever is done, the stake holders must keep them in the front line to take any decision for changing the operational strategy of micro credit including the question of standard interest rate compareable to other institution in terms of service efficiency, flexibility to operate and not following a strait line approach to service delivery and decisionmaking.

The government is already filled up so many problems that their plate is full and no space is available

: faqrul

My opinion is that ,let micro credit givers do the intial work to find out and recommend the standard rate , which i think might be a seperate strucuture for different operators depending how much is legitimate and sustainable rate .

The regulatory committee of the government better stay away from this exercise right now. This is an explosive area might be an additional burden to bear when they are faced with so many other problems in political and financial fields. i see any immediate govt action, would only be throwing a stone at the bee - hive.

: faqrul

Comments

  • Hasan,Comilla.
    Thursday, March 18, 2010 06:05 AM GMT+06:00 (240 weeks ago)

    Prof Akash has said microcredit can not change the lot of common people.This aspect should be clear to common men who do not understand different theories,datas & equations.We want to have a clear concept regarding microcredit from the economists.

  • Kazi Abul Firoz
    Thursday, March 18, 2010 06:15 AM GMT+06:00 (240 weeks ago)

    Awami government should evaluate and listen to professor Yunus. Just listen to professor Yunus. The results will be the best.

  • Nasiullah Mridha,USA
    Thursday, March 18, 2010 06:32 AM GMT+06:00 (240 weeks ago)

    A lot of people benefitted by micofinance.but my question is are the majority of this people abled to emerge out from the cycle of 15% interest of moneylender?


 

 


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