The committee has found that a number of microfinance institutions who usually collect deposits from their members, have taken about Tk one crore in deposits from non-members.

Terming the deposit collection a 'bad practice' the committee said these institutions must obtain the central bank's licence to operate as financial institutions.

The Steering Committee on Microfinance Research and Reference Unit (SCMRRU) headed by Governor of Bangladesh Bank observed this in its recommendations forwarded to the Cabinet Committee on Economic Affairs.

The SCMRRU said it can act as a regulatory body for monitoring the microfinance activities until setting up of a full fledged regulatory body for the sector.

However, it expressed the optimism that an appropriate microfinance regulatory body could be set up within next two years through a number of legal amendments.

The committee, formed in June 2000 for a three-year term, sought a two-year extension to prepare a legal framework for the proposed regulatory body.

After reviewing the steering committee's recommendations, the Cabinet Committee on Economic Affairs will take a decision on Wednesday, sources said.

The SCMRRU said it could start the job of monitoring by creating a database of credit information collected from all the microfinance bodies.

It suggested appointment of auditors, both local and foreign, to strengthen the monitoring of microfinancing institutions operating in the country.

The proposed regulatory body will approve microfinance institutions and NGOs involved in microfinancing. Presently the NGO Bureau, the Social Welfare Directorate, Registrar of Joint Stock Company and other government bodies provide the approval.

According to the steering committee, currently a total of 1,381 microfinance institutions and microfinancing NGOs are operating in Bangladesh. The committee could obtain information of 663 of these institutions having 1.11 crore borrowers.

The committee found that these institutions charge interest rates below 15 percent whereas microcredit interest rate is 16 to 20 percent in India, 24 to 36 percent in the Philippines, 18 to 20 percent in Pakistan and 18 to 25 percent in Nepal.

"The interest rate in Bangladesh is at a tolerable level," said a member of the committee.