SMEs to get loans without collateral

MRA is easing loan policy to boost rural economy

Anisul Islam Noor

7 March, 2021 12:00 AM printer

The Microcredit Regulatory Authority (MRA) is working to ease policy to provide loan up to Tk 5 million to small entrepreneurs without collateral for boosting rural economy.

As per the directive Financial Institutions Division (FID) of the Ministry of Finance, the MRA has talked with the Micro Finance Institutions (MFIs) and non-government organizations (NGOs) to bring all types of small business people under microcredit facility with trade license or not, sources at the ministry and MRA said.

The government has announced that a loan of Tk 100 billion under stimulus packages to revive rural economy will be distributed among cottage, small and micro entrepreneurs (CSMEs) through MFIs and NGOs. Prior to disbursement of the stimulus packages, the MRA is working to ease rules and regulation so that most of small entrepreneurs are benefited and can start business with new inspirations overcoming the pandemic effects. 

Talking with the daily sun on Saturday, MRA director Mohammad Yakub Hossain said by providing fee of Tk 25 for a member book, the small entrepreneurs can take loan any amount up to Tk 5 million without hassles.

“No matter having trade license or not, if the traders have certificates from head teachers of schools and ward councilors, they will be eligible for loans under the microcredit programme,” he said.

Earlier, the NGOs can provide loans to small and micro entrepreneurs of Tk0.5 million to Tk 4 million without collateral.

The MRA has also formed a committee to review the interest rate of microcredit and cost of fund management as the MFIs and NGOs can provide loans to the rural people in more flexible rates.

The first meeting of the committee was held on Thursday, which discussed total sector loan distribution and cost reduction of fund management. A member of the committee said the interest rate of banks and microcredit cannot be similar or compared with the banks’ interest rate, because a client usually comes to bank for loan while the officials of microcredit went the house or business place to provide loans.

Besides, an official of microcredit sector goes to collect the loan installment in the spots or business centres on weekly and monthly basis. As a result, the lenders are taking 24 percent interest rate including service charges, MRA director said.

The MRA has provided licenses to 880 NGOs and MFIs for operating microcredit of which 134 licenses were revoked for violating or failing to follow rules and regulation of the MRA.

At present, 746 NGOs and MFIs are operating microcredit across the country. Without MRA license, operating microcredit is an offence as per the MRA law. The government established the MRA in August, 2006. After taking initiative of issuing license in 2012, the MRA received 4241 applications.

Among the applications, about 1,000 institutions were unable to meet minimum criteria.

Later, the MRA issued 800 licenses to operate microcredit in the country.

According to the MRA annual report June 2020, the outstanding loans of NGOs stood at Tk 890.75 billion and the number of borrowers totaled 26.2 million. The revolving fund of NGOs amounted to Tk1,006.03 billion in the same period, of which, Tk369.13 billion or 36.69 percent came from the members’ savings, banks’ loan Tk198.82 billion or 19.76 percent, cumulative surplus Tk342.86 billion or 34.08 percent, loan from PKSF Tk 55.36 billion or 5.5 percent, donors’ fund Tk 5.49 billion or 0.55 percent and other funds Tk34.37 billion or 3.42 percent. According to the annual report 2020, the number of members of NGOs was 33.3 million till June 2020. The NGOs enlisted members providing money receipt book by Tk 25 and collect deposit. At present, one of the major sources of funds of the NGO-MFIs is the savings of its members.

They do not accept deposits from the general public like that of formal financial institutions.

The interest rate they offer to the members for saving mobilization is less than the interest rate offered by government and commercial banks.

 In spite of that as of December 2001, the major sources of fund of 629 MF-NGOs were members' savings and that was 24.13 percent of the total RLF. PKSF supplied 23.49 percent and direct foreign donation was 17.36 percent.

However, a significant portion of the funding 6.76 percent was actually generated from service charges. Service charges vary from 8 percent to 37 percent depending on the method followed by the MFIs.

 Currently, the portion of foreign fund in NGO sector has decreased drastically to only 0.55 percent of total capital of 746 NGOs and MFIs. It means that almost NGOs and MFIs are self dependent, the sector insiders said.