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Dr Atiur Rahman, Governor, Bangladesh Bank – the central bank of Bangladesh – on Tuesday stressed on the need for a sound regulation for monitoring the microfinance industry.
The Bangladesh government had in 2006 set up Microcredit Regulatory Authority (MRA) under the Microcredit Regulatory Authority Act 2006 to monitor and supervise operations of microfinance institutions (MFIs).
“MRA was set up to maintain the right balance of ensuring that MFIs have the space to innovate while maintaining oversight of poor people's money,” Dr Rahman said at an interactive session organised by Bandhan Financial Services here on Tuesday.
Dr Rahman, who is also the chairman of MRA, said that the large and medium MFIs need to be regulated first as any problem with these could impact the whole system.
“In Bangladesh, 10 MFIs control almost 80 per cent of the entire market. We conduct an in depth regulation and inspection of these large MFIs,” he said.
Bangladesh has close to 500 MFIs operating at present. The growth in the MFI sector in Bangladesh has now stabilised, he said and added, “We were registering very high growths till a couple of years back. It has now stabilised.”
MRA was looking at granting licences to encourage setting up of more MFIs. Setting up an automated credit information bureau to store credit information of borrowers, capping interest rate for microcredit at 26 per cent and encouraging micro savings are some of the key initiatives being taken by the MRA. This apart, it has also come out with guidelines for mobile banking to increase penetration of services.
Inflation and Growth
The monetary policy stance of keeping high interest rates would continue, Dr Rahman said. “We hiked repo rate by 325 basis points in the last one year, this has brought down both food and non-food inflation. We will continue with this monetary policy stance,” he said.
This (hike in repo rate) has also helped curb depreciation in Bangladesh's currency – taka.
“In November-December, taka had depreciated by almost 15 per cent against the dollar. I was really worried so I took a tough monetary policy stance. This has not only helped curb depreciation but has also helped taka appreciate against the dollar by three per cent over the last two months,” he said.
Indian MFI industry
When asked about the regulatory environment for MFIs in India, Dr Rahman said, Reserve Bank of India, which had earlier given some autonomy to MFIs, are now in the process of regulating them.
“Even in Bangladesh, initially these MFIs were given autonomy to operate, however, now we have out in place a separate regulatory authority to supervise the industry,” he pointed out. Dr Rahman, however, refused to comment on the recent crisis in the MFI industry in India.
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