Govt raises loan disbursement capacities of microcredit institutions

The government has taken a move to expand credit disbursement capacities of the microfinance institutions across the country and amended some rules in favour of their operations, officials said.

The government has amended the Microcredit Regulatory Authority Rules-2010 and published a gazette notification to this end, on Monday. 

By amending the rules, liquidity buffers and reserve fund maintenance have been trimmed. Along with this, the loanable fund and term deposit rates for small enterprises have been raised.

Section 34 of the Microcredit Regulatory Authority Rules-2010 states that 15 percent of the total deposit of any institution must be kept as a mandatory liquidity reserve in a scheduled bank branch. Of this, 5 percent should be kept in cash and the remaining 10 percent as term savings.

By amending the rules, the mandatory liquidity reserve rate has now been lessened to 10 percent. As a result, the microfinance institution will be able to mobilise more loanable funds of their own.

Apart from this, amendments have been made to section 28(e) and 29(e) of the rules. According to Section 28(e), a maximum of 25 per cent of the deposits collected by microfinance organisations may be seen as voluntary deposits. By amending this section, the maximum limit of voluntary deposits has now been increased to 40 percent.

Similarly, as per section 29(e), a maximum of 25 percent of the deposits collected by the microfinance institutions can function as term deposits. Now, by amending this section, the maximum rate of term deposits has been doubled (50 percent).

Executive Director (Operation) of Microcredit Regulatory Authority Humayun Kabir told Business Insider Bangladesh that the amendment that has been brought to some rules will increase the capacity of microcredit institutions while distributing loans. It has been demanded for a long time, and now the government has done it.

The provision of 15 percent of the total deposit of any institution in the compulsory liquidity reserve in a bank has been reduced to 10 percent. 

Asked if the risk of the institutions gets a little higher for this, Kabir said, “The risk will not increase in that way. Because, all the microfinance institutions are strong and the collection rate is very good---around 98 percent.” 

Meanwhile, the Provision 24(3) of the Rules has also been amended. Section 24(3) states that the amount of micro enterprise loans shall not exceed half or 50 percent of the total loan portfolio for any given period. Now the amendment has increased it to 60 percent.

Along with these amendments, some changes have also been made to provisions 28(b) and 29(b) of the Rules. 

According to rule 28(b), in order to take voluntary deposits by a microfinance institution from a client, there should be documented evidence of profitable operation of the institution for at least the last 3 years. This has been left unchanged.

If the microfinance institutions make a loss during a financial year due to any other reason, except natural calamities, the condition of continuous profitability may be relaxed for that specific financial year.

Similarly, as per rule 29(b), in order to receive fixed deposits by any microfinance institutions from the customers, there should be tangible evidence of profitable operation of the institution for the consecutive 5 years. This part has not been reformed.