MICROCAPITAL STORY: Microcredit Regulatory Authority of Bangladesh Extends Deadline for Microfinance Institutions to Meet Licensing Criteria

A senior official of the Microcredit Regulatory Agency of Bangladesh (MRA) announced that microfinance institutions (MFIs) will have until December 31 of this year, instead of June 30, to fulfill government licensing requirements. According to a report from All Headline News of Bangladesh, the announcement came after a meeting between the chairman of the MRA and the governor of Bangladesh Bank, Salehuddin Ahmed. The MRA said it will issue licenses after its deputy commissioners and other agencies ensure the authenticity of each MFI’s documents.

As reported by MicroCapital, the Bangladesh government passed the Microcredit Regulatory Act in 2006 to ensure transparency and accountability of MFIs in Bangladesh’s growing microfinance industry. At the same time the government formed the eight-member MRA, headed by the governor of Bangladesh Bank. The 2006 Act makes licenses mandatory for all private MFIs, whether they are for-profit or non-profit. The MRA began to issue licenses in August of 2007. In order to get a license an MFI must have at least 1,000 borrowers representing gross loans of BDT4.0 million (approximately USD 58,000). Out of 4,240 applications received by the MRA, 411 licenses have so far been issued, 600 have been rejected for failing to meet the requirements, and 3,229 applications are still pending. Once an MFI receives its license it is subject to MRA monitoring and supervision. If an MFI does not comply with MRA mandates it may be subject to disciplinary action.

According to a 2006 report for the World Bank, microcredit reaches approximately 43 percent of all Bangladeshi households and about 70 percent of poor households. The sector is dominated by the Grameen Bank, the Bangladesh Rural Advancement Committee (BRAC), the Association for Social Advancement (ASA), and PROSHIKA, which between them lend to almost 87 percent of all borrowers from non-government microfinance institutions. According to a 2002 study entitled “Commercialization of Microfinance: Bangladesh” by Stephanie Charitonenko and S.M. Rahman, beyond these large MFIs, there exist numerous poorly performing and subsidy dependent NGOs and government microcredit programs with repayment rates that vary between 19.6 and 98.6 percent.

According to the MIX Market, the microfinance information clearinghouse, as of December 31, 2007 BRAC serviced 6.4 million borrowers, and had a gross loan portfolio of USD 528.8 million, total assets of USD 619.4 million, a debt-to-equity ratio of 3.84, an ROE of 6.11 percent and an ROA of 1.47 percent. As of June 30, 2008 PROSHIKA serviced 1.8 million borrowers and had a gross loan portfolio of USD 57.7 million, total assets of USD 73.5 million, an ROE of 32.3 percent, and an ROA of -8.8 percent. As of December 31, 2007 ASA serviced 5.4 million borrowers, had a gross loan portfolio of USD 361.7 million, total assets of USD 421.9 million, a debt-to-equity ratio of 0.71, an ROE of 19.0 percent and an ROA of 10.9 percent. As of December 31, 2007 Grameen Bank had a debt-to-equity ratio of 9.96, an ROE of 1.08 percent and an ROA of 0.11 percent. As of February 2009, according to its own website, Grameen Bank serviced 7.8 million borrowers, and had total outstanding loans of USD 682.4 million.

By Laura Anderson, Research Associate

Additional Resources:

All Headline News: Bangladeshi Micro-credit Operators Given more Time to Get Licenses

Bangladesh Bank: Home

MicroCapital Story August 2007: Bangladesh Micro-Credit Regulatory Authority Begins Issuance of Licenses to Microfinance Institutions

The World Bank April 2006: Economics and Governance of Nongovernmental Organizations in Bangladesh

Grameen Bank: Home

The Bangladesh Rural Advancement Committee: Home

PROSHIKA: Home

The Association for Social Advancement: Home

The Asian Development Bank, September 2002: “Commercialization of Microfinance: Bangladesh” by Stephanie Charitonenko and S.M. Rahman

The MIX Market: Home, PROSHIKA Profile, Grameen Bank Profile, ASA Profile, BRAC Profile