MICROCAPITAL BRIEF: Bangladesh Capping Interest Rates at 9%, Observers Warn Microfinance Lending Would Become “Unviable Overnight”

As of April 1, all lending in Bangladesh is to occur at a cost of no more than 9 percent per year. The only exception is for loans via credit card. In advance of the deadline, the average lending rate for cottage, micro- and small enterprises (CMSEs) reportedly stands at 16 percent. Economist Zahid Hussain argued, “The 9 per cent interest rate cap will not cover the costs and risks, thus resulting in the sector’s CMSE portfolio becoming commercially unviable overnight. This will…reduce the supply of credit to these customers, forcing them to borrow from unofficial predatory lending sources such as traditional moneylenders.”

Representatives of the Association of Bankers, Bangladesh reportedly asked Governor Fazle Kabir of the Bangladesh Bank, the country’s central bank, to exempt loans to small enterprises from the new cap. However, Finance Minister AHM Mustafa Kamal called the decision “final.”

Sources and Additional Resources

Dhaka Tribune article
https://www.dhakatribune.com/business/2020/02/02/abb-keep-small-enterprises-outside-9-lending-scheme

Daily Star opinion
https://www.thedailystar.net/business/news/the-9-cent-cap-will-hurt-the-financial-inclusion-agenda-1864594

Bangladesh Bank homepage
https://bb.org.bd/

Association of Bankers, Bangladesh homepage
https://www.abbd.org/

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