The Microcredit Regulatory Authority (MRA) of Bangladesh will soon finalize the lending rate for the country’s microfinance institutions, announced the chairman of the MRA, Dr Atiur Rahman, at a seminar in Bangladesh, according to a recent article [1]. The Government of Bangladesh first announced its intention to limit microfinance rates last year, as reported by MicroCapital on May 6, 2009. At that time, the Government of Bangladesh temporarily fixed the rate at a 15 percent flat rate or 30 percent effective rate.
Seminar participants recommended continuing with the current temporary rates of 15 percent annual interest calculated as a flat service charge and a 30 percent ceiling for the effective rate, until the new lending policy is finalized. Many microfinance institutions charge interest using a flat rate which is calculated on the initial loan balance and does not consider the declining loan balance as payments are made. The effective rate is calculated based on the declining balance and is substantially higher than the stated flat rate, thus the MRA’s dual restriction of 15 percent flat and 30 percent effective rates.
The chairman of the MRA, Dr Atiur Rahman, also serves as the Governor of Bangladesh Bank, the Central Bank of Bangladesh.
By Jennifer Shevock, Research Associate
About the Microfinance Regulatory Authority (Bangladesh)
The Microcredit Regulatory Authority monitors and supervises microfinance operations of non-government organizations in Bangladesh. It was created by the Government of Peoples’ Republic of Bangladesh under the “Microcredit Regulatory Authority Act”. The Authority’s responsibilities include licensing microfinance operations, ensuring license compliance and enforcing sanctions.
Sources and Additional Resources:
[1] “Lending rates for MFIs to be fixed soon” http://nation.ittefaq.com/issues/2010/08/06/news0589.htm
MICROCAPITAL BRIEF: “Government of Bangladesh to Limit Interest Rates for Microfinance Institutions (MFIs)” April 13, 2010. https://www.microcapital.org/microcapital-brief-government-of-bangladesh-to-limit-interest-rates-for-microfinance-institutions-mfis/#more-4660
MICROCAPITAL STORY: “Bangladesh Microcredit Regulatory Agency (MRA) Limits Interest Rates for Microfinance Institutions” May 6, 2009. https://www.microcapital.org/microcapital-story-bangladesh-microcredit-regulatory-agency-mra-limits-interest-rates-for-microfinance-institutions/
MicroCapital Universe: Microfinance Regulatory Authority: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microfinance+Regulatory+Authority
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