Bangladesh Bank, the country’s central bank, recently reported that the volume of non-performing loans (NPLs) in the domestic microcredit industry rose from BDT 45 billion (USD 412 million) in the fiscal year ending March 2021 (FY21) to BDT 84 billion (USD 762 million) in FY22. During the same period, the ratio of NPLs to total loans in the sector increased from 4.8 percent to 6.7 percent, continuing a trend of increasing NPLs reaching back to FY18, when the ratio reached a low of 2.7 percent. Bangladesh Bank also reported a decrease between the last two fiscal years in the average return on assets of microfinance institutions (MFIs) from 5.0 percent to 2.9 percent.
However, the sector also experienced “a decreasing trend in donation-to-equity ratio (dependency ratio)… indicat[ing] that strong improvement in self-sustainability has been prevailing in the sector since FY18.” Furthermore, the NPL ratio in the microfinance sector remained less than the gross NPL for the banking sector, which increased to 8.2 percent as of December 2022. The Bangladesh Bank report cautioned that “though the ratio of the MFI sector is a little bit lower compared to the banking sector… it has been increasing at a faster rate during the last few years, especially in FY22, which requires special attention for a stable and sound microfinance sector.”
With the goal of minimizing NPLs, the Credit Information Bureau, a department of Bangladesh Bank, is partnering with the country’s Microcredit Regulatory Authority to launch a credit bureau to serve microlenders.
By James Stevenson, Research Associate
Additional Resources
Bangladesh Bank 2022 Financial Stability Report
https://www.bb.org.bd//pub/annual/fsr/financial_stability_report_2022_en.pdf
Bangladesh Bank homepage
https://www.bb.org.bd/
CIB webpage
https://www.bb.org.bd/en/index.php/about/deptdtl/11
MRA homepage
https://mra.gov.bd/
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