Micro-credit has revolutionised our socio economic sector and it has received global recognition too. It empowered impoverished to come forward and participate in economic activities. Bangladesh won a Nobel peace prize too for the micro-credit model.
Then there is the flip side. While the Non-Government Organisations (NGO) involved in micro-credit programmes flourished, the borrowers were perhaps not benefitted in that proportion. The lending institutions would take 30 to 40 per cent interest on the loans. There were no fixed rules either. A Micro Credit Regularity Authority (MRA) was formed in 2006 to ensure transparency among the micro lending institutions. The high rates of micro credit were hugely criticised at home and abroad. Then the government fixed the interest ceiling at 27 per cent in 2010. It was said that gradually the rates would be decreased further, but nothing has been done about this over the last 10 years.
The government has decided to decrease interest rates on micro-credit provided by the NGOs by 3 per cent in order to fulfill the Sustainable Development Goals (SDG). The finance ministry approved the interest rates at 24 per cent after an MRA director board meeting introduced recommendations on 19 June. According to the MRA annual report, 699 micro-credit institutions issued Tk 1.04578 trillion (Tk 104,578 crore) in loans till June 2017. The amount of loans turned Tk 1.4 trillion (140,000 crore) last December. BRAC and ASA have more than 1,000,000 clients combined while 26 credit institutions have clients between 100,000 to one million.
The Palli Karma Sahayak Foundation (PKSF) is the main source of funding for micro-credit. The NGOs receive loans from PKSF on only 4-6 per cent interest. So the rate of interest for micro credit should not exceed 20 per cent. There was an argument that the micro-creditors had to go to the clients, while clients go to the banks in conventional banking system. However, with improvements in the information and communication systems over the last two decades, credit institution costs have decreased significantly. So they can definitely decrease the rate of interest more.
The decision to decrease the rate of interest for micro-credit is commendable. Interest has increased in the banking systems too. The apprehensions by several quarters that the decision would affect the lending organisations are baseless. No organisation has ever turned bankrupt because of interest rates. The wealth of the lending organisations rather increased gradually. Many NGO executives ride flashy cars while the poor clients are entangled in debts. They take loans from one organisations to repay another. There's no alternative but to decrease the rate of interest to free the poor clients from the debt cycle. The government must strengthen its supervision to ensure that all the micro-credit organisations abide by the decision to decrease the rate of interest. A new usury system is not acceptable in the name of micro-credit. The micro-credit organisations must become friends of poor in the true sense.