Global microscope on the microfinance business environment 2012

25
East and South Asia
■ Bangladesh
Key characteristics of the microfi nance business
environment:
l The Microcredit Regulatory Authority (MRA)
regulates NGO-MFIs registered under fi ve different
laws. Although the MRA Act also covers cooperatives,
it has not sought to include these
within its purview. Banks are regulated by
Bangladesh Bank (the central bank). Grameen
Bank, the country’s largest MFI, is regulated by a
separate law, which established the Grameen Bank
Project as a specialised bank in 1983.
l The MRA licenses NGO-MFIs. In January 2011, it
issued a detailed set of regulations for the
operation of microcredit. Bangladesh does not
have a public policy on microfi nance. There is an
interest rate cap of 27% (on a declining balance
basis) that can be charged on micro-credit loans.
l Microfi nance is well established and the market
continues to grow despite exceptionally high
market penetration. Bangladesh is home to three
of the world’s largest providers of MF—Grameen
Bank, BRAC and ASA. The top ten MFIs account for
nearly 90% of total savings and more than fourfi
fths of total loans.
l Apart from Grameen Bank, under current
regulations MFIs cannot mobilise public deposits.
This splits the market three ways: Grameen Bank
(which has more savers than borrowers);
microfi nance providers such as BRAC and ASA,
which depend heavily on fi nance from commercial
banks; and MFIs that depend on loans from the
donor-backed wholesale lender PKSF.
l The lack of effective credit bureaus and a ban on
deposit-taking by MFIs has restricted growth of the
sector. At the same time, a high unmet demand for
savings in rural areas persists. This has led to the
emergence of fl y-by-night unregulated illegal
savings institutions. Both the MRA and the
government have recently stepped up efforts to
curb these illegal institutions.
© The Economist Intelligence Unit Limited 2012
<strong>Global</strong> <strong>microscope</strong> on the microfi nance business environment 2012
Key changes and impacts since last year:
l The battle between the government and
Grameen Bank, the institution founded by
microcredit pioneer Muhammad Yunus, was still
ongoing in mid-2012. Without apparent legal
basis, the government has blocked the Grameen
board’s decision to allow Mr Yunus to head a
committee to fi nd his successor. All of this
continues to raise questions about the
government’s attitude towards the entire sector.
However, the fall-out for borrowers has been
minimal and Grameen appears to be operating
normally. Sector participants, however, fear
further government interference. For instance, it
plans to tighten registration criteria for NGOs.
l There have not been any regulatory changes
since the Microcredit Regulatory Authority
published a full body of legislation in January
2011. An interest rate cap of 27% has remained in
place. The cap and general cost pressures in a highinfl
ation environment have forced MFIs to take
steps to become more effi cient and improve the
quality of their portfolio. Many MFIs have done so
by increasing their loan size, a development that
practitioners say threatens to reduce fi nancial
access of the poor.
l In the fi rst quarter of 2012, the MRA has
cancelled a dozen MFI licences ostensibly because
of fi nancial malpractices. The government is also
seeking to empower the MRA to appoint
administrators to troubled MFIs. The move is partly
motivated by the regulator’s desire to improve
governance practices, but it is mainly driven by the
Ministry of Finance’s general concern that money
channelled through NGO-MFIs may be used for
illegitimate purposes.
l In September 2011, Bangladesh Bank published
guidelines on mobile fi nancial services for banks.
The guidelines establish a regulatory framework for
mobile fi nancial services. Under the new rules,
microfi nance payments are one of many services
that the central bank may allow. In practice, no MFI
has been allowed to offer money-transfer services
through mobile phones.
l Poor price transparency is not a major issue in
Bangladesh. Providers of microfi nance are obliged