Though microfinance institutions (MFIs) have created opportunities for millions of near poor and poor people by providing them with basic financial services and offering social benefits such as increasing women mobility, they are under attack due to high interest rate on loans and mistreating clients by MFIs’ field level staff. Under this circumstance, to stop the downturn trend of MFIs in Bangladesh speakers emphasised on greater transparency for MFIs in a dialogue on Microfinance for Poverty Alleviation: What’s Right & What’s Wrong, organised by the CPD at CIRDAP Auditorium, Dhaka on 26 July 2011.
David Hulme, Professor of Development Studies and Head of the Institute for Development Policy and Management at the University of Manchester, UK presented the keynote paper at the dialogue titled What’s Wrong and Right with Microfinance: Missing an Angle on Responsible Finance? Dr Atiur Rahman, Governor, Bangladesh Bank and Dr Qazi Kholiquzzaman Ahmad, Chairman, PKSF were present as the Chief Guest and Guest of Honour respectively at the session which was chaired by Ms Khushi Kabir, Member, CPD Board of Trustees and Coordinator, Nijera Kori. Professor M A Baqui Khalily, Department of Finance, University of Dhaka and Professor Syed M Hashemi, Executive Director, BRAC Development Institute, BRAC University were the Designated Discussants at the dialogue.
In his presentation, Professor Hulme labeled the claims of MFIs and their leaders that they reach the ‘poorest of the poor’ and all loans are taken for investment in microenterprises as ‘nonsense’. He underlined that MFIs generally reach a combination of poor and non-poor people and the loans are used for many different purposes such as microenterprise, education, health expenses, repaying debt, on-lending, wedding celebrations and even dowry. According to him, second on the list of ‘what’s wrong with microfinance’ is the allegation that MFI field staffs treat clients badly. They encourage clients to take on bigger loans, but if the debtors miss repayment schedule, they disgrace clients in public and threats them psychologically and physically. These events have led to many ‘microfinance suicides’. It is clear that MFIs put pressure on the field staff to achieve financial targets and ignore their social performance. Another allegation is that MFI interest rates on loans (Grameen Bank charged about 22 per cent per annum) are too high for poor people to pay. Professor Hulme mentioned that though these rates sound quite high in South Asia, but are quite similar to the credit card rates and significantly lower than MFI loan rates in Southeast Asia, Africa and Latin America where rates of 50 per cent to 120 per cent are common.
He also pointed out ‘what’s right about microfinance’. Apart from increasing opportunities for the poor to have basic financial service-loans, savings and insurance, MFIs also offer micro savings products. Central banks, however, do not allow MFIs to offer savings products as there is a risk of fraudulency. Finally, MFI’s activities have also endowed the economy with some social benefits. South Asia’s MFIs have focused on female clients and after joining MFI, women have become more independent and physically mobile.
The speaker finally suggested that the MFIs and their leaders need to be more honest and more humble about their products and their impacts. MFIs need to be much more transparent about their charges, terms and conditions _ putting them on the door of all branches in an easy to understand form or print them in the borrowers’ passbook. MFIs need to review the ways to asses the field staff performance. It is important for the staff to understand that the quality of their relationships with clients is as important as achieving financial targets. He also asked for changes in the agencies that regulate MFIs.
Speaking as the Chief Guest, Dr Atiur Rahman stated that the relatively higher interest rates and charges of MFIs have attracted criticism, albeit more from populist political authorities than from actual borrowers. Regulators and government authorities can however encourage and support MFIs in minimising supervision costs, as much as possible, adopting remote loan delivery and recovery mechanisms in partnership with mobile phone companies and IT platforms offering card-based financial service delivery, he commented. He appreciated that the present government has published the Microcredit Regulatory Authority Guidelines, 2010 as the gazette to augment the pace of regulation and supervision of the MFIs. He opined that authorities should use anti-money laundering regulations to check anomalies in the microfinance sector. The country’s microfinance institutions should go beyond their financial services and adopt more human and social visions for the greater benefit of society, he added.
Dr Qazi Kholiquzzaman Ahmad observed that although MFIs have created huge jobs within themselves, the question such as what is the borrowers’ employment status, and how long will the borrowers remain borrowers, need to be answered. Otherwise, the MFIs cannot be sustainable, and the impact cannot be measured, he commented. He also stated that there are many MFIs who are charging 40-60 per cent interest, which needs to be addressed as well.
Professor Hashemi commented that MFIs should not be looked at as a financial tool only. He noted that both academics and politicians have labeled MFIs as blood-suckers, without understanding the financial lives of the poor. It is quite difficult for the banks to operate in the rural areas with such a low interest rate, he added.
Professor Khalily stated that MFIs have to be efficient and competitive to survive. He ruled out the claims that microloans are used for unintended purposes. He noted that at least two-thirds of the loans are used to expand economic activities. He urged the government to sit with the MFIs regularly to sort out differences and fix anomalies.
Among the dialogue participants, Dr M Osman Farruk, Former Education Minister remarked that there is no scope to brand MFIs as blood-suckers when the break even is 23 per cent. Mr Hasanul Haque Inu, MP, Chairman, Parliamentary Standing Committee on Ministry of Posts and Telecommunication urged the political and social activists not to say ‘no’ to microcredit, rather all concerned authorities should work together to enhance the performance and effectiveness of MFIs, he added.