Historically, banks mainly served the wealthy, leaving small investors and farmers without access to financial resources. These individuals often had to rely on local moneylenders, or 'Mohajon,' who charged exorbitant interest rates and demanded steep collateral, frequently resulting in property loss. However, the advent of microfinance in the late 1970s marked the beginning of a significant shift towards greater financial inclusion.
According to the Microfinance in Bangladesh - Annual Statistics, 2024 report, microfinance institutions (MFIs) have significantly expanded their reach, now serving over 66.82 million clients, including 45.30 million borrowers. This growth highlights the increasing role of MFIs in providing financial services to populations underserved by traditional banks. The report also highlights the financial impact of MFIs, which have disbursed BDT 2493.02 billion to clients across the country. This substantial contribution supports economic growth, particularly in rural and underserved areas. Additionally, the sector's employment of 206,000 individuals further demonstrates its significant role in the national economy.
Beyond financial metrics, the report also focuses on the social benefits of microfinance, particularly in empowering women, small entrepreneurs, and farmers. By providing accessible credit and financial services, MFIs have enabled these groups to seize economic opportunities, improve their living conditions, and contribute to Bangladesh's broader development.
These institutions have not only addressed the challenges faced by the extremely poor but have also extended their services to the 'missing middle'—those who are often overlooked by traditional banks and MFIs. Today, MFIs employ 206,000 people and have disbursed an impressive BDT 2493.02 billion to clients across the country. This significant contribution plays a crucial role in GDP growth and promotes financial inclusion. What started as modest microcredit ventures has now become a driving force behind Bangladesh's economic development.
MFIs have extended their support to the most vulnerable members of society, such as farmers dreaming of abundant harvests and weavers possessing the skill but lacking the means to purchase materials. Microfinance became the catalyst for unlocking their potential, enabling them to create exquisite fabrics and sustain their families. As a result, markets have flourished with entrepreneurship, families have envisioned brighter futures, and Bangladesh's economic landscape has begun its transformation.
Recent student movements have brought to light and dismantled deep-seated governance failures, paving the way for the formation of an interim government led by Nobel Laureate Professor Muhammad Yunus. Renowned for his pioneering work in global microfinance and his advocacy for social business, Professor Yunus is now leading the nation's reconstruction with a renewed emphasis on resilience. Under his guidance, microfinance is poised to become an even more powerful tool, connecting millions of women, entrepreneurs, and farmers with technology. Imagine a network of tech-enhanced MFIs reaching every corner of Bangladesh, serving 66.82 million clients, including 45.30 million borrowers. Envision farmers accessing financial advice through mobile apps, young entrepreneurs applying for loans online, and entire communities rising from poverty. These figures represent more than mere statistics—they are real stories of transformation in progress.
The microfinance sector in Bangladesh faces significant challenges due to high borrowing costs and operational expenses. Microfinance Institutions (MFIs), which aim to provide financial services at relatively low rates, often rely on loans with higher interest rates, typically ranging from 13.5% to 14.5%. Additionally, these institutions are required to maintain collateral of around 10% to 20% at lower interest rates. This financial burden creates a crucial squeeze on their resources, limiting their ability to effectively serve the most vulnerable populations. Every cost saved in operations allows MFIs to reach more people and have a greater impact. Despite these challenges, Bangladesh's microfinance sector has a notable advantage in its comparatively low interest rates. Unlike many other countries, Bangladesh has managed to maintain significantly lower service charges in its microfinance operations. For instance, while some countries like Zambia and Ghana have service charges as high as 95% and 74% respectively, Bangladesh's microfinance service charge stands at a much lower rate of 24%, applied in a declining method with a yield of around 22%. This achievement is a testament to the success of past policies and regulations in fostering an inclusive financial environment.
The recent increase in borrowing costs and operational expenses, there is a growing need to revisit and possibly revise these service charges. Maintaining the balance between low service charges and the financial sustainability of MFIs is crucial to ensuring the continued success and expansion of microfinance in Bangladesh. As the sector navigates these financial challenges, it must continue to innovate and adapt to sustain its mission of providing financial services to those who need them the most.
The National Budget for 2024-2025 presents a crucial opportunity to bolster the microfinance sector in Bangladesh, which is vital for providing financial services to underserved communities, particularly in rural and remote regions. By introducing low-interest loan facilities through Bangladesh Bank, the budget can ease financial pressures on Microfinance Institutions (MFIs) and improve access to financial services, thereby promoting greater financial inclusion. Additionally, the budget should focus on adapting regulations that ensure the sustainability of MFIs, including legal protections in disaster-prone areas and investing in staff training to enhance their capabilities in microfinance and digital finance.
Prioritizing investments in digital infrastructure, particularly for mobile banking and online lending platforms, will empower MFIs to extend their reach to the most remote areas, thereby driving broader financial inclusion. Establishing contingency funds for MFIs to maintain services during natural disasters is also essential, ensuring the protection of both the institutions and their clients. By implementing these targeted measures, the National Budget can unlock the full potential of microfinance in Bangladesh, contributing to a more inclusive and resilient economy.
Collaborative projects between the public and private sectors can significantly enhance the resource mobilization and impact of MFIs. By fostering these partnerships, the budget can help create innovative solutions to the challenges faced by MFIs, amplifying their ability to serve the poor. Unlike traditional banks, MFIs face higher operational costs due to the nature of their work, which involves delivering a wide range of small and medium loans directly to borrowers and providing continuous support to ensure the effective use of funds. With rising inflation and operational expenses, the growth potential of MFIs is increasingly constrained. By addressing these key areas, the National Budget for 2024-2025 can play a crucial role in empowering MFIs, ensuring their sustainability, and enhancing their capacity to drive financial inclusion and economic growth in Bangladesh.
Microfinance Institutions (MFIs) in Bangladesh currently have lower service charges compared to their regional counterparts. However, a modest and carefully designed increase in these charges could help MFIs manage their operational costs more effectively without severely affecting the affordability of loans for borrowers. Such a balance is essential to maintain the financial stability of MFIs while ensuring they continue to support those most in need.
Adjusting service charges is a crucial measure for building a more sustainable and impactful microfinance sector in Bangladesh. This change could enable MFIs to invest in technological advancements, such as digital platforms, which would improve operational efficiency and extend their reach to remote and underserved areas. Additionally, with more resources, MFIs could diversify their financial products to better meet the needs of various client segments, thereby enhancing their service offerings. By revising service charges, MFIs could significantly boost financial inclusion, reaching a wider population, particularly those excluded from traditional banking services. This increased accessibility would empower communities, drive economic growth, reduce poverty, and promote social equity. Ensuring the long-term sustainability of the MFI sector is vital for effective poverty alleviation and economic empowerment, contributing to a more resilient and inclusive economy in Bangladesh.
Support from influential figures like Professor Muhammad Yunus and the interim government is vital in shaping policies that sustain and enhance MFIs' capacity to serve the nation. This collaboration, focused on financial inclusion and the use of technology, aligns with the broader vision of rebuilding the economy from within, where MFIs play a key role in uplifting society. By empowering individuals with the necessary tools and resources, this strategy can transform lives and drive prosperity across Bangladesh. The combined efforts of MFIs, government leaders, and stakeholders will be essential in achieving a future where the benefits of economic growth and financial inclusion reach every citizen.
Adjusting service charges in the microfinance sector is essential for creating a more sustainable and efficient MFI ecosystem in Bangladesh. Improving services, broadening financial inclusion, and ensuring the lasting impact of these institutions will enable Bangladesh to continue harnessing microfinance as a tool for economic empowerment and social development. With appropriate support and policies, MFIs can significantly contribute to building a more inclusive and prosperous future for everyone.
Author : Executive Director, POPI and Chairman, Credit Development Forum and Columist.
.png "Halim-&-Firni")
