Microcredit: Prevent it from Collapse
Wednesday, March 16, 2011
Noted economists and analysts yesterday urged the critics of microcredit, including the government, not to underrate the contribution of microfinance institutions that help lift millions out of poverty.
Their calls came from a roundtable discussion on microcredit and poverty alleviation, organised by the country’s most-circulated national daily Prothom Alo at its office in Dhaka.
The sector that lends funds to more than two crore families across the country has been passing through one of its toughest periods in its history, as the critics continue to rap it for high interest rates and question its effectiveness in alleviating poverty. Besides, microcredit pioneer Prof Muhammad Yunus is continuing his fight in court against a government move to remove him from the Grameen Bank he founded three decades ago.
“Microcredit creates an opportunity to enable people to graduate out of extreme poverty,” said economist Prof Rehman Sobhan. “We should fix what would be our direction from here. This is a 30-year-old sector and a lot of significant changes have taken place.”
Sobhan said there is a large section of the population, who are willing to pay loans at the market interest rates, but nobody is lending them. “They are repaying, but the formal financial sector is not giving them credit.”
MA Baqui Khalily, a professor of finance at Dhaka University, said the MFI sector is going through a crisis. “We are scared, as the sector might collapse.” He said the government had never sat with the sector to discuss its achievements and set a course of action to create a long-term impact.
“The sector has employed more than two lakh people directly and has 77,000 branches across the country. We have to preserve this vast network and help it grow,” he said.
The analyst said the industry could reach a break-even point, if it charged a 23 percent interest rate. The industry has been running in an unregulated manner for long, he added. “Grameen Bank however is the most efficient MFI in Bangladesh.”