Yunus calls for microcredit rate cap

• Miscellaneous
• 22nd March 2010
• YC

Dhaka, March 17 (bdnews24.com)—Amid mounting criticism over interest rate, Grameen Bank founder Muhammad Yunus has admitted that microcredit interest should be standardised. "Tell us what the interest rate is, because people often say that it's high but don't know what the rate is," he told the closing session of a three-day conference in Dhaka titled 'Microfinance Regulations: Who Benefits?" on Wednesday. The microfinance pioneer's comment came two days after the finance minister spoke of complaints over high interest rate charged by micro-financing institutions (MFIs).

"There are many allegations against the microfinancing institutions including high interest rates that ensnare the borrowers in perpetual debt," AMA Muhith had said Monday at the opening session of the same conference. Yunus said that the basic contribution that the micro-credit regulatory authority (MRA) should make to the sector is "introducing a standardised interest rate" and defining the term micro-credit. "Many organisations take collateral against loans, some give loans to middle-income people, some even lend money to buy consumer items and say that it is micro-credit." He also said that insurance for the rural poor would be another avenue for the MFIs. Disaster and health insurances can be introduced for the rural population using "micro-credit as a platform", added Yunus. The 2006 Nobel peace prize winner said that the newest challenge for MFIs now is to cater the need of the second generation. "We have to now think about the children of the borrowers, how they can break out from the cycle of sickness, poverty and uncertainty." Touching on the issue of high interest rate, BRAC chairman Sir Fazle Hasan Abed told the audience that in the past MFIs were heavily funded by development partners. Now the scenario has changed and the high interest is charged for sustainability of the MFIs, he added. "The MRA can consider awarding banking licences to MFIs," said Abed and emphasised capacity building of the MRA. Mashiur Rahman, who advises the prime minister on economic affairs, echoed Younus that MFIs should be allowed in the other realms of financial service for the rural poor. "They [MFIs] know the rural scenario better." Rahman stressed minimising supervision costs of loans to slash the interest rate. Representatives of 20 countries participated in the conference organised by the MRA at the city's Sonargaon Hotel. Atiur Rahman, Bangladesh Bank governor, also the chairman of MRA, said recommendations like using the profit earned through microcredit for social development to minimise cost of supervision and spelling out the effective interest rate to borrowers and regulation of large MFIs by the central bank came from the conference.

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