12:00 AM, March 18, 2010 / LAST MODIFIED: 12:00 AM, March 18, 2010

Microfinance Institutions

Yunus calls for standardised interest rate

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Staff Correspondent

Nobel peace prize winner Prof Muhammad Yunus speaks at the concluding ceremony of an international conference on microcredit at Hotel Sonargaon in Dhaka yesterday. Photo: Star

Nobel Laureate Prof Muhammad Yunus yesterday called on the microcredit regulator to come up with standardised interest rates for microfinance institutions to clear suspicion and establish transparency.
"It's a sensitive point in Bangladesh and everywhere else. I think it will be a great service by the Microcredit Regulatory Authority if they can fix the interest rate," he said at the closing of an international conference on microcredit organised by MRA at Sonargaon Hotel.
Prime Minister's Adviser on Economic Affairs Mashiur Rahman and founder and Chairperson of BRAC Sir Fazle Hasan Abed also spoke at the programme attended by about 50 participants from 20 countries.
Yunus, the campaigner of microcredit, made the call as different quarters including policymakers, questioned transparency in interest rates charged by the microfinance institutions.
Despite MFIs' claims of charging 12-15 percent (flat) interest, there are criticisms that annual effective interest rate would be, according to an MRA publication, "at least double or more of this reported figure depending on the number of installments, grace period, other terms and conditions such as compulsory savings, upfront cut, processing fees, etc".
Yunus said it's good to tell everybody that this is the interest rate. "But to hide under many different ways would always generate tension, suspicion and so on."
"So this is one basic thing, I think, MRA's contribution would be to come up with the standardised interest rate," said the advocate of microloans, which is believed to be a tool of poverty alleviation.
Prof Yunus also put emphasis on transparency of the interest rate issue and placed a list of dos and don'ts for MRA.
The list includes giving a definition of microcredit to stop the use of "microcredit" by those he said are "loan sharks" and consumer goods sellers to sell their products.
The man with vision also came up with the idea of introducing insurance schemes into microfinance programme to protect the poor from disasters, and provide support to elderly poor women in helplessness.
Yunus also focused incorporating technologies such as mobile phone into microcredit sector to transfer money to the poor.
Another point, he shared, is how to make better the lives of the children of poor borrowers in freeing them from the old cycle of poverty, sickness and, above all, uncertainty.
"We can do that. We have the capacity nobody else has--as much capacity as microcredit has right now in changing the second generation. This is almost an exciting frontier that we have to work with."
He said Bangladesh being the most matured country in microfinance operations has a very special role to show the rest of the world about what it can do with microcredit.
"This is one area where Bangladesh is the leader of the world. So, that leadership role needs to be maintained not for the pride of it but for the sake of the people who are looking forward to receiving the services in other countries," he said.
Yunus said microcredit has to prove that it's a sound banking and there is nothing fishy about it.
"So this is the kind of challenge we all have to take… to strengthen it rather than the kind of creating confusion."
Sir Fazle Hasan Abed said microfinance has contributed to poverty alleviation in Bangladesh.
He also sought MRA intervention to recognise some large microfinance institutions with the microfinance banking licences.
"There is an opportunity to recognise large microfinance institutions as microfinance banks," he observed.

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